<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-22588
SECURITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1766807
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
184 WEST WISCONSIN AVENUE
P.O. BOX 3097
MILWAUKEE, WISCONSIN 53201-3097
- -------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(414) 273-8090
-------------------------------
(Registrant's telephone number)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 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.
(1) YES X NO
--- ---
(2) YES X NO
--- ---
THE NUMBER OF VOTING SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, $1.00 PAR
VALUE PER SHARE, WAS 9,205,565 AT NOVEMBER 13, 1996.
<PAGE> 2
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM 1. Financial Statements: ----
PART I - FINANCIAL INFORMATION
<S> <C>
Consolidated Statements of Financial Condition
at September 30, 1996 (unaudited) and June 30, 1996 ................. 1
Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995 (unaudited) ................ 2
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended September 30, 1996 and 1995 (unaudited) .. 3
Consolidated Statements of Cash Flows for the three months ended
September 30, 1996 and 1995 (unaudited) ............................. 4
Notes to Consolidated Financial Statements (unaudited) ................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ..................................................... 19
ITEM 2. Changes in Securities ................................................. 20
ITEM 3. Defaults Upon Senior Securities ....................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders ................... 20
ITEM 5. Other Information ..................................................... 20
ITEM 6. Exhibits and Reports on Form 8-K ...................................... 20
SIGNATURES .................................................................... 22
</TABLE>
<PAGE> 3
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------------- ---------------
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and non-interest-bearing deposits $ 33,873 $ 42,880
Federal Home Loan Bank deposits 450 905
---------- ------------
Cash and cash equivalents 34,323 43,785
---------- ------------
Loans held-for-sale 26,629 40,303
Securities available-for-sale, at market:
Investment securities 311,234 352,187
Mortgage-backed and related securities 329,959 332,448
Loans and leases, net 2,627,037 2,533,534
Foreclosed properties 93 289
Premises and equipment, net 23,782 24,399
Federal Home Loan Bank stock, at cost 22,624 22,624
Accrued interest receivable 20,203 19,903
Bank-owned life insurance 51,726 25,988
Other assets 46,817 41,857
---------- ------------
Total assets $3,494,427 $ 3,437,317
========== ============
LIABILITIES
Deposits $2,255,749 $ 2,200,411
Borrowings 550,423 564,927
Advances from borrowers for taxes and insurance 46,905 33,244
Other liabilities 86,143 79,687
---------- ------------
Total liabilities 2,939,220 2,878,269
---------- ------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 50,000,000 shares authorized,
10,810,000 shares issued and 9,204,798 and 9,314,365 voting shares
outstanding, respectively 10,810 10,810
Additional paid-in capital 259,465 259,007
Retained earnings, substantially restricted 379,283 377,836
Unrealized gain (loss) on securities available-for-sale, net of tax 7,204 6,269
Less:
Common stock held for deferred compensation (3,419) (3,415)
Unearned ESOP compensation (14,818) (15,132)
Unearned restricted stock (2,817) (2,817)
Treasury stock (1,605,202 shares and 1,495,635 shares at cost,
respectively) (80,501) (73,510)
---------- ------------
Total stockholders' equity 555,207 559,048
---------- ------------
Total liabilities and stockholders' equity $3,494,427 $ 3,437,317
========== ============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
1
<PAGE> 4
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ----------
(In thousands, except
per share data)
<S> <C> <<C>
INTEREST AND DIVIDEND INCOME:
Loans and leases:
Held for investment $53,243 $47,451
Held for sale 431 663
--------- ---------
Total 53,674 48,114
--------- ---------
Investments:
Taxable income on securities 4,579 4,184
Tax-exempt income on securities 529 1,171
Mortgage-backed securities 5,622 4,360
Dividends on FHLB and FHLMC stock 385 338
FHLB deposits and other interest income 60 66
--------- ---------
Total interest and dividend income 64,849 58,233
--------- ---------
INTEREST EXPENSE:
Deposits 25,943 24,924
Advances from borrowers for taxes and insurance 269 276
Borrowings 7,902 5,476
--------- ---------
Total interest expense 34,114 30,676
--------- ---------
Net interest income 30,735 27,557
Provision for loan and lease losses 997 1,678
--------- ---------
Net interest income after provision for loan and lease
losses 29,738 25,879
--------- ---------
NON-INTEREST INCOME:
Loan servicing fees and service charges 1,816 1,829
Deposit service charges 286 298
Gain on sale of loans held for sale 327 489
Loss on sale of securities (7) ---
Insurance, mutual fund and annuity commissions 1,296 1,169
Income from bank-owned life insurance 738 ---
Net loss from operation of foreclosed properties (58) (51)
Other income, net 1,253 905
--------- ---------
Total non-interest income 5,651 4,639
--------- ---------
NON-INTEREST EXPENSE:
Compensation and employee benefits 8,878 9,815
Occupancy and premises, including depreciation 1,231 1,236
Data processing 645 625
Marketing 1,448 1,133
Federal deposit insurance premiums 14,495 1,157
Furniture and equipment, including depreciation 633 640
Professional fees 660 913
Other expenses 3,216 3,201
--------- ---------
Total non-interest expense 31,206 18,720
--------- ---------
Income before income tax expense 4,183 11,798
Income tax expense 1,310 4,695
--------- ---------
NET INCOME $ 2,873 $ 7,103
========= =========
EARNINGS PER SHARE $ 0.31 $ 0.74
========= =========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE> 5
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
COMMON
STOCK
HELD
ADD'L. FOR UNEARNED UNEARNED
COMMON PAID-IN DEFERRED ESOP RESTRICTED
STOCK CAPITAL COMP. COMP. STOCK
------- -------- ------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 1995
BALANCE AT June 30,
1995 $10,810 $257,377 $(3,144) $(16,393) $(4,600)
Net income --- --- --- --- ---
Purchased 48,500 shares
of treasury stock --- --- --- --- ---
Amortization of unearned
compensation --- 349 --- 315 891
Issued 400 shares of
treasury stock for
options exercised --- --- --- --- ---
Unrealized gains on
securities available-for-
sale --- --- --- --- ---
------- -------- ------- -------- -------
BALANCE AT SEPT. 30,
1995 $10,810 $257,726 $(3,144) $(16,078) $(3,709)
======= ======== ======= ======== =======
THREE MONTHS ENDED
SEPTEMBER 30, 1996
BALANCE AT JUNE 30,
1996 $10,810 $259,007 $(3,415) $(15,132) $(2,817)
Net income --- --- --- --- ---
Dividends paid $0.15 per
share --- (20) --- --- ---
Purchased 120,500 shares
of treasury stock --- --- --- --- ---
Amortization of unearned
compensation --- 478 --- 314 ---
Purchase of common
stock for deferred
compensation --- --- (4) --- ---
Issued 10,933 shares of
treasury stock for
options exercised --- --- --- --- ---
Unrealized gains on
securities available-for
-sale --- --- --- --- ---
------- -------- ------- -------- ------
BALANCE AT SEPT. 30,
1996 $10,810 $259,465 $(3,419) $(14,818) $(2,817)
======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain on
Securities
Treasury Available- Retained
Stock for-Sale Earnings Total
-------- ----------- -------- -----
(In thousands)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 1995
BALANCE AT JUNE 30,
1995 $(47,732) $5,086 $349,432 550,836
Net income --- --- 7,103 7,103
Purchased 48,500 shares
of treasury stock (2,426) --- --- (2,426)
Amortization of unearned
compensation --- --- --- 1,555
Issued 400 shares of
treasury stock for
options exercised 15 --- (5) 10
Unrealized gains on
securities available-for-
sale --- 2,010 --- 2,010
-------- ------ -------- --------
BALANCE AT SEPT. 30,
1995 (50,143) 7,096 356,530 559,088
======== ====== ======== ========
THREE MONTHS ENDED
SEPTEMBER 30, 1996
BALANCE AT JUNE 30,
1996 (73,510) 6,269 377,836 559,048
Net income --- --- 2,873 2,873
Dividends paid $0.15 per
share --- --- (1,278) (1,298)
Purchased 120,500 shares
of treasury stock (7,412) --- --- (7,412)
Amortization of unearned
compensation --- --- --- 792
Purchase of common
stock for deferred
