…..2020 FIRST QUARTER SUMMARY OVERVIEW…..AmeriServ reported first quarter 2020 net income of$1,409,000 , or$0.08 per share. This represents a 25.0%, or$469,000 , decrease from the first quarter of 2019 when net income totaled$1,878,000 , or$0.11 per share. These 2020 results represent a strong recovery from the fourth quarter of 2019. In the fourth quarter, the Company experienced two negative events which reduced net income to$669,000 or$0.04 per diluted share. Therefore, the 2020 net income of$1,409,000 and$0.08 per diluted common share represented double the result of the fourth quarter of 2019. This supports the Company's position that the loss on the CRA investment, and the events surrounding the unexpected death of a large borrower, did not weaken asset quality. Any review of the first quarter of 2020 would not be complete without reference to the international pandemic. For the most part, January and February were normal. In the northern part of theU.S. , the winter season always experiences a reduction in economic activity. However, in 2020, the events of COVID-19 began to appear in late January and intensify in February, to the degree that, in mid-March, the Federal and state governments declared a virtual shut down of normal activities everywhere. While some business enterprises such as banks were deemed to be essential, their normal activities were subject to substantial change due to governmental restrictions. All AmeriServ banking office lobbies have been closed sinceMarch 23, 2020 to walk-in traffic except by appointment. On any given day, one third or more of the AmeriServ employee work force have been working remotely from home using computers to maintain customer access on a virtual basis. Increasingly, transactions are being routed through electronic means using ATMs, online banking and email communications. Fortunately, AmeriServ has been using these technologies for years with the support of FIS (Fidelity Information Services), the largest provider of technology to the entire banking industry. This is not nearly the entire story. As encouraged by Federal regulatory authorities, AmeriServ has been actively participating in the numerous programs offered by the Administration, byCongress and by theFederal Reserve System . For example, as ofApril 24, 2020 , AmeriServ has assisted approximately 270 customers to submit and receive funding of over$43 million under the Paycheck Protection Program. Recognizing the economic impact of COVID-19 on the small and medium sized businesses that AmeriServ services, there have been interim modifications made to more than 20% of the outstanding balance of existing business loans so that these businesses can survive and fill their role as one of the regional job creators in the local economy. This effort has only been possible because of the tremendous dedication of the AmeriServ workforce. It is also interesting to note that in spite of these events, our first quarter 2020 average loan totals have remained stable with the fourth quarter of 2019, our deposit totals have remained around$980 million , on average, exactly where they have been since the second quarter of 2019. The action of theFederal Reserve System to reduce interest rates has reduced interest revenue but interest expense has also declined and should decline further. There are expenses to be provided for because of COVID-19 but so far non-interest expenses are only 3% above the totals for the same quarter in 2019. Wealth management revenues were 6.6% above 2019 even with the increased volatility of financial markets. Since full year 2019 represented a record year for wealth management fee income, it will be a challenge for them to maintain that pace especially with the recent decline in equity markets. However, there are nine months remaining in 2020 in which to search for positive investment opportunities for our clients and ourselves. The major source of concern is the very low interest rates and the impact that these low interest rates will have on our net interest margin. But the AmeriServ balance sheet is conservative and strong. AmeriServ's liquidity is strong and increasing, and AmeriServ's asset quality for both loans and securities is above that of our peers in this industry. Once again, the issue before us remains COVID-19. We have supported our customers. We hope to return to the agenda that prevailed prior to COVID-19 soon. For now, we will focus on safe and sound banking and intelligent involvement in the programs our government is promoting and funding. 33 -------------------------------------------------------------------------------- TABLE OF CONTENTS THREE MONTHS ENDEDMARCH 31, 2020 VS. THREE MONTHS ENDEDMARCH 31, 2019 …..PERFORMANCE OVERVIEW…..The following table summarizes some of the Company's key performance indicators (in thousands, except per share and ratios). Three months ended Three months ended March 31, 2020 March 31, 2019 Net income$ 1,409 $ 1,878 Diluted earnings per share 0.08 0.11 Return on average assets (annualized) 0.48%
0.66%
Return on average equity (annualized) 5.69%
7.84%
