ITEM 1. BUSINESS
North Side Capital Corporation (the "Company") was incorporated in the State of Delaware on June 23, 1986. The Company was organized by North Side Savings Bank ("North Side") solely for the purpose of investing in mortgage-backed securities and issuing and selling series of Mortgage-Backed Sequential Pay Bonds (the "Bonds"). The Bonds are secured by collateral consisting of Certificates (as defined below). Each such series of Bonds is rated in the highest rating category by a nationally recognized statistical rating agency.
The Bonds may be sold from time to time by the Company in one or more series on terms to be determined at the time of the sale. Each series of Bonds consists of one or more sequences. The Bonds of each series are collateralized by "fully modified pass-through mortgage-backed certificates" ("GNMA Certificates") guaranteed as to the full and timely payment of principal and interest by the Government National Mortgage Association, which guaranty is backed by the full faith and credit of the United States Government; by guaranteed mortgage pass-through certificates ("FNMA Certificates") issued and guaranteed as to the full and timely payment of principal and interest by the Federal National Mortgage Association; by mortgage participation certificates ("FHLMC Certificates") issued and guaranteed as to the full and timely payment of interest and the ultimate payment of principal by the Federal Home Loan Mortgage Corporation (the GNMA, FNMA and FHLMC Certificates hereinafter referred to collectively as the "Certificates"); or by a combination of such Certificates. Because each series of Bonds is secured by separate collateral, the investment characteristics of each series of Bonds differ.
EXPENSES
Substantially all of the Company's expenses consist of interest payments due on the Bonds and amounts payable for the Company's operating expenses incurred as a result of its responsibilities as Issuer of the Bonds. The distributions on the Certificates pledged to secure each series of Bonds, together with reinvestment income thereon, have been sufficient to enable the Company to make all payments due on such series of Bonds in accordance with their terms. The Company may also retain cash from the net proceeds of a series of Bonds to make payments of its related operating expenses incurred as a result of its responsibilities as Issuer of the Bonds.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of funds are payments of interest and principal on the Certificates pledged to secure one or more series of Bonds and income from the reinvestment thereof. Management believes that the Company has sufficient capital resources and liquidity to pay all amounts due on the Bonds in accordance with their terms and all other anticipated expenses of the Company. The Company does not have, nor does management expect the Company to have in the future, any significant sources of funds other than distributions received on the Certificates.
RESULTS OF OPERATIONS
The Company's results of operations depend on the rate at which payments of principal are made on the Certificates, the amount of reinvestment income earned on distributions on the Certificates, the amount of cash retained to pay operating expense and the level of the Company's operating expenses.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and increased prices may increase the level of the Company's operating expenses. Such increases may be offset, in whole or in part, by increases in income from reinvestment of distributions on the Certificates. While major increases in the rate of inflation could result in higher than anticipated levels of default in payment of the mortgages underlying the Certificates, the guarantees of GNMA, FNMA and FHLMC with respect to the Certificates should insulate the Company from the effects of such defaults.
The Company is a limited purpose finance subsidiary of North Side. All of the Company's voting stock is held by North Side. As of September 30, 1996, 1,000 shares of the Company's common stock, par value $1.00 per share, were issued and outstanding.
ITEM 2.
ITEM 2. PROPERTIES
The Company owns no physical properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to General Instruction J of Form 10-K, the information required by Item 4 is omitted.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the outstanding common stock of the Company is owned by North Side.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Pursuant to General Instruction J of Form 10-K, the information required by Item 6 is omitted.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Set forth below is management's discussion and analysis of operating results for the year ended September 30, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
On February 25, 1988 the Company commenced operations with the issuance of $100,100,000 mortgage-backed sequential pay bonds, Series 1, collateralized by 11% GNMA certificates. The Class 1-A and 1-B Bonds have been fully paid off in accordance with the terms thereof, and none of such Series is currently outstanding. See Note 1 of Notes to Financial Statements.
Investment in mortgage-backed securities decreased $3.0 million during fiscal 1996 as a result of principal prepayments and repayments on the securities. The balance of collateralized mortgage obligations, Series 1, decreased $3.4 million during fiscal 1996 reflecting bond redemptions required by the indenture agreement and premium amortization.
