<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED].
For the transition period from __________ to __________.
Commission file number 0-20232
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
(Exact name of small business issuer in its charter)
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West Virginia 55-0622108
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
415 Market Street
Parkersburg, West Virginia 26101
-------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (304) 424-0300
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $5.00 per share
---------------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period 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__.
Check if the disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
The issuer's revenues for its most recent fiscal year: $20,437,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 1994, based on the average of the bid and asked price
on that date:
Common Stock, $5.00 par value - $21,855,458
-------------------------------------------
The number of shares outstanding of the issuer's classes of common stock as of
March 2, 1994:
Common Stock, $5.00 par value - 740,863 shares
----------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held May 11, 1994 are incorporated by reference into Part III.
Page 1 of 43
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PART I
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ITEM 1. BUSINESS
Commercial BancShares, Incorporated may also be referred to herein as
"Commercial". The subsidiaries may be referred to as follows: Commercial
Banking and Trust Company as "CB&T", Jackson County Bank as "Jackson", Farmers
and Merchants Bank of Ritchie County as "F&M", and The Dime Bank as "Dime".
COMMERCIAL BANCSHARES, INCORPORATED
The management of Commercial Banking and Trust Company of Parkersburg, West
Virginia, caused Commercial BancShares, Incorporated to be formed in 1982 to
provide greater flexibility in meeting CB&T's capital requirements and to permit
future acquisition and ownership of bank-related businesses and the pursuit of
other bank-related activities not permitted CB&T under applicable law. On
October 28, 1983, the shareholders of CB&T became shareholders of Commercial and
CB&T became a wholly-owned subsidiary of Commercial BancShares, Incorporated.
On January 29, 1985, shareholders of Jackson County Bank, Ravenswood, West
Virginia approved an agreement and plan of merger pursuant to which Jackson
would merge into a wholly-owned subsidiary of Commercial and thereby become a
wholly-owned subsidiary of Commercial. The transaction was finalized March 1,
1985.
On May 15, 1987, shareholders of Farmers and Merchants Bank of Ritchie
County (formerly Farmers and Merchants Bank of Cairo), Harrisville, West
Virginia, approved an agreement and plan of merger pursuant to which F&M would
merge into a wholly-owned subsidiary of Commercial and thereby become a wholly-
owned subsidiary of Commercial. The transaction was finalized November 30,
1987.
On March 21, 1991, shareholders of The Dime Bank, Marietta, Ohio approved
an agreement and plan of merger pursuant to which Dime would merge into a
wholly-owned subsidiary of Commercial and thereby become a wholly-owned
subsidiary of Commercial. The transaction was finalized February 28, 1992.
An Agreement and Plan of Merger was entered into September 30, 1993, by and
between Commercial and Hometown Bankshares, Middlebourne, West Virginia
("Hometown"). If approved by shareholders of both companies and their
regulators, Hometown will merge with and into Commercial and, as a result,
Hometown will cease to exist. Shareholders of Hometown would receive 1.512
shares of Commercial's common stock for each share of Hometown stock they own.
COMMERCIAL BANKING AND TRUST COMPANY
CB&T was chartered as a West Virginia Banking Corporation on August 18,
1903, and opened its doors on the corner of Third Street and Court Square,
Parkersburg, West Virginia. CB&T remained in its original location until
January, 1916, when it acquired the assets of the Parkersburg Banking and Trust
Company and moved to its present location at 415 Market Street, Parkersburg,
West Virginia. On December 10, 1984 it opened a branch in Mineral Wells, West
Virginia. On September 29, 1986 a second branch was opened on Grand Central
Avenue in Vienna, West Virginia. A third branch was opened at 2107 Pike Street,
Parkersburg, West Virginia on May 8, 1989.
CB&T provides a complete range of financial services to both retail and
commercial customers. Additionally, CB&T has full trust powers and provides a
wide variety of those services to individuals, corporations, foundations and
others.
JACKSON COUNTY BANK
Jackson County Bank was chartered as a West Virginia Banking Corporation on
April 1, 1899, and was originally located on Walnut Street in Ravenswood, West
Virginia. In 1958 the present quarters on Wall Street were first occupied.
As the only full-service commercial bank headquartered in Ravenswood,
Jackson provides a complete range of retail banking services to the community's
individuals and businesses. Jackson does not provide trust or correspondent
banking services.
2
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FARMERS AND MERCHANTS BANK OF RITCHIE COUNTY
F&M was incorporated in 1941 as a West Virginia Banking Corporation with
the name "Farmers and Merchants Bank of Cairo" and was located in Cairo, West
Virginia. In 1984 offices were rented at 1500 East Main Street in Harrisville,
West Virginia, to serve as a branch location. In 1985, the main offices of F&M
were moved from Cairo to the Harrisville location, and the Cairo office
continued as a branch facility. The Harrisville offices were purchased by F&M
in 1987.
F&M is the smaller of two banks in Harrisville, the county seat of Ritchie
County. It offers services normally offered by a full-service commercial bank,
including all types of deposit accounts and loans. It does not offer trust
services or correspondent banking services.
THE DIME BANK
The Dime Savings Society of Marietta, Ohio, was converted to a commercial
bank, The Dime Bank, on May 1, 1972. At that time, The Dime Savings Society of
Marietta had moved from the former Dime Savings Society Building at the corner
of Front and Greene Streets to the corner of Second and Putnam Streets in
Marietta. On April 1, 1982, The Dime Bank of Ross County, N.A. was merged into
The Dime Bank. On December 31, 1983, The Dime Bank sold its branch in Ross
County, formerly The Dime Bank of Ross County, N.A., to Kingston National Bank.
On March 31, 1986, a group of forty-two investors purchased one hundred percent
of the stock of The Dime Bank from American Bancorporation of Wheeling, West
Virginia.
The main offices of The Dime Bank have remained at the Second and Putnam
location since May 1, 1972. In June of 1974, The Dime Bank established a branch
at Second and Butler Streets in Marietta, Ohio. In February of 1981, Dime
established a branch in Devola, on State Route 60.
Dime is a State of Ohio bank and a member of the Federal Reserve System.
Its main operations are conducted at its offices at 200 Putnam Street in
Marietta, Ohio, with drive-in banking services at each of the two branches.
Dime provides services normally offered by a full-service commercial bank, but
does not offer trust services and is not active in correspondent banking
services.
EMPLOYEES
As of December 31, 1993, Commercial and its subsidiaries had 145 full-time
equivalent employees.
COMPETITION
The primary market area of Commercial and its subsidiaries includes Wood,
Wirt, Jackson and Ritchie Counties in West Virginia, and Washington County,
Ohio, with a secondary market area including Wirt and Pleasants Counties in West
Virginia and Monroe, Noble, Morgan and Athens Counties in Ohio.
As of June 30, 1993, the most recent date for which branch data is
available, there were seven banks with 25 locations in Wood County. They
reported total deposits of $873,440,000 in the county. CB&T ranked third among
the banks with 15.63% of the total bank deposits. In addition there was one
savings bank office located in the county and 14 federal credit unions. Total
deposits of all institutions in the county were reported at $1,122,281,000.
CB&T ranked third among all institutions with 12.17% of the total deposits.
Six banks had 7 offices located in Jackson County on June 30, 1993, with
total bank deposits of $248,091,000. Jackson ranked fourth among the banks,
with 17.43% of the bank deposits. In addition to the banks, there is one
savings and loan association and one federal credit union located in Jackson
County, and total deposits for all financial institutions totaled $265,883,000
at June 30. Jackson ranked fourth among all institutions with 16.27% of the
total deposits.
F&M is the third largest of the five banks with offices in Ritchie County.
It has 16.24% of the $79,779,000 in bank deposits in the county. Additionally,
there is one federal credit union in Ritchie County, and total deposits for all
financial institutions amounted to $79,898,000 at June 30, 1993. F&M ranks
third among all financial institutions in the county and has 16.21% of the total
deposits.
As of June 30, 1993, there were nine banks located in Washington County
with total deposits of $679,383.000. The Dime Bank is the fifth largest of the
nine and holds 5.53% of the total deposits.
The comparisons made above are not indicative of the highly competitive
nature of the financial services industry, where many of the providers are less
regulated and are not subject to the same public reporting requirements as banks
or bank holding companies. Commercial's banks also compete with other financial
service providers such as money market and other mutual funds, finance
companies, and a variety of financial service and advisory companies, including
those marketed by direct mail. In addition, personal and corporate trust and
3
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investment services are offered by insurance companies, investment counseling
firms and other business firms and individuals. Despite this high level of
competition for deposits, loans and services from several sources, Commercial's
banks continue to attract customers who seek personal service provided by local
residents at convenient locations.
SUPERVISION AND REGULATION
Commercial is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act") and is registered as such with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
bank holding company, Commercial is required to file with the Federal Reserve
Board an annual report and such other information as may be required. The
Federal Reserve Board has the authority (which it has not exercised) to regulate
provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve Board before acquiring substantially all the assets of or direct
or indirect ownership or control of more than 5% of the voting shares of any
bank which is not already majority-owned. The Act also prohibits a bank holding
company, with certain exceptions, from itself engaging in or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these prohibitions
is for engaging in or acquiring shares of a company engaged in activities found
by the Federal Reserve Board by order or regulation to be so closely related to
banking or managing banks as to be a proper incident thereto. The Act prohibits
the acquisition by a bank holding company of more than 5% of the outstanding
voting shares of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank to be acquired
is located. Under Section 106 of the 1970 amendments to the Act and regulations
of the Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of any property or services.
CB&T, Jackson F&M and Dime are insured banks organized under the banking
laws of the states in which they are headquartered. Accordingly, their
operations are subject to Federal and State laws applicable to commercial banks
and commercial banks with trust powers and to regulation by the state regulatory
authorities and the Federal Deposit Insurance Corporation. Among other
restrictions, the West Virginia Banking Law provides that banks organized
thereunder may pay dividends only out of undivided profits.
The Ohio Division of Banks, the Banking Commissioner of the State of West
Virginia, the Federal Reserve Board and the Federal Deposit Insurance
Corporation have the discretion to examine the affairs of the various banks for
the purpose of determining the financial condition of CB&T, Jackson F&M and
Dime.
Additionally, CB&T, Jackson, F&M and Dime are subject to certain
regulations issued by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Department of Banking of the State of
West Virginia, the Ohio Division of Banks, the Internal Revenue Service, the tax
departments of Ohio and West Virginia, the county and city governments of the
communities in which the banks are located, and other agencies in varying
degrees. Commercial, likewise is subject to rules and regulations issued by the
regulators noted above, as well as the Securities and Exchange Commission. This
control and scrutiny affects the timing and manner in which Commercial and its
subsidiaries conduct their business, the level of profitability achieved, and
the volume and the type of reports given to the public and government.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the banking industry and of the banks are
affected by the credit policies of monetary authorities, including the Federal
Reserve System. An important function of the Federal Reserve System is to
regulate the national supply of bank credit in order to combat recession and
curb inflationary pressures. Among the instruments of monetary policy used by
the Federal Reserve to implement these objectives are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings and changes in reserve requirements against bank deposits. These
means are used in varying combinations to influence overall growth of bank
loans, investments and deposits and may also affect interest rates charged on
loans or paid for deposits. The monetary policies of the Federal Reserve Board
4
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have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to have such an effect in the future.
In view of changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effect on
the business and earnings of Commercial BancShares, Incorporated, Commercial
Banking and Trust Company, Jackson County Bank, Farmers and Merchants Bank of
Ritchie County or The Dime Bank.
ITEM 2. PROPERTIES
The principal executive offices of CB&T and Commercial are located at 415
Market Street, Parkersburg, West Virginia. This building, a 3-story bank and
office building, is owned by CB&T. During 1984, CB&T constructed a branch
office in Mineral Wells, West Virginia. The branch is one and one-half stories
with a full basement. During 1986, CB&T constructed a branch office in Vienna,
West Virginia, on leased property. At the end of the ten-year lease, CB&T has a
fixed purchase price option. The building is a one-story masonry structure with
attached drive-in lanes. CB&T subsequently purchased three adjacent lots, one
of which is used for parking, and two are vacant. CB&T also leases a portion of
a two-story bank building on Pike Street in Parkersburg.
Jackson owns and occupies a modern two-story masonry bank building at the
intersection of Wall Street with State Route 68 on the edge of downtown
Ravenswood, West Virginia.
F&M owns and occupies modern bank buildings in Harrisville and Cairo, West
Virginia. The office in Cairo was built in 1974 and is a one-story brick
building in colonial style. The Harrisville office is a one-story building of
brick construction built in 1971 and remodeled in 1984. In 1988 an addition was
made as well as some remodeling.
Dime's main offices are located at 200 Putnam Street in Marietta, Ohio in
an eight-story office building. One-half of the building was constructed in the
late 1800's and the other half in the early 1900's. There have been several
remodelings. Each floor of the building contains approximately 3,200 square
feet. The drive-in facility at Second and Butler Streets was constructed for
that purpose in 1974 and has the capacity for four lanes. The site includes an
employee parking lot and an automated teller machine. The Devola branch of Dime
was constructed in 1981 as a full-service branch, but the bank presently
operates a drive-in facility only on the half-acre site.
In addition to the banking buildings, CB&T, Jackson, F&M Dime and
Commercial own other real properties which, when considered in the aggregate,
are not material to their operations.
ITEM 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which CB&T,
Jackson, F&M and Dime are party. Management considers that the aggregate
liabilities, if any, arising from such actions would not have material adverse
effect on the consolidated financial position of Commercial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
5
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Page 26 of the 1993 Annual Report to shareholders is incorporated herein by
reference
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the related comments in the President's letter are included
inside the front cover of the 1993 Annual Report to shareholders (page 13 of
this Form) and on pages 20 to 25 of the Annual Report (pages 33 to 38 of this
Form).
ITEM 7. FINANCIAL STATEMENTS
The report of independent accountants and consolidated financial statements
are included on pages 2 through 19 of the 1993 Annual Report to shareholders
(pages 15 through 32 of this Form).
Quarterly Results of Operations for the year ended December 31, 1993
included on page 18 of the 1993 Annual Report to shareholders (page 31 of this
Form) are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
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The information required by items 9 through 12 in this part is incorporated
herein by reference from BancShares' definitive proxy statement dated April 1,
1994 for the annual meeting of shareholders to be held on May 12, 1994, which is
included as Exhibit 99.
6
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PART IV
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
(2) Financial Statement Schedules
The response to this portion of Item 13 is submitted as a
separate section of this report.
(3) Listing of Exhibits
Exhibit 11 - Statement Re: Earnings per share
Exhibit 24 - Consent of Independent Accountants
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1993.
(c) Exhibits
The response to this portion of Item 13 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
None
7
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
(Registrant)
------------
By: /s/ William E. Mildren, Jr.
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William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ William E. Mildren, Jr. 3/25/94 /s/ Larry G. Johnson, 3/24/94
- ----------------------------------- -----------------------------
William E. Mildren, Jr. Larry G. Johnson
Chairman, President and Secretary-Treasurer
Chief Executive Officer
/s/ James A. Meagle, Jr. 3/25/94
- -------------------------------- --------------------------------
Bruce Bingham James A. Meagle, Jr.
Director Director
/s/ Robert W. Burk, Jr. 3/25/94 /s/ Jack F. Poe, 3/24/94
- -------------------------------- ------------------------
Robert W. Burk, Jr. Jack F. Poe
Director Director
/s/ Robert E. Richardson, 3/25/94
- -------------------------------- ---------------------------------
Frank L. Christy Robert E. Richardson
Director Director
/s/ A. Vernon Criss, III, 3/25/94
- --------------------------------- --------------------------------
A. Vernon Criss, III W.S. Ritchie, Jr.
Director Director
/s/ Carl E. Dollman, 3/24/94 /s/ Susan S. Ross, 3/25/94
- ---------------------------- --------------------------
Carl E. Dollman Susan S. Ross
Director Director
----------------------------
Thomas N. Webster
Director
- ---------------------------- --------------------------
William E. Mildred, Sr. Morris B. Wilkins
Director Director
8
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FORM 10-K--ITEM 14(A)(1) AND (2)
COMMERCIAL BANCSHARES, INCORPORATED
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of Commercial BancShares, Incorporated and subsidiaries are included in
Item 8:
Report of independent auditors
Consolidated balance sheets--December 31, 1993 and 1992
Consolidated statements of income--Years ended December 31, 1993, 1992 and
1991
Consolidated statements of shareholders' equity--Years ended December 31,
1993, 1992 and 1991
Consolidated statements of cash flows--Years ended December 31, 1993, 1992
and 1991
Notes to consolidated financial statements--December 31, 1993
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
9
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EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMMERCIAL BANCSHARES, INCORPORATED
<TABLE>
<CAPTION>
Year Ended December 31
PRIMARY: 1993 1992
------------------------
<S> <C> <C>
Average shares outstanding 740,623 740,135
Net Income $2,773,735 $2,468,933
Less dividend paid on convertible
preferred stock 271,853 272,460
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Applicable to common stock $2,501,883 $2,196,473
========================
Per Share Amount $ 3.38 $ 2.97
FULLY DILUTED:
Average shares outstanding 740,623 740,135
Effect of conversion of convertible
preferred stock 199,284 199,768
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TOTAL 939,907 939,903
========================
Net Income $2,773,735 $2,196,473
========================
Per Share Amount $ 2.95 $ 2.63
</TABLE>
<PAGE>
EXHIBIT 13
[LOGO OF COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES]
COMMERCIAL
BANCSHARES, INC.
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1993 ANNUAL REPORT
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[LOGO OF Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
PRESIDENT'S MESSAGE
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Dear Shareholders and Friends:
Commercial BancShares enjoyed another very successful year in 1993. Net income
achieved a new record of $2.77 million, which was up 12.35% from the record
attained in 1992. Fully diluted earnings on a per share basis reached $2.95. I
am particularly pleased to report that the return on average assets in 1993 was
1.10%, up from 1.02% in 1992. Each of the subsidiary banks made strong attempts
to maintain their net interest margins, improve noninterest income and contain
noninterest expense growth. Their efforts made BancShares' success in 1993
possible.
A major contributor to the improved earnings was our ability to reduce the
provision for loan loss by 88.7% from the 1992 level. Although the loan
portfolio decreased $1.6 million from December 31, 1992 to December 31, 1993,
because recoveries exceeded loan losses in 1993, the balance of the reserve
increased 4.7%. The overall quality of the loan portfolio also was improved. At
year-end 1993, loans past due 90 days or more were 11.6% less than they were at
year-end 1992. Nonaccrual loans were only 46.4% of the December, 1992, level and
both past due and nonaccrual loans were at their lowest level in the last five
years.
