UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2018~~2019

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-11204

AmeriServ Financial, Inc.

(Exact name of registrant as specified in its charter)

	Pennsylvania			25-1424278
	(State or other jurisdiction of incorporation or organization)			~~25-1424278~~ (I.R.S. Employer Identification No.)

	Main & Franklin Streets, P.O. Box 430, Johnstown, PA			15907-0430
	(Address of principal executive offices)			~~15907-0430~~ (Zip Code)

Registrant’s telephone number, including area code (814) 533-5300

Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock	ASRV	The NASDAQ Stock Market LLC
8.45% Beneficial Unsecured Securities, Series A (AmeriServ Financial Capital Trust I)	ASRVP	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☒☐ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☒☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐			Accelerated filer ☐			Non-accelerated filer ☒			Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
☐ Yes ☐☒ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Class			Outstanding at November 1, ~~2018~~2019
	Common Stock, par value $0.01			~~17,746,691~~17,138,632

TABLE OF CONTENTS

AmeriServ Financial, Inc.
INDEX

	Page No.
PART I. FINANCIAL ~~INFORMATION:~~INFORMATION
Item 1. Financial Statements		1
Consolidated Balance Sheets (Unaudited) – September 30, ~~2018~~2019 and December 31, ~~2017~~2018		1
Consolidated Statements of Operations (Unaudited) – Three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		2
Consolidated Statements of Comprehensive Income (Unaudited) – Three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		3
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three and nine months ended September 30, 2019 and 2018		4
Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		5
Notes to Unaudited Consolidated Financial Statements		76
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosure About Market Risk		49
Item 4. Controls and Procedures		49
PART II. OTHER ~~INFORMATION:~~INFORMATION
Item 1. Legal Proceedings		50
Item 1A. Risk Factors		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3. Defaults Upon Senior Securities		50
Item 4. Mine Safety Disclosures		50
Item 5. Other Information		50
Item 6. Exhibits		51

TABLE OF CONTENTS

Item 1. Financial Statements

AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
(Unaudited)

September 30,
2018 December 31,
2017
ASSETS
Cash and due from depository institutions $ 23,806 $ 26,234
Interest bearing deposits 2,699 2,698
Short-term investments in money market funds 4,729 5,256
Total cash and cash equivalents 31,234 34,188
Investment securities:
Available for sale, at fair value 138,753 129,138
Held to maturity (fair value $37,345 on September 30, 2018 and $38,811 on December 31, 2017) 38,673 38,752
Loans held for sale 1,041 3,125
Loans 883,672 890,032
Less: Unearned income 339 399
Allowance for loan losses 9,439 10,214
Net loans 873,894 879,419
Premises and equipment, net 12,276 12,734
Accrued interest income receivable 4,007 3,603
Goodwill 11,944 11,944
Bank owned life insurance 38,260 37,860
Net deferred tax asset 5,985 5,963
Federal Home Loan Bank stock 5,010 4,675
Federal Reserve Bank stock 2,125 2,125
Other assets 5,604 4,129
TOTAL ASSETS $ 1,168,806 $ 1,167,655
LIABILITIES
Non-interest bearing deposits $ 152,959 $ 183,603
Interest bearing deposits 791,254 764,342
Total deposits 944,213 947,945
Short-term borrowings 61,254 49,084
Advances from Federal Home Loan Bank 42,545 46,229
Guaranteed junior subordinated deferrable interest debentures, net 12,935 12,923
Subordinated debt, net 7,482 7,465
Total borrowed funds 124,216 115,701
Other liabilities 3,198 8,907
TOTAL LIABILITIES 1,071,627 1,072,553
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized;
26,609,811 shares issued and 17,767,313 outstanding on September 30, 2018;
26,585,403 shares issued and 18,128,247 outstanding on December 31, 2017 266 266
Treasury stock at cost, 8,842,498 shares on September 30, 2018 and 8,457,156 on
December 31, 2017 (79,941) (78,233)
Capital surplus 145,779 145,707
Retained earnings 45,160 40,312
Accumulated other comprehensive loss, net (14,085) (12,950)
TOTAL SHAREHOLDERS’ EQUITY 97,179 95,102
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,168,806 $ 1,167,655

	September 30, 2019			December 31, 2018
ASSETS
Cash and due from depository institutions		$	27,087		$	27,970
Interest bearing deposits			2,884			2,740
Short-term investments in money market funds			3,155			4,184
Total cash and cash equivalents			33,126			34,894
Investment securities:
Available for sale, at fair value			143,400			146,731
Held to maturity (fair value $40,813 on September 30, 2019 and $40,324 on December 31, 2018)			39,299			40,760
Loans held for sale			5,949			847
Loans			869,529			862,604
Less: Unearned income			396			322
Allowance for loan losses			8,345			8,671
Net loans			860,788			853,611
Premises and equipment:
Operating lease right-of-use asset			868			—
Financing lease right-of-use asset			3,143			—
Other premises and equipment, net			14,798			13,348
Accrued interest income receivable			3,765			3,489
Goodwill			11,944			11,944
Bank owned life insurance			38,784			38,395
Net deferred tax asset			3,578			3,637
Federal Home Loan Bank stock			3,630			4,520
Federal Reserve Bank stock			2,125			2,125
Other assets			6,229			6,379
TOTAL ASSETS		$	1,171,426		$	1,160,680
LIABILITIES
Non-interest bearing deposits		$	144,567		$	150,627
Interest bearing deposits			825,422			798,544
Total deposits			969,989			949,171
Short-term borrowings			11,275			41,029
Advances from Federal Home Loan Bank			55,630			46,721
Operating lease liabilities			886			—
Financing lease liabilities			3,210			—
Guaranteed junior subordinated deferrable interest debentures, net			12,951			12,939
Subordinated debt, net			7,505			7,488
Total borrowed funds			91,457			108,177
Other liabilities			7,520			5,355
TOTAL LIABILITIES			1,068,966			1,062,703
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,648,728 shares issued and 17,146,714 shares outstanding on September 30, 2019; 26,609,811 shares issued and 17,619,303 shares outstanding on December 31, 2018			266			266
Treasury stock at cost, 9,502,014 shares on September 30, 2019 and 8,990,508 shares on December 31, 2018			(82,745)			(80,579)
Capital surplus			145,884			145,782
Retained earnings			50,876			46,733
Accumulated other comprehensive loss, net			(11,821)			(14,225)
TOTAL SHAREHOLDERS’ EQUITY			102,460			97,977
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,171,426		$	1,160,680

See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
INTEREST INCOME
Interest and fees on loans		$	10,607		$	9,855		$	30,550		$	29,189		$	10,737		$	10,607		$	32,149		$	30,550
Interest bearing deposits			5			3			14			8			6			5			19			14
Short-term investments in money market funds			60			42			150			93			84			60			212			150
Investment securities:
Available for sale			1,144			973			3,274			2,819			1,265			1,144			3,898			3,274
Held to maturity			333			314			981			877			341			333			1,084			981
Total Interest Income			12,149			11,187			34,969			32,986			12,433			12,149			37,362			34,969
INTEREST EXPENSE
Deposits			2,164			1,618			5,918			4,558			2,895			2,164			8,492			5,918
Short-term borrowings			267			44			529			130			38			267			276			529
Advances from Federal Home Loan Bank			199			178			577			511			297			199			793			577
Financing lease liabilities															29			—			88			—
Guaranteed junior subordinated deferrable interest debentures			280			280			840			840			280			280			841			840
Subordinated debt			130			130			390			390			130			130			390			390
Total Interest Expense			3,040			2,250			8,254			6,429			3,669			3,040			10,880			8,254
NET INTEREST INCOME			9,109			8,937			26,715			26,557			8,764			9,109			26,482			26,715
Provision for loan losses			—			200			100			750
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			9,109			8,737			26,615			25,807
Provision (credit) for loan losses															225			—			(175)			100
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES															8,539			9,109			26,657			26,615
NON-INTEREST INCOME
Wealth management fees			2,359			2,208			7,232			6,758			2,431			2,359			7,246			7,232
Service charges on deposit accounts			326			409			1,066			1,168			321			326			948			1,066
Net gains on sale of loans			176			217			393			517			405			176			574			393
Mortgage related fees			54			69			165			227			97			54			218			165
Net realized gains (losses) on investment securities			—			56			(148)			115			88			—			118			(148)
Bank owned life insurance			135			143			400			594			131			135			388			400
Other income			536			527			1,794			1,567			622			536			1,865			1,794
Total Non-Interest Income			3,586			3,629			10,902			10,946			4,095			3,586			11,357			10,902
NON-INTEREST EXPENSE
Salaries and employee benefits			5,815			5,943			18,126			17,808			6,324			5,815			18,973			18,126
Net occupancy expense			585			634			1,866			1,947			599			585			1,879			1,866
Equipment expense			335			343			1,104			1,196			333			335			1,081			1,104
Professional fees			1,321			1,213			3,757			3,828			1,276			1,321			3,645			3,757
Supplies, postage and freight			159			161			491			516			142			159			455			491
Miscellaneous taxes and insurance			276			319			842			924			280			258			851			797
Federal deposit insurance expense			140			156			457			468			-			140			160			457
Other expense			1,483			1,345			3,901			3,829			1,549			1,483			4,208			3,901
Total Non-Interest Expense			10,114			10,114			30,544			30,516			10,503			10,096			31,252			30,499
PRETAX INCOME			2,581			2,252			6,973			6,237			2,131			2,599			6,762			7,018
Provision for income tax expense			252			701			1,133			1,949			442			270			1,403			1,178
NET INCOME			2,329			1,551			5,840			4,288			1,689			2,329			5,359			5,840

PER COMMON SHARE DATA:
Basic:
Net income														$	0.10		$	0.13		$	0.31		$	0.32
Average number of shares outstanding															17,278			17,924			17,443			18,013
Diluted:
Net income														$	0.10		$	0.13		$	0.31		$	0.32
Average number of shares outstanding															17,360			18,036			17,524			18,117

See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS – (continued)~~COMPREHENSIVE INCOME
(In ~~thousands, except per share data)~~thousands)
(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
2018 2017 2018 2017
PER COMMON SHARE DATA:
Basic:
Net income $ 0.13 $ 0.08 $ 0.32 $ 0.23
Average number of shares outstanding 17,924 18,380 18,013 18,590
Diluted:
Net income $ 0.13 $ 0.08 $ 0.32 $ 0.23
Average number of shares outstanding 18,036 18,481 18,117 18,689
Cash dividends declared $ 0.020 $ 0.015 $ 0.055 $ 0.045

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
COMPREHENSIVE INCOME
Net income		$	1,689		$	2,329		$	5,359		$	5,840
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan			403			390			(1,030)			1,824
Income tax effect			(85)			(82)			216			(383)
Unrealized holding gains (losses) on available for sale securities arising during period			608			(919)			4,191			(3,409)
Income tax effect			(128)			193			(880)			716
Reclassification adjustment for (gains) losses on available for sale securities included in net income			(88)			—			(118)			148
Income tax effect			19			—			25			(31)
Other comprehensive income (loss)			729			(418)			2,404			(1,135)
Comprehensive income		$	2,418		$	1,911		$	7,763		$	4,705

See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
COMPREHENSIVE INCOME
Net income $ 2,329 $ 1,551 $ 5,840 $ 4,288
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan 390 396 1,824 870
Income tax effect (82) (135) (383) (297)
Unrealized holding gains (losses) on available for sale
securities arising during period (919) 176 (3,409) 538
Income tax effect 193 (60) 716 (182)
Reclassification adjustment for (gains) losses on available for sale securities included in net income — (56) 148 (115)
Income tax effect — 19 (31) 39
Other comprehensive income (loss) (418) 340 (1,135) 853
Comprehensive income $ 1,911 $ 1,891 $ 4,705 $ 5,141

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
COMMON STOCK
Balance at beginning of period			266			266			266			266
New common shares issued for exercise of stock options			—			—			—			—
Balance at end of period			266			266			266			266
TREASURY STOCK
Balance at beginning of period			(81,741)			(78,678)			(80,579)			(78,233)
Treasury stock, purchased at cost (237,641 and 279,679 shares for the three months ended September 30, 2019 and 2018, respectively and 511,506 and 385,342 shares for the nine months ended September 30, 2019 and 2018, respectively)			(1,004)			(1,263)			(2,166)			(1,708)
Balance at end of period			(82,745)			(79,941)			(82,745)			(79,941)
CAPITAL SURPLUS
Balance at beginning of period			145,883			145,771			145,782			145,707
New common shares issued for exercise of stock options (2,300 shares for the three months ended September 30, 2018 and 38,917 and 24,408 shares for the nine months ended September 30, 2019 and 2018, respectively)			—			5			96			61
Stock option expense			1			3			6			11
Balance at end of period			145,884			145,779			145,884			145,779
RETAINED EARNINGS
Balance at beginning of period			49,618			43,191			46,733			40,312
Net income			1,689			2,329			5,359			5,840
Cash dividend declared on common stock ($0.025 and $0.020 per share for the three months ended September 30, 2019 and 2018, respectively and $0.070 and $0.055 per share for the nine months ended September 30, 2019 and 2018, respectively)			(431)			(360)			(1,216)			(992)
Balance at end of period			50,876			45,160			50,876			45,160
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period			(12,550)			(13,667)			(14,225)			(12,950)
Other comprehensive income (loss)			729			(418)			2,404			(1,135)
Balance at end of period			(11,821)			(14,085)			(11,821)			(14,085)
TOTAL STOCKHOLDERS’ EQUITY		$	102,460		$	97,179		$	102,460		$	97,179

See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine months ended September 30,						Nine months ended September 30,
	2018			2017			2019			2018
OPERATING ACTIVITIES
Net income		$	5,840		$	4,288		$	5,359		$	5,840
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			100			750
Depreciation expense			1,149			1,224
Provision (credit) for loan losses									(175)			100
Depreciation and amortization expense									1,360			1,149
Net amortization of investment securities			273			346			203			273
Net realized (gains) losses on investment securities available for sale			148			(115)
Net gains on sale of loans			(393)			(517)
Net realized (gains) losses on investment securities – available for sale									(118)			148
Net gains on loans held for sale									(574)			(393)
Amortization of deferred loan fees			(115)			(117)			(91)			(115)
Origination of mortgage loans held for sale			(23,361)			(34,045)			(28,232)			(23,361)
Sales of mortgage loans held for sale			25,838			35,876			23,704			25,838
Increase in accrued interest income receivable			(404)			(387)
Increase (decrease) in accrued interest payable			366			(18)
Increase in accrued interest receivable									(276)			(404)
Increase in accrued interest payable									307			366
Earnings on bank owned life insurance			(400)			(427)			(388)			(400)
Deferred income taxes			249			975			623			249
Stock based compensation expense			72			170
Stock compensation expense									6			11
Net change in operating leases									(46)			—
Other, net			(5,534)			(2,463)			(323)			(5,534)
Net cash provided by operating activities			3,828			5,540			1,339			3,767
INVESTING ACTIVITIES
Purchases of investment securities – available for sale			(30,371)			(27,581)
Purchases of investment securities – held to maturity			(3,405)			(9,465)
Purchase of investment securities – available for sale									(11,701)			(30,371)
Purchase of investment securities – held to maturity									(1,000)			(3,405)
Proceeds from sales of investment securities – available for sale			4,479			8,143			3,374			4,479
Proceeds from maturities of investment securities – available for sale			12,662			17,341			15,704			12,662
Proceeds from maturities of investment securities – held to maturity			3,417			1,054			2,403			3,417
Purchases of regulatory stock			(14,193)			(12,894)
Purchase of regulatory stock									(11,254)			(14,193)
Proceeds from redemption of regulatory stock			13,858			11,824			12,144			13,858
Long-term loans originated			(124,519)			(122,029)			(139,551)			(124,519)
Principal collected on long-term loans			139,836			112,626			151,752			139,836
Loans purchased or participated			(11,443)			(6,121)
Loans sold or participated			1,500			2,800
Loan participations purchased									(23,792)			(11,443)
Loan participations sold									4,605			1,500
Proceeds from sale of other real estate owned			34			60			198			34
Proceeds from life insurance policies			—			614
Purchases of premises and equipment			(691)			(2,188)
Net cash used in investing activities			(8,836)			(25,816)

Purchase of premises and equipment									(2,550)			(691)
Net cash provided by (used in) investing activities									332			(8,836)
FINANCING ACTIVITIES
Net increase (decrease) in deposit balances									20,818			(3,732)
Net increase (decrease) in other short-term borrowings									(29,754)			12,170
Principal borrowings on advances from Federal Home Loan Bank									16,909			6,316
Principal repayments on advances from Federal Home Loan Bank									(8,000)			(10,000)
Principal payments on financing lease liabilities									(126)			—
Stock options exercised									96			61
Purchase of treasury stock									(2,166)			(1,708)
Common stock dividends									(1,216)			(992)
Net cash provided by (used in) financing activities									(3,439)			2,115
NET DECREASE IN CASH AND CASH EQUIVALENTS									(1,768)			(2,954)
CASH AND CASH EQUIVALENTS AT JANUARY 1									34,894			34,188
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30								$	33,126		$	31,234

See accompanying notes to unaudited consolidated financial statements.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)~~
~~(In thousands)~~
~~(Unaudited)~~

Nine months ended
September 30,
2018 2017
FINANCING ACTIVITIES
Net decrease in deposit balances (3,732) (865)
Net increase in other short-term borrowings 12,170 20,839
Principal borrowings on advances from Federal Home Loan Bank 6,316 9,500
Principal repayments on advances from Federal Home Loan Bank (10,000) (11,000)
Purchase of treasury stock (1,708) (2,757)
Common stock dividends (992) (839)
Net cash provided by financing activities 2,054 14,878
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,954) (5,398)
CASH AND CASH EQUIVALENTS AT JANUARY 1 34,188 34,073
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 31,234 $ 28,675

~~See accompanying notes to unaudited consolidated financial statements.~~

TABLE OF CONTENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), AmeriServ Trust and Financial Services Company (the Trust Company), and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a Pennsylvania state-chartered full service bank with 15 locations in ~~Pennsylvania.~~Pennsylvania and 1 location in Maryland. The Trust Company offers a complete range of trust and financial services and administers assets valued at ~~$2.3~~$2.1 billion that are not reported on the Company’s Consolidated Balance ~~Sheet~~Sheets at September 30, ~~2018.~~2019. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.

In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Significant intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.

Basis of Preparation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. They are not, however, necessarily indicative of the results of consolidated operations for a full-year.

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

On October 16, 2019, the FASB voted to defer the effective date for ASU 2016-13, Financial Instruments — Credit Losses, for smaller reporting companies (as defined by the Securities and Exchange Commission) to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. The Company, as a smaller reporting company, continues to evaluate the impact that the Update will have on our consolidated financial statements. We are currently working with an industry leading third-party consultant and software provider to assist us in the implementation of this standard. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

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Adoption of Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. ~~For public business entities, the amendments~~Additionally, in ~~this Update are effective for fiscal years beginning after December 15,~~July 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical measures it may elect at adoption, but does not anticipate the amendment will have a significant impact to the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the Company expects to recognize a right of use asset and a lease liability for its operating leases commitments. The Company also anticipates additional disclosures to be provided at adoption.

~~In June 2016,~~ the FASB issued ASU ~~2016-13,~~2018-11, ~~Financial Instruments~~Leases (Topic 842) — ~~Credit Losses: Measurement of Credit Losses on Financial Instruments~~ Targeted Improvements~~(“ASU 2016-13”)~~, which, ~~changes the impairment model for most financial assets. This Update is intended~~among other things, provides an additional transition method that would allow entities to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the

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expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in whichnot apply the guidance ~~is adopted. The Company is currently evaluating~~in ASU 2016-02 in the ~~impact that~~comparative periods presented in the ~~Update will have on our consolidated~~ financial ~~statements. The overall impact of the amendment will be affected by the portfolio composition~~statements and ~~quality at the adoption date as well as economic conditions and forecasts at that time.~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20).~~ The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis throughinstead recognize a cumulative-effect adjustment ~~directly~~ to the opening balance of retained earnings ~~as of the beginning of~~in the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

~~Adoption of Accounting Standards~~

~~Effective January 1, 2018, the~~The Company adopted ASU ~~2014-09,~~ ~~Revenue from Contracts with Customers — Topic 606~~2016-02 and ~~all subsequent ASUs that modified ASC 606. The standard required a company to recognize~~its related amendments as of January 1, 2019, which resulted in the ~~amount~~recognition of ~~revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place.~~operating and financing right-of-use assets totaling $932,000 and $3.3 million, respectively, as well as operating and financing lease liabilities totaling $932,000 and $3.3 million, respectively. The Company ~~completed an assessment~~elected to adopt the transition relief provisions from ASU 2018-11 and recorded the impact of ~~revenue streams and review~~adoption as of ~~the~~January 1, 2019, without restating any prior-year amounts or disclosures. The related ~~contracts potentially affected~~policy elections made by the ~~new standard~~Company and ~~concluded that ASU 2014-09 did not materially change~~ the ~~method in which it recognizes revenue. Therefore, implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. However,~~ additional lease disclosures ~~were added in the current period, which~~ can be found in Note 5.

