<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 June 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 August 9, 1996
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
("Commercial")
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page No.
<S> <C>
Condensed Consolidated Balance Sheet as of June 30, 1996
and December 31, 1995..................................... 3
Condensed Consolidated Statement of Income for
Six Months and Three Months ended June 30, 1996 and 1995.. 4
Condensed Statement of Changes in Stockholders
Equity for Six months ended June 30, 1996................. 5
Consolidated Statement of Cash Flows for the Six
Months ended June 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>
June 30, Dec. 31,
1996 1995
----------- ---------
(unaudited) *
<S> <C> <C>
Cash and Due from Banks............................ $ 15,960 $ 16,743
Interest-Bearing Demand Deposits with Other Banks.. 613 686
Interest-Bearing Deposits in Banks................. 200 99
Federal Funds Sold................................. 4,820 1,680
Investment Securities:
Held to Maturity, at Amortized Costs............. 31,463 34,058
(Market Value: $31,626 and $34,675)
Available for Sale, at Market Value.............. 51,974 53,366
Loans - net of unearned discount................... 281,838 263,731
LESS: Reserve for Losses.......................... (3,528) (3,516)
Premises and Equipment............................. 8,850 8,585
Notes Receivable................................... 255 255
Accrued Interest Receivable........................ 2,769 2,760
Foreclosed Properties - Net........................ 1,791 1,652
Other Assets....................................... 5,832 5,557
-------- --------
TOTAL ASSETS..................................... $402,837 $385,656
======== ========
</TABLE>
LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
Deposits:
<S> <C> <C>
Demand - Non-Interest Bearing................................ $ 45,589 $ 46,629
Demand - Interest Bearing.................................... 43,534 44,577
Savings...................................................... 83,629 85,673
Time Deposits................................................ 178,888 163,705
-------- --------
TOTAL DEPOSITS................................................. $351,640 $340,584
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.......................... 8,768 2,134
Accrued Interest Payable....................................... 1,188 1,217
Other Liabilities.............................................. 2,312 3,518
-------- --------
TOTAL LIABILITIES.............................................. $363,908 $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............................................ 21,516 20,230
Net Unrealized Gain (Loss) on Available-for-Sale Securities.. (196) 364
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... $ 38,929 $ 38,203
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $402,837 $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)
Six Months Ended Three Months Ended
June 30 June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans.................. $12,590 $12,137 $6,366 $6,112
Interest and Dividends on Securities........ 2,647 2,569 1,333 1,326
Interest on Federal Funds Sold.............. 137 278 59 187
Interest on Notes Receivable................ 0 12 0 12
Interest on Time Deposits with Other Banks.. 25 23 14 17
------- ------- ------ ------
TOTAL INTEREST INCOME....................... $15,399 $15,019 7,772 $7,654
------- ------- ------ ------
INTEREST EXPENSE
Interest on Deposits........................ $ 6,417 $ 5,859 $3,183 $3,050
Interest on Federal Funds Purchased and
Securities Sold Under Agreement to
Repurchase............................... 96 235 72 102
------- ------- ------ ------
TOTAL INTEREST EXPENSE...................... $ 6,513 $ 6,094 $3,255 $3,152
------- ------- ------ ------
NET INTEREST INCOME......................... $ 8,886 $ 8,925 $4,517 $4,502
Provision for Loan Losses..................... 247 218 117 110
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES................... $ 8,639 $8,707 $4,400 $4,392
OTHER INCOME
Trust Department Income..................... 376 314 190 174
Service Charges and Fees.................... 631 569 339 211
Security Gains.............................. (3) 0 (6) 0
Other Income................................ 381 415 224 350
------- ------- ------ ------
Total Other Income....................... 1,385 1,298 747 735
OTHER EXPENSES
Employee Compensations & Benefits........... $ 3,948 $ 3,542 $1,958 $1,739
Occupancy Expense
(Net of Rental Income)................... 434 409 207 199
Furniture and Equipment..................... 443 435 246 245
Other Operating Expenses.................... 2,011 2,006 984 1,042
------- ------- ------ ------
Total Other Expenses..................... 6,836 6,392 3,395 3,225
INCOME BEFORE APPLICABLE
INCOME TAXES........................... $ 3,188 $ 3,613 $1,752 $1,902
Applicable Income Taxes....................... 1,020 1,268 592 673
