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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
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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
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As of September 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 September 30, 1996
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INDEX
Part I - Financial Information
Item 1 - Financial Statements:
- Balance Sheets -September 30, 1996 and
December 31, 1995
- Statements of Income and Retained Earnings -
Three and Nine Months Ended September 30,
1996 and 1995
- Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995
- Notes to Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - Other Information
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOURCE CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
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September 30, December 31,
1996 1995
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ASSETS
Loans receivable, net $19,570,489 $11,861,603
Accrued interest receivable 238,011 127,206
Cash and cash equivalents 159,396 393,374
Deferred compensation trust 813,553 743,262
Investment securities 761,279 572,985
Other real estate owned 4,871,699 4,949,442
Other assets 207,509 121,780
Deferred income taxes 1,635,475 1,725,300
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Total assets $28,257,411 $20,494,952
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LIABILITIES
Note payable to bank $15,225,000 $ 7,900,000
Accounts payable and accrued
expenses 343,477 152,917
Deferred compensation payable 813,553 743,260
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Total liabilities 16,382,030 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 (21,810) 12,396
Retained earnings 2,396,868 2,177,804
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Total stockholders' equity 11,875,381 11,698,775
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Total liabilities and stockholders'
equity $28,257,411 $20,494,952
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The accompanying notes are an integral part of the
financial statements.
SOURCE CAPITAL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Three and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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Revenues:
Interest and rent income $ 887,934 $ 822,429 $2,367,606 $2,159,169
Interest expense (290,937) (283,791) (700,440) 785,979
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Net interest and rent 596,997 538,638 1,667,166 1,373,190
Non-interest income:
Gain on sales of investments,
loans and real eestate 0 23,466 29,502 66,500
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Non-interest expenses:
Employee compensation and
benefits 207,703 159,671 631,177 441,029
Other operating expenses 129,344 100,766 410,470 335,343
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Total expenses 337,047 260,437 1,041,647 776,372
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Income before income taxes 259,950 301,667 655,021 663,318
Income tax provision:
Current (57,275) (87,500) (132,675) (168,500)
Deferred and other (31,225) (18,500) (89,825) (63,500)
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Total income tax provision (88,500) (106,000) (222,500) (232,000)
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Net income 171,450 195,667 432,521 431,318
Retained earnings, beginning of
period 2,225,418 1,769,710 2,177,804 1,534,059
Dividends paid (213,457)
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Retained earnings, end of
period $2,396,868 $1,965,377 $2,396,868 $1,965,377
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Net income per common share $ .12 $ .14 $ .30 $ .30
========== ========== ========== ==========
Weighted average number of
common shares and commons
share equivalents outstanding 1,434,632 1,448,339 1,435,135 1,461,691
========== ========== ========== ==========
Cash dividends per share None None $ .03 None
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The accompanying notes are an integral part of the
financial statements.
SOURCE CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 1996 and 1995
(Unaudited)
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1996 1995
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Cash flows from operating activities:
Net income $ 432,521 $ 431,319
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation 15,742 8,079
Provision for loan losses 45,000
Income taxes (net effect of
SOP 90-7) 89,825 63,500
Gain on sale of investment
securities (16,745) (9,961)
Gain on sale of real estate,
furniture & equipment (12,756) (56,539)
Compensation associated with
stock options 18,300
Change in:
Accrued interest receivable (110,805) (76,026)
Other assets
(59,926) 36,315
Deferred compensation trust (70,291) (87,887)
Accounts payable and accrued expenses 190,562 20,906
Deferred compensation payable 70,291 87,887
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Net cash provided by operating
activities 573,418 435,893
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Cash flows from investing activities:
Purchases of investment securities (299,877) (48,752)
Sale of investments securities 94,122 186,237
Loan origination s (14,923,424) (8,569,631)
Loan repayments 6,875,693 5,788,845
Capitalization of costs related to
other real estate owned (84,094) (260,561)
Proceeds from sale of other real
estate 462,844 917,595
Purchase of office equipment and
vehicle (88,848) (82,984)
Sale of office equipment 52,897 2,865
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Net cash used by investing
activities (7,910,687) (2,066,386)
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SOURCE CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 1996 and 1995
(Unaudited)
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1996 1995
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Cash flows from financing activities:
Proceeds from line of credit $12,595,500 $13,259,489
Payments of line of credit (5,270,500) (10,934,489)
Payments of mortgage contracts
payable (92,203)
Payments for redemption of common
stock (8,252) (469,078)
Cash dividends paid (213,457)
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Net cash provided by financing
activities 7,103,291 1,763,719
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Net increase (decrease) in cash and
cash equivalents (233,978) 133,226
Cash and cash equivalents, beginning
of period 393,374 69,434
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Cash and cash equivalents, end of
period $ 159,396 $ 202,660
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Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 700,440 $ 785,979
Cash paid during the period for
income taxes 115,760 367,658
Non-cash financing and investing
transactions:
Loans converted to real estate
owned (293,845) (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. 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 nine months
ended September 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%.
