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Section 1: 10-K (10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM          TO         
COMMISSION FILE NUMBER 0-11204
AMERISERV FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
25-1424278
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
MAIN & FRANKLIN STREETS,
P.O. BOX 430, JOHNSTOWN,
PENNSYLVANIA
(Address of principal executive offices)
15907-0430
(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, Par Value $0.01 Per Share
ASRV
The NASDAQ Stock Market LLC
8.45% Beneficial Unsecured Securities, Series A
(AmeriServ Financial Capital Trust I)
ASRVP
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 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 in Rule 12b-2 of the Act). ☐ Yes ☒ No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was $65,717,632 as of June 30, 2019.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 17,057,871 shares outstanding as of January 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the proxy statement for the annual shareholders’ meeting are incorporated by reference in Parts II and III.

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FORM 10-K INDEX
Page No.
PART I
1
12
12
12
12
12
PART II
13
14
15
37
39
95
95
95
PART III
96
96
96
96
96
PART IV
97
99
 
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PART I
ITEM 1.   BUSINESS
GENERAL
AmeriServ Financial, Inc. (the Company) is a bank holding company organized under the Pennsylvania Business Corporation Law. The Company became a holding company upon acquiring all of the outstanding shares of AmeriServ Financial Bank (the Bank) in January 1983. The Company’s other wholly owned subsidiaries include AmeriServ Trust and Financial Services Company (the Trust Company), formed in October 1992, and AmeriServ Life Insurance Company (AmeriServ Life), formed in October 1987. When used in this report, the “Company” may refer to AmeriServ Financial, Inc. individually or AmeriServ Financial, Inc. and its direct and indirect subsidiaries.
The Company’s principal activities consist of owning and operating its three wholly owned subsidiary entities. At December 31, 2019, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of  $1.2 billion, $960.5 million, and $98.6 million, respectively. The Company and its subsidiaries derive substantially all of their income from banking and bank-related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, accounting and taxes, loan review, auditing, investment accounting, marketing and risk management.
As a bank holding company, the Company is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking and Securities (the PDB). The Company is also under the jurisdiction of the Securities and Exchange Commission (the SEC) for matters relating to registered offerings and sales of its securities under the Securities Act of 1933, as amended, and the disclosure and regulatory requirements of the Securities Exchange Act of 1934, as amended. The Company’s common stock is listed on The NASDAQ Stock Market under the trading symbol “ASRV,” and the Company is subject to the NASDAQ rules applicable to listed companies.
AMERISERV FINANCIAL BANKING SUBSIDIARY
AMERISERV FINANCIAL BANK
The Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended (the Banking Code). Through 16 branch locations in Allegheny, Cambria, Centre, Somerset, and Westmoreland counties, Pennsylvania and Washington county, Maryland, the Bank conducts a general banking business. It is a full-service bank offering (i) retail banking services, such as demand, savings and time deposits, checking accounts, money market accounts, secured and unsecured consumer loans, mortgage loans, safe deposit boxes, holiday club accounts, money orders, and traveler’s checks; and (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as commercial real estate mortgage loans (CRE), short and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, real estate-construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services. The Bank also operates 17 automated bank teller machines (ATMs) through its 24-hour banking network that is linked with NYCE, a regional ATM network, and CIRRUS, a national ATM network. West Chester Capital Advisors (WCCA), a SEC registered investment advisor, is a subsidiary of the Bank. The Company also operates loan production offices (LPOs) in Altoona and Wilkins Township in Pennsylvania.
We believe that the Bank’s deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. The Bank’s business is not seasonal, nor does it have any risks attendant to foreign sources. A significant majority of the Bank’s customer base is located within a 150-mile radius of Johnstown, Pennsylvania, the Bank’s headquarters.
The Bank is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the PDB. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios of the Bank at December 31, 2019:
 
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Headquarters
Johnstown, PA
Total Assets
$
1,156,426
Total Investment Securities
175,278
Total Loans and Loans Held for Sale (net of unearned income)
887,574
Total Deposits
960,712
Total Net Income
7,082
Asset Leverage Ratio
9.50%
Return on Average Assets
0.61
Return on Average Equity
6.61
Total Full-time Equivalent Employees
240
RISK MANAGEMENT OVERVIEW:
Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, which includes credit, interest rate and market, liquidity, operational, legal/compliance, strategic/reputational and security risk. The Company controls and monitors these risks with policies, procedures, and various levels of oversight from the Company’s Board of Directors (the Board) and management. The Company has a Management Enterprise Risk Committee with Board of Director representation to help manage and monitor the Company’s risk position which is reported formally to the Board on a semi-annual basis.
Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. The Company uses its asset liability management policy to control and manage interest rate risk.
Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors, debtholders and the funding of operating costs. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms resulting in an economic loss to the organization. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses (the ALL) to control and manage credit risk. The Company’s investment policy and hedging policy limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities. The following summarizes and describes the Company’s various loan categories and the underwriting standards applied to each:
Commercial Loans
This category includes credit extensions to commercial and industrial borrowers. Business assets, including accounts receivable, inventory and/or equipment, typically secure these credits. The commercial loan segment also includes commercial loans secured by owner occupied real estate. In appropriate instances, extensions of credit in this category are subject to collateral advance formulas. Balance sheet strength and profitability are considered when analyzing these credits, with special attention given to historical, current and prospective sources of cash flow, and the ability of the customer to sustain cash flow at acceptable levels. The Bank’s policy permits flexibility in determining acceptable debt service coverage ratios. Personal guarantees are frequently required; however, as the financial strength of the borrower increases, the Bank’s ability to obtain personal guarantees decreases. In addition to economic risk, this category is impacted by the strength of the borrower’s management, industry risk and portfolio concentration risk each of which are also monitored and considered during the underwriting process.
 
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Commercial Loans Secured by Non-Owner Occupied Real Estate
This category includes various types of loans, including acquisition and construction of investment property. Maximum term, minimum cash flow coverage, leasing requirements, maximum amortization and maximum loan to value ratios are controlled by the Bank’s credit policy and follow industry guidelines and norms, and regulatory limitations. Personal guarantees are normally required during the construction phase on construction credits and are frequently obtained on mid to smaller CRE loans. In addition to economic risk, this category is subject to geographic and portfolio concentration risk, each of which are monitored and considered in underwriting.
The Company utilizes a robust and diligent risk management framework to monitor the non-owner occupied commercial real estate segment of the portfolio. This analysis considers more forward looking credit metrics such as stress test results and underwriting trend data, coupled with risk tolerance and concentration guidelines. The process is intended to allow identification of emerging risk, in part, to determine any future change to lending policy, underwriting practices or broader lending strategy prior to any indication of performance deterioration.
Residential Real Estate — Mortgages
This category includes mortgages that are secured by residential property. Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae underwriting guidelines, with the exception of Community Reinvestment Act (CRA) loans, which have more liberal standards. A meaningful portion of this portfolio consists of home equity loans. The major risk in this category is that a significant downward economic trend would increase unemployment and cause payment default. The Bank does not engage and has never engaged, in subprime residential mortgage lending.
Consumer Loans
This category includes consumer installment loans and revolving credit plans. Underwriting is pursuant to industry norms and guidelines. The major risk in this category is a significant economic downturn.
INVESTMENTS
The strategic focus of the investment securities portfolio is managed for liquidity and earnings in a prudent manner that is consistent with proper bank asset/liability management and current banking practices. The objectives of portfolio management include consideration of proper liquidity levels, interest rate and market valuation sensitivity, and profitability. The investment portfolio of the Company and its subsidiaries are proactively managed in accordance with federal and state laws and regulations and in accordance with generally accepted accounting principles (GAAP).
The investment portfolio is primarily made up of AAA rated agency mortgage-backed securities, high quality corporate securities, taxable municipal securities, and agency securities. Management strives to maintain a portfolio duration that is less than 60 months. All holdings must meet standards documented in its investment policy, unless otherwise approved by the Company’s CEO or the Asset/Liability Management Committee.
Investment securities classified as held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair market value. The following table sets forth the cost basis and fair value of the Company’s investment portfolio as of the periods indicated:
 
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Investment securities available for sale at:
AT DECEMBER 31,
2019
2018
2017
(IN THOUSANDS)
U.S. Agency
$
5,084
$ 7,685 $ 6,612
Municipal
14,678
13,301 7,198
Corporate bonds
39,769
37,359 35,886
U.S. Agency mortgage-backed securities
80,046
90,169 79,854
Total cost basis of investment securities available for sale
$
139,577
$ 148,514 $ 129,550
Total fair value of investment securities available for sale
$
141,749
$ 146,731 $ 129,138
Investment securities held to maturity at:
AT DECEMBER 31,
2019
2018
2017
(IN THOUSANDS)
Municipal
$
24,438
$ 24,740 $ 22,970
U.S. Agency mortgage-backed securities
9,466
9,983 9,740
Corporate bonds and other securities
6,032
6,037 6,042
Total cost basis of investment securities held to maturity
$
39,936
$ 40,760 $ 38,752
Total fair value of investment securities held to maturity
$
41,082
$ 40,324 $ 38,811
DEPOSITS
The Bank has a stable core deposit base made up of traditional commercial bank products that exhibits modest fluctuation, other than jumbo certificates of deposits (CDs) and certain municipal deposits, which demonstrate some seasonality. The Company also utilizes certain Trust Company specialty deposits related to the ERECT Fund as a funding source which serve as an alternative to wholesale borrowings and can exhibit some limited degree of volatility.
The following table sets forth the average balance of the Company’s deposits and average rates paid thereon for the past three calendar years:
AT DECEMBER 31,
2019
2018
2017
(IN THOUSANDS, EXCEPT PERCENTAGES)
Demand:
Non-interest bearing
$
151,292
%
$ 174,108 % $ 182,301 %
Interest bearing
170,326
0.94
138,572 0.82 129,589 0.49
Savings
96,783
0.17
98,035 0.17 97,405 0.17
Money market
234,387
1.08
249,618 0.87 275,636 0.52
Certificates of deposit in denominations of $100,000 or more
36,324
2.33
31,893 1.66 29,002 1.10
Other time
290,543
2.09
267,498 1.70 262,473 1.41
Total deposits
$
979,655
1.35%
$ 959,724 1.07% $ 976,406 0.79%
 
