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 ~~June 30, 2022~~March 31, 2023

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

For the transition period from ____________ to_____________

Commission File Number 0-11204

AmeriServ Financial, Inc.

(Exact name of registrant as specified in its charter)


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

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

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 ~~August~~May 1, ~~2022~~2023
Common Stock, par value $0.01		~~17,109,097~~17,147,270

Table of Contents

AmeriServ Financial, Inc.

INDEX


	Page No.

PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements	3
Consolidated Balance Sheets (Unaudited) – ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3
Consolidated Statements of Operations (Unaudited) – Three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	4
Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ (Unaudited) – Three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	5
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	6
Consolidated Statements of Cash Flows (Unaudited) – ~~Six~~Three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3439
Item 3. Quantitative and Qualitative Disclosure About Market Risk	5455
Item 4. Controls and Procedures	55
PART II. OTHER INFORMATION	55
Item 1. Legal Proceedings	55
Item 1A. Risk Factors	55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3. Defaults Upon Senior Securities	55
Item 4. Mine Safety Disclosures	55
Item 5. Other Information	55
Item 6. Exhibits	56

Table of Contents

Item 1. Financial Statements

AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	June 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
ASSETS
Cash and due from depository institutions	$	18,318	$	24,748	$	18,051	$	18,830
Interest bearing deposits		10,714		10,942
Short-term investments		—		5,411
Interest bearing deposits and short-term investments						4,116		4,132
Cash and cash equivalents		29,032		41,101		22,167		22,962
Investment securities:
Available for sale, at fair value		172,252		163,171
Held to maturity (fair value $55,115 on June 30, 2022 and $55,516 on December 31, 2021)		59,003		53,751
Investment securities, net of allowance for credit losses:
Available for sale, at fair value (allowance for credit losses $926 on March 31, 2023)						177,873		179,508
Held to maturity (fair value $54,957 on March 31, 2023 and $55,192 on December 31, 2022; allowance for credit losses $83 on March 31, 2023)						60,740		61,878
Loans held for sale		1,254		983		417		59
Loans		964,797		985,880		980,781		991,109
Less: Unearned income		464		826		321		343
Less: Allowance for loan losses		11,568		12,398
Less: Allowance for credit losses						12,132		10,743
Net loans		952,765		972,656		968,328		980,023
Premises and equipment:
Operating lease right-of-use asset		666		667		614		630
Financing lease right-of-use asset		2,548		2,684		2,345		2,413
Other premises and equipment, net		14,275		14,082		14,394		14,460
Accrued interest income receivable		4,094		3,984		5,090		4,804
Intangible assets:
Goodwill		13,611		13,611		13,611		13,611
Core deposit intangible		142		158		120		128
Bank owned life insurance		39,475		38,842		39,021		38,895
Net deferred tax asset		2,779		—		3,272		2,789
Federal Home Loan Bank stock		2,388		2,692		4,031		5,754
Federal Reserve Bank stock		2,125		2,125		2,125		2,125
Other assets		24,993		25,053		31,809		33,835
TOTAL ASSETS	$	1,321,402	$	1,335,560	$	1,345,957	$	1,363,874
LIABILITIES
Non-interest bearing deposits	$	217,149	$	211,106	$	194,817	$	195,123
Interest bearing deposits		925,607		928,272		936,972		913,414
Total deposits		1,142,756		1,139,378		1,131,789		1,108,537
Short-term borrowings		—		—		52,989		88,641
Advances from Federal Home Loan Bank		34,028		42,653		16,135		19,765
Operating lease liabilities		679		682		627		643
Financing lease liabilities		2,791		2,899		2,625		2,680
Subordinated debt		26,624		26,603		26,654		26,644
Total borrowed funds		64,122		72,837		99,030		138,373
Net deferred tax liability		—		934
Other liabilities		8,132		5,862		9,239		10,786
TOTAL LIABILITIES		1,215,010		1,219,011		1,240,058		1,257,696
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,737,916 shares issued and 17,109,097 shares outstanding on June 30, 2022; 26,710,319 shares issued and 17,081,500 shares outstanding on December 31, 2021		267		267
Treasury stock at cost, 9,628,819 shares on June 30, 2022 and December 31, 2021		(83,280)		(83,280)
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,776,089 shares issued and 17,147,270 shares outstanding on March 31, 2023; 26,746,436 shares issued and 17,117,617 shares outstanding on December 31, 2022						268		267
Treasury stock at cost, 9,628,819 shares on March 31, 2023 and December 31, 2022						(83,280)		(83,280)
Capital surplus		146,175		146,069		146,331		146,225
Retained earnings		63,463		60,005		65,306		65,486
Accumulated other comprehensive loss, net		(20,233)		(6,512)		(22,726)		(22,520)
TOTAL SHAREHOLDERS' EQUITY		106,392		116,549		105,899		106,178
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,321,402	$	1,335,560	$	1,345,957	$	1,363,874

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
INTEREST INCOME
Interest and fees on loans	$	9,725	$	10,283	$	19,221	$	20,610	$	12,276	$	9,496
Interest bearing deposits		1		3		2		4
Short-term investments		63		8		80		15
Interest bearing deposits and short-term investments										57		18
Investment securities:
Available for sale		1,304		1,171		2,427		2,259		1,770		1,123
Held to maturity		434		373		825		719		471		391
Total Interest Income		11,527		11,838		22,555		23,607		14,574		11,028
INTEREST EXPENSE
Deposits		956		1,306		1,752		2,708		4,189		796
Short-term borrowings		3		—		3		1		494		—
Advances from Federal Home Loan Bank		156		227		332		464		82		176
Financing lease liabilities		25		27		51		54		24		26
Guaranteed junior subordinated deferrable interest debentures		—		281		—		561
Subordinated debt		263		130		526		260		263		263
Total Interest Expense		1,403		1,971		2,664		4,048		5,052		1,261
Net Interest Income		10,124		9,867		19,891		19,559		9,522		9,767
Provision (credit) for loan losses		(325)		100		(725)		500
Net Interest Income after Provision (Credit) for Loan Losses		10,449		9,767		20,616		19,059
Provision (credit) for credit losses										1,179		(400)
Net Interest Income after Provision (Credit) for Credit Losses										8,343		10,167
NON-INTEREST INCOME
Wealth management fees		2,976		3,022		6,141		5,894		2,738		3,165
Service charges on deposit accounts		263		224		535		425		266		272
Net gains on loans held for sale		35		122		130		617		26		95
Mortgage related fees		32		99		65		229		33		33
Net realized gains on investment securities		—		84		—		84
Gain on sale of Visa Class B shares										1,748		—
Bank owned life insurance		231		218		440		550		239		209
Other income		601		630		1,162		1,214		457		561
Total Non-Interest Income		4,138		4,399		8,473		9,013		5,507		4,335
NON-INTEREST EXPENSE
Salaries and employee benefits		6,963		6,867		14,368		13,808		7,175		7,405
Net occupancy expense		697		649		1,438		1,329		772		741
Equipment expense		415		403		812		793		415		397
Professional fees		1,510		1,396		2,834		2,710		1,308		630
Data processing and IT expense										1,078		953
Supplies, postage and freight		144		149		309		328		179		165
Miscellaneous taxes and insurance		349		312		672		604		339		323
Federal deposit insurance expense		130		155		275		310		125		145
Branch acquisition costs		—		193		—		303
Other expense		1,902		1,914		2,881		3,158		572		720
Total Non-Interest Expense		12,110		12,038		23,589		23,343		11,963		11,479

PRETAX INCOME		2,477		2,128		5,500		4,729		1,887		3,023
Provision for income taxes		496		420		1,101		940		372		605
NET INCOME	$	1,981	$	1,708	$	4,399	$	3,789	$	1,515	$	2,418
PER COMMON SHARE DATA:
Basic:
Net income	$	0.12	$	0.10	$	0.26	$	0.22	$	0.09	$	0.14
Average number of shares outstanding		17,109		17,073		17,102		17,068		17,131		17,094
Diluted:
Net income	$	0.12	$	0.10	$	0.26	$	0.22	$	0.09	$	0.14
Average number of shares outstanding		17,149		17,131		17,148		17,114		17,155		17,146

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(In thousands)

(Unaudited)


	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
COMPREHENSIVE (LOSS) INCOME
COMPREHENSIVE INCOME (LOSS)
Net income	$	1,981	$	1,708	$	4,399	$	3,789	$	1,515	$	2,418
Other comprehensive (loss) income
Other comprehensive loss
Pension obligation change for defined benefit plan		(5,681)		5,210		(4,518)		5,768		—		1,163
Income tax effect		1,193		(1,094)		949		(1,211)		—		(244)
Unrealized holding gains (losses) on available for sale securities arising during period		(5,433)		735		(12,851)		(773)		568		(7,418)
Income tax effect		1,141		(154)		2,699		163		(119)		1,558
Reclassification adjustment for net realized gains on available for sale securities included in net income		—		(84)		—		(84)
Fair value change for interest rate hedge										(829)		—
Income tax effect		—		18		—		18		174		—
Other comprehensive (loss) income		(8,780)		4,631		(13,721)		3,881
Comprehensive (loss) income	$	(6,799)	$	6,339	$	(9,322)	$	7,670
Other comprehensive loss										(206)		(4,941)
Comprehensive income (loss)									$	1,309	$	(2,523)

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data)

(Unaudited)


	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
COMMON STOCK
Balance at beginning of period	$	267	$	267	$	267	$	267	$	267	$	267
New common shares issued for exercise of stock options (13 and 6,000 shares for the three months ended June 30, 2022 and 2021, respectively and 27,597 and 14,856 shares for the six months ended June 30, 2022 and 2021, respectively)		—		—		—		—
New common shares issued for exercise of stock options (29,653 and 27,584 shares for the three months ended March 31, 2023 and 2022, respectively)										1		—
Balance at end of period		267		267		267		267		268		267
TREASURY STOCK
Balance at beginning of period		(83,280)		(83,280)		(83,280)		(83,280)		(83,280)		(83,280)
Treasury stock purchased		—		—		—		—		—		—
Balance at end of period		(83,280)		(83,280)		(83,280)		(83,280)		(83,280)		(83,280)
CAPITAL SURPLUS
Balance at beginning of period		146,162		145,997		146,069		145,969		146,225		146,069
New common shares issued for exercise of stock options (13 and 6,000 shares for the three months ended June 30, 2022 and 2021, respectively and 27,597 and 14,856 shares for the six months ended June 30, 2022 and 2021, respectively)		—		15		80		39
New common shares issued for exercise of stock options (29,653 and 27,584 shares for the three months ended March 31, 2023 and 2022, respectively)										94		80
Stock option expense		13		13		26		17		12		13
Balance at end of period		146,175		146,025		146,175		146,025		146,331		146,162
RETAINED EARNINGS
Balance at beginning of period		61,996		56,295		60,005		54,641		65,486		60,005
Net income		1,981		1,708		4,399		3,789		1,515		2,418
Cash dividend declared on common stock ($0.030 amd $0.025 per share for the three months ended June 30, 2022 and 2021, respectively and $0.055 amd $0.050 per share for the six months ended June 30, 2022 and 2021, respectively)		(514)		(426)		(941)		(853)
Cash dividend declared on common stock ($0.030 and $0.025 per share for the three months ended March 31, 2023 and 2022, respectively)										(514)		(427)
Cumulative effect adjustment for adoption of ASU 2016-13										(1,181)		—
Balance at end of period		63,463		57,577		63,463		57,577		65,306		61,996
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period		(11,453)		(13,948)		(6,512)		(13,198)		(22,520)		(6,512)
Other comprehensive (loss) income		(8,780)		4,631		(13,721)		3,881
Other comprehensive loss										(206)		(4,941)
Balance at end of period		(20,233)		(9,317)		(20,233)		(9,317)		(22,726)		(11,453)
TOTAL SHAREHOLDERS’ EQUITY	$	106,392	$	111,272	$	106,392	$	111,272	$	105,899	$	113,692

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six months ended				Three months ended
��	June 30,
					March 31,
	2022		2021		2023		2022
OPERATING ACTIVITIES
Net income	$	4,399	$	3,789	$	1,515	$	2,418
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses		(725)		500
Provision (credit) for credit losses						1,179		(400)
Depreciation and amortization expense		1,029		1,021		526		508
Amortization expense of core deposit intangible		16		3		8		8
Amortization of fair value adjustment on acquired time deposits		(63)		(15)		(14)		(37)
Net amortization of investment securities		63		120		2		41
Net realized gains on investment securities — available for sale		—		(84)
Net amortization of deferred loan fees						(38)		(241)
Net gains on loans held for sale		(130)		(617)		(26)		(95)
Net amortization of deferred loan fees		(396)		(737)
Origination of mortgage loans held for sale		(7,518)		(10,620)		(1,932)		(3,844)
Sales of mortgage loans held for sale		7,377		17,334		1,600		4,602
(Increase) decrease in accrued interest receivable		(110)		183
Decrease in accrued interest payable		(346)		(604)
Increase in accrued interest receivable						(286)		(400)
Increase (decrease) in accrued interest payable						184		(553)
Earnings on bank-owned life insurance		(440)		(550)		(239)		(209)
Deferred income taxes		455		905		348		589
Stock compensation expense		26		17		12		13
Net change in operating leases		(48)		(47)		(16)		(24)
Other, net		(2,541)		(1,347)		(1,033)		(567)
Net cash provided by operating activities		1,048		9,251		1,790		1,809
INVESTING ACTIVITIES
Purchase of investment securities — available for sale		(34,396)		(45,456)		(3,000)		(16,989)
Purchase of investment securities — held to maturity		(7,114)		(11,275)		(493)		(5,119)
Proceeds from maturities of investment securities — available for sale		12,427		21,965		4,295		7,847
Proceeds from maturities of investment securities — held to maturity		1,836		1,905		1,528		438
Proceeds from sales of investment securities — available for sale		—		960
Purchase of regulatory stock		(1,100)		(738)		(4,203)		(15)
Proceeds from redemption of regulatory stock		1,404		2,662		5,926		207
Long-term loans originated		(104,816)		(163,670)		(41,545)		(43,853)
Principal collected on long-term loans		125,814		143,733		51,773		50,700
Purchases of premises and equipment		(1,033)		(625)		(376)		(372)
Proceeds from sale of other real estate owned and repossessed assets		14		—		1		—
Cash acquired in branch acquisition, net		—		40,431
Proceeds from life insurance policies		—		645
Net cash used in investing activities		(6,964)		(9,463)
Net cash provided by (used in) investing activities						13,906		(7,156)
FINANCING ACTIVITIES
Net increase in deposit balances		3,441		71,405		23,266		1,548
Net decrease in other short-term borrowings		—		(24,702)		(35,652)		—
Principal borrowings on advances from Federal Home Loan Bank						6,220		—
Principal repayments on advances from Federal Home Loan Bank		(8,625)		(16,840)		(9,850)		(4,790)
Principal payments on financing lease liabilities		(108)		(104)		(55)		(54)
Stock options exercised		80		39		94		80
Common stock dividend paid		(941)		(853)		(514)		(427)
Net cash (used in) provided by financing activities		(6,153)		28,945
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(12,069)		28,733
Net cash used in financing activities						(16,491)		(3,643)
NET DECREASE IN CASH AND CASH EQUIVALENTS						(795)		(8,990)
CASH AND CASH EQUIVALENTS AT JANUARY 1		41,101		31,504		22,962		41,101
CASH AND CASH EQUIVALENTS AT JUNE 30	$	29,032	$	60,237
CASH AND CASH EQUIVALENTS AT MARCH 31					$	22,167	$	32,111

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. 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) and AmeriServ Trust and Financial Services Company (the Trust Company). The Bank is a Pennsylvania state-chartered full service bank with 16 locations in Pennsylvania and 1 location in Maryland. The Trust Company offers a complete range of trust and financial services and administers assets valued at $2.4 billion and ~~$2.7~~$2.3 billion that are not reported on the Company’s Consolidated Balance Sheets at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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. Intercompany accounts and transactions have been eliminated in preparing the Consolidated Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles, or GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from these estimates and the differences may be material to the Consolidated Financial Statements. The Company’s most significant estimates relate to the allowance for ~~loan~~credit losses (related to investment securities, loans, and unfunded commitments), intangible assets, income taxes, ~~investment securities,~~ pension, derivatives (interest rate swaps/hedges), and the fair value of financial instruments.

2. 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, ~~2021.~~2022.

3. ~~Recent~~Adoption of Accounting ~~Pronouncements~~Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit ~~Losses:~~Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13)~~, which changes~~ and subsequent related updates. This ASU replaces the ~~impairment model~~incurred loss methodology for ~~most financial assets. This update is intended to improve financial reporting by requiring timelier recording of~~recognizing credit losses ~~on loans~~and requires businesses and other ~~financial instruments held by financial institutions and other organizations. The underlying premise of~~organizations to measure the ~~update is that~~current expected credit losses (CECL) on financial assets measured at amortized cost, ~~should~~including loans and held to maturity (HTM) securities, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASU 2016-13 requires credit losses on available for sale (AFS) debt securities to be presented atas an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2023 for the ~~net amount expected~~Company. The results reported for periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be ~~collected, through an allowance~~reported in accordance with previously applicable accounting standards.

The Company adopted ASU 2016-13, and subsequent related updates, using the modified retrospective approach for ~~credit losses that is deducted from the~~all financial assets measured at amortized cost, ~~basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected~~including loans and held 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,~~maturity debt securities, as well as unfunded commitments. On January 1, 2023, the ~~expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through~~Company recorded a cumulative effect ~~adjustment~~decrease to ~~opening~~ retained earnings of $1.2 million, net of tax, of which $951,000 related to loans, $90,000 related to held to maturity debt securities, and $140,000 related to unfunded commitments. In addition, the Company adopted the provisions of ASU 2016-13 related to presenting other-than-temporary impairment on available for sale debt securities on January 1, 2023, though no such charges were recorded on the securities held by the Company as of the ~~beginning~~date of adoption.

It should be noted that the Company expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk within the loan portfolio. The following table presents the impact of the ~~first reporting period in which~~change from the ~~guidance is adopted. This update is effective for SEC filers that are eligible~~incurred loss model to ~~be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.~~

~~The Company, as a smaller reporting company, continues to evaluate~~ the impact that ASU 2016-13 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 ASU 2016-13. Our implementation plan includes assessment and documentation of processes, internal controls and data sources; model development, documentation and validation, including loan segmentation procedures and analyzing the methodology options; and system configuration, among other things. The Company intends to adopt ASU 2016-13 effective January 1, 2023.

~~The allowance for~~current expected credit ~~losses (ACL) will be based on our historical~~ loss ~~experience, borrower characteristics, reasonable and supportable forecasts of future economic conditions, and other relevant factors. We will also apply~~model.

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~~qualitative factors to account for information that may not be reflected in quantitatively derived results to ensure that the ACL reflects the best estimate of current expected credit losses.~~


	January 1, 2023
	Pre-ASU 2016-13		Impact of ASU 2016-13 Adoption		As Reported Under ASU 2016-13

	(In Thousands)
Assets
Allowance for credit losses - held to maturity securities
Municipal	$	—	$	3	$	3
Corporate bonds and other securities		—		111		111
Allowance for credit losses - held to maturity securities	$	—	$	114	$	114

Loans, net of unearned income
Commercial real estate (owner occupied)	$	75,158	$	6,201	$	81,359
Other commercial and industrial		153,420		(31)		153,389
Commercial real estate (non-owner occupied) - retail		—		148,901		148,901
Commercial real estate (non-owner occupied) - multi-family		—		106,423		106,423
Other commercial real estate (non-owner occupied)		450,744		(225,831)		224,913
Residential mortgages		297,971		(124,194)		173,777
Consumer		13,473		88,531		102,004
Loans, net of unearned income	$	990,766	$	—	$	990,766

Allowance for credit losses - loans
Commercial real estate (owner occupied)	$	—	$	1,380	$	1,380
Other commercial and industrial		—		2,908		2,908
Commercial real estate (non-owner occupied) - retail		—		1,432		1,432
Commercial real estate (non-owner occupied) - multi-family		—		1,226		1,226
Other commercial real estate (non-owner occupied)		5,972		(2,776)		3,196
Commercial (owner occupied real estate and other)		2,653		(2,653)		—
Residential mortgages		1,380		(355)		1,025
Consumer		85		695		780
Allocation for general risk		653		(653)		—
Allowance for credit losses - loans	$	10,743	$	1,204	$	11,947

Liabilities
Allowance for credit losses - unfunded commitments	$	746	$	177	$	923

~~Our team, under~~In summary, the ~~direction~~adoption of ~~senior management, has completed the initial data gap assessment, enhancement~~ASU 2016-13 necessitated a day one increase of existing data, finalizing the loan segmentation selections, and analyzing the methodology options regarding the calculation of expected credit losses. After analyzing our data and the nature of our portfolio in relation$1.2 million be made to the CECL transition, the team agreed to utilize the static pool analysis (cohort) method. This methodology most closely aligns with the Company’s current methodology leveraged in our incurred loss model calculation. The Company’s current methodology will be adjusted to appropriately incorporate and comply with ASU 2016-13 and, thus, offers an effective and efficient path to CECL compliance.

The static pool analysis methodology captures loans that qualify for a segment (i.e. balance of a pool of loans with similar risk characteristics) as of a point in time to form a cohort, then tracks that cohort over their remaining lives to determine their loss behavior. The remaining lifetime loss rate is then applied to current loans that qualify for the same segmentation criteria to form a remaining life expectation on current loans. The Company is working to determine preliminary expected loss estimates under the CECL methodology. However, such estimates are subject to significant change as we continue to finalize the judgmental qualitative factors. The Company will continue to make refinements to its expected credit loss estimates throughout the remainder of 2022.

~~Furthermore, ASU 2016-13 will necessitate that we establish an~~ allowance for ~~expected~~ credit losses on our loan portfolio and a $177,000 increase to the allowance for ~~held to maturity (HTM) debt securities. Based~~credit losses on unfunded commitments. Furthermore, based on the credit quality of the Company’s HTM debt securities portfolio, ~~we do not expect~~ the ~~ACL to be significant.~~day one allowance for credit losses on our HTM securities portfolio totaled only $114,000. Additional disclosures regarding the allowance for credit losses are included within Note 7 – Investment Securities, Note 9 – Allowance for Credit Losses – Loans, and Note 15 – Commitments and Contingent Liabilities.

~~The ultimate impact of adoption on~~In January 1, 2023, ~~could be significantly different than our current expectation as our modeling processes will be significantly influenced by~~ the ~~composition, characteristics and quality of our loan and HTM securities portfolios as well as the prevailing economic conditions and forecasts at that time.~~

~~In March 2022, the FASB issued~~Company adopted ASU 2022-02, Financial Instruments – Credit Losses ~~(ASC~~(Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures~~. The guidance amends ASC 326 to eliminate~~ (ASU 2022-02), which eliminated the accounting guidance for TDRs ~~by creditors,~~ while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, ~~creditors will determine~~the Company determines whether a modification results in a new loan or continuation of an existing loan. ~~These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain~~Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications ~~of receivables made~~ to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective homogenous loan pools. Additionally, the amendments of ~~ASC 326~~ASU 2022-02 require ~~that an entity~~the Company to disclose current-period gross ~~writeoffs~~charge-offs by year of origination within the vintage disclosures. The vintage disclosures ~~which requires that an entity disclose~~contain the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ~~The~~This guidance ~~is only for entities that have adopted the amendments~~was applied on a prospective basis.

Table of ASU 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations which will be adopted with ASU 2016-13 effective January 1, 2023.Contents

4. 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 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 non-interest revenue sources including net realized gains (losses) on investment securities, mortgage related fees, net gains on loans held for sale, and bank owned life insurance are not within the scope of Topic 606. These sources of revenue cumulatively comprise ~~75.3%~~82.6% of the total revenue of the Company.

~~Table of Contents~~

Non-interest income within the scope of Topic 606 ~~are~~is 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. Due to this delay in payment, a receivable of $850,000 has been established as of ~~June 30, 2022~~March 31, 2023 and is included in other assets on the Consolidated Balance Sheets in order to properly recognize the revenue earned but not yet received. 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.

●

Other non-interest income - Other non-interest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned, ATM and VISA debit card fees, and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid (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 Company offers ATM and VISA debit cards to deposit account holders which allows our customers to access their account electronically at ATMs and POS terminals. Fees related to ATM and VISA debit card transactions are recognized when the transactions are completed and the Company has satisfied its performance obligation.

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The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the ~~three~~three-month period ending March 31, 2023 and ~~six month periods ending June 30,~~ 2022 ~~and 2021~~ (in thousands).


	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022
Non-interest income:
In-scope of Topic 606
Wealth management fees	$	2,976	$	3,022	$	6,141	$	5,894	$	2,738	$	3,165
Service charges on deposit accounts		263		224		535		425		266		272
Other		511		520		983		962		481		472
Non-interest income (in-scope of topic 606)		3,750		3,766		7,659		7,281		3,485		3,909
Non-interest income (out-of-scope of topic 606)		388		633		814		1,732		2,022		426
Total non-interest income	$	4,138	$	4,399	$	8,473	$	9,013	$	5,507	$	4,335

5. 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

~~Table of Contents~~

in the calculation. Treasury shares are excluded for earnings per share purposes. For the ~~three month~~three-month periods ending ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ options to purchase 22,000 common shares, with an exercise price of $4.00 to $4.22, and options to purchase 12,000 common shares, with an exercise price of $4.19 to $4.22, respectively, were outstanding but were not included in the computation of diluted earnings per common share because to do so would be antidilutive. For the six month periods ending June 30, 2022 and 2021, options to purchase 12,000 common shares, with an exercise price of $4.19 to $4.22, and options to purchase 22,000 common shares, with an exercise price of $4.00 to $4.22, respectively, were outstanding but were not included in the computation of diluted earnings per common share because to do so would be antidilutive.anti-dilutive.


