<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1995
------------------
[_] 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:
Class Outstanding at September 30, 1995
----- ---------------------------------
COMMON STOCK $5.00 PAR VALUE 1,467,040
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
("COMMERCIAL")
INDEX
Part I Financial Information PAGE NO.
Condensed Consolidated Balance Sheet as of September 30, 1995
and December 31, 1994..........................................3
Condensed Consolidated Statement of Income for
Nine Months ended September 30, 1995 and 1994..................4
Consolidated Statement of Changes in Shareholders
Equity for Nine months ended September 30, 1995................5
Consolidated Statement of Cash Flows for the Nine
Months ended September 30, 1995 and 1994.......................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, December 31,
1995 1994
--------- ---------
(unaudited) *
<S> <C> <C>
Cash and Due from Banks........................................ $ 14,837 $ 16,304
Interest-Bearing Demand Deposits with Other Banks.............. 615 323
Interest-Bearing Time Deposits with Other Banks................ 99 299
Federal Funds Sold............................................. 4,500 1,405
Investment Securities:
Held to Maturity, at Amortized Costs......................... 36,611 41,150
(Market Value: $37,124 and $40,384)
Available for Sale, at Market Value.......................... 50,067 42,940
Loans - net of unearned discount............................... 263,167 256,402
LESS: Reserve for Losses...................................... (3,545) (3,430)
Premises and Equipment......................................... 8,458 7,140
Notes Receivable............................................... 255 255
Accrued Interest Receivable.................................... 2,847 2,549
Foreclosed Properties - Net.................................... 1,540 1,329
Other Assets................................................... 5,036 5,568
-------- --------
TOTAL ASSETS................................................. $384,487 $372,223
======== ========
LIABILITIES AND CAPITAL
Deposits:
Demand - Non-Interest Bearing................................ $ 44,922 $ 46,499
Demand - Interest Bearing.................................... 48,000 44,462
Savings...................................................... 82,100 98,039
Time Deposits................................................ 161,876 134,959
-------- --------
TOTAL DEPOSITS................................................. $336,898 $323,959
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.......................... 7,241 10,972
Accrued Interest Payable....................................... 1,169 812
Other Liabilities.............................................. 2,106 2,872
-------- --------
TOTAL LIABILITIES.............................................. $347,414 $338,615
-------- --------
Shareholders' Equity:
Common Stock (Par Value $5.00)
Outstanding: 1,467,040 shares and 1,467,040 shares........ $ 7,335 $ 7,335
Additional Paid In Capital................................... 10,186 10,079
Undivided Profits............................................ 19,433 17,122
Net Unrealized Gain (Loss) on Available-for-Sale Securities.. 118 (719)
Less: Treasury Stock, at cost............................... 0 (209)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... $ 37,073 $ 33,608
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $384,487 $372,223
======== ========
</TABLE>
* Condensed from audited financial statements.