~~In January 2016, the FASB finalized ASU 2016-01,~~ ~~Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes13. There was no cumulative effect adjustment to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

~~The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement~~opening balance of ~~the fair value of financial instruments using an exit~~

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price notion for disclosure purposes included in Note 19 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the September 30, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on many types of community bank loans and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation — Retirement Benefits (Topic 715)~~. The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of $(22,000) and $(62,000), for the third quarter of 2018 and 2017, respectively, and $(66,000) and $(186,000) for the nine month period ending September 30, 2018 and 2017, respectively, from Salaries and employee benefits into Other expense on the Consolidated Statement of Operations. See Note 18 for additional information on the presentation of these pension cost components.retained earnings required.

Revenue Recognition

ASU 2014-09, Revenue from Contracts with Customers — Topic 606, requires the Company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. Management has determined that the primary sources of revenue associated with financial instruments, including interest and fee income on loans and interest on investments, along with certain noninterest revenue sources including net realized gains (losses) on investment ~~security gains, loan servicing charges,~~securities, mortgage related fees, net gains on ~~the~~loans held for sale, ~~of loans,~~ and bank owned life insurance ~~income~~ are not within the scope of Topic 606. ~~As a result, no changes were made during the period related to these~~These sources of revenue ~~which~~ cumulatively comprise ~~79.1%~~80.5% of the total revenue of the Company.

Noninterest income within the scope of Topic 606 are as follows:

•

Wealth management fees — Wealth management fee income is primarily comprised of fees earned from the management and administration of trusts and customer investment portfolios. The Company’s performance obligation is generally satisfied over a period of time and the resulting fees are billed monthly or quarterly, based upon the month end market value of the assets under management. Payment is generally received after month end through a direct charge to customers’ accounts. Other performance obligations (such as delivery of account statements to customers) are generally considered immaterial to the overall transactions price. Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Also included within wealth management fees are commissions from the sale of mutual funds, annuities, and life insurance products. Commissions on the sale of mutual funds, annuities, and life insurance products are recognized when sold, which is when the Company has satisfied its performance obligation.

•

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

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•

Other noninterest income — Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an

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annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid ~~(i.e.paid~~(i.e. paid prior to issuance of annual bill), the revenue is recognized upon receipt of payment. The Company has determined that since rentals and renewals occur consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Gains and losses on the sale of other real estate owned are recognized at the completion of the property sale when the buyer obtains control of the real estate and all the performance obligations of the Company have been satisfied.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine month periods ending September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands).

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Noninterest income:
In-scope of Topic 606
Wealth management fees		$	2,359		$	2,208		$	7,232		$	6,758		$	2,431		$	2,359		$	7,246		$	7,232
Service charges on deposit accounts			326			409			1,066			1,168			321			326			948			1,066
Other			439			410			1,291			1,236			471			439			1,325			1,291
Noninterest income (in-scope of topic 606)			3,124			3,027			9,589			9,162			3,223			3,124			9,519			9,589
Noninterest income (out-of-scope of topic 606)			462			602			1,313			1,784			872			462			1,838			1,313
Total noninterest income		$	3,586		$	3,629		$	10,902		$	10,946		$	4,095		$	3,586		$	11,357		$	10,902

Earnings Per Common Share

Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. For the three and nine month periods ending September 30, ~~2017,~~2019, options to purchase ~~10,000~~12,000 common shares, with an exercise price of ~~$4.00,~~$4.19 to $4.22, were outstanding but were not included in the computation of diluted earnings per common share because to do so would be antidilutive. There were no antidilutive securities during either period of 2018.

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(In thousands, except per share data)												(In thousands, except per share data)
Numerator:
Net income		$	2,329		$	1,551		$	5,840		$	4,288		$	1,689		$	2,329		$	5,359		$	5,840
Denominator:
Weighted average common shares outstanding (basic)			17,924			18,380			18,013			18,590			17,278			17,924			17,443			18,013
Effect of stock options			112			101			104			99			82			112			81			104
Weighted average common shares outstanding (diluted)			18,036			18,481			18,117			18,689			17,360			18,036			17,524			18,117
Earnings per common share:
Earnings per common share:
Basic		$	0.13		$	0.08		$	0.32		$	0.23		$	0.10		$	0.13		$	0.31		$	0.32
Diluted			0.13			0.08			0.32			0.23			0.10			0.13			0.31			0.32

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Consolidated Statement of Cash Flows

On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits and short-term investments in money market funds with original maturities of 90 days or ~~less.~~less. The Company made ~~$875,000~~$785,000 in income tax payments in the first nine months of ~~2018~~2019 and ~~$975,000~~$875,000 in the same ~~2017~~2018 period. The Company made total interest payments of ~~$7,888,000~~$10,573,000 in the first nine months of ~~2018~~2019 compared to ~~$6,447,000~~$7,888,000 in the same ~~2017~~2018 period. The Company had ~~$166,000~~$75,000 non-cash transfers to other real estate owned (OREO) in the first nine months of ~~2018~~2019 compared to ~~$59,000~~$166,000 non-cash transfers in the same ~~2017~~2018 period. As a result of the adoption of ASU 2016-02, Leases (Topic 842) as of January 1, 2019, the Company had non-cash transactions associated with the recognition of the right-of-use assets and lease liabilities. Specifically, the Company recognized a right-of-use asset and lease liability of $932,000 related to operating leases and a right-of-use asset and lease liability of $3.3 million related to financing leases.

Investment Securities

The cost basis and fair values of investment securities are summarized as follows (in thousands):

Investment securities available for sale (AFS):

	September 30, 2018												September 30, 2019
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency		$	6,731		$	—		$	(308)		$	6,423		$	6,209		$	71		$	—		$	6,280
US Agency mortgage- backed securities			87,075			232			(2,308)			84,999
US Agency mortgage-backed securities															83,830			1,760			(100)			85,490
Municipal			11,240			15			(489)			10,766			13,781			642			(8)			14,415
Corporate bonds			37,380			92			(907)			36,565			37,290			317			(392)			37,215
Total		$	142,426		$	339		$	(4,012)		$	138,753		$	141,110		$	2,790		$	(500)		$	143,400

Investment securities held to maturity (HTM):

	September 30, 2018												September 30, 2019
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency mortgage- backed securities		$	8,294		$	65		$	(256)		$	8,103
US Agency mortgage-backed securities														$	9,061		$	277		$	(6)		$	9,332
Municipal			24,341			25			(956)			23,410			24,205			1,259			(42)			25,422
Corporate bonds and other securities			6,038			10			(216)			5,832			6,033			62			(36)			6,059
Total		$	38,673		$	100		$	(1,428)		$	37,345		$	39,299		$	1,598		$	(84)		$	40,813

Investment securities available for sale (AFS):

	December 31, 2017												December 31, 2018
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency		$	6,612		$	—		$	(40)		$	6,572		$	7,685		$	4		$	(160)		$	7,529
US Agency mortgage- backed securities			79,854			611			(719)			79,746
US Agency mortgage-backed securities															90,169			516			(1,158)			89,527
Municipal			7,198			27			(189)			7,036			13,301			114			(234)			13,181
Corporate bonds			35,886			322			(424)			35,784			37,359			131			(996)			36,494
Total		$	129,550		$	960		$	(1,372)		$	129,138		$	148,514		$	765		$	(2,548)		$	146,731

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Investment securities held to maturity (HTM):

	December 31, 2017												December 31, 2018
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency mortgage- backed securities		$	9,740		$	149		$	(45)		$	9,844
US Agency mortgage-backed securities														$	9,983		$	78		$	(132)		$	9,929
Municipal			22,970			203			(238)			22,935			24,740			131			(404)			24,467
Corporate bonds and other securities			6,042			38			(48)			6,032			6,037			13			(122)			5,928
Total		$	38,752		$	390		$	(331)		$	38,811		$	40,760		$	222		$	(658)		$	40,324

Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of “A.” At September 30, ~~2018, 57.0%~~2019, 55.6% of the portfolio was rated “AAA”as compared to ~~57.8%~~57.5% at December 31, ~~2017.~~2018. Approximately ~~9.7%~~9.1% of the portfolio was either rated below “A” or unrated at September 30, ~~2018 and~~2019 as compared to 10.0% at December 31, ~~2017.~~2018.

The Company sold $2.8 million AFS securities in the third quarter of 2019 resulting in $88,000 of gross investment security gains and sold $3.4 million AFS securities in the first nine months of 2019 resulting in $118,000 of gross investment security gains. The Company sold no AFS securities during the third quarter of 2018. Total proceeds from the sale of AFS securities for the first nine months of 2018 were $4.5 million resulting in $15,000 of gross investment security gains and $163,000 of gross investment security losses. The Company sold $937,000 AFS securities in the third quarter of 2017 resulting in $56,000 of gross investment security gains and sold $8.1 million AFS securities in the first nine months of 2017 resulting in $115,000 of gross investment security gains.

The ~~book~~carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was ~~$110,038,000~~$126,815,000 at September 30, ~~2018~~2019 and ~~$117,181,000~~$115,536,000 at December 31, ~~2017.~~2018.

The following tables present information concerning investments with unrealized losses as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):

Total investment securities:

	September 30, 2018																		September 30, 2019
	Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
US Agency		$	2,734		$	(109)		$	3,689		$	(199)		$	6,423		$	(308)		$	—		$	—		$	—		$	—		$	—		$	—
US Agency mortgage-backed securities			49,544			(1,211)			29,471			(1,353)			79,015			(2,564)			4,602			(20)			10,804			(86)			15,406			(106)
Municipal			19,978			(619)			11,847			(826)			31,825			(1,445)			943			(3)			1,130			(47)			2,073			(50)
Corporate bonds and other securities			21,320			(547)			12,979			(576)			34,299			(1,123)			3,051			(31)			16,145			(397)			19,196			(428)
Total		$	93,576		$	(2,486)		$	57,986		$	(2,954)		$	151,562		$	(5,440)		$	8,596		$	(54)		$	28,079		$	(530)		$	36,675		$	(584)

Total investment securities:

	December 31, 2017																		December 31, 2018
	Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer						Total
	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
US Agency		$	5,923		$	(39)		$	399		$	(1)		$	6,322		$	(40)		$	244		$	(6)		$	5,631		$	(154)		$	5,875		$	(160)
US Agency mortgage-backed securities			36,783			(253)			22,625			(511)			59,408			(764)			17,718			(177)			39,983			(1,113)			57,701			(1,290)
Municipal			8,657			(109)			7,727			(318)			16,384			(427)			6,601			(71)			15,880			(567)			22,481			(638)
Corporate bonds and other securities			7,123			(71)			13,655			(401)			20,778			(472)			15,221			(440)			17,038			(678)			32,259			(1,118)
Total		$	58,486		$	(472)		$	44,406		$	(1,231)		$	102,892		$	(1,703)		$	39,784		$	(694)		$	78,532		$	(2,512)		$	118,316		$	(3,206)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are ~~233~~51 positions that are considered temporarily impaired at September 30, ~~2018.~~2019. 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.~~value or mature.

Contractual maturities of securities at September 30, ~~2018~~2019 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at September 30, ~~2018~~2019 is ~~48.2~~35.1 months and is ~~higher~~lower than the duration at December 31, ~~2017~~2018 which was ~~44.3~~44.1 months. The duration remains within our internal established guideline range of 24 to 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

	September 30, 2018												September 30, 2019
	Available for sale						Held to maturity						Available for sale						Held to maturity
	Cost Basis			Fair Value			Cost Basis			Fair Value			Cost Basis			Fair Value			Cost Basis			Fair Value
Within 1 year		$	48		$	49		$	1,000		$	973		$	2,500		$	2,506		$	—		$	—
After 1 year but within 5 years			20,140			19,890			3,658			3,471			21,374			21,485			6,516			6,565
After 5 years but within 10 years			47,068			45,673			18,017			17,362			40,360			41,005			19,662			20,618
After 10 years but within15 years			29,952			29,194			11,605			11,292			24,722			25,248			8,085			8,481
Over 15 years			45,218			43,947			4,393			4,247			52,154			53,156			5,036			5,149
Total		$	142,426		$	138,753		$	38,673		$	37,345		$	141,110		$	143,400		$	39,299		$	40,813

As of September 30, 2019, the Company reported $354,000 of equity securities within Other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) is reported within Other income on the Consolidated Statements of Operations. For the third quarter and first nine months of 2019, the Company recorded a realized gain of $9,000 and an unrealized gain of $3,000 on these equity securities. Additionally, the Company has recognized a deferred compensation liability, which is equal to the balance of the equity securities and is reported within Other liabilities on the Consolidated Balance Sheets.

Loans

The loan portfolio of the Company consists of the following (in thousands):

September 30,
2018 December 31,
2017
Commercial:
Commercial and industrial $ 165,522 $ 159,192
Commercial loans secured by owner occupied real estate 95,594 89,935
Commercial loans secured by non-owner occupied real estate 363,532 373,845
Real estate — residential mortgage 240,591 247,278
Consumer 18,094 19,383
Loans, net of unearned income $ 883,333 $ 889,633

Loan balances at September 30, 2018 and December 31, 2017 are net of unearned income of $339,000 and $399,000, respectively. Real estate-construction loans comprised 3.9% and 4.1% of total loans, net of unearned income at September 30, 2018 and December 31, 2017, respectively.

	September 30, 2019			December 31, 2018
Commercial:
Commercial and industrial		$	163,385		$	158,279
Commercial loans secured by owner occupied real estate			82,378			91,905
Commercial loans secured by non-owner occupied real estate			367,045			356,543
Real estate – residential mortgage			238,140			237,964
Consumer			18,185			17,591
Loans, net of unearned income		$	869,133		$	862,282

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Loan balances at September 30, 2019 and December 31, 2018 are net of unearned income of $396,000 and $322,000, respectively. Real estate-construction loans comprised 4.4% and 3.5% of total loans, net of unearned income at September 30, 2019 and December 31, 2018, respectively.

10.

Allowance for Loan Losses

The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three and nine month periods ending September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands).

Three months ended September 30, 2018
Balance at
June 30,
2018 Charge-
Offs Recoveries Provision
(Credit) Balance at
September 30,
2018
Commercial $ 3,566 $ — $ 17 $ 175 $ 3,758
Commercial loans secured by non-owner occupied real estate 3,686 — 12 (310) 3,388
Real estate – residential mortgage 1,253 (123) 34 75 1,239
Consumer 125 (29) 7 25 128
Allocation for general risk 891 — — 35 926
Total $ 9,521 $ (152) $ 70 $ — $ 9,439

Three months ended September 30, 2017
Balance at
June 30,
2017 Charge-
Offs Recoveries Provision
(Credit) Balance at
September 30,
2017
Commercial $ 3,824 $ (228) $ 9 $ 562 $ 4,167
Commercial loans secured by non-owner occupied real estate 4,488 — 20 (662) 3,846
Real estate – residential mortgage 1,150 (109) 53 70 1,164
Consumer 139 (42) 52 (10) 139
Allocation for general risk 790 — — 240 1,030
Total $ 10,391 $ (379) $ 134 $ 200 $ 10,346

Nine months ended September 30, 2018
Balance at
December 31,
2017 Charge-
Offs Recoveries Provision
(Credit) Balance at
September 30,
2018
Commercial $ 4,298 $ (574) $ 29 $ 5 $ 3,758
Commercial loans secured by non-owner occupied real estate 3,666 — 38 (316) 3,388
Real estate – residential mortgage 1,102 (340) 111 366 1,239
Consumer 128 (181) 42 139 128
Allocation for general risk 1,020 — — (94) 926
Total $ 10,214 $ (1,095) $ 220 $ 100 $ 9,439

Nine months ended September 30, 2017
Balance at
December 31,
2016 Charge-
Offs Recoveries Provision
(Credit) Balance at
September 30,
2017
Commercial $ 4,041 $ (228) $ 22 $ 332 $ 4,167
Commercial loans secured by non-owner occupied real estate 3,584 (14) 44 232 3,846
Real estate – residential mortgage 1,169 (263) 128 130 1,164
Consumer 151 (138) 113 13 139
Allocation for general risk 987 — — 43 1,030
Total $ 9,932 $ (643) $ 307 $ 750 $ 10,346

The Company did not record a provision for loan losses in the third quarter of 2018 compared to a $200,000 provision for loan losses in the third quarter of 2017. For the first nine months of 2018, the Company recorded a $100,000 provision for loan losses compared to a $750,000 provision for loan losses in

	Three months ended September 30, 2019
	Balance at June 30, 2019			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2019
Commercial		$	2,538		$	(1)		$	8		$	464		$	3,009
Commercial loans secured by non-owner occupied real estate			3,425			—			12			(81)			3,356
Real estate – residential mortgage			1,218			—			25			(46)			1,197
Consumer			124			(36)			10			28			126
Allocation for general risk			797			—			—			(140)			657
Total		$	8,102		$	(37)		$	55		$	225		$	8,345

	Three months ended September 30, 2018
	Balance at June 30, 2018			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2018
Commercial		$	3,566		$	—		$	17		$	175		$	3,758
Commercial loans secured by non-owner occupied real estate			3,686			—			12			(310)			3,388
Real estate – residential mortgage			1,253			(123)			34			75			1,239
Consumer			125			(29)			7			25			128
Allocation for general risk			891			—			—			35			926
Total		$	9,521		$	(152)		$	70		$	—		$	9,439

	Nine months ended September 30, 2019
	Balance at December 31, 2018			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2019
Commercial		$	3,057		$	(1)		$	13		$	(60)		$	3,009
Commercial loans secured by non-owner occupied real estate			3,389			(63)			36			(6)			3,356
Real estate – residential mortgage			1,235			(71)			101			(68)			1,197
Consumer			127			(206)			40			165			126
Allocation for general risk			863			—			—			(206)			657
Total		$	8,671		$	(341)		$	190		$	(175)		$	8,345

	Nine months ended September 30, 2018
	Balance at December 31, 2017			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2018
Commercial		$	4,298		$	(574)		$	29		$	5		$	3,758
Commercial loans secured by non-owner occupied real estate			3,666			—			38			(316)			3,388
Real estate – residential mortgage			1,102			(340)			111			366			1,239
Consumer			128			(181)			42			139			128
Allocation for general risk			1,020			—			—			(94)			926
Total		$	10,214		$	(1,095)		$	220		$	100		$	9,439

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded a provision for loan losses of $225,000 in the third quarter of 2019 as compared to a zero provision recorded in the third quarter of 2018. For the first nine months of ~~2017.~~2019, the Company recorded a $175,000 loan loss provision recovery compared to a $100,000 provision expense recorded in the first nine months of 2018. The ~~lower 2018~~2019 provision recovery reflects our overall strong asset quality, ~~the successful workout~~limited loan growth, and low level of ~~several criticized loans, and reduced~~net loan ~~portfolio balances.~~charge-offs. For the first nine months of ~~2018,~~2019, the Company experienced net loan charge-offs of only $151,000, or 0.02% of total loans, compared to net loan charge-offs of $875,000, or 0.13% of total loans, ~~compared~~in the first nine months of 2018. Overall, the Company continued to ~~net loan charge-offs of $336,000,~~maintain outstanding asset quality as its non-performing assets totaled $2.0 million, or ~~0.05%~~only 0.22% of total loans, ~~in 2017.~~at September 30, 2019. The ~~higher 2018 net~~allowance for loan ~~charge-offs reflect the final work-out~~losses provided 426% coverage of ~~several~~ non-performing assets, and 0.95% of total loans, ~~on which reserves had previously been established.~~at September 30, 2019, compared to 629% coverage of non-performing assets, and 1.00% of total loans, at December 31, 2018.

The following tables summarize the loan portfolio and allowance for loan loss by the primary segments of the loan portfolio (in thousands).

