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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 (Mark One)

X

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the period ended                         June 30, 2002                           

          Transaction Report Pursuant to Section 13 or 15(d) of    

the Securities Exchange Act of 1934

For the transaction 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                            (I.R.S. Employer Identification No.)

 or organization)                                                                  

Main & Franklin Streets, P.O. Box 430, Johnstown, PA   15907-0430

(Address of principal executive offices)                                                               (Zip Code)

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

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.

                    X     Yes    

       No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

               Class                           

      Outstanding at August 1, 2002    

Common Stock, par value $2.50

          13,793,625    

per share                         

#

AmeriServ Financial, Inc.

INDEX

Service area map

AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEET

(In thousands)

See accompanying notes to consolidated financial statements.

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENT OF INCOME

   (In thousands, except per share data)                           

    Unaudited

CONTINUED ON NEXT PAGE

CONSOLIDATED STATEMENT OF INCOME

CONTINUED FROM PREVIOUS PAGE

(In thousands, except per share data)                           

 Unaudited

See accompanying notes to consolidated financial statements.

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

Unaudited

See accompanying notes to consolidated financial statements.

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

Unaudited

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Principles of Consolidation

On April 24, 2001, USBANCORP, Inc. announced that it has changed its name effective May 7, 2001, to AmeriServ Financial, Inc. The consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (Bank), AmeriServ Trust and Financial Services Company (Trust Company), AmeriServ Associates, Inc., (AmeriServ Associates) and AmeriServ Life Insurance Company (AmeriServ Life).  The Bank is a state-chartered full service bank with 24 locations in Pennsylvania.  The Trust Company offers a complete range of trust and financial services and has $1.2 billion in assets under management.  The Trust Company also offers the ERECT and BUILD Funds which are collective investment funds for trade union controlled pension fund assets.  In the fourth quarter of 2001, Standard Mortgage Corporation of Georgia (SMC) was sold by the Company to the Bank.  SMC is a mortgage banking company whose business includes the servicing of mortgage loans.  AmeriServ Associates, based in State College, is a registered investment advisory firm that provides investment portfolio and asset/liability management services to small and mid-sized financial institutions.  AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.

In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.  

2.   Basis of Preparation

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information. In the opinion of management, all adjustments that are of a normal recurring nature and are considered necessary for a fair presentation have been included.  They are not, however, necessarily indicative of the results of consolidated operations for a full-year.

For further information, refer to the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

3.    Earnings Per Common Share

Basic earnings per share include only the weighted average common shares outstanding.  Diluted earnings per share include the weighted average common shares outstanding and dilutive common stock equivalent shares. Treasury shares are treated as retired for earnings per share purposes.  Options to purchase 459,967 and 492,429 shares of common stock were outstanding during the first six months of 2002 and 2001, respectively, but were not included in the computation of diluted earnings per common share as the options’ exercise prices were greater than the average market price of the common stock for the respective periods.   

4.   Comprehensive Income

For the Company, comprehensive income primarily includes net income and unrealized holding gains and losses from available for sale investment securities and derivatives that qualify as cashflow hedges.  The changes in other comprehensive income are reported net of income taxes, as follows (in thousands):

                                             Three Months Ended                      Six Months Ended

    June 30,

                                 June 30,

5.   Consolidated Statement of Cash Flows

On a consolidated basis, cash equivalents include cash and due from banks, interest-bearing deposits with banks, and federal funds sold and securities purchased under agreements to resell.  For the Parent Company, cash equivalents also include short-term investments.  The Company made $573,000 in income tax payments in the first six months of 2002 as compared to $5,000 for the first six months of 2001.  Total interest expense paid amounted to $22,236,000 in 2002's first six months compared to $29,076,000 in the same 2001 period.

6.   Investment Securities

Securities classified as available for sale include securities  which may be sold to effectively manage interest rate risk exposure, prepayment risk, and other factors (such as liquidity requirements).  These available for sale securities are reported at fair value with unrealized aggregate appreciation/(depreciation) excluded from income and credited/(charged) to accumulated other comprehensive income within stockholders' equity on a net of tax basis. The mark-to-market of the available for sale portfolio does inject more volatility in the book value of equity, but has no impact on regulatory capital.  Realized gain or loss on securities sold is computed upon the adjusted cost of the specific securities sold.  

The cost basis and market values of investment securities are summarized as follows (in thousands):

Investment securities available for sale:                          

June 30, 2002

·Other investment securities include corporate notes and bonds, asset-backed securities, and equity

  securities.

Maintaining investment quality is a primary objective of the Company's investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody's Investor's Service or Standard & Poor's rating of "A."  At June 30, 2002, 94.1% of the portfolio was rated "AAA" compared to 96.4% at June 30, 2001. Approximately  5.0% of the portfolio was rated below "A" or unrated on June 30, 2002.

7.

Loans Held for Sale

At June 30, 2002, $2,977,000 of newly originated fixed-rate residential mortgage loans were classified as "held for sale."  It is management's intent to sell these residential mortgage loans during the next several months.  The residential mortgage loans held for sale are carried at the lower of aggregate cost or market value.  Net realized and unrealized gains and losses are included in "Net gains (losses) on loans held for sale"; unrealized net valuation adjustments (if any) are recorded in the same line item on the Consolidated Statement of Income.  

8.

Loans

The loan portfolio of the Company consists of the following (in thousands):

Real estate-construction loans comprised 8.4% of total loans net of unearned income at June 30, 2002.  The Company has no direct credit exposure to foreign countries.

9.

Allowance for Loan Losses and Charge-Off Procedures

As a financial institution which assumes lending and credit risks as a principal element of its business, the Company anticipates that credit losses will be experienced in the normal course of business.  Accordingly, the Company consistently applies a comprehensive methodology and procedural discipline to perform an analysis which is updated on a quarterly basis at the Bank level to determine both the adequacy of the allowance for loan losses and the necessary provision for loan losses to be charged against earnings. This methodology includes:

a detailed review of all criticized and impaired loans to determine if any specific reserve allocations are required on an individual loan basis.  The specific reserve established for these criticized and impaired loans is based on careful analysis of the loan's performance, the related collateral value, cash flow considerations and the financial capability of any guarantor.

the application of formula driven reserve allocations for all commercial and commercial real-estate loans are calculated by using a three-year migration analysis of net losses incurred within each risk grade for the entire commercial loan portfolio.  The difference between estimated and actual losses is reconciled through the dynamic nature of the migration analysis.

the application of formula driven reserve allocations to consumer and mortgage loans which are based upon historical charge-off experience for those loan types. The residential mortgage loan allocation is based upon the Company's five-year historical average of actual loan charge-offs experienced in that category. The same methodology is used to determine the allocation for consumer loans except the allocation is based upon an average of the most recent actual three-year historical charge-off experience for consumer loans.

the application of formula driven reserve allocations to all outstanding loans and certain unfunded commitments is based upon review of historical losses and qualitative factors, which include but are not limited to, economic trends, delinquencies, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy exceptions.

the maintenance of a general unallocated reserve to accommodate inherent risk in the Company’s portfolio that is not identified through the Company’s specific loan and portfolio segment reviews discussed above.  Management recognizes that there may be events or economic factors that have occurred affecting specific borrowers or segments of borrowers that may not yet be fully reflected in the information that the Company uses for arriving at reserves for a specific loan or portfolio segment. Therefore, the Company and its Board of Directors believe a general unallocated reserve is needed to recognize the estimation risk associated with the specific and formula driven allowances.  In conjunction with the establishment of the general unallocated reserve, the Company also looks at the total allowance for loan losses in relation to the size of the total loan portfolio, the level of non-performing assets and its coverage of these items as compared to peer banks.

After completion of this process, a formal meeting of the Loan Loss Reserve Committee is held to evaluate the adequacy of the reserve.  The Company believes that the procedural discipline, systematic methodology, and comprehensive documentation of this quarterly process is in full compliance with all regulatory requirements and provides appropriate support for accounting purposes.

When it is determined that the prospects for recovery of the principal of a loan have significantly diminished, the loan is immediately charged against the allowance account; subsequent recoveries, if any, are credited to the allowance account. In addition, non-accrual and large delinquent loans are reviewed monthly to determine potential losses. Consumer loans are considered losses when they are 90 days past due, except loans that are insured for credit loss.

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 loans with balances in excess of $500,000 within a 12-month period.  The Company has also identified two pools of small dollar value homogeneous loans which are evaluated collectively for impairment.  These separate pools are for 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.

An analysis of the changes in the allowance for loan losses follows (in thousands, except ratios):

(For additional information, refer to the "Provision for Loan Losses" and "Loan Quality" sections in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations on pages 26 and 34, respectively.)

10.

Components of Allowance for Loan Losses

For impaired loans, the measurement of impairment may be based upon:  1) the present value of expected future cash flows discounted at the loan's effective interest rate; 2) the observable market price of the impaired loan; or 3) the fair value of the collateral of a collateral dependent loan.   

The Company had loans totaling $11,442,000 and $8,016,000 being specifically identified as impaired and a corresponding reserve allocation of $877,000 and $331,000 at June 30, 2002, and June 30, 2001, respectively.  The average outstanding balance for loans being specifically identified as impaired was $11,491,000 for the six months of 2002 compared to $5,558,000 for the six months of 2001.  All of the impaired loans are collateral dependent, therefore the fair value of the collateral of the impaired loans is evaluated in measuring the impairment.  The interest income recognized on impaired  loans during the  six months of 2002 was $236,000, compared to $414,000 for the six months of 2001.

