Edgar Filing: AMERISERV FINANCIAL INC /PA/

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-11204

AMERISERV FINANCIAL, INC.

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		25-1424278
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
MAIN & FRANKLIN STREETS, P.O. BOX 430, JOHNSTOWN, PENNSYLVANIA		15907-0430
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (814) 533-5300

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


Title Of Each Class		Name Of Each Exchange On Which Registered
None

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


Common Stock, $0.01 Par Value		Share Purchase Rights
(Title of class)		(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No

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. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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. þ

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was $34,170,547 as of June 30, 2010.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 21,207,670 shares outstanding as of January 31, 2011.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the proxy statement for the annual shareholders’ meeting are incorporated by reference in Parts II and III.

FORM 10-K INDEX


		Page No.
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		15
Item 2.	Properties		15
Item 3.	Legal Proceedings		15
Item 4.	(Removed and Reserved)		15
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.	Selected Consolidated Financial Data		17
Item 7.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations		18
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		39
Item 8.	Consolidated Financial Statements and Supplementary Data		40
Item 9.	Changes In and Disagreements With Accountants On Accounting and Financial Disclosure		88
Item 9A.	Controls and Procedures		88
Item 9B.	Other Information		88
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance		88
Item 11.	Executive Compensation		88
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		88
Item 13.	Certain Relationships and Related Transactions, and Director Independence		89
Item 14.	Principal Accountant Fees and Services		89
PART IV
Item 15.	Exhibits and Consolidated Financial Statement Schedules		89
	Signatures		91

PART I

ITEM 1.

BUSINESS

GENERAL

AmeriServ Financial, Inc. (the Company) is a bank holding company organized under the Pennsylvania Business Corporation Law. The Company became a holding company upon acquiring all of the outstanding shares of AmeriServ Financial Bank (the Bank) on January 5, 1983. The Company’s other wholly owned subsidiaries include AmeriServ Trust and Financial Services Company (the Trust Company) formed in October 1992, and AmeriServ Life Insurance Company (AmeriServ Life) formed in October 1987.

The Company’s principal activities consist of owning and operating its three wholly owned subsidiary entities. At December 31, 2010, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of $949 million, $801 million and $107 million, respectively. The Company and its subsidiaries derive substantially all of their income from banking and bank-related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, accounting and taxes, loan review, auditing, investment accounting, marketing and insurance risk management.

As a bank holding company, the Company is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking. The Company is also under the jurisdiction of the Securities and Exchange Commission (SEC) for matters relating to offering and sale of its securities. The Company is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. The Company is listed on the NASDAQ Stock Market under the trading symbol “ASRV,” and is subject to the NASDAQ rules applicable to listed companies.

AMERISERV FINANCIAL BANKING SUBSIDIARY

AMERISERV FINANCIAL BANK

The Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended. Through 18 locations in Allegheny, Cambria, Centre, Somerset, and Westmoreland Counties, Pennsylvania, AmeriServ Financial Bank conducts a general banking business. It is a full-service Bank offering (i) retail banking services, such as demand, savings and time deposits, money market accounts, secured and unsecured loans, mortgage loans, safe deposit boxes, holiday club accounts, money orders, and traveler’s checks; (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as real estate-mortgage loans, short and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, real estate-construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services. The Bank also operates 22 automated bank teller machines (ATMs) through its 24-Hour Banking Network that is linked with NYCE, a regional ATM network and CIRRUS, a national ATM network. On March 7, 2007, the Bank completed the acquisition of West Chester Capital Advisors (WCCA). WCCA is a registered investment advisor and as of December 31, 2010 had $106 million in assets under management.

The Bank’s deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. In addition, the loan portfolio is also diversified so that one industry or group of related industries does not comprise a material portion of the loan portfolio. The Bank’s business is not seasonal, nor does it have any risks attendant to foreign sources. The majority of the Bank’s customer base is located within a 100 mile radius of Johnstown, Pennsylvania.

The Bank is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios at December 31, 2010:


Headquarters	Johnstown, PA
Total Assets	$	924,287
Total Investment Securities		156,251
Total Loans and Loans Held for Sale (net of unearned income)		678,181
Total Deposits		801,416
Total Net Income		2,496
Asset Leverage Ratio		9.13	%
Return on Average Assets		0.27
Return on Average Equity		2.59
Total Full-time Equivalent Employees		279

RISK MANAGEMENT OVERVIEW:

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, which includes interest rate, credit, and liquidity risk. The Company controls and monitors these risks with policies, procedures, and various levels of managerial and Board oversight.

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors, debtholders and the funding of operating costs. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses to control and manage credit risk. The Company’s investment policy and hedging policy strictly limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities. The following summarizes and describes the Company’s various loan categories and the underwriting standards applied to each:

Commercial

This category includes credit extensions to commercial and industrial borrowers. Business assets, including accounts receivable, inventory and/or equipment, typically secure these credits. In appropriate instances, extensions of credit in this category are subject to collateral advance formulas. Balance sheet strength and profitability are considered when analyzing these credits, with special attention given to historical, current and prospective sources of cash flow, and the ability of the customer to sustain cash flow at acceptable levels. Our policy permits flexibility in determining acceptable debt service coverage ratios, with a minimum level of 1.1 to 1 desired. Personal guarantees are frequently required; however, as the financial strength of the borrower increases, the Company’s ability to obtain personal guarantees decreases. In addition to economic risk, this

category is impacted by the strength of the borrower’s management and industry risk, which are also considered during the underwriting process.

Commercial Loans Secured by Real Estate

This category includes various types of loans, including acquisition and construction of investment property, owner-occupied property and operating property. Maximum term, minimum cash flow coverage, leasing requirements, maximum amortization and maximum loan to value ratios are controlled by the Company’s credit policy and follow industry guidelines and norms, and regulatory limitations. Personal guarantees are normally required during the construction phase on construction credits, and are frequently obtained on mid to smaller commercial real estate loans. In addition to economic risk, this category is subject to geographic and portfolio concentration risk, which are monitored and considered in underwriting.

Real Estate — Mortgage

This category includes mortgages that are secured by residential property. Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae underwriting guidelines, with the exception of Community Reinvestment Act (CRA) loans, which exhibit more liberal standards. The major risk in this category is that a significant downward economic trend would increase unemployment and cause payment default. The Company does not and has never engaged in subprime residential mortgage lending.

Consumer

This category includes consumer installment loans and revolving credit plans. Underwriting is pursuant to industry norms and guidelines. The major risk in this category is a significant economic downturn.

INVESTMENTS

The investment securities portfolio of the Company and its subsidiaries is managed to provide ample liquidity in a manner that is consistent with proper bank asset/liability management and current banking practices. The objectives of portfolio management include consideration of proper liquidity levels, interest rate and market valuation sensitivity, and profitability. The investment portfolios of the Company and its subsidiaries are proactively managed in accordance with federal and state laws and regulations in accordance with generally accepted accounting principles.

The investment portfolio is primarily made up of AAA rated agency mortgage-backed securities and short maturity agency securities. The purpose of this type of portfolio is to generate adequate cash flow to fund potential loan growth, as the market allows. Management strives to maintain a relatively short duration in the portfolio. All holdings must meet standards documented in the AmeriServ Financial Investment Policy.

Investment securities classified as held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair market value. The following table sets forth the cost basis and fair market value of the Company’s investment portfolio as of the periods indicated:

Investment securities available for sale at:


	AT DECEMBER 31,
	2010		2009		2008
	(IN THOUSANDS)
U.S. Agency	$	15,956	$	12,342	$	10,387
U.S. Agency mortgage-backed securities		145,727		116,088		114,380
Other securities		—		—		24

Total cost basis of investment securities available for sale	$	161,683	$	128,430	$	124,791

Total fair value of investment securities available for sale	$	164,811	$	131,272	$	126,781

Investment securities held to maturity at:


	AT DECEMBER 31,
	2010		2009		2008
	(IN THOUSANDS)
U.S. Treasury	$	—	$	3,009	$	3,082
U.S. Agency mortgage-backed securities		6,824		7,602		9,562
Other securities		1,000		1,000		3,250

Total cost basis of investment securities held to maturity	$	7,824	$	11,611	$	15,894

Total fair value of investment securities held to maturity	$	8,267	$	11,996	$	16,323

DEPOSITS AND OTHER SOURCES OF FUNDS

Deposits

The Company has a loyal core deposit base made up of traditional commercial bank products that exhibits little fluctuation, other than jumbo CDs, which demonstrate some seasonality. The Company also utilizes certain Trust Company specialty deposits related to the ERECT Fund as a funding source which serve as an alternative to wholesale borrowings and can exhibit some degree of volatility.

The following table sets forth the average balance of the Company’s deposits and average rates paid thereon for the past three calendar years:


	AT DECEMBER 31,
	2010				2009				2008
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Demand:
Non-interest bearing	$	122,963	—	%	$	114,473	—	%	$	110,601	—	%
Interest bearing		58,118	0.30			62,494	0.41			64,683	1.01
Savings		77,381	0.51			72,350	0.73			70,255	0.76
Money market		186,560	0.87			169,823	1.44			107,843	2.24
Other time		358,472	2.44			343,841	2.88			341,185	3.54

Total deposits	$	803,494	1.61		$	762,981	2.02		$	694,567	2.69

Interest expense on deposits consisted of the following:


	YEAR ENDED DECEMBER 31,
	2010		2009		2008
	(IN THOUSANDS)
Interest bearing demand	$	176	$	256	$	653
Savings		397		530		535
Money market		1,622		2,437		2,417
Certificates of deposit in denominations of $100,000 or more		834		1,186		1,744
Other time		7,916		8,700		10,331

Total interest expense	$	10,945	$	13,109	$	15,680

Additionally, the following table provides more detailed maturity information regarding certificates of deposit issued in denominations of $100,000 or more as of December 31, 2010:

MATURING IN:


	(IN THOUSANDS)
Three months or less	$	12,695
Over three through six months		21,695
Over six through twelve months		5,321
Over twelve months		11,097

Total	$	50,808

Borrowings

The Company, when needed, uses both overnight borrowings and term advances from the Federal Home Loan Bank of Pittsburgh for liquidity management purposes. During the past several years the Company has significantly deleveraged its balance sheet and reduced its level of borrowings through investment portfolio cash flow.

The outstanding balances and related information for federal funds purchased and other short-term borrowings are summarized as follows:


	AT DECEMBER 31, 2010
	FEDERAL FUNDS PURCHASED			OTHER SHORT-TERM BORROWINGS
	(IN THOUSANDS, EXCEPT RATES)
Balance	$	—		$	4,550
Maximum indebtedness at any month end		—			9,230
Average balance during year		9			3,110
Average rate paid for the year		0.51	%		0.71	%
Interest rate on year-end balance		—			0.62


	AT DECEMBER 31, 2009
	FEDERAL FUNDS PURCHASED			SHORT-TERM BORROWINGS
	(IN THOUSANDS, EXCEPT RATES)
Balance	$	—		$	25,775
Maximum indebtedness at any month end		5,968			54,649
Average balance during year		1,358			19,670
Average rate paid for the year		0.50	%		0.67	%
Interest rate on year-end balance		—			0.62

	AT DECEMBER 31, 2008
	FEDERAL FUNDS PURCHASED			OTHER SHORT-TERM BORROWINGS
	(IN THOUSANDS, EXCEPT RATES)
Balance	$	—		$	119,920
Maximum indebtedness at any month end		5,685			138,855
Average balance during year		20			71,617
Average rate paid for the year		3.16	%		1.96	%
Interest rate on year-end balance		—			0.60

Average amounts outstanding during the year represent daily averages. Average interest rates represent interest expense divided by the related average balances.

These borrowing transactions can range from overnight to one year in maturity. The average maturity was three days at the end of 2010, and two days at the end of 2009 and 2008.

