<PAGE>   1

                       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

/X/       Annual Report Pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934
          For the fiscal year ended December 31, 1996
                                       OR

/ /       Transition Report Pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934
          For the transition period from __________ to _________

                         Commission File Number 0-17000

                   COMMERCIAL NATIONAL FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)

          Michigan                                   38-2799780
   (State of Incorporation)              (I.R.S. Employer Identification No.)

     101 North Pine River Street
          Ithaca, Michigan                             48847
(Address of principal executive offices)             (Zip Code)

      Registrants's telephone number, including area code: (517) 875-4144

          Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, $1 par value
                                (Title of Class)

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/

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.

            Aggregate market value as of March 7, 1997: $15,856,269

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.

        Common Stock outstanding as of March 7, 1997: 877,900.58 shares

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's annual report to security holders for the year
ended December 31, 1996, are incorporated by reference in Part II and Part IV.

Portions of the registrant's proxy statement for its April 22, 1997, annual
shareholders meeting are incorporated by reference in Part III.

<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

     Commercial National Financial Corporation (the "Corporation" or
"registrant"), a bank holding company, was incorporated in Michigan on December
30, 1987.  On May 31, 1988, the Corporation acquired all of the stock of
Commercial National Bank, a national banking association chartered in 1962.  On
December 30, 1992, Commercial National Bank converted to a state-chartered bank
under the name Commercial Bank (the "Bank").

     The Bank's business is concentrated in a single industry segment -
commercial banking.  The Bank provides a full range of banking services to
individuals, agricultural businesses, commercial businesses and light
industries located in its service area.  The Bank maintains a diversified loan
portfolio, including loans to individuals for home mortgages, automobiles and
personal expenditures, and loans to business enterprises for current operations
and expansion.  The Bank offers a variety of deposit vehicles, including
checking, savings, money market and individual retirement accounts and
certificates of deposit.

     The principal markets for the Bank's financial services are the
mid-Michigan communities in which the Bank is located and the areas immediately
surrounding these communities.  The Bank serves these markets through nine
offices located in and near these communities.  Neither the Corporation nor the
Bank has any material foreign assets or income.

     The principal source of revenue for the Corporation and its subsidiary is
interest and fees on loans.  On a consolidated basis, interest and fees on
loans accounted for 79.8% of the Corporation's total revenues in 1996, 78.1% in
1995 and 75.5% in 1994.  Interest on investment securities accounted for 13.0%
of the Corporation's total revenues in 1996, 13.9% in 1995 and 16.1% in 1994.

     At December 31, 1996, the Bank had no significant concentrations of loans
to any group of borrowers engaged in similar activities that would be impacted
by economic or other conditions.

     The business of banking is highly competitive.  In addition to competition
from other commercial banks, banks face competition from non-bank financial
institutions.  Savings associations compete with commercial banks for deposits
and loans.  Credit unions and finance companies compete for consumer loans.
Commercial banks compete for deposits with other investments such as mutual
funds and corporate and government debt securities.  Financial service
providers compete for customers principally through price (interest rates paid
on deposits, interest rates charged on borrowings and fees charged for
services) and service (convenience and quality of services rendered to
customers).

     The Bank competes directly with fifteen financial institutions in the
market it serves.  The Bank's competitors include other commercial banks,
savings associations and local credit unions.  The Bank ranks second in deposit
size when compared to the total deposits of the branches located in the market
the Bank serves.  The Bank does not believe that its ability to compete for
loans and deposits is affected by the rank among its competitors.

     Banks and bank holding companies are extensively regulated.  The Bank is
chartered as a state bank under Michigan law and is supervised, examined and
regulated by the Michigan Financial Institutions Bureau and the Federal Deposit
Insurance Corporation ("FDIC").  The business activities of the registrant are
limited to banking and to other activities determined by the Board of Governors
of the Federal Reserve System to be closely related to banking.  Deposits of
the Bank are insured by the FDIC to the extent provided by law.

     Commercial banks are subject to a number of federal and state laws and
regulations that have a material impact on their business.  These include,
among others, state usury laws, state laws relating to fiduciaries, the Truth
in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, the Expedited Funds Availability Act, the Community Reinvestment Act,
electronic funds transfer laws, redlining laws, antitrust laws, environmental
laws and privacy laws.  The policies of the Federal Reserve System, and other
authorities, may materially affect the growth and distribution of loans,
investments and deposits and interest rates on deposits and loans.


                                       1


<PAGE>   3



     The FDIC Improvement Act of 1991 (the "FDIC Improvement Act"), revised
sections of the Federal Deposit Insurance Act affecting bank regulation,
deposit insurance and provisions for the funding of the bank insurance fund.
The FDIC Improvement Act also revised bank regulatory structures embodied in
several other federal banking statutes, links the bank regulators' authority to
intervene to the deterioration of a bank's capital level, places limits on real
estate lending and increases audit requirements.  Among the significant
revisions that could have an impact on the Corporation is the authority granted
the FDIC to impose special assessments on insured depository institutions to
repay FDIC borrowings from the United States Treasury or other sources and to
establish semiannual assessment rates on bank insurance fund member banks so as
to maintain the bank insurance fund at the designated reserve ratio defined in
the FDIC Improvement Act.  The FDIC Improvement Act also required the FDIC to
implement a system of risk-based premiums for deposit insurance pursuant to
which the premiums paid by a depository institution are based on the perceived
probability that the bank insurance fund will incur a loss in respect of such
institution.

     Under 1994 amendments to the Federal Bank Holding Company Act, the
Corporation is authorized to acquire subsidiary banks in any state in which
state laws permit such acquisitions.  Out-of-state bank holding companies in
any state are permitted to acquire banks located in Michigan if the laws of the
state in which the out-of-state bank holding company is located authorize a
bank holding company located in Michigan to acquire ownership of banks in that
state on a reciprocal basis.  Under amendments to the Michigan Banking Code
which became effective on November 29, 1995, the Bank is authorized to merge
with or acquire out-of-state banks or branches in any state in which state laws
permit such acquisitions.

     As of December 31, 1996, the Corporation and its subsidiary employed
approximately 95 employees on a full-time equivalent basis.

     The statistical information on the following pages further describes
certain aspects of registrant's business.



                                       2



<PAGE>   4

Interest Rates and Interest Differential

     The following tables present an analysis of net interest earnings for the
periods indicated.  All interest (including tax-exempt securities and
tax-exempt loans) is presented on a fully taxable-equivalent basis.


<TABLE>
<CAPTION>
Years Ending December 31(In thousands)                 1996                          1995
                                        ----------------------------------  ---------------------------
                                        Average                    Average  Average             Average
                                        Balance     Interest        Rate    Balance   Interest  Rate
                                        --------  --------------  --------  --------  --------  -------
<S>                                     <C>        <C>            <C>       <C>       <C>       <C>
Interest Earning Assets
 Loans(1)(2)                            $114,034     $10,471        9.18%  $104,175    $9,756   9.37%
 Investment securities:
   Taxable                                15,317         956        6.24     17,896     1,131   6.32
   Tax-exempt(2)                          13,861       1,105        7.97     10,157       888   8.74
  Fed funds sold                           3,418         186        5.44      5,457       321   5.88
  Federal Home Loan Bank stock               724          57        7.87          0
                                        --------  ----------               --------    ------

     Total earning assets                147,354      12,775        8.67    137,685    12,096   8.79
                                        --------  ----------               --------    ------
 Non-earning Assets
 Cash and due from banks                   4,703                              4,283
 Premises and equipment                    3,827                              2,869
 Other assets                              1,689                              2,541
 Allowance for loan losses                (1,764)                            (1,573)
                                        --------                           --------
   Total assets                         $155,809                           $145,805
                                        ========                           ========

Interest Bearing Liabilities
 Savings and demand deposits            $ 59,094       1,573        2.66   $ 59,363     1,647   2.77
 Time deposits                            54,944       3,092        5.63     51,576     2,817   5.46
 Securities sold under agreement to
   repurchase                              5,911         299        5.06      4,912       278   5.66
 U.S. Treasury demand notes                  569          30        5.27        679        38   5.60
 Long -term debt                           5,063         283        5.59          0         _
                                        --------  ----------              ---------     -----
   Total interest bearing
     liabilities                         125,581       5,277        4.20    116,530     4,780   4.10
                                        --------  ----------              ---------     -----

Non-interest Bearing Liabilities
  Demand deposits                         13,928                             14,097
  Other liabilities                        1,092                                927
  Shareholders' equity                    15,208                             14,251
                                        --------                           --------
  Total liabilities and
     shareholders' equity               $155,809                           $145,805
                                        ========                           ========

Net interest spread                                   $7,498        4.47%              $7,316   4.69%
                                                      ======        =====              ======   =====

Net Yield on Interest Earning Assets
(net interest earnings divided by total
 interest earning assets)                                           5.09%                       5.31%
                                                                    =====                       =====
</TABLE>



(1)  Loan fees are included in interest income and are used to calculate
     average rates earned.  Non-accrual loans are included in the average loan
     balances.