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The maturities on certificates of deposit of  $100,000 or more as of December 31, 2019, are as follows:
(IN THOUSANDS)
MATURING IN:
Three months or less
$
4,893
Over three through six months
10,325
Over six through twelve months
18,227
Over twelve months
5,325
Total
$
38,770
LOANS
The loan portfolio of the Company consisted of the following:
AT DECEMBER 31,
2019
2018
2017
2016
2015
(IN THOUSANDS)
Commercial:
Commercial and industrial
$
174,021
$ 158,306 $ 159,219 $ 171,570 $ 181,117
Commercial loans secured by owner occupied
real estate(1)
91,693
91,938 89,979 91,861 97,172
Commercial loans secured by non-owner occupied real estate(1)
363,882
356,805 374,173 355,172 324,971
Real estate – residential mortgage(1)
235,239
237,964 247,278 245,765 257,937
Consumer
18,255
17,591 19,383 19,872 20,344
Total loans
883,090
862,604 890,032 884,240 881,541
Less: Unearned income
384
322 399 476 557
Total loans, net of unearned income
$
882,706
$ 862,282 $ 889,633 $ 883,764 $ 880,984
(1)
For each of the periods presented beginning with December 31, 2019, real estate-construction loans constituted 4.9%, 3.5%, 4.1%, 4.7%, and 3.0% of the Company’s total loans, net of unearned income, respectively.
Secondary Market Activities
The residential lending department of the Bank continues to originate one-to-four family mortgage loans for customers, the majority of which are sold to outside investors in the secondary market and some of which are retained for the Bank’s portfolio. Mortgages sold in the secondary market are sold to investors on a “flow” basis; mortgages are priced and delivered on a “best efforts” pricing basis, with servicing released to the investor. Fannie Mae/Freddie Mac guidelines are used in underwriting all mortgages with the exception of a limited amount of CRA loans. Mortgages with longer terms, such as 20-year, 30-year, FHA, and VA loans, are usually sold. The remaining production of the department includes construction, adjustable rate mortgages, and quality non-salable loans. These loans are usually kept in the Bank’s portfolio.
 
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Non-performing Assets
The following table presents information concerning non-performing assets:
AT DECEMBER 31,
2019
2018
2017
2016
2015
(IN THOUSANDS, EXCEPT PERCENTAGES)
Non-accrual loans:
Commercial and industrial
$
$ $ 353 $ 496 $ 4,260
Commercial loans secured by owner occupied real estate
859
Commercial loans secured by non-owner occupied real estate
8
11 547 178 18
Real estate – residential mortgage
1,479
1,210 1,257 929 1,788
Total
1,487
1,221 3,016 1,603 6,066
Other real estate owned:
Commercial loans secured by owner occupied real estate
157
Real estate – residential mortgage
37
18 21 75
Total
37
157 18 21 75
Total restructured loans not in non-accrual (TDR)
815
156
Total non-performing assets including TDR
$
2,339
$ 1,378 $ 3,034 $ 1,624 $ 6,297
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned
0.26%
0.16% 0.34% 0.18% 0.71%
The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. Other real estate owned (OREO) is measured at fair value based on appraisals, less cost to sell at the date of foreclosure. The Company had no loans past due 90 days or more, still accruing, for the periods presented.
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.
YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
(IN THOUSANDS)
Interest income due in accordance with original terms
$
57
$ 75 $ 103 $ 118 $ 94
Interest income recorded
(75)
Net reduction in interest income
$
57
$ 75 $ 28 $ 118 $ 94
AMERISERV FINANCIAL NON-BANKING SUBSIDIARIES
AMERISERV TRUST AND FINANCIAL SERVICES COMPANY
AmeriServ Trust and Financial Services Company is a trust company organized under Pennsylvania law in October 1992. Its staff of approximately 45 professionals administers assets valued at approximately $2.2 billion that are not recognized on the Company’s balance sheet at December 31, 2019. The Trust Company focuses on wealth management. Wealth management includes personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and
 
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defined contribution employee benefit plans, and individual retirement accounts are included in this segment. This segment also includes financial services, which include the sale of mutual funds, annuities, and insurance products. The wealth management business also includes the union collective investment funds, namely the ERECT funds which are designed to use union pension dollars in construction projects that utilize union labor. The BUILD fund continues in the process of liquidation. At December 31, 2019, the Trust Company had total assets of  $6.5 million and total stockholder’s equity of  $6.5 million. In 2019, the Trust Company contributed earnings to the Company as its gross revenue amounted to $9.3 million and the net income contribution was $1.5 million. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of Philadelphia and the PDB.
AMERISERV LIFE
AmeriServ Life is a captive insurance company organized under the laws of the State of Arizona. AmeriServ Life engages in underwriting as reinsurer of credit life and disability insurance within the Company’s market area. Operations of AmeriServ Life are conducted in each office of the Company’s banking subsidiary. AmeriServ Life is subject to supervision and regulation by the Arizona Department of Insurance, the Pennsylvania Insurance Department, and the Board of Governors of the Federal Reserve System (the Federal Reserve). At December 31, 2019, AmeriServ Life had total assets of  $272,000.
MONETARY POLICIES
Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve are: open market operations in U.S. Government securities, changes in the federal funds rate and discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.
COMPETITION
Our subsidiaries face strong competition from other commercial banks, savings banks, credit unions, savings and loan associations, and other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions which are substantially larger and have greater financial resources than the Bank and the Trust Company. As the financial services industry continues to consolidate, the scope of potential competition affecting our subsidiaries will also increase. Brokerage houses, consumer finance companies, insurance companies, and pension trusts are important competitors for various types of financial services. Personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals. In addition, some of these competitors, such as credit unions, are subject to a lesser degree of regulation or taxation than that imposed on us.
MARKET AREA & ECONOMY
Johnstown, Pennsylvania, where the Company is headquartered, continues to have a cost of living that is lower than the national average. Johnstown is home to The University of Pittsburgh at Johnstown, Pennsylvania Highlands Community College and Conemaugh Health System. The high-tech defense industry is now the main non-health care staple of the Johnstown economy, with the region fulfilling many Federal government contracts, punctuated by one of the premier defense trade shows in the U.S., the annual Showcase for Commerce. The city also hosts annual events such as the Flood City Music Festival and the Thunder in the Valley Motorcycle Rally, which draw several thousand visitors. The Johnstown, PA MSA unemployment rate decreased from a 5.2% average in 2018 to a 5.0% average in 2019. The Johnstown, PA MSA continues to have one of the highest jobless rates among the 18 metropolitan statistical areas across the state. This coupled with a declining population trend creates a challenge moving forward.
 
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Economic conditions are stronger in the State College market and have demonstrated the same improvement experienced in the national economy. The community is a college town, dominated economically and demographically by the presence of the University Park campus of the Pennsylvania State University. “Happy Valley” is another often-used term to refer to the State College area, including the borough and the townships of College, Harris, Patton, and Ferguson. The unemployment rate for the State College MSA decreased from a 3.2% average in 2018 to a 3.1% average in 2019 and remains one of the lowest of all regions in the Commonwealth. A large percentage of the population in State College falls into the 18 to 34-year-old age group, while potential customers in the Cambria/Somerset markets tend to be over 50 years of age.
Hagerstown in Washington County, Maryland offers a rare combination of business advantages providing a major crossroads location that is convenient to the entire East Coast at the intersection of I-81 and I-70. It has a workforce of over 400,000 with strengths in manufacturing and technology. It also offers an affordable cost of doing business and living, all within an hour of the Washington, D.C./Baltimore regions. There are also plenty of facilities and land slated for industrial/commercial development. Hagerstown has become a choice location for manufacturers, financial services, and distribution companies. The Hagerstown, MD-Martinsburg, WV MSA unemployment rate decreased from a 4.2% average in 2018 to a 3.7% average in 2019.
The Company also has loan production offices in Wilkins Township in Allegheny County and Altoona in Blair County, Pennsylvania. Wilkins Township in Allegheny County, Pennsylvania is located 15 miles east of the city of Pittsburgh. While the city is historically known for its steel industry, today its economy is largely based on healthcare, education, technology and financial services. The city of Pittsburgh is home to many colleges, universities and research facilities, the most well-known of which are Carnegie Mellon University, Duquesne University and the University of Pittsburgh. Pittsburgh is rich in art and culture. Pittsburgh museums and cultural sites include the Andy Warhol Museum, the Carnegie Museum of Art, the Frick Art & Historical Center, and Pittsburgh Center for the Arts among numerous others. Pittsburgh is also the home of the Pirates, Steelers and Penguins. The unemployment rate for the Pittsburgh MSA decreased from a 4.3% average in 2018 to a 4.1% average in 2019.
Altoona is the business center of Blair County, Pennsylvania with a strong retail, government and manufacturing base. The top field of employment in Altoona and the metro area is healthcare. Its location along I-99 draws from a large trade area over a wide geographic area that extends to State College and Johnstown. It serves as the headquarters for Sheetz Corporation, which ranks on Forbes list of the top privately owned companies. In addition to being located adjacent to I-99 and a major highway system, Altoona also has easy access to rail and air transportation. The average unemployment rate in the Altoona MSA remained stable in 2019 at the 2018 level of 4.2%.
EMPLOYEES
The Company employed 328 people as of December 31, 2019 in full- and part-time positions. Approximately 155 non-supervisory employees of the Company are represented by the United Steelworkers, AFL-CIO-CLC, Local Union 2635-06. The Company is under a four-year labor contract with the United Steelworkers Local that will expire on October 15, 2021. The contract calls for annual wage increases of 3.0%. The Company has not experienced a work stoppage since 1979. The Company is one of an estimated ten union represented banks nationwide.
INDUSTRY REGULATION
The banking and trust industry, and the operation of bank holding companies, is highly regulated by federal and state law, and by numerous regulations adopted by the federal and state banking agencies. Bank regulation affects all aspects of conducting business as a bank, including such major items as minimum capital requirements, limits on types and amounts of investments, loans and other assets, as well as borrowings and other liabilities, and numerous restrictions or requirements on the loan terms and other products made available to customers, particularly consumers. Federal deposit insurance from the Federal Deposit Insurance Corporation (the FDIC) is required for all banks in the United States, and maintaining FDIC insurance requires observation of the various rules of the FDIC, as well as payment of deposit insurance premiums. New branches, or acquisitions or mergers, are required to be pre-approved by the responsible
 
