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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996.
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED].
For the transition period from to .
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Commission file number 1-11791
COMMERCIAL BANCSHARES, INCORPORATED
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(Exact name of registrant as specified in its charter)
West Virginia 55-0622108
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
415 Market Street
Parkersburg, West Virginia 26101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-0300
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, Par Value $5.00 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the closing sale price on the American Stock Exchange on
March 24, 1997,: Common Stock, $5.00 par value -$47,135,576
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The number of shares outstanding of each of the registrant's classes of common
stock as of March 24, 1997: Common Stock, $5.00 par value - 1,616,187 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held May 14, 1997 are incorporated by reference into Part III.
Page 1
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PART I
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Item 1. BUSINESS
Commercial BancShares, Incorporated may also be referred to herein as
"Commercial". The subsidiaries may be referred to as follows: Commercial
Banking and Trust Company as "CB&T", Jackson County Bank as "Jackson", Farmers
and Merchants Bank of Ritchie County as "F&M", The Dime Bank as "Dime", Union
Bank of Tyler County as "Union", The Community Bank as "Community", the Bank of
Paden City as "Paden City", and Hometown Insurance Agency, Inc., as "Hometown
Insurance".
Commercial BancShares, Incorporated
The management of Commercial Banking and Trust Company of Parkersburg, West
Virginia, caused Commercial BancShares, Incorporated to be formed in 1982 to
provide greater flexibility in meeting CB&T's capital requirements and to permit
future acquisition and ownership of bank-related businesses and the pursuit of
other bank-related activities not permitted CB&T under applicable law. On
October 28, 1983, the shareholders of CB&T became shareholders of Commercial and
CB&T became a wholly-owned subsidiary of Commercial BancShares, Incorporated.
On January 29, 1985, shareholders of Jackson County Bank, Ravenswood, West
Virginia approved an agreement and plan of merger pursuant to which Jackson
would merge into a wholly-owned subsidiary of Commercial and thereby become a
wholly-owned subsidiary of Commercial. The transaction was finalized March 1,
1985.
On May 15, 1987, shareholders of Farmers and Merchants Bank of Ritchie
County (formerly Farmers and Merchants Bank of Cairo), Harrisville, West
Virginia, approved an agreement and plan of merger pursuant to which F&M would
merge into a wholly-owned subsidiary of Commercial and thereby become a wholly-
owned subsidiary of Commercial. The transaction was finalized November 30,
1987.
On March 21, 1991, shareholders of The Dime Bank, Marietta, Ohio approved
an agreement and plan of merger pursuant to which Dime would merge into a
wholly-owned subsidiary of Commercial and thereby become a wholly-owned
subsidiary of Commercial. The transaction was finalized February 28, 1992.
On June 7, 1994, shareholders of Hometown Bancshares, Inc., ("Hometown")
approved an agreement and plan of merger pursuant to which Hometown would merge
with Commercial. Commercial would be the surviving corporation and the former
subsidiaries of Hometown (Union, Community, Paden City and Hometown Insurance)
would become wholly-owned subsidiaries of Commercial. The transaction was
finalized August 1, 1994.
Commercial Banking and Trust Company
CB&T was chartered as a West Virginia Banking Corporation on August 18,
1903, and opened its doors on the corner of Third Street and Court Square,
Parkersburg, West Virginia. CB&T remained in its original location until
January, 1916, when it acquired the assets of the Parkersburg Banking and Trust
Company and moved to its present location at 415 Market Street, Parkersburg,
West Virginia. On December 10, 1984 it opened a branch in Mineral Wells, West
Virginia. On September 29, 1986 a second branch was opened on Grand Central
Avenue in Vienna, West Virginia. It was enlarged and remodeled extensively
during 1995. A third branch was opened at 2107 Pike Street, Parkersburg, West
Virginia on May 8, 1989. In 1996, the West Virginia Division of Banking
authorized CB&T to open a branch on West Virginia State Route 47 near West
Virginia University--Parkersburg. Construction on that facility has not been
started.
CB&T provides a complete range of financial services to both retail and
commercial customers. Additionally, CB&T has full trust powers and provides a
wide variety of those services to individuals, corporations, foundations and
others.
Jackson County Bank
Jackson County Bank was chartered as a West Virginia Banking Corporation on
April 1, 1899, and was originally located on Walnut Street in Ravenswood, West
Virginia. In 1958 the present quarters on Wall Street were first occupied.
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As the only full-service commercial bank headquartered in Ravenswood,
Jackson provides a complete range of retail banking services to the community's
individuals and businesses. Jackson does not provide trust or correspondent
banking services.
Farmers and Merchants Bank of Ritchie County
F&M was incorporated in 1941 as a West Virginia Banking Corporation with
the name "Farmers and Merchants Bank of Cairo" and was located in Cairo, West
Virginia. In 1984 offices were rented at 1500 East Main Street in Harrisville,
West Virginia, to serve as a branch location. In 1985, the main offices of F&M
were moved from Cairo to the Harrisville location, and the Cairo office
continued as a branch facility. The Harrisville offices were purchased by F&M
in 1987.
F&M is the smaller of two banks in Harrisville, the county seat of Ritchie
County. It offers services normally offered by a full-service commercial bank,
including all types of deposit accounts and loans. It does not offer trust
services or correspondent banking services.
The Dime Bank
The Dime Savings Society of Marietta, Ohio, was converted to a commercial
bank, The Dime Bank, on May 1, 1972. At that time, The Dime Savings Society of
Marietta had moved from the former Dime Savings Society Building at the corner
of Front and Greene Streets to the corner of Second and Putnam Streets in
Marietta. On April 1, 1982, The Dime Bank of Ross County, N.A. was merged into
The Dime Bank. On December 31, 1983, The Dime Bank sold its branch in Ross
County, formerly The Dime Bank of Ross County, N.A., to Kingston National Bank.
On March 31, 1986, a group of forty-two investors purchased one hundred percent
of the stock of The Dime Bank from American Bancorporation of Wheeling, West
Virginia.
The main offices of The Dime Bank have remained at the Second and Putnam
location since May 1, 1972. In June of 1974, The Dime Bank established a branch
at Second and Butler Streets in Marietta, Ohio. In February of 1981, Dime
established a branch in Devola, on State Route 60. A branch in Barlow, Ohio, at
the intersection of State Routes 339 and 501 was opened in November, 1995.
Dime is a State of Ohio bank and a member of the Federal Reserve System.
Its main operations are conducted at its offices at 200 Putnam Street in
Marietta, Ohio, with drive-in banking services at each of the two branches.
Dime provides services normally offered by a full-service commercial bank, but
does not offer trust services and is not active in correspondent banking
services.
Union Bank of Tyler County
Union was organized and chartered under the laws of the State of West
Virginia as "Tyler County Bank" on February 18, 1947. The bank has been at its
present location at the corner of Fair and Dodd Streets in Middlebourne, West
Virginia, since 1977. On January 1, 1984, the bank merged with Union National
Bank of Sistersville and was rechartered under the name "Union Bank of Tyler
County". Its main office remains in Middlebourne and the Sistersville branch is
the former main office of the merged Union National Bank. Union 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.
The Community Bank
Community was organized and chartered as a West Virginia banking
corporation on September 30, 1936. It is located at 112 Collins Avenue,
Pennsboro, West Virginia and operates a drive-through facility on Masonic
Avenue, also in Pennsboro. A new branch is under construction in Ellenboro,
West Virginia. Community offers a wide range of financial services to retail
and commercial customers in its local area, although it does not offer trust or
correspondent banking services.
Bank of Paden City
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 offers the wide range
of services usually offered by a full-service commercial bank, but it does not
offer trust or correspondent banking services.
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Hometown Insurance Agency, Inc.
Hometown Insurance 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 charter exists to
preserve the name.
Employees
As of December 31, 1996, Commercial and its subsidiaries had 223 full-time
equivalent employees.
Competition
The primary market area of Commercial and its subsidiaries includes Wood,
Wirt, Jackson, Tyler, Wetzel and Ritchie Counties in West Virginia, and
Washington County, Ohio, with a secondary market area including Pleasants and
Wirt Counties in West Virginia and Monroe, Noble, Meigs, Morgan and Athens
Counties in Ohio.
As of June 30, 1996, the most recent date for which branch data is
available, there were seven banks with 22 locations in Wood County. They
reported total deposits of $927,847,000 in the county. CB&T ranked second among
the banks with 16.73% of the total bank deposits. In addition there was one
savings bank office located in the county and 13 federal credit unions. Total
deposits of all institutions in the county were reported at $1,164,914,000.
CB&T ranked second among all institutions with 13.32% of the total deposits.
Community is second largest and F&M is the third largest of the five banks
with offices in Ritchie County. Community has 21.61% and F&M has 17.25% of the
$82,719,000 in bank deposits in the county. There are no non-bank financial
institutions in Ritchie County. The two subsidiaries of Commercial combined
held 38.86% of the total deposits for the county.
Five banks had 8 offices located in Jackson County on June 30, 1996, with
total bank deposits of $266,135,000. Jackson ranked fourth among the banks,
with 19.66% of the bank deposits. In addition to the banks, there is one
savings and loan association and one federal credit union located in Jackson
County, and total deposits for all financial institutions totaled $287,796,000
at June 30. Jackson ranked fourth among all institutions with 18.18% of the
total deposits.
The principal market area of both Union and Paden City is the Tyler County
and Wetzel County, West Virginia, market. The banking business in the
Tyler/Wetzel County market area is highly competitive. As of June 30, 1996,
Union was the third largest of the seven commercial banks with offices in Tyler
and Wetzel County, and its deposits were approximately 16.07% of that total two-
county commercial bank market. Paden City's deposits were 14.05% of the market,
and it was the fourth largest bank. Combined, the two subsidiaries of
Commercial held 30.13% of the total commercial bank deposits in the Tyler/Wetzel
County market. Three thrift institutions and two federal credit unions also
operate in the market, and combined deposits of all institutions amounted to
$355,806,000 as of June 30, 1996. Union and Paden City held 17.53% of all
deposits for the market.
As of June 30, 1995, there were nine banks located in Washington County
with total deposits of $743,693,000. The Dime Bank is the fifth largest of the
nine and holds 5.2% of the total bank deposits. The nine banks operate at
nineteen offices within Washington County. In addition to the commercial banks,
there are two savings and loan associations located in Washington County. The
Dime Bank is the sixth largest financial institution and held 4.46% of all
deposits in the county.
The comparisons made above are not indicative of the highly competitive
nature of the financial services industry, where many of the providers are less
regulated and are not subject to the same public reporting requirements as banks
or bank holding companies. Commercial's banks also compete with other financial
service providers such as money market and other mutual funds, finance
companies, and a variety of financial service and advisory companies, including
those marketed by direct mail. In addition, personal and corporate trust and
investment services are offered by insurance companies, investment counseling
firms and other business firms and individuals. Despite this high level of
competition for deposits, loans and services from several sources, Commercial's
banks continue to attract customers who seek personal service provided by local
residents at convenient locations.
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Supervision and Regulation
Commercial is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act") and is registered as such with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
bank holding company, Commercial is required to file with the Federal Reserve
Board an annual report and such other information as may be required. The
Federal Reserve Board has the authority (which it has not exercised) to regulate
provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve Board before acquiring substantially all the assets of or direct
or indirect ownership or control of more than 5% of the voting shares of any
bank which is not already majority-owned. The Act also prohibits a bank holding
company, with certain exceptions, from itself engaging in or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these prohibitions
is for engaging in or acquiring shares of a company engaged in activities found
by the Federal Reserve Board by order or regulation to be so closely related to
banking or managing banks as to be a proper incident thereto. The Act prohibits
the acquisition by a bank holding company of more than 5% of the outstanding
voting shares of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank to be acquired
is located. Under Section 106 of the 1970 amendments to the Act and regulations
of the Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of any property or services.
CB&T, Jackson, F&M, Union, Community, Paden City and Dime are insured banks
organized under the banking laws of the states in which they are headquartered.
Accordingly, their operations are subject to Federal and State laws applicable
to commercial banks and commercial banks with trust powers and to regulation by
the state regulatory authorities and the Federal Deposit Insurance Corporation.
Among other restrictions, the West Virginia Banking Law provides that banks
organized thereunder may pay dividends only out of undivided profits.
The Ohio Division of Banks, the Banking Commissioner of the State of West
Virginia, the Federal Reserve Board and the Federal Deposit Insurance
Corporation have the discretion to examine the affairs of the various banks for
the purpose of determining the financial condition of CB&T, Jackson F&M, Dime,
Union, Community and Paden City.
Additionally, CB&T, Jackson, F&M, Dime, Union, Community and Paden City are
subject to certain regulations issued by the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Department of
Banking of the State of West Virginia, the Ohio Division of Banks, the Internal
Revenue Service, the tax departments of Ohio and West Virginia, the county and
city governments of the communities in which the banks are located, and other
agencies in varying degrees. Commercial, likewise is subject to rules and
regulations issued by the regulators noted above, as well as the Securities and
Exchange Commission. This control and scrutiny affects the timing and manner in
which Commercial and its subsidiaries conduct their business, the level of
profitability achieved, and the volume and the type of reports given to the
public and government.
Government Monetary Policies and Economic Controls
The earnings and growth of the banking industry and of the banks are
affected by the credit policies of monetary authorities, including the Federal
Reserve System. An important function of the Federal Reserve System is to
regulate the national supply of bank credit in order to combat recession and
curb inflationary pressures. Among the instruments of monetary policy used by
the Federal Reserve to implement these objectives are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings and changes in reserve requirements against bank deposits. These
means are used in varying combinations to influence overall growth of bank
loans, investments and deposits and may also affect interest rates charged on
loans or paid for deposits. The monetary policies of the Federal Reserve Board
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to have such an effect in the future.
In view of changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effect on
the business and earnings of Commercial BancShares, Incorporated, Commercial
Banking and Trust
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Company, Jackson County Bank, Farmers and Merchants Bank of Ritchie County, The
Dime Bank, Union Bank of Tyler County, The Community Bank, or The Bank of Paden
City.
Item 2. PROPERTIES
The principal executive offices of CB&T and Commercial are located at 415
Market Street, Parkersburg, West Virginia. This building, a 3-story bank and
office building, is owned by CB&T. During 1984, CB&T constructed a branch
office in Mineral Wells, West Virginia. The branch is one and one-half stories
with a full basement. During 1986, CB&T constructed a branch office in Vienna,
West Virginia, on leased property. During 1996, CB&T purchased price option.
In 1995, CB&T expanded the building and relocated its drive-in lanes and parking
lot onto adjacent property it had previously purchased. The building is a one-
story masonry structure with attached drive-in lanes. CB&T also leases a two-
story bank building on Pike Street in Parkersburg, where it operates a branch
with attached drive-in lanes.
Jackson owns and occupies a modern two-story masonry bank building at the
intersection of Wall Street with State Route 68 on the edge of downtown
Ravenswood, West Virginia. During 1995, Jackson leased a supermarket banking
facility on U.S. Route 33 in Ripley, West Virginia, where it operates a branch.
F&M owns and occupies modern bank buildings in Harrisville and Cairo, West
Virginia. The office in Cairo was built in 1974 and is a one-story brick
building in colonial style. The Harrisville office is a one-story building of
brick construction built in 1971 and remodeled in 1984. In 1988 an addition was
made as well as some remodeling.
Dime's main offices are located at 200 Putnam Street in Marietta, Ohio in
an eight-story office building. One-half of the building was constructed in the
late 1800's and the other half in the early 1900's. There have been several
remodelings. Each floor of the building contains approximately 3,200 square
feet. The drive-in facility at Second and Butler Streets was constructed for
that purpose in 1974 and has the capacity for four lanes. The site includes an
employee parking lot and an automated teller machine. The Devola branch of Dime
was constructed in 1981 as a full-service branch, but the bank presently
operates a drive-in facility only on the half-acre site. During 1995 a new
full-service branch was built in Barlow, Ohio, at the intersection of Ohio State
Routes 550 and 339. The one story brick and masonry structure has attached
drive-in lanes and an automated teller machine.
The current principal office of Union is located at Fair and Dodd Streets
in Middlebourne, West Virginia. It was constructed in 1977, with a major
remodeling in 1984 Property adjacent to the building is owned by the bank and
used for employee and customer parking. Union also owns and operates a facility
referred to as the Sistersville Office located at 700 Wells Street in
Sistersville, West Virginia. It was built in 1978. Union also owns two pieces
of property on Wells Street in Sistersville that it uses for employee parking.
Community's principal office is located at 112 Collins Avenue in Pennsboro,
West Virginia. It is approximately 60 years old, but has had considerable
renovation. Community also operates a drive-through facility on Masonic Avenue
constructed in the late 1970's. Both of these properties are owned by
Community. In addition, Community owns three lots used for employee and
customer parking. Property was purchased in Ellenboro, West Virginia, in 1996.
The land, near U.S. Route 50 and State Route 16, is intended for use as the site
of a future branch.
The principal office of Paden City, built in 1977, is located at Fourth and
Main Streets on State Route 2 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 on State Route 2 in New Martinsville, West
Virginia. The land on which this facility was built is leased by Paden City.
In addition to the banking buildings, CB&T, Jackson, F&M, Union, Paden
City, Community, and Dime own other real properties which, when considered in
the aggregate, are not material to their operations.
6
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Item 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which CB&T,
Jackson, F&M, Dime, Union, Community and Paden City are party. Management
considers that the aggregate liabilities, if any, arising from such actions
would not have material adverse effect on the consolidated financial position of
Commercial.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Part II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Page 35 of the 1996 Annual Report to shareholders is incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
Page 1 of the 1996 Annual Report to shareholders is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the related comments in the President's letter are included on
pages 2 and 3 and 27 to 34 of the 1996 Annual Report to shareholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent accountants and consolidated financial statements
are included on pages 4 through 26 of the 1996 Annual Report to shareholders.
Quarterly Results of Operations for the year ended December 31, 1996,
included on page 26 of the 1996 Annual Report to shareholders are incorporated
herein by reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
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The information required by Items 10 through 13 in this part is omitted
pursuant to Instruction G of Form 10-K since Commercial intends to file with the
Commission a definitive Proxy Statement, pursuant to Regulation 14A, not later
than 120 days after December 31, 1996.
