Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended MARCH 31, 2005. Commission File Number 000-27894
COMMERCIAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
OHIO 34-1787239
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
118 S. SANDUSKY AVENUE, UPPER SANDUSKY, OHIO 43351
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (419) 294-5781
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
As of May 11, 2005, the last practicable date, there were 1,170,778 outstanding
of the registrant's common shares, no par value.
COMMERCIAL BANCSHARES, INC.
INDEX
Page
----
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......................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 20
Item 4. Controls and Procedures................................................................. 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 21
Item 2. Unregistered Sales of Securities and Use of Proceeds.................................... 21
Item 3. Defaults Upon Senior Securities......................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders..................................... 21
Item 5. Other Information....................................................................... 21
Item 6. Exhibits................................................................................ 21
SIGNATURES........................................................................................... 23
EXHIBIT A: CEO 302 Certification................................................................... 24
CFO 302 Certification................................................................... 25
CEO 906 Certification................................................................... 26
CFO 906 Certification................................................................... 27
2.
COMMERCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
March 31, December 31,
2005 2004
---------- ------------
ASSETS
Cash $ 6,161 $ 8,984
Federal funds sold -- 1,270
---------- ----------
Cash and cash equivalents 6,161 10,254
Securities available for sale 60,655 59,883
Total loans 212,592 214,193
Allowance for loan losses (2,525) (2,503)
---------- ----------
Loans, net 210,067 211,690
Premises and equipment, net 6,265 6,321
Accrued interest receivable 1,489 1,036
Other assets 7,155 7,466
---------- ----------
Total assets $ 291,792 $ 296,650
========== ==========
LIABILITIES
Deposits
Noninterest-bearing demand $ 21,517 $ 26,882
Interest-bearing demand 71,674 72,599
Savings and time deposits 109,370 107,416
Time deposits $100,000 and greater 44,881 42,277
---------- ----------
Total deposits 247,442 249,174
FHLB advances 20,600 24,600
Other borrowed funds 1,600 --
Accrued interest payable 343 303
Other liabilities 483 787
---------- ----------
Total liabilities 270,468 274,864
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, no par value; 4,000,000 shares authorized,
1,178,938 and 1,178,938 shares issued in 2005 and 2004 11,131 11,095
Retained earnings 11,415 11,206
Deferred compensation plan shares, at cost,
16,028 and 14,671 shares in 2005 and 2004 (396) (360)
Treasury stock, 8,160 shares in 2005, 6,156 shares in 2004 (219) (163)
Accumulated other comprehensive income (607) 8
---------- ----------
Total shareholders' equity 21,324 21,786
---------- ----------
Total liabilities and shareholders' equity $ 291,792 $ 296,650
========== ==========
See notes to the consolidated financial statements.
3.
COMMERCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
----------------------
2005 2004
-------- --------
INTEREST INCOME
Interest and fees on loans $ 3,548 $ 3,458
Interest on securities:
Taxable 450 247
Nontaxable 177 253
Other interest income 9 12
-------- --------
Total interest income 4,184 3,970
-------- --------
INTEREST EXPENSE
Interest on deposits 1,222 1,122
Interest on borrowings 198 132
-------- --------
Total interest expense 1,420 1,254
-------- --------
NET INTEREST INCOME 2,764 2,716
Provision for loan losses 220 300
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,544 2,416
-------- --------
NONINTEREST INCOME
Service fees and overdraft charges 444 452
Gains on sale of securities, net 25 27
Other income 182 87
-------- --------
Total noninterest income 651 566
-------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 1,326 1,160
Occupancy, furniture and equipment 309 269
State taxes 102 98
Data processing 197 213
FDIC deposit insurance 17 17
Professional fees 67 102
Amortization of intangibles 64 64
Loss on sale of repossessed assets 35 --
Other operating expense 531 543
-------- --------
Total noninterest expense 2,648 2,466
-------- --------
Income before income taxes 547 516
Income tax expense 116 93
-------- --------
Net income $ 431 $ 423
======== ========
Basic earnings per common share $ .37 $ .36
======== ========
Diluted earnings per common share $ .37 $ .36
======== ========
See notes to the consolidated financial statements.
4.
COMMERCIAL BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
---------------------------
2005 2004
---------- ----------
Balance at beginning of period $ 21,786 $ 21,155
Comprehensive income:
Net income 431 423
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification and tax effects (615) 312
---------- ----------
Total comprehensive income (184) 735
Shares issued, options exercised 0 shares in 2005,
10,777 shares in 2004 -- 250
Shares issued for deferred compensation plan 2,585 shares in 2004 -- 61
Treasury stock purchase, 3,028 shares in 2005, 2,889 shares in 2004 (77) (77)
Treasury stock reissued for deferred compensation plan,
1,024 shares in 2005, 5,079 shares in 2004 22 90
Dividends paid ($.19 and $.19 per share in 2005 and 2004) (223) (224)
---------- ----------
Balance at end of period $ 21,324 $ 21,990
========== ==========
See notes to the consolidated financial statements.
5.