(2)  Yields on tax exempt loans and investment securities are computed on a
     fully taxable-equivalent basis using a federal income tax rate of 34%.

                                       3


<PAGE>   5


                The following table sets forth an analysis of interest
differential, including the effect of volume and rate changes on interest income
and expenses for the periods indicated.  For purposes of these tables, change in
interest due to volume and rate were determined as follows:


<TABLE>
<CAPTION>
Volume Variance         -Change in volume times old rate.
Rate Variance           -Change in rate times old volume.
Rate/Volume Variance    -Change in rate times change in volume.  This variance
                         has been allocated to volume and rate changes in
                         proportion to the relationship of the absolute dollar
                         amounts of the change in each.

                                                       1996                                                 1995
                                                    Compared to                                         Compared to
                                                       1995                                                 1994
                                   ---------------------------------------          ------------------------------------

                                        Net                                             Net
                                     Increase        Due to         Due to           Increase       Due to        Due to
                                    (Decrease)       Volume           Rate          (Decrease)      Volume          Rate
                                   -----------      -------         ------          ----------      ------        ------
<S>                                <C>             <C>              <C>            <C>             <C>           <C>
                                                                        (In Thousands)
Interest Income:
 Loans(1)(2)                           $ 715          $908           $(193)             $1,296       $ 560         $ 736
 Investment securities:
   Taxable                              (175)         (161)            (14)               (120)       (317)          197
   Tax-exempt(2)                         217           301             (84)                 87         103           (16)
   Fed funds sold                       (135)         (112)            (23)                109           8           101
  Federal Home Loan Bank stock            57            57               0
                                        ----          ----           -----                ----        ----         -----

    Total Interest Income                679           993            (314)              1,372         354         1,018
                                         ---          ----            ----              ------         ---         -----

Interest Expense:
 Interest bearing deposits
   Savings                               (74)          (10)            (64)                (66)       (217)          151
   Time                                  275           188              87                 710         242           468
 Securities sold under agreement
   to repurchase                          21            53             (32)                239         226            13
 U.S. Treasury demand notes               (8)           (6)             (2)                 13           5             8
 Long-term debt                          283           283
                                         ---          ----            ----              ------        ---          -----

        Total Interest Expense           497           508             (11)                896         256           640
                                         ---          ----            ----              ------         ---         -----

Net Interest Income                    $ 182          $485           $(303)              $ 476       $  98         $ 378
                                       =====          ====           ======              =====       =====         =====
</TABLE>




(1)  Loan fees are included in interest income and are used to calculate
     average rates earned.  Non-accrual loans are included in the average loan
     balances.

(2)  Yields on tax exempt loans and investment securities are computed on a
     fully taxable-equivalent basis using a federal income tax rate of 34%.


                                      4



<PAGE>   6


Investment Portfolio

     The book value of investment securities as of the dates indicated are
summarized as follows:


<TABLE>
<CAPTION>
                                                                December 31,
                                      ----------------------------------------------------------------------
                                                1996                                       1995
                                      ----------------------------              ----------------------------
                                       Held-to-         Available-              Held-to-          Available-
                                      Maturity          for-Sale                Maturity           for-Sale

                                                           (Dollars in Thousands)
    <S>                                 <C>             <C>                     <C>              <C>
     U.S. Treasury and other U.S.
      government agencies and
      corporations                      $11,173         $    0                   $15,807           $   0

     States of the U.S. and
      political subdivisions             14,160              0                    13,623               0

     Other securities                         0          1,461                         0             437
                                        -------         ------                   -------            ----

              Total                     $25,333         $1,461                   $29,430            $437
                                        =======         ======                   =======            ====
</TABLE>




                                       5



<PAGE>   7



     The following table shows, by class of maturities as of December 31, 1996,
the amounts and weighted average yields of held-to-maturity securities (1):


<TABLE>
<CAPTION>
                                                                        MATURING
                      -----------------------------------------------------------------------------------------------
                                             After One but        After Five but
                       Within One Year     Within Five Years     Within Ten Years    After Ten Years        Total
                      ------------------  --------------------  ------------------  ------------------  --------------
                       Amount    Yield     Amount      Yield     Amount    Yield     Amount    Yield    Amount   Yield
                      --------  --------  ---------  ---------  --------  --------  --------  --------  -------  -----
<S>                   <C>       <C>       <C>        <C>        <C>       <C>       <C>       <C>       <C>      <C>
                                                     (Dollars In Thousands)
U.S. Treasury and
 other U.S.
 government
 agencies and
 corporations           $7,676   6.04%       $3,498   5.75%       $    0                $  0            $11,174   5.95%

States and political
 subdivisions (2)        1,716   7.84%        4,402   8.26%        7,651   8.09%         390   8.98%     14,159   8.14%
                        ------               ------               ------                ----            -------

Total (3)               $9,392   6.37%       $7,900   7.14%       $7,651   8.09%        $390   8.98%    $25,333   7.17%
                        ======               ======               ======                ====            =======
</TABLE>





(1)  The effective yields are weighted for the scheduled maturity of each
     security and weighted average yields are calculated on the basis of par
     value.

(2)  Weighted average interest rates have been computed on a fully
     taxable-equivalent basis.  The rates shown on securities issued by states
     and political subdivisions have been restated, assuming a 34% tax rate.

(3)  As of December 31, 1996, the aggregate book value of investment
     securities issued by the State of Michigan and all its political
     subdivisions totaled $10,492 with an aggregate market value of $10,578.




                                       6



<PAGE>   8


Loan Portfolio

                The following table presents the amount of loans outstanding
at the indicated dates by loan type, based on classifications used for
regulatory reporting:


<TABLE>
<CAPTION>
                                                             December 31,
                                                       -----------------------
                                                       1996               1995
                                                       ----               ----
<S>                                                 <C>                <C>
                                                       (Dollars In Thousands)

Commercial, financial
  and agriculture                                    $ 66,170           $ 63,205
Real estate - construction                              3,840              2,072
Real estate - mortgage                                 33,256             30,288
Consumer and other                                     19,059             13,714
                                                     --------           --------

    Total loans                                      $122,325           $109,279
                                                     ========           ========
</TABLE>



                The following table shows the maturity of loans (excluding
real estate mortgages and installment loans) outstanding at December 31, 1996.
Also provided are the amounts due after one year classified according to their
sensitivity to changes in interest rates.


<TABLE>
<CAPTION>
                                             Due in One         Due in One              Due After
                                            Year or Less        to Five Years           Five Years        Total
                                            ------------        -------------           ----------        -----
<S>                                          <C>                <C>                     <C>             <C>
                                                                      (Dollars In Thousands)
Commercial, financial and
 agricultural                                $18,922             $34,974                 $12,274         $66,170
Real estate - construction                     1,542               1,253                   1,045           3,840
                                             -------             -------                 -------         -------

   Total                                     $20,464             $36,227                 $13,319         $70,010
                                             =======             =======                 =======         =======

Loans due after one year:
 With predetermined interest rates                               $24,404
 With floating or adjustable interest rates                       25,142
                                                                 -------

   Total                                                         $49,546
                                                                 =======
</TABLE>




                                       7



<PAGE>   9



     The following table summarizes nonaccrual, past due, and restructured
loans at the dates indicated:


<TABLE>
<CAPTION>
                                                 December 31,
                                           ------------------------
                                              1996         1995
                                           -----------  -----------
                                           (Dollars in Thousands)
             <S>                           <C>          <C>

             Nonaccrual loans                  $  0         $178
             Accruing loans past due
              90 days or more                    82           34
             Restructured loans                  60           27
                                               ----         ----

               Total Non-performing Loans      $142         $239
                                               ====         ====
</TABLE>


     The Corporation estimates the following additional information with
respect to nonaccrual and restructured loans for the year ended December 31,
1996:

<TABLE>
<CAPTION>
                                                         (In Dollars)
                         <S>                                <C>
                         Interest income which would
                           have been recorded under
                           original term                     $18,207
                                                             =======

                         Interest income recorded
                           during the period                 $27,561(1)
                                                             =======
</TABLE>


     Loan performance is reviewed regularly by loan review personnel, loan
officers and senior management.  Loans are placed on nonaccrual status when
principal or interest is past due 90 days or more and the loan is not
well-secured and in the process of collection, or when reasonable doubt exists
concerning collectibility of interest or principal.  Any interest previously
accrued in the current period but not collected is reversed and charged against
current earnings.

     At December 31, 1996, the Corporation had $1,995,000 in domestic loans for
which payments are presently current, but where the borrowers are currently
experiencing financial difficulties.  Those loans are subject to constant
management attention and their classification is reviewed on a regular basis.

     As of December 31, 1996, there were no concentrations of loans exceeding
10% of total loans.

(1)  During 1996 the Bank received payments of past due interest relating to
years ending December 31, 1995 and prior.  The amount this interest was
approximately $19,000.