7
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PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
(2) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
None
8
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
(Registrant)
By: /s/ William E. Mildren, Jr. 3/26/97
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William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ William E. Mildren, Jr. 3/26/97 /s/ Larry G. Johnson 3/26/97
- ------------------------------------ ---------------------------------------
William E. Mildren, Jr. Larry G. Johnson
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
/s/ Bruce Bingham 3/27/97 /s/ Jack F. Poe 3/27/97
- ------------------------------------ ---------------------------------------
Bruce Bingham Jack F. Poe
Director Director
/s/ Robert E. Richardson 3/26/97
- ------------------------------------ ---------------------------------------
Frank L. Christy Robert E. Richardson
Director Director
/s/ A. Vernon Criss, III 3/27/97 /s/ W. S. Ritchie, Jr. 3/27/97
- ------------------------------------ ---------------------------------------
A. Vernon Criss, III W.S. Ritchie, Jr.
Director Director
/s/ Susan S. Ross 3/26/97
- ------------------------------------ ---------------------------------------
Gary R. Davis Susan S. Ross
Director Director
Wilson Davis /s/ Donald L. Scothorn 3/26/97
- ------------------------------------ ---------------------------------------
Director Donald L. Scothorn
Director
/s/ Carl E. Dollman 3/26/97
- ------------------------------------ ---------------------------------------
Carl E. Dollman James L. Wahle
Director Director
/s/ James A. Meagle, Jr. 3/26/97
- ------------------------------------ ---------------------------------------
James A. Meagle, Jr. Thomas N. Webster
Director Director
- ------------------------------------ ---------------------------------------
David L. Mendenhall Morris B. Wilkins
Director Director
9
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FORM 10-K--ITEM 14(a)(1) and (2)
COMMERCIAL BANCSHARES, INCORPORATED
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of Commercial BancShares, Incorporated and subsidiaries are included in
Item 8:
Report of independent auditors
Consolidated balance sheets--December 31, 1996 and 1995
Consolidated statements of income--Years ended December 31, 1996, 1995 and
1994
Consolidated statements of shareholders' equity--Years ended December 31,
1996, 1995 and 1994
Consolidated statements of cash flows--Years ended December 31, 1996, 1995
and 1994
Notes to consolidated financial statements--December 31, 1996
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
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FORM 10-K--ITEM 14(c)
COMMERCIAL BANCSHARES, INCORPORATED
INDEX TO EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
Exhibit Number Page
3.1 Restated Articles of Incorporation, as amended, of Registrant, were
included as Exhibit 3(b) at page 301 of Registrant's Registration
Statement on Form S-4 (Registration No. 33-53017), filed with the
Securities and Exchange Commission on April 7, 1994, and are included
herein by reference.
3.2 By-Laws, as amended, of Registrant, were included as Exhibit 3(a) at
page 288 of Registrant's Registration Statement on Form S-4
(Registration No. 33-53017), filed with the Securities and Exchange
Commission on April 7, 1994, and are included herein by reference.
4.1 Specimen Common Stock Certificate for Registrant was included as
Exhibit 1 at page 2 of Registrant's Registration Statement on Form
8-A, filed with the Securities and Exchange Commission on April 18,
1995, and is included herein by reference.
4.2 Rights Agreement dated August 14, 1996, between the Registrant and
Fifth Third Bank, as Rights Agent (filed as Exhibit 4.1 to the
Registrant's Form 8-K current report dated August 14, 1996, and
incorporated by reference herein).
10.1 Change in Control Agreement between Commercial and William E. 12
Mildren, Jr., dated November 1, 1996 (filed herewith).
10.2 Change in Control Agreement between Commercial and Larry G. 19
Johnson, dated November 1, 1996 (filed herewith).
11. Statement Re Computation of Per Share Earnings 26
13. Annual Report to Shareholders 27
21. Subsidiaries of the Registrant 68
23. Consent of Independent Auditors 69
27. Financial Data Schedule 70
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EXHIBIT 10.1 CHANGE IN CONTROL AGREEMENT BETWEEN COMMERCIAL AND
WILLIAM E. MILDREN, JR.
11/20/96
COMMERCIAL BANCSHARES, INCORPORATED
EMPLOYMENT CONTINUITY AGREEMENT
-------------------------------
THIS EMPLOYMENT CONTINUITY AGREEMENT (this "Agreement") is between COMMERCIAL
BANCSHARES, INCORPORATED, a West Virginia corporation (referred to in this
Agreement as the "Company," which term includes any subsidiary of the Company
where the context so requires), and William E. Mildren, Jr. ("Executive") and is
effective as of November 1, 1996.
The Company's Board of Directors (the "Board") acknowledges that Executive's
contributions to the past and future growth and success of the Company have been
and will continue to be substantial. As a publicly held corporation, the Board
recognizes that there exists a possibility of a change in control of the
Company. The Board also recognizes that the possibility of such a change in
control may contribute to uncertainty on the part of senior management and may
result in the departure or distraction of senior management from their operating
responsibilities.
Outstanding management of the Company is essential to advancing the best
interests of the Company and its shareholders. In the event of a threat or
occurrence of a bid to acquire or change control of the Company or to effect a
business combination, it is particularly important that the Company's business
be continued with a minimum of disruption. The Board believes that the
objective of securing and retaining outstanding management will be achieved if
the Company's key management employees are given assurances of employment
security so they will not be distracted by personal uncertainties and risks
created by such circumstances.
The Board believes that such assurances will secure the continued services of
the Company's key operational and management executives in the performance of
both their regular duties and such extra duties as may be required of them
during such periods of uncertainty, enable the Company to rely on such
executives to manage its affairs during any such period with less concern for
their personal risks, and enhance the Company's ability to attract new key
executives as needed.
The Executive Committee (the "Committee") of the Board has recommended, and
the Board has approved, entering into employment continuity agreements with the
Company's key management executives, including Executive, in order to achieve
the foregoing objectives; and Executive is a key management executive of the
Company.
The Company and Executive enter into this Agreement to induce Executive to
remain an employee of the Company and to continue to devote his full energy to
the Company's affairs.
1. Employment.
----------
(a) Effective Date. The Company and Executive hereby agree that
--------------
Executive's employment shall continue on and after November 1, 1996 (the
"Effective Date"). The terms and conditions of Executive's employment are
further described in Section 2.
-------
(b) Employment Period. If Executive is employed by the Company on the
-----------------
Control Change Date, the Company further agrees that the Company shall continue
to employ Executive and Executive further agrees that Executive shall continue
as an employee of the Company for the Employment Period. For purposes of this
Agreement, the Employment Period begins on the Control Change Date and ends on
the earlier of the third anniversary of the Control Change Date or on
Executive's Normal Retirement Date (as defined under the Company's Employee
Stock Ownership Plan, as in effect on the Effective Date or as amended prior to
the Control Change Date). During the Employment Period, the terms and
conditions of Executive's employment are described in Section 3.
---------
<PAGE>
(c) Change in Control and Control Change Date. For purposes of this
-----------------------------------------
Agreement, a Change in Control occurs if: (i) after the Effective Date, any
Person (other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) becomes the owner or beneficial owner of
Company securities having 20% or more of the combined voting power of the then
outstanding Company securities that may be cast for the election of the
Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases are directors at the
time the purchases are made); or (ii) as the direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election of directors, or any
combination of these transactions, the Continuing Directors cease to constitute
a majority of the Company's Board, or any successor's board, within two years of
the last of such transactions. For purposes of the preceding sentence,
"Continuing Director" means any member of the Company's Board while a member of
the Board, and who (i) was a director of the Company before the transactions
described in the preceding sentence or (ii) whose subsequent nomination for
election or election to the Board was recommended or approved by a majority of
the Continuing Directors; and "Person" means any individual, firm, corporation,
partnership or other entity, including a "group" as defined in subsection
----------
13(d)(3) of the Securities Exchange Act of 1934, and any successor (by merger or
- --------
otherwise) of such entity. For purposes of this Agreement, the Control Change
Date is the date on which an event described in (i) or (ii) of the first
sentence of this Section 1(c) occurs. If a Change in Control occurs on account
of a series of transactions, the Control Change Date is the date of the last of
such transactions.
2. Terms of Employment Before a Control Change Date.
------------------------------------------------
(a) General Duties. Excluding periods of vacation and sick leave to
--------------
which Executive is entitled, Executive shall continue to exercise such authority
and perform such executive duties as are commensurate with the authority being
exercised and duties being performed by Executive immediately before the
Effective Date.
(b) Place of Employment. Executive's services shall be performed at
-------------------
the location where Executive was employed immediately before the Effective Date.
If the Company and Executive agree, however, the location of Executive's
employment may be changed without affecting Executive's rights under this
Agreement.
(c) Working Facilities and Support Staff. Executive is entitled to
------------------------------------
an office of a size and with furnishings and other appointments at least equal
to those provided to Executive before the Effective Date. Executive is entitled
to secretarial and other assistance, and to such other facilities, equipment,
and supplies at least equal to those provided to Executive before the Effective
Date.
(d) Expenses Generally. Executive is entitled to receive prompt
------------------
reimbursement for all reasonable expenses incurred by Executive. Reimbursement
shall be made in accordance with the Company's policies and procedures in effect
on the Effective Date or amended prior to the Control Change Date.
(e) Meetings, Conventions, and Seminars. Executive is encouraged and
-----------------------------------
is expected to attend seminars, professional meetings and conventions, and
educational courses. The cost of travel, tuition or registration, food, and
lodging for attending those activities shall be paid by the Company. Other
costs shall be paid by Executive, unless the Company authorizes those costs. If
those other costs are authorized expenses, Executive shall be reimbursed after
satisfying the Company's policies and procedures for such reimbursement.
(f) Promotional Expenses. Executive is encouraged and is expected,
--------------------
from time promotional expenses include travel, entertainment (including
memberships in social and athletic clubs), professional advancement, and
community service expenses. Executive agrees to bear those expenses except to
the extent that those expenses are incurred at the Company's specific direction
or those expenses are specifically authorized by the Company as expenses that
the Company may pay directly or indirectly through reimbursement to Executive.
(g) Outside Activities. Executive may (i) serve on corporate, civic,
------------------
or charitable boards or committees; (ii) deliver lectures, fulfill speaking
engagements, or teach at educational institutions; and (iii) manage personal
investments, provided that such activities do not significantly interfere with
the performance of Executive's responsibilities for the Company. To the extent
that any such activities have been conducted by Executive before the Effective
Date, such prior conduct of activities and any subsequent conduct of activities
similar in nature and scope shall not be deemed to interfere with the
performance of Executive's responsibilities for the Company.
(h) Compensation and Fringe Benefits. Executive's compensation
--------------------------------
(including his annual base salary and incentive compensation) and benefits
generally are the same as those in effect on the Effective Date. Executive's
compensation
<PAGE>
and benefits are, however, subject to periodic review and adjustment by the
Company. This subsection 2(h) does not change the terms of any fringe benefit
---------------
program or employee benefit plan maintained by the Company and does not give
Executive any additional vested interest in any compensation or benefit to which
Executive is not already entitled under any such program or plan on the
Effective Date. Generally, Executive's benefits include the following items, all
of which are subject to periodic review and adjustment: (i) Executive is
entitled to fringe benefits, including use of an automobile and payment of
related expenses, and payment of country club dues, both in accordance with the
Company's policies in effect on the Effective Date or as amended prior to a
Control Change Date; (ii) Executive is entitled to receive all group life,
accidental death and dismemberment, long-term disability, and medical insurance
benefits available to Executive according to Company policies and Company
maintained employee benefit plans in effect on the Effective Date or as amended
prior to a Control Change Date; (iii) Executive is entitled to paid vacation in
accordance with the Company's policies in effect on the Effective Date or as
amended prior to a Control Change Date; and (iv) Executive is entitled to sick
leave in accordance with the Company's policies in effect on the Effective Date
or as amended prior to a Control Change Date; and (v) Executive is entitled to
participate in the Company's supplemental income program.
(i) Disability.
----------
(i) The Company may terminate this Agreement if Executive
becomes Disabled by giving to Executive written notice of its intention to
terminate Executive's employment. If Executive becomes Disabled and does not
return to full-time performance of his duties for the Company within [90] days
after Executive receives the Company's notice, Executive's employment with the
Company shall terminate effective on the [90th] day after receipt of such notice
(the "Disability Effective Date"). For purposes of this Agreement, "Disabled"
means that Executive is entitled to receive benefits under a long-term
disability insurance policy maintained by the Company.
(ii) If Executive's employment is terminated because Executive
is Disabled, Executive is entitled after the Disability Effective Date to
receive disability and other benefits on a basis comparable to those provided by
the Company to disabled employees and their families in accordance with such
plans, programs, and policies relating to disability, if any, as in effect on
the Effective Date or as amended prior to a Control Change Date.
(j) Confidential Information. Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company and its business, which is obtained
by Executive during Executive's employment by the Company and which is not
public knowledge (other than by acts by Executive or his representatives in
violation of this Agreement). After the termination of Executive's employment
with the Company, Executive shall not, without the Company's prior written
consent, communicate or divulge any such information, knowledge, or data to
anyone other than the Company and those designated by it to receive such
information, knowledge, or data. In no event may an asserted violation of this
subsection 2(j) constitute a basis for deferring or withholding any amounts
otherwise payable to Executive under this Agreement.
(k) Records and Files. All records and files concerning the Company
-----------------
or the Company's clients and customers belong to and remain the property of the
Company.
3. Terms of Employment After the Control Change Date.
-------------------------------------------------
(a) General. During the Employment Period, the terms and conditions
-------
of Executive's employment, as described in Section 2, continue in effect, except
---------
that such terms and conditions are fixed as of the day before the Control Change
Date and Executive's compensation and benefits are governed by subsection
----------
(3)(b).
- ------
(b) Compensation and Fringe Benefits. During the Employment Period,
--------------------------------
the Company shall (i) continue to pay Executive an annual base salary not less
than Executive's annual base salary on the day before the Control Change Date,
(ii) pay Executive bonuses in amounts not less in amount than those paid to
Executive during the 12-month period preceding the day before the Control Change
Date, and (iii) continue employee benefit plans and programs as to Executive at
levels in effect on the day before the Control Change Date (to the extent
practicable and subject to such reductions as may be required to maintain such
plans in compliance with applicable nondiscrimination and other federal laws
regulating employee benefit plans and programs) or pay Executive an amount
necessary to provide essentially comparable benefits (assuming, in the case of
insured benefits, that Executive is then insurable at standard rates).
<PAGE>
4. Liquidated Damages Upon Termination of Employment.
-------------------------------------------------
(a) General. Executive is entitled to receive Continued Compensation
-------
according to the remaining provisions of this Section if Executive's employment
with the Company terminates during the Employment Period because of an event
described in subsection 4(b) or 4(c), but subject to Executive's offer to work
-----------------------
that is rejected by the Company. If Executive's employment terminates during
the Employment Period and if an event described in subsection 4(b) or 4(c) has
-----------------------
not occurred, this Agreement terminates.
(b) Termination by the Company. Subject to the conditions of Section
--------------------------
4(h), Executive is entitled to receive Continued Compensation if Executive's
employment is terminated by the Company without cause ("cause" being limited to
Executive's acts of theft, embezzlement, fraud, or moral turpitude).
(c) Voluntary Termination.
---------------------
(i) Subject to the conditions of subsection 4(h), Executive is
entitled to receive Continued Compensation if Executive voluntarily terminates
employment after (A) Executive does not receive salary increases, bonuses, and
incentive awards comparable to the salary increases, bonuses, and incentive
awards that Executive received in prior years or, if greater, that other
executives in comparable positions receive in the current year; or (B)
Executive's compensation or employment related benefits are reduced; or (C)
Executive's status, title(s), office(s), working conditions, or management
responsibilities are diminished (other than changes in reporting or management
responsibilities required by applicable federal or state law); or (D)
Executive's place of employment is changed in any way without Executive's
consent. Executive will be entitled to receive Continued Compensation on account
of his voluntary termination under this subsection 4(c)(i) only if such
------------------
voluntary termination occurs within six months after an event described in (A),
(B), (C), or (D), or within six months after the last in a series of such
events.
(ii) Anything in this Agreement to the contrary notwithstanding,
within 12 months after a Control Change Date Executive may voluntarily terminate
his employment with the Company and, in such event, will be entitled to receive
Continued Compensation equal to one times Executive's Base Period Income, paid
in 12 equal monthly installments. During such period of payment of Continued
Compensation, Executive shall not be required to comply with subsection 4(h), it
---------------
being the intention of the parties that if Executive is receiving Continued
Compensation under this subsection 4(c)(ii), he shall be free to compete with
-------------------
the Company during such period (and thereafter) by being employed by another
financial institution in Wood County, West Virginia or Washington County, Ohio.
(d) Continued Compensation. Continued Compensation equal to three
----------------------
times Executive's Base Period Income shall be paid in 36 equal monthly
installments. Continued Compensation payments to Executive shall commence on the
first day of the month following Executive's termination of employment with the
Company because of an event described in subsection 4(b) or 4(c)(i) and shall
--------------------------
continue on the first day of each of the next thirty-five months, subject to
receipt by the Company of notification from the Accounting Firm (defined below)
of its determination regarding the reduction, if any, of Continued Compensation
according to subsection 4(g).
---------------
(e) Base Period Income. Executive's Base Period Income equals his
------------------
annual base salary as of Executive's termination date, plus an amount equal to
the bonus awarded to Executive for the fiscal year immediately prior to the
fiscal year in which Executive's termination date occurs (but in no event shall
such amount be less than the bonus amount required to be paid during the
Employment Period under subsection 3(b)(ii)). Amounts of such base salary and
--------------------
bonus that Executive has elected to defer during the relevant period are
included in Base Period Income.
(f) Other Payments or Benefits. In addition to any payments provided
--------------------------
under this Agreement or under any other arrangement between the Company and
Executive, Executive is entitled to (i) any cash or property due him as a result
of the exercise of a stock option granted under the Company's Employee Stock
Ownership Plan or an earlier plan or a successor plan, and (ii) during any
period in which Continued Compensation is paid, any other payments or benefits
due him, whether or not "parachute payments" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") (but subject to Section
4(g)) including amounts that Executive is entitled to receive under Company
maintained tax-qualified plans and any health care coverage under Company
maintained welfare plans for which Executive pays the cost.
(g) Certain Reduction of Continued Compensation.
-------------------------------------------
(i) For purposes of this subsection 4(g),
---------------
<PAGE>
(A) A "Payment" means any amount that, if paid, would be a
payment or distribution in the nature of compensation to or for the benefit of
Executive, whether paid or payable pursuant to this Agreement or otherwise;
(B) "Continued Compensation" means a Payment paid or payable
pursuant to subsection 4(d) (calculated as if there were no reduction of
Continued Compensation according to this subsection 4(g));
----------------
(C) "Reduced Amount" means the largest amount of Payments
that may be paid that will result in no portion of any Payments being subject to
the excise tax imposed by Section 4999 of the Code.
(ii) Despite any other Section of this Agreement, if Harman,
Thompson, Mallory & Ice, A.C., the accounting firm that is at the time
engaged to audit the Company's financial statements (the "Accounting Firm")
determines that receipt of all Payments would subject Executive to tax
under Section 4999 of the Code, it shall determine the amount of Payments
that would meet the definition of a "Reduced Amount." In that event, one or
more Payments shall be reduced to that Reduced Amount, but not below zero.
If any reduction of Payments is required by the preceding sentence, (A)
Payments other than Continued Compensation shall be reduced first, and (B)
Continued Compensation shall be reduced in a manner that shortens the
period over which Continued Compensation is paid (and, thus, the number of
monthly installments payable) but does not reduce the amount of a monthly
installment that would be paid but for this subsection 4(g).
---------------
(iii) If the Accounting Firm determines that one or more
Payments should be reduced to the Reduced Amount, the Company shall promptly
notify Executive of that determination, sending a copy of the detailed
calculations by the Accounting Firm. All determinations made by the Accounting
Firm under this subsection 4(g) are binding upon the Company and Executive and
---------------
shall be made within 60 days after Executive's employment termination, unless
reasonable cause requires an extension of time. The Accounting Firm shall
furnish written notice to the Company and Executive of any required extension
before the end of the 60-day period; but the Accounting Firm shall make its
determinations under this Section as soon as possible and not later than six
months after Executive's employment termination.
