<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, 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 August 12, 1997
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
INDEX
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Page No.
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996..................................... 3
Condensed Consolidated Statements of Income for
Three Months and Six Months ended June 30, 1997 and 1996.. 4
Condensed Statements of Changes in Stockholders
Equity for Six Months ended June 30, 1997................. 5
Consolidated Statements of Cash Flows for Six
Months ended June 30, 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....................... 10-12
Part II Other Information
Item 1. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
Item 5. Other Information.......................................... 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
Signatures............................................................ 14
-2-
<PAGE>
PART I FINANCIAL INFORMATION
COMMERCIAL BANCSHARES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1996
----------- ---------
(unaudited) *
<S> <C> <C>
Cash and Due from Banks............................ $ 17,992 $ 18,602
Interest-Bearing Demand Deposits with Other Banks.. 323 669
Interest-Bearing Deposits in Banks................. 100
Federal Funds Sold................................. 3,650 5,000
Investment Securities:
Held to Maturity, at Amortized Costs............. 26,220 26,686
(Market Value: $26,613 and $27,052)
Available for Sale, at Market Value.............. 51,727 48,335
Loans - net of unearned discount................... 300,227 297,515
LESS: Reserve for Losses.......................... (3,747) (3,574)
Premises and Equipment............................. 10,427 8,851
Accrued Interest Receivable........................ 2,731 2,565
Foreclosed Properties - Net........................ 1,357 1,373
Other Assets....................................... 6,975 6,957
-------- --------
TOTAL ASSETS..................................... $417,982 $412,979
======== ========
LIABILITIES AND CAPITAL
<CAPTION>
<S> <C> <C>
Deposits:
Demand - Non-Interest Bearing................................ $ 49,015 $ 48,697
Demand - Interest Bearing.................................... 39,638 41,154
Savings...................................................... 91,296 84,135
Time Deposits................................................ 179,606 185,854
-------- --------
TOTAL DEPOSITS................................................. $359,555 $359,840
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.......................... 5,335 2,540
Federal Home Loan Bank Advances................................ 6,429 5,000
Accrued Interest Payable....................................... 1,332 1,268
Other Liabilities.............................................. 2,819 3,336
-------- --------
TOTAL LIABILITIES.............................................. $375,470 $371,984
-------- --------
Shareholders' Equity:
Preferred Stock (Stated Value: $100)
Outstanding: None......................................... $ 0 $ 0
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............................................ 19,139 17,661
Net Unrealized Gain (Loss) on Available-for-Sale Securities.. 178 139
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... $ 42,512 $ 40,995
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $417,982 $412,979
======== ========
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
Share and per-share amounts have been adjusted to reflect the 10% stock dividend
paid 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)
Six Months Ended Three Months Ended
June 30 June 30
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans.................. $13,803 $12,590 $6,952 $ 6,366
Interest and Dividends on Securities........ 2,375 2,647 1,213 1,333
Interest on Federal Funds Sold.............. 295 137 146 59
Interest on Time Deposits with Other Banks.. 17 25 9 14
------- ------- ------ -------
TOTAL INTEREST INCOME....................... $16,490 $15,399 8,320 $ 7,772
------- ------- ------ -------
INTEREST EXPENSE
Interest on Deposits........................ $ 6,758 $ 6,417 $3,407 $ 3,183
Interest on Federal Funds Purchased and
Securities Sold Under Agreement to
Repurchase............................... 249 96 129 72
------- ------- ------ -------
TOTAL INTEREST EXPENSE...................... $ 7,007 $ 6,513 $3,536 $ 3,255
------- ------- ------ -------
NET INTEREST INCOME......................... $ 9,483 $ 8,886 $4,784 $ 4,517
Provision for Loan Losses..................... 227 247 116 117
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES................... $ 9,256 $8,639 $ 4,668 $4,400
OTHER INCOME
Trust Department Income..................... 422 376 218 190
Service Charges and Fees.................... 597 631 299 339
Security Gains.............................. (2) (3) 0 (6)
Other Income................................ 463 381 242 224
------- ------- ------ -------
Total Other Income....................... 1,480 1,385 759 747
OTHER EXPENSES
Employee Compensations & Benefits........... $ 4,093 $ 3,948 $2,055 $1, 958
Occupancy Expense
(Net of Rental Income)................... 450 434 204 207
Furniture and Equipment..................... 576 443 295 246
Other Operating Expenses.................... 1,944 2,011 919 984
------- ------- ------ -------
Total Other Expenses..................... 7,063 6,836 3,473 3,395
INCOME BEFORE APPLICABLE
INCOME TAXES........................... $ 3,673 $ 3,188 $1,954 $ 1,752
Applicable Income Taxes....................... 1,252 1,020 627 592
------- ------- ------ -------
NET INCOME.................................. $ 2,421 $ 2,168 $1,327 $ 1,160
======= ======= ====== =======
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS........................... $ 2,421 $ 2,168 $1,327 $ 1,160
EARNINGS PER SHARE DATA:
Primary..................................... $1.50 $1.34 $.82 $.72
Fully Diluted............................... 1.50 1.34 .82 .72
Cash Dividends Declared..................... .57 .55 .30 .27
</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 March 14, 1997.
