U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR (15)d OF THE SECURITIES EXCHANGE ACT OF
1934

For the quarterly period ended June 30, 1999

                                                         OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period ____________________ to ____________________

Commission file number         0-12199

                           SOURCE CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

          Washington                                         91-0853890
          ----------                                         ----------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification No.)


               1825 N. Hutchinson Road, Spokane, Washington 99212
               --------------------------------------------------
                     (Address of principal executive office)


                                 (509) 928-0908
                          ( Issuer's telephone number)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the

Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such  reports),  and (2) has been subject to
such filing requirements for the past 90 days.  Yes   X     No
                                                ---       ---

As of August 12, 1999, there were 1,360,105 shares of the Registrant's common
stock outstanding.

Transitional Small Business Disclosure Format (check One)  Yes____ No   X


<PAGE>

                           SOURCE CAPITAL CORPORATION

                                   Form 10-QSB
                       For the Quarter Ended June 30, 1999
                                  ------------


                                      Index
                                      -----
<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>           <C>
Part I - Financial Information

         Item 1  -  Financial Statements:

                      -  Consolidated Balance Sheets - June 30, 1999 and December 31, 1998                   1

                      -  Consolidated Statements of Income, Comprehensive Income and
                         Retained Earnings  Three and Six Months Ended June 30, 1999 and 1998                2

                      -  Consolidated Statements of Cash Flows - Six months
                         Ended June 30, 1999 and 1998                                                        3

                      -  Notes to Consolidated Financial Statements                                          4

         Item 2  -  Management's Discussion and Analysis of
                         Financial Condition and Results of
                         Operations                                                                          9

PART II - Other Information                                                                                  13

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                         Part I - Financial Information

Item 1.  Financial Statements

                           SOURCE CAPITAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                  ------------

                                                                        June 30,              December 31,
                                                                            1999                      1998
                                                                            ----                      ----
                                                                     (Unaudited)
<S>                                                                  <C>                       <C>
           ASSETS
Loans receivable, net                                                $44,099,948               $40,411,783
Leases receivable, net                                                16,621,913                14,006,137
Accrued interest receivable                                              594,084                   463,986
Cash and cash equivalents                                                726,289                   750,218
Marketable securities                                                    213,302                   219,502
Other real estate owned                                                  668,094                   393,013
Other assets                                                           1,040,198                   853,942
Deferred income tax                                                    1,436,060                 1,467,660
                                                                   -------------             -------------

Total assets                                                         $65,399,888               $58,566,241
                                                                   =============             =============

       LIABILITIES
Notes payable to bank                                               $ 41,619,596               $35,243,164
Mortgage contracts payable                                             3,124,205                 3,147,579
Accounts payable and accrued expenses                                    715,123                   651,904
Customer deposits                                                        864,151                   687,802
Convertible subordinated debentures                                    5,950,000                 6,000,000
                                                                   -------------             -------------

Total liabilities                                                     52,273,075                45,730,449
                                                                   -------------             -------------


       STOCKHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000
  shares authorized, none outstanding                                          -                         -
Common stock, no par value, authorized 10,000,000
  shares; issued and outstanding, 1,360,105 and
  1,350,279 shares                                                     7,055,848                 7,006,849
Additional paid in capital                                             2,049,047                 2,049,047
Accumulated other comprehensive loss                                     (22,069)                  (15,869)
Retained earnings                                                      4,043,987                 3,795,765
                                                                   -------------             -------------

Total stockholders' equity                                            13,126,813                12,835,792
                                                                   -------------             -------------

Total liabilities and stockholders' equity                           $65,399,888               $58,566,241
                                                                   =============             =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        1

<PAGE>
<TABLE>
<CAPTION>

                           SOURCE CAPITAL CORPORATION
           CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND
                                RETAINED EARNINGS
            For the Three and Six Months Ended June 30, 1999 and 1998
                                   (Unaudited)
                                  ------------

