Attached files
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EX-32.1 - COMMERCIAL BANCSHARES INC \OH\ | v183729_ex32-1.htm |
EX-31.2 - COMMERCIAL BANCSHARES INC \OH\ | v183729_ex31-2.htm |
EX-32.2 - COMMERCIAL BANCSHARES INC \OH\ | v183729_ex32-2.htm |
EX-31.1 - COMMERCIAL BANCSHARES INC \OH\ | v183729_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
Quarterly Period ended March 31,
2010. 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 þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one).
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
Reporting Company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of May
6, 2010, the latest practicable date, there were 1,138,497 outstanding of the
registrant’s common stock, no par value.
COMMERCIAL
BANCSHARES, INC.
INDEX
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements (unaudited)
|
|
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
|
12
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
19
|
Item
4.
|
Controls
and Procedures
|
19
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
20
|
Item
2.
|
Unregistered
Sales of Securities and Use of Proceeds
|
20
|
Item
3.
|
Defaults
Upon Senior Securities
|
20
|
Item
4.
|
Other
Information
|
20
|
Item
5.
|
Exhibits
|
21
|
SIGNATURES
|
22
|
|
EXHIBIT:
|
13a-14(a)
302 Certification
|
23
|
13a-14(a)
906 Certification
|
25
|
2.
COMMERCIAL
BANCSHARES, INC.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(Amounts
in thousands)
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 5,741 | $ | 4,844 | ||||
Federal
funds sold
|
17,675 | 7,402 | ||||||
Cash
equivalents and federal funds sold
|
23,416 | 12,246 | ||||||
Securities
available for sale
|
37,395 | 36,733 | ||||||
Total
loans
|
219,297 | 228,008 | ||||||
Allowance
for loan losses
|
(2,681 | ) | (2,744 | ) | ||||
Loans,
net
|
216,616 | 225,264 | ||||||
Premises
and equipment, net
|
7,888 | 7,983 | ||||||
Accrued
interest receivable
|
1,412 | 1,147 | ||||||
Other
assets
|
10,606 | 10,907 | ||||||
Total
assets
|
$ | 297,333 | $ | 294,280 | ||||
LIABILITIES
|
||||||||
Deposits
|
||||||||
Noninterest
bearing demand
|
$ | 27,008 | $ | 31,385 | ||||
Interest
bearing demand
|
99,382 | 94,364 | ||||||
Savings
and time deposits
|
101,658 | 101,660 | ||||||
Time
deposits $100,000 and greater
|
39,197 | 37,300 | ||||||
Total
deposits
|
267,245 | 264,709 | ||||||
FHLB
advances
|
5,000 | 5,000 | ||||||
Accrued
interest payable
|
231 | 239 | ||||||
Other
liabilities
|
1,921 | 1,637 | ||||||
Total
liabilities
|
274,397 | 271,585 | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Common
stock, no par value; 4,000,000 shares authorized, 1,181,038 shares issued
in 2010 and 2009
|
11,292 | 11,266 | ||||||
Retained
earnings
|
12,681 | 12,278 | ||||||
Unearned
compensation
|
(26 | ) | (26 | ) | ||||
Deferred
compensation plan shares, at cost; 24,804 shares in 2010, and 22,702
shares in 2009
|
(517 | ) | (494 | ) | ||||
Treasury
stock; 42,541 shares in 2010 and 2009
|
(1,163 | ) | (1,163 | ) | ||||
Accumulated
other comprehensive income
|
669 | 834 | ||||||
Total
shareholders' equity
|
22,936 | 22,695 | ||||||
Total
liabilities and shareholders' equity
|
$ | 297,333 | $ | 294,280 |
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,
|
||||||||
2010
|
2009
|
|||||||
Interest income
|
||||||||
Interest
and fees on loans
|
$ | 3,571 | $ | 3,371 | ||||
Interest
on securities:
|
||||||||
Taxable
|
158 | 199 | ||||||
Nontaxable
|
180 | 193 | ||||||
Federal
funds sold
|
6 | 6 | ||||||
Total
interest income
|
3,915 | 3,769 | ||||||
Interest expense
|
||||||||
Interest
on deposits
|
928 | 1,384 | ||||||
Interest
on borrowings
|
41 | 41 | ||||||
Total
interest expense
|
969 | 1,425 | ||||||
Net
interest income
|
2,946 | 2,344 | ||||||
Provision
for loan losses
|
245 | 284 | ||||||
Net
interest income after provision for loan losses
|
2,701 | 2,060 | ||||||
Noninterest
income
|
||||||||
Service
fees and overdraft charges
|
419 | 421 | ||||||
Gains
(losses) on repossessed asset sales, net
|
(135 | ) | 2 | |||||
Other
income
|
146 | 143 | ||||||
Total
noninterest income
|
430 | 566 | ||||||
Noninterest
expense
|
||||||||
Salaries
and employee benefits
|
1,301 | 1,273 | ||||||
Premises
and equipment
|
342 | 402 | ||||||
OREO
and miscellaneous loan expense
|
44 | 25 | ||||||
Professional
fees
|
118 | 96 | ||||||
Data
processing
|
63 | 62 | ||||||
Software
maintenance
|
74 | 70 | ||||||
Advertising
and promotional
|
49 | 47 | ||||||
FDIC
deposit insurance
|
138 | 95 | ||||||
Franchise
tax
|
70 | 69 | ||||||
Other
operating expense
|
266 | 290 | ||||||
Total
noninterest expense
|
2,465 | 2,429 | ||||||
Income
before income taxes
|
666 | 197 | ||||||
Income
tax expense (credit)
|
149 | (14 | ) | |||||
Net
income
|
$ | 517 | $ | 211 | ||||
Basic
earnings per common share
|
$ | 0.45 | $ | 0.19 | ||||
Diluted
earnings per common share
|
$ | 0.45 | $ | 0.19 |
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,
|
||||||||
2010
|
2009
|
|||||||
Balance
at beginning of period
|
$ | 22,695 | $ | 21,305 | ||||
Comprehensive
income
|
||||||||
Net
income
|
517 | 211 | ||||||
Change
in net unrealized gain (loss) on securities available for sale, net of
reclassification and tax effects
|
(165 | ) | 504 | |||||
Total
comprehensive income
|
352 | 715 | ||||||
Stock-based
compensation
|
3 | — | ||||||
Dividends
paid ($0.10 and $0.19 per share in 2010 and 2009)
|
(114 | ) | (216 | ) | ||||
Balance
at end of period
|
$ | 22,936 | $ | 21,804 |
See notes
to the consolidated financial statements.