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agency, which in the case of the Company and the Bank is the Federal Reserve and the PDB. The Bank provides detailed financial information to its regulators, including a quarterly call report that is filed pursuant to detailed prescribed instructions to ensure that all U.S. banks report the same way. The U.S. banking laws and regulations are frequently updated and amended, especially in response to crises in the financial industry, such as the global financial crisis of 2008, which resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 (the Dodd-Frank Act), a statute affecting many facets of the financial industry. The Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted into law in 2018 and was designed to ease certain restrictions imposed by the Dodd-Frank Act.
While it is impractical to discuss all laws and regulations that regularly affect the business of the Company and its subsidiaries, set forth below is an overview of some of the major provisions and statutes that apply.
CAPITAL REQUIREMENTS
One of the most significant regulatory requirements for banking institutions is minimum capital, imposed as a ratio of capital to assets. The Federal Deposit Insurance Act, as amended (the FDIA), identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. It requires U.S. federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. Both federal and state banking regulation impose progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to utilize brokered deposits and on other aspects of its operations. Generally, a bank is prohibited from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized.
As of December 31, 2019, the Company believes that its bank subsidiary was well capitalized, based on the prompt corrective action guidelines described above. On January 1, 2015, U.S. federal banking agencies implemented the new Basel III capital standards, which establish the minimum capital levels to be considered well-capitalized and revise the prompt corrective action requirements under banking regulations. The revisions from the previous standards include a revised definition of capital, the introduction of a minimum common equity tier 1 capital ratio and changed risk weightings for certain assets. The implementation of the new rules was phased in over a four-year period ending January 1, 2019 with minimum capital requirements becoming increasingly stricter each year of the transition. The capital to risk-adjusted assets requirements for minimum capital plus the applicable buffer, and the requirement to be “well capitalized,” are as follows:
Minimum Capital Plus Buffer
As of December 31,
Well
Capitalized
2018
2019
Common equity tier 1 capital ratio
6.38% 7.00% 6.50%
Tier 1 capital ratio
7.88% 8.50% 8.00%
Total capital ratio
9.88% 10.50% 10.00%
Under the current rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer above its minimum risk-based capital requirements of 2.50% of total risk weighted assets.
DIVIDEND RESTRICTIONS
The primary source of cash to pay dividends, if any, to the Company’s shareholders and to meet the Company’s obligations is dividends paid to the Company by the Bank and the Trust Company. Dividend payments by the Bank to the Company are subject to the laws of the Commonwealth of Pennsylvania, the Banking Code, the FDIA and the regulation of the PDB and of the Federal Reserve. Under the Banking Act and the FDIA, a bank may not pay any dividends if, after paying such dividends, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations, the federal regulatory
 
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agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in unsafe or unsound banking practices. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.
It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available from the immediately preceding year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiary. A bank holding company may not pay dividends when it is insolvent.
For more information regarding quarterly cash dividends, see Part II, Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities below.
SARBANES-OXLEY ACT OF 2002
The Sarbanes-Oxley Act of 2002 is not a banking law, but contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s principal executive officer and principal financial officer are required. These certifications attest, among other things, that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. In response to the Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to further strengthen its corporate governance practices. The Company also requires signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare. These procedures supplement the Company’s Code of Conduct Policy and other procedures that were previously in place. The Company maintains a program designed to comply with Section 404 of the Sarbanes-Oxley Act. This program included the identification of key processes and accounts, documentation of the design of control effectiveness over the key processes and entity level controls, and testing of the effectiveness of key controls.
PRIVACY PROVISIONS
Federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company believes it is in compliance with the various provisions.
USA PATRIOT ACT
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed a number of regulations that apply various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the Company.
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
The Dodd-Frank Act was signed into law on July 21, 2010. This law significantly changed the previous bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
 
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A provision of the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. The Dodd-Frank Act also broadened the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.
Bank and thrift holding companies with assets of less than $15 billion as of December 31, 2009, such as the Company, are permitted to include trust preferred securities that were issued before May 19, 2010, such as the Company’s 8.45% Trust Preferred Securities, as Tier 1 capital; however, trust preferred securities issued by a bank or thrift holding company (other than those with assets of less than $500 million) after May 19, 2010, will no longer count as Tier 1 capital. Such trust preferred securities still will be entitled to be treated as Tier 2 capital.
The Dodd-Frank Act created the Consumer Financial Protection Bureau (the CFPB), a new independent regulatory agency with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Company will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations and gives state attorney generals the ability to enforce federal consumer protection laws.
ECONOMIC GROWTH, REGULATORY RELIEF, AND CONSUMER PROTECTION ACT
The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Most of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation.
Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidate assets not less than 8% or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form call reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.
In September 2019, as directed pursuant to the Act, the federal bank regulatory agencies issued final rules for a community bank leverage ratio (“CBLR”) for certain community banking organizations, which will be available to use in call reports filed for the period beginning January 1, 2020 or April 1, 2020 pursuant to subsequent final rules adopted in October 2019. Under the final rules, a bank or holding company would be eligible to elect the CBLR framework if the institution had less than $10.0 billion in total consolidated assets, met certain risk-based qualifying criteria and had a CBLR greater than 9%. A qualifying community banking organization that elected to opt in to the CBLR framework would not be subject to
 
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risk-based and leverage capital requirements under the Basel III rules. In July 2019, the federal bank regulatory agencies issued final rules pursuant to the Act simplifying several requirements in the agencies’ regulatory capital rules for banks generally less than $250 billion in assets. As directed pursuant to the Act, the federal bank regulatory agencies issued final rules increasing the asset thresholds for management interlocks between depository institutions, which became effective in October 2019. Also, in October 2019, the federal bank regulatory agencies issued final rules to, among other things, increase the threshold for appraisals in a residential real estate transaction from $250,000 to $400,000 and make conforming changes to add to the list of exempt transactions those transactions secured by residential property in rural areas that have been exempted from the agencies’ appraisal requirements pursuant to the Act. Additionally, the Act requires the enactment of a number of other implementing regulations, the details of which may have a material effect on the ultimate impact of the law. The Company continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Company’s business, operations, or financial results.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the internet at the SEC’s website at http://www.sec.gov.
Our internet address is http://www.ameriserv.com. We make available, free of charge on http://www.ameriserv.com, our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A.   RISK FACTORS
Not applicable.
ITEM 1B.   UNRESOLVED STAFF COMMENTS
The Company has no unresolved staff comments from the SEC for the reporting periods presented.
ITEM 2.   PROPERTIES
The principal offices of the Company and the Bank occupy the five-story AmeriServ Financial building at the corner of Main and Franklin Streets in Johnstown plus eleven floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 13 other locations which are owned. Seven additional locations are leased with terms expiring from September 30, 2020 to June 30, 2033.
ITEM 3.   LEGAL PROCEEDINGS
The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of both management and legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
ITEM 4.   MINE SAFETY DISCLOSURES
Not applicable.
 
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PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK
As of January 31, 2020, the Company had 2,798 shareholders of record for its common stock. The Company’s common stock is traded on The NASDAQ Stock Market under the symbol “ASRV.” The following table sets forth the actual high and low closing prices and the cash dividends declared per share for the periods indicated:
PRICES
CASH
DIVIDENDS
DECLARED
HIGH
LOW
Year ended December 31, 2019:
First Quarter
$ 4.24 $ 3.97 $ 0.020
Second Quarter
4.30 4.03 0.025
Third Quarter
4.24 4.08 0.025
Fourth Quarter
4.30 4.11 0.025
Year ended December 31, 2018:
First Quarter
$ 4.20 $ 4.00 $ 0.015
Second Quarter
4.30 4.00 0.020
Third Quarter
4.55 4.10 0.020
Fourth Quarter
4.43 3.98 0.020
The declaration of cash dividends on the Company’s common stock is at the discretion of the Board, and any decision to declare a dividend is based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants under any credit agreements and other contractual restrictions, Pennsylvania law, federal and Pennsylvania bank regulatory law, and other factors deemed relevant.
On July 17, 2018, the Company announced a common stock repurchase program that called for AmeriServ Financial, Inc. to buy back up to 3%, or approximately 540,000 shares, of its outstanding common stock over a 12-month time period. As of the end of the first quarter of 2019, all shares authorized under this plan had been repurchased.
On April 16, 2019, the Company announced a new program to repurchase up to 3%, or approximately 526,000 shares, of the Company’s outstanding common stock during the next 12 months. Following are the Company’s monthly common stock purchases during the fourth quarter of 2019. All shares are repurchased under Board of Directors authorization.
Period
Total number of
shares purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced plan
Maximum number
of shares that may
yet be purchased
under the plan
October 1 – 31, 2019
15,107 $ 4.21 15,107 111,698
November 1 – 30, 2019
51,486 4.24 51,486 60,212
December 1 – 31, 2019
24,250 4.24 24,250 35,962
Total
90,843 90,843
During 2019, the Company was able to repurchase a total of 602,349 shares at an average price of $4.23 under these repurchase programs.
 
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ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
AT OR FOR THE YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
SUMMARY OF INCOME STATEMENT DATA:
Total interest income
$
49,767
$ 47,094 $ 44,356 $ 41,869 $ 41,881
Total interest expense
14,325
11,600 8,795 7,735 6,520
Net interest income
35,442
35,494 35,561 34,134 35,361
Provision (credit) for loan losses
800
(600) 800 3,950 1,250
Net interest income after provision (credit) for
loan losses
34,642
36,094 34,761 30,184 34,111
Total non-interest income
14,773
14,224 14,645 14,638 15,267
Total non-interest expense
41,815
40,873 40,726 41,615 41,038
Income before income taxes
7,600
9,445 8,680 3,207 8,340
Provision for income taxes
1,572
1,677 5,387 897 2,343
Net income
$
6,028
$ 7,768 $ 3,293 $ 2,310 $ 5,997
Net income available to common
shareholders
$
6,028
$ 7,768 $ 3,293 $ 2,295 $ 5,787
PER COMMON SHARE DATA:
Basic earnings per share
$
0.35
$ 0.43 $ 0.18 $ 0.12 $ 0.31
Diluted earnings per share
0.35
0.43 0.18 0.12 0.31
Cash dividends declared
0.095
0.075 0.060 0.050 0.040
Book value at period end
5.78
5.56 5.25 5.05 5.19
BALANCE SHEET AND OTHER DATA:
Total assets
$
1,171,184
$ 1,160,680 $ 1,167,655 $ 1,153,780 $ 1,148,497
Loans and loans held for sale, net of unearned
income
887,574
863,129 892,758 886,858 883,987
Allowance for loan losses
9,279
8,671 10,214 9,932 9,921
Investment securities available for sale
141,749
146,731 129,138 127,077 119,467
Investment securities held to maturity
39,936
40,760 38,752 30,665 21,419
Deposits
960,513
949,171 947,945 967,786 903,294
Total borrowed funds
100,574
108,177 115,701 78,645 117,058
Stockholders’ equity
98,614
97,977 95,102 95,395 118,973
Full-time equivalent employees
309
303 302 305 318
SELECTED FINANCIAL RATIOS:
Return on average assets
0.51%
0.67% 0.28% 0.20% 0.54%
Return on average total equity
6.02
8.08 3.42 2.30 5.10
Loans and loans held for sale, net of unearned
income, as a percent of deposits, at period
end
92.41
90.94 94.18 91.64 97.86
Ratio of average total equity to average
assets
8.52
8.28 8.24 8.79 10.65
Common stock cash dividends as a percent of
net income available to common
shareholders
27.36
17.31 33.80 41.18 13.03
Interest rate spread
3.05
3.08 3.14 3.08 3.33
Net interest margin
3.29
3.31 3.32 3.26 3.49
Allowance for loan losses as a percentage of loans, net of unearned income, at period end
1.05
1.00 1.14 1.12 1.13
Non-performing assets as a percentage of
loans and other real estate owned, at period
end
0.26
0.16 0.34 0.18 0.71
Net charge-offs as a percentage of average loans
0.02
0.11 0.06 0.44 0.11
Cumulative one year interest rate sensitivity gap ratio, at period end
1.41
1.15 1.22 1.44 1.23
 
