EXHIBIT 13
THE FIRST CONNECTICUT CAPITAL CORPORATION
Financial Statements as of and for the Years Ended March 31, 2000 and
1999 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 2000 and 1999 and the related
statements of income, 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Hartford, CT
May 26, 2000
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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BALANCE SHEETS, MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 2000 1999
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 327 $ 385
Restricted cash 42 53
Loans - net of allowance for loan losses of
$45 in 2000 and $89 in 1999 2,346 663
Loans held for sale 559 294
Partnership loans -- 30
Accrued interest receivable 6 10
Note receivable, net -- 357
Servicing rights 140 79
Fixed assets 16 22
Deferred income taxes 554 421
Other assets 44 55
------- -------
TOTAL ASSETS $ 4,034 $ 2,369
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Line of credit $ 1,718 $ --
Accounts payable and other accrued expenses 45 232
------- -------
TOTAL LIABILITIES 1,763 232
------- -------
Commitments and contingencies (Note 8 and 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
Additional paid in capital 9,253 9,253
Accumulated deficit (7,569) (7,703)
------- -------
TOTAL STOCKHOLDERS' EQUITY 2,271 2,137
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,034 $ 2,369
======= =======
See notes to financial statements.
2
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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STATEMENTS OF INCOME YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2000 1999
---- ----
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $ 509 $ 328
----------- -----------
INTEREST EXPENSE:
Interest expense on line of credit 91 --
Other interest expense 19 9
----------- -----------
TOTAL INTEREST EXPENSE 110 9
NET INTEREST INCOME 399 319
REDUCTION OF ALLOWANCE FOR LOANS 44 261
----------- -----------
NET INTEREST INCOME AFTER
REDUCTION OF ALLOWANCE FOR LOANS 443 580
----------- -----------
OTHER OPERATING INCOME:
Servicing fees 246 122
Net gains on sales of loans held for sale 140 79
Other fees 36 34
----------- -----------
Total other operating income 422 235
----------- -----------
TOTAL INCOME 865 815
----------- -----------
OTHER OPERATING EXPENSES:
Officers' salaries 148 131
Other salaries 37 36
Directors' fees 3 5
Professional services 63 48
Miscellaneous taxes 22 16
Employee and general insurance 39 37
Note receivable loss and other losses 326 --
Loss on disposal of fixed assets 2 14
Rent 32 31
Amortization of servicing rights 79 14
Corporate insurance expenses 20 12
Licenses, dues and subscriptions expenses 7 7
Communications 11 11
Advertising and promotions 5 2
Stock record and other financial expenses 16 5
Depreciation 9 11
Equipment and auto rental 13 6
Postage expenses 5 7
Office supplies 7 7
Other 20 25
----------- -----------
Total other operating expenses 864 425
----------- -----------
INCOME BEFORE INCOME TAXES 1 390
INCOME TAX BENEFIT (133) (418)
----------- -----------
NET INCOME $ 134 $ 808
=========== ===========
INCOME PER COMMON SHARE (BASIC AND DILUTED) $ 0.11 $ 0.69
=========== ===========
Weighted average number of
common shares outstanding (basic and diluted) 1,173,382 1,173,382
=========== ===========
See notes to financial statements.
3
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
------------ TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SURPLUS DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1,1998 1,173,382 $587 $9,253 ($8,511) $1,329
Net Income -- -- -- 808 808
-------------- ---------- ------------ ---------------- ---------------
BALANCE, March 31,1999 1,173,382 587 9,253 (7,703) 2,137
Net Income -- -- -- 134 134
-------------- ---------- ------------ ---------------- ---------------
BALANCE, March 31, 2000 1,173,382 $587 $9,253 ($7,569) $2,271
============== ========== ============ ================ ===============
See notes to financial statements.