5.
COMMERCIAL
BANCSHARES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three
Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
($
in thousands)
|
||||||||
Cash flows from
operating activities
|
||||||||
Net
income
|
$ | 517 | $ | 211 | ||||
Adjustments
|
380 | (777 | ) | |||||
Net
cash from operating activities
|
897 | (566 | ) | |||||
Cash
flows from investing activities
|
||||||||
Purchases
of securities available for sale
|
(2,000 | ) | (1,335 | ) | ||||
Calls,
maturities and repayments on available for sale securities
|
1,038 | 2,355 | ||||||
Net
change in loans
|
8,531 | (341 | ) | |||||
Proceeds
from sale of OREO and repossessed assets
|
362 | 24 | ||||||
Additions
to premises and equipment
|
(80 | ) | (36 | ) | ||||
Net
cash from investing activities
|
7,851 | 667 | ||||||
Cash
flows from financing activities
|
||||||||
Net
change in deposits
|
2,536 | 9,142 | ||||||
Cash
dividends paid
|
(114 | ) | (216 | ) | ||||
Net
cash from financing activities
|
2,422 | 8,926 | ||||||
Net
change in cash, cash equivalents and federal funds sold
|
11,170 | 9,027 | ||||||
Cash,
cash equivalents and federal funds sold at beginning of
period
|
12,246 | 8,934 | ||||||
Cash,
cash equivalents and federal funds sold at end of period
|
$ | 23,416 | $ | 17,961 | ||||
Supplemental
disclosures
|
||||||||
Cash
paid for interest
|
$ | 978 | $ | 1,430 | ||||
Cash
paid for income taxes
|
0 | 100 | ||||||
Non-cash
transfer of loans to OREO and repossessed assets
|
210 | 1,149 |
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”). The Bank also owns a 49.9% interest in Beck Title
Agency, Ltd., which is accounted for by using the equity method of accounting.
All significant inter-company balances and transactions have been eliminated in
consolidation.
The
condensed consolidated financial statements have been prepared without
audit. In the opinion of management, all adjustments (which include
normal recurring adjustments) necessary to present fairly the Corporation’s
financial position at March 31, 2010, and the results of operations and changes
in cash flows for the periods presented have been made.
Certain
information and footnote disclosures typically included in financial statements
prepared in accordance with U.S. generally accepted principles have been
omitted. The Annual Report for the year ended December 31, 2009,
contains consolidated financial statements and related footnote disclosures,
which should be read in conjunction with the accompanying consolidated financial
statements. The results of operations for the period ended March 31,
2010 are not necessarily indicative of the operating results for the full year
or any future interim period.
NOTE
2 – EARNINGS PER SHARE
Weighted
average shares used in determining basic and diluted earnings per share for the
three months ended March 31:
2010
|
2009
|
|||||||
Weighted
average shares outstanding during the period
|
1,138,497 | 1,136,397 | ||||||
Dilutive
effect of exercisable stock options
|
0 | 0 | ||||||
Weighted
average shares considering dilutive effect
|
1,138,497 | 1,136,397 | ||||||
Anti-dilutive
stock options not considered in computing diluted earnings per
share
|
20,230 | 6,602 |
NOTE
3 – LOANS
Loans
(in
thousands):
|
March 31, 2010
|
December 31, 2009
|
||||||
Commercial
and agricultural loans
|
$ | 160,646 | $ | 168,611 | ||||
Residential
real estate loans
|
9,279 | 9,296 | ||||||
Construction
loans
|
3,001 | 2,529 | ||||||
Consumer
loans
|
23,248 | 23,721 | ||||||
Home
equity loans
|
22,375 | 22,685 | ||||||
Indirect
finance loans
|
748 | 1,166 | ||||||
Total
loans
|
$ | 219,297 | $ | 228,008 |
Total
loans included loans to farmers for agricultural purposes of approximately
$25,202,000 and $25,602,000 at March 31, 2010 and December 31, 2009,
respectively.
7.
COMMERCIAL
BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Activity
in the allowance for loan losses (in thousands) for the three
months ended March 31:
2010
|
2009
|
|||||||
Beginning
balance
|
$ | 2,744 | $ | 2,483 | ||||
Provision
for loan loss
|
245 | 284 | ||||||
Loans
charged-off
|
(322 | ) | (447 | ) | ||||
Recoveries
of loans previously charged-off
|
14 | 28 | ||||||
Ending
balance
|
$ | 2,681 | $ | 2,348 |
Impaired
loans (in
thousands):
March 31, 2010
|
December 31, 2009
|
|||||||
Period-end
loans with no allocated allowance
|
$ | 861 | $ | 943 | ||||
Period-end
loans with allocated allowance
|
587 | 785 | ||||||
Total
|
$ | 1,448 | $ | 1,728 | ||||
Amount
of allowance for loan loss allocated
|
$ | 91 | $ | 88 |
Nonperforming
loans (in
thousands):
March 31, 2010
|
December 31, 2009
|
|||||||
Loans
past due over 90 days still on accrual
|
$ | 0 | $ | 0 | ||||
Nonaccrual
loans
|
1,922 | 2,641 |
The
impaired and nonperforming loans have been considered in management’s evaluation
of the adequacy of the allowance for loan losses.