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
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............... $18,366 $15,925 $ 6,229 $5,760
Interest and Dividends on Securities..... 3,893 3,679 1,324 1,223
Interest on Federal Funds Sold........... 447 221 169 78
Interest on Notes Receivable............. 12 0 0 0
Interest on Time Deposits with Other Banks 29 24 6 16
------- ------- ------- ------
TOTAL INTEREST INCOME.................... $22,747 $19,849 $ 7,728 $7,077
------- ------- ------- ------
INTEREST EXPENSE
Interest on Deposits..................... $ 9,025 $ 6,915 $ 3,166 $2,404
Interest on Federal Funds Purchased and
Securities Sold Under Agreement to
Repurchase............................ 332 199 97 106
------- ------- ------- ------
TOTAL INTEREST EXPENSE................... $ 9,357 $ 7,114 $ 3,263 $2,510
------- ------- ------- ------
NET INTEREST INCOME...................... $13,390 $12,735 $ 4,465 $4,567
Provision for Loan Losses.................. 329 296 111 114
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES................ $13,061 $12,439 $ 4,354 $4,453
OTHER INCOME
Trust Department Income.................. 483 368 169 121
Service Charges and Fees................. 875 788 306 235
Security Gains........................... 109 1
Other Income............................. 639 560 224 167
------- ------- ------- ------
Total Other Income.................... 1,997 1,825 699 524
OTHER EXPENSES
Employee Compensations & Benefits........ $ 5,491 $ 4,686 $ 1,949 $1,406
Occupancy Expense
(Net of Rental Income)................ 593 527 184 154
Furniture and Equipment.................. 683 700 248 244
Other Operating Expenses................. 2,923 3,260 917 1,220
------- ------- ------- ------
Total Other Expenses.................. 9,690 9,173 3,298 3,024
INCOME BEFORE APPLICABLE
INCOME TAXES........................ $ 5,368 $ 5,091 $ 1,755 $1,953
Applicable Income Taxes.................... 1,830 1,697 562 486
------- ------- ------- ------
NET INCOME............................... $ 3,538 $ 3,394 $ 1,193 $1,467
======= ======= ======= ======
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................ $ 3,538 $ 3,191 $ 1,193 $1,400
EARNINGS PER SHARE DATA:
Primary.................................. $2.42 $2.55 $.81 $1.12
Fully Diluted............................ 2.42 2.34 .81 1.01
Cash Dividends Declared.................. .84 .75 .28 .25
</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, 1995
(unaudited)
<TABLE>
<CAPTION>
(in thousands
of dollars)
<S> <C>
COMMON STOCK ($5.00 Par Value; 2,000,000 Shares authorized)
Balance at beginning of year....................................... $ 7,335
-------
Balance at end of period - 1,467,040 Shared Issued
and Outstanding at September 30, 1995............................ $ 7,335
-------
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Year....................................... $10,079
Additional Paid in Capital from Resale of Treasury Stock........... 108
Payments for Fractional Shares..................................... (1)
-------
Balance at End of Period........................................... $10,186
-------
UNDIVIDED PROFITS
Balance at Beginning of Year....................................... $17,122
Net Income......................................................... 3,538
Cash Dividend Declared on Common Stock............................. (1,227)
-------
Balance at End of Period........................................... $19,433
-------
UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE-FOR-SALE,
NET OF APPLICABLE DEFERRED INCOME TAXES
Balance at Beginning of Year....................................... $ (719)
Change in Unrealized Gain (Loss) on Securities Available for Sale.. 838
-------
Balance at End of Period........................................... $ 119
-------
Less: TREASURY STOCK, AT COST
Balance at Beginning of Year....................................... $ 209
Resale of 10,578 shares of Treasury Stock at Cost.................. (209)
-------
Balance at End of Period........................................... $ 0
-------
TOTAL SHAREHOLDERS' EQUITY......................................... $37,073
=======
</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
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 3,538 $ 3,394
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 607 621
Deferred Employee Benefits.............................. 424
Provision for Loan Loss................................. 329 296
Investment Amortization - Net........................... 182 490
(Gain) Loss on Sale of Capitalized Assets............... (7)
Realized Investment Securities (Gains) Losses........... 1 (109)
(Gain) Loss on Sale of Other Real Estate Owned.......... (15)
Other - Net............................................. 26 (9)
Income Tax Benefit...................................... (215) (103)
Provision for Deferred Taxes............................ (34) (314)
(Increase) Decrease:
Accrued Interest Receivable........................... (298) (115)
Other Assets.......................................... (293) (1,390)
