SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A No. 1
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Quarter Ended March 31, 1996
Commission File No. 1-10176
Mercury Finance Company
(Exact name of registrant as specified in its charter)
Delaware 36-3627010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
100 Field Drive, Lake Forest, Illinois 60045
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 295-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange 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 for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each issuer's class of
common stock, as of the latest practicable date.
Common Stock - $1 par value, 176,649,812 shares as of April 30,
1996.
Treasury Stock - 3,996,557 shares as of April 30, 1996.
<PAGE>
MERCURY FINANCE COMPANY
FORM 10-Q
<TABLE>
INDEX PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Consolidated Average Balance Sheets 6
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 7
PART IIOTHER INFORMATION
Item 1.Legal Proceedings 17
Item 2.Changes in Securities 17
Item 3.Defaults Upon Senior Securities 17
Item 4.Submission of Matters to a Vote of
Security Holders 17
Item 5.Other Information 17
Item 6.Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX OF EXHIBITS 19
Exhibit No. 11 -Computation of Net Income Per Share 20
Exhibit No. 12 -Ratio of Earnings to Fixed Charges 21
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Dollars in thousands)March 31 Dec. 31
1996 1995 1995
<S> <C> <C> <C>
(Unaudited)
ASSETS
Cash $25,524 $15,972 $22,967
Investments 221,029 13,795 242,043
Finance receivables 1,210,941 1,099,173 1,196,737
Less allowance for
finance credit
losses (44,885) (23,606) (44,566)
Less Nonrefundable
dealer reserves (64,345) (69,908) (63,761)
Finance receivables,
net 1,101,711 1,005,659 1,088,410
Deferred income
taxes 17,741 7,999 22,031
Furniture, fixtures
and equipment, net
of accumulated
depreciation 8,015 3,477 7,022
Goodwill 15,071 15,201 15,274
Reinsurance
receivable 33,741 0 89,962
Deferred acquisition
costs 39,107 0 26,171
Other assets
(including
repossessions) 99,156 22,072 121,038
TOTAL ASSETS $1,561,095 $1,084,175 $1,634,918
===== ===== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt,
commercial paper
and notes $464,127 $470,066 $489,990
Senior debt, term
notes 443,750 265,375 438,750
Subordinated debt 29,500 35,500 29,500
Accounts payable
and other
liabilities 70,777 62,932 68,931
Unearned premium and
claim reserves 185,790 0 195,761
Reinsurance payable 46,337 0 105,081
Income taxes payable19,265 17,745 22,640
TOTAL LIABILITIES 1,259,546 851,618 1,350.653
STOCKHOLDERS' EQUITY
Common stock - $1.00
par value:
300,000,000 shares
authorized
Mar 31 1996 -
176,579,863 shares
outstanding
Mar 31 1995 -
116,250,826 shares
outstanding
Dec 31 1995 -
176,477,520 shares
outstanding 176,580 116,251 176,478
Paid in capital 621 7,621 39
Retained earnings 162,232 133,755 142,916
Unrealized
appreciation 341 0 1,969
Treasury stock at
cost:
Mar 31 1996 -
3,996,557 shares
outstanding
Mar 31 1995 -
1,983,105 shares
outstanding
Dec 31 1995 -
3,896,557 shares
outstanding (38,225) (25,070) (37,137)
TOTAL STOCKHOLDERS'
EQUITY 301,549 232,557 284,265
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,561,095 $1,084,175 $1,634,918
===== ===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
Three Months Ended
1996 1995
<S> <C> <C>
INTEREST INCOME
Finance charges,
fees and other
interest $74,380 $62,395
Interest expense 16,036 13,110
Net interest income 58,344 49,285
Provision for
finance credit
losses 2,879 2,424
Net interest income
after provision for
finance credit
losses 55,465 46,861
OTHER INCOME
Insurance commis
sions 4,267 7,530
Insurance premiums 18,430 2,443
Fees and other 2,037 2,768
Total other income 24,734 12,741
OTHER EXPENSES
Salaries and
employee benefits 13,540 11,203
Occupancy expense 1,418 1,127
Equipment expense 551 461
Data processing
expense 810 741
Insurance claims
