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, 2011

¨	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). þ 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 $41,356,421 as of June 30, 2011.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 20,921,021 shares outstanding as of January 31, 2012.

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		13
Item 1B.	Unresolved Staff Comments		13
Item 2.	Properties		13
Item 3.	Legal Proceedings		13
Item 4.	Mine Safety Disclosures		13
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
Item 6.	Selected Consolidated Financial Data		15
Item 7.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		37
Item 8.	Financial Statements and Supplementary Data		38
Item 9.	Changes in and Disagreements With Accountants On Accounting and Financial Disclosure		89
Item 9A.	Controls and Procedures		89
Item 9B.	Other Information		89
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance		89
Item 11.	Executive Compensation		89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		89
Item 13.	Certain Relationships and Related Transactions, and Director Independence		90
Item 14.	Principal Accountant Fees and Services		90
PART IV
Item 15.	Exhibits, Financial Statement Schedules		90
	Signatures		92

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, 2011, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of $979 million, $816 million and $112 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 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, the 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 23 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, 2011 had $101 million in assets under management.

We believe that 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, 2011:


Headquarters	Johnstown, PA
Total Assets	$	955,286
Total Investment Securities		181,902
Total Loans and Loans Held for Sale (net of unearned income)		670,847
Total Deposits		816,620
Total Net Income		7,329
Asset Leverage Ratio		9.90	%
Return on Average Assets		0.78
Return on Average Equity		7.21
Total Full-time Equivalent Employees		272

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 Loans

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 Bank’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 Bank’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.

Residential Real Estate — Mortgages

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 Bank does not and has never engaged in subprime residential mortgage lending.

Consumer Loans

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,
	2011		2010		2009
	(IN THOUSANDS)
U.S. Agency	$	10,689	$	15,956	$	12,342
U.S. Agency mortgage-backed securities		165,484		145,727		116,088

Total cost basis of investment securities available for sale	$	176,173	$	161,683	$	128,430

Total fair value of investment securities available for sale	$	182,923	$	164,811	$	131,272

Investment securities held to maturity at:


	AT DECEMBER 31,
	2011		2010		2009
	(IN THOUSANDS)
U.S. Treasury	$	—	$	—	$	3,009
U.S. Agency mortgage-backed securities		9,280		6,824		7,602
Other securities		3,000		1,000		1,000

Total cost basis of investment securities held to maturity	$	12,280	$	7,824	$	11,611

Total fair value of investment securities held to maturity	$	12,914	$	8,267	$	11,996

DEPOSITS AND OTHER SOURCES OF FUNDS

Deposits

The Bank has a loyal core deposit base made up of traditional commercial bank products that exhibits little fluctuation, other than jumbo certificates of deposits (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,
	2011				2010				2009
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Demand:
Non-interest bearing	$	135,298	—	%	$	122,963	—	%	$	114,473	—	%
Interest bearing		57,784	0.22			58,118	0.30			62,494	0.41
Savings		81,490	0.31			77,381	0.51			72,350	0.73
Money market		193,536	0.56			186,560	0.87			169,823	1.44
Other time		348,915	1.97			358,472	2.44			343,841	2.88

Total deposits	$	817,023	1.02		$	803,494	1.36		$	762,981	1.72

Loans

The loan portfolio of the Company consisted of the following:


	AT DECEMBER 31,
	2011		2010		2009		2008		2007
	(IN THOUSANDS)
Commercial	$	83,124	$	78,322	$	96,158	$	110,197	$	118,936
Commercial loans secured by real estate(1)		350,224		370,375		396,787		353,870		285,115
Real estate-mortgage(1)		212,669		203,323		207,221		218,928		214,839
Consumer		18,172		19,233		19,619		23,804		16,676

Loans		664,189		671,253		719,785		706,799		635,566
Less: Unearned income		452		477		671		691		471

Loans, net of unearned income	$	663,737	$	670,776	$	719,114	$	706,108	$	635,095

(1)	For each of the periods presented beginning with December 31, 2011, real estate-construction loans constituted 1.9%, 3.9%, 6.8%, 6.2% and 5.5% 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,
	2011			2010			2009			2008			2007
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Non-accrual loans:
Commercial	$	—		$	3,679		$	3,375		$	1,128		$	3,553
Commercial loans secured by real estate		3,870			6,731			11,716			484			225
Real estate-mortgage		1,205			1,879			2,025			1,765			1,460

Total		5,075			12,289			17,116			3,377			5,238

Other real estate owned:
Commercial loans secured by real estate		20			436			871			701			—
Real estate-mortgage		104			302			350			494			42

Total		124			738			1,221			1,195			42

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

Total non-performing assets including TDR	$	5,199		$	14,364		$	18,337		$	4,572		$	5,280

Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned		0.77	%		2.12	%		2.53	%		0.65	%		0.83	%

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 Company had no loans past due 90 days or more for the periods presented.

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,
	2011			2010			2009			2008		2007
	(IN THOUSANDS)
Interest income due in accordance with original terms	$	376		$	1,086		$	553		$	198	$	215
Interest income recorded		(167	)		(458	)		(75	)		—		(24	)

Net reduction in interest income	$	209		$	628		$	478		$	198	$	191

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 a limited amount 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 51 professionals administers assets valued at approximately $1.4 billion that are not recognized on the Company’s balance sheet at December 31, 2011. 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. This segment also includes financial services which include the sale of mutual funds, annuities, and insurance products. 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 funds are in the process of liquidation. At December 31, 2011, the Trust Company had total assets of $3.9 million and total shareholder’s equity of $3.3 million. In 2011, the Trust Company contributed earnings to the corporation as its gross revenue amounted to $6.6 million and the net income contribution was $713,000. 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 Board of Governors of the Federal Reserve (the Federal Reserve). At December 31, 2011, AmeriServ Life had total assets of $553,000 and total stockholders’ equity of $545,000.

MONETARY POLICIES

Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve 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 Federal Reserve have had, and will continue to have, 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 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

Domestic expansion remains upbeat showing signs of stronger business and consumer confidence, lower unemployment insurance claims and higher housing starts. The unemployment rate improved between years from 9.4% in December 2010 to 8.5% in December 2011. However, the overhang of household debt and excess housing supply, coupled with fiscal contraction, we expect, should keep the domestic expansion modest in 2012. Most economists believe that the payroll tax cut and emergency unemployment insurance benefits will be extended for all of 2012 to avoid hitting the economy with an extra drag. Domestic policy uncertainty will remain very high throughout the year damaging business and consumer willingness to spend and take risks.

The Federal Reserve is in a holding pattern for now, but bias is towards additional stimulus. Consistent with its statutory dual mandate of fostering maximum employment and price stability and to support a stronger economic recovery, the Federal Reserve expects to maintain a highly accommodative stance for monetary policy. In particular, the Federal Open Market Committee (FOMC), at its January 2012 meeting decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Federal Reserve is expected to continue their efforts to keep long term yields down and maintain the flatter yield curve resulting from Operation Twist that was executed in 2011. The flattened yield curve will continue to present margin compression issues for banks and strategic challenges to price products effectively.

While the Federal Reserve expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Federal Reserve also anticipates that over the coming quarters, inflation will run at levels at or below their formally adopted inflation target of 2.0%, as measured by the personal consumption expenditure index. The Federal Reserve’s forecast for GDP growth in 2012 is to range from 2.2 to 2.7%. If the recovery were to continue to be modest, the unemployment rate continues to slowly fall, and inflation remain moderate, there would be a very strong case for more expansionary policy.

The GDP forecast is a bit faster than the 1.7% pace in 2011. Consumers are finally beginning to spend after four years of saving more to restore wealth lost in the housing crash and the 2008 stock market drop. Job creation is picking up, and businesses are investing in new equipment to expand production after several years of slowly increasing production to work off spare capacity. Unfortunately, growth isn’t accelerating as it normally does in a recovery. The economy grew at an annual rate of 2.8% in the last quarter of 2011. A strong sustained recovery still is not under way, more than two years after the end of the Great Recession.

