<PAGE>   1















                                   EXHIBIT 13

          INCORPORATED PORTIONS FROM 2000 ANNUAL REPORT TO SHAREHOLDERS

























                                       10


<PAGE>   2
                                                                      EXHIBIT 13


                                    CONTENTS

<TABLE>
<S>                                                                                 <C>
Report from the President.........................................................      2

Selected Financial Data...........................................................      3

Management's Discussion and Analysis..............................................   4-16

Management's Responsibility for Financial Statements..............................     17

Report of Independent Auditors....................................................     18

Consolidated Balance Sheets.......................................................     19

Consolidated Statements of Income.................................................     20

Consolidated Statements of Changes in Shareholders' Equity........................     21

Consolidated Statements of Cash Flows.............................................     22

Notes to Consolidated Financial Statements........................................  23-36

Common Stock and Dividend Information.............................................     37

Directors and Officers............................................................     38

Business Partner Profiles.........................................................     39

Locations, Transfer Agent and Market Makers.......................................     40
</TABLE>

                                      Cover

The cover represents a sample of Commercial Bank's business partners. Clockwise
from the top left are: Mike Huckleberry owner of Huckleberry's in Greenville;
Cherie Gustavson, owner of Taco Bell/KFC in Ithaca; Dick Prestage, Administrator
of Schnepp Health Care Center in St. Louis; Becky Thornton, owner of the Winter
Inn in Greenville; Eric Harrison, partner in Alma Great Lakes Quick Lube; and
Steve and Carla Smith, owners of the Alma Cinemas. For a more detailed profile
see page 39.

Photos by Wheeler Portrait Studio
Report by E&S Graphics



<PAGE>   3


To Our Shareholders:

The past year was another record earnings performance for Commercial National
Financial Corporation. Net income increased 6.3% to $2,903,000. The primary
reason for the increase is continued strong loan growth. Total loans increased
16% over the prior year, ending 2000 at $177,000,000. For the first time in our
history the Company's total assets exceed $200 million, finishing the year at
$216,000,000. Loan quality remains strong. Non-performing assets totaled only
 .18% of assets at year-end, less than one-third the average reported for banks
our size. The allowance for loan losses stands at 1.44% of total loans and 643%
of total nonperforming assets, both ratios stronger than peer.(1)

Our margin, or net interest income, continues to be a challenge. While loans
grew at a rate more than double that of deposits, total interest expense
increased 28.1% and total interest income was up only 15.5%. Management will
continue to focus on this essential aspect of our business. Recently, the
Federal Reserve began to lower interest rates and those reductions should begin
to have a favorable impact on our margins later this year. Controlling overhead,
or noninterest expense, is essential to profitability in this interest rate
margin environment. Noninterest expense for the past year increased by only 4.2%
over 1999 and our efficiency ratio improved from 54.0% to 53.7%. Total
noninterest expense as a percentage of average assets continues to decline,
going from 2.9% during 1999 to 2.7% this past year.

Performance ratios for the year 2000 compare very favorably with those of our
peers. Return on average equity remained unchanged from a year ago at 14.7%.
Return on average assets was 1.43%, down slightly from 1.47% a year ago,
primarily due to the rapid increase in total assets experienced during 2000.

Shareholder equity exceeded $20,000,000 at the close of 2000. Our equity has
increased approximately 30% over the previous five years and by all measures far
surpasses the regulatory capital requirements. Over the same time frame we have
continued to increase dividends per share. During 2000, dividends declared per
share totaled 54 cents. This level represents an increase of 74% when compared
to dividends five years earlier. In addition to the 5% cash dividend yield, the
corporation also declared a 5% stock dividend during November 2000, continuing a
ten-year history of doing so. All per share data has been adjusted for previous
stock dividends and stock splits.

In an effort to become a more complete financial services company we recently
formed a strategic alliance with The Centennial Group, Michigan's premier
financial planning firm. The Centennial Group offers products and services in
four different lines of business including, financial planning, life insurance,
securities and mutual funds, and employee benefits programs for small business
clients. Their associates provide the highest level of expertise and the highest
caliber of financial products available in today's marketplace. The Centennial
Group is a welcome addition to Commercial National Financial Corporation.(2)

You will soon be able to utilize our new online banking feature allowing you to
do most of your regular banking and bill paying from any computer you choose. Be
sure to visit us at www.commercial-bank.com.

Thank you for your continued confidence and support. We look forward to
rewarding that confidence by increasing the value of your investment in
Commercial National Financial Corporation.

Sincerely,





Jeffrey S. Barker
President and CEO


-------------------
(1) Peer group is comprised of approximately 788 bank holding companies
controlling one subsidiary bank with consolidated assets of between $150 million
and $300 million.

(2) Centennial Group investment products are not deposit accounts and are not
obligations or guaranteed by Commercial Bank or the federal government and are
subject to investment risks including possible loss of principal.

<PAGE>   4

                             SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                    2000           1999          1998         1997           1996
-------------------------------------------------------------------------------------------------------------------
                                                       (In thousands except financial ratios and per share data)
 <S>                                              <C>           <C>           <C>          <C>             <C>
FOR THE YEAR
   Net interest income                           $   9,002     $   8,416     $   7,559    $   7,354       $   6,979
   Provision for loan losses                          (360)         (360)         (360)        (395)           (230)
   Noninterest income                                1,026         1,099         1,355        1,042             683
   Noninterest expense                              (5,572)       (5,347)       (5,070)      (5,810)         (5,684)
   ----------------------------------------------------------------------------------------------------------------
   Income before income tax expense                  4,096         3,808         3,484        2,191           1,748
   Income tax expense                               (1,193)       (1,077)         (924)        (499)           (316)
   ----------------------------------------------------------------------------------------------------------------
     Net income                                  $   2,903     $   2,731     $   2,560    $   1,692       $   1,432
   ================================================================================================================

AT YEAR END

   Total assets                                  $ 215,886     $ 191,022     $ 181,096    $ 172,405       $ 166,190
   Net loans                                       174,288       149,675       133,526      122,458         120,501
   Total deposits                                  157,794       147,204       141,175      133,947         133,017
   FHLB advances                                    26,500        16,500        11,500       13,000          10,000
   Shareholders' equity                             20,110        18,965        17,660       16,883          15,496

FINANCIAL RATIOS

   Return on average assets                          1.43%          1.47%         1.47%         1.03%          .92%
   Return on average shareholders' equity           14.67          14.67         14.39         10.49          9.41
   Average shareholders' equity to average assets    9.74          10.04         10.19          9.81          9.76
   Allowance for loan losses to total loans          1.44           1.83          1.73          1.66          1.49
   Tier 1 leverage capital ratio                     9.35           9.98          9.92         10.26          9.43
   Total risk-based capital ratio                   13.14          14.27         14.26         14.73         14.29
   Dividend pay-out                                 62.23          63.37         57.68         69.23         68.37

PER SHARE DATA(1)
   Basic earnings(2)                             $    .87      $     .82     $     .77      $    .51     $     .46
   Diluted earnings(2)                                .86            .82           .76           .51           .45
   Dividends declared                                 .54            .52           .45           .35           .31
   Book value, end of year                           6.04           5.67          5.37          5.09          4.86
</TABLE>

(1) All per share data adjusted to reflect stock splits and stock dividends.

(2) Restated to reflect adoption of SFAS No. 128 on December 31, 1997.


<PAGE>   5

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

INTRODUCTION

The following discussion provides information about the financial condition and
results of operations of Commercial National Financial Corporation. It should be
read in conjunction with the consolidated financial statements included
elsewhere in this Annual Report.

BUSINESS OF COMMERCIAL NATIONAL FINANCIAL CORPORATION

Commercial National Financial Corporation (the Corporation or Commercial), a
financial 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).

On July 16, 1997, the Bank acquired an inactive insurance agency, Commercial
National Financial Services Incorporated (the Agency). The Agency in turn
purchased a minority interest in Michigan Bankers Title of Northern Michigan,
LLC (the Title Agency). During 2000, Michigan Bankers Title of Northern Michigan
was dissolved. The Agency made a similar investment in the Michigan Bankers
Title of Eastern Michigan. The investment in the Title Agency and the related
dividends earned are not material.

Business is concentrated primarily in a single industry segment - commercial
banking. Commercial provides a full range of banking services to individuals,
agricultural and commercial businesses and industries located in its service
area. Commercial 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. Commercial offers
a variety of deposit products, including checking, savings, money market,
individual retirement accounts and certificates of deposit.

The principal markets for 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 seven locations in or near
these communities. Commercial does not have any material foreign assets or
income.

The principal source of revenue for Commercial is interest and fees on loans. On
a consolidated basis, interest and fees on loans accounted for 83.80% of total
revenue in 2000, 80.14% in 1999, and 76.45% in 1998. Interest on investment
securities accounted for 8.82% of total revenue in 2000, 10.91% in 1999, and
11.27% in 1998.

HIGHLIGHTS

Net income for the year ended December 31, 2000 was $2,903,000, 6.3% or $172,000
more than the $2,731,000 earned in 1999. December 31, 1999 net income was
$2,731,000, 6.7% or $171,000 more than the $2,560,000 earned during the year
ended December 31, 1998. Basic earnings per share increased to $.87 from $.82 in
1999 and $.77 in 1998. The 2000 return on average equity remained unchanged at
14.67% compared to 1999. The return on average assets for 2000 decreased
slightly to 1.43% compared to 1.47% in 1999.

The primary reasons for the improved earnings in 2000 are as follows: a $586,000
or 7.0% increase in net interest income offset by a $73,000 or 6.6% decrease in
noninterest income and a $225,000 or 4.2% increase in noninterest expense. An
increase in average outstanding loan balances, offset by a shrinking margin, was
the primary cause for the increase in net interest income.

Total assets increased to $215.9 million from $191.0 million in 1999 and $181.1
million in 1998. This represents a $24.9 million or 13.0% increase in total
assets compared to



<PAGE>   6

1999. The change in net loans represents $24.6 million of the increase in total
assets. Funding for the loans came primarily from time deposits obtained from a
national time deposit network, Federal Home Loan Bank advances and an increase
in shareholders' equity.

NET INTEREST INCOME

Average Balance Sheet and Analysis of Net Interest Income

<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                        -----------2000---------   -----------1999--------      ----------1998-------------

                                        AVERAGE           YIELD/    Average          Yield/     Average            Yield/
                                        BALANCE  INTEREST  RATE     Balance  Interest Rate      Balance  Interest   Rate
---------------------------------------------------------------------------------------------------------------------------
                                                                  (Dollars in thousands)
<S>                                   <C>        <C>       <C>    <C>        <C>       <C>     <C>        <C>       <C>
Interest-earning assets:
  Loans receivable (1)(2)             $ 164,389  $  14,591 8.88%  $ 143,026  $  12,253 8.57%   $ 128,312  $  11,385 8.87%
   Investment securities
   Taxable                               15,711        941 5.99      17,808      1,017 5.71       16,048        935 5.83
   Tax-exempt (2)                        11,826        891 7.53      12,331        974 7.90       13,716      1,111 8.10
   Federal funds sold and
     other interest-bearing deposits      3,012        137 4.55       3,881        151 3.89        7,389        352 4.76
   Federal Home Loan Bank stock           1,391        115 8.25       1,391        111 7.98        1,391        111 7.98
                                      --------------------        --------------------         --------------------

       Total interest-earning assets    196,329     16,675 8.49     178,437     14,506 8.13      166,856     13,894 8.33
Non-earning assets:
   Cash and due from banks                4,848                       4,905                        5,089
   Premises and equipment, net            2,593                       2,827                        2,968
   Other assets                           2,037                       1,836                        1,896
   Allowance for loan losses             (2,777)                     (2,588)                      (2,205)
                                      ---------                   ---------                    ---------
       Total assets                   $ 203,030                   $ 185,417                    $ 174,604
                                      =========                   =========                    =========
Interest-bearing liabilities:
   Interest-bearing deposits
     Interest-bearing demand          $  26,083        429 1.64   $  25,075        425 1.70    $  23,200        477 2.06
       Savings                           42,344      1,191 2.81      41,168      1,048 2.55       37,855      1,062 2.81

       Time                              68,335      3,928 5.75      58,941      3,017 5.12       58,454      3,239 5.54

   Securities sold under agreements
     to repurchase                        6,727        400 5.95       6,649        316 4.75        5,842        296 5.07

   U.S. Treasury demand notes, Federal
      funds purchased, and other
      borrowings                            842         55 6.52         646         31 4.80          456         24 5.26
   Federal Home Loan Bank advances       19,369      1,296 6.69      14,670        863 5.88       12,849        790 6.15
                                      --------------------        --------------------         --------------------
     Total interest-bearing
      liabilities                       163,700      7,299 4.46     147,149      5,700 3.87      138,656      5,888 4.25


Noninterest-bearing liabilities:
   Noninterest-bearing demand            18,382                      18,623                       16,945

   Other liabilities                      1,169                       1,027                        1,209

   Shareholders' equity                  19,779                      18,618                       17,794
                                      ---------                   ---------                    ---------
   Total liabilities and
     shareholders' equity             $ 203,030                   $ 185,417                    $ 174,604
                                      =========                   =========                    =========

Net interest income/interest rate
     spread                                         $9,376 4.03%                $8,806 4.26%                $8,006  4.08%
                                                    ====== ====                 ====== ====                 ======


Net interest margin (3)                                    4.78%                       4.94%                        4.80%
                                                           ====                        ====                         ====
</TABLE>


(1)  Average outstanding balances include non-accruing loans. Interest on loans
     receivable include fees. The inclusion of non-accruing loans and fees does
     not have material effect on either the average outstanding balance or the
     average yield.

