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 JUNE 30, 1999
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 JULY 31, 1999
Common Stock, $2 Par Value 3,576,183 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 16
<PAGE>
<TABLE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,857,466 $ 7,655,963
Interest bearing deposits with
other banks 50,774 67,935
---------------------------
Total cash and due from banks 7,908,240 7,723,898
Federal funds sold 550,000 -
Investment securities available for sale 119,732,135 119,103,480
Loans (all domestic) 192,168,364 192,239,249
Less unearned income (96,260) (124,089)
Less reserve for possible loan losses (1,875,999) (1,914,174)
---------------------------
Net loans 190,196,105 190,200,986
Premises and equipment 6,386,481 6,027,496
Other assets 4,297,053 3,323,493
---------------------------
Total Assets $329,070,014 $326,379,353
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (all domestic):
Non-interest bearing $ 41,968,582 $ 44,518,765
Interest bearing 223,073,004 221,941,756
---------------------------
Total deposits 265,041,586 266,460,521
===========================
Short-term borrowings 5,000,000 3,775,000
Other liabilities 2,111,850 2,982,183
Long-term borrowings 15,000,000 10,000,000
---------------------------
Total Liabilities 287,153,436 283,217,704
Shareholders' Equity:
Common stock, par value $2; 10,000,000
Shares authorized; 3,600,000 issued and
3,576,483 outstanding in 1999; 3,600,000
issued and outstanding in 1998 7,200,000 7,200,000
Retained earnings 35,673,946 34,133,006
Accumulated other comprehensive income -
net of deferred taxes of $(257,185)
in June 1999 and $942,028 in
December 1998 (499,242) 1,828,643
---------------------------
42,374,704 43,161,649
Treasury stock, 23,517 shares at cost (458,126) -
---------------------------
Total Shareholders' Equity 41,916,578 43,161,649
Total Liabilities and
Shareholders' Equity $329,070,014 $326,379,353
===========================
</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 Six Months
Ending June 30 Ending June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,121,839 $4,219,041 $ 8,263,419 $ 8,416,030
Interest and dividends on investments:
Taxable interest 1,264,841 1,191,126 2,561,178 2,448,099
Interest exempt from federal
income tax 505,503 479,159 1,022,408 949,159
Interest on federal funds sold 81,589 9,933 81,762 10,873
Interest on bank deposits 1,736 1,975 2,924 3,406
----------------------------------------------------
Total Interest Income 5,975,508 5,901,234 11,931,691 11,827,567
INTEREST EXPENSE
Interest on deposits 2,140,327 2,351,559 4,271,945 4,730,781
Interest on short-term borrowings 69,666 142,211 193,742 357,803
Interest on long-term borrowings 201,741 71,055 356,032 118,685
----------------------------------------------------
Total interest expense 2,411,734 2,564,825 4,821,719 5,207,269
NET INTEREST INCOME 3,563,774 3,336,409 7,109,972 6,620,298
PROVISION FOR POSSIBLE LOAN LOSSES 120,000 105,000 240,000 195,000
----------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,443,774 3,231,409 6,869,972 6,425,298
OTHER INCOME
Asset management and trust income 73,353 56,940 139,401 132,747
Service charges on deposit accounts 171,179 148,469 333,689 281,510
Other service charges and fees 148,430 122,564 326,994 276,644
Securities gains/(losses) 8,537 - 49,067 11,271
Other income 89,206 80,137 181,360 164,450
----------------------------------------------------
Total Other Income 490,705 408,110 1,030,511 866,622
OTHER EXPENSES
Salaries and employee benefits 1,238,756 1,216,727 2,547,499 2,423,633
Net occupancy expense 148,618 157,800 301,852 308,688
Furniture and equipment expense 169,784 162,618 306,677 304,733
Pennsylvania shares tax 86,993 77,930 168,904 150,744
Other expense 624,795 521,267 1,215,753 1,038,615
----------------------------------------------------
Total Other Expenses 2,268,946 2,136,342 4,540,685 4,226,413
INCOME BEFORE TAXES 1,665,533 1,503,177 3,359,798 3,065,507
Applicable income taxes 406,100 355,000 813,900 737,000
NET INCOME $1,259,433 $1,148,177 $2,545,898 $2,328,507
====================================================
Average Shares Outstanding 3,591,229 3,600,000 3,591,229 3,600,000
====================================================
EARNINGS PER SHARE $ .35 $ .32 $ .71 $ .65
====================================================
CASH DIVIDENDS DECLARED PER SHARE $ .15 $ .10 $ .28 $ .20
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION> Accumulated
Other Total
Common Retained Treasury Comprehensive Shareholders'
Stock Earnings Stock Income Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $3,600,000 $34,604,120 - $ 240,891 $38,445,011
Comprehensive Income
Net income - 2,328,507 - - 2,328,507
Other comprehensive income, net of tax:
