<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For Quarter ended March 31, 1996 COMMISSION FILE NUMBER 0-10898
--------------------- -------------
MERCHANTS CAPITAL CORPORATION
-----------------------------
(Exact name of registrant as specified in charter)
MISSISSIPPI 64-0655603
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
820 South Street
Vicksburg, Mississippi 39180
- -------------------------------- ----------------------
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 636-3752
----------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year; if changed since last
report
Indicate by check mark whether the registrants (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities 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. YES x NO
674,054 common shares were outstanding as of March 31, 1996.
<PAGE> 2
MERCHANTS CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
March 31, 1996 (Unaudited) and December 31, 1995
(Unaudited)
Consolidated Statements of Income, Three Months 4
Ended March 31, 1996 and 1995 (Unaudited)
Consolidated Statements of Changes in Stockholders' 5
Equity, Three Months Ended March 31, 1996 and
1995 (Unaudited)
Consolidated Statements of Cash Flows 6
Three Months Ended March 31, 1996 and 1995
(Unaudited)
Notes to Consolidated Financial Statements 7
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part 2. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March. 31, 1996 Dec. 31, 1995
(Unaudited) (Unaudited)
--------------- -------------
<S> <C> <C>
ASSETS:
Cash & due from banks $ 7,170,115 $ 8,342,193
Federal funds sold 8,655,986 2,800,000
Investment securities:
Available-for-sale 50,085,078 52,544,242
Loans - net 126,797,466 126,047,183
Bank premises & equipment - net 2,800,792 2,615,330
Other real estate 117,799 138,999
Accrued interest receivable 1,999,094 1,966,555
Other assets 755,095 696,940
Premium paid on purchased assets &
deposits less amortization 538,317 550,600
-------------- --------------
TOTAL ASSETS $ 198,919,742 $ 195,702,042
============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 21,297,446 $ 19,934,570
Interest bearing deposits 152,139,751 151,774,537
-------------- --------------
Total Deposits 173,437,197 171,709,107
Securities Sold Under Repurchase Agreement 7,791,492 6,613,555
Accrued interest payable 759,548 830,939
Accrued taxes and other liabilities 888,940 1,111,226
-------------- --------------
TOTAL LIABILITIES 182,877,177 180,264,827
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share:
Authorized - 1,000,000 shares
Issued & outstanding 674,054 shares 3,370,270 3,370,270
Additional paid-in capital 11,852,971 11,852,971
Unrealized gain (loss) on securities AFS 44,485 (8,133)
Retained earnings 774,839 222,107
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 16,042,565 15,437,215
-------------- --------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 198,919,742 $ 195,702,042
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---------------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 3,009,341 $2,332,132
Interest on invest. securities:
Taxable interest income 677,449 768,276
Interest income exempt from
federal income taxes 50,636 27,085
Interest on federal funds sold 91,583 100,154
--------------------------------
TOTAL INTEREST INCOME 3,829,009 3,227,647
Interest Expense:
Interest on deposits 1,570,038 1,391,867
Interest on fed funds pur & sec sold u/repo 80,700 47,925
--------------------------------
TOTAL INTEREST EXPENSE 1,650,738 1,439,792
--------------------------------
NET INTEREST INCOME 2,178,271 1,787,855
Provision for loan losses 60,000 40,000
--------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,118,271 1,747,855
Other Income:
Service charges on deposits 367,437 279,326
Trust service income 107,025 71,321
Insurance premium and commissions 129,882 87,285
Other 78,835 50,320
--------------------------------
TOTAL OTHER INCOME 683,179 488,252
Other Expenses:
Salaries 736,898 657,197
Employee benefits 197,152 163,177
Net occupancy expense 135,107 110,911
Equipment expense 138,197 152,103
Other 473,475 579,837
--------------------------------
TOTAL OTHER EXPENSES 1,680,829 1,663,225
--------------------------------
INCOME BEFORE INCOME TAXES 1,120,621 572,882
INCOME TAX PROVISION 399,376 212,856
--------------------------------
