U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended: June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number: 0-28815
FIRST LITCHFIELD FINANCIAL CORPORATION
--------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 06-1241321
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
13 North Street, Litchfield, CT 06759
------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (860) 567-8752
--------------
-------------------------------------------------------------------------------
(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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
1,514,931 shares of Common Stock, par value $.01 per share, were
outstanding at July 25, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
Part I - Consolidated Financial Information ----
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income (unaudited) - Three months and
six months ended June 30, 2000 and 1999. . . . . . . . . . . . . . . 3
Consolidated Statements of Comprehensive Income (unaudited) -
Six months ended June 30, 2000 and 1999 . . . . . . . . . . . . .. . . 4
Consolidated Statements of Cash Flows (unaudited) - Six months
ended June 30, 2000 and 1999 . . . . . . . . . . . . . .. . . .. . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . .. . .. . 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
Part II - Other Information
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . . None
3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . None
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 18
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . None
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 19
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 20
</TABLE>
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,129,157 $ 12,800,196
--------------- ----------------
CASH AND CASH EQUIVALENTS 8,129,157 12,800,196
--------------- ----------------
Securities:
Available for sale securities:
US Treasuries and other securities (amortized cost $29,458,771-2000 28,658,370 23,663,850
and $24,491,689-1999)
Mortgage-backed securities (amortized cost $23,155,592-2000
and $19,279,026-1999) 22,846,559 19,036,632
Held to maturity securities:
Mortgage-backed securities (market value $3,423,473-2000
and $4,147,716-1999) 3,438,397 4,188,851
--------------- ----------------
TOTAL SECURITIES 54,943,326 46,889,333
--------------- ----------------
Federal Home Loan Bank stock, at cost 2,389,800 2,100,000
Federal Reserve Bank stock, at cost 81,850 81,850
Loans Receivable:
Real estate-residential mortgage 118,279,580 115,392,170
Real estate-commercial mortgage 21,135,209 19,821,940
Real estate-construction 5,842,060 7,090,241
Commercial 10,588,537 8,063,552
Installment 34,979,592 33,114,855
Other 15,367 123,370
--------------- ----------------
TOTAL LOANS 190,840,345 183,606,128
Net deferred loan origination costs 1,392,949 1,217,288
Allowance for loan losses (1,033,317) (1,014,522)
--------------- ----------------
NET LOANS 191,199,977 183,808,894
--------------- ----------------
Foreclosed real estate 300,000 --
Deferred taxes 386,656 378,450
Bank premises and equipment, net 2,952,057 3,017,976
Accrued interest receivable 1,712,069 1,455,363
Other assets 5,635,716 5,441,728
--------------- ----------------
TOTAL ASSETS $ 267,730,608 $ 255,973,790
=============== ================
LIABILITIES
Deposits:
Noninterest bearing:
Demand $ 41,481,580 $ 33,990,059
Interest bearing:
Savings 36,924,106 36,556,699
Money market 43,222,694 44,111,008
Time certificates of deposit in denominations of $100,000 or more 16,034,040 16,802,864
Other time certificates of deposit 69,588,582 65,772,152
--------------- ----------------
TOTAL DEPOSITS 207,251,002 197,232,782
--------------- ----------------
Federal Home Loan Bank advances 42,650,000 41,730,000
Collateralized borrowings 936,056 830,227
Accrued expenses and other liabilities 1,239,660 1,254,572
--------------- ----------------
TOTAL LIABILITIES 252,076,718 241,047,581
--------------- ----------------
Commitments & Contingencies -- --
SHAREHOLDERS' EQUITY
Preferred stock $.00001 par value; 1,000,000 shares authorized, no shares
outstanding Common stock $.01 par value
Authorized - 5,000,000 shares
2000 - Issued - 1,597,350 shares, outstanding - 1,514,931 shares
1999 - Issued - 1,567,353 shares, outstanding - 1,484,934 shares 15,973 15,674
Capital surplus 11,150,626 10,933,465
Retained earnings 5,865,661 5,324,445
Less: Treasury stock at cost-82,419 shares (701,061) (701,061)
Accumulated other comprehensive loss-net unrealized loss
on available for sale securities (net of taxes) (677,309) (646,314)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 15,653,890 14,926,209
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 267,730,608 $ 255,973,790
=============== ================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 3,729,325 3,133,688 $ 7,307,496 $ 6,025,751
Interest and dividends on securities:
Mortgage-backed 392,046 367,733 756,674 784,396
US Treasury and other 501,273 403,125 950,801 772,610
Deposits with banks 9 2 106 11
Other interest income -- -- -- 11,594
--------------- --------------- ---------------- ---------------
TOTAL INTEREST INCOME 4,622,653 3,904,548 9,015,077 7,594,362
--------------- --------------- ---------------- ---------------
INTEREST EXPENSE
Interest on deposits:
Savings 128,375 126,840 254,691 253,069
Money market 388,909 343,287 783,145 709,296
Time certificates of deposit in denominations
$100,000 or more 175,082 194,909 342,857 340,798
Other time certificates of deposit 996,525 772,814 1,918,548 1,673,660
--------------- --------------- ---------------- ---------------
TOTAL INTEREST ON DEPOSITS 1,688,891 1,437,850 3,299,241 2,976,823
Interest on Federal Home Loan Bank advances 704,029 263,257 1,247,210 376,363
Interest on borrowed money -- 125 -- 743
--------------- --------------- ---------------- ---------------
TOTAL INTEREST EXPENSE 2,392,920 1,701,232 4,546,451 3,353,929
--------------- --------------- ---------------- ---------------
NET INTEREST INCOME 2,229,733 2,203,316 4,468,626 4,240,433