-4-
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 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 June 30, 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......................................................... 2,421
Cash Dividend Declared on Common Stock............................. ( 943)
-------
Balance at End of Period........................................... $19,139
-------
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.. 39
-------
Balance at End of Period........................................... $ 178
-------
Total Shareholders' Equity......................................... $42,512
=======
</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
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................... $ 2,421 $ 2,168
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................ 487 427
Provision for Loan Loss................................. 227 247
Investment Amortization - Net........................... ( 5) 87
Realized Investment Securities (Gains) Losses........... 2 3
(Gain) Loss on Sale of Capitalized Assets............... 1
Income Tax Benefit...................................... (155) (165)
Provision for Deferred Taxes............................ (115) (106)
Purchase Adjustments.................................... 32 32
(Increase) Decrease:
Accrued Interest Receivable........................... (166) (9)
Other Assets.......................................... (148) (552)
Increase (Decrease):
Accrued Interest Payable.............................. 64 (29)
Other Liabilities..................................... (397) (1,040)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ 2,248 $ 1,063
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds Sold.............. $ 1,350 $ (3,140)
Net (Increase) Decrease in Interest Bearing Time Deposits.. (100) (101)
Proceeds from Maturities of Securities Held to Maturity.... 3,164 4,471
Proceeds from Maturities of Securities Available for Sale.. 5,145 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................... (2,720) (2,932)
Purchases of Securities Available for Sale................. (8,501) (11,050)
Net (Loans Originated) Principal Collected................. (2,481) (18,194)
Proceeds from Sale of Other Real Estate Owned.............. 8 415
Proceeds from Sale of Capitalized Assets................... 31 3
Capital Expenditures....................................... (2,097) (695)
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES..................... $ (6,201) $(18,727)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits.................. $(285) $ 11,055
Net Increase (Decrease) in Federal Funds Purchased......... 4,225 6,635
Dividends Paid............................................. (943) (882)
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES..................... $ 2,997 $ 16,808
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... $(956) $(856)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 19,271 17,429
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 18,315 $ 16,573
======== ========
</TABLE>
During the first six months of 1997 and 1996, the Corporation paid $6,694,000
and $6,513,000, respectively, in interest on deposits and other borrowings and
$1,337,000 and $1,493,000, 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. Per share information has been restated as necessary to account
for the 10% stock dividend paid March 14, 1997. Operating results for the six
month period ended June 30, 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
June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
June 30, 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 14,081 73 23 14,131
Obligations of States and their Subdivisions 12,111 362 19 12,454
Corporate Debt Securities 23 23
----------------------------------------------------------------
TOTAL $26,220 $435 $42 $26,613
================================================================
Available for Sale
U.S. Treasury and Government Agency Securities:
Mortgage Backed Securities $13,632 $ 65 $107 $13,590
Other Treasury and Agency Securities 34,250 228 47 34,431
Obligations of States and their Subdivisions 1,420 88 4 1,504
Corporate Debt Securities 65 65
Equity Securities 2,078 126 67 2,137
----------------------------------------------------------------
TOTAL $51,445 $507 $225 $51,727
=================================================================
----------------------------------------------------------------
June 30, 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 $ 12 1 $ 13
Other Treasury and Agency Securities 19,201 61 141 19,121
Obligations of States and their Subdivisions 12,202 274 31 12,445
Corporate Debt Securities 48 2 3 47
----------------------------------------------------------------
TOTAL $31,463 $338 $175 $31,626
=================================================================
Available for Sale
U.S. Treasury and Government Agency Securities:
Mortgage Backed Securities $14,684 $ 23 $245 $14,462
Other Treasury and Agency Securities 35,331 233 267 35,297
