SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number:
Commercial Bank Employee Savings and Stock Ownership Plan
Commercial National Financial Corporation
101 N. Pine River
Ithaca, Michigan 48847
(989) 875-4144
COMMERCIAL BANK
EMPLOYEE SAVINGS AND STOCK
OWNERSHIP PLAN
FINANCIAL STATEMENTS
December 31, 2001 and 2000
COMMERCIAL BANK EMPLOYEE SAVINGS
AND STOCK OWNERSHIP PLAN
Ithaca, Michigan
FINANCIAL STATEMENTS
December 31, 2001 and 2000
CONTENTS
REPORT OF INDEPENDENT AUDITORS........................................................................ 1
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS................................................. 2
STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS........................................................................ 3
NOTES TO FINANCIAL STATEMENTS................................................................... 4
SUPPLEMENTAL SCHEDULE
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR).................................. 8
REPORT OF INDEPENDENT AUDITORS
Plan Administrator of Commercial Bank
Employee Savings and Stock Ownership Plan
Ithaca, Michigan
We have audited the accompanying statements of net assets available for benefits
of the Commercial Bank Employee Savings and Stock Ownership Plan ("the Plan") as
of December 31, 2001 and 2000, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2001. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2001 and 2000, and the changes in net assets available for benefits
for the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. The
supplemental schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements as
a whole.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 27, 2002
1.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2001 and 2000
2001 2000
---- ----
ASSETS
Investments, at fair value (Note 4)
Common stock $ 1,182,092 $ 1,081,779
Mutual funds 1,657,248 1,707,032
--------------- ----------------
2,839,340 2,788,811
Receivables
Participant contributions 6,103 0
Employer contribution 123,234 113,241
--------------- ----------------
129,337 113,241
--------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 2,968,677 $ 2,902,052
=============== ================
See accompanying notes to financial statements.
2.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2001
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment income (loss)
Net depreciation in fair value of investments (Note 4) $ (346,483)
Dividends - cash 82,398
Dividends - stock 57,082
---------------
(207,003)
Contributions
Participants 192,254
Employer 123,234
---------------
315,488
---------------
Total additions 108,485
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
Benefits paid to participants 41,860
---------------
Total deductions 41,860
---------------
NET INCREASE 66,625
Net assets available for benefits
Beginning of year 2,902,052
---------------
End of year $ 2,968,677
===============
See accompanying notes to financial statements.
3.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - DESCRIPTION OF PLAN
The following description of the Commercial Bank Employee Savings and Stock
Ownership Plan (the Plan) is provided for general information purposes only.
Participants should refer to the Plan agreement for a more complete description
of the Plan's provisions.
General: The Plan was established by the plan sponsor, Commercial Bank (the
Bank), effective January 1, 1997. The Bank acts as trustee for the Plan assets.
The Plan is a defined contribution plan, which covers all employees who have
completed 90 days of employment and attained the age of 21. The Plan has a
contributory 401(k) portion based on elective contributions from participants in
the Plan. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
Contributions: Elective deferrals by participants under the 401(k) provisions
are based on a percentage of their compensation as defined in the Plan
agreement, which are subject to certain limitations. Employees also may rollover
account balances from other plans into their account. The Bank may, at the sole
discretion of the Board of Directors, contribute to each participant's account a
matching contribution which is a percentage of the participant's elective
contribution for the year. For 2001, the Bank made matching contributions equal
to 100% of the first 6% of the compensation deferred by each 401(k) participant
subject to certain limitations as specified in the Plan agreement.
Participant Accounts: Each participant's account is credited with the
participant's contributions an allocation of (a) the Bank's contributions and
(b) Plan earnings. Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is entitled is the
aggregate of the participant's deferrals, rollovers and employer matching
contributions. Each participant directs the investment of their account to any
of the investment options available under the Plan.
Retirement, Death and Disability: A participant is entitled to 100% of his or
her account balance upon retirement, death or disability while employed.
Vesting: Participants are immediately vested in their elective contributions
plus actual earnings thereon, and employer matching contributions.
Payment of Benefits: A participant or his or her beneficiary receives the vested
portion in the participant's account in a lump sum. A participant may receive
the portion of his or her account invested in Commercial National Financial
Corporation common stock in stock or cash.
Loan Provisions: The Plan provides that participants can borrow funds against
their account balances up to 50% of their vested account balance, or $50,000,
whichever is less.
(Continued)
4.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Valuation and Income Recognition: Investments are stated at fair
value. Mutual fund shares are traded on national exchanges and are valued at the
last sales price on the date of valuation. Commercial National Financial
Corporation common stock is traded over-the-counter and is valued at the last
sales price on the date of valuation. Purchases and sales of securities are
recorded on a trade-date basis. Interest income is recorded on the accrual
basis. Dividends are recorded on the ex-dividend date.