COMMERCIAL BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------------
2005 2004
---------- ----------
($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 431 $ 423
Adjustments 329 (318)
---------- ----------
Net cash from operating activities 760 105
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (5,811) (8,902)
Maturities and repayments 2,604 5,525
Sales 1,484 627
Net change in loans 1,192 4,306
Proceeds from sale of foreclosed/repossessed assets 206 69
Bank premises and equipment expenditures (118) (62)
---------- ----------
Net cash from investing activities (443) 1,563
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (1,732) 1,296
Increase in FHLB advances 500 --
Decrease in FHLB advances (4,500) --
Net change in federal funds purchased 1,600 --
Common shares issued for stock options -- 311
Treasury shares purchased (77) (77)
Treasury shares reissued for stock options 22 90
Cash dividends paid (223) (224)
---------- ----------
Net cash from financing activities (4,410) 1,396
---------- ----------
Net change in cash and cash equivalents (4,093) 3,064
Cash and cash equivalents at beginning of period 10,254 10,624
---------- ----------
Cash and cash equivalents at end of period $ 6,161 $ 13,688
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 1,381 $ 1,407
Cash paid for income taxes 90 185
Non-cash transfer of loans to foreclosed/repossessed assets 224 78
See notes to the consolidated financial statements.
6.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 subsidiaries, Commercial Financial and Insurance Agency, LTD
("Commercial Financial") and The Commercial Savings Bank (the "Bank") and the
Bank's wholly-owned subsidiary Advantage Finance, Inc. ("Advantage"). The Bank
also owns a 49% interest in Beck Title Agency, Ltd. which is accounted for using
the equity method of accounting. All significant inter-company balances 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 March 31, 2005, 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, 2004, 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.
Newly Issued But Not Yet Effective Accounting Standards: In December 2004, the
FASB re-issued SFAS No. 123 "Accounting for Stock-Based Compensation" which
becomes effective for the year ending December 31, 2006. This Statement
supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees" and its
related implementation guidance. Under Opinion No. 25, issuing stock options to
employees generally resulted in recognition of no compensation cost. This
Statement requires entities to recognize the cost of employee services received
in exchange for these stock options. The Corporation is evaluating the impact of
adopting SFAS No. 123.
Financial Statement Presentation: Certain items in prior financial statements
have been reclassified to conform to the current presentation of information.
7.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - EARNINGS PER SHARE
Weighted average shares used in determining basic and diluted earnings per share
are as follows:
2005 2004
--------- ---------
Weighted average shares outstanding during the period 1,172,117 1,172,441
Dilutive effect of exercisable stock options 2,605 3,181
--------- ---------
Weighted average shares considering dilutive effect 1,174,722 1,175,622
========= =========
At March 31, 2005 and 2004 there were 13,200 and 13,200 stock options that were
not considered in computing diluted earnings per share because they were
anti-dilutive.
NOTE 3 - LOANS
Loans were as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
($ in thousands)
Commercial and agriculture loans $ 142,086 $ 140,348
Residential real estate loans 10,272 10,572
Residential construction loans 459 387
Home equity loans 18,194 21,449
Consumer and credit card loans 19,593 18,331
Consumer finance loans 21,989 23,106
-------------- --------------
Total loans $ 212,592 $ 214,193
============== ==============
The subsidiary Bank is an authorized seller/servicer for the Federal Home Loan
Mortgage Corporation (FHLMC), but has curtailed such activity in favor of
originating new fixed-rate mortgages in conjunction with Countrywide,
Incorporated. Under this arrangement, the Bank no longer owns the originated
loans, but initiates the process through to closing, but final funding comes
directly from Countrywide, for which the Bank earns a fee. At March 31, 2005 and
December 31, 2004, loans sold to FHLMC for which the Bank has retained servicing
rights totaled $31,842,000 and $34,132,000, but real estate loans originated and
held for sale totaled zero in both periods.
Activity in the allowance for loan losses for the three months ended March 31
was as follows:
2005 2004
-------- --------
($ in thousands)
Beginning balance $ 2,503 $ 2,503
Provision for loan loss 220 300
Loans charged off (259) (353)
Recoveries of loans previously charged-off 61 13
-------- --------
Ending balance $ 2,525 $ 2,463
======== ========
Impaired loans were as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
($ in thousands)
Period-end loans with no allocated allowance $ 766 $ 603
Period-end loans with allocated allowance 642 680
---------- ----------
Total $ 1,408 $ 1,283
========== ==========
Amount of allowance for loan loss allocated $ 58 $ 85
8.
COMMERCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonperforming loans were as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
($ in thousands)
Loans past due over 90 days still on accrual $ 2 $ 80
Nonaccrual loans 1,408 1,283
The impaired and nonperforming loans have been considered in management's
evaluation of the adequacy of the allowance for loan losses. Nonperforming loans
include substantially all impaired loans and smaller balance homogenous loans,
such as residential mortgage and consumer loans, that are collectively evaluated
for impairment. All consumer loans included have already been partially charged
down to their estimated collateral recovery value, thereby negating a need for
specific impaired allowances.
