AMERISERV FINANCIAL INC /PA/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-11204

AMERISERV FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

PENNSYLVANIA 25-1424278
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

MAIN & FRANKLIN STREETS, P.O. BOX 430, JOHNSTOWN, 15907-0430
PENNSYLVANIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (814) 533-5300

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $2.50 PAR VALUE SHARE PURCHASE RIGHTS
(TITLE OF CLASS) (TITLE OF CLASS)

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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Act). [ ] Yes [X]No

The market capitalization was $52,975,796.20 as of June 30, 2003.

State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405.) $84,608,053.50 as of January 31,
2004.

NOTE -- If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.

Applicable only to registrants involved in bankruptcy proceedings during the
preceding five years: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Sections 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. [ ] Yes [ ] No

(Applicable only to corporate registrants) Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date. 13,961,725 shares were outstanding as of January 31,
2004.

DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents
if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement; and (3) Any prospectus
filed pursuant to Rule 424(b) or (e) under the Securities Act of 1933. The
listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1980).

Portions of the annual shareholders' report for the year ended December 31,
2003, are incorporated by reference into Parts I and II.

Portions of the proxy statement for the annual shareholders' meeting are
incorporated by reference in Part III.

Exhibit Index is located on page 83.

FORM 10-K INDEX

PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9

PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 10
Item 6. Selected Consolidated Financial Data........................ 11
Item 7. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations............... 13
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 34
Item 8. Consolidated Financial Statements and Supplementary Data.... 35
Item 9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure.................................... 81
Item 9A. Controls and Procedures..................................... 81

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 81
Item 11. Executive Compensation...................................... 81
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 81
Item 13. Certain Relationships and Related Transactions.............. 81
Item 14. Principal Accounting Fees and Services...................... 81

PART IV
Item 15. Exhibits, Consolidated Financial Statement Schedules, and
Reports on Form 8-K......................................... 81
Signatures.................................................. 85

1

PART I

ITEM 1. BUSINESS

GENERAL

AmeriServ Financial, Inc. (the Company) is a bank holding company,
organized under the Pennsylvania Business Corporation Law. The Company became a
holding company upon acquiring all of the outstanding shares of AmeriServ
Financial Bank (the Bank) on January 5, 1983. The Company also acquired all of
the outstanding shares of Three Rivers Bank and Trust Company (Three Rivers
Bank) in June 1984, McKeesport National Bank (McKeesport Bank) in December 1985
(which was subsequently merged into Three Rivers Bank), Community Bancorp, Inc.
in March 1992 (which was also subsequently merged into Three Rivers Bank in July
1997), and Johnstown Savings Bank (JSB) in June 1994 (which was immediately
merged into AmeriServ Financial Bank). In addition, the Company formed AmeriServ
Life Insurance Company (AmeriServ Life) in October 1987, AmeriServ Trust and
Financial Services Company (the Trust Company) in October 1992, and AmeriServ
Associates, Inc. (AmeriServ Associates), in January 1997.

On April 1, 2000, the Company executed its Board approved tax-free spin-off
of its Three Rivers Bank subsidiary. Shareholders received one share of the new
Three Rivers Bancorp common stock for every two shares of AmeriServ Financial
common stock that they owned. The distribution of the Three Rivers Bancorp
shares did not change the number of the Company's common shares outstanding.

The Company's principal activities consist of owning and operating its four
wholly owned subsidiary entities. At December 31, 2003, the Company had, on a
consolidated basis, total assets, deposits, and shareholders' equity of $1.15
billion, $655 million and $74 million, respectively. The Company and the
subsidiary entities derive substantially all of their income from banking and
bank-related services. The Company functions primarily as a coordinating and
servicing unit for its subsidiary entities in general management, accounting and
taxes, loan review, auditing, investment accounting, marketing and insurance
risk management.

On January 24, 2003, the Company's Board of Directors voluntarily
relinquished Financial Holding Company status that it had previously elected
under the Gramm-Leach-Bliley Act. The Company had not been using any of the
additional powers given to a financial holding company. As previously stated,
the Company remains a bank holding company and is subject to supervision and
regular examination by the Federal Reserve Bank of Philadelphia.

The Company is also under the jurisdiction of the Securities and Exchange
Commission (SEC) for matters relating to offering and sale of its securities.
The Company is subject to the disclosure and regulatory requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as administered by the SEC. The Company is listed on the NASDAQ Stock
Market under the trading symbol "ASRV," and is subject to the rules of NASDAQ
for listed companies.

AMERISERV FINANCIAL BANKING SUBSIDIARY

AmeriServ Financial Bank

AmeriServ Financial Bank is a state bank chartered under the Pennsylvania
Banking Code of 1965, as amended. Through 23 locations in Allegheny, Cambria,
Centre, Dauphin, Somerset, and Westmoreland Counties, Pennsylvania, AmeriServ
Financial Bank conducts a general banking business. It is a full-service bank
offering (i) retail banking services, such as demand, savings and time deposits,
money market accounts, secured and unsecured loans, mortgage loans, safe deposit
boxes, holiday club accounts, collection services, money orders, and traveler's
checks; (ii) lending, depository and related financial services to commercial,
industrial, financial, and governmental customers, such as real estate-mortgage
loans, short- and medium-term loans, revolving credit arrangements, lines of
credit, inventory and accounts receivable financing, real estate-construction
loans, business savings accounts, certificates of deposit, wire transfers, night
depository, and lock box services. AmeriServ Financial Bank also operates 27
automated bank teller machines (ATMs) through its

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24-Hour Banking Network that is linked with STAR, a regional ATM network and
CIRRUS, a national ATM network.

AmeriServ Financial Bank also has a wholly owned mortgage banking
subsidiary -- Standard Mortgage Corporation of Georgia (SMC). SMC is a
residential mortgage loan servicer based in Atlanta, GA. Additionally, AmeriServ
Financial Services Corporation was formed on May 23, 1997 and engages in the
sale of annuities, mutual funds, and insurance.

AmeriServ Financial Bank's deposit base is such that loss of one depositor
or a related group of depositors would not have a materially adverse effect on
its business. In addition, the loan portfolio is also diversified so that one
industry or group of related industries does not comprise a material portion of
the loan portfolio. AmeriServ Financial Bank's business is not seasonal nor does
it have any risks attendant to foreign sources.

AmeriServ Financial Bank is subject to supervision and regular examination
by the Federal Reserve and the Pennsylvania Department of Banking. See Note #24,
Regulatory Matters, for a discussion of the Memorandum Of Understanding which
the Company and its Board of Directors entered into with its primary regulators.
Various federal and state laws and regulations govern many aspects of its
banking operations. The following is a summary of key data (dollars in
thousands) and ratios at December 31, 2003:

Johnstown,
Headquarters................................................ PA
Chartered................................................... 1933
Total Assets................................................ $1,142,421
Total Investment Securities................................. $ 549,224
Total Loans (net of unearned income)........................ $ 503,387
Total Deposits.............................................. $ 654,597
Total Net Income............................................ $ 2,200
Asset Leverage Ratio........................................ 8.00%
2003 Return on Average Assets............................... 0.19%
2003 Return on Average Equity............................... 2.09%
Total Full-time Equivalent Employees........................ 342

AMERISERV FINANCIAL NON-BANKING SUBSIDIARIES

AmeriServ Trust and Financial Services Company

AmeriServ Trust and Financial Services Company is a trust company organized
under Pennsylvania law in October 1992. 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. At
December 31, 2003, AmeriServ Trust and Financial Services had total assets of
$1.6 million and total shareholder's equity of $1.2 million.

AmeriServ Life

AmeriServ Life is a captive insurance company organized under the laws of
the State of Arizona. AmeriServ Life engages in underwriting as reinsurer of
credit life and disability insurance within the Company's market area.
Operations of AmeriServ Life are conducted in each office of the Company's
banking subsidiary. AmeriServ Life is subject to supervision and regulation by
the Arizona Department of Insurance, the Insurance Department of the
Commonwealth of Pennsylvania, and the Federal Reserve. At December 31, 2003,
AmeriServ Life had total assets of $1.9 million and total shareholder's equity
of $1.2 million.

AmeriServ Associates

AmeriServ Associates is a registered investment advisory firm that
administers investment portfolios, offers operational support systems and
provides asset and liability management services to small and mid-sized

3

financial institutions. At December 31, 2003, AmeriServ Associates had total
assets of $346,000 and total shareholder's equity of $266,000.

MONETARY POLICIES

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

COMPETITION

The subsidiary entities face strong competition from other commercial
banks, savings banks, savings and loan associations, and several other financial
or investment service institutions for business in the communities they serve.
Several of these institutions are affiliated with major banking and financial
institutions which are substantially larger and have greater financial resources
than the subsidiary entities. As the financial services industry continues to
consolidate, the scope of potential competition affecting the subsidiary
entities will also increase. For most of the services that the subsidiary
entities perform, there is also competition from credit unions and issuers of
commercial paper and money market funds. Such institutions, as well as brokerage
houses, consumer finance companies, insurance companies, and pension trusts, are
important competitors for various types of financial services. In addition,
personal and corporate trust investment counseling services are offered by
insurance companies, other firms, and individuals.

MARKET AREA

The Company's local economy has not seen vibrant economic growth compared
to national economic growth as reflected by the strong national Gross Domestic
Product (GDP) of recent quarters. The economy in Cambria and Somerset counties
continue to perform below the 5.7% national unemployment average with local
unemployment at 6.3%. Johnstown's unemployment rate remains near the highest of
all regions of the Commonwealth. Local market conditions have improved in recent
quarters but change comes slowly. The unemployment rate has improved from last
year's 7.8% by one and a half percentage points, but jobs in the area have
actually declined in absolute number from last year's total. Near-term
expectations for future employment point to better days ahead. In 2004, the
Company has redefined its primary lending market as approximately a 100 mile
radius from Johnstown. This area would include the Johnstown Metro Area, along
with State College, Pittsburgh, and Harrisburg. Local loan demand is growing and
we expect that given our renewed strategic focus on commercial lending, the
Company will experience loan growth in 2004. Overall, economic conditions in the
Johnstown Metro Area are expected to slowly improve throughout 2004.

Economic conditions are much better in the State College area that
comprises Centre County. The unemployment rate in the area is 3.0%, the lowest
of all regions in the Commonwealth. The State College market presents the
Company with a more vibrant economic market and a different demographic. The 18
to 34 year old age group makes up a much greater percentage of the population in
State College than in the Cambria/Somerset market, while the population of
people 50 years of age or older is significantly less in State College. Overall,
opportunities in the State College market are quite different and challenging,
providing a promising source of business to profitably grow the Company.

During 2003, the Company maintained union niche offices in Harrisburg in
Dauphin County to the east of Johnstown and west in Pittsburgh in Allegheny
County. We have seen slow economic growth in both counties.

4

Nationally, the economic environment appears promising. With a Presidential
Election in 2004, most economists remain hopeful that the economy will continue
to grow while inflation and interest rates remain at record low levels for most
of the year.

EMPLOYEES

The Company employed 471 people as of December 31, 2003, in full- and
part-time positions. Approximately 281 non-supervisory employees of AmeriServ
Financial Bank are represented by the United Steelworkers of America,
AFL-CIO-CLC, Local Union 2635-06/07. AmeriServ Financial Bank and such employees
are parties to a labor contract pursuant to which employees have agreed not to
engage in any work stoppage during the term of the contract which will expire on
October 15, 2004. AmeriServ Financial Bank has not experienced a work stoppage
since 1979.

SARBANES-OXLEY ACT OF 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002, which contains important new requirements for public companies in the area
of financial disclosure and corporate governance. In accordance with section
302(a) of the Sarbanes-Oxley act, written certifications by the Company's Chief
Executive Officer and Chief Financial Officer are required. These certifications
attest that the Company's quarterly and annual reports filed with the SEC do not
contain any untrue statement of a material fact. In response to the
Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to
further strengthen its corporate governance practices. The Company also requires
signed certifications from managers who are responsible for internal controls
throughout the Company as to the integrity of the information they prepare.
These procedures supplement the Company's Code of Conduct Policy and other
procedures that were previously in place.

PRIVACY PROVISIONS OF GRAMM-LEACH-BLILEY ACT

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

STATISTICAL DISCLOSURES FOR BANK HOLDING COMPANIES

The following Guide 3 information is included in this Form 10-K as listed
below:

I. Distribution of Assets, Liabilities, and Stockholders'
Equity; Interest Rates and Interest Differential
Information. Information required by this section is
presented on pages 17-19, and 26-30.
II. Investment Portfolio Information required by this section is
presented on pages 5-6.
III. Loan Portfolio Information required by this section appears
on pages 6-7, 19, and 20.
IV. Summary of Loan Loss Experience Information required by this
section is presented on pages 20-23.
V. Deposits Information required by this section follows on
pages 7-8.
VI. Return on Equity and Assets Information required by this
section is presented on page 12.
VII. Short-Term Borrowings Information required by this section
is presented on pages 8-9.

INVESTMENT PORTFOLIO

Investment securities held to maturity are carried at amortized cost while
investment securities classified as available for sale are reported at fair
value.

5

The following table sets forth the cost basis and market value of AmeriServ
Financial's investment portfolio as of the periods indicated:

Investment securities available for sale at:

Investment securities held to maturity at:

LOAN PORTFOLIO

The loan portfolio of the Company consisted of the following:

- ---------------

(1) At December 31, 2003 and 2002, real estate-construction loans constituted
3.2% and 7.2% of the Company's total loans, net of unearned income,
respectively.

6

NON-PERFORMING ASSETS

The following table presents information concerning non-performing assets:

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.

DEPOSITS

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

7

Interest expense on deposits consisted of the following:

Additionally, the following table provides more detailed maturity
information regarding certificates of deposit issued in denominations of
$100,000 or more as of December 31, 2003:

MATURING IN:

FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, AND
OTHER SHORT-TERM BORROWINGS

The outstanding balances and related information for federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings are summarized as follows:

Average amounts outstanding during the year represent daily averages.
Average interest rates represent interest expense divided by the related average
balances. Collateral related to securities sold under agreements to repurchase
are maintained within the Company's investment portfolio.

These borrowing transactions can range from overnight to one year in
maturity. The average maturity was two days at the end of 2003 and 2002 and 16
days at the end of 2001.

ITEM 2. PROPERTIES

The principal offices of the Company and AmeriServ Financial Bank occupy
the five-story AmeriServ Financial building at the corner of Main and Franklin
Streets in Johnstown plus nine floors of the building adjacent thereto. The
Company occupies the main office and its subsidiary entities have 16 other
locations which are owned in fee. Thirteen additional locations are leased with
terms expiring from February 14, 2004 to March 31, 2018.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted by the Company to its shareholders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.