The following table sets forth the allocation of the allowance for loan losses among various categories.  This allocation is determined by using the consistent quarterly procedural discipline which was discussed above. This allocation, however, is not necessarily indicative of the specific amount or specific loan category in which future losses may ultimately occur (in thousands, except percentages):

Even though residential real estate-mortgage loans comprise approximately 40% of the Company's total loan portfolio, only $384,000 or 7.0% of the total allowance for loan losses is allocated against this loan category.  The residential real estate-mortgage loan allocation is based upon the Company's five-year historical average of actual loan charge-offs experienced in that category and other qualitative factors.  The disproportionately higher allocations for commercial loans and commercial loans secured by real estate reflect the increased credit risk associated with this type of lending, the Company's historical loss experience in these categories, and other qualitative factors.  The Company has strengthened its allocations to the commercial and commercial real-estate components of the loan portfolio during 2002 and 2001.  Factors considered by the Company t hat led to increased qualitative allocations to the commercial segments of the portfolio included:  the slowing of the national and regional economies and its corresponding impact on the Company’s loan delinquency trends, the increase in concentration risk among our 25 largest borrowers compared to total loans and the overall growth in the average size associated with these credits.

At June 30, 2002, management of the Company believes the allowance for loan losses was adequate to cover losses within the Company's loan portfolio.  The Company's management is unable to determine in what loan category future charge-offs and recoveries may occur.  (For a complete discussion concerning the operations of the "Allowance for Loan Losses" refer to Note 9.)

 11.

Non-performing Assets

Non-performing assets are comprised of (i) loans which are on a non-accrual basis, (ii) loans which are contractually past due 90 days or more as to interest or principal payments some of which are insured for credit loss, and (iii) other real estate owned (real estate acquired through foreclosure, in-substance foreclosures and repossessed assets). All loans, except for loans that are insured for credit loss, are placed on non-accrual status immediately upon becoming 90 days past due in either principal or interest.  In addition, if circumstances warrant, the accrual of interest may be discontinued prior to 90 days.  In all cases, payments received on non-accrual loans are credited to principal until full recovery of principal has been recognized; it is only after full recovery of principal that any additional payments received are recognized as interest income.  The only exception to this policy is for residential mortgage loans wherein interest income is recognized on a cash basis as payments are received.  

The following table presents information concerning non-performing assets (in thousands, except percentages):

(For additional information refer to the "Loan Quality" section in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations on page 34.)

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

The following table sets forth, for the periods indicated, (i) 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, (ii) the amount of interest income actually recorded on such

loans, and (iii) the net reduction in interest income attributable to such loans (in thousands).

12.  Derivative Hedging Instruments

On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities".  At June 30, 2002 the Company had no interest rate swaps outstanding.   At June 30, 2001, the Company had interest rate swap agreements that effectively converted a notional amount of  $180 million from floating-rates to fixed-rates. The fair value of these contracts was recorded in the Company's balance sheet, with the offset to accumulated other comprehensive income (loss), net of tax.

    Borrowed Funds Hedges

The Company had entered into interest rate swaps to hedge short-term borrowings used to leverage the balance sheet.  Specifically, FHLB advances which reprice between 30 days and 90 days were used to fund fixed-rate agency mortgage-backed securities with durations ranging from two to five years.   Under these swap agreements, the Company paid a fixed-rate of interest and received a floating-rate which reset either monthly or quarterly.  These interest rate swaps qualified as cashflow hedges for the Company. The following table summarizes the interest rate transactions, which impacted the Company’s first six months of 2002 performance:

The Company monitors and controls all derivative products with a comprehensive Board of Director approved hedging policy.  This policy permits a total maximum notional amount outstanding of $500 million for interest rate swaps, and interest rate caps/floors. The Company had no interest rate caps or floors outstanding for the periods presented.  

13.   Intangible Assets

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets under which goodwill and other intangible assets with indefinite lives are not amortized.  Such intangibles were evaluated for impairment as of January 1, 2002 (any such impairment at the date of adoption will be reflected as a change in accounting).  In addition, each year, the Company will evaluate the intangible assets for impairment with any resulting impairment reflected as an operating expense.   The Company’s only intangible, other than goodwill, is its core deposit intangible, which the Company currently believes has a finite life.  The Company completed its initial goodwill impairment test in the second quarter of 2002.  This evaluation indicated that there was no impairment of the Company’s goodwill.  

As of June 30, 2002, the Company’s core deposit intangibles had an original cost of $17.6 million with accumulated amortization of $10.7 million.   The weighted average amortization period of the Company’s core deposit intangibles at June 30, 2002, is six years. Amortization expense for the six months ended June 30, 2002 totaled $716,000.  Estimated amortization expense for the remainder of 2002 and the next five years is summarized as follows (in thousands):     

The following table reports pro forma information as if SFAS 142 had been adopted for all periods presented (in thousands, except per share data):  

14.  Federal Home Loan Bank Borrowings

Total FHLB borrowings consist of the following at June 30, 2002, (in thousands, except percentages):

All of the above borrowings bear a fixed rate of interest until the next repricing period, with the only exceptions being the Open Repo Plus advances whose rate can change daily.  All FHLB stock along with an interest in unspecified mortgage loans and mortgage-backed securities, with an aggregate statutory value equal to the amount of the advances, have been pledged as collateral with the Federal Home Loan Bank of Pittsburgh to support these borrowings.

15.  Capital

The Company is subject to various capital requirements administered by the federal banking agencies.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.  Management believes that as of June 30, 2002, the Company met all capital adequacy requirements to which it is subject.

As of June 30, 2002, and 2001, as well as, December 31, 2001, the Federal Reserve categorized the Company as "Well Capitalized" under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table.  There are no conditions or events since notification that management believes have changed the Company's classification category.

16.  Segment Results

The financial performance of the Company is also monitored by an internal funds transfer pricing profitability measurement system which produces line of business results and key performance measures.  The Company's major business units include retail banking, commercial lending, trust, mortgage banking, other fee based businesses and investment/parent.  The reported results reflect the underlying economics of the business segments.  Expenses for centrally provided services are allocated based upon the cost and estimated usage of those services.  Capital has been allocated among the businesses on a risk-adjusted basis with a primary focus on credit risk.  The businesses are match-funded and interest rate risk is centrally managed and accounted for within the investment/parent business segment.  Th e key performance measures the Company focuses on for each business segment are net income and risk-adjusted return on equity.

Retail banking includes the deposit-gathering branch franchise, lending to both individuals and small businesses, and financial services.  Lending activities include residential mortgage loans, direct consumer loans, and small business commercial loans.   Financial services include the sale of mutual funds, annuities, and insurance products.  Commercial lending to businesses includes commercial loans, commercial real-estate loans, and commercial leasing (excluding certain small business lending through the branch network). Mortgage banking includes the servicing of mortgage loans. (The Company completed its exit from the wholesale mortgage production business in 2001.)

The trust segment has two primary business divisions, institutional trust and personal trust. Institutional trust products and services include 401(k) plans, defined benefit and defined contribution employee benefit plans, individual retirement accounts, and collective investment funds for trade union pension funds.  Personal trust products and services include personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts.  Other fee based businesses include AmeriServ Associates, AmeriServ Life, and several other smaller fee generating business lines such as a debt collection agency.  The investment/parent includes the net results of investment securities and borrowing activities, general corporate expenses not allocated to the business segments, interest e xpense on the guaranteed junior subordinated deferrable interest debentures, and centralized interest rate risk management.  Inter-segment revenues were not material.

The contribution of the major business segments to the consolidated results for the first six months of 2002 and 2001 were as follows (in thousands, except ratios):

#

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

("M.D.& A.")

THREE MONTHS ENDED JUNE 30, 2002 VS. THREE MONTHS ENDED JUNE 30, 2001

.....PERFORMANCE OVERVIEW..... The following table summarizes some of the Company's key performance indicators (in thousands, except per share and ratios). Cash performance results for 2002 exclude amortization related to core deposit intangibles net of applicable income tax effects. Cash performance results for 2001 exclude amortization related to both goodwill and core deposit intangibles net of applicable income tax effects.      

Diluted earnings per share for both the quarter and six-month period ended June 30, 2002 is down $0.02 per share due primarily to a higher loan loss provision and additional non-cash mortgage servicing impairment charges, reflecting the weak national economic environment and skepticism in the equity markets which have caused further declines in interest rates to 40 year lows.  The impact of the weak economic environment overshadowed improvement in the Company’s fundamental performance.  These fundamental improvements included an increased net interest margin due to a lower cost of funds.  This reduced cost of funds resulted from the April 15, 2002 maturity of an interest rate swap and continued solid deposit growth.  The Company also experienced growth in non-interest income in the second quarter of 2002.   

.....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 compares the Company's net interest income performance for the second quarter of 2002 to the second quarter of 2001 (in thousands, except percentages):

N/M - not meaningful

The Company’s net interest income in the second quarter of 2002 increased by $131,000 from the prior year second quarter as the net interest margin improved to 2.63% in 2002 compared to 2.47% in 2001.    The April 15, 2002 maturity of an $80 million interest rate swap that had fixed the cost of certain borrowings at 6.92% was a key factor responsible for the lower interest expense and the net interest margin increase.  This margin improvement more than offset the negative impact on net interest income resulting from a reduced level of earning assets. The decline in earning assets was due to a $126 million reduction in the investment securities portfolio. This decline resulted from the Company’s decision to reduce its interest rate risk in the fourth quarter of 2001 and maintain a lower borrowed funds position in 2002.  As a result of this action, the Company’s level of Federal Home Loan Bank advances and short term borrowings to total assets averaged 31.8% in the second quarter of 2002 compared to 38.3% in the second quarter of 2001.