                                                   Three Months ended June 30,                Six Months ended June 30,
                                                   ---------------------------                -------------------------
                                                     1999              1998                    1999             1998
                                                     ----              ----                    ----             ----
<S>                                               <C>               <C>                      <C>             <C>
Financing income:
  Interest and fee income                         $1,602,251        $1,331,132               $3,084,880      $2,736,830
  Lease financing income                             710,784           276,756                1,378,647         427,470
  Interest expense                                (1,025,339)         (745,846)              (1,967,561)     (1,449,306)
                                              --------------     -------------             ------------   -------------
    Net financing income                           1,287,696           862,042                2,495,966       1,714,994

Non-interest income:
  Gain on sales of investments,
    other assets and real estate                     175,622            87,640                  187,395          87,640
  Provision for loan and lease losses               (155,381)          (35,000)                (244,774)        (56,000)
                                              --------------     -------------             ------------   -------------
    Income before non-interest expenses            1,307,937           914,682                2,438,587       1,746,634

Non-interest expenses:
   Employee compensation and benefits                522,424           411,890                1,009,185         754,719
   Other operating expenses                          343,952           246,512                  632,782         480,785
                                              --------------     -------------             ------------   -------------
Total non interest expenses                          866,376           658,402                1,641,967       1,235,504
                                              --------------     -------------             ------------   -------------
Income before income taxes                           441,561           256,280                  796,620         511,130
Income tax provision:
  Current                                           (177,250)          (44,938)                (274,050)       (104,438)
  Deferred                                            (7,900)          (42,262)                 (31,600)        (69,262)
                                              --------------     -------------             ------------   -------------
     Total income tax provision                     (185,150)          (87,200)                (305,650)       (173,700)
                                              --------------     -------------             ------------   -------------
         Net income                                  256,411           169,080                  490,970         337,430
Retained earnings, beginning of period             3,787,576         3,219,466                3,795,765       3,295,163
Dividends paid                                             -                 -                 (242,748)       (244,047)
                                              --------------     -------------             ------------   -------------
Retained earnings, end of period                  $4,043,987        $3,388,546               $4,043,987      $3,388,546
                                              ==============     =============             ============     ===========

Net income per common share - basic               $      .19        $      .12               $      .36      $      .25
                                              ==============     =============             ============     ===========
Net income per common share - diluted             $      .16        $      .12               $      .31      $      .23
                                              ==============     =============             ============     ===========

Weighted average number of common shares
  outstanding:
    Basic                                          1,360,221         1,355,679                1,358,583       1,355,749
                                              ==============     =============             ============     ===========
    Diluted                                        2,108,439         2,140,071                2,112,222       2,016,232
                                              ==============     =============             ============     ===========

Cash dividends per share                                None              None               $      .18      $      .18
                                              ==============     =============             ============     ===========

Net income                                          $256,411          $169,080                 $490,970        $337,430
Other comprehensive income, net of tax:
   Unrealized gain (loss) on marketable securities    (5,702)            5,762                   (6,200)         22,259
   Income tax (expense) benefit                        1,939            (1,959)                   2,108          (7,568)
                                              --------------     -------------             ------------   -------------
Comprehensive income                                $252,648          $172,883                 $486,878        $352,121
                                              ==============     =============             ============     ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                       2

<PAGE>
<TABLE>
<CAPTION>

                           SOURCE CAPITAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the Six Months Ended June 30, 1999 and 1998 (Unaudited)
                                  ------------
                                                                                   1999                     1998
                                                                                   ----                     ----
<S>                                                                        <C>                        <C>
Cash flows from operating activities:
   Net income                                                              $     490,970              $     337,430
    Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation                                                                 30,930                     20,610
     Provision for loan and lease losses                                         212,274                     56,000
     Impairment loss on repossessed assets                                        32,500                          -
     Deferred income taxes                                                        31,600                     69,262
     Gain on sale of assets                                                     (187,395)                   (87,640
     Change in:
       Accrued interest receivable                                              (138,654)                   (20,838)
       Other assets                                                               56,244                   (525,778)
       Accounts payable and accrued expenses                                      51,199                    370,527
       Customer deposits                                                         176,349                          -
                                                                            ------------               ------------
          Net cash provided by operating activities                              756,017                    219,573
                                                                            ------------               ------------