	Three months ended				Six months ended				Three months ended
	June 30,				June 30,				March 31,
	2022		2021		2022		2021		2023		2022

	(In thousands, except per share data)								(In thousands, except per share data)
Numerator:
Net income	$	1,981	$	1,708	$	4,399	$	3,789	$	1,515	$	2,418
Denominator:
Weighted average common shares outstanding (basic)		17,109		17,073		17,102		17,068		17,131		17,094
Effect of stock options		40		58		46		46		24		52
Weighted average common shares outstanding (diluted)		17,149		17,131		17,148		17,114		17,155		17,146
Earnings per common share:
Basic	$	0.12	$	0.10	$	0.26	$	0.22	$	0.09	$	0.14
Diluted		0.12		0.10		0.26		0.22		0.09		0.14

6. 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 both money market funds and commercial paper. The Company made ~~$600,000 in~~no income tax payments in the first ~~six~~three months of ~~2022 compared to 0 income tax payments in the same 2021 period.~~2023 and 2022. The Company made total interest payments of ~~$3,010,000~~$4,868,000 in the first ~~six~~three months of ~~2022~~2023 compared to ~~$4,625,000~~$1,814,000 in the same ~~2021~~2022 period. The Company had $14,000 non-cash transfers to other real estate owned (OREO) and repossessed assets in the first six months of 2022 compared to 0 non-cash transfers in the same 2021 period. During the first six months of 2022, the Company entered into a new operating lease related to an office location and recorded a right-of-use asset and ~~lease liability~~ ~~of $45,000. During the first six months of 2021, the Company did not enter into any new lease agreements.~~

~~7. Investment Securities~~

~~The cost basis and fair values~~As a result of ~~investment~~the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of January 1, 2023, the Company had non-cash transactions associated with the day one adjustments necessary to record the adoption. Specifically, the adoption of this accounting standard necessitated that a day one increase of $1.2 million be made to the allowance for credit losses on our loan portfolio. Furthermore, ASU 2016-13 necessitated that the Company establish an allowance for expected credit losses for held to maturity (HTM) debt securities. Based upon the credit quality of the Company’s HTM debt securities ~~are summarized as follows:~~

~~Investment~~portfolio, the day one allowance for credit losses on our HTM securities ~~available~~portfolio totaled $114,000. Finally, the adoption of CECL led to the recognition of a day one increase of $177,000 for ~~sale (AFS):~~the Company’s unfunded loan commitments.

June 30, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR


COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency

$
10,009

$
—

$
(723)

$
9,286
U.S. Agency mortgage-backed securities

97,467

58

(8,144)

89,381
Municipal

21,543

36

(1,046)

20,533
Corporate bonds

54,329

136

(1,413)

53,052
Total

$
183,348

$
230

$
(11,326)

$
172,252

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7. Investment Securities

Securities are classified at the time of purchase as investment securities held to maturity ~~(HTM):~~

June 30, 2022

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR


COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency

$
2,500

$
—

$
(313)

$
2,187
U.S. Agency mortgage-backed securities

15,709

27

(1,383)

14,353
Municipal

34,287

64

(2,185)

32,166
Corporate bonds and other securities

6,507

—

(98)

6,409
Total

$
59,003

$
91

$
(3,979)

$
55,115

~~Investment~~if it is management’s intent and the Company has the ability to hold the securities until maturity. These held to maturity securities are carried on the Company’s books at cost, adjusted for amortization of premium and accretion of discount which is computed using the level yield method which approximates the effective interest method. Alternatively, securities are classified as available for sale ~~(AFS):~~if it is management’s intent at the time of purchase to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. Securities classified as available for sale include securities which may be sold to effectively manage interest rate risk exposure, prepayment risk, and other factors (such as liquidity requirements). These available for sale securities are reported at fair value with unrealized aggregate appreciation/depreciation excluded from income and credited/charged to accumulated other comprehensive income (loss) within shareholders’ equity on a net of tax basis. Realized gains or losses on securities sold are computed upon the adjusted cost of the specific securities sold. Additionally, the Company holds equity securities which are comprised of mutual funds held within a rabbi trust for the executive deferred compensation plan. Such securities are reported at fair value within other assets on the Consolidated Balance Sheets. Unrealized holding gains and losses on equity securities are included in earnings.

December 31, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR


COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency

$
7,371

$
86

$
(70)

$
7,387
U.S. Agency mortgage-backed securities

80,136

1,202

(1,171)

80,167
Municipal

20,066

851

(25)

20,892
Corporate bonds

53,843

1,028

(146)

54,725
Total

$
161,416

$
3,167

$
(1,412)

$
163,171

Allowance for Credit Losses – Held to Maturity Securities

~~Investment~~The Company measures expected credit losses on held to maturity debt securities, which are comprised of U.S. government agency and mortgage-backed securities as well as taxable municipal, corporate, and other bonds. The Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default (PD/LGD) method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At March 31, 2023, the allowance for credit losses on the held to maturity securities portfolio totaled $83,000.

The allowance for credit losses on held to maturity debt securities is included within investment securities held to maturity ~~(HTM):~~on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within provision (credit) for credit losses on the Consolidated Statements of Operations.

Accrued interest receivable on held to maturity debt securities totaled $411,000 at March 31, 2023 and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Held to maturity debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had no held to maturity debt securities in non-accrual status at March 31, 2023.

Allowance for Credit Losses – Available for Sale Securities

December 31, 2021

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency

$
2,500

$
—

$
(11)

$
2,489
U.S. Agency mortgage-backed securities


10,556

203

(115)

10,644
Municipal

33,188

1,734

(103)

34,819
Corporate bonds and other securities

7,507

64

(7)

7,564
Total

$
53,751

$
2,001

$
(236)

$
55,516

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 June 30, 2022, 52.2% of the portfolio was rated “AAA” as compared to 47.1% at December 31, 2021. Approximately 13.3% of the portfolio was either rated below “A” or unrated at June 30, 2022 as compared to 14.7% at December 31, 2021.

The Company sold 0 AFS securities during the second quarter or first six months of 2022. Total proceeds from the sale of AFS securities for the second quarter and first six months of 2021 were $960,000 resulting in $84,000 of gross investment security gains.

~~The carrying value of securities, both~~measures expected credit losses on available for sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and ~~held~~adverse conditions specifically related to ~~maturity, pledged~~the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to ~~secure public~~be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost, a credit loss exists and ~~trust deposits was $122,240,000 at June 30, 2022 and $122,574,000 at December~~an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. At March 31, ~~2021.~~2023, the allowance for credit losses on the available for sale securities portfolio totaled $926,000.

Table of Contents

The allowance for credit losses on available for sale debt securities is included within investment securities available for sale on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within provision (credit) for credit losses on the Consolidated Statements of Operations. Losses are charged against the allowance when the Company believes the collectability of an available for sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities totaled $1.2 million at March 31, 2023 and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Available for sale debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. It should be noted that the Company had one available for sale debt security in non-accrual status at March 31, 2023 totaling $926,000 with an associated allowance for credit losses of $926,000.

Credit Losses on Investment Securities – Prior to adopting ASU 2016-13

The Company adopted ASU 2016-13 effective January 1, 2023. Financial statement amounts related to investment securities recorded as of December 31, 2022 and for the period ending March 31, 2022 are presented in accordance with the accounting policies described in the following ~~tables present information concerning investments with~~paragraphs.

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 expectation for that security’s performance, the creditworthiness of the issuer, and the Company’s intent and ability to hold the security to recovery. The term other than temporary is not intended to indicate that the decline is permanent but indicates that the prospects for a near-term recovery of value are not necessarily favorable or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

Declines in the fair value of securities below their cost that are deemed to be other than temporary are separated into (a) the amount of the total other than temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other than temporary impairment related to all other factors. The amount of the total other than temporary impairment related to the credit loss is recognized in earnings. The amount of the total other than temporary impairment related to all other factors is recognized in other comprehensive income (loss).

At December 31, 2022, the Company believes the unrealized losses ~~as of June 30, 2022 and December 31, 2021 (in thousands):~~

~~Total investment securities:~~

June 30, 2022

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED


VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES
U.S. Agency

$
10,599

$
(911)

$
874

$
(125)

$
11,473

$
(1,036)
U.S. Agency mortgage-backed securities

78,840

(6,307)

15,874

(3,220)

94,714

(9,527)
Municipal

42,300

(3,052)

1,591

(179)

43,891

(3,231)
Corporate bonds and other securities

41,606

(1,446)

1,436

(65)

43,042

(1,511)
Total

$
173,345

$
(11,716)

$
19,775

$
(3,589)

$
193,120

$
(15,305)

~~Total investment securities:~~

December 31, 2021

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED


VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES
U.S. Agency

$
7,419

$
(81)

$
—

$
—

$
7,419

$
(81)
U.S. Agency mortgage-backed securities

45,422

(972)

6,691

(314)

52,113

(1,286)
Municipal

7,832

(128)

—

—

7,832

(128)
Corporate bonds and other securities

14,558

(92)

2,439

(61)

16,997

(153)
Total

$
75,231

$
(1,273)

$
9,130

$
(375)

$
84,361

$
(1,648)

~~The unrealized losses~~on certain securities within the investments portfolio 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 376 positions that are considered temporarily impaired at June 30, 2022. 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~~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 or mature.~~

The interest rate environment and market yields can also have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of June 30, 2022, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only ~~100.9% of the par~~ value.

Contractual maturities of securities at June 30, 2022 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 June 30, 2022 is 52.0 months and is higher than the duration at December 31, 2021 which was 41.5 months. The duration remains within our internally established guideline to not exceed 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

~~Table of Contents~~

~~Total investment securities:~~

June 30, 2022

Available for sale

Held to maturity


Cost Basis

Fair Value

Cost Basis

Fair Value
Within 1 year

$
5,427

$
5,426

$
200

$
201
After 1 year but within 5 years

36,336

35,632

12,555

12,372
After 5 years but within 10 years

51,117

48,844

24,299

22,908
Over 10 years

90,468

82,350

21,949

19,634
Total

$
183,348

$
172,252

$
59,003

$
55,115

~~8. Loans~~

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

June 30, 2022

December 31, 2021
Commercial:

Commercial and industrial

$
133,854

$
134,182
Paycheck Protection Program (PPP)

��
2,242

17,311
Commercial loans secured by owner occupied real estate ⁽¹⁾

87,781

99,644
Commercial loans secured by non-owner occupied real estate ⁽¹⁾

432,831

430,825
Real estate − residential mortgage ⁽¹⁾

292,592

287,996
Consumer

15,033

15,096
Loans, net of unearned income

$
964,333

$
985,054

~~(1)~~

~~Real estate construction loans constituted 5.1% and 5.6% of the Company’s total loans, net of unearned income as of June 30, 2022 and December 31, 2021, respectively.~~

~~Loan balances at June 30, 2022 and December 31, 2021 are net of unearned income of $464,000 and $826,000, respectively. The unearned income balance at June 30, 2022 includes~~ ~~$55,000 of unrecognized fee income from the PPP loan originations compared to $386,000 at December 31, 2021.~~

The ongoing COVID-19 pandemic is a fluid situation and continues to evolve, impacting the way many businesses operate. The pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, inflation, and consumer spending has resulted in less economic activity and significant volatility and disruption. Certain loans within our commercial and commercial real estate portfolios have been disproportionately adversely affected by the pandemic.

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The cost basis and fair values of investment securities are summarized as follows:

Investment securities available for sale (AFS):

March 31, 2023

GROSS

ALLOWANCE

UNREALIZED

FOR CREDIT

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

12,713

(1,158)

—

11,556

U.S. Agency mortgage-backed securities

100,428

(11,872)

—

88,636

Municipal

20,837

(1,503)

—

19,337

Corporate bonds

63,162

(3,900)

(926)

58,344

Total

197,140

(18,433)

(926)

177,873

Investment securities held to maturity (HTM):

March 31, 2023

GROSS

ALLOWANCE

UNREALIZED

FAIR

FOR CREDIT

COST BASIS

GAINS

LOSSES

VALUE

LOSSES

(IN THOUSANDS)

U.S. Agency

2,500

—

(418)

2,082

—

U.S. Agency mortgage-backed securities

18,831

(2,036)

16,803

—

Municipal

33,983

(3,206)

30,778

Corporate bonds and other securities

5,426

—

(132)

5,294

Total

60,740

(5,792)

54,957

Investment securities available for sale (AFS):


	December 31, 2022
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE

	(IN THOUSANDS)
U.S. Agency	$	11,797	$	1	$	(1,265)	$	10,533
U.S. Agency mortgage-backed securities		102,631		64		(12,710)		89,985
Municipal		20,837		—		(1,799)		19,038
Corporate bonds		63,152		30		(3,230)		59,952
Total	$	198,417	$	95	$	(19,004)	$	179,508

Investment securities held to maturity (HTM):


	December 31, 2022
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE

	(IN THOUSANDS)
U.S. Agency	$	2,500	$	—	$	(432)	$	2,068
U.S. Agency mortgage-backed securities		18,877		8		(2,212)		16,673
Municipal		33,993		2		(3,880)		30,115
Corporate bonds and other securities		6,508		—		(172)		6,336
Total	$	61,878	$	10	$	(6,696)	$	55,192

The Company sold no AFS securities during the first quarter of 2023 and 2022.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $131,913,000 at March 31, 2023 and $134,002,000 at December 31, 2022.

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The interest rate environment and market yields can have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of March 31, 2023, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 100.9% of the par value.

Contractual maturities of securities at March 31, 2023 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 March 31, 2023 is 54.6 months and is shorter than the duration at December 31, 2022 which was 56.0 months. The duration remains within our internally established guideline to not exceed 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

March 31, 2023

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

6,385

6,328

2,425

2,386

After 1 year but within 5 years

48,222

46,066

12,381

11,889

After 5 years but within 10 years

47,646

42,248

25,687

22,853

Over 10 years

94,887

83,231

20,247

17,829

Total

197,140

177,873

60,740

54,957

The following table ~~provides information regarding our potential COVID-19 risk concentrations~~summarizes the available for ~~commercial~~sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2023, aggregated by security type and ~~commercial real estate loans by industry type at June 30, 2022 and December 31, 2021~~length of time in a continuous loss position (in thousands).:

June 30, 2022

Paycheck

Commercial loans

Commercial loans

Commercial

Protection

secured by owner

secured by non-owner


and industrial

Program

occupied real estate

occupied real estate

Total
1-4 unit residential

$
14

$
—

$
—

$
7,695

$
7,709
Multifamily/apartments/student housing

—

—

230

75,476

75,706
Office

40,696

—

8,267

26,121

75,084
Retail

7,371

—

15,300

145,239

167,910
Industrial/manufacturing/warehouse

67,318

—

19,069

62,877

149,264
Hotels

—

270

—

41,701

41,971
Eating and drinking places

371

1,972

4,736

1,372

8,451
Personal care

1,037

—

—

2,685

3,722
Amusement and recreation

77

—

3,857

5

3,939
Mixed use

—

—

4,140

51,443

55,583
Other

16,970

—

32,182

18,217

67,369
Total

$
133,854

$
2,242

$
87,781

$
432,831

$
656,708

December 31, 2021

Paycheck

Commercial loans

Commercial loans

Commercial

Protection

secured by owner

secured by non-owner


and industrial

Program

occupied real estate

occupied real estate

Total
1-4 unit residential

$
1,246

$
—

$
96

$
8,565

$
9,907
Multifamily/apartments/student housing

—

—

245

73,912

74,157
Office

37,386

203

8,644

28,500

74,733
Retail

7,253

444

20,439

148,668

176,804
Industrial/manufacturing/warehouse

74,508

5,940

21,468

44,316

146,232
Hotels

154

1,764

—

42,425

44,343
Eating and drinking places

484

6,591

4,537

1,752

13,364
Personal care

1,197

173

—

4,315

5,685
Amusement and recreation

92

53

5,402

12

5,559
Mixed use

—

—

4,031

62,088

66,119
Other

11,862

2,143

34,782

16,272

65,059
Total

$
134,182

$
17,311

$
99,644

$
430,825

$
681,962

March 31, 2023

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED

VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES

U.S. Agency

2,448

(48)

8,107

(1,110)

10,555

(1,158)

U.S. Agency mortgage-backed securities

26,473

(1,161)

56,993

(10,711)

83,466

(11,872)

Municipal

3,358

(85)

15,216

(1,418)

18,574

(1,503)

Corporate bonds

26,749

(1,412)

26,586

(2,488)

53,335

(3,900)

Total

59,028

(2,706)

106,902

(15,727)

165,930

(18,433)

~~Paycheck Protection Program~~

~~The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on~~At March ~~27, 2020, and provides emergency economic relief to individuals and businesses impacted by~~31, 2023, within the COVID-19 pandemic. The CARES Act and subsequent legislation authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) program called the Paycheck Protection Program (PPP). As a qualified SBA lender,available for sale debt securities portfolio, the Company ~~was automatically authorized~~had four U.S. Agency, 45 U.S. Agency mortgage-backed securities, 11 municipal, and 45 corporate bonds that have been in a gross unrealized loss position for less than 12 months with depreciation of 4.4% from its amortized cost basis. Additionally, at March 31, 2023, within the available for sale debit securities portfolio, the Company had ten U.S. Agency, 104 U.S. Agency mortgage-backed securities, 47 municipal, and 49 corporate bonds that have been in a gross unrealized loss position for greater than 12 months with depreciation of 12.8% from its amortized cost basis.

These 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, no provision for credit losses has been recorded for these securities. Management has also concluded that based on current information we expect to ~~originate PPP loans.~~

~~An eligible business could apply for a PPP loan up~~continue to ~~the lesser of: (1) 2.5 times its average monthly payroll costs; or (2) $10.0~~ ~~million. PPP loans have: (a) an interest rate of~~ ~~1.0%; (b) a two-year (if originated prior to June 5, 2020) or five-year~~ ~~(if originated after June 5, 2020) loan term to maturity; and (c) principal and~~receive scheduled interest payments ~~deferred for six months from~~as well as the ~~date of disbursement. The SBA will guarantee~~ ~~100% of the PPP loans made to eligible borrowers pursuant to standards as defined by the SBA. The~~ entire principal ~~amount of the borrower’s PPP loan, including any accrued interest, is eligible~~balance. Furthermore, management does not intend to sell these securities and does not believe it will be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and at least 60% of the loan proceeds are used for payroll expenses, with the remaining loan proceeds being used for other qualifying expenses such as interest on mortgages, rent, and utilities.required to sell these securities before they recover in value or mature.

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The Company recorded a $926,000 provision for credit losses on available for sale debt securities during the first quarter of 2023. The recognition of the loss resulted from a subordinated debt investment issued by Signature Bank which was closed by banking regulators on March 12, 2023. In a press release issued by the Federal Deposit Insurance Corporation (FDIC), it was disclosed that unsecured debt holders of the institution will not be protected. Management reviewed the Form 10-K for the year ended December 31, 2022 filed by Signature Bank, which was filed on March 1, 2023, and determined that no circumstances existed to indicate that the debt security held by the Company was impaired as of December 31, 2022. Specifically, as of December 31, 2022, Signature Bank had total assets of $110.4 billion, net income of $1.3 billion for the year then ended, and demonstrated strong regulatory capital ratios. As of March 31, 2023, the corporate security was placed in non-accrual status and approximately $17,000 of unpaid interest previously credited to income was reversed.

The following table presents the activity in the allowance for credit losses on held to maturity debt securities by major security type for the three months ended March 31, 2023 (in thousands).


	Three months ended March 31, 2023
	Balance at		Impact of Adopting		Charge-				Provision		Balance at
	December 31, 2022		ASU 2016-13		Offs		Recoveries		(Credit)		March 31, 2023
U.S. Agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Agency mortgage-backed securities		—		—		—		—		—		—
Municipal		—		3		—		—		—		3
Corporate bonds and other securities		—		111		—		—		(31)		80
Total	$	—	$	114	$	—	$	—	$	(31)	$	83

As stated previously, the Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the PD/LGD method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source.

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.” The Company monitors the credit ratings of its debt securities on a quarterly basis. At March 31, 2023 and December 31, 2022, 52.5% of the total investment securities portfolio was rated “AAA”. Approximately 14.2% of the total investment securities portfolio was either rated below “A” or unrated at March 31, 2023 as compared to 14.7% at December 31, 2022.

Specifically, the following table summarizes the amortized cost of held to maturity debt securities at March 31, 2023, aggregated by credit quality indicator (in thousands).

March 31, 2023

Credit Rating

AAA/AA/A

BBB/BB/B

Unrated

Total

U.S. Agency

2,500

—

2,500

U.S. Agency mortgage-backed securities

18,831

—

18,831

Municipal

33,983

—

33,983

Corporate bonds and other securities

4,010

—

1,416

5,426

Total

59,324

—

1,416

60,740

The Company had no held to maturity debt securities in non-accrual status or past due 90 days still accruing interest at March 31, 2023. The underlying issuers continue to make timely principal and interest payments on the securities.

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8. Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of any deferred fees or costs and an allowance for credit losses. Accrued interest receivable on loans totaled $3.5 million as of March 31, 2023 and December 31, 2022 which is reported in accrued interest income receivable on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) over the contractual life of the loan.

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 owner occupied commercial real estate loan and the other commercial and industrial loan classes. The commercial real estate loan segment includes the non-owner occupied commercial real estate loan classes of retail, multi-family, and other. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans while the consumer loan segment consists primarily of home equity loans secured by residential real estate, installment loans, and overdraft lines of credit associated with customer deposit accounts.

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


	March 31, 2023
Commercial:
Commercial real estate (owner occupied) ⁽¹⁾	$	77,805
Other commercial and industrial		150,438
Commercial real estate (non-owner occupied):
Retail ⁽¹⁾		154,454
Multi-family ⁽¹⁾		98,945
Other ⁽¹⁾		223,526
Residential mortgages		175,211
Consumer		100,081
Loans, net of unearned income	$	980,460


	December 31, 2022
Commercial:
Commercial and industrial	$	153,398
Paycheck Protection Program (PPP)		22
Commercial real estate (owner occupied) ⁽¹⁾		75,158
Commercial real estate (non-owner occupied) ⁽¹⁾		450,744
Residential mortgages ⁽¹⁾		297,971
Consumer		13,473
Loans, net of unearned income	$	990,766

(1)	Real estate construction loans constituted 3.2% and 4.7% of the Company’s total loans, net of unearned income as of March 31, 2023 and December 31, 2022, respectively.

Loan balances at March 31, 2023 and December 31, 2022 are net of unearned income of $321,000 and $343,000, respectively.

9. Allowance for Credit Losses – Loans

The allowance for credit losses (ACL) is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

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Loans, or portions thereof, are charged-off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has aligned our segmentation to the quarterly Call Report. This allowed the Company to use not only our data, but also peer institutions to supplement loss observations in determining our qualitative adjustments. Some further sub-segmenting was performed on the commercial and industrial (C&I) and commercial real estate (CRE) portfolios based on collateral type. The Company has identified the following portfolio segments:

●

C&I and CRE Owner Occupied – Real Estate

●

C&I and CRE Owner Occupied – Other

●

CRE Non-Owner Occupied – Retail

●

CRE Non-Owner Occupied – Multi-Family

●

CRE Non-Owner Occupied – Other

●

Residential Mortgages

●

Consumer

The Company is utilizing the static pool analysis (cohort) method for our CECL model. The static pool analysis methodology captures loans that qualify for a segment (i.e. balance of a pool of loans with similar risk characteristics) as of a point in time to form a cohort, then tracks that cohort over their remaining lives to determine their loss behavior. The remaining lifetime loss rate is then applied to current loans that qualify for the same segmentation criteria to form a remaining life expectation on current loans. Once historical cohorts are established, the loans in each individual cohort are tracked over their remaining lives for loss and recovery events. Each cohort is evaluated individually and as a result, a loss may be counted in several different quarterly cohort periods, as long as the specific loan existed in the population of each of those cohort periods.

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The following tables summarize the rollforward of the allowance for credit losses by loan portfolio segment for the three-month periods ending March 31, 2023 and 2022 (in thousands).


