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Section 1: 10-Q (FORM 10-Q)

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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
☐   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from      to     
Commission File Number 0-11204
AmeriServ Financial, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
25-1424278
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
Main & Franklin Streets,
P.O. Box 430, Johnstown, PA
15907-0430
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (814) 533-5300
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class
Trading
Symbol
Name of Each Exchange On Which Registered
Common Stock
ASRV
The NASDAQ Stock Market LLC
8.45% Beneficial Unsecured Securities, Series A
(AmeriServ Financial Capital Trust I)
ASRVP
The NASDAQ Stock Market LLC
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. Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at May 1, 2020
Common Stock, par value $0.01
17,043,644

TABLE OF CONTENTS
AmeriServ Financial, Inc.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
1
1
2
3
4
5
6
33
48
48
PART II. OTHER INFORMATION
49
49
49
49
49
49
50
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Item 1.   Financial Statements
AmeriServ Financial, Inc.
   
CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
(Unaudited)
March 31,
2020
December 31,
2019
ASSETS
Cash and due from depository institutions
$ 17,675 $ 15,642
Interest bearing deposits
2,890 2,755
Short-term investments in money market funds
3,541 3,771
Total cash and cash equivalents
24,106 22,168
Investment securities:
Available for sale, at fair value
142,716 141,749
Held to maturity (fair value $44,236 on March 31, 2020 and $41,082 on December 31, 2019)
42,068 39,936
Loans held for sale
4,750 4,868
Loans
873,055 883,090
Less: Unearned income
406 384
Allowance for loan losses
9,334 9,279
Net loans
863,315 873,427
Premises and equipment:
Operating lease right-of-use asset
825 846
Financing lease right-of-use asset
3,074 3,078
Other premises and equipment, net
14,660 14,643
Accrued interest income receivable
3,759 3,449
Goodwill
11,944 11,944
Bank owned life insurance
39,041 38,916
Net deferred tax asset
3,705 3,976
Federal Home Loan Bank stock
3,988 3,985
Federal Reserve Bank stock
2,125 2,125
Other assets
8,279 6,074
TOTAL ASSETS
$ 1,168,355 $ 1,171,184
LIABILITIES
Non-interest bearing deposits
$ 145,630 $ 136,462
Interest bearing deposits
811,963 824,051
Total deposits
957,593 960,513
Short-term borrowings
16,354 22,412
Advances from Federal Home Loan Bank
58,218 53,668
Operating lease liabilities
842 865
Financing lease liabilities
3,177 3,163
Guaranteed junior subordinated deferrable interest debentures, net
12,959 12,955
Subordinated debt, net
7,517 7,511
Total borrowed funds
99,067 100,574
Other liabilities
10,855 11,483
TOTAL LIABILITIES
1,067,515 1,072,570
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,672,463 shares
issued and 17,043,644 shares outstanding on March 31, 2020; 26,650,728 shares issued
and 17,057,871 shares outstanding on December 31, 2019
267 267
Treasury stock at cost, 9,628,819 shares on March 31, 2020 and 9,592,857 shares on December 31, 2019
(83,280) (83,129)
Capital surplus
145,938 145,888
Retained earnings
52,745 51,759
Accumulated other comprehensive loss, net
(14,830) (16,171)
TOTAL SHAREHOLDERS’ EQUITY
100,840 98,614
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,168,355 $ 1,171,184
See accompanying notes to unaudited consolidated financial statements.
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AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
March 31,
2020
2019
INTEREST INCOME
Interest and fees on loans
$ 10,332 $ 10,418
Interest bearing deposits
4 6
Short-term investments in money market funds
72 69
Investment securities:
Available for sale
1,183 1,319
Held to maturity
353 352
Total Interest Income
11,944 12,164
INTEREST EXPENSE
Deposits
2,458 2,730
Short-term borrowings
12 102
Advances from Federal Home Loan Bank
284 235
Financing lease liabilities
29 30
Guaranteed junior subordinated deferrable interest debentures
280 280
Subordinated debt
130 130
Total Interest Expense
3,193 3,507
NET INTEREST INCOME
8,751 8,657
Provision (credit) for loan losses
175 (400)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES
8,576 9,057
NON-INTEREST INCOME
Wealth management fees
2,554 2,396
Service charges on deposit accounts
286 310
Net gains on sale of loans
237 62
Mortgage related fees
126 44
Bank owned life insurance
125 128
Other income
504 665
Total Non-Interest Income
3,832 3,605
NON-INTEREST EXPENSE
Salaries and employee benefits
6,704 6,301
Net occupancy expense
671 658
Equipment expense
395 361
Professional fees
1,154 1,120
Supplies, postage and freight
179 173
Miscellaneous taxes and insurance
275 277
Federal deposit insurance expense
26 80
Other expense
1,229 1,323
Total Non-Interest Expense
10,633 10,293
PRETAX INCOME
1,775 2,369
Provision for income tax expense
366 491
NET INCOME
1,409 1,878
PER COMMON SHARE DATA:
Basic:
Net income
$ 0.08 $ 0.11
Average number of shares outstanding
17,043 17,578
Diluted:
Net income
$ 0.08 $ 0.11
Average number of shares outstanding
17,099 17,664
See accompanying notes to unaudited consolidated financial statements.
