UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

⌧☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31 ~~2020~~, 2021

◻☐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	(I.R.S. Employer
incorporation or organization)	Identification No.)

MAIN & FRANKLIN STREETS,
P.O. BOX 430, JOHNSTOWN,
PENNSYLVANIA	15907-0430
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code ~~(814)~~ (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, Par Value $0.01 Per Share	ASRV	The NASDAQ Stock Market LLC

~~8.45% Beneficial Unsecured Securities, Series A~~	~~ASRVP~~	~~The NASDAQ Stock Market LLC~~
~~(AmeriServ Financial Capital Trust I)~~

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ◻ Yes ⌧ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻ Yes ⌧ No

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 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 has filed a report on and attestation to its mangagement’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻☐

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was ~~$47,804,311~~$60,759,199 as of June 30, ~~2020.~~2021.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were ~~17,066,164~~17,104,309 shares outstanding as of February 28, ~~2021.~~2022.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the proxy statement for the annual shareholders’ meeting are incorporated by reference in Parts II and III.

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PART I

ITEM 1. BUSINESS

GENERAL

AmeriServ Financial, Inc. (the Company) is a bank holding company organized under the Pennsylvania Business Corporation Law. The Company became a holding company upon acquiring all of the outstanding shares of AmeriServ Financial Bank (the Bank) in January 1983. The Company’s other wholly owned subsidiary is AmeriServ Trust and Financial Services Company (the Trust Company) which was formed in October 1992. AmeriServ Life Insurance Company (AmeriServ Life), formed in October 1987, was a captive insurance company that engaged in underwriting as a reinsurer of credit life and disability insurance. New business ceased being generated by AmeriServ Life in 2005. Since that time, the outstanding insurance policies have been running off and the final policy has expired. On September 30, 2020, the Arizona Corporation Commission approved the Articles of Dissolution for AmeriServ Life. The remaining assets of AmeriServ Life were transferred to AmeriServ Financial, Inc. and the subsidiary was formally closed on December 31, 2020. When used in this report, the “Company” may refer to AmeriServ Financial, Inc. individually or AmeriServ Financial, Inc. and its direct and indirect subsidiaries.

The Company’s principal activities consist of owning and operating its two wholly owned subsidiary entities. At December 31, ~~2020,~~2021, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of $1.3 billion, $1.1 billion, and ~~$104.4~~$116.5 million, respectively. The Company and its subsidiaries derive substantially all of their income from banking, bank related services, and ~~bank-related~~trust related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, accounting and taxes, loan review, auditing, investment accounting, marketing and risk management.

As a bank holding company, the Company is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking and Securities ~~(the PDB)~~(PDB). The Company is also under the jurisdiction of the Securities and Exchange Commission ~~(the SEC)~~(SEC) for matters relating to registered offerings and sales of its securities under the Securities Act of 1933, as amended, and the disclosure and regulatory requirements of the Securities Exchange Act of 1934, as amended. The Company’s common stock is listed on The NASDAQ Stock Market under the trading symbol “ASRV,” and the Company is subject to the NASDAQ rules applicable to listed companies.

~~AMERISERV FINANCIAL BANKING SUBSIDIARY~~

AMERISERV FINANCIAL BANK

The Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended ~~(the Banking~~(Banking Code). Through 1617 branch locations in Allegheny, Cambria, Centre, Somerset, and Westmoreland counties, Pennsylvania and Washington county, Maryland, the Bank conducts a general banking business. It is a full-service bank offering (i) retail banking services, such as demand, savings and time deposits, checking accounts, money market accounts, secured and unsecured consumer loans, mortgage loans, safe deposit boxes, holiday club accounts, and money orders; and (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as commercial real estate mortgage loans (CRE), short and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, real estate construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services. The Bank also operates 1718 automated bank teller machines (ATMs) through its 24-hour banking network that is linked with NYCE, a regional ATM network, and CIRRUS, a national ATM network. West Chester Capital Advisors (WCCA), a SEC-registered investment advisor, is a subsidiary of the Bank. The Company also operates loan production offices (LPOs) in Altoona and Wilkins Township in Pennsylvania.

On ~~January 15,~~May 21, 2021, the ~~Company announced the execution of a definitive agreement whereby AmeriServ Financial~~ Bank ~~will acquire~~completed its acquisition from Citizen’s Neighborhood Bank (CNB), an operating division of Riverview Bank, ~~its~~the branch and related deposit customers in Meyersdale, ~~as well as its~~Pennsylvania and the deposit customers ~~at its leased branch in the Borough of Somerset. Both of these locations are~~ in Somerset, ~~County in southwestern~~ Pennsylvania. The ~~transaction~~Meyersdale branch is ~~subject to regulatory approvals~~operating under the AmeriServ name and ~~satisfaction of customary~~the Somerset customers are being serviced from the full service AmeriServ office at 108 West Main Street. The related deposits totaled approximately $42 million at closing ~~conditions~~ and ~~is expected to close in the second quarter of 2021.~~were acquired for a 3.71% deposit premium, or $1.6 million.

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We believe that the Bank’s deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. The Bank’s business is not seasonal, nor does it have any risks attendant to foreign sources. A significant majority of the Bank’s customer base is located within a 150-mile radius of Johnstown, Pennsylvania, the Bank’s headquarters.

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The Bank is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the PDB. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios of the Bank at December 31, ~~2020:~~2021:


Headquarters	Johnstown, PA			Johnstown, PA
Total Assets	$	1,265,574		$	1,319,327
Total Investment Securities		181,820			209,190
Total Loans and Loans Held for Sale (net of unearned income)		978,345			986,037
Total Deposits		1,055,120			1,139,578
Total Net Income		5,792			8,016
Asset Leverage Ratio		9.03	%		9.12	%
Return on Average Assets		0.47			0.60
Return on Average Equity		5.32			6.79
Total Full-time Equivalent Employees		233			235

RISK MANAGEMENT OVERVIEW

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, which includes credit, interest rate and market, liquidity, operational, legal/compliance, strategic/reputational and security risk. Additionally, in ~~2020,~~2021, the Company ~~focused~~continued to focus on the risks surrounding the COVID-19 ~~pandemic which presented new challenges.~~pandemic. The Company seeks to identify, manage and monitor these risks with policies, procedures, and various levels of oversight from the Company’s Board of Directors (the Board) and management. The Company has a Management Enterprise Risk Committee with Board of Director representation to help manage and monitor the Company’s risk position, which is reported formally to the Board, at a minimum, on a semi-annual basis.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. The Company uses its asset liability management policy to monitor and manage interest rate risk.

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors, debtholders and the funding of operating costs. The Company uses its asset liability management policy and contingency funding plan to monitor and manage liquidity risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms resulting in an economic loss to the organization. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses (the ALL) to monitor and manage credit risk. The Company’s investment policy and hedging policy seeks to limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities.

The following summarizes and describes the Company’s various loan categories and the underwriting standards applied to each:

Commercial Loans

This category includes credit extensions to commercial and industrial borrowers. Business assets, including accounts receivable, inventory and/or equipment, typically secure these credits. The commercial loan segment includes commercial loans secured by owner occupied real estate. In appropriate instances, extensions of credit in this category are subject to collateral advance formulas. Balance sheet strength and profitability are considered when analyzing these credits, with special attention given to historical, current and prospective sources of cash flow, and the ability of the customer to sustain cash flow at acceptable levels. The Bank’s policy permits flexibility in determining acceptable debt

~~Table of Contents~~

service coverage ratios. Personal guarantees are frequently required; however, as the financial strength of the borrower increases, the Bank’s ability to obtain personal guarantees decreases. In addition to economic risk, this category is impacted by the strength of the borrower’s management, industry risk and portfolio concentration risk each of which are also monitored and considered during the underwriting process.

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The commercial loan segment also includes Paycheck Protection Program (PPP) loans. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorized the Small Business Administration (SBA) to guarantee 100% of the PPP loans made to eligible borrowers pursuant to standards as defined by the SBA. The 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 Company’s risk-based capital ratios. Therefore, it was deemed appropriate to not allocate any portion of the loan loss reserve for the PPP loans.

Commercial Loans Secured by Non-Owner Occupied Real Estate

This category includes various types of loans, including acquisition and construction of investment property. Maximum term, minimum cash flow coverage, leasing requirements, maximum amortization and maximum loan to value ratios are controlled by the Bank’s credit policy and follow industry guidelines and norms, and regulatory limitations. Personal guarantees are normally required during the construction phase on construction credits and are frequently obtained on mid to smaller CRE loans. In addition to economic risk, this category is subject to geographic and portfolio concentration risk, each of which are monitored and considered in underwriting.

The Company utilizes a robust and diligent risk management framework to monitor the non-owner occupied commercial real estate segment of the portfolio. This analysis considers more forward looking credit metrics such as stress test results and underwriting trend data, coupled with risk tolerance and concentration guidelines. The process is intended to allow identification of emerging risk, in part, to determine any future change to lending policy, underwriting practices or broader lending strategy prior to any indication of performance deterioration.

Residential Real Estate — Mortgages

This category includes mortgages that are secured by residential property. Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae underwriting guidelines, with the exception of Community Reinvestment Act (CRA) loans, which have more liberal standards. A meaningful portion of this portfolio consists of home equity loans. The major risk in this category is that a significant downward economic trend would increase unemployment and cause payment default. The Bank does not engage, and has never engaged, in subprime residential mortgage lending.

Consumer Loans

This category includes consumer installment loans and revolving credit plans. Underwriting is pursuant to industry norms and guidelines. The major risk in this category is a significant economic downturn.

INVESTMENTS

The strategic focus of the investment securities portfolio is managed for liquidity and earnings in a prudent manner that is consistent with proper bank asset/liability management and current banking practices. The objectives of portfolio management include consideration of proper liquidity levels, interest rate and market valuation sensitivity, and profitability. The investment portfolio of the Company and its subsidiaries are proactively managed in accordance with federal and state laws and regulations and in accordance with generally accepted accounting principles (GAAP).

The investment portfolio is primarily made up of AAA rated agency mortgage-backed securities, high quality corporate securities, taxable municipal securities, and agency securities. Management strives to maintain a portfolio duration that is less than 60 months. All holdings must meet standards documented in its investment policy, unless otherwise approved by the Company’s CEO or the Asset/Liability Management Committee.

Investment securities classified as held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair market value.

The following table sets forth the weighted average yield for each type of investment security and range of maturity as of December 31, 2021. Yields are not presented on a tax-equivalent basis, but are based upon the cost basis and ~~fair value of~~are weighted for the ~~Company’s investment portfolio as of the periods indicated:~~scheduled maturity.

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Investment securities available for ~~sale at:~~sale:

AT DECEMBER 31,


2020

2019

2018

(IN THOUSANDS)
U.S. Agency

$
2,971

$
5,084

$
7,685
Municipal

19,000

14,678

13,301
Corporate bonds

52,315

39,769

37,359
U.S. Agency mortgage-backed securities

65,398

80,046

90,169
Total cost basis of investment securities available for sale

$
139,684

$
139,577

$
148,514
Total fair value of investment securities available for sale

$
144,165

$
141,749

$
146,731

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

MORTGAGE-

SECURITIES

CORPORATE

BACKED

AVAILABLE

U. S. AGENCY

MUNICIPAL

BONDS

SECURITIES

FOR SALE

Within 1 year

—

3.72

3.15

1.68

3.25

After 1 year but within 5 years

—

2.92

3.28

3.38

3.17

After 5 years but within 10 years

1.74

2.67

4.07

2.52

3.35

Over 10 years

2.68

—

3.90

1.92

1.96

Total

1.98

2.84

3.68

2.01

2.67

Investment securities held to ~~maturity at:~~maturity:

AT DECEMBER 31,


2020

2019

2018

(IN THOUSANDS)
Municipal

$
30,076

$
24,438

$
24,740
U.S. Agency mortgage-backed securities

8,119

9,466

9,983
Corporate bonds and other securities

6,027

6,032

6,037
Total cost basis of investment securities held to maturity

$
44,222

$
39,936

$
40,760
Total fair value of investment securities held to maturity

$
47,106

$
41,082

$
40,324

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

CORPORATE

MORTGAGE-

SECURITIES

BONDS AND

BACKED

HELD TO

U. S. AGENCY

MUNICIPAL

OTHER

SECURITIES

MATURITY

Within 1 year

—

3.83

—

3.83

After 1 year but within 5 years

—

3.41

2.19

2.83

2.76

After 5 years but within 10 years

2.01

3.25

4.20

3.42

3.15

Over 10 years

—

2.62

2.11

2.21

2.37

Total

2.01

3.15

2.31

2.32

2.82

DEPOSITS

The Bank has a stable core deposit base made up of traditional commercial bank products that exhibit modest fluctuation during the year, other than jumbo certificates of deposits (CDs) and certain municipal deposits, which demonstrate some seasonality. The Company also utilizes certain Trust Company specialty deposits related to the ERECT funds as a funding source, which serve as an alternative to wholesale borrowings and can exhibit some limited degree of volatility.

The following table sets forth the average balance of the Company’s deposits and average rates paid thereon for the past ~~three~~two calendar years:


	AT DECEMBER 31,
	2021				2020

	(IN THOUSANDS, EXCEPT PERCENTAGES)
Demand:
Non-interest bearing	$	211,557	—	%	$	175,336	—	%
Interest bearing		213,736	0.12			175,088	0.28
Savings		126,050	0.14			104,442	0.14
Money market		297,844	0.23			234,771	0.44
Certificates of deposit		305,251	1.22			345,228	1.73
Total deposits	$	1,154,438	0.51	%	$	1,034,865	0.89	%

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects bank depositors against loss. The Bank is an FDIC-insured institution, therefore, deposits are insured up to the standard insurance amount of $250,000 per depositor. As of December 31, 2021 and 2020, the estimated amount of uninsured deposits was $326.1 million and $307.1 million, respectively. The estimate of uninsured deposits was done at a single account level and does not take into account total customer balances in the Bank.

AT DECEMBER 31,


2020

2019

2018

(IN THOUSANDS, EXCEPT PERCENTAGES)

Demand:








Non-interest bearing

$
175,336

—
%
$
151,292

—
%
$
174,108

—
%
Interest bearing

175,088

0.28

170,326

0.94

138,572

0.82

Savings

104,442

0.14

96,783

0.17

98,035

0.17

Money market

234,771

0.44

234,387

1.08

249,618

0.87

Certificates of deposit in denominations of $100,000 or more

42,910

1.56

36,324

2.33

31,893

1.66

Other time

302,318

1.75

290,543

2.09

267,498

1.70

Total deposits

$
1,034,865

0.89
%
$
979,655

1.35
%
$
959,724

1.07
%

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The maturities on CDs with balances that exceed the FDIC insurance limit of ~~$100,000 or more~~$250,000 as of December 31, ~~2020,~~2021, are as follows:


	(IN THOUSANDS)		(IN THOUSANDS)
MATURING IN:
Three months or less	$	16,918	$	12,309
Over three through six months		8,139		12,576
Over six through twelve months		20,589		26,237
Over twelve months		3,285		15,534
Total	$	48,931	$	66,656

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LOANS

~~The loan portfolio of the Company consisted of the following:~~

AT DECEMBER 31,


2020

2019

2018

2017

2016

(IN THOUSANDS)
Commercial:

Commercial and industrial

$
151,262

$
174,021

$
158,306

$
159,219

$
171,570
Paycheck Protection Program (PPP)

59,099

—

—

—

—
Commercial loans secured by owner occupied real estate(1)

95,528

91,693

91,938

89,979

91,861
Commercial loans secured by non-owner occupied real estate(1)

401,056

363,882

356,805

374,173

355,172
Real estate – residential mortgage(1)

249,989

235,239

237,964

247,278

245,765
Consumer

16,363

18,255

17,591

19,383

19,872
Total loans

973,297

883,090

862,604

890,032

884,240
Less: Unearned income

1,202

384

322

399

476
Total loans, net of unearned income

$
972,095

$
882,706

$
862,282

$
889,633

$
883,764

~~(1)~~

For each of the periods presented beginning with December 31, 2020, real estate construction loans constituted 7.0%, 4.9%, 3.5%, 4.1%, and 4.7% of the Company’s total loans, net of unearned income, respectively.

Secondary Market Activities

The residential lending department of the Bank continues to originate one-to-four family mortgage loans for customers, some of which are sold to outside investors in the secondary market and some of which are retained for the Bank’s portfolio. Mortgages sold in the secondary market are sold to investors on a “flow” basis; mortgages are priced and delivered on a “best efforts” pricing basis, with servicing released to the investor. Fannie Mae/Freddie Mac guidelines are used in underwriting all mortgages with the exception of a limited amount of CRA loans. Mortgages with longer terms, such as ~~20-year,~~ 30-year, FHA, and VA loans, are usually sold. The remaining production of the department includes construction, adjustable rate mortgages, and quality non-salable loans. These loans are usually kept in the Bank’s portfolio.

~~Non-performing Assets~~

~~The following table presents information concerning non-performing assets:~~

AT DECEMBER 31,

2020

2019

2018

2017

2016

(IN THOUSANDS, EXCEPT PERCENTAGES)

Non-accrual loans:
















Commercial and industrial

$
16

$
—

$
—

$
353

$
496

Commercial loans secured by owner occupied real estate

—

—

—

859

—

Commercial loans secured by non-owner occupied real estate

8

8

11

547

178

Real estate – residential mortgage

2,469

1,479

1,210

1,257

929

Consumer

7

—

—

—

—

Total

2,500

1,487

1,221

3,016

1,603

Other real estate owned:











Commercial loans secured by owner occupied real estate

—

—

157

—

—

Real estate – residential mortgage

—

37

—

18

21

Total

—

37

157

18

21

Restructured loans not in non-accrual (TDR)

Commercial and industrial

831

815

—

—

—

Total

831

815

—

—

—

Total non-performing assets including TDR

$
3,331

$
2,339

$
1,378

$
3,034

$
1,624

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

0.34
%

0.26
%

0.16
%

0.34
%

0.18
%

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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. Other real estate owned (OREO) is measured at fair value based on appraisals, less cost to sell at the date of foreclosure. The Company had no loans past due 90 days or more, still accruing, for the periods presented.

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

YEAR ENDED DECEMBER 31,


2020

2019

2018

2017

2016

(IN THOUSANDS)
Interest income due in accordance with original terms

$
87

$
57

$
75

$
103

$
118
Interest income recorded

—

—

—

(75)

—
Net reduction in interest income

$
87

$
57

$
75

$
28

$
118

~~AMERISERV FINANCIAL NON-BANKING SUBSIDIARY~~

AMERISERV TRUST AND FINANCIAL SERVICES COMPANY

AmeriServ Trust and Financial Services Company is a trust company organized under Pennsylvania law in October 1992. Its staff of approximately 4345 professionals administers assets valued at approximately ~~$2.5~~$2.7 billion that are not recognized on the Company’s balance sheet at December 31, ~~2020.~~2021. The Trust Company focuses on wealth management. Wealth management includes 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. This segment also includes financial services, which provide the sale of mutual funds, annuities, and insurance products. The wealth management business also includes the union collective investment funds, the ERECT funds, which are designed to use union pension dollars in construction projects that utilize union labor. At December 31, ~~2020,~~2021, the Trust Company had total assets of ~~$6.4~~$7.1 million and total stockholder’s equity of ~~$6.3~~$6.7 million. In ~~2020,~~2021, the Trust Company contributed earnings to the Company as its gross revenue amounted to ~~$9.6~~$11.1 million and the net income contribution was ~~$1.5~~$2.1 million. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of Philadelphia and the PDB.

MONETARY POLICIES

Commercial banks are affected by policies of various regulatory authorities including the Board of Governors of the Federal Reserve System (the Federal Reserve). An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve are: open market operations in U.S. Government securities, changes in the federal funds rate and discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

COMPETITION

Our subsidiaries face strong competition from other commercial banks, savings banks, credit unions, savings and loan associations, and other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions which are substantially larger and have greater financial resources than the Bank and the Trust Company. As the financial services industry continues to

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consolidate, the scope of potential competition affecting our subsidiaries will also increase. Brokerage houses, consumer finance companies, insurance companies, financial technology firms, and pension trusts are important competitors for various types of financial services. Personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals. In addition, some of these competitors, such as credit unions, are subject to a lesser degree of regulation or taxation than that imposed on us.

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MARKET AREA & ECONOMY

The COVID-19 pandemic has negatively impacted the U.S. and global economy, as well as the local economies in which we operate, creating significant volatility and increased unemployment levels. In addition, the pandemic has resulted in ~~temporary closures of many~~negative impacts and a disruption to economic and commercial activity in both the local ~~businesses and/or businesses operating at reduced capacity.~~and global economies. The ~~return~~economy in which the Company operates began to ~~normal operating conditions has been slow~~strengthen and ~~is expected to last into the foreseeable future. The institution of social distancing requirements~~improve in 2021. Economic improvement had resulted in many ~~states~~positive economic trends, such as lower unemployment, increased consumer confidence, and ~~communities, including those~~an improved housing market. However, volatitly remains as the Company's business opportunities may be tempered by concerns such as, the effects of the remote workplace, the impact of inflation, the effect of current and proposed government stimulus and wage growth. Volatility in ~~our footprint will continue. Governmental authorities have taken significant measures~~global economic markets, continued domestic political turmoil and various episodes of geopolitical unrest continue to provide ~~economic assistance~~a degree of uncertainty in the financial markets. Overall, management continues to individual households and businesses, stabilize the markets, and support economic growth. The economy has recently shown signs of a rebound in conjunction with further government aid, the February 2021 slowdown in ~~Covid-19 infections, and the hope that exists because of the distribution of a vaccine. The success of the measures taken~~be encouraged by the ~~government is becoming apparent, but they may not be sufficient to fully mitigate the negative impact~~resiliency of the pandemic. The virus continues to weigh on economic activity, and many economic key indicators remain depressed. The length of the pandemic and the effectiveness of the measures being put in place to address it are not completely known. The economy and its recovery remain vulnerable. Economists say the factors leading up to the current economic ~~slowdown, such as how fast it hit~~environment and ~~who it is affecting, are different from previous economic downturns and may lead to a different outcome. The unfavorable impact that~~ the ~~pandemic has had and is having on our market area is clearly evident in~~prospects for continued growth of the ~~increases to the unemployment rates between years in the various core markets that we serve as noted in the following discussion.~~Company.