	Three months ended March 31, 2023
	Balance at		Impact of Adopting		Charge-					Provision		Balance at
	December 31, 2022		ASU 2016-13		Offs		Recoveries			(Credit)		March 31, 2023
Commercial real estate (owner occupied)	$	—	$	1,380	$	—	$	6		$	(66)	$	1,320
Other commercial and industrial		—		2,908		—		1			(36)		2,873
Commercial real estate (non-owner occupied) - retail		—		1,432		—		—			54		1,486
Commercial real estate (non-owner occupied) - multi-family		—		1,226		—		1			(81)		1,146
Other commercial real estate (non-owner occupied)		5,972		(2,776)		—		4			(3)		3,197
Commercial (owner occupied real estate and other)		2,653		(2,653)		—		—			—		—
Residential mortgages		1,380		(355)		—		2			5		1,032
Consumer		85		695		(139)		9			428		1,078
Allocation for general risk		653		(653)		—		—	��		—		—
Total	$	10,743	$	1,204	$	(139)	$	23		$	301	$	12,132


	Three months ended March 31, 2022
	Balance at		Charge-				Provision		Balance at
	December 31, 2021		Offs		Recoveries		(Credit)		March 31, 2022
Commercial	$	3,071	$	(72)	$	—	$	252	$	3,251
Commercial real estate (non-owner occupied)		6,392		—		13		(475)		5,930
Residential mortgages		1,590		—		8		(133)		1,465
Consumer		113		(45)		20		11		99
Allocation for general risk		1,232		—		—		(55)		1,177
Total	$	12,398	$	(117)	$	41	$	(400)	$	11,922

The Company recorded a $301,000 provision for credit losses in the first quarter of 2023 as compared to a $400,000 provision recovery recorded in the first quarter of 2022, representing a $701,000 unfavorable shift between years. The increased first quarter 2023 provision for credit losses in the loan portfolio was necessary due to risk rating, non-accrual, and charge-off activity. Specifically, an increased historical loss rate within the consumer loan pool resulted in a significant increase in the allocated allowance for credit losses despite contraction within the portfolio since the beginning of the year. Non-performing assets decreased from $5.2 million at December 31, 2022 to $4.6 million at March 31, 2023 primarily due to a decrease in non-accrual residential mortgage loans. Overall, non-performing assets remain well controlled at 0.47% of total loans. The Company experienced net loan charge-offs of $116,000, or 0.05% of total average loans, in the first quarter of 2023 which is only slightly higher than net charge-offs of $76,000, or 0.03% of total average loans, in first quarter of 2022. In ~~addition, PPP allowed certain eligible borrowers that previously received~~summary, the allowance for credit losses on our loan portfolio provided 264% coverage of non-performing assets, and 1.24% of total loans, on March 31, 2023, compared to 207% coverage of non-performing assets, and 1.08% of total loans, on December 31, 2022.

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Historical credit loss experience is the basis for the estimation of expected credit losses. The Company applies historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already captured in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on a ~~PPP~~blend of peer and Company data as well as management judgment. Including peer data addresses the Company’s lack of loss history in some pools of loans. For periods beyond our reasonable and supportable forecast period of two years, loss expectations revert to the long-run historical mean. The qualitative adjustments for current conditions are based upon the following factors:

●

changes in lending policies and procedures;

●

changes in economic conditions;

●

changes in the nature and volume of the portfolio;

●

staff experience;

●

changes in volume and severity of delinquency, non-performing loans, and classified loans;

●

changes in the quality of the Company’s loan review system;

●

trends in underlying collateral value;

●

concentration risk; and

●

external factors: competition, legal, regulatory.

These modified historical loss rates are multiplied by the outstanding principal balance of each loan to ~~apply~~calculate a required reserve. Ultimately, 67% of the first quarter of 2023 general reserve represented qualitative adjustment with 33% representing quantitative reserve.

In accordance with ASU 2016-13, the Company will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a ~~second draw loan with~~collective (pooled) basis. In contrast to legacy accounting standards, this criterion is broader than the ~~same general~~impairment concept and management may evaluate loans ~~terms described above.~~individually even when no specific expectation of collectability is in place. Loans will not be included in both collective and individual analysis. The ~~maximum loan amount~~individual analysis will establish a specific reserve for loans in scope. It should be noted that there is a review threshold of ~~a second draw PPP loan was 2.5 times,~~$150,000 or ~~3.5 times~~more for ~~borrowers~~loans being subject to individual evaluation within the ~~hospitality industry, the average monthly 2019 or 2020 payroll costs up to $2.0 million. Eligibility for a second draw PPP loan was~~consumer and residential mortgage segments.

Specific reserves are established based on the following ~~criteria: (a) borrower previously received a first draw PPP loan and used~~three acceptable methods for measuring the ~~full amount for only authorized expenditures; (b) borrower has 300~~ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or less employees; and (c) borrower can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The PPP loan program expired on May 31, 2021 for originating new loans.

As3) the fair value of ~~June 30, 2022,~~ the ~~Company had 4 PPP loans outstanding totaling $2.2 million and has recorded a total of $136,000 and $376,000~~ ~~of processing fee income and interest income from PPP lending activity in~~collateral when the ~~second quarter and first six months of 2022, respectively. Also, there is approximately~~ ~~$55,000 of PPP processing fees that will be amortized into income over the time period that the loans remain on our balance sheet or until the PPP~~ loan is ~~forgiven, at which time~~collateral dependent. The method is selected on a loan-by-loan basis, with management primarily utilizing either the ~~remaining fee will be recognized immediately as income.~~discounted cash flows or the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance is made on a quarterly basis.

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 credit losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s internal Collections and 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 Chief Credit Officer 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;

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~~9. Allowance for Loan Losses~~

~~The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three and six month periods ending June 30, 2022 and 2021 (in thousands).~~

Three months ended June 30, 2022

Balance at

Charge-

Provision

Balance at

March 31, 2022

Offs

Recoveries

(Credit)

June 30, 2022
Commercial

$
3,251

$
—

$
—

$
(93)

$
3,158
Commercial loans secured by non-owner occupied real estate

5,930

—

13

(227)

5,716
Real estate-residential mortgage

1,465

(23)

4

27

1,473
Consumer

99

(41)

18

26

102
Allocation for general risk

1,177

—

—

(58)

1,119
Total

$
11,922

$
(64)

$
35

$
(325)

$
11,568

Three months ended June 30, 2021

Balance at

Charge-

Provision

Balance at

March 31, 2021

Offs

Recoveries

(Credit)

June 30, 2021
Commercial

$
3,572

$
(25)

$
—

$
(13)

$
3,534
Commercial loans secured by non-owner occupied real estate

5,448

—

11

76

5,535
Real estate-residential mortgage

1,329

—

29

30

1,388
Consumer

121

(11)

17

(4)

123
Allocation for general risk

1,161

—

—

11

1,172
Total

$
11,631

$
(36)

$
57

$
100

$
11,752

Six months ended June 30, 2022

Balance at

Charge-

Provision

Balance at

December 31, 2021

Offs

Recoveries

(Credit)

June 30, 2022
Commercial

$
3,071

$
(72)

$
0

$
159

$
3,158
Commercial loans secured by non-owner occupied real estate

6,392

0

26

(702)

5,716
Real estate-residential mortgage

1,590

(23)

12

(106)

1,473
Consumer

113

(86)

38

37

102
Allocation for general risk

1,232

0

0

(113)

1,119
Total

$
12,398

$
(181)

$
76

$
(725)

$
11,568

~~Table of Contents~~

Six months ended June 30, 2021

Balance at

Charge-

Balance at

December 31, 2020

Offs

Recoveries

Provision

June 30, 2021
Commercial

$
3,472

$
(147)

$
17

$
192

$
3,534
Commercial loans secured by non-owner occupied real estate

5,373

0

24

138

5,535
Real estate-residential mortgage

1,292

(17)

34

79

1,388
Consumer

115

(35)

31

12

123
Allocation for general risk

1,093

0

0

79

1,172
Total

$
11,345

$
(199)

$
106

$
500

$
11,752

The Company recorded a $325,000 loan loss provision recovery in the second quarter of 2022 as compared to a $100,000 provision expense recorded in the second quarter of 2021. For the first six months of 2022, the Company recorded a $725,000 provision recovery compared to a $500,000 provision expense recorded in the first six months of 2021, representing a $1.2 million favorable shift between years. The 2022 provision recovery reflects improved credit quality for the overall portfolio due to several loan upgrades, a reduced loan portfolio size due to increased payoff activity, and lower levels of criticized assets. As demonstrated historically, the Company continues its strategic conviction that a strong allowance for loan losses is needed, which has proven to be essential given the support provided to certain borrowers as they fully recover from the COVID-19 pandemic. Overall, we believe that non-performing assets remain well controlled, and such assets totaled $3.2 million, or 0.34% of total loans, at June 30, 2022 compared to $3.3 million, or 0.34% of total loans, at December 31, 2021. It should be noted that the 100% SBA guarantee on PPP loans minimizes the level of credit risk associated with the loans. As a result, such loans are assigned a 0% risk weight for purposes of calculating the Bank’s risk-based capital ratios. Therefore, it was deemed appropriate to not allocate any portion of the loan loss reserve for the PPP loans.

The Company continues to experience low net loan charge-offs, which were $105,000, or 0.02% of total average loans, in the first six months of 2022 and is relatively consistent with net loan charge-offs of $93,000, or 0.02% of total average loans, in the first six months of 2021. Even though the Company recognized a loan loss provision recovery during the first half of the year, the balance of the allowance for loan losses at June 30, 2022 is only slightly lower than the balance of the allowance at June 30, 2021 by $184,000, or 1.6%. The allowance for loan losses provided 357% coverage of non-performing assets, and 1.20% of total loans, at June 30, 2022, compared to 373% coverage of non-performing assets, and 1.26% of total loans, at December 31, 2021.

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

At June 30, 2022

Commercial Loans

Secured by

Non-Owner

Real Estate-

Occupied

Residential

Allocation for


Commercial

Real Estate

Mortgage

Consumer

General Risk

Total
Loans:

Individually evaluated for impairment

$
2,087

$
5

$
0

$
0



$
2,092
Collectively evaluated for impairment

221,790

432,826

292,592

15,033



962,241
Total loans

$
223,877

$
432,831

$
292,592

$
15,033



$
964,333
Allowance for loan losses:












Specific reserve allocation

$
612

$
5

$
0

$
0

$
0

$
617
General reserve allocation

2,546

5,711

1,473

102

1,119

10,951
Total allowance for loan losses

$
3,158

$
5,716

$
1,473

$
102

$
1,119

$
11,568

~~Table of Contents~~

At December 31, 2021

Commercial Loans

Secured by

Non-Owner

Real Estate-

Occupied

Residential

Allocation for


Commercial

Real Estate

Mortgage

Consumer

General Risk

Total
Loans:

Individually evaluated for impairment

$
2,165

$
5

$
0

$
0



$
2,170
Collectively evaluated for impairment

248,972

430,820

287,996

15,096



982,884
Total loans

$
251,137

$
430,825

$
287,996

$
15,096



$
985,054
Allowance for loan losses:












Specific reserve allocation

$
628

$
5

$
0

$
0

$
0

$
633
General reserve allocation

2,443

6,387

1,590

113

1,232

11,765
Total allowance for loan losses

$
3,071

$
6,392

$
1,590

$
113

$
1,232

$
12,398

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 and the owner occupied commercial real estate loan 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 that is in non-accrual status or classified as a Troubled Debt Restructure (TDR). In addition, consumer and residential mortgage loans with a balance of $150,000 or more are evaluated for impairment. Loans are considered to be impaired when, based on current 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.

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 either the discounted cash flows or 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 Collections and 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 Collections and Assigned Risk Department must determine if there have been material changes to the underlying

~~Table of Contents~~

~~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;

●

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 ~~Collections and Assigned Risk Department personnel determine~~Chief Credit Officer determines that a reasonable value cannot be derived 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 Collections and Assigned Risk Department personnel, rests with the ~~Collections and Assigned Risk Department~~Chief Credit Officer and not the originating account officer.

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


	At June 30, 2022										At March 31, 2023
					IMPAIRED						Commercial real estate (owner occupied)		Other commercial and industrial		Commercial real estate (non-owner occupied) - retail			Commercial real estate (non-owner occupied) - multi-family	Other commercial real estate (non-owner occupied)		Residential mortgages		Consumer		Total
					LOANS WITH
	IMPAIRED LOANS WITH				NO SPECIFIC
	SPECIFIC ALLOWANCE				ALLOWANCE		TOTAL IMPAIRED LOANS
									UNPAID
	RECORDED		RELATED		RECORDED		RECORDED		PRINCIPAL
	INVESTMENT		ALLOWANCE		INVESTMENT		INVESTMENT		BALANCE

	(IN THOUSANDS)
Commercial	$	2,087	$	612	$	0	$	2,087	$	2,254
Commercial loans secured by non-owner occupied real estate		5		5		0		5		26
Total impaired loans	$	2,092	$	617	$	0	$	2,092	$	2,280
Loans:
Individually evaluated											$	—	$	1,971	$	—	$	—	$	1,554	$	—	$	—	$	3,525
Collectively evaluated												77,805		148,467		154,454		98,945		221,972		175,211		100,081		976,935
Total loans											$	77,805	$	150,438	$	154,454	$	98,945	$	223,526	$	175,211	$	100,081	$	980,460
Allowance for credit losses:
Specific reserve allocation											$	—	$	416	$	—	$	—	$	3	$	—	$	—	$	419
General reserve allocation												1,320		2,457		1,486		1,146		3,194		1,032		1,078		11,713
Total allowance for credit losses											$	1,320	$	2,873	$	1,486	$	1,146	$	3,197	$	1,032	$	1,078	$	12,132


	At December 31, 2021										At December 31, 2022
					IMPAIRED								Commercial
					LOANS WITH								real estate		Residential				Allocation for
	IMPAIRED LOANS WITH				NO SPECIFIC						Commercial		(non-owner occupied)		mortgages		Consumer		general risk		Total
	SPECIFIC ALLOWANCE				ALLOWANCE		TOTAL IMPAIRED LOANS
									UNPAID
	RECORDED		RELATED		RECORDED		RECORDED		PRINCIPAL
	INVESTMENT		ALLOWANCE		INVESTMENT		INVESTMENT		BALANCE

	(IN THOUSANDS)
Commercial	$	2,165	$	628	$	0	$	2,165	$	2,260
Commercial loans secured by non-owner occupied real estate		5		5		0		5		27
Total impaired loans	$	2,170	$	633	$	0	$	2,170	$	2,287
Loans:
Individually evaluated											$	1,989	$	1,586	$	—	$	—			$	3,575
Collectively evaluated												226,589		449,158		297,971		13,473				987,191
Total loans											$	228,578	$	450,744	$	297,971	$	13,473			$	990,766
Allowance for credit losses:
Specific reserve allocation											$	520	$	3	$	—	$	—	$	—	$	523
General reserve allocation												2,133		5,969		1,380		85		653		10,220
Total allowance for credit losses											$	2,653	$	5,972	$	1,380	$	85	$	653	$	10,743

1921

Table of Contents

The following table presents the amortized cost basis of collateral-dependent loans by class of loans (in thousands).


	Collateral Type
March 31, 2023	Real Estate
Commercial real estate (non-owner occupied):
Other	$	1,554
Total	$	1,554

Allowance for Loan Losses – Prior to adopting ASU 2016-13

Prior to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), the Company calculated our allowance for loan losses (ALL) using an incurred loss methodology. The following policy related to the ALL in prior periods.

As a financial institution, which assumes lending and credit risks as a principal element of its business, the Company anticipates that credit losses will be experienced in the normal course of business. Accordingly, the Company consistently applies a comprehensive methodology and procedural discipline to perform an analysis which is updated on a quarterly basis at the Bank level to determine both the adequacy of the allowance for loan losses and the necessary provision for loan losses to be charged against earnings.

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 and the owner occupied commercial real estate loan 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.

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, and (3) a general risk reserve which provides support for variance from our assessment of the 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 risk 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. Specifically, this methodology includes:

●

Review of all impaired commercial and commercial real estate loans to determine if any specific reserve allocations are required on an individual loan basis. In addition, consumer and residential mortgage loans with a balance of $150,000 or more are evaluated for impairment and specific reserve allocations are established, if applicable. All required specific reserve allocations are based on careful analysis of the loan’s performance, the related collateral value, cash flow considerations and the financial capability of any guarantor. For impaired loans the measurement of impairment may be based upon (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the observable market price of the impaired loan; or (3) the fair value of the collateral of a collateral dependent loan.

●

The application of formula driven reserve allocations for all commercial and commercial real estate loans by using a three-year migration analysis of net losses incurred within each risk grade for the entire commercial loan portfolio. The difference between estimated and actual losses is reconciled through the nature of the migration analysis.

Table of Contents

●

The application of formula driven reserve allocations to consumer and residential mortgage loans which are based upon historical net charge-off experience for those loan types. The residential mortgage loan and consumer loan allocations are based upon the Company’s three-year historical average of actual loan net charge-offs experienced in each of those categories.

●

The application of formula driven reserve allocations to all outstanding loans is based upon review of historical losses and qualitative factors, which include but are not limited to, economic trends, delinquencies, levels of non-accrual and 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. Pass rated credits are segregated from criticized and classified credits for the application of qualitative factors.

●

Management recognizes that there may be events or economic factors that have occurred affecting specific borrowers or segments of borrowers that may not yet be fully reflected in the information that the Company uses for arriving at reserves for a specific loan or portfolio segment. Therefore, the Company believes that there is estimation risk associated with the use of specific and formula driven allowances.

After completion of this process, a formal meeting of the Loan Loss Reserve Committee is held to evaluate the adequacy of the reserve.

When it is determined that the prospects for recovery of the principal of a loan have significantly diminished, the loan is charged-off against the allowance account; subsequent recoveries, if any, are credited to the allowance account. In addition, non-accrual and large delinquent loans are reviewed monthly to determine potential losses.

The Company’s policy is to individually review, as circumstances warrant, its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $1,000,000 within a 12-month period. The Company defines classified loans as those loans rated substandard or doubtful. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business relationships with aggregate balances of $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and evaluated for specific impairment if factors such as significant delinquency in payments of 90 days or more, bankruptcy, or other negative economic concerns indicate impairment.

The 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, the amount of non-performing loans, and past and anticipated loss experience.

Table of Contents

Non-Performing Assets

Non-performing assets are comprised of (i) loans which are on a non-accrual basis, (ii) loans which are contractually past due 90 days or more as to interest or principal payments, and (iii) other real estate owned (OREO – real estate acquired through foreclosure and in-substance foreclosures) and repossessed assets.

Loans will be transferred to non-accrual status when, based on current 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 the loan 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 following table presents ~~the average recorded investment in impaired~~non-accrual loans, loans past due over 90 days still accruing interest, and ~~related interest income recognized for the periods indicated~~OREO and repossessed assets by portfolio class (in thousands).


	At March 31, 2023
	Non-accrual with no ACL		Non-accrual with ACL		Total non-accrual		Loans past due over 90 days still accruing		OREO and repossessed assets		Total non-performing assets
Commercial real estate (owner occupied)	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial and industrial		—		1,971		1,971		—		—		1,971
Commercial real estate (non-owner occupied) - retail		—		—		—		—		—		—
Commercial real estate (non-owner occupied) - multi-family		—		—		—		—		—		—
Other commercial real estate (non-owner occupied)		1,551		3		1,554		—		—		1,554
Residential mortgages		—		724		724		—		—		724
Consumer		—		312		312		—		38		350
Total	$	1,551	$	3,010	$	4,561	$	—	$	38	$	4,599

Three months ended

Six months ended


June 30,

June 30,

2022

2021

2022

2021
Average impaired balance:








Commercial

$
2,107

$
2,420

$
2,126

$
1,895
Commercial loans secured by non-owner occupied real estate

5

8

5

8
Average investment in impaired loans

$
2,112

$
2,428

$
2,131

$
1,903
Interest income recognized:








Commercial

$
0

$
1

$
—

$
13
Commercial loans secured by non-owner occupied real estate

0

0

0

0
Interest income recognized on a cash basis on impaired loans

$
0

$
1

$
—

$
13

It should be noted that the Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed in non-accrual status, any outstanding interest is reversed against interest income.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk.

Management uses a 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”~~pass categories are aggregated, while the ~~Pass-6, Special Mention, Substandard~~pass-6, special mention, substandard and ~~Doubtful~~doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The ~~Special Mention~~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~~substandard classification. Loans in the ~~Substandard~~substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans in the doubtful category have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. 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~~credit losses are placed in ~~Substandard~~substandard or ~~Doubtful.~~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 $1,000,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the ~~Pass~~ pass

Table of Contents

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 the year ending December 31, ~~2022~~2023 requires review of approximately ~~40%~~30% 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~~pass-6 with aggregate balances greater than $2,000,000, all credits rated ~~Special Mention~~special mention or ~~Substandard~~substandard with aggregate balances greater than $250,000, and all credits rated ~~Doubtful~~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.

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Table of Contents

The following table presents the classes of the commercial and commercial real estate loan portfolios summarized by the aggregate ~~Pass~~pass and the criticized categories of ~~Special Mention, Substandard~~special mention, substandard and ~~Doubtful~~doubtful within the internal risk rating system.

At June 30, 2022

SPECIAL


PASS

MENTION

SUBSTANDARD

DOUBTFUL

TOTAL

(IN THOUSANDS)
Commercial and industrial

$
127,901

$
—

$
5,953

$
—

$
133,854
Paycheck Protection Program (PPP)

2,242

—

—

—

2,242
Commercial loans secured by owner occupied real estate

86,774

—

1,007

—

87,781
Commercial loans secured by non-owner occupied real estate

411,962

10,199

10,665

5

432,831
Total

$
628,879

$
10,199

$
17,625

$
5

$
656,708


											At March 31, 2023
																							Revolving		Revolving
																							Loans		Loans
	At December 31, 2021																						Amortized		Converted
			SPECIAL								Term Loans Amortized Cost Basis by Origination Year												Cost		to
	PASS		MENTION		SUBSTANDARD		DOUBTFUL		TOTAL		2023		2022		2021		2020		2019		Prior		Basis		Term		Total

	(IN THOUSANDS)										(IN THOUSANDS)
Commercial and industrial	$	125,079	$	6,722	$	738	$	1,643	$	134,182
Paycheck Protection Program (PPP)		17,311		—		—		—		17,311
Commercial loans secured by owner occupied real estate		98,271		297		1,076		—		99,644
Commercial loans secured by non-owner occupied real estate		399,104		19,322		12,394		5		430,825
Commercial real estate (owner occupied)
Pass											$	185	$	7,161	$	16,399	$	8,840	$	13,641	$	29,350	$	1,277	$	—	$	76,853
Special Mention												—		—		—		—		—		—		—		—		—
Substandard												—		—		—		—		—		952		—		—		952
Doubtful												—		—		—		—		—		—		—		—		—
Total	$	639,765	$	26,341	$	14,208	$	1,648	$	681,962	$	185	$	7,161	$	16,399	$	8,840	$	13,641	$	30,302	$	1,277	$	—	$	77,805
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial and industrial
Pass											$	2,210	$	40,699	$	15,050	$	7,062	$	9,644	$	24,592	$	46,462	$	—	$	145,719
Special Mention												—		—		—		—		—		—		—		—		—
Substandard												—		—		—		—		—		1,550		3,169		—		4,719
Doubtful												—		—		—		—		—		—		—		—		—
Total											$	2,210	$	40,699	$	15,050	$	7,062	$	9,644	$	26,142	$	49,631	$	—	$	150,438
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate (non-owner occupied) - retail
Pass											$	15,954	$	25,837	$	33,951	$	23,771	$	9,512	$	44,790	$	639	$	—	$	154,454
Special Mention												—		—		—		—		—		—		—		—		—
Substandard												—		—		—		—		—		—		—		—		—
Doubtful												—		—		—		—		—		—		—		—		—
Total											$	15,954	$	25,837	$	33,951	$	23,771	$	9,512	$	44,790	$	639	$	—	$	154,454
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate (non-owner occupied) - multi-family
Pass											$	3,357	$	16,730	$	18,675	$	12,325	$	12,003	$	34,387	$	343	$	—	$	97,820
Special Mention												—		—		—		—		—		—		—		—		—
Substandard												—		—		—		1,003		—		122		—		—		1,125
Doubtful												—		—		—		—		—		—		—		—		—
Total											$	3,357	$	16,730	$	18,675	$	13,328	$	12,003	$	34,509	$	343	$	—	$	98,945
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial real estate (non-owner occupied)
Pass											$	5,050	$	30,771	$	50,221	$	22,293	$	23,602	$	58,673	$	5,883	$	—	$	196,493
Special Mention												—		—		—		138		155		8,102		—		—		8,395
Substandard												—		—		—		—		7,047		11,389		199		—		18,635
Doubtful												—		—		—		—		—		3		—		—		3
Total											$	5,050	$	30,771	$	50,221	$	22,431	$	30,804	$	78,167	$	6,082	$	—	$	223,526
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total by risk rating
Pass											$	26,756	$	121,198	$	134,296	$	74,291	$	68,402	$	191,792	$	54,604	$	—	$	671,339
Special Mention												—		—		—		138		155		8,102		—		—		8,395
Substandard												—		—		—		1,003		7,047		14,013		3,368		—		25,431
Doubtful												—		—		—		—		—		3		—		—		3
Total											$	26,756	$	121,198	$	134,296	$	75,432	$	75,604	$	213,910	$	57,972	$	—	$	705,168
Current period gross charge-offs											$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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	At December 31, 2022
			SPECIAL
	PASS		MENTION		SUBSTANDARD		DOUBTFUL		TOTAL

	(IN THOUSANDS)
Commercial and industrial	$	148,361	$	—	$	5,037	$	—	$	153,398
Paycheck Protection Program (PPP)		22		—		—		—		22
Commercial real estate (owner occupied)		74,187		—		971		—		75,158
Commercial real estate (non-owner occupied)		423,486		11,015		16,240		3		450,744
Total	$	646,056	$	11,015	$	22,248	$	3	$	679,322

It is generally the policy of the Bank that the outstanding balance of any residential mortgage or home equity 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 minor. A ~~charge down~~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 that the outstanding balance of any unsecured consumer loan that exceeds 90-days past due as to principal and/or interest is ~~charged off.~~charged-off. Loans past due 90 days or more and loans in non-accrual status are considered non-performing. The following tables present the performing and non-performing outstanding balances of the residential mortgage and consumer loan portfolio classes.