NET INCOME $ 721,245 $ 360,026
================================
Net income per common share (Note 6) $ 1.07 $ 0.53
Dividends per common share $ 0.25 $ 0.23
Average number of shares of common
stock outstanding 674,054 674,054
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid-In Gain (Loss) Retained
Stock Capital on Sec. AFS Earnings Total
------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 $ 3,064,940 $ 10,784,316 $(534,954) $ 392,542 $13,706,844
Net income 360,026 360,026
Cash dividends declared
(.23 per share) (153,247) (153,247)
Unrealized gain (loss)
on securities AFS 207,812 207,812
------------ ------------- --------- --------- -----------
BALANCE, March 31, 1995 $ 3,064,940 $ 10,784,316 $(327,142) $ 599,321 $14,121,435
============ ============= ========= ========= ===========
BALANCE, January 1, 1996 $ 3,370,270 $ 11,852,971 $ (8,133) $ 222,107 $15,437,215
Net income 721,245 721,245
Cash dividends declared
(.25 per share) (168,513) (168,513)
Unrealized gain (loss)
on securities AFS 52,618 52,618
------------ ------------- --------- --------- -----------
BALANCE, March 31, 1996 $ 3,370,270 $ 11,852,971 $ 44,485 $ 774,839 $16,042,565
============ ============= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 721,245 $ 360,026
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 60,000 40,000
Provision for depreciation and amortization 117,697 129,885
Net premium amortization on HTM securities - 15,881
Net premium amortization (accretion) on AFS securities 7,696 (150,808)
Increase in accrued interest receivable (32,539) (22,394)
Increase in other assets (70,596) (85,371)
Decrease in accrued interest payable (71,391) (14,761)
Increase in taxes and other liabilities 114,741 54,958
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 846,853 327,416
------------- ------------
INVESTING ACTIVITIES:
(Increase) decrease in federal funds sold (5,855,986) 9,405,000
Proceeds from maturities of investment securities-AFS 8,096,645 6,010,062
Purchase of investment securities-AFS (6,063,996) (18,830,582)
Prepayments on mortgage backed securities 505,077 551,210
Net increase in loans (810,283) (1,773,905)
Purchases of premises and equipment (290,875) (60,525)
------------- ------------
NET CASH USED BY INVESTING ACTIVITIES (4,419,418) (4,698,740)
------------- ------------
FINANCING ACTIVITIES:
Net increase in deposits 1,728,090 3,275,778
Cash dividends paid (505,540) (153,247)
Net increase in Sec. sold under repurchase agreement 1,177,937 543,315
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,400,487 3,665,846
------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,172,078) (705,478)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 8,342,193 9,945,350
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,170,115 $ 9,239,872
============= ============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid $ 168,513 $ 153,247
Total decrease in unrealized loss on securities
available for sale net of deferred taxes $ 8,133 $ 207,812
Total increase in unrealized gain on securities
available for sale net of deferred taxes $ 44,485 -
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
MERCHANTS CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis Consolidated Financial Statements
The consolidated financial statement include Merchants Capital
Corporation and its wholly owned subsidiary, Merchants Bank and its
wholly-owned subsidiary, Merchants Credit Company. All intercompany
profits, transactions and balance have been eliminated.
The consolidated financial statements have been prepared by
the Company without an audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of their
operations and their cash flows as of March 31, 1996, and for all
periods presented have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The results of
operations for the periods ended March 31, 1996, are not necessarily
indicative of operating results for the full year. It is suggested
these financial statements be read in conjunction with the Company's
Annual Report and proxy statements filed with its Form 10-KSB for the
year ended December 31, 1995.
2. Acquisitions
On April 1, 1995, Merchants Bank purchased certain assets and
assumed certain liabilities of the Bank of Edwards, Edwards,
Mississippi, for a premium of $350,000 which will be amortized over a
fifteen year period.
