<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, 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
----- -----
707,516 common shares were outstanding as of March 31, 1997.
1
<PAGE> 2
MERCHANTS CAPITAL CORPORATION
INDEX
Page
Number
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
March 31, 1997 (Unaudited) and December 31, 1996
(Unaudited)
Consolidated Statements of Income, Three Months 4
Ended March 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Changes in Stockholders' 5
Equity, Three Months Ended March 31, 1997 and
1996 (Unaudited)
Consolidated Statements of Cash Flows 6
Three Months Ended March 31, 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
2
<PAGE> 3
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, 1997 Dec. 31, 1996
(Unaudited) (Unaudited)
------------- ------------
<S> <C> <C>
ASSETS:
Cash & due from banks $ 8,920,532 $ 10,305,656
Federal funds sold 8,645,907 16,080,078
Investment securities:
Available-for-sale 55,034,714 42,913,870
Loans - net 129,668,108 130,863,866
Bank premises & equipment - net 2,712,517 2,752,777
Other real estate 128,649 128,849
Accrued interest receivable 1,796,871 1,760,153
Other assets 887,006 756,134
Premium paid on purchased assets &
deposits less amortization 489,184 501,467
------------- ------------
TOTAL ASSETS $ 208,283,488 $206,062,850
============= ============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 21,896,258 $ 22,434,563
Interest bearing deposits 154,865,093 154,834,160
------------- ------------
Total Deposits 176,761,351 177,268,723
Securities Sold Under Repurchase Agreement 12,568,359 9,811,858
Accrued interest payable 774,542 822,785
Accrued taxes and other liabilities 805,496 1,155,095
------------- ------------
TOTAL LIABILITIES 190,909,748 189,058,461
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share:
Authorized - 1,000,000 shares
Issued & outstanding 707,516 shares 3,537,580 3,537,580
Additional paid-in capital 12,823,369 12,823,369
Unrealized gain (loss) on securities AFS (39,057) 46,924
Retained earnings 1,051,848 596,516
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 17,373,740 17,004,389
------------- ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 208,283,488 $206,062,850
============= ============
</TABLE>
See notes to consolidated financial statements.
3
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MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $3,023,583 $3,009,341
Interest on investment securities
Taxable interest income 782,306 677,449
Interest income exempt from
federal income taxes 46,854 50,636
Interest on federal funds sold 110,764 91,583
-------------------------
TOTAL INTEREST INCOME 3,963,507 3,829,009
Interest Expense:
Interest on deposits 1,629,898 1,570,038
Interest on fed funds pur & sec sold u/repo 147,590 80,700
-------------------------
TOTAL INTEREST EXPENSE 1,777,488 1,650,738
-------------------------
NET INTEREST INCOME 2,186,019 2,178,271
Provision for loan losses 105,000 60,000
-------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,081,019 2,118,271
Other Income:
Service charges on deposits 380,655 367,437
Trust service income 103,373 107,025
Insurance premium and commissions 136,256 129,882
Other 61,363 78,835
-------------------------
TOTAL OTHER INCOME 681,647 683,179
Other Expenses:
Salaries 783,336 736,898
Employee benefits 191,579 197,152
Net occupancy expense 131,220 135,107
Equipment expense 134,461 138,197
Other 544,555 473,475
-------------------------
TOTAL OTHER EXPENSES 1,785,151 1,680,829
-------------------------
INCOME BEFORE INCOME TAXES 977,515 1,120,621
INCOME TAX PROVISION 327,616 399,376
-------------------------
NET INCOME $ 649,899 $ 721,245
=========================
Basic earnings per common share (Note 5) $ 0.92 $ 1.02
Diluted earnings per common share (Note 5) $ 0.92 $ 1.02
Dividends per common share $ 0.275 $ 0.24
Average number of shares of common
stock outstanding 707,516 707,516
</TABLE>
See notes to consolidated financial statements.
4
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MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 721,245 721,245
Cash dividends declared
(.24 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
=========== ============ ======== ========== ===========
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 $ 3,537,580 $ 12,823,369 $ 46,924 $ 596,516 $17,004,389
Net income 649,899 649,899
Cash dividends declared
(.275 per share) (194,567) (194,567)
Unrealized gain (loss)
on securities AFS (85,981) (85,981)
----------- ------------ -------- ---------- -----------
BALANCE, March 31, 1997 $ 3,537,580 $ 12,823,369 $(39,057) $1,051,848 $17,373,740
=========== ============ ======== ========== ===========
</TABLE>
See notes to consolidated financial statements.
