U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR (15)d OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period________________ to_______________
Commission file number 0-12199
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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)
As of November 2, 2000, there were 1,302,715 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check One) Yes No X
---- ----
<PAGE>
SOURCE CAPITAL CORPORATION
Form 10-QSB
For the Quarter Ended September 30, 2000
------------
<TABLE>
<CAPTION>
Index
-----
Page
----
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements (all financial statements are
unaudited except the December 31, 1999 consolidated balance
sheet):
- Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 3
- Consolidated Statements of Income, Comprehensive Income and
Retained Earnings - Three and Nine Months Ended
September 30, 2000 and 1999 4
- Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - Other Information 13
</TABLE>
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
SOURCE CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
------------
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Loans receivable, net $ 56,104,489 $ 42,833,844
Leases receivable, net 13,632,980 14,224,409
Accrued interest receivable 613,883 326,190
Cash and cash equivalents 962,488 590,630
Marketable securities 162,914 195,684
Real estate and equipment owned 804,761 594,366
Other assets 956,919 1,141,887
Deferred income tax 1,026,000 1,206,560
------------ ------------
Total assets $ 74,264,434 $ 61,113,570
============ ============
LIABILITIES
Notes payable to bank $ 51,064,199 $ 36,781,267
Mortgage contracts payable 3,074,144 3,103,269
Accounts payable and accrued expenses 664,860 879,209
Customer deposits 572,833 723,005
Convertible subordinated debentures 5,000,000 5,950,000
------------ ------------
Total liabilities 60,376,036 47,436,750
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized
10,000,000 shares none outstanding -- --
Common stock, no par value, authorized
10,000,000 shares; issued and outstanding,
1,302,715 and 1,360,105 shares 6,737,234 7,052,881
Additional paid in capital 2,049,047 2,049,047
Accumulated other comprehensive loss (5,861) (33,568)
Retained earnings 5,107,978 4,608,460
------------ ------------
Total stockholders' equity 13,888,398 13,676,820
------------ ------------
Total liabilities and stockholders' equity $ 74,264,434 $ 61,113,570
============ ============
See accompanying notes to consolidated financial statements.
3
<PAGE>
SOURCE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND
RETAINED EARNINGS
For the Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
------------
<TABLE>
<CAPTION>
Three Months ended September 30, Nine Months ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financing income:
Interest and fee income $ 2,258,021 $ 1,828,443 $ 6,181,615 $ 4,913,323
Lease financing income 667,243 656,887 1,823,406 2,035,534
Interest expense (1,416,825) (1,119,289) (3,740,408) (3,086,850)
----------- ----------- ----------- -----------
Net financing income 1,508,439 1,366,041 4,264,613 3,862,007
Non-interest income:
Gain on sales of marketable securities,
equipment, real estate and other 42,325 114,285 297,062 301,680
Provision for loan and lease losses (295,832) (178,838) (833,047) (423,612)
----------- ----------- ----------- -----------
Income before non-interest expenses 1,254,932 1,301,488 3,728,628 3,740,075
Non-interest expenses:
Employee compensation and benefits 474,214 537,215 1,545,206 1,546,400
Other operating expenses 324,024 342,565 968,782 975,347
----------- ----------- ----------- -----------
Total non interest expenses 798,238 879,780 2,513,988 2,521,747
----------- ----------- ----------- -----------
Income before income taxes 456,694 421,708 1,214,640 1,218,328
Income tax provision (200,300) (116,550) (416,000) (422,200)
----------- ----------- ----------- -----------
Net income 256,394 305,158 798,640 796,128
Retained earnings, beginning of period 4,851,584 4,043,987 4,608,460 3,795,765
Dividends paid -- -- (299,122) (242,748)
----------- ----------- ----------- -----------
Retained earnings, end of period $ 5,107,978 $ 4,349,145 $ 5,107,978 $ 4,349,145
=========== =========== =========== ===========
Net income per common share - basic $ .20 $ .22 $ .60 $ .59