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company including the related notes thereto, included elsewhere herein.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
2019 SUMMARY OVERVIEW:
On January 21, 2020, AmeriServ issued a press release detailing our financial results for the fourth quarter and the full year of 2019. Results included net income of  $669,000, or $0.04 per share, as compared with the fourth quarter of 2018, when net income was $1,928,000, or $0.11 per share. The full year of 2019 resulted in net income of  $6,028,000, or $0.35 per share, as compared with net income of  $7,768,000, or $0.43 per share, for 2018. This decline is explained primarily by two specific events during the fourth quarter of 2019.
First, financial institutions such as AmeriServ are required to invest in positive economic progress within the markets where the institution conducts business. This Community Reinvestment Act (CRA) was passed into law by Congress in the latter half of the last century. Fortunately, there are occasions when such programs result in economic growth in areas where growth is needed. However, there are also occasions when the programs fail. AmeriServ previously provided $500,000 for such a program, but, in late 2019, AmeriServ was notified by a specific Federal agency that the managing company of this particular fund was placed into receivership. Consequently, a $500,000 impairment charge was recognized on this CRA investment in the fourth quarter of 2019, and there will be no further developments or losses. It should be noted that the Company only has one other similar CRA related investment that totals $100,000 that has been performing as expected.
Secondly, shortly after Christmas in 2019, we were informed of the unexpected death of one of our large commercial borrowers. The $6.5 million loan had been on the books since the spring of 2018 and was performing as agreed. AmeriServ’s legal counsel has already begun to work with the attorneys for the estate. In such situations, while AmeriServ regrets the passing of this individual, necessary actions are being taken to protect the interests of AmeriServ. As a result, an additional reserve of  $675,000 was allocated against this loan while the legal discussions take place. Since the date of the borrower’s passing was December 26, 2019, it was necessary for this reserve to be established in the fourth quarter of 2019.
On a brighter note, the quarter and the year contained several positive results:
1)
In spite of the disarray in the national economy from time to time, 2019 was a very strong year for loan closings. Both November and December were quite active, and this trend may continue in 2020.
2)
The 2019 deposit performance has been strong. Consumer and commercial customers were very active which resulted in solid growth that permitted AmeriServ to report the highest average level of deposits in the history of the company.
3)
In 2018, fees in our wealth management activities set a record. We are excited to report that, in 2019, wealth management reported an even higher total of fees. This is a new record for the second consecutive year. Additionally, our sizable wealth management company is well positioned for further revenue growth in 2020 with the equity markets reaching record highs to close out 2019.
4)
Additionally, during 2019, the tangible book value(1) of AmeriServ shares passed $5.00. This was an increase of  $0.20 per share, or 4.1%, over December 2018 and reflects the benefits of active capital management. As of December 31, 2019, our book value per share was $5.78.
This progress indicates that our business model is healthy. AmeriServ continues to lend approximately 90% of our deposits to small and medium size businesses and consumers in our region. We want this economic
(1)
See reconciliation of non-GAAP tangible book value later in this MD&A.
 
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expansion to continue. Our energies are focused on helping to keep our region economically strong while providing a competitive return to our shareholders. Specifically, in 2019, as a result of the increased cash dividend and the repurchase of 602,349 shares of AmeriServ common stock, we were able to return approximately 70% of our 2019 earnings to our shareholders while still maintaining a strong balance sheet which is conservatively constructed and maintained.
PERFORMANCE OVERVIEW.   The following table summarizes some of the Company’s key profitability performance indicators for each of the past three years.
YEAR ENDED DECEMBER 31,
2019
2018
2017
(IN THOUSANDS, EXCEPT
PER SHARE DATA AND RATIOS)
Net income
$
6,028
$ 7,768 $ 3,293
Diluted earnings per share
0.35
0.43 0.18
Return on average assets
0.51%
0.67% 0.28%
Return on average equity
6.02
8.08 3.42
The Company reported net income of  $6,028,000, or $0.35 per diluted common share in 2019. This represents an 18.6% decrease in earnings per share from the full year of 2018 when net income totaled $7,768,000, or $0.43 per diluted common share. The Company’s return on average equity declined to 6.02% for the 2019 year from 8.08% in 2018. Finally, the Company increased tangible book value per share by 4.1% during 2019 and returned almost 70% of net income to its shareholders through accretive common stock buybacks and an increased cash dividend.
The Company reported net income of  $7.8 million, or $0.43 per diluted common share, for 2018. This represented an 139% increase in earnings per share from 2017 where net income totaled $3.3 million, or $0.18 per diluted common share. The strong growth in earnings resulted from a favorable combination of lower income tax expense, outstanding asset quality, and well controlled non-interest expense.
The Company reported net income of  $3.3 million, or $0.18 per diluted common share, for 2017. This represented a 50% increase in earnings per share from 2016 where net income totaled $2.3 million, or $0.12 per diluted share. In the fourth quarter of 2017, the enactment into law of  “H.R.1.”, known as the “Tax Cuts and Jobs Act”, necessitated the revaluation of the Company’s deferred tax asset because of the new lower corporate tax rate. This revaluation required that the Company recognize additional income tax expense of $2.6 million. The additional income tax expense negatively impacted diluted earnings per share by $0.14 for both the fourth quarter and full year of 2017.
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:
YEAR ENDED DECEMBER 31,
2019
2018
2017
(IN THOUSANDS, EXCEPT RATIOS)
Interest income
$
49,767
$ 47,094 $ 44,356
Interest expense
14,325
11,600 8,795
Net interest income
35,442
35,494 35,561
Net interest margin
3.29%
3.31% 3.32%
2019 NET INTEREST PERFORMANCE OVERVIEW.   The Company’s net interest income for the full year of 2019 decreased by $52,000, or 0.1%, when compared to the full year of 2018. The Company’s net interest margin was 3.29% for the full year of 2019 representing a two basis point decline from the full year
 
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of 2018. Our net interest margin performance was challenged throughout 2019 as the U.S. Treasury Yield Curve shifted downward, flattened and became inverted in certain segments, at various times during the year. The lower interest rate environment along with a lower full year average total loan portfolio balance resulted in the modest year over year unfavorable comparison for net interest income. Positively impacting net interest income during 2019 was a favorable shift experienced in the mix of total average interest bearing liabilities as the amount of total interest bearing deposits increased and resulted in less reliance on higher cost borrowings to fund interest earning assets. Total average earning assets increased by $6.7 million, or 0.6% in 2019. Specifically, total investment securities averaged $194 million in 2019 which is $9.5 million, or 5.1%, higher than the 2018 full year average. Total loans averaged $875 million in 2019 which is $6.6 million, or 0.7%, lower than the 2018 full year average.
Total average interest bearing liabilities increased by $31.5 million, or 3.6%, as a lower level of total average FHLB borrowings was more than offset by a higher level of interest bearing deposits. Total interest bearing deposits averaged $828 million in 2019 and increased when compared to the 2018 average by $42.7 million, or 5.4%. The 2019 full year average of FHLB borrowed funds was $63.4 million, which represented a decrease of  $14.7 million, or 18.8%. Total deposits, including non-interest bearing demand deposits, averaged $980 million for the full year of 2019, which was $19.9 million, or 2.1%, higher than the $960 million average for the full year of 2018. Overall, the Company’s loan to deposit ratio averaged 89.1% in the fourth quarter of 2019 which we believe indicates that the Company has ample capacity to grow its loan portfolio.
COMPONENT CHANGES IN NET INTEREST INCOME: 2019 VERSUS 2018.   Regarding the separate components of net interest income, the Company’s total interest income in 2019 increased by $2.7 million, or 5.7%, when compared to 2018. Total average earning assets increased by $6.7 million, or 0.6%, in 2019 as a lower level of total average loans were more than offset by an increased level of total investment securities. Also contributing to the higher level of interest income was the earning asset yield increasing by 22 basis points from 4.39% to 4.61%. All categories within the earning asset base demonstrated an interest income increase between years. The average total loan portfolio yield increased by 25 basis points from 4.66% to 4.91% in 2019 while the yield on total investment securities increased by 19 basis points from 3.17% to 3.36%. Total investment securities averaged $194 million for the full year of 2019 which is $9.5 million, or 5.1%, higher than the $185 million average in 2018. The growth in the investment securities portfolio occurred primarily as the year progressed during 2018 and is the result of management taking advantage of the rising interest rate environment experienced during 2018 which provided an attractive market for additional security purchases. Purchases primarily focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Also, management continued its portfolio diversification strategy through purchases of high quality corporate and taxable municipal securities. Investment security purchase activity slowed significantly during 2019 as the interest rate market was less favorable. Total loans averaged $875 million for the full year of 2019 which is $6.6 million, or 0.7%, lower than the 2018 full year average. Overall, total loan originations in 2019 exceeded the prior year’s level by $50.4 million and also exceeded another strong level of loan payoffs during the year. However, because of the high level of loan payoffs received late in 2018, the full year average comparison between years is unfavorable. Loan pipelines remained strong throughout 2019. Loan interest income increased by $1.9 million, or 4.6%, between the full year of 2019 and the full year of 2018. The higher loan interest income primarily reflects the Federal Reserve increasing the federal funds interest rate in 2018. This resulted in new loans originating at higher yields throughout 2018 and during the first half of 2019 and also caused the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices moved up with the federal funds rate increases in 2018. Certain floating rate loans, however, did reprice down in the second half of 2019 as the Federal Reserve reduced the federal funds rate by a total of 75 basis points in the second half of 2019. Also, included in the favorable year over year loan interest income increase was a higher level of loan fee income by $325,000, due primarily to prepayment fees collected on certain early loan payoffs.
Total interest expense for the twelve months of 2019 increased by $2.7 million, or 23.5%, when compared to 2018, due to higher levels of deposit interest expense which more than offset a slight decrease in borrowings interest expense. Deposit interest expense in 2019 was higher by $2.7 million, or 32.5%, for the full the year which reflects the higher level of total average interest bearing deposits and certain indexed money market accounts repricing upward due to the impact of the Federal Reserve increasing interest rates during 2018. The full year average cost of total interest bearing deposits increased between years by 28 basis points from
 
