<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1994
------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-20232
-------
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
(Exact name of small business issuer as specified in its charter)
West Virginia 55-0622108
------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
415 Market Street, Parkersburg, WV 26101
-----------------------------------------
(Address of principal executive offices)
304-424-0300
------------
(Issuer's telephone number)
Check whether the issue (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes ___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1994
----- -----------------------------------
<S> <C>
Common Stock $5.00 par value 1,267,904
</TABLE>
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
("Commercial")
INDEX
Part I Financial Information Page No.
Condensed Consolidated Balance Sheet as of
September 30, 1994 and December 31, 1993......... 3
Condensed Consolidated Statement of Income for
Nine Months ended September 30, 1994 and 1993.... 4
Condensed Statement of Changes in Stockholders
Equity for Nine months ended September 30, 1994.. 5
Consolidated Statement of Cash Flows for the Nine
Months ended September 30, 1994 and 1993......... 6
Notes to Condensed Consolidated Financial
Statements....................................... 7-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11-12
Part II Other Information.................................. 13
Signatures......................................... 13
2
<PAGE>
PART I FINANCIAL INFORMATION
COMMERCIAL BANCSHARES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, Dec. 31,
1994 1993
------------ --------
(unaudited)
<S> <C> <C>
Cash and Due from Banks................. $ 15,264 $ 13,831
Interest-Bearing Deposits in Banks...... 736 339
Federal Funds Sold...................... 4,850 8,699
Investment Securities................... 85,202 92,563
(Market Value: $85,039 and $91,788)
Loans - net of unearned discount........ 251,134 222,621
LESS: Reserve for Losses............... (3,325) ( 3,138)
Premises and Equipment.................. 7,180 7,140
Notes Receivable........................ 255 255
Accrued Interest Receivable............. 2,564 2,437
Foreclosed Properties - Net............. 1,597 1,274
Other Assets............................ 4,788 3,692
-------- --------
TOTAL ASSETS.......................... $370,245 $349,713
-------- --------
LIABILITIES AND CAPITAL
Deposits:
Demand - Non-Interest Bearing........... $ 46,738 $ 40,138
Demand - Interest Bearing............... 64,886 63,668
Savings................................. 78,365 77,273
Time Deposits........................... 139,067 130,224
-------- --------
TOTAL DEPOSITS............................ $329,056 $311,303
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase..... 5,475 4,182
ESOP Borrowings............................ 0 424
Accrued Interest Payable................... 765 748
Other Liabilities.......................... 2,115 2,212
-------- --------
TOTAL LIABILITIES.......................... $337,411 $318,869
--------- --------
Shareholders' Equity:
Preferred Stock (Stated Value: $100)
Outstanding: 27,165 and 27,165 shares... $ 2,716 $ 2,716
Common Stock (Par Value $5.00)
Outstanding: 758,506 shares and
1,267,904 shares........................ 6,340 6,340
Additional Paid In Capital................ 8,297 8,297
Undivided Profits......................... 16,524 14,186
Net Unrealized Gain (Loss) on
Available-for-Sale Securities........... (696) 76
Less: Employee Stock Ownership Plan
Shares Purchased with Debt............... 0 (424)
Treasury Stock, at cost................. (347) (347)
--------- --------
TOTAL SHAREHOLDERS' EQUITY................ $ 32,834 $ 30,844
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $370,245 $349,713
--------- --------
</TABLE>
* Condensed from audited financial statements and restated to include
Hometown Bancshares, Inc. on a pooling of interests basis
The accompanying notes are an integral part of these condensed financial
statement.
