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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File No. 0-27894
COMMERCIAL BANCSHARES, INC.
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(Name of Registrant in Its Charter)
OHIO 34-1787239
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
118 S. SANDUSKY AVENUE UPPER SANDUSKY, OHIO 43351
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(Address of principal executive offices) (Zip code)
(419) 294-5781
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(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None
Securities registered under Section 12(g) of the Exchange Act:
Common Shares, no par value
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(Title of class)
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 in response 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. [ ]
At March 14, 2000, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, based on a share price of $26.75 per share
(such price being the average of the bid and asked prices on such date) was
$28,023,567.50.
At March 14, 2000, there were issued and outstanding 1,047,610 of the
registrant's Common Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's 1999 Annual Report to Shareholders is incorporated by
reference into Part I and Part II of this Form 10-K Portions of Registrant's
Definitive Proxy Statement for the April 12, 2000 Annual Meeting of Shareholders
is incorporated by reference into Part III of this Form 10-K.
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INDEX
FORM 10-K
Page
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PART I
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ITEM 1. Description of Business 3
ITEM 2. Properties 5
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
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ITEM 5. Market for Common Equity and Related Shareholder Matters 6
ITEM 6. Selected Financial Data 6
ITEM 7. Management's Discussion and Analysis of Financial Condition 6
and Results of Operation
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk 7
ITEM 8. Financial Statements and Supplementary Data 7
ITEM 9. Changes in and Disagreements with Accountants on 7
Accounting and Financial Disclosure
PART III
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ITEM 10. Directors and Executive Officers of the Registrant 7
ITEM 11. Executive Compensation 7
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 7
ITEM 13. Certain Relationships and Related Transactions 8
PART IV
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ITEM 14. List of Exhibits and Reports on Form 8-K 8
SIGNATURES 9
EXHIBITS 10
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2.
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
In February 1995, Commercial Bancshares, Inc. (The "Corporation") received
approval from the Board of Governors of the Federal Reserve System to become a
bank holding corporation by acquiring all the voting shares of common stock of
The Commercial Savings Bank (the "Bank"). The principal business of the
Corporation presently is to operate the Bank, which is a wholly-owned
subsidiary, and its principal asset. The Corporation and the main office of the
Bank are located at 118 South Sandusky Avenue, Upper Sandusky, Ohio 43351.
In May 1997, the Board of Directors approved the establishment of the
Corporation's second wholly owned subsidiary, a consumer finance company, and
thereby chartered a new Ohio corporation by the name of "Advantage Finance,
Inc." (the "Finance Company"). On December 24, 1997, approval was granted by the
Ohio Division of Financial Institutions for the Finance Company to do business
in Ohio. On April 13, 1998 the Finance Company opened for business at 117 North
Greenwood, Marion, Ohio providing finance company services to customers in the
Marion area. In January 1999, the Corporation received regulatory approval from
the Ohio Department of Financial Institutions to establish the Finance Company
as a subsidiary of the Bank to facilitate its future operations.
Although wholly owned by the Corporation, the Bank functions as an independent
community bank. The Bank was organized on April 20, 1920 as a state-chartered
Bank and incorporated as "The Lewis Bank & Trust Corporation" under the laws and
statutes of the State of Ohio. An amendment to the articles of incorporation on
February 8, 1929 changed the name of the Bank to its present name. The Bank
provides customary retail and commercial banking services to its customers,
including acceptance of deposits for demand, savings and time accounts and
servicing of such accounts; commercial, consumer and real estate lending,
including installment loans, individual retirement accounts (IRA's), safe
deposit facilities and night depository facilities. The Bank is a nonmember of
the Federal Reserve System, is insured by the Federal Deposit Insurance
Corporation and is regulated by the Ohio Division of Financial Institutions.
The Bank grants residential, installment and commercial loans to customers
located primarily in the Ohio counties of Wyandot, Marion and Hancock and the
surrounding area. Commercial loans are primarily variable rate and include
operating lines of credit and term loans made to small businesses primarily
based on the ability to repay the loan from the cash flow of the business. Such
loans are typically secured by business assets, such as equipment and inventory,
and occasionally by the business owner's personal residence. When the borrower
is not an individual, the Bank generally obtains personal guarantees of the
business owner. Commercial real estate loans are primarily secured by
borrower-occupied business real estate, and are dependent on the ability of the
related business to generate adequate cash flow to service the debt. Such loans
primarily carry adjustable interest rates. Residential real estate loans are
made with primarily fixed rates and are secured by the borrower's residence.