9

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

As of January 31, 2004, the Company had 4,782 shareholders of its Common
Stock. On February 28, 2003, the Company and the Bank entered into a Memorandum
of Understanding (MOU) with the Federal Reserve Bank of Philadelphia (Federal
Reserve) and the Pennsylvania Department of Banking (Department). Under the
terms of the MOU, the Company and the Bank cannot declare dividends, the Company
may not redeem any of its own stock, and the Company cannot incur any additional
debt other than in the ordinary course of business, in each case, without the
prior written approval of the Federal Reserve and the Department. Accordingly,
the Board of Directors of the Company cannot reinstate the previously suspended
common stock dividend, or reinstitute its stock repurchase program without the
concurrence of the Federal Reserve and the Department.

COMMON STOCK

AmeriServ Financial, Inc.'s Common Stock is traded on the NASDAQ National
Market System under the symbol ASRV. The following table sets forth the actual
high and low closing prices and the cash dividends declared per share for the
periods indicated:

10

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED TEN-YEAR CONSOLIDATED FINANCIAL DATA

- ---------------

* Certain balance sheet items and financial ratios for these years were
restated to reflect a $2.5 million prior period adjustment which increased
retained earnings and reduced deferred tax liabilities. See Note #27 to the
consolidated financial statements for further discussion. Earlier years were
not restated as the amounts were not material to any of the individual years
presented.

** The Company spun-off its Three Rivers Bank subsidiary on April 1, 2000.

(1) All per share and share data have been adjusted to reflect a 3 for 1 stock
split in the form of a 200% stock dividend which was distributed on July 31,
1998, to shareholders of record on July 16, 1998.

11

- ---------------

* Certain balance sheet items and financial ratios for these years were
restated to reflect a $2.5 million prior period adjustment which increased
retained earnings and reduced deferred tax liabilities. See Note #27 to the
consolidated financial statements for further discussion. Earlier years were
not restated as the amounts were not material to any of the individual years
presented.

** The Company spun-off its Three Rivers Bank subsidiary on April 1, 2000.

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

12

SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA

The following table sets forth certain unaudited quarterly consolidated
financial data regarding the Company:

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (M. D. & A.)

The following discussion and analysis of financial condition and results of
operations of AmeriServ Financial should be read in conjunction with the
consolidated financial statements of AmeriServ Financial, including the related
notes thereto, included elsewhere herein. Certain balance sheet items and
financial ratios for the years 2002 and 2001 were restated to reflect a $2.5
million prior period adjustment. This prior period adjustment was recorded as of
January 1, 2001 and increased retained earnings and reduced deferred tax
liabilities. See Note #27 to the consolidated financial statements for further
discussion. Management's discussion and analysis gives effect to this
restatement.

13

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

2003 SUMMARY OVERVIEW:

During 2003, the Company has slowly improved its situation. At the close of
2002, the Company had recorded a loss of $5.2 million and watched its stock
price hover at about 50% of book value. It had been criticized by regulatory
authorities and had accepted the resignations of three of its most senior
executives, including its Chief Executive Officer and its Chief Operating
Officer. It was operating under an interim CEO and was facing an uncertain
future.

With the conclusion of 2003, the Company can look at a series of
improvements:

- It has recorded three consecutive quarters of profitability and full year
net income of $549,000.

- It has met its debt service requirements on its guaranteed junior
subordinated deferrable interest debentures (trust preferred securities).

- It continues to meet the requirements of the regulatory Memorandum of
Understanding (See Note #24 to the Consolidated Financial Statements).

- It has refocused itself as a community bank and a market leader in its
primary retail markets.

- It has redefined its primary lending market as approximately a 100 mile
radius from Johnstown.

But perhaps most importantly, it has stabilized the three areas of most
concern at the end of 2002.

1. As 2002 ended the level of classified loans was growing and exceeded
the loan loss reserve -- However, during 2003 the loan loss reserve continued to
strengthen and as the year progressed, the level of non-performing loans has
stabilized. The entire loan portfolio is being monitored closely. All lending
procedures have been reviewed and strengthened and the commercial lending area
has been completely restructured in an effort to prevent a reoccurrence of the
growth in non-performing loans that the Company experienced in recent years.

2. A struggling mortgage-servicing operation that was experiencing
significant losses -- Even though stabilizing interest rates had reduced the
threat of further impairment losses, there was an inherent volatility in
mortgage servicing portfolios that endangered the Company. But at the end of
2003, the mortgage banking segment is 75% smaller, thus reducing its ability to
significantly threaten future earnings of AmeriServ although it continues to
incur operating losses. It is the intent of the Company to develop a strategy to
exit the mortgage servicing business as economic conditions permit.

3. A $376 million borrowing from the Federal Home Loan Bank (FHLB) with
maturities through 2010 -- Even with 38% of the borrowing on an overnight basis,
the cost of borrowing was above 4%. However, at the conclusion of 2003, the
portfolio has undergone a stringent strategic review. The investment portfolio
contains AAA issues that comprise 97% of its holdings; it has a short investment
duration of approximately two years; it has $100 million of hedges in place to
protect against falling rates and it is positioned to benefit from rising rates
with its short investment duration. By recording $3.8 million of security gains
in 2003, the Company has demonstrated its ability to manage this portfolio in a
volatile rate environment. This would suggest that the inherent risks are being
managed carefully. It is the strategic intent of the Company to reduce the asset
leverage program to less than 25% of total assets over a three- to five-year
period.

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

14

The Company reported net income of $549,000 or $0.04 per share in 2003.
This represents significant improvement and a dramatic turnaround from the net
loss of $5.2 million or $0.37 per share in 2002. Additionally, the Company
reported three consecutive quarters of profitability after a net loss in the
first quarter of 2003. The continuation of the turnaround contributed to the
improved performance in virtually every facet of the operation. The sharply
improved net income in 2003 when compared to 2002 resulted from reduced
non-interest expenses and a lower provision for loan losses. These positive
items more than offset reduced revenue from both net interest income and
non-interest income and a lower income tax benefit.

The Company reported a net loss of $5.2 million or $0.37 per share in 2002
compared to net income of $2.0 million or $0.15 per share in 2001. The Company's
2002 performance was negatively impacted by an increased provision for loan
losses, higher non-interest expense, and reduced net interest income.
Specifically, the provision for loan losses totaled $9.3 million in 2002; an
increase of $7.9 million over the 2001 provision. The higher 2002 provision
reflected actions taken to strengthen the allowance for loan losses as a result
of continued weakness in the economy and deterioration in credit quality.
Non-interest expense in 2002 increased due in part to additional mortgage
servicing impairment charges and a $920,000 restructuring charge. Net interest
income declined by $830,000 as a smaller level of earning assets more than
offset the benefit of an increased net interest margin. These negative items
were partially offset by increased non-interest income and a benefit for income
taxes.

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

2003 NET INTEREST PERFORMANCE OVERVIEW. . .The Company's 2003 net interest
income on a tax-equivalent basis decreased by $2.8 million or 10.0% from 2002
due to a lower level of earning assets and a 20 basis point drop in the net
interest margin to 2.31%. Loan portfolio shrinkage experienced during 2003 was a
predominant factor contributing to both the lower level of earning assets and
the net interest margin contraction. The overall net decrease in average loans
outstanding reflects significant prepayments caused by the low interest rate
environment and the Company's internal focus on improving asset quality. The
Company completed the restructuring of its lending division during the third
quarter of 2003 and did report modest growth in total loans in the fourth
quarter of 2003 for the first time in six quarters.

Additionally, the net interest margin compression also reflects increased
mortgage-related cash flows in the investment securities portfolio as a result
of the record level of mortgage refinancings in 2003. This reduced the
securities portfolio yield due in part to accelerated amortization of premiums
on mortgage-backed securities to correlate with the heightened prepayments and
the reinvestment of this cash into new shorter duration securities with lower
yields.

COMPONENT CHANGES IN NET INTEREST INCOME: 2003 VERSUS 2002. . .Regarding
the separate components of net interest income, the Company's total
tax-equivalent interest income for 2003 decreased by $11.0 million or 16.7% when
compared to 2002. This decrease was due to a $29.4 million decline in earning
assets and a 90 basis point drop in the earning asset yield to 5.15%. Within the
earning asset base,

15

the yield on the total investment securities portfolio dropped by 103 basis
points to 3.99% while the yield on the total loan portfolio decreased by 63
basis points to 6.30%. Both of these declines reflect the low interest rate
environment in place in 2003 as the Federal Reserve reduced the federal funds
rate by 550 basis points since the beginning of 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 loans. Additionally, floating or variable rate assets have also
repriced downward.

The $29.4 million decline in the volume of earning assets was due to a $69
million or 11.8% decrease in average loans outstanding which more than offset
growth in both available for sale (AFS) and held to maturity (HTM) investment
securities. The loan decline in 2003 reflected the heightened prepayment
pressures and occurred in both commercial loans and residential mortgage loans.
The drop in residential mortgage loans was also partially due to the Company's
decision to sell approximately $62 million or 61% of the new mortgage loan
production into the secondary market for interest rate risk management purposes.
The drop in commercial loans was also caused by reduced new loan production as
management was inwardly focused on reorganizing its commercial lending division
during 2003. This reorganization included the hiring of a new chief lending
officer in February of 2003 and the hiring of four experienced commercial
lenders through the end of the third quarter of 2003. The Company did reverse
the trend of net loan portfolio shrinkage during the fourth quarter of 2003 and
anticipates that it will achieve meaningful commercial loan growth in 2004. This
commercial loan growth should lead to a greater composition of loans in the
earning asset mix which should contribute to increased net interest income and
net interest margin in 2004.

The Company's total interest expense for 2003 decreased by $8.3 million or
21.4% when compared to 2002. This reduction in interest expense was due to a
lower volume of interest bearing liabilities and a reduced cost of funds. Total
average interest bearing liabilities were $26.9 million or 2.7% lower in 2003 as
fewer deposits and borrowings were needed to fund a smaller earning asset base.

The total cost of funds declined by 76 basis points to 3.13% and was driven
down by a reduced cost of both deposits and borrowings. Specifically, the cost
of interest bearing deposits decreased by 71 basis points to 2.05% and the cost
of short-term borrowings and FHLB advances declined by 89 basis points to 4.29%.
The reduced deposit cost was caused by lower rates paid particularly for savings
accounts and certificates of deposit. The lower cost of borrowings reflects the
downward repricing of maturing FHLB advances to lower current market rates as a
result of the previously discussed decline in interest rates and the favorable
impact that fair value hedges had on reducing interest expense. (See Note #22,
Derivative Hedging Instruments, for further discussion).

The Company's ratio of FHLB advances and short-term borrowings to total
assets averaged 32.2% in 2003 which was comparable with the 31.9% average in
2002. The total revenue contribution from leverage assets (including investment
security gains and hedging activity) amounted to $2.8 million in 2003 compared
to $3.6 million in 2002. The Company presently anticipates that the size of the
leverage program in 2004 will be comparable with 2003 and approximate $375
million or 32% of total assets. Longer-term the Company would like to reduce the
size of its leverage program to 25% of total assets.

2002 NET INTEREST PERFORMANCE OVERVIEW. . .The Company's 2002 net interest
income on a tax-equivalent basis decreased by $1.8 million or 6.1% from 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
2.51%. The reduced level of earning assets was due to a $107 million reduction
in the investment securities portfolio. This decrease resulted from the
Company's decision to reduce its interest rate risk by delevering its balance
sheet in the fourth quarter of 2001 and maintaining this lower borrowed funds
position in 2002. As a result of this action, the Company's level of FHLB
advances and short-term borrowings to total assets averaged 31.9% in 2002
compared to 37.4% in 2001.

COMPONENT CHANGES IN NET INTEREST INCOME: 2002 VERSUS 2001. . .Regarding
the separate components of net interest income, the Company's total
tax-equivalent interest income for 2002 decreased by $16.6 million or 20.1% when
compared to 2001. This decrease was due to an $88 million decline in earning
assets and a 92 basis point drop in the earning asset yield. Within the earning
asset base, the yield on the total investment securities portfolio dropped by
107 basis points to 5.02% while the yield on the total

16

loan portfolio decreased by 104 basis points to 6.93%. Both of these declines
reflect the lower interest rate environment in place in 2002 as the Federal
Reserve reduced the federal funds rate by 475 basis points during 2001 and by an
additional 50 basis points in the fourth quarter of 2002 in an effort to
stimulate economic growth. These significant rate reductions caused accelerated
asset prepayments as borrowers elected to refinance their higher fixed rate
loans into lower cost borrowings. Additionally, the downward repricing of
floating rate assets also contributed to the lower earning asset yield.

The $88 million decline in the volume of earning assets was due to a $107
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
$22 million or 4.0% increase in total average loans outstanding. The loan growth
occurred primarily in commercial real-estate loans in the State College market.
The Company also successfully grew its variable rate open-end home equity
product during 2002.

The Company's total interest expense for 2002 decreased by $14.8 million or
27.7% when compared to 2001. 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 $101 million or 19.7%
lower in 2002 as fewer borrowings were needed to fund a smaller earning asset
base which stemmed from managements decision to delever the balance sheet.

The total cost of funds declined by 100 basis points to 3.89% and was
driven down by a reduced cost of both deposits and borrowings. Specifically, the
cost of interest bearing deposits decreased by 97 basis points to 2.76% and the
cost of borrowings declined by 74 basis points to 5.46%. The lower deposit cost
was caused by lower rates paid in all deposit categories particularly for money
market deposits and certificates of deposit. The April 15, 2002 maturity of an
$80 million interest rate swap that had fixed the cost of certain FHLB
borrowings at 6.93% was a key factor responsible for the reduced cost of
borrowings. Those hedged borrowings repriced to market with an average cost of
approximately 1.79% in 2002.

The lower deposit costs did not negatively impact the Company's deposit
generation strategies, as total average deposits were $18 million or 2.7% higher
in 2002 as compared to 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.

The table that follows provides an analysis of net interest income on a
tax-equivalent basis setting forth (i) average assets, liabilities, and
stockholders' equity, (ii) interest income earned on interest earning assets and
interest expense paid on interest bearing liabilities, (iii) average yields
earned on interest earning assets and average rates paid on interest bearing
liabilities, (iv) interest rate spread (the difference between the average yield
earned on interest earning assets and the average rate paid on interest bearing
liabilities), and (v) net interest margin (net interest income as a percentage
of average total interest earning assets). Additionally, a tax rate of
approximately 35% is used to compute tax-equivalent yields. Certain balance
sheet items for the years 2002 and 2001 were restated to reflect a $2.5 million
prior period adjustment. See Note #27 to the consolidated financial statements
for further discussion.

The average balance and yield on taxable securities was $542 million and
3.99%, $491 million and 5.02%, and $571 million and 6.10% for 2003, 2002, and
2001, respectively. The Company had no tax-exempt securities in 2003. The
average balance and tax-equivalent yield on tax-exempt securities was $1 million
and 5.5% and $29 million and 6.0% for 2002 and 2001, respectively.

Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The table below sets forth
an analysis of volume and rate changes in net interest income on a
tax-equivalent basis. For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances

18

and average rates. Changes in net interest income that could not be specifically
identified as either a rate or volume change were allocated proportionately to
changes in volume and changes in rate.