=========== =========== =========== ===========
Net income per common share - diluted $ .17 $ .18 $ .53 $ .49
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic 1,306,048 1,360,012 1,326,069 1,359,059
=========== =========== =========== ===========
Diluted 1,932,124 2,121,302 1,955,108 2,115,310
=========== =========== =========== ===========
Cash dividends per share None None $ .22 $ .18
=========== =========== =========== ===========
Net income $ 256,394 $ 305,158 $ 798,640 $ 796,128
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable securities (12,904) (7,437) 41,979 (13,637)
Income tax (expense) benefit 4,387 2,529 (14,272) 4,637
----------- ----------- ----------- -----------
Comprehensive income $ 247,877 $ 300,250 $ 826,347 $ 787,128
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SOURCE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 798,640 $ 796,128
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 59,429 47,548
Provision for loan and lease losses 287,783 352,145
Impairment loss on repossessed assets 545,264 71,467
Deferred income taxes 180,560 259,600
Gain on sale of securities and debt retirement (243,252) --
Gain on sale of assets (53,810) (301,680)
Change in:
Accrued interest receivable (287,693) (1,251)
Other assets 107,111 71,843
Accounts payable and accrued expenses (232,043) (47,438)
Customer deposits (150,172) 21,322
------------ ------------
Net cash provided by operating activities 1,011,817 1,269,684
------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities 187,621 --
Loan originations (27,167,162) (22,999,262)
Loan repayments 13,886,518 17,042,791
Additions to direct financing leases (5,149,315) (9,133,684)
Collections on direct financing leases 3,297,432 3,577,992
Recovery of costs related to real estate and equipment owned -- 6,211
Proceeds from sale of assets 271,182 334,161
Proceeds from sale of leases 1,184,665 4,094,949
Purchase of office equipment (20,936) (101,079)
------------ ------------
Net cash used in investing activities (13,509,995) (7,177,921)
------------ ------------
Cash flows from financing activities:
Proceeds from line of credit 33,191,237 34,362,162
Payments on line of credit (18,908,305) (28,334,329)
Payments of long-term debt (29,125) (33,877)
Proceeds from exercise of stock options -- 50,000
Payments for redemption of common stock (315,647) (2,821)
Payments for redemption of debentures (769,002) (46,592)
Cash dividends paid (299,122) (242,748)
------------ ------------
Net cash provided by financing activities 12,870,036 5,751,795
------------ ------------
Net increase (decrease) in cash and cash equivalents 371,858 (156,442)
Cash and cash equivalents, beginning of period 590,630 750,218
------------ ------------
Cash and cash equivalents, end of period $ 962,488 $ 593,776
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,655,742 $ 3,132,317
Cash paid during the period for income taxes $ 287,000 $ 212,300
Non-cash financing and investing transactions:
Loans and accrued interest converted to repossessed assets $ -- $ 198,317
Leases converted to repossessed and other assets $ 1,021,225 $ 882,699
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SOURCE CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
-------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Source Capital Leasing Co. All significant
intercompany transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements reflect all adjustments,
(consisting only of normal recurring items), which in the opinion of management,
are necessary to fairly state the periods reported. Certain 1999 amounts have
been reclassified to conform with the 2000 presentation. These reclassifications
had no effect on the net income or retained earnings as previously reported. The
results of operations for the nine-month period ended September 30, 2000 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, filed as a part of the Form 10-KSB,
for the year ended December 31, 1999.
NOTE 2.
-------
Net income per share - basic is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Net
income per share - diluted (after adjustment for the after-tax effect of
interest on convertible debentures) is computed by dividing net income by the
weighted-average number of common shares outstanding increased by the additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued.