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1.07% in 2018 to 1.35% in 2019. Even though total average interest bearing deposit cost increased for the full year of 2019, the Company did experience deposit pricing relief during the third and fourth quarters of 2019 because of the Federal Reserve easing interest rates late in July, September and October of 2019. Specifically, the Company’s cost of interest bearing deposits declined by 10 basis points between the third and fourth quarters of 2019. However, the Company continues to experience competitive market pressure to retain existing deposit customers and attract new customer deposits. Customer product preference changed as well in 2019 resulting in movement of funds from non-interest bearing demand deposit accounts and lower yielding money market accounts into higher yielding certificates of deposits. Overall, total deposits grew during the year and averaged $980 million for the full year of 2019, which was $19.9 million, or 2.1%, higher than the 2018 full year average.
The Company experienced a $21,000, or 0.7%, decrease in the interest cost of borrowings for the full year of 2019. The decline is a result of the lower total average borrowings balance between years combined with the impact from the Federal Reserve’s action to decrease interest rates three times in 2019 and the immediate impact that these rate decreases had on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total full year average term advance borrowings balance increased by approximately $7.3 million, or 16.3%, when compared to the full year 2018. This increase is due to the inversion demonstrated by the U.S. Treasury Yield Curve in 2019 and resulted in certain term advances costing less than overnight borrowed funds. Overall, the 2019 full year average of FHLB borrowed funds was $63.4 million, which represented a decrease of  $14.7 million, or 18.8%, due to the increase in total average deposits.
2018 NET INTEREST PERFORMANCE OVERVIEW.   The Company’s net interest income for the full year of 2018 decreased by $67,000, or 0.2%, when compared to the full year of 2017. The net interest margin remained relatively stable in 2018 for a second consecutive year, even though rising interest rates and competitive pricing pressure to retain and attract new deposits resulted in the net interest margin decreasing during the fourth quarter of 2018. The Company’s net interest margin was 3.31% for the full year of 2018 representing a one basis point decline from the full year of 2017. The 2018 decrease in net interest income is a result of a reduced level of total average earning assets as lower total loans more than offset an increased level of total investment securities. Total average earning assets decreased modestly by $1.4 million, or 0.1% in 2018. Specifically, total investment securities averaged $185 million in 2018 which is $11.9 million, or 6.9%, higher than the 2017 full year average. Total loans averaged $882 million in 2018 which is $12.1 million, or 1.4%, lower than the 2017 full year average. This combined with the upward repricing of interest bearing liabilities, as well as a higher level of average interest bearing liabilities, resulted in net interest income decreasing between years.
Total average interest bearing liabilities increased by $7.0 million, or 0.8%, as a lower level of interest bearing deposits was more than offset by a higher level of total average borrowings. Total interest bearing deposits averaged $786 million in 2018 and decreased when compared to 2017 average by $8.5 million, or 1.1%. This decrease to average interest bearing deposits was more than offset by total average FHLB borrowings of  $78.1 million increasing by $15.5 million, or 24.7%, between years. Total deposits, including non-interest bearing demand deposits, averaged $960 million for the full year of 2018 which was $16.7 million, or 1.7%, lower than the $976 million average for the full year of 2017. Overall, the Company’s loan to deposit ratio averaged 90.4% in the fourth quarter of 2018.
COMPONENT CHANGES IN NET INTEREST INCOME: 2018 VERSUS 2017.   Regarding the separate components of net interest income, the Company’s total interest income in 2018 increased by $2.7 million, or 6.2%, when compared to 2017. Total average earning assets decreased modestly by $1.4 million, or 0.1% in 2018 as a lower level of total loans more than offset an increased level of total investment securities. The modest decrease in total average earning assets was more than offset by a 25 basis point increase in the earning asset yield from 4.14% to 4.39%. Within the earning asset base, deposits with banks, short term investments in money market funds, and investment securities interest revenue increased by $927,000 or 18.0% in 2018 due to the increase in the average investment securities portfolio and the yield on total investment securities increasing by 27 basis points from 2.90% to 3.17%. The growth in the investment securities portfolio is the result of management taking advantage of the higher interest rate environment in 2018 to purchase additional securities. Purchases in 2018 primarily focused on federal agency mortgage backed securities due to the ongoing liquid cash flow that these securities provide. Also, management
 
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continued its portfolio diversification strategy through purchases of high quality corporate and taxable municipal securities. Even though total average loans decreased since 2017, loan interest income increased by $1.8 million, or 4.6%, for the full year of 2018 when compared to 2017 as the yield on the total loan portfolio increased by 27 basis points from 4.39% to 4.66%. The higher loan interest income reflects new loans originating at higher yields as well as the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices have moved up with the Federal Reserve’s program to increase the target federal funds interest rate. Overall, total loan originations were consistent with the prior year’s level. However, loan payoffs exceeded what we experienced in 2017 and also exceeded loan originations in 2018, resulting in a net reduction to the loan portfolio. Included in the total level of payoffs experienced in 2018 was the successful workout of several criticized but performing loans which favorably impacted the quality of the loan portfolio.
Total interest expense for the full year of 2018 increased $2.8 million, or 31.9%, when compared to 2017, due to higher levels of both deposit and borrowing interest expense. Deposit interest expense in 2018 was higher by $2.2 million which reflects certain indexed money market accounts and term CDs repricing upward after the Federal Reserve interest rate increases. The cost of interest bearing deposits increased by 28 basis points in 2018 to 1.07% due to the impact of increasing national interest rates. The higher national interest rate environment in 2018 resulted in increasing market competitive pressure to retain existing deposit customers and attract new customer deposits. Additionally, there has been customer movement of some funds out of lower yielding money market accounts into higher yielding certificates of deposits. The runoff of money market deposits has more than offset the growth of term deposit products and resulted in a decrease in the balance of total deposits in 2018. The Company experienced a $617,000, or 24.3%, increase in the interest cost for borrowings in the full year of 2018 due to a higher average balance of total borrowed funds and the immediate impact that the increases in the federal funds rate had on the cost of overnight borrowed funds. Overall, total interest bearing funding costs increased by 31 basis points to 1.31%.
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 21% was used to compute tax-equivalent interest income and yields (non-GAAP) during 2019 and 2018, while a tax rate of 34% was used for 2017. The tax equivalent adjustments to interest income on loans and municipal securities for the years ended December 31, 2019, 2018, and 2017 was 24,000, 21,000, and 40,000, respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.
 
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YEAR ENDED DECEMBER 31,
2019
2018
2017
AVERAGE
BALANCE
INTEREST
INCOME/
EXPENSE
YIELD/
RATE
AVERAGE
BALANCE
INTEREST
INCOME/
EXPENSE
YIELD/
RATE
AVERAGE
BALANCE
INTEREST
INCOME/
EXPENSE
YIELD/
RATE
(IN THOUSANDS, EXCEPT PERCENTAGES)
Interest earning assets:
Loans, net of unearned income
$
875,198
$
42,957
4.91%
$ 881,767 $ 41,049 4.66% $ 893,849 $ 39,257 4.39%
Deposits with banks
1,018
24
2.32
1,023 20 1.90 1,028 11 1.11
Short-term investment in money market funds
10,552
293
2.77
6,725 201 3.00 7,996 130 1.63
Investment securities:
Available for sale
153,458
5,090
3.32
145,162 4,527 3.12 135,131 3,800 2.81
Held to maturity
40,553
1,427
3.52
39,388 1,318 3.35 37,484 1,198 3.20
Total investment securities
194,011
6,517
3.36
184,550 5,845 3.17 172,615 4,998 2.90
TOTAL INTEREST EARNING ASSETS/
INTEREST INCOME
1,080,779
49,791
4.61
1,074,065 47,115 4.39 1,075,488 44,396 4.14
Non-interest earning assets:
Cash and due from banks
20,239
23,067 22,393
Premises and equipment
17,928
12,480 12,273
Other assets
64,083
62,040 67,169
Allowance for loan losses
(8,404)
(9,866) (10,241)
TOTAL ASSETS
$
1,174,625
$ 1,161,786 $ 1,167,082
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand
$
170,326
$
1,595
0.94%
$ 138,572 $ 1,134 0.82% $ 129,589 $ 638 0.49%
Savings
96,783
162
0.17
98,035 163 0.17 97,405 162 0.17
Money market
234,387
2,525
1.08
249,618 2,183 0.87 275,636 1,446 0.52
Other time
326,867
6,907
2.11
299,391 4,963 1.66 291,475 4,009 1.38
Total interest bearing deposits
828,363
11,189
1.35
785,616 8,443 1.07 794,105 6,255 0.79
Federal funds purchased and other short-term borrowings
11,088
288
2.59
33,126 720 2.17 16,972 206 1.21
Advances from Federal Home Loan Bank
52,309
1,090
2.09
44,974 797 1.77 45,657 694 1.52
Guaranteed junior subordinated deferrable interest debentures
13,085
1,121
8.57
13,085 1,120 8.57 13,085 1,120 8.57
Subordinated debt
7,650
520
6.80
7,650 520 6.80 7,650 520 6.80
Lease liabilities
3,444
117
3.40
TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE
915,939
14,325
1.56
884,451 11,600 1.31 877,469 8,795 1.00
Non-interest bearing liabilities:
Demand deposits
151,292
174,108 182,301
Other liabilities
7,271
7,077 11,119
Stockholders’ equity
100,123
96,150 96,193
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,174,625
$ 1,161,786 $ 1,167,082
Interest rate spread
3.05
3.08 3.14
Net interest income/net interest margin
35,466
3.29%
35,515 3.31% 35,601 3.32%
Tax-equivalent adjustment
(24)
(21) (40)
Net interest income
$
35,442
$ 35,494 $ 35,561
 
