<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the quarterly period ended September 30, 1997, or
__ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ________ to _________
Commission File No. 0-17000
COMMERCIAL NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2799780
(State of Incorporation) (IRS Employer Identification No.)
101 North Pine River Street, Ithaca, Michigan 48847
(address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (517) 875-4144
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES _____X______ NO ______________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 28, 1997
----- -------------------------------
Common Stock 907,366
$1.00 Par Value
<PAGE> 2
COMMERCIAL NATION FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
- ------ ---------------------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 (Page 3)
Consolidated Statements of Income for the three months and nine months (Page 4)
ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows for the nine months ended September (Page 5)
30, 1997 and 1996
Notes to Consolidated Financial Statements (Page 6)
Item 2. Management's Discussion and Analysis of Financial Condition and Results (Page 7-11)
of Operations
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27-Financial Data Schedule Exhibit 27
b) Reports on Form 8-K (Page 12)
SIGNATURES (Page 13)
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
COMMERCIAL NATIONAL FINANCIAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,1997 December 31,1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,295,667 $ 6,550,844
Federal funds sold 750,000 6,600,000
------------ ------------
5,045,667 13,150,844
Securities available for sale 2,998,893 -
Securities held to maturity (estimated fair market value
of $21,390,000 and $25,684,000) 21,275,956 25,531,759
Federal Home Loan Bank stock, at cost 1,391,300 1,262,000
Loans
Commercial and agricultural 78,145,722 72,012,139
Real estate 29,786,720 28,886,794
Consumer and other 20,442,904 21,426,391
------------ ------------
Total loans 128,375,346 122,325,324
Allowance for loan losses (1,992,392) (1,824,080)
------------ ------------
Net loans 126,382,954 120,501,244
Property and equipment, net 3,353,697 4,047,374
Other assets 1,744,875 1,697,128
------------ ------------
Total assets $162,193,342 $166,190,349
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest bearing demand $ 13,865,206 $ 17,110,034
Interest bearing demand 37,665,743 36,009,919
Savings 21,689,173 21,379,089
Time 53,273,996 58,517,780
------------ ------------
Total deposits 126,494,118 133,016,822
Securities sold under agreements to repurchase 3,673,515 5,602,246
Demand notes issued to U.S. Treasury 1,291,955 941,968
Federal Home Loan Bank borrowings 13,000,000 10,000,000
Other liabilities 1,180,097 1,133,650
------------ ------------
Total liabilities 145,639,685 150,694,686
------------ ------------
Shareholders' equity
Common stock, par value $1.00, authorized
1,750,000, issued 904,089 and 872,982 shares 904,089 872,982
Additional paid-in capital 13,821,754 13,123,259
Unrealized (loss) on securities available for sale, net of tax effect 1,612 -
Retained earnings 1,826,202 1,499,422
------------ ------------
Total shareholders' equity 16,553,657 15,495,663
------------ ------------
Total liabilities and shareholders' equity $162,193,342 $166,190,349
============ ============
</TABLE>
3
See accompanying notes to consolidated financial statements
<PAGE> 4
COMMERCIAL NATIONAL FINANCIAL CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,876,543 $2,646,730 $8,380,672 $7,625,403
Interest on securities
Taxable 167,470 228,672 497,675 762,905
Tax exempt 178,212 187,137 553,368 542,840
Interest on Federal funds sold 26,670 10,832 180,983 112,897
FHLB stock dividends 27,913 15,153 77,044 32,919
---------- ---------- ---------- ----------
Total interest income 3,276,808 3,088,524 9,689,742 9,076,964
INTEREST EXPENSE
Interest on deposits 1,156,891 1,151,733 3,459,933 3,477,438
Interest on repurchase agreements
and other short term borrowings 79,994 79,420 265,928 266,910
Interest on FHLB borrowing 186,070 81,488 478,190 135,980
---------- ---------- ---------- ----------
Total interest expense 1,422,955 1,312,641 4,204,051 3,880,328
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,853,853 1,775,883 5,485,691 5,196,636
Provision for loan losses 90,000 60,000 305,000 170,000
---------- ---------- ---------- ----------
