<PAGE>
As filed pursuant to Rule 424(b)(2)
Registration No. 033-53017
COMMERCIAL BANCSHARES, INCORPORATED
415 MARKET STREET
PARKERSBURG, WV 26101
May 6, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Commercial BancShares, Incorporated ("Commercial") to be held at the offices
of Commercial, 415 Market Street 9:00 a.m. Parkersburg, West Virginia, on June
22, 1994 at 9:00 a.m. local time. At this meeting, you will be asked to
consider and approve the merger of Hometown Bancshares Incorporated
("Hometown") with and into Commercial (the "Merger"). As a result of the
Merger, Hometown will cease to exist and the resulting company will operate
under the charter and the name of Commercial.
If the Merger is consummated and you do not exercise dissenters' rights,
you will remain a shareholder of Commercial. Hometown shareholders will exchange
each share of their Hometown common stock for 1.512 shares of Commercial common
stock ("Commercial Stock"). No fractional shares of Commercial Stock will be
issued in this transaction. Commercial will pay cash for any fractional shares
based upon a fixed price of $26.00 per share as set forth in the merger
agreement.
The Merger is subject to approval of the holders of a majority of the
outstanding shares of Commercial. Completion of the Merger is also subject to
approval by the Hometown shareholders, regulatory approval and other conditions
described in the enclosed materials.
A notice of the special meeting, a proxy for your use in connection with
that meeting, and a Prospectus/Joint Proxy Statement describing the proposed
transaction in detail accompany this letter. We urge you to read all of these
documents carefully before deciding how to vote your shares.
Your Board of Directors has approved the Merger. Accordingly, your
Board of Directors unanimously recommends that you VOTE FOR the Merger.
I hope that you will attend the Special Meeting. Regardless of your plans
to attend, I urge you, because of the importance of this matter, to execute and
mail the enclosed proxy in the envelope provided. If you decide to attend the
meeting, you may withdraw your proxy and vote in person on all matters brought
before it.
Sincerely,
William E. Mildren, Jr.
President
<PAGE>
HOMETOWN BANCSHARES, INC.
FAIR & DODD STREETS
MIDDLEBOURNE, WV 26149
May 6, 1994
Dear Hometown Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Hometown Bancshares, Incorporated ("Hometown") to be held at the offices of
Union Bank of Tyler County, Fair and Dodd Streets, Middlebourne, West
Virginia, on June 7, 1994 at 7:00 p.m., local time. At this meeting, you will
be asked to consider and approve the merger of Hometown with and into
Commercial BancShares, Incorporated ("Commercial") (the "Merger").
If the Merger is consummated and you do not exercise dissenters' rights,
you will become a shareholder of Commercial and will exchange each share of your
Hometown common stock for 1.512 shares of Commercial common stock ("Commercial
Stock"). No fractional shares of Commercial Stock will be issued in this
transaction. Commercial will pay cash for any fractional shares based upon a
fixed price of $26.00 per share of Commercial Stock as set forth in the merger
agreement.
Hometown's Articles of Incorporation provide for the holder of a super-
majority of the issued and outstanding shares to approve certain business
combinations, in certain circumstances. However, with respect to the proposed
Merger, and as provided in the Articles of Incorporation, since greater than two
thirds of the members of the board of directors approved the Merger, the Merger
requires the approval of the holders of a simple-majority of the outstanding
shares of Hometown. Completion of the Merger is also subject to approval by the
Commercial shareholders, regulatory approval and other conditions described in
the enclosed materials.
A notice of the special meeting, a proxy for your use in connection with
that meeting, and a Prospectus/Joint Proxy Statement describing the proposed
transaction in detail accompany this letter. We urge you to read all of these
documents carefully before deciding how to vote your shares.
Your Board of Directors has approved the Merger. Accordingly, your
Board of Directors unanimously recommends that you VOTE FOR the Merger.
I hope that you will attend the Special Meeting. Regardless of your plans
to attend, I urge you, because of the importance of this matter, to execute and
mail the enclosed proxy in the envelope provided. If you decide to attend the
meeting, you may withdraw your proxy and vote in person on all matters brought
before it.
Sincerely,
Gary R. Davis
President and CEO
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of Directors, a
Special Meeting of Shareholders of Commercial Bancshares, Incorporated will be
held at the office of Commercial Bancshares, Incorporated, 415 Market Street,
Parkersburg, West Virginia on June 22, 1994, at 9:00 a.m. local time, for the
purpose of considering and voting upon the following matters:
1. To consider and vote upon an Agreement and Plan of Merger
dated as of September 30, 1993, by and between Commercial Bancshares,
Incorporated and Hometown Bancshares, Inc. (the "Merger"). A copy of the
Agreement is attached as Exhibit A to the accompanying Prospectus/Proxy
Statement which you are urged to read carefully. As a result of the Merger, if
consummated, Hometown Bancshares, Inc. ("Hometown") will cease to exist, and
the resulting company shall operate under the Charter and the name of
Commercial Bancshares, Incorporated ("Commercial"). Commercial will be the
surviving bank holding company and the three current subsidiary banks of
Hometown will become wholly-owned subsidiaries of Commercial. Each share of
common stock of Hometown will be exchanged for 1.512 shares of Commercial
common stock. No fractional shares of Commercial common stock will be issued
in this transaction; and in lieu thereof, Commercial will pay $26.00 cash for
such fractional shares.
2. To act upon any other business which may properly come before
the Special Meeting or any adjournment or adjournments thereof. The Board of
Directors at present knows of no other business to come before this Special
Meeting.
The close of business on May 5, 1994, has been fixed by the Board
of Directors as the record date for determining shareholders entitled to
notice of and to vote at this Special Meeting.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE REGARDLESS OF YOUR PLANS TO ATTEND THIS SPECIAL MEETING. IF YOU DO
ATTEND, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
INDIVIDUALS HAVE BEEN NAMED IN THE PROXY TO VOTE THE SHARES
REPRESENTED BY PROXY. IF YOU WISH TO CHOOSE SOME OTHER PERSON TO ACT AS YOUR
PROXY, MARK OUT THE PRINTED NAMES AND WRITE IN THE NAME OF THE PERSON YOU
SELECT IN THE SPACE PROVIDED IN THE PROXY.
By Order of the Board of Directors
May 9, 1994
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of Directors, a
Special Meeting of Shareholders of Hometown Bancshares, Inc. will be held at
the offices of Union Bank of Tyler County, Fair and Dodd Streets, Middlebourne,
West Virginia on June 7, 1994, at 7:00 p.m. local time, for the purpose of
considering and voting upon the following matters:
1. To consider and vote upon an Agreement and Plan of Merger
dated as of September 30, 1993, by and between Commercial Bancshares,
Incorporated and Hometown Bancshares, Inc. (the "Merger"). A copy of the
Agreement is attached as Exhibit A to the accompanying Prospectus/Proxy
Statement which you are urged to read carefully. As a result of the Merger, if
consummated, Hometown Bancshares, Inc. ("Hometown") will cease to exist, and
the resulting company shall operate under the Charter and the name of
Commercial Bancshares, Incorporated ("Commercial"). Commercial will be the
surviving bank holding company and the three current subsidiary banks of
Hometown will become wholly-owned subsidiaries of Commercial. Each share of
common stock of Hometown will be exchanged for 1.512 shares of Commercial
common stock. No fractional shares of Commercial common stock will be issued
in this transaction; and in lieu thereof, Commercial will pay $26.00 cash for
such fractional shares.
2. To act upon any other business which may properly come before
the Special Meeting or any adjournment or adjournments thereof. The Board of
Directors at present knows of no other business to come before this Special
Meeting.
The close of business on May 2, 1994, has been fixed by the Board
of Directors as the record date for determining shareholders entitled to
notice of and to vote at this Special Meeting.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE REGARDLESS OF YOUR PLANS TO ATTEND THIS SPECIAL MEETING. IF YOU DO
ATTEND, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
INDIVIDUALS HAVE BEEN NAMED IN THE PROXY TO VOTE THE SHARES
REPRESENTED BY PROXY. IF YOU WISH TO CHOOSE SOME OTHER PERSON TO ACT AS YOUR
PROXY, MARK OUT THE PRINTED NAMES AND WRITE IN THE NAME OF THE PERSON YOU
SELECT IN THE SPACE PROVIDED IN THE PROXY.
By Order of the Board of Directors
May 9, 1994
<PAGE>
PROSPECTUS/JOINT PROXY STATEMENT
COMMERCIAL BANCSHARES, INCORPORATED
509,660 SHARES OF COMMON STOCK
Commercial BancShares, Incorporated ("Commercial") hereby offers up to
509,660 shares, in the aggregate, of its common stock, $5.00 par value
("Commercial Stock") to the shareholders of Hometown Bancshares, Inc.,
Middlebourne, West Virginia ("Hometown"). Under the terms of the Agreement and
Plan of Merger between Commercial and Hometown, shareholders of Hometown who do
not dissent from the Merger will, upon consummation of the transaction
contemplated therein, receive 1.512 shares of Commercial Stock for each share of
Hometown Stock they own. Commercial will not issue fractional shares and in lieu
thereof the Hometown shareholders will receive cash on the basis of a fixed
price of $26.00 per share of Commercial Stock. Commercial has two classes of
stock, common and preferred stock. The shares to be offered pursuant to this
prospectus are shares of Commercial's common stock and all references in this
Prospectus/Joint Proxy Statement to "Commercial Common Stock" are references to
its common stock. Hometown has only one class of stock, common stock and all
references here to "Hometown Stock" are references to its common stock.
Information concerning the proposed transaction is contained in the
following Joint Proxy Statement which is also a prospectus with regard to the
Hometown shareholders. The date of this Prospectus/Joint Proxy Statement is
May 9,1994.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF THE COMMERCIAL
SECURITIES OFFERED HEREIN. SEE SUMMARY, RISK FACTORS.
---
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
Commercial and Hometown are subject to the information and reporting
requirements of the Securities Exchange Act of 1934 and, in accordance with
those requirements, file reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "SEC"). The
documents filed by each with the SEC can be inspected and copied at the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
No person has been authorized to give any information or make any
representation not contained in this Prospectus/Joint Proxy Statement in
connection with the offer and the proxy solicitations contained herein. If such
information is given or a representation made, such information or
representation must not be relied upon as having been authorized by Commercial,
Hometown or any of their subsidiaries. This Prospectus/Joint Proxy Statement
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person to whom it is unlawful to make an
offer in any jurisdiction. Neither the delivery of this Prospectus/Joint Proxy
Statement nor any sale made hereunder shall create, under any circumstances, an
implication that there has been no change in the affairs of Commercial or its
subsidiaries or Hometown or its subsidiaries since the date hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS/JOINT PROXY STATEMENT............................... 1
INTRODUCTION................................................... 1
SPECIAL MEETING OF COMMERCIAL SHAREHOLDERS..................... 2
Purpose and Vote Required.................................. 2
Proxies.................................................... 3
SPECIAL MEETING OF HOMETOWN SHAREHOLDERS....................... 4
Purpose and Vote Required.................................. 4
Proxies........................... ........................ 4
SUMMARY........................................................ 5
Commercial................................................... 5
Hometown..................................................... 6
Comparison of Shareholders' Rights........................... 6
The Merger Agreement......................................... 6
Reasons for the Merger....................................... 7
Exchange Ratio............................................... 7
Required Shareholder Approval................................ 8
Accounting Treatment......................................... 8
Dissenters' Rights........................................... 8
Tax Consequences............................................. 9
Risk Factors................................................. 9
Dividend Policy of Commercial................................ 10
Conditions to Consummation of the Merger..................... 10
Exchange of Shares........................................... 10
THE PROPOSED MERGER............................................ 13
Reasons for the Merger - Both Companies................... 13
Commercial's Perspective.................................. 13
Hometown's Perspective.................................... 15
Opinion of Austin Associates, Inc......................... 15
Effect on the Corporate Parties........................... 17
Resulting Board of Directors.............................. 17
Tax Consequences.......................................... 19
</TABLE>
i
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<TABLE>
<S> <C>
Conditions to Consummation of the Merger.................. 20
Termination of the Merger Agreement....................... 22
Consequences of Termination............................... 22
Merger Effective Date..................................... 23
Accounting Treatment...................................... 23
Employment Agreements..................................... 23
Comparison of Shareholders' Rights........................ 25
Issuance and Exchange of Stock Certificates............... 29
Dissenters' Rights........................................ 30
UNAUDITED PRO FORMA FINANCIAL INFORMATION...................... 33
INFORMATION WITH RESPECT TO COMMERCIAL
BANCSHARES, INCORPORATED...................................... 43
Business of Commercial.................................... 43
Recent Developments....................................... 44
Employees................................................. 44
Competition............................................... 44
Properties................................................ 45
Legal Proceedings......................................... 46
Market for the Commercial's Stock
and Related Stockholder Matters......................... 46
Commercial Board of Directors............................. 47
Meetings of the Board of Directors and Committees......... 51
Compensation of Directors................................. 52
Directors' Deferred Income Plans.......................... 53
Relationships and Transactions with Management and Others. 53
Executive Officers........................................ 54
Stock Ownership of Officers............................... 54
Summary of Cash and Certain Other Compensation............ 55
Principal Owners of Commercial Stock...................... 56
Relationship with Independent
Certified Public Accountants............................ 57
INFORMATION WITH RESPECT TO HOMETOWN BANCSHARES, INC........... 58
Business of Hometown...................................... 58
Employees................................................. 59
Competition............................................... 59
Properties................................................ 60
Legal Proceedings......................................... 60
</TABLE>
ii
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<TABLE>
<S> <C>
Market for Hometown's Common Stock and
Related Stockholder Matters............................. 60
Hometown Board of Directors............................... 61
Meetings of the Board of Directors and Committees......... 64
Compensation of Directors................................. 64
Relationships and Transactions with Management............ 64
Executive Officers........................................ 65
Executive Compensation and Other Information.............. 66
Employee Benefit Plans.................................... 66
Principal Shareholders of Hometown........................ 67
Relationship with Independent Certified Public
Accountants............................................. 68
REGULATION AND SUPERVISION..................................... 69
General................................................... 69
Non-banking Activities Permitted to Commercial
and Hometown............................................ 70
Credit and Monetary Policies and Related Matters.......... 71
Capital Requirements...................................... 72
Unaudited Pro Forma Consolidated Risk Based
Capital Computations.................................... 74
Federal Deposit Insurance Corporation Improvement Act 1991 75
LEGAL MATTERS............................................. 76
SOURCES OF INFORMATION.................................... 76
ADDITIONAL INFORMATION.................................... 76
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
FINANCIAL INFORMATION CONCERNING COMMERCIAL BANCSHARES,
INCORPORATED................................................. F-1
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Years
Ended December 31, 1993, 1992 and 1991.................... F-2
Audited Consolidated Financial Statements As of
December 31, 1993, 1992 and 1991 and for the Years
Ended December 31, 1991, 1992 and 1993....................F-14
FINANCIAL INFORMATION CONCERNING HOMETOWN BANCSHARES, INC......F-60
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Years
Ended December 31, 1993, 1992 and 1991....................F-61
Audited Consolidated Financial Statements As of
December 31, 1993, 1992 and 1991 and for the Years
Ended December 31, 1991, 1992 and 1993....................F-92
EXHIBITS
Exhibit A - Merger Agreement.............................. E-1
Exhibit B - Hometown Fairness Opinion.....................E-38
Exhibit C - Tax Opinion...................................E-41
Exhibit D - Dissenters' Rights Statutory
Provisions..............................................E-46
</TABLE>
iv
<PAGE>
PROSPECTUS/JOINT PROXY STATEMENT
Commercial BancShares, Hometown Bancshares, Inc.
Incorporated Fair & Dodd Streets
514 Market Street Middlebourne, WV 26149
Parkersburg, WV 26101
Special Meeting of Commercial Shareholders to be held
June 22, 1994.
Special Meeting of Hometown Shareholders to be held
June 7, 1994.
INTRODUCTION
This Prospectus/Joint Proxy Statement is furnished in connection with two
special shareholder meetings. It is being furnished in part by Commercial
BancShares, Incorporated ("Commercial") in connection with solicitation by its
Board of Directors of proxies for the Special Meeting of shareholders to be held
June 22, 1994. At this meeting, Commercial shareholders will consider and
vote upon the approval of an Agreement and Plan of Merger dated September 30,
1993 by and between Commercial and Hometown Bancshares, Inc. ("Hometown") (the
"Merger Agreement"). Hometown will merge with and into Commercial (the "Merger")
and, as a result, Hometown will cease to exist. Commercial will be the surviving
bank holding company and the current subsidiary banks of Hometown will become
subsidiary banks of Commercial. If the Merger is approved by Commercial's
shareholders, Commercial's Board will increase the size of Commercial's Board by
creating three (3) vacancies which will be filled by three (3) representatives
of Hometown. The three (3) Hometown representatives will serve on the Board as
of the first board meeting following the effective date of the Merger until the
1995 Annual Meeting of Commercial shareholders. The three (3) Hometown
representatives will also be nominated for Board positions at the 1995 Annual
Meeting.
This Prospectus/Joint Proxy Statement is also being furnished by Commercial
and Hometown to Hometown shareholders as the prospectus of Commercial in
connection with the issuance of shares to the Hometown shareholders and in
connection with the solicitation of proxies by Hometown's Board of Directors for
its Special Meeting of shareholders to be held June 7, 1994. At the
Special Meeting, Hometown shareholders will consider and vote upon the approval
of the Merger Agreement. As indicated above, Commercial will survive the merger
and Hometown will cease to exist. Shareholders of Hometown will receive 1.512
shares of Commercial common stock ("Commercial Common Stock") for each share of
Hometown Stock they own. No fractional shares will be issued and in lieu
thereof, Hometown shareholders will receive cash per whole share of Commercial
Common Stock for any fractional share created, on the basis of a fixed price of
$26.00 per share of Commercial Common Stock as set forth in the Merger
Agreement.
<PAGE>
Hometown shareholders who do not dissent will become shareholders of
Commercial. Commercial shareholders who do not dissent will remain shareholders
of Commercial. Consummation of the Merger is conditioned upon receipt of the
approval of the holders of the majority of the issued and outstanding shares of
Hometown Stock and Commercial Common Stock. Members of the Hometown Board of
Directors and its executive officers beneficially own approximately 43.45% of
the issued and outstanding shares of Hometown Stock and it is contemplated that
these shares will be voted for the Merger. Members of the Commercial Board of
Directors and its executive officers beneficially own approximately 24.85% of
the issued and outstanding shares of Commercial Common Stock and it is
contemplated that these shares will be voted for the Merger.
Information relevant to the separate Special Meetings of Commercial and
Hometown shareholders is set forth below, followed by a summary of the
information contained in this Prospectus/Joint Proxy Statement. All shareholders
should review this entire Prospectus/Joint Proxy Statement carefully, including
all exhibits hereto.
SPECIAL MEETING OF COMMERCIAL SHAREHOLDERS
Purpose and Vote Required
The purpose of the Special Meeting of the Commercial shareholders is to act
upon the Merger Agreement and the proposed Merger of Hometown with and into
Commercial. Management and the Board of Directors of Commercial believe that the
Merger with Hometown is in the best interest of Commercial shareholders. See
---
SUMMARY - Reasons for the Proposed Merger and THE PROPOSED MERGER -Reasons for
the Proposed Merger.
Commercial shareholders who do not dissent from the Merger will continue to
own the shares they presently own. Assuming there are no dissenters among the
Hometown and Commercial shareholders, following the proposed Merger, the current
shareholders of Commercial will own collectively approximately 59.2% and the
current shareholders of Hometown will own approximately 40.8% of the issued and
outstanding common stock of the surviving company. Commercial also has issued
and outstanding 27,165 shares of convertible preferred stock ("Preferred Stock")
each share of which is convertible into 7.332 shares of Commercial Common Stock
at the option of the holder. On a fully diluted basis, Commercial shareholders
would own approximately 65% and the present Hometown shareholders 35% of the
stock of the surviving company.
Commercial's Board of Directors has unanimously approved the
proposed Merger and recommends that its shareholders vote for the Merger.
2
<PAGE>
With respect to the vote on the Merger, Commercial shareholders are
entitled to cast one vote for each share of Commercial Common Stock they own
on the record date of May 5, 1994. To approve the Commercial Merger, the
favorable vote of a majority of the 740,863 issued and outstanding shares of
Commercial Common Stock is required. As of April 29, 1994, the directors,
executive officers of Commercial and their affiliates had the authority to
vote, directly or indirectly, approximately 25.33% of the issued and
outstanding shares of Commercial Common Stock. The management of Commercial
expects that such shares will be voted for the Merger.
Proxies
A proxy for use by Commercial shareholders in connection with the Special
Meeting is enclosed with this Prospectus/Joint Proxy Statement which will be
mailed to Commercial shareholders on or about May 9, 1994. The proxy will be
voted as specified thereon by the shareholder. Where no specification is made
on the proxy, a properly executed proxy will be voted for the Merger.
As of the date of the mailing of this Prospectus/Joint Proxy Statement, the
management of Commercial is not aware of any business to be acted upon at the
Special Meeting, other than consideration of the Merger. If any other matter
should be brought before the Special Meeting, each shareholder will be entitled
to cast one vote for each share of Commercial Stock held on the record date on
each such matter. Unless otherwise designated on the proxy, the person appointed
as proxies will vote on such matters according to the direction of Commercial's
board of directors.
Any shareholder has the right to revoke his or her proxy any time before it
is voted: (i) by giving written notice to the President of Commercial; (ii) by
submitting a subsequently dated proxy; or (iii) by appearing at the Special
Meeting, withdrawing the proxy and voting in person.
The proxy solicitation of shareholders of Commercial is made by
Commercial's board of directors and the cost of such solicitation will be paid
by Commercial. In addition to soliciting by mail, directors, officers and
regular employees of Commercial, who will receive no compensation for their
services other than regular salaries and fees, may solicit proxies by telephone,
telegraph, mail or personal interview. Brokerage houses, nominees, fiduciaries
and other custodians have been requested to forward solicitation materials to
the beneficial owners of Commercial Stock held in their names and will be
reimbursed for their expenses in doing so.
3
<PAGE>
SPECIAL MEETING OF HOMETOWN SHAREHOLDERS
Purpose and Vote Required
The purpose of the Special Meeting of Hometown shareholders is to act upon
the proposed Merger of Hometown with and into Commercial. If consummated,
Hometown shareholders, other than dissenting shareholders, will exchange each
share of the Stock of Hometown ("Hometown Stock") they hold for 1.512 shares of
Commercial Stock. No fractional shares of Commercial will be issued in
connection with the Merger transaction and, in lieu thereof, Commercial will pay
cash for fractional shares based upon a fixed price of $26.00 per share of
Commercial Stock. A detailed description of this transaction is set forth in
this Prospectus/Joint Proxy Statement and the exhibits attached hereto.
Shareholders are urged to read this entire document carefully, including
exhibits, before voting their shares.
Hometown's Board of Directors has unanimously approved the proposed Merger
and recommends that the shareholders of Hometown vote "FOR" the Merger. See
---
SUMMARY - Reasons for the Merger and THE PROPOSED MERGER - Reasons for the
Merger.
With respect to a vote on the Merger, Hometown shareholders are entitled
to cast one vote for each share of Hometown Stock they hold on the record date
of May 2, 1994. To approve the Merger, a vote of a majority of the 337,077
issued and outstanding shares of Hometown Stock is required. Hometown's
Articles of Incorporation provide for a super-majority vote by the holders of
70% of Hometown Stock for certain business combinations under certain
circumstances. However, since the proposed merger with Commercial was
unanimously approved by Hometown's Board of Directors, under the Articles of
Incorporation, the super-majority provision will not apply but instead
applicable state law applies, and a simple-majority vote is required to
approve a merger.
As of April 29, 1994 the directors, executive officers of Hometown and
their affiliates had the authority to vote, directly or indirectly,
approximately 43.52% of the issued and outstanding shares of Hometown.
Management of Hometown expects that such shares will be voted for the approval
of the Merger.
Proxies
A proxy for use by the Hometown shareholders in connection with the Special
Meeting is enclosed with this Prospectus/Joint Proxy Statement which will be
mailed to Hometown shareholders on or about May 9, 1994. The proxy will be
voted as specified thereon by the shareholder. Where no specification is made on
the proxy, a properly executed proxy will be voted for approval of the Merger.
4
<PAGE>
As of the date of the mailing of this Prospectus/Joint Proxy Statement, the
management of Hometown is not aware of any business to be acted on at the
Special Meeting other than consideration of the Merger and it is not anticipated
that other matters will be brought before the meeting. If any other matter
should be brought before the Special Meeting, each shareholder will be entitled
to cast one vote for each share of Hometown Stock held on the record date on
each matter. The persons appointed as proxies will vote on such matter according
to the direction of Hometown's board of directors. Any shareholder has the right
to revoke his or her proxy any time before it is voted by: (i) giving written
notice to the President of Hometown; or (ii) by submitting a subsequently dated
proxy; or (iii) by appearing at the Special Meeting, withdrawing the proxy and
voting in person.
The proxy solicitation of shareholders of Hometown is made by its board of
directors and the cost of such solicitation will be paid by Hometown. In
addition to soliciting by mail, directors, officers and regular employees of
Hometown, who will receive no compensation for their services other than their
regular salaries and fees, may solicit proxies by telephone, telegraph, mail or
personal interview. Brokerage houses, nominees, fiduciaries and other custodians
have been requested to forward solicitation materials to the beneficial owners
of Hometown Stock held in their names and will be reimbursed for their expenses
in doing so.
SUMMARY
The following is a summary of the information contained in this
Prospectus/Joint Proxy Statement. This summary is not intended to be a complete
statement of all material contained in this Prospectus/Joint Proxy Statement and
it is qualified in its entirety by reference to the more detailed discussions
contained elsewhere in this document and the exhibits attached hereto.
Shareholders should read this entire document carefully.
Commercial
Commercial is a West Virginia corporation chartered in 1982 which became a
bank holding company on October 28, 1983. Its primary business is the operation
of its subsidiary banks, Commercial Banking and Trust Company, Parkersburg, West
Virginia ("CB&T"), Jackson County Bank, Ravenswood, West Virginia ("JCB"),
Farmers & Merchants Bank of Ritchie County, Harrisville, West Virginia ("F&M")
and The Dime Bank, Marietta, Ohio ("Dime Bank"). Through its bank subsidiaries,
Commercial offers a full selection of commercial banking services, including
credit and deposit services as well as trust services. As of December 31, 1993,
Commercial had net income and assets of $2,774,000 and $258,217,000,
respectively. As of December 31, 1992, it had net income and assets of
$2,469,000 and $248,784,000, respectively.
5
<PAGE>
Hometown
Hometown is a West Virginia corporation chartered in 1988 and became a bank
holding company on January 5, 1989. Its primary business is the operation of its
subsidiary banks, Union Bank of Tyler County, Middlebourne, West Virginia
("UBTC"), The Community Bank, Pennsboro, West Virginia ("Community") and Bank of
Paden City, Paden City, West Virginia ("Paden City"). Hometown is also a passive
investor in First National Bank of Powhatan Point, Powhatan Point, Ohio ("First
National"). Hometown owns 14.51% of First National's issued and outstanding
shares but takes no role in management. First National has formed a one bank
holding company and Hometown has exercised its dissenter's rights. Pursuant to
an Agreement dated as of March 28, 1994, First National purchased the First
National stock held by Hometown for $394,740. Hometown also owns Hometown
Insurance Agency, Inc. which previously operated under provisions of federal
law permitting bank holding companies in small towns to operate an insurance
agency. This corporation is presently inactive. Hometown's subsidiary banks
offer full commercial banking services, including credit and deposit services.
As of December 31, 1992, Hometown had net income and assets of $771,000 and
$88,221,000, respectively. As of December 31, 1993 Hometown had net income and
assets of $942,000 and $91,469,000, respectively.
Comparison of Shareholders' Rights
Since Commercial and Hometown are both West Virginia corporations and bank
holding companies, the rights of the shareholders of each are substantially the
same. Neither company offers its shareholders preemptive rights so, in the case
of each company, additional shares may be issued without first offering current
shareholders the opportunity to maintain their ownership position. One
significant difference is that anti-takeover provisions and super-majority
provisions exist in the Articles of Incorporation and By-laws of Hometown while
these matters have been governed by West Virginia corporation law in the case of
Commercial. In addition, Commercial has 27,165 shares of Preferred Stock issued
and outstanding. Among other things, the Preferred Stock is entitled to
preferential dividend rights, to elect two (2) members of the Board of Directors
of Commercial, and be converted to 7.332 shares of Commercial Stock at the
option of the holder. See THE PROPOSED MERGER - Comparison of Shareholders'
---
Rights.
The Merger Agreement
Commercial and Hometown have agreed to merge, with Hometown merging into
Commercial and Commercial surviving the Merger. Effective upon consummation of
the Merger, Hometown will cease to exist as a separate corporate entity.
Commercial will continue to operate under its current charter and name. The
present subsidiary banks of Hometown will continue to operate as independent
subsidiary banks and will be owned by Commercial as the surviving bank
6
<PAGE>
holding company. Similarly, the current subsidiaries of Commercial will
continue to operate as wholly owned subsidiaries following the Merger.
Pursuant to the terms of the Merger Agreement, shareholders of Hometown
other than those exercising dissenters' rights will be entitled to receive 1.512
shares of Commercial Common Stock in exchange for each share of Hometown Stock
they own. No fractional shares of Commercial Common Stock will be issued in
connection with the Merger and in lieu thereof Commercial will pay Hometown
shareholders the value of any fractional share of Hometown Stock, in cash, at a
fixed price of $26.00 per share of Commercial Common Stock.
The Merger Agreement contains a number of additional terms and conditions
which must be satisfied prior to consummation of the Merger. For further
information on the Merger Agreement and its terms, See THE PROPOSED MERGER -
---
The Merger Agreement, and Exhibit A hereto.
Reasons for the Merger
The boards of directors and managements of Commercial and Hometown believe
that the Merger should enhance the marketability of the stock held by their
respective shareholders after the Merger. The number of shareholders and the
plan to list the stock of the surviving company with the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") should improve
shareholder liquidity. It is also the opinion of the respective managements and
boards of directors of Commercial and Hometown that the Merger will provide an
opportunity for the surviving bank holding company to become more efficient
operationally and more competitive in terms of its market presence. Each board
of directors unanimously recommends approval of the Merger Agreement to its
shareholders. See THE PROPOSED MERGER -Reasons for the Merger - Both
---
Companies; Commercial's Perspective; and Hometown's Perspective.
Exchange Ratio
The exchange ratio of 1.512 shares of Commercial Common Stock for each
share of Hometown Stock along with the other terms of the Merger Agreement were
reached through negotiations between Commercial and Hometown. Hometown was
assisted in reviewing the terms of the Commercial offer by Austin Associates,
Inc., Toledo, Ohio. The respective boards of directors of Commercial and
Hometown believe that the terms of the Agreement, including the exchange ratio,
are fair and equitable to their shareholders. The parties considered various
factors in reaching the exchange ratio and other terms of the Merger Agreement.
For information on how the exchange ratio was determined and how the parties
agreed to other elements of the Merger Agreement, See THE PROPOSED MERGER -
---
Reasons for the Merger - Both Companies; Commercial's Perspective; and
Hometown's Perspective. Hometown has retained Austin Associates, Inc., Toledo,
Ohio to render a fairness opinion to the Hometown shareholders
7
<PAGE>
on the Merger. See THE PROPOSED MERGER - Opinion of Austin Associates,
---
Inc. and Exhibit B.
Required Shareholder Approval
Under West Virginia corporate law and the respective Articles of
Incorporation and Bylaws of Commercial and Hometown, the Merger Agreement must
be ratified, confirmed and approved by the holders of at least a majority of the
issued and outstanding shares of Commercial and Hometown. See THE PROPOSED
---
MERGER - Conditions to Consummation of the Merger; Accounting Treatment.
Accounting Treatment
The parties expect the Merger to be accounted for under the pooling of
interests method of accounting and availability of this method of accounting is
a condition precedent to the consummation of the Merger. Under the pooling of
interests method of accounting, the acquired institution's balance sheet is not
adjusted to market value but remains at historical cost. Under this method of
accounting, Commercial will restate its prior period financial statements
(eliminating any intercompany accounts and expensing transactions costs as
incurred) to include the acquired institution, Hometown, for all periods
presented.
In order for the transaction to be eligible for pooling of interests
accounting treatment, several criteria must be met. Among other things,
Commercial must issue its stock in exchange for 90% or more of the outstanding
voting stock of Hometown. In other words, Commercial may not pay cash for more
than 10% of the total consideration for the Merger as a result of the exercise
of dissenters' rights or for payment of fractional shares. See THE PROPOSED
---
MERGER - Accounting Treatment. The pro forma financial presentation included
in this Prospectus/Joint Proxy Statement presents the transaction as a pooling
of interests.
Dissenters' Rights
Shareholders of Commercial and Hometown may dissent from the Merger
transaction. Shareholders who dissent must do so pursuant to (S)(S) 31-1-122 and
123 of the West Virginia Code and are entitled thereunder to receive the full
value of their shares in cash as determined in accordance with the requirements
of those Sections. Shareholders electing to exercise dissenters' rights of
appraisal are directed to follow statutory procedures in order to preserve these
rights. For information regarding the rights of dissenters and the statutory
procedure which must be followed, See THE PROPOSED MERGER - Rights of
---
Dissenting Shareholders, Accounting Treatment.
8
<PAGE>
Tax Consequences
The Merger is structured to be a tax free exchange for federal income tax
purposes to the extent that Commercial shares are received by Hometown
shareholders. No gain or loss will be recognized by Hometown shareholders as a
result of the Merger, except to the extent of any cash received (i) in lieu of
fractional shares, or (ii) as payment to dissenting shareholders. Shareholders
should seek the advice of their own tax advisors with respect to the tax
consequences of the Merger. Counsel retained by Commercial and Hometown has
rendered opinions to the Hometown shareholders regarding the federal income tax
consequences to the shareholders. For a more detailed discussion of the tax
consequences of the Merger and the opinion of counsel rendered regarding the
federal income tax consequences to Hometown shareholders, See THE PROPOSED
---
MERGER - Tax Consequences and Exhibit C (Tax opinion letter).
Risk Factors
Hometown shareholders who do not dissent will be exchanging their Hometown
Stock for Commercial Common Stock. Many of the risks associated with holding
Commercial Common Stock will be similar to the risks of holding Hometown Stock.
There are risks inherent in any equity investment. Both companies are West
Virginia corporations and bank holding companies subject to substantial state
and federal regulation, including regulation of business opportunities and the
ability to pay dividends. See INFORMATION ON COMMERCIAL -Regulation and
---
Supervision, INFORMATION ON HOMETOWN - Regulation and Supervision.
Commercial shareholders who do not dissent from the merger will continue to
own Commercial Stock. Though their corporation technically survives the merger,
the impact of the merger will be significant and the Commercial shareholders'
ownership position will be diluted to approximately 59.2%. On a fully diluted
basis, Commercial shareholders would own approximately 65% of the stock of the
surviving company. For both groups of shareholders, there is the risk associated
with the significant expansion of size and geographic region contemplated by the
Merger, as well as the risk associated with the acquired assets and liabilities
of the other company.
There is the risk that the Merger will not receive the required regulatory
approvals or shareholder approvals or that other conditions to consummation may
not be met, including the condition that the Merger meet the criteria to be
accounted for under the pooling of interests method of accounting, See - THE
---
PROPOSED MERGER - Accounting Treatment; Conditions to Consummation of the
Merger.
The exchange ratio for the Merger is fixed and will not vary as a result of
changes in stock prices of either Hometown Stock or Commercial Stock. A period
of approximately nine months or longer could pass between the date the Merger
Agreement was executed and the
9
<PAGE>
transaction is consummated. Thus, the shareholders of each group bear the risk
that the price of their stock vis-a-vis the price of the other company's stock
may fluctuate with the effect of reducing the value of the negotiated exchange
ratio.
Dividend Policy of Commercial
Commercial shareholders are presently entitled to receive dividends when
and as declared by the board of directors as such funds are legally available
therefore. Historically, Commercial has paid dividends to its shareholders
quarterly. Payment of dividends by Commercial is dependent upon the payment of
dividends to it by its bank subsidiaries. See INFORMATION ON COMMERCIAL -
Dividends. ---
Conditions to Consummation of the Merger
The Merger Agreement contains numerous conditions to the consummation of
the Merger by either party. Significant conditions include: (i) receipt of all
required governmental approvals, (ii) receipt of the requisite approval of the
Hometown and Commercial shareholders, (iii) there shall have been no material
adverse change in the business of either party, (iv) receipt of the Austin
Associates, Inc. fairness opinion by Hometown, (v) receipt of counsels' closing
opinions, (iv) the Merger must be accounted for as a pooling of interests; and
(vii) receipt by Hometown of a tax opinion as to the tax free exchange of shares
for the Hometown shareholders. Commercial is in the process of finalizing its
regulatory applications and to date, none of the required governmental approvals
have been obtained. See THE PROPOSED MERGER -Conditions to Consummation of the
---
Merger; Accounting Treatment.
Exchange of Shares
As soon as practicable after the consummation of the Merger, shareholders
of Hometown who do not dissent from the Merger will be mailed written
instructions as to how to exchange their certificates for certificates of
Commercial Stock. See THE PROPOSED MERGER - Issuance and Exchange of Stock
---
Certificates.
10
<PAGE>
Comparative Stock Prices
The following table presents the high and low prices of Exchange of Stock
Commercial Stock and Hometown Stock during the period set forth as follows:
<TABLE>
<CAPTION>
Commercial Hometown
(Historical Basis) (Historical Basis)
-------------------- ------------------
Low High Low High
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
1991
- ----
1st Quarter $21.00 $21.00 $26.00 $26.00
2nd Quarter $21.00 $21.00 $25.00 $25.00
3rd Quarter $17.00 $20.50 $25.00 $25.25
4th Quarter $17.50 $21.00 $25.25 $25.25
<CAPTION>
1992
- ----
<S> <C> <C> <C> <C>
1st Quarter $18.50 $18.50 $25.25 $25.25
2nd Quarter $19.50 $19.50 $24.875 $25.00
3rd Quarter $20.00 $20.00 $25.125 $28.00
4th Quarter $21.00 $22.00 $25.125 $25.25
<CAPTION>
1993
- ----
<S> <C> <C> <C> <C>
1st Quarter $24.00 $25.00 * *
2nd Quarter $26.00 $27.00 $ 26.75 *
3rd Quarter $27.00 $29.00 * *
4th Quarter $28.00 $29.50 * *
<CAPTION>
1994
- ----
<S> <C> <C> <C> <C>
1st Quarter $28.00 $29.00 * *
2nd Quarter $28.50 $28.50 $40.375 $40.375
through April 29, 1994
</TABLE>
An asterisk indicates that there are no known trades for the period
indicated. The source of the stock price information for both Commercial and
Hometown is information known to management which, at least in part, has been
obtained from local brokers who have handled transactions in the stock. Shares
of Hometown and Commercial Stock are occasionally bought and sold by individuals
and mangagement may not always know the price or other terms of such
transactions. Because trading is not active in either stock, the prices shown
may not be the prices
11
<PAGE>
which would prevail if a more active trading market existed. In 1993,
approximately 83 shares of Hometown Stock were traded in one transaction and
approximately 100,288 shares of Commercial Stock were traded in 67 transactions.
As of December 31, 1993 Commercial had approximately 493 shareholders of record
of Commercial Common Stock and Hometown had approximately 584 shareholders of
record.
The following table presents the high and low prices of Commercial Stock
and Hometown Stock as well as equivalent per share data on or before June 24,
1993, the closest date immediately before the public announcement of the Merger
for which information is available.
<TABLE>
<CAPTION>
Commercial Hometown Hometown
(Historical (Historical Equivalent
Basis) Basis) /(1)/ Per Share /(2)/
-------------- --------------- ---------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
$27.00 $26.00 $26.75 $26.75 $40.82 $39.31
</TABLE>
(1) There is no regular market for Hometown Stock and Hometown cannot
provide market value per share data as of June 24, 1993. Hometown is
not aware of any trading prices of its stock during the second quarter
of 1993 or from June 1 to June 24, 1993. The trading price for
Hometown during the second quarter of 1993 was $26.75.
(2) Equivalent per share prices are calculated by multiplying the
historical prices of Commercial Stock by the exchange ratio of 1.512.
12
<PAGE>
THE PROPOSED MERGER
The following is a discussion of the material aspects of the proposed
Merger. It includes a summary of the terms of the Merger Agreement which is
qualified in its entirety by reference to the Merger Agreement annexed to this
document as Exhibit 1 and which is incorporated herein by reference.
Reasons for the Merger - Both Companies
It is the opinion of the managements and boards of directors of Commercial
and Hometown that the proposed Merger will be in the best interest of their
respective shareholders for several reasons which are summarized as follows:
1. The surviving company will be of a sufficient size to obtain membership
with the National Association of Securities Dealers Automated Quotations
System/National Market System ("NASDAQ/NMS"). The parties believe that the
increased shareholder base (an aggregate of approximately 1,050
shareholders), NASDAQ/NMS membership and the plans to begin use of firms
specializing in making markets in bank securities may increase the volume
of trading in the surviving company stock, thereby increasing shareholder
liquidity.
2. The Merger will permit the surviving company to expand its operations
throughout new market areas. This market diversification is viewed as healthy in
terms of the economic future of the surviving company.
3. The affiliation creates immediate opportunities to expand services
offered and to cross-sell the existing products of each company. Over time, the
Merger should enable management to achieve economies of scale which should
enable the surviving company to compete more effectively. The managements and
boards of directors of Commercial and Hometown believe that the economies of
scale and expanded services should result in increased earnings and enhanced
shareholder value over time.
Commercial's Perspective
For some period of time, the Commercial Board has actively reviewed
affiliation opportunities. The Commercial Board formed a mergers and
acquisitions committee to develop Commercial's acquisition strategy consistent
with Commercial's long-term strategic plan. When Commercial began to acquire
additional banks in 1985, it embarked on a program to build a network of
community banks in the area of Parkersburg, West Virginia. The banks have
retained individual identities, have their own boards of directors and
management staff, who make local
13
<PAGE>
decisions regarding loan and deposit products and pricing. Where appropriate,
Commercial provides backoffice support, thus freeing the local management and
staffs to concentrate on customer service and business development. As part of
implementing its long-term plan, Commercial has initiated and responded to
affiliation contacts with and from institutions of various sizes and in
different West Virginia markets.
In the opinion of Commercial's management, the Merger will be in the best
interests of Commercial shareholders. The Merger will permit Commercial to
expand into markets it currently does not serve and will permit the resulting
holding company to compete more effectively with other financial institutions.
After considering the various options available to it, the Commercial
board concluded that it would be most advantageous to its shareholders to
achieve, as soon as possible, an expanded shareholder base, a size which would
enable it to go forward as a NASDAQ/NMS company and a size which would enable
it to realize economies of scale. The board also concluded that it desired to
continue to target markets adjacent to Washington County, Ohio, and Wood
County, two of the markets currently serve by Commercial.
As directed by the Board of Commercial, management contacted of Hometown
and reviewed the concept of an affiliation. Receiving a favorable indication
of interest, Commercial's board met on several occasions to discuss likely
organizational issues and review information on Hometown and Commercial.
Further exploratory meetings were held between Commercial and Hometown
management.
The exchange ratio for Commercial stock was negotiated through arms-
length negotiations between the managements of Commercial and Hometown.
Commercial and Hometown considered historical factors such as asset quality,
type and mix of deposits and historical earnings. The potential for future
earnings through economics of scale was also a factor in negotiating the
exchange ratio. The opportunity for Commercial to enter into Hometown's
markets in Tyler and Wetzel Counties was also a factor.
After a review of the proposed exchange ratio by the Commercial Board,
management was authorized and directed by the Board to contact Hometown and
make an offer of up to 1.512 shares of Commercial for each share of Hometown
Stock. In addition, Commercial considered the management of Hometown to be an
important addition to the surviving company. Accordingly, management of the
surviving holding company will consist of a combination of the executives of
both companies.
