<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 MARCH 31, 1997
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 9,208,332 AT MAY 12, 1997.
<PAGE> 2
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements:
Consolidated Statements of Financial Condition
at March 31, 1997 (unaudited) and June 30, 1996 ............... 1
Consolidated Statements of Income for the three and nine
months ended March 31, 1997 and 1996 (unaudited) .............. 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended March 31, 1997 and 1996 (unaudited).. 3
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1997 and 1996 (unaudited) ........................... 4
Notes to Consolidated Financial Statements (unaudited) .......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................... 23
ITEM 2. Changes in Securities ........................................... 24
ITEM 3. Defaults Upon Senior Securities ................................. 24
ITEM 4. Submission of Matters to a Vote of Security Holders ............. 24
ITEM 5. Other Information ............................................... 24
ITEM 6. Exhibits and Reports on Form 8-K ................................ 24
SIGNATURES .............................................................. 26
</TABLE>
<PAGE> 3
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ ------------
(Unaudited)
(In thousands, except
per share data)
<S> <C> <C>
ASSETS
- ------
Cash and non-interest-bearing deposits............. $ 29,589 $ 42,880
Interest-bearing deposits with banks............... 100 ---
Federal Home Loan Bank deposits.................... 1,418 905
---------- ----------
Cash and cash equivalents........................ 31,107 43,785
---------- ----------
Loans held-for-sale................................ 23,086 40,303
Securities available-for-sale, at market:
Investment securities............................ 282,512 352,187
Mortgage-backed and related securities........... 409,969 332,448
Loans and leases, net.............................. 2,734,054 2,533,534
Foreclosed properties.............................. 352 289
Premises and equipment, net........................ 24,358 24,399
Federal Home Loan Bank stock, at cost.............. 26,196 22,624
Accrued interest receivable........................ 19,106 19,903
Bank-owned life insurance.......................... 52,621 25,988
Other assets....................................... 43,620 41,857
---------- ----------
Total assets....................................... $3,646,981 $3,437,317
========== ==========
LIABILITIES
- -----------
Deposits........................................... $2,314,743 $2,200,411
Borrowings......................................... 659,417 564,927
Advances from borrowers for taxes and insurance.... 20,253 33,244
Other liabilities.................................. 74,412 79,687
---------- ----------
Total liabilities.................................. 3,068,825 2,878,269
---------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $1.00 par value, 50,000,000 shares
authorized, 10,810,000 shares issued and
9,202,932 and 9,314,365 voting shares
outstanding, respectively........................ 10,810 10,810
Additional paid-in capital......................... 260,550 259,007
Retained earnings, substantially restricted........ 402,010 377,836
Unrealized gain (loss) on securities
available-for-sale, net of tax................... 6,420 6,269
Less:
Common stock held for deferred compensation...... (3,449) (3,415)
Unearned ESOP compensation....................... (14,187) (15,132)
Unearned restricted stock........................ (2,817) (2,817)
Treasury stock (1,607,068 shares and
1,495,635 shares at cost, respectively)........ (81,181) (73,510)
---------- ----------
Total stockholders' equity......................... 578,156 559,048
---------- ----------
Total liabilities and stockholders' equity......... $3,646,981 $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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ----------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans and leases:
Held for investment......................................... $ 56,247 $ 49,823 $ 165,009 $ 146,965
Held for sale............................................... 313 787 1,175 1,953
--------- --------- ---------- ----------
Total...................................................... 56,560 50,610 166,184 148,918
--------- --------- ---------- ----------
Investments:
Taxable income on securities................................ 3,438 4,741 12,193 13,230
Tax-exempt income on securities............................. 374 651 1,337 2,705
Mortgage-backed securities.................................. 7,112 4,935 18,798 14,065
Dividends on FHLB and FHLMC stock........................... 409 328 1,192 1,017
FHLB deposits and other interest income..................... 387 32 658 179
--------- --------- --------- ----------
Total interest and dividend income............................ 68,280 61,297 200,362 180,114
--------- --------- --------- ----------
INTEREST EXPENSE:
Deposits..................................................... 26,719 25,770 79,365 76,650
Advances from borrowers for taxes and insurance.............. 90 86 673 654
Borrowings................................................... 9,469 6,410 25,589 17,631
--------- -------- --------- ---------
Total interest expense........................................ 36,278 32,266 105,627 94,935
--------- -------- --------- ---------
Net interest income........................................... 32,002 29,031 94,735 85,179
Provision for loan and lease losses........................... -- 1,612 1,247 4,619
--------- -------- --------- ---------
Net interest income after provision for loan and lease losses. 32,002 27,419 93,488 80,560
--------- -------- --------- ---------
NON-INTEREST INCOME:
Loan servicing fees and service charges...................... 1,818 1,989 5,409 5,707
Deposit service charges...................................... 292 289 885 887
Gain on sale of loans held for sale.......................... 168 331 655 1,230
Gain (loss) on sale of securities............................ -- (17) 12 (35)
Insurance, mutual fund and annuity commissions............... 1,482 1,427 4,116 3,777
Income from bank-owned life insurance........................ 727 351 2,200 650
Net (loss) income from operation of foreclosed properties.... (3) 15 (37) (21)
Other income, net............................................ 1,356 1,099 3,783 3,334
--------- -------- --------- ---------
Total non-interest income..................................... 5,840 5,484 17,023 15,529
--------- -------- --------- ---------
NON-INTEREST EXPENSE:
Compensation and employee benefits........................... 9,520 9,016 27,376 28,350
Occupancy and premises, including depreciation............... 1,321 1,369 3,769 3,870
Data processing.............................................. 781 745 2,140 1,997
Marketing.................................................... 1,490 1,321 3,986 4,293
Federal deposit insurance premiums........................... 372 1,245 14,868 3,623
Furniture and equipment, including depreciation.............. 650 675 1,961 1,966
Professional fees............................................ 602 710 1,865 2,302
Other expenses............................................... 2,948 6,506 9,203 13,342
--------- --------- ---------- ----------
Total non-interest expense.................................... 17,684 21,587 65,168 59,743
--------- --------- ---------- ----------
Income before income tax expense.............................. 20,158 11,316 45,343 36,346
Income tax expense............................................ 6,634 4,356 14,967 14,031
--------- --------- ---------- ----------
NET INCOME................................................... $ 13,524 $ 6,960 $ 30,376 $ 22,315
========= ========= ========== ==========
EARNINGS PER SHARE............................................ $ 1.45 $ 0.73 $ 3.27 $ 2.33
========= ========= ========== ==========
</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 Unrealized
Held Gain on
Add'l. for Unearned Unearned Securities
Common Paid-in Deferred ESOP Restricted Treasury Available- Retained
Stock Capital Comp. Comp. Stock Stock for-Sale Earnings Total
------ ------- -------- -------- ---------- ------------- ---------- -------- -----