NOTE
4 – OTHER COMPREHENSIVE INCOME (LOSS)
Other
comprehensive income (loss) for the three months ended March 31:
2010
|
2009
|
|||||||
($ in
thousands)
|
||||||||
Unrealized
holding gains (losses) on securities available for sale
|
$ | (249 | ) | $ | 763 | |||
Less:
Reclassification adjustment for losses (gains) recognized in
income
|
— | — | ||||||
Net
unrealized holding gains (losses)
|
(249 | ) | 763 | |||||
Tax
effect
|
(84 | ) | 259 | |||||
Other
comprehensive income (loss)
|
$ | (165 | ) | $ | 504 |
8.
COMMERCIAL
BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS
The
following table presents information about the Corporation’s assets and
liabilities measured at fair value on a recurring basis as of March 31, 2010,
and the valuation techniques used by the Corporation to determine those fair
values.
In
general, fair values determined by Level 1 inputs use quoted prices in active
markets for identical assets or liabilities that the Corporation has the ability
to access.
Fair
values determined by Level 2 inputs use other inputs that are observable, either
directly or indirectly. These Level 2 inputs include quoted prices
for similar assets and liabilities in active markets, and other inputs such as
interest rates and yield curves that are observable at commonly quoted
intervals.
Level 3
inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related asset
or liability.
In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Corporation’s assessment of the significance of particular inputs
to these fair value measurements requires judgment and considers factors
specific to each asset or liability.
Disclosures
concerning assets and liabilities measured at fair value are as
follows:
Assets
and liabilities, (in
thousands) measured at fair value on a recurring basis for the periods
shown:
Quoted
Prices in
|
Significant
|
Significant
|
||||||||||||||
Active
Markets
|
Observable
|
Unobservable
|
||||||||||||||
For
Identical
|
Inputs
|
Inputs
|
||||||||||||||
March
31, 2010
|
Assets
(Level 1)
|
(Level
2)
|
(Level
3)
|
Balance
|
||||||||||||
Assets: Securities
available for Sale
|
$ | — | $ | 37,395 | $ | — | $ | 37,395 | ||||||||
Liabilities
|
$ | — | $ | — | $ | — | $ | — | ||||||||
December
31, 2009
|
||||||||||||||||
Assets: Securities
available for Sale
|
$ | — | $ | 36,733 | $ | — | $ | 36,733 | ||||||||
Liabilities
|
$ | — | $ | — | $ | — | $ | — |
Securities
characterized as having Level 2 inputs consist of obligations of U.S. government
and federal agencies, securities from government-sponsored organizations and
obligations of state and political subdivisions.
The
Corporation also has assets that, under certain conditions, are subject to
measurement at fair value on a non-recurring basis. Such assets
consist primarily of impaired loans and other real estate owned. The
Corporation has estimated the fair values of these assets using Level 3 inputs,
specifically, discounted cash flow projections.
Impaired
loans are loans for which, based on current information and events, it is
probable that the creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans are
subject to non-recurring fair value adjustments to reflect (1) partial write
downs that are based on the observable market price or current appraised value
of the collateral, or (2) the full charge-off of the loan carrying
value.
9.
COMMERCIAL
BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Impaired
loans valued using Level 3 inputs totaled $1,357,000 and $1,640,000 at March 31,
2010 and December 31, 2009, respectively. The Corporation estimates
the fair value of the loans based on the present value of expected future cash
flows using management’s best estimate of key assumptions. These
assumptions include future payment ability, timing of payment streams and
estimated realizable values of available collateral (typically based on outside
appraisals).
Other
real estate owned (“OREO”) acquired through or instead of loan foreclosure is
initially recorded at fair value less costs to sell when acquired, establishing
a new cost basis. Management considers third party appraisals as well
as independent fair market value assessments from realtors or persons involved
in selling OREO when determining the fair value of particular
properties. Accordingly, the valuations of OREO and repossessed
assets are subject to significant judgment. If fair value declines
subsequent to foreclosure, a valuation allowance is recorded through
expense. Operating costs incurred after acquisition are
expensed. OREO and other repossessed assets included in other assets
totaled $832,000 and $1,142,000 at March 31, 2010 and December 31, 2009,
respectively.
The
estimated fair values of financial instruments (in thousands):
March 31, 2010
|
December 31, 2009
|
|||||||||||||||
Carrying
|
Estimated
|
Carrying
|
Estimated
|
|||||||||||||
Financial
assets
|
Amount
|
Fair Value
|
Amount
|
Fair Value
|
||||||||||||
Cash
equivalents and federal funds sold
|
$ | 23,416 | $ | 23,416 | $ | 12,246 | $ | 12,246 | ||||||||
Investment
securities available for sale
|
37,395 | 37,395 | 36,733 | 36,733 | ||||||||||||
Loans,
net of allowance for loan losses
|
216,616 | 212,592 | 225,264 | 223,395 | ||||||||||||
Accrued
interest receivable
|
1,412 | 1,412 | 1,147 | 1,147 | ||||||||||||
Financial
liabilities
|
||||||||||||||||
Demand
and savings deposits
|
$ | (141,950 | ) | $ | (141,950 | ) | $ | (140,373 | ) | $ | (140,373 | ) | ||||
Time
deposits
|
(125,295 | ) | (124,338 | ) | (124,336 | ) | (124,390 | ) | ||||||||
FHLB
advances
|
(5,000 | ) | (5,094 | ) | (5,000 | ) | (5,000 | ) | ||||||||
Accrued
interest payable
|
(231 | ) | (231 | ) | (239 | ) | (239 | ) |
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate the
value:
|
·
|
Cash equivalents and federal
funds sold – The carrying amount is a reasonable estimate of fair
value.