Johnstown, Pennsylvania, where the Company is headquartered, continues to have a cost of living that is lower than the national average. Johnstown is home to The University of Pittsburgh at Johnstown, Pennsylvania Highlands Community College and Conemaugh Health System. The high-tech defense industry is ~~now~~ the main non-health care staple of the Johnstown economy, with the region fulfilling many federal government contracts, punctuated by one of the premier defense trade shows in the U.S., the annual Showcase for Commerce. The city also hosts annual events such as the Flood City Music Festival and the Thunder in the Valley Motorcycle Rally, each of which draw several thousand visitors. The Johnstown, PA MSA unemployment rate ~~increased~~decreased from ~~a 5.0% average in 2019 to~~ a 9.6% average in ~~2020.~~2020 to a 6.9% average in 2021. The Johnstown, PA MSA continues to have one of the highest jobless rates among the 18 metropolitan statistical areas across the state. This, coupled with a declining population trend, creates a challenge moving forward.

Economic conditions are stronger in the State College market and have demonstrated the same improvement experienced in the national economy. The community is a college town, dominated economically and demographically by the presence of the University Park campus of the Pennsylvania State University. “Happy Valley” is another often-used term to refer to the State College area, including the borough and the townships of College, Harris, Patton, and Ferguson. The unemployment rate for the State College MSA ~~increased~~decreased from ~~a 3.1% average in 2019 to~~ a 5.8% average in 2020 to a 4.5% average in 2021 and remains one of the lowest of all regions in the Commonwealth. A large percentage of the population in State College falls into the 18 to 34-year-old age group, while potential customers in the Cambria/Somerset markets tend to be over 50 years of age.

Hagerstown in Washington County, Maryland offers a rare combination of business advantages providing a major crossroads location that is convenient to the entire East Coast at the intersection of I-81 and I-70. It has a workforce of over 400,000 with strengths in manufacturing and technology. It also offers an affordable cost of doing business and living, all within an hour of the Washington, D.C./Baltimore regions. There are also plenty of facilities and land slated for industrial/commercial development. Hagerstown has become a choice location for manufacturers, financial services, and distribution companies. The Hagerstown, MD-Martinsburg, WV MSA unemployment rate ~~increased~~decreased from ~~a 3.7% average in 2019 to~~ a 6.5% average in ~~2020.~~2020 to a 4.4% average in 2021.

The Company also has loan production offices in Wilkins Township in Allegheny County and Altoona in Blair County, Pennsylvania. Wilkins Township in Allegheny County, Pennsylvania is located 15 miles east of the city of Pittsburgh. While the city is historically known for its steel industry, today its economy is largely based on healthcare, education, technology and financial services. The city of Pittsburgh is home to many colleges, universities and research facilities, the most well-known of which are Carnegie Mellon University, Duquesne University and the University of Pittsburgh. Pittsburgh is rich in art and culture. Pittsburgh museums and cultural sites include the Andy Warhol Museum, the Carnegie Museum of Art, the Frick Art & Historical Center, and Pittsburgh Center for the Arts among numerous others. Pittsburgh is also the home of the Pirates, Steelers and Penguins. The unemployment rate for the Pittsburgh MSA ~~increased~~decreased from ~~a 4.1% average in 2019 to~~ a 9.3% average in ~~2020.~~2020 to a 6.1% average in 2021.

Altoona is the business center of Blair County, Pennsylvania with a strong retail, government and manufacturing base. The top field of employment in Altoona and the metro area is healthcare. Its location along I-99 draws from a large

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trade area over a wide geographic area that extends to State College and Johnstown. It serves as the headquarters for

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Sheetz Corporation, which ranks on Forbes list of the top privately owned companies. In addition to being located adjacent to I-99 and a major highway system, Altoona also has easy access to rail and air transportation. The average unemployment rate in the Altoona MSA ~~increased~~decreased from ~~4.2% in 2019 to~~ 8.7% in ~~2020.~~2020 to 5.8% in 2021.

EMPLOYEES

The Company employed ~~314~~319 people as of December 31, ~~2020~~2021 in full- and part-time positions. Approximately ~~148~~150 non-supervisory employees of the Company are represented by the United Steelworkers AFL-CIO-CLC, Local Union 2635-06. The Company ~~is under~~negotiated a new four-year labor contract ~~with the United Steelworkers Local that~~this year, which will expire on October 15, ~~2021.~~2025. The contract calls for annual wage increases of ~~3.0%.~~2% over the next four years. The Company has not experienced a work stoppage since 1979. ~~The Company is one~~Unionization in financial institutions remains low with less than 1% of ~~an estimated ten union represented~~ banks ~~nationwide.~~nationwide being covered by a Collective Bargaining Agreement.

INDUSTRY REGULATION

The banking and trust industry, and the operation of bank holding companies, is highly regulated by federal and state law, and by numerous regulations adopted by the federal and state banking agencies. Bank regulation affects all aspects of conducting business as a bank, including such major items as minimum capital requirements, limits on types and amounts of investments, loans and other assets, as well as borrowings and other liabilities, and numerous restrictions or requirements on the loan terms and other products made available to customers, particularly consumers. Federal deposit insurance from the Federal Deposit Insurance Corporation ~~(the FDIC)~~(FDIC) is required for all banks in the United States, and maintaining FDIC insurance requires observation of the various rules of the FDIC, as well as payment of deposit insurance premiums. New branches, or acquisitions or mergers, are required to be pre-approved by the responsible agency, which in the case of the Company and the Bank is the Federal Reserve and the PDB. The Bank provides detailed financial information to its regulators, including a quarterly call report that is filed pursuant to detailed prescribed instructions to ensure that all U.S. banks report the same way. The U.S. banking laws and regulations are frequently updated and amended, especially in response to crises in the financial industry, such as the global financial crisis of 2008, which resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 (the Dodd-Frank Act), a statute affecting many facets of the financial industry. The Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted into law in 2018 and was designed to ease certain restrictions imposed by the Dodd-Frank Act. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law on March 27, 2020 in response to the COVID-19 pandemic.

While it is impractical to discuss all laws and regulations that regularly affect the business of the Company and its subsidiaries, set forth below is an overview of some of the major provisions and statutes that apply.

CAPITAL REQUIREMENTS

One of the most significant regulatory requirements for banking institutions is minimum capital, imposed as a ratio of capital to assets. The Federal Deposit Insurance Act, as amended ~~(the FDIA)~~(FDIA), identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. It requires U.S. federal bank regulatory agencies to implement systems for ~~“prompt~~prompt corrective ~~action”~~action for insured depository institutions that do not meet minimum capital requirements based on these categories. Both federal and state banking regulation impose progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to utilize brokered deposits and on other aspects of its operations. Generally, a bank is prohibited from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized.

As of December 31, ~~2020,~~2021, the Company believes that its bank subsidiary was well capitalized, based on the prompt corrective action guidelines described above. On January 1, 2015, U.S. federal banking agencies implemented the ~~new~~ Basel III capital standards, which establish the minimum capital levels to be considered well-capitalized and revised the prompt corrective action requirements under banking regulations. The revisions from the previous standards include a revised definition of capital, the introduction of a minimum common equity tier 1 capital ratio and changed risk weightings for certain assets. Under the current rules, in order to avoid limitations on capital distributions (including

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dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer above its minimum risk-based capital requirements of 2.50% of total risk weighted assets.

The capital to risk-adjusted assets requirements for minimum capital plus the applicable buffer, and the requirement to be ~~“well~~well capitalized,” are as follows:




	Minimum Capital		Well
	Plus Buffer		Capitalized
Common equity tier 1 capital ratio	7.00	%	6.50	%
Tier 1 capital ratio	8.50	%	8.00	%
Total capital ratio	10.50	%	10.00	%

Minimum Capital

Well


Plus Buffer

Capitalized

Common equity tier 1 capital ratio

7.00
%
6.50
%
Tier 1 capital ratio

8.50
%
8.00
%
Total capital ratio

10.50
%
10.00
%

In addition, see the discussion of the community bank leverage ratio under the Economic Growth, Regulatory Relief, and Consumer Protection Act below.

DIVIDEND RESTRICTIONS

The primary source of cash to pay dividends, if any, to the Company’s shareholders and to meet the Company’s obligations is dividends paid to the Company by the Bank and the Trust Company. Dividend payments by the Bank to the Company are subject to the laws of the Commonwealth of Pennsylvania, the Banking Code, the FDIA and the regulation of the PDB and the Federal Reserve. Under the Banking Act and the FDIA, a bank may not pay any dividends if, after paying such dividends, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in unsafe or unsound banking practices. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available from the immediately preceding year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiary. A bank holding company may not pay dividends when it is insolvent.

For more information regarding quarterly cash dividends, see Part II, Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities below.

~~SARBANES-OXLEY ACT OF 2002~~

The Sarbanes-Oxley Act of 2002 is not a banking law, but contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s principal executive officer and principal financial officer are required. These certifications attest, among other things, that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. In response to the Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to further strengthen its corporate governance practices. The Company also requires signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare. These procedures supplement the Company’s Code of Conduct Policy and other procedures that were previously in place. The Company maintains a program designed to comply with Section 404 of the Sarbanes-Oxley Act. This program includes the identification of key processes and accounts, documentation of the design of control effectiveness over the key processes and entity level controls, and testing of the effectiveness of key controls.

PRIVACY PROVISIONS

Federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company believes it is in compliance with the various provisions.

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USA PATRIOT ACT

A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed a number of regulations that apply various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the Company.

~~DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT~~

The Dodd-Frank Act was signed into law on July 21, 2010. This law significantly changed the previous bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.

A provision of the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. The Dodd-Frank Act also broadened the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.

Bank and thrift holding companies with assets of less than $15 billion as of December 31, 2009, such as the Company, are permitted to include trust preferred securities that were issued before May 19, 2010, such as the Company’s 8.45% Trust Preferred Securities, as Tier 1 capital; however, trust preferred securities issued by a bank or thrift holding company (other than those with assets of less than $500 million) after May 19, 2010, will no longer count as Tier 1 capital. Such trust preferred securities still will be entitled to be treated as Tier 2 capital.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (the CFPB), a new independent regulatory agency with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Company will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations and gives state attorney generals the ability to enforce federal consumer protection laws.

~~ECONOMIC GROWTH, REGULATORY RELIEF, AND CONSUMER PROTECTION ACT~~

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Most of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation.

Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a community bank leverage ratio of tangible equity to average consolidate assets not less than 8% or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements;

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(iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form call reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.

In September 2019, as directed pursuant to the Act, the federal bank regulatory agencies issued final rules for a community bank leverage ratio (“CBLR”) for certain community banking organizations, which was available to use in call reports filed for the period beginning January 1, 2020 or April 1, 2020 pursuant to subsequent final rules adopted in October 2019. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Under the final rules, a bank or holding company is eligible to elect the CBLR framework if the institution has less than $10 billion in total consolidated assets, meets certain risk-based qualifying criteria and has a CBLR greater than 9%. The CARES Act reduced the minimum ratio to 8% beginning in the 2^nd quarter of 2020 through December 31, 2020, increasing to 8.5% for 2021 and returning to 9% beginning January 1, 2022. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate the risk-based and leverage capital requirements under the Basel III rules. The Company has not opted into the CBLR framework for the Bank at this time.

In July 2019, the federal bank regulatory agencies issued final rules pursuant to the Act simplifying several requirements in the agencies’ regulatory capital rules for banks generally less than $250 billion in assets. As directed pursuant to the Act, the federal bank regulatory agencies issued final rules increasing the asset thresholds for management interlocks between depository institutions, which became effective in October 2019. Also, in October 2019, the federal bank regulatory agencies issued final rules to, among other things, increase the threshold for appraisals in a residential real estate transaction from $250,000 to $400,000 and make conforming changes to add to the list of exempt transactions those transactions secured by residential property in rural areas that have been exempted from the agencies’ appraisal requirements pursuant to the Act.

CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law on March 27, 2020. Federal, state, and local governments have adopted various statutes, rules, regulations, orders, and guidelines in order to address the COVID-19 pandemic and the adverse economic effects of this pandemic on individuals, families, businesses, and governments. Financial institutions, including the Company, are affected by many of these measures, including measures that are broadly applicable to businesses operating in the communities where the Company does business. These measures include “stay-at-home orders” that allow only essential businesses to operate. Financial services firms are generally regarded as “essential businesses” under these orders, but financial services firms, like other essential businesses, are required to operate in a manner that seeks to protect the health and safety of their customers and employees.

In addition, the federal banking agencies along with state bank regulators issued an interagency statement on March 22, 2020, addressing loan modifications that are made by financial institutions for borrowers affected by the COVID-19 crisis. The agencies stated that short-term loan modifications made on a good faith basis in response to COVID-19 for borrowers who were current prior to any relief do not need to be categorized as TDRs and that financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

The CARES Act contains a number of provisions that affect banking organizations. The CARES Act provides funding for various programs under which the federal government will lend to, guarantee loans to, or make investments in, businesses. Banking organizations are expected to play a role in some of these programs, and when they do so, they will be subject to certain requirements. One of these programs is the Paycheck Protection Program (PPP), a program administered by the Small Business Administration ~~(the SBA)~~(SBA) to provide loans to small businesses for payroll and other basic expenses during the COVID-19 crisis. The loans can be made by SBA-certified lenders and are 100% guaranteed by the SBA. The loans are eligible to be forgiven if certain conditions are satisfied, in which event the SBA will make payment to the lender for the forgiven amounts. The Bank has participated in the PPP as a lender. In accordance with the CARES Act, a PPP loan will be assigned a risk weight of zero percent under the federal banking agencies’ risk-based capital rules.

The CARES Act also authorized temporary changes to certain provisions applicable to banking organizations. Among other changes, Section 4013 of the CARES Act gives financial institutions the right to elect to suspend GAAP

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principles and regulatory determinations for loan modifications relating to COVID-19 that would otherwise be categorized as TDRs from March 1, 2020, through the earlier of December 31, 2020, or 60 days after the COVID-19 national emergency ends. On April 7, 2020, the federal banking agencies, in consultation with state bank regulators, issued an interagency statement clarifying the interaction between (i) their earlier statement discussing whether loan modications relating to COVD-19 need to be treated as TDRs and (ii) the CARES Act provision on this subject. In this interagency statement, the agencies also said that when exercising supervisory and enforcement responsibility with respect to consumer protection requirements, they will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency and that they do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to this emergency and the institution made good faith efforts to support borrowers and comply with the consumer protection requirements and addressed any needed corrective action. 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.

The Federal Reserve has established several lending facilities that are intended to support the flow of credit to households, businesses, and governments. One of these facilities is the Paycheck Protection Program Liquidity Facility (PPPLF) which was set up to allow the Federal Reserve Banks to extend credit to financial institutions that originate PPP loans, taking the loans as collateral at face value. On April 9, 2020, the federal banking agencies issued an interim final rule to allow banking organizations to neutralize the effect of PPP loans financed under the PPPLF on the leverage capital ratios of these organizations. Also, in accordance with the CARES Act, a PPP loan will be assigned a risk weight of zero percent under the federal banking agencies’ risk-based capital rules. The Federal Reserve had also announced the creation of main street lending facilities to purchase loan participations, under specified conditions, from banks lending to small to medium U.S. businesses. The Company has not participated in any of these facilities.

Additionally, on March 15, 2020, the Federal Reserve reduced the target range for the federal funds rate to 0% to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The Federal Reserve has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the internet at the SEC’s website at http://www.sec.gov.

Our internet address is http://www.ameriserv.com. We make available, free of charge on http://www.ameriserv.com, our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

ITEM 1A. RISK FACTORS

Not applicable.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments from the SEC for the reporting periods presented.

ITEM 2. PROPERTIES

The principal offices of the Company and the Bank occupy the five-story AmeriServ Financial building at the corner of Main and Franklin Streets in Johnstown plus eleven floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 1314 locations which are owned. Seven additional locations are leased with terms expiring from May 31, 2022 to June 30, 2033.

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ITEM 3. LEGAL PROCEEDINGS

The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of both management and legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

As of February 28, ~~2021,~~2022, the Company had ~~2,724~~2,632 shareholders of record for its common stock. The Company’s common stock is traded on The NASDAQ Stock Market under the symbol “ASRV.” The following table sets forth the actual high and low closing prices and the cash dividends declared per share for the periods indicated:


					CASH						CASH
	PRICES				DIVIDENDS		PRICES				DIVIDENDS
	HIGH		LOW		DECLARED		HIGH		LOW		DECLARED
Year ended December 31, 2021:
First Quarter							$	4.39	$	3.09	$	0.025
Second Quarter								4.31		3.77		0.025
Third Quarter								4.00		3.70		0.025
Fourth Quarter								4.01		3.74		0.025
Year ended December 31, 2020:
First Quarter	$	4.24	$	2.39	$	0.025	$	4.24	$	2.39	$	0.025
Second Quarter		3.21		2.51		0.025		3.21		2.51		0.025
Third Quarter		3.06		2.66		0.025		3.06		2.66		0.025
Fourth Quarter		3.40		2.69		0.025		3.40		2.69		0.025
Year ended December 31, 2019:
First Quarter	$	4.24	$	3.97	$	0.020
Second Quarter		4.30		4.03		0.025
Third Quarter		4.24		4.08		0.025
Fourth Quarter		4.30		4.11		0.025

The declaration of cash dividends on the Company’s common stock is at the discretion of the Board, and any decision to declare a dividend is based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants under any credit agreements and other contractual restrictions, Pennsylvania law, federal and Pennsylvania bank regulatory law, and other factors deemed relevant.

~~On April~~ ~~16, 2019,~~ Additionally, the ~~Company~~Company’s previously announced a common stock repurchase program that called for AmeriServ Financial, Inc. to purchase up to 3%, or approximately 526,000 shares, of the Company’s outstanding common stock over a 12-month period. As of the end of the first quarter of 2020, all shares authorized under this plan hadprograms have been ~~repurchased. During 2020, the Company was able to repurchase a total of 35,962 shares at an average price of $4.20 under this repurchase program.~~completed.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA


	AT OR FOR THE YEAR ENDED DECEMBER 31,															AT OR FOR THE YEAR ENDED DECEMBER 31,
	2020			2019			2018			2017			2016			2021			2020			2019			2018			2017

	(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)															(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
SUMMARY OF INCOME STATEMENT DATA:
Total interest income	$	46,882		$	49,767		$	47,094		$	44,356		$	41,869		$	46,669		$	46,882		$	49,767		$	47,094		$	44,356
Total interest expense		10,515			14,325			11,600			8,795			7,735			7,586			10,515			14,325			11,600			8,795
Net interest income		36,367			35,442			35,494			35,561			34,134			39,083			36,367			35,442			35,494			35,561
Provision (credit) for loan losses		2,375			800			(600)			800			3,950			1,100			2,375			800			(600)			800
Net interest income after provision (credit) for loan losses		33,992			34,642			36,094			34,761			30,184			37,983			33,992			34,642			36,094			34,761
Total non-interest income		16,275			14,773			14,224			14,645			14,638			17,761			16,275			14,773			14,224			14,645
Total non-interest expense		44,455			41,815			40,873			40,726			41,615			46,970			44,455			41,815			40,873			40,726
Income before income taxes		5,812			7,600			9,445			8,680			3,207			8,774			5,812			7,600			9,445			8,680
Provision for income taxes		1,214			1,572			1,677			5,387			897			1,702			1,214			1,572			1,677			5,387
Net income	$	4,598		$	6,028		$	7,768		$	3,293		$	2,310		$	7,072		$	4,598		$	6,028		$	7,768		$	3,293
Net income available to common shareholders	$	4,598		$	6,028		$	7,768		$	3,293		$	2,295
PER COMMON SHARE DATA:
Basic earnings per share	$	0.27		$	0.35		$	0.43		$	0.18		$	0.12		$	0.41		$	0.27		$	0.35		$	0.43		$	0.18
Diluted earnings per share		0.27			0.35			0.43			0.18			0.12			0.41			0.27			0.35			0.43			0.18
Cash dividends declared		0.100			0.095			0.075			0.060			0.050			0.100			0.100			0.095			0.075			0.060
Book value at period end		6.12			5.78			5.56			5.25			5.05			6.82			6.12			5.78			5.56			5.25
BALANCE SHEET AND OTHER DATA:
Total assets	$	1,279,713		$	1,171,184		$	1,160,680		$	1,167,655		$	1,153,780		$	1,335,560		$	1,282,733		$	1,171,184		$	1,160,680		$	1,167,655
Loans and loans held for sale, net of unearned income		978,345			887,574			863,129			892,758			886,858			986,037			978,345			887,574			863,129			892,758
Allowance for loan losses		11,345			9,279			8,671			10,214			9,932			12,398			11,345			9,279			8,671			10,214
Investment securities available for sale		144,165			141,749			146,731			129,138			127,077			163,171			144,165			141,749			146,731			129,138
Investment securities held to maturity		44,222			39,936			40,760			38,752			30,665			53,751			44,222			39,936			40,760			38,752
Deposits		1,054,920			960,513			949,171			947,945			967,786			1,139,378			1,054,920			960,513			949,171			947,945
Total borrowed funds		114,080			100,574			108,177			115,701			78,645			72,837			114,080			100,574			108,177			115,701
Stockholders’ equity		104,399			98,614			97,977			95,102			95,395			116,549			104,399			98,614			97,977			95,102
Full-time equivalent employees		299			309			303			302			305			304			299			309			303			302
SELECTED FINANCIAL RATIOS:
Return on average assets		0.37	%		0.51	%		0.67	%		0.28	%		0.20	%		0.52	%		0.37	%		0.51	%		0.67	%		0.28	%
Return on average total equity		4.52			6.02			8.08			3.42			2.30			6.48			4.52			6.02			8.08			3.42
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end		92.74			92.41			90.94			94.18			91.64			86.54			92.74			92.41			90.94			94.18
Ratio of average total equity to average assets		8.21			8.52			8.28			8.24			8.79			8.10			8.21			8.52			8.28			8.24
Common stock cash dividends as a percent of net income available to common shareholders		37.09			27.36			17.31			33.80			41.18
Common stock cash dividends as a percent of net income																	24.14			37.09			27.36			17.31			33.80
Interest rate spread		3.01			3.05			3.08			3.14			3.08			3.01			3.01			3.05			3.08			3.14
Net interest margin		3.19			3.29			3.31			3.32			3.26			3.15			3.19			3.29			3.31			3.32
Allowance for loan losses as a percentage of loans, net of unearned income, at period end		1.16			1.05			1.00			1.14			1.12			1.26			1.16			1.05			1.00			1.14
Non-performing assets as a percentage of loans and other real estate owned, at period end		0.34			0.26			0.16			0.34			0.18			0.34			0.34			0.26			0.16			0.34
Net charge-offs as a percentage of average loans		0.03			0.02			0.11			0.06			0.44			—			0.03			0.02			0.11			0.06

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company including the related notes thereto, included elsewhere herein.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020, ~~2019,~~ AND ~~2018~~2019

~~2020~~2021 SUMMARY OVERVIEW:

On January 25, 2022, AmeriServ Financial, Inc.’s issued a press release announcing its financial performance for the fourth quarter ~~2020~~and the full year of 2021. The results included fourth quarter net income of $1,852,000, or $0.11 per diluted common share. This was an increase of $1,160,000 from the fourth quarter of 2020 when net income totaled $692,000, or $0.04 per diluted ~~common~~ share. ~~This represents an increase~~The full year of ~~$23,000, or 3.4%, from the fourth quarter of 2019 when~~2021 resulted in net income ~~was $669,000,~~of $7,072,000, or ~~also $0.04~~$0.41 per diluted common share. ~~For~~This performance represents a 51.9% increase in earnings per share from the full year ~~ended December 31,~~of 2020 when net income ~~was~~totaled $4,598,000, or $0.27 per diluted ~~share. This performance represented a decline of 22.9% from the full year of 2019, when net income was $6,028,000, or $0.35 per~~ common share.

