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

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010

2012 SUMMARY OVERVIEW:

On January 22, 2013, AmeriServ reported its 2012 fourth quarter and full year financial results. Regarding the fourth quarter 2012, net income available to common shareholders was $683,000 or $0.04 per diluted share. This represents a decline from $1,505,000 or $0.07 per diluted share reported for the fourth quarter 2011. The quarter itself was quite positive in the basic "blocking and tackling" common to today's community banking. For example, lending is now the strongest it has been since 2009, with a growth in net loans of $25.1 million during the fourth quarter. Non-interest income reached a recent high, as the Trust Company and residential mortgage originations continued their growth. Operating expenses increased by $254,000 over the fourth quarter of 2011. This was a result of the necessary expenses needed to develop the new Loan Production Offices in Altoona and Harrisburg, PA and Hagerstown, MD. However, there was another dynamic at work which relates to our decision to make a provision to the allowance for losses during the fourth quarter of 2012.

We believe it is broadly apparent that the national economy continues to struggle. And, the length of this struggle is having an impact on AmeriServ's markets. Small businesses, often family-owned, form a significant segment of AmeriServ's borrowers. These are excellent people, our friends and neighbors, and the source of countless jobs throughout the region. But the length of this economic weakness is taking its toll. Unemployment rates continue to rise, and newspaper headlines are discouraging. We believe that the $1.9 million increase in non-performing assets in the fourth quarter was an indication of this economic pressure. Therefore, the Board and management chose to make the first positive contribution to the allowance for loan losses since the third quarter of 2010. We have learned over the years to carefully react to such trends. AmeriServ has maintained strong asset quality by recognizing weakened borrowers early so we can help them meet their obligations. This was our strategy during the Great Recession of 2008 and 2009. Therefore, this action simply recognizes the realities of the struggling economy, and is the necessary insurance policy needed to protect the franchise and the investment of our shareholders. A bit of research will substantiate that AmeriServ is well reserved for difficult times, and has a long history of helping borrowers help themselves.

For the full year 2012, AmeriServ produced net income available to common shareholders of $4,211,000 or $0.21 per diluted share. The result was $942,000 or $0.03 per share less than 2011.

Once again this performance was aided by strong results in several business lines. Net loans increased by $61 million. Deposits increased by $19 million. Non interest income increased by $1.37 million, and non-interest expenses were held to a 1.51% increase over 2011. However, the ultimate bottom line was impacted by fewer reductions in the allowance for loan losses during the first three quarters of 2012, and the decision to further strengthen that reserve by adding $550,000 in the fourth quarter due to an increase in non-performing loans.

We were especially pleased by a few specific areas of strong performance:

• The Trust Company increased its bottom line by 18.3% over 2011. Mortgage originations surpassed 2011 by closing $117 million in new mortgages, an increase of 41% over the prior year. The Commercial Lending Division averaged more than 400 calls per month. These calls resulted in more loans to small businesses, and thus, the US Treasury rewarded us with a 4% reduction in the cost of Treasury Preferred Stock provided by the Small Business Loan Fund. This savings totals about $200,000 per quarter.

In normal times, this story of strong loans and deposits, higher levels of non-interest income and careful expense management should be the right recipe for earnings growth. But there is a well-recognized limiting factor at work.

We are aware that following the Lehman Brothers bankruptcy in September 2008, financial markets were in a free fall. Understandingly, at that time, the Federal Reserve adopted a low interest rate policy in an attempt to keep credit markets functioning. But now, here in 2013, we begin the fifth year of this low interest rate program. This period of "easy money" has reduced the interest payments on the Federal debt. But this low interest rate policy punishes savers, pension funds, and community banks. Rates on loans are at the lowest level since the 1930s and World War II. This means community bank revenue has shrunk precipitously during this period. But here is the essential paradox. Unfortunately the four plus years of "easy money" has not reduced unemployment or increased economic activity as expected.

The AmeriServ Board and its management team constantly monitor these trends. We've learned that weakening economic conditions require action. During 2008 and 2009, AmeriServ created "Fortress Johnstown" with strong capital, deep liquidity, and realistic loan loss reserves. These actions resulted in a quick recovery in 2010 and 2011. Therefore, we have again taken the necessary actions to continue AmeriServ's position as a strong and disciplined community bank. We believe this is the correct course and we are pleased to maintain the balance sheet strength needed to take swift action.