Obligations of States and their Subdivisions 860 13 9 864
Corporate Debt Securities 102 102
Equity Securities 1,324 75 1,249
----------------------------------------------------------------
TOTAL $52,301 $269 $596 $51,974
=================================================================
</TABLE>
-7-
<PAGE>
NOTE 3: LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
June 30
---------------------
1997 1996
(thousands of dollars)
<S> <C> <C>
Real Estate Loans..................................................................................... $110,821 $103,690
Installment Loans..................................................................................... 61,852 64,356
Credit Card Loans..................................................................................... 3,730 4,240
Commercial Loans...................................................................................... 123,671 109,837
-------- ----------
$300,074 $282,123
-------- ----------
Unearned Income....................................................................................... 95 285
-------- ----------
TOTAL LOANS........................................................................................... $299,979 $281,838
======== ==========
Changes in the allowance for loan losses were as follows for the six months ended June 30, 1997
and 1996.
1997 1996
(thousands of dollars)
Balance, Beginning of Year............................................................................ $ 3,579 $ 3,516
Provision Charged to Operation........................................................................ 227 247
Loans Charged Off..................................................................................... (189) (260)
Recoveries............................................................................................ 131 25
-------- ----------
Balance, End of Period................................................................................ $ 3,748 $ 3,528
======== ==========
</TABLE>
NOTE 4: DEPOSITS
Time deposits in denominations of $100,000 or more at June 30, 1997 and
1996 were $29,910,000 and $28,021,000 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
6-30-97 12-31-96
---------- --------
<S> <C> <C>
Federal Funds Purchased
Balance at End of Period.................................................. $3,100 $ 1,062
Average during Period..................................................... 2,450 $ 3,180
Maximum Month-End Balance................................................. 3,100 $13,648
Average Rate during Period................................................ 5.68% 5.35%
Rate at the End of Period................................................. 6.19% 6.96%
Securities Sold Under Agreement to Repurchase
Balance at End of Period.................................................. $2,234 $1,478
Average during Period..................................................... 1,898 $1,799
Maximum Month-End Balance................................................. 2,234 $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>
Six Months Ended
June 30
1997 1996
-------------- -----------
Current: (In thousands of dollars)
<S> <C> <C>
State............................. $ 153 $ 100
Federal........................... 1,214 1,030
Deferred Income Taxes............. (115) (110)
------ ------
TOTAL PROVISION FOR INCOME TAXES.. $1,252 $1,020
====== ======
</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,
ASSETS 1997 1996
(In Thousands of Dollars)
<S> <C> <C>
Cash and Due from Banks (Substantially all from Subsidiaries).. $ 3,184 $ 3,052
Accounts Receivable............................................ 386 640
Investment Securities - Available for Sale..................... 587 485
Investment in Subsidiaries (Equity Basis)...................... 36,443 35,937
Loans.......................................................... 249 249
Premises and Equipment - Net................................... 1,044 353
Other Assets................................................... 735 925
------- -------
TOTAL ASSETS................................................... $42,628 $41,641
======= =======
LIABILITIES
Other Liabilities.............................................. 116 646
------- -------
TOTAL LIABILITIES.............................................. $ 116 $ 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 June 30, 1997 and December 31,1996, respectively)......... $ 8,081 $ 8,081
Additional Paid in Capital..................................... 15,114 15,114
Undivided Profits.............................................. 19,139 17,661
Net Unrealized Gain (Loss) on Securities Available for Sale.... 178 139
------- -------
TOTAL STOCKHOLDERS EQUITY...................................... $42,512 $40,995
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY...................... $42,628 $41,641
======= =======
</TABLE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1997
(In thousands)
<TABLE>
<S> <C>
REVENUE
Dividend from Subsidiary Banks.................... $2,293
Fees from Subsidiaries............................ 680
