0000950124-05-000212.txt : 20120628 0000950124-05-000212.hdr.sgml : 20120628 20050114165109 ACCESSION NUMBER: 0000950124-05-000212 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20050114 DATE AS OF CHANGE: 20050114 GROUP MEMBERS: CB MERGER COMPANY SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NATIONAL FINANCIAL CORP /MI CENTRAL INDEX KEY: 0000828535 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382799780 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-39657 FILM NUMBER: 05531188 BUSINESS ADDRESS: STREET 1: 101 N PINE RIVER ST CITY: ITHACA STATE: MI ZIP: 48847 BUSINESS PHONE: 5178754144 MAIL ADDRESS: STREET 1: P O BOX 280 CITY: ITHACA STATE: MI ZIP: 48847 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NATIONAL FINANCIAL CORP /MI CENTRAL INDEX KEY: 0000828535 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382799780 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 101 N PINE RIVER ST CITY: ITHACA STATE: MI ZIP: 48847 BUSINESS PHONE: 5178754144 MAIL ADDRESS: STREET 1: P O BOX 280 CITY: ITHACA STATE: MI ZIP: 48847 SC 13E3/A 1 k89990csc13e3za.txt AMENDMENT NO. 1 TO SCHEDULE 13E3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No.1) COMMERCIAL NATIONAL FINANCIAL CORPORATION (Name of the Issuer) COMMERCIAL NATIONAL FINANCIAL CORPORATION CB MERGER COMPANY (Names of Persons Filing Statement) COMMON STOCK (Title of Class of Securities) 202216107 (Cusip Number of Class of Securities) JEFFREY S. BARKER Copy to: MATT G. HREBEC PRESIDENT AND CEO FOSTER, SWIFT, COLLINS & SMITH, P.C. COMMERCIAL NATIONAL FINANCIAL CORPORATION 313 SOUTH WASHINGTON SQUARE 101 NORTH PINE RIVER LANSING, MI 48933 P.O. BOX 280 (517) 371-8100 ITHACA, MI 48847 (989) 875-4144 (Name, Address and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of the Persons Filing Statement) This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation l4A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934 ("the Exchange Act"). b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [ ] A tender offer. d. [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [X] Check the following box if the filing is a final amendment reporting the results of the transaction: [ ] CALCULATION OF FILING FEE Transaction Valuation Amount of Filing Fee --------------------- -------------------- $ 8,750,000 (1) $ 1,108.63 (1) The transaction valuation was determined by multiplying $12.50 per share, the proposed per share cash purchase price for shares that will be eliminated by the merger, by 700,000 shares, the number that the issuer estimates will be eliminated by the merger. [X] Check the box if any part of the fee is offset as provided by Section 240.0-1l(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $1,108.63 Filing Party: Commercial National Form or Registration No.: Preliminary Schedule l4A Financial Corporation Date Filed: November 23, 2004
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INTRODUCTION This Amendment No.1 to the Rule 13e-3 Transaction Statement on Schedule 13E-3 is filed by Commercial National Financial Corporation, a Michigan corporation (the "Company") and CB Merger Company, a Michigan corporation ("CB Merger Co.") pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 13e-3 thereunder in connection with the proposed merger of the Company and CB Merger Co., a wholly owned subsidiary of the Company, in which the Company will be the surviving corporation. Upon approval of an Agreement and Plan of Merger (the "Plan of Merger") by the Company's shareholders, it is expected that the merger will be effected by the filing of a certificate of merger with the Michigan Department of Labor and Economic Growth. Pursuant to the Plan of Merger, CB Merger Co. will merge with and into the Company. Each shareholder of the Company who owns fewer than 4,000 shares of Common Stock immediately before the effective time of the merger will receive $12.50 per share in cash, without interest, and each shareholder of the Company who own 4,000 or more shares immediately before the effective time of the merger will continue to hold the same number of shares after the merger and will not receive any cash. If the merger is completed, it is expected that the Company will have fewer than 300 shareholders of its Common Stock and will terminate the registration of its Common Stock under the Exchange Act. Filed as Exhibits (a)( 1) and (a)(2), respectively, are a Notice of Special Meeting of Shareholders and Proxy Statement (the "Proxy Statement") and a form of Proxy that will accompany the Proxy Statement. The Proxy Statement will be distributed to the Company's shareholders in connection with a Special Meeting of Shareholders to be held on March 7, 2005 for the purpose of voting on a proposal to approve the Plan of Merger and a proposal to amend the Company's Articles of Incorporation. The Company has securities registered under the Exchange Act and consequently is subject to Regulation 14A of the Exchange Act. The Company is filing this Schedule 13E-3 with the Securities and Exchange Commission simultaneously with a preliminary proxy statement filed by the Company pursuant to Regulation 14A of the Exchange Act. In accordance with General Instruction F to Schedule 13E-3, the information set forth in the Proxy Statement (including the appendices thereto) is here incorporated by reference in response to Items 1-14 of Schedule 13E-3, in the manner and to the extent specified below. In addition, the Company has incorporated by reference certain financial information contained in its Annual Report on Form 10-K and Quarterly Report on Form l0-Q as specified below. CB Merger Co. was organized exclusively for the purposes of the merger. It is controlled entirely by the Company and its directors and officers are directors and officers of the Company. It has engaged in no independent analysis of the merger. CB Merger Co. expressly adopts (to the extent relevant) the disclosures, conclusions and analyses of the Company. All parenthetical references under the various Items contained in this Schedule 13E-3 are references to the corresponding Items contained in Regulation M-A under the Exchange Act. THIS SCHEDULE 13E-3 CONTAINS FORWARD-LOOKING STATEMENTS. The forward-looking statements are based on management's beliefs, assumptions, current expectations, estimates and projections about the Plan of Merger, the merger, the Company itself, the economy and the banking industry itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," variations of such words and similar expressions (whether contained in this Schedule 13E-3 or incorporated into this schedule by reference) are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Actual results and outcomes may materially differ from what may be expressed or forecasted. Risk factors include, but are not limited to, changes in banking laws and regulations; changes in securities and tax laws; changes in governmental and regulatory policy; changes in the national and local economy; changes in costs and other assumptions used in forecasting management's expectations concerning the costs and cost savings associated with the merger; the ability of the Company to implement effectively the merger; and the ability to and speed with which the Company may achieve all cost savings anticipated from the merger. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a forward-looking statement. TRANSACTION STATEMENT ITEM 1. SUMMARY TERM SHEET. The section captioned "SUMMARY TERM SHEET" in the Proxy Statement (pages 2 and 3) is here incorporated by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) Name and address. The "Notice of Special Meeting of Shareholders" and section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - General" in the Proxy Statement (pages 31 and 32) are here incorporated by reference. (b) Securities. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Description of Common Stock" in the Proxy Statement (page 38) is here incorporated by reference. (c) Trading market and price. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Market for Common Stock and Dividend Information" in the Proxy Statement (pages 37 and 38) is here incorporated by reference. (d) Dividends. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Market for Common Stock and Dividend Information" in the Proxy Statement (pages 37 and 38) is here incorporated by reference. (e) Prior public offerings. None. (f) Prior stock purchases. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Stock Repurchases" in the Proxy Statement (page 37) is here incorporated by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a) Name and address. The "Notice of Special Meeting of Shareholders" and sections captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - General" and "Directors and Executive Officers" in the Proxy Statement (pages 31 and 32, and pages 32-34, respectively) are here incorporated by reference. (b) Business and background of entities. Not applicable. (c) Business and background of natural persons. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Directors and Executive Officers" in the Proxy Statement (pages 32-34) is here incorporated by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) Mergers or similar transactions. The sections captioned "THE TRANSACTION - Material Terms," "SPECIAL FACTORS - Reasons for the Merger" and "Effects of the Merger" and "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF MERGER" in the Proxy Statement (pages 20-22, 6 and 7, and 28 and 29, respectively) are here incorporated by reference. (c) Different terms. The section captioned "SPECIAL FACTORS - Effects of the Merger" in the Proxy Statement (pages 6 and 7) is here incorporated by reference. 2 (d) Appraisal rights. The section captioned "DISSENTERS' RIGHTS" in the Proxy Statement (pages 26 - 27) is here incorporated by reference. (e) Provisions for unaffiliated security holders. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors - Alternatives Considered" in the Proxy Statement (pages 10-15) is here incorporated by reference. (f) Eligibility for listing or trading. Not applicable. ITEM 5. PAST CONTACTS, TRANSACTION, NEGOTIATIONS AND AGREEMENTS. (a) - (c) and (e) The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Past Contacts, Transactions, Negotiations and Agreements" in the Proxy Statement (page 35) is here incorporated by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (b) Use of securities acquired. The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Use of Securities Acquired and Plans or Proposals" in the Proxy Statement (page 35) is here incorporated by reference. (c) Plans. (1) and (7-8) The sections captioned "THE TRANSACTION - Certain Consequences of the Merger" and "Termination of Exchange Act Registration" and "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Use of Securities Acquired and Plans or Proposals" and "Market for Common Stock and Dividend Information" in the Proxy Statement (pages 23-24, 24-25, 35, and 37 and 38, respectively) are here incorporated by reference. (2-6) None. ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. (a) Purposes. The section captioned "SPECIAL FACTORS - Reasons for the Merger" in the Proxy Statement (page 6) is here incorporated by reference. (b) Alternatives. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors - Alternatives Considered" in the Proxy Statement (pages 14 and 15) is here incorporated by reference. (c) Reasons. The section captioned "SPECIAL FACTORS - Reasons for the Merger" in the Proxy Statement (pages 6) is here incorporated by reference. (d) Effects. The sections captioned "SPECIAL FACTORS - Effects of the Merger," "THE TRANSACTION - Termination of Exchange Act Registration" and "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF MERGER" in the Proxy Statement (pages 6, 24 and 25, and 28 and 29, respectively) are here incorporated by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a) Fairness. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors" in the Proxy Statement (pages 10-15) is here incorporated by reference. (b) Factors considered in determining fairness. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors" in the Proxy Statement (pages 10-15) is here incorporated by reference. 3 (c) Approval of security holders. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors" in the Proxy Statement (pages 10-15) is here incorporated by reference. (d) Unaffiliated representative. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors - Alternatives Considered" in the Proxy Statement (pages 10-15) is here incorporated by reference. (e) Approval of Directors. The section captioned "SPECIAL FACTORS - Fairness; Recommendation of Board of Directors" in the Proxy Statement (pages 10-15) is here incorporated by reference. (f) Other offers. Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS. (a) - (c) The section captioned "SPECIAL FACTORS - Opinion of Financial Advisor" in the Proxy Statement (pages 15-20) is here incorporated by reference. ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a) Source of funds. The section captioned "THE TRANSACTION - Financing of the Merger" in the Proxy Statement (page 24) is here incorporated by reference. (b) Conditions. Not applicable. (c) Expenses. The section captioned "THE TRANSACTION - Financing of the Merger" in the Proxy Statement (page 24) is here incorporated by reference. (d) Borrowed funds. The section captioned "THE TRANSACTION - Financing of the Merger" in the Proxy Statement (page 24) is here incorporated by reference. ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The section captioned "INFORMATION ABOUT COMMERCIAL AND ITS AFFILIATES - Voting Securities and Principal Holders" in the Proxy Statement (pages 36 and 37) is here incorporated by reference. ITEM 12. THE SOLICITATION OR RECOMMENDATION. (d) and (e) The section captioned "INTERESTS OF CERTAIN PERSONS" in the Proxy Statement (pages 25 and 26) is here incorporated by reference. ITEM 13. FINANCIAL STATEMENTS. (a) and (b) The sections captioned "SELECTED FINANCIAL DATA" and "PRO FORMA FINANCIAL STATEMENTS" in the Proxy Statement (pages 41-46) are here incorporated by reference. In addition, the audited financial statements in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2003 (filed as Exhibit 13; pages 24-44), and unaudited interim financial statements in the Company's Quarterly Report on Form 10-Q as of and for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, are here incorporated by reference. The information incorporated by reference may be accessed electronically at the SEC's website at http://www.sec.gov. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. 4 (a) and (b) The section captioned "ADDITIONAL SPECIAL MEETING INFORMATION - Solicitation of Proxies" in the Proxy Statement (page 31) is here incorporated by reference. ITEM 15. ADDITIONAL INFORMATION. (b) None. ITEM 16. EXHIBITS. (a)(1) Notice of Special Meeting of Shareholders and Preliminary Proxy Statement of Commercial National Financial Corporation for March 7, 2005, Special Meeting of Shareholders (filed with the SEC on January 14, 2005, and here incorporated by reference). (a)(2) Form of Proxy for March 7, 2005, Special Meeting of Shareholders. (b) Term sheet for issuance of Trust Preferred Securities with Cohen Bros. & Co. Trust Preferred Funding. (Previously filed as Exhibit(b) to the Company's Schedule 13E-3 filed November 23, 2004. Here incorporated by reference.) (c)(1) Valuation Opinion and Report of Donnelly Penman & Partners. (Previously filed as Exhibit(c)(1) to the Company's Schedule 13E-3 filed November 23, 2004. Here incorporated by reference.) (c)(1.1) Draft Valuation Opinion and Report of Donnelly Penman & Partners (as of November 3, 2004). (c)(2) Fairness Opinion of Donnelly Penman & Partners (the form of opinion appears at Appendix C to Exhibit (a)(1), and is here incorporated by reference). (f) Description of Dissenters' Rights and Procedures for Exercise (included in the Proxy Statement filed as Exhibit (a)(1), and here incorporated by reference). (x) Consent of Independent Accountant. [To be filed with an amendment.] SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. COMMERCIAL NATIONAL FINANCIAL CORPORATION /s/ ------------------------------------ Jeffrey S. Barker, President and CEO January 14, 2005 CB MERGER COMPANY /s/ ------------------------------------ Jeffrey S. Barker, President and CEO January 14, 2005 5 PRELIMINARY COPY DATED JANUARY 14, 2005 PROXY Commercial National Financial Corporation 101 North Pine River P.O. Box 280 Ithaca, MI 48847 SPECIAL MEETING OF SHAREHOLDERS MARCH 7, 2005 The undersigned shareholder appoints ________________ and _________________, or either of them, each with the power to appoint his or her substitute, attorneys and proxies to represent the shareholder and to vote and act with respect to all shares that the shareholder would be entitled to vote at the special meeting of shareholders of Commercial National Financial Corporation, to be held on March 7, 2005, and at any adjournment of that meeting, on all matters that come before the meeting. 1. Proposal to approve the Agreement and Plan of Merger: [ ] FOR [ ] Against [ ] Abstain YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. 2. Proposal to adopt an amendment to the Articles of Incorporation to add new Article XIII to grant Commercial a right of first refusal with respect to future transfers of shares of Commercial common stock (contingent on shareholder approval of the Agreement and Plan of Merger): [ ] FOR [ ] Against [ ] Abstain YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. IF THIS PROXY IS PROPERLY SIGNED AND DELIVERED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF THE SHAREHOLDERS DO NOT APPROVE THE AGREEMENT AND PLAN OF MERGER, NO VOTE WILL BE TAKEN ON THE PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE AGREEMENT AND PLAN OF MERGER AND, IF THE AGREEMENT AND PLAN OF MERGER IS APPROVED, FOR THE PROPOSED AMENDMENT. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT OF THE MEETING, INCLUDING ANY PROPOSAL TO ADJOURN THE MEETING. AS OF THE DATE OF THE COMPANY'S PROXY STATEMENT FOR THIS MEETING, THE COMPANY WAS NOT AWARE OF ANY PROPOSAL WHICH IS TO BE PRESENTED AT THE MEETING OTHER THAN THOSE LISTED ABOVE. 6 Dated: ______________,2005 Please sign exactly as your name appears on this proxy. If signing for estates, trusts or corporations, title or capacity should be stated. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN. x_________________________________________ Signature x_________________________________________ Signature if held jointly IMPORTANT PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE 7 EX-99.(C)(1.1) 2 k89990cexv99wxcyx1w1y.txt DRAFT VALUATION OPINION AND REPORT OF DONNELLY PENMAN & PARTNERS EXHIBIT C(1.1) NOVEMBER 3, 2004 CONFIDENTIAL COMMERCIAL NATIONAL FINANCIAL CORPORATION Parent of [COMMERCIAL BANK LOGO] VALUATION AS OF NOVEMBER 3, 2004 - DRAFT DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [COMMERCIAL BANK LOGO] TABLE OF CONTENTS 1. Valuation Opinion Letter 2. Valuation Summary 3. Discounted Cash Flow Analysis 4. Recent Trading Analysis 5. Analysis of Comparable Companies 6. Analysis of Comparable Acquisitions DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 2 CONFIDENTIAL [COMMERCIAL BANK LOGO] 1. VALUATION OPINION LETTER DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 3 November 3, 2004 Board of Directors Commercial National Financial Corporation 101 North Pine River Street P.O. Box 280 Ithaca, MI 48847-0280 Attention: Jeffrey S. Barker - President and CEO Dear Board of Directors: PRIVATE & CONFIDENTIAL Commercial National Financial Corporation ("Commercial National" or the "Company") has engaged Donnelly Penman & Partners ("DP&P") to render its opinion (the "Opinion") with respect to the fair market per share value of the Company's common stock as of November 3, 2004 in the event of a recapitalization through a reverse stock split or "squeeze out" merger transaction. DP&P is a regional investment banking firm of recognized standing. As part of our investment banking services, we are regularly engaged in the valuation of corporate entities on a stand-alone basis or in connection with capital raising and merger and acquisition transactions. No limitations were imposed by the Company upon DP&P with respect to the investigations made or procedures followed by DP&P in rendering its Opinion. In arriving at our Opinion, we have: I. Reviewed the Annual Reports of the Company for the years ended December 31, 2002 through 2003 as well as interim financials through October 31, 2004; II. Reviewed the September 30, 2004 Board of Directors Report; III. Compared certain financial characteristics of the Company to certain publicly held companies we deemed relevant; IV. Reviewed current banking industry conditions and trends concerning the valuation of recent mergers and acquisitions; V. Conducted discussions with the senior management of the Company concerning the business and future prospects of the Company; Board of Directors November 3, 2004 Page 2 VI. Prepared a discounted cash flow analysis of the Company based on projections derived from discussions with