LOAN QUALITY . . .AmeriServ Financial's written lending policies require
underwriting, loan documentation, and credit analysis standards to be met prior
to funding any loan. After the loan has been approved and funded, continued
periodic credit review is required. Credit reviews are mandatory for all
commercial loans and for all commercial mortgages in excess of $250,000 within a
12-month period. In addition, due to the secured nature of residential mortgages
and the smaller balances of individual installment loans, sampling techniques
are used on a continuing basis for credit reviews in these loan areas. The
following table sets forth information concerning AmeriServ Financial's loan
delinquency and other non-performing assets.

19

- ---------------

(1) Non-performing assets are comprised of (i) loans that are on a non-accrual
basis, (ii) loans that are contractually past due 90 days or more as to
interest and principal payments of which some are insured for credit loss,
and (iii) other real estate owned.

Between December 31, 2002, and December 31, 2003, total loan delinquency
decreased by $3.2 million to 2.91% of total loans. This decline was due
primarily to the transfer of a $4.8 million commercial mortgage loan into
non-accrual status. The transfer of this $4.8 million commercial mortgage loan
into non-accrual status was also the primary cause of the noted increase in
non-accrual loans and non-performing assets and the corresponding ratios. This
loan is to a borrower in the personal care industry and is supported by an 80%
deficiency guarantee by the U.S. Department of Agriculture and is secured by a
first mortgage on the personal care facility. The 20% unguaranteed portion was
rated doubtful and the Company had established an allocation of $500,000 within
the allowance for loan losses for this credit at December 31, 2003. The Company
took possession of the facility in the first quarter of 2004 and will
accordingly transfer the property into other real estate owned and continue to
list it as a non-performing asset until it is sold. The Company expects to
finalize a sale by June 30, 2004 and continues to believe that the loss
allocation is appropriate.

In addition to the non-performing assets, the Company is carefully
monitoring the performance of a $4.3 million commercial exposure to a borrower
in the hotel industry. As of December 31, 2003, the borrower is in default of
the contractual payments. This credit is secured by a first mortgage on the
hotel. At December 31, 2003, the Company classified this loan as substandard and
had established a standard allocation of $750,000 within the allowance for loan
losses for this credit. It is likely that this loan will move into non-
performing status by March 31, 2004.

Between December 31, 2001, and December 31, 2002, total loan delinquency
increased sharply by $6 million to 3.12% of total loans. The majority of the
increase was in commercial mortgage loans that were between 30 and 60 days
delinquent. The increasing trend for loan delinquency reflected weaker economic
conditions experienced both nationally and in the Company's local markets. The
Company's level of non-performing assets dropped from $10.0 million or 1.67% of
total loans at December 31, 2001 to $7.0 million or 1.22% of total loans at
December 31, 2002. The decline between years was mainly due to increased net
charge-offs in 2002 rather than improved credit quality.

At December 31, 2003, the Company had two loans totaling $698,000 that have
been restructured involving forgiving a portion of the interest or principal on
these loans and granting loan rates less than that of the market rate.

ALLOWANCE AND PROVISION FOR LOAN LOSSES. . .As described in more detail in
the Critical Accounting Policies and Estimates section of this M.D.&A., the
Company uses a comprehensive methodology and procedural discipline to maintain
an allowance for loan losses to absorb inherent losses in the loan portfolio.
The Company believes this is a critical accounting policy since it involves
significant estimates and judgments. The allowance can be summarized into three
elements; 1) reserves established on specifically identified problem loans, 2)
formula driven general reserves established for loan categories based upon
historical loss experience and other qualitative factors which include
delinquency and non-performing loan trends, economic trends, concentrations of
credit, trends in loan volume, experience and depth of management, examination
and audit results, effects of any changes in lending policies, and trends in
policy, financial information, and documentation exceptions, and 3) a general
unallocated reserve which provides adequate positioning in the event of variance
from our assessment of the previously listed qualitative factors, provides
protection against credit risks resulting from other inherent risk factors
contained in the bank's loan portfolio, and recognizes the model and estimation
risk associated with the specific and formula driven allowances. Note that the
qualitative factors used in the formula driven general reserves are evaluated
quarterly (and revised if necessary) by the Company's management to establish
allocations which accommodate each of the listed risk factors.

The actions taken to strengthen the allowance for loan losses over the past
two years resulted from a concerted effort to carefully review the Company's
loan portfolio in light of deterioration in credit quality and

20

the weakness in the economy. Additionally, in the fourth quarter of 2002, the
Company concluded that although its credit and credit administration policies
are sound, adherence to these policies had not been consistent. This resulted in
incomplete or dated information in credit files. The obtaining of updated
borrower financial information and its subsequent analysis led to rating
downgrades for numerous credits which contributed to an increased level of
classified loans. Specifically, since December 31, 2001 classified loans
increased by $21 million or 155% to $35 million. The Company, however, has noted
a stabilization in classified loans over the second half of 2003 and has kept
its borrower financial information current and exceptions within policy
guidelines during 2003. As a result of the increased provisioning, the balance
in the allowance for loan losses and key loan portfolio coverage ratios grew.
Specifically, at December 31, 2003, the loan loss reserve as a percentage of
total loans amounted to 2.32% compared to 1.75% at December 31, 2002 and 0.97%
at December 31, 2001. The Company's loan loss reserve coverage of non-performing
assets amounted to 103% at December 31, 2003 compared to 144% at December 31,
2002 and 58% at December 31, 2001. The following table sets forth changes in the
allowance for loan losses and certain ratios for the periods ended.

During 2003, the Company reclassified a separate reserve of $139,000 for
unfunded loan commitments and letters of credit in accordance with Statement of
Position (SOP) 01-06.

The Company's provision for loan losses for 2003 totaled $3.0 million or
0.56% of average loans with a sizable portion of the funding occurring in the
first quarter. This represented a significant decrease of $6.3 million from the
2002 provision of $9.3 million or 1.56% of total loans. Net charge-offs were
also lower in 2003 totaling $1.2 million or 0.22% of average loans compared to
net charge-offs of $5.1 million or 0.85% of average loans in 2002. As a result
of the provision exceeding net charge-offs, the balance in the allowance for
loan losses increased by $1.6 million during 2003. The Company's loan loss
reserve coverage of total non-performing assets declined to 102% at December 31,
2003 compared to 144% at December 31, 2002 due to the previously discussed
increase in non-performing assets. The allowance for loan losses to total loans
ratio increased to 2.32% due to the net paydown of the loan portfolio and the
building of the allowance for loan losses to address credit quality
deterioration.

The Company's provision for loan losses for 2002 totaled $9.3 million or
1.56% of average loans. This represented a significant increase of $7.9 million
from the 2001 provision of $1.4 million or 0.24% of total loans. Net charge-offs
were also higher in 2002 totaling $5.1 million or 0.85% of average loans
compared to net charge-offs of $1.5 million or 0.26% of average loans in 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. As a result of the provision exceeding net
charge-offs, the balance in the allowance for loan losses increased by $4.2
million during 2002. Overall, net charge-offs were highest in 2002 when compared
to the other years presented in the above table. This would suggest that the
Company's general net charge-off experience typically ranges from $1.2 to $1.5
million.

22

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

Even though residential real estate-mortgage loans comprise 39% of the
Company's total loan portfolio, only $376,000 or 3.2% of the total allowance for
loan losses is allocated against this loan category. The residential real
estate-mortgage loan allocation is based primarily 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 strengthened its allocations to the commercial and commercial real
estate segments of the loan portfolio during the past three years. Factors
considered by the Company that 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, the overall growth in the average size
associated with these credits and a continued but reduced number of financial
information and documentation exceptions.

In addition to the specific and formula-driven reserve calculations, the
Company has consistently established a general unallocated reserve to provide
for risk inherent in the loan portfolio as a whole. Management believes that its
judgment with respect to the establishment of the reserve allocated to general
risk has been validated by experience and prudently reflects the model and
estimation risk associated with the specific and formula driven allowances. The
Company determines the unallocated reserve based on a variety of factors, some
of which also are components of the formula-driven methodology. These include,
without limitation, the previously mentioned qualitative factors along with
general economic data, management's assessment of the direction of interest
rates, and credit concentrations. 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 and the level of
non-performing assets.

Based on the Company's loan loss reserve methodology and the related
assessment of the inherent risk factors contained within the Company's loan
portfolio, management believes that the allowance for loan losses was adequate
for each of the fiscal years presented in the table above. The Company's
management is unable to determine in what loan category future charge-offs and
recoveries may occur.

NON-INTEREST INCOME. . .Non-interest income for 2003 totaled $16.9 million;
a $2.8 million or 14.0% decrease from the 2002 performance. Factors contributing
to the lower non-interest income in 2003 included:

- a $758,000 loss realized in the first quarter of 2003 on the sale of
approximately 69% of the Company's mortgage servicing portfolio. Largely
as a result of this sale, the value of the Company's mortgage

23

servicing rights declined from $6.9 million at December 31, 2002 to $1.7
million at December 31, 2003. This downsizing of the mortgage servicing
asset reduces the level of interest rate risk and earnings volatility at
the Company.

- a $507,000 decrease in gains realized on the sale of investment
securities as a steeper yield curve in the second half of 2003 limited
the Company's ability to capture profits on prepaying securities.

- a $277,000 drop in revenue from bank owned life insurance due to the
receipt of a death benefit for an employee insured under the program in
the prior year.

- a $1.5 million decrease in other income resulting from the Company's
decision to exit the merchant card business in the fourth quarter of
2002, reduced revenue generated from the sale of annuities and a decline
in revenue related to mortgage loan sales into the secondary market in
the second half of 2003.

- a $321,000 or 6.9% increase in trust fees due to successful business
development efforts related to union collective investment funds and
improving equity market values that have increased the value of trust
assets on which fees are assessed.

Non-interest income for 2002 totaled $19.7 million; a $1.6 million or 8.9%
increase from the 2001 performance. Factors contributing to the net increase in
non-interest income in 2002 included:

- a $2.4 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. These gains were also used to help offset the heightened
mortgage servicing impairment charge.

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

- a $731,000 increase in deposit service charges due to the full year
benefit of an overdraft privilege program that was implemented in the
fourth quarter of 2001.

- a $244,000 increase in revenue from bank owned life insurance due to the
receipt of a death benefit for an employee insured under the program.

- a $386,000 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
$399,000 increase in revenue from fixed annuity sales. The Company also
successfully exited the merchant card business by generating a $185,000
gain on the sale of its merchant card portfolio in the fourth quarter of
2002. The Company concluded that it lacked the necessary scale to
effectively compete in this line of business.

NON-INTEREST EXPENSE. . .Non-interest expense for 2003 totaled $38.3
million; an $8.1 million or 17.4% decrease from the 2002 performance. This
decline reflects the Company's continued focus on reducing and containing
expenses. Factors contributing to the sizable decrease in non-interest expense
in 2003 included:

- the dramatic downsizing of the mortgage servicing asset in the first
quarter of 2003 reduced the impact of lower mortgage rates on the
Company's performance. Specifically, the Company's impairment charge on
mortgage servicing rights amounted to $3.7 million in 2002 compared to
$390,000 in 2003 or a decline of $3.3 million. The valuation of mortgage
servicing rights is a critical accounting policy because it requires the
use of estimates related to interest rates and prepayment speeds (see
further discussion in Critical Accounting Policies and Estimates section
of this M.D.&A.).

- a $1.7 million or 8.1% decrease in salaries and employee benefits as on
average there were 32 fewer full time equivalent employees when compared
to 2002. The lower salaries expense was partially offset by higher
medical insurance costs as a result of premium increases and increased
pension expense.

- the Company also recorded in the third quarter of 2002 a $920,000
restructuring charge associated with implementing its earnings
improvement program. There was no such charge in 2003. At December 31,
2002 , the Company had a remaining liability of $555,000 related to the
restructuring charge that was

24

recorded within other liabilities on the consolidated balance sheet. In
2003 the Company paid $462,000 for items associated with the
restructuring charge. The remaining liability at December 31, 2003 totals
$93,000.

- a $2.3 million decline in other expenses due to cost cutting in numerous
expense categories some of the larger of which included advertising
expense, merchant card expense, business development expense, and
education expense.

Non-interest expense for 2002 totaled $46.4 million; a $3.8 million or 9.0%
increase from the 2001 performance. Factors contributing to the net increase in
non-interest expense in 2002 included:

- the Company recognized a $3.7 million non-cash impairment charge on its
mortgage servicing rights in 2002. This impairment charge was $1.2
million greater than 2001 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 had a significant negative impact on the value of the
Company's mortgage servicing rights.

- a $1.0 million increase in salaries and employee benefits due to higher
medical insurance premiums, increased sales incentive based compensation,
higher pension expense, severance costs related to the former chairman,
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. This program was expected to produce at least $4
million of annual expense reduction and this result was successfully
achieved in 2003.

- 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 $1.3 million of goodwill amortization expense in 2001 while no
goodwill amortization or impairment charges were recorded in 2002.

- a $907,000 increase in professional fees due to higher legal fees,
auditing costs and other professional fees. Approximately $177,000 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
$213,000 or an effective tax rate of (63.4)% in 2003. The Company recognized a
benefit for income taxes of $3.4 million or an effective tax rate of (39.9%) in
2002 compared to an income tax expense of $412,000 or a 17.3% effective tax rate
in 2001. The lower tax benefit in 2003 was due to the Company's improved
earnings performance. The Company's recorded tax benefit reflects the overall
low level of pre-tax earnings and the tax-free income the Company receives
predominantly from bank owned life insurance. The recorded tax benefit in 2002
resulted from the pre-tax loss the Company experienced in 2002 and was greater
than the statutory rate due primarily to the tax-free income the Company
generates.

The Company has determined that its January 1, 2001 deferred tax
liabilities were overstated by $2.5 million due to errors in prior periods, in
the calculation of the tax effects of certain leasing transactions, the
accretion on investment securities and mortgage servicing rights. Accordingly,
the Company has recorded a prior period adjustment to increase retained earnings
and reduce other liabilities. See Note #27 to the Consolidated Financial
Statements for further discussion.

SEGMENT RESULTS. . .Note #23 to the Consolidated Financial Statements
presents the results of the Company's key business segments and identifies their
net income contribution. Retail banking was again the largest net income
contributor earning $3.6 million in 2003. The retail banking net income
contribution was down $541,000 from the prior year due to reduced net interest
income. This more than offset a favorable reduction in non-interest expense
within that segment. When 2002 is compared to 2001, the retail banking net
income contribution is down approximately $1.5 million due primarily to the
non-recurrence of the $1.4 million gain on the Coalport branch sale that was
realized in 2001.

25

The trust segment's net income contribution in 2003 amounted to $789,000.
This represents an increase of $303,000 from the $486,000 net income
contribution earned in 2002 due to a combination of increased fee revenue and
lower non-interest expense. The higher fee revenue was due to successful
business development efforts related to union collective investment funds and
improving equity market values that have increased the value of trust assets on
which fees are assessed. In the future, the trust segment will continue to focus
on increasing 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 currently have assets in six
states-Pennsylvania, Ohio, Michigan, Illinois, Indiana and Tennessee. The value
of assets in these funds has increased by 31% during 2003 and totaled $269
million at December 31, 2003.