PROVISION FOR LOAN LOSSES 45,000 30,000 90,000 60,000
--------------- --------------- ---------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,184,733 2,173,316 4,378,626 4,180,433
--------------- --------------- ---------------- ---------------
NONINTEREST INCOME
Banking service charges and fees 158,632 111,629 300,297 226,920
Trust 210,000 178,500 420,000 357,000
Other 101,538 49,558 189,574 130,333
--------------- --------------- ---------------- ---------------
TOTAL NONINTEREST INCOME 470,170 339,687 909,871 714,253
--------------- --------------- ---------------- ---------------
NONINTEREST EXPENSE
Salaries 821,142 724,888 1,583,540 1,369,746
Employee benefits 207,957 181,007 439,805 350,916
Net occupancy 110,048 113,772 226,548 235,300
Equipment 124,044 103,427 238,554 200,633
Legal fees 69,749 23,568 135,133 49,458
Directors fees 38,500 36,125 74,204 73,875
Computer services 159,207 174,543 358,453 366,584
Supplies 41,396 48,154 86,492 103,308
Commissions, services and fees 55,755 68,949 133,129 122,017
Postage 24,990 29,039 50,822 57,457
Advertising 60,499 58,285 98,724 105,327
OREO & non-performing loan expenses-net 1,605 2,816 1,605 2,816
Other 297,228 286,958 559,632 573,017
--------------- --------------- ---------------- ---------------
TOTAL NONINTEREST EXPENSES 2,012,120 1,851,531 3,986,641 3,610,454
--------------- --------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES 642,783 661,472 1,301,856 1,284,232
PROVISION FOR INCOME TAXES 234,573 213,549 457,654 407,393
--------------- --------------- ---------------- ---------------
NET INCOME $ 408,210 $ 447,923 $ 844,202 $ 876,839
=============== =============== ================ ===============
INCOME PER SHARE
BASIC NET INCOME PER SHARE $ 0.27 $ 0.30 $ 0.56 $ 0.59
=============== =============== ================ ===============
DILUTED NET INCOME PER SHARE $ 0.27 $ 0.29 $ 0.55 $ 0.57
=============== =============== ================ ===============
Dividends Per Share $ 0.10 $ 0.10 $ 0.20 $ 0.20
=============== =============== ================ ===============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three months ended June 30, (Unaudited) 2000 1999
------------------ -----------------
<S> <C> <C>
Net income $ 408,210 $ 447,923
Unrealized holding gains (losses) on securities:
Unrealized holding gains (losses) arising during the period, net of taxes 19,688 (226,212)
------------------ ----------------
Comprehensive income $ 427,898 $ 221,711
================== ================
Six months ended June 30, (Unaudited) 2000 1999
------------------ -----------------
Net income $ 844,202 $ 876,839
Unrealized holding gains (losses) on securities:
Unrealized holding losses arising during the period, net of taxes (30,995) (320,548)
------------------ -----------------
Comprehensive income $ 813,207 $ 556,291
================== ================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 844,202 $ 876,839
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and accretion of premiums and discounts
on investment securities, net (41,532) 40,215
Provision for loan losses 90,000 60,000
Depreciation and amortization 186,877 189,245
Loans originated for sale -- (542,550)
Proceeds from sales of loans held for sale -- 922,150
Loss on disposals of bank premises and equipment -- 428
Increase in accrued interest receivable (256,706) (215,731)
Increase in other assets (101,238) (448,639)
Increase in deferred loan origination costs (175,661) (511,241)
(Decrease) increase in accrued expenses and other
liabilities (17,912) 260,305
----------------- ----------------
Net cash provided by operating activities 528,030 631,021
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale mortgage-backed securities:
Proceeds from maturities and principal payments 1,870,858 4,598,021
Purchases (5,702,436) --
Available for sale US Treasury and other investment securities:
Purchases (4,962,135) (7,000,000)
Held to maturity mortgage-backed securities:
Proceeds from maturities and principal payments 742,051 1,642,163
Purchase of Federal Home Loan Bank Stock (289,800) (54,000)
Net increase in loans (7,605,422) (17,377,112)
Purchase of bank premises and equipment (120,958) (691,548)
Proceeds from sale of bank premises and equipment -- (80)
Increase in cash surrender value of Bank owned
life insurance (92,750) --
----------------- ----------------
Net cash used in investing activities (16,160,592) (18,882,556)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings, money market and
demand deposits 6,970,614 (367,921)
Net increase (decrease) in certificates of deposit 3,047,606 (7,001,944)
Net increase in borrowings under Federal Home
Loan Bank advances 920,000 22,875,000
Net increase in collateralized borrowings 105,829 108,967
Proceeds from exercise of stock options 217,460 118,206
Dividends paid on common stock (299,986) (281,898)
----------------- ----------------
Net cash provided by financing activities 10,961,523 15,450,410
----------------- ----------------
Net decrease in cash and cash equivalents (4,671,039) (2,801,125)
CASH AND CASH EQUIVALENTS, at beginning of period 12,800,196 8,756,166
----------------- ----------------
CASH AND CASH EQUIVALENTS, at end of period $ 8,129,157 $ 5,955,041
================= ================
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 4,584,086 $ 3,287,187
================= ================
Income taxes $ 446,952 $ 514,476
================= ================
Net cash investing and financing activities:
Transfer of loans to other real estate owned $ 300,000 $ --
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
FIRST LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet at December 31, 1999 has been derived from
the audited financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
2. The accompanying unaudited consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying financial
statements and related notes should be read in conjunction with the audited
financial statements of First Litchfield Financial Corporation (the
"Company") and notes thereto for the fiscal year ended December 31, 1999.