------- ------- ------ ------
NET INCOME.................................. $ 2,168 $ 2,345 $1,160 $1,229
======= ======= ====== ======
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................... $ 2,168 $ 2,345 $1,160 $1,229
EARNINGS PER SHARE DATA:
Primary..................................... $1.48 $1.61 $.79 $.84
Fully Diluted............................... 1.48 1.61 .79 .84
Cash Dividends Declared..................... .60 .56 .30 .28
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the six months ended June 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 June 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......................................................... 2,168
Cash Dividend Declared on Common Stock............................. (882)
-------
Balance at End of Period........................................... $21,516
-------
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.. (560)
-------
Balance at End of Period........................................... $ (196)
-------
Total Shareholders' Equity $38,929
=======
</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)
Six Months Ended
June 30
1995 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 2,168 $ 2,345
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 427 387
Provision for Loan Loss................................. 247 218
Investment Amortization - Net........................... 87 125
Other - Net............................................. (16)
Realized Investment Securities (Gains) Losses........... 3
(Gain) Loss on Sale of Capitalized Assets............... (7)
Income Tax Benefit...................................... (165) 83
Provision for Deferred Taxes............................ (106) 41
Purchase Adjustments.................................... 32 43
(Increase) Decrease:
Accrued Interest Receivable........................... (9) (125)
Other Assets.......................................... (552) 556
Increase (Decrease):
Accrued Interest Payable.............................. (29) 276
Other Liabilities..................................... (1,040) (331)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ 1,063 $ 3,595
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold.............. ($3,140) ($13,597)
Net (Increase) Decrease in Interest bearing Time Deposits.. (101) 200
Proceeds from Maturities of Securities Held to Maturity.... 4,471 12,743
Proceeds from Maturities of Securities Available for Sale.. 10,823
Proceeds from Sales of Securities Held to Maturity......... 999
Proceeds from Sales of Securities Available for Sale....... 674
Purchases of Securities Held to Maturity................... (2,932) (11,721)
Purchases of Securities Available for Sale................. (11,050) (1,201)
Net (Loans Originated) Principal Collected................. (18,194) (3,053)
Proceeds from Sale of Other Real Estate Owned.............. 415 188
Proceeds from Sale of Capitalized Assets................... 3 7
Capital Expenditures....................................... (695) (1,080)
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... ($18,727) (17,874)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $ 11,055 $ 12,991
Net Increase (Decrease) in Federal Funds Purchased......... 6,635 (253)
Proceeds from Sale of Treasury Stock....................... 317
Payment for Fractional Shares.............................. 0 (1)
Dividends Paid............................................. (882) (816)
--------- ---------
FINANCING ACTIVITIES....................................... $ 16,808 $ 12,238
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... ($856) ($2,041)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 17,429 16,627
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 16,573 $ 14,586
========= =========
</TABLE>
During the first six months of 1996 and 1995, the Corporation paid $6,513,000
and $5,818,000, respectively, in interest on deposits and other borrowings and
$1,493,000 and $1,121,000, 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-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 six month period ended June 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
June 30, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------
June 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 $10,887 $ 14 $230 $10,671
Collateralized Mortgage 3,797 9 15 3,791
Obligations
Other Treasury and Agency 35,331 233 267 35,297
Securities
Obligations of States and their 860 13 9 864
Subdivisions
Corporate Debt Securities 102 102
Equity Securities 1,324 75 1,249
----------------------------------------------
TOTAL $52,301 $269 $596 $51,974
==============================================
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 12 1 $ 13
Collateralized Mortgage 0 0
Obligations
Other Treasury and Agency 19,201 61 141 19,121
Securities
Obligations of States and their 12,202 274 31 12,445
Subdivisions
Corporate Debt Securities 48 2 3 47
----------------------------------------------
