<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 0-18676
COMMERCIAL NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1623213
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
900 LIGONIER STREET, LATROBE, PA 15650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412)539-3501
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
COMMON STOCK, $2 PAR VALUE
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (x)
Aggregate market value of common stock held by
non-affiliates of registrant based on closing sale price
based on the NASDAQ National Market System on March 7, 1997. $66,375,000
Number of shares of common stock outstanding at March 7, 1997. 1,800,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to shareholders for
the fiscal year ended December 31, 1996 are incorporated by
reference into Parts I, II, and IV of this report. Portions of
the definitive Proxy Statement related to the annual meeting of
shareholders to be held April 16, 1997 are incorporated by
reference into Part III.
<PAGE>
Commercial National Financial Corporation
Form 10-K
INDEX
Part I
PAGE
ITEM 1. Business
Description of business................................ 3
Competition............................................ 4
Supervision and regulation............................. 4
Effects of Governmental Policies....................... 4
Consolidated Financial and Statistical Profile......... 5
ITEM 2. Properties............................................. 9
ITEM 3. Legal Proceedings...................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders.... 9
Executive Officers of the Registrant................... 10
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Security Holder Matters................................. 11
ITEM 6. Selected Financial Data................................. 11
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 11
ITEM 8. Financial Statements and Supplementary Data............. 11
ITEM 9. Disagreements on Accounting and Financial Disclosures... 11
PART III
ITEM 10. Directors and Executive Officers of the Registrant...... 12
ITEM 11. Executive Compensation.................................. 12
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 12
ITEM 13. Certain Relationships and Related Transactions.......... 12
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 13
<PAGE>
Part I
Item 1. BUSINESS
Description of Business
- -----------------------
The Commercial National Financial Corporation (the
"corporation") was incorporated under the laws of the
Commonwealth of Pennsylvania on July 1, 1990 and is registered as
a bank holding company under the Bank Holding Company Act of 1956
as amended. The corporation is owner of 100% of the outstanding
shares of common stock of Commercial National Bank of
Westmoreland County. This subsidiary bank and its predecessor
have been providing banking services since 1934. At the present
time, two (2) banking offices are in operation in Latrobe, two(2)
in Unity Township and one (1) each in Ligonier, West Newton,
Greensburg, Murrysville and Hempfield Township. The Murrysville
office began operations in July of 1996. An asset
management/trust department was established in 1994 and is
located in the building that houses the Greensburg banking
office. All of these offices are within the boundaries of
Westmoreland County, Pennsylvania. In addition, the building
which houses the downtown Latrobe banking office is the location
of the corporation's and the bank's executive and administrative
offices. The institution's operations center is located at the
Latrobe Plaza in downtown Latrobe. This operations center also
houses an in-house data processing system. In January of 1996,
the bank signed an agreement to purchase the Plaza Hotel which is
located next to the bank's corporate headquarters. The purchase
was made to secure space for current and future expansion of
office space as the bank is presently utilizing all its available
space to maximum capacity. Extensive renovations to the building
are expected to begin in 1997. Each of the banking offices,
except for downtown Latrobe and Greensburg, is equipped with
twenty-four-hour-a-day automatic teller machines and one (1)
additional ATM unit each is located on the campus of Saint
Vincent College in Unity Township, the terminal of the
Westmoreland County Airport in Unity Township and in the
reception lobby of the Latrobe Area Hospital in Latrobe. A
separate freestanding drive-up teller staffed banking facility is
attached to our Lincoln Road office in downtown Latrobe. This
facility also provides ATM service.
The corporation's business activities are limited to holding
the stock of its subsidiary bank and the remaining discussion
pertains to the activities of that bank.
The subsidiary bank offers the full range of banking services
normally associated with the general commercial banking business.
Services include extending credit, providing deposit services,
marketing non-deposit investments and offering financial
counseling. The ATM system described earlier is a part of the
MAC and Cirrus networks which permits the bank's customers access
to an extensive regional and national network. Earlier this year,
the bank implemented a comprehensive electronic home-banking
system. This product known as the Maxcess (at this point, there
appears a service mark) Account, provides our customers
with the option of paying bills through personal computer,
screenphone, touchtone phone and even rotary phone.
[FN]
MAXCESS is a service mark of Commercial National Bank of
Westmoreland County
<PAGE>
Competition
- -----------
Throughout the subsidiary bank's service area, substantial
competition exists both for deposit and loan products. The
competitors range from branches of major Cleveland Ohio, Indiana,
Pittsburgh and Johnstown Pennsylvania based banks, several
independent banks headquartered in Westmoreland County, a
variety of thrift institutions and a number of credit unions.
Even though some portions of the thrift industry have experienced
fairly extensive restructuring, the level of competitive activity
in our service area remains strong. Competition for certificates
of deposit and money market deposits remains vigorous with the
representatives of insurance companies and securities brokers
soliciting customers in our market area. In addition,
out-of-area institutions including retailers continue to solicit
business for credit cards, residential mortgages and automobile
financing.
Supervision and Regulation
- --------------------------
As a result of the establishment of the holding company format,
the holding company and the subsidiary bank are subject to the
supervision of the following regulatory bodies: The Federal
Reserve Board, the Office of the Comptroller of the Currency, the
Securities and Exchange Commission, the Commonwealth of
Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation. The nature of the supervision extends to
such areas as safety and soundness, truth-in-lending, truth-in-
savings, rate restrictions, consumer protection, permissible loan
and securities activities, merger and acquisition limitations,
reserve requirements, dividend payments and regulations
concerning activities by corporate officers and directors.
Because the corporation and the bank confine their activities
within a single county, changes to intra and inter-state banking
regulations have had little impact inasmuch as the competitive
situation described earlier can not be altered significantly nor
is the corporation likely to take advantage of the broader
branching or merger options now available. The Federal Reserve
Board monitors holding company activity while the Office of the
Comptroller of the Currency is the corporation's primary banking
regulator. No restrictions or actions are currently pending
against the corporation or the bank.
Effects of Governmental Policies
- --------------------------------
In addition to the regulatory requirements, the corporation and
its subsidiary bank are affected by the national economy and the
influence on that economy exerted by governmental bodies through
monetary and fiscal policies and their efforts to implement such
policies. In particular, the impact of the open market
operations on interest rates, the establishment of reserve
requirements and the setting of the discount rate will continue
to affect business volumes and earnings. The exact nature or the
full extent of this impact is almost impossible to predict;
however, management continues to monitor these activities on a
regular basis and seeks to modify its policies and procedures
accordingly.
<PAGE>
CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE
The data presented on the following pages provides additional
information to assist in reviewing the corporation's business
activities and must be read with the understanding that it is a
supplement to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the annual report to
shareholders for the year ended December 31, 1996 which is
incorporated herein by reference.
Securities Portfolio
- --------------------
The following table presents the composition of the securities
portfolio at year end for the years indicated:
<TABLE>
Amortized Cost at December 31
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U. S. Treasury securities and other
U. S. Government agencies and
corporations $73,477,520 $77,094,930 $72,825,002
Obligations of states and political
subdivisions 27,928,975 24,996,402 23,652,973
Other securities 933,200 944,700 956,100
---------- ---------- ----------
Total $102,339,695 $103,036,032 $97,434,075
============ ============ ===========
</TABLE>
Loans
- -----
Final loan maturities excluding consumer installment and
mortgage loans and before unearned discount at December 31, 1996:
(in thousands)
<TABLE>
<CAPTION>
Within One-Five After
One Year Years Five Years Total
-------- ------ ---------- -----
<S> <C> <C> <C> <C>
Commercial and Industrial $ 1,905 $ 20 $ - $ 1,925
Real estate-construction 8,862 7,368 728 16,958
Other 6,365* 1,138 7,582 $15,085
------- ------ ------ -------
Totals $17,132 $8,526 $8,310 $33,968
======= ====== ====== =======
Loans at fixed interest rates $4,091 $1,048 $ 5,139
Loans at variable interest rates 4,435 7,262 11,697
------ ------ -------
$8,526 $8,310 $16,836
====== ====== =======
</TABLE>
*Includes $2.8 million PHEAA loans with no fixed maturity date.
<PAGE>
CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued)
Non-performing Loans
- --------------------
The following table details, for each of the most recent five
years, the year end amounts which were accounted for on a non-
accrual basis or were past due 90 days or more:
Dec. 31, 1996
Loans on non-accrual basis $ 23,172
Loans past due 90 days or more 100,293
Renegotiated loans 1,024,550
----------
Total $1,148,015
==========
Dec. 31, 1995
Loans on non-accrual basis $ 569,564
Loans past due 90 days or more 89,824
Renegotiated loans 466,217
----------
Total $1,125,605
==========
Dec. 31, 1994
Loans on non-accrual basis $ 662,111
Loans past due 90 days or more 395,654
Renegotiated loans 158,057
----------
Total $1,215,822
==========
Dec. 31, 1993
Loans on non-accrual basis $ 211,526
Loans past due 90 days or more 65,485
Renegotiated loans 166,784
----------
Total $ 443,795
==========
Dec. 31, 1992
Loans on non-accrual basis $ 130,540
Loans past due 90 days or more 168,088
Renegotiated loans -
----------
Total $ 298,628
==========
At present no other loans which are outstanding present a serious
doubt in regard to the borrower's ability to comply with the
current loan repayment terms. As of December 31, 1996 the
corporation had $272,919 other real estate owned and no in
substance foreclosures. Expense on other real estate owned was
$1,800.
Effect of non-accrual loans on interest income during 1996 is as
follows:
Non-accrual
Loans
-------
Gross amount of interest that would have
been recorded at original rates $ 12,732
Less: Interest that was reflected in income 322
--------
Net reduction to interest income $ 12,410
========
<PAGE>
CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued)
Summary of Loan Loss Experience
- -------------------------------
The table below provides an analysis of the reserve for possible loan losses
for the five years ended December 31, 1996:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Loans outstanding at beginning of year $144,288,002 $139,066,657 $125,575,221 $116,792,991 $112,718,036
============ ============ ============ ============ ============
Average loans outstanding $151,056,637 $142,697,066 $130,041,170 $123,225,194 $115,914,839
Reserve for possible loan losses: ============ ============ ============ ============ ============
Balance, beginning of year $ 2,081,700 $ 2,077,553 $ 1,968,014 $ 1,740,713 $ 1,360,013
------------ ------------ ------------ ------------ ------------
Loans charged off:
Commercial, industrial & other - - - - 15,465
Installment and charge card 170,719 97,089 46,873 50,794 102,612
Real estate 3,233 - 40,009 92,771 37,750
------- ------ ------ ------- -------
Total loans charged off 173,952 97,089 86,882 143,565 155,827
------- ------ ------ ------- -------
Recoveries:
Commercial, industrial & other - - - - 3,871
Installment and charge card 23,070 10,884 7,637 10,866 22,356
Real estate - 352 8,784 - 300
------- ------ ------ ------- -------
Total recoveries 23,070 11,236 16,421 10,866 26,527
------- ------ ------ ------- -------
Net loans charged off 150,882 85,853 70,461 132,699 129,300
Provision charged to expense 105,000 90,000 180,000 360,000 510,000
------- ------ ------- ------- -------
Balance, end of year $ 2,035,818 $ 2,081,700 $ 2,077,553 $ 1,968,014 $ 1,740,713
============ =========== =========== =========== ===========
Ratios:
Net charge-offs as a percentage
of average loans outstanding .10% .06% .05% .11% .11%
Reserve for possible loan losses
as a percentage of average loans
outstanding 1.35 1.46 1.60 1.60 1.50
</TABLE>
Management review and evaluation of loan loss experience and loan loss
potential on outstanding loans occurs on a monthly basis and is
considered in conjunction with current economic conditions and
the current requirements of the appropriate regulatory agencies.
As a result of this on-going study, management believes that the
reserve amount shown for December 31, 1996 is adequate to offset
the expense which may exist as a result of under
collateralization or uncollectibility.
<PAGE>
CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued)
Deposits
- --------
The following table presents average deposits by type and the
average interest rates paid as of 1996, 1995 and 1994:
<TABLE>
December 31,
1996 1995 1994
<CAPTION>
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $ 32,920,490 - % $ 32,128,560 - % $ 29,989,014 - %
Interest bearing demand 18,110,581 1.95 17,116,367 2.20 17,312,928 2.27
Money market 39,754,528 3.79 40,662,832 3.85 48,954,853 3.19
Savings 44,744,695 3.03 42,721,554 3.05 45,420,259 2.95
Time 97,004,511 5.34 92,126,830 5.44 72,571,958 4.34
------------ ----------- -----------
Total $232,534,805 3.61% $224,756,143 3.67% $214,249,012 3.01%
============ ============ ===========
</TABLE>
Remaining maturities of certificates of deposit $100,000 or more:
<TABLE>
December 31,
1996 1995 1994
<CAPTION>
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Remaining maturity:
3 months or less $ 7,136,310 28% $ 5,614,025 26% $ 3,478,232 20%
Over 3 through 6 months 2,830,951 11 1,313,545 6 1,355,154 8
Over 6 months through 12 months 2,047,722 8 1,628,908 8 2,031,593 11
Over 12 months 13,319,276 53 12,453,765 60 10,815,691 61
---------- -- ---------- -- ---------- --
Total $ 25,334,259 100% $21,010,243 100% $17,680,670 100%
========== ========== ==========
</TABLE>
<PAGE>
Item 2. Properties
----------
All of the corporation's banking and support facilities are owned
and free of liens and encumbrances with the exception of one (1)
banking office and an adjacent drive-up facility, both of which
are leased. All of the properties are used in their entirety for
banking purposes. In each case, the properties have been
maintained in good repair, are well suited for their present use
and appear to be adequate for the immediate needs of the
corporation and the bank. During 1997, existing corporate offices
will expand into new space on the third floor of the former
Plaza Hotel property which is immediately adjacent to the bank's
corporate headquarters. The first and second floors of the
building will be finished at a later date as the demand for
additional space becomes apparent.
Item 3. Legal Proceedings
-----------------
Other than proceedings which occur in the normal conduct of
business, there are no legal proceedings to which either the
corporation or the subsidiary bank is a party which will have any
material effect on the financial position of the corporation
and its subsidiary.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows the names and ages of the current
executive officers and the present and previous positions held by
them for at least the past five years.
<TABLE>
<CAPTION>
Name Age Present and Previous Positions
- ------------------------------------------------------------------
<S> <C> <C>
Louis A. Steiner 66 Chairman of the board and chief
executive officer (1977 to present)
Louis T. Steiner 35 Vice chairman (December 1995 to
present), vice president (January
1994 to November 1995), assistant
vice president (January 1993 to
December 1993), and credit services
manager (November 1989 to 1992)
Gregg E. Hunter 38 Vice chairman and chief financial
officer (December 1995 to present),
vice president and chief financial
officer (January 1994 to November
1995), assistant secretary/treasurer
(January 1993 to November 1995),
assistant vice president and
controller (January 1993 to December
1993), financial services officer
(July 1991 to December 1992)
Edwin P. Cover 60 President and chief operating
officer (October 1989 to present)
Sandra L. Neiderhiser 57 Secretary/treasurer and vice
president corporate and financial
services (January 1993 to present),
assistant secretary/treasurer and
assistant vice president (October
1989 to December 1992)
Wendy S. Schmucker 28 Assistant vice president and
managing corporate officer (December
1996 to present), assistant
secretary/treasurer and corporate
and financial administrative officer
(December 1995 to November 1996),
corporate administrator (January 1995
to November 1995) and administrative
assistant (February 1992 to December 1994)
</TABLE>
<PAGE>
Part II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters
------------------------------------------------------------
Information appearing in the annual report to
shareholders for the fiscal year ended December 31, 1996
on page 20 is incorporated herein by reference in response
to this item. As of March 7, 1997 there were 525
shareholders of record of the registrant's common stock.
Item 6. Selected Financial Data
-----------------------
Information appearing in the annual report to
shareholders for the fiscal year ended December 31, 1996
on page 21 is incorporated herein by reference in response
to this item.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Information appearing in the annual report to
shareholders for the fiscal year ended December 31, 1996
on page 22 is incorporated herein by reference in response
to this item.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following information appearing in the annual
report to shareholders for the fiscal year ended December
31, 1996 is incorporated herein by reference in response
to this item.
Annual
Report
Page
------
Report of Independent Certified Public Accountants................... 19
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995...... 6
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994................................. 7
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.................. 8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.................................. 9
Notes to Consolidated Financial Statements........................ 10
Quarterly Summary of Financial Data (Unaudited)................... 20
Item 9. Disagreements on Accounting and Financial Disclosure
----------------------------------------------------
None.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information appearing in the definitive proxy statement
related to the annual meeting of shareholders to be held
April 15, 1997 on page 5 and 6 and from part I of this
report on 10-K is incorporated herein by reference in
response to this item.
Based on a review of the applicable forms, there was no
director,officer or beneficial owner of more than 10
percent of common stock who failed to file on a timely basis
reports required by Section 16(a) of the 1934 Act during the
most recent fiscal year or prior years.