From Commercial's perspective, the proposal presented to Hometown
achieved its goal of accomplishing the various items set forth above. See
---
Reasons for the Merger - Both Companies. Throughout the process, a committee
of Commercial's board charged with pursuing the affiliation was active and was
assisted by management in reviewing alternatives and in
14
<PAGE>
considering the specifics of the selected alternative. The full board was
apprised of the committee's efforts and acted on its recommendations.
Hometown's Perspective
In reaching its determination that the Merger and the Merger Agreement
are fair to and in the best interests of Hometown and its shareholders, the
Hometown Board participated in negotiations, considered economic and corporate
governance factors and retained Austin Associates, Inc., a firm in Toledo,
Ohio, to render a fairness opinion. Hometown's board considered a number of
factors, including, without limitation, the reasons for the Merger enumerated
above under Reasons for the Merger - Both Companies.
Although Hometown's Board had discussions with several possible merger
candidates, it received formal merger proposals from Peoples Bancorp, Inc.
located in Marietta, Ohio ("Peoples") and Commercial. Austin Associates,
Hometown's financial advisor, analyzed the proposals and concluded that both
transactions provided fair consideration to the shareholders of Hometown. The
primary financial factors the Board considered in accepting Commercial's offer
were (i) Commercial's stock was trading at slightly lower multiples to book
and earnings than Peoples, which in the opinion of Austin Associates
represented more upside potential for Commercial; (ii) Hometown shareholders
would receive proportionately larger holdings in ownership, earnings and
equity of Commercial; and (iii) Hometown shareholders would receive a
significantly larger increase in annual dividends with Commercial.
From a nonfinancial perspective, Hometown's Board of Directors believed
that Commercial's corporate philosophy was consistent with Hometown's
commitment to community banking. Hometown's Board of Directors has considered
the prospect of affiliation with a larger financial institution for quite some
time. The Board of Directors believes that the trend toward consolidation and
ever increasing competition from larger financial institutions in the banking
industry will continue. In order to compete effectively in a challenging
economic environment, Hometown's Board of Directors determined that it was in
the best interest of its shareholders to approve the Commercial offer.
Opinion of Austin Associates, Inc.
Hometown retained the financial institution consulting firm of Austin
Associates, Inc., Toledo, Ohio ("Austin Associates"), as financial advisor in
connection with the proposed Merger. On August 9, 1993, Austin Associates
orally advised the Board of Directors that the terms of the Merger provided
fair consideration to Hometown shareholders. Austin Associates subsequently
delivered to the Board of Directors of Hometown its written opinion dated
May 6, 1994, that, based on the matters set forth therein, the terms of
the Merger as provided for in the Merger Agreement are fair to Hometown and
its stockholders from a financial
15
<PAGE>
point of view. A copy of Austin Associates' opinion is set forth as Exhibit B
to this Joint Proxy Statement and should be read in its entirety.
Austin Associates, as part of its financial institution consulting
business, is routinely engaged in the valuation of banks and other financial
institutions and their securities in connection with mergers and acquisitions
and other transactions. Hometown retained Austin Associates on the basis of
its reputation and its experience in evaluating financial institutions. Austin
Associates has performed consulting services for both Hometown, and certain of
its affiliates, and for Commercial in the past. Austin Associates, however,
has not had any consulting relationship with either party during the past
three years, with the exception of its role as financial advisor to Hometown.
Austin Associates opined as to the fairness of the terms of the Merger
from a financial point of view after Commercial and Hometown had negotiated
the exchange ratio for the proposed transaction. The terms of the Merger were
determined by Commercial's and Hometown's Boards of Directors, after arms-
length negotiations between the respective managements of Commercial and
Hometown. Austin Associates did not participate in the negotiations between
the parties.
In rendering its opinion, Austin Associates, among other things: (1)
reviewed this Prospectus/Joint Proxy Statement; (2) reviewed the financial
statements of Hometown and Commercial for the years 1990 through 1993; (3)
reviewed certain other publicly available information on Hometown and
Commercial; (4) reviewed publicly available information regarding the
performance of certain other companies whose business activities were believed
by Austin Associates to be generally comparable to those of Hometown and
Commercial; (5) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions; and (6) conducted such other
analysis and reviewed such other information as Austin Associates deemed
relevant.
Austin Associates did not conduct a physical inspection of any of the
properties or assets of Hometown or Commercial. Austin Associates has assumed
and relied upon the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representation and warranties of Hometown and Commercial made pursuant to the
Merger Agreement, and has not independently attempted to verify any of such
information. Austin Associates has also assumed that the conditions to the
Merger set forth in the Merger Agreement would be satisfied and that the
Merger would be consummated on a timely basis in the manner contemplated by
the Merger Agreement. No limitations were imposed by Hometown upon Austin
Associates on the scope of its investigation nor were any specific
instructions given to Austin Associates in connection with its fairness
opinion.
For Austin Associates' services as financial advisor in the proposed
transaction, Hometown will pay the firm a fee of $25,000. In addition,
Hometown has agreed to reimburse
16
<PAGE>
Austin Associates for reasonable out-of-pocket expenses and indemnify Austin
Associates against certain liabilities, including liabilities under the
securities laws.
Effect on the Corporate Parties
Under the terms of the Merger Agreement, Hometown will merge with and into
Commercial. Effective upon the consummation of the Merger, Hometown will cease
to exist. The surviving bank holding company will continue to operate under
the charter of Commercial and under the name Commercial Bancshares,
Incorporated.
As previously indicated, following consummation of the Merger, and
assuming no dissenters, the present shareholders of Commercial will own
approximately 59.2% of the surviving bank holding company. The present
shareholders of Hometown, through the exchange of their stock for 1.512 shares
of Commercial Common Stock, will own approximately 40.8% of the surviving bank
holding company. Commercial also has issued and outstanding 27,165 shares of
Preferred Stock each share of which is convertible into 7.332 shares of
Commercial Common Stock at the option of the holder. On a fully diluted basis,
Commercial shareholders would own approximately 65% and the current Hometown
shareholders would own 35% of the stock of the surviving company.
Under the terms of the Merger Agreement, the board of directors of
Commercial will be expanded to include three (3) representatives of Hometown,
one of whom will be on the Executive Committee, and Hometown representatives
will also be considered for other major board committees. The parties have
agreed that Hometown's directors will be nominated as director candidates to
the shareholders of Commercial at the next annual meeting following the
Merger.
Following the Merger, and assuming that all shares of Hometown are
exchanged for Commercial Stock and that no Commercial shareholders dissent
from the Merger, the executive officers and directors of the surviving bank
holding company will own approximately 19.56% of the Commercial Common Stock or
16.06% on a fully diluted basis.
Resulting Board of Directors
Set forth below is information on the individuals to serve as the initial
board of directors of the surviving bank holding company. The first three
individuals are the Hometown representatives to be elected by the Commercial
shareholders and the balance are the current members of Commercial's board.
For additional information on these individuals, all of whom serve on the
board of directors of either Hometown or Commercial, see sections entitled
"Hometown's Board of Directors" and "Commercial's Board of Directors,"
respectively. On or before the Merger Effective Date, Commercial's board will
take the appropriate action to create the vacancies for the three (3) Hometown
directors required under the Merger Agreement. These
17
<PAGE>
individuals will begin to serve on Commercial's board as of the first board
meeting after the Merger Effective Date.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
and Percentage and Percentage
Director, Current Company (in Current Company) in Surviving Company
- ------------------------- -------------------- --------------------
Primary(1) Fully Primary(3) Fully
Diluted(2) Diluted(4)
<S> <C> <C> <C> <C>
Wilson Davis (Hometown) 2.15% * .88% .75%
Gary R. Davis (Hometown) 5.77% * 2.35% 2.00%
David L. Mendenhall (Hometown) 2.79% * 1.14% .97%
Bruce Bingham (Commercial) .20% 1.13% .11% .73%
Robert W. Burk, Jr. (Commercial) .24% .19% .14% .12%
Frank L. Christy (Commercial) .69% .54% .41% .35%
A. Vernon Criss, III (Commercial) 4.79% 3.78% 2.84% 2.45%
Carl E. Dollman (Commercial) .40% .32% .24% .21%
James A. Meagle, Jr. (Commercial) .56% .44% .33% .29%
William E. Mildren, Sr. (Commercial) .27% .21% .16% .14%
William E. Mildren, Jr. (Commercial) 7.11% 5.80% 4.20% 3.76%
Jack F. Poe (Commercial) .70% .55% .42% .36%
Robert E. Richardson, Sr. 1.66% 1.31% .98% .85%
(Commercial)
W. S. Ritchie, Jr. (Commercial) 0.00% .57% .00% .37%
Susan R. Ross (Commercial) .27% .21% .16% .14%
Thomas N. Webster (Commercial) .36% .28% .21% .18%
Morris B. Wilkins (Commercial) 4.93% 3.89% 2.92% 2.52%
</TABLE>
18
<PAGE>
(1) Percentages of Hometown directors are based on 337,077 shares of
Hometown stock issued and outstanding. Percentages of Commercial
directors are based on 740,863 shares issued and outstanding.
(2) Percentages of Commercial directors are based on an aggregate amount
of 940,037 shares of Commercial Common Stock issued and outstanding
which includes the Preferred Stock on a fully diluted basis.
(3) Percentages of Hometown and Commercial directors are based on
1,250,523 shares of Commercial Common stock issued and outstanding.
(4) Percentages of Hometown and Commercial directors are based on the
aggregate amount of 1,449,697 shares of Commercial Common issued and
outstanding which includes the 27,165 Preferred Stock on a fully
diluted basis.
Tax Consequences
The merger of Hometown with and into Commercial has been structured to
qualify as a tax free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended ("The Code"). Hometown and its shareholders are
relying on the opinion of Bowles Rice McDavid Graff & Love, Charleston, West
Virginia, special counsel to Commercial and Hometown in this transaction, as to
the tax free character of the exchange to Hometown's shareholders for federal
income tax purposes. In its opinion dated May 6, 1994, attached hereto as
Exhibit C, Bowles Rice McDavid Graff & Love has given its opinion regarding the
federal income tax consequences of the merger to the shareholders of Hometown
which is described in general terms below:
1. The statutory merger of Hometown with and into Commercial will
constitute a tax free reorganization, whereby Commercial will absorb the
corporate enterprise of Hometown.
2. The gain, if any, realized by a Hometown shareholder upon receipt of
Commercial Common Stock will be recognized but not in an amount in excess of any
cash received (including cash received in lieu of fractional shares). Each
shareholder should consult with his or her own tax advisor with respect to the
determination of the tax treatment of the exchange.
3. The holding period of Commercial Stock received by each holder of
Hometown Stock will include the period during which the Hometown Stock
surrendered and exchanged therefore was held, provided that the Hometown Stock
was a capital asset in the hand of the holder at the time of the consummation of
the Merger.
19
<PAGE>
4. A Hometown shareholder who dissents from the transaction and receives
solely cash in exchange for Hometown Stock should be treated as having
received such cash in redemption of this stock. As a redemption, the cash will
be treated as full payment in exchange for the shareholder's Hometown Stock.
Notwithstanding the above, if a Hometown shareholder owns any interest in a
corporation, partnership, trust or other entity which owns Hometown Stock or
Commercial stock, or if certain family members of that shareholder own
Hometown Stock or Commercial Stock, it is possible that the cash received by
such a dissenter could be treated as an ordinary income dividend to the
dissenting shareholder.
5. A Commercial shareholder who dissents from the transaction and
receives solely cash in exchange for Commercial Stock should be treated as
having received such cash in redemption of this stock. As a redemption, the
cash will be treated as full payment in exchange for the shareholder's
Commercial Stock. Notwithstanding the above, if a Commercial shareholder owns
any interest in a corporation, partnership, trust or other entity which owns
Commercial Stock or Commercial stock, or if certain family members of that
shareholder own Commercial Stock or Hometown Stock, it is possible that the
cash received by such a dissenter could be treated as an ordinary income
dividend to the dissenting shareholder.
COMMERCIAL AND HOMETOWN CANNOT ADVISE THE HOMETOWN AND COMMERCIAL SHAREHOLDERS
OF THE SPECIFIC TAX CONSEQUENCES OR SUGGEST THE METHOD OF REPORTING THE
CONSEQUENCES OF THE MERGER IF CONSUMMATED. THE MERGER MAY HAVE CONSEQUENCES
AFFECTING TAXES OTHER THAN THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE
AND SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE CONSUMMATION OF THE MERGER, INCLUDING BUT NOT
LIMITED TO, CONSEQUENCES UNDER FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER
TAX LAWS.
Conditions to Consummation of the Merger
Subject to waiver by the parties, unless otherwise prohibited by law,
consummation of the Merger will take place only if certain conditions set
forth in the Merger Agreement are satisfied. The principal conditions, which
have not yet been satisfied, are as follows:
1. Governmental Approvals. The Board of Governors of the
----------------------
Federal Reserve System and the West Virginia Board of Banking and Financial
Institutions must have approved the Merger; any waiting period for review by
the Attorney General of the United States shall have passed without objection
to the Merger; and the Form S-4 Registration Statement filed by Commercial to
register the shares to be exchanged for the outstanding Hometown Stock shall
have become effective under order of the Securities and Exchange Commission.
All notices periods, waiting periods or other periods for review, objection or
appeal for any of the required consents or approvals must have expired.
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2. Shareholder Approval. The shareholders of Hometown and Commercial
--------------------
shall have ratified, confirmed and approved the Merger Agreement in the terms
and conditions contained therein by the affirmative vote of the shareholders
of each corporation owning at least a majority of the common stock
outstanding.
3. Commercial and Hometown Dissenters. Holders of an aggregate of
----------------------------------
greater than 10% of the issued and outstanding stock of Commercial and
Hometown must not have perfected their rights to dissent to the Merger.
4. Compliance with Representations, Warranties and Additional Agreements -
---------------------------------------------------------------------
Commercial. Unless waived by Hometown, the representations and warranties of
- ----------
Commercial contained in the Merger Agreement must be correct on and as of the
closing date and Commercial shall have performed all of its obligations and
agreements under the Merger Agreement.
5. Compliance with Representations, Warranties and Additional
----------------------------------------------------------
Agreements - Hometown. Unless waived by Commercial, the representations and
- ---------------------
warranties of Hometown contained in the Merger Agreement shall be correct
on and as of the closing date. Hometown must have performed in all material
respects its obligations and agreements under the Merger Agreement.
6. Fairness Opinion. Hometown shall have received the opinion
----------------
of Austin Associates, Inc. that the Merger is fair from a financial standpoint
to its respective shareholders.
7. Opinion of Counsel for Hometown. Commercial shall have received an
--------------------------------
opinion from Snyder & Hassig dated as of the closing date addressing the
corporate organization of Hometown, the organization of each subsidiary bank
of Hometown, the capitalization of Hometown and other matters relating to its
outstanding shares, Hometown's power and authority to execute, deliver and
perform the Merger Agreement, certification as to the corporate proceedings
regarding the Merger by Hometown, addressing a review of the proxy materials
prepared in connection with the Merger and other related matters set forth in
the Merger Agreement.
8. Opinion of Counsel for Commercial. Hometown shall have
---------------------------------
received an opinion from Burk, Myers and Zivkovich dated as of the closing
date addressing the corporate organization of Commercial, the organization of
each subsidiary bank of Commercial, the capitalization of Commercial and other
matters relating to its outstanding shares, Commercial's power and authority
to execute, deliver and perform the Merger Agreement, certification as to the
corporate proceedings regarding the Merger by Commercial, addressing a review
of the proxy materials prepared in connection with the Merger and other
related matters set forth in the Merger Agreement.
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9. Absence of Material Adverse Changes. Unless waived by the party to
-----------------------------------
which the condition runs, there shall have been no material adverse change in
the financial condition, business or assets of the other party since September
30, 1993.
10. Absence of Restraint. No order to restrain, enjoin or
--------------------
otherwise prevent the consummation of the Merger shall have been entered by
any court or administrative body which remains in effect on the date of
consummation of the Merger.
11. Tax Matters. On or before the closing, Hometown shall have
-----------
received an opinion from Bowles Rice McDavid Graff & Love as to the tax-
free exchange of the Hometown Stock for the Commercial Stock by Hometown
shareholders.
12. Accounting Treatment. The Merger must be accounted for
--------------------
under the pooling of interests method of accounting. See Accounting
---
Treatment.
Termination of the Merger Agreement
Section 6 of the Merger Agreement provides the grounds for termination
and the consequences thereof. The Agreement may be terminated as follows: by
mutual consent of the Boards of Directors of each company; by Hometown upon a
material breach of the Merger Agreement by Commercial; by Commercial upon a
material breach of the Merger Agreement by Hometown; by either party in the
event of a material adverse change in the financial condition of the other; by
either party if any regulatory approval necessary for the consummation is
denied; by either party if any condition precedent is not satisfied; by either
party if the Merger would violate any non-appealable final order, decree or
judgment; by either party upon the bankruptcy or insolvency of the other; by
either party if that party's shareholders fail to approve the Merger by the
vote required. The Merger Agreement will terminate automatically if closing
has not occurred on or before July 30, 1994.
Consequences of Termination
In the event of termination of the Merger Agreement for any reason other
than breach, neither party shall have any liability to the other, including
any liability for loss, damages or expenses suffered or claimed to be suffered
by reason of the termination. Each party is thereafter obligated to return all
documents, work papers and other material obtained from the other party and to
abide by the confidentiality agreements contained in the Merger Agreement.
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<PAGE>
Merger Effective Date
The closing of the Merger contemplated in the Merger Agreement
shall occur as soon as practicable after all of the conditions contained in
the Merger Agreement have been satisfied. The closing date will be a
mutually agreeable date following the date of the last final approval by
any regulatory agency whose approval is required or the shareholder
approval, which ever is later.
Accounting Treatment
It is the intention of the parties to account for the Merger
under the pooling of interests method of accounting. Under the pooling of
interests method of accounting, the impact of the Merger on Commercial's
financial statements will be reflected at book value (with the elimination
of any inter-company accounts and expending transaction costs as incurred)
and Commercial will restate certain prior period financial statements to
include Hometown.
There are many criteria which must be met before the transaction
may be accounted for as a pooling of interests. Commercial may not hold
above a minimum level of treasury shares acquired in the previous two
years. Sales of Hometown or Commercial stock during certain periods of
time before and after the consummation of the Merger by affiliates
(directors, officers or major shareholders) of Hometown or Commercial could
result in the loss of the availability of the pooling of interests method
of accounting. Commercial must issue its stock in exchange for 90% or more
of the outstanding stock of Hometown. In other words, Commercial may not
pay cash for more than 10% of the total consideration for Merger as a
result of the exercise of dissenters' rights or the payment of fractional
shares. See Dissenter' Rights. There are other criteria as well which
---
must be met before the transaction may be accounted for as a pooling of
interests. Failure to meet the criteria could eliminate the availability
of this method of accounting which is a condition to consummation of the
Merger.
Employment Agreements
Effective January 27, 1992, Commercial entered into an agreement
with James A. Meagle, Jr., President of Commercial's subsidiary, The Dime
Bank. Generally, the agreement provides that if within five years from the
effective date of the merger of Dime and Commercial, Dime or Commercial (1)
either merges with or becomes a wholly owned subsidiary of another entity or
(2) ceases to do business or exist for any reason, or (3) has a change in
control of ownership, and if concurrent with or within one year after the
effective date of any one or more of the foregoing events, Mr. Meagle's
employment is terminated involuntarily, with or without cause for any reason
or Mr. Meagle terminates his employment voluntarily for any reason, then
Dime or Commercial will pay Mr. Meagle an amount equal to one year's gross
salary. Mr. Meagle's salary will be computed at the highest annualized rate
received by Mr. Meagle during the period from the date of the agreement to the
effective date of the termination of his employment under the circumstances
described above. The effective date of the merger of Dime and Commercial was
February 28, 1992.
Under the terms of the Merger Agreement, Commercial, as the
surviving company, will permit to remain in place employment agreements
between the chief executive officers of UBTC, Community and Paden City.
Hometown and UBTC have entered into a five-year employment agreement with
Gary R. Davis, President and Chief Executive Officer of Hometown and UBTC.
Hometown and Paden City have entered into a five-year employment agreement
with David L. Mendenhall, its President and Chief Executive Officer.
Hometown and Community have entered into a five-year employment agreement
with Patty S. Poling, its Cashier and Chief Executive Officer.
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The Board of Directors of Hometown determined that such
employment arrangement was appropriate, especially in view of volatile
banking market anticipated in West Virginia with the advent of interstate
banking.
Of these individuals, Mr. Davis will become or be deemed to be an
executive officer of Commercial following the Merger.
The Agreement is effective immediately upon its execution.
However, the provisions relating to employment do not become operative
unless there is a change in control of the bank employing the executive
(the "Bank"). A change in control is deemed to occur if (i) any person or
any combination of persons, partnerships, associations, or other non-
corporate entities acting as a group in concert, owns or becomes the
beneficial owner, directly or indirectly, of securities of the Bank or
securities of Hometown representing 51% or more of the combined voting
power of the Bank's or Hometown's then outstanding securities, or (ii) if
the Bank or Hometown is acquired by a corporation or the Bank's assets or
Hometown's assets are combined with or transferred to another bank or bank
holding company, and less than a majority of the outstanding voting shares
of the acquiring or surviving bank or holding company are owned,
immediately after such acquisition, by the owners of the voting shares of
the Bank and/or Hometown outstanding immediately prior to such acquisition,
combination or transfer.
Upon a change in control, the executive is employed by the Bank
under the terms of the Agreement. The original term of the Agreement is
five (5) years from the date of execution. However, in the event that
there is a change in control, the five (5) year term commences as of the
date of such change in control (the "Effective Date").
The Agreement provides for compensation during the employment
period after a change in control. Specifically, the Bank must pay to the
executive a salary at a rate not less than the rate in effect immediately
prior to the Effective Date. Thereafter, the executive will receive
increases of five percent (5%) per year or, if greater, increases as
determined by the Board in its discretion. In addition to the regular
salary, the executive will be entitled to participate fully and equitably
in any bonus plan which the Bank makes available to its employees.
The Agreement provides for the payment of the executive's
expenses including but not limited to all expenses of travel and business
related living expenses provided that such expenses are incurred and
accounted for in accordance with the reasonable policies and procedures
established by the Bank. The executive is also entitled to participate in
all of the Bank's executive benefit plans and arrangements that are made
available by the Bank to its executives and key management employees on a
basis consistent with the terms, conditions and overall administration of
such plans.
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<PAGE>
In addition to conditions of employment after a change in
control, the Agreement also provides severance compensation to the
executive if his or her employment should end under certain specified
conditions after a change in control of Hometown. First, if the executive
dies, the Bank is liable for any salary or other benefits accrued as of the
date of death. If the executive is disabled, the executive will receive
full benefits including the compensation for a period of up to three (3)
years. Any disability payments will be reduced by all payments to which
the executive may be entitled under any disability insurance.
Compensation is also paid upon any termination without cause
following a change in control. In that instance, the Bank will be liable
for any salary and other benefits accrued as of the termination date. No
later than thirty (30) days after such termination, Bank must also pay the
executive a sum equal to three times the executive's then current salary in
one lump sum as well as continue all benefit plans in effect at the date of
termination for a period of three (3) years.
In addition, compensation will be paid after a change in control
if the executive terminates the Agreement under certain circumstances.
Specifically, if the Bank, without the executive's express written consent
(i) fails to comply with any provision of this agreement after ten (10)
days written notice thereof from the executive to the Bank, or (ii) assigns
the executive duties inconsistent with the executive's position, then the
executive may give Bank thirty (30) days written notice that he is
terminating the employment under the Agreement. If the executive
terminates the employment for these reasons, the Bank will be liable for
any salary and other benefits which have accrued as of the termination
date. No later than thirty (30) days after said termination date, Bank
must also pay the executive a sum equal to three (3) times the Executive's
current annual salary in one lump sum payment, along with continuation of
all benefit plans in effect at date of termination for a period of three
(3) years without any to the executive.
During the first twelve (12) months after the change in control,
the executive may resign all positions with the Bank. In that event, the
Bank will pay the executive in one lump sum an amount equal to the
executive's then current annual salary and shall continue all benefit plans
in effect at the time of executives resignation for one (1) year from date
of resignation, without any cost to the executive.
The merger of Hometown and Commercial constitutes a change in
control for purposes of the foregoing Agreement.
Comparison of Shareholders' Rights
Commercial and Hometown are West Virginia corporations.
Accordingly, their respective common shareholders rights with regard to
redemption, liquidation, and preemptive rights (pursuant to their
respective Articles of Incorporation) are substantially parallel. In the
case of both corporations, preemptive rights do not exist and the board of
directors of each has
25
<PAGE>
the authority to issue additional shares without first obtaining the
approval of existing shareholders and without first offering newly issued
shares to existing shareholders for purchase. Following the proposed
merger, Commercial Stock will continue to be available for issuance by the
board of directors when and as it determines advisable for the purpose of
raising capital, in connection with the acquisition of other businesses, in
connection with corporate plans or for other appropriate purposes. Under
West Virginia law, Commercial and Hometown shareholders have cumulative
voting rights with regard to the election of directors and these rights
will continue after the Merger. Neither group of common shareholders has
conversion rights nor are there redemption or sinking fund provisions with
respect to any of their stock. However, as described more fully below,
shareholders of the Commercial Preferred Stock do have conversion rights.
Redemption rights with respect to the Commercial Preferred Stock also
exist.
Each company currently looks to the ability of its respective
subsidiaries to pay dividends in order for each, in turn, to pay dividends
to its shareholders. The dividends payable by banking subsidiaries are
dependent upon their earnings and profitability and must be in compliance
with certain federal and state banking law requirements. Following
consummation of the proposed Merger, dividends received by Commercial
shareholders will continue to be dependent upon the payment of dividends by
the banking subsidiaries.
One significant difference between the rights of Hometown
shareholders and the rights of Commercial shareholders relates to the
super-majority business combination provisions in Hometown's articles. In
certain business combinations, including mergers, the vote of a super-
majority, 70%, of the shares of the issued and outstanding stock is
required to approve the business combination. This provision will not be
effective if certain super-majority board votes are obtained in the course
of the board of directors' approval of the business combination and if
certain price conditions are met. Such provisions have permitted Hometown
to remain independent until an affiliation desirable in terms of price and
other aspects was sought or agreed to by a super-majority of Hometown's
board of directors. Such provisions also may have the effect of deterring
affiliation candidates. Commercial's Articles of Incorporation and Bylaws
do not contain comparable provisions and instead such matters are governed
---
by the West Virginia Corporations Act. Generally, an affiliation with an
in-state corporation will require the affirmative vote of a simple majority
of the outstanding shares.
Another significant difference is that Commercial has 27,165
shares of Preferred Stock issued and outstanding in addition to its common
stock. The Preferred Stock is entitled to certain preferences and
restrictions as follows:
(i) Dividends. Holders of the Preferred Stock are entitled to
---------
receive as and when declared by the Board of Directors out of funds legally
available, cumulative cash dividends payable at the annual rate of $10.00
per share payable in equal installments on March 1, June 1, September 1,
and December 1 of each year.
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<PAGE>
Dividends are cumulative, are calculated from the date of issue
of the Commercial Preferred Stock and are payable to holders of record on
such record dates as are fixed by the Board of Directors of Commercial.
Dividends payable for any period less than a full quarter are computed on
the basis of a 360-day year with equal months of 30 days. No dividend may
be declared on any other series or class of stock ranking on a parity with
or junior to the Commercial Preferred Stock, unless dividends on the
Commercial Preferred Stock since the date of issue thereof to the date of
such distribution, whether accumulated or not, have been paid or declared
and set aside for payment. When dividends are not paid in full upon the
Commercial Preferred Stock and any parity stock, any dividends which are
paid are paid pro rata among all shares of such stock. In the event that
full cumulative dividends on the Commercial Preferred Stock have not been
declared and paid or set apart for payment, Commercial may not declare,
pay, or set apart for payment any dividends, or make any other
distributions on, or make any payment on account of the purchase,
redemption or retirement of, the Commercial Common Stock or any other stock
of Commercial ranking as to dividends or distribution of assets on
liquidation, dissolution or winding up of Commercial junior to the
Commercial Preferred Stock (other than, in the case of dividends or
distributions, dividends or distributions paid in shares of Commercial
Common Stock or such other junior ranking stock) until full cumulative
dividends on the Commercial Preferred Stock are declared and paid or set
apart for payment.
(ii) Rights on Liquidation, Dissolution, or Winding Up of
----------------------------------------------------
Commercial. Upon any liquidation, dissolution or winding up of Commercial,
- ----------
whether voluntary or involuntary, the holders of Commercial Preferred Stock
have preference and priority over the Commercial Common Stock and any other
class or series of stock ranking junior to the Commercial Preferred Stock
for payment out of the assets of Commercial or proceeds thereof available
for distribution to stockholders of $100.00 per share plus all dividends
accrued and unpaid thereon, and after this payment the holders of
Commercial Preferred Stock are entitled to no other payments. If, in the
case of any such liquidation, dissolution or winding up of Commercial, the
assets of Commercial or proceeds thereof are insufficient to make the full
liquidation payment of $100.00 per Preferred Stock and full liquidation
payments on any other preferred stock ranking as to liquidation on a parity
with the Commercial Preferred stock, then such assets and proceeds will be
distributed among the holders of the Commercial Preferred Stock and any
such other preferred stock ratably in accordance with the respective
amounts which would be payable upon liquidation, dissolution or winding up
on such shares of Commercial Preferred Stock and any such other preferred
stock as if all amounts payable thereon were paid in full. A consolidation
or merger of Commercial with or into one or more corporations will not be
deemed to be a liquidation, dissolution or winding up of Commercial.
(iii) General Right of Redemption at Option of Commercial.
---------------------------------------------------
Effective January 1, 1990, Commercial has the right to redeem the Preferred
Stock in whole or in part upon written notice mailed to each holder of
record of shares to be redeemed not more than sixty (60) days
27
<PAGE>
and not less than thirty (30) days prior to the redemption date. For the
period commencing on January 1, 1994, and ending on December 31, 1994, the
redemption price is $105.00 per share plus an amount equal to the Full
Cumulative Dividends thereon to the date of redemption. After January 1,
1995, the redemption price is $100.00 per share. To date, no Preferred
Stock has been redeemed by Commercial. The shareholders of Preferred Stock
may not require Commercial to redeem their shares.
If less than all the outstanding shares of Commercial Preferred
Stock not previously called for cash redemption are to be redeemed, shares
to be redeemed shall be selected by Commercial from outstanding shares not
previously called for cash redemption by lot or pro rata as determined by
the Board of Directors of Commercial. Commercial may not redeem for cash
less than all outstanding shares of Commercial Preferred Stock unless full
cumulative dividends shall have been declared and paid or set apart for
payment upon all outstanding shares of Commercial Preferred Stock for all
past dividend periods. Shares of Commercial Preferred Stock redeemed for
cash by Commercial will be restored to the status of authorized but
unissued shares of preferred stock, without designation as to series, and
may thereafter be issued, but not as shares of the Commercial Preferred
Stock.
There is no mandatory or sinking fund obligation with respect to
the Preferred Stock.
(iv) Preemptive Rights. The Preferred Stock has no preemptive
-----------------
rights.
(v) Conversion Rights. Holders of the Preferred Stock may
-----------------
convert their shares of Commercial Preferred Stock into shares of Common
Stock at the rate of 7.332 shares of common stock for each share of
Preferred Stock owned. In the event of a stock split, stock dividend,
combination of the shares of Commercial's Common Stock into a smaller
number of shares or the issuance of shares in connection with a
reclassification of Commercial's Stock, each holder of Preferred Stock will
be entitled to receive for each such share the number of shares of
Commercial Common Stock which he would have been entitled to receive had
such shares of Preferred Stock been converted prior to the happening of
such event described above. Fractional shares of Commercial Common Stock
will not be issued upon conversion, but in lieu thereof, Commercial will
pay cash based upon a Commercial Common Stock value of $18.33 per share.
No adjustment for dividends on the Commercial Preferred or the Commercial
Common Stock is to be made upon conversion. Shares of Commercial Preferred
Stock converted into Commercial Common Stock will become authorized but
unissued shares of preferred stock, without designation as to series, and
may thereafter be issued, but not as share of preferred stock. To date,
1,599 shares of Preferred Stock have been converted to Commercial Common
Stock.
(vi) Voting Rights. Holders of Preferred Stock have the right to
-------------
elect two directors of Commercial. Each director elected by holders of
Preferred Stock shall hold office until the next Annual Meeting. In case
any vacancy occurs among the directors elected by the
28
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Preferred Stock, such vacancy may be filled by the remaining director so
elected. The right of the Preferred Stock holders to elect two directors
terminates as follows: (a) in the event the number of shares of Preferred
Stock outstanding is reduced for any reason to one-half (1/2) the number
originally issued, then the number of directors to be elected shall be
reduced to one; and (b) when the number of outstanding shares is reduced to
zero, then the right to elect directors shall terminate at the next
succeeding Annual Meeting of shareholders.
The consent of the holders of two-thirds (2/3) of the outstanding
Preferred Stock, voting separately as a single class, is necessary for (i)
effecting or validating the authorization of any additional series of
preferred stock not in parity with the Preferred Stock; (ii) the amendment,
the alteration or repeal of any of the provisions of the Articles of
Incorporation of Commercial which would materially affect any right,
preference, privilege or powers of the Preferred Stock; (iii) an increase
in the authorized number of shares of Preferred Stock; (iv) the creation of
any other class of stock ranking on a parity with the Preferred Stock, or
and (v) voluntarily dissolution of Commercial.
Issuance and Exchange of Stock Certificates
Commercial acts as exchange and transfer agent for Commercial
stock. As soon as practicable after the Merger Effective Date, the
shareholders of Hometown who are exchanging their shares for Commercial
stock will receive written instructions from Commercial. Shareholders who
do not exercise dissenters' rights will, upon delivery of their
certificates pursuant to the written instructions, receive a certificate or
certificates representing the whole number of Commercial's shares in to
which their Hometown stock has been converted based upon the exchange ratio
along with a cash payment for any fractional share for which a shareholder
is entitled. Until exchanged, the stock certificates of Hometown will
evidence for all corporate purposes ownership of the number of whole shares
of Commercial's stock into which they are converted as a result of the
Merger. Until the outstanding Hometown certificates have been exchanged,
Commercial may, at its sole option, withhold (i) the certificates
representing the shares of Commercial's stock into which the Hometown
shares are converted, and (ii) the distribution of any dividends and
payments for fractional shares. Upon delivery of the outstanding
certificates in accordance with written instructions, Commercial will
deliver the above items to the shareholder, provided that any cash held
will be delivered without interest.
The shares of Commercial to be issued to the shareholders of
Hometown are registered under the Securities Act of 1933, as amended (the
"1933 Act"). Directors, officers and principal shareholders of Hometown
may be considered to be "affiliates" for purposes of Rule 145 promulgated
under the 1933 Act. Therefore, they may be deemed to be "underwriters"
subject to the limitations imposed by Rule 145 upon the disposition of
their shares of Commercial stock received pursuant to the Merger Agreement.
In view of these restrictions which do not apply to Commercial or Hometown
shareholders generally, the individuals who may be considered affiliates
must enter into agreements with Commercial to the effect that the shares
29
<PAGE>
of stock that they receive pursuant to the Merger will not be sold or
otherwise disposed of except in accordance with the 1933 Act and Rule 145
and that they will consent to the inscription on the certificates
representing the Commercial Stock received a legend referring to the
restrictions imposed by the 1933 Act and Rule 145. The Hometown officers,
directors and principal shareholders who may be considered affiliates for
purposes of this Rule have been advised of these requirements and
restrictions.
Dissenters' Rights
The following summary does not purport to be a complete statement
of the procedures to be followed by Commercial and Hometown shareholders
desiring to exercise dissenters' appraisal rights and is qualified in its
entirety by reference to the provisions of West Virginia Code Sections 31-
1-122 and 31-1-123, the full texts of which are attached as Exhibit D to
this Prospectus/Joint Proxy Statement, and judicial interpretation of such
provisions.
As the exercise of appraisal rights requires adherence to the
provisions of these laws, each shareholder who desires to exercise such
rights should review the laws and strictly follow their requirements.
Shareholders electing to exercise dissenters' rights may want to consult an
attorney or other advisor regarding the exercise of dissenters' rights.
Pursuant to West Virginia Code Section 31-1-122, any Commercial
or Hometown shareholder has the right to dissent from the Merger as to all
or any part of the shares of stock registered in that shareholder's name,
provided the shareholder does not vote those shares in favor of the Merger
and complies with the procedures outlined in West Virginia Code Section 31-
1-123. Failure to vote against the Merger will not constitute a waiver of
a shareholder's dissenters' rights if all other procedures outlined in West
Virginia Code Section 31-1-123 are followed. Shareholders who mark their
proxies "abstain" or who do not vote at the special meeting may dissent as
to all of the shares which are "abstained" or not voted in favor of the
merger.
Under West Virginia Code Section 31-1-123, any shareholder who
elects to exercise dissenters' rights must, prior to or at the meeting at
which the Merger is to be voted upon, file with Commercial or Hometown, as
applicable, a written objection to the Merger. If the Merger receives the
favorable vote of a majority of the outstanding shares as required for
approval, and if the shareholder who has filed written objection has not
voted in favor of the Merger, the shareholder must, within ten days after
the date on which the vote is taken approving the Merger, make written
demand on Commercial or Hometown, as the case may be, for the payment of
the fair value of those shares. Merely voting against, or abstaining from
voting on, the Merger is not sufficient to preserve the rights of a
dissenting shareholder. Any shareholder failing to file a timely written
objection to the Merger or failing to make demand within the ten-day period
will be bound by the terms of the Merger.
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<PAGE>
The shareholder may learn the result of the vote by attending the
meeting or inquiring as to the results. It is the obligation of any
dissenting shareholder to ascertain the result of the vote. Neither
Commercial or Hometown undertakes to notify shareholders of the favorable
vote. Within twenty days after demanding payment for shares of his stock,
each shareholder demanding payment must submit the certificate or
certificates of stock to the appropriate corporation for notation on the
certificate or certificates of stock that demand has been made. A failure
to do so will, at the option of Commercial or Hometown, terminate the
shareholder's dissenters' rights unless a court of competent jurisdiction,
for good and sufficient cause shown, finds otherwise.
If the Merger is effected, Commercial and Hometown will pay each
of their properly dissenting shareholders the fair value of their shares as
of the day prior to the date on which the vote is taken approving the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger. Any shareholder making this demand will be entitled only to
payment of the fair value of his shares of the stock and is not thereafter
entitled to vote or exercise any rights as a stockholder of Commercial or
Hometown. Within ten days after the date of the consummation of the
Merger, Commercial and Hometown will give written notice thereof to each
dissenting shareholder who has made a proper demand and will make a written
offer to pay for the shares at a price which each deems to be the
applicable fair value. This notice and offer will be accompanied by a
balance sheet and profit and loss statement of Commercial or Hometown, as
applicable, as of the latest available date.
If the fair value of the shares is agreed upon by Commercial and
Hometown and their dissenting shareholders within thirty (30) days of the
date of the consummation of the Merger, payment for the shares of the
dissenting shareholders must be made within ninety (90) days of the date of
the consummation of the Merger upon the surrender of the certificate or
certificates representing such shares. If no agreement is made within this
thirty (30) day period, then the dissenting shareholder must make written
demand on Commercial and Hometown, as applicable, to seek a judicial
determination of the fair value of the shares of the dissenting stockholder
pursuant to the provisions of West Virginia Code, Section 31-1-123(e).
This written demand must be given within sixty (60) days after the date of
the consummation of the Merger. Within thirty (30) days after receipt of
such written demand, Commercial or Hometown must institute such legal
proceedings. Commercial or Hometown may seek determination at its own
election within the sixty-day (60) period after the date of the
consummation of the Merger.
The costs and expenses of any legal proceedings shall be
determined by the court and assessed against Commercial or Hometown as the
case may be. The court may apportion or assess all or part of such costs
and expenses against any or all of the dissenting shareholders who are
parties to the proceedings and to whom Commercial or Hometown had made an
offer to pay if the court finds that the action of such shareholders in
failing to accept the offer was arbitrary or vexatious or not in good
faith.
31
<PAGE>
The following is a summary of the sequence of steps which must be
followed to perfect the dissenting shareholder's rights. A dissenting
shareholder may want to seek the advice of counsel or other advisor to
assure compliance with the statutory requirements.
1. File written objection prior to or at the appropriate Special
Meeting of Shareholders.
2. Abstain or vote against the Merger at the Special Meeting.
3. Within ten (10) days after the Special Meeting make written
demand for payment, and, within twenty (20) days after such applicable
demand, submit the stock certificate to Commercial or Hometown for notation
thereon that such demand has been made.
4. Within sixty (60) days after the date of the consummation of
the Merger, make written demand for institution of a civil action to
determine the fair value of the stock, unless agreement on value has
previously been reached.
A dissenting shareholder may withdraw a demand for payment only
with the consent of Commercial or Hometown. The right of a shareholder to
be paid the fair value of his shares will cease and his status as a
shareholder will be restored if (i) the demand for payment is withdrawn
with the consent of Commercial or Hometown; (ii) the Merger is abandoned or
rescinded; (iii) the shareholders revoke the authority to effect the
Merger; (iv) no demand or petition for determination of the fair value by a
court of general civil jurisdiction has been made or filed within the time
provided under subsection (e) of West Virginia Code, Section 31-1-123; or
(v) a court of general civil jurisdiction determines that the shareholder
is not entitled to obtain relief as a dissenting shareholder.
Commercial shareholders desiring to dissent should submit the
required written objections, demand for payment, stock certificates and
other required submissions to:
William E. Mildren, Jr., President
Commercial BancShares, Inc.
415 Market Street, Box 1427
Parkersburg, WV 26102
Hometown shareholders desiring to dissent should submit the
required written objections, demand for payment, stock certificates and
other required submissions to:
Gary R. Davis, President
Hometown Bancshares, Inc.
P. O. Box 145
Fair & Dodd Streets
Middlebourne, WV 26149
32
<PAGE>
Comparative Per Share Data
The table which follows presents historical data for Commercial
and Hometown, pro forma combined per share data and equivalent per share
data showing the value of one share of Hometown stock in the combined
corporation. Such data is based on historical financial statements for
Commercial and Hometown and pro forma combined amounts giving effect to the
exchange of 1.512 shares of Commercial common stock for each share of
Hometown common stock.
The per share data included in the table which follows should be
read in conjunction with the historical financial statements of Commercial
and Hometown, the pro forma condensed consolidated financial statements and
the related notes accompanying each such financial statement. The data
presented is not necessarily indicative of the results which would have
been obtained if the combination had been consummated in the periods
indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
Comparative Per Share Data
(Data in dollars, except shares) Year Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Commercial BancShares, Inc. ("Commercial")
Historical:
Fully diluted net income per share 2.95 2.63 1.83
Fully diluted book value at end of
period 22.64 20.79 19.46
Cash dividends declared on common stock 0.94 0.83 0.80
Average shares outstanding (fully
diluted) 939,907 939,903 929,033
Hometown Bancshares, Inc. ("Hometown")
Historical:
Net income 2.80 2.29 1.52
Book value at end of period 28.36 26.21 24.74
Cash dividends declared 0.96 0.78 0.72
Average shares outstanding 337,077 337,077 337,077
Pro forma Combined (Unaudited)/1/
Net income 2.56 2.24 1.54
Book value at end of period 21.28 19.57 18.36
Average shares outstanding 1,449,567 1,449,563 1,438,693
Hometown Equivalent Per Share Data
(Unaudited)/2/
Net income 3.88 3.38 2.32
Book value at end of period 32.17 29.60 27.76
Cash dividends declared 1.42 1.25 1.21
</TABLE>
33
<PAGE>
/1/Assumes 100% of the 337,077 shares of Hometown common stock is exchanged
for 509,660 shares of Commercial common stock at the exchange rate of 1.512
shares of Commercial for each share of Hometown.