(In thousands)
NINE MONTHS ENDED
MARCH 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30,
1995.................... $10,810 $257,377 $(3,144) $(16,393) $(4,600) $(47,732) $5,086 $349,432 $550,836
Net income............... --- --- --- --- --- --- --- 22,315 22,315
Dividends paid $0.30 per
share................... --- (39) --- --- --- --- --- (2,676) (2,715)
Purchased 232,500 shares
of treasury stock....... --- --- --- --- --- (12,817) --- --- (12,817)
Amortization of unearned
compensation............. --- 1,209 --- 945 1,782 --- --- --- 3,936
Purchase of common
stock for deferred
compensation............ --- --- (7) --- --- --- --- --- (7)
Issued 3,900 shares of
treasury stock for
options exercised....... --- --- --- --- --- 148 --- (50) 98
Unrealized gains on
securities available-for-
sale.................... --- --- --- --- --- --- 2,884 --- 2,884
------- -------- -------- -------- ------- -------- ------ -------- --------
BALANCE AT MARCH 31,
1996.................... $10,810 $258,547 $ (3,151) $(15,448) $(2,818) $(60,401) $7,970 $369,021 $564,530
======= ======== ======== ======== ======= ======== ====== ======== ========
NINE MONTHS ENDED
MARCH 31, 1997
BALANCE AT JUNE 30,
1996.................... $10,810 $259,007 $ (3,415) $(15,132) $(2,817) $(73,510) $6,269 $377,836 $559,048
Net income............... --- --- --- --- --- --- --- 30,376 30,376
Dividends paid $0.675 per
share................... --- (102) --- --- --- --- --- (5,749) (5,851)
Purchased 140,500 shares
of treasury stock....... --- --- --- --- --- (8,855) --- --- (8,855)
Amortization of unearned
compensation............. --- 1,645 --- 945 --- --- --- --- 2,590
Purchase of common
stock for deferred
compensation............ --- --- (34) --- --- --- --- --- (34)
Issued 13,800 shares of
treasury stock for
options exercised....... --- --- --- --- --- 1,184 --- (453) 731
Unrealized gains on
securities available-for-
sale..................... --- --- --- --- --- --- 151 --- 151
------- -------- -------- -------- ------- -------- ------ -------- --------
BALANCE AT MARCH 31,
1997 $10,810 $260,550 $(3,449) $(14,187) $(2,817) $(81,181) $6,420 $402,010 $578,156
======= ======== ======== ======== ======= ======== ====== ======== ========
</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>
NINE MONTHS ENDED MARCH 31,
-----------------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 30,376 $ 22,315
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 2,796 4,573
Provisions for loan and lease losses................................... 1,247 4,619
Stock-based compensation expense....................................... 2,454 3,936
Net decrease (increase) in loans held for sale......................... 17,217 (17,765)
Gain on sale of loans held-for-sale.................................... (655) (1,230)
Decrease in deferred income taxes...................................... (174) (2,173)
Decrease (increase) in other assets.................................... (1,763) (10,813)
Decrease in other liabilities.......................................... (5,275) (5,003)
Other, net............................................................. (1,798) 7,049
----------- -----------
Net cash provided by operating activities............................... $ 44,425 $ 5,508
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of securities available-for-sale............................ $ 95,200 $ 195,752
Maturities of securities held-to-maturity.............................. -- 40,000
Sale of securities available-for-sale.................................. 103,013 57,451
Sale of securities held-to-maturity.................................... -- 35,760
Purchase of securities available-for-sale.............................. (128,133) (317,740)
Maturities and repayments of mortgage-backed and related securities
available-for-sale.................................................... 8,986 8,016
Maturities and repayments of mortgage-backed and related securities
held-to-maturity...................................................... -- 2,858
Purchase of mortgage-backed and related securities available-for-sale.. (177,735) (102,110)
Sale of mortgage-backed and related securities available-for-sale...... 90,413 5,950
Net increase in loans and leases....................................... (202,422) (93,850)
Net (increase) decrease in foreclosed properties....................... (63) 588
Net purchases of premises and equipment................................ (2,153) (1,762)
Funding of bank-owned life insurance................................... (25,000) (25,000)
Funding of benefit plan trusts......................................... (1,167) (204)
----------- -----------
Net cash used in investing activities................................... $ (239,061) $ (194,291)
----------- -----------
</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>
NINE MONTHS ENDED MARCH 31,
---------------------------
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits............................................. $ 114,332 $ 106,139
Net decrease in advance payments by borrowers for taxes and
insurance........................................................... (12,991) (16,439)
Net increase in borrowings........................................... 94,490 119,567
Treasury stock purchased net of shares reissued for
options exercised.................................................. (8,124) (12,817)
Cash dividends....................................................... (5,749) (2,715)
---------- ---------
Net cash provided by financing activities............................. 181,958 193,735
---------- ---------
Net (decrease) increase in cash and cash equivalents.................. (12,678) 4,952
CASH AND CASH EQUIVALENTS:
Beginning of period.................................................. 43,785 35,725
---------- ---------
End of period........................................................ $ 31,107 $ 40,677
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................ 106,880 94,575
Income taxes........................................................ 13,850 18,447
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES:
Transfer from loans to foreclosed properties......................... 836 484
Mortgage loans securitized as mortgage-backed securities............. 20,052 73,595
Financing of sales of foreclosed properties.......................... 51 100
Transfer of loans to held-for-sale................................... 1,486 2,329
Unrealized gain on available-for-sale securities, net of tax......... 152 2,884
Transfer of securities from held-to-maturity to available-for-sale... 157,715
</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 and nine month periods ended March 31, 1997 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> Number of
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................................ (29,067) $25.00 to 61.00
Forfeited................................ (400) $ 61.00
----------- ---------------
Options outstanding at March 31, 1997.... 1,182,433 $25.00 to 61.00
Options exercisable on March 31, 1997.... 1,112,233
</TABLE>
At March 31, 1997, there were options to purchase 71,100 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
------------------------------------------
MARCH 31, JUNE 30,
1997 1996
---------------- ----------------
(In thousands)
<S> <C> <C>
Financial instruments whose contractual amounts represent
credit risk are as follows:
Commitments to extend credit............................... $102,793 $ 78,253
Commitments to sell loans under:
Mandatory commitments..................................... 7,730 18,533
Standby commitments....................................... 46,617 44,841
Unused and open-ended consumer lines of credit............. 195,323 183,588
</TABLE>
6
<PAGE> 9
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Changes in Accounting Policy
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125 "Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". The statement provides
consistent standards for transfers and servicing of financial assets and
extinguishment of liabilities based upon a financial components approach
that focuses on control. The adoption had no impact on the Company's
results of operations or financial position.