Increase (Decrease):
Accrued Interest Payable.............................. 357 17
Other Liabilities..................................... (606) 183
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ 3,572 $ 3,488
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Short Term Investments.......... $ (3,095) $ 3,062
Proceeds from Maturities of Securities Held to Maturity.... 6,691 15,440
Proceeds from Maturities of Securities Available for Sale.. 12,994
Purchases of Securities Held to Maturity................... (5,210)
Purchases of Securities Available for Sale................. (17,499) ( 12,394)
Proceeds from Sales of Investment Securities............... 1,101 2,711
Proceeds from Sales of Other Real Estate................... 322
Proceeds from Sale of Capitalized Assets................... 7
Net (Loans Originated) Principal Collected................. (6,418) (27,686)
Purchases of Other Real Estate Property.................... (265)
Capital Expenditures....................................... (1,937) (657)
-------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... $(13,044) $(19,789)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $ 12,939 $ 17,948
Net Increase (Decrease) in Short Term Borrowings........... (3,731) 1,275
Principal Payments on ESOP Borrowing....................... (424)
Proceeds from Issuance of ESOP Debt........................ 94
Principal Payments on Capital Lease........................ (9)
Payment of Fractional Shares............................... (1)
Proceeds from Sale of Treasury Stock....................... 317
Dividends Paid............................................. (1,227) (1,055)
-------- ---------
FINANCING ACTIVITIES....................................... $ 8,297 $ 17,829
-------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... $ (1,175) $ 1,433
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 16,627 13,831
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 15,452 $ 15,264
======== =========
</TABLE>
During the first nine months of 1995 and 1994, the Corporation paid $8,668,000
and $7,097,000 respectively, in interest on deposits and other borrowings and
$1,956,000 and $1,705,000 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 captions "Cash and
Due from Banks" and "Interest-Bearing Demand Deposits with Other 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 the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1995, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. 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, 1994.
NOTE 2: INVESTMENT SECURITIES
The book value and approximate market value of investment securities as of
September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------
September 30, 1995
--------------------------------------------
(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 $ 5,856 $ 22 $ 76 $ 5,802
Collateralized Mortgage 4,943 35 3 4,975
Obligations
Other Treasury and Agency 37,571 457 186 37,842
Securities
Obligations of States and their 0 0
Subdivisions
Corporate Debt Securities 124 124
Equity Securities 1,385 61 1,324
------- ---- ------ -------
TOTAL $49,879 $514 $ 326 $50,067
======= ==== ====== =======
HELD TO MATURITY
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 200 $ 200
Collateralized Mortgage 0 0
Obligations
Other Treasury and Agency 23,074 259 78 23,255
Securities
Obligations of States and their 13,106 330 3 13,433
Subdivisions
Corporate Debt Securities 231 7 2 236
------- ---- ------ -------
TOTAL $36,611 $596 $ 83 $37,124
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
September 30, 1995
--------------------------------------------
(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
======= ==== ====== =======
</TABLE>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
September 30
---------------------
1995 1994
(thousands of dollars)
<S> <C> <C>
Real Estate Loans....................... $ 93,359 $ 85,655
Installment Loans....................... 60,986 60,786
Credit Card Loans....................... 4,089 4,210
Commercial Loans........................ 105,366 101,332
-------- --------
$263,800 $251,983
-------- --------
Unearned Income......................... 633 849
-------- --------
TOTAL LOANS............................. $263,167 $251,134
======== ========
</TABLE>
Changes in the allowance for loan losses were as follows for the nine
months ended September 30, 1995, and 1994.
<TABLE>
<CAPTION>
1995 1994
(thousands of dollars)
<S> <C> <C>
Balance, Beginning of Year.............. $ 3,430 $ 3,138
Provision Charged to Operation.......... 329 296
Loans Charged Off....................... (276) (191)
Recoveries.............................. 62 82
-------- --------
Balance, End of Period.................. $ 3,545 $ 3,325
======== ========
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at September 30, 1995,
and 1994 were $22,484,000 and $15,634,000 respectively.
NOTE 5: FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS
Federal funds purchased and securities sold under repurchase agreements
generally represent overnight borrowing transactions.
