UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended SEPTEMBER 30, 1998
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: (724)539-3501
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock.
CLASS OUTSTANDING AT OCTOBER 31, 1998
Common Stock, $2 Par Value 1,800,000 Shares
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Included in Part I of this report:
Page
Commercial National Financial Corporation
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in
Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Other Information 14
Signatures 15
<PAGE>
<TABLE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30 December 31
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,399,973 $ 9,711,026
Interest bearing deposits with
other banks 165,915 130,937
--------------------------
Total cash and due from banks 8,565,888 9,841,963
Federal funds sold - -
Investment securities available for sale 123,686,257 54,267,314
Investment securities held to maturity
(Market value $69,529,799 in 1997) - 64,114,775
Loans (all domestic) 188,309,446 183,639,085
Less unearned income (142,787) (157,928)
Less reserve for possible loan losses (1,892,373) (1,882,251)
---------------------------
Net loans 186,274,286 181,598,906
Premises and equipment 6,150,541 5,990,786
Other assets 3,456,131 3,928,212
---------------------------
Total Assets $328,133,103 $319,741,956
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (all domestic):
Non-interest bearing $ 39,624,013 $ 35,968,693
Interest bearing 218,133,479 224,721,064
-----------------------------
Total deposits 257,757,492 260,689,757
Short-term borrowings 20,450,000 17,850,000
Long-term borrowings 5,000,000 -
Other liabilities 2,505,260 2,757,188
-----------------------------
Total Liabilities 285,712,752 281,296,945
-----------------------------
Shareholders' Equity:
Common stock, par value $2
Authorized shares 10,000,000; issued
and outstanding 1,800,000 shares 3,600,000 3,600,000
Retained earnings 36,913,063 34,604,120
Accumulated other comprehensive income 1,907,288 240,891
-----------------------------
Total Shareholders' Equity 42,420,351 38,445,011
-----------------------------
Total Liabilities and
Shareholders' Equity $328,133,103 $319,741,956
=============================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Three Months Nine Months
Ending Sept 30 Ending Sept 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,140,119 $3,883,874 $12,556,149 $11,224,874
Interest and dividends on investments:
Taxable interest 1,185,543 1,182,182 3,633,642 3,600,031
Interest exempt from federal
income tax 475,088 448,513 1,424,247 1,237,972
Interest on federal funds sold 28,266 8,709 39,139 31,855
Interest on bank deposits 2,098 1,731 5,504 5,941
---------------------------------------------------
Total interest income 5,831,114 5,525,009 17,658,681 16,100,673
INTEREST EXPENSE:
Interest on deposits 2,390,395 2,417,457 7,121,176 6,917,619
Interest on short-term borrowings 89,625 70,122 447,428 159,456
Interest on long-term borrowings 71,836 - 190,521 -
---------------------------------------------------
Total interest expense 2,551,856 2,487,579 7,759,125 7,077,075
---------------------------------------------------
NET INTEREST INCOME 3,279,258 3,037,430 9,899,556 9,023,598
PROVISION FOR POSSIBLE LOAN LOSSES 120,000 75,000 315,000 180,000
---------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,159,258 2,962,430 9,584,556 8,843,598
OTHER INCOME
Asset management and trust income 55,265 45,051 188,012 116,594
Service charges on deposit accounts 151,677 146,400 433,187 429,606
Other service charges and fees 126,693 94,168 403,337 307,378
Securities gains/losses (1,158) - 10,113 -
Other income 100,641 98,068 265,091 257,441
---------------------------------------------------
Total other income 433,118 383,687 1,299,740 1,111,019
OTHER EXPENSES
Salaries and employee benefits 1,198,630 1,110,676 3,622,263 3,417,151
Net occupancy expense 152,691 127,866 461,379 398,021
Furniture and equipment expense 157,713 115,420 462,446 443,305
PA shares tax 77,929 70,257 228,673 207,933
Other expense 572,977 490,761 1,611,592 1,512,382
---------------------------------------------------
Total other expenses 2,159,940 1,914,980 6,386,353 5,978,792
---------------------------------------------------
INCOME BEFORE TAXES 1,432,436 1,431,137 4,497,943 3,975,825
Applicable income taxes 336,000 347,000 1,073,000 958,000
---------------------------------------------------
NET INCOME $1,096,436 $1,084,137 $3,424,943 $3,017,825
===================================================
Average Shares Outstanding 1,800,000 1,800,000 1,800,000 1,800,000
===================================================
EARNINGS PER SHARE $ .61 $ .60 $ 1.90 $ 1.68
===================================================
CASH DIVIDENDS DECLARED PER SHARE $ .22 $ .18 $ .62 $ .52
===================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Retaned Comprehensive Comprehensive Shareholders'
Stock Earnings Income Income Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $3,600,000 $31,777,511 $ - $ 10,743 $35,388,254
