<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 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 May 10, 1996
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995.....................................3
Condensed Consolidated Statements of Income for
Three Months ended March 31, 1996 and 1995................4
Condensed Statements of Changes in Stockholders
Equity for Three months ended March 31, 1996..............5
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1996 and 1995...................6
Notes to Condensed Consolidated Financial Statements.............7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................10-11
Part II Other Information
Item 1. Legal Proceedings...............................................13
Item 4. Submission of Matters to a Vote of Security Holders.............13
Item 6. Exhibits and Reports on Form 8-K................................13
Signatures................................................................13
-2-
<PAGE>
PART I FINANCIAL INFORMATION
COMMERCIAL BANCSHARES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, Dec. 31,
1996 1995
---- ----
(unaudited) *
<S> <C> <C>
Cash and Due from Banks......................................... $ 15,300 $ 16,743
Interest-Bearing Demand Deposits with Other Banks............... 742 686
Interest-Bearing Deposits in Banks.............................. 199 99
Federal Funds Sold.............................................. 750 1,680
Investment Securities:
Held to Maturity, at Amortized Costs.......................... 31,573 34,058
(Market Value: $31,943 and $34,675)
Available for Sale, at Market Value........................... 57,020 53,366
Loans - net of unearned discount................................ 267,499 263,731
LESS: Reserve for Losses....................................... ( 3,611) ( 3,516)
Premises and Equipment.......................................... 8,935 8,585
Notes Receivable................................................ 255 255
Accrued Interest Receivable..................................... 2,803 2,760
Foreclosed Properties - Net..................................... 2,082 1,652
Other Assets.................................................... 5,994 5,557
--------------------
TOTAL ASSETS.................................................. $ 389,541 $ 385,656
====================
LIABILITIES AND CAPITAL
Deposits:
Demand - Non-Interest Bearing................................. $ 45,202 $ 46,629
Demand - Interest Bearing..................................... 42,099 44,577
Savings....................................................... 86,275 85,673
Time Deposits................................................. 172,354 163,705
--------------------
TOTAL DEPOSITS.................................................. $ 345,930 $ 340,584
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........................... 1,213 2,134
Accrued Interest Payable........................................ 1,188 1,217
Other Liabilities............................................... 2,699 3,518
--------------------
TOTAL LIABILITIES............................................... $ 351,030 $ 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............................................. 20,797 20,230
Net Unrealized Gain (Loss) on Available-for-Sale Securities... 105 364
--------------------
TOTAL SHAREHOLDERS' EQUITY.................................... $ 38,511 $ 38,203
--------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................... $ 389,541 $ 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)
Three Months Ended
March 31
1996 1995
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............................... $6,224 $6,025
Interest and Dividends on Securities..................... 1,314 1,243
Interest on Federal Funds Sold..................... 78 91
Interest on Notes Receivable............................. 0 0
Interest on Time Deposits with Other Banks............... 11 6
-----------------
TOTAL INTEREST INCOME................................. $7,627 $7,365
-----------------
INTEREST EXPENSE
Interest on Deposits..................................... 3,234 2,809
Interest on Federal Funds Purchased and Securities Sold
Under Agreement to Repurchase......................... 24 133
-----------------
TOTAL INTEREST EXPENSE.............................. $3,258 $2,942
-----------------
NET INTEREST INCOME...................................... $4,369 $4,423
Provision for Loan Losses.................................. 130 108
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.......................................... $4,239 $4,315
OTHER INCOME
Trust Department Income.................................. 186 140
Service Charges and Fees................................. 292 358
Security Gains........................................... 3 0
Other Income............................................. 157 65
-----------------
Total Other Income.................................... 638 563
OTHER EXPENSES
Employee Compensations & Benefits........................ $1,989 $1,801
Occupancy Expense (Net of Rental Income)................. 226 210
Furniture and Equipment.................................. 197 190
Other Operating Expenses............................ 1,027 964
-----------------
Total Other Expenses.................................. 3,440 3,165
INCOME BEFORE APPLICABLE INCOME TAXES................. $1,436 1,711
Applicable Income Taxes.................................... 428 595
-----------------
NET INCOME............................................... $1,008 $1,116
=================
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................................ $1,008 $1,116
EARNINGS PER SHARE DATA:
Primary.................................................. $ .69 $ .77
Fully Diluted............................................ .69 .77
Cash Dividends Declared.................................. .30 .28