These financial statements reflect, in the opinion of Management, all
adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the Company's financial position and the results of
its operations and its cash flows for the periods presented. The results of
operations for the three and six months ended June 30, 2000 are not
necessarily indicative of the results of operations that may be expected for
all of 2000.
3. The Company is required to present basic income per share and diluted income
per share in its statements of income. Basic income per share amounts are
computed by dividing net income by the weighted average number of common
shares outstanding. Diluted income per share assumes exercise of all
potential common stock in weighted average shares outstanding, unless the
effect is antidilutive. The Company is also required to provide a
reconciliation of the numerator and denominator used in the computation of
both basic and diluted income per share.
The following is information about the computation of net income per share
for the three and six month periods ended June 30, 2000 and 1999. The 1999
information has been restated to give retroactive effect to all stock
dividends and stock splits for the periods presented.
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 2000
Net Per Share
Income Shares Amount
--------- ---------- ---------
<S> <C> <C> <C>
Basic Net Income Per Share
Income available to common shareholders $408,210 1,514,931 $ .27
Effect of Dilutive Securities
Options Outstanding -- 21,875
Diluted Net Income Per Share
Income available to common shareholders
--------- ---------- ---------
plus assumed conversions $408,210 1,536,806 $ .27
======== ========= =========
</TABLE>
6
<PAGE>
For the Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Net Per Share
Income Shares Amount
--------- ----------- ---------
<S> <C> <C> <C>
Basic Net Income Per Share
Income available to common shareholders $447,923 1,484,934 $ .30
Effect of Dilutive Securities
Options Outstanding -- 64,181
Diluted Net Income Per Share
Income available to common shareholders
--------- ---------- ---------
plus assumed conversions $447,923 1,549,115 $ .29
======== ========= =========
For the Six Months Ended June 30, 2000
Net Per Share
Income Shares Amount
--------- ---------- ---------
Basic Net Income Per Share
Income available to common shareholders $844,202 1,506,543 $ .56
Effect of Dilutive Securities
Options Outstanding -- 35,985
Diluted Net Income Per Share
Income available to common shareholders
--------- ---------- ---------
plus assumed conversions $844,202 1,542,528 $ .55
======== ========= =========
For the Six Months Ended June 30, 1999
Net Per Share
Income Shares Amount
--------- ---------- ---------
Basic Net Income Per Share
Income available to common shareholders $876,839 1,482,864 $ .59
Effect of Dilutive Securities
Options Outstanding -- 64,053
Diluted Net Income Per Share
Income available to common shareholders
--------- ---------- ---------
plus assumed conversions $876,839 1,546,917 $ .57
========= =========== =========
</TABLE>
4. Other comprehensive income, which is comprised solely of the change in
unrealized gains and losses on available for sale securities, is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000
-----------------------------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
Amount Benefit Amount
------------- ------------- -------------
<S> <C> <C> <C>
Unrealized holding gains arising during the period $ 32,249 $(12,561) $ 19,688
Less: reclassification adjustment for amounts recognized in
net income -- -- --
-------- -------- --------
Unrealized holding gain on available for sale securities,
net of taxes $ 32,249 $(12,561) $ 19,688
======== ======== ========
<CAPTION>
June 30, 1999
-----------------------------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
Amount Benefit Amount
------------- ------------- -------------
<S> <C> <C> <C>
Unrealized holding losses arising during the period $(369,354) $ 143,142 $(226,212)
Less: reclassification adjustment for amounts recognized in
net income -- -- --
--------- --------- ---------
Unrealized holding loss on available for sale securities,
net of taxes $(369,354) $ 143,142 $(226,212)
========= ========= =========
<CAPTION>
Six Months Ended
June 30, 2000
-----------------------------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
Amount Benefit Amount
------------- ------------- -----------
<S> <C> <C> <C>
Unrealized holding losses arising during the period $(39,201) $ 8,206 $(30,995)
Less: reclassification adjustment for amounts recognized in
net income -- -- --
-------- -------- --------
Unrealized holding loss on available for sale securities,
net of taxes $(39,201) $ 8,206 $(30,995)
========== ========= ========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
Amount Benefit Amount
------------- ------------- -------------
<S> <C> <C> <C>
Unrealized holding losses arising during the period $(527,522) $ 206,974 $(320,548)
Less: reclassification adjustment for amounts recognized in
net income -- -- --
--------- --------- ---------
Unrealized holding loss on available for sale securities,
net of taxes $(527,522) $ 206,974 $(320,548)
========= ========= =========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
First Litchfield Financial Corporation (the "Company") a Delaware corporation
formed in 1988, is the one-bank holding company for The First National Bank of
Litchfield (the "Bank"), a national bank supervised and examined by the Office
of the Comptroller of the Currency (OCC.) The First National Bank of Litchfield
is the Company's only subsidiary and only source of income. The Bank has one
subsidiary, Lincoln Corporation, which is a Connecticut corporation. The purpose
of Lincoln Corporation is to hold property such as real estate, personal
property, securities, or other assets, acquired by the Bank through foreclosure
or otherwise to compromise a doubtful claim or collect a debt previously
contracted.