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

(3)  Net interest earnings divided by average interest-earnings assets.


<PAGE>   7

The following table analyzes the effect of volume and rate changes on interest
income and expense for the periods indicated.

<TABLE>
<CAPTION>
                                                                    Years ended December 31,

                                                  2 0 0 0                    1 9 9 9                    1 9 9 8
                                       -----COMPARED TO 1999------ ----Compared to 1998---- ------Compared to 1997----

                                          NET     AMOUNT   AMOUNT      Net    Amount Amount     Net    Amount   Amount
                                       INCREASE   DUE TO   DUE TO   Increase  Due to Due to  Increase  Due to   Due to
                                      (DECREASE)  VOLUME    RATE   (Decrease) Volume  Rate  (Decrease) Volume    Rate
----------------------------------------------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                                    <C>        <C>     <C>       <C>      <C>      <C>   <C>       <C>      <C>
Interest income:
   Loans receivable (1) (2)               $2,338  $1,896    $ 442   $  868   $ 1,261  $ (393)  $  33    $ 320   $ (287)
   Investment securities:
     Taxable                                 (76)   (126)      50       82       100     (18)    267      254       13
   Tax-exempt (2)                            (83)    (38)     (45)    (137)     (109)    (28)     12       26      (14)
Federal funds sold and
     other interest- bearing deposits        (14)    (40)      26     (201)     (136)    (65)     77       49       28
Federal Home Loan Bank stock                   4       -        4        -         -       -       6        6        -
                                          ----------------------------------------------------------------------------
     Total interest income                 2,169   1,692      477      612     1,116    (504)    395      655     (260)

Interest expense:

   Interest-bearing deposits

     Interest-bearing demand                   4      17      (13)     (52)       32     (84)     (9)      31      (40)
     Savings                                 143      33      110      (14)       84     (98)    (47)       7      (54)
     Time                                    911     540      371     (222)       25    (247)    161      165       (4)
   Securities sold under
     agreements to repurchase                 84       5       79       20        38     (18)    (10)       3      (13)
   U.S. Treasury demand notes, Federal
     funds purchased and other borrowings     24      13       11        7         9      (2)     (6)      (5)      (1)
   Federal Home Loan Bank advances           433     314      119       73       107     (34)    110      100       10
                                          ----------------------------------------------------------------------------
     Total interest expense                1,599     922      677     (188)      295    (483)    199      301     (102)
                                          ----------------------------------------------------------------------------
   Net interest income                    $  570  $  770    $(200)  $  800   $   821  $  (21)  $ 196    $ 354   $ (158)
                                          ============================================================================
</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 balance.

(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)  For purposes of these tables, changes in interest due to volume and rate
     were determined as follows: 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 allocated to volume and
     rate changes in proportion to the relationship of the absolute dollar
     amounts of the change in each.


The largest component of Commercial's operating income is net interest income.
Net interest income is the difference between interest and fees earned on
earning assets and the interest paid on deposits and other borrowings. A number
of factors influence net interest income. These factors include: changes in
volume and mix of interest-earning assets and interest-bearing liabilities,
government monetary and fiscal policies, and national and local market interest
rates.

During 1999, the Federal Reserve Open Market Committee increased the discount
rate 75 basis points. In addition, the Federal Reserve Open Market Committee
increased the discount rate 100 basis points during the first six months of
2000.

As a result, Commercial's prime lending rate increased from 7.75% at December
31, 1998 to 8.50% at December 31, 1999 to 9.50% at December 31, 2000. Commercial
experiences an immediate, short-term benefit to net interest income from the
increase in prime as interest rates on a majority of the Bank's variable rate
loans are indexed to the prime rate.

Tax equivalent net interest income was $9.4 million in 2000, an increase of
$570,000 or 6.5% compared to December 31, 1999. Commercial's 2000 increase in
net interest income was the result of an increase in earning assets offset by a
reduced margin. Average loan balances increased $21.4 million or 14.9% compared
to 1999. The increase in interest income resulting from an increase in loan
volume was $1,896,000.


<PAGE>   8


However, the increase in average loan balances was funded primarily with FHLB
advances and time deposits obtained through a national time deposit network. The
rate paid for both of these sources of funds adjusts rapidly to changes in
national interest rates. Both of these sources increased significantly in cost
during 2000. For example a two-year FHLB single maturity advance obtained from
the FHLB in Indianapolis cost 6.69% at December 31, 1999, and 7.27% at June 30,
2000. The effect of increased FHLB rates was to increase the Bank's FHLB
borrowing costs from 5.88% in 1999 to 6.69% in 2000.

Local retail time deposit rates also increased significantly. Several of
Commercial's local competitors offered time deposit priced higher than FHLB
advances. Even as general market interest rates decreased during the fourth
quarter of 2000, some local competitors continued to price retail time deposits
higher than FHLB advances.

To control funding costs, Commercial continued to use network certificate of
deposit markets and the FHLB. Commercial also priced retail time deposits higher
in order prevent excessive run-off of local deposits. The combination of higher
costing local deposits and the use of additional FHLB funding increased interest
expense faster than rates on loans could be priced upward. While Commercial
earned $477,000 in tax equivalent interest income attributable to rate increases
on earning assets, Commercial paid an additional $677,000 in interest expense
attributable to increased rates paid on interest bearing liabilities. As a
result, Commercial's margin decreased from 4.94% to 4.78%.

PROVISION FOR LOAN LOSSES

The provision for loan losses is the amount added to the allowance for loan
losses to absorb losses that are currently anticipated. The loan loss provision
is based on historical loss experience, loan growth and such other factors,
which, in management's judgment, deserve current recognition in maintaining an
adequate allowance for loan losses.

The provision for loan losses was $360,000 in 2000, 1999 and 1998. Management
believes that the series of interest rates implemented by the Federal Reserve
has slowed the economy. In addition to anecdotal evidence that the local economy
is slowing, management has also noted an increase in past due loans. Though the
amount and number of problem loans is low by historical standards, the number
and dollar amount has increased compared to prior year. Also, approximately
$11.7 million of the growth in the loan portfolio has come from commercial,
financial and agricultural loans and $3.2 million from real estate construction
loans. Both of these categories inherently carry a higher risk of default. As
discussed in the loan quality section, Commercial has $4.9 million in domestic
loans for which payments are current, but the borrowers are experiencing
financial difficulties. Business related loans comprise almost the entire $4.9
million. This compares to $725,000 at December 31, 1999.

For all of these reasons, management determined that the provision for loan
losses should remain at $360,000 for 2000. Though the allowance for loan loss
appears to be adequate, management cannot provide assurance that the current
provision will not change in the near future.

NONINTEREST INCOME

Noninterest income for the year ended December 31, 2000 was $1,026,000 compared
to $1,099,000 for the year ended December 31, 1999. This represents a $73,000 or
6.64% decrease. During 1999, Commercial recorded a $256,000 or 18.89% decrease
compared to the year ended December 31, 1998.

The largest contributing factor to the 2000 decrease in noninterest income was a
$107,000 reduction in net gains on mortgage loan sales. The increase in interest
rates during 2000 and 1999 significantly reduced the mortgage refinancing
business. Mortgage volume is being generated almost exclusively from home
purchase transactions. Commercial has also elected to permanently portfolio a
larger portion of mortgage loans originated during 2000. Many of the loans
placed into portfolio were five and seven year adjustable rate loans. Management
believes that it can profitably fund these loans without creating unacceptable
interest rate risk.

Service charges and fees also decreased on lower volume. Management believes
that though Commercial's fee structure


<PAGE>   9

is in line with its marketplace, current fees for overdrafts and other related
services are at a level that they are modifying customer behavior. Total service
charges decreased by $26,000 compared to 1999.

Offsetting the general decrease in noninterest income is the increase in fees
earned on receivable financing. As our customers are able to generate additional
sales, they generate additional receivables that require financing. The increase
in receivable financing is due to increased volume of receivables financed from
our existing loan customers.

The following table identifies the major sources of noninterest income.


<TABLE>
<CAPTION>
                                    Years ended December 31,
                                    2000      1999      1998
------------------------------------------------------------
                                       (In thousands)
<S>                                <C>      <C>      <C>
Service charge and fees            $  444   $  470   $  485
Net gains on mortgage loan sales       83      189      383
Receivable financing fees             237      197      224
Net gains on government
   guaranteed loan sales               --        1       12
Gain on sale of securities             --        2       13
Other                                 262      240      238
-----------------------------------------------------------
   Total noninterest income        $1,026   $1,099   $1,355
===========================================================
</TABLE>

NONINTEREST EXPENSE

Noninterest expense for the year ending December 31, 2000 increased $225,000 or
4.21% compared to 1999. Commercial's efficiency improved slightly to 53.67% from
53.99%.

Salary expense during 2000 increased $135,000 or 6.06%. Salary expense in 1999
increased $170,000 or 8.26% compared to 1998. These increases reflect a
continuing tight labor market for all classes of employees. During 2000, full
time equivalents remained unchanged at 72 compared to prior year and 71 in 1998.

Benefit expense in 2000 increased $74,000 or 14.20% compared to 1999 primarily
as a result of increases in medical insurance premiums. Commercial anticipates
that medical insurance premiums will increase during 2001 at rates significantly
above the general rate of inflation.

Other taxes decreased during 2000 as a result of implementing a short-term tax
planning strategy, the benefits of which are not expected to be ongoing.

Professional fees decreased in 2000 as Commercial had less need for computer
related consultants than in 1999. During 2000, Commercial's use of outside legal
and accounting services on various projects, offset some of the savings from
reduced computer consulting services. Professional fees increased $60,000 or
23.90% during 1999 as compared to 1998. Computer consulting costs related to
Y2K, and supporting new networks and other technology projects were the primary
causes for the increase.

Management sold the Bank's credit card portfolio in the first quarter of 1998
and the merchant VISA program during the fourth quarter of 1997. This eliminated
credit card expense in 1999.


<TABLE>
<CAPTION>
                                     Years ended December 31,
                                    2000       1999      1998
-------------------------------------------------------------
                                         (In thousands)
<S>                              <C>       <C>       <C>
Salaries                         $ 2,362   $  2,227  $  2,057
Employee benefits                    595        521       501
Occupancy                            327        305       278
Furniture and equipment              679        732       722
Credit card processing                 -          -        31
FDIC insurance                        30         22        22
Other taxes                          113        140       117
Printing and supplies                181        155       161
Postage                               89         95        87
Telephone                            121        117       113
Advertising                           74         67        67
Other insurance                       63         46        38
Professional fees                    302        311       251
Other expenses                       636        609       625
-------------------------------------------------------------
   Total noninterest expense     $ 5,572   $  5,347  $  5,070
=============================================================

Efficiency Ratio                   53.67%     53.99%    54.16%
=============================================================

Noninterest expense as percentage
   of average assets                2.74%      2.88%     2.90%
=============================================================

Salaries and employee benefits as
   a percentage of average assets   1.46%      1.48%     1.46%
=============================================================
</TABLE>


<PAGE>   10

INCOME TAX EXPENSE

Commercial's 2000 income tax expense was $1,193,000 compared to $1,077,000 in
1999 and $924,000 in 1998. The increase from 1998 through 2000 was primarily the
result of increased income before income tax and a decrease in tax-exempt
interest income in relation to total pretax income. The average balance in
tax-exempt securities decreased $505,000 during 2000. The yield on the remaining
portfolio also decreased from 7.90% to 7.53% as Commercial was unable to replace
maturing securities with similar yielding assets.

The statutory federal tax rate during 2000, 1999, and 1998 was 34%. Commercial's
effective tax rate was lower than the statutory rate in all three years,
primarily due to tax-exempt interest income. The reduction in tax-exempt income
in relation to taxable income increased the effective tax rate to 29.13% in
2000, compared to 28.28% in 1999, and 26.51% in 1998.


INVESTMENT PORTFOLIO

The following table shows securities by classification as of December 31, 2000,
the amounts and weighted-average yields by maturity period:

<TABLE>
<CAPTION>
-----------------------------------------------------------MATURING-------------------------------------------------------------

                                Within              After One But         After Five But          After
                                 One                 Within Five            Within Ten             Ten
                                 Year                   Years                  Years              Years              Total
                           Amount     Yield      Amount       Yield     Amount      Yield      Amount Yield    Amount      Yield
--------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>           <C>     <C>             <C>     <C>           <C>        <C>            <C>          <C>
AVAILABLE FOR SALE                                     (Dollars in thousands)
U.S. Treasuries
and government
   agencies             $ 4,591,467   5.66%   $ 9,527,067      6.33%  $         -           $     -           $14,118,534   6.11%
State and municipal (1)      70,113   6.35%     1,788,593      6.44%    1,579,298    7.01%        -             3,438,004   6.69%
Other securities          1,353,687   5.75%       496,301      5.92%            -                 -             1,849,988   5.79%
-------------------------------------------------------------------------------------------------------------------------
   Total                $ 6,015,267           $11,811,961             $ 1,579,298           $     -           $19,406,526
=========================================================================================================================

HELD TO MATURITY
State and
    municipal (1)       $ 1,110,566   6.90%   $ 6,219,222      7.21%  $ 1,195,835    8.23%  $     -           $ 8,525,623   7.31%
-------------------------------------------------------------------------------------------------------------------------
   Total                $ 1,110,566           $ 6,219,222             $ 1,195,835           $     -           $ 8,525,623
=========================================================================================================================
</TABLE>


(1)  Yields on tax-exempt securities are computed on a fully taxable-equivalent
     basis

Commercial's Asset/Liability Management Committee (Committee) is responsible for
developing investment guidelines and strategies. The Committee relies on an
investment advisor to select appropriate investments for the portfolio.
Decisions to purchase securities and the maturity date selected are coordinated
with an overall plan to manage liquidity and interest rate exposure. For example
the U.S. Treasury and government agency securities identified as available for
sale are laddered to mature over five years with the intent of achieving a three
year average life.