As shown in the graph on the next page, total assets and deposits both climbed
to record highs in 1993. At year-end, assets were up $9.4 million or 3.8% from
the 1992 level. Deposits increased $7.9 million or 3.47%. Total shareholders'
equity grew by 8.9% to $21.3 million. This resulted in a fully diluted book
value per common share of $22.65 per share at December 31.
Despite the arrival of "mega-banks" on the West Virginia banking scene,
BancShares continues to believe that its customers appreciate the emphasis it
places on community banking. Although some "back office" functions, such as data
processing, are centralized, each of BancShares' banks operates independently,
making its own decisions on such important matters as loan pricing, product
offerings and deposit interest rates. Each bank is operated by its own board of
directors and president--local residents, involved in the community.
In September, 1993, Hometown Bankshares, which operates community banks in
Tyler, Wetzel and Ritchie Counties in West Virginia signed an agreement and plan
of merger whereby Hometown will merge with and into Commercial BancShares in
exchange for common shares of Commercial. Preparation of the regulatory
applications is in process and it is anticipated that a special meeting of
Commercial shareholders will be held during the first half of 1994 to consider
the merger. Because Hometown shares Commercial's philosophy of community
banking, we are hopeful the merger will be approved by the shareholders of each
company and the transaction can be accomplished as soon as possible.
In November, 1993, we were saddened by the death of James R. O'Hair who joined
Commercial Banking & Trust in 1944 and remained until his retirement in 1969.
Jim served as our President from 1967-1969 and served on the Board for over 30
years. He was dedicated, served our company well, and will be missed.
As in all our successes, we are grateful to the people who help make them
possible: our faithful staff of officers and employees, our directors, our
shareholders and our loyal customers. We hope you will recommend BancShares and
its banks to your friends and associates.
Sincerely,
/S/ William E. Mildren, Jr.
---------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMERCIAL BANCSHARES,
INCORPORATED AND SUBSIDIARIES
At Year End 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
(Thousands of Dollars)
Total Assets.................. $258,217 $248,784 $233,662 $226,396 $207,748
Total Deposits................ 234,082 226,229 210,920 206,857 189,533
Total Loans................... 174,476 176,086 156,105 132,339 120,309
Total Shareholders' Equity.... 21,284 19,537 18,076 16,540 16,076
Long-Term Debt................ 424 362 196 393 589
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For the Year Ended
(Thousands of Dollars)
Total Interest Income......... $ 18,475 $ 19,964 $ 20,684 $ 20,458 $ 19,742
Net Interest Income........... 11,361 11,452 9,925 9,148 8,535
Provision for Loan Losses..... 88 779 782 604 512
Net Income.................... 2,774 2,469 1,698 1,564 1,840
- ---------------------------------------------------------------------------------
Per Common Share
(Dollars)
Net Income (Primary).......... $ 3.38 $ 2.97 $ 1.96 $ 1.78 $ 2.10
Cash Dividends Declared....... .94 .83 .80 .76 .72
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</TABLE>
1
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[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
as of December 31, 1993 and 1992
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
1993 1992
---------------------
(Restated)
<S> <C> <C>
ASSETS
Cash and Due from Banks...................................... $ 10,172 $ 10,499
Interest-Bearing Deposits in Banks........................... 99 99
Federal Funds Sold........................................... 7,924 14,213
Investment Securities, at Amortized Cost
(Market Values: 1993 - $57,274; 1992 - $39,964).......... 56,269 38,841
Loans - Net.................................................. 174,476 176,086
LESS: Reserve for Loan Losses............................... (2,388) (2,281)
Premises and Equipment - Net................................. 5,658 5,793
Notes Receivable............................................. 255 255
Accrued Interest Receivable.................................. 1,659 1,481
Foreclosed Properties - Net.................................. 1,253 1,369
Other Assets................................................. 2,840 2,429
--------------------
TOTAL ASSETS................................................. $258,217 $248,784
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand - Non-Interest Bearing ............................ $ 32,819 $ 31,226
Demand - Interest Bearing................................. 47,550 45,253
Savings................................................... 52,618 50,965
Time Deposits............................................. 101,095 98,785
--------------------
TOTAL DEPOSITS....................................... $234,082 $226,229
Federal Funds Purchased and Securities Sold under
Agreements to Repurchase.................................. -0- 125
ESOP Borrowings.............................................. 424 362
Accrued Interest Payable..................................... 550 635
Other Liabilities............................................ 1,877 1,896
--------------------
TOTAL LIABILITIES.................................... $236,933 $229,247
--------------------
SHAREHOLDERS' EQUITY
Convertible Preferred Stock
($100.00 Par Value: 43,328 Shares Authorized:
Issued Shares; 27,165 in 1993; 27,246 in 1992).......... $ 2,716 $ 2,725
Common Stock
($5.00 Par Value: 1,000,000 Shares Authorized:
Issued Shares; 758,506 in 1993; 757,913 in 1992)........ 3,792 3,789
Additional Paid in Capital................................. 5,683 5,677
Undivided Profits.......................................... 9,864 8,058
LESS: Employee Stock Ownership Plan Shares
Collateralizing Debt, at Cost
(43,062 Shares in 1993; 52,014 Shares in 1992).. (424) (362)
Treasury Stock, at Cost
(17,643 Shares in 1993; 17,778 Shares in 1992).. (347) (350)
--------------------
TOTAL SHAREHOLDERS' EQUITY........................... $ 21,284 $ 19,537
--------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $258,217 $248,784
====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1993, 1992, and 1991
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
EXCEPT FOR PER SHARE DATA
--------------------------------------
1993 1992 1991
(Restated) (Restated)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............................ $15,276 $16,252 $15,927
Interest on Notes Receivable.......................... 17 14 12
Interest on Securities at Amortized Cost.............. 2,782 3,357 4,298
Interest on Federal Funds Sold........................ 394 339 412
Interest on Deposits with Banks....................... 6 2 35
TOTAL INTEREST INCOME........................... $18,475 $19,964 $20,684
--------------------------------------
INTEREST EXPENSE
Interest on Deposits.................................. $ 7,089 $ 8,465 $10,634
Interest on Other Borrowings.......................... 25 47 125
--------------------------------------
TOTAL INTEREST EXPENSE.......................... $ 7,114 $ 8,512 $10,759
--------------------------------------
NET INTEREST INCOME............................. $11,361 $11,452 $ 9,925
Provision for Loan Losses............................. 88 779 782
--------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES....................... $11,273 $10,673 $ 9,143
--------------------------------------
NONINTEREST INCOME
Trust Department Income............................... $ 535 $ 409 $ 362
Service Charges, Fees, and Commissions................ 978 819 804
Security Gains........................................ 15 5 83
Other Income.......................................... 434 390 195
--------------------------------------
TOTAL NONINTEREST INCOME........................ $ 1,962 $ 1,623 $ 1,444
--------------------------------------
NONINTEREST EXPENSES
Employee Compensation and Benefits.................... $ 4,756 $ 4,267 $ 4,164
Occupancy Expense, Net of Revenues.................... 532 539 547
Furniture and Equipment Expense....................... 741 755 714
Other Operating Expenses.............................. 2,970 3,046 2,980
--------------------------------------
TOTAL NONINTEREST EXPENSES...................... $ 8,999 $ 8,607 $ 8,405
--------------------------------------
INCOME BEFORE INCOME TAXES...................... $ 4,236 $ 3,689 $ 2,182
Applicable Income Taxes............................... 1,462 1,220 484
--------------------------------------
NET INCOME...................................... $ 2,774 $ 2,469 $ 1,698
======================================
NET INCOME AVAILABLE FOR
COMMON SHAREHOLDERS.................................... $ 2,502 $ 2,196 $ 1,425
--------------------------------------
EARNINGS PER SHARE DATA:
Primary............................................... $3.38 $2.97 $1.96
======================================
Fully Diluted......................................... $2.95 $2.63 $1.83
======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1993, 1992, and 1991
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
1993 1992 1991
------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK
(43,328 Shares Authorized):
Cumulative Preferred $100.00 Series:
Balance at Beginning of Year...................... $2,725 $2,725 $2,733
Conversion of Preferred Stock to Common Stock..... (9) -0- (8)
------------------------------
BALANCE AT END OF YEAR -
27,165 Shares Outstanding in 1993;
27,246 Shares Outstanding in 1992; and
27,246 Shares Outstanding in 1991................... $2,716 $2,725 $2,725
------------------------------
COMMON STOCK
($5.00 Par Value; 1,000,000 Shares Authorized):
Balance at Beginning of Year........................ $3,789 $3,789 $3,786
Issuance of Common Stock under Conversion
of Preferred Stock................................ 3 -0- 3
Issuance of Common Stock............................ -0- -0- -0-
------------------------------
BALANCE AT END OF YEAR -
758,506 Shares Issued in 1993;
757,913 Shares Issued in 1992; and
757,913 Shares Issued in 1991....................... $3,792 $3,789 $3,789
------------------------------
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Year........................ $5,677 $5,677 $5,661
Additional Paid in Capital from Conversion
of Preferred Stock to Common Stock................ 5 -0- 5
Additional Paid in Capital from Resale of
Treasury Stock.................................... 1 -0- 11
Issuance of Common Stock............................ -0- -0- -0-
------------------------------
BALANCE AT END OF YEAR..................................... $5,683 $5,677 $5,677
------------------------------
UNDIVIDED PROFITS
Balance at Beginning of Year:
Previously Reported............................... $8,058 $6,433 $5,399
SFAS 109 Retrospective Deferred
Tax Adjustment.................................. NA NA 22
Restated.......................................... 8,058 6,433 5,421
Net Income.......................................... 2,774 2,469 1,698
Cash Dividends Declared:
Convertible Preferred Stock....................... (272) (273) (273)
Common Stock...................................... (696) (571) (413)
------------------------------
BALANCE AT END OF YEAR..................................... $9,864 $8,058 $6,433
------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
for the years ended December 31, 1993, 1992, and 1991
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
1993 1992 1991
-----------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
LESS: EMPLOYEE STOCK OWNERSHIP PLAN
SHARES COLLATERALIZING DEBT, AT COST
Balance at Beginning of Year...................................... $ 362 $ 196 $ 393
Purchase of Common Stock.......................................... 94 362 -0-
Principal Reduction of ESOP Obligation............................ (32) (196) (197)
-----------------------------------
BALANCE AT END OF YEAR
43,062 Shares in 1993;
52,014 Shares in 1992; and
32,204 Shares in 1991............................................. $ 424 $ 362 $ 196
-----------------------------------
LESS: TREASURY STOCK, AT COST
Balance at Beginning of Year...................................... $ 350 $ 352 $ 646
Purchase of 2,000 Shares, at Cost,
of Common Stock in 1991.......................................... -0- -0- 43
Resale of 135 Shares, 90 Shares,
and 16,622 Shares of Treasury Stock, at
Cost in 1993, 1992, and 1991,
Respectively..................................................... (3) (2) (337)
-----------------------------------
BALANCE AT END OF YEAR
17,643 Shares in 1993;
17,778 Shares in 1992; and
17,868 Shares in 1991............................................. $ 347 $ 350 $ 352
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY............................................. $21,284 $19,537 $18,076
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1993, 1992 and 1991
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
1993 1992 1991
----------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................ $ 2,774 $ 2,469 $ 1,698
----------------------------------
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Deferred Employee Benefits..................... $ 33 $ 196 $ 197
Depreciation................................... 678 684 681
Provision for Loan Losses...................... 88 779 782
Provision for Losses on Foreclosed Properties.. 190 -0- -0-
Net Amortization (Accretion) on Investments.... 264 (7) (11)
Provision for Deferred Taxes................... (58) (114) (82)
(Gain) Loss on Sale of Capitalized Assets...... 2 4 (1)
Realized Gains on Investment
Securities................................... (15) (5) (83)
Income Tax Benefit............................. (255) (228) (360)
Other Items - Net.............................. (13) (13) (12)
(Increase) Decrease:
Accrued Interest Receivable.................. (182) 327 352
Other Assets................................. (876) (26) 272
Increase (Decrease):
Accrued Interest Payable..................... (85) (336) (132)
Other Liabilities............................ 233 812 325
----------------------------------
TOTAL ADJUSTMENTS............................ $ 4 $ 2,073 $ 1,928
----------------------------------
NET CASH FLOWS FROM
OPERATING ACTIVITIES................................... $ 2,778 $ 4,542 $ 3,626
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in Short-Term
Investments..................................... $ 6,289 $ (5,203) $ 10,609
Proceeds from Sales of Securities
Reported at Amortized Cost...................... -0- -0- $ 5,876
Proceeds from Maturities and Calls of
Securities Reported at Amortized Cost........... 18,570 20,002 10,837
Purchases of Securities Reported
at Amortized Cost............................... (35,815) (12,448) (6,929)
Net (Loans Originated) Principal
Collected....................................... 1,648 (20,337) (24,775)
Proceeds from Sale of Premises
and Equipment................................... 43 39 2
Purchases of Premises and Equipment............... (638) (835) (710)
----------------------------------
NET CASH FLOWS FROM
INVESTING ACTIVITIES................................... $ (9,903) $(18,782) $ (5,090)
----------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
for the years ended December 31, 1993, 1992 and 1991
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
1993 1992 1991
---------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total
Deposits............................................ $ 7,855 $15,308 $ 4,363
Net Increase (Decrease) in Federal
Funds Purchased and Securities Sold
under Agreements to Repurchase...................... (125) (2,530) 2,155
Net Increase (Decrease) in Other
Short-Term Borrowings............................... -0- -0- (200)
Proceeds from Sale of Treasury Stock................. 3 2 348
Purchase of Treasury Stock........................... -0- -0- (43)
Principal Payments on ESOP Borrowings................ (33) (196) (197)
Principal Payments on Capital Lease Obligation....... (28) (25) (17)
Proceeds from Issuance of ESOP Debt.................. 94 362 -0-
Dividends Paid....................................... (968) (844) (686)
---------------------------------
NET CASH FLOWS FROM
FINANCING ACTIVITIES................................. $ 6,798 $12,077 $ 5,723
---------------------------------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS................................... $ (327) $(2,163) $ 4,259
---------------------------------
CASH AND DUE FROM BANKS
AT BEGINNING OF YEAR................................. 10,499 12,662 8,403
---------------------------------
CASH AND DUE FROM BANKS
AT END OF YEAR....................................... $10,172 $10,499 $12,662
=================================
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of Convertible Preferred Stock to
Common Stock........................................ $ 9 $ -0- $ 8
Loans Transferred to Foreclosed Properties........... $ 124 $ 119 $ 86
Capital Lease Obligation............................. $ -0- $ -0- $ 82
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid during the Year For:
Interest............................................ $ 7,200 $ 8,849 $10,892
Income Taxes........................................ $ 2,086 $ 665 $ 581
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Commercial BancShares, Inc. and
Subsidiaries are in conformity with generally accepted accounting principles
followed within the banking industry. The significant accounting policies
employed in the preparation of the accompanying consolidated financial
statements are summarized below.
Certain items previously reported have been reclassified to conform with
current year's classifications.
RETROSPECTIVE CHANGE IN ACCOUNTING PRINCIPLE
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
109, "Accounting for Income Taxes" retrospectively, resulting in the restatement
of the prior periods comparative financial information. The new standard changed
many of the requirements of prior accounting standards, particularly with
respect to the criteria for the recognition of deferred tax assets and
liabilities. A further discussion of the temporary differences resulting in
deferred tax balances is incorporated in Note 8 to the consolidated financial
statements.
The following adjustments resulting from the adoption of SFAS 109 have
increased (decreased) previously reported categories:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31
--------------------------------------------------------------------
1992 1991
--------------------------------------------------------------------
Previously Accounting Previously Accounting
Reported Change Restated Reported Change Restated
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
Other Assets................. $2,095 $ 335 $2,430
Other
Liabilities................ $1,767 $ 130 $1,897
Undivided
Profits.................... $7,852 $ 205 $8,057
STATEMENTS OF
INCOME
Applicable Income
Taxes...................... $1,323 $(103) $1,220 $ 566 $ (82) $ 484
Net Income................... $2,366 $ 103 $2,469 $1,616 $ 82 $1,698
Net Income
Available for
Common
Shareholders............... $2,093 $ 103 $2,196 $1,343 $ 82 $1,425
Primary-Per
Share...................... $ 2.83 $ .14 $ 2.97 $ 1.84 $ .12 $ 1.96
Fully Diluted-
Per Share.................. $ 2.52 $ .11 $ 2.63 $ 1.74 $ .09 $ 1.83
--------------------------------------------------------------------
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Commercial BancShares, Inc. and
Subsidiaries (the Corporation) include the accounts of the Corporation and its
subsidiaries. Material intercompany transactions and accounts have been
eliminated. Purchase accounting adjustments applicable to the acquisition of The
Jackson County Bank have been included in the Corporation's consolidated
financial statements.
Effective February 1, 1992, the Corporation acquired the net assets of The
Dime Bank by exchanging 214,266 shares of its common stock for all of the
outstanding shares of The Dime Bank. The combination has been recorded using the
pooling-of-interests method of accounting and, accordingly, the accompanying
consolidated financial statements were prepared as if the combination had
occurred on January 1, 1991. All significant intercompany transactions have been
eliminated.
Summarized results of operations, in thousands, of the Corporation and The
Dime Bank for the periods January 1, 1992 to February 1, 1992 and January 1, to
December 31, 1991, respectively, are as follows:
<TABLE>
<CAPTION>
In Thousands of Dollars
-----------------------------------------------
1992 1991
Commercial Commercial
BancShares, The BancShares The
Inc, and Dime Inc. and Dime
Subsidiaries Bank Subsidiaries Bank
<S> <C> <C> <C> <C>
Total Interest Income...... $1,448 $ 284 $17,550 $ 3,242
Total Interest Expense..... (718) (140) (9,017) (1,742)
Provision for Loan Losses.. ( 56) -0- ( 692) ( 90)
Other Income............... 131 24 1,142 263
Other Expenses............. (542) (130) (7,152) (1,321)
Applicable Income Taxes.... (118) ( 10) ( 483) ( 83)
----------------------------------------------
NET INCOME................. $ 145 $ 28 $ 1,348 $ 269
==============================================
</TABLE>
STATEMENT OF CASH FLOWS
For the purpose of reporting cash flows, the Corporation has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks."
SECURITIES
It is the policy of the Corporation and its subsidiaries to prohibit the use
of their respective investment accounts to maintain a trading account or to
speculate in securities that would demonstrate management's intent to profit
from short-term price movements.