/2/The equivalent per share amounts are the result of multiplying the cash
dividends declared by Commercial, the pro forma combined net income, and
the pro forma combined book value by the 1.512 exchange ratio of Commercial
common stock for Hometown common stock.
34
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Assuming Pooling of Interest Method of Accounting
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Consolidated
(Credit) Balance
=================================================================================================================
(Dollar Amounts in Thousands)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 10,172 $ 3,659 $ 13,831
Interest-bearing Deposits in Banks 99 240 339
Federal Funds Sold 7,924 775 8,699
Investment Securities 56,269 36,294 92,563
Loans, Net 174,476 48,145 222,621
LESS: Reserve for Loan Losses (2,388) (750) (3,138)
Bank Premises and Equipment, Net 5,658 1,482 7,140
Other Assets 6,007 1,651 7,658
--------------------------------------------------------------
TOTAL ASSETS $258,217 $91,496 $ 0 $349,713
==============================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Demand -- Noninterest Bearing $ 32,819 $ 7,319 $ 40,138
Demand -- Interest Bearing 47,550 16,118 63,668
Savings 52,618 24,655 77,273
Time 101,095 29,129 130,224
--------------------------------------------------------------
TOTAL DEPOSITS $234,082 $77,221 $ 0 $311,303
--------------------------------------------------------------
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase $ 4,182 $ 4,182
Long Term Borrowings 424 424
Other Liabilities 2,427 533 2,960
--------------------------------------------------------------
TOTAL LIABILITIES $236,933 $81,936 $ 0 $318,869
--------------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible Preferred Stock $ 2,716 $ 2,716
Common Stock 3,792 337 (2,211) (A) 6,340
Additional Paid in Capital 5,683 4,825 2,211 (A) 8,297
Undivided Profits 9,864 4,322 14,186
LESS: ESOP Shares Securing Debt (424) (424)
Treasury Stock, at Cost (347) (347)
Unrealized Gain ( Loss ) on Securities
Available-for-Sale, Net of Deferred
Income Taxes 76 76
--------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 21,284 $ 9,560 $ 0 $ 30,844
--------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $258,217 $91,496 $ 0 $349,713
==============================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
35
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Assuming Pooling of Interest Method of Accounting
TWELVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Consolidated
Inc. Inc. Debit (Credit) Balance
====================================================================================================================================
<S> <C> <C> <C> <C>
(Dollar Amounts in Thousands except Per Common Share Data)
----------------------------------------------------------
Interest Income $18,475 $ 7,085 $25,560
Interest Expense 7,114 2,852 9,966
----------------------------------------------------------
NET INTEREST INCOME $11,361 $ 4,233 $0 $15,594
Provision for Loan Losses 88 159 247
----------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $11,273 $ 4,074 $0 $15,347
Other Income 1,962 390 2,352
Other Expenses 8,999 3,068 12,067
----------------------------------------------------------
INCOME BEFORE APPLICABLE INCOME TAXES AND CUMULATIVE EFFECT ADJUSTMENT $ 4,236 $ 1,396 $0 $ 5,632
Applicable Income Taxes 1,462 535 1,997
----------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE $ 2,774 $ 861 $0 $ 3,635
Cumulative Effect of a Change in Accounting Principle 81 81
----------------------------------------------------------
NET INCOME $ 2,774 $ 942 $0 $ 3,716
==========================================================
APPLICABLE TO COMMON STOCK $ 2,502 $ 942 $0 $ 3,444
==========================================================
AVERAGE SHARES OUTSTANDING:
Primary 740,623 337,077 1,250,283
Fully Diluted 939,907 337,077 1,449,567
PER COMMON SHARE DATA:
Primary--
Income before Cumulative Effect $ 3.38 $ 2.56 $ 2.91
Cumulative Effect N/A $ 0.24 $ 0.06
----------------------------------------------------------
Net Income $ 3.38 $ 2.80 $ 2.98
==========================================================
Fully Diluted--
Income before Cumulative Effect $ 2.95 $ 2.56 $ 2.56
Cumulative Effect N/A $ 0.24 $ 0.00
----------------------------------------------------------
Net Income $ 2.95 $ 2.80 $ 2.56
==========================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
36
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Assuming Pooling of Interest Method of Accounting
DECEMBER 31, 1992
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Consolidated
Inc. Inc. Debit (Credit) Balance
--------------------------------------------------------
(Dollar Amounts in Thousands)
--------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and Due from Banks $ 10,499 $ 3,593 $ 14,092
Interest-bearing Deposits in 99 401 500
Banks
Federal Funds Sold 14,213 1,366 15,579
Investment Securities 38,841 33,407 72,248
Loans, Net 176,086 46,927 223,013
LESS: Reserve for Loan Losses (2,281) (677) (2,958)
Bank Premises and Equipment, Net 5,793 1,544 7,337
Other Assets 5,534 1,660 7,194
---------------------------------------------------------
TOTAL ASSETS $248,784 $88,221 $ 0 $337,005
=========================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Demand -- Noninterest Bearing $ 31,226 $ 7,040 $ 38,266
Demand -- Interest Bearing 45,253 17,298 62,551
Savings 50,965 20,720 71,685
Time 98,785 30,427 129,212
---------------------------------------------------------
TOTAL DEPOSITS $226,229 $75,485 $ 0 $301,714
---------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase $ 125 $ 3,460 $ 3,585
Long Term Borrowings 362 362
Other Liabilities 2,531 440 2,971
---------------------------------------------------------
TOTAL LIABILITIES $229,247 $79,385 $ 0 $308,632
---------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible Preferred Stock $ 2,725 $ 2,725
Common Stock 3,789 337 (2,211) (A) 6,337
Additional Paid in Capital 5,677 4,825 2,211 (A) 8,291
Undivided Profits 8,058 3,703 11,761
LESS: ESOP Shares Securing Debt (362) (362)
Treasury Stock, at Cost (350) (350)
Unrealized Gain (Loss) on
Securities Available-for-Sale,
Net of Deferred Income Taxes (29) (29)
---------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 19,537 $ 8,836 $ 0 $ 28,373
---------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $248,784 $88,221 $ 0 $337,005
=========================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
37
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Assuming Pooling of Interest Method of Accounting
TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Consolidated
Inc. Inc. Debit (Credit) Balance
--------------------------------------------------------
(Dollar Amounts in Thousands)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $19,964 $7,504 $27,468
Interest Expense 8,512 3,462 11,974
--------------------------------------------------------
NET INTEREST INCOME $11,452 $4,042 $0 $15,494
Provision for Loan Losses 779 204 983
--------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $10,673 $3,838 $0 $14,511
Other Income 1,623 372 1,995
Other Expenses 8,607 3,023 11,630
--------------------------------------------------------
INCOME BEFORE
APPLICABLE INCOME TAXES AND
CUMULATIVE EFFECT ADJUSTMENT $ 3,689 $1,187 $0 $ 4,876
Applicable Income Taxes 1,220 416 1,636
--------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE $ 2,469 $ 771 $0 $ 3,240
Cumulative Effect of a Change in
Accounting Principle 0 0
--------------------------------------------------------
NET INCOME $ 2,469 $ 771 $0 $ 3,240
========================================================
APPLICABLE TO COMMON STOCK $ 2,196 $ 771 $0 $ 2,967
========================================================
AVERAGE SHARES OUTSTANDING:
Primary 740,135 337,077 1,249,795
Fully Diluted 939,903 337,077 1,449,563
PER COMMON SHARE DATA:
Primary--
Income before Cumulative
Effect $ 2.97 $ 2.29 $ 2.60
Cumulative Effect N/A $ 0.00 $ 0.00
-------------------------------------------------------
Net Income $ 2.97 $ 2.29 $ 2.60
=======================================================
Fully Diluted--
Income before Cumulative
Effect $ 2.63 $ 2.29 $ 2.24
Cumulative Effect N/A $ 0.00 $ 0.00
-------------------------------------------------------
Net Income $ 2.63 $ 2.29 $ 2.24
=======================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
38
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Assuming Pooling of Interest Method of Accounting
DECEMBER 31, 1991
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Consolidated
Inc. Inc. Debit (Credit) Balance
--------------------------------------------------------
(Dollar Amounts in Thousands)
--------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and Due from Banks $ 12,662 $ 3,148 $ 15,810
Interest-bearing Deposits in
Banks 0
Federal Funds Sold 9,108 3,575 12,683
Investment Securities 46,384 27,509 73,893
Loans, Net 156,105 47,026 203,131
LESS: Reserve for Loan Losses (1,757) (603) (2,360)
Bank Premises and Equipment, Net 5,685 1,683 7,368
Other Assets 5,578 1,773 7,351
--------------------------------------------------------
TOTAL ASSETS $233,765 $84,111 $ 0 $317,876
========================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Demand -- Noninterest Bearing $ 29,800 $ 7,186 $ 36,986
Demand -- Interest Bearing 39,031 16,890 55,921
Savings 39,507 16,593 56,100
Time 102,582 34,530 137,112
--------------------------------------------------------
TOTAL DEPOSITS $210,920 $75,199 $ 0 $286,119
--------------------------------------------------------
Federal Funds Purchased and
Securities Sold Under $ 2,655 $ 2,655
Agreements to Repurchase
Long Term Borrowings 196 25 221
Other Liabilities 1,918 547 2,465
--------------------------------------------------------
TOTAL LIABILITIES $215,689 $75,771 $ 0 $291,460
--------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible Preferred Stock $ 2,725 $ 2,725
Common Stock 3,789 337 (2,211) (A) 6,337
Additional Paid in Capital 5,677 4,825 2,211 (A) 8,291
Undivided Profits 6,433 3,195 9,628
LESS: ESOP Shares Securing Debt (196) (196)
Treasury Stock, at Cost (352) (352)
Unrealized Gain (Loss) on
Securities
Available-for-Sale, Net of (17) (17)
Deferred Income Taxes
--------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 18,076 $ 8,340 $ 0 $ 26,416
--------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $233,765 $84,111 $ 0 $317,876
========================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
39
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Assuming Pooling of Interest Method of Accounting
TWELVE MONTHS ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Consolidated
Inc. Inc. Debit (Credit) Balance
--------------------------------------------------------
(Dollar Amounts in Thousands)
--------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Interest Income $ 20,684 $ 7,852 $ 28,536
Interest Expense 10,759 4,100 14,859
--------------------------------------------------------
NET INTEREST INCOME $ 9,925 $ 3,752 $0 $ 13,677
Provision for Loan Losses 782 180 962
--------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $ 9,143 $ 3,572 $0 $ 12,715
Other Income 1,444 320 1,764
Other Expenses 8,405 3,080 11,485
--------------------------------------------------------
INCOME BEFORE APPLICABLE
INCOME TAXES AND
CUMULATIVE EFFECT
ADJUSTMENT $ 2,182 $ 812 $0 $ 2,994
Applicable Income Taxes 484 298 782
--------------------------------------------------------
INCOME BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ 1,698 $ 514 $0 $ 2,212
========================================================
Cumulative Effect of a
Change in Accounting
Principle 0 0
--------------------------------------------------------
NET INCOME $ 1,698 $ 514 $0 $ 2,212
========================================================
APPLICABLE TO COMMON STOCK $ 1,425 $ 514 $0 $ 1,939
========================================================
AVERAGE SHARES OUTSTANDING:
Primary 728,789 337,077 1,238,449
Fully Diluted 929,033 337,077 1,438,693
PER COMMON SHARE DATA:
Primary--
Income before Cumulative
Effect $ 1.96 $ 1.53 $ 1.79
Cumulative Effect N/A $ 0.00 $ 0.00
--------------------------------------------------------
Net Income $ 1.96 $ 1.53 $ 1.79
========================================================
Fully Diluted--
Income before Cumulative
Effect $ 1,83 $ 1.53 $ 1.54
Cumulative Effect N/A $ 0.00 $ 0.00
--------------------------------------------------------
Net Income $ 1.83 $ 1.53 $ 1.54
========================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
40
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Assuming Pooling of Interest Method of Accounting
NOTE 1: PRESENTATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information presented
combines the accounts of Commercial BancShares, Inc. and Subsidiaries
("Commercial") and Hometown Bancshares, Inc. and Subsidiaries ("Hometown") as of
December 31, 1993, 1992, and 1991, and has been prepared to give effect for the
exchange of all the outstanding shares of Hometown common stock for Commercial
common stock on the basis of 1.512 shares of Commercial for each outstanding
share of Hometown common stock. In addition, this transaction will be accounted
for under the pooling of interest method accounting.
NOTE 2: DESCRIPTION OF PRO FORMA ADJUSTMENT
A description of the pro forma adjustment made to the unaudited pro forma
combined financial information is as follows:
(A)--The capital accounts have been reclassified to reflect the exchange of
all 337,077 shares of Hometown's common stock for the issuance of Commercial's
common stock. This reclassification between common stock and paid in capital
is a result of the difference in the par value of Hometowns' shares received in
the exchange versus the par value of Commercials' shares issued.
The pro forma combined summary of income schedules have been prepared to
reflect Commercial and Hometown combined under the pooling of interest method of
accounting therefore, no adjustments to income or expense accounts as a result
of this combination are necessary.
NOTE 3: LONG TERM BORROWING
The ESOP Trust obtained a revolving conversion note for the principal
amount of one million dollars to finance the acquisition of Commercial's common
stock, pledging those shares as collateral. The amount of the credit
outstanding on May 31, 1993 ( up to $1,000,000 ) converted to a term loan. The
principal balance of the term loan shall be 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% , fluctuating accordingly. The interest
rate as of December 31, 1993 was 6.50%. As of March 9, 1994 the balance of this
note was paid in full and all applicable shares being held were released.
NOTE 4: CHANGE IN ACCOUNTING PRINCIPLE
Commercial adopted during 1993, Statement of Financial Standards Number
(SFAS) 109, "Accounting for Income Taxes" retroactively, resulting in the
restatement of prior years financial information for the effect of the change.
This resulted in a $103 and $82 thousand increase in net income for 1992 and
1991, respectively.
Hometown adopted SFAS Number 109 prospectively during 1993 resulting
in the presentation in 1993 of an $81 thousand cumulative effect on prior years
of a change in accounting principle on the statement of income. In addition,
Hometown elected early adoption of SFAS Number 115 "Accounting for Certain
Investments in Debt and Equity Securities." This resulted in an increase, net
of deferred taxes, in the unrealized valuation account in net worth of $105
thousand.
41
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED RISK BASED CAPITAL
Assuming Pooling of Interest Method of Accounting
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Commercial Hometown Pro Forma Pro Forma
BancShares, Bancshares, Adjustments Combined
Inc. Inc. Debit (Credit) Balance
------------------------------------------------
(Dollar Amounts in Thousands)
------------------------------------------------
<S> <C> <C> <C> <C>
TIER 1 CAPITAL RATIO
- ----------------------
Total Shareholders' Equity $ 21,284 $ 9,560 $ 30,844
LESS: Goodwill / Intangibles (300) (341) (641)
------------------------------------------------
TIER 1 CAPITAL $ 20,984 $ 9,219 $ 0 $ 30,203
================================================
TIER 1 CAPITAL / RISK-WEIGHTED ASSETS 12.21% 19.19% 0.00% 13.73%
================================================
TOTAL CAPITAL RATIO
- -------------------
Tier 1 Capital $ 20,984 $ 9,219 $ 0 $ 30,203
Plus Allowance for Loan Losses
(Limited to 1.25% of gross
risk-weighted assets) 2,148 604 2,752
------------------------------------------------
TOTAL CAPITAL $ 23,132 $ 9,823 $ 0 $ 32,955
================================================
TOTAL CAPITAL / RISK-WEIGHTED ASSETS 13.46% 20.45% 0.00% 14.99%
================================================
LEVERAGE RATIO
- --------------
Tier 1 Capital $ 20,984 $ 9,219 $ 0 $ 30,203
================================================
Total Consolidated Assets 258,217 91,496 349,713
LESS: Goodwill / Intangibles (300) (341) (641)
------------------------------------------------
ADJUSTED TOTAL CONSOLIDATED ASSETS $257,917 $91,155 $ 0 $349,072
================================================
TIER 1 CAPITAL / ADJUSTED TOTAL
CONSOLIDATED ASSETS 8.14% 10.11% 0.00% 8.65%
================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
42
<PAGE>
INFORMATION WITH RESPECT TO
COMMERCIAL BANCSHARES, INCORPORATED
Business of Commercial
In 1982, the management of CB&T, Commercial's lead bank
subsidiary, formed Commercial as a one bank holding company to provide
greater flexibility in meeting capital requirements and to permit future
acquisition and ownership of bank related businesses and the pursuit of
other bank related activities not permitted to a bank 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. The
primary business of Commercial is the operation of its wholly-owned banking
subsidiaries.
On March 1, 1985, Commercial acquired Jackson County Bank ("JCB")
and the shareholders of that bank became shareholders of Commercial.
On November 30, 1987, Commercial acquired Farmers & Merchants
Bank of Ritchie County ("F&M") and its shareholders became shareholders of
Commercial.
On February 28, 1992, the Dime Bank, Marietta, Ohio became a
wholly-owned subsidiary of Commercial and its shareholders became
shareholders of Commercial.
Banking operations are, and are expected to continue as,
Commercial's primary business and major source of revenue. Commercial
derives, for the most part, its revenues from dividends paid by its
subsidiary banks. The principal role of Commercial is to supervise and
coordinate the activities of its subsidiary banks.
CB&T, the lead bank subsidiary of Commercial, was chartered as a
West Virginia banking corporation on August 18, 1903. In 1916, CB&T
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. On May 8, 1989, a third branch was opened at
2107 Pike Street, Parkersburg, West Virginia. CB&T provides a complete
range of financial services to both retail and commercial customers. CB&T
has full trust powers and provides a wide variety of trust services to
individuals, corporations, foundations and others.
JCB was chartered as a West Virginia banking corporation on April
1, 1899 and has been located in Ravenswood, West Virginia since its
charter. It has been in its present location on Wall Street since 1958.
As the only full-service commercial bank headquartered in
43
<PAGE>
Ravenswood, JCB provides a complete range of retail banking services to
the communities, individuals and businesses; though it does not provide
trust or correspondent banking services.
F & M was incorporated in 1941 as a West Virginia banking
corporation under the name "Farmers & Merchants Bank of Cairo" and
was located in Cairo, West Virginia. In 1984, a Harrisville branch was
established and in 1985, the main offices of F&M were moved from Cairo to
the Harrisville location and the Cairo office continued as a branch.
Farmers and Merchants is the smaller of two banks in Harrisville, which
is the county seat of Ritchie County. It offers services normally offered
by a full-service commercial bank, though it does not offer trust or
correspondent commercial banking services.
The Dime Bank was formed on May 1, 1972 as an Ohio banking
corporation as a result of the conversion to a bank of the Dime Savings
Society. In April of 1982, the Dime Bank acquired the Dime Bank of Ross
County by merger, though it ultimately sold the resulting branch in Ross
in 1983. The main offices of the Dime Bank have remained at the Second and
Putnam Streets location in Marietta, Ohio since May 1, 1972. Dime Bank
has two branches; one established at Second and Butler Streets in
Marietta in 1974 and the second established in 1981 in Devola, Ohio on
State Rt. 60. The Dime Bank is a state chartered Ohio banking corporation
and member of the Federal Reserve System. It provides services normally
offered by a full-service commercial bank, but does not offer trust or
correspondent banking services.
Recent Developments
Preliminary numbers for the quarter ending March 31, 1994,
indicate a decrease in Commercial's earnings of approximately 33% from
$709,000 in the first quarter of 1993 to $471,000 in the first quarter of
1994. This decline is due primarily to an increase in non-interest
expense, which increased 13.73% or $282,000 from the first quarter of
1993 to the first quarter of 1994. The major factor in this change is an
increase in employee compensation. However, for the reasons discussed
below, management does not believe that the comparison of the first
quarter of 1993 to the first quarter of 1994 presents an accurate
indication of Commercial's performance.
Commercial's Board of Directors implemented a new incentive
bonus program in 1993. Although it was announced early in the year that
there would be a new program, the details were not approved by the Board
until the beginning of October. Accordingly, an unusually large
proportion of 1993's employee expense attributable to the bonus program
was delayed until the fourth quarter of 1993. Since that program is now
in place, Commercial's banks have begun accruing the 1994 expense from
the beginning of the year. Additionally, the FICA taxes on the 1993
bonuses were expensed in January of 1994 and exceeded $40,000. This
increase plus increases in salaries and wages amounting to $61,000
resulted in the substantial first quarter growth in employee cost. It is
anticipated that non-interest expense for the remaining quarters of 1994
will be less than the first quarter because they will not include the
FICA taxes on the bonus. The total increase of non-interest expenses for
the year is expected to be approximately 10% higher than the total for
1993. Since the bonus program is based upon the level of earnings, the
total could be less if earnings of the banks do not meet return on
assets expectations and more if they exceed their budgets.
In addition to non-interest expense, non-interest income
decreased 15.16% from the first quarter of 1993 to the first quarter of
1994. The major cause of this decline was a reduction of other income by
$82,000 or 37.27% from 1993 to 1994. In the first quarter of 1993, the
gain on loans sold was $76,000 higher than in the first quarter of 1994.
Commercial does not regularly engage in the business of selling loans,
and in the first quarter of 1994 the number and volume of loans was
significantly less than the number and volume sold in the first quarter
of 1993.
Employees
As of April 29, 1994, Commercial and its subsidiaries had
approximately 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 the secondary market area including Pleasants
County, West Virginia and Monroe, Noble, Morgan and Athens Counties in
Ohio. Wood County is the location of CB&T, Commercial's lead bank
subsidiary. As of June 30, 1993, the most recent date for which data is
available, there were seven banks headquartered in Wood County with total
deposits of all financial institutions of $1,221,281,000.
As of June 30, 1993, JCB is one of six banks having seven banking
offices in Jackson County. In addition to the banks, there is one savings
and loan association and one federal credit union located in Jackson
County. Total deposits for all financial institutions totalled
$265,883,000. JCB ranked fourth with 16.27% of total deposits.
44
<PAGE>
F&M is the smallest of the three banks headquartered in Ritchie
County. It has 16.21% of the $79,898,000 in total deposits within the
County. This deposit figure includes three banks as well as the two
Ritchie County branches of banks headquartered in another county.
As of June 30, 1993, the Dime Bank was one of four banks
headquartered in Marietta and one of nine in Washington County, Ohio.
Total deposits were $697,383,000. The Dime Bank holds 5.53% of the total
deposits of the nine banks located within the County.
The information presented above is not truly indicative of the
highly competitive nature of the banking and financial services industry,
given that many of the providers of services are not banks, are less
regulated and not subject to the same public reporting requirements as
banks. In addition, banks located outside the immediate market area of
Commercial subsidiary banks compete within these counties. Commercial's
subsidiary banks also compete with other financial institutions such as
savings banks, savings and loan associations, money market and other mutual
funds, finance companies, credit unions and a variety of financial service
and advisory companies, including those marketed by direct mail. In
addition, personal and corporate trusts and other investment services are
offered by insurance companies, investment counselling firms and other
business firms and individuals. There is a high level of competition for
deposits, loans and services and Commercial's subsidiaries continue to
attract customers on the basis of personal service provided by local
residents at convenient banking locations.
Properties
The principal executive offices of CB&T and Commercial are
located at 415 Market Street, Parkersburg, West Virginia. This is a three-
story bank and office building and is owned by CB&T. In 1984, CB&T
constructed a branch office in Mineral Wells, West Virginia. In 1986, it
constructed a branch office in Vienna, West Virginia on leased property.
When the lease terminates in 1996, 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 (3) adjacent lots. Two are vacant and
one is used for parking. CB&T also leases a portion of a two-story bank
building on Pike Street in Parkersburg.
JCB owns and occupies a two-story building at the intersection of
Wall Street with State Route 68 in Ravenswood, West Virginia.
F&M owns and occupies bank buildings in Harrisville and Cairo,
West Virginia. The Cairo office was built in 1974 and is a one-story brick
building. The Harrisville office is a one-story brick building built in
1971, remodeled in 1984 and added to in 1988.
The Dime Bank's main offices are located at 200 Putnam Street in
Marietta, Ohio in a eight-story office building. One-half of the building
was constructed in the late 1800s and the other half was constructed in the
early 1900s. There have been several remodelings. Its
45
<PAGE>
drive-in facility was constructed in 1974 and includes an automated teller
machine and an employee parking lot. The Devola Branch was constructed in
1981 as a full-service branch, but the bank is presently operating only a
drive-in facility at the site. The Dime Bank owns all of its facilities.
In addition to the banking premises, CB&T, JCB, F&M and Dime, own
other real properties which are not material to their operations.
Legal Proceedings
Various actions and proceedings are pending to which Commercial
and its subsidiary banks are parties. Management considers that the
aggregate liabilities, if any, arising from such actions will not have a
material adverse effect on the consolidated financial position of
Commercial.
Market for Commercial's Common Stock and Related Stockholder Matters
There is no active market for Commercial's Stock; however,
because Commercial acts as transfer agent, Commercial is aware of certain
trades. The prices shown in this Prospectus/Joint Proxy Statement are
compiled from information known to management from actual trades and broker
sources. The prices shown herein may not represent prices which would
result in a more actively traded market and do not necessarily indicate the
price range for every trade.
Commercial pays dividends quarterly. Set forth below are the
dividends paid for the last three years. At December 31, 1993, the total
number of holders of Commercial's common Stock was approximately 493.
<TABLE>
<CAPTION>
1991 Dividend Paid
---- -------------
<S> <C>
First Quarter .20
Second Quarter .20
Third Quarter .20
Fourth Quarter .20
1992
----
First Quarter .20
Second Quarter .20
Third Quarter .20
Fourth Quarter .23
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
1993 Dividends Paid
---- --------------
<S> <C>
First Quarter .23
Second Quarter .23
Third Quarter .23
Fourth Quarter .25
1994
----
First Quarter .25
</TABLE>
Commercial's Board of Directors
Set forth below is information regarding the Board of Directors
of Commercial, their years of service, their age, the number of shares and
percentage of shares owned and their principal occupation or employment for
the last five (5) years as of April 29, 1994.
<TABLE>
<CAPTION>
Beneficially
Director Owned Percent
Name Age Since Class Number of Class
- ----- --- -------- --------------- --------
<S> <C> <C> <C> <C>
Bruce Bingham 64 1985 Preferred 1,254 4.62%
Common 1454 0.20%
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Robert W.
Burk, Jr. 54 1983 Common 1,752 0.24%
Parkersburg,
West Virginia
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Frank L.
Christy 46 1983 Common 5,130 0.69%
Marietta, Ohio
</TABLE>
Mr. Christy is a Real Estate Developer and was a Director of CB&T from
1977-1990.
47
<PAGE>
<TABLE>
<CAPTION>
Beneficially
Director Owned Percent
Name Age Since Class Number of Class
- ----- --- -------- --------------- --------
<S> <C> <C> <C> <C>
A. Vernon
Criss, III 39 1985 Common 35,508 4.79%
Vienna,
West Virginia
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Carl E. Dollman 70 1987 Common 2,960 0.40%
Vienna,
West Virginia
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
James A.
Meagle, Jr. 48 1992 Common 4,167 0.56%
Marietta, Ohio
</TABLE>
Mr. Meagle has been President of The Dime Bank since 1980. He became a Director
of Dime in 1980.
<TABLE>
<S> <C> <C> <C> <C>
William E.
Mildren, Sr. 81 1983 Common 2,000 0.27%
Vienna,
West Virginia
</TABLE>
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 become 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.
<TABLE>
<S> <C> <C> <C> <C>
William E.
Mildren, Jr. 49 1983 Common 52,652 7.11%
Preferred 250 0.92%
Vienna,
West Virginia
</TABLE>
Mr. Mildren is Chairman, President and Chief Executive Officer of
BancShares 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.
48
<PAGE>
<TABLE>
<CAPTION>
Beneficially
Director Owned Percent
Name Age Since Class Number of Class
- ----- --- -------- --------------- --------
<S> <C> <C> <C> <C>
Jack F. Poe 71 1983 Common 5,210 0.70%
Parkersburg,
West Virginia
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Robert E. 73 1992 Common 12,287 1.66%
Richardson, Sr.
Marietta, Ohio
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
W. S. Ritchie,
Jr. 65 1985 Preferred 731 2.69%
Ravenswood,
West Virginia
</TABLE>
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 become a Director of JCB in 1967.
<TABLE>
<S> <C> <C> <C> <C>
Susan S. Ross 49 1983 Common 2,000 0.27%
Vienna,
West Virginia
</TABLE>
Mrs. Ross is Chairman and Chief Executive Officer of Storck Baking Company
and was a Director of CB&T from 1982-1988.
49
<PAGE>
<TABLE>
<CAPTION>
Beneficially
Director Owned Percent
Name Age Since Class Number of Class
- ----- --- -------- --------------- --------
<S> <C> <C> <C> <C>
Thomas N.
Webster 74 1983 Common 2,654 0.36%
Vienna,
West Virginia
</TABLE>
Mr. Webster is the Vice Chairman of BancShares. 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.
<TABLE>
<S> <C> <C> <C> <C>
Morris B. Wilkins 69 1987 Common 36,549 4.93%
Scotrun,
Pennsylvania
</TABLE>
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. In 1992, Mr. Wilkins filed for personal bankruptcy under the federal
bankruptcy laws. Mr. Wilkins is also the Chairman of the Board and a
shareholder of Wilkins' Investment Group, Inc. (the "Company") which filed a
voluntary petition for bankruptcy under Chapter 11 of the United States
Bankruptcy Code in 1993. These bankruptcies resulted primarily from a dispute
with a lender concerning its negotiation of forged checks on the accounts of
Mr. Wilkins. Mr. Wilkins, the Company and the lender are currently in
litigation.
----------------------------------
All of the shares reported are owned individually by each board
member unless otherwise indicated below:
Bingham, Bruce
Of the 1,454 shares of the 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 will
exercise voting power with respect to the Merger.
Criss, A. Vernon, III
Of the 35,508 shares beneficially owned by Mr. Criss, 35,308 are owned
by a company of which Mr. Criss is an officer.
Meagle, James A. Jr.
Of the 4,167 shares beneficially owned by Mr. Meagle, 266 are held by
Commercial Bancshares, Inc. Employee Stock Ownership Trust (with
401(k) provisions) for which Mr. Meagle will exercise voting power
with respect to the Merger.
50
<PAGE>
Mildren, William E. Jr.
Of the 52,652 shares beneficially owned by Mr. Mildren, 362 are held
in trust for members of his immediate family, and 3,087 shares are
held by the Commercial Bancshares Inc. Employee Stock Ownership Trust
(with 401(k) provisions) for which Mr. Mildren will exercise voting
power with respect to the Merger.
Richardson, Robert E., Sr.
Of the 12,287 shares 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 beneficially owned by Mr. Wilkins, 36,349 are
owned by a member of his immediate family.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of Commercial met seven times in 1993.
All directors attended 75% or more of Commercial's Board and Board
Committee meetings except Mr. Christy, Mr. Mildren, Sr., 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
BancShares 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 17 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 six outside Directors of BancShares
subsidiaries: Arthur Maher, Peyton Dudley, A. D. Jackson, Stephen R. Seaman
and William C. Wigal. The Committee reviews and evaluates significant
matters related to the internal controls of BancShares, reviews the
activities of BancShares' internal audit staff, meets with appropriate
management personnel regarding internal audit results, and reports its
findings to the Board of Directors of BancShares. It met nine times during
1993.
The Mergers and Acquisitions Committee of Commercial met three
during the year. The members were Directors Christy (who served as
chairman), Dollman, Mildren, Jr.,
51
<PAGE>
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 BancShares. 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 1993, 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.
The EDP Steering Committee consists of the presidents and
selected members of the Boards of Directors of each subsidiary Bank.
Members include: Mr. Mildren, Jr., Donald Scothorn and Robert Tebay of
CB&T, Thomas Lookabaugh and Clark Ritchie of JCB, 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 1992. Dime Bank had an Executive Committee,
Audit Committee, and Profit Planning Committee. JCB and Farmers and F&M
have no committees of their Boards of Directors.
COMPENSATION OF DIRECTORS
Directors of BancShares, CB&T, JCB and F&M:
Beginning in June, 1988, a monthly fee of $250 was paid to each
Director of each subsidiary for which that person served as Director.
BancShares Directors, who were not Directors of subsidiary banks were paid
$250 monthly by BancShares. 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.
52
<PAGE>
During 1993, there were no other arrangements pursuant to which
any Director was compensated for services as a Directors.
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 JCB 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 Director.
DIRECTORS DEFERRED INCOME PLAN
Commercial, CB&T, F&M and JCB have established Directors Deferred
Income Plans with certain Directors which defers payment of directors fees
until such time as the director reached 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
BancShares, 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 BancShares during that time. It is
expected that Mr. Burk will continue to render certain services to
BancShares 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.
Certain Directors and Officers of BancShares, 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
53
<PAGE>
opinion of the banks did not involve more than normal risk of
collectability or present other unfavorable features.
Executive Officers
A description of the executive officers of Commercial and its
subsidiaries as of April 29, 1994, follows:
<TABLE>
<CAPTION>
Business
Name Age Position Experience
---- --- -------- ----------
<S> <C> <C> <C>
William E. Mildren, Jr. 49 Chairman, President, and President and
Chief Executive Officer Chief Executive
of Commercial Officer,
Commercial and
CB&T
Thomas M. 43 President, JCB Executive Vice
Lookabaugh President, JCB;
Asst. Vice Pres,
CB&T
James A. Meagle, Jr. 48 President and Chief President and
Executive Officer, Dime Chief Executive
Officer, Dime
Donna L. Perine 38 President and Chief President and
Executive Officer, F&M Chief Executive
Officer, F&M
Donald L. Scothorn 64 President and Chief Executive Vice
Executive Officer, CB&T; President and
Chairman, F&M Chief Lending
Officer, CB&T
Larry G. Johnson 46 Secretary-Treasurer, Senior Vice
Commercial; Executive President and
Vice President and Chief Comptroller, CB&T
Financial Officer, CB&T
</TABLE>
Stock Ownership of Officers
The following executive officers, who are not Commercial
directors, are beneficial owners of shares of the indicated class of stock
as of April 29, 1994:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Thomas M. Lookabaugh 1,767/1/ 0.24%
Vienna, West Virginia
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Donna L. Perine 1,336/2/ 0.18%
Harrisville, West Virginia
Common Donald L. Scothorn 13,789/3/ 1.86%
Parkersburg, West Virginia
Common Larry G. Johnson 6,476/4/ 0.87%
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 will excise voting power
with respect to the Merger.
(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 will exercise voting power with
respect to the Merger.
(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 will exercise voting power
with respect to the Merger.
(4) Of the 6,476 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 will exercise voting power
with respect to the Merger.
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 $100,000.
<TABLE>
<CAPTION>
Name and Other Annual All Annual
Principal Compensation Compensation
Position Year Salary($) Bonus($) ($) (1) ($) (2)
- --------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William E. 1993 $103,620 $18,000 $16,525 $ 2,657
Mildren, 1992 $ 98,640 $11,524 $15,150 $10,166
Jr., Chairman, 1991 $ 94,800 $14,463 $12,450 $11,866
President and CEO
</TABLE>
55
<PAGE>
(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).
Principal Owners of Commercial Common Stock
The following table sets forth information as of April 29, 1994,
concerning those shareholders who are known to Commercial to be the
beneficial owners of more than 5% of Commercial's Common Stock or
Commercial's Preferred Stock.
<TABLE>
<CAPTION>
Name and Amount and Nature
Address of of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Common Commercial 79,056 Direct 10.67%
BancShares, Inc.
Employee Stock
Ownership Plan
Parkersburg, West
Virginia
Common William E. 49,565 Direct 6.69%
Mildren, Jr./(1)/ 3,087 Indirect .42%
Vienna, West
Virginia
Preferred Jeanne 5,754 Direct 21.18%
Lambertson
Basking Ridge,
New Jersey
Preferred Foster L. Seaman 1,780 Direct 6.55%
and Almeda
Seaman, JTWROS
Ravenswood, West
Virginia
Preferred Beryl Rowley 1,400 Direct 5.15%
Ravenswood, West
Virginia
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Name and Amount and Nature
Address of of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Preferred Claymore Rowley 1,400 Direct 5.15%
Ravenswood, West
Virginia
</TABLE>
(1) Indirect holdings by Mr. Mildren represent shares by Commercial
BancShares Employee Stock Ownership Trust (with 401(k) provisions) for
which Mr. Mildren will exercise voting power with respect to the
Merger.
As of April 29, 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 187,691/1/ 25.33%
Preferred Stock 2,235 8.23%
</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 will exercise voting
power with respect to the Merger.
Relationship with Independent Certified Public Accountants
Harman, Thompson, Mallory and Ice, Parkersburg, West Virginia has
served as independent auditors for Commercial since Commercial's formation
in 1983.
57
<PAGE>
INFORMATION WITH RESPECT TO HOMETOWN BANCSHARES, INC.
Business of Hometown
Hometown is a registered bank holding company organized under the
laws of the State of West Virginia on May 11, 1988. Hometown has three
(3) wholly-owned subsidiary banks, and a wholly-owned insurance agency
subsidiary, now inactive.
On January 5, 1989, Hometown acquired Union Bank of Tyler County
("UBTC") and the shareholders of that bank became shareholders of Hometown.
On that same date, Hometown acquired The Community Bank ("Community") and
its shareholders became shareholders of Hometown.
On July 1, 1990, Bank of Paden City ("Paden City") became a
wholly-owned subsidiary of Hometown and the former shareholders of its
parent bank holding company became shareholders of Hometown.
Hometown Insurance Agency, Inc. is a wholly-owned subsidiary
corporation chartered under the laws of West Virginia on June 21, 1989.
The agency was historically operated through July 31, 1993, under
provisions of the Federal Reserve Board's Regulation Y, allowing a bank
holding company to operate an insurance agency in a place with a population
of 5,000 or less. The insurance agency is presently inactive, conducts no
business and has no employees. The corporate charter exists to protect
Hometown's goodwill and preserve the name.
On May 16, 1990, Hometown acquired 14.51% of the issued and
outstanding shares of First National Bank of Powhatan Point, Powhatan
Point, Ohio. This was a passive investment, meaning that Hometown played
no role in management, had no seat on the Board of Directors and generally
exercised only its right to vote as a shareholder. First National formed
a one-bank holding company and Hometown exercised its dissenters' rights.
Pursuant to an Agreement dated as of March 28, 1994, First National
purchased the First National stock held by Hometown for $394,740.
Banking operations are the primary business of Hometown and its
major source of revenue. Hometown derives, for the most part, its revenues
from dividends paid by its subsidiary banks.
UBTC was organized and chartered under the laws of the State of
West Virginia originally as "Tyler County Bank" on February 18, 1947. The
bank has been at its present location at the corner of Fair & Dodd Streets
since 1977. On January 1, 1984, the bank merged with Union National Bank
of Sistersville and was rechartered under the name "Union Bank of
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Tyler County". Its main office remains in Middlebourne and the
Sistersville branch is the former main office of the merged Union National
Bank. UBTC operates as a full-service bank in both Middlebourne and
Sistersville, offering a wide range of financial services to retail and
commercial customers, including trust services.
Community was organized and chartered as a West Virginia banking
corporation on September 30, 1936. It is located at 112 Collins Avenue in
Pennsboro, West Virginia and operates a drive-thru facility on Masonic
Avenue, also in Pennsboro. Community offers a wide range of financial
services to retail and commercial customers in its local area, though it
does not offer trust or correspondent banking services.
Paden City was organized and chartered under the laws of the
State of West Virginia on May 14, 1976. Its principal office is located at
4th and Main Streets in Paden City, West Virginia. In December 1984, Paden
City opened a full-service branch on State Route 2 in New Martinsville,
West Virginia, referred to as the Steelton Financial Center. Paden City
also offers a wide range of financial services to retail and commercial
customers within its market area, though it does not offer trust or
correspondent banking services.
Employees
As of April 29, 1994, Hometown and its subsidiaries had
approximately 67 full-time equivalent employees.
Competition
As a bank holding company, Hometown's operations consist of the
operations of its bank subsidiaries. Accordingly, the markets in which it
operates are determined by the locations of its subsidiary banks and their
branches.
UBTC competes in the Tyler County and Wetzel County, West
Virginia market. The banking business in the Tyler/Wetzel County market
area is highly competitive. UBTC competes actively for deposits with other
commercial banks and financial institutions, including savings and loan
associations and credit unions, in this market area. Using data available
as of June 30, 1993, UBTC's deposits were $32,680,000 or approximately
17.61% of that total two-county commercial bank market. Based on total
deposits in the market as of June 30, 1993, UBTC was the second largest of
the seven commercial banks with offices in Tyler and Wetzel Counties.
The principal market area of Community is Ritchie County, West
Virginia. As of June 30, 1993, there were five commercial banks with six
office locations in that market area. Community, as of June 30, 1993, had
total deposits of $16,853,000 or 22% of the market compared to combined
deposits of $59,641,000 for the other four banks.
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The principal market area of Paden City is Tyler and Wetzel
Counties, West Virginia. The banking business in the Tyler/Wetzel market
area is highly competitive. Paden City competes actively for deposits with
other commercial banks and financial institutions in its market area.
Based on total deposits in the market, Paden City was the fifth largest of
the seven commercial banks with offices in the Tyler/Wetzel market area as
of June 30, 1993. As of this date, Paden City's deposits were $24,860,000
or 13.39% of the total commercial bank deposits in the Wetzel/Tyler area.
In their respective market areas, Hometown's subsidiary banks
also compete for loan and lendable funds with other financial institutions
including savings and loan associations and credit unions.
Properties
The current principal offices of both Hometown and Union are
located in the Union Bank building at Fair and Dodd Streets in
Middlebourne, West Virginia. Union owns property adjacent to the building
which is used for employee and customer parking. In addition, Union also
owns and operates a facility referred to as the Sistersville Office located
at 700 Wells Street in Sistersville, West Virginia. Union also owns two
pieces of property on Wells Street in Sistersville that it uses for
employee parking.
The principal office of Community is located at 112 Collins
Avenue in Pennsboro, West Virginia. Community also operates a drive-
through facility on Masonic Avenue. Both of these properties are owned by
Community. In addition, Community owns three lots used for employee and
customer parking.
Paden City's principal office is located at Fourth and Main
Streets in Paden City, West Virginia. Paden City owns this building and
adjacent lots which are used for employee and customer parking. Paden City
also owns a branch facility, referred to as the Steelton Financial Center,
which is located at State Route 2 North in New Martinsville, West Virginia.
The land on which this facility is built is leased by Paden City.
Legal Proceedings
Hometown and its subsidiaries are not currently party to any
material legal proceedings which involve them or any of their properties,
other than ordinary or routine litigation incidental to their businesses.
Market for Hometown's Common Stock and Related Stockholder Matters
There is no active market for Hometown's Stock; however, because
UBTC acts as transfer agent, Hometown is aware of certain trades. Several
trades in recent years have been
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initiated through the brokerage firm of Hazlett, Burt and Watson, Inc. The
prices shown in this Prospectus/Joint Proxy Statement are compiled from
information known to management from actual trades and broker sources. The
prices shown may not represent prices which would result in a more actively
traded market and do not necessarily indicate the range for every trade.
Hometown pays dividends quarterly. Set forth below are the
dividends paid for the last three (3) years. At April 29, 1994, the
total holders of Hometown's Stock was approximately 584.
<TABLE>
<CAPTION>
1991 Dividend Paid
---- -------------
<S> <C>
First Quarter .18
Second Quarter .18
Third Quarter .18
Fourth Quarter .18
1992
----
First Quarter .18
Second Quarter .19
Third Quarter .20
Fourth Quarter .21
1993
----
First Quarter .21
Second Quarter .25
Third Quarter .25
Fourth Quarter .25
1994
----
First Quarter .25
</TABLE>
Hometown Board of Directors
Set forth below is information regarding board of directors of
Hometown, their years of service, their age, the number of shares and
percentage of shares owned by each member and their principal occupation or
employment for the last five (5) years.