|
|
·
|
Investment securities –
Fair value is based on quoted market prices in active markets for
identical assets or similar assets in active
markets.
|
|
·
|
Loans – Fair value is
estimated by discounting the future cash flows using the current rate at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining
maturities.
|
|
·
|
Accrued interest receivable
– The fair value approximates the carrying
value.
|
|
·
|
Demand and savings
deposits – Fair value is the amount payable on demand at the
reporting date.
|
|
·
|
Time deposits – Fair
value is estimated using the rates currently offered for deposits of
similar remaining maturities.
|
|
·
|
FHLB advances – Fair
value is estimated by discounting the future cash flows using the current
rate at which similar borrowings with similar remaining maturities could
be made.
|
|
·
|
Accrued interest payable
– The fair value approximates the carrying
value.
|
10.
COMMERCIAL
BANCSHARES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – STOCK OPTIONS
The
Corporation has two stock option plans, the 1997 Stock Option Plan and the 2009
Incentive Stock Option Plan. No additional grants may be made under
the 1997 Stock Option Plan. The 2009 Plan, which is shareholder
approved, permits the grant of stock options, restricted stock and certain other
stock-based awards for up to 150,000 shares. At March 31, 2010, a
total of 129,800 shares remained available for issuance. All stock
options have an exercise price that is equal to the closing market value of the
Corporation’s stock on the date the options are granted. The
Corporation measures compensation cost at the grant date based on the fair value
of the award. The fair value of each option award is estimated on the
date of grant using an option valuation model that uses assumptions for the
following: dividend yield, expected volatility, risk-free interest
rate, annual forfeiture rate, expected life of options and weighted average
grant-date fair value.
On August
12, 2009, a total of 18,100 stock options with an exercise price of $12.30 were
granted to executive officers and certain key employees. The weighted
average fair value of options granted was $2.08 per share. These
options will vest over three years and have a ten year maximum
term. At March 31, 2010, unrecognized compensation related to stock
options was $30,000. This cost is expected to be recognized as
compensation expense over a remaining period of approximately 2.5
years.
On August
12, 2009, a total of 2,100 restricted stock awards were granted to executive
officers with a grant date fair value of $12.30. Restricted stock
awards are recorded as deferred compensation, a component of shareholders’
equity, at fair value at the date of the grant and amortized to compensation
expense over the vesting period. At March 31, 2010, the unrecognized
compensation cost for restricted awards was $20,000 which will be recognized as
compensation expense over a remaining period of approximately 2.5
years.
11.
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 review presents management’s discussion and analysis of the
consolidated financial condition of Commercial Bancshares, Inc. and its wholly
owned subsidiaries, Commercial Savings Bank and Commercial Financial Insurance
Agency, LTD at March 31, 2010, compared to December 31, 2009, and the
consolidated results of operations for the quarter ended March 31, 2010 compared
to the same period in 2009. The purpose of this discussion is to provide the
reader with a more thorough understanding of the consolidated financial
statements and related footnotes.
Despite
the downturn in the economy, the Corporation produced healthy financial results
for the first quarter of 2010. Net earnings, after taxes, increased
145.02% to $517,000 at March 31, 2010 from $211,000 at March 31,
2009. The increase in earnings was primarily due to an increase
in net interest income resulting from a lower rate environment and Corporation’s
actively managed deposit and loan pricing strategies. Provisions made
to the loan loss reserve totaled $245,000 in 2010 compared to $284,000 in
2009. The Corporation’s return on average equity and return on
average assets for the first quarter of 2010 was 9.11% and 0.72%, respectively,
compared to 3.91% and 0.32% in 2009. The increase in net interest
income also had a favorable impact on the Corporation’s efficiency ratio along
with management’s continued emphasis on operating leverage and expense
control. The Corporation’s efficiency ratio, on a fully taxable
equivalent basis, was 71.12% for the three months ended March 31, 2010 compared
to 81.00% for the three months ended March 31, 2009. Basic and
diluted earnings per common share in the first quarter of 2010 were $0.45,
compared to $0.19 in the first quarter of 2009.
The
Corporation is designated as a financial holding company by the Federal Reserve
Bank of Cleveland. This status can help the Corporation 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 array 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.
Management
believes there have been no changes with respect to its determinations regarding
the Corporation’s critical accounting policies as disclosed in the Corporation’s
annual report on Form 10-K for the fiscal year ended December 31,
2009.
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.
12.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL
CONDITION
Total
assets increased $3,053,000 or 1.04% from $294,280,000 at December 31, 2009 to
$297,333,000 at March 31, 2010. Interest earning bank balances, which
include the Bank’s deposits at the Federal Reserve Bank, and federal funds sold,
increased $10,273,000, primarily attributable to excess cash generated by a
decrease in net loans of $8,648,000 and an increase of $2,536,000 in deposit
balances.
