<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, 1998 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 March 31, 1998.
1
<PAGE> 2
MERCHANTS CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
Part 1. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
March 31, 1998 (Unaudited) and December 31, 1997
(Unaudited)
Consolidated Statements of Income and Comprehensive Income,
Three Months Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' 5
Equity, Three Months Ended March 31, 1998 and
1997 (Unaudited)
Consolidated Statements of Cash Flows 6
Three Months Ended March 31, 1998 and 1997
(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>
March 31, 1998 Dec. 31, 1997
(Unaudited) (Unaudited)
---------------- -------------
<S> <C> <C>
ASSETS:
Cash & due from banks $ 9,142,583 $ 10,084,731
Federal funds sold 1,989,649 3,473,703
Investment securities:
Available-for-sale 65,416,703 68,151,857
Loans - net 139,323,733 136,238,338
Bank premises & equipment - net 2,597,861 2,698,060
Other real estate 155,580 181,280
Accrued interest receivable 2,255,011 1,997,240
Other assets 863,008 721,154
Premium paid on purchased assets &
deposits less amortization 440,050 452,333
------------ ------------
TOTAL ASSETS $222,184,178 $223,998,696
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 22,092,502 $ 25,378,217
Interest bearing deposits 164,564,159 165,757,406
------------ ------------
Total Deposits 186,656,661 191,135,623
Securities Sold Under Repurchase Agreement 14,656,678 11,921,483
Accrued interest payable 822,863 903,348
Accrued taxes and other liabilities 922,800 1,418,982
------------ ------------
TOTAL LIABILITIES 203,059,002 205,379,436
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share:
Authorized - 1,000,000 shares
Issued & outstanding 742,651 shares 3,713,255 3,713,255
Additional paid-in capital 13,877,419 13,877,419
Retained earnings 1,416,328 941,020
Accumulated other comprehensive income
Unrealized gain on securities 118,174 87,566
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 19,125,176 18,619,260
------------ ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $222,184,178 $223,998,696
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- ------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 3,273,685 $ 3,023,583
Interest on investment securities
Taxable interest income 884,203 782,306
Interest income exempt from
federal income taxes 48,296 46,854
Interest on federal funds sold 72,772 110,764
------------- ------------
TOTAL INTEREST INCOME 4,278,956 3,963,507
Interest Expense:
Interest on deposits 1,745,345 1,629,898
Interest on fed funds pur & sec sold u/repo 147,859 147,590
------------- ------------
TOTAL INTEREST EXPENSE 1,893,204 1,777,488
------------- ------------
NET INTEREST INCOME 2,385,752 2,186,019
Provision for loan losses 105,000 105,000
------------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,280,752 2,081,019
Other Income:
Service charges on deposits 402,544 380,655
Trust service income 126,140 103,373
Insurance premium and commissions 129,644 136,256
Other 52,512 61,363
------------- ------------
TOTAL OTHER INCOME 710,840 681,647
Other Expenses:
Salaries 795,871 783,336
Employee benefits 172,419 191,579
Net occupancy expense 124,154 131,220
Equipment expense 148,866 134,461
Other 709,405 544,555
------------- ------------
TOTAL OTHER EXPENSES 1,950,715 1,785,151
------------- ------------
INCOME BEFORE INCOME TAXES 1,040,877 977,515
INCOME TAX PROVISION 342,774 327,616
------------- ------------
NET INCOME $ 698,103 $ 649,899
------------- ------------
Other comprehensive income before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period 50,178 (153,261)
Less: Reclassification adjustment for
gain included in net income 0 (12,309)
------------- ------------
OTHER COMPREHENSIVE INCOME BEFORE TAX 50,178 (140,952)
INCOME TAX (EXPENSE) BENEFIT (19,570) 54,971
------------- ------------
30,608 (85,981)
------------- ------------
COMPREHENSIVE INCOME, NET OF TAX $30,608 $563,918
============= ============
Basic earnings per common share (Note 5) $ 0.94 $ 0.88
Diluted earnings per common share (Note 5) $ 0.94 $ 0.88
Dividends per common share $ 0.30 $ 0.26
Average number of shares of common
stock outstanding 742,651 742,651
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
Additional ---------------------
Common Paid-In Retained Unrealized Gain
Stock Capital Earnings (Loss) on Securities Total
------------ ------------ ----------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 $ 3,537,580 $ 12,823,369 $ 596,516 $ 46,924 $ 17,004,389