TOTAL $31,463 $338 $175 $31,626
==============================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
June 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 $ 5,125 $ 17 $ 77 $ 5,065
Collateralized Mortgage 3,784 17 1 3,800
Obligations
Other Treasury and Agency 36,138 520 296 36,362
Securities
Obligations of States and their 0 0
Subdivisions
Corporate Debt Securities 132 132
Equity Securities 1,330 56 1,274
----------------------------------------------
TOTAL $46,509 $554 $430 $46,633
==============================================
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 206 $ 206
Collateralized Mortgage 0 0
Obligations
Other Treasury and Agency 24,773 181 146 24,808
Securities
Obligations of States and their 13,389 292 45 13,636
Subdivisions
Corporate Debt Securities 246 7 2 251
----------------------------------------------
TOTAL $38,614 $480 $193 $38,901
==============================================
</TABLE>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
June 30
-------------------------------
1996 1995
(thousands of dollars)
<S> <C> <C>
Real Estate Loans....................... $103,690 $ 90,581
Installment Loans....................... 64,356 60,751
Credit Card Loans....................... 4,240 3,894
Commercial Loans........................ 109,837 103,057
-------- ----------
$282,123 $258,283
-------- ----------
Unearned Income......................... 285 71
-------- ----------
TOTAL LOANS............................. $281,838 $258,212
======== ==========
</TABLE>
Changes in the allowance for loan losses were as follows for the six months
ended June 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.......... 247 218
Loans Charged Off....................... (260) (230)
Recoveries.............................. 25 49
-------- ----------
Balance, End of Period.................. $ 3,528 $ 3,467
======== ==========
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at June 30, 1996 and
1995 were $28,021,000 and $21,415,000 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>
Six Months Year
Ended Ended
6-30-96 12-31-95
-------- ---------
<S> <C> <C>
Federal Funds Purchased
Balance at End of Period............. $ 6,900 $ 606
Average during Period................ 3,309 $ 914
Maximum Month-end Balance............ 6,900 $ 7,624
Average Rate during Period........... 5.83% 5.91%
Rate at the end of Period............ 5.38% 5.23%
Securities Sold Under Agreement to
Repurchase
Balance at End of Period............. $ 1,868 $ 1,528
Average during Period................ 1,649 $ 1,793
Maximum Month-end Balance............ 2,988 $ 4,898
Average Rate during Period........... 5.14% 5.04%
Rate at the end of Period............ 5.20% 5.20%
</TABLE>
NOTE 6: INCOME TAX EXPENSE
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Six Months ended
June 30
1996 1995
-------------- -----------
Current: (In thousands of dollars)
<S> <C> <C>
State............................. $ 100 $ 184
Federal........................... 1,030 1,124
Deferred Income Taxes............. (110) (40)
------ ------
TOTAL PROVISION FOR INCOME TAXES.. $1,020 $1,268
====== ======
</TABLE>
-8-
<PAGE>
NOTE 7: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (All from Subsidiaries)............... $ 3,173 $ 3,852
Accounts Receivable........................................... 251 1,099
Notes Receivable.............................................. 255 255
Investment in Subsidiaries (Equity Basis)..................... 34,687 32,799
Premises and Equipment - Net.................................. 400 423
Other Assets.................................................. 407 794
------- -------
TOTAL ASSETS.................................................. $39,173 $39,222
======= =======
LIABILITIES
Other Liabilities............................................. 244 1,019
------- -------
TOTAL LIABILITIES............................................. $ 244 $ 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 June 30, 1996 and December 31,1995, respectively)........ $ 7,348 $ 7,348
Additional Paid in Capital.................................... 10,261 10,261
Undivided Profits............................................. 21,516 20,230
Net Unrealized Gain (Loss) on Securities Available for Sale... (196) 364
------- -------
TOTAL STOCKHOLDERS EQUITY..................................... $38,929 $38,203
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY..................... $39,173 $39,222
======= =======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1996
(In thousands)
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Dividend from Subsidiary Banks.................... $ 0
Fees from Subsidiaries............................ 588
------
TOTAL REVENUE....................................... $ 588
------
EXPENSES
Employee Compensation and Benefits................ $ 687
Occupancy and Furniture Expense................... 121
Other Expenses.................................... $ 226
------
TOTAL EXPENSES...................................... $1,034