expense 6,304 627
Other operating
expenses 6,088 5,082
Total other expenses28,711 19,241
Income before income
taxes 51,488 40,361
Applicable income
taxes 19,235 15,350
NET INCOME $32,253 $25,011
===== ====
NET INCOME PER COMMON SHARE
(adjusted for all
stock splits) $0.19 $0.14
===== ====
Weighted average
number of common
andcommon share
equivalents
outstanding 174,058 173,018
===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended
1996 1995
<S> <C> <C>
COMMON STOCK
Balance at beginning
of period $176,478 $116,080
Stock options
exercised 102 171
Stock traded in to
exercise stock
options 0 0
Stock split 0 0
Balance at March 31 $176,580 $116,251
===== ====
PAID IN CAPITAL
Balance at beginning
of period $39 $6,384
Stock options
exercised 208 689
Tax benefit from
stock options
exercised 374 548
Transfer from
Retained Earnings 0 0
Stock split 0 0
Balance at March 31 $621 $7,621
===== ====
RETAINED EARNINGS
Balance at
beginning of period$142,916 $128,157
Net income 32,253 25,011
Dividends (12,937) (19,413)
Transfer to Paid
in Capital 0 0
Balance at March 31 $162,232 $133,755
===== ====
UNREALIZED APPRECIATION
Balance at
beginning of period1,969 0
Change during
the period (1,628) 0
Balance at March 31 $341 $0
===== ====
TREASURY STOCK
Balance at
beginning of period($37,137) ($23,107)
Purchases (1,088) (1,963)
Retirements 0 0
Balance at March 31 ($38,225) ($25,070)
===== ====
Total stockholders'
equity $301,549 $232,557
===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended
<S> <C> <C>
1996 1995
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net income $32,253 $25,011
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Provision for
finance credit
losses 2,879 2,424
Net finance
receivables
charged off
against
allowance for
finance credit
losses (2,560) (1,306)
Provision for
deferred income
taxes 1,554 (709)
Depreciation 364 251
Amortization of
goodwill 203 203
Net (increase)
decrease in other
assets 67,903 3,079
Net increase
(decrease) in
other liabilities (70,244) 22,608
Net increase
(decrease) in
nonrefundable
dealer reserves 584 3,431
Net cash provided
by operating
activities 32,936 54,992
CASH FLOWS FROM
INVESTING ACTIVITIES
Principal collected
on finance
receivables 206,762 187,331
Finance receivables
originated or
acquired (220,966) (246,637)
Net (increase)
decrease in
investment
securities 21,014 389
Net increase
(decrease) in
unrealized
appreciation (1,628) 0
Purchases of
properties and
equipment (1,357) (236)
Net cash used in
investing
activities 3,825 (59,153)
CASH FLOWS FROM
FINANCING ACTIVITIES
Net increase
(decrease) in
commercial paper
and notes (25,863) 20,121
Senior debt retired (25,000) 0
Senior debt issued 30,000 0
Subordinated debt
retired 0 0
Stock options
exercised 684 1,408
Dividends paid (12,937) (19,413)
Treasury stock
acquired (1,088) (1,963)
Net cash provided by
financing
activities (34,204) 153
Net increase
(decrease) in cash
and cash
equivalents 2,557 (4,008)
CASH AND CASH
EQUIVALENTS
BEGINNING OF PERIOD22,967 19,980
CASH AND CASH
EQUIVALENTS
ACQUIRED 0 0
CASH AND CASH
EQUIVALENTS END OF
PERIOD $25,524 $15,972
===== =====
SUPPLEMENTAL
DISCLOSURES
Income taxes paid
to federal and
state governments $22,610 $2,448
===== =====
Interest paid to
creditors $11,604 $11,988
===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Mercury Finance
Company and Subsidiaries are unaudited, but in the opinion of
management reflect all necessary adjustments, consisting only
of normal recurring accruals, for a fair presentation of results as
of the dates and for the periods covered by the financial
statements. The results for the interim periods are not
necessarily indicative of the results of operations that may be
expected for the fiscal year. It is suggested that the unaudited
interim consolidated financial statements contained herein be used
in conjunction with the financial statements and the accompanying
notes to the financial statements included in the Company's 1995
Annual Report.