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<PAGE>
<TABLE>
<CAPTION>
Shares Hometown
Name, Principal Occupation Director Beneficially Owned Percent
for Last Five (5) Years, Age Since (a) April 29, 1994(b) of Total
- ----------------------------- ----------- ------------------------ ---------
<S> <C> <C> <C>
Orville R. Bonnell 1988 8,210(c) 2.44%
Retired Wholesale Grocer (70)
Gary R. Davis 1988 19,465(d) 5.77%
President and CEO, Hometown;
President and CEO, Union (49)
Wilson Davis 1988 7,259(e) 2.15%
Retired Director
of Ritchie County Educational
Trust; Vice President,
Hometown; President,
Community (70)
4,123(f) 1.22%
Robert E. Doak 1988
Retired Grocer (67)
Philip B. Hill 1988 4,124 1.22%
Attorney at Law (62)
Secretary of Hometown
Robert J. Michels 1988 6,177(g) 1.83%
Owner, Michels Oil Co. (63)
George G. Couch 1990 325(h) .09%
Owner-Administrator
New Martinsville
Health Care Center (36)
Robert M. Feldmeier 1990 5,045(i) 1.50%
President, Paul Wissmach
Glass Co. (55)
David L. Mendenhall 1990 9,392(j) 2.79%
President & CEO, Paden City
Vice President, Hometown (50)
Robert C. Sellers 1992 13,680(k) 4.06%
Retired Supervisor,
LCP Chemicals of WV, Inc. (68)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Hometown
Name, Principal Occupation Director Beneficially Owned Percent
for Last Five (5) Years, Age Since (a) April 29, 1994 of Total
- ----------------------------- ----------- ------------------------ ---------
<S> <C> <C> <C>
Mary S. Goodwin 1992 49,799(l) 14.77%
Retired Owner,
J. A. Goodwin Agency
(Insurance) (71)
Paul E. Jemison 1988(m) 17,832(n) 5.29%
Retired Supervisor
PPG Industries, Inc. (72)
All directors and executive
officers as a group
(13 persons) 146,710 43.52%
</TABLE>
- --------------------------------------------------------------------------------
(a) Each director has served continuously to date beginning in the year
indicated, except as noted.
(b) Except as otherwise indicated, each directors has sole voting and
investment power over the shares he beneficially owns.
(c) Orville R. Bonnell - 600 shares owned individually, 7,610 shares owned
jointly with his wife.
(d) Gary R. Davis - 16,204 shares individually, 391 shares allocated to
Mr. Davis and held in trust under Hometown's ESOP, 30 shares owned by
his children, and 2,840 shares owned by his parents over which he
disclaims beneficial ownership.
(e) Wilson Davis - 600 shares owned individually, 6,659 shares owned
jointly with his wife.
(f) Robert E. Doak - 3,648 shares owned individually, 125 shares are owned
by his brother and 350 shares are owned jointly by his brother and
sister-in-law over which Mr. Doak disclaims ownership.
(g) Robert J. Michels - 3,960 shares owned individually, 2,217 shares
owned by his sister over which he disclaims beneficial ownership.
(h) George C. Couch - 225 shares owned individually, 100 shares owned
jointly with his wife.
(i) Robert M. Feldmeier - 220 shares owned individually, 1,125 shares
owned jointly with his wife, and 3,000 shares are owned by the Paul
Wissmach Glass Co., of which Mr. Feldmeier is president
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and he exercises voting authority for this shares. In addition, 100
shares are owned by his brother and 500 shares are owned by his
father, over which he disclaims all beneficial ownership.
(j) David L. Mendenhall - 5,700 shares owned individually, 378 shares
allocated to Mr. Mendenhall and held in trust under Hometown's ESOP,
435 shares owned jointly with his wife, 220 shares owned by his
children, and 529 shares owned by his wife. Additionally, 2,130
shares are owned by his sister over which he disclaims beneficial
ownership.
(k) Robert C. Sellers - 2,928 shares owned individually, 864 shares owned
by his wife, 5,664 shares owned by his mother for which Mr. Sellers is
Power-of-Attorney, and 4,224 shares owned by his adult children over
which he disclaims all voting beneficial ownership.
(l) Mary S. Goodwin - 47,837 shares owned individually, 1,962 shares owned
by her adult daughter over which she disclaims beneficial ownership.
(m) Mr. Jemison did not serve as a director of Hometown in 1992, but has
been nominated for a directorship this year.
(n) Paul E. Jemison - 17,352 shares owned individually, 480 shares owned
by his son-in-law over which he disclaims beneficial ownership.
Meetings of the Board of Directors and Committees
The Board of Directors of Hometown met eight (8) times during
1993. The Board reviews management reports and general corporate policy.
Mary S. Goodwin attended 50% of the meetings held by the Board. All other
directors attended at least 75% of the meetings held by the Board in 1993
during the period he or she served as a director. The Board has only one
(1) appointed committee, the Audit Committee, which consists of all outside
directors. The Audit Committee, typically meets on the same day as regular
Board meetings and review internal and external audit reports, and reports
of examination of federal and state regulatory authorities.
Compensation of Directors
The members of the Board of Directors of Hometown each receive a
fee of $100 per meeting attended and meetings are held at least quarterly.
Relationships and Transactions with Management
Hometown conducts banking transactions in the ordinary course of
business with directors, principal shareholders and their associates. With
respect to each person who is a director or an executive officer of
Hometown, all banking transactions involving these individuals and
Hometown's banking subsidiaries are made on substantially the same terms,
including interest rates, collateral and repayment terms on extensions of
credit as those prevailing at the
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time for comparable transactions with other unaffiliated persons and, in
the opinion of management, do not include more than the normal risk of
collectibility or present any other unfavorable feature. The percentage of
shareholders' equity represented by loans to officers, directors and their
affiliates as of December 31, 1993 is 21.5%.
Philip B. Hill, a member and Secretary to the Board of Directors,
serves as legal counsel of Union and Community. The fees paid to Snyder
and Hassig, the firm of which Mr. Hill is a partner, represents less than
5% of that firm's revenues for the year ended December 31, 1993.
Executive Officers
The executive officers of Hometown as of April 29, 1994 are as
follows:
<TABLE>
<CAPTION>
Principal Occupation
Banking Experience
During Last Five (5)
Name Age Position Years
---- --- -------- ---------------------
<S> <C> <C> <C>
Gary R. Davis 49 Chairman & Pres. President & CEO,
(Since 1988) Hometown; President
& CEO, Union
Wilson Davis 70 Vice President Director (Retired)
(Since 1988) Ritchie County
Educational Trust;
Vice President and
Secretary, Hometown;
President, Community
Timothy R. Aiken (a) 31 Treasurer and Chief CFO & Treasurer,
Financial Officer Hometown; Vice
(Since 1988) President & CFO,
Union; Controller,
Union
David L. 50 Vice President Vice President,
Mendenhall (Since 1990) Hometown; President
and CEO, Paden City
(a) Mr. Aiken beneficially owns a total of 979 shares of Hometown common
stock. 90 shares are owned by Mr. Aiken individually, 600 are owned
jointly with his wife, 228 shares are allocated to Mr. Aiken and held in
trust by Hometown's ESOP and 61 shares are allocated to Mr. Aiken's wife
and held in trust by Hometown's ESOP.
</TABLE>
Hometown's officers are elected by the Board of Directors annually for one-
year terms.
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Executive Compensation and Other Information
The following table shows for the fiscal years ending December
31, 1991, and 1993, the cash compensation paid by Hometown and its
subsidiaries, as well as certain other compensation paid or accrued for
those years, to the Chief Executive Officer of Hometown in all capacities
in which he served. There were no executive officers whose total annual
salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
Name and
Principal
Capacities in Other Annual All Other
Which Compensation Compensation
Served Year Salary ($) Bonus($)/1/ ($) (2) ($) (3)
- ------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary R. Davis, 1993 $59,049 $6,580 $9,764 $4,831
CEO President, 1992 $56,665 $5,850 $8,492 $4,962
Hometown and 1991 $53,764 $5,000 $9,332 $4,473
President, Union
</TABLE>
(1) Mr. Davis' bonus for 1993 was paid in January of 1994.
(2) Other Annual Compensation includes directors fees and personal use of
a company owned vehicle.
(3) This amount is the contribution by Hometown on behalf of Mr. Davis to
Hometown's 401(k) plan, to match tax-deferred elective contributions
(included in salary), and also contributions to Hometown's Employee
Stock Ownership Plan.
Employee Benefit Plans
No directors or principal shareholders of Hometown and its
subsidiaries, other than those persons who are salaried officers,
participate in any type of benefit plan of Hometown.
Effective in 1990, Hometown established an Employee Stock
Ownership Plan ("ESOP") for the benefit of the employees of its
subsidiaries. The ESOP is a qualified defined contribution plan under
Section 401(a) of the Internal Revenue Code.
Each employee of Hometown, or its subsidiaries, who completes one
year eligible service and is 21 years of age is eligible to participate in
the ESOP. Full vesting is attained with
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six years of eligible service. The ESOP currently owns 6,504 shares of
Hometown common stock.
In 1990, Hometown also established a 401(k) Profit-Sharing Plan
(the "Plan"), a deferred compensation plan under Section 401(k) of the
Internal Revenue Code. The plan is a qualified defined contribution plan.
Employees who complete one year of eligible service and attain the age of
21 are eligible to participate in the Plan. A profit-sharing plan which
was in effect at Community was merged into the 401(k) Plan during 1990 in
order to comply with Tax Reform act requirements. Participants may
contribute from 1% to 14% of pre-tax earnings to their accounts, which may
be invested in one to three investment options chosen by the employees.
Hometown's board, at its sole discretion, can elect to match in either cash
or employer securities, a percentage of the first 6% of compensation
deferred. The match was 50% in 1992 and is expected to be similar in 1993.
Paden City, the subsidiary, maintains a nonqualified deferred
compensation plan for its directors and executive officers. The plan funds
its future payment obligation through life insurance investments. The plan
benefits are subject to a substantial risk of forfeiture until attainment
of age 65, normal retirement date, disability, or death, at which time the
benefits are payable. $2,747.00 was contributed to the plan in 1993 on
behalf of an executive officer, who is currently non-vested.
Hometown's subsidiaries, except for Paden City, provide for full-
time employees, life, disability, medical and dental insurance. The plan
is noncontributory with the exception that employees who desire extended
family coverage must pay part of the premium. Paden City provides for
full-time employees, life and disability insurance on a noncontributory
basis, and medical insurance on a contributory basis. Employees of Paden
City contribute 50% of the premium for medical insurance. These plan do
not discriminate in scope, terms or operations, in favor of the executive
officers of Hometown or its subsidiaries, and are generally available to
all full time employees of Hometown and its subsidiaries. The premiums
paid for life insurance which has a face value of greater than $50,000 is
properly reported as executive compensation.
Principal Shareholders of Hometown
The following table lists each shareholder of Hometown who is the
beneficial owner of more than 5% of Hometown's common stock, the only class
of stock outstanding, as of April 29, 1994. The table shows the number
of shares and percentage of ownership of Hometown's common stock which the
shareholder beneficially owned as of April 29, 1994.
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<PAGE>
<TABLE>
<CAPTION>
Shares Hometown
Beneficially Owned Percent
Name and Address as of April 29, 1994 of Total
- ---------------- ----------------------- --------
<S> <C> <C>
Mary S. Goodwin 49,799(a) 14.77%
285 Colonial Drive
Waynesburg, PA 15370
Gary R. Davis 19,465(b) 5.77%
818 Main Street
Sistersville, WV 26175
Paul E. Jemison 17,832(c) 5.29%
P. O. Box 121
Middlebourne, WV 26149
</TABLE>
(a) Mary S. Goodwin - 47,837 shares owned daughter over which
individually, 1,962 shares owned by her she disclaims beneficial
ownership.
(b) Gary R. Davis - 16,204 shares owned individually, 391 shares allocated
to Mr. Davis and held in trust under Hometown's ESOP, 30 shares owned
by his children and 2,840 shares owned by his parents over which he
disclaims beneficial ownership.
(c) Paul E. Jemison - 17,352 shares owned individually, 480 shares owned
by his son-in-law over which he disclaims beneficial ownership.
Relationship with Independent Certified Public Accountants
Harman, Thompson Mallory & Ice, Parkersburg, West Virginia has
served as Hometown's and Hometown's predecessor's independent auditor since
1975.
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REGULATION AND SUPERVISION
General
Commercial and Hometown as bank holding companies, are subject to
the restrictions of the Bank Holding Company Act of 1956, as amended, and
are registered pursuant to its provisions. As registered bank holding
companies, Commercial and Hometown are subject to the reporting
requirements of the Board of Governors of the Federal Reserve System ("the
"Federal Reserve Board"), and are subject to examination by the Board of
Governors.
The Bank Holding Company Act prohibits the acquisition by a bank
holding company of direct or indirect ownership of more than five percent
of the voting shares of any bank within the United States without prior
approval of the Board of Governors and also prohibits the granting of such
approval in respect of any bank within the United States, located outside
of the state where the bank holding company's principal operations are
conducted, unless the acquisition is specifically authorized by the
statutes of the state in which the bank is located. West Virginia law
permits certain interstate bank acquisitions. With certain exceptions, a
bank holding company is prohibited from acquiring direct or indirect
ownership or control or more than five percent of the voting shares of any
company which is not a bank, and from engaging directly or indirectly in
business unrelated to the business of banking, or managing or controlling
banks.
The Federal Reserve Board, in its Regulation Y, permits bank
holding companies to engage in non-banking activities closely related to
banking or managing or controlling banks. Approval of the Federal Reserve
Board is necessary to engage in these activities or to make acquisitions of
corporations engaging in these activities as the Federal Reserve Board
determines whether these acquisitions or activities are in the public
interest. In addition, by order, and on a case by case basis, the Federal
Reserve Board may approve other non-banking activities.
As bank holding companies doing business in West Virginia,
Commercial and Hometown are also subject to regulation by the West Virginia
Board of Banking and Financial Institutions (the "West Virginia Board") and
must submit annual reports to the Department.
Federal law restricts subsidiary banks of a bank holding company
from making certain extensions of credit to the parent bank holding company
or to any of its subsidiaries, from investing in the holding company stock
and limits the ability of a subsidiary bank to take its parent company
stock as collateral for the loans of any borrower. Additionally, federal
law prohibits a bank holding company and its subsidiaries from engaging in
certain tie-in arrangements in conjunction with the extension of credit or
furnishing of services.
The operations of Commercial and Hometown subsidiaries, which are
state chartered banking subsidiaries are subject to state statutes which
apply to state-chartered banks.
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<PAGE>
Except for the Dime Bank, an Ohio chartered state member bank, the primary
regulator of Commercial and Hometown's subsidiaries is the West Virginia
Board. The primary regulator of the Dime Bank is the Ohio Division of
Banks. As members of the FDIC, deposits of Commercial and Hometown
subsidiaries are insured as provided by federal law. The West Virginia
Board which is the primary supervisory authority of Commercial and Hometown
West Virginia subsidiaries, and the Ohio Division of Banks, which is the
primary supervisory authority of Commercial's Ohio subsidiary, each
regularly examine reserves, loans, investments, management practices, and
other aspects of Commercial and Hometown subsidiaries' operations. These
examinations are conducted primarily to protect depositors and customers,
not shareholders. In addition to these regular examinations, Commercial and
Hometown subsidiaries must furnish to either the West Virginia Board or the
Ohio Division of Banks, quarterly reports containing a full and accurate
statement of its affairs.
Non-banking Activities Permitted to Commercial and Hometown
The Federal Reserve Board permits, within prescribed limits, bank
holding companies to engage in non-banking activities closely related to
banking or to managing or controlling banks, which activities are not
limited to the state of West Virginia. Some examples of non-banking
activities which presently may be performed by a bank holding company are:
making or acquiring, for its own account or the account of others, loans
and other extensions of credit; operating as an industrial bank, or
industrial loan company, in the manner authorized by state law; servicing
loans and other extensions of credit; performing or carrying on any one or
more of the functions or activities that may be performed or carried on by
a trust company in the manner authorized by federal or state law; acting as
an investment or financial advisor; leasing real or personal property;
making equity or debt investments in corporations or projects designed
primarily to promote community welfare, such as the economic rehabilitation
and the development of low income areas; providing bookkeeping services or
financially oriented data processing services for the holding company and
its subsidiaries; acting as an insurance agent or a broker, to a limited
extent, in relation to insurance directly related to an extension of
credit; acting as an underwriter for credit life insurance which is
directly related to extensions of credit by the bank holding company
system; providing courier services for certain financial documents;
providing management consulting advice to nonaffiliated banks; selling
retail money orders having a face value of not more than $1,000, traveler's
checks and U. S. savings bonds; performing appraisals of real estate;
arranging commercial real estate equity financing under certain limited
circumstances; providing securities brokerage services related to
securities credit activities; underwriting and dealing in government
obligations and money market instruments; providing foreign exchange
advisory and transactional services; and acting under certain
circumstances, as futures commission merchant for nonaffiliated persons in
the execution and clearance on major commodity exchanges of futures
contracts and options.
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<PAGE>
Credit and Monetary Policies and Related Matters
Commercial's and Hometown's subsidiary banks are affected by the
fiscal and monetary policies of the federal government and its agencies,
including the Federal Reserve Board. An important function of these
policies is to curb inflation and control recessions through control of the
supply of money and credit. The operations of Commercial and Hometown's
subsidiary banks are affected by the policies of government regulatory
authorities, especially the Federal Reserve Board which regulates money and
credit conditions through open market operations in United States
Government and federal agency securities, adjustments in the discount rate
on member bank borrowings, and establishes requirements against deposits.
These policies have a significant influence on the growth and distribution
of loans, investments and deposits, and interest rates charged on loans, or
paid for time and savings deposits, as well as yields on investments. The
Federal Reserve Board has had a significant effect on the operating results
of commercial banks in the past and is expected to continue to do so in the
future. Future policies of the Federal Reserve Board and other authorities
cannot be predicted, nor can their effect on future bank earnings be
predicted.
The Federal Reserve Board has a policy to the effect that a bank
holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and to commit resources to support
each such subsidiary bank. Under the source of strength doctrine, the
Federal Reserve Board may require a bank holding company to contribute
capital to a troubled subsidiary bank, and may charge the bank holding
company with engaging in unsafe and unsound practices for failure to commit
resources to such a subsidiary bank. This capital injection may be
required at times when either Commercial and Hometown may not have the
resources to provide it. Any capital loans by a holding company to any of
the subsidiary banks are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In addition, the Crime
Control Act of 1990 provides that in the event of a bank holding company's
bankruptcy, any commitment by such holding company to a federal bank or
thrift regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
In 1989, the United States Congress enacted the Financial
Institutions Reform, Recovery and Enforcement Act ("FIRREA"). Under FIRREA
depository institutions insured by the FDIC may now be liable for any
losses incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance
provided by the FDIC to commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured bank or subsidiary of Commercial
or Hometown causes a loss to the FDIC, other bank subsidiaries of
Commercial or Hometown could be liable to the FDIC for the amount of such
loss.
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Under state law, the West Virginia Board may order the pro rata
assessment of shareholders of a state bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such state
bank's capital stock. This statute also provides for the enforcement of
any such pro rata assessment of shareholders of such state bank to cover
such impairment of capital stock by sale, to the extent necessary, of the
capital stock of any assessed shareholder failing to pay the assessment.
Commercial and Hometown, as the sole stockholders of their respective
subsidiary banks, are subject to such provisions.
Capital Requirements
As banking holding companies, Commercial and Hometown are subject
to final risk-based capital guidelines that were issued by the Federal
Reserve Board in January, 1989. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations,
takes off-balance sheet exposures into explicit account in assessing
capital adequacy, and minimizes disincentives to holding liquid, low-risk
assets. Under the guidelines and related policies, bank holding companies
must maintain capital sufficient to meet both a risk-based asset ratio test
and leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance sheet commitments
into four weighted categories, with higher levels of capital being required
for categories perceived as representing greater risk. All of Commercial's
and Hometown's depository institution subsidiaries are subject to
substantially similar capital requirements adopted by applicable regulatory
agencies.
Generally, under the applicable guidelines, the financial
institution's capital is divided into two tiers. "Tier 1," or core
capital, includes common equity, noncumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and other intangibles. "Tier
2," or supplementary capital, includes, among other things, cumulative and
limited-life preferred stock, hybrid capital instruments, mandatory
convertible securities, qualifying subordinated debt, and the allowance for
loan losses, subject to certain limitations, less required deductions.
"Total capital" is the sum of Tier 1 and Tier 2 capital. Bank holding
companies are subject to substantially identical requirements, except that
cumulative perpetual preferred stock can constitute up to 25% of a bank
holding company's Tier 1 capital.
The guidelines, which became effective December 31, 1990, were
phased in over two years, with the transition, or phase-in period, being
completed at the end of 1992. Effective December 31, 1992, financial
institutions are required to attain a risk-based ratio of 8%, of which 4%
must be Tier 1 capital. The appropriate regulatory authority may set
higher capital requirements when an institution's particular circumstances
warrant.
For purposes of the leverage ratio, the numerator is defined as
Tier 1 capital and the denominator is defined as adjusted total assets (as
specified in the guidelines). The guidelines
72
<PAGE>
provide for a minimum leverage ratio of 3% for financial institutions that
meet certain specified criteria, including excellent asset quality, high
liquidity, low interest rate exposure and the highest regulatory rating.
Financial institutions not meeting these criteria are required to maintain
a leverage ratio which exceeds 3% by a cushion of at least 100 to 200 basis
points.
The guidelines also provide that financial institutions
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board's guidelines indicate that the
Federal Reserve Board will continue to consider a "tangible Tier 1 leverage
ratio" in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of an institution's Tier 1
capital, less all intangibles, to total assets, less all intangibles.
Failure to meet applicable capital guidelines could subject the
financial institution to a variety of enforcement remedies available to the
federal regulatory authorities, including limitations on the ability to pay
dividends, the issuance by the regulatory authority of a capital directive
to increase capital and termination of deposit insurance by the FDIC, as
well as to the measures described under the "Federal Deposit Insurance
Corporation Improvement Act of 1991" as applicable to undercapitalized
institutions.
As of December 31, 1993, the historical Tier 1 risk-based capital
ratio, total risk-based capital ratio, and total assets leverage ratio for
Commercial and Hometown and related pro forma capital ratios in accordance
with fully phased in requirements were as follows:
<TABLE>
<CAPTION>
Pro Forma Commercial Hometown
Consolidated
% $millions % $millions % $millions
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital:
Actual Tier 1 13.73% $30.2 12.21% $21.0 19.19% $9.2
Actual Total 14.99% $32.9 13.46% $23.1 20.45% $9.8
Regulatory
Minimum Tier 1 4.00% $ 8.8 4.00% $ 6.9 4.00% $1.9
Regulatory
Minimum Total 8.00% $17.6 8.00% $13.8 8.00% $3.8
Excess over
minimum:
Tier 1 9.73% $21.4 8.21% $14.1 15.19% $7.3
Total 6.99% $15.3 5.46% $ 9.3 12.45% $6.0
Leverage 8.65% $30.2 8.14% $21.0 10.11% $9.2
Equity to Assets 9.44% $32.9 8.97% $23.1 10.78% $9.8
</TABLE>
73
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED RISK BASED CAPITAL COMPUTATIONS
Assuming Pooling of Interest Method of Accounting
DECEMBER 31, 1993
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Commercial BancShares, Inc. Hometown Bancshares, Inc. Pro Forma Adjustment Pro Forma Combined
---------------------------------------------------------------------------------------------------------
Actual Risk-Weighted Actual Risk-Weighted Risk-Weighted Actual Risk-Weighted
Balance
-----------------
Balance Balance Balance Balance Debit Credit Balance Balance
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET ACCOUNTS
0% RISK CATEGORY
Cash and Due from Banks $ 3,565 $ 0 $ 2,368 $ 0 $ 5,933 $ 0
Securities 12,857 0 17,266 0 30,123 0
Other Assets, 230 0 0 0 230 0
excluding goodwill
Subtotal $ 16,652 $ 0 $19,634 $ 0 $0 $0 $ 36,286 $ 0
20% RISK CATEGORY
Cash and Due from Banks $ 6,706 $ 1,341 $ 1,530 $ 306 $ 8,236 $ 1,647
Securities 35,733 7,147 16,803 3,361 52,536 10,507
Federal Funds Sold 7,924 1,585 775 155 8,699 1,740
Loans and Lease 76 15 0 0 76 15
Financing Receivable
Subtotal $ 50,439 $ 10,088 $19,108 $ 3,822 $0 $0 $ 69,547 $ 13,909
50% RISK CATEGORY
Securities $ 6,408 $ 3,204 $ 1,280 $ 640 $ 7,688 $ 3,844
Loans and Lease 57,444 28,722 16,800 8,400 74,244 37,122
Financing Receivable
Subtotal $ 63,852 $ 31,926 $18,080 $ 9,040 $0 $0 $ 81,932 $ 40,966
100% RISK CATEGORY
Securities $ 1,272 $ 1,272 $ 945 $ 945 $ 2,217 $ 2,217
Loans and Lease 116,929 116,929 31,345 31,345 148,274 148,274
Financing Receivable
Other Assets, 11,462 11,462 2,384 2,384 13,846 13,846
excluding goodwill
Subtotal $129,663 $129,663 $34,674 $34,674 $0 $0 $164,337 $164,337
OFF-BALANCE SHEET ASSETS
AMOUNTS CONVERTED AT 100%
Financial Standby
Letters of Credit
(100% risk weight) $ 29 $ 29 $ 50 $ 50 $ 79 $ 79
Subtotal $ 29 $ 29 $ 50 $ 50 $0 $0 $ 79 $ 79
AMOUNTS CONVERTED AT 50%
Performance Standby
Letters of Credit
(100% risk weight) $ 343 $ 172 $ 30 $ 30 $ 373 $ 202
Commitments to Extend
Credit with Original
Maturity Exceeding One
Year (100% risk weight) 0 0 337 337 337 337
Commitments to Extend
Credit with Original
Maturity Exceeding One
Year (50% risk weight) 0 0 176 88 176 88
Subtotal 343 172 543 455 0 0 886 626
AMOUNTS CONVERTED AT 20%
Commercial and Similar
Letters of Credit
Collateralized
by the Underlying
Shipments and Other
Self Liquidating
Trade-Related
Contingencies
Arising from the
Movement of Goods $ 10 $ 2 $ 0 $ 0 $ 10 $ 2
Subtotal $ 10 $ 2 $ 0 $ 0 $0 $0 $ 10 $ 2
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $260,988 $171,879 $92,089 $48,041 $0 $0 $353,077 $219,920
=========================================================================================================
</TABLE>
See the Accompanying Notes to Unaudited Pro Forma Financial
Information Assuming Pooling of Interests Method of Accounting
74
<PAGE>
Federal Deposit Insurance Corporation Improvement Act of 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revises
the bank regulatory and funding provisions of the Federal Deposit Insurance
Corporation Act and makes revisions to several other banking statutes.
FIDICIA establishes a new regulatory scheme, which ties the level of
supervisory intervention by bank regulatory authorities primarily to a
depository institution's capital category. among other things, FDICIA
authorizes regulatory authorities to take "prompt corrective action" with
respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized
and critically under capitalized.
By regulation, an institution is "well-capitalized" if it has a
total risk-based capital ratio of 10% or greater, a Tier 1 leverage ratio
of 5% or greater and is not subject to regulatory order, agreement, or
directive to meet and maintain a specific capital level for any capital
measure. Both Commercial and Hometown meet the definition of a "well-
capitalized" holding company.
Another requirement of FDICIA is that federal banking agencies must
prescribe regulations relating to various operational areas of banks and
bank holding companies. These include standards for internal audit
systems, loan documentation, information systems, internal controls, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly
traded shares and such other standards as the agency deems appropriate.
Since many of the required regulations have not been promulgated, it is not
possible to determine precisely how these new standards will effect either
Commercial or Hometown. It is generally believed that the new regulations
will increase the regulatory burden of insured depository institutions and
their affiliates.
75
<PAGE>
EXPERTS
The consolidated financial statements at Commercial and Hometown for
the year ended December 31, 1993 have been audited by Harman, Thompson,
Mallory & Ice, independent auditors as set forth in their reports. The
consolidated financial statements of Commercial and Hometown are included
herein in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of common stock of Commercial to be
issued upon consummation of the proposed acquisition described herein will
be passed upon by the firm of Bowles Rice McDavid Graff & Love, Charleston,
West Virginia.
Commercial's current director Robert Burk is a partner in the law
firm of Burk, Myers and Zivkovich and has been associated with this law
firm for a number of years. See DESCRIPTION OF COMMERCIAL - Directors, and
---
- Transactions with Management and Others.
SOURCES OF INFORMATION
The information in this Proxy Statement concerning Commercial and
its subsidiaries and Hometown and its subsidiaries has been supplied by
management of each of the respective companies.
ADDITIONAL INFORMATION
This Prospectus/Joint Proxy Statement constitutes the Prospectus of
Commercial that is part of a Registration Statement filed by Commercial
under the Securities Act of 1933, as amended, with respect to its common
stock offered hereby. As permitted by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), this
Prospectus/Joint Proxy Statement omits certain information set forth in
that Registration Statement. The information omitted may be obtained from
the principal office of the Commission in Washington, D.C. 25049, upon
payment of the fee prescribed by the Commission, or may be examined there
without charge.
76
<PAGE>
____________
FINANCIAL INFORMATION CONCERNING
COMMERCIAL BANCSHARES, INCORPORATED
______________
F-1
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
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.
F-2
<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 2536 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 teceivable 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
-------- -------- --------
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.
F-3
<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 $ (1796) $(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. $43,284 $27,271 $33,034
government agencies
Obligations of States and political 11,123 9,524 11,286
subdivisions
Other Investments 1,862 2,046 2,892
---------------------------
Total $56,269 $38,841 $46,384
===========================
</TABLE>
F-4
<PAGE>
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>
F-5
<PAGE>
Nonaccrual, Past Due, and Restructured Loans
The following table summarizes BancShares' nonaccrual, past due, and
restructured loans.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
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>
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.
F-6
<PAGE>
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 Dec. 31, 1990 Dec. 31, 1989
----------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,048 37.7% $1,031 45.2% $ 713 40.3% $ 674 41.0% $ 549 37.6%
Real estate 900 16.6% 762 33.4% 627 35.7% 560 34.1% 533 36.5%
Consumer 397 43.9% 449 19.7% 382 21.7% 370 22.5% 331 22.7%
Credit card 43 1.8% 39 1.7% 35 2.3% 39 2.4% 47 3.2%
--------------------------------------------------------------------------------------------
Total $2,388 100.0% $2,281 100.0% $1,757 100.0% $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>
Noninterest-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% 98,332 5.26% 105,761 7.36%
------------------------------------------------
Total $228,678 $216,296 $204,680
================================================
</TABLE>
F-7
<PAGE>
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.
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%.
F-8
<PAGE>
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.
F-9
<PAGE>
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 accomodate 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.
<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 deposits/1/ $16,643 $ 14,265 $ 9,510 $ 7,132
Savings deposits/1/ 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.
F-10
<PAGE>
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
F-11
<PAGE>
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.
F-12
<PAGE>
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.
F-13
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
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.
F-14
<PAGE>
Board of Directors
Commercial BancShares, Inc.
Parkersburg, West Virginia
Page Two
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.
/s/ Harman, Thompson, Mallory & Ice, A.C.
Parkersburg, West Virginia
February 16, 1994
F-15
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992 STATEMENT I
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
-----------------------
1993 1992
---- ----
(RESTATED)
ASSETS
<S> <C> <C>
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
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS
Demand - Noninterest 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.
F-16
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT II
<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.
F-17
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT III
<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
FASB 109 Retrospective Deferred
Tax Adjustment N/A N/A 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.
F-18
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, STATEMENT III
1993, 1992, AND 1991 (CONTINUED)
<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.
F-19
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT IV
<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.
F-20
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, STATEMENT IV
1993, 1992, AND 1991 (CONTINUED)
<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.
F-21
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
--------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------
1992 1991
-------------------------------- ---------------------------------
PREVIOUSLY ACCOUNTING PREVIOUSLY ACCOUNTING
BALANCE SHEET REPORTED CHANGE RESTATED REPORTED CHANGE RESTATED
<S> <C> <C> <C> <C> <C> <C>
Other Assets $2,094 $ 335 $2,429
Other Liabilities $1,766 $ 130 $1,896
Undivided Profits $7,853 $ 205 $8,058
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>
F-22
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
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>
1992 1991
---------------------- ----------------------
COMMERCIAL COMMERCIAL
BANCSHARES, THE BANCSHARES, THE
INC. AND DIME INC. AND DIME
SUBSIDIARIES BANK SUBSIDIARIES BANK
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<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 (110) (8) (399) (85)
------- ------- -------- --------
NET INCOME $ 153 $ 30 $ 1,432 $ 267
======= ======= ======== ========
</TABLE>
F-23
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
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
F-24
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Note Receivable (Continued)
- ----------------------------
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 nonaccrual status is reversed against interest income. In addition,
any
F-25
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Loans (Continued)
- ------------------
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
F-26
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Reserve for Possible Loan Losses (Continued)
- ---------------------------------------------
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
F-27
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Foreclosed Properties (Continued)
- ----------------------------------
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.
F-28
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
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
F-29
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Earnings Per Share (Continued)
- -------------------------------
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.
F-30
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: 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
======= ====== ==== =======
<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.
F-31
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
<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.
F-32
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
Interest on 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 31,
-----------------------
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 Interest (25) (69)
-------- --------
LOANS - NET $174,476 $176,086
======== ========
</TABLE>
F-33
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS (CONTINUED)
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>
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.
F-34
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS (CONTINUED)
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,
ESTIMATED -------------------
DESCRIPTION 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>
F-35
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: BANK PREMISES AND EQUIPMENT (CONTINUED)
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.
F-36
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
F-37
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: ESOP BORROWING
ESOP borrowing, 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 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>
F-38
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES (CONTINUED)
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>
Current Income Taxes: <C> <C> <C>
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 transactions presented below:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS
--------------------------------
DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
(RESTATED)(RESTATED)
<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
F-39
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES (CONTINUED)
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.
F-40
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: SHAREHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
- -------------------------
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.
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
F-41
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: SHAREHOLDERS' EQUITY (CONTINUED)
Convertible Preferred Stock (Continued)
- ----------------------------------------
shareholder otherwise entitled to receive a fractional interest. The
shares have a redemption provision entitling the holders to be paid as
follows:
<TABLE>
<CAPTION>
YEAR PRICE
<S> <C>
1994 $105.00
Thereafter $100.00
</TABLE>
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
F-42
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: SHAREHOLDERS' EQUITY (CONTINUED)
Convertible Preferred Stock (Continued)
- ----------------------------------------
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.
F-43
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: CONCENTRATION OF CREDIT RISK (CONTINUED)
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.
F-44
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
A summary of these financial instruments is 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>
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>
<CAPTION>
<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
F-45
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.
F-46
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: REGULATORY MATTERS (CONTINUED)
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
F-47
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: REGULATORY MATTERS (CONTINUED)
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.
F-48
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: REGULATORY MATTERS (CONTINUED)
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 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.
F-49
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
F-50
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: TRANSACTIONS WITH DIRECTORS AND OFFICERS (CONTINUED)
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>
F-51
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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
F-52
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
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
F-53
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
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.
F-54
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
F-55
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
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>
F-56
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
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 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 $ $ 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>
F-57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
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
F-58
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21: FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
(CONTINUED)
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.
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.
F-59
<PAGE>
________________
FINANCIAL INFORMATION CONCERNING
HOMETOWN BANCSHARES, INCORPORATED
_________________
F-60
<PAGE>
HOMETOWN BANCSHARES, INC.
SELECTED FINANCIAL INFORMATION
BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
ASSETS
<S> <C> <C> <C> <C> <C>
Investments (Including Federal Funds) $ 37,069 $ 34,773 $ 31,085 $ 28,606 $ 29,283
Loans - Net 48,145 46,927 47,026 46,449 43,270
Other Assets 6,077 6,244 5,631 7,067 6,555
Core Deposit Premium - The Community Bank 205 278 369 482 624
------- ------- ------- ------- -------
TOTAL ASSETS $ 91,496 $ 88,222 $ 84,111 $ 82,604 $ 79,732
======= ======= ======= ======= =======
LIABILITIES
Deposits $ 77,221 $ 75,487 $ 75,199 $ 73,897 $ 71,308
Other Liabilities 533 439 573 664 687
Repurchase Agreements and Federal Funds
Purchased 4,182 3,460 -0- -0- -0-
------- ------- ------- ------- -------
TOTAL LIABILITIES $ 81,936 $ 79,386 $ 75,772 $ 74,561 $ 71,995
Shareholders' Equity 9,560 8,836 8,339 8,043 7,737
------- ------- ------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 91,496 $ 88,222 $ 84,111 $ 82,604 $ 79,732
======= ======= ======= ======= =======
</TABLE>
HOMETOWN BANCSHARES, INC.
SELECTED FINANCIAL INFORMATION
CONDENSED STATEMENT OF INCOME
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and Dividend Income $ 7,085 $ 7,504 $ 7,852 $ 8,024 $ 7,866
Interest Expense 2,852 3,461 4,100 4,447 4,268
------- ------- ------- ------- -------
Net Interest Income $ 4,233 $ 4,043 $ 3,752 $ 3,577 $ 3,598
Provision for Possible Loan Losses 159 204 180 188 246
Other Income 390 371 321 320 398
Other Expenses 3,068 3,022 3,080 2,971 3,038
------- ------- ------- ------- -------
Income before Income Taxes
and Extraordinary Item $ 1,396 $ 1,188 $ 813 $ 738 $ 712
Provision for Income Taxes 535 417 299 212 226
------- ------- ------- ------- -------
Income before Extraordinary Item $ 861 $ 771 $ 514 $ 526 $ 486
Extraordinary Item - Tax Benefit -0- -0- -0- -0- (12)
Cumulative Effect - Change
in Accounting Principles 81 -0- -0- -0- -0-
------- ------- ------- ------- -------
NET INCOME $ 942 $ 771 $ 514 $ 526 $ 498
======= ======= ======= ======== ========
Earnings Per Share of Common Stock:
Income before Extraordinary Item $ 2.56 $ 2.29 $ 1.52 $ 1.56 $ 1.45
Extraordinary Item .00 .00 .00 .00 .03
Cumulative Effect - Change in Accounting
Principles .24 .00 .00 .00 .00
------- ------- ------- ------- -------
Net Income $ 2.80 $ 2.29 $ 1.52 $ 1.56 $ 1.48
Cash Dividend Paid Per Share $ .96 $ .78 $ .72 $ .69 $ .62
Book Value $ 28.37 $ 26.21 $ 24.75 $ 23.86 $ 23.01
Average Shares Outstanding 337,077 337,077 337,077 337,077 336,207
</TABLE>
F-61
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this discussion is to focus on the information about
Hometown Bancshares, Inc.'s financial condition, results of operations,
liquidity, and capital resources and to provide a better understanding of the
significant factors relating to this information. This discussion and analysis
should be read in conjunction with the financial statements and selected
financial data presented elsewhere in this Annual Report.
The Financial Accounting Standards Board (FASB) recently issued
Statement Number 109, Accounting for Income Taxes, which is required to be
---------------------------
applied to the Company's 1993 financial statements. For a discussion of the
impact of Statement 109 on the Company's financial condition, see Note 7 of the
Consolidated Financial Statements. FASB also recently issued Statement Number
115, Accounting for Certain Investments in Debt and Equity Securities, which is
----------------------------------------------------------------
required to be applied to the Company's financial statements beginning in 1994.
At its option, Hometown elected to apply the statement effective December 31,
1993. The effects of applying this statement are discussed below in the
"Securities" section and in Notes 1 and 2 of the financial statements.
Hometown Bancshares is a three-bank holding Company, having been
capitalized in January, 1989 by the shareholders of the Union Bank of Tyler
County in a statutory merger accounted for as if by pooling and acquiring the
Community Bank in January, 1989 by a merger accounted for as a purchase. In
July, 1990, Hometown acquired Universal BancCorp, parent corporation of the Bank
of Paden City, in a statutory merger accounted for as a pooling. As a result of
the merger, Universal ceased to exist and Paden City became a wholly-owned
subsidiary of Hometown. Under the accounting rules for pooling transactions, it
is required that prior periods be restated to show the merged institutions as a
single entity. Thus, all prior periods presented and discussed herein include
the results of Universal and Paden City.
Financial Condition
- -------------------
Hometown, with its three subsidiary Banks, primarily functions as a
financial intermediary, brokering deposits into such earning activities as loans
and investments. As such, its financial condition can be reviewed in terms of
various trends in its sources and uses of funds. The following subject areas are
the most significant influences over the Company's financial condition.
Loans
-----
The loan portfolio represented 53%, 53%, and 56% of total
assets as of December 31, 1993, 1992, and 1991, respectively. The
relatively stable ratio indicates asset and loan growth have been
maintained at comparable rates. Hometown's overall lending market has
not generated significant loan demand to warrant substantial increases
in lending.
F-62
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Loans (Continued)
------------------
As a result, the growth of total loans has been relatively stagnant,
growing only 1.1% annually from 1991 to 1993. However, loan demand in
1993 did show some signs of resurgence and the economy in general is
beginning to improve. Management believes that loan demand will
continue to pick up in 1994, barring any unforeseen shocks to the
local or national economy.
Installment loans comprised 35% of total loans in 1991,
decreased 34% in 1992, and decreased further to 31% in 1993. This
decrease is indicative of the decline in consumer spending that
occurred throughout much of 1993. Real estate loans, excluding
commercial real estate, have exhibited a slow but steady decline as
a percentage of total loans outstanding from 42% in 1989 to 37% in
1993. The demand in the overall real estate market is somewhat
depressed in Hometown's market area. As a result, management has
attempted to shift lending activities to the consumer/installment
and commercial areas. Commercial lending provides generally greater
flexibility in interest repricing, thus reducing interest rate
margin risks. However, credit risk also generally increases due to
the nature of the lending and the credit concentrations. Commercial
lending generally has a higher profit potential as well. Management
has concentrated on minimizing risk exposure by emphasizing asset-
based lending procedures to insure adequately-secured loans.
Consumer lending is generally less susceptible to market risk
factors, such as fluctuating real estate values. Also, consumer
loans typically bring higher overall yields than real estate loans.
This is particularly true in the current interest rate environment,
as many real estate loan customers have recently refinanced at lower
rates. The surge in mortgage refinancing will continue to have a
negative impact on loan yields. See the Results of Operations -
Interest Income for additional discussion of this impact.
Hometown generally employs certain loan to value ratios in order
to ensure adequate collateralization. Loans secured by improved real
estate (residential or commercial) are made for up
F-63
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Loans (Continued)
------------------
to 80% of the appraised market value of the property. Loans secured by
consumer goods (new autos, etc.) are extended for up to 90% of the
purchase price. Other commercial loans, such as those secured by
equipment or accounts receivable, are extended at up to 60% of the
value of the underlying collateral.
Loan-to-value guidelines for real estate loans have
recently been adopted by Federal banking regulators and became
effective in early 1993. The maximum loan-to-value limits, as
specified by the guidelines, are as follows: raw land - 65%; land
development - 75%; construction/commercial - 80%;
construction/residential and improved property -85%; and owner-
occupied residential or home equity- no established limit.
Hometown's current real estate lending policies and procedures
generally comply with these guidelines.
Investment Portfolio
--------------------
As of December 31, 1993, 1992, and 1991, investment
securities were 40%, 39%, and 37%, respectively, of total assets.