The economy in Cambria and Somerset Counties at the end of 2011 produced seasonally adjusted unemployment rates of 7.8% and 8.0%, respectively, as compared to national and state rates of 8.5% and 7.6%. Local markets continue to be negatively impacted by the slow economic conditions that exist in the national economy but are following the national trend of modest improvement. However, the continued difficulties being experienced by small and medium 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, 2011, total nonfarm jobs in Johnstown MSA were 700 above the December 2010 level with gains coming primarily from education and health services while all other categories demonstrated little change. The unemployment rate fluctuated between 7.4% and 9.3% during 2011. 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 as well as congressional redistricting based upon the 2010 census continues to create cause for concern about the continued positive impact from the defense industry. Local loan demand did improve significantly in 2011 and is projected to remain good in 2012.

Economic conditions are stronger in the State College market and have demonstrated the same modest improvement experienced in the national economy. The unemployment rate for State College MSA reached 4.9%

late in 2011, which represents a 1.3% improvement over the 2010 average and remains the lowest of all regions in the Commonwealth. Seasonally adjusted total nonfarm jobs for the MSA increased by 1,000 since December 2010.

The Company will enter new markets in 2012 with the opening of loan production offices in Harrisburg in Dauphin County, Pennsylvania, Altoona in Blair County, Pennsylvania and Hagerstown in Washington County, Maryland. Harrisburg is the metropolitan center for some 400 communities. Its economy and more than 6,900 businesses are diversified with a large representation of service-related industries (especially health) and growing technological industry to accompany the dominant government field inherent to being the state’s capital. The largest employer, state government, provides stability to the economy and attracts attendant services. Excellent roads and rail transportation contribute to the city’s prominence as a center for trade, warehousing, and distribution. The unemployment rate decreased from a 2010 average of 7.8% to 6.8% late in 2011 in the Harrisburg-Carlisle MSA region. Hagerstown and Washington County, Maryland, offers a rare combination of business advantages providing a major crossroads location that is convenient to the entire East Coast at the intersection of I-81 and I-70. It also offers an affordable cost of doing business and living located an hour from the Washington, D.C./Baltimore regions, but with much lower costs. While exhibiting a higher unemployment rate, the Hagerstown, MD-Martinsburg, WV MSA also improved from a 10.0% average in 2010 to 8.0% late in 2011.

Altoona is the business center of Blair County, Pennsylvania with a strong retail, government and manufacturing base. It serves as the headquarters for Sheetz Corporation which ranks 82^nd on Forbes list of the top privately owned companies. In addition to being located adjacent to interstate 99 and a major highway system, Altoona also has easy access to rail and air transportation. It is ranked 14^th in Inc. Magazine’s best small markets to do business. There are 500 acres of rail served properties available for relocation or expansion. The unemployment rate in the Altoona MSA declined from a 7.7% average in 2010 to 6.5% at the end of 2011.

In the near future, the Pennsylvania economy has the opportunity to become a leading producer of shale gas. 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. 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 successful development of natural gas represents one of our best opportunities to reignite Pennsylvania as a center for innovation and economic growth.

EMPLOYEES

The Company employed 372 people as of December 31, 2011, in full- and part-time positions. Approximately 190 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 an estimated 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, 2011, 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 and has since maintained 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 broadened 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 increased 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 also requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. 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 created 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 attorney generals the ability to enforce federal consumer protection laws.

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

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC’s public reference room, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Our Internet address is http://www.ameriserv.com. We make available free of charge on http://www. ameriserv.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

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. Nine additional locations are leased with terms expiring from January 1, 2012 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.

MINE SAFETY DISCLOSURE

Not applicable.

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, 2012, the Company had 3,996 shareholders of record for its common stock. The Company’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
	HIGH		LOW		CASH DIVIDENDS DECLARED
Year ended December 31, 2011:
First Quarter	$	2.37	$	1.59	$	0.00
Second Quarter		2.47		1.81		0.00
Third Quarter		2.27		1.57		0.00
Fourth Quarter		2.12		1.78		0.00
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

Equity Compensation Plan Information

The following table summarizes the number of shares remaining for issuance under ASRV’s outstanding stock incentive plans as of December 31, 2011.


Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		313,612	$	3.02		800,000
Equity compensation plans not approved by security holders		0		0		0

Total		313,612	$	3.02		800,000

In November 2011, the Board of Directors authorized a new program to repurchase 1.1 million common shares. The following table summarizes common share repurchase activity for the quarter ended December 31, 2011.


	Total Number of Shares		Average Price Paid Per Share		Number of Shares that may yet be Purchased
November		230,100	$	2.05		829,900
December		57,300	$	1.95		772,600

ITEM 6.

SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA


	AT OR FOR THE YEAR ENDED DECEMBER 31,
	2011			2010			2009			2008			2007
	(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF INCOME STATEMENT DATA:
Total interest income	$	41,964		$	44,831		$	47,455		$	47,819		$	49,379
Total interest expense		9,681			12,489			15,021			18,702			25,156

Net interest income		32,283			32,342			32,434			29,117			24,223
Provision (credit) for loan losses		(3,575	)		5,250			15,150			2,925			300

Net interest income after provision for loan losses		35,858			27,092			17,284			26,192			23,923
Total non-interest income		13,569			13,967			13,928			16,424			14,707
Total non-interest expense		40,037			39,697			39,157			35,637			34,672

Income (loss) before income taxes		9,390			1,362			(7,945	)		6,979			3,958
Provision (benefit) for income taxes		2,853			80			(3,050	)		1,470			924

Net income (loss)	$	6,537		$	1,282		$	(4,895	)	$	5,509		$	3,034

Net income (loss) available to common shareholders	$	5,152		$	121		$	(6,053	)	$	5,474		$	3,034

PER COMMON SHARE DATA:
Basic earnings (loss) per share	$	0.24		$	0.01		$	(0.29	)	$	0.25		$	0.14
Diluted earnings (loss) per share		0.24			0.01			(0.29	)		0.25			0.14
Cash dividends declared		0.00			0.00			0.00			0.025			0.00
Book value at period end		4.37			4.07			4.09			4.39			4.07
BALANCE SHEET AND OTHER DATA:
Total assets	$	979,076		$	948,974		$	970,026		$	966,929		$	904,878
Loans and loans held for sale, net of unearned income		670,847			678,181			722,904			707,108			636,155
Allowance for loan losses		14,623			19,765			19,685			8,910			7,252
Investment securities available for sale		182,923			164,811			131,272			126,781			140,582
Investment securities held to maturity		12,280			7,824			11,611			15,894			18,533
Deposits		816,420			801,216			786,011			694,956			710,439
Total borrowings		34,850			27,385			64,664			146,863			95,200
Stockholders’ equity		112,352			107,058			107,254			113,252			90,294
Full-time equivalent employees		347			348			345			353			351
SELECTED FINANCIAL RATIOS:
Return on average assets		0.68			0.13			(0.51	)		0.62			0.34
Return on average total equity		5.90	%		1.19	%		(4.33	)%		5.93	%		3.51	%
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end		82.17			84.64			91.97			101.75			89.54
Ratio of average total equity to average assets		11.49			11.25			11.72			10.40			9.79
Common stock cash dividends as a percent of net income available to common shareholders		—			—			—			9.92			—
Interest rate spread		3.47			3.51			3.37			3.21			2.54
Net interest margin		3.72			3.79			3.72			3.64			3.06
Allowance for loan losses as a percentage of loans and loans held for sale, net of unearned income, at period end		2.18			2.91			2.72			1.26			1.14
Non-performing assets as a percentage of loans, loans held for sale and other real estate owned, at period end		0.77			2.12			2.53			0.65			0.83
Net charge-offs as a percentage of average loans and loans held for sale		0.24			0.74			0.60			0.20			0.19
Ratio of earnings to fixed charges and preferred dividends:(1)
Excluding interest on deposits		4.11X			1.49	X		(1.12	)X		3.17	X		2.60	X
Including interest on deposits		1.83			1.10			0.53			1.37			1.16
Cumulative one year interest rate sensitivity gap ratio, at period end		1.29			1.13			1.08			1.10			0.90