At September 30, 2018
Commercial Commercial Loans
Secured by Non-Owner
Occupied Real Estate Real Estate-
Residential
Mortgage Consumer Allocation for
General Risk Total
Loans:
Individually evaluated for impairment $ — $ 11 $ — $ — $ 11
Collectively evaluated for impairment 261,116 363,521 240,591 18,094 883,322
Total loans $ 261,116 $ 363,532 $ 240,591 $ 18,094 $ 883,333
Allowance for loan losses:
Specific reserve allocation $ — $ — $ — $ — $ — $ —
General reserve allocation 3,758 3,388 1,239 128 926 9,439
Total allowance for loan losses $ 3,758 $ 3,388 $ 1,239 $ 128 $ 926 $ 9,439

At December 31, 2017
Commercial Commercial Loans
Secured by Non-Owner
Occupied Real Estate Real Estate-
Residential
Mortgage Consumer Allocation for
General Risk Total
Loans:
Individually evaluated for impairment $ 1,213 $ 547 $ — $ — $ 1,760
Collectively evaluated for impairment 247,914 373,298 247,278 19,383 887,873
Total loans $ 249,127 $ 373,845 $ 247,278 $ 19,383 $ 889,633
Allowance for loan losses:
Specific reserve allocation $ 909 $ — $ — $ — $ — $ 909
General reserve allocation 3,389 3,666 1,102 128 1,020 9,305
Total allowance for loan losses $ 4,298 $ 3,666 $ 1,102 $ 128 $ 1,020 $ 10,214

	At September 30, 2019
	Commercial			Commercial Loans Secured by Non-Owner Occupied Real Estate			Real Estate- Residential Mortgage			Consumer			Allocation for General Risk			Total
Loans:
Individually evaluated for impairment		$	820		$	9		$	—		$	—					$	829
Collectively evaluated for impairment			244,943			367,036			238,140			18,185						868,304
Total loans		$	245,763		$	367,045		$	238,140		$	18,185					$	869,133
Allowance for loan losses:
Specific reserve allocation		$	87		$	9		$	—		$	—		$	—		$	96
General reserve allocation			2,922			3,347			1,197			126			657			8,249
Total allowance for loan losses		$	3,009		$	3,356		$	1,197		$	126		$	657		$	8,345

	At December 31, 2018
	Commercial			Commercial Loans Secured by Non-Owner Occupied Real Estate			Real Estate- Residential Mortgage			Consumer			Allocation for General Risk			Total
Loans:
Individually evaluated for impairment		$	—		$	11		$	—		$	—					$	11
Collectively evaluated for impairment			250,184			356,532			237,964			17,591						862,271
Total loans		$	250,184		$	356,543		$	237,964		$	17,591					$	862,282
Allowance for loan losses:
Specific reserve allocation		$	—		$	11		$	—		$	—		$	—		$	11
General reserve allocation			3,057			3,378			1,235			127			863			8,660
Total allowance for loan losses		$	3,057		$	3,389		$	1,235		$	127		$	863		$	8,671

The segments of the Company’s loan portfolio are disaggregated into classes that allows management to monitor risk and performance. The loan classes used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio. The commercial loan segment includes both the commercial and industrial

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

and the owner occupied commercial real estate loan ~~classes.~~classes while the remaining segments are not separated into classes as management monitors risk in these loans at the segment level. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans secured by residential real estate. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment with a loan balance in excess of $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). Loans are considered to be impaired when, based on current

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a TDR.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs for collateral dependent loans. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The need for an updated appraisal on collateral dependent loans is determined on a case-by-case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for loan losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s internal ~~Loan Review~~Assigned Risk Department to support the value of the property.

When reviewing an appraisal associated with an existing real estate collateral dependent transaction, the Bank’s internal Assigned Risk Department must determine if there have been material changes to the underlying assumptions in the appraisal which affect the original estimate of value. Some of the factors that could cause material changes to reported values include:

•

the passage of time;

•

the volatility of the local market;

•

the availability of financing;

•

natural disasters;

•

the inventory of competing properties;

•

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

•

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

•

environmental contamination.

The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.

The following tables present impaired loans by portfolio segment, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands).

September 30, 2018
Impaired Loans with
Specific Allowance Impaired
Loans with
no Specific
Allowance Total Impaired Loans
Recorded
Investment Related
Allowance �� Recorded
Investment Recorded
Investment Unpaid
Principal
Balance
Commercial $ — $ — $ — $ — $ —
Commercial loans secured by non-owner occupied real estate — — 11 11 33
Total impaired loans $ — $ — $ 11 $ 11 $ 33

December 31, 2017
Impaired Loans with
Specific Allowance Impaired
Loans with
no Specific
Allowance Total Impaired Loans
Recorded
Investment Related
Allowance Recorded
Investment Recorded
Investment Unpaid
Principal
Balance
Commercial $ 1,202 $ 909 $ 11 $ 1,213 $ 1,215
Commercial loans secured by non-owner occupied real estate — — 547 547 600
Total impaired loans $ 1,202 $ 909 $ 558 $ 1,760 $ 1,815

	September 30, 2019
	Impaired Loans with Specific Allowance						Impaired Loans with no Specific Allowance			Total Impaired Loans
	Recorded Investment			Related Allowance			Recorded Investment			Recorded Investment			Unpaid Principal Balance
Commercial		$	820		$	87		$	—		$	820		$	820
Commercial loans secured by non-owner occupied real estate			9			9			—			9			31
Total impaired loans		$	829		$	96		$	—		$	829		$	851

	December 31, 2018
	Impaired Loans with Specific Allowance						Impaired Loans with no Specific Allowance			Total Impaired Loans
	Recorded Investment			Related Allowance			Recorded Investment			Recorded Investment			Unpaid Principal Balance
Commercial loans secured by non-owner occupied real estate		$	11		$	11		$	—		$	11		$	33
Total impaired loans		$	11		$	11		$	—		$	11		$	33

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands).

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Average loan balance:
Commercial		$	—		$	1,302		$	532		$	896		$	785		$	—		$	393		$	532
Commercial loans secured by non-owner occupied real estate			12			1,316			146			745			10			12			10			146
Average investment in impaired loans		$	12		$	2,618		$	678		$	1,641		$	795		$	12		$	403		$	678
Interest income recognized:
Commercial		$	—		$	7		$	—		$	10		$	13		$	—		$	17		$	—
Commercial loans secured by non-owner occupied real estate			—			—			—			—			—			—			—			—
Interest income recognized on a cash basis on impaired loans		$	—		$	7		$	—		$	10		$	13		$	—		$	17		$	—

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Management uses a ~~nine point~~nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass-6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of ~~$250,000~~$1,000,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced, independent function which reports directly to the Board’s Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for ~~2018~~2019 requires review of a minimum range of 50% to 55% of the commercial loan portfolio.

In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than ~~$1,000,000,~~$2,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.

The following table presents the classes of the commercial and commercial real estate loan portfolios summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands).

September 30, 2018
Pass Special
Mention Substandard Doubtful Total
Commercial and industrial $ 155,787 $ 7,985 $ 1,750 $ — $ 165,522
Commercial loans secured by owner occupied real
estate 90,629 3,836 1,129 — 95,594
Commercial loans secured by non-owner occupied
real estate 356,880 6,373 268 11 363,532
Total $ 603,296 $ 18,194 $ 3,147 $ 11 $ 624,648

December 31, 2017
Pass Special
Mention Substandard Doubtful Total
Commercial and industrial $ 156,448 $ 500 $ 2,000 $ 244 $ 159,192
Commercial loans secured by owner occupied real
estate 87,215 1,675 759 286 89,935
Commercial loans secured by non-owner occupied
real estate 362,805 10,153 874 13 373,845
Total $ 606,468 $ 12,328 $ 3,633 $ 543 $ 622,972

	September 30, 2019
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial and industrial		$	150,113		$	9,640		$	3,632		$	—		$	163,385
Commercial loans secured by owner occupied real estate			79,601			1,422			1,355			—			82,378
Commercial loans secured by non-owner occupied real estate			360,732			4,684			1,620			9			367,045
Total		$	590,446		$	15,746		$	6,607		$	9		$	612,808

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	December 31, 2018
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial and industrial		$	154,510		$	2,089		$	1,680		$	—		$	158,279
Commercial loans secured by owner occupied real estate			86,997			3,769			1,139			—			91,905
Commercial loans secured by non-owner occupied real estate			349,954			6,316			262			11			356,543
Total		$	591,461		$	12,174		$	3,081		$	11		$	606,727

It is generally the policy of the Bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs, unless the balance is

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

minor. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is generally the policy of the ~~bank~~Bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio classes (in thousands).

September 30, 2018
Performing Non-Performing
Real estate – residential mortgage $ 239,698 $ 893
Consumer 18,094 —
Total $ 257,792 $ 893

December 31, 2017
Performing Non-Performing
Real estate – residential mortgage $ 246,021 $ 1,257
Consumer 19,383 —
Total $ 265,404 $ 1,257

	September 30, 2019
	Performing			Non-Performing
Real estate – residential mortgage		$	237,069		$	1,071
Consumer			18,185			—
Total		$	255,254		$	1,071

	December 31, 2018
	Performing			Non-Performing
Real estate – residential mortgage		$	236,754		$	1,210
Consumer			17,591			—
Total		$	254,345		$	1,210

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands).

September 30, 2018
Current 30 – 59
Days
Past Due 60 – 89
Days
Past Due 90 Days
Past Due Total
Past Due Total
Loans 90 Days
Past Due
and Still
Accruing
Commercial and industrial $ 159,451 $ 6,071 $ — $ — $ 6,071 $ 165,522 $ —
Commercial loans secured by owner occupied real estate 95,594 — �� — — — 95,594 —
Commercial loans secured by non-owner occupied real estate 363,532 — — — — 363,532 —
Real estate – residential mortgage 236,331 2,505 1,061 694 4,260 240,591 —
Consumer 18,011 56 27 — 83 18,094 —
Total $ 872,919 $ 8,632 $ 1,088 $ 694 $ 10,414 $ 883,333 $ —

December 31, 2017
Current 30 – 59
Days
Past Due 60 – 89
Days
Past Due 90 Days
Past Due Total
Past Due Total
Loans 90 Days
Past Due
and Still
Accruing
Commercial and industrial $ 159,181 $ — $ — $ 11 $ 11 $ 159,192 $ —
Commercial loans secured by owner occupied real estate 89,649 — — 286 286 89,935 —
Commercial loans secured by non-owner occupied real estate 368,073 5,238 534 — 5,772 373,845 —
Real estate – residential mortgage 243,393 2,373 671 841 3,885 247,278 —
Consumer 19,262 76 45 — 121 19,383 —
Total $ 879,558 $ 7,687 $ 1,250 $ 1,138 $ 10,075 $ 889,633 $ —

	September 30, 2019
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due			Total Past Due			Total Loans			90 Days Past Due and Still Accruing
Commercial and industrial		$	163,385		$	—		$	—		$	—		$	—		$	163,385		$	—
Commercial loans secured by owner occupied real estate			82,378			—			—			—			—			82,378			—
Commercial loans secured by non-owner occupied real estate			367,045			—			—			—			—			367,045			—
Real estate – residential mortgage			234,832			1,892			983			433			3,308			238,140			—
Consumer			18,120			45			20			—			65			18,185			—
Total		$	865,760		$	1,937		$	1,003		$	433		$	3,373		$	869,133		$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	December 31, 2018
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due			Total Past Due			Total Loans			90 Days Past Due and Still Accruing
Commercial and industrial		$	158,279		$	—		$	—		$	—		$	—		$	158,279		$	—
Commercial loans secured by owner occupied real estate			91,905			—			—			—			—			91,905			—
Commercial loans secured by non-owner occupied real estate			355,963			580			—			—			580			356,543			—
Real estate – residential mortgage			232,465			3,651			472			1,376			5,499			237,964			—
Consumer			17,408			153			30			—			183			17,591			—
Total		$	856,020		$	4,384		$	502		$	1,376		$	6,262		$	862,282		$	—

An allowance for loan losses (“ALL”) is maintained to support loan growth and cover charge-offs from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are complemented by consideration of other qualitative factors.

Management tracks the historical net charge-off activity at each risk rating grade level for the entire commercial portfolio and at the aggregate level for the consumer, residential mortgage and small business portfolios. A historical charge-off factor is calculated utilizing a rolling 12 consecutive historical quarters for the commercial portfolios. This historical charge-off factor for the consumer, residential mortgage and small business portfolios are based on a ~~three year~~three-year historical average of actual loss experience.

The Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: 1) an allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other qualitative factors which include delinquency, non-performing and TDR loans, loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations which accommodate each of the listed risk factors.

“Pass” rated credits are segregated from “Criticized” and “Classified” credits for the application of qualitative factors.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

2018

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11.

~~Non-performing~~Non-Performing Assets Including Troubled Debt Restructurings (TDR)

The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):

	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Non-accrual loans
Commercial and industrial		$	—		$	353
Commercial loans secured by owner occupied real estate			—			859
Commercial loans secured by non-owner occupied real estate			11			547		$	9		$	11
Real estate – residential mortgage			893			1,257			1,071			1,210
Total			904			3,016			1,080			1,221
Other real estate owned
Commercial loans secured by owner occupied real estate			157			—			—			157
Real estate – residential mortgage			6			18			57			—
Total			163			18			57			157
TDR’s not in non-accrual			—			—
Commercial and industrial									820			—
Total									820			—
Total non-performing assets including TDR		$	1,067		$	3,034		$	1,957		$	1,378
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned			0.12%			0.34%			0.22%			0.16%

The Company had no loans past due 90 days or more for the periods presented which were accruing interest.

The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans (in thousands).

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Interest income due in accordance
with original terms		$	12		$	32		$	61		$	65		$	14		$	12		$	43		$	61
Interest income recorded			—			—			—			—			—			—			—			—
Net reduction in interest income		$	12		$	32		$	61		$	65		$	14		$	12		$	43		$	61

Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.

~~The Company had no loans modified as TDRs during the three and nine month periods ending September 30, 2018.~~

~~The following table details the loans modified as TDRs during the nine month period ended September 30, 2017 (dollars in thousands).~~

Loans in non-accrual status # of Loans Current Balance Concession Granted
Commercial loan 2 $ 678 Extension of maturity date with
interest only period

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~~In all instances where loans have been modified in troubled debt restructurings~~The following table details the ~~pre- and post- modified balances are the same. As of September 30, 2018, there was no specific ALL for the one~~ loan modified as a ~~TDR.~~ TDR during the three month period ended September 30, 2019 (dollars in thousands).

Loans in accrual status

# of Loans

Current Balance

Concession Granted

Commercial and industrial

Extension of maturity date with
a below market interest rate

The ~~specific ALL reserve for~~following table details the loans modified as TDR’s ~~was $390,000 as of~~during the nine month period ended September 30, ~~2017.~~ 2019 (dollars in thousands).

Loans in accrual status

# of Loans

Current Balance

Concession Granted

Commercial and industrial

820

Extension of maturity date with
a below market interest rate

The Company had no loans modified as TDR’s during the three and nine month periods ending September 30, 2018.

All TDR’s are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDR’s was $96,000 and $11,000 as of September 30, 2019 and December 31, 2018, respectively.

The Company had no loans that were classified as TDR’s or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2018 and 2017 (nine month periods) and July 1, 2018 and 2017 (three month periods), respectively, and that subsequently defaulted during these reporting periods.

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above.

12.

Federal Home Loan Bank Borrowings

Total Federal Home Loan Bank (FHLB) borrowings and advances consist of the following (in thousands, except percentages):

At September 30, 2018
Type Maturing Amount Weighted
Average Rate
Open Repo Plus Overnight $ 61,254 2.38%
Advances 2018 2,000 1.61
2019 12,500 1.51
2020 16,729 1.74
2021 6,496 1.98
2022 3,820 2.78
2023 and over 1,000 2.86
Total advances 42,545 1.82
Total FHLB borrowings $ 103,799 2.15%

At December 31, 2017
Type Maturing Amount Weighted
Average Rate
Open Repo Plus Overnight $ 49,084 1.54%
Advances 2018 12,000 1.48
2019 12,500 1.51
2020 16,729 1.74
2021 5,000 1.75
Total advances 46,229 1.61
Total FHLB borrowings $ 95,313 1.57%

	At September 30, 2019
Type	Maturing	Amount			Weighted Average Rate
Open Repo Plus	Overnight		$	11,275		2.08%
Advances	2019			7,580		1.89
	2020			17,729		1.75
	2021			9,496		2.28
	2022			14,257		2.37
	2023			5,568		2.48
	2024 and over			1,000		2.26
Total advances				55,630		2.10
Total FHLB borrowings			$	66,905		2.10%

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	At December 31, 2018
Type	Maturing	Amount			Weighted Average Rate
Open Repo Plus	Overnight		$	41,029		2.62%
Advances	2019			12,500		1.51
	2020			16,729		1.74
	2021			9,496		2.28
	2022			6,996		2.86
	2023			1,000		2.86
Total advances				46,721		1.98
Total FHLB borrowings			$	87,750		2.28%

The rate on Open Repo Plus advances can change daily, while the rates on the advances are fixed until the maturity of the advance. All FHLB stock along with an interest in certain residential mortgage, commercial real estate, and commercial and industrial loans with an aggregate statutory value equal to the amount of the advances are pledged as collateral to the FHLB of Pittsburgh to support these borrowings.

13.

Lease Commitments

Due to the adoption of ASU 2016-02, Leases (Topic 842), the Company completed a comprehensive review and analysis of all its property and equipment contracts. As a result of this review, it was determined that the Company leases eight office locations under both operating and financing leases and one copy machine under a short-term lease. Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company’s existing lease commitments, including the allocation of consideration in the contracts between lease and nonlease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.

The Company has elected to account for the variable nonlease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable nonlease components are reported in net occupancy expense on the Consolidated Statements of Operations when paid. These variable nonlease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three and nine month periods ending September 30, 2019 (in thousands). Total rent expense recorded during the three and nine month periods ended September 30, 2018 was $102,000 and $318,000, respectively.

	Three months ended September 30, 2019			Nine months ended September 30, 2019
Lease cost
Financing lease cost:
Amortization of right-of-use asset		$	64		$	193
Interest expense			29			88
Operating lease cost			29			87
Total lease cost		$	122		$	368

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~13.~~present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at September 30, 2019.

	Operating		Financing
Weighted-average remaining term (years)		12.1		17.2
Weighted-average discount rate		3.45%		3.60%

The following table presents the undiscounted cash flows due related to operating and financing leases as of September 30, 2019, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets.

	Operating			Financing
Undiscounted cash flows due:
Within 1 year		$	117		$	302
After 1 year but within 2 years			119			275
After 2 years but within 3 years			110			277
After 3 years but within 4 years			69			278
After 4 years but within 5 years			69			240
After 5 years			608			3,068
Total undiscounted cash flows			1,092			4,440
Discount on cash flows			(206)			(1,230)
Total lease liabilities		$	886		$	3,210

Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of September 30, 2019, the Company had one short-term equipment lease which it has elected to not record on the Consolidated Balance Sheets.

14.

Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

Three months ended
September 30, 2018 Three months ended
September 30, 2017

Net
Unrealized
Gains and
(Losses) on
Investment
Securities
AFS(1)

Defined
Benefit
Pension
Items(1)

Total(1)

Net
Unrealized
Gains and
(Losses) on
Investment
Securities
AFS(1)

Defined
Benefit
Pension
Items(1)

Total(1)

Beginning balance $ (2,177) $ (11,490) $ (13,667) $ 30 $ (11,094) $ (11,064)
Other comprehensive income (loss) before reclassifications (726) (79) (805) 116 261 377
Amounts reclassified from
accumulated other comprehensive
loss — 387 387 (37) — (37)
Net current period other comprehensive income (loss) (726) 308 (418) 79 261 340
Ending balance $ (2,903) $ (11,182) $ (14,085) $ 109 $ (10,833) $ (10,724)

~~(1)~~

~~Amounts in parentheses indicate debits on the Consolidated Balance Sheets.~~

	Nine months ended September 30, 2018									Nine months ended September 30, 2017									Three months ended September 30, 2019									Three months ended September 30, 2018
	Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)
Beginning balance		$	(327)		$	(12,623)		$	(12,950)		$	(171)		$	(11,406)		$	(11,577)		$	1,398		$	(13,948)		$	(12,550)		$	(2,177)		$	(11,490)		$	(13,667)
Other comprehensive income (loss) before reclassifications			(2,693)			280			(2,413)			356			783			1,139			480			(7)			473			(726)			2			(724)
Amounts reclassified from accumulated other comprehensive loss			117			1,161			1,278			(76)			(210)			(286)			(69)			325			256			—			306			306
Net current period other comprehensive income (loss)			(2,576)			1,441			(1,135)			280			573			853			411			318			729			(726)			308			(418)
Ending balance		$	(2,903)		$	(11,182)		$	(14,085)		$	109		$	(10,833)		$	(10,724)		$	1,809		$	(13,630)		$	(11,821)		$	(2,903)		$	(11,182)		$	(14,085)

(1)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	Nine months ended September 30, 2019									Nine months ended September 30, 2018
	Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)
Beginning balance		$	(1,409)		$	(12,816)		$	(14,225)		$	(327)		$	(12,623)		$	(12,950)
Other comprehensive income (loss) before reclassifications			3,311			(1,790)			1,521			(2,693)			524			(2,169)
Amounts reclassified from accumulated other comprehensive loss			(93)			976			883			117			917			1,034
Net current period other comprehensive income (loss)			3,218			(814)			2,404			(2,576)			1,441			(1,135)
Ending balance		$	1,809		$	(13,630)		$	(11,821)		$	(2,903)		$	(11,182)		$	(14,085)

(1)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Amount reclassified from accumulated other comprehensive loss(1)							Amount reclassified from accumulated other comprehensive loss(1)
Details about accumulated other comprehensive loss components	For the three months ended September 30, 2018			For the three months ended September 30, 2017			Affected line item in the consolidated statement of operations	For the three months ended September 30, 2019			For the three months ended September 30, 2018			Affected line item in the consolidated statement of operations
Realized gains on sale of securities		$	—		$	(56)	Net realized gains on investment securities		$	(88)		$	—	Net realized (gains) losses on investment securities
			—			19	Provision for income tax expense			19			—	Provision for income tax expense
		$	—		$	(37)	Net of tax		$	(69)		$	—	Net of tax
Amortization of estimated defined benefit pension plan loss		$	490		$	—	Other expense		$	412		$	387	Other expense
			(103)			—	Provision for income taxes			(87)			(81)	Provision for income tax expense
		$	387		$	—	Net of tax		$	325		$	306	Net of tax
Total reclassifications for the period		$	387		$	(37)	Net income		$	256		$	306	Net income

(1)

Amounts in parentheses indicate credits.

Amount reclassified from accumulated
other comprehensive loss(1)

Details about accumulated other comprehensive
loss components For the
nine months
ended September 30,
2018 For the
nine months
ended September 30,
2017 Affected line item in the
consolidated statement of operations
Realized (gains) losses on sale of securities $ 148 $ (115) Net realized (gains) losses on
investment securities
(31) 39 Provision for income tax expense
$ 117 $ (76) Net of tax
Amortization of estimated defined benefit pension plan loss $ 1,470 $ (318) Other expense
(309) 108 Provision for income taxes
$ 1,161 $ (210) Net of tax
Total reclassifications for the period $ 1,278 $ (286) Net income

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	Amount reclassified from accumulated other comprehensive loss(1)
Details about accumulated other comprehensive loss components	For the nine months ended September 30, 2019			For the nine months ended September 30, 2018			Affected line item in the consolidated statement of operations
Realized (gains) losses on sale of securities		$	(118)		$	148	Net realized (gains) losses on investment securities
			25			(31)	Provision for income tax expense
		$	(93)		$	117	Net of tax
Amortization of estimated defined benefit pension plan loss		$	1,236		$	1,161	Other expense
			(260)			(244)	Provision for income tax expense
		$	976		$	917	Net of tax
Total reclassifications for the period		$	883		$	1,034	Net income

(1)

Amounts in parentheses indicate ~~income and other amounts indicate expenses.~~credits.

~~14.~~15.

Regulatory Capital

The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. For a more detailed discussion see the Capital Resources section of the M.D. & A.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and ~~Tier~~tier 1 capital to risk-weighted assets ~~Tier~~(as defined), tier 1 capital to average assets, and common equity ~~Tier I~~tier 1 capital (as defined in the regulations) to risk-weighted ~~assets (RWA) (as defined).~~assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, ~~2018,~~2019, the Bank was categorized as “Well Capitalized” under the regulatory framework for prompt corrective action promulgated by the Federal Reserve. The Company believes that no conditions or events have occurred that would change this conclusion as of such date. To be categorized as Well Capitalized, the Bank must maintain minimum Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital, and Tier 1 leverage ratios as set forth in the table (in thousands, except ratios).

At September 30, 2018
COMPANY BANK MINIMUM
REQUIRED
FOR
CAPITAL
ADEQUACY
PURPOSES TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted
Assets) $ 129,026 13.13% $ 115,394 11.76% 8.00% 10.00%
Tier 1 Common Equity (To Risk
Weighted Assets) 99,320 10.10 105,038 10.71 4.50 6.50
Tier 1 Capital (To Risk Weighted
Assets) 111,188 11.31 105,038 10.71 6.00 8.00
Tier 1 Capital (To Average Assets) 111,188 9.57 105,038 9.16 4.00 5.00
At December 31, 2017
COMPANY BANK MINIMUM
REQUIRED
FOR
CAPITAL
ADEQUACY
PURPOSES TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted
Assets) $ 126,276 13.21% $ 110,681 11.64% 8.00% 10.00%
Tier 1 Common Equity (To Risk
Weighted Assets) 95,882 10.03 99,552 10.47 4.50 6.50
Tier 1 Capital (To Risk Weighted
Assets) 107,682 11.26 99,552 10.47 6.00 8.00
Tier 1 Capital (To Average Assets) 107,682 9.32 99,552 8.75 4.00 5.00

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	At September 30, 2019
	COMPANY					BANK					MINIMUM REQUIRED FOR CAPITAL ADEQUACY PURPOSES		TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION REGULATIONS*
	AMOUNT			RATIO		AMOUNT			RATIO		RATIO		RATIO
Total Capital (To Risk Weighted Assets)		$	131,075		13.33%		$	118,832		12.14%		8.00%		10.00%
Common Equity Tier 1 (To Risk Weighted Assets)			102,337		10.41			109,483		11.19		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)			114,221		11.62			109,483		11.19		6.00		8.00
Tier 1 Capital (To Average Assets)			114,221		9.79			109,483		9.49		4.00		5.00

	At December 31, 2018
	COMPANY					BANK					MINIMUM REQUIRED FOR CAPITAL ADEQUACY PURPOSES		TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION REGULATIONS*
	AMOUNT			RATIO		AMOUNT			RATIO		RATIO		RATIO
Total Capital (To Risk Weighted Assets)		$	129,178		13.53%		$	115,451		12.14%		8.00%		10.00%
Common Equity Tier 1 (To Risk Weighted Assets)			100,258		10.50			105,891		11.14		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)			112,130		11.74			105,891		11.14		6.00		8.00
Tier 1 Capital (To Average Assets)			112,130		9.71			105,891		9.28		4.00		5.00

Applies to the Bank only.

Additionally, while not a regulatory capital ratio, the Company’s tangible common equity ratio was ~~7.37%~~7.81% (non-GAAP) at September 30, ~~2018.~~2019. See the discussion of the tangible common equity ratio under the “Balance Sheet” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (M.D. & A.).

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~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~15.~~16.

Derivative Hedging Instruments

The Company can use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. The Company can use derivative instruments, primarily interest rate swaps, to manage interest rate risk and match the rates on certain assets by hedging the fair value of certain fixed rate debt, which converts the debt to variable rates and by hedging the cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest rate swap agreements with customers and a large financial institution that specializes in these types of transactions. These arrangements involve the exchange of interest payments based on the

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

notional amounts. The Company entered into floating rate loans and fixed rate swaps with our customers. Simultaneously, the Company entered into offsetting fixed rate swaps with Pittsburgh National Bank (PNC). In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay PNC the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. The swap assets and swap liabilities are recorded at fair value and are reported within Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets. Disclosures related to the fair value of the swap transactions can be found in Note 20.

The following table summarizes the interest rate swap transactions that impacted the Company’s first nine months of 2019 and 2018 ~~and 2017 performance.~~performance (in thousands, except percentages).

At September 30, 2018
HEDGE
TYPE AGGREGATE
NOTIONAL
AMOUNT WEIGHTED
AVERAGE RATE
RECEIVED/(PAID) REPRICING
FREQUENCY INCREASE
(DECREASE)
IN INTEREST
EXPENSE
SWAP ASSETS FAIR VALUE $ 19,983,363 4.20% MONTHLY $ (41,743)
SWAP LIABILITIES FAIR VALUE (19,983,363) (4.20) MONTHLY 41,743
NET EXPOSURE — — —

At September 30, 2017
HEDGE
TYPE AGGREGATE
NOTIONAL
AMOUNT WEIGHTED
AVERAGE RATE
RECEIVED/(PAID) REPRICING
FREQUENCY INCREASE
(DECREASE)
IN INTEREST
EXPENSE
SWAP ASSETS FAIR VALUE $ 17,057,388 3.42% MONTHLY $ (72,920)
SWAP LIABILITIES FAIR VALUE (17,057,388) (3.42) MONTHLY 72,920
NET EXPOSURE — — —

	At September 30, 2019
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	23,866		4.69%	MONTHLY		$	11
SWAP LIABILITIES	FAIR VALUE			(23,866)		(4.69)	MONTHLY			(11)
NET EXPOSURE				—		—				—

	At September 30, 2018
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	19,983		4.20%	MONTHLY		$	(42)
SWAP LIABILITIES	FAIR VALUE			(19,983)		(4.20)	MONTHLY			42
NET EXPOSURE				—		—				—

The Company monitors and controls all derivative products with a comprehensive Board of ~~Director~~Directors approved ~~hedging policy.~~Hedging Policy. This policy permits a total maximum notional amount outstanding of $500 million for interest rate swaps, interest rate caps/floors, and swaptions. All hedge transactions must be approved in advance by the Investment Asset/Liability Committee (ALCO) of the Board of Directors, unless otherwise approved, as per the terms, within the Board of Directors approved Hedging Policy. The Company had no caps or floors outstanding at September 30, 2019 and 2018. None of the Company’s derivatives are designated as hedging instruments.

~~16.~~17.

Segment Results

The financial performance of the Company is also monitored by an internal funds transfer pricing profitability measurement system which produces line of business results and key performance measures. The Company’s major business units include retail banking, commercial banking, ~~trust,~~wealth management, and investment/

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~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

parent. The reported results reflect the underlying economics of the business segments. Expenses for centrally provided services are allocated based upon the cost and estimated usage of those services. The businesses are match-funded and interest rate risk is centrally managed and accounted for within the investment/parent business segment. The key performance measure the Company focuses on for each business segment is net income contribution.

Retail banking includes the deposit-gathering branch franchise and lending to both individuals and small businesses. Lending activities include residential mortgage loans, direct consumer loans, and small

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

business commercial loans. Commercial banking to businesses includes commercial loans, business services, and CRE loans. The wealth management segment includes the Trust Company, West Chester Capital Advisors (WCCA), our registered investment advisory firm, and Financial Services. Wealth management activities include personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts are included in this segment. Financial Services include the sale of mutual funds, annuities, and insurance products. The wealth management businesses also include the union collective investment funds, primarily the ERECT ~~fund~~funds which are designed to use union pension dollars in construction projects that utilize union labor. The investment/parent includes the net results of investment securities and borrowing activities, general corporate expenses not allocated to the business segments, interest expense on corporate debt, and centralized interest rate risk management. Inter-segment revenues were not material.

The contribution of the major business segments to the Consolidated Statements of Operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):

Three months ended
September 30, 2018 Nine months ended
September 30, 2018
Total
revenue Net
income (loss) Total
revenue Net
income (loss)
Retail banking $ 6,692 $ 1,145 $ 19,050 $ 2,605
Commercial banking 4,762 1,876 13,729 5,076
Wealth management 2,379 483 7,288 1,423
Investment/Parent (1,138) (1,175) (2,450) (3,264)
Total $ 12,695 $ 2,329 $ 37,617 $ 5,840

Three months ended
September 30, 2017 Nine months ended
September 30, 2017
Total
revenue Net
income (loss) Total
revenue Net
income (loss)
Retail banking $ 6,443 $ 794 $ 19,138 $ 2,159
Commercial banking 4,722 1,412 14,269 4,295
Wealth management 2,223 335 6,804 991
Investment/Parent (822) (990) (2,708) (3,157)
Total $ 12,566 $ 1,551 $ 37,503 $ 4,288

	Three months ended September 30, 2019							Nine months ended September 30, 2019
	Total revenue			Net income (loss)				Total revenue			Net income (loss)
Retail banking		$	7,064		$	1,316			$	20,597		$	3,673
Commercial banking			4,675			1,475	��			13,770			4,948
Wealth management			2,458			477				7,315			1,365
Investment/Parent			(1,338)			(1,579)				(3,843)			(4,627)
Total		$	12,859		$	1,689			$	37,839		$	5,359

	Three months ended September 30, 2018						Nine months ended September 30, 2018
	Total revenue			Net income (loss)			Total revenue			Net income (loss)
Retail banking		$	6,692		$	1,145		$	19,050		$	2,605
Commercial banking			4,762			1,876			13,729			5,076
Wealth management			2,379			483			7,288			1,423
Investment/Parent			(1,138)			(1,175)			(2,450)			(3,264)
Total		$	12,695		$	2,329		$	37,617		$	5,840

~~17.~~18.

Commitments and Contingent Liabilities

The Company had various outstanding commitments to extend credit approximating ~~$207.9~~$227.5 million and ~~$165.1~~$177.8 million along with standby letters of credit of ~~$9.7~~$15.0 million and ~~$10.0~~$16.7 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. 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 Bank uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

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~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Additionally, the Company is also subject to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of the Company, neither the resolution of these claims nor the funding of these credit commitments will have a material adverse effect on the Company’s consolidated financial position, results of ~~operation~~operations or cash flows.

~~18.~~

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19.

Pension Benefits

The Company has a noncontributory defined benefit pension plan covering certain employees who work at least 1,000 hours per year. The participants ~~shall~~ have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ~~ten year~~ten-year period of employment. Plan assets are primarily debt securities (including US Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of AmeriServ Financial, Inc. common stock which is limited to 10% of the plan’s assets), mutual funds, and short-term cash equivalent instruments. The net periodic pension cost for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Components of net periodic benefit cost
Service cost		$	370		$	390		$	1,110		$	1,170		$	368		$	370		$	1,104		$	1,110
Interest cost			318			326			954			978			392			318			1,176			954
Expected return on plan assets			(699)			(631)			(2,097)			(1,893)			(756)			(699)			(2,268)			(2,097)
Special termination benefit liability			16			—			48			—			—			16			—			48
Recognized net actuarial loss			387			367			1,161			1,101			412			387			1,236			1,161
Net periodic pension cost		$	392		$	452		$	1,176		$	1,356		$	416		$	392		$	1,248		$	1,176

The service cost component of net periodic benefit cost is included in “Salaries and employee benefits” and all other components of net periodic benefit cost are included in “Other expense” in the Consolidated Statements of Operations.

The Company implemented a soft freeze of its defined benefit pension plan to provide that non-union employees hired on or after January 1, 2013 and union employees hired on or after January 1, 2014 are not eligible to participate in the pension plan. Instead, such employees are eligible to participate in a qualified 401(k) plan. This change was made to help reduce pension costs in future periods.

~~19.~~20.

Disclosures about Fair Value Measurements and Financial Instruments

The following disclosures establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three broad levels defined within this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liability Measured and Recorded on a Recurring Basis

Equity securities are reported at fair value utilizing Level 1 inputs. These securities are mutual funds held within a rabbi trust for the Company’s executive deferred compensation plan. The mutual funds held are open-end funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price.

Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The fair values of the fair value swaps used for interest rate risk management represents the amount the Company would ~~have expected~~expect to receive or pay to terminate such agreements. These fair values are based on an external derivative valuation model using data inputs as of the valuation date and classified Level 2.

The following ~~tables present~~table presents the assets and liability measured and recorded on the Consolidated Balance Sheets on a ~~reoccurring~~recurring basis at their fair value as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, by level within the fair value hierarchy (in thousands).

Fair Value Measurements at September 30, 2018
Total (Level 1) (Level 2) (Level 3)
US Agency securities $ 6,423 $ — $ 6,423 $ —
US Agency mortgage-backed securities 84,999 — 84,999 —
Municipal securities 10,766 — 10,766 —
Corporate bonds 36,565 — 36,565 —
Fair value swap asset 812 — 812 —
Fair value swap liability (812) — (812) —
Fair Value Measurements at December 31, 2017
Total (Level 1) (Level 2) (Level 3)
US Agency securities $ 6,572 $ — $ 6,572 $ —
US Agency mortgage-backed securities 79,746 — 79,746 —
Municipal securities 7,036 — 7,036 —
Corporate bonds 35,784 — 35,784 —
Fair value swap asset 92 — 92 —
Fair value swap liability (92) — (92) —

	Fair Value Measurements at September 30, 2019
	Total			(Level 1)			(Level 2)			(Level 3)
Equity securities		$	354		$	354		$	—		$	—
Available for sale securities:
US Agency			6,280			—			6,280			—
US Agency mortgage-backed securities			85,490			—			85,490			—
Municipal			14,415			—			14,415			—
Corporate bonds			37,215			—			37,215			—
Fair value swap asset			1,453			—			1,453			—
Fair value swap liability			(1,453)			—			(1,453)			—

	Fair Value Measurements at December 31, 2018
	Total			(Level 1)			(Level 2)			(Level 3)
Available for sale securities:
US Agency		$	7,529		$	—		$	7,529		$	—
US Agency mortgage-backed securities			89,527			—			89,527			—
Municipal			13,181			—			13,181			—
Corporate bonds			36,494			—			36,494			—
Fair value swap asset			257			—			257			—
Fair value swap liability			(257)			—			(257)			—

Assets Measured and Recorded on a ~~Non-recurring~~Non-Recurring Basis

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. As detailed in the allowance for loan loss footnote, impaired loans are reported at the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted. At September 30, 2018, impaired loans with a carrying value of $11,000 had no specific valuation allowance resulting in a net fair value of $11,000. At December 31, 2017, impaired loans with a carrying value of $1.8 million were reduced by a specific valuation allowance totaling $909,000 resulting in a net fair value of $851,000.

Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell. Valuations are periodically performed by management. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2019, impaired loans with a carrying value of $829,000 were reduced by a specific valuation allowance totaling $96,000 resulting in a net fair value of $733,000. At December 31, 2018, impaired loans with a carrying value of $11,000 were reduced by a specific valuation allowance totaling $11,000 resulting in a net fair value of zero.

Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

Assets measured and recorded at fair value on a non-recurring basis are summarized below (in thousands, except range data):

Fair Value Measurements at September 30, 2018
Total (Level 1) (Level 2) (Level 3)
Impaired loans $ 11 $ — $ — $ 11
Other real estate owned 163 — — 163
Fair Value Measurements at December 31, 2017
Total (Level 1) (Level 2) (Level 3)
Impaired loans $ 851 $ — $ — $ 851
Other real estate owned 18 — — 18
Quantitative Information About Level 3 Fair Value Measurements
September 30, 2018 Fair Value
Estimate Valuation
Techniques Unobservable
Input Range
(Wgtd Avg)
Impaired loans $ 11
Appraisal of collateral(1),(3)

Appraisal adjustments(2)
0% (0%)
Other real estate owned 163
Appraisal of collateral(1),(3)

Appraisal adjustments(2) Liquidation expenses
0% to 32% (6%)
21% to 195% (42%)
Quantitative Information About Level 3 Fair Value Measurements
December 31, 2017 Fair Value
Estimate Valuation
Techniques Unobservable
Input Range
(Wgtd Avg)
Impaired loans $ 851
Appraisal of collateral(1),(3)

Appraisal adjustments(2)
21% to 75% (54%)
Other real estate owned 18
Appraisal of collateral(1),(3)

Appraisal adjustments(2) Liquidation expenses
16% to 64% (29%)
2% to 206% (79%)

	Fair Value Measurements at September 30, 2019
	Total			(Level 1)			(Level 2)			(Level 3)
Impaired loans		$	733		$	—		$	—		$	733
Other real estate owned			57			—			—			57

	Fair Value Measurements at December 31, 2018
	Total			(Level 1)			(Level 2)			(Level 3)
Impaired loans		$	—		$	—		$	—		$	—
Other real estate owned			157			—			—			157

Quantitative Information About Level 3 Fair Value Measurements

September 30, 2019

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range
(Wgtd Avg)

Impaired loans

674

Appraisal of collateral(1)

Appraisal adjustments(2)

0% to 100% (11)%

Discounted cash flows

Probability of loss adjustment(3)

15% (15)%

Other real estate owned

Appraisal of collateral(1)

Appraisal
adjustments(2)
Liquidation expenses

0% to 44% (35)%
12% to 114% (28)%

Quantitative Information About Level 3 Fair Value Measurements

December 31, 2018

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range
(Wgtd Avg)

Impaired loans

—

Appraisal of collateral(1)

Appraisal adjustments(2)

100% (100)%

Other real estate owned

157

Appraisal of collateral(1)

Appraisal
adjustments(2)
Liquidation expenses

0% to 39% (8)%
21% to 195% (40)%

(1)

Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. Also includes qualitative adjustments by management and estimated liquidation expenses.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions.