(iv) It is the intention of the Company and Executive to reduce
one or more Payments only to avoid the excise tax imposed by Section 4999 of the
Code. However, it is possible that, as a result of uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm under this Section, amounts shall have been paid or
distributed to or for the benefit of Executive, which amounts should not have
been so paid or distributed ("Overpayment"), or that additional amounts not paid
or distributed to or for the benefit of Executive could have been so paid or
distributed ("Underpayment"), in each case, consistent with the calculation of
the Reduced Amount. If the Accounting Firm, based either upon the assertion of a
deficiency by the Internal Revenue Service against the Company or Executive,
which assertion the Accounting Firm believes has a high probability of success
or controlling precedent or other substantial authority, determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan ab initio to Executive, which loan Executive shall repay to
the Company together with interest at the applicable federal rate under Section
7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to
have been made and no amount is payable by Executive to the Company if and to
the extent such deemed loan and payment would not either reduce the amount on
which Executive is subject to tax under Section 1 or 4999 of the Code or
generate a refund of such taxes. If the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an Underpayment has
occurred, the Accounting Firm shall promptly notify the Company of the amount of
the Underpayment. The Company shall take action to address the Underpayment in a
manner that as nearly as possible restores Executive to the position he would
have been in if there had been no Underpayment.
<PAGE>
(h) Covenant Not to Compete.
-----------------------
(i) Executive agrees that if his employment terminates for
any reason during the Employment Period, then during the period in which
Executive is entitled to Continued Compensation under Section 4, he shall not
---------
serve as an employee of, or become a director of, or render advisory or other
services for, or in connection with, or make any substantial financial
investment in a bank or other financial institution that has an office in Wood
County, West Virginia, and Washington County, Ohio. Executive further agrees
that during the period in which Executive is entitled to Continued Compensation
under Section 4, he shall not actively induce any Company employee to terminate
---------
employment with the Company in favor of promised or prospective employment with
or on behalf of Executive or Executive's post-termination employer.
(ii) Executive agrees and acknowledges that any breach or
threatened violation of the covenants contained in this subsection 4(h) shall
---------------
cause irreparable injury to the Company, and that the remedy at law for any such
breach or threatened violation shall be inadequate, and that the Company shall
be entitled to appropriate equitable relief.
(iii) The covenants contained in this subsection 4(h) shall
---------------
inure to the benefit of the Company and its affiliated employers and
subsidiaries and their successors.
(iv) The restrictions contained in this subsection 4(h) are
---------------
considered by the parties hereto to be fair and reasonable and necessary for the
protection of the legitimate business interests of the Company.
(v) Notwithstanding subsections 3(a), 3(b) or Section 4, if
---------------------- ---------
Executive violates subsection 4(h), any unpaid Continued Compensation shall
---------------
immediately be forfeited as of the date of any violation unless it is being paid
pursuant to subsection 4(c)(ii), in which event it shall continue.
-------------------
5. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, if any, incurred by Executive in obtaining, enforcing, or defending
any right or benefit provided by this Agreement, whether successful or not.
Payments under this Section are not Continued Compensation and are not subject
to reduction under any other Section of this Agreement.
6. Governing Law. This Agreement and performance hereunder and all suits,
-------------
actions and other proceedings hereunder shall be construed in accordance with
and under and pursuant to the laws of the State of West Virginia, (except its
choice of law provisions to the extent that they would require the application
of the laws of a state other than the State of West Virginia), and in any suit,
action or other proceeding that may be brought arising out of, in connection
with, or by reason of this Agreement, the laws of the State of West Virginia
(except its choice of law provisions to the extent that they would require the
application of the laws of a state other than the State of West Virginia) shall
be applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any suit, action or other proceeding
may be instituted.
7. Amendment. This Agreement may not be amended except by the written
---------
agreement of Executive and the Company (with the Company acting by adoption of a
resolution by the Board recommended by the Committee).
8. Binding Effect. The parties agree that this Agreement is enforceable
--------------
under the laws of the State of West Virginia. This Agreement is binding on the
Company, its successors, and assigns and on Executive and his personal
representatives; and the Company will not consolidate or merge into or with
another corporation, or transfer all or substantially all of its assets to
another corporation (the "Successor Corporation") unless the Successor
Corporation shall assume this Agreement, and upon such assumption, Executive and
the Successor Corporation shall become obligated to perform the terms and
conditions of this Agreement. This Agreement inures to the benefit of and is
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If
Executive dies while any amounts are payable under this Agreement, all such
amounts, unless otherwise provided, shall be paid in accordance with the terms
of this Agreement to Executive's spouse, or if none, to his devisee, legatee, or
other designee or, if there be no such designee, to his estate.
<PAGE>
9. Notice. For purposes of this Agreement, notices and all other
------
communications shall be in writing and are effective when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed to Executive or his personal representative at his last known address.
All notices to the Company shall be directed to the attention of the Chairman of
the Board. Such other addresses may be used as either party may have furnished
to the other in writing. Notices of change of address are effective only upon
receipt.
10. Miscellaneous. No provision of this Agreement may be modified, waived,
-------------
or discharged unless such waiver, modification, or discharge is agreed to in
writing signed by Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of
similar or dissimilar provisions or conditions. The invalidity or
unenforceability of any provision of this Agreement does not affect the validity
or enforceability of any other provision of this Agreement, which remains in
full force and effect.
11. No Assignment. Executive may not assign, alienate, anticipate, or
-------------
otherwise encumber any rights, duties, or amounts that he might be entitled to
receive under this Agreement.
12. Term. Upon execution by the Company and Executive, this Agreement is
----
effective as of the Effective Date. This Agreement automatically continues in
effect through December 31, 1996, and thereafter through each successive
December 31 unless the Company notifies Executive in writing 30 days before the
end of any calendar year that this Agreement shall terminate as of the end of
that calendar year. After a Change in Control of the Company (as defined in
subsection 1(c)), the Company may not terminate this Agreement for 36 months
- ----------------
from the Control Change Date (although this Agreement may terminate
automatically under subsection 4(a)); and this Agreement automatically
----------------
continues in effect from year to year thereafter unless the Company notifies
Executive in writing thirty days before the end of the initial 36-month period
or thirty days before any anniversary of the end of that period that this
Agreement shall terminate as of that date.
The parties have executed this Agreement effective as of the 1st day of
November, 1996.
COMMERCIAL BANCSHARES, INCORPORATED
By: /s/ William E. Mildren, Jr.
---------------------------------
Name: William E. Mildren, Jr.
Title: Chairman, President and
Chief Executive Officer
EXECUTIVE
/s/ William E. Mildren, Jr.
---------------------------------
William E. Mildren, Jr.
<PAGE>
EXHIBIT 10.2 CHANGE IN CONTROL AGREEMENT BETWEEN COMMERCIAL AND
LARRY G. JOHNSON
11/20/96
COMMERCIAL BANCSHARES, INCORPORATED
EMPLOYMENT CONTINUITY AGREEMENT
-------------------------------
THIS EMPLOYMENT CONTINUITY AGREEMENT (this "Agreement") is between
COMMERCIAL BANCSHARES, INCORPORATED, a West Virginia corporation (referred to in
this Agreement as the "Company," which term includes any subsidiary of the
Company where the context so requires), and Larry G. Johnson ("Executive") and
is effective as of November 1, 1996.
The Company's Board of Directors (the "Board") acknowledges that Executive's
contributions to the past and future growth and success of the Company have been
and will continue to be substantial. As a publicly held corporation, the Board
recognizes that there exists a possibility of a change in control of the
Company. The Board also recognizes that the possibility of such a change in
control may contribute to uncertainty on the part of senior management and may
result in the departure or distraction of senior management from their operating
responsibilities.
Outstanding management of the Company is essential to advancing the best
interests of the Company and its shareholders. In the event of a threat or
occurrence of a bid to acquire or change control of the Company or to effect a
business combination, it is particularly important that the Company's business
be continued with a minimum of disruption. The Board believes that the objective
of securing and retaining outstanding management will be achieved if the
Company's key management employees are given assurances of employment security
so they will not be distracted by personal uncertainties and risks created by
such circumstances.
The Board believes that such assurances will secure the continued services
of the Company's key operational and management executives in the performance of
both their regular duties and such extra duties as may be required of them
during such periods of uncertainty, enable the Company to rely on such
executives to manage its affairs during any such period with less concern for
their personal risks, and enhance the Company's ability to attract new key
executives as needed.
The Executive Committee (the "Committee") of the Board has recommended, and
the Board has approved, entering into employment continuity agreements with the
Company's key management executives, including Executive, in order to achieve
the foregoing objectives; and Executive is a key management executive of the
Company.
The Company and Executive enter into this Agreement to induce Executive to
remain an employee of the Company and to continue to devote his full energy to
the Company's affairs.
13. Employment.
----------
(a) Effective Date. The Company and Executive hereby agree that
--------------
Executive's employment shall continue on and after November 1, 1996 (the
"Effective Date"). The terms and conditions of Executive's employment are
further described in Section 2.
---------
(b) Employment Period. If Executive is employed by the Company on the
-----------------
Control Change Date, the Company further agrees that the Company shall continue
to employ Executive and Executive further agrees that Executive shall continue
as an employee of the Company for the Employment Period. For purposes of this
Agreement, the Employment Period begins on the Control Change Date and ends on
the earlier of the third anniversary of the Control Change Date or on
Executive's Normal Retirement Date (as defined under the Company's Employee
Stock Ownership Plan, as in effect on the Effective Date or as amended prior to
the Control Change Date). During the Employment Period, the terms and
conditions of Executive's employment are described in Section 3.
---------
<PAGE>
(c) Change in Control and Control Change Date. For purposes of this
-----------------------------------------
Agreement, a Change in Control occurs if: (i) after the Effective Date, any
Person (other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) becomes the owner or beneficial owner of
Company securities having 20% or more of the combined voting power of the then
outstanding Company securities that may be cast for the election of the
Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases are directors at the
time the purchases are made); or (ii) as the direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election of directors, or any
combination of these transactions, the Continuing Directors cease to constitute
a majority of the Company's Board, or any successor's board, within two years of
the last of such transactions. For purposes of the preceding sentence,
"Continuing Director" means any member of the Company's Board while a member of
the Board, and who (i) was a director of the Company before the transactions
described in the preceding sentence or (ii) whose subsequent nomination for
election or election to the Board was recommended or approved by a majority of
the Continuing Directors; and "Person" means any individual, firm, corporation,
partnership or other entity, including a "group" as defined in subsection
----------
13(d)(3) of the Securities Exchange Act of 1934, and any successor (by merger or
- --------
otherwise) of such entity. For purposes of this Agreement, the Control Change
Date is the date on which an event described in (i) or (ii) of the first
sentence of this Section 1(c) occurs. If a Change in Control occurs on account
of a series of transactions, the Control Change Date is the date of the last of
such transactions.
14. Terms of Employment Before a Control Change Date.
------------------------------------------------
(a) General Duties. Excluding periods of vacation and sick leave to
--------------
which Executive is entitled, Executive shall continue to exercise such authority
and perform such executive duties as are commensurate with the authority being
exercised and duties being performed by Executive immediately before the
Effective Date.
(b) Place of Employment. Executive's services shall be performed at
-------------------
the location where Executive was employed immediately before the Effective Date.
If the Company and Executive agree, however, the location of Executive's
employment may be changed without affecting Executive's rights under this
Agreement.
(c) Working Facilities and Support Staff. Executive is entitled to
------------------------------------
an office of a size and with furnishings and other appointments at least equal
to those provided to Executive before the Effective Date. Executive is entitled
to secretarial and other assistance, and to such other facilities, equipment,
and supplies at least equal to those provided to Executive before the Effective
Date.
(d) Expenses Generally. Executive is entitled to receive prompt
------------------
reimbursement for all reasonable expenses incurred by Executive. Reimbursement
shall be made in accordance with the Company's policies and procedures in effect
on the Effective Date or amended prior to the Control Change Date.
(e) Meetings, Conventions, and Seminars. Executive is encouraged
-----------------------------------
and is expected to attend seminars, professional meetings and conventions, and
educational courses. The cost of travel, tuition or registration, food, and
lodging for attending those activities shall be paid by the Company. Other costs
shall be paid by Executive, unless the Company authorizes those costs. If those
other costs are authorized expenses, Executive shall be reimbursed after
satisfying the Company's policies and procedures for such reimbursement.
(f) Promotional Expenses. Executive is encouraged and is expected,
--------------------
from time to time, to incur reasonable expenses for promoting the Company's
business. Such promotional expenses include travel, entertainment (including
memberships in social and athletic clubs), professional advancement, and
community service expenses. Executive agrees to bear those expenses except to
the extent that those expenses are incurred at the Company's specific direction
or those expenses are specifically authorized by the Company as expenses that
the Company may pay directly or indirectly through reimbursement to Executive.
(g) Outside Activities. Executive may (i) serve on corporate, civic,
------------------
or charitable boards or committees; (ii) deliver lectures, fulfill speaking
engagements, or teach at educational institutions; and (iii) manage personal
investments, provided that such activities do not significantly interfere with
the performance of Executive's responsibilities for the Company. To the extent
that any such activities have been conducted by Executive before the Effective
Date, such prior conduct of activities and any subsequent conduct of activities
similar in nature and scope shall not be deemed to interfere with the
performance of Executive's responsibilities for the Company.
<PAGE>
(h) Compensation and Fringe Benefits. Executive's compensation
--------------------------------
(including his annual base salary and incentive compensation) and benefits
generally are the same as those in effect on the Effective Date. Executive's
compensation and benefits are, however, subject to periodic review and
adjustment by the Company. This subsection 2(h) does not change the terms of any
---------------
fringe benefit program or employee benefit plan maintained by the Company and
does not give Executive any additional vested interest in any compensation or
benefit to which Executive is not already entitled under any such program or
plan on the Effective Date. Generally, Executive's benefits include the
following items, all of which are subject to periodic review and adjustment: (i)
Executive is entitled to fringe benefits, including use of an automobile and
payment of related expenses, and payment of country club dues, both in
accordance with the Company's policies in effect on the Effective Date or as
amended prior to a Control Change Date; (ii) Executive is entitled to receive
all group life, accidental death and dismemberment, long-term disability, and
medical insurance benefits available to Executive according to Company policies
and Company maintained employee benefit plans in effect on the Effective Date or
as amended prior to a Control Change Date; (iii) Executive is entitled to paid
vacation in accordance with the Company's policies in effect on the Effective
Date or as amended prior to a Control Change Date; and (iv) Executive is
entitled to sick leave in accordance with the Company's policies in effect on
the Effective Date or as amended prior to a Control Change Date; and (v)
Executive is entitled to participate in the Company's supplemental income
program.
(i) Disability.
----------
(i) The Company may terminate this Agreement if Executive
becomes Disabled by giving to Executive written notice of its intention to
terminate Executive's employment. If Executive becomes Disabled and does not
return to full-time performance of his duties for the Company within [90] days
after Executive receives the Company's notice, Executive's employment with the
Company shall terminate effective on the [90th] day after receipt of such notice
(the "Disability Effective Date"). For purposes of this Agreement, "Disabled"
means that Executive is entitled to receive benefits under a long-term
disability insurance policy maintained by the Company.
(ii) If Executive's employment is terminated because Executive
is Disabled, Executive is entitled after the Disability Effective Date to
receive disability and other benefits on a basis comparable to those provided by
the Company to disabled employees and their families in accordance with such
plans, programs, and policies relating to disability, if any, as in effect on
the Effective Date or as amended prior to a Control Change Date.
(j) Confidential Information. Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company and its business, which is obtained
by Executive during Executive's employment by the Company and which is not
public knowledge (other than by acts by Executive or his representatives in
violation of this Agreement). After the termination of Executive's employment
with the Company, Executive shall not, without the Company's prior written
consent, communicate or divulge any such information, knowledge, or data to
anyone other than the Company and those designated by it to receive such
information, knowledge, or data. In no event may an asserted violation of this
subsection 2(j) constitute a basis for deferring or withholding any amounts
- ---------------
otherwise payable to Executive under this Agreement.
(k) Records and Files. All records and files concerning the Company
-----------------
or the Company's clients and customers belong to and remain the property of the
Company.
15. Terms of Employment After the Control Change Date.
-------------------------------------------------
(a) General. During the Employment Period, the terms and conditions
-------
of Executive's employment, as described in Section 2, continue in effect, except
that such terms and conditions are fixed as of the day before the Control Change
Date and Executive's compensation and benefits are governed by subsection
----------
(3)(b).
- ------
(b) Compensation and Fringe Benefits. During the Employment Period,
--------------------------------
the Company shall (i) continue to pay Executive an annual base salary not less
than Executive's annual base salary on the day before the Control Change Date,
(ii) pay Executive bonuses in amounts not less in amount than those paid to
Executive during the 12-month period preceding the day before the Control Change
Date, and (iii) continue employee benefit plans and programs as to Executive at
levels in effect on the day before the Control Change Date (to the extent
practicable and subject to such reductions as may be required to maintain such
plans in compliance with applicable nondiscrimination and other federal laws
regulating employee benefit plans and programs) or pay Executive an amount
necessary to provide essentially comparable benefits (assuming, in the case of
insured benefits, that Executive is then insurable at standard rates).
<PAGE>
16. Liquidated Damages Upon Termination of Employment.
-------------------------------------------------
(a) General. Executive is entitled to receive Continued Compensation
-------
according to the remaining provisions of this Section if Executive's employment
with the Company terminates during the Employment Period because of an event
described in subsection 4(b) or 4(c), but subject to Executive's offer to work
-----------------------
that is rejected by the Company. If Executive's employment terminates during
the Employment Period and if an event described in subsection 4(b) or 4(c) has
-----------------------
not occurred, this Agreement terminates.
(b) Termination by the Company. Subject to the conditions of Section
--------------------------
4(h), Executive is entitled to receive Continued Compensation if Executive's
employment is terminated by the Company without cause ("cause" being limited to
Executive's acts of theft, embezzlement, fraud, or moral turpitude).
(c) Voluntary Termination.
---------------------
(i) Subject to the conditions of subsection 4(h), Executive is
---------------
entitled to receive Continued Compensation if Executive voluntarily terminates
employment after (A) Executive does not receive salary increases, bonuses, and
incentive awards comparable to the salary increases, bonuses, and incentive
awards that Executive received in prior years or, if greater, that other
executives in comparable positions receive in the current year; or (B)
Executive's compensation or employment related benefits are reduced; or (C)
Executive's status, title(s), office(s), working conditions, or management
responsibilities are diminished (other than changes in reporting or management
responsibilities required by applicable federal or state law); or (D)
Executive's place of employment is changed in any way without Executive's
consent. Executive will be entitled to receive Continued Compensation on account
of his voluntary termination under this subsection 4(c)(i) only if such
------------------
voluntary termination occurs within six months after an event described in (A),
(B), (C), or (D), or within six months after the last in a series of such
events.