Item 11. Executive Compensation
----------------------
Information appearing in the definitive proxy statement
related to the annual meeting of shareholders to be
held April 16, 1997 on page 11 is incorporated
herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
------------------------------------------------------
Information appearing in the definitive proxy statement
related to the annual meeting of shareholders to be held
April 15, 1997 on page 8 is incorporated herein by
reference in response to this item.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information appearing in the definitive proxy statement
related to the annual meeting of shareholders to be held
April 15, 1997 on page 14 is incorporated herein by
reference to this item.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
-------------------------------------------------------
(a)(1) Financial statements
All financial statements of the registrant as set forth
under Item 8 of this report on Form 10-K.
(2) Financial statement schedules are omitted as they are
not applicable.
Page Number or
(3) Exhibit Incorporated by
Number Description Reference to
------- ----------- ---------------
3.1 Articles of Incorporation Exhibit C to Form S-4
Registration Statement
filed April 9, 1990
3.2 By-laws of Registrant Exhibit D to Form S-4
Registration Statement
filed April 9, 1990
3.3 Amendment to Articles of Exhibit A to definitive
Incorporation Proxy Statement filed
for the special meeting
of shareholders held
September 18, 1990
13 Annual Report to Shareholders
for the Fiscal Year Ended
December 31, 1996
21 Subsidiary of the Registrant
22 Commercial National Financial Corporation 1997 Annual
Proxy Statement to Shareholders
27 Financial Data Schedule
(b) Report on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ Louis A. Steiner
---------------------------------------
Louis A. Steiner, Chairman of the Board
March 21, 1997
<PAGE>
EXHIBIT INDEX TABLE OF CONTENTS
Exhibit
Number Description
- ------- ------------
21 Subsidiary of the Registrant
<PAGE>
Exhibit 21 - Subsidiary of Commercial National Financial Corporation
-------------------------------------------------------
Percent Ownership
By Registrant
-----------------
Commercial National Bank of Westmoreland County 100%
900 Ligonier Street
Latrobe, PA 15650
Nationally Chartered Bank
<PAGE>
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE AND CAPACITY DATE
- ---------------------- ----------
/s/ Louis A. Steiner MARCH 18, 1997
- --------------------
Louis A. Steiner, Chairman of the Board and Director
/s/ Louis T. Steiner MARCH 18, 1997
- --------------------
Louis T. Steiner, Vice Chairman of the Board and Director
/s/ Gregg E. Hunter MARCH 18, 1997
- -------------------
Gregg E. Hunter, Vice Chairman of the Board and Director
/s/ Edwin P. Cover MARCH 18, 1997
- ------------------
Edwin P. Cover, President and Director
/s/ Sandra L. Neiderhiser MARCH 18, 1997
- -------------------------
Sandra L. Neiderhiser, Secretary/Treasurer
/s/ James A. Charley MARCH 18, 1997
- --------------------
James A. Charley, Director
/s/ William M. Charley MARCH 18, 1997
- ----------------------
William M. Charley, Director
/s/ George A. Conti, Jr. MARCH 18, 1997
- ------------------------
George A. Conti, Jr., Director
/s/ Richmond H. Ferguson MARCH 18, 1997
- ------------------------
Richmond H. Ferguson, Director
/s/ Dorothy S. Hunter MARCH 18, 1997
- ---------------------
Dorothy S. Hunter, Director
/s/ Frank E. Jobe MARCH 18, 1997
- ------------------
Frank E. Jobe, Director
/s/ Roy M. Landers MARCH 18, 1997
- ------------------
Roy M. Landers, Director
/s/ John C. McClatchey MARCH 18, 1997
- ----------------------
John C. McClatchey, Director
/s/ Joseph A. Mosso MARCH 18, 1997
- -------------------
Joseph A. Mosso, Director
/s/ William W. Washnock MARCH 18, 1997
- -----------------------
William W. Washnock, Director
/s/ C. Edward Wible MARCH 18, 1997
- -------------------
C. Edward Wible, Director
<PAGE>
(The following caption appears at the bottom of the page about
three-quarters of the way down.)
The corporation will provide without charge to any shareholder a
copy of its 1996 annual report on form 10-K as required to be
filed with the Securities and Exchange Commission. Requests
should be made in writing to:
COMMERCIAL NATIONAL FINANCIAL CORPORATION
STOCK TRANSFER DEPARTMENT
P.O. BOX 429
LATROBE, PA 15650
COMMERCIAL NATIONAL FINANCIAL CORPORATION 1996 ANNUAL REPORT
<PAGE>
(Front cover of the annual report. The corporate logo bearing the graphic of a
bank facade appears centered and taking up the first 1/4 of the page. Directly
under the logo, the title appears horizontally. The rest of the page bears the
the number 96 in large print and centered.)
<PAGE>
The inside front cover of the annual report is blank.
<PAGE>
Our Commitment To Those We Serve
(At this point in the 1996 annual report, the following text is depicted in
two column form with the first paragraph in the first column and the rest of
the text in the second column. Also, the corporate logo is inserted in the
upper righthand corner of each odd-numbered page of this annual report. The
form has been modified for electronic filing.)
In detailing the elements of our mission, the significant
components must be equally ranked regardless of their order of
presentation since substantial progress can be achieved only as
these elements interact harmoniously to advance the mission of
the corporation.
Our mission is to acquire, organize and manage the resources
required to offer personalized and professional financial
services in a manner that demonstrates our concern for
understanding and meeting the needs of the individuals, families,
businesses and other organizations in our marketplace.
In fulfilling our mission, we give constant consideration to
the well-being of our employees not only in terms of economic
benefit, but also by guaranteeing a working environment that
- - encourages personal and professional development
- - fosters individual dignity and
- - demands the highest ethical standards
so that each employee can experience a sense of satisfaction
in and personal identity with the accomplishments we achieve
together.
Our responsibility to the areas we are privileged to serve
requires our involvement as a corporation, as well as a
commitment by our employees and directors, to respond to
community development and improvement needs with a continual
investment of both time and funds.
All of our activities are carefully planned and professionally
conducted to provide our shareholders with a reasonable and
regular profit so that their ongoing investment will constantly
increase in value.
<PAGE>
(At this point in the 1996 annual report, page 2 is left intentionally blank.)
<PAGE>
(At this point and mostly throughout the rest of the annual report, the
text will be in three column format.)
To Our Sharholders
Of all the significant challenges being faced by the management
of any modern business organization, none is more critical than
determining the allocation of resources needed to provide high-
quality customer service, achieve appropriate financial returns
and, concurrently, make the expenditures necessary to meet the
demands anticipated in the future.
While the need to balance priorities always has existed in the
financial-services industry, the recent escalation in the calls
for more varied services along with a rapid increase in the pace
of changes, means that successfully meeting the dual
responsibilities of current performance and preparation for the
future has become more important even as it has become more
difficult to accomplish.
Your corporation's performance in 1996 gives strong evidence of
both our intention and ability to meet such challenges and, we
believe, prepared Commercial National Financial Corporation and
Commercial National Bank to move forward vigorously and
successfully. The financial data that follows provides a
detailed accounting of the progress made regarding asset growth,
earnings and the maintenance of the secure and sound capital
structure requisite for remaining an independent, locally based
provider of financial services.
At the time this financial record was being achieved, funds
were directed to projects and programs developed to enhance the
array of services offered now and in the future to customers
living throughout the area served by Commercial National Bank.
As a result of these spending programs ...
- -- in every community we serve, trained and licensed employees
began to help customers take appropriate advantage of the
non-deposit investments available through the bank;
- -- residents in the western sector of our county were able to
make use of the banking services that became available
through the opening of our full-service facility in
Murrysville;
- -- clients of the bank's rapidly expanding Asset Management and
Trust Division were able to choose from a growing list of
services;
- -- customers throughout our market were introduced to an
expanded group of home-banking products designed to make the
bank a more effective and efficient financial-services
provider to both individuals and business customers; and
- -- friends and alumni of Saint Vincent College were able to
take advantage of the benefits of a new Visa Gold credit
card designed exclusively for them through a special
arrangement with the bank.
These expenditures permitted us to offer services that not only
were of immediate benefit to our customers, but announced clearly
and unmistakably the role that the corporation and the bank
intend to play in the years ahead.
Also during 1996 you received notification that the shares of
common stock of the corporation had been accepted for listing by
The Nasdaq Stock Market, Inc. The intent of this step was to
provide shareholders with a responsive and unimpeded market that
would reflect fairly the market value of their investments.
The progress made by any organization grows out of the efforts
and concerns of the many individuals associated with it, and our
company has been exceptionally fortunate in the loyal support
extended over the years by our customers, employees, directors
and shareholders.
During 1996 we were deprived of the counsel of one of those
strong supporters with the death of Ronald H. Lynch. Mr. Lynch
served the bank as a member of the board of directors and as
chairman of the audit committee. We as colleagues and friends
share our loss with his family and the entire Latrobe community.
As indicated at the outset, success in the years ahead for an
independent banking institution will rely on carefully assessing
and meeting current and future needs. Based on our view of the
future, we remain convinced that the corporation and the bank,
aided by the skills and determination of our people and supported
by well-maintained facilities, successfully can honor our pledge
to continue providing the quality and personalized services that
have been our hallmark for more than 60 years.
/s/ Louis A. Steiner
Louis A. Steiner
Chairman of the Board
/s/ Gregg E. Hunter
Gregg E. Hunter
Vice Chairman of the Board
/s/ Louis T. Steiner
Louis T. Steiner
Vice Chairman of the Board
/s/ Edwin P. Cover
Edwin P. Cover
President
<PAGE>
Highlights of 1996
(At this point in the 1996 annual report, the following sentence appears in
large print at the top of the left column to start off the highlights of 1996.)
The year was a time to prepare
for a stronger future ...
for the corporation,
for the customers it serves,
and for the communities
in which we live and work.
Throughout 1996, the board, management staff and employees of
Commercial National Financial Corporation worked hard to lay the
groundwork to assure a strong future for the firm by implementing
new programs and services that are expected to yield their
benefits over the years ahead.
Although the challenging year we faced was marked by modest
growth of assets and profits, we continued to develop ways to
improve business. We expect that the steps taken will maintain
Commercial National as one of Western Pennsylvania's premier
community banking institutions.
THE FUTURE WAS STRENGTHENED
FOR SHAREHOLDERS.
On April 19, the Commercial National Financial Corporation
board of directors authorized a three-for-one stock split,
increasing the outstanding common stock from 600,000 to 1.8
million shares. Without diluting the proportion of shareholders'
holdings to total shares outstanding, the move enabled the
company to file for a listing on The Nasdaq Stock Market, Inc.,
and enhanced the per-share liquidity of the stock so potential
investors might purchase it at more attractive prices.
When trading commenced on the Nasdaq board June 3, the company
also had several "market makers" in place to generate stock
activity so that sales prices more accurately reflected the
company's performance under real-life market conditions. (A
complete listing of market makers is included on Page 32 of this
report.)
So that the company's facilities were adequate for the future,
the board authorized the June acquisition of the Plaza Hotel
property adjacent to its downtown Latrobe corporate headquarters,
a move that secured nearby space for future growth.
After the June death of long-time director Ronald H. Lynch, who
also was a successful Latrobe businessman and community activist,
the board in August appointed George A. Conti, Jr., a Greensburg
attorney, as a director to fill the remainder of the term which
expires in April 1998.
OUR FINANCIAL PERFORMANCE IMPROVED.
In spite of an economy that frequently was characterized as
"lackluster," the corporation
(At this point in the 1996 annual report, there appears a bar graph occupying
two-thirds space of the second column as set out in the following table.)
<TABLE>
<CAPTION>
Annual Share Price Appreciation
<S> <C>
1992 $12.67
1993 $13.33
1994 $17.83
1995 $20.13
1996 $36.00
</TABLE>
(At this point in the 1996 annual report, the following text runs along the
left of the bar graph occupying the remaining third of the column that the
graph did not use.)
posted assets and profits that exceeded those recorded in any year
of the company's history.
At the same time, the stock-split action early in the year
contributed to the substantial price appreciation of the
company's year-end share price. Adjusted to
(At this point in the 1996 annual report, there appears another bar graph
occupying two-thirds space of the second column as set out in the folowing
table.)
<TABLE>
<CAPTION>
Dividends Paid Per Share
<S> <C>
1992 $0.45
1993 $0.49
1994 $0.53
1995 $0.56
1996 $0.62
</TABLE>
(At this point in the 1996 annual report, the following text runs along the
left of the bar graph occupying the remaining third of the column that the
graph did not use.)
compensate for the three-for-one stock split, the 1995 share price
of $20.13 improved to $36 by the end of 1996, a jump of nearly 79
percent.
Likewise, dividends paid to our investors on each share owned
also improved. From a $0.56-per-share dividend in 1995,
investors realized $0.62 per share in 1996, an increase of nearly
11 percent.
(At this point in the 1996 annual report, there appears a bar graph occupying
two-thirds space of the second column as set out in the following table.)
<TABLE>
<CAPTION>
Deposit Base Growth
<S> <C>
1992 $199,388
1993 $213,754
1994 $219,561
1995 $230,736
1996 $238,808
</TABLE>
(At this point in the 1996 annual report, the following text runs along
the left of the bar graph occupying the remaining third of the column
that the graph did not use.)
The deposit base of the corporation grew by more than 3 percent
over last year with total deposits standing at $238.8 million at
year end. Deposit trends observed throughout the year showed
(At this point in the 1996 annual report, the following text is back
to full column width.)
a decidedly stronger shift to certificates of deposit, money market
investment and checking-with-interest accounts. While those
moves more than offset the stagnation experienced in non-interest-
bearing deposit accounts, the higher accumulations in interest-
bearing accounts contributed to increased costs.
(At this point in the 1996 annual report, there appears a bar graph
occupying two-thirds space of the third column as set out in the following
table.)
<TABLE>
<CAPTION>
Loan Portfolio Growth
<S> <C>
1992 $117,064
1993 $125,935
1994 $139,367
1995 $144,523
1996 $160,048
</TABLE>
(At this point in the 1996 annual report, the following text runs along the
left of the bar graph occupying the remaining third of the column that the
bar graph did not use.)
Loan volume of $160 million, on the other hand, experienced a
period of solid expansion and was up more than 10 percent, a
considerable improvement over the 3.70 percent increase realized
in 1995. The better performance was due largely to
(At this point in the 1996 annual report, the text appears back to full
column format.)
more vigorous activity in commercial and personal loan products.
A contraction in the residential mortgage segment helped to reduce
the firm's exposure to the unpredictability of rates over a longer
term, while consumer installment loans, boosted by a broadened
consumer credit-card offering and a successful promotional effort
for home-equity loans, realized hefty gains which contributed to
the good loan growth and helped to generate a portfolio that more
evenly is balanced among our various loan-product offerings.
A $725,000 increase in interest income was somewhat countered
by a $193,000 increase in interest expense, resulting in an
improvement in net interest income of less than 5 percent.
(At this point in the 1996 annual report, there appears a bar graph,
occupying the full column width, as set in the following table.)
<TABLE>
<CAPTION>
Interest: Income, Expense & Net
<S> <C> <C> <C>
1992 $17,951 $7,376 $10,575
1993 $17,250 $6,149 $11,101
1994 $17,384 $6,445 $10,939
1995 $19,222 $8,252 $10,970
1996 $19,947 $8,445 $11,502
</TABLE>
<PAGE>
Total net interest income at year end stood at $11.5 million compared
to $10.9 million a year ago.
(At this point in the 1996 annual report, there appears a bar graph occupying
two-thirds space of the first column as set out in the following table.)
<TABLE>
<CAPTION>
Post Tax Return On Average Assets
<S> <C>
1992 1.43%
1993 1.63%
1994 1.42%
1995 1.43%
1996 1.39%
</TABLE>
(At this point in 1996 annual report, the following text runs along the left
of the bar graph occupying the remaining third of the column that the graph
did not use.)
The post-tax return on average assets of 1.39 percent, while
not as high as the 1.43 percent return generated last year, still
is an indicator of strong performance for any financial
institution. The slight decrease from 1995 partly can
(At this point in the 1996 annual report, the text goes back to full-column
width.)
be attributed to the opening of the new Murrysville community office
and the implementation of increased promotional efforts for the
electronic home-banking system.
WE MAINTAINED A FOCUS ON IMPROVING
OUR SERVICE-DELIVERY SYSTEMS.
Enhancements in service delivery implemented throughout the
year were made so that Commercial National more effectively could
meet the ever-changing demands of its growing customer base.
Improvements made to personal sales methods employed in community
offices and to the electronic home-banking system should help us
to more favorably compete with other financial-service providers
seeking customers in the same markets we serve.
A key element of that improvement effort was put into place
when a team of Commercial National bankers was licensed by the
National Association of Securities Dealers to make mutual funds
available to customers looking for investments more closely tied
to the debt and equity markets of the national economy. After
completing extensive training programs and a series of rigorous
tests for the authorization, the group now provides financial-
management service to customers using Commercial National offices
throughout the county.
In recognition of their diligent efforts to accomplish that
goal, in May the bank presented to those who secured licenses for
mutual fund sales its 1996 Chairman's Award. Among them were ...