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries.......... ($446)
Income Tax Benefit.................................. (165)
------
Income before Equity in Undistributed
Net Income of Subsidiaries........................ $(281)
Equity in Undistributed Net Income of Subsidiaries.. 2,449
------
NET INCOME.......................................... $2,168
======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDING JUNE 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Income................................................ $2,168
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 53
Net Amortization of Purchase Accounting Adjustments.. 32
Undistributed Net(Income) Loss on Subsidiaries....... (2,449)
Increase(Decrease) Accounts Receivable............... 848
Accrued Interest Receivable.......................... 2
Other Assets......................................... 353
Other Liabilities.................................... (610)
Income Tax Benefit................................... (165)
------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $ 232
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.................................... ($29)
------
NET CASH USED BY INVESTING ACTIVITIES..................... ($29)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... ($882)
------
NET CASH USED BY FINANCING ACTIVITIES..................... ($882)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. ($679)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 3,852
------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $3,173
======
</TABLE>
During the first six months of 1996, Commercial paid $1,493,000 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 six months of 1996, Commercial's largest source of funds, its
deposits, grew $11.1 million or 3.25% from December 31, 1995, to $351.6 million.
The increase was in time deposits, which were up 9.27% ($15.2 million). Other
categories of deposits declined. Non interest-bearing demand deposits were down
$1.0 million (2.23%) and interest bearing demand deposits decreased $1.0 million
(2.34%). Savings deposits decreased $2.0 million or 2.39%. The predominant
interest for consumers during the first half of 1996 was in time certificates of
deposit.
Commercial increased its use of short-term borrowing by $3.5 million since the
year end. Net purchases of funds were $3,948,000 at June 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 half 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 exceed growth in
loans and investments.
Cash and due from banks decreased by $0.8 million or 4.68% from December 31,
1995, to June 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 half, growing $18.1 million (6.87%) during the period. The volume in all
lending areas rose, with consumer and commercial loans experiencing larger
increases than real estate or credit card loans.
The securities being held to maturity decreased $3.6 million or 10.56% from
year end. Investments available for sale were reduced by 0.73%, or $392,000.
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--SIX MONTHS
Consolidated net income for the first half of 1996 was 7.55% less than the
first half of 1995 ($2,168,000 in 1996, $2,345,000 in 1995). Fully diluted
earnings per common share were $1.48 compared to $1.61 for 1996.
Total interest income increased 2.53% or $380,000 from $15.0 million in 1995
to $15.4 million in 1996. Total interest expense increased 6.88% or $419,000
from the 1995 level. This resulted in a decrease of 0.44% or $39,000 in net
interest income.
The provision for loan losses was 13.30% more in the first half of 1996 than
it was in 1995. The 1996 provision was $247 thousand compared to net loan
losses of $235 thousand. In 1995, the first half provision was $218 thousand
and there were net charge-offs of $181,000. At June 30, 1996, the reserve for
possible loan losses of $3,528,000 was equal to 1.25% 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 6.70% from the first half of 1995 to the first
half of 1996. Trust department fees were up $62,000, or 19.75%. Service
charges and fees grew 10.90% (or $62,000) to $631,000. Other income decreased
$34,000 or 8.19% from 1995 to 1996. There was a loss on sale of securities of
$3,000 in 1996, compared to $0 in 1995.
Non-interest expense increased 6.95%, or $444,000 from 1995 to 1996. The
major cause of the increase is attributed to employee compensation and benefits,
which grew $406,000 or 11.46%. The major part of the increase in employee
expense is related to accruals for the company's incentive bonus program. To
avoid higher accruals near year-end, the subsidiaries took more of the expense
earlier in the year. These increased provisions account for approximately 50%
of the increased employee costs. Additionally, two new branches were opened by
BancShares' subsidiaries in the last half of 1995. Additional employee costs
associated with those branches are included in 1996 expenses, but were not in
place during the first half of 1995.