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AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2020
2019
COMPREHENSIVE INCOME
Net income
$ 1,409 $ 1,878
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan
528 (1,835)
Income tax effect
(111) 385
Unrealized holding gains on available for sale securities arising during period
1,170 1,763
Income tax effect
(246) (370)
Other comprehensive income (loss)
1,341 (57)
Comprehensive income
$ 2,750 $ 1,821
See accompanying notes to unaudited consolidated financial statements.
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AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Three months ended
March 31,
2020
2019
COMMON STOCK
Balance at beginning of period
267 266
New common shares issued for exercise of stock options (21,735 and 33,684 shares for the three months ended March 31, 2020 and 2019, respectively)
Balance at end of period
267 266
TREASURY STOCK
Balance at beginning of period
(83,129) (80,579)
Treasury stock, purchased at cost (35,962 and 112,311 shares for the three months ended March 31, 2020 and 2019, respectively)
(151) (476)
Balance at end of period
(83,280) (81,055)
CAPITAL SURPLUS
Balance at beginning of period
145,888 145,782
New common shares issued for exercise of stock options (21,735 and 33,684 shares for the three months ended March 31, 2020 and 2019, respectively)
49 85
Stock option expense
1 3
Balance at end of period
145,938 145,870
RETAINED EARNINGS
Balance at beginning of period
51,759 46,733
Net income
1,409 1,878
Cash dividend declared on common stock ($0.025 and $0.020 per share for the three months ended March 31, 2020 and 2019, respectively)
(423) (349)
Balance at end of period
52,745 48,262
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period
(16,171) (14,225)
Other comprehensive income (loss)
1,341 (57)
Balance at end of period
(14,830) (14,282)
TOTAL STOCKHOLDERS’ EQUITY
$ 100,840 $ 99,061
See accompanying notes to unaudited consolidated financial statements.
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AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31,
2020
2019
OPERATING ACTIVITIES
Net income
$ 1,409 $ 1,878
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision (credit) for loan losses
175 (400)
Depreciation and amortization expense
492 450
Net amortization of investment securities
65 66
Net gains on loans held for sale
(237) (62)
Amortization of deferred loan fees
(26) (30)
Origination of mortgage loans held for sale
(15,264) (3,866)
Sales of mortgage loans held for sale
15,619 4,156
Increase in accrued interest receivable
(310) (443)
Decrease in accrued interest payable
(150) (17)
Earnings on bank owned life insurance
(125) (128)
Deferred income taxes
351 532
Stock compensation expense
1 3
Net change in operating leases
(23) (4)
Other, net
(2,603) (434)
Net cash provided by (used in) operating activities
(626) 1,701
INVESTING ACTIVITIES
Purchase of investment securities – available for sale
(6,223) (9,063)
Purchase of investment securities – held to maturity
(2,618)
Proceeds from maturities of investment securities – available for sale
6,380 3,484
Proceeds from maturities of investment securities – held to maturity
467 214
Purchase of regulatory stock
(2,010) (4,104)
Proceeds from redemption of regulatory stock
2,007 4,589
Long-term loans originated
(42,615) (49,039)
Principal collected on long-term loans
52,578 48,654
Proceeds from sale of other real estate owned
21 176
Purchase of premises and equipment
(421) (1,395)
Net cash provided by (used in) investing activities
7,566 (6,484)
FINANCING ACTIVITIES
Net increase (decrease) in deposit balances
(2,920) 8,608
Net decrease in other short-term borrowings
(6,058) (10,117)
Principal borrowings on advances from Federal Home Loan Bank
11,050 2,850
Principal repayments on advances from Federal Home Loan Bank
(6,500) (1,000)
Principal payments on financing lease liabilities
(49) (41)
Stock options exercised
49 85
Purchase of treasury stock
(151) (476)
Common stock dividends
(423) (349)
Net cash used in financing activities
(5,002) (440)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,938 (5,223)
CASH AND CASH EQUIVALENTS AT JANUARY 1
22,168 34,894
CASH AND CASH EQUIVALENTS AT MARCH 31
$ 24,106 $ 29,671
See accompanying notes to unaudited consolidated financial statements.
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), AmeriServ Trust and Financial Services Company (the Trust Company), and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a Pennsylvania state-chartered full service bank with 15 locations in Pennsylvania and 1 location in Maryland. The Trust Company offers a complete range of trust and financial services and administers assets valued at $2.0 billion that are not reported on the Company’s Consolidated Balance Sheets at March 31, 2020. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.
In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Significant intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.
