U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1998
[ ] 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
---- ----
<PAGE>
Item 1. FINANCIAL STATEMENTS
--------------------
THE FIRST CONNECTICUT CAPITAL CORPORATION
- - - - - - - - - - - - - - -----------------------------------------
BALANCE SHEET, DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- - - - - - - - - - - - - - ----------------------------------------------------------
(UNAUDITED)
- - - - - - - - - - - - - - -----------
<TABLE>
ASSETS
- - - - - - - - - - - - - - ------
Investments:
<S> <C>
Loans - net $638
-----------
Investments-net 638
-----------
Cash and cash equivalents 276
Restricted cash 50
Loans held for sale 485
Partnership loans 15
Accrued interest 31
Servicing rights 14
Fixed assets 27
Note receivable 379
Other assets 47
-----------
TOTAL ASSETS $1,962
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - - - - - - - - - - - - - ------------------------------------
LIABILITIES:
Accounts payable and other accrued expenses 331
-----------
TOTAL LIABILITIES 331
-----------
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
Paid-in surplus 9,253
Accumulated deficit (8,209)
-----------
TOTAL STOCKHOLDERS' EQUITY 1,631
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,962
===========
</TABLE>
See notes to financial statements.
2
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
- - - - - - - - - - - - - - -----------------------------------------
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- - - - - - - - - - - - - - ----------------------------------------------------------
(UNAUDITED)
- - - - - - - - - - - - - - -----------
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Dec. 31,1998 Dec. 31,1998 Dec. 31,1997 Dec. 31,1997
------------ ------------ ------------ ------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans .............. $ 27 $ 100 $ 23 $ 74
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest expense ........................ 2 4 -- --
RECOVERY OF INVESTMENT LOSSES ........... 183 243 0 49
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
RECOVERY OF INVESTMENT LOSSES ........ 208 339 23 123
----------- ----------- ----------- -----------
OTHER OPERATING INCOME:
Servicing fees .......................... 28 81 27 101
Loan Origination fees ................... 37 158 60 111
Other fees .............................. 1 21 10 13
----------- ----------- ----------- -----------
Total Other Operating Income ........ 66 260 97 225
----------- ----------- ----------- -----------
TOTAL INCOME ............................ 274 599 120 348
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Collection expenses ..................... 1 2 1 0
Officers' salaries ...................... 34 99 26 103
Other salaries .......................... 10 27 19 28
Directors' fees ......................... 1 5 0 9
Professional services ................... 15 32 5 24
Miscellaneous taxes ..................... 4 12 3 15
Employee and general insurance .......... 12 29 7 24
Loss on note receivable ................. 0 0 44 54
Rent .................................... 9 22 8 22
Communications .......................... 3 8 2 8
Advertising and promotions .............. 1 2 1 4
Stock record and other financial expenses 1 4 0 3
Employees' pension plan ................. 0 0 5 7
Depreciation expense .................... 2 6 4 11
Other operating expenses ................ 12 49 15 41
----------- ----------- ----------- -----------
Total Other Operating Expenses ...... 105 297 140 353
----------- ----------- ----------- -----------
NET INCOME (LOSS) ....................... $ 169 $ 302 $ (20) $ (5)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE
(BASIC AND DILUTED) ................ $ 0.14 $ 0.26 ($ 0.02) ($ 0.00)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
(Basic and Diluted) ................... 1,173,382 1,173,382 1,173,382 1,173,382
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
- - - - - - - - - - - - - - -----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- - - - - - - - - - - - - - ---------------------------------------------------------
(UNAUDITED)
- - - - - - - - - - - - - - -----------
<TABLE>
<CAPTION>
Common Stock Total
Number Of Paid-In Accumulated Stockholders'
Shares Amount Surplus Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31,1997 1,173,382 $ 587 $ 9,253 ($ 8,794) $ 1,046
Net Loss -- -- -- (5) (5)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31,1997 1,173,382 $ 587 $ 9,253 ($ 8,799) $ 1,041
========== ========== ========== ========== ==========
BALANCE, MARCH 31,1998 1,173,382 $ 587 $ 9,253 ($ 8,511) $ 1,329
Net Income -- -- -- 302 302
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 1,173,382 $ 587 $ 9,253 ($ 8,209) $ 1,631
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
- - - - - - - - - - - - - - -----------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
- - - - - - - - - - - - - - ----------------------
(UNAUDITED)
- - - - - - - - - - - - - - -----------
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Dec 31, 1998 Dec 31, 1997
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 302 ($ 5)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on note receivable 0 54
Recovery of investment losses (243) (49)
Depreciation 6 11
Decrease in servicing rights 0 311
Amortization of discount on note receivable (19) 0
Decrease (Increase) on note receivable 90 (471)
Origination of loans held for sale (6,508) (4,979)
Proceeds from sale of loans held for sale 6,117 5,198
Decrease in Partnership loans 76 0
(Increase) Decrease in accrued interest receivable (10) 8
(Increase) Decrease in other assets (12) 216
Increase in accounts payable / other accrued expenses 189 151
Increase in restricted cash (1) (234)
------- -------
Net cash (used in) provided by operating activities (13) 211
INVESTING ACTIVITIES
Principal collected on investments 71 71
Loss on disposal of fixed assets 4 0
------- -------
Net cash provided by investing activities 75 71
------- -------
FINANCING ACTIVITIES
Decrease in warehouse line of credit 0 (317)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62 (35)
CASH AND CASH EQUIVALENTS, BEGINNING 214 211
------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 276 $ 176
======= =======
</TABLE>
See notes to financial statements.
5
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of The First
Connecticut Capital Corporation (the "Corporation"), formerly known as The First
Connecticut Small Business Investment Company, have been prepared in accordance
with generally accepted accounting principles 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 footnotes required
by generally accepted accounting principles 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, 1999. For further information, refer to
the financial statements and footnotes thereto included in the Corporation's
annual report filed on Form 10-KSB for the year ended March 31, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Corporation is currently licensed in the States of Connecticut and
Massachusetts to operate as Mortgage Lender/Broker.
The Corporation had net income of $302,000 and a net loss of $5,000 for
the nine months ended December 31, 1998 and 1997, respectively.
INTEREST INCOME AND OTHER OPERATING INCOME
- - - - - - - - - - - - - - ------------------------------------------
Interest and fees on loans increased $26,000 for the nine months ended
December 31, 1998, as compared to the nine months ended December 31, 1997. This
increase is the result of interest collected on Partnership loans and Loans held
for sale.
Loan origination fees increased $47,000 for the nine months ended
December 31, 1998, as compared with the comparable period of the prior year.
This increase was due to an increase in the number and dollar amount of mortgage
loans originated and funded by the Corporation. Management attributes the
increase to its successful marketing of its knowledge of construction lending,
its ability to service loan demand from homebuilders and the favorable general
climate for the construction industry.
Servicing fees declined by $20,000 for the nine months ended December
31, 1998, as compared to the same period in the prior year. This decline is due
to the continued reduction and liquidation of the portfolio sold under the Loan
and Real Property Purchase Agreement dated June 29, 1993 (and amended on October
29, 1993). Servicing fees, generated by this portfolio will continue to decline
as the portfolio continues to be liquidated in accordance with such Loan and
Real Property Purchase Agreement. However, management feels this decline will be
off set by the increase in the servicing fees earned on its short-term
construction and remodeling mortgages loans and the Limited Partnership
portfolios.
6
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
OTHER OPERATING EXPENSE
- - - - - - - - - - - - - - -----------------------
Total other operating expenses declined $56,000 during the nine months
ended December 31, 1998, as compared to the comparable period of the prior year.
This change is due to a decrease in director's fees and the employees pension
plan, and is offset by the increase in professional fees and the issuance of
Directors and Officers Liability insurance policy. This change is also due to a
non-recurring loss on a note receivable received by the Corporation in
satisfaction of the termination of an Asset Management and Loan Servicing
Agreement. Management believes that significant further reduction of other
operating expenses will be difficult to achieve, based on the already extensive
reductions that have already been effected.
RECOVERY OF INVESTMENT LOSSES
- - - - - - - - - - - - - - -----------------------------
The Corporation recorded a recovery of investment losses for the nine
months ended December 31, 1998 and 1997 of $243,000 and $49,000, respectively.
On January 26, 1999 an existing portfolio loan dated July 31, 1986 in the
original amount of $500,000 was recast. The Modification and Extension Agreement
includes additional collateral in the form of a first mortgage position on
adjacent real estate as well as an assignment of lease from the tenant occupying
this additional parcel. The additional collateral further solidifies the
Corporation's original security and eliminates the need for a reserve on this
loan. Therefore, a recovery of $183,000 was recorded during the quarter ended
December 31, 1998 reflecting the reversal of the reserve on this loan. The
Corporation also recorded recoveries of $60,000 and $49,000 during the nine
months ended December 31, 1998 and 1997, respectively resulting from the
reversal of excess reserves on loans liquidated during the period.
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 properties and other real estate. These loans are predominately
secured by first mortgage liens on residential properties and are sold to
qualified investors, with origination and servicing fees retained by the
Corporation. The Corporation's revenues consist of loan servicing fees, loan
origination fees, interest on mortgage loans held prior to sale and mortgage
servicing rights. Since January 1996, the Corporation has expanded its Portfolio
Loan Program to include short-term mortgages for construction, remodeling and
additions, and such short-term mortgages presently constitute and are expected
to continue to constitute a significant portion of the Corporation's loan
portfolio.