compensation --- --- --- (4)
Issued 10,933 shares of
treasury stock for
options exercised 421 --- (148) 273
Unrealized gains on
securities available-
for-sale --- 935 --- 935
-------- ------ -------- --------
BALANCE AT SEPT. 30,
1996 $(80,501) $7,204 $379,283 $555,207
======== ====== ======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 6
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1996 1995
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 2,873 $ 7,103
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 1,073 2,042
Provisions for loan and lease losses.......................................... 997 1,678
Stock-based compensation expense.............................................. 792 1,555
Net decrease in loans held for sale........................................... 13,674 8,306
Gain on sale of loans held-for-sale........................................... (327) (489)
Decrease in deferred income taxes............................................. (80) (1,006)
Accrual for FDIC special assesment (net of taxes)............................. 7,917 ---
Decrease (increase) in other assets........................................... 5,698 (1,212)
(Decrease) increase in other liabilities...................................... (6,768) 1,779
Other, net.................................................................... 3,091 (326)
---------- ----------
Net cash provided by operating activities....................................... 28,940 19,430
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of securities available-for-sale................................... 25,000 50,350
Maturities of securities held-to-maturity..................................... --- 35,020
Sale of securities available-for-sale......................................... 47,171 4,989
Purchases of securities available-for-sale.................................... (11,626) (102,402)
Maturities and repayments of mortgage-backed and related securities...........
available-for-sale........................................................... 3,129 1,799
Maturities and repayments of mortgage-backed and related securities...........
held-to-maturity............................................................. --- 2,437
Purchases of mortgage-backed and related securities available-for-sale........ (19,130) (43,062)
Net increase in loans and leases.............................................. (103,972) (69,064)
Net decrease (increase) in foreclosed properties.............................. 196 (34)
Net purchases of premises and equipment....................................... (277) (894)
Funding of bank-owned life insurance.......................................... (25,000) ---
Payout (funding) of benefit plan trusts....................................... 29 (130)
---------- ----------
Net cash used in investing activities........................................... (84,480) (120,991)
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 7
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.................................................... 55,338 33,238
Net increase in advance payments by borrowers for taxes and
insurance................................................................. 13,661 14,248
Net (decrease) increase in borrowings....................................... (14,504) 66,498
Treasury stock purchased net of shares reissued for options exercised....... (7,139) (2,416)
Cash dividends.............................................................. (1,278) --
---------- ----------
Net cash provided by financing activities..................................... 46,078 111,568
---------- ----------
Net (decrease) increase in cash and cash equivalents.......................... (9,462) 10,007
Cash and cash equivalents:
Beginning of period......................................................... 43,785 35,725
---------- ----------
End of period............................................................... $ 34,323 $ 45,732
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................................... 34,353 30,057
Income taxes............................................................... 856 1,521
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES:
Transfer from loans to foreclosed properties................................ 89 154
Mortgage loans securitized as mortgage-backed securities.................... 6,687 7,654
Transfer of loans to held-for-sale.......................................... 108 1,128
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE> 8
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Principles of Consolidation
The consolidated financial statements include the accounts and balances of
Security Capital Corporation (the "Company"), and its wholly-owned
subsidiaries, Security Bank S.S.B. and SECP Investment Corporation.
Security Bank S.S.B. and its subsidiaries are collectively referred to as
the "Bank." All significant intercompany accounts and transactions have
been eliminated in consolidation.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP
for complete financial statements. In the opinion of management, all
adjustments of a normal recurring nature necessary for a fair presentation
of the consolidated financial statements have been included. Operating
results for the three month period ended September 30, 1996 are not
necessarily indicative of the results which may be expected for the entire
year ending June 30, 1997. Certain amounts in prior periods have been
reclassified to conform with the fiscal 1997 presentation.
(3) Stock Options
The following table represents a summary of stock option activity since June
30, 1996:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
--------- ---------------
<S> <C> <C>
Options outstanding at June 30, 1996 1,201,900 $25.00 to 61.00
Granted 10,000 $59.25
Exercised (10,933) $25.00
Forfeited (400) $61.00
--------- ---------------
Options outstanding at September 30, 1996 1,200,567 $25.00 to 61.00
Options exercisable on September 30, 1996 1,070,767
</TABLE>
At September 30, 1996, there were options to purchase 71,000 shares
available for future grant.
(4) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet risk
occurring in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit and
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the consolidated financial statements.
The contract amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL AMOUNTS
-------------------------------
SEPTEMBER 30, JUNE 30,
1996 1996
------- --------
(In thousands)
<S> <C> <C>
Financial instruments whose contractual amounts represent
credit risk are as follows:
Commitments to extend credit $128,544 $ 78,253
Commitments to sell loans under:
Mandatory commitments 37,704 18,533
Standby commitments 44,026 44,841
Unused and open-ended consumer lines of credit 185,720 183,588
</TABLE>
6
<PAGE> 9
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Loans and Leases
Loans and leases, net of participation interests sold, are summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JUNE 30, 1996
---------------------- -------------------------
PERCENT PERCENT INCREASE
AMOUNT OF TOTAL AMOUNT OF TOTAL (DECREASE)
---------- -------- ---------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
Residential one-to-four family $1,353,059 49.87% $1,282,271 49.01% $ 70,788
Residential multi-family 559,568 20.62 542,778 20.75 16,790
Home equity 455,979 16.81 433,897 16.58 22,082
Commercial real estate 142,028 5.23 138,498 5.29 3,530
Residential construction (1) 60,430 2.23 66,171 2.53 (5,741)
Commercial construction 8,150 0.30 8,324 0.32 (174)
---------- ------ ---------- ----- --------
TOTAL MORTGAGE LOANS 2,579,214 95.06 2,471,939 94.48 107,275
---------- ------ ---------- ----- --------
COMMERCIAL LOANS, NOT SECURED BY
REAL ESTATE 73,076 2.69 77,258 2.95 (4,182)
CONSUMER LOANS (2) 36,359 1.34 41,115 1.57 (4,756)
LEASES RECEIVABLE 24,653 0.91 26,095 1.00 (1,442)
---------- ------ ---------- ----- --------
GROSS LOANS AND LEASES 2,713,302 100.00% 2,616,407 100.00% 96,895
====== ======
LESS:
Loans in process 36,405 33,041 3,364
Allowance for loan and lease losses 40,669 39,804 865
Unearned income 9,234 9,837 (603)
Net deferred loan origination fees
(costs) (43) 191 (234)
---------- ---------- --------
TOTAL LOANS AND LEASES, NET $2,627,037 $2,533,534 $ 93,503
========== ========== ========
</TABLE>
- -------------------
(1) Residential construction includes both one-to-four family and
multi-family construction.
