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
                                                                                        INTEREST                                             INTEREST                                             INTEREST
                                                                      AVERAGE           INCOME/          YIELD/            AVERAGE           INCOME/          YIELD/            AVERAGE           INCOME/          YIELD/
                                                                      BALANCE           EXPENSE           RATE             BALANCE           EXPENSE           RATE             BALANCE           EXPENSE           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)                             INCREASE (DECREASE)
                                                                               DUE TO CHANGE IN:                               DUE TO CHANGE IN:
                                                                    AVERAGE                                         AVERAGE
                                                                    VOLUME           RATE            TOTAL          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
                                                 PERCENT                          PERCENT                           PERCENT                          PERCENT                          PERCENT
                                                 OF LOANS                         OF LOANS                          OF LOANS                         OF LOANS                         OF LOANS
                                                 IN EACH                          IN EACH                           IN EACH                          IN EACH                          IN EACH
                                                 CATEGORY                         CATEGORY                          CATEGORY                         CATEGORY                         CATEGORY
                                                 TO TOTAL                         TO TOTAL                          TO TOTAL                         TO TOTAL                         TO TOTAL
                                 AMOUNT           LOANS           AMOUNT           LOANS            AMOUNT           LOANS           AMOUNT           LOANS           AMOUNT           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                PLUS CAPITAL
                                                          CAPITAL RATIO         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:
                                                                       OVER             OVER
                                                                     3 MONTHS         6 MONTHS
                                                   3 MONTHS          THROUGH           THROUGH             OVER
INTEREST SENSITIVITY PERIOD                         OR LESS          6 MONTHS          1 YEAR             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             59,159             100,574
Total rate sensitive liabilities                   $ 263,398         $ 40,385         $  81,601         $  675,703         $ 1,061,087
INTEREST SENSITIVITY GAP:
Interval                                              76,313           18,126            64,783           (99,498)                   -
Cumulative                                         $  76,313         $ 94,439         $ 159,222         $   59,724         $    59,724
Period GAP ratio                                       1.29X            1.45X             1.79X              0.85X
Cumulative GAP ratio                                    1.29             1.31              1.41               1.06
Ratio of cumulative GAP to total assets                6.52%            8.06%            13.59%              5.10%


When December 31, 2019 is compared to December 31, 2018, the Company's
cumulative GAP ratio through one year indicates that the Company's balance sheet
is still asset sensitive and the level of asset sensitivity increased
between years. We continue to see loan customer preference for fixed rate loans
given the low overall level of interest rates. The increase in total deposits
resulted in overnight borrowings decreasing which are immediately impacted by
changes to national interest rates. We continue to have a relatively consistent
level of term advances with the FHLB to help manage our interest rate risk
position. It should be noted that the level of term advances increased by
$6.9 million in 2019 for interest rate risk management purposes. Due to the U.S.
Treasury Yield curve becoming inverted in certain segments at various times
during the year, term advances had a lower interest rate cost than overnight
borrowed funds.
Management places primary emphasis on simulation modeling to manage and measure
interest rate risk. The Company's asset/liability management policy seeks to
limit net interest income variability over the first twelve months of the
forecast period to -5.0% and -7.5%, which include interest rate movements of 100
and 200 basis points, respectively. Additionally, the Company also uses market
value sensitivity measures to further evaluate the balance sheet exposure to
changes in interest rates. The Company monitors the trends in market value of
portfolio equity sensitivity analysis on a quarterly basis.

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The following table presents an analysis of the sensitivity inherent in the
Company's net interest income and market value of portfolio equity. The interest
rate scenarios in the table compare the Company's base forecast, which was
prepared using a flat interest rate scenario, to scenarios that reflect
immediate interest rate changes of 100 and 200 basis points. Note that we
suspended the 200 basis point downward rate shock since it has little value due
to the absolute low level of interest rates. Each rate scenario contains unique
prepayment and repricing assumptions that are applied to the Company's existing
balance sheet that was developed under the flat interest rate scenario.
                            VARIABILITY OF            CHANGE IN
                             NET INTEREST          MARKET VALUE OF
INTEREST RATE SCENARIO          INCOME            PORTFOLIO EQUITY
200 bp increase                       5.5%                   26.6%
100 bp increase                        3.3                    16.1
100 bp decrease                      (4.1)                  (24.6)


