For the fiscal year ended December 31, 2001

Commission file number 0-18676

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

TITLE OF CLASS

Common Stock, $2 Par Value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x)

Portions of the registrant's Annual Report to shareholders for the fiscal year ended December 31, 2001 are incorporated by reference into Parts I, II, and IV of this report. Portions of the definitive Proxy Statement related to the annual meeting of shareholders to be held May 21, 2002 are incorporated by reference into Part III, except for the performance graph, Compensation Committee Report and Audit Committee Report.

Part I

Item 1. BUSINESS

Description of Business

Commercial National Financial Corporation (the corporation) is a Pennsylvania corporation and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and as a financial holding company under the Gramm Leach Bliley Act of 1999 (GLB). The corporation is owner of 100% of the outstanding shares of common stock of Commercial National Bank of Pennsylvania (the bank). The bank has been providing banking services since 1934. At the present time, 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, Murrysville and Hempfield Township, Pennsylvania. The Bank established an asset management/trust department in 1994 which is located in the building that houses the Greensburg banking office. All of these offices are within the boundaries of Westmoreland County, Pennsylvania. In addition, the building that houses the bank's downtown Latrobe banking office is the location of the corporation's and the bank's executive and administrative offices. The institution's operations center is located at the Latrobe Plaza in downtown Latrobe. This operations center also houses an in-house data processing system.

The bank plans to open a tenth banking office in May, 2002, which will be located within the Redstone Highlands retirement complex in Murrysville, Pennsylvania. The bank also entered into an agreement in March, 2002 to acquire a branch office of Great American Federal located in Norwin, Pennsylvania. That acquisition is expected to close during the second quarter of 2002.

Each of the banking offices, except for downtown Latrobe and Greensburg, is equipped with 24 hour a day automatic teller machines. Bank ATM units are also located on the campuses of Saint Vincent College in Unity Township and the University of Pittsburgh at Greensburg, the terminal of the Westmoreland County Airport in Unity Township, the reception lobby of the Latrobe Area Hospital in Latrobe, and an in-store machine in the Norvelt Open Pantry and the New Alexandria Qwik Mart. A separate freestanding drive-up teller staffed banking facility is attached to the Lincoln Road office in downtown Latrobe. This facility also provides ATM service.

The corporation's business activities involve holding the stock of the bank and of Commercial National Investment Corporation, which owns 50% of Commercial National Insurance Services. The other 50% is owned by Gooder Agency, Inc., of Ligonier, Pennsylvania. Commercial National Insurance Services is an insurance agency which offers a full array of insurance products and services to consumer and commercial markets surrounding the Ligonier area.

The bank offers the full range of banking services normally associated with a general commercial banking business. Services include extending credit, providing deposit services, marketing non-deposit investments and offering financial counseling. The ATM system described above is a part of the MAC, Cirrus, Honor, Plus and Star networks, which provides the bank's customers access to an extensive regional and national network. The bank also has implemented a comprehensive electronic Online Banking system. By using a personal computer with internet access, customers can access their Commercial National Bank accounts, perform common banking tasks and pay bills 24 hours a day, seven days a week, 365 days a year.

Competition

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

Supervision and Regulation

The corporation and the bank are subject to the supervision of the following regulatory bodies: The Federal Reserve Board, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation. The nature of the supervision extends to such areas as safety and soundness, truth-in-lending, truth-in-savings, rate restrictions, consumer protection, permissible loan and securities activities, merger and acquisition limitations, reserve requirements, dividend payments and regulations concerning activities by corporate officers and directors. The Federal Reserve Board monitors holding company activity while the Office of the Comptroller of the Currency is the bank's primary banking regulator. No regulatory restrictions or actions are currently pending against the corporation or the bank.

GLB permits bank holding companies with subsidiary banks meeting certain capital and management requirements to elect to become "financial holding companies". Financial holding companies may engage in a full range of financial activities, including not only banking, insurance and securities activities, but also merchant banking and additional activities determined to be "financial in nature". GLB also provides for expansion of the list of permissible activities as necessary for a financial holding company to keep abreast of competitive and technological change. The corporation was designated a financial holding company in March 2000 by the Federal Reserve Board.

Although it preserved the Federal Reserve Board as the umbrella supervisor of financial holding companies, GLB adopted an administrative approach to regulation that defers to the approval and supervisory requirements of the functional regulators of insurers and insurance agents, broker-dealers, investment companies, and banks. Thus, the various state and federal regulators of a financial holding company's operating subsidiaries would retain their jurisdiction and authority over the operating entities. As the umbrella supervisor, however, the Federal Reserve Board has the potential to affect the operations and activities of financial holding companies' subsidiaries through its power over the financial holding company. In addition, GLB contains numerous trigger points related to legal noncompliance and other serious problems affecting bank affiliates that could lead to direct Federal Reserve Board involvement and to the possible exercise of remedial authority affecting both financial holding companies and their affiliated operating companies.