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Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The table below sets forth an analysis of volume and rate changes in net interest income on a tax-equivalent basis. For purposes of this table, changes in interest income and interest expense are allocated to volume and rate categories based upon the respective percentage changes in average balances and average rates. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.
2019 vs. 2018
2018 vs. 2017
INCREASE (DECREASE)
DUE TO CHANGE IN:
INCREASE (DECREASE)
DUE TO CHANGE IN:
AVERAGE
VOLUME
RATE
TOTAL
AVERAGE
VOLUME
RATE
TOTAL
(IN THOUSANDS)
INTEREST EARNED ON:
Loans, net of unearned income
$
(308)
$
2,216
$
1,908
$ (505) $ 2,297 $ 1,792
Deposits with banks
4
4
(1) 10 9
Short-term investments in money market funds
106
(14)
92
(17) 88 71
Investment securities:
Available for sale
265
298
563
292 435 727
Held to maturity
40
69
109
62 58 120
Total investment securities
305
367
672
354 493 847
Total interest income
103
2,573
2,676
(169) 2,888 2,719
INTEREST PAID ON:
Interest bearing demand deposits
281
180
461
46 450 496
Savings deposits
(1)
(1)
1 1
Money market
(116)
458
342
(120) 857 737
Other time deposits
492
1,452
1,944
113 841 954
Federal funds purchased and other short-term
borrowings
(609)
177
(432)
280 234 514
Advances from Federal Home Loan Bank
139
154
293
(10) 113 103
Guaranteed junior subordinated deferrable interest debentures
1
1
Lease liabilities
117
117
Total interest expense
303
2,422
2,725
310 2,495 2,805
Change in net interest income
$
(200)
$
151
$
(49)
$ (479) $ 393 $ (86)
LOAN QUALITY.   The Company’s written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding any loan. After the loan has been approved and funded, continued periodic credit review is required. The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of  $1,000,000 within a 12-month period. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business relationships with aggregate balances of  $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and removed from the pool if factors such as significant delinquency in payments of 90 days or more, bankruptcy, or other negative economic concerns indicate impairment. The following table sets forth information concerning the Company’s loan delinquency and other non-performing assets.
 
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AT DECEMBER 31,
2019
2018
2017
(IN THOUSANDS,
EXCEPT PERCENTAGES)
Total accruing loans past due 30 to 89 days
$
2,956
$ 4,752 $ 8,178
Total non-accrual loans
1,487
1,221 3,016
Total non-performing assets including TDRs(1)
2,339
1,378 3,034
Loan delinquency as a percentage of total loans, net of unearned income
0.33%
0.55% 0.92%
Non-accrual loans as a percentage of total loans, net of unearned income
0.17
0.14 0.34
Non-performing assets as a percentage of total loans, net of unearned income, and other real estate owned
0.26
0.16 0.34
Non-performing assets as a percentage of total assets
0.20
0.12 0.26
Total classified loans (loans rated substandard or doubtful)(2)
$
16,338
$ 4,302 $ 5,433
(1)
Non-performing assets are comprised of  (i) loans that are on a non-accrual basis, (ii) loans that are contractually past due 90 days or more as to interest and principal payments, (iii) performing loans classified as troubled debt restructuring and (iv) other real estate owned.
(2)
Total includes residential real estate and consumer loans that are considered non-performing.
The Company continues to maintain good asset quality. Non-performing assets increased by $961,000 since the prior year-end and now total $2.3 million. The continued successful ongoing problem credit resolution efforts of the Company is demonstrated in the table above as levels of non-accrual loans, non-performing assets, and loan delinquency are below 1% of total loans. The Company did experience an increase in classified loans in the second half of 2019 due to the downgrade of several commercial loans, the largest of which was a $6.5 million C&I loan due to the unexpected death of the borrower in late 2019 (see further discussion on this loan later in the MD&A). We continue to closely monitor the loan portfolio given the number of relatively large-sized commercial and CRE loans within the portfolio. As of December 31, 2019, the 25 largest credits represented 24.3% of total loans outstanding.
ALLOWANCE AND PROVISION FOR LOAN LOSSES.   As described in more detail in the Critical Accounting Policies and Estimates section of this MD&A, 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 following table sets forth changes in the ALL and certain ratios for the periods ended.
 
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YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
Balance at beginning of year
$
8,671
$ 10,214 $ 9,932 $ 9,921 $ 9,623
Charge-offs:
Commercial
(9)
(574) (311) (3,662) (404)
Commercial loans secured by non-owner occupied real estate
(63)
(132) (82) (365)
Real estate – residential mortgage
(98)
(380) (313) (208) (403)
Consumer
(262)
(251) (172) (344) (188)
Total charge-offs
(432)
(1,205) (928) (4,296) (1,360)
Recoveries:
Commercial
22
31 27 169 174
Commercial loans secured by non-owner occupied real estate
48
51 56 58 76
Real estate – residential mortgage
118
119 207 100 132
Consumer
52
61 120 30 26
Total recoveries
240
262 410 357 408
Net charge-offs
(192)
(943) (518) (3,939) (952)
Provision (credit) for loan losses
800
(600) 800 3,950 1,250
Balance at end of year
$
9,279
$ 8,671 $ 10,214 $ 9,932 $ 9,921
Loans and loans held for sale, net of unearned income:
Average for the year
$
875,198
$ 881,767 $ 893,849 $ 887,679 $ 857,015
At December 31
887,574
863,129 892,758 886,858 883,987
As a percent of average loans:
Net charge-offs
0.02%
0.11% 0.06% 0.44% 0.11%
Provision (credit) for loan losses
0.09
(0.07) 0.09 0.44 0.15
Allowance as a percent of each of the following:
Total loans, net of unearned income
1.05
1.00 1.14 1.12 1.13
Total accruing delinquent loans (past due 30 to 89 days)
313.90
182.47 124.90 302.99 225.68
Total non-accrual loans
624.01
710.16 338.66 619.59 163.55
Total non-performing assets
396.71
629.25 336.65 611.58 157.55
Allowance as a multiple of net charge-offs
48.33x
9.20x 19.72x 2.52x 10.42x
For 2019, the Company recorded an $800,000 provision expense for loan losses compared to a $600,000 provision recovery in 2018 which resulted in a net unfavorable shift of  $1.4 million between years. The rating downgrade of a $6.5 million performing commercial loan to substandard as a result of the unexpected death of a borrower caused a $675,000 increase in fourth quarter 2019 provision expense. This rating action was prudent due to the inherent uncertainties associated with a large estate liquidation. Recent updates related to this loan indicate that the estate is presently illiquid due to holds placed on deposit accounts and significant real estate holdings and other unique assets that will need to be unwound. As such there is heightened risk that this loan may move into non-performing status in 2020 as a result of payment delays. The Company experienced net loan charge-offs of only $192,000, or 0.02% of total loans, in 2019 compared to net loan charge-offs of  $943,000, or 0.11% of total loans, in 2018. Overall, nonperforming assets totaled $2.3 million, or only 0.26% of total loans, at December 31, 2019. In summary, the allowance
 
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for loan losses provided 397% coverage of non-performing assets, and 1.05% of total loans, at December 31, 2019, compared to 629% coverage of non-performing assets, and 1.00% of total loans, at December 31, 2018.
For 2018, the Company recorded a $600,000 provision recovery compared to an $800,000 provision for loan losses in 2017, or a decrease of  $1.4 million between years. The 2018 provision recovery reflects our overall strong asset quality, reduced loan portfolio balance and the successful workout of several criticized loans which resulted in the release of reserves after two criticized loans that had balances totaling in excess of $11 million fully paid off during the third and fourth quarters of 2018. The Company experienced net loan charge-offs of  $943,000, or 0.11% of total loans in 2018 compared to net loan charge-offs of  $518,000, or 0.06%, of total loans in 2017. Overall, the Company continued to maintain outstanding asset quality as its nonperforming assets totaled $1.4 million, or only 0.16% of total loans, at December 31, 2018.
The following schedule sets forth the allocation of the ALL among various loan categories. This allocation is determined by using the consistent quarterly procedural discipline that was previously discussed. The entire ALL is available to absorb future loan losses in any loan category.
AT DECEMBER 31,
2019
2018
2017
2016
2015
AMOUNT
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
AMOUNT
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
AMOUNT
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
AMOUNT
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
AMOUNT
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
(IN THOUSANDS, EXCEPT PERCENTAGES)
Commercial
$
3,951
30.1%
$ 3,057 29.0% $ 4,298 28.0% $ 4,041 29.8% $ 4,243 31.6%
Commercial loans
secured by non-owner
occupied real estate
3,119
41.2
3,389 41.4 3,666 42.0 3,584 40.2 3,449 36.9
Real estate – residential
mortgage
1,159
26.6
1,235 27.6 1,102 27.8 1,169 27.8 1,174 29.2
Consumer
126
2.1
127 2.0 128 2.2 151 2.2 151 2.3
Allocation to general risk
924
863 1,020 987 904
Total
$
9,279
100.0%
$ 8,671 100.0% $ 10,214 100.0% $ 9,932 100.0% $ 9,921 100.0%
Even though residential real estate-mortgage loans comprise 26.6% of the Company’s total loan portfolio, only $1.2 million or 12.5% of the total ALL is allocated against this loan category. The residential real estate-mortgage loan allocation is based upon the Company’s three-year historical average of actual loan charge-offs experienced in that category and other qualitative factors. The disproportionately higher allocations for commercial loans and commercial loans secured by non-owner occupied real estate reflect the increased credit risk associated with those types of lending, the Company’s historical loss experience in these categories, and other qualitative factors. The stability in the part of the allowance allocated to each loan category reflects the continued good asset quality of each sector.
Based on the Company’s current ALL methodology and the related assessment of the inherent risk factors contained within the Company’s loan portfolio, we believe that the ALL is adequate at December 31, 2019 to cover losses within the Company’s loan portfolio.
NON-INTEREST INCOME.   Non-interest income for 2019 totaled $14.8 million, an increase of $549,000, or 3.9%, from 2018. Factors contributing to this higher level of non-interest income in 2019 included:

the Company recognized a $500,000 impairment charge on other investments related to a Community Reinvestment Act (CRA) investment. The Small Business Administration (SBA) recently gave formal notice that the managing company of this particular fund was placed into receivership which caused us to write off the full investment and no further action or loss will occur. It should be noted that the Company only has one other similar CRA related investment that totals $100,000 that has been performing as expected;
 
