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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File Number 0-27894
COMMERCIAL BANCSHARES, INC.
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(Exact name of small business issuer as specified in its charter)
OHIO 34-1787239
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
118 SOUTH SANDUSKY STREET, UPPER SANDUSKY, OHIO 43351
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(Address of principal executive offices)
(419) 294-5781
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
As of October 21, 2002, the latest practicable date, 1,164,233 shares of the
issuer's common shares, no par value, were issued and outstanding.
COMMERCIAL BANCSHARES, INC.
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets............................................................. 3
Consolidated Statements of Income ...................................................... 4
Condensed Consolidated Statements of Changes in Shareholders' Equity.................... 5
Condensed Consolidated Statements of Cash Flows ........................................ 6
Notes to Consolidated Financial Statements ............................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 18
Item 4. Controls and Procedures ................................................................ 18
Part II - Other Information
Item 1. Legal Proceedings....................................................................... 19
Item 2. Changes in Securities and Use of Proceeds............................................... 19
Item 3. Defaults Upon Senior Securities......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders..................................... 19
Item 5. Other Information....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
SIGNATURES ........................................................................................... 20
CERTIFICATIONS : CEO ................................................................................. 21
CFO ............................................................................... 22
EXHIBIT A: CEO Certification ......................................................................... 23
CFO Certification ......................................................................... 24
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2.
COMMERCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
September 30, December 31,
2002 2001
--------- ---------
($ in thousands)
ASSETS
Cash and due from banks $ 7,208 $ 7,640
Federal funds sold 3,480 --
--------- ---------
Cash and cash equivalents 10,688 7,640
Securities available for sale 36,171 29,788
Total loans 200,914 198,937
Allowance for loan losses (2,004) (1,743)
--------- ---------
Loans, net 198,910 197,194
Premises and equipment, net 6,071 6,354
Accrued interest receivable 1,271 1,260
Other assets 2,841 3,834
--------- ---------
Total assets $ 255,952 $ 246,070
========= =========
LIABILITIES
Deposits
Noninterest-bearing demand $ 19,166 $ 19,016
Interest-bearing demand 63,613 57,417
Savings and time deposits less than $100,000 96,992 110,319
Time deposits $100,000 and greater 33,114 18,469
--------- ---------
Total deposits 212,885 205,221
FHLB advances 20,800 19,300
Other borrowed funds -- 940
Accrued interest payable 297 446
Other liabilities 1,211 944
--------- ---------
Total liabilities 235,193 226,851
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, no par value; 4,000,000 shares authorized,
1,164,233 and 1,155,294 shares issued in 2002 and 2001 10,669 10,446
Retained earnings 9,870 9,178
Deferred compensation plan shares, at cost,
10,282 and 8,286 shares in 2002 and 2001 (268) (205)
Accumulated other comprehensive income 488 (200)
--------- ---------
Total shareholders' equity 20,759 19,219
--------- ---------
Total liabilities and shareholders' equity $ 255,952 $ 246,070
========= =========
See notes to the consolidated financial statements.
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3.
COMMERCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
INTEREST INCOME
Interest and fees on loans $ 3,823 $ 4,382 $ 11,340 $ 13,513
Interest on securities:
Taxable 143 214 478 748
Nontaxable 212 187 560 548
Other interest income 7 3 10 10
-------- -------- -------- --------
Total interest income 4,185 4,786 12,388 14,819
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits 1,259 2,110 4,265 7,103
Interest on borrowings 192 273 560 799
-------- -------- -------- --------
Total interest expense 1,451 2,383 4,825 7,902
-------- -------- -------- --------
NET INTEREST INCOME 2,734 2,403 7,563 6,917
Provision for loan losses 405 230 905 830
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,329 2,173 6,658 6,087
-------- -------- -------- --------
OTHER INCOME
Service fees and overdraft charges 567 350 1,260 955
Gains on sale of securities, net 215 104 272 168
Gains/(losses) on sale of loans, net (33) 263 291 778
Gains/(losses) on sale of other assets (24) -- 21 (24)
Other income 123 86 309 275
-------- -------- -------- --------
Total other income 848 803 2,153 2,152
-------- -------- -------- --------
OTHER EXPENSE
Salaries and employee benefits 1,147 1,024 3,348 3,179
Occupancy, furniture and equipment 238 277 728 848
State taxes 88 87 272 257
Data processing 171 164 500 472
FDIC deposit insurance 17 19 53 62
Professional fees 80 95 238 211
Amortization of intangibles 84 77 262 224
Other operating expense 550 518 1,626 1,518
-------- -------- -------- --------
Total other expense 2,375 2,261 7,026 6,747
-------- -------- -------- --------
Income before federal income taxes 802 715 1,785 1,492
Income tax expense 206 190 433 344
-------- -------- -------- --------
Net income $ 596 $ 525 $ 1,352 $ 1,148
======== ======== ======== ========
Basic earnings per common share $ .52 $ .50 $ 1.17 $ 1.09
======== ======== ======== ========
Diluted earnings per common share $ .51 $ .50 $ 1.16 $ 1.09
======== ======== ======== ========
See notes to the consolidated financial statements.