(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, 2011, 2010, AND 2009

2011 SUMMARY OVERVIEW:

On January 24, 2012, AmeriServ reported its financial results for the fourth quarter of 2011 and the full 12 months of the year. Net income for the fourth quarter of 2011 was $1.8 million or $0.07 per diluted share. This surpassed the fourth quarter of 2010 by 59%. The performance of the Company in this quarter marked the seventh consecutive profitable quarter going back to the second quarter of 2010. When combined with the previous three quarters of 2011, AmeriServ reported net income for the year of $6.5 million or $0.24 per diluted share. This was a net income improvement of $5.3 million or more than five times the net income of the recession plagued year of 2010.

This strong recovery from the results of both 2009 and 2010 is indeed a story worth telling and then reflecting upon. It is a well-documented fact that this nation has struggled economically since the collapse of the financial markets with the failure of Lehman Brothers in late 2008. Fortunately, the AmeriServ’s Board and management at that time crafted a conservative balance sheet and a strong capital position so as to withstand the continuing collapse of the housing market and the mushrooming unemployment figures. AmeriServ also worked to develop deep sources of liquidity since no one knew how severe or long lasting the troubled times would be. Often, it is the lending activities of community banks such as AmeriServ that are most affected by recession. Therefore, in the autumn of 2009, AmeriServ formed an Asset Quality Task Force and charged it with the responsibility for searching out troubled borrowers who might not be able to honor their financial obligations. This group met weekly and recommended a series of specific strengthening actions in regard to the loan loss reserve. Since AmeriServ had developed a strong capital base, it was able to readily provide the funds for this strengthening. But there was more. AmeriServ worked with its troubled borrowers and, during 2011, was able to reduce the total of its most troubled assets by over $9 million. This welcome event caused AmeriServ to end 2011 with a loan loss reserve that provided for its remaining non-performing assets with a coverage ratio of 281%. Such a positive result during the year enabled AmeriServ to reduce its loan loss reserve by $3.6 million, thus laying a solid foundation for improved earnings.

But 2011 was not just about improved asset quality for there was similar progress in other areas. During 2011, AmeriServ repaid its obligation under the Troubled Asset Relief Program in full and repurchased a warrant to purchase 1.3 million AmeriServ shares which had been issued to the US Treasury Department. This successful negotiation means that our share value will not be diluted by the US Treasury selling those warrants in the open market. Following careful study by the Board and management of AmeriServ, in March 2011, we also applied to participate in the Small Business Lending Fund. AmeriServ was approved to participate in August of 2011 and has positioned itself as one of only a few Pennsylvania banks recognized by the US Treasury as a participating lender to small businesses in the region. The funding for this program requires that we pay 5% per year to the US Treasury, but if we can increase our small business lending sufficiently, the US Treasury has committed to reduce our rate to as little as 1% per year. Our Commercial Banking group is busy working with small businesses in the area; in fact, in 2011 AmeriServ’s banking officer’s averaged 400 calls a month on business customers and prospects to make them aware of this plan.

In another important initiative, AmeriServ remained the largest originator of residential mortgages in Cambria County. With the exception of CRA loans, these mortgages all conform to standards set by the U. S. Government entities Fannie Mae and Freddie Mac. This is both a satisfying and profitable part of our role in the community.

There was also significant progress at our AmeriServ Trust and Financial Services subsidiary in 2011. In spite of the turmoil at home and abroad in the financial markets, this company increased its net income by 242% when compared with 2010. This surge reflected the first full year of its new leadership that came on board in 2010. But we also believe the Trust Company has rebuilt its infrastructure so that it can continue to provide needed wealth management and retirement income guidance throughout the region. During such stressful economic times, the Trust Company continues to provide its customers with safety and returns in spite of the constant headlines about the struggles of Wall Street. This wholly owned subsidiary has become a substantial part of our broad array of financial services.

Now a few thoughts about the future. It has been satisfying to detail the news about AmeriServ’s performance in 2011. We are aware that over 800 U.S. banks are still classified as troubled and it is our intent to continue to maintain a conservative balance sheet with strong capital and deep liquidity. But the goal of this Board and this management team was never mere survival. We believe that in 2011 AmeriServ began to reclaim its place among the strong community banks in Pennsylvania. But we are now pursuing the goals of our new 2012-2015 Strategic Plan to grow assets and earnings without gimmicks or speculations. This means that in 2012 we must continue to invest in the Company so that it can offer the caliber of banking services our customers demand. We are moving into the new technologies of mobile banking and virtual banking. It is an exciting time and we are glad that we now have the time and the financial strength to participate in this new world of banking.

During 2011, the Standard & Poor 500 Stock Index did not gain one dollar but the price of AmeriServ’s common stock increased by 23%. We hope this is the beginning of recognition that the performance of AmeriServ in 2011 is not a mere random event. It is our duty to continue our progress so that the value of the stock and the value of the Company can continue to increase. It is our job to leverage our newfound strengths without foolish adventures, but to also understand that a status quo approach is not acceptable.

It is difficult to not be wary given the problems that do exist. The continuing European crisis is not encouraging, the enormity of the United States debt crisis is daunting, and the gradual realization that some portion of the unemployment rate is not a result of the business cycle but is the result of structural changes in our economy which reflect technology, globalization and grievous errors by some of the world’s leaders. In times such as these, this Board and this management team pledge a continuing focus on the underlying strength of this community bank. We recognize our obligations to our shareholders and our customers and our employees. It is our hope that the events which lie ahead will be favorable so that we may concentrate on growing the Company with increasing earnings, but we will always be alert for any increase in the challenges that have been so much a part of the last few years.

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,
	2011			2010			2009
	(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
Net income (loss)	$	6,537		$	1,282		$	(4,895	)
Diluted earnings (loss) per share		0.24			0.01			(0.29	)
Return on average assets		0.68	%		0.13	%		(0.51	)%
Return on average equity		5.90			1.19			(4.33	)

The Company reported net income of $6.5 million or $0.24 per diluted common share for 2011. This represents an increase of $5.3 million from the 2010 net income of $1.3 million or $0.01 per diluted common share. A significant and sustained improvement in asset quality was an important factor contributing to our financial success in 2011. Specifically, non-performing assets and classified loans again declined as a result of our successful problem credit resolution efforts allowing the Company to reverse a portion of the allowance for loan loss into earnings in 2011 while still increasing the non-performing assets coverage ratio. The Company’s

net interest income performance has been relatively stable throughout 2011. It decreased for the full year of 2011 by only $59,000, or 0.2%, when compared to the entire year of 2010. Non-interest income decreased by $398,000 or 2.8% largely due to an investment security loss of $358,000 realized in the first quarter of 2011 that resulted from a portfolio repositioning strategy. Continued focus on expense control helped contain the increase in non-interest expense to $340,000 or 0.9%. Income tax expense increased sharply by $2.8 million in 2011 due to the Company’s improved profitability. Finally, diluted earnings per share were again impacted by the $1.1 million dividend requirement on preferred stock and the $267,000 accelerated preferred stock discount accretion related to the repayment of the TARP Capital Purchase Program (TARP CPP) preferred stock which reduced the amount of net income available to common shareholders.