~~Admittedly, this~~The continuing struggle of our nation and the world with the global pandemic has ~~been,~~brought countless changes to the conduct of the banking business. However, we continue to provide premier banking and wealth management services to our customers in ~~many ways continues~~every market we serve. We also believe that we have substantially improved the performance of AmeriServ as a strong regional financial institution. We have zealously guarded our reputation for safety and soundness resulting in our friends and neighbors entrusting us with an additional $85 million of their funds in 2021, adding to the $94 million of absolute deposit growth in 2020. We have done much more than provide safety for these funds. As of December 31, 2021, we have lent 86% of our deposits to small and mid-size regional businesses and consumers. It is our special purpose to be a ~~difficult time~~positive economic contributor to the entire region. As we have learned over the years, our valued borrowers are quality. They are largely responsible for ~~many~~the fact that well over 99% of our loans outstanding are performing exactly as planned. This is a metric we are especially proud to mention.

Our predecessors on the Board of Directors were very wise thirty some years ago to establish a wealth management business within AmeriServ Financial, Inc. Wealth management had a record year in 2021. By pursuing excellent investment strategies, it closed 2021 with $2.7 billion of total assets, an increase of over 9% from just one year ago. This is good news for AmeriServ and for our clients.

It is a fact that both the business of banking and the wealth management activity performed well despite the pandemic. There is a need for flexibility in almost everything we do. We also attended to the well being of this Corporation. Early in 2021, we negotiated the purchase of two branch banks in Somerset County where we already have three successful branches. This brought $42 million of low-cost retail deposit accounts to our balance sheet allowing us ~~both~~to replace more expensive wholesale deposits. Somerset County is in our core market and this ~~nation and globally. But we believe the fundamental strength and resolve of the average citizen of these United States has emerged through the many challenges. The national lockdown~~branch acquisition was a ~~shock~~natural fit. We continue to be on the ~~fiber~~alert for similar opportunities to strengthen our competitive position at a reasonable purchase price.

As mentioned in previous communications with our shareholders and described in detail within this document, in 2021 we completed the issuance of our society. However, the limited re-openings that began in mid-summer were important. By the beginning of the fourth quarter, those commercial enterprises who re-opened began to revive commercial loan demand. AmeriServ experienced a growth in traditional loan products of nearly $39 million in net loans outstanding in the fourth quarter. This quickening pace we regard as a positive sign that recovery, while slow, has begun. We have also noticed the changed behavior of the American consumer as the pandemic event spread across all fifty states. All levels of government embarked on economic stimulus programs, introducing growth in the money supply for both businesses and consumers. But much of that stimulus funding went into debt reduction and even more to increase the level of deposits in banks across the U.S. Americans were unsure about the future and almost overnight, the nation of spenders became a nation of savers. AmeriServ alone found that from December 31, 2019 to December 31, 2020, its total deposits increased by $94 million, or approximately 10%, a record high for AmeriServ. The banking system was more liquid than it has been in sometime as businesses and consumers alike were concerned about an increased level of risk.

~~Other positive changes began occurring. The Federal Reserve reduced interest rates and ignited a boom in home buying and residential mortgages. In 2020, AmeriServ Financial Bank closed $142~~$27 million of ~~residential mortgage loans as compared with $60~~10-year subordinated debentures. This action reduced the annual cost of capital debt service by a half million ~~in the 12 months of 2019. This flood of new stimulus funds also found its way into equity markets permitting AmeriServ’s Wealth Management complex~~dollars annually and allowed us to increase the market value of its clients’ funds under management or administration, by $243 million or 11%. This total closing at $2.48 billion, was an historic record for the Wealth Management complex at AmeriServ.

~~These positive developments~~strengthen our bank’s capital position. Economic conditions were ~~encouraging but we continued to be alert~~excellent, and active in the interests of those businesses or consumers who were struggling. Our commercial loan group actively supported certain borrowers in certain industries who remained closed or restricted. AmeriServ also participated in the Federal Payroll Protection Loan Program (PPP) in 2020 making 477 loans totaling $68.7 million to small businesses throughout the region. AmeriServ additionally has modified the payment terms for 19 commercial borrowers with loans totaling $47 million in order to assist these borrowers struggling with the pandemic event and conditions beyond their control. We monitor these borrowers continuously, along with guidance from the Federal Reserve low interest rate scenario worked to both our ~~primary regulator. Just as any knowledgeable team~~short-term and our long-term advantage.

In the midst of ~~money lenders would do,~~this pandemic, we ~~have continued to build~~must mention the relationship our ~~allowance for loan losses to protect this Company. The PPP loans are relatively riskless~~staff fostered with our customers and clients. Even when they worked remotely because of ~~a governmental guarantee. AmeriServ is monitoring the payment deferral~~local COVID issues, our loans and ~~reporting~~deposits grew in ~~detail to~~record levels. However, none of this would be possible without the ~~full Board of Directors monthly. Our goal is to provide reasonable assistance to all~~solid citizens who are our customers and clients. Many of our ~~struggling~~staff have literally worked personally with small business customers ~~but~~so they could qualify for various government programs. This close communication with our customers will continue long after the pandemic is over.

It is with considerable pride that we can say that our people have confronted the unique challenges of these times. AmeriServ has also ~~to protect~~satisfied every dollar of required debt service while maintaining its shareholder cash dividend and protecting the ~~safety and soundness of this important regional franchise.~~

~~This Company continues to exceed all regulatory capital requirements. We continue to service the payment requirements~~livelihood of our ~~Trust Preferred shares and our subordinated debt issue. Our quarterly common stock dividend remains in effect,~~324 staff members. The pandemic may be with us for some time yet, but we ~~have ceased common stock repurchases based upon guidance provided by regulatory authorities. Additionally, we are preserving capital~~pledge the same careful attention to ~~support~~our responsibilities in the ~~balance sheet growth that we have experienced. Daily, we are faced with~~days ahead, whatever the task of balancing risk with reward. However, the risk implicit today is not primarily economic risk but rather the total impact of the pandemic, which created unplanned and new economic risks. In such times, wechallenges may be.

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naturally fall back into the time tested financial norms of the community bank business model. This is what we believe in and is exactly what good times and bad times have trained us to do. We are encouraged by the recent positive developments which we reviewed herein. We do not believe the difficulties are over. The pandemic is still with us every day. Therefore, this Board and this Management Team must continue to be vigilant and alert. There are still too many unknowns to be explored and mitigated.

PERFORMANCE OVERVIEW. The following table summarizes some of the Company’s key profitability performance indicators for each of the past three years.


	YEAR ENDED DECEMBER 31,									YEAR ENDED DECEMBER 31,
	2020			2019			2018			2021			2020			2019

	(IN THOUSANDS, EXCEPT									(IN THOUSANDS, EXCEPT
	PER SHARE DATA AND RATIOS)									PER SHARE DATA AND RATIOS)
Net income	$	4,598		$	6,028		$	7,768		$	7,072		$	4,598		$	6,028
Diluted earnings per share		0.27			0.35			0.43			0.41			0.27			0.35
Return on average assets		0.37	%		0.51	%		0.67	%		0.52	%		0.37	%		0.51	%
Return on average equity		4.52			6.02			8.08			6.48			4.52			6.02

The Company reported net income of ~~$4,598,000,~~$7,072,000, or ~~$0.27~~$0.41 per diluted common share, in ~~2020.~~2021. This represents a ~~22.9% decrease~~51.9% increase in earnings per share from the full year of ~~2019~~2020 when net income totaled ~~$6,028,000,~~$4,598,000, or ~~$0.35~~$0.27 per diluted common share. The Company’s return on average equity ~~declined~~improved to ~~4.52%~~6.48% for the ~~2020~~2021 year from ~~6.02%~~4.52% in ~~2019.~~2020. Our earnings demonstrated meaningful improvement as we realized the benefit of several important strategic actions that the Company executed during 2021. Overall, the increase in net interest income, a growing level of non-interest income, and a reduced loan loss provision more than offset a higher level of non-interest expense resulting in an improved earnings performance in 2021. In spite of the COVID-19 pandemic, the Company continued to generate record levels of both loans and deposits during the year. The ~~resiliency~~good diversification of the Company’s revenue was evident as 31.2% of our ~~community bank customer-focused business model was evident~~total revenue in 2021 came from non-interest income sources which included record contributions from our strong wealth management business. Finally, the Company’s tangible book value⁽¹⁾ per share ended 2021 at $6.02, an increase of 11.1% from 2020. The increase in tangible book value is due to the combination of the Company’s improved earnings performance and effective management of both its investment portfolio and pension obligation. The Company continued to maintain strong capital ratios that exceed the regulatory defined well capitalized status.

The Company reported net income of $4.6 million, or $0.27 per diluted common share, for 2020. This represented a 22.9% decrease in earnings per share from 2019 when net income totaled $6.0 million, or $0.35 per diluted common share. During 2020, as the Company dealt with the many unexpected challenges resulting from the COVID-19 pandemic. ~~The Company experienced record levels of both loans and deposits as we served as an important financial resource to small businesses and consumers in our marketplace. Continuing~~We continued our conservative risk management posture weand prudently built our allowance for loan losses to address increased credit risk in certain sectors of our loan portfolio which was a primary factor causing the decline in earnings between years. The good diversification of the Company’s revenue was evident as 31% of our total revenue in 2020 came from non-interest income sources which included record contributions from our strong wealth management business and active residential mortgage operation. Finally, the Company increased tangible book value⁽¹⁾ ~~per share by 6.7% during 2020.~~

The Company reported net income of $6.0 million, or $0.35 per diluted common share, for 2019. This represented an 18.6% decrease in earnings per share from 2018 when net income totaled $7.8 million, or $0.43 per diluted common share. The decline in 2019 earnings was caused by an increased loan loss provision primarily related to one large commercial loan and an impairment charge recognized on a Community Reinvestment Act (CRA) related investment.

The Company reported net income of $7.8 million, or $0.43 per diluted common share, for 2018. This represented an 139% increase in earnings per share from 2017 where net income totaled $3.3 million, or $0.18 per diluted common share. The strong growth in earnings resulted from a favorable combination of lower income tax expense, outstanding asset quality, and well controlled non-interest expense^.

⁽¹⁾ See reconciliation of non-GAAP tangible book value later in this MD&A.

NET INTEREST INCOME AND MARGIN. The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings; it is affected by interest rate fluctuations as well as changes in the amount and mix of earning assets and interest bearing liabilities. The following table summarizes the Company’s net interest income performance for each of the past three years:


	YEAR ENDED DECEMBER 31,									YEAR ENDED DECEMBER 31,
	2020			2019			2018			2021			2020			2019

	(IN THOUSANDS, EXCEPT RATIOS)									(IN THOUSANDS, EXCEPT RATIOS)
Interest income	$	46,882		$	49,767		$	47,094		$	46,669		$	46,882		$	49,767
Interest expense		10,515			14,325			11,600			7,586			10,515			14,325
Net interest income		36,367			35,442			35,494			39,083			36,367			35,442
Net interest margin		3.19	%		3.29	%		3.31	%		3.15	%		3.19	%		3.29	%

2021 NET INTEREST PERFORMANCE OVERVIEW. The Company’s net interest income for the full year of 2021 increased by $2.7 million, or 7.5%, when compared to the full year of 2020. The Company’s net interest margin was 3.15% for the full year of 2021 representing a four basis point decline from the full year of 2020. Financial results

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when comparing 2021 to 2020 are indicative of an improving economic environment as well as the Company’s execution of strategies to effectively meet the challenge presented by the low interest rate environment. This included the execution of several strategies to reduce our cost of funds. However, the emergence of the omicron variant, high inflation and supply chain issues remind us that many risks remain. AmeriServ has proven to be resilient given the complex challenges we have confronted. The Company will continue to adapt in this fluid environment and prioritize the well-being of our employees and the communities we serve.

The Company demonstrated significantly higher than historical levels of both total average loans and total average deposits during 2021. This growth is due to successful business development efforts, the impact from the government stimulus programs and the 2021 Somerset County branch acquisition. Net interest income improved due to (i) the positive impact of commercial real estate and residential mortgage loan growth, (ii) significant interest expense savings from the issuance of the subordinated debt during the third quarter of 2021, which was used to retire higher cost existing subordinated debt and trust preferred securities, and (iii) the utilization of acquired low-cost core deposits to replace higher cost institutional deposits that were on our balance sheet. The combination of these three factors more than offset the unfavorable impact of net interest margin pressure from lower earning asset yields. The significant decrease to total interest expense in 2021 was the primary driver for net interest income increasing compared to last year.

Total average earning assets increased by $102.9 million, or 9.0%, in 2021. Specifically, total loans averaged $989 million in 2021 which is $65.5 million, or 7.1%, higher than the 2020 full year average. Short-term investments and commercial paper averaged $47 million in 2021 which is $15.3 million, or 48.0%, higher than the 2020 full year average. Total investment securities averaged $210 million in 2021 which is $22.1 million, or 11.8%, higher than the 2020 full year average. These increases were largely offset by decreases in the yield on earning assets, which decreased from 4.11% to 3.76%.

Total deposits, including non-interest bearing demand deposits, averaged $1.154 billion for the full year of 2021, which was $119.6 million, or 11.6%, higher than the $1.035 billion average for the full year of 2020. The 2021 full year average of short-term and FHLB borrowed funds was $50 million, which represented a decrease of $19.3 million, or 27.9%. Overall, the Company’s loan to deposit ratio averaged 85.5% in the fourth quarter of 2021, which we believe indicates that the Company has ample capacity to continue to grow its loan portfolio through effective business development efforts and is also strongly positioned to provide the necessary assistance to our customers and our community as they recover from the COVID-19 pandemic and respond to an improving economy. Overall, the cost of total interest bearing liabilities decreased from 1.10% to 0.75%.

COMPONENT CHANGES IN NET INTEREST INCOME: 2021 VERSUS 2020. Regarding the separate components of net interest income, the Company’s total interest income in 2021 decreased by $213,000, or 0.5%, when compared to 2020. Total average earning assets increased by $102.9 million, or 9.0%, in 2021 as there was an increased level of average total loans, short-term investments, and total investment securities. Despite the growth in average earning assets, interest income was unfavorably impacted by a decrease in the earning asset yield which declined by 35 basis points from 4.11% to 3.76%. All categories within the earning asset base demonstrated an interest income decrease between years. The average total loan portfolio yield decreased by 29 basis points from 4.40% to 4.11% in 2021 while the average yield on total investment securities decreased by 33 basis points from 3.20% to 2.87%.

Total investment securities averaged $210 million for the full year of 2021, which is $22.1 million, or 11.8%, higher than the $188 million average in 2020. The Company continued to be selective in 2021 when purchasing securities due to the low interest rate environment. Specifically, a steeper U.S. Treasury yield curve generally results in improved yields for federal agency mortgage-backed securities and federal agency bonds. Once this occurs, management purchases more of these investments for our portfolio. This provides us with the opportunity to more profitably deploy a portion of the increased liquidity on our balance sheet into the securities portfolio as opposed to leaving these funds in low yielding federal funds sold. This redeployment of funds contributed to total securities growing between years. Management also continued to purchase taxable municipal and corporate securities to maintain a well-diversified portfolio.

The economic recovery has been evident in our lending activity as we continued to experience good loan production throughout 2021. Commercial loan pipelines returned to pre-COVID levels early this year. The overall total loan portfolio volume stabilized during the second half of the year as additional loan growth was offset by a high level of early payoff activity, particularly during the fourth quarter. Also, PPP loans continue to decline as they complete the forgiveness process. Overall, when compared to the most recently completed pre-pandemic year of 2019, total loan production was over $79 million, or 31.2%, higher in 2021. Although reduced from its peak in 2020, strong residential

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mortgage loan production continued throughout 2021. Residential mortgage loan production totaled $90.5 million in 2021 which declined by 36.5% from the production level of $142.5 million achieved in 2020. Despite the decline between years, this is the second highest level of residential mortgage loan production during the most recently completed eight-year period. The Company revised strategy in 2021 and retained a higher percentage of our residential mortgage loan production in the loan portfolio as opposed to selling into the secondary market. This strategic change allowed us to more profitably deploy a portion of the increased liquidity that we have on our balance sheet.

As stated previously, total loans continue to be significantly higher than historical levels and averaged $989 million for the full year of 2021, which is $65.5 million, or 7.1%, higher than the 2020 full year average. The growth experienced in our commercial real estate portfolio resulted in traditional loan fee income increasing by $465,000, or 41.9%, for the full year of 2021 when compared to last year. Total PPP loans averaged $23.4 million for the fourth quarter of 2021, decreasing by $41.4 million, or 63.9%, from last year’s fourth quarter average as we continue to work with our customers through the forgiveness process. The Company recorded a total of $2.3 million of processing fee income and interest income from PPP lending activity in 2021, which is $398,000, or 21.2%, higher than the 2020 level. Finally, on an end of period basis, excluding total PPP loans, the total loan portfolio grew by approximately $48.7 million, or 5.3%, since the end of the fourth quarter of 2020.

Similar to what is occurring across the banking industry, our liquidity position continues to be strong due to the significant influx of deposits. During the first quarter of 2021, the President signed into law another round of economic stimulus as part of the American Rescue Plan Act of 2021. The stimulus checks delivered to most Americans and the financial assistance provided to municipalities and school districts as part of this program contributed to total deposits increasing significantly. Our deposit balances were also positively impacted in the second quarter of 2021 by the Somerset County branch acquisition, which provided approximately $42 million of additional deposits. The challenges this increased liquidity presents are twofold. First, there is the uncertainty regarding the duration that these increased funds will remain on the balance sheet which will be determined by customer behavior as economic conditions change. The second challenge is to profitably deploy this increased liquidity given the current low yields on short-term investment products. As a result, short-term investment and commercial paper balances averaged $47.3 million for the full year of 2021, which remains high by historical standards. Late in the third quarter of 2021, the Company benefitted from utilizing a significant portion of our increased liquidity to allow a $33 million, high cost, institutional deposit to mature. This resulted in total short-term investments declining to a more manageable level. However, 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 remaining increased funds.

Total interest expense for the twelve months of 2021 decreased by $2.9 million, or 27.9%, when compared to 2020, due to lower levels of both deposit and Federal Home Loan Bank (FHLB) borrowings interest expense. Specifically, deposit interest expense in 2021 was lower by $2.8 million, or 37.0%, despite the previously mentioned increase in deposits that occurred between years. The deposit growth reflects new deposit inflows as well as the loyalty of the bank’s core deposit base. The previously mentioned late third quarter 2021 maturity of a $33 million institutional deposit that had an annual cost of 2.95% resulted in approximately $240,000 of interest expense savings during the fourth quarter. Additionally, management continues to effectively execute several deposit product pricing reductions to address the net interest margin challenges presented by the low interest rate environment. As a result, the Company experienced deposit cost relief. Specifically, our total deposit cost averaged 0.42% for the full year of 2021 compared to 0.74% in 2020, representing a meaningful decrease of 32 basis points. Note that total deposit cost in the fourth quarter of 2021 averaged 0.31%. Total FHLB borrowings interest expense for the full year of 2021 was lower by $252,000, or 22.3%, compared to 2020. The current strong liquidity position has allowed the Company to paydown short-term and FHLB advances, which typically cost more than similar term deposit products. At December 31, 2021, total short-term and FHLB advances were $42.7 million, which is $47 million, or 52.4%, lower than the December 31, 2020 level.

The Company completed a private placement of $27 million in fixed-to-floating rate subordinated notes on August 26, 2021. The notes have a fixed annual interest rate of 3.75%, payable until September 1, 2026. From and including September 1, 2026, the interest rate will reset quarterly to the then-current three-month Secured Overnight Financing Rate (SOFR) plus 3.11%. The Company used approximately $20 million of the net proceeds to retire its existing subordinated debt and trust preferred securities that had a weighted average cost of 7.73%. This strategy favorably reduced fourth quarter 2021 interest expense by $147,000 and it is expected that annual interest expense on long-term debt will decline by $588,000. This savings is being recognized even though the size of the new subordinated debt is $7 million higher than the debt instruments it replaced. The remainder of the proceeds are being utilized for general corporate purposes, including the downstream of $3.5 million of capital to the bank which will support additional loan growth. Long-term debt interest expense is higher for the full year of 2021 when compared to 2020 because the

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Company was required to immediately write off the remaining portion of the unamortized issuance costs from both original debt instruments which generated $202,000 of additional borrowings interest expense in the third quarter of 2021. Therefore, in aggregate, when considering the reduced short-term and FHLB borrowings interest cost, total borrowings interest expense decreased by $101,000, or 3.5%, for the full year.