The Company believes that its overall interest rate risk position is well
controlled. The variability of net interest income is positive in the upward
rate shocks due to the Company's short duration investment securities portfolio,
the scheduled repricing of loans tied to LIBOR or prime, and the reduction to
overnight borrowed funds. Also, the Company will continue its disciplined
approach to price its core deposit accounts in a controlled but competitive
manner. The variability of net interest income is negative in the 100 basis
point downward rate scenario as the Company has more exposure to assets
repricing downward to a greater extent than liabilities due to the absolute low
level of interest rates with the fed funds rate currently at a targeted range of
1.50% to 1.75%. The market value of portfolio equity increases in the upward
rate shocks due to the improved value of the Company's core deposit base.
Negative variability of market value of portfolio equity occurs in the downward
rate shock due to a reduced value for core deposits.
Within the investment portfolio at December 31, 2019, 78.5% of the portfolio is
classified as available for sale and 21.5% as held to maturity. The available
for sale classification provides management with greater flexibility to manage
the securities portfolio to better achieve overall balance sheet rate
sensitivity goals and provide liquidity if needed. The mark to market of the
available for sale securities does inject more volatility in the book value of
equity, but has no impact on regulatory capital. There are 54 securities that
are temporarily impaired at December 31, 2019. The Company reviews its
securities quarterly and has asserted that at December 31, 2019, the impaired
value of securities represents temporary declines due to movements in interest
rates and the Company does have the ability and intent to hold those securities
to maturity or to allow a market recovery. Furthermore, it is the Company's
intent to manage its long-term interest rate risk by continuing to sell a
portion of newly originated fixed-rate 30-year mortgage loans into the secondary
market (excluding construction and any jumbo loans). The Company also sells
15-year fixed-rate mortgage loans into the secondary market as well, depending
on market conditions. For the year 2019, 76% of all residential mortgage loan
production was sold into the secondary market.
The amount of loans outstanding by category as of December 31, 2019, which are
due in (i) one year or less, (ii) more than one year through five years, and
(iii) over five years, are shown in the following table. Loan balances are also
categorized according to their sensitivity to changes in interest rates.

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                                                                                MORE
                                                                              THAN ONE
                                                               ONE              YEAR
                                                             YEAR OR           THROUGH          OVER FIVE           TOTAL
                                                               LESS          FIVE YEARS           YEARS             LOANS
                                                                             (IN THOUSANDS, EXCEPT RATIOS)
Commercial and industrial                                    $ 40,194         $  93,467         $  40,261         $ 173,922
Commercial loans secured by owner occupied real estate            603            29,233            61,819            91,655

Commercial loans secured by non-owner occupied real estate

                                                         29,955           118,755           214,925           363,635
Real estate - residential mortgage                             10,581            39,109           190,417           240,107
Consumer                                                        6,712             4,488             7,055            18,255
Total                                                        $ 88,045         $ 285,052         $ 514,477         $ 887,574
Loans with fixed-rate                                        $ 36,237         $ 189,670         $ 197,217         $ 423,124
Loans with floating-rate                                       51,808            95,382           317,260           464,450
Total                                                        $ 88,045         $ 285,052         $ 514,477         $ 887,574
Percent composition of maturity                                  9.9%             32.1%             58.0%            100.0%
Fixed-rate loans as a percentage of total loans                                                                       47.7%
Floating-rate loans as a percentage of total loans                                                                    52.3%


The loan maturity information is based upon original loan terms and is not
adjusted for principal paydowns and rollovers. In the ordinary course of
business, loans maturing within one year may be renewed, in whole or in part, as
to principal amount at interest rates prevailing at the date of renewal.
OFF BALANCE SHEET ARRANGEMENTS.   The Company incurs off-balance sheet risks in
the normal course of business in order to meet the financing needs of its
customers. These risks derive from commitments to extend credit and standby
letters of credit. Such commitments and standby letters of credit involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated financial statements. The Company's exposure to credit loss in
the event of nonperformance by the other party to these commitments to extend
credit and standby letters of credit is represented by their contractual
amounts. The Company uses the same credit and collateral policies in making
commitments and conditional obligations as for all other lending. The Company
had various outstanding commitments to extend credit approximating
$195.5 million and standby letters of credit of  $14.7 million as of
December 31, 2019. The Company can also use various interest rate contracts,
such as interest rate swaps, caps, floors and swaptions to help manage interest
rate and market valuation risk exposure, which is incurred in normal recurrent
banking activities. As of December 31, 2019, the Company had $63.3 million in
the notional amount of interest rate swaps outstanding.
As of December 31, 2019 and 2018, municipal deposit letters of credit issued by
the Federal Home Loan Bank of Pittsburgh on behalf of AmeriServ Financial Bank
naming applicable municipalities as beneficiaries totaled $41.5 million and
$52.3 million, respectively. The letters of credit serve as collateral, in place
of pledged securities, for municipal deposits maintained at AmeriServ Financial
Bank.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES.  The accounting and reporting
policies of the Company are in accordance with Generally Accepted Accounting
Principles (GAAP) and conform to general practices within the banking industry.
Accounting and reporting policies for the pension liability, allowance for loan
losses, goodwill, income taxes, and investment securities are deemed critical
because they involve the use of estimates and require significant management
judgments. Application of assumptions different than those used by the Company
could result in material changes in the Company's financial position or results
of operation.