							At March 31, 2023
																			Revolving		Revolving
																			Loans		Loans
	At June 30, 2022																		Amortized		Converted
			NON-				Term Loans Amortized Cost Basis by Origination Year												Cost		to
	PERFORMING		PERFORMING		TOTAL		2023		2022		2021		2020		2019		Prior		Basis		Term		Total

	(IN THOUSANDS)						(IN THOUSANDS)
Real estate – residential mortgage	$	291,454	$	1,138	$	292,592
Residential mortgages
Performing							$	1,074	$	11,880	$	65,100	$	46,870	$	7,833	$	41,730	$	—	$	—	$	174,487
Non-performing								—		—		—		—		—		724		—		—		724
Total							$	1,074	$	11,880	$	65,100	$	46,870	$	7,833	$	42,454	$	—	$	—	$	175,211
Current period gross charge-offs							$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer		15,023		10		15,033
Performing							$	3,290	$	23,834	$	11,627	$	4,054	$	1,533	$	5,925	$	49,309	$	197	$	99,769
Non-performing								17		—		—		50		49		174		22		—		312
Total	$	306,477	$	1,148	$	307,625	$	3,307	$	23,834	$	11,627	$	4,104	$	1,582	$	6,099	$	49,331	$	197	$	100,081
Current period gross charge-offs							$	3	$	35	$	17	$	—	$	—	$	84	$	—	$	—	$	139
Total by payment performance
Performing							$	4,364	$	35,714	$	76,727	$	50,924	$	9,366	$	47,655	$	49,309	$	197	$	274,256
Non-performing								17		—		—		50		49		898		22		—		1,036
Total							$	4,381	$	35,714	$	76,727	$	50,974	$	9,415	$	48,553	$	49,331	$	197	$	275,292
Current period gross charge-offs							$	3	$	35	$	17	$	—	$	—	$	84	$	—	$	—	$	139


	At December 31, 2021						At December 31, 2022
			NON-						NON-
	PERFORMING		PERFORMING		TOTAL		PERFORMING		PERFORMING		TOTAL

	(IN THOUSANDS)						(IN THOUSANDS)
Real estate – residential mortgage	$	286,843	$	1,153	$	287,996
Residential mortgages							$	296,401	$	1,570	$	297,971
Consumer		15,096		0		15,096		13,457		16		13,473
Total	$	301,939	$	1,153	$	303,092	$	309,858	$	1,586	$	311,444

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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 non-accrual loans.

At June 30, 2022

At March 31, 2023

90 DAYS

30 – 59

60 – 89

PAST DUE

30 – 59

60 – 89

DAYS

90 DAYS

TOTAL

AND STILL

DAYS

90 DAYS

TOTAL

CURRENT

PAST DUE

LOANS

ACCRUING

CURRENT

PAST DUE

LOANS

(IN THOUSANDS)

Commercial and industrial

133,613

200

241

133,854

Paycheck Protection Program (PPP)

2,242

Commercial loans secured by owner occupied real estate

87,777

87,781

Commercial loans secured by non-owner occupied real estate

432,078

753

432,831

Real estate – residential mortgage

290,338

684

302

1,268

2,254

292,592

205

Commercial real estate (owner occupied)

77,805

—

77,805

Other commercial and industrial

150,138

250

—

300

150,438

Commercial real estate (non-owner occupied) - retail

154,454

—

154,454

Commercial real estate (non-owner occupied) - multi-family

98,945

—

98,945

Other commercial real estate (non-owner occupied)

215,382

8,144

—

8,144

223,526

Residential mortgages

173,177

1,340

599

2,034

175,211

Consumer

14,729

283

304

15,033

99,270

548

155

108

811

100,081

Total

960,777

1,924

354

1,278

3,556

964,333

205

969,171

10,282

250

757

11,289

980,460

At December 31, 2021



90 DAYS

30 – 59

60 – 89

PAST DUE

DAYS

DAYS

90 DAYS

TOTAL

TOTAL

AND STILL


CURRENT

PAST DUE

PAST DUE

PAST DUE

PAST DUE

LOANS

ACCRUING

(IN THOUSANDS)
Commercial and industrial

$
133,918

$
14

$
250

$
0

$
264

$
134,182

$
0
Paycheck Protection Program (PPP)

17,311

0

0

0

0

17,311

0
Commercial loans secured by owner occupied real estate

99,454

0

190

0

190

99,644

0
Commercial loans secured by non-owner occupied real estate

428,790

2,035

0

0

2,035

430,825

0
Real estate – residential mortgage

283,178

2,449

1,240

1,129

4,818

287,996

0
Consumer

14,938

151

7

0

158

15,096

0
Total

$
977,589

$
4,649

$
1,687

$
1,129

$
7,465

$
985,054

$
0

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 is based on a 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

~~Table of Contents~~

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.

~~10. Non-Performing Assets Including Troubled Debt Restructurings (TDR)~~

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

June 30, 2022

December 31, 2021

Non-accrual loans:

Commercial and industrial

$
2,087

$
2,165

Commercial loans secured by non-owner occupied real estate

5

5

Real estate – residential mortgage

1,138

1,153

Consumer

10

—

Total

3,240

3,323

Total non-performing assets including TDR

$
3,240

$
3,323

Total non-performing assets as a percent of loans, net of unearned income, other real estate owned and repossessed assets

0.34
%

0.34
%

~~The Company had $205,000 of loans at June 30, 2022 compared to 0 loans at December 31, 2021 past due 90 days or more which were accruing interest.~~

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.

~~Table of Contents~~

The Company had 0 loans modified as TDRs during the three-month period ended June 30, 2022. The following table details the loan modified as a TDR during the six-month period ended June 30, 2022 (dollars in thousands).

Loans in non-accrual status

# of Loans

Current Balance

Concession Granted
Commercial and industrial

1

$
464

Subsequent modification of a TDR - Extension of maturity date with a below market interest rate

The Company had 0 loans modified as TDRs during the three-month period ended June 30, 2021. The following table details the loan modified as a TDR during the six-month period ended June 30, 2021 (dollars in thousands).


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
					At December 31, 2022

							30 – 59		60 – 89
							DAYS		DAYS		90 DAYS		TOTAL		TOTAL
					CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS

					(IN THOUSANDS)
Commercial and industrial	1	$	486	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate	$	152,314	$	797	$	287	$	—	$	1,084	$	153,398
Paycheck Protection Program (PPP)						22		—		—		—		—		22
Commercial real estate (owner occupied)						74,960		198		—		—		198		75,158
Commercial real estate (non-owner occupied)						446,809		3,935		—		—		3,935		450,744
Residential mortgages						295,790		489		422		1,270		2,181		297,971
Consumer						13,290		60		114		9		183		13,473
Total					$	983,185	$	5,479	$	823	$	1,279	$	7,581	$	990,766

~~All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDRs was~~ ~~$126,000 and $132,000 as of June 30, 2022 and December 31, 2021, respectively.~~

The Company had 0 loans that were classified as TDRs or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2021 and 2020 (six-month periods) and April 1, 2021 and 2020 (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.~~

Loan Modifications ~~Related~~ to ~~COVID-19~~Borrowers Experiencing Financial Difficulty

~~Under section 4013 of~~

Occasionally, the ~~CARES Act,~~Company modifies loans ~~less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A~~to borrowers experiencing financial ~~institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified~~difficulty as a result of ~~COVID-19 as being a TDR,~~our loss mitigation activities. A variety of solutions are offered to borrowers, including ~~the requirement to determine impairment for accounting purposes and reporting the~~ loan as past due. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020modifications that may result in principal forgiveness, interest rate reductions, term extensions, payment delays, or the 60th day after the end of the COVID-19 national emergency so long as the loan was current on payments as of December 31, 2019. The suspension of TDR identification and accounting triggered by the effects of the COVID-19 pandemic was extended by the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. The period established by Section 4013 of the CARES Act was extended to the earlier of January 1, 2022 or 60 days after the date on which the national COVID-19 emergency terminates. Additionally, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.combinations thereof.

●

Principal forgiveness includes principal and accrued interest forgiveness. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

●

Interest rate reductions include modifications where the interest rate is reduced and interest is deferred.

●

Term extensions extend the original contractual maturity date of the loan.

●

Payment delays consist of modifications where we expect to collect the contractual amounts due, but result in a delay in the receipt of payments specified under the original loan terms. We generally consider payment delays to be insignificant when the delay is three months or less.

In response to the COVID-19 pandemic, the Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. The following table presents information comparing loans which were subject to a loan modification related to COVID-19, as of June 30, 2022 and December 31, 2021. Note that the percentage of outstanding loans presented below was calculated based

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Table of Contents

~~on loan totals excluding PPP loans. Management believes that this method more accurately reflects~~The following table summarizes the ~~concentration~~amortized cost basis, as of ~~COVID-19 related modifications within~~March 31, 2023, of loans modified to borrowers experiencing financial difficulty during the ~~loan portfolio.~~three months ended March 31, 2023 (in thousands).


	At June 30, 2022				At December 31, 2021				Three months ended March 31, 2023
			% of Outstanding				% of Outstanding		Term Extension
	Balance		Non-PPP Loans		Balance		Non-PPP Loans		Amortized Cost Basis		% of Total Class of Loans
	(in thousands)				(in thousands)
CRE/Commercial	$	4,934	0.7	%	$	7,488	1.1	%
Home Equity/Consumer		6	—			57	0.1
Residential Mortgage		229	0.1			203	0.1
Other commercial and industrial									$	439		0.29	%
Total	$	5,169	0.5		$	7,748	0.8		$	439

At March 31, 2023, the Company had no unfunded loan commitments associated with the loan modifications to borrowers experiencing financial difficulty.

The ~~balance~~following table describes the financial effect of ~~loan~~the modifications ~~related~~made to ~~COVID-19 at June 30, 2022 represents a decrease of $2.6 million, or 33.3%, from~~borrowers experiencing financial difficulty during the ~~balance~~three months ended March 31, 2023.


Term Extension
Loan Type		Financial Effect
Other commercial and industrial		Provided five month expiration date extension on non-accrual line of credit under which availability has been eliminated

The Company had no loans which were modified ~~for COVID-19 at December~~to borrowers experiencing financial difficulty which subsequently defaulted during the three months ended March 31, ~~2021.~~2023. In addition, ~~this current level of borrowers requesting payment deferrals is down sharply from its peak level of approximately $200 million that occurred at June 30, 2020. As a result of these loan modifications,~~ the Company ~~has recorded $504,000 of accrued interest income that has not been received as of June 30, 2022.~~

~~Borrower requested modifications primarily consist~~closely monitors the performance of the ~~deferral~~loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of ~~principal and/or interest payments for a period~~its modification efforts. As of ~~three~~March 31, 2023, the modified loan described in the tables above was current as to ~~six months.~~ payments.

The following table ~~presents~~details the ~~composition of~~loan modified as a TDR during the ~~types of payment relief that have been granted.~~three-month period ended March 31, 2022 (dollars in thousands).

At June 30, 2022

At December 31, 2021

Number of Loans

Balance

Number of Loans

Balance

(in thousands)

(in thousands)
Type of Payment Relief







Interest only payments
3

$
4,934

6

$
3,768
Complete payment deferrals
2

235

5

3,980
Total
5

$
5,169

11

$
7,748

Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals during this difficult economic time. Deferral extension requests were considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt, and issued regulatory guidance. At June 30, 2022, the COVID-19 related modifications within the commercial real estate and commercial loan portfolios are to 3 borrowers in the hospitality and personal care industries, with loans totaling approximately $4.9 million. In order to properly monitor the increased credit risk associated with the modified loans, the Asset Quality Task Force is meeting at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers.


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	472	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate

~~11.~~10. Short-Term Borrowings and Advances from Federal Home Loan Bank

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

At June 30, 2022

At March 31, 2023

Weighted

Type

Maturing

Amount

Average Rate

Maturing

Amount

Average Rate

Open Repo Plus

Overnight

52,989

5.15

FHLB Advances

2022

14,263

1.83

2023

5,718

1.73

2023

15,568

1.59

2024

4,197

1.19

2024

4,197

1.19

2025

—

2026

2,220

4.05

2027

4,000

3.91

Total FHLB advances

34,028

1.64

16,135

2.45

Total short-term and FHLB borrowings

34,028

1.64

69,124

4.52

2529

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	At December 31, 2021					At December 31, 2022
				Weighted					Weighted
Type	Maturing	Amount		Average Rate		Maturing	Amount		Average Rate
Open Repo Plus	Overnight	$	0	0	%	Overnight	$	88,641	4.45	%
FHLB Advances	2022		22,888	1.88		2023		15,568	1.59
	2023		15,568	1.59		2024		4,197	1.19
	2024		4,197	1.19
Total FHLB advances			42,653	1.71				19,765	1.50
Total short-term and FHLB borrowings		$	42,653	1.71	%		$	108,406	3.91	%

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.

~~12.~~11. 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 six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):


	Three months ended June 30, 2022						Three months ended June 30, 2021						Three months ended March 31, 2023								Three months ended March 31, 2022
	Net						Net						Net								Net
	Unrealized						Unrealized						Unrealized								Unrealized
	Gains and						Gains and						Gains and								Gains and
	Losses on		Defined				Losses on		Defined				Losses on				Defined				Losses on		Defined
	Investment		Benefit				Investment		Benefit				Investment		Interest		Benefit				Investment		Benefit
	Securities		Pension				Securities		Pension				Securities		Rate		Pension				Securities		Pension
	AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Hedge⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾
Beginning balance	$	(4,474)	$	(6,979)	$	(11,453)	$	2,348	$	(16,296)	$	(13,948)	$	(14,938)	$	—	$	(7,582)	$	(22,520)	$	1,386	$	(7,898)	$	(6,512)
Other comprehensive income (loss) before reclassifications		(4,292)		(5,577)		(9,869)		581		2,953		3,534		449		(636)		—		(187)		(5,860)		524		(5,336)
Amounts reclassified from accumulated other comprehensive loss		—		1,089		1,089		(66)		1,163		1,097		—		(19)		—		(19)		—		395		395
Net current period other comprehensive income (loss)		(4,292)		(4,488)		(8,780)		515		4,116		4,631		449		(655)		—		(206)		(5,860)		919		(4,941)
Ending balance	$	(8,766)	$	(11,467)	$	(20,233)	$	2,863	$	(12,180)	$	(9,317)	$	(14,489)	$	(655)	$	(7,582)	$	(22,726)	$	(4,474)	$	(6,979)	$	(11,453)

(1)	Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

Six months ended June 30, 2022

Six months ended June 30, 2021


Net





Net






Unrealized

Unrealized

Gains and

Gains and

Losses on

Defined

Losses on

Defined

Investment

Benefit

Investment

Benefit

Securities

Pension

Securities

Pension

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

Beginning balance

$
1,386

$
(7,898)

$
(6,512)

$
3,539

$
(16,737)

$
(13,198)

Other comprehensive income (loss) before reclassifications

(10,152)

(4,945)

(15,097)

(610)

2,903

2,293

Amounts reclassified from accumulated other comprehensive loss

—

1,376

1,376

(66)

1,654

1,588

Net current period other comprehensive income (loss)

(10,152)

(3,569)

(13,721)

(676)

4,557

3,881

Ending balance

$
(8,766)

$
(11,467)

$
(20,233)

$
2,863

$
(12,180)

$
(9,317)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022 (in thousands):


	Amount reclassified from accumulated
	other comprehensive loss⁽¹⁾
	For the three		For the three
Details about accumulated other	months ended		months ended		Affected line item in the
comprehensive loss components	March 31, 2023		March 31, 2022		statement of operations
Interest rate hedge
	$	(24)	$	—	Interest expense - Deposits
		5		—	Provision for income taxes
	$	(19)	$	—
Amortization of estimated defined benefit pension plan loss⁽²⁾
	$	—	$	500	Other expense
		—		(105)	Provision for income taxes
	$	—	$	395
Total reclassifications for the period	$	(19)	$	395

~~(1)~~

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

(1) Amounts in parentheses indicate credits.

(2) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 16 for additional details).

2630

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~~The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three and six months ended June 30, 2022 and 2021 (in thousands):~~

Amount reclassified from accumulated

other comprehensive loss⁽¹⁾

For the three

For the three

Details about accumulated other

months ended

months ended

Affected line item in the
comprehensive loss components

June 30, 2022

June 30, 2021

statement of operations
Realized gains on sale of securities

$
—

$
(84)

Net realized gains on investment securities

—

18

Provision for income taxes

$
—

$
(66)

Amortization of estimated defined benefit pension plan loss⁽²⁾

$
1,378

$
1,472

Other expense

(289)

(309)

Provision for income taxes

$
1,089

$
1,163

Total reclassifications for the period

$
1,089

$
1,097

~~(1)~~ ~~Amounts in parentheses indicate credits.~~

~~(2)~~ ~~These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 17 for additional details).~~

Amount reclassified from accumulated

other comprehensive loss⁽¹⁾

For the six

For the six

Details about accumulated other

months ended

months ended

Affected line item in the

comprehensive loss components

June 30, 2022

June 30, 2021

statement of operations

Realized gains on sale of securities

$
—

$
(84)

Net realized gains on investment securities

—

18

Provision for income taxes

$
—

$
(66)

Amortization of estimated defined benefit pension plan loss⁽²⁾

$
1,742

$
2,094

Other expense

(366)

(440)

Provision for income taxes

$
1,376

$
1,654

Total reclassifications for the period

$
1,376

$
1,588

~~(1)~~ ~~Amounts in parentheses indicate credits.~~

~~(2)~~ ~~These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 17 for additional details).~~

~~13.~~12. 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 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 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&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, common equity tier 1, and tier 1 capital to risk-weighted assets (as defined) and tier 1 capital to average assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of ~~June 30, 2022,~~March 31, 2023, the

~~Table of Contents~~

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.

At June 30, 2022

At March 31, 2023

TO BE WELL

MINIMUM

CAPITALIZED

MINIMUM

CAPITALIZED

REQUIRED

UNDER

REQUIRED

UNDER

FOR

PROMPT

FOR

PROMPT

CAPITAL

CORRECTIVE

CAPITAL

CORRECTIVE

ADEQUACY

ACTION

ADEQUACY

ACTION

COMPANY

BANK

PURPOSES

REGULATIONS*

COMPANY

BANK

PURPOSES

REGULATIONS*

AMOUNT

RATIO

AMOUNT

RATIO

AMOUNT

RATIO

AMOUNT

RATIO

(IN THOUSANDS, EXCEPT RATIOS)

Total Capital (To Risk Weighted Assets)

151,904

14.33

135,810

12.87

8.00

10.00

154,669

14.17

138,505

12.73

8.00

10.00

Tier 1 Common Equity (To Risk Weighted Assets)

112,872

10.65

123,402

11.69

4.50

6.50

Common Equity Tier 1 Capital (To Risk Weighted Assets)

114,894

10.52

125,384

11.52

4.50

6.50

Tier 1 Capital (To Risk Weighted Assets)

112,872

10.65

123,402

11.69

6.00

8.00

114,894

10.52

125,384

11.52

6.00

8.00

Tier 1 Capital (To Average Assets)

112,872

8.40

123,402

9.28

4.00

5.00

114,894

8.46

125,384

9.33

4.00

5.00


	At December 31, 2021												At December 31, 2022
											TO BE WELL												TO BE WELL
									MINIMUM		CAPITALIZED										MINIMUM		CAPITALIZED
									REQUIRED		UNDER										REQUIRED		UNDER
									FOR		PROMPT										FOR		PROMPT
									CAPITAL		CORRECTIVE										CAPITAL		CORRECTIVE
									ADEQUACY		ACTION										ADEQUACY		ACTION
	COMPANY				BANK				PURPOSES		REGULATIONS*		COMPANY				BANK				PURPOSES		REGULATIONS*
	AMOUNT		RATIO		AMOUNT		RATIO		RATIO		RATIO		AMOUNT		RATIO		AMOUNT		RATIO		RATIO		RATIO

	(IN THOUSANDS, EXCEPT RATIOS)												(IN THOUSANDS, EXCEPT RATIOS)
Total Capital (To Risk Weighted Assets)	$	149,177	14.04	%	$	133,881	12.66	%	8.00	%	10.00	%	$	153,092	13.87	%	$	136,767	12.44	%	8.00	%	10.00	%
Tier 1 Common Equity (To Risk Weighted Assets)		109,292	10.29			120,656	11.41		4.50		6.50
Common Equity Tier 1 Capital (To Risk Weighted Assets)														114,959	10.41			125,278	11.39		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)		109,292	10.29			120,656	11.41		6.00		8.00			114,959	10.41			125,278	11.39		6.00		8.00
Tier 1 Capital (To Average Assets)		109,292	8.17			120,656	9.12		4.00		5.00			114,959	8.52			125,278	9.39		4.00		5.00

*Applies to the Bank only.

~~14.~~31

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13. 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.

Interest Rate Swap Agreements

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 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 this large financial institution. 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 the large financial institution 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.

~~Table of Contents~~

These swaps are considered free-standing derivatives and are reported at fair value within other assets and other liabilities on the Consolidated Balance Sheets. Disclosures related to the fair value of the swap transactions can be found in Note ~~18.~~17.

The following table summarizes the interest rate swap transactions that impacted the Company’s first ~~six~~three months of ~~2022~~2023 and ~~2021~~2022 performance (in thousands, except percentages).

At June 30, 2022

At March 31, 2023

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

65,138

2.95

Monthly

(396)

N/A

65,770

6.99

Monthly

437

Swap liabilities

N/A

(65,138)

(2.95)

Monthly

396

N/A

(65,770)

(6.99)

Monthly

(437)

Net exposure

—


	At June 30, 2021								At March 31, 2022
							INCREASE								INCREASE
		AGGREGATE		WEIGHTED			(DECREASE)			AGGREGATE		WEIGHTED			(DECREASE)
		NOTIONAL		AVERAGE RATE		REPRICING	IN INTEREST			NOTIONAL		AVERAGE RATE		REPRICING	IN INTEREST
	HEDGE TYPE	AMOUNT		RECEIVED/(PAID)		FREQUENCY	EXPENSE		HEDGE TYPE	AMOUNT		RECEIVED/(PAID)		FREQUENCY	EXPENSE
Swap assets	N/A	$	54,551	2.59	%	Monthly	$	(380)	N/A	$	66,756	2.64	%	Monthly	$	(250)
Swap liabilities	N/A		(54,551)	(2.59)		Monthly		380	N/A		(66,756)	(2.64)		Monthly		250
Net exposure			—	—				—		$	—	—	%		$	—

Risk Participation Agreement

The Company entered into a risk participation agreement (RPA) with the lead bank of a commercial real estate loan arrangement. As a participating bank, the Company guarantees the performance on a borrower-related interest rate swap contract. The Company has no obligations under the RPA unless the borrower defaults on their swap transaction with the lead bank and the swap is a liability to the borrower. In that instance, the Company has agreed to pay the lead bank a pre-determined percentage of the swap’s value at the time of default. In exchange for providing the guarantee, the Company received an upfront fee from the lead bank.

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RPAs are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings with a corresponding offset within other liabilities. Disclosures related to the fair value of the RPA can be found in Note ~~18.~~17. The notional amount of the risk participation agreement outstanding at ~~June 30,~~March 31, 2023 and December 31, 2022 ~~and 2021~~ was ~~$2.3~~$2.0 million and ~~$2.7~~$2.1 million, respectively.

Interest Rate Hedge

The Company has entered into an interest rate swap with a notional value of $50 million in order to hedge the interest rate risk associated with certain floating-rate time deposit accounts. The hedge transaction allows the Company to add stability to interest expense and manage its exposure to interest rate movements. This interest rate swap is designated as a cash flow hedge and involves the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in accumulated other comprehensive loss (within Shareholders’ Equity), net of tax, with a corresponding offset within other liabilities. Disclosures related to the fair value of the interest rate hedge can be found in Note 17. Amounts recorded in accumulated other comprehensive loss for the effective portion of changes in the fair value are subsequently reclassified to earnings when the hedged transaction affects earnings. The ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of the hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the period ended March 31, 2023.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on certain of the Company’s variable rate time deposit accounts. During the three months ended March 31, 2023, the Company had $24,000 of gains, which resulted in a decrease to interest expense. In the twelve months that follow March 31, 2023, the Company estimates that approximately $300,000 will be reclassified as a decrease to interest expense. This reclassified amount could differ from amounts actually recognized due to changes in interest rates and the potential execution of additional other hedges. As of March 31, 2023, the maximum length of time over which forecasted transactions are hedged is three years.

The following table summarizes the effect of the effective portion of the Company’s cash flow hedge accounting on accumulated other comprehensive loss for the three months ended March 31, 2023 (in thousands).


	Three months ended March 31, 2023
Derivatives in Cash Flow Hedging Relationships	Amount Recognized in Other Comprehensive Loss on Derivative		Location on Consolidated Statements of Operations of Reclassification from Accumulated Other Comprehensive Loss	Amount Reclassified from Accumulated Other Compreshensive Loss
Interest rate hedge	$	(829)	Interest expense - Deposits	$	(24)
Total	$	(829)		$	(24)

The Company monitors and controls all derivative products with a comprehensive Board of Directors approved 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 ~~June 30, 2022~~March 31, 2023 and ~~2021. None of the Company's derivatives are designated as hedging instruments.~~2022.

~~15.~~14. 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 community banking, wealth management, and investment/parent. The reported results reflect the

Table of Contents

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.

