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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.
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
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
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.
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:
Amortized Cost at December 31
1996 1995 1994
---- ---- ----
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
============ ============ ===========
Loans
- -----
Final loan maturities excluding consumer installment and
mortgage loans and before unearned discount at December 31, 1996:
(in thousands)
Within One-Five After
One Year Years Five Years Total
-------- ------ ---------- -----
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
====== ====== =======
*Includes $2.8 million PHEAA loans with no fixed maturity date.
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
========
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:
December 31,
1996 1995 1994 1993 1992
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
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.
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:
December 31,
1996 1995 1994
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
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%
============ ============ ===========
Remaining maturities of certificates of deposit $100,000 or more:
December 31,
1996 1995 1994
Amount Percent Amount Percent Amount Percent
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%
========== ========== ==========
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.
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.
Name Age Present and Previous Positions
- ------------------------------------------------------------------
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)
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.
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.
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
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
EXHIBIT INDEX TABLE OF CONTENTS
Exhibit
Number Description
- ------- ------------
21 Subsidiary of the Registrant
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
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
(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