and deemed reasonable by management of the Company; and VII. Reviewed such other data, including financial and industry data, performed such other analyses and taken into account such other matters as we deemed necessary or appropriate. In connection with rendering its Opinion to Commercial National, DP&P performed a variety of financial analyses, which are summarized below. DP&P believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without consideration of all factors and analyses, could create a misleading view of the analyses and the processes underlying DP&P's Opinion. DP&P arrived at its Opinion based on the results of all the analyses it undertook, assessed as a whole, and it did not draw conclusions from or with regard to any one method of analysis. The preparation of a valuation is a complex process involving subjective judgments, and is not necessarily susceptible to partial analysis or summary description. DP&P did not make or obtain any independent evaluation, valuation or appraisal of the assets or liabilities of Commercial National, nor were we furnished with such materials. DP&P has not reviewed any individual credit files of the Company and has assumed, without independent verification, that the reported allowances for credit losses are adequate to cover such losses. With respect to the comparable company analysis and comparable merger transaction analysis summarized below, no public company utilized as a comparison is identical to Commercial National, and such analyses necessarily involves complex considerations and judgments concerning the differences in financial and operating characteristics of the financial institutions and other factors that could affect the acquisition or public trading values of the financial institutions concerned. The forecasted financial information furnished by the Company's management contained in or underlying DP&P's analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such forecasts and estimates. The forecasts and estimates were based on numerous variables and assumptions that are inherently uncertain, including without limitation factors related to general economic and competitive conditions. In that regard, DP&P assumed, with the Company's consent, that the financial forecasts had been reasonably prepared by management on a basis reflecting the best currently available judgments of management, and that such forecasts will be realized in the amounts and at the times contemplated thereby. Estimates of values of financial institutions or assets do not purport to be appraisals or necessarily reflect the prices at which financial institutions or their securities actually may be sold. Accordingly, actual results could vary significantly from those assumed in the financial forecasts and related analyses. The analyses performed by DP&P were assigned a weighting based on DP&P's opinion of their relative comparability and significance with regard to the specific characteristics of Commercial National. Board of Directors November 3, 2004 Page 3 COMPANY BACKGROUND Commercial National Financial Corporation, a financial holding company, was incorporated in Michigan on December 30, 1987. On May 31, 1988, the Corporation acquired all of the stock of Commercial National Bank, a national banking association chartered in 1962. On December 30, 1992, Commercial National Bank converted to a state-chartered bank under the name Commercial Bank (the Bank). On July 16, 1997, the Bank acquired an inactive insurance agency, Commercial National Financial Services Incorporated (the Agency). The Agency in turn purchased a minority interest in Michigan Bankers Title of Northern Michigan, LLC (the Title Agency). During 2000, Michigan Bankers Title of Northern Michigan was dissolved. The Agency made a similar investment in Michigan Bankers Title of Eastern Michigan. The investment in the Title Agency is not material. The Bank established a relationship with The Centennial Group (Centennial), a financial planning group headquartered in Lansing, Michigan in 2000. Through customer referrals to a registered representative of Centennial, the Agency receives commissions for the placement of products and fee based services. During 2001, Commercial Bank formed a mortgage company, CNFC Mortgage Corporation, 100% owned by Commercial Bank. CNFC Mortgage Corporation allows Commercial to pursue out of market mortgages and offer products and services not normally provided by community banks. The Bank concentrates its efforts primarily in two areas, commercial lending and residential real estate lending. Loan, deposit and other products are designed to support these market segments. The Bank also provides a full range of traditional banking services to individuals located in its service area. Commercial Bank offers a variety of deposit products, including checking, savings, money market, individual retirement accounts, certificates of deposit and repurchase agreements. The principal markets for financial services are the mid-Michigan communities in which the Bank is located and the areas immediately surrounding these communities. The Bank serves these markets through nine locations in or near these communities. Commercial also lends outside the principal geographic market in support of existing customers. Commercial does not have any material foreign assets or income. At December 31, 2003, the Bank had no significant concentrations of loans to any group of borrowers engaged in similar activities that would be impacted by economic or other conditions. The Bank employed 96 individuals at September 30, 2004. Commercial National is traded through the OTC Bulletin Board Exchange under the symbol CEFC. Its shares are traded on a limited basis through regional and national brokers and market makers. As of October 1, 2004, there were 696 recorded holders of the Company's common stock. The most recent trade of the stock was 500 shares at $11.00 on October 21, 2004. Board of Directors November 3, 2004 Page 4 The Bank has a main office and branch in Ithaca, Michigan, an additional administrative facility, residential lending center and branch in Alma, Michigan along with branches in Alma (2 additional), Middleton, Mt. Pleasant, Pompeii and St. Louis, Michigan. Commercial Bank-Greenville has a main office and branch and an additional branch in Greenville, Michigan. Alma, Ithaca, Middleton, Pompeii and St. Louis are located in Gratiot County; Mt. Pleasant is located in Isabella County; and Greenville is located in Montcalm County. According to the United States Census Bureau, the median 2004 household income in Gratiot, Isabella and Montcalm Counties is $39,447, $37,187, and $40,469 respectively. INDUSTRY OVERVIEW Commercial, retail and mortgage banking are highly competitive businesses in which the Company receives competition from both bank and non-bank institutions. As a result of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Gramm-Leach-Bliley Act of 1999, the number and types of depository institution competitors have substantially increased. Commercial National faces