The Company reported net income of$1,409,000 , or$0.08 per diluted common share. This earnings performance represents a$469,000 , or 25.0%, decrease from the first quarter of 2019 when net income totaled$1,878,000 , or$0.11 per diluted common share.AmeriServ Financial, Inc. reported sound earnings in the first quarter of 2020 while taking the necessary actions to begin to position our Company for the economic uncertainty created by the coronavirus pandemic. We are entering the second quarter of 2020 with strong liquidity, good capital and an increased allowance for loan losses which is higher by$1.2 million from theMarch 31, 2019 level. …..NET INTEREST INCOME AND MARGIN…..The Company's net interest income represents the amount by which interest income on average earning assets exceeds interest paid on average interest bearing liabilities. Net interest income is a primary source of the Company's earnings, and it is effected by interest rate fluctuations as well as changes in the amount and mix of average earning assets and average interest bearing liabilities. The following table compares the Company's net interest income performance for the first quarter of 2020 to the first quarter of 2019 (in thousands, except percentages): Three months ended Three months ended March 31, 2020 March 31, 2019 $ Change % Change Interest income$ 11,944 $ 12,164 $ (220) (1.8)% Interest expense 3,193 3,507 (314) (9.0) Net interest income$ 8,751 $ 8,657 $ 94 1.1 Net interest margin 3.21% 3.24% (0.03)% N/M N/M - not meaningful The Company's net interest income in the first quarter of 2020 increased by$94,000 , or 1.1%, from the prior year's first quarter. The Company's net interest margin of 3.21% for the first quarter of 2020 was three basis points lower than the net interest margin of 3.24% for the first quarter of 2019. The change in theU.S. Treasury yield curve between years impacted the Company's net interest margin. The overallU.S. Treasury yield curve shifted downward since last year while the shape of the curve remained relatively flat, demonstrating inversion in certain segments at various times during the first quarter of 2020. Late in the quarter, the outbreak of the COVID-19 pandemic caused the yield curve to move down further. Correspondingly, theFederal Reserve's actions to lower the fed funds rate by 150 basis points in March, caused the short end of the yield curve to decrease and result in the curve exhibiting a more normal steeper shape. Total earning assets increased in the first quarter of 2020 and partially offset the unfavorable impact that the lower level of national interest rates had on total interest income. The increase in total average earning assets was due to growth in total loans and short-term investments while total investment securities decreased. Interest bearing deposits increased and resulted in less reliance on higher cost borrowed funds. Effective management of our funding costs along with the downward repricing of certain interest bearing liabilities tied to market indexes resulted in total interest expense decreasing between years. The decrease to total interest expense more than offset the decrease in total interest income resulting in net interest income increasing between years. Total loans averaged$877 million in the first quarter of 2020 which was$17 million , or 2.0%, higher than the$860 million average for the first quarter of 2019. The impact from the strong level of loan 34 -------------------------------------------------------------------------------- TABLE OF CONTENTS production in 2019 was still evident in the increased total loan portfolio average balance during the first quarter of 2020. Also, residential mortgage loan closings in the first quarter of 2020 nearly tripled the level of closings experienced during the first quarter of 2019 due to the significantly lower level of national interest rates. However, loan payoff activity exceeded total new loan originations in the first quarter of 2020 resulting in a$10 million decline in the total loan portfolio balance sinceDecember 31, 2019 . Even though total average loans increased compared to the same period last year, loan interest and fee income decreased by$86,000 , or 0.8%, between the first quarter of 2020 and last year's first quarter. The lower loan interest income reflects the impact of the lower interest rate environment as new loans originated at lower yields and certain loans tied to LIBOR or the prime rate repriced downward as both of these indices have moved down with theFederal Reserve's decision to decrease the target federal funds interest rate three times in the second half of 2019, and more significantly, twice in March of this year. Total investment securities averaged$189 million in the first quarter of 2020 which is$9.5 million , or 4.8%, lower than the$198 million average for the first quarter of 2019. Investment security purchases in 2020 have been more selective as the market is less favorable for purchasing activity given the difference in the position and shape of theU.S. Treasury yield curve from the prior year. The limited level of purchases that did occur during the first quarter of 2020 primarily focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Purchases also included high quality corporate and taxable municipal securities. The Company also responded to the uncertain economic environment by maintaining a strong liquidity position as average short-term investments in money market funds increased by$9.7 million in the first quarter of 2020. Interest income on investment securities decreased between the first quarter of 2020 and the first quarter of 2019 by$135,000 , or 8.1%. Overall, total interest income decreased by$220,000 , or 1.8%, between years. Total interest expense for the first quarter of 2020 decreased by$314,000 , or 9.0%, when compared to 2019, due to lower levels of both deposit and borrowing interest expense. Deposit interest expense in 2020 was lower by$272,000 , or 10.0%. Overall, the Company's loyal core deposit base continues to be a source of strength for the Company during periods of market