Net income 649,899 649,899
Cash dividends declared
(.26 per share) (194,567) (194,567)
Other comprehensive income (85,981) (85,981)
----------- ------------ ------------- --------------- ------------
BALANCE, March 31, 1997 $ 3,537,580 $ 12,823,369 $ 1,051,848 $ (39,057) $ 17,373,740
=========== ============ ============= =============== ============
BALANCE, January 1, 1998 $ 3,713,255 $ 13,877,419 $ 941,020 $ 87,566 $ 18,619,260
Net income 698,103 698,103
Cash dividends declared
(.30 per share) (222,795) (222,795)
Other comprehensive income 30,608 30,608
----------- ------------ ------------- --------------- ------------
BALANCE, March 31, 1998 $ 3,713,255 $ 13,877,419 $ 1,416,328 $ 118,174 $ 19,125,176
=========== ============ ============= =============== ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
MERCHANTS CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 698,103 $ 649,899
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 105,000 105,000
Provision for depreciation and amortization 118,609 117,110
Net accretion on AFS securities (168,604) (177,847)
Gain on sale of securities -- (12,309)
Loss on sale of real estate 14,842 6,431
Increase in accrued interest receivable (257,771) (36,718)
Increase in other assets (150,565) (82,132)
Decrease in accrued interest payable (80,485) (48,243)
Increase in taxes and other liabilities 60,807 4,159
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 339,936 525,350
------------ ------------
INVESTING ACTIVITIES:
Decrease in federal funds sold 1,484,054 7,434,171
Purchase of investment securities-AFS (11,491,495) (23,745,957)
Proceeds from maturities of investment securities-AFS 13,451,899 10,271,714
Proceeds from sales of investment securities-AFS -- 789,125
Prepayments on mortgage backed securities 993,531 613,478
Net (increase) decrease in loans (3,190,395) 1,090,758
Purchases of premises and equipment (6,127) (64,567)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,241,467 (3,611,278)
------------ ------------
FINANCING ACTIVITIES:
Net decrease in deposits (4,478,962) (507,372)
Cash dividends paid (779,784) (548,325)
Net increase in Sec. sold-repurchase agreement 2,735,195 2,756,501
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,523,551) 1,700,804
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (942,148) (1,385,124)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 10,084,731 10,305,656
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,142,583 $ 8,920,532
============ ============
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 $ 30,608 $ (85,981)
</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, 1998, 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, 1998, 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, 1997.
2. Nonperforming Assets
Nonperforming assets at March 31, 1998 and December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
3-31-98 12-31-97
---------- ----------
<S> <C> <C>
Nonaccrual loans $ 247,095 $ 263,686
Ninety days or more past due 373,862 565,249
---------- ----------
Total nonperforming loans $ 620,957 $ 828,935
Other real estate owned (net) 155,580 181,280
---------- ----------
Total nonperforming assets $ 776,537 $1,010,215
========== ==========
Nonperforming loans as a
percent of loans, net of
unearned interest 0.44% 0.60%
</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, 1987 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,592,012 $ 1,545,820
Provision charged to operations 105,000 105,000
Charge offs (240,731) (149,905)
Recoveries 76,481 109,632
----------- -----------
Balance at end of period $ 1,532,762 $ 1,610,547
=========== ===========
Allowance for loan losses as a
percent of loans, net of unearned
interest 1.09% 1.23%
</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.
The financial Accounting Standard Board also issued Statement No. 130,
"Reporting Comprehensive Income", which becomes effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
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.
8
<PAGE> 9
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.
6. Subsequent Event
BancorpSouth, Inc., (NYSE/BXS) holding company of BancorpSouth Bank which
does business in Mississippi as Bank of Mississippi, and Merchants Capital
Corporation, holding company of Merchants Bank, announced on May 4, 1998, the
signing of a definitive agreement to merge Merchants Capital Corporation into
BancorpSouth, subject to approval of the shareholders of Merchants Capital
Corporation and federal and state regulatory authorities.
