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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                         September 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 November 1, 2002    

Common Stock, par value $2.50

              13,882,301

per share                         

#

AmeriServ Financial, Inc.

                                          INDEX

      AmeriServ Financial, Inc.

                                                                    CONSOLIDATED BALANCE SHEETS

(In thousands)

See accompanying notes to consolidated financial statements.

AmeriServ Financial, Inc.

                                                CONSOLIDATED STATEMENTS OF OPERATIONS

   (In thousands)                           

    Unaudited

CONTINUED ON NEXT PAGE

CONSOLIDATED STATEMENS OF OPERATIONS

CONTINUED FROM PREVIOUS PAGE

(In thousands)                           

 Unaudited

See accompanying notes to consolidated financial statements.

AmeriServ Financial, Inc.

                                    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                          (In thousands)

Unaudited

See accompanying notes to consolidated financial statements.

      AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS 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 had 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 $1.1 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 467,582 and 484,313 shares of common stock were outstanding during the first nine 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 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):

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 $584,000 in income tax payments in the first nine months of 2002 as compared to $482,000 for the first nine months of 2001.  Total interest expense paid amounted to $31,661,000 in 2002's first nine months compared to $42,907,000 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:                          

(1)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 September 30, 2002, 95.3% of the portfolio was rated "AAA" compared to 96.8% at September 30, 2001. Approximately  4.3% of the portfolio was rated below "A" or unrated on September 30, 2002.

7.

Loans Held for Sale

At September 30, 2002, $4,015,000 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 Statements of Operations.  

8.

Loans

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

Real estate-construction loans comprised 7.7% of total loans net of unearned income at September 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 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 35, 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 $8,282,000 and $8,578,000 being specifically identified as impaired and a corresponding reserve allocation of $448,000 and $533,000 at September 30, 2002, and September 30, 2001, respectively.  The average outstanding balance for loans being specifically identified as impaired was $10,421,000 for the nine months of 2002 compared to $6,565,000 for the nine 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  nine months of 2002 was $298,000, compared to $227,000 for the nine 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 41% of the Company's total loan portfolio, only $417,000 or 7.2% 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 September 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 35.)

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 September 30, 2002 the Company had no interest rate swaps outstanding.   At September 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 nine 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 would have been reflected as a change in accounting principle).  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.  Of the Company’s total goodwill of $9.7 million, $9.5 million is allocated to the retail banking segment and $200,000 is allocated to the mortgage banking segment.

As of September 30, 2002, the Company’s core deposit intangibles had an original cost of $17.6 million with accumulated amortization of $11.1 million.   The weighted average amortization period of the Company’s core deposit intangibles at September 30, 2002, is 5.75 years. Amortization expense for the nine months ended September 30, 2002 totaled $1,074,000.  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):  

In October of 2002 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.147, “Acquisition of Certain Financial Institutions.”  SFAS No.147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution and also provides guidance on the accounting for the impairment or disposal of acquired long-term customer relationship intangible assets.  The Company is currently evaluating the effect that adoption of the provisions of SFAS # 147 will have on its results of operation and financial position.

14.  Federal Home Loan Bank Borrowings

Total FHLB borrowings consist of the following at September 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 September 30, 2002, the Company met all capital adequacy requirements to which it is subject.

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 three and nine months periods 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 SEPTEMBER 30, 2002 VS. THREE MONTHS ENDED SEPTEMBER 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 reported a net loss of $4.2 million or $0.31 per share in the third quarter of 2002 compared to net income of $240,000 or $0.02 per share in the third quarter of 2001.  The net loss in the 2002 third quarter was due in part to a $920,000 restructuring charge associated with implementing the Company’s earnings improvement program.  The Company also incurred in the third quarter of 2002 a $3.0 million mortgage servicing impairment charge ($1.4 million greater than the third quarter 2001) and a $3.4 million loan loss provision ($3.1 million greater than the third quarter of 2001).  These three factors were the key items responsible for the third quarter 2002 loss.  The additional non-cash mortgage servicing impairment charges and the higher loan loss provision reflect the weak economic environment and skepticism in the equity markets which have caused f urther declines in interest rates to 40 year lows.