volatility. Total average deposits grew since the first quarter of 2019 and totaled$983 million in the first quarter of 2020 which was$13.8 million , or 1.4%, higher than the 2019 first quarter average. This represents the fourth consecutive quarter that total deposits have averaged in a relatively narrow range of$980 to$985 million . Management prudently and effectively executed several deposit product pricing decreases given the declining interest rate environment and the corresponding downward pressure that these falling interest rates have on the net interest margin. As a result, the Company is experiencing deposit cost relief. Specifically, the Company's average cost of interest bearing deposits declined by 17 basis points between the first quarter of 2020 and the first quarter of 2019. The Company's loan to deposit ratio averaged 89.2% in the first quarter of 2020 which we believe indicates that the Company has ample capacity to grow its loan portfolio and is positioned well to assist our customers and the community given the impact that the COVID-19 pandemic is having on the economy. The Company experienced a$42,000 , or 5.4%, decrease in the interest cost of borrowings in the first quarter of 2020 when compared to the first quarter of 2019. The decline is a result of lower total average borrowings between years combined with the impact from theFederal Reserve's actions to decrease interest rates since the middle of 2019 and the impact that these rate decreases had on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total 2020 first quarter average term advance borrowings balance increased by approximately$8.3 million , or 17.7%, when compared to the first quarter of 2019 as the Company took advantage of yield curve inversions to prudently extend borrowings. As a result, the combined growth of average FHLB term advances and total average deposits resulted in total average overnight borrowed funds decreasing between years by$12.5 million , or 81.1%. Overall, the 2020 first quarter average of FHLB borrowed funds was$58.2 million , which represents a decrease of$4.2 million , or 6.7%. The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods endedMarch 31, 2020 and 2019 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) the Company's 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) the Company's net interest 35 -------------------------------------------------------------------------------- TABLE OF CONTENTS 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). The tax equivalent adjustments to interest income on loans and municipal securities for the three months endedMarch 31, 2020 and 2019 was$7,000 and$6,000 , respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material. Three months endedMarch 31 (In thousands, except percentages) 2020 2019 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Interest earning assets: Loans and loans held for sale, net of unearned income$ 877,097 $ 10,339 4.68%$ 860,169 $ 10,424 4.80% Short-term investment in money market funds and bank deposits 18,527 76 1.63 8,793 75 3.42 Investment securities - AFS 147,656 1,183 3.27 157,112 1,319 3.38 Investment securities - HTM 41,224 353 3.43 41,252 352 3.34 Total investment securities 188,880 1,536 3.31 198,364 1,671 3.37 Total interest earning assets/interest income 1,084,504 11,951 4.40 1,067,326 12,170 4.57 Non-interest earning assets: Cash and due from banks 19,087 21,899 Premises and equipment 18,593 18,128 Other assets 65,146 62,081 Allowance for loan losses (9,317) (8,665) TOTAL ASSETS$ 1,178,013 $ 1,160,769 Interest bearing liabilities: Interest bearing deposits: Interest bearing demand$ 167,066 $ 242 0.60%$ 163,893 $ 409 1.01% Savings 97,166 41 0.17 97,851 40 0.17 Money markets 229,838 464 0.81 241,727 674 1.13 Time deposits 341,948 1,711 2.01 315,389 1,607 2.07 Total interest bearing deposits 836,018 2,458 1.18 818,860 2,730 1.35 Short-term borrowings 2,908 12 1.67 15,413 102 2.64 Advances from Federal Home Loan Bank 55,292 284 2.07 46,984 235 2.03 Guaranteed junior subordinated deferrable interest debentures 13,085 280 8.57 13,085 280 8.57 Subordinated debt 7,650 130 6.80 7,650 130 6.80 Lease liabilities 3,993 29 2.86 4,224 30 2.83 Total interest bearing liabilities/interest expense 918,946 3,193 1.40 906,216 3,507 1.57 Non-interest bearing liabilities: Demand deposits 146,840 150,246 Other liabilities 12,615 7,141 Shareholders' equity 99,612 97,166 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$ 1,178,013 $ 1,160,769 Interest rate spread 3.00
3.00
Net interest income/ Net interest margin 8,758 3.21% 8,663 3.24% Tax-equivalent adjustment (7) (6) Net Interest Income$ 8,751 $ 8,657 36
-------------------------------------------------------------------------------- TABLE OF CONTENTS …..PROVISION FOR LOAN LOSSES…..The Company recorded a$175,000 provision expense for loan losses in the first quarter of 2020 as compared to a$400,000 provision recovery in the first quarter of 2019, which represents a net unfavorable shift of$575,000 . The 2020 provision expense reflects the loan growth experienced since last year along with management's decision to strengthen certain qualitative factors within our allowance of loan losses calculation due to the economic uncertainty caused by the COVID-19 pandemic. While future losses are possible due to the COVID-19 pandemic, losses were not incurred as ofMarch 31, 2020 which is why the provision for the period isn't higher. The Company's asset quality continues to remain strong as evidenced by low levels of loan delinquency, net loan charge-offs and non-performing assets. The Company