Both the Company and the Bank are headquartered in Litchfield, CT. The Bank is a
full-service commercial bank serving both individuals and businesses generally
within Litchfield County Connecticut. Deposits are insured up to specific limits
of the Federal Deposit Insurance Act by the Bank Insurance Fund (BIF), which is
administered by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank's lending activities include loans secured by residential and commercial
mortgages. Other loan products include consumer and business installment
lending, as well as other secured and nonsecured lending. The Bank has six
banking locations located in the towns of Torrington, Litchfield, Washington,
Marble Dale, Goshen and Roxbury, Connecticut. In 1975 the Bank was granted Trust
powers by the OCC. The Bank's Trust Department provides trust and fiduciary
services to individuals, nonprofit organizations and commercial customers.
As of June 30, 2000 the Company had assets of $267,730,608, which was an
increase of $11,756,818 or 4.6% from year-end 1999 assets of $255,973,790. The
growth in assets was in the securities and loan portfolios.
The following discussion and analysis of the Company's consolidated financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes to the financial statements.
FINANCIAL CONDITION
Total assets as of June 30, 2000 were $267,730,608 an increase of $11,756,818 or
4.6% from year-end 1999 assets of $255,973,790.
Cash and cash equivalents decreased by $4,671,039 or 36.5% during the first six
months of 2000. This decrease was the result of lower requirements for cash and
liquid funds after providing for greater liquidity as part of the Bank's
preparation for Year 2000 contingency planning.
Growth in assets was experienced in both the loan and securities portfolios.
Total securities as of June 30, 2000 aggregated $54,943,326, which is an
increase of $8,053,993 or 17.2% from the year-end 1999 level. First and second
quarter purchases of US Government Treasury securities and agency bonds were
made in an effort to improve liquidity as well as to increase the yield on the
portfolio. Net loans totaled $191,199,977 as of June 30, 2000, an increase of
$7,391,083 or 4.0% over the balance at December 31, 1999. Growth was experienced
9
<PAGE>
in the residential and commercial mortgage portfolios, which increased
$2,887,410 and $1,313,269 respectively from the year-end 1999 balances.
Commercial and installment loans increased by $2,524,985 or 31.3% and $1,864,737
or 5.6%, respectively. The increased loan demand continues to be the result of
the strong local economy as well as competitively priced loan products and the
Bank's reputation for excellent customer service.
Total liabilities were $252,076,718 as of June 30, 2000, which is an increase of
$11,029,137 or 4.6% from the December 31, 1999 level of $241,047,581. Deposit
growth during the second quarter of 2000 was the cause of this increase. Total
deposits were $207,251,002, which was a $10,018,220 or a 5.1% increase over
December 31, 1999. Demand deposits totaled $41,481,580, an increase of
$7,491,521 from December 31, 1999. The increase in demand deposits is attributed
to seasonal growth typically arising from tax deposits and refunds as well as
growth resulting from new accounts due to the consolidation of competitor
institutions. Other time certificates of deposit increased by $3,816,430 or 5.8%
from December 31, 1999. This growth was experienced primarily in short-term
certificates of deposit . This increase offset decreases in money market
deposits and certificates of deposit of $100,000 or more. These deposits have
declined due to customer preferences towards shorter term certificates of
deposit.
Federal Home Loan Bank advances increased by $920,000 or 2.2% over the six month
period. This relatively small increase was used along with deposit growth to
fund the growth of earning assets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Summary
Net income for the second calendar quarter of 2000 totaled $408,210 which is a
decline of $39,713 or 8.9% from second quarter 1999 earnings of $447,923.
Quarterly basic and fully diluted net income per share for 2000 were both $.27
compared to $.30 and $.29, respectively, for the same period in 1999.
Net Interest Income
Net interest income is comprised of the following for the three months ended
June 30,
2000 1999
----------- -----------
Interest and dividend income $4,622,653 $3,904,548
Tax-equivalent adjustments 16,269 5,406
Interest expense 2,392,920 1,701,232
--------- ---------
Net interest income $2,246,002 $2,208,722
========== ==========
The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the three months ended
June 30, 2000 and 1999. Average loans outstanding include nonaccruing loans.
Interest income is presented on a tax-equivalent basis which reflects a federal
tax rate of 34% for all periods presented.
