<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 June 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 June 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
June 30, 1996 (Unaudited) and December 31, 1995
(Unaudited)
Consolidated Statements of Income, Three Months Ended 4
and Six Months Ended June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Changes in Stockholders'
Equity, Six Months Ended June 30, 1996 and 1995 5
(Unaudited)
Consolidated Statements of Cash Flows
Six Months Ended June 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>
June 30, 1996 Dec. 31, 1995
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
ASSETS:
Cash & due from banks $ 8,490,746 $ 8,342,193
Federal funds sold 62,852 2,800,000
Investment securities:
Available-for-sale 50,153,189 52,544,242
Loans - net 130,774,222 126,047,183
Bank premises & equipment - net 2,765,192 2,615,330
Other real estate 199,999 138,999
Accrued interest receivable 2,180,634 1,966,555
Other assets 856,860 696,940
Premuim paid on purchased assets &
deposits less amortization 526,033 550,600
------------ ------------
TOTAL ASSETS $196,009,727 $195,702,042
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 21,349,042 $ 19,934,570
Interest bearing deposits 150,293,897 151,774,537
------------ ------------
Total Deposits 171,642,939 171,709,107
Securities Sold Under Repurchase Agreement 6,562,451 6,613,555
Accrued interest payable 792,419 830,939
Accrued taxes and other liabilities 618,415 1,111,226
------------ ------------
TOTAL LIABILITIES 179,616,224 180,264,827
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 (106,307) (8,133)
Retained earnings 138,861 222,107
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,393,503 15,437,215
------------ ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $196,009,727 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $3,073,273 $2,718,087 $6,082,614 $5,050,219
Interest on invest. securities
Taxable interest income 717,007 759,101 1,394,456 1,527,377
Interest income exempt from
federal income taxes 48,858 33,537 99,494 60,622
Interest on federal funds sold 88,509 130,246 180,092 230,400
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 3,927,647 3,640,971 7,756,656 6,868,618
Interest Expense:
Interest on deposits 1,662,487 1,537,154 3,232,525 2,929,020
Interest on fed funds pur & sec sold u/repo 81,748 44,895 162,448 92,820
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,744,235 1,582,049 3,394,973 3,021,840
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,183,412 2,058,922 4,361,683 3,846,778
Provision for loan losses 80,000 0 140,000 40,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,103,412 2,058,922 4,221,683 3,806,778
Other Income:
Service charges on deposits 382,439 310,781 749,877 590,107
Trust service income 95,583 80,365 202,608 151,686
Insurance premium and commissions 155,103 86,358 284,985 173,642
Other 52,070 52,129 130,904 99,526
---------- ---------- ---------- ----------
TOTAL OTHER INCOME 685,195 529,633 1,368,374 1,014,961
Other Expenses:
Salaries 788,567 715,645 1,525,466 1,372,842
Employee benefits 157,606 170,619 354,757 333,796
Net occupancy expense 134,477 130,093 269,584 241,004
Equipment expense 138,017 154,240 276,214 306,343
Other 529,398 642,253 1,002,873 1,219,168
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSES 1,748,065 1,812,850 3,428,894 3,473,153
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,040,542 775,705 2,161,163 1,348,586
INCOME TAX PROVISION 336,061 212,040 735,437 424,896
---------- ---------- ---------- ----------
NET INCOME $ 704,481 $ 563,665 $1,425,726 $ 923,690
========== ========== ========== ==========
Net income per common share (Note 6)
Dividends per common share
Average number of shares of common $ 1.00 $ 0.80 $ 2.02 $ 1.31
stock outstanding $ 0.275 $ 0.24 $ 0.51 $ 0.45
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
SIX MONTHS ENDED JUNE 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 923,690 923,690
Cash dividends declared
(.45 per share) (321,760) (321,760)
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 434,984 434,984
------------ ------------- ---------- ----------- -----------
BALANCE, June 30, 1995 $ 3,370,270 $ 11,852,971 $ (99,970) $ (384,751) $14,738,520
============ ============= ========== =========== ===========
BALANCE, January 1, 1996 $ 3,370,270 $ 11,852,971 $ (8,133) $ 222,107 $15,437,215
Net income 1,425,726 1,425,726
Cash dividends declared
(.51 per share) (363,080) (363,080)
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 (98,174) (98,174)
------------ ------------- ---------- ----------- -----------
BALANCE, June 30, 1996 $ 3,537,580 $ 12,823,369 $ (106,307) $ 138,861 $16,393,503
============ ============= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,425,726 $ 923,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 140,000 40,000
Provision for depreciation and amortization 232,379 269,348
Net premium amortization on HTM securities - 31,224
Net accretion on AFS securities (41,088) (101,999)
Gain on sale of real estate (17,626) -
Increase in accrued interest receivable (214,079) (721,634)
Increase in other assets (140,527) (281,432)
(Decrease) increase in accrued interest payable (38,520) 71,163
(Decrease) increase in taxes and other liabilities (181,838) 446
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,164,427 230,806
------------ ------------
INVESTING ACTIVITIES:
Decrease in federal funds sold 2,737,148 13,280,000
Purchase of investment securities-HTM - (1,940,892)
Proceeds from maturities of investment securities-AFS 15,845,360 17,281,630
Purchase of investment securities-AFS (14,777,789) (27,998,582)
Prepayments on mortgage backed securities 1,203,630 1,263,941
Net increase in loans (4,867,039) (18,608,045)
Purchases of premises and equipment (357,674) (434,059)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (216,364) (17,156,007)
------------ ------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (66,168) 13,858,010
Cash dividends paid (674,054) (306,494)
Payment of fractional shares from stock dividend (8,184) (5,238)
Net (decrease) increase in Sec. sold under repurchase agreement (51,104) 3,292,621
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (799,510) 16,838,899
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 148,553 (86,302)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 8,342,193 9,945,350
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,490,746 $ 9,859,048
============ ============
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 $ 98,174 $ (434,984)
</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
June 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 June 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 amortized over a fifteen year period.