experienced net loan charge-offs of$120,000 , or 0.06% of total loans, in the 2020 first quarter compared to net loan charge-offs of$164,000 , or 0.08% of total loans, in the first quarter of 2019. Non-performing assets totaled$2.2 million , or only 0.26% of total loans, atMarch 31, 2020 . In summary, the allowance for loan losses provided 416% coverage of non-performing assets, and was 1.06% of total loans, atMarch 31, 2020 , compared to 397% coverage of non-performing assets, and 1.05% of total loans, atDecember 31, 2019 . …..NON-INTEREST INCOME….. Non-interest income for the first quarter of 2020 totaled$3.8 million and increased$227,000 , or 6.3%, from the first quarter 2019 performance. Factors contributing to this higher level of non-interest income for the quarter included: • a$175,000 increase in income from residential mortgage loan sales into the secondary market due to the strong level of residential mortgage loan production in the first quarter of 2020. Correspondingly there was an$82,000 increase in mortgage related fee income;
•
a
•
a$158,000 increase in wealth management fees due to management's effective execution of managing client accounts and an improved equity market which positively impacted market values for assets under management in the first two months of the first quarter of 2020. The late first quarter 2020 negative impact to the equity market from the COVID-19 pandemic and the pandemic's impact on the Company's wealth management fees will be more evident in this year's second quarter financial results. …..NON-INTEREST EXPENSE….. Non-interest expense for the first quarter of 2020 totaled$10.6 million and increased by$340,000 , or 3.3%, from the prior year's first quarter. Factors contributing to the higher level of non-interest expense for the quarter included: • a$403,000 increase in salaries & benefits expense due to pension expense increasing by$188,000 , or 53.0% between years. This significant increase to pension expense results from the unfavorable impact that the lower interest rate environment has on the discount rates that are used to revalue the defined benefit pension obligation each year. In addition, the higher salaries & benefits expense is also due to increased health care costs, greater incentive compensation as a result of increased residential mortgage loan production, and increased salaries expense. The higher salaries expense reflects annual merit increases and the addition of several employees to address management succession planning;
•
a
•
a
•
a
…..INCOME TAX EXPENSE….. The Company recorded an income tax expense of$366,000 , or an effective tax rate of 20.6%, in the first quarter of 2020. This compares to an income tax expense of$491,000 , or an effective tax rate of 20.7%, for the first quarter of 2019. 37 -------------------------------------------------------------------------------- TABLE OF CONTENTS …..SEGMENT RESULTS.…. The community banking segment reported a net income contribution of$2,524,000 in the first quarter of 2020 which was down by$424,000 from the first quarter of 2019. The primary driver for the lower level of net income in 2020 was the Company recording an$175,000 provision expense for loan losses compared to a$400,000 provision recovery in 2019 which resulted in a net unfavorable shift of$575,000 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 and slightly higher occupancy & equipment costs. Partially offsetting these higher costs and favorably impacting net income was a decrease to total deposit interest expense which more than offset a decrease in total loan interest income resulting in this segment's net interest income increasing between years. The downward shift in theU.S. Treasury yield curve between years along with theFederal Reserve's actions to decrease the fed funds rate by 150 basis points impacted the Company's net interest margin performance. The lower loan interest income reflects the impact of the lower interest rate environment as new loans originated at lower yields and certain loans tied to LIBOR or the prime rate repriced downward as both of these indices have moved down. On the liability side of the balance sheet, management's action to decrease pricing of several deposit products, given the declining interest rate environment, resulted in this segment experiencing deposit cost relief. This segment recognized a higher gain on the sale of residential mortgage loans in the secondary market and a corresponding greater level of mortgage related fee income, both of which resulted from the higher level of residential mortgage loan production. Finally, and also favorably impacting this segments level of net income was a credit recognized for the unfunded commitment reserve in the first quarter of 2020 as well as the lowerFDIC insurance expense. The wealth management segment's net income contribution was$487,000 in the first quarter of 2020 which was$43,000 higher than the first quarter of 2019. The increase is due to wealth management fees increasing as this segment was positively impacted by management's effective execution of managing client accounts and increased market values for assets under management which improved in the first two months of the first quarter of 2020. As stated previously in this document, the late first quarter 2020 negative impact to the equity market from the COVID-19 pandemic and the pandemic's impact on the Company's wealth management fees will be more evident in this year's second quarter financial results. Slightly offsetting the higher management fee income were higher levels of professional fees, incentive