Loans

The loan portfolio of the Company consisted of the following:


	AT DECEMBER 31,
	2010		2009		2008		2007		2006
	(IN THOUSANDS)
Commercial	$	78,322	$	96,158	$	110,197	$	118,936	$	91,746
Commercial loans secured by real estate(1)		370,375		396,787		353,870		285,115		269,781
Real estate-mortgage(1)		203,323		207,221		218,928		214,839		209,728
Consumer		19,233		19,619		23,804		16,676		18,336

Loans		671,253		719,785		706,799		635,566		589,591
Less: Unearned income		477		671		691		471		514

Loans, net of unearned income	$	670,776	$	719,114	$	706,108	$	635,095	$	589,077

(1)	For each of the periods presented beginning with December 31, 2010, real estate-construction loans constituted 3.9%, 6.8%, 6.2%, 5.5% and 4.4% of the Company’s total loans, net of unearned income, respectively.

Non-performing Assets

The following table presents information concerning non-performing assets:


	AT DECEMBER 31,
	2010			2009			2008			2007			2006
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Non-accrual loans
Commercial	$	3,679		$	3,375		$	1,128		$	3,553		$	494
Commercial loans secured by real estate		6,731			11,716			484			225			195
Real estate-mortgage		1,879			2,025			1,765			1,460			1,597

Total		12,289			17,116			3,377			5,238			2,286

Past due 90 days or more and still accruing
Consumer		—			—			—			—			3

Total		—			—			—			—			3

Other real estate owned
Commercial loans secured by real estate		436			871			701			—			—
Real estate-mortgage		302			350			494			42			3

Total		738			1,221			1,195			42			3

Total restructured loans not in non-accrual (TDR)		1,337			—			—			—			1,302

Total non-performing assets including TDR	$	14,364		$	18,337		$	4,572		$	5,280		$	3,594

Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned		2.12	%		2.53	%		0.65	%		0.83	%		0.61	%

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. Other real estate owned is recorded at the lower of (1) fair value minus estimated costs to sell, or (2) carrying cost.

The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans.


	YEAR ENDED DECEMBER 31,
	2010			2009			2008		2007			2006
	(IN THOUSANDS)
Interest income due in accordance with original terms	$	1,086		$	553		$	198	$	215		$	214
Interest income recorded		(458	)		(75	)		—		(24	)		(55	)

Net reduction in interest income	$	628		$	478		$	198	$	191		$	159

Secondary Market Activities

The Residential Lending department of the Company continues to originate one-to-four family mortgage loans for customers, some of which are sold to outside investors in the secondary market and some of which are retained for the Bank’s portfolio. Mortgages sold on the secondary market are sold to investors on a “flow” basis: Mortgages are priced and delivered on a “best efforts” pricing basis, with servicing released to the investor. Fannie Mae/Freddie Mac guidelines are used in underwriting all mortgages with the exception of CRA loans. Mortgages with longer terms such as 20-year, 30-year, FHA, and VA loans are usually sold. The remaining

production of the department includes construction, adjustable rate mortgages, 10-year, 15-year, and bi-weekly mortgages. These loans are usually kept in the Bank’s portfolios, although during periods of low interest rates 15-year loans are typically sold into the secondary market.

AMERISERV FINANCIAL NON-BANKING SUBSIDIARIES

AMERISERV TRUST AND FINANCIAL SERVICES COMPANY

AmeriServ Trust and Financial Services Company is a trust company organized under Pennsylvania law in October 1992. As one of the larger providers of trust and investment management products and services between Pittsburgh and Harrisburg, AmeriServ Trust and Financial Services Company is committed to delivering personalized, professional service to its clients. Its staff of approximately 44 professionals administer assets valued at approximately $1.4 billion that are not recognized on the Company’s balance sheet at December 31, 2010. The Trust Company focuses on wealth management. Wealth management includes personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts are included in this segment. The Wealth management business also includes the union collective investment funds, namely the ERECT and BUILD funds which are designed to use union pension dollars in construction projects that utilize union labor. The BUILD fund is in the process of liquidation. At December 31, 2010, AmeriServ Trust and Financial Services had total assets of $3.5 million and total shareholder’s equity of $3.1 million. In 2010, the Trust Company contributed earnings to the corporation as its gross revenue amounted to $5.6 million and the net income contribution was $208,000. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking.

AMERISERV LIFE

AmeriServ Life is a captive insurance company organized under the laws of the State of Arizona. AmeriServ Life engages in underwriting as reinsurer of credit life and disability insurance within the Company’s market area. Operations of AmeriServ Life are conducted in each office of the Company’s banking subsidiary. AmeriServ Life is subject to supervision and regulation by the Arizona Department of Insurance, the Pennsylvania Insurance Department, and the Federal Reserve System. At December 31, 2010, AmeriServ Life had total assets of $705,000 and total stockholders’ equity of $666,000.

MONETARY POLICIES

Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Board of Governors are: open market operations in U.S. Government securities, changes in the federal funds rate and discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Board of Governors have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

COMPETITION

Our subsidiaries face strong competition from other commercial banks, savings banks, credit unions, savings and loan associations, and several other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions which are substantially larger and have greater financial resources than the Bank and the Trust Company. As the financial services industry continues to consolidate, the scope of potential competition affecting our subsidiaries

will also increase. Brokerage houses, consumer finance companies, insurance companies, and pension trusts are important competitors for various types of financial services. In addition, personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals.

MARKET AREA & ECONOMY

Nationally, the economy is improving gradually, although it may take years to fully emerge from the negative effects of the recent economic downturn. The recovery has gathered more momentum, and will get an extra push in 2011 from a further injection of fiscal stimulus including the extension of the Bush tax cuts for the next two years, the two percentage point cut in the employee payroll tax rate for 2011, and a two-year extension of depreciation incentives for business investment. Business and consumer confidence are improving. The recent good news is suggesting 2011 GDP growth should come in near 3.2%. The Fed will continue to be accommodative. Overall, the economy is getting better, but is still not out-of-the-woods. The economy isn’t improving fast enough to make a noticeable reduction in unemployment. Risks, however, still loom, particularly from a weak housing market and spending cuts and layoffs from state and local governments.

There are many mixed factors that will affect future economic growth. Positively impacting economic conditions will be 1.) The extension of the Bush tax cuts for another 2-years and extending jobless benefits and cutting payroll taxes in 2011; 2.) The Federal Reserve’s monetary policy continuing to be accommodative as short-term rates will be near 0.0%; 3.) The lower value of the dollar in the world financial markets should increase exports while the flow of goods from overseas will slow; 4.) Consumers are simultaneously saving more and paying down debt. As a result, there should be pent-up demand stemming from the severity of the recession which could result in an increase in spending; 5.) Businesses also should have pent-up demand from a need to incorporate the latest technology to be competitive and cut costs.

Negatively impacting future economic conditions will be: 1.) Anemic employment gains while the few jobs that have been created have tended to be temporary or part time. 2.) Consumers and businesses will most likely not be willing to acquire debt; 3.) The sharp rise in prices of oil and food commodities should continue to reduce peoples buying power; as will the jump in mortgage rates, which has already significantly slowed re-financing; 4.) Capital constrained banks are not as eager to lend as they should be at this stage of a recovery; 5.) Our trading partners around the world have equally poor economies and offset the positive impact of the lower value of the dollar which will constrain exports; 6.) The actions of Washington on the budget deficit could cause people to assume future tax hikes and spending cuts which could cause consumers and businesses to be less willing to spend.

The Consumer Price Index rose 0.5% in December, leaving inflation over the past 12 months at 1.5%. Core inflation, which strips out energy and food prices, should rise a bit in 2011. The core CPI increased 0.1% in December and just 0.8% over the past 12 months. That’s the slowest pace since this data set began in 1958, and the chief reason the Federal Reserve remains unconcerned about the prospect of higher inflation. Confidence in the economic expansion remains fragile, but conditions should improve. It is expected that net job growth should be approximately 2.5 million in 2011, following an increase of 1.1 million in 2010. Still, the unemployment rate will remain high. Now at 9.0%, it’s likely to decline a bit further over the course of 2011. GDP growth will need to continue to be 3.2% or higher into 2012 to bring the rate significantly lower.

The economy in Cambria and Somerset Counties at the end of 2010 produced seasonally adjusted unemployment rates of 9.5% and 9.3%, respectively, as compared to national and state rates of 9.4% and 8.6%. Local markets have been negatively impacted by the recessionary conditions that exist in the national economy, causing the unemployment rate to increase from last year’s average of 9.3%. The increases in unemployment and the difficulties being experienced by small and medium sized businesses nationally are also being experienced locally. Johnstown, PA, where AmeriServ Financial, Inc. is headquartered, is a leader in technology and continues to have a cost of living that is lower than the national average. The local labor force fluctuated in a very narrow range comparing closely to recent year levels. As of December 31, 2010, total nonfarm jobs in the

Johnstown MSA were 800 below the December 2009 level, with losses coming from the service-providing industry while the goods producing industries have shown little change in their job levels. In the recent past, work on defense projects has contributed to economic growth in the region. However, a change in leadership due to the passing of a long time influential Congressman created cause for concern about the continued positive impact from the defense industry, although current activity in this sector remains good.

Economic conditions are stronger in the State College market, but have also been negatively impacted by the struggling national economy. The unemployment rate for the State College MSA reached 5.5% late in 2010, which represents a 0.8% improvement since last year and remains the lowest of all regions in the Commonwealth. Seasonally adjusted total nonfarm jobs for the MSA increased by 2,100 since December 2009. The Company opened a new branch office in the State College market during 2010 as this area presents the Company with a more vibrant economic market and a much different demographic. A large percentage of the population in State College falls into the 18 to 34 year old age group, while potential customers in the Cambria/Somerset markets tend to be over 50 years of age. Overall, opportunities in the State College market are quite different and challenging, providing a promising source of business to profitably grow the Company.

The expansion of Marcellus Shale gas drilling could provide a meaningful economic opportunity for west-central Pennsylvania. The Marcellus Shale, which underlies a vast majority of the state, is the largest unconventional natural gas reserve in the world. There is enormous economic potential for Pennsylvania to take advantage of this reserve as new drilling techniques have unlocked vast resources previously impossible to reach. Technology developed recently at Penn State now allows drilling companies to reach the gas tucked inside a shale bed as much as two miles beneath the surface. The industry will create jobs in drilling and extraction, trucking and water treatment, gas line construction and maintenance, and in producing the materials for all of these needs. The projection for jobs and economic growth generated by the industry is a point of contention between industrialists and environmentalists. The environmental risks and potential regulation on drilling are key factors that could limit the potential growth and positive impact on the state.

EMPLOYEES

The Company employed 374 people as of December 31, 2010, in full- and part-time positions. Approximately 199 non-supervisory employees of the Company are represented by the United Steelworkers, AFL-CIO-CLC, Local Union 2635-06. In 2009, the Company successfully negotiated a new four year labor contract with the United Steelworkers Local that will expire on October 15, 2013. The contract calls for annual wage increases of 1.5% in the first year, 2.0% in each of the second and third years, and 3.0% in the fourth year. The Company has not experienced a work stoppage since 1979. The Company is one of 13 union-represented banks nationwide.

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT

The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), among other things, identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. It requires U.S. federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. The FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to utilize brokered deposits and on other aspects of its operations. The FDICIA generally prohibits a bank from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized. An undercapitalized bank must develop a capital restoration plan, and its parent holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan.

As of December 31, 2010, the Company believes that its Bank subsidiary was well capitalized, based on the prompt corrective action guidelines described above. A bank’s capital category is determined solely for the purpose of applying the prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

TEMPORARY LIQUIDITY GUARANTEE PROGRAM

On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (TLGP). The TLGP was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the Department of Treasury, as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLGP the FDIC will (1) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before June 30, 2009 and (2) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdraw (NOW) accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts held at participating FDIC-insured institutions through December 31, 2010. Coverage under the TLGP was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. The Company elected to participate in the program that provided full FDIC deposit insurance coverage for all non-interest bearing accounts that became effective on December 31, 2010 and will last until December 31, 2012.