2. Net income per common share amounts are based on the average
number of common shares and common stock equivalents outstanding.
All per share amounts have been adjusted to reflect all stock
splits declared by the Company.
3. Certain data from the prior year has been reclassified to
conform to the 1996 presentation.
4. During 1996, the Company identified certain 1995 fourth quarter
transactions associated with single interest insurance that were incorrectly
classified with nonrefundable dealer reserves thereby impacting the adequacy
of the allowance for loan losses. Accordingly, effective September 30, 1996,
the Company has restated its previously issued 1995 financial statements to
appropriately reflect aggregate nonrefundable dealer reserves and a resulting
impact on unearned single interest insurance commissions and finance charges
and the allowance for loan losses. The impact of the restatement on the
previously issued financial statements was to decrease nonrefundable dealer
reserves by $6,392, increase unearned single interest insurance commissions by
$4,794, increase unearned single interest finance charges by $1,598, and
increase, by a charge to operations, the allowance for loan losses by $17,583;
thereby reducing net income after taxes by $12,000 from that previously
reported.
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED AVERAGE BALANCE SHEETS
THREE MONTHS ENDED MARCH 31
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended
1996 1995
<S> <C> <C>
ASSETS
Cash $22,649 $17,786
Investments 231,786 13,240
Finance receivables 1,199,673 1,065,226
Less allowance for
finance credit
losses (44,658) (22,955)
Less nonrefundable
dealer reserves (65,630) (67,931)
Finance receivables,
net 1,089,385 974,340
Prepaid pension
expense 0 507
Deferred income
taxes 18,449 7,531
Furniture, fixtures
and equipment, net
of accumulated
depreciation 7,665 3,482
Other assets
(including
repossessions &
goodwill) 215,166 37,622
TOTAL ASSETS $1,585,100 $1,054,508
===== =====
LIABILITIES AND
STOCKHOLDERS'
EQUITY
LIABILITIES
Senior debt,
commercial paper $477,724 $453,593
Senior debt, term
notes 439,583 265,375
Subordinated debt 29,500 35,500
Accounts payable
and other
liabilities 333,456 61,004
Income taxes payable20,101 10,857
TOTAL LIABILITIES 1,300,364 826,329
STOCKHOLDERS' EQUITY
Common stock 176,518 116,202
Paid in capital 286 7,230
Retained earnings 155,976 129,490
Unrealized
appreciation 0 0
Treasury stock (38,044) (24,743)
TOTAL STOCKHOLDERS'
EQUITY 284,736 228,179
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,585,100 $1,054,508
===== =====
NUMBER OF DAYS 91 90
MONTHS COMPLETED 3 3
RATIOS (Annualized)
Return on average
equity 45.31% 43.84%
Return on average
assets 8.14% 9.49%
Yield on earning
assets 20.78% 23.14%
Rate on interest
bearing liabilities6.79% 7.05%
Net interest margin 16.29% 18.21%
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mercury Finance Company ("Mercury") ("Company") is a consumer
finance concern engaged in the business of purchasing individual
installment sales finance contracts from automobile dealers and
retail vendors, extending short-term installment loans directly to
consumers and selling credit insurance and other related products.
Mercury's operating subsidiaries commenced operations in February
1984 for the purpose of penetrating the market for small dollar
amount consumer loans (average of $3,000 or less). The
initial focus was toward small, short term, direct installment
loans made to the U.S. military servicemen. Building on this
direct lending niche, Mercury has also built a substantial,
diversified consumer finance portfolio by purchasing individual
installment sales finance contracts from retail vendors and
automobile dealers.