3
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands of dollars except for per share data)
Nine Months Ended Three Months Ended
September 30 September 30
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............... $15,925 $15,097 $ 5,760 $5,077
Interest on Investment Securities
Taxable Investments.................... 3,133 3,124 1,005 1,093
Non-taxable Investments................ 546 565 218 160
Interest on Federal Funds Sold........... 221 451 78 157
Interest on Notes Receivable............. 0 10 0 4
Interest on Time Deposits with Other Banks 24 12 16 3
------- ------- ------- ------
TOTAL INTEREST INCOME.................... $19,849 $19,258 7,077 $6,494
------- ------- ------- ------
INTEREST EXPENSE
Interest on Deposits..................... $ 6,915 $ 7,463 $ 2,404 $2,455
Interest on Federal Funds Purchased and
Securities Sold Under Agreement to
Repurchase............................. 199 160 106 65
Interest on Notes Payable................ 0 1 0 0
------- ------- ------- ------
TOTAL INTEREST EXPENSE................... $ 7,114 $ 7,624 $ 2,510 $2,520
------- ------- ------- ------
NET INTEREST INCOME...................... $12,735 $11,634 $ 4,567 $3,974
Provision for Loan Losses.................. 296 374 114 82
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES................ $12,439 $11,260 $4,453 $3,892
OTHER INCOME
Trust Department Income.................. 368 412 121 141
Service Charges and Fees................. 788 784 235 329
Security Gains........................... 109 15 1 0
Other Income............................. 560 515 167 82
------- ------- ------- ------
Total Other Income..................... 1,825 1,726 524 552
OTHER EXPENSES
Employee Compensations & Benefits........ $ 4,686 $ 4,282 $ 1,406 $1,495
Occupancy Expense
(Net of Rental Income)................. 527 550 154 188
Furniture and Equipment.................. 700 678 244 224
Other Operating Expenses................. 3,260 2,884 1,220 990
------- ------- ------- ------
Total Other Expenses................... 9,173 8,394 3,024 2,897
INCOME BEFORE APPLICABLE
INCOME TAXES........................ $ 5,091 $ 4,592 $ 1,953 $1,547
Applicable Income Taxes.................... 1,697 1,637 486 546
------- ------- ------- ------
Net Income Before Extraordinary Item....... $ 3,394 $ 2,955 $ 1,467 $2,001
Extraordinary Item......................... 81 0
------- ------- ------- ------
NET INCOME............................... $ 3,394 $ 3,036 $ 1,467 $1,001
------- ------- ------- ------
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................ $ 3,191 $ 2,832 $ 1,400 $ 933
EARNINGS PER SHARE DATA:
Primary.................................. $ 2.55 $ 2.27 $ 1.12 $ .75
Fully Diluted............................ 2.34 2.09 1.01 .69
Cash Dividends Declared.................. .75 .69 .25 .23
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
for the nine months ended September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
(in thousands
of dollars)
<S> <C>
Convertible Preferred stock (43,328 Shares authorized):
Cumulative Preferred $100 Series:
Balance at Beginning of Year............................................. $ 2,716
-------
Balance at End of Period - 27,165 shares outstanding September 30, 1994.. $2,716
------
Common Stock ($5.00 Par Value; 2,000,000 Shares authorized)
Balance at beginning of year............................................... $ 6,340
-------
Balance at end of period - 1,267,904 Shared Issued
and Outstanding at September 30, 1994.................................... $ 6,340
-------
Additional Paid In Capital
Balance at Beginning of Year............................................... $ 8,297
-------
Balance at End of Period................................................... $ 8,297
-------
Undivided Profits
Balance at Beginning of Year............................................... $14,186
Net Income................................................................. 3,394
Cash Dividend Declared on Preferred Stock.................................. 204
Cash Dividend Declared on Common Stock..................................... 852
-------
Balance at End of Period................................................... $16,524
-------
Less: Net Unrealized Gain (Loss) on Available-for-Sale Securities
Balance at Beginning of Year............................................... $ 76
Change, net of applicable deferred income taxes............................ (772)
-------
Balance at End of Period................................................... $(696)
-------
Less: Employee Stock Ownership Plan Shares Collateralizing Debt, at Cost
Balance at Beginning of Year............................................... $ 424
Principal Reduction of ESOP Obligation..................................... (424)
-------
Balance at End of Period................................................... $ 0
-------
Less: Treasury Stock, at Cost
Balance at Beginning of Year............................................... $(347)
-------
Balance at End of Period (17,643 Shares)................................... $(347)
-------
Total Shareholders' Equity................................................. $32,834
-------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands of dollars)
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................... $ 3,394 $ 3,036
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation..................................................... 621 618
Deferred Employee Benefits....................................... 424 33
Provision for Loan Loss.......................................... 296 374
Investment Amortization - Net.................................... 490 257
Other - Net...................................................... (9) 45
Realized Investment Securities (Gains) Losses.................... (109) (15)
Income Tax Benefit............................................... (103)
Provision for Deferred Taxes..................................... (314)
Deferred Tax Adjustment (Prior Years)............................ 206