Unrealized gains on securities
of $105,933, net of reclassification
adjustment for gains included in net
income of $(7,439) - - - 98,494 98,494
Total Comprehensive Income 2,427,001
Cash dividends declared
$.20 per share - (720,000) - - (720,000)
--------------------------------------------------------------------
Balance at June 30, 1998 $3,600,000 $36,212,627 - $ 339,385 $40,152,012
====================================================================
Balance at December 31, 1998 $7,200,000 $34,133,006 - $1,828,643 $43,161,649
Comprehensive Income
Net income - 2,545,898 - - 2,545,898
Other comprehensive income, net of tax:
Unrealized loss on securities
of $(2,295,501), net of reclassification
adjustment for gains included in net
income of $(32,384) - - - (2,327,885) (2,327,885)
Total Comprehensive Income 218,013
Cash dividends declared
$.28 per share - (1,004,958) - - (1,004,958)
Purchase of treasury stock - - (458,126) - (458,126)
--------------------------------------------------------------------
Balance at June 30, 1999 $7,200,000 $35,673,946 $(458,126) $(499,242) $41,916,578
====================================================================
</TABLE>
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 Six Months
Ended June 30
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,545,898 $ 2,328,507
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 304,487 297,740
Provision for possible loan losses 240,000 195,000
Net(accretion)/amortization of securities
and loan fees 36,891 6,517
(Increase)decrease in interest receivable (14,785) 170,871
Decrease in interest payable (139,653) (85,201)
Decrease)in taxes payable (90,429) (212,657)
Decrease in other liabilities (424,157) (385,064)
(Increase)decrease in other assets 24,344 (83,957)
Net securities gains (49,067) (11,271)
---------------------------
Net cash provided by operating activities 2,433,529 2,220,485
---------------------------
INVESTING ACTIVITIES
Net (increase) decrease in deposits
with other banks 17,161 (51,086)
Net increase in fed funds sold (550,000) (125,000)
Purchase of securities AFS (42,465,542) (2,735,950)
Purchase of securities HTM - (1,966,778)
Maturities and calls of securities AFS 16,008,029 1,781,964
Maturities and calls of securities HTM - 11,875,000
Sale of securities AFS 22,284,142 -
Net increase in loans (205,325) (1,789,933)
Purchase of premises and equipment (663,472) (575,877)
----------------------------
Net cash used in investing activities (5,575,007) 6,412,340
----------------------------
FINANCING ACTIVITIES
Net decrease in deposits (1,418,935) (756,638)
Net increase(decrease)in short-term borrowings 1,225,000 (12,850,000)
Net increase in long-term borrowings 5,000,000 5,000,000
Dividends paid (1,004,958) (720,000)
Purchase of treasury stock (458,126) -
----------------------------
Net cash provided by financing activities 3,342,981 (9,326,638)
----------------------------
201,503 (693,813)
Cash and cash equivalents at beginning of year 7,655,963 9,711,026
----------------------------
Cash and cash equivalents at end of quarter $ 7,857,466 $ 9,017,213
============================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,961,373 $ 5,292,470
============================
Income Taxes $ 729,000 $ 793,400
============================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMMERCIAL NATIONAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
Note 1 Management Representation
- ------ -------------------------
The accompanying 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, 1998, including the
notes thereto. 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 June 30, 1999 and the
results of operations for the three and six month periods ended
June 30, 1999 and 1998, and the statements of cash flows and
changes in shareholders' equity for the six month periods ended
June 30, 1999 and 1998. The results of the six months ended June
30, 1999 are not necessarily indicative of the results to be
expected for the entire year.
Note 2 Allowance for Loan Losses
- ------ --------------------------
Description of changes:
1999 1998
Allowance balance January 1 $ 1,914,174 $ 1,882,251
Additions:
Provision charged to operating expenses 240,000 195,000
Recoveries on previously charged off
loans 6,445 5,030
Deductions:
Loans charged off (284,620) (242,235)
-------------------------
Allowance balance June 30 $ 1,875,999 $ 1,840,046
=========================
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
First Six Months of 1999 as compared to the First Six Months of 1998
- --------------------------------------------------------------------
Pre-tax net income for the first six months of 1999 was
$3,359,798 compared to $3,065,508 during the same period of 1998,
representing a 9.60% increase.