(2) For purposes of this table, consumer loans do not include home equity
loans.
The Company serviced approximately 26,000 mortgage loans at both September
30, 1996 and June 30, 1996, which are owned by certain institutional investors
and other entities and are not included in the Company's loan balances. The
interest of institutional investors and others in such loans aggregated
approximately $1.5 billion at both September 30, 1996 and June 30, 1996.
Related escrow balances maintained in connection with the loan servicing were
$35.1 million and $26.5 million, at September 30, 1996 and June 30, 1996,
respectively. These funds were on deposit in special bank accounts, the
majority of which are maintained at the Bank.
Activity in the allowance for loan and lease losses is summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Beginning balance $39,804 $33,724
Provision for loan losses 997 1,678
Recoveries 83 414
Charge-offs (215) (65)
------- -------
Ending balance $40,669 $35,751
======= =======
</TABLE>
7
<PAGE> 10
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Non-performing loans include troubled debt restructurings and loans on which
accrual of interest, amortization of deferred net fees or costs and accretion
of discount has ceased. The following table summarizes non-performing loans
and assets:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
----------- --------
<S> <C> <C>
Nonaccrual loans and leases:
Mortgage loans $3,264 $3,516
Commercial loans --- ---
Consumer loans 123 130
Leases receivable 61 ---
------ ------
Total non-performing loans $3,448 $3,646
Foreclosed properties and real estate owned 93 289
------ ------
Total non-performing assets $3,541 $3,935
====== ======
Non-performing loans to gross loans 0.13% 0.14%
Non-performing assets to total assets 0.10 0.11
</TABLE>
(6) Earnings per Share
Earnings per share of common stock for each of the three months ended
September 30, 1996 and 1995 have been determined by dividing net income for
the period by the weighted average number of shares of common stock and
common stock equivalents outstanding. Stock options are regarded as common
stock equivalents and are therefore considered in both primary and fully
diluted earnings per share calculations. Common stock equivalents are
computed using the treasury stock method.
The computation of earnings per share on net income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
1996 1995
-------------------------------------- ---------------------------------
FULLY
PRIMARY FULLY DILUTED PRIMARY DILUTED
--------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Net income $ 2,872,950 $ 2,872,950 $ 7,103,000 $ 7,103,000
============= ============ =========== =============
Common shares issued 10,810,000 10,810,000 10,810,000 10,810,000
Unallocated ESOP shares (599,035) (599,035) (649,480) (649,480)
Net treasury shares (1,545,550) (1,545,550) (1,087,856) (1,087,856)
Ungranted shares in Bank Incentive
Plan (112,700) (112,700) (112,700) (112,700)
Weighted average common shares ------------- ------------ ----------- -------------
outstanding 8,552,715 8,552,715 8,959,965 8,959,965
Common stock equivalents based
on the treasury stock method 702,596 731,964 614,507 629,777
Total weighted average common ------------- ============ =========== =============
shares and equivalents outstanding 9,255,311 9,284,679 9,574,472 9,589,742
============= ============ =========== =============
Earnings per share on net income $ 0.31 $ 0.31 $ 0.74 $ 0.74
============= ============ =========== =============
</TABLE>
8
<PAGE> 11
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) Borrowings
Borrowings consist of the following:
SEPTEMBER 30, 1996
-----------------------------------------
(In thousands)
WEIGHTED
VARIABLE TOTAL AVERAGE
BORROWINGS MATURE: FIXED (MONTHLY) AMOUNT RATE
------------------ ----- --------- ------- ---------
[S] [C] [C] [C] [C]
Less than 12 months $299,163 $ 50,000 $349,163 5.62%
13-24 months 175 100,000 100,175 5.52
25-36 months 102 50,000 50,102 5.50
37-48 months 104 --- 104 6.25
49-60 months 104 50,000 50,104 5.50
After 60 months 775 --- 775 6.92
-------- -------- -------- ----
$300,423 $250,000 $550,423 5.58%
======== ======== ======== ====
JUNE 30, 1996
------------------------------------------
(In thousands)
WEIGHTED
VARIABLE TOTAL AVERAGE
BORROWINGS MATURE: FIXED (MONTHLY) AMOUNT RATE
------------------ ----- --------- ------- ---------
[S] [C] [C] [C] [C]
Less than 12 months $263,663 $ --- $263,663 5.56%
13-24 months 50,175 150,000 200,175 5.63
25-36 months 102 --- 102 6.30
37-48 months 104 50,000 50,104 5.53
49-60 months 105 50,000 50,105 5.47
After 60 months 778 --- 778 6.92
-------- -------- -------- ----
$314,927 $250,000 $564,927 5.58%
======== ======== ======== ====
Borrowings consist of funds borrowed in the federal funds market through
brokers on an overnight basis, or for a term not to exceed one year, and
from the Federal Home Loan Bank (FHLB). Federal funds purchased totaled
$247,000,000 and $255,000,000 at September 30, 1996 and June 30, 1996,
respectively, and are due within 12 months. FHLB advances accounted for
the remaining borrowings. The Company is required to maintain as
collateral unencumbered first mortgage loans in its portfolio such that the
outstanding balance of FHLB advances does not exceed 60% of the book value
of this collateral. At September 30, 1996, the Company estimates that
potential borrowings from the FHLB totaling approximately $824,309,000
would be supportable with the Company's current asset base. This amount
available is reduced by existing FHLB borrowings which limit the potential
incremental amount available from the FHLB to $520,886,000. The Company
also has other sources of borrowings which would further add to its
borrowing capacity.
The maximum amount of borrowings at any month-end during the three months
ended September 30, 1996 and the year ended June 30, 1996 was approximately
$592.4 million and $564.9 million, respectively. The approximate average
amount outstanding was $559.1 million and $419.8 million over those same
periods. The weighted average interest rate paid was 5.65% and 5.79%
during the three months ended September 30, 1996 and the year ended June
30, 1996, respectively. None of the borrowings may be prepaid. FHLB
advances totaling $50 million due in 49-60 months are callable at the
discretion of the FHLB every six months beginning in November 1996.