Cash flows from investing activities:
     Sale of investment securities                                                     -                     13,005
     Loan originations                                                       (12,721,800)                (9,669,170)
     Loan repayments                                                           8,828,874                 10,054,275
     Additions to direct financing leases                                     (7,806,680)                (6,151,315)
     Collections on direct financing leases                                    2,341,513                  1,005,949
     Capitalization of costs related to other real estate                         (5,589)                    (1,111)
     Proceeds from sale of assets                                                193,004                     19,000
     Proceeds from sale of leases                                              2,365,561                          -
     Purchase of office equipment and vehicle                                    (87,546)                   (53,330)
                                                                            ------------               ------------
        Net cash used in investing activities                                 (6,892,663)                (4,782,697)
                                                                            ------------               ------------

Cash flows from financing activities:
     Proceeds from line of credit                                             23,429,298                 14,771,737
     Payments on line of credit                                              (17,052,866)               (15,824,880)
     Proceeds from sale of convertible subordinated debentures                         -                  6,000,000
     Payments of long-term debt                                                  (23,374)                   (19,371)
     Proceeds from exercise of stock options                                      50,000                          -
     Payments for redemption of common stock                                      (1,001)                    (1,112)
     Payments for redemption of debentures                                       (46,592)                         -
     Cash dividends paid                                                        (242,748)                  (244,047)
                                                                            ------------               ------------
       Net cash provided by financing activities                               6,112,717                  4,682,327
                                                                            ------------               ------------

Net increase (decrease) in cash and cash equivalents                             (23,929)                   119,203
Cash and cash equivalents, beginning of period                                   750,218                    473,551
                                                                            ------------               ------------
Cash and cash equivalents, end of period                                    $    726,289               $    592,754
                                                                            ============               ============

Supplemental disclosure of cash flow information:
   Cash paid during the period for interest                                 $  1,941,788               $    672,622
   Cash paid during the period for income taxes                                  212,300                     65,000
   Non-cash financing and investing transactions:
    Financing sales of other real estate                                               -                    292,993
    Deferred interest on financing of real estate sold                                 -                     56,442
    Loans and accrued interest converted to repossessed assets                   198,317                    458,218
    Leases converted to repossessed and other assets                             470,790                     19,000
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


                           SOURCE CAPITAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
------

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Source Capital Leasing Co. All significant
intercompany transactions and balances have been eliminated in consolidation.

The unaudited consolidated financial statements reflect all adjustments, which
in the opinion of management, are necessary to fairly state the periods
reported. Certain 1998 amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on the net income or
retained earnings as previously reported. The results of operations for the
six-month period ended June 30, 1999 are not necessarily indicative of the
results to be expected for the full year. These unaudited financial statements
should be read in conjunction with the Company's most recent audited financial
statements for the year ended December 31, 1998.

NOTE 2.
------

The Company's provision for federal income taxes for the six months ended June
30, 1999 and 1998, is based on the statutory federal corporate income tax rate
of 34%. For the period ended June 30, 1999 the Company as accrued an additional
$52,250 for state income tax. The actual current income tax liability to the
Company for the year ending December 31, 1999, is estimated to be significantly
less than the amount based on the statutory federal corporate tax rate, because
of the effect of net operating loss carryforwards from prior years.