Net income after provision for loan losses 1,763,853 1,715,883 5,180,691 5,026,636
---------- ---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 125,127 74,442 314,433 219,304
Other 230,959 93,594 462,581 303,333
---------- ---------- ---------- ----------
Total other income 356,086 168,036 777,014 522,637
OTHER EXPENSES
Personnel expense 604,440 743,920 1,974,125 2,212,665
Occupancy expense 65,366 57,698 201,527 212,385
Furniture and equipment expense 160,932 153,540 512,357 431,675
Branch closing costs - - 546,614 -
Other operating expenses 440,774 524,503 1,340,687 1,467,002
---------- ---------- ---------- ----------
Total other expenses 1,271,512 1,479,661 4,575,310 4,323,727
Income before Federal income taxes 848,427 404,258 1,382,395 1,225,546
Federal income tax expense 226,195 64,296 291,669 200,440
---------- ---------- ---------- ----------
Net income $ 622,232 $ 339,962 $1,090,726 $1,025,106
========== ========== ========== ==========
Earnings per share $ 0.69 $ 0.39 $ 1.23 $ 1.19
========== ========== ========== ==========
Dividends per share $ 0.33 $ 0.28 $ 0.96 $ 0.83
========== ========== ========== ==========
</TABLE>
4
See accompanying notes to consolidated financial statements
<PAGE> 5
COMMERCIAL NATIONAL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
CASH FLOW FROM OPERATING ACTIVITIES 1997 1996
---- ----
<S> <C> <C>
Net income $1,090,726 $1,025,105
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses 305,000 170,000
Depreciation and amortization 356,498 316,491
Write-off of assets associated with branch closing 486,612
Net amortization and accretion on investment securities 41,374 85,192
Amortization of goodwill and premium
associated with acquisitions 42,334 29,205
Gain on sale of mortgage loans (86,221) -
Proceeds from mortgage loan sales 6,431,114 -
Mortgage loans originated for sale (6,367,393)
Increase/(decrease) in other assets (56,226) 69,327
Increase in other liabilities 46,447 347,965
---------- ----------
Net cash from operating activities 2,290,265 2,043,285
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of securities
Held to maturity (2,626,478) (7,359,293)
Available for sale (2,994,844) -
Proceeds from maturities of securities
Held to maturity 6,710,000 8,030,000
Available for sale - -
Net increase in loans (6,198,895) (8,117,752)
Property and equipment expenditures (149,433) (1,069,471)
---------- ----------
Net cash from investing activities (5,259,650) (8,516,516)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in deposits (6,522,704) (5,396,843)
Net increase in short-term borrowings (1,578,744) (712,049)
Proceeds from FHLB borrowings 7,000,000 12,000,000
Repayment of FHLB borrowings (4,000,000) (2,000,000)
Proceeds from issuance of common stock 729,602 324,053
Dividends paid and fractional shares (763,946) (717,126)
---------- ----------
Net cash from financing activities (5,135,792) 3,498,035
---------- ----------
NET CHANGE IN CASH
AND CASH EQUIVALENTS (8,105,177) (2,975,196)
Cash and cash equivalents,
at beginning of year 13,150,844 8,575,357
---------- ----------
Cash and cash equivalents,
at end of period $5,045,667 $5,600,161
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $4,361,307 $3,963,710
Federal Income taxes $ 283,251 $ 140,880
</TABLE>
5
See accompanying notes to consolidated financial statements
<PAGE> 6
COMMERCIAL NATIONAL FINANCIAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
Note 1-Summary of Significant Accounting Policies
Basic Presentation
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with Rule 10-01 of regulation S-X and the instructions
for Form 10-Q and, therefore, do not include all disclosures required by
generally accepted accounting principles for complete presentation of financial
statements. In the opinion of management, the condensed consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial condition of Commercial National
Financial Corporation as of September 30, 1997 and December 31, 1996, and the
results of its operations for the three months and nine months ending September
30, 1997 and September 30, 1996. The results for the three months ended
September 30, 1997 are not necessarily indicative of the results expected for
the full year.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of
Commercial National Financial Corporation (CNFC) and its wholly owned
subsidiary, Commercial Bank (Bank). All material intercompany accounts and
transactions have been eliminated in consolidation.