On April 1, 1993 Mercury acquired all the shares of Gulfco
Investment Inc. for $22.3 million in cash. Gulfco Investment Inc.
was the parent company which owned all of the stock of Gulfco
Finance Company and Gulfco Life Insurance Company. Gulfco Finance
Company conducted its consumer finance business through a branch
network of 62 offices located in Louisiana, Mississippi and Texas.
On September 30, 1994 Mercury acquired all the shares of Midland
Finance Co. for $15.1 million in cash and the assumption of its net
liabilities. Midland Finance Co. conducted its consumer finance
business through a central office in Chicago, Illinois. The
acquisitions were accounted for under the purchase method of
accounting. Accordingly their results of operations have been
included in the consolidated financial statements of income and
statements of cash flow since the dates of acquisitions. The
excess of cost over fair value of net assets acquired (goodwill)
relating to the acquisitions is being amortized over twenty years
on the straight line method.
On October 20, 1995 Mercury acquired all the shares of ITT Lyndon
Property and ITT Lyndon Life Insurance Company for $72.5 million in
cash and the assumption of their net liabilities. ITT Lyndon
Property and ITT Lyndon Life Insurance Company conducted their
business through a central office in St. Louis, Missouri.
Following the acquisition, the names of the comapnies
were changed to Lyndon Property and Lyndon Life Insurance Companies
("Lyndon"). The acquisition was accounted for under the purchase
method of accounting. Accordingly their results of operations have
been included in the consolidated statements of income and
statements of cash flow since the date of acquisition. The excess
of fair value over cost of nets assets acquired (negative goodwill
of $10,299) relating to the acquisition was offset against the
present value of future profits of acquired insurance in force.
The balance of the present value of future profits was $16.6
million at December 31, 1995 and is being amoritzed over an
approximate three year period.
Mercury's loans range for periods from 3 months to 48 months at
annual interest rates ranging, with minor exception, from 18% to
40%. Generally all loans are repayable in monthly installments.
Generally late payment fees are assessed to accounts which fail to
make their scheduled payments within 10 days of the scheduled due
date.
Direct finance receivables on which no payment is received within
149 days, on a recency basis, are charged off. Sales finance
receivables which are contractually delinquent 150 days are
charged off in the month before they become 180 days delinquent.
Accounts which are deemed uncollectible prior to the maximum charge
off period are charged off immediately. Management
may authorize an extension if collection appears imminent during
the next calendar month.
Accounts which become 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status cease earning interest.
The following is management's discussion and analysis of the
consolidated financial condition of the Company at March 31, 1996
(unaudited) when compared with March 31, 1995 (unaudited) and
December 31, 1995 and the results of operations for the three
months ended March 31, 1996 and 1995 (unaudited). This discussion
should be read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this
quarterly report.
<PAGE>
FINANCIAL CONDITION
Assets and Finance Receivables
Total assets of the Company increased 44% to $1,561.1 million from
$1,084.2 million one year ago. The increase in Company assets,
exclusive of the growth in finance receivables, was primarily the
result of the October 1995 acquisition of Lyndon. Finance
receivables increased 10% to $1,210.9 million at March 31, 1996.
The increase in finance receivables was primarily attributable to
the production of receivables from the increased number of offices
operated by the Company and increased volume in existing offices.
During the period from December 31, 1995 through March 31, 1996
total assets decreased $73.8 million principally because of
offsetting reductions in reinsurance receivable and payable.
The Company's offices in Florida, Texas and Illinois accounted for
approximately 49% of all finance receivables, with the remainder
being originated in the other 28 states where offices are
located. The total number of offices at March 31, 1996 was 282
compared to 252 at March 31, 1995 and 276 at December 31, 1995.