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4.
COMMERCIAL BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
- -----------------------------------------------------------------------------
(Amounts in thousands, except per share data)
Three Months Ended
September 30,
------------------------
2002 2001
-------- --------
Balance at beginning of period $ 19,702 $ 18,982
Comprehensive income:
Net income 596 525
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification and tax effects 538 240
-------- --------
Total comprehensive income 1,134 765
Shares issued 145 --
Dividends paid ($.19 and $.19 per share in 2002 and 2001) (222) (200)
-------- --------
Balance at end of period $ 20,759 $ 19,547
======== ========
Nine Months Ended
September 30,
-----------------------
2002 2001
-------- --------
Balance at beginning of period $ 19,219 $ 18,589
Comprehensive income:
Net income 1,352 1,148
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification and tax effects 688 409
-------- --------
Total comprehensive income 2,040 1,557
Shares issued 161 --
Dividends paid ($.57 and $.53 per share in 2002 and 2001) (661) (599)
-------- --------
Balance at end of period $ 20,759 $ 19,547
======== ========
See notes to the consolidated financial statements.
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5.
COMMERCIAL BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -------------------------------------------------------------------------------
Nine Months Ended
September 30,
-----------------------
2002 2001
-------- --------
($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,352 $ 1,148
Adjustments 13,622 6,738
-------- --------
Net cash from operating activities 14,974 7,886
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (24,241) (13,656)
Maturities and repayments 2,438 3,313
Sales 16,653 14,362
Net change in loans (14,652) 7,368
Proceeds from sale of foreclosed/repossessed assets 251 --
Sale of land owned by the Bank 52 --
Bank premises and equipment expenditures (152) (346)
-------- --------
Net cash from investing activities (19,651) 11,041
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 7,665 (18,647)
Net change in borrowings from FHLB 1,500 (200)
Net change in federal funds purchased (940) 750
Net change in corporate line of credit -- (500)
Common shares issued 161 --
Cash dividends paid (661) (599)
-------- --------
Net cash from financing activities 7,725 (19,196)
-------- --------
Net change in cash and cash equivalents 3,048 (269)
Cash and cash equivalents at beginning of period 7,640 6,592
-------- --------
Cash and cash equivalents at end of period $ 10,688 $ 6,323
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 4,974 $ 8,037
Cash paid for income taxes 400 175
Non-cash transfer of loans to foreclosed/repossessed assets 606 201
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
6.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Commercial Bancshares, Inc. (the "Corporation") and its
wholly-owned subsidiary, The Commercial Savings Bank (the "Bank"). Also included
is the Bank's wholly-owned subsidiary Advantage Finance, Inc. ("Advantage"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated financial position of the
Corporation at September 30, 2002, and results of operations and cash flows for
the periods presented. The accompanying consolidated financial statements do not
purport to contain all the necessary financial disclosures required by
accounting principles generally accepted in the United States of America that
might otherwise be necessary in the circumstances. The Annual Report for the
Corporation for the year ended December 31, 2001, contains consolidated
financial statements and related notes, which should be read in conjunction with
the accompanying consolidated financial statements.
USE OF ESTIMATES: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The collectibility of
loans, fair values of financial instruments, and status of contingencies are
particularly subject to change.
INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred income tax assets and liabilities. The
provision is based upon the expected effective tax rate for the full year.
BUSINESS SEGMENTS: While the Corporation's chief decision-makers monitor the
revenue streams of various products and services, operations are managed and
financial performance is evaluated on a company-wide basis. Accordingly, all of
the Corporation's operations are considered by management to be aggregated in
one reportable segment.
NEW ACCOUNTING PRONOUNCEMENTS: New accounting guidance requires all business
combinations to be recorded using the purchase method of accounting for any
transaction initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost over fair value of net assets acquired is recorded as goodwill.
Identifiable intangible assets must be separated from goodwill. Identifiable
intangible assets with finite useful lives will be amortized under the new
standard, whereas goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized starting in 2002. Annual impairment
testing is required for goodwill, with impairment being recorded if the carrying
amount of goodwill exceeds its implied fair value. Adoption of this standard on
January 1, 2002 did not have a material effect on the Corporation's financial
statements.
A new accounting standard dealing with asset retirement obligations will apply
for 2003. The Corporation does not believe this standard will have a material
effect on its financial position or results of operations.
Effective January 1, 2002, the Corporation adopted a new standard issued by the
Financial Accounting Standards Board on impairment and disposal of long-lived
assets. The effect of this on the financial position and results of operations
of the Corporation is not material.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections".
This Statement eliminates inconsistency between the required accounting for
certain lease modifications that have economic effects similar to sale-leaseback
transactions and sale-leaseback transactions. The Corporation does not believe
this statement will have a material effect on its financial position or results
of operations.
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7.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses the timing of
recognition of a liability for exit and disposal cost at the time a liability is
incurred, rather than at a plan commitment date, as previously required. Exit or
disposal costs will be measured at fair value, and the recorded liability will
be subsequently adjusted for changes in estimated cash flows. This Statement is
required to be effective for exit or disposal activities entered after December
31, 2002, and early adoption is encouraged. The Corporation does not believe
this statement will have a material effect on its financial position or results
of operations.
SFAS No. 147, "Acquisitions of Certain Financial Institutions" became effective
October 1, 2002. This standard requires any unidentifiable intangible asset
previously recorded as the result of a business combination to be reclassified
as goodwill and the amortization of this asset will cease. The effect of this
standard on the financial position and results of operations of the Corporation
was not material.
- --------------------------------------------------------------------------------
8.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
FINANCIAL STATEMENT PRESENTATION: Some items in prior financial statements have
been reclassified to conform to the current presentation.
STOCK DIVIDEND: During December 2001, a 10% stock dividend was distributed to
the then current shareholders. All prior per share amounts have been restated.
NOTE 2 - EARNINGS PER SHARE
Weighted average shares (adjusted for the stock dividend) used in determining
basic and diluted earnings per share are as follows:
2002 2001
---- ----
Basic weighted average shares outstanding 1,155,839 1,155,294
Dilutive effect of exercisable stock options 3,117 5,508
--------- ---------
Weighted average shares considering dilutive effect 1,158,956 1,160,802
========= =========
At September 30, 2002 and 2001 there were 53,971 and 79,334 stock options that
were not considered in computing diluted earnings per share because they were
anti-dilutive. The relatively large reduction in anti-dilutive shares comes
about since a former executive officer exercised his options on leaving,
converting those that were "in the money" and forfeiting the remainder.
NOTE 3 - LOANS
Loans were as follows:
September 30, 2002 December 31, 2001
----------------- -----------------
($ in thousands)
Commercial and other loans $107,497 $ 89,471
Real estate loans 24,186 38,423
Construction loans 734 1,694
Home equity loans 9,965 8,354
Consumer and credit card loans 48,983 58,341
Consumer finance loans 9,549 2,654
-------- --------
Total loans $200,914 $198,937
======== ========
The subsidiary Bank is an authorized seller/servicer for the Federal Home Loan
Mortgage Corporation (FHLMC). At September 30, 2002 and December 31, 2001, loans
sold to FHLMC for which the Bank has retained servicing totaled $98,506,000 and
$95,269,000, and real estate loans originated and held for sale totaled $226,000
and $3,329,000.
Activity in the allowance for loan losses for the three months ended September
30 was as follows:
2002 2001
---- ----
($ in thousands)
Beginning balance $ 1,865 $ 2,060
Provision for loan loss 405 230
Loans charged off (300) (191)
Recoveries of loans previously charged-off 34 21
------- -------
Ending balance $ 2,004 $ 2,120
======= =======
Activity in the allowance for loan losses for the nine months ended September 30
was as follows:
2002 2001
---- ----
($ in thousands)
Beginning balance $ 1,743 $ 2,089
Provision for loan loss 905 830
Loans charged off (761) (1,111)
Recoveries of loans previously charged-off 117 312
------- -------
Ending balance $ 2,004 $ 2,120
======= =======
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9.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Impaired loans were as follows:
SEPTEMBER 30, 2002 DECEMBER 31,2001
----------------- ----------------
($ in thousands)
Period-end loans with no allocated allowance $ 780 $ 665
Period-end loans with allocated allowance 148 337
------ ------
Total $ 928 $1,002
====== ======
Amount of allowance for loan loss allocated $ 148 $ 158
SEPTEMBER 30, 2002 DECEMBER 31,2001
----------------- ----------------
($ in thousands)
Nonperforming loans were as follows:
Loans past due over 90 days still on accrual $ 67 $ 977
Nonaccrual loans 1,248 1,247
The impaired and nonperforming loans have been considered in management's
evaluation of the adequacy of the allowance for loan losses. Nonperforming loans
includes substantially all impaired loans and smaller balance homogenous loans,
such as residential mortgage and consumer loans, that are collectively evaluated
for impairment.
NOTE 4 - OTHER COMPREHENSIVE INCOME
Other comprehensive income for the three months ended September 30 was as
follows:
2002 2001
---- ----
($ in thousands)
Unrealized holding gains (losses) on securities available for sale $ 1,029 467
Less: Reclassification adjustment for losses (gains) recognized in income (214) (104)
---------- ----------
Net unrealized holding gains (losses) 815 363
Tax effect 277 123
--------- ---------
Other comprehensive income $ 538 $ 240
========= =========
Other comprehensive income for the nine months ended September 30 was as
follows:
2002 2001
---- ----
($ in thousands)
Unrealized holding gains (losses) on securities available for sale $ 1,314 $ 787
Less: Reclassification adjustment for losses (gains) recognized in income (272) (168)
---------- ----------
Net unrealized holding gains (losses) 1,042 619
Tax effect 354 210
--------- ---------
Other comprehensive income $ 688 $ 409
========= =========
- --------------------------------------------------------------------------------
10.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion focuses on the consolidated financial condition of
Commercial Bancshares, Inc. at September 30, 2002, compared to December 31,
2001, and the consolidated results of operations for the quarterly and
year-to-date periods ending September 30, 2002 compared to the same periods in
2001. The purpose of this discussion is to provide the reader with a more
thorough understanding of the consolidated financial statements and related
footnotes.
The registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the
Corporation is not aware of any current recommendations by regulatory
authorities that would have such effect if implemented.
The Corporation is designated as a financial holding company by the Federal
Reserve Bank of Cleveland. This status enables the Corporation to take advantage
of changes in existing law made by the Financial Modernization Act of 1999. As a
result of being a financial holding company, the Corporation may be able to
engage in an expanded listing of activities determined to be financial in
nature. This will help the Corporation remain competitive in the future with
other financial service providers in the markets in which the Corporation does
business. There are more stringent capital requirements associated with being a
financial holding company. The Corporation intends to maintain its
categorization as a "well capitalized" bank, as defined by regulatory capital
requirements.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts are
forward-looking statements that are subject to certain risks and uncertainties.
When used herein, the terms "anticipates," "plans," "expects," "believes" and
similar expressions as they relate to the Corporation or its management are
intended to identify such forward-looking statements. The Corporation's actual
results, performance or achievements may materially differ from those expressed
or implied in the forward-looking statements. Risks and uncertainties that could
cause or contribute to such material differences include, but are not limited
to, general economic conditions, interest rate environment, competitive
conditions in the financial services industry, changes in law, government
policies and regulations, and rapidly changing technology affecting financial
services.
FINANCIAL CONDITION
Total assets increased by $9,882,000 from $246,070,000 at December 31, 2001 to
$255,952,000 at September 30, 2002. The increase in total assets was driven by
increases in deposits, of which $6,383,000 was invested in securities, loans
grew $1,716,000, and overnight Federal Funds Sold at quarter end stood at
$3,480,000, up from nothing at year end. Other assets decreased $993,000 since
year end as securities committed to be purchased at year end were delivered and
added to the securities portfolio.
Total gross loans increased $1,977,000 during the first nine months of 2002
compared to a decline of $13,837,000 during the same period a year ago. The
allowance for loan loss increased $261,000 to $2,004,000 from $1,743,000 at year
end, leaving net loans up $1,716,000. This quarter end marks the first real
increase in loans since the end of 2000. The strategic decision to end the
Bank's indirect consumer loan relationship with the Denver-based horse-trailer
broker in 2001, plus the decision to sell the majority of real estate loan
originations during the current year had been steadily shrinking our loan
footings. During the previous quarter, the Bank entered into an agreement with
Countrywide, Incorporated, a national mortgage loan origination firm wherein the
Bank became a sales associate for Countrywide and is paid commissions for real
estate loans originated in the local markets it serves. These loans are funded
by and belong to Countrywide. The Bank will continue to issue non-conforming and
adjustable-rate real estate and construction loans in order to serve the needs
of the community and generate long-term income to the Corporation, as well as
maintain our association with the FHLMC. Real estate loans have shrunk
$14,237,000 this year due to sales of existing loans and payoffs or refinancing,
to the current $24,186,000 level, down from $38,423,000 at year end 2001.
Construction loans have shrunk to $734,000 at quarter end from $1,694,000 at
year end 2001.
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11.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
While there were $3,329,000 of real estate loans held for sale at year-end 2001,
there are only $226,000 held for sale at the end of September 2002 due to the
arrangement with Countrywide. The portfolio of one to four family real estate
loans is likely to continue shrinking with time, and this will have an impact on
the risk makeup of the Bank's loan portfolio.
Consumer and credit card loans have declined $9,358,000 to $48,983,000 from
$58,341,000 at year end 2001. Repayments of loans for the Denver-based indirect
dealer loans caused a decline of $7,566,000 during 2002. New originations were
delayed while the new accounting and operations systems were installed, and the
paydowns on existing loans continued unabated.
Consumer loans generated by Advantage increased $6,895,000 to $9,549,000 at
September 30, 2002 from $2,654,000 at December 31, 2001. These loans are
originated through relationships with various vendors whose customers are
predominantly outside the Bank's traditional market area. Local indirect
consumer loans have been transferred to the control of Advantage Finance to take
advantage of an improved accounting and approval system implemented for that
purpose. Customers that qualify for standard Bank rates and terms can still be
funded, and those that don't are still serviced at our standard finance company
terms. Those loans earn a higher rate of interest than the Bank's standard
portfolio of loans, but carry a higher credit risk as well. The new system
allows the Bank to monitor the bank-qualified loans separate from the
finance-company loans. Management reviews all loans very closely for changes in
payment activity.
Commercial loans have grown $18,026,000 since year-end 2001 and home equity
loans have grown $1,611,000 over the first nine months of 2002. It should be
noted that the majority of these loans are tied to the prime rate, which has now
been at its historic low point for nearly a year. This continues to put pressure
on our net interest margin.
Total deposits increased $7,664,000 during the first nine months of 2002
compared to a decrease of $18,648,000 during the same period last year. This
reverses the trend that was prevalent through the second quarter of 2002, during
which time a large block of high-interest rate time deposits matured and rolled
over into lower-rate funds, or left the Bank. During the third quarter deposits
grew $25,319,000, and at $212,885,000 are $7,664,000 higher than the
$205,221,000 on hand at year end. $10,000,000 of this increase comes from public
funds as the Bank's standard board rates have been very competitive in the local
markets, and another $11,000,000 was raised in the national markets, for terms
ranging from two to five years. With just a few additional accounts trickling
off that had been originated two to two and a half years ago at abnormally high
rates, the overall profitability of the Bank has been improved as the current
cost of funds has now shrunk to 2.57% for the current quarter, versus 4.43%
reported during the same quarter last year.
Borrowed funds have increased $560,000 since year end. Federal Home Loan Bank
short-term advances have grown $1,500,000 while federal funds borrowed from
other banks have decreased by $940,000. Current overnight rates are running less
than 2%. The Federal Reserve Bank has maintained low discount rates and federal
funds target rates.
Total shareholders' equity increased $1,540,000 during the first nine months of
2002 compared to an increase of $958,000 a year ago. Common stock issued, which
includes the shares held in trust for certain directors' deferred compensation
plans of the Corporation, increased $161,000 since December 31, 2001. There were
no shares to be bought in the open market, so the Corporation issued new shares
to cover the fourth quarter 2001 contribution to the deferred compensation plan.
In addition, a former executive officer exercised his options to purchase shares
at an incentive-based price, and forfeited the options remaining that were not
executable at a favorable price. Nine month net income of $1,352,000 in 2002 was
higher than last year's $1,148,000 due to higher net interest income. The
dividend payout was $62,000 higher than the previous nine month period last
year, reflecting the increased number of shares issued in December 2001 as a 10%
stock dividend, and the maintenance of the $.19 per share dividend rate.
Shareholders' equity to total assets was 8.11% at September 30, 2002 compared to
7.81% at December 31, 2001, an increase of 4%.
- --------------------------------------------------------------------------------
12.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 2002 was $596,000 compared
to $525,000 during the same period in 2001. Earnings for the nine-month period
ending September 30, 2002 were $1,352,000 compared to $1,148,000 in 2001.
Diluted earnings per share increased to $.51 from $.50 for the quarters ended
September 30, and to $1.16 from $1.09 for the nine-month periods in the
respective years. Discussed below are the major factors that have influenced
these operating results.
The following table provides an analysis of the average balances, yields and
rates on interest-earning assets and interest-bearing liabilities.
Three Months Ended September 30,
-------------------------------------------------------------------
2002 2001
-------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/rate Balance Interest Yield/rate
------- -------- ---------- ------- -------- ----------
($ in thousands)
Securities (1) $ 35,047 $ 461 5.51% $ 30,963 $ 484 6.20%
Loans (2) 194,271 3,822 7.79 202,354 4,382 8.59
---------- ------- --------- -------
Total interest-earning assets 229,318 4,283 7.48 233,317 4,866 8.27
Other assets 17,696 17,733
---------- ---------
Total assets $ 247,014 $ 251,050
========== =========
Deposits - interest bearing $ 182,008 1,259 2.74% $ 187,234 2,110 4.47%
Borrowed funds 23,417 192 3.26 26,227 273 4.13
---------- ------- --------- -------
Total interest-bearing deposits
and borrowings $ 205,425 1,451 2.80 $ 213,461 2,383 4.43
Noninterest-bearing demand deposits 18,504 16,724
Other liabilities 2,740 1,472
Shareholders' equity 20,345 19,393
---------- ---------
Total liabilities and
shareholders' equity $ 247,014 $ 251,050
========== =========
Net interest income $ 2,832 $ 2,483
======== =========
Interest rate spread 4.68% 3.84%
Net interest margin (3) 4.90% 4.22%
- --------------------------------------------------------------------------------
(1) Securities include federal funds sold for purposes of this yield table.
Average yields on all securities have been computed based on amortized
cost. Income on tax exempt securities has been computed on a fully-taxable
equivalent basis using a 34% tax rate and the average cost of funds to
support the purchases. The adjustment is $98,000 and $80,000 for 2002 and
2001.
(2) Average balance is net of deferred loan fees and loan discounts. Interest
income includes loan fees of $166,000 and $179,000 and deferred dealer
reserve expense of $111,000 and $139,000 in 2002 and 2001.
(3) Net interest income as a percentage of average interest-earning assets.
- --------------------------------------------------------------------------------
13.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Net interest income, the primary source of earnings, is the amount by which
interest and fees on loans and investments exceed the interest cost of deposits
and borrowings obtained to fund them. The volume and composition of
interest-earning assets and interest-bearing liabilities, as well as the level
of noninterest-bearing demand deposits and shareholders' equity, affect net
interest income. Also impacting net interest income is the susceptibility of
interest-earning assets and interest-bearing liabilities to changes in the
general market level of interest rates. Management attempts to manage the
repricing of assets and liabilities so as to achieve a stable level of net
interest income and reduce the effect of significant changes in the market level
of interest rates. This is accomplished through the pricing and promotion of
various loan and deposit products as well as the active management of the Bank's
portfolio of securities available for sale and borrowed funds.
Fully-taxable equivalent interest income for the three month period ending
September 30, 2002 was $4,283,000 compared to $4,866,000 during the same period
in 2001, a decrease of $583,000. This decrease was principally due to interest
and fees on loans being $560,000 less in 2002 than in 2001, while interest on
securities declined $23,000. The level of average loans decreased $8,083,000, to
$194,271,000 in 2002 from $202,354,000 in 2001, while security balances rose
$4,084,000 to $35,047,000 in 2002 from $30,963,000 in 2001. A generally
declining interest rate environment during all of 2001, and a flat environment
throughout all of 2002 has contributed to decreased yields on loans and
securities. The tax-equivalent yield on interest-earning assets decreased to
7.48% during the third quarter of 2002 from 8.27% during the same period in
2001.
Fully-taxable equivalent interest income for the nine months of 2002 was
$12,643,000 compared to $15,048,000 during the same period in 2001, a decrease
of $2,405,000. This decrease was principally due to interest and fees on loans
being $2,173,000 less in 2002 than in 2001, while interest on securities
declined $231,000. The level of average loans decreased $12,026,000, to
$194,535,000 in 2002 from $206,300,000 in 2001, while security balances fell
$262,000 to $32,259,000 in 2002 from $32,521,000 in 2001. The tax-equivalent
yield on interest-earning assets decreased to 7.45% during the first six months
of 2002 from 8.42% during the same period in 2001.
Interest expense decreased $932,000 to $1,451,000 during the second quarter of
2002 from $2,383,000 during the same period in 2001. The decrease was
principally due to the cost of deposits being $851,000 less in 2002 than in
2001. The quarterly average balance of interest bearing deposits decreased by
$5,226,000, to $182,008,000 in 2002 from $187,234,000 in 2001. The runoff of
high-rate time deposits has greatly reduced the Corporation's interest expense.
At September 30, 2002 the runoff has been substantially completed, and
management does not expect continued significant reductions in deposit costs.
The cost of interest-bearing funds declined to 2.80% during the third quarter in
2002 from 4.43% during the same period in 2001. The Bank decreased its use of
Federal Home Loan Bank advances as the decrease in average earning assets was
less than the decrease in average deposits.
Interest expense decreased $3,077,000 to $4,825,000 during the nine months ended
September 30, 2002 from $7,902,000 during that period in 2001. The decrease was
principally due to the cost of deposits being $2,838,000 less in 2002 than in
2001. The average balance of interest bearing deposits decreased by $14,473,000,
to $181,180,000 in the first nine months of 2002 from $195,653,000 in 2001. The
cost of borrowed funds declined to 3.31% during the nine months of 2002 from
4.83% during the same period in 2001.
- --------------------------------------------------------------------------------
14.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following table provides an analysis of the average balances, yields and
rates on interest-earning assets and interest-bearing liabilities.
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
2002 2001
-------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/rate Balance Interest Yield/rate
------- -------- ---------- ------- -------- ----------
($ in thousands)
Securities (1) $ 32,259 $ 1,304 5.40% $ 32,521 $ 1,535 6.31%
Loans (2) 194,535 11,340 7.79 206,300 13,513 8.76
---------- ------- --------- -------
Total interest-earning assets 226,795 12,643 7.45 238,821 15,048 8.42
Other assets 17,324 17,291
---------- ---------
Total assets $ 244,119 $ 256,112
========== ========
Deposits - interest bearing $ 181,180 4,265 3.15% $ 195,653 7,103 4.85%
Borrowed funds 22,772 560 3.31 23,146 799 4.61
---------- ------- --------- -------
Total interest-bearing deposits
and borrowings $ 203,952 4,825 3.16 $ 218,799 7,902 4.83
Noninterest-bearing demand deposits 18,415 16,548
Other liabilities 1,930 1,530
Shareholder's equity 19,822 19,235
---------- ---------
Total liabilities and
shareholders' equity $ 244,119 $ 256,112
========== ========
Net interest income $ 7,818 $ 7,146
======== =======
Interest rate spread 4.29% 3.59%
Net interest margin (3) 4.46% 4.00%
- --------------------------------------------------------------------------------
(1) Securities include federal funds sold for purposes of this yield table.
Average yields on all securities have been computed based on amortized
cost. Income on tax exempt securities has been computed on a fully-taxable
equivalent basis using a 34% tax rate and the average cost of funds to
support the purchases. The adjustment is $255,000 and $229,000 for 2002 and
2001.
(2) Average balance is net of deferred loan fees and loan discounts. Interest
income includes loan fees of $528,000 and $483,000 and deferred dealer
reserve expense of $356,000 and $452,000 in 2002 and 2001.
(3) Net interest income as a percentage of average interest-earning assets.
- --------------------------------------------------------------------------------
15.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The provision for loan losses increased $175,000 to $405,000 for the third
quarter 2002 compared to $230,000 during 2001. The provision was $75,000 higher
for the nine months ended September 30, 2002 at $905,000 compared to $830,000
for the same period in 2001. Net charge-offs were $96,000 higher in the third
quarter of 2002 than in 2001, but $155,000 lower than the nine-month period in
the prior year. The higher provision reflects both the larger quarterly net
charge-offs in 2002, as well as the growth in commercial loan balances and a
more conservative methodology used to calculate the required amounts on consumer
and credit card loans. Non-performing and impaired loan balances have held
steady during the current year with some improvement in the total impaired
balances due to charge-offs of $189,000. Impaired loans are down to $928,000
from $1,002,000 at year end.
Management determines the adequacy of the allowance for loan losses through its
analysis of specific problem loans and historical charge-off experience in
addition to its evaluation of local and national economic conditions. The Bank
believes that the current allowance balance is sufficient to cover probable
identified losses in the loan portfolio.
Total noninterest income was $848,000 for the third quarter of 2002 compared to
$803,000 for the same period in 2001, an increase of $45,000. The third quarter
increase is due primarily to $217,000 more in service fees and overdraft charges
on deposit accounts, an additional $100,000 increase in gains from securities
sales, and a $37,000 increase in other income, $28,000 of which is due to the
commissions on sales to Countrywide Mortgages. These gains were partially offset
by a reduction in gains from the sales of loans of $296,000, and a loss on the
sale of repossessed assets during the quarter of $23,000. As we generate more
new mortgage loans for Countrywide, there will be fewer and fewer loans that we
originate for sale through the FHLMC, reducing the opportunity for activity in
gains from the sale of loans. Future activity in this category of performance
will reflect the fees generated by the Countrywide loan origination program as
well as the new overdraft protection system that allows pre-approved consumers
the privilege to temporarily overdraft their accounts and still have their
checks accepted and processed up to a certain dollar limit, currently set at
$300, and still avoid the return check charges levied by the vendors to whom the
checks were presented. While this program will increase the Bank's income, the
net effect should be a reduction in total fees paid by the consumer.
Total noninterest income was $2,153,000 for the nine months of 2002 compared to
$2,152,000 in the prior year, an increase of $1,000. The small increase in
nine-month income was primarily due to $305,000 increase in service fees and
overdraft charges under the new overdraft program, a $50,000 increase in ATM fee
income, $104,000 in increases on gains on the sales of securities, a $45,000 net
increase in gains from the sale of repossessed assets reflecting a small gain
this year versus a small loss last year, and a $34,000 increase in other income.
These gains were offset by the $487,000 lower income from the gain on sale of
loans to FHLMC.
- --------------------------------------------------------------------------------
16.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Total noninterest expense increased $113,000 to $2,374,000 in the third quarter
2002 compared to $2,261,000 in the same period during 2001. An increase of
$123,000 in salaries and employee benefits accounts for the entire variance,
with minor fluctuations both up and down in the other expense categories. While
salaries have grown by $70,000 for the three month period, hospitalization
insurance grew by $52,000, reflecting higher premiums being assessed due to
increased historical usage. The salary increases reflect the hiring of a new
executive officer which was not effective fully in the prior year, and normal
merit increases. The amortization of the mortgage servicing rights shows a
$7,000 increase, and the other operating expenses grew by $32,000, which
includes $6,000 for ATM operating expenses, $6,000 for postage, and $9,000 for
credit bureau fees, reflecting the higher level of loan applications.
Nine-month non-interest expenses rose $278,000 to $7,025,000 in 2002 compared to
$6,747,000 during the same period in 2001. Salary and employee benefits
accounted for $169,000 of the variance, with hospitalization accounting for
$165,000 of that total. While current year numbers reflect staffing of the new
offices opened in 2001 for the full current year, year-to-date salaries rose
only $36,000 or 1.35% compared to the 2001 numbers which did not reflect full
staffing for those offices. Data processing expenses for the full nine month
period rose $27,000 as the expanded number of branches of the Bank and offices
of Advantage Finance were in operation for the full nine months in 2002,
professional fees rose $27,000, marketing and advertising expenses rose $70,000,
postage rose $20,000, and the cost of the expanded number of ATMs rose $34,000.
Much of these increases were offset by a $120,000 reduction in occupancy
expense, as older computer equipment and furnishings led to lower depreciation
expenses.
- --------------------------------------------------------------------------------
17.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities, which are
summarized in the Condensed Consolidated Statements of Cash Flows. Cash and cash
equivalents amounted to $10,688,000 at September 30, 2002 compared to $7,640,000
at December 31, 2001.
Liquidity refers to management's ability to generate sufficient cash to fund
current loan demand, meet deposit withdrawals, pay operating expenses and meet
other financial obligations. The principal sources of funds for the Bank are
deposits, loan repayments and maturities, sale of mortgage loans in the
secondary market, FHLB borrowings, sale of securities, and funds generated
through operations. Management believes that its sources of liquidity are
adequate to meet the needs of the Corporation.
Banking regulations have established minimum capital requirements for banks
including risk-based capital ratios and leverage ratios. Regulations require all
banks to have a minimum total risk-based capital ratio of 8%, with half of the
capital composed of core capital. Minimum leverage ratio requirements range from
3% to 5% of total assets. Core capital, or Tier 1 capital, includes common
equity, perpetual preferred stock and minority interests that are held by others
in consolidated subsidiaries minus intangible assets. Supplementary capital, or
Tier 2 capital, includes core capital and such items as mandatory convertible
securities, subordinated debt and the allowance for loan losses, subject to
certain limitations. Qualified Tier 2 capital can equal up to 100% of an
institution's Tier 1 capital with certain limitations in meeting the total
risk-based capital requirements.
At September 30, 2002, the Bank's leverage ratio was 8.13% and the risk-based
capital ratio was 11.20%, both of which exceeded the minimum regulatory
requirements to be considered well-capitalized. Likewise, the Corporation's
leverage and risk-based capital ratios, 8.25% and 11.34% at September 30, 2002,
exceeded well-capitalized levels.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The only significant market risk to which the Corporation is exposed is interest
rate risk. The business of the Corporation and the composition of its balance
sheet consists of investments in interest-earning assets (primarily loans and
securities), which are funded by interest-bearing liabilities (deposits and
borrowings). These financial instruments have varying levels of sensitivity to
changes in the market rates of interest, resulting in market risk.
Interest rate risk is managed regularly through the Corporation's
Asset/Liability Management Committee (ALCO). The two primary methods to monitor
and manage interest rate risk are rate-sensitivity gap analysis and review of
the effects of various interest rate shock scenarios. Based upon ALCO's review,
there has been no significant change in the interest rate risk of the
Corporation since year-end 2001. (See Quantitative and Qualitative Disclosures
about Market Risk contained in the Annual Report to Shareholders for the year
ended December 31, 2001.)
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Principal Financial and Accounting
Officer have concluded, based on their evaluation within 90 days of the filing
date of this report, that the Company's disclosure controls and procedures are
effective for the timely recording, processing, summarizing and reporting of the
information required to be disclosed in reports filed under the Securities and
Exchange Act of 1934.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
- --------------------------------------------------------------------------------
18.
COMMERCIAL BANCSHARES, INC.
FORM 10-Q
Quarter ended September 30, 2002
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities and Use of Proceeds:
There are no matters required to be reported under this item.
Item 3 - Defaults upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders: There
are no matters required to be reported under this item.
Item 5 - Other Information:
On September 1, 2002, Raymond E. Graves, president and C.E.O.
of Commercial Bancshares, Inc. (The "Company") and of the
Commercial Savings Bank (the "Bank"), its wholly-owned
subsidiary, suffered a heart attack. Mr. Graves is currently
convalescing at his home and is expected to make a full
recovery. However, he is expected to be unable to perform his
duties with the Company and Bank until released by his
physician.
Mr. Philip W. Kinley, Senior Executive Vice President of the
Company, has assumed the role of acting President and C.E.O. of
the Company and Bank, being formally appointed as acting C.E.O of
the Bank and Company by the Company's Board of Directors at its
normal meeting held on September 11, 2002.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibit 11, Statement re computation of per share earnings
(reference is hereby made to Note 2 to the Consolidated
Financial Statements on page 7 hereof)
(b) Report on Form 8-K has been filed on October 4, 2002
regarding the medical condition of Mr. Graves and the
appointment of Mr. Kinley as acting C.E.O. of the Bank and
Company.
- --------------------------------------------------------------------------------
19.
COMMERCIAL BANCSHARES, INC.
SIGNATURES
- -------------------------------------------------------------------------------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMERCIAL BANCSHARES, INC.
---------------------------------------------
(Registrant)
Date: November 13, 2002 /s/ Philip W. Kinley
--------------------- ---------------------------------------------
(Signature)
Philip W. Kinley
Acting President and Chief Executive Officer
Date: November 13, 2002 /s/ John C. Haller
--------------------- ---------------------------------------------
(Signature)
John C. Haller
Vice President and Chief Financial Officer
20
COMMERCIAL BANCSHARES, INC.
CERTIFICATION
I, Philip W. Kinley, Acting President and Chief Executive Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Commercial
Bancshares, Incorporated ;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
------------------------
/s/ Philip W. Kinley
- --------------------------
[Signature]
Philip W. Kinley
Acting President and Chief Executive Officer
21
COMMERCIAL BANCSHARES, INC.
CERTIFICATION
I, John C. Haller, Vice President and Chief Financial Officer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Commercial
Bancshares, Incorporated ;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
-------------------------
/s/ John C. Haller
- --------------------------
[Signature]
John C. Haller
Vice President and Chief Financial Officer
22