Significant Accounting Policies

Note 1 to the corporation's consolidated financial statements lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the corporation and its results of operations.

Effects of Governmental Policies

In addition to the regulatory requirements, the corporation and its subsidiary bank are affected by the national economy and the influence on that economy exerted by governmental bodies through monetary and fiscal policies and their efforts to implement such policies. In particular, the impact of the open market operations on interest rates, the establishment of reserve requirements and the setting of the discount rate will continue to affect business volumes and earnings. The exact nature or the full extent of this impact is almost impossible to predict; however, management continues to monitor these activities on a regular basis and seeks to modify its policies and procedures accordingly.

EMPLOYEES

As of December 31, 2001, the corporation, the bank and other subsidiaries of the corporation had a total of 123 full-time-equivalent employees.

CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE

The data presented on the following pages provides additional information to assist in reviewing the corporation's business activities and must be read with the understanding that it is a supplement to Management's Discussion and Analysis of Financial Condition and Results of Operation in the annual report to shareholders for the year ended December 31, 2001, portions of which are incorporated herein by reference.

Securities Portfolio

The following table presents the composition of the securities portfolio at year-end for the years indicated:

Loans

Final loan maturities excluding consumer installment and mortgage loans and before unearned income at December 31, 2001: (in thousands)

*Includes $1.6 million Pennsylvania Higher Education Assistance Agency loans with no fixed maturity date.

CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued)

Non-performing Loans

The following table details, for each of the most recent five years, the year end amounts which were accounted for on a non-accrual basis or were past due 90 days or more:

The increase in non-accrual loans from 2000 to 2001 is due to the general economic slowdown as well as the corporation's implementation during 2001 of an enhanced loan assessment program. The assessment enhances the corporation's ability to identify loans which may be problems or which the borrower may be unable to repay under the terms of the original agreement. On December 31, 2001, $1,089,008 of the non-accrual loans were current with interest and principal payments recognized on a cash basis only.

At present no other outstanding loans present a serious doubt in regard to the borrower's ability to comply with the current loan repayment terms. As of December 31, 2001 the corporation had no other real estate owned and no in-substance foreclosures.

Effect of non-accrual loans on interest income during 2001 is as follows:

CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued)

Summary of Loan Loss Experience

The table below provides an analysis of the allowance for loan losses for the five

years ended December 31, 2001:

Management review and evaluation of loan loss experience and loan loss potential on outstanding loans occurs on a quarterly basis and is considered in conjunction with current economic conditions and the current requirements of the appropriate regulatory agencies. Due to the recent decline in the general economy and slowdown in lending experienced by the corporation, management expects loan loss trends to be consistent with the two most recent years.

As a result of this on-going study, management believes that the reserve amount shown for December 31, 2001 is adequate to offset the losses which may exist as a result of under collateralization or uncollectibility.

Management maintains an allowance for loan losses that it considers adequate based on the evaluation process that it performs on a quarterly basis. As part of this process, management considers it appropriate to maintain a portion of the allowance that is based on credit quality trends, loan volume, current economic trends and other uncertainties. This portion of the allowance for loan

CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE (continued

Summary of Loan Loss Experience (continued)

losses is reflected as the unallocated portion in the table below that indicates the distribution of the allowance as of the end of each of the last five years.

Deposits

The following table presents average deposits by type and the average interest rates paid as of 2001, 2000 and 1999:

Remaining maturities of certificates of deposit $100,000 or more:

Item 2. Properties

All of the corporation's banking and support facilities are owned with the exception of one(1) banking office and an adjacent drive-up facility, both of which are leased. All of the properties are used in their entirety for banking purposes. In each case, the properties have been maintained in good repair, are well suited for their present use and appear to be adequate for the immediate needs of the corporation and the bank. Physical locations can be found on page 31 of the Annual Report to Shareholders.

Item 3. Legal Proceedings

Other than proceedings that occur in the normal conduct of business, there are no legal proceedings to which either the corporation or the subsidiaries is a party that will have any material effect on the financial position of the corporation and its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the corporation's security holders during the last quarter of its fiscal year ended December 31, 2001.