<PAGE>
The following table summarizes the composition of finance
receivables at the dates indicated (dollars in thousands):
<TABLE>
March 31, 1996 March 31, 1995 Dec. 31, 1995
% of % of % of
Amount Total Amount Total Amount
Total
<S> <C> <C> <C> <C> <C> <C>
Sales
finance
receiva
bles $1,280,632 88% $1,210,507 90% $1,256,977 87%
Direct
finance
receiva
bles 178,237 12% 131,531 10% 184,309 13%
Total
gross
finance
receiva
bles 1,458,869 100% 1,342,038 100% 1,441,286 100%
=== === ===
Unearned
finance
charges (236,001) (233,627) (231,791)
Unearned
insuran
ce commis
sions,
insuran
ce prem
iums and
insurance
reser
ves (11,927) (9,238) (12,758)
Finance
receiva
bles $1,210,941 $1,099,173 $1,196,737
===== ===== =====
</TABLE>
<PAGE>
Allowance and Provision for Finance Credit Losses
The Company maintains an allowance for finance credit losses at a
level which, in the opinion of management, provides adequately for
current and possible future losses in the finance receivables
portfolio. Management evaluates allowance requirements by
examining current delinquencies, the characteristics of the
accounts, the value of the underlying collateral, and
general economic conditions and trends. Management also evaluates
the availability of dealer reserves to absorb finance credit losses
(losses on sales finance contracts are primarily charged
off aginst nonrefundable dealer reserves). A provision for losses
is charged to earnings in an amount sufficient to maintain the
allowance. The following table sets forth a reconciliation of
the changes in the allowance for finance credit losses for the
three month periods ended March 31 (dollars in thousands):
<TABLE>
1996 1995
<S> <C> <C>
Balance at beginning
of period $44,566 $22,488
Provision charged
to expense 2,879 2,424
Finance receivables
charged-off (3,220) (1,707)
Recoveries 660 401
Balance at March 31 $44,885 $23,606
==== =====
Allowance as a
percent of
finance
receivables
outstanding at
end of period 3.71% 2.15%
===== =====
</TABLE>
<PAGE>
The increase in the provision and allowance for finance credit
losses in 1996 is primarily attributable to the increase in finance
receivables outstanding and changes in the business mix
of the finance receivables portfolio.
Nonrefundable Dealer Reserves
Mercury purchases a majority of its sales finance contracts from
dealers at a discount. A significant protion of the discount
represents anticipated credit losses and based upon projected
loss experience, is allocated to nonrefundable dealer reserves.
Mercury negotiates the amount of the discounts with the dealers
based upon various criteria, one of which is the credit risk
associated with the sales finance contracts being purchased. The
following table sets forth a reconciliation of the changes in
nonrefundable dealer reserves for the three month periods ended
March 31.
<TABLE>
(Dollars in thousands)
1996 1995
<S> <C> <C>
Balance at
beginning of
period $63,761 $66,477
Discounts acquired
on new volume 21,617 22,533
Losses absorbed (21,033) (19,102)
Balance at March 31 $64,345 $69,908
===== =====
</TABLE>
<PAGE>
Debt
The primary source for funding the Company's finance receivables
comes from the issuance of debt. At March 31, 1996 the Company had
total debt of $937.4 million which compares with $770.9 million at
March 31, 1995.
In addition to the Company's outstanding debt the Company has
revolving credit facilities and a back up line of credit which
total $525 million. The revolving credit facilities and the back
up line are totally available for use by the Company, and at March
31, 1996 nothing was outstanding under these arrangements.
The following table presents the Company's debt instruments and the
stated interest rates on the debt at the periods indicated (dollars
in thousands):
<PAGE>
<TABLE>
March 31, 1996 March 31, 1995 Dec. 31, 1995
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $464,127 5.5% $470,066 6.3% $489,990 6.0%
Term notes 443,750 7.0% 265,375 7.1% 438,750 7.2%
Subordinated
debt 29,500 10.2% 35,500 10.2% 29,500 10.2%
Total $937,377 6.4% $770,941 6.8% $958,240 6.6%
===== === ===== === ===== ===
</TABLE>
The interest rates in the preceding table do not include certain
costs related to the placement of debt, costs associated with debt
assumed in the acquisition of Gulfco, fees associated with the
revolving credit facility and interest associated with interest
exchange agreements which are amortized to interest expense. The
effect of these costs, which are included in interest expense
in the consolidated financial statements, increases the effective
interest rate by approximately 12 basis points at March 31, 1996.