7
<PAGE> 10
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) Loans and Leases
Loans and leases, net of participation interests sold, are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 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 .......... $ 1,379,294 49.05% $ 1,282,271 49.01% $ 97,023
Residential multi-family ................ 606,735 21.58 542,778 20.75 63,957
Home equity ............................. 504,361 17.94 433,897 16.58 70,464
Commercial real estate .................. 134,986 4.80 138,498 5.29 (3,512)
Residential construction (1) ............ 54,909 1.95 66,171 2.53 (11,262)
Commercial construction ................. 11,046 0.39 8,324 0.32 2,722
------------- ------- ------------- ------- ----------
TOTAL MORTGAGE LOANS ................... 2,691,331 95.71 2,471,939 94.48 219,392
------------- ------- ------------- ------- ----------
COMMERCIAL LOANS, NOT SECURED BY
REAL ESTATE ............................ 68,291 2.43 77,258 2.95 (8,967)
CONSUMER LOANS (2) ....................... 26,279 0.94 41,115 1.57 (14,836)
LEASES RECEIVABLE ........................ 25,990 0.92 26,095 1.00 (105)
------------- ------- ------------- ------- ----------
GROSS LOANS AND LEASES ................... 2,811,891 100.00% 2,616,407 100.00% 195,484
======= =======
LESS:
Loans in process ........................ 27,859 33,041 (5,182)
Allowance for loan and lease losses ..... 40,712 39,804 908
Unearned income ......................... 9,330 9,837 (507)
Net deferred loan origination (costs)
fees .................................... (64) 191 (255)
------------- ------------- ----------
TOTAL LOANS AND LEASES, NET .............. $ 2,734,054 $ 2,533,534 $ 200,520
============= ============= ==========
</TABLE>
- ------------------------------
(1) Residential construction includes both one-to-four family and
multi-family construction loans.
(2) For purposes of this table, consumer loans do not include home equity
loans.
The Company serviced approximately 25,000 and 26,000 mortgage loans at
March 31, 1997 and June 30, 1996, respectively, 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 March
31, 1997 and June 30, 1996. Related escrow balances maintained in
connection with the loan servicing were $16.8 million and $26.5 million at
March 31, 1997 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Beginning balance ........... $ 40,786 $ 37,213 $ 39,804 $ 33,724
Provision for loan losses .. -- 1,612 1,247 4,619
Recoveries ................. 51 93 272 709
Charge-offs ................ (125) (108) (611) (242)
--------- --------- --------- ---------
Ending balance .............. $ 40,712 $ 38,810 $ 40,712 $ 38,810
========= ========= ========= =========
</TABLE>
8
<PAGE> 11
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Non-performing loans included 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>
MARCH 31, JUNE 30,
1997 1996
------------ -----------
<S> <C> <C>
Nonaccrual loans and leases:
Mortgage loans ............................. $ 3,608 $ 3,516
Commercial loans ........................... -- --
Consumer loans ............................. 111 130
Leases receivable .......................... 42 --
------------ -----------
Total non-performing loans .................. $ 3,761 $ 3,646
Foreclosed properties and real estate owned.. 352 289
------------ -----------
Total non-performing assets ................. $ 4,113 $ 3,935
============ ===========
Non-performing loans to gross loans ......... .13% .14%
Non-performing assets to total assets ....... .11 .11
</TABLE>
(7) Earnings per Share
Earnings per share of common stock for each of the three and nine months
ended March 31, 1997 and 1996 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 MARCH 31,
-------------------------------------------------------------------------
1997 1996
----------------------------------- ---------------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income........................... $ 13,524,000 $ 13,524,000 $ 6,960,000 $ 6,960,000
=============== ============== ============== ==============
Common shares issued................. 10,810,000 10,810,000 10,810,000 10,810,000
Unallocated ESOP shares.............. (573,789) (573,789) (624,230) (624,230)
Net treasury shares.................. (1,609,616) (1,609,616) (1,181,519) (1,181,519)
Ungranted shares in Bank Incentive
Plan................................ (112,700) (112,700) (112,700) (112,700)
--------------- -------------- -------------- --------------
Weighted average common shares
outstanding......................... 8,513,895 8,513,895 8,891,551 8,891,551
Common stock equivalents based
on the treasury stock method........ 802,170 834,638 684,618 684,618
=============== ============== ============== ==============
Total weighted average common
shares and equivalents outstanding.. 9,316,065 9,348,533 9,576,169 9,576,169
=============== ============== ============== ==============
Earnings per share on net income..... $ 1.45 $ 1.45 $ 0.73 $ 0.73
=============== ============== ============== ==============
</TABLE>
9
<PAGE> 12
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income ............................ $ 30,376,000 $ 30,376,000 $ 22,315,000 $ 22,315,000
=============== =============== =============== ===============
Common shares issued .................. 10,810,000 10,810,000 10,810,000 10,810,000
Unallocated ESOP shares ............... (586,496) (586,496) (636,892) (636,892)
Net treasury shares ................... (1,586,681) (1,586,681) (1,126,919) (1,126,919)
Ungranted shares in Bank Incentive
Plan ................................. (112,700) (112,700) (112,700) (112,700)
--------------- --------------- --------------- ---------------
Weighted average common shares
outstanding .......................... 8,524,123 8,524,123 8,933,489 8,933,489
Common stock equivalents based
on the treasury stock method ......... 756,992 842,181 661,422 682,569
--------------- --------------- --------------- ---------------
Total weighted average common
shares and equivalents outstanding .... 9,281,115 9,366,304 9,594,911 9,616,058
=============== =============== =============== ===============
Earnings per share on net income ...... $ 3.27 $ 3.24 $ 2.33 $ 2.32
=============== =============== =============== ===============
</TABLE>
(8) Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------
(In thousands)
WEIGHTED
VARIABLE TOTAL AVERAGE
BORROWINGS MATURE: FIXED (MONTHLY) AMOUNT RATE
- -------------------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Less than 12 months .. $ 208,163 $ 50,000 $ 258,163 6.13%
13-24 months ......... 175 50,000 50,175 5.68
25-36 months ......... 100,102 100,000 200,102 5.58
37-48 months ......... 104 50,000 50,104 5.52
49-60 months ......... 104 100,000 100,104 5.58
After 60 months ...... 769 -- 769 6.91
---------- ------------ ---------- --------
$ 309,417 $ 350,000 $ 659,417 5.80%
========== ============ ========== =========
</TABLE>
<TABLE>
<CAPTION>
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%
========== ============ ========== =========
</TABLE>
10
<PAGE> 13
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
$150,000,000 and $255,000,000 at March 31, 1997 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 March 31, 1997 the Company estimates that potential borrowings
from the FHLB totaling approximately $835,159,000 would be supportable with the
Company's current first mortgage loan balances. This amount available is
reduced by existing FHLB borrowings which limit the potential incremental
amount available from the FHLB to $323,742,000. 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 nine months ended
March 31, 1997 and the year ended June 30, 1996 was approximately $700.0
million and $564.9 million, respectively. The approximate average amount
outstanding was $609.2 million and $419.8 million over those same periods. The
weighted average interest rate paid was 5.60% and 5.79% during the nine months
ended March 31, 1997 and the year ended June 30, 1996, respectively. None of
the borrowings may be prepaid. Variable rate FHLB advances totaling $50 million
due in 37-48 months are callable at the discretion of the FHLB every six months
beginning November 20, 1996. Fixed rate FHLB advances totaling $100.0 million
due in 25-36 months are also callable at the discretion of the FHLB in the
amount of $50.0 million every three months beginning February 21, 1998 and
March 3, 1998, respectively.