Available
for sale securities are reported at their aggregate fair value and unrealized
gains and losses are included as a component of other comprehensive income, net
of deferred taxes. Investment securities available for sale increased
1.80% from $36,733,000 at year end to $37,395,000 at March 31, 2010, primarily
due to purchases of U.S. government-sponsored agencies of $2,000,000 offset by
calls, maturities and principal repayments of mortgage-backed and municipal
securities along with an adjustment for the decline in market
value.
Gross
loans at March 31, 2010 totaled $219,297,000, down $8,711,000 or 3.82% from
$228,008,000 at December 31, 2009, primarily due to a decrease of $7,965,000 in
commercial and agriculture loans. Approximately $4,000,000 is due to
the pay off of a short-term, cash-collateralized loan at the beginning of the
year, reducing current balances, like amounts, in both commercial loans and
noninterest bearing demand deposits.
The
Corporation’s loan portfolio represents its largest and highest yielding
assets. It also contains the most risk of loss. This risk
is due mainly to changes in borrowers’ primary repayment capacity, general
economic conditions and to collateral values that are subject to change over
time. These risks are managed with specific underwriting guidelines,
loan review procedures, third party reviews and continued personnel
training. Executive management continues to monitor the current
downturn in the real estate market as well as the overall economy and has
implemented the following measures to proactively manage credit risk in the loan
portfolios:
|
1)
|
Reviewed
all underwriting guidelines for various loan portfolios and have
strengthened underwriting guidelines for 1-4 family investment properties
and home equity loans to address identified
risks.
|
|
2)
|
Evaluated
outside loan review parameters, engaging the services of a
well-established firm to continue with such loan review, addressing not
only specific loans but underwriting analysis, documentation, credit
evaluation and risk identification.
|
|
3)
|
Increased
the frequency of internal reviews of past due and delinquent loans to
assess probable credit risks early in the delinquency process to minimize
losses.
|
|
4)
|
Aggressively
seeking ownership and control, when appropriate, of real estate properties
which would otherwise go through time–consuming and costly foreclosure
proceedings to effectively control the disposition of such
collateral.
|
Although
executive management continues to aggressively engage in other loss mitigation
techniques such as tightening underwriting standards and lowering LTV ratios on
in-house real estate lending, a prolonged economic slowdown would place
significant pressure on consumers and businesses in the Corporation’s local
markets.
The
allowance for loan losses totaled $2,681,000 at March 31, 2010 compared to
$2,744,000 at December 31, 2009. The ratio of the allowance to total
loans was 1.22% at March 31, 2010 compared to 1.20% at year end
2009. The Corporation provided $245,000 to the allowance for loan
losses during 2010 to maintain the balance at an adequate level following net
charge-offs of $308,000.
13.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following summarizes the charge-off and recovery activity for the first quarter
ended March 31, 2010 and the year-to-date charge-off and recovery activity for
2009.
Three
Months Ended March 31, 2010
Net
Charge-offs
|
||||||||||||||||||||||||
as a Percent of
|
||||||||||||||||||||||||
YTD
|
Annualized
|
|||||||||||||||||||||||
Total
|
Average
|
Net
|
||||||||||||||||||||||
(Amounts in thousands)
|
Charge-offs
|
Recoveries
|
Net
|
Charge-offs
|
Loans
|
Charge-offs
|
||||||||||||||||||
Commercial
|
201 | 2 | 199 | 64.76 | % | 0.09 | % | 0.37 | % | |||||||||||||||
Real
estate
|
— | — | — | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||||||||
Home
equity
|
38 | — | 38 | 12.26 | % | 0.02 | % | 0.07 | % | |||||||||||||||
Consumer
|
56 | 8 | 48 | 15.76 | % | 0.02 | % | 0.09 | % | |||||||||||||||
Indirect
finance
|
27 | 4 | 23 | 7.22 | % | 0.01 | % | 0.04 | % | |||||||||||||||
Total
|
322 | 14 | 308 | 100.00 | % | 0.14 | % | 0.56 | % |
Year-End
December 31, 2009
Net
Charge-offs
|
||||||||||||||||||||
as a Percent of
|
||||||||||||||||||||
YTD
|
||||||||||||||||||||
Total
|
Average
|
|||||||||||||||||||
(Amounts in thousands)
|
Charge-offs
|
Recoveries
|
Net
|
Charge-offs
|
Loans
|
|||||||||||||||
Commercial
|
579 | 4 | 575 | 47.03 | % | 0.27 | % | |||||||||||||
Real
estate
|
96 | — | 96 | 7.82 | % | 0.05 | % | |||||||||||||
Home
equity
|
180 | — | 180 | 14.71 | % | 0.09 | % | |||||||||||||
Consumer
|
305 | 34 | 271 | 22.14 | % | 0.13 | % | |||||||||||||
Indirect
finance
|
155 | 54 | 101 | 8.30 | % | 0.05 | % | |||||||||||||
Total
|
1,315 | 92 | 1,223 | 100.00 | % | 0.58 | % |
Nonaccrual
loans at March 31, 2010 totaled $1,922,000, a decrease of $719,000 or 27.22%
from $2,641,000 at year end 2009. The allowance for loan losses
specifically related to impaired loans at March 31, 2010 and December 31, 2009
was $91,000 and $88,000, respectively, having principal balances of $861,000 and
$943,000. The gross interest income that would have been recorded for
the three months ended March 31, 2010 had nonaccrual loans been current totaled
$58,000. The Corporation recognizes income on nonaccrual loans using the cash
basis method. Further, interest income on impaired loans is
recognized only after all past due and current principal payments have been
made. For the current year, interest payments of $1,000 have been
recorded on impaired loans.