The Company reported net income of $1.3 million or $0.01 per diluted common share for 2010. This represented 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 impacted by the preferred dividend requirement on the TARP CPP preferred stock and accretion of discount on preferred stock, which amounted to $1.4 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,
	2011			2010			2009
	(IN THOUSANDS, EXCEPT RATIOS)
Interest income	$	41,964		$	44,831		$	47,455
Interest expense		9,681			12,489			15,021

Net interest income		32,283			32,342			32,434
Net interest margin		3.72	%		3.79	%		3.72	%

2011 NET INTEREST PERFORMANCE OVERVIEW… The Company’s net interest income performance has been relatively stable throughout 2011. For the full year of 2011, it decreased by only $59,000, or 0.2%, when compared to the entire year of 2010. The Company’s 2011 net interest margin averaged 3.72%, which was seven basis points lower than the 2010 net interest margin of 3.79%. Reduced loan balances were the primary factor causing the drop in both net interest income and net interest margin in 2011. Specifically, total loans averaged $663 million for the full year 2011, a decrease of $39 million or 5.5% from the 2010 year. The lower balances reflect the results of the Company’s focus on reducing its commercial real estate exposure and problem loans, particularly during the first half of 2011. However, total loan balances appear to have bottomed in the first quarter of 2011. Loans have increased by $26 million over the past three quarters reflecting the successful results of the Company’s more intensive sales calling efforts for commercial loans and growth in

home equity loans. The Company has strengthened its excellent liquidity position by reinvesting excess cash in high quality investment securities and short-term investments whose average balance increased by $42 million in 2011. Careful management of funding costs allowed the Company to mitigate a significant portion of the drop in interest revenue during the past twelve months. Specifically, interest expense for 2011 decreased by $2.8 million due to reduced deposit costs. This reduction in deposit costs has not negatively impacted deposit balances which have increased by $15 million or 1.9% since December 31, 2010. The Company is particularly pleased with the growth achieved in non-interest bearing demand deposits in 2011 whose balances on average increased by $12 million or 10.0%.

COMPONENT CHANGES IN NET INTEREST INCOME: 2011 VERSUS 2010 … Regarding the separate components of net interest income, the Company’s total interest income in 2011 decreased by $2.9 million when compared to 2010. This decrease was due to a 42 basis point decline in the earning asset yield from 5.26% to 4.84%, partially offset by additional interest income from a $2.8 million increase in average earning assets due to an increase in investment securities. Within the earning asset base, the yield on the total loan portfolio decreased by 19 basis points from 5.58% to 5.39% while the yield on total investment securities dropped by 39 basis points from 3.54% to 3.15%. Both of these yield declines reflect the impact of the lower interest rate environment that has now been in place for over 3 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 81.1% in 2011 compared to 87.3% in 2010. However, improved commercial loan pipelines and the opening of several new loan production offices suggest that the Company may be able to grow the loan portfolio in 2012 and increase the loan to deposit ratio. This loan growth will be needed to help maintain or grow net interest income as the Company is concerned that Federal Reserve interest rate policies will continue to flatten the yield curve and pressure net interest income and the interest margin in 2012.

The Company’s total interest expense for 2011 decreased by $2.8 million, or 22.5%, when compared to 2010. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 38 basis points to 1.37%. 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 also aided by a drop in interest expense associated with a $9.6 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $10.8 million, but was partially offset by a $1.2 million increase in interest bearing deposits. Additionally, the Company’s funding mix also benefited from a $12.3 million increase in non-interest bearing demand deposits. Overall, in 2011 the Company was able to further reduce its reliance on borrowings as a funding source as wholesale borrowings averaged only 1.1% of total assets. The Company also does not use brokered certificates of deposit as a funding source.

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 was 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 contributed to growth in money market accounts, certificates of deposit and demand deposits as consumers and businesses looked for safety in well capitalized community banks like AmeriServ Financial. Overall, total loans and loans held for sale declined by $45 million or 6.2% since December 31, 2009 as the Company successfully focused on reducing its commercial real estate exposure and non-performing assets during this period of economic weakness.

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 had 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 reflected the impact of the lower interest rate environment. New investment securities and loans that were booked typically had yields that were below the rate on the maturing instruments that they were 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 impacted 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 did not have any negative impact on deposit growth. 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 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 on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. 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,
	2011									2010									2009
	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	$	662,746		$	35,729			5.39	%	$	701,502		$	39,129			5.58	%	$	725,241		$	41,488			5.72	%
Deposits with banks		6,853			9			0.13			1,795			1			0.06			1,782			4			0.23
Federal funds sold		5,838			7			0.11			4,375			16			0.37			490			1			0.11
Short-term investment in money market funds		2,224			9			0.40			3,834			4			0.10			9,022			30			0.35
Investment securities:
Available for sale		187,863			5,837			3.11			151,691			5,281			3.48			131,804			5,340			4.05
Held to maturity		10,053			403			4.01			9,574			433			4.52			14,346			630			4.36

Total investment securities		197,916			6,240			3.15			161,265			5,714			3.54			146,150			5,970			4.08

TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME		875,577			41,994			4.84			872,771			44,864			5.26			882,685			47,493			5.44

Non-interest earning assets:
Cash and due from banks		15,893									15,297									14,498
Premises and equipment		10,513									10,212									9,213
Other assets		79,293									80,206									72,574
Allowance for loan losses		(17,771	)								(21,218	)								(13,382	)

TOTAL ASSETS	$	963,505								$	957,268								$	965,588

Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand	$	57,784		$	127			0.22	%	$	58,118		$	176			0.30	%	$	62,494		$	256			0.41	%
Savings		81,490			256			0.31			77,381			397			0.51			72,350			530			0.73
Money market		193,536			1,090			0.56			186,560			1,622			0.87			169,823			2,437			1.44
Other time		348,915			6,862			1.97			358,472			8,750			2.44			343,841			9,886			2.88
Total interest bearing deposits		681,725			8,335			1.22			680,531			10,945			1.61			648,508			13,109			2.02
Federal funds purchased and other short-term borrowings		1,216			6			0.37			3,119			22			0.71			21,028			140			0.67
Advances from Federal Home Loan Bank		9,769			220			2.26			18,694			402			2.15			43,934			652			1.48
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		705,795			9,681			1.37			715,429			12,489			1.75			726,555			15,021			2.07

Non-interest bearing liabilities:
Demand deposits		135,298									122,963									114,473
Other liabilities		11,699									11,188									11,428
Stockholders’ equity		110,713									107,688									113,132

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	963,505								$	957,268								$	965,588

Interest rate spread								3.47									3.51									3.37
Net interest income/net interest margin					32,313			3.72	%					32,375			3.79	%					32,472			3.72	%
Tax-equivalent adjustment					(30	)								(33	)								(38	)

Net interest income				$	32,283								$	32,342								$	32,434

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.