(9) Securities Available-for-Sale
The amortized cost and estimated market values are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------------------------------
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........ $ 161,772 $ 3,780 $ (832) $ 164,720
Corporate debt securities.................... 80,402 110 (61) 80,451
Municipal securities......................... 37,322 1 (132) 37,191
Other securities............................. 150 -- -- 150
---------- -------- ---------- ----------
TOTAL INVESTMENT SECURITIES.................. $ 279,646 $ 3,891 $ (1,025) $ 282,512
========== ======== ========== ==========
MORTGAGE-BACKED & RELATED SECURITIES:
Mortgage Backed Securities:
Federal Home Loan Mortgage Corporation...... $ 51,575 $ 1,163 $ -- $ 52,738
Government National Mortgage Association.... 2,214 115 (1) 2,328
Federal National Mortgage Association....... 22 1 -- 23
Collateralized Mortgage Obligations:
Federal Home Loan Mortgage Corporation...... 117,461 1,180 (465) 118,176
Federal National Mortgage Association....... 231,703 5,151 (150) 236,704
---------- -------- ---------- ----------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES.................................. $ 402,975 $ 7,610 $ (616) $ 409,969
========== ======== ========== ==========
</TABLE>
11
<PAGE> 14
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
<TABLE>
<CAPTION>
Contractual maturities are as follows: MARCH 31, 1997
-------------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------------- -------------
(In thousands)
<S> <C> <C>
AVAILABLE-FOR-SALE INVESTMENT SECURITIES:
Due in one year or less..................... $ 101,932 $ 102,035
Due after one year through five years....... 129,154 128,274
Due after five years through ten years...... 5,373 5,374
Due after ten years......................... 43,187 46,829
------------ ------------
$ 279,646 $ 282,512
============ ============
</TABLE>
12
<PAGE> 15
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 annual 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 for the three months ended March 31, 1997 increased
$6.5 million or 92.9% to $13.5 million, compared to $7.0 million for the three
months ended March 31, 1996. Earnings per share increased 98.6% from $0.73 to
$1.45 per share over the same period. Excluding the after-tax effect of
non-recurring charges for settlement of a class action lawsuit of $1.9 million
for the quarter ended March 31, 1996, the increase in net income would have
been $4.6 million or 51.7% compared to the same quarter a year ago. Earnings
per share excluding the non-recurring charge in the prior year increased from
$0.93 to $1.45 over the same periods. Net income increased $8.1 million or
36.3% to $30.4 million for the nine months ended March 31, 1997 from $22.3
million for the nine months ended March 31, 1996. Earnings per share increased
40.3% to $3.27 from $2.33 per share over the same nine month period. Excluding
the after-tax effect of (i) a one-time industry wide FDIC special assessment of
$7.9 million or 86 cents per share in the nine month period ended March 31,
1997, and (ii) $2.7 million for settlement of a class action lawsuit in the
same period during the prior fiscal year, net income for the nine months ended
March 31, 1997, increased $13.3 million or 53.2% to $38.3 million from $25.0
million. Earnings per share excluding such non-recurring charges would have
been $4.13 and $2.61 for the nine months ended March 31, 1997 and 1996
respectively. See "Recent Regulatory Developments" for a further discussion of
the industry-wide FDIC special assessment.
The major components of these increases in earnings for the three and nine
month periods, excluding the effects of the FDIC special assessment in fiscal
1997 and the lawsuit settlement in fiscal 1996, are discussed in the following
paragraphs and generally include: (i) increases of $3.0 million and $9.6
million, respectively, in net interest income; (ii) decreases of $1.6 million
and $3.4 million, respectively, in the provision for loan and lease losses;
(iii) increases of $0.4 million and $1.5 million, respectively, in non-interest
income; (iv) decreases of $0.7 million and $3.3 million in non-interest
expenses, due in part to a pre-tax FDIC insurance premium refund of $1.3
million recognized in the quarter ended December 31, 1996; partially offset by
(v) increases of $2.3 million and $6.2 million in income tax expense.
On March 14, 1997, the Company entered into an Agreement and Plan of Merger
with and into Marshall and Illsley Corporation ("M&I"), pursuant to which the
Company will merge with and into M&I. It is expected to be completed by
October 1, 1997, and is pending regulatory and shareholder approval. The
Company will expense fees and costs incurred relative to the proposed merger,
such as legal and professional fees, that are non-refundable and not contingent
on the merger completion. Expenses of this nature were immaterial in the
quarter ended March 31, 1997, but are expected to reduce earnings per share by
3 cents to 5 cents per share in the quarter ending June 30, 1997.*
13
<PAGE> 16
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET INTEREST INCOME. Net interest income increased $3.0 million and $9.6
million, respectively, for the three and nine months ended March 31, 1997
compared to the same periods in the prior year. The net interest margin was
unchanged at 3.70% and increased to 3.74% from 3.69%, respectively, for the
periods. The interest rate spread increased to 2.87% from 2.76%, and to 2.91%
from 2.71%, respectively, during the same periods. The increases in margin and
spread were due to the yield on interest-earning assets increasing faster than
the cost of interest-bearing liabilities, primarily due to 15 and 17 basis
point increases in the average yield on loans for the three and nine month
periods, respectively. The increase in average earning assets was funded by
additional borrowings and increased brokered money market deposits. The
increase in the three month yield on loans was offset in part by a 2 basis
point increase in the average cost of interest bearing liabilities during the
same period. The increase in margin and spread was reduced 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. The growth in
the average balances from the three and nine months ended March 31, 1996 to the
three and nine months ended March 31, 1997 of $304.4 million and $272.8
million, respectively, for interest-earning assets and $349.0 and $311.9
million, respectively, for interest-bearing liabilities, reflect this transfer.