3. Nonperforming Assets
Nonperforming assets at March 31, 1996 and December 31, 1995,
were as follows:
<TABLE>
<CAPTION>
3-31-96 12-31-95
----------- ------------
<S> <C> <C>
Nonaccrual loans $ 634,228 $ 762,166
Ninety days or more past due 1,256,939 181,983
----------- ------------
Total nonperforming loans $ 1,891,167 $ 944,149
Other real estate owned (net) 117,799 138,999
----------- ------------
Total nonperforming assets $ 2,008,966 $ 1,083,148
=========== ============
Nonperforming loans as a
percent of loans, net of
unearned interest 1.47% 0.74%
</TABLE>
7
<PAGE> 8
4. Allowance for Loan Losses
The following table reflects the transactions in the allowance
for loan losses for the three month periods ended March 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year $1,687,643 $ 1,273,160
Provision charged to operations 60,000 40,000
Charge offs 202,177 48,514
Recoveries 104,798 53,939
---------- -----------
Balance at end of period $1,650,264 $ 1,318,585
========== ===========
Allowance for loan losses as a percent of loans, net of unearned interest 1.28% 1.29%
</TABLE>
5. Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-lived Assets or Long-lived Assets to be Disposed of", which
becomes effective for years beginning after December 15, 1995. This
statement established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used for long-lived assets and
certain identifiable intangibles to be disposed of. The effect of the
implementation of this standard is not expected to be material.
The financial Accounting Standard Board also issued Statement
No. 122, "Accounting for Mortgage Servicing Rights" which becomes
effective for years beginning after December 15, 1995. The statement
generally requires that a mortgage banking enterprise recognize as
separate assets, rights to service mortgage loans for others; however,
those servicing rights are acquired. The Bank has determined that
this statement is not applicable to them based on their current
practice of releasing service rights.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which becomes effective for years beginning after
December 15, 1995. The Statement established financial accounting and
reporting standards for stock-based employee compensation plans.
Currently, the Bank is not offering such a plan.
6. Net Income Per Share of Common Stock
Net income per share of common stock is based on the weighted
average number of share outstanding during each period, after giving
retroactive effect to stock dividends.
8
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Changes In Financial Position and Liquidity
In the three months ended March 31, 1996, assets increased by
$3,217,700 or 1.64%. This resulted from increases of $5,855,986 in Federal
funds sold, $750,283 in net loans, $185,462 in bank premises and equipment,
$32,539 in accrued interest receivable, and $58,155 in other assets. These
increases were offset by decreases of $1,172,078 in cash and due from banks,
$2,459,164 in investment securities, $21,200 in other real estate and $12,283
in premium paid on purchased assets and deposits. The increase in assets was
also a result of net increases of $1,728,090 in deposits, $1,177,937 in
securities sold under repurchase agreement, $114,740 in accrued taxes and other
liabilities, and $552,732 in retained earnings resulting from year-to-date net
income of $721,245 less cash dividends declared of $168,514. These increases
were offset by a decrease of $71,391 in accrued interest payable. Also, assets
and shareholders equity were increased by $52,618 due to an increase in net
unrealized gain on securities available for sale.
Nonperforming loans as of March 31, 1996 were $1,891,167 compared to
$944,149 as of Dec. 31, 1995. The nonaccrual loans decreased by $127,938 as
compared to December 31, 1995, while the ninety days or more past due loans
increased by $1,074,956. The nonperforming loans as a percent of loans, net of
unearned income, was 1.50% at March 31, 1996 compared to .70% at December 31,
1995. This increase in nonperforming loans is basically due to one large loan.
Management is in the process of working with this customer to get it current.
The allowance for loan losses was $1,650,264 as of March 31, 1996
compared to $1,318,585 as of December 31, 1995. The ratio of the allowance for
possible losses to loans, net of unearned income decreased to 1.28% as of March
31, 1996 compared to 1.29% as of December 31, 1995. Management regularly
reviews the level of the allowance for possible loan losses and is of the
opinion that it is adequate at March 31, 1996.
Results of Operations
In the first quarter ended March 31, 1996, net income increased by
$361,219 or 100.33% over the first quarter income of 1995. Net interest income
increased by $390,946 or 21.84% as a result of an increase of $601,362 or
18.63% in interest income and an increase of $210,946 or 14.65% in interest
expense. The provision for loan losses increased by $20,000 or 50.0%. Other
income increased by $194,927 or 39.92%, so did other expenses by $17,604 or
1.06%. The income tax provision increased by $186,520 or 87.63%.
9
<PAGE> 10
ITEM 2. (Continued)
Capital Adequacy
The Company and the Bank must maintain certain levels of
capitalization as prescribed by the various regulators. The Company and the
Bank must maintain minimum amounts of capital to total "risk weighted" assets,
as outlined under the regulators' 1992 risk-based capital guidelines. The
Company and the Bank are required to have minimum Tier I and total capital
ratios of 4% and 8%, respectively. The actual ratios at March 31, 1996, were
11.60% and 12.84%. (Company) and 11.10% and 12.34% (Bank), respectively. The
Company and the Bank's leverage ratios at March 31, 1996, were 7.77% and 7.44%,
respectively. The minimum required leverage ratio is 3%-5% with an internal
target ratio set at 6% by management.
The main source of capital expansion for the Company and the Bank
continues to be the retention of earnings. However, if the need arises again,
the Company can use its borrowing ability to inject needed capital into the
Bank. The net change in stockholders' equity of $605,350 in the first three
months was the result of the retention of earnings and a increase of the
unrealized gain on securities available for sale. At the present time, there
are no planned capital expenditures which would materially restrict capital
growth.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Stewart & Ellis versus Merchants Bank lawsuit was settled and
dismissed in the United States Bankruptcy Court on March 1996. Merchants Bank
paid $35,000.00 to Carolyn Ann Stewart as compensation for equity she lost in
homestead property releasing each party from their respective claims.
Item 2. Exhibits and Reports on Form 8-K
None.
10
<PAGE> 11
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.
MERCHANTS CAPITAL CORPORATION
-----------------------------
Date May 14, 1996 /s/ JOEL H. HORTON
------------------------- -------------------------------------
(Signature)
Joel H. Horton
President and Chief Operating Officer
Date May 14, 1996 /s/ JAMES R. WILKERSON, JR.
------------------------- -------------------------------------
(Signature)
James R. Wilkerson, Jr.
Secretary
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCHANTS CAPITAL AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT MARCH
31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,432
<INT-BEARING-DEPOSITS> 738
<FED-FUNDS-SOLD> 8,656
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,085
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 128,448
<ALLOWANCE> 1,650
<TOTAL-ASSETS> 198,920
<DEPOSITS> 173,437
<SHORT-TERM> 7,791
<LIABILITIES-OTHER> 1,648
<LONG-TERM> 0
<COMMON> 3,370
0
0
<OTHER-SE> 12,673
<TOTAL-LIABILITIES-AND-EQUITY> 198,920
<INTEREST-LOAN> 3,009
<INTEREST-INVEST> 728
<INTEREST-OTHER> 92
<INTEREST-TOTAL> 3,829
<INTEREST-DEPOSIT> 1,570
<INTEREST-EXPENSE> 81
<INTEREST-INCOME-NET> 2,178
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,681
<INCOME-PRETAX> 1,121
<INCOME-PRE-EXTRAORDINARY> 1,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 721
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 4.22
<LOANS-NON> 634
<LOANS-PAST> 1,257
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,688
<CHARGE-OFFS> 202
<RECOVERIES> 105
<ALLOWANCE-CLOSE> 1,650
<ALLOWANCE-DOMESTIC> 1,650
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