Comprehensive income:
Net income - 3,017,825 3,017,825 - 3,017,825
Other comprehensive income,
net of taxes
Unrealized gains/(losses) on
investment securities AFS,
net of reclassification adj - - 100,050 100,050 100,050
---------
Total comprehensive income 3,117,875
=========
Cash dividends declared
($.52 per share) - (936,000) - (936,000)
----------------------------------------------------------------------
Balance at September 30, 1997 $3,600,000 $33,859,336 $110,793 $37,570,129
======================================================================
Balance at December 31, 1997 $3,600,000 $34,604,120 $ - $240,891 $38,445,011
Comprehensive income,
Net income - 3,424,943 3,424,943 - 3,424,943
Other comprehensive income,
net of taxes
Unrealized gains/(loans) on
investment securities AFS,
net of reclassification adj - - 1,666,397 1,666,397 1,666,397
---------
Total comprehensive income 5,091,340
=========
Cash dividends declared
($.62 per share) - (1,116,000) - (1,116,000)
----------------------------------------------------------------------
Balance at September 30, 1998 $3,600,000 $36,913,063 $1,907,288 $42,420,351
======================================================================
</TABLE>
1998 1997
Disclosure of reclassification amount:
Unrealized holding gains/(losses)
arising during period 1,666,397 100,050
Less: reclassification adjustment
for gains included in net income,
net of taxes of 2,412 in 1998. 7,701 -
Net unrealized gains/(losses) -----------------------
on securities 1,658,696 100,050
=======================
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For Nine Months
Ended September 30
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $3,424,943 $3,017,825
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 454,329 434,166
Provision for possible loan losses 315,000 180,000
Net amortization of securities
and loan fees 64,309 47,836
(Increase) decrease in interest receivable 67,732 (420,507)
Increase (decrease) in interest payable (156,765) 8,096
Increase (decrease) in taxes payable (67,329) 120,696
Decrease in other liabilities (394,530) (180,761)
(Increase) decrease in other assets (87,401) 160,519
Net securities gains (10,113) -
--------------------------
Net cash provided by operating activities 3,610,175 3,367,870
--------------------------
INVESTING ACTIVITIES
Net decrease (increase) in deposits
with other banks (34,978) 44,037
Net decrease in fed funds sold - 5,425,000
Purchase of securities AFS (24,990,039) (10,768,047)
Purchase of securities HTM (1,966,778) (23,179,071)
Maturities and calls of securities AFS 2,904,504 11,104,410
Maturities and calls of securities HTM 12,175,000 5,089,061
Sale of securities AFS 8,996,484 16,641,321
Net increase in loans (4,943,072) (11,957,104)
Purchase of premises and equipment (614,084) (1,141,715)
---------------------------
Net cash used in investing activities (8,472,963) (8,742,108)
---------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,932,265) 21,541,630
Net increase in short-term borrowings 2,600,000 3,225,000
Net increase in long-term borrowings 5,000,000 -
Dividends paid (1,116,000) (936,000)
---------------------------
Net cash provided by financing activities 3,551,735 23,830,630
---------------------------
Increase (decrease) in cash and cash equivalents (1,311,053) 1,307,065
Cash and cash equivalents at beginning of year 9,711,026 8,839,707
--------------------------
Cash and cash equivalents at end of quarter $ 8,399,973 $10,146,772
==========================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 7,915,890 $ 7,068,979
==========================
Income taxes $ 1,062,000 $ 766,800
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1 Management Representation
- ---------------------------------
The accomanying unaudited consolidated interim financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information. However, they do not include all information and
footnotes required by generally accepted accounting principles
for complete financial statements and should be read in
conjunction with the annual financial statements of
Commercial National Financial Corporation for the year
ending December 31, 1997, including the notes thereto. On
September 15, 1998, the Board of Directors adopted new
investment guidelines to transfer all remaining held-to-
maturity securities into available-for-sale. This move was
done in order to conform with the new F.F.E.I.C.
regulations and allows management to address certain risks
pertaining to the entire investment portfolio. In the
opinion of management, the unaudited interim consolidated
financial statements include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair
statement of financial position as of September 30, 1998
and the results of operations for the three and nine month
periods ended September 30, 1998 and 1997, and the
statements of cash flows and changes in shareholders'
equity for the nine month periods ended September 30, 1998
and 1997. The results of the nine months ended September
30, 1998 are not necessarily indicative of the results to
be expected for the entire year.