SARBANES-OXLEY ACT OF 2002

The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest, among other things, that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. In response to the Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to further strengthen its corporate governance practices. The Company also requires signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare. These procedures supplement the Company’s Code of Conduct Policy and other procedures that were previously in place. In 2005, the Company implemented a program designed to comply with Section 404 of the Sarbanes-Oxley Act. This program included the identification of key processes and accounts, documentation of the design of control effectiveness over process and entity level controls, and testing of the effectiveness of key controls.

PRIVACY PROVISIONS OF GRAMM-LEACH-BLILEY ACT

Under the Gramm-Leach-Bliley Act (GLB Act), federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provision of the GLB Act affects how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company believes it is in compliance with the various provisions of the GLB Act.

USA PATRIOT ACT OF 2001

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence

obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed a number of regulations that apply various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the Company.

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.

The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress. The federal agencies are given significant discretion in drafting such rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for months or years.

Certain provisions of the Dodd-Frank Act are expected to have a near term impact on the Company. For example, effective July 21, 2011, a provision of the Dodd-Frank Act eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on the Company’s interest expense.

The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013.

Bank and thrift holding companies with assets of less than $15 billion as of December 31, 2009, such as the Company, will be permitted to include trust preferred securities that were issued before May 19, 2010, as Tier 1 capital; however, trust preferred securities issued by a bank or thrift holding company (other than those with assets of less than $500 million) after May 19, 2010, will no longer count as Tier 1 capital. Trust preferred securities still will be entitled to be treated as Tier 2 capital.

The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and allow greater access by shareholders to the company’s proxy material by authorizing the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than

$10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Company will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

ITEM 1A.

RISK FACTORS

Not applicable.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments from the SEC for the reporting periods presented.

ITEM 2.

PROPERTIES

The principal offices of the Company and the Bank occupy the five-story AmeriServ Financial building at the corner of Main and Franklin Streets in Johnstown plus twelve floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 14 other locations which are owned. Eight additional locations are leased with terms expiring from January 1, 2010 to August 31, 2030.

ITEM 3.

LEGAL PROCEEDINGS

The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of both management and legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 4.

(REMOVED AND RESERVED)

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

As of January 31, 2011, the Company had 4,069 shareholders of its common stock. AmeriServ Financial, Inc.’s common stock is traded on the NASDAQ Global Market System under the symbol “ASRV.” The following table sets forth the actual high and low closing prices and the cash dividends declared per share for the periods indicated:


	PRICES				CASH DIVIDENDS DECLARED
	PRICES
	HIGH		LOW
Year ended December 31, 2010:
First Quarter	$	2.13	$	1.42	$	0.00
Second Quarter		2.49		1.60		0.00
Third Quarter		1.89		1.40		0.00
Fourth Quarter		1.75		1.51		0.00
Year ended December 31, 2009
First Quarter	$	1.99	$	1.43	$	0.00
Second Quarter		1.88		1.56		0.00
Third Quarter		2.09		1.54		0.00
Fourth Quarter		1.97		1.46		0.00

Information regarding restrictions on the Company’s ability to pay dividends is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources.” Information required by this section is presented in the “Equity Compensation Plan Information Table” section of the Proxy Statement for the Annual Meeting of Shareholders.

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA


	AT OR FOR THE YEAR ENDED DECEMBER 31,
	2010			2009			2008			2007			2006
	(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF INCOME STATEMENT DATA:
Total interest income	$	44,831		$	47,455		$	47,819		$	49,379		$	46,565
Total interest expense		12,489			15,021			18,702			25,156			22,087

Net interest income		32,342			32,434			29,117			24,223			24,478
Provision for loan losses		5,250			15,150			2,925			300			(125	)

Net interest income after provision for loan losses		27,092			17,284			26,192			23,923			24,603
Total non-interest income		13,967			13,928			16,424			14,707			12,841
Total non-interest expense		39,697			39,157			35,637			34,672			34,692

Income (loss) before income taxes		1,362			(7,945	)		6,979			3,958			2,752
Provision (benefit) for income taxes		80			(3,050	)		1,470			924			420

Net income (loss)	$	1,282		$	(4,895	)	$	5,509		$	3,034		$	2,332

PER COMMON SHARE DATA:
Basic earnings (loss) per share	$	0.01		$	(0.29	)	$	0.25		$	0.14		$	0.11
Diluted earnings (loss) per share		0.01			(0.29	)		0.25			0.14			0.11
Cash dividends declared		0.00			0.00			0.025			0.00			0.00
Book value at period end		4.07			4.09			4.39			4.07			3.82
BALANCE SHEET AND OTHER DATA:
Total assets	$	948,974		$	970,026		$	966,929		$	904,878		$	895,992
Loans and loans held for sale, net of unearned income		678,181			722,904			707,108			636,155			589,435
Allowance for loan losses		19,765			19,685			8,910			7,252			8,092
Investment securities available for sale		164,811			131,272			126,781			140,582			172,223
Investment securities held to maturity		7,824			11,611			15,894			18,533			20,657
Deposits		801,216			786,011			694,956			710,439			741,755
Total borrowings		27,385			64,664			146,863			95,200			63,122
Stockholders’ equity		107,058			107,254			113,252			90,294			84,684
Full-time equivalent employees		348			345			353			351			369
SELECTED FINANCIAL RATIOS:
Return on average total equity		1.19	%		(4.33	)%		5.93	%		3.51	%		2.74	%
Return on average assets		0.13			(0.51	)		0.62			0.34			0.27
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end		84.64			91.97			101.75			89.54			79.46
Ratio of average total equity to average assets		11.25			11.72			10.40			9.79			9.73
Common stock cash dividends as a percent of net income available to common shareholders		—			—			9.92			—			—
Interest rate spread		3.51			3.37			3.21			2.54			2.67
Net interest margin		3.79			3.72			3.64			3.06			3.12
Allowance for loan losses as a percentage of loans and loans held for sale, net of unearned income, at period end		2.91			2.72			1.26			1.14			1.37
Non-performing assets as a percentage of loans, loans held for sale and other real estate owned, at period end		2.12			2.53			0.65			0.83			0.39
Net charge-offs as a percentage of average loans and loans held for sale		0.74			0.60			0.20			0.19			0.16
Ratio of earnings to fixed charges and preferred dividends:(1)
Excluding interest on deposits		1.49	X		(1.12	)X		3.17	X		2.60	X		1.93	X
Including interest on deposits		1.10			0.53			1.37			1.16			1.12
Cumulative one year interest rate sensitivity gap ratio, at period end		1.13			1.08			1.10			0.90			0.85

(1)

The ratio of earnings to fixed charges and preferred dividends is computed by dividing the sum of income before taxes, fixed charges, and preferred dividends by the sum of fixed charges and preferred dividends. Fixed charges represent interest expense and are shown as both excluding and including interest on deposits.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

The following discussion and analysis of financial condition and results of operations of AmeriServ Financial, Inc. (AmeriServ) should be read in conjunction with the consolidated financial statements of AmeriServ Financial, Inc. including the related notes thereto, included elsewhere herein.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008

2010 SUMMARY OVERVIEW:

On January 25, 2011, AmeriServ Financial, Inc. (ASRV) released its financial results for the fourth quarter of 2010 and for the full year of 2010. Net income for the fourth quarter was reported at $1,114,000 or $0.04 per share. This represents the fifth consecutive quarter of improved financial performance for ASRV and is an 83% increase over the third quarter of 2010 and a $2,793,000 increase in absolute dollars over the fourth quarter of 2009. These fourth quarter improved results enabled AmeriServ to record net income for the full year of 2010 of $1,282,000 or $0.01 per share. This performance produced a net income improvement of $6,177,000 over 2009, as each of the last three quarters of 2010 surpassed the same quarters of 2009 by a wide margin.

This improvement cannot be attributed to a strong recovery of the national or regional economy as regional loan demand remains weak and regional unemployment remained well above 9% during the entire year. Rather, we believe that the improvement at ASRV is the result of Board and management actions recognizing that in a troubled economy it is important to introduce special monitoring activities to protect the franchise. The Asset Quality Task Force continues to meet weekly so as to recognize any weakness in specific loans. This vigilance provides an opportunity to both assist the borrower where possible and also to take the necessary steps to keep ASRV strong. The Asset Liability Management Committee also convenes regularly to measure the strength of capital and the necessary depth of liquidity. But perhaps most important of all is that those ASRV community bankers, who meet with customers regularly, continue to provide competitive banking products as well as helpful counsel. We understand that it is our responsibility to always provide our customers with a strong company, but side-by-side with friendly personal service. This has been the formula that has produced our improved performance in 2010.

A few years ago we promised that ASRV was going to return to its old fashioned community banking roots. That promise lies behind many of our activities in 2010. Specifically,

•

During 2010 ASRV provided $96 million for residential mortgages to our neighbors in this region. It was a record year for the ASRV mortgage bankers, and we and the local families they have helped salute their efforts.

•

During 2010 ASRV opened a new branch bank on busy North Atherton Street in State College, Pennsylvania. This full service bank is already welcoming many new customers who have been attracted to a well located bank eager to serve them.

•

During 2010 our Commercial Banking Division was completely reorganized so as to provide the small and medium sized businesses in our region with quick access to responsive and professional relationship managers. We want every business in our market to know that we want their business and that our professionals will go the extra mile to get it, and keep it.

•

While working to push this positive agenda ahead, ASRV has also been rebuilding internally. During 2010 ASRV conducted nationwide executive searches to find new leadership for AmeriServ’s Trust Company and the Commercial Banking Division of AmeriServ Financial Bank. We were pleased with the quality of

the new executives we hired. Each of these executives has a strong record of achievement in previous assignments and is already focusing on a productive and profitable future for both of these key activities.

It is especially important that we call to your attention our continuing plan to provide resources to AmeriServ’s Trust Company in support of its new strategic direction. The size and scope of this wholly owned subsidiary provides the corporation with more customer service wealth management opportunities than many of our peers enjoy.

We do want you to know that we are quite aware of the economic challenges faced by our region and by America itself. It is this realistic view of conditions that has caused us to emphasize the need to make ASRV strong and safe. The capital levels at ASRV have been, and continue to be, well above any requirement of the Pennsylvania Department of Banking or the Federal Reserve Bank of Philadelphia. Additionally, ASRV has been careful to build and maintain a high level of liquidity during these volatile times when even the safety of the debt instruments of sovereign nations has been called into question. We have also consistently maintained a strong loan loss reserve to provide a buffer against the recession driven problems which have beset many struggling individuals and commercial enterprises. As of December 31, 2010, our allowance for loan losses was 138% of our total of non-performing assets irrespective of any collateral pledged to secure such loans.

It is when we consider the nature of the challenges of the economy that we are determined to not relax our vigilance. We believe that the steady improvement in our financial performance over the last year is proof positive that vigilance is important but must also be supported by strong capital and strong liquidity. We are also taking the time to position AmeriServ to have the talent and the energy to be a force in this region as the economy improves. Our motto has become strength for today with a deep reservoir of energy for tomorrow as we work to assist the communities we serve.

PERFORMANCE OVERVIEW … The following table summarizes some of the Company’s key profitability performance indicators for each of the past three years.


	YEAR ENDED DECEMBER 31,
	2010			2009			2008
	(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
Net income (loss)	$	1,282		$	(4,895	)	$	5,509
Diluted earnings (loss) per share		0.01			(0.29	)		0.25
Return on average assets		0.13	%		(0.51	)%		0.62	%
Return on average equity		1.19			(4.33	)		5.93

The Company reported net income of $1.3 million or $0.01 per diluted common share for 2010. This represents an increase of $6.2 million from the 2009 net loss of $4.9 million or $0.29 per diluted common share. Improvements in asset quality were a key factor causing our increased earnings in 2010. Proactive monitoring of our loan portfolio and problem credits allowed us to carefully adjust downward the provision for loan losses in each quarter of 2010 while still maintaining good loan loss reserve coverage ratios. Also, there was little change in total revenue in 2010 as both net interest income and non-interest income were comparable with the prior year. Non-interest expenses increased moderately in 2010 as they grew by 1.4%. Diluted earnings per share were again impacted by the preferred dividend requirement on the TARP-CPP preferred stock and accretion of discount on preferred stock, which amounted to $1.3 million and reduced the amount of net income available to common shareholders.