NOTE 4 - OTHER COMPREHENSIVE INCOME
Other comprehensive income for the three months ended March 31 was as follows:
2005 2004
------ ------
($ in thousands)
Unrealized holding gains (losses) on securities available for sale $ (907) $ 500
Less: Reclassification adjustment for losses (gains) recognized in income (25) (27)
------ ------
Net unrealized holding gains (losses) (932) 473
Tax effect 317 (161)
------ ------
Other comprehensive income $ (615) $ 312
====== ======
NOTE 5 - STOCK COMPENSATION: Employee compensation expense under stock option
plans is reported using the intrinsic value method. No stock-based compensation
cost is reflected in net income, as all options granted had an exercise plan
equal to or greater than the market price of the underlying common stock at date
of grant. The following table illustrates the effect on net income and earnings
per share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation (in thousands
except per share data).
Earnings for the three months ended March 31 was as follows:
2005 2004
-------- --------
Income as reported $ 431 $ 423
Deduct: Stock-based compensation expense
determined under fair value based method 1 5
-------- --------
Pro forma net income 430 418
Pro forma earnings per share
Basic $ .37 $ .36
Diluted .37 .36
Earnings per share as reported
Basic $ .37 $ .36
Diluted .37 .36
9.
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 March 31, 2005, compared to December 31, 2004,
and the consolidated results of operations for the quarterly period ending March
31, 2005 compared to the same period in 2004. 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.
This quarterly discussion includes three tables detailing the dollar and percent
changes in ending and average balances for the analysis of the "Financial
Condition" section as well as the quarterly changes in income and expense items
for the "Results of Operations" section. The tables are provided to allow the
reader to reference all changes in balances and net income in a centralized
fashion, and then concentrate on the discussion of why the values changed rather
than get caught up in the details of each dollar change. The reader should be
able to get a clearer picture of the Corporation's overall performance when
coupled with the existing yield analysis tables.
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.
CRITICAL ACCOUNTING POLICIES
The financial institution industry is highly regulated. The nature of the
industry is such that, other than described below, the use of estimates and
management judgment are not likely to present a material risk to the financial
statements. In cases where estimates or management judgment are required,
internal controls and processes are established to provide assurance that such
estimates and management
10.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
judgments are materially correct to the best of management's knowledge. The most
significant accounting policies followed by the Corporation are presented in
Note 1 to the consolidated financial statements. These policies provide
information on how those values are determined. Management views critical
accounting policies to be those which are highly dependent on subjective or
complex judgments, estimates and assumption, and where changes in those
estimates and assumptions could have a significant impact on the financial
statements. Management views the determination of the allowance for loan losses
to be a critical accounting policy.
Allowance for loan losses - Accounting for loan classifications, accrual status,
and determination of the allowance for loan losses is based on regulatory
guidance. This guidance includes, but is not limited to, generally accepted
accounting principles, guidance issued by the Securities and Exchange
Commission, the uniform retail credit classification and account management
policy issued by the Federal Financial Institutions Examination Council, and the
joint policy statement on the allowance for loan losses methodologies, issued by
the Federal Financial Institutions Examination Council, Federal Deposit
Insurance Corporation, and various other regulatory agencies. Accordingly, the
allowance for loan losses includes a reserve calculation based on an evaluation
of loans determined to be impaired, risk ratings, historical losses, loans past
due, general and local economic conditions, trends, portfolio concentrations,
collateral value and other subjective factors.
FINANCIAL CONDITION
Total assets decreased by $4,858,000 in the three month period ended March 31,
2005 compared to a smaller $2,019,000 increase the year before from the previous
year end. This represents a 1.6% decrease versus a .7% increase for the prior
year. The traditional paydown of loan balances for agricultural borrowers,
commercial accounts, and short-term match-funded loans after year end was
ameliorated this year as some commercial hotel loans have drawn upon approved
construction funds and reduced the net loss of footings. When the
cash-collateralized loan of $4,500,000 was paid off in the prior year, those
funds were retained and reemployed to buy securities and bolster cash balances.
The current year saw that same pattern occur in terms of reducing the matched
loan balance, but as the loans were repaid, the funds were used to pay down the
borrowed funds position by $4,000,000. The decision to curtail involvement with
the horse trailer dealer from Denver, and pay downs on agriculture loans prior
to the new planting season usually guarantee lower loan balances during the
first quarter. This year's falloff was about $3.0 million less than last year's
due to new draws on commercial real estate loans. At the same time, deposits
have shrunk since year end as well. This realignment of funds points toward a
resurgence in solid earning assets, capable of generating excellent interest
spreads rather than settling for the available overnight funds rates.
As mentioned in previous reports, the management team decided three years ago to
end our involvement with a dealer in horse trailers based in Denver. As that
decision has progressed, repayments on loans in that portfolio have driven the
balance down from more than $35 million at year end 2001, to just over $12.8
million as of March 31, 2005. In addition, the Bank has become an originator of
long-term, fixed-rate real estate loans for Countrywide, Incorporated. In doing
so, the Bank no longer has an inventory of loans originated and ready to be sold
on its books since the new loans are funded directly by Countrywide. In
addition, the partnership with Countrywide has allowed the Bank to package
non-conforming loans, which formerly were ineligible for sale, for sale or
refinancing, thus clearing them from the Bank's books. It is management's intent
that only adjustable rate mortgages be held in portfolio for investment purposes
by the Bank. Total residential real estate loan balances retained have shrunk
from more than $42 million at year end 2001, to just over $10.7 million as of
March 31, 2005.