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
for the three months ended March 31, 1995
(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 March 31, 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......................................................... 1,008
Cash Dividend Declared on Common Stock............................. ( 441)
--------
Balance at End of Period........................................... $ 20,797
--------
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.. ( 259)
--------
Balance at End of Period........................................... $ 105
--------
Total Shareholders' Equity......................................... $ 38,511
========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands of dollars)
Three Months Ended
March 31
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 1,008 $ 1,116
-------------------
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 207 187
Provision for Loan Loss................................. 130 107
Investment Amortization - Net........................... 47 101
Purchase Adjustments.................................... 16 15
Other - Net............................................. ( 66) ( 4)
Realized Investment Securities (Gains) Losses........... ( 3)
Income Tax Benefit...................................... ( 60) ( 60
Provision for Deferred Taxes............................ ( 115) 21
(Increase) Decrease:
Accrued Interest Receivable........................... ( 44) ( 138)
Other Assets.......................................... ( 998) 195
Increase (Decrease):
Accrued Interest Payable.............................. ( 28) ( 102)
Other Liabilities..................................... ( 753) 574
-------------------
Total Adjustments....................................... ( 1,607) 896
-------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... $( 599) $ 2,012
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold.............. $ 930 $(13,065)
Net (Increase) Decrease in Interest Bearing Deposits....... ( 100)
Proceeds from Sale of Other Real Estate.................... 147
Proceeds form Sale of Capital Assets....................... 3
Proceeds from Sales of Securities Held to Maturity.........
Proceeds from Sales of Securities Available for Sale....... 176
Proceeds from Maturities of Securities Held to Maturity.... 3,303 4,809
Proceeds from Maturities of Securities Available for Sale.. 3,311 903
Purchases of Securities Held to Maturity................... ( 740) ( 1,895)
Purchases of Securities Available for Sale................. ( 7,708) ( 1,244)
Net (Loans Originated) Principal Collected................. ( 3,533) 1,684
Capital Expenditures....................................... ( 560) ( 532)
-------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... $( 4,771) ( 9,340)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $ 5,346 $ 9,615
Net Increase (Decrease) in Federal Funds Purchased......... ( 921) ( 4,359)
Principal Payments on ESOP Borrowing.......................
Proceeds from Sale of Treasury Stock....................... 17
Principal Payments on Capital Lease........................
Dividends Paid............................................. ( 441) ( 408)
-------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES..................... $ 3,984 $ 4,865
-------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... $( 1,387) $( 2,463)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 17,429 16,627
-------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 16,042 $ 14,164
===================
</TABLE>
During the first quarters of 1996 and 1995, the Corporation paid $2,450,000 and
$2,616,000, respectively, in interest on deposits and other borrowings and
$378,000 and $60,000, 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
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 of 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 three month period ended March 31,
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 March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------
March 31, 1996
----------------------------------------------
(Thousands of Dollars)
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 13 $ 13
Other Treasury and Agency 19,257 $152 $ 61 19,348
Securities
Obligations of States and their 12,179 299 20 12,458
Subdivisions
Other Debt Securities 124 2 2 124
----------------------------------------------
TOTAL $31,573 $453 $ 83 $31,943
==============================================
Available for Sale
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $14,665 $ 76 $109 $14,632
Other Treasury and Agency 40,020 408 159 40,269
Securities
Obligations of States and their 760 10 6 764
Subdivisions
Other Debt Securities 109 8 117
Equity Securities 1,303 65 1,238
----------------------------------------------
TOTAL $56,857 $502 $339 $57,020
==============================================
<CAPTION>
----------------------------------------------
March 31, 1995
----------------------------------------------
(Thousands of Dollars)
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 213 $ 213
Other Treasury and Agency 25,095 $ 63 $326 24,832
Securities
Obligations of States and their 13,203 178 133 13,248
Subdivisions
Other Debt Securities 467 17 2 482
----------------------------------------------
TOTAL $38,978 $258 $461 $38,775
==============================================
Available for Sale
U.S. Treasury and Government Agency
Securities:
Mortgage Backed Securities $ 5,506 $ 10 $150 $ 5,366
Other Treasury and Agency 36,250 230 508 35,972
Securities
Obligations of States and their 0 0
Subdivisions
Other Debt Securities 246 1 247
Equity Securities 1,545 72 1,473
----------------------------------------------
TOTAL $43,547 $241 $730 $43,058
==============================================
</TABLE>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