The Committee does not invest in derivative securities. Commercial holds no
impaired securities at December 31, 2000. As of December 31, 2000, the aggregate
book value of investment securities issued by the State of Michigan and all its
political subdivisions totaled $9.3 million with an aggregate market value of
$9.5 million.

<PAGE>   11

The amortized cost of investment securities, as of the dates indicated, are
summarized as follows:

<TABLE>
<CAPTION>
                                                      December 31,

                                2 0 0 0                             1 9 9 9                            1 9 9 8
                       AVAILABLE         HELD TO          Available         Held to          Available          Held to
                       FOR SALE         MATURITY          for Sale          Maturity         for Sale          Maturity
-----------------------------------------------------------------------------------------------------------------------
                                                                  (In thousands)
<S>                   <C>               <C>               <C>              <C>               <C>              <C>
U.S. Treasuries and
 government agencies  $  13,994         $       -         $ 13,586         $       -         $ 13,663         $   1,000
State and municipal       3,393             8,526            2,885             8,814            2,530            11,017
Other                     1,706                 -            1,506                 -              902                 -
-----------------------------------------------------------------------------------------------------------------------
Total                 $  19,093         $   8,526         $ 17,977         $   8,814         $ 17,095         $  12,017
=======================================================================================================================
</TABLE>

LOAN PORTFOLIO

Lending efforts are concentrated primarily in the Michigan communities in which
Commercial's branches are located. Commercial also finances projects in other
communities generally as a result of supporting the business activities of one
of our local customers. Commercial has no foreign loans.

Total loans increased $24.3 million or 16.0% from year-end 2000 to 1999.
Commercial, real estate-construction and real estate-mortgage all increased
during 2000. Commercial, financial and agricultural loans increased $11.7
million or 14.7%, real estate-construction and real estate-mortgage loans
increased $3.2 million or 19.7% and $10.9 million or 23.1%. Commercial offers a
variety of non-conforming residential real estate products that have been well
received by individuals seeking to finance a residential purchase. As a result,
Commercial has been able to increase residential real estate balances.

Consumer and other loans decreased $1.4 million or 15.5%.

The following table presents the amount of loans outstanding by loan type:

<TABLE>
<CAPTION>
                                                      December 31,
                                   2000               1999                1998                1997                1996
-----------------------------------------------------------------------------------------------------------------------
                                 (In thousands)
<S>                          <C>                 <C>                 <C>                <C>                 <C>
Commercial, financial and
   agricultural              $    91,860         $    80,116         $    70,272        $    67,606         $    66,170
Real estate - construction        19,318              16,145              11,127              5,864               3,840
Real estate - mortgage            57,945              47,085              42,988             35,144              33,256
Consumer and other                 7,710               9,121              11,483             15,907              19,059
-----------------------------------------------------------------------------------------------------------------------
   Total loans               $   176,833         $   152,467         $   135,870        $   124,521         $   122,325
=======================================================================================================================
</TABLE>

The following table shows the maturity of loans (excluding real estate-mortgage
and consumer and other loans) outstanding at December 31, 2000. Also provided
are the amounts due after one year, classified according to their sensitivity to
changes in interest rates.

<TABLE>
<CAPTION>
                                                            Due              Due
                                          Due            After One       After Five           Due
                                        Within          But Within       But Within          After
                                       One Year         Five Years        Ten Years        Ten Years          Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>              <C>               <C>               <C>
Commercial, financial and agricultural  $  24,880        $  54,641         $  10,990        $   1,349         $  91,860
Real estate - construction                  6,333            9,924             2,976               85            19,318
-----------------------------------------------------------------------------------------------------------------------
   Total                                $  31,213        $  64,565         $  13,966        $   1,434         $ 111,178
=======================================================================================================================
</TABLE>


<PAGE>   12

<TABLE>
<S>                                    <C>
Loans due after one year:
   Fixed rate                          $  58,386
   Floating or adjustable rate            21,579
------------------------------------------------
   Total                               $  79,965
================================================
</TABLE>

ASSET QUALITY

Management believes that a conservative credit culture is critical to successful
performance. Through Officer and Director Loan Committees, management reviews
and monitors the quality of the various loan portfolios. Loan performance is
also reviewed regularly by internal and external loan review personnel.
Commercial continues to use independent loan review services.

Loans are placed on non-accrual status when principal or interest is past due 90
days or more, the loan is not well-secured, and is 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, 2000 Commercial had $4.9 million in domestic loans for which
payments are presently current, but the borrowers are experiencing financial
difficulties. Those loans are subject to ongoing management attention and their
classification is regularly reviewed. As of December 31, 2000 there were no
concentrations of loans exceeding 10% of total loans.

The following table summarizes non-accrual, past due and restructured loans:


<TABLE>
<CAPTION>
                                                                        December 31,

                                          2000                1999                1998              1997            1996
-------------------------------------------------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                                     <C>                 <C>                <C>                 <C>            <C>
Non-accrual loans                       $  354              $  963             $    25             $  -           $    -
Accruing loans past due 90 days or more      -                  14                  30                -               82
Restructured loans                           -                   -                  37               15               60
-------------------------------------------------------------------------------------------------------------------------
   Total non-performing loans           $  354              $  977             $    92             $ 15           $  142
=========================================================================================================================

Total non-performing loans
   as a percentage of total loans          .20%                .65%                .07%             .01%             .12%
=========================================================================================================================
</TABLE>

ALLOWANCE FOR LOAN LOSSES

During 2000 Commercial recorded net charge-offs of $607,000. Approximately
$649,000 relates to one commercial customer relationship, which Commercial has
been monitoring throughout 2000. Excluding this charge-off Commercial recorded
net recoveries of $42,000. The following table summarizes changes in the
allowance for possible loan losses.



<PAGE>   13

<TABLE>
<CAPTION>
                                                              Years ended December 31,

                                                    2000          1999               1998           1997              1996
--------------------------------------------------------------------------------------------------------------------------------
                                                                 (In thousands)
<S>                                             <C>            <C>              <C>              <C>               <C>
Loans
Amount of loans outstanding at
    end of year                                 $  176,833     $  152,467       $   135,870      $   124,521       $   122,325
==============================================================================================================================
Daily average of loans
    outstanding for the year                    $  164,389     $  143,026       $   128,312      $   124,710       $   114,034
==============================================================================================================================


Balance of allowance at beginning of year       $    2,792     $    2,344       $     2,064      $     1,824       $     1,669
Loans charged off:

    Commercial, financial and agricultural            (662)             -               (33)             (44)              (33)
    Real estate - mortgage                               -              -                 -                -               (27)
    Consumer and other                                 (28)           (29)             (139)            (234)             (115)
------------------------------------------------------------------------------------------------------------------------------
       Total loans charged off                        (690)           (29)             (172)            (278)             (175)
------------------------------------------------------------------------------------------------------------------------------


Recoveries of loans previously charged off:
    Commercial, financial, and agricultural             10             76                33               50                68
    Real estate - mortgage                              44             15                10                9                10
    Consumer and other                                  29             26                49               64                22
--------------------------------------------------------------------------------------------------------------------------------
       Total recoveries                                 83            117                92              123               100
------------------------------------------------------------------------------------------------------------------------------
       Net (charge-offs)/recoveries                   (607)            88               (80)            (155)              (75)
    Provision for loan losses (1)                      360            360               360              395               230
------------------------------------------------------------------------------------------------------------------------------
Allowance at end of period                      $    2,545     $    2,792       $     2,344      $     2,064       $     1,824
==============================================================================================================================

Ratio of net (charge-offs)/recoveries during
    period to average loans outstanding during
    the period                                        (.37)%          .06%             (.06)%            .12%              .07%
==============================================================================================================================
Ratio of allowance for loan losses to
    loans outstanding at end of period                1.44%          1.83%             1.73%            1.66%             1.49%
==============================================================================================================================
</TABLE>

(1) The provision for loan losses charged to expense is based on loan loss
experience, loan growth and 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.

The allowance for loan losses has been allocated according to the amount deemed
to be reasonably necessary to provide for the probability of losses being
incurred as follows:

<TABLE>
<CAPTION>
                                                                  December 31,

                                  2 0 0 0            1 9 9 9               1 9 9 8               1 9 9 7           1 9 9 6

                                     PERCENT              Percent              Percent               Percent                 Percent
                                     OF LOANS             of Loans            of Loans              of Loans                of Loans
                                     TO TOTAL             to Total            to Total               to Total               to Total
                            ALLOWANCE  LOANS   Allowance   Loans    Allowance   Loans     Allowance   Loans     Allowance     Loans
------------------------------------------------------------------------------------------------------------------------------------
                                                                  (In thousands)
<S>                        <C>         <C>     <C>        <C>        <C>       <C>         <C>       <C>        <C>        <C>
Commercial, financial
   and agricultural         $ 1,265    51.95%   $ 1,352    52.55%    $   596    51.72%     $   704    54.29%    $   713      54.09%
Real estate - construction       17    10.92          -    10.59           -     8.19            -     4.71           -       3.14
Real estate - mortgage          120    32.77        100    30.88          96    31.64           89    28.22          72      27.19
Consumer and other              427     4.36        351     5.98         362     8.45          512    12.78         413      15.58
Unallocated                     716     -           989     -          1,290     -             759     -            626       -
------------------------------------------------------------------------------------------------------------------------------------

   Total                    $ 2,545   100.00%   $ 2,792   100.00%    $ 2,344   100.00%     $ 2,064   100.00%    $ 1,824     100.00%
====================================================================================================================================
</TABLE>


<PAGE>   14

LIQUIDITY

Liquidity is generally defined as the ability to meet cash flow needs of
customers for loans and deposit withdrawals. To meet cash flow requirements,
sufficient sources of liquid funds must be available. These sources include
short-term investments, repayments of loans, maturing and called securities,
sales of assets, growth in deposits and other liabilities and profits.

At December 31, 2000, Commercial had $350,000 in federal funds sold. The Bank
also has $12.5 million of additional borrowing capacity at the Federal Home Loan
Bank and $9.0 million of borrowing capacity with correspondent banks. The
Federal Reserve also approved the Bank for a $1.5 million line of credit with
the Federal Reserve Discount Window.


During 2000, Commercial generated $3.7 million in cash from operating
activities. All of these sources are available to meet cash flow needs of loan
and deposit customers.

Commercial also needs cash to pay dividends to its shareholders. The primary
source of cash is the dividends paid to the parent by the Bank. Management
believes that cash from operations is sufficient to supply the cash needed to
continue paying a reasonable dividend. Commercial was also approved for a $1.5
million line of credit with a correspondent institution. At December 31, 2000
Commercial had $700,000 outstanding on this line.

CAPITAL RESOURCES

At December 31, 2000, capital totaled $20,110,000. Management monitors the
capital levels of the Corporation and the Bank to provide for current and future
business opportunities and to meet regulatory guidelines for "well capitalized"
institutions. "Well capitalized" institutions are eligible for reduced FDIC
premiums, and also enjoy other reduced regulatory restrictions.

At December 31, 2000, the Corporation and the Bank exceeded all regulatory
minimum capital requirements and are considered to be "well capitalized".

ASSET LIABILITY MANAGEMENT

Asset liability management involves developing, implementing and monitoring
strategies to maintain sufficient liquidity, maximize net interest income and
minimize the impact that significant fluctuations in market interest rates would
have on earnings. Commercial's Asset/Liability Committee is responsible for
managing this process.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commercial's primary market risk exposure is interest rate risk and, to a lesser
extent, liquidity risk. Commercial's transactions are denominated in U.S.
dollars with no specific foreign exchange exposure. Also, Commercial has a
limited exposure to commodity prices related to agricultural loans. Any impacts
that changes in foreign exchange rate and commodity prices would have on
interest rates are assumed to be insignificant.

Interest rate risk (IRR) is the exposure of a banking organization's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and stockholder value; however, excessive
levels of IRR could pose a significant threat to earnings and capital.
Accordingly, effective risk management that maintains IRR at prudent levels is
essential to Commercial's safety and soundness.

Evaluating exposure to changes in interest rates includes assessing both the
adequacy of management's process used to control IRR and the organization's
quantitative level of exposure. When assessing the IRR management process,
Commercial seeks to ensure that appropriate policies, procedures, management
information systems and internal controls are in place to maintain IRR at
prudent levels with consistency and continuity. Evaluating the quantitative
level of IRR exposure requires the assessment of existing and


<PAGE>   15

potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality. Commercial derives the majority of income from the
excess of interest collected over interest paid. The rates of interest earned on
its assets and owed on its liabilities generally are established contractually
for a period of time. Since market interest rates change over time, Commercial
is exposed to lower profit margins (or losses) if it cannot adapt to interest
rate changes. For example, assume that an institution's assets carry
intermediate or long-term fixed rates and that those assets are funded with
short-term liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institution's interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institution's profits could
decrease because the institution will either have lower net interest income or
possibly, net interest expense. Similar risks exist when assets are subject to
contractual interest rate ceilings, or rate sensitive assets are funded by
longer-term, fixed-rate liabilities in a decreasing rate environment.

