<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, 1997
--------------
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 001-11791
---------
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--1,616,187 shares as of May 13, 1997
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996................................... 3
Condensed Consolidated Statements of Income for
Three Months ended March 31, 1997 and 1996.............. 4
Condensed Statements of Changes in Stockholders
Equity for Three months ended March 31, 1997............ 5
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1997 and 1996.................... 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.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
Signatures............................................................... 12
-2-
<PAGE>
PART I FINANCIAL INFORMATION
COMMERCIAL BANCSHARES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
--------- ---------
(unaudited) *
<S> <C> <C>
Cash and Due from Banks............................ $ 18,403 $ 18,602
Interest-Bearing Demand Deposits with Other Banks.. 621 669
Federal Funds Sold................................. 8,069 5,000
Investment Securities:
Held to Maturity, at Amortized Costs............. 25,867 26,686
(Market Value: $26,103 and $27,052)
Available for Sale, at Market Value.............. 51,356 48,335
Loans - net of unearned discount................... 298,990 297,515
LESS: Reserve for Losses.......................... (3,591) (3,574)
Premises and Equipment............................. 10,271 8,851
Accrued Interest Receivable........................ 2,686 2,565
Foreclosed Properties - Net........................ 1,365 1,373
Other Assets....................................... 7,039 6,957
-------- --------
TOTAL ASSETS..................................... $421,076 $412,979
======== ========
LIABILITIES AND CAPITAL
Deposits:
Demand - Non-Interest Bearing.................... $ 48,842 $ 48,697
Demand - Interest Bearing........................ 43,647 41,154
Savings.......................................... 91,538 84,135
Time Deposits.................................... 183,555 185,854
-------- --------
TOTAL DEPOSITS..................................... $367,582 $359,840
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.............. 2,773 2,540
Federal Home Loan Bank Advances.................... 5,000 5,000
Accrued Interest Payable........................... 1,304 1,268
Other Liabilities.................................. 2,966 3,336
-------- --------
TOTAL LIABILITIES.................................. $379,625 $371,984
-------- --------
Shareholders' Equity:
Common Stock (Par Value $5.00)
Outstanding: 1,616,187 shares and 1,616,187
shares....................................... 8,081 8,081
Additional Paid In Capital....................... 15,114 15,114
Undivided Profits................................ 18,297 17,661
Net Unrealized Gain (Loss) on Available-for-Sale
Securities...................................... (41) 139
-------- --------
TOTAL SHAREHOLDERS' EQUITY....................... $ 41,451 $ 40,995
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $421,076 $412,979
======== ========
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statement.
Share and per-share amounts have been adjusted to reflect the 10% stock dividend
paid on March 14, 1997.
-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
1997 1996
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans................... $6,851 $6,224
Interest and Dividends on Securities......... 1,162 1,314
Interest on Federal Funds Sold............... 149 78
Interest on Deposits with Other Banks........ 8 11
------ -------
TOTAL INTEREST INCOME..................... $8,170 $7,627
------ -------
INTEREST EXPENSE
Interest on Deposits......................... 3,351 3,234
Interest on Other Borrowings................. 120 24
------ -------
TOTAL INTEREST EXPENSE.................. $3,471 $3,258
------ -------
NET INTEREST INCOME.......................... $4,699 $4,369
Provision for Loan Losses...................... 111 130
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.............................. $4,588 $4,239
OTHER INCOME
Trust Department Income...................... 204 186
Service Charges and Fees..................... 298 292
Security Gains............................... (2) 3
Other Income................................. 221 157
------ -------
Total Other Income........................ 721 638
OTHER EXPENSES
Employee Compensations & Benefits............ $2,038 $1,989
Occupancy Expense (Net of Rental Income)..... 246 226
Furniture and Equipment...................... 281 197
Other Operating Expenses................ 1,025 1,027
------ -------
Total Other Expenses...................... 3,590 3,440
INCOME BEFORE APPLICABLE INCOME TAXES..... $1,719 1,436
Applicable Income Taxes........................ 625 428
------ -------
NET INCOME................................... $1,094 $1,008
====== =======
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS............................ $1,094 $1,008
EARNINGS PER SHARE DATA:
Basic........................................ $ .68 $ .62
Diluted...................................... .68 .62
Cash Dividends Declared...................... .273 .273
</TABLE>
The accompanying notes are an integral part of these statements.
Share and per-share amounts have been adjusted to reflect the 10% stock dividend
paid on March 14, 1997.
-4-
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
for the three months ended March 31, 1997
(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....................................... $ 8,081
-------
Balance at end of period - 1,616,187 Shares Issued
and Outstanding at March 31, 1997................................ $ 8,081
-------
Additional Paid In Capital
Balance at Beginning of Year....................................... $15,114
-------
Balance at End of Period........................................... $15,114
-------
Undivided Profits
Balance at Beginning of Year....................................... $17,661
Net Income......................................................... 1,094
Cash Dividend Declared on Common Stock............................. (458)
-------
Balance at End of Period........................................... $18,297
-------
Unrealized Gain (Loss) on Securities Available for Sale,
Net of Applicable Deferred Income Taxes
Balance at Beginning of Year....................................... $ 139
Change in Unrealized Gain (Loss) on Securities Available for Sale.. (180)
-------
Balance at End of Period........................................... $ (41)
-------
Total Shareholders' Equity......................................... $41,451
=======
</TABLE>
The accompanying notes are an integral part of these statements.
Share and per-share amounts have been adjusted to reflect the 10% stock dividend
paid on March 14, 1997.
-5-
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands of dollars)
Three Months Ended
March 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 1,094 $ 1,008
------- --------
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 244 207
Provision for Loan Loss................................. 111 130
Investment Amortization - Net........................... 9 47
Purchase Adjustments.................................... 16 16
Other - Net............................................. 1 (66)
Realized Investment Securities (Gains) Losses........... 2 (3)
Income Tax Benefit...................................... (85) (60)
Provision for Deferred Taxes............................ (13) (115)
(Increase) Decrease:
Accrued Interest Receivable........................... (121) (44)
Other Assets.......................................... (104) (998)
Increase (Decrease):
Accrued Interest Payable.............................. 36 (28)
Other Liabilities..................................... (285) (753)
------- --------
Total Adjustments....................................... (189) (1,607)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... $ 905 $(599)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold.............. $(3,069) $ 930
Net (Increase) Decrease in Interest Bearing Deposits....... (100)
Proceeds from Sales of Securities Held to Maturity.........
Proceeds from Sales of Securities Available for Sale....... 500 176
Proceeds from Maturities of Securities Held to Maturity.... 1,474 3,303
Proceeds from Maturities of Securities Available for Sale.. 1,686 3,311
Purchases of Securities Held to Maturity................... (1,086) (740)
Purchases of Securities Available for Sale................. (5,108) (7,708)
Net (Loans Originated) Principal Collected................. (1,407) (3,533)
Proceeds from Sale of Other Real Estate.................... 5 147
Proceeds form Sale of Capital Assets....................... 15 3
Capital Expenditures....................................... (1,680) (560)
------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... $(8,670) (4,771)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $ 7,742 $ 5,346
Net Increase (Decrease) in Federal Funds Purchased......... 233 (921)
Dividends Paid............................................. (458) (441)
------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES..................... $ 7,517 $ 3,984
------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... $(248) $(1,387)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 19,271 17,429
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $19,023 $16,042
======= =======
</TABLE>
During the first quarters of 1997 and 1996, the Corporation paid $3,435,000 and
$2,450,000, respectively, in interest on deposits and other borrowings and
$17,000 and $378,000, 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.
Share and per-share amounts have been adjusted to reflect the 10% stock dividend
paid on March 14, 1997.
-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. Per share information has been restated as necessary to account
for the 10% stock dividend paid March 14, 1997. Operating results for the
three month period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Commercial's annual report on Form 10-K for the year ended
December 31, 1996.
NOTE 2: INVESTMENT SECURITIES
The book value and approximate market value of investment securities as of
March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------
March 31, 1997
----------------------------------------------
(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 $ 5 $ 5
Other Treasury and Agency Securities 15,002 $ 54 $ 73 14,983
Obligations of States and their Subdivisions 10,812 280 25 11,067
Other Debt Securities 48 48
----------------------------------------------
TOTAL $25,867 $334 $ 98 $26,103
==============================================
Available for Sale
U.S. Treasury and Government Agency Securities:
Mortgage Backed Securities $14,195 $ 62 $151 $14,106
Other Treasury and Agency Securities 33,712 129 133 33,708
Obligations of States and their Subdivisions 1,420 35 3 1,452
Other Debt Securities 72 1 71
Equity Securities 2,056 38 75 2,019
----------------------------------------------
TOTAL $51,455 $264 $363 $51,356
==============================================
----------------------------------------------
March 31, 1996
----------------------------------------------
(Thousands of Dollars)
Gross Gross Aggregate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Held to Maturity
U.S. Treasury and Government Agency Securities:
Mortgage Backed Securities $ 13 $ 13
Other Treasury and Agency Securities 19,257 $152 $ 61 19,348
Obligations of States and their Subdivisions 12,179 299 20 12,458
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 Securities 40,020 408 159 40,269
Obligations of States and their Subdivisions 760 10 6 764
Other Debt Securities 109 8 117
Equity Securities 1,303 65 1,238
----------------------------------------------
TOTAL $56,857 $502 $339 $57,020
==============================================
</TABLE>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
March 31
--------------------
1997 1996
(thousands of dollars)
<S> <C> <C>
Real Estate Loans................... $109,198 $ 95,169
Installment Loans................... 62,995 62,416
Credit Card Loans................... 4,118 3,763
Commercial Loans.................... 123,004 106,606
-------- --------
$299,315 $267,954
-------- --------
Unearned Income..................... 325 455
-------- --------
TOTAL LOANS......................... $298,990 $267,499
======== ========
</TABLE>
Changes in the allowance for loan losses were as follows for the three
months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
<S> <C> <C>
Balance, Beginning of Year.......... $3,574 $3,516
Provision Charged to Operation...... 111 130
Loans Charged Off................... (109) (48)
Recoveries.......................... 18 12
-------- --------
Balance, End of Period.............. $3,591 $3,610
======== ========
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at March 31, 1997 and
1996 were $30,130,000 and $26,965,000 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
3-31-97 12-31-96
-------- ---------
<S> <C> <C>
Federal Funds Purchased
Balance at End of Period...................... $ 1,316 $ 1,062
Average during Period......................... 1,526 $ 3,180
Maximum Month-end Balance..................... 2,195 $ 13,648
Average Rate during Period.................... 5.37% 5.35%
Rate at the end of Period..................... 6.25% 6.96%
Securities Sold Under Agreement to
Repurchase
Balance at End of Period...................... $ 1,457 $ 1,478
Average during Period......................... 1,319 $ 1,799
Maximum Month-end Balance..................... 1,548 $ 2,988
Average Rate during Period.................... 5.03% 5.21%
Rate at the end of Period..................... 5.03% 5.03%
</TABLE>
NOTE 6: INCOME TAX EXPENSE
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Three Months ended
March 31
1997 1996
---- ----
Current: (In thousands of dollars)
<S> <C> <C>
State....................................... $ 81 $ 53
Federal..................................... 569 490
Deferred Income Taxes....................... (25) (115)
----- -----
TOTAL PROVISION FOR INCOME TAXES............ $ 625 $ 428
===== =====
</TABLE>
-8-
<PAGE>
NOTE 7: Effect of New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. This
Statement requires disclosing basic and diluted earnings per share for all years
presented in the income statement. The adoption of this Statement is not
anticipated to have a material impact on the consolidated financial statements
of Commercial.
NOTE 8: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
ASSETS (In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (Substantially All from Subsidiaries).. $ 2,170 $ 3,052
Accounts Receivable............................................ 1,395 640
Investment Securities - Available for Sale..................... 500 485
Investment in Subsidiaries (Equity Basis)...................... 35,871 35,937
Loans.......................................................... 249 249
Premises and Equipment - Net................................... 1,105 353
Other Assets................................................... 808 925
------ -------
TOTAL ASSETS................................................... $42,098 $41,641
======= ========
LIABILITIES
Other Liabilities.............................................. 647 646
------ -------
TOTAL LIABILITIES.............................................. $ 647 $ 646
------ -------
STOCKHOLDERS EQUITY
Common Stock (Par Value $5.00, Authorized: 2,000,000 Shares.