                                       8



<PAGE>   10



Summary of Loan Loss Experience

     The following table summarizes loan balances at the end of each period and
daily averages; changes in the allowance for possible loan losses arising from
loans charged off and recoveries on loans previously charged off, by loan
category; and additions to the allowance which have been charged to expense.


<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                  -----------------------
                                                     1996         1995
                                                  ----------   ----------
                                (Dollars in Thousands)

        <S>                                          <C>       <C>
        Loans
         Amount of loans outstanding at
         end of period                               $122,325    $109,279
                                                     ========    ========

        Daily average of loans outstanding
         for the period                              $114,034    $104,175
                                                     ========    ========

        Balance of allowance for loan
         losses at beginning of period               $  1,669    $  1,510
                                                     --------    --------

        Loans charged off:
         Commercial, financial and agricultural            33         143
         Real estate - construction                         0           0
         Real estate - mortgage                            27           5
         Installment loans to individuals                 115          40
                                                     --------    --------

           Total loans charged off                        175         188
                                                     --------    --------

        Recoveries of loans previously charged off:
         Commercial, financial, and agricultural           68          79
         Real estate - construction                         0           0
         Real estate - mortgage                            10          13
         Installment loans to individuals                  22           5
                                                     --------    --------

           Total recoveries                               100          97
                                                     --------    --------

        Net charge-offs                                    75          91
                                                     --------    --------
        Additions to allowance charged to
         operating expense (1):                           230         250
                                                     --------    --------

        Allowance at end of period                   $  1,824    $  1,669
                                                     ========    ========

        Ratio of net charge-offs during period
         to average loans outstanding                    0.07%       0.09%
                                                         ====        ====

        Ratio of allowance for loan losses to
         loans outstanding at end of period              1.49%       1.53%
                                                         ====        ====
</TABLE>




(1)  The provision for loan losses charged to expense is based on loan loss
     experience and such other factors which, in management's judgment, deserve
     current recognition in maintaining an adequate allowance for loan losses.
     These other factors include, but are not limited to, a review of current
     economic conditions as they relate to loan collectibility and reviews of
     specific loans to evaluate their collectibility.


                                       9



<PAGE>   11



     The allowance for loan losses has been allocated according to the amount
deemed to be reasonably necessary to provide for the possibility of losses
being incurred within the following categories at the dates indicated:


<TABLE>
<CAPTION>
                                 December 31, 1996       December 31, 1995
                               ----------------------  ----------------------
                                            Percent                 Percent
                                           of Loans                of Loans
                                          in Category             in Category
                                           to Total                to Total
                               Allowance     Loans     Allowance     Loans
                               ---------  -----------  ---------  -----------
                                          (Dollars in Thousands)
   <S>                         <C>        <C>          <C>        <C>
   Commercial, financial and
    agricultural                  $  713    54.09%        $  716     57.83%
   Real estate - construction         --     3.14             --      1.90
   Real estate - mortgage             72    27.19            126     27.71
   Installment                       413    15.58            240     12.56
   Unallocated                       626                     587
                                  ------   ------         ------    ------
      Total                       $1,824   100.00%        $1,669    100.00%
                                  ======   ======         ======    ======
</TABLE>




                                       10



<PAGE>   12



Deposits

     The daily average amounts of deposits and rates paid on such deposits for
the periods indicated are:


<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                   ----------------------------------------
                                           1996                  1995
                                           ----                  ----
                                     Amount      Rate       Amount      Rate
                                     ------      ----       ------      ----
                                             (Dollars in Thousands)
<S>                               <C>         <C>        <C>          <C>
Non-interest bearing
 demand deposits                   $ 13,928       --      $ 14,097         --
Interest bearing demand deposits     35,033     2.63%       33,282        .68%
Savings                              24,061     2.70%       26,081       2.89%
Time deposits                        54,944     5.63%       51,576       5.46%
                                   --------               --------
   Total Deposits                  $127,966               $125,036
                                   ========               ========
</TABLE>




                                       11



<PAGE>   13



     The time remaining until maturity of time certificates of deposits of
$100,000 or more at December 31, 1996, is as follows:



<TABLE>
<CAPTION>
                                               Time Certificates
                                                  of Deposits
                                               -----------------
                    <S>                       <C>
                    3 months or less               $ 8,999
                    Over 3 through 6 months          2,010
                    Over 6 through 12 months         1,042
                    Over 12 months                   2,527
                                                   -------
                       Total                       $14,578
                                                   =======
</TABLE>





                                       12



<PAGE>   14



Short-term Borrowings

     Short-term borrowed funds consist of securities sold under agreements to
repurchase, treasury tax and loan demand notes.  The following amounts and
rates applied during the last two years:


<TABLE>
<CAPTION>
                                  Securities Sold
                                 Under Agreements       Demand Notes Issued
                                  To Repurchase          To U.S. Treasury
                               -------------------    -----------------------
                                 1996       1995         1996         1995
                               --------  ---------    -----------  ----------
                                          (Dollars In Thousands)
   <S>                         <C>       <C>          <C>          <C>

   Amounts outstanding at
    year-end                   $5,602      $5,305       $  942       $  560
                               ======      ======       ======       ======

   Average amount outstanding
    during year                $5,911      $4,912       $  569       $  679
                               ======      ======       ======       ======

   Maximum amount outstanding
    at any month-end           $7,801      $7,511       $1,532       $2,357
                               ======      ======       ======       ======

   Weighted average interest
    rate at year-end             4.93%       5.01%        5.18%        5.17%
                               ======      ======       ======       ======

   Weighted average interest
    rate during year             5.06%       5.66%        5.27%        5.60%
                               ======      ======       ======       ======
</TABLE>


     The weighted average interest rates are derived by dividing the interest
expense for the period by the daily average balance during the period.


Long-term Borrowings

     Long-term borrowings consist of borrowings from the Federal Home Loan
Bank("FHLB").  The following amounts and rates applied during the last two
years:


<TABLE>
<CAPTION>
                                                    FHLB
                                        ----------------------------
                                          1996                1995
                                        --------            --------
                                           (Dollars In Thousands)
            <S>                         <C>                 <C>

            Amounts outstanding at
             year-end                   $10,000                   $0
                                        =======                   ==

            Average amount outstanding
             during year                $ 5,063                   $0
                                        =======                   ==

            Maximum amount outstanding
             at any month-end           $10,000                   $0
                                        =======                   ==

            Weighted average interest
             rate at year-end              5.78%
                                        =======

            Weighted average interest
             rate during year              5.59%
                                        =======
</TABLE>



                                       13



<PAGE>   15


ITEM 2. PROPERTIES.

                The Bank currently conducts business from nine banking offices
including two branches located in supermarkets owned by a related party.  The
executive offices of the Corporation are located at 101 North Pine River
Street, Ithaca, Michigan.  The main office of the Bank is located at 301 North
State Street, Alma, Michigan.  The main office property of the Bank is leased
for a term expiring on December 31, 2013.  The branches of the Bank are located
in Alma, Greenville, Midland, Middleton, Pompeii, and St. Louis, Michigan.

                The Bank owns the property for five of the branch office
locations.  One branch office is leased pursuant to a lease that expires August
1, 1998, subject to 3 renewals of 10 years each.  The Alma Supermarket Branch
is leased pursuant to a five year lease beginning June 1, 1995 with two five
year renewals.  The Midland Supermarket Branch is leased pursuant to a five
year lease beginning January 1, 1996 with two five year renewals.  Aggregate
rental expense represents less than 5% of the registrant's operating expenses.
The Corporation considers all of its facilities to be well maintained and in
generally good operating condition and suitable for the purposes for which they
are intended.

ITEM 3. LEGAL PROCEEDINGS.

                The Corporation and the Bank are parties, as plaintiff or
defendant, to several legal proceedings, none of which is considered material,
and all of which arose in the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                Not applicable.



                                       14



<PAGE>   16


                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.

                The information under the captions "Common Stock Information"
and "Dividend Information" of the registrant's annual report to shareholders
for the year ended December 31, 1996, is here incorporated by reference to
Exhibit 13.

ITEM 6. SELECTED FINANCIAL DATA.

                The information under the caption "Selected Financial Data" of
the registrant's annual report to shareholders for the year ended December 31,
1996, is here incorporated by reference to Exhibit 13.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

                The information under the heading "Management's Review and
Analysis" of the registrant's annual report to shareholders for the year ended
December 31, 1996, is here incorporated by reference to Exhibit 13.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                The financial statements, notes and independent auditors'
report of the registrant's annual report to shareholders for the year ended
December 31, 1996, are here incorporated by reference to Exhibit 13.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

                The Letter Concerning Change in Certifying Public Accountant
are here incorporated by reference to registrant's Form 8-K previously filed
December 28, 1995.


                                       15



<PAGE>   17


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                The information set forth under the caption "Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the registrant's definitive Proxy Statement for its April 22,
1997, annual meeting of shareholders is here incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION.