-- Jim Harris
Asset Management and Trust Division
-- Sharon Lewis
Asset Management and Trust Division
-- Mike Matthews
Asset Management and Trust Division
-- Marty May
Commercial Business Development Group
-- Eric Sarn
Latrobe Community Office
-- Mike Schmidt
Courthouse Square Community Office
-- Alan Sulek
Eastgate Community Office
-- Tom Sylvester
Ligonier Community Office
-- Keith Visconti
Commercial Business Development Group
-- Phyllis Yesh
Lawson Heights Community Office
Since then, other managers who have been authorized to offer the funds
include ...
-- Linda Bellich
Murrysville Community Office
-- Donna Daugherty
Pleasant Unity Community Office
-- Debbie Gras
West Newton Community Office
Also in May the bank's President's Award was presented to ...
-- Stacey Winfield
Assistant Vice President and
Credit Services Manager
for developing an expanded mortgage program and cultivating
relationships with a number of area automobile dealers who
arrange customer financing through the bank.
To improve market penetration and to broaden the corporation's
presence in Westmoreland County, Commercial National Bank opened
the Murrysville office in July. The new facility features
extended hours on Thursday, Friday and Saturday and provides
consumers and business owners along the busy Route 22 corridor
with a complete array of banking and investment services.
In September, the bank rolled out its new Maxcess (at this point in
the 1996 annual report, there appears a service mark) Account, an
electronic home-banking system that includes bill-payment
service, an automatic account-information system and a variety of
free services. At the time of the start-up, the bank was the
only Pennsylvania financial institution offering a special
CheckPhone for account access. The unit displays account
information on a back-lighted LCD screen so customers can
actually see electronic banking transactions as they do them.
Later in the year, customers preferring to use personal computers
for their home banking also were provided with access to the
Maxcess Account system.
The bank further extended its service to the global community
with the September offering of the new Saint Vincent College Visa
Gold credit card. Through a mailing to more than 11,000 alumni
and employees around the world, the program offered a special
credit card rate for Saint Vincent associates and included a
rebate offer for transferred balances that resulted in a 2
percent return to the cardholder and a 1 percent contribution to
the college.
WE HELPED AREA COMMUNITIES
BUILD A BETTER TOMORROW.
Long noted for its outstanding record of community service,
Commercial National even further strengthened that reputation in
October by hosting representatives of more than 100 community-
service agencies at two Civic Group Appreciation Day luncheons
held in opposite districts of the county. At those meetings,
corporate contributions amounting to more than $85,000 in cash or
in-kind services were announced for the various charitable
organizations serving the same communities we serve.
Also during the year, Commercial National was involved in a
number of other community-service initiatives of benefit to the
citizens with whom we live. Among those projects were ...
- -- a flood-recovery loan program extended by the bank (offering
up to $10,000 for five years at the below-prime annual
percentage rate of 7 percent) to help residents of Ligonier
and West Newton who were adversely affected by January
floods that devastated some neighborhoods.
- -- donation of 100 new U.S. flags, poles and brackets for
erection in downtown Latrobe between Memorial Day and Labor
Day every year.
- -- the citation of Tom Michalovicz of Latrobe as the first
member of Business Explorer Post 319 at Commercial National
Bank of Westmoreland County to receive an Eagle Scout award.
The recognition was accorded for his coordination of
construction of 28 bluebird nesting boxes which he then
installed at Keystone State Park.
Though financial improvements during the year may have been
somewhat modest, substantial progress indeed was made in
preparing the staff, programs and facilities that will carry
Commercial National into a productive future likely to be of even
greater benefit to its employees, customers, investors and
neighbors.
[FN]
MAXCESS is a service mark of Commercial National Bank of
Westmoreland County.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------
Cash and due from banks on demand $ 8,839,707 $ 7,550,942
Interest bearing deposits with banks 153,667 82,651
Federal funds sold - 5,425,000
Securities available for sale 37,816,171 58,232,862
Securities held to maturity, market values of
$65,571,756 and $46,427,423 in 1996 and 1995 64,539,801 45,247,754
Loans 160,048,235 144,523,375
Unearned income (112,712) (235,373)
Reserve for possible loan losses (2,035,818) (2,081,700)
----------------------------
Net loans 157,899,705 142,206,302
----------------------------
Premises and equipment 4,802,465 3,990,651
Accrued interest receivable 2,144,723 2,150,205
Other assets 1,914,285 1,289,651
- -------------------------------------------------------------------------------
Total Assets $ 278,110,524 $ 266,176,018
============ ============
LIABILITIES
- -------------------------------------------------------------------------------
Deposits
Non-interest bearing $ 33,972,163 $ 36,054,886
Interest bearing 204,835,908 194,681,425
----------------------------
Total deposits 238,808,071 230,736,311
=========== ===========
Federal funds purchased 1,400,000 -
Other liabilities 2,514,199 2,403,237
- -------------------------------------------------------------------------------
Total Liabilities 242,722,270 233,139,548
----------------------------
Shareholders' Equity
- -------------------------------------------------------------------------------
Common stock, par value $2; 1,800,000 shares
authorized,issued and outstanding 3,600,000 3,600,000
Retained earnings 31,777,511 29,143,045
Unrealized gain on securities
available for sale-net of deferred taxes
of $5,533 and $151,159 in 1996 and 1995 10,743 293,425
-----------------------------
Total Shareholders' Equity 35,388,254 33,036,470
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 278,110,524 $ 266,176,018
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Consolidated Statements of Income
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
<S> <C> <C> <C>
Interest Income
- -----------------------------------------------------------------------------
Interest and fees on loans $13,549,080 $12,843,170 $11,250,168
Interest and dividends on securities:
Taxable 4,914,451 4,803,344 4,486,473
Exempt from federal income taxes 1,391,106 1,335,649 1,320,749
Interest on deposits with banks 6,252 2,716 1,475
Interest on federal funds sold 86,678 237,595 324,713
- -----------------------------------------------------------------------------
Total interest income 19,947,567 19,222,474 17,383,578
Interest Expense 8,445,126 8,252,219 6,444,799
- -----------------------------------------------------------------------------
Net Interest Income 11,502,441 10,970,255 10,938,779
Provision for Possible Loan Losses 105,000 90,000 180,000
- -----------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 11,397,441 10,880,255 10,758,779
Other Operating Income
- -----------------------------------------------------------------------------
Service charges on deposit accounts 511,418 480,833 472,280
Other service charges and fees 287,694 292,914 277,683
Net security gains 577 6,213 125
Trust department income 89,274 29,470 1,050
Other income 367,227 303,512 264,653
- -----------------------------------------------------------------------------
Total other operating income 1,256,190 1,112,942 1,015,791
-----------------------------------
Other Operating Expenses
Salaries and employee benefits 4,231,494 3,908,250 3,839,257
Net occupancy expense 492,414 446,947 472,057
Furniture and equipment expense 616,663 496,397 439,596
FDIC insurance expense 2,000 285,742 470,556
Pennsylvania shares tax 255,161 234,421 215,714
Other expenses 2,046,844 1,674,414 1,701,479
- -----------------------------------------------------------------------------
Total other operating expenses 7,644,576 7,046,171 7,138,659
-----------------------------------
Income Before Income Taxes 5,009,055 4,947,026 4,635,911
-----------------------------------
Income Tax Expense 1,252,589 1,253,833 1,150,991
- -----------------------------------------------------------------------------
Net Income $ 3,756,466 $ 3,693,193 $ 3,484,920
=========== =========== ===========
Net Income Per Common Share $ 2.09 $ 2.05 $ 1.94
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss) Total
Common Paid-in Retained on Securities Shareholders'
Stock Capital Earnings Available for Sale Equity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 $ 1,200,000 $ 2,400,000 $ 23,932,932 $ 472,816 $ 28,005,748
Net income - - 3,484,920 - 3,484,920
Cash dividends declared
($.53 per share) - - (960,000) - (960,000)
Net change in unrealized (loss)
on securities available for
sale - net of deferred taxes - - - (973,725) (973,725)
- ------------------------------------------------------------------------------------------------------
Balance - December 31, 1994 1,200,000 2,400,000 26,457,852 (500,909) 29,556,943
Net income - - 3,693,193 - 3,693,193
Stock split in the form
of a dividend (Note 11) 2,400,000 (2,400,000) - - -
Cash dividends declared
($.56 per share) - - (1,008,000) - (1,008,000)
Net change in unrealized gain
on securities available for
sale - net of deferred taxes - - - 794,334 794,334
- ------------------------------------------------------------------------------------------------------
Balance - December 31, 1995 3,600,000 - 29,143,045 293,425 33,036,470
Net income - - 3,756,466 - 3,756,466
Cash dividends declared
($.62 per share) - - (1,122,000) - (1,122,000)
Net change in unrealized gain
on securities available for
sale - net of deferred taxes - - - (282,682) (282,682)
- ------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 $3,600,000 $ - $31,777,511 $ 10,743 $35,388,254
========== =========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 3,756,466 $ 3,693,193 $ 3,484,920
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and Amortization 591,288 505,614 452,051
Provision for possible loan losses 105,000 90,000 180,000
Net (accretion) amortization of securities
and loan fees 158,210 (45,292) 25,238
Net security gains (577) (6,213) (125)
(Increase) decrease in interest receivable 5,482 (80,771) (166,453)
Increase in interest payable 63,088 351,725 122,906
Increase (decrease) in taxes payable - (10,628) 10,690
Increase in taxes receivable (90,286) (7,891) -
Deferred tax (benefit) 52,019 40,618 (53,275)
Increase in other liabilities 47,875 38,297 123,132
Increase in other assets (167,122) (114,343) (95,612)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,521,443 4,454,309 4,083,472
- -----------------------------------------------------------------------------------------------
Investing Activities
Net increase in deposits with other banks (71,016) (68,934) (13,717)
Net (increase) decrease in federal funds sold 5,425,000 (3,150,000) 13,150,000
Purchases of securities available for sale (10,768,047) (12,805,938) (15,817,089)
Purchases of securities held to maturity (25,142,595) (11,517,282) (12,921,047)
Maturities and calls of securities
available for sale 14,094,084 8,532,111 13,317,904
Proceeds from sales of investment securities
available for sale 16,651,647 - -
Maturities and calls of securities
held to maturity 5,809,060 10,190,940 9,087,500
Net increase in loans (16,177,469) (5,257,481) (13,468,872)
Purchases of premises and equipment (1,403,102) (757,492) (285,322)
- -----------------------------------------------------------------------------------------------
Net cash used by investing activities (11,582,438) (14,834,076) (6,950,643)
- -----------------------------------------------------------------------------------------------
Financing Activities
Net increase in deposits 8,071,760 11,175,388 5,807,244
Net increase in short-term borrowings 1,400,000 - -
Dividends paid (1,122,000) (1,008,000) (960,000)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,349,760 10,167,388 4,847,244
- -----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,288,765 (212,379) 1,980,073
Cash and cash equivalents at beginning of year 7,550,942 7,763,321 5,783,248
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,839,707 $ 7,550,942 $ 7,763,321
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,382,038 $ 7,900,494 $ 6,321,893
============ ============ ===========
Taxes $ 1,294,000 $ 1,230,990 $ 1,410,464
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Commercial National Financial Corporation and Shareholders
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995, and 1994
- -----------------------------------------------------------
1. Summary of Significant Accounting Policies
General:
The accompanying consolidated financial statements include the
accounts of Commercial National Financial Corporation (the
corporation) and its wholly-owned subsidiary, Commercial
National Bank of Westmoreland County (the bank). All material
intercompany transactions have been eliminated.
The following summary of accounting and reporting policies is
presented to aid the reader in obtaining a better understanding
of the financial statements and related financial data of the
corporation and the bank contained in this report. Such policies
conform to generally accepted accounting principles (GAAP) and
to general practice within the banking industry. In preparing
financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and income and expenses during the reporting period.
Actual results could differ from those estimates.
Certain items of the consolidated financial statements for the
years ended December 31, 1995 and 1994, have been reclassified to
conform with the December 31, 1996 presentation. None of these
reclassifications affected net income.
Securities:
The corporation has adopted Statement of Financial Accounting
Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be
classified in three categories and accounted for as follows: (a)
securities held to maturity, (b) trading securities and (c)
securities available for sale.
Debt securities that the corporation has the positive intent
and ability to hold to maturity are classified as securities held
to maturity and are reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings. Debt and equity securities not
classified as either held to maturity securities or trading
securities are classified as securities available for sale and
are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
shareholders' equity.
Net gain or loss on the sale of securities is determined using
the specific identification method.
Loans:
Loans are stated at face value net of unearned income. The
unearned income on installment loans is taken into income in
decreasing amounts over the term of the loan. Interest on all
other loans is recognized based on the principal amount
outstanding. When a loan becomes past due and doubt exists as to
the ultimate collection of principal and interest, the accrual of
income is discontinued and is recognized at the time payment is
received.
Loan Fees:
Loan origination and commitment fees, net of associated direct
costs, are deferred and the net amount is amortized as an
adjustment to the related loan yield on the interest method,
generally over the contractual life of the related loans or
commitments.
Other Real Estate Owned:
Real estate, other than bank premises, is recorded at the lower
of cost or market at the time of acquisition. Expenses related
to holding the property, net of rental income, are generally
charged against earnings in the current period.
Reserve for Possible Loan Losses:
The reserve for possible loan losses represents management's
estimate of an amount adequate to provide for losses which may be
incurred on loans currently held. Management determines the
adequacy of the reserve based on reviews of individual credits,
historical patterns of loan charge-offs and recoveries, industry
experience, current economic trends, and other factors relevant
to the collectibility of the loans currently in the portfolio.
The reserve is increased by provisions charged to operating
expense and reduced by net charge-offs.
Premises and Equipment:
Premises and equipment are carried at cost less accumulated
depreciation and amortization. For financial statement reporting
and income tax purposes, depreciation is computed both on
straight-line and accelerated methods over the estimated useful
life of the premises and equipment. Charges for maintenance and
repairs are expensed as incurred. Amortization is charged over
the term of the respective lease or the estimated useful life of
the asset, whichever is shorter.
Income Taxes:
Certain income and expense items are accounted for in different
years for financial reporting purposes than for income tax
purposes. Deferred taxes are provided to recognize these
temporary differences. The principal items involved are
investment securities, employee benefit plans, provision for
possible loan losses, net deferred loan fees and costs, and
depreciation. The effect on deferred taxes of a change in tax
rates is recognized in earnings in the period that includes the
enactment date. Income tax expense is not proportionate to
earnings before taxes, principally because a portion of revenues
from obligations of states and political subdivisions are
nontaxable.
<PAGE>
(At this point in the 1996 annual report, the text is still in three-
column format with the first column being full of text and the
second and third columns consisting of text only half way down.
The last half of the second and third columns consist of a table
that will be recognized later on this page.)
Earnings per Share:
Earnings per share have been calculated on the weighted average
number of shares outstanding of 1,800,000 shares in 1996, 1995,
and 1994. The weighted average number of shares outstanding has
been adjusted for the effect of a three-for-one stock split
effected in the form of a stock dividend more fully described in
Note 11.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the corporation has
defined cash and cash equivalents as those amounts included in
the balance sheet caption "Cash and due from banks on demand".
Fair Value of Financial Instruments:
In December, 1991, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 107
(FAS 107), "Disclosures about Fair Value of Financial
Instruments," which requires disclosure of the estimated fair
value of an entity's financial instrument assets and liabilities.
For the corporation, as for most financial institutions, the
majority of its assets and liabilities are considered financial
instruments as defined in FAS 107. Many of the corporation's
financial instruments, however, lack an available trading market
as characterized by a willing buyer and willing seller engaging
in an exchange transaction. It is also the corporation's general
practice and intent to hold its financial instruments to maturity
and to not engage in trading or sales activities. Therefore,
significant estimations and present value calculations were used
by the corporation for the purposes of this disclosure.
Estimated fair values have been determined by the corporation
using the best available data and an estimation methodology
suitable for each category of financial instruments. For those
loans and deposits with floating interest rates, it is presumed
that estimated fair values generally approximate the recorded
book balances.
The corporation's remaining assets and liabilities which are
not considered financial instruments have not been valued
differently than has been customary with historical cost
accounting.
2. Cash and Due from Banks on Demand
Regulations of the Board of Governors of the Federal Reserve
System impose uniform reserve requirements on all depository
institutions with transaction accounts (checking accounts, NOW
accounts, etc.) and non-personal time deposits (deposits with
original maturities of 14 days or more). Reserves are maintained
in the form of vault cash or a non-interest bearing balance held
with the Federal Reserve Bank. The bank also maintains deposits
with the Federal Reserve Bank and other banks for various
services such as check clearing. The amount so restricted at
December 31, 1996 was $1,460,000.