(Increase) Decrease:
Accrued Interest Receivable................................... (115) (334)
Other Assets.................................................. (1,390) ( 1,170)
Increase (Decrease):
Accrued Interest Payable...................................... 17 (79)
Other Liabilities............................................. 183 (321)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... $ 3,488 $(489)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold...................... $ 3,062 $ 4,314
Proceeds from Maturities of Securities Reported at Amortized Cost.. 15,440 20,329
Purchases of Securities Reported at Amortized Cost................. (12,394) (38,572)
Proceeds from Sales of Investment Securities....................... 2,711 120
Proceeds from Sales of Other Real Estate........................... 1,097
Net (Loans Originated) Principal Collected......................... (27,686) 2,623
Purchases of Other Real Estate Property............................ (265) (1)
Capital Expenditures............................................... (657) (554)
------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES............................. $(19,789) (10,644)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.......................... $17,948 $ 7,403
Net Increase (Decrease) in Federal Funds Purchased................. 1,275 2,286
Principal Payments on ESOP Borrowing............................... (424) (33)
Proceeds from Issuance of ESOP Debt................................ 94
Principal Payments on Capital Lease................................ (9) (21)
Dividends Paid..................................................... (1,055) (954)
------- --------
FINANCING ACTIVITIES............................................... $17,735 $ 8,775
------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................... $ 1,433 $ 678
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 13,831 14,193
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $15,264 $14,871
------- -------
</TABLE>
During the first nine months of 1994 and 1993, the Corporation paid
$7,097,000 and $5,915,000, respectively, in interest on deposits and other
borrowings and $1,705,000 and $1,661,000, respectively, for income taxes.
Disclosure of Accounting Policy:
For purposes of the statement of cash flows, Commercial has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and
Due from Banks."
The accompanying notes are an integral part of these statements.
6
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
("Commercial")
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Effective August 1, 1994, Commercial acquired the net
assets of Hometown Bancshares, Inc., by exchanging 509,398 shares of Commercial
common stock for all the outstanding shares of Hometown. The combination has
been recorded using a pooling-of-interests method of accounting and,
accordingly, the accompanying financial statements were prepared as if the
combination had occurred on January 1, 1993. All significant intercompany
transactions have been eliminated. Operating results for the nine month period
ended September 30, 1994, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1994. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Commercial's annual report on Form 10-KSB for the year ended December 31, 1993.
NOTE 2: INVESTMENT SECURITIES
The book value and approximate market value of investment securities as of
September 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
------------------------------------------
September 30, 1994
------------------------------------------
(Thousands of Dollars)
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 4,074 $ 4 $ 166 $ 3,912
Collateralized Mortgage 2,012 7 30 1,989
Obligations
Other Treasury and Agency 38,262 78 910 37,430
Securities
Obligations of States and their 0 0
Subdivisions
Corporate Debt Securities 249 1 248
Equity Securities - FHLB Stock 1,283 78 1,205
------- ------ ------ -------
TOTAL $45,880 $ 89 $1,185 $44,784
======= ====== ====== =======
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 227 $ 227
Collateralized Mortgage 108 1 109
Obligations
Other Treasury and Agency 26,370 226 26,132
Securities
Obligations of States and their 13,331 162 102 13,391
Subdivisions
Corporate Debt Securities 382 17 3 396
------- ------ ------ -------
TOTAL $40,418 $ 180 $ 343 $40,255
======= ====== ====== =======
------------------------------------------
September 30, 1993
------------------------------------------
U.S. Treasury and Government Agency $75,364 $1,722 $ 8 $77,078
Securities
Obligations of States and their 11,940 569 6 12,503
Subdivisions
Other Investments 2,056 151 0 2,207
------- ------ ------ -------
TOTAL $89,360 $2,442 $ 14 $91,788
======= ====== ====== =======
</TABLE>
7
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
September 30
-----------------------
1994 1993
(thousands of dollars)
<S> <C> <C>
Real Estate Loans............................... $ 85,655 $ 84,696
Installment Loans............................... 60,786 50,229
Credit Card Loans............................... 4,210 3,188
Commercial Loans................................ 101,332 83,238
-------- --------
$251,983 $221,351
-------- --------
Unearned Income................................. 849 1,079
-------- --------
TOTAL LOANS..................................... $251,134 $220,272
-------- --------
</TABLE>
Changes in the allowance for loan losses were as follows for the nine
months ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
(thousands of dollars)
<S> <C> <C>
Balance, Beginning of Year..................... $ 3,138 $ 2,958
Provision Charged to Operation................. 296 374
Loans Charged Off.............................. (191) (174)
Recoveries..................................... 82 157
-------- --------
Balance, End of Period......................... $ 3,325 $ 3,315
-------- --------
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at September 30, 1994
and 1993 were $15,634,000 and $12,095,000 respectively.