NOTE 3.
------

Net income per share - basic is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Net
income (after adjustment for the after-tax effect of interest on convertible
debentures) per share - diluted is computed by dividing net income by the
weighted-average number of common shares outstanding increased by the additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued

<TABLE>
<CAPTION>

Earnings Per Share Computation:

                                                     For the Quarter Ended June 30, 1999
                                                     -----------------------------------
                                                                       Weighted-                 Per-Share
                                            Net Income                 Average shares            Amount
                                            ----------                 --------------            ------
<S>                                         <C>                        <C>                       <C>
Basic EPS
Income available to
  Stockholders                              $  256,411                 1,360,221                 $     .19
                                                                                                 =========

Effect of Dilutive Securities
   Interest on convertible subordinated
     debentures (net of 34% tax)                80,718                  742,822
   Common stock options                                                   9,938
                                           -----------               -----------
Diluted EPS
Income available to common
  stockholders + assumed conversions        $  337,129                 2,108,439                 $     .16
                                           ===========               ===========                 =========
</TABLE>

                                        5
<PAGE>
                           SOURCE CAPITAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


Earnings Per Share Computation, Continued:
<TABLE>
<CAPTION>

                                                     For the Quarter Ended June 30, 1998
                                                     -----------------------------------
                                                                       Weighted-                 Per-Share
                                            Net Income                 Average shares            Amount
                                            ----------                 --------------            ------
<S>                                         <C>                        <C>                       <C>
Basic EPS
Income available to
  Stockholders                              $  169,080                 1,355,679                 $     .12
                                                                                                 =========

Effect of Dilutive Securities
Interest on convertible subordinated
     debentures (net of 34% tax)                83,332                   749,064
Common stock options                                                      35,328
                                            ----------                ----------

Diluted EPS
Income available to common
  stockholders + assumed conversions        $  252,412                 2,140,071                 $     .12
                                             =========                ==========                 =========
</TABLE>

<TABLE>
<CAPTION>

                                                     For the Six Months Ended June 30, 1999
                                                     --------------------------------------
                                                                       Weighted-                 Per-Share
                                            Net Income                 Average shares            Amount
                                            ----------                 --------------            ------
<S>                                         <C>                        <C>                       <C>
Basic EPS
Income available to
  Stockholders                              $  490,970                 1,358,583                 $     .36
                                                                                                 =========

Effect of Dilutive Securities
   Interest on convertible subordinated
     debentures (net of 34% tax)                166,797                  657,767
   Common stock options                                                   10,817
                                            -----------               ----------

Diluted EPS
Income available to common
  stockholders + assumed conversions        $  657,767                 2,112,222                 $     .31
                                            ==========                ==========                 =========

</TABLE>

                                       6
<PAGE>
                           SOURCE CAPITAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>

Earnings Per Share Computation, Continued:

                                                     For the Six Months Ended June 30, 1998
                                                     --------------------------------------
                                                                       Weighted-                 Per-Share
                                            Net Income                 Average shares            Amount
                                            ----------                 --------------            ------
<S>                                         <C>                        <C>                       <C>
Basic EPS
Income available to
  Stockholders                              $  337,430                 1,355,749                 $     .25
                                                                                                 =========

Effect of Dilutive Securities
Interest on convertible subordinated
     debentures (net of 34% tax)               121,062                   624,220
Common stock options                                                      36,194
                                           -----------              ------------

Diluted EPS
Income available to common
  stockholders + assumed conversions        $  458,492                 2,016,232                 $     .23
                                           ===========              ============                 =========
</TABLE>

NOTE 4.

The Company's consolidated financial statements include certain reportable
segment information. The segments include the parent company Source Capital
Corporation who's primary business is commercial real estate lending and its
wholly owned subsidiary Source Capital Leasing Co. who's primary business is
equipment lease financing. All accounting policies of the parent and subsidiary
are the same. The parent evaluates the performance of the subsidiary based upon
multiple variables including lease income, interest expense and profit or loss
after tax. The parent does not allocate any unusual items to the subsidiary.