2020 NET INTEREST PERFORMANCE OVERVIEW. The Company’s net interest income for the full year of 2020 increased by $925,000, or 2.6%, when compared to the full year of 2019. The Company’s net interest margin was 3.19% for the full year of 2020 ~~representing~~which represented a ten basis point decline from the full year of 2019. Our net interest margin performance was challenged throughout 2020 as a result of the low interest rate environment and the economic uncertainty and volatility caused by the COVID-19 pandemic. As COVID-19 cases surged, government officials recommended the implementation of certain safety measures and restrictions on businesses and individuals. As a result, AmeriServ had to close its lobbies to customer traffic two separate times during the year for an extended period of time, but continued to service customers through drive up access. In spite of these pandemic related challenges, our balance sheet experienced robust growth in 2020 which caused the increase in net interest income despite the decline in the net interest margin due to pressures from the low interest rate environment. Total average earning assets increased by $62.2 million, or 5.8%, in 2020. Specifically, total loans averaged $923 million in 2020 which iswas $48.1 million, or 5.5%, higher than the 2019 full year average. Short-term investments and commercial paper averaged ~~$29~~$32 million in 2020 which ~~is $18.3~~was $20.4 million, or ~~173.2%~~176.3%, higher than the 2019 full year average. Slightly offsetting the higher level of average loans and short-term investments was a decrease in average investment securities. Total investment securities averaged $188 million in 2020 which iswas $6.2 million, or 3.2%, lower than the 2019 full year average.

Total deposits, including non-interest bearing demand deposits, averaged $1.035 billion for the full year of 2020, which was $55.2 million, or 5.6%, higher than the $980 million average for the full year of 2019. The 2020 full year average of short-term and FHLB borrowed funds was $69 million, which represented an increase of $5.6 million, or 8.8%. Overall, the Company’s loan to deposit ratio averaged 90.9% in the fourth quarter of 2020 which we believe ~~indicates~~indicated that the Company ~~has~~had ample capacity to continue to grow its loan portfolio and iswas well positioned to continue assisting our customers and the community given the impact that the COVID-19 pandemic iswas having on the economy.

COMPONENT CHANGES IN NET INTEREST INCOME: 2020 VERSUS 2019. Regarding the separate components of net interest income, the Company’s total interest income in 2020 decreased by $2.9 million, or 5.8%, when compared to 2019. Total average earning assets increased by $62.2 million, or 5.8%, in 2020 as the increased level of average total loans and short term investments more than offset the lower level of average total investment securities. Despite the growth in average earning assets, interest income was unfavorably impacted by a decrease in the earning asset yield which declined by 50 basis points from 4.61% to 4.11%. All categories within the earning asset base demonstrated an interest income decrease between years. The average total loan portfolio yield decreased by 51 basis points from 4.91% to 4.40% in 2020 while the average yield on total investment securities decreased by 16 basis points from 3.36% to 3.20%.

Total investment securities averaged $188 million for the full year of 2020 which iswas $6.2 million, or 3.2%, lower than the $194 million average in 2019. The Company was selective in 2020 when purchasing the more typical types of securities that ~~have~~had been purchased historically as the market was less favorable for purchases, offering a lower return given the differences in the position and shape of the U.S. Treasury yield curve from ~~last year.~~2019. To somewhat offset the unfavorable market for the more traditional types of purchases, the Company ~~has~~had been active since March of 2020 purchasing corporate securities, particularly subordinated debt issued by other financial institutions along with taxable municipal securities. Subordinated debt offers higher yields than the typical types of securities in which we invest and iswas particularly attractive given the current low interest rate environment and modestly positive slope of the yield curve. Management ~~believes~~believed it to be acceptable to increase our investments in bank subordinated debt in a gradual and diversified manner, given the heavily regulated nature of the industry combined with our intensive due diligence process and adherence to our internal guidelines for these types of investments.

Total loans reached ~~a new~~ record ~~level~~levels and averaged $923 million for the full year of 2020 which iswas $48.1 million, or 5.5%, higher than the 2019 full year average. The growth between years was primarily related to AmeriServ’s ~~early~~ participation in the Small Business Administration’s (SBA) 100% guraranteed Paycheck Protection Program (PPP) which remained on the balance sheet from the time of their inception through year end. During 2020, the Company processed 477 PPP loans totaling $68.7 million to assist small businesses and our community in ~~this~~the difficult economy. Also, the Company recorded a total of $1.9 million of processing fee income and interest income from PPP lending activity. The remaining portion of PPP processing fees ~~totals~~totaled approximately $755,000 and ~~is being~~was amortized into income

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over the time period that the loans ~~remain~~remained on our balance sheet or until the PPP loan iswas forgiven at which time the remaining fee ~~will be~~was recognized immediately as income. Note that the level of PPP loans ~~did decrease~~decreased by approximately $10 million during the fourth quarter of 2020 as we ~~work~~worked through the forgiveness process with our customers. In late December 2020, the Federal Government passed a new $900 billion pandemic relief bill which ~~includes~~included $284.5 billion for the re-opening of the SBA Paycheck Protection Program. The Company ~~is participating~~participated in ~~this new~~the 2021 program ~~to continue~~and continued to provide assistance to our business customers. Normal commercial lending production improved

~~Table of Contents~~

during the final four months of the year ~~with~~and commercial loan pipelines also ~~improving~~improved to pre-COVID levels. Overall, on an end of period basis and excluding total PPP loans, the total loan portfolio grew by approximately $39.1 million since September 30, 2020. Residential mortgage loan production continued to be exceptionally strong throughout the year and reached a record level given the lower interest rate environment. For the full year of 2020, residential mortgage loan production totaled $142 million and was 139% higher than the production level of $60 million achieved for the full year of 2019. Even though total average loans increased compared to ~~last year~~2019 and loan interest income was enhanced by the PPP revenue, loan interest and fee income declined by $2.3 million, or 5.4%, for the full year. The lower loan interest income ~~reflects~~reflected the challenges that ~~this~~the record low interest rate environment ~~has~~had created. New loans ~~are~~were being originated at lower yields and certain loans tied to LIBOR or the prime rate ~~reprice~~repriced downward as both of these indices ~~have~~had moved down with the Federal Reserve’s decision to decrease the target federal funds interest rate by a total of 225 basis points since June of 2019.

Our liquidity position ~~continues~~continued to be strong due to the significant influx of deposits that resulted from the government stimulus programs and as customers ~~continue~~continued to be cautious and ~~are~~were demonstrating reduced spending activity due to the economic uncertainty. As a result, short-term investments and commercial paper averaged ~~$29~~$32 million for the full year of 2020 which ~~is $18.3~~ was $20.4 million, or ~~173.2%~~176.3%, higher than the 2019 full year average. The challenge of profitably deploying this excess liquidity resulted in management initially investing in high quality commercial paper given their short maturities and higher rates of return. However, as 2020 progressed, the yields on commercial paper experienced a steady decline, once again creating pressure to find a suitable return for our excess liquidity. This pressure was eased during the fourth quarter given the loan growth that occurred which resulted in ~~short term~~short-term investment balances returning to a more ~~normal.~~normal level.

Total interest expense for the twelve months of 2020 decreased by $3.8 million, or 26.6%, when compared to 2019, due to lower levels of both deposit and borrowing interest expense. Deposit interest expense in the full year of 2020 was lower by $3.6 million, or 31.8%. Total average deposits reached a record level, averaging $1.035 billion for the year, which iswas $55.2 million, or 5.6%, higher than the 2019 full year average ~~reflecting~~and reflected the benefit of government stimulus programs and reduced consumer spending in 2020. In addition, the Company’s loyal core deposit base ~~continues~~continued to be a source of strength for the Company during periods of market volatility. Management continued to effectively execute several deposit product pricing decreases given the low interest rate environment and the downward pressure that the low interest rates ~~are~~were having on the net interest margin. As a result, the Company experienced deposit cost relief. Overall, total deposit cost, including demand deposits, averaged 0.74% in 2020 compared to 1.14% in 2019, or a meaningful decrease of 40 basis points.

The Company experienced a $255,000, or 8.1%, decrease in the interest cost of borrowings in the full year of 2020 when compared to the full year of 2019. The decline iswas a result of the Federal Reserve’s actions to decrease interest rates and the impact that these rate decreases ~~have~~had on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total 2020 full year average term advance borrowings balance increased by approximately $11.7 million, or 22.4%, when compared to the full year of 2019 as the Company took advantage of the lower yield curve to prudently extend borrowings. The rate on certain FHLB term advances iswas lower than the rate on overnight borrowings. As a result, the combined growth of average FHLB term advances and total average deposits resulted in less reliance on overnight borrowed funds, which decreased between years by $6.1 million. Overall, the 2020 full year average of total short-term and FHLB borrowed funds was $69.0 million, which ~~represents~~represented an increase of $5.6 million, or 8.8%, from 2019.

~~2019 NET INTEREST PERFORMANCE OVERVIEW.~~ The Company’s net interest income for the full year of 2019 decreased by $52,000, or 0.1%, when compared to the full year of 2018. The Company’s net interest margin was 3.29% for the full year of 2019 which represented a two basis point decline from the full year of 2018. Our net interest margin performance was challenged throughout 2019 as the U.S. Treasury Yield Curve shifted downward, flattened and became inverted in certain segments, at various times during the year. The lower interest rate environment along with a lower full year average total loan portfolio balance resulted in the modest year over year unfavorable comparison for net interest income. Positively impacting net interest income during 2019 was a favorable shift experienced in the mix of total average interest bearing liabilities as the amount of total interest bearing deposits increased and resulted in less reliance on higher cost borrowings to fund interest earning assets. Total average earning assets increased by $6.7 million, or 0.6%, in 2019. Specifically, total investment securities averaged $194 million in 2019 which is $9.5 million, or 5.1%, higher than the 2018 full year average. Total loans averaged $875 million in 2019 which is $6.6 million, or 0.7%, lower than the 2018 full year average.

~~Table of Contents~~

Total average interest bearing liabilities increased by $31.5 million, or 3.6%, as a lower level of total average FHLB borrowings was more than offset by a higher level of interest bearing deposits. Total interest bearing deposits averaged $828 million in 2019 and increased when compared to the 2018 average by $42.7 million, or 5.4%. The 2019 full year average of FHLB borrowed funds was $63.4 million, which represented a decrease of $14.7 million, or 18.8%. Total deposits, including non-interest bearing demand deposits, averaged $980 million for the full year of 2019, which was $19.9 million, or 2.1%, higher than the $960 million average for the full year of 2018. Overall, the Company’s loan to deposit ratio averaged 89.1% in the fourth quarter of 2019 which we believe indicated that the Company had ample capacity to grow its loan portfolio.

~~COMPONENT CHANGES IN NET INTEREST INCOME: 2019 VERSUS 2018.~~ Regarding the separate components of net interest income, the Company’s total interest income in 2019 increased by $2.7 million, or 5.7%, when compared to 2018. Total average earning assets increased by $6.7 million, or 0.6%, in 2019 as a lower level of total average loans were more than offset by an increased level of total investment securities. Also contributing to the higher level of interest income was the earning asset yield increasing by 22 basis points from 4.39% to 4.61%. All categories within the earning asset base demonstrated an interest income increase between years. The average total loan portfolio yield increased by 25 basis points from 4.66% to 4.91% in 2019 while the yield on total investment securities increased by 19 basis points from 3.17% to 3.36%.

Total investment securities averaged $194 million for the full year of 2019 which was $9.5 million, or 5.1%, higher than the $185 million average in 2018. The growth in the investment securities portfolio occurred primarily as the year progressed during 2018 and was the result of management taking advantage of the rising interest rate environment experienced during 2018 which provided an attractive market for additional security purchases. Purchases primarily focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Also, management continued its portfolio diversification strategy through purchases of high quality corporate and taxable municipal securities. Investment security purchase activity slowed significantly during 2019 as the interest rate market was less favorable.

Total loans averaged $875 million for the full year of 2019 which was $6.6 million, or 0.7%, lower than the 2018 full year average. Overall, total loan originations in 2019 exceeded the prior year’s level by $50.4 million and also exceeded another strong level of loan payoffs during the year. However, because of the high level of loan payoffs received late in 2018, the full year average comparison between years was unfavorable. Loan pipelines remained strong throughout 2019. Loan interest income increased by $1.9 million, or 4.6%, between the full year of 2019 and the full year of 2018. The higher loan interest income primarily reflected the Federal Reserve increasing the federal funds interest rate in 2018. This resulted in new loans originating at higher yields throughout 2018 and during the first half of 2019 and also caused the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices moved up with the federal funds rate increases in 2018. Certain floating rate loans, however, did reprice down in the second half of 2019 as the Federal Reserve reduced the federal funds rate by a total of 75 basis points in the second half of 2019. Also, included in the favorable year over year loan interest income increase was a higher level of loan fee income by $325,000, due primarily to prepayment fees collected on certain early loan payoffs.

Total interest expense for the twelve months of 2019 increased by $2.7 million, or 23.5%, when compared to 2018, due to higher levels of deposit interest expense which more than offset a slight decrease in borrowings interest expense. Deposit interest expense in 2019 was higher by $2.7 million, or 32.5%, for the full the year which reflected the higher level of total average interest bearing deposits and certain indexed money market accounts repricing upward due to the impact of the Federal Reserve increasing interest rates during 2018. The full year average cost of total interest bearing deposits increased between years by 28 basis points from 1.07% in 2018 to 1.35% in 2019. Even though total average interest bearing deposit cost increased for the full year of 2019, the Company did experience deposit pricing relief during the third and fourth quarters of 2019 because of the Federal Reserve easing interest rates late in July, September and October of 2019. Specifically, the Company’s cost of interest bearing deposits declined by 10 basis points between the third and fourth quarters of 2019. However, the Company continued to experience competitive market pressure to retain existing deposit customers and attract new customer deposits. Customer product preference changed as well in 2019 resulting in movement of funds from non-interest bearing demand deposit accounts and lower yielding money market accounts into higher yielding certificates of deposits. Overall, total deposits grew during the year and averaged $980 million for the full year of 2019, which was $19.9 million, or 2.1%, higher than the 2018 full year average.

The Company experienced a $21,000, or 0.7%, decrease in the interest cost of borrowings for the full year of 2019. The decline was a result of the lower total average borrowings balance between years combined with the impact from the Federal Reserve’s action to decrease interest rates three times in 2019 and the immediate impact that those rate decreases

~~Table of Contents~~

had on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total full year average term advance borrowings balance increased by approximately $7.3 million, or 16.3%, when compared to the full year 2018. This increase was due to the inversion demonstrated by the U.S. Treasury Yield Curve in 2019 and resulted in certain term advances costing less than overnight borrowed funds. Overall, the 2019 full year average of FHLB borrowed funds was $63.4 million, which represented a decrease of $14.7 million, or 18.8%, due to the increase in total average deposits.

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of 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. Regulatory stock is included within available for sale

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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 years ended December 31, 2021, 2020, and 2019 ~~and 2018~~ was ~~24,000,~~18,000, 24,000, and ~~21,000,~~24,000, 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.

YEAR ENDED DECEMBER 31,

2020

2019

2018

INTEREST

INTEREST

INTEREST

AVERAGE

INCOME/

YIELD/

AVERAGE

INCOME/

YIELD/

AVERAGE

INCOME/

YIELD/


BALANCE

EXPENSE

RATE

BALANCE

EXPENSE

RATE

BALANCE

EXPENSE

RATE

(IN THOUSANDS, EXCEPT PERCENTAGES)

Interest earning assets:



















Loans, net of unearned income

$
923,269

$
40,652

4.40
%
$
875,198

$
42,957

4.91
%
$
881,767

$
41,049

4.66
%
Deposits with banks

3,137

15

0.46

1,018

24

2.32

1,023

20

1.90

Short-term investments

28,831

231

0.80

10,552

293

2.77

6,725

201

3.00

Investment securities:



















Available for sale

145,788

4,591

3.15

153,458

5,090

3.32

145,162

4,527

3.12

Held to maturity

41,994

1,417

3.37

40,553

1,427

3.52

39,388

1,318

3.35

Total investment securities

187,782

6,008

3.20

194,011

6,517

3.36

184,550

5,845

3.17

TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME

1,143,019

46,906

4.11

1,080,779

49,791

4.61

1,074,065

47,115

4.39

Non-interest earning assets:



















Cash and due from banks

18,091

20,239

23,067





Premises and equipment

18,439

17,928

12,480





Other assets

70,867

64,083

62,040





Allowance for loan losses

(9,732)

(8,404)

(9,866)





TOTAL ASSETS

$
1,240,684

$
1,174,625

$
1,161,786





Interest bearing liabilities:



















Interest bearing deposits:



















Interest bearing demand

$
175,088

$
483

0.28
%
$
170,326

$
1,595

0.94
%
$
138,572

$
1,134

0.82
%
Savings

104,442

148

0.14

96,783

162

0.17

98,035

163

0.17

Money market

234,771

1,031

0.44

234,387

2,525

1.08

249,618

2,183

0.87

Other time

345,228

5,972

1.73

326,867

6,907

2.11

299,391

4,963

1.66

Total interest bearing deposits

859,529

7,634

0.89

828,363

11,189

1.35

785,616

8,443

1.07

Federal funds purchased and other short-term borrowings

4,947

29

0.58

11,088

288

2.59

33,126

720

2.17

Advances from Federal Home Loan Bank

64,046

1,099

1.72

52,309

1,090

2.09

44,974

797

1.77

Guaranteed junior subordinated deferrable interest debentures

13,085

1,121

8.57

13,085

1,121

8.57

13,085

1,120

8.57

Subordinated debt

7,650

520

6.80

7,650

520

6.80

7,650

520

6.80

Lease liabilities

3,949

112

2.84

3,444

117

3.40

—

—

—

TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE

953,206

10,515

1.10

915,939

14,325

1.56

884,451

11,600

1.31

Non-interest bearing liabilities:



















Demand deposits

175,336

151,292

174,108





Other liabilities

10,340

7,271

7,077





Stockholders’ equity

101,802

100,123

96,150





TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
1,240,684

$
1,174,625

$
1,161,786





Interest rate spread

3.01

3.05





3.08

Net interest income/net interest margin

36,391

3.19
%

35,466

3.29
%

35,515

3.31
%
Tax-equivalent adjustment

(24)

(24)



(21)



Net interest income

$
36,367

$
35,442



$
35,494


	YEAR ENDED DECEMBER 31,
	2021						2020						2019
			INTEREST						INTEREST						INTEREST
	AVERAGE		INCOME/		YIELD/		AVERAGE		INCOME/		YIELD/		AVERAGE		INCOME/		YIELD/
	BALANCE		EXPENSE		RATE		BALANCE		EXPENSE		RATE		BALANCE		EXPENSE		RATE

	(IN THOUSANDS, EXCEPT PERCENTAGES)
Interest earning assets:
Loans, net of unearned income	$	988,761	$	40,603	4.11	%	$	923,269	$	40,652	4.40	%	$	875,198	$	42,957	4.91	%
Short-term investments and bank deposits		46,977		58	0.12			19,955		100	0.50			11,570		317	2.74
Commercial paper		329		2	0.52			12,013		146	1.21			—		—	—
Investment securities:
Available for sale		159,458		4,543	2.85			145,788		4,591	3.15			153,458		5,090	3.32
Held to maturity		50,434		1,481	2.94			41,994		1,417	3.37			40,553		1,427	3.52
Total investment securities		209,892		6,024	2.87			187,782		6,008	3.20			194,011		6,517	3.36
TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME		1,245,959		46,687	3.76			1,143,019		46,906	4.11			1,080,779		49,791	4.61
Non-interest earning assets:
Cash and due from banks		18,736						18,091						20,239
Premises and equipment		17,749						18,439						17,928
Other assets		77,806						70,867						64,083
Allowance for loan losses		(11,919)						(9,732)						(8,404)
TOTAL ASSETS	$	1,348,331					$	1,240,684					$	1,174,625
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand	$	213,736	$	248	0.12	%	$	175,088	$	483	0.28	%	$	170,326	$	1,595	0.94	%
Savings		126,050		173	0.14			104,442		148	0.14			96,783		162	0.17
Money market		297,844		673	0.23			234,771		1,031	0.44			234,387		2,525	1.08
Other time		305,251		3,712	1.22			345,228		5,972	1.73			326,867		6,907	2.11
Total interest bearing deposits		942,881		4,806	0.51			859,529		7,634	0.89			828,363		11,189	1.35
Federal funds purchased and other short-term borrowings		389		1	0.37			4,947		29	0.58			11,088		288	2.59
Advances from Federal Home Loan Bank		49,328		875	1.77			64,046		1,099	1.72			52,309		1,090	2.09
Guaranteed junior subordinated deferrable interest debentures		9,741		944	9.69			13,085		1,121	8.57			13,085		1,121	8.57
Subordinated debt		15,079		854	5.66			7,650		520	6.80			7,650		520	6.80
Lease liabilities		3,729		106	2.86			3,949		112	2.84			3,444		117	3.40
TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE		1,021,147		7,586	0.75			953,206		10,515	1.10			915,939		14,325	1.56
Non-interest bearing liabilities:
Demand deposits		211,557						175,336						151,292
Other liabilities		6,446						10,340						7,271
Stockholders’ equity		109,181						101,802						100,123
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,348,331					$	1,240,684					$	1,174,625
Interest rate spread					3.01						3.01						3.05
Net interest income/net interest margin (non-GAAP)				39,101	3.15	%				36,391	3.19	%				35,466	3.29	%
Tax-equivalent adjustment				(18)						(24)						(24)
Net interest income (GAAP)			$	39,083					$	36,367					$	35,442

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The table below sets forth an analysis of volume and rate changes in net interest income on a ~~tax-~~

~~Table of Contents~~

~~equivalent~~tax-equivalent basis. For purposes of this table, changes in interest income and interest expense are allocated to volume and rate categories based upon the respective percentage changes in average balances and average rates. Changes in net

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interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.