Earnings Per Share ("EPS") Computation:
For the Quarter Ended September 30, 2000
----------------------------------------
Weighted- Per-Share
Net Income Average shares Amount
---------- -------------- ------
Basic EPS
Income available to
Stockholders $ 256,394 1,306,048 $ .20
=======
Effect of Dilutive Securities
Interest on convertible subordinated
debentures (net of 34% tax) 69,937 624,220
Common stock options 1,856
--------- ---------
Diluted EPS
Income available to common
stockholders + assumed conversions $ 326,331 1,932,124 $ .17
========= ========= =======
6
<PAGE>
SOURCE CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Earnings Per Share Computation, Continued:
For the Quarter Ended September 30, 1999
----------------------------------------
Weighted- Per-Share
Net Income Average shares Amount
---------- -------------- ------
Basic EPS
Income available to
Stockholders $ 305,158 1,360,012 $ .22
=======
Effect of Dilutive Securities
Interest on convertible subordinated
debentures (net of 34% tax) 82,817 742,822
Common stock options 18,468
--------- ---------
Diluted EPS
Income available to common
stockholders + assumed conversions $ 387,975 2,121,302 $ .18
========= ========= =======
For the Nine Months Ended September 30, 2000
--------------------------------------------
Weighted- Per-Share
Net Income Average shares Amount
---------- -------------- ------
Basic EPS
Income available to
Stockholders $ 798,640 1,326,069 $ .60
=======
Effect of Dilutive Securities
Interest on convertible subordinated
debentures (net of 34% tax) 232,091 624,220
Common stock options 4,819
---------- ----------
Diluted EPS
Income available to common
stockholders + assumed conversions $1,030,731 1,955,108 $ .53
========= ========= =======
7
<PAGE>
SOURCE CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Earnings Per Share Computation, Continued:
For the Nine Months Ended September 30, 1999
--------------------------------------------
Weighted- Per-Share
Net Income Average shares Amount
---------- -------------- ------
Basic EPS
Income available to
Stockholders $ 796,128 1,359,059 $ .59
=======
Effect of Dilutive Securities
Interest on convertible subordinated
debentures (net of 34% tax) 249,613 742,822
Common stock options 13,429
---------- ---------
Diluted EPS
Income available to common
stockholders + assumed conversions $1,045,741 2,115,310 $ .49
========== ========= =======
NOTE 3.
-------
The Company's consolidated financial statements include certain reportable
segment information. The segments include the parent company Source Capital
Corporation who's primary business is commercial real estate lending and its
wholly owned subsidiary Source Capital Leasing Co. who's primary business is
equipment lease financing. All accounting policies of the parent and subsidiary
are the same. The parent evaluates the performance of the subsidiary based upon
multiple variables including lease income, interest expense and profit or loss
after tax. The parent does not allocate any unusual items to the subsidiary.
Company segment profit and loss components and schedules of assets as of
September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
Leasing Lending Leasing Lending
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $1,877,215 $6,424,868 $2,322,033 $4,937,981
Interest expense 658,808 3,081,600 712,434 2,374,416
Depreciation 23,840 35,589 12,310 35,238
Income tax expense (benefit) (161,000) 577,000 90,300 331,900
Net income (loss) (312,857) 1,111,497 158,996 637,132
Significant non-cash items
other than depreciation 708,977 124,070 398,612 25,000
Assets 15,015,632 63,127,237 16,233,453 54,015,703
</TABLE>
8
<PAGE>
SOURCE CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 3. Continued:
Reconciliation of segment net income (loss), total assets, notes payable and
other significant items for the nine months ended September 30, 2000 and 1999
follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Profit or loss
Leasing net (loss) income $ (312,857) $ 158,996
Adjustment for income taxes (577,000) (331,900)
Unallocated amounts:
Revenue of real estate lending 6,424,868 4,937,981
Expense of real estate lending (4,736,371) (3,968,949)
------------ ------------
Consolidated net income after tax $ 798,640 $ 796,128
============ ============
Total assets
Net lease investment $ 13,632,980 $ 14,595,066
Unallocated assets of leasing 1,382,652 1,638,388
Elimination of intercompany (3,878,435) (4,206,887)
Commercial loans receivable, net 56,104,489 46,148,612
Unallocated assets of real estate lending 7,022,748 6,907,844
------------ ------------
Consolidated assets $ 74,264,434 $ 65,083,023