The following table sets forth information with respect to
maturities of senior and subordinated debt at March 31, 1996
(dollars in thousands):
<TABLE>
Senior Debt Senior Debt Subordinated
MaturityCommercial Paper Term Notes Debt Total
<S> <C> <C> <C> <C>
1996 $464,127 15,125 - 479,252
1997 - 96,625 16,000 112,625
1998 - 167,000 13,500 180,500
1999 - 50,000 - 50,000
2000 - 68,000 - 68,000
2001 - 47,000 - 47,000
Total $464,127 $443,750 $29,500 $937,377
====== ====== ===== ======
</TABLE>
<PAGE>
Stockholders' Equity
The other primary source for funding the growth in finance
receivables comes from the retention of earnings by the Company and
the exercise of stock options by eligible employees. Total
stockholders' equity at March 31, 1996 was $301.5 million which
compares with $232.6 million at March 31, 1995 and $284.3 million
at December 31, 1995. For the three months ended March 31, 1996
the Company had net income of $32.3 million and declared cash
dividends of $12.9 million. In addition, eligible employees of the
Company exercised options to purchase shares resulting in $684
thousand also being added to the equity of the Company.
At March 31, 1995 stockholders' equity stated as a percent of total
assets was 19.3% which compares with 21.5% at March 31, 1995 and
17.4% at December 31, 1995.
RESULTS OF OPERATIONS
Net Income
For the three months ended March 31, 1996 the Company had net
income of $32.3 million which represent an increase of 28% from the
$25.0 million earned in 1995. The increase in net income is
primarily attributable to income derived from increased
finance receivables outstanding resulting from additional offices
opened in 1996 and 1995 and increased volume in existing
offices.
Interest Income and Interest Expense
The largest single component of net income is net interest income
which is the difference between interest earned on finance
receivables and interest paid on borrowings. For the three
months ended March 31, 1996 the Company's net interest income
increased 18% to $58.3 million when compared with $49.3 million in
1995. The net interest margin (annualized) which is the ratio of
net interest income divided by average interest earning assets was
16.30% in 1996 compared with 18.21% in 1995. The change in net
interest margin is primarily attributable to lower yielding
investment assets and interest rate changes on the Company's
various debt instruments. The changes in interest rates are
reflective of general interest rate trends in the U.S. economy.
The following table summarizes the amount of the net interest
margin for the three months ended March 31 (dollars in thousands):
<PAGE>
<TABLE>
1996 1995
Three Months Ended Annualized Annualized
Average Interest Rate Average Interest Rate
Out- Income/ Earned Out- Income/ Earned
standing Expense & Paid standing Expense & Paid
<S> <C> <C> <C> <C> <C> <C>
Finance
receivables$1,199,673 68,771 22.93% 1,065,226 62,195 23.35%
Investments 231,786 2,609 4.50% 13,240 200 6.04%
Total
Interest
earning
assets $1,431,459 $74,380 20.78% $1,078,466$62,39523.14%
Interest
bearing
liabilities946,807 16,036 6.79% 754,468 13,110 7.05%
- ---------------------------------------------------------------
Net $484,652 $58,344 13.99% $323,998 $49,28516.09%
===== ==== ==== ===== ==== ====
Net interest
margin as a
percentage
of average
interest
earning
assets 16.30% 18.21%
===== =====
</TABLE>
<PAGE>
Other Income
In addition to finance charges and interest, the Company derives
commission income from the sale of other credit related products.
These products include insurance relating to the issuance of credit
life, accident and health and other credit insurance policies to
borrowers of the Company. Other credit-related sources of revenue
are derived from the sale of other products and services.
Insurance premiums are earned by the life insurance subsidiaries as
direct writers and reinsurers of credit life and accident and
health policies issued through the Company's branch offices.