Outstanding : 1,616,187 Shares and 1,616,187 Shares
at March 31, 1997 and December 31,1996, respectively)........ $ 8,081 $ 8,081
Additional Paid in Capital..................................... 15,114 15,114
Undivided Profits.............................................. 18,297 17,661
Net Unrealized Gain (Loss) on Securities Available for Sale.... ( 41) 139
------ -------
TOTAL STOCKHOLDERS EQUITY...................................... $41,451 $40,995
------ -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY...................... $42,098 $41,641
======= =======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 1997
(In thousands)
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Fees from Subsidiaries............................ $ 339
Dividends from Subsidiary Banks................... 1,131
Other Dividend income............................. 3
Other Income...................................... 7
------
TOTAL REVENUE....................................... $1,480
------
EXPENSES
Employee Compensation and Benefits................ $ 313
Occupancy and Furniture Expense................... 121
Other Expenses.................................... $ 167
------
TOTAL EXPENSES...................................... $ 601
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries.......... $ 879
Income Tax Benefit.................................. ( 85)
------
Income before Equity in Undistributed
Net Income of Subsidiaries........................ $ 964
Equity in Undistributed Net Income of Subsidiaries.. 130
------
NET INCOME.......................................... $1,094
======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Income................................................ $1,094
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 64
Net Amortization of Purchase Accounting Adjustments.. 16
Undistributed Net(Income) Loss on Subsidiaries....... ( 130)
Increase(Decrease) Accounts Receivable............... ( 754)
Accrued Interest Receivable.......................... 1
Other Assets......................................... 100
Other Liabilities.................................... 86
Income Tax Benefit................................... $ (85)
------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $ 392
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.................................... $ (816)
------
NET CASH USED BY INVESTING ACTIVITIES..................... $ (816)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... $ (458)
------
NET CASH USED BY FINANCING ACTIVITIES..................... $ (458)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. $ (882)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 3,052
------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $2,170
======
</TABLE>
During the first three months of 1997, Commercial paid $17,000 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 1997, Commercial's largest source of funds,
its deposits, grew $7.7 million, or 2.2%, to $367.6 million. The increase was
in interest-bearing demand deposits, which were up 6.1% ($2.5 million), and
savings deposits, which were up 8.8% ($7.4 million). Non-interest bearing
demand deposits were up slightly (0.3% or $145 thousand), and time deposits
decreased 1.2% ($2.3 million).
Both sales and purchases of Federal funds increased from year end. Funds
sold grew by $3.1 million (61.4%), and purchased funds were up $233 thousand
(9.2%). At March 31, 1997, there were net sales of funds amounting to $5.3
million, approximately twice the amount being sold at December 31, 1996.
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. One of the subsidiary banks was borrowing $5 million from the
Federal Home Loan Bank as of both periods. The bank was utilizing that
alternate source to decrease its cost of funds compared to an equivalent amount
of longer-term time deposits.
Cash and due from banks decreased by $200 thousand or 1.1% from December
31, 1996, to March 31, 1997. Changes in this category are not unusual, as the
balance fluctuates with inflows and outflows of deposits.
Total loans increased by $1.5 million or 0.5% during the first quarter of
the year. Loan volume growth was moderated by the payoff of some of the banks'
larger commercial loans.
The securities portfolio grew $2.2 million from the year end. Securities
available for sale were increased $3.0 million, or 6.3%, while securities being
held to maturity declined $0.8 million (3.1%). 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.
Commercial' investment in fixed assets grew $1.4 million, or 16% since year
end. The major item was an investment in imaging technology. In addition, one
bank made a major improvement in a parking lot and another had a branch under
construction.
-10-
<PAGE>
EARNINGS - THREE MONTHS
Consolidated net income for the first quarter of 1997 was 8.5% more than the
first quarter of 1996 ($1,094,000 in 1997, $1,008,000 in 1996). Fully diluted
earnings per common share were $0.68 compared to $0.62 for the 1996 quarter.
Total interest income increased 7.1%, or $0.5 million, from $7.6 million in
1996 to $8.2 million in 1997. Total interest expense increased 6.5%, or $213
thousand from the 1996 level. This resulted in net interest income being up
$330 thousand, or 7.6%. Interest and fees on loans provided the increased
interest income, as securities income declined by $152 thousand from the prior
year. Both deposit interest and interest on other borrowings contributed to the
growth in interest expense.
