| UNITED STATES SECURITIES AND EXCHANGECOMMISSION     |
|-----------------------------------------------------|
| WASHINGTON, D. C.  20549                       |
| FORM 10-K                                           |
| Annual Report Pursuant to Section 13 or 15(d) ofthe |
| Securities Exchange Act of 1934                     |

For the fiscalyear ended **December 31,2002**    

Commission filenumber **0-18676**
| **COMMERCIAL NATIONALFINANCIAL CORPORATION**          |
|-------------------------------------------------------|
| (Exact name of registrant as specified in itscharter) |
|                                                  | **     ****PENNSYLVANIA****           ** | **25-1623213** |   |
|                                                  |   (State orother jurisdiction | (I.R.S. Employer Identification No.) |   |
|                                                  | of incorporationor organization) |  |   |

****
| **900Ligonier Street, Latrobe, PA 15650** | **15650**  |
|-------------------------------------------|------------|
| (Address of principalexecutive offices)   | (Zip Code) |

Registrant’s telephone number, including areacode 724-539-3501

Securitiesregistered pursuant to Section 12(b) of the Act:
| **TITLE OFEACH CLASS** | **NAME OFEACH EXCHANGE ON WHICH REGISTERED**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   | **None                                                                                             None** |   |

Securitiesregistered pursuant to Section 12(g) of the Act:

**TITLE OFCLASS**

**Common Stock,$2 Par Value**

        Indicateby check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes    X  No     

Indicate bycheck mark if disclosure of delinquent filers pursuant to Item 405of Regulation S-K is not contained herein, and will not becontained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. ()

Indicate bycheck mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Act).  Yes      No  X 
| Aggregate marketvalue of registrant’s common stock held by     |                       |
|----------------------------------------------------------------------|-----------------------|
| non-affiliatescomputed by reference to price at which the            |                       |
| common stock waslast sold, as of June 28, 2002, the last             |                       |
| business day ofthe registrant’s most recently completed second |                       |   |
| fiscalquarter.                                                       | $51,021,336           |   |
|                                                                      |                       |
| Number of sharesof common stock outstanding at March 24, 2003.       |   3,447,452 |
| **DOCUMENTSINCORPORATED BY REFERENCE** |
|----------------------------------------|

Portions of theregistrant’s proxy statement relating to its 2003 annualmeeting of shareholders to be held on May 20, 2003 are incorporatedby reference into Part III of this Form 10-K.  In addition,portions of the registrant’s Annual Report to Shareholdersfor the fiscal year ended December 31, 2002 are incorporated byreference into Part II of this Form 10-K.

| Commercial National Financial Corporation |
|-------------------------------------------|
|                                           |
| **Form10-K**                              |
|                                           |
| **INDEX**                                 |
|                                           |
| PartI                                     |  | PAGE |
| ITEM1.  | Business                                                      |         |
|---------|---------------------------------------------------------------|---------|
|         | Description of Business...................................... | 3       |
|         | Competition.................................................. | 3       |
|         | Supervision and Regulation................................... | 4       |
|         | Effects ofGovernmental Policies.............................  | 5       |
|         | Employees.................................................... | 5       |
| ITEM2.  | Properties................................................... | 5       |
| ITEM3.  | LegalProceedings ...........................................  | 6       |
| ITEM 4. | Submission ofMatters to a Vote of Security Holders .........  | 6       |
|         |                                                               |         |
| PARTII  |                                                               |         |
| ITEM5.  | Market forRegistrant's Common Stock Equity and Related        |         |
|         | StockholderMatters.........................................   |  6 |
| ITEM6.  | SelectedFinancial Data......................................  |  7 |
| ITEM7.  | Management'sDiscussion and Analysis of Financial              |         |
|         | Condition andResults of Operation..........................   |  7 |
| ITEM7A. | Quantitative andQualitative Disclosures About Market Risk ..  |  7 |
| ITEM8.  | FinancialStatements and Supplementary Data .................  |  7 |
| ITEM9.  | Changes in andDisagreements with Accountants on Accounting    |         |
|         | and FinancialDisclosures ...................................  |  7 |
| PARTIII |                                                               |         |
| ITEM10. | Directors andExecutive Officers of the Registrant ..........  |  8 |
| ITEM11. | ExecutiveCompensation ......................................  |  8 |
| ITEM12. | SecurityOwnership of Certain Beneficial Owners and            |         |
|         | Management..................................................  |  8 |
| ITEM13. | CertainRelationships and Related Transactions ..............  |  8 |
|         |                                                               |         |
| PARTIV  |                                                               |         |
| ITEM14. | Controls andProcedures.....................................   |  8 |
| ITEM15. | Exhibits,Financial Statement Schedules and Reports            |         |
|         | On Form8-K.................................................   |  9 |
|         |                                                               |         |

PartI

Item 1. BUSINESS

Descriptionof Business

CommercialNational Financial Corporation (the Corporation) is a PennsylvaniaCorporation and is registered as a bank holding company under theBank Holding Company Act of 1956, as amended, and as a financialholding company under the Gramm Leach Bliley Act of 1999 (GLB). TheCorporation is owner of 100% of the outstanding shares of commonstock of Commercial National Bank of Pennsylvania (the Bank). TheBank has been providing banking services since 1934. At the presenttime, two (2) banking offices are in operation in Latrobe,Pennsylvania, two (2) in Unity Township, Pennsylvania and one (1)each in Ligonier, West Newton, Greensburg, Norwin and HempfieldTownship, Pennsylvania. The Bank established an assetmanagement/trust department in 1994 which is located in thebuilding that houses the Greensburg banking office. All of theseoffices are within the boundaries of Westmoreland County,Pennsylvania. In addition, the building that houses theBank’s downtown Latrobe banking office is the location of theCorporation's and the Bank's executive and administrative offices.The institution's operations center is located at the Latrobe Plazain downtown Latrobe. This operations center also houses an in-housedata processing system.

Each of thebanking offices, except for downtown Latrobe and Greensburg, isequipped with 24 hour a day automatic teller machines (ATM). Bank ATM units are also located on the campuses of Saint VincentCollege in Unity Township and the University of Pittsburgh atGreensburg, the terminal of the Westmoreland County Airport inUnity Township, the reception lobby of the Latrobe Area Hospital inLatrobe, and an in-store machine in the Norvelt Open Pantry and theNew Alexandria Qwik Mart. A separate freestanding drive-up tellerstaffed banking facility is attached to the Lincoln Road office indowntown Latrobe. This facility also provides ATMservice.

The Bank offersthe full range of banking services normally associated with ageneral commercial banking business. Services include extendingcredit, providing deposit services, marketing non-depositinvestments and offering financial counseling. The ATM systemdescribed above is a part of the MAC, Cirrus, Honor, Plus and Starnetworks, which provides the Bank's customers access to anextensive regional and national network. The Bank also hasimplemented a comprehensive electronic Online Banking system. Byusing a personal computer with internet access, customers canaccess their Commercial National Bank accounts, perform commonbanking tasks and pay bills 24 hours a day, seven days a week, 365days a year.

In December2002, the Corporation completed the acquisition of the insuranceagencies, Gooder Agency, Inc., an insurance agency, (Gooder Agency)and Gooder & Mary, Inc., which owned a 50% interest inCommercial National Insurance Services (CNIS), thus giving theCorporation full ownership of CNIS, which is now operated as partof Gooder Agency.  Gooder Agency was acquired as a whollyowned subsidiary of Commercial National Investment Corporation,which has changed its name to Commercial National InsuranceServices, Inc. 

Gooder Agency,located in Ligonier PA is a full service provider of insuranceproducts for individuals and businesses. Gooder Agency representsfifteen national, regional and mutual insurance companies thatallows it to provide new and existing customers with products andprograms needed at competitive prices.

Competition

Throughout theBank's service area, substantial competition exists both fordeposit and loan products. The competitors range from majorfinancial institutions, such as Citizens Bank of Pennsylvania,National City Bank and PNC Bank, N.A., to several national andstate banks, thrift institutions, credit unions, mortgage brokersand finance companies. Even though some portions of the thriftindustry have experienced fairly extensive restructuring, the levelof competitive activity in the Bank’s service area remainsstrong. Competition for certificates of deposit and money marketdeposits remains vigorous, with the representatives of insurancecompanies and securities brokers soliciting customers in theBank’s market area. In addition, out-of-area institutions,including retailers, continue to solicit business for credit cards,residential mortgages and automobile financing.

Competition forinsurance services continues to increase with consumers having theopportunity to select from a variety of national, regional andlocal insurance companies. The primary focus of CNIS is to provideone-stop financial services for the customers of theBank.

Supervisionand Regulation

The Corporationand the Bank are subject to the supervision of the followingregulatory bodies: The Federal Reserve Board, the Office of theComptroller of the Currency, the Securities and ExchangeCommission, and the Federal Deposit Insurance Corporation. Thenature of the supervision extends to such areas as safety andsoundness, truth-in-lending, truth-in-savings, rate restrictions,consumer protection, permissible loan and securities activities,merger and acquisition limitations, reserve requirements, dividendpayments and regulations concerning activities by corporateofficers and directors. The Federal Reserve Board monitors holdingcompany activity while the Office of the Comptroller of theCurrency is the Bank’s primary banking regulator. Noregulatory restrictions or actions are currently pending againstthe Corporation or the Bank.
```

```

GLB permits bankholding companies with subsidiary banks meeting certain capital andmanagement requirements to elect to become "financial holdingcompanies".  Financial holding companies may engage in a fullrange of financial activities, including not only banking,insurance and securities activities, but also merchant banking andadditional activities determined to be "financial in nature". GLBalso provides for expansion of the list of permissible activitiesas necessary for a financial holding company to keep abreast ofcompetitive and technological change. The Corporation wasdesignated a financial holding company in March 2000 by the FederalReserve Board.
```

```

Although itpreserved the Federal Reserve Board as the umbrella supervisor offinancial holding companies, GLB adopted an administrative approachto regulation that defers to the approval and supervisoryrequirements of the functional regulators of insurers and insuranceagents, broker-dealers, investment companies, and banks. Thus, thevarious state and federal regulators of a financial holdingcompany's operating subsidiaries would retain their jurisdictionand authority over the operating entities. As the umbrellasupervisor, however, the Federal Reserve Board has the potential toaffect the operations and activities of financial holdingcompanies' subsidiaries through its power over the financialholding company. In addition, GLB contains numerous trigger pointsrelated to legal noncompliance and other serious problems affectingbank affiliates that could lead to direct Federal Reserve Boardinvolvement and to the possible exercise of remedial authorityaffecting both financial holding companies and their affiliatedoperating companies.
```

```

CNIS, anon-banking subsidiary of the Corporation, is a licensed insuranceagency and is subject to regulation by the Pennsylvania Departmentof Insurance.
```
****
```

Effects ofGovernmental Policies

In addition tothe regulatory requirements, the Corporation and its subsidiaryBank are affected by the national economy and the influence on thateconomy exerted by governmental bodies through monetary and fiscalpolicies and their efforts to implement such policies.  Inparticular, the impact of the open market operations on interestrates, the establishment of reserve requirements and the setting ofthe discount rate will continue to affect business volumes andearnings. The exact nature or the full extent of this impact isalmost impossible to predict; however, management continues tomonitor these activities on a regular basis and seeks to modify itspolicies and procedures accordingly.

EMPLOYEES

As of December31, 2002, the Corporation, the Bank and other subsidiaries of theCorporation had a total of 128 full-time-equivalentemployees.

EXECUTIVEOFFICERS OF THE CORPORATION

The followingtable shows the names and ages of the current executive officersand the present and previous positions held by them for at leastthe past five years.
| **Name**          | **Age** | **Presentand Previous Positions**                |
|-------------------|---------|--------------------------------------------------|
|                   |         |                                                  |
| Louis A.Steiner   | 72      | Chairman of theboard (1977 to present)           |
|                   |         |   Chiefexecutive officer (1977 to 1997)     |
|                   |         |                                                  |
| Louis T.Steiner   | 41      | President (April1998 to present),                |
|                   |         | Vice Chairman(December 1995 to present)          |
|                   |         | and chiefexecutive officer (November 1997        |
|                   |         | topresent)                                       |
|                   |         |                                                  |
| Gregg E.Hunter    | 44      | Vice chairmanand chief financial                 |
|                   |         | officer(December 1995 to present)                |
|                   |         |                                                  |
| Wendy S.Schmucker | 34      | Secretary/treasurer and vice president,          |
|                   |         | managercorporate administration (November        |
|                   |         | 1997 topresent), assistant vice president        |
|                   |         | and managingcorporate officer (December          |
|                   |         | 1996 to October1997), assistant                  |
|                   |         | secretary/treasurer and corporate                |
|                   |         | and financialadministrative officer              |
|                   |         | (December 1995to November 1996)                  |
|                   |         |                                                  |
| Ryan M.Glista     | 35      | Vicepresident/comptroller (December 1997         |
|                   |         | to present),assistant vice president/            |
|                   |         | controller(December 1995 to November 1997)       |
|                   |         |                                                  |
| Susan F.Robb      | 28      | Assistant vicepresident (April 2001 to present), |
|                   |         | assistantsecretary (April 1998 to present),      |
|                   |         | corporateadministrator (September 1997 to        |
|                   |         | Present),customer service representative         |
|                   |         | (September 1996to September 1997)                |
|                   |         |                                                  |

Item 2. Properties

All of theCorporation’s facilities are owned with the exception of theLincoln Road banking office and adjacent drive-up facility alongwith the Norwin Hills banking office, which are leased. Thefacility that houses Gooder Agency is also leased. This leaseagreement gives the Corporation a right of first refusal topurchase the property in the event it is available for sale. All ofthe properties are used in their entirety for banking and insuranceagency purposes. In each case, the properties have been maintainedin good repair, are well suited for their present use and appear tobe adequate for the immediate needs of the Corporation and itssubsidiaries. Physical locations can be found on page 35 of theAnnual Report to Shareholders.

Item 3. Legal Proceedings

Other thanproceedings that occur in the normal conduct of business, there areno legal proceedings to which either the Corporation or thesubsidiaries is a party that will have any material effect on thefinancial position of the Corporation or itssubsidiaries.

Item 4. Submission of Matters to a Vote of SecurityHolders

No matters weresubmitted to a vote of the Corporation’s security holdersduring the last quarter of its fiscal year ended December 31,2002.

PartII

Item 5. Market for Registrant's Common Equity and Related StockholderMatters

Informationappearing in the Annual Report to Shareholders for the fiscal yearended December 31, 2002 (the Annual Report) on page 21 isincorporated herein by reference in response to this item.  Asof March 24, 2003 there were 521 shareholders of record of theCorporation's common stock. The number of beneficial shareholdersis approximately 970. 

The followingtable provides information as of December 31, 2002 withrespect to compensation plans under which equity securities of theCompany are authorized for issuance.

**EquityCompensation Plan Information**

****

****
|                                                                      |  | **(a)**                                                                                        |  | **(b)**                                                                        |  | **(c)**                                                                                                                                       |
|----------------------------------------------------------------------|--|------------------------------------------------------------------------------------------------|--|--------------------------------------------------------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------|
| **Plan category**                                                    |  | **Number of securities to be issued upon exercise ofoutstanding options, warrants and rights** |  | **Weighted-average exercise price of outstandingoptions, warrants and rights** |  | **Number of securities remaining available for futureissuance under equity compensation plans (excluding securitiesreflected in column (a))** |
| **Equity compensation plans approved by securityholders**            |  | - -                                                                                            |  | - -                                                                            |  | - -                                                                                                                                           |
| **Equity compensation plans not approved by securityholders****(1)** |  | **48**                                                                                         |  | **$22.23**                                                                     |  | 9,952                                                                                                                                         |
| **Total**                                                            |  | 48                                                                                             |  | $22.23                                                                         |  | 9,952                                                                                                                                         |

(1)  Relates to the Company’sDirector’s Call Contest Plan

Item6.     Selected FinancialData

Informationappearing in the Annual Report on page 22 is incorporated herein byreference.

Item7.     Management's Discussion and Analysis ofFinancial Condition and

           Results ofOperation                                           

Informationappearing in the Annual Report on pages 23 through 31 isincorporated herein by reference.

Item7A.    Quantitative and Qualitative DisclosuresAbout Market Risk

     

Informationappearing in the Annual Report on page 29 under the title**Market Risk** is incorporated herein byreference.

Item8.     Financial Statements andSupplementary Data

TheCorporation’s consolidated financial statements, the notesthereto and the report of the independent certified publicaccountants are on pages 6 through 20 of the Annual Report and areincorporated herein by reference.  In addition, a quarterlysummary of financial data is on page 21 of the Annual Report and isincorporated herein by reference.

Item9.     Changes in and Disagreements withAccountants on Accounting and Financial Disclosure

None

PartIII

Item10.    Directors and Executive Officers of theRegistrant

Informationappearing in the Proxy Statement related to the Annual Meeting ofShareholders to be held May 20, 2003 (the Proxy Statement) on pages4 through 7 is incorporated herein by reference.

The informationrequired by Item 405 of Regulation S-K is contained under thecaption “Section 16(a) Beneficial Ownership ReportingCompliance,” on page 10 of the Proxy Statement and isincorporated herein by reference.

Item11.    Executive Compensation

Informationappearing in the Proxy Statement on pages 12 through 15 isincorporated herein by reference**. ** The stockperformance graph and the Compensation Committee Report shall notbe deemed to be “filed”.

Item 12.Security Ownership of Certain Beneficial Owners andManagement

Informationappearing in the Proxy Statement on pages 8 through 9 isincorporated herein by reference.

Item 13. CertainRelationships and Related Transactions

Informationappearing in the Proxy Statement on page 15 is incorporated hereinby reference.

PARTIV

Item 14.Controls and Procedures

**Evaluationand Disclosure Controls and Procedures**

TheCorporation’s chief executive officer and chief financialofficer have reviewed and evaluated the effectiveness of theCorporation’s disclosure controls and procedures (as definedin Rules 13a-14 and 15d-14 under the Securities Exchange Act of1934 (the Exchange Act)), as of a date within ninety days beforethe filing of this annual report on Form 10-K. Based on thatevaluation, the chief executive officer and chief financial officerhave concluded that the Corporation’s current disclosurecontrols and procedures are effective to ensure that informationrequired to be disclosed by the Corporation in reports that itfiles or submits under the Exchange Act is recorded, processed,summarized and reported with the time periods specified in theSecurities and Exchange Commission rules and forms.

**Changes inInternal Controls**

There have notbeen any significant changes in the Corporation’s internalcontrols or in other factors that could significantly affect thesecontrols subsequent to the date of their evaluation. There were nosignificant deficiencies or material weakness in the internalcontrols, and therefore no corrective actions weretaken.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form8-K

(a)  The consolidated financial statements and exhibits listed below arefiled as part of this report.  Financial statement schedulesare omitted as they are not applicable.

(1)        TheCorporation’s consolidated financial statements, the notesthereto and the report of the independent public accounts are onpages 6 through 20 of the Annual Report and are incorporated hereinby reference.
|                                        |                                                                                                                                                                                                                                                                         | Page Numberor            |
|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|       Exhibit |                                                                                                                                                                                                                                                                         | Incorporatedby           |
|      Number   | Description                                                                                                                                                                                                                                                             | Referenceto              |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       2.1     | Agreement andPlan of Merger by and among Commercial National InvestmentCorporation, Gooder Acquisition Corp., Gooder Agency, Inc., Gooder& Mary, Inc., and each of the shareholders of Gooder Agency,Inc. and Gooder & Mary, Inc., dated as of December 10,2002 | Filedherewith            |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       3.1     | Articles ofIncorporation                                                                                                                                                                                                                                                | Exhibit C toForm S-4     |
|                                        |                                                                                                                                                                                                                                                                         | RegistrationStatement    |
|                                        |                                                                                                                                                                                                                                                                         | Filed April 9,1990       |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       3.2     | By-laws ofRegistrant                                                                                                                                                                                                                                                    | Exhibit D toForm S-4     |
|                                        |                                                                                                                                                                                                                                                                         | RegistrationStatement    |
|                                        |                                                                                                                                                                                                                                                                         | Filed April 9,1990       |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       3.3     | Amendment toArticles of                                                                                                                                                                                                                                                 | Exhibit A todefinitive   |
|                                        | Incorporation                                                                                                                                                                                                                                                           | Proxy Statementfiled for |
|                                        |                                                                                                                                                                                                                                                                         | the specialmeeting of    |
|                                        |                                                                                                                                                                                                                                                                         | shareholdersheld         |
|                                        |                                                                                                                                                                                                                                                                         | September 18,1990        |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       3.4     | Amendment toArticles of                                                                                                                                                                                                                                                 | Exhibit A todefinitive   |
|                                        | Incorporation                                                                                                                                                                                                                                                           | Proxy Statementfiled for |
|                                        |                                                                                                                                                                                                                                                                         | the meetingof            |
|                                        |                                                                                                                                                                                                                                                                         | shareholdersheld on      |
|                                        |                                                                                                                                                                                                                                                                         | April 15,1997            |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       13      | Portions of theAnnual Report to Shareholders for the Fiscal year Ended December31, 2002                                                                                                                                                                                 | Filedherewith            |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       21      | Subsidiaries ofthe Registrant                                                                                                                                                                                                                                           | Filedherewith            |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       99.1    | Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section916 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   | Filedherewith            |
|                                        |                                                                                                                                                                                                                                                                         |                          |
|       99.2    | Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section916 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   | Filedherewith            |
|                                        |                                                                                                                                                                                                                                                                         |                          |

*Reports on Form8-K*. None were filedduring the fourth quarter of 2002.
| **SIGNATURES**                                                               |
|------------------------------------------------------------------------------|
|                                                                              |
| Pursuant to therequirements of Section 13 or 15(d) of the SecuritiesExchange |
| Act of 1934, theregistrant has duly caused this report to be signed onits    |
| behalf by theundersigned, thereunto duly authorized.                         |
|                                                                              |
|                                                                              |
|                                                                              |
|                                                                              | COMMERCIAL NATIONAL FINANCIALCORPORATION |
|                                                                              | (Registrant) |
|                                                                              |  |
|                                                                              |  |
|                                                                              |  |
|                                                                              | By:/s/ Louis T.Steiner                  |   |
|                                                                              | Louis T.Steiner, Vice Chairman, President |
|                                                                              | and ChiefExecutive Officer |
|                                                                              |  |
| March 28, 2003                                                               |