Company segment profit and loss components and schedule of assets as of June 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>

                                          1999                           1998
                                          ----                           ----

                                   Leasing       Lending       Leasing          Lending
                                   -------       -------       -------          -------
<S>                             <C>           <C>           <C>           <C>
Income commercial real estate   $         -   $ 3,100,061   $         -   $ 2,824,470
Income lease financing            1,550,861             -       427,470             -
Interest expense                    471,985     1,495,576       130,415     1,318,891
Depreciation                          7,780        23,150         2,311        18,299
Income tax expense                   82,500       215,250        12,500       161,200
Net income                          159,516       331,454        24,194       313,236
Significant non-cash items
  other than depreciation           229,774        15,000        45,000        11,000
Real estate lending assets                -    51,396,490             -    43,239,691
Leasing assets                   18,211,271             -     8,149,640             -
</TABLE>

                                       7

<PAGE>
                           SOURCE CAPITAL CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

NOTE 4. Continued:

Reconciliation of segment net income, total assets, notes payable and other
significant items for the six months ended June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>

                                                                1999          1998
                                                                ----          ----
<S>                                                       <C>             <C>
Profit or loss

Leasing net income                                        $    159,516    $     24,194
Adjustment for income taxes                                   (215,250)       (161,200)
Unallocated amounts:
  Revenue of real estate lending                             3,100,061       2,824,470
  Expense of real estate lending                            (2,553,357)     (2,350,034)
                                                          ------------    ------------
Consolidated net income after tax                         $    490,970    $    337,430
                                                          ============    ============

Total assets

Net lease investment                                      $ 16,621,913    $  7,998,511
Unallocated assets of leasing                                1,589,358         151,129
Elimination of intercompany                                 (4,207,873)     (2,930,492)
Commercial loans receivable, net                            44,099,948      35,984,089
Unallocated assets of real estate lending                    7,296,542       7,255,602
                                                          ------------    ------------
Consolidated assets                                       $ 65,399,888    $ 48,458,839
                                                          ============    ============

Debt

Leasing note payable                                      $ 13,114,596    $  5,251,953
Real estate lending note payable                            28,505,000      20,685,000
Real estate lending long-term debt                           3,124,205       3,168,168
Real estate lending convertible subordinated debentures      5,950,000       6,000,000
                                                          ------------    ------------
Consolidated notes payable and long-term debt             $ 50,693,801    $ 35,105,121
                                                          ============    ============
</TABLE>
<TABLE>
<CAPTION>

                                                                                 Real Estate
                                                                Leasing            Lending
Other significant items                                          Total              Total         Consolidated
-----------------------                                          -----              -----         ------------
<S>                                                           <C>                  <C>              <C>
1999
Interest expense                                              $471,985             $1,495,576       $1,967,561
Provision for losses                                           229,774                 15,000          244,774

1998
Interest expense                                              $130,415             $1,318,891       $1,449,306
Provision for losses                                            45,000                 11,000           56,000
</TABLE>

                                       8
<PAGE>
                           SOURCE CAPITAL CORPORATION

                         PART I - FINANCIAL INFORMATION


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
-------  -----------------------------------------------------------------------
         of Operations
         -------------

General
-------

These discussions contain forward-looking statements containing words such as
"will continue to be," "will be," "continue to," "anticipates that," "to be," or
"can impact." Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to differ
materially from those projected in forward-looking statements.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
-------------------------------------------------------------------------

For the six months ended June 30, 1999 the Company reported net income of
$491,000 or $.31 per diluted common share. These results compare to net income
of $337,000 or $.23 per diluted share for the comparable period in 1998. Net
financing income (interest and lease income less interest expense) increased
from approximately $1,715,000 during the six months ended June 30, 1998 to
$2,496,000 in the comparable period in 1999 (a 45.5% increase). Finance income
of $4,464,000 and $3,164,000 in the six months ended June 30, 1999 and 1998,
respectively, represents an approximate average interest yield of 15.28% and
15.11%, respectively, on the Company's average earning assets. The increase in
the 1999 yield as compared to 1998 is primarily due to both a decrease in
non-performing loans and from discounts earned on early loan payoffs.