The Company reported a net loss of $4.9 million or $0.29 loss per diluted common share for 2009. This represented a decrease of $10.4 million from the 2008 net income of $5.5 million or $0.25 per diluted common share. An increased provision for loan losses, reduced non-interest income, and higher non-interest expenses were the main factors causing the decrease in net income in 2009. These negative items more than offset good

growth in net interest income that resulted from solid loan and deposit growth within our retail Bank in 2009 and effective balance sheet management in a declining interest rate environment.

NET INTEREST INCOME AND MARGIN … The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings; it is affected by interest rate fluctuations as well as changes in the amount and mix of earning assets and interest bearing liabilities. The following table summarizes the Company’s net interest income performance for each of the past three years:


	YEAR ENDED DECEMBER 31,
	2010			2009			2008
	(IN THOUSANDS, EXCEPT RATIOS)
Interest income	$	44,831		$	47,455		$	47,819
Interest expense		12,489			15,021			18,702

Net interest income		32,342			32,434			29,117
Net interest margin		3.79	%		3.72	%		3.64	%

2010 NET INTEREST PERFORMANCE OVERVIEW … The Company’s net interest income declined modestly in 2010 by only $92,000 or 0.28% when compared to 2009. Careful management of funding costs during a period when interest revenues declined and the balance sheet contracted allowed the Company to increase its net interest margin by seven basis points to average 3.79% for the full year of 2010. This solid net interest margin performance is reflective of the Company’s strong liquidity position and its ability to reduce its funding costs during a period of deposit growth. Specifically, total deposits averaged $803 million for the full year of 2010, an increase of $41 million or 5.3% over 2009. Growth in non-interest bearing demand deposits was even greater at 7.4%. The Company believes that uncertainties in the economy have contributed to growth in money market accounts, certificates of deposit and demand deposits as consumers and businesses have looked for safety in well capitalized community banks like AmeriServ Financial. Overall, total loans and loans held for sale have declined by $45 million or 6.2% since December 31, 2009 as the Company has successfully focused on reducing its commercial real estate exposure and non-performing assets during this period of economic weakness. We expect the declining commercial real estate trend to continue during the first half of 2011. Additionally, our pipelines for new commercial and industrial lending opportunities continue to be thin. Consequently, we expect to book fewer new commercial loans, which will cause the loan portfolio to shrink further through normal amortization and some anticipated early loan pay-offs. This will put pressure on our net interest income and margin.

COMPONENT CHANGES IN NET INTEREST INCOME: 2010 VERSUS 2009 … Regarding the separate components of net interest income, the Company’s total interest income in 2010 decreased by $2.6 million when compared to 2009. This decrease was due to an 18 basis point decline in the earning asset yield to 5.26%, and a $9.9 million decrease in average earning assets due to the previously mentioned decline in loans. Investment securities have grown over this period, but not enough to absorb the overall decline in total loans. Within the earning asset base, the yield on the total loan portfolio decreased by 14 basis points to 5.58% while the yield on total investment securities dropped by 54 basis points to 3.54%. Both of these yield declines reflect the impact of the lower interest rate environment that has now been in place for over 2 years. New investment securities and loans that are being booked typically have yields that are below the rate on the maturing instruments that they are replacing. Also the asset mix shift with fewer dollars invested in loans and more dollars invested in lower yielding short duration investment securities also negatively impacts the earning asset yield. Overall, the decline in loans combined with deposit growth caused the Company’s loan to deposit ratio to average 87.3% in 2010 compared to 95.1% in 2009.

The Company’s total interest expense for 2010 decreased by $2.5 million, or 16.9%, when compared to 2009. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 32 basis points to 1.75%. Management’s decision to reduce interest rates paid on all deposit

categories has not had any negative impact on deposit growth as consumers have sought the safety provided by well-capitalized community banks like AmeriServ Financial. This decrease in funding costs was aided by a drop in interest expense associated with an $11.1 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $43.1 million, but was partially offset by a $32 million increase in interest bearing deposits. Additionally, the Company’s funding mix also benefited from an $8.5 million increase in non-interest bearing demand deposits. Overall, in 2010 the Company had the discipline to further reduce its reliance on borrowings as a funding source as wholesale borrowings averaged only 2.3% of total assets. The Company also does not use brokered certificates of deposit as a funding source.

2009 NET INTEREST PERFORMANCE OVERVIEW … The Company’s net interest income in 2009 increased by $3.3 million, or 11.4%, from 2008 and the net interest margin rose by 8 basis points to 3.72% over the same comparative period. The increased net interest income and margin resulted from a combination of good balance sheet growth and the pricing benefits achieved from a steeper yield curve in 2009. Specifically, total loans averaged $725 million in 2009, an increase of $83 million or 13.0% over 2008. This growth caused overall loan interest revenue to increase in 2009 despite the lower interest rate environment. The Company’s strong liquidity position had been supported by total deposits that averaged $763 million in 2009, an increase of $68 million or 9.8% over 2008. The Company believed that uncertainties in the financial markets and the economy has contributed to growth in money market accounts, certificates of deposit, and demand deposits as consumers looked for safety in well capitalized community banks like AmeriServ Financial Bank. Additionally, the Company benefited from a favorable $3.7 million decline in interest expense caused by the more rapid downward repricing of both deposits and Federal Home Loan Bank borrowings due to the market decline in short-term interest rates.

COMPONENT CHANGES IN NET INTEREST INCOME: 2009 VERSUS 2008 … Regarding the separate components of net interest income, the Company’s total interest income in 2009 decreased by $364,000 when compared to 2008. This decrease was due to a 52 basis point decline in the earning asset yield to 5.44%, that was partially mitigated by a $79 million increase in average earning assets due to the previously mentioned strong loan growth. Within the earning asset base, the yield on the total loan portfolio decreased by 65 basis points to 5.72% and reflected the lower interest rate environment in 2009 as the Federal Reserve had reduced the federal funds rate by approximately 200 basis points in response to the financial market crisis that hit in the third quarter 2008. The total investment securities yield decreased by 5 basis points to 4.08% while the yield on short-term money market funds dropped by 161 basis points to 0.35%. Both of these yield drops reflected the lower interest rate environment in 2009.

The $79 million, or 9.9%, increase in the volume of average earning assets was due to an $83 million, or 13.0%, increase in average loans, partially offset by a $7 million, or 4.9%, decrease in average investment securities. This loan growth was driven by increased commercial real estate loans as a result of successful new business development efforts, particularly in the suburban Pittsburgh market. The Company found increased commercial lending opportunities in the Pittsburgh market in the second half of 2008 and first half of 2009 due to the retrenchment of several larger competitors as a result of the turmoil in the financial markets. This loan growth caused the Company’s loan to deposit ratio to average 95.1% in 2009 compared to 92.4% in 2008. The decline in investment securities was caused by the call of certain agency securities and ongoing cash flow from mortgage-backed securities. The Company had elected to utilize this cash from lower yielding investment securities to fund higher yielding loans in an effort to improve the Company’s earning asset yield and net interest margin. The Company did not expect the investment securities portfolio to shrink any further in order to maintain sufficient security balances for pledging purposes.

The Company’s total interest expense for 2009 decreased by $3.7 million, or 19.7%, when compared to 2008. This decrease in interest expense was due to a lower cost of funds as the cost of both deposits and borrowings repriced downward with the reductions in short-term interest rates. Specifically, the cost of interest bearing deposits declined by 67 basis points to 2.02%, while the cost of all FHLB borrowings dropped by 106 basis points to 1.22%. This decrease in funding costs more than offset the additional interest expense associated

with a $46 million increase in the volume of interest bearing liabilities due to the previously mentioned deposit growth. Additionally, the Company’s funding mix benefited from a $3.9 million increase in non-interest bearing demand deposits. Overall, in 2009 the Company had the discipline to further reduce its reliance on borrowings as a funding source as wholesale borrowings averaged only 6.7% of total assets. The Company did not use brokered certificates of deposit as a funding source.

The table that follows provides an analysis of net interest income on a tax-equivalent basis setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of these tables loan balances include non-accrual loans, and interest income recorded on non-accrual loans on a cash basis, which is deemed to be immaterial, is included in interest income. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of approximately 34% is used to compute tax-equivalent yields.


	YEAR ENDED DECEMBER 31,
	2010									2009									2008
	AVERAGE BALANCE			INTEREST INCOME/ EXPENSE			YIELD/ RATE			AVERAGE BALANCE			INTEREST INCOME/ EXPENSE			YIELD/ RATE			AVERAGE BALANCE			INTEREST INCOME/ EXPENSE			YIELD/ RATE
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Interest earning assets:
Loans, net of unearned income	$	701,502		$	39,129			5.58	%	$	725,241		$	41,488			5.72	%	$	641,766		$	41,100			6.37	%
Deposits with banks		1,795			1			0.06			1,782			4			0.23			583			13			2.23
Federal funds sold		4,375			16			0.37			490			1			0.11			114			4			3.54
Short-term investment in money market funds		3,834			4			0.10			9,022			30			0.35			7,136			140			1.96
Investment securities:
Available for sale		151,691			5,281			3.48			131,804			5,340			4.05			136,344			5,770			4.03
Held to maturity		9,574			433			4.52			14,346			630			4.36			17,292			875			5.06

Total investment securities		161,265			5,714			3.54			146,150			5,970			4.08			153,636			6,645			4.13

TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME		872,771			44,864			5.26			882,685			47,493			5.44			803,235			47,902			5.96

Non-interest earning assets:
Cash and due from banks		15,297									14,498									16,786
Premises and equipment		10,212									9,213									9,333
Other assets		80,206									72,574									72,249
Allowance for loan losses		(21,218	)								(13,382	)								(7,837	)

TOTAL ASSETS	$	957,268								$	965,588								$	893,766

Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand	$	58,118		$	176			0.30	%	$	62,494		$	256			0.41	%	$	64,683		$	654			1.01	%
Savings		77,381			397			0.51			72,350			530			0.73			70,255			535			0.76
Money market		186,560			1,622			0.87			169,823			2,437			1.44			107,843			2,417			2.24
Other time		358,472			8,750			2.44			343,841			9,886			2.88			341,185			12,074			3.54

Total interest bearing deposits		680,531			10,945			1.61			648,508			13,109			2.02			583,966			15,680			2.69

Federal funds purchased and other short-term borrowings		3,119			22			0.71			21,028			140			0.67			71,636			1,403			1.96
Advances from Federal Home Loan Bank		18,694			402			2.15			43,934			652			1.48			11,725			499			4.26
Guaranteed junior subordinated deferrable interest debentures		13,085			1,120			8.57			13,085			1,120			8.57			13,085			1,120			8.57

TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE		715,429			12,489			1.75			726,555			15,021			2.07			680,412			18,702			2.75

Non-interest bearing liabilities:
Demand deposits		122,963									114,473									110,601
Other liabilities		11,188									11,428									9,816
Stockholders’ equity		107,688									113,132									92,937

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	957,268								$	965,588								$	893,766

Interest rate spread								3.51									3.37									3.21
Net interest income/net interest margin					32,375			3.79	%					32,472			3.72	%					29,200			3.64	%
Tax-equivalent adjustment					(33	)								(38	)								(83	)

Net interest income				$	32,342								$	32,434								$	29,117

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The table below sets forth an analysis of volume and rate changes in net interest income on a tax-equivalent basis. For purposes of this table, changes in interest income and interest expense are allocated to volume and rate categories based upon the respective percentage changes in average balances and average rates. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.