Various techniques might be used by an institution to minimize IRR. Commercial
periodically analyzes assets and liabilities and makes future financing and
investment decisions based on payment streams, interest rates, contractual
maturities, and estimated sensitivity to actual or potential changes in market
interest rates. Such activities fall under the broad definition of
asset/liability management.

Several ways an institution can manage IRR include: selling existing assets or
repaying certain liabilities; matching repricing periods for new assets and
liabilities, for example, by shortening terms of new loans or investments and
hedging existing assets, liabilities, or anticipated transactions. An
institution might also invest in more complex financial instruments intended to
hedge or otherwise change IRR. Interest rate swaps, futures contracts, options
on futures, and other such derivative financial instruments are often used for
this purpose. Because these instruments are sensitive to interest rate changes,
they require management's expertise to be effective. Commercial has not
purchased derivative financial instruments in the past and does not presently
intend to purchase such instruments.

Commercial is also subject to repayment risk when interest rates fall. For
example, mortgage loans and other financial assets may be prepaid by a debtor so
that the debtor may refinance their obligations at new, lower rates. Prepayments
of assets carrying higher rates reduces interest income and overall asset
yields.

Certain portions of an institution's liabilities may be short-term or due on
demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, Commercial seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits or
selling assets. Also, Federal Home Loan Bank advances and short-term borrowings
provide additional sources of liquidity.

The following tables provide information about Commercial's financial
instruments that are sensitive to changes in interest rates as of December 31,
2000 and December 31, 1999. Commercial had no derivative financial instruments,
or trading portfolio, as of that date. The expected maturity date values for
loans receivable, mortgage-backed securities and investment securities were
calculated without adjusting the instrument's contractual maturity date for
expectations of prepayments. Expected maturity date values for interest-bearing
core deposits were not based upon estimates of the period over which the
deposits would be outstanding, but rather the opportunity for repricing.


<PAGE>   16

Principal/notional amount as of December 31, 2000 maturing in:

<TABLE>
<CAPTION>
                                                                                                                      Fair
                                           2001       2002       2003       2004       2005   Thereafter    Total     Value
----------------------------------------------------------------------------------------------------------------------------
                                                                        (In thousands)
<S>                                     <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>
RATE SENSITIVE ASSETS
Federal funds sold and other
     interest-bearing deposits          $  1,184    $     -    $     -    $     -    $     -    $     -    $1,184     $ 1,184
     Average interest rate                 3.98%          -          -          -          -          -      3.98%
Fixed interest rate securities             5,680      5,335      5,765      5,085      2,845      2,720     27,430     27,779
     Average interest rate                 5.93%      6.34%      6.24%      6.89%      7.16%      7.55%      6.54%
FHLB stock                                 1,391          -          -          -          -          -      1,391      1,391
     Average interest rate                 8.50%          -          -          -          -          -      8.50%
Equity investments                           204          -          -          -          -          -        204        353
     Average interest rate                 3.04%          -          -          -          -          -      3.04%
Fixed interest rate loans                 10,360     10,415     19,884     18,615     16,781     21,385     97,440     95,604
     Average interest rate                 7.40%      8.78%      8.66%      8.32%      9.03%      7.91%      8.37%
Variable interest rate loans              24,754      4,028      2,974      3,772      4,453     39,412     79,393     78,909
     Average interest rate                10.22%     10.24%     10.36%     10.50%     10.35%      8.17%      9.23%

RATE SENSITIVE LIABILITIES
Interest-bearing demand                   26,265          -          -          -          -          -     26,265     26,265
     Average interest rate                 1.64%          -          -          -          -          -      1.64%
Savings                                   39,439          -          -          -          -          -     39,439     39,439
     Average interest rate                 2.85%          -          -          -          -          -      2.85%
Time deposits                             53,611     12,630      4,446      1,034        531         51     72,303     72,943
     Average interest rate                 6.22%      6.00%      6.18%      5.68%      5.62%      5.71%      6.17%
Variable interest rate securities sold
     under agreements to repurchase        8,024          -          -          -          -          -      8,024      8,024
     Average interest rate                 5.94%          -          -          -          -          -      5.94%
Variable interest rate U.S.
     Treasury demand notes                 1,070          -          -          -          -          -      1,070      1,070
     Average interest rate                 6.00%          -          -          -          -          -      6.00%
Line of credit                               700          -          -          -          -          -        700        700
     Average interest rate                 8.50%          -          -          -          -          -      8.50%
Fixed interest rate FHLB advances          2,000          -      4,500      1,000      9,000          -     16,500     16,490
     Average interest rate                 6.63%          -      6.22%      7.01%      6.96%          -      6.72%
Variable interest rate FHLB advances       9,000          -          -          -          -      1,000     10,000      9,943
     Average interest rate                 6.30%          -          -          -          -      6.76%      6.35%
</TABLE>


Principal/notional amount as of December 31, 1999 maturing in:

<TABLE>
<CAPTION>
                                           2000        2001       2002       2003       2004   Thereafter    Total     Value
-----------------------------------------------------------------------------------------------------------------------------
                                                                 (In thousands)
<S>                                     <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>
RATE SENSITIVE ASSETS
Federal funds sold and other
     interest-bearing deposits          $  2,978    $     -    $     -    $     -    $     -    $     -    $ 2,978    $ 2,978
     Average interest rate                 4.91%          -          -          -          -          -      4.91%
Fixed interest rate securities             4,530      5,810      4,760      5,690      3,260      2,690     26,740     26,687
     Average interest rate                 6.23%      5.93%      6.25%      6.24%      6.81%      7.50%      6.37%
FHLB stock                                 1,391          -          -          -          -          -      1,391      1,391
     Average interest rate                 8.00%          -          -          -          -          -      8.00%
Fixed interest rate loans                  9,943      7,627     13,496     17,515     15,540     21,581     85,702     84,265
     Average interest rate                 7.71%      8.73%      8.70%      8.33%      8.29%      7.64%      8.17%
Variable interest rate loans              20,856      3,288      4,637      2,101      6,940     28,943     66,765     66,388
     Average interest rate                 9.27%      9.40%      9.22%      9.27%      9.42%      7.97%      8.73%

RATE SENSITIVE LIABILITIES
Interest-bearing demand                   26,639          -          -          -          -          -     26,639     26,639
     Average interest rate                 1.69%          -          -          -          -          -      1.69%
Savings                                   41,272          -          -          -          -          -     41,272     41,272
     Average interest rate                 2.65%          -          -          -          -          -      2.65%
Time deposits                             46,764      8,744      2,884      1,424        734        207     60,757     60,866
     Average interest rate                 4.05%      4.55%      4.54%      4.75%      5.08%      4.51%      4.17%
Variable interest rate securities sold
     under agreements to repurchase        4,690          -          -          -          -          -      4,690      4,690
     Average interest rate                 5.22%          -          -          -          -          -      5.22%
Variable interest rate U.S.
     Treasury demand notes                 2,191          -          -          -          -          -      2,191      2,191
     Average interest rate                 4.95%          -          -          -          -          -      4.95%
Fixed interest rate FHLB advances          8,000      1,000          -      1,500          -      1,000     11,500     11,195
     Average interest rate                 5.95%      6.50%          -      5.48%          -      5.35%      5.80%
Variable interest rate FHLB advances       5,000          -          -          -          -          -      5,000      4,998
     Average interest rate                 5.70%          -          -          -          -          -      5.70%
</TABLE>

<PAGE>   17
FORWARD LOOKING STATEMENT

This discussion and analysis of financial condition and results of operations
and other sections of this Annual Report contain forward looking statements that
are based on management's beliefs, assumptions, current expectations, estimates
and projections about the financial services industry, the economy and about
Commercial itself.

Words such as "anticipates", "believes", "estimates", "expects", "forecasts",
"foresee", "intends", "is likely", "plans", "product", "projects", variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") that are
difficult to predict with regard to timing, extent, likelihood and degree of
occurrence. Therefore, actual results and outcomes may materially differ from
what may be expressed or forecasted in such forward-looking statements.

Furthermore, Commercial undertakes no obligation to update, amend or clarify
forward-looking statements, whether as a result of new information, future
events or otherwise. Future Factors include:

-    changes in interest rates and interest rate relationships;

-    demand for products and services;

-    the degree of competition by traditional and non-traditional competitors;

-    changes in banking regulations;

-    changes in tax laws;

-    changes in prices, levies and assessments;

-    the impact of technology, governmental and regulatory policy changes;

-    the outcome of pending and future litigation and contingencies;

-    trends in customer behavior as well as their ability to repay loans; and

-    changes in the national and local economies.

These are representative of the Future Factors that could cause a difference
between an actual outcome and a forward-looking statement.


<PAGE>   18

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the Commercial National
Financial Corporation's consolidated financial statements and related
information appearing in this Annual Report. Management believes that the
consolidated financial statements fairly reflect the form and substance of
transactions and reasonably present Commercial National Financial Corporation's
financial position and results of operations and were prepared in conformity
with generally accepted accounting principles. Management also has included in
Commercial's financial statements, amounts that are based on estimates and
judgments which it believes are reasonable under the circumstances.

Commercial National Financial Corporation maintains a system of internal
controls designed to provide reasonable assurance that all assets are
safeguarded and financial records are reliable for preparing the consolidated
financial statements. Commercial complies with laws and regulations relating to
safety and soundness which are designated by the FDIC and other appropriate
federal banking agencies. The selection and training of qualified personnel and
the establishment and communication of accounting and administrative policies
and procedures are elements of this control system. The effectiveness of
internal controls is monitored by a program of internal audit. Management
recognizes that the cost of a system of internal controls should not exceed the
benefits derived and that there are inherent limitations to be considered in the
potential effectiveness of any system. Management believes that Commercial
National Financial Corporation's system provides the appropriate balance between
costs of controls and the related benefits.

The independent auditors have audited Commercial's consolidated financial
statements in accordance with generally accepted auditing standards and provide
an objective, independent review of the fairness of the reported operating
results and financial position. The Board of Directors of Commercial National
Financial Corporation has an Audit Committee composed of five non-management
Directors. The Committee meets periodically with the internal auditors and the
independent auditors.

Jeffrey S. Barker                               Patrick G. Duffy
President and                                   Executive Vice President and
Chief Executive Officer                         Chief Financial Officer


<PAGE>   19
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION


REPORT OF INDEPENDENT AUDITORS

[CROWE LOGO]


Board of Directors and Shareholders
Commercial National Financial Corporation
Ithaca, Michigan

We have audited the accompanying consolidated balance sheets of Commercial
National Financial Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commercial National
Financial Corporation as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with generally accepted accounting principles.




Crowe, Chizek and Company LLP

South Bend, Indiana
February 1, 2001


<PAGE>   20


                    COMMERCIAL NATIONAL FINANCIAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------

                                                                                                  December 31,
                                                                                            2000                 1999
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                  <C>
ASSETS
Cash and due from banks                                                              $    6,277,528       $    5,690,716
Federal funds sold                                                                          350,000            1,250,000
Other interest bearing deposits                                                             834,493            1,728,377
------------------------------------------------------------------------------------------------------------------------
     Total cash and cash equivalents                                                      7,462,021            8,669,093
Securities available for sale                                                            19,406,526           17,746,753
Securities held to maturity (fair value $ 8,724,848 - 2000, $8,940,714 - 1999)            8,525,623            8,813,986
Federal Home Loan Bank stock, at cost                                                     1,391,300            1,391,300
Gross loans receivable                                                                  176,833,244          152,466,882
Allowance for loan losses                                                                (2,545,363)          (2,792,293)
------------------------------------------------------------------------------------------------------------------------
     Net loans receivable                                                               174,287,881          149,674,589
Premises and equipment, net                                                               2,465,176            2,694,511
Accrued interest receivable and other assets                                              2,347,162            2,031,782
------------------------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                                    $  215,885,689       $  191,022,014
========================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
     Deposits
         Noninterest-bearing                                                         $   19,786,361       $   18,535,251
         Interest-bearing demand                                                         26,264,930           26,639,403
         Savings                                                                         39,439,255           41,271,920
         Time                                                                            72,303,355           60,757,458
------------------------------------------------------------------------------------------------------------------------
              Total deposits                                                            157,793,901          147,204,032
     Securities sold under agreements to repurchase                                       8,023,767            4,689,557
     Other short-term borrowings                                                          1,770,195            2,190,639
     Federal Home Loan Bank advances                                                     26,500,000           16,500,000
     Accrued expenses and other liabilities                                               1,687,744            1,473,253
------------------------------------------------------------------------------------------------------------------------
         Total liabilities                                                              195,775,607          172,057,481

Shareholders' equity
     Common stock and paid-in-capital, no par value-
         5,000,000 shares authorized; shares issued
         and outstanding 2000 - 3,327,225  and 1999 - 3,348,476                          21,617,080           19,946,643
     Retained earnings (deficit)                                                         (1,714,089)            (830,339)
     Accumulated other comprehensive income/(loss), net of tax                              207,091             (151,771)
------------------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                                      20,110,082           18,964,533
------------------------------------------------------------------------------------------------------------------------
              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             $  215,885,689       $  191,022,014
========================================================================================================================
</TABLE>