Other Operating Income............................ 40
------
TOTAL REVENUE....................................... $3,013
------
EXPENSES
Employee Compensation and Benefits................ $ 696
Occupancy and Furniture Expense................... 259
Other Expenses.................................... $ 261
------
TOTAL EXPENSES...................................... $1,216
------
Income before Tax Benefit and Equity in
Undistributed Net Income of Subsidiaries.......... $1,797
Income Tax Benefit.................................. ( 155)
-------
Income before Equity in Undistributed
Net Income of Subsidiaries........................ $1,952
Equity in Undistributed Net Income of Subsidiaries.. 469
------
NET INCOME.......................................... $2,421
======
</TABLE>
-9-
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDING JUNE 30, 1997
(In Thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $2,421
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 132
Net Amortization of Purchase Accounting Adjustments.. 32
Undistributed Net(Income) Loss on Subsidiaries....... (469)
Increase(Decrease) Accounts Receivable............... 254
Accrued Interest Receivable.......................... 2
Other Assets......................................... 156
Other Liabilities.................................... (410)
Income Tax Benefit................................... (155)
------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $1,963
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Subsidiaries................................ $ (50)
Purchases of Investments Available for Sale............. (15)
Capital Expenditures.................................... (823)
------
NET CASH USED BY INVESTING ACTIVITIES..................... $ (888)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.......................................... $ (943)
------
NET CASH USED BY FINANCING ACTIVITIES..................... $ (943)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. $ 132
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 3,052
------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $3,184
======
</TABLE>
During the first six months of 1996, Commercial paid $1,337,000 in income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SOURCES AND USES OF FUNDS
During the first six months of 1997, Commercial's largest source of funds, its
deposits, remained stable, at $360 million. Although savings deposits
increased $7.1 million (8.5%) since December 31, 1996, and non-interest bearing
demand deposits were up slightly, interest bearing demand deposits were down
$1.5 million and time deposits decreased $6.2 million (.34%). Consumers have
been restructuring their investments to include higher-yielding non-bank
products and reducing their reliance on insured certificates of deposit.
Commercial's banks, like many others, have been attempting to balance the
legitimate credit needs of their customers with the need to maintain net
interest margins by obtaining funds at reasonable levels.
Commercial increased its use of short-term borrowing by $2.8 million since the
year end. Net purchases of funds were $1,685,000 at June 30, 1997, compared to
net sales of $2,460,000 at year end. Advances by Federal Home Loan Banks to
Commercial's subsidiaries increased $1.4 million during the first six months of
1997, to a total of $6.4 million. During the first half of 1997 the increase in
loans exceeded the growth in deposits. Borrowings were used as an alternative
to paying high rates to retain or attract consumer deposits.
Cash and due from banks decreased by $0.9 million or 4.4% from December 31,
1996, to June 30, 1997. 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 during the first half of
1997, growing $2.7 million (0.9%) during the period. There were several loans
that paid off and the pricing on new loans limited growth.
-10-
<PAGE>
The securities being held to maturity decreased $0.5 million or 1.75% from
year end. Investments available for sale were increased by 7.0%, or $3.4
million. The increase occurred during the first quarter, prior to the decline
in deposits. 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 1997 was 11.7% above the first
half of 1996 ($2,421,000 in 1997, $2,168,000 in 1996). Fully diluted earnings
per common share were $1.50 compared to $1.34 for 1996.
Total interest income increased 7.1% or $1.1 million from $15.4 million in
1996 to $16.5 million in 1997. Total interest expense increased 7.58% or
$494,000 from the 1996 level. This resulted in an increase of 6.7% or $597,000
in net interest income.
The provision for loan losses was 8.1% less in the first half of 1997 than it
was in 1996. The 1997 provision was $227 thousand compared to net loan losses
of $58 thousand. In 1996, the first half provision was $247 thousand and there
were net charge-offs of $235,000. At June 30, 1997, the reserve for possible
loan losses of $3,747,000 was equal to 1.25% of net loans outstanding. This
compares with $3,574,000 or 1.20% of net loans outstanding at December 31, 1996.