For the three months ended March 31, 1996, the Company experienced
increases in its insurance commissions and insurance premiums which
are attributable to the additional loan volume, the inclusion of
the Midland branch acquired in 1994 and the increased number of
borrowers obtaining these types of products. The following table
summarizes the amounts earned from these products for
the three months ended March 31 (dollars in thousands):
<TABLE>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Insurance commissions $4,267 $7,530
Insurance premiums 18,430 2,443
Vehicle protection club
memberships 606 985
Fees and other 1,431 1,783
Total $24,734 $12,741
==== ====
Other income as a % of
average interest
earnings assets
(Annualized) 6.91% 4.73%
==== ====
</TABLE>
Other Expenses
In addition to interest expense and the provision for finance
credit losses, the Company incurrs other operating expenses in the
conduct of its business.
During 1996 other operating expenses increased 49.2% over 1995.
The following table summarizes the components of other expenses for
the three months ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Salaries and employees
benefits $13,540 $11,203
Insurance claims expense 6,304 627
Other operating expenses 8,867 7,411
Total $28,711 $19,241
==== ====
Other expenses as a % of
average interest
earning assets
(Annualized) 8.02% 7.13%
==== ====
</TABLE>
Income Taxes
Income taxes increased due to a higher level of pretax income in
1996. The effective tax rate was 37.4% in 1996 and 38.0% in 1995.
<PAGE>
CREDIT LOSSES AND DELINQUENCIES
Credit Losses
Direct finance receivables on which no payment is received within
149 days, on a recency basis, are charged off. Sales finance
receivable accounts which are contractually delinquent 150 days
are charged off monthly before they become 180 days delinquent.
Accounts which are deemed uncollectible prior to the maximum charge
off period are charged off immediately. Management may authorize
an extension if collection appears imminent during the next
calendar month. The following table sets forth information
relating to charge-offs, the allowance for finance credit
losses and dealer reserves:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Loss provision charged to
income $2,879 $2,424
Charge-offs net of
recoveries 2,560 1,306
Net charge-offs against
nonrefundable dealer
reserves 21,033 19,102
Allowance for finance
credit losses at end of
period 44,885 23,606
Dealer reserves at end of
period 64,345 69,908
Ratios:
Net charge-offs
(annualized) against
allowance to average-
finance receivables .85% .49%
Net charge-offs against
nonrefundable dealer
reserves to average
finance receivables 7.01% 7.17%
Allowance for finance
credit losses to net
finance receivables at
end of period 3.71% 2.15%
Dealer reserves to net
sales finance receivables
at end of period 6.01% 7.05%
</TABLE>
Delinquencies
If an account becomes 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status, it is classified as delinquent.
The following table sets forth certain information regarding 60 day
and greater contractually delinquent accounts at March 31 (dollars
in thousands):
<TABLE>
March 31, 1996 March 31, 1995
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
<S> <C> <C> <C> <C>
Sales finance
receivables $9,952 .78% $8,068 .67%
Direct finance
receivables 3,324 1.86% 2,761 2.10%
Total $13,276 .91% $10,829 .81%
==== === ==== ===
</TABLE>
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and
carrying of receivables, a relatively high ratio of borrowings to
net worth is customary and is an important element in the
Company's operations. The Company endeavors to maximize its
liquidity by diversifying its sources of funds which include (a)
cash from operations, (b) the issuance of short term
commercial paper, and (c) direct borrowings available from
commercial banks and insurance companies, consisting of short term
lines of credit and long term senior and subordinated notes.
Most of the assets are at fixed rates, and have an average initial
maturity of approximately 26 months. Of the Company's total debt,
50% has an original maturity of greater than one year
at a fixed rate of interest.
The Company also maintains back up lines of credit totalling $25
million and revolving credit facilities totalling $500 million. At
March 31, 1996, the Company had no debt outstanding under these
credit arrangements.
CONTINGENCIES AND LEGAL MATTERS
In the normal course of its business, Mercury and its subsidiaries
are named as defendants in legal proceedings. A number of such
actions, including two cases which have been brought as
putative class actions, are pending in the various states in which
subsidiaries of Mercury do business. It is the policy of Mercury
and its subsidiaries to vigourously defend litigation, but
Mercury and (or) its subisidiaries have and may in the future enter
into settlements of claims where management deems appropriate.