We are very aware that this is a challenging time for investors. The financial sector has been severely criticized for unwise practices and programs. But AmeriServ's Board and management pledged that this company would return to its community banking roots and not participate in financial gimmicks and fads. The result has been three consecutive profitable years since the Great Recession. On December 31, 2010, AmeriServ common stock closed at $1.58; on December 31, 2011, it closed at $1.95, a gain of 23%; and, on December 31, 2012, our stock closed at $3.01, an additional gain of 54%. In just 24 months our stock price has increased by 91%. These gains, along with the $5 million buyback of common shares from the fourth quarter of 2011 through the end of 2012, has been part of a continuing program to reward the people and companies who are our valued investors.

The United States is involved in a long-term effort to reduce the level of debt at the individual level, the company level and the government level. It is essential for the long term health of our nation. But it has and will continue to produce challenges we all must face. AmeriServ will tackle these times with a continued strong capital base, deep liquidity, and careful expense management. We believe this will create a sound and rewarding investment for our shareholders, a good employer for our staff, and a source of economic strength for our communities.

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

[[Image Removed]]       [[Image Removed]]     [[Image Removed]]       [[Image Removed]]
                                              YEAR ENDED DECEMBER 31,
                               2012                   2011                    2010
                                               (IN THOUSANDS, EXCEPT
                                            PER SHARE DATA AND RATIOS)
Net income              $           5,039     $         6,537         $         1,282
Net income available
to common                           4,211               5,152                     121
shareholders
Diluted earnings per                 0.21                0.24                    0.01
share
Return on average                   0.51%                0.68 %                  0.13 %
assets
Return on average                    4.51                5.90                    1.19
equity

The Company reported net income available to common shareholders of $4.2 million or $0.21 per diluted common share for 2012. This represented a 12.5% decline in earnings per share from 2011 where net income available to common shareholders totalled $5.2 million or $0.24 per diluted share. The largest factor causing the reduction in net income available to common shareholders was the provision for loan losses. The Company recorded a negative provision of $775,000 but this was at a lesser level than the $3,575,000 negative provision for 2011. The Company's net interest income performance has been relatively stable throughout 2012. It decreased for the full year of 2012 by only $80,000, or 0.2%, when compared to the entire year of 2011. The Company's strong growth in non-interest income has been a financial performance highlight in 2012. Non-interest income increased by $1.4 million or 10.1% largely due to increased revenue from residential mortgage banking activities and our Trust Company's wealth management businesses. Continued focus on expense control helped contain the increase in non-interest expense to $604,000 or 1.5%.

Finally, diluted earnings per share were impacted by the $828,000 dividend requirement on the US Treasury SBLF preferred stock which reduced the amount of net income available to common shareholders. This amount, however, was less than the preferred stock dividend and accelerated preferred stock discount accretion related to the former TARP CPP preferred stock that totalled $1,385,000 in 2011. The Company has been successful in growing commercial loans in categories that qualify for the SBLF. As such, the dividend rate that AmeriServ pays on the SBLF preferred stock dropped in the fourth quarter of 2012 from 5% to 1%-the lowest rate available under the SBLF program. This 1% rate, which is now locked in for the first half of 2013, saves the Company approximately $200,000 on a quarterly basis.

The Company reported net income of $6.5 million or $0.24 per diluted common share for 2011. This represents an increase of $5.3 million from the 2010 net income of $1.3 million or $0.01 per diluted common share. A significant and sustained improvement in asset quality was an important factor contributing to our financial success in 2011. Specifically, non-performing assets and classified loans again declined as a result of our successful problem credit resolution efforts allowing the Company to reverse a portion of the allowance for loan loss into earnings in 2011 while still increasing the non-performing assets coverage ratio. The Company's net interest income performance was relatively stable throughout 2011. It decreased for the full year of 2011 by only $59,000, or 0.2%, when compared to the entire year of 2010. Non-interest income decreased by $398,000 or 2.8% largely due to an investment security loss of $358,000 realized in the first quarter of 2011 that resulted from a portfolio repositioning strategy. Continued focus on expense control helped contain the increase in non-interest expense to $340,000 or 0.9%. Income tax expense increased sharply by $2.8 million in 2011 due to the Company's improved profitability. Finally, diluted earnings per share were again impacted by the $1.1 million dividend requirement on preferred stock and the $267,000 accelerated preferred stock discount accretion related to the repayment of the TARP CPP preferred stock which reduced the amount of net income available to common shareholders.