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ACCOUNT - Pension liability
BALANCE SHEET REFERENCE - Other liabilities
INCOME STATEMENT REFERENCE - Salaries and employee benefits and Other expense
DESCRIPTION
Pension costs and liabilities are dependent on assumptions used in calculating
such amounts. These assumptions include discount rates, benefits earned,
interest costs, expected return on plan assets, mortality rates, and other
factors. In accordance with GAAP, actual results that differ from the
assumptions are accumulated and amortized over future periods and, therefore,
generally affect recognized expense and the recorded obligation of future
periods. While management believes that the assumptions used are appropriate,
differences in actual experience or changes in assumptions may affect the
Company's pension obligations and future expense. Our pension benefits are
described further in Note 18 of the Notes to Consolidated Financial Statements.
ACCOUNT - Allowance for loan losses
BALANCE SHEET REFERENCE - Allowance for loan losses
INCOME STATEMENT REFERENCE - Provision (credit) for loan losses
DESCRIPTION
The allowance for loan losses is calculated with the objective of maintaining
reserve levels believed by management to be sufficient to absorb estimated
probable credit losses. Management's determination of the adequacy of the
allowance is based on periodic evaluations of the credit portfolio and other
relevant factors. However, this quarterly evaluation is inherently subjective as
it requires material estimates, including, among others, likelihood of customer
default, loss given default, exposure at default, the amounts and timing of
expected future cash flows on impaired loans, value of collateral, estimated
losses on consumer loans and residential mortgages, and general amounts for
historical loss experience. This process also considers economic conditions,
uncertainties in estimating losses and inherent risks in the various credit
portfolios. All of these factors may be susceptible to significant change. Also,
the allocation of the allowance for credit losses to specific loan pools is
based on historical loss trends and management's judgment concerning those
trends.
Commercial and commercial real estate loans are the largest category of credits
and the most sensitive to changes in assumptions and judgments underlying the
determination of the allowance for loan losses. Approximately $7.1 million, or
76%, of the total allowance for loan losses at December 31, 2019 has been
allocated to these two loan categories. This allocation also considers other
relevant factors such as actual versus estimated losses, economic trends,
delinquencies, levels of non-performing and troubled debt restructured (TDR)
loans, concentrations of credit, trends in loan volume, experience and depth of
management, examination and audit results, effects of any changes in lending
policies and trends in policy, financial information and documentation
exceptions. To the extent actual outcomes differ from management estimates,
additional provision for loan losses may be required that would adversely impact
earnings in future periods.
ACCOUNT - Goodwill
BALANCE SHEET REFERENCE - Goodwill
INCOME STATEMENT REFERENCE - Goodwill impairment
DESCRIPTION
The Company considers our accounting policies related to goodwill to be critical
because the assumptions or judgment used in determining the fair value of assets
and liabilities acquired in past acquisitions are subjective and complex. As a
result, changes in these assumptions or judgment could have a significant impact
on our financial condition or results of operations.
The fair value of acquired assets and liabilities, including the resulting
goodwill, was based either on quoted market prices or provided by other third
party sources, when available. When third party information was not available,
estimates were made in good faith by management primarily through the use of
internal cash flow modeling techniques. The assumptions that were used in the
cash flow modeling were subjective and are susceptible to significant changes.
The Company routinely utilizes the services of an independent third party that
is regarded within the banking industry as an expert in valuing core deposits to
monitor the ongoing