increased competition from finance companies, credit unions and bank and non-bank mortgage lenders. These companies may offer higher lending limits and other non-traditional services that Commercial National does not currently offer. Some of the Company's competitors also can leverage greater resources in order to gain a larger business presence within Commercial National's target service areas. While being relatively small can be a disadvantage, there are certain potential benefits as well. Community banks that make customer service a priority may be able to gain an advantage with customers in their local market that feel neglected by the larger banks. Because the larger banks often seek large homogenous markets and products, niche opportunities are created for smaller institutions that seek to fill the needs of the underserved. Also, the relative difference in size can often correspond to a more agile management team that can respond more quickly to the ever changing competitive environment. ECONOMIC OVERVIEW Reports from the Federal Reserve Districts, as outlined in the July 28, 2004 Federal Reserve "Beige Book, "(1) indicate that economic growth continued to expand, although some Districts reported that the rate of growth moderated. Consumer lending activity rose moderately with reports that mortgage originations are strong. Five districts reported increases in their banks' residential real estate lending: Philadelphia, Cleveland, Richmond, Chicago, and St. Louis. Several of these districts indicated that although overall residential real estate lending had risen, the volume of refinancings recently fell further. Both the New York and San Francisco Districts saw borrowing by homebuyers decline, but San Francisco noted that the levels of residential real estate lending in its district remained high. ------------------------ (1) Summary of Commentary on Current Economic Conditions by Federal Reserve District, July 28, 2004. Board of Directors November 3, 2004 Page 5 Borrowing by commercial clients rose moderately as reported by most districts, with the New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, Kansas City, Dallas, and San Francisco Districts reporting rising commercial borrowing in recent weeks. New York, Philadelphia, and Atlanta, however, noted that the increases in their districts were modest. In the Chicago District, commercial borrowing was characterized as flat. Most Districts reported little change in loan delinquencies. The Cleveland District noted that delinquency rates remained largely unchanged in recent weeks, and applicant credit quality was characterized as stable or slightly improving. Likewise, the New York District reported lower delinquency rates across all loan categories. In the Chicago District, lenders note that household credit quality continues to improve and there were no changes in loan standards and terms. Moderate increases in credit card lending were reported in the Philadelphia District, while the San Francisco District reports good credit quality on existing loans. The Livingston Study(2), based on survey responses of 26 participants from banking, industry, academia and trade associations, forecasts economic growth and falling unemployment through mid-2005 in its June 2004 report. The results of this most recent release project real Gross Domestic Product ("GDP") will rise at an annual rate of 4.5 percent in the first half of 2004, 4.1 percent in the second half of 2004, and continue at an annual rate of 3.8 percent in the first half of 2005. The unemployment rate is expected to fall from 5.6 percent in June 2004 to 5.4 percent in December 2004 and then continue to decline, to 5.2 percent, by the middle of 2005. Interest rates on the three-month Treasuries are expected to rise from 1.3 percent in June 2004 to 1.8 percent at year-end 2004, then rise throughout 2005, ending the year at 3.4 percent. Long-term interest rates are also expected to rise over the next two years with a projection to climb from 4.8 percent in June 2004 to 5.1 percent by year-end. It is expected to increase further in 2005, finishing the year at 5.6 percent. The participants' views of long-term inflation and output growth have been fairly steady over the last year. The panelists think that real GDP will grow 3.5 percent annually over the next 10 years, the same as in the previous survey. Inflation will average 2.5 percent over the next 10 years, unchanged from the last five surveys dating back to December 2001. For 2004, after-tax corporate profits are expected to rise 15.5 percent, an increase from the December survey's prediction of 14.7 percent. On the other hand, forecasters see corporate profits rising 13.4 percent in 2005, a decrease from the 19.4 percent increase forecast in December. Stock prices (as measured by the S&P 500 index) are forecast to rise in 2004 and 2005. The projection for the S&P 500 at the end of 2005 is about 2.8 percent higher than the previous prediction. ----------------------------- (2) www.phil.frb.org/econ/liv/index.html Board of Directors November 3, 2004 Page 6 VALUATION METHODOLOGY The following is a brief summary of the analyses performed by DP&P in connection with its Opinion: (a) Discounted Cash Flow Analysis. DP&P prepared a discounted dividend stream analysis of Commercial National, which estimated the future after tax cash flows that the Company might produce over a period from November 3, 2004 through December 31, 2008. These estimates were derived from discussions with and deemed reasonable by Commercial National's management team. The estimates assumed that Commercial National's pre-tax earnings would grow at a compound annual growth rate of approximately 12.8% throughout the projection period. This assumes that Commercial National continues to grow their business in their home markets with the majority of deposit growth coming from the Greenville locations and loan growth driven by the residential mortgage company. DP&P has, with the guidance of management, used the key assumption that the yields on earning assets grow by 25 basis points in 2005 and 2006 and costs of deposits and borrowings grow by 12.5 basis points in 2005 and 2006. DP&P further assumed, with management's guidance, that the Company would make dividend payouts equal to 70% of earnings through the projection period, which is consistent with the historical dividend policy. The resulting cash flows were then discounted to a present value using a discount rate of 10.5%, based on Ibbotson Associates(3) build up method with an industry discount applicable to commercial banks. Based on the most recent Ibbotson's data the riskless rate is 4.8%, market risk premium is 7.0% and industry specific premium was -1.3%, resulting in a discount rate of 10.5%, which DP&P regards as appropriate given the nature of the company, industry risk and general economic conditions. DP&P also estimated the residual value for Commercial National's common stock using an earning multiple of 14.8 times applied to projected 2008 net income of $4,275,502, which is an approximation