March 31
---------------------
1996 1995
(thousands of dollars)
<S> <C> <C>
Real Estate Loans....................... $ 95,169 $ 88,303
Installment Loans....................... 62,416 60,297
Credit Card Loans....................... 3,763 4,070
Commercial Loans........................ 106,606 102,735
---------------------
$267,954 $255,405
---------------------
Unearned Income......................... 455 841
---------------------
TOTAL LOANS............................. $267,499 $254,564
=====================
</TABLE>
Changes in the allowance for loan losses were as follows for the three
months ended March 31, 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.......... 131 108
Loans Charged Off....................... ( 48) ( 103)
Recoveries.............................. 12 24
---------------------
Balance, End of Period.................. $ 3,611 $ 3,459
=====================
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at March 31, 1996
and 1995 were $26,965,000 and $20,946,000 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>
Three Months Year
Ended Ended
3-31-96 12-31-95
-------- ---------
<S> <C> <C>
Federal Funds Purchased
Balance at End of Period $ 105 $ 606
Average during Period 745 $ 914
Maximum Month-end Balance 2,600 $ 7,624
Average Rate during Period 5.93% 5.91%
Rate at the end of Period 5.00% 5.23%
Securities Sold Under Agreement to
Repurchase
Balance at End of Period $ 1,107 $ 1,528
Average during Period 1,245 $ 1,793
Maximum Month-end Balance 1,468 $ 4,898
Average Rate during Period 5.20% 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>
Three Months ended
March 31
1995 1995
---- -----
Current: (In thousands of dollars)
<S> <C> <C>
State............................. $ 53 $ 141
Federal........................... 490 494
Deferred Income Taxes............. (115) ( 40)
----- -----
TOTAL PROVISION FOR INCOME TAXES.. $ 428 $ 595
===== =====
</TABLE>
-8-
<PAGE>
NOTE 8: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (All from Subsidiaries)............... $ 2,855 $ 3,852
Accounts Receivable........................................... 1,133 1,099
Notes Receivable.............................................. 255 255
Investment in Subsidiaries (Equity Basis)..................... 33,701 32,799
Premises and Equipment - Net.................................. 409 423
Other Assets.................................................. 797 794
------- -------
TOTAL ASSETS.................................................. $39,150 $39,222
======= =======
LIABILITIES
Other Liabilities............................................. 639 1,019
------- -------
TOTAL LIABILITIES............................................. $ 639 $ 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 March 31, 1996 and December 31,1995, respectively)....... $ 7,348 $ 7,348
Additional Paid in Capital.................................... 10,261 10,261
Undivided Profits............................................. 20,797 20,230
Net Unrealized Gain (Loss) on Securities Available for Sale... 105 364
------- -------
TOTAL STOCKHOLDERS EQUITY..................................... $38,511 $38,203
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY..................... $39,150 $39,222
======= =======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 1996
(In thousands)
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Dividend from Subsidiary Banks.................... $ 0
Fees from Subsidiaries............................ 280
------
TOTAL REVENUE....................................... $ 280
------
EXPENSES
Employee Compensation and Benefits................ $ 329
Occupancy and Furniture Expense................... 43
Other Expenses.................................... $ 127
------
TOTAL EXPENSES...................................... $ 499
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries.......... $( 219)
Income Tax Benefit.................................. ( 66)
------
Income before Equity in Undistributed
Net Income of Subsidiaries........................ $( 153)
Equity in Undistributed Net Income of Subsidiaries.. 1,161
------
NET INCOME.......................................... $1,008
======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Income................................................ $ 1,008
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 26
Net Amortization of Purchase Accounting Adjustments.. 16
Undistributed Net(Income) Loss on Subsidiaries....... (1,160)
Increase(Decrease) Accounts Receivable............... ( 14)
Accrued Interest Receivable.......................... 1
Other Assets......................................... ( 40)
Other Liabilities.................................... ( 314)
Income Tax Benefit................................... $( 66)
-------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $( 543)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.................................... $( 13)
-------
NET CASH USED BY INVESTING ACTIVITIES..................... $( 13)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... $( 441)
-------
NET CASH USED BY FINANCING ACTIVITIES..................... $( 441)
-------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. $( 997)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 3,852
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 2,855
=======
</TABLE>
During the first three months of 1996, Commercial paid $378,000 in income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SOURCES AND USES OF FUNDS
During the first three months of 1996, Commercial's largest source of funds,
its deposits, grew $5.3 million, or 1.57%, to $345.9 million. The increase was
in time deposits, which were up 5.28% ($8.6 million), and savings deposits,
which were up 0.70% ($0.6 million). Non-interest bearing demand deposits were
down $1.4 million, or 3.06%, and interest bearing demand deposits decreased
5.56% ($2.5 million).