Pursuant to therequirements of the Securities Exchange Act of 1934, this reporthas been signed below by the following persons on behalf of theregistrant and in the capacities and on the datesindicated.
| **SIGNATURE ANDCAPACITY**                                                                                                                                                                                                                                 | **DATE**      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|
|                                                                                                                                                                                                                                                           |               |
|   /s/LouisA.Steiner                                                   | March 18,2003 |
| Louis A.Steiner, Chairman of the Board and Director                                                                                                                                                                                                       |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/LouisT.Steiner                                                                  | March 18,2003 |
| Louis T.Steiner, Vice Chairman of the Board, Director and PrincipalExecutive Officer                                                                                                                                                                      |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/ GreggE.Hunter                                                                                 | March 18,2003 |
| Gregg E. Hunter,Vice Chairman of the Board, Director, Principal Financial andAccounting Officer                                                                                                                                                           |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/WendyS.Schmucker                                                           | March 18,2003 |
| Wendy S.Schmucker, Secretary/Treasurer                                                                                                                                                                                                                    |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/ JohnT.Babilya                                                                                 | March 18,2003 |
| John T. Babilya,Director                                                                                                                                                                                                                                  |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/GeorgeA. Conti, Jr.                                                                            | March 18,2003 |
| George A. ContiJr., Director                                                                                                                                                                                                                              |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/Richmond H.Ferguson                                                                       | March 18,2003 |
| Richmond H.Ferguson, Director                                                                                                                                                                                                                             |               |
|                                                                                                                                                                                                                                                           |               |
|  /s/Dorothy S.Hunter                                                       | March 18,2003 |
| Dorothy S.Hunter, Director                                                                                                                                                                                                                                |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/FrankE.Jobe                                       | March 18,2003 |
| Frank E. Jobe,Director                                                                                                                                                                                                                                    |               |
|                                                                                                                                                                                                                                                           |               |
| /s/Roy M.Landers                                                 | March 18,2003 |
| Roy M. Landers,Director                                                                                                                                                                                                                                   |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/JohnC.McClatchey                                                                | March 18,2003 |
| John C.McClatchey, Director                                                                                                                                                                                                                               |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/JosephA.Mosso                                               | March 18,2003 |
| Joseph A. Mosso,Director                                                                                                                                                                                                                                  |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/JoeddaM.Sampson                                                       | March 18,2003 |
| Joedda M.Sampson, Director                                                                                                                                                                                                                                |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/DebraL.Spatola                                                        | March 18,2003 |
| Debra L.Spatola, Director                                                                                                                                                                                                                                 |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/GeorgeV.Welty                                               | March 18,2003 |
| George V. Welty,Director                                                                                                                                                                                                                                  |               |
|                                                                                                                                                                                                                                                           |               |
|   /s/ C.EdwardWible                                                             | March 18,2003 |
| C. Edward Wible,Director                                                                                                                                                                                                                                  |               |
|                                                                                                                                                                                                                                                           |               |

**CERTIFICATION OF CHIEF EXECUTIVEOFFICIER**

**OF**

**COMMERCIAL NATIONAL FINANCIALCORPORATION**

I, Louis T.Steiner, Chief Executive Officer, Commercial National FinancialCorporation certify that:

I have reviewed this annualreport on Form 10-K of Commercial National FinancialCorporation;

Based on my knowledge, thisannual report does not contain any untrue statement of materialfact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the periodcovered by this annual report;

Based on my knowledge, thefinancial statements, and other financial information included inthis annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annualreport;

The registrant’s othercertifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

designed such disclosurecontrols and procedures to ensure that     material information relating to the registrant, includingits

consolidatedsubsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is beingprepared;

evaluated the effectiveness ofthe registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report(the “Evaluation Date”); and

presented in this annualreport our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of theEvaluation Date;

The registrant’s othercertifying officer and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and to the auditcommittee of the registrant’s board of directors (or personsperforming the equivalent function):

all significant deficienciesin the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process,summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internalcontrols; and

any fraud, whether or notmaterial, that involves management or other employees who have asignificant role in the registrant’s internal controls;and

The registrant’s othercertifying officer and I have indicated in this quarterly reportwhether or not there were significant changes in internal controlsor in other factors that could significantly affect the internalcontrols subsequent to the date of our most recent evaluation,including any corrective actions with regard to significantdeficiencies and material weaknesses.
| Date: March 28,2003 | By: | /s/ Louis T.Steiner |
|---------------------|-----|---------------------|

                                               Louis T. Steiner

                                               Chief Executive Officer

**CERTIFICATION OF CHIEF FINANCIALOFFICER**

**OF**

**COMMERCIAL NATIONAL FINANCIALCORPORATION**

I, Gregg E.Hunter, Chief Financial Officer, Commercial National FinancialCorporation certify that:

I have reviewed this annualreport on Form 10-K of Commercial National FinancialCorporation;

Based on my knowledge, thisannual report does not contain any untrue statement of materialfact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the periodcovered by this annual report;

Based on my knowledge, thefinancial statements, and other financial information included inthis annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annualreport;

The registrant’s othercertifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and wehave:

a) designed suchdisclosure controls and procedures to ensure that     material information relating to theregistrant, including its

consolidatedsubsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is beingprepared;

evaluated the effectiveness ofthe registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report(the “Evaluation Date”); and

presented in this annualreport our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of theEvaluation Date;

The registrant’s othercertifying officer and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and to the auditcommittee of the registrant’s board of directors (or personsperforming the equivalent function):

a) allsignificant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’sability to record, process, summarize and report financial data andhave identified for the registrant’s auditors any materialweaknesses in internal controls; and

b) any fraud,whether or not material, that involves management or otheremployees who have a significant role in the registrant’sinternal controls; and

The registrant’s othercertifying officer and I have indicated in this quarterly reportwhether or not there were significant changes in internal controlsor in other factors that could significantly affect the internalcontrols subsequent to the date of our most recent evaluation,including any corrective actions with regard to significantdeficiencies and material weaknesses.
| Date: March 28,2003 | By: | /s/ Gregg E.Hunter |
|---------------------|-----|--------------------|

                                                    Gregg E. Hunter

                                                   Chief Financial Officer

| EXHIBIT INDEXTABLE OF CONTENTS |
|--------------------------------|
|                                |
|                                |
| Exhibit                        |  |
| Number                         | Description |
|                                |  |
| 2.1                            | Agreement andPlan of Merger by and among Commercial National InvestmentCorporation, Gooder Acquisition Corp., Gooder Agency, Inc., Gooder& Mary, Inc., and each of the shareholders of Gooder Agency,Inc. and Gooder & Mary, Inc., dated as of December 10,2002 |
|                                |  |
| 13                             | Portions of theAnnual Report to Shareholders for the Fiscal Year Ended December31, 2002 |
|                                |  |
| 21                             | Subsidiaries ofthe Registrant |
|                                |  |
| 99.1                           | Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section916 of the Sarbanes-Oxley Act of 2002. |
|                                |  |
| 99.2                           | Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section916 of the Sarbanes-Oxley Act of 2002. |

 

Exhibit 21 -  Subsidiaries of Commercial National FinancialCorporation
|                                                      | State or Jurisdiction |
|------------------------------------------------------|-----------------------|
|        Subsidiary | of Incorporation      |
|                                                      |                       |
| CommercialNational Bank of Pennsylvania              | United States         |
|                                                      |                       |
| CommercialNational Insurance Services, Inc.          | Pennsylvania          |
|                                                      |                       |
| Gooder Agency,Inc.                                   | Pennsylvania          |
|                                                      |                       |

**Exhibit 99.1**

Certification of Chief Executive Officer ofCommercial National Financial Corporation

Pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to

Section 906 of the Sarbanes-Oxley Act of2002

In connectionwith the Quarterly Report on Form 10-K of Commercial NationalFinancial Corporation (the “Corporation”) for theperiod ending September 30, 2002 (the “Report”), I,Louis T. Steiner, Chief Executive Officer of the Corporationcertify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) |   | The Report fullycomplies with the requirements of Section 13 (a) or 15 (d) of theSecurities Exchange Act of 1934; and                                                           |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | The informationcontained in the Report fairly presents, in all material respects,the financial condition and results of operations of CommercialNational Financial Corporation. |
|  |   | /s/ Louis T.Steiner    |   |
|--|--------|------------------------|--------|
|  |   | Louis T.Steiner        |   |
|  |   | Chief ExecutiveOfficer |   |
|  |   | March 28,2003          |   |

A signedoriginal of this written statement required by Section 906 has beenprovided to Commercial National Financial Corporation and will beretained by Commercial National Financial Corporation and furnishedto the Securities and Exchange Commission or its staff uponrequest.

**Exhibit 99.2**

Certification of Chief Fiancial Officer ofCommercial National Financial Corporation

Pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to

Section 906 of the Sarbanes-Oxley Act of2002

In connectionwith the Quarterly Report on Form 10-K of Commercial NationalFinancial Corporation (the “Corporation”) for theperiod ending September 30, 2002 (the “Report”), I,Gregg E. Hunter, Chief Financial Officer of the Corporationcertify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) |   | The Report fullycomplies with the requirements of Section 13 (a) or 15 (d) of theSecurities Exchange Act of 1934; and                                                           |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | The informationcontained in the Report fairly presents, in all material respects,the financial condition and results of operations of CommercialNational Financial Corporation. |
|  |   | /s/ Gregg E.Hunter     |   |
|--|--------|------------------------|--------|
|  |   | Gregg E.Hunter         |   |
|  |   | Chief FinancialOfficer |   |
|  |   | March 28,2003          |   |

A signedoriginal of this written statement required by Section 906 has beenprovided to Commercial National Financial Corporation and will beretained by Commercial National Financial Corporation and furnishedto the Securities and Exchange Commission or its staff uponrequest.

The Corporationwill provide without charge to any shareholder a copy of its 2002annual report on form 10-K as required to be filed with theSecurities and Exchange Commission. Requests should be made inwriting to:

COMMERCIALNATIONAL FINANCIAL CORPORATION

STOCK TRANSFERDEPARTMENT

P.O. BOX429

LATROBE,PA  15650

**This page left intentionally blank**

****

**Consolidated Statements of FinancialCondition**

**

**Assets**
|  | **December31,** |
|--|-----------------|
|  | **2002**        |  | **2001** |
| Cash and duefrom banks on demand    | **$ 10,294,276** |  | $   9,512,523 |
|-------------------------------------|-----------------------|--|-------------------------|
| Interestbearing deposits with banks | **20,633,629**        |  | 599,745                 |
| Federal fundsold                    | **14,650,000**        |  | -                       |
| Securitiesavailable for sale        | **144,726,216**       |  | 117,038,065             |
| Restrictedinvestments in bank stock | **3,618,200**         |  | 2,358,000               |
|                                     |                       |  |                         |
| Loans                               | **169,030,225**       |  | 202,335,164             |
| Allowancefor loan losses            | **(2,707,323)**       |  | (2,814,454)             |
|                                     |                       |  |                         |
| **NetLoans**                        | **166,322,902**       |  | 199,520,710             |
|                                     |                       |  |                         |
| Premises andequipment               | **4,523,920**         |  | 5,707,705               |
| Accruedinterest receivable          | **1,541,961**         |  | 1,800,883               |
| Otherassets                         | **14,026,651**        |  | 6,490,927               |
| **TotalAssets** | **$380,337,755** |  | $343,028,558 |
|-----------------|------------------|--|--------------|

**Liabilities and Shareholders’Equity**

**Liabilities**
| Deposits:                                    |                       |  |                   |
|----------------------------------------------|-----------------------|--|-------------------|
|      Non-interestbearing | **$ 51,355,652** |  | $ 47,942,276 |
|      Interestbearing     | **218,669,557**       |  | 207,044,496       |
|                                              |                       |  |                   |
| **TotalDeposits**                            | **270,025,209**       |  | 254,986,772       |
|                                              |                       |  |                   |
| Short-termborrowings                         | **-**                 |  | 4,275,000         |
| Otherliabilities                             | **4,108,044**         |  | 2,796,489         |
| Long-termborrowings                          | **55,000,000**        |  | 35,000,000        |
| **TotalLiabilities** | **329,133,253** |  | 297,058,261 |
|----------------------|-----------------|--|-------------|

**Shareholders’ Equity**
| Commonstock, par value $2 per share; authorized 10,000,000 shares; issued3,600,000 shares; outstanding 3,453,952 and 3,426,096 shares in2002 and 2001, respectively | **7,200,000**   |  | 7,200,000   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--|-------------|
| Retainedearnings                                                                                                                                                    | **41,627,977**  |  | 39,736,355  |
| Accumulatedother comprehensive income, net of deferred taxes 2002 $2,514,488;2001 $1,112,399                                                                        | **4,881,064**   |  | 2,159,362   |
| Treasurystock, at cost, 146,048 and 173,904 shares in 2002 and 2001,respectively                                                                                    | **(2,504,539)** |  | (3,125,420) |
| **TotalShareholders’ Equity** | **51,204,502** |  | 45,970,297 |
|-------------------------------------|----------------|--|------------|
| **TotalLiabilities and Shareholders’ Equity** | **$380,337,755** |  | $343,028,558 |
|-----------------------------------------------------|------------------|--|--------------|

**Consolidated Statements of Income**

**
|  | **YearsEnded December 31,** |
|--|-----------------------------|
|  | **2002**                    |  | **2001** |  | **2000** |

**InterestIncome**
| Interest andfees on loans                                      | **$13,532,996** |  | $16,665,093 |  | $17,513,408 |
|----------------------------------------------------------------|-----------------|--|-------------|--|-------------|
| Interest anddividends on securities:                           |                 |  |             |  |             |
|       Taxable                         | **8,130,197**   |  | 6,161,185   |  | 6,916,752   |
|       Exempt fromfederal income taxes | **1,057,262**   |  | 924,250     |  | 1,504,099   |
|       Interest ondeposits with banks  | **48,879**      |  | 363,418     |  | 16,498      |
|       Interest onfederal funds sold   | **173,219**     |  | 285,044     |  | 105,030     |
| **TotalInterest Income** | **22,942,553** |  | 24,398,990 |  | 26,055,787 |
|--------------------------|----------------|--|------------|--|------------|

**InterestExpense**
| Deposits             | **4,997,795** |  | 8,065,055 |  | 9,336,596 |
|----------------------|---------------|--|-----------|--|-----------|
| Short-termborrowings | **29,650**    |  | 95,446    |  | 528,580   |
| Long-termborrowings  | **2,547,055** |  | 1,555,449 |  | 1,839,724 |
| **TotalInterest Expense** | **7,574,500** |  | 9,715,950 |  | 11,704,900 |
|---------------------------|---------------|--|-----------|--|------------|
| **NetInterest Income** | **15,368,053** |  | 14,683,040 |  | 14,350,887 |
|------------------------|----------------|--|------------|--|------------|
| **Provisionfor Loan Losses** | **298,030** |  | 540,350 |  | 1,176,000 |
|------------------------------|-------------|--|---------|--|-----------|
| **NetInterest Income after Provision for Loan Losses** | **15,070,023** |  | 14,142,690 |  | 13,174,887 |
|--------------------------------------------------------|----------------|--|------------|--|------------|

**OtherOperating Income**
| Servicecharges on deposit accounts      | **737,426** |  | 778,618 |  | 716,231   |
|-----------------------------------------|-------------|--|---------|--|-----------|
| Otherservice charges and fees           | **691,240** |  | 750,248 |  | 677,756   |
| Net securitygains (losses)              | **-**       |  | 7,093   |  | (691,700) |
| Trustdepartment income                  | **475,115** |  | 456,905 |  | 388,254   |
| Income frominvestment in life insurance | **474,286** |  | 176,750 |  | -         |
| Gain on saleof credit card loans        | **-**       |  | -       |  | 822,875   |
| Gain on saleof branch                   | **469,782** |  | -       |  | -         |
| Otherincome                             | **327,438** |  | 385,223 |  | 391,048   |
| **TotalOther Operating Income** | **3,175,287** |  | 2,554,837 |  | 2,304,464 |
|---------------------------------|---------------|--|-----------|--|-----------|

**OtherOperating Expenses**
| Salaries andemployee benefits | **5,660,228** |  | 5,497,870 |  | 5,108,578 |
|-------------------------------|---------------|--|-----------|--|-----------|
| Netoccupancy                  | **624,345**   |  | 603,150   |  | 588,858   |
| Furnitureand equipment        | **725,045**   |  | 723,698   |  | 890,429   |
| Pennsylvaniashares tax        | **456,409**   |  | 416,598   |  | 381,829   |
| Automatedteller machine       | **321,459**   |  | 304,159   |  | 218,784   |
| Otherexpenses                 | **3,240,638** |  | 2,547,827 |  | 2,240,091 |
| **TotalOther Operating Expenses** | **11,028,124** |  | 10,093,302 |  | 9,428,569 |
|-----------------------------------|----------------|--|------------|--|-----------|
| **Incomebefore Income Taxes** | **7,217,186** |  | 6,604,225 |  | 6,050,782 |
|-------------------------------|---------------|--|-----------|--|-----------|
| **IncomeTax Expense** | **1,872,970** |  | 1,699,302 |  | 1,419,270 |
|-----------------------|---------------|--|-----------|--|-----------|
| **NetIncome** | **$ 5,344,216** |  | $ 4,904,923 |  | $ 4,631,512 |
|---------------|----------------------|--|------------------|--|------------------|
| **Earningsper Share, Basic** | **$          1.56** |  | $          1.43 |  | $         1.32 |
|------------------------------|-----------------------------------------------------------------------|--|-------------------------------------------------------------------|--|-------------------------------------------------------------|

**Consolidated Statements of Shareholders’Equity**

**YearsEnded December 31, 2002, 2001 and 2000**

**
|  |  | **Common Stock** |  | **RetainedEarnings** |  | **Accumulated Other Comprehensive Income (Loss)** |  | **Treasury Stock** |  | **Total Stockholders’ Equity** |
|--|--|------------------|--|----------------------|--|---------------------------------------------------|--|--------------------|--|--------------------------------------|
| **Balance -December 31, 1999**                                                                                                                                                                                                                                                                                                                                                                                                                |  | $7,200,000     |  | $35,190,986     |  | $(1,807,660)   |  | $(1,179,433)     |  | $39,403,893     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|----------------|--|-----------------|--|----------------|--|------------------|--|-----------------|
|       Comprehensiveincome:                                                                                                                                                                                                                                                                                                                                                                                           |  |                |  |                 |  |                |  |                  |  |                 |
|            Net income                                                                                                                                                                                                                                                                                                                                                                  |  | -              |  | 4,631,512       |  | -              |  | -                |  | 4,631,512       |
|            Change in unrealized net gains on securities available for saleof

                 $2,445,420, net of reclassification adjustment forlosses

                 included in net income of $456,522 |  | -              |  | -               |  | 2,901,942      |  | -                |  | 2,901,942       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **                 Total Comprehensive Income**                                                                                                                                                                                                                                                                                                          |  |                |  |                 |  |                |  |                  |  | 7,533,454       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
|            Cash dividends declared, $0.68 per share                                                                                                                                                                                                                                                                                                                                    |  | -              |  | (2,383,528)     |  | -              |  | -                |  | (2,383,528)     |
|            Purchases of treasury stock                                                                                                                                                                                                                                                                                                                                                 |  | -              |  | -               |  | -              |  | (1,416,902)      |  | (1,416,902)     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **Balance -December 31, 2000**                                                                                                                                                                                                                                                                                                                                                                                                                |  | 7,200,000      |  | 37,438,970      |  | 1,094,282      |  | (2,596,335)      |  | 43,136,917      |
|       Comprehensiveincome:                                                                                                                                                                                                                                                                                                                                                                                           |  |                |  |                 |  |                |  |                  |  |                 |
|            Net income                                                                                                                                                                                                                                                                                                                                                                  |  | -              |  | 4,904,923       |  | -              |  | -                |  | 4,904,923       |
|            Change in unrealized net gains on securities available for saleof

                 $1,069,761, net of reclassification adjustment for gains

                 included in net loss of $(4,681)   |  | -              |  | -               |  | 1,065,080      |  | -                |  | 1,065,080       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **                 Total Comprehensive Income**                                                                                                                                                                                                                                                                                                          |  |                |  |                 |  |                |  |                  |  | 5,970,003       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
|            Cash dividends declared, $0.76 per share                                                                                                                                                                                                                                                                                                                                    |  | -              |  | (2,607,538)     |  | -              |  | -                |  | (2,607,538)     |
|            Purchases of treasury stock                                                                                                                                                                                                                                                                                                                                                 |  | -              |  | -               |  | -              |  | (529,085)        |  | (529,085)       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **Balance -December 31, 2001**                                                                                                                                                                                                                                                                                                                                                                                                                |  | 7,200,000      |  | 39,736,355      |  | 2,159,362      |  | (3,125,420)      |  | 45,970,297      |
|       Comprehensiveincome:                                                                                                                                                                                                                                                                                                                                                                                           |  |                |  |                 |  |                |  |                  |  |                 |
|            Net income                                                                                                                                                                                                                                                                                                                                                                  |  | **-**          |  | **5,344,216**   |  | **-**          |  | **-**            |  | **5,344,216**   |
|            Change in unrealized net gains on securities available forsale                                                                                                                                                                                                                                                                                                              |  | **-**          |  | **-**           |  | **2,721,702**  |  | **-**            |  | **2,721,702**   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **                 Total Comprehensive Income**                                                                                                                                                                                                                                                                                                          |  |                |  |                 |  |                |  |                  |  | **8,065,918**   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
|            Cash dividends declared, $1.00 per share                                                                                                                                                                                                                                                                                                                                    |  | **-**          |  | **(3,424,008)** |  | **-**          |  | **-**            |  | **(3,424,008)** |
|            Issuance of treasury stock                                                                                                                                                                                                                                                                                                                                                  |  | **-**          |  | **(28,586)**    |  | **-**          |  | **785,818**      |  | **757,232**     |
|            Purchases of treasury stock                                                                                                                                                                                                                                                                                                                                                 |  | **-**          |  | **-**           |  | **-**          |  | **(164,937)**    |  | **(164,937)**   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                |  |                 |  |                |  |                  |  |                 |
| **Balance -December 31, 2002**                                                                                                                                                                                                                                                                                                                                                                                                                |  | **$7,200,000** |  | **$41,627,977** |  | **$4,881,064** |  | **$(2,504,539)** |  | **$51,204,502** |

**Consolidated Statements of CashFlows**

**
|  | **YearsEnded December 31,** |
|--|-----------------------------|
|  | **2002**                    |  | **2001** |  | **2000** |