2.
Basis of Preparation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. They are not, however, necessarily indicative of the results of consolidated operations for a full-year.
For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
3.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.
In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company, as a smaller reporting company, continues to evaluate the impact that the Update will have on our consolidated financial statements. We are currently working with an industry leading third-party consultant and software provider to assist us in the implementation of this standard. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4.
Revenue Recognition
ASU 2014-09, Revenue from Contracts with Customers — Topic 606, requires the Company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. Management determined that the primary sources of revenue associated with financial instruments, including interest and fee income on loans and interest on investments, along with certain noninterest revenue sources including net realized gains (losses) on investment securities, mortgage related fees, net gains on loans held for sale, and bank owned life insurance are not within the scope of Topic 606. These sources of revenue cumulatively comprise 79.5% of the total revenue of the Company.
Non-interest income within the scope of Topic 606 are as follows:

Wealth management fees — Wealth management fee income is primarily comprised of fees earned from the management and administration of trusts and customer investment portfolios. The Company’s performance obligation is generally satisfied over a period of time and the resulting fees are billed monthly or quarterly, based upon the month end market value of the assets under management. Payment is generally received after month end through a direct charge to customers’ accounts. Due to this delay in payment, a receivable of $825,000 has been established as of March 31, 2020 and is included in other assets on the Consolidated Balance Sheets in order to properly recognize the revenue earned but not yet received. Other performance obligations (such as delivery of account statements to customers) are generally considered immaterial to the overall transactions price. Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Also included within wealth management fees are commissions from the sale of mutual funds, annuities, and life insurance products. Commissions on the sale of mutual funds, annuities, and life insurance products are recognized when sold, which is when the Company has satisfied its performance obligation.

Service charges on deposit accounts — The Company has contracts with its deposit account customers where fees are charged for certain items or services. Service charges include account analysis fees, monthly service fees, overdraft fees, and other deposit account related fees. Revenue related to account analysis fees and service fees is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. Fees attributable to specific performance obligations of the Company (i.e. overdraft fees, etc.) are recognized at a defined point in time based on completion of the requested service or transaction.

Other non-interest income — Other non-interest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid (i.e. paid prior to issuance of annual bill), the revenue is recognized upon receipt of payment. The Company has determined that since rentals and renewals occur consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Gains and losses on the sale of other real estate owned are recognized at the completion of the property sale when the buyer obtains control of the real estate and all the performance obligations of the Company have been satisfied.
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three month periods ending March 31, 2020 and 2019 (in thousands).
Three months ended
March 31,
2020
2019
Non-interest income:
In-scope of Topic 606
Wealth management fees
$ 2,554 $ 2,396
Service charges on deposit accounts
286 310
Other
390 420
Non-interest income (in-scope of Topic 606)
3,230 3,126
Non-interest income (out-of-scope of Topic 606)
602 479
Total non-interest income
$ 3,832 $ 3,605
5.
Earnings Per Common Share
Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. For the three month periods ending March 31, 2020 and 2019, options to purchase 29,500 common shares, with an exercise price of $3.90 to $4.22, and options to purchase 12,000 common shares, with an exercise price of $4.19 to $4.22, respectively, were outstanding but were not included in the computation of diluted earnings per common share because to do so would be antidilutive.
Three months ended
March 31,
2020
2019
(In thousands, except per share data)
Numerator:
Net income
$ 1,409 $ 1,878
Denominator:
Weighted average common shares outstanding (basic)
17,043 17,578
Effect of stock options
56 86
Weighted average common shares outstanding (diluted)
17,099 17,664
Earnings per common share:
Basic
$ 0.08 $ 0.11
Diluted
0.08 0.11
6.
Consolidated Statement of Cash Flows
On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest bearing deposits and short-term investments in money market funds. The Company made no income tax payments in the first three months of 2020 and 2019. The Company made total interest payments of $3,343,000 in the first three months of 2020 compared to $3,524,000 in the same 2019 period. The Company had no non-cash transfers to other real estate owned (OREO) in the first three months of 2020 compared to $18,000 non-cash transfers in the same 2019 period. During the first three months of 2020, the Company entered into a new financing lease related to office equipment and recorded a
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
right-of-use asset and lease liability of $63,000. As a result of the adoption of ASU 2016-02, Leases (Topic 842) as of January 1, 2019, the Company had non-cash transactions associated with the recognition of the right-of-use assets and lease liabilities. Specifically, the Company recognized a right-of-use asset and lease liability of $932,000 related to operating leases and a right-of-use asset and lease liability of $3.3 million related to financing leases during the first three months of 2019.
7.
