<PAGE>
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
For the fiscal year ended December 31, 1997.
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
-----------------------------------
(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
-------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-0300
--------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, Par Value $5.00 per share American Stock Exchange
</TABLE>
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 .
--- ---
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. [X]
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 27, 1998: Common Stock, $5.00 par value - $47,135,576
-------------------------------------------
The number of shares outstanding of each of the registrant's classes of
common stock as of March 27, 1998: Common Stock, $5.00 par value - 1,732,295
-----------------------------------------
shares
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DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of 57
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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", Hometown Insurance Agency, Inc., as "Hometown
Insurance", Hometown Finance Company as "Hometown Finance" and CommBanc
Investments, Inc., as "CommBanc."
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
Bancshares") approved an agreement and plan of merger pursuant to which Hometown
Bancshares would merge with Commercial. Commercial would be the surviving
corporation and the former subsidiaries of Hometown Bancshares (Union,
Community, Paden City and Hometown Insurance) would become wholly-owned
subsidiaries of Commercial. The transaction was finalized August 1, 1994.
In June, 1997, Commercial incorporated Hometown Finance, and on July 15,
1997, Hometown Finance acquired assets of a consumer loan company in St. Marys,
Pleasants County, West Virginia. Hometown Finance is licensed by the State of
West Virginia as a "regulated consumer lender" and began operating from offices
it rents in St. Marys.
During 1997 Commercial created CommBanc, a full-service broker/dealer, and
it began operation in October. It operates out of the main offices of Dime and
CB&T.
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.
Page 2 of 57
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Jackson County Bank
Jackson County Bank was chartered as a West Virginia Banking Corporation on
April 1, 1899, and was originally located on Walnut Street in Ravenswood, West
Virginia. In 1958 the present quarters on Wall Street were first occupied.
As the only full-service commercial bank headquartered in Ravenswood,
Jackson provides a complete range of retail banking services to the community's
individuals and businesses. Jackson does not provide trust or correspondent
banking services.
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. During 1997, a new branch was constructed 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.
Page 3 of 57
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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.
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.
CommBanc Investments, Inc.
CommBanc is a wholly-owned subsidiary corporation chartered under the laws
of the State of Ohio on November xx, 1996. Following licensing and employee
training and testing, it began operation as a full service broker dealer on
October 1, 1997.
Hometown Finance Company
Hometown Finance is a wholly-owned subsidiary corporation chartered under
the laws of the State of West Virginia on June xx, 1997. It opened for business
on July 15, 1997, in quarters it rents in St. Marys, West Virginia. Licensed by
the West Virginia Division of Banking as a "regulated consumer lender," it makes
small consumer loans to customers in the Pleasants County, West Virginia area.
Employees
As of December 31, 1996, Commercial and its subsidiaries had 229 full-time
equivalent employees. The company considers its relations with its employees to
be very good.
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.
Page 4 of 57
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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.
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.
Page 5 of 57
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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 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.
Business Combinations
Gateway BancShares, Inc.
------------------------
On August 15, 1997, Commercial announced it had signed a definitive
Agreement and Plan of Merger providing for the merger of Gateway Bancshares,
Inc., McMechen, West Virginia, with CBG Holding Company, Inc., a wholly-owned
subsidiary of Commercial. The transaction will be accounted for as a pooling of
interests.
WesBanco, Inc.
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On September 30, 1997, Commercial entered into a definitive Agreement and
Plan of Merger with WesBanco, Inc., a West Virginia bank holding company,
whereby Commercial will merge with and into CBI Holding Company, Inc., a wholly-
owned subsidiary of WesBanco. The transaction will be accounted for as a
pooling of interests.
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.
Page 6 of 57
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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.
During 1997, Community constructed a new branch on the land, near U.S. Route 50
and State Route 16. The new office, a one-story building of brick and masonry
construction, has attached drive-in lanes and space for future inclusion of an
automated teller machine.
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.
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.
Two bank holding companies with which Commercial had once held acquisition
negotiations filed suit seeking damages aggregating $1.5 million, unspecified
injunctive relief and specific performance. The proposed transaction was
terminated after a financially superior offer was received from WesBanco, Inc.,
of Wheeling, West Virginia. The two suits have been dismissed following
negotiated settlements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Page 7 of 57
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Part II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
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 1,403.
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.
Market Value of Common Stock (In Dollars):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
First Quarter $ 37.84-39.50 $30.23-31.82 $27.27-28.18 $25.91-26.82 $21.82-22.73
Second Quarter $39.375-42.25 $31.14-34.09 $27.50-28.41 $25.91-26.82 $23.64-24.55
Third Quarter $ 42.50-77.00 $34.09-35.80 $29.09-30.00 $25.91-26.82 $24.55-26.36
Fourth Quarter $ 77.75-85.00 $35.45-38.18 $30.00-30.91 $26.82-27.73 $25.45-26.82
</TABLE>
Cash Dividends Declared on Common Stock (In Dollars):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
First Quarter $.273 $.273 $.255 $ .23 $ .21
Second Quarter .30 .273 .255 .23 .21
Third Quarter .30 .273 .255 .23 .21
Fourth Quarter .30 .273 .255 .255 .23
</TABLE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At Year End 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total Assets $428,312 $412,979 $385,656 $372,223 $349,713
Total Deposits 365,612 359,840 340,584 323,959 311,303
Total Loans 308,919 297,515 263,986 256,402 222,621
Total Shareholders' Equity 42,198 40,995 38,203 33,608 30,844
Long-term Debt 11,123 5,000 -0- -0- 424
For the Year Ended
Total Interest Income $ 33,259 $ 31,445 $ 30,425 $ 26,933 $ 25,559
Net Interest Income 19,028 18,051 17,873 17,312 15,594
Provision for Loan Losses 1,260 459 418 417 247
Net Income 2,937 4,781 4,745 4,398 3,716
Per Common Share
Net Income (Fully Diluted) $ 1.82 $ 2.96 $ 2.94 $ 2.75 $ 2.33
Cash Dividends Declared 1.17 1.09 1.02 .94 .85
</TABLE>
Page 8 of 57
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to focus on information about Commercial
BancShares, Incorporated and its financial condition and results of operations
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 1997 was $2,937, down $1,844, or38.6%, from the 1996
earnings of $4,781. Net income per share was $1.82 for 1997, a decrease of
$1.14 or 38.5% from the 1996 income per share. The net income was $4,745 in
1995 and fully diluted income per share was $2.94.
Dividends declared in 1997 amounted to $1.17 per share. This was an
increase of 7.3% over 1996, when dividends declared were $1.09 per share.
BancShares has increased its annual dividends for each of the last ten years.
In 1995, the dividends were $1.02 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.
Page 9 of 57
<PAGE>
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>
1997 1996 1995
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 $ 560 44 7.86% $ 672 49 7.29% $ 639 38 5.95%
Federal funds sold 9,014 513 5.69% 5,268 302 5.73% 7,438 535 7.19%
Taxable investments 62,764 3,982 6.34% 70,383 4,405 6.26% 72,972 4,565 6.25%
Non-taxable investments 11,509 982 8.53% 12,181 1,076 8.83% 12,227 1,027 8.41%
Loans/1/ 302,432 28,072 9.28% 279,476 25,979 9.30% 257,782 24,609 9.55%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
EARNING ASSETS $386,279 33,593 8.70% $367,980 31,811 8.64% $351,058 30,774 8.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and due from banks $ 13,453 $ 15,093 $ 12,326
Other Assets 21,986 19,694 17,634
Less: Allowance for
Loan Losses -3,715 -3,586 -3,478
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $418,003 $399,181 $377,540
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Interest-bearing Liabilities:
Savings Deposits $ 68,368 2,072 3.03% $ 71,291 2,171 3.05% $ 75,130 2,255 3.00%
NOW, MMDA Accounts 64,936 1,578 2.43% 55,083 1,305 2.37% 59,647 1,408 2.36%
Time Deposits 180,985 10,016 5.53% 176,976 9,604 5.43% 154,324 8,498 5.51%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits $314,289 13,666 4.35% $303,350 13,080 4.31% $289,101 12,161 4.21%
Other Borrowed Funds 9,772 565 5.78% 5,399 314 5.82% 5,236 391 7.47%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-
BEARING LIABILITIES $324,061 14,231 4.39% $308,749 13,394 4.34% $294,337 12,552 4.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest Bearing
Liabilities:
Demand Deposits 46,097 46,902 43,410
Other Liabilities 4,889 7,284 3,612
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $375,047 $362,935 $341,159
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 42,956 36,246 36,181
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS EQUITY $418,003 $399,181 $377,540
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Earnings $19,362 $18,417 $18,222
Net Yield on Interest-earning
Assets 5.01% 5.00% 5.19%
</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.
Page 10 of 57
<PAGE>
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.
Rate/Volume Analysis of Net Interest Revenue
(Fully Taxable Equivalent Basis)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
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 $ (10) $ 5 $ (5) $ 1 $ 10 $ 11
Federal funds sold 285 (74) 211 (193) (40) (233)
Taxable investments (485) 62 (423) (258) 98 (160)
Non-taxable investments (98) 4 (94) 2 47 49
Loans 2,680 (587) 2,093 848 522 1,370
- --------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS $2,372 $(590) $1,782 $ 400 $(685) $1,037
- --------------------------------------------------------------------------------------------------------------------
Savings deposits $ (114) $ 15 $ (99) $ (140) $ 56 $ (84)
NOW, MMDA accounts 234 39 273 (85) (18) (103)
Time deposits 355 57 412 359 747 1,106
Other borrowed funds 339 (88) 251 (3) (74) (77)
- --------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES $ 814 $ 23 $ 837 $ 131 $(172) $ 842
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Income
Non-interest income decreased 11.11% in 1997, following a 12.09%
increase in 1996. Trust department income increased 9.35% in 1997 after growing
7.89% in 1996. 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 decreased 2.02% in 1997, compared with an increase
of 7.09% in 1996.
There were securities gains of $6 in 1997. This compared to
securities gains of $26 in 1996, which largely resulted from a bond being
called. There were securities losses of $1 in 1995. BancShares does not operate
a trading account.
All other income decreased to $937 in 1997, down from $1,336 in 1996
and $1,137 in 1995. A gain on sale of other real estate created the growth in
the 1996 figure.
Other Expense
Non-interest expenses were $16,477 in 1997, compared to $13,891 in
1996 and $13,553 in 1995. Employee compensation and benefits increased $1,308
(16.92%) in 1997, following a $246 (3.29%) increase in 1996. Because of the
impending merger, there was additional provision for some employee benefit
programs. Occupancy expense decreased by $18 (2.09%), following a decrease of
4.44% in 1996. Furniture and equipment expense increased 23.37% in 1997, after
decreasing 7.07% in 1996. New image processing equipment brought on line at the
beginning of 1997 was largely responsible for the increase. Other operating
expenses increased 24.69% in 1997, compared to an increase of 4.88% in 1996.