The details of these classifications for the dates indicated are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS Year
ENDED Ended
9-30-95 12-31-94
-------- ---------
<S> <C> <C>
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD
UNDER REPURCHASE AGREEMENTS
Balance at End of Period................ $7,241 $10,972
Average during Period................... 2,621 9,662
Maximum Month-end Balance............... 7,241 14,610
Average Rate during Period.............. 5.53% 4.55%
Rate at the end of Period............... 6.54% 5.84%
</TABLE>
NOTE 6: INCOME TAX EXPENSE
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Nine Months ended
September 30
1995 1994
------------ -----------
Current: (In thousands of dollars)
<S> <C> <C>
State............................. $ 235 $ 231
Federal........................... 1,594 1,465
------ ------
TOTAL PROVISION FOR INCOME TAXES.. $1,829 $1,696
====== ======
</TABLE>
-8-
<PAGE>
NOTE 7: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (All from subsidiaries)............... $ 2,528 $ 968
Accounts Receivable (All from subsidiaries)................... 527 835
Notes Receivable.............................................. 255 255
Investment in Subsidiaries (Equity Basis)..................... 30,371 31,126
Premises and Equipment - Net.................................. 457 333
Other Assets.................................................. 493 652
------- -------
TOTAL ASSETS.................................................. $37,201 $34,169
======= =======
LIABILITIES
Other Liabilities............................................. $ 128 $ 561
------- -------
TOTAL LIABILITIES............................................. $ 128 $ 561
------- -------
STOCKHOLDERS EQUITY
Common Stock (Par Value $5.00, Authorized: 2,000,000 Shares.
Outstanding: 1,467,040 Shares and 1,467,040 Shares
at September 30, 1995 and December 31,1994 respectively).... $ 7,335 $ 7,335
Surplus....................................................... 10,186 10,079
Undivided Profits............................................. 19,433 17,122
Unrealized Gain (Loss) on Securities Available for Sale, Net.. 119 (719)
LESS:
Treasury Stock.............................................. (209)
------- -------
TOTAL STOCKHOLDERS EQUITY..................................... $37,073 $33,608
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY..................... $37,201 $34,169
======= =======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1995
(In thousands)
<TABLE>
<S> <C>
REVENUE
Dividend from Subsidiary Banks.......................... $ 2,971
Fees from Subsidiaries.................................. 809
Interest Income......................................... 12
-------
TOTAL REVENUE............................................. $ 3,792
-------
EXPENSES
Employee Compensation and Benefits...................... $ 893
Fixed Asset Expense..................................... 224
Other Expenses.......................................... $ 330
-------
TOTAL EXPENSES............................................ $ 1,447
-------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries................ $ 2,345
Applicable Income Tax..................................... (215)
-------
Income before Equity in Undistributed
Net Income of Subsidiaries.............................. $ 2,560
Equity in Undistributed Net Income of Subsidiaries........ 978
-------
NET INCOME................................................ $ 3,538
=======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1995
(In Thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,538
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 109
Net Amortization of Purchase Accounting Adjustments.. 50
Undistributed Net(Income) Loss on Subsidiaries....... (978)
Income Tax Benefit................................... (215)
Increase(Decrease):
Accounts Receivable................................ 308
Accrued Interest Receivable........................ 6
Other Assets....................................... 154
Other Liabilities.................................. (268)
-------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $ 2,704
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.................................... $ (233)
-------
NET CASH USED BY INVESTING ACTIVITIES..................... $ (233)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Treasury Stock.................... $ 317
Payment for Fractional Shares........................... (1)
Dividends paid.......................................... (1,227)
-------
NET CASH USED BY FINANCING ACTIVITIES..................... $ (911)
-------
NET INCREASE IN CASH AND DUE FROM BANKS................... $ 1,560
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 968
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 2,528
=======
</TABLE>
During the first nine months of 1995, Commercial paid $1,956,000 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 1995, Commercial's largest source of funds,
its deposits, grew $12.9 million or 3.99% from December 31, 1994, to $336.9
million. The largest increase was in time deposits, which were up $26.9
million (19.94%). Interest bearing demand deposits also increased, up $3.5
million or 7.96%. Offsetting some of the increases was a decline in savings
deposits. These lower rate deposits shrank by $15.9 million, or 16.26%. Non
interest bearing demand deposits also experienced a decrease. They were down
$1.6 million (3.39%). The predominant interest for consumers during the first
nine months of 1995 was in time certificates of deposit, particularly of short
term. Customers moved from savings to time deposits to increase their return as
yields remained fairly stable.