~~Table of Contents~~

The community banking segment includes both retail and commercial banking activities. 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 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 (ERECT 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 six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows (in thousands):

Three months ended

Six months ended

Three months ended

June 30, 2022

March 31, 2023

Total revenue

Net income (loss)

Total revenue

Net income (loss)

Total revenue

Net income (loss)

Community banking

12,421

2,947

24,571

6,134

13,358

3,668

Wealth management

2,993

510

6,179

1,233

2,746

448

Investment/Parent

(1,152)

(1,476)

(2,386)

(2,968)

(1,075)

(2,601)

Total

14,262

1,981

28,364

4,399

15,029

1,515


	Three months ended				Six months ended				Three months ended
	June 30, 2021				June 30, 2021				March 31, 2022
	Total revenue		Net income (loss)		Total revenue		Net income (loss)		Total revenue		Net income (loss)
Community banking	$	12,930	$	2,938	$	26,090	$	6,258	$	12,150	$	3,187
Wealth management		3,041		734		5,928		1,396		3,186		723
Investment/Parent		(1,705)		(1,964)		(3,446)		(3,865)		(1,234)		(1,492)
Total	$	14,266	$	1,708	$	28,572	$	3,789	$	14,102	$	2,418

~~16.~~15. Commitments and Contingent Liabilities

The Company had various outstanding commitments to extend credit approximating $236.1 million and ~~$216.6~~$227.6 million along with standby letters of credit of ~~$12.1~~$8.7 million and ~~$13.1~~$9.0 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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.

The Company estimates expected credit losses over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision (credit) for credit losses line on the Consolidated Statements of Operations. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The carrying amount of the ~~reserves~~allowance for ~~AmeriServ obiligations~~credit losses for the Company’s obligations related to unfunded commitments and standby letters of credit, which is reported in other liabilities on the Consolidated Balance Sheets, was ~~$840,000~~$906,000 at ~~June 30, 2022~~March 31, 2023 and ~~$989,000~~$746,000 at December 31, ~~2021.~~2022.

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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 operations or cash flows.

~~17.~~16. 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 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 period of employment. Plan assets are primarily debt securities

~~Table of Contents~~

~~(including~~ (including U.S. Treasury and Agency securities, ~~corporate notes~~corporates 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 six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows (in thousands):

Three months ended

Six months ended


June 30,

June 30,

2022

2021

2022

2021
COMPONENTS OF NET PERIODIC BENEFIT COST:








Service cost

$
363

$
427

$
727

$
854
Interest cost

349

225

697

450
Expected return on plan assets

(1,045)

(992)

(2,091)

(1,985)
Amortization of net loss

364

621

728

1,243
Settlement charge

1,014

851

1,014

851
Net periodic pension cost

$
1,045

$
1,132

$
1,075

$
1,413


	Three months ended
	March 31,
	2023		2022
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost	$	258	$	387
Interest cost		435		273
Expected return on plan assets		(1,034)		(1,050)
Amortization of net loss		—		500
Net periodic pension (benefit) cost	$	(341)	$	110

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 on the Consolidated Statements of Operations.

The ~~Company recognized a $1,014,000 settlement charge in connection with its defined benefit~~reduced pension ~~plan~~expense in the ~~second~~first quarter ~~and first six months~~ of ~~2022 compared to an $851,000 settlement charge recognized in~~2023 reflects the ~~same periods~~retirement of ~~last year. A settlement charge must be recognized when~~many employees over the total dollar amount of lump sum distributions paid from the pension plan to retired employees exceeds a threshold of expected annual service and interest costs in the current year. So far in 2022, all but one employee that retired have electedpast two years who chose to take a lump sum ~~distribution as opposed to collecting~~payment instead of receiving future monthly annuity payments since the value of the lump sums continued to be elevated this year due to the low level of interest rates in late 2021 when these lump sums were calculated. It is anticipated that the Company will be required to recognize additional settlement charges through year end as more people retire. However, the amounts of these future settlement charges are difficult to estimate. It is important to note that since the retired employees have chosen to take the lump sum payments, thesepayments. These individuals are no longer included in the pension ~~plan. Therefore, we expect that~~plan which therefore favorably impacts the Company’s ~~normal annual~~basic pension ~~expense should be lower in the future, which has been evident so far in 2022 as the normal amount of pension expense required to be recognized is lower than the 2021 level.~~expense.

The accrued pension liability, which had a positive (debit) balance of ~~$15.9~~$21.7 million and ~~$19.5~~$21.3 million, was reclassified to other assets on the Consolidated Balance Sheets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The balance of the accrued pension liability continues to be a positive value as a result of Company contributions to the plan and the revaluation of the ~~obligation due to the recognition of the settlement charge.~~obligation.

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.

~~18.~~17. 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.

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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.

Assets and Liabilities 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 U.S. 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. It should be noted that available for sale securities are reported at fair value, net of any related allowance for credit losses.

The fair values of the simultaneous interest rate swaps and the interest rate hedge used for interest rate risk management and the risk participation agreement associated with a commercial real estate loan are based on an external derivative valuation model using data inputs from similar transactions as of the valuation date and classified Level 2.

The following table presents the assets and liabilities measured and reported on the Consolidated Balance Sheets on a recurring basis at their fair value as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, by level within the fair value hierarchy (in thousands).

Fair Value Measurements at June 30, 2022

Fair Value Measurements at March 31, 2023

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

Equity securities (1)

482

—

465

—

Available for sale securities:

U.S. Agency

9,286

—

9,286

—

11,556

—

11,556

—

U.S. Agency mortgage-backed securities

89,381

—

89,381

—

88,636

—

88,636

—

Municipal

20,533

—

20,533

—

19,337

—

19,337

—

Corporate bonds

53,052

—

53,052

—

58,344

—

58,344

—

Interest rate swap asset (1)

4,527

—

4,527

—

4,837

—

4,837

—

Interest rate swap liability (2)

(4,527)

—

4,527

—

(4,813)

—

(4,813)

—

Interest rate hedge ⁽²⁾

(828)

—

(828)

—

Risk participation agreement (2)

—


	Fair Value Measurements at December 31, 2021								Fair Value Measurements at December 31, 2022
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)		TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Equity securities (1)	$	526	$	526	$	—	$	—	$	502	$	502	$	—	$	—
Available for sale securities:
U.S. Agency		7,387		—		7,387		—		10,533		—		10,533		—
U.S. Agency mortgage-backed securities		80,167		—		80,167		—		89,985		—		89,985		—
Municipal		20,892		—		20,892		—		19,038		—		19,038		—
Corporate bonds		54,725		—		54,725		—		59,952		—		59,952		—
Interest rate swap asset (1)		1,226		—		1,226		—		6,992		—		6,992		—
Interest rate swap liability (2)		(1,226)		—		(1,226)		—		(6,872)		—		(6,872)		—
Risk participation agreement (2)		—		—		—		—		—		—		—		—

(1)	Included within other assets on the Consolidated Balance Sheets.

(2)	Included within other liabilities on the Consolidated Balance Sheets.

~~Assets Measured and Recorded on a 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. Impaired

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Assets Measured and Recorded on a Non-Recurring Basis

The Company evaluates individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. Individually evaluated loans are reported at 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 using unobservable inputs. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021, impaired~~2022, individually evaluated loans ~~evaluated~~ using the collateral method with a carrying value of ~~$5,000~~$1.6 million were reduced by a specific valuation allowance totaling ~~$5,000~~$3,000 resulting in a net fair value of 0.$1.6 million.

Other real estate owned is measured at fair value based on appraisals, less estimated costs to sell at the date of foreclosure. The Bank’s internal Collections and Assigned Risk Department estimates the fair value of repossessed assets, such as vehicles and equipment, using a formula driven analysis based on automobile or other industry data, less estimated costs to sell at the time of repossession. 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 and repossessed assets.

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

~~Fair Value Measurements~~

~~June 30, 2022~~

~~TOTAL~~

~~(LEVEL 1)~~

~~(LEVEL 2)~~

~~(LEVEL 3)~~

~~Impaired loans~~

—


	Fair Value Measurements
March 31, 2023			(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Individually evaluated loans	$	1,551	$	—	$	—	$	1,551
Other real estate owned and repossessed assets		38		—		—		38

~~Fair Value Measurements~~

~~December 31, 2021~~

~~TOTAL~~

~~(LEVEL 1)~~

~~(LEVEL 2)~~

~~(LEVEL 3)~~

~~Impaired loans~~

—


	Fair Value Measurements
December 31, 2022	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	1,583	$	—	$	—	$	1,583
Other real estate owned and repossessed assets		39		—		—		39

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	~~Quantitative Information About Level 3 Fair Value Measurements~~
			~~Valuation~~	~~Unobservable~~
~~June 30, 2022~~	~~Fair Value~~		~~Techniques~~	~~Input~~	~~Range (Wgtd Avg)~~
~~Impaired loans~~	$	—	~~Appraisal of~~	~~Appraisal~~	~~100% (100%)~~
			~~collateral~~ ~~(1)~~	~~adjustments~~ ~~(2)~~


	Quantitative Information About Level 3 Fair Value Measurements
			Valuation	Unobservable
March 31, 2023	Fair Value		Techniques	Input	Range (Wgtd Avg)
Individually evaluated loans	$	1,551	Appraisal of	Appraisal	0% to 100% (0.2%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
Other real estate owned and repossessed assets		38	Appraisal of	Appraisal	52% (52%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
				Liquidation	15% (15%)
				expenses


	~~Quantitative Information About Level 3 Fair Value Measurements~~
			~~Valuation~~	~~Unobservable~~
~~December 31, 2021~~	~~Fair Value~~		~~Techniques~~	~~Input~~	~~Range (Wgtd Avg)~~
~~Impaired loans~~	$	—	~~Appraisal of~~	~~Appraisal~~	~~100% (100%)~~
			~~collateral~~ ~~(1)~~	~~adjustments~~ ~~(2)~~


	Quantitative Information About Level 3 Fair Value Measurements
			Valuation	Unobservable
December 31, 2022	Fair Value		Techniques	Input	Range (Wgtd Avg)
Impaired loans	$	1,583	Appraisal of	Appraisal	0% to 100% (0.2%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
Other real estate owned and repossessed assets		39	Appraisal of	Appraisal	52% (52%)
			collateral ⁽¹⁾	adjustments ⁽²⁾
				Liquidation	10% to 39% (11%)
				expenses

(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.

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, deposits with no stated maturities, and short-term borrowings have fair values which approximate the recorded carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements.

The estimated fair values based on U.S. GAAP measurements and recorded carrying values at March 31, 2023 and December 31, 2022 for the remaining financial instruments not required to be reported at fair value were as follows:

March 31, 2023

Carrying

Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)

FINANCIAL ASSETS:

Investment securities – HTM

60,740

54,957

—

52,050

2,907

Loans held for sale

417

435

—

Loans, net of allowance for credit losses and unearned income

968,328

914,351

—

914,351

FINANCIAL LIABILITIES:

Deposits with stated maturities

298,095

294,692

—

294,692

All other borrowings ⁽¹⁾

42,789

41,008

—

41,008

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The estimated fair values based on U.S. GAAP measurements and recorded carrying values at June 30, 2022 and December 31, 2021 for the remaining financial instruments not required to be measured or reported at fair value were as follows:

June 30, 2022


Carrying








Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)
FINANCIAL ASSETS:










Investment securities – HTM

$
59,003

$
55,115

$
—

$
52,190

$
2,925
Loans held for sale

1,254

1,275

1,275

—

—
Loans, net of allowance for loan loss and unearned income

952,765

905,246

—

—

905,246
FINANCIAL LIABILITIES:










Deposits with stated maturities

281,985

283,162

—

—

283,162
All other borrowings ⁽¹⁾

60,652

58,855

—

—

58,855


	December 31, 2021										December 31, 2022
	Carrying										Carrying
	Value			Fair Value		(Level 1)		(Level 2)		(Level 3)	Value			Fair Value		(Level 1)		(Level 2)		(Level 3)

		(IN THOUSANDS)										(IN THOUSANDS)
FINANCIAL ASSETS:
Investment securities – HTM	$	53,751	$	55,516	$	—	$	52,523	$	2,993	$	61,878	$	55,192	$	—	$	52,323	$	2,869
Loans held for sale		983		1,022		1,022		—		—		59		57		57		—		—
Loans, net of allowance for loan loss and unearned income		972,656		969,681		—		—		969,681
Loans, net of allowance for credit losses and unearned income												980,023		938,188		—		—		938,188
FINANCIAL LIABILITIES:
Deposits with stated maturities		292,325		294,280		—		—		294,280		286,004		281,297		—		—		281,297
All other borrowings⁽¹⁾		69,256		69,506		—		—		69,506		46,409		44,759		—		—		44,759

(1)	All other borrowings include advances from Federal Home Loan Bank 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.

Item 2.

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

~~…..2022 SECOND QUARTER SUMMARY OVERVIEW…..~~AmeriServ Financial, Inc. reported second quarter 2022 net income of $1,981,000, or $0.12 per diluted common share. This earnings performance was a $273,000, or 16.0%, increase from the second quarter of 2021 when net income totaled $1,708,000, or $0.10 per diluted common share. For the six-month period ended June 30, 2022, the Company reported net income of $4,399,000, or $0.26 per diluted common share. This represents an 18.2% increase in earnings per share from the six-month period of 2021 when net income totaled $3,789,000, or $0.22 per diluted common share. The improved earnings performance in 2022 reflects the full benefit of several important strategic actions that our company executed in 2021 along with the successful management of our asset quality throughout the pandemic.

It is common knowledge that the first six months of 2022 has been a period of extreme economic volatility. But in this very demanding six months, AmeriServ has been remarkably stable. Loan growth has trailed expectations, but deposit totals have been quite stable, so liquidity has been a very real positive. The loan portfolio itself has continued to be strong even while it has been declining. This continued strength has permitted the Company to reduce the allowance for loan losses. Thus, the balance sheet remained strong with increasing regulatory capital levels. In this unusually volatile time, the strengthening of the balance sheet is indeed very timely.

The wealth management group has also been especially active in their clients’ best interests. Pathroad Account client assets have already been moved to cash to limit losses from the bear market. Meanwhile, our team is actively rebalancing the investment strategy program to be ready to quickly take advantage of the eventual turnaround in the markets. We

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believe in the long-term viability of the market and the wealth management Pathroad Account investment strategy. Our goal is to provide our clients with the opportunity for gains as soon as the turnaround begins. Patience is the watchword for the moment.

The residual effects of the pandemic period continue to be with us. To protect our staff members, we’ve enacted a hybrid work from home policy for those job functions that can be performed remotely. But all controls and safeguards are in place to be certain that AmeriServ remains a totally safe and sound financial institution for our customers.

THREE MONTHS ENDED ~~JUNE 30, 2022~~MARCH 31, 2023 VS. THREE MONTHS ENDED ~~JUNE 30, 2021~~MARCH 31, 2022

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


	Three months ended			Three months ended			Three months ended			Three months ended
	June 30, 2022			June 30, 2021			March 31, 2023			March 31, 2022
Net income	$	1,981		$	1,708		$	1,515		$	2,418
Diluted earnings per share		0.12			0.10			0.09			0.14
Return on average assets (annualized)		0.59	%		0.51	%		0.45	%		0.73	%
Return on average equity (annualized)		7.10	%		6.46	%		5.85	%		8.48	%

The Company reported net income of ~~$1,981,000,~~$1,515,000, or ~~$0.12~~$0.09 per diluted common share. This earnings performance represented a ~~$273,000,~~$903,000, or ~~16.0%~~37.3%, ~~increase~~decrease from the ~~second~~first quarter of ~~2021~~2022 when net income totaled ~~$1,708,000,~~$2,418,000, or ~~$0.10~~$0.14 per diluted common share. The Company continued its positive earnings momentum in the second quarter of 2022 and again posted increased earnings when compared to the 2021 results. AmeriServ Financial continues to benefit from our diversified revenue streams due to strong levels of loans, deposits, and fee income from our wealth management business.

~~Second quarter earnings results reflect the impact of continued strengthening asset quality, which enabled the Company to recognize~~Overall, a ~~loan loss provision recovery during the second quarter of 2022. Overall, the increase~~decrease to net interest income due to continued pressure from increasing deposit costs, along with ~~the loan loss~~a higher provision ~~recovery,~~for credit losses and increased non-interest expense, more than offset a ~~lower~~greater level of non-interest income ~~and higher non-interest expense~~ resulting in ~~an improved~~the lower level of earnings ~~performance for~~in the ~~second~~first quarter of ~~2022.~~2023.

The benefits of maintaining a strong relationship focused community bank are evident during periods of market volatility and financial uncertainty. Since the end of 2022, the Company has seen an increase of $23.3 million, or 2.1%, in deposits which demonstrates customer confidence and the strength and loyalty of our core deposit base. As a result, our liquidity position continues to be strong. Additionally, during the first quarter of 2023, the Company further increased our already sound level of regulatory capital and continued to maintain high asset quality supported by appropriate reserves.

…..NET INTEREST INCOME AND MARGIN…..The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings, and it is affected by interest rate fluctuations as well as changes in the

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amount and mix of earning assets and interest bearing liabilities. The following table compares the Company’s net interest income performance for the ~~second~~first quarter of ~~2022~~2023 to the ~~second~~first quarter of ~~2021~~2022 (in thousands, except percentages):


	Three			Three								Three			Three
	months ended			months ended								months ended			months ended
	June 30, 2022			June 30, 2021			Change			% Change		March 31, 2023			March 31, 2022			Change			% Change
Interest income	$	11,527		$	11,838		$	(311)		(2.6)	%	$	14,574		$	11,028		$	3,546		32.2	%
Interest expense		1,403			1,971			(568)		(28.8)			5,052			1,261			3,791		300.6
Net interest income	$	10,124		$	9,867		$	257		2.6		$	9,522		$	9,767		$	(245)		(2.5)
Net interest margin		3.23	%		3.13	%		0.10	%	N/M			3.03	%		3.14	%		(0.11)	%	N/M

N/M — not meaningful

The ~~Company’s~~Company's net interest income in the ~~second~~first quarter of ~~2022 increased~~2023 decreased by ~~$257,000,~~$245,000, or ~~2.6%~~2.5%, from the prior ~~year’s second~~year's first quarter while the net interest margin of ~~3.23%~~3.03% for the ~~second~~first quarter of ~~2022 improved by ten basis points when compared to~~2023 represents an eleven-basis point decrease from the first quarter of 2022. The decrease in net interest ~~margin of 3.13% for~~income reflects total interest expense increasing to a higher level than the ~~second quarter of 2021.~~increase in interest income. The Company ~~has also benefitted~~continues to benefit from ~~the~~increased yields on total loans and investment securities due to a higher U.S. Treasury yield curve ~~as interest rates have increased due to~~and the Federal Reserve’s action to tighten monetary policy in their effort to tame decades high inflation. ~~The higher~~However, similar to what is occurring across the banking industry, the increased national interest rates have ~~favorably impacted the Company’s financial performance, particularly~~recently caused total deposit and borrowing costs to increase to a higher degree, resulting in lower net interest income ~~in the second quarter of 2022. The termination of the Paycheck Protection Program (PPP) caused a reduced level of loan fee income~~ and ~~was the primary~~

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factor causing total interest income to decrease between the second quarter of 2022 and last year’s second quarter. However, the Company’s 2022 financial performance has been favorably impacted by the strategic actions taken by management in 2021 to lower funding costs. Therefore, deposit and borrowing interest expense declined by more than the decrease in total interest income, resulting in net interest ~~income improving in the second quarter of 2022 compared to last year’s second quarter.~~margin compression.

Total average loans in the ~~second~~first quarter of 2023 compare favorably to the 2022 ~~are lower than the 2021 second~~first quarter average by ~~$14.5~~$6.9 million, or ~~1.5%~~0.7%. ~~Improved~~Excluding PPP loans, which still existed on the balance sheet in 2022, total average loans in the first quarter of 2023 exceeded last year’s first quarter by $19.0 million, or 2.0%. First quarter 2023 loan ~~pipelines resulted in increased~~ production has been slower than the more recent 2022 fourth quarter but is consistent with the level of production experienced during the ~~second~~first quarter of 2022. Loan pipelines continue to be strong, but customers have delayed fundings which are expected to increase in the second quarter. Overall, the strong level of production experienced throughout 2022, ~~but~~which more than offset a higher than typical level of payoff activity, ~~more than offset the new production. However, given the core loan growth experienced during 2021 and excluding PPP loans,~~resulted in total average loans incomparing favorably to the ~~second~~first quarter of ~~2022 exceed the 2021 second quarter average by $41.3 million, or 4.4%, as growth of~~2022. Growth in commercial ~~real estate (CRE), residential mortgage,~~& industrial loans (C&I) and home equity loans more than offset ~~a decrease in~~decreased residential mortgage and consumer loans. Commercial real estate (CRE) volume remained relatively consistent, increasing slightly. Overall, the level of commercial & industrial loans. Residential mortgage loan production was down in the second quarter of 2022 when compared to last year’s second quarter. Refinance transactions have been severely impactedhigher interest rate environment along with the quick escalation of interest rates since the beginning of 2022. Residential mortgage loan production totaled $6.6 million in the second quarter of 2022 and was 76.2% lower than the production level of $28.0 million achieved in the second quarter of 2021. Total PPP loans averaged $4.7 million in the second quarter of 2022, representing a decrease of $55.8 million, or 92.2%, from the second quarter of last year. Additionally, on an end of period basis, the total amount of PPP loans is only $2.2 million as we continue to work with our customers through the SBA forgiveness process. Overall, despite the higher average volumes of ~~CRE, residential mortgage,~~C&I and home equity loans, resulted in total loan interest income ~~declined~~improving by ~~$558,000,~~$2.8 million, or ~~5.4%~~29.3%, infor the ~~2022 second~~first quarter of 2023 when compared to the 2021 second quarter. This decrease is primarily due to the Company recording a total of $136,000 of processing fee income and interest income from PPP lending activity in the 2022 second quarter, which is $629,000, or 82.2%, lower than PPP income in the secondfirst quarter of ~~2021. Finally, on an end of period basis at June 30, 2022, excluding total~~last year. This increase occurred despite a $240,000 reduction in PPP ~~loans, the total loan portfolio is approximately $18.6 million, or 2.0%, higher from the June 30, 2021 level.~~

related income.

Total investment securities averaged ~~$240.6~~$266.0 million for the ~~second~~first quarter of ~~2022~~2023 which is ~~$28.3~~$44.5 million, or ~~13.3%~~20.1%, higher than the ~~$212.3~~$221.5 million average for the first quarter of last ~~year’s second quarter.~~year. The increase reflects additional securities purchased primarily during 2022 as the increased U.S. Treasury yield curve ~~increased and became~~resulted in a more favorable market for securities purchasing activity so far in 2022. The two-year to ten-year portion of the yield curve increased by approximately 135 to 230 basis points since the beginning of the year, with shorter yields in that range increasing to a higher degree than the longer yields.activity. Overall, the higher rates resulted in yields for new federal agency mortgage-backed securities and federal agency bonds improving and exceeding the overall average yield of the existing securities ~~portfolio. Management purchased more of these investments for our~~ portfolio ~~and, therefore, was able to more profitably deploy a portion of the increased liquidity on our balance sheet into~~causing interest income from the securities portfolio to increase by $727,000, or 48.0%, this year. So far in 2023, purchases of securities have slowed as ~~opposed~~more funds have been allocated to ~~leaving these~~the loan portfolio and the Company has been controlling the amount of overnight borrowed funds. The rising national interest rates caused the rate on overnight borrowed funds to be in ~~low yielding~~line with or exceed the yield on the typical types of federal ~~funds sold. This redeployment~~agency mortgage-backed securities that are normally purchased. While yields on new security purchases still exceed the overall average yield of ~~funds contributed to total~~the existing securities ~~growing~~portfolio, the shrinking and in some cases negative spread between ~~years. Management also continued to purchase taxable municipals~~overnight borrowings and ~~corporate~~the yield on new securities ~~to maintain a well-diversified portfolio.~~caused the slowdown in purchasing activity. Overall, the 2023 first quarter average balance of total interest earning assets ~~for the second~~increased since last year’s first quarter ~~of 2022 was $7.9~~average by $9.3 million, or ~~0.6%~~0.7%, ~~lower than the second quarter of 2021~~ while total interest income ~~decreased~~increased by ~~$311,000,~~$3.5 million, or ~~2.6%~~32.2%, ~~between years.~~since the first quarter of 2022.

~~Although reduced from its high levels when government stimulus initially impacted~~Since the ~~economy,~~end of the first quarter of 2022 and due to a combination of increased investment in securities, loan growth and total deposits modestly declining, short-term investments and bank deposits demonstrated a lower average balance in the first quarter of 2023 compared to last year’s first quarter by $42.2 million, 90.6%. Despite this decline, the Company’s liquidity position remains strong. We will continue to carefully monitor our liquidity position ~~continues to be strong as total~~and short-term investments ~~averaged $28.7 million in the second quarter of 2022, which is lower than it has been trending over the past several quarters due~~as we expect deposits related to ~~the additional investment in the securities portfolio. In addition, uncertainty remains regarding the duration that the increased funds from~~ government stimulus will remain on the balance sheet. Diligent monitoring and management of our short-term investment position remains a priority. Continued loan growth and prudent investment in securities are critical to achieve the best return on the Company’s liquid funds with management expectingprograms to continue to ~~be active with new security purchases~~decline during ~~the remainder of 2022 given the increase in interest rates.~~

2023.