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

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:

[[Image Removed]]     [[Image Removed]]     [[Image Removed]]      [[Image Removed]]
                                           YEAR ENDED DECEMBER 31,
                             2012                   2011                   2010
                                        (IN THOUSANDS, EXCEPT RATIOS)
Interest income       $          39,917     $        41,964        $        44,831
Interest expense                  7,714               9,681                 12,489
Net interest income              32,203              32,283                 32,342
Net interest margin               3.65%                3.72 %                 3.79 %

2012 NET INTEREST PERFORMANCE OVERVIEW... The Company's net interest income performance has again been relatively stable throughout 2012 decreasing by only $80,000, or 0.2%, when compared to 2011. The Company's 2012 net interest margin of 3.65% was seven basis points lower than the net interest margin of 3.72% for 2011. The decreased net interest margin reflects the challenges of a flatter yield curve which has pressured interest revenue in 2012 and demonstrates the impact of the Federal Reserve low interest rate policies. The Company has been able to overcome this net interest margin pressure and keep net interest income relatively constant by reducing its cost of funds and growing its earning assets, particularly loans. Specifically, total loans outstanding have increased for seven consecutive quarters and now are $61 million or 9.1% higher than they were at December 31, 2011. This loan growth reflects the successful

results of the Company's more intensive sales calling efforts with an emphasis on generating commercial loans and owner occupied commercial real estate loans which qualify as SBLF loans, particularly through its new loan production offices. Despite this growth in loans, total interest revenue dropped by $2,047,000 between years and reflects the lower interest rate environment and flatter yield curve. Interest revenue has also been negatively impacted by increased premium amortization on mortgage backed securities due to faster mortgage prepayment speeds. However, careful management of funding costs has allowed the Company to mitigate a significant portion of this drop in interest revenue during the past year. Specifically, total interest expense for 2012 declined by $1,967,000 from 2011 due to the Company's proactive efforts to reduce deposit and borrowing costs. Even with this reduction in deposit costs, the Company still experienced solid growth in deposits which increased by $19 million or 2.4% over the past year. Overall, the Company expects that this net interest margin pressure will continue in 2013 given the Federal Reserve's announced plans to continue the Quantitative Easing 3 Program and their pledge to keep short term interest rates exceptionally low into 2015.

COMPONENT CHANGES IN NET INTEREST INCOME: 2012 VERSUS 2011... Regarding the separate components of net interest income, the Company's total interest income in 2012 decreased by $2.0 million when compared to 2011. This decrease was due to a 32 basis point decline in the earning asset yield from 4.84% to 4.52%, partially offset by additional interest income from a $12.5 million increase in average earning assets due to an increase in average loans. Within the earning asset base, the yield on the total loan portfolio decreased by 33 basis points from 5.39% to 5.06%, while the yield on total investment securities dropped by 43 basis points from 3.15% to 2.72%. In the current interest rate environment, new investment securities and loans typically have yields that are below the rate on the maturing instruments that they are replacing. Investment securities interest revenue has also been negatively impacted by increased premium amortization on mortgage backed securities of $334,000 due to faster mortgage prepayment speeds. Despite a $26 million or 3.9% increase in total average loans, total loan interest revenue dropped by $887,000 between years and reflects the impact of this lower interest rate environment. Overall, the increase in loans caused the Company's loan to deposit ratio to average 82.7% in 2012 compared to 81.1% in 2011. Good commercial loan pipelines suggest that the Company should be able to again grow the loan portfolio in 2013 and further increase the loan to deposit ratio.

The Company's total interest expense for 2012 decreased by $2.0 million, or 20.3%, when compared to 2011. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 28 basis points to 1.09%. Management's decision to further reduce interest rates paid on all deposit categories has not had a negative impact on deposit growth as consumers and businesses have sought the safety and liquidity provided by well-capitalized community banks like AmeriServ Financial. This decrease in funding costs occurred in spite of a $3.5 million increase in the volume of interest bearing liabilities. Additionally, the Company's funding mix also benefited from a $12.6 million increase in non-interest bearing demand deposits. Overall, in 2012 the Company was able to fund its net asset growth with core deposits as wholesale borrowings averaged only 1.1% of total assets. The Company also does not use brokered certificates of deposit as a funding source.