Total interest income increased $7.0 million and $20.2 million for the three
and nine months ended March 31, 1997, respectively, compared to the same
periods the prior year. The increases were primarily the result of increases
in interest income on loans and leases and, to a lesser extent,
mortgage-backed and related securities. The increases in average
interest-earning assets combined with 13 and 15 basis point increases in the
yield on interest-earning assets, respectively, due to adjustments in
adjustable rate mortgage loans and additions to longer-term fixed rate loan
portfolios, resulted in the overall increases in interest income.
Total interest expense increased $4.0 million and $10.7 million, respectively,
for the three and nine months ended March 31, 1997 compared to the same
periods last year. The increases were attributable to $349.0 million and
$311.9 million increases in average interest-bearing liabilities for the three
and nine months ended March 31, 1997, respectively, and by a 2 basis point
increase in the cost of interest-bearing liabilities for the three months ended
March 31, 1997. The increase in interest expense due to an increase in balances
was partially offset by a 5 basis point decrease in the cost of
interest-bearing liabilities for the nine month period ended March 31, 1997.
The increase in average interest-bearing liabilities for the three and nine
month periods included growth in borrowings of $236.2 million and $210.2
million, respectively, and increases in deposits of $112.5 million and $102.9
million, respectively. Brokered deposits accounted for $73.0 million and $52.9
million, respectively, of the deposit increases. Borrowings and brokered
deposits have been used to facilitate the Company's 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.* For the three and nine month periods, the
average cost of borrowings decreased 9 and 29 basis points, respectively, and
the average cost of deposits remained unchanged and decreased 7 basis points,
respectively, in accordance with market rate declines over those same periods.
For further information on average balances, rates, spreads and the net
interest margin see the "Average Balance Sheet".
PROVISION FOR LOAN AND LEASE LOSSES. The provision for loan and lease losses
decreased $1.6 million and $3.4 million, respectively, for the three and nine
months ended March 31, 1997, compared to the same periods the previous year,
reflecting continued low net charge-offs and non-performing loan ratios.
Charge-offs exceeded recoveries by only $74,000 for three months ended March
31, 1997. The allowance for loan and lease losses represented 1.45% of gross
loans and leases receivable and 1082.47% of non-performing loans at March 31,
1997.
NON-INTEREST INCOME. Non-interest income increased $0.4 million and $1.5
million for the three and nine month periods ended March 31, 1997,
respectively, as compared to the same periods the previous year. Both
increases were primarily the result of increases of $0.4 million and $1.6
million, respectively, 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. Insurance and annuity commissions increased $0.1
million and $0.3 million, respectively, from the comparable three and nine
month periods the prior year. Other income increased $0.3 million and $0.4
million for the same periods due to a non-recurring recovery of a processing
loss in the quarter ended March 31, 1997 of $0.3 million, gains on disposals
of fixed assets of $0.2 million, and $0.2 million of increased lease rental
income. Partially offsetting those increases were decreases of $0.2 million
and $0.6 million in gains on sales of loans held-for-sale and $0.2 million and
$0.3 million in loan service fees and charges for the three and nine month
periods, respectively. Loan sales decreased almost 50% from the same periods
in the previous year as the Bank retained more fixed rate loans in the current
fiscal year to facilitate portfolio growth.
14
<PAGE> 17
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
NON-INTEREST EXPENSE. Excluding pre-tax non-recurring charges of $13.2
million for the FDIC special assessment expensed in September 1996, and $3.2
million and $4.5 million for settlement of a class action lawsuit expensed in
the three and nine months ended March 31, 1996, respectively, non-interest
expense decreased $0.7 million and $3.3 million for the three and nine months
ended March 31, 1997 compared to the same periods the prior year. The primary
reasons for the decreases for the three and nine month periods include: (i) a
decrease of $0.9 million and $2.0 million, respectively, in FDIC premiums due
to lower premiums being assessed since the recapitalization of the Savings
Associations Insurance Fund ("SAIF") and an FDIC premium refund of $1.3 million
pre-tax recognized in the quarter ended December 31, 1996; (ii) an increase of
$0.5 million and a decrease of $1.0 million, respectively, in compensation and
employee benefits for the three and nine month periods ended March 31, 1997, as
a result of a $0.4 million increase in employee benefits for the three month
period and the elimination of $0.9 million in quarterly expense from the
amortization of the Bank Incentive Plan (BIP) which was completed in December
1995, for the nine month period; (iii) decreases in professional fees and other
expenses of $0.5 million and $0.1 million, respectively, for the three and
nine month periods, mostly for accruals and expenses related to litigation,
and (iv) an increase of $0.2 million and a decrease of $0.3 million in
marketing expense for the three and nine month period ended March 31, 1997.
Marketing expenses were higher in the prior year due to the kick-off of a new
campaign.
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 Regulatory Developments."
INCOME TAX EXPENSE. Income tax expense, excluding the benefits for the FDIC
special assessment charge in 1997 and the litigation settlement in 1996,
increased $1.0 million and $4.4 million for the three and nine months ended
March 31, 1997 respectively, compared to the same periods the previous year.
Including the non-recurring charges, income tax expense increased $0.9
million for the nine month period ended March 31, 1997. The increase was
mostly due to the higher pre-tax income. Income tax expense for both periods
also was offset by higher non-taxable income than the previous year and the
recognition of certain deferred state income tax benefits.
AVERAGE BALANCE SHEET
The following tables set forth certain information relating to the Company's
unaudited consolidated statements of financial condition and the unaudited
consolidated statements of income for the three and nine months ended March 31,
1997 and 1996 and reflect 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 non-accruing loans are included in
earning assets. The yields and costs include fees which are considered
adjustments to yields. Interest income on non-accruing loans is reflected 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 federally tax-exempt
interest-earning assets are presented on a before tax-equivalent basis,
applying a federal income tax rate of 35%.