...COMPONENT CHANGES IN NET INTEREST INCOME... Regarding the separate components of net interest income, the Company's total tax-equivalent interest income for the second quarter of 2002 decreased by $4.2 million or 19.8% when compared to the same 2001 quarter. This decrease was due to a $96 million decline in earning assets and a 91 basis point drop in the earning asset yield.  Within the earning asset base, the yield on the total investment securities portfolio dropped by 105 basis points to 5.21% while the yield on the total loan portfolio decreased by 112 basis points to 7.03%. Both of these declines reflect the lower interest rate environment in place in 2002 as the Federal Reserve reduced the federal funds rate by an unprecedented 475 basis points during 2001 in an effort to stimulate economic growth.  These significant rate reductions have caused accelerated asset prepayments as borrowers have elected to refinance their higher fixed rate loans into lower cost borrowings.  

The $96 million decline in the volume of earning assets was due to a $126 million reduction in investment securities.  The Company took advantage of the lower interest rate environment to reposition and profitably reduce the size of its investment securities portfolio during the fourth quarter of 2001 and in the first half of 2002.  This decline in investment securities was partially offset by a $34 million or 6.2% increase in total loans outstanding.  The loan growth occurred primarily in commercial real-estate loans and reflects continued successful new business generation in the State College market.  The Company has also successfully grown its variable rate open-end home equity product during the past twelve months.

The Company's total interest expense for the second quarter of 2002 decreased by $4.1 million or 29.4% when compared to the same 2001 quarter.  This reduction in interest expense was due to a lower volume of interest bearing liabilities (specifically borrowed funds) and a reduced cost of funds. Total average borrowed funds were $116 million or 23.3% lower in the second quarter of 2002 as fewer borrowings were needed to fund a smaller earning asset base.  

The total cost of funds declined by 108 basis points to 3.90% and was driven down by a reduced cost of both deposits and borrowings.  Specifically, the cost of interest bearing deposits decreased by 96 basis points to 2.88% and the cost of borrowings declined by 89 basis points to 5.34%.  The April 15, 2002 maturity of an $80 million interest rate swap that had fixed the cost of certain FHLB borrowings at 6.92% was a key factor responsible for the reduced cost of borrowings.  Those hedged borrowings repriced to current market with a cost of approximately 2.0%.  The lower deposit cost was caused by lower rates paid in all deposit categories particularly for money market deposits and certificates of deposit.  

The lower deposit costs did not have any negative impact on the Company’s deposit generation strategies, as total average deposits were $28 million or 4.1% higher in the second quarter of 2002 as compared to the second quarter of 2001. This strong growth in deposits occurred despite the third quarter 2001 strategic sale of approximately $15 million of deposits associated with the Company’s Coalport Branch.  Factors contributing to the overall gross $43 million average deposit growth included: $15 million of deposits from the Company’s two new union niche offices, $9 million from the full service community office opened in State College, the acquisition of $10 million of escrow deposits from our mortgage banking operation, and increased market share within the Company’s core Cambria County market.  A series of strategically focused advertising campaigns to c apture business from the Company’s largest Cambria County competitor, which was recently acquired by a bank holding company headquartered out-of-state, has been instrumental in moving deposit market share.  These campaigns resulted in the addition of nearly 1,500 new customers and approximately $3.5 million in new deposits in the first half of 2002.  The cost of new customer acquisition has been cost-effective reaching breakeven in just 10 months.  Overall, retail account relationships are growing at an annualized rate of 5.5% in 2002.  

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) AmeriServ Financial's 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) AmeriServ Financial's 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 non-accrual loans as cash is received.  Additionally, a tax rate of approximately 35% is used to compute tax equivalent yields.   

#

Three Months Ended June 30 (In thousands, except percentages)

…..PROVISION FOR LOAN LOSSES..... The Company’s provision for loan losses totaled $815,000 or 0.56% of total loans in the second quarter of 2002. This represented an increase of $485,000 from the second quarter 2001 provision of $330,000 or 0.24% of total loans.  The Company completed in the second quarter of 2002 the workout of its largest non-performing asset (a $2.9 million commercial lease in the steel industry).  This workout included a $1.6 million charge-off and a $1.3 million secured loan to the new buyer of the equipment.  As a result of this charge-off, net charge-offs in the second quarter of 2002 amounted to $1.6 million or 1.09% of total loans compared to net charge-offs of $891,000 or 0.65% of total loans in the second quarter of 2001.  

Overall, as a result of this workout and the ongoing monitoring of other problem credits, the Company’s level of non-performing assets declined for the second consecutive quarter.  Total non-performing assets amounted to $5.7 million or 0.94% of total loans at June 30, 2002 compared to $10.0 million or 1.67% of total loans at December 31, 2001.  The Company’s loan loss reserve coverage of non-performing assets also improved to 97% at June 30, 2002 compared to 58% at December 31, 2001.   The Company applies a consistent methodology and procedural discipline to evaluate the adequacy of the allowance for loan losses on a quarterly basis. (See further discussion in Note 9 and the Allowance for Loan Losses section of the MD&A.)    

.....NON-INTEREST INCOME..... Non-interest income for the second quarter of 2002 totaled $5.0 million; a $1.4 million or 37.4% increase from the second quarter 2001 performance.  Factors contributing to the higher non-interest income in 2002 included:

a $1.1 million increase in gains realized on the sale of investment securities as the Company took advantage of volatility in the market to shorten the investment portfolio duration and also capture profits on securities that had risks of accelerated prepayments or extension.

a $212,000 increase in deposit service charges due to the fourth quarter 2001 implementation of a first in the market overdraft privilege program.  

a $49,000 increase in other income due to a $113,000 increase in revenue from the financial services unit. The higher revenue contribution from the financial services unit resulted from increased fixed annuity sales.  Annuity sales volume in the first half of 2002 amounted to $8.4 million compared to $6.1 million in all of 2001.  The financial services unit, formed in October 1997, has now been profitable for three consecutive quarters.  

.....NON-INTEREST EXPENSE..... Non-interest expense for the second quarter of 2002 totaled $11.1 million which represented a $1.3 million or 13.9% increase from the second quarter 2001 performance.  Factors contributing to the higher non-interest expense in 2002 included:

the Company recognized a $787,000 non-cash impairment charge on its mortgage servicing rights in the second quarter of 2002.  This non-cash impairment charge is $646,000 greater than the prior year second quarter and reflects an increase in mortgage prepayment speeds due to further unprecedented declines in mortgage interest rates.                 

salaries and employee benefits increased by $412,000 due to higher medical insurance premiums, increased sales incentive based compensation, and salary increases.  

the Company benefited from the January 1, 2002 adoption of Statement of Financial Accounting Standards # 142 which requires that goodwill no longer be amortized but reviewed annually for impairment.  The Company recorded $325,000 of goodwill amortization expense in the second quarter of 2001 while no goodwill amortization or impairment charges were recorded in the second quarter of 2002.

occupancy and equipment expense increased by $182,000 primarily as a result of the Company’s expansion of its retail branch network to include union niche offices in Harrisburg and Pittsburgh and a full service branch in State College.  

SIX MONTHS ENDED JUNE 30, 2002 VS. SIX MONTHS ENDED JUNE 30, 2001

.....PERFORMANCE OVERVIEW..... The following table summarizes some of the Company’s key performance indicators (in thousands, except per share and ratios). Cash performance results for 2002 exclude amortization related to core deposit intangibles net of applicable income tax effects. Cash performance results for 2001 exclude amortization related to both goodwill and core deposit intangibles net of applicable income tax effects.      

The Company’s net income for the first six months of 2002 totaled $1,034,000 or $0.08 per diluted share.  This performance was $300,000 or $0.02 per diluted share less than the first six months of 2001.  On a cash basis, earnings declined to $1,648,000 or $0.12 per diluted share in the first half of 2002.  

The Company’s first six months of 2002 net income was negatively impacted by an increased provision for loan losses, higher non-interest expense and reduced net interest income. The more difficult economic environment and lower interest rates in 2002 contributed to the overall unfavorable changes in these key performance factors.   These negative items were partially offset by increased non-interest income and a lower provision for income taxes.     

.....NET INTEREST INCOME AND MARGIN.....  The following table compares the Company's net interest income performance for the first six months of 2002 to the first six months of 2001 (in thousands, except percentages):

N/M - not meaningful

The Company’s net interest income on a tax-equivalent basis decreased by $958,000 or 6.4% from the first six months of 2001 due to a lower level of earning assets. This decline more than offset the benefit to net interest income of a modest two basis point increase in the net interest margin to 2.49%.  The reduced level of earning assets was due to a $108 million reduction in the investment securities portfolio.  This decline resulted from the Company’s decision to delever its balance sheet in the fourth quarter of 2001 and maintain a lower borrowed funds position in 2002.  As a result of this action, the Company’s level of Federal Home Loan Bank advances and short term borrowings to total assets averaged 32.2% in the first six months of 2002 compared to 38.0% in the first six months of 2001.          ;     

...COMPONENT CHANGES IN NET INTEREST INCOME... Regarding the separate components of net interest income, the Company's total tax-equivalent interest income for the first six months of 2002 decreased by $8.4 million or 19.6% when compared to the same 2001 period. This decrease was due to the previously mentioned decline in the volume of earning assets and a lower earning asset yield.  Total average earning assets were $82 million lower in the first six months of 2002 due to a $108 million or 17.8% decline in investment securities.  The previously discussed factors responsible for the decrease in investment securities on a quarterly basis also explain the decrease for the six-month period.  