Part II

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

Information appearing in the annual report to shareholders for the fiscal year ended December 31, 2001 on page 20 is incorporated herein by reference in response to this item. As of March 22, 2002 there were 519 shareholders of record of the registrant's common stock. The number of beneficial shareholders is approximately 770.

Item 6. Selected Financial Data

Information appearing in the annual report to shareholders for the fiscal year ended December 31, 2001 on page 21 is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and

Results of Operation

Information appearing in the annual report to shareholders for the fiscal year ended December 31, 2001 on pages 22 through 27 is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The corporation's interest rate risk management is the responsibility of the Asset/Liability Management Committee, which reports to the Board of Directors. This committee establishes policies that monitor and coordinate the corporation's sources, uses and pricing of funds. The committee is also involved with management in the corporation's planning and budgeting process.

The corporation regularly reviews its exposure to changes in interest rates. Among the factors considered are changes in the mix of earning assets and interest-bearing liabilities, interest rate spreads and repricing periods. Typically, the committee reviews on at least a quarterly basis the bank's relative ratio of rate sensitive assets to rate sensitive liabilities and the related cumulative gap for different time periods. Additionally, the committee and management utilize a simulation model in assessing the corporation's interest rate sensitivity.

This simulation modeling process projects a baseline net interest income (assuming no changes in interest rate levels) and estimates changes to that baseline net interest income resulting from changes in interest rate levels. The corporation utilizes the results of this model in evaluating its interest rate risk. This model incorporates a number of additional factors. These factors include: (1) the expected exercise of call features on various assets and liabilities, (2) the expected rates at which various rate sensitive assets and liabilities will reprice, (3) the expected relative movements in different interest rate indexes that are used as the basis for pricing or repricing various assets and liabilities, (4) expected changes in administered rates on interest-bearing transaction, savings, money market and time deposit accounts and the expected impact of competition on the pricing or repricing of such accounts and (5) other factors. Inclusion of these factors in the model is intended to more accurately project the corporation's changes in net interest income resulting from an immediate and sustained parallel shift in interest rates of up 100 basis points (bps), up 200 bps, down 100 bps and down 200 bps. While the corporation believes this model provides a useful projection of its interest rate risk, the model includes a number of assumptions and predictions that may or may not be accurate. These assumptions and predictions include inputs to compute baseline net interest income, growth rates, competition and a variety of other factors that are difficult to accurately predict. Accordingly, there can be no assurance the simulation model will reflect future results.

The following table presents the simulation model's projected impact of an immediate and sustained parallel shift in interest rates on the projected baseline net interest income for a twelve-month period commencing January 1, 2002.

$ Change in Projected

% Change in Projected

Change in Interest

Baseline

Baseline

Rates

Net Interest Income

Net Interest Income

(dollar amounts in thousands)

+200 basis points

 $ (39)

-0.2%

+100 basis points

 $ (5)

0.0%

-100 basis points

 $ (241)

-1.5%

-200 basis points

 $ (736)

-4.6%

In the event of a shift in interest rates, management may take certain actions intended to mitigate the negative impact to net interest income or to maximize the positive impact to net interest income. These actions may include, but are not limited to, restructuring of earning assets and interest-bearing liabilities, seeking alternative funding sources or investment opportunities and modifying the pricing or terms of loans and deposits.

Item 8. Financial Statements and Supplementary Data

The corporation's consolidated financial statements, the notes thereto and the report of the independent certified public accountants are on pages 6 through 20 of the annual report to the shareholders for the fiscal year ended December 31, 2001 and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On October 17, 2000, the corporation determined to discontinue its engagement of Stokes Kelly & Hinds, LLC, (SKH) as the independent auditors for the corporation and its subsidiaries. The reports of SKH on the financial statements of the corporation for the fiscal years ended 1998 and 1999 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to the uncertainty, audit scope or accounting principles. The decision to change independent auditors was recommended by the audit committee of the board of directors of the corporation.

During the corporation's two fiscal years ended December 31, 1998, and 1999, and during the period from January 1, 2000 to October 17, 2000, there were no disagreements with SKH on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to the satisfaction of SKH, would have caused them to make reference to the matter in their report.

Part III

Item 10. Directors and Executive Officers of the Registrant

The following table shows the names and ages of the current executive officers and the present and previous positions held by them for at least the past five years.

Information appearing in the proxy statement related to the annual meeting of shareholders to be held May 21, 2002 on pages 4 and 5 is incorporated herein by reference.

The information required by Item 405 of Regulation S-K is contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," on page 9 of the proxy statement and is incorporated herein by reference.