.....NET INTEREST INCOME AND MARGIN..... The Company's net interest income represents the amount by which interest income on average earning assets exceeds interest paid on average 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 average earning assets and average interest bearing liabilities.  The following table compares the Company's net interest income performance for the third quarter of 2002 to the third quarter of 2001 (in thousands, except percentages):

N/M - not meaningful

The Company’s net interest income in the third quarter of 2002 decreased by $73,000 or 1.1% from the prior year third quarter due to a reduced level of earning assets.  The decline in the level of earning assets was due to a $142 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 31.6% in the third quarter of 2002 compared to 38.0% in the third quarter of 2001.  

The reduced net interest income from a smaller earning asset base was partially offset by improvement in the net interest margin.  The Company’s net interest margin averaged 2.48% in the third quarter of 2002; 13 basis points better than the 2.35% net interest margin reported in the third quarter of 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 a lower cost of funds and the net interest margin increase.

...COMPONENT CHANGES IN NET INTEREST INCOME... Regarding the separate components of net interest income, the Company's total interest income for the third quarter of 2002 decreased by $4.4 million or 21.2% when compared to the same 2001 quarter. This decrease was due to a $115 million decline in earning assets and a 95 basis point drop in the earning asset yield.  Within the earning asset base, the yield on the total investment securities portfolio dropped by 111 basis points to 4.92% while the yield on the total loan portfolio decreased by 113 basis points to 6.74%. 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 $115 million decline in the volume of earning assets was due to a $142 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 throughout 2002.  This decline in investment securities was partially offset by a $31 million or 5.5% 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 third quarter of 2002 decreased by $4.3 million or 31.3% 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 $124 million or 23.3% lower in the third quarter of 2002 as fewer borrowings were needed to fund a smaller earning asset base.  

The total cost of funds declined by 110 basis points to 3.77% and was driven down by a reduced cost of both deposits and borrowings.  Specifically, the cost of interest bearing deposits decreased by 91 basis points to 2.75% and the cost of borrowings declined by 96 basis points to 5.23%.  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 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 September 30 (In thousands, except percentages)

…..PROVISION FOR LOAN LOSSES.....The Company’s provision for loan losses totaled $3.4 million or 2.24% of total loans in the third quarter of 2002.  This represented an increase of $3.1 million from the third quarter 2001 provision of $315,000 or 0.22% of total loans.  The $3.4 million third quarter 2002 provision exceeded net charge-offs for the quarter that totaled $3.1 million or 2.08% of total loans.   Of the $3.1 million of third quarter net charge-offs, $2.5 million related to two problem loans-one in the food services industry with locations at the Pittsburgh Airport and the other in the lumber industry. (These problem credits were previously discussed in 10Q’s filed earlier this year.)  At September 30, 2002, these two non-performing assets totaled $1.7 million on which the Company anticipates there will be no further charge-offs as it completes the workout process.

  Overall, total non-performing assets amounted to $5.4 million or 0.91% of total loans at September 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 106% at September 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 third quarter of 2002 totaled $4.9 million; a $382,000 or 7.2% decrease from the third quarter 2001 performance.  Factors contributing to the lower non-interest income in 2002 included:

* the Company realized a $1.4 million gain on the sale of its Coalport Branch in the third quarter of 2001.  The Company captured an 8.875% core deposit premium on the sale of approximately $15.7 million of deposits.  There was no such gain in the third quarter of 2002.  

* a $1.2 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 capture profits on securities that had risks of accelerated prepayments or extension.  These gains also helped offset a portion of the heightened mortgage servicing impairment charge.

* a $209,000 increase in deposit service charges due to the fourth quarter 2001 implementation of a first in the market overdraft privilege program.  