(3)

Includes qualitative adjustments by management ~~and estimated liquidation expenses.~~based on circumstances specific to each loan.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.

Fair values have been determined by the Company using independent third party valuations that use the best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable, and short term borrowings ~~and loans and deposits with floating interest rates~~ have ~~estimated~~ fair values which approximate the recorded ~~book balances.~~

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~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~
carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements.

The ~~estimation methodologies used, the~~ estimated fair values based on US GAAP measurements and recorded ~~book balances~~carrying values at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, for the remaining financial instruments not ~~recorded~~required to be measured or reported at fair value ~~on a reoccurring basis~~ were as follows (in thousands):

September 30, 2018
Carrying
Value Fair
Value (Level 1) (Level 2) (Level 3)
FINANCIAL ASSETS:
Cash and cash equivalents $ 31,234 $ 31,234 $ 31,234 $ — $ —
Investment securities – HTM 38,673 37,345 — 34,510 2,835
Regulatory stock 7,135 7,135 7,135 — —
Loans held for sale 1,041 1,075 1,075 — —
Loans, net of allowance for loan loss and unearned income 873,894 852,664 — — 852,664
Accrued interest income receivable 4,007 4,007 4,007 — —
Bank owned life insurance 38,260 38,260 38,260 — —
FINANCIAL LIABILITIES:
Deposits with no stated maturities $ 672,792 $ 672,792 $ 672,792 $ — $ —
Deposits with stated maturities 271,421 270,767 — — 270,767
Short-term borrowings 61,254 61,254 61,254 — —
All other borrowings 62,962 65,026 — — 65,026
Accrued interest payable 2,120 2,120 2,120 — —
December 31, 2017
Carrying
Value Fair
Value (Level 1) (Level 2) (Level 3)
FINANCIAL ASSETS:
Cash and cash equivalents $ 34,188 $ 34,188 $ 34,188 $ — $ —
Investment securities – HTM 38,752 38,811 — 35,859 2,952
Regulatory stock 6,800 6,800 6,800 — —
Loans held for sale 3,125 3,173 3,173 — —
Loans, net of allowance for loan loss and unearned income 879,419 873,784 — — 873,784
Accrued interest income receivable 3,603 3,603 3,603 — —
Bank owned life insurance 37,860 37,860 37,860 — —
FINANCIAL LIABILITIES:
Deposits with no stated maturities $ 688,648 $ 688,648 $ 688,648 $ — $ —
Deposits with stated maturities 259,297 260,153 — — 260,153
Short-term borrowings 49,084 49,084 49,084 — —
All other borrowings 66,617 69,684 — — 69,684
Accrued interest payable 1,754 1,754 1,754 — —

	September 30, 2019
	Carrying Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM		$	39,299		$	40,813		$	—		$	37,849		$	2,964
Loans held for sale			5,949			6,102			6,102			—			—
Loans, net of allowance for loan loss and unearned income			860,788			862,163			—			—			862,163
FINANCIAL LIABILITIES:
Deposits with no stated maturities		$	666,977		$	655,398		$	—		$	—		$	655,398
Deposits with stated maturities			303,012			304,249			—			—			304,249
All other borrowings(1)			76,086			76,664			—			—			76,664

	December 31, 2018
	Carrying V alue			Fair Value			(Level 1)			(Level 2)			(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM		$	40,760		$	40,324		$	—		$	37,398		$	2,926
Loans held for sale			847			871			871			—			—
Loans, net of allowance for loan loss and unearned income			853,611			836,122			—			—			836,122
FINANCIAL LIABILITIES:
Deposits with no stated maturities		$	671,666		$	627,323		$	—		$	—		$	627,323
Deposits with stated maturities			277,505			277,010			—			—			277,010
All other borrowings(1)			67,148			69,692			—			—			69,692

(1)

All other borrowings include advances from Federal Home Loan Bank, guaranteed junior subordinated deferrable interest debentures, and subordinated debt.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company’s remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“M.D. & A.”)

…~~2018~~..2019 THIRD QUARTER SUMMARY OVERVIEW…~~The~~.. AmeriServ reported third quarter 2019 net income of ~~2018 continued the year’s trend of providing positive opportunities, but also presented~~$1,689,000, or $0.10 per share. This represents a ~~need to be alert for potential challenges. Therefore, it was a great pleasure to issue a press release on October 16, 2018 establishing~~27.5%, or $640,000, decrease from the third quarter of 2018 ~~as the best~~when net income totaled $2,329,000, or $0.13 per share.

AmeriServ Financial Inc. was able to return 85% of third quarter ~~of the year. The Company reported diluted~~2019 earnings to our shareholders through accretive common stock buybacks and an increased cash dividend. This strategic focus on active capital management continues to favorably impact both earnings per share ~~of $0.13, or an increase of 62.5% when compared with~~and tangible book value per share. The Company did experience net interest margin compression during the third quarter ~~of 2017. In terms of absolute dollars, net income was $2,329,000~~which will be discussed later in ~~2018 compared with $1,551,000~~this M.D. & A. We continue to achieve solid deposit growth this year due, in 2017, an increase of $778,000. When combined with the previous two quarters of 2018, diluted earnings per share reached $0.32 per share as compared with $0.23 in 2017. This absolute dollar increase of $1,552,000 represents a 36.2% improvement. AmeriServ considers these gains to be significant and are based on both internal and external events.

~~It is important to recognize that the tax relief legislation, which was enacted into law in late 2017, has been beneficial~~part, to the success of our financial banking ~~industry and to AmeriServ. The previous tax burden on community banks has been an important factor~~center in ~~the ongoing disappearance of community banks around the nation as well as~~Hagerstown, Maryland that was opened in ~~our region. It is necessary to reward shareholders for providing the capital to exist and to be able to provide credit and banking services throughout the nation.~~

~~In order to be a positive force in the markets we serve, we continue to make a maximum effort. During the third quarter of 2018, AmeriServ~~December 2018. Overall, total deposits continued to ~~invest over 90% of~~grow for a fifth consecutive quarter and reached its customers’ deposits in loans to small-medium sized businesses and consumers within our market. We are quite proud that AmeriServ continues to be among the leaders in providing credit through active lending. We are also proud that our loan portfolio is of such quality that it is rated in the top 10% of all banks our size across the country.historically highest level.

The key to this kind of community bank performance is the ability to attract customer deposits. These deposits are then converted into safe and productive loans. AmeriServ’s deposits have been relatively stable during 2018. However, the Federal Reserve has been pursuing a policy of making deposits more expensive and shrinking the totals. Therefore, it is necessary for AmeriServ to provide the best customer service as well as a proper return on deposits. AmeriServ’s depositors have been very loyal in both good and not so good times. We appreciate that loyalty and we work hard to preserve it.

The new AmeriServ Financial Banking Centers continue to be important in the Company’s strategic direction. There are now two in operation and another under construction. These Financial Banking Centers are designed to bring a myriad of financial products and services to consumers all in one building — a one stop shop. In an AmeriServ Financial Banking Center, a customer may conduct retail banking transactions, but also may obtain a mortgage, business banking and investment services and products. Everything is under one roof and this is personalized banking at its best.

AmeriServ Trust and Financial Services Company has also continued to expand. A new wealth management office has opened in Greensburg, Pennsylvania, the county seat of Westmoreland County. We realize it is rare to find such a sophisticated capital and wealth management team in a community bank. However, our team does provide retirement and estate planning, and works through its ERECT Fund to leverage union pension funds into real estate projects to provide jobs and a return for those pension funds. The AmeriServ Trust and Financial Services Company in the first nine months of 2018 has increased its return by over 40% when compared with the first nine months of 2017. We expect further expansion for the trust company in 2019 and 2020.

Our current strategic plan emphasizes the importance of providing a better return for our shareholders. During 2017, AmeriServ returned 76.4% of its earnings to shareholders. During the third quarter of 2018, AmeriServ has returned nearly 70% to shareholders. The Board and Management remain committed to providing active capital returns to our shareholders.

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THREE MONTHS ENDED SEPTEMBER 30, ~~2018~~2019 VS. THREE MONTHS ENDED
SEPTEMBER 30, ~~2017~~2018

..…PERFORMANCE OVERVIEW…..The following table summarizes some of the Company’s key performance indicators (in thousands, except per share and ratios).

Three months
ended
September 30, 2018 Three months
ended
September 30, 2017
Net income $ 2,329 $ 1,551
Diluted earnings per share 0.13 0.08
Return on average assets (annualized) 0.79% 0.53%
Return on average equity (annualized) 9.54% 6.37%

The Company reported third quarter 2018 net income of $2,329,000, or $0.13 per diluted common share. This earnings performance was a $778,000, or 50.2%, improvement from the third quarter of 2017 where net income totaled $1,551,000, or $0.08 per diluted common share. The improved earnings in the third quarter of 2018 resulted from a combination of lower income tax expense, outstanding asset quality and positive operating leverage.

	Three months ended September 30, 2019			Three months ended September 30, 2018
Net income		$	1,689		$	2,329
Diluted earnings per share			0.10			0.13	��
Return on average assets (annualized)			0.57%			0.79%
Return on average equity (annualized)			6.60%			9.54%

..…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 third quarter of ~~2018~~2019 to the third quarter of ~~2017~~2018 (in thousands, except percentages):

	Three months ended September 30, 2018			Three months ended September 30, 2017			$ Change			% Change		Three months ended September 30, 2019			Three months ended September 30, 2018			$ Change			% Change
Interest income		$	12,149		$	11,187		$	962		8.6%		$	12,433		$	12,149		$	284		2.3%
Interest expense			3,040			2,250			790		35.1			3,669			3,040			629		20.7
Net interest income		$	9,109		$	8,937		$	172		1.9		$	8,764		$	9,109		$	(345)		(3.8)
Net interest margin			3.31%			3.28%			0.03		N/M			3.18%			3.31%			(0.13)%		N/M

N/M — not meaningful

The Company’s net interest income in the third quarter of ~~2018 increased~~2019 decreased by ~~$172,000,~~$345,000, or ~~1.9%~~3.8%, from the prior year’s third quarter. The ~~increase~~Company’s net interest margin of 3.18% for the third quarter of 2019 was 13 basis points lower than the net interest margin of 3.31% for the third quarter of 2018. The 2019 decrease in net interest income is athe result of ~~an improved earning asset yield as~~net interest margin compression caused by a combination of the ~~Company’s~~lower interest rates that exist in the economy and a decrease in the balance ~~sheet has been well positioned for increasing interest rates. Also,~~of total average ~~interest earning assets increased~~loans. Overall, the U.S. Treasury Yield Curve has shifted downward, flattened and became inverted in certain segments. Slightly offsetting these unfavorable items was an increase in the ~~third quarter~~average balance of ~~2018 by $5.6 million, or 0.5%. These factors more than offset~~total investment securities. In addition, there was a favorable shift experienced in the ~~upward repricing~~mix of total average interest bearing liabilities as ~~well as a higher level of average~~total interest bearing ~~liabilities. The increase~~deposits increased and resulted in less reliance on higher cost borrowings to fund interest earning assets occurred due to continued growth in the investment securities portfolio as management took advantage of the higher interest rate environment in 2018 to purchase additional securities and increase the size of the investment portfolio. This growth more than offset a decrease in total loans as loan pay-offs exceeded new loan production during 2018. Specifically, totalassets.

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Total investment securities averaged ~~$185~~$192 million in the third quarter of ~~2018~~2019 which ~~was $10.3~~is $7.3 million, or ~~5.9%~~4.0%, higher than the ~~$175~~$185 million average for the third quarter of 2017. Total loans averaged $890 million for the third quarter of 2018 which was $2.5 million, or 0.3%, lower than the 2017 third quarter average. The Company’s net interest margin was 3.31% for the third quarter representing an improvement of three basis points from the prior year’s third quarter.

2018. The growth in the investment securities portfolio is the result of ~~management taking advantage of~~ the ~~higher~~rising interest rate environment inexperienced during 2018 ~~to purchase~~which provided an attractive market for additional ~~securities.~~security purchases. This growth was accomplished while maintaining the risk profile of the portfolio. Purchases ~~so far in 2018 have~~ primarily ~~been~~ focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Also, management ~~continues~~continued its portfolio diversification strategy through purchases of high quality corporate and taxable municipal securities. ~~As a result,~~Investment security purchase activity slowed significantly during the second and third quarters of 2019 and was more selective as the market became less favorable. Overall, interest income on ~~investments~~investment securities increased between the third quarter of ~~2018~~2019 and the third quarter of ~~2017~~2018 by ~~$190,000,~~$129,000, or ~~14.8%~~8.7%. ~~The~~

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~~combination of a higher level of early loan payoffs and a slowdown~~Total loans averaged $880 million in loan production, particularly earlier this year, resulted in a decrease in the average balance of the loan portfolio. Loan production increased during the latter part of the second quarter and this increase continued into the third quarter ~~resulting in~~of 2019 which is $9.4 million, or 1.1%, lower than the $890 million average for the third quarter of 2018. The lower balance of total average loans reflects the high level of loan payoffs received which exceeded the level of new loan originations, exceeding the prior year’s level. However, loan payoffs have also continued to increase as the year progresses resulting in a net decrease to the overall portfolio. The Company does expect modest loan portfolio growthparticularly in the fourth quarter of 2018 ~~as production is anticipated to remain strong~~ and, ~~exceed payoffs. Loan production~~again, in the third quarter of 2019. The decrease between years occurred primarily in the commercial real estate and commercial & industrial loan portfolios. Loan pipelines remain strong. However, potential new loan customers delayed their decision to obtain loans given the Federal Reserve’s action to decrease interest rates in late July and ~~commercial/industrial loans. Even though total average loans have decreased since last year, loan~~in the middle of September 2019 causing the sentiment in national credit markets that additional interest rate reductions may occur this year. Loan interest and fee income increased by ~~$752,000,~~$130,000, or ~~7.6%~~1.2%, between the third quarter of ~~2018~~2019 and ~~the~~last year’s third ~~quarter of 2017.~~quarter. The higher loan interest income primarily reflects new loans originating at higher yields throughout 2018 and during the first half of 2019 as well as the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices have moved up with the Federal Reserve’s decision to increase the target federal funds interest ~~rate.~~rate in 2018. Overall, total interest income increased by ~~$962,000,~~$284,000, or ~~8.6%~~2.3%, ~~in the third quarter of 2018.~~between years.

Total deposit interest expense in 2019 was higher by $731,000, or 33.8%, for the third quarter, which reflects the higher level of ~~2018 increased by $790,000, or 35.1% when compared to 2017, due to higher levels of both deposit~~total average interest bearing deposits and ~~borrowing interest expense. The higher 2018 deposit interest expense of $546,000 for the third quarter reflects~~ certain indexed money market accounts repricing upward ~~after~~due to the impact of the Federal Reserve increasing interest ~~rate increases. Additionally, there has been~~rates during 2018. The Company did begin to experience deposit pricing relief to a small degree during the third quarter of 2019 because of the Federal Reserve easing interest rates late in July and in September. However, the Company continues to experience competitive market pressure to retain existing deposit customers and attract new customer deposits. Customer product preference changed as well since last year as movement of ~~some~~ funds ~~out of~~occurred from non-interest bearing demand deposits and lower yielding money market accounts into higher yielding certificates of deposit due to the higher national interest rate environment in 2018. The runoff of money market deposits has more than offset the growth of term deposit products and resulted in a decrease in the balance ofdeposit. Overall, total deposits ~~in 2018. Specifically, total deposits~~continued to grow for a fifth consecutive quarter and averaged ~~$956~~$985 million ~~for~~in the third quarter of ~~2018~~2019, which was ~~$24.7~~$28.4 million, or ~~2.5%~~3.0%, ~~lower~~higher than the ~~$981 million average for the~~2018 third quarter ~~of 2017. Overall, the~~average. The Company’s loan to deposit ratio averaged ~~93.0%~~89.4% in the third quarter of ~~2018~~2019, which we believe indicates that the Company has ample capacity to grow its loan ~~portfolio given the loyalty of its core deposit base.~~ portfolio.

The Company experienced a ~~$244,000,~~$102,000, or ~~38.6%~~11.6%, ~~increase~~decrease in the interest cost for borrowings in the third quarter of ~~2018~~2019. The 2019 third quarter average of FHLB borrowed funds was $61.8 million, which represented a decrease of $28.9 million, or 31.8%, due to the increase in total average deposits.During the quarter, within total average borrowings, the total average term advances from FHLB increased by approximately $12.0 million, or 27.3%, when compared to the third quarter of 2018. This increase is due to the inversion demonstrated in certain segments of the U.S. Treasury Yield Curve in 2019 and resulted in certain term advances costing less than overnight borrowed funds. As a ~~higher average balance~~result of ~~total borrowed funds~~this and the ~~immediate impact that the increases in~~Federal Reserve decreasing the federal funds rate ~~had on~~late in July and, to a lesser extent, the middle of September, the interest cost of ~~overnight borrowed funds. In~~borrowings decreased between quarters. Overall, total interest expense for the third quarter of ~~2018, total average FHLB borrowed funds was $91 million, an increase of $31.5 million,~~2019 increased by $629,000, or ~~53.3%~~20.7%, ~~due~~when compared to ~~the decrease in total average deposits.~~2018.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 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 margin (net interest income as a percentage of average total interest earning assets). For purposes of these

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tables, loan balances do 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% is used to compute tax-equivalent interest income and ~~yields during 2018, while a tax rate of 34% was used for 2017.~~yields(non-GAAP). The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 was $5,000, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and ~~$10,000, respectively.~~margin from a GAAP basis to a tax-equivalent basis were not material.

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Three months ended September 30 (In thousands, except percentages)

	2018								2017								2019								2018
	Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income		$	889,702		$	10,612		4.69%		$	892,198		$	9,865		4.35%		$	880,320		$	10,742		4.80%		$	889,702		$	10,612		4.69%
Interest bearing deposits			1,023			5		2.02			1,026			3		1.26
Short-term investment in money market funds			6,634			60		3.54			8,921			42		1.86
Short-term investment in money market funds and bank deposits																			12,168			90		2.92			7,657			65		3.33
Investment securities – AFS			145,715			1,144		3.14			136,084			973		2.86			152,304			1,265		3.34			145,715			1,144		3.14
Investment securities – HTM			39,416			333		3.38			38,700			314		3.25			40,163			341		3.32			39,416			333		3.38
Total investment securities			185,131			1,477		3.19			174,784			1,287		2.95			192,467			1,606		3.34			185,131			1,477		3.19
Total interest earning assets/interest income			1,082,490			12,154		4.43			1,076,929			11,197		4.11			1,084,955			12,438		4.52			1,082,490			12,154		4.43
Non-interest earning assets:
Cash and due from banks			24,078								22,082								19,803								24,078
Premises and equipment			12,283								12,467								18,881								12,283
Other assets			61,860								67,240								65,545								61,860
Allowance for loan losses			(9,636)								(10,537)								(8,247)								(9,636)
TOTAL ASSETS		$	1,171,075							$	1,168,181							$	1,180,937							$	1,171,075
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand		$	130,782		$	267		0.81%		$	131,493		$	180		0.54%		$	174,452		$	427		0.97%		$	130,782		$	267		0.81%
Savings			98,763			41		0.17			98,184			41		0.17			97,281			41		0.17			98,763			41		0.17
Money markets			251,000			547		0.87			277,948			380		0.54			231,024			639		1.10			251,000			547		0.87
Time deposits			301,126			1,309		1.74			292,054			1,017		1.38			330,878			1,788		2.15			301,126			1,309		1.74
Total interest bearing deposits			781,671			2,164		1.10			799,679			1,618		0.80			833,635			2,895		1.37			781,671			2,164		1.10
Short-term borrowings			46,898			267		2.23			13,179			44		1.29			6,053			38		2.43			46,898			267		2.23
Advances from Federal Home Loan Bank			43,816			199		1.80			45,997			178		1.53			55,781			297		2.11			43,816			199		1.80
Guaranteed junior subordinated deferrable interest debentures			13,085			280		8.57			13,085			280		8.57			13,085			280		8.57			13,085			280		8.57
Subordinated debt			7,650			130		6.80			7,650			130		6.80			7,650			130		6.80			7,650			130		6.80
Lease liabilities																			4,122			29		2.82			—			—		—
Total interest bearing liabilities/interest expense			893,120			3,040		1.35			879,590			2,250		1.02			920,326			3,669		1.58			893,120			3,040		1.35
Non-interest bearing liabilities:
Demand deposits			174,632								181,356								151,096								174,632
Other liabilities			6,455								10,628								7,949								6,455
Shareholders’ equity			96,868								96,607								101,566								96,868
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,171,075							$	1,168,181							$	1,180,937							$	1,171,075
Interest rate spread								3.08								3.09								2.94								3.08
Net interest income/ Net interest margin						9,114		3.31%						8,947		3.28%						8,769		3.18%						9,114		3.31%
Tax-equivalent adjustment						(5)								(10)								(5)								(5)
Net Interest Income					$	9,109							$	8,937							$	8,764							$	9,109

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…~~PROVISION~~..PROVISION FOR LOAN ~~LOSSES…~~LOSSES..… The Company ~~did not record~~recorded a $225,000 provision for loan losses in the third quarter of ~~2018~~2019 as compared to a ~~$200,000~~zero provision ~~for loan losses~~ in the third quarter of ~~2017.~~2018. The ~~lower 2018~~third quarter 2019 provision expense follows the first two quarters of 2019 in which a provision recovery and no provision expense was recognized, respectively. The recognition of a $225,000 provision expense in the third quarter primarily reflects ~~our overall strong asset quality, the successful workout of several~~an increase in criticized ~~loans, and reduced~~ loan ~~portfolio balances.~~totals. The Company experienced net loan recoveries of $18,000, which equates to 0.01% of total loans, in the 2019 third quarter compared to net loan charge-offs of $82,000, or 0.04% of total loans, in ~~2018 compared to net loan charge-offs of $245,000, or 0.11% of total loans, in 2017. The lower level of net loan charge-offs in~~ the third quarter of ~~2018 reflects that~~2018. Overall, the Company ~~continues~~continued to maintain strong asset quality as its nonperforming assets totaled ~~$1.1~~just under $2.0 million, or only ~~0.12%~~0.22% of total loans, at September 30, ~~2018.~~2019. In summary, the allowance for loan losses provided ~~885%~~426% coverage of non-performing assets, and ~~1.07%~~was 0.95% of total loans, at September 30, ~~2018,~~2019, compared to ~~337%~~629% coverage of non-performing assets, and ~~1.14%~~1.00% of total loans, at December 31, ~~2017.~~2018.

…..NON-INTEREST INCOME…..~~…NON-INTEREST INCOME…~~ Non-interest income for the third quarter of ~~2018~~2019 totaled ~~$3.6~~$4.1 million and ~~decreased $43,000,~~increased $509,000, or ~~1.2%~~14.2%, from the third quarter ~~2017~~2018 performance. Factors contributing to this ~~lower~~higher level of non-interest income for the quarter included:

•

a ~~$151,000~~$229,000 increase in ~~Wealth Management fees was~~net realized gains on loans held for sale primarily due to the sale of the guaranteed portion of a Small Business Administration loan that resulted in a $197,000 gain. The remainder of the net gain was due to increased residential mortgage loan sales in the secondary market as the lower interest rate environment in the third quarter of 2019 as well as continued business development efforts resulted in a greater level of residential mortgage loan production;

•

the Company ~~benefitting~~recognized an $88,000 investment security sale gain in the third quarter of 2019 after no security sale activity occurred in the third quarter of 2018. The opportunity existed to capture gains on certain securities that demonstrated higher than typical market appreciation in this low interest rate environment;

•

an $86,000 increase in other income due to a higher level of letter of credit fees and increased revenue from ~~increased~~check supply sales because of a favorable vendor contract renegotiation;

•

a $72,000 increase in wealth management fees as the Company benefitted from a continuing increase in market values for assets under ~~management in 2018. Wealth management continues to be an important strategic focus as it contributes to non-interest revenue, which comprises over 29% of the Company’s total revenue;~~

•

~~an $83,000 decrease in revenue from deposit service charges due to a reduced level of overdraft fee income;~~

•

~~a combined $56,000 decrease in net gains on loans sold into the secondary market and mortgage related fees due to lower production and reduced refinance activity of residential mortgage loans;~~management; and

•

a ~~$56,000 reduction~~$43,000 increase in mortgage related fees resulted from the ~~net realized gain/loss on investment securities as no security sales transactions occurred in the third quarter of this year.~~increased residential mortgage loan production.

..…NON-INTEREST EXPENSE….. Non-interest expense for the third quarter of ~~2018~~2019 totaled ~~$10.1~~$10.5 million and ~~remained consistent with~~increased by $407,000, or 4.0%, from the prior year’s third quarter. Factors contributing to the higher level of non-interest expense infor the quarter included:

•

a ~~$128,000, or 2.2%, decrease~~$509,000 increase in salaries & benefits expense due to ~~a lower level~~annual merit increases, the addition of ~~full time equivalent employees;~~several employees to address management succession planning, staffing our new financial banking center in Hagerstown, Maryland and higher health care costs and pension expense;

•

a ~~$108,000, or 8.9%, increase~~$140,000 decrease in ~~professional fees~~FDIC insurance cost due to ~~additional costs related~~the application of the Small Bank Assessment Credit regulation which resulted in the FDIC awarding community banks under $10 billion in assets an assessment credit because the banking industry reserve ratio exceeded its 1.38% target. The Bank’s remaining credit balance should be sufficient to result in no deposit insurance premiums for the ~~realignment of our checking account products and higher recruitment fees related to~~next two quarters provided the ~~hiring of~~deposit insurance fund balance remains at a ~~new area business executive in our State College market;~~sufficient level under the banking regulations;

•

a ~~$93,000, or 5.1%,~~$66,000 increase in other expenses ~~due to~~reflects our increased investment in technology as evidenced by higher website costs and additional ~~costs related to the redesign of the improved Company website as well as modest increases to several other line items;~~telecommunications expense; and

•

a ~~combined $57,000, or 5.8%, reduction~~$45,000 decrease in ~~occupancy & equipment~~professional fees due to reduced recruitment costs ~~is primarily attributable to the Company’s ongoing efforts to carefully manage~~ and ~~contain non-interest expense. Specifically, a branch office closure in Cambria County along with a branch consolidation in the State College market resulted in reduced rent expense and~~expenses for other ~~occupancy related costs.~~professional services.

…~~INCOME~~..INCOME TAX EXPENSE…..The Company recorded an income tax expense of ~~$252,000,~~$442,000, or an effective tax rate of ~~9.8%~~20.7%, in the third quarter of ~~2018.~~2019. This compares to an income tax expense of ~~$701,000,~~$270,000, or an effective tax rate of ~~31.1%~~10.4%, for the third quarter of ~~2017.~~2018. The lower effective tax rate and income tax expense in the third quarter of 2018 ~~reflects~~reflected the benefits of corporate tax reform as a result of

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the enactment of the “Tax Cuts and Jobs Act” ~~late in~~which allowed the ~~fourth quarter of 2017. Also, the enactment of this new tax law provided corporations that have a defined benefit pension plan with an opportunity~~Company to contribute additional funds to ~~their~~our pension plan in 2018 ~~that could be allocated back to the 2017 tax year~~ in order to achieve a greater income tax benefit. The ~~Company took advantage of this opportunity and made an additional $2.5 million contribution to our defined benefit pension plan in the third quarter of~~

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~~2018. The~~ tax benefit of this additional pension contribution ~~combined with a negative tax adjustment related to the final reconciliation of our 2017 estimated deferred tax asset~~ favorably reduced income tax expense by $264,000 in the third quarter of 2018. ~~The Company expects that its effective tax rate will return to 20% in the fourth quarter of 2018.~~

NINE MONTHS ENDED SEPTEMBER 30, ~~2018~~2019 VS. NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2018

…..PERFORMANCE OVERVIEW…..~~…PERFORMANCE OVERVIEW…~~The following table summarizes some of the Company’s key performance indicators (in thousands, except per share and ratios).

	Nine months ended September 30, 2018			Nine months ended September 30, 2017			Nine months ended September 30, 2019			Nine months ended September 30, 2018
Net income		$	5,840		$	4,288		$	5,359		$	5,840
Diluted earnings per share			0.32			0.23			0.31			0.32
Return on average assets (annualized)			0.67%			0.49%			0.61%			0.67%
Return on average equity (annualized)			8.14%			5.98%			7.21%			8.14%

For the nine-month ~~time~~ period ended September 30, ~~2018,~~2019, the Company reported net income of $5,359,000, or $0.31 per diluted common share. This earnings performance represents a 3.1% decrease in earnings per share when compared to the first nine months of 2018 when net income totaled $5,840,000, or $0.32 per diluted common share. ~~This earnings performance was a $1.6 million, or 36.2%, improvement from the nine-month period of 2017 where~~The Company experienced higher non-interest expenses and net ~~income totaled $4,288,000, or $0.23 per diluted common share. The improved earnings in~~interest margin compression during the first nine months of ~~2018 resulted from~~2019. These unfavorable items were partially offset by the recognition of a ~~combination of lower income tax expense, outstanding~~loan loss provision recovery through nine months this year which reflects our overall strong asset quality, limited loan growth, and ~~positive operating leverage.~~low level of net loan charge-offs.

…~~NET~~..NET INTEREST INCOME AND MARGIN…..The following table compares the Company’s net interest income performance for the first nine months of ~~2018~~2019 to the first nine months of ~~2017~~2018 (in thousands, except percentages):

	Nine months ended September 30, 2018			Nine months ended September 30, 2017			$ Change			% Change		Nine months ended September 30, 2019			Nine months ended September 30, 2018			$ Change			% Change
Interest income		$	34,969		$	32,986		$	1,983		6.0%		$	37,362		$	34,969		$	2,393		6.8%
Interest expense			8,254			6,429			1,825		28.4			10,880			8,254			2,626		31.8
Net interest income		$	26,715		$	26,557		$	158		0.6		$	26,482		$	26,715		$	(233)		(0.9)
Net interest margin			3.29%			3.27%			0.02		N/M			3.24%			3.29%			(0.05)		N/M

N/M — not meaningful

The Company’s net interest income in the first nine months of ~~2018 increased~~2019 decreased by ~~$158,000,~~$233,000, or ~~0.6%~~0.9%, when compared to the first nine months of ~~2017.~~2018. The Company’s net interest margin of ~~3.29%~~3.24% for the ~~first~~ nine ~~months~~month timeframe of ~~2018 improved~~2019 declined by 2five basis points from the prior year’s ~~first nine-month~~nine month time period. ~~The increase~~Similar to the quarterly comparison, the decrease in net interest income in ~~2018 results from an improved earning asset yield as~~2019 is the ~~Company’s balance sheet has been well positioned for increasing~~result of net interest ~~rates. Total average~~margin compression caused by a combination of the lower interest ~~earning assets remained relatively consistent on~~rates that exist in the economy and a ~~year to date basis, decreasing slightly by $1.1 million, or 0.1%. The improved earning asset yield more than offset the upward repricing of interest bearing liabilities. The~~ decrease in ~~interest earning assets occurred~~the balance of total average loans. Slightly offsetting these unfavorable items was an increase in the ~~loan portfolio as loan pay-offs exceeded new loan production during 2018. This more than offset continued growth in the investment securities portfolio. Specifically,~~average balance of total investment securities as well as a favorable shift in the mix of total average interest bearing liabilities as total interest bearing deposits increased and resulted in less reliance on higher cost borrowings to fund interest earning assets.

Total investment securities averaged ~~$182~~$197 million in the first nine months of ~~2018~~2019 which was ~~$9.6~~$15.2 million, or ~~5.6%~~8.4%, higher than the ~~$172~~$182 million average for the first nine months of ~~2017. Total loans averaged $885 million in the first nine months of 2018 which was $9.5 million, or 1.1%, lower than the 2017 first nine-month average.~~2018. The growth in the investment securities portfolio occurred primarily during 2018 and is the result of management taking advantage of the ~~higher~~rising interest rate environment inexperienced during 2018 ~~to purchase~~which provided an attractive market for additional ~~securities.~~security purchases. Purchases ~~so far in 2018 have~~ primarily ~~been~~ focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Also, management ~~continues~~continued its portfolio diversification strategy through purchases of high quality corporate and taxable municipal

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securities. Investment security purchase activity slowed significantly during the second and third quarters of 2019 as the interest rate market was less favorable. As a result, interest income on investments increased between the first nine months of ~~2018~~2019 and the first nine months of ~~2017~~2018 by ~~$559,000,~~$727,000, or ~~15.1%~~17.1%. ~~The combination~~

Total loans averaged $875 million in the first nine months of ~~a higher~~2019 which was $10.0 million, or 1.1%, lower than the 2018 first nine month average.The lower balance of total average loans reflects the high level of ~~early~~ loan payoffs ~~and a slowdown in loan~~

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~~production, particularly earlier this year, resulted in a decrease in the average balance of the loan portfolio. Loan production increased~~received during the latter part of the second quarter and this increase continued into the third quarter resulting in total loan originations exceeding the prior year’s level. However, loan payoffs have also continued to increase as the year progresses resulting in a net decrease to the overall portfolio. The Company does expect modest loan portfolio growth in the fourth quarter of 2018 and, again, during the third quarter of 2019 which exceeded the level of new loan originations during both time periods. In 2019, after a first quarter in which total average loans remained relatively consistent, loan growth returned during the second quarter as ~~production is anticipated~~loan originations exceeded loan payoffs. However, during the third quarter, although loan pipelines remained strong, loan originations began to ~~remain strong~~slow and ~~exceed~~trailed loan payoffs. ~~Loan production~~The decrease between years occurred primarily in the commercial real estate ~~loans~~ and ~~commercial/~~commercial & industrial ~~loans.~~loan portfolios. Even though the nine month average of total ~~average~~ loans ~~have~~ decreased since last year, loan interest and fee income increased by ~~$1.4~~$1.6 million, or ~~4.7%~~5.2%, inbetween the first nine months of ~~2018 when compared to the same period from~~2019 and last ~~year.~~year��s first nine months. The higher loan interest income primarily reflects the Federal Reserve’s increases to the target federal funds interest rate during 2018. This resulted in new loans originating at higher yields ~~as well as~~throughout 2018 and during the first half of 2019 and also caused the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices ~~have~~ moved up with the ~~Federal Reserve’s decision to increase the target~~ federal funds ~~interest rate.~~rate 2018 increases. Also, included in this increase was a higher level of loan fee income by $65,000, due primarily to prepayment fees collected on certain early loan pay-offs. Overall, total interest income increased by ~~$2.0��~~$2.4 million, or ~~6.0%~~6.8%, in the first nine months of 2019, as compared to the same period in 2018.

Total interest expense ~~increased by $1.8 million, or 28.4%, in~~for the first nine months of ~~2018~~2019 increased by $2.6 million, or 31.8%, when compared to ~~2017,~~2018, due to higher levels of both deposit and borrowing interest expense. ~~The higher 2018~~Total deposit interest expense increased by $2.6 million, or 43.5%, between time periods and reflects the higher level of ~~$1.4 million for~~total average interest bearing deposits and the ~~first nine months reflects~~upward repricing of certain indexed money market accounts ~~repricing upward~~ after the Federal Reserve interest rate ~~increases.~~increases during 2018. Additionally, ~~there~~and similar to the quarterly comparison, the Company has ~~been~~experienced increasing competitive market pressure to retain existing deposit customers and attract new customer deposits. Customer product preference changed as well resulting in movement of some funds out of non-interest bearing demand deposits and lower yielding money market accounts into higher yielding certificates of deposit due to the higher national interest rate environment in 2018. The runoff of money market deposits has more than offset the growth of term deposit products and resulted in a decrease in the balance of total deposits in 2018. Specifically,deposit. Overall, total deposits averaged ~~$957~~$978 million ~~for~~in the first nine months of ~~2018~~2019 which was ~~$19.8~~$20.6 million, or ~~2.0%~~2.1%, ~~lower~~higher than the ~~$977~~$957 million average for 2018.

Even though total average borrowings decreased between years, the ~~first nine months of 2017. The~~ Company experienced a ~~$465,000,~~$52,000, or ~~24.9%~~2.2%, increase in the interest cost for borrowings in the first nine months of ~~2018~~2019 due to ~~a higher average balance of total borrowed funds and~~ the ~~immediate~~ impact that the 2018 increases in the federal funds rate had on the cost of overnight borrowed ~~funds.~~funds and the replacement of matured FHLB term advances. Also, due to a new accounting pronouncement that became effective January 1, 2019, the Company recognized additional interest expense on its financing property leases of $88,000. In the first nine months of ~~2018,~~2019, total average FHLB borrowed funds was $65.1 million, a decrease of ~~$79 million increased by $18.0~~$14.1 million, or ~~29.4%~~17.8%, from the same period during 2018, which was due to the ~~decrease~~increase in total average deposits.

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) for the nine month periods ended September 30, ~~2018~~2019 and ~~2017.~~2018. For a detailed discussion of the components and assumptions included in the table, see the paragraph before the quarterly table on page ~~34.~~s 33 and 34. The tax equivalent adjustments to interest income on loans and municipal securities for the nine months ended September 30, 2019 and 2018 was $17,000 and ~~2017 was~~ $16,000, respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and ~~$30,000, respectively.~~margin from a GAAP basis to a tax-equivalent basis were not material.

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Nine months ended September 30~~(In~~ (In thousands, except percentages)

2018 2017
Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income $ 884,620 $ 30,566 4.57% $ 894,088 $ 29,219 4.33%
Interest bearing deposits 1,024 14 1.77 1,029 8 1.03
Short-term investment in money market funds 6,804 150 2.91 8,049 93 1.52
Investment securities – AFS 142,366 3,274 3.07 135,131 2,819 2.78
Investment securities – HTM 39,262 981 3.33 36,854 877 3.17
Total investment securities 181,628 4,255 3.12 171,985 3,696 2.87
Total interest earning assets/interest income 1,074,076 34,985 4.32 1,075,151 33,016 4.08
Non-interest earning assets:
Cash and due from banks 22,598 22,214
Premises and equipment 12,417 12,095
Other assets 62,215 67,552
Allowance for loan losses (9,974) (10,290)
TOTAL ASSETS $ 1,161,332 $ 1,166,722
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 131,062 $ 770 0.79% $ 129,923 $ 450 0.46%
Savings 98,445 122 0.17 97,852 122 0.17
Money markets 251,215 1,570 0.84 276,958 1,047 0.51
Time deposits 296,717 3,456 1.56 290,598 2,939 1.35
Total interest bearing deposits 777,439 5,918 1.02 795,331 4,558 0.77
Short-term borrowings 34,297 529 2.03 15,390 130 1.13
Advances from Federal Home Loan Bank 44,884 577 1.72 45,785 511 1.49
Guaranteed junior subordinated deferrable interest
debentures 13,085 840 8.57 13,085 840 8.57
Subordinated debt 7,650 390 6.80 7,650 390 6.80
Total interest bearing liabilities/interest expense 877,355 8,254 1.26 877,241 6,429 0.98
Non-interest bearing liabilities:
Demand deposits 180,056 181,924
Other liabilities 8,033 11,630
Shareholders’ equity 95,888 95,927
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY $ 1,161,332 $ 1,166,722
Interest rate spread 3.07 3.10
Net interest income/ Net interest margin 26,731 3.29% 26,587 3.27%
Tax-equivalent adjustment (16) (30)
Net Interest Income $ 26,715 $ 26,557

	2019								2018
	Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income		$	874,601		$	32,166		4.87%		$	884,620		$	30,566		4.57%
Short-term investment in money market funds and bank deposits			9,264			231		3.29			7,828			164		2.76
Investment securities – AFS			155,998			3,898		3.33			142,366			3,274		3.07
Investment securities – HTM			40,799			1,084		3.54			39,262			981		3.33
Total investment securities			196,797			4,982		3.38			181,628			4,255		3.12
Total interest earning assets/interest income			1,080,662			37,379		4.59			1,074,076			34,985		4.32
Non-interest earning assets:
Cash and due from banks			20,356								22,598
Premises and equipment			17,663								12,417
Other assets			63,628								62,215
Allowance for loan losses			(8,366)								(9,974)
TOTAL ASSETS		$	1,173,943							$	1,161,332
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand		$	169,125		$	1,260		1.00%		$	131,062		$	770		0.79%
Savings			97,672			122		0.17			98,445			122		0.17
Money markets			235,936			1,975		1.12			251,215			1,570		0.84
Time deposits			323,116			5,135		2.12			296,717			3,456		1.56
Total interest bearing deposits			825,849			8,492		1.37			777,439			5,918		1.02
Short-term borrowings			13,944			276		2.65			34,297			529		2.03
Advances from Federal Home Loan Bank			51,112			793		2.07			44,884			577		1.72
Guaranteed junior subordinated deferrable interest debentures			13,085			841		8.57			13,085			840		8.57
Subordinated debt			7,650			390		6.80			7,650			390		6.80
Lease liabilities			3,238			88		3.63			—			—		—
Total interest bearing liabilities/interest expense			914,878			10,880		1.59			877,355			8,254		1.26
Non-interest bearing liabilities:
Demand deposits			152,197								180,056
Other liabilities			7,501								8,033
Shareholders’ equity			99,367								95,888
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,173,943							$	1,161,332
Interest rate spread								3.00								3.07
Net interest income/ Net interest margin						26,499		3.24%						26,731		3.29%
Tax-equivalent adjustment						(17)								(16)
Net Interest Income					$	26,482							$	26,715

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…~~PROVISION~~..PROVISION FOR LOAN LOSSES….. The Company recorded a ~~$100,000~~$175,000 provision recovery for loan losses in the first nine months of ~~2018~~2019 compared to a ~~$750,000~~$100,000 provision ~~for loan losses~~expense in the first nine months of ~~2017, or a decrease of $650,000 between periods.~~2018. The ~~lower 2018 loan loss~~2019 provision recovery reflects our overall strong asset quality, ~~the successful workout~~limited loan growth and low levels of ~~several criticized loans, and reduced~~net loan ~~portfolio balances. Also,~~charge-offs. Specifically, for the first nine months of ~~2018,~~2019, the Company

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experienced net loan charge-offs of ~~$875,000,~~$151,000, or ~~0.13%,~~0.02% of total loans, compared to net loan charge-offs of ~~$336,000,~~$875,000, or ~~0.05%,~~0.13% of total loans, in ~~2017. The higher 2018 net loan charge-offs reflect the final work-out of several non-performing loans on which reserves had previously been established.~~2018. Overall, the Company continued to maintain strong asset quality as its nonperforming assets totaled ~~$1.1~~$2.0 million, or only ~~0.12%~~0.22% of total loans, at September 30, ~~2018.~~2019.