(ii) Anything in this Agreement to the contrary notwithstanding,
within 12 months after a Control Change Date Executive may voluntarily terminate
his employment with the Company and, in such event, will be entitled to receive
Continued Compensation equal to one times Executive's Base Period Income, paid
in 12 equal monthly installments. During such period of payment of Continued
Compensation, Executive shall not be required to comply with subsection 4(h), it
---------------
being the intention of the parties that if Executive is receiving Continued
Compensation under this subsection 4(c)(ii), he shall be free to compete with
-------------------
the Company during such period (and thereafter) by being employed by another
financial institution in Wood County, West Virginia or Washington County, Ohio.
(d) Continued Compensation. Continued Compensation equal to three
----------------------
times Executive's Base Period Income shall be paid in 36 equal monthly
installments. Continued Compensation payments to Executive shall commence on the
first day of the month following Executive's termination of employment with the
Company because of an event described in subsection 4(b) or 4(c)(i) and shall
--------------------------
continue on the first day of each of the next thirty-five months, subject to
receipt by the Company of notification from the Accounting Firm (defined below)
of its determination regarding the reduction, if any, of Continued Compensation
according to subsection 4(g).
---------------
(e) Base Period Income. Executive's Base Period Income equals his
------------------
annual base salary as of Executive's termination date, plus an amount equal to
the bonus awarded to Executive for the fiscal year immediately prior to the
fiscal year in which Executive's termination date occurs (but in no event shall
such amount be less than the bonus amount required to be paid during the
Employment Period under subsection 3(b)(ii)). Amounts of such base salary and
-------------------
bonus that Executive has elected to defer during the relevant period are
included in Base Period Income.
(f) Other Payments or Benefits. In addition to any payments provided
--------------------------
under this Agreement or under any other arrangement between the Company and
Executive, Executive is entitled to (i) any cash or property due him as a result
of the exercise of a stock option granted under the Company's Employee Stock
Ownership Plan or an earlier plan or a successor plan, and (ii) during any
period in which Continued Compensation is paid, any other payments or benefits
due him, whether or not "parachute payments" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") (but subject to Section
4(g)) including amounts that Executive is entitled to receive under Company
maintained tax-qualified plans and any health care coverage under Company
maintained welfare plans for which Executive pays the cost.
<PAGE>
(g) Certain Reduction of Continued Compensation.
-------------------------------------------
(i) For purposes of this subsection 4(g),
---------------
(A) A "Payment" means any amount that, if paid, would be a
payment or distribution in the nature of compensation to or for the benefit of
Executive, whether paid or payable pursuant to this Agreement or otherwise;
(B) "Continued Compensation" means a Payment paid or payable
pursuant to subsection 4(d) (calculated as if there were no reduction of
Continued Compensation according to this subsection 4(g));
---------------
(C) "Reduced Amount" means the largest amount of Payments that
may be paid that will result in no portion of any Payments being subject to the
excise tax imposed by Section 4999 of the Code.
(ii) Despite any other Section of this Agreement, if Harman, Thompson,
Mallory & Ice, A.C., the accounting firm that is at the time engaged to
audit the Company's financial statements (the "Accounting Firm") determines
that receipt of all Payments would subject Executive to tax under Section
4999 of the Code, it shall determine the amount of Payments that would meet
the definition of a "Reduced Amount." In that event, one or more Payments
shall be reduced to that Reduced Amount, but not below zero. If any
reduction of Payments is required by the preceding sentence, (A) Payments
other than Continued Compensation shall be reduced first, and (B) Continued
Compensation shall be reduced in a manner that shortens the period over
which Continued Compensation is paid (and, thus, the number of monthly
installments payable) but does not reduce the amount of a monthly
installment that would be paid but for this subsection 4(g).
---------------
(iii) If the Accounting Firm determines that one or more Payments
should be reduced to the Reduced Amount, the Company shall promptly notify
Executive of that determination, sending a copy of the detailed calculations by
the Accounting Firm. All determinations made by the Accounting Firm under this
subsection 4(g) are binding upon the Company and Executive and shall be made
- ---------------
within 60 days after Executive's employment termination, unless reasonable cause
requires an extension of time. The Accounting Firm shall furnish written notice
to the Company and Executive of any required extension before the end of the
60-day period; but the Accounting Firm shall make its determinations under this
Section as soon as possible and not later than six months after Executive's
employment termination.
(iv) It is the intention of the Company and Executive to reduce one or
more Payments only to avoid the excise tax imposed by Section 4999 of the Code.
However, it is possible that, as a result of uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm under this Section, amounts shall have been paid or distributed
to or for the benefit of Executive, which amounts should not have been so paid
or distributed ("Overpayment"), or that additional amounts not paid or
distributed to or for the benefit of Executive could have been so paid or
distributed ("Underpayment"), in each case, consistent with the calculation of
the Reduced Amount. If the Accounting Firm, based either upon the assertion of a
deficiency by the Internal Revenue Service against the Company or Executive,
which assertion the Accounting Firm believes has a high probability of success
or controlling precedent or other substantial authority, determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan ab initio to Executive, which loan Executive shall repay to
-- ------
the Company together with interest at the applicable federal rate under Section
7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to
have been made and no amount is payable by Executive to the Company if and to
the extent such deemed loan and payment would not either reduce the amount on
which Executive is subject to tax under Section 1 or 4999 of the Code or
generate a refund of such taxes. If the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an Underpayment has
occurred, the Accounting Firm shall promptly notify the Company of the amount of
the Underpayment. The Company shall take action to address the Underpayment in a
manner that as nearly as possible restores Executive to the position he would
have been in if there had been no Underpayment.
<PAGE>
(h) Covenant Not to Compete.
-----------------------
(i) Executive agrees that if his employment terminates for any reason
during the Employment Period, then during the period in which Executive is
entitled to Continued Compensation under Section 4, he shall not serve as an
---------
employee of, or become a director of, or render advisory or other services for,
or in connection with, or make any substantial financial investment in a bank or
other financial institution that has an office in Wood County, West Virginia,
and Washington County, Ohio. Executive further agrees that during the period in
which Executive is entitled to Continued Compensation under Section 4, he shall
---------
not actively induce any Company employee to terminate employment with the
Company in favor of promised or prospective employment with or on behalf of
Executive or Executive's post-termination employer.
(ii) Executive agrees and acknowledges that any breach or threatened
violation of the covenants contained in this subsection 4(h) shall cause
---------------
irreparable injury to the Company, and that the remedy at law for any such
breach or threatened violation shall be inadequate, and that the Company shall
be entitled to appropriate equitable relief.
(iii) The covenants contained in this subsection 4(h) shall inure to
---------------
the benefit of the Company and its affiliated employers and subsidiaries and
their successors.
(iv) The restrictions contained in this subsection 4(h) are
---------------
considered by the parties hereto to be fair and reasonable and necessary for
the protection of the legitimate business interests of the Company.
(v) Notwithstanding subsections 3(a), 3(b) or Section 4, if Executive
---------------------- ---------
violates subsection 4(h), any unpaid Continued Compensation shall
---------------
immediately be forfeited as of the date of any violation unless it is being
paid pursuant to subsection 4(c)(ii), in which event it shall continue.
-------------------
17. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, if any, incurred by Executive in obtaining, enforcing, or defending
any right or benefit provided by this Agreement, whether successful or not.
Payments under this Section are not Continued Compensation and are not subject
to reduction under any other Section of this Agreement.
18. Governing Law. This Agreement and performance hereunder and all suits,
-------------
actions and other proceedings hereunder shall be construed in accordance with
and under and pursuant to the laws of the State of West Virginia, (except its
choice of law provisions to the extent that they would require the application
of the laws of a state other than the State of West Virginia), and in any suit,
action or other proceeding that may be brought arising out of, in connection
with, or by reason of this Agreement, the laws of the State of West Virginia
(except its choice of law provisions to the extent that they would require the
application of the laws of a state other than the State of West Virginia) shall
be applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any suit, action or other proceeding
may be instituted.
19. Amendment. This Agreement may not be amended except by the written
---------
agreement of Executive and the Company (with the Company acting by adoption of a
resolution by the Board recommended by the Committee).
20. Binding Effect. The parties agree that this Agreement is enforceable
--------------
under the laws of the State of West Virginia. This Agreement is binding on the
Company, its successors, and assigns and on Executive and his personal
representatives; and the Company will not consolidate or merge into or with
another corporation, or transfer all or substantially all of its assets to
another corporation (the "Successor Corporation") unless the Successor
Corporation shall assume this Agreement, and upon such assumption, Executive and
the Successor Corporation shall become obligated to perform the terms and
conditions of this Agreement. This Agreement inures to the benefit of and is
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If
Executive dies while any amounts are payable under this Agreement, all such
amounts, unless otherwise provided, shall be paid in accordance with the terms
of this Agreement to Executive's spouse, or if none, to his devisee, legatee, or
other designee or, if there be no such designee, to his estate.
<PAGE>
21. Notice. For purposes of this Agreement, notices and all other
------
communications shall be in writing and are effective when delivered or mailed
by United States registered mail, return receipt requested, postage prepaid,
addressed to Executive or his personal representative at his last known address.
All notices to the Company shall be directed to the attention of the Chairman of
the Board. Such other addresses may be used as either party may have furnished
to the other in writing. Notices of change of address are effective only upon
receipt.
22. Miscellaneous. No provision of this Agreement may be modified, waived,
-------------
or discharged unless such waiver, modification, or discharge is agreed to in
writing signed by Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of
similar or dissimilar provisions or conditions. The invalidity or
unenforceability of any provision of this Agreement does not affect the validity
or enforceability of any other provision of this Agreement, which remains in
full force and effect.
23. No Assignment. Executive may not assign, alienate, anticipate, or
-------------
otherwise encumber any rights, duties, or amounts that he might be entitled to
receive under this Agreement.
24. Term. Upon execution by the Company and Executive, this Agreement is
----
effective as of the Effective Date. This Agreement automatically continues in
effect through December 31, 1996, and thereafter through each successive
December 31 unless the Company notifies Executive in writing 30 days before the
end of any calendar year that this Agreement shall terminate as of the end of
that calendar year. After a Change in Control of the Company (as defined in
subsection 1(c)), the Company may not terminate this Agreement for 36 months
- ---------------
from the Control Change Date (although this Agreement may terminate
automatically under subsection 4(a)); and this Agreement automatically
---------------
continues in effect from year to year thereafter unless the Company notifies
Executive in writing thirty days before the end of the initial 36-month period
or thirty days before any anniversary of the end of that period that this
Agreement shall terminate as of that date.
The parties have executed this Agreement effective as of the 1st day of
November, 1996.
COMMERCIAL BANCSHARES, INCORPORATED
By: /s/ William E. Mildren, Jr.
----------------------------------
Name: William E. Mildren, Jr.
Title: Chairman, President and
Chief Executive Officer
EXECUTIVE
/s/ Larry G. Johnson
--------------------------------------
Larry G. Johnson
<PAGE>
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMMERCIAL BANCSHARES, INCORPORATED
<TABLE>
<CAPTION>
Year Ended December 31
PRIMARY: 1996 1995
--------------------------
<S> <C> <C>
Average shares outstanding 1,469,670 1,463,201
Net Income $4,781,011 $4,745,503
--------------------------
Applicable to common stock $4,781,011 $4,745,503
=========================
Per Share Amount $3.25 $3.24
FULLY DILUTED:
Average shares outstanding 1,469,670 1,463,201
--------------------------
TOTAL 1,469,670 1,463,201
=========================
Net Income $4,781,011 $4,745,503
=========================
Per Share Amount $3.25 $3.24
</TABLE>
<PAGE>
Exhibit 13
ANNUAL REPORT
1996
Commercial BancShares, Inc.
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Selected Financial Data
(In Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
At Year End 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total Assets $412,979 $385,656 $372,223 $349,713 $337,005
Total Deposits 359,840 340,584 323,959 311,303 301,714
Total Loans 297,515 263,986 256,402 222,621 223,013
Total Shareholders' Equity 40,995 38,203 33,608 30,844 28,373
Long-term Debt 5,000 -0- -0- 424 362
- ------------------------------------------------------------------------------
For the Year Ended
Total Interest Income $ 31,445 $ 30,425 $ 26,933 $ 25,559 $ 27,468
Net Interest Income 18,051 17,873 17,312 15,594 15,494
Provision for Loan Losses 459 418 417 247 983
Net Income 4,781 4,745 4,398 3,716 3,240
- ------------------------------------------------------------------------------
Per Common Share
Net Income (Fully Diluted) $ 3.25 $ 3.24 $ 3.03 $ 2.56 $ 2.24
Cash Dividends Declared 1.20 1.12 1.03 .94 .83
</TABLE>
Annual Meeting
The Annual Meeting of Shareholders will take place at 3:00 P.M. on Wednesday,
May 14, 1997 at Dils Banquet & Meeting Center, 6th Street and Williams Court
Alley, Parkersburg, West Virginia.
- --------------------------------------------------------------------------------
Copies of Commercial BancShares, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K is available to shareholders after March 31,
1997, on request to Larry Johnson, Secretary, Commercial BancShares, Inc. P.O.
Box 1427, Parkersburg, West Virginia 26102-1427.
1
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
President's Message
[Photograph]
Listing Day at the AMEX: Dennis J. Goin, President, Goin & Co. Inc., Member
American Stock Exchange; Morris Wilkins, Commercial BancShares Director;
William E. Mildren, Chairman, President and Chief Executive Officer; and
Larry G. Johnson, Executive Vice President and Chief Financial Officer, on the
floor of the American Stock Exchange, June 27, 1996, as Commercial
BancShares opens.
To Our Shareholders:
A significant milestone in Commercial BancShares' history was
reached on June 27, 1996, when the American Stock Exchange began trading
shares of our common stock. Trading under the ticker symbol CWV, the stock
opened at $37.00 on 100 shares. Goin & Co., Inc., was chosen as the
specialist firm to make a market in BancShares stock. To meet the
certificate handling requirements of AMEX, we had previously selected Fifth
Third Bank of Cincinnati to be our transfer agent. We believe listing on a
recognized exchange has made us more visible to the investment community and
allows our shareholders to trade in an efficient manner in a fair market.
Commercial BancShares completed another successful and profitable year
in 1996. Net income for 1996 was $4,781, up 0.8% from $4,745 in 1995,
with earnings per share increasing to $3.25 from $3.24 in 1995.
Consolidated total assets increased to $412,979, up 7.1% from $385,656 in
1995. Average assets of $399,181 in 1996 produced returns on average
assets of 1.2%. Regular cash dividends of $1.20 per share were paid in
1996, compared to $1.12 paid in 1995. At its February, 1997, meeting, the
Board of Directors declared a 10% stock dividend in addition to a $0.30 per
share cash dividend.
2
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
President's Message
Since its formation in 1983 Commercial BancShares has grown considerably.
During this time total assets have increased from $82 million to a record $413
million. We have expanded from a single location to a growing network of seven
community banks located in 16 communities. Our most recent expansion is The
Community Bank's branch office located at Ellenboro, in Ritchie County, West
Virginia. Approval has also been received from the West Virginia Division of
Banking for Commercial Banking and Trust Company to establish an office near
West Virginia University_Parkersburg.
Millions of dollars have been spent on technology to make banking
easier and more efficient and convenient for our customers. Our new stateof-
the-art check imaging system helps customers of all BancShares' banks manage
their accounts. Statements and check images are printed using high quality
laser printing, which results in crisp, clean type and makes reading the
statement easier. They are printed on paper that has been prepunched for
insertion into a three-ring binder. Binders reduce storage space and keep
check images accessible and well-organized. In addition, the improved system
allows bank personnel to provide fast, accurate service in the research process.
New products being readied for offering by our network of community
banks include telephone banking, a debit card and investment products such as
mutual funds, annuities and stocks. We plan to continue to investigate new
technologies and innovations so we can offer our customers the best products
and services available.
Commercial Bank, our lead bank, began offering a home page on the
World Wide Web in November. The address is: www.comrclbank.com/cwv. We are
excited about this endeavor and feel it is our first step towards home banking.
Commercial Bank uses the Internet to attract people moving into the Mid-Ohio
Valley and to inform customers of bank services. The bank's site is linked
to other sites such as the Federal Deposit Insurance Corporation, American
Bankers Association, the Securities and Exchange Commission, and pcQuote,
which provides 20-minutes delayed stock quotes.
Commercial BancShares is committed to operating a growing network
of community banks. We pledge our best efforts to seek opportunities for
expansion that reinforce this commitment. We look forward to a year of
increased earnings and growth in 1997. We appreciate your continued
support.