compensation and equipment costs. Overall, the fair market value of trust assets under administration totaled$1.984 billion atMarch 31, 2020 , a decrease of$246 million , or 11.0%, from theMarch 31, 2019 total of$2.230 billion . The investment/parent segment reported a net loss of$1,602,000 in the first quarter of 2020 which is a greater loss by$88,000 since the first quarter of 2019. The increased loss was due to total average securities decreasing by a higher amount than the decrease to total borrowed funds. As a result, interest income from the investment securities portfolio decreased by more than the decrease to interest expense on borrowed funds. …..BALANCE SHEET…..The Company's total consolidated assets were$1.17 billion atMarch 31, 2020 , which decreased by$2.8 million , or 0.2%, from theDecember 31, 2019 asset level. This change was related to a decreased level of loans. Specifically, loans and loans held for sale decreased by$10.2 million , or 1.1%. This decrease was partially offset by an increase in cash and cash equivalents of$1.9 million , or 8.7%, total investment securities of$3.1 million , or 1.7%, and other assets of$2.2 million , or 36.3% driven by an increase in the fair value of the interest rate swap assets. Total deposits decreased by$2.9 million , or 0.3%, in the first three months of 2020. As ofMarch 31, 2020 , the 25 largest depositors represented 20.6% of total deposits, which is a slight decrease fromDecember 31, 2019 when it was 20.9%. Total borrowings have decreased by$1.5 million , or 1.5%, since year-end 2019. The decrease was driven, primarily, by the reduction in short term borrowings of$6.1 million , or 27.0%. The decrease in short term borrowings more than offset the increase in FHLB term advances. Specifically, total FHLB term advances increased by$4.6 million , or 8.5%, and totaled$58.2 million . The Company has utilized these term advances to help manage interest rate risk and the inversion demonstrated by theU.S. Treasury yield curve allowed the Company to prudently extend borrowings. The Company's total shareholders' equity increased by$2.2 million over the first three months of 2020 due to the retention of earnings more than offsetting our common stock dividend payment to shareholders 38 -------------------------------------------------------------------------------- TABLE OF CONTENTS and the impact of our common stock buyback program. Additionally, the improved value of the investment securities portfolio had a positive impact on accumulated other comprehensive loss. The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of 13.41%, and a common equity tier 1 capital ratio of 10.44% atMarch 31, 2020 . See the discussion of the Basel III capital requirements under the Capital Resources section below. As ofMarch 31, 2020 , the Company's book value per common share was$5.92 and its tangible book value per common share was$5.22 (non-GAAP). When compared toDecember 31, 2019 , book value per common share and tangible book value per common share each improved by$0.14 per common share. The tangible common equity to tangible assets ratio was 7.69% (non-GAAP) atMarch 31, 2020 and improved by 21 basis points when compared toDecember 31, 2019 . The tangible common equity ratio and tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The following table sets forth the calculation of the Company's tangible common equity ratio and tangible book value per share atMarch 31, 2020 andDecember 31, 2019 (in thousands, except share and ratio data): March 31, December 31, 2020 2019 Total shareholders' equity$ 100,840 $ 98,614 Less: Goodwill 11,944 11,944 Tangible equity 88,896 86,670 Total assets 1,168,355 1,171,184 Less: Goodwill 11,944 11,944 Tangible assets 1,156,411 1,159,240 Tangible common equity ratio (non-GAAP) 7.69%
7.48%
Total shares outstanding 17,043,644
17,057,871
Tangible book value per share (non-GAAP)
…..LOAN QUALITY…..The following table sets forth information concerning the Company's loan delinquency, non-performing assets, and classified assets (in thousands, except percentages): March 31, December 31, March 31, 2020 2019 2019 Total accruing loan delinquency (past due 30 to 89 days)$ 8,525 $ 2,956 $ 2,568 Total non-accrual loans 1,437 1,487 1,150 Total non-performing assets including TDR* 2,244 2,339
1,168
Accruing loan delinquency, as a percentage of total loans, net of unearned income
0.97% 0.33%
0.30%
Non-accrual loans, as a percentage of total loans, net of unearned income
0.16 0.17
0.13
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned
0.26 0.26
0.14
Non-performing assets as a percentage of total assets 0.19 0.20
0.10
As a percent of average loans, net of unearned income: Annualized net charge-offs
0.06 0.02
0.08
Annualized provision (credit) for loan losses 0.08 0.09
(0.19)