Interest income was $11,931,691, an increase of .88%. The loan
return rate decreased forty-four(44) basis points to 8.65% and
the securities return rate increased four(4) basis points to
6.00%. As a result, the return rate on total average earning
assets decreased twenty-seven (27) basis points to 7.62%. Average
earning asset volume rose 13,653,769, a 4.56% increase.
Interest expense was $4,821,719, a decrease of 7.40%. The cost
rate on average interest-bearing liabilities was 3.95%, a forty-
four (44) basis point increase from a year ago. Average interest-
bearing liability volume rose $ 6,991,915, an increase of 2.95%.
Net interest income rose 7.40% to $7,109,972 and represented
4.30% of average total assets compared to 4.20% during the first
six months of 1998.
The average reserve for loan losses increased 2.68% to
$1,916,112. By comparison, total average loans grew 3.19% during
the same period. The 1999 first six months provision for loan
losses was $240,000, compared to $195,000 for the first six
months of 1998, an increase of 23.08%.
Net interest income after the application of the provision for
possible loan losses grew 6.92% to $6,869,972, representing a
4.15% return on total average assets compared to 4.08% for the
first six months of 1998.
Non-interest income increased 18.91% to $1,030,511. Asset
management and trust fees totaled $139,401. Service charges on
deposit accounts increased 18.54% to $333,689. Other service
charges and fees rose 18.20% reaching $326,994. Other income
increased 10.28% to $181,360. Net securities gains of $49,067
were realized on sold and called investments.
Non-interest expense reached $4,540,685, an increase of 7.44%, or
$314,272, while total average assets grew 4.99%. Personnel costs
rose 5.11%, a $123,866 increase. Net occupancy expense declined
2.21%, or $6,836. Furniture and equipment expense rose only .64%,
representing a cost increase of $1,944. Pennsylvania shares tax
expense was $168,904, an increase of 12.05%. Other expense rose
17.06%, an increase of $177,138.
Federal income tax on total first six months earnings was
$813,900 compared to $737,000 a year ago. Net income after taxes
increased $217,391 to $2,545,898, an increase of 9.34%. The
annualized return on average assets was 1.54% for the first six
months of 1999 compared to 1.48% for the six months ended June
30, 1998. The annualized return on average equity through June
30, 1999 was 11.72% and had been 11.86% through the first six
months of 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
- ---------------------------------
Three Months Ended June 30, 1999 as Compared to the Three Months
Ended June 30, 1998
- -----------------------------------------------------------------
Pre-tax net income for the second quarter of 1999 rose 10.80% and
was $1,665,533 compared to $1,503,177 during the same period of
1998.
Interest income was $5,975,508 an increase of 1.26%. The loan
return rate decreased forty-six (46) basis points to 8.64%, the
securities return rate increased one (1) basis point to 5.97% and
the return rate on total average earning assets decreased thirty-
four(34) basis points to 7.58%. Volume growth in total average
earning assets was $16,945,068.
Interest expense was $2,411,734 a decrease of 5.97%. The volume
increase in average interest-bearing liabilities was $10,784,118.
Cost rate declined to 3.93%, a forty-five (45) basis point
increase from a year ago.
The average reserve for loan losses increased 2.11% to
$1,901,179, while total average loans grew 2.97%. The 1999 second
quarter provision for loan losses was $120,000, compared to
$105,000 for the second quarter of 1998, a 14.29% increase.
Net interest income after the application of the provision for
possible loan losses grew 6.57% to $3,443,774 representing a
4.14% return on total average assets compared to 4.12% for the
second quarter of 1998.
Non-interest income increased 82,595 or 20.24%, to $490,705.
Service charges on deposit accounts increased 15.30% to $171,179.
Other service charges and fees grew 21.10% to $148,430. Other
income increased 11.32% to $89,206. Asset management and trust
income was $73,353.
Non-interest expense rose $132,604, a 6.21% increase, compared to
total average asset growth of 5.96%. Personnel costs rose
$22,029, a 1.81% increase. Net occupancy expense declined $9,182
a 5.82% decrease. Furniture and equipment expense rose $7,166, a
4.41% increase. Pennsylvania shares tax expense was $86,993, an
increase of 11.63%. Other expense rose $103,528, a 19.86%
increase.