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
3
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 18,602 $16,743
Interest-Bearing Demand Deposits with Other Banks 669 686
Interest-Bearing Time Deposits with Other Banks -0- 99
Federal Funds Sold 5,000 1,680
Investment Securities:
Held to Maturity, at Amortized Costs
(Market Values: 1996 - $27,052; 1995 - $34,675) 26,686 34,058
Available-for-Sale, at Market Values 48,335 53,366
Loans 297,515 263,986
LESS: Allowance for Loan Losses (3,574) (3,516)
Premises and Equipment - Net 8,851 8,585
Accrued Interest Receivable 2,565 2,760
Foreclosed Properties - Net 1,373 1,652
Other Assets 6,957 5,557
- -------------------------------------------------------------------------
TOTAL ASSETS $412,979 $385,656
- -------------------------------------------------------------------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS
Demand - Noninterest Bearing $ 48,697 $ 46,629
Demand - Interest Bearing 41,154 44,577
Savings 84,135 85,673
Time Deposits 185,854 163,705
TOTAL DEPOSITS $359,840 $340,584
Federal Funds Purchased and Repurchase Agreements 2,540 2,134
Federal Home Loan Bank Advances 5,000 -0-
Accrued Interest Payable 1,268 1,217
Other Liabilities 3,336 3,518
- -------------------------------------------------------------------------
TOTAL LIABILITIES $371,984 $347,453
- -------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock ($5.00 Par Value: 2,000,000 Shares
Authorized; Issued Shares; 1,469,670 in 1996
and in 1995) $ 7,348 $ 7,348
Additional Paid in Capital 10,261 10,261
Undivided Profits 23,247 20,230
Unrealized Gain on Securities Available-for-Sale,
Net of Applicable Deferred Income Taxes 139 364
- -------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 40,995 $ 38,203
- -------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $412,979 $385,656
- -------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
As of December 31, 1996, 1995 and 1994
(In Thousands of Dollars except for Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
INTEREST INCOME
<S> <C> <C> <C>
Loans, Including Fees $25,979 $24,609 $21,777
Investment Securities 5,115 5,243 4,894
Federal Funds Sold 302 535 242
Deposits with Other Banks 49 38 20
- ---------------------------------------------------------------------------------
TOTAL INTEREST INCOME $31,445 $30,425 $26,933
- ---------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits $13,080 $12,161 $ 9,370
Federal Funds Purchased and Repurchase Agreements 314 391 251
- ---------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $13,394 $12,552 $ 9,621
- ---------------------------------------------------------------------------------
NET INTEREST INCOME $18,051 $17,873 $17,312
Provision for Loan Losses 459 418 417
- ---------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $17,592 $17,455 $16,895
- ---------------------------------------------------------------------------------
NONINTEREST INCOME
Trust Department Income $ 738 $ 684 $ 529
Service Charges, Fees, and Commissions 1,284 1,199 1,221
Security Gains (Losses) 26 (1) (220)
Other Income 1,336 1,137 485
- ---------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME $ 3,384 $ 3,019 $ 2,015
- ---------------------------------------------------------------------------------
NONINTEREST EXPENSES
Employee Compensation and Benefits $ 7,732 $ 7,486 $ 7,000
Occupancy Expense, Net of Revenues 860 900 675
Furniture and Equipment Expense 933 1,004 955
Other Operating Expenses 4,366 4,163 4,356
- ---------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSES $13,891 $13,553 $12,986
- ---------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 7,085 $ 6,921 $ 5,924
Applicable Income Taxes 2,304 2,176 1,526
- ---------------------------------------------------------------------------------
NET INCOME $ 4,781 $ 4,745 $ 4,398
- ---------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS $ 4,781 $ 4,745 $ 4,194
- ---------------------------------------------------------------------------------
EARNINGS PER SHARE DATA:
- ---------------------------------------------------------------------------------
Primary $3.25 $3.24 $3.26
- ---------------------------------------------------------------------------------
Fully Diluted $3.25 $3.24 $3.03
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
As of December 31, 1996, 1995 and 1994
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
CONVERTIBLE PREFERRED STOCK
<S> <C> <C> <C>
Cumulative Preferred $100.00 Series:(43,328 Shares Authorized):
Balance at Beginning of Year $ -0- $ -0- $ 2,716
Conversion of Preferred Stock to Common Stock -0- -0- (2,716)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR -
0 Shares Outstanding in 1996, 1995 and 1994 $ -0- $ -0- $ -0-
- ----------------------------------------------------------------------------------------------
COMMON STOCK
($5.00 Par Value: 2,000,000 Shares Authorized):
Balance at Beginning of Year $ 7,348 $ 7,335 $ 6,339
Issuance of Common Stock for Cash -0- 13 -0-
Issuance of Common Stock under
Conversion of Preferred Stock -0- -0- 996
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR - 1,469,670 Shares Issued
in 1996 and 1995, and 1,467,040 Shares Issued in 1994 $ 7,348 $ 7,348 $ 7,335
- ----------------------------------------------------------------------------------------------
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Year $10,261 $10,079 $ 8,298
Additional Paid in Capital from New Issuance -0- 75 -0-
Additional Paid in Capital from Conversion
of Preferred Stock to Common Stock -0- -0- 1,720
Additional Paid in Capital from Resale of Treasury Stock -0- 108 68
Payment of Fractional Shares -0- (1) (7)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $10,261 $10,261 $10,079
- ----------------------------------------------------------------------------------------------
UNDIVIDED PROFITS
Balance at Beginning of Year $20,230 $17,122 $14,185
Net Income 4,781 4,745 4,398
Cash Dividends Declared:
Convertible Preferred Stock -0- -0- (204)
Common Stock (1,764) (1,637) (1,257)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $23,247 $20,230 $17,122
- ----------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE-FOR-SALE, NET OF
APPLICABLE DEFERRED INCOME TAXES
Balance at Beginning of Year $ 364 $ (719) $ 77
Change in Unrealized Gain (Loss)
on Securities Available-for-Sale (225) 1,083 (796)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 139 $ 364 $ (719)
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
As of December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
LESS: EMPLOYEE STOCK OWNERSHIP PLAN
SHARES COLLATERALIZING DEBT AT COST
Balance at Beginning of Year $ -0- $ -0- $ 424
Purchase of Common Stock -0- -0- -0-
Principal Reduction of ESOP Obligation -0- -0- (424)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR - 0 Shares in 1996, 1995 and 1994 $ -0- $ -0- $ -0-
- ----------------------------------------------------------------------------------------------
LESS: TREASURY STOCK, AT COST
Balance at Beginning of Year $ -0- $ 209 $ 347
Resale of 0 Shares, 10,578 Shares, and
7,065 Shares of Treasury Stock, at Cost
in 1996, 1995, and 1994, Respectively -0- (209) (138)
- ----------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR -
0 Shares in 1996 and 1995, and 7,065 Shares in 1994 $ -0- $ -0- $ 209
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $40,995 $38,203 $33,608
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
As of December 31, 1996, 1995 and 1994
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 4,781 $ 4,745 $ 4,398
Adjustments to Reconcile Net Income to Net Cash
from Operating Activities:
Depreciation 865 871 861
Provision for Loan Losses 459 418 417
Net Amortization (Accretion) on Investments 16 227 610
Provision for Deferred Taxes (200) (87) (782)
(Gain) Loss on Sale of Capitalized Assets 3 19 21
(Gain) Loss on Sale of Other Real Estate Owned (372) -0- -0-
Realized (Gain) Loss on Sale of Investment Securities (26) 1 220
Income Tax Benefit (321) (366) (160)
Purchase Adjustments 64 76 83
Other Changes in Assets and Liabilities (998) 768 (574)
- ---------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS $ (510) $ 1,927 $ 696
- ---------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 4,271 $ 6,672 $ 5,094
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Short-Term Investments $ (3,221) $ (75) $ 7,294
Proceeds from Sales of Investments Held-to-Maturity 999 1,274 806
Proceeds from Sales of Investments Available-for-Sale 674 -0- 12,737
Proceeds from Maturities of Investments Held-to-Maturity 8,187 15,272 15,911
Proceeds from Maturities of Investments Available-for-Sale 22,478 12,282 6,364
Purchases of Investments Held-to-Maturity (3,302) (11,170) (10,126)
Purchases of Investments Available-for-Sale (16,804) (19,250) (18,265)
Net (Increase) in Loans (34,836) (8,611) (34,774)
Proceeds from Sale of Other Real Estate Owned 1,632 322 419
Proceeds from Sale of Capital Assets 55 11 -0-
Capital Expenditures (1,189) (2,357) (857)
- ---------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES $(25,327) $(12,302) $(20,491)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits $ 19,256 $ 16,503 $ 12,657
Net Increase (Decrease) in Federal Funds Purchased
and Repurchase Agreements 406 (8,838) 6,790
Proceeds from Issuance of Common Stock -0- 88 -0-
Proceeds from Sale of Treasury Stock -0- 317 204
Payment for Fractional Shares -0- (1) (7)
Proceeds from Long-Term FHLB Advances 5,000 -0- -0-
Liquidating Dividend Paid -0- -0- (22)
Dividends Paid (1,764) (1,637) (1,461)
- ---------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES $ 22,898 $ 6,432 $ 18,161
- ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 1,842 $ 802 $ 2,764
- ---------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 17,429 16,627 13,863
- ---------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 19,271 $ 17,429 $ 16,627
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Basis of Presentation
- ---------------------
The accounting and reporting policies of Commercial BancShares, Inc. and
Subsidiaries (the Corporation) 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.
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Commercial BancShares, Inc. and
Subsidiaries include the accounts of the Corporation and its eight wholly-owned
Subsidiaries. Material intercompany transactions and accounts have been
eliminated. Purchase accounting adjustments applicable to the acquisitions of
various wholly-owned Subsidiaries have been included in the Corporation's
consolidated financial statements.
Business Combinations
- ---------------------
Effective August 1, 1994, the Corporation acquired the net consolidated
assets of Hometown Bancshares, Inc. (Hometown) by exchanging 509,398 shares of
its common stock for all of the outstanding shares of Hometown. 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, 1994. All significant
intercompany transactions have been eliminated.
Summarized results of operations of the Corporation and Hometown for the
operating period 1994 is as follows:
<TABLE>
<CAPTION>
COMMERCIAL HOMETOWN
BANCSHARES, BANCSHARES,
INC. AND INC. AND
SUBSIDIARIES SUBSIDIARIES
<S> <C> <C>
Total Interest Income $ 22,998 $ 3,935
Total Interest Expense (8,155) (1,466)
Provision for Loan Losses (351) (66)
Other Income 1,563 452
Other Expenses (11,110) (1,876)
Applicable Income Taxes (1,176) (350)
- --------------------------------------------------------
NET INCOME $ 3,769 $ 629
- --------------------------------------------------------
</TABLE>
Nature of Operations
- ---------------------------
The Corporation's Subsidiaries provide a variety of financial services to
individuals and businesses through their 16 facilities located throughout the
Mid-Ohio Valley area encompassing West Virginia and Ohio. The Subsidiaries'
primary deposit products are demand deposits and certificates of deposit, and
their primary lending products are real estate mortgage, commercial, and
consumer loans.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and the
valuation of real estate or other property acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the allowances for losses on loans and foreclosed real estate or other
property, management obtains independent appraisals for significant properties.
9
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Change in Accounting Principles
- -------------------------------
In 1994, the Corporation adopted SFAS Number 115, Accounting for Certain
Investments in Debt and Equity Securities, by classifying its debt and
marketable equity securities, including previously reported investment
securities, in a new balance sheet caption, Available-For-Sale. These
securities are valued at fair value, with the resulting net unrealized gains and
losses recorded directly to a separate component of shareholders' equity, net of
deferred income tax. The adoption of SFAS 115 had no effect on net income.
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" and "Interest-Bearing Demand Deposits with Other Banks." For the
years ended December 31, 1996, 1995, and 1994, the Corporation paid interest of
$11,812, $11,147, and $9,557, respectively, and income taxes of $2,310, $1,945,
and $1,996, respectively.
Details of noncash transactions of the Corporation are summarized as
follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Conversion of Convertible Preferred Stock to Common Stock $ -0- $ -0- $2,716
Loans Transferred to Foreclosed Properties $ 956 $ 527 $ 247
Change in Unrealized Gain (Loss) on Available-for-Sale Securities $(225) $1,083 $ (796)
</TABLE>
Securities
- ----------
It is the policy of the Corporation to prohibit the use of 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.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and the Corporation has the
ability, at the time of purchase, to hold securities until maturity or on a
long-term basis, they are classified as held-to-maturity and carried at
amortized historical cost. Securities to be held for indefinite periods of time
and not intended to be held to maturity or on a long-term basis are classified
as available for sale and carried at fair value. Securities held for indefinite
periods of time include securities that management intends to use as part of its
asset and liability management strategy and that may be sold in response to
changes in interest rates, resultant prepayment risk, and other factors related
to interest rate and resultant prepayment risk changes.
Realized gains and losses on dispositions are based on the net proceeds
and the adjusted book value of the securities sold, using the specific
identification method. Unrealized gains and losses on investment securities
available for sale are based on the difference between book value and fair value
of each security. These gains and losses are credited or charged to
shareholders' equity, whereas realized gains and losses flow through the
Corporation's yearly operations.
The Corporation generally anticipates prepayments of principal in the
calculation of the effective yield for collateralized mortgage obligations.
Market values of all securities are determined by prices obtained from
independent market sources.
Loans
- -----
Loans are stated at the amount of unpaid principal, reduced by deferred
loan fees. Overdrafts of customer deposit accounts have been reclassified to
commercial loans.
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. For all loans, interest is
accrued daily on the outstanding balances.
10
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Loans (Continued)
- -----------------
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.
The carrying values of impaired loans are periodically adjusted to
reflect cash payments, revised estimates of future cash flows, and increases in
the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such. Other cash payments
are reported as reductions in carrying value, while increases or decreases due
to changes in estimates of future payments and due to the passage of time are
reported through bad debt expense.
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.
Allowance for Loan Losses
- -------------------------
The allowance 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 allowance 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 allowance.
Recoveries of previously charged off loans are credited to the allowance. 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 allowance 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.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Subsidiaries' allowances for losses on
outstanding credit and foreclosed properties in satisfaction of such credit.
Such agencies may require the Subsidiaries to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. 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.
FASB Standard No. 114 was adopted at January 1, 1995. Under this
standard, loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral by allocating a
portion of the allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such increase is
reported as bad debt expense. The adoption of this standard had no effect to
the Corporation's reported net income.
11
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Foreclosed Properties
- ---------------------
Foreclosed properties acquired through foreclosure or in settlement of
loans are classified as foreclosed properties and are valued at the lower of the
loan value or estimated fair value of the property, utilizing either the
estimated replacement cost, the selling price of properties utilized for similar
purposes, or discounted cash flow analyses of the properties' operations, less
estimated selling costs. In addition, foreclosed properties include in-
substance foreclosed properties which are those properties that physical
possession has been taken, regardless of whether formal foreclosure proceedings
have taken place. 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 allowance 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.
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 consolidated 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 elimination 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 1,469,670 shares, 1,463,201 shares, and
1,285,391 shares for the years 1996, 1995, and 1994, respectively. Fully
diluted earnings per share assumes the conversion of outstanding convertible
preferred stock and elimination of dividends paid thereon, as of the beginning
of each period, in order to compute the weighted-average of common shares
outstanding during each period. Such weighted-average shares assuming full
dilution were 1,469,670 shares, 1,463,201 shares, and 1,449,641 shares in 1996,
1995 and 1994, respectively.
NOTE 2: SECURITIES
The investment securities portfolio is comprised of securities classified
as available-for-sale and held-to-maturity, in accordance with SFAS Number 115.
This results in investment securities available-for-sale being carried at market
values and investment securities held-to-maturity being carried at amortized
cost, adjusted for amortization of premiums and accretions of discounts.
Securities and short-term investment activities are conducted with a
diverse group of domestic governments, corporations, depository, and other
financial institutions. Investments in state and municipal securities also
involve governmental entities within the Corporation's market area.
12
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 2: SECURITIES (CONTINUED)
The following represents the investment securities portfolio for the
years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 11 $ 1 $ -0- $ 12
Other, Primarily U. S. Treasuries 15,653 89 (41) 15,701
Obligations of States and Political Subdivisions 10,974 336 (19) 11,291
Other Debt Securities 48 -0- -0- 48
- ---------------------------------------------------------------------------------------------------
TOTAL $26,686 $426 $ (60) $27,052
- ---------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 3,285 $ 26 $ (1) $ 3,310
Collateralized Mortgage Obligations 10,745 39 (68) 10,716
Other, Primarily U. S. Treasuries 31,197 277 (62) 31,412
Other Debt Securities 950 36 (3) 983
- ---------------------------------------------------------------------------------------------------
$46,177 $378 $(134) $46,421
Equity Securities 1,938 39 (63) 1,914
- ---------------------------------------------------------------------------------------------------
TOTAL $48,115 $417 $(197) $48,335
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 14 $-0- $ -0- $ 14
Other, Primarily U. S. Treasuries 21,012 265 (35) 21,242
Obligations of States and Political Subdivisions 12,903 388 (4) 13,287
Other Debt Securities 129 4 (1) 132
- ---------------------------------------------------------------------------------------------------
TOTAL $34,058 $657 $ (40) $34,675
- ---------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 8,811 $ 49 $ (37) $ 8,823
Collateralized Mortgage Obligations 4,559 62 -0- 4,621
Other, Primarily U. S. Treasuries 37,466 626 (66) 38,026
Other Debt Securities 1,127 6 (52) 1,081
- ---------------------------------------------------------------------------------------------------
$51,963 $743 $(155) $52,551
Equity Securities 815 -0- -0- 815
- ---------------------------------------------------------------------------------------------------
TOTAL $52,778 $743 $(155) $53,366
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 2: SECURITIES (CONTINUED)
The amortized cost and estimated market value of securities at December
31, 1996, 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 SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in One Year or Less $ 5,654 $ 5,668 $ 8,643 $ 8,696
Due after One Year through Five Years 16,253 16,438 29,380 29,528
Due after Five Years through Ten Years 3,509 3,607 3,361 3,343
Due after Ten Years 1,270 1,339 4,793 4,854
- ------------------------------------------------------------------------------------
$26,686 $27,052 $46,177 $46,421
Equity Securities -0- -0- 1,938 1,914
- ------------------------------------------------------------------------------------
TOTAL $26,686 $27,052 $48,115 $48,335
- ------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in debt securities during 1996, 1995,
and 1994 were $1,673, $1,274, and $806, respectively. Gross gains of $33,
$-0-, and $110 and gross losses of $7, $1, and $331 were realized on those sales
during 1996, 1995, and 1994, respectively. Security gains of $26 in 1996 and
$-0- in 1995, resulted from calls of investment obligations beyond the control
of the Corporation.
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 public monies and other purposes as required
or permitted by law had a carrying value of $14,191 and $17,098 and estimated
market value of $14,309 and $18,671 at December 31, 1996 and 1995, respectively.
Interest on Securities
- ----------------------
The following represents the interest on securities, presented by
investment classifications, for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
U. S. Government Agency and Corporate Obligations $4,310 $4,367 $4,014
State, County, and Municipal Bonds (Substantially All
Exempt from Federal Income Tax) 710 744 747
Other Investments 95 132 133
- -------------------------------------------------------------------------------
TOTAL $5,115 $5,243 $4,894
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 3: LOANS
Major classifications of loans, net of deferred fees, are summarized as follows
for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Real Estate $109,624 $102,941
Consumer 64,175 52,124
Commercial and Industrial 120,017 104,900
Credit Card Loans 4,148 4,299
-----------------------
$297,964 $264,264
Deferred Loan Fees (449) (278)
------------------------------------------------------------------------------------------------------
LOANS $297,515 $263,986
------------------------------------------------------------------------------------------------------
Changes in the allowance for loan losses were as follows for the years ended:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
BALANCE BEGINNING OF YEAR $ 3,516 $ 3,430 $3,138
Provisions Charged to Operations 459 418 417
Loans Charged Off (484) (428) (245)
Recoveries 83 96 120
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 3,574 $ 3,516 $3,430
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Information regarding impaired loans is as follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Information on Impaired Loans for the Period:
Average Investment in Impaired Loans $ 1,176 $ 934
Interest Income Recognized on Impaired Loans
Including Interest Income Recognized on Cash Basis 123 132
Interest Income Recognized on Impaired Loans on Cash Basis 96 30
Information on Impaired Loans for the Period Ended:
Balance of Impaired Loans $ 1,072 $ 1,181
LESS: Portion for which no Allowance for Loan Losses is Allocated (286) (360)
- -------------------------------------------------------------------------------------------------------------
Portion of Impaired Loan Balance for which an Allowance
for Loan Losses is Allocated $ 786 $ 821
Portion of Allowance for Loan Losses Allocated to the
Impaired Loan Balance $ 354 $ 102
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Set forth below are the principal balances of nonaccrual (cash basis) and
renegotiated loans, including those loans which have been classified and
presented as impaired loans, and other assets acquired in loan related
transactions for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Nonaccrual Loans $ 505 $ 821 $ 739
Renegotiated or Restructured Loans 2,389 1,399 1,403
- -------------------------------------------------------------------------------------------------------------
TOTAL UNDER-PERFORMING LOANS $2,894 $2,220 $2,142
Other Assets Acquired in Satisfaction of Loans (Primarily Foreclosed Properties) 956 1,652 1,329
- -------------------------------------------------------------------------------------------------------------
TOTAL UNDER-PERFORMING ASSETS $3,850 $3,872 $3,471
- -------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 3: LOANS (CONTINUED)
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, 1996, 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,
1996 1995 1994
<S> <C> <C> <C>
Gross Amount of Interest That Would Have Been Recorded at Original Rate $ 138 $ 81 $ 154
Interest That Was Reflected in Revenue (1) (107) (30) (17)
- ------------------------------------------------------------------------------------------------------------------------
NEGATIVE INTEREST REVENUE IMPACT $ 31 $ 51 $ 137
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents interest collected on nonaccrual loans including loans
classified as impaired.