10
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
Three months ended June 30, 2000 Three months ended June 30, 1999
----------------------------------------------- --------------------------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- ---------- ------- ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning Assets:
Loans $190,398,000 $3,745,594 7.87% $164,267,000 $3,139,094 7.64%
Investment Securities 55,946,000 893,319 6.39% 51,142,000 770,858 6.03%
Other interest earning assets 3,000 9 1.20% 1,000 2 .80%
------------- ---------- ------------- -----------
Total interest earning assets 246,347,000 4,638,922 7.53% 215,410,000 3,909,954 7.26%
Allowance for loan losses (987,000) (1,054,000)
Cash and due from banks 6,368,000 5,554,000
Bank premises and equipment 2,959,000 2,500,000
Net unrealized gain/loss on
securities (1,386,000) (33,000)
Foreclosed real estate 76,000 0
Other assets 7,642,000 3,147,000
------------- -------------
Total Average Assets $261,019,000 $ 225,524,000
============= =============
Liabilities and Shareholder's Equity
Interest Bearing Liabilities:
Savings deposits $ 35,850,000 $ 128,375 1.43% $ 35,490,000 $ 126,840 1.43%
Money Market deposits 43,363,000 388,909 3.59% 42,084,000 343,287 3.26%
Time deposits 85,842,000 1,171,607 5.46% 78,313,000 967,723 4.94%
Borrowed funds 43,098,000 704,029 6.53% 20,137,000 263,382 5.23%
------------- ---------- ------------- -----------
Total interest bearing
liabilities 208,153,000 2,392,920 4.60% 176,024,000 1,701,232 3.87%
Demand deposits 36,468,000 34,148,000
Other liabilities 972,000 645,000
Shareholders' Equity 15,426,000 14,707,000
------------- -------------
Total liabilities and equity $ 261,019,000 $ 225,524,000
============= =============
Net interest income $2,246,002 $ 2,208,722
========== ===========
Net interest spread 2.93% 3.39%
Net interest margin 3.65% 4.10%
</TABLE>
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
Three months ended
6/30/00 Compared to 6/30/99
Increase (Decrease) Due to
-----------------------------------------------------
Volume Rate Total
--------- --------- ---------
<S> <C> <C> <C>
Interest earned on:
Loans $ 511,764 $ 94,736 $ 606,500
Investment securities 75,044 47,417 122,461
Other interest income 6 1 7
--------- --------- ---------
Total interest earning assets 586,813 142,155 728,968
Interest paid on:
Deposits 87,797 163,244 251,041
Borrowed money 361,683 78,964 440,647
--------- --------- ---------
Total interest bearing liabilities 449,480 242,208 691,688
Increase (decrease) in net interest income $ 137,334 $(100,054) $ 37,280
========= ========= =========
</TABLE>
Of the $37,280 increase in the net interest income, a decrease of $100,054
resulted from interest rate fluctuations during 2000 and an increase of $137,334
is attributed to increases in the volume of average interest earning assets and
interest bearing liabilities.
11
<PAGE>
Tax equivalent net interest income for the second quarter of 2000 increased
$37,280 or 1.7% from second quarter 1999. The increase in net interest income is
due primarily to the higher levels of earning assets over last year. Average
earning assets for the second quarter of 2000 were $246 million which is an
increase of $31 million from the average earning assets for the second quarter
of 1999. Offsetting much of the increase resulting from the higher level of
earning assets was a lower net interest margin experienced in the second quarter
of 2000. The net interest margin for the second quarter of 2000 was 3.65%, 45
basis points lower than that for the second quarter of the previous year. The
cause of the decline in the net interest margin is due to funding costs
increasing at a faster rate than interest on earning assets. From the second
quarter of 1999 funding costs rose 73 basis points from 3.87% to 4.60%. Earning
assets yields however, only rose 27 basis points, from 7.26% to 7.53%. This is
due to the higher balances of borrowed funds which may change frequently due to
market conditions and rate competition for deposits, while many fixed rate loan
products do not reprice when market conditions change.
Provision for Loan Losses
The provision for loan losses for the second quarter of the year totaled
$45,000, an increase of $15,000 from the second quarter of 1999. The increase
was necessitated by growth in the loan portfolio.
During the second quarter of 2000 the Company recorded net charge-offs of
$70,533 compared to net recoveries of $557 for the same period in 1999. The
increase in net charge-offs relates primarily to increases in the consumer loan
portfolio. Loans charged off during the second quarter of 2000 were primarily
installment loans made through the indirect loan program.
Noninterest Income
Three month noninterest income through June 30, 2000 totaled $470,170, an
increase of $130,483 or 38.4% from the $339,687 earned for the same period in
1999. Banking service charges and fees have increased by $47,003 or 42.1%. This
increase was caused by increases in fees from overdrafts, ATMs and debit cards.
Trust fees increased by $31,500 or 17.6% resulting from higher levels of trust
assets and fee increases. Second quarter other noninterest income totaled
$101,538, an increase of $51,980 from 1999. Increases were caused by income
relating to increases in the cash surrender value of bank owned life insurance.
Also contributing to the increase in other noninterest income was increased safe
deposit rental income.
Noninterest Expense
For the three months ended June 30, 2000, noninterest expense totaled
$2,012,120, an increase of $160,589 or 8.7% and from the similar period of 1999.
The primary cause of this increase was salary and benefits costs which increased
by $123,204 due mostly to additional staffing primarily for the Loan Department.