Federal income tax on total second quarter earnings was $406,100
compared to $355,000 a year ago. Net income after taxes grew
$111,256 to $1,259,433, a 9.69% increase. The annualized return
on average assets was 1.51% for the three months ended June 30,
1999 compared to 1.46% for the second quarter of 1998. The
annualized return on average equity for the second quarter of
1999 was 11.60% compared to 11.58% for the second quarter of
1998.
<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 debt
investment securities available for sale which amounted to
$117,594,879 on June 30, 1999.
During the first six months of 1999, average interest-bearing
liabilities increased $6,991,915 over the same period in 1998.
Investments maturing within one year were 4.79% of total assets
on June 30, 1999 and 3.35% on June 30, 1998.
Average loans grew by $5,903,574 and the average securities
portfolio including federal funds sold increased $7,750,195.
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, where
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 June 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
June 30, 1999
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 $ 44,227 $ 6,949 $ 10,541 $ 16,179 $ 98,776 $133,473
Interest sensitive
liabilities $ 13,461 $ 27,989 $ 25,972 $ 50,649 $ 107,423 $ 17,579
Interest sensitivity -----------------------------------------------------------------------
gap $ 30,766 $(21,040) $ (15,431) $ (34,470) $ (8,647) $115,894
=======================================================================
Cumulative gap $ 9,726 $ (5,705) $ (40,175) $(48,822) $ 67,072
Ratio of cumulative gap ===========================================================
to earning assets 3.11% (1.83%) (12.87%) (15.63%) 21.48%
===========================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
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 $ 45,494 $ 6,527 $ 13,272 $ 22,556 $ 109,898 $108,364
Interest sensitive
liabilities $ 11,186 $ 34,038 $ 25,084 $ 38,757 $ 109,293 $ 17,359
Interest sensitivity -------------------------------------------------------------------------
gap $ 34,308 $(27,511) $ (11,812) $ (16,201) $ 605 $ 91,005
=========================================================================
Cumulative gap $ 6,797 $ (5,015) $ (21,216) $(20,611) $ 70,394
Ratio of cumulative gap ============================================================
to earning assets 2.18% (1.61%) (6.82%) (6.62%) 22.62%
============================================================
</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 June 30,
1999 with that of June 30, 1998. 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 June 30, 1999 the corporation
had no other real estate owned and no in-substance foreclosures.
At June 30,
1999 1998
Non-performing Loans:
Loans on non-accrual basis $ 275,284 $ 28,074
Past due loans 208,464 423,870
Renegotiated loans 534,421 911,943
-------------------------------
Total Non-performing Loans $ 1,018,169 $ 1,363,887
Other real estate owned $ - $ -
Total Non-performing Assets $ 1,018,169 $ 1,363,887
Loans outstanding at end of period $ 192,072,104 $ 185,099,411
Average loans outstanding (year-to-date) $ 191,167,003 $ 185,263,429
Non-performing loans as percent of total
loans .53% .74%
Provision for possible loan losses $ 240,000 $ 195,000
Net charge-offs $ 278,175 $ 237,205
Net charge-offs as percent of average
loans .15% .13%
Provision for possible loan losses as
percent of net charge-offs 86.28% 82.21%
Reserve for possible loan losses as
percent of average loans outstanding .98% .99%
CAPITAL RESOURCES
- -----------------
Shareholders' equity for the first six months of 1999 averaged $43,431,388
which represented an increase of $4,151,652 over the average capital
of $39,279,736 recorded in the same period of 1998. These capital
levels represented a capital ratio of 13.12% in 1999 and 12.46 in
1998. When the loan loss reserve is included, the 1999 capital ratio
becomes 13.70%.
The Federal Reserve Board's risk-based capital adequacy guidelines are
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 to be
4-5 percent for all but the most highly rated banks, as determined by
a regulatory rating system. As of June 30, 1999, the corporation,
under these guidelines, had a Tier I and total equity capital to risk
adjusted assets ratio of 22.02% and 22.99% respectively. The leverage
ratio was 12.82%.
<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 June 30, 1999.
(Dollar amounts in thousands)
Percent
of Adjusted
Amount Assets
----------------------
Tier I Capital $ 42,416 22.02
Tier I Requirement 7,706 4.00
Total Equity Capital $ 44,292 22.99
Total Equity Capital Requirement 15,412 8.00
- ----------------------------------------------------------------------
Leverage Capital $ 42,416 12.82
Leverage Requirement 13,238 4.00
<PAGE>
YEAR 2000
- ---------
In 1997, the corporation's year 2000 committee was
formed and began an analysis of year 2000 issues that
may affect the day to day business operations of the
corporation and 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.