Investment in Debt and Equity Securities
Securities are classified into held to maturity, available for sale and trading
categories. Held to maturity securities are those which CNFC has the positive
intent and ability to hold to maturity. These securities are reported at
amortized cost. Available for sale securities are those which CNFC may decide
to sell if needed for liquidity, asset-liability management, tax planning or
other reasons. Available for sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of equity net of
tax. Trading securities are bought principally for sale in the near term, and
are reported at fair value with unrealized gains or losses included in
earnings. CNFC did not classify securities for trading at any time during 1997
or 1996.
Income Taxes
Income tax for the three and nine months ended September 30, 1997 and 1996 is
based upon the liability method, according to SFAS No. 109, "Accounting for
Income Taxes." Certain income tax and expense items are reported in different
time periods for tax purposes. Deferred or prepaid taxes are recorded in Other
Assets in the balance sheet.
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding and common equivalent shares with a
dilutive effect. Common equivalent shares are shares which may be issuable to
employees upon exercise of outstanding stock options. The average number of
shares outstanding during the first nine months of 1997 and 1996 were 887,967
and 864,397. The average number of shares outstanding during the quarters
ending September 30, 1997 and September 30, 1996 were 896,877 and
869,567respectively.
6
<PAGE> 7
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Average assets for the quarter ending September 30, 1997 increased to
$162,320,000 from the $161,220,000 at the quarter ending December 31, 1996.
Total loans averaged $126,588,000 during the quarter ending September 30, 1997.
This is a $7,285,000 or 6.1% increase over the quarter ending December 31,
1996 balance of $119,303,000. Strong demand for commercial loans accounted for
$6,251,000 of the growth. We anticipate a continued demand for business related
loans over the next several quarters due to a strong economy. Mortgages
increased a modest $755,000 since December 31, 1996, however, the outstanding
balances do not reflect the increased volume of fixed rate mortgage loans sold
in the secondary market. The demand for consumer loans remained relatively
flat. This can be attributed to management's decreased emphasis on the
indirect automobile market. In the first quarter of 1997, management reduced
the reserve paid to dealers which significantly reduced the volume of indirect
automobile loans funded by the Bank.
<TABLE>
<CAPTION>
Average Loan Balances
Three Months Ending
September 30, June 30, 1997 March 31, 1997 December 31,
1997 1996
<S> <C> <C> <C> <C>
Mortgage $29,561,000 $29,156,000 $28,836,000 $28,806,000
Commercial and 76,227,000 72,715,000 71,628,000 69,976,000
agricultural
Consumer and other 20,800,000 21,477,000 21,536,000 20,521,000
------------ ------------ ------------ ------------
Total average loans $126,588,000 $123,348,000 $122,000,000 $119,303,000
============ ============ ============ ============
</TABLE>
Total investment securities averaged $26,244,000 during the quarter ending
September 30, 1997, which is $2,375,000 less than the quarter ending December
31, 1996. We anticipate purchasing more investment securities to accommodate
requests for repurchase agreements and for future short term liquidity needs.
However, the purchase of these investments is contingent on our ability to
purchase securities with reasonable yields, and our ability to fund the
purchases. During the quarter ending June 30, 1997, management began
classifying investment securities purchased as available for sale. Management
will continue to classify the majority of future purchases as available for
sale. As of September 30, 1997 $2,999,000 or 12.4% of the investment
portfolio, excluding FHLB stock, is currently classified as available for sale.
Average deposits for the quarter ending September 30, 1997 totaled
$127,217,000. The balances dropped $2,215,000 or 1.7% compared to balances for
the quarter ending December 31, 1996. This drop is partially due to seasonal
cash requirements of agricultural deposit customers. Also, this decrease
reflects the increased competition for retail deposits in our marketplace.