Estimates: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the plan
administrator to make estimates and assumptions that affect certain reported
amounts and disclosures, and actual results may differ from these estimates.
Concentration of Credit Risk: At December 31, 2001 and 2000, 39.8% and 37.2% of
the Plan's assets were invested in Commercial National Financial Corporation
common stock.
NOTE 3 - PLAN TERMINATION
Although it has not expressed any intent to do so, the Bank has the right under
the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA and its related regulations.
NOTE 4 - INVESTMENTS
The following presents investments that represent 5% or more of the Plan's net
assets.
December 31,
2001 2000
---- ----
George Putnam Fund of Boston, 16,499 and 14,676
shares, respectively $ 275,963 $ 251,995
Putnam Growth and Income Fund, 26,729 and 23,613
shares, respectively 472,658 461,164
Putnam Investors Fund, 29,687 and 24,467
shares, respectively 341,798 375,806
Putnam OTC & Emerging Growth Fund, 20,623 and 15,562
shares, respectively 153,857 216,617
Putnam International Growth Fund, 9,331 and 7,737
shares, respectively 184,068 191,169
Commercial National Financial Corporation common stock,
112,632 and 103,260 shares, respectively 1,182,092 1,081,779
(Continued)
5.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 4 - INVESTMENTS (Continued)
All of the Plan's investments are uninsured.
During 2001, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) depreciated in value by
$346,483 as follows:
Mutual funds $ (301,926)
Common stock (44,557)
------------
$ (346,483)
============
NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS
Parties-in-interest are defined under Department of Labor (DOL) regulations as
any fiduciary of the Plan, any party rendering service to the Plan, the
employer, and certain others. Certain Plan investments are shares of mutual
funds managed by Baird. Baird is the custodian as defined by the Plan and,
therefore, these transactions qualify as party-in-interest transactions.
Professional fees for the administration and audit of the Plan are paid by the
Bank.
As of December 31, the Plan held the following party-in-interest investments (at
fair value):
2001 2000
---- ----
Baird Money Market $ 86,287 $ 80,605
Commercial National Financial Corporation
common stock, 112,632 and 103,260 shares 1,182,092 1,081,779
The 112,632 and 103,260 shares of Commercial National Financial Corporation
common stock held by the Plan as of December 31, 2001 and 2000 represent 3.17%
and 3.10% of the Corporation's outstanding shares as of December 31, 2001 and
2000, respectively. During 2001, cash dividends of $57,051 were paid to the Plan
by the Corporation.
During 2001, the Plan, under employee direction, purchased 8,953 shares of
Commercial National Financial Corporation common stock for a total purchase
price of $88,328. No shares were sold during 2001. In addition, the Corporation
issued a 5% stock dividend, which resulted in 5,335 additional shares in 2001.
The number of shares outstanding at December 31, 2000 has been restated to
reflect the 2001 stock dividend.
(Continued)
6.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 6 - TAX STATUS
The Internal Revenue Service has determined and informed Commercial National
Financial Corporation by letter dated August 1, 1997, that the Plan and related
trusts are designed in accordance with the applicable sections of the Internal
Revenue Code (IRC) for tax exempt status. While the Plan has been amended
subsequent to this date, the Plan administrator believes that the Plan continues
to be designed and operated in accordance with the IRC.
7.
SUPPLEMENTAL SCHEDULE
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2001
Name of plan sponsor: Commercial Bank
Employer identification number: 38-2799780
Three-digit plan number: 003
(c)
(b) Description of Investment
Identity of Issuer, Including Maturity Date, Rate (e)
Borrower, Lessor, of Interest, Collateral, Par (d) Current
(a) or Similar Party or Maturity Value Cost Value
- --- ---------------- ----------------- ---- -----
MUTUAL FUNDS
George Putnam Fund of Boston 16,499 shares $ 275,963
Putnam Growth & Income Fund 26,729 shares 472,658
Putnam Income Fund 21,975 shares 142,617
Putnam International Growth Fund 9,331 shares 184,068
Putnam Investors Fund 29,687 shares 341,798
Putnam OTC & Emerging Growth Fund 20,623 shares 153,857
* Baird Money Market 86,287 shares 86,287
---------------
1,657,248
COMMON STOCK
* Commercial National Financial
Corporation common stock 112,632 shares 1,182,092
---------------
$ 2,839,340
===============
* Denotes party in interest
(d) All investments are participant directed, therefore, historical cost
information is not required.
8.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
Commercial Bank Employee Savings and
Stock Ownership Plan
Date: June 21, 2002 /s/ Jeffrey Barker
------------- --------------------------------------
Jeffrey Barker, Trustee
Date: June 21, 2002 /s/ Patrick Duffy
------------- --------------------------------------
Patrick Duffy, Trustee
EXHIBIT INDEX
Exhibit 23 Consent of Independent Public Accountants