9
<PAGE> 12
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Securities Available-for-Sale
The amortized cost and estimated market values are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES:
US Treasury securities and obligations of
government corporations and agencies $119,796 $ 3,140 $ (946) $ 121,990
Corporate debt securities 135,551 607 (56) 136,102
Municipal securities 53,157 11 (176) 52,992
Other securities 150 --- --- 150
-------- -------- --------- ----------
TOTAL INVESTMENT SECURITIES $308,654 $ 3,758 $ (1,178) $ 311,234
======== ======== ========= ==========
MORTGAGE-BACKED & RELATED SECURITIES:
Federal Home Loan Mortgage Corporation $ 56,138 $ 1,075 $ --- $ 57,213
Government National Mortgage Association 2,451 112 (2) 2,561
Federal National Mortgage Association 25 1 --- 26
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corporation 92,980 1,385 (80) 94,285
Federal National Mortgage Association 169,868 6,006 --- 175,874
-------- -------- --------- ----------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES $321,462 $ 8,579 $ (82) $ 329,959
======== ======== ========= ==========
</TABLE>
The amortized cost and estimated market value of investment securities
available-for-sale by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Contractual maturities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
(In thousands)
<S> <C> <C>
AVAILABLE-FOR-SALE INVESTMENT SECURITIES:
Due in one year or less $194,919 $194,515
Due after one year through five years 108,397 108,349
Due after five years through ten years 150 150
Due after ten years 5,188 8,220
-------- --------
$308,654 $311,234
======== ========
</TABLE>
10
<PAGE> 13
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q or future filings by the
Company with the Securities and Exchange Commission, in quarterly reports or
press releases or other public or shareholder communications, or in oral
statements made with the approval of an authorized executive officer, various
words or phrases are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE WORDS AND PHRASES SUCH AS, "WILL LIKELY
RESULT," "ARE EXPECTED TO," "WILL CONTINUE," "IS ANTICIPATED," "ESTIMATE,"
"PROJECT" OR SIMILAR EXPRESSIONS AND VARIOUS OTHER STATEMENTS INDICATED HEREIN
WITH AN ASTERISK AFTER SUCH STATEMENTS. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors could
affect the Company's financial performance and could cause actual results for
future periods to differ materially from those anticipated or projected. Such
factors include, but are not limited to: (i) general market rates, (ii) general
economic conditions, (iii) legislative/regulatory changes, (iv) monetary and
fiscal policies of the U.S. Treasury and the Federal Reserve, (v) changes in
the quality or composition of the Company's loan and investment portfolios,
(vi) demand for loan products, (vii) deposit flows, (viii) competition, (ix)
demand for financial services in the Company's markets, and (x) changes in
accounting principles, policies or guidelines.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
RESULTS OF OPERATIONS
NET INCOME. Net income, before a one-time after-tax charge of $7.9 million or
86 cents per share for an FDIC special assessment, increased $3.7 million or
52.1% to $10.8 million for the three months ended September 30, 1996 from $7.1
million for the three months ended September 30, 1995. Earnings per share
without the special assessment increased from $0.74 to $1.17 per share over the
same periods. The major components of this increase in earnings for the three
months ended September 30, 1996 compared to the three months ended September
30, 1995 are discussed in the following paragraphs and generally include: an
increase of $3.1 million in net interest income, an increase of $1.0 million in
non-interest income, a decrease of $0.7 million in loan loss provisions, and a
decrease of $0.7 million in non-interest expenses, partially offset by an
increase of $1.9 million in income tax expense.
Including the after-tax effect of the non-recurring charge for an FDIC special
assessment of $7.9 million for the quarter ended September 30, 1996, net income
was $2.9 million and earnings per share was $0.31. See "Recent Events" for a
further discussion of the FDIC special assessment.
NET INTEREST INCOME. Net interest income increased $3.1 million or 11.2% to
$30.7 million for the three months ended September 30, 1996 compared to $27.6
million for the three months ended September 30, 1995. The net interest margin
increased to 3.75% for the three months ended September 30, 1996 from 3.68% for
the three months ended September 30, 1995 and the interest rate spread
increased to 2.89% from 2.69% during the same periods. The increases in margin
and spread were due primarily to a 17 basis point increase in the average yield
on loans and a 3 basis point decrease in the average cost of interest-bearing
liabilities. The increase in margin and spread was partially offset by the
Bank's purchase of two Bank-owned life insurance policies in October 1995 and
July 1996 for $25.0 million each. The Company sold securities
available-for-sale to fund such purchases, thereby, effectively transferring
the amount of the purchase price of such policies out of interest-earning
assets. Growth in the average balances from the three months ended September
30, 1995 to the three months ended September 30, 1996 was $254.5 million for
interest-earning assets and $290.7 million for interest-bearing liabilities.
Total interest income increased $6.6 million to $64.8 million for the three
months ended September 30, 1996 compared to $58.2 million for the same period
in the prior year. The increase was primarily the result of increases in
interest income of $5.6 million and $1.3 million on loans and leases and
mortgage-backed and related securities, respectively. The $254.5 million
increase in average interest-earning assets combined with a 17 basis point
increase in the yield on interest-earning assets from 7.69% for the three
months ended September 30, 1995 to 7.86% for the three months ended September
30, 1996 due to adjustments in adjustable rate mortgages and additions to
longer-term fixed rate loan portfolios, resulted in the overall increase in
interest income.
11
<PAGE> 14
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Total interest expense increased $3.4 million to $34.1 million for the three
months ended September 30, 1996 compared to $30.7 million for the same period
last year. The increase was attributable to a $290.7 million increase in
average interest- bearing liabilities to $2.746 billion at September 30, 1996,
compared to $2.456 billion at September 30, 1995, partially offset by a 3 basis
point decrease in the cost of interest-bearing liabilities from 5.00% for the
three months ended September 30, 1995 to 4.97% for the three months ended
September 30, 1996. The increase in average interest-bearing liabilities
included growth in borrowings of $198.0 million and an increase in deposits of
$95.4 million, of which $24.4 million was from brokered deposits. Borrowings
and brokered deposits have been used to facilitate the Company's securities and
loan portfolio growth, and are part of a longer-term plan to leverage the
Company's capital to facilitate an increase in net income and return on
equity.* The average cost of borrowings and deposits decreased in accordance
with market rates by 42 basis points and 2 basis points, respectively, from the
three months ended September 30, 1995 to the three months ended September 30,
1996.