3. Securities
The amortized cost and estimated market values of securities
are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
December 31, 1996
U.S. Treasury securities $36,866,694 $ 142,700 $(126,423) $36,882,971
Other securities 933,200 - - 933,200
- ----------------------------------------------------------------------------------
$37,799,894 $ 142,700 $(126,423) $37,816,171
=========== ========== ========== ===========
December 31, 1995
U.S. Treasury securities $45,565,320 $ 435,957 $ (61,100) $45,940,177
Obligations of U.S. Government
corporations and agencies 11,278,258 78,371 (8,644) 11,347,985
Other securities 944,700 - - 944,700
- ----------------------------------------------------------------------------------
$57,788,278 $ 514,328 $ (69,744) $58,232,862
=========== ========== ========== ===========
</TABLE>
<PAGE>
Commercial National Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
December 31, 1996
Obligations of U.S. Government
corporations and agencies $36,610,826 $ 221,087 $(118,826) $36,713,087
Obligations of states and
political subdivisions 27,928,975 1,000,289 (70,595) 28,858,669
- -------------------------------------------------------------------------------------
$64,539,801 $1,221,376 $(189,421) $65,571,756
=========== ========== ========== ===========
December 31, 1995
Obligations of U.S. Government
corporations and agencies $20,251,352 $ 194,687 $ (67,307) $20,378,732
Obligations of states and
political subdivisions 24,996,402 1,100,204 (47,915) 26,048,691
- -------------------------------------------------------------------------------------
$45,247,754 $1,294,891 $(115,222) $46,427,423
=========== ========== ========== ===========
</TABLE>
(At this point in the 1996 annual report, the following text is in
one-column format measuring two columns wide.)
The amortized cost and estimated market values of securities at
December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
Securities Available Securities Held
for Sale to Maturity
- -----------------------------------------------------------------------------------
<CAPTION>
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within 1 year $12,170,719 $12,241,326 $ 4,780,571 $ 4,808,099
Due after 1 but within 5 years 24,695,975 24,641,645 26,004,882 26,227,991
Due after 5 but within 10 years - - 32,227,630 32,988,835
Due after 10 years - - 1,526,718 1,546,831
Equity securities 933,200 933,200 - -
- -----------------------------------------------------------------------------------
$37,799,894 $37,816,171 $64,539,801 $65,571,756
=========== =========== =========== ===========
</TABLE>
(At this point in the 1996 annual report, the following text is in
one-column format measuring two columns wide.)
Securities with amortized cost and market values, respectively,
of $9,072,297 and $9,219,241 at December 31, 1996 and $8,579,770
and $8,766,917 at December 31, 1995, were pledged to secure
public deposits and for other purposes required or permitted by
law.
(The rest of the text on this page reverts back to three-column
format starting with the third column.)
Proceeds from sales and calls of securities during 1996, were
$20,730,381. Gross gains of $52,137 and gross losses of $51,560
were realized on those sales and calls in 1996. Proceeds from
calls of securities during 1995 and 1994, were $4,280,940 and
$4,152,500, respectively. Gross gains of $6,213 and $125 were
realized on those calls in 1995 and 1994, respectively.
There were no gross realized losses during 1995 and 1994.
Other securities consist of Federal Reserve Bank stock, an
equity security, with book and market values of $108,000 at
December 31, 1996 and 1995 and Federal Home Loan Bank stock, an
equity security, with book and market values of $825,200 and
$836,700 at December 31, 1996 and 1995, respectively.
The corporation did not hold any derivative financial
instruments such as futures, forwards, swap or option contracts
at December 31, 1996.
In November 1995, the Financial Accounting Standards Board
issued a special report "A Guide to Implementation of FAS 115 on
Accounting for Certain Investments in Debt and Equity Securities
- - Questions and Answers." As permitted by the Guide, the
corporation transferred securities from the held to maturity
classification to the available for sale classification in
December 1995. The amortized cost of these securities as of the
date of transfer was $19,227,245 with a fair market value of
$19,216,380.
The changes in net unrealized holding gain or loss on
securities available for sale that has been included in the
separate component of shareholders' equity for the year ended
December 31, is as follows:
(At this point in the 1996 annual report, a table appears measuring
two columns wide starting with the second column.)
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross change in unrealized gain (loss)
on securities available for sale $(428,308) $1,203,537 $(1,475,341)
Deferred taxes (145,626) 409,203 (501,616)
- --------------------------------------------------------------------------------
Net change in unrealized gain (loss)
on securities available for sale $(282,682) $ 794,334 (973,725)
========== ========== ==========
</TABLE>
<PAGE>
4. Loans
Loans are summarized as follows:
(At this point, the following table measures two columns wide
in a three column format starting with the first column.)
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Commercial loans $ 17,115,404 $ 14,494,356
Real estate loans - commercial 33,437,360 32,460,803
Real estate loans - construction 1,924,619 1,523,490
Real estate loans - other 86,045,874 79,910,652
Installment loans 6,542,365 4,803,258
Municipal loans 3,183,483 1,332,403
Other loans 11,799,130 9,998,413
- ------------------------------------------------------------------
$160,048,235 $144,523,375
============ ============
</TABLE>
(At this point, the following text is in one-column format
measuring two columns wide.)
The corporation's loan portfolio is collateralized with assets located
primarily within Western Pennsylvania. Although the corporation has a
diversified portfolio, exposure to credit loss can be adversely
impacted by downturns in local economic and employment
conditions.
5. Reserve for Possible Loan Losses
Transactions in the reserve for possible loan losses are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve balance at January 1, $2,081,700 $ 2,077,553 $ 1,968,014
- ----------------------------------------------------------------------------------
Losses charged against reserve (173,952) (97,089) (86,882)
Recoveries on previously charged-off loans 23,070 11,236 16,421
Provision charged to operating expense 105,000 90,000 180,000
- ----------------------------------------------------------------------------------
Reserve balance at December 31, $2,035,818 $ 2,081,700 $ 2,077,553
========== =========== ===========
</TABLE>
(At this point the following text is in three-column format.)
In May 1993, the Financial Accounting Standards Board issued
Statement No. 114 "Accounting by Creditors for Impairment of a
Loan" (FAS 114) which was amended in October 1994 by Statement
No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" (FAS 118) which addresses
the disclosure of certain loans where it is probable that the
creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Additionally, FAS
118 requires the disclosure of how the creditor recognizes
interest income related to these impaired loans. The corporation
adopted FAS 114, as amended by FAS 118, effective January 1,
1995. The effect of adoption was not material.
Impairment of loans having recorded investments of $3,714,258
and $1,111,517 at December 31, 1996 and December 31, 1995,
respectively, has been recognized in conformity with FAS 114 as
amended by FAS 118. The average recorded investment in impaired
loans during 1996 and 1995 was $3,738,895 and $882,209. The
total allowance for loan losses related to these loans was
$780,185 and $490,188 at December 31, 1996 and December 31, 1995,
respectively. The provision for impaired loans charged to
operating expense and impaired loans charged off amounted to
$289,997 and $0 in 1996. Interest income on impaired loans of
$249,676 and $16,623 was recognized for cash payments received in
1996 and 1995.
6. Financial Instruments with Off-Balance-Sheet Risk
The corporation is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit, standby letters of credit,
financial standby letters of credit, and commercial letters of
credit. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract or notional amount
of those instruments reflect the extent of involvement the
corporation has in particular classes of financial instruments.
The corporation does not issue any other instruments with
significant off-balance-sheet risk.
The corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit, standby letters of credit,
financial standby letters of credit, and commercial letters of
credit written is represented by the contract or notional amount
of those instruments. The corporation uses the same credit
policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. The following table
identifies the contract or notional amount of those instruments.
(At this point, the following table is located at the bottom two-thirds
of the page occupying the second and third columns.)
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk
Commitments to extend credit $39,560,751 $30,982,248
Standby letters of credit $ 4,747,174 $ 2,603,547
Financial standby letters of credit $ 2,764,412 $ 5,050,615
</TABLE>
<PAGE>
Commercial National Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
- -----------------------------------------------------------------------------
(At this point, the following text is in three-column format with only
the first column being occupied.)
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The
corporation evaluates each customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained if deemed
necessary by the corporation upon extension of credit is based on
management's credit evaluation of the counter party. Collateral
held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit, financial standby letters of credit,
and commercial letters of credit written are conditional
commitments issued by the corporation to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
(At this point the following text and tables appear in
one-column format measuring two columns wide. The text begins
at the top of the second column in a standard three column page.)
7. Premises and Equipment
The depreciation and amortization on premises and equipment charged to
operating expense amounted to $591,288 in 1996, $505,614 in 1995, and
$452,051 in 1994.
The composition of premises and equipment at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Premises $4,400,319 $3,598,956
Leasehold improvements 214,866 214,866
Furniture and equipment 4,565,539 4,133,024
- ----------------------------------------------------------------
9,180,724 7,946,846
Less accumulated depreciation
and amortization 5,359,755 4,768,468
- ----------------------------------------------------------------
3,820,969 3,178,378
Business development site 207,038 427,073
Land 774,458 385,200
- ----------------------------------------------------------------
$4,802,465 $3,990,651
========= =========
</TABLE>
8. Deposits
Interest bearing deposits include certificates of deposit issued in
denominations of $100,000 or more which amounted to $25,334,259 and
$21,010,243 at December 31, 1996 and 1995. Interest expense related to
certificates of $100,000 or greater was $1,213,126, $1,157,021, and
$639,316, for the years ended December 31, 1996, 1995, and 1994,
respectively.
Interest bearing deposits at December 31, are detailed as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Savings accounts $ 43,715,842 $ 43,243,858
NOW accounts 11,925,963 11,132,351
Money Market NOW accounts 7,180,985 7,016,310
FIMM accounts 40,003,616 38,318,211
Time deposits 102,009,502 94,970,695
- ---------------------------------------------------------------------
$204,835,908 $194,681,425
=========== ===========
</TABLE>
9. Employee Benefit Plans
The corporation sponsors an employee profit sharing plan available to all
employees with at least one year of service. The corporation contributes to
the plan, as determined by the Board of Directors, in an amount not to
exceed 15% of compensation of eligible participants. The corporation also
has a supplemental retirement plan for certain employees. The expense for
the employee benefit plans was $474,692, $418,058 and $539,304 for the
years ended December 31, 1996, 1995, and 1994.
<PAGE>
(At this point, the following text and tables are in one-column format
measuring two columns wide. The text begins at the top of the first
column and occupies about two-thirds of the page.)
10. Income Taxes
The balance sheet includes approximately $671,221 and $577,615 of net
deferred tax asset at December 31, 1996 and 1995, respectively. The
corporation has not established a valuation allowance as it is management's
belief that it has adequate taxable income and carry backs to realize the
net deferred tax asset. The components of the net deferred tax asset at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Reserve for possible loan losses $ 533,373 $ 548,973
Accrued benefits 204,054 209,709
Deferred loan fees 38,322 80,027
- ------------------------------------------------------------------
Total deferred tax assets 775,749 838,709
Securities accretion 90,935 82,552
Unrealized gain on securities
available for sale 5,533 151,159
Depreciation 8,060 27,383
- ------------------------------------------------------------------
Total deferred tax liabilities 104,528 261,094
- ------------------------------------------------------------------
Net deferred tax asset $671,221 $577,615
======= =======
</TABLE>
The total tax provision or credit for financial reporting purposes differs
from the amount computed by applying statutory rates to income before income
taxes. The differences for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rates $1,703,079 $1,681,989 $1,576,210
Increase (decrease) resulting from:
Non-taxable interest and dividend income (516,972) (483,214) (469,030)
Non-deductible interest expense 61,313 54,373 42,817
Other 5,169 685 994
- -----------------------------------------------------------------------------------
Total tax provision $1,252,589 $1,253,833 $1,150,991
========= ========= =========
</TABLE>
(At this point, the text reverts back to the three-column format beginning in
first column about two-thirds of the way down the page.)
11. Stock Split
On February 20, 1996, the Board of Directors approved a three-for-one
stock split effected in the form of a stock dividend to shareholders of
record on March 20, 1996. The stock split in the form of a stock dividend
has been given retroactive effect in the consolidated balance sheet at
December 31, 1995 and per share data for all prior periods presented has
been restated.
12. Fair Value of Financial Instruments
Below are various estimated fair values at December 31, 1996 and 1995, as
required by Statement of Financial Accounting Standards No. 107 (FAS 107).
Such information, which pertains to the corporation's financial instruments,
is based on the requirements set forth in FAS 107 and does not purport to
represent the aggregate net fair value of the corporation. It is the
corporation's general practice and intent to hold its financial instruments
to maturity, except for certain securities designated as securities
available for sale, and not to engage in trading activities. Many of the
financial instruments lack an available trading market, as characterized by
a willing buyer and seller engaging in an exchange transaction. Therefore,
the corporation had to use significant estimations and present value
calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned
that there may not be reasonable comparability between institutions due to
the wide range of permitted assumptions and the methodologies in absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
The following methods and assumptions were used by the corporation in
estimating financial instrument fair values:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts for cash and short
term investments approximate the estimated fair values of such assets.
SECURITIES: Fair values for securities held to maturity and securities
available for sale are based on quoted market prices, if available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE: Fair values of variable-rate loans subject to frequent
repricing and which entail no significant credit risk are based on the
carrying values. The estimated fair values of other loans are estimated by
discounting the future cash flows using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest is considered a reasonable estimate of
fair value.
OFF-BALANCE-SHEET INSTRUMENTS: Many of the corporation's off-balance-sheet
instruments, primarily loan commitments and standby letters of credit, are
expected to expire without being drawn upon, therefore, the commitment
amounts do not necessarily represent future cash requirements. Management
has determined that due to the uncertainties of cash flows and difficulty in
predicting the timing of such cash flows, fair values were not estimated for
these instruments.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
- ---------------------------------------------------------
(At this point, the following two paragraphs occupy the first two colums
about a quarter of the way down the page.)
DEPOSIT LIABILITIES: For deposits which are payable on demand at the
reporting date, representing all deposits other than time deposits,
management estimated that the carrying value of such deposits is a
reasonable estimate of fair value. The carrying amounts of variable rate
time deposit accounts and certificates of deposit approximate their fair
values at the report date. Fair values of fixed rate time deposits are
estimated by discounting the future cash flows using interest rates
currently being offered and a schedule of aggregate expected maturities.
The carrying amount of accrued interest approximates its fair value.
SHORT-TERM BORROWINGS: The carrying amounts for short-term borrowings
approximate the estimated fair value of such liabilities.
(At this point appears a table measuring two columns wide bearing the
carrying amount and fair value of financial assets and financial
liabilities.)
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Cash and short term investments $ 8,993,374 $ 8,993,374 $ 13,058,593 $ 13,058,593
Securities available for sale 37,816,171 37,816,171 58,232,862 58,232,862
Securities held to maturity 64,539,801 65,571,756 45,247,754 46,427,423
Loans, net of reserve 157,899,705 155,624,937 142,206,302 137,186,755
Accrued interest receivable 2,144,723 2,144,723 2,150,205 2,150,205
Financial liabilities
Deposits $238,808,071 $240,177,568 $230,736,311 $232,011,924
Short-term borrowings 1,400,000 1,400,000 - -
Accrued interest payable 1,142,154 1,142,154 1,079,066 1,079,066
- ----------------------------------------------------------------------------------------------------
</TABLE>
(At this point the following two paragraphs and table occupy the first
two columns and begin directly under the preceding table about two-thirds
of the way down the page.)
13. Related Party Transactions
Some of the corporation's or the bank's directors, principal officers,
principal shareholders, and their related interests had transactions with
the bank in the ordinary course of business during 1996. All loans and
commitments to loans in such transactions were made on substantially the
same terms, including collateral and interest rates, as those prevailing at
the time for comparable transactions. In the opinion of management, these
transactions do not involve more than normal risk of collectibility or
present other unfavorable features. It is anticipated that further such
extensions of credit will be made in the future. The aggregate amount of
credit extended to these directors and principal officers was approximately
$1,207,988 and $797,397 at December 31, 1996 and 1995.
The following is an analysis of loans to those parties whose loan
balances exceeded $60,000 during 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------
<S> <C>
Balances at December 31, 1995 $ 645,824
Advances 918,073
Repayments (508,415)
- -----------------------------------------------------
Balances at December 31, 1996 $ 1,055,482
==========
</TABLE>
(At this point the following text is back to three-column format
beginning at the third column.)
14. Capital Requirements and Dividend Restrictions
The corporation and the bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the corporation and the bank must meet specific capital
guidelines that involve quantitative measures of the assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weighting, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in
the tables below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined). Management believes, as
of December 31, 1996, that the corporation and the bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the
regulatory agencies categorized the corporation and the bank as well
capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized the corporation and the bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the table. There are no conditions or events since
those notifications that management believes have changed those categories.
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Corrective Action Provisions:
- ----------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------
As of December 31, 1996:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Commercial National Financial Corp. $37,364,798 23.5% $12,729,070 >8.0% $15,911,338 >10.0%
Commercial National Bank 37,376,189 23.5% 12,727,982 >8.0% 15,909,977 >10.0%
- ----------------------------------------------------------------------------------------------------------------------
Tier I Capital (To Risk Weighted Assets)
Commercial National Financial Corp. 35,377,510 22.2% 6,364,535 >4.0% 9,546,803 >6.0%
Commercial National Bank 35,389,069 22.2% 6,363,991 >4.0% 9,545,986 >6.0%
- ----------------------------------------------------------------------------------------------------------------------
Tier I Capital (to Average Assets)
Commercial National Financial Corp. 35,377,510 12.9% 11,004,924 >4.0% 13,756,155 >5.0%
Commercial National Bank 35,389,069 12.9% 11,004,737 >4.0% 13,755,922 >5.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Commercial National Financial Corp. $34,520,064 24.3% $11,348,545 >8.0% $14,185,681 >10.0%
Commercial National Bank 34,499,803 24.3% 11,347,906 >8.0% 14,184,882 >10.0%
- ----------------------------------------------------------------------------------------------------------------------
Tier I Capital (to Risk Weighted Assets)
Commercial National Financial Corp. 32,743,045 23.1% 5,674,273 >4.0% 8,511,409 >6.0%
Commercial National Bank 32,722,883 23.1% 5,673,953 >4.0% 8,510,929 >6.0%
- -----------------------------------------------------------------------------------------------------------------------
Tier I Capital (to Average Assets)
Commercial National Financial Corp. 32,743,045 12.5% 10,479,019 >4.0% 13,098,774 >5.0%
Commercial National Bank 32,722,883 12.5% 10,478,865 >4.0% 13,098,581 >5.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(At this point the following text occupies two columns of the three column
format. It begins in the first column a little more than three-quarters of
the way down the page.)