Contributing to the growth in second quarter noninterest expense were legal fees
which totaled $69,749, representing an increase of $46,181 from the second
quarter of 1999. The increase in such fees resulted from services relating to
the Company's filings of registration statements with the United States
Securities and Exchange Commission registering its securities and to fees
associated with the Company's disclosure and reporting responsibilities as an
SEC reporting
12
<PAGE>
company. In addition, legal fees relating to the Bank's collection efforts and
to legal matters involving the Bank's trust function contributed to such
increase. Finally, second quarter expenses for equipment depreciation,
maintenance and purchases increased by $20,617 over the same quarter in 1999.
Costs for supplies, commissions, postage and computer services decreased for the
second quarter of 2000.
Income Taxes
The provision for income taxes for the three month period ended June 30, 2000
totaled $234,573 which is an increase of $21,024 from the same period in 1999.
Although taxable income was higher for 1999, the historic renovation tax credit
taken in 1999 resulted in the 1999 tax expense to be lower than that for second
quarter of 2000.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999
Summary
Net income for the Company for the six months ended June 30, 2000 totaled
$844,202, a decrease of $32,637 or 3.7% from 1999 earnings of $876,839. Basic
and diluted net income per share for the six month period were $.56 and $.55 per
share respectively. These results are slightly lower than the $.59 and $.57 per
share reported for the first six months of 1999.
Net Interest Income
Net interest income is comprised of the following for the six months ended
June 30,
2000 1999
---------------- ----------------
Interest and dividend income $ 9,015,077 $ 7,594,362
Tax-equivalent adjustments 31,752 10,226
Interest expense 4,546,451 3,353,929
---------------- ----------------
Net interest income $ 4,500,378 $ 4,250,659
================ ================
The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the six months ended
June 30, 2000 and 1999. Average loans outstanding include nonaccruing loans.
Interest income is presented on a tax-equivalent basis which reflects a federal
tax rate of 34% for all periods presented.
13
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
Six months ended June 30, 2000 Six months ended June 30, 1999
---------------------------------------------- ----------------------------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- ---------- ------- ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning Assets:
Loans $188,026,000 $7,339,248 7.81% $159,333,000 $6,035,977 7.58%
Investment Securities 53,856,000 1,707,475 6.34% 51,692,000 1,557,006 6.02%
Other interest earning assets 11,000 106 1.93% 497,000 11,605 4.67%
------------- ---------- ------------- -----------
Total interest earning assets 241,893,000 9,046,829 7.48% 211,522,000 7,604,588 7.19%
Allowance for loan losses (993,000) (1,040,000)
Cash and due from banks 6,234,000 5,409,000
Bank premises and equipment 2,974,000 2,356,000
Net unrealized gain/loss on
securities (1,117,000) (75,000)
Foreclosed real estate 38,000 0
Other assets 7,412,000 2,963,000
------------- -------------
Total Average Assets $256,441,000 $ 221,135,000
============= =============
Liabilities and Shareholder's Equity
Interest Bearing Liabilities:
Savings deposits $ 35,743,000 $ 254,691 1.43% $ 35,231,000 $ 253,069 1.44%
Money Market deposits 44,386,000 783,145 3.53% 43,513,000 709,296 3.26%
Time deposits 85,263,000 2,261,405 5.30% 81,020,000 2,014,458 4.97%
Borrowed funds 39,670,000 1,247,210 6.29% 14,365,000 377,106 5.25%
------------- ---------- ------------- -----------
Total interest bearing liabilities 205,062,000 4,546,451 4.43% 174,129,000 3,353,929 3.85%
Demand deposits 35,049,000 31,918,000
Other liabilities 1,028,000 477,000
Shareholders' Equity 15,302,000 14,611,000
------------- -------------
Total liabilities and equity $ 256,441,000 $ 221,135,000
============= =============
Net interest income $4,500,378 $ 4,250,659
========== ===========
Net interest spread 3.05% 3.34%
Net interest margin 3.72% 4.02%
</TABLE>
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
Six months ended
6/30/00 Compared to 6/30/99
Increase (Decrease) Due to
----------------------------------------------------------
Volume Rate Total
--------- -------- ---------
<S> <C> <C> <C>
Interest earned on:
Loans $ 1,115,215 $ 188,056 $ 1,303,271
Investment securities 66,701 83,768 150,469
Other interest income (7,184) (4,315) (11,499)
----------- ----------- -----------
Total interest earning assets 1,174,732 267,509 1,442,241
Interest paid on:
Deposits 107,329 215,089 322,418
Borrowed money 782,338 87,766 870,104
----------- ----------- -----------
Total interest bearing liabilities 889,666 302,856 1,192,522
Increase in net interest income $ 285,065 $ (35,346) $ 249,719
=========== =========== ===========
</TABLE>
Of the $249,719 increase in the net interest income, a decrease of $35,346
resulted from interest rate fluctuations during 2000 and an increase of $285,065
is attributed to increases in the volume of average interest earning assets and
interest bearing liabilities.
14
<PAGE>
Tax equivalent net interest income for the first six months of 2000 increased
$249,719 or 5.9% from the same period in 1999. The increase in net interest
income is due primarily to the higher levels of earning assets over last year.
