Commercial National Financial Corp. in Latrobe, Pa., is giving up its status as financial holding company — and the powers that go along with it — and will become a bank holding company.
The $316 million-asset Commercial National said in a recent Securities and Exchange Commission filing that it is doing so because it engages in none of the activities that require it to be a financial holding company — such as investment advising, insurance underwriting, and securities dealing.
However, industry observers said the decision was probably influenced by a recent enforcement order against Commercial National Bank and Trust of Pennsylvania. The company revealed in the same SEC filing in late July that the bank unit had signed a memorandum of understanding with the Federal Deposit Insurance Corp. and the Pennsylvania Department of Banking on July 19.
According to banking attorneys, a bank must be considered “well managed” if it is to maintain its status as a financial holding company.
Commercial National officials did not return phone calls and an FDIC spokesman would not discuss specifics of the agreement.
But the spokesman said that in general memorandums of understanding are less formal and less severe than cease-and-desist orders. A memorandum is recognition that there is a problem and the intention is to solve it before it becomes serious enough to warrant a cease-and-desist order. A memorandum of understanding, unlike a cease-and-desist, is not a public document.
Commercial National said in the SEC filing that the agreement calls for it to “enhance its operating plans, modify its board’s oversight functions, and update its interest rate risk policies.”
Hundreds of banks have become financial holding companies since the category was created by the Gramm-Leach-Bliley Act of 1999. Industry sources say that 50 to 100 banking companies have subsequently given up their status as financial holding companies.