	2020 vs. 2019						2019 vs. 2018						2021 vs. 2020						2020 vs. 2019
	INCREASE (DECREASE)						INCREASE (DECREASE)						INCREASE (DECREASE)						INCREASE (DECREASE)
	DUE TO CHANGE IN:						DUE TO CHANGE IN:						DUE TO CHANGE IN:						DUE TO CHANGE IN:
	AVERAGE						AVERAGE						AVERAGE						AVERAGE
	VOLUME		RATE		TOTAL		VOLUME		RATE		TOTAL		VOLUME		RATE		TOTAL		VOLUME		RATE		TOTAL

	(IN THOUSANDS)												(IN THOUSANDS)
INTEREST EARNED ON:
Loans, net of unearned income	$	2,587	$	(4,892)	$	(2,305)	$	(308)	$	2,216	$	1,908	$	2,750	$	(2,799)	$	(49)	$	2,587	$	(4,892)	$	(2,305)
Deposits with banks		(15)		6		(9)		—		4		4
Short-term investments		(105)		43		(62)		106		(14)		92
Short-term investments and bank deposits														70		(112)		(42)		1,695		(1,912)		(217)
Commercial paper														(91)		(53)		(144)		146		—		146
Investment securities:
Available for sale		(246)		(253)		(499)		265		298		563		410		(458)		(48)		(246)		(253)		(499)
Held to maturity		50		(60)		(10)		40		69		109		260		(196)		64		50		(60)		(10)
Total investment securities		(196)		(313)		(509)		305		367		672		670		(654)		16		(196)		(313)		(509)
Total interest income		2,271		(5,156)		(2,885)		103		2,573		2,676		3,399		(3,618)		(219)		4,232		(7,117)		(2,885)
INTEREST PAID ON:
Interest bearing demand deposits		46		(1,158)		(1,112)		281		180		461		91		(326)		(235)		46		(1,158)		(1,112)
Savings deposits		11		(25)		(14)		(1)		—		(1)		25		—		25		11		(25)		(14)
Money market		4		(1,498)		(1,494)		(116)		458		342		226		(584)		(358)		4		(1,498)		(1,494)
Other time deposits		424		(1,359)		(935)		492		1,452		1,944		(637)		(1,623)		(2,260)		424		(1,359)		(935)
Federal funds purchased and other short-term borrowings		(108)		(151)		(259)		(609)		177		(432)		(20)		(8)		(28)		(108)		(151)		(259)
Advances from Federal Home Loan Bank		43		(34)		9		139		154		293		(256)		32		(224)		43		(34)		9
Guaranteed junior subordinated deferrable interest debentures		—		—		—		—		1		1		(311)		134		(177)		—		—		—
Subordinated debt														434		(100)		334		—		—		—
Lease liabilities		(6)		1		(5)		117		—		117		(7)		1		(6)		(6)		1		(5)
Total interest expense		414		(4,224)		(3,810)		303		2,422		2,725		(455)		(2,474)		(2,929)		414		(4,224)		(3,810)
Change in net interest income	$	1,857	$	(932)	$	925	$	(200)	$	151	$	(49)	$	3,854	$	(1,144)	$	2,710	$	3,818	$	(2,893)	$	925

LOAN QUALITY. The Company’s written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding any loan. After the loan has been approved and funded, continued periodic credit review is required. The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $1,000,000 within a 12-month period. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business relationships with aggregate balances of $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and removed from the pool if factors such as significant delinquency in payments of 90 days or more,

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bankruptcy, or other negative economic concerns indicate impairment. ~~The following table sets forth information concerning the Company’s loan delinquency and other non-performing assets.~~

AT DECEMBER 31,


2020

2019

2018

(IN THOUSANDS,

EXCEPT PERCENTAGES)

Total accruing loans past due 30 to 89 days

$
5,504

$
2,956

$
4,752

Total non-accrual loans

2,500

1,487

1,221

Total non-performing assets including TDRs (1)

3,331

2,339

1,378

Loan delinquency as a percentage of total loans, net of unearned income

0.56
%

0.33
%

0.55
%
Non-accrual loans as a percentage of total loans, net of unearned income

0.26

0.17

0.14

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

0.34

0.26

0.16

Non-performing assets as a percentage of total assets

0.26

0.20

0.12

Total classified loans (loans rated substandard or doubtful) (2)

$
11,829

$
16,338

$
4,302

~~(1)~~

Non-performing assets are comprised of (i) loans that are on a non-accrual basis, (ii) loans that are contractually past due 90 days or more as to interest and principal payments, (iii) performing loans classified as troubled debt restructuring and (iv) other real estate owned.

~~(2)~~

~~Total includes residential real estate and consumer loans that are considered non-performing.~~

Overall, the Company continues to maintain good asset quality. The continued successful ongoing problem credit resolution efforts of the Company is demonstrated in the table above as levels of non-accrual loans, non-performing assets, and loan delinquency are well below 1% of total loans. ~~Accruing loan delinquency increased $2.5 million~~Overall, we believe that non-performing assets remain well controlled, and such assets have remained stable since the prior ~~year-end and now totals $5.5 million. This~~year totaling $3.3 million, or 0.34% of total loans, on December 31, 2021. The increase in accruing loan delinquency is the result of several ~~commercial and commercial real estate~~residential mortgage loan borrowers demonstrating delinquency during the fourth quarter of ~~2020.~~2021. Slightly offsetting this increase in ~~commercial~~residential mortgage loan delinquency during the fourth quarter was a decrease in ~~residential mortgage~~commercial loan delinquency. In addition, the Company experienced an increase in non-accrual loans ~~due, primarily, to higher~~as a result of three commercial loan relationships, two of which were previously designated as a trouble debt restructure (TDR), being transferred into non-accrual status during the first half of 2021, which was partially offset by a decrease in non-accrual residential mortgage loans. Total classified loans ~~which also led to an~~increased $5.2 million since the prior year-end and now total $17.0 million. The increase ~~in non-performing assets in 2020. The Company did experience a decrease~~ in classified loans is the result of the risk rating downgrade of several commercial real estate loan relationships during ~~2020 due~~2021 in the hospitality and personal care industries.

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The Company remains committed to ~~the upgrade of certain commercial loans from substandard.~~

~~In 2020, the Company, as suggested~~prudently working with our borrowers that have been hardest hit by the ~~Federal Reserve, granted~~pandemic by granting them loan payment ~~modifications to customers experiencing difficulty during this tough economic time. Requested~~modifications. Borrower requested modifications primarily consist of the deferral of principal and/or interest ~~payments for a period of three to six months and maturity date extensions. Initially, the balance of loan modifications related to COVID-19 that were granted to our customers totaled $200 million. At~~payments. On December 31, ~~2020,~~2021, loans totaling approximately ~~$49.1~~$7.7 million, or ~~5.3%~~0.8% of total loans, were on a payment modification ~~plan, most of which are borrowers who were granted a second loan payment deferral. Included within this total were 19~~plan. These loans include five commercial borrowers ~~with loans totaling $47 million.~~primarily in the hospitality and personal care industries. This current level of borrowers requesting payment deferrals is down sharply from its peak level of approximately $200 million as of June 30, 2020. Management iscontinues to carefully ~~monitoring~~monitor asset quality with a particular focus on these customers that have requested ~~these~~ payment deferrals. ~~As we reached the end of the initial deferral time periods, deferral~~Deferral extension requests ~~were~~are considered based upon the customer’s needs and their impacted industry as well as borrower and guarantor capacity to service debt ~~as well as~~and issued regulatory guidance. See the disclosures regarding COVID-19 related modifications within the Non-Performing Assets Including Troubled Debt Restructurings footnote.

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 December 31, ~~2020,~~2021, the 25 largest credits represented ~~22.6%~~22.3% of total loans outstanding, which represents a slight decrease from December 31, ~~2019~~2020 when it was ~~24.3%~~22.6%.

ALLOWANCE AND PROVISION FOR LOAN LOSSES. As described in more detail in the Critical Accounting Policies and Estimates section of this MD&A, the Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a

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critical accounting policy since it involves significant estimates and judgments. The following table sets forth changes in the ALL and certain ratios for the periods ended.


	YEAR ENDED DECEMBER 31,															YEAR ENDED DECEMBER 31,
	2020			2019			2018			2017			2016			2021			2020			2019

	(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)															(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
Balance at beginning of year	$	9,279		$	8,671		$	10,214		$	9,932		$	9,921
Charge-offs:
Loans and loans held for sale, net of unearned income:
Average for the year:
Commercial		(111)			(9)			(574)			(311)			(3,662)		$	275,795		$	294,630		$	252,815
Commercial loans secured by non-owner occupied real estate		—			(63)			—			(132)			(82)			424,765			378,781			367,909
Real estate – residential mortgage		(233)			(98)			(380)			(313)			(208)			274,016			242,823			240,291
Consumer		(143)			(262)			(251)			(172)			(344)			15,796			17,131			17,953
Total charge-offs		(487)			(432)			(1,205)			(928)			(4,296)
Recoveries:
Total loans and loans held for sale, net of unearned income																	988,761			923,269			875,198
At December 31,																	986,037			978,345			887,574
As a percent of average loans:
Net charge-offs (recoveries):
Commercial		4			22			31			27			169			0.02	%		0.04	%		(0.01)	%
Commercial loans secured by non-owner occupied real estate		44			48			51			56			58			(0.01)			(0.01)			—
Real estate – residential mortgage		62			118			119			207			100			(0.01)			0.07			(0.01)
Consumer		68			52			61			120			30			0.46			0.44			1.17
Total recoveries		178			240			262			410			357
Net charge-offs		(309)			(192)			(943)			(518)			(3,939)
Total loans and loans held for sale, net of unearned income																	—			0.03			0.02
Provision (credit) for loan losses		2,375			800			(600)			800			3,950			0.11			0.26			0.09
Balance at end of year	$	11,345		$	9,279		$	8,671		$	10,214		$	9,932
Loans and loans held for sale, net of unearned income:
Average for the year	$	923,269		$	875,198		$	881,767		$	893,849		$	887,679
At December 31,		978,345			887,574			863,129			892,758			886,858
As a percent of average loans:
Net charge-offs		0.03	%		0.02	%		0.11	%		0.06	%		0.44	%
Provision (credit) for loan losses		0.26			0.09			(0.07)			0.09			0.44
Allowance as a percent of each of the following:
Allowance, as a percent of each of the following:
Total loans, net of unearned income		1.16			1.05			1.00			1.14			1.12			1.26			1.16			1.05
Total accruing delinquent loans (past due 30 to 89 days)		206.12			313.90			182.47			124.90			302.99			195.68			206.12			313.90
Total non-accrual loans		453.80			624.01			710.16			338.66			619.59			373.10			453.80			624.01
Total non-performing assets		340.59			396.71			629.25			336.65			611.58			373.10			340.59			396.71
Allowance as a multiple of net charge-offs		36.72x			48.33x			9.20x			19.72x			2.52x
Allowance, as a multiple of net charge-offs																	263.79x			36.72x			48.33x
Non-accrual loans, as a percentage of total loans, net of unearned income																	0.34	%		0.26	%		0.17	%

For ~~2020,~~2021, the Company recorded a ~~$2,375,000~~$1.1 million provision expense for loan losses compared to ~~an $800,000~~a $2.4 million provision expense in ~~2019.~~2020. The lower 2021 provision reflects an improved credit quality outlook for the overall portfolio due to several loan upgrades as well as reduced criticized asset levels and delinquent loan balances demonstrating improvement this year. This reflects the Company’s loan officers working effectively with our customers as the economy improves and as businesses return to normal operations with limited restrictions. As demonstrated historically, the Company continues its strategic conviction that a strong allowance for loan losses is needed, which has proven to be essential as we support certain borrowers as they fully recover from the COVID-19 pandemic. The Company ~~continues~~ continued

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to ~~build~~grow the allowance for loan losses given the ~~overall economic climate~~portfolio growth achieved during the year, specifically in the non-owner occupied commercial real estate and residential mortgage portfolios, which was dampened by a decline in the ~~uncertainty that exists because of the COVID-19 pandemic.~~commercial portfolio. The ~~2020 provision reflects management strengthening certain qualitative factors within~~need to fund the allowance for loan losses calculation and downgrades of loan relationships that are reflective of the industries that have been especially negatively impacted from the pandemic and are demonstrating a slow pace of recovery. Earlier in 2020, several loans from the hotel industry were downgraded. Additionallyportfolio growth was somewhat eased by numerous upgrades, which occurred during the fourth quarter, the downgrade of a hospitality related credit and a large transportation related credit, as well as the loan growth experienced also resulted in the provision increasing. The recovery efforts of many of these borrowers experiencing a downgrade stalled during the fourth quarter due to the rise in COVID cases which caused additional safety measures and restrictions to be put in place on their businesses. While these borrowers will need additional time to recover, we remain encouraged by their efforts to work through the pandemic and signs of improvement in their operations. 2021.

The Company experienced low net loan charge-offs of $47,000, which equates to 0.00% of total loans, in 2021 and compares favorably to net loan charge-offs of $309,000, or 0.03% of total loans, in ~~2020 compared to net loan charge-offs of $192,000, or 0.02% of total loans, in 2019. As a result~~2020. Since the end of the ~~provision expense sharply exceeding net loan charge-offs,~~fourth quarter of 2020, the balance inof the allowance for loan losses increased by ~~over $2~~$1.1 million, ~~in 2020. Nonperforming~~or 9.3%, to $12.4 million at December 31, 2021. Non-performing assets totaled $3.3 million, or 0.34% of total loans, at December 31, ~~2020.~~2021. Management iscontinues to carefully ~~monitoring~~monitor asset quality with a particular focus on loan customers that have requested ~~a second~~an additional payment ~~deferral during this difficult economic time.~~deferral. The Asset Quality Task Force is meeting at least monthly to review these particular

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relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers. In summary, the allowance for loan losses provided 373% coverage of non-performing assets, and 1.26% of total loans, at December 31, 2021, compared to 341% coverage of non-performing assets, and 1.16% of total loans, at December 31, ~~2020, compared to 397% coverage of non-performing assets, and 1.05% of total loans, at December 31, 2019.~~2020. Note that the reserve coverage to total loans, excluding PPP loans is(non-GAAP), was 1.28% and 1.23% ~~(non-GAAP)~~ at December 31, ~~2020.~~2021 and 2020, respectively. The Small Business Administration guarantees 100% of the PPP loans made to eligible borrowers which minimizes the level of credit risk associated with these 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.

Management believes that this non-GAAP measure provides a greater understanding of ongoing operations and enhances comparability of results of operations with prior periods. The Company believes that investors may use this non-GAAP measure to analyze the Company’s financial condition without the impact of unusual items or events that may obscure trends in the Company’s underlying 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 that different companies might calculate these measures differently. The following table sets forth the calculation of the Company’s allowance for loan loss reserve coverage to total loans (GAAP) and the reserve coverage to total loans, excluding PPP loans (non-GAAP), at December 31, 2021 and 2020 (in thousands, except percentages).


	DECEMBER 31,			AT DECEMBER 31,
	2020			2021			2020
Allowance for loan losses	$	11,345		$	12,398		$	11,345
Total loans, net of unearned income⁽¹⁾		978,345
Total loans, net of unearned income					985,054			972,095
Reserve coverage		1.16	%		1.26	%		1.16	%
Reserve coverage to total loans, excluding PPP loans:
Allowance for loan losses	$	11,345		$	12,398		$	11,345
Total loans, net of unearned income⁽¹⁾		978,345
Total loans, net of unearned income					985,054			972,095
PPP loans		(58,344)			(17,311)			(58,344)
		920,001			967,743			913,751
Non-GAAP reserve coverage		1.23	%		1.28	%		1.23	%
(1) Includes loans and loans held for sale

For ~~2019,~~2020, the Company recorded ~~an $800,000~~a $2,375,000 provision expense for loan losses compared to ~~a $600,000~~an $800,000 provision ~~recovery~~expense in ~~2018~~2019 which resulted in a net unfavorable shift of ~~$1.4~~$1.6 million between years. The ~~rating~~Company continued to build the allowance for loan losses given the overall economic climate and the uncertainty that existed because of the COVID-19 pandemic. The 2020 provision reflected management’s strengthening of certain qualitative factors within the allowance for loan losses calculation and downgrades of loan relationships that were reflective of the industries that were especially negatively impacted by the pandemic, primarily the hospitality industry, and were demonstrating a slow pace of recovery. Early in 2020, several loans within the hospitality industry were downgraded. Additionally, during the fourth quarter of 2020, the downgrade of a ~~$6.5 million performing~~hospitality related credit and a large transportation related credit, as well as the loan growth experienced resulted in the provision increasing. Specifically, the effect of these downgrades was an increase in the allowance for the commercial loans secured by non-owner occupied real estate portfolio. The decrease in the allowance balance for the commercial loan toportfolio was the result of two substantial commercial loans which were previously classified as substandard ~~as a~~being upgraded. In addition, the growth in the allowance balance for residential mortgage loans was the result of the ~~unexpected death of a borrower caused a $675,000 increase in fourth quarter 2019 provision expense. This rating action was prudent due to~~increased origination activity experienced within the ~~inherent uncertainties associated with a large estate liquidation.~~portfolio during 2020 given the lower interest rate environment. The Company experienced net loan charge-offs of ~~only~~$309,000, or 0.03% of total loans, in 2020 compared to net loan charge-offs of $192,000, or 0.02% of total loans, in ~~2019 compared to net loan charge-offs~~2019. Overall, non-performing assets

Table of ~~$943,000, or 0.11% of total loans, in 2018. Overall, nonperforming assets~~ Contents

totaled ~~$2.3~~$3.3 million, or ~~only 0.26%~~0.34% of total loans, at December 31, ~~2019.~~2020. In summary, the allowance for loan losses provided 341% coverage of non-performing assets, and 1.16% of total loans, at December 31, 2020, compared to 397% coverage of non-performing assets, and 1.05% of total loans, at December 31, ~~2019, compared to 629% coverage of non-performing assets, and 1.00% of total loans, at December 31, 2018.~~2019.

The following schedule sets forth the allocation of the ALL among various loan categories. This allocation is determined by using the consistent quarterly procedural discipline that was previously discussed. The entire ALL is available to absorb future loan losses in any loan category.


	AT DECEMBER 31,																				AT DECEMBER 31,
	2020				2019				2018				2017				2016				2021				2020				2019				2018				2017
			PERCENT				PERCENT				PERCENT				PERCENT				PERCENT				PERCENT				PERCENT				PERCENT				PERCENT				PERCENT
			OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS				OF LOANS
			IN EACH				IN EACH				IN EACH				IN EACH				IN EACH				IN EACH				IN EACH				IN EACH				IN EACH				IN EACH
			CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY				CATEGORY
			TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL				TO TOTAL
	AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS		AMOUNT		LOANS

	(IN THOUSANDS, EXCEPT PERCENTAGES)																				(IN THOUSANDS, EXCEPT PERCENTAGES)
Commercial	$	3,472	31.4	%	$	3,951	30.1	%	$	3,057	29.0	%	$	4,298	28.0	%	$	4,041	29.8	%	$	3,071	25.5	%	$	3,472	31.4	%	$	3,951	30.1	%	$	3,057	29.0	%	$	4,298	28.0	%
Commercial loans secured by non-owner occupied real estate		5,373	41.2			3,119	41.2			3,389	41.4			3,666	42.0			3,584	40.2			6,392	43.8			5,373	41.2			3,119	41.2			3,389	41.4			3,666	42.0
Real estate – residential mortgage		1,292	25.7			1,159	26.6			1,235	27.6			1,102	27.8			1,169	27.8			1,590	29.2			1,292	25.7			1,159	26.6			1,235	27.6			1,102	27.8
Consumer		115	1.7			126	2.1			127	2.0			128	2.2			151	2.2			113	1.5			115	1.7			126	2.1			127	2.0			128	2.2
Allocation to general risk		1,093	—			924	—			863	—			1,020	—			987	—			1,232	—			1,093	—			924	—			863	—			1,020	—
Total	$	11,345	100.0	%	$	9,279	100.0	%	$	8,671	100.0	%	$	10,214	100.0	%	$	9,932	100.0	%	$	12,398	100.0	%	$	11,345	100.0	%	$	9,279	100.0	%	$	8,671	100.0	%	$	10,214	100.0	%

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Even though residential real estate mortgage loans comprise ~~25.7%~~29.2% of the Company’s total loan portfolio, only ~~$1.3~~$1.6 million, or ~~11.4%~~12.8%, of the total ALL is allocated against this loan category. The residential real estate mortgage loan allocation is based upon the Company’s three-year historical average of actual loan charge-offs experienced in that category and other qualitative factors. The disproportionately higher allocations for commercial loans and commercial loans secured by non-owner occupied real estate reflect the increased credit risk associated with those types of lending, the Company’s historical loss experience in these categories, and other qualitative factors.

Based on the Company’s current ALL methodology and the related assessment of the inherent risk factors contained within the Company’s loan portfolio, we believe that the ALL is adequate at December 31, ~~2020~~2021 to cover losses within the Company’s loan portfolio.