A 99 basis point drop in the earning asset yield to 6.23% also negatively impacted interest income.  Within the earning asset base, the yield on the total investment securities portfolio dropped by 108 basis points to 5.26% while the yield on the total loan portfolio decreased by 112 basis points to 7.09%.  Both of these declines reflect the lower interest rate environment in place in 2002 which has caused the downward repricing of floating rate assets and the reinvestment of cash received on higher yielding prepaying assets into assets with lower interest rates.    

The Company's total interest expense for the first six months of 2002 decreased by $7.4 million or 26.7% when compared to the same 2001 period.  This reduction in interest expense was due to a lower level of borrowings and a reduced cost of funds. Total average borrowed funds were $102 million or 19.5% lower in the first six months of 2002 as fewer borrowings were needed to fund a smaller earning asset base.  This reflects the Company’s decision to reduce its interest rate risk in the fourth quarter of 2001 and maintain a lower borrowed funds position in 2002.   

The total cost of funds declined by 101 basis points to 4.10% and was driven down by a reduced cost of deposits.  Specifically, the cost of interest bearing deposits decreased by 109 basis points to 2.94% due to a lower cost for money market deposits and certificates of deposit.   

The Company’s cost of FHLB advances and other short-term borrowings also declined by 71 basis points as the Company began to benefit from the maturity of $180 million in interest rate swaps that had previously fixed the cost of certain FHLB borrowings at 6.64%.    

It is recognized that interest rate risk does exist from the Company's use of borrowed funds to purchase investment securities to leverage the balance sheet.  The maximum amount of leveraging the Company can execute is controlled by internal policy requirements to maintain a minimum asset leverage ratio of no less than 6.0% (see further discussion under Capital Resources), to limit net interest income variability to +\-7.5% and net income variability to +\-20% over a twelve month period (see further discussion under Interest Rate Sensitivity), and to limit total FHLB advances and short-term borrowings to no more than 40% of total assets. As a result of investment security sales executed since the fourth quarter of 2001, the Company’s ratio of FHLB advances and short-term borrowings to total assets averaged 32.2% in the first half of 2002 compared to 38.0% in the first half of 2001.  The total revenue contribution from leverage assets (including investment security gains and losses) amounted to $1.5 million in the first six months of 2002 compared to $808,000 for the first half of 2001.  Since its inception in 1995, the leverage program has produced total pre-tax revenue of $34.1 million.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the six-month periods ended June 30, 2002 and June 30, 2001.  For a detailed discussion of the components and assumptions included in the table, see the paragraph before the quarterly tables on page 24.  

#

Six Months Ended June 30 (In thousands, except percentages)

…..PROVISION FOR LOAN LOSSES..... The Company’s provision for loan losses for the first six months of 2002 totaled $1.4 million or 0.47% of total loans. This represented an increase of $710,000 from the first six months of 2001 provision of $645,000 or 0.23% of total loans.  Net charge-offs were also higher in the first six months of 2002 totaling $1.7 million or 0.58% of total loans compared to net charge-offs of $1.1 million or 0.40% of total loans in the first half of 2001.  The total net charge-offs in 2002 are almost entirely attributable to the previously discussed workout of the Company’s largest non-performing asset which resulted in a $1.6 million charge-off.  The Company did benefit from a $415,000 recovery that was collected in the first quarter of 2002 on a 1998 charged-off commercial loan.  The Company applies a consistent methodolog y and procedural discipline to evaluate the adequacy of the allowance for loan losses on a quarterly basis. (See further discussion in Note 9 and the Allowance for Loan Losses section of the MD&A.)     

.....NON-INTEREST INCOME..... Non-interest income for the first six months of 2002 totaled $9.7 million; a $1.7 million or 21.1% increase from the first six months of 2001 performance.  Factors contributing to the higher non-interest income in 2002 included:

a $1.3 million increase in gains realized on the sale of investment securities as the Company took advantage of volatility in the market in 2002 to shorten the investment portfolio duration and also capture profits on securities that had risks of accelerated prepayments or extension.

a $421,000 increase in deposit service charges due to the fourth quarter 2001 implementation of a first in the market overdraft privilege program.

a $250,000 increase in revenue from bank owned life insurance due to the receipt of a death benefit for an employee insured under the program.  

a $290,000 decrease in other income due to the Company’s receipt of a $300,000 payment for the legal rights to its former name in Western Pennsylvania in the first half of 2001.  No such payment was received in 2002.  

Non-interest income as a percentage of total revenue averaged 41.0% in the first half of 2002 compared to 35.8% for the first half of 2001.  Excluding investment security gains, the comparative was 35.7% in the first six months of 2002 compared to 34.0% for the same 2001 period.  To provide a longer-term perspective for this comparison, the ratio of non-interest income to total revenue averaged 28.3% for the full year 1997.  The continued growth and diversification of non-interest income is a key strategic goal of AmeriServ Financial.

.....NON-INTEREST EXPENSE..... Non-interest expense for the first six months of 2002 totaled $21.0 million; a $1.0 million or 5.1% increase from the first six months 2001 performance.  Factors contributing to the increase in non-interest expense in 2002 included:

a $710,000 increase in salaries and employee benefits due to higher medical insurance premiums, increased sales incentive based compensation, and salary increases.  

a $156,000 increase in the impairment charge on mortgage servicing rights due to the previously discussed increase in mortgage prepayment speeds resulting from the lower interest rate environment.             

a $650,000 decrease in amortization expense on intangible assets due to the adoption of Statement of Financial Accounting Standards 142 which requires that goodwill no longer be amortized but reviewed annually for impairment.            

a $232,000 increase in professional fees due to higher legal fees and other professional fees.  Approximately $100,000 of the increase reflects payments to a consultant who receives a portion of the increased fees generated from the overdraft privilege program. This new program has significantly increased deposit service charge fee revenue.

.....INCOME TAX EXPENSE..... The Company recognized an income tax expense of $182,000 or an effective tax rate of 15.0% in the first half of 2002.  The Company recognized a provision for income taxes of $330,000 or an effective tax rate of 19.8% in the first half of 2001.  The Company’s effective tax rate was lower in the first six months of 2002 due to greater tax-free income from bank owned life insurance combined with a reduced level of pre-tax income.

.....NET OVERHEAD BURDEN..... The Company's efficiency ratio (non-interest expense divided by total revenue) averaged 89.0% in the first half of 2002 compared to an 87.3% efficiency ratio reported for the first half of 2001.  The amortization of core deposit intangible assets creates a $1.4 million annual non-cash charge that negatively impacts the efficiency ratio. The efficiency ratio for the first half of 2002, stated on a cash basis excluding the intangible amortization, was 85.9% or approximately 3.1% lower than the reported efficiency ratio. The Company’s efficiency ratio was also negatively impacted by the April 2000 Three Rivers Bank spin-off as all interest costs associated with the guaranteed junior subordinated deferrable interest debentures ($2.9 million annually) remained with the Company.  The Company is focusing on improving its efficiency ratio throu ghout the remainder of 2002 and will be executing contingency strategies to help achieve this objective.  See further discussion under the forward-looking section of the MD&A.  

….SEGMENT RESULTS…. Note 16 presents the results of the Company’s key business segments and identifies their net income contribution and risk-adjusted return on equity performance.  When comparing the first half 2002 to the first half 2001, the Trust segment again produced the highest ROE averaging 28.1% in 2002 compared to 31.9% in 2001. Trust’s net income contribution decreased to $440,000 in the first half 2002 due in part to lower market-based fee revenue resulting from the declines in equity values over the past year.  Union business development continues to be a growing source of trust revenue.  Over the past 5 years, the annual trust gross revenue contribution from union business has grown from $305,000 or 7.6% of gross trust revenue in 1997 to $890,000 or 18.7% in 2001.  The net income contribution from retail banking increased to $2 .5 million in the first half of 2002 due to increased net interest income and higher non-interest income resulting from the overdraft privilege product.  Commercial Lending ROE decreased from 12.8% to 3.8% due to a higher loan loss provision and increased level of non-performing assets.

The Company continued to experience earnings pressure in mortgage banking as that segment reported a net loss of ($799,000) in the first six months of 2002 compared to a net loss of ($728,000) for the first half of 2001.  This negative performance reflects the previously discussed non-cash impairment charge on mortgage servicing rights that amounted to $664,000 in the first half of 2002.  The use of escrow related deposits at AmeriServ Financial Bank did help the performance of the mortgage banking segment.  The net loss and ROE in the investment/parent segment improved to ($1.5 million) and (11.6%) due to increased revenue earned on leveraged assets in the first half of 2002 as a result of higher investment security gains. The Parent Company benefited from a $300,000 payment for the legal rights to its former name in the first half of 2001.  No suc h payment was received in 2002.  The Three Rivers Bank spin-off also negatively impacted the investment/parent performance as all interest costs associated with the Company’s guaranteed junior subordinated deferrable interest debentures remained with AmeriServ Financial.  

.....BALANCE SHEET..... The Company's total consolidated assets were $1.20 billion at June 30, 2002, compared with $1.34 billion at June 30, 2001, which represents a decrease of $139 million or 10.4%. The Company’s June 30, 2002 total assets were comparable with the December 31, 2001 total.  This decline in assets from the prior year occurred in the investment securities portfolio.  Total investment securities decreased by $161 million as the Company took advantage of the lower interest rate environment to reposition and reduce the size of its investment security portfolio since the fourth quarter of 2001. The Company sold securities to shorten the portfolio duration and reduce the number of securities that had risks of accelerated prepayment or extension.  Loans and loans held for sale totaled $601 million at June 30, 2002, which represented an incr ease of $30 million or 5.2% from June 30, 2001. The loan growth occurred primarily in commercial real-estate loans and reflects continued successful new business generation in the State College market.  Overall, the Company’s commercial loan and commercial real estate portfolio has good geographic diversification beyond its primary market of Cambria County.  The Company’s largest geographic concentration is in the more demographically attractive State College (Centre County) market with 21% of the commercial portfolio in that market.  The Company’s second highest concentration is in Allegheny County (Pittsburgh) with 20% of the commercial portfolio in that market.  The Cambria/Somerset County market is next with 18% of the commercial loan portfolio followed by Blair County (Altoona) at 7% and Westmoreland County (Greensburg) at 5%.                  

