<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1996
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ----------
Commission file number 0-20232
-------
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0622108
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
415 Market Street, Parkersburg, WV 26101
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
304-424-0300
------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
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 periods 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
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No
-- --
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $5.00 par value--1,469,670 shares as of November 8, 1996
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
("Commercial")
INDEX
Part I Financial Information
<TABLE>
<CAPTION>
Page No.
<S> <C>
Condensed Consolidated Balance Sheet as of September 30, 1996
and December 31, 1995........................................... 3
Condensed Consolidated Statement of Income for
Nine Months and Three Months ended September 30, 1996 and 1995.. 4
Condensed Statement of Changes in Stockholders
Equity for Nine months ended September 30, 1996................. 5
Consolidated Statement of Cash Flows for the Nine
Months ended September 30, 1996 and 1995........................ 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
</TABLE>
-2-
<PAGE>
PART I FINANCIAL INFORMATION
COMMERCIAL BANCSHARES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, Dec. 31,
1996 1995
-------- --------
(unaudited) *
<S> <C> <C>
Cash and Due from Banks........................................ $ 21,392 $ 16,743
Interest-Bearing Demand Deposits with Other Banks.............. 585 686
Interest-Bearing Deposits in Banks............................. 0 99
Federal Funds Sold............................................. 2,200 1,680
Investment Securities:
Held to Maturity, at Amortized Costs......................... 28,316 34,058
(Market Value: $31,626 and $34,675)
Available for Sale, at Market Value.......................... 50,440 53,366
Loans - net of unearned discount............................... 290,760 263,731
LESS: Reserve for Losses...................................... ( 3,585) (3,516)
Premises and Equipment......................................... 8,949 8,585
Notes Receivable............................................... 249 255
Accrued Interest Receivable.................................... 2,705 2,760
Foreclosed Properties - Net.................................... 1,336 1,652
Other Assets................................................... 6,107 5,557
-------- --------
TOTAL ASSETS................................................. $409,454 $385,656
======== ========
</TABLE>
LIABILITIES AND CAPITAL
<TABLE>
<S> <C> <C>
Deposits:
Demand - Non-Interest Bearing................................ $ 50,868 $ 46,629
Demand - Interest Bearing.................................... 46,360 44,577
Savings...................................................... 81,406 85,673
Time Deposits................................................ 178,719 163,705
-------- --------
TOTAL DEPOSITS................................................. $357,353 $340,584
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.......................... 8,244 2,134
Accrued Interest Payable....................................... 1,155 1,217
Other Liabilities.............................................. 2,915 3,518
-------- --------
TOTAL LIABILITIES.............................................. $369,667 $347,453
-------- --------
Shareholders' Equity:
Preferred Stock (Stated Value: $100)
Outstanding: None......................................... $ 0 $ 0
Common Stock (Par Value $5.00)
Outstanding: 1,469,670 shares and 1,469,670 shares........ 7,348 7,348
Additional Paid In Capital................................... 10,261 10,261
Undivided Profits............................................ 22,251 20,230
Net Unrealized Gain (Loss) on Available-for-Sale Securities.. (73) 364
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... $ 39,787 $ 38,203
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $409,454 $385,656
======== ========
</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
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............... $19,182 $18,366 $ 6,592 $6,229
Interest and Dividends on Securities..... 3,934 3,893 1,287 1,324
Interest on Federal Funds Sold........... 216 447 79 169
Interest on Notes Receivable............. 0 12 0 0
Interest on Time Deposits with Other
Banks.................................. 36 29 11 6
------- ------- ------- ------
TOTAL INTEREST INCOME.................... $23,368 $22,747 7,969 $7,728
------- ------- ------- ------
INTEREST EXPENSE
Interest on Deposits..................... $ 9,712 $ 9,025 $ 3,295 $3,166
Interest on Federal Funds Purchased and
Securities Sold Under Agreement to
Repurchase............................ 206 332 110 97
------- ------- ------- ------
TOTAL INTEREST EXPENSE................... $ 9,918 $ 9,357 $ 3,405 $3,263
------- ------- ------- ------
NET INTEREST INCOME...................... $13,450 $13,390 $ 4,564 $4,465
Provision for Loan Losses.................. 358 329 111 111
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES................ $13,092 $13,061 $4,453 $4,354
OTHER INCOME
Trust Department Income.................. 558 483 182 169
Service Charges and Fees................. 957 875 326 306
Security Gains........................... 23 0 26 0
Other Income............................. 975 639 594 224
------- ------- ------- ------
Total Other Income.................... 2,513 1,997 1,128 699
OTHER EXPENSES
Employee Compensations & Benefits........ $ 5,856 $ 5,491 $ 1,908 $1,949