****

**CashFlows from Operating Activities**
| Netincome                                                                                                                               | **$5,344,216** |  | $4,904,923 |  | $4,631,512 |
|-----------------------------------------------------------------------------------------------------------------------------------------|----------------|--|------------|--|------------|
| Adjustmentsto reconcile net income to net cash provided by

       operating activities:             |                |  |            |  |            |
|             Depreciation and amortization                                   | **636,402**    |  | 691,674    |  | 793,492    |
|             Provision for loan losses                                       | **298,030**    |  | 540,350    |  | 1,176,000  |
|             Net (accretion) amortization of securities and loan fees        | **(812,971)**  |  | (567,498)  |  | (297,449)  |
|             Net security (gains) losses                                     | **-**          |  | (7,093)    |  | 691,700    |
|             Issuance of treasury stock for compensation                     | **1,069**      |  | -          |  | -          |
|             Gain on sale of credit card loans                               | **-**          |  | -          |  | (822,875)  |
|             Gain on sale of branch                                          | **(469,782)**  |  | -          |  | -          |
|             (Gain) loss on sale of foreclosed real estate                   | **(29,185)**   |  | 10,704     |  | -          |
|             Income from investments in life insurance                       | **(474,286)**  |  | (176,750)  |  | -          |
|             Deferred tax (benefit) expense                                  | **82,140**     |  | 73,391     |  | (78,687)   |
|             (Increase) decrease in assets:                                  |                |  |            |  |            |
|                   Accrued interest receivable | **258,922**    |  | 140,888    |  | 116,154    |
|                   Income taxes receivable     | **(104,597)**  |  | 93,272     |  | 869,947    |
|                   Other assets                | **284,140**    |  | 452,497    |  | (108,064)  |
|             Increase (decrease) in liabilities:                             |                |  |            |  |            |
|                   Interest payable            | **(23,961)**   |  | (425,298)  |  | (130,519)  |
|                   Income taxes payable        | **(265,519)**  |  | 265,519    |  | -          |
|                   Other liabilities           | **116,806**    |  | 88,427     |  | (274,339)  |
| **Net CashProvided by Operating Activities** | **4,841,424** |  | 6,085,006 |  | 6,566,872 |
|----------------------------------------------|---------------|--|-----------|--|-----------|

**CashFlows from Investing Activities**
| Net(increase) decrease in deposits with other banks                        | **(20,033,884)** |  | (315,609)    |  | 274,645      |
|----------------------------------------------------------------------------|------------------|--|--------------|--|--------------|
| (Increase)decrease in federal funds sold                                   | **(14,650,000)** |  | -            |  | 5,750,000    |
| Purchases ofsecurities available for sale                                  | **(75,003,218)** |  | (64,248,987) |  | (58,047,132) |
| Maturities,calls and principal repayments of securities available for sale | **52,152,644**   |  | 19,568,847   |  | 15,524,813   |
| Proceedsfrom sales of securities available for sale                        | **-**            |  | 31,176,898   |  | 66,509,684   |
| Net cashused in acquisitions                                               | **(1,140,769)**  |  | -            |  | -            |
| Net(increase) decrease in restricted bank stock                            | **(1,260,200)**  |  | 1,004,700    |  | -            |
| Net(increase) decrease in loans                                            | **32,485,176**   |  | 5,076,603    |  | (8,946,824)  |
| Proceedsfrom sale of credit card loans                                     | **-**            |  | -            |  | 6,323,491    |
| Net proceedsfrom sale of branch                                            | **469,782**      |  | -            |  | -            |
| Purchases ofpremises and equipment                                         | **(594,365)**    |  | (372,242)    |  | (516,175)    |
| Proceedsfrom sale of premises and equipment                                | **1,141,748**    |  | -            |  | -            |
| Proceedsfrom sale of foreclosed real estate                                | **198,923**      |  | 66,000       |  | -            |
| Purchase ofbank owned life insurance                                       | **(5,000,000)**  |  | (5,000,000)  |  | -            |
| **Net CashProvided by (Used in) Investing Activities** | **(31,234,163)** |  | (13,043,790) |  | 26,872,502 |
|--------------------------------------------------------|------------------|--|--------------|--|------------|

**Consolidated Statements of Cash Flows(Continued)**

**
|  | **YearsEnded December 31,** |
|--|-----------------------------|
|  | **2002**                    |  | **2001** |  | **2000** |

**CashFlows from Financing Activities**
| Net increase(decrease) in deposits            | **$15,038,437** |  | $(11,624,598) |  | $(6,336,033) |
|-----------------------------------------------|-----------------|--|---------------|--|--------------|
| Net decreasein short-term borrowings          | **(4,275,000)** |  | (3,300,000)   |  | (7,425,000)  |
| Proceedsfrom issuance of long-term borrowings | **20,000,000**  |  | 25,000,000    |  | -            |
| Repaymentsof long-term borrowings             | **-**           |  | -             |  | (15,000,000) |
| Dividendspaid                                 | **(3,424,008)** |  | (2,607,538)   |  | (2,383,528)  |
| Purchase oftreasury stock                     | **(164,937)**   |  | (529,085)     |  | (1,416,902)  |
| **Net CashProvided by (Used in) Financing Activities** | **27,174,492** |  | 6,938,779 |  | (32,561,463) |
|--------------------------------------------------------|----------------|--|-----------|--|--------------|
| **Increase(Decrease) in Cash and Cash Equivalents** | **781,753** |  | (20,005) |  | 877,911 |
|-----------------------------------------------------|-------------|--|----------|--|---------|
| **Cash andCash Equivalents - Beginning** | **9,512,523** |  | 9,532,528 |  | 8,654,617 |
|------------------------------------------|---------------|--|-----------|--|-----------|
| **Cash andCash Equivalents - Ending** | **$10,294,276** |  | $  9,512,523 |  | $ 9,532,528 |
|---------------------------------------|-----------------|--|-------------------|--|------------------|

**Supplementary Cash FlowsInformation**
| Interestpaid | **$ 7,598,461** |  | $10,141,248 |  | $11,835,419 |
|--------------|----------------------|--|-------------|--|-------------|
| Income taxespaid | **$ 2,160,743** |  | $ 1,264,040 |  | $ 1,442,900 |
|------------------|----------------------|--|------------------|--|------------------|

**Supplementary Disclosures of Noncash Investingand        FinancingActivities**
| Loanstransferred to foreclosed real estate | **$     513,787** |  | $      76,704 |  | $               - |
|--------------------------------------------|---------------------------------------|--|----------------------------------------|--|----------------------------------------------------------------------------------------------|

**Notes toConsolidated Financial Statements**

**

**Note 1 -Significant Accounting Policies**

**General**

Theaccompanying consolidated financial statements include the accountsof Commercial National Financial Corporation (Corporation) and itswholly-owned subsidiaries, Commercial National Bank of Pennsylvania(Bank) and Commercial National Insurance Services, Inc. (CNIS)formerly known as Commercial National Investment Corporation. All material intercompany transactions have beeneliminated.

The Bankoperates under a national bank charter and provides full bankingservices.  The Corporation is subject to regulation by theFederal Reserve Board and the Bank is subject to regulation by theOffice of the Comptroller of the Currency.  The Bank’sprimary business consists of taking deposits and granting loans tocustomers who generally do business in the area of WestmorelandCounty, Pennsylvania.

CNIS holdsthe investment in the wholly-owned Gooder Agency, Inc. (Gooder),which is a full service provider of insurance products toindividuals and businesses.  The agency represents fifteennational, regional and mutual insurance companies.

Thefollowing summary of accounting and reporting policies is presentedto aid the reader in obtaining a better understanding of theconsolidated financial statements and related financial data of theCorporation and its wholly-owned subsidiaries contained in thisreport.  Such policies conform to generally acceptedaccounting principles (GAAP) and to general practice within thebanking industry.  In preparing consolidated financialstatements in conformity with GAAP, management is required to makeestimates and assumptions that affect the reported amounts ofassets and liabilities, the disclosure of contingent assets andliabilities at the date of the consolidated financial statements,and income and expenses during the reporting period.  Actualresults could differ from those estimates.

Certainitems of the consolidated financial statements for the years endedDecember 31, 2001 and 2000 have been reclassified to conformwith the December 31, 2002 presentation.  None of thesereclassifications affected net income.

**Securities**

Debtsecurities that the Corporation has the positive intent and abilityto hold to maturity are classified as “securities held tomaturity” and are reported at amortized cost.  Debt andequity securities not classified as held to maturity securities areclassified as “securities available for sale” andreported at fair value, with unrealized gains and losses excludedfrom earnings and reported as a separate component ofshareholders’ equity.  Premiums and discounts arerecognized as interest income using the interest method over theterms of the securities.

Net gain orloss on the sale of securities is determined using the specificidentification method.

Federal lawrequires the Bank, a member institution of the Federal Home LoanBank system, to hold stock of its district Federal Home Loan Bankaccording to a predetermined formula.  This restricted stockis carried at cost. 

**Note 1 -Significant Accounting Policies (Continued)**

**Loans**

Loansreceivable that management has the intent and ability to hold forthe foreseeable future or until maturity or payoff are stated attheir outstanding unpaid principal balances. Interest income isaccrued on the unpaid principal balance.  Loan originationfees, net of associated direct costs, are deferred and recognizedas an adjustment of the yield (interest income) of the relatedloans. The Corporation is generally amortizing these amounts overthe contractual life of the loan. 

The accrualof interest is generally discontinued when the contractual paymentof principal or interest has become 90 days past due or managementhas serious doubts about further collectibility of principal orinterest, even though the loan is currently performing.  Aloan may remain on accrual status if it is in the process ofcollection and is either guaranteed or well secured.  When aloan is placed on nonaccrual status, unpaid interest credited toincome in the current year is reversed and unpaid interest accruedin prior years is charged against the allowance for loanlosses.  Interest received on nonaccrual loans generally iseither applied against principal or reported as interest income,according to management’s judgment as to the collectibilityof principal.  Generally, loans are restored to accrual statuswhen the obligation is brought current, has performed in accordancewith the contractual terms for a reasonable period of time and theultimate collectibility of the total contractual principal andinterest is no longer in doubt.

**Foreclosed Real Estate**

Foreclosedreal estate is comprised of property acquired through a foreclosureproceeding or acceptance of a deed in lieu of foreclosure and loansclassified as in-substance foreclosure.  A loan is classifiedas in-substance foreclosure when the Bank has taken possession ofthe collateral regardless of whether formal foreclosure proceedingstake place.

Foreclosedassets initially are recorded at fair value, net of estimatedselling costs, at the date of foreclosure establishing a new costbasis.  After foreclosure, valuations are periodicallyperformed by management and the assets are carried at the lower ofcost or fair value minus estimated costs to sell.  Revenuesand expenses from operations and changes in the valuation allowanceare included in other expenses.  Foreclosed real estate atDecember 31, 2002 and 2001 was $344,048 and $-0-,respectively, and is included in other assets.

**Allowancefor Loan Losses**

Theallowance for loan losses is established through provisions forloan losses charged against income.  Loans deemed to beuncollectible are charged against the allowance for loan losses,and subsequent recoveries, if any, are credited to theallowance.

**Note 1 -Significant Accounting Policies (Continued)**

**Allowancefor Loan Losses (Continued)**

Theallowance for loan losses is maintained at a level consideredadequate to provide for losses that can be reasonablyanticipated.  Management’s periodic evaluation of theadequacy of the allowance is based on the Corporation’s pastloan loss experience, known and inherent risks in the portfolio,adverse situations that may affect the borrower’s ability torepay, the estimated value of any underlying collateral,composition of the loan portfolio, current economic conditions andother relevant factors.  This evaluation is inherentlysubjective as it requires material estimates that may besusceptible to significant change, including the amounts and timingof future cash flows expected to be received on impairedloans.

A loan isconsidered impaired when, based on current information and events,it is probable that the Corporation will be unable to collect thescheduled payments of principal or interest when due according tothe contractual terms of the loan agreement.  Factorsconsidered by management in determining impairment include paymentstatus, collateral value and the probability of collectingscheduled principal and interest payments when due.  Loansthat experience insignificant payment delays and payment shortfallsgenerally are not classified as impaired.  Managementdetermines the significance of payment delays and paymentshortfalls on a case-by-case basis, taking into consideration allof the circumstances surrounding the loan and the borrower,including the length of the delay, the reasons for the delay, theborrower’s prior payment record and the amount of theshortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial andconstruction loans by either the present value of expected futurecash flows discounted at the loan’s effective interest rate,the loan’s obtainable market price or the fair value of thecollateral if the loan is collateral dependent.

Large groupsof smaller balance homogeneous loans are collectively evaluated forimpairment.  Accordingly, the Corporation does not separatelyidentify individual consumer and residential loans for impairmentdisclosures.

**Goodwilland Intangible Assets**

Goodwillrepresents the excess of the purchase price over the fair marketvalue of net assets acquired.  The Corporation has recordedgoodwill of $410,000 as of December 31, 2002 related to theacquisition of two insurance agencies in December 2002. Commencing January 1, 2002, the effect of applying FinancialAccounting Standards Board (FASB) No. 142, “Goodwill andOther Intangible Assets,” is that goodwill is no longeramortized, but would be reviewed annually for impairment.  Anyimpairment of goodwill results in a charge to income.  Thegoodwill is not deductible for tax purposes.

TheCorporation has amortizable intangible assets related to covenantsnot-to-compete and customer lists acquired in 2002 through theacquisition of the insurance agencies.  These intangibleassets are being amortized on a straight-line basis over five andfifteen years, respectively.  The Bank has total amortizableintangible assets of $439,000.  No amortization expense wasrecorded for the year ended December 31, 2002. Amortization expense is estimated to be $34,000 per year for thenext five years.

**Premisesand Equipment**

Premises andequipment are carried at cost less accumulated depreciation andamortization.  For financial statement reporting and incometax purposes, depreciation is computed both on straight-line andaccelerated methods over the estimated useful life of the premisesand equipment. Charges for maintenance and repairs are expensed asincurred. Amortization is charged over the term of the respectivelease or the estimated useful life of the asset, whichever isshorter.

**Note 1 -Significant Accounting Policies (Continued)**

**Advertising Costs**

TheCorporation follows the policy of charging the costs of advertisingto expense as incurred.  Total advertising expense for theyears ended December 31, 2002, 2001 and 2000 was $233,000,$149,000 and $72,000, respectively.

**Off-Balance Sheet FinancialInstruments**

In theordinary course of business, the Bank has entered into off-balancesheet financial instruments consisting of commitments to extendcredit and letters of credit.  Such financial instruments arerecorded in the balance sheet when they are funded.

**TrustOperations**

Trust incomeis recorded on a cash basis, which approximates the accrualbasis.  Securities and other property held by the Corporationin a fiduciary or agency capacity for customers of the TrustDepartment are not assets of the Corporation and, accordingly, arenot included in the accompanying consolidated financialstatements.

**IncomeTaxes**

Certainincome and expense items are accounted for in different years forfinancial reporting purposes than for income tax purposes. Deferred taxes are provided to recognize these temporarydifferences.  The principal items involved are investmentsecurities, employee benefit plans, provision for loan losses, netdeferred loan fees and costs and depreciation. The effect ondeferred taxes of a change in tax rates is recognized in earningsin the period that includes the enactment date.  Income taxexpense is not proportionate to earnings before taxes, principallybecause a portion of revenues from obligations of states andpolitical subdivisions are nontaxable.

**Earningsper Share**

Earnings pershare have been calculated on the weighted average number of sharesoutstanding of 3,425,858 in 2002, 3,432,389 in 2001 and 3,511,603in 2000.

TheCorporation currently maintains a simple capital structure, thusthere are no dilutive effects on earnings per share.

**Note 1 -Significant Accounting Policies (Continued)**

**TreasuryStock**

Theacquisition of treasury stock is recorded under the costmethod.  At the date of subsequent reissue, the treasury stockis reduced by the cost of such stock on the average cost basis,with any excess proceeds being credited to additional paid-incapital.

**Cash andCash Equivalents**

For purposesof reporting cash flows, the Corporation has defined cash and cashequivalents as those amounts included in the balance sheet caption,"Cash and due from banks on demand".

**RecentlyIssued Accounting Standards**

In July2001, the Financial Accounting Standards Board issued Statement No.143, “Accounting for Asset Retirement Obligations,”which addresses the financial accounting and reporting forobligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs.  ThisStatement requires that the fair value of a liability for an assetretirement obligation be recognized in the period in which it isincurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part ofthe carrying amount of the long-lived asset.  This Statementbecame effective for the Corporation on January 1, 2003, butis not expected to have a significant impact on the financialcondition or results of operations.

In July2002, the Financial Accounting Standards Board issued Statement No.146, “Accounting for Costs Associated with Exit or DisposalActivities,” which nullifies EITF Issue 94-3,“Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).”  This statementdelays recognition of these costs until liabilities are incurred,rather than at the date of commitment to the plan, and requiresfair value measurement.  It does not impact the recognition ofliabilities incurred in connection with a business combination orthe disposal of long-lived assets.  The provisions of thisstatement are effective for exit or disposal activities initiatedafter December 31, 2002 and are not expected to have asignificant impact on the Corporation’s financial conditionor results of operations.

In October2002, the Financial Accounting Standards Board issued Statement No.147, “Acquisitions of Certain FinancialInstitutions.”  This statement provides guidance onaccounting for the acquisition of a financial institution,including the acquisition of part of a financial institution. The statement defines criteria for determining whether the acquiredfinancial institution meets the conditions for a “businesscombination”.  If the acquisition meets the conditionsof a “business combination”, the specialized accountingguidance under Statement No. 72, “Accounting for CertainAcquisitions of Banking or Thrift Institutions” will notapply after September 30, 2002 and the amount of anyunidentifiable intangible asset will be reclassified to goodwillupon adoption of Statement No. 147.  The transition provisionswere effective on October 1, 2002 and did not have asignificant impact on the Corporation’s financial conditionor results of operations.

**Note 2-  Acquisitions And Divestitures**

OnDecember 10, 2002, the Corporation completed its acquisitionof Gooder, an independent insurance agency and Gooder & Mary,Inc. (G&M), a 50% partner in CNIS.  The Corporation issued35,208 shares of its common stock with a value of $756,162 and paidcash of $235,485 in exchange for all of the shares of common stockof Gooder and G&M.  The acquisition has been accounted foras a purchase and the results of operations of Gooder  andG&M since the date of acquisition are included in theconsolidated financial statements.  The effect of theseacquisitions will enhance the Corporation’s ability toprovide customers of the Bank with a full array of financialproducts and services.

The totalpurchase price of $991,647 has been allocated to the assetsacquired and liabilities assumed based upon fair value at the dateof acquisition, including identifiable intangible assets of$406,000 and $33,000 representing the fair value of the acquiredcustomer lists and covenants not-to-compete, respectively. The value of the 35,208 common shares issued was determined basedon the average market price of the Corporation’s commonshares over the ten trading days ending on the date prior to theacquisition date.** ** The excess of the purchase priceover the fair value of the identifiable net assets acquired was$410,000 and has been recorded as goodwill.  The allocation ofthe purchase price is preliminary at this time.  TheCorporation expects to finalize the valuation in 2003.  Theimpact of the acquisition of Gooder and G&M on the ongoingoperations of the Corporation in 2002 was not material.

OnJune 29, 2002, the Corporation’s principal subsidiary,the Bank, pursuant to a Purchase and Assumption Agreement withGreat American Federal (GAF), acquired the deposit liabilities,equipment and loans outstanding of GAF’s branch office inNorwin, Pennsylvania (the Norwin Branch).  The transaction wasaccounted for as a purchase.  In the transaction, the Bankassumed deposit liabilities of $11,513,514, acquired loans of$8,046,215 and equipment of $9,373.

The premiumpaid to acquire the Norwin Branch amounted to $905,284 and wasallocated to a core deposit intangible.

OnSeptember 27, 2002, the Bank, pursuant to a Purchase andAssumption Agreement with Standard Bank, PaSB, sold the bankpremises, deposit liabilities, equipment and loans outstanding ofthe Bank’s branch office and Redstone office in Murrysville,Pennsylvania (the Murrysville Branch).  In the transaction,the Bank sold deposit liabilities of $7,709,334, loans of$5,820,661 and equipment of $9,500.

**Note 3 -Cash and Due from Banks on Demand**

Regulationsof the Board of Governors of the Federal Reserve System imposeuniform reserve requirements on all depository institutions withtransaction accounts (checking accounts, NOW accounts, etc.) andnon-personal time deposits (deposits with original maturities of 14days or more).  Reserves are maintained in the form of vaultcash or a non-interest bearing balance held with the FederalReserve Bank.  The Bank also maintains deposits with theFederal Reserve Bank and other banks for various services such ascheck clearing.  The average required reserve atDecember 31, 2002 and 2001 was approximately $4,050,000 and$3,571,000, respectively.