Other
assets totaled $19,906,000 at March 31, 2010, a decrease of $131,000 or 0.65%
from $20,037,000 at year end 2009, primarily due to a decrease in OREO and
repossessed assets of $310,000, offset by an increase in accrued interest
receivable of $265,000. Three properties, valued at $143,000, were
placed into OREO during the first quarter of 2010, offset by the sale of five
properties totaling $414,000. The increase in accrued interest
receivable is primarily attributable to semi-annual interest payments of
tax-exempt securities rebuilding their balances to payout in June,
2010.
14.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest
bearing deposit balances increased $6,913,000 from $233,324,000 at December 31,
2009 to $240,237,000 at March 31, 2010, primarily in interest bearing demand and
money market accounts with increases of $2,658,000 and $2,360,000, respectively,
as well as an increase of $1,897,000 in large certificate of deposit accounts,
primarily due to an increase in public funds. Noninterest demand
accounts decreased $4,377,000 during the first quarter due to a match-funded
loan of approximately $4,000,000 that paid off at the first of the
year.
Shareholders’
equity increased $241,000 or 1.06%, primarily resulting from earnings of
$517,000, less dividends of $114,000 and a decrease in the market value of
securities available for sale, net of tax, of $165,000.
RESULTS
OF OPERATIONS
Net
income, after taxes, for the three months ended March 31, 2010 totaled $517,000,
an increase of $306,000 from net income of $211,000 for the three months ended
March 31, 2009. The following discussion details the contributing
factors influencing these operating results.
Interest
and fee income for the first quarter of 2010 totaled $3,915,000, an increase of
$146,000 or 3.87% from $3,769,000 in 2009. Interest income on a fully
taxable equivalent basis totaled $4,006,000 for the first quarter 2010, an
increase of $144,000 or 3.73% from the same period in 2009. The
average tax equivalent yield earned during the quarter was 6.06%, a decrease of
38 basis points from 6.44% earned in 2009. The most significant
change was in the loan portfolio which comprised 81.52% and 80.51% of average
earning assets in the first quarter of 2010 and 2009,
respectively. Average loans increased $22,545,000 or 11.51% from
$195,903,000 in 2009 to $218,448,000 in 2010 while the average yield earned
decreased 37 basis points. Average securities available for sale,
which comprised 13.45% and 15.50% of average earning assets in the first quarter
of 2010 and 2009, respectively, decreased $1,668,000 or 4.42%, while the average
tax equivalent yield earned, decreased 30 basis points.
Interest
expense for the first quarter of 2010 was $969,000, a decrease of $456,000 or
32.00% from $1,425,000 in 2009. Average interest bearing liabilities
increased $19,061,000 or 8.61% from $221,289,000 in 2009 to $240,350,000 in
2010, while the average rate paid on outstanding balances decreased 97 basis
points. Average demand deposits, which comprised 40.16% and 32.19% of
average interest bearing liabilities in the first quarter of 2010 and 2009,
respectively, increased $25,294,000 or 35.51% while the average rate paid
decreased 64 basis points. Average time deposits, which comprised
51.52% and 58.99% of average interest bearing liabilities in 2010 and 2009,
respectively, decreased $6,714,000 or 5.15% along with a decrease in the average
interest rate paid of 105 basis points. Average savings deposits,
which comprised 6.24% and 6.56% of average interest bearing liabilities in 2010
and 2009, respectively, increased $481,000 or 3.31% with a decrease in the
average interest paid of 1 basis point.
Net
interest income on a fully taxable equivalent basis was $3,037,000 for the first
quarter of 2010, an increase of $600,000 or 24.62% from $2,437,000 in 2009,
resulting in an increase to the Corporation’s net interest margin of 54 basis
points from 4.06% in 2009 to 4.60% in 2010.
Provisions
made to the loan loss reserve during 2010 totaled $245,000, a decrease of
$39,000 from $284,000 in 2009. Net charge-offs for the three-month
period ended March 31, 2010 totaled $308,000 compared to net charge-offs of
$419,000 for the three-month period ended March 31, 2009. Additional
information relating to net charge-offs for the period ended March 31, 2010 and
year-end 2009 is presented in the preceding chart.
15.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Yield
Analysis
The
following table presents an analysis of average yields earned on interest
earning assets as well as the average rates paid on interest bearing liabilities
on a fully taxable equivalent basis for the three months ended March
31:
Three
Months Ended March 31,
|
||||||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||||||
Average
|
Average
|
Average
|
Average
|
|||||||||||||||||||||
balance
|
Interest
|
yield/rate
|
balance
|
Interest
|
yield/rate
|
|||||||||||||||||||
|
($
in thousands)
|
|||||||||||||||||||||||
Federal
funds sold
|
$ | 13,474 | $ | 6 | 0.18 | % | $ | 9,709 | $ | 6 | 0.25 | % | ||||||||||||
Securities (1)
|
36,050 | 436 | 4.90 | 37,718 | 484 | 5.20 | ||||||||||||||||||
Loans (2)
|
218,448 | 3,564 | 6.62 | 195,903 | 3,372 | 6.99 | ||||||||||||||||||
Total
interest earning assets
|
267,972 | 4,006 | 6.06 | % | 243,330 | 3,862 | 6.44 | % | ||||||||||||||||
Other
assets
|
25,099 | 22,901 | ||||||||||||||||||||||
Total
assets
|
$ | 293,071 | $ | 266,231 | ||||||||||||||||||||
Interest
bearing deposits
|
$ | 235,350 | 928 | 1.60 | % | $ | 216,289 | 1,384 | 2.60 | % | ||||||||||||||
Borrowed
funds
|
5,000 | 41 | 3.32 | 5,000 | 41 | 3.32 | ||||||||||||||||||
Total
interest bearing liabilities
|
$ | 240,350 | 969 | 1.64 | % | $ | 221,289 | 1,425 | 2.61 | % | ||||||||||||||
Noninterest
bearing demand deposits
|
27,670 | 21,281 | ||||||||||||||||||||||
Other
liabilities
|
2,019 | 1,777 | ||||||||||||||||||||||
Shareholders’
equity
|
23,032 | 21,884 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 293,071 | $ | 266,231 | ||||||||||||||||||||
Net
interest income
|
$ | 3,037 | $ | 2,437 | ||||||||||||||||||||
Interest
rate spread
|
4.42 | % | 3.83 | % | ||||||||||||||||||||
Net interest margin
(3)
|
4.60 | % | 4.06 | % |
(1)
|
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 a 20% disallowance
of interest expense deductibility under TEFRA rules. The amount
of such adjustment was $90,000 and $93,000 for 2010 and 2009,
respectively.