Occupancy Expense
(Net of Rental Income)................ 656 593 222 184
Furniture and Equipment.................. 682 683 239 248
Other Operating Expenses................. 3,391 2,923 1,380 917
------- ------- ------- ------
Total Other Expenses.................. 10,585 9,690 3,749 3,298
INCOME BEFORE APPLICABLE
INCOME TAXES........................ $ 5,020 $ 5,368 $ 1,832 $1,755
Applicable Income Taxes.................... 1,676 1,830 656 562
------- ------- ------- ------
NET INCOME............................... $ 3,344 $ 3,538 $ 1,176 $1,193
======= ======= ======= ======
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................ $ 3,344 $ 3,538 $ 1,176 $1,193
EARNINGS PER SHARE DATA:
Primary.................................. $2.28 $2.42 $.80 $.81
Fully Diluted............................ 2.28 2.42 .80 .81
Cash Dividends Declared.................. .90 .84 .30 .28
</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, 1996
(unaudited)
<TABLE>
<CAPTION>
(in thousands
of dollars)
<S> <C>
Convertible Preferred stock (43,328 Shares authorized):
Balance at Beginning of Year..................................... $ 0
-------
Balance at End of Period......................................... $ 0
-------
Common Stock ($5.00 Par Value; 2,000,000 Shares authorized)
Balance at beginning of year....................................... $ 7,348
-------
Balance at end of period - 1,469,670 Shares Issued
and Outstanding at September 30, 1995............................ $ 7,348
-------
Additional Paid In Capital
Balance at Beginning of Year....................................... $10,261
-------
Balance at End of Period........................................... $10,261
-------
Undivided Profits
Balance at Beginning of Year....................................... $20,230
Net Income......................................................... 3,344
Cash Dividend Declared on Common Stock............................. (1,323)
-------
Balance at End of Period........................................... $22,251
-------
Unrealized Gain (Loss) on Securities Available for Sale,
Net of Applicable Deferred Income Taxes
Balance at Beginning of Year....................................... $ 364
Change in Unrealized Gain (Loss) on Securities Available for Sale.. (437)
-------
Balance at End of Period........................................... (73)
-------
Total Shareholders' Equity......................................... $39,787
=======
</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
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 3,344 $ 3,538
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 645 607
Provision for Loan Loss................................. 358 329
Investment Amortization - Net........................... 105 182
Other - Net............................................. 26
Realized Investment Securities (Gains) Losses........... (23) 1
(Gain) Loss on Sale of Capitalized Assets............... 2 (7)
(Gain) Loss on Sale of Other Real Estate Owned.......... (392) (15)
Income Tax Benefit...................................... (207) (215)
Provision for Deferred Taxes............................ (200) (34)
Purchase Adjustments.................................... 49
(Increase) Decrease:
Accrued Interest Receivable........................... 55 (298)
Other Assets.......................................... (485) (293)
Increase (Decrease):
Accrued Interest Payable.............................. (62) 357
Other Liabilities..................................... (379) (606)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ 2,810 $ 3,572
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Short Term Investments.......... $ (520) $ (3,095)
Net (Increase) Decrease in Interest bearing Time Deposits.. 99
Proceeds from Maturities of Securities Held to Maturity.... 6,383 6,691
Proceeds from Maturities of Securities Available for Sale.. 18,809 12,994
Proceeds from Sales of Securities Held to Maturity......... 1,000 1,101
Proceeds from Sales of Securities Available for Sale....... 674
Purchases of Securities Held to Maturity................... (2,932) (5,210)
Purchases of Securities Available for Sale................. (15,982) (17,499)
Net (Loans Originated) Principal Collected................. (27,769) (6,418)
Proceeds from Sale of Other Real Estate Owned.............. 1,432 322
Proceeds from Sale of Capitalized Assets................... 31 7
Capital Expenditures....................................... (1,041) (1,937)
--------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... $ (19,818) (13,044)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $ 16,769 $ 12,939
Net Increase (Decrease) in Short Term Borrowings........... 6,110 (3,731)
Proceeds from Sale of Treasury Stock....................... 317
Payment for Fractional Shares.............................. 0 (1)
Dividends Paid............................................. (1,323) (1,227)
--------- --------
FINANCING ACTIVITIES....................................... $ 21,556 $ 8,297
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... $ 4,548 $ (1,175)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 17,429 16,627
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 21,977 $ 15,452
========= ========
</TABLE>
During the first nine months of 1996 and 1995, the Corporation paid $9,744,000
and $8,668,000, respectively, in interest on deposits and other borrowings and
$2,170,000 and $1,956,000, 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-Q of
Regulation S-X. 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,
1996, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. 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, 1995.
NOTE 2: INVESTMENT SECURITIES
The book value and approximate market value of investment securities
as of September 30, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------
September 30, 1996
----------------------------------------------
(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 $11,347 $ 25 $157 $11,215
Collateralized Mortgage 3,380 16 6 3,390
Obligations
Other Treasury and Agency 32,964 201 167 32,998
Securities
Obligations of States and their 950 32 5 977
Subdivisions
Corporate Debt Securities 93 93
Equity Securities 1,834 3 70 1,767
----------------------------------------------
TOTAL $50,568 $277 $405 $50,440
==============================================
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 12 $ 12
Collateralized Mortgage 0 0
Obligations
Other Treasury and Agency 17,049 76 98 17,027
Securities
Obligations of States and their 11,207 292 14 11,485
Subdivisions
Corporate Debt Securities 48 48
----------------------------------------------
TOTAL $28,316 $368 $112 $28,572
==============================================
<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>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
September 30
----------------------
1996 1995
(thousands of dollars)
<S> <C> <C>
Real Estate Loans........................ $107,295 $ 93,359
Installment Loans........................ 65,238 60,986
Credit Card Loans........................ 3,805 4,089
Commercial Loans......................... 114,627 105,366
-------- --------
$290,965 $263,800
-------- --------
Unearned Income.......................... 205 633
-------- --------
TOTAL LOANS.............................. $290,760 $263,167
======== ========
</TABLE>
Changes in the allowance for loan losses were as follows for the nine
months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
(thousands of dollars)
<S> <C> <C>
Balance, Beginning of Year............... $ 3,516 $ 3,430
Provision Charged to Operation........... 358 329
Loans Charged Off........................ (338) (276)
Recoveries............................... 49 62
-------- --------
Balance, End of Period................... $ 3,586 $ 3,545
======== ========
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at September 30,
1996 and 1995 were $27,128,000 and $22,484,000 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
9-30-96 12-31-95
-------- ---------
<S> <C> <C>
Federal Funds Purchased
Balance at End of Period............ $ 5,300 $ 606
Average during Period............... 4,404 $ 914
Maximum Month-end Balance........... 6,325 $ 7,624
Average Rate during Period.......... 6.24% 5.91%
Rate at the end of Period........... 5.875% 5.23%
Securities Sold Under Agreement to
Repurchase
Balance at End of Period............ $ 2,944 $ 1,528
Average during Period............... 1,724 $ 1,793
Maximum Month-end Balance........... 2,944 $ 4,898
Average Rate during Period.......... 4.81% 5.04%
Rate at the end of Period........... 5.11% 5.20%
</TABLE>
NOTE 6: INCOME TAX EXPENSE
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Nine Months ended
September 30
1996 1995
-------------- -----------
Current: (In thousands of dollars)
<S> <C> <C>
State............................. $ 237 $ 235
Federal........................... 1,639 1,683
Deferred Income Taxes............. (200) (89)
------ ------
TOTAL PROVISION FOR INCOME TAXES.. $1,676 $1,829
====== ======
</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,
1996 1995
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (All from Subsidiaries)............... $ 3,862 $ 3,852
Investment Securities - Available for Sale, at Market Value... 449
Accounts Receivable........................................... 337 1,099
Notes Receivable.............................................. 249 255
Investment in Subsidiaries (Equity Basis)..................... 34,336 32,799
Premises and Equipment - Net.................................. 420 423
Other Assets.................................................. 461 794
------ -------
TOTAL ASSETS.................................................. $40,114 $39,222
======= =======
LIABILITIES
Other Liabilities............................................. 327 1,019
------- -------
TOTAL LIABILITIES............................................. $ 327 $ 1,019
------- -------
STOCKHOLDERS EQUITY
Common Stock (Par Value $5.00, Authorized: 2,000,000 Shares.
Outstanding: 1,469,670 Shares and 1,469,670 Shares
at September 30, 1996 and December 31, 1995, respectively)... $ 7,348 $ 7,348
Additional Paid in Capital.................................... 10,261 10,261
Undivided Profits............................................. 22,251 20,230
Net Unrealized Gain (Loss) on Securities Available for Sale... (73) 364
------- -------
TOTAL STOCKHOLDERS EQUITY..................................... $39,787 $38,203
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY..................... $40,114 $39,222
======= =======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
REVENUE
Dividend from Subsidiary Banks.............................. $1,942
Fees from Subsidiaries...................................... 895
Other Income................................................ 2
------
TOTAL REVENUE................................................. $2,839
------
EXPENSES
Employee Compensation and Benefits.......................... $ 979
Occupancy and Furniture Expense............................. 181
Other Expenses.............................................. $ 523
------
TOTAL EXPENSES................................................ $1,683
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries.................... $1,156
Income Tax Benefit............................................ (211)
------
Income before Equity in Undistributed
Net Income of Subsidiaries.................................. $1,367
Equity in Undistributed Net Income of Subsidiaries............ 1,977
------
NET INCOME.................................................... $3,344
======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,344
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 80
Net Amortization of Purchase Accounting Adjustments.. 48
Undistributed Net(Income) Loss on Subsidiaries....... (1,977)
Increase(Decrease) Accounts Receivable............... 762
Accrued Interest Receivable.......................... 5
Provision for Deferred Taxes......................... (4)
Other Assets......................................... 273
Other Liabilities.................................... (468)
Income Tax Benefit................................... (207)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $ 1,856
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Investments Available for Sale............. $ (446)
Capital Expenditures.................................... (77)
--------
NET CASH USED BY INVESTING ACTIVITIES..................... $ (523)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... $ (1,323)
--------
NET CASH USED BY FINANCING ACTIVITIES..................... $ (1,323)
--------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. $ 10
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 3,852
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 3,862
========
</TABLE>
During the first nine months of 1996, Commercial paid $2,170,000 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 1996, Commercial's largest source of
funds, its deposits, grew $16.8 million or 4.92% from December 31, 1995, to
$357.4 million. The increase was in demand and time deposits. The predominant
increase was in time deposits, which were up 9.17% ($15.0 million). Non-interest
bearing demand deposits were up $4.2 million (9.09%) and interest bearing demand
deposits grew $1.8 million (4.00%). Savings deposits decreased $4.2 million or
4.98%.
Commercial increased its use of short-term borrowing by $6.1 million
since the year end. Net purchases of funds were $3,930,000 at September 30,
1996, compared to net purchases of $454,000 at year end. Commercial's banks
regularly undertake borrowings to accommodate smaller correspondent banks and in
such cases those funds are ordinarily invested in federal funds sold. During the
first nine months of 1996 the increase in loans exceeded the growth in deposits.
Borrowings were used as an alternative to paying higher rates to attract
consumer deposits. During the remainder of the year, deposit growth is expected
to match the growth in loans and investments.
Cash and due from banks increased by $4.7 million or 27.89% from
December 31, 1995, to September 30, 1996. 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 significantly
during the first three quarters, growing $27.0 million (10.25%) during the
period. The volume in all lending areas, except credit cards, rose, with real
estate and commercial loans experiencing larger increases than installment
loans.