15
<PAGE> 18
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------------ ----------- ---------- ------------ ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
FHLB deposits and other interest
bearing deposits...................... $ 29,144 $ 388 5.40% $ 2,334 $ 32 5.48%
Loans held-for-sale.................... 24,420 313 5.13 50,504 787 6.23
Securities available-for-sale:
Securities-taxable.................... 223,593 3,437 6.23 286,458 4,741 6.62
Securities-tax-exempt................. 37,533 575 6.22 70,628 1,003 5.68
Mortgage-backed and related
securities........................... 403,528 7,112 7.15 277,104 4,935 7.12
Securities held-to-maturity:
Securities-taxable..................... --- --- --- --- --- ---
Securities-tax-exempt.................. --- --- --- --- --- ---
Mortgage-backed and related
securities............................ --- --- --- --- --- ---
Loans and leases........................ 2,748,548 56,322 8.20 2,479,631 49,903 8.05
FHLB stock.............................. 24,548 409 6.76 20,213 328 6.48
------------ ----------- --------- ------------ ----------- -------
Total interest-earning assets........... $ 3,491,314 $ 68,556 7.87% $ 3,186,872 $ 61,729 7.74%
Cash and non-interest-bearing deposits.. 31,880 31,101
Bank-owned life insurance (1)........... 52,705 25,398
Allowance for loan losses............... (40,798) (37,740)
Deferred fees and other................. (247) (186)
Other non-interest-earning assets....... 92,657 87,110
------------ ------------
Total assets.......................... $ 3,627,511 $ 3,292,555
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits................................ $ 2,240,383 $ 26,719 4.84% $ 2,127,877 $ 25,770 4.84%
Borrowings.............................. 687,360 9,469 5.59 451,128 6,410 5.68
Advances from borrowers for taxes and
insurance............................. 15,260 90 2.39 14,995 86 2.29
------------ ----------- --------- ------------ ----------- -------
Total interest-bearing liabilities.... $ 2,943,003 $ 36,278 5.00% $ 2,594,000 $ 32,266 4.98%
Non-interest-bearing demand account..... 43,445 50,168
Other liabilities....................... 70,034 79,968
Stockholders' equity.................... 571,029 568,419
------------ ------------
Total liabilities and stockholders'
equity................................ $ 3,627,511 $ 3,292,555
============ ============
Interest spread......................... 2.87% 2.76%
======== =======
Net interest income..................... $ 32,278 $ 29,463
=========== ===========
Net interest margin (net yield on
interest-earning assets)............... 3.70%(1) 3.70%(1)
======== =======
Average interest-earning assets to
average interest-bearing liabilities... 118.63% 122.86%
======= =======
</TABLE>
- ----------------------------
(1) If single premium Bank-owned life insurance was considered an
interest-earning asset, net interest margins would have been 3.78% and 3.74%
for the three months ended March 31, 1997 and 1996, respectively.
16
<PAGE> 19
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET NINE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------------------
1997 1996
-------------------------------------------- -----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------------- ------------ ---------- --------------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
FHLB deposits and other interest
bearing deposits...................... $ 16,057 $ 658 5.46% $ 4,154 $ 179 5.75%
Loans held-for-sale.................... 25,750 1,175 6.08 41,125 1,953 6.33
Securities available-for-sale:
Securities-taxable.................... 249,700 12,193 6.51 211,405 10,332 6.52
Securities-tax-exempt................. 44,517 2,057 6.16 67,012 3,226 6.42
Mortgage-backed and related
securities............................ 358,255 18,798 7.00 235,967 13,036 7.37
Securities held-to-maturity:
Securities-taxable.................... --- --- --- 67,891 2,898 5.69
Securities-tax-exempt................. --- --- --- 21,212 939 5.90
Mortgage-backed and related
securities............................ --- --- --- 19,991 1,029 6.86
Loans and leases....................... 2,692,352 165,241 8.18 2,448,372 147,142 8.01
FHLB stock............................. 23,268 1,192 6.83 19,992 1,017 6.78
------------- ------------ ---------- ---------------- ------------ ----------
Total interest-earning assets.......... $ 3,409,899 $ 201,314 7.87% $ 3,137,121 $ 181,751 7.72%
Cash and non-interest-bearing deposits. 31,461 30,427
Bank-owned life insurance (1).......... 51,609 15,705
Allowance for loan losses.............. (40,643) (36,151)
Deferred fees and other................ (233) (331)
Other non-interest-earning assets...... 94,243 93,041
------------- ----------------
Total assets.......................... $ 3,546,336 $ 3,239,812
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits............................... $ 2,197,958 $ 79,365 4.81% $ 2,095,027 $ 76,650 4.88%
Borrowings............................. 609,202 25,589 5.60 399,015 17,631 5.89
Advances from borrowers for taxes and
insurance........................... 33,697 673 2.66 34,964 654 2.49
------------- ------------ ---------- ---------------- ------------ ----------
Total interest-bearing liabilities. $ 2,840,857 $ 105,627 4.96% $ 2,529,006 $ 94,935 5.01%
Non-interest-bearing demand account.... 60,998 64,594
Other liabilities...................... 78,504 82,130
Stockholders' equity................... 565,977 564,082
------------- ----------------
Total liabilities and stockholders'
equity............................... $ 3,546,336 $ 3,239,812
============= ================
Interest spread........................ 2.91% 2.71%
========= =========
Net interest income.................... $ 95,687 $ 86,816
=========== ===========
Net interest margin (net yield on
interest-earning assets).............. 3.74% (1) 3.69%(1)
========= =========
Average interest-earning assets to
average interest-bearing liabilities.. 120.03% 124.05%
========= =========
</TABLE>
- ---------------
(1) If single premium Bank-owned life insurance was considered an
interest-earning asset, the net interest margins would have been 3.82% and 3.71%
for the nine months ended March 31, 1997 and 1996, respectively.
17
<PAGE> 20
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION. The Company's total assets increased $209.7 million to
$3.647 billion at March 31, 1997 from $3.437 billion at June 30, 1996. The
Company's ratio of stockholders' equity to total assets was 15.85% at March 31,
1997 compared to 16.26% at June 30, 1996.
Securities available-for-sale are reflected at market value. While securities
available-for-sale increased only $7.8 million to $692.4 million at March 31,
1997 from $684.6 million at June 30, 1996, the portfolio mix changed
significantly with an increase of $77.5 million of Collateralized Mortgage
Obligations (CMOs) and a similar decrease in investment securities.
The Company held approximately $354.9 million in CMOs at March 31, 1997
compared to $269.9 million at June 30, 1996. This 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 total assets and, prior to purchase,
was determined not to be a "high risk" mortgage security as defined by the
FDIC. The Company's CMOs are issued by government agencies and are tested
quarterly to ensure they continue to not be high risk.