The amount of funds available to a parent from its subsidiary bank is
limited for all national banks by restrictions imposed by the Comptroller of
the Currency. Dividends from the bank were restricted not to exceed
$7,898,423 at December 31, 1996. These restrictions have not had, and are
not expected to have, a significant impact on the corporation's ability to
meet its cash obligations.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
- ----------------------------------------------------------
15. Condensed Financial Information fo Commercial National Financial Corporation
(Parent Only)
<TABLE>
Balance Sheets
- -----------------------------------------------------------------------
<CAPTION>
December 31,
1996 1995
----------------------------
<S> <C> <C>
Assets:
Cash $ 6,004 $ 48,162
Investment in subsidiary 35,399,813 33,016,309
- -----------------------------------------------------------------------
$ 35,405,817 $ 33,064,471
=========== ===========
Liabilities and shareholders' equity:
Accounts payable $ 17,563 $ 28,001
Shareholders' equity 35,388,254 33,036,470
- -----------------------------------------------------------------------
$ 35,405,817 $ 33,064,471
=========== ===========
</TABLE>
<TABLE>
Statements of Income and Changes in Retained Earnings
- ------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Dividends and fees from subsidiary $ 1,194,000 $ 1,080,000 $ 1,032,000
Expenses 120,051 86,096 91,426
------------------------------------------
1,073,949 993,904 940,574
Applicable tax benefit 16,331 4,793 6,605
1,090,280 998,697 947,179
Equity in undistributed earnings of subsidiary 2,666,186 2,694,496 2,537,741
------------------------------------------
Net income 3,756,466 3,693,193 3,484,920
Retained earnings January 1, 29,143,045 26,457,852 23,932,932
Dividends paid (1,122,000) (1,008,000) (960,000)
------------------------------------------
Retained earnings December 31, $31,777,511 $29,143,045 $26,457,852
========== ========== ==========
</TABLE>
<TABLE>
Statements of Cash Flows
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,756,466 $ 3,693,193 $ 3,484,920
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization - 7,439 14,878
Equity in undistributed earnings of subsidiary (2,666,186) (2,694,496) (2,537,741)
Increase (decrease) in accounts payable (10,438) 1,292 12,796
--------------------------------------
Net cash provided by operating activities 1,079,842 1,007,428 974,853
--------------------------------------
Financing activities:
Dividends paid 1,122,000 (1,008,000) (960,000)
--------------------------------------
Net increase (decrease) in cash (42,158) (572) 14,853
Cash at beginning of year 48,162 48,734 33,881
--------------------------------------
Cash at end of year $ 6,004 $ 48,162 $ 48,734
=========== ========== ==========
</TABLE>
<PAGE>
(At this point, the following text is in the second and third columns of the
three-column format. The address to the Board and shareholders is located
at the top of first column.)
Board of Directors and Shareholders
Commercial National Financial Corporation and Subsidiary
Latrobe, PA
Report of Jarrett Stokes & Kelly Independent Certified Public Accountants
- --------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Commercial
National Financial Corporation and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in share-
holders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Commercial National Financial Corporation and Subsidiary as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Jarrett Stokes & Kelly
Allison Park, Pennsylvania
January 17, 1997
Management's Statement on Financial Reporting
- ---------------------------------------------
The management of Commercial National Financial Corporation and its
subsidiary, Commercial National Bank of Westmoreland County, is
responsible for the preparation, content and integrity of the
financial statements contained in this annual report and all other
information in the other sections of the annual report, including
amounts that must necessarily be based on management's judgements
and estimates. Management believes that the financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis to reflect, in all respects,
the substance of events and transactions that should be included,
and that the other information in the annual report is consistent
with those financial statements. In meeting its responsibility for
the reliability of the financial statements, management depends upon
the bank's accounting system and related internal accounting controls.
This system is designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and
executed in accordance with management's authorization. This system
is augmented by written policies and procedures and by examinations
performed by our internal audit staff which reports to the Board
of Directors through the Board's Audit Committee.
The appointment of the independent certified public accountants for
the corporation and its subsidiary is recommended by the Audit
Committee, approved by the Board of Directors and ratified by
the shareholders of the corporation. The Audit Committee, composed
solely of outside directors, meets on a scheduled basis with the
internal auditors and, as requested, with the independent auditors
to discuss and review the scope and findings of their respective
audits. The independent auditors and the internal auditors each
have full access to the Audit Committee, without management present,
to discuss internal accounting control, accounting, auditing and
financial reporting matters.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Quarterly Summary of Financial Data (Unaudited)
- ----------------------------------------------------------------
The unaudited quarterly results of operations for the years ended
December 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,897,339 $4,894,723 $4,919,409 $5,236,096
Interest expense 2,088,163 2,043,732 2,126,999 2,186,232
---------------------------------------------
Net interest income 2,809,176 2,850,991 2,792,410 3,049,864
Provision for possible loan losses 15,000 30,000 30,000 30,000
---------------------------------------------
Net interest income after
provision for possible loan losses 2,794,176 2,820,991 2,762,410 3,019,864
Other income (including security
transactions) 323,099 316,316 303,758 313,017
Other expenses 1,862,543 1,795,397 1,804,547 2,182,089
---------------------------------------------
Income before taxes 1,254,732 1,341,910 1,261,621 1,150,792
Applicable income taxes 322,000 335,000 318,000 277,589
- ------------------------------------------------------------------------------------
Net income $ 932,732 $1,006,910 $ 943,621 $ 873,203
========= ========= ========= =========
Earnings per share $ .52 $ .56 $ .52 $ .49
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $4,695,800 $4,778,846 $4,862,443 $4,885,385
Interest expense 1,887,951 2,089,414 2,146,413 2,128,441
---------------------------------------------
Net interest income 2,807,849 2,689,432 2,716,030 2,756,944
Provision for possible loan losses 45,000 15,000 15,000 15,000
---------------------------------------------
Net interest income after
provision for possible loan losses 2,762,849 2,674,432 2,701,030 2,741,944
Other income (including security
transactions) 284,849 265,321 283,904 278,868
Other expenses 1,856,427 1,774,107 1,665,482 1,750,155
---------------------------------------------
Income before taxes 1,191,271 1,165,646 1,319,452 1,270,657
Applicable income taxes 292,200 303,200 334,300 324,133
- ------------------------------------------------------------------------------------
Net income $ 899,071 $ 862,446 $ 985,152 $ 946,524
========= ========= ========= =========
Earnings per share $ .50 $ .48 $ .54 $ .53
========= ========= ========= =========
</TABLE>
(At this point, the text is located in the lefthand column about three
quarters down the page. A table appears to the right of the text
occupying the second and third columns.)
Common Stock Information
The following table sets forth the high and low sales prices for
the common stock, as reported on The Nasdaq Stock Market, Inc.
and the cash dividends declared per share on the common stock for
the periods indicated.
Commmercial National Financial Corporation stock is traded in the
over-the-counter market on The Nasdaq Stock Market, Inc., under
the trading symbol "CNAF" with an additional descriptive listing of
"Comm Ntn."
<TABLE>
<CAPTION>
Cash Dividend
1996 High Low Per Share
- ------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $21.33 $20.13 $ .143
Second Quarter 31.50 21.33 .16
Third Quarter 31.75 29.50 .16
Fourth Quarter 37.00 31.50 .16
</TABLE>
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $18.00 $17.75 $ .14
Second Quarter 18.75 18.00 .14
Third Quarter 19.50 18.75 .14
Fourth Quarter 20.13 19.50 .14
</TABLE>
<PAGE>
Commercial National Financial Corporation and Subsidiary
- --------------------------------------------------------
Selected Financial Data
- -----------------------
The following financial information is not covered by the auditor's report
and must be read in conjunction with the consolidated financial statements
and related notes along with management's discussion and analysis of
financial condition and results of operations.
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 13,549,080 $ 12,843,170 $ 11,250,168 $ 11,022,466 $ 11,454,524
Interest and dividends on securities 6,258,278 6,138,993 5,807,222 5,928,570 5,978,793
Interest on money market investments 140,209 240,311 326,188 299,063 517,820
- -------------------------------------------------------------------------------------------------------------
Total interest income 19,947,567 19,222,474 17,383,578 17,250,099 17,951,137
Total interest expense-deposits 8,445,126 8,252,219 6,444,799 6,148,966 7,375,890
- -------------------------------------------------------------------------------------------------------------
Net interest income 11,502,441 10,970,255 10,938,779 11,101,133 10,575,247
Provision for possible loan losses 105,000 90,000 180,000 360,000 510,000
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 11,397,441 10,880,255 10,758,779 10,741,133 10,065,247
Other operating income 1,256,190 1,112,942 1,015,791 1,008,388 798,937
Other operating expenses 7,644,576 7,046,171 7,138,659 6,644,317 6,774,803
- -------------------------------------------------------------------------------------------------------------
Income before taxes 5,009,055 4,947,026 4,635,911 5,105,204 4,089,381
Applicable income taxes 1,252,589 1,253,833 1,150,991 1,351,201 961,773
- -------------------------------------------------------------------------------------------------------------
Net income $ 3,756,466 $ 3,693,193 $ 3,484,920 $ 3,754,003 $ 3,127,608
============ ============ ============ ============ ============
Per Share Data
Net income $ 2.09 $ 2.05 $ 1.94 $ 2.09 $ 1.74
Dividends declared $ .62 $ .56 $ .53 $ .49 $ .45
Average shares outstanding (a) 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000
At End of Period
Total assets $278,110,524 $266,176,018 $251,141,709 $243,526,543 $225,831,450
Securities 102,355,972 103,480,616 96,675,122 91,935,870 86,612,169
Loans and leases, net of
unearned income 159,935,523 144,288,002 139,066,657 125,575,221 116,792,991
Reserve for possible loan losses 2,035,818 2,081,700 2,077,553 1,968,014 1,740,713
Deposits 238,808,071 230,736,311 219,560,923 213,753,679 199,338,164
Shareholders' equity 35,388,254 33,036,470 29,556,943 28,005,748 24,666,929
Key ratios
Return on average assets 1.39% 1.43% 1.42% 1.63% 1.43%
Return on average equity 11.02 11.80 12.15 14.41 13.41
Net loans-to-deposit ratio 66.12 61.63 62.39 57.83 57.72
Dividend payout ratio (dividends
declared divided by net income) 29.87 27.29 27.55 23.65 25.71
Equity-to-assets ratio (average equity
divided by average total assets) 12.64 12.13 11.72 11.31 10.66
</TABLE>
[FN]
(a) Retroactively adjusted for a three-for-one stock split in the form of a
dividend declared in February 1996.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- -----------------------------------------------------------
(At this point, the following text occupies the first and second columns
of the three column text. The third column is blank.)
INTRODUCTION
The purpose of this discussion and the accompanying financial data is to
provide aid in understanding and evaluating the financial condition and
results of operations of Commercial National Financial Corporation (the
"corporation") for the years ending on December 31, 1996, 1995 and 1994.
This information should be read in conjunction with the consolidated
financial statements and related footnotes for the years under review.
In February 1996, the Board of Directors authorized a three-for-one stock
split effected in the form of a stock dividend. All per share data has
been restated to allow meaningful comparison with prior periods.
All material intercompany transactions have been eliminated in
consolidation.
RESULTS OF OPERATIONS
Net income for 1996 was $3,756,466, compared to $3,693,193 in 1995 and
$3,484,920 in 1994. Earnings per share were $2.09 in 1996 compared to
1995's earnings of $2.05 per share. In 1994, earnings per share were
$1.94.
Return on average assets was 1.39% in 1996, 1.43% in 1995 and 1.42% in
1994. For the same years return on average equity was 11.02%, 11.80% and
12.15%, respectively.
NET INTEREST INCOME
The largest segment of earnings is represented by net interest income
which is calculated by deducting the interest paid on interest-bearing
liabilities from the interest received on interest-earning assets. In
1996, net interest income was $11,502,441 compared to $10,970,255 in 1995
and $10,938,779 in 1994.
Average earning assets grew $10,364,280 in 1996, $12,892,411 in 1995 and
$13,652,541 in 1994. Average interest-bearing liabilities increased
$7,908,162 in 1996, $8,374,092 in 1995 and $8,449,747 in 1994. The return
on earning assets, calculated on a tax-equivalent basis, equaled 8.06% in
1996 compared to 8.08% in 1995 and 7.72% in 1994. The cost-of-funds rate
was 4.21% in 1996, 4.28% in 1995 and 3.50% in 1994. The tax-equivalent
net interest margin was 4.77% in 1996, 4.74% in 1995 and 4.98% in 1994.
<PAGE>
<TABLE>
Financial Comparisons
Consolidated Average Balance Sheet, Interest Income/Expense and Rates
<CAPTION>
1996 1995 1994
Interest Interest Interest
Average Income/ Yield or Average Income/ Yield or Average Income/ Yield oR
Balance Expense Rate(a) Balance Expense Rate(a) Balance Expense Rate(a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
Loans(b)(c) net of
unearned income $151,056,637 $13,549,080 9.01% $142,697,066 $12,843,170 9.03% $130,041,170 $11,250,168 8.67%
Taxable securities 78,491,319 4,914,451 6.26 76,008,652 4,803,344 6.32 73,016,698 4,486,473 6.14
Non-taxable securities 26,118,891 1,391,106 8.07 24,174,102 1,335,649 8.37 22,961,341 1,320,749 8.71
Interest-bearing deposits
with banks 127,222 6,252 4.91 56,764 2,716 4.78 71,540 1,475 2.06
Federal funds sold 1,569,809 86,678 5.52 4,063,014 237,595 5.85 8,016,438 324,713 4.05
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 257,363,878 19,947,567 8.06 246,999,598 19,222,474 8.08 234,107,187 17,383,578 7.72
Non-interest-earning Assets
Cash 6,182,888 5,957,428 5,558,007
Reserve for loan losses (2,080,108) (2,094,558) (2,036,492)
Other assets 8,241,254 7,296,555 7,003,706
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest-
earning assets 12,344,034 11,159,425 10,525,221
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $269,707,912 $258,159,023 $244,632,408
============ ============ ============
Liabilities and Shareholders' Equity
Interest-bearing Deposits
NOW accounts $ 18,110,581 353,404 1.95 $ 17,116,367 375,977 2.20 $ 17,312,928 393,320 2.27
Money Market accounts 39,754,528 1,506,643 3.79 40,662,832 1,565,552 3.85 48,954,853 1,562,778 3.19
Savings deposits 44,744,695 1,357,140 3.03 42,721,554 1,302,544 3.05 45,420,259 1,338,663 2.95
Time deposits 97,004,511 5,176,923 5.34 92,126,830 5,007,781 5.44 72,571,958 3,150,038 4.34
Short-term borrowings 927,937 51,016 5.50 6,507 365 5.61 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 200,542,252 8,445,126 4.21 192,634,090 8,252,219 4.28 184,259,998 6,444,799 3.50
Non-Interest-bearing Liabilities and Capital
Non-interest-bearing deposits 32,920,490 32,128,560 29,989,014
Other liabilities 2,156,953 2,094,590 1,710,233
Shareholders' equity 34,088,217 31,301,783 28,673,163
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest-bearing
funding sources 69,165,660 65,524,933 60,372,410
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $269,707,912 $258,159,023 $244,632,408
Net Interest Income and
Net Yield on Interest-
earning Assets $11,502,441 4.77% $10,970,255 4.74% $10,938,779 4.98%
=========== =========== ===========
</TABLE>
[FN]
(a) Yields on interest earning assets have been computed on a tax- equivalent
basis using the 34% federal income tax statutory rate.
(b) Income on non-accrual loans is accounted for on the cash basis, and
the loan balances are included in interest earning assets.
(c) Loan income includes net loan fees.
<PAGE>
Commercial National Financial Corporation and Subsidiary
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ------------------------------------------------------------
(At this point, a table appears at the top and occupies the first third
of the page.)
The following table illustrates the impact and interaction of rate and
volume changes for the years under review:
<TABLE>
Analysis of Year-to-Year Changes in Net Interest Income
-----------------------------------------------------------------------------
1996 Change from 1995 1995 Change from 1994
-----------------------------------------------------------------------------
<CAPTION>
Total Change Due Change Due Total Change Due Change Due
Change to Volume to Rate Change to Volume to Rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
Loans net of unearned income $ 705,910 $ 752,387 $ (46,477) $1,593,002 $1,094,892 $ 498,110
Securities
Taxable 111,107 156,891 (45,784) 316,871 183,839 133,032
Non-taxable 55,457 107,452 (51,995) 14,900 69,759 (54,859)
Interest-bearing deposits with banks 3,536 3,371 165 1,241 (305) 1,546
Federal funds sold (150,917) (145,796) (5,121) (87,118) (160,137) 73,019
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 725,093 874,305 (149,212) 1,838,896 1,188,048 650,848
Interest-bearing Liabilities
Deposits 142,256 299,300 (157,044) 1,807,055 292,898 1,514,157
Federal funds purchased 50,651 51,686 (1,035) 365 0 365
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 192,907 350,986 (158,079) 1,807,420 292,898 1,514,522
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 532,186 $ 523,319 $ 8,867 $ 31,476 $ 895,150 $ (863,674)
========== ========== ========= ========== ========== ===========
</TABLE>
[FN]
Included in interest income are loan fees of $227,189 in 1996,
$135,065 in 1995 and $155,523 in 1994.
(At this point, the following text reverts back to three-column format.)
The provision for possible loan losses is the amount added to
the reserve against which actual loan losses are charged. The
amount of the provision is determined by an analysis of the
loan portfolio's size, quality and risk potential as compared
to the size of the reserve itself. The amount of the provision
was $105,000 in 1996, $90,000 in 1995 and $180,000 in 1994.
For each of the same years the net charge-off against the
reserve for loan losses was $150,882, $85,853 and $70,461,
respectively. On December 31, 1996 the reserve for possible
loan losses equaled 1.27% of total loans compared to 1.44% at
the end of 1995 and 1.49% at the end of 1994. Loans which were
past due 90 days or more, or were on non-accrual equaled 0.08%
of total loans on December 31, 1996, 0.46% on December 31,
1995 and 0.76% on December 31, 1994. The corporation's policy
is to place loans on a non-accrual basis when they become 90
days past due provided that the loan is well collateralized
and gives evidence of a reasonable likelihood for full
collection. During the review of the loan portfolio,
management did not note any trends such as industry
uncertainties which raise concerns regarding future adverse
impact on operating results, liquidity or capital resources.
NON-INTEREST INCOME AND EXPENSE
In 1996, total non-interest income increased $143,248 to
$1,256,190 from $1,112,942 in 1995. Asset management and trust
income grew $59,804 to $89,274. Service charges on deposit
accounts increased $30,585 to $511,418. Other service charges
and fees decreased by $5,220 to $287,694. Net gains on sold
and called investments amounted to $577. Other income
increased by $63,715 to $367,227. In 1994, total non-interest
income was $1,015,791.
Non-interest expense in 1996 was $7,644,576. This represented
an increase of $598,405 over 1995's non-interest expense which
totaled $7,046,171. The two major areas contributing to this
increase were personnel expenses and other expenses which rose
$323,244 and $372,430, respectively. The increase in personnel
expense was attributable to the establishment of the new
Murrysville office and other required staffing additions
throughout the corporation. Major components of the increase
in the other expense category were the marketing and
promotional costs related to the Murrysville office and the
Maxcess Account, our comprehensive home-banking service. Net
occupancy expense increased $45,467 and furniture and
equipment expense rose $120,266. These increases were also
primarily attributable to the opening of the Murrysville
office and technological enhancements made to the
corporation's homebanking service capabilities. Pennsylvania
shares tax increased $20,740 over 1995. FDIC insurance expense
decreased by $283,742. Non-interest expense in 1994 was
$7,138,659.
Income tax expense was $1,252,589 in 1996, $1,253,833 in 1995
and $1,150,991 in 1994. The effective tax rate was 25.01%,
25.35% and 24.83%, respectively. The corporation's sizeable
municipal bond holdings continued to favorably influence
income tax expense levels.
<PAGE>
LIQUIDITY
Liquidity measurements attempt to evaluate the corporation's
ability to meet the cash-flow needs of its depositors and
borrowers. The primary source of liquidity is deposit growth.
Additional liquidity is provided by the maturity of
investments in loans and securities and the interest received
from those earning assets. Another source of liquidity is
represented by the corporation's ability to sell both loans
and available for sale securities. Supplemental external
funding sources have been established and are available to
meet both short- and long-term funding needs.
On December 31, 1996, total deposits were $8,071,760 greater
than on December 31, 1995. Interest bearing deposits grew
$10,154,483 in 1996 while demand deposits decreased
$2,082,723. The limited total deposit growth of 1996 was
primarily attributable to competition from outside sources
offering higher-yielding alternative investments.
During the same period, total loans grew by $15,524,860.
Competition for high-quality loans remained intense throughout
1996. Commercial loan products led in dollar-volume increases.
Other significant increases in loans occurred with consumer
installment, credit card and home equity lines of credit
products.
Due to 1996's limited deposit growth, a large portion of the
funds which would normally be allocated for securities
purchases, were used to support loan growth. During the second
half of the year, the bank used proceeds from maturing
securities to fund strong credit demand rather than reinvest
those monies into securities. The book value of the
corporation's securities portfolio decreased $696,337 and was
$102,339,695 on December 31, 1996. On that same date, the
estimated market value of the entire securities portfolio was
$103,387,927 which was higher than cost by $1,048,232 and
represented the net of $1,364,076 gross unrealized gains less
$315,844 gross unrealized losses. On December 31, 1996 the
amount of securities which would reach maturity within one
year was $16,951,290 as compared to $16,348,749 at the end of
the previous year.
The following tables present a five-year summary of loan classifications
and the maturity distribution of securities at December 31, 1996.
<TABLE>
<CAPTION>
Loans by Classification on December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------
Per Per Per Per Per
Amount Cent Amount Cent Amount Cent Amount Cent Amount Cent
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 17,115,404 11% $ 14,494,356 10% $ 9,794,172 7% $ 10,090,751 8% $ 9,823,997 8%
Real estate - commercial 33,437,360 21 32,460,803 23 32,108,097 23 30,627,685 24 28,713,548 25
Real estate - construction 1,924,619 1 1,523,490 1 1,637,794 1 1,470,076 1 1,257,655 1
Real estate - other 86,045,874 54 79,910,652 55 80,702,169 58 70,708,911 56 63,759,312 54
Consumer - installment 6,542,365 4 4,803,258 3 5,535,248 4 5,733,348 5 8,220,885 7
Municipal 3,183,483 2 1,332,403 1 1,350,655 1 1,179,097 1 481,955 1
Other 11,799,130 7 9,998,413 7 8,238,730 6 6,124,966 5 4,806,334 4
- ------------------------------------------------------------------------------------------------------------------------------
Total loans $160,048,235 100% $144,523,375 100% $139,366,865 100% $125,934,834 100% $117,063,686 100%
============ ============ ============ ============ ============
</TABLE>
<PAGE>
Commercial National Financial Corporation and Subsidiary
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- -------------------------------------------------------------
(At this point the first quarter of the page is a table followed by three-
column text in the second quarter of the page. The last half of the page
is another table.)
<TABLE>
Maturity Distribution of Securities on December 31, 1996
<CAPTION>
U.S. Treasury State & Total Weighted
& other U.S. Govt. Political Other Book Average
Agencies & Corp. Subdivisions(1) Securities Value Yield
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Within 1 year $16,771,290 $ 180,000 $ - $ 16,951,290 6.64%
After 1 but within 5 years 45,755,539 4,945,318 - 50,700,857 6.16
After 5 but within 10 years 10,950,688 21,276,942 - 32,227,630 7.60
After 10 years - 1,526,718 - 1,526,718 7.62
No fixed maturity - - 933,200 933,200 6.48
- -------------------------------------------------------------------------------------------------------
$73,477,517 $27,928,978 $ 933,200 $102,339,695 6.73%
=========== =========== ========== ============
</TABLE>
[FN]
(1) Yield on tax-exempt obligations has been computed on a fully
tax-equivalent basis (using statutory federal income tax rate of 34%)
INTEREST SENSITIVITY
One of the desired goals of investment management is to
achieve a balance between the need for consistent income
growth and the risks inherent in achieving a portion of
that income through managed maturity imbalances between
interest-earning assets and interest-bearing liabilities.
These relationships are generally so complex that exact
measurement of the impact of interest rate changes is
virtually impossible. However, an indication of an
institution's vulnerability to such changes can be roughly
gauged through the measurement and analysis of the so-
called "gap" or the difference between the dollar volumes
of assets and liabilities eligible for repricing within a
variety of time periods. When the amount of the assets so
defined is greater than the liabilities, the gap is labeled
positive and the institution's interest rate spread will
widen and earnings will respond favorably to a general rise
in interest rates. The opposite relationship produces a
negative gap and the interest rate spread will increase and
earnings will show a favorable response in a declining rate
environment.
<TABLE>
Interest Sensitivity Analysis (In Thousands)
<CAPTION>
0-30 Days 31-90 Days 91-180 Days 181-365 Days 1-5 Yrs Over 5 Yrs
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Securities $ 2,179 $ 4,752 $ 9,083 $ 10,808 $ 57,657 $ 16,928
Federal funds sold and
deposits with banks 154 - - - - -
Loans 40,068 2,160 4,772 9,589 59,824 43,635
- ------------------------------------------------------------------------------------------------------
Total interest-sensitive
assets 42,401 6,912 13,855 20,397 117,481 60,563
Interest-bearing liabilities:
Certificates of deposit 9,733 14,020 17,660 15,939 43,930 633
Other interest-bearing
liabilities 2,540 5,081 7,621 15,242 72,437 -
Federal funds purchased 1,400 - - - - -
- ------------------------------------------------------------------------------------------------------
Total interest-sensitive
liabilities 13,673 19,101 25,281 31,181 116,367 633
- ------------------------------------------------------------------------------------------------------
Interest sensitivity gap $28,728 $(12,189) $(11,426) $(10,784) $ 1,114 $59,930
======= ========= ========= ========= ========== =======
Cumulative gap $28,728 $ 16,539 $ 5,113 $ (5,671) $ (4,557) $55,373
======= ========= ========= ========= ========== =======
Ratio of cumulative gap to
earning assets 10.94% 6.29% 1.95% (2.16%) (1.74%) 21.09%
======== ========= ========= ========= ========== =======
</TABLE>
<PAGE>
(At this point the following text is in three-column format with two
tables incorporated in the columns.)
CREDIT REVIEW
Maintaining a high quality loan portfolio is of great importance to
the corporation. The corporation manages the risk characteristics of
the loan portfolio through the use of prudent lending policies and
procedures and monitors risk through a periodic review process
provided by internal auditors, regulatory authorities and our loan
review staff. These reviews include the analysis of credit quality,
diversification of industry, compliance to policies and procedures,
and an analysis of current economic conditions.
In the management of its credit portfolio, the corporation
emphasizes the importance of the collection of loans as well as
asset and earnings diversification. The corporation immediately
recognizes as a loss, all credits judged to be uncollectible and has
established a reserve for possible loan losses that may exist in the
loan portfolio at a point in time, but have not been specifically
identified.
For analytical purposes, the following table sets forth an
allocation of the reserve for possible loan losses on December 31,
1996 and December 31, 1995 according to the categories indicated:
<TABLE>
Allocation of the Reserve for Possible Loan Losses
(dollar amounts in thousands)
<CAPTION>
1996 1995
----------------------------------------------------
<S> <C> <C>
Commercial, industrial, financial,
agricultural and tax free $ 881 $ 553
Residential mortgages 138 234
Loans to individuals 577 282
Off-balance sheet items 96 74
Unallocated 344 939
----------------
Total $2,036 $2,082
====== ======
Reserve as a percentage
of average total loans 1.35% 1.46%
======= =======
</TABLE>
CAPITAL RESOURCE
Shareholders' equity grew $2,351,784 during 1996 and was
$35,388,254 on December 31, 1996 compared to $33,036,470 on
December 31, 1995. Unrealized gains on securities available for
sale on December 31, 1996 temporarily increased shareholders'
equity by $10,743. The retained earnings retention rate was
70.13% in 1996 as compared to 72.71% in 1995.
The shareholders' equity or the capital base represents the
investment by the corporation's owners either initially or
through retention of earnings (net after income tax less
dividend payments). This investment acts as a safeguard against
future uncertainties. The amount of capital which is deemed
appropriate is dependent upon an assessment of the
corporation's total assets, the quality of its loans and
securities, its historical earnings record, its business
prospects for the near and long term, the management and
information systems in place and the general competence and
abilities of the corporation's management.
On December 31, 1996, the corporation's capital (not including
the reserve for possible loan losses) amounted to $35,388,254
or 12.72% of total assets. The inclusion of the reserve
increases the capital ratio to 13.44%. On the same basis of
calculation, these ratios were 12.41% and 13.19% respectively
on December 31, 1995.
The Federal Reserve Board's risk-based capital adequacy
standards are designed principally as a measure of credit risk.
These standards require that (1) at least 50% of total capital
must be common and certain other "core" equity capital ("Tier I
Capital"); (2) assets and off-balance sheet items must be
weighted according to risk; (3) the total capital to risk-
weighted asset ratio must be at least 8%; and (4) a minimum 4%
leverage ratio of Tier I Capital to average total assets must
be maintained. The final ruling on section 305 of the Federal
Deposit Insurance Corporation Improvement Act regarding
interest rate risk capital requirements indicates that although
no measures or capital charges are required presently, insured
financial institutions must still monitor their interest rate
risk position in conjunction with close supervision from the
appropriate regulatory agency.
As of December 31, 1996, the corporation had Tier I and total
equity capital to risk adjusted asset ratios of 22.23% and
23.48%, respectively. The leverage ratio was 12.86%. At
December 31, 1995, the corporation had Tier I and total equity
capital to risk adjusted assets ratios of 23.08% and 24.33%,
respectively.
<TABLE>
The table below presents the corporation's capital position on December 31, 1996
(dollar amounts in thousands)
<CAPTION>
Percent
of Adjusted
Amount Assets
-------------------------------------------------------------
<S> <C> <C>
Tier I capital 35,378 22.23
Tier I capital requirement 6,364 4.00
Total equity capital 37,365 23.48
Risk-based requirement 12,729 8.00
-------------------------------------------------------------
Leverage capital 35,378 12.86
Leverage requirement 11,005 4.00
</TABLE>
INFLATION AND CHANGING PRICES
Inflation can have significance to a banking institution
because of its implication for the interest rate environment
and its influence on personnel expenses and the costs of
supplies and materials needed for day to day operations.
Because such a large portion of the corporation's assets and
liabilities are represented by monetary investments,
inflationary impact tends to be dampened except for the
dislocation caused by maturity variances. Management efforts to
gauge and control these variables have been discussed earlier
under rate sensitivity. The inflationary effect on non-interest
expenses is monitored closely by management and consistent
attention is given to controlling these cost areas in an
attempt to limit their increase to levels which are lower than
the rate of asset growth.
ASSESSMENT OF FUTURE ENVIRONMENT
Management has not identified nor is aware of any internal
matter or external condition, including potential regulatory
recommendations, which could have a critical impact on the
corporation's ability to continue its present business
activities or adversely impair future operating results.
Uncertain interest rate movements will continue to influence
ongoing earnings levels. Even though the exact impact of these
factors cannot be predicted, the corporation believes that
given its financial strength and stability, it will be able to
meet these situations in a positive manner.
<PAGE>
(This page is left intentionally blank.)
<PAGE>
Commercial National Financial Corporation
CORPORATE OFFICERS
- -------------------------------------------------------------------------
Louis A. Steiner Chairman of the Board
Gregg E. Hunter Vice Chairman of the Board
Louis T. Steiner Vice Chairman of the Board
Edwin P. Cover President
Sandra L. Neiderhiser Secretary/Treasurer
Wendy S. Schmucker Assistant Secretary/Treasurer
CORPORATE DIRECTORS
- -------------------------------------------------------------------------
James A. Charley Dorothy S. Hunter Joseph A. Mosso
Retired, Vice President, President,
formerly consultant Latrobe Foundry Mosso's Pharmacy,Inc.
Super Valu Stores Machine & Supply Co.
William M. Charley Gregg E. Hunter Louis A. Steiner
Retired, Vice Chairman and Chairman of the Board
formerly consultant Chief Financial Officer Chief Executive Officer
Super Valu Stores of the Bank of the Bank
George A. Conti, Jr. Frank E. Jobe Louis T. Steiner
Attorney at Law Retired, Vice Chairman of the Bank
formerly Executive Vice
President of the Bank
Edwin P. Cover Roy M. Landers William W. Washnock
President and Retired, Retired,
Chief Operating Officer formerly Executive Vice formerly President
of the Bank President, R & L Whitney Manufacturing Co.
Development Co.
Richmond H. Ferguson John C. McClatchley C. Edward Wible
Attorney at Law C.E.O. Certified Public Accountant
JCM Industries Horner Wible & Associates,
Certified Public Accountants
All corporate directors also serve as directors of
Commercial National Bank of Westmoreland County
<PAGE>
Commercial National Bank of Westmoreland County
BANK OFFICERS
- -----------------------------------------------------------------------------
Chairman/Chief Executive Officer Louis A. Steiner
- --------------------------------
Vice Chairman James A. Charley
- -------------
Vice Chairman/Chief Financial Officer Gregg E. Hunter
- -------------------------------------
Vice Chairman Louis T. Steiner
- -------------
President/Chief Operating Officer Edwin P. Cover
- ---------------------------------
Executive Vice President John L. Letterio
- ------------------------
Senior Vice Presidents
- ----------------------------------------------------------------------
Donna L. Belluchie Philip S. Pettina
Vice Presidents
- ----------------------------------------------------------------------
Wayne H. Freed Martin E. May Keith M. Visconti
William N. Hamilton Jr. Sandra L. Neiderhiser Janet B. Zylak
James E. Harris
Assistant Vice Presidents
- -----------------------------------------------------------------------
Karen E. Burick Michael L. Matthews Thomas D. Watters
Sheila D. Crystaloski Wendy S. Schmucker Stacey G. Winfield
Ryan M. Glista Alan J. Sulek* Phyllis S. Yesh*
Cheryl M. Letterio
Community Office Managers
- -------------------------------------------------------------------------
Linda L. Bellich Debra Gras Michael A. Schmidt
Donna J. Daugherty Eric J. Sarn Thomas E. Sylvester
Service Officers
- --------------------------------------------------------------------------
Douglas P. Arndt Virginia E. Halucka Elizabeth M. Rosa
Vanessa S. Boczar H. Alan Hamill Marsha J. Salley
Eleanor A. Bridge Judy A. Hoffer Roxanne Shadron
Linda A. Burns Gina M. Kovatch Jennifer L. Sopcisak
Judith J. Ciocco Dina M. Lauricia Laura A. Steiner
Karen J. Ciocco Sharon M. Lewis Partricia L. Torrance
Katht S. Claycomb Charles H. McDowell Gerald F. Updyke
Laura G. Colvin Kelly R. Moreman Rebecca J. Weiner
Shirley M. Conway Mary M. Namestka Cynthia M. Wright
Marilyn T. Findish William W. Rice II Jodi L. Zyvith
Leonard M. Guskiewicz
[FN]
* also serve as community office managers
<PAGE>
COMMUNITY ADVISORY BOARDS
- -------------------------------------------------------------------------------
Greensburg Ligonier Murrysville West Newton
Patrick A. Love Richard L. Beattie Walter F. Baczkowski Robert D. Austin
John H. Lizza John C. Horrell August I. Bondi John T. Babilya
Barry W. Morris Barry R. Shebeck Fred C. Honsberger Marlene M. Stewart
Edward J. Smith George V. Welty Leonard L. Poliziani Dee M. Taylor
OFFICE LOCATIONS
- -------------------------------------------------------------------------------
Corporate Headquarters Latrobe Murrysville
900 Ligonier Street 900 Ligonier Street 4785 Old William Penn
P.O. Box 429 P.O. Box 429 Highway
Latrobe, PA 15650 Latrobe, PA 15650 P.O. Box 4
(412)539-3501 (412)539-3501 Murrysville, PA 15668
(412)539-0816 (Fax) (412)539-0816 (Fax) (412)733-4888
(412)733-7110 (Fax)
Asset Management and Lawson Heights
Trust Division Route 981 at Terry Way Pleasant Unity
19 North Main Street P.O. Box 429 Routes 981 and 130
Greensburg, PA 15601 Latrobe, PA 15650 P.O. Box 503
(412)836-7670 (412)539-9774 Pleasant Unit, PA 15676
(412)836-7675 (Fax) (412)539-3523 (Fax) (412)423-5222
(412)423-1155 (Fax)
Courthouse Square Ligonier
19 North Main Street 201 West Main Street West Newton
Greensburg, PA 15601 P.O. Box 528 109 East Main Street
(412)836-7699 Ligonier, PA 15668 West Newton, PA 15089
(412)836-7675 (Fax) (412)238-9538 (412)872-5100
(412)238-9530 (Fax) (412)872-5143 (Fax)
Eastgate Lincoln Road
Georges Station Road Lincoln Road Shopping Center
P.O. Box 3206 P.O. Box 429
Greensburg, PA 15601 Latrobe, PA 15650
(412)836-7600 (412)537-9980
(412)836-7604 (Fax) (412)537-9982 (Fax)
In addition to the full-service MAC machines located at all Commercial
National Bank offices indicated above (except Latrobe and Courthouse Square),
additional ATMs are available for your 24-hour banking convenience at Latrobe
Area Hospital, Saint Vincent College and Westmoreland County Airport. All are
linked to the national Cirrus, Honor and Plus networks and also accept
MasterCard, Visa, Discover and American Express for cash advances.
<PAGE>
Commercial National Financial Corporation
- -----------------------------------------------------------------------
Stock Informaion
- -----------------------------------------------------------------------
The common stock of Commercial National Financial Corporation is traded
in the over-the-counter market on The Nasdaq Stock Market, Inc. under the
trading symbol "CNAF" with an additional descriptive newspaper listing of
"Comm Ntn."
Market Makers
- ------------------------------------------------------------------------
The following firms have committed to make a market in the
stock of Commercial National Financial Corporation. Inquiries
concerning their services should be directed to:
Ferris Baker Watts Keefe, Bruyette & Woods, Inc. Ryan, Beck & Co.
100 Light Street Two World Trade Center 80 Main Street
Baltimore, MD 21202 New York, NY 10048 West Orange, NJ 07052
800-638-7411 800-966-1559 800-342-2325
F.J. Morrissey & Co Inc. Monroe Securities Inc.
Suite 1420 47 State Street
1700 Market Street Rochester, NY 14614
Philadelphia, PA 19103 800-766-5560
800-842-8928
Transfer Agent
- -----------------------------------------------------------------------------
Should you need assistance regarding changes in the
registration of certificates or in reporting lost
certificates please contact:
Commercial National Financial Corporation
Stock Transfer Department
P.O. Box 429
Latrobe, PA 15650
(412)537-9922
(412)539-1137 (Fax)
More general shareholder inquiries also may be directed to this department.
Form 10-K
- -----------------------------------------------------------------------------
The corporation will provide without charge to any
shareholder a copy of its 1996 Annual Report on Form 10-K as
required to be filed with the Securities and Exchange
Commission. Requests should be made in writing to:
Commercial National Financial Corporation
P.O. Box 429
Latrobe, PA 15650
<PAGE>
(The inside of the back cover is intentionally left blank.)
<PAGE>
(The following appears in the upper left corner of the back cover along
with the corporate logo)
Commercial National Financial Corporation
900 Ligonier Street
P.O. Box 429
Latrobe, PA 15650
<PAGE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
Latrobe, Pennsylvania
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 15, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the annual meeting of shareholders
of Commercial National Financial Corporation will be held at its office,
900 Ligonier Street, Latrobe, Pennsylvania, on Tuesday, April 15, 1997
at 2:00 P.M. for the following purposes.
1. Election of five (5) directors each for a term of three (3)
years; and
2. Adoption of an amendment to the Articles of Incorporation to
increase the authorized common stock from 1,800,000 to
10,000,000 shares; and
3. Ratification of the appointment of Jarrett Stokes & Kelly
as independent auditors for the corporation; and
4. Transaction of such other business as may come properly
before the meeting, and any adjournment or postponement
thereof.
Only those shareholders of record as of the close of business on
March 14, 1997 shall be entitled to notice of and to vote at the meeting.
Enclosed are a proxy statement, a form of proxy and an addressed return
envelope. Please mark, date, sign and return the proxy promptly in the
envelope whether or not you plan to attend the meeting in person. If you
do attend the meeting, you may then withdraw your proxy and vote in person.
Your prompt response will be appreciated.
By Order of the Board of Directors
/s/ Sandra L. Neiderhiser
Sandra L. Neiderhiser, Secretary
March 14, 1997
<PAGE>
The inside of the front cover is left intentionally blank.
<PAGE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
900 Ligonier Street
Latrobe, Pennsylvania 15650
________________________________________
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 15, 1997
GENERAL
This proxy statement is provided for the solicitation of
proxies by the board of directors of Commercial National
Financial Corporation (the corporation), a Pennsylvania business
corporation and bank holding company, for use at the annual
meeting of shareholders on April 15, 1997 and at any and all
adjournments or postponements thereof. This proxy statement and
the form of proxy, together with the annual report to
shareholders for 1996, are being mailed on March 17, 1997, or as
soon thereafter as possible, to all shareholders entitled to vote
at the annual meeting.
The only class of stock of the corporation presently issued
and outstanding is common stock. The total number of shares of
common stock entitled to vote at the annual meeting is 1,800,000
and only those shareholders of record at the close of business on
March 14, 1997 are entitled to vote.
The shares of stock represented by each proxy properly
signed and returned to the corporation prior to the date of the
annual meeting, will be voted in the manner set forth in this
proxy statement and in accordance with the instructions marked on
the proxy enclosed.
A shareholder who returns a proxy may revoke it at any time
before it is voted, by delivering a written notice of revocation
to Sandra L. Neiderhiser, secretary of the corporation, or by
executing a later dated proxy and giving written notice thereof
to the secretary of the corporation or by voting in person at the
meeting after giving written notice to the secretary of the
corporation.
The cost of preparing, printing, and soliciting proxies will
be paid by the corporation. In addition to the use of the mails,
certain directors, officers and employees of the corporation may
solicit proxies personally by telephone or by telegraph.
Arrangements will be made with brokerage houses and other
custodians, fiduciaries and nominees to forward proxy
solicitation materials to the beneficial owners of stock held of
record by these persons, and, upon request therefore, the
corporation will reimburse them for reasonable forwarding
expenses.
At the meeting, the shareholders will (i) act upon the
proposal to elect as directors the five (5) persons set forth in
this proxy statement each in a class of directors as set forth
below; (ii) act upon the proposal to amend the Articles of
Incorporation to increase the authorized capital of the
corporation from 1,800,0000 shares to 10,000,000 shares of common
stock; (iii) ratify the appointment of Jarrett Stokes & Kelly as
independent auditors for the corporation; and (iv) act upon any
other business as may be properly brought before the meeting.
The board of directors of the corporation recommends the
election, as directors, of the five (5) nominees listed in this
proxy statement. The nominees receiving the highest number of
votes cast, including votes cast cumulatively, shall be elected
directors. For all other purposes, other than election of
directors, each share of stock is entitled to one vote.
Under the by-laws of the corporation, the presence, in
person or by proxy, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to
cast, shall constitute a quorum.
<PAGE>
ELECTION OF DIRECTORS
The by-laws of the corporation provide that the board of
directors shall consist of not less than three (3) directors, and
shall be classified into three (3) classes, each class to be
elected for a term of three (3) years. The board of directors,
within the limits set in the by-laws, may from time to time fix
the number of directors and the respective classifications. The
number of directors to constitute the entire board has been fixed
by the board of directors at fifteen (15) with five (5) directors
in each of three (3) classes. At the annual meeting, there shall
be elected five (5) directors as a class to serve until the
annual meeting of shareholders in the year 2000. The proxies
intend to vote for the election of the nominees listed on the
proxy and in this proxy statement. Three of the nominees are now
and have been directors of the corporation and of the bank. Two
of the nominees, Debra L. Spatola and George V. Welty, are first-
time nominees and neither is currently serving as a director of
the corporation or of the bank.
Other nominations for director may be made in accordance
with procedures set forth in section 9.1 of the by-laws of the
corporation which require written notice to the secretary of the
corporation of any such nomination at least sixty (60) days prior
to the date of any meeting of the shareholders for the election
of directors. Such notice shall contain the following
information to the extent known by the notifying shareholder:
(a) the name, address, and age of each proposed nominee;
(b) the principal occupation of each proposed nominee;
(c) the number of shares of the corporation owned by each
proposed nominee;
(d) the total number of shares of the corporation that
will be voted for each proposed nominee;
(e) the name and address of the notifying shareholder; and
(f) the number of shares of common stock of the corporation
owned by the notifying shareholder.
Nominations not made within the foregoing procedures may be disregarded
by the chairman at the annual shareholders' meeting.
Each nominee has consented to be named and to serve as a
director, if elected. If any nominee becomes unable to serve as
a director, the proxies named in the proxy will vote for a
substitute nominee selected and recommended by the board of
directors of the corporation.
The names and ages of the nominees, and the year each
nominee began continuous service as a director of the
corporation, together with the principal occupation of each at
present and for at least the previous five (5) years, are as
follows:
<PAGE>
<TABLE>
<CAPTION>
AGE; PRINCIPAL OCCUPATION
FOR THE TERM DIRECTOR
NAME PAST FIVE YEARS EXPIRES SINCE
------ ----------------- ------- ------
<S> <C> <C> <C>
William M. Charley 80, retired, formerly 2000 1990
consultant, Super
Valu Stores
Gregg E. Hunter(1) 38, vice chairman and chief 2000 1995
financial officer of the
corporation and the bank (1995 -
present), assistant secretary/
treasurer of the corporation
(1993 - 1995), vice president/chief
financial officer of the bank
(1994 - 1995), assistant vice
president/controller
of the bank (1993-94)
Debra L. Spatola 40, vice president, 2000 -
Laurel Valley Foods, Inc.
Louis A. Steiner(2) 66, chairman of the board 2000 1990
and chief executive
officer of the
corporation and bank
George V. Welty 50, attorney, partner, 2000 -
Flickinger and Welty
</TABLE>
[FN]
(1) Gregg E. Hunter, director and nominee, is the son
of Dorothy S. Hunter, director; nephew of Louis A.
Steiner, director and nominee; and cousin of
Louis T. Steiner, director.
(2) Louis A. Steiner, director and nominee, is the
brother of Dorothy S. Hunter, director; father of
Louis T. Steiner, director; and uncle of Gregg E.
Hunter, director and nominee.
No nominee is a director of any company, other than the
corporation, which is required to file reports with the
Securities and Exchange Commission.
<PAGE>
CONTINUING DIRECTORS
The remaining ten (10) directors, named below, will continue
to serve in their respective classes. The following table, based
in part on information received from the respective directors and
in part on the records of the corporation, sets forth information
regarding each continuing director as of February 15, 1997.
<TABLE>
<CAPTION>
AGE; PRINCIPAL OCCUPATION
FOR THE TERM DIRECTOR
NAME PAST FIVE YEARS EXPIRES SINCE
------ --------------- ------- -----
<S> <C> <C> <C>
George A. Conti, Jr. 57, attorney at law 1998 1996
Edwin P. Cover 60, president and chief 1998 1990
operating officer of
the corporation and bank
Frank E. Jobe 75, retired, 1998 1990
former executive vice
president of the bank
Roy M. Landers 68, retired, former 1998 1990
executive vice president,
R & L Development Company,
land development
C. Edward Wible 51, CPA, Horner, Wible & 1998 1995
Associates, Certified Public
Accountants
Richmond H. Ferguson 65, attorney at law 1999 1990
Dorothy S. Hunter(1) 72, vice president 1999 1990
Latrobe Foundry Machine
& Supply Company
John C. McClatchey 59, CEO, JCM Industries, 1999 1990
manufacturer of hardwood
lumber and pallets
Joseph A. Mosso 65, president, 1999 1990
Mosso's Pharmacy, Inc.
Louis T. Steiner(2) 35, vice chairman of the 1999 1995
corporation and bank (1995 -
present), vice president of
the bank (1994-1995), assistant
vice president of the bank
(1993-94), and credit services
manager of the bank (1989-93)
</TABLE>
[FN]
(1) Dorothy S. Hunter, director, is the sister of Louis A.
Steiner, director and nominee; mother of Gregg E. Hunter,
director and nominee; and aunt of Louis T. Steiner,
director.
(2) Louis T. Steiner, director, is the son of Louis A. Steiner,
director and nominee; nephew of Dorothy S. Hunter, director;
and cousin of Gregg E. Hunter, director and nominee.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of February 15, 1997, the
name and address of each person who owns of record, or who is
known by the board of directors, to be the beneficial owner of
more than five percent (5%) of the outstanding common stock, the
number of shares beneficially owned by such person, and the
percentage of the outstanding common stock so owned.
<TABLE>
<CAPTION>
Percent of
Outstanding
Amount and Nature Common Stock
Name and Address of of Beneficial Beneficially
Beneficial Owner Ownership Owned
- ------------------- ----------------- ------------
<S> <C> <C>
Louis A. Steiner 298,245 (1) 16.57%
R. D. 2, Box 197
Ligonier, PA 15658
Dorothy S. Hunter 91,500 (2) 5.08%
P. O. Box 28
Latrobe, PA 15650
Gregg E. Hunter 105,090 (3) 5.84%
P. O. Box 3
Latrobe, PA 15650
George A. Conti, Jr. 114,132 (4) 6.34%
101 North Main Street
Greensburg, PA 15601
</TABLE>
[FN]
(1) Includes 111,915 shares held directly by Mr. Steiner; 450
shares held by his spouse, Barbara J. Steiner; 120,000 shares
held by Latrobe Foundry Machine & Supply Company and 65,880
shares held by Ridge Properties, Inc. Louis A. Steiner is the
president of each company.
(2) Includes 1,500 shares held directly by Mrs. Hunter and
90,000 shares held as co-trustee, The Hunter Stock Trust, with
shared voting and investment power.
(3) Includes 15,090 shares held directly by Mr. Hunter and
90,000 shares held as co-trustee, The Hunter Stock Trust, with
shared voting and investment power.