|
(2)
|
Average
balance is net of deferred loan fees of $56,000 and $68,000 for the three
months ended March 31, 2010 and 2009, respectively as well as $94,000 and
$596,000 of unearned income for the same years. Interest income
includes loan fees of $103,000 and $153,000 and deferred dealer reserve
expense of $43,000 and $62,000 in 2010 and 2009,
respectively.
|
(3)
|
Net
interest income as a percentage of average interest earning
assets.
|
Noninterest
income totaled $430,000 for the first quarter of 2010, a decrease of $136,000
from $566,000 for the first quarter of 2009, primarily due to a net loss on the
sales of OREO and other repossessed assets of $135,000.
Noninterest
expense of $2,465,000 for the three-month period ended March 31, 2010, increased
$36,000 or 1.48% from $2,429,000 in 2009, primarily due to the increase in FDIC
deposit insurance premiums of $43,000 offset by a decrease of $60,000 in
premises and equipment due to computer equipment becoming fully
depreciated.
16.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
Corporation recorded net taxable income of $666,000 for the three-month period
ended March 31, 2010, an increase of $469,000 from net taxable income of
$197,000 in 2009. Income tax expense for 2010 totaled $149,000,
reflecting an effective tax rate of 22.37% compared to a tax credit of $14,000
in 2009.
LIQUIDITY
Liquidity
is the ability to satisfy demands for deposit withdrawals, lending commitments
and other corporate needs. The Corporation’s liquidity primarily
represented by cash, cash equivalents and federal funds sold, is a result of its
operating, investing and financing activities, which are summarized in the
Condensed Consolidated Statements of Cash Flows. Primary sources of
funds are deposits, prepayments and maturities of outstanding loans and
securities. While scheduled payments from the amortization of loans
and securities are relatively predictable sources of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic
conditions and competition. Funds are primarily used to meet ongoing
commitments, satisfy operational expenses, payout maturing certificates of
deposit and savings withdrawals and fund loan demand with excess funds being
invested in short-term interest earning assets. Additional funds are
generated through Federal Home Loan Bank advances, overnight borrowings and
other sources.
The
Corporation’s liquidity ratio at March 31, 2010 was 9.81% compared to 5.72% at
year-end 2009. Another measure of liquidity is the relationship of
net loans to deposits and borrowed funds with lower ratios indicating greater
liquidity. The ratio of net loans to deposits and borrowed funds was
79.57% at March 31, 2010 compared to 83.52% at December 31,
2009. Management believes its sources of liquidity are adequate to
meet the needs of the Corporation.
Net cash
flows resulted in an increase of $11,170,000 in cash, cash equivalents and
federal funds sold for the three-month period ended March 31, 2010 from
$12,246,000 at year-end 2009, primarily due to loan maturities and repayments of
$8,531,000 along with an increase in deposit balances of
$2,535,000. During the same period in 2009, cash, cash equivalents
and federal funds sold increased $9,027,000, primarily due to an increase of
$9,142,000 in deposit balances.
CAPITAL
RESOURCES
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 8.0%, with half of
the capital composed of core capital. Minimum leverage ratio
requirements range from 3.0% to 5.0% of total assets. Core capital,
or Tier I 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 II 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 II capital can equal up to 100% of an
institution’s Tier I capital with certain limitations in meeting the total
risk-based capital requirements.
The
Bank’s leverage and risk-based capital ratios as of March 31, 2010 were 7.5% and
10.9% respectively, compared to leverage and risk-based capital ratios of 7.5%
and 10.3% at year-end 2009. The Bank exceeded minimum regulatory
requirements to be considered well capitalized for both
periods. Should it become necessary to raise capital to expand the
activities of the Corporation, there are sufficient un-issued shares to effect a
merger, or solicit new investors.
17.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
The
Corporation has certain obligations and commitments to make future payments
under contracts. Total aggregate contractual obligations and
commitments at March 31, 2010:
Contractual
obligations
|
||||||||||||||||||||
(Amounts
in thousands)
|
Payments
Due by Period
|
|||||||||||||||||||
Less
Than
|
After
|
|||||||||||||||||||
Total
|
One Year
|
1-3 Years
|
3-5 Years
|
5 Years
|
||||||||||||||||
Time
deposits and certificates of deposit
|
$ | 125,295 | $ | 49,620 | $ | 56,672 | $ | 17,044 | $ | 1,959 | ||||||||||
Borrowed
funds
|
5,000 | 5,000 | — | — | — | |||||||||||||||
Total
|
$ | 130,295 | $ | 54,620 | $ | 56,672 | $ | 17,044 | $ | 1,959 |
Other
commitments
|
||||||||||||||||||||
(Amounts
In thousands)
|
Amount
of Commitment – Expiration by Period
|
|||||||||||||||||||
Less
Than
|
After
|
|||||||||||||||||||
Total
|
One Year
|
1-3 Years
|
3-5 Years
|
5 Years
|
||||||||||||||||
Commitments
to extend commercial credit
|
$ | 13,330 | $ | 10,141 | $ | 1,526 | $ | 491 | $ | 1,172 | ||||||||||
Commitments
to extend consumer credit
|
11,675 | 372 | 1,207 | 4,157 | 5,939 | |||||||||||||||
Standby
letters of credit
|
273 | 273 | — | — | — | |||||||||||||||
Total
|
$ | 25,278 | $ | 10,786 | $ | 2,733 | $ | 4,648 | $ | 7,111 |
Other
obligations and commitments include the deferred compensation plan, index plan
reserve and split dollar life insurance. The timing of payments for
these plans is unknown. See Note 1 of the 2009 Annual Report for
additional details.