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4
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<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
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STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
2000 1999
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 134 $ 808
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred taxes (139) (421)
Loss on disposal of fixed assets 2 14
Note receivable loss and other losses 326 --
Net gain on sales of loans held for sale (140) (79)
Reduction of allowance for loan losses (44) (261)
Depreciation 9 11
Amortization of servicing rights 79 14
Interest accretion on note receivable (15) (27)
Origination of loans held for sale (12,182) (8,146)
Proceeds from sales of loans held for sale 11,917 7,946
Decrease in accrued interest receivable 4 11
Decrease (increase) in other assets 11 (20)
(Decrease) increase in accounts payable and other accrued expenses (187) 90
Decrease (increase) in restricted cash 11 (4)
-------- --------
Net cash used in operating activities (214) (64)
-------- --------
INVESTING ACTIVITIES
Originations of loans (1,718) (506)
Principal collected on loans 79 570
Proceeds from sale of fixed assets 1 3
Purchases of fixed assets (4) (13)
-------- --------
Net cash (used in) provided by investing activities (1,642) 54
-------- --------
FINANCING ACTIVITIES
Increase in line of credit borrowings 1,718 --
Principal collected on note receivable 50 120
Decrease in Partnership loans 30 61
-------- --------
Net cash provided by financing activities 1,798 181
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (58) 171
CASH AND CASH EQUIVALENTS, BEGINNING 385 214
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 327 $ 385
======== ========
See notes to financial statements.
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5
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. 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. Outstanding loans
are payable in a variety of methods over a term generally not exceeding
one year, 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. In
connection with most loans, the borrower also pays a nonrefundable fee
to the Corporation. Loans are generally placed on nonaccrual status
when they become 180 days past due or earlier, if the loan is
considered impaired. 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 LOAN LOSSES - 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 uncollectible, 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.
CONCENTRATION OF CREDIT RISKS - The nature of the Corporation's
business is to fund and service mortgages to qualified borrowers within
the northeastern United States, and more localized in the state of
Connecticut where management has the most experience. The mortgage
loans are predominately collateralized with residential properties;
however, there are a few smaller commercial properties as well as some
vacant land. The Corporation maintains a strict real estate appraisal
policy as well as underwriting guidelines.
6
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THE FIRST CONNECTICUT CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CASH AND CASH EQUIVALENTS - 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.
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.
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
MORTGAGE SERVICING RIGHTS - The Corporation recorded an asset related
to servicing of loans. This asset is affected by the predominant risk
characteristics of the underlying 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 risks 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. No valuation allowance was
recorded at March 31, 2000 and 1999, based on the characteristics of
the underlying financial assets.
INCOME PER COMMON SHARE - Basic earning per share ("EPS") is based on
the weighted average number of common shares outstanding for the
period, excluding the effects of any potentially dilutive securities.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted. Net income per share is calculated by dividing net income by
the weighted average number of common shares outstanding during the
period.
7
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THE FIRST CONNECTICUT CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
STOCK OPTIONS - As allowed by Financial Accounting Standard No. 123,
the Corporation accounts for stock-based compensation using the
intrinsic value method under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees."
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 significantly
from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS - In 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended in June 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those assets and
liabilities at fair value. This statement is effective for the fiscal
years beginning after June 15, 2000. Management does not believe that
adoption of this standard will significantly impact the Corporation's
financial statements.
RECLASSIFICATIONS - Certain amounts in the 1999 financial statements
have been reclassified to conform to the 2000 presentation.
2. PARTNERSHIP
On March 21, 1997, the Corporation formed a Limited Partnership (the
"Limited Partnership") known as First Connecticut Capital Mortgage Fund
A, Limited Partnership of which the Corporation is the General Partner.
The purpose of this entity is to sell units in the Limited Partnership
to investors in a private placement, up to a maximum of $5,000 in $50
units, for the purpose of funding a short-term Portfolio Loan Program
for the Limited Partnership. The limited partners will be 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 a guaranteed income
return to the limited partners in connection with mortgage loans that
would be purchased by the Limited Partnership from the funds invested
by the limited partner.