Both sales and purchases of Federal funds decreased from year end. Funds
sold were reduced by $0.9 million, as were purchased funds. At March 31, 1996,
there were net purchases of funds amounting to $0.5 million, approximately the
same level as were being purchased at December 31, 1995. Commercial's banks
undertake borrowings either to accommodate smaller correspondent banks, in which
case those funds are ordinarily invested in federal funds sold, or to provide
liquidity over a short period of time. Funds sold represent temporary liquid
investments which may be used to meet loan or deposit demands, as well as funds
that are awaiting investment in longer-term instruments.
Cash and due from banks decreased by $1.4 million or 8.6% from December 31,
1995, to March 31, 1996. Changes in this category are not unusual, as the
balance fluctuates with inflows and outflows of deposits.
Total loans increased by $3.8 million or 1.43% during the first quarter of
the year. Loan demand lagged during the first part of the quarter, despite
lower interest rates, but improved in March.
The securities portfolio grew $1.2 million from the year end. Securities
available for sale were increased $3.7 million, or 6.85%, while securities being
held to maturity declined $2.5 million (7.30%). It is expected that most
securities purchased will continue to be considered available for sale. This
will provide the company with a greater degree of flexibility in managing its
balance sheet.
-10-
<PAGE>
EARNINGS - THREE MONTHS
Consolidated net income for the first quarter of 1996 was 9.68% less than the
first quarter of 1995 ($1,008,000 in 1996, $1,116,000 in 1995). Fully diluted
earnings per common share were $0.69 compared to $0.77 for the 1995 quarter.
Total interest income increased 3.12%, or $0.2 million, from $7.4 million in
1995 to $7.6 million in 1996. However, total interest expense increased 11.01%,
or $323 thousand from the 1995 level. This resulted in net interest income
being down $92 thousand, or 2.06%. With interest rates relatively low and
falling during the early part of the quarter, the income on loans was affected
negatively. Meanwhile, customers looking to maintain income moved to higher
yielding deposits, often accepting longer term accounts to achieve the income
they desired. In some types of deposits, rates being paid could not be further
reduced without risking substantial declines in volume. The effect of this was
to narrow the net interest margin.
The provision for loan losses was 22.43% more in 1996 than it was in the first
quarter of 1995. The 1996 provision was $131 thousand compared to net loan
losses of $36 thousand. In 1995, the first quarter provision was $107 thousand
and net charge offs were $78 thousand. At March 31, 1996, the reserve for
possible loan losses of $3.6 million was equal to 1.35% of net loans
outstanding. This compares with $3.5 million or 1.33% of net loans outstanding
at December 31, 1995.
Non-interest income increased 20.64% from the first quarter of 1995 to the
first quarter of 1996. Trust department fees were up by 31.91%. Service charges
and fees declined 7.91% ($25 thousand) as customers adjusted their balances to
avoid fees. Banks were also reluctant to increase fees that could limit their
customer base. Other Income was up $87,000 or 122.54% from 1995 to 1996.
Increased was income from other real estate and insurance income.
Securities gains during the first quarter of 1996 were $2,000. There were no
securities gains or losses taken during the first quarter of 1995.
Non-interest expense increased 8.49%, or $269 thousand from 1995 to 1996.
Employee expense grew $196 thousand or 10.93%. In addition to the usual merit
and longevity increases in salaries with their attendant taxes and benefits, the
largest increase was in the expense accrued for bonus payments. The amount
expensed for bonuses was increased by $127 thousand from the 1995 level. In
1995, more of the provision for bonuses was expensed later in the year. The
incentive bonus is related directly to the accomplishment of earnings targets,
which could cause reevaluation of the level of accruals as the year progresses.
Fixed asset expense was up $15,000, or 3.69% from the same quarter in 1995 to
$422,000. Depreciation increased due to improvements in Commercial's branch
system which were constructed during 1995.
Other Operating Expense increased $58,000 (5.99%) from the first quarter of
1995. A new method of supply and inventory control resulted in expenses for
stationery and similar supplies increasing $56 thousand from the same period a
year earlier. Marketing and advertising expenses were up $36 thousand from the
prior period.
Net income before taxes was down $276,000 (16.12%) from the 1995 quarter and
the provision for Federal and state income taxes declined $168,000, or 28.19%.
LIQUIDITY
Commercial's primary source of liquidity has been the attraction and retention
of retail deposit accounts. The total deposit growth over the three month
period was 1.57%, an increase of $5.3 million. Time deposits, which have been
the most easily attracted deposits grew $8.6 million or 5.28%, demonstrating
that 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. Three of Commercial's subsidiaries 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
period of 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 which 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 which can be converted to cash in a very short time.
Maturing within one year is 18.55% of the total securities portfolio.
CAPITAL
During the first three months of 1996, Commercial increased its stockholders'
equity by $0.3 million (0.81%), bringing the balance at March 31, 1996, to $38.5
million or, 9.89% of total assets. The increase was from internal capital
growth.
In January 1989, banking industry regulators officially released risk-
adjusted capital guidelines for banks and bank holding companies. The
guidelines established final requirements that were to be achieved by year-end
1992. As of March 31, 1996, Commercial's Tier 1 ratio of 14.29% and combined
Tier 1 and Tier 2 ratio of 15.54% exceed the requirements. Additionally,
Commercial's ratios of primary capital to total assets of 9.50% and total
capital to total assets of 10.33% exceed the final requirements which became
effective at year-end 1992 for those relationships.
-11-
<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
A. The annual meeting of shareholders was held on May 8, 1996.
(1) Each of the persons named in the proxy statement as a nominee for
director was elected.
(2) The following are the voting results on each of the matters which were
submitted to the shareholders:
<TABLE>
<CAPTION>
Election of Directors
- ---------------------
<S> <C> <C> <C>
Common shares present and voting: 1,118,034
<CAPTION>
Name For
---- ---
<S> <C> <C> <C>
Bruce Bingham 1,060,566
Frank L. Christy 1,060,657
A. V. Criss, III 1,664,693
Gary R. Davis 1,189,512
Wilson Davis 1,063,400
Carl E. Dollman 1,060,564
James A. Meagle, Jr. 1,061,135
David L. Mendenhall 1,073,500
William E. Mildren, Jr. 1,061,057
Jack F. Poe 1,060,564
Robert E. Richardson 1,060,164
W. S. Ritchie, Jr. 1,153,675
Susan S. Ross 1,061,292
Donald L. Scothorn 1,061,057
James L. Wahle 1,061,057
Thomas N. Webster 1,060,564
Morris B. Wilkins 1,043,223
Appointment of Harman, Thompson, Mallory For Against Abstain
---------------------------------------- --- ------- -------
& Ice, a.c. as independent accountant for 1996.. 1,098,700 184 3,014
----------------------------------------------
</TABLE>
The text of the matters referred to under Item 4. A. is set forth in the proxy
statement dated April 1, 1996, filed with the Securities and Exchange Commission
on March 29, 1996, and is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
Commercial did not file any reports on Form 8-K during the three months
ended March 31, 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)
Date:May 14, 1996 /s/ William E. Mildren, Jr.
------------ ---------------------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
Date:May 14, 1996 /s/ Larry G. Johnson
------------ ---------------------------------------
Larry G. Johnson
Executive Vice President
and Chief Financial Officer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,300
<INT-BEARING-DEPOSITS> 941
<FED-FUNDS-SOLD> 750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,020
<INVESTMENTS-CARRYING> 31,573
<INVESTMENTS-MARKET> 31,943
<LOANS> 267,499
<ALLOWANCE> 3,611
<TOTAL-ASSETS> 389,541
<DEPOSITS> 345,930
<SHORT-TERM> 1,213
<LIABILITIES-OTHER> 3,887
<LONG-TERM> 0
0
0
<COMMON> 7,348
<OTHER-SE> 31,163
<TOTAL-LIABILITIES-AND-EQUITY> 389,541
<INTEREST-LOAN> 6,223
<INTEREST-INVEST> 1,314
<INTEREST-OTHER> 89
<INTEREST-TOTAL> 7,626
<INTEREST-DEPOSIT> 3,234
<INTEREST-EXPENSE> 3,257
<INTEREST-INCOME-NET> 4,369
<LOAN-LOSSES> 131
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 3,439
<INCOME-PRETAX> 1,436
<INCOME-PRE-EXTRAORDINARY> 1,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 5.06
<LOANS-NON> 776
<LOANS-PAST> 332
<LOANS-TROUBLED> 2,529
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,516
<CHARGE-OFFS> 48
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 3,611
<ALLOWANCE-DOMESTIC> 3,611
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
