<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 September 30, 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 39180
Vicksburg, Mississippi -----
-------------------------- (Zip Code)
(address of principal executive offices)
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
707,516 common shares were outstanding as of September 30, 1996.
1
<PAGE> 2
MERCHANTS CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
September 30, 1996 (Unaudited) and December 31, 1995
(Unaudited)
Consolidated Statements of Income, Three Months
Ended and Nine Months Ended September 30, 1996 4
and 1995 (Unaudited)
Consolidated Statements of Changes in Stockholders'
Equity, Nine Months Ended September 30, 1996 and 5
1995 (Unaudited)
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
(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>
Sept. 30, 1996 Dec. 31, 1995
(Unaudited) (Unaudited)
------------- -------------
ASSETS:
<S> <C> <C>
Cash & due from banks $ 8,390,948 $ 8,342,193
Federal funds sold 3,722,323 2,800,000
Investment securities:
Available-for-sale 54,772,247 52,544,242
Loans - net 130,704,102 126,047,183
Bank premises & equipment - net 2,778,903 2,615,330
Other real estate 136,419 138,999
Accrued interest receivable 2,132,292 1,966,555
Other assets 811,720 696,940
Premium paid on purchased assets &
deposits less amortization 513,750 550,600
------------- -------------
TOTAL ASSETS $ 203,962,704 $ 195,702,042
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 20,954,600 $ 19,934,570
Interest bearing deposits 156,168,302 151,774,537
------------- -------------
Total Deposits 177,122,902 171,709,107
Securities Sold Under Repurchase Agreement 8,461,660 6,613,555
Accrued interest payable 755,547 830,939
Accrued taxes and other liabilities 843,636 1,111,226
------------- -------------
TOTAL LIABILITIES 187,183,745 180,264,827
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share:
Authorized - 1,000,000 shares
Issued & outstanding 707,516 shares 3,537,580 3,370,270
Additional paid-in capital 12,823,369 11,852,971
Unrealized gain (loss) on securities AFS (78,272) (8,133)
Retained earnings 496,282 222,107
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 16,778,959 15,437,215
------------- -------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 203,962,704 $ 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 3,122,373 $ 2,966,391 $ 9,204,986 $ 8,016,609
Interest on investment securities
Taxable interest income 655,099 793,329 2,049,555 2,320,706
Interest income exempt from
federal income taxes 48,030 48,565 147,525 109,188
Interest on federal funds sold 112,555 69,771 292,647 300,171
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 3,938,057 3,878,056 11,694,713 10,746,674
Interest Expense:
Interest on deposits 1,646,993 1,585,953 4,879,518 4,514,974
Interest on fed funds pur & sec sold u/repo 105,128 69,148 267,576 161,968
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 1,752,121 1,655,101 5,147,094 4,676,942
----------- ----------- ----------- -----------
NET INTEREST INCOME 2,185,936 2,222,955 6,547,619 6,069,732
Provision for loan losses 90,000 40,000 230,000 80,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,095,936 2,182,955 6,317,619 5,989,732
Other Income:
Service charges on deposits 387,896 300,588 1,137,773 890,695
Trust service income 104,482 123,115 307,090 274,801
Insurance premium and commissions 128,872 89,098 413,857 262,740
Other 54,149 63,091 185,054 162,618
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 675,399 575,892 2,043,774 1,590,854
Other Expenses:
Salaries 795,673 815,721 2,321,139 2,188,564
Employee benefits 158,339 154,963 513,096 488,758
Net occupancy expense 148,886 138,142 418,469 379,146
Equipment expense 132,542 148,974 408,757 455,317
Other 628,874 478,438 1,631,748 1,697,606
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES 1,864,314 1,736,238 5,293,209 5,209,391
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 907,021 1,022,609 3,068,184 2,371,195
INCOME TAX PROVISION 355,033 354,386 1,090,470 779,282
----------- ----------- ----------- -----------
NET INCOME $ 551,988 $ 668,223 $ 1,977,714 $ 1,591,913
=========== =========== =========== ===========
Net income per common share (Note 6) $ 0.78 $ 0.94 $ 2.80 $ 2.25
Dividends per common share $ 0.275 $ 0.24 $ 0.79 $ 0.69
Average number of shares of common
stock outstanding 707,516 707,516 707,516 707,516
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 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 1,591,913 1,591,913
Cash dividends declared
(.69 per share) (490,273) (490,273)
Stock dividend (10%) 305,330 1,068,655 (1,373,985) -
Fractional shares
purchased (232.8 shares
@$22.50 per share) (5,238) (5,238)
Unrealized gain (loss)
on securities AFS 421,514 421,514
---------- ----------- ------------ ---------- -----------
BALANCE, Sept. 30, 1995 $3,370,270 $11,852,971 ($113,440) $114,959 $15,224,760
========== =========== ============ ========== ===========
BALANCE, January 1, 1996 $3,370,270 $11,852,971 ($8,133) $222,107 $15,437,215
Net income 1,977,714 1,977,714
Cash dividends declared
(.79 per share) (557,647) (557,647)