	2010 vs. 2009									2009 vs. 2008
	INCREASE (DECREASE) DUE TO CHANGE IN:									INCREASE (DECREASE) DUE TO CHANGE IN:
	AVERAGE VOLUME			RATE			TOTAL			AVERAGE VOLUME			RATE			TOTAL
	(IN THOUSANDS)
INTEREST EARNED ON:
Loans, net of unearned income	$	(1,350	)	$	(1,009	)	$	(2,359	)	$	1,146		$	(758	)	$	388
Deposits with banks		—			(3	)		(3	)		15			(24	)		(9	)
Federal funds sold		3			—			3			9			(12	)		(3	)
Short-term investments in money market funds		(16	)		2			(14	)		(78	)		(32	)		(110	)
Investment securities:
Available for sale		805			(864	)		(59	)		(156	)		(274	)		(430	)
Held to maturity		(216	)		19			(197	)		(265	)		20			(245	)

Total investment securities		589			(845	)		(256	)		(421	)		(254	)		(675	)

Total interest income		(774	)		(1,855	)		(2,629	)		671			(1,080	)		(409	)

INTEREST PAID ON:
Interest bearing demand deposits		(17	)		(63	)		(80	)		(410	)		12			(398	)
Savings deposits		40			(173	)		(133	)		(5	)		—			(5	)
Money market		270			(1,085	)		(815	)		526			(506	)		20
Other time deposits		439			(1,575	)		(1,136	)		(2,158	)		(30	)		(2,188	)
Federal funds purchased and other short-term borrowings		(127	)		9			(118	)		(1,916	)		653			(1,263	)
Advances from Federal Home Loan Bank		(1,248	)		998			(250	)		1,046			(893	)		153

Total interest expense		(643	)		(1,889	)		(2,532	)		(2,917	)		(764	)		(3,681	)

Change in net interest income	$	(131	)	$	34		$	(97	)	$	3,588		$	(316	)	$	3,272

LOAN QUALITY … AmeriServ Financial’s written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding any loan. After the loan has been approved and funded, continued periodic credit review is required. The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $250,000 within a 12-month period. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business loans $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and removed from the pool if factors such as significant delinquency in payments of 90 days or more, bankruptcy, or other negative economic concerns indicate impairment. The following table sets forth information concerning AmeriServ’s loan delinquency and other non-performing assets.


	AT DECEMBER 31,
	2010			2009			2008
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Total loan past due 30 to 89 days	$	2,791		$	11,408		$	4,396
Total non-accrual loans		12,289			17,116			3,377
Total non-performing assets including TDR(1)		14,364			18,337			4,572
Loan delinquency as a percentage of total loans and loans held for sale, net of unearned income		0.41	%		1.58	%		0.62	%
Non-accrual loans as a percentage of total loans and loans held for sale, net of unearned income		1.81			2.37			0.48
Non-performing assets as a percentage of total loans and loans held for sale, net of unearned income, and other real estate owned		2.12			2.53			0.65
Non-performing assets as a percentage of total assets		1.51			1.89			0.47
Total classified loans (loans rated substandard or doubtful)	$	39,627		$	48,587		$	13,235

(1)	Non-performing assets are comprised of (i) loans that are on a non-accrual basis, (ii) loans that are contractually past due 90 days or more as to interest and principal payments, (iii) performing loans classified as troubled debt restructuring and (iv) other real estate owned.

As a result of successful ongoing problem credit resolution efforts, the Company realized asset quality improvements in 2010. These improvements are evidenced by reduced delinquency and lower levels of non-performing assets and classified loans. Specifically, there was an $11 million decrease in non-performing assets during the fourth quarter of 2010. Only $1 million of this decline in non-performing assets related to actual loan losses realized through net charge-offs. The largest item responsible for the lower level of non-performing assets in 2010 was the removal of a $9 million commercial loan relationship to a borrower in the restaurant industry from non-accrual status due to continued operating performance improvement. Classified loans also favorably dropped by $9.5 million in 2010 but still remain high by historical standards. This is due to the downgrade of the rating classification of numerous commercial loans that are experiencing operating weakness in the recessionary economy but are still performing. While we are pleased that total loan delinquency dropped back below 1.0% in 2010, we continue to closely monitor the portfolio given the recessionary economy and the number of relatively large-sized commercial and commercial real estate loans within the portfolio. As of December 31, 2010, the 25 largest credits represented 33.2% of total loans outstanding.

ALLOWANCE AND PROVISION FOR LOAN LOSSES … As described in more detail in the Critical Accounting Policies and Estimates section of this MD&A, the Company uses a comprehensive methodology and procedural discipline to maintain an allowance for loan losses to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: 1) an allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other

qualitative factors, which include delinquency and non-performing loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations that accommodate each of the listed risk factors. The following table sets forth changes in the allowance for loan losses and certain ratios for the periods ended.


	YEAR ENDED DECEMBER 31,
	2010			2009			2008			2007			2006
	(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
Balance at beginning of year	$	19,685		$	8,910		$	7,252		$	8,092		$	9,143
Charge-offs:
Commercial		(835	)		(3,810	)		(405	)		(934	)		(769	)
Commercial loans secured by real estate		(4,221	)		(840	)		(811	)		(12	)		(2	)
Real estate-mortgage		(293	)		(128	)		(132	)		(79	)		(76	)
Consumer		(282	)		(352	)		(365	)		(307	)		(397	)

Total charge-offs		(5,631	)		(5,130	)		(1,713	)		(1,332	)		(1,244	)

Recoveries:
Commercial		226			601			299			40			115
Commercial loans secured by real estate		48			14			39			38			41
Real estate-mortgage		42			27			26			12			19
Consumer		145			113			82			102			143

Total recoveries		461			755			446			192			318

Net charge-offs		(5,170	)		(4,375	)		(1,267	)		(1,140	)		(926	)
Provision for loan losses		5,250			15,150			2,925			300			(125	)

Balance at end of year	$	19,765		$	19,685		$	8,910		$	7,252		$	8,092

Loans and loans held for sale, net of unearned income:
Average for the year	$	701,502		$	725,241		$	644,896		$	610,685		$	567,435
At December 31		678,181			722,904			707,108			636,155			589,435
As a percent of average loans and loans held for sale:
Net charge-offs		0.74	%		0.60	%		0.20	%		0.19	%		0.16	%
Provision for loan losses		0.75			2.09			0.45			0.05			(0.02	)
Allowance as a percent of each of the following:
Total loans and loans held for sale, net of unearned income		2.91			2.72			1.26			1.14			1.37
Total delinquent loans (past due 30 to 89 days)		708.17			172.55			202.68			203.77			270.54
Total non-accrual loans		160.83			115.01			263.84			138.45			353.98
Total non-performing assets		137.60			107.35			194.88			137.35			225.15
Allowance as a multiple of net charge-offs		3.82	x		4.50	x		7.03	x		6.36	x		8.74	x

For the year-ended December 31, 2010, the Company recorded a $5.3 million provision for loan losses compared to a $15.2 million provision for the 2009 year, or a decrease of $9.9 million. Proactive monitoring of our asset quality has allowed us to carefully adjust downward the provision for loan losses in each quarter of 2010 while still maintaining solid loan loss reserve coverage ratios. We actively identify and seek prompt

resolution to problem credits in order to limit actual losses. Actual credit losses realized through charge-offs in 2010 approximated the provision levels, but are higher than 2009. For 2010, net charge-offs amounted to $5.2 million or 0.74% of total loans compared to net charge-offs of $4.4 million or 0.60% of total loans for 2009. The higher charge-offs in 2010 largely relate to two non-performing commercial real-estate loans, one of which was completely resolved in the first quarter ($1.2 million charge-off) and the second of which relates to a student housing project ($2.4 million charge-off) which the Company fully resolved through a note sale during the fourth quarter of 2010. In summary, the allowance for loan losses provided 145% coverage of non-performing loans and was 2.91% of total loans at December 31, 2010, compared to 115% of non-performing loans and 2.72% of total loans at December 31, 2009.

The Company appropriately strengthened its allowance for loan losses in 2009 in response to deterioration in asset quality. This deterioration in asset quality in 2009 was evidenced by higher levels of non-performing loans and classified loans than in 2008 and reflected the results of a comprehensive review of loans in the commercial loan and commercial real estate portfolio in the second half of 2009. Overall, the Company recorded a $15.2 million provision for loan losses in 2009, compared to a $2.9 million provision for 2008, or an increase of $12.2 million. Actual credit losses realized through charge-off, however, were well below the provision level, but higher than in 2008. For 2009, net charge-offs amounted to $4.4 million or 0.60% of total loans, compared to net charge-offs of $1.3 million or 0.20% of total loans for 2008. Of the 2009 net charge-offs, $3.3 million was realized in the fourth quarter and reflected the resolution of one of the Company’s larger non-performing loans.

The following schedule sets forth the allocation of the allowance for loan losses among various loan categories. This allocation is determined by using the consistent quarterly procedural discipline that was previously discussed. The entire allowance for loan losses is available to absorb future loan losses in any loan category.


	AT DECEMBER 31,
	2010					2009					2008					2007					2006
	AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO LOANS
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Commercial	$	3,851		11.5	%	$	4,756		13.3	%	$	2,841		15.6	%	$	2,074		18.7	%	$	2,361		15.6	%
Commercial loans secured by real estate		12,717		54.6			12,692		54.9			4,467		50.0			3,632		44.8			3,546		45.8
Real estate-mortgage		1,117		31.1			1,015		29.2			1,004		31.1			979		33.9			1,206		35.6
Consumer		206		2.8			204		2.6			246		3.3			172		2.6			218		3.0
Allocation to general risk		1,874		—			1,018		—			352		—			395		—			761		—

Total	$	19,765		100.0	%	$	19,685		100.0	%	$	8,910		100.0	%	$	7,252		100.0	%	$	8,092		100.0	%

Even though residential real estate-mortgage loans comprise 31.1% of the Company’s total loan portfolio, only $1,117,000 or 5.7% of the total allowance for loan losses is allocated against this loan category. The residential real estate-mortgage loan allocation is based upon the Company’s five-year historical average of actual loan charge-offs experienced in that category and other qualitative factors. The disproportionately higher allocations for commercial loans and commercial loans secured by real estate reflect the increased credit risk associated with this type of lending, the Company’s historical loss experience in these categories, and other qualitative factors.

Based on the Company’s allowance for loan loss methodology and the related assessment of the inherent risk factors contained within the Company’s loan portfolio, we believe that the allowance for loan losses was adequate at December 31, 2010 to cover losses within the Company’s loan portfolio.

NON-INTEREST INCOME … Non-interest income for 2010 totalled $14.0 million; an increase of $39,000, or 0.3%, from 2009. Factors contributing to this relatively stable level of non-interest income in 2010 included:

•

a $485,000, or 17.5% decrease in service charges on deposit accounts in 2010. Customers have maintained higher balances in their checking accounts, which have resulted in fewer overdraft fees in 2010. Additionally, regulatory changes which took effect in mid-August and are designed to limit customer overdraft fees on debit card transactions also negatively impacted deposit service charges.

•

a $307,000, or 47.2%, increase in gains realized on residential mortgage loan sales into the secondary market in 2010. As a result of another strong year of mortgage purchase and refinance activity in the Company’s primary market, there were $69 million of residential mortgage loans sold into the secondary market in 2010. Overall, the Company sold approximately 68% of its new residential mortgage loan production into the secondary market in order to help manage long term interest rate risk.

•

a $217,000, or 7.6% increase in other income resulting from the increased residential mortgage loan production due to higher underwriting, appraisal and document preparation fees. The Company also benefitted from increased letter of credit fees and interchange revenue in 2010.

Non-interest income for 2009 totalled $13.9 million; a decrease of $2.5 million, or 15.2%, from 2008. Factors contributing to this reduced level of non-interest income in 2009 included:

•

a $1.5 million decrease in revenue from bank owned life insurance (BOLI) due to fewer death claim payments in 2009.