The Company’s deposits totaled $706 million at June 30, 2002, an increase of $39 million or 5.9% when compared to June 30, 2001, and an increase of $29 million or 4.3% when compared to December 31, 2001.  The factors causing this strong deposit growth were previously discussed in the net interest income section of this MD&A.  Additionally, the Company believes that the volatility in the equity markets also contributed to an inflow of deposits into the bank.  As a result of a combination of deposit growth and deleverage of the investment securities portfolio, the Company’s total borrowed funds declined by $181 million or 31.3% from June 30, 2001,and $28 million or 6.7% since December 31, 2001.

#

.....LOAN QUALITY..... The following table sets forth information concerning the Company’s loan delinquency and other non-performing assets (in thousands, except percentages):

#

     *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 some of which are insured for credit loss, and (iii) other real estate owned.   

The Company’s level of non-performing assets dropped from $10.0 million or 1.67% of total loans at December 31, 2001, to $5.7 million or 0.94% of total loans at June 30, 2002.  The Company completed in the second quarter of 2002 the workout of its largest non-performing asset (a $2.9 million commercial lease in the steel industry).  This workout included a $1.6 million charge-off and a $1.3 million secured loan to the new buyer of the equipment.   

Of the Company’s total $5.7 million of non-performing assets at June 30, 2002, $3.1 million are commercial loan and leases with the remaining $2.6 million related to residential mortgage loans.  Minimal losses are expected from the residential mortgage portfolio, as historically residential mortgage losses for the Company have been less than 0.04%.

One commercial loan account totals $2.3 million and represents 73% of the commercial non-performing balance at June 30, 2002.  The account is to a local logging company. This borrower declared Chapter 11 bankruptcy in the third quarter of 2001 as a result of a significant decline in business due to the slowing national economy.  The borrower then closed the business and this was converted to a Chapter 7 liquidation in the first quarter of 2002.  The Company’s position is secured by the lumber mill and related equipment along with government guarantees on portions of the loan balance from both the Small Business Administration and a program administered by the U.S. Department of Agriculture.  An auction to sell some of the assets is scheduled to occur during the third quarter of 2002.  Consequently, the Company believes its exposure to loss is limited due to the strong guarantee position.  The Company charged-off approximately $100,000 of the non-guaranteed portion in the first quarter of 2002 and has established an allocation of  $303,000 within the loan loss reserve for its remaining exposure on this credit.     

The overall increase in total loan delinquency to $12.2 million or 2.03% of total loans at June 30, 2002 is due to the weaker economic environment over the past year.  Delinquency was negatively impacted by a $2.7 million commercial loan which was 60 days past due at the end of the second quarter.  This loan is to a borrower owning several restaurants, three of which are located at the Greater Pittsburgh International Airport.  The borrower has been impacted by reduced traffic at the airport and has filed for bankruptcy protection.  The Company is carefully monitoring this credit and the borrower’s counsel is evaluating a pending sales agreement for three of the five restaurant locations.

At all dates presented, the Company had no troubled debt restructurings that involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates.        

.....ALLOWANCE FOR LOAN LOSSES.....The following table sets forth the allowance for loan losses and certain ratios for the periods ended (in thousands, except percentages):

Since December 31, 2001, the Company’s loan loss reserve coverage of total non-performing assets improved to 97% due to a lower level of non-performing assets.  The loan loss reserve to total loans ratio decreased modestly to 0.92% for that same period.  The Company currently expects to provision a minimum of $600,000 in the third quarter of 2002 and will further increase that amount, if needed, pending the workout of the previously discussed problem credits and any additional asset quality problems that would develop.           

.....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 AmeriServ Financial 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 also incorporates all hedging activity as well as assumptions about reinvestment and the repri cing 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.

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% and net income variability to +/-20.0% based upon varied economic rate forecasts which include interest rate movements of up to 200 basis points and alterations of the shape of the yield curve.  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, net income and market value of portfolio equity.  For the net interest income and net income simulations, the interest rate scenarios in the table compare the Company’s base forecast or most likely rate scenario to scenarios which reflect ramped increases and decreases in interest rates of 200 basis points.  The Company’s most likely rate scenario is based upon published economic consensus estimates.  Each rate scenario contains unique prepayment and repricing assumptions that are applied to the Company’s expected balance sheet composition that was developed under the most likely interest rate scenario for the simulations.  For market value of portfolio equity analysis, the Company uses its existing balance sheet composition under a flat inte rest rate scenario and compares that to immediate increases and decreases in interest rates of 200 basis points.

As indicated in the table, the maximum positive variability of AmeriServ Financial's net interest income was 1.6% and net income was 43.5% under an upward rate shock forecast reflecting a 200 basis point increase in interest rates.  Market value of portfolio equity increased by 13.0% under this same scenario due to increased value of the Company’s core deposit base. The maximum negative variability of net income and market value of portfolio equity occurred in a 200 basis point downward rate shock and reflects further impairment of mortgage servicing rights in a falling interest rate environment.  Finally, this sensitivity analysis is limited by the fact that it does not include all balance sheet repositioning actions the Company may take should severe movements in interest rates occur such as lengthening or shortening the duration of the securities portfolio or entering into additional hedging transactions. These actions would likely reduce the variability of each of the factors identified in the above table but the cost associated with the repositioning would most likely negatively impact net income.

.....LIQUIDITY...... Liquidity can be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash equivalents increased by $7 million from December 31, 2001, to June 30, 2002, due primarily to $6 million of cash provided by operating activities.  Within investing activities, cash proceeds from investment security maturities and sales exceeded purchases of new investment securities by $11 million.  Cash advanced for new loan fundings and purchases totaled $118 million and was $6 million more than the cash received from loan principal payments and sales.  Within financing activities, net short-term borrowings and Federal Home Loan Bank advances decreased by $28 million.  This decline resulted from the Company’s decision to reduce its interest rate risk in the fourth quarter of 2001 and maintain a lower borrowed funds position in 2002.  The Comp any used $4 million of cash to pay common dividends to shareholders and service the dividend on the guaranteed junior subordinated deferrable interest debentures.  The Company has ample liquidity available to fund $185 million of outstanding commitments if they were fully drawn upon.

.....CAPITAL RESOURCES..... As presented in Note 15, the Company continues to be considered well capitalized as the asset leverage ratio was 7.46% and the Tier 1 capital ratio was 13.34% at June 30, 2002.  The Company currently targets an operating range of approximately 7.0%-7.50% for the asset leverage ratio because management and the Board of Directors believes that this level provides a balance between regulatory capital requirements and shareholder value needs. Note that the impact of other comprehensive income(loss) is excluded from the regulatory capital ratios. At June 30, 2002, accumulated other comprehensive income amounted to $3.1 million.  Additionally, the Company will generate approximately $1.4 million of tangible capital in 2002 due to the amortization of intangible assets.  

The Company exceeds all regulatory capital ratios for each of the periods presented. Furthermore, both the Company and its subsidiary bank are considered "well capitalized" under all applicable FDIC regulations.  It is the Company's intent to maintain the FDIC "well capitalized" classification to ensure the lowest deposit insurance premium.  

The Company’s annual common stock cash dividend is $0.36 per share.  The Company has adequate cash reserves to sustain the dividend at this level through the end of 2002.  Given the current economic climate, the Company’s Board of Directors will be carefully evaluating the Company’s future dividend policies during the second half of this year.  

.....FORWARD LOOKING STATEMENT..... When assessing the Company’s financial performance for the first half of 2002 and the outlook for the remainder of the year, in a recent press release Orlando B. Hanselman, Chairman, President & CEO stated, “In my Chairman’s Letter to the Shareholder included in our 2001 Annual Report, I stated that our financial performance targets for 2002 assumed that an improving economy and increasing interest rate environment would begin approximately mid-year 2002.  I cautioned that if this did not occur our loan growth would be slower than anticipated, our net charge-offs could rise above expected levels, and the value of our mortgage servicing rights would be further impaired.  This more pessimistic scenario, unfortunately, has materialized.  Consequently, our previously disclosed earnings range of $0.36 to $0.38 net i ncome per share for 2002 is no longer realistic.”

Hanselman continued “I also mentioned in my Chairman’s letter that our Company had contingency plans in place that would mitigate some, but certainly not all, of the impact of a negative economic environment.  We will begin to swiftly execute these contingency plans during the second half of 2002 given the current outlook for continued economic and market volatility and the strong likelihood that the Federal Reserve will not increase the federal funds rate in the near future.  The execution of these contingency plans should allow AmeriServ Financial for the second consecutive year to achieve net income per share growth of 10% for the full year 2002.”  Since the spin-off of Three Rivers Bank, AmeriServ Financial has reported net income per share of $0.13 for the year 2000 and $0.15 for the year 2001.

These contingency plans focus on strategies that balance improving the near term financial performance of the Company without sacrificing the longer-term strategic course that AmeriServ Financial has embarked on since the April 2000 spin-off of Three Rivers Bank.  The Company has recently implemented a hiring freeze and will be carefully evaluating marginally profitable business lines for possible exit.  Other contingency plans focus on further increasing revenue throughout the retail banking system, diligently focusing on reducing discretionary expenses, and deferring certain planned capital expenditures.  This approach will ensure that the four key areas of strategic focus for the Company are not compromised: geographic diversification and expansion, growth in share of market and share of wallet, income growth and diversification, and strategy differentiation.  

This Form 10-Q contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations estimates, intentions, operations, future results, and prospects, including statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions.  These forward-looking statements are based upon current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could caus e 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) risk resulting from the distribution and the operation of Three Rivers Bank as a separate independent company, (ii) the effect of changing regional and national economic conditions; (iii) the effects of trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (iv) significant changes in interest rates and prepayment speeds; (v) inflation, stock and bond market, and monetary fluctuations; (vi) credit risks of commercial, real estate, consumer, and other lending activities; (vii) changes in federal and state banking and financial services laws and regulations; (viii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (ix) the timely development of competitive new products and services by the Com pany and the acceptance of those products and services by customers and regulators (when required); (x) the willingness of customers to substitute competitors' products and services for those of the Company and vice versa; (xi) changes in consumer spending and savings habits; (xii) unanticipated regulatory or judicial proceedings; and (xiii) 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.

Part II     Other Information

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

      The annual meeting of the shareholders of AMERISERV FINANCIAL, Inc. was held on April 23, 2002.  The result of the item submitted for a vote was as follows:

            Number of Votes

% of Total

Cast for Class I

Outstanding

                  Director

          Shares Voted

James M. Edwards, Sr.

         10,848,458     

                  79.3

Rev. Christian R. Oravec

         10,885,770

                  79.5

Howard M. Picking, III

         10,864,814

                  79.4

Sara A. Sargent

         10,855,919

                  79.3

Robert L. Wise

         10,872,842

                  79.4

Item 6.     Exhibits and Reports on Form 8-K

     (a)    Exhibits

             3.1

Articles of Incorporation, Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

             3.2

Bylaws, Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

10.1

Agreement, dated May 24,2002, between AmeriServ Financial, Inc. and Jeffrey A. Stopko.

10.2 Agreement, dated May 24, 2002, between AmeriServ Financial, Inc. and

Ray M. Fisher.

15.1

Statement regarding predecessor independent public accountant’s awareness letters

15.2

Report of Deloitte & Touche regarding unaudited interim financial statement information

99.1 Certification pursuant to 18 U.S.C. section1350, as adopted pursuant to    

section 906 of the Sarbanes-Oxley Act of 2002

99.2 Certification pursuant to 18 U.S.C. section1350, as adopted pursuant to    

section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:  On June 28, 2002, the Company dismissed Arthur Andersen LLP and appointed Deloitte & Touche LLP as its new independent accountants.  

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AmeriServ Financial, Inc.             

Registrant

Date: August 13, 2002         

 \s\Orlando B. Hanselman

Orlando B.  Hanselman

Chairman, President and

Chief Executive Officer

Date: August 13, 2002          

\s\Jeffrey A. Stopko                           

Jeffrey A. Stopko

Senior Vice President and

Chief Financial Officer

STATEMENT OF MANAGEMENT RESPONSIBILITY

July 19, 2002

To the Stockholders and

Board of Directors of

AmeriServ Financial, Inc.

Management of AmeriServ Financial, Inc. and its subsidiaries have prepared the consolidated financial statements and other information in the Form 10-Q in accordance with generally accepted accounting principles and are responsible for its accuracy.

In meeting its responsibilities, management relies on internal accounting and related control systems, which include selection and training of qualified personnel, establishment and communication of accounting and administrative policies and procedures, appropriate segregation of responsibilities, and programs of internal audit.  These systems are designed to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets, and that assets are safeguarded against unauthorized use or disposition.  Such assurance cannot be absolute because of inherent limitations in any internal control system.

Management also recognizes its responsibility to foster a climate in which Company affairs are conducted with the highest ethical standards.  The Company's Code of Conduct, furnished to each employee and director, addresses the importance of open internal communications, potential conflicts of interest, compliance with applicable laws, including those related to financial disclosure, the confidentiality of propriety information, and other items.  There is an ongoing program to assess compliance with these policies.

The Audit Committee of the Company's Board of Directors consists solely of outside directors.  The Audit Committee meets periodically with management and the independent accountants to discuss audit, financial reporting, and related matters.  Deloitte & Touche LLP and the Company's internal auditors have direct access to the Audit Committee.

­­­­­­­\s\Orlando B. Hanselman

\s\Jeffrey A. Stopko    

Orlando B. Hanselman

Jeffrey A. Stopko

Chairman, President &

Senior Vice President &

Chief Executive Officer

Chief Financial Officer

INDEPENDENT ACCOUNTANTS’ REPORT

To the Board of Directors and Stockholders of

AmeriServ Financial, Inc.

Johnstown, Pennsylvania

We have reviewed the accompanying consolidated balance sheet of AmeriServ Financial, Inc. and subsidiaries as of June 30, 2002, the related consolidated statement of income for the three-month and six-month periods then ended, and the related statement of cash flows for the six-month period then ended.  These financial statements are the responsibility of the Corporation’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants.  A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements as of June 30, 2002, and for the three- and six-month periods then ended for them to be in conformity with accounting principles generally accepted in the United States of America.

/s/Deloitte & Touche LLP

Pittsburgh, Pennsylvania

July 19, 2002

INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANT’S REVIEW REPORTS

This is a copy of a review report previously issued by Arthur Andersen LLP (“Andersen”).  The report has not been reissued by Andersen nor has Andersen provided an awareness letter for the inclusion of its report in this Current Report on Form 10-Q.

COPY

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and

Board of Directors of

AmeriServ Financial, Inc.:

We have reviewed the accompanying consolidated balance sheets of AmeriServ Financial, Inc. (a Pennsylvania corporation) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three and six month periods then ended.  These financial statements are the responsibility of the Company's management.  

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants.  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.   It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.  

Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.  

We have previously audited, in accordance with auditing standards generally accepted in the United States, the balance sheet of AmeriServ Financial, Inc. as of December 31, 2000, and, in our report dated January 21, 2001, we expressed an unqualified opinion on that statement.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2000, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.  

/s/Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,

July 13, 2001

INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANT’S REVIEW REPORTS

This is a copy of a review report previously issued by Arthur Andersen LLP (“Andersen”).  The report has not been reissued by Andersen nor has Andersen provided an awareness letter for the inclusion of its report in this Current Report on Form 10-Q.

COPY

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and

Board of Directors of

AmeriServ Financial, Inc.:

We have reviewed the accompanying consolidated balance sheets of AmeriServ Financial, Inc. (a Pennsylvania corporation) and subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three month periods then ended.  These financial statements are the responsibility of the Company's management.  

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants.  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.   It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.  

Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.  

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of AmeriServ Financial, Inc. as of December 31, 2001, and, in our report dated January 22, 2002, we expressed an unqualified opinion on that statement.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.  

/s/Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,

April 12, 2002

#

Exhibit 10.1

AGREEMENT

This Agreement (the "Agreement") made the 24^th day of

May 2002, by and between AmeriServ Financial, Inc. (the "Company"), a Pennsylvania corporation, having its principal place of business at 216 Franklin Street, Post Office Box 430, Johnstown, Pennsylvania 15907-0430, and JEFFREY A. STOPKO ("Executive").

WHEREAS, the Executive is the Senior Vice President, CFO and Treasurer of the Company.

WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interest of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) of the Company.  The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive's full attention and dedication to

the Company currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations.

NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

1.  Term.  This Agreement shall be for a three (3) year period commencing on the date first set forth above and shall be automatically renewed on the first and on each subsequent annual anniversary of the above day and month ("Annual Renewal Date") for a period ending three (3) years from each Annual Renewal Date unless either party shall give written notice of non-renewal at least sixty (60) days prior to the Annual Renewal Date.

2.  Change in Control.  As used in this Agreement, Change in Control shall mean the occurrence of any of the following:

(a)  any "person" or "group" (as those terms are defined or used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as enacted and in force on the date hereof) is or becomes the "beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange Act, as enacted and in force on the date hereof) of securities of the Company representing 24.99% or more of the combined voting power of the Company's securities then outstanding;

(b)  there occurs a merger, consolidation, share exchange, division or other reorganization involving the Company and another entity in which Company shareholders do

not continue to hold a majority of the capital stock of the

resulting entity, or a sale, exchange, transfer, or other

-2-

disposition of substantially all of the assets of the

Company to another entity or other person; or

(c)  there occurs a contested proxy solicitation or solicitations of the Company's shareholders which results in the contesting party or parties obtaining the ability to elect a majority of the members of the Board of Directors standing for election at one or more meetings of the Company's shareholders.

3.  Triggering Events.  If a Change in Control shall occur and if thereafter, at any time during the term of this Agreement there shall be:

(a)  any involuntary termination of the Executive by the Company, other than for Cause as defined in Section 4 below;

(b)  any reduction in the Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities, or authority as such may be increased from time to time during the term of this Agreement;

(c)  the assignment to the Executive of duties inconsistent with the Executive's office as such duties existed on the day immediately prior to the date of a Change in Control;

(a)

any reduction in the Executive's annual base

salary in effect on the day immediately prior to the date of

-3-

a Change in Control;

(e)  any failure to continue the Executive’s participation, on substantially similar terms, in any incentive compensation or bonus plans of the Company in which the Executive participated in immediately prior to the Change in Control, or any change or amendment to any of the substantive provisions of any of such plans which would materially decrease the potential benefits to the Executive under any of such plans;

(f)  any failure to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any pension, life insurance, medical, health and accident, disability or other employee plans of the Company in which the Executive participated in immediately prior to the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, unless such reduction relates to a reduction in benefits applicable to all employees generally; or

(a)

any breach of any provision of this Agreement by

the Company, which breach shall not have been cured by the Company within thirty (30) days of the Company's receipt from the Executive or his agent of written notice specifying in reasonable detail the nature of the Company's breach;

then Executive, at his sole discretion, may upon no less than

ninety (90) days written notice to Company, resign from

-4-

employment with the Company (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering written notice to the Company at any time during the term of this Agreement.

4.  Termination of Executive for Cause.  Upon or following a Change in Control, the Company shall have the right at any time to terminate the Executive's employment for Cause.  In such event, the Company shall give prompt notice to the Executive, specifying in reasonable detail the basis for such termination.  For purposes of this Agreement, "Cause" shall mean the following conduct of the Executive:

(a)  Material breach of any provision of this Agreement, which breach Executive shall have failed to cure within thirty (30) days after Employee's receipt of written notice from the Company specifying the specific nature of the Executive's breach;

(b)  Willful misconduct of Executive that is materially inimical to the best interests, monetary or otherwise, of the Company;

(a)

Conviction of a felony or of any crime involving

moral turpitude, fraud or deceit;

(b)

Adjudication as a bankrupt under the United

States Bankruptcy Code.

1.

Compensation and Benefits.  Upon the occurrence of an

-5-

event set forth in Section 3 hereof and the delivery of a notice

of termination to the Company pursuant to Section 3 hereof, the Executive shall be absolutely entitled to receive the compensation and benefits set forth below:

(a)

the Executive shall select, in his absolute

discretion, and receive either (i) monthly installments equal to one thirty-sixth (1/36) of an amount equal to 2.99 times the following:  (x) During the initial three-year term of this Agreement (the "Initial Term") commencing on the date hereof, the highest combined base salary and bonus paid or payable to the Executive in the then current year or in any one of the last five fiscal years preceding the Executive's delivery of a notice of termination; or (y) After the expiration of the Initial Term, the quotient obtained by dividing the sum of the Executive's combined salary and bonuses in the five years preceding the Executive's delivery of a notice of termination by five, such monthly installments shall be payable for a period of one year (the "Payment Period") commencing on the first day of the f irst calendar month after Executive's delivery of notice of termination, or (ii) a one time lump sum payment equal to the non-discounted sum of the twelve (12) monthly

payments provided for in Section 5(a)(i) immediately above;

(b)  from the date of the notice of termination through and including the last day of the Payment Period, the

Executive shall be entitled to continue to participate in

-6-

the employee retirement plan(s) of the Company and any

supplemental executive retirement plan(s) (including deferred profit sharing plan) or other plan in effect during the term of this Agreement designed to supplement payments made under such employee retirement plan, as the case may be, as if the Executive's employment had not terminated;

(c)  from the date of the notice of termination through and including the last day of the Payment Period, the Executive shall be provided with life, disability, and medical insurance benefits at levels equivalent to the highest levels in effect for the Executive during any one of the three (3) calendar years preceding the year in which the notice of termination is delivered; and

(d)  on the date of the notice of termination, all options held by the Executive to acquire common stock of the Company, to the extent not immediately exercisable by their terms, shall become immediately exercisable, and such options shall be exercisable by the Executive at any time prior to the earlier of the expiration date(s) of such stock options or the date which is ninety (90) days after the Executive's termination of employment with the Company.

In the event the Executive is ineligible to continue

participation in the employee retirement plan of the Company and/or any supplemental executive retirement plan (including deferred profit sharing plan) or other plan in effect during the

term of this Agreement designed to supplement payments made under

-7-

such employee retirement plan or in any of Company’s life, disability or medical insurance plans or programs, the Company shall, in lieu of such participation, pay the Executive a dollar amount equal to the dollar amount of the benefit forfeited by the Executive as a result of such ineligibility or a dollar amount equal to the cost to the Executive to obtain such benefits in the case of any life, disability or medical insurance plans or programs.

6.  Beneficiary.  Should the Executive die after entitlement but prior to payment in full of amounts due pursuant to Section 5(a)(i) hereof, such monthly payments shall continue (if such payment option was so elected by Executive) to the Executive's designated beneficiary or his estate until such entitlement has been paid in full.

1.

Employment at Will.  This Agreement contains the entire

understanding of the Company and the Executive with respect to the subject matter hereof and, subject to the provisions of any other agreement between the Executive and the Company, the Executive shall remain an employee at will and nothing herein

shall confer upon the Executive any right to continued employment and shall not affect the right of the Company to terminate the Executive for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any

-8-

rights the Executive may have to compensation and benefits as

provided for in Section 5 hereof.

2.

Arbitration.  Except as otherwise provided herein, in

the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof.  If any relief other than injunctive relief is sought, the Company and the Executive agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 8 and the Commercial Arbitration Rules of the American Arbitration Association ("AAA").  The matter shall be heard and decided, and awards rendered, by a panel of three (3) arbitrators (the "Arbitration Panel").  The Company and Executive shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel.  The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and

assigns, and judgment on the award may be entered by any court having jurisdiction thereof.  Each party shall pay their professional fees, expenses and costs incurred in connection with the resolution of any controversy, dispute or claim arising out of, or relating to this Agreement.

-9-

9.  Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company, and the Company shall require any successor to expressly

acknowledge and assume its obligation hereunder.   This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Executive or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  The Executive may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him/her shall be void and of no force and effect.

10.  Prior Termination.  Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with

the Company is terminated prior to the date on which a Change in Control occurs either (a) by the Company other than for Cause or (b) by the Executive for any one of the reasons set forth in Section 3 hereof, and it is reasonably demonstrated that such termination of employment (i) was at the request of a third party

who has taken steps reasonably calculated to effect the Change in Control or (ii) otherwise arose in connection with or

anticipation of the Change in Control, then for all purposes of this Agreement the termination shall deemed to have occurred upon a Change in Control and the Executive will be entitled to the

compensation and benefits provided for in Section 5 hereof.

-10-

11.  Release.  The Executive hereby acknowledges and agrees that prior to the occurrence of the Executive's or his dependent's right to receive from the Company or any of its representatives or agents any compensation or benefit to be paid or provided to him or his dependents pursuant to Section 5 of this Agreement, the Executive may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims the Executive has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns.

12.  Compliance with Laws.  The parties hereto acknowledge and agree that this Agreement and each party's enforcement of their rights hereunder are subject to the Comprehensive Thrift and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted and in force on the date hereof.

13.  Notice.  Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Executive, to his residence address as set forth below, and in the case of the Company, to the address of its

principal place of business, in care of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing.

-11-

IN WITNESS WHEREOF, the parties have executed this Agreement

as of the date first above written.

Attest:

AmeriServ Financial, Inc.

/s/Betty L. Jakell

 By:/s/Orlando B. Hanselman

Secretary                     

Orlando B. Hanselman

Chairman, President & CEO

/s/Jeffrey A. Stopko

Jeffrey A. Stopko

Address:  128 Luna Lane            

Johnstown, PA 15904-3068

#

Exhibit 10.2

AGREEMENT

This Agreement (the "Agreement") made the 24th day of

May 2002, by and between AmeriServ Financial, Inc. (the "Company"), a Pennsylvania corporation, having its principal place of business at 216 Franklin Street, Post Office Box 430, Johnstown, Pennsylvania 15907-0430, and RAY M. FISHER

("Executive").

WHEREAS, the Executive is the President and Chief Executive Officer of AmeriServ Associates, Inc., ("AmeriServ Associates"), a subsidiary of the Company, directly owned by the Company.

WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interest of the Company and its shareholders to ensure that the Company and AmeriServ Associates will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) of the Company.  The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive's full attention and dedication to

AmeriServ Associates currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations.

NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

1.  Term.  This Agreement shall be for a three (3) year period commencing on the date first set forth above and shall be automatically renewed on the first and on each subsequent annual anniversary of the above day and month ("Annual Renewal Date") for a period ending three (3) years from each Annual Renewal Date unless either party shall give written notice of non-renewal at least sixty (60) days prior to the Annual Renewal Date.

1.

Change in Control.  As used in this Agreement, Change

in Control shall mean the occurrence of any of the following:

(a)  any "person" or "group" (as those terms are defined or used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as enacted and in force on the date hereof) is or becomes the "beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange Act, as enacted and in force on the date hereof) of securities of the Company representing 24.99% or more of the combined voting power of the Company's securities then outstanding;

(b)  there occurs a merger, consolidation, share exchange, division or other reorganization involving the Company and another entity in which Company shareholders do

not continue to hold a majority of the capital stock of the

-2-

resulting entity, or a sale, exchange, transfer, or other

disposition of substantially all of the assets of the

Company to another entity or other person; or

(c)  there occurs a contested proxy solicitation or solicitations of the Company's shareholders which results in the contesting party or parties obtaining the ability to elect a majority of the members of the Board of Directors standing for election at one or more meetings of the Company's shareholders.

3.  Triggering Events.  If a Change in Control shall occur and if thereafter, at any time during the term of this Agreement there shall be:

(a)  any involuntary termination of the Executive by  AmeriServ Associates, other than for Cause as defined in Section 4 below;

(b)  any reduction in the Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities, or authority as such may be increased from time to time during the term of this Agreement;

(c)  the assignment to the Executive of duties inconsistent with the Executive's office as such duties existed on the day immediately prior to the date of a Change in Control;

-3-

(a)

any reduction in the Executive's annual base

salary in effect on the day immediately prior to the date of

a Change in Control;

(b)

any failure to continue the Executive's

participation, on substantially similar terms, in any incentive compensation or bonus plans of AmeriServ Associates in which the Executive participated in immediately prior to the Change in Control, or any change or amendment to any of the substantive provisions of any of such plans which would materially decrease the potential benefits to the Executive under any of such plans;

(f)  any failure to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any pension, life insurance, medical, health and accident, disability or other employee plans of AmeriServ Associates in which the Executive participated in immediately prior to the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, unless such reduction relates to a reduction in benefits applicable to all employees generally; or

(a)

any breach of any provision of this Agreement by

the Company or AmeriServ Associates, which breach shall not have been cured by the Company or AmeriServ Associates within thirty (30) days of the Company's receipt from the Executive or his agent of written notice specifying in

-4-

reasonable detail the nature of the Company's or AmeriServ Associates’ breach;

then Executive, at his sole discretion, may upon no less than

ninety (90) days written notice to Company, resign from employment with AmeriServ Associates (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering written notice to the Company at any time during the term of this Agreement.

4.  Termination of Executive for Cause.  Upon or following a Change in Control, the Company or AmeriServ Associates shall have the right at any time to terminate the Executive's employment for Cause.  In such event, the Company shall give prompt notice to the Executive, specifying in reasonable detail the basis for such termination.  For purposes of this Agreement, "Cause" shall mean the following conduct of the Executive:

(a)  Material breach of any provision of this Agreement, which breach Executive shall have failed to cure within thirty (30) days after Employee's receipt of written notice from the Company specifying the specific nature of the Executive's breach;

(b)  Willful misconduct of Executive that is materially inimical to the best interests, monetary or otherwise, of the Company or AmeriServ Associates;

(c)  Conviction of a felony or of any crime involving moral turpitude, fraud or deceit;

-5-

(a)

Adjudication as a bankrupt under the United

States Bankruptcy Code.

5.  Compensation and Benefits.  Upon the occurrence of an event set forth in Section 3 hereof and the delivery of a notice of termination to the Company pursuant to Section 3 hereof, the Executive shall be absolutely entitled to receive the compensation and benefits set forth below:

(a)  the Executive shall select, in his absolute discretion, and receive either (i) monthly installments equal to one thirty-sixth (1/36) of an amount equal to 2.99 times the following:  (x) During the initial three-year term of this Agreement (the "Initial Term") commencing on the date hereof, the highest combined base salary and bonus paid or payable to the Executive in the then current year or in any one of the last five fiscal years preceding the Executive's delivery of a notice of termination; or (y) After the expiration of the Initial Term, the quotient obtained by dividing the sum of the Executive's combined salary and bonuses in the five years preceding the Executive's delivery of a notice of termination by five, such monthly installments shall be payable for a period of one year (the " ;Payment Period") commencing on the first day of the first calendar month after Executive's delivery of notice of termination, or (ii) a one time lump sum payment equal to the non-discounted sum of the twelve (12) monthly payments provided for in Section 5(a)(i) immediately above;

-6-

(b)  from the date of the notice of termination through and including the last day of the Payment Period, the

Executive shall be entitled to continue to participate in the employee retirement plan(s) of the Company and any

supplemental executive retirement plan(s) (including deferred profit sharing plan) or other plan in effect during the term of this Agreement designed to supplement payments made under such employee retirement plan, as the case may be, as if the Executive's employment had not terminated;

(c)  from the date of the notice of termination through and including the last day of the Payment Period, the Executive shall be provided with life, disability, and medical insurance benefits at levels equivalent to the highest levels in effect for the Executive during any one of the three (3) calendar years preceding the year in which the notice of termination is delivered; and

(d)  on the date of the notice of termination, all options held by the Executive to acquire common stock of the Company, to the extent not immediately exercisable by their terms, shall become immediately exercisable, and such options shall be exercisable by the Executive at any time prior to the earlier of the expiration date(s) of such stock options or the date which is ninety (90) days after the Executive's termination of employment with the Company.

In the event the Executive is ineligible to continue participation in the employee retirement plan of AmeriServ

-7-

Associates and/or any supplemental executive retirement plan (including deferred profit sharing plan) or other plan in effect during the term of this Agreement designed to supplement payments made under such employee retirement plan or in any of AmeriServ Associates' life, disability or medical insurance plans or programs, the Company shall, in lieu of such participation, pay the Executive a dollar amount equal to the dollar amount of the benefit forfeited by the Executive as a result of such ineligibility or a dollar amount equal to the cost to the Executive to obtain such benefits in the case of any life, disability or medical insurance plans or programs.

6.  Beneficiary.  Should the Executive die after entitlement but prior to payment in full of amounts due pursuant to Section 5(a)(i) hereof, such monthly payments shall continue (if such payment option was so elected by Executive) to the Executive's designated beneficiary or his estate until such entitlement has been paid in full.

7.  Employment at Will.  This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof and, subject to the provisions of any other agreement between the Executive and the Company, the Executive shall remain an employee at will and nothing herein shall confer upon the Executive any right to continued employment and shall not affect the right of AmeriServ Associates to terminate the Executive for any reason not prohibited by law;

-8-

provided, however, that any such removal shall be without prejudice to any rights the Executive may have to compensation and benefits as provided for in Section 5 hereof.

8.  Arbitration.  Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof.  If any relief other than injunctive relief is sought, the Company and the Executive agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 8 and the Commercial Arbitration Rules of the American Arbitration Association ("AAA").  The matter shall be heard and decided, and awards rendered, by a panel of three (3) arbitrators (the "Arbitration Panel").  The Company and Executive shall each select one arbitrator from the AAA National P anel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel.  The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof.  Each party shall pay their professional fees, expenses and costs incurred in connection with the resolution of any controversy, dispute or claim arising out of, or relating to this Agreement.

-9-

9.  Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company, and the Company shall require any successor to expressly

acknowledge and assume its obligation hereunder.  This Agreement shall be void and no further force and effect upon the Company's sale of all the voting stock or assets of AmeriServ Associates to an unrelated third party or to combine with another Company affiliate, except if it is reasonably demonstrated such sale was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or such sale otherwise arose in connection with or in anticipation of a Change in Control.  This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Executive or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  The Executive may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any suc h purported delegation by him/her shall be void and of no force and effect.

10.  Prior Termination.  Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with

AmeriServ Associates is terminated prior to the date on which a Change in Control occurs either (a) by the Company or AmeriServ Associates other than for Cause or (b) by the Executive for any one of the reasons set forth in Section 3 hereof, and it is

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reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change in Control or (ii) otherwise arose in connection with or anticipation of the Change in Control, then for all purposes of this Agreement the termination shall deemed to have occurred upon a Change in Control and the Executive will be entitled to the compensation and benefits provided for in Section 5 hereof.

11.  Release.  The Executive hereby acknowledges and agrees that prior to the occurrence of the Executive's or his dependent's right to receive from the Company or any of its representatives or agents any compensation or benefit to be paid or provided to him or his dependents pursuant to Section 5 of this Agreement, the Executive may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims the Executive has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns.

12.  Compliance with Laws.  The parties hereto acknowledge and agree that this Agreement and each party's enforcement of their rights hereunder are subject to the Comprehensive Thrift and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted and in force on the date hereof.

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13.  Notice.  Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Executive, to his residence address as set forth below, and in the case of the Company, to the address of its

principal place of business, in care of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing.

IN WITNESS WHEREOF, the parties have executed this Agreement

as of the date first above written.

Attest:

AmeriServ Financial, Inc.

/s/Betty L. Jakell

 By:/s/Orlando B. Hanselman

Secretary                        

Orlando B. Hanselman

Chairman, President & CEO

/s/Ray M.Fisher

Ray M. Fisher

Address:  160 E. 5^th Avenue        

Bellefonte, PA 16823-2651

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Exhibit 15.1

We have attempted and have been unable to obtain from Arthur Andersen LLP (“Andersen”) an awareness letter for the reissuance of their review report on our consolidated balance sheet as of June 30, 2001 and the related consolidated statements of income for the three month and six month periods ended June 30, 2001 and the related consolidated statement of cash flows for the six month period ended June 30, 2001, nor for the reissuance of their review report on our consolidated balance sheet as of March 31, 2002 and the related consolidated statement of income and of cash flows for the three month period ended March 31, 2002.  As such, we have included copies of Andersen’s prior review reports in the filing and will prominently disclose the fact that the review reports are copies and that they have not been reissued by Andersen.   

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Exhibit 15.2

August 13, 2002

AmeriServ Financial, Inc.

216 Franklin St., P.O. Box 430

Johnstown, PA  15907

We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of AmeriServ Financial, Inc. and subsidiaries for the period ended June 30, 2002, as indicated in our report dated July 23, 2002; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated by reference in Registration Statement No. 33-56604 on Form S-3; Registration Statement No. 33-53935 on Form S-8; Registration Statement No. 33-55845 on Form S-8; Registration Statement No. 33-55207 on Form S-8; and Registration Statement No. 33-55211 on Form S-8.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

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Exhibit 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AmeriServ Financial, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Orlando B. Hanselman, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1)

The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Orlando B. Hanselman

Chairman, President and

Chief Executive Officer

August 13, 2002

Exhibit 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AmeriServ Financial, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey A. Stopko, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1.  The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Jeffrey A. Stopko

Senior Vice President and

Chief Financial Officer

August 13, 2002

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