Contributing to the increase were professional fees related to the company's
merger activity.
Income Taxes
Income tax expense includes federal income tax and West Virginia
income tax accrued by BancShares. The effective tax rate was 32% in 1996, 33%
in 1996 and 31% in 1995. Tax exempt investment and loan income are the primary
reason the effective tax rate is less than the Federal statutory rate of 34%.
Page 11 of 57
<PAGE>
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, 1997. 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, 1997.
<TABLE>
<CAPTION>
0-90 91-365 1 Year Over
Days Days to 5 Yrs 5 Yrs
<S> <C> <C> <C> <C>
Federal funds sold $ 14,850 $ -0- $ -0- $ -0-
Investment securities 3,758 10,346 40,695 13,926
Loans 98,824 27,906 132,322 49,867
Other interest-earning 1,317 -0- -0- -0-
- --------------------------------------------------------------------------------------------------
Total rate sensitive assets $118,749 $ 38,252 $173,017 $63,793
- --------------------------------------------------------------------------------------------------
Interest-bearing demand deposits/1/ $ 24,036 $ -0- $ -0- $24,036
Savings deposits/1/ 45,115 -0- -0- 45,115
CD's of $100,000 and more 7,581 12,454 10,606 -0-
Other time deposits 30,856 64,096 54,641 -0-
Borrowed funds 2,462 4,045 5,214 1,864
- --------------------------------------------------------------------------------------------------
Total rate sensitive liabilities $110,050 $ 80,595 $ 70,461 $71,015
- --------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 8,699 $(42,343) $102,556 $(7,222)
Cumulative gap $ 8,699 $(33,644) $ 68,912 $61,690
Cumulative gap/rate sensitive assets 2.21% (8.54%) 17.50% 15.66%
</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 $61,690 at December 31, 1997. 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 assets maturing or repricing within one year exceed liabilities maturing
or repricing within one year by $8,699. 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.
Page 12 of 57
<PAGE>
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 78.3% of average earning assets. Average
total loans increased by $22,956 or 8.21% in 1997, which followed an 8.4%
increase in 1996. As a result of net loan increases, BancShares' loan-to-deposit
ratio continued to increase in 1997, averaging 83.92%. This compares to an
average loan-to-deposit ratio of 79.79% in 1996 and 77.53% in 1995.
The following table shows BancShares' loan distribution at December 31 for
the years:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial and Industrial $127,254 $119,568 $104,896 $103,485 $ 88,790
Real Estate 114,935 109,624 102,843 88,321 82,354
Installment and Credit Cards 66,460 68,323 56,247 64,851 51,477
- --------------------------------------------------------------------------------------------
Total $308,919 $297,515 $263,986 $256,657 $222,621
- --------------------------------------------------------------------------------------------
</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 $1,260, $1,157 more than
net losses of $103. The net loss for 1997 represented 0.03% of average loans.
This compares with a provision of $459 in 1996, when net losses were $401 (.14%
of average loans). The provision was $418 in 1995, when net losses were $333
(.13% of average loans).
The reserve for possible loan losses at year end 1997 totaled $4,731 (1.53%
of total loans), as compared to $3,574 (1.20% of total loans) in 1996.
The following table summarizes BancShares' loan loss experience for each of
the five years ended December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,574 $3,516 $3,430 $3,138 $2,958
Charge-offs:
Commercial loans $ 66 $ 281 $ 148 $ 81 $ 74
Real estate 0 9 26 43 51
Consumer 234 194 254 121 155
- --------------------------------------------------------------------------------------
Total Charge-offs $ 300 $ 484 $ 428 245 $ 280
- --------------------------------------------------------------------------------------
Recoveries:
Commercial loans 102 37 32 53 124
Real estate 48 4 13 7 15
Consumer 47 42 51 60 74
- --------------------------------------------------------------------------------------
Total Recoveries $ 197 $ 83 $ 95 $ 120 $ 213
- --------------------------------------------------------------------------------------
Net Charge-offs 103 401 333 125 $ 67
Additions charged to operations/1/ 1,260 459 418 417 247
- --------------------------------------------------------------------------------------
Balance at December 31 $4,731 $3,574 $3,516 $3,430 $3,138
- --------------------------------------------------------------------------------------
Ratio of net charge-offs
to average loans outstanding 0.03% 0.14% 0.13% 0.05% 0.03%
</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.
Page 13 of 57
<PAGE>
The following table shows an allocation of the allowance for loan losses for
each of the years ended:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
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 $1,954 41.3% $1,437 40.2% $1,399 39.8% $1,382 40.3% $1,252 39.9%
Real estate 1,760 37.2% 1,315 36.8% 1,269 36.1% 1,180 34.4% 1,161 37.0%
Consumer 1,017 21.5% 822 23.0% 848 24.1% 868 25.3% 725 23.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total $4,731 100.0% $3,574 100.0% $3,516 100.0% $3,430 100.0% $3,138 100.0%
- ---------------------------------------------------------------------------------------------------------------------------
</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
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Accruing Loans Past due
90 days or more $ 503 $ 251 $ 990 $ 464 $ 338
- -------------------------------------------------------------------------------------------------------------------
Principal amount of nonaccrual
loans at year end 1,755 505 821 739 355
Restructured loans 1,650 2,389 1,399 1,403 121
- -------------------------------------------------------------------------------------------------------------------
$3,405 $2,894 $2,220 $2,142 $ 476
Other real estate acquired in
satisfaction of loans $1,418 $ 956 $1,652 $1,329 $1,274
- -------------------------------------------------------------------------------------------------------------------
Total under-performing assets $5,326 $4,101 $4,862 $3,935 $2,088
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities
BancShares' securities portfolio, including securities available for sale
plus investment securities held to maturity, decreased $6,296 or 8.39% from
December 31, 1996, to December 31, 1997. The largest portion of the portfolio at
year-end 1997 was invested in U.S. government and agency securities, which
totaled $54,224 and comprise 78.90% of the carrying value of total investments.
The following table sets forth the maturities of investment securities
(other than equity securities) at December 31, 1997, 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 $13,428 6.47% $35,612 6.38% $1,718 5.90% $3,466 6.29%
U.S. government agencies
States and political 676 8.19% 5,084 8.14% 3,320 8.21% 3,079 9.61%
subdivisions
Other -0- -0- 23 6.37% -0-
- --------------------------------------------------------------------------------------------------------------------
Total $14,103 6.55% $40,696 6.60% $5,061 7.42% $6,545 7.85%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14 of 57
<PAGE>
Liquidity and Funding
Deposits are the largest, most stable, and generally least costly source of
funds for BancShares. During 1997, average deposits increased $10,134 (2.9%)
compared to $17,741 (5.3%) in 1996. At December 31, 1997, deposits represented
118.4% of total loans, compared to 120.9% at December 31, 1996.
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. Six 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,
1997, cash and due from banks totaled $16,966, a decrease of $1,636 (8.8%) from
December 31, 1996. 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 $14,103 at December 31,
1997, representing 20.5% of the investment portfolio. Federal funds sold at
December 31, 1997, were $14,850. 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>
1997 1996
<S> <C> <C>
Common Shareholders' Equity $42,198 $40,995
Book Value Per Share $ 26.11 $ 25.37
</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 4.7% in 1997 and 5.7% in 1996. To maintain appropriate ratios
of equity to total assets, a corresponding level of capital growth must be
achieved. During 1997 total shareholders' equity grew 2.93%, following an
increase of 7.31% 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>
1997 1996 1995
<S> <C> <C> <C>
Return on equity 6.84% 13.19% 13.11%
times
Earnings retained 34.35% 63.10% 65.50%
equals
Internal capital growth 2.35% 8.32% 8.59%
</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
1998.
Page 15 of 57
<PAGE>
Financial Ratios
One means of measuring the results of operations is analysis of various
ratios. Two widely recognized performance indicators are the return on equity
and the return on assets. The following table sets forth those and other ratios
frequently used in analyzing bank holding company financial statements. For the
years ended:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Profitability ratios:
Rate of Return/1/ on Average:
Earning Assets .76% 1.30% 1.35%
Total Assets .70% 1.20% 1.26%
Total Shareholders' Equity 6.84% 13.19% 13.11%
Liquidity and Capital Ratios:
Average Shareholders' Equity to
Average Earning Assets 11.12% 9.85% 10.31%
Average Shareholders' Equity to
Average Total Assets 10.28% 9.08% 9.58%
Common Dividend Payout Ratio/2/ 65.65% 36.90% 34.50%
</TABLE>
Notes:
/1/ Based on Net Income
/2/ Cash dividends declared on common stock as a percentage of net income
applicable to common stock.
YEAR 2000
Commercial, because of its pending merger with WesBanco, has been working
closely with WesBanco's corporate-wide project to address issues associated with
the year 2000. Many computer programs were originally designed to recognize
only a two-digit date field. The issue is that instead of recognizing the four-
digit date of "2000", computer logic will cause programs with a two-digit date
to work as if the clock had been turned back to the year 1900.
In early 1997, WesBanco assembled a task force, comprised of
representatives from each affiliate, to design and implement a corporate plan
which will identify systems affected by this issue, and apply corrective
measures for full year 2000 compliance. The task force, which now includes
representatives from Commercial, meets monthly. It has made considerable
progress toward completion of the plan. Currently, all major noncompliant
systems have been identified. WesBanco plans to either modify or replace these
systems by the end of 1998. In addition, a list of all vendor-supplied
equipment and software has been compiled for use in obtaining vendor
certification or formal commitment to become compliant. All computer software
applications that manage the customer banking systems at WesBanco have been
certified year 2000 compliant by the vendor. During 1998, all of Commercial's
customer accounting will be switched to WesBanco's systems.
Commercial believes that required modifications to existing systems,
conversion to new systems, and vendor compliance upgrades, will be resolved on a
timely basis, and related costs will not have a material impact on the results
of operation or financial condition.
Page 16 of 57
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent accountants and the following consolidated financial
statements of Commercial and its subsidiaries are included:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income for the Years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the Years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements.
Page 17 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
IN THOUSANDS
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 16,966 $ 18,602
Interest-Bearing Demand Deposits with Other Banks 1,214 669
Interest-Bearing Time Deposits with Other Banks 103 -0-
Federal Funds Sold 14,850 5,000
Investment Securities:
Held to Maturity, at Amortized Costs
(Market Values: 1997 - $22,728; 1996 - $27,052) 22,161 26,686
Available-for-Sale, at Market Values 46,564 48,335
Loans 308,919 297,515
Less: Allowance for Loan Losses (4,731) (3,574)
-------- --------
Loans - Net 304,188 293,941
Accrued Interest Receivable 2,638 2,565
Premises and Equipment - Net 10,632 8,851
Foreclosed Properties - Net 1,418 1,373
Other Assets 7,578 6,957
-------- --------
TOTAL ASSETS $428,312 $412,979
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
DEPOSITS
Demand - Noninterest Bearing $ 47,076 $ 48,697
Demand - Interest Bearing 48,072 41,154
Savings 90,230 84,135
Time Deposits:
In Denominations Under $100 Thousand 149,593 154,104
In Denominations of $100 Thousand or More 30,641 31,750
-------- --------
TOTAL DEPOSITS $365,612 $359,840
Federal Funds Purchased and Repurchase Agreements 2,462 2,540
Federal Home Loan Bank Advances 11,123 5,000
Accrued Interest Payable 1,419 1,268
Other Liabilities 5,498 3,336
-------- --------
TOTAL LIABILITIES $386,114 $371,984
-------- --------
SHAREHOLDERS' EQUITY
Common Stock ($5.00 Par Value: 5,000,000 Shares Authorized: Issued and
Outstanding Shares; 1,616,187 in 1997 and 1,469,670 in 1996) $ 8,081 $ 7,348
Additional Paid in Capital 15,114 10,261
Undivided Profits 18,669 23,247
Unrealized Gain on Securities Available-for-Sale, Net of
Applicable Deferred Income Taxes 334 139
-------- --------
TOTAL SHAREHOLDERS' EQUITY $ 42,198 $ 40,995
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $428,312 $412,979
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 18 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS
EXCEPT FOR PER SHARE DATA
-----------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $28,072 $25,979 $24,609
Investment Securities 4,630 5,115 5,243
Federal Funds Sold 513 302 535
Deposits with Other Banks 44 49 38
------- ------- -------
TOTAL INTEREST INCOME $33,259 $31,445 $30,425
------- ------- -------
INTEREST EXPENSE
Deposits $13,666 $13,080 $12,161
Federal Funds Purchased and Repurchase Agreements 173 314 391
Federal Home Loan Bank Advances 392 -0- -0-
------- ------- -------
TOTAL INTEREST EXPENSE $14,231 $13,394 $12,552
------- ------- -------
NET INTEREST INCOME $19,028 $18,051 $17,873
Provision for Loan Losses 1,260 459 418
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $17,768 $17,592 $17,455
------- ------- -------
NONINTEREST INCOME
Trust Department Income $ 807 $ 738 $ 684
Service Charges, Fees, and Commissions 1,258 1,284 1,199
Security Gains (Losses) 6 26 (1)
Other Income 937 1,336 1,137
------ ------ ------
TOTAL NONINTEREST INCOME $3,008 $3,384 $3,019
------ ------ ------
NONINTEREST EXPENSES
Employee Compensation and Benefits $ 9,040 $ 7,732 $ 7,486
Occupancy Expense, Net of Revenues 842 860 900
Furniture and Equipment Expense 1,151 933 1,004
Other Operating Expenses 5,444 4,366 4,163
------- ------- -------
TOTAL NONINTEREST EXPENSES $16,477 $13,891 $13,553
------- ------- -------
INCOME BEFORE INCOME TAXES $ 4,299 $ 7,085 $ 6,921
Applicable Income Taxes 1,362 2,304 2,176
------- ------- -------
NET INCOME $ 2,937 $ 4,781 $ 4,745
======= ======= =======
NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS $ 2,937 $ 4,781 $ 4,745
------- ------- -------
EARNINGS PER SHARE DATA
Basic $1.82 $2.96 $2.94
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 19 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK
($5.00 Par Value: 5,000,000 Shares Authorized):
Balance at Beginning of Year $ 7,348 $ 7,348 $ 7,335
Issuance of Common Stock for Cash -0- -0- 13
Issuance of Common Stock under Stock Dividend 733 -0- -0-
------- ------- -------
BALANCE AT END OF YEAR - 1,616,187 Shares Issued in 1997,
1,469,670 Shares Issued in 1996, and 1,469,670 Shares
Issued in 1995 $ 8,081 $ 7,348 $ 7,348
------- ------- -------
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Year $10,261 $10,261 $10,079
Additional Paid in Capital from New Issuance -0- -0- 75
Additional Paid in Capital from Issuance of Stock Dividend 4,853 -0- -0-
Additional Paid in Capital from Resale of Treasury Stock -0- -0- 108
Payment of Fractional Shares -0- -0- (1)
------- ------- -------
BALANCE AT END OF YEAR $15,114 $10,261 $10,261
------- ------- -------
UNDIVIDED PROFITS
Balance at Beginning of Year $23,247 $20,230 $17,122
Net Income 2,937 4,781 4,745
Stock Dividends Declared (5,587) -0- -0-
Cash Dividends Declared:
Common Stock (1,928) (1,764) (1,637)
------- ------- -------
BALANCE AT END OF YEAR $18,669 $23,247 $20,230
------- ------- -------
UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE-FOR-SALE,
NET OF APPLICABLE DEFERRED INCOME TAXES
Balance at Beginning of Year $ 139 $ 364 $ (719)
Change in Unrealized Gain (Loss) on Securities
Available-for-Sale, Net of Deferred Taxes of $100,
$(115), and $555 for the Years 1997, 1996, and 1995,
Respectively 195 (225) 1,083
------- ------- -------
BALANCE AT END OF YEAR $ 334 $ 139 $ 364
------- ------- -------
LESS: TREASURY STOCK, AT COST
Balance at Beginning of Year $ -0- $ -0- $ 209
Resale of 0 Shares, 0 Shares, and 10,578 Shares of
Treasury Stock, at Cost in 1997, 1996, and 1995,
Respectively -0- -0- (209)
------- ------- -------
BALANCE AT END OF YEAR - 0 Shares in 1997, 1996, and 1995 $ -0- $ -0- $ -0-
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY $42,198 $40,995 $38,203
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 20 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,937 $ 4,781 $ 4,745
-------- -------- --------
Adjustments to Reconcile Net Income to Net Cash from
Operating Activities:
Depreciation $ 987 $ 865 $ 871
Provision for Loan Losses 1,260 459 418
Net Amortization (Accretion) on Investments 53 16 227
Provision for Deferred Taxes (760) (200) (87)
(Gain) Loss on Sale of Capitalized Assets 2 3 19
(Gain) Loss on Sale of Other Real Estate Owned -0- (372) -0-
Realized (Gain) Loss on Sale of Investment Securities (6) (26) 1
Income Tax Benefit (785) (321) (366)
Purchase Adjustments 57 64 76
Other Changes in Assets and Liabilities 1,741 (998) 768
-------- -------- --------
TOTAL ADJUSTMENTS $ 2,549 $ (510) $ 1,927
-------- -------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 5,486 $ 4,271 $ 6,672
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Short-Term Investments $ (9,850) $ (3,221) $ (75)
Net (Increase) Decrease in Interest Bearing Time Deposits (103) -0- -0-
Proceeds from Sales of Investments Held-to-Maturity -0- 999 1,274
Proceeds from Sales of Investments Available-for-Sale 499 674 -0-
Proceeds from Maturities of Investments Held-to-Maturity 9,415 8,187 15,272
Proceeds from Maturities of Investments Available-for-Sale 13,469 22,478 12,282
Purchases of Investments Held-to-Maturity (2,823) (3,302) (11,170)
Purchases of Investments Available-for-Sale (14,124) (16,804) (19,250)
Net (Increase) in Loans (10,234) (34,836) (8,611)
Proceeds from Sale of Other Real Estate Owned 30 1,632 322
Proceeds from Sale of Capital Assets 16 55 11
Capital Expenditures (2,761) (1,189) (2,357)
-------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES $(16,466) $(25,327) $(12,302)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Total Deposits $ 5,772 $ 19,256 $ 16,503
Net Increase (Decrease) in Federal Funds Purchased and
Repurchase Agreements (78) 406 (8,838)
Proceeds from Issuance of Common Stock -0- -0- 88
Proceeds from Sale of Treasury Stock -0- -0- 317
Payment for Fractional Shares -0- -0- (1)
Proceeds from Long-Term FHLB Advances 6,123 5,000 -0-
Dividends Paid (1,928) (1,764) (1,637)
-------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES $ 9,889 $ 22,898 $ 6,432
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,091) $ 1,842 $ 802
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,271 17,429 16,627
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,180 $ 19,271 $ 17,429
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 21 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Basis of Presentation
The accounting and reporting policies of Commercial BancShares, Inc. and
Subsidiaries (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.
Principles of Consolidation
The consolidated financial statements of Commercial BancShares, Inc. and
Subsidiaries include the accounts of the Corporation and its ten 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.
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, savings, and certificates of
deposit, and their primary lending products are real estate mortgage,
commercial, and consumer loans. During 1997, the Corporation purchased
approximately $90 thousand of the assets of the Mid Ohio Valley Loan Company and
formed Hometown Finance Company, a regulated consumer lender located in St.
Mary's, West Virginia. Also during 1997, two subsidiaries of the Corporation
started CommBanc Investments, an investment brokerage corporation with offices
in Marietta, Ohio and Parkersburg, West Virginia.
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.
Mergers and Acquisitions
Gateway BancShares Pending Acquisition
- --------------------------------------
On August 15, 1997, Commercial BancShares, Inc. announced the signing of
a Definitive Agreement and Plan of Merger providing for the merger of Gateway
BancShares, Inc. with CBG Holding Company, a wholly-owned subsidiary of
Commercial BancShares, Inc. formed solely to facilitate the acquisition of
Gateway. This agreement was further amended on September 30, 1997 and December
15, 1997. The acquisition is based upon an exchange ratio of 1.742 to 2.129
shares of Commercial BancShares, Inc. common stock in exchange for each share of
Gateway common stock, dependent upon the average price of Commercial common
stock as of the closing date. The transaction will result in Commercial issuing
not more than 141,902 shares. The merger is to be accounted for as a pooling-
of-interests. It is anticipated that this transaction, which is subject to
regulatory and shareholder approval, will be consummated in the First Quarter of
1998. Gateway is a one-bank holding company with total consolidated assets of
$30,125 thousand and a total equity of $3,318 thousand at December 31, 1997.
Page 22 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
WesBanco, Inc. Pending Merger
- -----------------------------
On September 30, 1997, Commercial entered into a Definitive Agreement and
Plan of Merger with WesBanco, Inc., a West Virginia bank holding company,
whereby Commercial will be merged with and into CBI Holding Company, a West
Virginia corporation and wholly-owned subsidiary of WesBanco. Under the terms
of the WesBanco Merger Agreement, each issued and outstanding share of
Commercial Common Stock, par value $5.00 per share, immediately prior to the
effective time of the merger of Commercial and CBI will be converted into the
right to receive 2.85 shares of WesBanco common stock. It is anticipated that
this transaction, which is subject to regulatory and shareholder approval, will
be consummated at the beginning of the Second Quarter of 1998. WesBanco is a
multi-bank holding company with total consolidated assets of $1,789,295 thousand
and a total equity of $249,550 thousand as of December 31, 1997.
Current and Future Impact of Recently Issued Accounting Standards
In June, 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) Number 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which generally became effective on a prospective basis beginning January 1,
1997. In December, 1996, the FASB deferred the effective date of certain
provisions, primarily relating to collateral, securities lending, and dollar
repurchase agreements until January 1, 1998. This new statement establishes
criteria based on legal control to determine whether a transfer of a financial
asset is a sale or a secured borrowing. SFAS Number 125 applies to repurchase
agreements, securities lending, loan participations, and other financial
component transfers and exchanges. The new rules will not have a material
effect on the financial position and results of operations.
In February, 1997, FASB issued SFAS Number 128, Earnings Per Share. This
statement establishes standards for computing and presenting EPS and makes them
comparable to international EPS standards. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. The new requirements will not have an effect on
reported earnings per share from results of operations.
In June, 1997, FASB issued SFAS Number 130, Reporting Comprehensive
Income. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported for the period in a financial statement that is displayed with the same
prominence as other financial statements. This new statement presentation
applies to such areas as a net loss recognized as an additional pension
liability, unrealized holding gains and losses on available-for-sale securities,
and unrealized holding gains and losses that result from a debt security being
transferred into the available-for-sale category from the held-to-maturity
category. This presentation is effective for years beginning after December 31,
1997 and will not have a material effect on the financial position and results
of operations.
In June 1997, FASB issued SFAS Number 131, Disclosures About Segments of
an Enterprise and Related Information. This Statement requires that certain
financial and descriptive information about an entity's operating segments be
included in the annual financial statements. This requirement is effective for
periods beginning after December 31, 1997 and will not have an effect on the
financial position and results of operations.
Reclassification of Prior Years' Statements
Certain amounts in the 1996 and 1995 financial statements have been
reclassified and restated to conform to the 1997 presentation. The
reclassification had no effect on net income or shareholders' equity.
Page 23 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Statement of Cash Flows
For the purpose of reporting cash flows, the Corporation has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks" and "Interest-Bearing Demand Deposits with Other Banks." For the
years ended December 31, 1997, 1996, and 1995, the Corporation paid interest of
$13,666 thousand, $11,812 thousand, and $11,147 thousand, respectively, and
income taxes of $2,501 thousand, $2,310 thousand, and $1,945 thousand,
respectively.
Details of noncash transactions of the Corporation are summarized as
follows for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS DECEMBER 31,
--------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Loans Transferred to Foreclosed Properties $ 350 $1,015 $ 825
Sale of Foreclosed Properties Financed through Loans $ 10 $ 171 $ 177
Change in Unrealized Gain (Loss) on Available-for-Sale
Securities $ 295 $ (340) $1,638
</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. There were no
securities transferred between classifications during 1996 and 1997.
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, net of deferred tax, 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.
Page 24 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
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.
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 during the
year 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 reserve.
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.
Page 25 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
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 on
the Corporation's reported net income.
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.
Page 26 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(CONTINUED)
Applicable Income Taxes (Continued)
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
Basic earnings per share of common stock are based on the weighted-
average number of shares of common stock outstanding during each period,
restated for a ten percent stock dividend in the fourth quarter of 1997. Such
weighted-average shares outstanding were 1,616,187 shares for the years 1997,
1996, and 1995.
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 fair
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.
The following represents the investment securities portfolio as of the
years ended:
<TABLE>
<CAPTION>
IN THOUSANDS DECEMBER 31, 1997
-------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 4 $-0- $-0- $ 4
Other, Primarily U. S. Treasuries 11,620 87 (7) 11,700
Obligations of States and Political Subdivisions 10,514 488 (2) 11,000
Other Debt Securities 23 1 0- 24
------- ---- ---- -------
TOTAL $22,161 $576 $ (9) $22,728
======= ==== ==== =======
SECURITIES AVAILABLE-FOR-SALE
U. S. Government Agency and Corporate Obligations:
Mortgage-Backed Securities $ 9,034 $ 47 $ (45) $ 9,036
Collateralized Mortgage Obligations 2,401 29 -0- 2,430
Other, Primarily U. S. Treasuries 30,830 316 (12) 31,134
Obligations of States and Political Subdivisions 1,560 84 -0- 1,644
------- ---- ----- -------
$43,825 $476 $ (57) $44,244
Equity Securities 2,203 190 (73) 2,320
------- ---- ----- -------
TOTAL $46,028 $666 $(130) $46,564
======= ==== ===== =======
</TABLE>
Page 27 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
IN THOUSANDS DECEMBER 31, 1996
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
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
Obligations of States and Political Subdivisions 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
======= ==== ===== =======
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1997, 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>
IN THOUSANDS
-----------------------------------------------------------
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------- --------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in One Year or Less $ 2,779 $ 2,784 $11,326 $11,324
Due after One Year through Five Years 14,350 14,584 26,066 26,346
Due after Five Years through Ten Years 2,825 2,979 2,202 2,236
Due after Ten Years 2,207 2,381 4,231 4,338
------- ------- ------- -------
$22,161 $22,728 $43,825 $44,244
Equity Securities -0- -0- 2,203 2,320
------- ------- ------- -------
TOTAL $22,161 $22,728 $46,028 $46,564
======= ======= ======= =======
</TABLE>
The amortized cost and fair values of mortgage-backed securities are
presented in the held-to-maturity category by contractual maturity in the
preceding table. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
Proceeds from sales of investments in debt securities during 1997, 1996,
and 1995 were $499 thousand, $1,673 thousand, and $1,274 thousand, respectively.
Gross gains of $10 thousand, $33, and $-0- thousand and gross losses of $4
thousand, $7 thousand, and $1 thousand were realized on those sales during 1997,
1996, and 1995, respectively. Of the security gains, $6 thousand in 1997, $26
thousand in 1996, and $-0- thousand in 1995 resulted from calls of investment
obligations beyond the control of the Corporation.
Page 28 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SECURITIES (CONTINUED)
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 fair 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. Federal Home
Loan Bank stock and Federal Reserve stock is included in equity securities at
their stated par value since it is not practicable to estimate the fair value
because these securities are not marketable.
Securities pledged to secure public monies and other purposes as
required or permitted by law had a carrying value of $16,615 thousand and
$14,191 thousand and estimated fair value of $16,788 thousand and $14,309
thousand at December 31, 1997 and 1996, respectively.
Interest on Securities
The following represents the interest on securities, presented by
investment classifications, for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
----------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
U. S. Government Agency and Corporate Obligations $3,823 $4,310 $4,367
State, County, and Municipal Bonds (Substantially All Exempt from
Federal Income Tax) 700 710 744
Other Investments 107 95 132
------ ------ ------
TOTAL $4,630 $5,115 $5,243
====== ====== ======
</TABLE>
NOTE 3: LOANS
Major classifications of loans, net of deferred fees, are summarized as
follows as of the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Real Estate $115,321 $109,624
Consumer 63,834 64,175
Commercial and Industrial 126,694 120,017
Credit Card Loans 3,612 4,148
-------- --------
$309,461 $297,964
Deferred Loan Fees (542) (449)
-------- --------
LOANS $308,919 $297,515
======== ========
</TABLE>
Page 29 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS (CONTINUED)
Changes in the allowance for loan losses were as follows for the years
ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
-----------------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
BALANCE BEGINNING OF YEAR $3,574 $3,516 $3,430
Provisions Charged to Operations 1,260 459 418
Loans Charged Off (300) (484) (428)
Recoveries 197 83 96
------ ------ ------
BALANCE, END OF YEAR $4,731 $3,574 $3,516
====== ====== ======
</TABLE>
Information regarding impaired loans is as follows for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
--------------------------
1997 1996
------- ------
<S> <C> <C>
Information on Impaired Loans for the Year:
Average Investment in Impaired Loans $ 4,822 $1,176
Interest Income Recognized on Impaired Loans Including Interest Income
Recognized on Cash Basis $ 246 $ 123
Interest Income Recognized on Impaired Loans on Cash Basis $ 124 $ 96
Information on Impaired Loans as of the Year Ended:
Balance of Impaired Loans $ 5,932 $1,072
LESS: Portion for Which No Allowance for Loan Losses Is Allocated (2,346) (286)
------- ------
Portion of Impaired Loan Balance for Which An Allowance for Loan Losses
Is Allocated $ 3,586 $ 786
------- ------
Portion of Allowance for Loan Losses Allocated to the Impaired
Loan Balance $ 733 $ 354
------- ------
</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, as of the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
---------------------
1997 1996
------ -------
<S> <C> <C>
Nonaccrual Loans $1,755 $ 505
Renegotiated or Restructured Loans 1,650 2,389
------ ------
TOTAL UNDER-PERFORMING LOANS $3,405 $2,894
====== ======
</TABLE>
Restructured or renegotiated loans are those loans on which the rate of
interest has been reduced as a result of the inability of the borrower to meet
the original terms of the loan. At December 31, 1997, there were no commitments
to lend additional funds to borrowers whose loans were classified nonaccrual
(cash basis) or renegotiated.
Page 30 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS (CONTINUED)
The approximate effect of foregone revenue from nonaccrual or renegotiated
loans was as follows for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
---------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Gross Amount of Interest That Would Have Been Recorded at
Original Rate $ 198 $ 138 $ 81
Interest That Was Reflected in Revenue (1) (115) (107) (30)
----- ----- -----
NEGATIVE INTEREST REVENUE IMPACT $ 83 $ 31 $ 51
===== ===== =====
</TABLE>
(1) Represents interest collected on nonaccrual loans including loans classified
as impaired.
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 as of the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
-------------------------
DESCRIPTION ESTIMATED USEFUL LIFE 1997 1996
------- --------
<S> <C> <C> <C>
Land $ 2,224 $ 1,734
Bank Premises 15 to 40 Years 9,998 8,989
Furniture and Equipment 5 to 10 Years 6,274 5,077
Construction in Progress 137 365
------- -------
$18,633 $16,165
LESS: Accumulated Depreciation (8,001) (7,314)
------- -------
TOTAL $10,632 $ 8,851
======= =======
</TABLE>
Depreciation and amortization amounted to $987 thousand, $865 thousand,
and $871 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively.
NOTE 5: FORECLOSED REAL ESTATE
The following is a summary of the activity of foreclosed real estate
expected to be disposed of in the near term for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Balance, Beginning of Year $1,373 $1,652 $1,329
Loans Foreclosed or Repossessed 71 956 635
Adjustments to Carrying Value:
At Date of Foreclosure or Repossession (4) -0- (2)
Additional Valuation Adjustments (3) (12) (45)
Costs to Sell -0- 36 4
Capital Improvements 11 1 49
------ ------ ------
TOTAL FORECLOSED REAL ESTATE
AVAILABLE FOR DISPOSITION $1,448 $2,633 $1,970
------ ------ ------
Gross Proceeds from Sale of Foreclosed Real Estate $ 30 $1,632 $ 322
Realized (Gain) Loss on Sale -0- (372) (4)
------ ------ ------
BASIS OF FORECLOSED REAL ESTATE SOLD $ 30 $1,260 $ 318
------ ------ ------
BALANCE, END OF YEAR $1,418 $1,373 $1,652
====== ====== ======
</TABLE>
Page 31 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: FORECLOSED REAL ESTATE (CONTINUED)
Subsequent write-downs and realized losses on the sale of foreclosed
property are recognized in the Other Expense caption while realized gains are
recognized in the Other Income caption in the Consolidated Statements of Income.
Foreclosed properties are stated net of reserves of $190 thousand in 1997, 1996,
and 1995, respectively.
NOTE 6: INTEREST-BEARING DEPOSITS
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998 $124,631
1999 45,179
2000 7,729
2001 1,648
2002 and Thereafter 1,047
--------
TOTAL $180,234
========
</TABLE>
Interest expense on deposits is as follows for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Demand $ 973 $ 946 $ 1,023
Savings 2,866 2,530 2,649
Time
In Denominations Under $100 Thousand 8,216 8,180 7,388
In Denominations of $100 Thousand or More 1,611 1,424 1,101
------- ------- -------
TOTAL $13,666 $13,080 $12,161
======= ======= =======
</TABLE>
NOTE 7: 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>
IN THOUSANDS
DECEMBER 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
FEDERAL FUNDS PURCHASED
Balance at End of Year $ 430 $ 1,062
Average during Year $ 6,256 $ 3,180
Maximum Month-End Balance $16,673 $13,648
Average Rate during Year 5.94% 5.35%
Rate at Year End 5.59% 6.96%
REPURCHASE AGREEMENTS
Balance at End of Year $2,032 $1,478
Average during Year $1,828 $1,799
Maximum Month-End Balance $2,802 $2,988
Average Rate during Year 5.11% 5.21%
Rate at Year End 5.16% 5.03%
</TABLE>
Page 32 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Subsidiaries of the Corporation have entered into a convertible
advance agreement with the Federal Home Loan Bank of Pittsburgh and the Federal
Home Loan Bank of Cincinnati (FHLB). Membership in the FHLB makes available
short-term and long-term borrowings from collateralized advances. The FHLB
borrowings are collateralized by all of the FHLB stock owned by the Subsidiaries
and a blanket collateral agreement which assigns a security interest in the
Subsidiaries' capital stock, deposits, mortgage loans, and investment
securities. The blanket collateral agreement provides flexibility in that it
allows the subsidiary and the FHLB the option of increasing the advance without
requiring additional collateral agreements. These borrowings have variable
interest rate structures ranging from 5.64% to 7.03% at December 31, 1997. The
borrowings at December 31, 1997 have the following calendar year maturity dates
(in thousands):
<TABLE>
<S> <C>
1998 $ 4,045
1999 48
2000 52
2001 55
2002 5,059
Thereafter 1,864
-------
TOTAL $11,123
=======
</TABLE>
NOTE 9: 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,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Federal Statutory Tax Rate 34 % 34 % 34 %
Tax-Exempt Interest Income (7) % (8) % (9) %
State Income Tax 4 % 5 % 3 %
Tax Effect of Other Items 1 % 2 % 3 %
---- ---- ----
REPORTED EFFECTIVE TAX RATE 32 % 33 % 31 %
==== ==== ====
</TABLE>
The provision for income taxes in the Consolidated Statement of Income
consists of the following for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current Income Taxes:
Federal $1,813 $2,179 $2,198
State 310 325 61
Deferred Income Taxes:
Federal (651) (143) 120
State (110) (57) (203)
------ ------ ------
NET INCOME TAXES $1,362 $2,304 $2,176
====== ====== ======
</TABLE>
Page 33 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES (CONTINUED)
The approximate tax effects of the net investment securities
transactions for the years ended December 31, 1997, 1996, and 1995 were $2
thousand, $10 thousand, and $-0- thousand, respectively.
Deferred taxes are recorded by applying the marginal tax rate to
temporary differences. Deferred tax assets and liabilities represent the tax
consequences of future 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>
IN THOUSANDS
DECEMBER 31,
-------------------------------------------
1997 1996 CHANGE
------------- ------------- -------------
<S> <C> <C> <C>
Allowance for Loan Losses $1,907 $1,463 $444
Valuation Allowance on Related Deferred Tax (501) (500) (1)
Organizational Expenses (3) -0- (3)
Premises and Equipment (243) (243) -0-
Deferred Compensation for Officers and Directors 1,039 717 322
------ ------ ----
$2,199 $1,437 $762
Unrealized Gain (Loss) On Securities Available-For-Sale (47) (49) 2
------ ------ ----
TOTAL $2,152 $1,388 $764
====== ====== ====
</TABLE>
NOTE 10: SHAREHOLDERS' EQUITY
Common Stock
The Corporation has 5,000,000 shares of $5.00 par value common stock
authorized and each share carries voting rights of one vote per common share.
On May 14, 1997, the shareholders voted to increase common stock authorized
shares 3,000,000 resulting in total shares authorized to be 5,000,000 shares.
Shares issued and outstanding were 1,616,187 shares, 1,469,670 shares, and
1,469,670 shares at December 31, 1997, 1996, and 1995, respectively. In 1997,
146,517 shares were issued as a result of a ten percent stock dividend.
The outstanding shares at December 31, 1997, 1996, and 1995 include
170,461 shares, 142,976 shares, and 127,141 shares, respectively, owned by the
ESOP.
Cash dividends paid per share on common stock were $1.20, $1.20, and
$1.12 for the years 1997, 1996, and 1995, respectively. The equivalent cash
dividends paid, given recognition of the ten percent stock dividend, were $1.20,
$1.09, and $1.02 for the years ending 1997, 1996, and 1995, respectively.
Convertible Preferred Stock
During 1994, the preferred stock shareholders converted all 27,165
shares of outstanding preferred stock into 199,130 shares of common stock. Upon
the reacquisition of the shares of convertible outstanding preferred stock
through conversion, such reacquired shares have been canceled and have become
part of the 43,328 authorized and unissued preferred stock.
Page 34 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: 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. The ultimate
collectibility of a substantial portion of the subsidiary's loan portfolio and
the recovery of a substantial portion of the carrying amount of the foreclosed
real estate are susceptible to changes in the local market conditions.
NOTE 12: 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.
Primarily, they 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 $21,706 thousand in variable rate commitments and $-0-
thousand in fixed rate commitments at year end 1997. There were $33,254
thousand in variable rate commitments and $3,222 thousand in fixed rate
commitments at year end 1996.
Page 35 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: 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 $114 thousand for the
year ended December 31, 1997, $128 thousand for the year ended December 31,
1996, and $114 thousand for the year ended December 31, 1995.
Future minimum lease payments in thousands of dollars, excluding real
estate taxes and insurance, for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 97
1999 78
2000 55
2001 34
2002 34
Thereafter 68
----
TOTAL $366
====
</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 14: 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, 1997 was $8,728 thousand.
At December 31, 1997, all of the Corporation's subsidiaries qualified
as well-capitalized under the regulatory framework for prompt corrective action.
To be categorized as well-capitalized, the Corporation must maintain minimum
Total and Tier I risk-based, and Tier I leverage ratios set forth in the table
below. There are no conditions or events that management believes have changed
the Corporation's category.
Page 36 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 14: 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>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------- -----------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital (to Risk-Weighted
Assets) $45,393 15.31% (greater than or equal to) $23,720 (greater than or equal to) 8.0%
Total Tier I Capital (to Risk-Weighted
Assets) $41,687 14.06% (greater than or equal to) $11,860 (greater than or equal to) 4.0%
Tier I Capital-(Leverage)(to Adjusted
Total Assets) $41,687 9.77% (greater than or equal to) $12,803 (greater than or equal to) 3.0%
AS OF DECEMBER 31, 1996
Total Capital (to Risk-Weighted Assets) $44,100 15.67% (greater than or equal to) $22,508 (greater than or equal to) 8.0%
Total Tier I Capital (to Risk-Weighted
Assets) $40,583 14.42% (greater than or equal to) $11,254 (greater than or equal to) 4.0%
Tier I Capital-(Leverage)(to Adjusted
Total Assets) $40,583 9.87% (greater than or equal to) $12,330 (greater than or equal to) 3.0%
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTION PROVISIONS:
--------------------------------------------------------------
AMOUNT PERCENT
(THOUSANDS)
<S> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital (to Risk-Weighted Assets) (greater than or equal to) $29,650 (greater than or equal to) 10.0%
Total Tier I Capital (to Risk-Weighted Assets) (greater than or equal to) $17,790 (greater than or equal to) 6.0%
Tier I Capital-(Leverage)(to Adjusted Total Assets) (greater than or equal to) $21,338 (greater than or equal to) 5.0%
AS OF DECEMBER 31, 1996
Total Capital (to Risk-Weighted Assets) (greater than or equal to) $28,135 (greater than or equal to) 10.0%
Total Tier I Capital (to Risk-Weighted Assets) (greater than or equal to) $16,881 (greater than or equal to) 6.0%
Tier I Capital-(Leverage)(to Adjusted Total Assets) (greater than or equal to) $20,549 (greater than or equal to) 5.0%
</TABLE>
The Corporation maintained average reserves of approximately $750
thousand in 1997 with the Federal Reserve Bank as required by the depository
agency.
NOTE 15: 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 thousand, $430 thousand, and $460 thousand in
1997, 1996, and 1995, 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 16: 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 directors'
fees will commence at such time as the director reaches age 65. The Executive
Supplemental Income Plan is a non-contributory plan with benefits payable upon
retirement of the officer.
The subsidiary banks are funding the future payments of these plans
through an investment with a value of $5,070 thousand and $4,264 thousand in
1997 and 1996, respectively. The expense recorded for the future liability was
$947 thousand, $523 thousand, and $365 thousand in 1997, 1996, and 1995,
respectively.
NOTE 17: 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.
Page 37 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 17: TRANSACTIONS WITH DIRECTORS AND OFFICERS (CONTINUED)
Indebtedness of related parties is summarized as follows for the years
ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
------------------------------------
1997 1996
------------------ ----------------
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 15,914 $ 15,597
Repayments (17,372) (14,516)
Borrowings 16,074 14,833
-------- --------
BALANCE AT END OF YEAR $ 14,616 $ 15,914
======== ========
</TABLE>
NOTE 18: OTHER OPERATING EXPENSES
The following represents the major expense classifications included in
other operating expenses for the years ended:
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31,
-------------------------------------------
1997 1996 1995
--------------- ------------ ------------
<S> <C> <C> <C>
EDP Processing and Services $ 284 $ 379 $ 412
Professional and Directors' Fees $1,243 $ 621 $ 997
Advertising and Public Relations $ 307 $ 405 $ 302
Deposit and Liability Insurance $ 148 $ 117 $ 551
Franchise and Other Taxes $ 348 $ 367 $ 281
</TABLE>
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS Number 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Corporation using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Corporation could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
IN THOUSANDS
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term Investments $ 33,133 $ 33,133 $ 24,271 $ 24,271
Marketable Securities $ 68,725 $ 69,292 $ 75,021 $ 75,386
Loans $308,919 $309,002 $297,515 $295,620
FINANCIAL LIABILITIES
Demand Deposits $ 95,148 $ 95,148 $ 89,851 $ 89,851
Savings and Time Deposits $270,464 $269,879 $269,989 $269,734
Other Borrowings and Liabilities $ 13,585 $ 13,585 $ 7,540 $ 7,540
</TABLE>
Page 38 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash and Short Term Investments
The carrying amounts reported in the Consolidated Balance Sheet for
cash, cash equivalent deposits, and Federal funds sold 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.
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 and savings 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, 1997. 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.
Page 39 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The following financial statements reflect the financial position and
results of operations of Commercial BancShares, Inc. (Parent Company Only).
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Substantially All from Subsidiaries) $ 2,355,424 $ 3,052,368
Accounts Receivable 893,029 640,616
Investment Securities - Available-for-Sale 651,697 484,636
Investment in Subsidiaries (Equity Basis) 38,618,802 35,937,326
Loans 360,873 248,654
Premises and Equipment - Net 947,781 352,978
Other Assets 354,518 924,612
----------- -----------
TOTAL ASSETS $44,182,124 $41,641,190
=========== ===========
LIABILITIES
Other Liabilities $ 1,983,820 $ 645,900
----------- -----------
TOTAL LIABILITIES $ 1,983,820 $ 645,900
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock ($5.00 Par Value: 5,000,000 Shares Authorized: Issued
and Outstanding Shares; 1,616,187 in 1997 and1,469,670 in 1996) $ 8,080,935 $ 7,348,350
Additional Paid in Capital 15,114,143 10,260,865
Undivided Profits 18,669,248 23,247,030
Unrealized Gain on Securities Available-for-Sale, Net of
Applicable Deferred Income Taxes 333,978 139,045
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $42,198,304 $40,995,290
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,182,124 $41,641,190
=========== ===========
</TABLE>
Page 40 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
REVENUE
Interest Income $ 13,585 $ 12,627 $ 21,471
Management Fees from Subsidiaries 1,493,728 1,205,511 1,064,863
Dividends from Subsidiaries 2,293,000 1,942,000 4,621,000
Other Dividend Income -0- 3,191 -0-
Other Income 17,715 7,976 71,595
Security Gains -0- -0- -0-
---------- ---------- ----------
TOTAL REVENUE $3,818,028 $3,171,305 $5,778,929
---------- ---------- ----------
EXPENSES
Employee Compensation and Benefits $1,772,686 $1,290,039 $1,242,682
Occupancy Expense, Net of Revenues 71,477 62,064 61,366
Furniture and Equipment Expense 428,589 190,314 255,792
Other Operating Expenses 1,827,807 564,733 449,707
---------- ---------- ----------
TOTAL EXPENSES $4,100,559 $2,107,150 $2,009,547
---------- ---------- ----------
Income (Loss) before Income Taxes, Equity in
Undistributed Net Income of Subsidiaries $ (282,531) $1,064,155 $3,769,382
Applicable Income Taxes (Benefit) (791,925) (329,781) (386,777)
---------- ---------- ----------
Income before Equity in Undistributed Net Income of
Subsidiaries $ 509,394 $1,393,936 $4,156,159
Equity in Undistributed Net Income (Loss) 2,427,631 3,387,075 589,344
---------- ---------- ----------
NET INCOME $2,937,025 $4,781,011 $4,745,503
========== ========== ==========
</TABLE>
Page 41 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,937,025 $ 4,781,011 $4,745,503
----------- ----------- ----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation $ 260,732 $ 110,214 $ 152,174
Net Amortization of Purchase Accounting Adjustments 57,060 64,407 75,722
Undistributed Net (Income) Loss of Subsidiaries (2,427,631) (3,387,075) (589,344)
Provision for Deferred Taxes (7,015) (8,925) (21,210)
Income Tax Benefit (784,910) (320,856) (365,567)
Other Changes in Assets and Liabilities 2,329,746 205,046 361,782
----------- ----------- ----------
TOTAL ADJUSTMENTS $ (572,018) $(3,337,189) $ (386,443)
----------- ----------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,365,007 $ 1,443,822 $4,359,060
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Subsidiaries $ (150,000) $ -0- $ -0-
Proceeds from Sale of Capitalized Assets -0- -0- 1,458
Net (Increase) Decrease in Loans (112,219) 6,677 -0-
Capitalized Expenditures (855,535) (40,634) (242,940)
Purchases of Investments Available-for-Sale (15,254) (446,027) -0-
----------- ----------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES $(1,133,008) $ (479,984) $ (241,482)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock $ -0- $ -0- $ 88,105
Proceeds from Sale of Treasury Stock -0- -0- 317,040
Payment for Fractional Shares of Converted Preferred
Stock (97) (205) (995)
Cash Dividends Paid (1,928,846) (1,763,604) (1,637,497)
----------- ----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES $(1,928,943) $(1,763,809) $(1,233,347)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ (696,944) $ (799,971) $ 2,884,231
CASH AT BEGINNING OF YEAR 3,052,368 3,852,339 968,108
----------- ----------- -----------
CASH AT END OF YEAR $ 2,355,424 $ 3,052,368 $ 3,852,339
=========== =========== ===========
SUPPLEMENTARY DISCLOSURE OF CASH FLOWS INFORMATION
Cash Paid during the Year for:
Interest $ -0- $ -0- $ -0-
Income Taxes $2,501,066 $2,862,802 $1,945,381
</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 1997.
Page 42 of 57
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS OF DOLLARS
EXCEPT FOR PER COMMON SHARE AND CASH DIVIDENDS PAID INFORMATION)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
- ----
<S> <C> <C> <C> <C> <C>
Interest Income $8,170 $8,321 $8,316 $ 8,453 $33,260
Net Interest Revenue $4,699 $4,784 $4,785 $ 4,761 $19,029
Provision for Possible Loan Loss $ 111 $ 116 $ 145 $ 888 $ 1,260
Net Operating Revenue $1,719 $1,954 $1,749 $(1,123) $ 4,299
Applicable Income Taxes $ 625 $ 627 $ 561 $ (451) $ 1,362
Net Income $1,094 $1,327 $1,188 $ (672) $ 2,937
Applicable to Common Stock $1,094 $1,327 $1,188 $ (672) $ 2,937
Per Common Share $ .68 $ .82 $ .74 $ (.42) $ 1.82
Cash Dividends Paid Common Stock $ .273 $ .30 $ .30 $ .30 $ 1.17
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 $ .63 $ .72 $ .73 $ .88 $ 2.96
Cash Dividends Paid Common Stock $ .273 $ .273 $ .273 $ .273 $ 1.09
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 $ .69 $ .76 $ .74 $ .75 $ 2.94
Cash Dividends Paid Common Stock $ .255 $ .255 $ .255 $ .255 $ 1. 02
</TABLE>
Page 43 of 57
<PAGE>
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, 1997 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years ended December 31, 1997, 1996, and 1995.
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, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996, and 1995 in conformity with
generally accepted accounting principles.
/s/ Harman Thompson, Mallory & Ice, A.C.
Parkersburg, West Virginia
March 6, 1998
Towne Square, Parkersburg, West Virginia 26102
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Page 44 of 57
<PAGE>
PART III
- --------
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
The following persons are currently serving as Directors of Commercial:
Bruce Bingham (68), Ravenswood, West Virginia. Director since 1985. Mr.
Bingham is retired from active employment with JCB, where he served as
President from 1983-1990. He became a Director of JCB in 1968, and
Chairman of the Board of Directors of JCB in 1995.
Frank L. Christy (50), Marietta, Ohio and Vero Beach, Florida. Director since
1983. Mr. Christy is a Real Estate Developer and was a Director of CB&T
from 1977-1990.
A. Vernon Criss, III (43), Vienna, West Virginia. Director since 1985. Mr.
Criss is the President of Century Block, Inc., and Century Limestone, Inc.,
Vice President of Atlas Towing Company, and Secretary-Treasurer of
Bluestone Quarries, Inc. He was a Director of CB&T from 1984-1988.
Gary R. Davis (53) Sistersville, West Virginia. Director since 1994. Mr.
Davis has been Chairman of Union Bank of Tyler County since January 1,
1995, and Chief Executive Officer since 1974. He was President from 1974
through 1994. He has been a Director of UBTC since 1974.
Wilson Davis (74) Pennsboro, West Virginia. Director since 1994. Mr. Davis
is the retired Director of the Ritchie County Educational Trust. He is
President and Chairman of The Community Bank. He became a Director of
Community in 1974.
Carl E. Dollman (74) Vienna, West Virginia. Director since 1987. Mr. Dollman
retired in 1986 from First Federal Savings and Loan Association of
Parkersburg where he had served as President. He became a director of CB&T
in 1987.
James A. Meagle, Jr. (52) Marietta, Ohio. Director since 1992. Mr. Meagle
has been President of The Dime Bank since 1980. He became a Director of
Dime in 1980.
David L. Mendenhall (54) Paden City, West Virginia. Director since 1994. Mr.
Mendenhall has been President and Chief Executive Officer of Bank of Paden
City since 1976. He became a Director of Paden City in 1976.
William E. Mildren, Jr. (53) Vienna, West Virginia. Director since 1983. Mr.
Mildren is Chairman, President and Chief Executive Officer of Commercial
and Chairman of CB&T. He is a Director of CB&T, JCB, Dime and UBTC. He
became a Director of CB&T in 1977, Chairman in 1987.
Jack F. Poe (75) Parkersburg, West Virginia. Director since 1983. Mr. Poe is
retired from CB&T, where he served as President for four years. He became
associated with CB&T in 1954, and has served as a Director of CB&T since
1972. He is a life trustee of Marietta College.
Robert E. Richardson, Sr. (83) Marietta, Ohio. Director since 1992. Mr.
Richardson is Chairman of Richardson Printing Company in Marietta, Ohio.
He became a Director of Dime in 1985 and has served as its Chairman since
1986.
W. S. Ritchie, Jr. (70) Ravenswood, West Virginia. Director since 1985. Mr.
Ritchie retired in 1988 as Commissioner of the West Virginia Department of
Highways. He previously was affiliated with Ashland Coal Company, Inc. and
Hobet Mining Company. He became a Director of JCB in 1967.
Susan S. Ross (54) Vienna, West Virginia. Director since 1983. Mrs. Ross is
the former Chairman of Storck Baking Company, Inc., and was a Director of
CB&T from 1982-1988.
Page 45 of 57
<PAGE>
Donald L. Scothorn (68) Parkersburg, West Virginia. Director since 1994. Mr.
Scothorn has been President and Chief Executive Officer of Commercial
Banking and Trust Company since August 1992. He has served as Chairman of
the Board and Director of F&M since November 1987. He became a Director of
CB&T in 1989 and of Paden City in 1994.
James L. Wahle (61) Doylestown, Pennsylvania. Director since 1994. Mr. Wahle
is President of Accu-Sort Systems, Inc. He was President of Kardex
Systems, Inc., in Marietta, Ohio, from 1994 to 1996. Before joining Kardex
he was President and CEO of Spacesaver Corporation.
Thomas N. Webster (78) Vienna, West Virginia. Director since 1983. Mr.
Webster is the Vice Chairman of Commercial. He is retired from CB&T, where
he served as Executive Vice President. He became a Director of CB&T in
1982, and JCB in 1985.
Morris B. Wilkins (73) Scotrun, Pennsylvania. Director since 1987. Mr.
Wilkins is President of Caesars Pocono Resorts, Scotrun, Pennsylvania. He
served as Chairman of the Board, President and Director of F&M from 1982 to
1987.
EXECUTIVE OFFICERS
A description of the executive officers of Commercial and its subsidiaries as of
March 27, 1998, follows.
<TABLE>
<CAPTION>
Name Age Position Business Experience
- ----------------------- --- ------------------------------- -------------------
<S> <C> <C> <C>
William E. Mildren, Jr. 53 Chairman, President, and President and Chief
Chief Executive Officer Executive Officer,
of Commercial Commercial and CB&T
Gary R. Davis 53 Chairman & Chief Executive Chairman and President,
Officer of UBTC Hometown; President & CEO,
UBTC
Thomas M. Lookabaugh 46 President and Chief Executive President and Chief Executive
Officer, Jackson Officer, Jackson
James A. Meagle, Jr. 52 President and Chief Executive President and Chief Executive
Officer, Dime Officer, Dime
David L. Mendenhall 54 President and Chief Vice President, Hometown;
Executive Officer, Paden City; President and CEO, Paden City
Sr. Vice Pres., Commercial
Donna L. Perine 43 President and Chief Executive President and Chief Executive
Officer, F&M Officer, F&M
Patty S. Poling 64 Cashier and Chief Executive Cashier and Chief Executive
Officer, Community Officer, Community
Donald L. Scothorn 68 President and Chief Executive Executive Vice President
Officer, CB&T; Chairman, and Chief Lending
F&M; Senior Vice Pres., Officer, CB&T
Commercial
Larry G. Johnson 50 Executive Vice President and Secretary-Treasurer,
Chief Financial Officer, Commercial; Executive
Commercial; Corporate Vice President and Chief
Secretary, Commercial Financial Officer, CB&T
</TABLE>
Page 46 of 57
<PAGE>
Item 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ending December 31,
1995, 1996 and 1997, the cash compensation paid by Commercial and its
subsidiaries, as well as certain other compensation paid or accrued for those
years, to executive officers whose total annual salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
Other
Name and Annual All Other
Principal Compen- Compen-
Position Year Salary($) Bonus($)/1/ sation($)/2/ sation($)/3/
- ---------------------------- -------- ---------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Wm. E. Mildren, Jr. 1997 $144,000 $70,319 $28,254 $11,532
Chairman, President 1996 $144,000 $49,581 $25,529 $ 9,830
and CEO, Commercial 1995 $130,020 $51,584 $30,207 $11,168
Donald L. Scothorn 1997 $106,020 $63,626 $12,640 $11,532
President and CEO, 1996 $100,020 $56,685 $12,323 $ 9,830
CB&T 1995 $ 92,520 $66,145 $13,760 $11,168
Larry G. Johnson 1997 $ 74,700 $52,238 $ 9,292 $ 9,022
Exec. Vice Pres. & 1996 $ 74,700 $38,560 $ 9,086 $ 8,399
CFO, Commercial 1995 $ 71,100 $41,628 $ 9,510 $10,436
Thomas M. Lookabaugh 1997 $ 71,550 $46,703 $ 4,200 $ 8,410
President & CEO, 1996 $ 67,500 $38,027 $ 4,200 $ 7,220
Jackson 1995 $ 60,000 $41,054 $ 6,810 $ 7,149
</TABLE>
/1/ Bonus is paid in January of the following year.
/2/ "Other Annual Compensation" includes amounts paid by Commercial and its
Subsidiaries as Directors Fees.
/3/ "All Other Compensation" includes contributions to Commercial BancShares
Employee Stock Ownership Plan (with 401(k) provisions) to match pre-tax
elective deferral contributions (included under Salary and Bonus) made to
the Plan, and optional corporate contributions to the Plan.
Change In Control Arrangements
Effective November 1, 1996, Commercial entered into employment
continuity agreements with Mr. Mildren, Jr., and Mr. Johnson. In effecting the
agreements, the Board recognized that, as a publicly held corporation, the
possibility of a change in control exists. The Board believes that assurances
of employment security will secure the continued services of Commercial'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 periods of
uncertainty, enable Commercial to rely on such executives to manage its affairs
during any such period with less concern for personal risks, and enhance
Commercial's ability to attract new key executives as needed. The Board did not
enter into the agreements in a belief that a change in control was imminent.
The agreements have identical provisions and become operative only
upon a change in control of Commercial. A change in control occurs if: (1) any
individual, firm, corporation, partnership or other entity (other than an
employee benefit plan of the company) becomes the owner or beneficial owner of
20% or more of the combined voting power of the outstanding securities (other
than as a result of an issuance of securities initiated by Commercial, 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
(2) 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 Commercial's Board, or
any successor's board, within two years of the last of such transactions.
"Continuing Director" means any member of Commercial's Board while a member of
the Board, and who (1) was a director of Commercial before the transactions
described above or (2) whose subsequent nomination for election or election to
the Board was recommended or approved by a majority of the Continuing Directors.
Page 47 of 57
<PAGE>
Under the agreements, if the executive is employed by Commercial on the
control change date, Commercial will continue to employ the executive for three
years, or until his normal retirement date, whichever is earlier. During that
period, the terms and conditions of the executive's employment, including
salary, bonuses, and employee benefit plans and programs, are to be fixed as of
the day before the control change date. The executive is entitled to continued
compensation if the executive's employment terminates during the employment
period, but subject to executive's offer to work that is rejected by Commercial.
The executive is entitled to continued compensation equal to three times the
executive's base period income (paid in 36 monthly installments) if the
executive is terminated by Commercial without cause ("cause" being limited to
executive's acts of theft, embezzlement, fraud, or moral turpitude), or if
executive voluntarily terminates employment within six months after (a) the
executive does not receive salary increases, bonuses, and incentive awards
comparable to the salary increases, bonuses, and incentive awards the 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; or
(d) executive's place of employment is changed in any way without Executive's
consent. Within 12 months after a change in control, the executive may
voluntarily terminate his employment with Commercial and, in such event, will be
entitled to receive continued compensation equal to his base period income, paid
in 12 equal monthly installments, and shall be free from the covenants not to
compete which are operative under other events of termination.
The agreements were effective as of November 1, 1996, and continue
automatically in effect through December 31, 1996, and thereafter through each
successive December 31 unless Commercial notifies the executive in writing 30
days before the end of any calendar year that the agreement shall terminate as
of the end of that calendar year. After a change in control, Commercial may not
terminate the agreement for 36 months, and the agreement automatically continues
in effect from year to year thereafter unless Commercial notifies the executive
in writing 30 days before the end of the initial 36-month period or 30 days
before any anniversary of the end of that period that the agreement shall
terminate as of that date.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee (the "Committee") consists of the following
persons: James L. Wahle, Carl E. Dollman, Susan S. Ross, George Couch, Robert L.
Hartley, and Neil Wynn. Messrs. Wahle and Dollman and Mrs. Ross are non-officer
directors of Commercial. Messrs. Couch, Hartley and Wynn are non-officer
directors of subsidiaries of Commercial. None of the members of the Committee
are employees or former or current officers of Commercial or its subsidiaries.
All of the directors who are members of the Committee and their associates,
including affiliates and related interests, are customers of Commercial and/or
subsidiaries of Commercial and some of these directors and their associates,
including affiliates and related interests, are directors or officers of, or
investors in, corporations or members of partnerships or have an interest in
other entities that are customers of Commercial and/or such subsidiaries. As
such customers, they have had transactions in the ordinary course of business
with Commercial and/or such subsidiaries, including borrowings, all of which
were on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and did not involve more than normal risk of collectibility.
Compensation of Directors
Beginning in June 1988, a monthly fee of $250 was paid by Commercial to
Directors who were not Directors of subsidiary banks. In addition during 1996,
Directors received $100 for each meeting of the Board of Directors attended.
Directors who were not active officers of Commercial or its subsidiaries also
received $100 for each committee meeting attended. Effective January 1, 1997,
the meeting fees for non-employee Directors were increased to $300 for Board
meetings and $200 for committee meetings.
Performance Adjusted Fees:
At the recommendation of outside consultants engaged to advise Commercial
regarding incentive compensation for its officers and appropriate fee levels for
Directors, Commercial adopted a system of fee adjustments based on the
performance of the company. The adjustments paid to Directors increase as
corporate objectives regarding return on assets are achieved or exceeded. In
considering the level of adjustment, the consultants also examined the fees paid
by banks and holding companies of comparable size with similar performance. For
1997, an adjustment of $1,720 along with regular Board and Committee Fees was
paid to Commercial's directors who were not active officers of Commercial.
During 1996 Directors of Commercial who were also directors of subsidiary
banks were paid for their services to the banks according to the standard
arrangements and performance adjusted fees in effect at each bank. There were
no other arrangements pursuant to which any Director was compensated for
services as a Director.
Page 48 of 57
<PAGE>
DIRECTORS DEFERRED INCOME PLAN
Commercial, CB&T, Dime, F&M, Jackson and Paden City have established
Directors Deferred Income Plans with certain Directors that defers payment of
director's fees until the director reaches age 65. For those directors whose
age was 65 or older at the time the plan was established, the payment of
directors' fees is deferred for five to seven years.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
---------------------------------------------------
To Commercial's knowledge, the only persons or groups that may be deemed to
own beneficially 5% or more of Commercial's outstanding common stock as of March
27, 1998 are the following:
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned Class
- --------------------------------- -------------- ----------
<S> <C> <C>
Commercial BancShares, Inc. 172,022 9.93%
Employee Stock Ownership Trust
(with 401(k) provisions)
Parkersburg, WV
</TABLE>
COMMON STOCK OWNERSHIP OF MANAGEMENT
------------------------------------
The following table sets forth certain information regarding beneficial
ownership of Commercial's Common Stock, as of March 25, 1998, by (i) each of
Commercial's directors, (ii) each of Commercial's executive officers named in
the compensation table below and (iii) Commercial's executive officers and
directors as a group.
<TABLE>
<CAPTION>
Number of Shares Nature of Percent
Name Beneficially Owned Ownership of Class
- -------------------------------------------- ------------------ --------- ---------
<S> <C> <C> <C>
Bruce Bingham 10,333 Direct *
2,809 Indirect *
Frank L. Christy 9,460 Direct *
4,032 Indirect *
A. Vernon Criss, III 220 Direct *
39,023 Indirect 2.25%
Gary R. Davis 22,491 Direct 1.30%
5,755 Indirect *
Wilson Davis 12,071 Direct *
Carl E. Dollman 3,931 Direct *
Larry G. Johnson 4,990 Direct *
6,276 Indirect *
Thomas M. Lookabaugh 276 Direct *
5,563 Indirect *
James A. Meagle, Jr. 2,548 Direct *
1,885 Indirect *
David L. Mendenhall 10,332 Direct *
3,139 Indirect *
</TABLE>
Page 49 of 57
<PAGE>
<TABLE>
<S> <C> <C> <C>
William E. Mildren, Jr. 53,137 Direct 3.07%
10,479 Indirect *
Donna L. Perine 434 Direct *
2,502 Indirect *
Jack F. Poe 5,731 Direct *
Patty S. Poling 950 Direct *
1,912 Indirect *
Robert E. Richardson, Sr. 1,919 Direct *
11,699 Indirect *
W. S. Ritchie, Jr. 5,894 Direct *
Susan S. Ross 2,200 Direct *
Donald L. Scothorn 13,506 Direct *
5,398 Indirect *
James L. Wahle 484 Direct *
Thomas N. Webster 3,029 Direct *
Morris B. Wilkins 220 Direct *
39,983 Indirect 2.31%
Executive officers and directors as a group 164,156 Direct 9.48%
(21 persons)
38,782 Indirect 8.11%
</TABLE>
______________________________
* Reflects ownership of less than 1% of the outstanding common shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Directors and Executive Officers of Commercial and its subsidiaries
and their associates were customers of and had transactions with Commercial and
its subsidiaries in the ordinary course of business during 1996. Loans and
commitments included in such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
others, and did not include more than normal risk of collectibility or present
other unfavorable features.
Page 50 of 57
<PAGE>
PART IV
- -------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
(2) Financial Statement Schedules
The following consolidated financial statements and report of
independent auditors of Commercial BancShares, Incorporated and
subsidiaries are included in Item 8:
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Report of independent auditors
Consolidated balance sheets--December 31, 1997 and 1996
Consolidated statements of income--Years ended December 31, 1997, 1996 and
1995
Consolidated statements of shareholders' equity--Years ended December 31,
1997, 1996 and 1995
Consolidated statements of cash flows--Years ended December 31, 1997, 1996
and 1995
Notes to consolidated financial statements--December 31, 1997
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.
(3) Listing of Exhibits
INDEX TO EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
Exhibit Number
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).
Page 51 of 57
<PAGE>
10.1 Change in Control Agreement between Commercial and William E.
Mildren, Jr., dated November 1, 1996 (filed as Exhibit 10.1 to the
Registrant's Form 10-K Annual Report for 1996, and incorporated by
reference herein).
10.2 Change in Control Agreement between Commercial and Larry G. Johnson,
dated November 1, 1996 (filed as Exhibit 10.2 to the Registrant's Form
10-K Annual Report for 1996, and incorporated by reference herein).
10.3 Agreement and Plan of Merger among Gateway Bancshares, Inc.,
Commercial BancShares, Incorporated, and CWV Holding Company, Inc.,
dated as of August 15, 1997 (filed as Exhibit 2 to Registrant's Form
8-K Current Report dated August 15, 1997, and incorporated by
reference herein).
10.4 Agreement and Plan of Merger by and between WesBanco, Inc.,
Commercial BancShares, Incorporated, and CBI Holding Company, dated as
of September 30, 1997 (filed as Exhibit 10.1 to Registrant's Form 10-Q
Quarterly Report for the quarter ended September 30, 1997, and
incorporated by reference herein).
11. Statement Re Computation of Per Share Earnings
21. Subsidiaries of the Registrant
23. Consent of Independent Auditors
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1997.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules Required by Regulation S-X
None
Page 52 of 57
<PAGE>
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. 3/30/98
----------------------------------------------------
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. 3/30/98
- ----------------------------------------
William E. Mildren, Jr.
Chairman, President and
Chief Executive Officer
/s/ Bruce Bingham 3/30/98
- ----------------------------------------
Bruce Bingham
Director
- ----------------------------------------
Frank L. Christy
Director
- ----------------------------------------
A. Vernon Criss, III
Director
- ----------------------------------------
Gary R. Davis
Director
/s/ Wilson Davis 3/30/98
- ----------------------------------------
Wilson Davis
Director
/s/ Carl E. Dollman 3/30/98
- ----------------------------------------
Carl E. Dollman
Director
/s/ James A. Meagle, Jr. 3/30/98
- ----------------------------------------
James A. Meagle, Jr.
Director
/s/ David L. Mendenhall 3/30/98
- ----------------------------------------
David L. Mendenhall
Director
/s/ Larry G. Johnson 3/30/98
- ----------------------------------------
Larry G. Johnson
Executive Vice President and
Chief Financial Officer
/s/ Jack F. Poe 3/30/98
- ----------------------------------------
Jack F. Poe
Director
- ----------------------------------------
Robert E. Richardson
Director
/s/ W. S. Ritchie, Jr. 3/30/98
- ----------------------------------------
W.S. Ritchie, Jr.
Director
/s/ Susan S. Ross 3/30/98
- ----------------------------------------
Susan S. Ross
Director
/s/ Donald L. Scothorn 3/30/98
- ----------------------------------------
Donald L. Scothorn
Director
- ----------------------------------------
James L. Wahle
Director
/s/ Thomas N. Webster 3/30/98
- ----------------------------------------
Thomas N. Webster
Director
- ----------------------------------------
Morris B. Wilkins
Director
Page 53 of 57
<PAGE>
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMMERCIAL BANCSHARES, INCORPORATED
<TABLE>
<CAPTION>
Year Ended December 31
PRIMARY: 1997 1996
------------------------------
<S> <C> <C>
Average shares outstanding 1,616,187 1,616,187
Net Income $2,937,025 $4,781,011
------------------------------
Applicable to common stock $2,937,025 $4,781,011
==============================
Per Share Amount $ 1.82 $ 2.96
FULLY DILUTED:
Average shares outstanding 1,616,187 1,616,187
------------------------------
TOTAL 1,616,187 1,616,187
==============================
Net Income $2,937,025 $4,781,011
==============================
Per Share Amount $ 1.82 $ 2.96
</TABLE>
Page 54 of 57
<PAGE>
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
The Subsidiaries of Commercial BancShares, Incorporated are:
Name of Company State of Incorporation
- ---------------------------------------------- ----------------------
. 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
. CommBanc Investments, Inc. Ohio
. Hometown Finance Company West Virginia
Page 55 of 57
<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 March 6,
1998, relating to the consolidated balance sheet of Commercial BancShares, Inc.
and Subsidiaries as of December 31, 1997 and 1996 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, 1997 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 30, 1998
Towne Square, P.O. Box 148, Parkersburg, West Virginia 26102 304/485-6584
Page 56 of 57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,966
<INT-BEARING-DEPOSITS> 1,317
<FED-FUNDS-SOLD> 14,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,564
<INVESTMENTS-CARRYING> 22,161
<INVESTMENTS-MARKET> 22,728
<LOANS> 308,919
<ALLOWANCE> 4,731
<TOTAL-ASSETS> 428,312
<DEPOSITS> 365,612
<SHORT-TERM> 2,462
<LIABILITIES-OTHER> 6,917
<LONG-TERM> 11,123
0
0
<COMMON> 8,081
<OTHER-SE> 34,117
<TOTAL-LIABILITIES-AND-EQUITY> 428,312
<INTEREST-LOAN> 28,072
<INTEREST-INVEST> 4,630
<INTEREST-OTHER> 557
<INTEREST-TOTAL> 33,259
<INTEREST-DEPOSIT> 13,666
<INTEREST-EXPENSE> 14,231
<INTEREST-INCOME-NET> 19,028
<LOAN-LOSSES> 1,260
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 16,477
<INCOME-PRETAX> 4,299
<INCOME-PRE-EXTRAORDINARY> 4,299
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,937
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 5.01
<LOANS-NON> 1,755
<LOANS-PAST> 503
<LOANS-TROUBLED> 1,650
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,574
<CHARGE-OFFS> 300
<RECOVERIES> 197
<ALLOWANCE-CLOSE> 4,731
<ALLOWANCE-DOMESTIC> 4,731
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
