<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, 1997 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
742,651 common shares were outstanding as of June 30, 1997.
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, 1997 (Unaudited) and December 31, 1996
(Unaudited)
Consolidated Statements of Income, Three Months 4
Ended and Six Months Ended June 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Changes in Stockholders' 5
Equity, Six Months Ended June 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 1997 and 1996
(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, 1997 Dec. 31, 1996
(Unaudited) (Unaudited)
--------------- -------------
<S> <C> <C>
ASSETS:
Cash & due from banks $ 9,570,189 $ 10,305,656
Federal funds sold - 16,080,078
Investment securities:
Available-for-sale 64,242,110 42,913,870
Loans - net 130,501,468 130,863,866
Bank premises & equipment - net 2,652,110 2,752,777
Other real estate 56,349 128,849
Accrued interest receivable 1,923,157 1,760,153
Other assets 819,451 756,134
Premium paid on purchased assets &
deposits less amortization 476,900 501,467
------------- -------------
TOTAL ASSETS $210,241,734 $206,062,850
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 20,194,977 $ 22,434,563
Interest bearing deposits 156,522,486 154,834,160
------------- -------------
Total Deposits 176,717,463 177,268,723
Securities Sold Under Repurchase Agreement 14,047,118 9,811,858
Accrued interest payable 814,742 822,785
Accrued taxes and other liabilities 631,362 1,155,095
------------- -------------
TOTAL LIABILITIES 192,210,685 189,058,461
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share:
Authorized - 1,000,000 shares
Issued & outstanding 742,651 shares 3,713,255 3,537,580
Additional paid-in capital 13,877,419 12,823,369
Unrealized gain (loss) on securities AFS 52,643 46,924
Retained earnings 387,732 596,516
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 18,031,049 17,004,389
------------- -------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $210,241,734 $206,062,850
============= =============
</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,
1997 1996 1997 1996
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $3,141,746 $3,073,273 $6,165,330 $6,082,614
Interest on investment securities
Taxable interest income 858,695 717,007 1,641,001 1,394,456
Interest income exempt from
federal income taxes 44,745 48,858 91,599 99,494
Interest on federal funds sold 113,592 88,509 224,356 180,092
------------- ------------- ------------ ------------
TOTAL INTEREST INCOME 4,158,778 3,927,647 8,122,286 7,756,656
Interest Expense:
Interest on deposits 1,681,500 1,662,487 3,311,399 3,232,525
Interest on fed funds pur & sec sold u/repo 173,337 81,748 320,927 162,448
------------- ------------- --------------------------
TOTAL INTEREST EXPENSE 1,854,837 1,744,235 3,632,326 3,394,973
------------- ------------- --------------------------
NET INTEREST INCOME 2,303,941 2,183,412 4,489,960 4,361,683
Provision for loan losses 105,000 80,000 210,000 140,000
------------- ------------- --------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,198,941 2,103,412 4,279,960 4,221,683
Other Income:
Service charges on deposits 408,538 382,439 789,193 749,877
Trust service income 114,680 95,583 218,053 202,608
Insurance premium and commissions 153,036 155,103 289,292 284,985
Other 57,891 52,070 119,254 130,904
------------- ------------- --------------------------
TOTAL OTHER INCOME 734,145 685,195 1,415,792 1,368,374
Other Expenses:
Salaries 780,272 788,567 1,563,608 1,525,466
Employee benefits 168,909 157,606 360,488 354,757
Net occupancy expense 119,126 134,477 250,346 269,584
Equipment expense 144,798 138,017 279,259 276,214
Other 624,857 529,398 1,169,412 1,002,873
------------- ------------- --------------------------
TOTAL OTHER EXPENSES 1,837,962 1,748,065 3,623,113 3,428,894
------------- ------------- --------------------------
INCOME BEFORE INCOME TAXES 1,095,124 1,040,542 2,072,639 2,161,163
INCOME TAX PROVISION 298,292 336,061 625,908 735,437
------------- ------------- --------------------------
NET INCOME $796,832 $704,481 $1,446,731 $1,425,726
============= ============= ==========================
Basic earnings per common share (Note 5) $1.07 $0.95 $1.95 $1.92
Diluted earnings per common share (Note 5) $1.07 $0.95 $1.95 $1.92
Dividends per common share $0.30 $0.26 $0.56 $0.49
Average number of shares of common
stock outstanding 742,651 742,651 742,651 742,651
</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, 1997 AND 1996
(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, 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
(.49 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
============ ============= ============= ============ ============
BALANCE, January 1, 1997 $3,537,580 $12,823,369 $46,924 $596,516 $17,004,389
Net income 1,446,731 1,446,731
Cash dividends declared
(.56 per share) (417,362) (417,362)
Stock dividend (5%) 175,675 1,054,050 (1,229,725) -
Fractional shares
purchased (240.8 shares
@35.00 per share) (8,428) (8,428)
Unrealized gain (loss)