Federal funds sold included in the investment totals comprised .8% of
total assets in 1993, 1.5% in 1992, and 4% in 1991. This relatively
high-liquidity position is primarily the result of a stagnant lending
market as a ready use of funds as discussed under the loans section.
Excluding Federal funds sold, approximately 90% of the investment
portfolio at December 31, 1993 consisted of U. S. Government
Treasuries, Agencies, and Corporations. As a result of tax legislation
in recent years, along with limited bank-qualified offerings, tax-
exempt investments have declined from 7.6% of the total portfolio in
1991 to 7.4% in 1993. It is anticipated that the relative size of the
tax-exempt portfolio will continue to decrease. Recent investments
have been almost solely in U. S. Treasury securities and those of U.
S. Agencies and Corporations, with the exception of a few small tax-
exempt issues purchased late in 1993.
F-64
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Investment Portfolio (Continued)
---------------------------------
The portfolio is being maintained with relatively short
maturities, with 28% maturing in one year or less and 93% maturing in
five years or less. Relatively short maturities allow Hometown
flexibility in dealing with a volatile interest rate environment. For
example, as rates on short-term instruments have declined, Hometown
shifted these funds to higher-yielding, longer-term investments, such
as U. S. Government Securities. In addition, Hometown has invested in
a U. S. Government Securities mutual fund which had a market value of
$461,000 at December 31, 1993 and a yield of 8.15%.
Hometown intends to and has the ability to hold the
majority of its investment securities to maturity. In accordance with
FASB Statement 115, these securities are designated "Hold to
Maturity," and can be sold prior to maturity only in very limited
circumstances. Hometown has also designated certain securities it
holds as "Available for Sale," which allows them to be sold at
management's discretion, without limitation. Per FASB Statement 115,
these securities are carried at market value, with a corresponding
adjustment for any unrealized gains or losses made directly to the
Company's Undivided Profits account. As of December 31, 1993, Hometown
had an unrealized gain, net of tax effect, of approximately $77,000.
Sales of securities were not significant in 1993 and no significant
sales are expected in 1994. Historically, Hometown has sold securities
only for portfolio restructuring or liquidity purposes and not as a
means of generating trading profits. Hometown expects to continue this
practice. Hometown does not maintain a trading account and, therefore,
no securities are designated as "Trading Securities."
Maturing securities provide a major source of liquidity
which can be used to fund loan growth or be reinvested in other
securities. Investment yields are expected to decline in 1994 as
approximately $10 million will mature during the year. It is
anticipated that the maturing securities will be reinvested at current
market yields which are approximately 200 basis points lower than the
yields of the maturing securities.
F-65
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Deposit Liabilities
-------------------
Deposits are and will continue to be Hometown's primary
source of funds. Average annual deposit growth from 1991 to 1993 was a
moderate 4.9%. Most of the growth occurred in the category of other
time deposits (which includes money market deposit accounts and
passbook savings accounts) and NOW demand deposits. Average balances
of certificates of deposit have decreased, as depositors are seeking
more liquid deposit account types in the current low-rate environment.
The flow of funds into these lower cost deposit types, along with a
decline in market interest rates, helped to decrease the overall cost
of funds from 6.19% in 1991 to 4.85% in 1992. The decrease in
Hometown's cost of funds continued during 1993, dropping to 3.87% as
market rates on deposits declined sharply throughout the year. As a
result of the declining interest rate environment, management has
taken an active posture in lowering rates on deposit products that
traditionally have not been repriceable. Passbook savings rates, which
were at 5.5% for years, were lowered on several occasions since early
1992. Rates on NOW accounts were lowered similarly. Hometown intends
to continue to actively manage rates on these products in order to
preserve the Company's net interest margin.
Repurchase Agreement Liabilities and Federal Funds Purchased
------------------------------------------------------------
During 1992, Hometown began utilizing repurchase agreements
for local governmental units requiring an adequate rate of return and
collateralization of their funds. These funds were initially deposit
liabilities, but were converted to repurchase agreement liabilities in
order to eliminate FDIC insurance premium expense on these large
balance accounts. Hometown also occasionally purchases Federal Funds
to meet short-term funding requirements. The average rate paid on
Federal Funds Purchased and Repurchase Agreements during 1993 was
2.92%, compared to 2.82% in 1992. Hometown expects to continue using
repurchase agreements in order to meet the unique needs of local
governmental units while reducing FDIC deposit insurance premium
expense. The use of
F-66
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Repurchase Agreement Liabilities and Federal Funds Purchased
------------------------------------------------------------
(Continued)
-----------
repurchase agreements in 1993 saved approximately $9,000 in FDIC
premiums and a similar savings is expected in 1994.
Capital
-------
Management of asset growth, income performance, and
dividend payouts has enabled Hometown to increase its equity to assets
ratio from 1991 to 1993. The ratio of average equity to average assets
was 9.61% in 1991, 9.74% in 1992, and 10.07% in 1993.
Cash dividends paid during the year ended December 31,
1993 totaled $323,594, or $.96 per share. Cash dividends were $.78
per share in 1992 and $.72 per share in 1991.
Banking regulations have established minimum capital ratios
for banks and bank holding companies. As of December 31, 1992,
regulations require all banks and bank holding companies to have a
minimum total risk-based capital ratio of 8%, with at least 4% of
core capital. The concept of risk-based capital requires an assessment
of the riskiness of a financial institution's assets in relation to
capital. Core capital, or Tier 1 capital, includes common equity and
perpetual preferred stock. Supplementary capital, or Tier 2 capital,
includes mandatory convertible securities, subordinated debt, and the
reserve for loan losses.
Hometown's consolidated Tier 1 capital was $9.6 million, or
approximately 19% of risk-weighted assets at December 31, 1993. Total
risk-based capital, which includes Tier 2 capital, was $10.3 million
or approximately 20.5% of total risk-weighted assets at December 31,
1993.
Another capital ratio used by banking regulators is the
leverage ratio, which measures the level of core capital to total
assets. Hometown's leverage ratio at December 31, 1993 was 10.08%,
compared to 10.02% at December 31, 1992.
F-67
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition (Continued)
- --------------------------------
Capital (Continued)
--------------------
Under the "Prompt Corrective Action" regulations adopted in
September, 1992, the FDIC has defined five categories of
capitalization (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized). Restrictions and prohibitions for banks and bank
holding companies become more severe as an institution's capital level
declines. Sanctions on undercapitalized institutions include dividend
restrictions and can ultimately result in the closing of those that
are critically undercapitalized. Hometown and its Subsidiaries meet
the "well capitalized" definition, which requires a total risk-based
capital ratio of 10%, a Tier 1 risk-based ratio of at least 6%, and a
leverage ratio of at least 5%. "Well capitalized" status affords
Hometown the ability to operate with the greatest flexibility under
current laws and regulations.
Results of Operations
- ---------------------
Interest Income
---------------
Net interest income, the major determinant of Hometown's
income, increased $289,000, or 7.5%, on a taxable equivalent basis
from 1991 to 1992. This increase was primarily due to a sharp decline
in market interest rates, which reduced average rates paid on deposits
from 6.19% to 4.85%. Asset yields also declined during 1992, though
not to the degree that deposit costs decreased. A major factor in the
decline in asset yields was the large volume of residential mortgage
refinancing that occurred during 1992, as borrowers took advantage of
the low rates. The effects of mortgage refinancing will continue to
have a negative impact on loan yields in the coming years. Yields on
Federal Funds Sold and investment securities also decreased
significantly during 1992.
In 1993, net interest income increased again by $179,000 on
a taxable equivalent basis. A continuing decrease in market interest
rates was again the primary cause, as average rates paid on deposits
decreased to 3.87%. Another factor contributing to the decrease in
interest expense
F-68
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations (Continued)
- ----------------------------------
Interest Income (Continued)
----------------------------
was the ongoing flow of funds from Certificates of Deposit to Other
Time Deposits (passbook savings and MMDA's) which have a considerably
lower average rate as shown in Table One. Depositors continue to
prefer the more liquid deposit types in the current rate environment.
Asset yields also declined further in 1993, with continued fixed-rate
mortgage refinancing again being a primary contributor. Also, floating
rate loans continued to reprice downward as the indices to which they
are tied declined further. Yields on investment securities also
continued to decline during 1993, as maturing securities were
reinvested at significantly lower rates.
It is anticipated that yields on these assets will continue
to decline in 1994, as management expects the current interest rate
environment to prevail through most of 1994. Management intends to
continue to aggressively reprice interest-bearing deposit liabilities,
even those that had previously been considered non-repriceable, such
as passbook savings (see Deposits discussion and Table Seven).
Aggressive management of the deposits side of the balance sheet should
serve to offset the impact of declining asset yields, thereby enabling
Hometown to maintain its net interest margin.
Hometown's liquidity position and interest rate margin
gaps, as discussed elsewhere, have enabled it to maintain
profitability within given interest rate market environments.
Loan Loss Provision and Reserve
-------------------------------
The provision for loan losses is charged to operations and
is added to the reserve against which loan losses are charged.
Management determines an appropriate provision based upon its
evaluation of the size and quality of the loan portfolio risk
characteristics. Such provisions have amounted to $158,000, $204,000,
and $180,000 for 1993, 1992, and 1991, respectively. Loan losses, net
of recoveries, charged against the reserve for 1993, 1992, and 1991
have amounted to
F-69
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations (Continued)
- ----------------------------------
Loan Loss Provision and Reserve (Continued)
--------------------------------------------
$85,000, $130,000, and $124,000, respectively. The reserve for
possible loan losses is currently at 1.56% of the outstanding loan
portfolio balance.
Trends in nonperforming and restructured loans indicate
improving asset quality, decreasing from a five-year high of
$1,074,000 in 1990 to $237,000 in 1993. Improved asset quality is also
reflected in the ratio of net charge-offs to average loans
outstanding, as it decreased from a high of .35% in 1989 to the
current .18%. It is important to note that these percentages are well
below such statistics for Hometown's national peer group. As discussed
earlier, management is concentrating on minimizing risk exposure by
emphasizing asset-based lending procedures to insure adequately-
secured loans.
Quarterly loan loss provisions during 1991 were an even
$45,000 as analysis procedures implemented by management in 1991 (see
following paragraph) indicated that no quarterly adjustments were
necessary. Quarterly provisions during 1992 were $48,000, with the
exception of the Second Quarter, which was $60,000. The increase in
the Second Quarter provision was the result of management learning of
increasing difficulties for a specific problem credit, which was
factored into management's analysis of the reserve. In 1993, quarterly
loan loss provisions ranged from $46,000 in the First Quarter to
$37,500 in the other quarters. Again, management's analysis indicated
that a reduction in the provision was warranted, beginning in the
Second Quarter.
Management believes, based on currently available
information, that the reserve for loan losses is adequate to absorb
expected and potential loan losses. Management, desiring to follow
industry trends of building loan loss reserves, has been committed to
increasing the reserves at the subsidiary levels to an even more
conservative posture. In order to more closely monitor the reserve
adequacy, management has implemented formal, detailed evaluation
procedures which are applied on a quarterly basis. Adjustments to the
provision expense are made in accordance with
F-70
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations (Continued)
- ----------------------------------
Loan Loss Provision and Reserve (Continued)
--------------------------------------------
evaluation findings. While management's periodic analysis may allocate
portions of the reserve for specific problem loan situations, the
entire balance of the reserve is available for any loan charge-offs
that occur.
The most recent analysis indicates that the provision for
the First Quarter of 1994 will be slightly less than the Last Quarter
of 1993. Continuing improvement in asset quality, as indicated by the
decrease in nonperforming loans, has allowed the quarterly provision
to be slightly reduced.
Recent loan loss provisions which have been in excess of
that required by quarterly analysis are a result of management's goal
to increase loan loss reserves of the subsidiary banks to not only an
"adequate" level but a level exceeding "adequate." Management's goal
was to increase the reserve levels at the Subsidiaries to 1.5% of net
loans which is thought to be a conservative level considering the
current risk inherent in the loan portfolio. This goal was achieved at
two of Hometown's subsidiaries during 1993.
Other Income
------------
Total non-interest income increased in 1992, by
approximately 5% over 1991, after netting out gains or losses on
sale of securities. This increase was mainly due to an increase in
the volume of fee-based transactions.
Total non-interest income also increased by approximately
5% in 1993 when compared to 1992. Again, the increase was mainly
due to an increase in the volume of fee-based transactions.
Hometown occasionally recognizes fee income from trust
services although no significant income was recognized during 1991,
1992, or 1993. Trust income is recognized on a cash basis at the
time a trust is settled, a standard practice in the banking
industry. Trust income in 1994 is again expected to be insignificant.
F-71
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations (Continued)
- ----------------------------------
Other Income (Continued)
-------------------------
During 1989, Hometown applied for and received approval to
establish a subsidiary to engage in insurance agency activities. After
almost four years of unsuccessful operation, management decided to
close the agency on July 31, 1993. Though dormant, the agency will
continue as a corporate entity. Management wishes to preserve its
existence, since the direction of the banking/insurance industry
debate appears unclear at present.
Non-Interest Expense
--------------------
From 1991 to 1992, total non-interest expense decreased
approximately 2%. This decrease occurred in spite of some significant
increases in a few specific line item expenses, such as FDIC Insurance
Assessments which have increased to the level that it must be
separately disclosed in the financial statements. The decrease in
total non-interest expense was brought about by the successful
containment of non-interest expenses over which management has
significant control. Some areas in which significant cost savings were
realized in 1992 include stationery and supplies, advertising expense,
and employee-related expenses (salaries, wages, and benefits). The
reduction in employee-related expenses was largely the result of staff
attrition. Rather than replace the departed staff, management was able
to reassign duties to other employees and make greater use of part-
time employees.
From 1992 to 1993, total non-interest expense increased by
a marginal 1.5%. The major contributor to this slight increase was the
category of Employee Salaries and Benefits which increased 2.9%. A
significant portion of the increase was the result of increased cost
of providing health care benefits. Minor increases in other expense
categories, such as Legal Fees and Printing and Supplies also
contributed to the overall increase in noninterest expense.
An ongoing contributor to non-interest expense is the
cost of amortizing the core deposit premium resulting from purchase
accounting methods applied
F-72
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations (Continued)
- ----------------------------------
Non-Interest Expense (Continued)
---------------------------------
to the acquisition of Community which amounted to $113,224 in 1991,
$91,028 in 1992, and $73,645 in 1993. This cost continues through 1998
but declines each year. The 1994 amortization cost will be $59,647.
Management intends to continue to identify and take advantage of
specific areas of potential cost savings or containment. However,
inflationary pressures on employee expenses, especially in the area of
health care, will likely result in a slight increase in total non-
interest expenses in 1994.
Income Taxes
------------
Effective income tax rates increased from 37% in 1991 to
38% in 1993. Continuing declines in tax-exempt interest revenues as
well as the non-deductibility of certain merger-related expenses, such
as core deposit amortization, were the significant contributing
factors to this effective rate increase. Management expects this trend
in effective tax rates to continue, especially considering the recent
tax increase at the Federal level.
Tax-exempt revenues continue to decrease due to the fact
that loans and investments which qualify as tax-exempt have been
severely limited by tax reform legislation. Nondeductible expenses, in
addition to the core deposit amortization mentioned above, amounted to
approximately $25,000 in 1993. These are primarily legal expenses
associated with corporate restructuring and are usually amortized over
a five-year period. A similar expense will be incurred in 1994.
Liquidity
- ---------
For a bank holding company, liquidity is measured as the ability to
match maturing liabilities with maturing assets. Liquidity ultimately depends
on profitability, quality of assets (both securities and loans), asset and
liability maturities, and borrowing ability.
Demand deposits, savings accounts, and certificates of deposit of
less than $100,000 have provided Hometown with a sizable source of relatively
stable funds. As discussed earlier, this deposit base has also been managed
to become a low-cost funds source for the Bank. Also
F-73
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity (Continued)
- ----------------------
available to Hometown to meet liquidity needs are short-term market-rate
liabilities such as Federal funds purchased and securities sold under agreement
to repurchase. These instruments are currently used on a very limited basis.
Should these sources be needed, they can provide substantial flexibility in
dealing with unforeseen cash requirements. Although liabilities provide its
primary sources of liquidity, Hometown also maintains an adequate level of cash
and near-cash items on hand to meet day-to-day operating needs. While Hometown
does not include Federal Funds Sold as cash equivalents, these funds can be
converted to cash overnight. In addition, Hometown owns marketable securities
and short-term investments which can be converted to cash quite readily. These
assets, as well as scheduled loan payments and maturing investment securities,
provide Hometown's operating subsidiaries with an adequate source of funds for
expected future loan demand and for fluctuations in deposit volume.
At December 31, 1993 and 1992, cash and near-cash items, marketable
securities, Federal funds sold, and cash deposits in other banks totaled
$40,022,000 and $38,767,000, respectively. This liquidity level represented
44% of total assets at December 31, 1993 and 44% at December 31, 1992.
Interest Rate Sensitivity
- -------------------------
An analysis of separating Hometown's balance sheet classifications
into repricing time intervals, or "gaps" at December 31, 1993 is presented in
Table Seven. A review of this table reveals Hometown's interest rate sensitivity
position as measured in repricing "gaps" and cumulative "gaps" at December 31.
The negative short-term gap extends to the twelve-month interval and represents
9.6% of Hometown's earning assets. This is an area directly affected by active
management of customer product offerings. Management directs continued attention
to improving this gap position through a shift to adjustable rate loans, use of
short-term investments such as certificates of deposit in insured institutions
or Federal funds sold, and more active repricing of interest-bearing deposit
products that had traditionally been considered "fixed-rate," such as passbook
savings accounts.
The cumulative gap position in the one-to-five year category is 1.4%
of earning assets. While also managed, this gap position is not considered as
vulnerable to market changes due to the longer reaction time available to
management for adjustments.
This risk profile quantifies the sensitivity to market interest
fluctuations inherent in a bank where there is a significant dependence on
fixed-rate earning assets. Dramatic increases in interest rates would result in
impaired bank operating performance while adjustments are made. Similarly, this
also illustrates the reasons for management's emphasis in recent years to shift
earnings assets into variable-rate products or shorter-term investments.
Examples of this
F-74
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest Rate Sensitivity (Continued)
- --------------------------------------
are the changes in loan type distributions over the past four years in Table
Four and the increase in short-term securities as shown in Table Three.
Financial Reporting Responsibility
- ----------------------------------
The management of Hometown Bancshares, Inc. acknowledges its
responsibility for the preparation of the financial statements and other
financial information contained in this annual report. The accompanying
financial statements have been prepared by the management of Hometown
Bancshares, Inc. in conformity with generally accepted accounting principles
appropriate in the circumstances. Where amounts must be based on estimates and
judgments, they represent the best estimates and judgments of management. The
financial information appearing throughout this annual report is consistent with
that in the financial statements.
The management of Hometown Bancshares, Inc. is also responsible for
establishing and maintaining a system of internal controls which we believe is
adequate to provide reasonable assurance that the financial records are reliable
for preparing financial statements and maintaining accountability for assets
and that assets are safeguarded against loss from unauthorized use or
disposition. The system in use at Hometown Bancshares, Inc. provides such
reasonable assurance, supported by the careful selection and training of staff,
the establishment of organizational structures providing an appropriate and
well-defined division of responsibilities, and the communication of policies and
standards of business conduct throughout the Institution.
The accounting policies and system of internal accounting controls are
under the general oversight of the Hometown Bancshares' and its Subsidiaries'
Boards of Directors. The Internal Auditor of Hometown Bancshares, Inc., who
reports directly to the Boards of Directors, conducts an extensive program of
audits and risk management reviews. In addition, Harman, Thompson, Mallory &
Ice, A.C., independent auditors, are engaged to audit our financial statements.
Also, Hometown and its bank subsidiaries are subject to periodic examinations by
regulatory authorities. Management is not aware of any current recommendations
by such authorities that would have a material effect on liquidity, capital
resources, or operations.
Harman, Thompson, Mallory & Ice, A.C. obtain and maintain an
understanding of our accounting and financial controls and conduct such tests
and other auditing procedures as they consider necessary in the circumstances
to express the opinion in their report that follows. Harman, Thompson,
Mallory & Ice, A.C. have free access to the Boards of
F-75
<PAGE>
HOMETOWN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Reporting Responsibility (Continued)
- -----------------------------------------------
Directors to discuss their audit and their findings as to the integrity
of Hometown Bancshares' financial reporting and the adequacy of the system of
internal accounting controls.
/s/ Gary R. Davis
---------------------------------------------
Gary R. Davis, President
/s/ Timothy R. Aiken
---------------------------------------------
Timothy R. Aiken, Chief Financial
Officer and Treasurer
F-76
<PAGE>
TABLE ONE
HOMETOWN BANCSHARES, INC.
NET INTEREST INCOME
Net interest income is the difference between gross interest and fees
earned on earnings assets, primarily loans and investment securities (on a tax
equivalent basis), and interest paid on deposits and other borrowed funds. Net
interest income is affected by the rate of interest earned and paid, and by
volume changes in loans, securities, deposits, and borrowed funds.
The total yield on earning assets has decreased between 1991 and
1992 by 1.03% and decreased further between 1992 and 1993 by .80%.
In 1992, a dramatic decrease in market interest rates resulted in
declines in earning asset yields and rates paid on deposit liabilities. The
decline in asset yields was partially offset by an increase in average asset
balances, particularly in U. S. Treasury and Agency Securities. The 1.34%
decline in average rates paid on deposit liabilities was also partially offset
by increases in average balances, most notably the Other Time and NOW Demand
Deposits categories.
1993 exhibited a continuing decline in market interest rates which
impacted both earning asset yields and rates paid on interest-bearing
liabilities. Declines in earning asset yields were offset by greater declines in
rates paid on interest-bearing liabilities. Significant decreases in rates paid
occurred in all interest-bearing liability types, resulting in an overall
decline in average rates paid of .98% when compared to 1992. A major factor in
this decline was the ongoing disintermediation from Certificates of Deposit to
Other Time Deposits which includes passbook savings accounts and money-market
deposit accounts (MMDA's). Certificate of Deposit balances have decreased
substantially while Other Time Deposit balances, which pay a significantly lower
rate, have increased substantially.
The net yield was 5.09% in 1993, 5.04% for 1992, and 4.97% for 1991.
The relative stability of the net yield indicates management's ability to
manage asset and deposit levels, and to adjust rates paid and rates earned as
overall market rates have been quite volatile.
The table which follows summarizes Hometown's net interest income
for 1993 and the previous two years.
F-77
<PAGE>
TABLE ONE
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
Average Balances and Interest Rates (In Thousands)
(Interest and Rates on a Fully-Taxable Equivalent Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
Federal Funds Sold $ 3,435 $ 105 3.06% $ 4,550 $ 161 3.54% $ 3,527 $ 197 5.59%
------ ------ ----- ------ ------ ----- ------ ------ -----
SECURITIES:
U. S. Treasury Securities $15,663 $ 1,081 6.90% $15,646 $ 1,186 7.58% $13,699 $ 1,126 8.22%
U. S. Government
Agencies and Corporations 15,013 918 6.11% 11,744 851 7.25% 9,966 846 8.49%
Obligations of State and
Political Subdivisions 1,918 215 11.20% 2,253 247 10.96% 2,426 255 10.51%
Other Securities 886 52 5.87% 742 54 7.28% 872 65 7.45%
------ ------ ----- ------ ------ ----- ------ ------ -----
TOTAL SECURITIES $33,480 $ 2,266 6.77% $30,385 $ 2,338 7.70% $26,963 $ 2,292 8.50%
------ ------ ----- ------ ------ ----- ------ ------ -----
Interest-Bearing Deposits -
Banks $ 253 11 4.35% $ 315 $ 13 4.13% $ -0- $ -0- .00%
------ ------ ----- ------ ------ ----- ------ ------ -----
Loans $47,719 $ 4,776 10.01% $46,666 $ 5,076 10.88% $46,640 $ 5,449 11.68%
------ ------ ----- ------ ------ ----- ------ ------ -----
TOTAL EARNING ASSETS $84,887 $ 7,158 8.46% $81,916 $ 7,588 9.26% $77,130 $ 7,938 10.29%
Reserve for Possible Loss
on Loans (731) ====== ===== (649) ====== ===== (564) ====== =====
Cash and Due from Banks 3,747 3,331 3,117
Bank Premises and Equipment -
Net 1,537 1,613 1,707
Other Assets 1,931 1,990 1,335
------ ------ ------
TOTAL ASSETS $91,371 $88,201 $82,725
====== ====== ======
</TABLE>
F-78
<PAGE>
TABLE ONE
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
(CONTINUED)
Average Balances and Interest Rates (In Thousands)
(Interest and Rates on a Fully-Taxable Equivalent Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
LIABILITIES AND SHAREHOLDERS' EQUITY
TIME DEPOSITS
Certificate of Deposit $29,665 $ 1,473 4.97% $32,569 $ 1,933 5.94% $34,857 $ 2,473 7.09%
Other Time 25,756 864 3.35% 22,578 960 4.25% 18,894 984 5.21%
------ ------ ----- ------ ------ ----- ------ ------ -----
TOTAL TIME DEPOSITS $55,421 $ 2,337 4.22% $55,147 $ 2,893 5.25% $53,751 $ 3,457 6.43%
NEGOTIABLE ORDER WITHDRAWAL
Demand Deposits 13,660 380 2.78% 15,100 535 3.54% 12,381 637 5.14%
Federal Funds Purchased and
Securities Sold under
Agreement to Repurchase 4,619 135 2.92% 1,136 32 2.82% -0- -0- .00%
Borrowed Funds -0- -0- .00% 11 1 6.51% 68 6 8.82%
------ ------ ----- ------ ------ ----- ------ ------ -----
TOTAL INTEREST-BEARING
LIABILITIES $73,700 $ 2,852 3.87% $71,394 $ 3,461 4.85% $66,200 $ 4,100 6.19%
====== ===== ====== ===== ====== =====
Demand Deposits (Non-interest
Bearing) 7,726 7,510 7,933
Other Liabilities 747 710 642
Shareholders' Equity 9,198 8,587 7,950
------ ------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $91,371 $88,201 $82,725
====== ====== ======
Interest Revenue/Earning
Assets $84,634 $ 7,158 8.46% $81,916 $ 7,588 9.26% $77,130 $ 7,938 10.29%
Interest Revenue/Earning
Assets $84,634 2,852 3.37% $81,916 $ 3,461 4.22% $77,130 4,100 5.32%
----- ----- ----- ---- ----- ----
NET YIELD $ 4,306 5.09% $ 4,127 5.04% $ 3,838 4.97%
===== ==== ===== ==== ===== ====
</TABLE>
Loan fees which were not material to total interest income and
interest have been combined for rate calculation purposes. Non-accrual loans,
If any, have been included in the average loan balance. The average balance of
negotiable order of withdrawal demand deposits accounts includes non-interest
earning deposits which may result from the account balance falling below a
minimum required balance to earn interest. The non-taxable income from
obligations of state and political subdivisions has been adjusted to a tax
equivalent basis using a corporate tax rate of 34% in 1993, 1992, and 1991.
F-79
<PAGE>
TABLE TWO
HOMETOWN BANCSHARES, INC.
The following rate/volume analysis of net revenue table shows the
gross effect of volume and rate changes from the prior year (the net effect
of which is the change in income and expense).
The effect of a change in average volume has been determined by
applying the average rate in the earlier year by the change in volume. The
change in rate has been determined by applying the average volume in the earlier
year by the change in rate.
Net interest revenues, on a taxable equivalent basis, increased
$179,000 and $289,000 in 1993 and 1992, respectively. The increase in 1992 was a
result of increased volume in U. S. Treasury and Agency Securities income along
with a marked decline in rates paid on deposit liabilities. Although yields on
earning assets also decreased, the rates paid on deposits declined much more
sharply, producing the significant increase in net interest revenue. The
increase in 1993 was again primarily due to a continuing decline in rates paid
on deposit liabilities. Increased volume in certain types of securities helped
to offset the decline in yields on earning assets.
The interest rate risk discussion in management's discussion and
analysis and in Table Seven further amplify the considerations for earning
asset realignment to reduce interest rate risk exposure in a volatile interest
market.
F-80
<PAGE>
TABLE TWO
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
Rate/Volume Analysis of Net Interest Revenue (In Thousands)
(Fully-Taxable Equivalent Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 OVER 1992 1992 OVER 1991
-------------------- ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
INTEREST (DECREASE) IN:
INTEREST REVENUE
Federal Funds Sold $ (36) $ (20) $ (56) $ 47 $ (83) $ (36)
---- ---- ---- ---- ---- ----
SECURITIES:
U. S. Treasury Securities $ 1 $(106) $(105) $ 154 $ (94) $ 60
U. S. Government Agencies
and Corporations 219 (152) 67 140 (135) 5
Obligations of State and
Political Subdivisions (37) 5 (32) (18) 10 (8)
Other Securities 9 (11) (2) (10) (1) (11)
---- ---- ---- ---- ---- ----
TOTAL SECURITIES $ 192 $(264) $ (72) $ 266 $(220) $ 46
---- ---- ---- ---- ---- ----
Interest-Bearing Deposits -
Banks $ (3) $ 1 $ (2) $ 13 $ -0- $ 13
---- ---- ---- ---- ---- ----
Loans $ 111 $(411) $(300) $ 2 $(375) $(373)
---- ---- ---- ---- ---- ----
TOTAL EARNING ASSETS $ 264 $(694) $(430) $ 328 $(678) $(350)
==== ==== ==== ==== ==== ====
INTEREST EXPENSE
TIME DEPOSITS
Certificates of Deposit $(158) $(302) $(460) $(150) $(390) $(540)
Other Time 121 (217) (96) 176 (200) (24)
---- ---- ---- ---- ---- ----
TOTAL TIME DEPOSITS $ (37) $(519) $(556) $ 26 $(590) $(564)
NEGOTIABLE ORDER WITHDRAWAL
Demand Deposits (46) (109) (155) 118 (220) (102)
Borrowed Funds (1) -0- (1) (4) (1) (5)
Securities Sold under
Repurchase Agreements 100 3 103 32 -0- 32
---- ---- ---- ---- ---- ----
TOTAL INTEREST-
BEARING LIABILITIES $ 16 $(625) $(609) $ 172 $(811) $(639)
==== ==== ==== ==== ==== ====
INCREASE IN NET INTEREST
REVENUE $ 248 $ (69) $ 179 $ 156 $ 133 $ 289
==== ==== ==== ==== ==== ====
</TABLE>
NOTE: The variance not solely due to rate or volume is allocated equally
between the rate and volume variance.
F-81
<PAGE>
TABLE THREE
HOMETOWN BANCSHARES, INC.
The maturity distribution and approximate yield on investment
securities at December 31, 1993 and at December 31, 1992 and the book value at
December 31, 1993, 1992, and 1991 are presented in the following table.
Investment portfolio balances have increased over the three-year period from 33%
of total assets to almost 40% of total assets, as deposits have increased while
other uses of funds (i.e., loan demand) have been static. The increases have
been mostly in taxable securities. 1993 figures include fair value adjustments
required by the adoption of FASB Statement Number 115, as discussed elsewhere in
these financial statements.
<TABLE>
<CAPTION>
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
INVESTMENT PORTFOLIO
(In Thousands)
BOOK VALUE-DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1993 1992 1991
---- ---- ----
U. S. Treasury Securities $17,267 $16,781 $14,199
Obligations of Other U. S. Government
Agencies and Corporations 15,391 13,740 10,480
Obligations of State and Political Subdivisions 2,691 2,146 2,080
Other Securities 945 740 751
------ ------ ------
TOTAL $36,294 $33,407 $27,510
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION-BOOK VALUE
-----------------------------------------
ONE AFTER ONE OVER
YEAR OR YEAR TO FIVE
LESS FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U. S. Treasury Securities $ 4,414 $12,853 $ -0- $17,267
Obligations of Other U. S.
Government Agencies and
Corporations 4,134 9,813 1,444 15,391
Obligations of State and
Political Subdivisions 726 826 1,139 2,691
Other Securities 945 -0- -0- 945
------ ------ ------ ------
TOTAL $10,219 $23,492 $ 2,583 $36,294
====== ====== ====== ======
DECEMBER 31, 1992
U. S. Treasury Securities $ 3,995 $12,463 $ 323 $16,781
Obligations of Other U. S.
Government Agencies and
Corporations 1,299 11,301 1,140 13,740
Obligations of State and
Political Subdivisions 677 1,164 305 2,146
Other Securities 740 -0- -0- 740
------ ------ ------ ------
TOTAL $ 6,711 $24,928 $ 1,768 $33,407
====== ====== ====== ======
</TABLE>
F-82
<PAGE>
TABLE THREE
HOMETOWN BANCSHARES, INC.
(CONTINUED)
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
(In Thousands)
WEIGHTED-AVERAGE YIELD
-----------------------------------------------------
AFTER ONE
ONE YEAR YEAR TO OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U. S. Treasury Securities 7.15% 5.97% .00% 6.28%
Obligations of Other U. S. Government
Agencies and Corporations 6.83% 5.72% 7.69% 6.05%
Obligations of State and Political
Subdivisions 10.61% 9.33% 7.74% 8.80%
Other Securities 6.07% .00% .00% 6.07%
DECEMBER 31, 1992
U. S. Treasury Securities 7.76% 7.00% 6.09% 7.19%
Obligations of Other U. S. Government
Agencies and Corporations 7.69% 6.45% 9.02% 6.76%
Obligations of State and Political
Subdivisions 11.45% 10.61% 8.72% 10.49%
Other Securities 7.28% .00% .00% 7.28%
</TABLE>
The weighted-average yield has been calculated after adjusting
annualized interest revenue for the accretion of discounts and the amortization
of premiums. The weighted-average yield of tax-exempt obligations has been
calculated on the tax-equivalent basis by using a corporate tax rate of 34%.
F-83
<PAGE>
TABLE FOUR
HOMETOWN BANCSHARES, INC.
The following table presents the loan balances by type and a recap of
loan portfolio risk elements for the past five years. Also presented are the
maturities and sensitivities of loans to changes in interest rates as of
December 31, 1993 and December 31, 1992. Hometown's loan portfolio has
developed into a relatively even distribution between loan types over the past
five years. The categories specified below are those that are reported to
banking regulators.
Accrual of interest on commercial loans is stopped when it is determined
that full collection is doubtful or when principal or interest is past due 90
days or more and it is determined that underlying collateral is inadequate to
cover principal and interest. Upon placement on non-accrual status, interest
accrued but uncollected is reversed and charged against current income. The
determination of non-accrual status for other loan types is based on an
evaluation of individual loans past due 120 days or more, their underlying
collateral, and the potential for full collection of principal and interest.
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
LOAN PORTFOLIO
(In Thousands)
<TABLE>
<CAPTION>
TYPES OF LOANS
DECEMBER 31,
---------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real Estate $17,671 $18,008 $17,339 $17,455 $17,414
Commercial and All Other 15,565 13,662 13,403 13,759 12,343
Installment (Includes
Credit Cards) 14,909 15,257 16,284 15,235 13,961
------- ------- ------- ------- -------
TOTAL $48,145 $46,927 $47,026 $46,449 $43,718
======= ======= ======= ======= =======
<CAPTION>
MATURITIES AND SENSITIVITIES OF
LOANS TO CHANGES IN INTEREST RATES
----------------------------------------
AFTER
ONE ONE YEAR OVER
YEAR TO FIVE FIVE
OR LESS YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Real Estate $ 4,684 $ 7,650 $ 5,337 $17,671
Commercial 12,631 1,609 1,325 15,565
Installment 4,777 9,162 970 14,909
------- ------- ------- -------
TOTAL $22,092 $18,421 $ 7,632 $48,145
======= ======= ======= =======
RATE SENSITIVITY:
Predetermined Rate $11,259 $15,850 $ 7,632 $34,741
Floating or Adjustable
Rate 10,833 2,571 -0- 13,404
------- ------- ------- -------
TOTAL $22,092 $18,421 $ 7,632 $48,145
======= ======= ======= =======
</TABLE>
F-84
<PAGE>
TABLE FOUR
HOMETOWN BANCSHARES, INC.
(CONTINUED)
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
LOAN PORTFOLIO
(In Thousands)
<TABLE>
<CAPTION>
MATURITIES AND SENSITIVITIES OF
LOANS TO CHANGES IN INTEREST RATES
------------------------------------
AFTER
ONE ONE YEAR OVER
YEAR TO FIVE FIVE
OR LESS YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
DECEMBER 31, 1992
Real Estate $ 7,977 $ 6,796 $3,235 $18,008
Commercial 10,803 1,940 919 13,662
Installment 4,416 8,945 1,896 15,257
------- ------- ------ -------
TOTAL $23,196 $17,681 $6,050 $46,927
======= ======= ====== =======
RATE SENSITIVITY:
Predetermined Rate $11,763 $17,122 $6,050 $34,935
Floating or Adjustable Rate 11,433 559 -0- 11,992
------- ------- ------ -------
TOTAL $23,196 $17,681 $6,050 $46,927
======= ======= ====== =======
<CAPTION>
NON-PERFORMING AND RESTRUCTURED LOANS
DECEMBER 31,
-----------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 78 $ 170 $ 160 $ 318 $ 408
Accruing Loans - 90 or More
Days Past Due 68 181 200 354 316
Re-Structured Loans 121 85 423 402 127
------- ------- ------- ------ -------
TOTAL $ 267 $ 436 $ 783 $1,074 $ 851
======= ======= ======= ====== =======
</TABLE>
There are no other loans subject to adverse classification for regulatory
purposes other than those disclosed above.
F-85
<PAGE>
TABLE FIVE
HOMETOWN BANCSHARES, INC.
The following analysis of the allowance for loan losses and recoveries is
presented by loan type and the allocation of the allowance for loan losses.
Additions to the reserve are based on Hometown Bancshares, Inc.'s loan loss
experience and management's judgement of the economic conditions' effect on
possible future loan losses. The percentage of reserve for loan losses to total
outstanding loans was 1.56% as of December 31, 1993 and 1.44% at December 31,
1992.
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at Beginning of
Period $ 677 $ 603 $ 548 $ 449 $ 242
Acquired Reserve Balance -
The Community Bank 114
----- ----- ----- ----- -----
BALANCE BEGINNING OF PERIOD $ 677 $ 603 $ 548 $ 449 $ 356
CHARGE-OFFS:
Real Estate $ 15 $ 8 $ 42 $ 20 $ -0-
Commercial 68 63 17 38 73
Installments (Includes
Credit Cards) 49 88 114 97 109
----- ----- ----- ----- -----
TOTAL CHARGE-OFFS $ 132 $ 159 $ 173 $ 155 $ 182
----- ----- ----- ----- -----
Real Estate $ 14 $ 8 $ -0- $ -0- $ -0-
Commercial 16 2 5 48 -0-
Installments (Includes
Credit Cards) 17 19 43 18 30
----- ----- ----- ----- -----
TOTAL RECOVERIES $ 47 $ 29 $ 48 $ 66 $ 30
----- ----- ----- ----- -----
Net (Charge-Offs) Recoveries $ (85) $(130) $(125) $ (89) $(152)
Additions Charged to
Operations 158 204 180 188 245
----- ----- ----- ----- -----
BALANCE END OF PERIOD $ 750 $ 677 $ 603 $ 548 $ 449
===== ===== ===== ===== =====
Ratio of Net Charge-Offs
(Recoveries) during the
Period to Average Loans
Outstanding during the
Period .18% .28% .27% .20% .35%
</TABLE>
F-86
<PAGE>
TABLE FIVE
HOMETOWN BANCSHARES, INC.
(CONTINUED)
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------- -------------- -------------- -------------- --------------
% OF % OF % OF % OF % OF
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate $278 37% $257 38% $223 37% $214 39% $188 42%
Commercial 240 32% 196 29% 169 28% 159 29% 117 26%
Installments 232 31% 224 33% 211 35% 175 32% 144 32%
--- --- --- --- --- --- --- --- --- ---
TOTAL $750 100% $677 100% $603 100% $548 100% $449 100%
=== === === === === === === === === ===
</TABLE>
Hometown 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.
F-87
<PAGE>
TABLE SIX
HOMETOWN BANCSHARES, INC.
The following table presents a breakdown of average amount and average rate
paid on deposit types over 10% of total deposits as of December 31, 1993, 1992,
and 1991. Also shown is an analysis of time certificates of deposit over
$100,000 by maturity grouping at December 31, 1993 and 1992.
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
AVERAGE AMOUNT/RATE OF DEPOSITS IN EXCESS OF 10% OF DEPOSITS
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1993 1992 1991
------------------ ------------------ ------------------
RATE RATE RATE
AMOUNT PAID AMOUNT PAID AMOUNT PAID
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing
Demand Deposits $ 7,726 .00% $ 7,510 .00% $ 7,938 .00%
Negotiable Order Withdrawal
Demand Deposits $13,660 2.78% $15,100 3.54% $12,381 5.14%
Savings Deposits (Includes
MMDA's) $25,756 3.35% $22,578 4.25% $18,894 5.21%
Certificates of Deposit $29,665 4.97% $32,569 5.94% $34,857 7.09%
</TABLE>
<TABLE>
<CAPTION>
TIME DEPOSITS IN EXCESS OF $100,000
-------------------------------------------------------------
OVER SIX
THREE OVER THREE LESS THAN OVER
MONTHS OR LESS THAN TWELVE TWELVE
LESS SIX MONTHS MONTHS MONTHS TOTAL
<S> <C> <C> <C> <C> <C>
December 31, 1993
Certificates of Deposit $ 600 $ 464 $ 554 $1,270 $2,888
December 31, 1992
Certificates of Deposit $ 506 $ 401 $ 658 $1,629 $3,194
</TABLE>
F-88
<PAGE>
TABLE SEVEN
HOMETOWN BANCSHARES, INC.
Net interest income can fluctuate as a result of changes in the general
market levels of interest rates, particularly since yields on earning assets may
respond differently to the changes than the costs of funds or deposits.
Management of the repricing characteristics of earning assets and liabilities
attempts to control net interest rate sensitivity with a goal of maintaining
consistent earnings performance.
By separating balance sheet classifications into repricing time intervals
(when an interest rate may be changed), "gap" positions, or the difference
between repricing assets and liabilities, may be analyzed. Allocation of fixed
rate products such as time deposits or installment loans is based upon
contractual maturity or amortization period. Products with determined repricing
schedules are placed in the time interval of earliest repricing. Retail money
market accounts constitute most of the floating rate category.
Deposits, such as interest-bearing demand deposits and passbook savings
accounts have not historically repriced in the conventional market sense but are
controlled more by factors such as market demographics and customer product
innovation. Accordingly, these deposits are allocated, based on factors such as
anticipated trends and marketing emphasis, across the full range of pricing
intervals. However, it should be noted these deposits were repriced downward
several times in 1993, in response to rapidly declining market rates.
Net cumulative gap positions primarily reflect a sensitivity to interest
rate changes over time. The calculation is a static indicator and is not a net
interest income predictor of an actively-managed bank in a constantly-changing
market environment. Significant adjustments can be, and are, made when rate
outlooks change. However, as a static indicator, gap methodology does capture
major trends.
An increase in short-term interest rates, given Hometown's current one-year
negative gap position, would adversely affect earnings. Conversely, a decrease
would result in enhanced earnings performance in this time period. For example,
a 1% increase in interest rates would result in a $82,180 decrease in net
interest income. Similarly, a 1% decrease in interest rates would cause a
$82,180 increase in net interest income.
The following table summarizes Hometown's interest-rate sensitivity by
accumulating "gaps," at the various relevant repricing intervals, between
earning assets and liability captions.