PROVISION FOR LOAN AND LEASE LOSSES. The provision for loan and lease losses
decreased $0.7 million to $1.0 million for the three months ended September
30, 1996, compared to a provision of $1.7 million for the three months ended
September 30, 1995, reflecting low net charge-offs and non-performing loan
ratios. Charge-offs exceeded recoveries by $132,000 for the three months
ended September 30, 1996. Gross loans and leases increased $96.9 million for
the three months ended September 30, 1996 and $75.5 million for the three
months ended September 30, 1995. The allowance for loan and lease losses
increased $0.9 million to $40.7 million at September 30, 1996 from $39.8
million at June 30, 1996, and represented 1.50% and 1.52% of gross loans and
leases receivable and 1179.49% and 1091.78% of non-performing loans,
respectively.
NON-INTEREST INCOME. Non-interest income increased $1.0 million to $5.6
million for the three months ended September 30, 1996 from $4.6 million for
the three months ended September 30, 1995. The increase was primarily the
result of increases of $0.7 million in income from the increase in cash
surrender values on $50.0 million of single premium bank-owned life insurance
policies purchased in October 1995 and July 1996, $0.3 million in other income
and $0.1 million in insurance and annuity commissions. The increase in other
income included increases of $0.2 million in gains on disposals of fixed assets
and $0.1 million of increased lease rental income. Partially offsetting those
increases was a $0.2 million decrease in gains on sales of loans held-for-sale.
Loan sales were down 50% from the same period in the previous year as the Bank
was retaining fixed rate loans to facilitate portfolio growth during the
quarter ended September 30, 1996.
NON-INTEREST EXPENSE. Non-interest expense, excluding $13.2 million of pre-tax
non-recurring charges for the FDIC special assessment, decreased $0.7 million
to $18.0 million for the three months ended September 30, 1996 compared to
$18.7 million for the three months ended September 30, 1995. The primary
reasons for the decrease include decreases in compensation and employee
benefits of $0.9 million and professional fees of $0.3 million, partially
offset by increases of $0.3 million in marketing expense to support the
Company's growth and $0.1 million in regular FDIC premiums on additional
deposits. The decrease in compensation and employee benefits was due to the
elimination of $0.9 million from the amortization of the Bank Incentive Plan
(BIP) expenses which was completed in December 1995.
The FDIC special assessment was a $13.2 million pre-tax or $7.9 million
after-tax non-recurring expense recognized in the quarter ended September 30,
1996 to recapitalize the Savings Association Insurance Fund ("SAIF") of the
FDIC. For a further discussion, see "Recent Events."
INCOME TAX EXPENSE. Income tax expense decreased $3.4 million from $4.7
million for the three months ended September 30, 1995, to $1.3 million for
the three months ended September 30, 1996. The decrease was the result of
lower pre-tax income due to the FDIC special assessment, higher non-taxable
income, and the recognition of certain deferred state income tax benefits.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
unaudited consolidated statements of financial condition and the unaudited
consolidated statements of income for the three months ended September 30, 1996
and 1995 and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of
interest-bearing assets or liabilities, respectively, for the periods shown.
Average balances are derived principally from average daily balances and
include non-accruing loans. The yields and costs include fees which are
considered adjustments to yields. Interest income on non-accruing loans is
reflected
12
<PAGE> 15
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
in the period it is collected and not in the period it is earned. Such amounts
are not material to net interest income or net change in net interest income in
any period. Interest income and average yield on tax-exempt securities
available-for-sale and tax-exempt securities held-to-maturity are presented on
a before tax-equivalent basis, applying a federal income tax rate of 35%.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1996 1995
------------------------------------------- ------------------------------------------
AVERAGE AVERAGE
AVERAGE BALANCE INTEREST YIELD/COST AVERAGE BALANCE INTEREST YIELD/COST
--------------- -------- ----------- --------------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
FHLB deposits and other interest
bearing deposits $ 4,528 $ 60 5.28% $ 4,567 $ 66 5.78%
Securities available-for-sale:
Securities-taxable 269,785 4,579 6.79 134,400 2,283 6.79
Securities-tax-exempt 53,187 815 6.13 65,834 987 6.00
Mortgage-backed and related
securities 323,134 5,622 6.96 197,903 3,748 7.58
Loans held-for-sale 27,675 431 6.23 39,902 663 6.65
Securities held-to-maturity:
Securities-taxable --- --- --- 137,914 1,902 5.52
Securities-tax-exempt --- --- --- 48,067 816 6.79
Mortgage-backed and related
securities --- --- --- 36,753 611 6.65
Loans and leases (gross) 2,616,405 53,322 8.15 2,377,632 47,451 7.98
FHLB stock 22,624 385 6.81 19,881 338 6.81
-------------- ---------- ---------- --------------- -------- ----------
Total interest-earning assets 3,317,338 65,214 7.86% 3,062,853 58,865 7.69%
Cash and non-interest bearing deposits 30,744 28,951
Bank-owned life insurance 50,147 ---
Allowance for loan losses (40,147) (34,474)
Deferred fees and other (233) (492)
Other non-interest-earning assets 94,132 94,994
-------------- ---------------
Total assets $3,451,981 $3,151,832
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $2,146,239 25,943 4.84% $2,050,869 24,924 4.86%
Borrowings 559,082 7,902 5.65 361,049 5,476 6.07
Advances from borrowers for taxes and
insurance 40,895 269 2.64 43,605 276 2.53
-------------- ---------- ---------- --------------- -------- ----------
Total interest-bearing liabilities 2,746,216 34,114 4.97% 2,455,523 30,676 5.00%
Non-interest-bearing demand account 68,488 68,750
Other liabilities 73,707 70,865
Stockholders' equity 563,570 556,694
-------------- ---------------
Total liabilities and stockholders'
equity $3,451,981 $3,151,832
============== ===============
Interest spread 2.89% 2.69%
Net interest income $31,100 ========== $28,189 ==========
Net interest margin (net yield on ========== ========
interest-earning assets) (1)3.75% 3.68%
Average interest-earning assets to ========== ==========
average interest-bearing liabilities 120.80% 124.73%
========== ==========
</TABLE>
(1) If single premium Bank-owned life insurance was considered an
interest-earning asset, the quarter ended September 30, 1996 net interest
margin would have been 3.83%.
13
<PAGE> 16
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION. The Company's total assets increased $57.1 million to
$3.494 billion at September 30, 1996 from $3.437 billion at June 30, 1996. The
Company's ratio of stockholders' equity to total assets was 15.89% at September
30, 1996 compared to 16.26% at June 30, 1996.
Securities available-for-sale are reflected at market value. Securities
available-for-sale decreased $43.4 million to $641.2 million at September 30,
1996 from $684.6 million at June 30, 1996, primarily due to the use of proceeds
from the sale of securities to purchase $25.0 million of Bank-owned life
insurance.
The Company held approximately $270.2 million in Collateralized Mortgage
Obligations (CMOs) at September 30, 1996 compared to $269.9 million at June 30,
1996. Continued growth is part of a long-term plan to leverage the Company's
capital to facilitate an increase in net income.* In accordance with Company
policy, each individual CMO security represents less than 1% of the Company's
assets and prior to purchase, was determined not to be a "high risk" mortgage
security as defined by the FDIC. The CMOs are tested quarterly to ensure they
are not high risk.