Investment Securities
The cost basis and fair values of investment securities are summarized as follows (in thousands):
Investment securities available for sale (AFS):
March 31, 2020
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 3,895 $ 72 $ $ 3,967
US Agency mortgage-backed securities
78,862 3,278 (56) 82,084
Municipal
14,925 899 15,824
Corporate bonds
41,693 470 (1,322) 40,841
Total
$ 139,375 $ 4,719 $ (1,378) $ 142,716
Investment securities held to maturity (HTM):
March 31, 2020
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency mortgage-backed securities
$ 10,510 $ 508 $ $ 11,018
Municipal
25,527 1,674 (50) 27,151
Corporate bonds and other securities
6,031 42 (6) 6,067
Total
$ 42,068 $ 2,224 $ (56) $ 44,236
Investment securities available for sale (AFS):
December 31, 2019
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 5,084 $ 32 $ $ 5,116
US Agency mortgage-backed securities
80,046 1,681 (94) 81,633
Municipal
14,678 509 (17) 15,170
Corporate bonds
39,769 342 (281) 39,830
Total
$ 139,577 $ 2,564 $ (392) $ 141,749
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Investment securities held to maturity (HTM):
December 31, 2019
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency mortgage-backed securities
$ 9,466 $ 251 $ (4) $ 9,713
Municipal
24,438 941 (53) 25,326
Corporate bonds and other securities
6,032 58 (47) 6,043
Total
$ 39,936 $ 1,250 $ (104) $ 41,082
Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of “A.” At March 31, 2020, 52.1% of the portfolio was rated “AAA” as compared to 53.4% at December 31, 2019. Approximately 9.8% of the portfolio was either rated below “A” or unrated at March 31, 2020 as compared to 9.1% at December 31, 2019.
The Company sold no AFS securities during the first quarter of 2020 and 2019.
The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $117,364,000 at March 31, 2020 and $117,076,000 at December 31, 2019.
The following tables present information concerning investments with unrealized losses as of March 31, 2020 and December 31, 2019 (in thousands):
Total investment securities:
March 31, 2020
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
US Agency
$ $ $ $ $ $
US Agency mortgage-backed securities
2,363 (19) 1,885 (37) 4,248 (56)
Municipal
144 (1) 757 (49) 901 (50)
Corporate bonds and other securities
12,784 (786) 6,958 (542) 19,742 (1,328)
Total
$ 15,291 $ (806) $ 9,600 $ (628) $ 24,891 $ (1,434
Total investment securities:
December 31, 2019
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
US Agency
$ $ $ $ $ $
US Agency mortgage-backed securities
7,084 (23) 8,562 (75) 15,646 (98)
Municipal
2,269 (18) 1,123 (52) 3,392 (70)
Corporate bonds and other securities
7,797 (85) 11,783 (243) 19,580 (328)
Total
$ 17,150 $ (126) $ 21,468 $ (370) $ 38,618 $ (496)
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 34 positions that are considered temporarily impaired at March 31, 2020. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature.
Contractual maturities of securities at March 31, 2020 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at March 31, 2020 is 24.7 months and is lower than the duration at December 31, 2019 which was 36.9 months. The duration remains within our internal established guideline range of 24 to 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.
Total investment securities:
March 31, 2020
Available for sale
Held to maturity
Cost Basis
Fair Value
Cost Basis
Fair Value
Within 1 year
$ 3,491 $ 3,486 $ $
After 1 year but within 5 years
23,276 23,068 7,530 7,732
After 5 years but within 10 years
39,693 40,334 20,094 21,386
After 10 years but within 15 years
21,766 22,749 7,707 8,116
Over 15 years
51,149 53,079 6,737 7,002
Total
$ 139,375 $ 142,716 $ 42,068 $ 44,236
As of March 31, 2020 and December 31, 2019, the Company reported $386,000 and $366,000, respectively, of equity securities within other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) is reported within other income on the Consolidated Statements of Operations. For the first quarter of 2020, the Company recorded a realized gain of $6,000 and an unrealized loss of $6,000 was recognized in income on these equity securities. No gain or loss on equity securities (both realized and unrealized) was recognized during the first quarter of 2019. Additionally, the Company has recognized a deferred compensation liability, which is equal to the balance of the equity securities and is reported within other liabilities on the Consolidated Balance Sheets.
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8.
Loans
The loan portfolio of the Company consists of the following (in thousands):
March 31,
2020
December 31,
2019
Commercial:
Commercial and industrial
$ 166,911 $ 173,922
Commercial loans secured by owner occupied real estate
87,310 91,655
Commercial loans secured by non-owner occupied real estate
370,266 363,635
Real estate – residential mortgage
230,207 235,239
Consumer
17,955 18,255
Loans, net of unearned income
$ 872,649 $ 882,706
Loan balances at March 31, 2020 and December 31, 2019 are net of unearned income of $406,000 and $384,000, respectively. Real estate construction loans comprised 5.4% and 4.9% of total loans, net of unearned income at March 31, 2020 and December 31, 2019, respectively.