	2011 vs. 2010									2010 vs. 2009
	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	$	(2,104	)	$	(1,296	)	$	(3,400	)	$	(1,350	)	$	(1,009	)	$	(2,359	)
Deposits with banks		6			2			8			—			(3	)		(3	)
Federal funds sold		3			—			3			3			—			3
Short-term investments in money market funds		(15	)		8			(7	)		(16	)		2			(14	)
Investment securities:
Available for sale		1,003			(447	)		556			805			(864	)		(59	)
Held to maturity		24			(54	)		(30	)		(216	)		19			(197	)

Total investment securities		1,027			(501	)		526			589			(845	)		(256	)

Total interest income		(1,083	)		(1,787	)		(2,870	)		(774	)		(1,855	)		(2,629	)

INTEREST PAID ON:
Interest bearing demand deposits		(1	)		(48	)		(49	)		(17	)		(63	)		(80	)
Savings deposits		22			(163	)		(141	)		40			(173	)		(133	)
Money market		35			(567	)		(532	)		270			(1,085	)		(815	)
Other time deposits		(230	)		(1,658	)		(1,888	)		439			(1,575	)		(1,136	)
Federal funds purchased and other short-term borrowings		(9	)		(7	)		(16	)		(127	)		9			(118	)
Advances from Federal Home Loan Bank		(202	)		20			(182	)		(1,248	)		998			(250	)

Total interest expense		(385	)		(2,423	)		(2,808	)		(643	)		(1,889	)		(2,532	)

Change in net interest income	$	(698	)	$	636		$	(62	)	$	(131	)	$	34		$	(97	)

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,
	2011			2010			2009
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Total loans past due 30 to 89 days	$	3,319		$	2,791		$	11,408
Total non-accrual loans		5,075			12,289			17,116
Total non-performing assets including TDRs(1)		5,199			14,364			18,337
Loan delinquency as a percentage of total loans and loans held for sale, net of unearned income		0.49	%		0.41	%		1.58	%
Non-accrual loans as a percentage of total loans and loans held for sale, net of unearned income		0.76			1.81			2.37
Non-performing assets as a percentage of total loans and loans held for sale, net of unearned income, and other real estate owned		0.77			2.12			2.53
Non-performing assets as a percentage of total assets		0.53			1.51			1.89
Total classified loans (loans rated substandard or doubtful)	$	18,542		$	39,627		$	48,587

(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 significant asset quality improvements in both 2011 and 2010. These improvements are evidenced by lower levels of non-performing assets, classified loans and loan delinquency levels that remain well under 1% of total loans. Specifically, non-performing assets decreased by $9.2 million or 63.8% to $5.2 million or 0.77% of total loans due to effective loan work out efforts. Only $1.6 million of this decline in non-performing assets related to actual loan losses realized through net charge-offs. Classified loans also favorably dropped by $21.1 million or 53.2% due in part to the fourth quarter pay-off of a $9 million commercial loan relationship to a borrower in the restaurant industry. This relationship was the Company’s largest substandard credit. We continue to closely monitor the loan portfolio given the uncertainty in the economy and the number of relatively large-sized commercial and commercial real estate loans within the portfolio. As of December 31, 2011, the 25 largest credits represented 31.1% 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 following table sets forth changes in the allowance for loan losses and certain ratios for the periods ended.


	YEAR ENDED DECEMBER 31,
	2011			2010			2009			2008			2007
	(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
Balance at beginning of year	$	19,765		$	19,685		$	8,910		$	7,252		$	8,092
Charge-offs:
Commercial		(953	)		(835	)		(3,810	)		(405	)		(934	)
Commercial loans secured by real estate		(1,700	)		(4,221	)		(840	)		(811	)		(12	)
Real estate-mortgage		(85	)		(293	)		(128	)		(132	)		(79	)
Consumer		(203	)		(282	)		(352	)		(365	)		(307	)

Total charge-offs		(2,941	)		(5,631	)		(5,130	)		(1,713	)		(1,332	)

Recoveries:
Commercial		831			226			601			299			40
Commercial loans secured by real estate		331			48			14			39			38
Real estate-mortgage		53			42			27			26			12
Consumer		159			145			113			82			102

Total recoveries		1,374			461			755			446			192

Net charge-offs		(1,567	)		(5,170	)		(4,375	)		(1,267	)		(1,140	)
Provision (credit) for loan losses		(3,575	)		5,250			15,150			2,925			300

Balance at end of year	$	14,623		$	19,765		$	19,685		$	8,910		$	7,252

Loans and loans held for sale, net of unearned income:
Average for the year	$	662,746		$	701,502		$	725,241		$	644,896		$	610,685
At December 31		670,847			678,181			722,904			707,108			636,155
As a percent of average loans and loans held for sale:
Net charge-offs		0.24	%		0.74	%		0.60	%		0.20	%		0.19	%
Provision (credit) for loan losses		(0.54	)		0.75			2.09			0.45			0.05
Allowance as a percent of each of the following:
Total loans and loans held for sale, net of unearned income		2.18			2.91			2.72			1.26			1.14
Total delinquent loans (past due 30 to 89 days)		440.58			708.17			172.55			202.68			203.77
Total non-accrual loans		288.14			160.83			115.01			263.84			138.45
Total non-performing assets		281.27			137.60			107.35			194.88			137.35
Allowance as a multiple of net charge-offs		9.33	x		3.82	x		4.50	x		7.03	x		6.36	x

The previously discussed improvements in asset quality evidenced by lower levels of non-performing assets and classified loans allowed the Company to reverse a portion of the allowance for loan losses into earnings in 2011 while still increasing the non-performing assets coverage ratio. As a result of this asset quality improvement, the Company recorded a negative provision for loan losses of $3.6 million in 2011 compared to a $5.3 million provision in 2010. We actively identify and seek prompt resolution to problem credits in order to limit actual losses. For the full year 2011, net charge-offs totaled $1.6 million or 0.24% of total loans which represents a decrease from the entire year of 2010 when net charge-offs totaled $5.2 million or 0.74% of total loans. In summary, the allowance for loan losses provided 281% coverage of non-performing assets and was 2.18% of total loans at December 31, 2011, compared to 138% of non-performing assets and 2.91% of total loans at December 31, 2010.

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 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. Actual credit losses realized through charge-offs in 2010 approximated the provision levels, but were 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 related to two non-performing commercial real-estate loans, one of which was completely resolved in the first quarter of 2010 ($1.2 million charge-off) and the second of which related 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.

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,
	2011					2010					2009					2008					2007
	AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS			AMOUNT		PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS
	(IN THOUSANDS, EXCEPT PERCENTAGES)
Commercial	$	2,365		12.5	%	$	3,851		11.5	%	$	4,756		13.3	%	$	2,841		15.6	%	$	2,074		18.7	%
Commercial loans secured by real estate		9,400		52.8			12,717		54.6			12,692		54.9			4,467		50.0			3,632		44.8
Real estate-mortgage		1,270		32.0			1,117		31.1			1,015		29.2			1,004		31.1			979		33.9
Consumer		174		2.7			206		2.8			204		2.6			246		3.3			172		2.6
Allocation to general risk		1,414		—			1,874		—			1,018		—			352		—			395		—

Total	$	14,623		100.0	%	$	19,765		100.0	%	$	19,685		100.0	%	$	8,910		100.0	%	$	7,252		100.0	%

Even though residential real estate-mortgage loans comprise 32.0% of the Company’s total loan portfolio, only $1.3 million or 8.7% 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 three-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, 2011 to cover losses within the Company’s loan portfolio.

NON-INTEREST INCOME … Non-interest income for 2011 totalled $13.6 million, a decrease of $398,000, or 2.8%, from 2010. Factors contributing to this lower level of non-interest income in 2011 included:

•

a $358,000 loss realized on the sale of $17 million of investment securities in the first quarter of 2011 compared to a net security gain of $157,000 in 2010. The Company took advantage of a steeper yield curve earlier in the year to position the investment portfolio for better future earnings by selling some of the lower yielding, longer duration securities in the portfolio and replacing them with higher yielding securities with a shorter duration.

•

a $342,000, or 27.9%, decrease in revenue from bank owned life insurance as the prior year revenue was enhanced by the receipt of a death benefit. There were no claims within the BOLI program in 2011.

•

a $643,000, or 10.2%, increase in trust and investment advisory fees as our wealth management businesses benefitted from the implementation of new fee schedules in 2011.

•

a $146,000, or 15.2%, decrease in gains realized on residential mortgage loan sales into the secondary market due to a reduced level of mortgage refinancing in 2011. However, by historical standards 2011 was still a good year for residential mortgage purchase and refinance activity in the Company’s primary market area as there were $83 million of new loans originated with $60 million or 72% sold into the secondary market in order to help manage long term interest rate risk.

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 maintained higher balances in their checking accounts, which resulted in fewer overdraft fees in 2010. Additionally, regulatory changes which took effect in mid-August 2010 and were 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.