derived from the analysis of price to earnings multiples in comparable publicly traded companies (see paragraph c - Analysis of Selected Comparable Companies). The discounted dividend analysis implied a value of $12.12 per share for Commercial National's common stock on a marketable basis. This analysis does not purport to be indicative of actual values or actual future results and does not purport to reflect the prices at which any securities may trade at the present or at any time in the future. DP&P included this analysis because it is a widely used valuation methodology, but noted that the results of such methodology are highly dependent upon the numerous assumptions that must be made, including earnings growth rates, dividend payout rates, terminal values and discount rates. (b) Historical Trading Multiples. DP&P analyzed the quoted trades listed on the OTC Bulletin Board for Commercial National Financial Corporation (CEFC) for varying historical periods. DP&P used a simple average of the closing stock price quoted for a period of 30 and 90 trading days and one calendar year. Only days in which the security actually traded were counted in the simple average. For the past 30 trading days, as of November 3, 2004, the historical average price was $11.28 with a period volume of 3,300 compiled over 5 separate trading days. For the past 90 ------------------------ (3) Ibbotson Associates, "Stocks, Bonds, Bills, and Inflation," Valuation Edition 2003 Yearbook Board of Directors November 3, 2004 Page 7 trading days, as of November 3, the historical average price was $11.09 with a period volume of 24,541 compiled over 23 separate trading days. For the past calendar year, as of November 3, 2004, the historical average price was $11.38 with a period volume of 295,931 compiled over 188 separate trading days. It should be noted that volume may reflect "double counting" due to both the buy and sell side of a transaction being counted. In addition, the prices and volumes displayed are per the trading information provided on the www.otcbb.com website and may not reflect all transactions that occurred over the aforementioned time period. (c) Analysis of Selected Comparable Companies. DP&P compared selected operating results of Commercial National to a select group of publicly traded commercial banks headquartered in Michigan, Indiana and Ohio. The comparable set had total assets of between $150 and $400 million and last twelve months return on average equity greater than 10.0%. Some companies meeting these criteria may have been eliminated based on lack of data as generated by SNL Financial - the source for the comparable transactions data. The selected group had approximately the following median values: $284.7 million in total assets, $27.1 million in total equity, a total risk-based capital ratio of 12.38%, LTM return on average assets of 1.18%, LTM return on average equity of 12.34% and a LTM efficiency ratio of 62.09%. This analysis provided valuation benchmarks including the median price multiples of 1.838 times book value, 1.855 times tangible book value and 14.8 times LTM earnings per share. Applying the median price to book value multiple to Commercial National's book value per share as of September 30, 2004 resulted in an implied per share value of $11.19 on a marketable basis. Using the same methodology, the implied values provided by application of the relevant multiples to Commercial National's September 30, 2004 tangible book value and LTM fully diluted earnings per share were found to be $11.30 per share and $10.06 per share, respectively. No bank used in the above analyses as a comparison is identical to Commercial National. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values of the Company and the banks to which it is being compared. (d) Analysis of Comparable Acquisition Transactions. DP&P analyzed bank acquisition transactions announced and/or completed since January 1, 2003. Each selling bank had total assets less than $500 million, was headquartered in Michigan, Indiana or Ohio and was profitable in the twelve months prior to the acquisition announcement. This analysis provided an approximate median multiple of 2.288 times price to book value, 2.289 times price to tangible book value, 21.4 times LTM earnings per share and a premium to core deposit metric of 17.49%. Applying the median multiple for price to book value of 2.288 times to Commercial National's September 30, 2004 book value per share of $6.09 results in an implied value per share of $13.93 on a control, marketable basis. Using the same methodology, the values implied by applying the relevant multiples to Commercial National's tangible book value per share at September 30, 2004 of $6.09 and fully diluted earnings per share for the twelve months ended September 30, 2004 of $.68 were found to be $13.94 per share and $14.55 per share, respectively. Applying the median premium to core deposits of 17.49% to Commercial National's $144.3 million in core deposits as of September 30, 2004 resulted in a calculated value of $25.24 million. When added to Commercial National's book value of $24.94 million as of September Board of Directors November 3, 2004 Page 8 30, 2004 and divided by the 4,083,278 shares outstanding at the same date, the result is an implied value per share of $12.27. Core deposits are defined as all deposits less CDs over $100,000 and brokered or network deposits. DP&P notes that no selling bank reviewed was identical to the Company and that, accordingly, any analysis of comparable transactions necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the parties to the transactions being compared. (e) Net Book Value. The net book value or net equity method implies that a company is worth its accumulated retained earnings, or deficit, plus its original capitalization. Net book value is primarily an amount arrived at over a company's existence which reflects accounting history expressed in unadjusted dollars and not the company's potential. In most going concerns with a viable future it can be demonstrated that these companies would change hands for more than net book value. Book value is only of importance to the extent it provides an adequate base for the continuance of operations. In most instances where a company earns a significant return on its assets (both tangible and intangible), the net book value approach is not representative of the company's intrinsic business value. We have reviewed the book value of the Company's assets in limited detail and have found net book value to be $24.94 million or $6.09 per share as of September 30, 2004. CONCLUSION Our Opinion is directed to the Board of Directors of the Company and does not constitute a recommendation to the Board of Directors of the Company or the Company's existing holders of Common Stock. This Opinion has been prepared for the confidential use of the Board of Directors and senior management of the Company and may not be reproduced, summarized, described or referred to or given to any other person without DP&P's prior written consent. Our Opinion is limited solely to the value of the Company's common stock as of November 3, 2004 given the relevant market and company specific information available at the present time. DP&P will typically utilize either a marketability or minority discount, or combination thereof, to value a minority share of a relatively illiquid company on a comparable basis. No such discounts have been applied to Commercial National's common stock in this valuation. If such a discount were applied, it would result in valuation that would be significantly lower than the value assigned on the following page. Board of Directors November 3, 2004 Page 9 On the basis of, and subject to, the foregoing, we are of the opinion that, as of November 3, 2004, the fair market value of the Company's common stock is $11.98 per share. Sincerely, DONNELLY PENMAN & PARTNERS CONFIDENTIAL [COMMERCIAL BANK LOGO] 2. VALUATION SUMMARY DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 12 PROJECT ATLAS VALUATION SUMMARY