on securities AFS 5,719 5,719
------------ ------------- ------------- ------------ ------------
BALANCE, June 30, 1997 $3,713,255 $13,877,419 $52,643 $387,732 $18,031,049
============ ============= ============= ============ ============
</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,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,446,731 $1,425,726
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 210,000 140,000
Provision for depreciation and amortization 234,076 232,379
Net accretion on AFS securities (400,704) (41,088)
Gain on sale of securities (12,309) -
Gain on sale of real estate (13,535) (17,626)
Increase in accrued interest receivable (163,004) (214,079)
Decrease (increase) in other assets 19,062 (140,527)
Decrease in accrued interest payable (8,043) (38,520)
Decrease in taxes and other liabilities (198,203) (181,838)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,114,071 1,164,427
------------- ------------
INVESTING ACTIVITIES:
Decrease in federal funds sold 16,080,078 2,737,148
Purchase of investment securities-AFS (52,455,867) (14,777,789)
Proceeds from maturities of investment securities-AFS 29,565,309 15,845,360
Proceeds from sales of investment securities-AFS 789,125 -
Prepayments on mortgage backed securities 1,195,581 1,203,630
Net decrease (increase) in loans 152,398 (4,867,039)
Purchases of premises and equipment (108,842) (357,674)
------------- ------------
NET CASH USED BY INVESTING ACTIVITIES (4,782,218) (216,364)
------------- ------------
FINANCING ACTIVITIES:
Net decrease in deposits (551,260) (66,168)
Cash dividends paid (742,892) (674,054)
Payment of fractional shares from stock dividend (8,428) (8,184)
Net increase (decrease) in Sec. sold-repurchase agreement 4,235,260 (51,104)
------------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,932,680 (799,510)
------------- ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (735,467) 148,553
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 10,305,656 8,342,193
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $9,570,189 $8,490,746
============= ============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid $222,795 $194,567
Total increase in unrealized gain (loss) on securities
available for sale net of deferred taxes $5,719 ($98,174)
</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, 1997, 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, 1997, 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, 1996.
2. Nonperforming Assets
Nonperforming assets at June 30, 1997 and December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
6-30-97 12-31-96
------------- -------------
<S> <C> <C>
Nonaccrual loans $558,520 $1,078,368
Ninety days or more past due 424,870 477,349
------------- -------------
Total nonperforming loans $983,390 $1,555,717
Other real estate owned (net) 56,349 128,849
------------- -------------
Total nonperforming assets $1,039,739 $1,684,566
============= =============
Nonperforming loans as a
percent of loans, net of
unearned interest 0.74% 1.17%
</TABLE>
7
<PAGE> 8
3. Allowance for Loan Losses
The following table reflects the transactions in the allowance for loan
losses for the six month periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Balance at beginning of year $1,545,820 $1,687,643
Adjustment for discounted loans - 220,803
------------- -------------
Restated balance at the beg. of year $1,545,820 $1,466,840
Provision charged to operations 210,000 140,000
Charge offs (250,995) (228,110)
Recoveries 156,620 173,214
------------- -------------
Balance at end of period $1,661,445 $1,551,944
============= =============
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.26% 1.17%
</TABLE>
4. Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which becomes effective
for periods ending after December 15, 1997. This statement requires
companies to present two types of earnings per share: "basic" and "diluted".
It's predecessor APB Opinion 15, only required companies with simple capital
structures to present earnings per common share and companies with complex
capital structures to present both the primary and fully diluted EPS.
The financial Accounting Standard Board also issued Statement No. 129,
"Disclosure of Information About Capital Structure" which becomes effective
for financial statements issued for periods ending after December 15, 1997.
This statement consolidates existing disclosures, many of which applied to
public companies. These disclosures will apply to rights and privileges of
outstanding securities, number of shares issued during an annual period and,
if applicable, the interim period presented, liquidation preferences of any
preferred stock and various aggregate and per share amounts upon redemption.
5. Earning Per Share of Common Stock
Basic earning 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.
Diluted earnings per share is computed by dividing income by the weighted
average number of common shares outstanding during the period plus the
number of additional common shares that would have been outstanding if any
dilutive potential common stock had been issued.