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value and changes in the Company's core deposit base. These core deposit
valuation updates are based upon specific data provided from statistical
analysis of the Company's own deposit behavior to estimate the duration of these
non-maturity deposits combined with market interest rates and other economic
factors.
Goodwill arising from business combinations represents the value attributable to
unidentifiable intangible elements in the business acquired. The Company's
goodwill relates to value inherent in the banking and wealth management
businesses, and the value is dependent upon the Company's ability to provide
quality, cost-effective services in the face of free competition from other
market participants on a regional basis. This ability relies upon continuing
investments in processing systems, the development of value-added service
features and the ease of use of the Company's services. As such, goodwill value
is supported ultimately by revenue that is driven by the volume of business
transacted and the loyalty of the Company's deposit and customer base over a
longer time frame. The quality and value of a Company's assets is also an
important factor to consider when performing goodwill impairment testing. A
decline in earnings as a result of a lack of growth or the inability to deliver
cost-effective value added services over sustained periods can lead to the
impairment of goodwill.
Goodwill which has an indefinite useful life is tested for impairment at least
annually and written down and charged to results of operations only in periods
in which the recorded value is more than the estimated fair value.
ACCOUNT - Income Taxes
BALANCE SHEET REFERENCE - Net deferred tax asset
INCOME STATEMENT REFERENCE - Provision for income taxes
DESCRIPTION
The provision for income taxes is the sum of income taxes both currently payable
and deferred. The changes in deferred tax assets and liabilities are determined
based upon the changes in differences between the basis of assets and
liabilities for financial reporting purposes and the basis of assets and
liabilities as measured by the enacted tax rates that management estimates will
be in effect when the differences reverse. This income tax review is completed
on a quarterly basis.
In relation to recording the provision for income taxes, management must
estimate the future tax rates applicable to the reversal of tax differences,
make certain assumptions regarding whether tax differences are permanent or
temporary and the related timing of the expected reversal. Also, estimates are
made as to whether taxable operating income in future periods will be sufficient
to fully recognize any gross deferred tax assets. If recovery is not likely, we
must increase our provision for taxes by recording a valuation allowance against
the deferred tax assets that we estimate will not ultimately be recoverable.
Alternatively, we may make estimates about the potential usage of deferred tax
assets that decrease our valuation allowances. As of December 31, 2019, we
believe that all of the deferred tax assets recorded on our balance sheet will
ultimately be recovered and that no valuation allowances were needed.
In addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize
liabilities for anticipated tax audit issues based on our estimate of whether,
and the extent to which, additional taxes will be due. If we ultimately
determine that payment of these amounts is unnecessary, we reverse the liability
and recognize a tax benefit during the period in which we determine that the
liability is no longer necessary. We record an additional charge in our
provision for taxes in the period in which we determine that the recorded tax
liability is less than we expect the ultimate assessment to be.
ACCOUNT - Investment Securities
BALANCE SHEET REFERENCE - Investment securities
INCOME STATEMENT REFERENCE - Net realized gains (losses) on investment
securities
DESCRIPTION
Available-for-sale and held-to-maturity securities are reviewed quarterly for
possible other-than-temporary impairment. The review includes an analysis of the
facts and circumstances of each individual investment such as the severity of
loss, the length of time the fair value has been below cost, the expectation for
that security's performance, the creditworthiness of the issuer and the
Company's intent and ability to

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hold the security to recovery. A decline in value that is considered to be
other-than-temporary is recorded as a loss within non-interest income in the
Consolidated Statements of Operations. At December 31, 2019, the unrealized
losses in the available-for-sale security portfolio were comprised of securities
issued by government agencies or government sponsored agencies and certain high
quality corporate and taxable municipal securities. The Company believes the
unrealized losses are primarily a result of increases in market yields from the
time of purchase. In general, as market yields rise, the value of securities
will decrease; as market yields fall, the fair value of securities will
increase. Management generally views changes in fair value caused by changes in
interest rates as temporary; therefore, these securities have not been
classified as other-than-temporarily impaired. Management has also concluded
that based on current information we expect to continue to receive scheduled
interest payments as well as the entire principal balance. Furthermore,
management does not intend to sell these securities and does not believe it will
be required to sell these securities before they recover in value.
FORWARD LOOKING STATEMENTS
THE STRATEGIC FOCUS:
AmeriServ Financial is committed to increasing shareholder value by striving for
consistently improving financial performance; providing our customers with
products and exceptional service for every step in their lifetime financial
journey; cultivating an employee atmosphere rooted in trust, empowerment and
growth; and serving our communities through employee involvement and a
philanthropic spirit. We will strive to provide our shareholders with
consistently improved financial performance; the products, services and know-how
needed to forge lasting banking for life customer relationships; a work
environment that challenges and rewards staff; and the manpower and financial
resources needed to make a difference in the communities we serve. Our strategic
initiatives will focus on these four key constituencies:
•
Shareholders - We strive to increase earnings per share; identifying and
managing revenue growth and expense control and reduction; and managing risk.
Our goal is to increase value for AmeriServ shareholders by growing earnings per
share and narrowing the financial performance gap between AmeriServ and its peer
banks. We try to return up to 75 percent of earnings to shareholders through a
combination of dividends and share repurchases subject to maintaining sufficient
capital to support balance sheet growth. We strive to educate our employee base
as to the meaning/importance of earnings per share as a performance measure. We
will develop a value added combination for increasing revenue and controlling
expenses that is rooted in developing and offering high-quality financial
products and services; an existing branch network; electronic banking
capabilities with 24/7 convenience; and providing truly exceptional customer
service. We will explore branch consolidation opportunities and further leverage
union affiliated revenue streams, prudently manage the Company's risk profile to
improve asset yields and increase profitability and continue to identify and
implement technological opportunities and advancements to drive efficiency for
the holding company and its affiliates.