The increase in financing income of approximately $1,300,000 is directly
attributable to the increase of approximately $16,500,000 in the Company's
average earning assets over the first six months of 1998. The Company's average
earning asset portfolio grew from approximately $41,900,000 in the six-month
period ended June 30, 1998 to approximately $58,400,000 for the comparable
period ended June 30, 1999. The growth in the portfolio is composed of an
$8,100,000 growth in net loans and a $8,600,000 increase in net leases. The
increase in financing income was partially offset by an approximate $518,000
increase in interest expense. The Company's cost of funds on average borrowings
decreased from approximately 8.9% for the first six months of 1998 to
approximately 8.2% for the comparable period in 1999. The Company was able to
reduce its borrowing costs by funding a portion of its loan portfolio using a
"LIBOR" based rate, which is currently lower than the prime based rate option.
The Company funds its lease portfolio using a "LIBOR" based rate which currently
approximates prime less .5%.

During the six month period ended June 30, 1999 the Company recognized a gain of
approximately $175,000 from the sale of two tranches of leases totaling
approximately $2,184,000. These leases were sold on a non-recourse basis and
allowed the Company to accelerate the earnings process for a percentage of the
total lease portfolio. Loans and leases delinquent more than 90 days equaled
2.7% of the loans and leases outstanding at June 30, 1999 as compared to
approximately 4.3% at June 30, 1998. Loans are collateralized by deeds of trust.
The Company's allowance for probable loan and lease losses of approximately
$528,000 is considered adequate as of June 30, 1999.

Total non-interest expenses in the first six months of 1999 was approximately
$1,642,000 as compared to approximately $1,236,000 for the corresponding period
of the prior year, which represents a 32.8% increase. This increase was as a

                                       9
<PAGE>

result of both employee compensation and benefits increasing approximately
$254,000 or 33.7% and other operating expenses increasing approximately $152,000
or 31.6%. During the period June 1998 to June 1999 the Company increased the
number of employees by 27%. Additionally in conjunction with improved profits
the Company increased its accrual for profit sharing. The most significant
increases in other operating expenses were an approximate $76,000 increase in
G&A expenses, and a $63,000 increase in outside services. The aforementioned
increases are primarily related to the continuing growth of the leasing
subsidiary from its start up operations in 1997.

The provision for income taxes of approximately $306,000 and $174,000 for the
six months ended June 30, 1999 and 1998, respectively, is based upon the
statutory federal income tax rate of 34% for 1999 and 1998 with an additional
accrual for state income taxes of approximately $52,000 in 1999. The Company
expects to pay significantly less current income tax than the estimated tax
provision for the year ended December 31, 1999, due to the utilization of net
operating loss carryovers and the differences between book and tax accounting
for leases. The Company's effective tax rate for taxes paid in 1998 was
approximately 21%.

Three Months Ended June 30, 1999 Compared to Three Months ended June 30, 1998
-----------------------------------------------------------------------------

For the three months ended June 30, 1999, the Company reported net income of
$256,000 or $.16 per diluted common share. These results compare to net income
of $169,000 or $.12 per diluted share, for the comparable period in 1998. Net
financing income (interest and lease income less interest expense) increased
from approximately $862,000 during the three months ended June 30, 1998 to
approximately $1,288,000 in the comparable period of 1999 (a 49.4% increase).
Finance income of approximately $2,313,000 and $1,608,000 in the three months
ended June 30, 1999 and 1998, respectively, represents an approximate average
interest yield of 15.25% and 15.0%, respectively, on the Company's average
earning assets. The increase in yield is primarily due to fewer non-performing
loans on average in 1999 as compared to 1998, collections of interest earned on
loans which were previously non-performing and discounts earned on early loan
payoffs.