Loans and leases, net, increased $93.5 million to $2.627 billion at September
30, 1996 from $2.534 billion at June 30, 1996. The increase was primarily in
residential one-to-four-family, multi-family and home equity mortgage loans,
and was funded with increased deposits and a decrease in investment securities.
The Company emphasizes high asset quality in both its investment portfolio and
its lending activities. Non-performing assets were 0.10% and 0.11% of total
assets at September 30, 1996 and June 30, 1996, respectively. There were net
loan charge-offs of $0.1 million during the three months ended September 30,
1996. None of the Company's investment or mortgage-backed and related
securities are categorized as non-performing assets.
In July 1996, the Company sold securities to fund the purchase of a second
$25.0 million of single premium Bank-owned life insurance on its officers.
Increases in the cash surrender value are reported in non-interest income. The
Company is utilizing this vehicle because of its attractive tax-equivalent
return and intends to use proceeds from the policy benefits to fund and offset
future employee benefit costs.*
Deposits increased $55.3 million to $2.256 billion at September 30, 1996 from
$2.200 billion at June 30, 1996. The increase was primarily the result of
various marketing strategies designed to promote specific deposit products and
to acquire or expand targeted customer deposits. Brokered money market
deposits increased $31.9 million during the three months ended September 30,
1996 to $388.6 million, representing 17.2% of total deposits at September 30,
1996 compared to 16.2% of total deposits at June 30, 1996.
Borrowings decreased $14.5 million to $550.4 million at September 30, 1996 from
$564.9 million at June 30, 1996. As of September 30, 1996, and June 30, 1996,
FHLB advances accounted for $303.4 million and $309.9 million and federal funds
purchased accounted for $247.0 million and $255.0 million of total borrowings,
respectively. Borrowings are used to supplement deposits to fund growth in
investments and loans. This growth is part of a long-term plan to leverage the
Company's capital to facilitate an increase in net income.*
ASSET/LIABILITY MANAGEMENT
To manage vulnerability to interest rate changes, management closely monitors
the Company's interest rate risk position. The Company seeks to enhance its
income while managing its interest rate risk primarily through the structuring
of its balance sheet in order to reduce its vulnerability to changes in interest
rates. Although the Company's assets and liabilities maturing and repricing
within one year are relatively well-matched with a cumulative negative gap ratio
as of September 30, 1996 of 6.17%, a cumulative negative gap ratio of 24.12%
and 16.90% existed at three and six months as of September 30, 1996,
respectively.
The following Asset/Liability Management Schedule sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at
September 30, 1996, which are anticipated by the Company to mature or reprice
in each of the periods shown, based on the information and assumptions set
forth in the notes below. This table does not reflect the impact of any
hedging activity or financial techniques utilized by the Company to mitigate
interest rate risk, because it would not have a material effect on the
Company's "gap" position.* Certain shortcomings are inherent in the method of
analysis presented in the following table. For example, although
14
<PAGE> 17
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in varying degrees to changes in market interest
rates.* The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other assets or liabilities may lag behind changes in market rates.*
Additionally, certain assets, such as ARM loans and mortgage-backed and related
securities, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset such as 1% annual caps and
lifetime caps. Also, the proportion of ARM loans and mortgage-backed and
related securities in the Company's portfolios could decrease in future periods
if market interest rates remain at or decrease below current levels due to the
exercise of conversion options and refinancing activity.* While prepayments of
loans have been estimated based on current market interest rates, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the table.*
At September 30, 1996, total interest-bearing liabilities maturing or repricing
within three months exceeded total interest-earning assets maturing or repricing
in the same period by $842.8 million, representing a negative cumulative three
month gap ratio of 24.12%, compared to $866.5 million and 25.21%, respectively,
as of June 30, 1996. The six month cumulative gap and gap ratio are,
respectively, a negative $590.4 million and a negative 16.90% at September 30,
1996, compared to a negative $620.6 million and a negative 18.06% at June 30,
1996. The one year cumulative gap and gap ratio are, respectively, a negative
$215.5 million and a negative 6.17% at September 30, 1996, compared to a
negative $251.6 million and a negative 7.32% at June 30, 1996. The Company has
concentrated on extending the maturities of its borrowed funds and deposits,
thereby causing a decrease in the one year cumulative negative gap.*
The Company's negative gap position indicates more liabilities will reprice
within one year than assets and the Company may generally benefit in the
short-term from a decline in interest rates.* When interest rates first
decline, the lag in the downward adjustment in the ARM loan yields will have a
short-term positive effect; however, should the decline in interest rates
accelerate or such rate environment be prolonged, the Company's loan and
mortgage-backed securities portfolios may experience an increase in prepayments
which would result in lower yields or a decrease in balances.* During periods
of rising interest rates, not only will liabilities reprice more quickly, based
on the "gap," but increases in the yield on interest-earning assets may occur
with a lag and to a lesser extent than may be anticipated from the gap ratio due
to the structuring of the Company's one-year ARM loans utilizing "Cost of Funds
Indices" and 1% annual caps.* Accordingly, the Company may be adversely
affected by rising interest rates as the lag effect of the "Cost of Funds
Indices" causes the yields on the ARM loans to not increase even though general
interest rates begin to rise.* In addition, rising interest rates may cause the
Company to experience a decrease in prepayments on loans and mortgage-backed
securities from that used in calculating the "gap" which would result in fewer
funds available to reinvest at the higher rates.