Item 11. Executive Compensation

Information appearing in the proxy statement related to the annual meeting of shareholders to be held May 21, 2002 on pages 11 through 13 is incorporated herein by reference .. The stock performance graph and the Compensation Committee Report shall not be deemed to be "filed".

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information appearing in the proxy statement related to the annual meeting of shareholders to be held May 21, 2002 on page 7 is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information appearing in the proxy statement related to the annual meeting of shareholders to be held May 21, 2002 on page 14 is incorporated herein by reference.

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

(1)The corporation's consolidated financial statements, the notes thereto and the report of the independent public accounts are on pages 6 through 19 of the annual report to shareholders for the fiscal year ended December 31, 2001 and are incorporated herein by reference.

(b) Reports on Form 8-K. None were filed during the fourth quarter of 2001.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Exhibit 16 - Consent letter regarding change in certifying accountant

March 27, 2002

Commercial National Financial Corporation

900 Ligonier Street

Latrobe, PA 15650

Gentlemen:

We have read the proposed disclosure entitled "Auditors", to be filed with the Securities and Exchange Commission on or about March 29, 2002 as part of Commercial National Financial Corporation's Proxy Statement and are in agreement with the statements concerning our Firm contained therein. We have no basis to agree or disagree with other statements of the registrant contained therein.

/s/ Stokes & Hinds, LLC

Pittsburgh, Pennsylvania

Exhibit 21 - Subsidiaries of Commercial National Financial Corporation

Exhibit 99 - Independent auditor's report from previous certifying accountant

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders

Commercial National Financial Corporation

and Subsidiaries

Latrobe, Pennsylvania

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

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Commercial National Financial Corporation and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.

/s/ Stokes & Hinds, LLC

Pittsburgh, Pennsylvania

January 28, 2000

The corporation will provide without charge to any shareholder a copy of its 2001 annual report on form 10-K as required to be filed with the Securities and Exchange Commission. Requests should be made in writing to:

COMMERCIAL NATIONAL FINANCIAL CORPORATION

STOCK TRANSFER DEPARTMENT

P.O. BOX 429

LATROBE, PA 15650

Our Commitment to Those We Serve

In detailing the elements of our mission, the significant components must be equally ranked regardless of their order of presentation since substantial progress can be achieved only as these elements interact harmoniously to advance the mission of the corporation.

Our mission is to acquire, organize and manage the resources required to offer personalized and professional financial services in a manner that demonstrates our concern for understanding and meeting the needs of the individuals, families, businesses and other organizations in our marketplace.

In fulfilling our mission, we give constant consideration to the well-being of our employees, not only in terms of economic benefit, but also by guaranteeing a working environment that .

- encourages personal and profession development,

- fosters individual dignity and

- demands the highest ethical standards

.. so that each employee can experience a sense of satisfaction in an personal identity with the accomplishments we achieve together.

Our responsibility to the communities we are privileged to serve requires our involvement as a corporation, as well as a commitment by our employees and directors, to respond to community development and improvement needs with a continual investment of both time and funds.

All of our activities are carefully planned and professionally conducted to provide our shareholders with a reasonable and regular profit so that their ongoing investment will constantly increase in value.

To Our Shareholders

For many of us, 2001 represented a year that was marked by new highs but was also a time of challenging lows. The highs experienced by your corporation are a reflection of the accomplishments that all those employed in our various business lines were able to achieve. We posted record earnings for the year and the fourth quarter of $4,904,923 and $1,494,850, respectively. These earnings were recorded during a year when the national and local economies had slowed from the frenzied speculation-driven pace of recent years.

We are only as good as the people who work here.

As an organization we are proud of our employees. They come to work each and every day with a goal of providing our customers with the best financial products and services. In addition to their work responsibilities, many serve as volunteers with a variety of service groups in order to make our communities a better place to live.

During 2001, your corporation continued to play its part as a community "citizen". Over $140,000 in donations and community sponsorships were granted to a variety of local service organizations involved in helping the residents of the communities we serve.

Commercial National Bank of Pennsylvania's senior management staff was strengthened during 2001 with the addition of Gerard R. Kunic as Executive Vice President and Chief Operating Officer. Gerry brings with him over 30 years of banking experience having served most recently as president and chief executive officer at another financial institution in the Pittsburgh area. Gerry is responsible for the retail, commercial and technology divisions of the bank.

The Chairman's Award is presented to those individuals who consistently perform above and beyond the expectations of their jobs. These exemplary employees are nominated by their supervisor and recognized at a meeting of the board of directors. In 2001, the following individual received the Chairman's Award for her special effort:

Helen Ferrenberg

Teller

Pleasant Unity Community Office

.was honored for her contributions to a bank sales campaign.