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, 1998, assets decreased by
$1,814,518 or .81%. This resulted from decreases of $942,148 in cash and due
from banks, $1,484,054 in federal funds sold, $2,735,154 in investment
securities, $100,199 in bank premises & equipment, $25,700 in other real
estates, and $12,283 in premium paid on purchased assets and deposits. These
decreases were offset by increases of $3,085,395 in net loans, $257,771 in
accrued interest receivable, and $141,854 in other assets. The decrease in
assets was also a result of net decreases of $4,478,962 in deposits, $80,485 in
accrued interest payable, and $496,182 in accrued taxes and other liabilities.
These decreases were offset by an increase of $2,735,195 in securities sold
under repurchase agreement, and $475,308 in retained earnings resulting
year-to-date net income of $698,103 less cash dividends declared of $222,795.
Also, assets and stockholders' equity were increased by $30,608 due to an
increase in net unrealized gain on securities available for sale.
Nonperforming loans as of March 31, 1998 were $620,957 compared to
$828,935 as of Dec. 31, 1997. The nonaccrual loans decreased by $16,591; so did
the ninety days or more past due by $191,387 as compared to Dec. 31, 1997. The
nonperforming loans as a percent of loans, net of unearned income, was .44% at
March 31, 1998 compared to .60% at December 31, 1997.
The allowance for loan losses was $1,532,762 as of March 31, 1998
compared to $1,610,547 as of March 31, 1997. The ratio of the allowance for
possible losses to loans, net of unearned income, decreased to 1.09% as of March
31, 1998 compared to 1.23% as of March 31, 1997. Management regularly reviews
the level of the allowance for possible loan losses and is of the opinion that
it is adequate at March 31, 1998.
9
<PAGE> 10
ITEM 2. (Continued)
Results of Operations
In the first quarter ended March 31, 1998, net income increased by $48,206
which represented an increase of 7.42% over the first quarter income of 1997.
Net interest income increased by $199,733 or 9.14% as a result of an increase of
$315,449 or 7.96% in interest income offset by an increase of $115,716 or 6.51%
in interest expense. There was no change in the provision for loan losses. Other
income increased by $29,193 or 4.28%; so did other expenses by $165,562 or
9.27%. The income tax provision increased by $15,158 or 4.63%. The comprehensive
income, net of taxes, increased by $164,795 or 29.22% compared to March 31,
1997.
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, 1998, were 12.61% and 13.65%
(Company) and 11.52% and 12.56% (Bank), respectively. The Company and the Bank's
leverage ratios at March 31, 1998, were 8.32% and 7.74%, 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 $505,916 in the first three months was the
result of the retention of earnings and by a 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 Bank is involved in certain litigations incurred in the normal course
of business. In the opinion of management and legal councel, liabilities arising
from such claims, if any, would not have a material effect upon the Bank's
consolidated financial statements.
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 May 14, 1998 /s/ Howell N. Gage
----------------- -----------------------------
(Signature)
Howell N. Gage
Chairman of the Board and
Chief Executive Officer
Date May 14, 1998 /s/ James R. Wilkerson, Jr.
----------------- ------------------------------
(Signature)
James R. Wilkerson, Jr.
Secretary
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------ -------
Ex 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,090
<INT-BEARING-DEPOSITS> 53
<FED-FUNDS-SOLD> 1,990
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,417
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 140,857
<ALLOWANCE> 1,533
<TOTAL-ASSETS> 222,184
<DEPOSITS> 186,657
<SHORT-TERM> 14,657
<LIABILITIES-OTHER> 1,746
<LONG-TERM> 0
3,713
0
<COMMON> 0
<OTHER-SE> 15,412
<TOTAL-LIABILITIES-AND-EQUITY> 222,184
<INTEREST-LOAN> 3,274
<INTEREST-INVEST> 932
<INTEREST-OTHER> 73
<INTEREST-TOTAL> 4,279
<INTEREST-DEPOSIT> 1,745
<INTEREST-EXPENSE> 148
<INTEREST-INCOME-NET> 2,386
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,951
<INCOME-PRETAX> 1,041
<INCOME-PRE-EXTRAORDINARY> 1,041
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 4.18
<LOANS-NON> 247
<LOANS-PAST> 374
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,592
<CHARGE-OFFS> 241
<RECOVERIES> 77
<ALLOWANCE-CLOSE> 1,533
<ALLOWANCE-DOMESTIC> 1,533
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