Note 2 Reserve for Possible Loan Losses
- ----------------------------------------
Description of changes:
1998 1997
Reserve balance January 1 $ 1,882,251 $ 2,035,819
Additions:
Provision charged to operating expenses 315,000 180,000
Recoveries on previously charged off
loans 6,614 18,118
Deductions:
Loans charged off (311,492) (335,509)
------------------------
Reserve balance September 30 $ 1,892,373 $ 1,898,428
========================
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
First Nine Months of 1998 as compared to the First Nine Months of
1997
- --------------------------------------------------------------------
Pre-tax net income for the first nine months of 1998 was $4,497,943
compared to $3,975,825 during the same period of 1997, representing
a 13.13% increase.
Interest income was $17,658,681, an increase of 9.68%. The loan
return rate increased four (4) basis points to 9.03% and the
securities return rate increased five (5) basis points to 5.98%. As
a result, the return rate on total average earning assets increased
nine (9) basis points to 7.87%. Average earning asset volume rose
$23,218,308, an 8.41% increase.
Interest expense was $7,759,125, an increase of 9.64%. The cost rate
on average interest bearing liabilities was 4.39%, a four (4) basis
point increase from a year ago. Average interest bearing liability
volume rose $18,676,001, an increase of 8.61%.
Net interest income increased 9.71% to $9,899,556, and represented
4.19% of average total assets compared to 4.16% during the first
nine months of 1997.
The average reserve for loan losses declined 5.10% to $1,867,483. By
comparison, total average loans grew 11.46% during the same period.
The 1998 first nine months provision for loan losses was $315,000,
compared to $180,000 for the first nine months of 1997, representing
a 75.00% increase.
Net interest income after the application of the provision for
possible loan losses grew 8.38% to $9,584,556 representing a 4.06%
return on total average assets compared to 4.08% for the first nine
months of 1997.
Non-interest income increased 16.99% to $1,299,740. Service charges
on deposit accounts grew 0.83% to $433,187. Other service charges
and fees rose 31.22%, reaching $403,337. Other income increased
31.22% to $265,091. Asset management and trust fees totaled
$188,012, an increase of 61.25%. Gains on securities called and sold
amounted to $10,113.
Non-interest expense was $6,386,352, an increase of 6.82%, or
$407,560, while total average assets grew 8.81%. Personnel costs
rose 6.00%, a $205,112 increase. Net occupancy expense rose 15.92%,
or $63,358. Furniture and equipment expense rose by 4.32%,
representing a cost increase of $19,141. Pennsylvania shares tax
expense was $228,673, an increase of 9.97%. Other expense rose
6.56%, an increase of $99,210.
Federal income tax on total first nine months earnings was
$1,073,000 compared to $958,000 a year ago. Net income after taxes
rose 13.49% to $3,424,943, an increase of $407,118. The annualized
return on average assets was 1.45% for the first nine months of 1998
compared to 1.39% for the nine months ended September 30, 1997. The
annualized return on average equity through September 30, 1998 was
11.51% and had been 11.08% through the first nine months of 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
- ---------------------------------
Three Months Ended Sep 30, 1998 as Compared to the Three Months
Ended Sep 1997
- --------------------------------------------------------------------
Pre-tax net income for the third quarter of 1998 was $1,432,436
compared to $1,431,137 during the same period of 1997.
Interest income was $5,831,114, an increase of 5.54%. The loan
return rate decreased seven (7) basis points to 8.91%, the
securities return rate increased eleven (11) basis points to 6.02%
and the return rate on total average earning assets increased four
(4) basis points to 7.82%. Volume growth in total average earning
assets was $14,070,389.