8
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
As of March 31, 2000 and 1999, the Corporation had a one-percent
interest in the Limited Partnership with a recorded investment balance
of $13, which is accounted for on the equity method of accounting. The
following presents unaudited summarized financial information for the
Limited Partnership as of and for the years ended December 31, 1999 and
1998, the Limited Partnership's fiscal year end:
1999 1998
---- ----
Total Assets
(principally consisting of mortgages receivable) $4,451 $3,622
Total Liabilities 41 36
Total Partnership Capital 4,410 3,586
Total Revenues 508 245
Net income 2 9
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans and allowance for loan losses at March 31, are as follows:
2000 1999
---- ----
Loans $2,391 $ 752
Allowance for loan losses (45) (89)
------ -------
Total $ 2,346 $ 663
======= ======
Changes in the allowance for loan losses are summarized as follows for
the years ended March 31:
2000 1999
---- ----
Beginning balance $ 89 $ 350
Reduction of allowance for loan losses (44) (261)
--------- --------
Ending balance $ 45 $ 89
========= ========
At March 31, 2000, the Corporation has a recorded investment in
impaired loans of $135 and a related allowance for investment losses of
$45, as compared to $184 of impaired loans and a related allowance for
investment losses of $89 at March 31, 1999. The average recorded
investment in impaired loans for the years ended March 31, 2000 and
1999 was $160 and $461, respectively, and the income recorded on these
loans identified as impaired totaled $30 and $63, respectively.
9
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Loans on which the accrual of interest has been discontinued amounted
to approximately $14 for March 31, 1999, there was no such interest
discontinued for March 31, 2000. If those loans had been current
throughout their terms, interest income would have increased $12 for
the year ended March 31, 1999.
4. FIXED ASSETS
At March 31, the costs and related accumulated depreciation of the
Corporation's fixed assets were as follows:
2000 1999
---- ----
Improvements $ 7 $ 7
Equipment 40 145
------- ------
Fixed assets at cost 47 152
Accumulated depreciation (31) (130)
------- ------
Fixed assets-net $ 16 $ 22
======= ======
5. INCOME TAXES
The income tax benefit consists of the following for the years ended
March 31:
2000 1999
---- ----
Current:
Federal $-- $--
State 6 3
----- -----
Total current: 6 3
----- -----
Deferred:
Federal -- 55
State -- 13
----- -----
Total deferred -- 68
----- -----
Valuation allowance adjustment:
Federal (136) (451)
State (3) (38)
----- -----
Total adjustment (139) (489)
----- -----
Total income tax benefit $(133) $(418)
===== =====
The state income tax currently payable for both years consist of the
minimum tax and tax on capital.
10
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A reconciliation of the income tax benefit computed by applying the
federal statutory rate to income before income taxes to the actual
income tax benefit for the years ended March 31 is as follows:
2000 1999
---- ----
Income tax provision
at statutory rate $ 2 $ 136
State income tax, net of
federal benefit 4 11
Valuation allowance adjustment (139) (489)
Other -- 51
Benefit of net operating loss carryforward
for which no asset was previously
recognized -- (127)
------ -------
Total $( 133) $(418)
====== =======
The components of the net deferred tax asset at March 31 are as follows:
2000 1999
---- ----
Deferred tax asset:
Net operating loss carryforward $2,783 $2,840
Valuation allowance (2,229) (2,419)
------ ------
Net deferred tax asset $ 554 $ 421
====== ======
The deferred tax asset results from net operating loss carryforwards
(NOLS). Management has evaluated the available evidence about future
taxable income. The valuation allowance reduces the deferred tax asset
related to the NOLS to management's best estimate of the amount of such
deferred tax asset that more likely than not will be realized. The
valuation allowance was reduced by $190 and $876 for the years ended
March 31, 2000 and 1999, respectively, primarily due to an increase in
the estimated realizability of the deferred tax asset.