•

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 EXPENSE … Non-interest expense for 2011 totalled $40.0 million, a $340,000, or 0.9%, increase from 2010. Factors contributing to the higher non-interest expense in 2011 included:

•

a $1.0 million, or 4.7%, increase in salaries and employee benefits expense was due to higher medical insurance costs, increased pension expense, and greater incentive compensation expense in 2011. These costs more than offset the benefit of five fewer full time equivalent employees in 2011.

•

a $488,000, or 11.2%, decrease in professional fees was due to reduced legal fees, recruitment fees, and lower consulting expenses in the Trust Company.

•

a $269,000 decrease in other expense was due to a reduction in costs associated with the reserve for unfunded loan commitments and lower telephone expense resulting from the implementation of technology enhancements.

•

a $240,000 prepayment penalty was realized on the early retirement of $5.7 million of FHLB term advances during the fourth quarter of 2011. We elected to utilize our strong liquidity to prepay all FHLB term advances with maturities greater than two years in order to reduce future interest expense.

•

a $237,000, or 15.1%, decrease in FDIC insurance expense was due to a change in the calculation methodology in 2011.

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 was due to higher medical insurance costs, increased pension expense, and greater incentive compensation expense reflecting increased commission payments related to the residential mortgage activity.

•

a $613,000 decrease in other expense primarily was 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 was due to increased consulting expenses and recruitment costs in the Trust Company and higher legal fees and loan workout costs at the Bank.

INCOME TAX EXPENSE … The Company recorded income tax expense of $2.9 million or 30.4% effective tax rate in 2011 compared to income tax expense of $80,000 or an effective tax rate of 5.9% in 2010. The income tax benefit recorded in 2009 was $3.1 million. The Company recorded increased income tax expense in 2011 due to sharply higher pre-tax earnings and reduced tax free earnings from BOLI. BOLI is the Company’s largest source of tax-free income. The Company’s deferred tax asset was $12.7 million at December 31, 2011 and relates primarily to net operating loss carryforwards and the allowance for loan losses. The deferred tax asset declined by $3.4 million in 2011 primarily due to the utilization of net operating loss carryforwards.

SEGMENT RESULTS … Retail banking’s net income contribution was $2.1 million in 2011 compared to $1.3 million in 2010 and $948,000 in 2009. The increased net income in 2011 was due to increased net interest income resulting from a combination of increased deposit balances and lower deposit costs. Net income also benefitted from a $263,000 negative provision for loan losses and a $436,000 reduction in non-interest expense due to reduced staffing within the branch network and lower FDIC insurance expense. Non-interest income was lower between years as decreased gains on residential mortgage loan sales into the secondary market were compounded by lower BOLI income. The increased net income in 2010 was due to increased net interest income resulting from a combination of increased asset 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 commercial lending segment reported net income of $6.9 million in 2011 compared to net income of $497,000 in 2010 and net loss of $6.4 million in 2009. The increased earnings in 2011 were caused primarily by an $8.3 million reduction in the provision for loan losses due to the previously discussed improvements in asset quality. Net interest income also benefited from funding charges decreasing at a faster rate than certain commercial real estate loan yields. The increased earnings in 2010 were also due to a reduced provision for loan losses resulting from asset quality improvements.

The trust segment’s net income contribution was $795,000 in 2011 compared to $222,000 in 2010 and $148,000 in 2009. The increase in net income reflected higher non-interest revenue as our wealth management businesses benefitted from the implementation of new fee schedules in 2011. Also, the rate of non-interest expense growth was limited to 1.7% in 2011. The increase in net income in 2010 resulted from a decline in expenses particularly within our investment advisory subsidiary as non-interest revenue was relatively constant between years. Overall, the fair market value of trust assets totaled $1.383 billion at December 31, 2011, a modest increase of $15.8 million, or 1.2%, from the December 31, 2010 total of $1.367 billion.

The investment/parent segment reported a net loss of $3.3 million in 2011 compared to net loss of $699,000 in 2010 and net income of $379,000 in 2009. The weaker performance in 2011 reflects the previously mentioned $358,000 loss realized on the sale of $17 million of investment securities to position the portfolio for better future earnings. Non-interest expense in 2011 also included a $240,000 prepayment penalty realized on the early retirement of $5.7 million of FHLB term advances as we elected to utilize our strong liquidity to prepay all FHLB term advances with maturities greater than two years in order to reduce future interest expense. Also, declining yields in the investment securities portfolio have negatively impacted this segment in both 2011 and 2010.

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 of $979 million at December 31, 2011 grew by $30 million or 3.2% from the $949 million level at December 31, 2010. This increase was due to higher investment security balances as this line item increased by $22.6 million reflecting the Company’s strong liquidity position and the reinvestment of net loan pay-offs into this category. The Company’s loans and loan held for sale decreased by $7.3 million or 1.1% from year-end 2010 as the Company focused on reducing its commercial real-estate loan concentration in the first half of 2011. Cash and cash equivalents also grew by $15.4 million as funds from a buildup in demand deposits have predominantly been invested in short-term instruments.

The Company’s deposits totaled $816 million at December 31, 2011, which was $15.2 million or 1.9% higher than December 31, 2010, due to an increase in non-interest demand deposits. We believe that uncertainties in the financial markets and the economy have contributed to a third consecutive year of growth in our deposits as consumers have looked for safety in well capitalized community banks like AmeriServ Financial Bank. Total stockholders’ equity has increased by $5.3 million since year-end 2010 mainly due to the Company’s improved profitability, net of preferred stock dividend payments and common share repurchases in 2011. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 17.60% and an asset leverage ratio of 11.66% at December 31, 2011. The Company’s book value per common share was $4.37, its tangible book value per common share was $3.76, and its tangible common equity to tangible assets ratio was 8.15% at December 31, 2011.

LIQUIDITY … The Company’s liquidity position has been strong during the last several years. Our core retail deposit base has grown over the past three 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), paydown borrowings (2010) or reinvested back into the investment securities portfolio (2011). We strive to operate our loan to deposit ratio in a range of 85% to 95%. At December 31, 2011, the Company’s loan to deposit ratio was 82.2%. We are hopeful that we can increase the loan to deposit ratio in 2011 given improved commercial loan pipelines, the opening of several new loan production offices, and our focus on small business lending given our goal of reducing the cost of the SBLF preferred stock.

Liquidity can also be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents increased by $15.4 million from December 31, 2010, to December 31, 2011, due to $18.7 million of cash provided by financing activities and $10.8 million of cash provided by operations. This was partially offset by $14.1 million of cash used in investing activities. Within investing activities, cash used for new investment security purchases exceeded maturities and sales by $20.0 million. Cash advanced for new loan fundings and purchases totalled $156.8 million and was $5.5 million lower than the $162.4 million of cash received from loan principal payments and sales. Within financing activities, deposits increased by $13.7 million, which was used to help pay down FHLB term advances with maturities beyond two years by $5.8 million and provide cash for short-term investments.

The holding company had a total of $15.8 million of cash, short-term investments, and securities at December 31, 2011, which was down $929,000 from the year-end 2010 total. Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the holding company. At December 31, 2011, our subsidiary bank had $3.3 million of cash available for immediate dividends to the holding company under the applicable regulatory formulas. As such, the holding company has strong liquidity 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 $30 million at December 31, 2011 and $29 million at December 31, 2010. 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, 2011, the Company had $274 million of overnight borrowing availability at the FHLB, $38 million of short-term borrowing availability at the Federal Reserve Bank and $39 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 … On August 11, 2011, the Company received $21 million from the Small Business Lending Fund (SBLF). The SBLF is a voluntary program sponsored by the US Treasury that encourages small business lending by providing capital to qualified community banks at favorable rates. The initial interest rate on the SBLF funds will be 5% and may be decreased to as low as 1% if growth thresholds are met for outstanding small business loans. The Company used the SBLF proceeds to repurchase $21 million of outstanding preferred shares issued under TARP CPP. We also repurchased from the US Treasury the stock purchase warrant associated with the TARP CPP for $825,000 on November 2, 2011.