3. Nonperforming Assets
Nonperforming assets at June 30, 1996 and December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
6-30-96 12-31-95
---------- ----------
<S> <C> <C>
Nonaccrual loans $1,599,178 $ 762,166
Ninety days or more past due 225,084 181,983
---------- ----------
Total nonperforming loans $1,824,262 $ 944,149
Other real estate owned (net) 199,983 138,999
---------- ----------
Total nonperforming assets $2,024,245 $1,083,148
========== ==========
Nonperforming loans as a
percent of loans, net of
unearned interest 1.38% 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 six month periods ended June 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 140,000 40,000
Charge offs 448,913 456,398
Recoveries 173,214 202,596
Adjustments - 1,101,180
---------- ----------
Balance at end of period $1,551,944 $2,160,538
========== ==========
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.17% 1.80%
</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 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 six months ended June 30, 1996, assets increased by $307,685 or
.16%. This resulted from increases of $148,553 in cash and due from banks,
$4,727,039 in net loans, $149,862 in bank premises and equipment, $61,000 in
other real estate, $214,079 in accrued interest receivable, and $159,920 in
other assets. These increases were offset by decreases of $2,737,148 in federal
funds sold, $2,391,053 in investment securities, and $24,567 in premium paid on
purchased assets and deposits. The increase in assets was also a result of net
decreases of $66,168 in deposits, $51,104 in securities sold under repurchase
agreement, $38,520 in accrued interest payable, $181,838 in accrued taxes and
other liabilities, and $83,246 in retained earnings resulting from year-to-date
net income of $1,425,726 less cash dividends declared of $363,080 less 5% stock
dividend of $1,145,892. Also, assets and shareholders equity were decreased by
$98,174 due to an increase in net unrealized loss on securities available for
sale.
Nonperforming loans as of June 30, 1996 were $1,824,262 compared to
$944,149 as of Dec. 31, 1995. The nonaccrual loans increased by $837,012 and the
ninety days or more past due increased by $43,101 as compared to Dec. 31, 1995.
The nonperforming loans as a percent of loans, net of unearned income, was 1.38%
at June 30, 1996 compared to .74% at Dec. 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 $1,551,944 as of June 30, 1996
compared to $2,160,538 as of June 30, 1995. The ratio of the allowance for
possible losses to loans, net of unearned income decreased to 1.17% as of June
30, 1996 compared to 1.80% as of June 30, 1995. Management regularly reviews the
level of the allowance for possible loan losses and is of the opinion that it is
adequate at June 30, 1996.
Results of Operations
In the second quarter ended June 30, 1996, net income increased by
$140,816 or 24.98% over the second quarter income of 1995. Net interest income
increased by $124,490 or 6.05% as a result of an increase of $286,676 or 7.87%
in interest income and an increase of $162,186 or 10.25% in interest expense.
The provision for loan losses increased by $80,000 or 100%. Other income
increased by $155,562 or 29.37%, while other expenses decreased by $64,785 or
3.57%. The income tax provision increased by $124,021 or 58.49%.
9
<PAGE> 10
ITEM 2. (Continued)
The six months ended June 30, 1996, resulted in an increase of $502,036
or 54.35% in net income in comparison with the first six months of 1995. The net
interest income increased by $514,905 or 13.39% as a result of an increase of
$888,038 or 12.93% in interest income and $373,133 or 12.35% in interest
expense. The provision for loan losses increased by $100,000 or 250%. Other
income increased by $353,413 or 34.82% while other expenses decreased by $44,259
or 1.27%. The income tax provision increased by $310,541 or 73.09%.
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 June 30, 1996, were 11.64% and 12.77%.
(Company) and 11.16% and 12.29% (Bank), respectively. The Company and the Bank's
leverage ratios at June 30, 1996, were 8.15% and 7.81%, 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 $956,288 in the first six 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 August 9, 1996 /s/ Joel H. Horton
-------------- -------------------------------------
(Signature)
Joel H. Horton
President and Chief Operating Officer
Date August 9, 1996 /s/ James R. Wilkerson, Jr.
-------------- -------------------------------------
(Signature)
James R. Wilkerson, Jr.
Secretary
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. 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 JUNE
30, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,731
<INT-BEARING-DEPOSITS> 760
<FED-FUNDS-SOLD> 63
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,153
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 132,326
<ALLOWANCE> 1,552
<TOTAL-ASSETS> 196,010
<DEPOSITS> 171,643
<SHORT-TERM> 6,562
<LIABILITIES-OTHER> 1,411
<LONG-TERM> 0
<COMMON> 3,538
0
0
<OTHER-SE> 12,856
<TOTAL-LIABILITIES-AND-EQUITY> 196,010
<INTEREST-LOAN> 6,083
<INTEREST-INVEST> 1,494
<INTEREST-OTHER> 180
<INTEREST-TOTAL> 7,757
<INTEREST-DEPOSIT> 3,233
<INTEREST-EXPENSE> 162
<INTEREST-INCOME-NET> 4,362
<LOAN-LOSSES> 140
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,429
<INCOME-PRETAX> 2,161
<INCOME-PRE-EXTRAORDINARY> 2,161
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,426
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 4.18
<LOANS-NON> 1,599
<LOANS-PAST> 225
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,688
<CHARGE-OFFS> 449
<RECOVERIES> 173
<ALLOWANCE-CLOSE> 1,552
<ALLOWANCE-DOMESTIC> 1,552
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