5
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MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 649,899 $ 721,245
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 105,000 60,000
Provision for depreciation and amortization 117,110 117,697
Net accretion on AFS securities (177,847) 7,696
Gain on sale of securities (12,309) --
Loss (gain) on sale of real estate 6,431 (17,626)
Increase in accrued interest receivable (36,718) (32,539)
Increase in other assets (82,132) (52,970)
Decrease in accrued interest payable (48,243) (71,391)
Increase in taxes and other liabilities 4,159 114,741
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 525,350 846,853
------------ -----------
INVESTING ACTIVITIES:
Decrease (increase) in federal funds sold 7,434,171 (5,855,986)
Purchase of investment securities-AFS (23,745,957) (6,063,996)
Proceeds from maturities of investment securities-AFS 10,271,714 8,096,645
Proceeds from sales of investment securities-AFS 789,125 --
Prepayments on mortgage backed securities 613,478 505,077
Net decrease (increase) in loans 1,090,758 (810,283)
Purchases of premises and equipment (64,567) (290,875)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (3,611,278) (4,419,418)
------------ -----------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (507,372) 1,728,090
Cash dividends paid (548,325) (505,540)
Net increase in Sec. sold-repurchase agreement 2,756,501 1,177,937
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,700,804 2,400,487
------------ -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,385,124) (1,172,078)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 10,305,656 8,342,193
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,920,532 $ 7,170,115
============ ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid $ 194,567 $ 168,513
Total increase (decrease) in unrealized gain (loss) on
securities available for sale net of deferred taxes $ (85,981) $ 52,618
</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
March 31, 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 March 31, 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 March 31, 1997 and December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
3-31-97 12-31-96
---------- ----------
<S> <C> <C>
Nonaccrual loans $ 906,310 $1,078,368
Ninety days or more past due 244,683 477,349
---------- ----------
Total nonperforming loans $1,150,993 $1,555,717
Other real estate owned (net) 128,649 128,849
---------- ----------
Total nonperforming assets $1,279,642 $1,684,566
========== ==========
Nonperforming loans as a
percent of loans, net of
unearned interest 0.88% 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 three month periods ended March 31, 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 105,000 60,000
Charge offs (149,905) (82,059)
Recoveries 109,632 104,798
----------- -----------
Balance at end of period $ 1,610,547 $ 1,549,579
=========== ===========
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.23% 1.21%
</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".
Its 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
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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, 1997, assets increased by $2,220,638
or 1.08%. This resulted from increases of $12,120,844 in investment securities,
$36,718 in accrued interest receivable, $130,872 in other assets. These
increases were offset by decreases of $1,385,124 in cash and due from banks,
$7,434,171 in federal funds sold, $1,195,758 in net loans, $40,260 in bank
premises and equipment, $200 in other real estates and $12,283 in premium paid
on purchased assets and deposits. The increase in assets was also a result of
net increases of $2,756,501 in securities sold under repurchase agreement,
$4,159 in accrued taxes and other liabilities, and $455,332 in retained
earnings resulting from year-to-date net income of $649,899 less cash dividends
declared of $194,567. These increases were offset by a decrease of $507,372 in
deposits, and $48,243 in accrued interest payable. Also, assets and
shareholders equity were decreased by $85,981 due to an increase in net
unrealized loss on securities available for sale.
Nonperforming loans as of March 31, 1997 were $1,150,993 compared to
$1,555,717 as of Dec. 31, 1996. The nonaccrual loans decreased by $172,058; so
did the ninety days or more past due by $232,666 as compared to Dec. 31, 1996.
The nonperforming loans as a percent of loans, net of unearned income, was .88%
at March 31, 1997 compared to 1.17% at December 31, 1996.
The allowance for loan losses was $1,610,547 as of March 31, 1997 compared
to $1,549,579 as of March 31, 1996. The ratio of the allowance for possible
losses to loans, net of unearned income, increased to 1.23% as of March 31,
1997 compared to 1.21% as of March 31, 1996. Management regularly reviews the
level of the allowance for possible loan losses and is of the opinion that it
is adequate at March 31, 1997.
Results of Operations
In the first quarter ended March 31, 1997, net income decreased by $71,346
which represented a decrease of 9.89% over the first quarter income of 1996.
Net interest income increased by $7,748 or .36% as a result of an increase of
$134,498 or 3.51% in interest income and an increase of $126,750 or 7.68% in
interest expense. The provision for loan losses increased by $45,000 or 75%.
Other income decreased by $1,532 or .22% while other expenses increased by
$104,322 or 6.21%. The income tax provision decreased by $71,760 or 17.97%.
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, 1997, were 12.28% and 13.45%
(Company) and 11.64% and 12.81% (Bank), respectively. The Company and the
Bank's leverage ratios at March 31, 1997, were 8.08% and 7.64%, 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 $369,351 in the first three
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
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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 13, 1997 /s/ JOEL H. HORTON
---------------------- -----------------------------
(Signature)
Joel H. Horton
President and Chief Operating
Officer
Date May 13, 1997 /s/ JAMES R. WILKERSON, JR.
--------------------- -----------------------------
(Signature)
James R. Wilkerson, Jr.
Secretary
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,855
<INT-BEARING-DEPOSITS> 66
<FED-FUNDS-SOLD> 8,646
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,035
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 131,279
<ALLOWANCE> 1,611
<TOTAL-ASSETS> 208,283
<DEPOSITS> 176,761
<SHORT-TERM> 12,568
<LIABILITIES-OTHER> 1,580
<LONG-TERM> 0
0
0
<COMMON> 3,538
<OTHER-SE> 13,836
<TOTAL-LIABILITIES-AND-EQUITY> 208,283
<INTEREST-LOAN> 3,024
<INTEREST-INVEST> 829
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 3,964
<INTEREST-DEPOSIT> 1,630
<INTEREST-EXPENSE> 148
<INTEREST-INCOME-NET> 2,186
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 1,785
<INCOME-PRETAX> 978
<INCOME-PRE-EXTRAORDINARY> 978
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 4.07
<LOANS-NON> 906
<LOANS-PAST> 245
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,546
<CHARGE-OFFS> 150
<RECOVERIES> 110
<ALLOWANCE-CLOSE> 1,611
<ALLOWANCE-DOMESTIC> 1,611
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