It is anticipated that based on the favorable climate in the
construction industry in Connecticut, the Corporation will continue to increase
its level of activities in these areas, thus generating additional servicing
fees and interest income. Management is cognizant that home construction is
seasonal in nature, and loan originations, as expected, were lower in the third
quarter. The level of activity is expected to improve with the approach of the
spring market.
7
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
As of December 31, 1998, the Corporation had approximately $276,000 of
unrestricted cash and cash equivalents and approximately $1.631 million of
Stockholders' Equity.
The Corporation currently anticipates that during the fiscal year
ending March 31, 1999, its principal financing needs will consist of funding its
mortgage loans held for sale and 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. If construction loan demand continues to increase, the Corporation
will require additional cash to service those requirements. The Corporation
continues to investigate and pursue alternative and supplementary methods to
finance its operations and to support this anticipated growth. Management is
currently negotiating a credit facility up to $1,000,000 with a major regional
bank, which will greatly assist the Corporation in meeting its loan demand.
Hopefully, this is the first step in establishing a conventional banking
relationship that will continue to grow and thus enabling the Corporation to
increase its volume of business.
The Corporation believes that cash on hand, internally generated funds
and the new credit facility will be sufficient to meet its corporate, general
and administrative working capital and other cash requirements during the fiscal
year ending March 31, 1999.
LIMITED PARTNERSHIP
- - - - - - - - - - - - - - -------------------
On March 21, 1997, the Corporation formed a Limited Partnership known
as First Connecticut Capital Mortgage Fund A, Limited Partnership (the
"Partnership"), of which the Corporation is the general partner. The Partnership
sells units to investors, thus providing a significant portion of the
Corporation's short-term Portfolio Loan Program. The limited partners must be
investors who qualify as "Accredited Investors" as defined in Regulation D,
promulgated under the Securities Act of 1933.
The short-term Portfolio Loan Program generates income to the Corporation by
enabling the Corporation to fund loans, which bear a greater rate of return than
the return paid to the Limited Partners. As of December 31, 1998 the Corporation
sold 71 units, of which 18 units were sold during the quarter ended December 31,
1998, generating $900,000 of funds for lending activities during the quarter
ended December 31,1998.
8
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
PART II. OTHER INFORMATION
YEAR 2000 READINESS
- - - - - - - - - - - - - - -------------------
The Corporation has taken action to understand the nature and extent of
the work required to make its computer-based systems that interface with
vendors, customers and others ready for the Year 2000. The Corporation has
received assurance from vendors that its software is year 2000 compliant and
year 2000 issues are not expected to have a material impact on the Corporations'
future condition or operations. The Corporations contingency plan involves the
use of a manual system that runs dual with the automated system and replacement
or repair of the problem software. As of December 31, 1998, the Corporation has
expensed approximately $2,000 on costs with Year 2000 issues, and the
Corporation expects to incur additional expenses of $3,000 to $5,000 in 1999.
ANNUAL MEETING OF STOCKHOLDERS
- - - - - - - - - - - - - - ------------------------------
The Corporation held an Annual Meeting of Stockholders on October 20,
1998. The meeting was held to elect six Directors for the ensuing year, ratify
the appointment of the firm of Deloitte & Touche, LLP as auditors of the
Corporation and to conduct any other business that may properly come before the
meeting. At the meeting, the Shareholders elected four new Directors, Jan E.
Cohen, Thomas D'Addario, Ronald Farrell and Michael L. Goldman, who will serve
with David Engelson and Lawrence R. Yurdin, who have been Directors since 1960
and 1986, respectively. Shareholders with an aggregate of 915,131 shares,
representing 78% of the issued and outstanding voting stock of the Corporation
as of August 24, 1998, voted at the meeting.
The Corporation feels that this newly elected board possesses expertise
and backgrounds in fields related to the Corporation's primary business, which
will be instrumental in assisting the Corporation to meet the challenges of
increasing its demand for loans and securing additional sources of funding.
Item 6. Exhibits and Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
THE FIRST CONNECTICUT CAPITAL
CORPORATION
(Registrant)
Date: February __________, 1999 By:_________________________________
Lawrence R. Yurdin
President
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 326
<SECURITIES> 0
<RECEIVABLES> 1,667
<ALLOWANCES> (57)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 237
<DEPRECIATION> (210)
<TOTAL-ASSETS> 1,962
<CURRENT-LIABILITIES> 331
<BONDS> 0
0
0
<COMMON> 587
<OTHER-SE> 1,044
<TOTAL-LIABILITY-AND-EQUITY> 1,962
<SALES> 599
<TOTAL-REVENUES> 599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 302
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