The securities being held to maturity decreased $5.7 million or 16.86%
from year end. Investments available for sale were reduced by 5.48%, or
$2,926,000. The funds provided by maturing securities were invested into the
loan portfolio. It is expected that securities available for sale will continue
to exceed the securities being held to maturity. This mix provides the company
with greater flexibility than would a predominance of securities being held to
maturity.
EARNINGS--NINE MONTHS
Consolidated net income for the first nine months of 1996 was 5.48%
less than the comparable period of 1995 ($3,344,000 in 1996, $3,538,000 in
1995). Fully diluted earnings per common share were $2.28 compared to $2.42 for
1995.
Total interest income increased 2.73% or $621,000 from $22.7 million
in 1995 to $23.4 million in 1996. Total interest expense increased 6.00% or
$561,000 from the 1995 level. This resulted in an increase of 0.45% or $60,000
in net interest income.
The provision for loan losses was 8.81% more in the first nine months
of 1996 than it was in 1995. The 1996 provision was $358 thousand compared to
net loan losses of $289 thousand. In 1995, the first nine months provision was
$329 thousand and there were net charge-offs of $214,000. At September 30, 1996,
the reserve for possible loan losses of $3,586,000 was equal to 1.23% of net
loans outstanding. This compares with $3,516,000 or 1.33% of net loans
outstanding at December 31, 1995.
Non interest income increased 25.84% from the first nine months of
1995 to the first nine months of 1996. Trust department fees were up $75,000, or
15.53%. Service charges and fees grew 9.37% (or $82,000) to $957,000. Other
income increased $336,000 or 52.58% from 1995 to 1996. Gain on the sale of other
real estate comprised most of the increase in other income. There was a gain
resulting from called securities which amounted to $23,000 in 1996, compared to
$0 in 1995.
Non-interest expense increased 9.24%, or $895,000 from 1995 to 1996.
The significant increases were in employee compensation and benefits (which grew
$365,000 or 6.65%) and other operating expenses (which increased $468,000 or
16.01%). Two new branches were opened by BancShares' subsidiaries in the last
six months of 1995, one during the last quarter. Additional employee costs
associated with those branches are included in 1996 expenses, but were not in
place during the first several months of 1995. Higher expenditures for
marketing, stationery and supplies and postage, as well as a sizable donation
caused the increase in other operating expenses.
Occupancy expense was up $63,000 compared to the same period in 1995,
and furniture and equipment expense decreased $1,000. The costs of the two new
branches were somewhat offset by a reduction in depreciation for equipment that
completed its useful life. Together, fixed assets expenses increased $62,000,
from a combined total of $1,276,000 in 1995 to $1,338,000 in 1996, a 4.86%
increase.
Net income before taxes was down $348,000 (6.48%) compared to the 1995
period, and the provision for Federal and state income taxes decreased $154,000
or 8.42%.
-11-
<PAGE>
EARNINGS--THIRD QUARTER
Consolidated net income for the third quarter of 1996 was down
slightly from the third quarter of 1995. Earnings were $1,176,000 in 1996, down
1.42% from the $1,193,000 earned in 1995. Fully diluted earnings per share were
$0.80 compared to $0.81 for the 1995 quarter.
Total interest income increased 3.12% to $7,969,000 from $7,728,000 in
1995. Total interest expense increased 4.35% to $3,405,000 from $3,263,000 in
1995. As a result, net interest income increased $99,000 or 2.22% from the third
quarter of 1995.
The provision for loan losses was the same as the third quarter of
1995. The 1996 provision was $111,000 compared to net losses of $78,000. The
1995 third quarter provision was $111,000 compared to net charge-offs of
$33,000.
Non interest income increased 61.37% from 1995 to 1996. Trust
department income experienced an increase of $13,000 (7.69%) from the third
quarter 1995. Services charges and fees were up $20,000 or 6.54% from the third
quarter of 1995, and other income rose $370,000 or 165.18%. The sale of other
real estate resulted in a sizable gain during the third quarter of 1996.
Securities gains of $26,000 occurred when one issue was called during the
quarter.