The effects of the COVID-19 pandemic are not fully reflected in the Company’s first quarter operating results. Certain loans within our commercial and commercial real estate portfolios are expected to be disproportionately adversely affected by the pandemic. Due to mandatory lockdowns and travel restrictions, certain industries, such as hospitality, travel, food service and restaurants and bars, may suffer greater losses as a result of COVID-19. The following table provides information regarding our potential COVID-19 risk concentrations for commercial and commercial real estate loans by industry type at March 31, 2020 (in thousands).
Commercial
and
industrial
Commercial loans
secured by
owner
occupied
real estate
Commercial loans
secured by
non-owner
occupied
real estate
Total
1 – 4 unit residential
$ 1,603 $ 133 $ 3,439 $ 5,175
Multifamily/apartments/student housing
359 53,065 53,424
Office
37,929 10,280 38,218 86,427
Retail
4,129 21,333 108,763 134,225
Industrial/manufacturing/warehouse
101,464 17,698 40,115 159,277
Hotels
419 45,764 46,183
Eating and drinking places
887 4,434 597 5,918
Amusement and recreation
210 3,384 57 3,651
Mixed use
1,574 65,631 67,205
Other
20,270 28,115 14,617 63,002
Total
$ 166,911 $ 87,310 $ 370,266 $ 624,487
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9.
Allowance for Loan Losses
The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three month periods ending March 31, 2020 and 2019 (in thousands).
Three months ended March 31, 2020
Balance at
December 31, 2019
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
March 31, 2020
Commercial
$ 3,951 $ $ $ (91) $ 3,860
Commercial loans secured by non-owner
occupied real estate
3,119 14 155 3,288
Real estate-residential mortgage
1,159 (92) 6 68 1,141
Consumer
126 (62) 14 42 120
Allocation for general risk
924 1 925
Total
$ 9,279 $ (154) $ 34 $ 175 $ 9,334
Three months ended March 31, 2019
Balance at
December 31, 2018
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
March 31, 2019
Commercial
$ 3,057 $ $ 5 $ (448) $ 2,614
Commercial loans secured by non-owner occupied real estate
3,389 (63) 11 36 3,373
Real estate-residential mortgage
1,235 (61) 8 31 1,213
Consumer
127 (82) 18 62 125
Allocation for general risk
863 (81) 782
Total
$ 8,671 $ (206) $ 42 $ (400) $ 8,107
The Company recorded a $175,000 provision expense for loan losses in the first quarter of 2020 compared to a $400,000 provision recovery in the first quarter of 2019. The 2020 provision reflects the loan growth experienced since last year along with our decision to strengthen certain qualitative factors within our allowance for loan losses calculation due to the economic uncertainty caused by the COVID-19 pandemic. While future losses are possible due to the COVID-19 pandemic, losses were not incurred as of March 31, 2020 which is why the provision for the period isn’t higher. For the first three months of 2020, the Company experienced net loan charge-offs of $120,000, or 0.06% of total loans, compared to net loan charge-offs of $164,000, or 0.08% of total loans, in the first three months of 2019. Overall, the Company’s asset quality remains strong as its non-performing assets totaled $2.2 million, or only 0.26% of total loans, at March 31, 2020. The allowance for loan losses provided 416% coverage of non-performing assets, and 1.06% of total loans, at March 31, 2020, compared to 397% coverage of non-performing assets, and 1.05% of total loans, at December 31, 2019.
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The following tables summarize the loan portfolio and allowance for loan loss by the primary segments of the loan portfolio (in thousands).
At March 31, 2020
Commercial
Commercial Loans
Secured by
Non-Owner
Occupied
Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ 833 $ 8 $ $ $ 841
Collectively evaluated for impairment
253,388 370,258 230,207 17,955 871,808
Total loans
$ 254,221 $ 370,266 $ 230,207 $ 17,955 $ 872,649
Allowance for loan losses:
Specific reserve allocation
$ 79 $ 8 $ $ $ $ 87
General reserve allocation
3,781 3,280 1,141 120 925 9,247
Total allowance for loan losses
$ 3,860 $ 3,288 $ 1,141 $ 120 $ 925 $ 9,334
At December 31, 2019
Commercial
Commercial Loans
Secured by
Non-Owner
Occupied
Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ 816 $ 8 $ $ $ 824
Collectively evaluated for impairment
264,761 363,627 235,239 18,255 881,882
Total loans
$ 265,577 $ 363,635 $ 235,239 $ 18,255 $ 882,706
Allowance for loan losses:
Specific reserve allocation
$ 84 $ 8 $ $ $ $ 92
General reserve allocation
3,867 3,111 1,159 126 924 9,187
Total allowance for loan losses
$ 3,951 $ 3,119 $ 1,159 $ 126 $ 924 $ 9,279
The segments of the Company’s loan portfolio are disaggregated into classes that allows management to monitor risk and performance. The loan classes used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio. The commercial loan segment includes both the commercial and industrial and the owner occupied commercial real estate loan classes while the remaining segments are not separated into classes as management monitors risk in these loans at the segment level. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans secured by residential real estate. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
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Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). In addition, consumer and residential mortgage loans with a balance of $150,000 or more are evaluated for impairment. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs for collateral dependent loans. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The need for an updated appraisal on collateral dependent loans is determined on a case-by-case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for loan losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s internal Assigned Risk Department to support the value of the property.