                The information set forth under the captions "Compensation of
Executive Officers" and "Compensation of Directors" in the registrant's
definitive Proxy Statement for its April 22, 1997, annual meeting of
shareholders is here incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

                The information set forth under the caption "Voting Securities"
in the registrant's definitive Proxy Statement for its April 22, 1997, annual
meeting of shareholders is here incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                The information set forth under the caption "Certain
Relationships" in the registrant's definitive Proxy Statement for its April 22,
1997, annual meeting of shareholders is here incorporated by reference.


                                       16



<PAGE>   18


                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

          (a)(1) Financial Statements.

                 The following financial statements, notes to financial
statements, and independent auditors' reports of the Corporation and its
subsidiary are filed as part of this report:

                 Independent Auditors' Reports
                 Consolidated Balance Sheets - December 31, 1996 and 1995
                 Consolidated Statements of Income for each of the three years
                 ended December 31, 1996
                 Consolidated Statements of Shareholders' Equity for each of the
                 three years in the period ended December 31, 1996
                 Consolidated Statements of Cash Flows for each of the three
                 years in the period ended December 31, 1996
                 Notes to Consolidated Financial Statements

                 The financial statements, notes to financial statements, and
independent auditors' reports for the years ended December 31, 1996 and 1995,
listed above are incorporated by reference in Item 8 of this report from the
corresponding portions of the registrant's annual report to shareholders for
the year ended December 31, 1996.  With the exception of the portions of the
registrant's annual report to shareholders for the year ended December 31, 1996
specifically incorporated herein by reference, such report shall not be deemed
filed as part of this annual report on Form 10-K.

        (2) All schedules have been omitted because they are inapplicable or
            otherwise not required.

        (3) The following exhibits are filed as part of this report:

     Number                             Exhibit

       3(a) Restated Articles of Incorporation.  Previously filed as an exhibit
            to the registrant's Form S-4 filed January 22, 1988.  Here
            incorporated by reference.

       3(b) Bylaws.  Previously filed as an exhibit to the registrant's
            Form S-4 filed January 22, 1988.  Here incorporated by reference.

      10(a) Form of Indemnity Agreement.  Previously filed as an exhibit to the
            registrant's Form S-4 filed January 22, 1988. Here incorporated by
            reference.

      10(b) 1989 Stock Option Plan.  Previously filed as an exhibit to the
            registrant's Form 10-K for the year ended December 31, 1988.  Here
            incorporated by reference.*

      10(c) 1991 Stock Option Plan.  Previously filed as an exhibit to the
            registrant's Form 10-K for the year ended December 31, 1990.  Here
            incorporated by reference.*

      10(d) Amendment to 1991 Stock Option Plan.  Previously filed as an
            exhibit to the registrant's Form 10-K for the year ended December
            31, 1995.  Here incorporated by reference.*

      10(e) Lease for Main Office.  Previously filed as an exhibit to
            registrant's Form 10-K for the year ended December 31, 1991.  Here
            incorporated by reference.

      10(f) Branch Purchase and Assumption Agreement. Previously filed as an
            exhibit to registrant's Form 10-K for the year ended December 31,
            1991.  Here incorporated by reference.

      10(g) Executive Employment, Change of Control and Severance Agreements.
            Previously filed as an

                                       17



<PAGE>   19


               exhibit to registrant's Form 10-K for the year ended December
               31, 1991.  Here incorporated by reference.*

         10(h) Branch Lease for Alma Supermarket Branch. Previously filed as
               an exhibit to the registrant's Form 10-K for the year ended
               December 31, 1995.  Here incorporated by reference.

         10(i) Branch Lease for Midland Supermarket Branch.  Previously filed
               as an exhibit to the registrant's Form 10-K for the year ended
               December 31, 1995.  Here incorporated by reference.

         13    Incorporated portions from 1996 Annual Report to
               Shareholders.

         21    Subsidiary of Registrant.  Previously filed as an
               exhibit to the registrant's Form S-4 filed January 22, 1988.
               Here incorporated by reference.

         23    Consents of Independent Certified Public Accountants.

         27    Financial Data Schedule.

           * Management contract or compensatory plan or arrangement

        The registrant will furnish a copy of any exhibit listed above to any
shareholder of the registrant without charge upon written request to Patrick
Duffy, Commercial National Financial Corporation, 101 North Pine River Street,
Ithaca, Michigan 48847.

        (b)  Reports on Form 8-K.

             No reports on Form 8-K were filed for the fourth quarter of 1996.

        (c)  Exhibits.

             See Item 14(a)(3)

        (d)  Financial Statement Schedules.

             There are no financial statement schedules required to be filed
             with this report.



                                       18



<PAGE>   20


                                   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)

March 25, 1997                    By: /s/ Dean E. Milligan
                                  ---------------------------------------------
                                  Dean E. Milligan
                                          President and Chief Executive Officer







                                      19



<PAGE>   21


                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.