                             See accompanying notes

<PAGE>   21
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------

                                                                               Years ended December 31,
                                                                     2000               1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>                <C>
Interest and dividend income
     Loans, including fees                                   $    14,520,084     $    12,194,157    $    11,315,309
     Taxable securities                                              940,900           1,017,086            934,747
     Nontaxable securities                                           588,049             642,807            733,098
     Federal funds sold                                               42,602             114,970            325,384
     Federal Home Loan Bank stock dividends                          114,801             111,304            111,409
     Interest on other deposits                                       94,510              35,867             26,339
-------------------------------------------------------------------------------------------------------------------
     Total interest and dividend income                           16,300,946          14,116,191         13,446,286

Interest expense
     Deposits                                                      5,547,894           4,489,658          4,778,263
     Securities sold under agreements to repurchase                  399,902             316,144            295,611
     Federal Home Loan Bank advances                               1,296,623             862,879            789,975
     Other                                                            54,898              31,143             23,704
-------------------------------------------------------------------------------------------------------------------
         Total interest expense                                    7,299,317           5,699,824          5,887,553
-------------------------------------------------------------------------------------------------------------------

NET INTEREST INCOME                                                9,001,629           8,416,367          7,558,733
Provision for loan losses                                            360,000             360,000            360,000
-------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                8,641,629           8,056,367          7,198,733
-------------------------------------------------------------------------------------------------------------------

Noninterest income
     Service charges and fees                                        443,723             469,991            484,521
     Net gains on loan sales                                          82,957             190,250            394,762
     Receivable financing fees                                       237,349             196,516            223,935
     Security gains/(losses)                                            (228)              2,134             12,953
     Other                                                           262,016             240,108            238,734
-------------------------------------------------------------------------------------------------------------------
         Total noninterest income                                  1,025,817           1,098,999          1,354,905
-------------------------------------------------------------------------------------------------------------------

Noninterest expense
     Salaries and employee benefits                                2,957,475           2,748,623          2,557,625
     Occupancy and equipment                                       1,005,865           1,036,857          1,000,482
     FDIC insurance                                                   30,312              22,359             22,047
     Printing, postage and supplies                                  270,787             249,743            247,876
     Professional and outside services                               302,134             310,847            251,417
     Other                                                         1,005,343             979,065            990,640
-------------------------------------------------------------------------------------------------------------------
         Total noninterest expense                                 5,571,916           5,347,494          5,070,087
-------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE                                   4,095,530           3,807,872          3,483,551
Income tax expense                                                 1,193,000           1,077,000            923,537
-------------------------------------------------------------------------------------------------------------------
NET INCOME                                                   $     2,902,530     $     2,730,872    $     2,560,014
===================================================================================================================

Per share information
     Basic earnings                                          $           .87     $           .82    $           .77
     Diluted earnings                                        $           .86     $           .82    $           .76
     Dividends declared                                      $           .54     $           .52    $           .45
</TABLE>

                             See accompanying notes
<PAGE>   22
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
                  Years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                                       Accumulated
                                                                                          Other                 Total
                                                 Common              Retained          Comprehensive        Shareholders'
                                             Stock and Paid          Earnings         Income/(Loss),           Equity
                                               In Capital            (Deficit)          Net of Tax
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>                <C>                 <C>
BALANCE AT JANUARY 1, 1998                   $   16,231,861      $    647,697       $       3,584       $    16,883,142
Comprehensive income:
     Net income                                                     2,560,014                                 2,560,014
     Net change in net unrealized gains
       (losses) on securities available
       for sale                                                                           224,371               224,371
     Reclassification adjustment for
       (gains) losses recognized
       in income                                                                          (12,953)              (12,953)
     Tax effects                                                                          (71,883)              (71,883)
                                                                                          -----------------------------
       Total comprehensive income                                                                             2,699,549
                                                                                                        ---------------

Cash dividends declared, $0.45 per share                           (1,476,518)                               (1,476,518)
Payment of 5% stock dividend                      1,735,374        (1,739,676)                                   (4,302)
Issued under dividend reinvestment program          548,186                                                     548,186
Issued under stock option plans                     122,357                                                     122,357
Repurchase and retirement of 99,215 shares       (1,112,312)                                                 (1,112,312)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                     17,525,466            (8,483)            143,119            17,660,102
Comprehensive income:
     Net income                                                     2,730,872                                 2,730,872
     Net change in  unrealized gains
       (losses) on securities available
       for sale                                                                          (444,669)             (444,669)
     Reclassification adjustment for
       (gains) losses recognized in income                                                 (2,134)               (2,134)
     Tax effects                                                                          151,913               151,913
                                                                                          -----------------------------
       Total comprehensive income                                                                             2,435,982
                                                                                                        ---------------

Cash dividends declared, $0.52 per share                           (1,730,356)                               (1,730,356)
Payment of 5% stock dividend                      1,820,762        (1,822,372)                                   (1,610)
Issued under dividend reinvestment program          688,001                                                     688,001
Issued under stock option plans                     159,062                                                     159,062
Issued under employee benefit plan                   41,795                                                      41,795
Repurchase and retirement of 24,085 shares         (288,443)                                                   (288,443)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                     19,946,643          (830,339)           (151,771)           18,964,533
COMPREHENSIVE INCOME:
     NET INCOME                                                     2,902,530                                 2,902,530
     NET CHANGE IN UNREALIZED GAINS
       (LOSSES) ON SECURITIES AVAILABLE
       FOR SALE                                                                           543,502               543,502
     RECLASSIFICATION ADJUSTMENT FOR
       (GAINS) LOSSES RECOGNIZED IN INCOME                                                    228                   228
     TAX EFFECTS                                                                         (184,868)             (184,868)
                                                                                         ------------------------------
       TOTAL COMPREHENSIVE INCOME                                                                             3,261,392
                                                                                                        ---------------

CASH DIVIDENDS DECLARED, $0.54 PER SHARE                           (1,805,059)                               (1,805,059)
PAYMENT OF 5% STOCK DIVIDEND                      1,979,594        (1,981,221)                                   (1,627)
ISSUED UNDER DIVIDEND REINVESTMENT PROGRAM          570,704                                                     570,704
ISSUED UNDER STOCK OPTION PLANS                      41,643                                                      41,643
ISSUED UNDER EMPLOYEE BENEFIT PLAN                   66,032                                                      66,032
REPURCHASE AND RETIREMENT OF 79,258 SHARES         (987,536)                                                   (987,536)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                 $   21,617,080      $ (1,714,089)      $     207,091       $    20,110,082
=======================================================================================================================
</TABLE>

                             See accompanying notes


<PAGE>   23

                    COMMERCIAL NATIONAL FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
                  Years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                           2000                1999             1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                   $      2,902,530    $     2,730,872     $   2,560,014
     Adjustments to reconcile net income to net
       cash from operating activities
         Provision for loan losses                                         360,000            360,000           360,000
         Depreciation, amortization and accretion                          565,347            751,785           728,296
         (Gain) /loss on sales of securities available for sale                228             (2,134)          (12,953)
         Net gain on loan sales                                            (82,957)          (190,250)         (394,762)
         Originations of loans held for sale                            (4,087,779)        (8,335,645)      (17,200,058)
         Proceeds from sales of loans held for sale                      4,307,736          9,197,895        17,176,070
         Accrued interest receivable and other assets                     (458,670)          (375,870)         (129,818)
         Accrued expenses and other liabilities                            196,092           (818,242)          490,275
-----------------------------------------------------------------------------------------------------------------------
                 Net cash from operating activities                      3,702,527          3,318,411         3,577,064
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchases of securities available for sale                         (5,016,284)        (8,656,075)      (15,729,554)
     Purchases of securities held to maturity                             (552,142)                 -                 -
     Proceeds from maturities of securities available for sale           3,675,000          7,149,999         7,012,953
     Proceeds from maturities of securities held to maturity               855,000          3,196,600         8,385,000
     Proceeds from sales of securities available for sale                  200,000            500,664                 -
     Net change in loans                                               (25,161,003)       (17,196,144)      (11,187,193)
     Purchases of premises and equipment, net                             (316,361)          (508,423)         (180,560)
-----------------------------------------------------------------------------------------------------------------------
                 Net cash from investing activities                    (26,315,790)       (15,513,379)      (11,699,354)
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net change in deposits                                             10,589,869          6,029,335         7,227,806
     Net change in securities sold under agreements to repurchase        3,334,210         (2,275,501)        2,813,214
     Net change in U.S. Treasury demand notes                           (1,120,444)           637,642        (1,200,489)
     Proceeds from line of credit                                          700,000                  -                 -
     Proceeds from Federal Home Loan Bank advances                      36,000,000         24,000,000        10,500,000
     Repayment of Federal Home Loan Bank advances                      (26,000,000)       (19,000,000)      (12,000,000)
     Dividends paid and fractional shares                               (1,786,660)        (1,681,648)       (1,397,768)
     Proceeds from sale of common stock                                    676,752            887,248           670,543
     Repurchase and retirement of shares of common stock                  (987,536)          (288,443)       (1,112,312)
-----------------------------------------------------------------------------------------------------------------------
                 Net cash from financing activities                     21,406,191          8,308,633         5,500,994
-----------------------------------------------------------------------------------------------------------------------

Net change in cash and cash equivalents                                 (1,207,072)        (3,886,335)       (2,621,296)

Cash and cash equivalents at beginning of year                           8,669,093         12,555,428        15,176,724
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                          $      7,462,021    $     8,669,093     $  12,555,428
=======================================================================================================================

Cash paid during the year for
     Interest                                                     $      7,114,180    $     5,713,615     $   5,937,086
     Federal income taxes                                                1,096,640          1,506,000           740,000
</TABLE>

                             See accompanying notes


<PAGE>   24


                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Commercial National Financial
Corporation (the Corporation) and its wholly-owned subsidiary, Commercial Bank
(the Bank) (together referred to as Commercial), conform to generally accepted
accounting principles and to general practice within the banking industry. The
following describes the significant accounting and reporting policies which are
employed in the preparation of the consolidated financial statements.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Corporation, the Bank and CNFC Financial Services Inc., a
wholly-owned subsidiary of the Bank. Intercompany accounts and transactions are
eliminated in consolidation.

NATURE OF OPERATIONS, BUSINESS SEGMENTS AND CONCENTRATIONS OF CREDIT RISK The
Corporation is a one-bank holding company which conducts limited business
activities. The Bank performs the majority of business activities.

The Bank provides a full range of banking services to individuals, agricultural
businesses, commercial businesses and light industries located in its service
area. It 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 products, including checking, savings,
money market, individual retirement accounts and certificates of deposit. While
the Corporation's chief decision makers monitor the revenue stream of various
products and services, operations are managed and financial performance is
evaluated on a Corporation-wide basis. Accordingly, all of Commercial's banking
operations are considered by management to be aggregated into one operating
segment.

The principal markets for the Bank's financial services are the Michigan
communities in which the Bank is located and the areas immediately surrounding
these communities. The Bank serves these markets through seven offices located
in Gratiot and Montcalm Counties in Michigan.

USE OF ESTIMATES To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses and fair values of
securities and other financial instruments are particularly subject to change.

CASH FLOW REPORTING Cash and cash equivalents include cash on hand, demand
deposits with other financial institutions and federal funds sold. Cash flows
are reported, net, for customer loan and deposit transactions, securities sold
under agreements to repurchase with original maturities of 90 days or less and
U.S. Treasury demand notes.

SECURITIES Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with net unrealized holding gains and losses reported in other comprehensive
income. Trading securities are reported at fair value with unrealized gains and
losses included in income. Other securities such as Federal Home Loan Bank Stock
are carried at cost.

Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest and dividend income, includes amortization of
purchase premiums and discounts. Securities are written down to fair value when
a decline in fair value is not temporary.

LOANS HELD FOR SALE Loans held for sale are reported at the lower of cost or
market value in the aggregate. Net unrealized losses are recorded in a valuation
allowance by charges to income.

LOANS Loans that management has the intent and the ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Interest income is reported on the


<PAGE>   25

                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

interest method and includes amortization of net deferred loan fees and costs
over the loan term.

Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days, unless the loan is both well secured
and in the process of collection. Payments received on such loans are reported
as principal reductions.

ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance
for probable credit losses, increased by the provision for loan losses and
decreased by charge-offs less recoveries. Management estimates the allowance
balance using past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is
confirmed.

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage and consumer loans and on an individual loan basis
for other loans. If a loan is impaired, a portion of the allowance is allocated
so that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.

PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using a combination of
straight-line and accelerated methods with useful lives ranging from 10 to 40
years for buildings and improvements, and 3 to 10 years for furniture and
equipment. These assets are reviewed for impairment when events indicate their
carrying amount may not be recoverable from future undiscounted cash flows.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur. Major improvements are capitalized.

SERVICING RIGHTS Servicing rights represent both purchased rights and the
allocated value of servicing rights retained on loans sold. Servicing rights are
expensed in proportion to, and over the period of, estimated net servicing
revenues.

Impairment is evaluated based on the fair value of the rights, using groupings
of the underlying loans as to interest rates and then, secondarily, as to
geographic and prepayment characteristics. Any impairment of a grouping is
reported as a valuation allowance.

