SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2003
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: 0-17000
A. Full title of the Plan:
Commercial Bank Employee Savings and Stock Ownership Plan
B. Name of the issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
Commercial National Financial Corporation
101 N. Pine River
Ithaca, Michigan 48847
(989) 875-4144
INFORMATION FURNISHED WITH RESPECT TO THE PLAN
The following financial statements, notes to financial statements and consents
are included in this Report:
1. Financial statement for the Plan consisting of:
A. Report of Independent Auditors
B. Financial Statements
1. Statement of Net Assets Available for Benefits as of
December 21, 2003 and December 31, 2002
2. Statement of Changes in Assets Available for the Year
Ended December 31, 2003
3. Notes to Financial Statements
2. Consent of Independent Auditors
2.
COMMERCIAL BANK
EMPLOYEE SAVINGS AND STOCK
OWNERSHIP PLAN
FINANCIAL STATEMENTS
December 31, 2003 and 2002
3.
COMMERCIAL BANK EMPLOYEE SAVINGS
AND STOCK OWNERSHIP PLAN
Ithaca, Michigan
FINANCIAL STATEMENTS
December 31, 2003 and 2002
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................................................... 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
4.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2003 and 2002, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2003. 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 standards of the Public Accounting
Oversight Board. 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, 2003 and 2002, and the changes in net assets available for benefits
for the year ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
Grand Rapids, Michigan
May 13, 2004
5.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2003 and 2002
2003 2002
---- ----
ASSETS
Investments, at fair value (Note 4)
Common stock $ 1,573,679 $ 1,442,814
Pooled separate accounts 2,232,262 1,578,062
--------------- ----------------
3,805,941 3,020,876
Receivables
Participant contributions - 14,917
Employer contribution 133,979 130,549
Dividend receivable 18,737 17,551
--------------- ----------------
152,716 163,017
--------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 3,958,657 $ 3,183,893
=============== ================
See accompanying notes to financial statements.
6.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2003
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment income (loss)
Net appreciation in fair value of investments (Note 4) $ 489,207
Dividends -- cash 72,700
Dividends - stock 67,226
---------------
629,133
Contributions
Participants 201,649
Employer 133,979
Rollover 46,977
---------------
382,605
---------------
Total additions 1,011,738
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
Benefits paid to participants 236,724
Expenses 250
---------------
Total deductions 236,974
---------------
NET INCREASE 774,764
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 3,183,893
---------------
End of year $ 3,958,657
===============
See accompanying notes to financial statements.
7.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
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 (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 2003, 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 and allocations 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
benefit that can be provided from the participant's vested account. 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 and
the employer matching contributions plus actual earnings thereon. Other employer
discretionary contributions are fully vested after six years of credited
service.
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. Commercial National Financial
Corporation is the sole shareholder of the Plan sponsor.
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)
8.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Valuation and Income Recognition: Common stock is stated at fair
value using quoted market prices. All other investments are held by an insurance
company designated by the Plan administrator. The fair values of the
participation units owned by the Plan in insurance company pooled separate
accounts are based on quoted redemption values as of the last business day in
the Plan's year. 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 U.S.
generally accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect certain reported amounts and disclosures,
and actual results may differ from these estimates.
Risks and Uncertainties for Investments: The Plan has investments in pooled
separate accounts and stocks. These investment securities are exposed to various
risks, such as interest rate, market and credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in the
near term and that such changes could materially affect the amounts reported in
the statements of net assets available for benefits and participants' individual
account balances.
Payment of Benefits: Benefits are recorded when paid.
Concentration of Credit Risk: At December 31, 2003 and 2002, 40.8% and 46.8% 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. In the event of
the Plan's termination, participants will be 100% vested in their accounts.
9.
(Continued)
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 4 - INVESTMENTS
The following presents investments that represent 5% or more of the Plan's net
assets.
December 31,
2003 2002
---- ----
POOLED SEPARATE ACCOUNTS -- MINNESOTA LIFE INSURANCE COMPANY
Money market fund, 83,725 and 163,747 units $ 118,716 $ 233,152
Life Strategy I fund, 142,587 and 119,054 units 250,670 165,198
Life Strategy II fund, 456,757 and 395,003 units 818,184 586,416
COMMON STOCK
Commercial National Financial Corporation common stock,
133,930 and 125,462 shares 1,573,679 1,442,814
During 2003, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) increased in value by $489,207
as follows:
Pooled separate accounts $ 449,579
Common stock 39,628
--------------
$ 489,207
==============
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 pooled
separate accounts managed by Minnesota Life Insurance Company. Minnesota Life
Insurance Company is the custodian as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions.
Substantially all professional fees for the administration and audit of the Plan
are paid by the Bank. Other professional fees related to the investment and
administration of the Plan's assets were paid by the Plan. The fees paid by the
Plan for these services amounted to $250 for the year ended December 31, 2003.
(Continued)
10.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS (Continued)
As of December 31, the Plan held the following party-in-interest investments (at
fair value):
2003 2002
Pooled separate accounts of Minnesota Life
Insurance Company $ 2,232,262 $ 1,578,062
Commercial National Financial Corporation
common stock, 139,930 and 125,462 shares 1,573,679 1,442,814
The 139,930 and 125,462 shares of Commercial National Financial Corporation
common stock held by the Plan as of December 31, 2003 and 2002 represent 3.45%
and 3.30% of the Corporation's outstanding shares as of December 31, 2003 and
2002. During 2003, cash dividends of $72,700 were paid to the Plan by the
Corporation. In addition, the Corporation issued a 5% stock dividend, which
resulted in 6,403 additional shares in 2003. The number of shares outstanding at
December 31, 2002 has been restated to reflect the 2003 stock dividend.
NOTE 6 - TAX STATUS
The Internal Revenue Service has determined and informed Commercial National
Financial Corporation by letter dated July 26, 2002, that the Plan and related
trust 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.
(Continued)
11.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE 7 -- EXPLANATION OF DIFFERENCE BETWEEN FINANCIAL STATEMENTS AND AMOUNTS
REPORTED ON FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the 5500 as of December 31, 2003:
Net assets available for benefits per the financial statements $ 3,958,657 $ 3,183,893
Dividend receivable (18,737) (17,551)
Participant contributions receivable - (14,917)
Miscellaneous adjustment (9) (6)
--------------- ----------------
Net assets available for benefits per Form 5500,
Schedule H, Part I, line 1 $ 3,939,911 $ 3,151,419
=============== ===============
The following is a reconciliation of other income and contributions per the
financial statements for the year ended December 31, 2003, to Form 5500:
Participant contributions per the financial statements $ 201,649
Participant contributions receivable 2002 14,917
--------------
Participant contributions per Form 5500 $ 216,566
==============
Total investment income per the financial statements $ 629,133
Dividend receivable 2003 (18,737)
Dividend receivable 2002 17,551
Expenses of pooled separate accounts 2003 (250)
--------------
Other income per Form 5500 $ 627,697
==============
12.
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 28, 2004 /s/ Jeffrey S. Barker
---------------------------
Jeffrey S. Barker, Trustee
Date: June 28, 2003 /s/ Patrick G. Duffy
---------------------------
Patrick G. Duffy, Trustee
Exhibit Index
Ex No. Description
23 Independent Auditor's Consent