During the first nine months of 1995 the net increase in deposits exceeded the
growth in loans, so Commercial reduced its reliance on short-term borrowings.
There were net purchases of federal funds amounting to $2.7 million at September
30, 1995, compared to net purchases of $9.6 million at year end. Federal funds
sold were increased $3.1 million from $1.4 million to $4.5 million. Federal
funds purchased and securities sold under agreements to repurchase decreased
from $11.0 to $7.2 million. Commercial's banks regularly undertake the purchase
of federal funds to accommodate smaller correspondent banks and in such cases
those funds are ordinarily resold as federal funds. Additionally, federal funds
can be used as a relatively inexpensive source of short-term funds when the need
arises. Federal funds sold represent temporary liquid investments that may be
used to meet loan or deposit demands, as well as funds that are awaiting
redeployment into longer term investments.
Cash and due from banks decreased by $1.5 million or 9.00% from December 31,
1994, to September 30, 1995. 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 $6.8 million (2.64%)
during the first three quarters of the year. There was continued loan demand
throughout the period, but declined somewhat in strength in the third quarter.
As the need to fund loans abated somewhat, the securities portfolio was
increased. The total portfolio was up $2.6 million or 3.08% during the nine
months. Securities available for sale decreased by 11.03% or $4.5 million. The
securities being held to maturity increased $7.1 million or 16.60%. It is
anticipated that most future purchases will be considered available for sale.
EARNINGS--NINE MONTHS
The consolidated net income of $3.5 million for the first nine months of 1995
was 4.24% more than the comparable period in 1994, which amounted to $3.4
million. Fully diluted earnings per common share were $2.42 compared to $2.34
for the first three quarters of 1994.
Total interest income increased 14.60% or $2.9 million from $19.8 million in
1994 to $22.7 million in 1995. Meanwhile, total interest expense increased
31.53% or $2.2 million from the 1994 level. This resulted in an increase of
5.14% or $655,000 in net interest income.
The provision for loan losses was 11.15% more in 1995 than it was in the first
nine months of 1994. The 1995 provision was $329 thousand compared to net loan
losses of $214 thousand. In 1994, the first nine months' provision was $296
thousand and there were net losses of $37,000. At September 30, 1995, the
reserve for possible loan losses of $3,544,000 was equal to 1.35% of net loans
outstanding. This compares with $3,430,000 or 1.34% of net loans outstanding at
December 31, 1994.
Non interest income increased 16.38% from the first nine months of 1994 to the
first nine months of 1995. Trust department fees were up by 31.25%. Service
charges and fees grew 11.04%. Other income rose $79,000 or 14.11% from 1994 to
1995.
Non-interest expense increased 5.64%, or $517,000 from 1994 to 1995. The
major area of increase was employee compensation and benefits, which grew
$805,000 or 17.18%. In 1994, the implementation of a new incentive bonus
program affected the fourth quarter significantly. For 1995, that expense of
that program has been distributed throughout the year. Occupancy expenses
increased $66,000, or 12.52%, while furniture and equipment expense was down
$17,000 (2.43%). All other non-interest expenses decreased $337,000 or 10.34%.
Reductions in FDIC insurance expense made a substantial impact in this area.
Net income before taxes was up $277,000 (5.44%) over the 1994 period. The
provision for Federal and state income taxes increased $133,000 or 7.84%.
EARNINGS--THREE MONTHS
Consolidated net income for the third quarter of 1995 was 18.68% less than the
third quarter of 1994. ($1,193,000 in 1995 and $1,467,000 in 1994). Fully
diluted earnings per share were $.81 compared to $1.01 for the 1994 quarter.