NON-INTEREST INCOME. Non-interest income for 2021 totaled $17.8 million, an increase of $1.5 million, or 9.1%, from 2020. Factors contributing to this higher level of non-interest income in 2021 included:

●

a $1.8 million, or 17.4%, increase in wealth management fees as the entire wealth management group has performed exceptionally well through the pandemic, actively working for clients to increase the value of their holdings in the financial markets and adding new business. The fair market value of wealth management assets totaled $2.7 billion and increased from the early pandemic fair market value low point on March 31, 2020 by $728.7 million, or 36.7%;

●

an $859,000, or 56.4%, decrease in net gains on loans held for sale due a lower level of mortgage loan refinance activity in 2021 and the Company’s revised strategy to retain a higher percentage of our residential mortgage loan production in the portfolio as opposed to selling into the secondary market. The Company has retained 79% of all residential mortgage loan originations into the loan portfolio in 2021 compared to 40% in 2020;

●

a $335,000, or 42.8%, increase in revenue from bank owned life insurance due to the receipt of $310,000 in death claims as well as 2021 income being positively impacted by a financial floor taking hold which caused increased earnings and a higher rate of return on certain policies;

●

a $291,000, or 12.7%, increase in other income primarily due to higher interchange fee income that resulted from increased usage of debit cards as the pandemic caused consumers to increase online purchases and many businesses to implement contactless services by not accepting cash due to health safety concerns. Also, service charges on deposit accounts increased by $62,000, or 6.9%, in 2021 as consumers are becoming more active and increasing their spending habits;

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●

a $201,000, or 36.0%, decrease in mortgage related fees due to a lower level of residential mortgage loan production; and

●

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

Non-interest income for 2020 totaled $16.3 million, an increase of $1.5 million, or 10.2%, from 2019. Factors contributing to this higher level of non-interest income in 2020 included:

●

a $658,000, or 76.1%, increase in income from residential mortgage loan sales into the secondary market due to the strong level of residential mortgage loan production. The higher level of residential mortgage loan production also resulted in mortgage related fees increasing by $257,000, or 85.1%;

●

the Company recognized a $500,000 impairment charge on a Community Reinvestment Act (CRA) related investment in 2019 and there was no charge in 2020 since the full investment was written off ~~last~~in the prior year;

●

a $482,000, or 5.0%, increase in wealth management fees. In addition to an improved level of fee income from the financial services business unit, the entire wealth management division ~~has~~had been resilient and performed well in spite of the major market value decline that occurred in late ~~March.~~March 2020. The market value of wealth management assets recovered and improved from the pre-pandemic valuation, exceeding the March 31, 2020 market value by 25% and also exceeding the market value as of December 31, 2019 by 11%;

●

a $368,000, or 29.0%, decrease in service charges on deposit accounts as consumer spending activity-based fees such as deposit service charges, which include overdraft fees, decreased significantly with the shutdown of the economy and ~~has~~had been slow to improve given the pace of the economic recovery;

●

a $261,000, or 50.1%, increase in revenue from bank owned life insurance due to the receipt of a $91,000 death claim and a financial floor taking hold which caused increased earnings and a higher rate of return on certain policies; and

●

no investment security sale activity occurred in 2020 after the Company recognized a $118,000 net realized gain on investment securities in 2019.

~~Non-interest income for 2019 totaled $14.8 million, an increase of $549,000, or 3.9%, from 2018. Factors contributing to this higher level of non-interest income in 2019 included:~~

●

the Company recognized a $500,000 impairment charge on other investments related to a Community Reinvestment Act (CRA) investment. The Small Business Administration (SBA) provided formal notice that the managing company of this particular fund was placed into receivership which caused us to write off the full investment;

●

net gains on loans held for sale increased by $376,000, or 76.9%, between years due to increased residential mortgage loan sales in the secondary market as the lower interest rate environment in the second half of 2019 resulted in a greater level of residential mortgage loan production. In addition to increased residential mortgage originations, the full year favorable comparison in 2019 was also due to the sale of the guaranteed portion of a SBA guaranteed loan that resulted in a $197,000 gain;

●

the Company recognized a net realized gain on investment securities of $118,000 in 2019 compared to a $439,000 net loss in 2018 as the opportunity existed to capture gains on certain securities that demonstrated higher than typical market appreciation in the low interest rate environment. The 2018 net loss resulted from the Company repositioning a portion of the investment portfolio for stronger future returns;

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~~a $149,000, or 10.5%, decrease in revenue from deposit service charges was due primarily to a reduced level of overdraft fee income;~~

●

~~a $106,000, or 54.1%, increase in mortgage related fees was due to the higher level of residential mortgage loan production;~~

●

~~a $103,000, or 4.4%, increase in other income was due to higher letter of credit fees and increased revenue from check supply sales as a result of a favorable vendor contract renegotiation; and~~

●

a $71,000, or 0.7%, increase in wealth management fees was primarily due to the Company benefitting from a continuing increase in market values for assets under management as well as management’s effective execution of managing client accounts.

NON-INTEREST EXPENSE. Non-interest expense for 2021 totaled $47.0 million, which represents a $2.5 million, or 5.7%, increase from 2020. Factors contributing to the higher non-interest expense in 2021 included:

●

a $1.1 million, or 19.8%, increase in other expense primarily due to the recognition of a $1.7 million settlement charge in connection with the Company’s defined benefit pension plan, which is described in Note 17, Employee Benefit Plans. Also contributing to the higher level of other expense was the Company recognizing $117,000 of expense associated with the unfunded commitment reserve in 2021 which represents a $271,000 unfavorable shift from 2020;

●

a $457,000, or 1.7%, increase in salaries and employee benefits expense. Factors causing the increase included greater incentive compensation primarily due to commissions earned as a result of strong performance in the wealth management businesses and continued good residential mortgage and commercial loan production. Also contributing to the higher salaries and employee benefits expense was increased health care costs which were partially offset by the Company’s basic salary expense declining due to fewer employees;

●

the Company recognized costs for the branch acquisition totaling $389,000 for 2021;

●

a $237,000, or 4.5%, increase in professional fees due to an increased level of outsourced professional services related costs and increased fees due to the PPP lending activity. Also, other professional fees at the Trust Company increased year over year due to additional support services;

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a $174,000, or 36.2%, increase in FDIC deposit insurance expense due to an increase in the asset assessment base and the benefit of the Small Bank Assessment Credit being fully utilized in the first quarter of 2020;

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a $110,000, or 4.4%, increase in net occupancy expense primarily due to the additional costs related to the branch acquisition; and

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a $46,000, or 6.4%, decrease in supplies, postage and freight expense as the majority of the personal protective equipment to protect our employees and customers during the pandemic was purchased last year.

Non-interest expense for 2020 totaled $44.5 million, which ~~represents~~represented a $2.6 million, or 6.3%, increase from 2019. Factors contributing to the higher non-interest expense in 2020 included:

●

a $2.0 million, or 7.7%, increase in salaries &and employee benefits expense was due to increased incentive compensation, total salaries, pension expense, and health care costs. A $645,000, or 57.9%, increase in incentive compensation was primarily due to commissions earned as a result of increased residential mortgage loan production. Total salaries ~~are~~were higher by $625,000, 3.5%, for ~~the year~~2020 primarily due to separation costs related to the elimination of a management position and annual merit increases. Pension expense increased by $506,000, or 30.4%, as a result of the unfavorable impact that the lower interest rate environment ~~has~~had on the discount rates that are used to revalue the defined benefit pension obligation each year. In addition, there was a $424,000, or 13.9%, increase in health care costs;

●

FDIC deposit insurance expense increased by $381,000 and returned to a more normal level after the benefit from the application of the Small Bank Assessment Credit regulation expired ~~earlier this year;~~early in 2020;

●

a $334,000, or 6.8%, increase in professional fees resulted from higher appraisal fees due to the significantly higher level of residential mortgage loan production, higher legal fees related to PPP loan processing, personnel related matters and an increased level of outside professional services related costs; and

●

a $215,000, or 3.8%, decrease in other expense due to reduced outside processing fees and telephone costs as well as a lower level of meals and travel costs that ~~relates~~related to travel restrictions from the pandemic. In addition, the favorable comparison for other expense also resulted from a reduction recognized for the unfunded commitment reserve.

~~Non-interest expense for 2019 totaled $41.8 million, which represents a $942,000, or 2.3%, increase from 2018. Factors contributing to the higher non-interest expense in 2019 included:~~

●

a $1.1 million, or 4.4%, increase in salaries & benefits expense was due to annual merit increases, the addition of several employees to address management succession planning as well as our expansion into the Hagerstown, Maryland market. Increased pension and health care costs also contributed to the higher employee costs between years;

●

a $457,000, or 82.0%, reduction in FDIC insurance expense. As part of the application of the Small Bank Assessment Credit regulation, the FDIC awarded community banks under $10 billion in assets an assessment credit because the banking industry reserve ratio exceeded its 1.38% target;

●

a $397,000, or 7.6%, increase in other expense was due to additional expense for the unfunded commitment reserve as a result of increased loan approvals in 2019, as well as, an increased investment in technology as evidenced by higher website costs and additional telecommunications expense; and

●

~~a $154,000, or 3.1%, decrease in professional fees was due to lower legal fees and other professional fees.~~

INCOME TAX EXPENSE. The Company recorded an income tax expense of ~~$1.2~~$1.7 million, or an effective tax rate of ~~20.9%~~19.4%, in 2021, compared to income tax expense of $1.2 million, or a 20.9% effective tax rate, in 2020, and compared to income tax expense of $1.6 million, or a 20.7% effective tax rate, in ~~2019, and compared to~~2019. The increased income tax expense for the full year of ~~$1.7 million, or~~2021 is a ~~17.8% effective tax rate, in 2018.~~result of the Company’s improved profitability this year. The higher effective tax rate in

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2020 ~~reflects the recognition of additional income tax expense due to~~resulted from the write-off of a deferred tax asset ~~that will not be realized due~~related to the dissolution of the Company’s former small life insurance subsidiary. Due to the enactment of the Tax Cuts and Jobs Act late in the fourth quarter of 2017, the Company was able to achieve a greater income tax benefit in the third quarter of 2018 by making a one-time additional contribution to the defined benefit pension plan resulting in a lower effective tax rate for that year. The Company’s deferred tax liability was $934,000 at December 31, 2021 compared to a deferred tax asset ~~was~~of $1.6 million at December 31, ~~2020.~~2020, resulting primarily from change in the pension liability.

SEGMENT RESULTS. The community banking segment reported a net income contribution of $12.1 million in 2021 which improved from the $10.1 million contribution in 2020 ~~which decreased~~and also increased from the $10.9 million contribution in ~~2019 and also decreased from the $11.1 million contribution in 2018.~~2019. The ~~primary driver for the lower~~improvement between years is due to a higher level of ~~net~~total revenue and a reduced loan loss provision which more than offset an increased level of non-interest expense. Net interest income improved between years as a significant reduction to total interest expense more than offset a much lower reduction to total interest income. This segment is being favorably impacted by commercial real estate loan growth which correspondingly resulted in ~~2020~~loan charge income increasing. Also, loan growth was positively impacted by the Company ~~recording an $2,375,000 provision expense for loan losses compared to an $800,000 provision in 2019. This is discussed previously~~retaining more residential mortgage loans in the ~~“Allowance and Provision for Loan Losses” section within this document. The downward shift~~portfolio as opposed to selling in the ~~U.S. Treasury yield curve~~secondary market. This growth more than offset payoff activity and maturities in the commercial & industrial loan portfolio. Additionally, PPP processing fee income increased between years ~~along with the Federal Reserve’s actions to decrease the fed funds rate three times in the second half of 2019 and~~ by ~~150 basis points in March of 2020 negatively impacted the Company’s earning asset margin performance. As a result,~~$398,000. Overall, total loan interest income decreased between years. Partially offsetting the unfavorable impact that the lower interest rate environment had on loan interest income was the additional processing fee income and interest income that the Company recorded from PPP lending activity, which totaled $1,873,000 for 2020. The exceptionally stronger level of residential mortgage loan activitymodestly by $49,000 in 2020 resulted in this segment recognizing a higher gain on the sale of residential mortgage loans in the secondary market and a corresponding greater level of mortgage related fee income. Also favorably2021. Favorably impacting net interest income was this segment experiencing deposit cost relief as total deposit interest expense decreased between years due to management’s action to lower pricing of several deposit products, given the ~~declining~~low interest rate environment. The decrease to total deposit interest expense occurred even though total deposits ~~reached record levels~~increased significantly between years which is described previously in the MD&A. ~~Net income from this~~This segment was also favorably impacted by management’s strategic decision during the fourth quarter of 2021 to not replace a ~~higher level~~maturing high cost, large institutional deposit which resulted in approximately $240,000 of interest expense savings during the fourth quarter. The Company recorded a $1,100,000 provision expense for loan losses in 2021 compared to a $2,375,000 provision in 2020. This was discussed previously in the Allowance and Provision for Loan Losses section within this document. Non-interest income was favorably impacted by increased levels of interchange income, checking service charges and revenue from bank owned life insurance (BOLI). Note that the Company electing to retain the majority of residential mortgage loans

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production in the loan portfolio resulted in a decrease to loan sale gains. Non-interest expense compares unfavorably in 2021 due to the ~~receipt of~~Company recognizing a ~~death claim received late~~settlement charge on its defined benefit pension plan, which was previously discussed in the ~~year and a financial floor taking hold which caused increased earnings from a higher rate of return on certain policies. Finally, and unfavorably impacting net income were~~MD&A. Other significant increases to ~~total employee~~non-interest expense between years were higher incentive compensation and health care costs aand additional expense recognized for the Somerset County branch acquisition. Finally, non-interest expense was unfavorably impacted by higher ~~level of~~professional fees, FDIC insurance expense and ~~increased professional fees.~~occupancy costs.

The wealth management segment’s net income contribution was $2.9 million in 2021 compared to $2.0 million in 2020 ~~compared to~~and $1.9 million in ~~2019 and $1.8 million in 2018.~~2019. The increase is due to wealth management fees increasing ~~in both time periods~~ as ~~this segment was positively impacted by management’s effective execution of managing client accounts. The~~the entire wealth management ~~segment~~group has ~~been resilient and~~ performed exceptionally well through the pandemic, actively working with clients to increase the value of their holdings in ~~spite of~~ the ~~volatility of the~~financial markets and a major market value decline that occurred in late March. The wealth management segment also benefitted from a lower level of meals & travel related expenses due to travel restrictions from the pandemic.adding new business. Slightly offsetting ~~these~~this favorable ~~items~~performance were higher levels of professional fees ~~incentive compensation~~ and ~~equipment~~total employee costs. Overall, the fair market value of trust assets under administration totaled ~~$2.481~~$2.7 billion at December 31, 2021, an improvement from the early pandemic fair market value low point at March 31, 2020, ~~an increase of $243~~exceeding by $728.7 million, or ~~10.9%, from the December 31, 2019 total of $2.238 billion.~~36.7%.

The investment/parent segment reported a net loss of ~~$7.5~~$7.8 million in ~~2020,~~2021, which was greater than the net loss of ~~$6.8~~$7.5 million in ~~2019~~2020 and ~~$5.1~~ $6.8 million in ~~2018.~~2019. The increased loss in 2021 was due to the Company having to write off the remaining portion of unamortized issuance costs from existing subordinated debt and trust preferred securities that were replaced by the private placement of $27 million in subordinated notes on August 26, 2021, This write-off caused $202,000 of additional borrowings interest expense during the third quarter of 2021. Also, the original debt instruments did not leave the balance sheet until September 30, 2021 as per terms required to appropriately retire the existing debt. Therefore, there was one full month of the new and the old debt instruments being on our balance sheet in September causing additional interest expense. The Company did recognize approximately $147,000 of borrowings intereset expense savings since the new subordinated debt has a significantly lower cost than the old debt instruments. This interest expense savings will continue to positively impact this segment in the future. This segment also benefitted from a higher level of interest income ~~decreasing by~~from the securities portfolio due to a higher ~~amount than~~volume of securities. As a result of the ~~decrease~~increased level of liquidity on the Company’s balance sheet, management elected to ~~total short term FHLB borrowings interest expense. Also, short-term investment interest income decreased~~more profitably deploy these funds into the securities portfolio as opposed to leaving them in 2020 even though the Company experienced exceptionally strong growth in its liquidity position between years from the significant influx of deposits that resulted from the government stimulus programs. The yields on commercial paper decreased significantly during the second half of 2020low yielding federal funds sold. Finally, and ~~resulted in reduced interest income. The greater net loss at the segment~~ also ~~results from higher employee costs and greater miscellaneous expenses. Finally, and~~ favorably impacting this segment ~~there were no security sale gains or losses recognized during 2020 after this segment recognized a net loss~~was the recognition of ~~$382,000 in 2019 due to~~ an ~~impairment charge on a CRA investment which more than offset net~~$84,000 security sale gain ~~income.~~

For greater discussion on the future strategic direction of the Company’s key business segments, see “Management’s Discussion and Analysis — Forward Looking Statements.” For a more detailed analysis of the segment results, see Note 23.in 2021 after no gain was recognized last year.

BALANCE SHEET. The Company’s total consolidated assets of ~~$1.280~~$1.336 billion at December 31, ~~2020~~2021 increased by ~~$108.5~~$52.8 million, or ~~9.3%~~4.1%, from the ~~$1.171~~$1.283 billion level at December 31, ~~2019. The increase to total consolidated assets~~2020. This change was ~~due~~related, primarily, to ~~a $90.8~~increased levels of cash and cash equivalents, investment securities, loans, and other assets. Specifically, cash and cash equivalents increased $9.6 million, or ~~10.2%~~30.5%, increase in total loans, a $6.7 million, or 3.7%, increase in investment securities, and a $9.3 million, or 42.1%, increase in cash balances. Overall, our loan portfolio benefitted from the increasing commercial loan production that began late in the third quarter and continued throughout the fourth quarter. We also continued to experience strong residential mortgage loan production. This commercial and residential mortgage

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loan growth combined with AmeriServ’s participation in the Small Business Administration’s (SBA) 100% guaranteed Paycheck Protection Program (PPP) resulted in a higher level of loans. The Company was selective in 2020 when purchasing the more typical types of securities that have been purchased historically as the ~~market was less favorable for purchases. To somewhat offset the unfavorable market for the more traditional types of purchases, the~~ Company has been active since March purchasing corporate securities, particularly subordinated debt issued by other financial institutions along with taxable municipal securities. Our liquidity position continues to be strong due to theexperienced a significant influx of deposits ~~that resulted~~resulting from the government stimulus programs and financial assistance provided to municipalities and school districts. Our liquidity position was also positively impacted by the Somerset County branch and deposit acquisition completed in May 2021, which provided approximately $42 million of additional deposits. These deposit increases were partially offset by the maturity of a $33 million institutional deposit late in the third quarter of 2021. Total investment securities increased $28.5 million, or 15.1%, as ~~customers~~the steepening of the U.S. Treasury yield curve improved the yield for federal agency mortgage-backed securities and federal agency bonds, making these types of securities more attractive for purchase. The Company also continued to purchase corporate and taxable municipal securities to maintain a well-diversified portfolio. In addition, loans, net of unearned fees, and loans held for sale increased by $7.7 million, or 0.8%, as a result of the higher levels of commercial real estate and residential mortgage loan production. The overall total loan portfolio volume stabilized during the second half of the year as additional loan growth was offset by a high level of early payoff activity, particularly during the fourth quarter. Also, PPP loans continue to ~~be cautious~~decline as borrowers complete the forgiveness process. Finally, other assets increased $11.8 million, or 89.4%, as a result of an increase in the positive balance of the accrued pension liability, which totaled $19.5 million and ~~are demonstrating reduced spending activity~~$3.0 million as of December 31, 2021 and 2020, respectively. Due to the positive (debit) balance of the accrued pension liability, it was reclassified to other assets on the Consolidated Balance Sheets as of December 31, 2021 and 2020. The positive value of the accrued pension liability increased as a result of the $8.0 million contribution made in 2021 and the revaluation of the obligation due to the ~~economic uncertainty.~~recognition of the settlement charge.

~~The Company’s~~Total deposits ~~at period end reached a record level and~~ increased by ~~$94.4~~$84.5 million, or ~~9.8%~~8.0%, ~~reflecting~~and remained significantly higher than historical levels in 2021. As previously mentioned, this robust growth is the ~~benefit~~result of the government stimulus programs and ~~reduced consumer spending in~~the Somerset County branch acquisition which were partially offset by the maturity of a large institutional deposit. As of December 31, 2021, the 25 largest depositors represented 18.9% of total deposits, which is a decrease from December 31, 2020 when it was 21.1%. Total borrowings have decreased by $41.2 million, or 36.2%, since year-end 2020. ~~Total~~The decrease was driven,

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primarily, by a lower level of both short-term borrowings and FHLB term advances. Specifically, at December 31, 2021, the Company had no short-term borrowings ~~increased $13.6~~outstanding as compared to $24.7 million ~~or 17.9%. Specifically, total~~at December 31, 2020. In addition, FHLB term advances ~~increased~~decreased by ~~$11.3~~$22.3 million, or ~~21.1%~~34.4%, and totaled ~~$65.0 million.~~$42.7 million at December 31, 2021. The current strong liquidity position has allowed the Company ~~has utilized these~~to paydown short-term borrowings and FHLB advances. However, the Company continues to utilize the FHLB term advances to help manage interest rate ~~risk~~risk. Partially offsetting the decrease in short-term and ~~take advantage~~FHLB borrowings was the previously mentioned subordinated debt transaction. The Company completed a private placement of $27 million in fixed-to-floating rate subordinated notes on August 26, 2021 and used approximately $20 million of the ~~lower yield curve~~net proceeds to ~~prudently extend borrowings. During 2020, the rate on certain FHLB term advances was lower than the rate on overnight borrowed funds.~~retire it existing subordinated debt and trust preferred securities.

~~Total stockholders’~~The Company’s total shareholders’ equity increased by ~~$5.8~~$12.2 million, or ~~5.9%~~11.6%, since year-end ~~2019.~~2020. Capital was increased during ~~2020~~2021 by the Company’s ~~$4.6~~$7.1 million of net income and the ~~$1.8~~$8.8 million positive impact ~~experienced due to~~on accumulated other comprehensive loss from the ~~improved market value~~recording of the ~~available for sale investment securities portfolio,~~settlement charge in connection with the defined benefit pension plan and the ~~$1.1 million positive impact from the annual~~ revaluation of the ~~Company’s~~ pension obligation. Slightly offsetting these increases was the $1.7 million common stock cash dividend and ~~$151,000~~the $2.2 million negative impact experienced due to the reduced market value of ~~common stock repurchases.~~the available for sale investment securities portfolio. The Company returned approximately ~~41%~~24% of our ~~2020~~2021 earnings to our shareholders through the ~~accretive common stock repurchases and~~ quarterly common stock cash dividend. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of ~~12.93%~~14.04% and an asset leverage ratio of ~~9.29%~~8.17% at December 31, ~~2020.~~2021. The Company’s book value per common share was ~~$6.12,~~$6.82, its tangible book value per common share (non-GAAP) was ~~$5.42~~$6.02 and its tangible common equity to tangible assets ratio (non-GAAP) was ~~7.29%~~7.78% at December 31, ~~2020.~~2021.