Debt securities which management intends and which the Corporation has the
ability to hold until maturity are carried at cost, adjusted on the interest-
method basis for amortization of premiums and accretion of discounts which are
recognized as adjustments to investment interest income. The Corporation and its
subsidiaries generally anticipate prepayments of principal in the calculation of
the effective yield for collateralized mortgage obligations. Market values of
securities are determined by prices obtained from independent market sources.
Realized gains or losses on disposition are computed on the identified cost
basis and are reported under investment securities gains on the accompanying
consolidated statements of income.
NOTE RECEIVABLE
The Corporation has a note receivable with Move Capital, Inc. which had an
original principal balance of $255 thousand. The principal balance of the note
matures March 31, 1996. The borrower promises to pay one-half of the interest
when and as earned on certain certificates of deposit and one-half of all
payments of interest when and as received from certain investments and such
additional amount as needed per year so that interest paid equals five percent
per annum on the unpaid principal balance.
LOANS
Loans are stated at the amount of unpaid principal, reduced by unearned
interest and deferred loan fees.
The net amount of loan origination and commitment fees, and direct costs
incurred to underwrite and issue the loan are deferred and amortized as an
adjustment of the related loan's yield over the contractual life of the loan in
a manner which approximates the interest method.
Interest income on discounted loans is generally recognized as income based on
methods that approximate the interest method. For all other loans, interest is
accrued daily on the outstanding balances. Unearned income on discounted loans
is credited to the unearned interest account when the loan is made and is
recorded as interest income monthly over the life of the loan using the interest
method.
Nonaccrual loans are those on which the accrual of interest has ceased. Loans,
other than consumer loans, are placed on nonaccrual status immediately if, in
the opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more and collateral is insufficient to cover principal
and interest. Interest accrued but not collected at the date a loan is placed on
8
<PAGE>
nonaccrual status is reversed against interest income. In addition, any interest
accrued in prior years is charged to the reserve for loan losses. Subsequent
cash receipts are applied either to the outstanding principal balance or
recorded as interest income, depending on management's assessment of the
ultimate collectibility of principal and interest. Loans are reclassified to
accrued status only when interest and principal payments are brought current and
future payments appear assured.
Restructured loans are loans with original terms which have been modified to
below market rate terms as a result of a change in the borrower's financial
condition. Interest income on restructured loans is accrued at the reduced
rates.
A commitment to extend credit is a binding agreement to make a loan to a
customer in the future if certain conditions are met and is subject to the same
risk, credit review, and approval process as a loan. Many commitments expire
without being used and, therefore, do not represent future funding requirements.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for loan losses is maintained at a level determined by management
to be adequate to provide for probable losses inherent in the loan portfolio,
including commitments to extend credit. The reserve is maintained through the
provision for loan losses, which is a charge to operations. When a loan is
considered uncollectible, the loss is charged to the reserve. Recoveries of
previously charged off loans are credited to the reserve. The potential for loss
in the portfolio reflects the risks and uncertainties inherent in the extension
of credit.
The determination of the adequacy of the reserve is based upon management's
assessment of risk elements in the portfolio, factors affecting loan quality,
and assumptions about the economic environment in which the Corporation
operates. The process includes identification and analysis of loss potential in
various portfolio segments utilizing a credit risk grading process and specific
reviews and evaluations of significant individual problem credits. In addition,
management reviews overall portfolio quality through an analysis of current
levels and trends in charge-off, delinquency, and nonaccruing loan data, review
of forecasted economic conditions, and the overall banking environment. These
reviews are of necessity dependent upon estimates, appraisals, and judgments
which may change quickly because of changing economic conditions and the
Corporation's perception as to how these factors may affect the financial
condition of debtors.
FORECLOSED PROPERTIES
Properties acquired through foreclosure or in settlement of loans and in-
substance foreclosures are classified as foreclosed properties and are valued at
the lower of the loan value or estimated fair value of the property acquired
less estimated selling costs. An in-substance foreclosure occurs when a borrower
has little or no equity in the collateral, repayment can only be expected to
come from the operations or sale of the collateral, and the borrower has
effectively abandoned the collateral or has doubtful ability to rebuild equity
in the collateral. At the time of foreclosure, the excess, if any, of the loan
value over the estimated fair value of the property acquired less estimated
selling costs is charged to the reserve for loan losses. Additional decreases in
the carrying values of foreclosed properties or changes in estimated selling
costs, subsequent to the time of foreclosure, are recognized through a provision
charged to operations. A valuation reserve is maintained for estimated selling
costs and to record the excess of the carrying values over the fair market
values of properties if changes in the carrying values are judged to be
temporary.
The fair value of foreclosed properties is determined based upon appraised
value, utilizing either the estimated replacement cost, the selling price of
properties utilized for similar purposes, or discounted cash flow analyses of
the properties' operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Premises and equipment are depreciated over their estimated useful lives using
either straight-line or an accelerated method. Useful lives are revised when a
change in life expectancy becomes apparent.
Maintenance and repairs are charged to expense and major renewals and
betterments are capitalized. Gains or losses on dispositions of premises and
equipment are included in income as realized.
APPLICABLE INCOME TAXES
Income tax expense is based on income reported in the financial statements.
Deferred income taxes are generally provided for transactions reported for tax
purposes in periods different than when reported in the Corporation's financial
statements.
The Corporation and its subsidiaries file consolidated Federal and state tax
returns. Tax allocation arrangements between the Corporation and its
subsidiaries follow the policy of determining Federal and state income taxes as
if the subsidiaries filed separate Federal and state income tax returns with
consolidation surtax eliminations at the Corporation's level.
TRUST FEES
In accordance with general practices within the banking industry, trust fees
are recorded when received. Reporting such income on an accrual basis would
not materially affect the results of operations as reported.
EARNINGS PER SHARE
Primary earnings per share of common stock are based on the weighted-average
number of shares of common stock outstanding during each period. Such weighted-
average shares outstanding were 740,623 shares, 740,135 shares, and 728,789
shares for the years 1993, 1992, and 1991, respectively. Fully diluted earnings
per share assumes the conversion of outstanding convertible preferred stock and
elimination of dividends paid thereon, as of the beginning of each period, in
order to compute the weighted-average of common shares outstanding during each
period. Such weighted-average shares assuming full dilution were 939,907 shares,
939,903 shares, and 929,033 shares in 1993, 1992, and 1991, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 requires the Corporation to disclose the fair value of its financial
instruments. A financial instrument is defined as cash, evidence of an ownership
interest in an entity, or a contract that conveys or imposes the contractual
right or obligation to either receive or deliver cash or another financial
instrument. Examples of financial instruments included in the Corporation's
balance sheet are cash, Federal funds sold or purchased, debt and equity
securities, loans, demand, savings, and other interest-bearing deposits, and
notes. Examples of financial instruments which are not included in the
Corporation's balance sheet are commitments to extend credit, and standby
letters-of-credit. Fair value is defined as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation, and is best evidenced by a quoted
market price if one exists.
9
<PAGE>
NOTE 2: INVESTMENT SECURITIES
The following represents the amortized costs and estimated market values of
investments in securities for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31, 1993
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Government and
Federal Agency/
Corporation Obligations:
Mortgage-Backed Securities.. $ 3,659 $ 16 $ 9 $ 3,666
Collateralized Mortgage
Obligations................. 3,122 36 19 3,139
Government Agencies and
U.S. Treasuries............. 36,503 538 49 36,992
Obligations of States and
Political Subdivisions...... 11,123 472 8 11,587
Other Debt Securities......... 1,416 28 -0- 1,444
Equity Securities -
FHLB Stock.................. 446 -0- -0- 446
--------------------------------------------
TOTAL.................. $56,269 $1,090 $ 85 $57,274
============================================
</TABLE>
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31, 1992
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Government and
Federal Agency/
Corporation Obligations:
Mortgage-Backed Securities.. $ 1,147 $ 20 $-0- $ 1,167
Collateralized Mortgage
Obligations................. 2,430 35 2 2,463
Government Agencies and
U.S. Treasuries............. 23,694 701 15 24,380
Obligations of States and
Political Subdivisions...... 9,524 384 -0- 9,908
Other Debt Securities......... 2,046 -0- -0- 2,046
--------------------------------------------
TOTAL.................. $38,841 $1,140 $ 17 $39,964
============================================
</TABLE>
The amortized cost and estimated market value of securities at December 31,
1993, by contractual maturity, are presented as follows. Expected maturities
will differ from contractual maturities because borrowers may have the right to
prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Reported at Amortized Cost
In Thousands of Dollars
--------------------------
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in One Year or Less................. $10,318 $10,452
Due after One Year through Five Years... 28,794 29,235
Due after Five Years through Ten Years.. 14,532 14,917
Due after Ten Years..................... 2,179 2,224
Equity Securities - FHLB Stock.......... 446 446
---------------------
TOTAL................................... $56,269 $57,274
---------------------
</TABLE>
Proceeds from sales of investments in debt securities during 1993, 1992, and
1991 were $-0-, $-0-, and $5,876 thousand, respectively. Gross gains of $-0-,
$-0-, and $83 thousand and gross losses of $-0-, $-0-, and $-0- were realized on
those sales during 1993, 1992, and 1991, respectively. Security gains of $15
thousand and $5 thousand recognized in 1993 and 1992, respectively, resulted
from calls of investment obligations beyond the control of the Company.
The market values of obligations of state and political subdivisions are
established with the assistance of an independent pricing service and are based
on available market data which often reflect transactions of relatively small
size and are not necessarily indicative of the prices at which large amounts of
particular issues could readily be sold or purchased.
Securities pledged to secure government deposits and other purposes as
required or permitted by law had a book value of $13,315 thousand and $15,420
thousand as of December 31, 1993 and 1992, respectively. The estimated market
values of the pledged securities totalled $13,780 thousand and $17,946 thousand
at December 31, 1993 and 1992, respectively.
INTEREST ON INVESTMENT SECURITIES
The following represents the interest on securities, presented by investment
classifications, for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
------------------------
1993 1992 1991
------------------------
<S> <C> <C> <C>
U. S. Government and
Federal Agency/Corporation
Obligations................. $2,056 $2,415 $3,118
State, County, and
Municipal Bonds
(Substantially All Exempt
from Federal Income Tax).... 614 695 820
Other Investments........... 112 247 360
----------------------
TOTAL....................... $2,782 $3,357 $4,298
======================
</TABLE>
NOTE 3: LOANS
Major classifications of loans, net of deferred fees, are summarized as
follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December
-----------------------
1993 1992
-----------------------
<S> <C> <C>
Real Estate.................. $ 65,771 $ 58,715
Consumer..................... 29,027 34,667
Commercial and Industrial.... 76,534 79,554
Credit Card Loans............ 3,169 3,219
-------------------
$174,501 $176,155
Unearned Income.............. (25) (69)
-------------------
LOANS - NET...... $174,476 $176,086
===================
</TABLE>
Changes in the allowance for loan losses were as follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-------------------------
1993 1992 1991
-------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING
OF YEAR............... $2,281 $1,757 $1,643
Provisions Charged
to Operations..... 88 779 782
Loans Charged Off... (146) (541) (758)
Recoveries.......... 165 286 90
------------------------
BALANCE, END OF YEAR.... $2,388 $2,281 $1,757
========================
</TABLE>
10
<PAGE>
Set forth below are the principal balances of nonaccrual (cash basis) and
renegotiated loans and other assets acquired in loan related transactions for
the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
------------------------
1993 1992 1991
------------------------
<S> <C> <C> <C>
Nonaccrual Loans..................... $ 277 $ 596 $ 921
Renegotiated or Restructured Loans... -0- -0- -0-
------------------------
TOTAL NONPERFORMING LOANS............ $ 277 $ 596 $ 921
Other Assets Acquired in
Satisfaction of Loans
(Primarily Foreclosed Properties).. 1,310 1,424 1,310
------------------------
TOTAL NONPERFORMING ASSETS........... $1,587 $2,020 $2,231
========================
</TABLE>
Restructured or renegotiated loans are those loans on which the rate of
interest has been reduced as a result of the inability of the borrower to meet
the original terms of the loan. At December 31, 1993, there were no
commitments to lend additional funds to borrowers whose loans were classified
nonaccrual (cash basis) or renegotiated.
The approximate effect of foregone revenue from nonaccrual or renegotiated
loans was as follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------
1993 1992 1991
-----------------------
<S> <C> <C> <C>
Gross Amount of Interest That
Would Have Been Recorded at
Original Rate............................... $ 47 $ 64 $ 113
Interest That Was Reflected in Revenue (1).. -0- 5 44
----------------------
NEGATIVE INTEREST
REVENUE IMPACT.............................. $ 47 $ 59 $ 69
======================
</TABLE>
(1) Represents interest collected on nonaccrual loans.
Foreclosed properties of $1,443 thousand and $1,255 thousand are stated net of
reserves of $190 thousand and $-0- at December 31, 1993 and 1992, respectively.
The reserve at December 31, 1993 includes $-0- for estimated selling costs.
Provisions charged to operations for changes in the carrying value of foreclosed
properties amounted to $190 thousand, $-0-, and $-0- in 1993, 1992, and 1991,
respectively.
NOTE 4: BANK PREMISES AND EQUIPMENT
Bank premises and equipment is presented on the balance sheet at cost net of
accumulated depreciation and consists of the following for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------
DESCRIPTION ESTIMATED USEFUL LIFE
1993 1992
-----------------------
<S> <C> <C> <C>
Land................................................ $ 1,194 $ 1,071
Bank Premises.................... 15 to 40 Years... 5,629 5,809
Furniture and Equipment.......... 5 to 10 Years.... 4,501 4,107
-----------------------
$11,324 $10,987
LESS: Accumulated Depreciation..................... (5,666) (5,194)
-----------------------
TOTAL............................................... $ 5,658 $ 5,793
-----------------------
</TABLE>
Depreciation and amortization amounted to $678 thousand, $684 thousand, and
$681 thousand for the years ended December 31, 1993, 1992, and 1991,
respectively.
A capital lease obligation of a subsidiary used for financing the acquisition
of a phone system is recorded in the assets and liabilities. Included in
furniture and equipment as of December 31, 1993 and 1992 is equipment acquired
under the capital lease with a capitalized cost of $82 thousand, less
accumulated depreciation of $42 thousand and $28 thousand, respectively. The
approximate present value of future minimum lease payments which run through
1994 is $9 thousand.
NOTE 5: TIME DEPOSITS
The maturity of time deposits in denominations of $100 thousand or more was as
follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------------------
1993 1992
-----------------------------------
BALANCE PERCENT BALANCE PERCENT
<S> <C> <C> <C> <C>
MATURING:
Three Months or
Less.............. $2,009 20% $3,200 41%
Over Three to
Six Months........ 1,024 10 1,050 13
Over Six to Twelve
Months............ 4,437 45 1,653 21
Over One Year....... 2,515 25 1,916 25
-----------------------------------
$9,985 100% $7,819 100%
===================================
</TABLE>
Interest expense on time deposits in denominations of $100 thousand or more as
of December 31, 1993, 1992, and 1991 was $318 thousand, $349 thousand, and $548
thousand, respectively.
NOTE 6: FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE
Federal funds purchased and securities sold under agreement to repurchase
generally represent overnight borrowing transactions.
The details of these classifications for the years 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
In Thousands of Dollars
-----------------------
1993 1992
-----------------------
<S> <C> <C>
FEDERAL FUNDS PURCHASED
Balance at End of Year..... $ -0- $ 125
Average during Year........ $ 780 $ 988
Maximum Month-End Balance.. $1,500 $3,000
Average Rate during Year... 3.05% 3.37%
Rate at Year-End........... N/A% 3.00%
SECURITIES SOLD UNDER
AGREEMENT TO REPURCHASE
Balance at End of Year..... $ -0- $ -0-
Average during Year........ $ -0- $ 135
Maximum Month-End Balance.. $ -0- $1,050
Average Rate during Year... N/A% 4.88%
Rate at Year End........... N/A% 0.00%
</TABLE>
11
<PAGE>
NOTE 7: ESOP BORROWINGS
ESOP borrowings, as presented on the consolidated balance sheet, is as follows
for the years ended:
<TABLE>
<CAPTION>
In Thousands
of Dollars
December 31,
-----------------------
1993 1992
-----------------------
<S> <C> <C>
During 1992, the ESOP Trust obtained a revolving
conversion note for the principal amount of one
million dollars to finance the acquisition of the
Corporation's common stock, pledging those shares
as collateral. The revolving conversion note was a
conversion line-of-credit up to $1,000,000,
available on a revolving basis until May 31, 1993.
The amount of the credit outstanding on May 31,
1993 converted to a term loan. Interest on the
unpaid principal balance of the loans is payable
on each calendar quarter since September 30, 1992.
The principal balance of the term loan is payable
on each calendar quarter commencing on June 30,
1993 in 28 equal quarterly installments. Interest
is at a rate of the lender's prime plus 1/2
percent, fluctuating accordingly. The interest
rate at December 31, 1993 was 6.50%. The
Corporation had principal borrowings and
repayments of $362 thousand and $-0-,
respectively, in 1992 and $94 thousand and $32
thousand, respectively, in 1993. Interest expense
of $25 thousand and $21 thousand was recognized in
1993 and 1992, respectively........................... 424 362
-----------------------
TOTAL................................................. $424 $362
=======================
</TABLE>
NOTE 8: INCOME TAXES
A reconciliation of the Federal statutory tax rate to the reported effective
tax rate is as follows for the years ended:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1993 1992 1991
---------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Federal Statutory Tax Rate. 34 % 34 % 34 %
Tax-Exempt Interest Income. (12)% (12)% (16)%
State Income Tax........... 5 % 4 % 3 %
Tax Effect of Other Items.. 7 % 7 % 1 %
REPORTED EFFECTIVE
TAX RATE................. 34 % 33 % 22 %
=================================
</TABLE>
The provision for income taxes in the consolidated statement of income
consists of the following for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-------------------------------
1993 1992 1991
-------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Current Income Taxes:
Federal.............. $1,292 $1,094 $ 454
State................ 228 240 112
Deferred Income Taxes.. (58) (114) (82)
-------------------------------
NET INCOME TAXES....... $1,462 $1,220 $ 484
-------------------------------
</TABLE>
The approximate tax effects of the net investment securities transactions for
the years ended December 31, 1993, 1992, and 1991 were $5 thousand, $2 thousand,
and $15 thousand, respectively.