============ ============
Debt
Leasing note payable $ 10,459,199 $ 11,190,997
Real estate lending note payable 40,605,000 30,080,000
Real estate lending mortgage contract payable 3,074,144 3,113,702
Real estate lending convertible subordinated debentures 5,000,000 5,950,000
------------ ------------
Consolidated notes and mortgage payable $ 59,138,343 $ 50,334,699
============ ============
</TABLE>
Other significant items Leasing Lending Consolidated
----------------------- ------- ------- ------------
2000
Interest expense $ 658,808 $3,081,600 $3,740,408
Provision for losses 708,977 124,070 833,047
1999
Interest expense $ 712,434 $2,374,416 $3,086,850
Provision for losses 398,612 25,000 423,612
9
<PAGE>
SOURCE CAPITAL CORPORATION
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations
------------------------------------------------------------------------
General
These discussions contain forward-looking statements containing words such as
"will continue to be," "will be," "continue to," "anticipates that," "to be," or
"can impact." Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to differ
materially from those projected in forward-looking statements.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
------------------------------------------------------------------
September 30, 1999
------------------------------------------------------------------
For the nine months ended September 30, 2000 the Company reported net income of
$799,000 or $.53 per diluted common share. These results compare to net income
of $796,000 or $.49 per diluted common share for the comparable period in 1999.
Net financing income (interest and lease income less interest expense) increased
from approximately $3,862,000 during the nine months ended September 30, 1999 to
$4,265,000 in the comparable period in 2000 (a 10.4% increase). Finance income
of $8,005,000 and $6,949,000 in the nine months ended September 30, 2000 and
1999, respectively, represents an approximate average interest yield of 16.2%
and 15.4%, respectively, on the Company's average earning assets. Interest
income on the Company's loan portfolio increased by approximately $1,268,000
compared to the first nine months of 1999. This increase was partially offset by
a decrease in lease income of approximately $212,000 for the comparable period.
The increase in the 2000 yield as compared to 1999 is primarily due to a general
increase in interest rates and a decrease in non-performing loans.
The increase in financing income of approximately $1,056,000 is primarily
attributable to the increase of approximately $4,672,000 in the Company's
average earning assets over the first nine months of 1999, coupled with a
general increase in interest rates related to Federal Reserve policy decisions.
The Company's average earning asset portfolio grew from approximately
$60,024,000 in the nine-month period ended September 30, 1999 to approximately
$64,696,000 for the comparable period ended September 30, 2000. The growth in
the portfolio is composed of an approximate $6,077,000 growth in average net
loans offset by an approximate $1,406,000 decrease in average net leases. The
increase in financing income was partially offset by an approximate $654,000
increase in interest expense. The Company's cost of funds on average borrowings
increased from approximately 8.3% for the first nine months of 1999 to
approximately 9.4% for the comparable period in 2000. The Company was able to
mitigate the increase in its borrowing costs by funding a portion of its loan
portfolio using a "LIBOR" based rate, which is currently lower than the prime
based rate option. The Company funds its lease portfolio using a "LIBOR" based
rate which currently approximates prime less 0.85%.
During the nine month period ended September 30, 2000 the Company recognized a
gain of approximately $54,000 from the sale of one tranche of leases totaling
approximately $1,185,000 as compared to a gain of approximately $286,000 from
the sale of three tranches of leases totaling approximately $4,095,000 during
the comparable period in 1999. These leases were sold on a non-recourse basis
and allowed the Company to accelerate the earnings process for a percentage of
the total lease portfolio. Loans and leases delinquent more than 90 days equaled
2.44% of the loans and leases outstanding at September 30, 2000 as compared to
approximately 3.98% at September 30, 1999. Loans are collateralized by deeds of
trust. The Company's allowance for probable loan and lease losses of
approximately $623,000 is considered by management to be adequate as of
September 30, 2000.