<TABLE>
<S>                                    <C>
March 25, 1997                                   /s/ Dean E. Milligan
                                                 -----------------------------------------------
                                        Dean E. Milligan
                                                Director, President and Chief Executive Officer
                                                (Principal Executive Officer)

March 25, 1997                                  /s/ Richard F. Abbott
                                                -----------------------------------------------
                                        Richard F. Abbott
                                                Director

March  25, 1997                                 /s/ Jefferson P. Arnold
                                                -----------------------------------------------
                                        Jefferson P. Arnold
                                                Director

March  25, 1997                                 /s/ Don J. Dewey
                                                -----------------------------------------------
                                        Don J. Dewey
                                                Director

March  25, 1997                                 /s/ David A. Ferguson
                                                -----------------------------------------------
                                        David A. Ferguson
                                                Director

March  25, 1997                                 /s/ Kenneth R. Luneack
                                                -----------------------------------------------
                                        Kenneth R. Luneack
                                                Director

March  25, 1997                                 /s/ Kim C. Newson
                                                -----------------------------------------------
                                        Kim C. Newson
                                                Director

March  25, 1997                                 /s/ Howard D. Poindexter
                                                -----------------------------------------------
                                        Howard D. Poindexter
                                                Director

March   25, 1997                                /s/ Scott E. Sheldon
                                                -----------------------------------------------
                                        Scott E. Sheldon
                                                Director

March  25, 1997                                 /s/ Russell M. Simmet
                                                -----------------------------------------------
                                        Russell M. Simmet
                                                Director

March  25, 1997                                 /s/ Joseph B. Simon
                                                -----------------------------------------------
                                        Joseph B. Simon
                                                Director

March  25, 1997                                 /s/ Patrick G. Duffy
                                                -----------------------------------------------
                                        Patrick G. Duffy
                                                (Principal Financial and Accounting Officer)

</TABLE>


                                      20



<PAGE>   22


                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number                                          Exhibit                                                       Page
------                                          -------                                                       ----
<S>             <C>                                                                                          <C>
3(a)            Restated Articles of Incorporation.  Previously filed as an exhibit to the registrant's         *
                Form S-4 filed January 22, 1988.  Here incorporated by reference.

3(b)            Bylaws.  Previously filed as an exhibit to the registrant's Form S-4 filed January              *
                22, 1988.  Here incorporated by reference.

10(a)           Form of Indemnity Agreement.  Previously filed as an exhibit to the registrant's                *
                Form S-4 filed January 22, 1988.  Here incorporated by reference.

10(b)           1989 Stock Option Plan.  Previously filed as an exhibit to the registrant's Form                *
                10-K for the year ended December 31, 1988.  Here incorporated by reference.

10(c)           1991 Stock Option Plan.  Previously filed as an exhibit to the registrant's Form                *
                10-K for the year ended December 31, 1990.  Here incorporated by reference.

10(d)           Amendment to 1991 Stock Option Plan.  Previously filed as an exhibit to the                     *
                registrant's Form 10-K for the year ended December 31, 1995.  Here incorporated by
                reference.

10(e)           Lease for Main Office.  Previously filed as an exhibit to registrant's Form 10-K                *
                for the year ended December 31, 1991.  Here incorporated by reference.

10(f)           Branch Purchase and Assumption Agreement.  Previously filed as an exhibit to                    *
                registrant's Form 10-K for the year ended December 31, 1991.  Here incorporated
                by reference.

10(g)           Executive Employment, Change of Control and Severance Agreements.  Previously                   *
                filed as an exhibit to registrant's Form 10-K for the year ended December 31, 1991.
                Here incorporated by reference.

10(h)           Branch Lease for Alma Supermarket Branch.  Previously filed as an exhibit                       *
                to the registrant's Form 10-K for the year ended December 31, 1995.  Here incorporated
                by reference.

10(i)           Branch Lease for Midland Supermarket Branch.  Previously filed as an                            *
                exhibit to the registrant's Form 10-K for the year ended December 31, 1995.  Here
                incorporated by reference.

13              Incorporated Portions from 1996 Annual Report to Shareholders.

21              Subsidiary of Registrant.  Previously filed as an exhibit to the registrant's Form              *
                S-4 filed January 22, 1988.  Here incorporated by reference.

23              Consents of Independent Certified Public Accountants.

27              Financial Data Schedule.
</TABLE>
----------------
*This exhibit is filed by incorporation by reference to a prior filing.


                                      21