When reviewing an appraisal associated with an existing real estate collateral dependent transaction, the Bank’s internal Assigned Risk Department must determine if there have been material changes to the underlying assumptions in the appraisal which affect the original estimate of value. Some of the factors that could cause material changes to reported values include:

the passage of time;

the volatility of the local market;

the availability of financing;

natural disasters;

the inventory of competing properties;

new improvements to, or lack of maintenance of, the subject property or competing properties upon physical inspection by the Bank;

changes in underlying economic and market assumptions, such as material changes in current and projected vacancy, absorption rates, capitalization rates, lease terms, rental rates, sales prices, concessions, construction overruns and delays, zoning changes, etc.; and/or

environmental contamination.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel, rests with the Assigned Risk Department and not the originating account officer.
The following tables present impaired loans by portfolio segment, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands).
March 31, 2020
Impaired Loans with
Specific Allowance
Impaired Loans with
no Specific Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
Commercial
$ 833 $ 79 $ $ 833 $ 833
Commercial loans secured by non-owner occupied real estate
8 8 8 30
Total impaired loans
$ 841 $ 87 $    — $ 841 $ 863
December 31, 2019
Impaired Loans with
Specific Allowance
Impaired Loans with
no Specific Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
Commercial
$ 816 $ 84 $ $ 816 $ 816
Commercial loans secured by non-owner occupied real estate
8 8 8 30
Total impaired loans
$ 824 $ 92 $    — $ 824 $ 846
The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands).
Three months ended
March 31,
2020
2019
Average loan balance:
Commercial
$ 825 $
Commercial loans secured by non-owner occupied real estate
8 11
Average investment in impaired loans
$ 833 $ 11
Interest income recognized:
Commercial
$ 12 $
Commercial loans secured by non-owner occupied real estate
Interest income recognized on a cash basis on impaired loans
$ 12 $    —
Management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass-6, Special Mention, Substandard and Doubtful categories are disaggregated to
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $1,000,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced, independent function which reports directly to the Board’s Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for 2020 requires review of a minimum of 40% of the commercial loan portfolio.
In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $2,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.
The following table presents the classes of the commercial and commercial real estate loan portfolios summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands).
March 31, 2020
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 154,456 $ 790 $ 11,665 $ $ 166,911
Commercial loans secured by owner occupied real estate
84,661 1,345 1,304 87,310
Commercial loans secured by non-owner occupied real estate
368,681 1,577 8 370,266
Total
$ 607,798 $ 2,135 $ 14,546 $ 8 $ 624,487
December 31, 2019
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 161,147 $ 853 $ 11,922 $ $ 173,922
Commercial loans secured by owner occupied real estate
88,942 1,384 1,329 91,655
Commercial loans secured by non-owner occupied real estate
362,027 1,600 8 363,635
Total
$ 612,116 $ 2,237 $ 14,851 $ 8 $ 629,212
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
It is generally the policy of the Bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs, unless the balance is minor. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is generally the policy of the Bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio classes (in thousands).
March 31, 2020
Performing
Non-Performing
Total
Real estate – residential mortgage
$ 228,803 $ 1,404 $ 230,207
Consumer
17,955 17,955
Total
$ 246,758 $ 1,404 $ 248,162
December 31, 2019
Performing
Non-Performing
Total
Real estate – residential mortgage
$ 233,760 $ 1,479 $ 235,239
Consumer
18,255 18,255
Total
$ 252,015 $ 1,479 $ 253,494
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans (in thousands).
March 31, 2020
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 160,550 $ 6,361 $ $ $ 6,361 $ 166,911 $
Commercial loans secured by owner occupied real estate
87,197 113 113 87,310
Commercial loans secured by non-owner occupied real
estate
370,266 370,266
Real estate – residential mortgage
226,532 1,445 1,259 971 3,675 230,207
Consumer
17,901 42 12 54 17,955
Total
$ 862,446 $ 7,961 $ 1,271 $ 971 $ 10,203 $ 872,649 $
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 173,922 $ $ $ $ $ 173,922 $
Commercial loans secured by owner occupied real estate
91,538 117 117 91,655
Commercial loans secured by non-owner occupied real estate
363,635 363,635
Real estate – residential mortgage
231,022 2,331 864 1,022 4,217 235,239
Consumer
18,190 42 23 65 18,255
Total
$ 878,307 $ 2,490 $ 887 $ 1,022 $ 4,399 $ 882,706 $
The Company experienced an increase in loan delinquency during the first quarter of 2020. The increase was primarily due to the unexpected death of a borrower late in 2019, which was previously reported in our Form 10-K dated December 31, 2019. The estate, which is made up of significant real estate holdings and other unique assets, is currently in the process of liquidation. Therefore, this $6.3 million commercial and industrial loan exhibited delinquency during the quarter.