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, 1997, assets increased by $4,178,884 or
2.03%. This resulted from increases of $21,328,240 in investment securities,
$163,004 in accrued interest receivable, and $63,317 in other assets. These
increases were offset by decreases of $735,467 in cash and due from banks,
$16,080,078 in federal funds sold, $362,398 in net loans, $100,667 in bank
premises and equipment, $72,500 in other real estate, and $24,567 in premium
paid on purchased assets and deposits. The increase in assets was also a result
of net increases of $4,235,260 in securities sold under repurchase agreement.
This increase was offset by a decrease of $551,260 in deposits, $8,043 in
accrued interest payable, $198,203 in accrued taxes and other liabilities, and
$208,784 in retained earnings resulting from year-to-date net income of
$1,446,731 less cash dividends declared of $417,362 less 5% stock dividend of
$1,238,153. Also, assets and shareholders equity were increased by $5,719 due
to an increase in net unrealized gain on securities available for sale.
Nonperforming loans as of June 30, 1997 were $983,390 compared to
$1,555,717 as of Dec. 31, 1996. The nonaccrual loans decreased by $519,848; so
did the ninety days or more past due by $52,479 as compared to Dec. 31, 1996.
The nonperforming loans as a percent of loans, net of unearned income, was .74%
at June 30, 1997 compared to 1.17% at December 31, 1996.
The allowance for loan losses was $1,661,445 as of June 30, 1997 compared
to $1,551,944 as of June 30, 1996. The ratio of the allowance for possible
losses to loans, net of unearned income, increased to 1.26% as of June 30, 1997
compared to 1.17% as of June 30, 1996. Management regularly reviews the level
of the allowance for possible loan losses and is of the opinion that it is
adequate at June 30, 1997.
Results of Operations
In the second quarter ended June 30, 1997, net income increased by $92,351
which represented an increase of 13.11% over the second quarter income of 1996.
Net interest income increased by $120,529 or 5.52% as a result of an increase
of $231,131 or 5.88% in interest income and an increase of $110,602 or 6.34% in
interest expense. The provision for loan losses increased by $25,000 or 31.25%.
Other income increased by $48,950 or 7.14%; so did other expenses by $89,897 or
5.14%. The income tax provision decreased by $92,351 or 13.11%.
9
<PAGE> 10
ITEM 2. (Continued)
The six months ended June 30, 1997, resulted in an increase of $21,005 or
1.47% in net income in comparison with the first six months of 1996. The net
interest income increased $128,277 or 2.94% as a result of an increase of
$365,630 or 4.71% in interest income and $237,353 or 6.99% in interest expense.
The provision for loan losses increased by $70,000 or 50%. Other income
increased by $47,418 or 3.47%, so did other expenses for $194,219 or 5.66%. The
income tax provision decreased by $109,529 or 14.89%.
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, 1997, were 12.61% and 13.81%
(Company) and 11.75% and 12.95% (Bank), respectively. The Company and the
Bank's leverage ratios at June 30, 1997, were 8.28% and 7.72%, 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 $1,026,660 in the first six
months was the result of the retention of earnings and an 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
(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 14, 1997 /s/ Joel H. Horton
----------------- --------------------------------
(Signature)
Joel H. Horton
President and Chief Operating
Officer
Date August 14, 1997 /s/ James R. Wilkerson, Jr.
----------------- --------------------------------
(Signature)
James R. Wilkerson, Jr.
Secretary
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,495
<INT-BEARING-DEPOSITS> 75
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,242
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 132,162
<ALLOWANCE> 1,661
<TOTAL-ASSETS> 210,242
<DEPOSITS> 176,717
<SHORT-TERM> 14,047
<LIABILITIES-OTHER> 1,446
<LONG-TERM> 0
3,713
0
<COMMON> 0
<OTHER-SE> 14,318
<TOTAL-LIABILITIES-AND-EQUITY> 210,242
<INTEREST-LOAN> 6,165
<INTEREST-INVEST> 1,733
<INTEREST-OTHER> 224
<INTEREST-TOTAL> 8,122
<INTEREST-DEPOSIT> 3,311
<INTEREST-EXPENSE> 321
<INTEREST-INCOME-NET> 4,490
<LOAN-LOSSES> 210
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 3,623
<INCOME-PRETAX> 2,073
<INCOME-PRE-EXTRAORDINARY> 2,073
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,447
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 4.11
<LOANS-NON> 558
<LOANS-PAST> 425
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,546
<CHARGE-OFFS> 251
<RECOVERIES> 156
<ALLOWANCE-CLOSE> 1,661
<ALLOWANCE-DOMESTIC> 1,661
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