SOURCE CAPITAL CORPORATION
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months ended
September 30, 1995
For the nine months ended September 30, 1996, the Company reported a
net income of $432,521 or $.30 per share. This compares to a net
income of $431,318 or $.30 per share, for the comparable period in
1995. Net interest and rent margin (interest and rent income less
interest expense) increased by approximately $294,000 as compared to
the nine months ended September 30, 1995. Interest and rent income of
approximately $2,368,000 and $2,159,000 in the nine months ended
September 30, 1996 and 1995 represents an approximate average interest
yield of 16.7% and 16.9%, respectively, on the company's earning
assets.
Total operating expenses increased approximately 34% over the first
nine months of 1995 primarily from a 43% increase in salaries and
benefits due to the addition of four employees. Additionally
occupancy expense increased by approximately $51,000 over the prior
year due to the Company s being located in its new office space in
Spokane and Seattle, Washington for a full nine month period in 1996.
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 and a $45,000
provision for loan losses in 1996 compared to no provision in 1995.
The Company s average earning asset portfolio increased slightly from
approximately $18.3 million in 1995 to approximately $18.9 million for
the nine months ended September 30, 1996 with most of the growth
coming in the third quarter of 1996. Loan production improved from
$8.6 million in the first nine months of 1995 to $14.9 million in the
first nine months of 1996. At September 30, 1996 the Company had
approximately $1.1 million of non-performing loans in its portfolio.
These loans are well collateralized and management does not expect to
incur material losses on these loans. The Company s reserve for loan
losses of approximately $139,000 is considered adequate in relation to
the current loan portfolio.
The recorded provision for income taxes of approximately $222,500 and
$232,000 for the nine months ended September 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 September 30, 1996 Compared to Three Months Ended
September 30, 1995
For the three months ended September 30, 1996, the Company reported a
net income of $171,450 or $.12 per share. This compares to a net
income of $195,667 or $.14 per share, for the comparable period in
1995. Net interest and rent margin (interest and rent income less
interest expense) increased by approximately $58,000 as compared to
the three months ended September 30, 1995. Interest and rent income
of approximately $888,000 and $822,000 in 1996 and 1995 respectively,
represents an approximate interest yield of 16.5% and 17% respectively
on the Company's average loan and investment portfolio. The decrease
in yield on the Company s investment and loan portfolio was primarily
the result of early repayment of several loans in the second quarter
of 1996, which carried higher interest rates, being replaced with new
loans recorded in the third quarter of 1996, at lower rates.
Non-interest operating expenses increased approximately $77,000 for
the three months ended September 30, 1996 as compared to the second
quarter of 1995 primarily due to an increase of approximately $48,000
in salaries and benefits related to the additional of three employees
in the third quarter of 1996 as compared to the third quarter of 1995
and a $15,000 provision for loan losses in the third quarter of 1996
as compared to no provision in 1995.
Financial Condition and Liquidity
---------------------------------
At September 30, 1996, the Company had approximately $159,000 of cash
and cash equivalents and $761,000 of investment securities. Cash
and cash equivalents decreased by approximately $234,000 since
December 31, 1995. The Company's primary sources of cash during the
first nine months of 1996 were approximately $12,595,000 from short
term borrowings, $6,876,000 from loan repayments, $573,000 from
operations and $463,000 from sales of real estate. The primary uses
of cash during the first nine months of 1996 were approximately
$14,923,000 of loan origination s, $5,270,000 of repayment on short
term borrowings, $300,000 purchase of investment securities and
$213,000 payment of dividends. The Company owns a shopping center in
La Puente, California which is listed for sale. The Company is
currently receiving approximately $47,000 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 September 30,
1996, the Company had $15,225,000 outstanding under the line of
credit.
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 September 30, 1996, interest rates on approximately 96% of the
Company's loan portfolio vary based upon the prime rate.
SOURCE CAPITAL CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.)
SOURCE CAPITAL CORPORATION
SIGNATURES
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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: October 29, 1996 By: /s/ D. Michael Jones
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D. Michael Jones
President and Chief Executive
Officer
Date: October 29, 1996 By: /s/ Lester L. Clark
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Lester L. Clark
Vice President-Secretary/Treasurer,
Principal accounting and finance
officer