Foreclosed properties of $1,373 and $1,652 are stated net of reserves of
$190 and $190 at December 31, 1996 and 1995, respectively. The reserve at
December 31, 1996 includes $-0- for estimated selling costs. Provisions charged
to operations for changes in the carrying value of foreclosed properties
amounted to $-0-, $-0-, and $-0- in 1996, 1995, and 1994, 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>
DECEMBER 31,
DESCRIPTION ESTIMATED USEFUL LIFE 1996 1995
<S> <C> <C> <C>
Land $ 1,734 $ 1,431
Bank Premises 15 to 40 Years 8,989 8,970
Furniture and Equipment 5 to 10 Years 5,077 4,733
Construction in Progress 365 340
- ---------------------------------------------------------------------------
$16,165 $15,474
LESS: Accumulated Depreciation (7,314) (6,889)
- ---------------------------------------------------------------------------
TOTAL $ 8,851 $ 8,585
- ---------------------------------------------------------------------------
</TABLE>
Depreciation and amortization amounted to $865, $871, and $861 for the
years ended December 31, 1996, 1995, and 1994, respectively.
NOTE 5: INTEREST-BEARING DEPOSITS
Total interest-bearing deposits as presented on the balance sheet are
comprised of the following classification for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Interest-Bearing Demand $ 41,154 $ 44,577
Savings 84,135 85,673
Time:
In Denominations Under $100 Thousand 154,104 139,619
In Denominations of $100 Thousand or More 31,750 24,086
- ----------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS $311,143 $293,955
- ----------------------------------------------------------------
</TABLE>
16
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 5: INTEREST-BEARING DEPOSITS (CONTINUED)
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1997 $130,777
1998 41,300
1999 9,023
2000 2,892
2001 and thereafter 1,862
-----------------------------------------------------------------------
TOTAL $185,854
-----------------------------------------------------------------------
Interest expense on deposits is as follows for the years ended:
DECEMBER 31,
1996 1995 1994
Demand $ 946 $ 1,023 $1,061
Savings 2,530 2,649 2,676
Time:
In Denominations Under $100 Thousand 8,180 7,388 5,044
In Denominations of $100 Thousand or More 1,424 1,101 589
- -------------------------------------------------------------------------------------------------------
TOTAL $ 13,080 $12,161 $9,370
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6: FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS
Federal funds purchased and repurchase agreements generally represent
overnight-borrowing transactions. The details of these classifications are as
follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
FEDERAL FUNDS PURCHASED
Balance at End of Year $ 1,062 $ 606
Average during Year $ 3,180 $ 914
Maximum Month-End Balance $13,648 $7,624
Average Rate during Year 5.35 % 5.91 %
Rate at Year End 6.96 % 5.23 %
REPURCHASE AGREEMENTS
Balance at End of Year $ 1,478 $1,528
Average during Year $ 1,799 $1,793
Maximum Month-End Balance $ 2,988 $4,898
Average Rate during Year 5.21 % 5.04 %
Rate at Year End 5.03 % 5.20 %
</TABLE>
NOTE 7: FEDERAL HOME LOAN BANK ADVANCES
A subsidiary of the Corporation has entered into a convertible advance
agreement with the Federal Home Loan Bank of Pittsburgh ("FHLB") whereby the
subsidiary was advanced $5,000 for a term of five years. Interest payment
frequency is on a monthly basis at a fixed rate of 4.97%. The agreement has a
conversion feature that at the discretion of FHLB the interest can become a
floating rate, adjusted every three months at eight basis points above LIBOR.
Should FHLB exercise this option the subsidiary must be notified in advance and
has the right to repay the advance in full at the existing rate. The advance
funding date was December 27, 1996 and the advance maturity date is December 27,
2001. The purpose of the advance is to fund future mortgage lending. The FHLB
advances are collateralized by all of the FHLB stock owned by the subsidiary and
a blanket collateral agreement which assigns a security interest in the
subsidiary's capital stock, deposits, mortgage loans, and investment
securities. The blanket collateral agreement provides flexibility in that it
allows the subsidiary and FHLB the option of increasing the advance without
requiring additional collateral agreements.
17
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
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,
1996 1995 1994
<S> <C> <C> <C>
Federal Statutory Tax Rate 34 % 34 % 34 %
Tax-Exempt Interest Income (8)% (9)% (11)%
State Income Tax 5 % 3 % 4 %
Tax Effect of Other Items 2 % 3 % (1)%
- ---------------------------------------------------------------------------------------------------------------------------------
REPORTED EFFECTIVE TAX RATE 33 % 31 % 26 %
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes in the Consolidated Statement of Income
consists of the following for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Current Income Taxes:
Federal $2,179 $2,198 $2,014
State 325 61 294
Deferred Income Taxes (200) (83) (782)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME TAXES $2,304 $2,176 $1,526
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The approximate tax effects of the net investment securities transactions
for the years ended December 31, 1996, 1995, and 1994 were $10, $-0-, and $(88),
respectively.
Deferred taxes are recorded by applying the marginal tax rate to
temporary differences. 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.
Net deferred income taxes are included in other assets on the
Consolidated Balance Sheets. Significant temporary differences between tax and
financial reporting that give rise to net deferred tax assets (liabilities) are
as follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 CHANGE
<S> <C> <C> <C>
Allowance for Loan Losses $1,463 $1,399 $ 64
Valuation Allowance on Related Deferred Tax (500) (492) (8)
Organizational Expenses -0- 3 (3)
Premises and Equipment (243) (234) (9)
Deferred Compensation for Officers and Directors 717 561 156
- -----------------------------------------------------------------------------------
$1,437 $1,237 $200
Unrealized Gain (Loss) On Securities Available-For-Sale (49) (222) 173
- -----------------------------------------------------------------------------------
TOTAL $1,388 $1,015 $373
- -----------------------------------------------------------------------------------
</TABLE>
NOTE 9: SHAREHOLDERS' EQUITY
Common Stock
- ------------
The Corporation has 2,000,000 shares of $5.00 par value common stock
authorized and each share carries voting rights of one vote per common share.
Shares issued were 1,469,670 shares, 1,469,670 shares, and 1,467,040 shares at
December 31, 1996, 1995, and 1994, respectively. Shares outstanding were
1,469,670 shares, 1,469,670 shares, and 1,456,462 shares at December 31, 1996,
1995, and 1994, respectively.
The outstanding shares at December 31, 1996, 1995, and 1994 include
142,976 shares, 127,141 shares, and 87,427 shares, respectively, owned by the
ESOP.
Cash dividends paid per share on common stock were $1.20, $1.12, and
$1.03 for the years 1996, 1995, and 1994, respectively.
18
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 9: SHAREHOLDERS' EQUITY (CONTINUED)
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.
During 1994, following a notice of redemption issued by the Corporation,
the preferred stock shareholders converted all 27,165 shares of preferred stock
into 199,130 shares of common stock. Upon the reacquisition of shares of
convertible preferred stock through conversion, such reacquired shares have been
canceled and have become part of the authorized and unissued preferred stock.
NOTE 10: CONCENTRATION OF CREDIT RISK
Most loans, commitments, lines-of-credit, and standby letters-of-credit
are granted by Subsidiaries to their customers in their respective market areas.
Most loan customers are also depositors of that Subsidiary. The distribution 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 Subsidiaries manage their loan portfolios to avoid concentration by
industry or loan size to minimize their 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.
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. In management's opinion, these commitments represent normal
banking transactions and no material losses are expected to result from them.
There were $33,254 in variable rate commitments and $3,222 in fixed rate
commitments at year end 1996. There were $16,458 in variable rate commitments
and $1,432 in fixed rate commitments at year end 1995.
NOTE 12: COMMITMENTS AND CONTINGENT LIABILITIES
Four of the Subsidiaries of the Corporation lease properties for their
branch facilities under non-cancelable operating leases which contain renewal or
purchase options. Rent expense under these leases was $128 for the year ended
December 31, 1996, $114 for the year ended December 31, 1995, and $71 for the
year ended December 31, 1994.
19
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 12: COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Future minimum lease payments, excluding real estate taxes and insurance,
for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1997 $106
1998 106
1999 106
2000 91
2001 76
Thereafter 282
------------------
TOTAL $767
------------------
</TABLE>
In the ordinary course of business, there are various legal proceedings
pending against or involving the Corporation or its Subsidiaries. Management,
after consultation with legal counsel, does not consider that the anticipated
impact, if any, arising from such pending legal proceedings is expected to have
a material adverse affect upon the consolidated financial position and
consolidated results of operations of the Corporation.
NOTE 13: REGULATORY MATTERS
The Corporation is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956. As a bank holding company, the Corporation's
activities are limited to the business of banking and activities closely related
or incidental to banking.
The 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, 1996, was $6,276.
The Federal Reserve Board has issued standards requiring banks and bank
holding companies to maintain minimum amounts of capital to total "risk-
weighted" assets, as defined by the banking regulators. The Federal Financial
Institutions Examination Council (FFIEC) announced on December 23, 1992, among
other things, that beginning in 1993, Federally supervised banks and savings
associations should report deferred tax assets in accordance with generally
accepted accounting principles in the regulatory reports filed with the
respective Federal regulatory agencies beginning with the quarter ending March
31, 1993. The Board of Governors of the Federal Reserve System issued revisions
to capital adequacy guidelines whereby the Board indicated they will allow
adoption of the new standard for regulatory reporting purposes.
The Board also adopted the FFIEC's recommendation with respect to
limiting the amount of deferred tax assets that can be used to meet risk-based
capital requirements. This recommendation limits deferred tax assets to those
assets which may be realized from income taxes paid in prior carryback years,
the reversal of future taxable temporary differences, and the lesser of: (1)
the amount of deferred tax assets expected to be realized within one year of the
quarter-end date based on future taxable income (exclusive of tax carryforwards
and reversals of existing temporary differences) for that year, or (2) ten
percent of Tier 1 capital. The Corporation did not use the deferred tax asset
at December 31, 1996 and 1995 in computing regulatory risk-based capital.
20
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 12: REGULATORY MATTERS (CONTINUED)
The following table summarizes the Corporation's actual consolidated
total and Tier 1 risk-based capital amounts and ratios, and leverage capital
amounts and ratios, as well as regulatory minimums, for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
Tier 1 Risk-Based Capital
Actual $ 40,583 14.42% $ 36,550 14.25%
Required $ 11,254 4.00% $ 10,261 4.00%
Total Risk-Based Capital
Actual $ 44,100 15.67% $ 39,756 15.50%
Required $ 22,508 8.00% $ 20,522 8.00%
Risk Adjusted Assets $281,352 $256,519
Leverage Ratio
Actual $ 40,583 9.87% $ 36,550 9.51%
Minimum Required $ 12,330 3.00% $ 11,531 3.00%
Maximum Required $ 20,549 5.00% $ 19,218 5.00%
</TABLE>
The Corporation maintained average reserves of approximately $550 in 1996
with the Federal Reserve Bank as required by the depository agency.
NOTE 14: POST-RETIREMENT BENEFIT PLANS
The Corporation maintains an Employee Stock Ownership Plan with 401(k)
provisions that 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 $430, $460 and $297 in 1996, 1995, and 1994,
respectively. Contributions are allocated among participants based on paid
compensation. ESOP owned shares are considered outstanding for earnings per
share purposes, and dividends paid on these shares are treated as ordinary
dividends.
NOTE 15: EXECUTIVE AND DIRECTOR BENEFIT PLANS
Five of the Subsidiaries of the Corporation have established Directors'
Deferred Income Plans and Executive Supplemental Income Plans that cover certain
directors and officers of their respective banks which defer payment of
directors' fees and officer income. The payment of the director fees will
commence at such time as the director reaches age 65. The Executive
Supplemental Income Plan is non-contributory and non-vesting plan with benefits
payable only upon retirement of the officer.
The subsidiary banks are funding the future payments of these plans
through an investment with a value of $4,264 and $3,329 in 1996 and 1995,
respectively. The expense recorded for the future liability was $523, $365, and
$338 in 1996, 1995, and 1994, respectively.
Four of the subsidiary bank's plans are primarily funded through
insurance plans underwritten by Confederation Life. During 1994, Confederation
Life was placed in rehabilitation, resulting in a temporary freeze on the
applicable funding contracts. It is management's opinion, based partially on
correspondence from the plan administrator, that the situation with
Confederation Life is only temporary and the effect, if any, on the funding
contracts will be immaterial.
NOTE 16: TRANSACTIONS WITH DIRECTORS AND OFFICERS
Some of the officers and directors (including their affiliates, families,
and entities in which they are principal owners) of the Corporation and its
Subsidiaries are customers of the Subsidiaries and have had, and are expected to
have, transactions with the Subsidiaries in the ordinary course of business. In
addition, some officers and directors are also officers and directors of
corporations which are customers of the Subsidiaries and have had, and are
expected to have, transactions with the Subsidiaries in the ordinary course of
business. These transactions with officers and directors were made on the same
terms, including interest rates, collateral, and repayment terms, as those
prevailing at the time for comparable transactions with the general public and
none of these transactions involve more than the normal risk of collectibility
or present other unfavorable features.
21
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 12: TRANSACTIONS WITH OFFICERS AND DIRECTORS (CONTINUED)
Indebtedness of related parties is summarized as follows for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 15,597 $ 18,132
Repayments (14,516) (12,487)
Borrowings 14,833 9,952
-------------------------------------------------------
BALANCE AT END OF YEAR $ 15,914 $ 15,597
- --------------------------------------------------------
</TABLE>
NOTE 17: OTHER OPERATING EXPENSES
The following represents the major expense classifications included in
other operating expenses for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
EDP Processing and Services $ 379 $ 412 $ 390
Professional and Directors Fees $ 621 $ 997 $1,335
Advertising and Public Relations $ 405 $ 302 $ 307
Deposit and Liability Insurance $ 117 $ 551 $ 755
Franchise and Other Taxes $ 367 $ 281 $ 282
</TABLE>
NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS Number 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Corporation using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Corporation could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Short-Term Investments $ 24,271 $ 24,271 $ 19,208 $ 19,208
Marketable Securities $ 75,021 $ 75,386 $ 87,424 $ 88,041
Loans, Net $297,515 $295,620 $263,986 $254,487
FINANCIAL LIABILITIES:
Demand Deposits $ 89,851 $ 89,851 $ 91,206 $ 91,206
Time Deposits $269,989 $269,734 $249,378 $250,359
</TABLE>
Cash and Cash Equivalents
- -------------------------
The carrying amounts reported in the Consolidated Balance Sheet for cash
and cash equivalents approximate those assets' fair values.
Federal Funds Sold
- ------------------
For Federal Funds sold, the carrying value approximates its fair value.
Investment Securities
- ---------------------
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
22
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 12: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans
- -----
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits
- --------
The fair values disclosed for demand deposits (for example, interest and
non-interest bearing checking accounts, regular savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts). The fair values for
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits. The
carrying amount of accrued interest payable approximates fair value.
Off-Balance-Sheet Instruments
- -----------------------------
Commitments to extend credit were evaluated and fair value was based on
the fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. The estimated fair values of these commitments approximate
their carrying value.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996. 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.
23
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
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,
1996 1995
<S> <C> <C>
ASSETS
Cash and Due from Banks (Substantially All from Subsidiaries) $ 3,052,368 $ 3,852,339
Accounts Receivable 640,616 1,099,199
Investment Securities - Available for Sale 484,636 -0-
Investment in Subsidiaries (Equity Basis) 35,937,326 32,798,798
Loans 248,654 255,331
Premises and Equipment - Net 352,978 422,558
Other Assets 924,612 794,396
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $41,641,190 $39,222,621
- ---------------------------------------------------------------------------------------------
LIABILITIES
Other Liabilities $ 645,900 $ 1,019,147
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 645,900 $ 1,019,147
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock ($5.00 Par Value: 2,000,000 Shares Authorized:
Issued Shares; 1,469,670 in 1996 and in 1995) $ 7,348,350 $ 7,348,350
Additional Paid in Capital 10,260,865 10,261,070
Undivided Profits 23,247,030 20,229,624
Unrealized Gain (Loss) on Securities Available-for-Sale, Net of
Applicable Deferred Income Taxes 139,045 364,430
- ---------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $40,995,290 $38,203,474
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,641,190 $39,222,621
- ---------------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
REVENUE
Interest Income $ 12,627 $ 21,471 $ (422)
Management Fees from Subsidiaries 1,205,511 1,064,863 981,855
Dividends from Subsidiaries 1,942,000 4,621,000 2,599,235
Other Dividend Income 3,191 -0- -0-
Other Income 7,976 71,595 80
Security Gains -0- -0- 102,717
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $3,171,305 $5,778,929 $3,683,465
- ------------------------------------------------------------------------------------------------------------
EXPENSES
Employee Compensation and Benefits $1,290,039 $1,242,682 $ 906,408
Occupancy Expense, Net of Revenues 62,064 61,366 65,697
Furniture and Equipment Expense 190,314 255,792 236,519
Other Operating Expenses 564,733 449,707 536,822
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES $2,107,150 $2,009,547 $1,745,446
- ------------------------------------------------------------------------------------------------------------
Income (Loss) before Income Taxes, Equity in
Undistributed Net Income of Subsidiaries $1,064,155 $3,769,382 $1,938,019
Applicable Income Taxes (Benefit) (329,781) (386,777) (160,273)
- ------------------------------------------------------------------------------------------------------------
Income before Equity in Undistributed Net Income of Subsidiaries $1,393,936 $4,156,159 $2,098,292
Equity in Undistributed Net Income 3,387,075 589,344 2,299,445
- ------------------------------------------------------------------------------------------------------------
NET INCOME $4,781,011 $4,745,503 $4,397,737
- ------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
NOTE 19: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,781,011 $ 4,745,503 $ 4,397,737
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 110,214 152,174 170,061
Net Amortization of Purchase Accounting Adjustments 64,407 75,722 83,260
Undistributed Net (Income) Loss of Subsidiaries (3,387,075) (589,344) (2,299,445)
Provision for Deferred Taxes (8,925) (21,210) -0-
(Gain) Loss from Sale of Investments -0- -0- (102,717)
Income Tax Benefit (320,856) (365,567) (160,273)
Other Changes in Assets and Liabilities 205,046 361,782 (646,067)
- ---------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS $(3,337,189) $ (386,443) $(2,955,181)
- ---------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 1,443,822 $ 4,359,060 $ 1,442,556
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------
Proceeds from Sale of Investments Available-for-Sale $ -0- $ -0- $ 394,740
Proceeds from Sale of Capitalized Assets -0- 1,458 -0-
Net Decrease in Loans 6,677 -0- -0-
Capitalized Expenditures (40,634) (242,940) (24,946)
Purchases of Investments Available-for-Sale (446,027) -0- -0-
- ---------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES $ (479,984) $ (241,482) $ 369,794
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------
Proceeds from Issuance of Common Stock $ -0- $ 88,105 $ -0-
Proceeds from Sale of Treasury Stock -0- 317,040 204,715
Payment for Fractional Shares of Converted Preferred Stock (205) (995) (5,993)
Cash Dividends Paid (1,763,604) (1,637,497) (1,461,170)
- ---------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES $(1,763,809) $(1,233,347) $(1,262,448)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ (799,971) $ 2,884,231 $ 549,902
- ---------------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR 3,852,339 968,108 418,206
- ---------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 3,052,368 $ 3,852,339 $ 968,108
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DISCLOSURE OF CASH FLOWS INFORMATION
Cash Paid during the Year for:
Interest $ -0- $ -0- $ -0-
Income Taxes $ 2,862,802 $ 1,945,381 $ 1,996,423
</TABLE>
Principal sources of revenues for the Corporation are dividends received
from its subsidiary banks and fees for services provided to its Subsidiaries.
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 1996.
25
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
(In Thousands of Dollars Except for Per Share Data)
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>
1996
- ----
Interest Income $7,627 $7,772 $7,969 $8,077 $31,445
Net Interest Revenue $4,369 $4,517 $4,564 $4,601 $18,051
Provision for Possible Loan Loss $ 130 $ 117 $ 111 $ 101 $ 459
Net Operating Revenue $1,436 $1,752 $1,832 $2,065 $ 7,085
Applicable Income Taxes $ 428 $ 592 $ 656 $ 628 $ 2,304
Net Income $1,008 $1,160 $1,176 $1,437 $ 4,781
Applicable to Common Stock $1,008 $1,160 $1,176 $1,437 $ 4,781
Per Common Share $ .69 $ .79 $ .80 $ .97 $ 3.25
Cash Dividends Paid Common Stock $ .30 $ .30 $ .30 $ .30 $ 1.20
1995
- ----
Interest Income $7,365 $7,654 $7,728 $7,678 $30,425
Net Interest Revenue $4,461 $4,464 $4,465 $4,483 $17,873
Provision for Possible Loan Loss $ 107 $ 111 $ 111 $ 89 $ 418
Net Operating Revenue $1,711 $1,902 $1,755 $1,553 $ 6,921
Applicable Income Taxes $ 595 $ 673 $ 561 $ 347 $ 2,176
Net Income $1,116 $1,229 $1,193 $1,207 $ 4,745
Applicable to Common Stock $1,116 $1,229 $1,193 $1,207 $ 4,745
Per Common Share $ .77 $ .84 $ .81 $ .82 $ 3.24
Cash Dividends Paid Common Stock $ .28 $ .28 $ .28 $ .28 $ 1.12
1994
- ----
Interest Income $6,135 $6,637 $7,077 $7,084 $26,933
Net Interest Revenue $3,868 $4,300 $4,567 $4,577 $17,312
Provision for Possible Loan Loss $ 93 $ 89 $ 114 $ 121 $ 417
Net Operating Revenue $1,798 $1,340 $1,953 $ 833 $ 5,924
Applicable Income Taxes $ 541 $ 670 $ 486 $ (171) $ 1,526
Net Income $ 908 $1,019 $1,467 $1,004 $ 4,398
Applicable to Common Stock $ 840 $ 950 $1,400 $1,004 $ 4,194
Per Common Share $ .65 $ .74 $ 1.09 $ .78 $ 3.26
Cash Dividends Paid Common Stock $ .25 $ .25 $ .25 $ .28 $ 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Harman, Thompson, Mallory & Ice, A. C.
Certified Public Accountants
Independent Auditors' 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, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years ended December 31, 1996, 1995, and 1994.
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 statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Commercial BancShares, Inc. and Subsidiaries as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995, and 1994 in conformity with
generally accepted accounting principles.
/s/ Harman, Thompson, Mallory & Ice, A.C.
Parkersburg, West Virginia
February 10, 1997
Towne Square, Parkersburg, West Virginia 26102
26
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
The purpose of this discussion is to focus on information about Commercial
BancShares, Incorporated and its financial condition and results of operations
that is not otherwise apparent from the consolidated financial statements
included in this Annual Report. Reference should be made to those statements
and accompanying notes for an understanding of the following discussion and
analysis.
RESULTS OF OPERATIONS
Summary
Net income for 1996 was a record $4,781, up $36, or 0.8%, from the 1995
earnings of $4,745. Net income per share was $3.25 for 1996, an increase of
$.01 or 0.3% over the 1995 income per share. The net income was $4,398 in 1994
and fully diluted income per share was $3.03.
Dividends declared in 1996 amounted to $1.20 per share. This was an
increase of 7.1% over 1995, when dividends declared were $1.12 per share.
BancShares has increased its annual dividends for each of the last nine years.
In 1994, the dividends were $1.03 per share.
BancShares' return on average shareholders' equity was 13.19%, compared to
13.11% in 1995 and 13.61% in 1994. Average shareholders' equity as a percentage
of average total assets was 9.08% in 1996, compared to 9.58% in 1995 and 8.94%
in 1994. The return on total average assets for 1996 was 1.20%, compared to
1.26% in 1995 and 1.22% in 1994.
Interest and fees on loans provide the major portion of BancShares'
revenue, amounting to 74.6% of 1996 revenues, 73.5% of 1995, and 75.2% of 1994.
Income from the interest and dividends on investment securities is also a
significant source of revenue, accounting for 14.7% of revenues in 1996, 15.7%
in 1995, and 16.9% in 1994.
Net Interest Income
Net interest income, which is the major determinant of BancShares' income,
increased by 1.00% in 1996 after increasing 3.24% in 1995. Factors affecting
net interest income include fluctuations in interest rates as well as changes in
the amount and type of earning assets and interest bearing liabilities. The
increases in 1996 and 1995 were primarily due to an increase in the volume of
average earning assets, which grew $16,922 or 6.6% during 1995 and $15,843 or
4.7% during 1995. This growth was in loans, which increased $21,694 in 1996
and $17,589 in 1995.
During 1996 interest income increased 3.35% after growing 12.97% in 1995.
The growth in loans offset lower yields to provide the increased income.
Interest expense increased 6.71% in 1996, following an increase of 30.46% in
1995. The increased costs came from the higher volume of time deposits.
BancShares expects interest rates during 1997 to be relatively steady, with
a modest increase affecting the second half of the year. Because of the stable
rate environment of 1996 continuing into 1997, the net interest margin is
expected to increase. The effective yield of earning assets should not decline
further, and the costs of interest bearing liabilities are expected to decline
somewhat. However, customers will often reallocate their investments,
particularly in time deposits, into the highest yielding instruments available,
slowing any reduction in the effective rate paid on deposits. As consumers
become more willing to use non-bank investments such as mutual funds, banks'
ability to attract deposits will become more dependent upon the use of higher
rates. Alternatively, banks may turn to other sources of funds, such as long
and short term borrowings.
27
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
For more complete information regarding net interest income, the following
tables of average balances and interest rates on a fully taxable equivalent
basis are provided for the years indicated.
Average Balances and Interest Rates
<TABLE>
<CAPTION>
1996 1995 1994
Average Yield/ Average Yield/ Average Yield/
Balance Interest/2/ Rate Balance Interest/2/ Rate Balance Interest/2/ Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits
with other banks $ 672 49 7.29% $ 639 38 5.95% $ 603 20 3.32%
Federal funds sold 5,268 302 5.73% 7,438 535 7.19% 5,906 242 4.10%
Taxable investments 70,383 4,405 6.26% 72,972 4,565 6.25% 75,181 4,084 5.43%
Non-taxable investments 12,181 1,076 8.83% 12,227 1,027 8.41% 13,332 1,227 9.20%
Loans/1/ 279,476 25,979 9.30% 257,782 24,609 9.55% 240,193 21,777 9.07%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
EARNING ASSETS $367,980 31,811 8.64% $351,058 30,774 8.77% $335,215 27,350 8.16%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and due from banks $ 15,093 $ 12,326 $ 13,502
Other Assets 19,694 17,634 16,047
Less: Allowance for
Loan Losses -3,586 -3,478 -3,271
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $399,181 $377,540 $361,493
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Interest-bearing Liabilities:
Savings Deposits $ 71,291 2,171 3.05% $ 75,130 2,255 3.00% $ 79,016 2,295 2.90%
NOW, MMDA Accounts 55,083 1,305 2.37% 59,647 1,408 2.36% 60,846 1,458 2.40%
Time Deposits 176,976 9,604 5.43% 154,324 8,498 5.51% 133,119 5,617 4.22%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $303,350 13,080 4.31% $289,101 12,161 4.21% $272,981 9,370 3.43%
Other Borrowed Funds 5,399 314 5.82% 5,236 391 7.47% 6,370 251 3.94%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
BEARING LIABILITIES $308,749 13,394 4.34% $294,337 12,552 4.26% $279,351 9,621 3.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest Bearing
Liabilities:
Demand Deposits 46,902 43,410 46,287
Other Liabilities 7,284 3,612 3,539
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $362,935 $341,159 $329,177
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 36,246 36,181 32,316
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY $399,181 $377,540 $361,493
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Earnings $18,417 $18,222 $17,728
Net Yield on
Interest-earning Assets 5.00% 5.19% 5.29%
</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.
28
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
The following table presents the changes in interest income and interest expense
resulting from changes in interest rates and changes in the volume of interest-
earning assets and interest-bearing liabilities. Changes attributable to both
rate and volume that cannot be segregated have been allocated in proportion to
the changes due to rate and volume.
<TABLE>
<CAPTION>
Rate/Volume Analysis of Net Interest Revenue
(Fully Taxable Equivalent Basis)
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with
other banks $ 2 $ 9 $ 11 $ 1 $ 17 $ 18
Federal funds sold (137) (96) (233) 75 218 293
Taxable investments (167) 7 (160) (122) 603 481
Non-taxable investments (4) 53 49 (98) (102) (200)
Loans 2,028 (658) 1,370 1,659 1,173 2,832
- --------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS $1,722 $(685) $1,037 $1,515 $1,909 $3,424
- --------------------------------------------------------------------------------------------------
Savings deposits $ (120) $ 36 $ (84) $ (116) $ 76 $ (40)
NOW, MMDA accounts (109) 6 (103) (27) (23) (50)
Time deposits 1,231 (125) 1,106 987 1,894 2,881
Other borrowed funds 12 (89) (77) (52) 191 139
- --------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES $1,014 $(172) $ 842 $ 792 $2,138 $2,930
- --------------------------------------------------------------------------------------------------
</TABLE>
Other Income
Non-interest income increased 12.09% in 1996, following a 49.83%
increase in 1995. Trust department income increased 7.89% in 1996 after growing
29.30% in 1995. Income for the department is affected by changes in the volume
of estates being handled, as well as the value of assets owned. Service
charges, fees and commissions increased 7.09% in 1996, compared with a 1.80%
decrease in 1995.
There were securities gains of $26 in 1996, which largely resulted
from a bond being called. This compared to losses of $1 in 1995. There were
securities losses of $220 in 1994, when lower-yielding securities were sold late
in the year. BancShares does not operate a trading account.
All other income increased to $1,336 in 1996, up from $1,137 in 1995
and $485 in 1994. A gain on sale of other real estate created the growth in the
1996 figure.
Other Expense
Non-interest expenses were $13,891 in 1996, compared to $13,553 in
1995 and $12,986 in 1994. Employee compensation and benefits increased $246
(3.29%) in 1996, following a $486 rise in 1995. Furniture and equipment expense
decreased 7.07% in 1996, after increasing 5.13% in 1995. Occupancy expense
decreased 4.44% in 1996, following an increase of 33.33% in 1995. The 1995
increases in these two categories were related to the expenses associated with
the expansion of a branch office and purchase of computers. Other operating
expenses increased 4.88% in 1996, compared to a decrease of 4.43% in 1995.
Contributing to the increase were professional fees and charitable donations.
Income Taxes
Income tax expense includes federal income tax and West Virginia
income tax accrued by BancShares. The effective tax rate was 33% in 1996, 31%
in 1995 and 26% in 1994. Tax exempt investment and loan income are the primary
reason the effective tax rate is less than the Federal statutory rate of 34%. A
decrease in nontaxable interest income in 1996, an increase in the effective
state income tax rate, and other items combined to cause the increase in the
1996 effective tax rate.
29
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
FINANCIAL CONDITION
Asset/Liability 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 minimize the risk of reduction in net interest
income that could result from fluctuations in market interest rates.
Interest Rate Sensitivity
The repricing schedule that follows reflects the contractual maturity
or repricing of each of BancShares' rate sensitive assets and liabilities held
at December 31, 1996. While most assets and liabilities reprice either at
maturity or according to contractual terms, several balance sheet components
demonstrate characteristics that require adjustments to more accurately reflect
their pricing behavior. Assumptions based on historical pricing relationships
and anticipated market reactions are made to certain core deposits to reflect
the elasticity of the changes in their interest rates relative to the changes in
market interest rates. In addition, estimates are made regarding early loan and
security repayments. These adjustments provide a more accurate picture of
BancShares' interest rate risk profile than the repricing schedule. Management
considers the adjusted information in making its decisions regarding the pricing
of loans and deposits and the purchase or sale of assets.
The following table shows the interest sensitivity gaps for four
different time intervals as of December 31, 1996.
<TABLE>
<CAPTION>
0-90 91-365 1 Year Over
Days Days to 5 Yrs 5 Yrs
<S> <C> <C> <C> <C>
Federal funds sold $ 5,000 $ -0- $ -0- $ -0-
Investment securities 2,100 12,185 46,318 14,418
Loans 101,605 43,011 111,700 41,199
Other interest-earning 669 -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets $109,374 $ 55,196 $158,018 $55,617
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand
deposits/1/ $ 20,579 $ -0- $ -0- $20,575
Savings deposits/1/ 42,067 -0- -0- 42,068
CD's of $100,000 and more 6,704 14,440 10,606 -0-
Other time deposits 36,364 71,498 46,242 -0-
Borrowed funds 7,540 -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive
liabilities $113,254 $ 85,938 $ 56,848 $62,643
- ----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (3,880) $(30,742) $101,170 $(7,026)
Cumulative gap $ (3,880) $(34,622) $ 66,548 $59,522
Cumulative gap/rate
sensitive assets (1.03%) (9.15%) 17.60% 15.74%
</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.
Total interest earning assets exceeded total interest bearing liabilities by
$59,522 at December 31, 1996. This difference was funded through noninterest
bearing liabilities and shareholders' equity. The table reflects contractual
maturities of all investment securities and loans. It does not include
assumptions regarding early loan or security repayments. The table indicates
the total liabilities maturing or repricing within one year exceed assets
maturing or repricing within one year by $34,622. However, repricing of some
categories of assets or liabilities is subject to competitive and other
influences beyond the control of BancShares. Therefore, certain assets and
liabilities indicated as maturing or repricing within a certain period may, in
fact, mature or reprice in other periods or in different volumes.
30
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
Loan Portfolio
Ordinarily, BancShares' primary use of funds is to meet the loan demands of
bank customers. The loan portfolio is the largest and most profitable component
of average earning assets, totaling 76.0% of average earning assets. Average
total loans increased by $21,694 or 8.4% in 1996, which followed a 7.3% increase
in 1995. As a result of net loan increases, BancShares' loan-to-deposit ratio
continued to increase in 1996, averaging 79.79%. This compares to an average
loan-to-deposit ratio of 77.53% in 1995 and 75.23% in 1994.
The following table shows BancShares' loan distribution at December 31 for
the years:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial and Industrial $119,568 $104,896 $103,485 $ 88,790 $ 93,216
Real Estate 109,624 102,843 88,321 82,354 76,715
Installment and Credit Cards 68,323 56,247 64,851 51,477 53,082
- ---------------------------------------------------------------------------------
Total $297,515 $263,986 $256,657 $222,621 $223,013
- ---------------------------------------------------------------------------------
</TABLE>
BancShares loan portfolio contains no loans to foreign borrowers. Along
with the loans reported, BancShares also offers certain off-balance sheet
products such as letters of credit, revolving credit agreements, and other loan
commitments. These products are offered under the same credit standards as the
loans included in the loan portfolio and are included in BancShares' risk-based
capital ratios.
Provision and Allowance for Loan Losses
The provision for possible loan losses that 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 $459, $58 more than net
losses of $401. The net loss for 1996 represented 0.14% of average loans. This
compares with a provision of $418 in 1995, when net losses were $333 (.13% of
average loans). The provision was $417 in 1994, when net losses were $125 (.05%
of average loans).
The reserve for possible loan losses at year end 1996 totaled $3,574 (1.20%
of total loans), as compared to $3,516 (1.33% of total loans) in 1995.
The following table summarizes BancShares' loan loss experience for each of
the five years ended December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,516 $3,430 $3,138 $2,958 $2,360
Charge-offs:
Commercial loans $ 281 $ 148 $ 81 $ 74 $ 406
Real estate 9 26 43 51 25
Consumer 194 254 121 155 268
- --------------------------------------------------------------------------------
Total Charge-offs $ 484 $ 428 245 $ 280 $ 699
- --------------------------------------------------------------------------------
Recoveries:
Commercial loans 37 32 53 124 210
Real estate 4 13 7 15 10
Consumer 42 51 60 74 94
- --------------------------------------------------------------------------------
Total Recoveries $ 83 $ 95 $ 120 $ 213 $ 314
- --------------------------------------------------------------------------------
Net Charge-offs 401 333 125 $ 67 $ 385
Additions charged to operations/1/ 459 418 417 247 983
- --------------------------------------------------------------------------------
Balance at December 31 $3,574 $3,516 $3,430 $3,138 $2,958
- --------------------------------------------------------------------------------
Ratio of net charge-offs
to average loans outstanding 0.14% 0.13% 0.05% 0.03% 0.18%
</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.
31
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
The following table shows an allocation of the allowance for loan losses for
each of the years ended:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Industrial $1,437 40.2% $1,399 39.8% $1,382 40.3% $1,252 39.9% $1,236 41.8%
Real estate 1,315 36.8% 1,269 36.1% 1,180 34.4% 1,161 37.0% 1,017 34.4%
Consumer 822 23.0% 848 24.1% 868 25.3% 725 23. 1% 705 23.8%
- ------------------------------------------------------------------------------------------------------------------------
Total $3,574 100.0% $3,516 100.0% $3,430 100.0% $3,138 100.0% $2,958 100.0%
- ------------------------------------------------------------------------------------------------------------------------
</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.
Under-Performing Assets
The following table summarizes BancShares' under-performing assets for
the years ended
<TABLE>
<CAPTION>
December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Accruing Loans Past due
90 days or more $ 251 $ 990 $ 464 $ 338 $ 464
- -------------------------------------------------------------------------------------------------
Principal amount of nonaccrual
loans at year end 505 821 739 355 766
Restructured loans 2,389 1,399 1,403 121 86
- -------------------------------------------------------------------------------------------------
$2,894 $2,220 $2,142 $ 476 $ 852
Other real estate acquired in
satisfaction of loans $ 956 $1,652 $1,329 $1,274 $1,593
- -------------------------------------------------------------------------------------------------
Total under-performing assets $4,101 $4,862 $3,935 $2,088 $2,909
- -------------------------------------------------------------------------------------------------
</TABLE>
Securities
BancShares' securities portfolio, including securities available for sale
plus investment securities held to maturity, decreased $12,304 or 14.19% from
December 31, 1995, to December 31, 1996. The largest portion of the portfolio
at year-end 1996 was invested in U.S. government and agency securities, which
totaled $29,690 and comprise 39.58% of the carrying value of total investments.