Deferred income tax expense (benefit) results from differences in the timing
of revenue and expense recognition for income tax return and financial reporting
purposes. These temporary differences are primarily attributable to the
following transacitons presented below:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
------------------------
1993 1992 1991
------------------------
<S> <C> <C> <C>
Provision for Loan Losses.......... $ 43 $ (48) $ (31)
Provision for Foreclosed
Properties....................... (50) -0- -0-
Amortization of Organizational
Expenses......................... 3 (12) -0-
Excess Tax Depreciation over Book
Depreciation..................... (5) (4) (5)
Deferred Compensation for
Officers and Directors........... (49) (50) (46)
------------------------
TOTAL.............................. $ (58) $(114) $ (82)
------------------------
</TABLE>
Deferred taxes are recorded by applying the marginal tax rate to temporary
differences. Temporary differences, such as provisions for loan losses, are
transactions reported for tax purposes in periods different from the periods
when such transactions are reported in the Corporation's financial statements.
Deferred tax assets represent the tax benefit of future deductible temporary
differences and, if it is more likely than not (a greater than 50 percent
likelihood) that deferred tax assets will not be realized, a valuation allowance
will be required to reduce the recorded deferred tax assets to net realizable
value.
The Corporation adopted SFAS 109 retrospectively in the First Quarter of 1993.
The income tax benefit of the Corporation's deductible temporary differences are
recognized under the new standard and are subjected to an evaluation of whether
it is more likely than not that the income tax benefits will not be realized.
The level of the valuation allowance has been determined taking into
consideration management's best judgments regarding the amounts and timing of
future taxable income and available tax planning strategies.
NOTE 9: SHAREHOLDERS' EQUITY
COMMON STOCK
The Corporation has 1,000,000 shares of $5.00 par value common stock
authorized and each share carries voting rights of one vote per common share.
Shares issued were 758,506 shares, 757,913 shares, and 757,913 shares at
December 31, 1993, 1992, and 1991, respectively. Shares outstanding were 740,863
shares, 740,135 shares, and 740,045 shares at December 31, 1993, 1992, and 1991,
respectively.
The outstanding shares at December 31, 1993, 1992, and 1991 include 79,051
shares, 75,001 shares, and 54,653 shares, respectively, owned by the ESOP.
During 1991, 84 shares of convertible preferred stock were converted into 615
shares of common stock and during 1993, 81 shares of convertible preferred stock
were converted into 593 shares of common stock.
Cash dividends paid per share on common stock were $.94, $.83, and $.80 for
the years 1993, 1992, and 1991, respectively.
12
<PAGE>
CONVERTIBLE PREFERRED STOCK
During 1985, the shareholders approved and authorized 43,328 shares of
convertible preferred stock $100.00 Series of which 28,764 shares of convertible
preferred stock were issued in connection with the acquisition of Jackson County
Bank. As of December 31, 1993, 1992, and 1991, this is the only series of
convertible preferred stock authorized, issued, and outstanding. Convertible
preferred stock outstanding as of December 31, 1993, 1992, and 1991 was 27,165
shares, 27,246 shares, and 27,246 shares, respectively.
The holders of the convertible preferred stock are entitled to receive, before
any dividends are paid to holders of common stock, dividends at the rate of
$10.00 per share per year and cumulative to the extent not paid.
The convertible preferred stock is convertible at the option of the holders,
at any time prior to redemption, into 7.332 shares of common stock of Commercial
BancShares. No fractional shares shall be issued on conversion but a cash
adjustment will be paid to the shareholder otherwise entitled to receive a
fractional interest. The shares have a redemption provision entitling the
holders to be paid as follows:
YEAR PRICE
1994 $105.00
Thereafter $100.00
None of the convertible preferred stock has been redeemed for cash as of
December 31, 1993.
To the extent that at least one-half of the convertible preferred stock
originally issued remains outstanding, the shareholders of the then outstanding
convertible preferred stock voting separately as a class, shall be entitled to
elect two members to the Board of Directors of Commercial BancShares, Inc. with
each share entitled to one vote. In the event the number of shares of
convertible preferred stock outstanding is reduced to less than one-half of the
number of shares originally issued, then the number of directors elected by the
shareholders is reduced to one.
Upon the reacquisition of shares of convertible preferred stock through
redemption, conversion, or otherwise, such reacquired shares shall be cancelled
and shall become part of the authorized and unissued preferred stock but shall
not be authorized and unissued shares of the convertible preferred stock.
In the event of any liquidation of Commercial BancShares, Inc., the
convertible preferred stock has priority over common stock. In addition, any
common stock dividend or split of any kind will affect and change, in
proportion, the conversion ratio of convertible preferred stock into common
stock.
NOTE 10: CONCENTRATION OF
CREDIT RISK
Most of the Subsidiaries' loans, commitments, lines-of-credit, and standby
letters-of-credit have been granted to customers in that subsidiaries' market
area. Most customers are depositors of that subsidiary. Investments in state and
municipal securities also involve governmental entities within that subsidiary's
market area. The concentrations of credits, by type of loan, are set forth in
Note 3. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters-of-credit were granted
primarily to commercial borrowers. The subsidiaries, as a matter of policy, do
not extend credit to any single borrower or group of related borrowers in excess
of 15% of that subsidiary's capital at the time of the loan closing.
The Corporation manages its loan portfolio to avoid concentration by industry
or loan size to minimize its credit exposure. Commercial loans may be
collateralized by the assets underlying the borrower's business such as accounts
receivable, equipment, inventory, and real property. Consumer loans such as
residential mortgage and installment loans are generally secured by the real or
personal property financed. Commercial real estate loans are generally secured
by the underlying real property and rental agreements.
Securities and short-term investment activities are conducted with a diverse
group of domestic governments, corporations, depository, and other financial
institutions. The Corporation evaluates the counterparty's creditworthiness and
the need for collateral on a case by case basis.
NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Subsidiaries of the Corporation are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of their customers. These financial instruments include commitments to
extend credit, standby letters-of-credit, and financial guarantees. Those
instruments involve, to varying degrees, elements of credit, interest rate, or
liquidity risk in excess of the amount recognized in the statement of financial
position. The contract amounts of those instruments express the extent of
involvement the Subsidiaries have in particular classes of financial
instruments.
Loan commitments are made to accommodate the financial needs of the
subsidiaries' customers. Standby letters-of-credit commit the subsidiaries to
make payments on behalf of customers if certain specified future events occur.
They primarily are issued to support public and private borrowing arrangements
including commercial paper, bond financing, and similar transactions.
Historically, approximately 90 percent of the standby letters-of-credit expire
unfunded.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the subsidiaries' normal credit
policies. Collateral is obtained based on management's credit assessment of the
customer.
A summary of these financial instruments are as follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------
1993 1992
-----------------------
<S> <C> <C>
Financial Instruments Whose Contract
Amounts Represent Credit Risk:
Commitments to Extend Credit...... $10,832 $ 7,874
Standby Letters-of-Credit......... 766 1,653
Lines-of-Credit................... 21,059 13,242
-------------------
TOTAL................................ $32,657 $22,769
===================
</TABLE>
13
<PAGE>
NOTE 12: COMMITMENTS AND
CONTINGENT LIABILITIES
A subsidiary of the Corporation leases property for its branch facilities
under non-cancelable operating leases which contain renewal or purchase options.
Rent expense under these leases was $47 thousand per year for the years ended
December 31, 1993, 1992, and 1991, respectively. Future minimum lease payments
in thousands of dollars, excluding real estate taxes and insurance, for the
years ending December 31 are as follows:
<TABLE>
<S> <C>
1994 $31
1995 22
1996 17
---
TOTAL $70
===
</TABLE>
In the ordinary course of business, there are various legal proceedings
pending against or involving the Corporation or its subsidiaries. Management,
after consultation with legal counsel, does not consider that the anticipated
impact, if any, arising from such pending legal proceedings is expected to have
a material adverse affect upon the consolidated financial position and
consolidated results of operations of the Corporation.
NOTE 13: REGULATORY MATTERS
The Corporation is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956. As a bank holding company, the Corporation's
activities are limited to the business of banking and activities closely related
or incidental to banking.
The Corporation's subsidiary banks, Commercial Banking and Trust Company,
Jackson County Bank, Farmers and Merchants Bank of Ritchie County, and The Dime
Bank, are subject to supervision and examination by various Federal and state
regulatory authorities. The deposits of the Corporation's subsidiary banks are
insured by and, therefore, the subsidiary banks are subject to the regulations
of the Federal Deposit Insurance Corporation. The banks are also subject to
requirements and restrictions under Federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, limitations on the types of investments that may be made, and the types
of services that may be offered. Various consumer laws and regulations also
affect the operations of the Corporation's subsidiary banks.
The payment of dividends to shareholders by Commercial BancShares, Inc. is not
encumbered by any restrictive provisions in its long-term indentures. There are,
however, limitations set by law on the amount of funds available to Commercial
BancShares, Inc. from its subsidiaries. Dividends may be paid out of funds
legally available therefore subject to the restrictions set forth in West
Virginia Code, Section 31A-4-25 which provides that prior approval of the West
Virginia Commissioner of Banking is required if the total of all dividends
declared by a state bank in any calendar year will exceed the bank's net profits
for that year combined with its retained net profits for the preceding two
years. The amount of funds legally available for distribution of dividends by
the subsidiaries to the Corporation without prior approval from regulatory
authorities at December 31, 1993 was $4,444 thousand.
The Federal Reserve Board has issued standards requiring banks and bank
holding companies to maintain minimum amounts of capital to total "risk-
weighted" assets, as defined by the banking regulators. The Federal Financial
Institutions Examination Council (FFIEC) announced on December 23, 1992, among
other things, that beginning in 1993, Federally supervised banks and savings
associations should report deferred tax assets in accordance with generally
accepted accounting principles in the regulatory reports filed with the
respective Federal regulatory agencies beginning with the quarter ending March
31, 1993. The Board of Governors of the Federal Reserve System issued revisions
to capital adequacy guidelines whereby the Board indicated they will allow
adoption of the new standard for regulatory reporting purposes. The Board also
adopted the FFIEC's recommendation with respect to limiting the amount of
deferred tax assets that can be used to meet risk-based capital requirements.
This recommendation limits deferred tax assets to those assets which may be
realized from income taxes paid in prior carryback years, the reversal of future
taxable temporary differences, and the lesser of: (1) the amount of deferred tax
assets expected to be realized within one year of the quarter-end date based on
future taxable income (exclusive of tax carryforwards and reversals of existing
temporary differences) for that year, or (2) ten percent of Tier 1 capital. The
Corporation did not use the deferred tax asset at December 31, 1993 in computing
regulatory risk-based capital. At December 31, 1993, the Corporation and its
subsidiaries are required to have minimum Tier 1 and total capital ratios of
4.00% and 8.00%, respectively. The Corporation's consolidated actual ratios at
that date were 12.21% and 13.46%, respectively.
Management and the Board of Directors, based on an annual review of capital
objectives, have adopted an objective of achieving a Tier 1 risk-based capital
ratio of 6.00% and a total risk-based capital ratio of 10.00% for the
Corporation, and an objective of achieving a Tier 1 risk-based capital ratio of
6.00% and a total risk-based capital ratio of 10.00% for the subsidiary banks.
The actual ratios for the Corporation and its subsidiary banks exceeded the
minimum regulatory requirements and management's and the Board of Directors'
objectives at December 31, 1993.
The corporation's subsidiary banks are required to maintain reserves against
certain deposit liabilities in either cash or balances on deposit with the
Federal Reserve System. The Corporation's subsidiary banks maintained average
reserves of approximately $415 thousand in 1993 with the Federal Reserve Bank of
Richmond.
NOTE 14: POST-RETIREMENT
BENEFIT PLANS
The Corporation restated and amended its previous post retirement benefit
plans into an Employee Stock Ownership Plan with 401(k) provisions, effective
January 1, 1993. The Plan covers all eligible employees of the Corporation and
14
<PAGE>
its subsidiaries that qualify under the Plan's provisions. Annual contributions
are provided in such amounts as the Board of Directors of the Corporation may
determine and amounted to $268 thousand for 1993.
Prior to 1993 the Corporation administered a contributory profit sharing plan
with payments of $40 thousand each in 1992 and 1991. The Corporation's payments
to its previous ESOP Plan were $224 thousand each in 1992 and 1991 which
approximated the principal and interest requirements of the ESOP Plan
borrowings.
Currently, the ESOP Trust owns 79,051 shares of Commercial BancShares, Inc.
common stock, of which approximately 35,989 shares of stock have or will be
allocated to specific employee accounts as of December 31, 1993. The remaining
43,062 shares are held as collateral on the ESOP borrowing.
NOTE 15: EXECUTIVE AND DIRECTOR
BENEFIT PLANS
DIRECTORS' DEFERRED INCOME PLAN
The subsidiaries of the Corporation have each established a Director's
Deferred Income Plan with certain directors of the applicable banks which defers
payment of directors' fees until such time as the director reaches age 65.
The subsidiaries are funding the future payments through an investment with a
value of $495 thousand in 1993 and $503 thousand in 1992. The expense recorded
for the future liability was $82 thousand, $88 thousand, and $79 thousand in
1993, 1992, and 1991, respectively.
EXECUTIVE SUPPLEMENTAL INCOME PLAN
The subsidiaries of the Corporation have each established an Executive
Supplemental Income Plan in which the officers of the Banks are covered. The
Plan is non-contributory and is a non-vesting plan. Benefits are payable only
upon retirement.
The subsidiaries are funding the future payments through an investment with a
value of $1,629 thousand in 1993 and $1,248 thousand in 1992. The expense
recorded for the future liability was $84 thousand, $96 thousand, and $66
thousand in 1993, 1992, and 1991, respectively.
NOTE 16: TRANSACTIONS WITH
DIRECTORS AND OFFICERS
Some of the officers and directors (including their affiliates, families, and
entities in which they are principal owners) of the Corporation and its
subsidiaries are customers of the subsidiaries and have had, and are expected to
have, transactions with the subsidiaries in the ordinary course of business. In
addition, some officers and directors are also officers and directors of
corporations which are customers of the subsidiaries and have had, and are
expected to have, transactions with the subsidiaries in the ordinary course of
business. These transactions with officers and directors were made on the same
terms, including interest rates, collateral, and repayment terms, as those
prevailing at the time for comparable transactions with the general public and
none of these transactions involve more than the normal risk of collectibility
or present other unfavorable features.
Indebtedness of related parties is summarized as follows for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------
1993 1992
-----------------------
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR.. $ 8,506 $ 7,378
Repayments.................. (6,547) (5,236)
Borrowings.................. 7,260 6,364
----------------------
BALANCE AT END OF YEAR........ $ 9,219 $ 8,506
======================
</TABLE>
NOTE 17: OTHER OPERATING EXPENSES
The following represents the major expense classifications included in other
operating expenses for the years ended:
<TABLE>
<CAPTION>
In Thousands of Dollars
December 31,
-----------------------
1993 1992 1991
-----------------------
<S> <C> <C> <C>
EDP Processing and Services......... $ 583 $ 554 $ 540
Professional and Directors Fees..... 559 517 536
Advertising and Public Relations.... 287 195 187
Deposit and Liability Insurance..... 557 566 498
Franchise and Other Taxes........... 184 290 221
Provision for Losses on Foreclosed
Properties........................ 190 -0- -0-
Other Operating Expense............. 610 924 998
-----------------------
TOTAL............................... $2,970 $3,046 $2,980
=======================
</TABLE>
NOTE 18: DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS Number 107, Disclosures
about Fair Value of Financial Instruments. The estimated fair value amounts have
been determined by the Corporation using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Corporation could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
(In Thousands)
--------------------
December 31, 1993
--------------------
Carrying Estimated
Amount Fair Value
<S> <C> <C>
FINANCIAL ASSETS:
Cash and Short-Term Investments.. $ 18,195 $ 18,195
Marketable Securities............ $ 56,269 $ 57,275
Loans, Net....................... $172,088 $187,652
Other Financial Instruments...... $ 255 $ 260
FINANCIAL LIABILITIES:
Demand Deposits.................. $ 80,369 $ 80,369
Time Deposits.................... $153,713 $148,883
Other Debt....................... $ 424 $ 424
OFF-BALANCE-SHEET
UNREALIZED GAINS (LOSSES):
Commitments to Extend Credit..... $ (839)
Standby Letters-of-Credit........ $ (5)
NON-FINANCIAL INSTRUMENTS:
Core Deposit Valuation........... $ -0- $ 1,330
</TABLE>
15
<PAGE>
The fair value of marketable securities is based on quoted market prices,
dealer quotes, and prices obtained from independent pricing services. The fair
value of loans, time deposits, other financial instruments, and commitments is
estimated based on present values using applicable risk-adjusted spreads to the
U. S. Treasury curve to approximate current entry-value interest rates
applicable to each category of such financial instruments.
No adjustment was made to the entry-value interest rates for changes in credit
of performing commercial loans for which there are no known credit concerns.
Management segregates loans in appropriate risk categories. Management believes
that the risk factor embedded in the entry-value interest rates along with the
general reserves applicable to the performing commercial loan portfolio for
which there are no known credit concerns result in a fair valuation of such
loans on an entry-value basis. The fair value of nonperforming loans with a
recorded book value of $277 thousand was not estimated because it is not
practicable to reasonably assess the credit adjustment that would be applied in
the marketplace for such loans.
As required by the Statement, deposit liabilities with no stated maturity,
such as demand deposits, NOW, and money market accounts, are shown at their face
value and, therefore, there is no inherent value recognition of these core
deposit relationships. Management estimates, however, that such deposits have an
unrealized embedded market value discount or gain of approximately $1.3 million,
shown separately. The estimated fair value ascribed to core deposits is computed
based on an estimate of cost savings from the low cost of such deposits over
their estimated life, discounted using an incremental cost of funds rate. In
addition, the statement does not require disclosure of the fair value of
nonfinancial instruments, such as the Corporation's premises and equipment, its
banking and trust franchises, and its core deposit intangible. The Corporation
believes these nonfinancial instruments have significant fair value.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1993. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following financial statements reflect the financial position and results
of operations of Commercial BancShares, Inc. and Subsidiaries (Parent Company
Only).