…..NON-INTEREST INCOME…..~~…NON-INTEREST INCOME…~~ Non-interest income for the first nine months of ~~2018~~2019 totaled ~~$10.9~~$11.4 million and ~~nearly matched~~increased by $455,000, or 4.2%, from the ~~2017 level, decreasing slightly by $44,000.~~prior year. Factors contributing to ~~this slightly lower~~the higher level of non-interest income for the first nine months included:

•

a ~~$474,000 increase~~$266,000 favorable change in ~~Wealth Management fees was primarily due to~~investment security sale gains after the Company ~~benefitting from increased market values for assets under management~~sold a portion of low balance, low yielding securities at a loss in 2018 to reposition the investment portfolio for stronger future returns. This line item was also favorably impacted by the investment security sale activity that occurred during the third quarter of 2019 and ~~stronger sales of insurance related products by its financial services professionals;~~is discussed previously in the quarterly comparison comments;

•

a ~~$263,000 reduction~~$181,000 increase in net gains on loan sales into the ~~net realized gain/loss on investment securities as the~~secondary market ~~value of sold securities decreased since last year~~primarily due to the ~~higher interest rate environment. Management viewed the gain recognized on the~~ sale of ~~equity securities, described~~the guaranteed portion of a Small Business Administration loan that resulted in ~~the next bulleted item, as an opportunity to rid the investment securities portfolio of certain investments having~~ a ~~low yield and a small balance;~~$197,000 gain;

•

a $227,000 increase in other income primarily due to a $156,000 gain realized on the sale of certain equity securities that the Company owned from a previous acquisition. The Company also benefitted from higher interchange fees as well as increased revenue from business services;

•

~~a $194,000~~$118,000 decrease in revenue from deposit service charges due to a reduced level of overdraft fee income as the impact of the bank ~~owned life insurance (BOLI) after~~no longer charging a fee on overdrafts that result from signature based point of sale debit card transactions was evident in the ~~Company received a death claim in 2017 and there was no such claim this~~first half of the year;

•

a ~~combined $186,000 decrease~~$71,000 increase in ~~net gains on loans sold into the secondary market and mortgage related fees~~other income due to ~~lower production~~a higher level of letter of credit fees and ~~reduced refinance activity of residential mortgage loans;~~increased revenue from check supply sales due to a favorable vendor contract renegotiation; and

•

a ~~$102,000 decrease~~$53,000 increase in ~~deposit service charges~~mortgage related fees due to ~~reduced overdraft fees.~~increased residential mortgage loan production.

…..NON-INTEREST EXPENSE…..~~…NON- INTEREST EXPENSE …~~ Non-interest expense for the first nine months of ~~2018~~2019 totaled ~~$30.5~~$31.3 million and increased by ~~only $28,000,~~$753,000, or ~~0.1%~~2.5%, from the prior year. Factors contributing to the ~~slightly~~ higher level of non-interest expense infor the first nine months included:

•

a ~~$318,000, or 1.8%,~~$847,000 increase in salaries & benefits expense due to higher salaries ~~and incentive compensation as a result of the typical~~which resulted from annual ~~salary~~ merit increases, the addition of several employees to address management succession planning, staffing our new financial banking center in Hagerstown, Maryland and ~~additional incentives paid primarily within our Wealth Management division due to the~~higher health care costs and pension expense. These increased ~~level of fee income mentioned previously;~~expenses more than offset reduced incentive compensation;

•

a ~~combined $173,000~~$307,000 increase in other expense due to increased investment in technology resulting in higher website costs and additional telecommunications expense. Also, there was a higher funding of the unfunded commitment reserve by $113,000 due to increased loan approvals during 2019;

•

a $297,000 reduction in ~~occupancy & equipment costs is primarily attributable~~FDIC deposit insurance expense due to the ~~Company’s ongoing efforts to carefully manage and contain non-interest expense. Specifically, a branch office closure in Cambria County along with a branch consolidation in~~application of the ~~State College market resulted in reduced rent expense and other occupancy related costs;~~Small Bank Assessment Credit regulation, as previously discussed; and

•

a ~~$71,000, or 1.9%,~~$112,000 decrease in professional fees due to ~~reduced~~lower legal fees, recruitment costs and ~~lower expense~~expenses for ~~outsourced~~other professional services.

…~~INCOME~~..INCOME TAX EXPENSE…..~~Overall for the nine-month period, the~~The Company recorded an income tax expense of ~~$1,133,000,~~$1,403,000, or an effective tax rate of ~~16.2%~~20.7%, in ~~2018 compared~~the first nine months of 2019. This compares to anthe income tax expense of ~~$1,949,000,~~$1,178,000, or an effective tax rate of ~~31.2%~~16.8%, ~~in 2017.~~for the first nine months of 2018. The lower effective tax rate and income tax expense in 2018 reflects the benefits of corporate tax reform as a result of the enactment of the “Tax Cuts and Jobs Act” late in the fourth quarter of ~~2017, which lowered the corporate income tax rate from 34% to 21%.~~2017. As previously discussed in the quarterly comparison of the M.D. & A., the Company recognized ana $264,000 income tax benefit in 2018 as the result of an additional ~~$2.5 million~~ contribution made to our defined benefit pension plan.

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…~~SEGMENT RESULTS…~~..SEGMENT RESULTS.….Retail banking’s net income contribution was ~~$1,145,000~~$1,316,000 in the third quarter of ~~2018~~2019 and ~~$2,605,000~~$3,673,000 for the first nine months of ~~2018~~2019 which was up by ~~$351,000~~$171,000 from the third quarter of last year and by ~~$446,000~~$1,068,000 from the net income contribution for the first nine months of ~~2017. This~~2018. The increase reflects a ~~reduced~~higher level of ~~non-interest expense and a lower level~~net interest income as the funding benefit for deposits provided by this segment improved due to the growth of ~~interest bearing deposits between years. Also, management prices deposits in a controlled but competitive manner which helps to~~total deposits. This funding benefit more than offset the impact of the immediate upward repricing of money market deposit accounts because of the increases to the federal

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funds ~~rate. Net interest income~~rate during 2018 and the corresponding incremental increase to other term deposit products. Note that this segment did experience some deposit cost relief because of the Federal Reserve’s action to decrease the fed funds rate in July and September of this year. Retail banking was ~~negatively~~positively impacted by athe lower level of ~~residential mortgage production and refinancing activity. The lower level of non-interest expense was due to the Company’s focus on reducing and controlling costs which resulted in lower employee~~FDIC insurance expense due to the ~~closure~~application of ~~one branch office~~the assessment credit in the third quarter of 2019 and, ~~reduced health care and pension costs. The branch office that closed along with our efforts~~also, by an increase to ~~reduce and control expenses resulted in occupancy & equipment costs and miscellaneous expenses declining between periods. The Retail~~net gains on loan sales into the secondary market due to increased residential mortgage loan production.Additionally, the retail banking segment ~~also~~ benefitted from the ~~recognition of a lower~~ loan loss provision ~~in 2018 and~~recovery for the ~~lower corporate income tax rate that resulted from the enactment~~full nine months of ~~the “Tax Cuts and Jobs Act” which caused a reduction in income tax expense.~~2019. Slightly offsetting these favorable items ~~in both time periods~~ was ~~a lower level of~~ non-interest income decreasing due to ~~reduced residential mortgage loan sale gain income, mortgage related fees, fee income from~~the lower deposit service ~~charges and, for the nine-month time period only, BOLI~~charge income.

The commercial banking segment reported net income of ~~$1,876,000~~$1,475,000 in the third quarter of 2019 and ~~$5,076,000 in~~$4,948,000 for the first ~~nine-months~~nine months of ~~2018~~2019 which was ~~higher~~down by ~~$464,000~~$401,000 from the third quarter of last year and ~~$781,000 when compared to~~by $128,000 from the ~~same 2017 periods. The higher level of~~ net income contribution for ~~both time periods~~the first nine months of ~~2018~~2018. The decline in net income was due to ~~a greater~~the lower level of loan interest income, the lower provision for loan losses and reduced income tax expense. Total loan interest income increased and reflects new loans originating at higher yields as well as the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices have moved up with the Federal Reserve’s decision to increase the target federal funds interest rate. The higher loan interest income more than offsets the unfavorable impact of a reduced volume ofaverage total commercial & industrial and commercial real estate loans for both time periods combined with the lower national interest rate environment. Additionally, this ~~year as early loan prepayment activity has more than offset loan production this year. The lower~~segment was unfavorably impacted during the third quarter of 2019 by the Federal Reserve’s recent action to reduce interest rates. This segment benefitted from the loan loss provision recovery recognized for the nine month period but was negatively impacted for the third quarter comparison since a provision expense was recognized in ~~2018 reflects our overall strong asset quality,~~2019 after a zero provision was recorded last year. The increase in loan fee income positively impacted the ~~successful workout~~nine month time period due primarily to prepayment fees collected on certain early loan pay-offs. Additionally, this segment benefitted from the $197,000 gain recognized on the sale of ~~several criticized loans,~~the guaranteed portion of a Small Business Administration loan. Finally, and ~~reduced loan portfolio balances. Also,~~unfavorably impacting net income was total employee costs ~~are lower~~increasing due to ~~reduced pension expense and three fewer~~a higher level of full time equivalent employees in the commercial ~~relationship managers in 2018. Finally, miscellaneous expenses are~~banking segment as well as a higher level of funding for the ~~first nine-month time period in 2018 but lower on a quarterly basis when compared~~unfunded commitment reserve due to ~~2017.~~increased loan approvals for the nine months of 2019.

The wealth management segment reported net income of ~~$483,000~~$477,000 in the third quarter of 2019 and ~~$1,423,000 in~~$1,365,000 for the first ~~nine-months~~nine months of ~~2018~~2019 which was ~~$148,000~~$6,000 lower for the quarter and ~~$432,000 higher than~~$58,000 lower for the ~~same periods for 2017.~~nine month period. The ~~increase~~year over year decrease is due to wealth management fees ~~increasing~~declining during the first quarter of 2019 as this segment ~~has benefitted from increased~~was unfavorably impacted by decreased market values for assets under ~~management.~~management after the equity markets declined late in the fourth quarter of 2018. Also contributing to the year over year decline is a decrease in the volume of life insurance sales within the financial services division. Wealth management fees did recover during the second and third quarter of 2019 due to market values for assets under management improving after the equity markets rebounded resulting in a favorable quarterly comparison for total revenue. Finally, and also positively impacting the wealth management segment’s net income was lower professional fees due to lower legal fees and costs for other professional services. Wealth management continues to be an important strategic focus of the Company. Also contributing to the higher level of net income from this segment was a lower level of professional fees. Slightly offsetting these favorable items was higher employee costs due to higher salaries because of additional investment in talent, and a greater level of incentive compensation.

The investment/parent segment reported a net loss of ~~$1,175,000~~$1,579,000 in the third quarter of ~~2018~~2019 and a ~~$3,264,000~~ net loss inof $4,627,000 for the first ~~nine-months~~nine months of ~~this year,~~2019 which is ~~higher~~a greater loss by ~~$185,000~~$404,000 for the quarter and ~~by $107,000~~$1,363,000 for the ~~nine-month~~nine month period. The increased loss ~~for both time periods~~ was the result of ~~a higher usage of~~ overnight borrowed funds ~~which have~~having a higher cost due to the ~~increasing~~increase to national interest rates during 2018 and the immediate impact that the rising interest ~~rate environment has~~rates had on overnight borrowed funds. ~~Also contributing to~~Additionally, maturing FHLB term advances and their replacement repriced upward during the ~~increased loss between both time periods is a reduction to the income tax credit which is not as favorable in 2018 due to the enactment~~first nine months of ~~the “Tax Cuts and Jobs Act”.~~2019.

…~~BALANCE~~..BALANCE SHEET…..The Company’s total consolidated assets were $1.17 billion at September 30, ~~2018,~~2019, which increased by ~~$1.2~~$10.7 million, or ~~0.1%~~0.9%, from the December 31, ~~2017~~2018 asset level. ~~The increase~~This change was driven primarily by an increased level of ~~total earning~~loans and fixed assets. Specifically, loans and loans held for sale increased by $12.0 million, or 1.4%, and as a result of the adoption of ASU 2016-02, Leases (Topic 842), the Company reported $4.0 million of right of use assets within the fixed assets line of the Consolidated Balance Sheet at September 30, 2019. These increases were partially offset by a reduction of total investment securities ~~grew by $9.5~~of $4.8 million, or ~~5.7% and more than offset total loans decreasing by $8.4 million, or 0.9%, during the period.~~2.6%.

Total deposits ~~decreased~~increased by ~~$3.7~~$20.8 million, or ~~0.4%~~2.2%, in the first nine months of ~~2018.~~2019. As of September 30, ~~2018,~~2019, the 25 largest depositors represented ~~21.8%~~22.1% of total deposits, which is a slight decrease from ~~the third quarter 2017~~December 31, 2018 when it was ~~22.4%~~22.7%. Total borrowings have ~~increased~~decreased by ~~$8.5~~$16.7 million, or 15.5%, since year-end ~~2017.~~2018. The decrease was driven, primarily, by the reduction in short term borrowings of $29.8 million, or 72.5%, and is attributable to the increase in total deposits. The substantial decrease in short term

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borrowings was partially offset by an increase in ~~borrowed funds occurred in short term borrowings as a result of the decrease in total deposits. Total~~ FHLB term advances ~~decreased~~and lease liabilities. Specifically, total FHLB term advances increased by ~~$3.7~~$8.9 million, or 19.1%, and totaled ~~$43 million due to timing differences related to the replacement of matured advances.~~$55.6 million. The Company has utilized these term advances to help manage interest rate risk and ~~favorably position our balance sheet for~~the inversion demonstrated by the U.S. Treasury Yield Curve in 2019 resulted in certain term advances costing less than overnight borrowed funds. In addition, the Company reported $4.1 million of lease liabilities as a ~~rising rate environment.~~result of the adoption of ASU 2016-02, Leases (Topic 842). The Company’s total shareholders’ equity increased by ~~$2.1~~$4.5 million over the first nine months of ~~2018~~2019 due to the retention of earnings more than offsetting our common stock dividend payment to shareholders and the impact of our common stock buyback ~~program, which is addressed~~program. Additionally, the improved value of the investment securities portfolio had a positive impact on ~~page 44.~~accumulated other comprehensive loss.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of ~~13.13%~~13.33%, and a common equity tier 1 capital ratio of ~~10.10%~~10.41% at September 30, ~~2018.~~2019. (See the discussion of the Basel III capital requirements under the “Capital Resources” section.) As of September 30, ~~2018,~~2019, the Company’s book value per common share was ~~$5.47~~$5.98 and its tangible book value per common share was ~~$4.80. Both of these ratios improved by $0.22~~$5.28 (non-GAAP). When compared to December 31, 2018, book value per common share and ~~$0.21~~tangible book value per common share improved by $0.42 and $0.40, respectively, ~~when compared to December 31, 2017.~~per common share. The tangible common equity to tangible assets ratio was ~~7.37%~~7.81% (non-GAAP) at September 30, ~~2018~~2019 and improved by 1732 basis points when compared to December 31, ~~2017.~~2018.

The tangible common equity ratio isand tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible equity by tangible ~~assets.~~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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands, except ~~ratio)~~share and ratio data):

	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Total shareholders’ equity		$	97,179		$	95,102		$	102,460		$	97,977
Less: Goodwill			11,944			11,944			11,944			11,944
Tangible equity			85,235			83,158			90,516			86,033
Total assets			1,168,806			1,167,655			1,171,426			1,160,680
Less: Goodwill			11,944			11,944			11,944			11,944
Tangible assets			1,156,862			1,155,711			1,159,482			1,148,736
Tangible common equity ratio			7.37%			7.20%			7.81%			7.49%
Total shares outstanding									17,146,714			17,619,303
Tangible book value per share								$	5.28		$	4.88

…..LOAN QUALITY…..~~.....LOAN QUALITY.....~~The following table sets forth information concerning the Company’s loan delinquency, non-performing assets, and classified assets (in thousands, except percentages):

	September 30, 2018			December 31, 2017			September 30, 2017			September 30, 2019			December 31, 2018			September 30, 2018
Total accruing loan delinquency (past due 30 to 89 days)		$	9,365		$	8,178		$	9,052		$	2,397		$	4,752		$	9,365
Total non-accrual loans			904			3,016			4,654			1,080			1,221			904
Total non-performing assets including TDR*			1,067			3,034			5,372			1,957			1,378			1,067
Accruing loan delinquency, as a percentage of total loans, net of unearned income			1.06%			0.92%			1.01%			0.27%			0.55%			1.06%
Non-accrual loans, as a percentage of total loans, net of unearned income			0.10			0.34			0.52			0.12			0.14			0.10
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned			0.12			0.34			0.60			0.22			0.16			0.12
Non-performing assets as a percentage of total assets			0.09			0.26			0.46			0.17			0.12			0.09
As a percent of average loans, net of unearned income:
Annualized net charge-offs			0.13			0.06			0.05
Annualized provision for loan losses			0.02			0.09			0.11
Total classified loans (loans rated substandard or doubtful)		$	4,051		$	5,433		$	8,140

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	September 30, 2019			December 31, 2018			September 30, 2018
As a percent of average loans, net of unearned income:
Annualized net charge-offs			0.02			0.11			0.13
Annualized provision (credit) for loan losses			(0.03)			(0.07)			0.02
Total classified loans (loans rated substandard or doubtful)**		$	7,687		$	4,302		$	4,051

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.

Total classified loans include non-performing residential mortgage and consumer loans.

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Overall, the Company continued to maintain strong asset quality in the first nine months of ~~2018~~2019 as evidenced by low levels of non-accrual loans, non-performing assets, ~~classified loans,~~ and loan delinquency levels that continue to be near or below 1% of total loans. The Company did experience an increase in classified loans during the third quarter of 2019 due to the downgrade of several credits that are still paying on a timely basis. 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 September 30, ~~2018,~~2019, the 25 largest credits represented ~~27.2%~~24.3% of total loans outstanding, which ~~is consistent with~~represents a decrease from the third quarter of ~~2017.~~2018 when it was 27.2%.