NOTE 5: ESOP BORROWINGS
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
---- ----
<S> <C> <C>
During 1992, the ESOP Trust obtained a revolving
conversion note for the principal amount of one
million dollars to finance the acquisition of
Commercial common stock, pledging those shares
as collateral. The revolving conversion note
was a conversion line-of-credit up to
$1,000,000, available on a revolving basis until
May 31, 1993. The amount of the credit
outstanding on May 31, 1993, converted to a term
loan. Interest on the unpaid principal balance
of the loan was payable at the end of each
calendar quarter since September 30, 1992. The
principal balance of the term loan was payable
at the end of each calendar quarter commencing
June 30, 1993, in 28 equal quarterly
installments.Interest was at a rate of the
lender's prime plus 1/2%, fluctuating
accordingly. The interest rate as of
December 31, 1993, was 6.50%. The ESOP paid off
the loan in its entirety in
March, 1994.................................... $ 0 $ 424
-------- --------
</TABLE>
NOTE 6: INCOME TAX EXPENSE
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Nine Months ended
September 30
1994 1993
------------------------
(In thousands of dollars)
<S> <C> <C>
Current:
State........................................ $ 231 $ 234
Federal...................................... 1,465 1,403
------ ------
TOTAL PROVISION FOR INCOME TAXES............. $1,696 $1,637
------ ------
</TABLE>
8
<PAGE>
NOTE 7: CONVERTIBLE PREFERRED STOCK
In conjunction with the acquisition of Jackson County Bank, Ravenswood,
West Virginia, Commercial issued 28,717 shares of Convertible Preferred Stock to
former owners of Jackson County Bank Common Stock. The Convertible Preferred
had a stated value of $100 per share and paid cumulative dividends of $10.00 per
share per year, paid quarterly. At its August 10, 1994, meeting the Board of
Directors decided to redeem all of the outstanding Convertible Preferred Stock
on October 28, 1994. Convertible Preferred could be redeemed during 1994 at $105
per share, and after January 1, 1995, at $100 per share. Notices were sent to
holders of Convertible Preferred Stock on September 1, 1994. Shares of
Convertible Preferred were convertible by the holders into 7.332 shares of
Commercial Common Stock at any time. Prior to the expiration of the redemption
notice, every holder of Convertible Preferred Stock indicated they desired to
convert their shares into Common Stock. Therefore, by October 28, 1994, all
28,717 shares of Convertible Preferred Stock had been converted to Common Stock
and no Convertible Preferred Stock remained outstanding. No shares were
redeemed.