The Company meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The asset leverage ratio was 11.66% and the risk based capital ratio was 17.60% at December 31, 2011. The Company’s tangible common equity to tangible assets ratio was 8.15% at December 31, 2011. We anticipate that we will maintain our strong capital ratios during the full year of 2012. Capital generated from earnings will be utilized to pay the SBLF preferred dividend and continue the common stock buyback program under which we can buyback up to 1,060,000 shares or 5% of our outstanding common stock. During the fourth quarter of 2011, we repurchased 287,000 shares of our common stock at a total cost of $582,000 or an average price of $2.03 per share.

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, 2011:

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

229,164

75,098

83,207

283,378

670,847

Investment securities

26,003

12,742

31,233

125,225

195,203

Short-term assets

7,845

—

7,845

Regulatory stock

5,891

—

2,125

8,016

Bank owned life insurance

—

35,351

—

35,351

Total rate sensitive assets

268,903

87,840

149,791

410,728

917,262

RATE SENSITIVE LIABILITIES:

Deposits:

Non-interest bearing deposits

—

141,982

NOW

4,838

—

57,730

62,568

Money market

162,908

—

32,502

195,410

Other savings

20,725

—

62,174

82,899

Certificates of deposit of $100,000 or more

6,453

24,384

5,517

7,408

43,762

Other time deposits

73,814

26,782

44,251

144,952

289,799

Total deposits

268,738

51,166

49,768

446,748

816,420

Borrowings

16,765

2,000

3,000

13,085

34,850

Total rate sensitive liabilities

285,503

53,166

52,768

459,833

851,270

INTEREST SENSITIVITY GAP:

Interval

(16,600

)

34,674

97,023

(49,105

)

—

Cumulative

(16,600

)

18,074

115,097

65,992

Period GAP ratio

0.94X

1.65X

2.84X

0.89X

Cumulative GAP ratio

0.94

1.05

1.29

1.08

Ratio of cumulative GAP to total assets

(1.70

1.85

11.76

6.74

When December 31, 2011 is compared to December 31, 2010, there has been limited change in the Company’s modestly positive cumulative GAP ratio through one year. This reflects the expected continued strong cash flow from short duration mortgage backed securities and ongoing loan pay-offs. The absolute low level of interest rates makes this table more difficult to analyze since there is little room for certain deposit 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		5.6	%		22.6	%
100 bp increase		4.3			15.2
100 bp decrease		(7.4	)		(17.9	)

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 due to the Company’s short duration investment securities portfolio and scheduled repricing of 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, 2011, 94% of the portfolio is classified as available for sale and 6% 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 five securities that are temporarily impaired at December 31, 2011. The Company reviews its securities quarterly and has asserted that at December 31, 2011, 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 sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year 2011, 72% of all residential mortgage loan production was sold into the secondary market.

The amount of loans outstanding by category as of December 31, 2011, 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

32,606

37,287

13,676

83,569

Commercial loans secured by real estate

83,630

142,436

123,712

349,778

Real estate-mortgage

93,038

79,418

47,317

219,773

Consumer

2,608

7,366

8,205

18,179

Total

211,882

266,507

192,910

671,299

Loans with fixed-rate

138,672

154,327

72,525

365,524

Loans with floating-rate

73,210

112,180

120,385

305,775

Total

211,882

266,507

192,910

671,299

Percent composition of maturity

31.6

39.7

28.7

100.0

Fixed-rate loans as a percentage of total loans

54.5

Floating-rate loans as a percentage of total loans

45.5

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, 2011, 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		8	$	482,859	$	—	$	—	$	—	$	482,859
Certificates of deposit*		8		184,807		94,623		25,958		46,212		351,600
Borrowed funds*		10		21,924		—		—		—		21,924
Guaranteed junior subordinated deferrable interest debentures		10		—		—		—		28,841		28,841
Pension obligation		14		1,500		—		—		—		1,500
Lease commitments		15		842		1,617		730		1,975		5,164

*	Includes interest based upon interest rates in effect at December 31, 2011. 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 $124.8 million and standby letters of credit of $11.0 million as of December 31, 2011. 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, 2011, 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 $11.8 million, or 80%, of the total allowance for loan losses at December 31, 2011 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and TDR loans, 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. We did reduce the goodwill allocated to West Chester Capital Advisors (WCCA) by $337,000 in the first quarter of 2011. This reduction resulted from a purchase price adjustment as the principal 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, 2011, all core deposit intangibles for the Company had been fully amortized.

As of December 31, 2011, 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, 2011, 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, 2011, 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 and focus on further growing revenues by leveraging our strong capital base and infrastructure. 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 particularly on increasing loans through the opening of several loan production offices. There will be a particular focus on small business commercial lending so that we can reduce the interest rate paid on our SBLF preferred stock. 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, are subject to risk and uncertainties and are applicable only as of the dates of such statements. Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Form 10-K, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Form 10-K. 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,
	2011			2010
	(IN THOUSANDS)
ASSETS
Cash and due from depository institutions	$	26,938		$	14,160
Interest bearing deposits		1,716			1,716
Short-term investments in money market funds		6,129			3,461

Cash and cash equivalents		34,783			19,337

Investment securities:
Available for sale		182,923			164,811
Held to maturity (fair value $12,914 at December 31, 2011 and $8,267 at December 31, 2010)		12,280			7,824
Loans held for sale		7,110			7,405
Loans		664,189			671,253
Less: Unearned income		452			477
Allowance for loan losses		14,623			19,765

Net loans		649,114			651,011

Premises and equipment, net		10,674			10,485
Accrued income receivable		3,216			3,210
Goodwill		12,613			12,950
Bank owned life insurance		35,351			34,466
Net deferred tax asset		12,681			16,058
Federal Home Loan Bank stock		5,891			7,233
Federal Reserve Bank stock		2,125			2,125
Prepaid federal deposit insurance		1,814			3,073
Other assets		8,501			8,986

TOTAL ASSETS	$	979,076		$	948,974

LIABILITIES
Non-interest bearing deposits	$	141,982		$	127,870
Interest bearing deposits		674,438			673,346

Total deposits		816,420			801,216

Short-term borrowings		15,765			4,550
Advances from Federal Home Loan Bank		6,000			9,750
Guaranteed junior subordinated deferrable interest debentures		13,085			13,085

Total borrowed funds		34,850			27,385

Other liabilities		15,454			13,315

TOTAL LIABILITIES		866,724			841,916

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, 2011 and 2010		21,000			20,669
Common stock, par value $0.01 per share; 30,000,000 shares authorized: 26,397,040 shares issued and 20,921,021 shares outstanding on December 31, 2011; 26,396,289 shares issued and 21,207,670 shares outstanding on December 31, 2010		264			264
Treasury stock at cost, 5,476,019 shares on December 31, 2011 and 5,188,619 shares on December 31, 2010		(69,241	)		(68,659	)
Capital surplus		145,061			145,045
Retained earnings		18,928			14,601
Accumulated other comprehensive loss, net		(3,660	)		(4,862	)

TOTAL STOCKHOLDERS’ EQUITY		112,352			107,058

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	979,076		$	948,974

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	YEAR ENDED DECEMBER 31,
	2011			2010		2009
	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans:
Taxable	$	35,630		$	39,020	$	41,359
Tax exempt		69			76		91
Interest bearing deposits		9			1		4
Short-term investments in money market funds		9			16		30
Federal funds sold		7			4		1
Investment securities:
Available for sale		5,837			5,281		5,340
Held to maturity		403			433		630

Total Interest Income		41,964			44,831		47,455

INTEREST EXPENSE
Deposits		8,335			10,945		13,109
Federal funds purchased		0			0		7
Short-term borrowings		6			22		133
Advances from Federal Home Loan Bank		220			402		652
Guaranteed junior subordinated deferrable interest debentures		1,120			1,120		1,120

Total Interest Expense		9,681			12,489		15,021

Net Interest Income		32,283			32,342		32,434
Provision (credit) for loan losses		(3,575	)		5,250		15,150

Net Interest Income after Provision (Credit) for Loan Losses		35,858			27,092		17,284

NON-INTEREST INCOME
Trust fees		6,173			5,571		5,648
Investment advisory fees		754			713		648
Net gains on loans held for sale		812			958		651
Net realized gains (losses) on investment securities		(358	)		157		164
Service charges on deposit accounts		2,241			2,284		2,769
Bank owned life insurance		885			1,227		1,208
Other income		3,062			3,057		2,840

Total Non-Interest Income		13,569			13,967		13,928

NON-INTEREST EXPENSE
Salaries and employee benefits		22,616			21,602		20,526
Net occupancy expense		2,900			2,691		2,632
Equipment expense		1,686			1,680		1,692
Professional fees		3,875			4,363		4,032
Supplies, postage, and freight		886			997		1,117
Miscellaneous taxes and insurance		1,372			1,396		1,374
Federal deposit insurance expense		1,338			1,575		1,670
Amortization of core deposit intangibles		0			0		108
Federal Home Loan Bank prepayment penalties		240			0		0
Other expense		5,124			5,393		6,006

Total Non-Interest Expense		40,037			39,697		39,157

PRETAX INCOME (LOSS)		9,390			1,362		(7,945	)
Provision for income taxes (benefit)		2,853			80		(3,050	)

NET INCOME (LOSS)		6,537			1,282		(4,895	)
Preferred stock dividends and accretion of preferred stock discount		1,385			1,161		1,158

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	5,152		$	121	$	(6,053	)

(continued on next page)

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)


	YEAR ENDED DECEMBER 31,
	2011		2010		2009
	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA:
Basic:
Net income (loss)	$	0.24	$	0.01	$	(0.29	)
Average number of shares outstanding		21,184		21,224		21,172
Diluted:
Net income (loss)	$	0.24	$	0.01	$	(0.29	)
Average number of shares outstanding		21,205		21,226		21,174
Cash dividends declared	$	0.00	$	0.00	$	0.00

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(IN THOUSANDS)
COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	6,537		$	1,282		$	(4,895	)
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan		(1,803	)		(1,031	)		(1,093	)
Income tax effect		613			352			372
Unrealized holding gains on available for sale securities arising during period		3,266			446			1,018
Income tax effect		(1,110	)		(152	)		(346	)
Reclassification adjustment for losses (gains) on available for sale securities included in net income (loss)		358			(157	)		(164	)
Income tax effect		(122	)		53			56

Other comprehensive income (loss)		1,202			(489	)		(157	)

Comprehensive income (loss)	$	7,739		$	793		$	(5,052	)

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	YEAR ENDED DECEMBER 31,
	2011			2010			2009
	(IN THOUSANDS)
PREFERRED STOCK
Balance at beginning of period	$	20,669		$	20,558		$	20,447
Accretion of preferred stock discount		331			111			111

Balance at end of period		21,000			20,669			20,558

COMMON STOCK
Balance at beginning of period		264			264			65,794
New shares issued for dividend reinvestment plan		0			0			51
Change in par value (from $2.50 per share to $0.01 per share)		0			0			(65,582	)
Restricted stock		0			0			1

Balance at end of period		264			264			264

TREASURY STOCK
Balance at beginning of period		(68,659	)		(68,659	)		(68,659	)
Treasury stock, purchased at cost (287,400 shares)		(582	)		0			0

Balance at end of period		(69,241	)		(68,659	)		(68,659	)

CAPITAL SURPLUS
Balance at beginning of period		145,045			144,984			79,353
New common shares issued for dividend reinvestment plan		1			3			22
Stock option expense		15			18			11
Change in par value (from $2.50 per share to $0.01 per share)		0			0			65,582
Restricted stock		0			40			16

Balance at end of period		145,061			145,045			144,984

RETAINED EARNINGS
Balance at beginning of period		14,601			14,480			20,533
Net income (loss)		6,537			1,282			(4,895	)
Warrant repurchase (1,312,500 shares)		(825	)		0			0
Accretion of preferred stock discount		(331	)		(111	)		(111	)
Cash dividend declared on preferred stock		(1,054	)		(1,050	)		(1,047	)

Balance at end of period		18,928			14,601			14,480

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of period		(4,862	)		(4,373	)		(4,216	)
Other comprehensive income (loss)		1,202			(489	)		(157	)

Balance at end of period		(3,660	)		(4,862	)		(4,373	)

TOTAL STOCKHOLDERS’ EQUITY	$	112,352		$	107,058		$	107,254

See accompanying notes to consolidated financial statements.

AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	YEAR ENDED DECEMBER 31
	2011			2010			2009
	(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)	$	6,537		$	1,282		$	(4,895	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision (credit) for loan losses		(3,575	)		5,250			15,150
Depreciation and amortization expense		1,477			1,496			1,586
Amortization expense of core deposit intangibles		0			0			108
Net amortization of investment securities		736			467			231
Net realized losses (gains) on investment securities — available for sale		358			(157	)		(164	)
Net gains on loans held for sale		(812	)		(958	)		(651	)
Amortization of deferred loan fees		(231	)		(407	)		(456	)
Origination of mortgage loans held for sale		(58,640	)		(71,643	)		(67,775	)
Sales of mortgage loans held for sale		59,747			68,986			65,636
Decrease (increase) in accrued interest receivable		(6	)		379			146
Increase (decrease) in accrued interest payable		(1,018	)		(595	)		74
Earnings on bank-owned life insurance		(885	)		(1,032	)		(1,021	)
Deferred income taxes		2,758			(126	)		(3,274	)
Stock compensation expense		15			61			73
Decrease (increase) in prepaid Federal Deposit Insurance		1,259			1,465			(4,538	)
Net increase in other assets		(87	)		(2,522	)		(2,922	)
Net increase in other liabilities		3,161			784			1,085

Net cash provided by (used in) operating activities		10,794			2,730			(1,607	)

INVESTING ACTIVITIES
Purchase of investment securities — available for sale		(85,352	)		(97,789	)		(55,171	)
Purchase of investment securities — held to maturity		(6,576	)		(1,123	)		0
Proceeds from maturities of investment securities — available for sale		53,240			61,483			46,778
Proceeds from maturities of investment securities — held to maturity		2,125			4,914			4,225
Proceeds from sales of investment securities — available for sale		16,518			2,742			4,746
Proceeds from redemption of regulatory stock		1,342			381			0
Long-term loans originated		(147,864	)		(82,922	)		(132,551	)
Principal collected on long-term loans		161,356			129,655			128,554
Loans purchased or participated		(8,500	)		(3,845	)		(25,343	)
Loans sold or participated		1,000			0			12,950
Net (increase) decrease in other short-term loans		(443	)		(134	)		116
Purchases of premises and equipment		(1,666	)		(2,762	)		(1,294	)
Sale of other real estate owned		743			1,300			2,874
Proceeds from insurance policies		0			451			452

Net cash (used in) provided by investing activities		(14,074	)		12,351			(13,664	)

FINANCING ACTIVITIES
Net increase in deposit balances		13,722			16,277			89,606
Net increase (decrease) in other short-term borrowings		11,215			(21,225	)		(94,145	)
Principal borrowings on advances from Federal Home Loan Bank		2,000			34,000			350,000
Principal repayments on advances from Federal Home Loan Bank		(5,750	)