•

a $1.2 million, or 16.2%, decline in trust and investment advisory fees due to reductions in the market value of assets managed due to lower equity and real estate values in 2009.

•

a $174,000, or 36.5%, increase in gains realized on residential mortgage loan sales into the secondary market in 2009. As a result of increased mortgage purchase and refinance activity in the Company’s primary market, there were $66 million of residential mortgage loans sold into the secondary market in 2009 compared to $37 million in 2008. Overall, the Company sold approximately 70% of its new residential mortgage loan production into the secondary market in 2009 in an effort to limit longer term interest rate risk.

•

the Company took advantage of market opportunities and generated $164,000 of gains on the sale of investment securities in 2009 compared to a $95,000 loss on a portfolio repositioning strategy executed in 2008.

NON-INTEREST EXPENSE … Non-interest expense for 2010 totalled $39.7 million; a $540,000, or 1.4%, increase from 2009. Factors contributing to the higher non-interest expense in 2010 included:

•

a $1.1 million, or 5.2%, increase in salaries and employee benefits expense due to higher medical insurance costs, increased pension expense, and greater incentive compensation expense reflecting increased commission payments related to the residential mortgage activity.

•

Other expense decreased by $613,000 primarily due to higher credit related costs in the prior year. Specifically, other real estate owned expense decreased by $749,000 due to the write-down and operating costs associated with an increased number of other real-estate owned properties in 2009.

•

a $331,000 or 8.2% increase in professional fees due to increased consulting expenses and recruitment costs in the Trust company and higher legal fees and loan workout costs at the Company.

Non-interest expense for 2009 totalled $39.2 million; a $3.5 million, or 9.9%, increase from 2008. Factors contributing to the higher non-interest expense in 2009 included:

•

a $1.6 million increase in FDIC deposit insurance expense due to the recognition of a $435,000 expense for a special five basis point assessment mandated for all banks and higher recurring insurance premiums due to the need to strengthen the deposit insurance fund.

•

a $1.3 million, or 6.8%, increase in salaries and employee benefits expense due to higher sales, related incentive compensation, normal merit increases, severance costs and greater pension expense.

•

Other expense increased by $1.1 million primarily due to credit related costs. Specifically, other real estate owned expense increased by $715,000 due to the write-down and operating costs associated with an increased number of other real-estate owned properties while the Company also had to fund its reserve for unfunded commitments by an additional $118,000 in 2009.

•

a $450,000 increase in professional fees due to higher legal costs, recruitment fees, and greater consulting costs associated with a comprehensive review of the Trust Company in the fourth quarter of 2009.

•

a $757,000 decrease in core deposit amortization as a branch core deposit intangible was fully amortized by the end of the first quarter of 2009.

INCOME TAX EXPENSE … The Company recorded income tax expense of $80,000 or 5.9% effective tax rate in 2010 compared to income tax benefit of $3.1 million or an effective tax rate of 38.4% in 2009. The income tax expense recorded in 2008 was $1.5 million or an effective tax rate of 21.1%. The Company was able to record a lower effective tax rate in all periods due to tax-free revenue from BOLI. BOLI is the Company’s largest source of tax-free income. The Company’s deferred tax asset was $16.1 million at December 31, 2010 and relates primarily to net operating loss carryforwards and the allowance for loan losses.

SEGMENT RESULTS … Retail banking’s net income contribution was $1.3 million in 2010 compared to $948,000 in 2009 and $2.7 million in 2008. The increased net income in 2010 was due to increased net interest income resulting from a combination of increased deposit balances and lower deposit costs. This exceeded an increased level of non-interest expense. Non-interest income was consistent between years as increased gains on residential mortgage loan sales into the secondary market were offset by reduced deposit service charges. The lower 2009 net income performance is reflective of increases in FDIC insurance premiums, generally higher other non-interest expenses and reduced non-interest income from BOLI. These negative items more than offset increased net interest income resulting from the growth in deposits and improved revenue from residential mortgage loan sales into the secondary market.

The commercial lending segment reported net income of $497,000 in 2010 compared to a net loss of $6.4 million in 2009 and net income of $2.3 million in 2008. The increased earnings in 2010 were caused primarily by a $9.6 million reduction in the provision for loan losses due to the previously discussed improvements in asset quality. The loss in 2009, however, was caused by an increased provision for loan losses due to the strengthening of the allowance for loan losses as a result of the deterioration in asset quality experienced in 2009. The loan loss provision allocated to this segment was $12.3 million greater in 2009. Non-interest expenses also increased in 2009 due to higher other real-estate owned expenses and other loan work out related costs. These negative items more than offset an increased level of net interest income due to the commercial loan growth achieved in 2009.

The trust segment’s net income contribution was $222,000 in 2010 compared to $148,000 in 2009 and $1.3 million in 2008. The increase in net income in 2010 resulted from a decline in expenses particularly within our investment advisory subsidiary. The major reason for the decrease in 2009 was due to less wealth management revenue as a result of fewer assets under management resulting from the declines experienced in the equity and real estate markets. Specifically, the most significant decline has been in the value of real-estate assets in the

BUILD and ERECT Funds (a fund that invests union pension dollars in construction projects that utilize union labor) where the market value of assets has declined from $325 million at December 31, 2008 to $193 million at December 31, 2010. The BUILD Fund is in liquidation status. Overall, the fair market value of trust assets totaled $1.37 billion at December 31, 2010, a modest increase of $8.4 million, or 0.6%, from the December 31, 2009 total of $1.36 billion.

The investment/parent segment reported net loss of $699,000 in 2010 compared to net income of $379,000 in 2009 and a net loss of $783,000 in 2008. The weaker performance in 2010 reflects lower net interest income as declining yields in the investment securities portfolio have negatively impacted this segment. In 2009, the Company’s balance sheet positioning allowed it to benefit from the significant Federal Reserve reductions in short-term interest rates and the return to a more traditional positively sloped yield curve, which caused net interest income in this segment to increase. Also, the Company realized $164,000 of investment security gains in 2009 compared to losses of $95,000 realized in 2008

For greater discussion on the future strategic direction of the Company’s key business segments, see “Management’s Discussion and Analysis—Forward Looking Statements.”

BALANCE SHEET … The Company’s total consolidated assets were $949 million at December 31, 2010, which was down by $21 million or 2.2% from the $970 million level at December 31, 2009. The Company’s loans and loan held for sale totaled $678 million at December 31, 2010, a decrease of $44.7 million or 6.2% from year-end 2009 as the Company focused on reducing its commercial real-estate loan concentration in 2010. Investment securities and short-term money market investments increased by $29.4 million in 2010 due to principal repayments in the loan portfolio being reinvested in the securities portfolio. The $1.3 million increase in premises and equipment related to the costs associated with the construction of a new branch office in the State College market.

The Company’s deposits totaled $801 million at December 31, 2010, which was $15.2 million or 1.9% higher than December 31, 2009, due to an increase in almost all deposit categories. We believe that uncertainties in the financial markets and the economy have contributed to a second consecutive year of growth in our deposits as consumers have looked for safety in well capitalized community banks like AmeriServ Financial Bank. As a result of this deposit growth and asset shrinkage, we were able to reduce FHLB borrowings by $37.3 million during 2010. Total FHLB borrowings now represent 1.5% of total assets compared to 5.3% at December 31, 2009. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 16.54% and an asset leverage ratio of 11.20% at December 31, 2010. The Company’s book value per common share was $4.07, its tangible book value per common share was $3.46, and its tangible common equity to tangible assets ratio was 7.94% at December 31, 2010.

LIQUIDITY … The Company’s liquidity position has been strong during the last several years. Our core retail deposit base has grown over the past two years and has been more than adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities was used to either fund loan growth (2009) or paydown borrowings (2010). We strive to operate our loan to deposit ratio in a range of 85% to 95%. At December 31, 2010, the Company’s loan to deposit ratio was 84.6%. Given further expected net loan paydowns in the first half of 2011, we expect to more actively purchase mortgage backed investment securities to replace this cash flow.

Liquidity can also be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents decreased by $7.0 million from December 31, 2009, to December 31, 2010, due to $22.1 million of cash used in financing activities. This was partially offset by $12.4 million of cash provided by investing activities and $2.7 million of cash provided by operating activities. Within investing activities, cash advanced for new loan fundings and purchases totalled $86.9 million and was $42.8 million lower than the $129.7 million of cash received from loan principal payments and sales. Cash used for new investment security purchases exceeded

maturities and sales by $29.8 million. Within financing activities, deposits increased by $16.3 million, which was used to help pay down short-term borrowings by $21.2 million.

The holding company had a total of $16.7 million of cash, short-term investments, and securities at December 31, 2010, which was down $3.2 million from the year-end 2009 total. We have elected to retain $14 million of the total $21 million in funds received from the preferred stock issued to the U.S. Treasury in connection with our participation in TARP’s Capital Purchase Program (CPP) at the holding company to provide us with greater liquidity and financial flexibility. ($7 million of the CPP funds were downstreamed to our subsidiary Bank over the past two years to help the Bank maintain compliance with our own internal capital guidelines.) Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the holding company. At December 31, 2010, however, the subsidiary Bank did not have any cash available for immediate dividends to the holding company under the applicable regulatory formulas because of the loss it incurred in 2009. We presently expect that the Bank will return to dividend paying capacity sometime in the second half of 2011. As such, the holding company will continue to use its ample supply of cash and short-term investments to meet its trust preferred debt service requirements and preferred stock dividends, which approximate $2.1 million annually.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investment securities, time deposits with banks, federal funds sold, and short-term investments in money market funds. These assets totaled $29 million at December 31, 2010 and $33 million at December 31, 2009. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the Federal Home Loan Bank systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary Bank is a member of the Federal Home Loan Bank, which provides the opportunity to obtain short- to longer-term advances based upon the Company’s investment in assets secured by one- to four-family residential real estate. At December 31, 2010, the Company had $244 million of overnight borrowing availability at the FHLB, $36 million of short-term borrowing availability at the Federal Reserve Bank and $23 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

CAPITAL RESOURCES … The Company meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The asset leverage ratio was 11.20%, the Tier 1 capital ratio was 15.27%, and the risk based capital ratio was 16.54% at December 31, 2010. Note that the impact of other comprehensive loss is excluded from the regulatory capital ratios. At December 31, 2010, accumulated other comprehensive loss amounted to $4.9 million. The Company’s tangible equity to assets ratio was 10.05% and its tangible common equity to assets ratio was 7.94% at December 31, 2010. We anticipate that our strong capital ratios will increase further in 2011 due to the retention of all earnings, which will be partially offset by preferred dividend requirements and limited balance sheet growth.

Our decision to accept the $21 million CPP preferred stock investment in December 2008 did strengthen our capital ratios. However as a result of this decision, for a period of three years we are no longer permitted to repurchase stock or declare and pay common dividends without the consent of the U.S. Treasury. The Company presently does not expect to repay any portion of the CPP preferred stock investment prior to 2012 given the slowness of the economic recovery and the need for the Bank to achieve sustained profitability.

INTEREST RATE SENSITIVITY … Asset/liability management involves managing the risks associated with changing interest rates and the resulting impact on the Company’s net interest income, net income and capital. The management and measurement of interest rate risk at the Company is performed by using the following tools: 1) simulation modeling, which analyzes the impact of interest rate changes on net interest income, net income and capital levels over specific future time periods. The simulation modeling forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments and changes in the volumes and rates of various loan and deposit categories. The simulation modeling incorporates assumptions about reinvestment and the repricing characteristics of certain assets and liabilities without stated contractual maturities; 2) market value of portfolio equity sensitivity analysis, and 3) static GAP analysis, which analyzes the extent to which interest rate sensitive assets and interest rate sensitive liabilities are matched at specific points in time. The overall interest rate risk position and strategies are reviewed by senior management and the Company’s Board of Directors on an ongoing basis.