Our services continue to expand.

Commercial National Bank continued to provide employees with the enhanced technology needed to better serve its customers. In the first quarter of the year, platform automation was fully utilized in all nine community offices to provide more efficient identification and satisfaction of customer needs.

Customers continue to use the multiple service delivery avenues available to them. In addition to our local community offices, customers can access their accounts through an extensive ATM network including our newest unit at the University of Pittsburgh at Greensburg. The bank's automated telephone banking system, TouchTone Teller, handles over 20,000 calls each month. The popularity of the Internet and its acceptance by our customers for banking with us was evidenced by the increase of Online Banking transactions during 2001.

In July 2001, Commercial National Bank received regulatory approval to open its tenth banking facility, which will be located within the Redstone Highlands retirement complex in Murrysville. This new office will allow residents and employees of the facility to conduct banking transactions on-site and is expected to open in May 2002.

The Asset Management and Trust Division continued to show solid growth in revenues and assets under management. Revenues earned during 2001 experienced double-digit growth while assets under management exceeded $115 million at year-end. The division provided a positive contribution to the bank's profitability in 2001.

Commercial National Insurance Services has completed its second full year of operation. The insurance agency is 50% owned by the corporation and finished 2001 with positive net income. The ability to offer both asset management and insurance services places the corporation in an excellent position to continue meeting a wide range of financial needs of its present and potential customers.

Financial performance remains strong.

Commercial National Financial Corporation continues to maintain a solid financial base characterized by substantial earnings and strong capitalization that gives your company the ability to move confidently into the future. The following information illustrates this observation.

Audited earnings for the year were $4,904,923 or $1.43 per share. This compares favorably to 2000's earnings and earnings per share of $4,631,512 and $1.32, respectively. The fourth quarter of the year produced record earnings of $1,494,850.

The competition for deposits coupled with the record eleven rate cuts by the Federal Reserve posed a challenge to maintaining and growing our deposit base. At year-end, total deposit volume amounted to $255 million in comparison to $267 million at the end of 2000.

The loan portfolio contracted from $208 million at the end of 2000 to $202 million at the end of 2001. Reduction in outstanding loans occurred in most loan categories and reflected an intentional effort to reconfigure our loan portfolio.

Interest income amounted to $24 million down from $26 million in 2000 as a result of declining loan balances and market rate decreases. Interest expense totaled $9.7 million for the year as compared to $11.7 million a year earlier. The contraction in deposits together with lower market rates reduced interest costs. As a result, the corporation's net interest income grew to $14.7 million.

The provision for loan losses decreased for the year. Efforts to recover the funds associated with the single major default experienced in 1999 continued.

Other operating income amounted to $2.6 millionup from $2.4 million in 2000. This improvement came from an increase in the fees generated by the asset management and trust division and from new diversified insurance investments with associated tax benefits.

Other operating expenses for 2001 rose to $10.2 million from $9.5 million a year earlier. Personnel and legal costs represented the majority of this increase.

The return on average assets increased from 1.32% in 2000 to 1.43% for the year ended December 31, 2001. The return on average equity for the year was 10.90% compared to 11.21% for 2000. The strong capital position of the corporation together with $2.2 million in after-tax net unrealized gains within the securities portfolio was responsible for the reduction in this ratio.

Total assets at year-end amounted to $343 million as compared to $330 million for 2000. This increase is primarily the result of an expansion of the corporation's bond portfolio.

The share price of Commercial National Financial Corporation stock (traded as CNAF on the Nasdaq Stock Market, Inc.) strengthened by 24% to end the year at $18.12 from the 2000 year-end price of $14.63. This contrasted favorably with the performance of many other publicly traded firms during a year of tremendous volatility in the stock market.

Dividend payout to investors increased during 2001 by 11.8% to $0.76 up from $0.68 in 2000. The earnings stream to the corporation's shareholders from dividends remains one of management's most important responsibilities. Consistent payments are a tangible reward to the shareholder's on-going confidence in the corporation's board of directors and senior leadership.

In Conclusion.

Much has already been said about September 11 ^th in the media. The unspeakable events of that day affected all of us. Many knew of or worked with people who perished that day. Their

sacrifices and heroism must not and will not be forgotten.

The continued support that shareholders give to the corporation and its employees is greatly appreciated. We look forward to working on your behalf in the future.

/s/ Louis T. Steiner

Louis T. Steiner

Vice Chairman,

President and Chief

Executive Officer

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements.