…..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 the U.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 since March 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, by Congress and by the Federal Reserve System.
For example, as of April 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 the Federal
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.
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THREE MONTHS ENDED MARCH 31, 2020 VS. THREE MONTHS ENDED MARCH 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 the
March 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 the U.S. Treasury yield curve between years impacted the Company's net
interest margin. The overall U.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, the Federal 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
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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 since December 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 the Federal 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 the U.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 the Federal 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 ended March 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
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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 ended March 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 ended March 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



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…..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 of March 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, at March 31, 2020. In summary, the
allowance for loan losses provided 416% coverage of non-performing assets, and
was 1.06% of total loans, at March 31, 2020, compared to 397% coverage of
non-performing assets, and 1.05% of total loans, at December 31, 2019.
…..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 $161,000 decrease in other income as the Company recognized a gain in 2019 on the sale of equity shares from a previous acquisition and no such gain was recognized in 2020;


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 $94,000 decrease in other expense resulted from the Company recognizing a reduction in the unfunded commitment reserve;

a $54,000 decrease in FDIC insurance expense due to the application of the remaining portion of the credit from the Small Bank Assessment Credit regulation; and

a $47,000 increase in occupancy and equipment expense primarily reflects higher depreciation costs.



…..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.
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…..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 the U.S. Treasury yield curve between years
along with the Federal 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 lower FDIC 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 at
March 31, 2020, a decrease of $246 million, or 11.0%, from the March 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 at
March 31, 2020, which decreased by $2.8 million, or 0.2%, from the December 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 of March 31, 2020, the 25 largest depositors represented 20.6% of total
deposits, which is a slight decrease from December 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 the U.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
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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% at March 31, 2020. See the discussion of the Basel III capital
requirements under the Capital Resources section below. As of March 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 to December 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) at March 31, 2020 and improved by 21 basis points when compared
to 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 March 31, 2020 and December 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) $ 5.22 $ 5.08




…..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.

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**
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 dated December 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 of March 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):
                                                                         

March 31, December 31, March 31,


                                                                            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%. At March 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 from December 31,
2019, to $24.1 million at March 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.
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The holding company had $6.7 million of cash, short-term investments, and
investment securities at March 31, 2020. Additionally, dividend payments from
our subsidiaries also provide ongoing cash to the holding company. At March 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 the Trust 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 at March 31, 2020 and December 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 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
March 31, 2020, the Company had $364 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 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% at March 31, 2020. The
Company's tier 1 leverage ratio was 9.94% at March 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 at
March 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 on April 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. At March 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.
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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 of March 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 in
February 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"). On March 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
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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 the U.S. economy caused
by COVID-19. Comments on the CECL Interim Final Rule are due by May 15, 2020.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on
March 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 on March 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 on March 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 the
Small 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 from March 1, 2020, through the earlier of December 31,
2020, or 60 days after the COVID-19 national emergency ends. On April 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.
On September 17, 2019, the FDIC 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
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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 through December 31, 2020, increasing to
8.5% for 2021 and returning to 9% beginning January 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 their March 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 of December 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.
The Federal 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. On April 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. The Federal 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 medium U.S. businesses. The Company
may participate in some or all of them.
Additionally, on March 15, 2020, the Federal Reserve reduced the target range
for the federal funds rate to 0 to 0.25% and announced that it would increase
its holdings of U.S. Treasury securities and agency mortgage-backed securities
and begin purchasing agency commercial mortgage-backed securities. The Federal
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 of March 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.
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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 at March 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
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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 of March 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. At March 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.
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…..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.


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.


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,
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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 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;
(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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