11.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENDING BALANCES AS OF THE DATE SHOWN
------------------------------------------------------------------------------
(in thousands) 03/31/05 12/31/04 $ CHG % CHG 03/31/04 12/31/03 $ CHG % CHG
-------- -------- ------ ------ -------- -------- ------- ------
Cash & Fed funds 6,161 10,254 (4,093) (39.92) 13,688 10,624 3,064 28.84
Securities AFS 60,655 59,883 772 1.29 51,716 48,491 3,225 6.65
Gross loans 212,592 214,193 (1,601) (0.75) 201,561 206,274 (4,713) (2.28)
Allowance for loan losses (2,525) (2,503) (22) 0.88 (2,463) (2,503) 40 (1.60)
------- ------- ------ ------ ------- ------- ------ ------
Loans, net 210,067 211,690 (1,623) (0.77) 199,098 203,771 (4,673) (2.29)
Premises & Equipment 6,265 6,321 (56) (0.89) 6,292 6,380 (88) (1.38)
Accrued interest receivable 1,489 1,036 453 43.73 1,405 1,143 262 22.92
Other Assets 7,155 7,466 (311) (4.17) 2,660 2,431 229 9.42
------ ------ ------ ------ ------- ------ ------ ------
Total assets 291,792 296,650 (4,858) (1.64) 274,859 272,840 2,019 0.74
======= ======= ====== ====== ======= ======= ====== ======
Noninterest-bearing demand 21,517 26,882 (5,365) (19.96) 22,869 26,123 (3,254) (12.46)
Interest-bearing demand 71,674 72,599 (925) (1.27) 71,176 68,656 2,520 3.67
Savings and time deposits 109,370 107,416 1,954 1.82 105,242 103,413 1,829 1.77
Time deposits of $100k 44,881 42,277 2,604 6.16 40,785 40,559 226 0.56
------- ------- ------ ------ ------- ------- ------ ------
Total deposits 247,442 249,174 (1,732) (0.70) 240,072 238,751 1,321 0.55
FHLB advances 20,600 24,600 (4,000) (16.26) 11,500 11,500 0 0.00
Other borrowed funds 1,600 0 1,600 0.00 0 0 0 0.00
Accrued interest payable 343 303 40 13.20 262 415 (153) (36.87)
Other liabilities 483 787 (304) (38.63) 1,035 1,019 16 1.57
---- ------- ------ ------ ------- ------ ------ ------
Total liabilities 270,468 274,864 (4,396) (1.60) 252,869 251,685 1,184 0.47
Shareholders' equity 21,324 21,786 (462) (2.12) 21,990 21,155 835 3.95
------- ------- ------ ------ ------- ------- ------ ------
Total liabilities & equity 291,792 296,650 (4,858) (1.64) 274,859 272,840 2,019 0.74
======= ======= ====== ====== ======= ======== ====== ======
These two loan portfolio decisions were made in conjunction with a decision to
emphasize loan growth in commercial and agriculture loans at the Bank, as well
as consumer loans originated through Advantage Finance. Thus, loan growth in
those areas has more than offset the combined loss of more than $53 million in
balances in the horse trailer and real estate portfolios, with commercial and
agriculture loans. While this growth has been constant over these years, pay
offs of short-term commercial loans and a slow down in consumer credit since the
Christmas season led to a reduction in gross loan balances of more than $4.7
million as of March, 2004 since year end 2003. Despite that same $4.5 million
payoff in 2005, gross loan balances have only shrunk $1.6 million since year end
2004.
The reserve for loan losses has grown by $22,000 since year end as net charge
offs have been lower than the $220,000 added to the reserve through the
provision expense. This compares to a reduction of $40,000 in the reserve during
the first quarter last year. A total of $300,000 was added to the reserve during
the first quarter of 2004, which did not cover the $340,000 of net charge-offs
during that quarter. The reserve stands at 1.19% of gross loans at March 31,
2005. This compares to a reserve of 1.17% at year end, and a reserve of 1.22% at
the end of March, 2004.
The low-rate interest environment that held sway through all of 2003 and half of
2004 has gradually given way to a series of 25 point rate increases, now
numbering seven such increases since July of 2004 through March of 2005. Yields
on commercial loans and other loans tied to the prime rate are generally
expected to increase in total yield, but the change will come slowly as a
consequence of existing fixed rate loans and consumer loans originated by our
Advantage affiliate which may have little or no yield during any "same
12.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
as cash" period, if offered, will drag upon the increase. At the same time, the
rate increases have an immediate effect on all maturing certificates of deposit.