15
<PAGE> 18
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ASSET/LIABILITY MANAGEMENT SCHEDULE
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------------------------------------------------------------------
REPRICING OR MATURING
---------------------------------------------------------------------------------
MORE THAN MORE THAN
WITHIN THREE MORE THAN ONE YEAR OVER
THREE MONTHS TO SIX MONTHS TO FIVE FIVE
MONTHS SIX MONTHS TO ONE YEAR YEARS YEARS TOTAL
------ ---------- ----------- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: (1)
Mortgage loans: (2)
Fixed $ 18,130 $ 18,568 $ 54,321 $211,560 $111,512 $ 414,091
Adjustable 369,231 424,640 571,908 277,553 --- 1,643,332
Home equity 208,570 21,682 40,299 142,018 35,662 448,231
Commercial loans (2) 31,439 2,466 5,080 27,212 --- 66,197
Consumer loans (2) 11,272 5,735 6,736 12,131 34 35,908
Leases receivable (2) 1,508 1,186 1,958 6,490 8,136 19,278
Loans held-for-sale 26,629 --- --- --- --- 26,629
Investment securities available-for-sale:
U.S. Treasury securities and
obligations of U.S. Gov't
corporations and agencies 13,829 --- --- 103,161 5,000 121,990
Municipal bonds 10,200 5,148 --- 37,644 --- 52,992
Corporate debt securities 15,058 40,161 20,227 60,656 --- 136,102
Mortgage-backed and related
securities 273,192 28,196 2,511 13,871 12,189 329,959
Other --- --- --- --- 150 150
Other assets:
Interest-bearing FHLB deposits 450 --- --- --- --- 450
FHLB stock --- --- --- --- 22,624 22,624
---------- --------- --------- -------- -------- ----------
TOTAL INTEREST-EARNING ASSETS $ 979,508 $ 547,782 $ 703,040 $892,296 $195,307 $3,317,933
========== ========= ========= ======== ======== ==========
INTEREST-BEARING LIABILITIES: (1)
Deposits: (3)
Interest-bearing demand accounts $ 89,520 $ --- $ --- $ --- $ --- $ 89,520
Money market accounts 643,836 --- --- --- --- 643,836
Passbook accounts 284,920 --- --- --- --- 284,920
Certificates of deposit 335,149 218,374 277,975 333,239 357 1,165,094
Borrowings:
Advances and other borrowings 422,000 77,000 50,163 485 775 550,423
Advances from borrowers for taxes
and insurance 46,905 --- --- --- --- 46,905
---------- --------- --------- -------- -------- ----------
TOTAL INTEREST-BEARING LIABILITIES $1,822,330 $ 295,374 $ 328,138 $333,724 $ 1,132 $2,780,698
========== ========= ========= ======== ======== ==========
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (842,822) $ 252,408 $ 374,902 $558,572 $194,175 $ 537,235
========== ========= ========= ======== ======== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities $ (842,822) $(590,414) $(215,512) $343,060 $537,235
========== ========= ========= ======== ========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percent of total
assets (24.12)% (16.90)% (6.17)% 9.82% 15.37%
========== ========= ========= ======== ========
Total assets for above ratios $3,494,427
(Notes on following page) ==========
</TABLE>
16
<PAGE> 19
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Notes to Asset/Liability Management Schedule
(1) Adjustable and floating-rate assets and liabilities are included in the
period in which interest rates are next scheduled to adjust rather than in
the period in which they are due. Fixed-rate assets are included in the
periods in which they are scheduled to be repaid based on scheduled
amortization, in each case adjusted to take into account estimated
prepayments based on the Company's historical prepayment statistics. For
home equity and mortgage loans and mortgage-backed securities, annual
prepayment rates ranging from 8% to 30% were used.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
discounts, deferred loan fees and allowances for loan losses, which
aggregated $86.3 million at September 30, 1996.
(3) Although the Company's interest-bearing demand accounts, money market
accounts and passbook accounts generally are subject to immediate
withdrawal, management considers a certain amount of such accounts to be
core deposits having significantly longer effective maturities based on the
Company's retention of such deposits in changing interest rate
environments. However, in managing the Company's interest rate risk,
management considers these deposits to be interest rate sensitive because
the rates paid may vary with market conditions.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management for the Company is both a daily and long-term component of
the Company's management strategy. The Company maintains liquidity levels
sufficient to accommodate normal deposit fluctuations, the payment of dividends
and various other funding needs, and to meet its asset and liability management
objectives. Excess funds generally are invested in short-term investments such
as overnight deposits at the FHLB-Chicago. In the event that the Company
should require funds in excess of those generated through its primary sources,
additional funds are available through the use of FHLB-Chicago advances,
reverse repurchase agreements, and the purchase of federal funds.
The Company's most liquid assets are cash, interest-bearing and
non-interest-bearing bank balances, loans held for sale and securities
available-for-sale. The levels of these assets are dependent on the Company's
operating, financing, lending and investing activities during any given period.
These assets totaled $702.1 million and $768.7 million at September 30, 1996
and June 30, 1996, respectively. The Company's ratio of these assets to total
deposits was 31.1% and 34.9% at September 30, 1996 and June 30, 1996,
respectively.
The primary investing activity of the Company is the origination of loans. The
Company originates fixed- and adjustable-rate residential, multi-family and
commercial mortgage loans, non-mortgage commercial loans and consumer loans.
During the three months ended September 30, 1996 and 1995, the Company
originated loans totaling $250.3 million and $306.8 million, respectively,
purchased loans totaling $16.9 million and $4.8 million, respectively, and sold
loans totaling $48.2 million and $95.8 million, respectively.
During the three months ended September 30, 1996 and 1995, the Company received
principal repayments on loans totaling $143.5 million and $148.3 million,
respectively, and principal repayments on mortgage-backed and related
securities of $2.9 million and $3.5 million, respectively.
The Company experienced net increases in deposits of $55.3 million and $33.2
million for the three months ended September 30, 1996 and 1995, respectively.
Brokered deposits represented $31.9 million or 57.7% of the increase for the
three months ended September 30, 1996 and $12.8 million or 38.6% of the
increase for the three months ended September 30, 1995. All of the Company's
brokered deposits are in money market accounts. The level of deposit inflows
during any given period is heavily influenced by factors such as the general
level of short- and long-term interest rates in the economy, as well as
alternative yields that investors may obtain on competing investment
instruments such as money market mutual funds.
17
<PAGE> 20
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Certificates of deposit which are scheduled to mature in one year or less at
September 30, 1996 totaled $831.5 million. Based on historical experience,
management believes that a significant portion of such deposits will remain
with the Company.*
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
contains provisions for capital standards that require banks to have a minimum
3% leverage ratio (Tier I capital to adjusted total assets), a minimum 4% Tier
I capital to risk-weighted assets ratio and a minimum 8% qualifying total
capital to risk-weighted assets ratio. The Bank's regulatory capital exceeds
all minimum standards required under FDICIA.
A summary of the Bank's regulatory capital amounts are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -------
(Dollars in thousands)
<S> <C> <C>
Risk-based capital:
Equity $ 423,024 $ 419,660
Less goodwill and other intangibles --- ---
Less unrealized gain on available-for-sale securities, net of tax (7,522) (6,767)
----------- -----------
Total Tier I capital 415,502 412,893
Allowable allowance for loan and lease losses (Tier II capital) 31,023 30,264
Qualifying total capital $ 446,525 $ 443,157
Risk-weighted assets $ 2,472,176 $ 2,411,582
Tier I leverage ratio 12.37% 12.72%
=========== ===========
Tier I capital to risk-weighted assets 16.81% 17.12%
=========== ===========
Qualifying total capital to risk-weighted assets 18.06% 18.38%
=========== ===========
</TABLE>
RECENT EVENTS
Deposits of the Bank currently are insured to applicable limits by the FDIC
under the Savings Associations Insurance Fund
("SAIF"). The FDIC also insures commercial bank deposits under the Bank
Insurance Fund ("BIF"). Premium levels are set in order to permit the funds to
be capitalized at a level equal to 1.25% of total fund deposits.