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks
(All from Subsidiaries)................................. $ 214,738 $ 287,223
Accounts Receivable..................................... 91,383 312,612
Notes Receivable........................................ 254,852 254,951
Investment in Subsidiaries (Equity Basis)............... 20,888,238 18,961,363
Premises and Equipment - Net............................ 478,365 597,477
Other Assets............................................ 286,696 307,410
-------------------------
TOTAL ASSETS........................................... $22,214,272 $20,721,036
=========================
LIABILITIES
ESOP Borrowings......................................... $ 423,849 $ 362,275
Other Liabilities....................................... 506,289 821,768
-------------------------
TOTAL LIABILITIES...................................... $ 930,138 $ 1,184,043
=========================
SHAREHOLDERS' EQUITY
Convertible Preferred Stock (Par Value
$100.00), Authorized 43,328 Shares;
(Issued Shares: 27,165 in 1993 and
27,246 in 1992)......................................... $ 2,716,500 $ 2,724,600
Common Stock (Par Value $5.00),
Authorized 1,000,000 Shares,
(Issued Shares: 758,506 in 1993 and
757,913 in 1992)........................................ 3,792,530 3,789,565
Additional Paid in Capital.............................. 5,682,712 5,676,649
Undivided Profits....................................... 9,863,505 8,058,350
LESS: Employee Stock Ownership Plan Shares
Collateralizing Debt, at Cost
(43,062 Shares in 1993 and
52,014 Shares in 1992).................................. (423,849) (362,275)
Treasury Stock, at Cost
(17,643 Shares in 1993 and
17,778 Shares in 1992).................................. (347,264) (349,896)
-------------------------
TOTAL SHAREHOLDERS'
EQUITY.................................................. $21,284,134 $19,536,993
-------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.................................... $22,214,272 $20,721,036
=========================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
December 31,
------------------------------------
1993 1992 1991
------------------------------------
<S> <C> <C> <C>
REVENUE
Interest Income...................... $ 17,351 $ 14,425 $ 12,567
Data Processing Fees................. 525,890 310,618 162,151
Dividends from Subsidiaries.......... 1,250,920 500,040 1,115,328
Other Income......................... -0- -0- 20
------------------------------------
TOTAL REVENUE.................... $1,794,161 $ 825,083 $1,290,066
------------------------------------
EXPENSES
Interest on Notes Payable............ $ -0- $ -0- $ 3,736
Employee Compensation
and Benefits........................ 651,308 352,685 522,657
Occupancy Expense,
Net of Revenues..................... 48,000 29,184 8,639
Furniture and
Equipment Expense................... 225,471 264,280 277,241
Other Operating Expenses............. 277,788 232,723 215,786
------------------------------------
TOTAL EXPENSES................... $1,202,567 $ 878,872 $1,028,059
------------------------------------
Income (Loss) before Income Taxes,
Equity in Undistributed Net Income
of Subsidiaries...................... $ 591,594 $ (53,789) $ 262,007
Applicable Income Taxes
(Benefit)........................... (254,687) (217,500) (359,851)
------------------------------------
Income before Equity in
Undistributed Net Income of
Subsidiaries......................... $ 846,281 $ 163,711 $ 621,858
Equity in Undistributed
Net Income (Loss).................... 1,927,454 2,305,222 1,076,259
------------------------------------
NET INCOME....................... $2,773,735 $2,468,933 $1,698,117
====================================
</TABLE>
16
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1993 1992 1991
---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income............................. $ 2,773,735 $ 2,468,933 $ 1,698,117
Adjustments to
Reconcile Net Income to
Net Cash Provided by
Operating Activities:
Deferred Employee Benefits... $ 32,606 $ 196,457 $ 196,457
Depreciation................. 165,034 182,978 229,914
Net Amortization of
Purchase Adjustments......... 9,951 39,772 39,772
Undistributed Net (Income)
Loss of Subsidiaries......... (1,927,454) (2,305,222) (1,076,259)
Income Tax Benefit........... (254,687) (228,298) (359,851)
(Gain) Loss on Sale of
Capitalized Assets........... -0- 3,744 -0-
(Increase) Decrease:
Accounts Receivable.......... 221,229 (100,049) 60,556
Accrued Interest Receivable.. (11,833) (6,704) (1,973)
Other Assets................. 22,596 6,153 (39,602)
Increase (Decrease):
Other Liabilities............ (154,577) 621,341 228,296
---------------------------------------
TOTAL ADJUSTMENTS...................... $(1,897,135) $(1,589,828) $ (722,690)
---------------------------------------
NET CASH FLOWS FROM
OPERATING ACTIVITIES............ $ 876,600 $ 879,105 $ 975,427
---------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from Sale of
Capitalized Assets......... $ -0- $ 20,500 $ -0-
Proceeds from Note
Receivable................. 99 151 229
Capitalized Expenditures..... (45,922) (5,331) (160,191)
---------------------------------------
NET CASH FLOWS FROM
INVESTING ACTIVITIES............ $ (45,823) $ 15,320 $ (159,962)
---------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net Increase (Decrease) in
Short-Term Borrowings...... $ -0- $ -0- $ (200,000)
Proceeds from Sale of
Treasury Stock............. 3,180 1,980 347,792
Purchase of Treasury Stock... -0- -0- (42,548)
Payment for Fractional
Shares of Converted
Preferred Stock............ (16) -0- (16)
Principal Payments on
ESOP Borrowings............ (32,606) (196,372) (196,457)
Proceeds from Issuance
of ESOP Debt............... 94,180 362,275 -0-
Cash Dividends Paid.......... (968,000) (843,844) (685,118)
---------------------------------------
NET CASH FLOWS FROM
FINANCING ACTIVITIES................. $ (903,262) $ (675,961) $ (776,347)
---------------------------------------
NET INCREASE (DECREASE) IN
CASH................................. $ (72,485) $ 218,464 $ 39,118
CASH AT BEGINNING OF YEAR.............. 287,223 68,759 29,641
---------------------------------------
CASH AT END OF YEAR.................... $ 214,738 $ 287,223 $ 68,759
=======================================
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS
INFORMATION
Cash Paid during the Year For:
Interest...................... $ -0- $ -0- $ 3,736
Income Taxes.................. $ 2,086,352 $ 665,084 $ 580,576
</TABLE>
Principal sources of revenues for the Corporation are dividends received from
its banks, interest earned on short-term investments, and fees for services
provided to subsidiaries. State law imposes limitations on the payment of
dividends by the subsidiaries of the Corporation. A dividend may not be paid if
the total of all dividends declared by a bank in any calendar year is in excess
of the current year's net profits combined with the retained net profits of the
two preceding years unless the bank obtains regulatory approval.
Loans and extensions of credit from an affiliate must be secured in specified
amounts. The Corporation had no borrowings outstanding from any of its
subsidiary banks during 1993.
NOTE 20: PLAN OF MERGER
On September 30, 1993, the Corporation and Hometown Bancshares, Inc. entered
into an agreement and plan of merger to be accounted for by the pooling-of-
interests method. The consummation of this merger is anticipated to occur in
1994 upon final approval of regulatory authorities and shareholders of both
corporations.
NOTE 21: FUTURE IMPACT OF RECENTLY
ISSUED ACCOUNTING STANDARDS
The Corporation will adopt SFAS Number 115, "Accounting for Certain
Investments in Debt and Equity Securities" in 1994. It is anticipated that the
Corporation's existing investment securities will fall into the "held-to-
maturity" and "available-for-sale" categories. Those securities classified as
"available-for-sale" will be accounted for at fair market value, with any
resultant unrealized gains or losses reported as a valuation allowance, net of
deferred tax, in the equity section of the balance sheet. No impact to
operations is anticipated at this time.
17
<PAGE>
NOTE 22: QUARTERLY FINANCIAL DATA (IN THOUSANDS OF DOLLARS EXCEPT FOR PER
COMMON SHARE AND CASH DIVIDENDS PAID INFORMATION)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
1993
Net Interest Revenue................ $2,807 $2,739 $2,936 $2,879 $11,361
Provision for Possible Loan Losses.. $ 164 $ 44 $ 45 $ (165) $ 88
Net Operating Revenue............... $1,110 $1,251 $1,199 $ 676 $ 4,236
Applicable Income Taxes............. $ 401 $ 425 $ 406 $ 230 $ 1,462
Net Income.......................... $ 709 $ 826 $ 793 $ 446 $ 2,774
Applicable to Common Stock.......... $ 641 $ 758 $ 725 $ 378 $ 2,502
Per Common Share.................... $ .87 $ 1.02 $ .98 $ .51 $ 3.38
Cash Dividends Paid - Common Stock.. $ .23 $ .23 $ .23 $ .25 $ .94
1992
Net Interest Revenue................ $2,845 $2,912 $2,792 $2,903 $11,452
Provision for Possible Loan Losses.. $ 189 $ 248 $ 200 $ 142 $ 779
Net Operating Revenue............... $ 764 $ 878 $ 829 $1,218 $ 3,689
Applicable Income Taxes............. $ 236 $ 308 $ 324 $ 352 $ 1,220
Net Income.......................... $ 528 $ 570 $ 505 $ 866 $ 2,469
Applicable to Common Stock.......... $ 460 $ 476 $ 437 $ 823 $ 2,196
Per Common Share.................... $ .62 $ .68 $ .59 $ 1.08 $ 2.97
Cash Dividends Paid - Common Stock.. $ .20 $ .20 $ .20 $ .23 $ .83
1991
Net Interest Revenue................ $2,204 $2,437 $2,571 $2,713 $ 9,925
Provision for Possible Loan Losses.. $ 149 $ 141 $ 202 $ 290 $ 782
Net Operating Revenue............... $ 434 $ 387 $ 755 $ 607 $ 2,182
Applicable Income Taxes............. $ 38 $ 60 $ 296 $ 90 $ 484
Net Income.......................... $ 397 $ 328 $ 458 $ 516 $ 1,698
Applicable to Common Stock.......... $ 329 $ 260 $ 390 $ 447 $ 1,426
Per Common Share.................... $ .46 $ .36 $ .54 $ .60 $ 1.96
Cash Dividends Paid - Common Stock.. $ .20 $ .20 $ .20 $ .20 $ .80
</TABLE>
Financial data for 1992 and 1991 has been restated to reflect retrospective
application of SFAS 109 "Accounting for Income Taxes," which resulted in a
decrease of applicable income taxes of $103 thousand and $82 thousand for 1992
and 1991, respectively.
18
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
INDEPENDENT ACCOUNTANT'S REPORT
- ----------------------------------------------------------------------------
HARMAN, THOMPSON, MALLORY & ICE Towne Square
Certified Public Accountants Parkersburg, West Virginia 26102
Board of Directors
Commercial BancShares, Inc.
Parkersburg, West Virginia
We have audited the accompanying consolidated balance sheets of Commercial
BancShares, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years ended December 31, 1993, 1992, and 1991. These
consolidated financial statements are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Commercial BancShares, Inc. and Subsidiaries as of December 31, 1993
and 1992, and the results of its operations and its cash flows for the years
ended December 31, 1993, 1992, and 1991 in conformity with generally accepted
accounting principles.
As described in Note 1 to the financial statements, in 1993 the Bank adopted
Statement of Financial Accounting Standards 109, "Accounting For Income Taxes"
retrospectively, resulting in the restatement of the prior periods' financial
information.
Parkersburg, West Virginia
February 16, 1994
19
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The purpose of this discussion is to focus on information about Commercial
BancShares, Incorporated and its financial condition and results of operations
which is not otherwise apparent from the consolidated financial statements
included in this Annual Report. Reference should be made to those statements
and the selected financial data presented elsewhere in this report for an
understanding of the following discussion and analysis.
FINANCIAL CONDITION
BancShares functions as a financial intermediary, and as such its financial
condition should be examined in terms of trends in its sources and uses of
funds. Ordinarily, BancShares' primary use of funds is to meet the loan demands
of bank customers. Average loans outstanding increased by $3.8 million or 2.25%
in 1993, which followed a 12.4% increase in 1992. Real estate mortgage loans
was the only category demonstrating growth during 1993. Sales and repayments of
some large commercial loans reduced the volume of commercial loans, while the
demand for consumer loans declined and credit card loans remained steady.
Investment securities, another major use of funds, increased $5.4 million in
the taxable category in 1993 after decreasing $7.0 million in 1992. Non-taxable
investments were decreased by $.8 million, or 7.9% in 1993, after having
decreased 8.2% in 1992. The declines occurred as maturing securities were
reinvested into taxable investments and Federal funds sold. Because of the tax
structure in West Virginia, obligations of states and political subdivisions
outside of the state are subjected to a heavier tax which has effectively
limited BancShares subsidiaries in West Virginia to purchasing only West
Virginia "bank-qualified" issues. However, there are very few such issues and
the market is such that there is insufficient spread between the tax-equivalent
rate on the few issues available and comparable U. S. Treasury issues to justify
the additional risk of the tax-free bond. BancShares prefers to invest in non-
taxable issues whenever it is economically justifiable and will continue to
pursue those issues in the future.
Average Federal funds sold increased $3.6 million, or 36.7% in 1993, following
an 11.5% increase in 1992. Simultaneously, borrowed funds were increased $0.1
million (10.8%) in 1993, after decreasing $2.0 million (58.0%) in 1992.
BancShares has intended to maintain a net position of selling Federal funds, and
the small amount of short-term borrowings represents sales to a BancShares
subsidiary by one of its correspondent banks for that bank's convenience.
As the primary source of funds, aggregate deposits increased $10.4 million
(4.76%) in 1993 and $13.6 million (6.65%) in 1992. However, the increase was
not consistent in all deposit categories. Since the difference between the
rates paid on time deposits and the rates on savings narrowed considerably,
consumers expressed their preference for liquidity by moving their deposits into
savings accounts. In 1993 savings deposits were the category with the largest
growth, increasing $7.0 million (15.12%) after having increased $12.7 million,
or 38% in 1992. Certificates of Deposit of $100,000 or more were up $2.4
million, or 31.36%, after declining $1 million (11.6%) in 1992. Other time
deposits remained stable, with an increase of 0.20% ($0.2 million) in 1993,
after being down $6.5 million (6.6%) in 1992. Interest-bearing demand deposits
were up $1.5 million or 3.33% in 1993, and grew 7.8% ($3.2 million) in 1992.
Average noninterest-bearing demand deposits declined 1.90% ($0.6 million) in
1993 after increasing substantially ($5.2 million or 21.04%) in 1992.
Scheduled payments were made in 1993 and 1992 by the ESOP on long-term
borrowings guaranteed by BancShares.
20
<PAGE>
The following table indicates the average balances and interest rates on a
fully taxable equivalent basis for the years indicated.
AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest/2/ Rate Balance Interest/2/ Rate Balance Interest/2/ Rate
----------------------------------------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning Assets:
Interest-bearing Deposits
with Other Banks......... $ 99 6 6.06% $ 71 2 2.82% $ 388 35 9.02%
Federal Funds Sold........... 13,291 393 2.96% 9,720 339 3.49% 8,718 412 4.73%
Taxable Investments.......... 37,312 2,164 5.80% 31,944 2,536 7.94% 38,948 3,474 8.92%
Non-taxable Investments...... 9,286 618 6.66% 10,080 821 8.14% 10,983 824 7.50%
Notes Receivable............. 255 17 6.67% 255 14 5.49% 255 12 4.71%
Loans/1/..................... 172,445 15,276 8.86% 168,645 16,369 9.71% 150,063 16,035 10.69%
---------------- ---------------- ------------------
TOTAL INTEREST-
EARNING ASSETS............... $232,688 18,474 7.94% $220,715 20,081 9.10% $209,355 20,792 9.93%
---------------- ---------------- ------------------
Non-Interest Earning Assets:
Cash and due from banks...... $ 11,756 $ 11,183 $ 8,940
Other Assets................. 11,373 11,398 11,062
Less: Allowance for
Loan Losses.................. -2,505 -2,044 -1,771
-------- -------- --------
TOTAL ASSETS................... $253,312 $241,252 $227,586
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings Deposits............. $ 52,965 1,072 2.02% $ 46,007 1,826 3.97% $ 33,351 1,224 3.67%
NOW, MMDA Accounts........... 45,444 1,133 2.49% 43,980 1,464 3.33% 40,802 1,622 3.98%
CD's of 100,000+............. 9,878 308 3.12% 7,520 348 4.63% 8,504 501 5.89%
Other Time Deposits.......... 90,983 4,576 5.03% 90,802 4,827 5.32% 97,257 7,286 7.49%
---------------- ---------------- ------------------
Total Deposits............. $199,270 7,089 3.56% $188,309 8,465 4.50% $179,914 10,633 5.91%
Other Borrowed Funds......... $ 1,632 25 1.53% $ 1,473 47 3.19% $ 3,510 125 3.56%
---------------- ---------------- ------------------
TOTAL INTEREST-
BEARING LIABILITIES.......... $200,902 7,114 3.54% $189,782 8,512 4.49% $183,424 10,758 5.87%
Non-interest Bearing
Liabilities:
Demand Deposits............ $ 29,408 $ 29,977 $ 24,766
Other Liabilities.......... 2,291 2,334 1,896
-------- -------- --------
TOTAL LIABILITIES.............. $232,601 $222,093 $210,086
Shareholders' Equity........... 20,711 19,159 17,500
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY.......... $253,312 $241,252 $227,586
======== ======== ========
Net Interest Earnings.......... 11,360 11,569 10,034
Net Yield on Interest-earning
Assets....................... 4.88% 5.24% 4.79%
</TABLE>
/1/ For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
/2/ Interest received on tax-exempt investments is calculated on a fully taxable
equivalent at the 34% rate.
21
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates.
RATE/VOLUME ANALYSIS OF NET INTEREST REVENUE
(Fully Taxable Equivalent Basis)
<TABLE>
<CAPTION>
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Increase (Decrease)
Due to/1/ Due to/1/
------------------------------------------------------
Volume Rate Net Volume Rate Net
-------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing Deposits with
Other Banks................... $ 1 $ 3 $ 4 $ (18) $ (15) $ (33)
Federal Funds Sold.............. 111 ( 57) 54 44 (117) (73)
Taxable Investments............. 382 (754) (372) (582) (356) (938)
Non-taxable Investments......... (61) (142) (203) (71) 68 (3)
Notes Receivable................ 0 3 3 0 2 2
Total Loans..................... 362 (1,455) (1,093) 1,881 (1,547) 334
-------------------------------------------------------
TOTAL INTEREST-EARNING
ASSETS........................ $795 $(2,402) $(1,607) $1,254 $(1,965) $ (711)
=======================================================
Interest-Bearing Liabilities:
Savings Deposits................ $244 $ (998) $ (754) $ 496 $ 106 $ 602
NOW, MMDA....................... 47 (378) (331) 120 (278) (158)
CD's of +100,000................ 92 (132) (40) (54) (99) (153)
Other Time Deposits............. 10 (261) (251) (457) (2,002) (2,459)
Other Borrowed Funds............ 5 (27) (22) (66) (12) (78)
-------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES................... $398 $(1,796) $(1,398) $ 39 $(2,285) $(2,246)
=======================================================
</TABLE>
/1/ The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investments securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31
-------------------------
1993 1992 1991
-------------------------
(In thousands of dollars)
<S> <C> <C> <C>
U. S. Treasury and Other
U. S. Government Agencies.. $43,284 $27,271 $33,034
Obligations of States and
Political Subdivisions..... 11,123 9,524 11,286
Other Investments............ 1,862 2,046 2,064
-------------------------
Total........................ $56,269 $38,841 $46,384
-------------------------
</TABLE>
The following table sets forth the maturities of investment securities at
December 31, 1993, and the weighted average yields of such securities
(calculated after adjusting annualized interest revenue for the accretion of
discounts and the amortization of premiums). Tax-equivalent adjustments (using
a 34% rate) have been made in calculating yield on obligations of states and
political subdivisions.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------------------------------------------
After 1 After 5
1 Year Year to Years to Over
or Less 5 Years 10 Years 10 Years
-----------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------------------------------------
(Amounts in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
government
agencies........ $ 7,148 6.18% $24,214 4.85% $10,294 4.91% $1,628 4.74%
States and
political
subdivisions.... 3,170 8.11% 4,556 8.23% 3,397 8.09%
Other............. 0 24 6.65% 841 8.67% 551 4.41%
------------------------------------------------------------------------------------------------------
Total............. $10,318 6.77% $28,794 5.38% $14,532 5.87% $2,179 4.66%
======================================================================================================
</TABLE>
LOAN PORTFOLIO
The following table shows BancShares' loan distribution at the end of each
of the last five years.