An allowance for loan losses (“ALL”) is maintained to support loan growth and cover charge-offs from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are complemented by consideration of other qualitative factors.
Management tracks the historical net charge-off activity at each risk rating grade level for the entire commercial portfolio and at the aggregate level for the consumer, residential mortgage and small business portfolios. A historical charge-off factor is calculated utilizing a rolling 12 consecutive historical quarters for the commercial portfolios. This historical charge-off factor for the consumer, residential mortgage and small business portfolios are based on a three-year historical average of actual loss experience.
The Company uses a comprehensive methodology and procedural discipline to maintain an ALL 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 consists of three elements: (1) an allowance 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, non-performing and TDR loans, 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 risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. 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.
“Pass” rated credits are segregated from “Criticized” and “Classified” credits for the application of qualitative factors.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
10.
Non-Performing Assets Including Troubled Debt Restructurings (TDR)
The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):
March 31,
2020
December 31,
2019
Non-accrual loans
Commercial and industrial
$ 25 $
Commercial loans secured by non-owner occupied real estate
8 8
Real estate – residential mortgage
1,404 1,479
Total
1,437 1,487
Other real estate owned
Real estate-residential mortgage
37
Total
37
TDR’s not in non-accrual
Commercial and industrial
807 815
Total
807 815
Total non-performing assets including TDR
$ 2,244 $ 2,339
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned
0.26% 0.26%
The Company had no loans past due 90 days or more for the periods presented which were accruing interest.
The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans (in thousands).
Three months ended
March 31,
2020
2019
Interest income due in accordance with original terms
$ 17 $ 15
Interest income recorded
Net reduction in interest income
$ 17 $ 15
Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.
The Company had no loans modified as TDRs during the three month periods ending March 31, 2020 and 2019.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDRs was $85,000 and $92,000 as of March 31, 2020 and December 31, 2019, respectively.
The Company had no loans that were classified as TDRs or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2019 and 2018, respectively, and that subsequently defaulted during these reporting periods.
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.
11.
Federal Home Loan Bank Borrowings
Total Federal Home Loan Bank (FHLB) borrowings and advances consist of the following (in thousands, except percentages):
At March 31, 2020
Type
Maturing
Amount
Weighted
Average Rate
Open Repo Plus
Overnight
$ 16,354 0.36%
Advances
2020
12,229 1.74
2021
9,496 2.28
2022
20,888 2.03
2023
13,568 1.76
2024
2,037 1.86
Total advances
58,218 1.94
Total FHLB borrowings
$ 74,572 1.59%
At December 31, 2019
Type
Maturing
Amount
Weighted
Average Rate
Open Repo Plus
Overnight
$ 22,412 1.81%
Advances
2020
18,729 1.75
2021
9,496 2.28
2022
17,838 2.21
2023
5,568 2.48
2024
2,037 1.86
Total advances
53,668 2.08
Total FHLB borrowings
$ 76,080 2.00%
The rate on Open Repo Plus advances can change daily, while the rates on the advances are fixed until the maturity of the advance. All FHLB stock along with an interest in certain residential mortgage, commercial real estate, and commercial and industrial loans with an aggregate statutory value equal to the amount of the advances are pledged as collateral to the FHLB of Pittsburgh to support these borrowings.
12.
Lease Commitments
The Company has operating and financing leases for several office locations and equipment. Several assumptions and judgments were made when applying the requirements of ASU 2016-02, Leases (Topic 842) to the Company’s lease commitments, including the allocation of consideration in the contracts between lease and non-lease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Many of our leases include both lease (e.g., minimum rent payments) and non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance. The Company has elected to account for the variable non-lease components separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of Operations when incurred. These variable non-lease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three month periods ending March 31, 2020 and 2019 (in thousands).
Three months ended
March 31, 2020
Three months ended
March 31, 2019
Lease cost
Financing lease cost:
Amortization of right-of-use asset
$ 67 $ 64
Interest expense
29 30
Operating lease cost
29 29
Total lease cost
$ 125 $ 123
Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, 2020 and December 31, 2019.
March 31, 2020
December 31, 2019
Operating
Financing
Operating
Financing
Weighted-average remaining term (years)
11.7 16.7 11.9 17.1
Weighted-average discount rate
3.46% 3.57% 3.46% 3.60%
The following table presents the undiscounted cash flows due related to operating and financing leases, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets (in thousands).