* a $310,000 decrease in other income due to lower fees received on the early termination of leased equipment and other fixed asset sales.  

.....NON-INTEREST EXPENSE..... Non-interest expense for the third quarter of 2002 totaled $15.0 million; a $3.4 million or 29.0% increase from the third quarter 2001 performance.  Factors contributing to the higher non-interest expense in 2002 included:

* the Company recognized a $3.0 million non-cash impairment charge on its mortgage servicing rights in the third quarter of 2002.  This non-cash impairment charge is $1.4 million greater than the prior year third quarter and reflects an increase in mortgage prepayment speeds due to further declines in mortgage interest rates.  These low rates have contributed to unprecedented levels of mortgage refinancing activity which has had a significant negative impact on the value of the Company’s mortgage servicing rights.  Specifically, the Mortgage Bankers Association Refi Index reached in excess of 5000 in September 2002; the highest level ever recorded.                 

* the Company also recorded in the third quarter of 2002 a $920,000 restructuring charge associated with implementing its earnings improvement program.  The first phase of the earnings improvement program will produce at least $4 million of pre-tax earnings improvement with $3.5 million or 88% coming from identified cost savings and $500,000 or 12% coming from identified revenue enhancements.  Within the cost savings, approximately $2 million will be achieved through a reduction in force that will result in the elimination of at least 43 full-time equivalent employees or 9.1% of the Company’s workforce.  20 of these effected employees are non-union personnel (senior management through administrative staff) and 23 are union positions i.e.(tellers, clerical staff and facilities personnel).  As of Septe mber 30, 2002, 19 of these employees had already been eliminated with the remainder of the position eliminations scheduled for completion by mid-November when the contractual union bumping process is finished.  Other expense savings will be achieved through a significant curtailment of advertising expense, reduced technology-related expenditures through reallocation of existing personal computers, reduced charitable contributions, and the deferment of certain planned capital expenditures.  Full earnings benefit from all first phase actions will be achieved in 2003.

* salaries and employee benefits increased by $465,000 due to higher medical insurance premiums, increased sales incentive based compensation, and higher pension expense.  

* 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 third quarter of 2001 while no goodwill amortization or impairment charges were recorded in the third quarter of 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. NINE MONTHS ENDED SEPTEMBER 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 reported a net loss of $3.2 million or $0.23 per share in the first nine months of 2002 compared to net income of $1.6 million or $0.12 per share in the first nine months of 2001.  The Company’s first nine months of 2002 net income was negatively impacted by higher non-interest expense, an increased provision for loan losses, 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 benefit for income taxes.          

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

N/M - not meaningful

The Company’s net interest income on a tax-equivalent basis decreased by $1.3 million or 5.7% from the first nine months of 2001 due to a lower level of earning assets. This decline more than offset the benefit to net interest income of a six basis point increase in the net interest margin to 2.49%.  The reduced level of earning assets was due to a $119 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 32.0% in the first nine months of 2002 compared to 38.0% in the first nine months of 2001.            &nbs p;   

...COMPONENT CHANGES IN NET INTEREST INCOME... Regarding the separate components of net interest income, the Company's total interest income for the first nine months of 2002 decreased by $12.2 million or 19.5% 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 $93 million lower in the first nine months of 2002 due to a $119 million or 19.5% 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 nine-month period.  

A 97 basis point drop in the earning asset yield to 6.12% also negatively impacted interest income.  Within the earning asset base, the yield on the total investment securities portfolio dropped by 109 basis points to 5.15% while the yield on the total loan portfolio decreased by 113 basis points to 6.97%.  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 nine months of 2002 decreased by $11.7 million or 28.2% 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 $109 million or 20.8% lower in the first nine 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 104 basis points to 3.99% and was driven down by a reduced cost of deposits.  Specifically, the cost of interest bearing deposits decreased by 103 basis points to 2.87% 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 85 basis points as the Company benefited from the maturity of $180 million in interest rate swaps that had previously fixed the cost of certain FHLB borrowings at 6.64%.

The lower deposit costs did not negatively impact the Company’s deposit generation strategies, as total average deposits were $21 million or 3.2% higher in the first nine months of 2002 as compared to the same period in 2001. This growth in deposits occurred despite the third quarter 2001 strategic sale of approximately $16 million of deposits associated with the Company’s Coalport Branch.  Factors contributing to the overall gross $37 million average deposit growth included: $14 million of deposits from the Company’s two new union niche offices, $8 million from the full service community office opened in State College, the acquisition of $9 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 capture 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 increasing deposits.  These campaigns resulted in the addition of nearly 1,400 new customers and approximately $4.0 million in new deposits in the first nine months of 2002.  The cost of new customer acquisition has been cost-effective reaching breakeven in just 10 months.  

The Company has actively used borrowed funds to purchase investment securities to leverage its 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 32.0% in the first nine months of 2002 compared to 38.0% in the first nine months of 2001.  The total revenue cont ribution from leverage assets (including investment security gains and losses) amounted to $2.9 million in the first nine months of 2002 compared to $771,000 for the first nine months of 2001.  Since its inception in 1995, the leverage program has produced total pre-tax revenue of $35.5 million.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the nine-month periods ended September 30, 2002 and September 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.  

#

Nine Months Ended September 30 (In thousands, except percentages)

…..PROVISION FOR LOAN LOSSES.....The Company’s provision for loan losses for the first nine months of 2002 totaled $4.7 million or 1.07% of total loans. This represented an increase of $3.8 million from the first nine months of 2001 provision of $1.0 million or 0.23% of total loans.  Net charge-offs were also higher in the first nine months of 2002 totaling $4.8 million or 1.08% of total loans compared to net charge-offs of $1.2 million or 0.29% of total loans in the first nine months of 2001.  The higher net charge-offs in 2002 are primarily attributable to: a $2.0 million charge-off on a food services loan at the Pittsburgh Airport, a $1.6 million charge-off related to the workout of a commercial lease in the steel industry, and a $600,000 charge-off on a lumber industry credit.  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 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 first nine months of 2002 totaled $14.6 million; a $1.3 million or 9.8% increase from the first nine months of 2001 performance.  Factors contributing to the higher non-interest income in 2002 included:

* a $2.5 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.

*  the non-recurrence of a $1.4 million gain realized on the sale of the Coalport branch in 2001.

* a $630,000 increase in deposit service charges due to the fourth quarter 2001 implementation of a first in the market overdraft privilege program.

* a $246,000 increase in revenue from bank owned life insurance due to the receipt of a death benefit for an employee insured under the program.  

* a $600,000 decrease in other income due in part to the Company’s receipt of a $300,000 payment for the legal rights to its former name in Western Pennsylvania in 2001.  No such payment was received in 2002.  Reduced fees on the early termination of leased equipment and fixed asset sales also negatively impacted this line item.  These negative items overshadowed a  $369,000 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 nine months of 2002 amounted to $12.6 million compared to $6.1 million in all of 2001.  The financial services unit, formed in October 1997, has now been profitable for four consecutive quarters.

Non-interest income as a percentage of total revenue averaged 41.4% in the first nine months of 2002 compared to 38.6% for the first nine months of 2001.  Excluding investment security gains, the comparative was 35.3% in the first nine months of 2002 compared to 37.1% 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 nine months of 2002 totaled $36.0 million; a $4.4 million or 13.9% increase from the first nine months 2001 performance.  Factors contributing to the increase in non-interest expense in 2002 included:

* a $1.6 million 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 $1.2 million increase in salaries and employee benefits due to higher medical insurance premiums, increased sales incentive based compensation, higher pension expense and salary increases.

* the recognition of a $920,000 restructuring charge in the third quarter of 2002 associated with the implementation of the Company’s earnings improvement program. (See detailed discussion under the quarterly non-interest expense section of this MD & A.)            

* a $975,000 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 $611,000 increase in professional fees due to higher legal fees and other professional fees.  Approximately $150,000 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 benefit of $2.3 million or an effective tax rate of (41.4%) in the first nine months of 2002.  The Company recognized a provision for income taxes of $325,000 or an effective tax rate of 17.1% in the first nine months of 2001.  The Company’s recorded tax benefit in 2003 is greater than the statutory rate due primarily to the tax-free income the Company generates from bank owned life insurance and tax-free loans.

…..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 (ROE) performance for the nine-month periods ended September 30, 2002 and 2001.  Retail banking was again the largest net income contributor earning $3.3 million or a 15.5% ROE in the first nine months of 2002.  The retail banking net income contribution is down approximately $1.1 million from the prior year due entirely to the non-recurrence of the $1.4 million gain on the Coalport branch sale that was realized in 2001.  Excluding this gain, the core retail banking performance in 2002 was comparable with the prior year and represents a third consecutive year of improving net income performance.  The retail banking segment has benefited from increased non-interest income resultin g from the overdraft privilege program which has offset higher marketing costs due to greater advertising expense in 2002.

  The trust segment’s net income contribution in 2002 amounted to $471,000 or 20.4% ROE.  This represents a decline from the $659,000 net income or 28.5% ROE earned in 2001 due in part to lower market-based fee revenue resulting from the declines in equity values over the past year.  The trust segment is focused on continuing to increase the fee revenue generated from union business activities, particularly the ERECT and Build Funds, which are collective investment funds for trade union pension funds.  These funds are currently in five states- Pennsylvania, Ohio, West Virginia, Michigan and Indiana- and expect to expand into Illinois and Missouri in the fourth quarter of 2002.  The value of assets in these funds has increased by 19% during the first nine months of 2002 and now totals $190 million.

The Company has experienced the greatest earnings pressure in the mortgage banking segment which has lost $3.0 million in the first nine months of 2002 compared to a loss of $1.8 million in the same 2001 period.  This negative performance reflects the previously discussed heightened mortgage servicing impairment charges that amounted to $3.7 million in the first nine months of 2002.  The commercial lending segment has also lost $1.6 million in the first nine months of 2002 compared to a positive net income contribution of $1.5 million in 2001.  The loss in 2002 resulted primarily from increased credit costs in the commercial leasing portfolio which has caused the Company to increase its provision for loan losses by $3.8 million this year.  As part of phase two of its earnings improvement program, the Company is seeking to exit both the mortgage banking and commerci al leasing lines of business.  The net loss in the investment/parent segment was reduced by $847,000 in 2002 due to increased revenue earned on leverage assets in 2002 as a result of higher investment security gains.  Note that the $920,000 restructuring charge recorded in the third quarter of 2002 is included in this segment.     

.....BALANCE SHEET..... The Company's total consolidated assets were $1.18 billion at September 30, 2002, compared with $1.30 billion at September 30, 2001, which represents a decrease of $118 million or 9.1%. The Company’s September 30, 2002 total assets were comparable with the December 31, 2001 total.  This decline in assets from September 30, 2001 occurred in the investment securities portfolio.  Total investment securities decreased by $128 million as the Company took advantage of the lower interest rate environment to reposition and reduce the size of its investment security portfolio in 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 $594 million at September 30, 2002, which represente d an increase of $8 million or 1.3% from September 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 $675 million at September 30, 2002, an increase of $24 million or 3.8% when compared to September 30, 2001.  The factors causing this solid 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 $132 million or 24.4% from September 30, 2001,and $14 million or 3.3% 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.   

Overall, the Company’s key loan quality indicators have improved since December 31, 2001 and are comparable with September 30, 2001.  The Company’s level of non-performing assets dropped from $10.0 million or 1.67% of total loans at December 31, 2001, to $5.4 million or 0.91% of total loans at September 30, 2002.  Loan delinquency as a percentage of total loans amounted to 1.15% at September 30, 2002 compared to 1.99% at December 31, 2001 due to ongoing loan workout and monitoring efforts.     

Of the Company’s total $5.4 million of non-performing assets at September 30, 2002, $3.0 million are commercial loan and leases with the remaining $2.4 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%.  Additionally, of the $3.0 million of non-performing commercial loans and leases, $1.7 million relates to the two previously discussed problem credits for which the Company recorded substantial charge-offs in the third quarter of 2002.  The Company’s anticipates there will be no further charge-offs as it completes the workout process on these two credits.

The Company is also carefully monitoring the performance of a $3.4 million commercial lease to a large publicly held company in the semiconductor industry.  Since the inception of the lease in June 2001, the Company has not experienced any delinquency or payment problems with this credit.  The next scheduled payment is due December 20, 2002.  However, the commercial lease is secured by semiconductor manufacturing equipment that is located in a facility that was recently closed by the borrower.  The borrower has indicated that they would like to move the leased equipment to another operating facility.  S&P has rated the borrower CCC+ for subordinated debt and B for credit worthiness.  The borrower had $500 million of cash and cash equivalents at the end of the third quarter and expects to have positive earnings before interest, taxes, depreciation and am ortization in the fourth quarter and full year 2002.  The Company has internally classified this credit as substandard at September 30, 2002. The Company has allocated its normal substandard allocation percentage of 11% against this credit meaning that the loan loss reserve allocation at September 30, 2002 totaled approximately $400,000.      

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 106% due to a lower level of non-performing assets.  The loan loss reserve to total loans ratio has remained consistent at 0.97% for the periods presented.  The Company currently expects to provision a minimum of $600,000 in the fourth 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 income was 92.4% under an upward rate shock forecast reflecting a 200 basis point increase in interest rates.  Market value of portfolio equity increased by 37.0% 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.  Volatility of net income in the mortgage banking segment is the primary cause for the Company exceeding its variability of net income guideline.  As part of phase II of its earnings improvement program the Company is seeking to exit the mortgage banking line of business.  Finally, this sensitivity ana lysis 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 decreased by $1 million from December 31, 2001, to September 30, 2002, due primarily to $17 million of cash used by financing activities.  This was partially offset by $7 million of cash provided by operating activities and $9 million of cash provided by investing activities.  Within investing activities, cash proceeds from investment security maturities and sales exceeded purchases of new investment securities by $18 million.  Cash advanced for new loan fundings and purchases totaled $157 million and was $1 million less 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 $14 million.  The Company used $6 million of cash to p ay common dividends to shareholders and service the dividend on the guaranteed junior subordinated deferrable interest debentures.  The Company has ample liquidity available to fund $199 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 7.00% and the Tier 1 capital ratio was 12.17% at September 30, 2002.  Note that the impact of other comprehensive income (loss) is excluded from the regulatory capital ratios. At September 30, 2002, accumulated other comprehensive income amounted to $5.5 million.  Additionally, the Company will generate approximately $1.4 million of tangible capital in 2002 due to the amortization of intangible assets.  

On September 19, 2002, the Company’s Board of Directors established a new dividend rate effective with the fourth quarter dividend declaration scheduled for November 2002.  The Company’s new common dividend rate is $0.12 per year which equates to a yield of 4.90% based on the September 30,2002 price of $2.45.  Publicly traded Pennsylvania bank stocks currently yield 2.9%.  The new dividend rate continues the corporate philosophy of providing shareholders with a better than peer common stock dividend yield.  The Board of Directors also has approved targeting a common dividend payout ratio within the range of 40% to 60% of net income, a range that is consistent with comparable Pennsylvania bank holding companies.

The Board of Directors also approved the capital management strategy of using excess cash earnings beyond that required to support the common dividend at the new rate and the dividend requirement on its trust preferred securities to reinstate, at its discretion, a stock buyback program.  This buyback program could apply to either its common stock or trust preferred shares.  This strategy is feasible because the Company continues to be considered well capitalized for regulatory purposes.    

.....FORWARD LOOKING STATEMENT.....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 cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

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

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

.....CONTROLS AND PROCEDURES..... (a) Evaluation of Disclosure Controls and Procedures.  AmeriServ Financial, Inc.’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of a date within (90) days prior to the filing date of this Form 10-Q, are effective.

(b) Changes in Internal Controls.  There have been no significant changes in AmeriServ Financial, Inc.’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the date of the evaluation thereof, including any corrective actions with regard to significant deficiencies and material weaknesses.

Part II     Other Information

Item 5.     Other Information

The Company’s chief executive officer and chief financial officer have furnished to the SEC the certification with respect to this Form-Q that is required by Section 906 of the Sarbanes-Oxley Act of 2002.

Item 6.     Exhibits and Reports on Form 8-K

     (a)    Exhibits

(b) Reports on Form 8-K:  On September 19, 2002, the Company filed an 8-K announcing its new capital plan and specifics regarding earnings improvement program.

     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: November 13, 2002         

 \s\Orlando B. Hanselman

Orlando B.  Hanselman

Chairman, President and

Chief Executive Officer

Date: November 13, 2002          

\s\Jeffrey A. Stopko      

Jeffrey A. Stopko

Senior Vice President and

Chief Financial Officer

I, Orlando B. Hanselman, certify that:

1.I have reviewed this quarterly report on Form 10-Q of AmeriServ Financial Inc.  (“ASF”);

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of ASF as of, and for, the periods presented in this quarterly report;

4.ASF’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ASF and we have:

a. designed such disclosure controls and procedures to ensure that material information relating to ASF, including its consolidated subsidiaries, is mad known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of ASF’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report( the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as  of the Evaluation Date;

5.ASF’s other certifying officer and I have disclosed, based on our most recent evaluation, to ASF’s auditors and the audit committee of ASF’s Board of Directors:

a. all significant deficiencies in the design or operation of internal controls which could adversely affect ASF’s ability to record, process, summarize and report financial data and have identified for ASF’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in ASF’s internal controls; and

6.ASF’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002                   

      /s/Orlando B. Hanselman

                          Orlando B. Hanselman

  Chairman, President & CEO

I, Jeffrey A. Stopko, certify that:

1.I have reviewed this quarterly report on Form 10-Q of AmeriServ Financial Inc.  (“ASF”);

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of ASF as of, and for, the periods presented in this quarterly report;

4.ASF’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ASF and we have:

a. designed such disclosure controls and procedures to ensure that material information relating to ASF, including its consolidated subsidiaries, is mad known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of ASF’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report( the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as  of the Evaluation Date;

5.ASF’s other certifying officer and I have disclosed, based on our most recent evaluation, to ASF’s auditors and the audit committee of ASF’s Board of Directors:

a. all significant deficiencies in the design or operation of internal controls which could adversely affect ASF’s ability to record, process, summarize and report financial data and have identified for ASF’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in ASF’s internal controls; and

6.ASF’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002                         

/s/Jeffrey A. Stopko

                                  Jeffrey A. Stopko

  Sr. Vice President & CFO

STATEMENT OF MANAGEMENT RESPONSIBILITY

October 18, 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

Orlando B. Hanselman

Chairman, President &

Chief Executive Officer

\s\Jeffrey A. Stopko

Jeffrey A. Stopko

Senior Vice President &

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 (the “Company”) as of September 30, 2002, the related consolidated statement of income for the three-month and nine-month periods then ended, and the related statement of cash flows for the nine-month period 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 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 September 30, 2002, and for the three- and nine-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

October 18, 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 September 30, 2001 and 2000, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three and nine 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,

October 12, 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

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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 September 30, 2001 and the related consolidated statements of income for the three month and nine month periods ended September 30, 2001 and the related consolidated statement of cash flows for the nine month period ended September 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

November 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 September 30, 2002, as indicated in our report dated October 18, 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 September 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 September 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

November 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 September 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

November 13, 2002

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