NOTE 8: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---- ----
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (All from subsidiaries)........................... $ 500 $ 418
Accounts Receivable (All from subsidiaries)............................... 840 91
Notes Receivable.......................................................... 255 255
Investment Securities - Available for Sale................................ 395
Investment in Subsidiaries (Equity Basis)................................. 31,401 29,576
Premises and Equipment - Net.............................................. 376 478
Other Assets.............................................................. 440 596
------- -------
TOTAL ASSETS.............................................................. $33,812 $31,809
------- -------
LIABILITIES
ESOP Borrowings........................................................... $ 0 $ 424
Other Liabilities......................................................... 978 541
------- -------
TOTAL LIABILITIES......................................................... $ 978 $ 965
------- -------
STOCKHOLDERS EQUITY
Preferred Stock (Stated Value $100.00)
Outstanding: 27,165 shares and 27,165 Shares at September 30,
1994 and December 31, 1993, respectively................................ $ 2,716 $ 2,716
Common Stock (Par Value $5.00, Authorized:
2,000,000 Shares. Outstanding : 1,267,904 Shares and 1,267,904 Shares
at September 30, 1994 and December 31,1993, respectively)............... 6,340 6,340
Surplus................................................................... 8,297 8,297
Undivided Profits......................................................... 16,524 14,186
Unrealized Gain (Loss) on Securities Available for Sale, Net.............. (696) 76
LESS:
Employee Stock Ownership Plan Shares Collateralizing Debt............... 0 (424)
Treasury Stock.......................................................... (347) (347)
------- -------
TOTAL STOCKHOLDERS EQUITY................................................. $32,834 $30,844
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY................................. $33,812 $31,809
------- -------
</TABLE>
9
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1994
(In thousands)
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Dividend from Subsidiary Banks......................................... $1,110
Fees from Subsidiaries................................................. 735
Gain on Sale of Securities Available for Sale.......................... 103
------
TOTAL REVENUE............................................................ $1,948
------
EXPENSES
Employee Compensation and Benefits..................................... $ 376
Occupancy and Furniture Expense........................................ 183
Other Expenses......................................................... $ 509
------
TOTAL EXPENSES........................................................... $1,068
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries............................... $ 880
Applicable Income Tax.................................................... 38
------
Income before Equity in Undistributed
Net Income of Subsidiaries............................................. $ 842
Equity in Undistributed Net Income of Subsidiaries....................... 2,553
------
NET INCOME............................................................... $3,395
------
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1994
(In Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Income................................................................ $ 3,395
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................................ 125
(Gain) Loss on Securities Sold....................................... (103)
Net Amortization of Purchase Accounting Adjustments.................. 63
Undistributed Net(Income) Loss on Subsidiaries....................... (2,553)
Deferred Employee Benefits........................................... 424
Increase(Decrease) Accounts Receivable............................... (517)
Accrued Interest Receivable.......................................... 2
Other Assets......................................................... (83)
Other Liabilities.................................................... $ 436
------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. $ 1,189
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Investment Securities............................ $ 395
Capital Expenditures.................................................... (23)
------
NET CASH USED BY INVESTING ACTIVITIES..................................... $ 372
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on ESOP and long-term debts.......................... $ (424)
Dividends paid.......................................................... (1,055)
------
NET CASH USED BY FINANCING ACTIVITIES..................................... $(1,479)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................. $ 82
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 418
------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 500
------
</TABLE>
During the first nine months of 1994, Commercial paid $1,705,000 in income
taxes.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SOURCES AND USES OF FUNDS
During the first nine months of 1994, Commercial's largest source of funds,
its deposits, grew $17.8 million or 5.70% from December 31, 1993, to $329.1
million. The largest increase was in time deposits, which were up $8.8 million
(6.79%). Non interest-bearing demand deposits had the largest percentage
increase. They grew 16.44%, or $6.6 million. Savings deposits were up $1.1
million (1.41%) and interest-bearing demand deposits increased $1.2 million or
1.91%.
Commercial's position in the Federal Funds market changed from net sales to
net purchases during the nine month period. There were net purchases of $0.6
million at September 30, 1994, compared to sales of $5.1 million at year end.
Federal funds sold were reduced 44.25%, from $8.7 million to $4.l9 million.
Federal funds purchased increased from $4.2 to $5.5 million. Commercial's banks
regularly undertake borrowings to accommodate smaller correspondent banks and in
such cases those funds are ordinarily invested in federal funds sold.