The following table sets forth the maturities of investment securities at
December 31, 1996, 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 IN
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other $13,503 6.47% $40,255 6.38% $2,949 5.90% $4,313 6.29%
U.S. government agencies
States and political 822 8.19% 5,525 8.14% 3,903 8.21% 1,707 9.61%
subdivisions
Other 25 6.65% -0- -0- 105 6.37%
- -----------------------------------------------------------------------------------------------------------------
Total $14,350 6.57% $45,780 6.59% $6,852 7.21% $6,125 7.22%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
Liquidity and Funding
Deposits are the largest, most stable, and generally least costly source of
funds for BancShares. During 1996, average deposits increased $17,741 (5.3%)
compared to $13,243 (4.1%) in 1995. At December 31, 1996, deposits represented
120.9% of total loans, compared to 129.1% at December 31, 1995.
Available to BancShares are short-term market-rate liabilities, including
Federal funds purchased and securities sold under agreements to repurchase.
These instruments are currently used to accommodate customers and, on a limited
basis, to provide a short-term source of funds. Three of BancShares'
subsidiaries are members of the Federal Home Loan Bank of Pittsburgh, which
makes available to its members a number of credit products, any or all of which
could be used to meet liquidity needs. Additionally, BancShares is aware of
several brokers who could, in a short 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 that
are guaranteed by U. S. government agencies and are, therefore, salable.
Cash and due from banks are BancShares' most liquid assets. At December 31,
1996, cash and due from banks totaled $18,602, an increase of $1,859 (11.1%)
from December 31, 1995. Marketable investment securities, particularly those of
short maturities, and Federal funds sold are also sources of asset liquidity.
Securities maturing in one year or less amounted to $14,350 at December 31,
1996, representing 19.3% of the investment portfolio. Federal funds sold at
December 31, 1996, were $5,000. Along with these scheduled maturities, there
will be repayments of mortgage backed securities and the possible early
redemption of callable securities.
Capital Resources
The following table presents the total common shareholders' equity in
thousands of dollars and the book value per common share at December 31 of the
years indicated.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Common Shareholders' Equity $40,995 $38,203
Book Value Per Share $ 27.89 $ 25.99
</TABLE>
Besides meeting regulatory capital 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 5.7% in 1996 and 4.4% in 1995. To maintain appropriate
ratios of equity to total assets, a corresponding level of capital growth must
be achieved. During 1996 total shareholders' equity grew 7.31%, following an
increase of 13.7% in 1995, 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>
1996 1995 1994
<S> <C> <C> <C>
Return on equity 13.19% 13.11% 13.61%
times
Earnings retained 63.10% 65.50% 62.85%
equals
Internal capital growth 8.32% 8.59% 8.55%
</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. BancShares expects to pay quarterly cash dividends during
1997.
33
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Management's Discussion and Analysis of the
Financial Condition and Results of Operations
(In Thousands of Dollars Except Per Share Data)
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. For the
years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Profitability ratios:
Rate of Return/1/ on Average:
Earning Assets 1.30% 1.35% 1.31%
Total Assets 1.20% 1.26% 1.22%
Total Shareholders' Equity 13.19% 13.11% 13.61%
Liquidity and Capital Ratios:
Average Shareholders' Equity to
Average Earning Assets 9.85% 10.31% 9.64%
Average Shareholders' Equity to
Average Total Assets 9.08% 9.58% 8.94%
Common Dividend Payout Ratio/2/ 36.90% 34.50% 29.97%
</TABLE>
Notes:
/1/ Based on Net Income
/2/ Cash dividends declared on common stock as a percentage of net income
applicable to common stock.
34
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Market for the Registrant's Common Stock
Commercial BancShares, Incorporated's common stock began trading on the
American Stock Exchange on June 27, 1996. It trades under the symbol CWV.
Before Commercial's common stock was listed on the AMEX, Legg Mason Wood Walker
had been an active market maker and several trades were initiated through
Hazlett, Burt & Watson, Inc., although that firm was not considered to be making
a market in BancShares stock. On December 31, 1996, the total number of holders
of Commercial BancShares, Inc. common stock was 1,139.
The tables below present the high and low sales price reported for
Commercial BancShares, Incorporated, and the cash dividends declared on common
stock in each quarter of the past five years.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Market Value of Common Stock:
(In Dollars)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
First Quarter $33.25-35.00 $30.00-31.00 $28.50-29.50 $24.00-25.00 $18.50
Second Quarter $34.25-37.50 $30.25-31.25 $28.50-29.50 $26.00-27.00 $19.50
Third Quarter $37.50-39.375 $32.00-33.00 $28.50-29.50 $27.00-29.00 $20.00
Fourth Quarter $39.00-40.25 $33.00-34.00 $29.50-30.50 $28.00-29.50 $21.00-22.00
- ---------------------------------------------------------------------------------------------------------------
Cash Dividends Declared on Common Stock:
(In Dollars)
1996 1995 1994 1993 1992
First Quarter $ .30 $ .28 $ .25 $ .23 $ .20
Second Quarter .30 .28 .25 .23 .20
Third Quarter .30 .28 .25 .23 .20
Fourth Quarter .30 .28 .28 .25 .23
</TABLE>
35
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Directors
<TABLE>
<CAPTION>
Commercial BancShares, Inc. Commercial Banking and Jackson County Bank
Trust Company
<S> <C> <C>
William E. Mildren, Jr. Bruce Bingham
Chairman, President & William E. Mildren, Jr. Chairman
Chief Executive Officer Chairman Robert P. Hartley
Bruce Bingham Carl E. Dollman President, Hartley Oil
Company
Chairman, Jackson County Retired Incorporated &
Bank Subsidiaries
Frank L. Christy Peyton J. Dudley Larry G. Johnson
Real Estate Developer J.W. Dudley Sons Company Executive Vice
President & CFO,
A. V. Criss, III Larry G. Johnson Commercial BancShares,
Inc.
President, Century Block, Executive Vice President Charles V. Kelly, O.D.
Inc. & CFO,
President, Century Commercial BancShares, Inc. Retired Optometrist
Limestone, Inc.
Vice President, Atlas Arthur A. Maher Thomas M. Lookabaugh
Towing
Secretary-Treasurer, Retired President
Bluestone Quarries, Inc. Daniel O. Martin William E. Mildren, Jr.
Gary R. Davis Executive Vice President, Chairman,
Chairman & Chief Executive Mullen Motors Company Commercial BancShares, Inc.
Officer,
Union Bank of Tyler County William E. Mildren A. Clark Ritchie
Wilson Davis Retired Chairman Real Estate Developer
Chairman & President, Jack F. Poe Data Processing Consultant
The Community Bank Retired President W.S. Ritchie, Jr.
Carl E. Dollman Donald L. Scothorn Self-Employed
Retired President & Chief Stephen F. Seaman
Executive Officer
James A. Meagle, Jr. James W. Swearingen Merchant - Almeda's
President & Chief Retired Thomas N. Webster
Executive Officer,
The Dime Bank Robert K. Tebay Vice-Chairman,
David L. Mendenhall Owner-Operator, Tebay Commercial BancShares,
Dairy Inc.
President & Chief Thomas N. Webster
Executive Officer,
The Bank of Paden City Vice-Chairman,
Jack F. Poe Commercial BancShares, Inc. Farmers & Merchants Bank
of Ritchie County
Retired Bert F. Hider
Robert E. Richardson Director Emeritus
Chairman, Richardson Donald L. Scothorn
Printing Corp. Chairman
W. S. Ritchie, Jr.
Self-Employed Bobby O. Chancey
Susan S. Ross Retired Manager,
Former Chairman, Armstrong Telephone Co.
Storck Baking Company, Inc. Kenneth Paul Goodnight
Donald L. Scothorn President,
President & Chief Allstate Energy
Executive Officer, Corporation
Commercial Banking and A.D. Jackson
Trust Co. Owner, Western Auto
James L. Wahle Store
President, Donna L. Perine
Accu-Sort Systems, Inc. President & Chief
Executive Officer
Thomas N. Webster Henry D. Sassi
Vice-Chairman Vice-Chairman
Morris B. Wilkins
President, Caesars Pocono
Resorts
William E. Mildren
Director Emeritus
</TABLE>
36
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Directors
<TABLE>
<CAPTION>
The Dime Bank Union Bank of Tyler Bank of Paden City
County
<S> <C> <C>
Robert E. Richardson Gary R. Davis Edwin P. Barrett
Chairman Chairman & Chief Retired, D & J Auto
Executive Officer Parts & Paden City Auto Parts
Paul G. Bertram, Jr. Timothy R. Aiken
Vice-Chairman President & Chief
Operating Officer George G. Couch
Harry M. Cogswell Gloria J. Burge Owner & Administrator,
President & Owner, Executive Vice New Martinsville Health
President Care Center
Apex Feed & Supply, Inc. Robert E. Doak Robert M. Feldmeier
C. Fred Hunter, Jr. Retired Partner, President,
Doak's IGA
Sales Director, William P. Ingram The Paul Wissmach Glass
Company
Magnum Magnetics Farmer Robert W. Friend
Robert G. Kelly Donald K. Jemison Attorney at Law
President, Retired Supervisor, Nelson Hachem
Ormet Corporation
Quantum Leasing & Auto Paul E. Jemison Owner, McDonald's
Sales, Inc. Restaurant
Walter J. McCarthy Retired Supervisor, New Martinsville and
P.P.G. Industries St. Marys
Real Estate Broker David L. Mendenhall David L. Mendenhall
James A. Meagle, Jr. President & Chief President & Chief
Executive Officer, Executive Officer
President Bank of Paden City Donald L. Scothorn
William E. Mildren, Jr. William E. Mildren, Jr. President & Chief
Chairman, Chairman, Executive Officer,
Commercial Banking and
Trust Co.
Commercial BancShares, Inc. Commercial BancShares, Richard B. Stender
Inc.
Richard A. Spindler Harry S. Peters Optometrist
President, Retired Supervisor, Lester Doak
Union Carbide Corp.
Dowling Pool Company Owner, Peters Realty Director Emeritus
Co.
Dan S. Stephan, Jr. Robert C. Sellers June Nichols
Vice President, Retired Supervisor, Director Emeritus
Anderson-Stephan News Co. LCP Chemicals of WV, Norman D. Trowbridge, Sr.
Inc.
William C. Wigal J. Allen Woodburn Director Emeritus
Retired Accountant Retired Colonel,
Neil R. Wynn State of West Virginia
President, Department of Natural
Resources
Wynn Oil & Gas
The Community Bank
Wilson Davis
Chairman & President
Timothy R. Aiken
President & Chief
Operating Officer,
Union Bank of Tyler
County
Orville R. Bonnell
Retired Wholesale
Grocer
Gary R. Davis
Chairman & Chief
Executive Officer,
Union Bank of Tyler
County
Robert J. Michels
Owner, Michels Oil Co.
William F. Prunty
Retired Purchasing
Manager,
Equitable Gas
</TABLE>
37
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Officers
<TABLE>
<S> <C> <C>
Commercial BancShares, Inc. Commercial Banking Branch Management
415 Market Street and Trust Company ------------------------
Parkersburg, WV 26101 415 Market Street William P. Crites
(304) 424-0300 Parkersburg, WV 26101 Senior Vice President of
(304) 424-0300 Branch Operations
William E. Mildren, Jr.
Chairman, President & William E. Mildren, Jr. Jack D. Carr
Chief Executive Officer Chairman Vice President
Thomas N. Webster Donald L. Scothorn Paul R. Mancuso, Jr.
Vice-Chairman President & Chief Vice President
Executive Officer John O. Stewart
Larry G. Johnson Vice President
Executive Vice President & Thomas N. Webster
Chief Financial Officer Vice-Chairman Trust Department
-----------------------
David L. Mendenhall Commercial Loan C. Randall Law
Senior Vice President Department Senior Vice President
------------------------- & Senior Trust Officer
Donald L. Scothorn David M. Righter
Senior Vice President Senior Vice President Charlotte J. Potter
Vice President & Trust
Patricia A. Tucker Douglass J. Swearingen Officer
Assistant Vice President Senior Vice President
Linda L. Daggett
Daniel N. Canada Debra V. Miller Trust Operations Officer
Assistant Vice President & Loan Officer
Director of Human Resources Pamela S. Robinson
Mortgage Loan Department Assistant Trust
Data Processing Department ------------------------- Operations Officer
- --------------------------- Henry D. Sassi
Leo P. Mallamaci Farmers & Merchants Bank
Vice President & Senior Vice President of Ritchie County
Senior Data Processing Carolyn S. Calhoun 1500 East Main Street
Officer Vice President Harrisville, WV 26362
(304) 643-2974
Peter G. Gallo Consumer Loan Department
Systems & Programming ------------------------- Donald L. Scothorn
Manager Ronald L. Buchanan Chairman
Senior Vice President
Faith J. Smith Henry D. Sassi
Data Center Operations Sallie A. Fankhauser Vice-Chairman
Manager Mortgage Loan & Consumer
Officer Donna L. Perine
Auditing Department President & Chief
- --------------------------- Operations Department Executive Officer
W. Bryan Pennybacker, CPA -------------------------
Senior Audit Manager Wayne F. Lee Martha K. Kellar
Senior Vice President & Executive Vice
Marcia S. Westfall, CPA Cashier President & Cashier
Auditor
Joan P. Snider Robert E. Bolin
Jackson County Bank Vice President Vice President
Wall Street
Ravenswood, WV 26164 William C. Deem Sabrina Hanlon
304/273-9351 Data Support Manager Assistant Vice President
Thomas M. Lookabaugh Theresa J. Westfall
President & Chief Director of Marketing
Executive Officer
B. Scott Miller
Executive Vice President
Donna R. McCoy
Loan Officer
</TABLE>
38
<PAGE>
Commercial BancShares, Inc. and Subsidiaries
Officers
<TABLE>
<S> <C> <C>
The Dime Bank Union Bank of Tyler Bank of Paden City
200 Putnam St. County 4th & Main Street
Marietta, OH 45750 Fair & Dodd Streets Paden City, WV 26159
(614) 373-0237 Middlebourne, WV 26149 (304) 337-2205
(304) 758-2191
James A. Meagle, Jr. David L. Mendenhall
President & Chief Gary R. Davis President & Chief
Chairman & Chief Executive Officer
Executive Officer Executive Officer
Steven C. Hall Larry M. Tracey
Executive Vice President & Timothy R. Aiken Executive Vice President
Senior Loan Officer President & Chief
Operating Officer Shirley D. Kendle
Alice V. Skidmore Vice President & Cashier
Vice President & Security Gloria J. Burge
Officer Executive Vice President Judith M. Yeager
Assistant Vice President
Sonja P. Van Wey Paul E. Davis
Cashier & Treasurer Vice President Genelle Ferrebee
Assistant Vice President
Jennifer L. Antill Janet W. Dieringer
Assistant Vice President & Loan Officer Julia A. Haught
Compliance Officer Administrative Assistant
Margaret F. Jeffries
Thomas L. Bogard Assistant Vice Tammy R. Waggoner
Assistant Vice President & President & Loan Officer
Loan Officer Trust Officer
Kathy A. Howell
Carolyn A. Ewart Patricia G. Mason Assistant Cashier
Assistant Vice President & Vice President & Cashier
Secretary Tamara J. Bowers
Linda L. Stackpole Assistant Cashier
Susan J. Hobensack Assistant Vice
Assistant Vice President & President & Ruth B. Longwell
Loan Officer Loan Officer Assistant Loan Officer
Shirley K. Lang R. R. Ullom
Assistant Vice President & Loan Officer
Head Teller
The Community Bank
Patricia A. Norris 112 Collins Ave.
Assistant Vice President & Pennsboro, WV 26415
Branch Manager (304) 659-2964
Wilson Davis
Chairman & President
Robert J. Michels
Vice President
Patty S. Poling
Cashier & Chief
Executive Officer
Rosa Wright
Assistant Vice
President &
Loan Officer
Shirley L. Dulaney
Assistant Cashier
Barbara A. Devericks
Assistant Cashier
Deana P. Hudkins
Assistant Cashier
</TABLE>
39
<PAGE>
[Logo]
Commercial BancShares, Inc.
415 Market Street
Parkersburg, West Virginia 26101
<PAGE>
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
The Subsidiaries of Commercial BancShares, Incorporated are:
<TABLE>
<CAPTION>
Name of Company State of Incorporation
--------------- ----------------------
<S> <C>
. Commercial Banking and Trust Company West Virginia
. Jackson County Bank West Virginia
. Farmers and Merchants Bank of Ritchie County West Virginia
. The Dime Bank Ohio
. Union Bank of Tyler County West Virginia
. The Community Bank West Virginia
. The Bank of Paden City West Virginia
. Hometown Insurance Agency, Inc. [Inactive] West Virginia
</TABLE>
<PAGE>
EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS
COMMERCIAL BANCSHARES, INC.
[LOGO OF HARMAN, THOMPSON, MALLORY & ICE, A.C.]
HARMAN, THOMPSON, MALLORY & ICE, A.C.
Certified Public Accountants
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Commercial BancShares, Inc. and Subsidiaries
Parkersburg, West Virginia
We consent to incorporation by reference of our report dated February
10, 1997, relating to the consolidated balance sheet of Commercial BancShares,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996
which appears in the Company's Form 10-K Registration Statement. Similarly, we
also consent to reference to our firm in the Management's Discussion and
Analysis associated with the financial information and statistical data for the
above-mentioned periods presented as a part of the above referenced filing.
/s/ Harman, Thompson, Mallory & Ice, A.C.
-----------------------------------------
Harman, Thompson, Mallory & Ice, A.C.
Certified Public Accountants
Parkersburg, West Virginia
March 25, 1997
Towne Square, P.O. Box 148, Parkersburg, West Virginia 26102 304/485-6584
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,602
<INT-BEARING-DEPOSITS> 669
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 75,021
<INVESTMENTS-MARKET> 75,387
<LOANS> 297,515
<ALLOWANCE> 3,574
<TOTAL-ASSETS> 412,979
<DEPOSITS> 359,840
<SHORT-TERM> 2,540
<LIABILITIES-OTHER> 4,604
<LONG-TERM> 5,000
0
0
<COMMON> 7,348
<OTHER-SE> 33,647
<TOTAL-LIABILITIES-AND-EQUITY> 412,979
<INTEREST-LOAN> 25,979
<INTEREST-INVEST> 5,115
<INTEREST-OTHER> 351
<INTEREST-TOTAL> 31,445
<INTEREST-DEPOSIT> 13,080
<INTEREST-EXPENSE> 13,394
<INTEREST-INCOME-NET> 18,051
<LOAN-LOSSES> 459
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 13,891
<INCOME-PRETAX> 7,085
<INCOME-PRE-EXTRAORDINARY> 4,781
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,781
<EPS-PRIMARY> 3.25
<EPS-DILUTED> 3.25
<YIELD-ACTUAL> 5.00
<LOANS-NON> 505
<LOANS-PAST> 251
<LOANS-TROUBLED> 2,389
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,516
<CHARGE-OFFS> 484
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 3,574
<ALLOWANCE-DOMESTIC> 3,574
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