…~~ALLOWANCE~~..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):

		September 30, 2018			December 31, 2017			September 30, 2017			September 30, 2019			December 31, 2018			September 30, 2018
Allowance for loan losses			$	9,439		$	10,214		$	10,346		$	8,345		$	8,671		$	9,439
Allowance for loan losses as a percentage of each of the following:	Allowance for loan losses as a percentage of each of the following:
total loans, net of unearned income				1.07%			1.15%			1.15%			0.95%			1.00%			1.07%
total accruing delinquent loans (past due 30 to 89 days)				100.79			124.90			114.30			348.14			182.47			100.79
total non-accrual loans				1,044.14			338.66			222.30			772.69			710.16			1,044.14
total non-performing assets				884.63			336.65			192.59			426.42			629.25			884.63

The Company recorded a $175,000 loan loss provision recovery in the first nine months of 2019 compared to a $100,000 provision expense for loan losses in the first nine months of 2018 ~~compared to~~that resulted in a ~~$750,000 provision for loan losses in the first nine months~~positive change of ~~2017 or a decrease of $650,000~~$275,000 between periods. The ~~lower~~ loan loss provision recovery in ~~2018~~2019 reflects our overall strong asset quality, ~~the successful workout~~limited loan growth, and low level of ~~several criticized loans, and reduced~~net loan ~~portfolio balances.~~charge-offs.

…~~LIQUIDITY…~~..LIQUIDITY….. The Company’s liquidity position has been strong during the last several ~~years. Our~~years, primarily due to our core retail deposit base, ~~has been more than adequate to fund~~which provides a reliable source of funds for the Company’s operations. Payments and prepayments from the loan ~~portfolios,~~portfolio, as well as, cash flow from maturities, prepayments and amortization of securities were also used to help fund new loan originations. We strive to operate our loan to deposit ratio in a range of 80% to 100%. For the ~~first nine months~~third quarter of ~~2018,~~2019, the Company’s loan to deposit ratio has averaged ~~92.39%~~89.4%. WeGiven the slowdown in loan originations and the increase in prepayment activity experienced during the third quarter of 2019 combined with the strength of our current loan pipeline, we expect our loan to deposit ratio to ~~remain near 92%~~be relatively stable through the remainder of ~~2018.~~2019.

Liquidity can be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents decreased by ~~$3.0~~$1.8 million from December 31, ~~2017~~2018 to September 30, ~~2018,~~2019, due to ~~$8.8~~$3.4 million of net cash used in ~~investing~~financing activities, which more than ~~offsetting $3.8~~offset $1.3 million of net cash provided by operating activities and ~~$2.1 million~~$332,000 of net cash provided by ~~financing~~investing activities. ~~Within financing activities, short term borrowed funds increased by $12.2 million while total deposit balances decreased by $3.7 million.~~ Within investing activities, cash advanced for new loan fundings and loan participation purchases ~~(excluding residential mortgages sold in the secondary market) totaled $136~~was $163.3 million, ~~and~~which was ~~$5.4~~$7.0 million ~~lower~~higher than the ~~$141.3~~$151.8 million of cash received from loan principal payments and $4.6 million from loan participations sold. ~~Also, cash~~Cash utilized for new investment security purchases totaled ~~$33.8~~$12.7 million ~~which more~~and was

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less than ~~exceeded~~ cash provided from investment security maturities and sales of ~~$20.6~~$21.5 million. Within financing activities, deposit balances increased by $20.8 million. Short term borrowed funds decreased by $29.8 million, and more than offset an increase in advances from the Federal Home Loan Bank of $8.9 million. Within operating activities,originations of residential mortgage loans of $28.2 million more than offset sales of residential mortgage loans of ~~$25.8 million offset new residential mortgage loan originations of $23.4~~$23.7 million. At September 30, ~~2018,~~2019, the Company had immediately available ~~$351~~$380 million of overnight borrowing capacity at the FHLB and $35 million of unsecured federal funds lines with correspondent banks.

The holding company had ~~$8.7~~$6.4 million of cash, short-term investments, and investment securities at September 30, ~~2018.~~2019. Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. At September 30, ~~2018,~~2019, our subsidiary Bank had ~~$6.5~~$10.6 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, its increased common stock dividend, and support the common stock repurchase program.

…~~CAPITAL~~..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 ~~10.10%~~10.41%, the tier 1 capital ratio was ~~11.31%~~11.62%, and the total capital ratio was ~~13.13%~~13.33% at September 30, ~~2018.~~

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2019. The Company’s tier 1 leverage ratio was ~~9.57%~~9.79% at September 30, ~~2018.~~2019. We anticipate that we will maintain our strong capital ratios throughout the remainder of ~~2018.~~2019. Capital generated from earnings will be utilized to pay the common stock cash dividend, fund the stock repurchase program, and will also support controlled balance sheet growth. 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 ~~335%~~336% of regulatory capital at September 30, ~~2018.~~2019.

~~On January 1, 2015, U.S. federal banking agencies implemented the new~~The Basel III capital standards ~~which~~ establish the minimum capital levels in addition to ~~be considered well-capitalized and revised~~ the well capitalized requirements under the federal banking regulations prompt corrective ~~action requirements under banking regulations.~~ action. Under the Basel III capital standards, the minimum capital ratios are:

	Minimum capital ratio
Common equity tier 1 capital to risk-weighted assets		4.5%
Tier 1 capital to risk-weighted assets		6.0
Total capital to risk-weighted assets		8.0
Tier 1 capital to total average consolidated assets		4.0

The ~~revisions from the previous standards include~~capital rules also impose a ~~revised definition of~~ capital ~~the introduction of a minimum Common Equity Tier 1 capital ratio and changed risk weightings for certain assets. The implementation~~conservation buffer (“CCB”) on top of the ~~new rules will be phased in over this four-year period ending~~three minimum risk-weighted asset ratios listed above. As of January 1, 2019, ~~with~~the CCB has been fully phased-in and is 2.5%. Banking institutions that fail to meet the effective minimum ~~capital requirements becoming increasingly more strict each year of~~ratios once the ~~transition. The new minimum capital requirements~~CCB is taken into account (that is, 7.0% for ~~each ratio, both, initially on January 1, 2015 and at the end of the transition on January 1, 2019, are as follows: A~~ common equity tier 1 capital ~~ratio of 4.50% initially and 7.00% at January 1, 2019; a~~to risk-weighted assets, 8.5% for tier 1 capital ~~ratio of 6.00%~~to risk-weighted assets and ~~8.50%; a~~10.5% for total capital ~~ratio of 8.00% and 10.50%; and a tier 1 leverage ratio of 5.00% and 5.00%. Under the new rules, in order~~ to ~~avoid limitations~~risk-weighted assets) will be subject to constraints on capital distributions, ~~(including dividend payments~~including dividends and share repurchases, and certain discretionary ~~bonus payments to~~ executive ~~officers), a banking organization must hold a capital conservation buffer above its minimum risk-based~~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, ~~which increases over~~including the ~~transition period, from 0.625% of total risk weighted assets in 2016 to 2.50% in 2019. The Company continues~~fully phased-in buffer, 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.

In the first quarter of ~~2018,~~2019, the Company completed the previous common stock repurchase program where it bought back ~~945,000~~540,000 shares, or 5%3% of its common stock, over a ~~14-month period.~~9-month period at a total cost of $2.38 million. Specifically, during the first three months of ~~2018,~~2019, the Company was able to repurchase ~~105,663~~112,311 shares of its common stock and return ~~$445,000~~$476,000 of capital to its shareholders through this program.

On ~~July 17, 2018,~~April 16, 2019, the Company ~~announce~~announced that its Board of Directors approved a new common stock repurchase program which calls for AmeriServ Financial, Inc. to buy back up to 3%, or approximately ~~540,000~~526,000 shares, of its outstanding common stock during the next 12 months. The authorized repurchases

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will be made from time to time in either the open market or through privately negotiated transactions. The timing, volume and nature of share repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time. No assurance can be given that any particular amount of common stock will be repurchased. This buyback program may be modified, extended or terminated by the Board of Directors at any time. During the second and third ~~quarter~~quarters of ~~2018,~~2019, the Company was able to repurchase ~~279,679~~399,195 shares of its common stock and return ~~$1,263,000~~$1.7 million of capital to its shareholders through this program. Overall in 2019, this latest common stock buyback program, combined with the first quarter completion of the previously authorized common stock buyback program, resulted in the Company returning $2.2 million to its shareholders through the repurchase of 511,506 shares of its common stock. When including the increased cash dividend payments on our common stock, total capital returned to our shareholders exceeded 63% of net income for the first nine months of 2019. At September 30, ~~2018,~~2019, the Company had approximately ~~17.8~~17.1 million common shares outstanding.

…~~REGULATORY UPDATE…~~ The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Most of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation. Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidate assets not less than 8% or more than 10% and provide that banks that maintain tangible

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equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Company continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Company’s business, operations, or financial results.

~~…INTEREST~~..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.

Interest Rate Scenario	Variability of Net Interest Income		Change in Market Value of Portfolio Equity		Variability of Net Interest Income		Change in Market Value of Portfolio Equity
200bp increase		0.2%		16.2%		5.4%		29.6%
100bp increase		0.5		9.2		3.4		18.3
100bp decrease		(1.4)		(12.5)		(4.8)		(27.1)

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 ~~extension of a portion of~~reduction to overnight borrowed funds. Also, the Company ~~expects that it~~ will ~~not have~~continue its disciplined approach to ~~reprice~~price its core deposit accounts ~~up as quickly as~~in a controlled but competitive manner when interest rates rise. 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 ~~approximately 2.25%~~a targeted range of 1.75% to 2.00%. 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~~..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 ~~$207.9~~$227.5 million and standby letters of credit of ~~$9.7~~$15.0 million as of September 30, ~~2018.~~2019. 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.

…~~CRITICAL~~..REGULATORY UPDATE…..The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Most of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions,

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including increasing the threshold at which institutions are classified as systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation.

Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidated assets not less than 8% or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.

In September 2019, as directed pursuant to the Act, the federal bank regulatory agencies issued final rules for a community bank leverage ratio (“CBLR”) for certain community banking organizations, which will be available to use in call reports filed for the period beginning January 1, 2020 or April 1, 2020 pursuant to subsequent final rules adopted in October 2019. Under the final rules, a bank or holding company would be eligible to elect the CBLR framework if the institution had less than $10.0 billion in total consolidated assets, met certain risk-based qualifying criteria and had a CBLR greater than 9%. A qualifying community banking organization that elected to opt in to the CBLR framework would not be subject to risk-based and leverage capital requirements under the Basel III rules. In July 2019, the federal bank regulatory agencies issued final rules pursuant to the Act simplifying several requirements in the agencies’ regulatory capital rules for banks generally less than $250 billion in assets. As directed pursuant to the Act, the federal bank regulatory agencies issued final rules increasing the asset thresholds for management interlocks between depository institutions, which became effective in October 2019. Also, in October 2019, the federal bank regulatory agencies issued final rules to, among other things, increase the threshold for appraisals in a residential real estate transaction from $250,000 to $400,000 and make conforming changes to add to the list of exempt transactions those transactions secured by residential property in rural areas that have been exempted from the agencies’ appraisal requirements pursuant to the Act. Additionally, the Act requires the enactment of a number of other implementing regulations, the details of which may have a material effect on the ultimate impact of the law. The Company continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Company’s business, operations, or financial results.

…..CRITICAL ACCOUNTING POLICIES AND ESTIMATES…..The accounting and reporting policies of the Company are in accordance with Generally Accepted Accounting Principles and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses, goodwill, income taxes, and investment securities are deemed critical because they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by the Company could result in material changes in the Company’s financial position or results of operation.

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ACCOUNT — 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

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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 ~~loss.~~losses. Approximately ~~$7.1~~$6.4 million, or 76%, of the total allowance for loan losses at September 30, ~~2018~~2019 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and ~~TDR~~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 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.

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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 September 30, ~~2018,~~2019, we believe that all of the deferred tax assets recorded on our balance sheet will ultimately be recovered and that no valuation allowances were needed.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

ACCOUNT — Investment Securities
BALANCE SHEET REFERENCE — Investment securities
INCOME STATEMENT REFERENCE — Net realized gains (losses) on investment securities
DESCRIPTION

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to 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 September 30, ~~2018,~~2019, the unrealized losses in the available-for-sale security portfolio were comprised of securities issued by government agencies or government sponsored agencies and certain high quality corporate and taxable municipal securities. The Company believes the unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

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…~~FORWARD~~..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 ~~are committed~~strive to ~~increasing~~increase earnings per ~~share growth;~~share; identifying and managing revenue growth and expense reduction; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share by 10 percent year-over-year and narrowing the financial performance gap between AmeriServ and its peer banks. We ~~are committed~~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. ~~Our~~We strive to educate our employee base ~~will be educated~~ as to the meaning/importance of earnings per share as a performance measure. We will develop a value added combination for increasing revenue and reducing 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 ~~is committed~~expects to ~~providing~~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 ~~will provide~~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 ~~redesigned~~upgraded and ~~continue to be committed to redesigning~~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 ~~it serves~~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.

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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; and (xii) other external developments which could materially impact the Company’s operational and financial performance.

The foregoing list of important factors is not exclusive, and neither such list nor any forward-looking statement takes into account the impact that any future acquisition may have on the Company and on any such forward-looking statement.

Item 3…~~QUANTITATIVE~~..QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK…..The Company manages market risk, which for the Company is primarily interest rate risk, through its asset liability management process and committee, see further discussion in Interest Rate Sensitivity section of the M.D. & A.

Item 4…~~CONTROLS~~..CONTROLS AND PROCEDURES…..(a) Evaluation of Disclosure Controls and Procedures. The Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and the operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, ~~2018,~~2019, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, ~~2018,~~2019, are effective.

(b) Changes in Internal Controls. There have been no changes in AmeriServ Financial Inc.’s internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II Other Information

Item 1. Legal Proceedings

There are no material proceedings to which the Company or any of our subsidiaries are a party or by which, to the Company’s knowledge, we, or any of our subsidiaries, are threatened. All legal proceedings presently pending or threatened against the Company or our subsidiaries involve routine litigation incidental to our business or that of the subsidiary involved and are not material in respect to the amount in controversy.

Item 1A. Risk Factors

Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Following are the Company’s monthly common stock purchases during the third quarter of ~~2018.~~2019. All shares are repurchased under Board of Directors authorization.

Period Total number of
shares purchased Average price
paid per share Total number of
shares purchased
as part of publicly
announced plan Maximum number
of shares that may
yet be purchased
under the plan
July 1 – 31, 2018 43,800 $ 4.37 43,800 496,200
August 1 – 31, 2018 167,479 4.54 167,479 328,721
September 1 – 30, 2018 68,400 4.54 68,400 260,321
Total 279,679 279,679

Period	Total number of shares purchased		Average price paid per share			Total number of shares purchased as part of publicly announced plan		Maximum number of shares that may yet be purchased under the plan
July 1 – 31, 2019		32,164		$	4.18		32,164		332,282
August 1 – 31, 2019		170,527			4.22		170,527		161,755
September 1 – 30, 2019		34,950			4.26		34,950		126,805
Total		237,641					237,641

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

~~None~~Not applicable

Item 5. Other Information

None

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Item 6. Exhibits

	3.1			Amended and Restated Articles of Incorporation as amended through August 11, 2011 (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-8 (File No. 333-176869) filed on September 16, 2011).
	3.2			Bylaws, as amended and restated on ~~June 21, 2018~~October 17, 2019 (Incorporated by reference to Exhibit 3.2 to the Current report on Form 8-K filed on ~~June 25, 2018)~~October 21, 2019).
	15.1			Report of S.R. Snodgrass, P.C. regarding unaudited interim financial statement information.
	15.2			Awareness Letter of S.R. Snodgrass, P.C.
	31.1			Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
	31.2			Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
	32.1			Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
	32.2			Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
	101			The following information from AMERISERV FINANCIAL, INC.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018,~~2019, formatted in XBRL ~~(eTensible~~(eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and ~~(iv)~~(vi) Notes to the Unaudited Consolidated Financial Statements.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

				AmeriServ Financial, Inc. Registrant
	Date: November ~~9, 2018~~8, 2019			/s/ Jeffrey A. Stopko Jeffrey A. Stopko President and Chief Executive Officer
	Date: November ~~9, 2018~~8, 2019			/s/ Michael D. Lynch Michael D. Lynch Senior Vice President and Chief Financial Officer

	Three months ended September 30, 2018
	Balance at June 30, 2018			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2018
Commercial		$	3,566		$	—		$	17		$	175		$	3,758
Commercial loans secured by non-owner occupied real estate			3,686			—			12			(310)			3,388
Real estate – residential mortgage			1,253			(123)			34			75			1,239
Consumer			125			(29)			7			25			128
Allocation for general risk			891			—			—			35			926
Total		$	9,521		$	(152)		$	70		$	—		$	9,439

	Three months ended September 30, 2017
	Balance at June 30, 2017			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2017
Commercial		$	3,824		$	(228)		$	9		$	562		$	4,167
Commercial loans secured by non-owner occupied real estate			4,488			—			20			(662)			3,846
Real estate – residential mortgage			1,150			(109)			53			70			1,164
Consumer			139			(42)			52			(10)			139
Allocation for general risk			790			—			—			240			1,030
Total		$	10,391		$	(379)		$	134		$	200		$	10,346

	Nine months ended September 30, 2018
	Balance at December 31, 2017			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2018
Commercial		$	4,298		$	(574)		$	29		$	5		$	3,758
Commercial loans secured by non-owner occupied real estate			3,666			—			38			(316)			3,388
Real estate – residential mortgage			1,102			(340)			111			366			1,239
Consumer			128			(181)			42			139			128
Allocation for general risk			1,020			—			—			(94)			926
Total		$	10,214		$	(1,095)		$	220		$	100		$	9,439

	Nine months ended September 30, 2017
	Balance at December 31, 2016			Charge- Offs			Recoveries			Provision (Credit)			Balance at September 30, 2017
Commercial		$	4,041		$	(228)		$	22		$	332		$	4,167
Commercial loans secured by non-owner occupied real estate			3,584			(14)			44			232			3,846
Real estate – residential mortgage			1,169			(263)			128			130			1,164
Consumer			151			(138)			113			13			139
Allocation for general risk			987			—			—			43			1,030
Total		$	9,932		$	(643)		$	307		$	750		$	10,346

	At December 31, 2017
	Commercial			Commercial Loans Secured by Non-Owner Occupied Real Estate			Real Estate- Residential Mortgage			Consumer			Allocation for General Risk			Total
Loans:
Individually evaluated for impairment		$	1,213		$	547		$	—		$	—					$	1,760
Collectively evaluated for impairment			247,914			373,298			247,278			19,383						887,873
Total loans		$	249,127		$	373,845		$	247,278		$	19,383					$	889,633
Allowance for loan losses:
Specific reserve allocation		$	909		$	—		$	—		$	—		$	—		$	909
General reserve allocation			3,389			3,666			1,102			128			1,020			9,305
Total allowance for loan losses		$	4,298		$	3,666		$	1,102		$	128		$	1,020		$	10,214

	September 30, 2018
	Impaired Loans with Specific Allowance							Impaired Loans with no Specific Allowance			Total Impaired Loans
	Recorded Investment			Related Allowance			��	Recorded Investment			Recorded Investment			Unpaid Principal Balance
Commercial		$	—		$	—			$	—		$	—		$	—
Commercial loans secured by non-owner occupied real estate			—			—				11			11			33
Total impaired loans		$	—		$	—			$	11		$	11		$	33

	Amount reclassified from accumulated other comprehensive loss(1)
Details about accumulated other comprehensive loss components	For the nine months ended September 30, 2018			For the nine months ended September 30, 2017			Affected line item in the consolidated statement of operations
Realized (gains) losses on sale of securities		$	148		$	(115)	Net realized (gains) losses on investment securities
			(31)			39	Provision for income tax expense
		$	117		$	(76)	Net of tax
Amortization of estimated defined benefit pension plan loss		$	1,470		$	(318)	Other expense
			(309)			108	Provision for income taxes
		$	1,161		$	(210)	Net of tax
Total reclassifications for the period		$	1,278		$	(286)	Net income

	At September 30, 2017
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	17,057,388		3.42%	MONTHLY		$	(72,920)
SWAP LIABILITIES	FAIR VALUE			(17,057,388)		(3.42)	MONTHLY			72,920
NET EXPOSURE				—		—				—

	Three months ended September 30, 2018			Three months ended September 30, 2017
Net income		$	2,329		$	1,551
Diluted earnings per share			0.13			0.08
Return on average assets (annualized)			0.79%			0.53%
Return on average equity (annualized)			9.54%			6.37%