On the liability side of the balance sheet, total deposits have demonstrated stability over the past year as indicated by the second quarter 2022 average balance being only $2.0 million, or 0.2%, lower than the second quarter 2021 average balance. Deposit volumes continue to reflect the favorable impact of government stimulus which provided support to many Americans and financial assistance to municipalities and school districts during the pandemic. Deposit volumes were also favorably impacted by the Company’s successful business development efforts and the Somerset County branch acquisition, which was completed in late May 2021. Overall, the loan to deposit ratio averaged 84.0% in the

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~~second~~On the liability side of the balance sheet, total average deposits for the first quarter of 2023 are $9.7 million, or 0.8%, lower than the 2022 first quarter average. The modest decrease since last year’s first quarter is reflective of a portion of the funds from the government stimulus programs leaving the balance sheet and also reflects greater pricing competition in the market to retain deposits because of the increasing national interest rates. Since early March 2023 when two large bank failures occurred, customer fear of contagion within the industry caused deposit flight, especially uninsured deposits, from certain banks to other financial services providers. Despite this turmoil, AmeriServ Financial’s core deposit base continued to demonstrate the strength and stability that has been experienced for many years. Total deposits in fact grew during the first quarter of 2023 by $23.3 million, or 2.1%, on an end of period basis since December 31, 2022 demonstrating what we believe is customer confidence in our bank. In addition to its strong, loyal core deposit base, the Company has several other sources of liquidity including a significant unused borrowing capacity at the Federal Home Loan Bank, overnight lines of credit at correspondent banks and access to the Federal Reserve Discount Window. The loan to deposit ratio averaged 85.8% in the first quarter of 2023, which indicates that the Company has ample capacity to continue to grow its loan portfolio and is strongly positioned to support our customers and our community during times of economic volatility.

Total interest expense ~~for~~in the ~~second~~first quarter of ~~2022 decreased~~2023 increased by ~~$568,000,~~$3.8 million, or ~~28.8%~~300.6%, when compared to the ~~second~~first quarter of ~~2021,~~2022, due to ~~lower levels of both~~higher deposit and ~~borrowing~~short-term borrowings interest expense. Deposit interest expense was ~~lower~~higher by ~~$350,000,~~$3.4 million, or ~~26.8%~~426.3%, despite the first quarter 2023 average volume of total interest bearing deposits remaining relatively consistent with the 2022 first quarter average, growing by $5.3 million, or 0.6%. The ~~late third quarter 2021 maturity of a large, high-cost institutional deposit, which was replaced by lower cost funds from~~impact that the ~~branch acquisition, resulted in significant interest expense savings. The~~ higher national interest rates ~~this year did result~~had on deposit costs combined with increased market competition to retain and attract deposits contributes to net interest margin compression. The rising national interest rates resulted in ~~total deposit interest expense increasing between the first and second quarters of 2022 as~~ certain deposit products, particularly public funds, that are tied to a market index, ~~repriced~~repricing upward with the move in national interest rates causing interest expense to increase. For interest rate risk management purposes and in an effort to offset a portion of the unfavorable impact that rising funding costs are having on net interest income, management executed a $50 million interest rate hedge in February 2023 to fix the cost of certain deposits that are indexed and move with short-term interest rates. ~~Specifically, our~~This transaction brought the Company’s variability of net interest income to a more neutral position. Overall, total deposit cost averaged ~~0.33%~~1.48% in the ~~second~~first quarter of ~~2022,~~2023, which is ~~five~~120 basis points higher than total deposit cost of 0.28% in the first quarter of 2022; but still compares favorably to total deposit cost of 0.45% in the second quarter of 2021, representing a decrease of 12 basis points. Overall, management believes that total deposit cost will continue to rise given the expectation of additional short-term interest rate increases by the Federal Reserve throughout 2022. ~~However, given the Company’s strong liquidity position, along with that of the banking industry, we expect that future deposit rate increases will occur in a controlled manner.~~

Total borrowings interest expense ~~decreased~~increased by ~~$218,000,~~$398,000, or ~~32.8%~~85.6%, ~~when comparing~~between the ~~second~~first quarter of ~~2022 to last year’s second quarter.~~2023 and the first quarter of 2022. The ~~decrease between years~~increase results from the ~~favorable~~ impact that the higher national interest rates had on overnight borrowings cost as well as the Company utilizing more overnight borrowed funds so far in 2023. Total overnight borrowings averaged $40.7 million in the first quarter of 2023 after no overnight borrowings were utilized during the August 2021 subordinated debt offering which was used to replace higher cost debt. This transaction effectively lowered debt cost on these long-term funds by nearly 4.0%. This savings is recognized even though the sizefirst quarter of ~~the new subordinated debt is $7.0 million higher than the debt instruments it replaced. The remaining portion of the favorable variance in borrowings~~2022. Borrowings interest expense ~~between the second quarter of 2022 and the second quarter of 2021 is due to~~was favorably impacted by reduced interest expense from Federal Home Loan Bank (FHLB) ~~borrowings.~~term borrowings, which declined by $94,000, or 53.4%. The average balance of ~~total short-term and~~ FHLB term borrowings iswas lower in the ~~second~~first quarter of ~~2022~~2023 by ~~$12.8~~$23.5 million, or ~~25.3%~~57.1%, as the strength of the Company’s liquidity position ~~allows~~allowed management to let ~~higher cost~~ FHLB term advances mature during 2022 and not be replaced. However, given the inversion in the yield curve, FHLB term advances have rates that are lower than the cost of overnight borrowed funds. Therefore, management began replacing matured FHLB term advances during the first quarter of 2023.

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) for the ~~three month~~three-month periods ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ 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 this table, loan balances include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been ~~deferred, as well as interest recorded on certain non-accrual loans as cash is received.~~deferred. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of 21% was used to compute tax-equivalent interest income and yields (non-GAAP). The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended ~~June 30,~~March 31, 2023 and 2022 was $3,000 and ~~2021 was~~ $4,000, ~~and $5,000,~~ respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.

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Three months ended ~~June 30~~March 31 (In thousands, except percentages)


	2022						2021						2023						2022
			Interest						Interest						Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate		Balance		Expense		Rate		Balance		Expense		Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income	$	976,995	$	9,729	3.95	%	$	991,527	$	10,288	4.12	%	$	986,493	$	12,279	4.99	%	$	979,548	$	9,500	3.89	%
Short-term investments and bank deposits		28,684		64	0.89			50,357		11	0.09			4,376		57	5.20			46,531		18	0.15
Investment securities – AFS		180,881		1,304	2.89			162,282		1,171	2.89			204,262		1,770	3.47			166,068		1,123	2.71
Investment securities – HTM		59,734		434	2.91			50,050		373	2.98			61,734		471	3.05			55,391		391	2.82
Total investment securities		240,615		1,738	2.89			212,332		1,544	2.91			265,996		2,241	3.37			221,459		1,514	2.74
Total interest earning assets/interest income		1,246,294		11,531	3.69			1,254,216		11,843	3.77			1,256,865		14,577	4.66			1,247,538		11,032	3.55
Non-interest earning assets:
Cash and due from banks		17,882						17,770						16,412						17,765
Premises and equipment		17,395						17,805						17,849						17,376
Other assets		80,729						75,267						75,052						81,563
Allowance for loan losses		(12,070)						(11,876)
Allowance for credit losses														(12,147)						(12,511)
TOTAL ASSETS	$	1,350,230					$	1,353,182					$	1,354,031					$	1,351,731
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand	$	229,394	$	127	0.22	%	$	213,968	$	59	0.11	%	$	226,724	$	860	1.54	%	$	229,273	$	69	0.12	%
Savings		139,963		34	0.09			125,545		43	0.14			132,520		32	0.10			135,887		33	0.09
Money markets		291,998		241	0.33			269,814		170	0.25			297,602		1,456	1.98			291,139		160	0.22
Time deposits		284,935		554	0.78			339,331		1,034	1.22			294,518		1,841	2.54			289,745		534	0.75
Total interest bearing deposits		946,290		956	0.41			948,658		1,306	0.55			951,364		4,189	1.79			946,044		796	0.34
Short-term borrowings		1,500		3	0.83			—		—	—			40,719		494	4.86			—		—	—
Advances from Federal Home Loan Bank		36,190		156	1.82			50,469		227	1.83			17,690		82	1.89			41,195		176	1.80
Guaranteed junior subordinated deferrable interest debentures		—		—	—			13,085		281	8.57
Subordinated debt		27,000		263	3.90			7,650		130	6.80			27,000		263	3.90			27,000		263	3.90
Lease liabilities		3,475		25	2.91			3,766		27	2.85			3,277		24	2.94			3,532		26	2.87
Total interest bearing liabilities/interest expense		1,014,455		1,403	0.55			1,023,628		1,971	0.77			1,040,050		5,052	1.96			1,017,771		1,261	0.50
Non-interest bearing liabilities:
Demand deposits		216,596						216,223						197,878						212,895
Other liabilities		7,281						7,322						11,011						5,407
Shareholders’ equity		111,898						106,009						105,092						115,658
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,350,230					$	1,353,182					$	1,354,031					$	1,351,731
Interest rate spread					3.14						3.00						2.70						3.05
Net interest income/ Net interest margin (non-GAAP)				10,128	3.23	%				9,872	3.13	%				9,525	3.03	%				9,771	3.14	%
Tax-equivalent adjustment				(4)						(5)						(3)						(4)
Net Interest Income (GAAP)			$	10,124					$	9,867					$	9,522					$	9,767

…..PROVISION FOR ~~LOAN~~CREDIT LOSSES…..The Company recorded a ~~$325,000 loan loss~~$1,179,000 expense for the provision ~~recovery~~for credit losses in the ~~second~~first quarter of 2023 after recognizing a $400,000 benefit in the first quarter of 2022 ~~as compared to~~resulting in a ~~$100,000~~net unfavorable change of $1.6 million. Included in the 2023 provision expense inwas the ~~second quarter~~recognition of ~~2021. The 2022 provision recovery reflects improved credit quality~~a $926,000 loss from a subordinated debt investment with Signature Bank which was closed by banking regulators on March 12, 2023. In a press release issued by the Federal Deposit Insurance Corporation (FDIC), it was disclosed that unsecured debt holders of the institution will not be protected. Management reviewed the Form 10-K for the ~~overall portfolio due~~year ended December 31, 2022 filed by Signature Bank, which was filed on March 1, 2023, and determined that no circumstances existed to ~~several loan upgrades, a reduced loan portfolio size due to increased payoff activity including one substandard credit, and lower levels of criticized assets. As demonstrated historically,~~indicate that the debt security held by the Company ~~continues its strategic conviction that a strong allowance for loan losses is needed, which has proven to be essential given the support provided to certain borrowers~~was impaired as ~~they fully recover from the~~of year-end. Specifically, as of December 31, 2022, Signature

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~~COVID-19 pandemic.~~Bank had total assets of $110.4 billion, net income of $1.3 billion for the year then ended, and demonstrated strong regulatory capital ratios.

The remainder of the increase in the provision for credit losses was due to the recognition of a $301,000 provision for credit losses for the loan portfolio which more than offset a $31,000 provision recovery for credit losses in the HTM securities portfolio. A $17,000 provision recovery for credit losses related to unfunded commitments was also recorded. The first quarter 2023 provision for credit losses in the loan portfolio was necessary due to risk rating, non-accrual and charge-off activity. Total classified asset levels exhibited an increase during the first quarter of 2023 due to the downgrade of one commercial real estate loan. Non-performing assets decreased from $5.2 million at December 31, 2022 to $4.6 million at March 31, 2023 primarily due to a decrease in non-accrual residential mortgage loans. Overall, we believe that non-performing assets remain well controlled ~~totaling $3.2 million, or 0.34%~~at 0.47% of total ~~loans, on June 30, 2022.~~loans. The Company experienced net loan charge-offs of ~~$29,000,~~$116,000, or ~~0.01%~~0.05% of total average loans, in the ~~second~~first quarter of ~~2022 compared to~~2023 which is only slightly higher than net ~~loan recoveries~~charge-offs of ~~$21,000,~~$76,000, or ~~0.01%~~0.03% of total average loans, in the ~~second~~first quarter of ~~2021.~~

The Company remains committed to prudently working with our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. On June 30, 2022, loans totaling approximately $5.2 million, or only 0.5% of total loans, were on a payment modification plan. These loans include three commercial borrowers in the hospitality and personal care industries. Management continues to carefully monitor asset quality with a particular focus on these customers that have requested payment deferrals. The Asset Quality Task Force is meeting at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers.2022. In summary, the allowance for loan losses provided ~~357%~~264% coverage of non-performing assets, and ~~1.20%~~1.24% of total loans, on ~~June 30, 2022,~~March 31, 2023, compared to ~~373%~~207% coverage of non-performing assets, and ~~1.26%~~1.08% of total loans, on December 31, ~~2021.~~2022.

…..NON-INTEREST INCOME…..Non-interest income for the ~~second~~first quarter of ~~2022~~2023 totaled ~~$4.1~~$5.5 million and ~~decreased~~increased by ~~$261,000,~~$1.2 million, or ~~5.9%~~27.0%, from the ~~second~~first quarter of ~~2021~~2022 performance. Factors contributing to the ~~lower~~higher level of non-interest income for the quarter included:

●

AmeriServ Financial Bank sold all 7,859 shares of the Class B common stock of Visa, Inc. that it owned for a sale price of $1.7 million. The shares had no carrying value on the balance sheet and, as the Bank had no historical cost basis in the shares, the entire sale price was recognized as a gain. The Company believes that this was an ~~$87,000, or 71.3%, decrease in net gains~~appropriate time to capture the gain on ~~loans held for sale~~these shares due to the ~~lower level of residential mortgage loan production which reflects a reduced level of mortgage loan refinance activity due to~~current volatility and future uncertainty in the ~~quick escalation of interest rates. The reduced level of mortgage loan production also caused mortgage related fees to decline by $67,000, or 67.7%;~~

●

~~the Company recognized an $84,000 gain on investment security sales in 2021 as compared to this year when no securities were sold;~~financial markets;

●

a ~~$46,000,~~$427,000, or ~~1.5%~~13.5%, decrease in wealth management fees due to the unfavorable ~~impact~~market conditions for both equity securities and bonds which have reduced the market value of ~~the declining equity markets which was partially offset by~~wealth management assets. Also, new customer business ~~development.~~growth has only partially offset the unfavorable impact of market conditions on fee income. The fair market value of wealth management assets declined since the ~~fourth~~first quarter of ~~2021~~2022 by ~~$339.9~~$278.6 million, or ~~12.5%~~10.6%, and totaled $2.4 billion at ~~June 30, 2022;~~March 31, 2023;

●

a $104,000, or 18.5%, decrease in other income due to the recognition of a credit valuation adjustment to the market value of the interest rate swap contracts that the Company executed to accommodate the needs of certain borrowers while managing our interest rate risk position; and

●

a ~~$39,000,~~$69,000, or ~~17.4%~~72.6%, ~~increase~~decrease in ~~service charges~~net gains on ~~deposit accounts~~loans held for sale as ~~consumers are more active this year, increasing their spending habits.~~the limited housing supply along with rate volatility continues to unfavorably impact residential mortgage loan production. Over the course of the past 18 months, mortgage rates have doubled, which has adversely affected affordability for borrowers across all income and housing pricing levels. Mortgage pipelines continue to be well below pre-pandemic and historic low interest rate levels.

…..NON-INTEREST EXPENSE…..Non-interest expense for the ~~second~~first quarter of ~~2022~~2023 totaled ~~$12.1~~$12.0 million and increased by ~~$72,000,~~$484,000, or ~~0.6%~~4.2%, from the prior year’s ~~second~~first quarter. Factors contributing to the higher level of non-interest expense for the quarter included:

●

~~no additional costs related to the branch acquisition were recognized during the second quarter of 2022 after $193,000 of expense was recognized during the second quarter of 2021;~~

●

~~the Company was required to recognize~~ a settlement charge in connection with its defined benefit pension plan in the second quarter of 2022, which is explained in Note 17, Pension Benefits. The amount of the 2022 charge was $1,014,000 which is $163,000,$678,000, or ~~19.2%, higher than the $851,000 settlement charge recognized in the second quarter of 2021;~~

●

~~a $114,000, or 8.2%~~107.6%, increase in professional fees due primarily to ~~higher legal~~$599,000 of additional costs ~~within our wealth management group;~~related to an ongoing proxy contest with an activist shareholder;

●

a ~~$96,000,~~$230,000, or ~~1.4%~~3.1%, ~~increase~~decline in salaries and employee benefits expense. Within total salaries and employee benefits expense, salaries ~~cost increased~~costs are higher by ~~$359,000~~$235,000, or 5.0%, due to merit increases and a higher level of full-time equivalent employees (FTEs)~~, which are up by ten FTEs. Also, there~~ as the Company filled certain open positions that were ~~additional increases to health care costs and other employee benefits. Partially offsetting these higher costs within salaries and benefits was lower incentive~~vacant in the first

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~~compensation~~quarter of last year. The higher salaries cost was more than offset by ~~$109,000 due to the~~ reduced ~~level of loan production and a $64,000 decline in~~ pension service ~~cost;~~cost by $129,000, or 33.3%, and lower incentive compensation; and

●

a ~~$48,000,~~$125,000, or ~~7.4%~~13.1%, increase in ~~net occupancy~~data processing and IT expense due to increased ~~utilities cost along with maintenance~~software costs from our core data provider and ~~repair expense which was primarily~~additional expenses related to ~~the new branch office.~~monitoring our computing and network environment.

…..INCOME TAX EXPENSE…..The Company recorded an income tax expense of ~~$496,000,~~$372,000, or an effective tax rate of 19.7%, in the first quarter of 2023. This compares to an income tax expense of $605,000, or an effective tax rate of 20.0%, infor the ~~second~~first quarter of 2022. ~~This compares to an~~

…..SEGMENT RESULTS.…..The community banking segment reported a net income ~~tax expense~~contribution of ~~$420,000, or an effective tax rate of 19.7%, for~~$3,668,000 in the ~~second~~first quarter of ~~2021.~~

~~SIX MONTHS ENDED JUNE 30, 2022 VS. SIX MONTHS ENDED JUNE 30, 2021~~

~~…..PERFORMANCE OVERVIEW…..~~2023 which was $481,000 higher than the net income contribution in the first quarter of 2022. The ~~following table summarizes some~~increase between time periods results from the strength that this segment provides to the Company which was determined by a thorough funds transfer pricing analysis. In short, a funds transfer pricing analysis determines how funding (deposits) and use of this funding (loans) by each segment contributes to the overall profitability of the ~~Company’s key performance indicators (in thousands, except per share and ratios).~~

Six months ended

Six months ended


June 30, 2022

June 30, 2021


Net income

$
4,399

$
3,789

Diluted earnings per share

0.26

0.22

Return on average assets

0.66
%

0.58
%
Return on average equity

7.80

7.24

~~For~~Company by providing an estimated positive or negative dollar value of the six-month period ended June 30, 2022, the Company reported net income of $4,399,000, or $0.26 per diluted common share. This earnings performance was a $610,000, or 16.1%, improvement from the six-month period of 2021 when net income totaled $3,789,000, or $0.22 per diluted common share. The earnings per share performance for the six-month period of 2022 increased 18.2% when comparedsegment’s contribution to the ~~six-month period of 2021. The improved earnings performance in 2022 reflects~~Company. Overall, the ~~full benefit of several important strategic actions~~funds transfer pricing analysis indicated that the ~~Company executed in 2021 along with~~community banking segment provided a $2.0 million benefit to the ~~successful management of our asset quality throughout~~Company. Despite the ~~pandemic. Overall,~~benefit that community banking provides, this segment was unfavorably impacted from net interest margin compression as total deposit interest expense increased to a higher level than the increase to ~~net~~total loan interest ~~income, along with the loan loss provision recovery, more than offset~~income. This segment continues to benefit from increased yields on loans due to a ~~lower level of non-interest income and higher non-interest expense resulting in an improved earnings performance for the first six months of 2022.~~

~~…..NET INTEREST INCOME AND MARGIN…..~~ ~~The following table compares the Company’s net interest income performance for the first six months of 2022 to the first six months of 2021 (in thousands, except��percentages):~~

Six months ended

Six months ended







June 30, 2022

June 30, 2021

Change

% Change

Interest income

$
22,555

$
23,607

$
(1,052)

(4.5)
%
Interest expense

2,664

4,048

(1,384)

(34.2)

Net interest income

$
19,891

$
19,559

$
332

1.7

Net interest margin

3.19
%

3.18
%

0.01
%
  N/M

~~N/M — not meaningful~~

The Company’s net interest income in the first six months of 2022 increased by $332,000, or 1.7%, when compared to the first six months of 2021. The Company’s net interest margin of 3.19% for the first half of 2022 improved by one basis point from the prior year’s first six-month time period. While the size of the Company’s balance sheet remains high by historical standards, both total loans and total deposits have demonstrated stabilization since the second half of last year which corresponds with the conclusion of the government stimulus programs. The 2022 financial performance has been favorably impacted by the strategic actions taken by management in 2021 to lower funding costs. The Company has also benefitted from the higher U.S. Treasury yield curve ~~as interest rates have increased due to~~and the Federal Reserve’s action to tighten monetary ~~policy in their effort to tame decades high inflation. The higher~~policy. However, the increased national

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interest rates have ~~favorably impacted~~recently caused total deposit costs to increase to a higher degree. The Company benefitted from a higher level of total average loans in the ~~Company’s financial performance, particularly net interest~~first quarter of 2023. Growth in commercial & industrial loans (C&I) and home equity loans more than offset decreased residential mortgage and consumer loans. Commercial real estate (CRE) volume remained relatively consistent, increasing slightly. This segment did benefit from an additional $187,000 of total loan charge income which partially offset a decline in PPP processing fees and interest. The Company recognized $240,000 of PPP related income in the ~~second~~first quarter of 2022 and did not recognize any PPP related income in 2023. Overall, total loan interest income improved by $2.8 million, or 29.3%, for the first quarter of 2023 when compared to the first quarter of ~~2022. Specifically,~~last year. Deposit interest expense was higher by $3.4 million, or 426.3%, despite the first quarter 2023 average volume of total interest bearing deposits remaining relatively consistent with the 2022 first quarter average, growing by $5.3 million, or 0.6%. The impact that the higher national interest rates ~~caused total~~had on deposit costs combined with increased market competition to retain and attract deposits contributed to net interest ~~income to increase~~margin compression. This segment was unfavorably impacted by the Company recording $301,000 of expense for the allowance for credit losses on our loan portfolio in the first quarter of 2023 compared to a ~~higher level than~~$400,000 recovery for loan losses in last year’s first quarter. This was discussed previously in the ~~corresponding increase in total interest expense. In comparison~~Provision for Credit Losses section within this document. Non-interest income was unfavorably impacted by the recognition of a $96,000 credit valuation adjustment to ~~2021,~~ the ~~termination~~market value of the ~~PPP caused~~interest rate swap contracts that the Company executed to accommodate the needs of certain commercial borrowers while managing our interest rate risk position. Also, unfavorably impacting non-interest income was a ~~$1.3 million reduction in the~~reduced level of loan ~~fee~~sale gain income ~~and was the primary factor causing total interest income to decrease for the first six months of 2022 when compared~~by $69,000 due to the ~~same time period from last year. Deposit and borrowing interest~~lower level of residential mortgage loan production in 2023. Non-interest expense, ~~declined by more than~~within the decrease to total interest income, resulting in net interest income improving for the first half of 2022 compared to the prior year’s first six-month time period. Financial results also reflect the impact of continued strengthening of our asset quality, which enabled the Company to recognize a loan loss provision recovery during the first six months of 2022.

~~Total loans averaged $978.3 million~~community banking segment, in the first ~~half of 2022 which was $8.4 million, or 0.9%, lower than the 2021 first six-month average. As previously mentioned, improved loan pipelines have resulted in increased production during the second~~ quarter of ~~2022, but a higher than typical level of payoff activity~~2023 compares favorably to last year’s first quarter as reduced pension expense, explained in Note 16, and lower incentive compensation more than offset higher salaries cost. This segment also benefitted from reduced FDIC insurance expense by $20,000.

The wealth management segment’s net income contribution decreased by $275,000 in the ~~new production causing total loan amounts to decrease since the end~~first quarter of 2023 from the first quarter of 2022. ~~However, given~~The decrease reflects the ~~core loan~~unfavorable market conditions for both equity securities and bonds which have reduced the market value of wealth management assets. Also, new customer business growth ~~experienced during 2021~~has only partially offset the unfavorable impact of market conditions on fee income. The fair market value of wealth management assets declined since the first quarter of 2022 by $278.6 million, or 10.6%, and ~~excluding PPP loans, total average loans~~totaled $2.4 billion at March 31, 2023. Partially offsetting this decline were lower levels of incentive compensation, pension costs and professional fees.