The Company experienced earnings pressure in the mortgage banking segment
which lost $1.7 million in 2003. This loss, however, was reduced significantly
from the $3.2 million loss incurred in 2002. This negative performance in 2003
reflects the previously discussed $758,000 loss realized on the sale of a
significant portion of the Company's mortgage servicing rights, a $390,000
mortgage servicing impairment charge and a $199,000 goodwill impairment loss.
This downsizing of the mortgage servicing asset significantly reduced the size
of the mortgage servicing impairment charge in 2003 when compared to the prior
year. The Company will continue to reduce its exposure to the mortgage-servicing
business in the future and expects to develop a strategy to pursue a financially
prudent exit from this segment as economic conditions permit.

The commercial lending segment lost $594,000 in 2003, which represented an
improvement from the $3.8 million net loss experienced in 2002. The loss in both
periods resulted primarily from a high provision for loan losses; although the
size of the provision expense did decline by $6 million between years. The 2003
performance also reflects reduced net interest income due to fewer loans
outstanding as a result of the previously discussed inward corporate focus on
improving asset quality and significant prepayments caused by the low interest
rate environment. When 2002 is compared to 2001, the commercial lending
segment's net income contribution went from a positive contribution of $1.9
million in 2001 to a net loss of $3.8 million in 2002. The loss in 2002 resulted
primarily from a deterioration in credit quality in the commercial loan and
lease portfolio that caused the Company to increase its provision for loan
losses by $7.9 million in 2002.

The net loss in the investment/parent segment amounted to $1.7 million but
was reduced by $1.0 million between 2003 and 2002 due to lower non-interest
expenses (includes the non-recurrence of the $920,000 restructuring charge).
This more than offset an $800,000 decrease in the revenue contribution from
leveraged assets due largely to fewer investment security gains.

For greater discussion on the future strategic direction of the Company's
key business segments, see Forward Looking Statement which begins on page 33.

BALANCE SHEET. . .The Company's total consolidated assets were $1.148
billion at December 31, 2003, compared with $1.176 billion at December 31, 2002,
which represents a decrease of $27.7 million or 2.4%. This lower level of assets
resulted from a $69.6 million or 12.1% decline in total loans and loans held for
sale resulting from the prepayment pressures caused by the low interest rate
environment and reduced new loan production. Mortgage servicing rights dropped
by $5.2 million or 75.2% due primarily to the completed sale of the servicing
rights on approximately $450 million in mortgage loan principal values. Premises
and equipment decreased as depreciation expense in 2003 exceeded new fixed asset
purchases by $1.5 million. These items were partially offset by a $46.9 million
increase in the investment securities portfolio as the cash generated from the
net loan paydowns was redeployed into both AFS and HTM securities. The size of
the Company's asset leverage program approximated $375 million in 2003 which was
comparable with the prior year.

The Company's deposits totaled $655 million at the end of 2003, which
represented a decrease of $15.3 million or 2.3% when compared to the end of 2002
due to certificate of deposit run-off and reduced money market account balances.
The Company was able to contain the size of its borrowed funds position as total
borrowings remained at $410 million between years. Total stockholders equity
decreased by $6.0 million as a result of a drop in accumulated other
comprehensive income due to a lower value of the AFS investment securities
portfolio. The Company continues to be considered well capitalized for
regulatory purposes with an asset leverage ratio at December 31, 2003 of 7.58%,
compared to a regulatory minimum of 5.0%.

26

LIQUIDITY. . .Liquidity can be analyzed by utilizing the Consolidated
Statement of Cash Flows. Cash and cash equivalents decreased by $2.4 million
from December 31, 2002, to December 31, 2003, due primarily to $20 million of
cash used by financing activities. This was partially offset by $10 million of
cash provided by operating activities and $7 million of cash provided by
investing activities. Within investing activities, cash used to purchase new
investment securities exceeded proceeds from investment security maturities and
sales by $56.5 million. Cash advanced for new loan fundings and purchases
totaled $127 million and was $68 million less than the cash received from loan
principal payments and sales. Within financing activities, payments for maturing
certificates of deposit exceeded proceeds from new certificates of deposit by
$14 million.

There was no cash used for common stock cash dividends in 2003 compared to
$4.1 million in 2002. The Company used $2.9 million of cash to service the
dividend on the guaranteed junior subordinated deferrable interest debentures
(trust preferred securities) in each of the years presented. As a result of
dividend payments from non-bank subsidiaries and the settlement of the
inter-company tax position, management believes that the parent company will
have ample cash to continue to make the dividend payment on the trust preferred
securities through the second quarter of 2004. The Company is presently
developing a contingency cash flow plan that identifies strategies to continue
the trust preferred dividend payments in an uninterrupted manner through the end
of 2004. Note that some of these strategies may require regulatory approval.
Intermediate to longer term, however, the payment of the trust preferred
dividend is dependent upon the subsidiary bank maintaining profitability so that
it can resume upstreaming dividends to the parent company. The subsidiary bank
must first recoup the $2.6 million net loss that it incurred for the year ended
December 31, 2002 before the Company can approach the regulatory authorities to
request permission to resume dividend upstreams. Through December 31, 2003, the
bank had earned $2.2 million leaving a remaining loss to be recovered of
$448,000. The Company expects that the bank will have recovered the remaining
loss by the end of the first quarter of 2004. The Company views the deferral of
the interest payments on the trust preferred securities as the least favorable
alternative to maintaining parent company liquidity because the payments are
cumulative and interest immediately begins to accrue on the unpaid amount at a
rate of 8.45% along with the reputational risk associated with the deferral.

Financial institutions must maintain liquidity to meet day-to-day
requirements of depositor and borrower customers, take advantage of market
opportunities, and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities. Sources of asset
liquidity are provided by short-term investment securities, time deposits with
banks, federal funds sold, banker's acceptances, and commercial paper. These
assets totaled $62 million at December 31, 2003, which was comparable with the
December 31, 2002 level. Maturing and repaying loans, as well as the monthly
cash flow associated with mortgage-backed securities are other significant
sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive
rates, using repurchase agreements, buying federal funds, or utilizing the
facilities of the Federal Reserve or the Federal Home Loan Bank systems. The
Company utilizes a variety of these methods of liability liquidity. At December
31, 2003, the Company's subsidiaries had approximately $5 million of unused
lines of credit available under informal arrangements with correspondent banks.
These lines of credit enable the Company's banking subsidiary to purchase funds
for short-term needs at current market rates. Additionally, the Company's
subsidiary bank is a member of the Federal Home Loan Bank which provides the
opportunity to obtain short to longer term advances based upon the banks
investment in assets secured by one- to four-family residential real estate.
This would suggest a remaining current total available Federal Home Loan Bank
aggregate borrowing capacity of approximately $233 million. The Company has
ample liquidity available to fund all outstanding loan commitments if they were
fully drawn upon.

CAPITAL RESOURCES. . .The Company exceeds all regulatory capital ratios for
each of the periods presented. Furthermore, both the Company and its subsidiary
bank are considered "well capitalized" under all applicable FDIC regulations.
The Company anticipates that it will build its capital ratios during 2004 due to
the retention of earnings. As presented in Note #24 to the Consolidated
Financial Statements, the Company's asset leverage ratio was 7.58% and the Tier
1 capital ratio was 13.70% at December 31, 2003. Note that the impact of other
comprehensive income (loss) is excluded from the regulatory capital ratios. At
December 31,

27

2003, accumulated other comprehensive loss amounted to $932,000. Additionally,
the Company generated approximately $1.4 million of tangible capital in 2003 due
to the amortization of core deposit intangible assets.

As a result of the net loss incurred in 2002, the Company announced on
January 24, 2003 that it suspended its common stock cash dividend. The Company
had declared and paid common stock cash dividends of $0.30 per share in 2002.
While the Company had not repurchased any of its own shares since the year 2000,
the Company has also suspended its treasury stock repurchase program. For so
long as the Company and the Board are parties to the Memorandum Of Understanding
(MOU), reinstatement of either the common stock dividend or the treasury stock
repurchase program will require the prior written approval of the Company's
primary regulators -- the Federal Reserve Bank of Philadelphia and the
Pennsylvania Department of Banking. (See Note #24, Regulatory Matters, for
further discuss of the Memorandum Of Understanding.) The Company believes it is
in compliance with the requirements of the MOU.

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 repricing characteristics of certain assets and liabilities without stated
contractual maturities; 2) market value of portfolio equity sensitivity
analysis, and 3) static GAP analysis which analyzes the extent to which interest
rate sensitive assets and interest rate sensitive liabilities are matched at
specific points in time. The overall interest rate risk position and strategies
are reviewed by senior management and the Company's Board of Directors on an
ongoing basis.

The following table presents a summary of the Company's static GAP
positions at December 31, 2003:

When December 31, 2003, is compared to December 31, 2002, the Company's one
year cumulative GAP ratio became negative due primarily to the execution of fair
value hedges that converted certain fixed rate borrowings into variable rate
borrowings.

Management places primary emphasis on simulation modeling to manage and
measure interest rate risk. The Company's asset/liability management policy
seeks to limit net interest income variability over the first twelve months of
the forecast period to +/-7.5% which include interest rate movements of at least
200 basis points. Under the current historically low interest rate environment,
a declining 200 basis point or greater scenario is improbable and therefore is
of limited value. Additionally, the Company also uses market value sensitivity
measures to further evaluate the balance sheet exposure to changes in interest
rates. The Company monitors the trends in market value of portfolio equity
sensitivity analysis on a quarterly basis.

The following table presents an analysis of the sensitivity inherent in the
Company's net interest income and market value of portfolio equity. The interest
rate scenarios in the table compare the Company's base forecast, which was
prepared using a flat interest rate scenario, to scenarios that reflect
immediate interest rate increases of 200 basis points and immediate interest
rate decreases of 100 basis points. Each rate scenario contains unique
prepayment and repricing assumptions that are applied to the Company's existing
balance sheet that was developed under the flat interest rate scenario.

As indicated in the table, market value of portfolio equity increased by
15.7% under a 200 basis point increase scenario due primarily to the increased
value of the Company's core deposit base. The maximum negative variability of
net interest income of (4.6)% and market value of portfolio equity of (25.3)%
occurred in a 100 basis point downward rate shock and reflects further
impairment of the remaining mortgage servicing rights in a falling interest rate
environment along with a reduced value for core deposits and a greater liability
for fixed rate FHLB advances. Net interest income in the declining rate forecast
was also negatively impacted by the Company's inability to further reduce
certain core deposit costs given the historic lows of current interest rates.
Note the fair value hedges executed in 2003 helped reduce the Company's exposure
to flat and declining interest rates. Finally, this sensitivity analysis is
limited by the fact that it does not include all balance sheet repositioning
actions the Company may take should severe movements in interest rates occur
such as lengthening or shortening the duration of the securities portfolio or
entering into additional hedging

29

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.

Within the investment portfolio at December 31, 2003, 95% of the portfolio
is classified as available for sale and 5% as held to maturity. The available
for sale classification provides management with greater flexibility to manage
the securities portfolio to better achieve overall balance sheet rate
sensitivity goals and provide liquidity to fund loan growth as needed. The mark
to market of the available for sale securities does inject more volatility in
the book value of equity but has no impact on regulatory capital. Furthermore,
it is the Company's intent to continue to manage its long-term interest rate
risk by continuing to sell newly originated fixed-rate 30-year mortgage loans
into the secondary market.

The amount of loans outstanding by category as of December 31, 2003, which
are due in (i) one year or less, (ii) more than one year through five years, and
(iii) over five years, are shown in the following table. Loan balances are also
categorized according to their sensitivity to changes in interest rates.

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

CONTRACTURAL OBLIGATIONS. . .The following table presents, as of December
31, 2003, significant fixed and determinable contractual obligations to third
parties by payment date. Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.

30

OFF BALANCE SHEET ARRANGEMENTS. . .The Company uses various interest rate
contracts, such as interest rate swaps, caps, floors and swaptions to help
manage interest rate and market valuation risk exposure, which is incurred in
normal recurrent banking activities. For further discussion on Derivative
Hedging Instruments see Note #22 to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES. . .The accounting and reporting
policies of the Company are in accordance with GAAP and conform to general
practices within the banking industry. Accounting and reporting policies for the
allowance for loan losses and mortgage servicing rights are deemed critical
because they involve the use of estimates and require significant management
judgments. Application of assumptions different than those used by the Company
could result in material changes in the Company's financial position or results
of operation.

ACCOUNT -- Allowance for Loan Losses

BALANCE SHEET REFERENCE -- Allowance for Loan Losses

INCOME STATEMENT REFERENCE -- Provision for Loan Losses

DESCRIPTION

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 with balances over
$250,000 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 net 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 net
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 net
charge-off experience for consumer loans.

- The application of formula driven reserve allocations to all outstanding
loans 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, financial information and
documentation 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

31

allowance for loan losses in relation to the size of the total loan
portfolio and the level of non-performing assets.

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 this quarterly process is in compliance with GAAP and regulatory
requirements.

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 $250,000 within a 12 month
period. The Company defines classified loans as those loans rated substandard
and doubtful. 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.

The Company believes that it uses the best information available to
determine the adequacy of the allowance for loan losses. However, future
adjustments to the allowance for loan losses may be necessary and the results of
operations could be significantly and adversely affected if conditions differ
substantially from the assumptions used in making the determinations.

ACCOUNT -- Mortgage Servicing Rights

BALANCE SHEET REFERENCE -- Mortgage Servicing Rights

INCOME STATEMENT REFERENCE -- Net Mortgage Servicing Fees and Impairment
Charge for Mortgage Servicing Rights

DESCRIPTION

The Company recognizes as assets the rights to service mortgage loans for
others whether the servicing rights are acquired through purchases or
originations. Purchased mortgage servicing rights are capitalized at cost. For
loans originated and sold where servicing rights have been retained, the Company
allocates the cost of originating the loan to the loan (without the servicing
rights) and the servicing rights retained based on their relative fair market
values if it is practicable to estimate those fair values. Where it is not
practicable to estimate the fair values, the entire cost of originating the loan
is allocated to the loan without the servicing rights. For purposes of
evaluating and measuring impairment, the Company stratifies the rights based on
risk characteristics. If the discounted projected net cash flows of a stratum
are less than the carrying amount of the stratum, the stratum is written down to
the amount of the discounted projected net cash flows through a valuation
account. This writedown is recorded in the line item on the Consolidated
Statements of Operations titled Impairment charge for mortgage servicing rights.
The Company has determined that the predominant risk characteristics of its
portfolio are loan type and interest rate. For the purposes of evaluating
impairment, the Company has stratified its portfolio in 200 basis point tranches
by loan type. Mortgage servicing rights are amortized in proportion to, and over
the period of, estimated net servicing income. The value of mortgage servicing
rights is subject to interest rate and prepayment risk. It is likely that the
value of these assets will decrease if interest rates decline and prepayments
occur at greater than the expected rate and conversely the value of servicing
increases if interest rates rise and prepayment speeds slow.

32

FORWARD LOOKING STATEMENT. . .

THE NEW STRATEGIC FOCUS:

The stabilizing of the Company in 2003 has enabled the Board and management
to examine the franchise in some detail. It is a fact that AmeriServ has already
begun to articulate and to execute its strategy for the future. The Company is
coalescing around a back-to-basics concentration on community banking. It
believes that it possesses a solid franchise and can create greater
institutional value. AmeriServ has three strong business units that management
and Board believe can perform at a higher level of profitability.

1. THE RETAIL BANK -- When the $400 million asset leverage program is
extracted, the Retail Bank remains a strong $800 million bank buoyed by
$650 million in core deposits. This retail bank operates 23 branches and
has been consistently profitable. It is a fact that this type of banking
in the region has been in a state of chaos in recent years. There have
been mergers, divestitures, branch closings, name changes, etc.
Unfortunately for AmeriServ, during this period, its focus has been
diluted by a spin-off, a name change, operating losses and regulatory
criticisms. However, as AmeriServ emerges from its Turnaround it now
finds itself to be the largest locally owned, locally managed bank in
its primary retail market area. It also has discovered that, in spite of
its recent difficulties, its core customers have remained loyal and
supportive. The Company believes that its Retail Bank has a powerful
future ahead. It has a solid product mix, it has a strong sales ethic,
and it intends to build an equally strong service culture. AmeriServ
recognizes that its primary market is experiencing weakness, but it
believes that as it sharpens its community banking skills, good products
and exemplary personal service will enable the Retail Bank to establish
a strong base for the Company as a whole.

2. COMMERCIAL LENDING -- This business unit has been completely
restructured in 2003, after experiencing serious difficulties in 2001
and 2002. It has a new chief lending officer and almost an entirely new
staff of experienced professional lenders. The unit is focused on the
stated primary lending market of an approximate 100 mile radius from
Johnstown. It is mounting an energetic customer calling effort to build
its loan balances. It has also reengineered its lending procedures. The
Company can provide the unit with the capacity to grow substantially and
its new procedures should permit it to increase its margins and build
permanent relationships. As this unit emerges, it bears little
resemblance to its former self and is poised to generate increased loan
outstandings in 2004 and be a strong future contributor to the Company's
revenue stream.

3. TRUST COMPANY -- This business unit has an almost unique business
opportunity. As the largest operating trust company of its kind between
Harrisburg and Pittsburgh, it has many facets. It has all of the
activities expected of a bank trust department and we believe it is
proficient in each of them. In addition, it has a unique capability that
sets it apart from almost all other trust operations. As a part of one
of only 13 unionized banks in the nation, this unit has developed a
strategy and a set of products that leverage that unusual situation. It
has been quite successful in building products that serve the union
managed pension funds that are a significant facet of certain segments
of the American labor scene. These products have no geographic
restrictions, nor do they require major commitments of AmeriServ's
capital. They do, however, require skilled professionals to market and
manage the trust company's capabilities. As the Company strengthens,
resources will be channeled to the AmeriServ Trust Company so that it
can become a greater force in this discrete market niche.

The Company has re-affirmed its roots as a community bank. It has
strengthened its core units: the Retail Bank, the Commercial Lending and the
Trust Company. It has contained and/or corrected its troubled units. The Company
recognizes that it suffered from a lack of focus and poor execution. However,
the speed with which the Company took steps to right itself in 2003 indicates
that, with a commitment to focus, it can meet challenges.

Therefore, the future direction of AmeriServ Financial, Inc. will be
highlighted by efforts to continue to strengthen its balance sheet, to control
and leverage its non-interest expenses and to place strong emphasis on its three
key business units. The Board and management commit that the focus will be
clear, the planning will be extensive, the execution will be precise and the
results will be measured. The turnaround in 2003 has been

33

strong, but only represents a beginning. In the near term, the fundamental goal
is to build an increasing level of net income from these core units.

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the magnitude, direction, and frequency of
changes in interest rates. Interest rate risk results from various repricing
frequencies and the maturity structure of assets, liabilities, and hedges. The
Company uses its asset liability management policy and hedging policy to control
and manage interest rate risk.

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

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

For information regarding the market risk of the Company's financial
instruments, see Interest Rate Sensitivity in the M. D. & A. presented on pages
28-30. The Company's principal market risk exposure is to interest rates.

34

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

35

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

36

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See accompanying notes to consolidated financial statements.

37

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

38

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

(continued on next page)

39

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued from previous page)

See accompanying notes to consolidated financial statements.

40

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND NATURE OF OPERATIONS:

AmeriServ Financial, Inc. (the Company) is a bank holding company,
headquartered in Johnstown, Pennsylvania. Through its banking subsidiary the
Company operates 23 banking locations in six Pennsylvania counties. These
offices provide a full range of consumer, mortgage, and commercial financial
products. The AmeriServ Trust and Financial Services Company (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.

PRINCIPLES OF CONSOLIDATION:

On April 24, 2001, at the annual shareholders' meeting USBANCORP, Inc.
changed its name effective May 7, 2001, to AmeriServ Financial, Inc. The
consolidated financial statements include the accounts of AmeriServ Financial,
Inc. and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank),
Trust Company, AmeriServ Associates, Inc. (AmeriServ Associates), and AmeriServ
Life Insurance Company (AmeriServ Life). The Bank is a state-chartered full
service bank with 23 locations in Pennsylvania. Standard Mortgage Corporation of
Georgia (SMC), a subsidiary of the Bank, 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.

Intercompany accounts and transactions have been eliminated in preparing
the consolidated financial statements. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America (generally accepted accounting principles, or GAAP) requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results may
differ from these estimates and the differences may be material to the
consolidated financial statements. The Company's most significant estimates are
the allowance for loan losses and the valuation of mortgage servicing rights.

INVESTMENT SECURITIES:

Securities are classified at the time of purchase as investment securities
held to maturity if it is management's intent and the Company has the ability to
hold the securities until maturity. These held to maturity securities are
carried on the Company's books at cost, adjusted for amortization of premium and
accretion of discount which is computed using the level yield method which
approximates the effective interest method. Alternatively, securities are
classified as available for sale if it is management's intent at the time of
purchase to hold the securities for an indefinite period of time and/or to use
the securities as part of the Company's asset/liability management strategy.
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 (loss) within stockholders' equity on a net of tax basis. Any securities
classified as trading assets are reported at fair value with unrealized
aggregate appreciation (depreciation) included in income on a net of tax basis.
The Company presently does not engage in trading activity. Realized gain or loss
on securities sold is computed upon the adjusted cost of the specific securities
sold.

41

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOANS:

Interest income is recognized using methods which approximate a level yield
related to principal amounts outstanding. The Company's subsidiaries discontinue
the accrual of interest income when loans, except for loans that are insured for
credit loss, become 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. A non-accrual commercial loan is placed on accrual
status after becoming current and remaining current for twelve consecutive
payments. Residential mortgage loans are placed on accrual status upon becoming
current.

LOAN FEES:

Loan origination and commitment fees, net of associated direct costs, are
deferred and amortized into interest and fees on loans over the loan or
commitment period. Fee amortization is determined by the effective interest
method.

LOANS HELD FOR SALE:

Certain newly originated fixed-rate residential mortgage loans are
classified as held for sale, because it is management's intent to sell these
residential mortgage loans. The residential mortgage loans held for sale are
carried at the lower of aggregate cost or market value.

PREMISES AND EQUIPMENT:

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operations over the estimated useful
lives of the premises and equipment using the straight-line method with a
half-year convention. Useful lives of up to 45 years for buildings and up to 12
years for equipment are utilized. Leasehold improvements are amortized using the
straight-line method over the terms of the respective leases or useful lives of
the improvements, whichever is shorter. Maintenance, repairs, and minor
alterations are charged to current operations as expenditures are incurred.

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 with balances over
$250,000 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.

42

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- The application of formula driven reserve allocations to consumer and
mortgage loans which are based upon historical net 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 net
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 net
charge-off experience for consumer loans.

- The application of formula driven reserve allocations to all outstanding
loans 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, financial information and
documentation 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 and the level of non-performing assets.

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 this quarterly process is in compliance with GAAP and regulatory
requirements.

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 $250,000 within a 12 month
period. The Company defines classified loans as those loans rated substandard
and doubtful. 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.

RESERVE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT:

The allowance for unfunded loan commitments and letters of credit is
maintained at a level believed by management to be sufficient to absorb
estimated losses related to these unfunded credit facilities. The determination
of the adequacy of the allowance is based on periodic evaluations of the
unfunded credit facilities including an assessment of the probability of
commitment usage, credit risk factors for loans outstanding to these same
customers and the terms and expiration dates of the unfunded credit facilities.
Net adjustments to the allowance for unfunded loan commitments and letters of
credit are included in the

43

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

provision for loan losses and a separate reserve is recorded within the
liabilities section of the consolidated balance sheet in other liabilities.

PURCHASED AND ORIGINATED MORTGAGE SERVICING RIGHTS:

The Company recognizes as assets the rights to service mortgage loans for
others whether the servicing rights are acquired through purchases or
originations. Purchased mortgage servicing rights are capitalized at cost. For
loans originated and sold where servicing rights have been retained, the Company
allocates the cost of originating the loan to the loan (without the servicing
rights) and the servicing rights retained based on their relative fair market
values if it is practicable to estimate those fair values. Where it is not
practicable to estimate the fair values, the entire cost of originating the loan
is allocated to the loan without the servicing rights. For purposes of
evaluating and measuring impairment, the Company stratifies the rights based on
risk characteristics. If the discounted projected net cash flows of a stratum
are less than the carrying amount of the stratum, the stratum is written down to
the amount of the discounted projected net cash flows through a valuation
account. This writedown is recorded in the line item on the Consolidated
Statements of Operations titled Impairment charge for mortgage servicing rights.
The Company has determined that the predominant risk characteristics of its
portfolio are loan type and interest rate. For the purposes of evaluating
impairment, the Company has stratified its portfolio in 200 basis point tranches
by loan type. Mortgage servicing rights are amortized in proportion to, and over
the period of, estimated net servicing income. The value of mortgage servicing
rights is subject to interest rate and prepayment risk. It is likely that the
value of these assets will decrease if interest rates decline and prepayments
occur at greater than the expected rate and conversely the value of servicing
increases if interest rates rise and prepayment speeds slow.

TRUST FEES:

All trust fees are recorded on the cash basis which approximates the
accrual basis for such income.

BANK-OWNED LIFE INSURANCE:

The Company has purchased life insurance policies on certain employees.
These policies are recorded in other assets at their cash surrender value, or
the amount that can be realized. Income from these policies and changes in the
cash surrender value are recorded in bank owned life insurance within
non-interest income.

EARNINGS PER COMMON SHARE:

Basic earnings per share includes only the weighted average common shares
outstanding. Diluted earnings per share includes the weighted average common
shares outstanding and any dilutive common stock equivalent shares in the
calculation. Treasury shares are treated as retired for earnings per share
purposes. Options to purchase 307,136, 474,534 and 505,429 shares of common
stock were outstanding during 2003, 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.

STOCK-BASED COMPENSATION:

At December 31, 2003, the Company has stock based compensation plans, which
are described more fully in Note #18 Stock Compensation Plans. The Company
accounts for these plans under Accounting Principles Board Opinion #25,
"Accounting for Stock Issued to Employees," and related interpretations. No
stock-based employee compensation expense has been reflected in net income as
all rights and options to purchase the Company's stock granted under these plans
had an exercise price equal to the market value of the underlying stock on the
date of grant. The following table illustrates the income from continuing
operations and earnings per share as if the Company had applied the fair value
recognition provisions of

44

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statement of Financial Accounting Standards (SFAS) #123, "Accounting for
Stock-Based Compensation," as amended, to stock compensation plans.

PRO FORMA INCOME (LOSS)
AND EARNINGS (LOSS) PER SHARE

COMPREHENSIVE INCOME (LOSS):

For the Company, comprehensive income (loss) includes net income and
unrealized holding gains and losses from available for sale investment
securities and derivatives that qualify as cashflow hedges. The balances of
accumulated other comprehensive income (loss) were $(932,000), $5,805,000 and
$(771,000) at December 31, 2003, 2002 and 2001, respectively.

CONSOLIDATED STATEMENT OF CASH FLOWS:

On a consolidated basis, cash and 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
and cash equivalents also include short-term investments. The Company made
$119,000 in income tax payments in 2003; $519,000 in 2002; and $482,000 in 2001.
The Company made total interest expense payments of $31,676,000 in 2003;
$40,382,000 in 2002; and $54,904,000 in 2001.

INCOME TAXES:

Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the corresponding asset or liability from period to
period. Deferred tax assets are reduced, if necessary, by the amounts of such
benefits that are not expected to be realized based upon available evidence.

INTEREST RATE CONTRACTS:

The Company uses various interest rate contracts, such as interest rate
swaps, caps, floors and swaptions to help manage interest rate and market
valuation risk exposure, which is incurred in normal recurrent banking
activities. These interest rate contracts function as hedges against specific
assets or liabilities on the Consolidated Balance Sheet. It is the Company's
policy not to terminate hedge transactions prior to their expiration date. The
Company also does not use interest rate contracts for trading purposes.

45

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The interest rate contracts involve no exchange of principal either at
inception or upon maturity; rather, it involves the periodic exchange of
interest payments arising from an underlying notional principal amount. For
interest rate swaps, the interest differential to be paid or received is accrued
by the Company and recognized as an adjustment to interest income or interest
expense of the underlying assets or liabilities being hedged. Because only
interest payments are exchanged, the cash requirement and exposure to credit
risk are significantly less than the notional amount.

Any premium or transaction fee incurred to purchase interest rate caps or
floors is deferred and amortized to interest income or interest expense over the
term of the contract. Unamortized premiums related to the purchase of caps and
floors are included in other assets on the consolidated balance sheets. There
were no interest rate caps or floors in place at December 31, 2003 or 2002.

RISK MANAGEMENT OVERVIEW:

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

Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the magnitude, direction, and frequency of
changes in interest rates. Interest rate risk results from various repricing
frequencies and the maturity structure of assets, liabilities, and hedges. The
Company uses its asset liability management policy and hedging policy to control
and manage interest rate risk.

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

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

Commercial

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

46

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Commercial Loans Secured by Real Estate

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

Real Estate -- Mortgage

This category includes mortgages that are secured by residential property.
Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae
underwriting guidelines, with the exception of Community Reinvestment Act loans,
which exhibit more liberal standards. The major risk in this category is that a
significant downward economic trend would increase unemployment and cause
payment default.

Consumer

This category includes consumer installment loans and revolving credit
plans. Underwriting is pursuant to industry norms and guidelines and is achieved
through a process, which is inclusive of the Fair Isaac Credit Scoring program.
The major risk in this category is a significant economic downturn.

RECENT ACCOUNTING STANDARDS:

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS
#146, "Accounting for Costs Associated With Exit or Disposal Activities". SFAS
#146 addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS #146 addresses the accounting and reporting for one-time
employee termination benefits, certain contract termination costs, and other
costs associated with exit or disposal activities such as facility closings or
consolidations and employee relocations. The standard is effective for exit or
disposal activities initiated after December 31, 2002. The adoption of this
standard did not have a material impact on its results of operation or financial
position.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the
existing disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit and indemnifications. It also clarifies that
at the time a company issues a guarantee, the company must recognize an initial
liability for the fair value of those obligations it assumes under that
guarantee and must disclose that information in its interim and annual financial
statements. The provisions related to recognizing a liability at inception of
the guarantee for the fair value of the guarantor's obligations would not apply
to guarantees accounted for as derivatives. The initial recognition and
measurement provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002. See Note #17, Commitments and Contingent
Liabilities, for disclosures currently required under FIN 45.

In December 2002, the FASB issued SFAS #148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure", an amendment of SFAS #123. This
Statement amends SFAS #123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS #123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the

47

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

effect of the method used on reported results. See "Stock-based Compensation"
herein and Note #18 Stock Compensation Plans for additional information. The
adoption of this standard did not have a material impact on the Company's
consolidated financial statements.

In December 2003, the FASB issued Interpretation #46 (Revised 2003)
"Consolidation of Variable Interest Entities", (FIN 46-R). FIN 46-R addresses
the requirement for business enterprises to consolidate any variable interest
entities in which they are determined to be the primary economic beneficiary as
a result of their variable economic interest. FIN 46-R requires disclosures
about the variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. The Company
does have a variable interest entity. The adoption of FIN 46 is not expected to
have a material impact on the Company's consolidated financial statements.

In April 2003, the FASB issued SFAS #149, "Amendments of Statement #133 on
Derivative Instruments and Hedging Activities". SFAS #149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement #133, "Accounting
for Derivative Instruments and Hedging Activities". SFAS #149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS #149 did not
have a material impact on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS #150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS #150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
#150 was effective for instruments entered into or modified after May 31, 2003,
and otherwise was effective for the first interim period beginning after June
15, 2003. The adoption of SFAS #150 did not have a material impact on the
Company's consolidated financial statements.

In December 2003, the FASB issued SFAS #132, (Revised 2003) "Employers'
Disclosures about Pensions and Other Postretirement Benefits". This Statement
amends Statements #87, "Employers' Accounting for Pensions", #88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and #106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". However, the Statement does not change the
recognition and measurement requirements of those Statements. This Statement
retains the disclosure requirements contained in SFAS #132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits", which it replaces
and requires additional disclosure. Additional new disclosure includes actual
mix of plan assets by category, a description of investment strategies and
policies used, a narrative description of the basis for determining the overall
expected long-term rate of return on asset assumption and aggregate expected
contributions. See Note #15, Pension and Profit Sharing Plans, for additional
discussion.

2. CASH AND DUE FROM BANKS

Cash and due from banks at December 31, 2003, and 2002, included $7,255,000
and $7,155,000, respectively, of reserves required to be maintained under
Federal Reserve Bank regulations.

3. INTEREST BEARING DEPOSITS WITH BANKS

The book value of interest bearing deposits with domestic banks is as
follows:

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All interest bearing deposits are with domestic banks and mature within
four months. The Company had no deposits in foreign banks nor in foreign
branches of United States banks. To be in compliance with Housing and Urban
Development and Arizona Department of Insurance rules minimum balances of
$100,000 are maintained at appropriate institutions.

4. INVESTMENT SECURITIES

The cost basis and market values of investment securities are summarized as
follows:

Investment securities available for sale:

- ---------------

(1) Other investment securities include corporate notes and bonds, asset-backed
securities, and equity securities.

Investment securities held to maturity:

Investment securities available for sale:

49

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment securities held to maturity:

- ---------------

(1) Other investment securities include corporate notes and bonds, asset-backed
securities, and equity securities.

All purchased investment securities are recorded on settlement date which
is not materially different from the trade date. Realized gains and losses are
calculated by the specific identification method.

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 Investors Service or
Standard & Poor's rating of A. At December 31, 2003, 97.6% of the portfolio was
rated AAA as compared to 97.1% at December 31, 2002. Less than 1.0% of the
portfolio was rated below A or unrated on December 31, 2003. The Company and its
subsidiaries, collectively, did not hold securities of any single issuer,
excluding U.S. Treasury and U.S. Agencies, that exceeded 10% of shareholders'
equity at December 31, 2003.

The book value of securities, both available for sale and held to maturity,
pledged to secure public and trust deposits, and certain Federal Home Loan Bank
borrowings was $485,057,000 at December 31, 2003, and $257,329,000 at December
31, 2002. The Company realized $4,409,000, $5,047,000 and $2,827,000 of gross
investment security gains and $622,000, $753,000 and $914,000 of gross
investment security losses on available for sale securities in 2003, 2002, and
2001, respectively. The Company realized no gross investment security gains and
losses on held to maturity securities in 2003, 2002 or 2001.

The following table sets forth the contractual maturity distribution of the
investment securities, cost basis and market values, and the weighted average
yield for each type and range of maturity as of December 31, 2003. Yields are
not presented on a tax-equivalent basis, but are based upon the cost basis and
are weighted for the scheduled maturity. Average maturities are based upon the
original contractual maturity dates with the exception of mortgage-backed
securities and asset-backed securities for which the average lives were used. At
December 31, 2003, the Company's consolidated investment securities portfolio
had a modified duration of approximately 2.04 years. The weighted average
expected maturity for available for sale securities at December 31, 2003 for
U.S. Treasury, U.S. Agency, U.S. Agency Mortgage-Backed and other securities was
7.8, 3.6, 5.8 and 1.9 years, respectively. The weighted average expected
maturity for held to maturity securities

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at December 31, 2003 for U.S. Treasury, U.S. Agency, and U.S. Agency
Mortgage-Backed securities was 5.0, 2.3 and 3.2 years.

Investment securities available for sale:

Investment securities held to maturity:

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present information concerning investments with
unrealized losses as of December 31, 2003 (in thousands):

Investment securities available for sale:

- ---------------

(1) Other investment securities include corporate notes and bonds, asset-backed
securities, and equity securities.

Investment securities held to maturity:

Given the quality of the investment portfolio (greater than 97% rated AAA),
the Company believes that in accordance with Emerging Issues Task Force 03-1 and
the Company's investment policy the unrealized losses that have existed for
greater than 12 months are temporary in nature and resulted from interest rate
movements.

5. LOANS

The loan portfolio of the Company consisted of the following:

Real estate construction loans comprised 3.2% and 7.2% of total loans net
of unearned income at December 31, 2003 and 2002, respectively. The Company has
no direct credit exposure to foreign countries. Additionally, the Company has no
significant industry lending concentrations. As of December 31, 2003, loans to
customers engaged in similar activities and having similar economic
characteristics, as defined by standard industrial classifications, did not
exceed 10% of total loans. In the ordinary course of business, the subsidiaries
have transactions, including loans, with their officers, directors, and their
affiliated companies. These

52

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions were on substantially the same terms as those prevailing at the
time for comparable transactions with unaffiliated parties and do not involve
more than the normal credit risk. These loans totaled $1,819,000 and $2,427,000
at December 31, 2003 and 2002, respectively. An analysis of these related party
loans follows:

6. ALLOWANCE FOR LOAN LOSSES

An analysis of the changes in the allowance for loan losses follows:

7. 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).

The following table presents information concerning non-performing assets:

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.

53

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $13,232,000 and $9,116,000 being
specifically identified as impaired and a corresponding allocation reserve of
$2,459,000 and $1,425,000 at December 31, 2003 and 2002, respectively. The
average outstanding balance for loans being specifically identified as impaired
was $12,532,000 for 2003 and $10,095,000 for 2002. 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 2003, 2002 and 2001 was $408,000, $435,000 and
$399,000, respectively.

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.

8. PREMISES AND EQUIPMENT

An analysis of premises and equipment follows:

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. MORTGAGE SERVICING RIGHTS (MSR) PORTFOLIO

The following tables highlight key information regarding the Company's
mortgage servicing portfolio.

A rollforward of the MSRs is as follows:

The weighted average life for servicing rights acquired was approximately
4.7 years and 4.0 years for 2003 and 2002, respectively.

10. FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE,
AND OTHER SHORT-TERM BORROWINGS

The outstanding balances and related information for federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings are summarized as follows:

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Interest expense on deposits consisted of the following:

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The following table sets forth the balance of other time deposits and
certificates of deposit of $100,000 or more as of December 31, 2003 maturing in
the periods presented:

Additionally, the following table provides more detailed maturity
information regarding certificates of deposit issued in denominations of
$100,000 or more as of December 31, 2003:

MATURING IN:

12. ADVANCES FROM FEDERAL HOME LOAN BANK AND GUARANTEED JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES

Advances from the Federal Home Loan Bank (FHLB) consist of the following:

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All Federal Home Loan Bank stock, along with an interest in certain
mortgage loans and mortgage-backed securities, with an aggregate statutory value
equal to the amount of the advances, have been delivered as collateral to the
Federal Home Loan Bank of Pittsburgh to support these borrowings.

GUARANTEED JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES:

On April 28, 1998, the Company completed a $34.5 million public offering of
8.45% Trust Preferred Securities, which represent undivided beneficial interests
in the assets of a Delaware business trust, AmeriServ Financial Capital Trust I.
The Trust Preferred Securities will mature on June 30, 2028, and are callable at
par at the option of the Company after June 30, 2003. Proceeds of the issue were
invested by AmeriServ Financial Capital Trust I in Junior Subordinated
Debentures issued by AmeriServ Financial, Inc. Net proceeds from the $34.5
million offering were used for general corporate purposes, including the
repayment of debt, the repurchase of AmeriServ Financial common stock, and
investments in and advances to the Company's subsidiaries. Unamortized deferred
issuance costs associated with the Trust Preferred Securities amounted to $1.1
million as of December 31, 2003 and are included in other assets on the
consolidated balance sheet, and are being amortized on a straight-line basis
over the term of the issue. The Trust Preferred securities are listed on NASDAQ
under the symbol ASRVP.

Upon the occurrence of certain events, specifically a tax event or a
capital treatment event, the Company may redeem in whole, but not in part, the
Guaranteed Junior Subordinated Deferrable Interest Debentures prior to June 30,
2028. A tax event means that the interest paid by the Company on the
subordinated debentures will no longer be deductible for federal income tax
purposes. A capital treatment event means that the Trust Preferred Securities no
longer qualify as Tier 1 capital for purposes of the capital adequacy guidelines
of the Federal Reserve. Proceeds from any redemption of the subordinated
debentures would cause mandatory redemption of the Trust Preferred Securities.
Under FIN 46-R, AmeriServ Financial Capital Trust I will be deconsolidated in
the first quarter of 2004.

As a result of dividend payments from non-bank subsidiaries and the
settlement of the inter-company tax position, management believes that the
parent company will have ample cash to continue to make the dividend payment on
the trust preferred securities through the second quarter of 2004. The Company
is presently developing a contingency cash flow plan that identifies strategies
to continue the trust preferred dividend payments in an uninterrupted manner
through the end of 2004. Note that some of these strategies may require
regulatory approval. Intermediate to longer term, however, the payment of the
trust preferred dividend is dependent upon the subsidiary bank maintaining
profitability so that it can resume upstreaming dividends to the parent company.
The subsidiary bank must first recoup the $2.6 million net loss that it incurred
for the year ended December 31, 2002 before the Company can approach the
regulatory authorities to request permission to resume dividend upstreams.
Through December 31, 2003, the bank had earned

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$2.2 million leaving a remaining loss to be recovered of $448,000. The Company
expects that the bank will have recovered the remaining loss by the end of the
first quarter of 2004. The Company views the deferral of the interest payments
on the trust preferred securities as the least favorable alternative to
maintaining parent company liquidity because the payments are cumulative and
interest immediately begins to accrue on the unpaid amount at a rate of 8.45%
along with the reputational risk associated with the deferral.

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS #107, "Disclosures about Fair Value of Financial Instruments",
requires all entities to disclose the estimated fair value of its financial
instrument assets and liabilities. For the Company, as for most financial
institutions, approximately 95% of its assets and liabilities are considered
financial instruments. Many of the Company's financial instruments, however,
lack an available trading market characterized by a willing buyer and willing
seller engaging in an exchange transaction. Therefore, significant estimates and
present value calculations were used by the Company for the purpose of this
disclosure.

Estimated fair values have been determined by the Company using the best
available data and an estimation methodology the Company believes is suitable
for each category of financial instruments. Management believes that cash, cash
equivalents, and loans and deposits with floating interest rates have estimated
fair values which approximate the recorded book balances. The estimation
methodologies used, the estimated fair values, and recorded book balances at
December 31, 2003 and 2002, were as follows:

Financial instruments actively traded in a secondary market have been
valued using quoted available market prices. The net loan portfolio has been
valued using a present value discounted cash flow. The discount rate used in
these calculations is based upon the treasury yield curve adjusted for
non-interest operating costs, credit loss, and assumed prepayment risk.
Purchased and originated mortgage servicing rights have been valued by an
independent third party using a methodology which incorporates a discounted
after-tax cash flow of the servicing (loan servicing fees and other related
ancillary fee income less the costs of servicing the loans). This valuation also
assumes current PSA prepayment speeds which are based upon industry data
collected on mortgage prepayment trends. For further discussion see Note #1 to
the Consolidated Financial Statements.

Financial instruments with stated maturities have been valued using a
present value discounted cash flow with a discount rate approximating current
market for similar assets and liabilities. Financial instrument liabilities with
no stated maturities have an estimated fair value equal to both the amount
payable on demand and the recorded book balance.

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Changes in assumptions or estimation methodologies may have a material
effect on these estimated fair values. The Company's remaining assets and
liabilities which are not considered financial instruments have not been valued
differently than has been customary under historical cost accounting. The
estimated fair value of instruments used for hedging purposes is estimated by
financial modeling performed by an independent third party. These values
represent the estimated amount the Company would receive or pay, to terminate
the agreements, considering current interest rates, as well as the
creditworthiness of the counterparties.

There is not a material difference between the notional amount and the
estimated fair value of the off-balance sheet items which total $98.2 million at
December 31, 2003, and are primarily comprised of unfunded loan commitments
which are generally priced at market at the time of funding.

Management believes that the disclosed fair values between financial
institutions may not be comparable due to the wide range of assumptions,
methodologies and other uncertainties in estimating fair values, given the
absence of active secondary markets for many of the financial instruments. This
lack of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.

14. INCOME TAXES

The provision (benefit) for income taxes is summarized below:

The reconciliation between the federal statutory tax rate and the Company's
effective consolidated income tax rate is as follows:

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At December 31, 2003 and 2002, deferred taxes are included in other assets
or other liabilities in the accompanying Consolidated Balance Sheets. The
following table highlights the major components comprising the deferred tax
assets and liabilities for each of the periods presented:

The change in net deferred tax assets and liabilities consist of the
following:

The Company has alternative minimum tax credit carryforwards of
approximately $1.0 million at December 31, 2003. These credits have an
indefinite carryforward period. The Company also has a $296,000 net operating
loss carryforward that has a carryforward period of 20 years.

15. PENSION AND PROFIT SHARING PLANS

The Company has a trusteed, noncontributory defined benefit pension plan
covering all employees who work at least 1,000 hours per year and who have not
yet reached age 60 at their employment date. The benefits of the plan are based
upon the employee's years of service and average annual earnings for the highest
five consecutive calendar years during the final ten year period of employment.
The Company's funding policy has

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been to contribute annually an amount within the statutory range of allowable
minimum and maximum actuarially determined tax-deductible contributions. Plan
assets are primarily debt securities (including U.S. Treasury and Agency
securities, corporate notes and bonds), listed common stocks (including shares
of AmeriServ Financial, Inc. common stock which is limited to 10% of the plans
assets), mutual funds, and short-term cash equivalent instruments.

PENSION BENEFITS:

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The Company has assumed an 8% long-term expected return on plan assets.
This assumption was based upon the plan's historical investment performance over
a longer term period of 14 years combined with the plan's investment objective
of balanced growth and income. Additionally, this assumption also incorporates a
targeted range for equity securities of 50% to 60% of plan assets.

PLAN ASSETS:

The plan's measurement date is December 31, 2003. This plan's asset
allocations at December 31, 2003 and 2002, by asset category are as follows:

The investment strategy objective for the pension plan is balanced growth
and income. This objective seeks to develop a portfolio for acceptable levels of
current income together with the opportunity for capital appreciation. The
balanced growth and income objective reflects a relatively equal balance between
equity and fixed income investments such as debt securities. The allocation
between equity and fixed income assets may vary by a moderate degree but the
plan typically targets a range of equity investments between 50% and 60% of the
plan assets. This means that fixed income and cash investments typically
approximate 40% to 50% of the plan assets. The plan is also able to invest in
ASRV common stock up to a maximum level of 10% of the market value of the plan
assets (at December 31, 2003, 6% of the plan assets were invested in ASRV common
stock). This asset mix is intended to ensure that there is a steady stream of
cash from maturing investments to fund benefit payments.

CASH FLOWS:

The Bank presently expects no contribution to be made to the AmeriServ
Financial Bank Pension Plan in 2004 based on its prepaid status.

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ESTIMATED FUTURE BENEFIT PAYMENTS:

The following benefit payments, which reflect future service, as
appropriate, are expected to be paid (in thousands).

In addition, the Bank has a trusteed, deferred profit sharing plan with
contributions made by the Bank based upon income as defined by the plan. All
employees of the Bank and the Company who work over 1,000 hours per year
participate in the plan beginning on January 1 following six months of service.
There were no contributions to this profit sharing plan in 2003 and 2002. There
was a contribution to this plan of $95,000 in 2001. This profit sharing plan was
merged into the Company's 401(k) plan in 2003.

Except for the above pension benefits, the Company has no significant
additional exposure for any other post-retirement or post-employment benefits.

16. LEASE COMMITMENTS

The Company's obligation for future minimum lease payments on operating
leases at December 31, 2003, is as follows:

In addition to the amounts set forth above, certain of the leases require
payments by the Company for taxes, insurance, and maintenance.

Rent expense included in total non-interest expense amounted to $550,000,
$584,000 and $491,000, in 2003, 2002, and 2001, respectively.

17. COMMITMENTS AND CONTINGENT LIABILITIES

The Bank incurs off-balance sheet risks in the normal course of business in
order to meet the financing needs of their customers. These risks derive from
commitments to extend credit and standby letters of credit. Such commitments and
standby letters of credit involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated financial statements.
Commitments to extend credit are obligations to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Because many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each

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customer's creditworthiness on a case-by-case basis. Collateral which secures
these types of commitments is the same as for other types of secured lending
such as accounts receivable, inventory, and fixed assets.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
normal business activities, bond financings, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Letters of credit are issued both
on an unsecured and secured basis. Collateral securing these types of
transactions is similar to collateral securing the Bank's commercial loans.

The Company's exposure to credit loss in the event of nonperformance by the
other party to these commitments to extend credit and standby letters of credit
is represented by their contractual amounts. The Bank uses the same credit and
collateral policies in making commitments and conditional obligations as for all
other lending. The Company had various outstanding commitments to extend credit
approximating $84,066,000 and standby letters of credit of $3,216,000 as of
December 31, 2003.

Pursuant to its bylaws, the Company provides indemnification to its
directors and officers against certain liabilities incurred as a result of their
service on behalf of the Company. In connection with this indemnification
obligation, the Company advances on behalf of covered individuals costs incurred
in defending against certain claims.

Additionally, the Company is also subject to a number of asserted and
unasserted potential claims encountered in the normal course of business. In the
opinion of the Company, neither the resolution of these claims nor the funding
of these credit commitments will have a material adverse effect on the Company's
consolidated financial position or results of operation.

18. STOCK COMPENSATION PLANS

In 2001, the Company's Board of Directors adopted a shareholder approved
Stock Incentive Plan (the Plan) authorizing the grant of options or restricted
stock covering 800,000 shares of common stock. This Plan replaces the expired
1991 Stock Option Plan. Under the Plan, options or restricted stock can be
granted (the Grant Date) to directors, officers, and employees that provide
services to the Company and its affiliates, as selected by the compensation
committee of the Board of Directors. The Company accounts for this Plan under
Accounting Principles Board Opinion #25, "Accounting for Stock Issued to
Employees". The option price at which a stock option may be exercised shall not
be less than 100% of the fair market value per share of common stock on the
Grant Date. The maximum term of any option granted under the Plan cannot exceed
10 years. Generally, under the Plan on or after the first anniversary of the
Grant Date, one-third of such options may be exercised. On or after the second
anniversary of the Grant Date, two-thirds of such options may be exercised minus
the aggregate number of such options previously exercised. On or after the third
anniversary of the Grant Date, the remainder of the options may be exercised.

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A summary of the status of the Company's Stock Incentive Plan at December
31, 2003, 2002, and 2001, and changes during the years then ended is presented
in the table and narrative following:

A total of 279,454 of the 337,136 options outstanding at December 31, 2003,
have exercise prices between $2.31 and $15.69, with a weighted average exercise
price of $5.40 and a weighted average remaining contractual life of 5.7 years.
Options outstanding at December 31, 2003 reflect option ranges of: $2.31 to
$2.90 totaling 8,250 options which have a weighted average exercise price of
$2.67 and a weighted average remaining contractual life of 8.7 years; $4.015 to
$6.39 totaling 258,004 options which have a weighted average exercise price of
$5.10 and a weighted average remaining contractual life of 5.6 years; and $10.42
to $15.69 totaling 13,200 options which have a weighted average exercise price
of $13.06 and a weighted average remaining contractual life of 4.8 years. All of
these options are exercisable. The remaining 57,682 options have exercise prices
between $2.31 and $5.10, with a weighted average exercise price of $3.81 and a
weighted average remaining contractual life of 9.2 years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 2003, 2002, and
2001, respectively: risk-free interest rates ranging from 3.4% to 4.4% for 2003
options, 3.04% to 5.07% for 2002 options, and 4.07% to 4.97% for 2001 options;
expected lives of 10.0 years in 2003 and 2002 and 7.0 years for 2001 options;
expected volatility ranging from 33.39% to 33.64% for 2003 options, 30.21% to
34.31% for 2002 options, and 29.76% to 30.71% for 2001 options.

19. DIVIDEND REINVESTMENT PLAN

The Company's Dividend Reinvestment and Common Stock Purchase Plan (the
Plan) provides each record holder of Common Stock with a simple and convenient
method of purchasing additional shares without payment of any brokerage
commissions, service charges or other similar expense. A participant in the Plan
may purchase shares of Common Stock by electing either to (1) reinvest dividends
on all of his or her shares of Common Stock or (2) make optional cash payments
of not less than $10 and up to a maximum of $2,000 per month and continue to
receive regular dividend payments on his or her other shares. A participant may
withdraw from the Plan at any time.

In the case of purchases from AmeriServ Financial, Inc. of treasury or
newly-issued shares of Common Stock, the average market price is determined by
averaging the high and low sale price of the Common Stock as reported on the
NASDAQ on the relevant investment date. At December 31, 2003, the Company had
184,866 unissued reserved shares available under the Plan. In the case of
purchases of shares of Common Stock on the open market, the average market price
will be the weighted average purchase price of shares purchased for the Plan in
the market for the relevant investment date.

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20. SHAREHOLDER RIGHTS PLAN

Each share of the Company's Common Stock has attached to it one right (a
"Right") issued pursuant to a Rights Agreement, dated February 24, 1995 (the
"Rights Agreement"). Each Right entitles the holder to buy one-hundredth of a
share of the Company's Series C Junior Participating Preferred Stock at a price
of $21.67, subject to adjustment (the "Exercise Price"). The Rights become
exercisable if a person, group, or other entity acquires or announces a tender
offer for 19.9% or more of the Company's Common Stock. They are also exercisable
if a person or group who becomes a beneficial owner of at least 10% of the
Company's Common Stock is declared by the Board of Directors to be an "adverse
person" (as defined in the Rights Agreement). Under the Rights Agreement, any
person, group, or entity is deemed to be a beneficial owner of the Company's
Common Stock when such person or any of such person's affiliates or associates,
directly or indirectly, has the right to acquire or to vote the shares of the
Company's Common Stock (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement, or
understanding (whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options. The Rights Agreement
excludes from the definition of "beneficial owner", holders of revocable proxies
that (A) arise solely from a revocable proxy given in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and (B) is not also then reportable
by such person on Schedule 13D under the Exchange Act (or any comparable or
successor report). After the Rights become exercisable, the Rights (other than
rights held by a 19.9% beneficial owner or an "adverse person") entitle the
holders to purchase, under certain circumstances, either the Company's Common
Stock or common stock of the potential acquirer having a value equal to twice
the Exercise Price. The Company is entitled to redeem the Rights at $0.00033 per
Right at any time until the twentieth business day following a public
announcement that a 19.9% position has been acquired or the Board of Directors
has designated a holder of the Company's Common Stock an "adverse person". The
Rights attached to the shares of AmeriServ Common Stock outstanding on March 15,
1995, will expire on February 25, 2005.

21. INTANGIBLE ASSETS

The Company's consolidated balance sheet shows both tangible assets (such
as loans, buildings, and investments) and intangible assets (such as goodwill
and core deposits). On January 1, 2002, the Company adopted 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 at the reporting unit level 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 evaluates 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 based on data from
June 30, 2002. This evaluation indicated that there was no impairment of the
Company's goodwill.

During the first quarter of 2003, under SFAS #142 the Company had a
triggering event specific to the mortgage banking segment level. This event was
the sale of approximately 69% of its total servicing portfolio. As a result, the
Company reevaluated the $199,000 of goodwill that was allocated to the mortgage
banking segment and determined that it was impaired based upon its analysis of
the projected future cashflows in this business segment. The resulting
impairment charge eliminated all goodwill allocated to this segment and has been
reflected as an operating expense for the year. The Company's remaining goodwill
of $9.5 million is allocated to the retail banking segment and was evaluated for
impairment on its annual impairment evaluation date. The result of this
evaluation indicated that the Company's goodwill had no impairment.

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As of December 31, 2003, the Company's core deposit intangibles had an
original cost of $17.6 million with accumulated amortization of $12.9 million.
The weighted average amortization period of the Company's core deposit
intangibles at December 31, 2003, is 4.50 years. Estimated amortization expense
for the next five years is summarized as follows (in thousands):

A reconciliation of the Company's intangible asset balances for 2003 and
2002 is 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):

22. DERIVATIVE HEDGING INSTRUMENTS

The Company uses various interest rate contracts, such as interest rate
swaps, caps, floors and swaptions to help manage interest rate and market
valuation risk exposure, which is incurred in normal recurrent banking
activities. On January 1, 2001, the Company adopted SFAS #133, "Accounting for
Derivative Instruments and Hedging Activities". The Company uses derivative
instruments, primarily interest rate swaps, to manage interest rate risk and
match the rates on certain assets by hedging the fair value of certain fixed
rate debt, which converts the debt to variable rates and by hedging the cashflow
variability associated with certain

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variable rate debt by converting the debt to fixed rates. A summary of the
Company's derivative hedging transactions is as follows:

FAIR VALUE HEDGES:

In June 2003, the Company entered into an interest rate swap with a
notional amount of $50 million, inclusive of a swaption feature, effectively
hedging a $50 million FHLB convertible advance with a fixed cost of 6.10% that
is callable quarterly with a seven-year maturity. The Company receives a fixed
rate of 2.58% and makes variable rate payments based on 90-day LIBOR. In
December 2003, the Company entered into an interest rate swap with a notional
amount of $50 million, inclusive of a swaption feature, effectively hedging a
$50 million FHLB convertible advance with a fixed cost of 5.89% that is callable
quarterly with a six-year maturity. The Company will receive a fixed rate of
5.89% and will make variable rate payments based on 90-day LIBOR plus 246 basis
points. The swaps are carried at their fair values and the carrying amount of
the FHLB advances include the change in their fair values since the inception of
the hedge. Because the hedges are considered highly effective, changes in the
swap's fair value exactly offset the corresponding changes in the fair value of
the FHLB advances and as a result, the change in fair value does not have any
impact on net income.

CASH FLOW HEDGE:

In 2002, the Company had an interest rate swap agreement that effectively
converted a notional amount of $80 million from floating-rates to fixed-rates.
The fair value of this $80 million swap was recorded in the Company's balance
sheet, with the offset to accumulated other comprehensive income (loss), net of
tax. This hedge matured on April 15, 2002.

The following table summarizes the interest rate swap transactions that
impacted the Company's 2003 and 2002 performance:

The Company believes that its exposure to credit loss in the event of
nonperformance by its counterparties (which are Regions Bank and Citigroup,
Inc.) is remote. 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, interest rate caps/floors, and swaptions. All hedge transactions must be
approved in advance by the Investment Asset/Liability Committee (ALCO) of the
Board of Directors. The Company had no interest rate caps or floors outstanding
at December 31, 2003 and 2002.

23. 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

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Company's major business units include retail banking, commercial lending,
trust, mortgage banking, other fee based businesses and investment/parent
(includes leverage program). 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. The key performance measure the Company focuses on for each business
segment is net income contribution.

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 and AmeriServ Life. The
investment/parent includes the net results of investment securities and
borrowing activities, general corporate expenses not allocated to the business
segments, interest expense on guaranteed junior subordinated deferrable interest
debentures, and centralized interest rate risk management. Inter-segment
revenues were not material.

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The contribution of the major business segments to the consolidated results
of operations were as follows:

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24. REGULATORY MATTERS

On February 28, 2003, the Company and the Bank entered into a Memorandum of
Understanding (MOU) with the Federal Reserve Bank of Philadelphia (Federal
Reserve) and the Pennsylvania Department of Banking (Department). Under the
terms of the MOU, the Company and the Bank cannot declare dividends, the Company
may not redeem any of its own stock, and the Company cannot incur any additional
debt other than in the ordinary course of business, in each case, without the
prior written approval of the Federal Reserve and the Department. Accordingly,
the Board of Directors of the Company cannot reinstate the previously suspended
common stock dividend, or reinstitute its stock repurchase program without the
concurrence of the Federal Reserve and the Department. Other provisions of the
MOU require the Company and the Bank to: (i) improve credit quality and credit
administration practices, (ii) improve data security and disaster recovery
procedures, (iii) make periodic reports to the Federal Reserve and the
Department regarding compliance with the MOU, and (iv) appoint a committee of
independent directors to monitor compliance with the MOU. The MOU will remain in
effect until modified or terminated by the Federal Reserve and the Department.
The Company believes that it is in compliance with the MOU.

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 I capital to risk-weighted assets, and of Tier I
capital to average assets. As of December 31, 2003 and 2002, the Federal Reserve
categorized the Company as Well Capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Company
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table.

74

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

25. BRANCH SALE

On September 27, 2001, the Company and CSB Bank of Curwensville, completed
the sale of the Company's Coalport office. As the only Company office in
Clearfield County, the Coalport office no longer strategically fit the
geographic footprint for the Company. The Company received an 8.875% core
deposit premium or $1.4 million on the sale of approximately $15.7 million of
deposits.

26. PARENT COMPANY FINANCIAL INFORMATION

The parent company functions primarily as a coordinating and servicing unit
for all subsidiary entities. Provided services include general management,
accounting and taxes, loan review, auditing, investment advisory, marketing,
insurance risk management, general corporate services, and financial and
strategic planning. The following financial information relates only to the
parent company operations:

BALANCE SHEETS

75

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF OPERATIONS

STATEMENTS OF CASH FLOWS

76

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The ability of the subsidiary bank to upstream cash to the parent company
is restricted by regulations. Federal law prevents the parent company from
borrowing from its subsidiary bank unless the loans are secured by specified
assets. Further, such secured loans are limited in amount to ten percent of the
subsidiary bank's capital and surplus. In addition, the Bank is subject to legal
limitations on the amount of dividends that can be paid to their shareholder.
The dividend limitation generally restricts dividend payments to a bank's
retained net income for the current and preceding two calendar years. Cash may
also be upstreamed to the parent company by the subsidiaries as an inter-entity
management fee. At December 31, 2003, the subsidiary bank was not permitted to
upstream any cash dividends to the parent company. The subsidiary bank had a
combined $100,625,000 of restricted surplus and retained earnings at December
31, 2003.

27. PRIOR PERIOD ADJUSTMENTS

The Company has determined that its deferred tax liabilities as of December
31, 2002, 2001 and 2000 were overstated by $2.5 million due to errors in prior
periods in the calculation of the tax effects of: certain leasing transactions;
the gain or loss on investment securities; and mortgage servicing rights.
Accordingly, the Company has recorded a prior period adjustment to increase
retained earnings at January 1, 2001 by $2.5 million, and has restated the
amounts previously reported for other liabilities, total liabilities, retained
earnings and total stockholders' equity at December 31, 2002 as follows (in
thousands);

77

STATEMENT OF MANAGEMENT RESPONSIBILITY

February 25, 2004

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 Annual Report
and Form 10-K in accordance with generally accepted accounting principles and
are responsible for its accuracy.

In meeting its responsibility, 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 proprietary 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 auditors 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/ CRAIG G. FORD /s/ JEFFREY A. STOPKO
Craig G. Ford Jeffrey A. Stopko
Chairman Senior Vice President &
Chief Financial Officer

78

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
AmeriServ Financial, Inc.:
Johnstown, PA

We have audited the accompanying consolidated balance sheets of AmeriServ
Financial, Inc. and subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related consolidated statements of operations, comprehensive
income (loss), changes in stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements of the
Company as of December 31, 2001 and for the year then ended, before the
adjustment discussed in Note 27 to the consolidated financial statements, were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated
January 22, 2002.

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

In our opinion, such 2003 and 2002 financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2003 and 2002, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 21 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill and other intangible
assets to conform with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."

As discussed in the first paragraph above, the consolidated financial
statements of the Company as of December 31, 2001 and for the year then ended
were audited by other auditors who have ceased operations. As discussed in Note
27 to the consolidated financial statements, the Company has recorded a prior
period adjustment as of January 1, 2001 to reduce its deferred income tax
liabilities and to increase its retained earnings. We have audited the prior
period adjustment that was applied to adjust deferred income tax liabilities and
retained earnings and, in our opinion, such adjustment is appropriate and has
been properly applied. However, we were not engaged to audit, review, or apply
any procedures to the 2001 consolidated financial statements of the Company
other than with respect to such adjustment and, accordingly, we do not express
an opinion or any other form of assurance on the 2001 consolidated financial
statements taken as a whole. As a result of the prior period adjustment as of
January 1, 2001, deferred income tax liabilities and retained earnings as
previously reported in the consolidated financial statements as of December 31,
2002 have been restated.

/s/ DELOITTE & TOUCHE LLP

March 12, 2004
Pittsburgh, PA

79

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP

To the Stockholders and Board of Directors of AmeriServ Financial, Inc.:

We have audited the accompanying consolidated balance sheets of AmeriServ
Financial, Inc. (a Pennsylvania corporation) and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriServ Financial, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

As explained in Note #21 to the financial statements, effective January 1,
2001, the Company changed its method of accounting for derivative instruments
and hedging activities.

/s/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
January 22, 2002

NOTE: The report of Arthur Andersen LLP presented above is a copy of a
previously issued report by Arthur Andersen LLP. The report has not been
reissued by Arthur Andersen LLP nor has Arthur Andersen LLP consented to
the inclusion of its report in this Form 10-K and Annual Report. As
presented in the copy above of the Arthur Andersen LLP opinion, Note #21
to the consolidated financial statements has been changed to Note #22 to
the consolidated financial statements as of December 31, 2003.

80

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On July 5, 2002 the Company's Board of Directors announced the appointment
of Deloitte & Touche LLP as its independent auditor replacing Arthur Andersen,
LLP.

ITEM 9A. CONTROLS AND PROCEDURES

The Company's management carried out an evaluation, under the supervision
and with the participation of the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and the operation of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2003,
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief
Executive Officer along with the Chief Financial Officer concluded that the
Company's disclosure controls and procedures as of December 31, 2003, are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this section relative to Directors of the
Registrant is presented in the Proxy Statement for the Annual Meeting of
Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this section is presented in the Proxy Statement
for the Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this section is presented in the Proxy Statement
for the Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this section is presented in the Proxy Statement
for the Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this section is presented in the Proxy Statement
for the Annual Meeting of Shareholders.

PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

CONSOLIDATED FINANCIAL STATEMENTS FILED:

The consolidated financial statements listed below are from the 2003 Form
10-K and Part II -- Item 8. Page references are to said Form 10-K.

CONSOLIDATED FINANCIAL STATEMENTS:

AmeriServ Financial, Inc. and Subsidiaries
Consolidated Balance Sheets, 35
Consolidated Statements of Operations, 36
Consolidated Statements of Comprehensive Income (Loss), 37
Consolidated Statements of Changes in Stockholders' Equity, 38
Consolidated Statements of Cash Flows, 39-40

81

Notes to Consolidated Financial Statements, 41
Statement of Management Responsibility, 78
Independent Auditors Reports, 79-80

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:

These schedules are not required or are not applicable under Securities and
Exchange Commission accounting regulations and therefore have been omitted.

REPORTS ON FORM 8-K:

On October 21, 2003 the Company announced earnings for the third quarter
ended September 30, 2003.

82

EXHIBITS:

The exhibits listed below are filed herewith or to other filings.

83

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

AmeriServ Financial, Inc.
(Registrant)

By: /s/ CRAIG G. FORD
-------------------------------------
Craig G. Ford
Chairman, President & CEO

Date: February 27, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 27, 2004:

/s/ CRAIG G. FORD Chairman, President & CEO
- ------------------------------------------------ Director
Craig G. Ford

/s/ JEFFREY A. STOPKO Senior Vice President and Chief Financial Officer
- ------------------------------------------------
Jeffrey A. Stopko

/s/ J. MICHAEL ADAMS, JR. Director /s/ MARGARET A. O'MALLEY Director
- ------------------------------------------------ ------------------------------------------------
J. Michael Adams, Jr. Margaret A. O'Malley

/s/ EDWARD J. CERNIC, SR. Director /s/ VERY REV. CHRISTIAN R. ORAVEC Director
- ------------------------------------------------ ------------------------------------------------
Edward J. Cernic, Sr. Very Rev. Christian R. Oravec

/s/ DANIEL R. DEVOS Director Director
- ------------------------------------------------ ------------------------------------------------
Daniel R. DeVos Mark E. Pasquerilla

/s/ JAMES C. DEWAR Director /s/ HOWARD M. PICKING, III Director
- ------------------------------------------------ ------------------------------------------------
James C. Dewar Howard M. Picking, III

/s/ BRUCE E. DUKE, III Director /s/ SARA A. SARGENT Director
- ------------------------------------------------ ------------------------------------------------
Bruce E. Duke, III, M.D. Sara A. Sargent

/s/ JAMES M. EDWARDS, SR. Director /s/ THOMAS C. SLATER Director
- ------------------------------------------------ ------------------------------------------------
James M. Edwards, Sr. Thomas C. Slater

/s/ KIM W. KUNKLE Director /s/ ROBERT L. WISE Director
- ------------------------------------------------ ------------------------------------------------
Kim W. Kunkle Robert L. Wise

85

AMERISERV FINANCIAL REMOTE ATM
BANK
* St. Michael Office BANKING LOCATIONS
OFFICE LOCATIONS 900 Locust Street
St. Michael, PA 15951-0393 Main Office, 216 Franklin
* Main Office Downtown Street,
216 Franklin Street * Seward Office Johnstown
P.O. Box 520 6858 Route 711, Suite 1 Lee Hospital, Main Street,
Johnstown, PA 15907-0520 Seward, PA 15954-9501 Johnstown
1-800-837-BANK(2265) The Galleria, Johnstown
* Windber Office 6-2-Go Shop, Nanty Glo
+* Westmont Office 1501 Somerset Avenue Gogas Service Station,
110 Plaza Drive Windber, PA 15963-1745 Cairnbrook
Johnstown, PA 15905-1211 Kwik Fill, Derry
Central City Office
+* University Heights Office 104 Sunshine Avenue AMERISERV RESIDENTIAL
1404 Eisenhower Boulevard Central City, PA 15926-1129
Johnstown, PA 15904-3280 LENDING LOCATIONS
* Somerset Office
* East Hills Express Office 108 W. Main Street Greensburg Office
1213 Scalp Avenue Somerset, PA 15501-2035 Oakley Park II, Route 30 East
Johnstown, PA 15904-3150 Greensburg, PA 15601-9560
* Derry Office
* Eighth Ward Office 112 South Chestnut Street Altoona Office
1059 Franklin Street Derry, PA 15627-1938 87 Logan Boulevard
Johnstown, PA 15905-4303 Altoona, PA 16602-3123
+* South Atherton Office
* West End Office 734 South Atherton Street Mt. Nittany Mortgage Company
163 Fairfield Avenue State College, PA 16801-4628 2300 South Atherton Street
Johnstown, PA 15906-2392 State College, PA 16801-7613
* Harrisburg Office
* Carrolltown Office 231 State Street
101 Main Street Harrisburg, PA 17101-1110
Carrolltown, PA 15722-0507
* Pittsburgh Office
* Northern Cambria Office 60 Boulevard of the Allies
4206 Crawford Avenue Suite 1 Suite 100
Northern Cambria, PA Pittsburgh, PA 15222-1241
15714-1342
+* Benner Pike Office
* Ebensburg Office 763 Benner Pike
104 S. Center Street State College, PA 16801-7313
Ebensburg, PA 15931-0209
* = 24-Hour ATM Banking
+* Lovell Park Office Available
179 Lovell Avenue
Ebensburg, PA 15931-0418 + = Seven Day a Week Banking
Available
Nanty Glo Office
928 Roberts Street
Nanty Glo, PA 15943-1303
Nanty Glo Drive-In
1383 Shoemaker Street
Nanty Glo, PA 15943-1254
+* Galleria Mall Office
500 Galleria Drive Suite 100
Johnstown, PA 15904-8911

92

SHAREHOLDER INFORMATION

SECURITIES MARKETS

AmeriServ Financial, Inc. Common Stock is publicly traded and quoted on the
NASDAQ National Market System. The common stock is traded under the symbol of
"ASRV." The listed market makers for the stock are:

Legg Mason Wood Walker, Inc. Keefe Bruyette & Woods, Inc. Parker/Hunter, Inc.
969 Eisenhower Boulevard 787 Seventh Avenue 416 Main Street
Oak Ridge East Equitable Bldg -- 4th Floor Johnstown, PA 15901
Johnstown, PA 15904 New York, NY 10019 Telephone: (814) 535-8403
Telephone: (814) 266-7900 Telephone: (800) 966-1559
Sandler O'Neill & Partners,
Boenning & Scattergood Goldman Sachs & Co. L.P.
F. J. Morrissey & Co., Inc. 10 Exchange Place 919 Third Avenue
4 Tower Bridge Jersey City, NJ 07302 6th Floor
Suite 300 Telephone: (212) 344-8087 New York, NY 10022
200 West Barr Harbor Drive Telephone: (800) 635-6860
West Conshohocken, PA Knight Trading Group, Inc.
19428-2979 525 Washington Boulevard
Telephone: (610) 862-5360 Jersey City, NJ 07310
Telephone: (800) 544-7508
Schwab Soundview Capital
Markets
Newport Financial Center
111 Pavonia Avenue East
Jersey City, NJ 07310
Telephone: (212) 804-3663

CORPORATE OFFICES

The corporate offices of AmeriServ Financial, Inc. are located at 216
Franklin Street, Johnstown, PA 15901. Mailing address:

P.O. Box 430
Johnstown, PA 15907-0430
(814) 533-5300

AGENTS

The transfer agent and registrar for AmeriServ Financial, Inc.'s common
stock is:

Equiserve Trust Company, N.A.
P O Box 43010
Providence, RI 02940-3023
Shareholder Inquiries: 1-800-730-4001
Internet Address: http://www.EquiServe.com

SHAREHOLDER DATA

As of January 31, 2004, there were 4,782 shareholders of common stock and
13,961,725 shares outstanding. Of the total shares outstanding, approximately
1,110,805 or 8% are held by insiders (directors and executive officers) while
approximately 3,026,000 or 22% are held by institutional investors (mutual
funds, employee benefit plans, etc.).

DIVIDEND REINVESTMENT

Shareholders seeking information about AmeriServ Financial, Inc.'s dividend
reinvestment plan should contact Betty L. Jakell, Executive Office, at (814)
533-5158.

93

INFORMATION

Analysts, investors, shareholders, and others seeking financial data about
AmeriServ Financial, Inc. or any of its subsidiaries' annual and quarterly
reports, proxy statements, 10-K, 10-Q, 8-K, and call reports -- are asked to
contact Jeffrey A. Stopko, Senior Vice President & Chief Financial Officer at
(814) 533-5310 or by e-mail at [email protected].

94