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Net realized gains on loans held for sale increased by $376,000, or 76.9% between years due to increased residential mortgage loan sales in the secondary market as the lower interest rate environment in the second half of 2019 resulted in a greater level of residential mortgage loan production. In addition to increased residential mortgage originations, the full year favorable comparison in 2019 was also due to the sale of the guaranteed portion of a SBA loan that resulted in a $197,000 gain;

The Company recognized a net investment security sale gain of  $118,000 in 2019 compared to a $439,000 net loss in 2018 as the opportunity existed to capture gains on certain securities that demonstrated higher than typical market appreciation in this low interest rate environment. The 2018 net loss resulted from the Company repositioning a portion of the investment portfolio for stronger future returns;

a $149,000, or 10.5%, decrease in revenue from deposit service charges was due primarily to a reduced level of overdraft fee income;

a $106,000, or 54.1%, increase in mortgage related fees was due to the higher level of residential mortgage loan production;

a $103,000, or 4.4%, increase in other income was due to higher letter of credit fees and increased revenue from check supply sales as a result of a favorable vendor contract renegotiation; and

a $71,000, or 0.7%, increase in wealth management fees was primarily due to the Company benefitting from a continuing increase in market values for assets under management as well as management’s effective execution of managing client accounts. Wealth management continues to be an important strategic focus.
Non-interest income for 2018 totaled $14.2 million, a decrease of  $421,000, or 2.9%, from 2017. Factors contributing to this lower level of non-interest income in 2018 included:

a $554,000 negative change in the net realized gain/loss on investment securities primarily results from two security sell transactions. Early in 2018, management viewed the gain recognized on the sale of equity securities, described in the third bulleted item, as an opportunity to rid the investment securities portfolio of certain investments having a low yield and a small balance. Similarly, because of the negative loan loss provision recognized during the fourth quarter of 2018, management viewed this as another opportunity to, again, sell certain low yielding securities. The funds from both sells were reinvested in securities with higher current market coupon rates. Both security sell transactions were negatively impacted by the market value of sold securities decreasing since 2017 due to the higher interest rate environment in 2018. However, because of the reinvestment of the sold funds into higher yielding instruments, the result of both transactions positions the Company for an increased future return from the investment securities portfolio;

a $489,000 increase in wealth management fees was primarily due to the Company benefitting from increased market values for assets under management in 2018 as well as management’s effective execution of managing client accounts;

a $285,000 increase in other income primarily was due to a $156,000 gain realized on the sale of certain equity method investments that the Company owned from a previous acquisition. The Company also benefitted from higher interchange fees, increased revenue from business services, and higher letter of credit fees;

a combined $279,000 decrease in net gains on loans sold into the secondary market and mortgage related fees was due to lower production and reduced refinance activity of residential mortgage loans;

a $201,000 decrease in revenue from bank owned life insurance (BOLI) occurred after the Company received a death claim in 2017 and there was no such claim in 2018; and

a $161,000 decrease in revenue from deposit service charges was due to a reduced level of overdraft fee income.
 
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NON-INTEREST EXPENSE.   Non-interest expense for 2019 totaled $41.8 million, which represents a $942,000, or 2.3%, increase from 2018. Factors contributing to the higher non-interest expense in 2019 included:

a $1.1 million, or 4.4%, increase in salaries & benefits expense was due to annual merit increases, the addition of several employees to address management succession planning as well as our expansion into the Hagerstown, Maryland market. Increased pension and health care costs also contributed to the higher employee costs between years;

a $457,000, or 82.0%, reduction in FDIC insurance expense. As part of the application of the Small Bank Assessment Credit regulation, the FDIC awarded community banks under $10 billion in assets an assessment credit because the banking industry reserve ratio exceeded its 1.38% target. The Company currently expects to receive one additional assessment credit of less than $100,000 in the first quarter of 2020.;

a $397,000, or 7.6%, increase in other expense was due to additional expense for the unfunded commitment reserve as a result of increased loan approvals in 2019, as well as, an increased investment in technology as evidenced by higher website costs and additional telecommunications expense; and

a $154,000, or 3.1%, decrease in professional fees was due to lower legal fees and other professional fees.
Non-interest expense for 2018 totaled $40.9 million, which represents a $170,000, or 0.4%, increase from 2017. Factors contributing to the higher non-interest expense in 2018 included:

a $438,000, or 1.8%, increase in salaries & benefits expense due to higher salaries and incentive compensation as a result of the typical annual salary merit increases and additional incentives paid primarily within our Wealth Management division due to the increased level of fee income mentioned previously. Also in the fourth quarter of 2018, four additional employees were hired for our new Hagerstown, Maryland financial banking center; and

a combined $259,000 reduction in occupancy & equipment costs is primarily attributable to the Company’s ongoing efforts to carefully manage and contain non-interest expense. Specifically, a branch office closure in Cambria County along with a branch consolidation in the State College market resulted in reduced rent expense and other occupancy related costs.
INCOME TAX EXPENSE.   The Company recorded an income tax expense of  $1.6 million, or an effective tax rate of 20.7%, in 2019, compared to income tax expense of  $1.7 million, or a 17.8% effective tax rate, in 2018, and compared to income tax expense of  $5.4 million, or a 62.1% effective tax rate, in 2017. The lower effective tax rate in 2019 and 2018 reflected the benefits of corporate tax reform as a result of the enactment of the “Tax Cuts and Jobs Act” late in the fourth quarter of 2017, which lowered the corporate income tax rate from 34% to 21%. Also, because of the enactment of this new tax law, the Company was able to achieve a greater income tax benefit in the third quarter of 2018 by making a one-time additional contribution to the defined benefit pension plan. The tax benefit of this additional pension contribution favorably reduced income tax expense by $264,000 in the third quarter of 2018. Finally, the higher income tax expense in 2017 resulted from an additional income tax charge of  $2.6 million recorded in the fourth quarter of 2017 as corporate income tax reform necessitated the revaluation of the Company’s deferred tax asset because of the new lower corporate tax rate. The Company’s deferred tax asset was $4.0 million at December 31, 2019.
SEGMENT RESULTS.   The community banking segment reported a net income contribution of $10.9 million in 2019 which decreased from the $11.1 million contribution in 2018 and increased from the $8.6 million contribution in 2017. The primary driver for the lower level of net income in 2019 was the Company recording an $800,000 provision expense for loan losses compared to a $600,000 provision recovery in 2018 which resulted in a net unfavorable shift of  $1.4 million between years. This is discussed previously in the “Allowance and Provision for Loan Losses” section within this document. Also, unfavorably impacting net income was total employee costs increasing, a higher level of funding for the unfunded commitment reserve due to increased loan approvals within the commercial lending division and the lower level of deposit service charge income within the retail banking division. Nearly offsetting these unfavorable items was
 
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total loan interest income increasing between years which primarily reflects the Federal Reserve increasing the federal funds interest rate in 2018. This resulted in new commercial loans originating at higher yields throughout 2018 and during the first half of 2019 and also caused the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices moved up with the federal funds rate increases in 2018. Also, included in the favorable year over year loan interest income comparison was a higher level of commercial loan fee income by $325,000, due primarily to prepayment fees collected on certain early loan payoffs. Within the retail banking division, net interest income increased between years as the funding benefit for deposits improved due to the growth of total deposits. This funding benefit more than offset the impact of the immediate upward repricing of money market deposit accounts because of the increases to the federal funds rate during 2018 and the corresponding incremental increase to other term deposit products. Note that the retail banking division did experience deposit cost relief during the second half of 2019 because of the Federal Reserve’s action to decrease the fed funds rate in July, September and October. Retail banking was also positively impacted by the lower level of FDIC insurance expense due to the application of the assessment credit during 2019. Finally, there was a higher level of net gains on loan sales into the secondary market as well as a higher level of mortgage related fee income due to increased residential mortgage loan production.
The wealth management segment’s net income contribution was $1.9 million in 2019 compared to $1.8 million in 2018 and $1.4 million in 2017. The increase is due to wealth management fees increasing as this segment has benefitted from increased market values for assets under management which occurred as the year progressed as well as management’s effective execution of managing client accounts. Also, positively impacting the wealth management segment’s net income was a lower level of incentive compensation and decreased professional fees due to lower legal fees and costs for other professional services. Slightly offsetting these items was higher employee costs due to higher salaries because of annual merit increases and a greater level of pension cost. Also, there was a decrease in the volume of life insurance sales within the financial services division. Overall, the fair market value of trust assets under administration totaled $2.238 billion at December 31, 2019, an increase of  $132 million, or 6.3%, from the December 31, 2018 total of  $2.106 billion.
The investment/parent segment reported a net loss of  $6.8 million in 2019, which was greater than the net loss of  $5.1 million in 2018 and $6.7 million in 2017. The increased loss between years is reflective of the previously discussed $500,000 impairment charge on other investments related to a CRA investment. Also, the increased loss was the result of overnight borrowed funds having a higher cost due to the increase in national interest rates during 2018 and the immediate impact that the rising interest rates had on overnight borrowed funds. Additionally, the replacement of maturing FHLB term advances repriced upward during the first nine months of 2019. Slightly offsetting these unfavorable items was the Company recognizing a net investment security sale gain of  $118,000 in 2019 compared to a $439,000 net loss in 2018 as the opportunity existed to capture gains on certain securities that demonstrated higher than typical market appreciation in this low interest rate environment. The 2018 net loss resulted from the Company repositioning a portion of the investment portfolio for stronger future returns.
For greater discussion on the future strategic direction of the Company’s key business segments, see “Management’s Discussion and Analysis — Forward Looking Statements.” For a more detailed analysis of the segment results, see Note 24.
BALANCE SHEET.   The Company’s total consolidated assets of  $1.171 billion at December 31, 2019 increased by $10.5 million, or 0.9% from the $1.161 billion level at December 31, 2018. The increase to total consolidated assets was due primarily to a $24.4 million, or 2.8%, increase in total loans which more than offset total investment securities decreasing by $5.8 million, or 3.1% and cash balances declining by $12 million. Overall, total loan originations in 2019 exceeded the prior year’s level by $50 million and also exceeded another strong level of loan payoffs in 2019. Loan pipelines remained strong throughout 2019. The Company experienced growth in the investment securities portfolio during 2018 as a result of management taking advantage of the rising interest rate environment during 2018 which provided an attractive market for additional security purchases. Investment security purchase activity slowed significantly during 2019 as the interest rate market was less favorable resulting in a decrease of total investment securities between years. Also, as a result of the adoption of ASU 2016-02, Leases (Topic 842), the Company reported $3.9 million of right of use assets within the fixed assets line of the Consolidated Balance Sheets at December 31, 2019.
 