The investment/parent segment reported a net loss of $2,601,000 in the first ~~six months~~quarter of ~~2022 exceed~~2023 which is greater than the ~~2021 first six months average by $45.3 million, or 4.9%, as growth~~net loss of ~~CRE, residential mortgage, and home equity loans more than offset a decrease in the level of commercial & industrial loans. Residential mortgage loan production totaled $15.3 million~~$1,492,000 in the first ~~six months~~quarter of 2022 ~~and was 73.4% lower than~~by $1,109,000. The funds transfer pricing analysis within this segment caused the ~~production level of $57.7~~loss reported within this segment to be $1.1 million ~~achieved in the first half of 2021 as refinance transactions have been severely impacted with the quick escalation of interest rates since the beginning of 2022. Overall, despite the~~ higher average volumes of CRE, residential mortgage, and home equity loans, total loan interest income declined by $1.4 million, or 6.7%, for the first six months of 2022 when compared to the first six months of last year. This decrease is primarily due to the ~~Company recording a total of $376,000 of processing fees~~inverted yield curve and ~~interest income from PPP loans in~~ the ~~first half of 2022, which is $1.3 million, or 77.4%, lower than PPP income in the first half of 2021.~~

Total investment securities averaged $231.0 million for the first six months of 2022, which is $29.6 million, or 14.7%, higher than the $201.4 million average for the first six months from last year. As mentioned in the quarterly performance comparison of this MD&A, theaccelerated increase in the U.S. Treasury yield curve has resulted in a more favorable market for securities purchasing activity so far in 2022. Overall, the higher rates resulted in yields for new federal agency mortgage-backed securities and federal agency bonds improving and exceeding the overall average yield of the existing securities portfolio. Management purchased more of these investments and was able to redeploy the cash flow from the excess payoff activity from the loan portfolio and also more profitably utilize a portion of the increased liquidityfunding costs on our balance sheet into the securities portfolio. This redeployment of funds contributed to total securities growing between years. Management also continued to purchase taxable municipals and corporate securities to maintain a well-diversified portfolio.

Although reduced from its high levels when government stimulus initially impacted the economy, our liquidity position continues to be strong as total short-term investments averaged $37.6 million in the first half of 2022, which is $3.0 million, or 7.4%, lower than the 2021 six-month average. Diligent monitoring and management of our short-term investment position remains a priority. Continued loan growth and prudent investment in securities are critical to achieve the best return on the Company’s liquid funds with management expecting to continue to be active with new security purchases during the remainder of 2022 given the increase in interest rates. Overall, through the first six months of 2022, the average balance of total interest earning assets was $18.2 million, or 1.5%, higher than the first six-month average of 2021 while total interest income decreased by $1.1 million, or 4.5%, between years despite the increased average volume.

Total interest expense for the first six months of 2022 decreased by $1.4 million, or 34.2%, when compared to the first six months of 2021, due to lower levels of both deposit and borrowing interest expense. Through six months, total average deposits are $26.8 million, or 2.4% higher compared to the first six months of 2021. Deposit interest expense in 2022 was lower by $956,000, or 35.3%, despite the higher year to date average volume of total deposits. The deposit growth reflects new deposit inflows as well as the loyalty of the bank’s core deposit base.sheet. Also, the late third quarter 2021 maturity of a large, high-cost institutional deposit, which was replaced by lower cost funds from the branch acquisition, resulted in significant interest expense savings. Specifically, our total deposit cost averaged 0.30% in the first half of 2022 compared to 0.48% in the first half of 2021, representing a decrease of 18 basis points. Total borrowings interest expense in the first six months of 2022 is lower by $428,000, or 31.9%, compared to the same time

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frame in 2021. As previously mentioned, the decrease between years results from the favorable impact of the August 2021 subordinated debt offering which was used to replace higher cost debt. The remaining portion of the favorable variance in borrowings interest expense between the first six months of 2022 and the first six months of 2021 is due to reduced interest expense from FHLB borrowings. The average balance of total short-term and FHLB borrowings was lower in the first half of 2022 by $15.9 million, or 28.7%, as strength of the Company’s liquidity position allows management to let higher cost FHLB term advances mature and not be replaced.

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) for the six month periods ended June 30, 2022 and 2021. For a detailed discussion of the components and assumptions included in the table, see the paragraph before the quarterly table on page 37. The tax equivalent adjustments to interest income on loans and municipal securities for the six months ended June 30, 2022 and 2021 was $7,000 and $10,000, respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.

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~~Six months ended June 30~~ ~~(In thousands, except percentages)~~

2022

2021

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate

Balance

Expense

Rate

Interest earning assets:
















Loans and loans held for sale, net of unearned income

$
978,272

$
19,228

3.92
%
$
986,702

$
20,620

4.17
%
Short-term investments and bank deposits

37,608

82

0.43

40,605

19

0.09

Investment securities – AFS

173,474

2,427

2.80

154,100

2,259

2.93

Investment securities – HTM

57,563

825

2.87

47,289

719

3.04

Total investment securities

231,037

3,252

2.82

201,389

2,978

2.96

Total interest earning assets/interest income

1,246,917

22,562

3.62

1,228,696

23,617

3.85

Non-interest earning assets:










Cash and due from banks

17,824



17,921



Premises and equipment

17,386



17,894



Other assets

81,145



72,763



Allowance for loan losses

(12,291)



(11,729)



TOTAL ASSETS

$
1,350,981



$
1,325,545



Interest bearing liabilities:










Interest bearing deposits:










Interest bearing demand

$
229,333

$
196

0.17
%
$
204,970

$
119

0.12
%
Savings

137,925

67

0.10

120,588

81

0.14

Money markets

291,569

401

0.28

263,548

342

0.26

Time deposits

287,340

1,088

0.76

339,275

2,166

1.29

Total interest bearing deposits

946,167

1,752

0.37

928,381

2,708

0.59

Short-term borrowings

750

3

0.83

590

1

0.12

Advances from Federal Home Loan Bank

38,691

332

1.74

54,709

464

1.71

Guaranteed junior subordinated deferrable interest debentures

—

—

—

13,085

561

8.57

Subordinated debt

27,000

526

3.90

7,650

260

6.80

Lease liabilities

3,504

51

2.91

3,803

54

2.84

Total interest bearing liabilities/interest expense

1,016,112


2,664

0.53

1,008,218


4,048

0.81

Non-interest bearing liabilities:







Demand deposits

214,745



205,764



Other liabilities

6,346



6,093



Shareholders’ equity

113,778



105,470



TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$
1,350,981



$
1,325,545



Interest rate spread

3.09



3.04

Net interest income/ Net interest margin (non-GAAP)

19,898

3.19
%

19,569

3.18
%
Tax-equivalent adjustment

(7)



(10)

Net Interest Income (GAAP)

$
19,891



$
19,559

~~…..PROVISION FOR LOAN LOSSES…..~~For the first six months of 2022, the Company recorded a $725,000 provision recovery for loan losses compared to a $500,000 provision expense recorded in the first six months of 2021 resulting in a net favorable change of $1.2 million. The 2022 provision recovery reflects improved credit quality for the overall portfolio due to several loan upgrades, a reduced loan portfolio size, and lower levels of criticized assets. The Company continues to experience low net loan charge-offs, which were $105,000, or 0.02% of total average loans, in the first half of 2022 and is relatively consistent with net loan charge-offs of $93,000, or 0.02% of total average loans, for

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the first half of 2021. Even though the Company recognized a loan loss provision recovery during the first half of the year, the balance in the allowance for loan losses at June 30, 2022 is only slightly lower than the balance of the allowance at June 30, 2021 by $184,000, or 1.6%.

~~…..NON-INTEREST INCOME…..~~ ~~Non-interest income for the first six months of 2022 totaled $8.5 million and decreased by $540,000, or 6.0%, from the first six months of 2021 performance. Factors~~ contributing to the ~~lower level~~greater loss within this segment was the recognition of ~~non-interest income for~~a $926,000 loss from a subordinated debt investment with Signature Bank (previously discussed in the ~~six-month period included:~~

●

a $487,000, or 78.9%, decrease in net gains on loans held for sale due to the lower level of residential mortgage loan production which reflects a reduced level of mortgage loan refinance activity due to the quick escalation of interest rates. The reduced level of mortgage loan production also caused mortgage related fees to decline by $164,000, or 71.6%;

●

a $247,000, or 4.2%, increase in wealth management fees as the continued strong performance of our wealth management group actively working with clients and adding new business through the first quarter of 2022 more than offset the negative impact that the declining equity markets had on wealth management fees during the second quarter of 2022;

●

~~a $110,000, or 25.9%, increase in service charges on deposit accounts as consumers are more active this year, increasing their spending habits;~~

●

~~a $110,000, or 20.0%, decrease in revenue from bank owned life insurance (BOLI) after the Company received a death claim in 2021; and~~

●

~~the Company recognized an $84,000 gain on investment security sales in 2021 as compared to this year when no securities were sold.~~

~~…..NON-INTEREST EXPENSE…..~~ Non-interest expense for the first six months of 2022 totaled $23.6 million and increased by $246,000, or 1.1%, from the prior year’s first six months. Factors contributing to the higher level of non-interest expense for the six-month period included:

●

a $560,000, or 4.1%, increase in salaries and employee benefits expense. Within total salaries & benefits expense, salaries cost increased by $727,000 due to merit increases and a higher level of full-time equivalent employees. Also, there were additional increases to health care costs and other employee benefits. Partially offsetting these higher costs within salaries & benefits was lower incentive compensation by $215,000 due to the reduced level of loan production and a $127,000 decline in pension service cost;

●

~~no additional costs related to the branch acquisition were recognized in 2022 after $303,000 of expense was recognized in 2021;~~

●

a $277,000, or 8.8%, decrease in other expense due to the impact of a $149,000 credit for the unfunded commitment reserve in the first half of 2022 after $56,000 of expense was recognized in the first half of last year, resulting in a $205,000 favorable shift;

●

the Company was required to recognize a settlement charge in connection with its defined benefit pension plan in 2022, which is explained in Note 17, Pension Benefits. The amount of the 2022 charge was $1,014,000 which is $163,000, or 19.2%, higher than the $851,000 settlement charge recognized in 2021;

●

~~a $124,000, or 4.6%, increase in professional fees due primarily to higher legal costs within our wealth management group; and~~

●

~~a $109,000, or 8.2%, increase in net occupancy expense due to increased utilities cost along with maintenance and repair expense which was primarily related to the new branch office.~~

Table of Contents

~~…..INCOME TAX EXPENSE…..~~~~The Company recorded an income tax expense~~MD&A) and $599,000 of ~~$1.1 million, or an effective tax rate of 20.0%, in the first six months of 2022. This compares~~additional legal and professional fees related to an ~~income tax expense of $940,000, or an effective tax rate of 19.9%, for the first six months of 2021.~~

~~…..SEGMENT RESULTS.…..~~The community banking segment reported a net income contribution of $2,947,000 in the second quarter of 2022 which was consistent with the second quarter of last year, exceeding by $9,000. For the six month time period the community banking segment’s net income contribution of $6,134,000 was $124,000 lower than the first six months of 2021. The increase in the quarterly comparison results from the higher national interest rates having a favorable impact on the Company’s financial performance, particularly net interest income in the second quarter of 2022. The decline for the six month time period is due to a lower level of total revenue which more than offset the favorable impact from the recognition of the loan loss provision recovery in the first half of 2022 as well as reduced non-interest expense. Net interest income declined for the six month time period as the reduction to total interest income more than offset the reduction to total interest expense. The primary reason for the lower level of total interest income was due to a reduction in PPP processing fees and interest income as well as a lower level of total loan charges in the first six months of 2022 which combined were $1,536,000 lower when compared to the first six months of 2021. However, the higher national interest rates alongongoing proxy contest with an increased balance of average total loans excluding PPP loans resulted in an additional $148,000 of loan interest income. This segment continues to benefit from the strong production of both commercial real estate loans and residential real estate loans that occurred throughout 2021, which resulted in the six month average balance for both of these loan categories exceeding the 2021 average by $52.0 million. Total interest income from CRE and residential mortgage loans was $393,000 higher through six months of 2022 when compared to the first six months of 2021. Also, favorably impacting net interest income and partially offsetting the lower level of total interest income was lower deposit cost in 2022 despite total deposit cost increasing between the first and second quarters of 2022 because of the higher national interest rates. Total deposit interest expense decreased between years due to management’s action in 2021 to lower pricing of several deposit products. The decrease to total deposit interest expense occurred even though total average deposits in the first half of 2022 exceeded the 2021 first half average by $26.8 million. This segment was also favorably impacted by management electing to replace the third quarter of 2021 maturity of a high cost, large institutional deposit with the additional lower cost deposits obtained from the 2021 Somerset County branch acquisition. Overall, total deposit interest expense is $956,000 lower between years. This segment was also favorably impacted by the Company recording a $725,000 loan loss provision revovery in the first half of 2022 compared to a $500,000 provision expense in first half of 2021. This was discussed previously in the Provision for Loan Losses section within this document. Non-interest income was unfavorably impacted by a reduced level of loan sale gain income by $487,000 due to the lower level of residential mortgage loan production in 2022, which also caused mortgage related fees to decline by $164,000 in the first half of 2022.activist shareholder. This segment was also unfavorably impacted by ~~lower levels~~$400,000 of ~~income from bank owned life insurance (BOLI). Overall, these~~additional borrowings interest expense due to the higher average balance of short-term borrowed funds. These unfavorable items more than offset the ~~favorable impact of higher service charges on deposit accounts by $110,000. Non-interest expense in~~$1.7 million gain recognized from the first half of 2022 compares favorably to the same time period in 2021 due to lower miscellaneous expense after the Company had additional costs for the the branch acquisition in the first half of 2021 while there were no such costs in 2022. This segment was also favorably impacted by reduced incentive compensation and the Company recognizing a credit to the unfunded commitment reserve of $149,000 after $56,000 of expense was recognized in the first half of last year, resulting in a $205,000 favorable shift. These favorable items were partially offset by higher salaries cost as well as the Company recognizing a settlement charge on its defined benefit pension plan, which was discussed previously in the MD&A.

The wealth management segment’s net income contribution was $510,000 in the second quarter of 2022 which was $224,000 lower than the second quarter of 2021. Through six months, the wealth management segment’s net income contribution was $1,233,000 which was $163,000 lower than the net income contribution for the first six months of 2021. The decrease in both time periods between years reflects the unfavorable impactsale of the declining equity markets on wealth management fee income which was partially offset by new customer business growth. Also contributing to the decline in both time periods between years were higher levels of legal fees, total employee costs and meals & travel related expenses for business development. Overall, the fair market value of wealth management assets declined since the fourth quarter of 2021 by $339.9 million, or 12.5%, and totaled $2.4 billion at June 30, 2022.

The investment/parent segment reported a net loss of $1,476,000 in the second quarter of 2022 and a net loss of $2,968,000 for the first half of 2022 which is a lower loss by $488,000 than the second quarter of 2021 and a lower loss by $897,000 than the first half of 2021. The reduced loss results from lower borrowings interest expense primarily due to

~~Table of Contents~~

~~the favorable impact~~7,859 shares of the ~~2021 subordinated debt offering which was used to replace higher cost debt. This transaction effectively lowered debt cost on long-term funds by nearly 4.0%. The remaining portion~~Class B common stock of Visa Inc. that the ~~favorable variance in borrowings interest expense between years is due to reduced interest expense from Federal Home Loan~~ Bank ~~(FHLB) borrowings. Finally,~~owned and ~~also contributing to the reduced loss in this segment, was~~ an ~~increase in~~increased level of interest income from ~~the~~investment securities ~~portfolio due to~~and short-term investments by $766,000 as the higher ~~average volume of total securities. The increase to the U.S. Treasury yield curve~~interest rates resulted in an improved yields for federal agency mortgage-backed securities and federal agency bonds making purchases of these investments more attractive. Therefore, management was able to more profitably deploy a portion of the increased liquidity on our balance sheet into the securities portfolio.overall total portfolio yield.

…..BALANCE SHEET…..The Company’s total consolidated assets were $1.3 billion at ~~June 30, 2022,~~March 31, 2023, which decreased by ~~$14.2~~$17.9 million, or ~~1.1%~~1.3%, from the December 31, ~~2021~~2022 asset level. This change was related, primarily, to decreased levels of ~~cash~~investment securities, loans, and ~~cash equivalents and loans which were partially offset by an increased level of~~other assets. Specifically, investment ~~securities. Specifically, cash and cash equivalents~~securities decreased ~~$12.1~~$2.8 million, or ~~29.4%~~1.1%, as ~~the U.S. Treasury yield curve increased~~purchasing activity slowed during the first ~~half~~quarter of 2023 as the ~~year allowing management~~Company controlled the amount of its overnight borrowed funds due to ~~purchase~~the shrinking and in some cases negative spread between overnight borrowings and the yield on new securities. In addition, contributing to the investment securities decrease was the recognition of a $926,000 allowance for credit losses on a subordinated debt instrument with Signature Bank which was determined to ~~more profitably deploy a portion of~~be other than temporarily impaired after the ~~increased liquidity~~institution was closed by banking regulators on ~~the Company’s balance sheet. This redeployment of funds contributed to total investment securities growing by $14.3 million, or 6.6%.~~March 12, 2023. Loans, net of unearned fees, ~~and~~decreased $10.3 million, or 1.0%, as loan production slowed during the first quarter of 2023. Loan pipelines continue to be strong, but customers have delayed fundings. Further, the allowance for credit losses on our loan portfolio increased $1.4 million, or 12.9%, due primarily to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of January 1, 2023 which necessitated a day one increase of $1.2 million be made to the allowance. Partially offsetting the decrease in loans was a $358,000 increase in residential mortgage loans held for ~~sale~~sale. Other assets decreased ~~by $20.5~~$2.0 million, or ~~2.1%~~6.0%, ~~as improved loan pipelines resulted~~due to a decrease in ~~increased production during~~ the ~~second quarter~~market value of ~~2022, but a higher than typical level of payoff activity more than offset~~ the ~~new production.~~Company’s interest rate swap transactions.

Total deposits increased by ~~$3.4~~$23.3 million, or ~~0.3%~~2.1%, in the first ~~six months~~quarter of ~~2022.~~2023. This ~~reflects new deposit inflows as well as~~demonstrates customer confidence and the strength and loyalty of ~~the Company’s~~our core deposit base. Deposit volumes were favorably impacted by the government stimulus which provided support to many Americans and financial assistance to municipalities and schools districts during the pandemic. However, with government stimulus ending in 2021, deposit balances have demonstrated stabilization. As of ~~June 30, 2022,~~March 31, 2023, the 25 largest depositors represented ~~17.9%~~20.5% of total deposits, which is ~~a slight decrease~~an increase from December 31, ~~2021~~2022 when it was ~~18.9%~~18.8%. As of March 31, 2023 and December 31, 2022, the estimated amount of uninsured deposits was $340.7 million and $316.5 million, respectively. The estimate of uninsured deposits was done at the single account level and does not take into account total customer balances in the Bank. It should be noted that approximately 50% of these uninsured deposits relate to public funds from municipalities, government entities, and school districts which by law are required to be collateralized by investment securities or FHLB letters of credit to protect these depositor funds. Total borrowings have decreased by ~~$8.7 million,~~$39.3 millon, or ~~12.0%~~28.4%, since year-end ~~2021. The decrease~~2022. This change was driven by a ~~lower level of~~decrease in both short-term borrowings and FHLB term advances. Specifically, short-term borrowings decreased by $35.7 million, or 40.2%, while FHLB term advances decreased by ~~$8.6~~$3.6 million, or ~~20.2%, and totaled $34.0 million at June 30, 2022. The current strong liquidity position has allowed~~18.4%. Given the ~~Company to let higher cost~~inversion in the yield curve, FHLB term advances ~~mature and not be replaced. However,~~have rates that are lower than the ~~Company does continue to utilize the~~cost of overnight borrowed funds. Therefore, management began replacing matured FHLB term advances ~~to help manage interest rate risk.~~during the first quarter of 2023.

The Company’s total shareholders’ equity decreased by ~~$10.2 million,~~$279,000, or ~~8.7%~~0.3%, ~~over~~during the first ~~six~~three months of ~~2022.~~2023. The decrease in capital ~~during the first half of 2022~~ is the result of the ~~negative impact on accumulated other comprehensive loss due~~Company’s first quarter earnings performance being more than offset by the cumulative effect adjustment for the adoption of ASU 2016-13 and our common stock dividend payments to shareholders. In addition, the ~~reduced~~ market value ofadjustment on the ~~available for sale investment securities portfolio. Additionally, the revaluation of the pension obligation resulting from a drop in the value of the pension plan assets~~interest rate hedge had a negative impact on accumulated other comprehensive ~~loss. These decreases~~loss which more than offset the ~~Company’s~~ improved ~~first six months earnings performance.~~value of the investment securities portfolio.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of ~~14.33%~~14.17%, and a common equity tier 1 capital ratio of ~~10.65%~~10.52% at ~~June 30, 2022.~~March 31, 2023. See the discussion of the Basel III capital requirements under the Capital Resources section below. As of ~~June 30, 2022,~~March 31, 2023, the Company’s book value per common share was ~~$6.22~~$6.18 and its tangible book value per common share ~~(non-GAAP)~~ was ~~$5.41.~~$5.38⁽¹⁾. When compared to ~~December~~March 31, ~~2021,~~2022, book value per common share declined by ~~$0.60~~$0.47 per common share and tangible book value per common share declined by ~~$0.61~~$0.46 per common share. The tangible common equity to tangible assets ratio (non-GAAP) was 7.08% at June 30, 2022 and decreased by 70 basis points when compared to December 31, 2021. The decrease in tangible book value and tangible common equity ratio relate to the previously discussed increasedecline in the ~~accumulated other comprehensive loss.~~

~~The tangible common equity ratio~~Company’s book value and tangible book value per share ~~are considered~~in the first quarter of 2023 compared to be non-GAAP measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The Company believes that these non-GAAP financial measures provide information to investors that is usefullast year’s first quarter reflects a decrease in understanding its financial condition. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures, and, because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. The following table sets forth the calculationfair value of the Company’s available for sale investment securities by $12.7 million due to higher interest rates. Note that there was a slight decrease to accumulated other comprehensive loss within total equity since December 31, 2022, as an improvement in market value of the Company’s available for sale investment securities portfolio was more than offset by a negative market value adjustment for an interest rate hedge. There was no required revaluation of the net pension liability during the first

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quarter of 2023. The tangible common equity to tangible assets ratio was 6.92%⁽¹⁾ at March 31, 2023 and ~~tangible book value per share at June 30, 2022 and~~increased by seven basis points when compared to December 31, ~~2021 (in thousands, except share and ratio data):~~2022.

June 30,

December 31,


2022

2021


Total shareholders’ equity
$
106,392

$
116,549

Less: Intangible assets

13,753

13,769

Tangible common equity

92,639

102,780

Total assets

1,321,402

1,335,560

Less: Intangible assets

13,753

13,769

Tangible assets

1,307,649

1,321,791

Tangible common equity ratio (non-GAAP)

7.08
%

7.78
%

Total shares outstanding

17,109,097

17,081,500

Tangible book value per share (non-GAAP)
$
5.41

$
6.02

⁽¹⁾ Non-GAAP financial information, see “Reconciliation of Non-GAAP Financial Measures” later in this MD&A.

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

June 30,

December 31,

June 30,

2022

2021

2021

Total accruing loan delinquency (past due 30 to 89 days)

$
2,228

$
6,336

$
1,904

Total non-accrual loans

3,240

3,323

3,713

Total non-performing assets including TDRs*

3,240

3,323

3,727

Accruing loan delinquency, as a percentage of total loans, net of unearned income

0.23
%

0.64
%

0.19
%
Non-accrual loans, as a percentage of total loans, net of unearned income

0.34

0.34

0.37

Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned and repossessed assets*

0.34

0.34

0.38

Non-performing assets as a percentage of total assets*

0.25

0.25

0.27

As a percent of average loans, net of unearned income:







Annualized net charge-offs

0.02

—

0.02

Annualized provision for loan losses

(0.15)

0.11

0.10

Total classified loans (loans rated substandard or doubtful)**

$
18,778

$
17,009

$
10,002


	March 31,			December 31,			March 31,
	2023			2022			2022
Total accruing loan delinquency (past due 30 to 89 days)	$	10,501		$	6,296		$	4,285
Total non-accrual loans		4,561			5,161			3,401
Total non-performing assets*		4,599			5,200			3,401
Accruing loan delinquency, as a percentage of total loans, net of unearned income		1.07	%		0.64	%		0.44	%
Non-accrual loans, as a percentage of total loans, net of unearned income		0.46			0.52			0.35
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned and repossessed assets*		0.47			0.52			0.35
Non-performing assets as a percentage of total assets*		0.34			0.38			0.26
As a percent of average loans, net of unearned income:
Annualized net charge-offs		0.05			0.17			0.03
Annualized provision for credit losses - loans		0.12			0.01			(0.17)
Total classified loans (loans rated substandard or doubtful)**	$	26,471		$	23,837		$	20,790

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)~~(iii) other real estate owned and repossessed assets.

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

Overall, the Company continued to maintain good asset quality in the first ~~six~~three months of ~~2022~~2023 as evidenced by low levels of non-accrual loans, non-performing assets, and loan delinquency levels that continue to be near or below 1% of total loans. The ~~decrease~~increase in accruing loan delinquency is primarily attributable to ~~a decrease~~an increase in commercial real estate and residential mortgage loan ~~delinquency and,~~delinquency. The decrease in non-accrual loans, as well as non-performing assets, reflects a decline in non-accrual residential mortgage loans which was partially offset by the transfer of a small business loan to ~~a lesser extent, commercial loan delinquency.~~non-accrual status. The increase in classified loans is the result of ~~the~~a risk rating downgrade of a commercial ~~and industrial loan relationship which was partially offset by the payoff of a substandard credit during the first half of 2022.~~real estate loan.

The Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals. The Asset Quality Task Force meets at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers. See the disclosures regarding COVID-19 related modifications within the Non-Performing Assets Including Troubled Debt Restructurings (TDR) footnote.

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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 ~~June 30, 2022,~~March 31, 2023, the 25 largest credits represented ~~22.5%~~22.2% of total loans outstanding, which represents a slight increase from ~~the second quarter of 2021~~December 31, 2022 when it was ~~22.1%~~21.7%.