****

**Note 4 -Securities**

Theamortized cost and fair values of securities are asfollows:
|  | **Amortized Cost** |  | **Gross Unrealized Gains** |  | **Gross Unrealized Losses** |  | **Fair Value** |
|--|--------------------|--|----------------------------|--|-----------------------------|--|----------------|
| **Availablefor Sale Securities**                                                                                                                                                                                          |                       |  |                                |  |                                            |  |                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|--|--------------------------------|--|--------------------------------------------|--|-----------------------|
| **      December 31,2002:**                                                                                                                                                                      |                       |  |                                |  |                                            |  |                       |
|            Obligations of U.S. Government

                 agencies          | **$ 10,755,815** |  | **$    85,412** |  | **$      -** |  | **$ 10,841,227** |
|            Obligations of states and political

                 subdivisions | **26,173,390**        |  | **1,127,826**                  |  | **9,017**                                  |  | **27,292,199**        |
|            Mortgage-backed securities                                                                                                                              | **100,310,249**       |  | **6,191,331**                  |  | **-**                                      |  | **106,501,580**       |
|            Other                                                                                                                                                   | **91,210**            |  | **-**                          |  | **-**                                      |  | **91,210**            |
|  | **$137,330,664** |  | **$7,404,569** |  | **$9,017** |  | **$144,726,216** |
|--|------------------|--|----------------|--|------------|--|------------------|
| **      December 31,2001:**                                                                                                                                                                      |                   |  |                       |  |                                        |  |                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|--|-----------------------|--|----------------------------------------|--|-------------------|
|            Obligations of U.S. Government

                 agencies          | $ 13,030,946 |  | $   339,974 |  | $      - |  | $ 13,370,920 |
|            Obligations of states and political

                 subdivisions | 20,437,479        |  | 387,662               |  | 5,413                                  |  | 20,819,728        |
|            Mortgage-backed securities                                                                                                                              | 80,273,868        |  | 2,549,538             |  | -                                      |  | 82,823,406        |
|            Equity securities                                                                                                                                       | 24,011            |  | -                     |  | -                                      |  | 24,011            |
|  | $113,766,304 |  | $3,277,174 |  | $5,413 |  | $117,038,065 |
|--|--------------|--|------------|--|--------|--|--------------|

Theamortized cost and fair values of securities at December 31,2002 by contractual maturity, are shown below. Mortgage-backed securities maturities are based upon theirestimated contractual maturities.  Expected maturities willdiffer from contractual maturities because borrowers may have theright to call or prepay obligations with or without call orprepayment penalties.
|  |  | **Amortized Cost** |  | **Fair Value** |
|--|--|--------------------|--|----------------|
|  | Due withinone year                    | **$      999,302** |  | **$    1,002,810** |
|--|---------------------------------------|--------------------------------------------------|--|-----------------------------------|
|  | Due afterone year through five years  | **15,676,964**                                   |  | **15,799,359**                    |
|  | Due afterfive years through ten years | **3,506,310**                                    |  | **3,747,571**                     |
|  | Due afterten years                    | **117,056,878**                                  |  | **124,085,266**                   |
|  | Other                                 | **91,210**                                       |  | **91,210**                        |
|  |  | **$137,330,664** |  | **$144,726,216** |
|--|--|------------------|--|------------------|

**Note 4 -Securities (Continued)**

Securitieswith amortized cost and fair values of $19,809,092 and $20,879,109,respectively, at December 31, 2002 and $18,276,782 and$19,015,564, respectively, at December 31, 2001 were pledgedto secure public deposits and for other purposes required orpermitted by law.

Gross gainsof $-0-, $77,835 and $400,475 and gross losses of $-0-, $70,742 and$1,092,175 were realized on those sales and calls of securitiesduring 2002, 2001 and 2000, respectively.

**Note 5 -Loans**

Loans aresummarized as follows:
|  |  |  | **December31,** |
|--|--|--|-----------------|
|  |  |  | **2002**        |  | **2001** |
|  | Commercialloans                            |  | **$ 12,725,196** |  | $ 17,251,180 |
|--|--------------------------------------------|--|-----------------------|--|-------------------|
|  | Real estateloans:                          |  |                       |  |                   |
|  |      Commercial   |  | **54,618,271**        |  | 71,699,119        |
|  |      Construction |  | **976,013**           |  | 1,629,135         |
|  |       Other       |  | **86,047,629**        |  | 95,795,479        |
|  | Installmentloans                           |  | **1,921,932**         |  | 2,486,375         |
|  | Municipalloans                             |  | **10,078,489**        |  | 10,989,898        |
|  | Otherloans                                 |  | **2,634,696**         |  | 2,555,164         |
|  | Netunamortized (fees) costs                |  | **27,999**            |  | (71,186)          |
|  |  |  | **$169,030,225** |  | $202,335,164 |
|--|--|--|------------------|--|--------------|

TheCorporation’s loan portfolio is collateralized with assetslocated within Western Pennsylvania.  Although the Corporationhas a diversified portfolio, exposure to credit loss can beadversely impacted by downturns in local economic and employmentconditions.

During 2000,the Corporation sold its credit card loan portfolio which had aprincipal balance of $6.3 million.  The gain recognized onthis sale was $822,875 which is included in otherincome.

**Note 6 -Allowance for Loan Losses**

Transactionsin the allowance for loan losses are summarized asfollows:
|  |  |  | **YearsEnded December 31,** |
|--|--|--|-----------------------------|
|  |  |  | **2002**                    |  | **2001** |  | **2000** |
|  | Balance,January 1                                                                                                                           |  | **$2,814,454** |  | $2,736,712 |  | $1,919,453 |
|--|---------------------------------------------------------------------------------------------------------------------------------------------|--|----------------|--|------------|--|------------|
|  |       Loans chargedoff                                                                                             |  | **(449,241)**  |  | (499,707)  |  | (395,276)  |
|  |       Recoveries onpreviously charged off

           loans |  | **44,080**     |  | 37,099     |  | 36,535     |
|  |       Provision for loanlosses                                                                                     |  | **298,030**    |  | 540,350    |  | 1,176,000  |
|  | Balance atDecember 31 |  | **$2,707,323** |  | $2,814,454 |  | $2,736,712 |
|--|-----------------------|--|----------------|--|------------|--|------------|

**Note 6 -Allowance for Loan Losses (Continued)**

AtDecember 31, 2002 and 2001, the recorded investment in loansconsidered to be impaired was $9,012,615 and $12,601,053,respectively.  The average recorded investment in impairedloans during 2002, 2001 and 2000 was $12,323,317, $12,730,673 and$14,569,050, respectively.  Impaired loans with balances of$3,084,737 and $7,516,022 at December 31, 2002 and 2001 hadrelated allowance for loan losses of $1,536,467 and $1,947,719,respectively.  Interest income on impaired loans of $749,113,$1,080,215 and $1,302,588 was recognized in 2002, 2001 and 2000,respectively.  The amount of interest income recognized usinga cash basis method approximated the interest incomerecognized.

Loans onwhich the accrual of interest has been discontinued amounted to$2,679,000 and $2,492,000 at December 31, 2002 and 2001,respectively.  Loan balances past due 90 days or more andstill accruing interest, but which management expects willeventually be paid in full, amounted to $2,966 and $745,000 atDecember 31, 2002 and 2001, respectively.

**Note 7 -Financial Instruments with Off-Balance Sheet Risk**

TheCorporation is a party to financial instruments withoff-balance-sheet risk in the normal course of business to meet thefinancing needs of its customers.  These financial instrumentsinclude commitments to extend credit, standby letters of credit,financial standby letters of credit and commercial letters ofcredit.  Those instruments involve, to varying degrees,elements of credit and interest rate risk in excess of the amountrecognized in the balance sheet.  The contract or notionalamount of those instruments reflect the extent of involvement theCorporation has in particular classes of financialinstruments.  The Corporation does not issue any otherinstruments with significant off-balance-sheet risk.

TheCorporation's exposure to credit loss in the event ofnonperformance by the other party to the financial instrument forcommitments to extend credit, standby letters of credit, financialstandby letters of credit and commercial letters of credit writtenis represented by the contract or notional amount of thoseinstruments.  The Corporation uses the same credit policies inmaking such commitments and conditional obligations as it does foron-balance-sheet instruments. The following table identifies thecontract or notional amount of those instruments:
|  |  |  | **YearsEnded December 31,** |   |
|--|--|--|-----------------------------|--------|
|  |  |  | **2002**                    |        | **2001** |  |
|  | Financialinstruments whose contract

      amounts representcredit risk: |  |                 |  |             |  |
|--|---------------------------------------------------------------------------------------------------|--|-----------------|--|-------------|--|
|  |       Commitments toextend credit                                        |  | **$45,229,007** |  | $30,962,966 |  |
|  |       Standby letters ofcredit                                           |  | **533,422**     |  | 595,995     |  |
|  |       Financial standbyletters of credit                                 |  | **3,700,215**   |  | 3,041,452   |  |

Commitmentsto extend credit are agreements to lend to a customer as long asthere is no violation of any condition established in thecontract.  Commitments generally have fixed expiration datesor other termination clauses and may require payment of afee.  Since many of the commitments are expected to expirewithout being drawn upon, the total commitment amounts do notnecessarily represent future cash requirements.  TheCorporation evaluates each customer's credit worthiness on acase-by-case basis.  The amount of collateral obtained, ifdeemed necessary by the Corporation upon extension of credit, isbased on management's credit evaluation of the counter party. Collateral held varies but may include accounts receivable,inventory, property, plant and equipment and income-producingcommercial properties.

**Note 7 -Financial Instruments with Off-Balance Sheet Risk(Continued)**

Standbyletters of credit, financial standby letters of credit andcommercial letters of credit written are conditional commitmentsissued by the Corporation to guarantee the performance of acustomer to a third party.  Those guarantees are primarilyissued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit isessentially the same as that involved in extending loan facilitiesto customers.

**Note 8 -Concentrations of Credit Risk**

The Bankgrants commercial, residential and consumer loans to customersprimarily located in Westmoreland County in Pennsylvania.  Theconcentrations of credit by type of loan are set forth in Note5.  Although the Bank has a diversified loan portfolio, thedebtors’ ability to honor these contracts is influenced bythe region’s economy. 

**Note 9 -Premises and Equipment**

Thecomposition of premises and equipment at December 31, 2002 and2001 is as follows:
|  |  |  | **2002** |  | **2001** |
|--|--|--|----------|--|----------|
|  | Premises                                 |  | **$5,508,714**  |  | $6,299,739  |
|--|------------------------------------------|--|-----------------|--|-------------|
|  | Leaseholdimprovements                    |  | **243,116**     |  | 228,317     |
|  | Furnitureand equipment                   |  | **5,279,465**   |  | 5,123,803   |
|  |                                          |  |                 |  |             |
|  |                                          |  | **11,031,295**  |  | 11,651,859  |
|  |                                          |  |                 |  |             |
|  | Accumulateddepreciation and amortization |  | **(6,944,348)** |  | (6,770,385) |
|  |                                          |  |                 |  |             |
|  |                                          |  | **4,086,947**   |  | 4,881,474   |
|  |                                          |  |                 |  |             |
|  | Land                                     |  | **436,973**     |  | 826,231     |
|  |  |  | **$4,523,920** |  | $5,707,705 |
|--|--|--|----------------|--|------------|

Depreciationand amortization expense was $636,402, $691,674 and $793,492 atDecember 31, 2002, 2001 and 2000, respectively.

**Note 10 -Interest Bearing Deposits**

Interestbearing deposits include certificates of deposit issued indenominations of $100,000 or more which amounted to $21,812,218 and$18,547,217 at December 31, 2002 and 2001, respectively. Interest expense related to certificates of $100,000 or greater was$741,379, $1,682,552 and $3,236,224 for the years endedDecember 31, 2002, 2001 and 2000, respectively.

Interestbearing deposits at December 31, 2002 and 2001 are detailed asfollows:
|  |  |  | **2002** |  | **2001** |
|--|--|--|----------|--|----------|
|  | Savingsaccounts          |  | **$ 55,616,265** |  | $ 50,287,302 |
|--|--------------------------|--|-----------------------|--|-------------------|
|  | NOWaccounts              |  | **17,133,871**        |  | 14,653,449        |
|  | Money MarketNOW accounts |  | **7,415,682**         |  | 7,258,555         |
|  | FIMMaccounts             |  | **46,599,507**        |  | 43,469,909        |
|  | Timedeposits             |  | **91,904,232**        |  | 91,375,281        |
|  |  |  | **$218,669,557** |  | $207,044,496 |
|--|--|--|------------------|--|--------------|

Included intime deposits at December 31, 2002 were certificates ofdeposit with the following scheduled maturities:
|  | 2003 |  | **$52,641,334** |
|--|------|--|-----------------|
|  | 2004 |  | **8,825,010**   |
|  | 2005 |  | **9,137,489**   |
|  | 2006 |  | **3,557,099**   |
|  | 2007 |  | **17,743,300**  |
|  |  |  | **$91,904,232** |
|--|--|--|-----------------|

Depositoverdrafts reclassified to loans receivable amounted to $35,255 and$25,904 at December 31, 2002 and 2001, respectively.

**Note 11 -Short-Term Borrowings**

Short-termborrowings at December 31, 2002 and 2001 were asfollows:
|  |  |  | **EndingBalance** |  | **AverageBalance** |  | **AverageRate** |
|--|--|--|-------------------|--|--------------------|--|-----------------|
|  | **December31, 2002:**                                                                                                                   |  |                                                                                                        |  |                           |  |          |   |
|--|-----------------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------------------------------------------------------------------------------|--|---------------------------|--|----------|---|
|  |       Federal fundspurchased                                                                                   |  | **$                -** |  | **$   536,507** |  | **1.96** | % |
|  |       Borrowings fromFederal Home Loan

           Bank |  | **-**                                                                                                  |  | **958,904**               |  | **1.99** |   |
|  |                                                                                                                                         |  |                                                                                                        |  |                           |  |          |   |
|  |                                                                                                                                         |  | **$                -** |  | **$1,495,411**            |  | **1.98** | % |
|  |                                                                                                                                         |  |                                                                                                        |  |                           |  |          |   |
|  | **December31, 2001:**                                                                                                                   |  |                                                                                                        |  |                           |  |          |   |
|  |       Federal fundspurchased                                                                                   |  | $ 4,275,000                                                                                       |  | $1,150,411                |  | 3.22     | % |
|  |       Borrowings fromFederal Home Loan

           Bank |  | -                                                                                                      |  | 1,767,123                 |  | 5.38     |   |
|  |                                                                                                                                         |  |                                                                                                        |  |                           |  |          |   |
|  |                                                                                                                                         |  | $ 4,275,000                                                                                       |  | $2,917,534                |  | 3.27     | % |
|  |                                                                                                                                         |  |                                                                                                        |  |                           |  |          |   |
|  |       Maximum total atany month-end                                                                            |  | $16,500,000                                                                                            |  |                           |  |          |   |

AtDecember 31, 2002, the Corporation had approved but unusedfunding availability from lines of credit of$30,000,000.

Interestexpense on short-term borrowings for the years endedDecember 31, 2002, 2001 and 2000 is detailed asfollows:
|  |  |  | **2002** |  | **2001** |  | **2000** |
|--|--|--|----------|--|----------|--|----------|
|  | Federalfunds purchased                     |  | **$10,556** |  | $37,003 |  | $120,149 |
|--|--------------------------------------------|--|-------------|--|---------|--|----------|
|  | Borrowingsfrom Federal Home Loan Bank      |  | **19,094**  |  | 58,443  |  | 408,431  |
|  |                                            |  |             |  |         |  |          |
|  | **Totalinterest on short-term borrowings** |  | **$29,650** |  | $95,446 |  | $528,580 |

**Note 12 -Long-Term Borrowings**

Long-termborrowings consist of Federal Home Loan Bank (FHLB) advances whichare collateralized by certain mortgages and investmentsecurities.

Advancesfrom the FHLB at December 31, 2002 and 2001 consisted of thefollowing:
|                    |  | **2002**   |  | **2001**                  |
|--------------------|--|------------|--|---------------------------|
| **StatedMaturity** |  | **Amount** |  | **Weighted Average Rate** |  | **Amount** |  | **Weighted Average Rate** |
| November 25,2005    |  | **$ 5,000,000** |  | **4.82** | **%** | $ 5,000,000 |  | 4.82 | % |
|---------------------|--|----------------------|--|----------|-------|------------------|--|------|---|
| March 1,2006        |  | **5,000,000**        |  | **4.85** |       | 5,000,000        |  | 4.85 |   |
| March 2,2009        |  | **5,000,000**        |  | **5.52** |       | 5,000,000        |  | 5.52 |   |
| April 30,2009 Fixed |  | **5,000,000**        |  | **5.36** |       | -                |  | -    |   |
| April 30,2010 Fixed |  | **5,000,000**        |  | **5.49** |       | -                |  | -    |   |
| March 1,2011        |  | **5,000,000**        |  | **4.28** |       | 5,000,000        |  | 4.28 |   |
| March 1,2011        |  | **5,000,000**        |  | **5.23** |       | 5,000,000        |  | 5.23 |   |
| March 21,2011       |  | **5,000,000**        |  | **5.37** |       | 5,000,000        |  | 5.37 |   |
| April 30,2011 Fixed |  | **5,000,000**        |  | **5.59** |       | -                |  | -    |   |
| April 30,2012 Fixed |  | **5,000,000**        |  | **5.68** |       | -                |  | -    |   |
| March 23,2016       |  | **5,000,000**        |  | **5.27** |       | 5,000,000        |  | 5.27 |   |
|                     |  |                      |  |          |       |                  |  |      |   |
|                     |  | **$55,000,000**      |  | **5.22** | **%** | $35,000,000      |  | 5.05 | % |

Unlessnoted, outstanding advances are convertible rate notes which carryan option, at the interest rate change date, to repay the advancewithout incurring a prepayment penalty.

Advancesfrom the FHLB of Pittsburgh are secured by the bank’s stockin the FHLB of Pittsburgh, qualifying residential mortgage loans,U.S. Government securities, U.S. agency securities andmortgage-backed securities issued or guaranteed by GNMA, FHLMC andFNMA to the extent that the defined statutory value must be atleast equal to the advances outstanding.  The maximumremaining borrowing capacity at December 31, 2002 is$152,000,000.

**Note 13 -Employee Benefit Plans**

TheCorporation sponsors an employee profit sharing plan available toall employees with at least one year of service.  TheCorporation contributes to the plan, as determined by the Board ofDirectors, in an amount not to exceed 15% of compensation ofeligible participants.  The Corporation also has asupplemental retirement plan for certain retired employees. The expense for the employee benefit plans was $607,684, $595,480and $605,651 for the years ended December 31, 2002, 2001 and2000, respectively.

**Note 14 -Comprehensive Income**

Accountingprinciples generally require that recognized revenue, expenses,gains and losses be included in net income.  Although certainchanges in assets and liabilities, such as unrealized gains andlosses on available for sale securities, are reported as a separatecomponent of the equity section of the balance sheet, such items,along with net income, are components of comprehensiveincome.

Thecomponents of other comprehensive income and related tax effectsfor the years ended December 31, 2002, 2001 and 2000 are asfollows:
|  |  |  | **2002** |  | **2001** |  | **2000** |
|--|--|--|----------|--|----------|--|----------|
|  | Gross changein unrealized gains

      on securitiesavailable for sale |  | **$4,123,791** |  | $1,620,851 |  | $3,705,181 |
|--|-------------------------------------------------------------------------------------------------|--|----------------|--|------------|--|------------|
|  | Lessreclassification adjustment for (gains) losses realized inincome                            |  | **-**          |  | (7,093)    |  | 691,700    |
|  |                                                                                                 |  |                |  |            |  |            |
|  | **Netunrealized gains**                                                                         |  | **4,123,791**  |  | 1,613,758  |  | 4,396,881  |
|  |                                                                                                 |  |                |  |            |  |            |
|  | Taxeffect                                                                                       |  | **1,402,089**  |  | 548,678    |  | 1,494,939  |
|  |                                                                                                 |  |                |  |            |  |            |
|  | **Net oftax amount**                                                                            |  | **$2,721,702** |  | $1,065,080 |  | $2,901,942 |

**Note 15 -Commitments**

The Bankrents offices under operating leases that expire from 2003 through2016. In 2002, the Corporation entered into a capital leaseagreement for equipment with a term of four years. The equipment isincluded in premises and equipment. 

Amortizationexpense for the year ended December 31, 2002 amounted to$33,947.  The capital lease obligation is included in otherliabilities.  Net book values and scheduled maturities ofcapital and operating lease obligations at December 31, 2002are as follows:
|  | Cost                    |  | **$171,520** |  |  |
|--|-------------------------|--|--------------|--|--|
|  | Accumulatedamortization |  | **(33,947)** |  |  |
|  |  |  | **$137,573** |  |  |
|--|--|--|--------------|--|--|

**Note 15 -Commitments (Continued)**
|  |  | **CapitalLease Obligation** |  | **Operating Leases** |
|--|--|-----------------------------|--|----------------------|
|  | 2003               | **$ 48,552** |  | **$119,496** |
|--|--------------------|-------------------|--|--------------|
|  | 2004               | **48,552**        |  | **94,056**   |
|  | 2005               | **48,552**        |  | **86,516**   |
|  | 2006               | **8,023**         |  | **75,960**   |
|  | 2007               | **-**             |  | **28,500**   |
|  | 2008 andthereafter | **-**             |  | **256,500**  |
|  |                             | **153,679**  |  | **661,028** |
|--|-----------------------------|--------------|--|-------------|
|  | Amountrepresenting interest | **(15,275)** |  | **-**       |
|  |  | **$138,404** |  | **$661,028** |
|--|--|--------------|--|--------------|

**Note 16 -Income Taxes**

Thecomponents of the net deferred tax liability at December 31,2002 and 2001 are as follows:
|  |  |  | **2002** |  | **2001** |
|--|--|--|----------|--|----------|
|  | Allowancefor loan losses                            |  | **$   761,684** |  | $798,109   |
|--|-----------------------------------------------------|--|---------------------------|--|------------|
|  | Accruedbenefits                                     |  | **111,445**               |  | 120,917    |
|  | Deferredloan fees                                   |  | **33,723**                |  | 24,204     |
|  | Other                                               |  | **1,683**                 |  | -          |
|  |                                                     |  |                           |  |            |
|  | **Totaldeferred tax assets**                        |  | **908,535**               |  | 943,230    |
|  |                                                     |  |                           |  |            |
|  | Securitiesaccretion                                 |  | **181,519**               |  | 156,836    |
|  | Unrealizednet gain on securities available for sale |  | **2,514,488**             |  | 1,112,399  |
|  | Depreciation                                        |  | **22,762**                |  | -          |
|  |                                                     |  |                           |  |            |
|  | **Totaldeferred tax liabilities**                   |  | **2,718,769**             |  | 1,269,235  |
|  |                                                     |  |                           |  |            |
|  | **Netdeferred tax liability**                       |  | **$(1,810,234)**          |  | $(326,005) |

**Note 16 -Income Tax**es (Continued)

The incometax provision for the years ended December 31, 2002, 2001 and2000 is summarized as follows:
|  |  |  | **2002** |  | **2001** |  | **2000** |
|--|--|--|----------|--|----------|--|----------|
|  | Current  |  | **$1,790,830** |  | $1,625,911 |  | $1,497,957 |
|--|----------|--|----------------|--|------------|--|------------|
|  | Deferred |  | **82,140**     |  | 73,391     |  | (78,687)   |
|  |          |  |                |  |            |  |            |
|  |          |  | **$1,872,970** |  | $1,699,302 |  | $1,419,270 |

The taxprovision for financial reporting purposes differs from the amountcomputed by applying the statutory federal income tax rate of 34%to income before income taxes.  The differences for the yearsended December 31, 2002, 2001, and 2000 are asfollows:
|  |  |  | **2002** |  | **2001** |  | **2000** |
|--|--|--|----------|--|----------|--|----------|
|  | Tax atstatutory rates:                                                                                                                   |  | **$2,453,843** |  | $2,245,437 |  | $2,057,262 |
|--|------------------------------------------------------------------------------------------------------------------------------------------|--|----------------|--|------------|--|------------|
|  |       Increase(decrease) resulting from:                                                                        |  |                |  |            |  |            |
|  |       Tax-exemptinterest and dividend

           income |  | **(561,625)**  |  | (538,145)  |  | (709,589)  |
|  |       Non-deductibleinterest expense                                                                            |  | **45,986**     |  | 58,101     |  | 92,376     |
|  |       Income on lifeinsurance                                                                                   |  | **(174,927)**  |  | (74,066)   |  | (26,964)   |
|  |       Other                                                                                                     |  | **109,693**    |  | 7,975      |  | 6,185      |
|  |                                                                                                                                          |  |                |  |            |  |            |
|  |                                                                                                                                          |  | **$1,872,970** |  | $1,699,302 |  | $1,419,270 |

**Note 17 -Fair Value of Financial Instruments**

Below arevarious estimated fair values at December 31, 2002 and 2001,as required by Statement of Financial Accounting Standards No. 107(FAS 107).  Such information, which pertains to theCorporation’s financial instruments, is based on therequirements set forth in FAS 107 and does not purport to representthe aggregate net fair value of the Corporation.  It is theCorporation’s general practice and intent to hold itsfinancial instruments to maturity, except for certain securitiesdesignated as securities available for sale, and not to engage intrading activities.  Many of the financial instruments lack anavailable trading market, as characterized by a willing buyer andseller engaging in an exchange transaction.  Therefore, theCorporation had to use significant estimations and present valuecalculations to prepare this disclosure.