Total classified loans (loans rated substandard or doubtful)**$ 15,958 $ 16,338 $ 4,219 * 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 a troubled debt restructuring and (iv) other real estate owned. 39 -------------------------------------------------------------------------------- TABLE OF CONTENTS ** Total classified loans include non-performing residential mortgage and consumer loans. Overall, the Company continued to maintain good asset quality in the first three months of 2020 as evidenced by low levels of non-accrual loans, non-performing assets, and loan delinquency levels that continue to be near or below 1% of total loans. The Company did experience an increase in accruing loan delinquency during the first quarter of 2020. The increase was primarily due to the unexpected death of a borrower late in 2019, which was previously reported in our Form 10-K datedDecember 31, 2020 . The estate, which is made up of significant real estate holdings and other unique assets, is currently in the process of liquidation. Therefore, this$6.3 million commercial and industrial loan exhibited delinquency during the quarter. We also continue to closely monitor the loan portfolio given the number of relatively large-sized commercial and commercial real estate loans within the portfolio. As ofMarch 31, 2020 , the 25 largest credits represented 24.2% of total loans outstanding, which represents a decrease from the first quarter of 2019 when it was 26.1%. …..ALLOWANCE FOR LOAN LOSSES…..The following table sets forth the allowance for loan losses and certain ratios for the periods ended (in thousands, except percentages):
2020 2019 2019 Allowance for loan losses$ 9,334 $ 9,279 $ 8,107
Allowance for loan losses as a percentage of each of the following: total loans, net of unearned income
1.06% 1.05% 0.94% total accruing delinquent loans (past due 30 to 89 days) 109.49 313.90 315.69 total non-accrual loans 649.55 624.01 704.96 total non-performing assets 415.94 396.71 694.09 The Company recorded a$175,000 provision expense for loan losses in the first three months of 2020 compared to a$400,000 provision recovery in the first three months of 2019, which represents a net unfavorable change of$575,000 between periods. The 2020 provision reflects the loan growth experienced since last year along with our decision to strengthen certain qualitative factors within our allowance for loan losses calculation due to the economic uncertainty caused by the COVID-19 pandemic. The Company's asset quality continues to remain strong as evidenced by low levels of loan delinquency, net loan charge-offs and non-performing assets. …..LIQUIDITY….. The Company's liquidity position continues to be strong. Our core retail deposit base has remained relatively stable over the past several years. The Company's loyal core deposit base continues to be a source of strength for the Company during periods of market volatility. Total average deposits grew since the first quarter of 2019, representing the fourth consecutive quarter that total deposits have averaged in a relatively narrow range of$980 to$985 million . 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. The Company also responded to the uncertain economic environment by maintaining a strong liquidity position as average short-term investments in money market funds increased by$9.7 million in the first quarter of 2020. We strive to operate our loan to deposit ratio in a range of 85% to 100%. AtMarch 31, 2020 , the Company's loan to deposit ratio was 91.6%. We are positioned well to support our local economy and provide the necessary assistance to our community partners during this period of pandemic as well as service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters. Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by$1.9 million fromDecember 31, 2019 , to$24.1 million atMarch 31, 2020 , due to$7.6 million of cash provided by investing activities which more than offset$5.0 million of cash used in financing activities and$626,000 of cash used in operating activities. Within investing activities, cash advanced for new loan fundings totaled$42.6 million and was$10.0 million lower than the$52.6 million of cash received from loan principal payments. Within financing activities, deposits decreased by$2.9 million while total FHLB borrowings declined as short-term borrowings decreased by$6.1 million and advances increased by$4.6 million . 40 -------------------------------------------------------------------------------- TABLE OF CONTENTS The holding company had$6.7 million of cash, short-term investments, and investment securities atMarch 31, 2020 . Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. AtMarch 31, 2020 , our subsidiary Bank had$10.4 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that limits dividend payments from theTrust Company to 75% of annual net income. Overall, we believe that the holding company has strong liquidity to meet its trust preferred debt service requirements, its subordinated debt interest payments, and its common stock dividend. 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$24.1 million and$22.2 million atMarch 31, 2020 andDecember 31, 2019 , 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 theFederal 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. AtMarch 31, 2020 , the Company had$364 million of overnight borrowing availability at the FHLB,$30 million of short-term borrowing availability at theFederal 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 Bank 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 10.44%, the tier 1 capital ratio was 11.64%, and the total capital ratio was 13.41% atMarch 31, 2020 . The Company's tier 1 leverage ratio was 9.94% atMarch 31, 2020 . We anticipate that we will maintain our strong capital ratios throughout the remainder of 2020. 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 331% of regulatory capital atMarch 31, 2020 . While we work through the COVID-19 pandemic, our focus is on preserving capital to support customer lending and managing heightened credit risk due to the downturn in the economy. Additionally, we currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its current rate of$0.025 per quarter. In the first quarter of 2020, the Company completed the common stock repurchase program, which it had announced onApril 16, 2019 , where it bought back 526,000 shares, or 3% of its common stock, over a 12-month period at a total cost of$2.23 million . Specifically, during the first three months of 2020, the Company was able to repurchase 35,962 shares of its common stock and return$151,000 of capital to its shareholders through this program. Evaluation of a new common stock buyback program is on hold. AtMarch 31, 2020 , the Company had approximately 17.0 million common shares outstanding. 