Congress recently passed legislation to address the deposit insurance premium
disparity which existed between banks and thrifts. Most banks were paying only
a nominal $2,000 annual premium while thrifts were paying 23.4 basis points of
deposits because SAIF had not reached its 1.25% capitalization level like the
BIF had achieved. The "Deposit Insurance Funds Act of 1996" (the "DIF Act")
was included as part of an Omnibus Appropriations Bill that was signed into law
on September 30, 1996. Pursuant to the terms of the DIF Act, the FDIC was
directed to impose a special assessment on SAIF-assessable deposits at a rate
that would cause the SAIF to achieve its designated reserve ratio of 1.25% of
SAIF-insured deposits as of October 1, 1996. The DIF Act requires that the
special assessment be applied against the SAIF-assessable deposits held by
institutions as of March 31, 1995. Pursuant to a final rule issued by the FDIC
on October 16, 1996, the special assessment rate was determined to be 65.7
basis points. This one-time special assessment will fully capitalize SAIF and
will be collected on November 27, 1996.
18
<PAGE> 21
Based on the special assessment being imposed at 65.7 basis points, the amount
of the assessment to the Bank would be approximately $13.2 million dollars.
The special assessment had the effect of reducing the Bank's earnings and
capital by the after tax amount of the assessment as the date of enactment,
which is estimated to be $7.9 million or 86 cents per share. As described
below, with the recapitalization of the SAIF, it is currently anticipated that
BIF and SAIF regular premiums will be comparable and FDIC premium expense is
expected to therefore be reduced in future periods.*
The FDIC published a proposed rule on October 16, 1996, under which a permanent
base assessment schedule for the SAIF would be established, setting assessment
rates at a range of 4 to 31 basis points. The proposed rule also called for an
adjusted assessment schedule reducing these rates by 4 basis points to reflect
current conditions, producing an effective SAIF assessment range of 0 to 27
basis points beginning October 1, 1996. This assessment range is comparable to
the current schedule for BIF-institutions. A special interim rate schedule
ranging from 18 to 27 basis points was announced for SAIF-insured institutions
for the last quarter of calendar year 1996, reflecting the fact that
assessments related to certain bond obligations of the Financial Corporation
("FICO"), which were issued to resolve the savings and loan crisis in the
1980's, are included in the SAIF rates for these institutions during that
period.
The DIF Act addresses other matters which will affect the Bank. The FICO
obligations will be shared by all insured depository institutions beginning
after December 31, 1996. This obligation had previously been the sole
responsibility of SAIF-insured institutions and had been funded through SAIF
assessments. The DIF Act eliminated the statutory link between FICO's
assessments and amounts authorized to be assessed by the SAIF, effective
January 1, 1997. All insured institutions will pay an annual assessment to
fund interest payments on the FICO bonds. Beginning in 1997, BIF-member
institutions will pay one-fifth the rate to be paid by SAIF members, for the
first three years. The annual FICO assessment is estimated to be 1.3 and 6.4
basis points of deposits for BIF and SAIF members, respectively. After January
1, 2000, BIF and SAIF members will share the FICO payments on a pro-rata basis,
which will be assessed at 2.4 basis points, until the bonds mature in 2017.
In addition, the DIF Act provides for the merger of BIF and SAIF into a single
Deposit Insurance Fund. This provision will be effective January 1, 1999,
assuming that no insured depository institution is a savings association on
that date. This legislation contemplates that the savings association charter
will be phased out over that period of time. The DIF Act also calls for the
Secretary of the Treasury to undertake a study concerning the development of a
common charter for all insured depository institutions and the abolition of
separate and distinct charters for banks and savings associations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In fiscal 1996, the Company entered into a settlement agreement with
plaintiffs who filed a purported class action lawsuit against the Company, the
Bank and the members of the Boards of Directors of the Company and the Bank.
The settlement agreement was approved by the court on October 8, 1996, with the
court also at that time certifying the plaintiff class for purposes of the
settlement and ordering that all members of the class who had not excluded
themselves were to receive settlement payments in accordance with the terms of
the agreement. The action was filed in
Cook County, Illinois in 1994 by two Illinois residents seeking to act as named
plaintiffs for a plaintiff class and alleging fraud, misrepresentation and
breach of fiduciary duties in connection with the Bank's 1992 charter
conversion, the Bank's 1993 mutual to stock conversion, and the Company's 1994
proxy solicitation. Plaintiffs alleged that the purported class of depositors
were prevented by the acts complained of from receiving all of the stock they
subscribed for in the 1993 public offering. The defendants have vigorously
contested the charges and the settlement agreement recognizes that defendants
deny any wrong doing or liability. A $12.0 million settlement fund has been
established by or on behalf of the defendants and will be divided (net of
attorneys' fees and administrative expenses) among participating members of the
class in accordance with the settlement agreement. The financial statement
effects of the settlement have been taken for the fiscal year ended June 30,
1996. Due to the legal-related expense provisions taken in prior periods and
$6.0 million in insurance coverage, the impact of the settlement on net income
for the fiscal year ended June 30, 1996 was $2.7million after tax or 28 cents
per share.
19
<PAGE> 22
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On October 23, 1996, the Board of Directors declared a quarterly cash
dividend of 22.5 cents per share of Common Stock to be paid November
29, 1996, to shareholders of record as of November 15, 1996. The
Company anticipates regular quarterly dividends will be paid.* The
amount and appropriateness of future dividends will be based on
earnings and market conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: There are no exhibits to this report, other than the
Financial Data Schedule attached hereto as Exhibit 27.
See Note (6) to the Notes to the Consolidated Financial
Statements (unaudited) for the information required by
Exhibit 11 - Computation of Earnings Per Share.
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
20
<PAGE> 23
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
21
<PAGE> 24
SIGNATURES
Pursuant to the requirements 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.
SECURITY CAPITAL CORPORATION
Dated: November 13, 1996 By: /s/ Wm. G. Schuett Sr.
----------------- ----------------------------------
Wm. G. Schuett, Sr., President and
Chief Executive Officer
Dated: November 13, 1996 By: /s/ Roger D. Kamin
----------------- -------------------------------------
Roger D. Kamin, Senior Vice President,
CFO and Secretary/Treasurer
22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 33,873
<INT-BEARING-DEPOSITS> 450
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 641,193
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,667,706
<ALLOWANCE> 40,669
<TOTAL-ASSETS> 3,494,427
<DEPOSITS> 2,255,749
<SHORT-TERM> 349,163
<LIABILITIES-OTHER> 133,048
<LONG-TERM> 201,260
0
0
<COMMON> 10,810
<OTHER-SE> 544,397
<TOTAL-LIABILITIES-AND-EQUITY> 3,494,427
<INTEREST-LOAN> 53,674
<INTEREST-INVEST> 11,115
<INTEREST-OTHER> 60
<INTEREST-TOTAL> 64,849
<INTEREST-DEPOSIT> 25,943
<INTEREST-EXPENSE> 34,114
<INTEREST-INCOME-NET> 30,735
<LOAN-LOSSES> 997
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 31,206
<INCOME-PRETAX> 4,183
<INCOME-PRE-EXTRAORDINARY> 2,873
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,873
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 3.75
<LOANS-NON> 3,448
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,804
<CHARGE-OFFS> 215
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 40,669
<ALLOWANCE-DOMESTIC> 40,669
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