<TABLE>
<CAPTION>
Average Deposit Balances
Three Months Ending
September 30, June 30, 1997 March 31, 1997 December 31,
1997 1996
<S> <C> <C> <C> <C>
Non-interest bearing demand $14,474,000 $14,525,000 $14,752,000 $14,766,000
Interest-bearing demand 36,733,000 38,417,000 37,795,000 35,277,000
Savings 21,782,000 21,885,000 21,720,000 22,863,000
Time 54,228,000 53,961,000 56,211,000 56,526,000
------------ ------------ ------------ ------------
Total deposits $127,217,000 $128,788,000 $130,478,000 $129,432,000
============ ============ ============= ============
</TABLE>
The Bank borrowed an additional $3,000,000 from the Federal Home Loan Bank
(FHLB) of Indianapolis during the third quarter to meet increased loan demand.
At September 30, 1997, the Bank has the ability to access an
7
<PAGE> 8
additional $2,000,000 from the FHLB. Management views the FHLB as a reasonably
priced alternative to aggressively bidding on retail deposits. We are in the
process of increasing our borrowing limits with FHLB.
LIQUIDITY AND RATE SENSITIVITY
Management defines liquidity as the ability to fund appropriate levels of
credit worthy loans, meet the immediate cash withdrawal requirements of
depositors, and maintain access to sufficient resources to meet unexpected
contingencies at a reasonable cost and or with minimum losses. Management is
confident that the combination of available FHLB advances, available advances
with correspondent banks, the available for sale investment portfolio, and our
ability to sell mortgage loans and the government guaranteed portion of
commercial loans provides adequate short and medium term sources of liquidity.
While modest loan growth continues, the Bank's deposit base has slightly
eroded. The loan to deposit ratio based on ending balances increased to
101.5% at September 30, 1997 from 92.0% at December 31, 1996. However, as
discussed above, management is not concerned about this ratio as long as
alternative sources of liquidity are available.
Maturities of investment securities have been used to partially fund loan
growth. However, the Bank's portfolio of Treasuries and Agencies are needed to
pledge for repurchase agreements and other collateral requirements. The Bank
is investigating other funding sources including additional borrowings from the
FHLB. As previously discussed, the Bank has an additional $2,000,000 available
from the FHLB.
The Bank had previously elected to classify all securities as held to maturity.
Accordingly these securities are not available to fund short term liquidity
needs except as they mature. During the remaining three months of 1997,
$2,850,000 of investments will mature. Management anticipates classifying all
future investment securities purchased as available for sale.
ASSET QUALITY AND THE ALLOWANCE FOR LOAN LOSS
The allowance for loan losses was 1.55% of total loans at September 30, 1997
compared to 1.49% at December 31, 1996. Total non-performing loans were
$65,000 or 0.05% of total loans. Loan quality continues to remains at very
acceptable levels compared to long term historical trends.
Net charge-offs totaled $137,000 for the quarter ending September 30, 1997. A
significant portion of this is attributable to non-performing indirect auto
loans. As previously mentioned, the Bank has reduced its participation in the
indirect paper market. To maintain the allowance at 1.55% of total loans, the
Bank expensed a provision of $90,000 to the allowance during the third quarter.
Management continues to systematically evaluate the adequacy of the allowance
such that the balance is commensurate with the performance of the loan
portfolio, general market conditions and other relevant factors.
CAPITAL RESOURCES
Total shareholder's equity at September 30, 1997 was $16,554,000. CNFC's
capital ratios continue to exceed regulatory guidelines for a "well
capitalized" institution by a wide margin. A summary of CNFC's capital ratios
follows:
<TABLE>
<CAPTION>
September 30, June 30, 1997 March 31, 1997 December 31, 1996 Well
1997 Capitalized
<S> <C> <C> <C> <C> <C>
Total capital to
risk weighted
assets 14.8% 14.4% 13.5% 14.3% 8.0%
==== ==== ==== ==== ===
Tier 1 capital to
risk weighted
assets 13.6% 13.2% 12.2% 13.0% 4.0%
==== ==== ==== ==== ===
Tier 1 capital to
average assets 10.2% 9.5% 8.7% 9.4% 4.0%
==== ==== ==== ==== ===
</TABLE>
8
<PAGE> 9
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1997 was $622,000, an increase
of $282,000 or 83.0% over the same period in 1996. This is largely
attributable to reduced overhead created by the closing of supermarket branches
and the related reduction in staff in the second quarter of 1997. Net income
for the nine months ended September 30, 1997 was $1,090,726, an increase of
$66,000 or 6.0% over the same period in 1996.