F-89
<PAGE>
TABLE SEVEN
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
INTEREST RATE SENSITIVITY ANALYSIS
(In Thousands)
<TABLE>
<CAPTION>
OVER SIX
ONE DAY TO MONTHS OVER ONE OVER
FLOATING SIX TO ONE YEAR TO FIVE
RATE MONTHS YEAR FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans $ 13,404 $ 8,640 $ 2,619 $ 15,850 $ 7,632 $ 48,145
Investment Securities 2,735 4,125 3,359 23,492 2,583 36,294
Federal Funds Sold 775 -0- -0- -0- -0- 775
-------- -------- -------- -------- -------- --------
TOTAL EARNING ASSETS $ 16,914 $ 12,765 $ 5,978 $ 39,342 $ 10,215 $ 85,214
-------- -------- -------- -------- -------- --------
SOURCES OF FUNDS (Interest Bearing):
Time Deposits $ 3,989 $ 10,564 $ 7,091 $ 10,080 $ 285 $ 32,009
Other Deposits -0- 13,089 4,960 19,844 -0- 37,893
Repurchase Agreements and Federal Funds
Purchased 4,182 -0- -0- -0- -0- 4,182
-------- -------- -------- -------- -------- --------
TOTAL INTEREST-BEARING SOURCES $ 8,171 $ 23,653 $ 12,051 $ 29,924 $ 285 $ 74,084
-------- -------- -------- -------- -------- --------
NET INTEREST RATE SENSITIVITY GAP $ 8,743 $(10,888) $ (6,073) $ 9,418 $ 9,930 $ 11,130
======== ======== ======== ======== ======== ========
CUMULATIVE GAP DECEMBER 31, 1993 $ 8,743 $ (2,145) $ (8,218) $ 1,200 $ 11,130
======== ======== ======== ======== ========
RATIO OF EARNING ASSETS TO INTEREST-BEARING NOT
LIABILITIES 1.935 .540 .496 1.315 MEANINGFUL 1.150
RATIO OF CUMULATIVE GAP TO TOTAL EARNING ASSETS .103 (.025) (.096) .014 .131
</TABLE>
Hometown does not participate in any financial futures or swap
transactions. Certain products with pre-determined repricing dates are placed in
the time interval corresponding to the earliest repricing period, in contrast to
categorization by contractual maturity dates in other tables included in the
statistical information.
F-90
<PAGE>
TABLE EIGHT
HOMETOWN BANCSHARES, INC.
The following table presents a ratio analysis of return on assets, equity,
and dividend payout. The return on average assets and the return on average
equity have increased significantly since 1991. The increase in these ratios was
primarily the result of a significant increase in net income.
Although the dollar amount of dividends paid has increased from $.72 per
share in 1991 to $.96 per share in 1993, the dividend payout ratio decreased and
then leveled off due to the significant increase in net income.
The equity to assets ratio has also remained fairly stable over the periods
presented due to internal capital growth, a conservative dividend policy, and
moderate asset growth.
HOMETOWN BANCSHARES, INC.
STATISTICAL INFORMATION
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Return on Assets (Net Income Divided
by Average Total Assets) 1.03% .88% .62%
Return on Equity (Net Income Divided
by Average Equity) 10.24% 8.98% 6.47%
Dividend Payout Ratio (Dividends
Declared Per Share Divided by
Net Income Per Share) 34.29% 34.06% 47.37%
Equity to Assets Ratio (Average Equity
Divided by Average Total Assets) 10.07% 9.74% 9.61%
</TABLE>
F-91
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Hometown Bancshares, Inc. and Subsidiaries
Middlebourne, West Virginia
We have audited the accompanying consolidated balance sheets of Hometown
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.
F-92
<PAGE>
Board of Directors
Hometown Bancshares, Inc. and Subsidiaries
Middlebourne, West Virginia
Page Two
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Hometown 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 consolidated financial statements, in 1993
the Corporation adopted Statement of Financial Accounting Standards (SFAS)
Number 109, "Accounting for Income Taxes" prospectively. Also discussed in Note
1 is the adoption by the Corporation of SFAS Number 115, "Accounting for Certain
Investments in Debt and Equity Securities."
/s/ Harman, Thompson, Mallory and Ice, A.C.
Parkersburg, West Virginia
February 11, 1994
F-93
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992 STATEMENT I
<TABLE>
<CAPTION>
1993 1992
---- ----
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 3,658,562 $ 3,593,171
Interest-Bearing Deposits in Banks 239,598 401,235
Federal Funds Sold 775,000 1,366,000
Investment Securities:
Securities Held-to-Maturity, at
Amortized Cost (Market Values:
1993 - $31,401,749;
1992 - $33,667,961) 30,576,214 32,667,544
Securities Available-for-Sale, at
Market Value 5,717,780 739,803
Loans - Net 48,145,300 46,927,383
LESS: Reserve for Loan Losses (750,215) (676,977)
Premises and Equipment - Net 1,482,522 1,543,603
Accrued Interest Receivable 778,104 791,344
Foreclosed Properties 20,838 148,174
Other Assets 647,270 441,980
Tangible Core Deposit Premium -
The Community Bank 204,570 278,215
----------- -----------
TOTAL ASSETS $91,495,543 $88,221,475
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS
Demand - Non-Interest Bearing $ 7,319,318 $ 7,039,735
Demand - Interest Bearing 16,117,329 17,298,585
Savings 24,655,101 20,719,848
Time Deposits 29,128,806 30,426,891
----------- -----------
TOTAL DEPOSITS $77,220,554 $75,485,059
Federal Funds Purchased and
Securities Sold under Agreements
to Repurchase 4,181,570 3,459,762
Accrued Interest Payable 198,332 233,605
Other Liabilities 334,944 206,801
----------- -----------
TOTAL LIABILITIES $81,935,400 $79,385,227
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock
($1 Par Value: 3,000,000 Shares
Authorized: Issued Shares;
337,077 in 1993 and 1992) $ 337,077 $ 337,077
Additional Paid in Capital 4,824,992 4,824,992
Undivided Profits 4,321,591 3,702,912
Unrealized Gain (Loss) on
Securities
Available-for-Sale, Net of
Applicable Deferred Income Taxes 76,483 (28,733)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 9,560,143 $ 8,836,248
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,495,543 $88,221,475
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-94
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT II
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 4,776,038 $ 5,075,888 $ 5,448,579
Interest and Dividends on
Securities 2,193,359 2,254,550 2,206,629
Interest on Federal Funds Sold 104,775 160,547 196,164
Interest on Deposits with Banks 10,756 12,871 709
----------- ----------- -----------
TOTAL INTEREST INCOME $ 7,084,928 $ 7,503,856 $ 7,852,081
----------- ----------- -----------
INTEREST EXPENSE
Interest on Deposits $ 2,717,155 $ 3,428,717 $ 4,094,475
Interest on Federal Funds
Purchased and Securities
Sold under Agreements
to Repurchase 135,091 32,079
----------- ----------- -----------
Interest on Notes Payable 717 5,834
TOTAL INTEREST EXPENSE $ 2,852,246 $ 3,461,513 $ 4,100,309
----------- ----------- -----------
NET INTEREST INCOME $ 4,232,682 $ 4,042,343 $ 3,751,772
Provision for Loan Losses 158,500 204,000 180,000
----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES $ 4,074,182 $ 3,838,343 $ 3,571,772
----------- ----------- -----------
NONINTEREST INCOME
Trust Department Income $ 886 $ 289 $ 429
Service Charges, Fees, and
Commissions 224,254 207,183 185,160
Security Gains (Losses) (17) 269 (33,281)
Other Income 164,463 164,135 168,140
----------- ----------- -----------
TOTAL NONINTEREST INCOME $ 389,586 $ 371,876 $ 320,448
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, STATEMENT II
1993, 1992, AND 1991 (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
NONINTEREST EXPENSES
Employee Compensation and
Benefits $1,521,712 $1,478,950 $1,483,945
Occupancy Expense, Net of
Revenues 195,208 197,656 193,317
Furniture and Equipment Expense 205,038 213,469 222,773
Data Processing Expense 79,063 85,634 76,018
FDIC Assessments 178,646 179,630 143,019
Amortization of Tangible Core
Deposit Premium 73,645 91,028 113,224
Other Operating Expenses 814,247 776,401 847,794
---------- ---------- ----------
TOTAL NONINTEREST EXPENSES $3,067,559 $3,022,768 $3,080,090
---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $1,396,209 $1,187,451 $ 812,130
Applicable Income Taxes 534,942 416,523 298,548
---------- ---------- ----------
INCOME BEFORE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE $ 861,267 $ 770,928 $ 513,582
Cumulative Effect on Prior
Years of Change in Accounting
Principle 81,006 -0- -0-
---------- ---------- ----------
NET INCOME $ 942,273 $ 770,928 $ 513,582
NET INCOME AVAILABLE FOR COMMON
STOCKHOLDERS $ 942,273 $ 770,928 $ 513,582
========== ========== ==========
EARNINGS PER SHARE DATA:
Income Before Effect of Change
in Accounting Principle $ 2.56 $ 2.29 $ 1.52
Cumulative Effect on Prior
Years of Change in Accounting
Principle .24 .00 .00
---------- ---------- ----------
NET INCOME $ 2.80 $ 2.29 $ 1.52
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-96
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT III
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK
($1 Par Value; 3,000,000 Shares
Authorized):
Balance at Beginning of Year $ 337,077 $ 337,077 $ 337,077
---------- ---------- ----------
BALANCE AT END OF YEAR -
337,077 Shares Issued in 1993; $ 337,077 $ 337,077 $ 337,077
---------- ---------- ----------
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Year $4,824,992 $4,824,992 $4,824,992
---------- ---------- ----------
BALANCE AT END OF YEAR $4,824,992 $4,824,992 $4,824,992
---------- ---------- ----------
UNDIVIDED PROFITS
Balance at Beginning of Year $3,702,912 $3,194,904 $2,924,017
Net Income 942,273 770,928 513,582
Cash Dividends Declared:
Common Stock (323,594) (262,920) (242,695)
---------- ---------- ----------
BALANCE AT END OF YEAR $4,321,591 $3,702,912 $3,194,904
---------- ---------- ----------
UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE,
NET OF APPLICABLE DEFERRED
INCOME TAXES
Balance at Beginning of Year $ (28,733) $ (17,583) $ (43,404)
Change in Unrealized Gain
(Loss) on Securities
Available-for-Sale, Net of
Applicable Deferred Income
Taxes of $39,399 for 1993 105,216 (11,150) 25,821
---------- ---------- ----------
BALANCE AT END OF YEAR $ 76,483 $ (28,733) $ (17,583)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY $9,560,143 $8,836,248 $8,339,390
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991 STATEMENT IV
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 942,273 $ 770,928 $ 513,582
---------- ---------- ----------
Adjustments to Reconcile Net
Income to Net Cash from
Operating Activities:
Cumulative Effect on Prior
Years of Change in
Accounting Principle $ (81,006) $ $
Deferred Compensation
Benefits 27,395 22,281 11,476
Depreciation 172,076 178,050 192,835
Provision for Loan Losses 158,500 204,000 180,000
Net (Accretion) on
Investments 111,420 84,232 32,135
Provision for Deferred
Taxes (34,267) (11,133) (222)
Amortization of
Organizational Cost 25,163 25,165 25,163
Amortization of Tangible
Core Deposit Premium 73,645 91,028 113,224
Net (Accretion) of Other
Purchase Accounting
Adjustments (3,620) (2,793) (13,968)
(Gain) Loss on Sale of
Foreclosed Properties 7,195
Realized (Gain) Loss on
Sale of Investment
Securities 17 (269) 33,281
(Increase) Decrease:
Accrued Interest
Receivable 13,240 29,308 56,945
Other Assets (123,889) (42,633) (41,530)
Increase (Decrease):
Accrued Interest Payable (35,273) (93,311) (38,244)
Other Liabilities 70,056 (25,640) (9,400)
---------- ---------- ----------
TOTAL ADJUSTMENTS $ 380,652 $ 458,285 $ 541,695
---------- ---------- ----------
NET CASH FLOWS FROM OPERATING
ACTIVITIES $1,322,925 $1,229,213 $1,055,277
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net Increase (Decrease) in
Total Deposits $1,735,495 $ 286,430 $1,301,655
Net Increase (Decrease) in
Federal Funds Purchased and
Securities Sold under
Agreements to Repurchase 721,808 3,459,762
Principal Payments on Notes
Payable (25,000) (75,000)
Dividends Paid (323,594) (262,920) (242,695)
---------- ---------- ----------
NET CASH FLOWS FROM FINANCING
ACTIVITIES $2,133,709 $3,458,272 $ 983,960
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, STATEMENT IV
1993, 1992, AND 1991 (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Decrease (Increase) in
Short-Term Investments $ 752,637 $ 2,408,743 $ (1,925,000)
Proceeds from Sales of
Securities Reported at
Amortized Cost 1,096,650 1,472,038
Proceeds from Maturities and
Calls of Securities
Reported at Amortized
Cost 7,368,358 6,974,703 7,639,235
Purchases of Securities
Reported at Amortized
Cost (11,319,230) (12,979,159) (9,601,175)
Loans Originated Net of
Principal Collected (1,298,804) (608,152) (797,492)
Proceeds from Sale of
Foreclosed Properties 120,141
Purchases of Premises and
Equipment (110,995) (38,859) (60,742)
------------ ------------- ------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES $ (3,391,243) $ (4,242,724) $ (3,273,136)
------------ ------------- ------------
NET INCREASE (DECREASE) IN
CASH AND DUE FROM BANKS $ 65,391 $ 444,761 $ (1,233,899)
CASH AND DUE FROM BANKS AT
BEGINNING OF YEAR 3,593,171 3,148,410 4,382,309
------------ ------------- ------------
CASH AND DUE FROM BANKS AT
END OF YEAR $ 3,658,562 $ 3,593,171 $ 3,148,410
============ ============= ============
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Loans Transferred to
Foreclosed Properties $ -0- $ 169,174 $ 190,325
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS INFORMATION:
Cash Paid during the Year
For:
Interest $ 2,887,519 $ 3,554,824 $ 4,138,553
Income Taxes $ 555,938 $ 452,823 $ 302,251
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-99
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Basis of Presentation
- ---------------------
The accounting and reporting policies of Hometown Bancshares, Inc. and its
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.
Change in Accounting Principles
- -------------------------------
The Corporation adopted Statement of Financial Standards (SFAS) Number 109,
"Accounting for Income Taxes" prospectively in the First Quarter of 1993. This
resulted in the presentation in 1993 of an $81,006 cumulative effect on prior
years of a change in accounting principle on the Consolidated Statement of
Income. 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. A further discussion of the temporary differences resulting
in deferred tax balances is incorporated in Note 7 to the Consolidated Financial
Statements.
The following pro-forma information reflects the adoption of SFAS 109 as if
it had been on a retroactive basis:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1992 1991
--------------------------------------------------------------------------------
AS ACCOUNTING PRO- AS ACCOUNTING PRO-
REPORTED CHANGE FORMA REPORTED CHANGE FORMA
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
Other Assets $ 441,980 $ 81,006 $ 522,986
Undivided Profits $3,702,912 $ 81,006 $3,783,918
STATEMENTS OF INCOME
Applicable Income
Taxes $ 416,523 $(24,907) $ 391,616 $298,548 $(14,165) $284,383
Net Income $ 770,928 $ 24,907 $ 795,835 $513,582 $ 14,165 $527,747
Net Income Available
for Common
Shareholders $ 770,928 $ 24,907 $ 795,835 $513,582 $ 14,165 $527,747
Per Share $ 2.29 $ .07 $ 2.36 $ 1.52 $ .04 $ 1.56
</TABLE>
F-100
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Change in Accounting Principles (Continued)
- --------------------------------------------
The Corporation elected early adoption of SFAS Number 115 "Accounting for
Certain Investments in Debt and Equity Securities." This resulted in debt
securities being transferred from the held-to-maturity to the available-for-sale
category, resulting in an increase, net of deferred income taxes, in the
unrealized valuation account in net worth of $105,216.
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Hometown Bancshares, Inc. (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 Community Bank have
been included in the Corporation's consolidated financial statements.
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."
The Statement of Cash Flows presentation was changed from a direct method
to an indirect method. This change in format had no impact on financial position
or results of operations.
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.
F-101
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Securities (Continued)
- -----------------------
Debt securities which management intends and which the Corporation has the
ability to hold until maturity are classified as held-to-maturity and 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. Other marketable securities are classified as available-for-
sale and carried at fair value. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases and decreases in
stockholders' equity, net of deferred income taxes. Cost of securities sold is
recognized using the specific identification method. 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.
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.
F-102
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Loans (Continued)
- ------------------
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 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.
F-103
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Loans (Continued)
- ------------------
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
F-104
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Reserve for Possible Loan Losses (Continued)
- ---------------------------------------------
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.
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.
F-105
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
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.
F-106
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Earnings Per Share
- ------------------
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 337,077 shares for the years 1993, 1992, and 1991.
Reclassification of Prior Years' Statements
- -------------------------------------------
Certain items previously reported have been reclassified to conform with
current year's classifications.
NOTE 2: SECURITIES
The following represents the securities held-to-maturity and securities
available-for-sale for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
U. S. Government and Federal
Agency/Corporation Obligations:
Mortgage-Backed Securities 235,291 $ 11,512 $ $ 246,803
Government Agencies and
U. S. Treasuries 27,649,609 765,313 (11,001) 28,403,921
Obligations of States and
Political Subdivisions 2,691,314 60,901 (1,190) 2,751,025
----------- --------- -------- -----------
TOTAL $30,576,214 $ 837,726 $(12,191) $31,401,749
=========== ========= ======== ===========
SECURITIES AVAILABLE-FOR-SALE
U. S. Government and Federal
Agency $ 4,730,675 $ 63,064 $(20,580) $ 4,773,159
Equity Securities 871,223 102,717 (29,319) 944,621
----------- --------- -------- -----------
TOTAL $ 5,601,898 $ 165,781 $(49,899) $ 5,717,780
=========== ========= ======== ===========
</TABLE>
F-107
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
U. S. Government and Federal
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 348,649 $ 9,459 $ $ 358,108
Government Agencies and
U. S. Treasuries 30,172,403 927,696 (26,142) 31,073,957
Obligations of States and
Political Subdivisions 2,146,492 89,904 (500) 2,235,896
----------- ---------- -------- -----------
TOTAL $32,667,544 $1,027,059 $(26,642) $33,667,961
=========== ========== ======== ===========
SECURITIES AVAILABLE-FOR-SALE
Equity Securities $ 768,536 $ $(28,733) $ 739,803
----------- ---------- -------- -----------
TOTAL $ 768,536 $ -0- $(28,733) $ 739,803
=========== ========== ======== ===========
</TABLE>
The amortized cost and estimated market value of debt 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>
SECURITIES HELD- SECURITIES AVAILABLE-
TO-MATURITY FOR-SALE
--------------------------- --------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in One Year or Less $ 6,133,196 $ 6,244,588 $ $
Due after One Year
through Five Years 21,717,612 22,342,584 4,230,675 4,274,409
Due after Five Years
through Ten Years 2,084,115 2,155,530 500,000 498,750
Due after Ten Years 641,291 659,047
----------- ----------- ---------- ----------
$30,576,214 $31,401,749 $4,730,675 $4,773,159
Equity Securities 871,223 944,621
----------- ----------- ---------- ----------
TOTAL 30,576,214 $31,401,749 $5,601,898 $5,717,780
=========== =========== ========== ==========
</TABLE>
F-108
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
Proceeds from sales of investments in debt securities during 1993, 1992,
and 1991 were $1,096,650, $-0-, and $1,472,038, respectively. Gross gains of
$3,462, $-0-, and $25,139 and gross losses of $(3,479), $-0-, and $(58,420) were
realized on those sales during 1993, 1992, and 1991, respectively. Security
gains of $2,053 and losses of $(1,784) recognized in 1992 resulted from calls or
early retirements of investment obligations beyond the control of the
Corporation.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards Number 115, "Accounting for Certain Investments in Debt and
Equity Securities," in May, 1993, which addressed the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. This statement is effective for
years beginning after December 15, 1993. Hometown Bancshares, Inc. elected to
initially apply this statement as of the end of December 31, 1993 for financial
statements purposes. On this day, debt securities with an amortized cost of
$4,730,675 were transferred from held-to-maturity to available-for-sale. Equity
securities are also included in the held-for-sale category and have been
reclassified as such in prior years financial statements for comparative
purposes. There have been no dispositions of these equity securities during the
last three years.
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
F-109
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
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 $9,218,975 and $8,273,295 as of
December 31, 1993 and 1992, respectively. The estimated market values of the
pledged securities totalled $9,516,246 and $8,534,178 at December 31, 1993 and
1992, respectively.
Interest on Securities
- ----------------------
The following represents the interest on securities, presented by
investment classifications, for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
U. S. Government and Federal
Agency/Corporation Obligations $1,999,260 $2,037,428 $1,971,794
State, County, and Municipal Bonds
(Substantially All Exempt from
Federal Income Tax) 142,491 163,048 168,769
Other Investments 51,608 54,074 66,066
---------- ---------- ----------
TOTAL $2,193,359 $2,254,550 $2,206,629
========== ========== ==========
</TABLE>
F-110
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS
Major classifications of loans are summarized as follows for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Real Estate $16,582,822 $15,744,381
Consumer 19,669,095 19,061,587
Commercial and
Industrial 12,256,532 12,696,716
Credit Card Loans 635,991 589,865
HEAF - Student -0- 10,000
----------- -----------
$49,144,440 $48,102,549
Unearned Interest (977,171) (1,147,748)
Unearned Loans Fees (21,969) (27,418)
----------- -----------
LOANS - NET $48,145,300 $46,927,383
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 676,977 $ 602,955 $ 547,452
Provisions Charged to Operations 158,500 204,000 180,000
Loans Charged Off (133,818) (158,452) (182,043)
Recoveries 48,556 28,474 57,546
--------- --------- ---------
BALANCE, END OF YEAR $ 750,215 $ 676,977 $ 602,955
========= ========= =========
</TABLE>
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>
DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Nonaccrual Loans $ 78,001 $169,631 $148,213
Renegotiated or Restructured Loans 120,745 85,645 442,949
-------- -------- --------
TOTAL NONPERFORMING LOANS $198,746 $255,276 $591,162
Other Assets Acquired in Satisfaction
of Loans (Primarily Foreclosed
Properties) 28,337 169,174 190,325
-------- -------- --------
TOTAL NONPERFORMING ASSETS $227,083 $424,450 $781,487
======== ======== ========
</TABLE>
F-111
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS (CONTINUED)
Renegotiated or restructured 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>
DECEMBER 31,
-----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Gross Amount of Interest That Would
Have Been Recorded at Original Rate $ 12,645 $ 13,566 $ 66,148
Interest That Was Reflected in
Revenue (1) (2,636) (4,210) (48,457)
-------- -------- --------
NEGATIVE INTEREST REVENUE IMPACT $ 10,009 $ 9,356 $ 17,691
======== ======== ========
</TABLE>
(1) Represents interest collected on nonaccrual loans.
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>
ESTIMATED DECEMBER 31,
DESCRIPTION USEFUL LIFE 1993 1992
<S> <C> <C> <C>
Land $ 210,448 $ 210,448
Bank Premises 5 to 40 Years 1,725,425 1,686,855
Furniture and Equipment 3 to 20 Years 1,850,592 1,803,863
----------- -----------
$ 3,786,465 $ 3,701,166
LESS: Accumulated Depreciation (2,303,943) (2,157,563)
----------- -----------
TOTAL $ 1,482,522 $ 1,543,603
=========== ===========
</TABLE>
Depreciation and amortization amounted to $172,076, $178,050, and $192,835
for the years ended December 31, 1993, 1992, and 1991, respectively.
F-112
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: TIME DEPOSITS
The maturity of time deposits in denominations of $100,000 or more was as
follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1992
---------------------- ----------------------
BALANCE PERCENT BALANCE PERCENT
<S> <C> <C> <C> <C>
MATURING:
Three Months or Less $ 600,000 21% $ 505,658 16%
Over Three to Six Months 463,522 16 401,431 12
Over Six to Twelve Months 554,437 19 657,731 21
Over One Year 1,270,349 44 1,628,945 51
---------- --- ---------- ---
$2,888,308 100% $3,193,765 100%
========== === ========== ===
</TABLE>
Interest expense on time deposits in denominations of $100,000 or more as
of December 31, 1993, 1992, and 1991 was $135,720, $203,959, and $222,238,
respectively.
NOTE 6: FEDERAL FUNDS PURCHASED AND SECURITIES SOLD TO UNDER AGREEMENT
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>
1993 1992
---- ----
<S> <C> <C>
FEDERAL FUNDS PURCHASED
Balance at End of Year $ 750,000 $ -0-
Average during Year $ 60,342 $ -0-
Maximum Month-End Balance $ 750,000 $ -0-
Average Rate during Year 2.66% 0.00%
Rate at Year End 3.00% 0.00%
SECURITIES SOLD UNDER
AGREEMENT TO REPURCHASE
Balance at End of Year $3,431,570 $3,459,762
Average during Year $4,618,932 $1,135,718
Maximum Month-End Balance $9,312,150 $4,736,286
Average Rate during Year 2.91% 2.74%
Rate at Year End 3.17% 2.80%
</TABLE>
F-113
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: 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
---- ---- ----
<S> <C> <C> <C>
Federal Statutory Tax Rate 34 % 34 % 34 %
Tax-Exempt Interest Income (4)% (7)% (11)%
State Income Tax 5 % 5 % 6 %
Tax Effect of Other Items 3 % 3 % 8 %
---- ---- ----
REPORTED EFFECTIVE TAX RATE 38 % 35 % 37 %
==== ==== ====
</TABLE>
The provision for income taxes in the consolidated statement of income
consists of the following for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current Income Taxes:
Federal $498,690 $372,536 $254,775
State 70,519 55,120 43,995
Deferred Income Taxes (34,267) (11,133) (222)
-------- -------- --------
NET INCOME TAXES $534,942 $416,523 $298,548
======== ======== ========
</TABLE>
The approximate tax effects of the net investment securities
transactions for the years ended December 31, 1993, 1992, and 1991 were
$(7), $108, and $(13,312), 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 transactions on the following page:
F-114
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Provision for Loan Losses $ (9,887) $ -0- $ -0-
Accretion of Bond Discount (16,099) (1,672) 5,526
Reorganization Expense Amortization 2,403 2,228 2,227
Excess Tax Depreciation over Book
Depreciation 5,650 (7,382) (3,668)
Change from Cash to Accrual Basis
for Reporting Income for Tax
Purposes (4,308) (4,307) (4,307)
Deferred Compensation for
Officers and Directors (12,026) -0- -0-
--------- --------- ---------
TOTAL $(34,267) $(11,133) $ (222)
========= ========= =========
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards Number 109, "Accounting for Income Taxes," in February,
1992, which was required to be adopted for fiscal years beginning after
December 15, 1992. 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. Deferred taxes, under the new standard,
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.
F-115
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES (CONTINUED)
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.
The Corporation adopted the new accounting standard prospectively 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.
F-116
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES (CONTINUED)
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 8: SHAREHOLDERS' EQUITY
The Corporation has 3,000,000 shares of $1.00 par value common stock
authorized and each share carries voting rights of one vote per common share.
Shares issued were 337,077 shares at December 31, 1993, 1992, and 1991. Shares
outstanding were 337,077 shares at December 31, 1993, 1992, and 1991.
The outstanding shares at December 31, 1993, 1992, and 1991 include 6,504
shares, 6,499 shares, and -0- shares, respectively, owned by the ESOP.
Cash dividends paid per share on common stock were $.96, $.78,
and $.72 for the years 1993, 1992, and 1991, respectively.
NOTE 9: 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
F-117
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: CONCENTRATION OF CREDIT RISK (CONTINUED)
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, depository, and other financial
institutions. The Corporation evaluates the counterparty's creditworthiness
and the need for collateral on a case by case basis.
NOTE 10: 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.
F-118
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
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.
Both arrangements have credit risk essentially the same as that involv 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 is as follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
---- ----
<S> <C> <C>
Financial Instruments Whose Contract
Amounts Represent Credit Risk:
Commitments to Extend Credit $ 250,495 $ 124,681
Standby Letters-of-Credit 110,000 110,000
Lines-of-Credit 2,191,648 1,945,888
Credit Card Lines-of-Credit 1,319,147 1,250,630
----------- -----------
TOTAL $ 3,871,290 $ 3,431,199
=========== ===========
</TABLE>
NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES
A subsidiary of the Corporation leases property for its branch facilities
under a non-cancelable operating lease which contains renewal options. Rent
expense under this lease was $24,000 per year for the years ended December 31,
1993, 1992, and 1991. Future minimum lease payments, excluding real estate
taxes and insurance, for the year ending December 31 is as follows :
<TABLE>
<S> <C>
1994 - Expires November 1, 1994 $20,000
-------
TOTAL $20,000
=======
</TABLE>
F-119
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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 12: 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 and those of its banking and nonbanking subsidiaries are limited to
the business of banking and activities closely related or incidental to
banking.
The Corporation's subsidiary banks, Union Bank of Tyler County, The
Community Bank of Pennsboro, and The Bank of Paden City 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
F-120
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: REGULATORY MATTERS (CONTINUED)
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 Hometown 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
Hometown 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 $1,886,177.
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. 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 19.17% and 20.42%, respectively.
F-121
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: REGULATORY MATTERS (CONTINUED)
The actual ratios for the Corporation and its subsidiary banks exceeded
the regulatory requirements and definitions of a "well capitalized"
institution 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
adequate average vault cash reserves to satisfy regulatory requirements in
1993.
NOTE 13: POST-RETIREMENT BENEFIT PLANS
The Corporation established a 401(k) profit sharing plan which covers all
eligible employees of the respective Corporation's subsidiaries that qualify
under the Plan. The Corporation provides for annual contributions in such
amounts as the Board of Directors of the Corporation may determine. The total
contribution to the Plan from the Corporation was $19,353, $20,049, and
$17,908 for the years ended 1993, 1992, and 1991, respectively.
The Corporation established an Employee Stock Ownership Plan (ESOP) and
Trust Agreement for the purpose of investing in the common stock of Hometown
Bancshares, Inc. on behalf of the employees of the subsidiaries. Currently,
the ESOP Trust owns 6,504 shares of Hometown Bancshares, Inc. common stock
which have or will be allocated to specific employee accounts as of December
31, 1993. The total contribution to the ESOP from the Corporation and its
subsidiaries was $53,886, $55,393, and $56,310 for the years 1993, 1992, and
1991, respectively.
F-122
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: DIRECTOR AND EXECUTIVE BENEFIT PLAN
A subsidiary of the Corporation has established a Directors' and
Executive Officers' Deferred Income Plan with certain directors and executive
officers of the applicable bank which defers payment of directors' fees and
executive officers' fees until such time as the director or executive officer
reaches age 65 or retires.
The subsidiary is funding the future payments through an investment with
a value of $253,312 in 1993 and $196,790 in 1992. The expense recorded for the
future liability was $27,395, $22,281, and $11,476 in 1993, 1992, and 1991,
respectively.
NOTE 15: 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.
F-123
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: TRANSACTIONS WITH DIRECTORS AND OFFICERS (CONTINUED)
Indebtedness of related parties is summarized as follows for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1992
---- ----
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $1,594,956 $ 1,986,502
Repayments (918,682) (1,534,649)
Borrowings 1,376,987 1,143,103
---------- -----------
BALANCE AT END OF YEAR $2,053,261 $ 1,594,956
========== ===========
</TABLE>
NOTE 16: OTHER OPERATING EXPENSES
The following represents the major expense classifications included in
other operating expenses for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Stationery and Printing $ 106,616 $ 94,629 $125,840
Postage 81,833 93,842 77,564
Bankers' Blanket Bond Insurance 37,616 36,330 39,732
Directors' Fees 87,775 75,950 70,315
Telephone 48,515 45,931 49,854
Legal and Professional Fees 77,734 55,774 58,421
Advertising 40,398 44,630 59,209
Other Operating Expenses 333,760 329,315 366,859
--------- -------- ---------
TOTAL $ 814,247 $776,401 $ 847,794
========= ======== =========
</TABLE>
NOTE 17: FUTURE IMPACT OF ISSUED ACCOUNTING STANDARDS
In December, 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 107, "Disclosures about
Fair Value of Financial Instruments." This statement requires all entities to
disclose in the footnotes the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the Statement of Financial
Position, for which it is practicable to estimate fair value. If estimating
fair value is not
F-124
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: FUTURE IMPACT OF ISSUED ACCOUNTING STANDARDS (CONTINUED)
practicable, this statement requires disclosure of descriptive
information pertinent to estimating the value of the financial
instrument.
This statement is effective for financial statements issued
for fiscal years ending after December 15, 1992, except for entities
with less than $150 million in total assets in the current Statement of
Financial Position. For those entities, the effective date is for
fiscal years ending after December 15, 1995.
The required disclosure has no impact on financial position
or results of operations.
NOTE 18: PLAN OF MERGER
On September 30, 1993, the Corporation and Commercial
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.
F-125
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following financial statements reflect the financial
position and results of operations of Hometown Bancshares, Inc.
(Parent Company Only).
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---- ----
<S> <C> <C>
ASSETS
Cash and Due from Banks (All from
Subsidiaries) $ 203,468 $ 141,146
Investment Securities Available-
for-Sale 394,740 278,535
Investment in Subsidiaries
(Equity Basis) 8,687,275 8,038,857
Other Assets 309,584 377,710
---------- ----------
TOTAL ASSETS $9,595,067 $8,836,248
========== ==========
LIABILITIES
Other Liabilities $ 34,924 $ -0-
---------- ----------
TOTAL LIABILITIES $ 34,924 $ -0-
---------- ----------
SHAREHOLDERS' EQUITY
Common Stock (Par Value $1.00),
Authorized 3,000,000 Shares,
(Issued Shares: 337,077 in 1993
and 1992) $ 337,077 $ 337,077
Additional Paid in Capital 4,824,992 4,824,992
Undivided Profits 4,321,591 3,702,912
Unrealized Gain (Loss) on Securities
Available-for-Sale, Net of
Applicable Deferred Income Taxes 76,483 (28,733)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY $9,560,143 $8,836,248
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,595,067 $8,836,248
========== ==========
</TABLE>
F-126
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUE
Dividend from Subsidiaries $460,000 $415,000 $360,000
Other Dividend Income 13,932 13,932 13,932
Other Income 6,325 6,073 18,968
-------- -------- --------
TOTAL REVENUE $480,257 $435,005 $392,900
-------- -------- --------
EXPENSES
Interest on Notes Payable $ $ 717 $ 5,834
Employee Benefits 7,068 5,214
Depreciation 3,146 3,146 3,146
Amortization of
Organizational Costs 25,163 25,165 25,163
Other Operating Expenses 116,784 116,660 156,136
-------- -------- --------
TOTAL EXPENSES $152,161 $150,902 $190,279
-------- -------- --------
Income (Loss) before Income
Taxes, Equity in
Undistributed Net Income
of Subsidiaries $328,096 $284,103 $202,621
Applicable Income Taxes
(Benefit) (3,184) (2,425) (16,696)
-------- -------- --------
Income before Equity in
Undistributed Net Income
of Subsidiaries $331,280 $286,528 $219,317
Equity in Undistributed Net
Income (Loss) 610,993 484,400 294,265
-------- -------- --------
NET INCOME $942,273 $770,928 $513,582
======== ======== ========
</TABLE>
F-127
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 942,273 $ 770,928 $ 513,582
--------- ----------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation $ 3,146 $ 3,146 $ 3,146
Net Amortization of Purchase
Adjustments (3,620) (2,793) (13,968)
Undistributed Net (Income) Loss of
Subsidiaries (610,993) (484,400) (294,265)
Amortization of Organizational Costs 25,163 25,165 25,163
Amortization of Tangible Core
Deposits 73,645 91,028 113,224
(Increase) Decrease:
Other Assets (30,210) 4,400 (6,752)
Increase (Decrease):
Other Liabilities (5,186) 1,325
--------- ----------- ---------
TOTAL ADJUSTMENTS $(542,869) $ (368,640) $(172,127)
--------- ----------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 399,404 $ 402,288 $ 341,455
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment in Hometown
Insurance Agency, Inc. $ $ $ (25,000)
Capitalized Expenditures of
Investment in First National Bank
of Powhatan Point (13,488)
--------- ----------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES $ (13,488) $ -0- $ (25,000)
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Borrowings $ $ (25,000) $ (75,000)
Cash Dividends Paid (323,594) (262,920) (242,695)
--------- ----------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES $ (323,594) $ (287,920) $(317,695)
--------- ----------- ---------
NET INCREASE (DECREASE) IN CASH $ 62,322 $ 114,368 $ (1,240)
CASH AT BEGINNING OF YEAR 141,146 26,778 28,018
--------- ----------- ---------
CASH AT END OF YEAR $ 203,468 $ 141,146 $ 26,778
========== =========== =========
SUPPLEMENTARY DISCLOSURE OF CASH FLOWS
INFORMATION
Cash Paid during the Year for:
Interest $ -0- $ 717 $ 5,834
Income Taxes $ 3,686 $ 1,640 $ (405)
</TABLE>
F-128
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
Principal sources of revenues for the Corporation are
dividends received from its banks and dividends received on investments.
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 must be secured in specified
amounts. The Corporation had no borrowings outstanding from any of its
subsidiary banks at December 31, 1993.
F-129
<PAGE>
HOMETOWN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: 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 $1,065 $1,049 $1,038 $1,081 $4,233
Provision for Possible
Loan Losses $ 46 $ 38 $ 37 $ 38 $ 159
Net Operating Revenue $ 364 $ 319 $ 348 $ 365 $1,396
Applicable Income Taxes $ 141 $ 123 $ 140 $ 131 $ 535
Income Before Effect of
Change in Accounting
Principle $ 223 $ 196 $ 208 $ 234 $ 861
Cumulative Effect on
Prior Years of Change
in Accounting Principle $ 81 $ $ $ $ 81
Net Income $ 304 $ 196 $ 208 $ 234 $ 942
Applicable to Common
Stock $ 304 $ 196 $ 208 $ 234 $ 942
Per Common Share Data:
Income Before Effect
of Change in
Accounting Principle $ .66 $ .58 $ .62 $ .70 $ 2.56
Cumulative Effect on
Prior Years of Change
in Accounting
Principle $ .24 $ $ $ $ .24
Net Income $ .90 $ .58 $ .62 $ .70 $ 2.80
Cash Dividends Paid -
Common Share $ .21 $ .25 $ .25 $ .25 $ .96
1992
- ----
Net Interest Revenue $ 979 $1,002 $1,002 $1,059 $4,042
Provision for Possible
Loan Losses $ 48 $ 60 $ 48 $ 48 $ 204
Net Operating Revenue $ 296 $ 276 $ 282 $ 333 $1,187
Applicable Income Taxes $ 114 $ 102 $ 135 $ 65 $ 416
Net Income $ 182 $ 174 $ 147 $ 268 $ 771
Applicable to Common
Stock $ 182 $ 174 $ 147 $ 268 $ 771
Per Common Share $ .54 $ .52 $ .44 $ .79 $ 2.29
Cash Dividends Paid -
Common Stock $ .18 $ .19 $ .20 $ .21 $ .78
1991
- ----
Net Interest Revenue $ 915 $ 920 $ 944 $ 973 $3,752
Provision for Possible
Loan Losses $ 45 $ 45 $ 45 $ 45 $ 180
Net Operating Revenue $ 217 $ 212 $ 210 $ 173 $ 812
Applicable Income Taxes $ 62 $ 56 $ 65 $ 115 $ 298
Net Income $ 155 $ 156 $ 145 $ 58 $ 514
Applicable to Common
Stock $ 155 $ 156 $ 145 $ 58 $ 514
Per Common Share $ .46 $ .46 $ .43 $ .17 $ 1.52
Cash Dividends Paid -
Common Stock $ .18 $ .18 $ .18 $ .18 $ .72
</TABLE>
F-130
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER BETWEEN
COMMERCIAL BANCSHARES, INC. AND
HOMETOWN BANCSHARES, INC.
E-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
between
COMMERCIAL BANCSHARES, INC.
and
HOMETOWN BANCSHARES, INC.
E-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AGREEMENT AND PLAN OF MERGER.............................. E-6
ARTICLE I................................................. E-7
PLAN OF MERGER............................................ E-7
1.1 Parties to Merger and Surviving Holding Company.... E-7
1.2 Terms of Merger.................................... E-7
1.3 Effect of the Merger............................... E-7
1.4 Stock Consideration................................ E-8
1.5 Exchange of Shares................................. E-8
1.6 Articles of Incorporation and Bylaws of
Surviving Holding Company......................... E-8
1.7 Additional Requirements............................ E-8
ARTICLE II................................................ E-9
REPRESENTATIONS AND WARRANTIES............................ E-9
2.1 Representations and Warranties of Commercial....... E-9
(a) Organization................................ E-9
(b) Authority................................... E-9
(c) Capitalization.............................. E-10
(d) Financial Statements........................ E-10
(e) Authority to Exchange Shares................ E-10
(f) Registered Bank Holding Company............. E-10
(g) Absence of Certain Changes.................. E-10
(h) Litigation.................................. E-12
(i) Absence of Undisclosed or
Contingent Liabilities..................... E-13
(j) No Adverse Event............................ E-13
(k) SEC Reports................................. E-13
(l) Title to Properties......................... E-13
(m) Taxes....................................... E-13
(n) Subsidiaries of Commercial.................. E-14
(o) ERISA....................................... E-14
(p) Absence of Defaults and Violation........... E-14
(q) Other Transactions.......................... E-15
(r) Reserve for Possible Loan Losses............ E-15
(s) Material Contracts.......................... E-15
(t) Environmental Concerns...................... E-15
2.2 Representation and Warranties of Hometown.......... E-16
(a) Representation and Warranties of Hometown... E-17
(b) Authority of Hometown....................... E-17
(c) Capital Stock of Hometown................... E-17
</TABLE>
E-3
<PAGE>
<TABLE>
<S> <C>
(d) Absence of Certain Changes.................. E-17
(e) Taxes....................................... E-19
(f) Litigation.................................. E-20
(g) Absence of Defaults and Violations.......... E-20
(h) Absence of Undisclosed or Contingent
Litigation................................. E-20
(i) Financial Statements........................ E-21
(j) Title to Property........................... E-21
(k) Reserve for Possible Loan Losses............ E-21
(l) No Adverse Event............................ E-21
(m) Material Contracts.......................... E-21
(n) ERISA....................................... E-22
(o) Regulatory Reports.......................... E-22
(p) Environmental Concerns...................... E-22
(q) Registered Bank Holding Company............. E-23
(r) Ownership of Subsidiaries................... E-23
(s) Hometown Insurance Agency, Inc.............. E-23
(t) SEC Reports................................. E-23
ARTICLE III............................................... E-24
ADDITIONAL AGREEMENTS..................................... E-24
3.1 Approval of Hometown Shareholders.................. E-24
3.2 Approval of Commercial Shareholders................ E-24
3.3 Rights of Dissenting Stockholder................... E-24
3.4 Regulatory Approval................................ E-24
3.5 Conduct of Business by Hometown Until Closing...... E-24
3.6 Conduct of Business by Commercial Until Closing.... E-26
3.7 Registration of Securities, Proxy Statement........ E-27
3.8 Hometown Employment Agreements..................... E-27
3.9 Representatives on Commercial Board................ E-27
3.10 Good Faith......................................... E-28
3.11 Employees.......................................... E-28
3.12 Access and Information............................. E-28
3.13 Subsidiary Bank Board.............................. E-29
3.14 Directors and Officers Indemity and
Liability Insurance................................ E-29
ARTICLE IV................................................ E-29
CONDITIONS................................................ E-29
4.1 Conditions to Obligations of All Parties........... E-29
(a) Shareholder Approval of Transaction.......... E-29
(b) Absence of Restraint......................... E-29
(c) Governmental Approvals....................... E-30
(d) Compliance with Representations, Warranties
and Additional Agreements................... E-30
(e) Securities Law Compliance.................... E-30
(f) Tax-Free Exchange............................ E-30
</TABLE>
E-4
<PAGE>
<TABLE>
<S> <C>
(g) Due Diligence................................ E-30
(h) Accounting Treatment......................... E-31
4.2 Additional Conditions to Obligations of Commercial.. E-31
(a) Shareholder Approval......................... E-31
(b) Counsel's Opinion............................ E-31
(c) Affiliates Agreements........................ E-32
4.3 Additional Conditions to Obligations of Hometown.... E-32
(a) Counsel's Opinion............................. E-33
(b) Tax Ruling or Opinion......................... E-34
(c) Fairness Opinion.............................. E-34
ARTICLE V................................................. E-34
CLOSING................................................... E-34
5.1 Closing............................................. E-34
ARTICLE VI................................................ E-35
MISCELLANEOUS............................................. E-35
6.1 Termination......................................... E-35
6.2 Expenses............................................ E-36
6.3 Survival of Provisions.............................. E-36
6.4 Amendment........................................... E-36
6.5 Assignability....................................... E-36
6.6 Notices............................................. E-36
6.7 Entire Agreement.................................... E-37
6.8 Counterparts........................................ E-37
6.9 Governing Law....................................... E-37
6.10 Invalid Provisions.................................. E-37
6.11 Headings and Subheadings............................ E-37
</TABLE>
E-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT (this "Agreement"), is made and entered into this 30th day
of September, 1993, between Commercial Bancshares, Inc. ("Commercial") and
Hometown Bancshares, Inc. ("Hometown").