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 2.5% capital conservation buffer ("CCB") on top of the three minimum risk-weighted asset ratios. 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. 41 -------------------------------------------------------------------------------- TABLE OF CONTENTS Under the Basel III capital standards, the minimum capital ratios are: MINIMUM CAPITAL RATIO PLUS CAPITAL MINIMUM CONSERVATION CAPITAL RATIO 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 …..INTEREST RATE SENSITIVITY…..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. Change in Market Variability of Net Value of Interest Rate Scenario Interest Income Portfolio Equity 200bp increase 8.7% 43.9% 100bp increase 4.8 25.0 100bp decrease (3.0) (29.8) 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 0% to 0.25%. 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. …..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 had various outstanding commitments to extend credit approximating$217.5 million and standby letters of credit of$14.1 million as ofMarch 31, 2020 . 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. …..REGULATORY UPDATE….. A final rule adopted by the federal banking agencies inFebruary 2019 provides banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of ASU 2019-10, "Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates" (the "CECL accounting standard"). OnMarch 27, 2020 , the federal banking agencies issued an interim final rule that gives banking organizations that implement CECL before the end of 2020 the option to delay for two years CECL's adverse effects on regulatory capital (CECL Interim Final Rule). This is in addition to 42 -------------------------------------------------------------------------------- TABLE OF CONTENTS the three-year transition period already in place, resulting in an optional five-year transition. The agencies noted this relief is being provided in order to allow banking organizations to better focus on lending to creditworthy households and businesses affected by recent strains on theU.S. economy caused by COVID-19. Comments on the CECL Interim Final Rule are due byMay 15, 2020 . The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted onMarch 27, 2020 , provides banking organizations with the option to not comply with CECL until the earlier of (i) the termination date of the national emergency concerning COVID-19 declared by the President under the National Emergencies Act or (ii)December 31, 2020 . The federal banking agencies issued a statement onMarch 31, 2020 , indicating that banking organizations that elect to use the optional, temporary statutory relief will be able to elect the remaining period of regulatory capital relief provided under the CECL Interim Final Rule after the end of the statutory relief period. Alternatively, banking organizations may adopt the CECL accounting standard as planned in 2020 and use the regulatory capital relief provided under the CECL Interim Final Rule starting at the time of their adoption of CECL. Federal, state, and local governments have adopted various statutes, rules, regulations, orders, and guidelines in order to address the COVID-19 pandemic and the adverse economic effects of this pandemic on individuals, families, businesses, and governments. Financial institutions, including the Company, are affected by many of these measures, including measures that are broadly applicable to businesses operating in the communities where the Company does business. These measures include "stay-at-home orders" that allow only essential businesses to operate. Financial services firms are generally regarded as "essential businesses" under these orders, but financial services firms, like other essential businesses, are required to operate in a manner that seeks to protect the health and safety of their customers and employees. In addition, the federal banking agencies along with state bank regulators issued an interagency statement onMarch 22, 2020 , addressing loan modifications that are made by financial institutions for borrowers affected by the COVID-19 crisis. The agencies stated that short-term loan modifications made on a good faith basis in response to COVID-19 for borrowers who were current prior to any relief do not need to be categorized as TDRs and that financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. The CARES Act contains a number of provisions that affect banking organizations. The CARES Act provides funding for various programs under which the federal government will lend to, guarantee loans to, or make investments in, businesses. Banking organizations are expected to play a role in some of these programs, and when they do so, they will be subject to certain requirements. One of these programs is the Paycheck Protection Program (PPP), a program administered by theSmall Business Administration (the SBA) to provide loans to small businesses for payroll and other basic expenses during the COVID-19 crisis. The loans can be made by SBA-certified lenders and are 100% guaranteed by the SBA. The loans are eligible to be forgiven if certain conditions are satisfied, in which event the SBA will make payment