The provision for loan losses was 14.6% less in 1997 than it was in the first
quarter of 1996. The 1997 provision was $111 thousand compared to net loan
losses of $91 thousand. In 1996, the first quarter provision was $130 thousand
and net charge offs were $36 thousand. At March 31, 1997, the reserve for
possible loan losses of $3.6 million was equal to 1.20% of net loans
outstanding. This compares with $3.6 million or 1.20% of net loans outstanding
at December 31, 1996.
Non-interest income increased 13.0% from the first quarter of 1996 to the
first quarter of 1997. Trust department fees were up by 9.7%. Service charges
and fees increased 2.1% ($6 thousand). Other Income was up $64 thousand or
40.8% from 1996 to 1997.
Securities losses during the first quarter of 1997 were $2,000. This compares
with a $3 thousand securities loss taken during the first quarter of 1996.
Non-interest expense increased 4.4%, or $150 thousand from 1996 to 1997.
Employee expense grew $49 thousand or 2.5%. This was due to merit and longevity
increases in salaries with their attendant taxes and benefits.
Fixed asset expense was up $104 thousand, or 24.6% from the same quarter in
1996 to $527 thousand. Depreciation on the newly-implemented image processing
system, along with initialization costs provided most of the increased expenses.
Other Operating Expense decreased $2,000 (0.2%) from the first quarter of
1996.
Net income before taxes was up $283 thousand (19.7%) from the 1996 quarter and
the provision for Federal and state income taxes grew $197 thousand, or 46.0%.
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 2.2%, an increase of $7.7 million. Although the banks decided not to
increase expenses to retain all their maturing time deposits, special promotions
indicated they can be easily attracted if the need arises. New products for
large-balance customers provided substantial ($7.4 million) increases in savings
deposits and interest-bearing demand deposits. These products demonstrate that
deposits 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. Six of Commercial's subsidiaries are members of Federal Home
Loan Banks, which make available to their members a number of credit products,
any or all of which could be used to meet liquidity needs. One bank has made
use of FHLB advances in a limited way. Commercial is also 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 20.98% of the total securities portfolio.
CAPITAL
During the first three months of 1997, Commercial increased its stockholders'
equity by $636 thousand, but changes in the market value of available-for-sale
securities caused a $180 thousand decrease. This resulted in a net increase of
$456 thousand (1.1%), bringing the balance at March 31, 1997, to $41.5 million
or, 9.84% 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, 1997, Commercial's Tier 1 ratio of 14.40% and combined
Tier 1 and Tier 2 ratio of 15.65% exceed the requirements. Additionally,
Commercial's ratios of primary capital to total assets of 9.84% and total
capital to total assets of 10.69% 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 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, 1997.
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: May 14, 1997
------------ -----------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Larry G. Johnson
Date: May 14, 1997
------------ -----------------------------
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,403
<INT-BEARING-DEPOSITS> 621
<FED-FUNDS-SOLD> 8,069
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,356
<INVESTMENTS-CARRYING> 25,867
<INVESTMENTS-MARKET> 26,103
<LOANS> 298,990
<ALLOWANCE> 3,591
<TOTAL-ASSETS> 421,076
<DEPOSITS> 367,582
<SHORT-TERM> 2,773
<LIABILITIES-OTHER> 4,300
<LONG-TERM> 5,000
0
0
<COMMON> 8,081
<OTHER-SE> 33,370
<TOTAL-LIABILITIES-AND-EQUITY> 421,076
<INTEREST-LOAN> 6,851
<INTEREST-INVEST> 1,162
<INTEREST-OTHER> 157
<INTEREST-TOTAL> 8,170
<INTEREST-DEPOSIT> 3,351
<INTEREST-EXPENSE> 3,471
<INTEREST-INCOME-NET> 4,699
<LOAN-LOSSES> 111
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 3,590
<INCOME-PRETAX> 1,719
<INCOME-PRE-EXTRAORDINARY> 1,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,094
<EPS-PRIMARY> 0.68<F1>
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 5.00
<LOANS-NON> 393
<LOANS-PAST> 344
<LOANS-TROUBLED> 1,622
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,574
<CHARGE-OFFS> 109
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 3,591
<ALLOWANCE-DOMESTIC> 3,591
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Per share amounts have been adjusted to reflect the 10% stock dividend paid
March 14, 1997. Financial Data Schedules for periods ending prior to March 31,
1997, have not been restated for this stock dividend.
</FN>
</TABLE>