Total interest income increased 9.20% to $7,728,000 from $7,077,000 in 1994.
However, total interest expense increased 30.00% to $3,263,000 from $2,510,000
in 1994. As a result, net interest income decreased $102,000 or 2.23% from the
third quarter of 1994.
The provision for loan losses was 2.63% higher during the third quarter of
1995 than it was during the third quarter of 1994. The 1995 provision was
$111,000 compared to net losses of $33,000. The 1994 third quarter provision
was $114,000 compared to net losses of $64,000.
Non interest income increased 33.40% from 1994 to 1995. Trust department
income experienced an increase of $48,000 (39.67%) from the third quarter 1994
to 1995. Services charges and fees were up $71,000 or 30.21% from the third
quarter of 1994, and other income increased $57,000 or 34.13%.
Non-interest expense, however, was up $274,000 from the third quarter of 1994.
Employee compensation and benefits increased by 38.62%, or $543,000. Along with
ordinary growth in the level of compensation, the third quarter of 1995 included
appropriate costs of an incentive bonus program enacted retroactively during the
fourth quarter of
-11-
<PAGE>
1994. In 1994 the largest part of the expense was incurred during the last
quarter of the year, while in 1995 it is redistributed across the entire year.
Occupancy expense increased $30,000 (19.48%) while furniture and equipment
increased $4,000 (1.64%). All other operating expenses decreased $303,000
(24.84%). This decrease was largely the result of decreased FDIC insurance
expense.
Net income before taxes was down 18.68% ($274,000) and the provision for
Federal and state income taxes increased $76,000 (15.64%) from the same quarter
in 1994. An adjustment in tax calculation resulted in reduced tax provision in
1994.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The principal amount of nonaccrual loans was $1,023,000 at September 30, 1995,
an increase of $284,000 (38.43%) from December 31, 1994. Loans past due 90 days
or more and still accruing totaled $497,000 at September 30, 1995, up $33,000
from year end totals. Restructured loans totaled $1,409,000 at the end of the
third quarter of 1995.
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 3.99%, or an increase of $12.9 million. Time deposits, a prime component of
core deposit relationships, grew $26.9 million, a 19.94% 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 24.8% of the total securities portfolio.
CAPITAL
During the first nine months of 1995, Commercial increased it stockholders'
equity by $3,465,000 (10.31%), bringing the balance at September 30, 1995, to
$37.1 million or, 9.60% of total assets. The increase was largely from internal
capital growth. The sale of treasury stock added $316,000, and an increase in
the unrealized gain on securities available for sale added $838,000 to the
equity account.
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, 1995, Commercial's Tier 1 ratio of 13.94% and
combined Tier 1 and Tier 2 ratio of 15.19% exceed the requirements.
Additionally, Commercial's ratios of primary capital to total assets of 9.27%
and total capital to total assets of 10.10% 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
None
Item 5. OTHER INFORMATION
The Board of Directors, at its meeting on November 8, 1995, agreed to seek
listing of its $5 par value common stock on the American Stock Exchange. The
Board believes that such a listing may create greater trading liquidity, higher
visibility, a broader shareholder base and improved access to capital markets.
Although it has approved seeking a listing, Commercial has not obtained a
preliminary opinion as to the eligibility of its common stock for listing. Once
a favorable opinion is received, Commercial will proceed to prepare and file a
complete listing application with the Exchange. Commercial anticipates the
stock may be listed early in 1996, if all approvals are received promptly. The
costs of membership are not expected to materially affect Commercial's financial
position.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Commercial did not file any reports on Form 8-K during the three months
ended September 30, 1995.
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)
Date: November 14, 1995 /s/ William E. Mildren, Jr.
----------------------- -----------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
Date: November 14, 1995 /s/ Larry G. Johnson
----------------------- -----------------------------
Larry G. Johnson
Secretary-Treasurer
-13-
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