Average earning assets through June 30, 2000 totaled $242 million which is an
increase of $30 million from average earning assets of $212 million as of June
30, 1999. The effect of the increased level of earning assets offset the
negative effect of the lower net interest margin (net interest income divided by
average earning assets) earned during the year. The net interest margin was
3.72% for the six months ended June 30, 2000. This margin has decreased 30 basis
points from the 4.02% for the similar period of 1999. The higher interest rate
environment experienced over the first six months of 2000 has had the effect of
decreasing the Company's net interest margin by increasing funding costs quicker
than earning asset interest has risen. The yield on earning assets is 29 basis
points above that for the six months ended June 30, 1999, while the cost of
funds is 58 basis points higher. Intense rate competition with other
institutions as well as fixed rate products have caused the yield on earning
assets to increase at a much slower pace than increases in the interest rate
environment. On the other hand, the funding liabilities of the company are now
comprised of a significant amount of borrowed funds which adjust rapidly to
interest rate changes. Deposit costs have also increased though not as rapidly
as that for borrowed funds. Deposit interest rate increases have been caused by
intense rate competition for deposits locally as well as overall increases in
the market rate environment.
Provision for Loan Losses
The provision for loan losses for the first six months of the year totaled
$90,000, an increase of $30,000 from the first six months of 1999. Growth in the
loan portfolio, particularly in the consumer installment loans, was the primary
reason for the increased provision. The provision for loan losses is determined
quarterly and assessed along with the adequacy of the loan loss reserve.
During the first six months of 2000, the Company recorded net charge-offs of
$71,205 compared to net charge-offs of $4,054 for the first six months of 1999.
The increase in net charge-offs for the first six months of 2000 was caused by
credit losses in the consumer loan portfolio, particularly in installment and
credit card loans.
Noninterest Income
Year to date noninterest income as of June 30, 2000 totaled $909,871, an
increase of $195,618 or 27.4% from the $714,253 earned for the same period in
1999. Banking service charges and fees have increased by $73,377 or 32.3% from
the first six months of 1999. This increase was caused by increases in fees from
overdrafts, ATMs and debit cards. Also contributing to the increase in
noninterest income is increased trust fees. Fees from trust services increased
by $63,000 or 17.6%. The increased volume of trust assets as well as the
imposition of fee increases effective in 2000 have resulted in the additional
income. Other noninterest income totaled $189,574 for the first six months of
the year. This income represents an increase of $59,241 over the same period
last year due to income resulting from increases in the cash surrender value of
bank-owned life insurance. Income from the sale of mutual funds amounted to
$59,587, which represented a decrease of $41,470 from the same period in 1999.
The decrease in such income can be attributed primarily to the decline in
customer interest in purchasing mutual funds.
15
<PAGE>
Noninterest Expense
As of June 30, 2000, six month noninterest expense totaled $3,986,641, an
increase of 10.4% and $376,187 from the same period of 1999. Salary and benefits
costs increased by a total of $302,683 due to salary adjustments and additions
to staff.
Legal fees for the first six months of 2000 totaled $135,133 which is an
increase of $85,675 or 173.2% from the first six months of 1999. The increase in
such fees resulted from services relating to the Company's filing of
registration statements with the United Securities and Exchange Commission
registering its securities and to fees associated with the Company's disclosure
and reporting responsibilities as an SEC reporting company. In addition, legal
fees relating to the Bank's collection efforts and to legal matters involving
the Bank's trust function contributed to such increase. Equipment costs in 2000
resulting from the Bank's continued investment in technology increased $37,921
or 18.9% from 1999. Offsetting some of these increases are decreases in costs
for supplies, advertising and other noninterest expenses.
Income Taxes
The provision for income taxes for the first six months of 2000 totaled
$457,654, an increase of $50,261 from the same period in 1999. There are two
factors contributing to this increase: a higher level of taxable income in 2000
and the fact that 1999 taxes incorporated an investment tax credit related to
the renovation of the building housing the executive offices. This tax credit
reduced income tax expense for 1999.
LIQUIDITY
Management's objective is to ensure continuous ability to meet cash needs as
they arise. Such needs may occur from time to time as a result of fluctuations
in loan demand and the level of total deposits. Accordingly, the Bank has a
liquidity policy that provides flexibility to meet cash needs. The liquidity
objective is achieved through the maintenance of readily marketable investment
securities as well as a balanced flow of asset maturities and prudent pricing on
loan and deposit products.
The Bank is a member of the Federal Home Loan Bank system which provides credit
to its member banks. This enhances the liquidity position of the Bank by
providing a source of available overnight as well as short-term borrowings.
Additionally, federal funds and the sale of mortgage loans in the secondary
market are available to fund short term cash needs.
As of June 30, 2000 the Company had $25,671,474 in loan commitments and credit
lines outstanding. Since some commitments are expected to expire without being
drawn upon, the total commitment amount therefore does not necessarily represent
all future cash requirements. The funding of these commitments are anticipated
to be through deposits, loan and security amortizations and maturities.
Management is confident that the Company has sufficient liquidity to meet its
present and foreseeable needs.
CAPITAL
At June 30, 2000, total shareholders' equity was $15,653,890 compared to
$14,926,209 at December 31, 1999. From a regulatory perspective, the capital
ratios of the Company and the
16
<PAGE>
Bank place each entity in the "well-capitalized" categories under applicable
regulations. The various capital ratios of the Company and the Bank are as
follows as of June 30, 2000.
