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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2002
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
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, 2002 and 2001, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2002. 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, 2002 and 2001, and the changes in net assets available for benefits
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Crowe Chizek and Company LLC
Grand Rapids, Michigan
April 25, 2003
2.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2002 and 2001
2002 2001
---- ----
ASSETS
Investments, at fair value (Note 4)
Common stock $ 1,442,814 $ 1,182,092
Pooled separate accounts 1,578,062 0
Mutual funds 0 1,657,248
------------- -------------
3,020,876 2,839,340
Receivables
Participant contributions 14,917 6,103
Employer contribution 130,549 123,234
Dividend receivable 17,551
------------- -------------
163,017 129,337
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 3,183,893 $ 2,968,677
============= =============
See accompanying notes to financial statements.
3.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2002
ADDITIONS TO NET ASSETS ATTRIBUTABLE TO:
Investment income (loss)
Net depreciation in fair value of investments (Note 4) $ (152,123)
Dividends -- cash 84,614
Dividends - stock 83,453
-------------
15,944
Contributions
Participants 229,486
Employer 130,549
-------------
360,035
-------------
Total additions 375,979
DEDUCTIONS FROM NET ASSETS ATTRIBUTABLE TO:
Benefits paid to participants 160,763
-------------
Total deductions 160,763
-------------
NET INCREASE 215,216
Net assets available for benefits
Beginning of year 2,968,677
-------------
End of year $ 3,183,893
=============
See accompanying notes to financial statements.
4.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
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 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 2002, 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.
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)
5.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Valuation and Income Recognition: Commercial National Financial
Corporation 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 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.
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, 2002 and 2001, 45.6% and 39.8% 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.
(Continued)
6.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 4 - INVESTMENTS
The following presents investments that represent 5% or more of the Plan's net
assets.
December 31,
2002 2001
---- ----
MUTUAL FUNDS
George Putnam Fund of Boston, 16,499 shares $ 275,963
Putnam Growth and Income fund, 26,729 shares 472,658
Putnam Investors fund, 29,687 shares 341,798
Putnam OTC & Emerging Growth fund, 20,623 shares 153,857
Putnam International Growth fund, 9,331 shares 184,068
POOLED SEPARATE ACCOUNTS -- MINNESOTA LIFE INSURANCE COMPANY
Money market fund, 163,747 units $ 233,152
Life Strategy I fund, 119,054 units 165,198
Life Strategy II fund, 395,003 units 586,416
COMMON STOCK
Commercial National Financial Corporation common stock,
125,462 and 118,264 shares, respectively 1,442,814 1,182,092
During 2002, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) depreciated in value by
$152,123 as follows:
Pooled separate accounts $ (264,890)
Common stock 112,767
-----------
$ (152,123)
===========
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. Professional fees for
the administration and audit of the Plan are paid by the Bank.
As of February 1, 2002, the trustee of the Plan resolved to change the Plan
custodian from Baird to Minnesota Life Insurance Company.
7.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS (Continued)
As of December 31, the Plan held the following party-in-interest investments (at
fair value):
2002 2001
---- ----
Baird money market account $ 86,287
Pooled separate accounts of Minnesota Life Insurance
Company $ 1,578,062
Commercial National Financial Corporation
common stock, 125,632 and 118,264 shares 1,442,814 1,182,092
The 125,462 and 118,264 shares of Commercial National Financial Corporation
common stock held by the Plan as of December 31, 2002 and 2001 represent 3.30%
and 3.17% of the Corporation's outstanding shares as of December 31, 2002 and
2001, respectively. During 2002, cash dividends of $65,902 were paid to the Plan
by the Corporation. In addition, the Corporation issued a 5% stock dividend,
which resulted in 6,158 additional shares in 2002. The number of shares
outstanding at December 31, 2001 has been restated to reflect the 2002 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.
8.
COMMERCIAL BANK EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
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, 2002:
Net assets available for benefits per the financial statements $ 3,183,893
Participant contributions receivable (14,917)
Dividend receivable (17,551)
-----------
Net assets available for benefits per Form 5500,
Schedule H, Part I, line 1 $ 3,151,425
===========
The following is a reconciliation of other income and contributions per the
financial statements for the year ended December 31, 2002, to Form 5500:
Participant contributions per the financial statements $ 229,486
Less: participant contributions receivable (14,917)
-----------
Participant contributions per Form 5500 $ 214,569
===========
Total investment income per the financial statements $ 15,944
Less: dividend receivable (17,551)
-----------
Other income per Form 5500 $ (1,607)
===========
9.
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 27, 2003 /s/ Jeffrey S. Barker
------------- -------------------------------------
Jeffrey S. Barker, Trustee
Date: June 27, 2003 /s/ Patrick G. Duffy
------------- -------------------------------------
Patrick G. Duffy, Trustee
EXHIBITS AND REPORTS ON FORM 11-K:
Exhibit No. Exhibit Description
23 Consent of Independent Auditors
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.