Loans and leases, net, increased $200.5 million to $2.734 billion at March 31,
1997 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 borrowings.
The Company emphasizes high asset quality in both its investment portfolio and
its lending activities. Non-performing assets were 0.11% of total assets at
both March 31, 1997 and June 30, 1996. There were net loan charge-offs of $0.3
million during the nine months ended March 31, 1997. None of the Company's
investment or mortgage-backed and related securities were categorized as
non-performing assets at March 31, 1997.
In July 1996, the Company sold securities to fund the second purchase of $25.0
million of single premium Bank-owned life insurance policies 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 $114.3 million to $2.315 billion at March 31, 1997 from
$2.200 billion at June 30, 1996. The increase was primarily due to brokered
money market deposits which increased $97.1 million. Total deposits include
$453.8 million of brokered money market deposits, representing 19.6% of total
deposits at March 31, 1997 compared to 16.2% of total deposits at June 30,
1996.
Borrowings increased $94.5 million to $659.4 million at March 31, 1997 from
$564.9 million at June 30, 1996. As of March 31, 1997 and June 30, 1996, FHLB
advances accounted for $509.4 million and $309.9 million and federal funds
purchased accounted for $150.0 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 March 31, 1997 of 7.80%, a cumulative negative gap
ratio of 21.30% and 14.75% existed at three and six months as of March 31,
1997, respectively.
The following Asset/Liability Management Schedule sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at March
31, 1997, 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 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
18
<PAGE> 21
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 March 31, 1997, total interest-bearing liabilities maturing or repricing
within three months exceeded total interest-earning assets maturing or
repricing in the same period by $777.0 million, representing a negative
cumulative three month gap ratio of 21.30%, compared to a negative $866.5
million and a negative 25.21%, respectively, as of June 30, 1996. The six
month cumulative gap and gap ratio are, respectively, a negative $537.8 million
and a negative 14.75% at March 31, 1997, 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 $284.3 million and a negative 7.80% at
March 31, 1997, compared to a negative $251.6 million and a negative 7.32% at
June 30, 1996. The Company extends the maturities of its borrowed funds and
deposits as opportunities arise.* These efforts, as well as increases in the
variable rate home equity loans portfolio have offset the effect on the
short-term gaps of brokered insured money market deposit account increases,
thereby causing a decrease in the three month and six month cumulative negative
gaps.*
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.
19
<PAGE> 22
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ASSET/LIABILITY MANAGEMENT SCHEDULE
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------------------------------------------------------------------------
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................................... $ 32,229 $ 23,429 $ 43,831 $ 239,328 $ 188,430 $ 527,247
Adjustable.............................. 332,822 444,509 447,173 377,273 --- 1,601,777
Home equity............................. 237,507 21,032 37,562 157,148 43,524 496,773
Commercial loans (2)..................... 33,085 3,379 6,437 19,747 --- 62,648
Consumer loans (2)....................... 8,835 4,056 4,637 8,352 23 25,903
Leases receivable (2).................... 1,486 1,164 1,915 6,245 8,896 19,706
Loans held-for-sale...................... 23,086 --- --- --- --- 23,086
Investment securities available-for-sale:
Mutual Funds............................ 36,685 --- --- --- --- 36,685
U.S. Treasury securities and
obligations of U.S. Gov't
corporations and agencies.............. 3,435 4,990 10,009 98,175 11,428 128,037
Municipal bonds......................... --- --- 5,201 31,989 --- 37,190
Corporate debt securities............... 20,044 --- 35,296 25,110 --- 80,450
Mortgage-backed and related
securities............................. 358,672 2,317 24,181 10,221 14,578 409,969
Other................................... --- --- --- --- 150 150
Other interest-earning assets:
Interest-bearing deposits............... 1,518 --- --- --- --- 1,518
FHLB stock.............................. --- --- --- --- 26,196 26,196
------------ ------------ ------------ ------------ ----------- -------------
TOTAL INTEREST-EARNING ASSETS......... $ 1,089,404 $ 504,876 $ 616,242 $ 973,588 $ 293,225 $ 3,477,335
============ ============ ============ ============ =========== =============
INTEREST-BEARING LIABILITIES: (1)
Deposits: (3)
Interest-bearing demand accounts........ $ 89,466 $ --- $ --- $ --- $ --- $ 89,466
Money market accounts................... 736,385 --- --- --- --- 736,385
Passbook accounts....................... 276,750 --- --- --- --- 276,750
Certificates of deposit................. 255,613 215,677 342,512 355,380 232 1,169,414
Borrowings:
Advances and other borrowings........... 508,163 50,000 --- 100,485 769 659,417
Advances from borrowers for taxes
and insurance.......................... --- --- 20,253 --- --- 20,253
------------ ------------ ------------ ------------ ----------- -------------
TOTAL INTEREST-BEARING LIABILITIES.... $ 1,866,377 $ 265,677 $ 362,765 $ 455,865 $ 1,001 $ 2,951,685
============ ============ ============ ============ =========== =============
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (776,973) $ 239,199 $ 253,477 $ 517,723 $ 292,224 $ 525,650
============ ============ ============ ============ =========== =============
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities..................... $ (776,973) $ (537,774) $ (284,297) $ 233,426 $ 525,650
============ ============ ============ ============ ===========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percent of total
assets.................................. (21.30)% (14.75)% (7.80)% 6.40% 14.41%
============ ============ ============ ============ ===========
Total assets for above ratios............ $ 3,646,981 $ 3,646,981 $ 3,646,981 $ 3,646,981 $ 3,646,981
============ ============ ============ ============ ===========
</TABLE>
(Notes on following page)
20
<PAGE> 23
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 $77.8 million at March 31, 1997.
(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 $746.7 million and $768.7 million at March 31, 1997 and
June 30, 1996, respectively. The Company's ratio of these assets to total
deposits was 32.3% and 34.9% at March 31, 1997 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 nine months ended March 31, 1997 and 1996, the Company originated
loans and leases totaling $780.9 million and $825.1 million, respectively,
purchased loans totaling $33.6 million and $23.9 million, respectively, and
sold loans totaling $149.0 million and $292.7 million, respectively. Loan
sales decreased significantly during the nine months ended March 31, 1997
compared to the same period the previous year as the Company retained more
fixed rate loans in the current fiscal year to facilitate portfolio growth.
During the nine months ended March 31, 1997 and 1996, the Company received
principal repayments on loans and leases totaling $494.3 million and $477.9
million, respectively, and principal repayments on mortgage-backed and related
securities of $9.0 million and $10.9 million, respectively.
The Company experienced net increases in deposits of $114.3 million and $106.1
million for the nine months ended March 31, 1997 and 1996, respectively.
Brokered money market deposits represented $97.1 million of the increase for
the nine months ended March 31, 1997 and $26.8 million of the increase for the
nine months ended March 31, 1996. 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. Deposits continue to be the Company's primary funding source
supplemented by borrowings.*
Certificates of deposit which are scheduled to mature in one year or less at
March 31, 1997 totaled $813.8 million. Based on historical experience,
management believes that a significant portion of such deposits will remain
with the Company.*
21
<PAGE> 24
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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>
MARCH 31, JUNE 30,
1997 1996
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Risk-based capital:
Equity.......................................................... $ 449,380 $ 419,660
Less goodwill and other intangibles............................ --- ---
Less unrealized gain on available-for-sale securities,
net of tax.................................................... (6,606) (6,767)
-------------- --------------
Total Tier I capital............................................. 442,774 412,893
Allowable allowance for loan and lease losses (Tier II capital).. 31,832 30,264
-------------- --------------
Qualifying total capital......................................... $ 474,606 $ 443,157
============== ==============
Risk-weighted assets............................................. $ 2,537,684 $ 2,411,582
============== ==============
Tier I leverage ratio........................................... 12.51% 12.72%
============== ==============
Tier I capital to risk-weighted assets.......................... 17.45% 17.12%
============== ==============
Qualifying total capital to risk-weighted assets................ 18.70% 18.38%
============== ==============
</TABLE>
RECENT REGULATORY DEVELOPMENTS
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. Assessment rate changes made in 1995 created a
deposit insurance premium disparity between the two funds. While most BIF
members were paying only a nominal $2,000 annual premium, SAIF members were
paying average rates of 23.4 basis points of deposits.
On September 30, 1996, Congress passed legislation to address the deposit
insurance premium disparity. The "Deposit Insurance Funds Act of 1996" (the
"DIF Act") included as part of an Omnibus Appropriations Bill, directed the
FDIC 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 required 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 fully capitalized the SAIF and
was collected on November 27, 1996.
The amount of the assessment to the Bank was $13.2 million dollars. The
special assessment was recorded on September 30, 1996 and had the effect of
reducing the Bank's earnings and capital by the after-tax amount of the
assessment as of the date of enactment, which was $7.9 million or 86 cents per
share. As described below, with the recapitalization of the SAIF, it is
currently
22
<PAGE> 25
anticipated that BIF and SAIF regular deposit insurance premiums will
be comparable and FDIC premium expense is expected to therefore be reduced in
future periods.* The DIF Act also imposes a separate assessment on both BIF and
SAIF member institutions related to the retirement of certain bond obligations,
which such assessments, as explained below, will be imposed at a greater rate
on SAIF institutions for a three year period beginning January 1, 1997.
The FDIC published a final rule on December 24, 1996, establishing a permanent
base assessment schedule for the SAIF and setting assessment rates at a range
of 4 to 31 basis points. The rule provides 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 applied to SAIF member savings associations 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, was included in the SAIF
rates for these institutions during that period. Because the Bank is a "Sasser
bank" (a bank that converted its charter from a savings association to a
savings bank, yet remained a SAIF member in accordance with the so-called
"Sasser Amendment"), it was not assessed this interim rate and received a
one-time credit in the amount of $0.8 million after-tax or $0.08 per share,
for its entire FDIC premium for the quarter ended December 31, 1996.
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 1.3 and 6.5 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 is
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 was established by or on behalf of the
defendants and was 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 $2.7 million after
tax or 28 cents per share.
23
<PAGE> 26
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 April 23, 1997, the Board of Directors declared a quarterly cash
dividend of 30 cents per share of Common Stock to be paid May 30,
1997, to shareholders of record as of May 15, 1997. The Company
anticipates regular quarterly dividends will be paid.* The amount and
appropriateness of future dividends will be based on earnings and
market conditions, and will be reviewed quarterly by the Board of
Directors.
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) A report on Form 8-K dated March 14, 1997 was filed
regarding an Agreement and Plan of merger, the "Merger
Agreement", by and between the Company and Marshall and Ilsley
Corporation ("M&I"). Pursuant to the Merger Agreement, the
Company will merge with and into M&I. As of the date of the
Merger Agreement, the purchase price consists of approximately
12.3 million shares of M&I Common Stock and $376 million in
cash. As of March 14, 1997, that equated to $945 million or $92
per share of Company Common Stock. The final price per share for
Company Common Stock may be more or less than the $92 per share
value on March 14. The final price per share will be affected by
changes in the market value of M&I common stock according to a
pre-set formula. The transaction is expected to be completed by
October 1, 1997 pending regulatory approval, shareholder approval
and other customary closing conditions.
24
<PAGE> 27
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.
25
<PAGE> 28
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: May 12, 1997 By: /s/ Wm. G. Schuett Sr.
-----------------------------------
Wm. G. Schuett, Sr., President and
Chief Executive Officer
Dated: May 12, 1997 By: /s/ Roger D. Kamin
-----------------------------------
Roger D. Kamin, Senior Vice President,
CFO and Secretary/Treasurer
26
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 29,589
<INT-BEARING-DEPOSITS> 1,518
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 692,481
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,774,766
<ALLOWANCE> 40,712
<TOTAL-ASSETS> 3,646,981
<DEPOSITS> 2,314,743
<SHORT-TERM> 258,163
<LIABILITIES-OTHER> 94,665
<LONG-TERM> 401,254
0
0
<COMMON> 10,810
<OTHER-SE> 567,346
<TOTAL-LIABILITIES-AND-EQUITY> 3,646,981
<INTEREST-LOAN> 166,184
<INTEREST-INVEST> 33,520
<INTEREST-OTHER> 658
<INTEREST-TOTAL> 200,362
<INTEREST-DEPOSIT> 79,365
<INTEREST-EXPENSE> 105,627
<INTEREST-INCOME-NET> 94,735
<LOAN-LOSSES> 1,247
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 65,168
<INCOME-PRETAX> 45,343
<INCOME-PRE-EXTRAORDINARY> 30,376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,376
<EPS-PRIMARY> 3.27
<EPS-DILUTED> 3.24
<YIELD-ACTUAL> 3.74
<LOANS-NON> 3,761
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,804
<CHARGE-OFFS> 611
<RECOVERIES> 272
<ALLOWANCE-CLOSE> 40,712
<ALLOWANCE-DOMESTIC> 40,712
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