Interest income and interest expense decreased $.4 million and $.4 million, respectively, during fiscal 1996 primarily as a result of principal paydowns on both the GNMA Certificates and the Bonds. Interest income and interest expense decreased $.6 million and $.6 million, respectively, for the year ended September 30, 1995 compared to fiscal 1994, again primarily due to principal paydowns on both the GNMA Certificates and the Bonds.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required by this Item and included in this Report are referenced in the index appearing on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction J of Form 10-K, the information required by Item 10 is omitted.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction J of Form 10-K, the information required by Item 11 is omitted.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction J of Form 10-K, the information required by Item 12 is omitted.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction J of Form 10-K, the information required by Item 13 is omitted.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
See Index-Financial Statements and Schedules appearing on Page.
(3) Exhibits
All applicable exhibits were previously filed.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the fourth quarter of fiscal 1996.
NORTH SIDE CAPITAL CORPORATION
Financial Statements
All financial statement schedules are omitted due to inapplicability or because the required information is included in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
Board of Directors North Side Capital Corporation:
We have audited the accompanying balance sheets of North Side Capital Corporation (the "Corporation") as of September 30, 1996 and 1995 and the related statements of income, changes in stockholder's equity (deficit), and cash flows for each of the years in the three-year period ended September 30, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Side Capital Corporation as of September 30, 1996 and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 1996 in conformity with generally accepted accounting principles.
New York, New York December 20, 1996
NORTH SIDE CAPITAL CORPORATION BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NORTH SIDE CAPITAL CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, 1994
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NORTH SIDE CAPITAL CORPORATION STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT) FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NORTH SIDE CAPITAL CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
NORTH SIDE CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996, 1995 AND 1994
1. Organization
North Side Capital Corporation (the "Company") was incorporated on June 23, 1986 and is a limited purpose finance subsidiary of North Side Savings Bank ("North Side"). The Company was organized for the purpose of issuing one or more series of Collateralized Mortgage Obligations (the "Bonds") collateralized by "fully modified pass-through mortgage-backed certificates" ("GNMA Certificates") guaranteed as to the full and timely payment of principal and interest by the Government National Mortgage Association, which guarantee is backed by the full faith and credit of the United States Government; by guaranteed mortgage pass-through certificates ("FNMA Certificates") issued and guaranteed as to the full and timely payment of principal and interest by the Federal National Mortgage Association; by mortgage participation certificates ("FHLMC Certificates") issued and guaranteed as to the full and timely payment of interest and the ultimate payment of principal by the Federal Home Loan Mortgage Corporation; (the GNMA, FNMA, FHLMC Certificates hereinafter referred to collectively as the "Certificates"); or by a combination of such Certificates.
The Company began operations on February 25, 1988 with the issuance of $100,100,000 Collateralized Mortgage Obligations, Series 1, at a premium of $6,028,027, collateralized by $100,018,251 principal amount of 11.00% GNMA Certificates. At issuance, the Bonds consisted of:
The Bonds were initially issued in 5 tranches, one of which is an accrual bond (Class 1-Z). The first two tranches have been paid out and principal and interest payments are now being received by holders of the third tranche. Interest continues to accrue on the Class 1-Z tranche, which had an unpaid balance of $5,171,869 at September 30, 1996 compared to $4,681,640 at September 30, 1995.
2. Summary of Significant Accounting Policies
Pass-through mortgage-backed certificates:
The GNMA mortgage-backed securities are carried at cost plus unamortized premium. The premium on the Certificates was amortized by the interest method on the basis of anticipated prepayment patterns determined by reference to historical prepayment experience for similar mortgage-backed securities. When actual prepayments differed from the anticipated prepayments, the effective yield used to amortize the premium was adjusted. As a result, the carrying value of the pass-through certificates was adjusted
NORTH SIDE CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED
to the amount that would have existed had the new effective yield been applied since the Certificates were acquired with a corresponding charge or credit to interest income in the current year.
Income taxes:
Income tax expense is provided for financial reporting purposes on the basis of the Company filing a separate income tax return. For the fiscal years ended September 30, 1996, 1995, and 1994 the Company made provisions for Federal income taxes at the statutory rate of 34%. As there are no timing differences for financial reporting and Federal income tax purposes, no provision has been made in the accompanying financial statements for deferred taxes. Since the Company is a Delaware corporation, no provision has been made for state income taxes.
Statement of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents are defined to include cash.
3. Related Party Transactions
Certain directors and officers of the Company are also directors and officers of North Side.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NORTH SIDE CAPITAL CORPORATION
By: /s/ Thomas O'Brien -------------------------- Thomas M. O'Brien President, Chief Executive Officer and Director
Date: December 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: