Annual Report (Form 10-K), fiscal year 1994

Item 1. BUSINESS
Commercial BancShares, Incorporated may also be referred to herein as "Commercial". The subsidiaries may be referred to as follows: Commercial Banking and Trust Company as "CB&T", Jackson County Bank as "Jackson", Farmers and Merchants Bank of Ritchie County as "F&M", The Dime Bank as "Dime", Union Bank of Tyler County as "Union", The Community Bank as "Community", the Bank of Paden City as "Paden City", and Hometown Insurance Agency, Inc., as "Hometown Insurance".
Commercial BancShares, Incorporated
The management of Commercial Banking and Trust Company of Parkersburg, West Virginia, caused Commercial BancShares, Incorporated to be formed in 1982 to provide greater flexibility in meeting CB&T's capital requirements and to permit future acquisition and ownership of bank-related businesses and the pursuit of other bank-related activities not permitted CB&T under applicable law. On October 28, 1983, the shareholders of CB&T became shareholders of Commercial and CB&T became a wholly-owned subsidiary of Commercial BancShares, Incorporated.
On January 29, 1985, shareholders of Jackson County Bank, Ravenswood, West Virginia approved an agreement and plan of merger pursuant to which Jackson would merge into a wholly-owned subsidiary of Commercial and thereby become a wholly-owned subsidiary of Commercial. The transaction was finalized March 1, 1985.
On May 15, 1987, shareholders of Farmers and Merchants Bank of Ritchie County (formerly Farmers and Merchants Bank of Cairo), Harrisville, West Virginia, approved an agreement and plan of merger pursuant to which F&M would merge into a wholly-owned subsidiary of Commercial and thereby become a wholly- owned subsidiary of Commercial. The transaction was finalized November 30, 1987.
On March 21, 1991, shareholders of The Dime Bank, Marietta, Ohio approved
an agreement and plan of merger pursuant to which Dime would merge into a wholly-owned subsidiary of Commercial and thereby become a wholly-owned subsidiary of Commercial. The transaction was finalized February 28, 1992.
On June 7, 1994, shareholders of Hometown Bancshares, Inc., ("Hometown") approved an agreement and plan of merger pursuant to which Hometown would merge with Commercial. Commercial would be the surviving corporation and the former subsidiaries of Hometown (Union, Community, Paden City and Hometown Insurance) would become wholly-owned subsidiaries of Commercial. The transaction was finalized August 1, 1994.
Commercial Banking and Trust Company
CB&T was chartered as a West Virginia Banking Corporation on August 18, 1903, and opened its doors on the corner of Third Street and Court Square, Parkersburg, West Virginia. CB&T remained in its original location until January, 1916, when it acquired the assets of the Parkersburg Banking and Trust Company and moved to its present location at 415 Market Street, Parkersburg, West Virginia. On December 10, 1984 it opened a branch in Mineral Wells, West Virginia. On September 29, 1986 a second branch was opened on Grand Central Avenue in Vienna, West Virginia. A third branch was opened at 2107 Pike Street, Parkersburg, West Virginia on May 8, 1989.
CB&T provides a complete range of financial services to both retail and commercial customers. Additionally, CB&T has full trust powers and provides a wide variety of those services to individuals, corporations, foundations and others.
Jackson County Bank
Jackson County Bank was chartered as a West Virginia Banking Corporation on April 1, 1899, and was originally located on Walnut Street in Ravenswood, West Virginia. In 1958 the present quarters on Wall Street were first occupied.
As the only full-service commercial bank headquartered in Ravenswood, Jackson provides a complete range of retail banking services to the community's individuals and businesses. Jackson does not provide trust or correspondent banking services.
Farmers and Merchants Bank of Ritchie County
F&M was incorporated in 1941 as a West Virginia Banking Corporation with the name "Farmers and Merchants Bank of Cairo" and was located in Cairo, West Virginia. In 1984 offices were rented at 1500 East Main Street in Harrisville, West Virginia, to serve as a branch location. In 1985, the main offices of F&M were moved from Cairo to the Harrisville location, and the Cairo office continued as a branch facility. The Harrisville offices were purchased by F&M in 1987.
F&M is the smaller of two banks in Harrisville, the county seat of Ritchie County. It offers services normally offered by a full-service commercial bank, including all types of deposit accounts and loans. It does not offer trust services or correspondent banking services.
The Dime Bank
The Dime Savings Society of Marietta, Ohio, was converted to a commercial bank, The Dime Bank, on May 1, 1972. At that time, The Dime Savings Society of Marietta had moved from the former Dime Savings Society Building at the corner of Front and Greene Streets to the corner of Second and Putnam Streets in Marietta. On April 1, 1982, The Dime Bank of Ross County, N.A. was merged into The Dime Bank. On December 31, 1983, The Dime Bank sold its branch in Ross County, formerly The Dime Bank of Ross County, N.A., to Kingston National Bank. On March 31, 1986, a group of forty-two investors purchased one hundred percent of the stock of The Dime Bank from American Bancorporation of Wheeling, West Virginia.
The main offices of The Dime Bank have remained at the Second and Putnam location since May 1, 1972. In June of 1974, The Dime Bank established a branch at Second and Butler Streets in Marietta, Ohio. In February of 1981, Dime established a branch in Devola, on State Route 60.
Dime is a State of Ohio bank and a member of the Federal Reserve System. Its main operations are conducted at its offices at 200 Putnam Street in Marietta, Ohio, with drive-in banking services at each of the two branches. Dime provides services normally offered by a full-service commercial bank, but does not offer trust services and is not active in correspondent banking services.
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. Community offers a wide range of financial services to retail and commercial customers in its local area, although it does not offer trust or correspondent banking services.
Bank of Paden City
Paden City was organized and chartered under the laws of the State of West Virginia on May 14, 1976. Its principal office is located at 4th and Main Streets in Paden City, West Virginia. In December, 1984, Paden City opened a full-service branch on State Route 2 in New Martinsville, West Virginia, referred to as the Steelton Financial Center. Paden City offers the wide range of services usually offerred 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.
Employees As of December 31, 1994, Commercial and its subsidiaries had 215 full-time equivalent employees.
Competition
The primary market area of Commercial and its subsidiaries includes Wood, Wirt, Jackson, Tyler, Wetzel and Ritchie Counties in West Virginia, and Washington County, Ohio, with a secondary market area including Pleasants and Wirt Counties in West Virginia and Monroe, Noble, Meigs, Morgan and Athens Counties in Ohio.
As of June 30, 1994, the most recent date for which branch data is available, there were seven banks with 26 locations in Wood County. They reported total deposits of $891,716,000 in the county. CB&T ranked third among the banks with 16.44% of the total bank deposits. In addition there was one savings bank office located in the county and 14 federal credit unions. Total deposits of all institutions in the county were reported at $1,149,933,000. CB&T ranked fourth among all institutions with 12.75% 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 23.75% and F&M has 17.52% of the $18,711,000 in bank deposits in the county. There are no non-bank financial institutions in Ritchie County. The two subsidiaries of Commercial combined held 41.27% of the total deposits for the county.
Six banks had 8 offices located in Jackson County on June 30, 1994, with total bank deposits of $248,875,000. Jackson ranked fourth among the banks, with 18.22% 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 $269,242,000 at June 30. Jackson ranked fourth among all institutions with 16.84% 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, 1994, Union's deposits were $33,060,000, or approximately 17.93% of that total two- county commercial bank market, and was the third largest of the seven commercial banks with offices in Tyler and Wetzel County. Paden City's deposits were $27,430,000, 14.87% of the market, and was the fourth largest. Combined, the two subsidiaries of Commercial held 32.80% of the total commercial bank deposits in the Tyler/Wetzel County market. Three thrift institutions and one federal credit union also operate in the market, and combined deposits of all institutions amounted to $348,293,000 as of June 30, 1994. Union and Paden City held 17.37% of all deposits for the market.
As of June 30, 1994, there were nine banks located in Washington County with total deposits of $682,845,000. The Dime Bank is the fifth largest of the nine and holds 5.50% of the total deposits. The nine banks operate at eighteen offices within Washington County. In addition to the commercial banks, there are two savings and loan associations located in Washington 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.
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 or The Dime Bank.
Item 2.



Item 2. PROPERTIES
The principal executive offices of CB&T and Commercial are located at 415 Market Street, Parkersburg, West Virginia. This building, a 3-story bank and office building, is owned by CB&T. During 1984, CB&T constructed a branch office in Mineral Wells, West Virginia. The branch is one and one-half stories with a
full basement. During 1986, CB&T constructed a branch office in Vienna, West Virginia, on leased property. At the end of the ten-year lease, CB&T has a fixed purchase price option. The building is a one-story masonry structure with attached drive-in lanes. CB&T subsequently purchased three adjacent lots, one of which is used for parking, and two are vacant. Construction is in progress on an addition to the building. CB&T also leases a portion of a two-story bank building on Pike Street in Parkersburg.
Jackson owns and occupies a modern two-story masonry bank building at the intersection of Wall Street with State Route 68 on the edge of downtown Ravenswood, West Virginia.
F&M owns and occupies modern bank buildings in Harrisville and Cairo, West Virginia. The office in Cairo was built in 1974 and is a one-story brick building in colonial style. The Harrisville office is a one-story building of brick construction built in 1971 and remodeled in 1984. In 1988 an addition was made as well as some remodeling.
Dime's main offices are located at 200 Putnam Street in Marietta, Ohio in an eight-story office building. One-half of the building was constructed in the late 1800's and the other half in the early 1900's. There have been several remodelings. Each floor of the building contains approximately 3,200 square feet. The drive-in facility at Second and Butler Streets was constructed for that purpose in 1974 and has the capacity for four lanes. The site includes an employee parking lot and an automated teller machine. The Devola branch of Dime was constructed in 1981 as a full-service branch, but the bank presently operates a drive-in facility only on the half-acre site.
The current principal office of Union is located at Fair and Dodd Streets in Middlebourne, West Virginia. 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. 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. Community also operates a drive-through facility on Masonic Avenue. Both of these properties are owned by Community. In addition, Community owns three lots used for employee and customer parking.
The principal office of Paden City is located at Fourth and Main Streets in Paden City, West Virginia. Paden City owns this building and adjacent lots which are used for employee and customer parking. Paden City also owns a branch facility, referred to as the Steelton Financial Center, which is located at State Route 2 North in New Martinsville, West Virginia. The land on which this facility is built is leased by Paden City.
In addition to the banking buildings, CB&T, Jackson, F&M, Union, Paden
City, Community, Dime and Commercial own other real properties which, when considered in the aggregate, are not material to their operations.
Item 3.