VALUE CONCLUSION VALUATION TECHNIQUE: ---------- ------------------------------------------------------------------------- MGT. PROJECTIONS RECENT TRADING COMPARABLE COMPANY ----------------- --------------------------- ------------------------- 30 DAY 90 DAY 1 YEAR TRADING TRADING TRADING DCF AVG. AVG. AVG. BV TBV EPS ----------------- ------- ------- ------- ------ ------ ------- VALUE INDICATION PER SHARE: $ 11.98 $ 12.12 $ 11.28 $ 11.09 $11.38 $11.19 $11.30 $ 10.06 Weight 100.0% 28.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% PREMIUM TO CURRENT TRADING PRICE ($11.00) 8.9% Close as of November 3, 2004 28.0% 24.0% 24.0% Multiple of Diluted LTM EPS 9/30/2004 ($0.68) 17.6x 17.8x 16.6x 16.3x 16.7x 16.5x 16.6x 14.8x Percentage of Book Value ($6.09) 196.7% 199.0% 185.1% 182.2% 186.8% 183.7% 185.6% 165.2% Percentage of Tangible Book Value ($6.09) 196.7% 199.0% 185.1% 182.2% 186.8% 183.7% 185.6% 165.2% VALUATION TECHNIQUE: ------------------------------------- COMPARABLE ACQUISITION ------------------------------------- PREMIUM TO CORE BV TBV EPS DEPOSITS ------ ------ -------- -------- VALUE INDICATION PER SHARE: $13.93 $13.94 $ 14.55 $12.27 Weight 6.0% 6.0% 6.0% 6.0% PREMIUM TO CURRENT TRADING PRICE ($11.00) Close as of November 3, 2004 24.0% Multiple of Diluted LTM EPS 9/30/2004 ($0.68) 20.5x 20.5x 21.4x 18.0x Percentage of Book Value ($6.09) 228.7% 228.9% 238.9% 201.5% Percentage of Tangible Book Value ($6.09) 228.7% 228.9% 238.9% 201.5%
DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING NOVEMBER 3, 2004 Page 13 CONFIDENTIAL [COMMERCIAL BANK LOGO] 3. DISCOUNTED CASH FLOW ANALYSIS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 14 PROJECT ATLAS DISCOUNTED CASH FLOW MODEL VALUATION DATE: NOVEMBER 3, 2004 ($ in thousands - except per share data)
PROJECTED For the years ended December 31 ----------------------------------------------------------------------------------------- 2008 2004 2005 2006 2007 2008 Takeout ------------ ------------ ------------ ------------ ------------ ------------ Net Interest Income After Provision $ 8,930,921 $ 9,383,170 $ 10,354,131 $ 10,888,520 $ 11,558,345 Non-interest Income 1,378,077 1,488,323 1,607,389 1,735,980 1,874,858 ------------ ------------ ------------ ------------ ------------ 10,308,998 10,871,492 11,961,520 12,624,499 13,433,203 Depreciation (500,991) (507,657) (514,324) (520,991) (527,657) General & Administrative Expenses (6,039,656) (6,220,846) (6,407,471) (6,599,695) (6,797,686) ------------ ------------ ------------ ------------ ------------ Total Other Expenses (6,540,647) (6,728,503) (6,921,795) (7,120,686) (7,325,343) ------------ ------------ ------------ ------------ ------------ Income Before Taxes 3,768,351 4,142,989 5,039,725 5,503,814 6,107,859 Taxes @ 30% (1,130,505) (1,242,897) (1,511,917) (1,651,144) (1,832,358) ------------ ------------ ------------ ------------ ------------ Net Income 2,637,846 2,900,093 3,527,807 3,852,669 4,275,502 Dividend Payout $ 1,846,492 $ 2,030,065 $ 2,469,465 $ 2,696,869 $ 2,992,851 (% Dividend Payout) 70% 70% 70% 70% 70% Present Value Factor @ 10.5%(1) 0.9855 0.9240 0.8362 0.7567 0.6848 ------------ ------------ ------------ ------------ ------------ Mid-year Discount (1,384,869) ------------ ------------ ------------ ------------ ------------ Present Value of Free Cash Flows $ 454,929 $ 1,875,780 $ 2,064,967 $ 2,040,720 $ 2,049,504 ------------ ------------ ------------ ------------ ------------ Total Present Value of Cash Flows (Years 1 to 5) $ 8,485,901 Plus: Residual Cash Flow Value $ 41,225,242 2008 Net Income $ 4,275,502 ------------ ------------ Indicated Equity Value $ 49,711,143 2008 Price to LTM Net Income Ratio(2) 14.8x ------------ ------------ Fully Diluted Shares Outstanding 4,100,541 Residual Cash Flow Value $ 63,277,424 ------------ Equity Value Per Share (Marketable) $ 12.12 Present Value Factor 0.6515 ============ ------------ Present Value of Residual Cash Flow $ 41,225,242 ------------
Footnotes: (1) Based on the Ibbotson Associates weighted average cost of capital build up method (riskless rate + market risk premium) utilizing a 1.3% industry discount for commercial banks (data from Ibbotson Associates 2003 Yearbook - Valuation Edition) (2) Based on an average of publicly traded companies in MI, IN and OH with between $150 and $400 million in assets and LTM ROAE greater than 10%. DONNELLY PENMAN & PARTNERS November 3, 2004 -------------------------- INVESTMENT BANKING CONFIDENTIAL [COMMERCIAL BANK LOGO] 4. RECENT TRADING ANALYSIS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 16 PROJECT ATLAS RECENT TRADING ANALYSIS COMMERCIAL NATIONAL FINANCIAL CORPORATION (OTCBBB: CEFC) [TRADING ANALYSIS GRAPH] 30 DAY TRADING AVERAGE = $11.28, AVG. DAILY VOLUME = 110(1) 90 DAY TRADING AVERAGE = $11.09, AVG. DAILY VOLUME = 272(1) 1 YEAR TRADING AVERAGE = $11.38, AVG. DAILY VOLUME = 1,184(1) (1) May include double counting (volume from both the bid and ask side of a trade) DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING November 3, 2004 Page 17 CONFIDENTIAL [COMMERCIAL BANK LOGO] 5. ANALYSIS OF COMPARABLE COMPANIES DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 18 COMPARABLE COMPANY ANALYSIS PUBLICLY TRADED BANKS IN MICHIGAN, INDIANA AND OHIO WITH TOTAL ASSETS BETWEEN $150 AND $400 MILLION WITH LTM ROAE GREATER THAN 10%
CLOSING PRICE (10/29/2004) TO: FISCAL CLOSING DIVIDEND --------------------------------- PERIOD PRICE YIELD BOOK TANG. LTM COMPANY STATE TICKER ENDED (10/29/2004) (%) (%) BOOK (%) EPS (X) Century Financial Corporation MI CYFL 03/31/2004 22.55 3.72 153.8 153.8 15.0 Clarkston Financial Corporation MI CKSB 09/30/2004 20.35 0.00 177.6 178.2 14.5 Consumers Bancorp, Inc. OH CBKM 09/30/2004 19.50 1.85 221.1 235.8 18.8 County Bank Corporation MI CYBK 06/30/2004 52.25 2.07 203.5 203.5 17.5 F.S. Bancorp IN FXLG 06/30/2004 52.00 3.46 197.3 197.3 15.2 Futura Banc Corporation OH FUBK 03/31/2004 21.40 2.24 176.9 177.9 14.7 Heartland Banccorp OH HLAN 03/31/2004 39.50 1.42 194.5 197.3 14.6 Middlefield Banc Corp. OH MBCN 09/30/2004 38.00 2.32 183.8 183.8 14.3 Ohio Heritage Bancorp, Inc. OH OHHB 03/31/2004 54.50 2.51 113.7 113.7 8.9 Pavilion Bancorp, Inc. MI PVLN 06/30/2004 59.95 1.61 187.2 187.2 16.0 Southern Michigan Bancorp, Incorporated MI SOMC 06/30/2004 27.30 2.50 189.6 194.9 15.1 United Bancorp, Inc. OH UBCP 06/30/2004 13.24 3.80 149.4 149.6 12.4 --------------------------------------------------------------------------------------------------------------------------------- HIGH 59.95 3.80 221.1 235.8 18.8 LOW 13.24 0.00 113.71 113.71 8.95 MEAN 35.05 2.29 179.04 181.09 14.76 MEDIAN 32.65 2.28 183.84 185.50 14.85 --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL NATIONAL FINANCIAL CORPORATION MI CEFC 06/30/2004 11.00 4.36 183.03 183.03 16.67 --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL NATIONAL FINANCIAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) $ 6.09 $ 6.09 $ 0.68 MEDIAN MULTIPLE 183.8% 185.5% 14.8X ---------------------------------- EQUITY VALUE PER SHARE $ 11.19 $ 11.30 $10.06 TIER 1 RISK LTM TOTAL TOTAL TOTAL TOTAL NPAS/ BASED LTM LTM LTM EFFICIENCY ASSETS NET LOANS DEPOSITS EQUITY ASSETS CAPITAL ROAA ROAE NIM RATIO COMPANY ($000) ($000) ($000) ($000) (%) RATIO (%) (%) (%) (%) (%) Century Financial Corporation 223,329 140,304 189,282 27,385 0.97 10.78 1.24 10.42 3.74 60.93 Clarkston Financial Corporation 160,650 101,803 135,191 11,956 0.00 10.95 0.99 12.29 3.53 62.49 Consumers Bancorp, Inc. 190,261 141,760 155,857 18,938 NA 12.30 1.20 12.25 NA 63.62 County Bank Corporation 251,937 160,202 217,534 28,706 0.60 11.80 1.40 11.18 4.45 61.69 F.S. Bancorp 321,625 244,622 263,467 29,487 NA 13.26 1.21 13.09 3.98 57.70 Futura Banc Corporation 280,224 217,848 236,219 27,177 0.57 12.74 1.21 12.39 4.50 60.68 Heartland Banccorp 357,107 251,999 316,000 29,469 0.27 14.02 1.17 14.17 4.30 65.91 Middlefield Banc Corp. 289,214 206,630 238,739 25,509 0.16 12.38 1.19 13.58 3.79 59.42 Ohio Heritage Bancorp, Inc. 180,931 138,166 113,162 14,802 0.03 NA 1.05 13.22 3.34 56.08 Pavilion Bancorp, Inc. 328,332 280,133 268,378 27,079 0.51 12.58 0.99 11.65 4.93 73.55 Southern Michigan Bancorp, Incorporated 310,815 236,419 253,831 26,348 1.06 12.69 1.04 12.60 4.13 70.84 United Bancorp, Inc. 393,182 206,721 300,345 30,751 0.32 10.70 0.99 11.54 3.84 64.52 --------------------------------------------------------------------------------------------------------------------------------- HIGH 393,182 280,133 316,000 30,751 1.06 14.02 1.40 14.17 4.93 73.55 LOW 160,650 101,803 113,162 11,956 0.00 10.70 0.99 10.42 3.34 56.08 MEAN 273,967 193,884 224,000 24,801 0.45 12.20 1.14 12.37 4.05 63.12 MEDIAN 284,719 206,676 237,479 27,128 0.42 12.38 1.18 12.34 3.98 62.09 --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL NATIONAL FINANCIAL CORPORATION 243,151 198,041 165,612 24,516 1.21 9.21 1.14 11.08 4.49 60.27 --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL NATIONAL FINANCIAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) MEDIAN MULTIPLE EQUITY VALUE PER SHARE
Source: SNL Financial DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 19 CONFIDENTIAL [COMMERCIAL BNAK LOGO] 6. ANALYSIS OF COMPARABLE TRANSACTIONS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING Page 20 COMPARABLE ACQUISITION ANALYSIS COMMERCIAL BANK ACQUISITIONS IN MI, IN AND OH ANNOUNCED SINCE 1/1/02 - TARGET ASSETS LESS THAN $500 MILLION AND POSITITVE LTM NET INCOME
ANNOUNCE COMPLETION DEAL VALUE BUYER SELLER SELLER STATE DATE DATE ($M) ----- ------ ------------ ---- ---- ---- Sky Financial Group, Inc. Prospect Bancshares, Inc. OH 09/15/2004 NA 46.90 Croghan Bancshares, Inc. Custar State Bank OH 08/10/2004 NA 13.90 Oak Hill Financial, Inc. Ripley National Bank OH 07/20/2004 10/09/2004 5.50 Camco Financial Corporation London Financial Corporation OH 03/26/2004 08/20/2004 10.10 Lincoln Bancorp First Shares Bancorp, Inc. IN 03/10/2004 08/02/2004 37.30 Independent Bank Corporation Midwest Guaranty Bancorp, Incorporated MI 02/04/2004 05/31/2004 43.00 Harrodsburg First Financial Bancorp, Inc. Independence Bancorp IN 01/22/2004 07/09/2004 17.10 Chemical Financial Corporation Caledonia Financial Corporation MI 09/25/2003 12/01/2003 51.10 Sky Financial Group Inc. GLB Bancorp, Inc. OH 07/16/2003 10/19/2003 39.80 Citizens First Bancorp, Inc. Metro Bancorp, Inc. MI 05/22/2003 01/09/2004 30.00 Wayne Bancorp Inc. Banc Services Corporation OH 12/10/2002 05/31/2003 46.20 MainSource Financial Group First Community Bancshares, Inc. IN 11/20/2002 06/12/2003 23.20 First Capital, Inc. Hometown Bancshares Inc. IN 09/26/2002 03/20/2003 11.30 First Indiana Corporation MetroBanCorp IN 09/04/2002 01/13/2003 39.20 First Merchants Corp. CNBC Bancorp OH 08/28/2002 03/01/2003 58.00 Charter One Financial, Inc. Charter National Bancorp, Inc. MI 01/11/2002 05/24/2002 90.40 -- ---------- ---------- ----- HIGH 90.40 LOW 5.50 MEAN 35.19 MEDIAN 38.25 COMMERCIAL NATIONAL FINANCIAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) MEDIAN MULTIPLE EQUITY VALUE PER SHARE Price at Announcement to: Target ------------------------------------------ Premium to Target Equity/ Book TBV LTM EPS Assets Deposits Core Deposits Buyer Assets ($M) Assets (%) (%) (%) (x) (%) (%) (%) ----- ----------- ---------- --- --- --- --- --- --- Sky Financial Group, Inc. 202,644 7.21 302.78 302.78 29.98 23.15 25.33 19.30 Croghan Bancshares, Inc. 54,234 17.08 150.01 150.01 19.49 25.62 31.00 11.96 Oak Hill Financial, Inc. 64,157 5.11 167.73 167.73 19.71 8.57 9.57 4.77 Camco Financial Corporation 58,941 8.41 203.31 203.31 18.77 17.10 22.67 13.36 Lincoln Bancorp 175,788 5.14 255.01 255.43 35.52 21.24 26.15 23.49 Independent Bank Corporation 233,580 7.47 246.55 246.55 19.66 18.41 22.24 16.15 Harrodsburg First Financial Bancorp, Inc. 102,749 11.35 260.73 294.66 27.12 21.22 26.48 22.15 Chemical Financial Corporation 206,158 10.04 247.15 247.15 15.83 24.80 29.41 23.30 Sky Financial Group Inc. 207,407 14.32 132.56 133.19 33.54 19.21 23.27 6.47 Citizens First Bancorp, Inc. 146,842 10.90 181.40 181.40 20.15 20.43 23.09 11.40 Wayne Bancorp Inc. 206,341 8.41 266.51 266.51 16.98 22.41 28.10 20.41 MainSource Financial Group 149,258 7.04 208.96 211.06 33.33 15.57 19.14 12.72 First Capital, Inc. 82,323 8.82 155.33 155.33 22.69 13.73 15.13 7.67 First Indiana Corporation 173,753 8.83 228.49 228.49 24.29 22.56 28.91 19.57 First Merchants Corp. 317,329 7.52 229.10 229.29 17.06 18.28 23.42 18.82 Charter One Financial, Inc. 266,915 10.04 337.39 337.39 26.38 33.87 41.83 33.89 ------- ----- ------ ------ ------ ------ ------ ------ HIGH 317,329 17.08 337.39 337.39 35.52 33.87 41.83 33.89 LOW 54,234 5.11 132.56 133.19 15.83 8.57 9.57 4.77 MEAN 165,526 9.23 223.31 225.64 23.78 20.39 24.73 16.59 MEDIAN 174,771 8.62 228.80 228.89 21.42 20.83 24.38 17.49 COMMERCIAL NATIONAL FINANCIAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) 243,869 10.23 $ 6.09 $ 6.09 $ 0.68 $59.72 $40.65 $35.33 MEDIAN MULTIPLE 228.8% 228.9% 21.4X 20.8% 24.4% 17.5% ------ ------ ------ ------ ------ ------ EQUITY VALUE PER SHARE $13.93 $13.94 $14.55 $12.42 $ 9.92 $12.27
Source: SNL Financial LP DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING November 3, 2004