Additionally, during the first nine months of 1994 the increase in loans
exceeded the growth in deposits and borrowings were used as a relatively
inexpensive source of short-term funds. Federal funds sold represent temporary
liquid investments that may be used to meet loan or deposit demands, as well as
funds that are awaiting investment in longer term investments.
The long term debt of the ESOP was eliminated, as the $424,000 balance was
paid off by the ESOP during the first quarter.
Cash and due from banks increased by $1.4 million or 10.36% from December 31,
1993, to September 30, 1994. Changes in this category are not unusual, as the
balance fluctuates with inflows and outflows of deposits.
Commercial's largest use of funds, lending, increased by $28.5 million
(12.81%) during the first three quarters of the year. Loan demand continued to
be strong as customers anticipated rising interest rates. Many consumers sought
to make purchases while interest rates were perceived to be low.
The securities portfolio decreased. It was down $7.4 million or 7.95%. The
investment in securities is expected to continue to decline modestly during the
remainder of the year, as it is expected some of the proceeds of maturing
securities will be reinvested in loans.
EARNINGS--NINE MONTHS
Consolidated net income for the first nine months of 1994 was 11.82% more than
the first nine months of 1993 ($3.4 million in 1994, $3.0 million in 1993).
Fully diluted earnings per common share were $2.34 compared to $2.09 for 1993.
Total interest income increased 3.07% or $591,000 from $19.3 million in 1993
to $19.8 million in 1994. Total interest expense decreased 6.69% or $510
thousand from the 1993 level. This resulted in an increase of 9.46% or $1.1
million in net interest income.
The provision for loan losses was 20.86% less in 1994 than it was in the first
nine months of 1993. The 1994 provision was $296 thousand compared to net loan
losses of $109 thousand. In 1993, the first nine months provision was $374
thousand and there were net losses of $17,000. At September 30, 1994, the
reserve for possible loan losses of $3,325,000 was equal to 1.32% of net loans
outstanding. This compares with $3,138,000 or 1.41% of net loans outstanding at
December 31, 1993.
Non interest income increased 5.74% from the first nine months of 1993 to the
first nine months of 1994. Trust department fees were down by 10.68%. Service
charges and fees grew 0.51%. Other income rose $45,000 or 8.74% from 1993 to
1994. A transaction involving the sale of Common stock of the First National
Bank of Powhatan Point, Ohio, to that bank provided most of the $109,000 in
securities gains reported during the period.
Non-interest expense increased 9.28%, or $779,000 from 1993 to 1994. The two
major areas of increase were employee compensation and benefits, which grew
$404,000 or 9.43%, and other operating expenses, which increased $376,000, or
13.04%. In 1993, an unusually large proportion of the employee expense was
delayed until the fourth quarter because of late implementation of a new
incentive bonus program. For 1994, Commercial and its banks have been accruing
the 1994 expense since the beginning of the year. This has caused much of the
increase in employee expense compared to 1993. The increase in other operating
expense came from certain professional and legal fees, as well as a general
increase in several other areas.
Occupancy expense was down $23,000 compared to the same period in 1993.
Furniture and equipment was up $22,000. Together, these fixed assets expenses
decreased $1,000, from a combined total of $1,228,000 in 1993 to $1,227,000 in
1994.
Net income before taxes was up $499,000 (10.87%) for the 1994 period. The
provision for Federal and state income taxes increased $59,000 or 3.60%.
EARNINGS--THREE MONTHS
Consolidated net income for the third quarter of 1994 was 46.65% more than the
third quarter of 1993. ($1,468,000 in 1994 and $1,001,000 in 1993). Fully
diluted earnings per share were $1.01 compared to $0.69 for the 1993 quarter.
Total interest income increased 8.98% to $7,077,000 from $6,494,000 in 1993.
Total interest expense decreased 0.40% to $2,510,000 from $2,520,000 in 1993.
As a result, net interest income increased $593,000 or 14.92% from the third
quarter of 1993.
The provision for loan losses was 39.02% higher during the third quarter of
1994 than it was during the third quarter of 1993. The 1994 provision was
$114,000 compared to net losses of $64,000. The 1993 third quarter provision
was $82,000 compared to net recoveries of $17,000.