Any systems that have time sensitive software may
recognize a date using "00" as the year 1900 rather than
2000 and, in turn, may result in miscalculations and/or
system failures.
The corporation has completed the assessment phase and
testing of all software regarding the year 2000 issue
confirmed that we are well prepared for the century date
rollover. The corporation is primarily dependent upon
systems that have been developed by third parties and,
therefore, is dependent upon vendor compliance.
The corporation has developed contingency plans for all
mission critical systems. These plans involve automated
as well as manual actions and may require additional
staffing requirements and will detail procedures to be
followed in the unlikely event of any disruptions.
Based on our assessment of the vendors and testing
currently being done, the corporation estimates the
costs associated with addressing the issue will be
approximately $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 have a material impact on
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.
The corporation continues to evaluate the effect of the
year 2000 issue on its commercial 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 outstanding
loans and retain deposit balances. The corporation
mailed questionnaires to its commercial customers
regarding the potential effect that year 2000 could have
on their businesses. Those customers 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 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
a. April 20, 1999 Annual Meeting of Shareholders
b.c. Directors elected at the meeting and results of voting:
Director For Against Withheld Abstentions
Richmond H. Ferguson 3,111,715
Dorothy S. Hunter 3,110,915 800
John C. McClatchey 3,111,715
Joseph A. Mosso 3,110,915 800
Louis T. Steiner 3,111,715
Continuing directors:
John T. Babilya Joedda M. Sampson
George A. Conti, Jr. Debra L. Spatola
Gregg E. Hunter Louis T. Steiner
Frank E. Jobe George V. Welty
Roy M. Landers E. Edward Wible
Ratification of the appointment of Stokes Kelly and Hinds, LLC,
as independent auditors:
For Against Withheld Abstained
3,104,105 3,860 3,750
d. N/A
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: August 6, 1999 [S] Louis T. Steiner
-------------------------------
Louis T. Steiner, Vice Chairman
President and Chief Executive Officer
Dated: August 6, 1999 [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
OFFICE LOCATIONS
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) 537-9980
Murrysville
4785 Old William Penn Highway (724) 733-4888
* Automatic Teller Facilities
In addition to full-service MAC machines located at all Commercial
National offices listed above (except Latrobe and Courthouse
Square) additional 24-hour ATMs are available for your convenience at
Greensburg Kirk Nevin Arena Norvelt Open Pantry
Latrobe Area Hospital Saint Vincent College
New Alexandria Qwik Mart Westmoreland County Airport
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.
INSURANCE
Commercial National Insurance Services Commercial National Insurance
232 North Market Street Services is a partnership of
Ligonier, PA 15658 Gooder & Mary, Inc., and
(724)238-4617 Commercial National Investment
(877)205-4617 (toll free) Corporation, a wholly owned
(724)238-0160 (fax) subsidiary of Commercial National
[email protected] Financial Corporation.
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,857,466
<INT-BEARING-DEPOSITS> 50,774
<FED-FUNDS-SOLD> 550,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,732,135
<INVESTMENTS-CARRYING> 0
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<LOANS> 192,635,875
<ALLOWANCE> 1,875,999
<TOTAL-ASSETS> 329,070,014
<DEPOSITS> 265,041,586
<SHORT-TERM> 5,000,000
<LIABILITIES-OTHER> 2,111,850
<LONG-TERM> 15,000,000
0
0
<COMMON> 7,200,000
<OTHER-SE> 34,716,578
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<INTEREST-OTHER> 2,924
<INTEREST-TOTAL> 11,931,691
<INTEREST-DEPOSIT> 4,271,945
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<INTEREST-INCOME-NET> 7,109,972
<LOAN-LOSSES> 240,000
<SECURITIES-GAINS> 49,067
<EXPENSE-OTHER> 4,540,685
<INCOME-PRETAX> 3,359,798
<INCOME-PRE-EXTRAORDINARY> 3,359,798
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,545,898
<EPS-BASIC> .71
<EPS-DILUTED> .71
<YIELD-ACTUAL> 7.62
<LOANS-NON> 272,284
<LOANS-PAST> 208,464
<LOANS-TROUBLED> 534,421
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<ALLOWANCE-OPEN> 1,914,174
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<ALLOWANCE-CLOSE> 1,875,999
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