WHEREAS, Hometown and Commercial are West Virginia corporations with their
principal offices in Middlebourne and Parkersburg, West Virginia, respectively,
and each is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended;
WHEREAS, the parties hereto desire to accomplish the merger of Hometown
with and into Commercial, with Commercial surviving the merger (the "Merger");
WHEREAS, Hometown owns 100% of the issued and outstanding shares of Union
Bank of Tyler County, Inc., Middlebourne, West Virginia ("UBTC"), The Bank of
Paden City, Paden City, West Virginia ("Paden City"), The Community Bank,
Pennsboro, West Virginia ("Community Bank") (UBTC, Paden City and Community Bank
are sometimes collectively referred to herein as the "banking subsidiaries" of
Hometown), 100% of the issued and outstanding shares of Hometown Insurance
Agency, Inc., (herein referred to as the insurance subsidiary) (the banking
subsidiaries and the insurance subsidiary are sometimes collectively referred to
herein as the "Hometown subsidiaries" or "subsidiaries of Hometown" or "its
subsidiaries" [referring to Hometown]) and 14.51% of the issued and outstanding
shares of First National Bank of Powhatan Point, Powhatan Point, Ohio ("Powhatan
Point");
WHEREAS, Commercial owns 100% of the issued and outstanding shares of
Commercial Banking & Trust Company, Parkersburg, West Virginia ("CB&T"), Jackson
County Bank, Ravenswood, West Virginia ("JCB"), Farmers & Merchants Bank of
Ritchie County, Harrisville, West Virginia ("F&M") and The Dime Bank, Marietta,
Ohio ("Dime Bank") (CB&T, JCB, F&M and Dime Bank are sometimes referred to
herein as the "subsidiaries" of Commercial);
WHEREAS, as merger consideration, the shareholders of Hometown will receive
1.512 shares of Commercial stock for each share of Hometown stock they own
(provided, however that no fractional shares of Commercial stock will be issued
and in lieu thereof Hometown shareholders will receive cash consideration as
provided herein); and
WHEREAS, for federal income tax purposes, the transaction is intended to be
treated as a tax free reorganization under Internal Revenue Code (S)
368(a)(1)(A);
E-6
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and the
representations, warranties, covenants and agreements contained herein,
Commercial and Hometown do represent, warrant, covenant and agree as follows:
ARTICLE I
---------
PLAN OF MERGER
--------------
1.1 Parties to Merger and Surviving Holding Company. The parties to the
-----------------------------------------------
Plan of Merger are Commercial and Hometown. Hometown shall merge with and into
Commercial, pursuant to the laws of West Virginia. After the consummation of
the Merger, Commercial will be the Surviving Holding Company. The name of the
Surviving Holding Company will remain "Commercial Bancshares, Inc." and its
principal office will remain at Parkersburg, West Virginia.
1.2 Terms of Merger. The terms and conditions of the Merger are set forth
---------------
in this Agreement. Upon satisfaction of all of the terms and conditions set
forth herein, the Merger shall be effective upon the issuance of a certificate
of merger by the Secretary of State of West Virginia. The date of the issuance
of a certificate of merger will be the Merger Effective Date.
1.3 Effect of the Merger. Upon consummation, the Merger shall have the
--------------------
following effects:
(a) The Surviving Holding Company, will upon the Merger Effective
Date and thereafter, possess all of the rights, privileges, immunities and
franchises, of both Commercial and Hometown.
(b) All property, real, personal and mixed, and all debts due in
whatever amount, and all other choses in action, and all other interests
belonging to or due to Hometown will be taken and deemed to be transferred to
and vested in Commercial as Surviving Holding Company and all property, real,
personal and mixed, and all debts due in whatever amount, and all other choses
in action, and all other interests belonging to or due to Commercial shall
remain in Surviving Holding Company without further act; and the title to any
real estate, or any interest therein, vested in Commercial or Hometown shall not
revert or be in any way impaired by reason of the Merger.
(c) The Surviving Holding Company will be responsible and liable for
all of the liabilities and obligations of Commercial and Hometown and neither
the rights of creditors nor liens upon the property of Commercial and Hometown
shall be impaired by the Merger.
E-7
<PAGE>
(d) As of the Merger Effective Date, the shares of Hometown will be
canceled and shareholders of Hometown will cease to have any rights as
shareholders of Hometown except for the right to receive the merger
consideration for their Hometown shares as provided herein or the cash value
thereof under dissenters' rights of appraisal.
1.4 Stock Consideration. As consideration for the Merger, upon the
-------------------
consummation thereof, each share of Hometown stock (except for shares owned by
shareholders who exercise dissenters' rights) shall be converted into 1.512
shares of Commercial stock; provided, however, that no fractional shares of
Commercial stock will be issued and in lieu thereof, Hometown shareholders will
be entitled to receive cash based upon a fixed price of $26.00 per whole share
of Commercial stock. If, on or after the date hereof, and prior to the Merger,
the outstanding shares of Commercial stock are changed into a different number
or class by virtue of any reclassification, split, stock dividend, exchange of
shares or similar event, then the exchange ratio provided herein will be
adjusted proportionately.
1.5 Exchange of Shares. Except for any shares of Hometown as to which
------------------
dissenters' rights are exercised pursuant to West Virginia Code (S)(S)31-1-122
and 31-1-123, each holder of certificates representing shares of the stock of
Hometown will, upon the surrender to Surviving Holding Company, or its agent, of
such certificates in proper form, be entitled to receive a certificate or
certificates representing the number of whole shares of the common stock of
Commercial into which the surrendered certificates shall have been converted by
reason of the Merger. Until surrendered for exchange, each outstanding
certificate of Hometown shall be deemed for all corporate purposes to evidence
the ownership of the whole shares of stock of Commercial into which such shares
have been converted by reason of the Merger. Until any outstanding certificates
have been surrendered, Commercial may, at its sole discretion, withhold (i) the
certificates representing the shares of its stock into which the Hometown shares
are converted by reason of the Merger and (ii) the distribution of any and all
dividends and payment for fractional shares with respect to the stock of
Commercial to which the Hometown shareholder is entitled. Upon the delivery to
Surviving Bank Holding Company of the outstanding Hometown certificates, there
will be delivered to the record holder (i) the certificate representing the
shares of the stock of Commercial to which the Hometown holder is entitled and
(ii) any dividends thereon along with any payment for fractional shares, all
without interest.
1.6 Articles of Incorporation and Bylaws of Surviving Holding Company.
-----------------------------------------------------------------
Upon the Merger being consummated, the Articles of Incorporation of Commercial
shall be the Articles of Incorporation of Surviving Holding Company and the
Bylaws of Commercial shall be the Bylaws of the Surviving Holding Company
E-8
<PAGE>
until altered, amended or repealed in accordance with their provisions and
applicable law. The Surviving Holding Company will be a West Virginia
corporation. Its taxpayer identification number shall be the taxpayer
identification number of Commercial.
1.7 Additional Requirements. If at any time, Surviving Holding
-----------------------
Company shall consider or be advised that any further assignments, conveyances
or assurances are necessary or desirable to vest, perfect or conform in
Surviving Holding Company the title to any property or rights of Commercial or
Hometown or are otherwise necessary to carry out the provisions of the Plan of
Merger and this Agreement, the proper officers and directors of Commercial or
Hometown, as the case may be, immediately before the Merger is consummated, as
of the Merger Effective Date, and thereafter, the officers of the Surviving
Holding Company, will execute and deliver any and all property assignments,
conveyances, assurances, and other instruments to vest, perfect or confirm title
to any such property or rights in the Surviving Holding Company and otherwise
carry out the provisions of this Agreement.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of Commercial. Unless previously
--------------------------------------------
otherwise disclosed in writing to Hometown, as of the date of this Agreement,
and as of the date of the consummation of the transactions contemplated herein,
Commercial represents and warrants the following to Hometown:
(a) Organization. Commercial is a West Virginia corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
West Virginia. Its subsidiary banks are duly organized, validly existing and in
good standing under the laws of West Virginia or Ohio, as applicable.
Commercial and each of its subsidiaries has the requisite corporate power and
authority to own and lease its properties and to conduct its business as
currently conducted and as currently contemplated to be conducted.
(b) Authority. Commercial has the power to enter into this
---------
Agreement andto consummate the transactions contemplated herein. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by the Board of Directors of
Commercial. Except for the ratification, confirmation and approval of this
Agreement and the Merger by the shareholders of Commercial, no other acts or
proceedings on the part of Commercial are necessary to authorize the
transactions contemplated by this Agreement. Upon its execution and delivery,
subject only to shareholder ratification, confirmation and approval, this
Agreement constitutes the valid and legally binding obligation of Commercial.
Subject to obtaining the permits, approvals, consents and authorizations set
forth in
E-9
<PAGE>
Article III hereto, the execution and delivery of this Agreement does not and
will not, and the consummation of the transactions contemplated herein will not,
violate (i) any provisions of the Articles of Incorporation or Bylaws of
Commercial, (ii) any laws of the State of West Virginia or the United States of
America or (iii) any other material restriction to which Commercial is subject.
No acceleration of payment, default, breach or termination will occur in any
material respect by virtue of the consummation of the transaction contemplated
in this Agreement under any material contract, agreement, deed of trust, note,
instrument, order, judgment or decree.
(c) Capitalization. The authorized capital stock of Commercial is
--------------
2,000,000 shares of common stock, par value of $5.00 per share, of which 758,506
are issued and outstanding as of the date hereof and are fully paid and
nonassessable, and 17,778 shares are held in treasury by Commercial.
Commercial also has shares of convertible preferred stock, of which 27,165
shares are issued and outstanding. The outstanding shares of Commercial stock
have been duly and validly authorized and issued and have not been issued in
violation of any preemptive or similar rights of any of its shareholders. In
the issuance of its shares, Commercial has complied with all applicable state
and federal securities laws.
(d) Financial Statements. Commercial has delivered to Hometown
--------------------
copies of its audited consolidated financial statements for the fiscal year
ended December 31, 1992, and unaudited statements for the six month period ended
June 30, 1993. Commercial represents and warrants that the financial statements
which have been or will be delivered pursuant to any provision of this Agreement
fairly present its financial position of as of the date thereof and the results
of its operations and changes in its financial position for each of the
respective periods specified therein in conformity with generally accepted
accounting principles applied on a consistent basis.
(e) Authority to Exchange Shares. The shares of Commercial to be is
----------------------------
sued pursuant to this Agreement will be duly authorized. When issued upon the
terms and conditions specified in this Agreement, the shares will be validly
issued, fully paid and non-assessable. There are no preemptive or similar rights
with regard to the shares of Commercial to be issued in connection with the
transactions contemplated herein.
(f) Registered Bank Holding Company. Commercial is a duly registered
-------------------------------
bank holding company under the Bank Holding Company Act of 1956, as amended.
(g) Absence of Certain Changes. Since June 30, 1993:
--------------------------
E-10
<PAGE>
(i) There has been no material change in the assets, consolidated
financial condition, or results of operation of Commercial or any subsidiary of
Commercial, taken as a whole, which has had, or changes which in the aggregate
have had, a material adverse effect on the consolidated assets, financial
condition, or operations of Commercial, nor has any event or condition occurred
which is known to its officers which may result in such a change or changes;
(ii) There has not been any damage, destruction, or loss by reason
of fire, flood, accident or other casualty (whether insured or not insured)
materially and adversely affecting the operations, financial condition, or
results of operations of Commercial or any subsidiary of Commercial which
materially and adversely affects the consolidated assets, financial condition or
operations of Commercial and its subsidiaries taken as a whole;
(iii) Neither Commercial nor its subsidiary banks have disposed of
or agreed to dispose of any properties or assets, nor has any of them leased to
others, or agreed to so lease, any such properties or assets which leases or
dispositions would be material to Commercial and its subsidiary banks taken as a
whole;
(iv) There has not been any change in the authorized, issued or
outstanding capital stock (common or preferred) of Commercial except as may
occur as a result of a preferred stockholder's election to convert to common
stock, pursuant to an acquisition by Commercial permitted in accordance with
this Agreement or pursuant to any incentive plan previously disclosed in writing
to Hometown; nor has there been any material change in the outstanding debt of
Commercial, other than changes due to payments in accordance with the terms of
such debt and other than the acceptance of deposits by the subsidiaries of
Commercial in the ordinary course of business;
(v) Commercial has not granted any warrant, option or right to
acquire, or agreed to repurchase, redeem or otherwise acquire, any shares of its
capital stock or any other of its securities whatsoever except in connection
with its convertible preferred stock;
(vi) There has not been, nor will there be, any declaration,
setting aside or payment of any dividend or distribution in respect of any
shares of the common stock of Commercial except as set forth herein or in
respect of any shares of the preferred stock except as in accordance with its
terms;
(vii) Neither Commercial nor its subsidiary banks have made any
material loan or advance, other than in the ordinary course of business;
E-11
<PAGE>
(viii) Neither Commercial nor its subsidiary banks have made any
expenditure or major commitment for the purchase, acquisition, construction or
improvement of any capital asset which would be, or of capital assets which in
the aggregate would be, material to Commercial and its subsidiary banks taken as
a whole;
(ix) Neither Commercial nor its subsidiary banks have entered into
any other transaction, contract or lease, or incurred any other obligation or
liability which would be material to Commercial and its subsidiary banks on a
consolidated basis;
(x) No change has occurred in the personnel who are key personnel
with respect to the operations of Commercial or the subsidiaries of Commercial,
nor has there been any material increase in the compensation or fees payable by
Commercial or the subsidiaries of Commercial to directors or officers, or any
material increase in any bonus, insurance, pension or other employee benefit
plan, payment or arrangement for or with any of such directors or officers other
than increases in the ordinary course of business made in a manner consistent
with previous years or other than increases relating to the adoption of certain
incentive based plans and previously disclosed in writing to Hometown; and
(xi) There has not been any other event, condition or development of
any kind which materially and adversely affects the assets, financial condition
or operations of Commercial and its subsidiary banks taken as a whole, and
management of the respective entities has no knowledge of any such event,
condition or development which may materially and adversely affect the assets,
financial condition or operations of Commercial and its subsidiary banks taken
as a whole.
(h) Litigation. Neither Commercial nor any subsidiary of Commercial
----------
is a party to, or, to the knowledge of their executive officers, is threatened
with any litigation, action, governmental or other proceeding, investigation,
strike or other labor dispute which might affect the validity of this Agreement
or which, individually or in the aggregate, might have a materially adverse
effect on their assets, financial condition, operations or material contractual
rights of Commercial and its subsidiaries taken as a whole; and there is no
outstanding order, writ, injunction or decree of any court or governmental
agency against or materially affecting Commercial and its subsidiaries, taken as
a whole or a material portion of any of their consolidated businesses, financial
condition, operations, material contract rights or assets.
E-12
<PAGE>
(i) Absence of Undisclosed or Contingent Liabilities. Except to
------------------------------------------------
the extent reflected on the June 30, 1993 consolidated financial statements of
Commercial delivered to Hometown, there exists no claim, liability, obligation,
or any known asserted claim, secured or unsecured (whether accrued, absolute,
contingent or otherwise), that would have a material adverse effect on the
consolidated operations, financial condition, businesses, material contract
rights, assets or results of operations of Commercial and its subsidiaries taken
as a whole.
(j) No Adverse Event. Since June 30, 1993 there has been no
----------------
change or changes which, individually or in the aggregate, has or have
materially and adversely affected the financial condition, result of operations
or assets of Commercial and its subsidiaries taken as a whole.
(k) SEC Reports. The Form 10-K Annual Report to the Securities and
-----------
Exchange Commission by Commercial for the year ended December 31, 1992, and its
quarterly filings made during 1993 on Form 10-Q do not contain, as of the date
hereof or as of their respective dates, any untrue statement of a material fact
or omit to state any material fact necessary to make the statement therein, in
light of the circumstances under which such statements were made, not
misleading.
(l) Title to Properties. Commercial and its subsidiaries have
-------------------
good and marketable title to all of their property and assets set forth on the
consolidated balance sheet of Commercial as of June 30, 1993, subject to no
liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said balance sheet, liens of record, liens which do not materially
affect the current use of the property or liens for ad valorem taxes not yet due
and payable, and all of their leases are in full force and effect, and neither
Commercial nor any of its subsidiaries is aware of any default thereunder.
(m) Taxes. (i) Commercial and its subsidiaries have filed all
-----
federal income tax returns and all other federal, state, municipal and other tax
returns which they are required to file, have paid all taxes shown to be due on
such returns and, in the opinion of their respective chief executive and
financial officers, have adequately reserved for all current taxes;
(ii) Neither the Internal Revenue Service nor any other taxing
authority is now asserting against Commercial or its subsidiaries, or, to
management's knowledge, threatening to assert against them, or any of them, any
deficiency or claim for additional taxes, interest or penalties;
(iii) There is no pending or threatened examination of the
federal income tax returns of Commercial and, except for tax years still subject
to the assessment and collection
E-13
<PAGE>
of additional federal income taxes under the three-year period of limitations
described in IRC (S) 6501(a), no tax year of Commercial remains open to the
assessment and collection of additional federal income taxes; and
(iv) There is no pending or threatened examination of the West
Virginia business and occupation tax returns of Commercial or its subsidiaries
and, except for tax years still subject to the assessment and collection of
additional business and occupation taxes under the three-year period of
limitations described in W.Va. Code (S) 11-10-15, no tax year of Commercial or
its subsidiaries remains open to the assessment and collection of additional
business and occupation taxes.
(n) Subsidiaries of Commercial. The subsidiaries of Commercial
--------------------------
consist of corporations or associations which are duly organized, validly
existing and in good standing under applicable laws. Each has the corporate
power, and all necessary federal, state, and local banking and other
authorizations, to own its property and conduct its business as currently
conducted and as currently contemplated to be conducted. Commercial owns, free
and clear of liens and encumbrances of any nature, one hundred percent (100%) of
the issued and outstanding stock of each of its subsidiaries.
(o) ERISA. Each plan subject to Title IV of ERISA and established or
-----
maintained for persons, including employees or former employees of Commercial or
any of its subsidiaries ("Plan") has been maintained and funded in accordance
with its terms and with all provisions of ERISA applicable thereto; (ii) no
event reportable under Section 4043 of ERISA has occurred and is continuing with
respect to any Plan; (iii) no liability to the Pension Benefits Guaranty
Corporation has been incurred with respect to any Plan, other than for premiums
due and payable; (iv) no Plan has been terminated, no proceedings have been made
to terminate any Plan, and no decision has been made to terminate or institute
proceedings to terminate any Plan; (v) no Plan is a multi-employer Plan; and
(vi) there has been no cessation of, and no decision has been made to cease,
operations at a facility or facilities where such cessation could reasonably be
expected to result in a separation from employment of more than 20% of the total
number of employees who are participants under any Plan.
(p) Absence of Defaults and Violation. Neither Commercial nor any
---------------------------------
of its subsidiaries (i) is in default under any term or provision of any
mortgage, deed of trust, note, bond, indenture, commitment, contract, agreement,
franchise, permit, license, lease or instrument to which they are a party or by
which any of them or any of their properties is bound and which is material to
the consolidated financial condition, businesses or operations of Commercial,
(ii) is subject to any decree, order, writ or injunction of any court or
authority which materially
E-14
<PAGE>
restricts their operations or requires any material actions when considering
Commercial and its subsidiaries as a whole, (iii) is in violation of any law,
rule or regulation known and applicable to them which could materially affect
the consolidated financial condition, assets, businesses or operations of
Commercial; or (iv) has received notification from any agency or department of
federal, state or local government or regulatory authority or the staff thereof
asserting that any of them is not in compliance with any of the statutes,
regulations, rules or ordinances which such governmental authority or regulatory
authority enforces, or any threat to revoke any license, franchise, permit or
governmental authorization which could materially affect the consolidated
financial condition, assets, businesses, or operations of Commercial.
(q) Other Transactions. Nothing herein shall be construed to limit
------------------
at any time the ability (except as provided in paragraph 3.6 hereof) of
Commercial or any of its subsidiaries from entering into other agreements or
transactions pursuant to which it or its subsidiaries may merge, consolidate or
affiliate with any other entity, or acquire or establish other branches or
subsidiaries.
(r) Reserve for Possible Loan Losses. The management of Commercial
--------------------------------
is of the opinion that the reserve for possible loan losses shown on the balance
sheet of Commercial as of June 30, 1993 delivered pursuant to this Agreement is
adequate, in accordance with generally accepted accounting principles, as of the
date thereof.
(s) Material Contracts. Neither Commercial nor any of its
------------------
subsidiaries is a party to, or is bound or affected by, or receives benefits
under any material agreement, arrangement or commitment not cancelable without
penalty, other than agreements, arrangements or commitments entered into in the
ordinary course of business consistent with its past practice and negotiated on
an arm's length basis. All material contracts have been previously identified in
writing to Hometown.
(t) Environmental Concerns. To the knowledge of their respective
----------------------
chief executive and chief financial officers, neither Commercial nor its
subsidiary banks own any property where:
1. Material amounts of Hazardous Substances have been generated,
treated, stored, disposed of, incinerated or recycled at or on the property;
2. Aboveground or underground storage tanks are or have been located;
3. Spills, discharges, releases, deposits of material amounts of any
Hazardous Substances have occurred;
E-15
<PAGE>
4. Hazardous Substances have been released on adjacent properties
which could migrate onto the property;
5. An investigation or administrative proceeding by a governmental
agency or a lawsuit by a governmental agency or private third party occurred
involving Applicable Environmental Law and where the property contains
conditions which would give rise to such an event; or
6. Solid waste as defined in the West Virginia Solid Waste Management
Act, West Virginia Code (S) 20-5F-1 et seq. has been disposed of.
-- ---
To the knowledge of their respective chief executive and chief financial
officers, neither Commercial nor its subsidiary banks has a loan secured by
property which is owned or operated by an entity or person in violation of
Applicable Environmental Law or has a condition which is known to them to be a
violation of Applicable Environmental Law which has not yet been cited by
appropriate authorities.
For purposes of this Agreement, (1) The term "Applicable Environmental Law"
shall include but shall not be limited to the laws and implementing regulations
of the United States Government, the State of West Virginia and Ohio and local
governments, whether currently in existence or hereafter enacted, that govern:
(i) the existence, cleanup and/or remedy of hazardous substance contamination on
property; (ii) the protection of the environment from released, spilled,
deposited or otherwise emplaced hazardous substance contamination; (iii) the
control of hazardous substances and hazardous substance waste; and (iv) the
reporting, use, generation, transport, treatment and removal of hazardous
substances and (2) The term "Hazardous Substance" shall mean any substance which
at any time is toxic, ignitable, reactive or corrosive and that is regulated by
any Applicable Environmental Law or which has been or shall be determined at any
time by any agency or court to be a toxic, ignitable, reactive or corrosive
substance regulated under Applicable Environmental Law or detrimental to the
environment or health of living organisms. "Hazardous Substance" includes any
and all materials or substances that are defined as "hazardous wastes",
"extremely hazardous wastes" or a "hazardous substances" pursuant to any
Applicable Environmental Law. "Hazardous Substance" includes, but is not
restricted to asbestos, polychlorinated biphenyls ("PCBs"), radon, nuclear
materials and petroleum.
2.2. Representation and Warranties of Hometown. Unless previously
-----------------------------------------
disclosed in writing to Commercial, as of the date of this Agreement and as of
the date of the consummation of the transactions contemplated herein, Hometown
represents and warrants the following to Commercial:
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<PAGE>
(a) Organization. Hometown is a West Virginia corporation duly
------------
organized, validly existing and in good standing under the laws of West
Virginia. UBTC, Community Bank and Paden City are state chartered banks duly
organized, validly existing and in good standing under the laws of West
Virginia. Hometown and each of the subsidiaries of Hometown has the requisite
corporate power and authority to own and lease its properties and to conduct its
business as currently conducted and as currently contemplated to be conducted.
(b) Authority of Hometown. Hometown has the power to enter into this
---------------------
Agreement and to consummate the transactions contemplated herein. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by the Board of Directors of
Hometown. Except for the ratification, confirmation and approval of this
Agreement and the Merger by the shareholders of Hometown, no other acts or
proceedings on its part are necessary to authorize the transactions contemplated
by this Agreement. Upon its execution and delivery, subject only to shareholder
ratification, confirmation and approval, this Agreement constitutes the valid
and legally binding obligation of Hometown. Subject to obtaining the permits,
approvals, consents and authorizations set forth in Article III hereto, the
execution and delivery of this Agreement does not and will not, and the
consummation of the transactions contemplated herein will not, violate (i) any
provision of the Articles of Incorporation or the Bylaws of Hometown, (ii) any
laws of the State of West Virginia or of the United States of America or (iii)
any other material restriction to which Hometown is subject. No acceleration of
payment, default, breach or termination will occur in any material respect by
virtue of the consummation of the transaction contemplated in this Agreement
under any material contract, agreement, deed of trust, note, instrument, order,
judgment or decree.
(c) Capital Stock of Hometown. Hometown has one class of capital
-------------------------
stock consisting of 3,000,000 shares of common stock having a par value of $1.00
per share, 337,077 shares of which were issued as of the date hereof, with
337,077 shares thereof being outstanding and no shares are held in treasury by
Hometown. The outstanding shares of Hometown stock have been duly and validly
authorized and issued and have not been issued in violation of any preemptive
rights of any of its shareholders. In the issuance of its shares Hometown has
complied with all applicable state and federal securities laws.
(d) Absence of Certain Changes. Since June 30, 1993:
--------------------------
(i) There has been no change in the assets, consolidated financial
condition or results of operations of Hometown or the subsidiaries of Hometown,
taken as a whole, which
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<PAGE>
has had, or changes which in the aggregate have had, a materially adverse effect
on Hometown's consolidated assets, financial condition or operations, nor has
any event or condition occurred which is known to the chief executive officers
or chief financial officers of Hometown or the subsidiaries of Hometown which
may result in such a change or changes;
(ii) There has not been any damage, destruction, or loss by reason
of fire, flood, accident or other casualty (whether insured or not insured)
materially and adversely affecting the operations, financial condition or
results of operation of Hometown or the subsidiaries of Hometown which
materially and adversely affects the consolidated assets, financial condition or
operations of Hometown and the subsidiaries of Hometown taken as a whole;
(iii) Neither Hometown nor any of the subsidiaries of Hometown have
disposed of or agreed to dispose of any properties or assets, nor has any of
them leased to others, or agreed to so lease, any of such properties or assets
which leases or dispositions would be material to Hometown and the subsidiaries
of Hometown taken as a whole;
(iv) There has not been any change in the authorized, issued or
outstanding capital stock of Hometown or any material change in the outstanding
debt of Hometown, other than changes due to payments in accordance with the
terms of such debt and other than the acceptance of deposits by the subsidiaries
of Hometown in the ordinary course of business;
(v) Hometown has not granted any warrant, option or right to acquire,
or agreed to repurchase, redeem or otherwise acquire any shares of its capital
stock or any other of its securities whatsoever except as contemplated herein;
(vi) There has not been, nor will there be, any declaration, setting
aside or payment of any dividend or distribution in respect of any shares of the
common stock of Hometown except as permitted herein;
(vii) No change has occurred in the personnel who are key personnel
with respect to the operations of Hometown or the subsidiaries of Hometown, nor
has there been any material increase in the compensation or fees payable by
Hometown or the subsidiaries of Hometown to directors or officers, or any
material increase in any bonus, insurance, pension or other employee benefit
plan, payment or arrangement for or with any of such directors or officers other
than increases in the ordinary course of business made in a manner consistent
with previous years;
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<PAGE>
(viii) Neither Hometown nor the subsidiaries of Hometown have made
any material loan or advance, other than in the ordinary course of business;
(ix) Neither Hometown nor the subsidiaries of Hometown have made any
expenditure or major commitment for the purchase, acquisition, construction or
improvement of any capital asset which would be, or of capital assets which in
the aggregate would be, material to Hometown and the subsidiaries of Hometown
taken as a whole;
(x) Neither Hometown nor the subsidiaries of Hometown have entered
into any other transaction, contract or lease, or incurred any other obligation
or liability which would, individually or in the aggregate, be material to
Hometown and the subsidiaries of Hometown taken as a whole; and
(xi) There has not been any other event, condition or development of
any kind which materially and adversely affects the assets, financial condition
or operations of Hometown and the subsidiaries of Hometown taken as a whole, and
management of the respective entities has no knowledge of any such event,
condition or development which may materially and adversely affect the
consolidated assets, financial condition or operations of Hometown and the
subsidiaries of Hometown taken as a whole.
(e) Taxes. (i) Hometown and the subsidiaries of Hometown
-----
have filed all federal income tax returns and all other federal, state,
municipal and other tax returns which each is required to file, have paid all
taxes shown to be due on such returns and, in the opinion of their respective
chief executive and financial officers, have adequately reserved or recognized
for all current and deferred taxes;
(ii) Neither the Internal Revenue Service nor any other taxing
authority is now asserting against Hometown or the subsidiaries of Hometown, or,
to management's knowledge, threatening to assert against either of them, any
material deficiency or material claim for additional taxes, interest or
penalties;
(iii) There is no pending or threatened examination of the federal
income tax returns of Hometown and, except for tax years still subject to the
assessment and collection of additional federal income taxes under the three
year period of limitations prescribed in IRC (S) 6501(a), no tax year of
Hometown remains open to the assessment and collection of additional federal
income taxes; and
(iv) There is no pending or threatened examination of the West
Virginia business and occupation tax returns of Hometown or the subsidiaries of
Hometown, and, except
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<PAGE>
for tax years still subject to the assessment and collection of additional
business and occupation taxes under the three year period of limitations
prescribed in Code (S) 11-10-15, no tax year of Hometown or the subsidiaries of
Hometown remains open to the assessment and collection of additional business
and occupation taxes.
(f) Litigation. Neither Hometown nor the subsidiaries of Hometown
----------
is a party to, or, to the knowledge of their executive officers, is threatened
with any litigation, action, governmental or other proceeding, investigation,
strike or other labor dispute which might affect the validity of this Agreement
or which, individually or in the aggregate, might have a materially adverse
affect on their assets, financial condition or operations or material
contractual rights of Hometown and the subsidiaries of Hometown taken as a
whole; and there is no outstanding material order, writ, injunction or decree of
any court or governmental agency against or affecting Hometown or any of the
subsidiaries of Hometown or a material portion of their respective businesses
financial condition, operations, material contract rights or assets taken as a
whole.
(g) Absence of Defaults and Violations. Neither Hometown nor
----------------------------------
any of the subsidiaries of Hometown is (i) in default under any term or
provision of any mortgage, deed of trust, note, bond, indenture, commitment,
contract, agreement, franchise, permit, license, lease or instrument to which
they are a party or by which any of them or their respective properties is bound
and which is material to their financial condition, businesses or operations
taken as a whole, (ii) subject to any judgment, decree or order of any court or
order, agreement, or similar arrangement with a regulatory authority which
materially restricts their operations or requires any material action when
considering Hometown and the subsidiaries of Hometown as a whole, (iii) in
violation of any law, rule or regulation known and applicable to them which
violation could materially affect their financial condition, assets, businesses
or operations taken as a whole, or (iv) in receipt of notification from any
agency or department of federal, state or local government or regulatory
authority or the staff thereof asserting that it is not in compliance with any
of the statutes, regulations, rules or ordinances which such governmental
authority or regulatory authority enforces and which lack of compliance could
materially affect their financial condition, assets, businesses or operations
taken as a whole, or any threat to revoke any license, franchise, permit or
governmental authorization which could materially affect their financial
condition, assets, businesses or operations taken as a whole.
(h) Absence of Undisclosed or Contingent Liabilities. Except to
------------------------------------------------
the extent reflected on the June 30, 1993 consolidated financial statements of
Hometown delivered to Commercial, there exists no claim, liability, obligation,
or any
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<PAGE>
known asserted claim, secured or unsecured (whether accrued, absolute,
contingent or otherwise), that would have a material adverse effect on the
consolidated operations, financial condition, businesses, material contract
rights, assets or results of operations of Hometown andthe subsidiaries of
Hometown taken as a whole.
(i) Financial Statements. Hometown has delivered to Commercial
--------------------
copies of the audited consolidated financial statements of Hometown for the
fiscal year ended December 31, 1992, and unaudited interim statements for the
six month period ended June 30, 1993. Hometown represents and warrants that its
financial statements which have been or will be delivered pursuant to any
provision of this Agreement fairly present the financial position of Hometown as
of the date thereof and the results of its operations for each period specified
therein in conformity with generally accepted accounting principles applied on a
consistent basis.
(j) Title to Property. Hometown and the subsidiaries of Hometown
-----------------
have good and marketable title to all of their property and assets set forth on
the consolidated balance sheet of Hometown as of June 30, 1993, subject to no
liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said balance sheet, liens of record, liens which do not materially
affect the current use of the property or liens for ad valorem taxes not yet due
and payable, and all of their leases are in full force and effect, and neither
Hometown nor any of the subsidiaries of Hometown is aware of any default
thereunder.
(k) Reserve for Possible Loan Losses. The management of Hometown
--------------------------------
is of the opinion that the reserve for possible loan losses shown on the balance
sheet of Hometown as of June 30, 1993 delivered pursuant to this Agreement is
adequate, in accord with generally accepted accounting principles, as of the
date thereof.
(l) No Adverse Event. Since June 30, 1993 there has been no change
----------------
or changes, which, individually or in the aggregate, has or have materially and
adversely affected the consolidated financial condition, results of operations,
businesses or assets of Hometown and the subsidiaries of Hometown taken as a
whole.
(m) Material Contracts. Neither Hometown nor the subsidiaries
------------------
of Hometown is a party to, or is bound or affected by, or receives benefits
under any material agreement, arrangement or commitment not cancellable without
penalty, other than agreements, arrangements or commitments entered into in the
ordinary course of business consistent with its past practice and negotiated on
an arm's length basis. All material contracts have been previously identified
in writing to Commercial.
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<PAGE>
(n) ERISA. (i) Each plan subject to Title IV of ERISA and
-----
established or maintained for persons including employees or former employees of
Hometown or the subsidiaries of Hometown ("Plan") has been maintained and
funded in accordance with its terms and with all provisions of ERISA applicable
thereto; (ii) no event reportable under Section 4043 of ERISA has occurred and
is continuing with respect to any Plan; (iii) no liability to Pension Benefits
Guaranty Corporation has been incurred with respect to any Plan, other than for
premiums due and payable; (iv) no Plan has been terminated, no proceedings have
been instituted to terminate any Plan, and no decision has been made to
terminate or institute proceedings to terminate any Plan; and (v) there has been
no cessation of, and no decision has been made to cease, operations at a
facility or facilities where such cessation could reasonably be expected to
result in a separation from employment of more than 20% of the total number of
employees who are participants under any Plan.
(o) Regulatory Reports. Hometown and the subsidiaries of Hometown
------------------
have filed all material reports required to be filed by them with all applicable
banking regulators, and with any other regulatory authority to which they must
report, and such reports have been completed in accord with applicable
regulations and requirements.
(p) Environmental Concerns. To the knowledge of their respective
----------------------
chief executive and chief financial officers, neither Hometown nor the
subsidiaries of Hometown own any property where:
1. Material amounts of Hazardous Substances have been generated,
treated, stored, disposed of, incinerated or recycled at or on the property;
2. Aboveground or underground storage tanks are or have been located;
3. Spills, discharges, releases, deposits of material amounts of any
Hazardous Substances have occurred;
4. Hazardous Substances have been released on adjacent properties
which could migrate onto the property;
5. An investigation or administrative proceeding by a governmental
agency or a lawsuit by a governmental agency or private third party occurred
involving Applicable Environmental Law and where the property contains
conditions which would give rise to such an event; or
6. Solid waste as defined in the West Virginia Solid Waste Management
Act, West Virginia Code (S) 20-5F-1 et seq. has been disposed of.
-- ---
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<PAGE>
To the knowledge of their respective chief executive and chief financial
officers, neither Hometown nor the subsidiaries of Hometown has a loan secured
by property which is owned or operated by an entity or person in violation of
Applicable Environmental Law or has a condition which is known to them to be a
violation of Applicable Environmental Law which has not yet been cited by
appropriate authorities.
For purposes of this Agreement, (1) The term "Applicable Environmental Law"
shall include but shall not be limited to the laws and implementing regulations
of the United States Government, the State of West Virginia and local
governments, whether currently in existence or hereafter enacted, that govern:
(i) the existence, cleanup and/or remedy of hazardous substance contamination on
property; (ii) the protection of the environment from released, spilled,
deposited or otherwise emplaced hazardous substance contamination; (iii) the
control of hazardous substances and hazardous substance waste; and (iv) the
reporting, use, generation, transport, treatment and removal of hazardous
substances and (2) The term "Hazardous Substance" shall mean any substance which
at any time is toxic, ignitable, reactive or corrosive and that is regulated by
any Applicable Environmental Law or which has been or shall be determined at any
time by any agency or court to be a toxic, ignitable, reactive or corrosive
substance regulated under Applicable Environmental Law or detrimental to the
environment or health of living organisms. "Hazardous Substance" includes any
and all material or substance that are defined as "hazardous wastes", "extremely
hazardous waste" or a "hazardous substance" pursuant to any Applicable
Environmental Law. "Hazardous Substance" includes, but is not restricted to
asbestos, polychlorinated biphenyls ("PCBs"), radon, nuclear materials and
petroleum.
(q) Registered Bank Holding Company. Hometown is a duly registered
-------------------------------
bank holding company under the Bank Holding Company Act of 1956, as amended.
(r) Ownership of Subsidiaries. Hometown is the owner of 100% of
-------------------------
the issued and outstanding shares of UBTC, Paden City, Community Bank and
Hometown Insurance Agency, Inc. and of 14.51% of the issued and outstanding
shares of Powhatan Point, free and clear of any liens and encumbrances.
(s) Hometown Insurance Agency, Inc.. Hometown Insurance Agency,
-------------------------------
Inc. is presently inactive. During its period of operation, it was in material
compliance with all applicable law. Hometown is aware of no liability or
contingent liability relating to the former operations of the agency.
(t) SEC Reports. The Form 10-K Annual Report to the Securities
-----------
and Exchange Commission by Hometown for the year ended December 31, 1992, and
its quarterly filings made during 1993 on Form 10-Q do not contain, as of the
date hereof or as of their
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<PAGE>
respective dates, any untrue statement of a material fact or omit to state any
material fact necessary to make the statement therein, in light of the
circumstances under which such statements were made, not misleading.
ARTICLE III
-----------
ADDITIONAL AGREEMENTS
---------------------
3.1 Approval of Hometown Shareholders. Hometown will submit to
---------------------------------
shareholders, as part of the proxy materials prepared for their consideration,
this Agreement and the transactions contemplated herein for approval,
ratification and confirmation by the holders of at least a majority of its
issued and outstanding shares in accordance with law.
3.2 Approval of Commercial Shareholders. Commercial will submit to its
-----------------------------------
shareholders, as part of the proxy materials prepared for their consideration,
this Agreement and the transactions contemplated herein for approval,
ratification and confirmation by the holders of at least a majority of its
issued and outstanding shares in accordance with law.
3.3 Rights of Dissenting Stockholders. Any shareholder of Hometown
---------------------------------
or Commercial who properly perfects his or her right to dissent under W. Va.
Code (S)(S) 31-1-122 and 31-1-123, shall be entitled to the fair value of such
shares as defined by West Virginia law. The appraisal procedures to be followed
will be those set forth in W. Va. Code (S)(S) 31-1-123.
3.4 Regulatory Approval. Commercial, with Hometown, will prepare and
-------------------
file with the Board of Governors of the Federal Reserve System ("FRB") and the
West Virginia Division of Banking ("WVDB") and any other applicable regulator
all applications required to seek approval of the Merger.
3.5 Conduct of Business By Hometown Until Closing. Unless the prior
---------------------------------------------
written consent of Commercial is obtained, Hometown and the subsidiaries of
Hometown, between the date of this Agreement and the Merger Effective Date will:
(a) Take no action, and not permit any action to be taken, which
will have a material adverse effect upon Hometown or the subsidiaries of
Hometown, or their respective properties, financial condition, businesses or
operations;
(b) Take no action or do anything (i) which will cause Hometown or
the subsidiaries of Hometown to be, as of the Merger Effective Date, in
violation of any of their representations, warranties, covenants and agreements
contained in this Agreement or (ii) which will materially and adversely affect
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<PAGE>
the consummation of the transactions contemplated in this Agreement;
(c) Take no action to reclassify or alter Hometown's authorized
stock or the authorized stock of the subsidiaries of Hometown, nor will any of
them issue shares of capital stock, debt instruments, or other securities or to
amend any of their respective Articles of Incorporation, Articles of Association
or Bylaws;
(d) Not pay or declare any dividend or make any other distribution
in respect of Hometown's shares of common stock, or acquire for value any of
such shares (except in connection with its ESOP) or pay any dividend other than
the regular quarterly dividend of $.25 per share payable in September and
December of 1993 and March of 1994; thereafter Hometown may increase its
dividend consistent with historical practice and giving consideration to any
increase Commercial may make in its dividend;
(e) Take no action, and not permit any action to be taken, to
mortgage, pledge or subject to any lien or any other encumbrance on any of
Hometown's or either of the subsidiaries of Hometown's material assets, to
dispose of any material assets, or to incur or cancel any material debt or
claim, except in the ordinary course of business as heretofore conducted;
(f) Promptly advise Commercial of any material adverse change in the
financial condition, assets, businesses or operations of Hometown and the
subsidiaries of Hometown, taken as a whole, and any material breach of any
representation, warranty, covenant or agreement made by Hometown in this
Agreement;
(g) Maintain in full force and effect adequate fire, directors and
officers liability, casualty, public liability, employee fidelity and other
insurance coverages in accordance with prudent practices to protect Hometown and
the subsidiaries of Hometown against losses for which insurance protection can
be obtained at reasonable cost;
(h) Take no action, and take such reasonable steps as are practicable
to avoid any action being taken, to change the senior management of Hometown, to
increase materially any compensation or fee payable by Hometown or the
subsidiaries of Hometown to its respective directors and executive officers or
key employees, or to increase materially any loans, insurance, pension or other
employee benefit plan, payment or arrangement for such officers, directors or
key employees, except for increases in the ordinary course of business of any of
them made in a manner consistent with previous years;
(i) Take no action or engage in negotiations, (i) to acquire, or to be
acquired by, to merge or merge with any company or business, to sell
substantially all of Hometown's or any
E-25
<PAGE>
Hometown subsidiaries' assets, or to enter into any similar transaction other
than pursuant to the provisions of this Agreement, or (ii) to acquire any
branch, (iii) or, except in the ordinary course of business, to acquire any
material assets of any other company or business; and
(j) Take no material action and not permit any material action to be
taken, whatsoever with respect to their consolidated properties, assets,
businesses or operations, other than in the ordinary course of their businesses.