OTHER REAL ESTATE OWNED Real estate properties acquired in collection of a loan
receivable are recorded at fair value at acquisition. Any reduction to fair
value from the carrying value of the related loan is accounted for as a loan
loss. After acquisition, a valuation allowance reduces the reported amount to
the lower of the initial amount or fair value less costs to sell. Expenses,
gains and losses on disposition, and changes in the valuation allowance are
reported in other expense. Other real estate owned amounted to $42,000 and $0 at
December 31, 2000 and 1999.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE All of these liabilities
represent amounts advanced by various customers and are secured by securities
owned, as they are not covered by general deposit insurance.

EMPLOYEE BENEFITS A benefit plan with 401(k) features cover substantially all
employees. The plan allows participant compensation deferrals. The amount of any
matching contribution is based solely on the discretion of the board of
directors. Historically, Commercial has matched up to 6% of such deferrals at
100%.

STOCK COMPENSATION Expense for employee compensation under stock option plans is
reported only if options are granted below market price at grant date. Proforma
disclosures of net income and earnings per share are provided as if the option's
fair value had been recorded using an option pricing model.




<PAGE>   26

                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

INCOME TAXES Income tax expense is the sum of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

EARNINGS AND DIVIDENDS PER SHARE Basic earnings per common share is based on net
income divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share shows the dilutive effect
of any additional potential common shares. Earnings and dividends per common
share are restated for all stock splits and stock dividends, including the 5%
stock dividends paid in November 2000, 1999, and 1998 and the 3 for 1 stock
split recorded in September 1999.

STOCK DIVIDENDS Dividends issued in stock are reported by transferring the
market value of the stock issued from retained earnings to common stock and
additional paid-in capital. Fractional shares are paid in cash for all stock
dividends.

COMPREHENSIVE INCOME Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in
unrealized appreciation (depreciation) on securities available for sale, net of
tax, which is also recognized as a separate component of shareholders' equity.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans and
standby letters of credit issued to meet customer needs. The face amount for
these items represents the exposure to loss before considering customer
collateral or ability to repay. Such financial instruments are recorded when
they are funded.

FAIR VALUES OF FINANCIAL INSTRUMENTS Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates. The fair value estimates of existing on- and off-balance sheet
financial instruments does not include the value of anticipated future business
or values of assets and liabilities not considered financial instruments.

RECLASSIFICATIONS Some items in the prior year financial statements have been
reclassified to conform with the current year presentation.

NEW ACCOUNTING PRONOUNCEMENTS Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded a fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. Adoption of this
standard on January 1, 2001 did not have a material effect on CNFC's financial
condition or results of operations.


<PAGE>   27

                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------


NOTE 2 - SECURITIES


The amortized cost and fair value of securities are as follows:

<TABLE>
<CAPTION>
                                                                    GROSS                  GROSS
                                             AMORTIZED           UNREALIZED             UNREALIZED            FAIR
AVAILABLE FOR SALE                             COST                 GAINS                 LOSSES              VALUE
------------------------------------------------------------------------------------------------------------------------
                                                              DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                   <C>                   <C>
U.S. TREASURIES AND GOVERNMENT AGENCIES $  13,993,485         $     149,917         $     (24,868)        $  14,118,534
STATE AND MUNICIPALS                        3,393,079                45,719                  (794)            3,438,004
CORPORATE AND OTHER                         1,706,187               148,163                (4,362)            1,849,988
------------------------------------------------------------------------------------------------------------------------
   TOTAL                                $  19,092,751         $     343,799         $     (30,024)        $  19,406,526
========================================================================================================================

<CAPTION>
                                                              December 31, 1999
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                   <C>                   <C>
U.S. Treasuries and government agencies $  13,586,123         $         100         $   (179,535)         $  13,406,688
State and municipals                        2,885,041                   474              (27,950)             2,857,565
Corporate                                   1,505,544                     -              (23,044)             1,482,500
------------------------------------------------------------------------------------------------------------------------
   Total                                $  17,976,708         $         574         $   (230,529)         $  17,746,753
========================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                    GROSS                  GROSS
                                             AMORTIZED           UNREALIZED             UNREALIZED            FAIR
HELD TO MATURITY                               COST                 GAINS                 LOSSES              VALUE
------------------------------------------------------------------------------------------------------------------------
                                                              DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                   <C>                   <C>
STATE AND MUNICIPALS                    $   8,525,623         $     199,225         $           -         $   8,724,848
========================================================================================================================

<CAPTION>

                                                              December 31, 1999
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                   <C>                   <C>
State and municipals                    $   8,813,986         $     129,632         $     (2,904)         $   8,940,714
========================================================================================================================
</TABLE>

The amortized cost and fair value of debt securities at year-end 2000, by
contractual maturity are shown below.

<TABLE>
<CAPTION>
                                           Available for Sale                     Held to Maturity
----------------------------------------------------------------------------------------------------------
                                      Amortized            Fair                Amortized         Fair
                                        Cost               Value                 Cost            Value
----------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                    <C>              <C>
Due in one year or less          $    5,876,500      $   6,015,267          $   1,110,566    $   1,114,488
Due from one to five years           11,671,644         11,811,961              6,219,222        6,354,025
Due from five to ten years            1,544,607          1,579,298              1,195,835        1,256,335
----------------------------------------------------------------------------------------------------------
   Total                         $   19,092,751      $  19,406,526          $   8,525,623    $   8,724,848
==========================================================================================================
</TABLE>


There was one security sale during 2000 and 1999 and no sales of securities
during 1998.

In addition to Federal Home Loan Bank (FHLB) stock, securities having an
amortized cost of approximately $16,479,000 and $16,273,000 at year-end 2000 and
1999 were pledged to secure FHLB advances, public deposits, securities sold
under agreements to repurchase and U.S. Treasury demand notes.


<PAGE>   28
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

Except as indicated, total securities of any state (including all its political
subdivisions) were less than 10% of shareholders' equity. At year-end 2000 and
1999, the amortized cost of securities issued by the state of Michigan and all
its political subdivisions totaled $9,269,000 and $8,947,000 with an estimated
market value of $9,457,000 and $9,052,000.

NOTE 3 - LOANS RECEIVABLE

Year-end loans receivable are as follows:

<TABLE>
<CAPTION>
                                       2000             1999
-----------------------------------------------------------------
<S>                               <C>              <C>
Real estate
   Secured by single family
      residential properties      $  57,944,647    $  47,084,838
   Secured by non-farm
      nonresidential properties      54,681,493       48,561,801
   Secured by farmland                2,734,550        3,858,865
   Secured by multi-family
      residential properties          6,781,837        6,002,469
Construction/land development        19,318,470       16,144,849
Installment loans                     7,709,801        9,120,976
Commercial                           27,662,446       21,693,084
-----------------------------------------------------------------
Gross loans receivable              176,833,244      152,466,882
Allowance for loan losses            (2,545,363)      (2,792,293)
-----------------------------------------------------------------
   Net loans receivable           $ 174,287,881    $ 149,674,589
=================================================================
</TABLE>

Loans held for sale, included in real estate secured by single family
residential properties, were $0 and $137,000 at year-end 2000 and 1999.

Certain directors and executive officers, including associates of such persons,
were loan customers of Commercial during 2000 and 1999. A summary of aggregate
related party loan activity for loans aggregating $60,000 or more to any related
party is as follows:

<TABLE>
<CAPTION>
                                    2000            1999
-----------------------------------------------------------
<S>                            <C>           <C>
Balance at beginning of year   $ 6,679,000   $    4,178,000
New loans                        9,574,000       25,484,000
Repayments                      (8,737,000)     (23,034,000)
Other changes, net                 (30,000)          51,000
-----------------------------------------------------------
Balance at end of year         $ 7,486,000   $    6,679,000
===========================================================
</TABLE>

Other changes include adjustments for persons included in one reporting period
that are not reported in the other reporting period.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
                          2000         1999         1998
----------------------------------------------------------------
<S>                   <C>            <C>            <C>
Beginning balance     $ 2,792,293    $ 2,343,976    $ 2,063,668

Loan charge-offs         (689,892)       (28,614)      (171,467)
Loan recoveries            82,962        116,931         91,775
----------------------------------------------------------------
Net loan recoveries
  (charge-offs)          (606,930)        88,317        (79,692)
Provision for loan
  losses                  360,000        360,000        360,000
----------------------------------------------------------------
Ending balance        $ 2,545,363    $ 2,792,293    $ 2,343,976
================================================================
</TABLE>

Impaired loans were as follows:

<TABLE>
<CAPTION>
                                    2000          1999
--------------------------------------------------------
<S>                                 <C>        <C>
Year-end loans with allowance for
   loan losses allocated            $242,924   $988,984
Year-end loans with no allowance
   for loan losses allocated            --         --
--------------------------------------------------------
Total impaired loans                $242,924   $988,984
========================================================
</TABLE>
<PAGE>   29
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

Additional information regarding impaired loans is as follows:

<TABLE>
<CAPTION>
                                       2000          1999
-------------------------------------------------------------
<S>                                  <C>         <C>
Amount of the allowance allocated    $  1,200    $   195,341
Average balance of impaired loans
   during the year                    909,387        555,446
Interest income recognized during
   impairment                               -          1,000
Cash-basis interest income
   recognized                               -              -
</TABLE>

<TABLE>
<CAPTION>
                                              December 31,
                                           2000         1999
---------------------------------------------------------------
<S>                                       <C>         <C>
Non-accrual loans                         $354,214    $962,989
Accruing loans past due 90 days or more          -      14,382
Restructured loans                               -           -
---------------------------------------------------------------
    Total non-performing loans            $354,214    $977,371
===============================================================
Total non-performing loans
    as a percentage of total loans             .20%        .65%
===============================================================
</TABLE>

NOTE 5 - LOAN SERVICING

Mortgage loans serviced for others are not reported as assets. These loans
totaled $39,823,000 and $39,459,000 at year-end 2000 and 1999. Related escrow
deposit balances were approximately $(28,000) and $(11,000).

NOTE 6 - PREMISES AND EQUIPMENT, NET

Year-end premises and equipment consist of:

<TABLE>
<CAPTION>
                                     2000            1999
-------------------------------------------------------------
<S>                            <C>              <C>
Land                           $    310,689     $    310,689
Buildings and improvements        2,654,763        2,698,154
Equipment                         2,519,155        2,702,569
-------------------------------------------------------------
   Total cost                     5,484,607        5,711,412
Less accumulated depreciation    (3,019,431)      (3,016,901)
-------------------------------------------------------------
   Net premises and equipment  $  2,465,176     $  2,694,511
=============================================================
</TABLE>

Depreciation expense was $545,696, $603,482, and $578,045 in 2000, 1999 and
1998.

NOTE 7 - DEPOSITS

At year-end 2000, stated maturities of time deposits were as follows, for the
years ending December 31:

<TABLE>
<S>                                     <C>
2001                                    $    53,611,055
2002                                         12,630,301
2003                                          4,445,916
2004                                          1,033,809
2005                                            530,851
Thereafter                                       51,423
--------------------------------------------------------
   Total time deposits                  $    72,303,355
========================================================
</TABLE>

Time deposits in denominations of $100,000 or more were $26,711,000 and
$18,135,000 at year-end 2000 and 1999.

At year-end 2000, stated maturities of time deposits in denominations of
$100,000 or more were as follows:

<TABLE>
<S>                                    <C>
In 3 months or less                    $   11,300,000
Over 3 through 6 months                     5,649,000
Over 6 through 12 months                    7,594,000
Over 12 months                              2,168,000
------------------------------------------------------
  Total time deposits > $100,000       $   26,711,000
======================================================
</TABLE>

Related party deposits were $1,408,000 and $1,298,000 at year-end 2000 and 1999.


<PAGE>   30
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------


NOTE 8 - BORROWINGS

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Information concerning securities sold under agreements to repurchase is
summarized as follows:

<TABLE>
<CAPTION>
                                 2000          1999
------------------------------------------------------
<S>                          <C>           <C>
Amount outstanding at
   year-end                  $8,023,767    $4,689,557
Weighted average interest
   rate at year-end                5.90%         5.30%
Average daily balance
   during the year           $6,727,021    $6,649,185
Weighted average interest
   rate during the year            5.95%         4.75%
Maximum month end
   balance during the year   $8,529,185    $8,714,646
</TABLE>

FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances totaled $26,500,000 and $16,500,000 at
year-end 2000 and 1999. A majority of the advances have fixed interest rates
ranging from 5.04% to 7.31% at December 31, 2000 and 5.04% to 6.66% at December
31, 1999.

Pursuant to collateral agreements with the Federal Home Loan Bank, in addition
to Federal Home Loan Bank stock, advances are secured under a blanket lien
arrangement by qualified 1-to-4 family mortgage loans, qualified multi-family
loans and U.S. Government agency securities with a carrying value of
approximately $56,727,000 and $40,548,000 at year-end 2000 and 1999.

At year-end 2000, scheduled principal reductions on these advances were as
follows for the years ending December 31:

<TABLE>
<S>                                      <C>
2001                                     $   12,407,449
2002                                          1,319,158
2003                                          5,728,132
2004                                          1,606,634
2005                                          4,438,627
Thereafter                                    1,000,000
--------------------------------------------------------
    Total FHLB advances                  $   26,500,000
========================================================
</TABLE>

OTHER SHORT-TERM BORROWINGS
During 2000, CNFC established a $1.5 million line of credit with a correspondent
bank. The interest rate is LIBOR plus 1.75% and is fixed for periods of one, two
or three months, generally determined at the option of the borrower. The line of
credit is available for a period of 1 year. At December 31, 2000, $700,000 was
outstanding on the line.

NOTE 9 - EMPLOYEE BENEFITS

EMPLOYEE BENEFIT PLAN Commercial's employee benefit plan allows participants to
defer up to 15% of their compensation. Commercial's annual contribution to the
plan is based solely on the discretion of the board of directors. Historically,
Commercial has matched 100% of the elective deferrals on the first 6% of the
participant's compensation. Employee and employer contributions are vested
immediately. The plan covers substantially all employees.

Employer expense associated with funding the 401(k) plan was approximately
$108,000, $102,000, and $86,000 in 2000, 1999, and 1998.

STOCK OPTION PLAN SFAS No. 123, Accounting for Stock-Based Compensation requires
proforma disclosures for companies that do not adopt its fair value accounting
method for stock-based employee compensation. The following proforma information
presents net income and basic and diluted earnings per share had the fair value
method been used to measure compensation cost for stock option plans. The
exercise price of options granted is equivalent to the market value of
underlying stock at the grant date. No compensation cost was actually recognized
for stock options.


<PAGE>   31
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------


The fair value of options granted during 2000, 1999, and 1998 is estimated using
the following weighted-average information:

<TABLE>
<CAPTION>
                           2000         1999       1998
---------------------------------------------------------
<S>                       <C>          <C>        <C>
Risk-free interest rate    5.75%        6.20%      4.52%
Expected life in years     4.6          5.0        5.4
Expected dividends         4.67%        4.00%      4.00%
Stock price volatility    22.83%       10.00%     nominal
</TABLE>

<TABLE>
<CAPTION>
                                  2000         1999          1998
-----------------------------------------------------------------------
<S>                        <C>            <C>            <C>
Net income as reported     $   2,902,530  $  2,730,872   $   2,560,014
Proforma net income            2,872,694     2,721,097       2,528,496

Basic earnings per share
   as reported             $         .87  $        .82  $          .77
Proforma basic earnings
   per share               $         .86  $        .82  $          .76
Diluted earnings per
   share as reported       $         .86  $        .82  $          .76
Proforma diluted
   earnings per share      $         .85  $        .82  $          .75
</TABLE>

Stock option plans are used to reward employees and provide them with an
additional equity interest. Options granted to employees are issued for 7 year
periods, with vesting occurring over a 5 year period. Options granted to
directors are issued for 2 year periods with vesting occurring after 6 months.
At year-end 2000, no shares were authorized for future grants as the current
plan expired at December 31, 2000. Information about option grants follows.

<TABLE>
<CAPTION>
                                 Number       Weighted Average
                               of Options      Exercise Price
--------------------------------------------------------------
<S>                            <C>            <C>
Outstanding, beginning of 1998   59,432        $   7.28
   Granted                       32,821           11.03
   Exercised                    (16,338)           7.41
-------------------------------------------------------
Outstanding, end of 1998         75,915            8.88
   Granted                       35,412           11.18
   Exercised                    (16,928)           9.36
-------------------------------------------------------
OUTSTANDING, END OF 1999         94,399            9.65
   GRANTED                       41,240           12.62
   EXERCISED                     (4,303)           9.55
-------------------------------------------------------
OUTSTANDING, END OF 2000        131,336        $  10.59
=======================================================
</TABLE>

The weighted-average fair value of options granted in 2000, 1999, and 1998 was
$2.34, $.95, and $.96. At year-end 2000, options outstanding had a
weighted-average remaining life of 4.5 years and a range of exercise price from
$6.21 to $12.62.

Options exerciseable at year-end are as follows:

<TABLE>
<CAPTION>
                          Number       Weighted Average
                        of Options      Exercise Price
-------------------------------------------------------
<S>                    <C>             <C>
            1998          51,629          $     7.87
            1999          47,847          $     8.23
            2000          63,398          $     9.27
</TABLE>

NOTE 10 - FEDERAL INCOME TAXES

Income tax expense consists of:
<TABLE>
<CAPTION>
                2000           1999            1998
------------------------------------------------------
<S>        <C>             <C>            <C>
Current    $ 1,189,185     $ 1,238,086    $ 1,029,420
Deferred         3,815        (161,086)      (105,883)
------------------------------------------------------
           $ 1,193,000     $ 1,077,000    $   923,537
======================================================
</TABLE>

Income tax expense calculated at the statutory federal income tax rate of 34%
differs from actual income tax expense as follows:

<TABLE>
<CAPTION>
                                2000            1999           1998
-----------------------------------------------------------------------
<S>                          <C>            <C>            <C>
Statutory rates              $ 1,393,000    $ 1,295,000    $ 1,184,000
Increase (decrease) from
Tax-exempt interest income      (213,000)      (222,000)      (257,000)
Goodwill amortization               --            1,000          9,000
Other, net                        13,000          3,000        (12,463)
-----------------------------------------------------------------------
                             $ 1,193,000    $ 1,077,000    $   923,537
=======================================================================
</TABLE>


<PAGE>   32
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

Year-end deferred tax assets and liabilities consist of:

<TABLE>
<CAPTION>
                                     2000          1999
----------------------------------------------------------
<S>                               <C>           <C>
Allowance for loan losses         $  490,000    $ 544,000
Accumulated depreciation            (117,000)    (174,000)
Mortgage servicing rights            (46,000)     (53,000)

Net unrealized gain (loss) on
   securities available for sale    (107,000)      78,185
Other                                (21,000)      (7,185)
----------------------------------------------------------
                                     199,000      388,000
Valuation allowance                     --           --
----------------------------------------------------------
Net deferred tax asset $             199,000    $ 388,000
==========================================================
</TABLE>


NOTE 11 - EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic earnings per
share and diluted earnings per share computations for the years ended is
presented below:

<TABLE>
<CAPTION>
                                          2000         1999         1998
---------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>
BASIC EARNINGS PER SHARE:
Net income available to
   common shareholders                 $2,902,530   $2,730,872   $2,560,014
===========================================================================

Weighted-average common
   shares outstanding for
   basic earnings per share             3,344,388    3,326,004    3,333,335
===========================================================================

BASIC EARNINGS PER SHARE               $      .87   $      .82   $      .77
===========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                          2000         1999         1998
---------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>
DILUTED EARNINGS PER SHARE:
Net income available to
   common shareholders                 $2,902,530   $2,730,872   $2,560,014
===========================================================================

Weighted-average common
   shares outstanding for
   basic earnings per share             3,344,388    3,326,004    3,333,335

Add:
Dilutive effect of assumed exercise
   of stock options                        17,310       13,701       16,537
---------------------------------------------------------------------------

Weighted-average common
   and dilutive additional potential
   common shares  outstanding           3,361,698    3,339,705    3,349,872
===========================================================================

Diluted earnings per share             $      .86   $      .82   $      .76
===========================================================================
</TABLE>


NOTE 12 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES

There are various contingent liabilities that are not reflected in the
consolidated financial statements, including claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material effect on Commercial's financial condition or
results of operations.


CASH RESERVE AND CLEARING BALANCES
At year-end 2000 and 1999, cash reserve and clearing balance requirements of
$1,087,000 and $1,112,000 were required as deposits with the Federal Reserve or
as cash on hand. These balances do not earn interest.

LOAN COMMITMENTS
Commercial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans, unused lines of credit
and standby letters of credit. Exposure to credit loss in the event of
non-performance by the other party to financial instruments for commitments to
make loans, unused lines of


<PAGE>   33
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

credit and standby letters of credit is represented by the contractual amount of
those instruments. Commercial follows the same credit policy to make such
commitments as it uses for on-balance-sheet items.

Since many commitments to make loans expire without being used, the amount of
commitments shown below do not necessarily represent future cash commitments. No
losses are anticipated as a result of these transactions. Collateral obtained
upon exercise of commitments is determined using management's credit evaluation
of the borrowers and may include real estate, business assets, deposits and
other items.

Commitments at year-end are as follows:

<TABLE>
<CAPTION>
                                     2000           1999
-----------------------------------------------------------
<S>                           <C>              <C>
Commitments to extend credit  $  19,256,000    $ 23,852,000
Standby letters of credit           200,000         720,000
-----------------------------------------------------------
   Total commitments          $  19,456,000    $ 24,572,000
===========================================================
</TABLE>

At December 31, 2000, fixed and variable interest rate commitments were
$3,329,000 and $16,127,000. Fixed rate commitments interest rates and terms
ranged from 7.85% to 16.2% and one year to seven years.

NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate fair values for
financial instruments:

-    Carrying amount is considered to estimate fair value for cash and cash
     equivalents, Federal Home Loan Bank (FHLB) stock, demand and savings
     deposits, securities sold under agreements to repurchase, other short term
     borrowings, accrued interest receivable, accrued interest payable, and
     variable rate loans or deposits that reprice frequently and fully.
-    Securities fair values are based on quoted market prices or, if no quotes
     are available, on the rate and term of the security and on information
     about the issuer.
-    Fixed rate loans and deposits, and variable rate loans and deposits with
     infrequent repricing or repricing limits, is estimated using discounted
     cash flow analyses or underlying collateral values, where applicable.
-    Fair value of Federal Home Loan Bank advances is based on currently
     available rates for similar financing.
-    Fair value of other financial instruments and off-balance-sheet items
     approximate cost and are not considered significant to this presentation.

While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that if Commercial had disposed
of such items at December 31, 2000 and 1999, the estimated fair values would
have been achieved. Market values may differ depending on various circumstances
not taken into consideration in this methodology. The estimated fair values at
December 31, 2000 and 1999 should not necessarily be considered to apply at
subsequent dates.


<PAGE>   34
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

Financial instruments at year-end are as follows, in thousands:

<TABLE>
<CAPTION>
                                                                  2000                             1999
------------------------------------------------------------------------------------------------------------------
                                                       CARRYING          FAIR            Carrying          Fair
                                                         VALUE           VALUE             Value           Value
------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>              <C>              <C>
FINANCIAL ASSETS
Cash and cash equivalents                           $     7,462      $     7,462      $    8,669       $     8,669
Securities                                               27,932           28,131          26,561            26,687
FHLB stock                                                1,391            1,391           1,391             1,391
Loans, net of allowance                                 174,288          171,968         149,675           147,861
Accrued interest receivable                               1,555            1,555           1,174             1,174
------------------------------------------------------------------------------------------------------------------
   Total financial assets                           $   212,628      $   210,508      $  187,470       $   185,782
==================================================================================================================

FINANCIAL LIABILITIES
Demand and savings deposits                         $   (85,491)     $   (85,491)     $  (86,447)      $   (86,447)
Time deposits                                           (72,303)         (72,943)        (60,757)          (60,866)
Securities sold under agreements
  to repurchase                                          (8,024)          (8,024)         (4,690)           (4,690)
Other short-term borrowings                              (1,770)          (1,770)         (2,191)           (2,191)
Federal Home Loan Bank advances                         (26,500)         (26,433)        (16,500)          (16,193)
Accrued interest payable                                   (611)            (611)           (426)             (426)
------------------------------------------------------------------------------------------------------------------
   Total financial liabilities                      $  (194,699)     $  (195,272)     $ (171,011)      $  (170,813)
==================================================================================================================
</TABLE>

NOTE 14 - REGULATORY MATTERS

The Corporation and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative and qualitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators about components, risk
weightings, and other factors. The regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial
statements. The prompt corrective action regulations provide five
classifications, including well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. These terms are not used to represent overall financial
condition.

If only adequately capitalized, regulatory approval is required to accept
brokered deposits. If undercapitalized, capital distributions, asset growth and
expansion are limited. Plans for capital restoration are also required. The
Corporation and Bank were categorized as well capitalized at year-end 2000 and
1999.


<PAGE>   35
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------


Actual capital levels (in millions) and minimum required levels were:

<TABLE>
<CAPTION>
                                                                                                 Minimum Required
                                                                                                    To Be Well
                                                                                                    Capitalized
                                                                      Minimum Required             Under Prompt
                                                                         For Capital                Corrective
                                                Actual                Adequacy Purposes         Action Regulations
                                           Amount       Ratio         Amount       Ratio        Amount      Ratio
2000
-----------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>          <C>           <C>         <C>          <C>
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
   CONSOLIDATED                           $   22.0      13.1%        $  13.4       8.0%        $  16.7      10.0%
   BANK                                       18.2      11.4            12.8       8.0            16.0      10.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS)
   CONSOLIDATED                               19.9      11.9             6.7       4.0            10.0       6.0
   BANK                                       16.2      10.1             6.4       4.0             9.6       6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS)
   CONSOLIDATED                               19.9       9.4             8.5       4.0            10.6       5.0
   BANK                                       16.2       7.8             8.3       4.0            10.4       5.0


1999
-----------------------------------------------------------------------------------------------------------------
Total capital (to risk weighted assets)
   Consolidated                           $   21.0      14.3%        $  11.8       8.0%        $  14.7      10.0%
   Bank                                       17.3      12.3            11.3       8.0            14.1      10.0
Tier 1 capital (to risk weighted assets)
   Consolidated                               19.1      13.0             5.9       4.0             8.8       6.0
   Bank                                       15.5      11.0             5.6       4.0             8.5       6.0
Tier 1 capital (to average assets)
   Consolidated                               19.1      10.0             7.7       4.0             9.6       5.0
   Bank                                       15.5       8.2             7.5       4.0             9.4       5.0
</TABLE>

NOTE 15 - PARENT CORPORATION CONDENSED

Commercial's primary source of funds to pay dividends to shareholders is the
dividends received from the Bank. The Bank is subject to certain restrictions on
the amount of dividends it may declare without prior regulatory approval. In
2001, the Bank may distribute to the Corporation, in addition to 2001 net
profits, approximately $3,745,000 in dividends without prior approval from
regulatory agencies. Following are condensed parent only financial statements.