Stock dividend (5%) 167,310 970,398 (1,137,708) -
Fractional shares
purchased (240.7 shares
@$34.00 per share) (8,184) (8,184)
Unrealized gain (loss)
on securities AFS (70,139) (70,139)
---------- ----------- ------------ ---------- -----------
BALANCE, Sept. 30, 1996 $3,537,580 $12,823,369 ($78,272) $496,282 $16,778,959
========== =========== ============ ========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,977,714 $ 1,591,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 230,000 80,000
Provision for depreciation and amortization 349,471 404,653
Net premium amortization on HTM securities -- 48,508
Net accretion on AFS securities (78,606) (149,436)
Gain on sale of securities -- (8,207)
Gain on sale of real estate (30,443) --
Increase in accrued interest receivable (165,737) (602,223)
Increase in other assets (36,914) (280,176)
(Decrease) increase in accrued interest payable (75,392) 68,586
Increase in taxes and other liabilities 43,384 183,648
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,213,477 1,337,266
------------ ------------
INVESTING ACTIVITIES:
(Increase) decrease in federal funds sold (922,323) 8,325,000
Purchase of investment securities-HTM -- 761,795
Proceeds from maturities of investment securities-HTM -- 17,000
Purchase of investment securities-HTM -- (2,677,693)
Purchase of investment securities-AFS (25,683,557) (31,978,947)
Proceeds from maturities of investment securities-AFS 21,651,727 24,016,780
Prepayments on mortgage backed securities 1,767,448 1,971,306
Net increase in loans (4,886,919) (21,875,750)
Purchases of premises and equipment (476,193) (538,196)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (8,549,817) (21,978,705)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 5,413,795 16,617,929
Cash dividends paid (868,621) (475,007)
Payment of fractional shares from stock dividend (8,184) (5,238)
Net increase in Sec. sold-repurchase agreement 1,848,105 2,571,942
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,385,095 18,709,626
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,755 (1,931,813)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 8,342,193 9,945,350
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,390,948 $ 8,013,537
============ ============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid $ 194,567 $ 168,513
Total increase (decrease) in unrealized loss on
securities available for sale net of deferred taxes $ 70,139 ($ 421,514)
Stock dividend declared $ 1,137,708 $ 1,373,985
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
MERCHANTS CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of 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 balances 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 September 30,
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 September 30, 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 amortize over a fifteen year period.
3. Nonperforming Assets
Nonperforming assets at September 30, 1996 and December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
9-30-96 12-31-95
---------- ----------
<S> <C> <C>
Nonaccrual loans $1,490,633 $ 762,166
Ninety days or more past due 261,823 181,983
---------- ----------
Total nonperforming loans $1,752,456 $ 944,149
Other real estate owned (net) 136,419 138,999
---------- ----------
Total nonperforming assets $1,888,875 $1,083,148
========== ==========
Nonperforming loans as a
percent of loans, net of
unearned interest 1.34% 0.75%
</TABLE>
7
<PAGE> 8
4. Allowance for Loan Losses
The following table reflects the transactions in the allowance for loan
losses for the six month periods ended September 30, 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 230,000 80,000
Charge offs 575,852 749,555
Recoveries 227,711 310,714
Adjustments -- 1,101,180
---------- ----------
Balance at end of period $1,569,502 $2,015,499
========== ==========
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.20% 1.66%
</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 shares outstandings 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 nine months ended September 30, 1996, assets increased by
$8,260,662 or 4.22%. This resulted from increases of $48,755 in cash and due
from banks, $922,323 in federal funds sold, $2,228,005 in investment
securities, $4,656,919 in net loans, $163,573 in bank premises and equipment,
$165,737 in accrued interest receivable, and $114,780 in other assets. These
increases were offset by decreases of $2,580 in other real estates and $36,850
in premium paid on purchased assets and deposits. The increase in assets was
also a result of net increases of $5,413,795 in deposits, $1,848,105 in
securities sold under repurchase agreement, $43,384 in accrued taxes and other
liabilities, and $274,175 in retained earnings resulting from year-to-date net
income of $1,977,714 less cash dividends declared of $557,647 less 5% stock
dividend of $1,145,892. These increases were offset by a decrease of $75,392
in accrued interest payable. Also, assets and shareholders equity were
decreased by $70,139 due to an increase in net unrealized loss on securities
available for sale.
Nonperforming loans as of September 30, 1996 were $1,752,456 compared to
$944,149 as of Dec. 31, 1995. The nonaccrual loans increased by $728,467 and
the ninety days or more past due increased by $79,840 as compared to Dec. 31,
1995. The nonperforming loans as a percent of loans, net of unearned income,
was 1.34% at September 30, 1996 compared to .75% at Dec. 31, 1995. This
increase in nonperforming loans is basically due to one large loan. Management
is in the process of foreclosure on this loan. The customer is voluntarily
liquidating his assets to pay this loan.
The allowance for loan losses was $1,569,502 as of September 30, 1996
compared to $2,015,499 as of September 30, 1995. The ratio of the allowance
for possible losses to loans, net of unearned income, decreased to 1.20% as of
September 30, 1996 compared to 1.66% as of September 30, 1995. Management
regularly reviews the level of the allowance for possible loan losses and is
of the opinion that it is adequate at September 30, 1996.
Results of Operations
- ---------------------
In the third quarter ended September 30, 1996, net income increased by
$551,988 which represented a decrease of 17.39% over the third quarter income
of 1995. Net interest income decreased by $37,019 or 1.67% as a result of an
increase of $60,001 or 1.55% in interest income and an increase of $97,020 or
5.86% in interest expense. The provision for loan losses increased by $50,000
or 125%. Other income increased by $99,507 or 17.28% and other expenses
increased by $128,076 or 7.38%. The income tax provision increased by $647 or
.18%.
9
<PAGE> 10
ITEM 2. (Continued)
The nine months ended September 30, 1996, resulted in an increase of
$385,801 or 24.24% in net income in comparison with the first nine months of
1995. The net interest income increased by $477,887 or 7.87% as a result of an
increase of $948,039 or 8.82% in interest income and $470,152 or 10.05% in
interest expense. The provision for loan losses increased by $150,000 or
187.50%. Other income increased by $452,920 or 28.47% and other expenses
increased by $83,818 or 1.61%. The income tax provision increased by $311,188
or 39.93%.
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 September 30, 1996, were 11.80%
and 12.93%. (Company) and 11.20% and 12.32% (Bank), respectively. The Company
and the Bank's leverage ratios at September 30, 1996, were 8.04% and 7.62%,
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 $1,341,744 in the first nine
months was the result of the retention of earnings offset by an increase of
the unrealized loss 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
(a) Exhibits
27 Financial Data Schedule
(b) 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 November 13, 1996 /s/ Joel H. Horton
----------------- --------------------------------
(Signature)
Joel H. Horton
President and Chief Operating
Officer
Date November 13, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,609
<INT-BEARING-DEPOSITS> 782
<FED-FUNDS-SOLD> 3,722
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,772
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 132,274
<ALLOWANCE> 1,570
<TOTAL-ASSETS> 203,963
<DEPOSITS> 177,123
<SHORT-TERM> 8,462
<LIABILITIES-OTHER> 1,599
<LONG-TERM> 0
0
0
<COMMON> 3,538
<OTHER-SE> 13,241
<TOTAL-LIABILITIES-AND-EQUITY> 203,963
<INTEREST-LOAN> 9,205
<INTEREST-INVEST> 2,197
<INTEREST-OTHER> 293
<INTEREST-TOTAL> 11,695
<INTEREST-DEPOSIT> 4,880
<INTEREST-EXPENSE> 268
<INTEREST-INCOME-NET> 6,547
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,293
<INCOME-PRETAX> 3,068
<INCOME-PRE-EXTRAORDINARY> 3,068
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,978
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.80
<YIELD-ACTUAL> 4.15
<LOANS-NON> 1,491
<LOANS-PAST> 262
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,688
<CHARGE-OFFS> 576
<RECOVERIES> 228
<ALLOWANCE-CLOSE> 1,570
<ALLOWANCE-DOMESTIC> 1,570
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