Non-interest income increased 6.86% from the first half of 1996 to the first
half of 1997. Trust department fees were up $46,000, or 12.2%. Service charges
and fees were down 5.4% (or $34,000) to $597,000. Other income increased
$82,000 or 21.5% from 1996 to 1997. There was a loss on sale of securities of
$2,000 in 1997, compared to $3,000 in 1996.
Non-interest expense increased 3.3%, or $227,000 from 1996 to 1997. The major
area of increase is employee compensation and benefits, which was up $145,000 or
3.67%. Merit and longevity increases, with their attendant taxes and benefits
made up the increase, as the number of employees remained fairly constant.
Occupancy expense was up $16,000 compared to the same period in 1996, and
furniture and equipment expense grew $133,000 (30.0%). Depreciation of the
newly-implemented image processing system, along with initialization costs
provided nearly all the increase.
Other operating expense decreased $67,000 (3.3%) from the first half of 1996.
There were no significant variances in the items included in this category,
which amounted to $1,944,000 in 1997, down from $2,011,000 in 1996.
Net income before taxes was up $485,000 (15.2%) for the 1997 period, and the
provision for Federal and state income taxes increased $232,000 or 22.8%.
EARNINGS--SECOND QUARTER
Consolidated net income for the second quarter of 1997 was up 14.4% from the
second quarter of 1996. Earnings were $1,327,000 in 1996, compared to the
$1,160,000 earned in 1996. Fully diluted earnings per share were $0.82
compared to $0.72 for the 1996 quarter.
Total interest income increased 7.1% to $8,320,000 from $7,772,000 in 1996.
Total interest expense increased 8.6% to $3,536,000 from $3,255,000 in 1996. As
a result, net interest income increased $267,000 or 5.9% from the second quarter
of 1996.
The provision for loan losses was 0.9% less for the second quarter of 1997
than it was for the second quarter of 1996. The 1997 provision was $116,000
compared to net recoveries of $33,000. The 1996 second quarter provision was
$117,000 compared to net charge-offs of $199,000.
Non interest income increased 1.6% from 1996 to 1997. Trust department
income experienced an increase of $28,000 (14.7%) from the second quarter 1996.
Services charges and fees were down $40,000 or 11.8% from the second quarter of
1996, and other income increased $18,000 or 8.0%.
Non-interest expense was up 2.3% ($78,000) from the second quarter of 1996.
Employee compensation and benefits increased by 5.0%, or $97,000. Occupancy
expense decreased $3,000 (1.5%) while furniture and equipment increased $49,000
(19.9%). All other operating expenses decreased $65,000 (6.6%).
Net income before taxes was up $202,000 (11.5%) and the provision for Federal
and state income taxes increased $35,000 (5.9%) from 1996.
-11-
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The principal amount of nonaccrual loans was $666,000 at June 30, 1997, an
increase of $161,000 (31.9%) from December 31, 1996, and $12,000 less than the
$678,000 recorded June 30, 1996. Loans past due 90 days or more and still
accruing totaled $888,000 on June 30, 1997, up $637,000 (254.8%) from year end
totals. Restructured loans totaled $1,614,000 at the end of the second quarter
of 1997, compared to $2,389,000 at year end.
LIQUIDITY
BancShares primary source of liquidity has been the attraction and retention
of retail deposit accounts. Although total deposits declined $8.0 million
during the second quarter of 1997, they had increased $7.7 million during the
first quarter, resulting in a net decrease of $285,000. Commercial's banking
subsidiaries have decided not to increase expenses to retain all their maturing
time deposits, however special promotions have indicated these funds can be
easily attracted should the need arise. Deposits continue to be a good source
of funds, albeit an increasingly expensive one. 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. All but one of Commercial's subsidiary banks 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.
Limited use is currently being made of FHLB advance products. 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 21.7% of the total securities portfolio.
CAPITAL
During the first six months of 1997, Commercial increased it stockholders'
equity by $1,517,000 (3.7%), bringing the balance at June 30, 1997, to $42.5
million or, 10.2% of total assets. The increase was from internal capital
growth. Undivided profits grew $1,478,000, and net unrealized gains on
securities available for sale increased equity by $39,000.