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. The following table sets forth the calculation of the Company’s tangible common equity ratio and tangible book value per share at December 31, ~~2020, 2019,~~2021 and ~~2018~~2020 (in thousands, except share and ratio data):


	AT DECEMBER 31,									AT DECEMBER 31,
	2020			2019			2018			2021			2020
Total shareholders’ equity	$	104,399		$	98,614		$	97,977		$	116,549		$	104,399
Less: Goodwill		11,944			11,944			11,944
Tangible equity		92,455			86,670			86,033
Less: Intangible assets											13,769			11,944
Tangible common equity											102,780			92,455
Total assets		1,279,713			1,171,184			1,160,680			1,335,560			1,282,733
Less: Goodwill		11,944			11,944			11,944
Less: Intangible assets											13,769			11,944
Tangible assets		1,267,769			1,159,240			1,148,736			1,321,791			1,270,789
Tangible common equity ratio (non-GAAP)		7.29	%		7.48	%		7.49	%		7.78	%		7.28	%
Total shares outstanding		17,060,144			17,057,871			17,619,303			17,081,500			17,060,144
Tangible book value per share (non-GAAP)	$	5.42		$	5.08		$	4.88		$	6.02		$	5.42

LIQUIDITY. ~~The~~Although leveling off somewhat in the fourth quarter of 2021, the Company’s liquidity position continues to be ~~exceptionally~~ strong due to effective business development efforts as well as the significant influx of deposits that resulted from the government stimulus ~~programs and as customers continue to be cautious and are demonstrating reduced spending activity due to~~programs.. Also, deposit levels were positively impacted in the ~~economic uncertainty. As a result total deposits on December 31, 2020 reached a record level at 1.055 billion.~~second quarter of 2021 by the Somerset County branch acquisition. In addition, the Company’s loyal core deposit base continues to prove to be a source of strength for the Company during periods of market volatility. As a result, the Company continued to experience significantly higher than historical levels of total average deposits in 2021 averaging $1.154 billion for the year. Total deposits did decrease late in the third quarter of 2021 due to the maturity of a $33 million institutional deposit that had a cost of 2.95%, which is mentioned previously in this document. 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 ~~were~~increased during 2021 and continue to be higher than they have been historically which ~~presented~~presents the challenge of profitably deploying this ~~excess~~increased liquidity given ~~a steady decline in~~the current low yields on ~~short term~~short-term investment ~~products~~products. An additional challenge is the uncertainty regarding the duration that the increased liquidity will remain on the balance sheet which will be determined by customer behavior as ~~2020~~the economic conditions

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~~progressed. The pressure~~change. Note that management’s decision to ~~find a suitable return on these excess liquid funds eased during~~allow the ~~fourth~~previously mentioned high cost, institutional deposit to mature in the third quarter ~~given the loan growth that occurred. Due to the loan growth, short term investment balances returned~~resulted in total short-term investments declining to a more ~~normal, lower~~manageable level. In addition to the commercial real estate loan growth experienced during the year and greater level of residential mortgage loans being retained in the ~~fourth quarter~~portfolio, a portion of ~~2020.~~the increased liquidity was invested in additional securities to more profitably deploy the increased funds. We strive to operate our loan to deposit ratio in a range of 80% to 100%. ~~At December 31, 2020, the~~The Company’s loan to deposit ratio was ~~92.7%. Given current commercial~~86.5% at December 31, 2021. The Company has ample capacity to continue to grow its loan ~~pipelines, which~~portfolio and is strongly positioned to provide the necessary assistance to our customers and our community as they continue their recovery from the COVID-19 pandemic and respond to an improving economy. We are ~~now at pre-pandemic levels, we are optimistic that we can~~also well positioned to service our existing loan pipeline and grow our loan to deposit ratio ~~and remain~~while remaining within our guideline parameters. ~~Also, we are positioned well to support our local economy and provide the necessary assistance to our community partners during this period of pandemic.~~

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by ~~$9.3~~$9.6 million from December 31, ~~2019,~~2020, to ~~$31.5~~$41.1 million at December 31, ~~2020,~~2021, due to ~~$106.0 million of cash provided by financing activities which more than offset $95.3 million~~$488,000 of cash used in investing activities ~~and $1.4~~being more than offset by $9.9 million of cash ~~used in~~provided by operating activities and $146,000 of cash provided by financing activities. Within financing activities, deposits increased by ~~$94.4~~$42.1 million while total FHLB borrowings ~~also increased~~declined as term advances ~~increased~~decreased by ~~$11.3~~$22.3 million and short-term borrowings ~~increased~~decreased by ~~$2.3~~$24.7 million. Also, within financing activities, the $26.6 million net new subordinated debt issuance more than offset the $19.7 million redemption of the old subordinated debt and trust preferred securities. Within investing activities, cash advanced for new loans originated totaled ~~$301.2~~$313.1 million and was ~~$89.0~~$11.6 million higher than the ~~$212.2~~$301.5 million of cash received from loan principal payments. Also, within investing activities, $77.9 million of investment securities purchases more than offset $45.5 million of proceeds from maturities of investment securities. Within operating activities, ~~$87.1~~$13.8 million of mortgage loans held for sale were originated while ~~$87.3~~$19.7 million of mortgage loans were sold into the secondary market.

The holding company had ~~$5.9~~$9.3 million of cash, short-term investments, and investment securities at December 31, ~~2020.~~2021. Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. At December 31, ~~2020,~~2021, our subsidiary Bank had ~~$12.6~~$13.1 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that dividend payments from the Trust Company approximate 75% of annual net income. Overall, we believe that the holding company has good liquidity to meet ~~its trust preferred debt service requirements,~~ its subordinated debt interest payments and its common stock dividend.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investments, ~~time~~interest bearing deposits with banks, and federal funds sold. These assets totaled ~~$31.5~~$41.1 million and ~~$22.2~~$31.5 million at December 31, ~~2020~~2021 and ~~December 31, 2019,~~2020, respectively. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the FHLB systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bank is a member of the FHLB, which provides the opportunity to obtain short- to longer-term advances based upon the Company’s investment in certain residential mortgage, commercial real estate, and commercial and industrial loans. At December 31, ~~2020,~~2021, the Company had ~~$329~~$365 million of overnight borrowing availability at the FHLB, ~~$30~~$32 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

CAPITAL RESOURCES. The ~~Company~~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 ~~10.06%~~10.29%, the tier 1 capital ratio was ~~11.20%~~10.29%, and the total capital ratio was ~~12.93%~~14.04% at December 31, ~~2020.~~2021. The Company’s tier 1 leverage ratio was ~~9.29%~~8.17% at December 31, ~~2020.~~2021. Total regulatory capital was favorably impacted by the August 26, 2021 issuance of $27 million of subordinated debt as described in Note 24, Regulatory Capital. We anticipate that we will maintain our strong capital ratios throughout ~~2021.~~2022.

Capital generated from earnings will be utilized to pay the common stock cash dividend and will support controlled balance sheet growth. Our common dividend payout ratio for the full year ~~2020~~2021 was ~~37.0%~~24.4%. Total Parent Company cash was ~~$5.9~~$9.3 million at December 31, ~~2020.~~2021. 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 ~~348%~~

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347% of regulatory capital at December 31, ~~2020. While~~2021. It should be noted that this ratio improved from 348% at December 31, 2020 even though total non-owner occupied commercial real estate loans grew between years. The improvement in this ratio is a direct result of the Parent Company downstreaming $3.5 million of capital to the Bank. The greater level of capital at the Bank creates additional capacity for future non-owner occupied commercial real estate loan growth. Additionally, while we work through the COVID-19 pandemic, our focus is on preserving capital to support customer lending and ~~managing heightened credit risk due~~allow the Company to take advantage of opportunities that should result from the ~~downturn~~continued improvement in the economy. ~~Additionally, we~~We currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its current rate of $0.025 per quarter. At December 31, 2021, the Company had approximately 17.1 million common shares outstanding.

~~Table of Contents~~

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”)~~(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.

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


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

In the first quarter of 2020, the Company completed the common stock repurchase program, which it had announced on April 16, 2019, where it bought back 526,000 shares, or 3%, of its common stock over a 12-month period at a total cost of $2.23 million. Specifically, during the first three months of 2020, the Company was able to repurchase 35,962 shares of its common stock and return $151,000 of capital to its shareholders through this program. Evaluation of a new common stock buyback program is on hold. At December 31, 2020, the Company had approximately 17.1 million common shares outstanding.

INTEREST RATE SENSITIVITY. Asset/liability management involves managing the risks associated with changing interest rates and the resulting impact on the Company’s net interest income, net income and capital. The management and measurement of interest rate risk at the Company is performed by using the following tools: 1)(i) simulation modeling, which analyzes the impact of interest rate changes on net interest income, net income and capital levels over specific future time periods. The simulation modeling forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments and changes in the volumes and rates of various loan and deposit categories. The simulation modeling incorporates assumptions about reinvestment and the repricing characteristics of certain assets and liabilities without stated contractual maturities; 2)(ii) market value of portfolio equity sensitivity analysis; and 3)(iii) static GAP analysis, which analyzes the extent to which interest rate sensitive assets and interest rate sensitive liabilities are matched at specific points in time. The overall interest rate risk position and strategies are reviewed by senior management and the Company’s Board of Directors on an ongoing basis.

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The following table presents a summary of the Company’s static GAP positions at December 31, ~~2020:~~2021:

OVER

3 MONTHS

6 MONTHS

3 MONTHS OR

THROUGH

OVER

INTEREST SENSITIVITY PERIOD

LESS

6 MONTHS

1 YEAR

TOTAL

(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)

RATE SENSITIVE ASSETS:

Loans and loans held for sale

288,503

80,900

94,369

522,265

986,037

Investment securities

33,287

10,233

12,299

161,103

216,922

Short-term assets

16,353

—

16,353

Regulatory stock

2,692

—

2,125

4,817

Bank owned life insurance

—

38,842

—

38,842

Total rate sensitive assets

340,835

91,133

145,510

685,493

1,262,971

RATE SENSITIVE LIABILITIES:

Deposits:

Non-interest bearing demand deposits

—

211,106

Interest bearing demand deposits

77,244

972

1,943

155,423

235,582

Savings

570

1,140

130,883

133,163

Money market

66,879

6,985

13,970

179,368

267,202

Certificates of deposit

94,828

33,886

56,747

106,864

292,325

Total deposits

239,521

42,413

73,800

783,644

1,139,378

Borrowings

4,868

3,909

14,410

49,650

72,837

Total rate sensitive liabilities

244,389

46,322

88,210

833,294

1,212,215

INTEREST SENSITIVITY GAP:

Interval

96,446

44,811

57,300

(147,801)

—

Cumulative

96,446

141,257

198,557

50,756

Period GAP ratio

1.39X

1.97X

1.65X

0.82X

Cumulative GAP ratio

1.39

1.49

1.52

1.04

Ratio of cumulative GAP to total assets

7.22

10.58

14.87

3.80

OVER

OVER

3 MONTHS

6 MONTHS

3 MONTHS OR

THROUGH

THROUGH

OVER

INTEREST SENSITIVITY PERIOD

LESS

6 MONTHS

1 YEAR

1 YEAR

TOTAL

(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
RATE SENSITIVE ASSETS:

Loans and loans held for sale

$
364,560

$
76,976

$
121,841

$
414,968

$
978,345
Investment securities

52,860

10,962

18,489

106,076

188,387
Short-term assets

11,077

—

—

—

11,077
Regulatory stock

4,821

—

—

2,125

6,946
Bank owned life insurance

—

—

39,208

—

39,208
Total rate sensitive assets

$
433,318

$
87,938

$
179,538

$
523,169

$
1,223,963
RATE SENSITIVE LIABILITIES:










Deposits:










Non-interest bearing demand deposits

$
—

$
—

$
—

$
177,533

$
177,533
Interest bearing demand deposits

63,153

950

1,901

134,965

200,969
Savings

482

482

964

110,425

112,353
Money market

56,874

5,491

10,982

146,572

219,919
Certificates of deposit of $100,000 or more

16,919

8,139

20,588

3,285

48,931
Other time deposits

117,587

25,440

36,101

116,087

295,215
Total deposits

255,015

40,502

70,536

688,867

1,054,920
Borrowings

34,617

4,075

10,646

64,742

114,080
Total rate sensitive liabilities

$
289,632

$
44,577

$
81,182

$
753,609

$
1,169,000
INTEREST SENSITIVITY GAP:










Interval

143,686

43,361

98,356

(230,440)

—
Cumulative

$
143,686

$
187,047

$
285,403

$
54,963

$
54,963
Period GAP ratio

1.50X

1.97X

2.21X

0.69X


Cumulative GAP ratio

1.50

1.56

1.69

1.05


Ratio of cumulative GAP to total assets

11.23
%

14.62
%

22.30
%

4.29
%

When December 31, ~~2020~~2021 is compared to December 31, ~~2019,~~2020, the Company’s cumulative GAP ratio through one year indicates that the Company’s balance sheet is still asset sensitive and the level of asset sensitivity increased between years. We continue to see loan customer preference for fixed rate loans given the low overall level of interest rates. ~~As a result~~The Company demonstrated significantly higher than historical levels of both loans and deposits in 2021. This growth is due to successful business development efforts, the impact from the government stimulus programs and the ~~impact that the pandemic had on consumer spending activity, both loans and deposits increased to record levels in 2020.~~2021 Somerset County branch acquisition. The growth experienced in the loan portfolio, investment securities, and ~~short term investments~~short-term assets was funded by the increase in total ~~deposits and also~~deposits. In addition, there was a ~~modestly higher level of~~significant decrease in overnight ~~short term borrowings. Overnight~~ borrowings which are immediately impacted by changes to national interest rates. ~~We continue to have a relatively consistent level~~Even though the balance of FHLB term advances ~~with~~at December 31, 2021 decreased $22.3 million, or 34.4%, from the ~~FHLB~~prior year, the Company continues to utilize such advances to help manage our interest rate risk position. The balance of FHLB term advance borrowings at December 31, 2020 is $11.3 million higher than the December 31, 2019 balance as the Company took advantage of the lower yield curve to prudently extend borrowings. The rate on certain FHLB term advances is lower than the rate on overnight borrowings.

Management places primary emphasis on simulation modeling to manage and measure interest rate risk. The Company’s asset/liability management policy seeks to limit net interest income variability over the first twelve months of the forecast period to -5.0% and -7.5%, which include interest rate movements of 100 and 200 basis points, respectively. Additionally, the Company also uses market value sensitivity measures to further evaluate the balance sheet exposure to changes in interest rates. The Company monitors the trends in market value of portfolio equity sensitivity analysis on a quarterly basis.

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

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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		VARIABILITY OF		CHANGE IN
	NET INTEREST		MARKET VALUE OF		NET INTEREST		MARKET VALUE OF
INTEREST RATE SCENARIO	INCOME		PORTFOLIO EQUITY		INCOME		PORTFOLIO EQUITY
200 bp increase	6.8	%	62.3	%	4.5	%	31.7	%
100 bp increase	3.9		35.4		2.2		18.4
100 bp decrease	(1.7)		(27.3)		(5.1)		(0.1)

The Company believes that its overall interest rate risk position is well controlled. The variability of net interest income is positive in the upward rate shocks due to the Company’s short duration investment securities portfolio and the scheduled repricing of loans tied to an index, such as LIBOR or prime. Also, the Company ~~will continue~~has effectively utilized interest rate swaps for interest rate risk management purposes. The interest rate swaps allow our customers to lock in low interest rates while the Company retains the benefit of interest rates moving with the market. Regarding interest bearing liabilities, management continues its disciplined approach to price its core deposit accounts in a controlled but competitive manner. The variability of net interest income is negative in the 100 basis point downward rate scenario as the Company has more exposure to assets repricing downward to a greater extent than liabilities due to the absolute low level of interest rates with the fed funds rate currently at a targeted range of 0% to 0.25%. The market value of portfolio equity increases in the upward rate shocks due to the improved value of the Company’s core deposit base. Negative variability of market value of portfolio equity occurs in the downward rate shock due to a reduced value for core deposits.

Within the investment portfolio at December 31, ~~2020, 76.0%~~2021, 75.0% of the portfolio is classified as available for sale and ~~24.0%~~25.0% as held to maturity. The available for sale classification provides management with greater flexibility to manage the securities portfolio to better achieve overall balance sheet rate sensitivity goals and provide liquidity if needed. The mark to market of the available for sale securities does inject more volatility in the book value of equity, but has no impact on regulatory capital. There are 4189 securities that are temporarily impaired at December 31, ~~2020.~~2021. The Company reviews its securities quarterly and has asserted that at December 31, ~~2020,~~2021, the impaired value of securities represents temporary declines due to movements in interest rates and the Company does have the ability and intent to hold those securities to maturity or to allow a market recovery. Furthermore, it is the Company’s intent to manage its long-term interest rate risk by continuing to sell a portion of newly originated fixed-rate 30-year mortgage loans into the secondary market (excluding construction and any jumbo loans). The Company also sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year ~~2020, 60%~~2021, 21.1% of all residential mortgage loan production was sold into the secondary market. The Company revised strategy in 2021 and retained a higher percentage of our residential mortgage loan production in the loan portfolio as opposed to selling into the secondary market. This strategic change allowed us to more profitably deploy a portion of the increased liquidity that we have on our balance sheet.

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The amount of loans outstanding by category as of December 31, ~~2020,~~2021, which are due in (i) one year or less, (ii) more than one year through five years, (iii) more than five years through 15 years, and ~~(iii)~~(iv) over ~~five~~15 years, are shown in the following table. Loan balances are also categorized according to their sensitivity to changes in interest rates.

MORE

THAN ONE

THAN FIVE

ONE

YEAR

ONE

YEAR

YEARS

YEAR OR

THROUGH

OVER FIVE

TOTAL

YEAR OR

THROUGH

OVER 15

TOTAL

LESS

FIVE YEARS

YEARS

LOANS

LESS

FIVE YEARS

15 YEARS

YEARS

LOANS

(IN THOUSANDS, EXCEPT RATIOS)

Commercial and industrial

30,456

147,223

31,827

209,506

23,841

79,728

11,609

19,004

134,182

Paycheck Protection Program (PPP)

185

17,126

—

17,311

Commercial loans secured by owner occupied real estate

1,687

18,866

74,933

95,486

6,064

10,891

79,379

3,310

99,644

Commercial loans secured by non-owner occupied real estate

38,319

123,198

239,234

400,751

31,359

124,944

271,822

2,700

430,825

Real estate – residential mortgage

15,948

39,644

200,647

256,239

14,898

42,488

183,405

48,188

288,979

Consumer

5,816

4,207

6,340

16,363

5,696

3,662

1,428

4,310

15,096

Total

92,226

333,138

552,981

978,345

82,043

278,839

547,643

77,512

986,037

Loans with fixed-rate

50,339

249,623

278,013

577,975

39,577

197,130

257,417

60,147

554,271

Loans with floating-rate

41,887

83,515

274,968

400,370

42,466

81,709

290,226

17,365

431,766

Total

92,226

333,138

552,981

978,345

82,043

278,839

547,643

77,512

986,037

Percent composition of maturity

9.4

34.1

56.5

100.0

8.3

28.3

55.5

7.9

100.0

Fixed-rate loans as a percentage of total loans

59.1

56.2

Floating-rate loans as a percentage of total loans

40.9

43.8

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The loan maturity information is based upon original loan terms and is not adjusted for principal paydowns and rollovers. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal.

The following table presents the total loans due after one year that have predetermined (fixed) interest rates and floating interest rates as of December 31, 2021.


	FIXED-RATE		FLOATING-RATE
	LOANS		LOANS		TOTAL

	(IN THOUSANDS)
Commercial and industrial	$	99,727	$	10,614	$	110,341
Paycheck Protection Program (PPP)		17,126		—		17,126
Commercial loans secured by owner occupied real estate		6,225		87,355		93,580
Commercial loans secured by non-owner occupied real estate		133,526		265,940		399,466
Real estate – residential mortgage		253,436		20,645		274,081
Consumer		4,654		4,746		9,400
Total	$	514,694	$	389,300	$	903,994

OFF BALANCE SHEET ARRANGEMENTS. The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending. The Company had various outstanding commitments to extend credit approximating ~~$213.9~~$216.6 million and standby letters of credit of ~~$13.3~~$13.1 million as of December 31, ~~2020.~~2021. The Company can also use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. As of December 31, ~~2020,~~2021, the Company had ~~$93.5~~$134.6 million in the notional amount of interest rate

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swaps outstanding, with a fair value of ~~$3.3~~$1.2 million. In addition, 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 notional amount of the RPA outstanding at December 31, 2021 was $2.5 million, with a fair value of zero.

As of December 31, ~~2020~~2021 and ~~2019,~~2020, municipal deposit letters of credit issued by the Federal Home Loan Bank of Pittsburgh on behalf of AmeriServ Financial Bank naming applicable municipalities as beneficiaries totaled ~~$61.3~~$62.2 million and ~~$41.5~~$61.3 million, respectively. The letters of credit serve as collateral, in place of pledged securities, for municipal deposits maintained at AmeriServ Financial Bank.

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

ACCOUNT — Pension liability

BALANCE SHEET REFERENCE — Other ~~liabilities~~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 ~~employees~~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 17 of the Notes to Consolidated Financial Statements.

ACCOUNT — Allowance for loan losses

BALANCE SHEET REFERENCE — Allowance for loan losses

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

DESCRIPTION

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

~~Table of Contents~~

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 ~~$8.8~~$9.5 million, or ~~78%~~76%, of the total allowance for loan losses at December 31, ~~2020~~2021 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and troubled debt restructured (TDR) loans, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for loan losses may be required that would adversely impact earnings in future periods.

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ACCOUNT — ~~Goodwill~~Intangible assets

BALANCE SHEET REFERENCE — ~~Goodwill~~Intangible assets

INCOME STATEMENT REFERENCE — ~~Goodwill impairment~~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 cash flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are susceptible to significant changes. The Company routinely utilizes the services of an independent third party that is regarded within the banking industry as an expert in valuing core deposits to monitor the ongoing value and changes in the Company’s core deposit base. These core deposit valuation updates are based upon specific data provided from statistical analysis of the Company’s own deposit behavior to estimate the duration of these non-maturity deposits combined with market interest rates and other economic factors.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Company’s goodwill relates to value inherent in the banking and wealth management businesses, and the value is dependent upon the Company’s ability to provide quality, cost-effective services in the face of free competition from other market participants on a regional basis. This ability relies upon continuing investments in processing systems, the development of value-added service features and the ease of use of the Company’s services. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted and the loyalty of the Company’s deposit and customer base over a longer time frame. The quality and value of a Company’s assets is also an important factor to consider when performing goodwill impairment testing. A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective value added services over sustained periods can lead to the impairment of goodwill.

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~~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.