Such loans are made based on the borrower's ability to make repayment from
employment and other income. The Bank generally makes these loans in amounts of
95% or less of the value of collateral. An appraisal is obtained from a
qualified real estate appraiser for substantially all loans secured by real
estate. Construction loans are secured by residential and business real estate
that primarily will be borrower-occupied upon completion. The Bank usually makes
the permanent loan at the end of the construction phase. Installment loans to
individuals include loans secured by automobiles and other consumer assets,
including second mortgages on personal residences. Loans secured by automobiles
are generated both by direct application from the customer and from the Bank's
purchase of indirect retail installment contracts from the dealers. Credit card
and overdraft protection loans are unsecured personal lines of credit to
individuals. The Finance Company specializes in direct and indirect lending for
consumer goods, 90-day and six-month same-as-cash loans, second mortgage and
home equity loans, and installment loans.
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3.
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The general economic conditions in the Corporation's market area have been
sound. Unemployment statistics have generally been consistent with the State of
Ohio as a whole and real estate values have been stable to rising. The
Corporation is not aware of any exposure to material costs associated with
environmental hazardous waste cleanup. Bank loan procedures require state and
federal environmental regulatory studies be obtained by Bank management before
approving any commercial real estate loan with such potential risk.
The Corporation is anticipating pursuing opportunities to expand into other
areas of the financial services industry, including, but not limited to,
insurance underwriting, made available by the passage of the Financial
Modernization Act of 1999.
COMPETITION IN FINANCIAL SERVICES
Both the Bank and the Finance Company compete for business in the tri-county
market of Wyandot, Hancock and Marion Counties, Ohio. The Company's competitors
for business come from two primary sources: large regional firms and independent
community banks and thrifts. The Bank also competes, particularly for deposit
dollars, with insurance companies, brokerage firms and investment companies. The
Bank finds that it competes favorably with the large regional banks by its
ability to maintain decision-making officers within branch locations rather than
centralizing decision-making in a corporate headquarters. Competition with the
independent community banks is enhanced by creating product niches so as not to
resort solely to pricing as a means to attract business. Examples of the Bank's
product niches include horse and cargo trailer financing, small-business lending
and low-fee demand deposit accounts. The Finance Company has found a niche in
indirect financing of retail consumer goods from regional retailers.
EMPLOYEES
Currently the Bank has 101 full-time employees and 18 part-time employees and
the Finance Company has 7 full-time employees and 1 part-time employee.
Directors and Officers of the Corporation are also employees of the Bank and
have been included in these totals. The Corporation does not have any full- or
part-time employees.
SUPERVISION AND REGULATION
REGULATION OF THE CORPORATION: The Corporation is a registered bank holding
company organized under the laws of the State of Ohio on March 22, 1994. As
such, the Corporation is subject to the laws of the State of Ohio and is under
the jurisdiction of the Securities Act of 1933, as amended, and various
Securities and Exchange Commission rules and regulations relating to the
offering and sale of its securities. The Corporation is also subject to
regulation under the Bank Holding Company Act of 1956, as amended. The Federal
Reserve Board regulates bank holding companies and may examine or inspect the
books and records of the Corporation and the Bank.
The Corporation is not aware of any current recommendations by regulatory
authorities that, if they were to be implemented, would have a material effect
on the Corporation.
REGULATION OF THE BANK: The Bank is chartered in the State of Ohio and regulated
by the Ohio Division of Financial Institutions. Further, the Federal Deposit
Insurance Corporation insures the Bank's depositors. These regulatory agencies
have the authority to examine the books and records of the Bank, and the Bank is
subject to their rules and regulations.
REGULATION OF THE FINANCE COMPANY: The Finance Company is chartered in the State
of Ohio and regulated by the Ohio Division of Financial Institutions, the
Federal Deposit Insurance Corporation, and the Federal Reserve Board. These
regulatory agencies have the authority to examine the books and records of the
Finance Company and the Finance Company is subject to their rules and
regulations.
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4.
5
The following schedules present, for the periods indicated, certain financial
and statistical information of the Corporation as required under the Securities
and Exchange Commission's Industry Guide 3, or a specific reference as to the
location of required disclosures in the Corporation's 1999 Annual Report to
Shareholders (the "Annual Report"), which is included as Exhibit 13 to this
document and incorporated herein by reference.
STATISTICAL DISCLOSURES
The following statistical information for 1999, 1998, and 1997, included in the
Annual Report is incorporated herein by reference.
Pages of Annual Report
----------------------
Distribution of Assets, Liabilities and Shareholders, Equity; 7-9
Interest Rates and Interest Differential
Investment Portfolio 15
Loan Portfolio 11
Summary of Loan Loss Experience 12-14
Deposits 16
Return on Equity and Assets 4
Short-term Borrowings 21 and 32
ITEM 2 - PROPERTIES
The Corporation's headquarters and the Bank's main office are located at 118
South Sandusky Avenue, Upper Sandusky, Ohio, in Wyandot County. The building is
used exclusively by the Corporation and the Bank.
All of the offices listed below are owned by the Bank and are free and clear of
any encumbrances:
Location Description
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1. Main Office Two story building built in the early 1900's
118 S. Sandusky Ave. and remodeled in 1991.
Upper Sandusky, Ohio 43351
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2. Carey Office One story building built and opened in 1973.
128 S. Vance Street
Carey, OH 43316
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3. Harpster Office One story building purchased in 1978.
17480 Cherokee Street
Harpster, OH 43323
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4. North Drive-In Office One story drive in office opened in 1981.
400 N. Sandusky Avenue
Upper Sandusky, OH 43351
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5. Marion Barks Road Office One story building purchased, renovated,
170 Barks Road East and opened in 1988.
Marion, OH 43302
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6. Findlay Tiffin Avenue Office One story building purchased from Savings
1600 Tiffin Avenue of America in 1992. The building was
Findlay, OH 45840 renovated in 1999 to add additional offices.
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7. Marion Jamesway Office One story building constructed and opened
279 Jamesway in 1997.
Marion, OH 43302
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5.
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8. Bellefontaine Office One story building purchased, renovated,
1245 Bellefontaine Ave. and opened in 1999.
Marion, OH 43302
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9. Findlay Lincoln Street Office One story building purchased in 1999.
1660 Tiffin Ave. The building is being renovated and is
Findlay, OH 45840 scheduled to open mid-year 2000.
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The Bank also operates an intermittent office inside the Rotary Towers Nursing
Facility in Marion, Ohio, which was opened in 1991. The Bank's Lincoln Street
building will be used as a banking office and to house the Bank's Real Estate
Mortgage Department.
The Finance Company operates two offices, both of which are leased on a month to
month basis. The addresses of these offices are 117 North Greenwood, Suite 7,
Marion, Ohio and 1239 Bellefontaine Avenue, Marion, Ohio. The Bellefontaine
office is leased from the Bank.
The Bank considers its physical properties to be in good operating condition
(subject to reasonable wear and tear) and suitable for the purposes for which
they are being used. All properties owned by the Bank are free and clear of any
encumbrances and are adequately insured.
ITEM 3 - LEGAL PROCEEDINGS
There is no pending litigation, other than routine litigation incidental to the
business of the Corporation and Bank, of a material nature involving or naming
the Company or Bank as a defendant. Further, there are no material legal
proceedings in which any director, officer, principal shareholder, affiliate of
the Corporation, or security holder owning five percent of the Corporation's
common stock; or any associates of such persons is a party or has a material
interest that is adverse to the Corporation or Bank. None of the routine
litigation in which the Company or Bank is involved is expected to have a
material adverse impact on the financial position or results of operations of
the Corporation or Bank.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1999.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information set forth under the heading "Shareholder Information" on page 42
of the Annual Report is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information set forth under the heading "Comparative Summary of Selected
Financial Data" on pages 3 and 4 of the Annual Report is incorporated herein by
reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 5 through
19, inclusive, of the Annual Report is incorporated herein by reference.
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6.
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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the heading "Quantitative and Qualitative
Disclosures about Market Risk" on pages 18 and 19 of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained in the consolidated financial statements and related
notes and the report of independent auditors thereon, on pages 20 through 41,
inclusive, of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No changes in or disagreements with the Corporation's independent accountants on
accounting and financial disclosure have occurred.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Corporation
appears on pages 4 through 9 inclusive under the captions "Family
Relationships", "Election of Directors", "Executive Officers" and "Section 16
(a) Beneficial Ownership Reporting Compliance" in the Corporation's Definitive
Proxy Statement dated March 10, 2000 for the Annual Meeting of Shareholders to
be held on April 12, 2000 and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information concerning executive compensation appears on pages 3 and 10 through
16, inclusive, under the captions "Compensation of Directors", "Report of the
Executive Compensation Committee of the Board of Directors on Executive
Compensation", "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions", "Executive Compensation", "Deferred Compensation Plan",
"Executive Incentive Stock Option Plan", "Supplemental Executive Retirement
Plan", and "Performance Graph" in the Corporation's Definitive Proxy Statement
dated March 10, 2000 for the Annual Meeting of Shareholders to be held on April
12, 2000 and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is contained on pages 2 and 5 through 7 under the captions "Voting
Securities and Principal Holders Thereof" and "Information Relating to Nominees
and other Directors" in the Corporation's Definitive Proxy Statement dated March
10, 2000 for the Annual Meeting of Shareholders to be held on April 12, 2000 and
is incorporated herein by reference.
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7.
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ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
contained on page 4 under the caption "Related Transactions" in the
Corporation's Definitive Proxy Statement dated March 10, 2000 for the Annual
Meeting of Shareholders to be held on April 12, 2000 and is incorporated herein
by reference.
ITEM 14 - LIST OF EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description of Document
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3.1 Amended Articles of Incorporation of the Corporation
(incorporated by reference to Registrant's Form 8-K dated April 27, 1995)
3.2 Code of Regulations of the Corporation
(incorporated by reference to Registrant's Form 8-K dated April 27, 1995)
4 Form of Certificate of Common Shares of the Corporation
(incorporated by reference to Registrant's Form 8-K dated April 27, 1995)
10 Material Contracts
(incorporated by reference to Registrant's Forms S-8 dated August 1, 1997
and March 17, 1999)
13 Annual Report to Shareholders for the Year Ended 1999
21 Subsidiaries of the Registrant
23.1 Consent of Crowe, Chizek and Company, LLP
23.2 Consent of Shumaker, Loop & Kendrick, LLP
(incorporated by reference to Registrant's Forms S-8 dated
August 1, 1997 and March 17, 1999)
27 Financial Data Schedule
All of such previously filed documents are hereby incorporated by reference
in accordance with Item 601 of Regulation S-K. Such documents are available
to shareholders without charge upon request from the Issuer.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
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8.
9
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 under signed, thereunto
duly authorized.
March 29, 2000 COMMERCIAL BANCSHARES, INC.
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Date
By: /s/RAYMOND E. GRAVES
-----------------------------
Raymond E. Graves, President
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 indicated on
March 29, 2000.
Signatures Signatures
---------- ----------
/s/RAYMOND E. GRAVES /s/EDWIN G. EMERSON
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Raymond E. Graves Edwin G. Emerson
President (Principal Executive Officer) Director
and Director
/s/JAMES A. DEER /s/HAZEL FRANKS
- --------------------------------------- ---------------------------------------
James A. Deer Hazel Franks
Secretary, Principal Financial Officer, Principal Director
Accounting Officer and Director
/s/RICHARD SHEAFFER /s/DEBORAH J. GRAFMILLER
- --------------------------------------- ---------------------------------------
Richard Sheaffer Deborah J. Grafmiller
Director, Chairman of the Board Director
/s/DANIEL E. BERG /s/MICHAEL A. MASTRO
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Daniel E. Berg Michael A. Mastro
Director Director
/s/LOREN H. DILLON /s/WILLIAM E. RUSE
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Loren H. Dillon William E. Ruse
Director Director
/s/MARK DILLON /s/DOUGLAS C. SMITH
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Mark Dillon Douglas C. Smith
Director Director
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9.
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INDEX TO EXHIBITS
Page
Reference to Number in
Prior Filing or This
Exhibit Number Form 10-K
Exhibit Number Description of Document Attached Hereto Report
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3.3 Amended Articles of Incorporation 1 Not Applicable
of the Corporation
3.4 Code of Regulations of 2 Not Applicable
the Corporation
4 Form of Certificate of Common Shares 3 Not Applicable
of the Corporation
10 Material Contracts 4 Not Applicable
13 Annual Report to Shareholders 5 11
for the Year Ended 1999
21 Subsidiaries of the Registrant 6 54
23.1 Consent of Crowe, Chizek and Company LLP 7 55
23.2 Consent of Shumaker, Loop & Kendrick, LLP 8 Not Applicable
27 Financial Data Schedule 9 56
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(Continued)
10.