<TABLE>
<CAPTION>
December 31
1993 1992 1991 1990 1989
------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commercial and
Industrial.... $ 76,534 $ 79,554 $ 62,972 $ 63,013 $ 45,263
Real Estate..... 65,771 58,707 55,732 52,519 43,947
Installment..... 29,002 34,606 33,810 34,599 27,334
Credit Card..... 3,169 3,219 3,591 3,646 3,765
------------------------------------------------
Total........... $174,476 $176,086 $156,105 $153,777 $120,309
================================================
</TABLE>
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences, installment loans and credit card loans) as
of December 31, 1993.
<TABLE>
<CAPTION>
Maturing
------------------------------------------
Within After One but After
One Year Within 5 Years 5 Years Total
------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Commercial and
Industrial Loans...................... $69,946 $3,153 $3,435 $76,534
===========================================
Loans maturing after
one year with:
Fixed interest rates............... $3,091 $3,425
Variable interest rates............ 62 10
------------------------------------------
$3,153 $3,435
------------------------------------------
</TABLE>
NONACCRUAL, PAST DUE, AND RESTRUCTURED LOANS
The following table summarizes BancShares' nonaccrual, past due, and
restructured loans.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Accruing Loans Past due
90 days or more........... $260 $294 $422 $1,427 $2,524
=======================================
Principal amount of
nonaccrual loans at
year end.................. $277 $596 $921 $ 931 $2,436
Restructured loans.......... 0 0 0 120 974
--------------------------------------
$277 $596 $921 $1,051 $3,410
=======================================
Gross amount of interest
that would have been
recorded at the original
rate on nonaccrual
loans..................... $ 47 $ 64 $113 $ 90 $ 247
Interest collected on
nonaccrual loans
which was reflected
in revenue................ 0 5 44 37 188
--------------------------------------
Net impact on interest
revenue................... $(47) $(59) $(69) $ (53) $ (59)
</TABLE>
22
<PAGE>
RESERVE FOR POSSIBLE LOAN LOSSES
The following table summarizes BancShares' loan loss experience for each of
the five years ended December 31, 1993.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at January 1...... $2,281 $1,757 $1,643 $1,460 $1,232
Charge-offs:
Commercial loans........ $ 4 $ 348 $ 515 $ 327 $ 108
Real estate............. 36 17 46 2 35
Consumer................ 75 56 138 126 174
Credit card............. 31 124 59 25 50
--------------------------------------------
Total................. $ 146 $ 545 $ 758 $ 480 $ 367
Recoveries:
Commercial loans........ $ 107 $ 213 58 26 36
Real estate............. 1 2 5 2 1
Consumer................ 50 10 23 24 30
Credit card............. 7 65 4 7 16
--------------------------------------------
Total................. $ 165 $ 290 $ 90 $ 59 $ 83
--------------------------------------------
Net Charge-offs........... $ (19) $ 255 $ 668 $ 421 $ 284
Additions charged to
operations/1/........... 88 779 782 604 512
--------------------------------------------
Balance at December 31.... $2,388 $2,281 $1,757 $1,643 $1,460
============================================
Ratio of net charge-offs
to average loans
outstanding............. (0.01%) 0.15% 0.45% 0.35% 0.24%
</TABLE>
/1/ The amount charged to operations and the related balance in the reserve
for loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several important factors including,
but not limited to, general economic conditions, loan portfolio composition,
prior loan loss experience, and management's estimation of future potential
losses.
The following table shows an allocation of the allowance for loan losses as
of the end of each of the last five years.
<TABLE>
<CAPTION>
Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
----------------------------------------------------
Percent Percent Percent
of loans of loans of loans
in each in each in each
category category category
to total to total to total
Amount loans Amount loans Amount loans
----------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Commercial
and
Industrial.. $1,048 43.9% $1,031 45.2% $ 709 40.3%
Real Estate... 900 37.7% 762 33.4% 627 35.7%
Consumer...... 397 16.6% 449 19.7% 381 21.7%
Credit Card... 43 1.8% 39 1.7% 40 2.3%
----------------------------------------------------
Total......... $2,388 100.0% $2,281 100.0% $1,757 100.0%
====================================================
<CAPTION>
Dec. 31, 1990 Dec. 31, 1989
-----------------------------------
Percent Percent
of loans of loans
in each in each
category category
to total to total
Amount loans Amount loans
-----------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Commercial
and
Industrial.. $ 674 41.0% $ 549 37.6%
Real Estate... 560 34.1% 533 36.5%
Consumer...... 370 22.5% 331 22.7%
Credit Card... 39 2.4% 47 3.2%
--------------------------------
Total......... $1,643 100.0% $1,460 100.0%
================================
</TABLE>
Commercial BancShares, Inc. does not follow the practice of allocating the
allowance for loan losses by loan category, therefore, the amounts allocated for
this schedule were based on the percentage of loans in each category to total
loans as of the end of each period.
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------------------------
Balance Rate Balance Rate Balance Rate
------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Non-interest
bearing
demand
deposits......... $ 29,408 N/A $ 29,977 N/A $ 24,766 N/A
Interest
bearing
demand
deposits......... 45,444 2.49% 43,980 3.33% 40,802 3.98%
Savings
deposits......... 52,965 2.02% 46,007 3.97% 33,351 3.67%
Time
deposits......... 100,861 4.84% 98,322 5.26% 105,761 7.36%
------------------------------------------------
Total.............. $228,678 $218,286 $204,680
------------------------------------------------
</TABLE>
CAPITAL RESOURCES
In January, 1990, the Federal Reserve Board released new standards for
measuring capital adequacy for U.S. banking organizations. In general, the
standards require banks and bank holding companies to maintain capital based on
"risk-adjusted" assets so that categories of assets with potentially higher
credit risk will require more capital backing than assets with lower risk. In
addition, banks and bank holding companies are required to maintain capital to
support, on a risk-adjusted basis, certain off-balance-sheet activities such as
loan commitments.
The Federal Reserve Board standards classify capital into two tiers, referred
to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders'
equity, noncumulative and cumulative (bank holding companies only) perpetual
preferred stock, and minority interests less goodwill. Tier 2 capital consists
of allowance for loan and lease losses, perpetual preferred stock (not included
in Tier 1), hybrid capital instruments, term subordinated debt, and
intermediate-term preferred stock. On December 31, 1992, all banks were
required to meet a minimum ratio of 8% of qualifying total capital to risk-
adjusted total assets with at least 4% Tier 1 capital. Capital that qualifies
as Tier 2 capital is limited to 100% of Tier 1 capital.
The final standards also provide for a transition period for implementing the
risk-based capital standards. As of December 31, 1991, banks and bank holding
companies were expected to meet an interim target risk-based capital ratio of
7.25%. One-half of that amount had to be in the form of Tier 1 capital, as
defined in the interim period.
Effective September 7, 1991, the Federal Reserve Board implemented regulations
that established a minimum leverage capital ratio of 3% of Tier 1 capital to
total assets less goodwill.
23
<PAGE>
The table below illustrates BancShares' regulatory capital ratios at December
31 under the year-end 1992 requirements.
<TABLE>
<CAPTION>
1993 1992
(In thousands of dollars)
<S> <C> <C>
Tier 1 Capital......................... $ 20,984 $ 19,331
Tier 2 Capital......................... 2,148 2,186
---------------------
Total Qualifying Capital............... $ 23,132 $ 21,517
=====================
Risk Adjusted Total Assets (including
off-balance sheet exposures)........... $171,878 $174,858
=====================
Tier 1 Risk-based Capital Ratio........ 12.21% 11.05%
---------------------
Total Risk-based Capital Ratio......... 13.46% 12.30%
=====================
Leverage Ratio......................... 8.13% 8.66%
---------------------
</TABLE>
As shown in the table above, BancShares' capital ratios under the year-end
1993 requirements were approximately 13.45% (and approximately 12.21% for Tier
1) compared with the 8% (and 4% for Tier 1) that are required. For most banks,
including BancShares' subsidiary banks, the minimum Tier 1 leverage ratio is to
be 3% plus an additional cushion of at least 100 to 200 basis points depending
upon risk profiles and other factors. As of December 31, 1993, BancShares' Tier
1 leverage ratio was 8.13%.
In addition to these regulatory requirements, a certain level of capital
growth must be achieved to maintain appropriate ratios of equity to total
assets. As shown in the table on selected financial data, growth in total
average assets was 5.0% in 1993 and 6.0% in 1992. In order to maintain
appropriate ratios of equity to total assets, a corresponding level of capital
growth must be achieved. During 1993 total shareholders' equity grew 8.10%,
following an increase of 9.48% in 1992, as shown in the table of Selected
Financial Data. BancShares expects to continue to rely on internal capital
growth as the primary means of maintaining capital adequacy.
The following table illustrates the relationship between earnings retention
and internal capital growth.
<TABLE>
<CAPTION>
1993 1992 1991
----------------------
<S> <C> <C> <C>
Return on equity......... 13.39% 12.89% 9.71%
times
Earnings retained........ 63.77% 65.82% 59.62%
equals
Internal capital growth.. 8.54% 8.48% 5.79%
</TABLE>
Management intends to continue its efforts to increase BancShares' return on
assets while maintaining a dividend payout consistent with others in the banking
industry.
CAPITAL AND DIVIDENDS
Total shareholders' equity as a measure of capital increased by approximately
$1.7 million in 1993 and $1.5 million in 1992 with retained earnings accounting
for the major portion of the increase in both years. Total dividends paid in
1993 amounted to $968 thousand compared to $844 thousand for 1992.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Interest rate
sensitivity management seeks to avoid fluctuating net interest margin and to
enhance consistent growth of net interest income through periods of changing
interest rates.
Marketable investment securities, particularly those of short maturities, and
Federal funds sold are the principal sources of asset liquidity. Securities
maturing in one year or less amounted to $10.3 million at December 31, 1993,
representing 18.3% of the investment portfolio. Other types of assets, such as
Federal funds sold, as well as maturing loans, are sources of liquidity.
Federal funds sold at December 31, 1993, were $7.9 million.
Available to BancShares 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. BancShares largest subsidiary is
a member 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, BancShares is aware of several brokers who
could, in a short period of time, provide large amounts of certificates of
deposit at market rates. None of BancShares' banks currently use or intend to
use brokered funds, but the source exists should liquidity needs require its
use. BancShares' banks also have extensions of credit which are guaranteed by
U. S. government agencies and are, therefore, saleable.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Overnight Federal funds on which rates
change daily and loans which are tied to the prime rate differ considerably from
long-term investment securities and fixed-rate loans. Similarly, time deposits
over $100,000 and short-term certificates are much more interest sensitive than
savings accounts and longer-term certificates of deposit. The shorter term
interest rate sensitivities are the key to management of the interest
sensitivity gap, or the excess of interest-sensitive earning assets over
interest-bearing liabilities.
The following table shows the interest sensitivity gaps for four different
time intervals as of December 31, 1993. For the first 90 days, there is an $18
million excess of interest-earning assets over interest-bearing liabilities.
Much of BancShares' loan portfolio is in variable rate loans which reprice
whenever the prime rate changes, while the largest volume of deposits is in time
accounts where the most popular terms are 90 days to one year. Federal funds
also reprice daily, adding to the gap in the 0-90 day category. The cumulative
gap at one year is $(18.9) million or 7.9% of total earning assets. There are
several issues of investment securities that are either callable or have
variable repayments and could reprice in a different category than that
indicated in the table below. The likelihood of any of these securities
actually being called or repaid cannot be determined. Therefore, the table
reflects contractual maturities of all investment securities.
24
<PAGE>
<TABLE>
<CAPTION>
0-90 91-365 1 Year Over
Days Days to 5 Yrs 5 Yrs
--------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Federal funds sold................. $ 7,924 $ 0 $ 0 $ 0
Investment securities.............. 1,504 8,814 28,794 17,157
Loans.............................. 79,394 37,455 39,681 17,946
Other interest-earning............. 99 0 0 0
--------------------------------------
Total.......................... $88,921 $ 46,269 $68,475 $35,103
--------------------------------------
Interest-bearing demand deposits1.. 16,643 14,265 9,510 7,132
Savings deposits1.................. $30,400 $ 0 $ 0 $22,218
CD's of $100,000 and more.......... 2,009 5,461 2,515 0
Other Time Deposits................ 21,459 63,410 6,241 0
Borrowed funds..................... 424 0 0 0
--------------------------------------
Total.......................... $70,935 $ 83,136 $18,266 $29,350
--------------------------------------
Interest sensitivity gap........... $17,986 $(36,867) $50,209 $ 5,753
--------------------------------------
</TABLE>
/1/ Although interest-bearing demand deposits and savings deposits are subject
to immediate repricing contractually, experience has shown that portions of
those deposits are much less sensitive to rate fluctuations. The amounts
indicated as repricing in more than 3 months are estimates by Management of the
true sensitivity of those deposits.
RESULTS OF OPERATIONS
Net interest income, which is the major determinant of BancShares' income,
decreased by 0.79% in 1993 after increasing 15.39% in 1992. Because of the
general decline in interest rates, interest expense declined by 16.42% in 1993
and 20.88% in 1992. Interest income decreased 7.46% in 1993 after experiencing a
3.48% decrease in 1992. Because of the continued growth in earning assets,
particularly in investment securities in 1993 and commercial loans in 1992, the
interest income did not decline in proportion to the interest expense.
During 1993, the volume of investment securities increased as the amount
invested in the loan portfolio decreased. However, because the new investments
were at lower rates than those maturing during the year, income on taxable
investments declined 14.67% in 1993. The declining volume of investments in
1992 caused the 23.46% reduction in income in that year. Non-taxable investment
income declined 24.73% in 1993, after decreasing 15.24% in 1992. The December
31, 1993, investment in tax-exempt securities was greater than the December 31,
1992, volume due to purchases which occurred late in the year. The average
volume of Federal funds sold increased in 1993, and the income on Fed funds sold
increased 15.93%, which followed a 17.72% decrease in 1992. Despite a small
increase in the quantity of short-term borrowings, the interest expense for
borrowings declined 15.9% in 1993, after having decreased 62.4% in 1992.
The provision for possible loan losses which is charged to operations is based
on the growth of the loan portfolio, the amount of net loan losses incurred, and
Management's estimation of potential losses based on an evaluation of the
portfolio risk and economic factors. The allowance for loan losses was
increased by the provision for possible loan losses of $88 thousand, in addition
to the net recoveries of $19 thousand. This compares with a provision of $779
thousand in 1992 ($524 thousand more than net charge-offs of $255 thousand) and
$782 thousand in 1991 ($114 thousand more than net charge-offs of $668
thousand.)
The reserve for possible loan losses at year end 1993 totalled $2.4 million
(1.37% of total loans), as compared to $2.3 million (1.30% of total loans) in
1992.
Non-interest income increased 20.89% in 1993, following a 12.32% increase in
1992. Trust department income grew 30.81% in 1993 and 12.98% in 1992, most of
which results from personal trusts and estate handling. Service charges, fees
and commissions rose 19.41% in 1993, compared with a 1.87% growth in 1992.
Securities gains were up 200% in 1993 after having decreased 93.98% in 1992.
The only gains in either year resulted from securities being called early by
issuers who chose to exercise their options and reduce their expense. BancShares
does not operate a trading account.
Other income increased 11.28% in 1993, following a 98.98% increase in 1992.
Income resulting from the sale of commercial loans helped to raise the level of
other income in 1993. The 1992 increase came from income on other real estate
which is held for sale.
Non-interest expenses grew 4.55% in 1993, following a 2.40% increase in 1992.
Employee compensation and benefits were up $489 thousand in 1993 (11.46%),
following a $103 thousand rise in 1992 (2.47%). The increase for 1993 was
enlarged because of the enactment of new incentive bonus programs for officers
of BancShares and its subsidiaries. It was compounded because there had been a
special reduction in group medical/dental insurance in 1992. Furniture and
equipment expense decreased 1.85% in 1993, after increasing 5.74% in 1992. The
depreciation costs of data processing equipment leveled in 1993, and efforts to
reduce maintenance costs were effective. Occupancy expense has remained stable,
decreasing 1.30% in 1993, following a decrease of 1.46% in 1992. All other
operating expenses decreased 2.50% in 1993, compared to a rise of 2.21% in 1992.
This decrease occurred despite a provision of $190,000 to the valuation reserve
for other real estate made in 1993.
Income tax expense increased 19.84% in 1993, following a 152.07% increase in
1992. The effective tax rate for 1993 was 34% compared to an effective rate of
33% for 1992.
FINANCIAL RATIOS
One means of measuring the results of operations is analysis of various
ratios. Two widely recognized performance indicators are the return on equity
and the return on assets. The following table sets forth those and other ratios
frequently used in analyzing bank holding company financial statements. It is
Management's intention to continue efforts to return 1% or better on average
total assets.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1993 1992 1991
-------------------------------
<S> <C> <C> <C>
Profitability ratios:
Rate of Return/1/ on Average:
Earning Assets............................ 1.19% 1.12% 0.81%
Total Assets.............................. 1.10% 1.02% 0.75%
Total Shareholders' Equity................ 13.39% 12.89% 9.71%
Liquidity and Capital Ratios:
Average Shareholders' Equity to
Average Earning Assets.................... 8.90% 8.68% 8.36%
Average Shareholders' Equity to
Average Total Assets...................... 8.18% 7.94% 7.69%
Common Dividend Payout Ratio/2/............... 27.82% 26.00% 28.98%
</TABLE>
Notes:
/1/ Based on Net Income
/2/ Cash dividends declared on common stock as a percentage of net
income applicable to common stock.