Interest expense was $2,551,856, an increase of 2.58%. The volume
increase on average interest-bearing liabilities was $8,782,619.
Cost rate fell to 4.39%, a five (5) basis point decrease from a year
ago.
The average reserve for loan losses declined 2.44% to $1,870,148,
while total average loans grew 7.40%. The 1998 third quarter
provision for loan losses was $120,000, compared to $75,000 for the
third quarter of 1997, representing a 60.00% increase.
Net interest income after the application of the provision for
possible loan losses grew 6.64% to $3,159,258 representing a 4.02%
return on total average assets compared to 3.98% for the third
quarter of 1997.
Non-interest income increased 12.88%, or $49,431, to $433,118.
Service charges on deposit accounts increased 3.60% to $151,677.
Other service charges and fees increased 34.54% to $126,693. Other
income increased 2.62% to $100,641. Asset management and trust fees
totaled $55,265, representing a 22.67% increase. Net securities
losses on bonds sold and called amounted to $1,158.
Non-interest expense grew 12.79%, a $244,959 increase, compared to
total average asset growth of 5.38%. Personnel costs rose 7.92%, an
$87,954 increase. Net occupancy expense rose 19.41%, a $24,825
increase. Furniture and equipment expense rose 36.64%, a $42,293
increase. Pennsylvania shares tax expense was 77,929, an increase of
10.92%. Other expense rose 16.75%, an $82,216 increase.
Federal income tax on total third quarter earnings was $336,000
compared to $347,000 a year ago. Net income after taxes was
$1,096,436. The annualized return on average assets was 1.40% for
the three months ended September 1998 compared to 1.45% for the
third quarter of 1997. The annualized return on average equity for
the third quarter of 1998 was 10.84% compared to 11.71% for the
third quarter of 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
- ---------------------------------
LIQUIDITY
- ---------
Liquidity, the measure of the corporation's ability to meet the
normal cash flow needs of depositors and borrowers in an efficient
manner, is generated primarily from the acquisition of deposit funds
and the maturity of loans and securities. Additional liquidity can
be provided by the sale of investment securities available for sale
which amounted to $121,633,757 on September 30, 1998.
During the first nine months of 1998, average interest-bearing
liabilities increased $18,676,001 over the same period in 1997.
Investments maturing within one year were 6.21% of total assets on
September 30, 1998 and 5.08% on September 30, 1997.
Average loans grew by $19,069,029 and the average securities
portfolio, including federal funds sold, increased $4,149,279.
INTEREST SENSITIVITY
- --------------------
Interest rate management seeks to maintain a balance between
consistent income growth and the risk that is created by variations
in ability to reprice deposit and investment categories. The effort
to determine the effect of potential interest rate changes normally
involves measuring the so called "gap" between assets (loans and
securities) subject to rate fluctuation and liabilities (interest
bearing deposits) subject to rate fluctuation as related to earning
assets over different time periods and calculating the ratio of
interest sensitive assets to interest sensitive liabilities.
Repricing periods for the loans, securities, interest-bearing
deposits, non-interest-bearing assets and non-interest-bearing
liabilities are based on contractual maturities, were applicable, as
well as the corporation's historical experience regarding the impact
of interest rate fluctuations on the prepayment and withdrawal
patterns of certain assets and liabilities. Regular savings, NOW and
other similar interest bearing demand deposit accounts are subject
to immediate withdrawal and therefore are presented as beginning to
reprice in the earliest period presented in the "gap" table.