The following table presents a summary of the Company’s static GAP positions at December 31, 2010:

INTEREST SENSITIVITY PERIOD

3 MONTHS
OR LESS

OVER
3 MONTHS
THROUGH
6 MONTHS

OVER
6 MONTHS
THROUGH
1 YEAR

OVER
1 YEAR

TOTAL

(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)

RATE SENSITIVE ASSETS:

Loans and loans held for sale

202,515

52,899

86,290

316,712

658,416

Investment securities

18,276

9,075

15,364

129,920

172,635

Short-term assets

5,177

—

5,177

Regulatory stock

7,233

—

2,125

9,358

Bank owned life insurance

—

34,466

—

34,466

Total rate sensitive assets

233,201

61,974

136,120

448,757

880,052

RATE SENSITIVE LIABILITIES:

Deposits:

Non-interest bearing deposits

—

127,870

NOW

4,442

—

54,764

59,206

Money market

150,631

—

22,603

173,234

Other savings

19,190

—

57,572

76,762

Certificates of deposit of $100,000 or more

12,796

21,695

5,321

10,996

50,808

Other time deposits

87,089

27,543

47,069

151,635

313,336

Total deposits

274,148

49,238

52,390

425,440

801,216

Borrowings

4,565

22,776

27,385

Total rate sensitive liabilities

278,713

49,253

52,419

448,216

828,601

INTEREST SENSITIVITY GAP:

Interval

(45,512

)

12,721

83,701

541

—

Cumulative

(45,512

)

(32,791

)

50,910

51,451

Period GAP ratio

0.84

1.26

2.60

1.00

Cumulative GAP ratio

0.84

0.90

1.13

1.06

Ratio of cumulative GAP to total assets

(4.80

(3.46

5.36

5.42

When December 31, 2010, is compared to December 31, 2009, there has been limited change in the Company’s modestly positive cumulative GAP ratio through one year. While the Company does have a negative GAP position through six months, the absolute low level of rates makes this table more difficult to analyze since there is little room for certain liabilities to reprice downward further.

Management places primary emphasis on simulation modeling to manage and measure interest rate risk. The Company’s asset/liability management policy seeks to limit net interest income variability over the first twelve months of the forecast period to +/-7.5%, which include interest rate movements of 200 basis points. Additionally, the Company also uses market value sensitivity measures to further evaluate the balance sheet exposure to changes in interest rates. The Company monitors the trends in market value of portfolio equity sensitivity analysis on a quarterly basis.

The following table presents an analysis of the sensitivity inherent in the Company’s net interest income and market value of portfolio equity. The interest rate scenarios in the table compare the Company’s base forecast, which was prepared using a flat interest rate scenario, to scenarios that reflect immediate interest rate changes of 100 and 200 basis points. Note that we suspended the 200 basis point downward rate shock since it has little value due to the absolute low level of interest rates. Each rate scenario contains unique prepayment and repricing assumptions that are applied to the Company’s existing balance sheet that was developed under the flat interest rate scenario.


INTEREST RATE SCENARIO	VARIABILITY OF NET INTEREST INCOME			CHANGE IN MARKET VALUE OF PORTFOLIO EQUITY
200 bp increase		2.1	%		2.9	%
100 bp increase		2.4			3.8
100 bp decrease		(7.4	)		(12.0	)

The variability of net interest income is negative in the 100 basis point downward rate scenario as the Company has more exposure to assets repricing downward to a greater extent than liabilities due to the absolute low level of interest rates with the fed funds rate currently at 0.25%. The variability of net interest income is positive in the upward rate shocks as the Company has better diversified its loan portfolio with the interest rate on more loans now tied to LIBOR. Also, the Company expects that it will not have to reprice its core deposit accounts up as quickly when interest rates rise. The market value of portfolio equity increases in the upward rate shocks due to the improved value of the Company’s core deposit base. Negative variability of market value of portfolio equity occurs in the downward rate shock due to a reduced value for core deposits.

Within the investment portfolio at December 31, 2010, 95% of the portfolio is classified as available for sale and 5% as held to maturity. The available for sale classification provides management with greater flexibility to manage the securities portfolio to better achieve overall balance sheet rate sensitivity goals and provide liquidity if needed. The mark to market of the available for sale securities does inject more volatility in the book value of equity, but has no impact on regulatory capital. There are 27 securities that are temporarily impaired at December 31, 2010. The Company reviews its securities quarterly and has asserted that at December 31, 2010, the impaired value of securities represents temporary declines due to movements in interest rates and the Company does have the ability and intent to hold those securities to maturity or to allow a market recovery. Furthermore, it is the Company’s intent to manage its long-term interest rate risk by continuing to sell newly originated fixed-rate 30-year mortgage loans into the secondary market. The Company also periodically sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year 2010, 68% of all residential mortgage loan production was sold into the secondary market.

The amount of loans outstanding by category as of December 31, 2010, which are due in (i) one year or less, (ii) more than one year through five years, and (iii) over five years, are shown in the following table. Loan balances are also categorized according to their sensitivity to changes in interest rates.

ONE
YEAR OR
LESS

MORE
THAN ONE
YEAR
THROUGH
FIVE YEARS

OVER FIVE
YEARS

TOTAL
LOANS

(IN THOUSANDS, EXCEPT RATIOS)

Commercial

25,974

42,570

9,778

78,322

Commercial loans secured by real estate

50,585

175,024

144,766

370,375

Real estate-mortgage

61,058

79,725

69,945

210,728

Consumer

4,383

9,345

5,505

19,233

Total

142,000

306,664

229,994

678,658

Loans with fixed-rate

86,442

174,361

101,617

362,420

Loans with floating-rate

55,558

132,303

128,377

316,238

Total

142,000

306,664

229,994

678,658

Percent composition of maturity

20.9

45.2

33.9

100.0

Fixed-rate loans as a percentage of total loans

53.4

Floating-rate loans as a percentage of total loans

46.6

The loan maturity information is based upon original loan terms and is not adjusted for principal paydowns and rollovers. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal.

CONTRACTUAL OBLIGATIONS … The following table presents, as of December 31, 2010, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

PAYMENTS DUE IN

NOTE
REFERENCE

ONE YEAR
OR LESS

ONE TO THREE
YEARS

THREE TO FIVE
YEARS

OVER FIVE
YEARS

TOTAL

(IN THOUSANDS)

Deposits without a stated maturity

437,072

—

437,072

Certificates of deposit*

206,430

117,568

22,979

39,443

386,420

Borrowed funds*

4,641

9,673

186

589

15,089

Guaranteed junior subordinated deferrable interest debentures*

—

29,947

Pension obligation

1,500

—

1,500

Lease commitments

959

1,337

948

2,704

5,948

*	Includes interest based upon interest rates in effect at December 31, 2010. Future changes in market interest rates could materially affect contractual amounts to be paid.

OFF BALANCE SHEET ARRANGEMENTS … The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The

Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending. The Company had various outstanding commitments to extend credit approximating $84.9 million and standby letters of credit of $11.5 million as of December 31, 2010. The Company can also use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. As of December 31, 2010, the Company had $18 million in interest rate swaps outstanding.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES … The accounting and reporting policies of the Company are in accordance with Generally Accepted Accounting Principles and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses, goodwill, income taxes, and investment securities are deemed critical because they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by the Company could result in material changes in the Company’s financial position or results of operation.

ACCOUNT — Allowance for Loan Losses

BALANCE SHEET REFERENCE — Allowance for Loan Losses

INCOME STATEMENT REFERENCE — Provision for Loan Losses

DESCRIPTION

The allowance for loan losses is calculated with the objective of maintaining reserve levels believed by management to be sufficient to absorb estimated probable credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the credit portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, likelihood of customer default, loss given default, exposure at default, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on consumer loans and residential mortgages, and general amounts for historical loss experience. This process also considers economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios. All of these factors may be susceptible to significant change. Also, the allocation of the allowance for credit losses to specific loan pools is based on historical loss trends and management’s judgment concerning those trends.

Commercial and commercial real estate loans are the largest category of credits and the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan loss. Approximately $16.6 million, or 84%, of the total allowance for loan losses at December 31, 2010 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.

ACCOUNT — Goodwill and core deposit intangibles

BALANCE SHEET REFERENCE — Goodwill and core deposit intangibles

INCOME STATEMENT REFERENCE — Goodwill impairment and amortization of core deposit intangibles

DESCRIPTION

The Company considers our accounting policies related to goodwill and core deposit intangibles to be critical because the assumptions or judgment used in determining the fair value of assets and liabilities acquired in past acquisitions are subjective and complex. As a result, changes in these assumptions or judgment could have a significant impact on our financial condition or results of operations.

The fair value of acquired assets and liabilities, including the resulting goodwill, was based either on quoted market prices or provided by other third party sources, when available. When third party information was not available, estimates were made in good faith by management primarily through the use of internal cash flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are susceptible to significant changes. The Company routinely utilizes the services of an independent third party that is regarded within the banking industry as an expert in valuing core deposits to monitor the ongoing value and changes in the Company’s core deposit base. These core deposit valuation updates are based upon specific data provided from statistical analysis of the Company’s own deposit behavior to estimate the duration of these non-maturity deposits combined with market interest rates and other economic factors.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Company’s goodwill relates to value inherent in the banking and wealth management businesses, and the value is dependent upon the Company’s ability to provide quality, cost-effective services in the face of free competition from other market participants on a regional basis. This ability relies upon continuing investments in processing systems, the development of value-added service features and the ease of use of the Company’s services. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted and the loyalty of the Company’s deposit and customer base over a longer time frame. The quality and value of a Company’s assets is also an important factor to consider when performing goodwill impairment testing. A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective value added services over sustained periods can lead to impairment of goodwill.

Goodwill which has an indefinite useful life is tested for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value is more than the estimated fair value. The Company’s testing in 2010 indicated that its goodwill was not impaired. However, during the third quarter of 2009, the Company did reduce the goodwill allocated to West Chester Capital Advisors (WCCA) by $547,000. This reduction resulted from a purchase price adjustment as the principals of WCCA did not fully earn a deferred contingent payment that had been accrued as a liability of the Company at the time of acquisition.

Core deposit intangibles that have a finite life are amortized over their useful life. As of December 31, 2010, all core deposit intangibles for the Company had been fully amortized.

As of December 31, 2010, goodwill was not considered impaired; however, deteriorating economic conditions could result in impairment, which could adversely affect earnings in future periods.

ACCOUNT — Income Taxes

BALANCE SHEET REFERENCE — Deferred Tax Asset and Current Taxes Payable

INCOME STATEMENT REFERENCE — Provision for Income Taxes

DESCRIPTION

The provision for income taxes is the sum of income taxes both currently payable and deferred. The changes in deferred tax assets and liabilities are determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities as measured by the enacted tax rates that management estimates will be in effect when the differences reverse.

In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of December 31, 2010, we believe that all of the deferred tax assets recorded on our balance sheet will ultimately be recovered and that no valuation allowances were needed.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

ACCOUNT — Investment Securities

BALANCE SHEET REFERENCE — Investment Securities

INCOME STATEMENT REFERENCE — Net realized gains (losses) on investment securities

DESCRIPTION

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Operations. At December 31, 2010, all of the unrealized losses in the available-for-sale security portfolio were comprised of securities issued by government agencies, the U.S. Treasury or government sponsored agencies. The Company believes the unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

FORWARD LOOKING STATEMENTS…

THE STRATEGIC FOCUS:

The challenge for the future is to improve earnings performance to peer levels through a disciplined focus on community banking and improving the profitability of our Trust Company. In accordance with our strategic plan, AmeriServ will maintain its focus as a community bank delivering banking and trust services to the best of our ability. This Company will not succumb to the lure of quick fixes and fancy financial gimmicks. It is our plan

to continue to build AmeriServ into a potent banking force in this region and in this industry. Our focus encompasses the following:

•

Customer Service — it is the existing and prospective customer that AmeriServ must satisfy. This means good products and fair prices. But it also means quick response time and professional competence. It means speedy problem resolution and a minimizing of bureaucratic frustrations. AmeriServ is training and motivating its staff to meet these standards.

