U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15)d OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________ to ________________
Commission file number 0-12199
SOURCE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0853890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1825 N. Hutchinson Road, Spokane, Washington 99212
(Address of principal executive office)
(509) 928-0908
(Issuer's telephone number)
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
--- ---
Check whether the registrant filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court. Yes X No
--- ---
As of June 30, 1996, there were 1,422,144 shares of the
Registrant's common stock outstanding.
SOURCE CAPITAL CORPORATION
Form 10-QSB
For the Quarter Ended June 30, 1996
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Index
Page
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Part I - Financial Information
Item 1 - Financial Statements:
- Balance Sheets - June 30, 1996 and
December 31, 1995 1
- Statements of Income and
Retained Earnings - Three
and Six Months
Ended June 30, 1996 and 1995 2
- Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1995 3
- Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 5
PART II - Other Information 7
Part I - Financial Information
Item 1. Financial Statements
SOURCE CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
------------
June 30, December 31,
1996 1995
----------- ------------
ASSETS
Loans receivable, net $13,424,079 $11,861,603
Accrued interest receivable 240,360 127,206
Cash and cash equivalents 139,529 393,374
Deferred compensation trust 790,822 743,262
Investment securities 768,854 572,985
Other real estate owned 4,641,151 4,949,442
Other assets 165,861 121,780
Deferred income taxes 1,665,475 1,725,300
----------- -----------
Total assets $21,836,131 $20,494,952
=========== ===========
LIABILITIES
Note payable to bank $ 9,100,000 $ 7,900,000
Accounts payable and accrued
expenses 233,803 152,917
Deferred compensation payable 790,822 743,260
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Total liabilities 10,124,625 8,796,177
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STOCKHOLDERS' EQUITY
Common stock, no stated par value
Authorized 10,000,000 shares;
issued and outstanding,
1,422,144 and 1,423,079 shares 7,451,276 7,459,528
Additional paid in capital 2,049,047 2,049,047
Unrealized gain (loss)
on investment securities (14,235) 12,396
Retained earnings 2,225,418 2,177,804
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Total stockholders' equity 11,711,506 11,698,775
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Total liabilities and
stockholders' equity $21,836,131 $20,494,952
=========== ===========
The accompanying notes are an integral
part of the financial statements.
SOURCE CAPITAL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Three and Six Months Ended June 30, 1996 and 1995
(Unaudited)
-----------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenues:
Interest and rent income $ 769,196 $ 701,909 $1,479,672 $1,336,740
Interest expense (213,752) (271,121) (409,503) (502,188)
---------- ---------- ---------- ----------
Net Interest and rent 555,444 430,788 1,070,169 834,552
---------- ---------- ---------- ----------
Non-interest income:
Gain on sales of investments loans
and real estate 12,757 42,934 29,502 43,034
---------- ---------- ---------- ----------
Non-interest expenses:
Employee compensation and benefits 240,807 159,711 423,474 281,358
Other operating expenses 145,610 125,573 281,126 234,577
---------- ---------- ---------- ----------
Total expenses 386,417 285,284 704,600 515,935
---------- ---------- ---------- ----------
Income before income taxes 181,784 188,438 395,071 361,651
Income tax provision:
Current (35,000) (23,700) (75,400) (59,200)
Deferred and other (23,275) (43,300) (58,600) (66,800)
---------- ---------- ---------- ----------
Total income tax provision (58,275) (67,000) (134,000) (126,000)
---------- ---------- ---------- ----------
(Continued)
SOURCE CAPITAL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS, CONTINUED
For the Three and Six Months Ended June 30, 1996 and 1995
(Unaudited)
-----------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net income $ 123,509 $ 121,438 $ 261,071 $ 235,651
Retained earnings, beginning of period 2,101,909 1,648,272 2,177,804 1,534,059
Dividends paid (213,457)
---------- ---------- ---------- ----------
Retained earnings, end of period $2,225,418 $1,769,710 $2,225,418 $1,769,710
========== ========== ========== ==========
Net income per common share $ .09 $ .08 $ .18 $ .16
========== ========== ========== ==========
Weighted average number of common
shares and common share equivalents
outstanding 1,443,798 1,457,367 1,443,949 1,468,367
========== ========== ========== ==========
Cash dividends per share none none $ .03 none
========== ========== ========== ==========
The accompanying notes are an integral
part of the financial statements.
SOURCE CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
----------
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 261,071 $ 235,651
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 10,025 3,996
Provision for loan losses 30,000
Income taxes (net effect of
SOP 90-7) 59,825 45,000
Gain on sale of investment
securities (16,745) (9,961)
Gain on sale of real estate,
furniture & equipment (12,756) (32,973)
Compensation associated with
stock options 8,400
Change in:
Accrued interest receivable (113,154) (22,312)
Other assets (21,704) (229,928)
Deferred compensation trust (47,560) (46,175)
Accounts payable and accrued
expenses 80,888 (95,887)
Deferred compensation payable 47,560 46,175
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Net cash provided (used)
by operating activities 277,450 (98,014)
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Cash flows from investing activities:
Purchases of investment securities (299,877)
Sale of investments securities 94,122 186,237
Loan originations (7,985,926) (6,761,816)
Loan repayments 6,393,450 5,207,209
Proceeds applied on loans purchased
for resale 16,421
Capitalization of costs related to
other real estate owned (83,275) (232,550)
Proceeds from sale of other real
estate 398,728 566,178
Purchase of office equipment and
vehicle (79,704) (21,268)
Sale of office equipment 52,896
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Net cash used by
investing activities (1,509,586) (1,039,589)
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SOURCE CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS, CONTINUED
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
----------
1996 1995
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit $ 6,000,000 $11,759,489
Payments of line of credit (4,800,000) (9,784,489)
Payments of mortgage contracts
payable (91,404)
Payments for redemption of common
stock (8,252) (412,000)
Cash dividends paid (213,457)
----------- -----------
Net cash provided by
financing activities 978,291 1,471,596
----------- -----------
Net increase (decrease) in cash and
cash equivalents (253,845) 333,993
Cash and cash equivalents, beginning
of period 393,374 69,434
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Cash and cash equivalents, end of
period $ 139,529 $ 403,427
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 409,539 $ 412,486
Cash paid during the period for
income taxes 79,309 278,658
Non-cash financing and investing
transactions:
Loans converted to real estate
owned (3,213,546)
The accompanying notes are an integral
part of the financial statements.
SOURCE CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1.
The financial information given in the accompanying unaudited
financial statements reflect all adjustments which, in the
opinion of management, are necessary to a fair statement for the
periods reported. All financial statements presented herein are
unaudited. Certain 1995 amounts have been reclassified to
conform with the 1996 presentation. Outstanding capital stock,
weighted average common shares and common share equivalents
outstanding and earnings per share for 1995 have been restated
giving effect to the 1 for 5 reverse stock split which became
effective on May 31, 1996. These reclassifications had no effect
on the net income or retained earnings as previously reported.
The results of operations for the six month period ended June 30,
1996, are not necessarily indicative of the results to be
expected for the full year. These unaudited financial statements
should be read in conjunction with the Company's most recent
audited financial statements.
NOTE 2.
The Company's provision for federal income taxes for the six
months ended June 30, 1996 and 1995, is calculated using the
statutory corporate income tax rate of 34%. The actual income
tax liability to the Company for the year ending December 31,
1996, is estimated to be significantly less than the statutory
corporate tax rate, after considering the Company's net operating
loss carryovers. Notwithstanding the foregoing statement the
Company's actual tax liability paid for the year ended
December 31, 1995 resulted in an effective tax rate of
approximately 16%.
NOTE 3.
On June 25, 1995 the Company s board of directors authorized
management to purchase and retire up to two hundred thousand
(200,000) shares of the Company s outstanding common stock. This
represented approximately 13.7% of the outstanding common stock
as of June 30, 1995 (after giving effect to the 1 for 5 reverse
stock split which became effective on May 31, 1996). Repurchases
may be made from time to time in the open market or in private
transactions at the discretion of management and the board of
directors.
SOURCE CAPITAL CORPORATION
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
For the six months ended June 30, 1996, the Company reported a
net income of $261,071 or $.18 per share. This compares to a net
income of $235,651 or $.16 per share, for the comparable period
in 1995. Net interest and rent margin (interest and rent income
less interest expense) increased by approximately $236,000 as
compared to the six months ended June 30, 1995. Interest and
rent income of approximately $1,480,000 and $1,337,000 in the
quarter ended June 30, 1996 and 1995 represents an approximate
average interest yield of 16.8% and 15.7%, respectively, on the
company's earning assets.
Total operating expenses increased approximately 32% over the
first six months of 1995 primarily from a 50% increase in
salaries and benefits due to the addition of four new personnel.
Additionally occupancy expense increased by approximately $32,000
over the prior year due to the Company s being located in its new
facilities for a full six month period in 1996. The Company
moved into new facilities in June 1995 and opened its Renton
office in May 1995. Other increases in 1996 compared to 1995 were
primarily related to shareholder matters related to the reverse
stock split and other proxy items at the stockholders meeting
held in May 1996.
The Company s average earning asset portfolio remained relatively
level at approximately $17.6 million for the six months ended
June 30, 1996 and 1995. Although loan production improved from
$6.8 million in the first half of 1995 to $8 million in 1996
early loan repayments increased in the current year. At June 30,
1996 the Company had approximately $130,000 of non-performing
loans in its portfolio. Management does not expect to incur a
significant loss on these loans. The Company s reserve for loan
losses of approximately $123,000 is considered adequate in
relation to the current loan portfolio.
The recorded provision for income taxes of approximately $134,000
and $126,000 for the six months ended June 30, 1996 and 1995 is
based on the statutory income tax rate of 34%. The company
expects to pay significantly less than the estimated tax
provision for the year ended December 31, 1996, due to the
utilization of net operating loss carryovers. The Company s
effective tax rate for taxes paid in 1995 was approximately 16%.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
For the three months ended June 30, 1996, the Company reported a
net income of $123,509 or $.09 per share. This compares to a net
income of $121,438 or $.08 per share, for the comparable period
in 1995. Net interest and rent margin (interest and rent income
less interest expense) increase from approximately $431,000
during the three months ended June 30, 1995 to approximately
$555,000 for the comparable period in 1996, a 29% increase.
Interest and rent income of approximately $769,000 and $702,000
in 1996 and 1995 respectively, represents an approximate interest
yield of 17% and 15.4% respectively on the Company's average loan
and investment portfolio. The increase in yield on the Company s
investment and loan portfolio was primarily the result of early
repayment of several loans which paid off in the second quarter
of 1996 resulting in the accelerated recognition of deferred loan
fees.
Non-interest operating expenses increased approximately $101,000
for the three months ended June 30, 1996 as compared to the
second quarter of 1995 primarily due to an increase of
approximately $81,000 in salaries and benefits related to the
additional of three personnel in the second quarter of 1996 as
compared to the second quarter of 1995.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1996, the Company had approximately $140,000 of cash
and cash equivalents and $769,000 of investment securities. Cash
and cash equivalents decreased by approximately $254,000 since
December 31, 1995. The Company's primary sources of cash during
the first six months of 1996 were approximately $6,393,000 from
loan repayments, $6,000,000 from short term borrowings, $399,000
from sales of real estate and $277,000 from operations. The
primary uses of cash during the first six months of 1996 were
approximately $7,986,000 of loan origination s, $4,800,000 of
repayment on short term borrowings, $300,000 purchase of
investment securities and $231,000 payment of dividends. In May
1995 the Company completed foreclosure proceedings on the
Hacienda shopping center in La Puenta, California. This property
was formerly classified as a loan purchased for resale on the
balance sheet. The Company has the property listed for sale and
is currently receiving approximately $45,000 monthly, in rent
income.
The Company's $20,000,000 line of credit, which matures annually,
was renewed on May 1, 1996 and matures April 30, 1997. At
June 30, 1996, the Company had $9,100,000 outstanding under the
line of credit. The Company's line of credit and cash provided
from loan repayments, existing cash, cash equivalents, investment
securities, and sales of real estate owned provide sufficient
cash flows for the operating needs of the company.
EFFECT OF INFLATION AND CHANGING PRICES
Interest rates on the Company's loan portfolio are subject to
inflation as inflationary pressures affect prime interest rate.
At June 30, 1996, interest rates on approximately 87% of the
Company's loan portfolio vary based upon the prime rate. The
remaining loans have fixed interest rates.
SOURCE CAPITAL CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
News release related to NASDAQ listing
(b) Reports on Form 8-K
The following reports on Form 8-K were filed for the three
months ended June 30, 1996:
May 16, 1996 - Item 5 - Other Events
Items 1,2,3,4 and 5 of Part II are omitted from this report
as inapplicable.
(The balance of this page has been intentionally left blank.)
NEWS RELEASE
SOURCE CAPITAL CORPORATION Contact Person:
1825 N. Hutchinson Rd. Lester L. Clark
Spokane, Washington 99212 Chief Financial Officer
Source Capital Corporation Announces NASDAQ Listing
----------------------------------------------------
Spokane, Wa - July 24, 1996 -- Source Capital Corporation
(NASDAQ SMALL CAP: SOCC), is pleased to announce that effective
Thursday July 25, 1996 Source Capital Corporation Common Stock
will begin trading on the NASDAQ STOCK EXCHANGE under the small-cap
issues section. The Company s trading symbol will be SOCC.
D. Michael Jones, President and Chief Executive Officer
stated "A NASDAQ listing has been a priority of the Company for
some time. We feel confident that this listing on NASDAQ will be
a positive step in improving the trading volume and liquidity of
our Common Stock."
Source Capital is a commercial lender with approximately
1400 shareholders. The Company is headquartered in Spokane,
Washington, with lending offices in Spokane and Renton,
Washington.
SOURCE CAPITAL CORPORATION
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
SOURCE CAPITAL CORPORATION
(Registrant)
Date: July 26, 1996 By: /s/ D. Michael Jones
-----------------------------------
D. Michael Jones
President and Chief Executive
Officer
Date: July 26, 1996 By: /s/ Lester L. Clark
-----------------------------------
Lester L. Clark
Vice President-Secretary/Treasurer,
Principal Accounting and Finance
Officer
SOURCE CAPITAL CORPORATION
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SOURCE CAPITAL CORPORATION
(Registrant)
Date: _______________ By: ________________________________
D. Michael Jones, President
and Chief Executive Officer
Date: _______________ By: ________________________________
Lester L. Clark, Vice President-
Secretary/Treasurer, Principal
Accounting and Finance Officer