2011 NET INTEREST PERFORMANCE OVERVIEW... The Company's net interest income performance was relatively stable in 2011. For the full year of 2011, it decreased by only $59,000, or 0.2%, when compared to the entire year of 2010. The Company's 2011 net interest margin averaged 3.72%, which was seven basis points lower than the 2010 net interest margin of 3.79%. Reduced loan balances were the primary factor causing the drop in both net interest income and net interest margin in 2011. Specifically, total loans averaged $663 million for the full year 2011, a decrease of $39 million or 5.5% from the 2010 year. The lower balances reflect the results of the Company's focus on reducing its commercial real estate exposure and problem loans, particularly during the first half of 2011. However, total loan balances bottomed out in the first quarter of 2011 and increased by $26 million during the remainder of 2011 due to the Company's more intensive sales calling efforts for commercial loans and growth in home equity loans. The Company strengthened its excellent liquidity position by reinvesting excess cash in high quality investment securities and short-term investments whose average balance increased by $42 million in 2011. Careful management of funding costs allowed the Company to mitigate a significant portion of the drop in interest revenue during 2011. Specifically, interest expense for 2011 decreased by $2.8 million due to reduced deposit costs. This

reduction in deposit costs did not negatively impact deposit balances which increased by $15 million or 1.9% since December 31, 2010. The Company is particularly pleased with the growth achieved in non-interest bearing demand deposits in 2011 whose balances on average increased by $12 million or 10.0%.

COMPONENT CHANGES IN NET INTEREST INCOME: 2011 VERSUS 2010... Regarding the separate components of net interest income, the Company's total interest income in 2011 decreased by $2.9 million when compared to 2010. This decrease was due to a 42 basis point decline in the earning asset yield from 5.26% to 4.84%, partially offset by additional interest income from a $2.8 million increase in average earning assets due to an increase in investment securities. Within the earning asset base, the yield on the total loan portfolio decreased by 19 basis points from 5.58% to 5.39% while the yield on total investment securities dropped by 39 basis points from 3.54% to 3.15%. Both of these yield declines reflect the impact of the lower interest rate environment that has been in place for over 3 years. Also the asset mix shift with fewer dollars invested in loans and more dollars invested in lower yielding short duration investment securities also negatively impacts the earning asset yield. Overall, the decline in loans combined with deposit growth caused the Company's loan to deposit ratio to average 81.1% in 2011 compared to 87.3% in 2010.

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

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

[[Image Removed]]      [[Image Removed]]     [[Image Removed]]       [[Image Removed]]     [[Image Removed]]      [[Image Removed]]             [[Image Removed]]      [[Image Removed]]      [[Image Removed]]             [[Image Removed]]
[[Image Removed]]      [[Image Removed]]     [[Image Removed]]       [[Image Removed]]     [[Image Removed]]      [[Image Removed]]             [[Image Removed]]      [[Image Removed]]      [[Image Removed]]             [[Image Removed]]
                                                                                                                        YEAR ENDED DECEMBER 31,
                                                     2012                                                                    2011                                                                        2010
                         AVERAGE BALANCE       INTEREST INCOME/          YIELD/ RATE         AVERAGE BALANCE       INTEREST INCOME/ EXPENSE         YIELD/ RATE          AVERAGE BALANCE       INTEREST INCOME/ EXPENSE         YIELD/ RATE
                                                    EXPENSE
                                                                                                                  (IN THOUSANDS, EXCEPT PERCENTAGES)
Interest earning
assets:
Loans, net of          $         688,736     $            34,842                 5.06%     $       662,746        $             35,729                    5.39 %       $       701,502        $             39,129                    5.58 %
unearned income
Deposits with banks                9,634                      10                  0.18               6,853                           9                    0.13                   1,795                           1                    0.06
Federal funds sold                     -                       -                     -               5,838                           7                    0.11                   4,375                          16                    0.37
Short-term
investment in money                2,889                      18                  0.61               2,224                           9                    0.40                   3,834                           4                    0.10
market funds
Investment
securities:
Available for sale               172,947                   4,634                  2.68             187,863                       5,837                    3.11                 151,691                       5,281                    3.48
Held to maturity                  13,828                     440                  3.18              10,053                         403                    4.01                   9,574                         433                    4.52
Total investment                 186,775                   5,074                  2.72             197,916                       6,240                    3.15                 161,265                       5,714                    3.54
securities
TOTAL INTEREST
EARNING ASSETS/                  888,034                  39,944                  4.52             875,577                      41,994                    4.84                 872,771                      44,864                    5.26
INTEREST INCOME
Non-interest earning
assets:
Cash and due from                 17,136                                                            15,893                                                                      15,297
banks
Premises and                      11,055                                                            10,513                                                                      10,212
equipment
Other assets                      81,796                                                            79,293                                                                      80,206
Allowance for loan              (13,500)                                                           (17,771 )                                                                   (21,218 )
losses
TOTAL ASSETS           $         984,521                                                   $       963,505                                                             $       957,268
Interest bearing
liabilities:
Interest bearing
. . .