The increase in financing income of approximately $705,000 is directly
attributable to the increase of approximately $17,864,000 in the Company's
average earning assets over the second quarter of 1998. The Company's average
earning asset portfolio grew from $42,800,000 for the three months ended June
30, 1998 to approximately $60,664,000 at June 30, 1999. The growth in the
portfolio is directly attributable to the increase in production personnel in
its leasing subsidiary and increased loan demand. The Company's lease portfolio
continues to show strong growth as outstanding leases more than doubled over
June 30, 1998. This growth is significant considering the Company sold
approximately $2,200,000 of net leases during the second quarter. The Company
intends to continue to sell leases periodically. The increase in financing
income was partially offset by an approximate $518,000 increase in interest
expense. The Company's cost of funds on average borrowings decreased from
approximately 8.9% at June 30, 1998 to approximately 8.2% in the comparable
period in 1999. The Company was able to reduce its borrowing costs by funding a
portion of its loan portfolio using a "LIBOR" based rate, which is currently
lower than the prime based rate option. The Company also funds its lease
portfolio using a "LIBOR" based rate which currently approximates prime less
 .5%.

During the second quarter ended June 30, 1999 the Company recognized a gain of
approximately $175,000 from the sale of leases totaling $2,184,000. These leases
were sold on a non-recourse basis allowing the Company to accelerate the
earnings process for a percentage of the total lease portfolio. Loans and leases
delinquent more than 90 days equaled 2.7% of the loans and leases outstanding at
June 30, 1999 as compared to approximately 4.3% at June 30, 1998. Loans are
collateralized by deeds of trust . The Company's allowance for probable loan and
lease losses of approximately $528,000 is considered adequate as of June 30,
1999.

                                       10
<PAGE>


Total non-interest expenses for the second quarter of 1999 was approximately
$866,000 as compared to approximately $658,000 for the corresponding period of
the prior year, which represents a 31.6% increase. This increase was as a result
of both employee compensation and benefits increasing approximately $111,000 or
26.8%, and other operating expenses increasing approximately $97,000 or 39.5%.
The increase in employee compensation and benefits is due to both the increased
staffing in the leasing operations and an additional profit sharing accrual in
conjunction with higher profits realized in the 1999 period. The most
significant increases in other operating expense were a $60,000 increase in
general and administrative expense and a $24,000 increase in outside services.
These cost increases were necessary to support the growth in the Company's
business and to facilitate the development of the leasing portfolio.

Financial Condition and Liquidity
---------------------------------

At June 30, 1999, the Company had approximately $726,000 of cash and cash
equivalents as compared to approximately $750,000 at December 31, 1998. The
Company also had $213,000 of investment securities at June 30, 1999, as compared
to approximately $220,000 at December 31, 1998. The Company's primary sources of
cash during the first six months of 1999 were approximately $23,429,000 from
short term borrowings, $8,829,000 loan repayments, $2,366,000 from the sale of
leases, $2,342,000 from lease repayments and $756,000 from operations. The
primary uses of cash during the first six months of 1999 were approximately
$17,053,000 repayment of short term borrowings, $12,722,000 of loan
originations, $7,807,000 additions to direct financing leases and $243,000
payment of dividends.

The Company's $40,000,000 line of credit, which matures annually, was renewed on
April 30, 1999. At June 30, 1999, the Company had $28,505,000 outstanding under
the line of credit. In addition, the Company's wholly owned subsidiary, Source
Capital Leasing Co., has a $22,000,000 line of credit to fund its lease
portfolio. The leasing company's line also renewed on April 30, 1999, and will
mature April 30, 2000. The leasing company had approximately $13,115,000
outstanding under its line at June 30, 1999. The cash flows from the Company's
lines of credit, loan and lease repayments, and the existing cash, cash
equivalents and investment securities are expected to be sufficient to fund the
operating needs of the Company.