March 31, 2020
Operating
Financing
Undiscounted cash flows due:
Within 1 year
$ 118 $ 302
After 1 year but within 2 years
120 289
After 2 years but within 3 years
85 291
After 3 years but within 4 years
69 276
After 4 years but within 5 years
69 251
After 5 years
573 2,943
Total undiscounted cash flows
1,034 4,352
Discount on cash flows
(192) (1,175)
Total lease liabilities
$ 842 $ 3,177
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Operating
Financing
Undiscounted cash flows due:
Within 1 year
$ 118 $ 296
After 1 year but within 2 years
120 275
After 2 years but within 3 years
98 277
After 3 years but within 4 years
69 274
After 4 years but within 5 years
69 236
After 5 years
589 3,007
Total undiscounted cash flows
1,063 4,365
Discount on cash flows
(198) (1,202)
Total lease liabilities
$ 865 $ 3,163
Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of March 31, 2020 and December 31, 2019, the Company had one short-term equipment lease which it has elected to not record on the Consolidated Balance Sheets.
13.
Accumulated Other Comprehensive Loss
The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
Three months ended March 31, 2020
Three months ended March 31, 2019
Net
Unrealized
Gains and
(Losses) on
Investment
Securities
AFS(1)
Defined
Benefit
Pension
Items(1)
Total(1)
Net
Unrealized
Gains and
(Losses) on
Investment
Securities
AFS(1)
Defined
Benefit
Pension
Items(1)
Total(1)
Beginning balance
$ 1,715 $ (17,886) $ (16,171) $ (1,409) $ (12,816) $ (14,225)
Other comprehensive income (loss) before reclassifications
924 (95) 829 1,393 (1,739) (346)
Amounts reclassified from accumulated other comprehensive loss
512 512 289 289
Net current period other comprehensive income (loss)
924 417 1,341 1,393 (1,450) (57)
Ending balance
$ 2,639 $ (17,469) $ (14,830) $ (16) $ (14,266) $ (14,282)
(1)
Amounts in parentheses indicate debits on the Consolidated Balance Sheets.
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three months ended March 31, 2020 and 2019 (in thousands):
Amount reclassified from accumulated
other comprehensive loss(1)
Details about accumulated other comprehensive loss
components
For the three
months ended
March 31, 2020
For the three
months ended
March 31, 2019
Affected line item in the consolidated
statement of operations
Realized gains on sale of
securities
$ $ Net realized (gains) losses on investment securities
Provision for income tax expense
$ $ Net of tax
Amortization of estimated defined benefit pension plan loss(2)
$ 648 $ 366 Other expense
(136) (77)
Provision for income tax expense
$ 512 $ 289 Net of tax
Total reclassifications for the period
$ 512 $ 289 Net income
(1)
Amounts in parentheses indicate credits.
(2)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 18 for additional details).
14.
Regulatory Capital
The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments 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 consolidated financial statements. For a more detailed discussion see the Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
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, common equity tier 1, and tier 1 capital to risk-weighted assets (as defined) and tier 1 capital to average assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of March 31, 2020, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action promulgated by the Federal Reserve. The Company believes that no conditions or events have occurred that would change this conclusion as of such date. To be categorized as well capitalized, the Bank must maintain minimum total capital, common equity tier 1 capital, tier 1 capital, and tier 1 leverage ratios as set forth in the table (in thousands, except ratios).
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AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2020
COMPANY
BANK
MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT
RATIO
AMOUNT
RATIO
RATIO
RATIO
Total Capital (To Risk Weighted
Assets)
$ 133,286 13.41% $ 120,917 12.23% 8.00% 10.00%
Common Equity Tier 1 (To Risk
Weighted Assets)
103,726 10.44 110,766 11.20 4.50 6.50
Tier 1 Capital (To Risk Weighted
Assets)
115,618 11.64 110,766 11.20 6.00 8.00
Tier 1 Capital (To Average Assets)
115,618 9.94 110,766 9.64 4.00 5.00
At December 31, 2019
COMPANY
BANK
MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT
RATIO
AMOUNT
RATIO
RATIO
RATIO
Total Capital (To Risk Weighted
Assets)
$ 132,544 13.49% $ 119,477 12.23% 8.00% 10.00%
Common Equity Tier 1 (To Risk
Weighted Assets)
102,841 10.47 109,173 11.17 4.50 6.50
Tier 1 Capital (To Risk Weighted
Assets)
114,729 11.68 109,173 11.17 6.00 8.00
Tier 1 Capital (To Average Assets)
114,729 9.87 109,173 9.50 4.00 5.00
*
Applies to the Bank only.
Additionally, while not a regulatory capital ratio, the Company’s tangible common equity ratio was 7.69% (non-GAAP) at March 31, 2020. See the discussion of the tangible common equity ratio under the Balance Sheet section of the MD&A.
15.
Derivative Hedging Instruments
The Company can use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. The Company can use 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 cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.
To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest rate swap agreements with customers and a large financial institution that specializes in these types of transactions. These arrangements involve the exchange of interest payments based on the notional amounts. The Company entered into floating rate loans and fixed rate swaps with our customers.
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