Items
reported under “Contractual Obligations” represent standard bank financing
activity under normal terms and practices. Such funds normally
rollover or are replaced by like items depending on the then-current financing
needs. Items reported 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 comes 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 Corporation is also continually engaged in
the process of approving new loans in a bidding competition with other
banks. Management and Board committees approve the terms of these
potential new loans with conditions and/or counter terms made to the applicant
customers. Customers may accept the 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 approximately $4,438,000 at March
31, 2010, for various possible maturity terms.
18.
COMMERCIAL
BANCSHARES, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 consist 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
2009. (See Quantitative and Qualitative Disclosures about Market Risk
in the Annual Report to Shareholders for the year ended December 31,
2009.)
Item
4 - Controls and Procedures
Under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, the Corporation conducted an
evaluation of its disclosure controls and procedures, pursuant to Securities
Exchange Act of 1934. Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Corporation’s disclosure
controls and procedures were effective as of the end of the period covered by
this report.
There was
no change in the Corporation’s internal control over financial reporting that
occurred during the Corporation’s fiscal quarter ended March 31, 2010 that
has materially affected, or is reasonably likely to materially affect, the
Corporation’s internal control over financial reporting.
19.
COMMERCIAL
BANCSHARES, INC.
FORM
10-Q
Quarter
ended March 31, 2010
PART II –
OTHER INFORMATION
Item
1
|
Legal
Proceedings:
|
There are
no matters required to be reported under this item.
Item
1A
|
Risk
Factors:
|
There
have been no material changes from risk factors as previously disclosed in Part
1, Item 1.A. of Commercial Bancshares, Inc.’s 10-K filed on March 29,
2010.
Item
2
|
Unregistered
Sales of Securities and Use of
Proceeds:
|
The
Corporation purchased 2,102 shares totaling $22,335 under the Commercial Savings
Bank Deferred Compensation Plan, a nonqualified deferred compensation plan, to
various members of the Board during the three-month period ended March 31,
2010. Shares are purchased on the open market and are credited to the
respective accounts of the deferred compensation plan
participants. These transactions were not registered, but were made
in reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933.
The
following table reflects shares repurchased by the Corporation during the
quarter ended March 31, 2010.
Period
|
Total
Number
of Shares
Purchased
|
Average
Price
Paid
per
Share
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
|
Maximum Number
of Shares that May
Yet be Purchased
Under the Plan
or Programs
|
||||||||||||
1/1/10
- 1/31/10
|
-0- | n/a | -0- | 23,548 | ||||||||||||
2/1/10
- 2/28/10
|
-0- | n/a | -0- | 23,548 | ||||||||||||
3/1/10
- 3/31/10
|
-0- | n/a | -0- | 23,548 | ||||||||||||
Total
|
-0- | n/a | -0- | 23,548 |
Item
3
|
Defaults
upon Senior Securities:
|
There are
no matters required to be reported under this item.
Item
4
|
Other
Information:
|
There are
no matters required to be reported under this item.
20.
COMMERCIAL
BANCSHARES, INC.
FORM
10-Q
Quarter
ended March 31, 2010
PART II –
OTHER INFORMATION
Item
5
|
Exhibits:
|
Exhibit
|
||
Number
|
Description of Document
|
|
3.1.a.
|
Amended
Articles of Incorporation of the Corporation
|
|
(incorporated
by reference to Registrant’s Form 8-K dated April 27,
1995)
|
||
3.1.b.
|
Amendment
to the Corporation’s Amended Articles of Incorporation to increase the
number of shares authorized for the issuance to 4,000,000 common shares,
no par value (incorporated by reference to Appendix I to Registrant’s
Definitive Proxy Statement filed March 13, 1997)
|
|
3.2
|
Code
of Regulations of the Corporation
|
|
(incorporated
by reference to Registrant’s Form 8-K dated April 27,
1995)
|
||
4
|
Form
of Certificate of Common Shares of the Corporation
|
|
(incorporated
by reference to Registrant’s Form 8-K dated April 27,
1995)
|
||
11
|
Statement
re computation of per share earnings (reference is hereby made to Note 2
of the Consolidated Financial Statements on page 8
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
|
21.
COMMERCIAL
BANCSHARES, INC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMMERCIAL BANCSHARES,
INC.
|
|||
(Registrant)
|
|||
Date:
|
May 6, 2010
|
/s/ Robert E. Beach
|
|
(Signature)
|
|||
Robert
E. Beach
|
|||
President
and Chief Executive Officer
|
|||
Date:
|
May 6, 2010
|
/s/ Scott A. Oboy
|
|
(Signature)
|
|||
Scott
A. Oboy
|
|||
Executive
Vice President and Chief Financial
Officer
|
22.