The market to retain customers' deposits is extremely competitive, forcing banks
continually check their own rates against the competition. The availability of
internet brokers as well as the practice of continually shopping around town for
the best rate deals makes balance maintenance job one. As can be seen in the
ending-balance table, the Bank has been able to maintain funds pretty well on
the interest-bearing accounts except for the demand accounts during the first
three months of this year which are down $925,000. Keeping in mind that $4.5
million of non-interest bearing demand accounts are lost early each year from
the matched-fund loan customer, the bank lost over a million dollars in footings
for deposits, and paid down the borrowings by $4.0 million. The average balance
exhibit shows that the average deposit balances in the first quarter of 2005 are
nearly $12 million higher than the same period in 2004, which represents the
permanent growth in that portfolio. So, if you factor out the $4.5 million from
the total deposit level of $249.2 million at year-end 2004, the current $247.4
million deposits compares favorably to $244.7 as the adjusted year end.
Non-earning assets in 2005 reflect lower balances for cash on hand as noted,
plus new property and equipment is being amortized, but higher balances for
accrued interest receivable as semi-annual paying securities rebuild their
receivable balances, accompanied by a reduction in company-owned life insurance
as one of the officers was deemed uninsurable, and $260,000 of the premium was
refunded. The changes in 2004 reflected similar increases in accrued interest
receivable, increases in prepaid expenses, and a small decrease in property and
equipment as newly acquired assets were depreciated. The only difference in
these accounts lies with the cash on hand, as the excess funds were retained
with the intent to reemploy them as securities purchases.
Total shareholders' equity reflects current earnings of $431,000 less dividends
of $223,000 during the first three months of 2005, and less the repurchase of
$77,000 of treasury shares in the open market. The change in unrealized fair
market value reduced this balance by over $615,000 of that balance. The
continued interest rate adjustments by the Fed have driven anticipated yields
higher and subsequently eroded the market value of our securities portfolio.
Changes in fair market value are only a concern should the Bank suffer from
liquidity problems and be forced to sell these securities off at a
fully-realized loss. As we have no intention or need to do such a thing,
management believes the underlying maturity value to be as expected when the
investments were made. During this same period in 2004, shareholders' equity
grew a total of $835,000 due to earnings of $423,000 less dividends of $224,000,
accompanied by the purchase of new shares both by executive officers under the
option plans in place, and by the directors' and executive officers' deferred
compensation plan trust when sufficient shares were unavailable for purchase in
the open market. At the same time, favorable market conditions left the fair
market value of our securities portfolio with a "paper profit" of some $312,000
more than it had at year end 2003. Lower total dividends are the result of the
purchase of treasury shares in the open market rather than a reduction in the
per share dividend.
Average balance changes for the three-month period tend to reflect the sustained
increases over a two year period. Thus, total average asset footings for the
first quarter of 2005 are $21,073,000 or 7.78% higher than the same quarter in
2004. The average loan balance during the first quarter this year versus last
year reflects more than $9,400,000 in additional footings, and the securities
portfolio has grown by more than $11,600,000, despite selling off $4,500,000
during the fourth quarter last year to buy the new issue of bank-owned life
insurance, as reflected in the other assets numbers. The loan increases, coming
despite the runoff of both the horse trailer and real estate portfolios, show
that the programs put in place by management are having a sustained impact on
the earning power of the Company. This loan growth has been sustained despite a
slight decrease in the reserve for loan losses, which has shrunk $13,000 as the
quality and mix of the loan portfolio has by all measures been handled well, and
anticipated losses are
13.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
adequately reserved. The reserve level and change reflect a better mix of
delinquencies, non-accruals and overall portfolio quality.
AVERAGE DAILY BALANCES FOR THE PERIODS SHOWN
THREE MONTHS ENDED MARCH 31
-----------------------------------------
(dollars in thousands) 2005 2004 $ CHG % CHG
-------- -------- ------- -------
Cash & Fed funds 8,008 12,580 (4,572) (36.34)
Securities AFS 60,560 48,957 11,603 23.70
Gross loans 210,972 201,550 9,422 4.67
Allowance for loan losses (2,537) (2,550) 13 (0.51)
------- ------- ------ ------
Loans, net 208,435 199,000 9,435 4.74
Premises & Equipment 6,320 6,342 (22) (0.35)
Accrued interest receivable 1,399 1,289 110 8.53
Other Assets 7,352 2,833 4,519 159.51
------- ------- ------ ------
Total assets 292,074 271,001 21,073 7.78
======= ======= ====== ======
Noninterest-bearing demand 22,318 21,892 426 1.95
Interest-bearing demand 71,715 71,141 574 0.81
Savings and time deposits 108,606 103,329 5,277 5.11
Time deposits of $100k 44,871 39,286 5,585 14.22
------- ------- ------ ------
Total deposits 247,510 235,648 11,862 5.03
FHLB advances 20,900 11,500 9,400 81.74
Other borrowed funds 432 0 432 --
Accrued interest payable 371 431 (60) (13.92)
Other liabilities 988 1,578 (590) (37.39)
------- ------- ------ ------
Total liabilities 270,201 249,157 21,044 8.45
Shareholders' equity 21,873 21,844 29 0.13
------- ------- ------ ------
Total liabilities & equity 292,074 271,001 21,073 7.78
======= ======= ====== ======
The average asset balance increase has been funded through a combination of
increased deposit balances and advances from the FHLB. While nearly $12,000,000
of the growth is funded by deposits, the majority of those funds are
interest-bearing funds. In order to be truly successful, banks today must grow
their deposit bases in the non-interest bearing fields as well, as full
relationship banking leads to customer loyalty. Superior service is the mark of
successful banks, and is the lynch-pin behind the Bank's current marketing
efforts, stressing a life-time commitment of good service and attention to the
needs of our customers. This superior service must make us the preferred
service-provider in order to compete with the other local regional, and
super-regional banks.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2005 was $431,000, or $8,000
more than during the same period in 2004. Diluted earnings per share increased
to $.37 from $.36 for the quarters ended March 31 in the respective years.