25
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
MARKET FOR THE REGISTRANT'S COMMON STOCK
- ------------------------------------------------------------------------------
Commercial BancShares, Incorporated's common stock has not been traded
extensively and such trades cannot be characterized as amounting to an active
trading market. BancShares is not listed on any exchange and is not a NASDAQ
quoted stock. Several trades during 1993 were initiated through Hazlett, Burt &
Watson, Inc., although that firm is not considered to be making a market in
BancShares stock. Further, BancShares does not anticipate that a trading market
will develop in the foreseeable future. On December 31, 1993, the total number
of holders of Commercial BancShares, Inc. common stock was 493.
The tables below present the high and low sales price reported for Commercial
BancShares, Incorporated and the cash dividends declared on common stock in each
quarter of the past five years.
<TABLE>
<CAPTION>
MARKET VALUE OF COMMON STOCK:
(In Dollars)
1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Quarter.............. $24.00-25.00 $ 18.50 $ 21.00 $20.00-21.00 $19.00-20.00
Second Quarter............. 26.00-27.00 19.50 21.00 19.00-20.00 19.00-20.25
Third Quarter.............. 27.00-29.00 20.00 17.00-20.50 19.00-20.00 19.00-20.00
Fourth Quarter............. 28.00-29.50 21.00-22.00 17.50-21.00 18.50-19.50 19.00-20.00
- ------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED ON
COMMON STOCK:
(In Dollars)
1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------
First Quarter.............. $ .23 $ .20 $ .20 $ .19 $ .18
Second Quarter............. .23 .20 .20 .19 .18
Third Quarter.............. .23 .20 .20 .19 .18
Fourth Quarter............. .25 .23 .20 .19 .18
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL MEETING
The Annual Meeting of Stockholders will take place at 3:00 P.M. on Wednesday,
May 11, 1994 at The Blennerhassett Hotel, Fourth and Market Streets,
Parkersburg, West Virginia.
- --------------------------------------------------------------------------------
Copies of Commercial BancShares, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K are available to stockholders after April 1,
1994, on request to Larry G. Johnson, Secretary-Treasurer, Commercial
BancShares, Inc., 415 Market Street, Parkersburg, WV 26101
26
<PAGE>
[LOGO of Commercial BancShares, Inc. and Subsidiaries]
Commercial BancShares, Inc. and Subsidiaries
DIRECTORS
- -------------------------------------------------------------------------------
DIRECTORS
COMMERCIAL BANCSHARES, INC.
[PHOTO] WILLIAM E. MILDREN, JR.
Chairman, President & Chief
Executive Officer
[PHOTO] BRUCE BINGHAM
Retired
[PHOTO] ROBERT W. BURK, JR.
Attorney at Law
[PHOTO] FRANK L. CHRISTY
Real Estate Developer
[PHOTO] A. V. CRISS, III
President, Century Block, Inc.
President, Century Limestone, Inc.
Vice President, Atlas Towing
Secretary-Treasurer, Bluestone Quarries, Inc.
[PHOTO] CARL E. DOLLMAN
Retired
[PHOTO] JAMES A. MEAGLE, JR.
President & Chief Executive Officer
The Dime Bank
[PHOTO] WILLIAM E. MILDREN
Retired Chairman
[PHOTO] JACK F. POE
Retired
[PHOTO] ROBERT E. RICHARDSON
Chairman, Richardson Printing
Corporation
[PHOTO] W. S. RITCHIE, JR.
Self-Employed
[PHOTO] SUSAN S. ROSS
Chairman & Chief Executive Officer
Storck Baking Company
[PHOTO] THOMAS N. WEBSTER
Vice-Chairman
[PHOTO] MORRIS B. WILKINS
President, Caesars Pocono Resorts
27
<PAGE>
COMMERCIAL BANKING AND
TRUST COMPANY
415 MARKET STREET
PARKERSBURG, WV 26101
304/424-0300
WILLIAM E. MILDREN, JR.
Chairman
CARL E. DOLLMAN
Retired
PEYTON J. DUDLEY
J. W. Dudley Sons Company
LARRY G. JOHNSON
Secretary-Treasurer
Commercial BancShares, Inc.
ARTHUR A. MAHER
President & Chief Operating Officer,
St. Joseph's Hospital
DANIEL O. MARTIN
Executive Vice President,
Mullen Motors Company
WILLIAM E. MILDREN
Retired Chairman
JACK F. POE
Retired President
DONALD L. SCOTHORN
President & Chief
Executive Officer
JAMES W. SWEARINGEN
Retired
ROBERT K. TEBAY
Owner-Operator, Tebay Dairy
THOMAS N. WEBSTER
Vice-Chairman,
Commercial BancShares, Inc.
BERT F. HIDER
Director Emeritus
THE DIME BANK
200 PUTNAM STREET
MARIETTA, OH 45750
614/373-0237
ROBERT E. RICHARDSON
Chairman
PAUL G. BERTRAM, JR.
Vice-Chairman
KENNETH E. BENNETT
Retired Physician
HARRY M. COGSWELL
President & Owner,
Apex Feed & Supply, Inc.
C. FRED HUNTER, JR.
National Accounts Manager
Major Appliance,
GE Plastics
ROBERT G. KELLEY
Vice President & Director,
New Weihl Olds-GMC Trucks
WALTER J. MCCARTHY
Real Estate Broker
JAMES A. MEAGLE, JR.
President
WILLIAM E. MILDREN, JR.
Chairman,
Commercial BancShares, Inc.
RICHARD A. SPINDLER
President,
Dowling Pool Company
DAN S. STEPHAN, JR.
Vice President,
Valley News Service, Inc.
WILLIAM C. WIGAL
Retired Accountant
NEIL R. WYNN
President,
Wynn Oil & Gas
FARMERS & MERCHANTS BANK
OF RITCHIE COUNTY
1500 EAST MAIN STREET
HARRISVILLE, WV 26362
304/643-2974
DONALD L. SCOTHORN
Chairman
PATRICK G. ALLEN
Vice President,
Allen's Pontiac-Buick & GMC, Inc.
A. D. JACKSON
Owner, Western Auto Store
WILLIAM E. MILDREN, JR.
Chairman, Commercial BancShares, Inc.
DONNA L. PERINE
President & Chief Executive Officer
HENRY D. SASSI
Vice-Chairman
JACKSON COUNTY BANK
WALL STREET
RAVENSWOOD, WV 26164
304/273-9351
CLAYMORE ROWLEY
Chairman
BRUCE BINGHAM
Retired President
ROBERT P. HARTLEY
President, Hartley Oil Company
Incorporated & Subsidiaries
LARRY G. JOHNSON
Secretary-Treasurer
Commercial BancShares, Inc.
CHARLES V. KELLY, O.D.
Optometrist
THOMAS M. LOOKABAUGH
President
WILLIAM E. MILDREN, JR.
Chairman, Commercial BancShares, Inc.
A. CLARK RITCHIE
Real Estate Developer
Data Processing Consultant
W. S. RITCHIE, JR.
Self-Employed
STEPHEN F. SEAMAN
Merchant - Almeda's
THOMAS N. WEBSTER
Vice-Chairman
Commercial BancShares, Inc.
28
<PAGE>
OFFICERS
COMMERCIAL BANCSHARES, INC.
WILLIAM E. MILDREN, JR.
Chairman, President & Chief Executive Officer
THOMAS N. WEBSTER
Vice-Chairman
LARRY G. JOHNSON
Secretary-Treasurer
DANIEL N. CANADA
Assistant Vice President &
Director of Human Resources
PETER G. GALLO
Systems and Programming Manager
MARTHA H. GARRETT
Auditor
LEO P. MALLAMACI
Assistant Vice President &
Senior Data Processing Officer
W. BRYAN PENNYBACKER
Senior Audit Manager
FAITH J. SMITH
Data Center Operations Manager
PATRICIA A. TUCKER
Assistant Vice President
COMMERCIAL BANKING
AND TRUST COMPANY
WILLIAM E. MILDREN, JR.
Chairman
DONALD L. SCOTHORN
President & Chief Executive Officer
THOMAS N. WEBSTER
Vice-Chairman
COMMERCIAL LOAN DEPARTMENT
DAVID M. RIGHTER
Senior Vice President
DOUGLASS J. SWEARINGEN
Vice President
DEBRA V. MILLER
Loan Officer
MORTGAGE LOAN DEPARTMENT
HENRY D. SASSI
Senior Vice President
CAROLYN S. CALHOUN
Vice President
SALLIE A. FANKHAUSER
Mortgage Loan &Elite Banking Officer
INSTALLMENT LOANS
RONALD L. BUCHANAN
Senior Vice President
JACK D. CARR
Vice President
OPERATIONS
WAYNE F. LEE
Senior Vice President & Cashier
JOAN P. SNIDER
Vice President
WILLIAM C. DEEM
Data Support Manager
THERESA J. WESTFALL
Director of Marketing
BRANCH MANAGERS
WILLIAM P. CRITES
Vice President of Branch Operations
PAUL R. MANCUSO, JR.
Vice President
JOHN O. STEWART
Assistant Vice President
TRUST DEPARTMENT
C. RANDALL LAW
Senior Vice President & Senior Trust Officer
CHARLOTTE J. POTTER
Vice President & Trust Officer
LINDA L. DAGGETT
Trust Operations Officer
PAMELA S. ROBINSON
Assistant Trust Operations Officer
THE DIME BANK
JAMES A. MEAGLE, JR.
President & Chief Executive Officer
STEVEN C. HALL
Executive Vice President & Senior Loan Officer
ALICE V. SKIDMORE
Vice President & Security Officer
SONJA P. VAN WEY
Cashier & Treasurer
JENNIFER L. ANTILL
Assistant Vice President & Compliance Officer
THOMAS L. BOGARD
Assistant Vice President & Loan Officer
CAROLYN A. EWART
Assistant Vice President & Secretary
SUSAN J. HOBENSACK
Assistant Vice President & Loan Officer
SHIRLEY K. LANG
Assistant Vice President & Head Teller
FARMERS & MERCHANTS BANK OF RITCHIE COUNTY
DONALD L. SCOTHORN
Chairman
HENRY D. SASSI
Vice-Chairman
DONNA L. PERINE
President & Chief Executive Officer
MARTHA K. KELLAR
Vice President & Cashier
ROBERT E. BOLIN
Assistant Vice President
TAMMY J. RICHARDS
Credit & Compliance Officer
JACKSON COUNTY BANK
THOMAS M. LOOKABAUGH
President
B. SCOTT MILLER
Vice President & Loan Officer
DONNA J. OVERTON
Assistant Vice President
BETTY L. MATHEW
Assistant Vice President
CHAD R. MATICS
Cashier
<PAGE>
[LOGO OF COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES]
COMMERCIAL BANCSHARES, INC.
415 Market Street
Parkersburg, West Virginia 26101
<PAGE>
EXHIBIT 24
[LOGO OF HARMAN, THOMPSON, MALLORY & ICE, A.C.]
Harman, Thompson, Mallory & Ice, A.C.
Certified Public Accountants
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Commercial BancShares, Inc. and Subsidiaries
Parkersburg, West Virginia
We consent to incorporation by reference of our report
dated February 16, 1994 relating to the consolidated balance sheet
of Commercial BancShares, Inc. and Subsidiaries as of December 31,
1993 and 1992 and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1993 which
appears in Commercial BancShares, Inc.'s annual report and Form 10K
for 1993. Similarly, we also consent to reference to our firm in
the Management's Discussion and Analysis associated with the
financial information and statistical data for the above-mentioned
periods presented as a part of the above-referenced annual report
and Form 10K.
Harman, Thompson, Mallory & Ice, A.C.
Certified Public Accountants
Parkersburg, West Virginia
March 28, 1994
TOWN SQUARE, P.O. BOX 148, PARKERSBURG, WEST VIRGINIA 26102 304/485-6584
<PAGE>
EXHIBIT 99
COMMERCIAL BANCSHARES, INCORPORATED
415 MARKET STREET
PARKERSBURG, WEST VIRGINIA
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE is hereby given that the Annual Meeting of Stockholders of
COMMERCIAL BANCSHARES, INCORPORATED ("Commercial") will be held in the Wheeling
Room of the Blennerhassett Hotel, Fourth and Market Streets, Parkersburg, West
Virginia, at 3:00 p.m. on Wednesday, May 11, 1994, for the following purposes:
(1) To elect fourteen (14) Directors of Commercial (two to be
elected by holders of convertible preferred stock, the remainder by holders of
common stock);
(2) To ratify the selection of Harman, Thompson, Mallory & Ice, A.C.,
Certified Public Accountants as auditors for Commercial for the year ending
December 31, 1994; and
(3) To transact such other business as may properly come before
the meeting.
Only stockholders of record at the close of business on Monday, March
14, 1994, are entitled to notice of and to vote at the meeting. A list of these
stockholders will be available at the meeting and for 10 days preceding the
meeting at the office of the Secretary of Commercial Bancshares, 415 Market
Street, Parkersburg, West Virginia.
If you are unable to be present at the meeting, but desire to have
your shares voted, please mark, date and sign the enclosed proxy and return it
in the accompanying envelope.
By order of the Board of Directors
Larry G. Johnson Secretary-Treasurer
April 1, 1994
WE URGE YOU TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. THIS WILL NOT LIMIT
YOUR RIGHT TO VOTE IN PERSON IF YOU WISH TO DO SO AT THE MEETING. THE PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
415 Market Street
Parkersburg, West Virginia 26101
April 1, 1994
--------------------
PROXY STATEMENT
--------------------
SOLICITATION AND REVOCABILITY OF PROXIES
Your proxy is solicited by your Board of Directors. It will be voted
as you direct. In the absence of your direction, it will be voted for the
nominees and proposals set forth below.
Any proxy may be revoked at any time before it is voted by notifying
in person or by giving a written notice to Larry G. Johnson, Secretary-
Treasurer, of the revocation, or by submitting a subsequently dated proxy, or by
attending the meeting and withdrawing the proxy before it is voted.
This proxy statement and the accompanying proxy are being mailed on or
about April 14, 1994 to all stockholders entitled to vote at the meeting.
INFORMATION AS TO VOTING SECURITIES
The Board of Directors has fixed the close of business on Monday,
March 14, 1994, as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. On the record date
740,863 shares of common stock ("Common Stock") and 27,165 shares of convertible
preferred stock ("Preferred Stock") were outstanding and entitled to vote at the
meeting. Each share of stock is entitled to one vote.
Holders of Preferred Stock will vote as a class to elect two
Directors. The remaining Directors shall be elected by the holders of Common
Stock. Holders of Preferred Stock do not have the right to vote those shares on
any other matter.
At the election for Directors, each shareholder has the right to vote
within the class (Common Stock or Preferred Stock) the number of shares owned
for as many persons as there are Directors to be elected and for whose election
he or she has the right to vote. Cumulative voting in the election of Directors
is permitted by State statute, and the exercise of that right is not subject to
any condition precedent. Each stockholder may cast all of his votes for a
single Director or he may distribute them among the number to be voted for as he
sees fit. Shareholders desiring to cast cumulative votes by proxy should so
indicate on the proxy.
The solicitation of proxies will be made primarily by mail. Proxies
may also be solicited personally and by telephone by regular employees of
Commercial or its subsidiaries without any additional remuneration and at
nominal cost. Management intends to request banks, brokerage houses,
custodians, nominees and fiduciaries to obtain authorization for the execution
of proxies. Commercial will bear the entire cost of soliciting proxies.
The following shareholders are beneficial owners of more than 5% of
the indicated class of stock as of March 14, 1994:
<TABLE>
<CAPTION>
Amount and
Title of Name and Address Nature of Percent of
Class of Beneficial Owner Beneficial Ownership Class
- ----------- ------------------------------ -------------------- ----------
<S> <C> <C> <C> <C>
Common COMMERCIAL BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
(WITH 401(K) PROVISIONS) 79,051 Direct 10.670%
Parkersburg, WV
Common WILLIAM E. MILDREN, JR./1/ 46,181 Direct 6.233%
Vienna, WV 3,087 Indirect 0.417%
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Preferred JEANNE LAMBERTSON 5,754 Direct 21.182%
Basking Ridge, NJ
Preferred FOSTER L. SEAMAN AND ALMEDA
SEAMAN, JTWROS 1,780 Direct 6.553%
Ravenswood, WV
Preferred BERYL ROWLEY 1,400 Direct 5.154%
Ravenswood, WV
Preferred CLAYMORE ROWLEY 1,400 Direct 5.154%
Ravenswood, WV
</TABLE>
/1/Indirect holdings by Mr. Mildren represent shares owned by Commercial
BancShares Employee Stock Ownership Trust (with 401(k) provisions) for which Mr.
Mildren disclaims voting power.
As of March 14, 1994, Commercial stock beneficially owned by the
Directors and Executive Officers as a group was as follows:
<TABLE>
<CAPTION>
Number of Shares Percent
Title of Class Beneficially Owned of Class
- ------------------------ ------------------ --------
<S> <C> <C>
Common Stock 179,607/1/ 24.243%
Preferred Stock 2,235 8.227%
</TABLE>
/1/Included are 10,566 shares owned by Commercial BancShares Employee Stock
Ownership Trust (with 401(k) provisions) and allocated to Directors and
Executive Officers for which they disclaim voting power.
_______________________________________
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Board of Directors of Commercial has proposed fourteen Directors
be elected to serve until the next Annual Meeting of Stockholders and until
their respective successors are duly elected and have qualified. It is intended
that shares represented by proxies solicited by the Board of Directors will,
unless contrary instructions are given, be voted in favor of the election as
Directors of the nominees listed below. Unless otherwise indicated on the
proxy, one vote per share owned will be voted in favor of each nominee.
Although the Board of Directors does not contemplate that any nominee will be
unavailable for election, in the event that vacancies occur unexpectedly, the
shares may be voted for substitute nominees, if any.
Each nominee is currently a Director of Commercial. Nine are currently
Directors of one or more of the banking subsidiaries, Commercial Banking and
Trust Company (CB&T), Jackson County Bank (JCB), Farmers and Merchants Bank of
Ritchie County (F&M) or Dime Bank (Dime).
The following table sets forth the names and ages of the nominees and
the year the individual began continuous service as a Director of Commercial.