Changes inthe assumptions or methodologies used to estimate fair values maymaterially affect the estimated amounts.  Also, management isconcerned that there may not be reasonable comparability betweeninstitutions due to the wide range of permitted assumptions and themethodologies in absence of active markets.  This lack ofuniformity gives rise to a high degree of subjectivity inestimating financial instrument fair values.

**Note 17 -Fair Value of Financial**Instruments (Continued)

Thefollowing methods and assumptions were used by the Corporation inestimating financial instrument fair values:

**Cash andShort Term Investments**

The carryingamounts for cash and short-term investments approximate theestimated fair values of such assets.

**Securities**

Fair valuesfor securities available for sale are based on quoted marketprices, if available.  If quoted market prices are notavailable, fair values are based on quoted market prices ofcomparable instruments.

**Restricted Investments in BankStock**

The carryingamounts of restricted investments in bank stock approximate theestimated fair value of such assets.

**LoansReceivable**

Fair valuesof variable rate loans subject to frequent repricing and whichentail no significant credit risk are based on the carryingvalues.  The estimated fair values of other loans areestimated by discounting the future cash flows using interest ratescurrently offered for loans with similar terms to borrowers ofsimilar credit quality. 

**DepositLiabilities**

For depositswhich are payable on demand at the reporting date, representing alldeposits other than time deposits, management estimated that thecarrying value of such deposits is a reasonable estimate of fairvalue.  The  carrying amounts of certificates of depositapproximate their fair values at the report date.  Fair valuesof fixed rate time deposits are estimated by discounting the futurecash flows using interest rates currently being offered and aschedule of aggregate expected maturities.

**Short-Term Borrowings**

The carryingamounts for short-term borrowings approximate the estimated fairvalue of such liabilities.

**AccruedInterest Receivable and Payable**

The carryingamount of accrued interest receivable and payable is considered areasonable estimate of fair value.

**Long-TermBorrowings**

Fair valuesof fixed rate borrowings are estimated by discounting the futurecash flows using the Corporation’s estimated incrementalborrowing rate for similar types of borrowingarrangements.

**Note** 17 - Fair Value of FinancialInstruments (Continued)

**Off-Balance Sheet Instruments**

The fairvalue of commitments to extend credit and for outstanding lettersof credit is estimated using the fees currently charged to enterinto similar agreements, taking into account market interest rates,the remaining terms and present credit worthiness of thecounterparties.
|  | **December31, 2002** |  | **December31, 2001** |
|--|----------------------|--|----------------------|
|  | **CarryingAmount**   |  | **Fair Value**       |  | **CarryingAmount** |  | **Fair Value** |
| Financialassets:                                                   |                       |  |                 |  |                   |  |                   |
|--------------------------------------------------------------------|-----------------------|--|-----------------|--|-------------------|--|-------------------|
|       Cash andshort-term investments      | **$ 45,577,905** |  | **$45,577,905** |  | $ 10,112,268 |  | $ 10,112,268 |
|       Securitiesavailable for sale        | **144,726,216**       |  | **144,726,216** |  | 117,038,065       |  | 117,038,065       |
|       Restrictedinvestments in bank stock | **3,618,200**         |  | **3,618,200**   |  | 2,358,000         |  | 2,358,000         |
|       Loans, net ofallowance              | **166,322,902**       |  | **176,759,672** |  | 199,520,710       |  | 208,348,928       |
|       Accrued interestreceivable          | **1,541,961**         |  | **1,541,961**   |  | 1,800,883         |  | 1,800,883         |
|                                                                    |                       |  |                 |  |                   |  |                   |
| Financialliabilities:                                              |                       |  |                 |  |                   |  |                   |
|      Deposits                             | **270,025,209**       |  | **275,138,263** |  | 254,986,772       |  | 257,131,826       |
|       Short-termborrowings                | **-**                 |  | **-**           |  | 4,275,000         |  | 4,275,000         |
|       Accrued interestpayable             | **1,024,263**         |  | **1,024,263**   |  | 1,048,224         |  | 1,048,224         |
|       Long-termborrowings                 | **55,000,000**        |  | **60,551,000**  |  | 35,000,000        |  | 35,650,000        |
|                                                                    |                       |  |                 |  |                   |  |                   |
| Off-balancesheet financial instruments:                            |                       |  |                 |  |                   |  |                   |
|       Commitments toextend credit         | **-**                 |  | **-**           |  | -                 |  | -                 |
|       Standby letters ofcredit            | **-**                 |  | **-**           |  | -                 |  | -                 |
|       Financial standbyletters of credit  | **-**                 |  | **-**           |  | -                 |  | -                 |

**Note 18 -Related Party Transactions**

Some of theCorporation's or the Bank’s directors, principal officers,principal stockholders and their related interests had transactionswith the Bank in the ordinary course of business during 2002. All loans and loan commitments in such transactions were made onsubstantially the same terms, including collateral and interestrates, as those prevailing at the time for comparable transactionswith others.  In the opinion of management, these transactionswith others do not involve more than normal risk of collectibilityor present other unfavorable features.  It is anticipated thatfurther such extensions of credit will be made in the future. The aggregate amount of credit extended to these directors andprincipal officers was approximately $1,656,401 and $2,162,856 atDecember 31, 2002 and 2001, respectively.

**Note 18 -Related Party Transactions (Continued)**

Thefollowing is an analysis of loans to those parties whose loanbalances exceeded $60,000 for the year ended December 31,2002:
|  | Balances atJanuary 1                     |  |  |  | $1,562,594     |
|--|------------------------------------------|--|--|--|----------------|
|  |      Advances   |  |  |  | 589,782        |
|  |      Repayments |  |  |  | (1,223,093)    |
|  |                                          |  |  |  |                |
|  | Balances atDecember 31                   |  |  |  | $ 929,283 |

During 2002,the Corporation had loan advances to certain directors which, whenaggregated with loans existing prior to January 1, 2002,caused their aggregate loan balances to exceed $60,000. Therefore, the balance at January 1, 2002 was adjusted toreflect these directors’ loan additions.

**Note 19 -Capital Requirements and Dividend Restrictions**

TheCorporation and the Bank are subject to various regulatory capitalrequirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certainmandatory and possibly additional discretionary actions byregulators that, if undertaken, could have a direct material effecton the consolidated financial statements.  Under capitaladequacy guidelines and the regulatory framework for promptcorrective action, the Corporation and the Bank must meet specificcapital guidelines that involve quantitative measures of theassets, liabilities and certain off-balance-sheet items ascalculated under regulatory accounting practices.  The capitalamounts and classification are also subject to qualitativejudgments by the regulators about components, risk-weighting andother factors.

Quantitativemeasures established by regulation to ensure capital adequacyrequire the maintenance of minimum amounts and ratios (set forth inthe tables below) of total and Tier 1 capital (as defined in theregulations) to risk-weighted assets (as defined) and of Tier 1Capital (as defined) to average assets (as defined). Management believes, as of December 31, 2002, that theCorporation and the Bank meet all capital adequacy requirements towhich they are subject.

**Note 19 -Capital Requirements and Dividend Restrictions(Continued)**

As ofDecember 31, 2002, the most recent notification from theregulatory agencies categorized the Bank as well capitalized underthe regulatory framework for prompt corrective action.  To becategorized as well capitalized, the Bank must maintain minimumtotal risk-based, Tier 1 risk-based and Tier 1 leverage ratios asset forth in the table.  There are no conditions or eventssince those notifications that management believes have changedthose categories.
|  |  | **Actual** |  | **For Capital Adequacy Purposes** |  | **To beWell Capitalized Under Prompt Corrective ActionProvisions** |  |
|--|--|------------|--|-----------------------------------|--|--------------------------------------------------------------------|--|
|  |  | **Amount** |  | **Ratio**                         |  | **Amount**                                                         |  | **Ratio** |  | **Amount** |  | **Ratio** |  |
| **As ofDecember 31, 2002:**                                                                      |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|-------------------------------------------------------------------------------------------------------|--|-----------------|--|----------|-------|----------------------------|--|---------------|-------|-----------------------|--|-------------------------|-------|
|       Total capital (torisk-weighted assets):                                |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | **$46,867,744** |  | **25.2** | **%** | **$**314,875,216      |  | **3**8.0 | **%** | **N/A**               |  |
|            Commercial National Bank            |  | **46,693,263**  |  | **25.2** |       | **314,865,218**       |  | **3**8.0 |       | **$**318,581,522 |  | **3****10.0**      | **%** |
|       Tier 1 capital (torisk-weighted assets):                               |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | **44,538,762**  |  | **24.0** |       | **3  7,437,608** |  | **3**4.0 |       | **N/A**               |  |
|            Commercial National Bank            |  | **44,365,824**  |  | **23.9** |       | **3  7,432,609** |  | **3**4.0 |       | **311,148,913**  |  | **3**** 6.0** |       |
|       Tier 1 capital (toaverage assets):                                     |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | **44,538,762**  |  | **12.1** |       | **314,925,976**       |  | **3**4.0 |       | **N/A**               |  |
|            Commercial National Bank            |  | **44,365,824**  |  | **12.0** |       | **314,791,360**       |  | **3**4.0 |       | **318,489,200**  |  | **3**** 5.0** |       |
|                                                                                                       |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
| **As ofDecember 31, 2001:**                                                                      |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|       Total capital (torisk-weighted assets):                                |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | $46,264,431     |  | **23.6** | **%** | $315,673,503          |  | **3**8.0 | **%** | N/A                   |  |
|            Commercial National Bank            |  | 46,248,984      |  | **23.6** |       | 315,671,368           |  | **3**8.0 |       | $319,589,210     |  | 310.0              | **%** |
|       Tier 1 capital (torisk-weighted assets):                               |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | 43,810,934      |  | **22.4** |       | 3 7,836,752      |  | **3**4.0 |       | N/A                   |  |
|            Commercial National Bank            |  | 43,795,817      |  | **22.4** |       | 3 7,835,684      |  | **3**4.0 |       | 311,753,546      |  | 3  6.0        |       |
|       Tier 1 capital (toaverage assets):                                     |  |                 |  |          |       |                            |  |               |       |                       |  |                         |       |
|            Commercial National Financial Corp. |  | 43,810,934      |  | **12.7** |       | 313,801,350           |  | **3**4.0 |       | N/A                   |  |
|            Commercial National Bank            |  | 43,795,817      |  | **12.7** |       | 313,800,019           |  | **3**4.0 |       | 317,250,023      |  | 3  5.0        |       |

The amountof funds available to a parent from its subsidiary bank is limitedfor all national banks by restrictions imposed by the Comptrollerof the Currency.  Dividends from the Bank were restricted notto exceed $3,288,568 at December 31, 2002.  Theserestrictions have not had, and are not expected to have, asignificant impact on the Corporation's ability to meet its cashobligations.

**Note 20 -Condensed Financial Information of Commercial National FinancialCorporation (Parent Only)**

**Statements of Financial Condition**
|  |  |  | **December31,** |
|--|--|--|-----------------|
|  |  |  | **2002**        |  | **2001** |
|  | **Assets**                                                         |  |                                                            |  |                                                        |
|--|--------------------------------------------------------------------|--|------------------------------------------------------------|--|--------------------------------------------------------|
|  | Cash                                                               |  | **$        5,187** |  | $        5,179 |
|  | Investmentin subsidiary, Commercial National Bank of Pennsylvania  |  | **50,183,021**                                             |  | 45,955,589                                             |
|  | Investmentin subsidiary, Commercial National InvestmentCorporation |  | **1,030,372**                                              |  | 24,010                                                 |
|  | Otherassets                                                        |  | **200**                                                    |  | 200                                                    |
|  |                                                                    |  |                                                            |  |                                                        |
|  | **Totalassets**                                                    |  | **$51,218,780**                                            |  | $45,984,978                                            |
|  |                                                                    |  |                                                            |  |                                                        |
|  | **Liabilities and Shareholders’Equity**                      |  |                                                            |  |                                                        |
|  | Liabilities,accounts payable                                       |  | **$     14,278**                  |  | $      14,681                 |
|  | Shareholders’ equity                                         |  | **51,204,502**                                             |  | 45,970,297                                             |
|  |                                                                    |  |                                                            |  |                                                        |
|  | **Totalliabilities and shareholders’ equity**                |  | **$51,218,780**                                            |  | $45,984,978                                            |

**Statements of Income**
|  |  |  | **YearsEnded December 31,** |
|--|--|--|-----------------------------|
|  |  |  | **2002**                    |  | **2001** |  | **2000** |
|  | Dividendsfrom subsidiary, Commercial National Bank ofPennsylvania |  | **$3,824,431** |  | $3,136,623 |  | $3,800,430 |
|--|-------------------------------------------------------------------|--|----------------|--|------------|--|------------|
|  | Fees fromsubsidiary, Commercial National Bank of Pennsylvania     |  | **302,600**    |  | 189,000    |  | 161,500    |
|  | Expenses                                                          |  | **(303,659)**  |  | (188,824)  |  | (123,094)  |
|  |                                                                   |  |                |  |            |  |            |
|  |                                                                   |  | **3,823,372**  |  | 3,136,799  |  | 3,838,836  |
|  |                                                                   |  |                |  |            |  |            |
|  | Applicabletax benefit (expense)                                   |  | **400**        |  | -          |  | (13,059)   |
|  |                                                                   |  |                |  |            |  |            |
|  |                                                                   |  | **3,823,772**  |  | 3,136,799  |  | 3,825,777  |
|  |                                                                   |  |                |  |            |  |            |
|  | Equity inexcess undistributed earnings of subsidiaries            |  | **1,520,444**  |  | 1,768,124  |  | 805,735    |
|  |                                                                   |  |                |  |            |  |            |
|  | **Netincome**                                                     |  | **$5,344,216** |  | $4,904,923 |  | $4,631,512 |

**Note 20 -Condensed Financial Information of Commercial National FinancialCorporation (Parent Only)**

**Statements of Cash Flows**
|  |  |  | **YearsEnded December 31,** |
|--|--|--|-----------------------------|
|  |  |  | **2002**                    |  | **2001** |  | **2000** |
|  | **Cashflows from operating activities**                                                                                                                                                                                                               |  |                                                |  |                                            |  |                                            |
|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------------------------------------------------|--|--------------------------------------------|--|--------------------------------------------|
|  |       Netincome                                                                                                                                                                                                              |  | **$5,344,216**                                 |  | $4,904,923                                 |  | $4,631,512                                 |
|  |       Adjustments toreconcile net income to

           net cash provided by operating

           activities: |  |                                                |  |                                            |  |                                            |
|  |            Equity in undistributed earnings of

                 subsidiaries                             |  | **(1,520,444)**                                |  | (1,768,124)                                |  | (805,735)                                  |
|  |            Issuance of treasury stock for

                 compensation                                  |  | **1,069**                                      |  | -                                          |  | -                                          |
|  |            Increase (decrease) in other assets                                                                                                                                                 |  | **-**                                          |  | 2,892                                      |  | (3,092)                                    |
|  |            Increase (decrease) in accounts payable                                                                                                                                             |  | **(403)**                                      |  | 201                                        |  | (24,965)                                   |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Net cashprovided by operating activities**                                                                                                                                                                                                          |  | **3,824,438**                                  |  | 3,139,892                                  |  | 3,797,720                                  |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Cashflows used in investing activities**                                                                                                                                                                                                            |  |                                                |  |                                            |  |                                            |
|  |       Net cash used inacquisition                                                                                                                                                                                            |  | **(235,485)**                                  |  | -                                          |  | -                                          |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Cashflows from financing activities**                                                                                                                                                                                                               |  |                                                |  |                                            |  |                                            |
|  |       Dividendspaid                                                                                                                                                                                                          |  | **(3,424,008)**                                |  | (2,607,538)                                |  | (2,383,528)                                |
|  |       Purchase oftreasury stock                                                                                                                                                                                              |  | **(164,937)**                                  |  | (529,085)                                  |  | (1,416,902)                                |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Net cashused in financing activities**                                                                                                                                                                                                              |  | **(3,588,945)**                                |  | (3,136,623)                                |  | (3,800,430)                                |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Increase(decrease) in cash**                                                                                                                                                                                                                        |  | **8**                                          |  | 3,269                                      |  | (2,710)                                    |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Cash -Beginning**                                                                                                                                                                                                                                   |  | **5,179**                                      |  | 1,910                                      |  | 4,620                                      |
|  |                                                                                                                                                                                                                                                       |  |                                                |  |                                            |  |                                            |
|  | **Cash -Ending**                                                                                                                                                                                                                                      |  | **$      5,187** |  | $      5,179 |  | $      1,910 |

IndependentAuditor’s Report

To the Boardof Directors and ShareholdersCommercial National Financial Corporation and Subsidiaries Latrobe, Pennsylvania

We haveaudited the accompanying consolidated statements of financialcondition of Commercial National Financial Corporation and itswholly-owned subsidiaries as of December 31, 2002 and 2001,and the related consolidated statements of income, changes inshareholders’ equity and cash flows for each of the threeyears in the period ended December 31, 2002.  Theseconsolidated financial statements are the responsibility of theCorporation's management.  Our responsibility is to express anopinion on these consolidated financial statements based on ouraudits. 

We conductedour audits in accordance with auditing standards generally acceptedin the United States of America.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidatedfinancial statements.  An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall consolidatedfinancial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In ouropinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidatedfinancial position of Commercial National Financial Corporation andits wholly-owned subsidiaries as of December 31, 2002 and2001, and the consolidated results of their operations and theircash flows for each of the three years in the period endedDecember 31, 2002 in conformity with accounting principlesgenerally accepted in the United States of America.

/s/ BeardMiller Company LLP

Pittsburgh,PennsylvaniaJanuary 17, 2003

Quarterly Summary of Financial Data(Unaudited)

      The unauditedquarterly results of operations for the years ended December 31,2002

   andDecember 31, 2001 are as follows:

                                                                                                                                                
|                                 |                                     |
|---------------------------------|-------------------------------------|
|                                 | 2002                                |
|                                 |                                     |
|                                 | First                               | Second | Third | Fourth |
|                                 | Quarter                             | Quarter | Quarter | Quarter |
| Interestincome                  | $5,781,588                          | $5,700,828 | $5,873,569 | $5,586,568 |
| Interestexpense                 |  1,801,831                     |  1,932,992 |  1,992,398 | 1,847,279 |
|   Netinterest income       |  3,979,757                     | 3,767,836 | 3,881,171 | 3,739,289 |
| Provision forloan losses        |       39,214    |   162,816 |     96,000 |         - |
|                                 |                                     |  |  |  |
|   Netinterest income after |                                     |  |  |  |
|   provisionfor loan losses |  3,940,543                     | 3,605,020 | 3,785,171 | 3,739,289 |
|                                 |                                     |  |  |  |
| Other income(including security |                                     |  |  |  |
|  transactions)             |     687,462          |   672,094 | 1,227,329 |   588,402 |
|                                 |                                     |  |  |  |
| Otherexpenses                   |  2,697,425                     |  2,629,923 | 2,804,678 | 2,896,098 |
|                                 |                                     |  |  |  |
| Income beforetaxes              |  1,930,580                     | 1,647,191 | 2,207,822 | 1,431,593 |
| Applicableincome taxes          |     535,700          |   449,300 |   477,700 |   410,270 |
| Netincome                       | $1,394,880                          | $1,197,891 | $1,730,122 | $1,021,323 |
| Earnings pershare, basic        | $      .41 | $     .35 | $     .50 | $     .30 |
|                                 |                                     |  |  |  |
|                                 |                                                          |
|---------------------------------|----------------------------------------------------------|
|                                 | 2001                                                     |
|                                 |                                                          |
|                                 | First                                                    | Second | Third | Fourth |
|                                 | Quarter                                                  | Quarter | Quarter | Quarter |
| Interestincome                  | $6,162,552                                               | $6,193,997 | $5,955,756 | $6,086,685 |
| Interestexpense                 |  2,508,647                                          |  2,600,945 |  2,394,762 | 2,211,596 |
|   Netinterest income       |  3,653,905                                          | 3,593,052 | 3,560,994 | 3,875,089 |
| Provision forloan losses        |           - |         - |   429,350 |   111,000 |
|                                 |                                                          |  |  |  |
|   Netinterest income after |                                                          |  |  |  |
|   provisionfor loan losses |  3,653,905                                          | 3,593,052 | 3,131,644 | 3,764,089 |
|                                 |                                                          |  |  |  |
| Other income(including security |                                                          |  |  |  |
|  transactions)             |     584,603                               |   665,641 |   696,159 |   608,434 |
|                                 |                                                          |  |  |  |
| Otherexpenses                   |  2,525,041                                          |  2,545,773 | 2,624,717 | 2,397,771 |
|                                 |                                                          |  |  |  |
| Income beforetaxes              |  1,713,467                                          | 1,712,920 | 1,203,086 | 1,974,752 |
| Applicableincome taxes          |     477,600                               |   485,500 |   256,300 |   479,902 |
| Netincome                       | $1,235,867                                               | $1,227,420 | $ 946,786 | $1,494,850 |
| Earnings pershare, basic        | $      .36                      | $     .36 | $     .28 | $     .43 |
|                                 |                                                          |  |  |  |

Common StockInformation

The followingtable sets forth the high and low sales prices for the commonstock, as reported by The Nasdaq Stock Market, Inc., and the cashdividends declared per share on the common stock for the periodsindicated.
|               |   |                   |   |                   |   | CashDividend                       |
|---------------|---|-------------------|---|-------------------|---|------------------------------------|
| 2002          |   | High              |   | Low               |   | Per Share                          |
| FirstQuarter  | $ |   18.75 | $ |   16.65 | $ |       .25 |
| SecondQuarter |   |   22.00 |   |   18.05 |   |       .25 |
| ThirdQuarter  |   |   23.37 |   |   20.35 |   |       .25 |
| FourthQuarter |   |   24.10 |   |   21.00 |   |       .25 |
|               |   |                   |   |                   |   |                                    |
| 2001          |   |                   |   |                   |   |                                    |
| FirstQuarter  | $ |   16.38 | $ |   13.50 | $ |       .19 |
| SecondQuarter |   |   20.00 |   |   14.61 |   |       .19 |
| ThirdQuarter  |   |   19.10 |   |   16.50 |   |       .19 |
| FourthQuarter |   |   18.75 |   |   17.70 |   |       .19 |
|               |   |                   |   |                   |   |                                    |

CommercialNational Financial Corporation common stock is traded on The NasdaqNational Market System under the trading symbol “CNAF”with an additional descriptive listing of“CmclNat.”