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The Company’s deposits at period end increased by $11.3 million and was offset by a decrease in FHLB borrowings of  $11.7 million. The decrease in FHLB borrowings was the result of an $18.6 million, or 45.4%, decline in overnight borrowed funds. The substantial decrease in short term borrowings was partially offset by an increase in FHLB term advances. Specifically, total FHLB term advances increased by $6.9 million, or 14.9%, and totaled $53.7 million. The Company has utilized these term advances to help manage interest rate risk and the inversion demonstrated by the U.S. Treasury Yield Curve at certain times in 2019 resulted in certain term advances costing less than overnight borrowed funds. In addition, the Company reported $4.0 million of lease liabilities as a result of the adoption of ASU 2016-02, Leases (Topic 842). Other liabilities increased by $6.1 million primarily due to an increase in the Company’s pension liability.
Total stockholders’ equity increased by $637,000, or 0.7%, since year-end 2018. Capital decreased during 2019 by the Company’s common stock repurchase program and the annual revaluation of the Company’s pension obligation which negatively impacted other comprehensive income by $5.1 million due to an approximate 1% decline in the discount rate between years. Offsetting these decreases, was the Company’s $6.0 million of net income and the positive $3.1 million impact capital experienced due to the improved market value of the available for sale investment securities portfolio. The Company returned approximately 70% of our 2019 earnings to our shareholders through the accretive common stock repurchases and an increased quarterly common stock cash dividend. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 13.49% and an asset leverage ratio of 9.87% at December 31, 2019. The Company’s book value per common share was $5.78, its tangible book value per common share (non-GAAP) was $5.08 and its tangible common equity to tangible assets ratio (non-GAAP) was 7.48% at December 31, 2019.
The tangible common equity ratio and tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The following table sets forth the calculation of the Company’s tangible common equity ratio and tangible book value per share at December 31, 2019, 2018, and 2017 (in thousands, except share and ratio data):
AT DECEMBER 31,
2019
2018
2017
Total shareholders’ equity
$
98,614
$ 97,977 $ 95,102
Less: Goodwill
11,944
11,944 11,944
Tangible equity
86,670
86,033 83,158
Total assets
1,171,184
1,160,680 1,167,655
Less: Goodwill
11,944
11,944 11,944
Tangible assets
1,159,240
1,148,736 1,155,711
Tangible common equity ratio (non-GAAP)
7.48%
7.49% 7.20%
Total shares outstanding
17,057,871
17,619,303 18,128,247
Tangible book value per share (non-GAAP)
$
5.08
$ 4.88 $ 4.59
LIQUIDITY.   The Company’s liquidity position continues to be strong. Our core retail deposit base has remained relatively stable over the past several years and demonstrated growth during 2019. The core deposit base is adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities is used to help fund loan growth. We strive to operate our loan to deposit ratio in a range of 85% to 100%. At December 31, 2019, the Company’s loan to deposit ratio was 92.4%. Given current commercial loan pipelines and the continued development of our existing loan production offices, we are optimistic that we can grow our loan to deposit ratio and remain within our guideline parameters.
Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents decreased by $12.7 million from December 31, 2018, to $22.2 million at December 31, 2019, due to $4.9 million of cash provided by operating activities being more than offset by $13.0 million of cash used in investing activities and $4.6 million of cash used in financing activities. Within investing activities,
 
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cash advanced for new loan fundings and participations purchased totaled $205.6 million and was $20.5 million higher than the $185.1 million of cash received from loan principal payments and participations sold. Within financing activities, deposits increased by $11.3 million while total FHLB borrowings declined as short term borrowings decreased by $18.6 million and advances, both short-term and long term, increased by $6.9 million.
The holding company had a total of  $6.4 million of cash, short-term investments, and investment securities at December 31, 2019. Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the holding company. At December 31, 2019, our subsidiary Bank had $10.2 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. As such, the holding company has good liquidity to meet its trust preferred debt service requirements, its subordinated debt interest payments, and its common stock dividends, which in total should approximate $3.2 million over the next twelve months.
Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investment securities, time deposits with banks, federal funds sold, and short-term investments in money market funds. These assets totaled $22.2 million and $34.9 million at December 31, 2019 and 2018, respectively. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.
Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the FHLB systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bank is a member of the FHLB, which provides the opportunity to obtain short- to longer-term advances based upon the Company’s investment in certain residential mortgage, commercial real estate, and commercial and industrial loans. At December 31, 2019, the Company had $358 million of overnight borrowing availability at the FHLB, $30 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.
CAPITAL RESOURCES.   The Company meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was 10.47%, the tier 1 capital ratio was 11.68%, and the total capital ratio was 13.49% at December 31, 2019. The Company’s tier 1 leverage ratio was 9.87% at December 31, 2019. We anticipate that we will maintain our strong capital ratios throughout 2020.
Capital generated from earnings will be utilized to pay the common stock cash dividend, fund the stock repurchase program and will also support controlled balance sheet growth. Our common dividend payout ratio for the full year 2019 was 27.1%. Total Parent Company cash was $6.4 million at December 31, 2019. There is a particular emphasis on ensuring that the subsidiary bank has appropriate levels of capital to support its non-owner occupied commercial real estate loan concentration, which stood at 334% of regulatory capital at December 31, 2019.
The Basel III capital standards establish the minimum capital levels in addition to the well capitalized requirements under the federal banking regulations prompt corrective action. The capital rules also impose a capital conservation buffer (“CCB”) on top of the three minimum risk-weighted asset ratios. As of January 1, 2019, the CCB was 2.5%. Banking institutions that fail to meet the effective minimum ratios once the CCB is taken into account will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (four quarter trailing net income, net of distributions and tax effects not reflected in net income). The Company and the Bank meet all capital requirements, including the CCB, and continue to be committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a return to our shareholders.
 
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Under the Basel III capital standards, the minimum capital ratios are:
MINIMUM
CAPITAL RATIO
MINIMUM CAPITAL RATIO
PLUS CAPITAL
CONSERVATION BUFFER
Common equity tier 1 capital to risk-weighted assets
4.5% 7.0%
Tier 1 capital to risk-weighted assets
6.0 8.5
Total capital to risk-weighted assets
8.0 10.5
Tier 1 capital to total average consolidated assets
4.0
In the first quarter of 2019, the Company completed the previous common stock repurchase program where it bought back 540,000 shares, or 3% of its common stock, over a 9-month period at a total cost of $2.38 million. Specifically, during the first three months of 2019, the Company was able to repurchase 112,311 shares of its common stock and return $476,000 of capital to its shareholders through this program.
On April 16, 2019, the Company announced that its Board of Directors approved a new common stock repurchase program which calls for AmeriServ Financial, Inc. to buy back up to 3%, or approximately 526,000 shares, of its outstanding common stock during the next 12 months. The authorized repurchases will be made from time to time in either the open market or through privately negotiated transactions. The timing, volume and nature of share repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time. No assurance can be given that any particular amount of common stock will be repurchased. This buyback program may be modified, extended or terminated by the Board of Directors at any time. The Company was able to repurchase 490,038 shares of its common stock and return $2.1 million of capital to its shareholders through this program. Overall in 2019, this latest common stock buyback program, combined with the first quarter completion of the previously authorized common stock buyback program, resulted in the Company returning $2.6 million to its shareholders through the repurchase of 602,349 shares of its common stock. When including the increased cash dividend payments on our common stock, total capital returned to our shareholders was approximately 70% of net income for 2019. At December 31, 2019, the Company had approximately 17.1 million common shares outstanding.
INTEREST RATE SENSITIVITY.   Asset/liability management involves managing the risks associated with changing interest rates and the resulting impact on the Company’s net interest income, net income and capital. The management and measurement of interest rate risk at the Company is performed by using the following tools: 1) simulation modeling, which analyzes the impact of interest rate changes on net interest income, net income and capital levels over specific future time periods. The simulation modeling forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments and changes in the volumes and rates of various loan and deposit categories. The simulation modeling incorporates assumptions about reinvestment and the repricing characteristics of certain assets and liabilities without stated contractual maturities; 2) market value of portfolio equity sensitivity analysis; and 3) static GAP analysis, which analyzes the extent to which interest rate sensitive assets and interest rate sensitive liabilities are matched at specific points in time. The overall interest rate risk position and strategies are reviewed by senior management and the Company’s Board of Directors on an ongoing basis.
 
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The following table presents a summary of the Company’s static GAP positions at December 31, 2019:
INTEREST SENSITIVITY PERIOD
3 MONTHS
OR LESS
OVER
3 MONTHS
THROUGH
6 MONTHS
OVER
6 MONTHS
THROUGH
1 YEAR
OVER
1 YEAR
TOTAL
(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
RATE SENSITIVE ASSETS:
Loans and loans held for sale
$ 290,368 $ 51,288 $ 95,376 $ 450,542 $ 887,574
Investment securities
38,832 7,223 12,092 123,538 181,685
Short-term assets
6,526 6,526
Regulatory stock
3,985 2,125 6,110
Bank owned life insurance
38,916 38,916
Total rate sensitive assets
$ 339,711 $ 58,511 $ 146,384 $ 576,205 $ 1,120,811
RATE SENSITIVE LIABILITIES:
Deposits:
Non-interest bearing demand deposits
$ $ $ $ 136,462 $ 136,462
Interest bearing demand deposits
56,910 834 1,667 118,356 177,767
Savings
512 512 1,024 93,885 95,933
Money market
56,252 5,177 10,354 136,560 208,343
Certificates of deposit of  $100,000 or more
4,893 10,325 18,227 5,325 38,770
Other time deposits
115,850 19,427 42,005 125,956 303,238
Total deposits
234,417 36,275 73,277 616,544 960,513
Borrowings
28,981 4,110 8,324