Non-interest expense was up 13.67% ($451,000) from the third quarter
of 1995. Employee compensation and benefits decreased by 2.10%, or $41,000.
Occupancy expense increased $38,000 (20.65%) while furniture and equipment
decreased $9,000 (3.63%). All other operating expenses increased $463,000
(50.49%). Charitable contributions, marketing, postage and stationery and
supplies contributed to the growth.
Net income before taxes was up $77,000 (4.39%) and the provision for
Federal and state income taxes increased $94,000 (16.73%) from 1995.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The principal amount of nonaccrual loans was $654,000 at September 30,
1996, a decrease of $167,000 (20.34%) from December 31, 1995. Loans past due 90
days or more and still accruing totaled $350,000 on September 30, 1996, down
$640,000 (64.64%) from year end totals. Restructured loans totaled $2,005,000 at
the end of the third quarter of 1996, compared to $1,399,000 at year end.
LIQUIDITY
BancShares primary source of liquidity has been the attraction and
retention of retail deposit accounts. The total deposit growth over the first
nine months of 1996 was 4.92%, or an increase of $16,769,000. Time deposits, a
prime component of core deposit relationships, grew $15.0 million, a 9.17%
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. Four of Commercial's subsidiary
banks, including the largest, 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 17.50% of the total securities
portfolio.
CAPITAL
During the first nine months of 1996, Commercial increased it
stockholders' equity by $1,584,000 (4.15%), bringing the balance at September
30, 1996, to $39.8 million or, 9.72% of total assets. The increase was from
internal capital growth. Undivided profits grew $2,021,000, but net unrealized
losses on securities available for sale reduced equity by $437,000.
In January 1989, banking industry regulators officially released risk-
adjusted capital guidelines for banks and bank holding companies. The guidelines
established final requirements that must be achieved by year-end 1992. As of
September 30, 1996, Commercial's Tier 1 ratio of 14.32% and combined Tier 1 and
Tier 2 ratio of 15.57% exceed the requirements of 4% and 8%, respectively.
Additionally, Commercial's ratios of primary capital to total adjusted assets of
9.68% and total capital to total adjusted assets of 10.52% exceed the final
requirements that 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 6. Exhibits and Reports on Form 8-K
On September 11, 1996, Form 8-K was filed with the Securities and
Exchange Commission. It announced the declaration of a dividend distribution of
one Right for each outstanding share of common stock of record at the close of
business on August 30, 1996.
The following exhibit is included herein: Exhibit 27--Financial Data
Schedule
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 13, 1996 ----------------------------------
------------------ William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Larry G. Johnson
Date: November 13, 1996 ----------------------------------
----------------- Larry G. Johnson
Secretary-Treasurer
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,412
<INT-BEARING-DEPOSITS> 585
<FED-FUNDS-SOLD> 2,180
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,440
<INVESTMENTS-CARRYING> 28,316
<INVESTMENTS-MARKET> 28,572
<LOANS> 290,760
<ALLOWANCE> 3,586
<TOTAL-ASSETS> 409,454
<DEPOSITS> 357,353
<SHORT-TERM> 8,244
<LIABILITIES-OTHER> 4,070
<LONG-TERM> 0
0
0
<COMMON> 7,348
<OTHER-SE> 32,439
<TOTAL-LIABILITIES-AND-EQUITY> 409,454
<INTEREST-LOAN> 19,182
<INTEREST-INVEST> 3,934
<INTEREST-OTHER> 252
<INTEREST-TOTAL> 23,368
<INTEREST-DEPOSIT> 9,712
<INTEREST-EXPENSE> 9,918
<INTEREST-INCOME-NET> 13,450
<LOAN-LOSSES> 358
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 10,585
<INCOME-PRETAX> 5,020
<INCOME-PRE-EXTRAORDINARY> 3,344
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,344
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
<YIELD-ACTUAL> 4.83
<LOANS-NON> 654
<LOANS-PAST> 350
<LOANS-TROUBLED> 2,005
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,516
<CHARGE-OFFS> 338
<RECOVERIES> 49
<ALLOWANCE-CLOSE> 3,586
<ALLOWANCE-DOMESTIC> 3,586
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