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, 1997, Commercial's Tier 1 ratio of 14.59% and combined
Tier 1 and Tier 2 ratio of 15.84% exceed the requirements of 4% and 8%,
respectively. Additionally, Commercial's ratios of primary capital to total
adjusted assets of 10.08% and total capital to total adjusted assets of 10.94%
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 4. Submission of Matters to a Vote of Security Holders
At Commercial's Annual Meeting of Stockholders held on May 14, 1997, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
<S> <C> <C>
Bruce Bingham 1,193,285 14,071
Frank L. Christy 1,193,280 14,076
A. V. Criss, III 1,193,114 14,242
Gary R. Davis 1,207,108 248
Wilson Davis 1,200,974 6,382
Carl E. Dollman 1,193,175 14,181
James A. Meagle, Jr. 1,193,285 14,071
David L. Mendenhall 1,200,974 6,382
William E. Mildren, Jr. 1,193,285 14,071
Jack F. Poe 1,193,285 14,071
Robert E. Richardson 1,193,119 14,237
W. S. Ritchie, Jr. 1,191,835 15,521
Susan S. Ross 1,191,252 16,104
Donald L. Scothorn 1,192,367 14,989
James L. Wahle 1,155,668 51,688
Thomas N. Webster 1,193,285 14,071
Morris B. Wilkins 1,186,978 20,378
</TABLE>
The stockholders ratified the selection of Harman, Thompson, Mallory and
Ice, A.C., as auditors for 1997.
The vote was: For Against Abstain
1,184,390 2,240 20,726
The stockholders approved increasing the authorized common stock from 2,000,000
to 5,000,000 shares of $5 par value. The affirmative vote of a majority
(808,094) of the outstanding shares (1,616,187) was required for approval.
The vote was: For Against Abstain
1,138,119 28,635 40,602
The stockholders did not approve the proposed stock option plan for Commercial's
nonemployee directors. The affirmative vote of a majority (808,094) of the
outstanding shares (1,616,187) was required for approval.
The vote was: For Against Abstain
686,804 350,543 80,108
The stockholders did not approve the proposed long term incentive stock plan for
Commercial's employees. The affirmative vote of a majority (808,094) of the
outstanding shares (1,616,187) was required for approval.
The vote was: For Against Abstain
734,287 335,402 41,590
-13-
<PAGE>
Item 5. Other Information
On July 15, 1997, a newly formed nonbanking subsidiary of Commercial,
Hometown Finance Company, acquired assets of a consumer loan company in St.
Marys, Pleasants County, West Virginia. The new subsidiary is licensed by the
State of West Virginia as a "regulated consumer lender" and will operate from
offices at 110 Lafayette Street, St. Marys, WV 26170. The new subsidiary will
not have a significant impact on the results of Commercial's operations.
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, 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: August 12, 1997
---------------- ---------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Larry G. Johnson
Date: August 12, 1997
--------------- ---------------------------
Larry G. Johnson
Secretary-Treasurer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,992
<INT-BEARING-DEPOSITS> 423
<FED-FUNDS-SOLD> 3,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,727
<INVESTMENTS-CARRYING> 26,220
<INVESTMENTS-MARKET> 26,613
<LOANS> 300,227
<ALLOWANCE> 3,747
<TOTAL-ASSETS> 417,982
<DEPOSITS> 359,555
<SHORT-TERM> 5,335
<LIABILITIES-OTHER> 4,151
<LONG-TERM> 6,429
8,081
0
<COMMON> 0
<OTHER-SE> 34,431
<TOTAL-LIABILITIES-AND-EQUITY> 417,982
<INTEREST-LOAN> 13,803
<INTEREST-INVEST> 2,375
<INTEREST-OTHER> 312
<INTEREST-TOTAL> 16,490
<INTEREST-DEPOSIT> 6,758
<INTEREST-EXPENSE> 7,007
<INTEREST-INCOME-NET> 9,483
<LOAN-LOSSES> 227
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 7,063
<INCOME-PRETAX> 3,673
<INCOME-PRE-EXTRAORDINARY> 2,421
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,421
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 4.95
<LOANS-NON> 666
<LOANS-PAST> 888
<LOANS-TROUBLED> 1,614
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,579
<CHARGE-OFFS> 189
<RECOVERIES> 131
<ALLOWANCE-CLOSE> 3,748
<ALLOWANCE-DOMESTIC> 3,748
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