(4) Includes 1,500 shares held in street name by Mr. Conti; 132
shares held as co-trustee of the Conti Trust, with shared voting
and investment power; 39,630 shares held as trustee of the
Corazzi Trust and 72,870 shares held as trustee of the Iorio
Trust, each with sole voting and investment power.
<PAGE>
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth as of February 15, 1997, the
amount and percentage of the common stock beneficially owned by
each director, nominee, named executive officer, and all
executive officers and directors of the corporation as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature
Individual or of Beneficial Percent
Identity of Group Ownership (1) (2) of Class
----------------- ----------------- ---------
<S> <C> <C>
William M. Charley 8,115 .45%
George A. Conti, Jr. 114,132(3) 6.34%
Edwin P. Cover 5,100 .28%
Richmond H. Ferguson 2,910 .16%
Dorothy S. Hunter 91,500(4) 5.08%
Gregg E. Hunter 105,090(5) 5.84%
Frank E. Jobe 15,150 .84%
Roy M. Landers 16,600 .92%
John C. McClatchey 1,500 .08%
Joseph A. Mosso 12,420 .69%
Debra L. Spatola 600 .03%
Louis A. Steiner 298,245(6) 16.57%
Louis T. Steiner 10,716 .60%
George V. Welty 990 .06%
C. Edward Wible 1,000 .06%
All executive officers and
directors as a group
(15 directors, 5 officers,
16 persons in total) 595,688 33.09%
</TABLE>
[FN]
(1) The securities "beneficially owned" by an individual are
determined in accordance with the definitions of "beneficial
ownership" set forth in the general rules and regulations of
the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as
well as securities to which the individual has or shares
voting or investment power or has the right to acquire
beneficial ownership within sixty (60) days after
February 15, 1997. Beneficial ownership may be disclaimed
as to certain of the securities.
(2) Information furnished by the directors and the corporation.
(3) Includes 1,500 shares held in street name by Mr. Conti; 132
shares held as co-trustee of the Conti Trust, with shared
voting and investment power; 39,630 shares held as trustee
of the Corazzi Trust and 72,870 shares held as trustee of
the Iorio Trust, each with sole voting and investment power.
<PAGE>
(4) Includes 1,500 shares held directly by Mrs. Hunter and
90,000 shares held as co-trustee, The Hunter Stock Trust,
with shared voting and investment power.
(5) Includes 15,090 shares held directly by Mr. Hunter and
90,000 shares held as co-trustee, The Hunter Stock Trust,
with shared voting and investment power.
(6) Includes 111,915 shares held directly by Mr. Steiner; 450
shares held by his spouse, Barbara J. Steiner; 120,000
shares held by Latrobe Foundry Machine & Supply Company and
65,880 shares held by Ridge Properties, Inc. Louis A.
Steiner is the president of each company.
CUMULATIVE VOTING FOR DIRECTORS
The Articles of Incorporation of the corporation provide
that cumulative voting rights shall exist with respect to the
election of directors. Each shareholder entitled to vote shall
have the right to vote the number of shares owned, for as many
persons as there are directors to be elected in each class, or to
cumulate such shares and give one nominee the whole number of
such votes, or distribute the votes among any two or more
nominees in each class. For all other purposes, each share is
entitled to one vote. Management of the corporation reserves the
right to instruct the proxy holders to vote cumulatively.
DIRECTORS' MEETINGS AND COMMITTEES
It is the policy of the corporation that the directors of
the corporation also serve as the directors of the bank. During
1996 the board of the corporation met six (6) times and the board
of the bank met twelve (12) times.
The board of the corporation has an audit committee which
consists of the same persons who serve on the audit committee of
the bank. The audit committee of the corporation met during 1996
at the same times and performed the same functions as the audit
committee of the bank described below. The corporation does not
have a nominating committee. The function of a nominating
committee is performed by the full board.
The corporation has an executive compensation committee
whose functions are described in the following text in the executive
compensation report. In 1996 the committee met two (2) times.
<PAGE>
COMMITTEES OF THE BOARD OF THE BANK
The by-laws of the bank provide for an audit committee,
executive committee, and asset quality committee. The bank does
not have a nominating committee. That function is performed by
the full board. The bank does not have a compensation committee,
that function is performed by the executive compensation
committee of the corporation.
The audit committee currently consists of James A. Charley,
John C. McClatchey, George A. Conti, Jr., and C. Edward Wible,
all directors, appointed by the board. The committee meets
quarterly, or more often as needed, with the internal auditor and
staff to review all controls, internal procedures and other
matters deemed appropriate. The trust audit committee reviews
all controls and procedures of the trust division and the
committees of the trust division. The committee meets with the
bank's independent auditors as it deems necessary not less often
than annually. During 1996 the committee held four (4) meetings.
The executive committee consists of the chairman, Louis A.
Steiner; the vice chairmen, Gregg E. Hunter and Louis T. Steiner;
and the president, Edwin P. Cover; together with directors
William M. Charley, Dorothy S. Hunter, Roy M. Landers and
Joseph A. Mosso. The committee meets monthly to review long- and
short-term operating plans for the bank and related matters and
prepare recommendations for appropriate board consideration and
action. During 1996 the committee held twelve (12) meetings.
The asset quality committee consists of the chairman,
Louis A. Steiner; the vice chairmen, Gregg E. Hunter and Louis T.
Steiner; the president, Edwin P. Cover, together with directors
Richmond H. Ferguson, Frank E. Jobe and William W. Washnock. The
committee meets quarterly to monitor loan and securities
investments to assure conformance with internal policy and all
applicable governmental regulations. The committee held four (4)
meetings during 1996.
The trust and trust investment committee, each
consists of not less than five (5) members appointed by the
chairman of the board. The members of each committee are
chairman, Louis A. Steiner; vice chairman, Louis T. Steiner;
president, Edwin P. Cover; and director Frank E. Jobe; together
with Barry A. Morris, Edward J. Smith and George V. Welty (a
nominee), advisory board members. Each committee meets monthly,
concurrently, to monitor and review all activities and functions
of the trust division. During 1996 the committees held twelve
(12) meetings.
ATTENDANCE AT MEETINGS
During 1996 all directors except James A. Charley attended
at least 75% of the combined total of meetings of the board of
directors and each committee of which they were a member.
COMPENSATION OF DIRECTORS
Directors of the corporation are not paid a fee. Directors
of the bank are paid a fee of $400 for attendance at meetings of
the board of directors of the bank, and in addition, directors
who are not also officers of the bank are paid $190 for
attendance at monthly meetings and $270 for attendance at
quarterly meetings of the committees of the bank.
<PAGE>
EXECUTIVE COMPENSATION REPORT
To Our Shareholders:
Compensation for the executives of the corporation and its
wholly-owned subsidiary, the bank, is set and paid at the bank
level. The executive compensation committee had the
responsibility and authority to establish executive compensation
for 1996.
The executive compensation committee is composed of three
independent non-employee directors, none of whom are former
officers of the corporation or the bank. The committee is
responsible for setting executive officer salaries and
authorizing executive participation in the employee incentive
programs. The following report describes the actions of the
committee regarding the compensation paid to the executive
officers by the bank during 1996. No compensation was paid by
the corporation to its executive officers.
The bank's executive salary structure is based upon
independent banking industry surveys which focus on banks similar
in size, scope and geographic region to the bank. In addition,
the relative value of each management position to every other
management position is determined by the human resources
department. Using this data, a base salary, midpoint and range
is established for each position. The midpoint serves as a base
salary target for executives performing their jobs competently.
In general, the bank's base salary midpoints are above the median
of relevant competitive institutions. Salary increases are based
on individual performance and actual salary level relative to the
midpoint of the incumbent's salary range.
Salary decisions are based on performance criteria which
include the corporation's earnings over the previous five-year
period and the executive's success in managing risk, optimizing
income, controlling operating costs, improving service quality,
developing management leadership and strengthening the
institution's competitive position. The committee also considers
the extent to which such goals as after-tax income as a
percentage of average total assets, annual total asset growth,
and the capital ratios were met.
The annual performance pay and incentive bonus are dependent
on the bank's performance relative to pre-set financial targets
based on after-tax return on average assets for the year.
Executives also participate in the corporation's employee
profit sharing plan described elsewhere in the proxy statement.
On December 12, 1995, the committee set the 1996
compensation for Louis A. Steiner, chairman and CEO, and Edwin P.
Cover, president and COO, as shown in this proxy statement. The
compensation reported consists of base salaries and other
compensation paid in 1996 and annual bonuses and profit sharing
earned in 1996 as determined by the bank's 1996 performance.
EXECUTIVE COMPENSATION COMMITTEE
William M. Charley
Joseph A. Mosso
Roy M. Landers
<PAGE>
EXECUTIVE OFFICERS' COMPENSATION
The corporation has not paid compensation of any kind to any
officer of the corporation. All compensation was paid by the
bank, the subsidiary of the corporation.
The following table sets forth certain information regarding
compensation received by the chief executive officer and the
remaining executive officers of the corporation whose total
annual salary and bonus exceeded $100,000 for the period
indicated.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Name And Profit
Principal Position Year Salary Bonus Sharing
- ------------------ ----- ------ ----- -------
<S> <C> <C> <C> <C>
LOUIS A. STEINER
Chairman - board of 1996 109,148 5,754 17,234
directors & chief
executive officer of 1995 96,619 5,748 15,301
the corporation and
the bank 1994 93,101 4,883 13,965
EDWIN P. COVER
President & chief 1996 164,655 6,967 22,500
operating officer
of the corporation 1995 147,136 7,151 22,500
and the bank
1994 146,822 7,164 22,023
</TABLE>
<PAGE>
PERFORMANCE GRAPH
(Graphic material has been omitted from this section. The information
is being presented in tabular form.)
The following graph compares the corporation's cumulative total
shareholder returns with the performance of the Nasdaq Stock Market
Index (U.S. Companies) and with the Nasdaq Bank Stocks Index.
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<CAPTION>
DATE CNFC NASDAQ U.S. CO. NASDAQ BANKS
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 127.00 116.38 145.55
1993 138.54 133.60 165.99
1994 190.81 130.59 165.38
1995 221.41 184.68 246.31
1996 403.22 227.17 325.59
</TABLE>
[FN]
Assumes that the value of the investment in CNFC Common Stock and
each index was $100 on December 31, 1991 and that all dividends were
reinvested.
<PAGE>
PROFIT SHARING PLAN
The Employee Profit Sharing Retirement Plan (the plan) of
the bank was created in 1977 and restated in 1984. The plan
covers all employees who are employed for at least 1,000 hours
per year beginning on the first day of the month after completing
one year of service with the bank. The amount to be contributed
is determined by the board of directors of the bank and is a
percentage of the net profits of the bank. The total amount of
the annual contribution cannot exceed fifteen percent (15%) of
the total eligible compensation paid by the bank to all
participating employees. There are no contributions made by the
participating employees.
The plan provides for the determination of an account for
each participating employee with notice of the amount in that
account to be given to the participating employee annually.
Distributions under the plan can be made to participating
employees upon retirement (either normal or early retirement as
defined in the plan), at death or disability of the participating
employee or upon severing employment if either partially or fully
vested. The plan provides for percentage vesting of twenty
percent (20%) for the first full three years of service increasing
annually thereafter to one hundred percent (100%) vesting after
seven (7) full years of participation. The plan provides rules
in the event it becomes top-heavy. The funds contributed into
the plan by the bank will be administered and invested by and
under the discretion of the trustees (not less than three) who
are appointed by the directors of the bank.
It is not possible to determine the extent of the benefits
which any participant may be entitled to receive under the plan
on the date of termination of employment, since the amount of
such benefits will be dependent, among other things, upon the
future earnings of the bank, the future compensation of the
participants and the future earnings under the plan.
TRANSACTIONS WITH DIRECTORS, NOMINEES, OFFICERS AND ASSOCIATES
In the ordinary course of its banking business, the bank has
and anticipates that it will continue to have transactions with
certain directors and officers of the corporation and the bank
and their associates. To the extent such transactions consisted
of extensions of credit of any material amount, they have been
made in the ordinary course of the bank's business on
substantially the same terms including interest charged and
collateral required as those prevailing at the time for
comparable transactions with other customers of the bank and do
not involve more than the normal risk of collectibility or
present other unfavorable features.
<PAGE>
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
The board of directors, on November 19, 1996, unanimously
adopted resolutions proposing an amendment to the Articles of
Incorporation of the company. A description of the proposal is
provided below. The full text of the proposed amendment is as
follows:
"The Articles of Incorporation of the corporation are
hereby amended to increase the authorized capital of the
corporation to 10,000,000 shares of common stock, par value
$2.00 per share."
The proposal would increase the authorized common stock, par
value $2.00 per share, from 1,800,000 to 10,000,000 shares.
After giving effect to the increase of common stock, there would
be 8,200,000 shares of unreserved common stock that could be
issued at the discretion of the Board of Directors, without
further action by the shareholders, for any lawful purposes.
Presently, all of the 1,800,000 authorized shares are issued
and outstanding, leaving no shares available for future issuance.
The board of directors believes that it is important to have
shares available for issuance to provide for the possible needs
of the company for such matters as raising additional capital,
making acquisitions and effecting potential stock splits and
stock dividends. The company has no present plans or agreements
to take any such action.
Approval of the proposed amendment to the Articles of
Incorporation requires the affirmative vote by holders of a
majority of the shares voting on such matter. The board of
directors recommends that the shareholders vote FOR the proposal
to amend the company's Articles of Incorporation.
AUDITORS
The board of directors of the corporation selected Jarrett
Stokes & Kelly as the independent auditors for the corporation
for the fiscal year ending December 31, 1996. Jarrett Stokes &
Kelly was last elected as the corporation's independent auditors
for 1996 by the shareholders of the corporation at the annual
meeting held on April 16, 1996. Jarrett Stokes & Kelly has
certified the corporation's financial statements for the fiscal
year ended December 31, 1990 and all fiscal years subsequent
thereto.
The board of directors of the corporation at a meeting held
November 19, 1996 selected Jarrett Stokes & Kelly as the
independent auditors for the corporation for 1997. A resolution
will be presented at the annual meeting for the ratification by
the shareholders of the appointment of Jarrett Stokes & Kelly as
the independent auditors for the corporation. The board of
directors recommends the shareholders vote in favor of the
resolution.
The accounting fees are paid by the corporation to Jarrett
Stokes & Kelly and represent payment for auditing services only.
The auditors render no other type of service to the corporation
or the bank, and no service to any director or principal officer
of the corporation or the bank. There is no agreement to place
any limit on current or future auditors' fees.
A representative of Jarrett Stokes & Kelly will be present
at the annual meeting of shareholders with the opportunity to
make statements and to respond to appropriate questions from
shareholders.
<PAGE>
SHAREHOLDER PROPOSALS - ANNUAL MEETING
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange
Commission, wishes to submit a proposal for inclusion in the
corporation's proxy material for its 1998 annual meeting of
shareholders, must deliver such proposal in writing to the
chairman of the board of Commercial National Financial
Corporation at the office of the corporation, 900 Ligonier
Street, Latrobe, Pennsylvania 15650, not later than November 30,
1997.
OTHER MATTERS
The board of directors and the principal officers of the
corporation do not intend to present to the meeting any business
other than as set forth in the notice of annual meeting and this
proxy statement. The corporation knows of no other business to
be presented for action at the meeting. If, however, any other
business should properly come before the meeting, or any
adjournment thereof, the proxy holders intend to vote shares in
accordance with recommendations of the board of directors of the
corporation.
By Order of the Board of Directors
/s/ Sandra L. Neiderhiser
Sandra L. Neiderhiser, Secretary
March 14, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000866054
<NAME> COMMERCIAL NATIONAL FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,839,707
<INT-BEARING-DEPOSITS> 153,667
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,816,171
<INVESTMENTS-CARRYING> 64,539,801
<INVESTMENTS-MARKET> 65,571,756
<LOANS> 159,935,523
<ALLOWANCE> 2,035,818
<TOTAL-ASSETS> 278,110,524
<DEPOSITS> 238,808,071
<SHORT-TERM> 1,400,000
<LIABILITIES-OTHER> 2,514,199
<LONG-TERM> 0
0
0
<COMMON> 3,600,000
<OTHER-SE> 31,788,254
<TOTAL-LIABILITIES-AND-EQUITY> 278,110,524
<INTEREST-LOAN> 13,549,080
<INTEREST-INVEST> 6,305,557
<INTEREST-OTHER> 92,930
<INTEREST-TOTAL> 19,947,567
<INTEREST-DEPOSIT> 8,394,110
<INTEREST-EXPENSE> 8,445,126
<INTEREST-INCOME-NET> 11,502,441
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 577
<EXPENSE-OTHER> 7,644,576
<INCOME-PRETAX> 5,009,055
<INCOME-PRE-EXTRAORDINARY> 3,756,466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,756,466
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.09
<YIELD-ACTUAL> 8.06
<LOANS-NON> 23,172
<LOANS-PAST> 100,293
<LOANS-TROUBLED> 1,024,550
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,081,700
<CHARGE-OFFS> 173,952
<RECOVERIES> 23,070
<ALLOWANCE-CLOSE> 2,035,818
<ALLOWANCE-DOMESTIC> 2,035,818
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