Return on average shareholders' equity for the three months ended September 30,
1997 and 1996 was 15.14% and 9.06%. For the nine months ending September 30,
1997 and 1996, return on average shareholders' equity was 9.05% and 9.18%
respectively.
Return on average assets for the three months ending September 30, 1997 and
1996 was 1.52% and 0.88% respectively. For the nine months ending September 30,
1997 and 1996, return on average assets was 0.89% and 0.89%.
Net Interest Income
The following table illustrates the effect that changes in rates and volumes of
interest-earning assets and interest-bearing liabilities had on net interest
income for the three months ending September 30, 1997 and 1996 and the nine
months ending September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income(tax equivalent) $ 3,387,000 $ 3,218,000 $ 10,032,000 $ 9,462,000
Interest Expense 1,423,000 1,313,000 4,204,000 3,880,000
------------ ------------ ------------ -------------
Net Interest Income $ 1,964,000 $ 1,905,000 $ 5,828,000 $ 5,582,000
============ ============ ============ =============
Average Volume
Interest-earning Assets $154,742,000 $145,911,000 $154,849,000 $ 145,535,000
Interest-bearing Liabilities 130,440,000 125,605,000 131,436,000 124,252,000
------------ ------------ ------------ -------------
Net differential $ 24,302,000 $ 20,306,000 $ 23,413,000 $ 21,283,000
============ ============ ============ =============
Average Yields/Rates
Yield on Earning Assets 8.69% 8.77% 8.66% 8.68%
Rate Paid on Liabilities 4.32% 4.16% 4.28% 4.17%
---- ---- ---- ----
Interest Spread 4.37% 4.61% 4.38% 4.51%
==== ==== ==== ====
Net Interest Margin 5.03% 5.19% 5.03% 5.12%
==== ==== ==== ====
</TABLE>
The change in net interest income is attributable to the following:
<TABLE>
<CAPTION>
Three Months Ending September 30, Nine Months Ending September 30,
1997 1997
Volume Rate Inc/(Dec) Volume Rate Inc/(Dec)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning
Assets $790,000 $(621,000) $169,000 $930,000 $(360,000) $570,000
Interest Bearing
Liabilities 321,000 (211,000) 110,000 435,000 (111,000) 324,000
-------- --------- -------- -------- --------- --------
Net Interest Income $469,000 $(410,000) $ 59,000 $495,000 $(249,000) $246,000
======== ========= ======== ======== ========= ========
</TABLE>
The increase in net interest income is primarily due to an increase in earning
assets and interest bearing liabilities. Net interest margin for the three
months ending September 30, 1997 decreased slightly to 5.03% compared to
9
<PAGE> 10
5.19% for the three months ending September 30, 1996, primarily due to the
increased usage of borrowed funds from the FHLB.
Non-interest Income
Non-interest income for the three months ending September 30, 1997 was
$356,000. This represents a $188,000 or 112% increase over the same period in
1996. Non-interest income for the nine months ending September 30, 1997 was
$777,000 compared to $523,000 for the same period in 1996. This represents a
$254,000 or 48.6% increase.
The major components of this significant increase were: an increase in NSF
charges introduced at end of the first quarter of 1997, introduction of new
service charges assessed against low balance, high volume corporate deposit
customers, increased volume and improved pricing of mortgage loans sold to the
secondary market, and an ATM surcharge assessed against non-customers using
Bank owned ATMs.
In the third quarter of 1997, the Bank introduced a factoring program, and sold
the guaranteed portion of commercial loans guaranteed by the Small Business
Administration (SBA). Management intends to develop both of these programs
into consistent sources of income. Both of these programs positively
contributed to the September 30, 1997 non-interest income.