Item 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which CB&T, Jackson, F&M, Dime, Union, Community and Paden City are party. Management considers that the aggregate liabilities, if any, arising from such actions would not have material adverse effect on the consolidated financial position of Commercial.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Part II
Item 5.

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Page 41 of the 1994 Annual Report to shareholders is incorporated herein by reference
Item 6.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations and the related comments in the President's letter are included inside the front cover of the 1994 Annual Report to shareholders and on pages 31 to 40 of the Annual Report.
Item 7.

Item 7. FINANCIAL STATEMENTS
The report of independent accountants and consolidated financial statements are included on pages 2 through 30 of the 1994 Annual Report to shareholders.
Quarterly Results of Operations for the year ended December 31, 1994 included on page 29 of the 1994 Annual Report to shareholders are incorporated herein by reference.
Item 8.


Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information required by Items 9 through 12 in this part is incorporated herein by reference from BancShares' definitive proxy statement dated April 1, 1995 for the annual meeting of shareholders to be held on May 10, 1995, which is included as Exhibit 99.
PART IV
Item 13.







Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements (2) Financial Statement Schedules The response to this portion of Item 13 is submitted as a separate section of this report. (3) Listing of Exhibits Exhibit 11 - Statement Re: Earnings per share Exhibit 23 - Consent of Independent Accountants (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1994. (c) Exhibits The response to this portion of Item 13 is submitted as a separate section of this report. (d) Financial Statement Schedules None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMMERCIAL BANCSHARES, INCORPORATED ------------------------------------------ (Registrant)
By: /s/ William E. Mildren, Jr. ------------------------------------------ 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. 3/28/95 ------------------------------------------------------ William E. Mildren, Jr. Chairman, President and Chief Executive Officer
------------------------------------------------------ Bruce Bingham Director
------------------------------------------------------ Frank L. Christy Director
------------------------------------------------------ A. Vernon Criss, III Director
/s/ Gary R. Davis 3/29/95 ------------------------------------------------------ Gary R. Davis Director
------------------------------------------------------ Wilson Davis Director
/s/ Carl E. Dollman 3/29/95 ------------------------------------------------------ Carl E. Dollman Director
/s/ James A. Meagle, Jr. 3/29/95 ------------------------------------------------------ James A. Meagle, Jr. Director
/s/ David L. Mendenhall 3/29/95 ------------------------------------------------------ David L. Mendenhall Director
/s/ Larry G. Johnson 3/28/95 ------------------------------------------------------ Larry G. Johnson Executive Vice President and Chief Financial Officer
/s/ Jack F. Poe 3/28/95 ------------------------------------------------------ Jack F. Poe Director
/s/ Robert E. Richardson 3/29/95 ------------------------------------------------------ Robert E. Richardson Director
------------------------------------------------------ W.S. Ritchie, Jr. Director
/s/ Susan S. Ross 3/29/95 ------------------------------------------------------ Susan S. Ross Director
/s/ Donald L. Scothorn 3/29/95 ------------------------------------------------------ Donald L. Scothorn Director
------------------------------------------------------ James L. Wahle Director
------------------------------------------------------ Thomas N. Webster Director
------------------------------------------------------ Morris B. Wilkins Director
FORM 10-K--ITEM 14(a)(1) and (2)
COMMERCIAL BANCSHARES, INCORPORATED
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent auditors of Commercial BancShares, Incorporated and subsidiaries are included in Item 8:
Report of independent auditors
Consolidated balance sheets--December 31, 1994 and 1993
Consolidated statements of income--Years ended December 31, 1994, 1993 and
Consolidated statements of shareholders' equity--Years ended December 31, 1994, 1993 and 1992
Consolidated statements of cash flows--Years ended December 31, 1994, 1993 and 1992
Notes to consolidated financial statements--December 31, 1994
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.