Although management is of the opinion that the resolution of these
proceedings will not have a material effect on the financial
position of Mercury, it is not possible at this time to estimate
the amount of damages or settlement expenses that may be incurred.
Accordingly, no provision has been made in the consolidated
financial statements for any of the pending proceedings.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On April 15, 1996 the Company Conducted its Annual
Meeting of Shareholders for the purpose of electing the
following directors to serve for one yearand to
vote upon a proposal to increase the authorized common
shares of the company to 500 million shares:
Directors
John N. Brincat Andrew McNally IV
Dennis H. ChookaszianBruce I. McPhee
William C. Croft Fred G. Steingraber
Clifford R. Johnson Daniel J. Terra
Philip J. Wicklander
All directors were elected to serve a term of one year.
The proposal to increase the authorized shares was
approved.
Item 5. Other information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index following the
signature page
(b) Reports of Form 8-K - A Form 8-K was filed on
January 11, 1996.
<PAGE>
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.
MERCURY FINANCE COMPANY
(Registrant)
Date: May 15, 1996 /s/ John N. Brincat
John N. Brincat
President & Chief
Executive Officer
(Duly Authorized Officer)
Date: May 15, 1996 /s/ James A. Doyle
James A. Doyle
Senior Vice President,
Controller & Principal
Accounting Officer
Date: May 15, 1996 /s/ Bradley S. Vallem
Bradley S. Vallem
Assistant Vice President,
Treasurer & Principal
Financial Officer
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
11. Computation of Net Income Per Share
12. Ratio of Earnings to Fixed Charges
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
THREE MONTHS ENDED MARCH 31
(Unaudited)
Net income per share is computed by dividing net income by the
total of the weighted average common shares and common stock
equivalents outstanding during the period. Average common
shares and common stock equivalents have been adjusted to reflect
the four-for-three stock splits of Mercury Finance Company
distributed to stockholders on December 28, 1989, October 31,
1990, June 10, 1991 and December 5, 1991, the two-for-one stock
split distributed on June 19, 1992, the four-for-three stock split
distributed on June 22, 1993 and the three-for-two stock split
distributed on October 31, 1995.
<TABLE>
(Dollars in thousands except per share amounts)
Three Months Ended
1996 1995
<S> <C> <C>
INCOME DATA:
1. Net income Mercury
Finance Company $32,253 $25,011
2. Weighted average common
shares outstanding
(adjusted for stock
split) 176,518 174,301
3. Treasury stock (3,997) (2,975)
EFFECT OF COMMON STOCK
EQUIVALENTS (C.S.E.):
4. Weighted average shares
reserved for stock
options 1,537 1,692
NET INCOME PER COMMON
SHARE:
5. Weighted average common
share and common stock
equivalents (line 2+3+4)174,058 173,018
6. Mercury Finance Company
net income per share
(line 1 divided by
line 5) $0.19 $0.14
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
1996 1995
<S> <C> <C>
Net income $32,253 $25,011
Provision for income taxes 19,235 15,350
Add Fixed Charges:
Cost of borrowings 16,036 13,110
One-third of rentals 404 317
Total fixed charges 16,440 13,427
Total net income, provision
for income taxes and
fixed charges "earnings" $67,928 $53,788
===== =====
Ratio of earnings to
fixed charges 4.13 4.01
===== =====
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 25524
<SECURITIES> 221029
<RECEIVABLES> 1209413
<ALLOWANCES> (44885)
<INVENTORY> 0
<CURRENT-ASSETS> 204816
<PP&E> 15584
<DEPRECIATION> 7569
<TOTAL-ASSETS> 1561095
<CURRENT-LIABILITIES> 322169
<BONDS> 937377
<COMMON> 176580
0
0
<OTHER-SE> 124969
<TOTAL-LIABILITY-AND-EQUITY> 1561095
<SALES> 74380
<TOTAL-REVENUES> 99114
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28711
<LOSS-PROVISION> 2879
<INTEREST-EXPENSE> 16036
<INCOME-PRETAX> 51488
<INCOME-TAX> 19235
<INCOME-CONTINUING> 32253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32253
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