Minimum
Regulatory
Capital Levels The Company The Bank
TIER 1:
Leverage capital ratio 4% 6.20% 6.15%
Risk-based capital ratio 4% 9.85% 9.80%
Total risk-based capital ratio 8% 10.47% 10.42%
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended June 30, 2000 and
1999 are shown below:
Six months ended June 30,
2000 1999
----------- -----------
Balance at beginning of the year $ 1,014,522 $ 1,013,949
Provision for loan losses 90,000 60,000
Loans charged off (132,018) (5,981)
Recoveries of loans previously charged off 60,813 1,927
----------- -----------
Balance at end of period $ 1,033,317 $ 1,069,895
=========== ===========
The following table summarizes the Bank's OREO, past due and nonaccrual loans,
and nonperforming assets as of June 30, 2000 and December 31, 1999.
June 30, 2000 December 31, 1999
------------- -----------------
Nonaccrual loans $ 863,064 $1,394,305
Other real estate owned 300,000 --
---------- ----------
Total nonperforming assets $1,163,064 $1,394,305
========== ==========
Loans past due in excess of 90 days and
accruing interest $ 41,866 $ 33,441
========== ==========
Potential Problem Loans
As of June 30, 2000, there were no potential problem loans not disclosed above
which cause management to have serious doubts as to the ability of such
borrowers to comply with their present loan repayment terms.
FORWARD-LOOKING STATEMENTS
This Quarterly Report and future filings made by the Company with the Securities
and Exchange Commission, as well as other filings, reports and press releases
made or issued by the Company and the Bank, and oral statements made by
executive officers of the Company and Bank, may include forward-looking
statements relating to such matters as (a) assumptions concerning future
economic and business conditions and their effect on the economy in general and
on the markets in which the Company and the Bank do business, and (b)
expectations for increased revenues and earnings for the Company and Bank
through growth resulting from acquisitions, attractions of new deposit and loan
customers and the introduction of new products and services. For those
17
<PAGE>
statements, the Company claims the protection of the safe harbor for Forward
Looking Statements contained in the Private Securities Litigation Reform Act of
1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's and Bank's business include the following: (a) the risk
of adverse changes in business conditions in the banking industry generally and
in the specific markets in which the Bank operates: (b) changes in the
legislative and regulatory environment that negatively impact the Company and
Bank through increased operating expenses; (c) increased competition from other
financial and nonfinancial institutions; (d) the impact of technological
advances; and (e) other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. The Company and Bank do not
undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Neither the Company nor the Bank is involved in any pending material legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings, in the aggregate, are
believed by management to be immaterial to the Company's financial condition or
results of operations.
Item 2. Changes in Securities and Use of Proceeds - Not applicable
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of First Litchfield Financial
Corporation (the "Company") was held on Wednesday, May 24, 2000. Shareholders
voted on the election of directors.
The vote for re-electing each of the four (4) Directors listed below to serve
for a term of three years is as follows:
<TABLE>
<CAPTION>
Withholding
For Authority
----- -----------
<S> <C> <C> <C>
John H. Field Number of Shares: 1,215,728 6,456
---------------- ---------------
Percentage of Shares Voted: 99.47% .53%
---------------- ---------------
Percentage of Shares Entitled to Vote: 80.25% .43%
---------------- ---------------
<CAPTION>
Withholding
For Authority
----- -----------
<S> <C> <C> <C>
Perley H.Grimes, Jr. Number of Shares: 1,216,158 6,026
---------------- ---------------
Percentage of Shares Voted: 99.51% .49%
---------------- ---------------
Percentage of Shares Entitled to Vote: 80.28% .40%
---------------- ---------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Withholding
For Authority
----- ------------
<S> <C> <C> <C>
Thomas A. Kendall Number of Shares: 1,216,684 5,500
---------------- ---------------
Percentage of Shares Voted: 99.55% .45%
---------------- ---------------
Percentage of Shares Entitled to Vote: 80.31% .36%
---------------- ---------------
<CAPTION>
Withholding
For Authority
----- ------------
<S> <C> <C> <C>
Charles E. Orr Number of Shares: 1,194,232 27,952
---------------- ---------------
Percentage of Shares Voted: 97.71% 2.29%
----------------- ---------------
Percentage of Shares Entitled to Vote: 78.83% 1.85%
--------------- ---------------
</TABLE>
18
<PAGE>
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The Company filed a Form 8-K on June 1, 2000 to report the
events and results of the Company's Annual Meeting of
Shareholders that was held on Wednesday, May 24, 2000.
The Form 8-K also reported that the Company's Board of Directors
declared a quarterly cash dividend of $ .10 per share to be paid
on July 25, 2000 to shareholders of record as of June 23, 2000.
19
<PAGE>
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.
Dated: August 8, 2000 FIRST LITCHFIELD FINANCIAL CORPORATION
By: /s/ Jerome J. Whalen
---------------------------------
Jerome J. Whalen, President and
Chief Executive Officer
Dated: August 8, 2000 By: /s/ Carroll A. Pereira
---------------------------------
Carroll A. Pereira, Treasurer
(Principal Accounting Officer)
20