Effect of Inflation and Changing Prices
---------------------------------------

Interest rates on the Company's loan portfolio are subject to inflation as
inflationary pressures affect the prime interest rate. At June 30, 1999,
interest rates on approximately 97% of the Company's loan portfolio were
variable based on various indexes. The remaining loans have fixed interest
rates. Loans with fixed rates and maturities of less than one year at June 30,
1999 are considered variable. The Company's line-of-credit agreement provides
for variable interest based on the prime rate or at the Company's option, a
"LIBOR" based rate.

Management believes that any negative effects of an increase in the prime
interest rate would be largely offset by the Company's relatively short-term
loan portfolio, balloon payments and the large percentage of variable rate
loans.

Rates earned on the Company's lease portfolio are fixed for the term of the
lease, however, the Company match funds its portfolio by borrowing under its
line-of-credit as soon as is practicable after funding the lease. Each lease is
funded separately and the interest rate charged by the bank is fixed for the
term of the advance which is matched to the term of the lease.

                                       11
<PAGE>


Year 2000 Issues and Status
---------------------------

As the millennium approaches, the Company is addressing the impact of year 2000
(Y2K) on its information technology (IT) and non-IT functions. Currently, the
Company's IT related electronics infrastructure consists of primary and backup
domain controller servers utilizing the Windows NT operating system, and
independent workstations utilizing the Windows 95 operating system. All leasing
portfolio management, servicing and general ledger information is maintained on
the system. Additionally, the Company contracts with an external third party
service provider for all commercial loan sub-ledger and general ledger systems.

In completing its assessment of Y2K compliance, the Company reviewed and
identified all of the major system components believed to be susceptible to Y2K
issues. These included all software components of its in-house network as well
as its commercial lending service provider. The Company has obtained written
confirmation from all software vendors and software service providers of Y2K
compliance. The Company also reviewed other components of its in-house system
and is currently working with a third party network administrator to identify
and resolve other non-major Y2K issues.

The Company believes that its Y2K compliance effort is approximately 99%
complete as of the end of June 1999, and anticipates being 100% complete prior
to the end of the third quarter 1999. The Company estimates that any additional
Y2K compliance cost will be negligible.

The Company's exposure to a non-compliant system is considered minimal. System
and software vendors utilized by the Company are nationally known and reputable
service providers that offer these and similar services to many subscribers. The
Company does not believe it is reasonable to assume a collapse of the entire or
significant portion of its computer system as a result of a Y2K issue. Should
the entire system or major component fail as a result of a Y2K compliance issue,
the Company maintains adequate historical records that would enable
reconstruction and maintenance of loan and lease information manually until the
system is corrected.

The Company will complete its assessment of non-IT related systems for Y2K
compliance by the end of the third quarter 1999. Major non-IT related systems
utilized by the Company include telephone systems and building security systems.
If the Company determines that any non-IT related systems are not Y2K compliant,
it will be necessary to adjust estimates of the cost of Y2K compliance.

                                       12

<PAGE>

                           SOURCE CAPITAL CORPORATION


                           PART II - OTHER INFORMATION
                           ---------------------------




Items 1,2,3,4 and 5  of Part II are omitted from this report as they are either
inapplicable or the answer is negative.


Item 6.  Exhibits and Reports on Form 8-K
-------  --------------------------------

     (a)  Exhibits

          27.1 Financial Data Schedule

     (b)  Reports on Form 8-K

          None








          (The balance of this page has been intentionally left blank.)



                                     13



<PAGE>


                           SOURCE CAPITAL CORPORATION

                                   SIGNATURES
                                  ------------



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


                                       SOURCE CAPITAL CORPORATION
                                       (Registrant)



Date:      August 13, 1999        By:  /s/ D. Michael Jones
       ------------------------        -----------------------------
                                        D. Michael Jones
                                        President and Chief Executive Officer




Date:      August 13, 1999        By:  /s/ Lester L. Clark
       ------------------------        --------------------------------
                                        Lester L. Clark
                                        Vice President-Secretary/Treasurer
                                        Principal accounting and finance officer




                                       14