to the lender for the forgiven amounts. The Bank has participated in the PPP as a lender. The CARES Act also authorizes temporary changes to certain provisions applicable to banking organizations. Among other changes, the CARES Act gives financial institutions the right to elect to suspend GAAP principles and regulatory determinations for loan modifications relating to COVID-19 that would otherwise be categorized as TDRs fromMarch 1, 2020 , through the earlier ofDecember 31, 2020 , or 60 days after the COVID-19 national emergency ends. OnApril 7, 2020 , the federal banking agencies, in consultation with state bank regulators, issued an interagency statement clarifying the interaction between (i) their earlier statement discussing whether loan modifications relating to COVID-19 need to be treated as TDRs and (ii) the CARES Act provision on this subject. In this interagency statement, the agencies also said that when exercising supervisory and enforcement responsibility with respect to consumer protection requirements, they will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency and that they do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to this emergency and the institution made good faith efforts to support borrowers and comply with the consumer protection requirements and addressed any needed corrective action. OnSeptember 17, 2019 , theFDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection 43 -------------------------------------------------------------------------------- TABLE OF CONTENTS Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9.0%, less than$10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. The CARES Act reduced the minimum ratio to 8% beginning in the 2nd quarter of 2020 throughDecember 31, 2020 , increasing to 8.5% for 2021 and returning to 9% beginningJanuary 1, 2022 . A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The CBLR framework will be available for banks to use in theirMarch 31, 2020 , Call Report. The CARES Act provides that if a qualifying community bank falls below the CBLR, it "shall have a reasonable grace period to satisfy" the CBLR. This provision terminates on the earlier ofDecember 31, 2020 or the date the President declares that the coronavirus emergency is terminated. The Company will not opt into the CBLR framework for the Bank. TheFederal Reserve has established several lending facilities that are intended to support the flow of credit to households, businesses, and governments. One of these facilities is the Paycheck Protection Program Liquidity Facility (PPPLF) which was set up to allow the Federal Reserve Banks to extend credit to financial institutions that originate PPP loans, taking the loans as collateral at face value. OnApril 9, 2020 , the federal banking agencies issued an interim final rule to allow banking organizations to neutralize the effect of PPP loans financed under the PPPLF on the leverage capital ratios of these organizations. Also, in accordance with the CARES Act, a PPP loan will be assigned a risk weight of zero percent under the federal banking agencies' risk-based capital rules. TheFederal Reserve has also announced that it will be creating main street lending facilities to purchase loan participations, under specified conditions, from banks lending to small and mediumU.S. businesses. The Company may participate in some or all of them. Additionally, onMarch 15, 2020 , theFederal Reserve reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings ofU.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. TheFederal Reserve has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as ofMarch 26, 2020 . …..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. 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 Unaudited Consolidated Financial Statements. 44 -------------------------------------------------------------------------------- TABLE OF CONTENTS 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 77%, of the total allowance for loan losses atMarch 31, 2020 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 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 45 -------------------------------------------------------------------------------- TABLE OF CONTENTS 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 tax expense 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 ofMarch 31, 2020 , 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 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. AtMarch 31, 2020 , 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. 46 -------------------------------------------------------------------------------- TABLE OF CONTENTS …..FORWARD LOOKING STATEMENT….. 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.
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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.
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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-Q 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, 47
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TABLE OF CONTENTS 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-Q, 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-Q. 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 theFederal 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; (xii) potential risks and uncertainties also include those relating to the duration of the COVID-19 outbreak, and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact; and (xiii) 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.
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