11
<PAGE>
Non interest income decreased 5.07% from 1993 to 1994. Trust department
income experienced a decrease of $20,000 (14.18%) from the third quarter 1993 to
1994. Services charges and fees were down $94,000 or 28.57% from the third
quarter of 1993, and other income increased $85,000 or 103.66%.
Non-interest expense was up 4.38% ($127,000) from the third quarter of 1993.
Employee compensation and benefits decreased by 5.95%, or $89,000. Occupancy
expense decreased $34,000 (18.09%) while furniture and equipment increased
$20,000 (8.93%). All other operating expenses increased $230,000 (23.23%).
This increase was created by the same factors mentioned above, most of which
were nonrecurring, but appeared in the third quarter.
Net income before taxes was up 26.24% and the provision for Federal and state
income taxes decreased $61,000 (11.17%) from 1993.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The principal amount of nonaccrual loans was $836,000 at September 30, 1994,
an increase of $481,000 (136.9%) from December 31, 1993. Loans past due 90 days
or more and still accruing totaled $429,000 at September 30, 1994, up $101,000
from year end totals. Restructured loans totaled $1,410,000 at the end of the
third quarter of 1994.
LIQUIDITY
BancShares primary source of liquidity has been the attraction and retention
of retail deposit accounts. The total deposit growth over the nine month period
was 5.70%, or an increase of $17.75 million. Time deposits, a prime component
of core deposit relationships, grew $8.8 million, a 6.79% increase. Deposits
promise to continue to be a good source of funds. Also available to Commercial
are short-term market-rate liabilities, including Federal funds purchased and
securities sold under agreements to repurchase. These instruments are currently
used to accommodate customers and on a limited basis to provide a short-term
source of funds. Two of Commercial's subsidiaries, including the largest bank,
are members of the Federal Home Loan Bank of Pittsburgh, which makes available
to its members a number of credit products, any or all of which could be used to
meet liquidity needs. Additionally, Commercial is aware of brokers who could,
in a short time, provide large amounts of certificates of deposit at market
rates. None of Commercial's banks currently use or intend to use brokered
funds, but the source exists should liquidity needs require its use.
Commercial's banks also have extensions of credit that are guaranteed by various
U.S. government agencies and are, therefore, salable.
Although liabilities provide its primary sources of liquidity, Commercial also
maintains an adequate level of cash and near-cash items on hand to meet day-to-
day operating needs. Additionally, Commercial owns marketable securities and
short-term investments that can be converted to cash in a very short time.
Maturing within one year is 23.7% of the total securities portfolio.
CAPITAL
During the first nine months of 1994, Commercial increased it stockholders'
equity by $1,990,000 (6.45%), bringing the balance at September 30, 1994, to
$32.8 million or, 8.87% of total assets. The increase was from internal capital
growth.
In January 1989, banking industry regulators officially released risk-
adjusted capital guidelines for banks and bank holding companies. The
guidelines established final requirements that had to be achieved by year-end
1992. As of September 30, 1994, Commercial's Tier 1 ratio of 13.05% and
combined Tier 1 and Tier 2 ratio of 14.30% exceed the requirements.
Additionally, Commercial's ratios of primary capital to total assets of 8.69%
and total capital to total assets of 9.52% exceed the final requirements which
became effective at year-end 1992 for those relationships.
12
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The company is a defendant in certain legal actions arising from normal
business activities. The ultimate liability, if any, resulting from them will
not materially affect the company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 8-K dated August 1, 1994
Item 5. Convertible Preferred Stock redemption October 28, 1994
Item 7. Financial Statements and Exhibits--Financial statements of
Hometown Bancshares, Inc. and pro forma consolidated
statements of Commercial BancShares, Inc.
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.
COMMERCIAL BANCSHARES, INC.
(Registrant)
/s/ William E. Mildren, Jr.
Date: November 15, 1994 ---------------------------
----------------- William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Larry G. Johnson
Date: November 15, 1994 ----------------------------
----------------- Larry G. Johnson
Secretary-Treasurer
13
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