•

Revenue Growth — It is necessary for AmeriServ to focus on growing revenues. This means loan growth, deposit growth and fee growth. It also means close coordination between all customer service areas so as many revenue producing products as possible can be presented to existing and prospective customers. The Company’s Strategic Plan contains action plans in each of these areas. This challenge will be met by seeking to exceed customer expectations in every area. An examination of the peer bank database provides ample proof that a well executed community banking business model can generate a reliable and rewarding revenue stream.

•

Expense Rationalization — AmeriServ Financial remains focused on trying to rationalize expenses. This has not been a program of broad based cuts, but has been targeted so AmeriServ stays strong but spends less. However, this initiative takes on new importance because it is critical to be certain that future expenditures are directed to areas that are playing a positive role in the drive to improve revenues.

This Form 10-K contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results, and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions. These forward-looking statements are based upon current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include the following: (i) the effect of changing regional and national economic conditions; (ii) the effects of trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (iii) significant changes in interest rates and prepayment speeds; (iv) inflation, stock and bond market, and monetary fluctuations; (v) credit risks of commercial, real estate, consumer, and other lending activities; (vi) changes in federal and state banking and financial services laws and regulations; (vii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (viii) the timely development of competitive new products and services by the Company and the acceptance of those products and services by customers and regulators (when required); (ix) the willingness of customers to substitute competitors’ products and services for those of the Company and vice versa; (x) changes in consumer spending and savings habits; (xi) unanticipated regulatory or judicial proceedings; and (xii) other external developments which could materially impact the Company’s operational and financial performance.

The foregoing list of important factors is not exclusive, and neither such list nor any forward-looking statement takes into account the impact that any future acquisition may have on the Company and on any such forward-looking statement.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, and liquidity risk. The Company controls and monitors these risks with policies, procedures, and various levels of managerial and Board oversight. The Company’s objective is to optimize profitability while managing and controlling risk within Board approved policy limits.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets, liabilities, and hedges. The Company uses its asset liability management policy and hedging policy to control and manage interest rate risk. For information regarding the effect of changing interest rates on the Company’s net interest income and market value of its investment portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity.”

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors, debtholders and to fund operating expenses. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity.”

For information regarding the market risk of the Company’s financial instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity.” The Company’s principal market risk exposure is to interest rates.

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AMERISERV FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS


	AT DECEMBER 31,
	2010			2009
	(IN THOUSANDS)
ASSETS
Cash and due from depository institutions	$	14,160		$	20,835
Interest bearing deposits		1,716			1,707
Short-term investments in money market funds		3,461			3,766

Cash and cash equivalents		19,337			26,308

Investment securities:
Available for sale		164,811			131,272
Held to maturity (market value $8,267 at December 31, 2010 and $11,996 at December 31, 2009)		7,824			11,611
Loans held for sale		7,405			3,790
Loans		671,253			719,785
Less: Unearned income		477			671
Allowance for loan losses		19,765			19,685

Net loans		651,011			699,429

Premises and equipment, net		10,485			9,229
Accrued income receivable		3,210			3,589
Goodwill		12,950			12,950
Bank owned life insurance		34,466			33,690
Net deferred tax asset		16,058			15,925
Regulatory stock		9,358			9,739
Prepaid federal deposit insurance		3,073			4,538
Other assets		8,986			7,956

TOTAL ASSETS	$	948,974		$	970,026

LIABILITIES
Non-interest bearing deposits	$	127,870		$	118,232
Interest bearing deposits		673,346			667,779

Total deposits		801,216			786,011

Short-term borrowings		4,550			25,775
Advances from Federal Home Loan Bank		9,750			25,804
Guaranteed junior subordinated deferrable interest debentures		13,085			13,085

Total borrowed funds		27,385			64,664

Other liabilities		13,315			12,097

TOTAL LIABILITIES		841,916			862,772

STOCKHOLDERS’ EQUITY
Preferred stock, no par value; $1,000 per share liquidation preference; 2,000,000 shares authorized; there were 21,000 shares issued and outstanding on December 31, 2010 and 2009		20,669			20,558
Common stock, par value $0.01 per share; 30,000,000 shares authorized: 26,396,289 shares issued and 21,207,670 shares outstanding on December 31, 2010; par value $2.50 per share; 26,410,528 shares issued and 21,221,909 shares outstanding on December 31, 2009		264			264
Treasury stock at cost, 5,188,619 shares on December 31, 2010 and 2009		(68,659	)		(68,659	)
Capital surplus		145,045			144,984
Retained earnings		14,601			14,480
Accumulated other comprehensive loss, net		(4,862	)		(4,373	)

TOTAL STOCKHOLDERS’ EQUITY		107,058			107,254

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	948,974		$	970,026

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	YEAR ENDED DECEMBER 31,
	2010		2009			2008
	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans:
Taxable	$	39,020	$	41,359		$	40,817
Tax exempt		76		91			200
Interest bearing deposits with banks		1		4			13
Short-term investments in money market funds		16		30			140
Federal funds sold		4		1			4
Investment securities:
Available for sale		5,281		5,340			5,770
Held to maturity		433		630			875

Total Interest Income		44,831		47,455			47,819

INTEREST EXPENSE
Deposits		10,945		13,109			15,680
Federal funds purchased		—		7			1
Short-term borrowings		22		133			1,402
Advances from Federal Home Loan Bank		402		652			499
Guaranteed junior subordinated deferrable interest debentures		1,120		1,120			1,120

Total Interest Expense		12,489		15,021			18,702

Net Interest Income		32,342		32,434			29,117
Provision for loan losses		5,250		15,150			2,925

Net Interest Income after Provision for Loan Losses		27,092		17,284			26,192

NON-INTEREST INCOME
Trust fees		5,571		5,648			6,731
Net gains on loans held for sale		958		651			477
Net realized gains (losses) on investment securities		157		164			(95	)
Service charges on deposit accounts		2,284		2,769			3,069
Investment advisory fees		713		648			779
Bank owned life insurance		1,227		1,208			2,695
Other income		3,057		2,840			2,768

Total Non-Interest Income		13,967		13,928			16,424

NON-INTEREST EXPENSE
Salaries and employee benefits		21,602		20,526			19,217
Net occupancy expense		2,691		2,632			2,561
Equipment expense		1,680		1,692			1,677
Professional fees		4,363		4,032			3,582
Supplies, postage, and freight		997		1,117			1,252
Miscellaneous taxes and insurance		1,396		1,374			1,395
Federal deposit insurance expense		1,575		1,670			113
Amortization of core deposit intangibles		—		108			865
Federal Home Loan Bank prepayment penalties		—		—			91
Other expense		5,393		6,006			4,884

Total Non-Interest Expense		39,697		39,157			35,637

PRETAX INCOME (LOSS)		1,362		(7,945	)		6,979
Provision for income taxes (benefit)		80		(3,050	)		1,470

NET INCOME (LOSS)		1,282		(4,895	)		5,509
Preferred stock dividends and accretion of preferred stock discount		1,161		1,158			35

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	121	$	(6,053	)	$	5,474

(continued on next page)

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)


	YEAR ENDED DECEMBER 31,
	2010		2009			2008
	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA:
Basic:
Net income (loss)	$	0.01	$	(0.29	)	$	0.25
Average number of shares outstanding		21,224		21,172			21,833
Diluted:
Net income (loss)	$	0.01	$	(0.29	)	$	0.25
Average number of shares outstanding		21,226		21,174			21,975
Cash dividends declared	$	0.00	$	0.00		$	0.025

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	YEAR ENDED DECEMBER 31,
	2010			2009			2008
	(IN THOUSANDS)
COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	1,282		$	(4,895	)	$	5,509
Other comprehensive loss, before tax:
Pension obligation change for defined benefit plan		(1,031	)		(1,093	)		(3,745	)
Income tax effect		352			372			1,273
Unrealized holding gains on available for sale securities arising during period		446			1,018			3,280
Income tax effect		(152	)		(346	)		(1,115	)
Reclassification adjustment for (gains) losses on available for sale securities included in net income (loss)		(157	)		(164	)		95
Income tax effect		53			56			(32	)

Other comprehensive loss		(489	)		(157	)		(244	)

Comprehensive income (loss)	$	793		$	(5,052	)	$	5,265

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	YEAR ENDED DECEMBER 31,
	2010			2009			2008
	(IN THOUSANDS)
PREFERRED STOCK
Balance at beginning of period	$	20,558		$	20,447		$	20,447
Accretion of preferred stock discount		111			111			—

Balance at end of period		20,669			20,558			20,447

COMMON STOCK
Balance at beginning of period		264			65,794			65,700
New shares issued for dividend reinvestment plan		—			51			94
Change in par value (from $2.50 per share to $0.01 per share)		—			(65,582	)		—
Restricted stock		—			1			—

Balance at end of period		264			264			65,794

TREASURY STOCK
Balance at beginning of period		(68,659	)		(68,659	)		(65,824	)
Treasury stock, purchased at cost (1,097,700 shares)		—			—			(2,835	)

Balance at end of period		(68,659	)		(68,659	)		(68,659	)

CAPITAL SURPLUS
Balance at beginning of period		144,984			79,353			78,788
New common shares issued for dividend reinvestment plan (2,033 shares)		3			22			5
Stock option expense		18			11			7
Common stock warrant issued (1,312,500 shares)		—			—			553
Change in par value (from $2.50 per share to $0.01 per share)		—			65,582			—
Restricted stock		40			16			—

Balance at end of period		145,045			144,984			79,353

RETAINED EARNINGS
Balance at beginning of period		14,480			20,533			15,602
Net income (loss)		1,282			(4,895	)		5,509
Accretion of preferred stock discount		(111	)		(111	)		—
Cash dividend declared on preferred stock		(1,050	)		(1,047	)		(35	)
Cash dividend declared on common stock of $0.025 per share		—			—			(543	)

Balance at end of period		14,601			14,480			20,533

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period		(4,373	)		(4,216	)		(3,972	)
Other comprehensive loss		(489	)		(157	)		(244	)

Balance at end of period		(4,862	)		(4,373	)		(4,216	)

TOTAL STOCKHOLDERS’ EQUITY	$	107,058		$	107,254		$	113,252

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	YEAR ENDED DECEMBER 31
	2010			2009			2008
	(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)	$	1,282		$	(4,895	)	$	5,509
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		5,250			15,150			2,925
Depreciation and amortization expense		1,496			1,586			1,533
Amortization expense of core deposit intangibles		—			108			865
Net amortization of investment securities		467			231			193
Net realized (gains) losses on investment securities — available for sale		(157	)		(164	)		95
Net realized gains on loans held for sale		(958	)		(651	)		(477	)
Amortization of deferred loan fees		(407	)		(456	)		(466	)
Origination of mortgage loans held for sale		(71,643	)		(67,775	)		(36,923	)
Sales of mortgage loans held for sale		68,986			65,636			37,460
Decrease in accrued interest receivable		379			146			297
Increase (decrease) in accrued interest payable		(595	)		74			(899	)
Earnings on bank-owned life insurance		(1,032	)		(1,021	)		(1,038	)
Deferred income taxes		(126	)		(3,274	)		1,099
Stock compensation expense		61			73			106
Decrease (increase) in prepaid Federal Deposit Insurance		1,465			(4,538	)		—
Net increase in other assets		(2,532	)		(2,922	)		(3,479	)
Net increase in other liabilities		784			1,085			1,048

Net cash provided by operating activities		2,720			(1,607	)		7,848

INVESTING ACTIVITIES
Purchase of investment securities — available for sale		(97,789	)		(55,171	)		(68,610	)
Purchase of investment securities — held to maturity		(1,123	)		—			(4,464	)
Purchase of regulatory stock