<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, 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
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
742,651 common shares were outstanding as of September 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
September 30, 1997 (Unaudited) and December 31, 1996
(Unaudited)
Consolidated Statements of Income, Three Months 4
Ended and Nine Months Ended September 30, 1997 and
1996 (Unaudited)
Consolidated Statements of Changes in Stockholders' 5
Equity, Nine Months Ended September 30, 1997 and
1996 (Unaudited)
Consolidated Statements of Cash Flows 6
Nine Months Ended September 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>
Sept. 30, 1997 Dec. 31, 1996
(Unaudited) (Unaudited)
------------ ------------
ASSETS:
<S> <C> <C>
Cash & due from banks $9,391,837 $10,305,656
Federal funds sold 5,829,012 16,080,078
Investment securities:
Available-for-sale 60,779,710 42,913,870
Loans - net 135,889,942 130,863,866
Bank premises & equipment - net 2,608,927 2,752,777
Other real estate 125,995 128,849
Accrued interest receivable 2,100,617 1,760,153
Other assets 830,512 756,134
Premium paid on purchased assets &
deposits less amortization 464,617 501,467
------------ ------------
TOTAL ASSETS $218,021,169 $206,062,850
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $23,347,132 $22,434,563
Interest bearing deposits 160,251,243 154,834,160
------------ ------------
Total Deposits 183,598,375 177,268,723
Securities Sold Under Repurchase Agreement 14,447,565 9,811,858
Accrued interest payable 782,788 822,785
Accrued taxes and other liabilities 745,096 1,155,095
------------ ------------
TOTAL LIABILITIES 199,573,824 189,058,461
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 5,125 46,924
Retained earnings 851,546 596,516
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,447,345 17,004,389
------------ ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $218,021,169 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $3,224,379 $3,122,373 $9,389,709 $9,204,986
Interest on investment securities
Taxable interest income 859,346 655,099 2,500,347 2,049,555
Interest income exempt from
federal income taxes 43,540 48,030 135,139 147,525
Interest on federal funds sold 85,992 112,555 310,348 292,647
---------------------------- ------------------------------
TOTAL INTEREST INCOME 4,213,257 3,938,057 12,335,543 11,694,713
Interest Expense:
Interest on deposits 1,676,933 1,646,993 4,988,332 4,879,518
Interest on fed funds pur & sec sold u/repo 168,768 105,128 489,695 267,576
---------------------------- ------------------------------
TOTAL INTEREST EXPENSE 1,845,701 1,752,121 5,478,027 5,147,094
---------------------------- ------------------------------
NET INTEREST INCOME 2,367,556 2,185,936 6,857,516 6,547,619
Provision for loan losses 105,000 90,000 315,000 230,000
---------------------------- ------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,262,556 2,095,936 6,542,516 6,317,619
Other Income:
Service charges on deposits 408,245 387,896 1,197,438 1,137,773
Trust service income 148,391 104,482 366,444 307,090
Insurance premium and commissions 136,754 128,872 426,046 413,857
Other 49,580 54,149 168,833 185,054
---------------------------- ------------------------------
TOTAL OTHER INCOME 742,970 675,399 2,158,761 2,043,774
Other Expenses:
Salaries 764,730 795,673 2,328,338 2,321,139
Employee benefits 142,870 158,339 503,358 513,096
Net occupancy expense 134,459 148,886 384,805 418,469
Equipment expense 146,758 132,542 426,017 408,757
Other 632,815 628,874 1,802,226 1,631,748
---------------------------- ------------------------------
TOTAL OTHER EXPENSES 1,821,632 1,864,314 5,444,744 5,293,209
---------------------------- ------------------------------
INCOME BEFORE INCOME TAXES 1,183,894 907,021 3,256,533 3,068,184
INCOME TAX PROVISION 497,285 355,033 1,123,193 1,090,470
---------------------------- ------------------------------
NET INCOME $686,609 $551,988 $2,133,340 $1,977,714
============================ ==============================
Basic earnings per common share (Note 5) $0.92 $0.74 $2.87 $2.66
Diluted earnings per common share (Note 5) $0.92 $0.74 $2.87 $2.66
Dividends per common share $0.30 $0.26 $0.86 $0.75
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
NINE MONTHS ENDED SEPTEMBER 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 1,977,714 1,977,714
Cash dividends declared
(.75 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, September 30, 1996 $3,537,580 $12,823,369 $(78,272) $496,282 $16,778,959
========== =========== ======== ======== ===========
BALANCE, January 1, 1997 $3,537,580 $12,823,369 $46,924 $596,516 $17,004,389
Net income 2,133,340 2,133,340
Cash dividends declared
(.86 per share) (640,157) (640,157)
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 (41,799) (41,799)
---------- ----------- --------- -------- -----------
BALANCE, September 30, 1997 $3,713,255 $13,877,419 $5,125 $851,546 $18,447,345
========== =========== ========= ======== ===========
</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,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,133,340 $1,977,714
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 315,000 230,000
Provision for depreciation and amortization 347,766 349,471
Net accretion on AFS securities (508,782) (78,606)
Gain on sale of securities (18,639) --
Gain on sale of real estate (14,777) (30,443)
Increase in accrued interest receivable (340,464) (165,737)
Increase in other assets (30,023) (36,914)
Decrease in accrued interest payable (39,997) (75,392)
(Decrease) increase in taxes and other liabilities (84,469) 43,384
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,758,955 2,213,477
----------- -----------
INVESTING ACTIVITIES:
Decrease (increase) in federal funds sold 10,251,066 (922,323)
Purchase of investment securities-AFS (73,920,414) (25,683,557)
Proceeds from maturities of investment securities-AFS 47,627,735 21,651,727
Proceeds from sales of investment securities-AFS 6,783,187 --
Prepayments on mortgage backed securities 2,102,550 1,767,448
Increase in loans (5,341,076) (4,886,919)
Purchases of premises and equipment (167,066) (476,193)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (12,664,018) (8,549,817)
----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits 6,329,652 5,413,795
Cash dividends paid (965,687) (868,621)
Payment of fractional shares from stock dividend (8,428) (8,184)
Net increase in Sec. sold-repurchase agreement 4,635,707 1,848,105
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,991,244 6,385,095
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (913,819) 48,755
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 10,305,656 8,342,193
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $9,391,837 $8,390,948
=========== ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid $222,795 $194,567
Total decrease in unrealized gain on securities
available for sale net of deferred taxes $41,799
Total increase in unrealized loss on securities
available for sale net of deferred taxes $70,139
</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, 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 September 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 September 30, 1997 and December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
9-30-97 12-31-96
---------- ----------
<S> <C> <C>
Nonaccrual loans $ 530,084 $1,078,368
Ninety days or more past due 511,924 477,349
---------- ----------
Total nonperforming loans $1,042,008 $1,555,717
Other real estate owned (net) 125,995 128,849
---------- ----------
Total nonperforming assets $1,168,003 $1,684,566
========== ==========
Nonperforming loans as a
percent of loans, net of
unearned interest 0.76% 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 nine month periods ended September 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 315,000 230,000
Charge offs (414,456) (355,049)
Recoveries 215,489 227,711
---------- ----------
Balance at end of period $1,661,853 $1,569,502
========== ==========
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.21% 1.19%
</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 nine months ended September 30, 1997, assets increased by
$11,958,319 or 5.8%. This resulted from increases of $17,865,840 in investment
securities, $5,026,076 in net loans, $340,464 in accrued interest receivable,
and $74,378 in other assets. These increases were offset by decreases of
$913,819 in cash and due from banks, $10,251,066 in federal funds sold,
$143,850 in bank premises and equipment, $2,854 in other real estate, and
$36,850 in premium paid on purchased assets and deposits. The increase in
assets was also a result of net increases of $6,329,652 in deposits, $4,635,707
in securities sold under repurchase agreement, and $255,030 in retained
earnings. This increase in retained earnings was due to $2,133,340 from
year-to-date net income reduced by $640,157 in cash dividends declared and 5%
stock dividend of $1,238,153. The increase in liabilities and stockholders'
equity was offset by a decreases of $39,997 in accrued interest payable and
$409,999 in accrued taxes and other liabilities. Also, assets and stockholders'
equity were decreased by $41,799 due to a decrease in net unrealized gain on
securities available for sale.
Nonperforming loans as of September 30, 1997 were $1,042,008 compared to
$1,555,717 as of Dec. 31, 1996. The nonaccrual loans decreased by $548,284
while the ninety days or more past due increased by $34,575 as compared to Dec.
31, 1996. The nonperforming loans as a percent of loans, net of unearned
income, was .76% at September 30, 1997 compared to 1.17% at December 31, 1996.
The allowance for loan losses was $1,661,853 as of September 30, 1997
compared to $1,569,502 as of September 30, 1996. The ratio of the allowance for
possible losses to loans, net of unearned income, increased to 1.21% as of
September 30, 1997 compared to 1.19% as of September 30, 1996. Management
regularly reviews the level of the allowance for possible loan losses and is of
the opinion that it is adequate at September 30, 1997.
Results of Operations
In the third quarter ended September 30, 1997, net income increased by
$134,621 which represented an increase of 24.39% over the third quarter income
of 1996. Net interest income increased by $181,620 or 8.31% as a result of an
increase of $275,200 or 6.99% in interest income and an increase of $93,580 or
5.34% in interest expense. The provision for loan losses increased by $15,000
or 16.67%. Other income increased by $67,571 or 10.0% while other expenses
decreased by $42,682 or 2.29%. The income tax provision increased by $142,252
or 40.07%.
9
<PAGE> 10
ITEM 2. (Continued)
The nine months ended September 30, 1997, resulted in an increase of
$155,626 or 7.87% in net income in comparison with the first nine months of
1996. The net interest income increased $309,897 or 4.73% as a result of an
increase of $640,830 or 5.48% in interest income and $330,933 or 6.43% in
interest expense. The provision for loan losses increased by $85,000 or 36.96%.
Other income increased by $114,987 or 5.63%, so did other expenses by $151,535
or 2.86%. The income tax provision increased by $32,723 or 3.0%.
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, 1997, were 12.46% and 13.61%
(Company) and 11.48% and 12.63% (Bank), respectively. The Company and the
Bank's leverage ratios at September 30, 1997, were 8.20% and 7.83%,
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 $1,442,956 in the first nine
months was the result of the retention of earnings offset by a decrease 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 November 13, 1997 /s/ Howell N. Gage
------------------- ------------------------------
(Signature)
Howell N. Gage
Chairman of the Board and
Chief Executive Officer
Date November 13, 1997 /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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,306
<INT-BEARING-DEPOSITS> 86
<FED-FUNDS-SOLD> 5,829
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,780
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 137,552
<ALLOWANCE> 1,662
<TOTAL-ASSETS> 218,021
<DEPOSITS> 183,598
<SHORT-TERM> 14,448
<LIABILITIES-OTHER> 1,528
<LONG-TERM> 0
0
0
<COMMON> 3,713
<OTHER-SE> 14,734
<TOTAL-LIABILITIES-AND-EQUITY> 218,021
<INTEREST-LOAN> 9,390
<INTEREST-INVEST> 2,635
<INTEREST-OTHER> 310
<INTEREST-TOTAL> 12,335
<INTEREST-DEPOSIT> 4,988
<INTEREST-EXPENSE> 490
<INTEREST-INCOME-NET> 6,857
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 5,445
<INCOME-PRETAX> 3,257
<INCOME-PRE-EXTRAORDINARY> 3,257
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,133
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
<YIELD-ACTUAL> 4.27
<LOANS-NON> 530
<LOANS-PAST> 512
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,546
<CHARGE-OFFS> 414
<RECOVERIES> 215
<ALLOWANCE-CLOSE> 1,662
<ALLOWANCE-DOMESTIC> 1,662
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