Also shown with respect to the nominees are their principal occupations at
present and for the past five years and directorships held by such persons in
companies (other than Commercial) which are required to file reports with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 or
registered under the Investment Company Act of 1940 and certain other business
or insurance companies. The number of shares of stock beneficially owned by
each Director and that number as a percentage of the total shares outstanding in
the class is also shown.
-3-
<PAGE>
THE FOLLOWING PERSONS ARE NOMINATED FOR ELECTION BY HOLDERS OF COMMON STOCK:
<TABLE>
<CAPTION>
Director Beneficially Owned Percent
Name Age Since Class Number of Class
- ---- --- -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
ROBERT W. BURK, JR. 54 1983 Common 1,752 0.236%
Parkersburg, West Virginia
Mr. Burk is an Attorney at Law, a partner in the firm of Burk, Myers and
Zivkovich. He was a Director of CB&T from 1982-1988.
FRANK L. CHRISTY 46 1983 Common 5,130 0.692%
Marietta, Ohio
Mr. Christy is a Real Estate Developer and was a Director of CB&T from
1977-1990.
A. VERNON CRISS, III 39 1985 Common 35,508 4.793%
Vienna, West Virginia
Mr. Criss is the President of Century Block, Inc., and Century Limestone,
Inc., Vice President of Atlas Towing Company, and Secretary-Treasurer of
Bluestone Quarries, Inc. He was a Director of CB&T from 1984-1988.
CARL E. DOLLMAN 70 1987 Common 2,960 0.400%
Vienna, West Virginia
Mr. Dollman retired in 1986 from First Federal Savings and Loan Association
of Parkersburg where he had served as President. He became a director of
CB&T in 1987.
JAMES A. MEAGLE, JR. 48 1992 Common 4,167 0.562%
Marietta, Ohio
Mr. Meagle has been President of The Dime Bank since 1980. He became a
Director of Dime in 1980.
WILLIAM E. MILDREN, SR. 81 1983 Common 2,000 0.270%
Vienna, West Virginia
Mr. Mildren is retired from active employment with CB&T. He was Chairman
of the Board until he retired from that position in 1987. He served as
President and Chief Executive Officer for 22 years and became Executive
Vice President and Director of CB&T in 1944. He is the father of Chairman,
President and Chief Executive Officer William E. Mildren, Jr.
WILLIAM E. MILDREN, JR. 49 1983 Common 49,268 6.650%
Vienna, West Virginia Preferred 250 0.920%
Mr. Mildren is Chairman, President and Chief Executive Officer of
Commercial and Chairman of CB&T. He is a Director of CB&T, JCB, F&M and
Dime. He is the son of Director William E. Mildren, Sr., and became a
Director of CB&T in 1977, Chairman in 1987.
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
JACK F. POE 71 1983 Common 5,210 0.703%
Parkersburg, West Virginia
Mr. Poe is retired from CB&T, where he served as President for four years.
He became associated with CB&T in 1954, and has served as a Director of
CB&T since 1972. He is a life trustee of Marietta College.
ROBERT E. RICHARDSON, SR. 73 1992 Common 12,287 1.658%
Marietta, Ohio
Mr. Richardson is President of Richardson Printing Company in Marietta,
Ohio. He became a Director of Dime in 1985 and has served as its Chairman
since 1986.
SUSAN S. ROSS 49 1983 Common 2,000 0.270%
Vienna, West Virginia
Mrs. Ross is Chairman and Chief Executive Officer of Storck Baking Company
and was a Director of CB&T from 1982-1988.
THOMAS N. WEBSTER 74 1983 Common 2,654 0.358%
Vienna, West Virginia
Mr. Webster is the Vice Chairman of Commercial. He is retired from CB&T,
where he served as Executive Vice President. He became a Director of CB&T
in 1982, and JCB in 1985.
MORRIS B. WILKINS 69 1987 Common 36,549 4.933%
Scotrun, Pennsylvania
Mr. Wilkins is President of Caesars Pocono Resorts, Scotrun, Pennsylvania.
He served as Chairman of the Board, President and Director of F&M from 1982
to 1987.
</TABLE>
THE FOLLOWING PERSONS ARE NOMINATED FOR ELECTION BY HOLDERS OF
PREFERRED STOCK:
<TABLE>
<CAPTION>
Director Beneficially Owned Percent
Name Age Since Class Number of Class
- ---- --- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C>
BRUCE BINGHAM 64 1985 Preferred 1,254 4.616%
Ravenswood, West Virginia Common 1,454 0.196%
Mr. Bingham is retired from active employment with JCB, where he served as
President from 1983-1990. He became a Director of JCB in 1968, and
continues to serve in that capacity.
W. S. RITCHIE, JR. 65 1985 Preferred 731 2.691%
Ravenswood, West Virginia
Mr. Ritchie recently completed a term as Mayor of Ravenswood, WV. He
retired in 1988 as Commissioner of the West Virginia Department of
Highways. He previously was affiliated with Ashland Coal Company, Inc. and
Hobet Mining Company. He became a Director of JCB in 1967.
</TABLE>
_______________________________________
All of the shares of Common Stock and Preferred Stock reported are owned
directly by each nominee unless otherwise indicated below:
Criss, A. Vernon, III
Of the 35,508 shares of Common Stock beneficially owned by Mr. Criss,
35,308 are owned by a company of which Mr. Criss is an officer.
-5-
<PAGE>
Meagle, James A. Jr.
Of the 4,167 shares of Common Stock beneficially owned by Mr. Meagle, 266
are owned by Commercial BancShares, Inc. Employee Stock Ownership Trust
(with 401(k) provisions) for which Mr. Meagle disclaims voting power.
Mildren, William E. Jr.
Of the 49,268 shares of Common Stock beneficially owned by Mr. Mildren, 522
are held in trust for members of his immediate family, and 3,087 shares are
owned by Commercial BancShares, Inc. Employee Stock Ownership Trust (with
401(k) provisions) for which Mr. Mildren disclaims voting power.
Richardson, Robert E., Sr.
Of the 12,287 shares of Common Stock beneficially owned by Mr. Richardson,
10,619 are owned by a company of which Mr. Richardson is the Chief
Executive Officer.
Wilkins, Morris B.
Of the 36,549 shares of Common Stock beneficially owned by Mr. Wilkins,
36,349 are owned by a member of his immediate family.
Bingham, Bruce
Of the 1,454 shares of Common Stock beneficially owned by Mr. Bingham,
1,254 are owned by Commercial BancShares, Inc. Employee Stock Ownership
Trust (with 401(k) provisions) for which Mr. Bingham disclaims voting
power.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of Commercial met seven times in 1993. All
directors attended 75% or more of the board and committee meetings held except
Mr. Christy , Mr. Mildren, Mr. Wilkins and Mr. Ritchie.
The Executive Committee of Commercial is composed of the same members as
the Executive Committee of CB&T and serves both organizations simultaneously,
with a single meeting often intermingling the business of Commercial and CB&T.
The Executive Committee is composed of Directors Mildren, Jr., Webster, Poe and
Dollman, Secretary-Treasurer Johnson and CB&T President Scothorn. There were 18
meetings in 1993 of the Committee, which provides advice and counsel to the
official staff of CB&T and acts for the Board of Directors upon delegated
authority between meetings of the Boards.
The Audit Committee of Commercial consisted of Mr. Poe as Chairman,
Director Criss and five outside Directors of Commercial subsidiaries: Arthur A.
Maher, Peyton J. Dudley, A. D. Jackson, Stephen F. Seaman and William C. Wigal.
The Committee reviews and evaluates significant matters related to the internal
controls of Commercial, reviews the activities of Commercial's internal audit
staff, meets with appropriate management personnel regarding internal audit
results, and reports its findings to the Board of Directors of Commercial. It
met nine times during 1993.
The Mergers and Acquisitions Committee of Commercial met three times during
the year. The members were Directors Christy (who served as chairman), Dollman,
Mildren, Jr., Mildren, Sr., and Wilkins and Mr. Claymore Rowley, Chairman of
JCB. The Committee's duties are to review and analyze any offers or proposals
to merge with Commercial. It reports its analyses to the Executive Committee.
It is also available to assist in the analysis and preparation of proposals or
offers to acquire or merge with other corporations.
A Compensation Committee was created in February to review and make
recommendations regarding officers' salaries and benefits. Director Dollman
served as chairman. The other members were Robert L. Hartley, Patrick G. Allen
and Neil R. Wynn, outside directors of Commercial subsidiaries. The Committee
met six times in 1993.
-6-
<PAGE>
An EDP Steering Committee consists of the Presidents and members of the
Boards of Directors of the subsidiary Banks. Members included: Mr. Mildren,
Jr., Donald Scothorn and Robert Tebay of CB&T, Thomas Lookabaugh and Clark
Ritchie of JCB, Mrs. Donna Perine of F&M, and Mr. Meagle, Jr., and Dan Stephan,
Jr. of Dime. There were nine meetings in 1993. The Committee develops the
budget and plan of operation for the Electronic Data Processing Department,
serves as a liaison between banks and the Department, establishes priorities
for implementation of new software, reviews standards and procedures used within
the Department, monitors its performance, prepares a capital expenditures
budget, including hardware and software, and makes recommendations in the area
of personnel.
In addition to these Committees, CB&T had a Trust Committee and a Marketing
Committee during 1993. Dime Bank had an Executive Committee, Audit Committee,
and Profit Planning Committee. Jackson and Farmers and Merchants Bank of
Ritchie County have no committees of their Boards of Directors.
COMPENSATION OF DIRECTORS
DIRECTORS OF COMMERCIAL, CB&T, JCB AND F&M:
Beginning in June, 1988, a monthly fee of $250 was paid to each Director by
each subsidiary for which that person served as Director. Commercial Directors
who were not Directors of subsidiary banks were paid $250 monthly by Commercial.
In addition, Directors received $100 for each meeting of the Boards of Directors
attended. Directors who were not active officers of subsidiaries also received
$100 for each committee meeting attended.
DIRECTORS OF DIME:
In October, 1992, the Board of Directors of Dime adopted a fee of $175 per
meeting attended, retroactive to April, 1992. In addition, Directors who were
not active officers also received $100 for each committee meeting attended.
PERFORMANCE ADJUSTED FEES:
At the recommendation of outside consultants engaged to advise Commercial
regarding incentive compensation for its officers and appropriate fee levels for
Directors, Commercial adopted a system of fee adjustments based on the
performance of the individual subsidiaries. The adjustments paid to Directors
increase as corporate objectives with regard to return on assets are achieved or
exceeded. In considering the level of adjustment, the consultants also examined
the fees paid by banks and holding companies of comparable size with similar
performance. In addition to regular Board and Committee Fees, the fee
adjustments paid to directors for 1993 were: $1,580 to Commercial directors,
$1,022 to Jackson directors and $4,451 to CB&T directors. There was no
adjustment for F&M directors and Dime did not participate in 1993.
During 1993 there were no other arrangements pursuant to which any Director
was compensated for services as a Director.
DIRECTORS DEFERRED INCOME PLAN
Commercial, CB&T, F&M and Jackson have established Directors Deferred
Income Plans with certain Directors which defers payment of directors fees until
such time as the director reaches age 65. For those directors whose age was 65
or older at the time the plan was established, the payment of directors fees is
deferred for five years.
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
Robert W. Burk, Jr., a member of the Board of Directors of Commercial, was
a partner in the law firm of Burk, Myers and Zivkovich in Parkersburg, West
Virginia, during 1993. Burk, Myers and Zivkovich has rendered legal services to
CB&T and Commercial during that time. It is expected that Mr. Burk will
continue to render certain services to Commercial and CB&T in the future. The
fees paid to Burk, Myers and Zivkovich in 1993 represented less than five
percent of that firm's revenue for the year.
-7-
<PAGE>
Certain Directors and Officers of Commercial, CB&T, Jackson, F&M and Dime
and their associates were customers of and had transactions with the subsidiary
banks in the ordinary course of the banks' business during 1993. All
outstanding loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others, and, in the
opinion of the banks did not involve more than normal risk of collectibility or
present other unfavorable features.
EXECUTIVE OFFICERS
A description of the executive officers of Commercial and its subsidiaries as of
March 14, 1994, follows.
<TABLE>
<CAPTION>
Name Age Position Business Experience
- ---- --- -------- -------------------
<S> <C> <C> <C>
WILLIAM E. MILDREN, JR. 49 Chairman, President, and President and Chief
Chief Executive Officer Executive Officer,
of Commercial Commercial and CB&T
THOMAS M. LOOKABAUGH 43 President, JCB Executive Vice President,
JCB; Asst. Vice Pres, CB&T
JAMES A. MEAGLE, JR. 48 President and Chief President and Chief
Executive Officer, Dime Executive Officer, Dime
DONNA L. PERINE 38 President and Chief President and Chief
Executive Officer, F&M Executive Officer, F&M
DONALD L. SCOTHORN 64 President and Chief Executive Vice President
Executive Officer, CB&T; and Chief Lending
Chairman, F&M Officer, CB&T
LARRY G. JOHNSON 46 Secretary-Treasurer, Senior Vice President
Commercial; Executive and Comptroller, CB&T
Vice President andChief
Financial Officer, CB&T
</TABLE>
The following executive officers, who are not Commercial directors,
are beneficial owners of shares of the indicated class of stock as of March 14,
1994:
<TABLE>
<S> <C> <C> <C>
Common Thomas M. Lookabaugh 1,767/1/ 0.238%
Vienna, West Virginia
Common Donna L. Perine 1,336/2/ 0.180%
Harrisville, West Virginia
Common Donald L. Scothorn 13,789/3/ 1.861%
Parkersburg, West Virginia
Common Larry G. Johnson 6,316/4/ 0.853%
Parkersburg, West Virginia
</TABLE>
/1/ Of the 1,767 shares owned by Mr. Lookabaugh, 1,536 are owned by Commercial
BancShares, Inc. Employee Stock Ownership Trust (with 401(k) provisions), for
which Mr. Lookabaugh disclaims voting power.
/2/ Of the 1,336 shares owned by Mrs. Perine, 961 are owned by Commercial
BancShares, Inc. Employee Stock Ownership Trust (with 401(k) provisions), for
which Mrs. Perine disclaims voting power.
/3/ Of the 13,789 shares owned by Mr. Scothorn 1,520 are owned by Commercial
BancShares, Inc. Employee Stock Ownership Trust (with 401(k) provisions), for
which Mr. Scothorn disclaims voting power.
/4/ Of the 6,316 shares owned by Mr. Johnson 1,942 are owned by Commercial
BancShares, Inc. Employee Stock Ownership Trust (with 401(k) provisions), for
which Mr. Johnson disclaims voting power.
-8-
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31,
1991, 1992 and 1993, the cash compensation paid by Commercial and its
subsidiaries, as well as certain other compensation paid or accrued for those
years, to the Chief Executive Officer of Commercial in all capacities in which
he served. There were no other executive officers whose total annual salary and
bonus exceeded $100,000.
<TABLE>
<CAPTION>
--------------Annual Compensation--------------
Other
Name and Annual All Other
Principal Compen- Compen-
Position Year Salary($) Bonus($) sation($)/1/ sation($)/2/
- --------- ---- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
WM. E. MILDREN, JR. 1993 $103,620 $18,000 $16,525 $ 2,657
Chairman, President 1992 $ 98,640 $11,524 $15,150 $10,166
and CEO 1991 $ 94,800 $14,463 $12,450 $11,866
</TABLE>
/1/ "Other Annual Compensation" for Mr. Mildren includes amounts paid to him by
Commercial and its Subsidiaries as Directors Fees.
/2/ "All Other Compensation" includes contributions to Commercial BancShares
Employee Stock Ownership Plan (with 401(k) provisions) on behalf of Mr. Mildren
to match pre-tax elective deferral contributions (included under Salary and
Bonus) made to the Plan, a basic contribution to the Plan and optional corporate
contributions to the Plan (included in 1991 and 1992 only, as 1993 information
is not yet available).
PROPOSAL NO. 2: SELECTION OF AUDITORS
It is recommended that the stockholders ratify the selection by the
Board of Directors of Harman, Thompson, Mallory & Ice, A.C., Certified Public
Accountants, as auditors for Commercial for the year ending December 31, 1994.
Harman, Thompson, Mallory & Ice, A.C., examined the financial
statements of Commercial, CB&T, JCB, F&M and Dime in 1993, and, in the opinion
of management and the Board of Directors, their selection as auditors for the
coming year should be ratified. Representatives of Harman, Thompson, Mallory &
Ice, A.C., are expected to be present at the annual meeting of shareholders with
an opportunity to make a statement if they desire to do so and they are expected
to be available to respond to appropriate questions. In the event ratification
of the selection of auditors is not approved by a majority of the shares of
Common Stock voting, the Board of Directors will consider the selection of
another accounting firm. If such selection were made, it might not become
effective until 1995 because of the difficulty and expense of making a
substitution.
THE DIRECTORS RECOMMEND THAT YOU VOTE FOR THE ABOVE PROPOSAL.
_______________________________________
-9-
<PAGE>
GENERAL INFORMATION
The Board of Directors and management would like to have you attend
the meeting in person. Please, however, mark, date, sign and return as promptly
as possible the enclosed proxy in any event. The Board of Directors strongly
recommends a vote FOR all nominees for election as Directors and the
ratification of the selection of auditors. If a proxy does not specify
otherwise, it will be voted in accordance with the foregoing recommendations.
If you attend the meeting, you may nonetheless vote in person by ballot if you
desire.
PROPOSALS OF STOCKHOLDERS
FOR PRESENTATION AT NEXT YEAR'S ANNUAL MEETING,
TO BE HELD MAY 10, 1995
Proposals which stockholders intend to present at next year's annual
meeting, to be held Wednesday, May 10, 1995, will be eligible for inclusion in
Commercial's proxy material for that meeting if they are submitted to the
Secretary of Commercial in writing not later than December 31, 1994. A
proponent may submit only one proposal. At the time of the submission of a
proposal, a stockholder also may submit a written statement in support thereof
for inclusion in the proxy statement for the meeting, if requested by the
proponent; provided, however, that a proposal and its supporting statement in
the aggregate shall not exceed 500 words.
OTHER MATTERS
As of the date hereof, the Board of Directors was not aware that any
matters not referred to in the form of proxy would be presented for action at
the meeting. If any other business should come before the meeting, the persons
named in the enclosed proxy will, as stated therein, have discretionary
authority to vote the shares represented by them in accordance with their best
judgement.
By order of the Board of Directors,
LARRY G. JOHNSON
Secretary-Treasurer
Parkersburg, West Virginia
April 1, 1994
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