<PAGE>
INTEREST
SENSITIVITY (In thousands)
- --------------------------
The following table presents this information as of September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
September 30, 1998
0-30 DAYS 31-90 DAYS 91-180 DAYS 181-365 DAYS 1 - 5 YEARS OVER 5YRS
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive
assets $ 45,038 $ 5,311 $ 9,122 $ 26,923 $ 111,998 $108,716
Interest sensitive
liabilities $ 26,552 $ 19,087 $ 38,455 $ 37,134 $ 105,965 $ 16,526
Interest sensitivity ---------------------------------------------------------------------------
gap $ 18,486 $(13,776) $ (29,333) $ (10,211) $ 6,033 $ 92,190
===========================================================================
Cumulative gap $ 4,710 $ (24,623) $ (34,834) $ (28,801) $ 63,389
Ratio of cumulative gap ==============================================================
to earning assets 1.51% (7.89%) (11.16%) (9.23%) 20.31%
==============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
0-30 DAYS 31-90 DAYS 91-180 DAYS 181-365 DAYS 1-5 YEARS OVER 5 YRS
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive
assets $ 50,363 $ 6,582 $ 11,657 $ 17,290 $ 123,613 $ 90,953
Interest sensitive
liabilities $ 19,944 $ 29,790 $ 26,938 $ 35,667 $ 112,426 $ 17,806
Interest sensitivity ---------------------------------------------------------------------------
gap $ 30,419 $(23,208) $ (15,281) $ (18,377) $ 11,187 $ 73,147
===========================================================================
Cumulative gap $ 7,211 $ (8,070) $ (26,447) $ (15,260) $ 57,887
Ratio of cumulative gap ==============================================================
to earning assets 2.39% (2.67%) (8.75%) (5.05%) 19.09%
==============================================================
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CREDIT QUALITY RISK
- -------------------
The following table presents a comparison of loan performance as of
September 30, 1998 with that of September 30, 1997. Non-accrual
loans are those for which interest income is recorded only when
received and past due loans are those which are contractually past
due 90 days or more in respect to interest or principal payments.
As of September 30, 1998 the corporation had no other real estate
owned and no in substance foreclosures.
At Sept 30,
1998 1997
Non-performing Loans:
Loans on non-accrual basis $ 83,527 $ 23,172
Past due loans 144,880 144,385
Renegotiated loans 893,024 965,341
---------------------------
Total non-performing loans $ 1,121,431 $ 1,132,898
Other real estate owned $ - $ -
---------------------------
Total non-performing assets $ 1,121,431 $ 1,132,898
===========================
Loans outstanding at end of period $ 188,166,659 $ 177,185,743
Average loans outstanding (year-to-date) $ 185,473,846 $ 166,404,817
Non-performing loans as percent of total
loans .60% .64%
Provision for possible loan losses $ 315,000 $ 180,000
Net charge-offs $ 304,878 $ 317,391
Net charge-offs as percent of average
loans .16% .15%
Provision for possible loan losses as
percent of net charge-offs 103.32% 56.71%
Reserve for possible loan losses as
percent of average loans outstanding 1.02% 1.14%
CAPITAL RESOURCES
- -----------------
Shareholders' equity for the first nine months of 1998 averaged
$39,670,937 which represented an increase of $3,353,198 over the
average capital of $36,317,739 recorded in the same period of 1997.
These capital levels represented a capital ratio of 12.60% in 1998
and 12.55% in 1997. When the loan loss reserve is included, the 1998
capital ratio becomes 13.19%.
The Federal Reserve Board has issued risk-based capital adequacy
guidelines which went into effect in stages through 1992. The risk-
based capital standard is designed principally as a measure of
credit risk. These guidelines require that: (1) at least 50% of a
banking organization's total capital be common and certain other
"core" equity capital ("Tier I Capital"); (2) assets and off-balance
sheet items must be weighted according to risk; and (3) the total
capital to risk-weighted assets ratio be at least 8%; and (4) a
minimum 4.00% leverage ratio of Tier I capital to average total
assets. The minimum leverage ratio is not specifically defined, but
is generally expected to be 4-5 percent for all but the most highly
rated banks, as determined by a regulatory rating system. As of
September 30, 1998, the corporation, under these guidelines, had a
Tier I and total equity capital to risk adjusted assets ratio of
21.57% and 22.58% respectively. The leverage ratio was 12.92%
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CAPITAL RESOURCES (continued)
- -----------------------------
The table below presents the corporation's capital position at
September 30, 1998 (Dollar amounts in thousands)
Percent
of Adjusted
Amount Assets
------ -----------
Tier I Capital $ 40,513 21.57
Risk-Based Requirement 7,452 4.00
Total Equity Capital $ 42,405 22.58
Risk-Based Requirement 14,904 8.00
- --------------------------------------------------------------------
Leverage Capital $ 40,513 12.92
Minimum Leverage Requirement 12,540 4.00
Year 2000 ISSUES
- ----------------
In 1997, Commercial National Financial Corporation began an
assessment of analyzing any Year 2000 issues that may affect the
day to day business operations of the corporation or the bank.
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year.