SelectedFinancial Data

The followingfinancial information is not covered by the auditor's report andmust

be read inconjunction with the consolidated financial statements and relatednotes

along withmanagement's discussion and analysis of financial condition andresults of

operations.
| Years Ended December 31,                                                   |
|----------------------------------------------------------------------------|
|                                                                            |  |  |  |  |  |
|                                                                            | 2002 | 2001 | 2000 | 1999 | 1998 |
| Interestincome                                                             |  |  |  |  |  |
| Interest&  fees on loans                                          |   $13,532,996 |   $16,665,093 |   $17,513,408 |    $16,693,455 |   $16,755,493 |
| Interest ÷nds on                                                 |  |  |  |  |  |
|     Securities                                              |       9,187,459 |       7,085,435 |       8,420,851 |        7,475,668 |       6,862,194 |
| Interest onmoney market                                                    |  |  |  |  |  |
|     Investments                                             |         222,098 |         648,462 |         121,528 |           133,609 |            49,405 |
|                                                                            |  |  |  |  |  |
| Total interestincome                                                       |     22,942,553 |     24,398,990 |     26,055,787 |       24,302,732 |      23,667,092 |
|                                                                            |  |  |  |  |  |
|   Interestexpense-deposits                                            |       4,997,795 |       8,065,055 |       9,336,596 |        8,749,173 |       9,537,002 |
|   Interestexpense-short-term borrowings                               |           29,650 |           95,446 |         528,580 |           471,711 |          493,784 |
|   Interestexpense-long-term borrowings                                |      2,547,055 |      1,555,449 |      1,839,724 |           792,572 |           287,795 |
|                                                                            |  |  |  |  |  |
|   Totalinterest expense                                               |       7,574,500 |       9,715,950 |     11,704,900 |       10,013,456 |     10,318,581 |
|                                                                            |  |  |  |  |  |
| Net interestincome                                                         |     15,368,053 |     14,683,040 |     14,350,887 |       14,289,276 |      13,348,511 |
| Provision forloan losses                                                   |         298,030 |         540,350 |      1,176,000 |        3,289,706 |          435,000 |
|                                                                            |  |  |  |  |  |
| Net interestincome after                                                   |  |  |  |  |  |
|     provision for loanlosses                                |     15,070,023 |     14,142,690 |     13,174,887 |       10,999,570 |      12,913,511 |
|                                                                            |  |  |  |  |  |
| Other operatingincome                                                      |       3,175,287 |       2,554,837 |       2,304,464 |        1,936,492 |       1,722,040 |
| Other operatingexpenses                                                    |     11,028,124 |     10,093,302 |      9,428,569 |        9,245,353 |       8,529,594 |
|                                                                            |  |  |  |  |  |
| Income beforetaxes                                                         |       7,217,186 |       6,604,225 |       6,050,782 |        3,690,709 |       6,105,957 |
| Applicableincome taxes                                                     |      1,872,970 |      1,699,302 |      1,419,270 |           487,104 |       1,465,071 |
|                                                                       |  |  |  |  |  |
| Netincome                                                                  |  $  5,344,216 |  $  4,904,923 |  $  4,631,512 |     $ 3,203,605 |   $  4,640,886 |
|                                                                            |  |  |  |  |  |
| Per sharedata                                                              |  |  |  |  |  |
| Netincome                                                                  |  $         1.56 |  $         1.43 |  $         1.32 |     $            ..90 |  $           1.29 |
|     Dividends declared                                      |  $          1.00 |  $           ..76 |  $           ..68 |     $            ..60 |  $             ..42 |
|     Average sharesoutstanding                               |       3,425,858 |       3,432,389 |       3,511,603 |        3,578,894 |       3,600,000 |
|                                                                            |  |  |  |  |  |
|                                                                            |  |  |  |  |  |
| At end ofperiod                                                            |  |  |  |  |  |
|     Total assets                                            | $380,337,755 | $343,028,558 | $329,865,123 |  $355,297,990 | $326,379,353 |
|     Securities                                              |   148,344,416 |   119,396,065 |   104,703,464 |     124,743,186 |   119,090,980 |
|     Loans and leases, net ofunearned                        |  |  |  |  |  |
|        Income                                     |   169,030,225 |   202,335,164 |   207,956,789 |     204,839,335 |   192,115,160 |
|     Allowance for loanlosses                                |       2,707,323 |       2,814,454 |       2,736,712 |        1,919,453 |       1,914,174 |
|     Deposits                                                |  270,025,209 |  254,986,772 |  266,611,370 |     272,947,403 |   266,460,521 |
|     Long-term borrowings                                    |     55,000,000 |     35,000,000 |     10,000,000 |       25,000,000 |       10,000,000 |
|     Shareholders' equity                                    |     51,204,502 |     45,970,297 |     43,136,917 |       39,403,893 |      43,161,649 |
|                                                                            |  |  |  |  |  |
| Keyratios                                                                  |  |  |  |  |  |
|     Return on averageassets                                 |             1.46% |             1.43% |              1.32% |                   ..95% |             1.46% |
|     Return on averageequity                                 |            11.02 |            10.90 |            11.21 |                  7.50 |              11.47 |
|     Net loans-to-depositratio                               |            61.59 |            78.25 |            78.00 |                74.34 |              71.38 |
|     Dividend payout ratio(dividends                         |  |  |  |  |  |
|         declareddivided by net income)  |            64.07 |            53.16 |            51.46 |                66.98 |              32.58 |
| Equity-to-assets ratio (average equity                                     |  |  |  |  |  |
|         dividedby average total assets) |            13.27 |            13.12 |            11.82 |                12.68 |              12.72 |
|                                                                            |  |  |  |  |  |

**Management’s Discussion andAnalysis**

**of**

**Financial Condition and Results ofOperations**

**Introduction**

****

The purpose ofthis discussion and the accompanying financial data is to provideaid in understanding and evaluating the financial condition andresults of operations of Commercial National Financial Corporation(the Corporation) for the years ended on December 31, 2002, 2001and 2000. This information should be read in conjunction with theconsolidated financial statements and related footnotes for theyears under review.

All materialintercompany transactions have been eliminated inconsolidation.

**CriticalAccounting Policies:**

Disclosure ofthe Corporation's significant accounting policies is included inNote 1 to the consolidated financial statements. Certain ofthese policies are particularly sensitive requiring significantjudgments, estimates and assumptions to be made by management.Additional information is contained in management's discussion andanalysis for the most sensitive of these issues, including theprovision and allowance for loan losses.

Management indetermining the allowance for loan losses makes significantestimates. Consideration is given to a variety of factors inestablishing this estimate. In estimating the allowance for loanlosses, management considers current economic conditions,diversification of the loan portfolio, delinquency statistics, results of internalloan reviews, its borrowers' perceived financial and managerialstrengths, the adequacy of the underlying collateral, if collateraldependent, or present value of future cash flows and other relevantfactors.

The followingdiscussion and analysis is intended to assist the reader inreviewing the financial information presented and should be read inconjunction with the consolidated financial statements and otherfinancial data presented elsewhere herein.

**FinancialCondition**

****

TheCorporation’s total assets at December 31, 2002 increased$37,309,197, or 10.88% from the end of 2001. The increases wereprimarily in securities, federal funds sold, interest bearingdeposit accounts and other assets.

The total loanportfolio decreased as the Corporation’s primary subsidiary,Commercial National Bank of Pennsylvania (the Bank) continued toexperience softer loan demand as a result of the weakening economyduring 2002. Although it is too soon to tell, early indicationssuggest the Bank is likely to experience modest loan growth for2003.

Other assetsincreased $7,276,802, or 87.76% during 2002. The majority of thisincrease was due to the purchase of a $5,000,000 bank-owned lifeinsurance (BOLI) policy. Other contributors to this increase areintangible assets and goodwill associated with the Bank’spurchase of a community banking office in Norwin, Pennsylvania andthe acquisition of Gooder Agency, Inc., an independently-ownedinsurance agency located in Ligonier, Pennsylvania.

At December 31,2002, total liabilities increased $32,074,992, or 10.80% to$329,133,253. Of this increase, $20,000,000 was attributable tolong-term borrowings transacted by the Corporation to extend theinterest bearing liabilities of the Bank. This action betterpositioned the Bank for an increase in interest rates in thefuture.

Alsocontributing to liability growth in 2002 was the increase indeposits. Total non-interest and interest-bearing depositsincreased $15,038,437 during 2002. Factors that led to thisincrease are the historically low bond yields and negative returnsexperienced in the equity markets. Also assisting in growth ofdeposits was the Corporation’s desire to offer competitiverates in our market area.

 

Shareholders’ equity was $51,204,502 onDecember 31, 2002 compared to $45,970,297 on December 31, 2001 andincrease of 11.39%. Book value per common share increased to $14.82or 10.43% from $13.42 at year-end 2001. Excluding the netunrealized gains and losses on securities available for sale, bookvalue per share would have been $13.41 at December 31, 2002, anincrease of 4.85% over the comparable book value at year-end2001.

****

****

**Results ofOperations**

Net incomeincreased $439,293, or 9%, to $5,344,216 for the year endedDecember 31, 2002 from $4,904,923 for the year ended December 31,2001. The increase in net income for 2002 was due to higher**other operating income**. The increase in net interest incomewas negated by higher **other operating expenses**. Based oncurrent economic conditions, management views fourth quarter 2002net income as a reasonable indicator for 2003 quarterlyresults.

Net income foryear ended December 31, 2001 increased $273,411 to $4,904,923 from$4,631,512 for year ended December 31, 2000. The reasons for thisincrease were improved net interest income, a lower provision forloan losses and higher operating income. The sum of thosecomponents offset a 7% increase in operating expense.

Return onaverage assets was 1.46% in 2002, 1.43% in 2001 and 1.32% in 2000.For the same years, return on average equity was 11.02%, 10.90% and11.21%, respectively.

**NetInterest Income**

TheCorporation’s primary source of earnings is represented bynet interest income. Net interest income is calculated by deductingthe interest paid on interest-bearing deposits and borrowed fundsfrom the interest received on interest-earning assets, primarilyloans and investments. In 2002, net interest income was $15,368,053compared to $14,683,040 in 2001. The return on earning assets,calculated on a tax-equivalent basis, equaled 7.06% in 2002 and was7.84% in 2001. The cost-of-funds rate for 2002 and 2001 was 2.86%and 3.93%, respectively. The tax-equivalent net interest margin for2002 decreased one basis point to 4.81% from 4.82% in2001.

In 2001, netinterest income was $14,683,040 compared to $14,350,887 in 2000.The return on earning assets, calculated on a tax-equivalent basis,equaled 7.84% in 2001 and was 8.08% in 2000. The cost-of-funds ratefor 2001 and 2000 was 3.93% and 4.47%, respectively. Thetax-equivalent net interest margin for 2001 increased twenty-twobasis points to 4.82% from 4.60% in 2000. During 2001, the FederalReserve reduced interest rates eleven times in an effort tostimulate the economy. With these rate cuts, the Corporationbenefited by interest-bearing liability costs repricing lower at afaster rate than the realized yield declines on interest earningassets.

Average earningassets increased $15,141,568 from 2001 to 2002. The Corporationcontinued to experience overall loan contraction for much of 2002due to a combination of weak demand and a new commercial lendingfocus that implemented tighter underwriting standards. Alsocontributing to the decrease was the Corporation’s reluctanceto aggressively price rates at low current market levels. Duringthe fourth quarter of 2002, the Corporation’s managementrelaxed loan pricing constraints in an effort to become morecompetitive in its marketplace. This relaxation will be monitoredclosely so that the Corporation does not overweigh itself with anabundance of lower yielding loans. Investment purchases throughoutthe year helped offset both loan and security runoff during2002.

Average earningassets decreased $13,886,525, or 4.14%, in 2001 from 2000. TheCorporation experienced overall loan contraction in 2001 due toweak demand and a change of focus in the commercial lending thatexcluded specific business segments. Also contributing to theaverage earning asset decrease in 2001 were lower volumes ininvestment securities throughout the year due to the relativedecline in market yields.

Averageinterest-bearing liabilities increased $17,577,721, or 7.11% in2002 from 2001. The increase in average interest-bearingliabilities from 2002 to 2001 was attributed to modest growth indeposit accounts, particularly in the demand deposits, and theextension of long-term debt through a series of advances from theFederal Home Loan Bank of Pittsburgh.

Averageinterest-bearing liabilities decreased $14,755,501, or 5.63% in2001 but compared to an increase of $11,740,155 in 2000. Thedecrease in average interest-bearing liabilities from 2001 to 2000was attributed to declines in the interest-bearing deposits as theCorporation experienced outflows due to the lower rateenvironment.
| COMMERCIAL NATIONAL FINANCIAL CORPORATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Financial Comparisons                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                             Consolidated Average Balance Sheet, Interest Income/Expense andRates |
| 2002 | 2001 | 2000 |
|------|------|------|
|                                                                                                               | Average                            | Interest                                         | Yieldor                            | Average                            | Interest                                         | Yieldor                            | Average                                           | Interest                                         | Yieldor                            |
|---------------------------------------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------|------------------------------------|------------------------------------|--------------------------------------------------|------------------------------------|---------------------------------------------------|--------------------------------------------------|------------------------------------|
|                                                                                                               | Balance                            | Income/                                          | Rate(a)                            | Balance                            | Income/                                          | Rate(a)                            | Balance                                           | Income/                                          | Rate(a)                            |
|                                                                                                               |                                    | Expense                                          |                                    |                                    | Expense                                          |                                    |                                                   | Expense                                          |                                    |
|  Interest-earning assets                                                                                 |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   Loans(b)(c) net of unearned income                                                                     | $187,428,175                       | $13,532,996                                      |     7.38%           | $206,680,783                       | $16,665,093                                      |     8.23%           | $207,343,068                                      | $17,513,408                                      |     8.59%           |
|  Taxable securities                                                                                      | 111,966,513                        |   8,130,197                            |     7.26            |   80,776,752             |   6,161,185                            |     7.63            |   96,284,706                            |   6,916,752                            |     7.18            |
|  Non-taxable securities                                                                                  |   21,062,603             |   1,057,262                            |     7.61            |   18,077,452             |       924,250           |     7.75            |   29,970,497                            |   1,504,099                            |     7.60            |
|  Interest-bearing deposits with banks                                                                    |      5,277,684 |        48,879 |     0.93            |      9,592,529 |       363,418           |     3.79            |        233,496 |        16,498 |     7.07            |
|  Federal funds sold                                                                                      |    11,146,849            |      173,219            |     1.55            |      6,612,740 |      285,044            |     4.31            |      1,795,014                |      105,030            |     5.85            |
|   Totalearning assets                                                                                    | 336,881,824                        | 22,942,553                                       |     7.06            | 321,740,256                        | 24,398,990                                       |     7.84            | 335,626,781                                       | 26,055,787                                       |     8.08            |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   Non-interest-earning assets                                                                       |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|  Cash                                                                                                    |      8,006,911 |                                                  |                                    |      7,694,771 |                                                  |                                    |      7,481,338                |                                                  |                                    |
|  Allowance for loan losses                                                                               |     (2,879,339)     |                                                  |                                    |  (2,671,013)))                |                                                  |                                    |  (2,283,390)                                 |                                                  |                                    |
|   Otherassets                                                                                            |    23,394,185            |                                                  |                                    |    16,043,929            |                                                  |                                    |      8,798,388                |                                                  |                                    |
|     Total non-interest-earningassets                                                           |     28,521,757      |                                                  |                                    |     21,067,687      |                                                  |                                    |     13,996,336                     |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|     Total assets                                                                               | $365,403,581                       |                                                  |                                    | $342,807,943                       |                                                  |                                    | $349,623,117                                      |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|  Liabilities and Shareholders’ Equity                                                              |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|  Interest-bearing deposits                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   NOWaccounts                                                                                            | $ 22,952,368                  |        99,005 |       .43 | $ 20,480,266                  |       139,826           |       .68 | $ 20,552,997                                 |       139,885           |       .68 |
|   MoneyMarket accounts                                                                                   |   46,793,084             |       716,882           |     1.53            |   38,499,568             |   1,153,952                            |     3.00            |   43,301,728                            |   1,527,244                            |     3.53            |
|   Savings deposits                                                                                  |   55,369,002             |       801,251           |     1.45            |   46,002,576             |   1,101,229                            |     2.39            |   45,405,821                            |   1,153,342                            |     2.54            |
|   Timedeposits                                                                                           |   89,490,280             |   3,380,657                            |     3.78            | 108,841,052                        |   5,670,048                            |     5.21            | 118,235,702                                       |   6,516,125                            |     5.51            |
|  Short-term borrowings                                                                                   |      1,495,411 |        29,651 |     1.98            |      2,917,534 |        95,446 |     3.27            |      8,113,319                |       528,580           |     6.51            |
|  Long-term borrowings                                                                                    |    48,602,134            |    2,547,054                           |     5.24            |    30,383,562            |    1,555,449                           |     5.12            |    26,270,492                           |    1,839,724                           |     7.00            |
|                                                                                                          |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   Totalinterest-bearing liabilities                                                                      | 264,702,279                        |    7,574,500                           |     2.86            | 247,124,558                        |    9,715,950                           |     3.93            | 261,880,059                                       | 11,704,900                                       |     4.47            |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|  Non-interest-bearing deposits                                                                           |   48,578,937             |                                                  |                                    |   47,411,930             |                                                  |                                    |   45,127,383                            |                                                  |                                    |
|   Otherliabilities                                                                                       |      3,646,912 |                                                  |                                    |      3,283,283 |                                                  |                                    |      1,297,731                |                                                  |                                    |
|  Shareholders' equity                                                                                    |    48,475,453            |                                                  |                                    |    44,988,172            |                                                  |                                    |    41,317,944                           |                                                  |                                    |
|       Totalnon-interest-bearing                                                      |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|       Fundingsources                                                                 | 100,701,302                        |                                                  |                                    |    95,683,385            |                                                  |                                    |    87,743,058                           |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|       Total liabilitiesand                                                           |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|        shareholders' equity                                                     | $365,403,581                       |                                                  |                                    | $342,807,943                       |                                                  |                                    | $349,623,117                                      |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   Netinterest income and net yield                                                                       |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|   oninterest earningassets              |                                    | $15,368,053                                      |     4.81%           |                                    | $14,683,040                                      |     4.82%           |                                                   | $14,350,887                                      |     4.60%           |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |
|                                                                                                               |                                    |                                                  |                                    |                                    |                                                  |                                    |                                                   |                                                  |                                    |

(a) Yieldson interest earning assets have been computed on a tax-equivalentbasis using the

    (a)   34% federal income tax statutoryrate.

       (b) Income on non-accrual loans is accounted for on the cash basis, andthe

             loan balances are included ininterest earning assets.

©   Loan income includes net loanfees.

The followingtable illustrates the impact and interaction of rate and volumechanges for the years under review:
|                                                        |
|--------------------------------------------------------|
| Analysis of Year-to-YearChanges in Net Interest Income |
|                                                                              | 2002 Changefrom 2001                                                 | 2001 Change from2000                                                           |
|------------------------------------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------------------|
|                                                                              | Total                                                                | Change Due                                                                     | ChangeDue | Total | Change Due | Change Due |
|                                                                              | Change                                                               | To Volume                                                                      | toRate | Change | to Volume | ToRate                          toVolume                          to Rate |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
| Interest-earning assets                                                      |                                                                      |                                                                                |  |  |  |  |
| Loans net ofunearned income                                                  | $  (3,132,097)                                             |   $ (1,552,377)                                                      | $(1,579,720) |     $  (848,315) |        $ (55,940) |     $ (792,375) |
| Securities                                                                   |                                                                      |                                                                                |  |  |  |  |
|  Taxable                                                                |         1,969,012                 |        2,378,975                            |       (409,963) |          (755,567) |      (1,114,037) |         358,470 |
|  Non-taxable                                                            |           133,012  |           152,623            |         (19,611) |         (579,849) |         (596,864) |           17,015 |
| Interest-bearing deposits with banks                                         |         (314,539)            |         (163,470)                      |       (151,069) |           346,920 |           661,276 |       (314,356) |
| Federal fundssold                                                            |          (111,825)           |           195,444            |       (307,269) |            180,014 |           281,895 |       (101,881) |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
|          Total interest income  |      (1,456,437)                            |        1,011,195                            |     (2,467,632) |      (1,656,797) |         (823,670) |       (833,127) |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
| Interest-bearing liabilities                                                 |                                                                      |                                                                                |  |  |  |  |
| Deposits                                                                     |      (3,067,260)                            |             29,469 |     (3,096,729) |      (1,271,541) |         (561,140) |       (710,401) |
| Short-termborrowings                                                         |           (65,796) |           (46,524)           |         (19,272) |         (433,134) |         (338,504) |         (94,630) |
| Long-termborrowings                                                          |           991,606  |           932,678            |           58,928 |         (284,274) |           288,038 |       (572,312) |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
|          Total interest expense |      (2,141,450)                            |           915,623            |     (3,057,073) |      (1,988,949) |         (611,606) |     (1,377,343) |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
| Net interestincome                                                           |       $  685,013                  |        $   95,572                 |      $  589,441 |       $  332,152 |       $(212,064) |      $  544,216 |
|                                                                              |                                                                      |                                                                                |  |  |  |  |
|                                                                              |                                                                      |                                                                                |  |  |  |  |

**Allowancefor Loan Losses**

The provision for loan lossesis the amount added to the allowance against which actual loanlosses are charged. The amount of the provision is determined bymanagement through an evaluation of the size and quality of theloan portfolio, economic conditions, concentrations of credit,recent loan loss trends, delinquencies and other risks inherentwithin the loan portfolio.

The amount of the provisionwas $298,030 in 2002, $540,350 in 2001 and $1,176,000 in 2000. Foreach of the same years the net charge-off against the allowance forloan losses was $405,161, $462,608 and $358,741, respectively. Thelower 2002 provision was the result of lower outstanding loanbalances and reduced credit risk in the loan portfolio.

On December 31, 2002, theratio of allowance for loan to total loans was 1.60% compared to1.39% at the end of 2001 and 1.32% at the end of 2000. In 2002, theyear-end allowance was $2,707,323. The allowance decreased in 2002by $107,131 from 2001. The reason for this decrease was due to thecharge-off of certain non-performing loans during 2002 that werealready included in the allowance for loan losscalculation.

Loans that were past due 90days or more, or were on non-accrual represented 1.79% of totalloans on December 31, 2002, 1.32% on December 31, 2001 and 0.39% onDecember 31, 2000. The Corporation’s policy is to place aloan on non-accrual basis when it becomes 90 days past due providedthat the loan is well collateralized and evidence indicates areasonable likelihood for collection. Also, a loan is placed onnon-accrual in the event of a material decline in business activitythat may hinder the borrower’s ability to repay theloan.

The table belowprovides an analysis of the allowance for loan losses for thefive

years endedDecember 31, 2002:
|                                                                                                                 December 31, |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2002 | 2001 | 2000 | 1999 | 1998 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Loansoutstanding at beginning of year,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |  |  |
|         net ofunearned income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $202,335,164 | $207,956,789 | $204,839,335 | $192,115,160 | $183,481,157 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
|  Average loans outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $187,428,175 | $206,680,783 | $207,343,068 | $194,664,755 | $186,418,665 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Allowancefor loan losses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  |  |  |
| Balance,beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  $  2,814,454 |  $  2,736,712 |   $1,919,453 | $ 1,914,174 | $ 1,882,251 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Loanscharged off:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |
| Commercialand Tax Free                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         179,801 |           89,507 |          70,342 |     2,678,266 |          24,306 |
| Consumer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |           30,972 |           55,476 |        232,915 |       616,786 |        377,353 |
| Realestate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |          238,468 |          354,724 |          92,019 |         12,971 |           11,208 |
| Total loanscharged off                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         449,241 |         499,707 |        395,276 |     3,308,023 |        412,867 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Recoveries:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |  |  |
| Commercialand Tax Free                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           16,634 |             3,347 |            2,000 |                   - |               300 |
| Consumer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |           24,255 |           29,234 |          34,045 |         23,596 |            9,490 |
| Realestate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |             3,191 |             4,518 |               490 |                   - |                    - |
| Totalrecoveries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |           44,080 |           37,099 |          36,535 |         23,596 |            9,790 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Net loanscharged off                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |         405,161 |         462,608 |        358,741 |     3,284,427 |        403,077 |
| Provisioncharged to expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |         298,030 |         540,350 |      1,176,000 |     3,289,706 |        435,000 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Balance, endof year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $   2,707,323 | $   2,814,454 |   $2,736,712 | $1,919,453 |   $1,914,174 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Ratios:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |
| Netcharge-offs as a percentage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |
|         ofaverage loans outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |              ..22% |              ..22% |             ..17% |          1.69% | .22% |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |
| Allowancefor  loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |
|         as apercentage of average loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  |  |  |
|        outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |            1.44% |            1.36% |           1.32% |            ..99% | 1.03% |
|                                                                                                                                                                                                                                                                                                                                                |  |  |  |  |  |

Managementreview and evaluation of loan loss experience and loan losspotential on outstanding loans occurs on a quarterly basis and isconsidered in conjunction with current economic conditions and thecurrent requirements of the appropriate regulatory agencies. Due tothe recent decline in the general economy, management expects loanloss trends to be consistent with the three most recentyears. 

As a result ofthis on-going study, management believes that the reserve amountshown for December 31, 2002 is adequate to offset the losses whichmay exist as a result of under collateralization oruncollectibility.

Managementmaintains an allowance for loan losses that it considers adequatebased on the evaluation process that it performs on a quarterlybasis. As part of this process, management considers it appropriateto maintain a portion of the allowance that is based on creditquality trends, loan volume, current economic trends and otheruncertainties. This portion of the allowance for loanlosses is reflected as the unallocatedportion in the table below that indicates the distribution of theallowance as of the end of each of the last five years.
|                                           | 2002       | 2001       | 2000       | 1999       | 1998       |
|-------------------------------------------|------------|------------|------------|------------|------------|
|                                           |            | Percent    |            | Percent    |            | **Percent** |  | **Percent** |  | Percent |
|                                           | **Amount** | **OfLoan** | **Amount** | **OfLoan** | **Amount** | **OfLoan** | **Amount** | **OfLoan** | **Amount** | **OfLoan** |
|                                           |            | Type       |            | Type       |            | **Type** |  | **Type** |  | Type |
| Commercial                                | $2,422,094 | 13         | $2,563,880 | 15         | $1,894,444 | 16 | $     396,833 | 13 | $   455,375 | 13 |
| RealEstate                                | 63,405     | 84         | 62,886     | 83         | 194,446    | 81 | 65,378 | 80 | 29,290 | 78 |
| Consumer                                  | 27,081     | 1          | 31,252     | 1          | 234,979    | 2 | 1,069,275 | 2 | 912,703 | 3 |
| Unallocated                               | 194,743    | 2          | 156,436    | 1          | 412,843    | 1 | 387,967 | 5 | 516,806 | 6 |
|                                           |            |            |            |            |            |  |  |  |  |  |
|       Total | $2,707,323 |            | $2,814,454 |            | $2,736,712 |  | $1,919,453 |  | $1,914,174 |  |

****

**OtherOperating Income and Expense**

Total other operating incomefor 2002 of $3,175,287 increased by $620,450 from the $2,554,837earned in 2001. The increase included a gain of $469,782 from thesale of one of the Bank’s branch offices. This branch,located in Murrysville, Pennsylvania, failed to reachmanagement’s performance expectations and was no longer partof the geographic scope of the Corporation’s long-range plan.Income from investment in life insurance increased from $176,750 to$474,286. This increase is related to higher BOLI income associatedwith an additional investment of $5,000,000 during 2002 and a fullyear of income from the $5,000,000 BOLI investment made in 2001.Asset management and trust income during 2002 was $475,115, whichrepresents an increase of 3.99% over 2001. Service charges ondeposit accounts declined $41,192 to $737,426 for 2002. Lower feescollected from overdrawn accounts contributed to this revenuedecrease. Other service charges and fees decreased by $59,008 in2002 from 2001’s level of $750,248. Reasons for this decreasewere lower volumes of fees and commissions collected from variousloan and deposit product offerings by the Corporation.

Total other operating incomefor 2001 of $2,554,837 increased by $250,373 from the $2,304,464earned in 2000. Increases in trust fees, service charges on depositaccounts and fee income offset a decrease of $651,950 in otherincome from 2001 to 2000. This decrease in other income during 2001was the result of $822,875 received by the Bank for the sale of itscredit-card loan portfolio in 2000. As a result of this premium,the Corporation repositioned the investment portfolio and incurreda loss of $691,700 in securities sold to take advantage of higheryields that were available in the bond market at thattime.

Total otheroperating expense increased $934,822 to $11,028,124 for 2002compared to $10,093,302 in 2001. Personnel expense, accounting formore than 50% of total non-interest expense, increased only 2.95%or $162,358 in 2002. Net occupancy expense increased by a modest$21,195. Furniture and equipment expense remained relativelyunchanged when compared to 2001. Pennsylvania shares tax increased$39,811. Other expense increased by $692,811 to $3,240,638. Anincrease of $208,227 was attributable to advertising, ATM/debitcard, stationary and printing and employee training expenses during2002. This expense increase is associated with the cost of doingbusiness. Branch amortization expense of $39,005 is related to theacquisition of the Norwin branch. Other real estate expenseincreased $66,196 due to more properties acquired by theCorporation through foreclosure. Legal costs increased $238,495.This increase is mainly due to the work involved with the branchacquisition, branch divestiture, insurance agency acquisition andthe continued collection efforts relating to a previouslycharged-off loan.

Total otheroperating expense increased $664,733 to $10,093,302 for 2001compared to $9,428,569 in 2000. Personnel expense increased 7.62%or $389,292 in 2001. Annual salary and hospitalization increasesalong with higher incentive compensation payouts were the maincontributors to this increase. Net occupancy expense increased by amodest $14,292. Pennsylvania shares tax increased $34,769 over 2000while other operating expense increased $393,111. Increases inadvertising, professional fees and automated teller expense werethe primary reasons for the 15.99% rise in other operating expense.Furniture and equipment expense declined $166,731 as theBank’s core operating software became fully depreciated inmid-2001.

Income taxexpense was $1,872,970 in 2002, $1,699,302 in 2001 and $1,419,270in 2000. The effective tax rate in those years were 25.95%, 25.73%and 23.46%, respectively.

**Liquidity**

Liquiditymeasurements attempt to evaluate the Corporation’s ability tomeet the cash-flow needs of its depositors and borrowers. The mostdesirable source of liquidity is deposit growth. Additionalliquidity is provided by the maturity of investments in loans andsecurities and the principal and interest received from thoseearning assets. Another source of liquidity is represented by theCorporation’s ability to sell both loans andavailable-for-sale securities. The Bank is a member of the FederalHome Loan Bank (FHLB) system. The FHLB provides an additionalsource for liquidity for long- and short-term funding. Additionalsources of funding from financial institutions have beenestablished for short-term funding.

On December 31,2002, total deposits were $15,038,437 greater than on December 31,2001. Interest-bearing deposits increased $11,625,061 in 2002 whiledemand deposits increased an additional $3,413,376.

The amortized cost of theCorporation’s securities portfolio was $137,330,664 onDecember 31, 2002. On that same date, the estimated market value ofthe entire securities portfolio was $144,726,216 which was higherthan amortized cost by $7,395,552 and represented the net of$7,404,569 gross unrealized gains less $9,017 gross unrealizedlosses.

As of December31, 2002, the Corporation had available funding of approximately$152,022,000 at the FHLB with an additional $30,000,000 ofshort-term funding available through federal funds lines ofcredit.

During January2003, the Corporation settled on $20,000,000 of a Federal NationalMortgage Association 15 year mortgage pass-through security. TheCorporation committed to this purchase on October 23, 2002 with aforward settlement set for January 21, 2003.

The followingtable presents average deposits by type and the average interestrates paid during the years 2002, 2001 and 2000:
|                                                                                                                                                                                                                                                                                                              |                                |                                                           |                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|-----------------------------------------------------------|-------------------------------|
|                                                                                                                                                                                                                                                                                                              | 2002                           | 2001                                                      | 2000                          |
|                                                    |                                |                                                           |                               |
|                                                                                                                                                                                                                                                                                                              | Average                        | Average                                                   | Average                       | Average | Average | Average |
|                                                                                                                                                                                                                                                                                                              | Balance                        | Rate Paid                                                 | Balance                       | Rate Paid | Balance | Rate Paid |
|                                                                                                                                                                                                                                                                                                              |                                |                                                           |                               |  |  |  |
| Non-interestbearing demand                                                                                                                                                                                                                                                                                   |  $48,578,937              |          - % |  $47,411,930             |          - % | $45,127,383 |          - % |
| Interestbearing demand                                                                                                                                                                                                                                                                                       |     22,952,368  |        ..43            |     20,480,266 |        ..68 |   20,552,997 |       .68 |
| Moneymarket                                                                                                                                                                                                                                                                                                  |     46,793,084  |       1.53                       |     38,499,568 |       3.00 |   43,301,728 |     3.53 |
| Savings                                                                                                                                                                                                                                                                                                      |     55,369,002  |       1.45                       |     46,002,576 |       2.39 |   45,405,821 |     2.54 |
| Time                                                                                                                                                                                                                                                                                                         |      89,490,280 |       3.78                       |  108,841,052             |       5.21 | 118,235,702 |     5.51 |
|                                                                                                                                                                                                                                                                                                              |                                |                                                           |                               |  |  |  |
|                                                                                                                                                                                                                                                                                                              |                                |                                                           |                               |  |  |  |
|        Total                                                                                                                                                                                                                                                              | $263,183,671                   |       1.90%                      | $261,235,392                  |       3.09% | $272,623,631 |     3.42% |
|                                                                                                                                                                                                                                                                                                              |                                |                                                           |                               |  |  |  |

Time deposits of$100,000 or more at December 31, 2002, 2001 and 2000 are asfollows:
|                                                                                                                                                                                                                                                                                                                                                  |                              |                                                          |                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|----------------------------------------------------------|------------------------------|
|                                                                                                                                                                                                                                                                                                                                                  |                              | December 31,                                             |                              |
|                                                                                                                                                                                                                                                                                                                                                  | 2002                         | 2001                                                     | 2000                         |
|                                                          |                              |                                                          |                              |
|                                                                                                                                                                                                                                                                                                                                                  | Amount                       | Percent                                                  | Amount                       | Percent | Amount | Percent |
| Remainingmaturity:                                                                                                                                                                                                                                                                                                                               |                              |                                                          |                              |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |                              |                                                          |                              |  |  |  |
| 3 months orless                                                                                                                                                                                                                                                                                                                                  | $7,139,752                   |        33%            | $11,117,163                  |        60% | $19,910,828 |       59% |
| Over 3through 6 months                                                                                                                                                                                                                                                                                                                           |     1,592,235 |           7 |     3,083,318 |        16 |     2,999,206 |        9 |
| Over 6months through 12 months                                                                                                                                                                                                                                                                                                                   |     1,192,833 |           5 |     2,190,147 |        12 |     7,145,067 |       21 |
| Over 12months                                                                                                                                                                                                                                                                                                                                    |  11,887,398             |        55             |     2,156,589 |        12 |     3,920,347 |      11 |
|                                                                                                                                                                                                                                                                                                                                                  |                              |                                                          |                              |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |                              |                                                          |                              |  |  |  |
|        Total                                                                                                                                                                                                                                                                                                  | $21,812,218                  |      100%                       | $18,547,217                  |      100% | $33,975,448 |     100% |
|                                                                                                                                                                                                                                                                                                                                                  |                              |                                                          |                              |  |  |  |

The followingtables present a five-year summary of loan classifications and thematurity distribution of securities on December 31, 2002
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Loansby Classification on December 31,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2002 |  | 2001 |  | 2000 |  | 1999 |  | 1998 |  |
|                                                                                 Cent                                        Amount                                        Cent                                        Amount                                        Cent                                        Amount                                        Cent                                        Amount                                        Cent |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |
| Commercial                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $12,725,196 |       7% | $17,251,180 |       9% | $25,802,529 |   12% | $23,069,385 |   11% | $20,893,911 |   11% |
| Real estate– commercial                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  54,618,271 |     32 |  71,699,119 |     35 |     66,051,811 |     32 |     59,386,543 |     29 |     52,165,384 |     27 |
| Real estate- construction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       976,013 |      1 |   1,629,135 |      1 |      2,380,737 |      1 |      4,275,988 |      2 |      2,754,964 |      1 |
| Real estate– other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  86,047,629 |     51 |  95,795,479 |     47 |  100,347,143 |     48 |     99,769,594 |     49 |     96,210,304 |     50 |
| Consumer -installment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  1,921,932 |       1 |  2,486,375 |       1 |     3,433,993 |       2 |     4,396,065 |       2 |     5,388,246 |       3 |
| Municipal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  10,078,489 |       6 |  10,989,898 |       6 |      7,114,306 |       4 |      4,290,289 |       2 |      3,757,563 |       2 |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |     2,634,696 |       2 |     2,555,164 |       1 |      2,891,746 |       1 |      9,771,934 |       5 |     11,068,877 |       6 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |
| Totalloans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 169,002,226 | 100% | 202,406,350 | 100% |  208,022,265 | 100% |  204,959,798 | 100% |  192,239,249 | 100% |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |
| Unearned  income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         27,999 |  |       (71,186) |  |         (65,476) |  |       (120,463) |  |       (124,089) |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |
| Total loans,net of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  |  |  |  |  |  |  |  |  |
|  unearned income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $169,030,225 |  | $202,335,164 |  | $207,956,789 |  | $204,839,335 |  | $192,115,160 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |
| Maturity Distribution of Securities on December 31,2002                                                                                                                                                                                                                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                      | U.S. Treasury | State & |  | Total | Weighted |
|                                                                                                                                                                                                                                                                                      | & other U.S. Govt. | Political | Other | Amortized | Average |
|                                                                                                                                                                                                                                                                                      | Agencies & Corp. | Subdivisions (1) | Securities | Cost | Yield |
|                                                |  |  |  |  |  |
| Within 1year                                                                                                                                                                                                                                                                         | $      999,302 | $               - | $             - | $      999,302 | 7.07 |
| After 1 butwithin 5 years                                                                                                                                                                                                                                                            | 9,756,513 | 5,920,451 | - | 15,676,964 | 3.34 |
| After 5 butwithin 10 years                                                                                                                                                                                                                                                           | - | 3,506,310 | - | 3,506,310 | 7.02 |
| After 10years                                                                                                                                                                                                                                                                        | 100,310,248 | 16,746,630 | - | 117,056,878 | 7.34 |
| Equitysecurities and                                                                                                                                                                                                                                                                 |  |  |  |  |  |
| Restrictedbank stock                                                                                                                                                                                                                                                                 |                   - |                 - | 3,709,410 | 3,709,410 | 3.55 |
|                                                                                                                                                                                                                                                                                      |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                      |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                      | $111,066,063 | $26,173,391 | $3,709,410 | $140,948,864 | 6.79% |
|                                                                                                                                                                                                                                                                                      |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                      |

(1) Yield ontax-exempt obligations has been computed on a fully

              tax-equivalent basis (using statutory federal income tax rate of34%)

Included in U.S.Treasury & other U.S. Government Agencies are mortgage-backedsecurities. These securities carry an amortized value of$100,310,249 and mature based upon their estimated contractualmaturities. Expected maturities will differ from contractualmaturities because borrowers may have the right to prepay with orwithout prepayment penalties.

**InterestSensitivity**

One of thedesired goals of interest-sensitivity management is to achieve anappropriate balance between stable income growth and the risksinherent in achieving that growth through managed maturityimbalances between interest-earning assets and interest-bearingliabilities. These relationships are generally so complex thatexact measurement of the impact of interest rate changes isvirtually impossible. However, an indication of aninstitution’s vulnerability to such changes can be roughlygauged through the measurement and analysis of the so-called“gap” or the difference between the dollar volumes ofinterest-sensitive assets and interest-sensitive liabilitiesscheduled to reprice over a variety of time periods.

An asset orliability is considered to be sensitive if the interest rate itearns or pays is set to change within a certain time period. Whenthe amount of the interest-sensitive assets is greater than theinterest-sensitive liabilities, the gap is labeled positive and theinstitution’s interest rate spread will widen and earningswill respond favorably to a general rise in interest rates. Theopposite relationship produces a negative gap and the interest ratespread will increase and earnings will show a favorable response ina declining rate environment.

The followingtable lists the amounts and ratio of assets and liabilities subjectto change as of December 31, 2002.
|                              | InterestSensitivity Analysis (In Thousands) |                                                                                              |
|-----------------------------------|---------------------------------------------|---------------------------------------------------------------------------------------------------|
|                              |                                             |                                                                                              |
|                              |                                             |                                                                                              |
|                                   |                                             | 0-30 Days                                                                                         |  | 31-90 Days |  | 91-180 Days |  | 181-365Days |  | 1-5 Years |  | Over 5Years |
| Interest-earning assets:          |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Securities                        | $                                           |         6,746                                             | $ |       11,494 | $ |                                                                       16,152 | $ |         32,304 | $ |        57,822 | $ |          12,721 |
| Federalfunds sold &           |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
|   otherdeposits with banks   |                                             |       35,284                                                        |  |                - |  |                                                                                   - |  |                  - |  |                  - |  | - |
| Loans                             |                                             |        22,893                                                       |  |         3,671 |  |                                                                           4,562 |  |           8,868 |  |        76,583 |  |          49,595 |
| Totalinterest-sensitive           |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Assets                            |                                             |       64,923                                                             |  |        15,165 |  |                                                                        20,714 |  |         41,172 |  |      134,405 |  |           62,316 |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Interest-bearing liabilities:     |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Certificatesof deposit            |                                             |         6,443                                             |  |       16,058 |  |                                                                         15,366 |  |         14,799 |  |        21,448 |  |          17,629 |
| Otherinterest-bearing liabilities |                                             |                 - |  |         5,119 |  |                                                                           5,119 |  |           7,449 |  |        48,317 |  |          60,923 |
| Other termborrowings              |                                             |                -       | - |               - |  |                                                                                  - |  |                 - |  |        30,000 |  |          25,000 |
| Totalinterest-sensitive           |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
|  Liabilities                 |                                             |         6,443                                                  |  |        21,177 |  |                                                                        20,485 |  |          22,248 |   |         99,765 |  |        103,552 |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Interestsensitivity gap           | $                                           |       58,480                                                             | $ |        (6,012) | $ |                                                                             229 | $ |          18,924 | $ |         34,640 | $ |         (41,236) |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Cumulativegap                     | $                                           |       58,480                                                             | $ |       52,468 | $ |                                                                        52,697 | $ |         71,621 | $ |       106,261 | $ |          65,025 |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| Ratio ofcumulative gap to         |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |
| earningassets                     |                                             |      16.72%                                                                   |  |       15.00% |  |                                                                        15.07% |  |        20.48% |  |          30.39% |  |           18.59% |
|                                   |                                             |                                                                                                   |  |  |  |  |  |  |  |  |  |  |

**MarketRisk**
```

```

TheCorporation’s interest rate risk management is theresponsibility of the Asset/Liability Management Committee, whichreports to the Board of Directors. This committee establishespolicies that monitor and coordinate the Corporation’ssources, uses and pricing of funds. The committee is also involvedwith management in the Corporation’s planning and budgetingprocess.

The Corporationregularly reviews its exposure to changes in interest rates. Amongthe factors considered are changes in the mix of earning assets andinterest-bearing liabilities, interest rate spreads and repricingperiods. Typically, the committee reviews on at least a quarterlybasis the Bank’s relative ratio of rate sensitive assets torate sensitive liabilities and the related cumulative gap fordifferent time periods. Additionally, the committee and managementutilize a simulation model in assessing the Corporation’sinterest rate sensitivity.

This simulationmodeling process projects a baseline net interest income (assumingno changes in interest rate levels) and estimates changes to thatbaseline net interest income resulting from changes in interestrate levels. The Corporation utilizes the results of this model inevaluating its interest rate risk. This model incorporates a numberof additional factors. These factors include: (1) the expectedexercise of call features on various assets and liabilities, (2)the expected rates at which various rate sensitive assets andliabilities will reprice, (3) the expected relative movements indifferent interest rate indexes that are used as the basis forpricing or repricing various assets and liabilities, (4) expectedchanges in administered rates on interest-bearing transaction,savings, money market and time deposit accounts and the expectedimpact of competition on the pricing or repricing of such accountsand (5) other factors. Inclusion of these factors in the model isintended to more accurately project the Corporation’s changesin net interest income resulting from an immediate and sustainedparallel shift in interest rates of up 100 basis points (bps), up200 bps, down 100 bps and down 200 bps. While the Corporationbelieves this model provides a useful projection of its interestrate risk, the model includes a number of assumptions andpredictions that may or may not be accurate. These assumptions andpredictions include inputs to compute baseline net interest income,growth rates, competition and a variety of other factors that aredifficult to accurately predict. Accordingly, there can be noassurance the simulation model will reflect futureresults.

The followingtable presents the simulation model's projected impact of animmediate and sustained parallel shift in interest rates on theprojected baseline net interest income for a twelve-month periodcommencing January 1, 2003.
|                       | **$ Change inProjected**                          | **% Change inProjected** |
|-----------------------|---------------------------------------------------|--------------------------|
| **Change inInterest** | **Baseline**                                      | **Baseline**             |
| **Rates**             | **Net InterestIncome**                            | **Net InterestIncome**   |
|                       | (dollar amountsin thousands)                      |                          |
|                       |                                                   |                          |
| +200 basispoints      |       $  2,516 |  17.9%              |
| +100 basispoints      |       $  1,540 |  10.9%              |
|                       |                                                   |                          |
| -100 basispoints      |       $ (1,573)     | (11.2%)                  |
| -200 basispoints      |       $ (2,807)     | (20.0%)                  |

In the event ofa shift in interest rates, management may take certain actionsintended to mitigate the negative impact to net interest income orto maximize the positive impact to net interest income. Theseactions may include, but are not limited to, restructuring ofearning assets and interest-bearing liabilities, seekingalternative funding sources or investment opportunities andmodifying the pricing or terms of loans and deposits.

Final loanmaturities excluding consumer installment and mortgage loans andbefore unearned income at December 31, 2002:  (inthousands)
|                                 | Within                             | One-Five | After                                       |                                                   |                   |
|---------------------------------|------------------------------------|----------|---------------------------------------------|---------------------------------------------------|------------------------|
|                                 | One Year                           | Years    | Five Years                                  | **Total**                                         |                   |
|                                 |                                    |          |                                             |                                                   |                   |
| Commercial andIndustrial        | $  4,286                      |          |   $6,449                               |  $    892                     | $11,627                |
| Realestate-construction         |       976 |          |        - |         - |     976 |
| Other                           |     3,038           | *        |       1,182             |     8,493                          |  12,713           |
|                                 |                                    |          |                                             |                                                   |                        |
|   Totals              |   $8,300                      |          |  $  7,631                         |  $  9,385                               | $25,316                |
|                                 |                                    |          |                                             |                                                   |                        |
|                                 |                                    |          |                                             |                                                   |                        |
| Loans at fixedinterest rates    |                               |          |   $ 5,852                         |   $ 9,385                               | $15,237                |
| Loans at variable interestrates |                                    |          |     1,779                    |          -     |   1,779      |
|                                 |                                    |          |                                             |                                                   |                        |
|                                 |                                    |          |  $  7,631                         |  $  9,385                               | $17,016                |

*Includes$1.5 million Pennsylvania Higher Education Assistance Agency loanswith no fixed maturity date.

**CreditReview**

Maintaining ahigh quality loan portfolio is of great importance to theCorporation. The Corporation manages the risk characteristics ofthe loan portfolio through the use of prudent lending policies andprocedures and monitors risk through a periodic review processprovided by internal auditors, regulatory authorities and internalloan review procedures. These reviews include the analysis ofcredit quality, diversification of industry, compliance to policiesand procedures, and an analysis of current economic conditions. Inaddition to these reviews, the Corporation annually has commercialloan reviews performed by a third party specializing in thisarea.

TheCorporation’s credit culture fosters and actively supportsthe extension of credit on sound, fundamental lending policies. Thepurpose of each credit is to be logical, legal, constructive andacceptable within policy guidelines. Credit is only to be grantedto reputable borrowers and only when supported by acceptable andreliable financial information.

The allowancefor loan losses is a valuation reserve that is intended to accountfor credit losses, which may be expected in the Corporation’sloan portfolio as a result of the credit risk involved in thenormal granting of credit. Adequate management of the allowance isan integral part of the credit risk management process. The risksdirectly associated with the maintenance of the allowance arecompliance risk and reputation risk. The Corporation will maintainan adequate allowance in anticipation of losses reflected as of theevaluation date. Management is cognizant of the subjective natureof decisions regarding loan portfolio factors and the variabilityover time of internal and external factors affecting portfolioquality, and realizes that an effective asset review system isessential to establishing the basis for an adequate allowance. Toimprove the accuracy of determining the allowance, management willcontinuously monitor all factors and current conditions that mayaffect loss recognition.

For analyticalpurposes, the following table sets forth an allocation of theallowance for loan losses on December 31, 2002 and December 31,2001 according to the categories indicated:
| Allocation of the Allowance for LoanLosses |
|--------------------------------------------|
| (dollar amounts in thousands)              |
|                                            | 2002 | 2001 |
|                                            |  |  |
| Commercial and TaxFree                     |     $2,422 |   $2,564 |
|                                            |  |  |
| ResidentialMortgages                       |     63 |        63                                 |
|                                            |  |  |
| ConsumerLoans                              |      27 |         31 |
|                                            |  |  |
| Unallocated                                |   195 |      156 |
|                                            |  |  |
|                                            |  |  |
|   Total                          |   $2,707 |    $2,814 |
|                                            |  |  |
|                                            |  |  |
|                                            |  |  |
| Allowance as apercentage of average        |  |  |
|   totalloans                          |    1.44% |    1.36% |
|                                            |

The followingtable details, for each of the most recent five years, the year endamounts which were accounted for on a non-accrual basis or werepast due 90 days or more:
| Dec. 31,2002                                     |                                                         |
|--------------------------------------------------|---------------------------------------------------------|
|     Loans on non-accrualbasis     | $2,679,355                                              |
|     Loans past due 90 days ormore | 2,966                                                   |
|     Renegotiated loans            |          - |
|     Total                         | $ 2,682,321                                             |
|                                                  |                                                         |
| Dec. 31,2001                                     |                                                         |
|     Loans on non-accrualbasis     | $2,492,432                                              |
|     Loans past due 90 days ormore | 122,966                                                 |
|     Renegotiated loans            |      59,854                         |
|     Total                         | $ 2,675,252                                             |
|                                                  |                                                         |
| Dec. 31,2000                                     |                                                         |
|     Loans on non-accrualbasis     | $   358,429                                   |
|     Loans past due 90 days ormore | 207,834                                                 |
|     Renegotiated loans            |     170,572                              |
|     Total                         | $   736,835                                   |
|                                                  |                                                         |
| Dec. 31,1999                                     |                                                         |
|     Loans on non-accrualbasis     | $   517,644                                   |
|     Loans past due 90 days ormore | 187,259                                                 |
|     Renegotiated loans            |     493,215                              |
|     Total                         | $ 1,198,118                                             |
|                                                  |                                                         |
| Dec. 31,1998                                     |                                                         |
|     Loans on non-accrualbasis     | $    95,032                              |
|     Loans past due 90 days ormore | 320,438                                                 |
|     Renegotiated loans            |     572,352                              |
|     Total                         | $   987,822                                   |
|                                                  |                                                         |

Non-accrualloans remained relatively unchanged during 2002 due to the generaleconomic slowdown. As of December 31, 2002, $1,205,374 of thenon-accrual loans were current with interest and principal paymentsrecognized on a cash basis only.

At present noother outstanding loans present a serious doubt in regard to theborrower's ability to comply with the current loan repayment terms.As of December 31, 2002 the Corporation had $344,048 in other realestate owned.

Effect ofnon-accrual loans on interest income during 2002 is asfollows:

      
|                                                               | Non-accrual  |
|---------------------------------------------------------------|--------------|
|                                                               | Loans        |
| Gross amount ofinterest that would have                       |              |
|       Been recorded atoriginal rates | $158,725     |
| Less: Interestthat was reflected in income                    |  27,562 |
| Net reduction tointerest income                               | $131,163     |

**CapitalResources**

Shareholders’ equity increased $5,234,205during 2002 and was $51,204,502 on December 31, 2002 compared to$45,970,297 on December 31, 2001. Net unrealized gains onsecurities available for sale on December 31, 2002 temporarilyincreased shareholders’ equity by $4,881,065. This componentwill fluctuate given the timing of investment purchases versus thecurrent interest rate environment.

Theshareholders’ equity or the capital base represents theinvestment by the Corporation’s owners either initially orthrough retention of earnings (net after income tax less dividendpayments). This investment acts as a safeguard against futureuncertainties. The amount of capital which is deemed appropriate isdependent upon an assessment of the corporation’s totalassets, the quality of its loans and securities, its historicalearnings record, its business prospects for the near and long term,the management and information systems in place and the generalcompetence and abilities of the corporation’smanagement.

On December 31,2002, the Corporation’s capital (not including the allowancefor loan losses) amounted to $51,204,502 or 13.46% of total assets.The inclusion of the allowance increases the capital ratio to14.17%. On the same basis of calculation, these ratios were 13.40%and 14.22% respectively on December 31, 2001.

The FederalReserve Board’s risk-based capital adequacy standards aredesigned principally as a measure of credit risk. These standardsrequire that (1) at least 50% of total capital must be common andcertain other “core” equity capital (“Tier ICapital”); (2) assets and off-balance sheet items must beweighted according to risk; (3) the total capital to risk-weightedasset ratio must be at least 8%; and (4) a minimum 4% leverageratio of Tier I Capital to average total assets must bemaintained.

As of December31, 2002, the Corporation had Tier I and total equity capital torisk adjusted asset ratios of 23.95% and 25.21%, respectively. In2002, the leverage ratio was 12.06%. At December 31, 2001, theCorporation had Tier I and total equity capital to risk adjustedassets ratios of 22.36% and 23.61%, respectively.

      The table below presents theCorporation’s capital position on December 31,2002

(dollar amounts in thousands)

                                                                      
|                                                          |                                      | Percent                             |
|----------------------------------------------------------|--------------------------------------|-------------------------------------|
|                                                          |                                      | of Adjusted                         |
|                                                          | Amount                               | Assets                              |
|                                                          |                                      |                                     |
|       Tier ICapital             |      44,539      |      23.95      |
|       Tier I CapitalRequirement |       7,438 |       4.00 |
|                                                          |                                      |                                     |
|       Total EquityCapital       |      46,868      |      25.21      |
|       Risk-BasedRequirement     |      14,875      |       8.00 |
|                                                          |                                      |                                     |
|                                                          |                                      |                                     |
|                                                          |                                      |                                     |
|       LeverageCapital           |      44,539      |      12.06      |
|       LeverageRequirement       |      14,926      |       4.00 |

**Inflationand Changing Prices**

Inflation canhave significance to a banking institution because of itsimplication for the interest rate environment and its influence onpersonnel expenses and the costs of supplies and materials neededfor day to day operations. Because such a large portion of theCorporation’s assets and liabilities are represented bymonetary investments, inflationary impact tends to be dampenedexcept for the dislocation caused by maturity variances. Managementefforts to gauge and control these variables have been discussedearlier under Interest Sensitivity. The inflationary effect onnon-interest expenses is monitored closely by management andconsistent attention is given to controlling these cost areas in anattempt to limit their increase to levels which are lower than therate of asset growth.

Certain interestrate movements will continue to influence ongoing earnings levels.Even though the exact impact of these factors cannot be predicted,the Corporation believes that given its financial strength andstability, it will be able to meet these situations in a positivemanner.
| **CORPORATEOFFICERS** |
|-----------------------|
|                       |
| Louis A.Steiner                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Chairman ofthe Board                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
| Louis T.Steiner                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ViceChairman, President and Chief Executive Officer       |
| Gregg E.Hunter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ViceChairman and Chief Financial Officer                  |
| Wendy S.Schmucker                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | VicePresident and Secretary/Treasurer                     |
| Ryan M.Glista                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | VicePresident and Comptroller                             |
| Susan F.Robb                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | AssistantVice President and Assistant Secretary/Treasurer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **CORPORATE DIRECTORS**                                   |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
| **                                                                                 ** |                                                           |  |
| John T.Babilya                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Frank E.Jobe                                              | Debra L.Spatola |
| President,Arc Weld Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Retired,former Executive                                  | President, |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | VicePresident, Commercial                                 | LaurelValley Foods, Inc. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | NationalBank of Pennsylvania                              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
| George A.Conti, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Roy M.Landers                                             | Louis A.Steiner |
| Attorney atLaw                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Retired,former Executive Vice                             | ViceChairman,  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | President R& L Development Co.                        | CommercialNational Bank of |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           | Pennsylvania |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
| Richmond H.Ferguson                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | John C.McClatchey                                         | Louis T.Steiner |
| Attorney atLaw                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Retired,former Chief Executive                            | Chairman,President and Chief |
| Ferguson LawAssociates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Officer, JCMIndustries                                    | ExecutiveOfficer, Commercial |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           | NationalBank of Pennsylvania |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
| Dorothy S.Hunter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Joseph A.Mosso                                            | George V.Welty |
| VicePresident, Latrobe                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Retired,former President                                  | Attorney atLaw |
| FoundryMachine & Supply Co.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Mosso’s Pharmacy, Inc.                              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
| Gregg E.Hunter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Joedda M.Sampson                                          | C. EdwardWible |
| ViceChairman and Chief                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Presidentand Principal Owner,                             | CertifiedPublic Accountant |
| FinancialOfficer, Commercial                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Allegheny CityRestorations, Inc.                          | Horner WibleKisiel Zimmerman PC |
| NationalBank of Pennsylvania                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                           | CertifiedPublic Accountants |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                      |
| All corporatedirectors also serve as directors of                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                      |
| Commercial National Bank of Pennsylvaniaand                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                      |
| Commercial National Insurance Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                      |
| DirectorsEmeriti                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                           |  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                           |  |   |
| James A.Charley                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | William M.Charley                                         | William W.Washnock |   |
|                                                                                                                                                                                      | **BUSINESS LOCATIONS**      |                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|---------------------------|
|                                                                                                                                                                                      |                             |                           |
|                                                                                                                                                                                      |                             |                           |
| **CorporateHeadquarters**                                                                                                                                                            | **Latrobe**                 | **Norwin**                |
| 900 LigonierStreet                                                                                                                                                                   | 900 LigonierStreet          | 8775 NorwinAvenue         |
| P.O. Box429                                                                                                                                                                          | P.O. Box429                 | NorthHuntingdon, PA 15642 |
| Latrobe, PA15650                                                                                                                                                                     | Latrobe, PA15650            | 724/864-7536              |
| 724/539-3501                                                                                                                                                                         | 724/537-9963                | 724/864-7531(Fax)         |
| 724/532-2973(Fax)                                                                                                                                                                    | 724/539-0816(Fax)           |                           |
|                                                                                                                                                                                      |                             |                           |
| **AssetManagement and Trust**                                                                                                                                                        | **LawsonHeights**           | **PleasantUnity**         |
| **Division**                                                                                                                                                                         | Route 981 atTerry Way       | Routes 981 and130         |
| 19 North MainStreet                                                                                                                                                                  | P.O. Box429                 | P.O. Box503               |
| Greensburg, PA15601                                                                                                                                                                  | Latrobe, PA15650            | Pleasant Unity,PA 15676   |
| 724/836-7670                                                                                                                                                                         | 724/539-9774                | 724/423-5222              |
| 724/836-7675(Fax)                                                                                                                                                                    | 724/539-3523(Fax)           | 724/423-1155(Fax)         |
|                                |                             |                           |
| **CourthouseSquare**                                                                                                                                                                 | **Ligonier**                | **WestNewton**            |
| 19 North MainStreet                                                                                                                                                                  | 201 West MainStreet         | 109 East MainStreet       |
| Greensburg, PA15601                                                                                                                                                                  | P.O. Box528                 | P.O. Box219               |
| 724/836-7699                                                                                                                                                                         | Ligonier, PA15658           | West Newton, PA15089      |
| 724/836-7675(Fax)                                                                                                                                                                    | 724/238-9538                | 724/872-5100              |
|                                                                                                                                                                                      | 724/238-9530(Fax)           | 724/872-5143(Fax)         |
|                                                                                                                                                                                      |                             |                           |
| **Eastgate**                                                                                                                                                                         | **LincolnRoad**             |                           |
| Georges StationRoad                                                                                                                                                                  | Lincoln RoadShopping Center |                           |
| P.O. Box3206                                                                                                                                                                         | P.O. Box429                 |                           |
| Greensburg, PA15601                                                                                                                                                                  | Latrobe, PA15650            |                           |
| 724/836-7600                                                                                                                                                                         | 724/537-9980                |                           |
| 724/836-7604(Fax)                                                                                                                                                                    | 724/537-9982(Fax)           |                           |

In additionto the full-service MAC machines located at all Commercial NationalBank community offices indicated above (except Latrobe andCourthouse Square),

additionalATMs are available for your 24-hour banking convenience at ArnoldPalmer Regional Airport, Latrobe Area Hospital, Norvelt OpenPantry, Saint Vincent College and the University of Pittsburgh atGreensburg. All are linked to the national Cirrus, Honor, Plus andStar networks and also accept MasterCard, Visa, Discover andAmerican Express for cash advances.
| Touch ToneTeller 24-hour banking service         | Website                 |
|--------------------------------------------------|-------------------------|
|                                                  |                         |
| **724/537-9977**                                 | Furtherinformation on   |
| FREE fromBlairsville, Derry                      | CommercialNational Bank |
| Greensburg,Kecksburg, Latrobe                    | of Pennsylvaniais       |
| Ligonier and NewAlexandria.                      | available on theWorld   |
| **1-800-803-BANK**                               | Wide Webat:             |
| FREE from allother locations.                    | **www.cnbthebank.com.** |
|                                                  |                         |
|                                                  |                         |
| Insurance                                        |                         |
|                                                  |                         |
| **CommercialNational Insurance Services, Inc./** |                         |
| **Gooder Agency,Inc.**                           |                         |
| 232 North MarketStreet                           |                         |
| Ligonier, PA15658                                |                         |
| 727/238-4617                                     |                         |
| 877/205-4617(toll free)                          |                         |
| 724/238-0160 (fax)                               |                         |
| cnisinfo@cnbinsurance.com                        |                         |
| www.cnbinsurance.com                             |                         |
|                                                  |                         |

**SUBSIDIARIES**

****

**EXECUTIVEOFFICERS******

**EXECUTIVEOFFICERS OF COMMERCIAL NATIONAL BANK OFPENNSYLVANIA:**

**Chairman/President/Chief ExecutiveOfficer**            

Louis T.Steiner

**ViceChairman**

Louis A.Steiner

****

**ViceChairman/Chief FinancialOfficer                 **

Gregg E.Hunter

**ExecutiveVice President/Chief Operating Officer**

Gerard R.Kunic

****

****

****

****

**EXECUTIVEOFFICERS OF COMMERCIAL NATIONAL INSURANCE SERVICES,INC.:**

****

**Chairman/President/Chief ExecutiveOfficer**

Louis T.Steiner

**ViceChairman**

Louis A.Steiner

**ViceChairman/Chief Financial Officer**

Gregg E.Hunter

**ExecutiveVice President/Chief Operating Officer**

Stephen R.Gooder

**MarketMakers**

****

The followingfirms have committed to make a market in the stock of CommercialNational Financial Corporation. Inquiries concerning their servicesshould be directed to:
| Ferris BakerWatts                 | M. H. Meyerson& Co. |
|-----------------------------------|-------------------------|
| 100 LightStreet                   | 525 WashingtonBlvd      |
| Baltimore, MD21202                | 34thFloor               |
| 800-638-7411                      | Jersey City, NJ07303    |
|                                   | 800-333-3113            |
|                                   |                         |
| F.J. Morrissey& Company, Inc. | Ryan, Beck &Co.     |
| Suite420                          | 80 MainStreet           |
| 1700 MarketStreet                 | West Orange, NJ07052    |
| Philadelphia, PA19103-3913        | 973-597-6020            |
| 800-842-8928                      |                         |
|                                   |                         |
| KnightSecurities                  | Goldman, Sachs& Co. |
| 525 WashingtonBoulevard           | 85 BroadStreet          |
| Jersey City, NJ07310              | New York, NY10004       |
| 201-222-9400                      | 800-221-5320            |
|                                   |                         |

**TransferAgent**

****

Should you needassistance regarding changes in the registration of certificates orin reporting lost certificates please contact:

CommercialNational Financial Corporation

Stock TransferDepartment

P.O. Box429

Latrobe, PA15650

(724)537-9923

(724)539-1137(fax)

**Form10-K**

The Corporationwill provide without charge to any shareholder a copy of its 2002Annual Report on Form 10-K as required to be filed with theSecurities and Exchange Commission. Requests should be made inwriting to:

CommercialNational Financial Corporation

P.O. Box429

Latrobe, PA15650