…..ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES…..The following table sets forth the allowance for ~~loan~~credit losses and certain ratios for the periods ended (in thousands, except percentages):


	June 30,			December 31,			June 30,			March 31,			December 31,			March 31,
	2022			2021			2021			2023			2022			2022
Allowance for loan losses	$	11,568		$	12,398		$	11,752
Allowance for loan losses as
a percentage of each of the following:
Allowance for credit losses - loans										$	12,132		$	10,743		$	11,922
Allowance for credit losses - loans as a percentage of each of the following:
total loans, net of unearned income		1.20	%		1.26	%		1.18	%		1.24	%		1.08	%		1.22	%
total accruing delinquent loans
(past due 30 to 89 days)		519.21			195.68			617.23
total non-accrual loans		357.04			373.10			316.51			265.99			208.16			350.54
total non-performing assets		357.04			373.10			315.32			263.80			206.60			350.54
Allowance for credit losses - securities										$	1,009		$	—		$	—
Allowance for credit losses - unfunded loan commitments											906			746			948

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…..LIQUIDITY…..The Company’s liquidity position continues to be ~~strong due~~strong. Total average deposits are $9.7 million, or 0.8%, lower when compared to ~~effective business development efforts as well as management’s ability to retain~~ the ~~significant influx~~2022 first quarter average. The modest decrease is reflective of ~~deposits that resulted~~a portion of the funds from the government stimulus ~~programs. Also, deposit levels were positively impacted~~programs leaving the balance sheet and also reflects greater pricing competition in the ~~second~~market to retain deposits because of the increasing national interest rates. AmeriServ Financial’s core deposit base continued to demonstrate the strength and stability that has been experienced for many years. This was true especially during the recent turmoil in the banking industry caused by the failure of two large banks in March of this year and customer fear of contagion within the industry caused deposit flight, especially uninsured deposits, from certain banks to other financial services providers. Total deposits actually grew during the first quarter of ~~2021~~2023 by ~~the Somerset County branch acquisition which more than offset the third quarter 2021 maturity of the high cost, institutional deposit.~~$23.3 million, or 2.1%, since year end 2022 demonstrating customer confidence in our bank. In addition ~~the Company’s~~to its strong, loyal core deposit base, ~~continues to prove to be a source of strength for~~ the Company ~~during periods~~has several other sources of ~~market volatility. As~~liquidity including a ~~result, through six months, total average deposits are $26.8 million, or 2.4%, higher compared~~significant unused borrowing capacity at the Federal Home Loan Bank, overnight lines of credit at correspondent banks and access to the ~~first six months of 2021. Total deposits have demonstrated stability over~~Federal Reserve Discount Window. Overall, deposit volumes continue to remain at a high level by historical standards in relation to the ~~past year as indicated by~~levels experienced prior to the ~~second quarter 2022 average balance being only $2.0 million, or 0.2%, lower than the second quarter 2021 average balance.~~pandemic. Deposit volumes continue to ~~reflect~~demonstrate stability since the ~~favorable impact~~second half of government stimulus which provided support to many Americans and financial assistance to municipalities and school districts during the pandemic. Deposit volumes were also favorably impacted by the Company’s successful business development efforts.2021. The core deposit base is adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities is used to help fund loan growth.

Average short-term investments ~~declined~~demonstrated a lower average balance in the first quarter of 2023 compared to last year’s first quarter by $42.2 million, or 90.6%. Despite this decline, the Company’s liquidity position remains strong. The average balance of FHLB term borrowings was lower in the first quarter of 2023 by $23.5 million, or 57.1%, as the strength of the Company’s liquidity position allowed management to let FHLB term advances mature during 2022 and not be replaced. However, given the inversion in the yield curve, FHLB term advances have rates that are lower than the cost of overnight borrowed funds. Therefore, management began replacing matured FHLB term advances during the first ~~half~~quarter of ~~2022 but continue to be higher than they have been historically. Although eased somewhat by the additional investment in the securities portfolio, the~~2023. The challenge remains as to the uncertainty regarding the duration that ~~these increased funds~~the higher than historical level of deposits will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. Diligent monitoring and management of our short-term investment position and our level of overnight borrowed funds remains a priority. Continued loan growth and prudent investment in securities are critical to achieve the best return on the ~~remaining liquid~~normal level of earning asset cash flow that occurs each month. So far in 2023, purchases of securities have slowed as more funds ~~with management expecting~~have been allocated to ~~continue to be active with new security purchases in~~ the ~~second half~~loan portfolio and we have been controlling the amount of 2022 given the increase in interest rates. On an end of period basis, at June 30, 2022, total interest bearing deposits and short-term investments decreased by $5.6 million since December 31, 2021. Given the increase to national interest rates experienced so far during 2022, a portion of the increased balance sheet liquidity was invested in additional securities to more profitably deploy the increased liquidity. In addition,overnight borrowed funds. First quarter 2023 loan production ~~during~~has been slower than the more recent 2022 ~~was more than offset by a higher than typical~~fourth quarter due to loan payoffs exceeding originations. However, loan production is consistent with the level of ~~payoff activity causing total loans to decrease since~~production experienced during the ~~end~~first quarter of ~~the 2021 by $20.7 million.~~2022. We strive to operate our loan to deposit ratio in a range of 80% to 100%. The Company’s loan to deposit ratio averaged ~~84.0%~~85.8% in the ~~second~~first quarter of ~~2022,~~2023, which indicates that the Company has ample capacity to continue to grow its loan portfolio and is strongly positioned to support our customers and our community during times of economic volatility. We are also well positioned to service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters.

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents decreased modestly by ~~$12.1 million~~$795,000 from December 31, ~~2021,~~2022, to ~~$29.0~~$22.2 million at ~~June 30, 2022,~~March 31, 2023, due to ~~$7.0 million of net cash used in investing activities and $6.2~~$16.5 million of net cash used in financing activities more than offsetting ~~$1.1~~$13.9 million of net cash provided by investing activities and $1.8 million of net cash provided by operating activities. Within investing activities, cash advanced for new loans originated totaled ~~$104.8~~$41.5 million and was ~~$21.0~~$10.2 million lower than the ~~$125.8~~$51.8 million of cash received from loan principal payments. Within financing activities, total short-term borrowings decreased by $35.7 million, total FHLB borrowings decreased by ~~$8.6~~$3.6 million while total deposits increased by ~~$3.4~~

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$23.3 million. Within operating activities, ~~$7.5~~$1.9 million of mortgage loans held for sale were originated while ~~$7.4~~$1.6 million of mortgage loans were sold into the secondary market.

The holding company had ~~$9.5~~$9.1 million of cash, short-term investments, and investment securities at ~~June 30, 2022,~~March 31, 2023, which represents a ~~$149,000 increase~~$495,000 decrease from the holding company’s cash position since ~~the end of the fourth quarter of 2021.~~December 31, 2022. Dividend payments from our subsidiaries also provide ongoing cash to the holding company. At ~~June 30, 2022,~~March 31, 2023, our subsidiary Bank had ~~$12.5~~$11.9 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 sufficient liquidity to meet its subordinated debt interest payments and its ~~new increased~~ dividend payout level with respect to its common stock.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either

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reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investments, interest bearing deposits with banks, and federal funds sold. These assets totaled ~~$29.0~~$22.2 million and ~~$41.1~~$23.0 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the FHLB systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bank is a member of the FHLB, which provides the opportunity to obtain ~~short-~~short-term to longer-term advances based upon the Company’s investment in certain residential mortgage, commercial real estate, and commercial and industrial loans. At ~~June 30, 2022,~~March 31, 2023, the Company had ~~$390~~$318 million of overnight borrowing availability at the FHLB, $42 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

…..CAPITAL RESOURCES…..The Bank meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was ~~10.65%~~10.52%, the tier 1 capital ratio was ~~10.65%~~10.52%, and the total capital ratio was ~~14.33%~~14.17% at ~~June 30, 2022.~~March 31, 2023. The Company’s tier 1 leverage ratio was ~~8.40%~~8.46% at ~~June 30, 2022.~~March 31, 2023. We anticipate that we will maintain our strong capital ratios throughout the remainder of ~~2022.~~2023. 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 ~~342%~~340% of regulatory capital at ~~June 30, 2022.~~March 31, 2023.

Our focus is on preserving capital to support customer lending and allow the Company to take advantage of business opportunities as they arise. We currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its ~~increased~~current rate of $0.03 per quarter. While the Company has frequently executed common stock buyback programs in the past, we presently do not have one in place due to the drop in our tangible common equity ratio to 6.92%⁽¹⁾ as a result of the decline in value of our AFS securities portfolio. At ~~June 30, 2022,~~March 31, 2023, the Company had approximately 17.1 million common shares outstanding.

The Basel III capital standards establish the minimum capital levels in addition to the well capitalized requirements under the federal banking regulations prompt corrective action. The capital rules also impose a 2.5% capital conservation buffer (CCB) on top of the three minimum risk-weighted asset ratios. Banking institutions that fail to meet the effective minimum ratios once the CCB is taken into account will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (four quarter trailing net income, net of distributions and tax effects not reflected in net income). The Company and the Bank meet all capital requirements, including the CCB, and continue to be committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a return to our shareholders.

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Under the Basel III capital standards, the minimum capital ratios are:


			MINIMUM CAPITAL RATIO
	MINIMUM		PLUS CAPITAL
	CAPITAL RATIO		CONSERVATION BUFFER
Common equity tier 1 capital to risk-weighted assets	4.5	%	7.0	%
Tier 1 capital to risk-weighted assets	6.0		8.5
Total capital to risk-weighted assets	8.0		10.5
Tier 1 capital to total average consolidated assets	4.0

⁽¹⁾ Non-GAAP financial information, see “Reconciliation of Non-GAAP Financial Measures” later in this MD&A.

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…..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.


	VARIABILITY OF		CHANGE IN
	NET INTEREST		MARKET VALUE OF
INTEREST RATE SCENARIO	INCOME		PORTFOLIO EQUITY		VARIABILITY OF NET INTEREST INCOME		CHANGE IN MARKET VALUE OF PORTFOLIO EQUITY
200 bp increase	2.4	%	4.7	%	0.7	%	4.1	%
100 bp increase	1.1		4.0		0.4		2.9
100 bp decrease	(2.1)		(6.9)		(0.4)		(5.4)
200 bp decrease					(1.6)		(14.0)

The Company believes that its overall interest rate risk position is well controlled. The execution of a $50 million interest rate hedge, during the first quarter of 2023, to fix the cost of certain deposits that are indexed and move with short-term interest rates brought the Company’s variability of net interest income to a more neutral position. The variability of net interest income is positive in the upward rate shocks due to the Company’s short duration investment securities portfolio and the scheduled repricing of loans tied to an index, such as SOFR or prime. Also, the Company will continue its disciplined approach to price its core deposit accounts in a controlled but competitive manner. The variability of net interest income is negative in the ~~100 basis point~~ downward rate ~~scenario~~scenarios 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.~~liabilities. The fed funds rate is currently at a targeted range of ~~1.50%~~4.75% to ~~1.75%~~5.00% as the Federal Reserve took action ~~several times~~twice in ~~2022~~the first quarter of 2023 to increase the rate a total of ~~150~~50 basis points. ~~Further, there is an expectation of additional short-term interest rate increases by the Federal Reserve throughout the remainder of 2022.~~ 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~~shocks due to a reduced value for core deposits.

…..OFF BALANCE SHEET ARRANGEMENTS…..The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company had various outstanding commitments to extend credit approximating $236.1 million and standby letters of credit of ~~$12.1~~$8.7 million as of ~~June 30, 2022.~~March 31, 2023. 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.

…..RECONCILIATION OF NON-GAAP FINANCIAL MEASURES…..The tangible common equity ratio and tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The Company believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures, and, because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies.

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The following table sets forth the calculation of the Company’s tangible common equity ratio and tangible book value per share at March 31, 2023 and December 31, 2022 (in thousands, except share and ratio data):


	March 31,			December 31,
	2023			2022
Total shareholders’ equity	$	105,899		$	106,178
Less: Intangible assets		13,731			13,739
Tangible common equity		92,168			92,439
Total assets		1,345,957			1,363,874
Less: Intangible assets		13,731			13,739
Tangible assets		1,332,226			1,350,135
Tangible common equity ratio (non-GAAP)		6.92	%		6.85	%
Total shares outstanding		17,147,270			17,117,617
Tangible book value per share (non-GAAP)	$	5.38		$	5.40

…..CRITICAL ACCOUNTING POLICIES AND ESTIMATES…..The accounting and reporting policies of the Company are in accordance with Generally Accepted Accounting Principles (GAAP) and conform to general practices within the banking industry. Accounting and reporting policies for the pension liability, allowance for ~~loan~~credit losses (related to investment securities, loans, and unfunded commitments), intangible assets, income taxes, and ~~investment securities~~derivatives (interest rate swaps/hedge) 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.

~~Table of Contents~~

ACCOUNT — Pension liability

BALANCE SHEET REFERENCE — Other assets

INCOME STATEMENT REFERENCE — Salaries and employee benefits and Other expense

DESCRIPTION

Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense. Additionally, pension expense can also be impacted by settlement accounting charges if the amount of employee selected lump sum distributions exceed the total amount of service and interest component costs of the net periodic pension cost in a particular year. Our pension benefits are described further in Note 1716 of the Notes to Unaudited Consolidated Financial Statements.

ACCOUNT — Allowance for ~~Loan~~Credit Losses

BALANCE SHEET REFERENCE — Investment securities, net of allowance for credit losses, Allowance for ~~loan~~credit losses – loans, Other liabilities

INCOME STATEMENT REFERENCE — Provision (credit) for ~~loan~~credit losses

DESCRIPTION

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequent related updates. This standard replaces the incurred loss methodology for recognizing credit losses and requires the Company to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held to maturity (HTM) securities, and off-balance sheet credit exposures such as unfunded commitments. In addition, ASU 2016-13 requires credit losses on available for sale (AFS) debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell the security.

The Company measures expected credit losses on held to maturity debt securities, which are comprised of U.S. government agency and mortgage-backed securities as well as taxable municipal, corporate, and other bonds. The

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Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the PD/LGD method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source.

The Company measures expected credit losses on available for sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis.

The allowance for credit losses is calculated with the objective of maintaining reserve levels believed by management to be sufficient to absorb ~~estimated probable~~current expected credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the credit portfolio and other relevant factors. However, this quarterly evaluation is inherently subjective as it requires material estimates, including, among others, likelihood of customer default, loss given default, exposure at default, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on consumer loans and residential mortgages, and general amounts for historical loss experience.estimates. This process also considers economic conditions, ~~uncertainties in estimating losses~~for a reasonable and ~~inherent risks in the various credit portfolios.~~supportable forecast period of two years. All of these factors may be susceptible to significant change. ~~Also, the allocation of the allowance for credit losses to specific loan pools is based on historical loss trends and management’s judgment concerning those trends.~~

Commercial and commercial real estate loans are the largest category of credits and the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan losses. Approximately $8.9 million, or 77%, of the total allowance for loan losses at June 30, 2022 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and troubled debt restructured (TDR) loans, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for ~~loan~~credit losses may be required that would adversely impact earnings in future periods.

The Company estimates expected credit losses over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

ACCOUNT — Intangible assets

BALANCE SHEET REFERENCE — Intangible assets

INCOME STATEMENT REFERENCE — Other expense

DESCRIPTION

The Company considers our accounting policies related to goodwill and core deposit intangible 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 and core deposit intangible, 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

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cash flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are

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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.

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. The core deposit intangible, which is a wasting asset, is amortized and reported in other expense for a period of ten years using the sum of the years digits amortization method.

ACCOUNT — Income Taxes

BALANCE SHEET REFERENCE — Net deferred tax asset ~~and Net deferred tax liability~~

INCOME STATEMENT REFERENCE — Provision for income taxes

DESCRIPTION

The provision for income taxes is the sum of income taxes both currently payable and deferred. The changes in deferred tax assets and liabilities are determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities as measured by the enacted tax rates that management estimates will be in effect when the differences reverse. This income tax review is completed on a quarterly basis.

In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of ~~June 30, 2022,~~March 31, 2023, 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.

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ACCOUNT — ~~Investment Securities~~Derivatives (interest rate swaps/hedges)

BALANCE SHEET REFERENCE — ~~Investment securities~~Other assets and Other liabilities

INCOME STATEMENT REFERENCE — ~~Net realized gains on investment securities~~Other income

DESCRIPTION

~~Available-for-sale~~The Company periodically enters into derivative instruments to meet the financing, interest rate and ~~held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment.~~ equity risk management needs of its customers or the Bank.

The ~~review includes an analysis of~~Company recognizes all derivatives as either assets or liabilities on the ~~facts~~Consolidated Balance Sheets and ~~circumstances of each individual investment such~~measures those instruments at fair value. For derivatives designated 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~~hedges, changes 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 June 30, 2022, the unrealized losses in the available-for-sale securities 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~~the derivative and hedged item related to the hedged risk are recognized in earnings. Changes in fair value ~~caused by changes~~of derivatives designated and accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive loss, net of deferred taxes and are subsequently reclassified to earnings when the hedged transaction affects earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest ~~rates as temporary; therefore,~~rate swap agreements with customers and a large financial institution that specializes in these ~~securities have not been classified as other-than-temporarily impaired. Management has also concluded~~types of transactions. The Company enters into offsetting positions to minimize interest rate and equity risk to the Company. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings in amounts that ~~based~~offset. These instruments and their offsetting positions are recorded in other assets and other liabilities 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.~~Consolidated Balance Sheets.

…..FORWARD LOOKING STATEMENT…..

THE STRATEGIC FOCUS:

AmeriServ Financial is committed to increasing shareholder value by striving for consistently improving financial performance; providing our customers with products and exceptional service for every step in their lifetime financial journey; cultivating an employee atmosphere rooted in trust, empowerment and growth; and serving our communities through employee involvement and a philanthropic spirit. We will strive to provide our shareholders with consistently improved financial performance; the products, services and know-how needed to forge lasting banking for life customer relationships; a work environment that challenges and rewards staff; and the manpower and financial resources needed to make a difference in the communities we serve. Our strategic initiatives will focus on these four key constituencies:

●

Shareholders — We strive to increase earnings per share; identifying and managing revenue growth and expense control; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share and narrowing the financial performance gap between AmeriServ and its peer banks. We try to return earnings to shareholders through a combination of dividends and share repurchases (none currently authorized) subject to maintaining sufficient capital to support balance sheet growth and economic uncertainty. We strive to educate our employee base as to the meaning/importance of earnings per share as a performance measure. We will develop a value added combination for increasing revenue and controlling expenses that is rooted in developing and offering high-quality financial products and services; an existing branch network; electronic banking capabilities with 24/7 convenience; and providing truly exceptional customer service. We will explore branch consolidation opportunities and further leverage union affiliated revenue streams, prudently manage the Company’s risk profile to improve asset yields and increase profitability and continue to identify and implement technological opportunities and advancements to drive efficiency for the holding company and its affiliates.

●

Customers — The Company expects to provide exceptional customer service, identifying opportunities to enhance the Banking for Life philosophy by providing products and services to meet the financial needs in every step through a customer’s life cycle, and further defining the role technology plays in anticipating and satisfying customer needs. We anticipate providing leading banking systems and solutions to improve and enhance customers’ Banking for Life experience. We will provide customers with a comprehensive offering of

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financial solutions including retail and business banking, home mortgages and wealth management at one location. We have upgraded and modernized select branches to be more inviting and technologically savvy to

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meet the needs of the next generation of AmeriServ customers without abandoning the needs of our existing demographic.

●

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

●

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

This Form 10-Q contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results, and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan” or similar expressions. These forward-looking statements are based upon current expectations, are subject to risk and uncertainties and are applicable only as of the dates of such statements. Forward-looking statements involve risks, 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;~~regulations and supervisory actions by such regulators, including bank failures; (vii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (viii) the timely development of competitive new products and services by the Company and the acceptance of those products and services by customers and regulators (when required); (ix) the willingness of customers to substitute competitors’ products and services for those of the Company and vice versa; (x) changes in consumer spending and savings habits; (xi) unanticipated regulatory or judicial proceedings; (xii) potential risks and uncertainties also include those relating to the ~~duration~~impact of ~~the~~ COVID-19 ~~outbreak~~ and its variants and actions that may be taken by governmental authorities ~~to contain~~in response; (xiii) expense and reputational impact on the ~~outbreak or to treat~~Company as a result of its ~~impact, including the distribution~~ongoing proxy contest; and ~~effectiveness of COVID-19 vaccines; and (xiii)~~(xiv) other external developments which could materially impact the Company’s operational and financial performance.

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

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Item 3…..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 MD&A.

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Item 4…..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 ~~June 30, 2022,~~March 31, 2023, 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 ~~June 30, 2022,~~March 31, 2023, are effective.

(b) Changes in Internal Controls. Effective January 1, 2023, AmeriServ Financial Inc. adopted CECL. The Company designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There ~~have been~~were no other changes in ~~AmeriServ Financial Inc.’s~~the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f)) that occurred during the most recent fiscal quarter that has materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

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 April 2, 2020 (Incorporated by reference to Exhibit 3.1 to the Current report on Form 8-K filed on April 6, 2020).
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	Includes the following financial and related information from AMERISERV FINANCIAL, INC.’s Quarterly Report on Form 10-Q as of and for the quarter ~~and six months~~ ended ~~June 30, 2022,~~March 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to the Unaudited Consolidated Financial Statements.
104	The cover page from this Quarterly Report on Form 10-Q formatted in Inline XBRL.

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: ~~August 10, 2022~~May 12, 2023	/s/ Jeffrey A. Stopko
	Jeffrey A. Stopko
	President and Chief Executive Officer

Date: ~~August 10, 2022~~May 12, 2023	/s/ Michael D. Lynch
	Michael D. Lynch
	Executive Vice President and Chief Financial Officer


	December 31, 2021
			Paycheck		Commercial loans		Commercial loans
	Commercial		Protection		secured by owner		secured by non-owner
	and industrial		Program		occupied real estate		occupied real estate		Total
1-4 unit residential	$	1,246	$	—	$	96	$	8,565	$	9,907
Multifamily/apartments/student housing		—		—		245		73,912		74,157
Office		37,386		203		8,644		28,500		74,733
Retail		7,253		444		20,439		148,668		176,804
Industrial/manufacturing/warehouse		74,508		5,940		21,468		44,316		146,232
Hotels		154		1,764		—		42,425		44,343
Eating and drinking places		484		6,591		4,537		1,752		13,364
Personal care		1,197		173		—		4,315		5,685
Amusement and recreation		92		53		5,402		12		5,559
Mixed use		—		—		4,031		62,088		66,119
Other		11,862		2,143		34,782		16,272		65,059
Total	$	134,182	$	17,311	$	99,644	$	430,825	$	681,962


	Six months ended June 30, 2021
	Balance at		Charge-						Balance at
	December 31, 2020		Offs		Recoveries		Provision		June 30, 2021
Commercial	$	3,472	$	(147)	$	17	$	192	$	3,534
Commercial loans secured by non-owner occupied real estate		5,373		0		24		138		5,535
Real estate-residential mortgage		1,292		(17)		34		79		1,388
Consumer		115		(35)		31		12		123
Allocation for general risk		1,093		0		0		79		1,172
Total	$	11,345	$	(199)	$	106	$	500	$	11,752


	At December 31, 2021
			Commercial Loans
			Secured by
			Non-Owner		Real Estate-
			Occupied		Residential				Allocation for
	Commercial		Real Estate		Mortgage		Consumer		General Risk		Total
Loans:
Individually evaluated for impairment	$	2,165	$	5	$	0	$	0			$	2,170
Collectively evaluated for impairment		248,972		430,820		287,996		15,096				982,884
Total loans	$	251,137	$	430,825	$	287,996	$	15,096			$	985,054
Allowance for loan losses:
Specific reserve allocation	$	628	$	5	$	0	$	0	$	0	$	633
General reserve allocation		2,443		6,387		1,590		113		1,232		11,765
Total allowance for loan losses	$	3,071	$	6,392	$	1,590	$	113	$	1,232	$	12,398


	June 30, 2022			December 31, 2021
Non-accrual loans:
Commercial and industrial	$	2,087		$	2,165
Commercial loans secured by non-owner occupied real estate		5			5
Real estate – residential mortgage		1,138			1,153
Consumer		10			—
Total		3,240			3,323

Total non-performing assets including TDR	$	3,240		$	3,323
Total non-performing assets as a percent of loans, net of unearned income, other real estate owned and repossessed assets		0.34	%		0.34	%


	At June 30, 2022			At December 31, 2021
	Number of Loans	Balance		Number of Loans	Balance
		(in thousands)			(in thousands)
Type of Payment Relief
Interest only payments	3	$	4,934	6	$	3,768
Complete payment deferrals	2		235	5		3,980
Total	5	$	5,169	11	$	7,748


	Amount reclassified from accumulated
	other comprehensive loss⁽¹⁾
	For the six		For the six
Details about accumulated other	months ended		months ended		Affected line item in the
comprehensive loss components	June 30, 2022		June 30, 2021		statement of operations
Realized gains on sale of securities
	$	—	$	(84)	Net realized gains on investment securities
		—		18	Provision for income taxes
	$	—	$	(66)
Amortization of estimated defined benefit pension plan loss⁽²⁾
	$	1,742	$	2,094	Other expense
		(366)		(440)	Provision for income taxes
	$	1,376	$	1,654
Total reclassifications for the period	$	1,376	$	1,588