3.6 Conduct of Business by Commercial Until Closing. Commercial, as a
-----------------------------------------------
bank holding company, in the normal conduct of its business, may acquire other
banks or bank holding companies or engage in certain nonbanking activities which
are closely related to banking, all as permitted under federal and state law.
Accordingly, Commercial may continue to seek and consider such opportunities and
will not be restrained from doing so by the terms of this Agreement. In the
event that Commercial should reach an understanding with another entity
regarding a merger, purchase or consolidation, then, after obtaining Hometown's
written consent, Commercial may proceed with such a merger, purchase or
consolidation concurrently with the acquisition by merger contemplated by this
Agreement.
Unless the prior written consent of Hometown is obtained, Commercial
between the date hereof and the Effective Time of the Merger, shall:
(a) Take no action, and not permit any action to be taken, by it or
its subsidiaries, which will have a material adverse effect upon its properties,
financial condition, businesses or operations taken as a whole;
(b) Take no action or do anything (i) which will cause it to be in
violation of its representations, warranties, covenants and agreements contained
in this Agreement or (ii) which will materially and adversely affect the
consummation of the transaction contemplated in this Agreement;
(c) Take no action to reclassify or alter its authorized capital
stock or to amend its Articles of Incorporation or Bylaws;
(d) Promptly advise Hometown of any material adverse change in the
consolidated financial condition, assets, businesses or operations of Commercial
and any breach of any representation, warranty, covenant or agreement made by
Commercial in this Agreement;
(e) Not pay or declare any dividend or make any other distribution in
respect of Commercial's shares of common stock, or acquire for value any such
shares (except in connection with its
E-26
<PAGE>
ESOP) or pay any dividend other than its regular quarterly dividend of $.23;
provided, that Commercial may increase its current quarterly dividend consistent
with historical practices, up to 25% above the current dividend amount; and
(f) Maintain in full force and effect adequate fire, casualty, public
liability, employee fidelity and other insurance coverages in accordance with
prudent practices to protect fully Commercial and its subsidiaries against
losses for which insurance protection can reasonably be obtained.
3.7 Registration of Securities, Proxy Statement. It is understood
-------------------------------------------
that as an integral part of the transaction contemplated by this Agreement, an
SEC Registration Statement including proxy materials must be prepared and sent
to Hometown and Commercial shareholders presenting certain disclosures about
Commercial, Hometown and about the transactions contemplated herein. Commercial
and Hometown agree to assist in the due diligence related thereto, and to
cooperate fully in the preparation of the proxy materials to be sent to the
respective shareholders of Hometown and Commercial.
As soon as practicable after the date hereof, Commercial will cause a
registration statement (or, in the case of State law "blue sky" filings, other
appropriate form) to be filed with and declared effective by the Securities and
Exchange Commission, appropriate agencies regulating securities, and other
governmental agencies having jurisdiction, with respect to the common stock of
Commercial to be issued pursuant to this Agreement. The registration statement
(and other appropriate forms) will comply as to form with applicable
requirements of law and, except as to the information about Hometown furnished
by it in writing for use in the registration statement (or other appropriate
form) or written information about Hometown contained therein and reviewed by
it, which information will be warranted by Hometown, will contain no untrue
statement of any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.8 Hometown Employment Agreements. The employment agreements presently
------------------------------
effective with respect to Gary R. Davis, David L. Mendenhall and Patty S. Poling
shall remain in place and Hometown's obligations thereunder shall be assumed by
Commercial by virtue of the Merger.
3.9 Representatives on Commercial Board. Hometown will have three (3)
-----------------------------------
representatives on the Commercial board to be selected upon by Hometown and the
three (3) individuals will be presented to the Commercial shareholders for
election when Commercial shareholders vote on the Merger. The nominees will
commence their terms as directors of Commercial as of the first Commercial board
meeting following the Merger Effective Date.
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<PAGE>
Commercial will nominate the Hometown representatives as a part of its slate of
director nominees presented to Commercial shareholders at their regular 1994
annual meeting. Commercial will also include one or more of Hometown's
representatives on the executive committee of Commercial's board and on other
board committees.
3.10 Good Faith. Commercial and Hometown shall cooperate fully with
----------
each other and use their best efforts (i) to take or cause to be taken by them,
as promptly as practicable, all actions required under this Agreement and (ii)
to consummate the transactions contemplated herein at the earliest practicable
date.
3.11 Employees. Employees of Hometown and the subsidiaries of
---------
Hometown shall maintain their current benefits programs after the Merger
Effective Date. As soon as practicable after the Merger Effective Date,
Hometown employees will be eligible to participate in benefit plans
substantially similar to those in effect at the present subsidiaries of
Commercial and such employees will receive credit for their tenure as employees
of Hometown or its subsidiaries in determining their eligibility or status under
such plans.
3.12 Access and Information. Commercial and Hometown and their respective
----------------------
subsidiaries shall each afford to the other, and to the other's accountants,
counsel and other representatives, full access during normal business hours,
during the period prior to the Merger Effective Date, to all of their respective
properties, books, contracts, commitments and records and, during such period,
each shall furnish or make available promptly to the other (a) a copy of each
report, schedule and other documents filed or received by it during such period
pursuant to the requirements of Federal and state banking and securities law,
and (b) all other information concerning its business, properties and personnel
as such other party may reasonably request. In the event of the termination of
this Agreement, each party hereto shall: (i) hold confidential all information
obtained in connection with the proposed transaction with respect to the other
party which is not otherwise public knowledge; and return all documents
(including copies thereof) obtained hereunder from the other party; and (ii) use
its best efforts to cause all information obtained by it or its representative
pursuant to this Agreement or in connection with the negotiation thereof to be
treated as confidential and shall not use, nor knowingly permit others to use,
any such information unless such information becomes generally available to the
public. The parties hereto and their respective affiliates shall use all
information that each obtains from the other pursuant to this Agreement solely
for the effectuation of the transactions contemplated by this Agreement or for
purposes consistent with the intent of this Agreement, and shall not use any of
such information for any other purpose, including, without limitation, the
competitive detriment of any party. The confidentiality agreement
E-28
<PAGE>
contained in this section shall remain operative and in full force, and shall
survive the termination of this Agreement.
The parties shall mutually agree in advance upon the form and
substance of all public disclosures concerning this Agreement and the
transactions contemplated hereby.
3.13 Subsidiary Bank Board. Immediately after the Merger, the
---------------------
directors of the Hometown subsidiary banks before the Merger will continue as
directors, with the addition of one director to each board to be appointed by
Commercial.
3.14 Directors and Officers Indemnity and Liability Insurance. Hometown's
--------------------------------------------------------
current directors and officers liability insurance policy shall remain in place
until the end of its term unless Commercial purchases substantially similar
coverage, which coverage must also cover prior acts by officers and directors of
UBTC, Paden City and Community. Further, at the termination of Hometown's
current directors' and officers' liability policy, Commercial shall obtain
comparable coverage for the officers and directors of UBTC, Paden City and
Commercial. If Commercial does not obtain comparable coverage during or at the
time of termination of Hometown's current policy, then UBTC, Paden City and
Community, or their successors and assigns, may continue to purchase coverage
comparable to that presently in effect for Hometown and the subsidiaries of
Hometown. Commercial acknowledges that any indemnification obligation of
Hometown under its articles and bylaws will, by virtue of the Merger, become the
obligation of Commercial as of the Merger Effective Date.
ARTICLE IV
----------
CONDITIONS
----------
4.1 Conditions to Obligations of All Parties. Subject to the respective
----------------------------------------
right of each party to waive any condition required to be met by the other party
hereto by this Section 4.1, the parties are not obligated to consummate, or to
cause to be consummated, the transactions contemplated by this Agreement unless:
(a) Shareholder Approval of Transaction. Before the Closing,
-----------------------------------
Commercial and Hometown shall have obtained the approval, ratification and
confirmation of this Agreement and the transactions contemplated herein by their
respective shareholders, as required by law and by any applicable provision of
their respective articles of incorporation and bylaws.
(b) Absence of Restraint. No order to restrain, enjoin or
--------------------
otherwise prevent the consummation of the transactions contemplated in this
Agreement shall have been entered by any court
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or administrative body which remains in effect on the Merger Effective Date.
(c) Governmental Approvals. There shall have been obtained by the
----------------------
Merger Effective Date any and all permits, approvals and consents of every
governmental body or agency which are necessary or appropriate so that
consummation of the transactions as contemplated in this Agreement shall be in
compliance with all applicable laws, including, without limitation, those with
respect to the FRB, the WVDB, and any other bank regulator with jurisdiction
over the transactions.
(d) Compliance with Representations, Warranties and Additional
----------------------------------------------------------
Agreements. All of the representations and warranties of the parties contained
- ----------
in this Agreement shall be true in all material respects at and as of the Merger
Effective Date with the same force and effect as if they had been made at and as
of such date (except for changes contemplated and permitted by this Agreement or
otherwise consented to in writing by the appropriate party to this Agreement)
and each party shall have complied with and performed, in all material respects,
all of the agreements contained in this Agreement to be performed by it at or
before the Merger Effective Date. At the Closing of the Merger, each party shall
have received from the other party to this Agreement, a certificate, in
affidavit form, dated as of the date of the Merger Effective Date, signed by
such party's chief executive officer and chief financial officer, certifying
that the foregoing statements made in this Section 4.1(d) are true and correct
to the best of their knowledge and belief.
(e) Securities Law Compliance. The registration statement filed by
-------------------------
Commercial with the Securities and Exchange Commission shall be effective on
the date of the Merger Effective Date. No order suspending the effectiveness
thereof shall have been issued which remains in effect on the date of the Merger
Effective Date, and no proceedings for that purpose shall, before the Merger
Effective Date, have been initiated or, to the best knowledge of Commercial,
threatened. All state securities and "blue sky" permits or approvals required
to carry out the transaction contemplated in this Agreement shall have been
received.
(f) Tax-Free Exchange. All criteria to assure the tax-free
-----------------
exchange of Hometown shares for Commercial shares must be met.
(g) Due Diligence. Each party must have the opportunity to conduct
-------------
a due diligence investigation into various aspects of the other's operations and
be satisfied with its results of such a review. Each must notify the other of
any objections or requirements arising as a result of its determination that it
is not satisfied, in its discretion, with the results of such
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investigation, on or before 5:00 p.m. on September 30, 1993 and notice shall be
sent pursuant to the provisions of paragraph 6.6 of this Agreement. Failure by
either party to timely provide notice as required in this paragraph shall be
construed to mean that it does not raise any objection based upon its review and
that the condition precedent to closing contained in this subsection (g) has
been satisfied. The provisions of this subsection shall only provide a basis
for termination if the procedures set forth herein are followed within the time
frame set forth.
(h) Accounting Treatment. All criteria for the Merger to be
--------------------
accounted for under the pooling of interests method of accounting shall have
been met.
4.2 Additional Conditions to Obligations of Commercial.
--------------------------------------------------
(a) Shareholder Approval. Holders of an aggregate of greater than
--------------------
10% of the issued and outstanding shares of Hometown and Commercial shall not
have perfected their rights to dissent to the transactions contemplated herein.
(b) Counsel's Opinion. Commercial shall have received an
-----------------
opinion of counsel for Hometown dated as of the Merger Effective Date, to the
effect that:
(i) Hometown is a bank holding company duly organized, validly
existing and in good standing under the laws of the State of West Virginia and
is duly authorized to conduct its business in the State of West Virginia and
UBTC, Paden City and Community Bank are state chartered banking institutions
duly organized, validly existing and in good standing under the laws of West
Virginia and duly authorized to conduct their businesses as presently conducted.
(ii) The authorized capital stock and the number of shares issued
and outstanding of Hometown, Paden City and Community Bank are as stated in the
opinion. The issued and outstanding shares are validly issued, fully paid and
non-assessable, and were not issued in violation of any preemptive rights of the
shareholders of any of them. As of such date, to the best of counsel's
knowledge, there are no options, warrants, convertible securities or similar
items outstanding on behalf of Hometown, UBTC, Paden City and Community Bank.
(iii) Hometown has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement. This Agreement has
been duly authorized, executed and delivered by Hometown and constitutes the
legal, valid and binding obligation of Hometown, enforceable in accordance with
its terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws (whether federal
or state) in effect from time to time
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affecting creditors' rights generally, by the application of general principles
of equity (including, without limitation, that the applicability of the
equitable remedy of specific performance of injunctive relief is subject to the
discretion of the court before which any such proceeding may be brought), and by
the application of public policy.
(iv) All necessary corporate proceedings have been duly and validly
taken by Hometown, to the extent required by law, its articles of incorporation
and bylaws, or otherwise, to authorize the execution and delivery of this
Agreement by Hometown and the consummation of the transactions contemplated
herein.
(v) Counsel has reviewed the proxy statement and SEC registration
statement contemplated hereby and with respect to all information relating to
Hometown contained therein, counsel does not know of any respect in which the
proxy statement and SEC registration statement contained any false or misleading
statement of any material fact or failed to state a material fact which was
necessary to be stated to prevent the statements made from being false or
misleading in any material respect, except as to the financial statements and
related notes and schedules and other financial data, as to the quality of the
loan and securities portfolios, and as to the adequacy of the allowance for loan
losses, as to which such counsel need express no opinion.
(vi) To the knowledge of Hometown's counsel, the consummation of the
transactions contemplated herein will not violate or result in a breach of, or
constitute a default under the articles of incorporation or bylaws of Hometown
or constitute a breach or termination of, or default under, any agreement or
instrument to which Hometown or either of its subsidiary banks is a party or by
which any of them or any of their respective properties is bound and which would
have a material adverse effect on the business of Hometown and the subsidiaries
of Hometown, taken as a whole.
In rendering such opinion, counsel may rely upon certificates from the
officers of Hometown and from public officials and may assume that this
Agreement has been duly and validly executed by Commercial.
(c) Affiliates Agreements. Commercial shall have received an
---------------------
agreement executed and delivered by each shareholder of Hometown who, in the
reasonable opinion of Commercial, may be deemed an affiliate of Hometown as that
term is defined in Rule 145 promulgated by the Securities and Exchange
Commission.
4.3 Additional Conditions to Obligations of Hometown.
------------------------------------------------
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(a) Counsel's Opinion. Hometown shall have received the opinion of
-----------------
counsel to Commercial to the effect that:
(i) Commercial is a West Virginia corporation is validly existing
and in good standing under the laws of West Virginia and is duly authorized to
own its properties and to conduct its business as presently conducted. CB&T, JCB
and F&M are West Virginia chartered banking institutions and Dime Bank is an
Ohio chartered banking institution and all are duly organized, validly existing
and in good standing in the jurisdiction of charter and duly authorized to
conduct their businesses as presently conducted.
(ii) Commercial has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement. All necessary
corporate proceedings have been duly taken by Commercial to the extent required
by law, its articles of incorporation, bylaws or otherwise, to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein. This Agreement constitutes the legal, valid
and binding obligation of Commercial and is enforceable against it in accordance
with its terms except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium, or other laws
affecting creditors rights generally.
(iii) All regulatory approvals of federal or state banking
regulators, and to the best of counsel's knowledge, all other consents or
approvals, necessary to consummate the transactions contemplated herein have
been obtained.
(iv) Counsel has reviewed the proxy statement described herein
and with respect to all information relating to the merger and to Commercial
contained therein, and knows of no respect in which the SEC registration
statement and proxy statement contained any false or misleading statement of any
material fact or of any failure to state a material fact which was necessary to
be stated to prevent the statements made from being false or misleading in any
material respect, except as to the financial statements and other financial data
as to which counsel expresses no opinion.
(v) The consummation of the transaction will not violate or
result in a breach of, or constitute a default under the articles of
incorporation or bylaws of Commercial or constitute a breach or termination of,
or default under, any agreement or instrument of, or default under, any
agreement or instrument of which counsel is aware, which would have a material
adverse effect on the business of Commercial and its subsidiary banks taken as a
whole and to which any of them is a party or by which any of or any of their
respective property is bound.
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(vi) The shares of Commercial's common stock to be issued to the
shareholders of Hometown as a result of consummation of the Merger will be
validly issued, fully paid and non-assessable and will not be issued in
violation of the preemptive right of any shareholder of Commercial.
(b) Tax Ruling or Opinion. On or before the Merger Effective Date,
---------------------
Hometown shall have received an opinion from Bowles Rice McDavid Graff & Love,
Charleston, West Virginia, (upon receipt by such firm of standard
representations made by management of Hometown in the form required for the
issuance of private letter rulings by the Internal Revenue Service) to the
effect that:
(i) The statutory merger of Hometown with and into Commercial
will constitute a tax-free reorganization with in the meaning of IRC Section
368(a)(1)(A);
(ii) The gain, if any, realized by a Hometown shareholder upon
receipt of Commercial shares, will be recognized, but only to the extent of the
cash received in lieu of fractional shares.
(iii) The holding period of the Commercial common stock received
by each holder of Hometown's common stock will include the period during which
the stock of Hometown surrendered in exchange therefor was held, provided such
stock was a capital asset in the hands of the shareholder at the time of the
Merger Effective Date; and
(iv) A Hometown shareholder who dissents from the transaction
and receives solely cash in exchange for his stock in Hometown, will be treated
as having received all such cash in redemption of his Hometown stock subject to
the provisions of I.R.C. (S)(S) 302 and 318.
(c) Fairness Opinion. Hometown shall have received an opinion from
----------------
Austin Associates, Toledo, Ohio, that the proposed transaction is fair to the
shareholders of Hometown from a financial perspective.
ARTICLE V
---------
CLOSING
-------
5.1 Closing. The closing (the "Closing") of the Merger shall take
-------
place at the principal office of Commercial, or such other place as may be
agreeable to the parties hereto, and shall consist of the exchange of items
required hereby and the filing of
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<PAGE>
the Articles of Merger with the Office of the Secretary of State of West
Virginia.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Termination. This Agreement may be terminated and canceled, and
-----------
the transaction contemplated herein may be abandoned, notwithstanding
shareholder authorization, at any time before the Effective Date as follows:
(a) By mutual consent of the Board of Directors of Commercial
and Hometown as evidenced by a majority vote of each of their respective Boards
of Directors; or
(b) By Commercial if any of the conditions required to be satisfied
by Hometown specified in Sections 4.1 and 4.2 hereof shall not have been
satisfied within the time contemplated by this Agreement for consummation of
this transaction; or
(c) By Hometown if any of the conditions required to be satisfied
by Commercial specified in Section 4.1 and 4.3 hereof shall not have been
satisfied within the time contemplated by this Agreement for consummation of the
transactions; or
(d) By any party if the Merger will violate any nonappealable
final order, decree or judgment of any court of governmental body which binds
any party.
In any event, the obligations of the parties under this Agreement shall
terminate July 30, 1994, if the Closing has not occurred before that date,
unless the parties mutually agree in writing to an extension of the time within
which to close.
In the event of the termination of this Agreement for any reason, each
party shall forthwith deliver to the other parties hereto all documents, work
papers and other material obtained from it or any of its subsidiaries relating
to the transaction contemplated herein, whether obtained before or after the
execution hereof, and will continue to treat as confidential all such
information in the same manner as it treats similar confidential information of
its own and shall cause its and its subsidiaries' employees, agents and
representatives, to keep all such information confidential except for such
disclosures that are required by law or regulation or by rule, order or decree
or any court or government agency.
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6.2 Expenses. Each of the parties to this Agreement agrees to pay,
--------
without a right to reimbursement from the other party hereto and whether or not
the transaction contemplated in this Agreement shall be consummated, all of the
costs incurred by it incident to the performance of its obligations under this
Agreement and to the consummation of the transactions contemplated herein.
6.3 Survival of Provisions. The representations, warranties,
----------------------
obligations and other agreements contained in all sections of Article I,
Sections 3.9, 3.12, 3.14, 6.1 and 6.2 of this Agreement shall survive the
consummation of the transaction contemplated herein and shall be and remain
strictly enforceable thereafter in accordance with the terms thereof for the
period of three years after the Merger Effective Date. Except as aforesaid, and
except as may be otherwise explicitly provided in this Agreement, the respective
representations, warranties, obligations and other agreements of the parties
hereto shall not survive the Closing.
6.4 Amendment. This Agreement may be amended by mutual consent of
---------
the Board of Directors of Commercial and Hometown, evidenced by a majority vote
of each of their respective Boards of Directors, at any time before or after
approval thereof by the shareholders; but, after any such shareholder approval,
no amendment shall be made to this Agreement which substantially and adversely
changes the terms of the particular agreement without obtaining the further
approval of the respective shareholders of that party. This Agreement may not
be amended except by an instrument in writing duly executed by the appropriate
officers on behalf of each of the parties hereto.
6.5 Assignability. This Agreement shall inure to the benefit of and
-------------
be binding upon the parties hereto and their respective successors and assigns,
provided that this Agreement may not be assigned by any party without the prior
written consent of the other party hereto.
6.6 Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be made in writing and shall be deemed to have been
duly given or received if delivered in person or if sent by certified mail, with
postage prepaid, addressed as follows:
TO COMMERCIAL: TO HOMETOWN:
William E. Mildren, Jr. Gary R. Davis, President
Chairman/President & CEO Hometown Bancshares, Inc.
415 Market Street Fair & Dodd Streets
Parkersburg, WV 26101 P. O. Box 145
Middlebourne, WV 26149
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<PAGE>
COPY TO: COPY TO:
Robert W. Burk, Esq. Philip B. Hill, Esq.
Burk, Myers and Zivkovich Snyder & Hassig
315 Market Street 800 Chelsea Street
P. O. Box 287 P. O. Box 166
Parkersburg, WV 26102 Sistersville, WV 26175
6.7 Entire Agreement. This Agreement, together with all exhibits attached
--------------------
hereto, constitutes the entire agreement among the parties and shall supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of the transaction contemplated
herein and may not be changed except by amendment pursuant to the provisions of
Section 6.4 of this Agreement.
6.8 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original; but all of which shall
constitute one and the same instrument.
6.9 Governing Law. Subject to the applicable law of the United
-------------
States of America, this Agreement shall be governed and construed in all
respects, including, but not limited to, validity, interpretation and effect,
pursuant to the laws of the State of West Virginia.
6.10 Invalid Provisions. The invalidity or unenforceability of any
------------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
6.11 Headings and Subheadings. The headings and subheadings used in
------------------------
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their corporate officers thereunto duly authorized.
COMMERCIAL BANCSHARES, INC.
BY /s/William E. Mildren, Jr.
ITS President
HOMETOWN BANCSHARES, INC.
BY /s/ Gary R. Davis
ITS President
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<PAGE>
EXHIBIT B
FAIRNESS OPINION
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<PAGE>
[LOGO AND LETTERHEAD OF AUSTIN ASSOCIATES, INC.]
May 6, 1994
Board of Directors
Hometown Bancshares, Inc.
Fair and Dodd Streets
Middlebourne, WV 26149
Dear Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Hometown Bancshares, Inc. ("Hometown") and its shareholders of the
terms of the Agreement and Plan of Merger dated September 30, 1993 (the "Merger
Agreement"), between Hometown and Commercial BancShares, Incorporated,
Parkersburg, West Virginia ("Commercial"). The terms of the Merger Agreement
provide for the merger of Hometown with and into Commercial. Commercial will be
the surviving bank holding company and the current subsidiary banks of Hometown
will become subsidiary banks of Commercial.
The terms of the Merger Agreement provide for shareholders of Hometown, other
than those exercising dissenter's rights, to receive 1.512 shares of Commercial
common stock in exchange for each share of Hometown stock they own. No
fractional shares of Commercial will be issued in connection with the merger,
and in lieu thereof, Commercial will pay cash to Hometown shareholders for the
value of any fractional share on the basis of a fixed price of $26.00 per share
of Commercial stock.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of Hometown and Commercial, including
but not limited to the following: (i) the Prospectus/Joint Proxy Statement;
(ii) the financial statements of Hometown and Commercial for the years 1990
through 1993; (iii) certain other publicly available information on Hometown and
Commercial; (iv) publicly available information regarding the performance of
certain other companies whose business activities were believed by Austin
Associates to be generally comparable to those of Hometown and Commercial; (v)
the financial terms, to the extent publicly available, of certain comparable
transactions; and (vi) such other analysis and information as Austin Associates
deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by Hometown
or Commercial, and have instead relied upon representations and information
concerning loans of
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<PAGE>
Hometown and Commercial in the aggregate. In rendering our opinion, we have
assumed that the transaction will be a tax-free reorganization with no material
adverse tax consequences to any of the parties involved or to Hometown
shareholders receiving Commercial stock. In addition, we have assumed in the
course of obtaining the necessary regulatory approvals for the transaction, no
condition will be imposed that will have a material adverse effect on the
contemplated benefits of the transaction to Hometown and its shareholders.
Based upon our analysis and subject to the qualifications described herein,
considering all circumstances known to us and based on other matters we consider
relevant, we believe that as of the date of this letter, the terms of the Merger
Agreement are fair, from a financial point of view, to Hometown and its
shareholders.
For our services in rendering this opinion, Hometown will pay us a fee and
indemnify us against certain liabilities.
Austin Associates, Inc.
/s/Austin Associates, Inc.
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<PAGE>
EXHIBIT C
HOMETOWN TAX OPINION
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<PAGE>
[LETTERHEAD OF BOWLES RICE MCDAVID GRAFF & LOVE]
May 6, 1994
Hometown Bancshares Incorporated
Fair and Dodd Streets
Middlebourne, West Virginia 26149
Gentlemen:
We are counsel for Commercial Bancshares Incorporated, a West Virginia
corporation ("Commercial") in connection with the proposed merger (the "Merger")
of Hometown Bancshares Incorporated ("Hometown") with and into Commercial
pursuant to which the shareholders of Hometown will receive shares of common
stock of Commercial in exchange for their shares of common stock of Hometown.
Commercial will continue to exist and the separate existence and corporate
organization of Hometown will cease.
The relevant facts concerning this transaction are set forth in the
Form S-4 Registration Statement (the "Registration Statement") filed by
Commercial with the Securities and Exchange Commission and in the Exhibits
attached to the Registration Statement. The description of the transaction set
forth therein is incorporated herein by reference.
(a) The fair market value of the Commercial stock and other consideration to
be received by each Hometown Shareholder will be approximately equal to
the fair market value of the Hometown stock surrendered in the exchange.
(b) There is no plan or intention by the shareholders of Hometown who own one
percent or more of the Hometown stock, and to the best of the knowledge of
the management of Hometown, there is no plan or intention on the part of
the remaining shareholders of Hometown to sell, exchange or otherwise
dispose of a number of shares of Commercial stock received in the
transaction that would reduce the Hometown shareholder's ownership of
Commercial stock to a number of shares having a value, as of the date of
the transaction, of less than 50 percent of the value of all the formerly
outstanding stock of Hometown as of the same date. For purposes of this
representation, shares
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<PAGE>
of Hometown stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of
Commercial stock will be treated as outstanding Hometown stock on the date
of the transaction. Moreover, shares of Hometown stock and shares of
Commercial stock held by Hometown shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transaction will be
considered in making this representation.
(c) Commercial has no plan or intention to reacquire any of its stock issued in
the transaction.
(d) Commercial has no plan or intention to sell or otherwise dispose of any of
the assets of Hometown acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in section
368(a)(2)(C) of the Internal Revenue Code.
(e) The liabilities of Hometown assumed by Commercial and the liabilities to
which the transferred assets of Hometown are subject were incurred by
Hometown in the ordinary course of its business.
(f) Following the transaction, Commercial will continue the historic business
of Hometown or use a significant portion of Hometown's historic business
assets in a business.
(g) Commercial and Hometown will pay their respective expenses, if any,
incurred in connection with the transaction.
(h) There is no intercorporate indebtedness existing between Hometown and
Commercial that was issued, acquired, or will be settled at a discount.
(i) No two parties to the transaction are investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) Hometown is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of section 368(a)(3)(A) of the Code.
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<PAGE>
(k) The fair market value of the assets of Hometown transferred to Commercial
will equal or exceed the sum of the liabilities assumed by Commercial plus
the amount of liabilities, if any, to which the transferred assets are
subject.
Based upon the facts set forth in the Registration Statement and upon the
above representations, we are of the opinion that:
1. The statutory merger of Hometown with and into Commercial will
constitute a tax free reorganization, whereby Commercial will absorb the
corporate enterprise of Hometown.
2. The gain, if any, realized by a Hometown shareholder upon receipt
of Commercial stock will be recognized but not in an amount in excess of any
cash received (including cash received in lieu of fractional shares). Each
shareholder should consult with his or her own tax advisor with respect to the
determination of the tax treatment of the exchange.
3. The holding period of Commercial stock received by each holder of
Hometown stock will include the period during which the Hometown stock
surrendered and exchanged therefore was held, provided that the Hometown stock
was a capital asset in the hand of the holder at the time of the consummation of
the Merger.
4. A Hometown shareholder who dissents from the transaction and
receives solely cash in exchange for Hometown stock should be treated as having
received such cash in redemption of his stock. As a redemption, the cash will
be treated as full payment in exchange for the shareholder's Hometown stock.
Notwithstanding the above, if a Hometown shareholder owns any interests in a
corporation, partnership, trust or other entity which owns Hometown stock or
Commercial stock, or if certain family members of that shareholder own Hometown
stock or Commercial stock, it is possible that the cash received by such a
dissenter could be treated as an ordinary income dividend to the dissenting
shareholder. Again, each shareholder should consult with his or her own tax
advisor with respect to the determination of the tax treatment of the exchange.
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It should be noted that the opinions expressed in this letter are
based upon statutory, judicial and administrative authority as of the date of
this opinion. There can be no assurance that such authority will not be changed
in the future, or that such changes will not be made retroactively applicable to
the transactions considered herein. Moreover, the above-stated opinions are
based upon the facts as we understand them and upon the representations provided
to us. If the facts turn out to be different in any material respect from the
facts stated herein, or if the laws or regulations applicable to the proposed
transactions are changed or reinterpreted by competent tribunals, some or all of
the opinions expressed in this letter may become inapplicable.
Please note further that Treas. Reg. (S)1.368-3 requires certain
records to be kept and information to be filed with the federal income tax
returns of each corporation which is a party to the reorganization. This same
regulation requires each Hometown shareholder who receives Commercial shares in
connection with the reorganization to attach to his federal income tax return
for the year in which such shares are received a statement disclosing the
exchange of Hometown stock for shares of Commercial and reporting the cost or
other basis of Hometown stock given up and the number and value of Commercial
shares received.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the discussion of
Federal Income Tax Consequences in the Registration Statement.
Very truly yours,
/s/Bowles Rice McDavid Graff & Love
BOWLES RICE McDAVID GRAFF & LOVE
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EXHIBIT D
DISSENTERS' RIGHTS STATUTORY PROVISIONS
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<PAGE>
31-1-122. Rights of shareholders to dissent.
Any shareholder of a corporation shall have the right to dissent from any
of the following corporate actions:
(a) Any plan of merger or consolidation to which the corporation is a
party; or
(b) Any sale or exchange of all or substantially all of the property and
assets of the corporation not made in the usual and regular course of its
business, including a sale in dissolution, but not including a sale pursuant to
an order of a court having jurisdiction in the premises or a sale for cash on
terms requiring that all or substantially all of the net proceeds of sale be
distributed to the shareholders in accordance with their respective interests
within one year after the date of sale.
A shareholder may dissent as to less than all of the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders. (1974, c. 13.)
31-1-123. Rights of dissenting shareholders; procedure for purchasing of
dissenting shareholders' shares; civil action for determining value of shares;
procedure for transferring of such shares to corporation and payment therefor.
(a) Any shareholder electing to exercise his right to dissent, pursuant to
section one hundred twenty-two [(S) 31-1-122] of this article, shall file with
the corporation, prior to or at the meeting of shareholders at which such
proposed corporate action is submitted to a vote, a written objection to such
proposed corporate action. If such proposed corporate action be approved by the
re-quired vote and such shareholder shall not have voted in favor thereof, such
shareholder may, within ten days after the date on which the vote was taken or
if a corporation is to be merged without a vote of its shareholders into another
corporation, any of its shareholders may, within fifteen days after the plan of
such merger shall have been mailed to such shareholders, make written demand on
the corporation, or, in the case of a merger or consolidation, on the surviving
or new corporation, domestic or foreign, for payment of the fair value of such
shareholder's shares, and, if such proposed corporate action is effected, such
corporation shall pay to such shareholder, upon surrender of the certificate or
certificates representing such shares, the fair value thereof as of the day
prior to the date on which the vote was taken approving the proposed corporate
action, excluding any appreciation or depreciation in anticipation of such
corporate action. Any shareholder failing to make demand within the ten-day
period shall be bound by the terms of the proposed corporate action. Any
shareholder making such demand shall thereafter be entitled only to payment as
in this section provided and shall not
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be entitled to vote or to exercise any other rights of a shareholder.
(b) No such demand may be withdrawn unless the corporation shall consent
thereto. If, however, such demand shall be withdrawn upon consent, or if the
proposed corporate action shall be abandoned or rescinded or the shareholders
shall revoke the authority to effect such action, or if, in the case of a
merger, on the date of the filing of the articles of merger the surviving
corporation, is the owner of all the outstanding shares of the other
corporations, domestic and foreign, that are parties to the merger, or if no
demand or petition for the determination of fair value by a court of general
civil jurisdiction have been made or filed within the time provided in
subsection (e) of this section, or if a court of general civil jurisdiction
shall determine that such shareholder is not entitled to the relief provided by
this section, then the right of such shareholder to be paid the fair value of
his shares shall cease and his status as a shareholder shall be restored,
without prejudice to any corporate proceedings which may have been taken during
the interim.
(c) Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as herein provided, and shall make a
written offer to each shareholder to pay for such shares at a specified price
deemed by such corporation to be fair value thereof. Such notice and offer shall
be accompanied by a balance sheet of the corporation the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
twelve months prior to the making of such offer, and a profit and loss statement
of such corporation for the twelve months' period ended on the date of such
balance sheet.
(d) If within thirty days after the date on which such corporate action is
effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefor shall be made
within ninety days after the date on which such corporate action was effected,
upon surrender of the certificate or certificates representing such shares. Upon
payment of the agreed value the dissenting shareholder shall cease to have any
interest in such shares.
(e) If within such period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation shall within thirty days after
receipt of written demand from any dissenting shareholder, which written demand
must be given within sixty days after the date on which such corporate action
was effected, file a complaint in a court of general civil jurisdiction
requesting that the fair value of such shares be found and determined, or the
corporation may file such complaint at any time within such sixty-day period at
its own election. Such complaint shall be filed in any court of general civil
jurisdiction in the county in which the principal office of the corporation is
situated, or, if there be no such office in this State, in the
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<PAGE>
county in which any dissenting shareholder resides or is found or in which the
property of such corporation, or any part of it, may be. If the corporation
shall fail to institute such proceedings, any dissenting shareholder may do so
in the name of the corporation. All dissenting shareholders wherever residing,
may be made parties to the proceedings as an action against their shares quasi
in rem. A copy of the complaint shall be served on each dissenting shareholder
who is a resident of this State in the same manner as in other civil actions.
Dissenting shareholders who are nonresidents of this State shall be served a
copy of the complaint by registered or certified mail, return receipt requested.
In addi-tion, service upon such nonresident shareholders shall be made by
publication, as provided in Rule 4 (e) (2) of the West Virginia Rules of Civil
Procedure. All shareholders who are parties to the proceeding shall be entitled
to judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or any subsequent appointment. The judgment
shall be payable only upon and concurrently with the surrender to the
corporation of the certificate or certificates representing such shares. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment.
The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court may deem
equitable against any or all of the dissenting shareholders who are parties to
the proceeding to whom the corporation shall have made an offer to pay for the
shares if the court shall find that the action of such shareholders in failing
to accept such offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but shall exclude the fees and expenses of counsel for and
experts employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay therefor, or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the shareholder in
the proceeding. Any party to the proceeding may appeal any judgment or ruling of
the court as in other civil cases.
(f) Within twenty days after demanding payment for his shares, each
shareholder demanding payment shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such demand
has been made. His failure to do
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<PAGE>
so shall, at the option of the corporation, terminate his rights under this
section unless a court of general civil jurisdiction, for good and sufficient
cause shown, shall otherwise direct. If shares represented by a certificate on
which notation has been so made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
(g) Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide. (1974, c. 13.)
175572
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<PAGE>
COMMERCIAL BANCSHARES INCORPORATED PROXY FOR
SPECIAL SHAREHOLDERS MEETING
KNOW ALL MEN BY THESE PRESENTS that the undersigned shareholder(s) of
Commercial Bancshares Incorporated ("Commercial") Parkersburg, West Virginia,
do hereby nominate, constitute and appoint Larry G. Johnson and Barbara E. Ott,
or either of them, with full power to act alone as the true and lawful
attorneys of the undersigned with full power of substitution, for and in the
name, place and stead of the undersigned to vote all the common stock of
Commercial, standing in the undersigned's name on its books on May 5, 1994, at
the Special Meeting of its shareholders to be held at the offices of
Commercial, 415 Market Street, Parkersburg, West Virginia, on the 22nd day of
June, 1994, at 9:00 a.m. local time, or at any adjournments thereof, with all
the powers the undersigned would possess if personally present, as follows:
1. To adopt and approve a plan to merge Commercial and Hometown Bancshares,
Inc. ("Hometown"), pursuant to the terms of the Agreement and Plan of Merger
(the "Plan") between Commercial and Hometown, dated as of September 30, 1993.
FOR [_] AGAINST [_] ABSTAIN [_]
2. To act upon any other business which may properly come before the Special
Meeting or any adjournment or adjournments thereof.
The undersigned acknowledge receipt of the Notice and Proxy Statement dated
May 9, 1994, and hereby revoke all proxies heretofore given by the undersigned
for said meeting.
(Proxy continued on reverse side)
<PAGE>
This Proxy Confers authority to vote "FOR" the proposition listed above
unless otherwise indicated. The Board of Directors recommends a vote "FOR"
this proposal. If any other matters shall properly come before the meeting, or
any adjournments thereof, this proxy will be voted on such matters in
accordance with the instructions of the Board of Directors.
This Proxy is solicited on behalf of Commercial's Board of Directors and may
be revoked prior to its exercise.
PLEASE MARK, DATE, SIGN AND RETURN IMMEDIATELY. ALL JOINT OWNERS MUST SIGN.
Dated: _____________________, 1994
____________________________(L.S.)
____________________________(L.S.)
When signing as an attorney,
executor, administrator, trustee,
or guardian, please give full
title. If more than one trustee,
all should sign. All joint owners
must sign. If signing on behalf
of a corporation or partnership,
indicate title.
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ADDRESSED ENVELOPE
<PAGE>
HOMETOWN BANCSHARES, INC. PROXY FOR
SPECIAL SHAREHOLDERS MEETING
KNOW ALL MEN BY THESE PRESENTS that the undersigned shareholder(s) of
Hometown Bancshares, Inc. ("Hometown") Middlebourne, West Virginia, do hereby
nominate, constitute and appoint William P. Ingram, Richard Stender and Patty
S. Poling, or any one of them, with full power to act alone as the true and
lawful attorneys of the undersigned with full power of substitution, for and in
the name, place and stead of the undersigned to vote all the common stock of
Hometown, standing in the undersigned's name on its books on May 2, 1994, at
the Special Meeting of its shareholders to be held at the offices of Union Bank
of Tyler County, Fair and Dodd Streets, Middlebourne, West Virginia, on the 7th
day of June, 1994, at 7:00 p.m. local time, or at any adjournments thereof,
with all the powers the undersigned would possess if personally present, as
follows:
1. To adopt and approve a plan to merge Hometown and Commercial Bancshares
Incorporated ("Commercial"), pursuant to the terms of the Agreement and Plan
of Merger (the "Plan") between Hometown and Commercial, dated as of September
30, 1993.
FOR [_] AGAINST [_] ABSTAIN [_]
2. To act upon any other business which may properly come before the Special
Meeting or any adjournment or adjournments thereof.
The undersigned acknowledge receipt of the Notice and Proxy Statement dated
May 9, 1994, and hereby revoke all proxies heretofore given by the undersigned
for said meeting.
(Proxy continued on reverse side)
<PAGE>
This Proxy Confers authority to vote "FOR" the proposition listed above
unless otherwise indicated. The Board of Directors recommends a vote "FOR"
this proposal. If any other matters shall properly come before the meeting, or
any adjournments thereof, this proxy will be voted on such matters in
accordance with the instructions of the Board of Directors.
This Proxy is solicited on behalf of Commercial's Board of Directors and may
be revoked prior to its exercise.
PLEASE MARK, DATE, SIGN AND RETURN IMMEDIATELY. ALL JOINT OWNERS MUST SIGN.
Dated: ________________________, 1994
_______________________________(L.S.)
_______________________________(L.S.)
When signing as an attorney,
executor, administrator, trustee, or
guardian, please give full title. If
more than one trustee, all should
sign. All joint owners must sign. If
signing on behalf of a corporation or
partnership, indicate title.
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ADDRESSED ENVELOPE
<PAGE>
DIRECTION TO THE TRUSTEES OF
COMMERCIAL BANCSHARES, INCORPORATED EMPLOYEE STOCK OWNERSHIP PLAN
RELATING TO THE SPECIAL MEETING OF THE SHAREHOLDERS
JUNE 22,1994
The undersigned participant in the Commercial Bancshares, Incorporated
Employee Stock Ownership Plan does hereby direct the Board of Trustees of the
Commercial Bancshares, Incorporated Employee Stock Ownership Plan to vote the
shares of Commercial Bancshares, Incorporated common stock allocated to the
Stock Account of the undersigned as follows:
To adopt and approve a plan to merge Commercial Bancshares, Incorporated and
Hometown Bancshares, Inc., pursuant to the terms of the Agreement and Plan
of Merger (the "Plan") between Commercial Bancshares, Incorporated and
Hometown Bancshares, Inc. dated as of September 30, 1994, as more fully
described in the accompanying Prospectus/Proxy Statement dated May 9, 1994.
FOR [_] AGAINST [_] ABSTAIN [_]
The undersigned acknowledges receipt of a copy of the Prospectus/Proxy
Statement dated May 9, 1994.
(Proxy continued on reverse side)
<PAGE>
PLEASE MARK, DATE, SIGN AND RETURN IMMEDIATELY. ALL JOINT OWNERS MUST SIGN.
Dated: _______________________, 1994
______________________________ (L.S.)
______________________________ (L.S.)
When signing as an attorney,
executor, administrator, trustee, or
guardian, please give full title. If
more than one trustee, all should
sign.
<PAGE>
DIRECTION TO THE TRUSTEES OF
HOMETOWN BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN RELATING TO
THE SPECIAL MEETING OF THE SHAREHOLDERS
JUNE 7, 1994
The undersigned participant in the Hometown Bancshares, Inc. Employee Stock
Ownership Plan does hereby direct the Board of Trustees of the Hometown
Bancshares, Inc. Employee Stock Ownership Plan to vote the shares of Hometown
Bancshares, Inc. common stock allocated to the Stock Account of the undersigned
as follows:
To adopt and approve a plan to merge Commercial Bancshares, Incorporated and
Hometown Bancshares, Inc., pursuant to the terms of the Agreement and Plan
of Merger (the "Plan") between Commercial Bancshares, Incorporated and
Hometown Bancshares, Inc. dated as of September 30, 1994, as more fully
described in the accompanying Prospectus/Proxy Statement dated May 9, 1994.
FOR [_] AGAINST [_] ABSTAIN [_]
The undersigned acknowledges receipt of a copy of the Prospectus/Proxy
Statement dated May 9, 1994.
(Proxy continued on reverse side)
<PAGE>
PLEASE MARK, DATE, SIGN AND RETURN IMMEDIATELY. ALL JOINT OWNERS MUST SIGN.
Dated: ___________________, 1994
__________________________ (L.S.)
__________________________ (L.S.)
When signing as an attorney,
executor, administrator,
trustee, or guardian, please
give full title. If more than
one trustee, all should sign.