The corporation has completed the assessment phase and is
currently testing third party software regarding the Year
2000 issue. The corporation uses systems that have been
developed by third parties and, therefore, is dependent upon
vendor compliance. Alternative plans are in place in the event
vendors are not compliant in a timely manner. Based on our
assessment of the vendors and testing currently being done, the
corporation estimates the costs associated with addressing
the issue will be around $500,000 with items being expensed as
incurred or capitalized, whenever appropriate. These costs or any
additional costs associated with the Year 2000 issue are not
expected to materially impact the corporation's financial
position. The corporation has and will continue to devote the
necessary time and resources to resolve the Year 2000 issue in a
timely manner.
Also, the corporation is in the process of evaluating the effect
of the Year 2000 issues on the corporation's customers. Failure
of a commercial customer to prepare for Year 2000 could adversely
affect the customer's operations and, in turn, affect the
corporation's ability to collect and service outstanding loan
balances. Currently, the corporation has received over eighty
percent of the Year 2000 questionnaires that were mailed to our
commercial customers regarding the potential effect of Year 2000
on their businesses. Those customers that are deemed mission
critical by senior management will be placed on a Year 2000 watch
list and will be contacted on an ongoing basis regarding
their Year 2000 readiness.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMERCIAL NATIONAL FINANCIAL CORPORATION
(Registrant)
Dated: November 9, 1998 /s/ Louis T. Steiner
Louis T. Steiner
President and Chief Executive Officer
Dated: November 9, 1998 /s/ Wendy S. Schmucker
Wendy S. Schmucker
Secretary/Treasurer
<PAGE>
Commercial National Financial Corporation
900 Ligonier Street
Latrobe, Pennsylvania 15650
Telephone (724) 539-3501
Banking Subsidiary:
Commercial National Bank of Westmoreland County
Banking Offices
Latrobe Area
900 Ligonier Street (724) 539-3501
1900 Lincoln Avenue (724) 537-9980
11 Terry Way * (724) 539-9774
Pleasant Unity
Church Street * (724) 423-5222
Ligonier
201 Main Street * (724) 238-9538
West Newton
109 East Main Street * (724) 872-5100
Greensburg Area
Georges Station Road * (724) 836-7600
19 North Main Street (724) 836-7699
Asset Management and (724) 836-7670
Trust Division
19 North Main Street
Drive-up Facility
Latrobe
Lincoln Road at
Josephine Street * (724) 537-9927
Murrysville
4785 Old William Penn Highway * (724) 733-4888
* Automatic Teller Facilities
Automatic Teller Facilities also located at
Latrobe Area Hospital, Westmoreland County Airport,
and Saint Vincent College
Touchtone Teller 24-hour banking service: Website Address:
(724)537-9977 www.cnbthebank.com
Free from Blairsville, Derry,
Greensburg, Kecksburg, Latrobe,
Ligonier, and New Alexandria.
1-800-803-BANK
Free from all other locations
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,399,973
<INT-BEARING-DEPOSITS> 165,915
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 123,686,257
<INVESTMENTS-CARRYING> 0
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<LOANS> 188,166,659
<ALLOWANCE> 1,892,373
<TOTAL-ASSETS> 328,133,103
<DEPOSITS> 257,757,492
<SHORT-TERM> 20,450,000
<LIABILITIES-OTHER> 2,505,000
<LONG-TERM> 5,000,000
0
0
<COMMON> 3,600,000
<OTHER-SE> 38,820,351
<TOTAL-LIABILITIES-AND-EQUITY> 328,133,103
<INTEREST-LOAN> 12,556,149
<INTEREST-INVEST> 5,097,028
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<INTEREST-TOTAL> 17,658,681
<INTEREST-DEPOSIT> 7,121,176
<INTEREST-EXPENSE> 7,759,125
<INTEREST-INCOME-NET> 9,899,556
<LOAN-LOSSES> 315,000
<SECURITIES-GAINS> 10,113
<EXPENSE-OTHER> 6,386,353
<INCOME-PRETAX> 4,497,943
<INCOME-PRE-EXTRAORDINARY> 3,424,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,424,943
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 7.87
<LOANS-NON> 83,527
<LOANS-PAST> 144,880
<LOANS-TROUBLED> 893,024
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<ALLOWANCE-OPEN> 1,882,251
<CHARGE-OFFS> 311,492
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<ALLOWANCE-CLOSE> 1,892,373
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