10
<PAGE>
Total non-interest expenses in the first nine months of 2000
was approximately $2,514,000 a slight decline from the approximately $2,522,000
for the corresponding period of the prior year. Employee compensation and
benefits also showed a slight decline. During the period September 1999 though
September 2000 the Company's employment level declined from 25 to 21 employees.
Other operating expenses decreased slightly as well. The most significant
increase in other operating expenses was an approximate $118,000 increase in
lease repossession and collection expenses, which was offset by decreases in
other expenses.
The provision for income taxes was approximately $416,000 and $422,000 for the
nine months ended September 30, 2000 and 1999, respectively. The Company expects
to pay significantly less current income tax than the estimated tax provision
for the year ended December 31, 2000, due to the utilization of net operating
loss carryovers and the differences between book and tax accounting for leases.
The Company's effective tax rate for the Company's 1999 tax liability was
approximately 25%.
Three Months Ended September 30, 2000 Compared to Three Months ended
--------------------------------------------------------------------
September 30, 1999
--------------------------------------------------------------------
For the three months ended September 30, 2000, the Company reported net income
of $256,000 or $.17 per diluted common share. These results compare to net
income of $305,000 or $.18 per diluted share, for the comparable period in 1999.
Net financing income (interest and lease income less interest expense) increased
from approximately $1,366,000 during the three months ended September 30, 1999
to approximately $1,508,000 in the comparable period of 2000 (a 10.4% increase).
Finance income of approximately $2,925,000 and $2,485,000 in the three months
ended September 30, 2000 and 1999, respectively, represents an approximate
average interest yield of 16.9% and 15.7%, respectively, on the Company's
average earning assets. The increase in yield is primarily due to fewer
non-performing loans on average in 2000 as compared to 1999 and a general
increase in interest rates.
The increase in financing income of approximately $440,000 is directly
attributable to the increase of approximately $6,737,000 in the Company's
average earning assets over the third quarter of 1999. The Company's average
earning asset portfolio grew from $63,494,000 for the three months ended
September 30, 1999 to approximately $70,231,000 during the comparable period in
2000. The growth in the Company's average earning assets is directly
attributable to the increase in loan production, which was partially offset by a
decrease in the lease portfolio. The decrease in the lease portfolio was due to
lower lease production in the third quarter of 2000 as compared to 1999 levels,
and the repossession of equipment on defaulted leases. The increase in financing
income was partially offset by an approximate $298,000 increase in interest
expense. The Company's cost of funds on average borrowings increased from
approximately 8.5% at September 30, 1999 to approximately 9.8% in the comparable
period in 2000. The Company was able to reduce its borrowing costs by funding a
portion of its loan portfolio using a "LIBOR" based rate, which is currently
lower than the prime based rate option. The Company also funds its lease
portfolio using a "LIBOR" based rate which currently approximates prime less
.85%.
During the three months ended September 30, 1999 the Company recognized a gain
of approximately $114,000 from the sale of one tranche of leases totaling
approximately $1,600,000. These leases were sold on a non-recourse basis
allowing the Company to accelerate the earnings process for a percentage of the
total lease portfolio. There were no lease sales in the quarter ended September
30, 2000.
Total non-interest expenses for the third quarter of 2000 were approximately
$798,000 as compared to approximately $880,000 for the corresponding period of
the prior year, which represents a 9.3% decrease. This decrease was as a result
of both employee compensation and benefits decreasing approximately $63,000 or
11.7%, and other operating expenses decreasing approximately $19,000 or 5.4%.