Customers - The Company expects to provide exceptional customer service,
identifying opportunities to enhance the Banking for Life philosophy by
providing products and services to meet the financial needs in every step
through a customer's life cycle, and further defining the role technology plays
in anticipating and satisfying customer needs. We anticipate providing leading
banking systems and solutions to improve and enhance customers' Banking for Life
experience. We will provide customers with a comprehensive offering of financial
solutions including retail and business banking, home mortgages and wealth
management at one location. We have upgraded and modernized select branches to
be more inviting and technologically savvy to meet the needs of the next
generation of AmeriServ customers without abandoning the needs of our existing
demographic.


Staff - We are committed to developing high-performing employees, establishing
and maintaining a culture of trust and effectively and efficiently managing
staff attrition. We will employ a work force succession plan to manage
anticipated staff attrition while identifying and grooming high performing staff
members to assume positions with greater responsibility within the organization.
We will employ technological systems and solutions to provide staff with the
tools they need to perform more efficiently and effectively.


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Communities - We will continue to promote and encourage employee community
involvement and leadership while fostering a positive corporate image. This will
be accomplished by demonstrating our commitment to the communities we serve
through assistance in providing affordable housing programs for
low-to-moderate-income families; donations to qualified charities; and the time
and talent contributions of AmeriServ staff to a wide-range of charitable and
civic organizations.

This Form 10-K contains various forward-looking statements and includes
assumptions concerning the Company's beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, operations, future results,
and prospects, including statements that include the words "may," "could,"
"should," "would," "believe," "expect," "anticipate," "estimate," "intend,"
"project," "plan" or similar expressions. These forward-looking statements are
based upon current expectations, are subject to risk and uncertainties and are
applicable only as of the dates of such statements. Forward-looking statements
involve risks, uncertainties and assumptions. Although we do not make
forward-looking statements unless we believe we have a reasonable basis for
doing so, we cannot guarantee their accuracy. You should not put undue reliance
on any forward-looking statements. These statements speak only as of the date of
this Form 10-K, even if subsequently made available on our website or otherwise,
and we undertake no obligation to update or revise these statements to reflect
events or circumstances occurring after the date of this Form 10-K. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the following cautionary
statement identifying important factors (some of which are beyond the Company's
control) which could cause the actual results or events to differ materially
from those set forth in or implied by the forward-looking statements and related
assumptions.
Such factors include the following: (i) the effect of changing regional and
national economic conditions; (ii) the effects of trade, monetary and fiscal
policies and laws, including interest rate policies of the Federal Reserve;
(iii) significant changes in interest rates and prepayment speeds;
(iv) inflation, stock and bond market, and monetary fluctuations; (v) credit
risks of commercial, real estate, consumer, and other lending activities;
(vi) changes in federal and state banking and financial services laws and
regulations; (vii) the presence in the Company's market area of competitors with
greater financial resources than the Company; (viii) the timely development of
competitive new products and services by the Company and the acceptance of those
products and services by customers and regulators (when required); (ix) the
willingness of customers to substitute competitors' products and services for
those of the Company and vice versa; (x) changes in consumer spending and
savings habits; (xi) unanticipated regulatory or judicial proceedings; and
(xii) other external developments which could materially impact the Company's
operational and financial performance.
The foregoing list of important factors is not exclusive, and neither such list
nor any forward-looking statement takes into account the impact that any future
acquisition may have on the Company and on any such forward-looking statement.
ITEM 7A.

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