Occupancy expense was up $25,000 compared to the same period in 1995, and
furniture and equipment expense grew $8,000. The costs of the two new branches
increased these costs. Together, fixed assets expenses increased $23,000, from
a combined total of $844,000 in 1995 to $877,000 in 1996.
Other operating expense increased $5,000 (0.25%) from the first half of 1995.
There were no significant variances in the items included in this category,
which amounted to $2,011,000 in 1996, up from $2,006,000 in 1995.
Net income before taxes was down $425,000 (11.76%) for the 1995 period, and
the provision for Federal and state income taxes decreased $248,000 or 19.56%.
-11-
<PAGE>
EARNINGS--SECOND QUARTER
Consolidated net income for the second quarter of 1996 was down from the
second quarter of 1995. Earnings were $1,160,000 in 1995, down 5.61% from the
$1,229,000 earned in 1995. Fully diluted earnings per share were $0.79
compared to $0.84 for the 1995 quarter.
Total interest income increased 1.54% to $7,772,000 from $7,654,000 in 1995.
Total interest expense increased 4.36% to $3,255,000 from $3,152,000 in 1995.
As a result, net interest income increased only $15,000 or 0.33% from the second
quarter of 1995.
The provision for loan losses was 6.366% higher during the second quarter of
1996 than it was during the second quarter of 1995. The 1996 provision was
$117,000 compared to net losses of $199,000. The 1995 second quarter provision
was $110,000 compared to net charge-offs of $181,000.
Non interest income increased 1.63% from 1995 to 1996. Trust department
income experienced an increase of $16,000 (9.20%) from the second quarter 1995.
Services charges and fees were up $128,000 or 60.66% from the second quarter of
1995, and other income decreased $126,000 or 36.00%. The 1995 quarter included
gains on the sale of loans, but there were no sales in 1996.
Non-interest expense was up 5.27% ($170,000) from the second quarter of 1995.
Employee compensation and benefits increased by 12.59%, or $219,000, due to
increased incentive bonus accruals and additional personnel for new branch
operations. Occupancy expense increased $8,000 (4.02%) while furniture and
equipment increased $1,000 (0.41%). All other operating expenses decreased
$58,000 (5.57%).
Net income before taxes was down $150,000 (7.89%) and the provision for
Federal and state income taxes decreased $81,000 (12.04%) from 1995.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The principal amount of nonaccrual loans was $678,000 at June 30, 1996, a
decrease of $143,000 (17.42%) from December 31, 1995. Loans past due 90 days or
more and still accruing totaled $268,000 on June 30, 1996, down $722,000
(72.93%) from year end totals. Restructured loans totaled $2,044,000 at the end
of the second 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 six months
of 1996 was 3.25%, or an increase of $11,056,000. Time deposits, a prime
component of core deposit relationships, grew $15.2 million, a 9.27% 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 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 19.44% of the total securities portfolio.
CAPITAL
During the first six months of 1996, Commercial increased it stockholders'
equity by $726,000 (1.90%), bringing the balance at June 30, 1996, to $38.9
million or, 9.66% of total assets. The increase was from internal capital
growth. Undivided profits grew $1,286,000, but net unrealized losses on
securities available for sale reduced equity by $560,000.
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 June 30, 1996, Commercial's Tier 1 ratio of 13.86% and combined
Tier 1 and Tier 2 ratio of 15.11% exceed the requirements of 4% and 8%,
respectively. Additionally, Commercial's ratios of primary capital to total
adjusted assets of 9.33% and total capital to total adjusted assets of 10.17%
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 5. Other Information
On June 27, 1996, the common stock of Commercial BancShares, Incorporated,
opened for trading on the American Stock Exchange. The first trade was 100
shares at $37 per share. The stock trades under the symbol, "CWV."
Item 6. Exhibits and Reports on Form 8-K
Commercial did not file any reports on Form 8-K during the three months
ended June 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: August 12, 1996
---------------- ----------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Larry G. Johnson
Date: August 12, 1996
---------------- ----------------------------
Larry G. Johnson
Secretary-Treasurer
-13-
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<PERIOD-START> JAN-01-1996
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