<PAGE>   36
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                       CONDENSED BALANCE SHEETS
                                             December 31,
                                          2000          1999
----------------------------------------------------------------
<S>                                    <C>           <C>
ASSETS
Cash                                   $   485,357   $ 1,025,546
Securities available for sale            1,473,920     1,350,879
Investment in subsidiary                16,348,098    15,379,528
Loans, net                               3,037,233     1,627,729
Other assets                                29,427        35,913
----------------------------------------------------------------
   Total assets                        $21,374,035   $19,419,595
================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable                      $   465,804   $   447,019
Borrowings                                 700,000          --
Other liabilities                           98,149         8,043
Shareholders' equity                    20,110,082    18,964,533
----------------------------------------------------------------
   Total liabilities and
     shareholders' equity              $21,374,035   $19,419,595
================================================================
</TABLE>

<TABLE>
<CAPTION>
                                     CONDENSED STATEMENTS OF INCOME
                                         Years ended December 31,
                                    2000           1999           1998
---------------------------------------------------------------------------
<S>                              <C>            <C>            <C>
Dividends from subsidiary        $ 2,073,000    $ 1,790,000    $ 2,730,000
Interest and fees on loans           146,524        122,530           --
Interest on securities                67,543         50,397         36,495
Loss on sale of security                (228)          --             --
Other income                             163          2,600            500
---------------------------------------------------------------------------
   Total income                    2,287,002      1,965,527      2,766,995
Provision for loan losses               --           30,000           --
Interest expense                       9,754           --             --
Other expense                         72,677         80,983         45,722
---------------------------------------------------------------------------
Income before income taxes
   and equity in undistributed
   net income of subsidiary        2,204,571      1,854,544      2,721,273
Income tax benefit/(expense)         (23,000)        (9,000)         9,000
Equity in undistributed
   (excess distribution)
   net  income of subsidiary         720,959        885,328       (170,259)
---------------------------------------------------------------------------
NET INCOME                       $ 2,902,530    $ 2,730,872    $ 2,560,014
===========================================================================
</TABLE>


<TABLE>
<CAPTION>
                                      CONDENSED STATEMENTS OF CASH FLOWS
                                           Years ended December 31,
                                      2000           1999           1998
-----------------------------------------------------------------------------
<S>                                <C>            <C>            <C>
CASH FLOWS FROM
   OPERATING ACTIVITIES
Net income                         $ 2,902,530    $ 2,730,872    $ 2,560,014
Adjustment:
   Equity in (undistributed net
     income)/excess distribution
      of subsidiary                   (720,959)      (885,328)       170,259
   Provision for loan losses              --           30,000           --
   Amortization                         12,286         22,745         10,350
   Loss on sale of security                228           --             --
   Net change in:
     Other assets                       (3,583)        12,787         (9,943)
     Other liabilities                  43,252          8,400           --
-----------------------------------------------------------------------------
Net cash from
   operating activities              2,233,754      1,919,476      2,730,680
CASH FLOWS FROM
   INVESTING ACTIVITIES
Purchase of securities
   available for sale                 (466,995)      (166,752)    (1,216,495)
Sales/maturities of securities
   available for sale                  500,000           --             --
Net change in loans                 (1,409,504)    (1,657,729)          --
-----------------------------------------------------------------------------
Net cash from investing
   activities                       (1,376,499)    (1,824,481)    (1,216,495)
CASH FLOWS FROM
   FINANCING ACTIVITIES
Borrowings                             700,000           --             --
Dividends and fractional
   shares paid                      (1,786,660)    (1,681,648)    (1,397,768)
Sale of common stock                   676,752        887,248        670,543
Repurchase of common stock            (987,536)      (288,443)    (1,112,312)
-----------------------------------------------------------------------------
   Net cash from
     financing activities           (1,397,444)    (1,082,843)    (1,839,537)
-----------------------------------------------------------------------------

Net change in cash
   and cash equivalents               (540,189)      (987,848)      (325,352)
Cash and cash equivalents
   at the beginning of year          1,025,546      2,013,394      2,338,746
-----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
   AT END OF YEAR                  $   485,357    $ 1,025,546    $ 2,013,394
=============================================================================
</TABLE>

NOTE 16 - DIVIDEND REINVESTMENT PLAN

Commercial established a Dividend Reinvestment Plan for its shareholders in
1992. The Plan permits the issuance of previously authorized and unissued
shares. As of December 31, 2000, 77,678 shares of authorized but unissued common
stock were reserved for Plan requirements.

<PAGE>   37
                    COMMERCIAL NATIONAL FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 17 - STOCK REPURCHASE PLAN

Commercial announced a stock repurchase plan in 1998. The Plan permits the
repurchase of up to 331,143 shares of the Corporation's outstanding shares of
common stock. As of December 31, 2000, Commercial had repurchased and retired
203,414 shares in accordance with the program.

NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

                           Interest          Net Interest            Net              Earnings Per Share
                            Income              Income             Income            Basic           Diluted
------------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>                 <C>               <C>               <C>
------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------
FIRST QUARTER            $ 3,771,644        $ 2,219,515         $   690,449       $   .21           $   .20
SECOND QUARTER             3,946,783          2,217,954             751,767           .22               .22
THIRD QUARTER              4,196,281          2,255,214             731,982           .22               .22
FOURTH QUARTER             4,386,238          2,308,946             728,332           .22               .22

1999
------------------------------------------------------------------------------------------------------------
First Quarter            $ 3,302,712        $ 1,959,859         $   641,938       $   .19           $   .19
Second Quarter             3,454,969          2,067,571             665,999           .20               .20
Third Quarter              3,607,245          2,141,307             677,550           .20               .20
Fourth Quarter             3,751,265          2,247,630             745,385           .23               .23
</TABLE>

<PAGE>   38




COMMON STOCK INFORMATION

Commercial National Financial Corporation common stock is listed on the NASD
Over the Counter Bulletin Board under the symbol CEFC. Several brokers provide a
market for the stock. There were approximately 665 shareholders of record and
3,327,225 common shares outstanding at December 31, 2000.

All prices have been adjusted for the 5% stock dividends issued in November 2000
and November 1999 and the three for one stock split issued in September 1999.

During 2000 and 1999 the price ranges of transactions reported were:

<TABLE>
<CAPTION>
                        Shares              Actual Price
                        Traded                  Range
------------------------------------------------------------
2000                                      Low          High
------------------------------------------------------------
<S>                     <C>             <C>          <C>
FIRST QUARTER           21,300          $ 12.38      $ 14.05
SECOND QUARTER          22,800            11.68        12.86
THIRD QUARTER           36,300            11.91        12.86
FOURTH QUARTER          12,300            10.81        13.50
------------------------------------------------------------
1999
------------------------------------------------------------
First Quarter           28,775          $ 11.19      $ 11.49
Second Quarter          16,207            11.19        11.64
Third Quarter           17,861            11.04        11.33
Fourth Quarter          24,150            10.43        12.86
</TABLE>

DIVIDEND INFORMATION

The holders of Commercial National Financial Corporation common stock are
entitled to dividends when, and if, declared by the Board of Directors of
Commercial out of funds legally available for that purpose. The Board of
Directors does not declare dividends based on any predetermined dividend policy
but has paid regular quarterly cash dividends for the past eleven years.

The following table sets forth the dividends per share declared during 2000 and
1999. The dividends per share have been adjusted for the 5% stock dividends
issued in November 2000 and November 1999 and the three for one stock split
issued in September 1999.

<TABLE>
<CAPTION>
                                           2000      1999
-----------------------------------------------------------
<S>                                      <C>        <C>
  First Quarter                          $   .13    $   .13
  Second Quarter                             .13        .13
  Third Quarter                              .14        .13
  Fourth Quarter                             .14        .13
-----------------------------------------------------------
    Total dividends declared per share   $   .54    $   .52
===========================================================
</TABLE>



<PAGE>   39
                               EXECUTIVE OFFICERS

<TABLE>
<S>                                   <C>
Jeffrey S. Barker                     President and Chief Executive Officer
Patrick G. Duffy                      Executive Vice President - Chief Financial Officer
</TABLE>

                               BOARD OF DIRECTORS

<TABLE>
<S>                                   <C>
Howard D. Poindexter                  Chairperson of the Board, Manager of Poindexter Farms
Richard F. Abbott                     Vice Chairperson of the Board, Retired EVP of the Corporation and Bank
Jefferson P. Arnold                   Attorney, Arnold Law Office
Jeffrey S. Barker                     President and CEO of the Corporation and Bank
Don J. Dewey                          President and Funeral Director, Dewey Funeral Homes, Inc.
Patrick G. Duffy                      Executive Vice President - Chief Financial Officer of the Corporation and Bank
David A. Ferguson                     Member, Chodoka LLC
Kenneth R. Luneack                    President, Ken Luneack Construction, Inc.
Kim C. Newson                         President, Alma Hardware Corporation
Scott E. Sheldon                      Owner, Kernen-Sheldon and Shepherd Insurance Agencies
</TABLE>

                            COMMERCIAL BANK OFFICERS
<TABLE>
<S>                                   <C>
Scott E. Sheldon                      Chairperson of the Board
Kim C. Newson                         Vice Chairperson of the Board
Jeffrey S. Barker                     President and Chief Executive Officer

Patrick G. Duffy                      Executive Vice President - Chief Financial Officer
Andrew P. Shafley                     Senior Vice President - Senior Loan Officer
Daniel E. Raleigh                     Vice President - Marketing and Branch Administration

Kevin D. Collison                     Vice President - Commercial Lending - Ithaca
Thomas D. Cooper                      Vice President - Commercial Lending - Middleton
Jason E. Williams                     Vice President - Commercial Lending - Greenville

Corey S. Bailey                       Assistant Vice President - Consumer Lending - Alma
Janet M. Davison                      Assistant Vice President - Manager/Information Systems
Wendy M. Lombard                      Assistant Vice President - Mortgage Lending - Ithaca
Vicki L. Nelson                       Assistant Vice President - Mortgage Lending - Greenville
Karen M. Taylor                       Assistant Vice President - Mortgage Lending - Alma
Carol L. Vallance                     Assistant Vice President - Customer Relations - Alma

Tamera L. Fisher                      Loan Officer - St. Louis
Kathryn K. Greening                   Loan Officer - Alma
Dawn K. Riley                         Loan Officer - Greenville
Sherry L. Weber                       Loan Officer - Ithaca

Rebecca A. Smith                      Administrative Assistant - Transfer Agent - Ithaca
</TABLE>


<PAGE>   40


                            COMMERCIAL BANK LOCATIONS

<TABLE>
<S>                   <C>                  <C>                  <C>                        <C>                 <C>
ALMA                  ITHACA               POMPEII              GREENVILLE                 ST. LOUIS           MIDDLETON
301 NORTH STATE ST.   101 N. PINE RIVER*   105 E. FULTON ST.    101 NORTH LAFAYETTE ST.*   104 N. MILL ST.*    101 NORTH NEWTON ST.*
Ph. (517) 463-2185    Ph. (517) 875-4144   Ph. (517) 838-2525   Ph. (616) 754-7166         Ph. (517) 681-5738  Ph. (517) 236-7236
Fax (517) 463-5996    Fax (517) 875-4534                        Fax (616) 754-2118         Fax (517) 681-3509  Fax (517) 236-7732

119 WEST CENTER*
Ph. (517) 463-3120

1500 WRIGHT AVE.*
Ph. (517) 463-3901
</TABLE>

* Denotes Bank locations with ATMs on site.

                           DIVIDEND REINVESTMENT PLAN

As a service to its shareholders, Commercial National Financial Corporation
sponsors a Dividend Reinvestment Plan. The Plan allows a shareholder to purchase
this stock without brokerage commissions using dividends. For information about
this plan, contact the Corporation's Transfer Agent.

                                 TRANSFER AGENT

                    Commercial National Financial Corporation
                          Care of Ms. Rebecca A. Smith
                       101 North Pine River, P.O. Box 280
                             Ithaca, Michigan 48847

                             CORPORATE HEADQUARTERS

                              101 North Pine River
                             Ithaca, Michigan 48847
                              Phone (517) 875-4144
                               Fax (517) 875-4534

                                10-K AVAILABILITY

Commercial National's annual report on Form 10-K is available upon written
request without charge from:

                   Commercial National Financial Corporation,
    Care of Mr. Patrick G. Duffy, Executive Vice President - Chief Financial
                                    Officer,
                       101 North Pine River, P.O. Box 280
                             Ithaca, Michigan 48847
                              Phone (517) 875-4144

                                 MARKET MAKERS

<TABLE>
<S>                  <C>                   <C>                      <C>                      <C>                      <C>
WILLIAM KAHL         MARK AGAH             MICHAEL T. SEEKELL       PETER VANDERSCHAAF       CHRISTOPHER TURNER       JAMES CRAWFORD
First Union          Howe Barnes           Robert W. Baird          Stifel, Nicolaus         McDonald & Co.           Raymond James
Securities           Investment Inc.       & Co.                    & Co.
1-800-292-1960       1-800-800-4693        1-800-888-6200           1-800-676-0477           1-800-548-6011           1-800-521-9767
</TABLE>