The initial sales of the guaranteed portion of commercial loans were completed
to create an alternative source of liquidity, and also provide additional fee
income in the form of gains on sale of the loan and the related servicing fee
income. The factoring program, allows certain commercial customers to increase
cash flow, while reducing the risk of loss to the loan portfolio.
Offsetting these increases was a reduction in demand deposit account service
charges related to the Bank's introduction of check imaging in 1996. Check
imaging was offered without charge to customers previously assessed fees for
not participating in check truncation.
Non-interest Expense
Non-interest expense for the three months ending September 30, 1997 totaled
$1,271,000. This represents a $208,000 or 14.1% decrease over the same period
in 1996. For the nine months ending September 30, 1997, non-interest expense
totaled $4,575,000, a decrease of $251,000 or 5.8% compared to the same period
in 1996.
Salary and benefit expense for the three months ending September 30, 1997
totaled $604,000 compared to $744,000 for a reduction of $140,000 or 18.8%.
For the nine months ending September 30, 1997 and 1996 salary and benefit
expense totaled $1,974,000 and $2,213,000 for a reduction of $239,000 or 10.8%.
This savings was created largely by two events: closure of two supermarket
branches in the second quarter and the related reduction in full time
equivalents, and a general reduction in full time equivalents in other
departments, offset by costs associated with severance packages. Management
continues to focus on the optimal use of our employees and associated control
of overhead costs. We have reduced full time equivalents (FTE's), from 95
FTE's at December 31,1996 to 72 FTE's at September 30, 1997.
Equipment expense slightly increased due to the Bank's commitment to maintain
its investment in computers, software, imaging technology and local area
networks purchased prior to 1997. Some of this cost is partially offset by the
savings realized from the closure of two supermarket branches. Equipment
expense for the three months ending September 30, 1997 increased $7,000 to
$161,000 or 4.6%. For the nine months ending September 30, 1997 and 1996,
equipment expense totaled $512,000 and $432,000 respectively, representing a
$80,000 or 18.5% increase.
In general, all other overhead expenses were lower due to management's
continued emphasis on controlling overhead. Non-interest expense for the
period ending September 30, 1996 included the FDIC's one-time assessment of
$77,000 to capitalize the Savings Association Insurance Fund. CNFC's ratio of
non-interest expense to average assets for the quarter ending September 30,
1997 decreased to 3.13% from 3.83% for the quarter ending September 30, 1996.
The ratio of non-interest expense to average assets for the nine months ending
September 30, 1997 remained the same as the nine months ending September 30,
1996 at 3.74%. Without the effect of the one-
10
<PAGE> 11
time charges incurred in the second quarter, CNFC's ratio of non-interest
expense to average assets for the nine months ending September 30, 1997 would
have been 3.22%.
11
<PAGE> 12
COMMERCIAL FINANCIAL CORPORATION
Item 6 (b) Reports on Form 8-K
A Form 8-K was filed July 25, 1997, which acknowledges the Board of Directors
acceptance of the resignation from the Board of Directors of CNFC and of
Commercial Bank of Mr. Milligan. Mr. Milligan also served as Chief Executive
Officer and President of CNFC and Commercial Bank.
12
<PAGE> 13
COMMERCIAL NATIONAL FINANCIAL CORPORATION
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 National Financial Corporation
(Registrant)
Date: October 14,1997
/s/ Jeffrey S. Barker
Jeffrey S. Barker
Acting President and Chief Executive Officer
/s/ Patrick G. Duffy
Patrick G. Duffy
Vice President and Chief Financial Officer
13
<PAGE> 14
Exhibit Index
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,296
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,391
<INVESTMENTS-CARRYING> 24,275
<INVESTMENTS-MARKET> 24,389
<LOANS> 128,375
<ALLOWANCE> (1,992)
<TOTAL-ASSETS> 162,193
<DEPOSITS> 126,494
<SHORT-TERM> 4,965
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0
0
<COMMON> 904
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<INTEREST-TOTAL> 9,690
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<EPS-PRIMARY> 1.23
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<YIELD-ACTUAL> 8.78
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<ALLOWANCE-UNALLOCATED> 819
</TABLE>