Discussed below are the major factors that have influenced these operating
results. The first table details the variance amounts and percentages for the
three-month period. The subsequent yield analysis table details the combination
of changing portfolio balance mixes and the earning power behind the rates
associated with those balances.
14.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS SHOWN
THREE MONTHS ENDED MARCH 31
----------------------------------
(dollars in thousands) 2005 2004 $ CHG % CHG
----- ------ ----- ------
Interest and fees on loans 3,548 3,458 90 2.60
Taxable interest on securities 450 247 203 82.19
Tax-free interest on securities 177 253 (76) (30.04)
Other interest income 9 13 (4) (30.77)
----- ------ ----- ------
Total interest income 4,184 3,971 213 5.36
Interest on deposits 1,222 1,122 100 8.91
Interest on borrowings 198 132 66 50.00
----- ------ ----- ------
Total interest expense 1,420 1,254 166 13.24
Net interest income 2,764 2,717 47 1.73
Provision for loan losses 220 300 (80) (26.67)
----- ------ ----- ------
Net interest after PLL 2,544 2,417 127 5.25
Service and overdraft fees 444 451 (7) (1.55)
Gains/(losses) on asset sales 25 27 (2) (7.40)
Other income 182 87 95 109.20
----- ------ ----- ------
Total other income 651 565 86 15.22
Salaries and employee benefits 1,326 1,160 166 14.31
Occupancy, furniture & equip 309 269 40 14.87
State taxes 102 98 4 4.08
Data processing 197 213 (16) (7.51)
FDIC deposit insurance 17 17 0 0.00
Professional fees 67 102 (35) (34.31)
Loss on the sale of repossessed assets 35 0 35 --
Amortization of intangibles 64 64 0 0.00
Other operating expense 531 543 (12) (2.21)
----- ------ ----- ------
Total other expense 2,648 2,466 182 7.38
Income before taxes 547 516 31 6.01
Income taxes 116 93 23 24.73
----- ------ ----- ------
Net income 431 423 8 1.89
===== ====== ===== ======
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 margin while growing the size of the overall portfolio of earning
assets and reduce the effect of significant changes in the market level of
interest rates.
15.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Interest income for the three month period ending March 31, 2005 was $213,000
more than the prior year's first quarter. On a fully-taxable equivalent basis,
the difference becomes an increase of only $177,000 because of the Bank's lower
concentration of tax-free securities. The prime rate has been raised 1.75% since
the first quarter of 2004. This is not reflected in the interest yields of 6.40%
on earning assets this year versus the first quarter yield of 6.49% last year.
As short- and long-term fixed rate assets will continue to hold the average
rates down for a while, the variable rate assets will have to grow to offset
that sluggishness. While much of the Bank's loan portfolio is tied to the prime
rate, the trigger dates for rate adjustments are often fixed for one, two or
three years from the anniversary of the loan's origination. This is what gives
rise to much of the delay in recognizing an immediate impact on the current
earning rate. The cost of deposits has shown an immediate impact of the rate
increases, growing a full 10 points to 2.34% from the 2.24% a year ago. This
rate differential is offset by the larger portfolio of earning assets, which
have grown by an average of more than $17,200,000. This interest cost has grown
$166,000, leaving us $11,000 ahead of last year's net interest margin on a
fully-taxable basis, and $47,000 on an unadjusted dollar amount.
The provision for loan losses, at $220,000, is $80,000 less than last year,
helping to provide the Bank with an increase of $127,000 in basic earnings.
Additions to the provision were used to cover the losses experienced in the
portfolio each year. As shown earlier in Note 3, net charge offs for the quarter
were $142,000 less than last year. Both years' numbers show a decrease in gross
loan balances during the first quarter from the previous year end due to the pay
downs of the cash-collateralized loans, the first quarter provisions have not
had to cover increased portfolio size. 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 increased $86,000 for the first quarter of 2005
compared to the same period in 2004. Items contributing to the increase included
$47,000 more income from the bank-owned life insurance and $61,000 more in fees
from originations through Countrywide, offset by minor decreases in overdraft
fees and fee income generated through the sale of insurance.
16.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides an analysis of the average balances, yields and
rates on interest-earning assets and interest-bearing liabilities.
Three Months Ended March 31,
------------------------------------------------------------------
2005 2004
------------------------------- --------------------------------
Average Average Average Average
balance Interest yield/rate balance Interest yield/rate
--------- -------- ---------- --------- -------- ----------
($ in thousands)
Securities (1) $ 62,094 $ 718 4.69% $ 54,321 $ 631 4.68%
Loans (2) 208,435 3,548 6.90 199,000 3,458 6.99
--------- -------- --------- --------
Total interest-earning assets 270,529 4,266 6.40 253,321 4,089 6.49
Other assets 21,545 17,680
--------- ---------
Total assets $ 292,074 $ 271,001
========= =========
Deposits - interest bearing $ 225,192 1,222 2.20% $ 213,756 1,122 2.11%
Borrowed funds 21,332 198 3.77 11,499 132 4.60
--------- -------- --------- --------
Total interest-bearing deposits $ 246,524 1,420 2.34 $ 225,255 1,254 2.24
and borrowings
Noninterest-bearing demand deposits 22,318 21,893
Other liabilities 1,359 2,009
Shareholder's equity 21,873 21,844
--------- ---------
Total liabilities and'
shareholders' equity $ 292,074 $ 271,001
========= =========
Net interest income $ 2,846 $ 2,835
======== ========
Interest rate spread 4.06% 4.25%
Net interest margin (3) 4.27% 4.50%
(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 $82,000 and $119,000 for 2005 and
2004.
(2) Average balance is net of deferred loan fees and loan discounts. Interest
income includes loan fees of $169,000 and $153,000 and deferred dealer
reserve expense of $55,000 and $62,000 in 2005 and 2004.
(3) Net interest income as a percentage of average interest-earning assets.
Total noninterest expense increased $182,000 in the three months of the first
quarter 2005 compared to the same period during 2004. Increases came primarily
through increased personnel expenses of $166,000 and an additional $40,000 for
depreciation of fixed assets and equipment. The personnel expenses represent the
adjustment for the new chief executive, whose appointment was not finalized
until mid-quarter 2004 with terms of his employment contract being finalized
during the second quarter, plus the hiring of additional staff both at the Bank
and Advantage to fill management level needs. These actions were taken to
realign the management staff for the future, including the designation of a new
chief of operations for the Bank, and a succession plan for Advantage. The
depreciation of the new equipment is simply part of the retooling of the
infrastructure necessary to have up-to-date equipment to handle the complexity
of the Bank's product lines. All other expenses remained in line with historic
precedents.
17.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The quarterly income before taxes for 2005 was $31,000 more than in 2004, due to
the net of all of the above changes. This performance, while still below
managements' goals, shows improvement in the basic earning power of the Bank
since there was a clear decrease in reliance upon asset sales to generate
income, and the Bank has absorbed a large amount of amortization of the non-cash
mortgage servicing rights as the Bank changes its approach to the very volatile
real estate origination market, reversing previous amounts added to income as
new activity generated anticipated future earnings. Once originations stopped,
only expenses were booked to erase those previous incomes recognized.
Taxes for the first quarter increased $23,000, reflecting both the increase in
earnings, and the loss of emphasis on tax-free income sources. The Bank has
divested itself of some of its tax-free securities and purchased both
mortgage-backed assets and bank-owned life insurance. The insurance returns will
be used to fund deferred compensation packages for the executive staff in order
to establish a program to retain key personnel. The proceeds from the insurance
program accumulate tax-free.
Change in net income after taxes is the result of netting all the changes in all
of the above categories. For the first quarter, that means income was up $8,000
from 2004. While this change is small, it is built on real earnings from
operations, not the sale of available assets. It also represents the
near-elimination of the non-cash amortization of mortgage servicing rights which
has cost the company more than a million dollars of reported earnings over the
last few years as we exit the mortgage-servicing market. Plans are in place to
build an internal operations center, which will allow the Bank to control its
basic operating expenses without relying on outsourced-providers, and eventually
generating income by providing those same services to other banks in our
geographic area. While basic internal operations should be up and running within
a year of ground-breaking, it could take up to five years or more to be
functioning fully as an out-sourcing provider to other banks.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has certain obligations and commitments to make future payments
under contracts. At March 31, 2005, the aggregate contractual obligations and
commitments are:
Contractual obligations
Payments Due by Period
Less Than 1-3 3-5 After
(in thousands) Total One Year Years Years 5 Years
----------- --------- --------- --------- ---------
Time deposits and certificates of deposit $ 134,039 $ 73,347 $ 53,154 $ 6,503 $ 1,035
Borrowed funds 22,200 5,700 5,000 11,500 -
----------- --------- --------- --------- ---------
Total $ 156,239 $ 79,047 $ 58,154 $ 18,003 $ 1,035
=========== ========= ========= ========= =========
Other commitments
Amount of Commitment - Expiration by Period
Less Than 1-3 3-5 After
(in thousands) Total One Year Years Years 5 Years
--------- --------- --------- --------- ---------
Commitments to extend commercial credit $ 22,685 $ 9,432 $ 12,508 $ 135 $ 610
Commitments to extend consumer credit 13,350 3,261 635 1,471 7,983
Standby letters of credit 3,090 1,090 2,000 - -
--------- --------- --------- --------- ---------
Total $ 39,125 $ 13,783 $ 15,143 $ 1,606 $ 8,593
========= ========= ========= ========= =========
18.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Items listed above under "Contractual obligations" represent standard bank
financing activity under normal terms and practices. Such funds normally
roll-over or are replaced by like items depending on then-current financing
needs. Items shown under "Other commitments" also represent standard bank
activity, but for extending credit to bank customers. Commercial credits
generally represent lines of credit or approved loans with drawable funds still
available under the contract terms. On an on-going basis, about half of these
amounts are expected to be drawn. Consumer credits generally represent amounts
drawable under revolving home equity lines or credit card programs. Such amounts
are usually deemed less likely to be drawn upon in total as consumers tend not
to draw down all amounts on such lines. Utilization rates tend to be fairly
constant over time. Standby letters of credit represent guarantees to finance
specific projects whose primary source of financing come from other sources. In
the unlikely event of the other source's failure to provide sufficient
financing, the bank would be called upon to fill the need. The bank is also
continually engaged in the process of approving new loans in a bidding
competition with other banks. Terms of possible new loans are approved by
management and Board committees, with caveats and possible counter terms made to
the applicant customers. Those customers may accept those terms, make a counter
proposal, or accept terms from a competitor. These loans are not yet under
contract, but offers have been tendered, and would be required to be funded if
accepted. Such agreements represent about $8,682,000 at year end, for various
possible maturity terms.
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 $6,161,000 at March 31, 2005 compared to $10,254,000 at
December 31, 2004.
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, 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.
Cash flows, as shown earlier in the statement of cash flows, resulted in a
decrease of more than $4 million dollars in Cash and Cash Equivalents since
December 31, 2004. That decrease was primarily due to paying back customer
deposits of $1,732,000 and FHLB advances of $4,000,000. All other activity
merely shifted funds from securities and loan payoffs to purchase more
securities. During the same period in 2004, increased deposits and funds brought
in by loan and securities payoffs had been used to purchase additional
securities.
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.
19.
COMMERCIAL BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At March 31, 2005, the Bank's leverage ratio was 7.44% and the risk-based
capital ratio was 10.45%, both of which exceeded the minimum regulatory
requirements to be considered well-capitalized. The Corporation's leverage and
risk-based capital ratios were 7.50% and 10.52% at March 31, 2005, exceeding
well-capitalized levels. While the Company's capital policy sets an 8% leverage
ratio as its intended goal, the directors have maintained the current dividend
level throughout the last few years of reduced earnings. Each quarterly dividend
currently represents a bit more than 1% of capital. Should it become necessary
to raise capital to expand the activities of the Corporation, there are
sufficient un-issued shares to effect a merger of equals, or solicit new
investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A 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 2004. (See Quantitative and Qualitative Disclosures
about Market Risk contained in the Annual Report to Shareholders for the year
ended December 31, 2004.)
ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
There was no change in the Company's internal control over financial reporting
that occurred during the Company's fiscal quarter ended March 31, 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
20.
COMMERCIAL BANCSHARES, INC.
FORM 10-Q
Quarter ended March 31, 2005
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Unregistered Sales of Securities and Use of Proceeds:
The following table reflects shares repurchased by the Corporation
during the first quarter, 2005. These shares were purchased as part of
a program approved by the Corporation's Board of Directors in June,
2002. The Corporation has no publicly announced stock repurchase plans
or programs.
AVERAGE TOTAL NUMBER OF SHARES
TOTAL PRICE PURCHASED AS MAXIMUM NUMBER
NUMBER PAID PART OF PUBLICLY OF SHARES THAT MAY
OF SHARES PER ANNOUNCED PLANS YET BE PURCHASED
PERIOD PURCHASED SHARE OR PROGRAMS UNDER THE PLAN
01/01/2005 to 1,288 26.66 0 62,496
01/31/2005
02/01/2005 to 0 N/A N/A 62,496
02/28/2005
03/01/2005 to 1,740 $26.77 0 60,756
03/31/2005
Total 3,028 $26.71 0 60,756
All shares were purchased in open-market transactions. The plan
provides for a maximum repurchase of 10% of the Corporation's common
stock outstanding as of the date of the plan's approval over a period
of five years. Shares not purchased of each year's 2% allocation are no
longer considered for purchase as each anniversary date is reached.
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:
There are no matters required to be reported under this item.
Item 6 - Exhibits:
Exhibit Number Description of Document
- -------------- -------------------------------------------------------------------------
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)
21.
COMMERCIAL BANCSHARES, INC.
FORM 10-Q
Quarter ended March 31, 2005
PART II - OTHER INFORMATION (continued)
4 Form of Certificate of Common Shares of the Corporation
(incorporated by reference to Registrant's Form 8-K dated April 27, 1995)
11 Statement re computation of per share earnings (reference is hereby made to
Note 2 to the Consolidated Financial Statements on page 7 hereof)
31.1 Certification by CEO Pursuant to Sarbanes Oxley Section 302
31.2 Certification by CFO Pursuant to Sarbanes Oxley Section 302
32.1 Certification by CEO Pursuant to Sarbanes Oxley Section 906
32.2 Certification by CFO Pursuant to Sarbanes Oxley Section 906
22.
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: 05/11/2005 /s/ Philip W. Kinley
----------------------------------------
(Signature)
Philip W. Kinley
President and Chief Executive Officer
Date: 05/11/2005 /s/ John C. Haller
----------------------------------------
(Signature)
John C. Haller
Senior Vice President and
Chief Financial Officer
23.