The decrease in employee compensation and benefits is primarily due to a lower
profit sharing accrual in the quarter ended September 30, 2000 as compared to
September 30, 1999 and a decrease in personnel. The decrease in other expenses
is composed of various increases and decreases spread across several account
categories. The most significant increase is an approximate $29,000 increase in
lease repossession and collection costs which was offset by decreases of $10,000
in legal expense and a $14,000 decrease in advertising. Other increases and
decreases in various account categories are not significant when considered
individually.
11
<PAGE>
Financial Condition and Liquidity
---------------------------------
At September 30, 2000, the Company had approximately $962,000 of cash and cash
equivalents as compared to approximately $591,000 at December 31, 1999. The
Company also had $163,000 of marketable securities at September 30, 2000, as
compared to approximately $196,000 at December 31, 1999. The Company's primary
sources of cash during the first nine months of 2000 were approximately
$33,191,000 from short term borrowings, $13,887,000 from loan repayments,
$3,297,000 from lease repayments, $1,185,000 from the sale of one tranche of
leases and $1,012,000 from operations. The primary uses of cash during the first
nine months of 2000 were approximately $27,167,000 in loan originations,
$18,908,000 repayment of short term borrowings, $5,149,000 additions to direct
financing leases, $769,000 redemption of convertible subordinated debentures,
$316,000 for the purchase and immediate retirement of the Company's common stock
and $299,000 payment of dividends.
The Company's line of credit, which is renewed annually, matures on April 30,
2001 and was increased to $50,000,000 in September 2000. At September 30, 2000,
the Company had $40,605,000 outstanding under the line of credit. In addition,
the Company's wholly owned subsidiary, Source Capital Leasing Co., has a
$13,000,000 line of credit to fund its lease portfolio. The leasing company's
line is renewed annually, and also matures April 30, 2001. The leasing company
had approximately $10,459,000 outstanding under its line at September 30, 2000.
The cash flows from the Company's lines of credit, loan and lease repayments,
and the existing cash, cash equivalents and investment securities are expected
to be sufficient to fund the operating needs of the Company for the immediate
future.
Effect of Inflation and Changing Prices
---------------------------------------
Interest rates on the Company's loan portfolio are subject to inflation as
inflationary pressures affect the prime interest rate. At September 30, 2000,
interest rates on approximately 99% of the Company's loan portfolio were
variable based on various indexes. The remaining loans have fixed interest
rates. Loans with fixed rates and maturities of less than one year at September
30, 2000 are considered variable. The Company's line-of-credit agreement
provides for variable interest based on the prime rate or at the Company's
option, a "LIBOR" based rate.
Management believes that any negative effects of an increase in the prime
interest rate would be largely offset by the Company's relatively short-term
loan portfolio, balloon payments and the large percentage of variable rate
loans.
Rates earned on the Company's lease portfolio are fixed for the term of the
lease, however, the Company funds its portfolio by borrowing under its
line-of-credit as soon as is practicable after funding the lease. Each lease is
funded separately and the interest rate charged by the bank is fixed for the
term of the advance which is matched to the term of the lease.
Subsequent events
-----------------
In October, 2000 a lease having an outstanding balance of approximately $135,000
became a serious collection problem. The status of this lease may require a
write off of almost the entire balance, which will negatively impact fourth
quarter earnings performance if the write off is necessary.
12
<PAGE>
SOURCE CAPITAL CORPORATION
PART II - OTHER INFORMATION
---------------------------
Items 1,2,3,4 and 5 of Part II are omitted from this report as they are either
inapplicable or the answer is negative.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
(The balance of this page has been intentionally left blank.)
13
<PAGE>
SOURCE CAPITAL CORPORATION
SIGNATURES
------------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOURCE CAPITAL CORPORATION
--------------------------
(Registrant)
Date: November 7, 2000 By: /s/ D. Michael Jones
--------------------- -----------------------------
D. Michael Jones
President and Chief Executive Officer
Date: November 7, 2000 By: /s/ Lester L. Clark
--------------------- --------------------------------
Lester L. Clark
Vice President-Secretary/Treasurer
Principal accounting and finance officer
14