At March 31, 2000, the Corporation had available federal and state net
operating loss carryforwards of $9,115 and $579, respectively, for
income tax purposes, which expire from 2001 to 2015.
6. LINE OF CREDIT
On December 7, 1999, the Corporation closed its second Commercial Line
of Credit with The Hudson United Bank (formerly Lafayette American Bank
& Trust Company). This $2,000 line of credit is for a term of one year
and interest is computed at 2.5% over the Wall Street Prime Rate (11.5%
at March 31, 2000). This line is collateralized by an assignment of
notes and mortgages equal to the amount of the loan. At March 31, 2000,
there was $1,718 advanced on this line of credit. There were no
advances outstanding on the previous line of credit at March 31, 1999.
11
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. 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 director is a principal. Fees for these services were $1 and $5
for the years ended March 31, 2000 and 1999, respectively.
As of March 31, 2000, the Corporation has a $120 loan outstanding to CF
Industries, Inc. The President of CF Industries, Inc. is a director of
the Corporation. The loan is collateralized by a first mortgage on
property owned by CF Industries, Inc., and is personally guaranteed by
the director. The Loan Committee and the Board of Directors approved
the loan which was granted at terms equivalent to other arm's length
transactions entered into by the Corporation.
8. COMMITMENTS AND CONTINGENCIES
The Corporation has a $40 letter of credit outstanding as of March 31,
2000 and 1999 at a stated interest rate of 2 % per annum related to
obtaining its Connecticut license as a First Mortgage
Loan-Lender/Broker. The letter of credit expires February 9, 2002. At
March 31, 2000 and 1999, restricted cash includes a $42 and $53
certificate of deposit, which is being maintained as collateral for the
letter of credit.
As of March 31, 2000 and 1999, the Corporation had outstanding loan
commitments of $2,633 and $2,180, respectively.
9. STOCK OPTIONS
The Corporation has a compensatory stock option plan (the "Plan") which
enables the granting of options to officers to purchase shares of the
Corporation's common stock at prices equal to fair value at the date of
grant. Options expire within five years of grant.
During the year ended March 31, 1999, 60,000 options were granted at an
exercise price of $1.21. No options were granted, exercised or canceled
during the year ended March 31, 2000. No compensation cost has been
recognized for stock options awarded under the Plan. Had compensation
costs for the Corporation's stock option plan been determined based on
the fair value at grant dates, the Corporation's net income for the
year ended March 31, 1999 would have decreased by $39.
12
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THE FIRST CONNECTICUT CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. LEASES
The Corporation leases office space and equipment for use in
operations. The leases generally provide that the Corporation pays
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 $32 and $31 for the years
ended March 31, 2000 and 1999, respectively.
As of March 31, 2000, future minimum rental payments required under
noncancelable operating leases were as follows:
Year Ending
MARCH 31,
-----------
2001 $47
2002 36
2003 4
---
TOTAL $87
===
11. 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 - Substantially all of the Corporation's loans have a maturity of
one year or less. For loans considered to be impaired under FASB 114,
the estimated fair value for 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. Assumptions regarding
credit risk, cash flow, and discount rates are judgmentally determined
using available market information and specific borrower information.
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.
13
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THE FIRST CONNECTICUT CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS - continued
YEARS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MORTGAGE 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.
NOTE RECEIVABLE - The fair value of the note receivable was estimated
by discounting future cash flows at a then current market rate of
interest.
OTHER ON-BALANCE SHEET FINANCIAL INSTRUMENTS - Other on-balance sheet
financial instruments include cash and cash equivalents, restricted
cash, accrued interest receivable and a line of credit. The carrying
value of each of these financial instruments is a reasonable estimation
of fair value.
The carrying values were equal to the estimated fair values of cash and
cash equivalents, restricted cash, loans, loans held for sale, mortgage
servicing rights, note receivable, and accrued interest receivable as
of March 31, 2000 and 1999.
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.
14
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