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In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of December 31, ~~2020,~~2021, 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

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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 income taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

ACCOUNT — Investment ~~Securities~~securities

BALANCE SHEET REFERENCE — Investment securities

INCOME STATEMENT REFERENCE — Net realized gains ~~(losses)~~ on investment securities

DESCRIPTION

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Operations. At December 31, ~~2020,~~2021, the unrealized losses in the available-for-sale security portfolio were comprised of securities issued by government agencies or government sponsored agencies and certain high quality corporate and taxable municipal securities. The Company believes the unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

FORWARD LOOKING STATEMENTS

THE STRATEGIC FOCUS:

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

●

Shareholders — We strive to increase earnings per share; identifying and managing revenue growth and expense ~~control and reduction;~~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

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Company’s risk profile to improve asset yields and increase profitability and continue to identify and implement technological opportunities and advancements to drive efficiency for the holding company and its affiliates.

●

Customers — The Company expects to provide exceptional customer service, identifying opportunities to enhance the Banking for Life philosophy by providing products and services to meet the financial needs in every step through a customer’s life cycle, and further defining the role technology plays in anticipating and satisfying customer needs. We anticipate providing leading banking systems and solutions to improve and enhance customers’ Banking for Life experience. We will provide customers with a comprehensive offering of financial solutions including retail and business banking, home mortgages and wealth management at one location. We have upgraded and modernized select branches to be more inviting and technologically savvy to

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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-K contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results, and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan” or similar expressions. These forward-looking statements are based upon current expectations, are subject to risk and uncertainties and are applicable only as of the dates of such statements. Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Form 10-K, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Form 10-K. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include the following: (i) the effect of changing regional and national economic conditions; (ii) the effects of trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve; (iii) significant changes in interest rates and prepayment speeds; (iv) inflation, stock and bond market, and monetary fluctuations; (v) credit risks of commercial, real estate, consumer, and other lending activities; (vi) changes in federal and state banking and financial services laws and regulations; (vii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (viii) the timely development of competitive new products and services by the Company and the acceptance of those products and services by customers and regulators (when required); (ix) the willingness of customers to substitute competitors’ products and services for those of the Company and vice versa; (x) changes in consumer spending and savings habits; (xi) unanticipated regulatory or judicial proceedings; (xii) potential risks and uncertainties also include those relating to the duration of the COVID-19 outbreak and its variants, and actions that may be taken by governmental authorities to contain the outbreak or to treat its ~~impact;~~impact, including the distribution and effectiveness of COVID-19 vaccines; and (xiii) other external developments which could materially impact the Company’s operational and financial performance.

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

~~Table of Contents~~

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, and liquidity risk. The Company seeks to identify, manage and monitor these risks with policies, procedures, and various levels of managerial and Board oversight. The Company’s objective is to optimize profitability while managing and monitoring risk within Board approved policy limits.

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frequencies and the maturity structure of assets, liabilities, and hedges. The Company uses its asset liability management policy and hedging policy to control and manage interest rate risk. For information regarding the effect of changing interest rates on the Company’s net interest income and market value of its investment portfolio, see “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations — Interest Rate Sensitivity.”

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors, debtholders and to fund operating expenses. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk. See “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations — Liquidity.”

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses to control and manage credit risk. The Company’s investment policy and hedging policy strictly limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities.

For information regarding the market risk of the Company’s financial instruments, see “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations — Interest Rate Sensitivity.” The Company’s principal market risk exposure is to interest rates.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AMERISERV FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS


	AT DECEMBER 31,
	2021		2020

	(IN THOUSANDS,
	EXCEPT SHARE DATA)
ASSETS
Cash and due from depository institutions	$	24,748	$	20,427
Interest bearing deposits		10,942		2,585
Short-term investments		5,411		8,492
Cash and cash equivalents		41,101		31,504
Investment securities:
Available for sale, at fair value		163,171		144,165
Held to maturity (fair value $55,516 on December 31, 2021 and $47,106 on December 31, 2020)		53,751		44,222
Loans held for sale		983		6,250
Loans		985,880		973,297
Less: Unearned income		826		1,202
Less: Allowance for loan losses		12,398		11,345
Net loans		972,656		960,750
Premises and equipment:
Operating lease right-of-use asset		667		758
Financing lease right-of-use asset		2,684		2,956
Other premises and equipment, net		14,082		14,336
Accrued interest income receivable		3,984		5,068
Intangible assets:
Goodwill		13,611		11,944
Core deposit intangible		158		—
Bank owned life insurance		38,842		39,033
Net deferred tax asset		—		1,572
Federal Home Loan Bank stock		2,692		4,821
Federal Reserve Bank stock		2,125		2,125
Other assets		25,053		13,229
TOTAL ASSETS	$	1,335,560	$	1,282,733
LIABILITIES
Non-interest bearing deposits	$	211,106	$	177,533
Interest bearing deposits		928,272		877,387
Total deposits		1,139,378		1,054,920
Short-term borrowings		—		24,702
Advances from Federal Home Loan Bank		42,653		64,989
Operating lease liabilities		682		776
Financing lease liabilities		2,899		3,109
Guaranteed junior subordinated deferrable interest debentures		—		12,970
Subordinated debt		26,603		7,534
Total borrowed funds		72,837		114,080
Net deferred tax liability		934		—
Other liabilities		5,862		9,334
TOTAL LIABILITIES		1,219,011		1,178,334
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,710,319 shares issued and 17,081,500 shares outstanding on December 31, 2021; 26,688,963 shares issued and 17,060,144 shares outstanding on December 31, 2020		267		267
Treasury stock at cost, 9,628,819 shares on December 31, 2021 and December 31, 2020		(83,280)		(83,280)
Capital surplus		146,069		145,969
Retained earnings		60,005		54,641
Accumulated other comprehensive loss, net		(6,512)		(13,198)
TOTAL SHAREHOLDERS' EQUITY		116,549		104,399
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,335,560	$	1,282,733

AT DECEMBER 31,


2020

2019

(IN THOUSANDS,

EXCEPT SHARE DATA)
ASSETS




Cash and due from depository institutions

$
20,427

$
15,642
Interest bearing deposits

2,585

2,755
Short-term investments

8,492

3,771
Cash and cash equivalents

31,504

22,168
Investment securities:




Available for sale, at fair value

144,165

141,749
Held to maturity (fair value $47,106 on December 31, 2020 and $41,082 on December 31, 2019)

44,222

39,936
Loans held for sale

6,250

4,868
Loans

973,297

883,090
Less: Unearned income

1,202

384
Less: Allowance for loan losses

11,345

9,279
Net loans

960,750

873,427
Premises and equipment:

Operating lease right-of-use asset

758

846
Financing lease right-of-use asset

2,956

3,078
Other premises and equipment, net

14,336

14,643
Accrued interest income receivable

5,068

3,449
Goodwill

11,944

11,944
Bank owned life insurance

39,033

38,916
Net deferred tax asset

1,572

3,976
Federal Home Loan Bank stock

4,821

3,985
Federal Reserve Bank stock

2,125

2,125
Other assets

10,209

6,074
TOTAL ASSETS

$
1,279,713

$
1,171,184
LIABILITIES

Non-interest bearing deposits

$
177,533

$
136,462
Interest bearing deposits

877,387

824,051
Total deposits

1,054,920

960,513
Short-term borrowings

24,702

22,412
Advances from Federal Home Loan Bank

64,989

53,668
Operating lease liabilities

776

865
Financing lease liabilities

3,109

3,163
Guaranteed junior subordinated deferrable interest debentures

12,970

12,955
Subordinated debt

7,534

7,511
Total borrowed funds

114,080

100,574
Other liabilities

6,314

11,483
TOTAL LIABILITIES

1,175,314

1,072,570
SHAREHOLDERS' EQUITY




Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,688,963 shares issued and 17,060,144 shares outstanding on December 31, 2020; 26,650,728 shares issued and 17,057,871 shares outstanding on December 31, 2019

267

267
Treasury stock at cost, 9,628,819 shares on December 31, 2020 and 9,592,857 shares on December 31, 2019

(83,280)

(83,129)
Capital surplus

145,969

145,888
Retained earnings

54,641

51,759
Accumulated other comprehensive loss, net

(13,198)

(16,171)
TOTAL SHAREHOLDERS' EQUITY

104,399

98,614
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$
1,279,713

$
1,171,184

Seeaccompanyingnotestoconsolidatedfinancialstatements.

~~Seeaccompanyingnotes~~to~~consolidatedfinancialstatements.~~

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AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	YEAR ENDED DECEMBER 31,
	2021		2020		2019

	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans
Taxable	$	40,496	$	40,518	$	42,832
Tax exempt		89		110		101
Interest bearing deposits		6		15		24
Short-term investments		54		231		293
Investment securities:
Available for sale		4,543		4,591		5,090
Held to maturity		1,481		1,417		1,427
Total Interest Income		46,669		46,882		49,767
INTEREST EXPENSE
Deposits		4,806		7,634		11,189
Short-term borrowings		1		29		288
Advances from Federal Home Loan Bank		875		1,099		1,090
Financing lease liabilities		106		112		117
Guaranteed junior subordinated deferrable interest debentures		944		1,121		1,121
Subordinated debt		854		520		520
Total Interest Expense		7,586		10,515		14,325
Net Interest Income		39,083		36,367		35,442
Provision for loan losses		1,with 100		2,375		800
Net Interest Income after Provision for Loan Losses		37,983		33,992		34,642
NON-INTEREST INCOME
Wealth management fees		11,986		10,212		9,730
Service charges on deposit accounts		965		903		1,271
Net gains on loans held for sale		664		1,523		865
Mortgage related fees		358		559		302
Net realized gains on investment securities		84		—		118
Impairment charge on other investments		—		—		(500)
Bank owned life insurance		1,117		782		521
Other income		2,587		2,296		2,466
Total Non-Interest Income		17,761		16,275		14,773
NON-INTEREST EXPENSE
Salaries and employee benefits		27,847		27,390		25,429
Net occupancy expense		2,620		2,510		2,497
Equipment expense		1,582		1,559		1,510
Professional fees		5,456		5,219		4,885
Supplies, postage and freight		668		714		605
Miscellaneous taxes and insurance		1,236		1,143		1,135
Federal deposit insurance expense		655		481		100
Branch acquisition costs		389		—		—
Other expense		6,517		5,439		5,654
Total Non-Interest Expense		46,970		44,455		41,815

PRETAX INCOME		8,774		5,812		7,600
Provision for income taxes		1,702		1,214		1,572
NET INCOME	$	7,072	$	4,598	$	6,028

YEAR ENDED DECEMBER 31,


2020

2019

2018

(IN THOUSANDS,

EXCEPT PER SHARE DATA)
INTEREST INCOME






Interest and fees on loans:






Taxable

$
40,518

$
42,832

$
40,938
Tax exempt

110

101

90
Interest bearing deposits

15

24

20
Short-term investments

231

293

201
Investment securities:






Available for sale

4,591

5,090

4,527
Held to maturity

1,417

1,427

1,318
Total Interest Income

46,882

49,767

47,094
INTEREST EXPENSE






Deposits

7,634

11,189

8,443
Short-term borrowings

29

288

720
Advances from Federal Home Loan Bank

1,099

1,090

797
Financing lease liabilities

112

117

—
Guaranteed junior subordinated deferrable interest debentures

1,121

1,121

1,120
Subordinated debt

520

520

520
Total Interest Expense

10,515

14,325

11,600
Net Interest Income

36,367

35,442

35,494
Provision (credit) for loan losses

2,375

800

(600)
Net Interest Income after Provision (Credit) for Loan Losses

33,992

34,642

36,094
NON-INTEREST INCOME






Wealth management fees

10,212

9,730

9,659
Service charges on deposit accounts

903

1,271

1,420
Net gains on loans held for sale

1,523

865

489
Mortgage related fees

559

302

196
Net realized gains (losses) on investment securities

—

118

(439)
Impairment charge on other investments

—

(500)

—
Bank owned life insurance

782

521

536
Other income

2,296

2,466

2,363
Total Non-Interest Income

16,275

14,773

14,224
NON-INTEREST EXPENSE






Salaries and employee benefits

27,390

25,429

24,358
Net occupancy expense

2,510

2,497

2,462
Equipment expense

1,559

1,510

1,464
Professional fees

5,219

4,885

5,039
Supplies, postage and freight

714

605

674
Miscellaneous taxes and insurance

1,143

1,135

1,062
Federal deposit insurance expense

481

100

557
Other expense

5,439

5,654

5,257
Total Non-Interest Expense

44,455

41,815

40,873

PRETAX INCOME

5,812

7,600

9,445
Provision for income taxes

1,214

1,572

1,677
NET INCOME

$
4,598

$
6,028

$
7,768

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AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

YEAR ENDED DECEMBER 31,


2020

2019

2018

(IN THOUSANDS,

EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA:






Basic:






Net income

$
0.27

$
0.35

$
0.43
Average number of shares outstanding

17,053

17,359

17,933
Diluted:

Net income

$
0.27

$
0.35

$
0.43
Average number of shares outstanding

17,063

17,440

18,037
Cash dividends declared

$
0.100

$
0.095

$
0.075


	YEAR ENDED DECEMBER 31,
	2021		2020		2019

	(IN THOUSANDS,
	EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA:
Basic:
Net income	$	0.41	$	0.27	$	0.35
Average number of shares outstanding		17,073		17,053		17,359
Diluted:
Net income	$	0.41	$	0.27	$	0.35
Average number of shares outstanding		17,114		17,063		17,440
Cash dividends declared	$	0.100	$	0.100	$	0.095

Seeaccompanyingnotestoconsolidatedfinancialstatements.

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AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	YEAR ENDED DECEMBER 31,
	2021		2020		2019

	(IN THOUSANDS)
COMPREHENSIVE INCOME
Net income	$	7,072	$	4,598	$	6,028
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan		11,189		1,454		(6,418)
Income tax effect		(2,350)		(305)		1,348
Unrealized holding gains (losses) on available for sale securities arising during period		(2,642)		2,309		4,072
Income tax effect		555		(485)		(855)
Reclassification adjustment for net realized gains on available for sale securities included in net income		(84)		—		(118)
Income tax effect		18		—		25
Other comprehensive income (loss)		6,686		2,973		(1,946)
Comprehensive income	$	13,758	$	7,571	$	4,082

YEAR ENDED DECEMBER 31,


2020

2019

2018

(IN THOUSANDS)
COMPREHENSIVE INCOME






Net income

$
4,598

$
6,028

$
7,768
Other comprehensive income (loss), before tax:






Pension obligation change for defined benefit plan

1,454

(6,418)

(244)
Income tax effect

(305)

1,348

51
Unrealized holding gains (losses) on available for sale securities arising during period

2,309

4,072

(1,810)
Income tax effect

(485)

(855)

381
Reclassification adjustment for net realized (gains) losses on available for sale securities included in net income

—

(118)

439
Income tax effect

—

25

(92)
Other comprehensive income (loss)

2,973

(1,946)

(1,275)
Comprehensive income

$
7,571

$
4,082

$
6,493

See accompanying notes to consolidated financial statements.

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AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	YEAR ENDED DECEMBER 31,
	2021		2020		2019

	(IN THOUSANDS)
COMMON STOCK
Balance at beginning of period	$	267	$	267	$	266
New common shares issued for exercise of stock options (21,356, 38,235, and 40,917 shares 2021, 2020, and 2019, respectively)		—		—		1
Balance at end of period		267		267		267
TREASURY STOCK
Balance at beginning of period		(83,280)		(83,129)		(80,579)
Treasury stock purchased (35,962 and 602,349 shares 2020 and 2019, respectively)		—		(151)		(2,550)
Balance at end of period		(83,280)		(83,280)		(83,129)
CAPITAL SURPLUS
Balance at beginning of period		145,969		145,888		145,782
New common shares issued for exercise of stock options (21,356, 38,235, and 40,917 shares in 2021, 2020, and 2019, respectively)		57		78		99
Stock option expense		43		3		7
Balance at end of period		146,069		145,969		145,888
RETAINED EARNINGS
Balance at beginning of period		54,641		51,759		46,733
Net income		7,072		4,598		6,028
Cash dividend declared on common stock ($0.100, $0.100, and $0.095 per share 2021, 2020, and 2019, respectively)		(1,708)		(1,716)		(1,642)
Cumulative effect adjustment for change in accounting principal		—		—		640
Balance at end of period		60,005		54,641		51,759
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period		(13,198)		(16,171)		(14,225)
Other comprehensive income (loss)		6,686		2,973		(1,946)
Balance at end of period		(6,512)		(13,198)		(16,171)
TOTAL STOCKHOLDERS’ EQUITY	$	116,549	$	104,399	$	98,614

YEAR ENDED DECEMBER 31,


2020

2019

2018

(IN THOUSANDS)
COMMON STOCK






Balance at beginning of period

$
267

$
266

$
266
New common shares issued for exercise of stock options (38,235, 40,917, and 24,408 shares in 2020, 2019, and 2018, respectively)

—

1

—
Balance at end of period

267

267

266
TREASURY STOCK






Balance at beginning of period

(83,129)

(80,579)

(78,233)
Treasury stock, purchased at cost (35,962, 602,349, and 533,352 shares in 2020, 2019, and 2018, respectively)

(151)

(2,550)

(2,346)
Balance at end of period

(83,280)

(83,129)

(80,579)
CAPITAL SURPLUS






Balance at beginning of period

145,888

145,782

145,707
New common shares issued for exercise of stock options (38,235, 40,917, and 24,408 shares in 2020, 2019, and 2018, respectively)

78

99

61
Stock option expense

3

7

14
Balance at end of period

145,969

145,888

145,782
RETAINED EARNINGS






Balance at beginning of period

51,759

46,733

40,312
Net income

4,598

6,028

7,768
Cash dividend declared on common stock ($0.100, $0.095, and $0.075 per share in 2020, 2019, and 2018, respectively)

(1,716)

(1,642)

(1,347)
Cumulative effect adjustment for change in accounting principal

—

640

—
Balance at end of period

54,641

51,759

46,733
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET






Balance at beginning of period

(16,171)

(14,225)

(12,950)
Other comprehensive income (loss)

2,973

(1,946)

(1,275)
Balance at end of period

(13,198)

(16,171)

(14,225)
TOTAL STOCKHOLDERS’ EQUITY

$
104,399

$
98,614

$
97,977

See accompanying notes to consolidated financial statements.

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AMERISERV FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	YEAR ENDED DECEMBER 31
	2021		2020		2019

	(IN THOUSANDS)
OPERATING ACTIVITIES
Net income	$	7,072	$	4,598	$	6,028
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		1,100		2,375		800
Depreciation and amortization expense		2,016		1,996		1,873
Amortization expense of core deposit intangible		19		—		—
Amortization of fair value adjustment on acquired time deposits		(98)		—		—
Net amortization of investment securities		222		285		279
Net realized gains on investment securities — available for sale		(84)		—		(118)
Impairment charge on other investments		—		—		500
Net gains on loans held for sale		(664)		(1,523)		(865)
Net amortization of deferred loan fees		(1,351)		(707)		(142)
Origination of mortgage loans held for sale		(13,806)		(87,140)		(49,460)
Sales of mortgage loans held for sale		19,737		87,281		46,304
Decrease (increase) in accrued interest receivable		1,084		(1,619)		40
Increase (decrease) in accrued interest payable		(490)		(525)		546
Earnings on bank-owned life insurance		(1,117)		(782)		(521)
Deferred income taxes		729		1,614		179
Stock compensation expense		43		3		7
Net change in operating leases		(94)		(89)		(67)
Other, net		(4,379)		(7,140)		(493)
Net cash provided by (used in) operating activities		9,939		(1,373)		4,890
INVESTING ACTIVITIES
Purchase of investment securities — available for sale		(61,578)		(36,519)		(18,084)
Purchase of investment securities — held to maturity		(16,272)		(9,359)		(2,257)
Proceeds from maturities of investment securities — available for sale		38,826		36,215		23,559
Proceeds from maturities of investment securities — held to maturity		6,665		4,985		3,007
Proceeds from sales of investment securities — available for sale		960		—		3,374
Purchase of regulatory stock		(1,799)		(9,979)		(13,557)
Proceeds from redemption of regulatory stock		3,928		9,143		14,092
Long-term loans originated		(313,125)		(301,210)		(205,603)
Principal collected on long-term loans		301,498		212,179		185,054
Purchases of premises and equipment		(1,241)		(1,325)		(2,821)
Proceeds from sale of other real estate owned and repossessed assets		8		63		214
Cash acquired in branch acquisition, net		40,431		—		—
Proceeds from life insurance policies		1,211		490		—
Net cash used in investing activities		(488)		(95,317)		(13,022)
FINANCING ACTIVITIES
Net increase in deposit balances		42,124		94,407		11,342
Net increase (decrease) in other short-term borrowings		(24,702)		2,290		(18,617)
Principal borrowings on advances from Federal Home Loan Bank		2,000		36,050		22,527
Principal repayments on advances from Federal Home Loan Bank		(24,336)		(24,729)		(15,580)
Principal payments on financing lease liabilities		(210)		(203)		(173)
Redemption of guaranteed junior subordinated deferrable interest debentures		(12,018)		—		—
Subordinated debt issuance, net		26,589		—		—
Redemption of subordinated debt		(7,650)		—		—
Stock options exercised		57		78		99
Purchases of treasury stock		—		(151)		(2,550)
Common stock dividend paid		(1,708)		(1,716)		(1,642)
Net cash provided by (used in) financing activities		146		106,026		(4,594)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9,597		9,336		(12,726)
CASH AND CASH EQUIVALENTS AT JANUARY 1		31,504		22,168		34,894
CASH AND CASH EQUIVALENTS AT DECEMBER 31	$	41,101	$	31,504	$	22,168

YEAR ENDED DECEMBER 31


2020

2019

2018

(IN THOUSANDS)
OPERATING ACTIVITIES

Net income

$
4,598

$
6,028

$
7,768
Adjustments to reconcile net income to net cash provided by (used in) operating activities:






Provision (credit) for loan losses

2,375

800

(600)
Depreciation and amortization expense

1,996

1,873

1,530
Net amortization of investment securities

285

279

347
Net realized (gains) losses on investment securities — available for sale

—

(118)

439
Impairment charge on other investments

—

500

—
Net gains on loans held for sale

(1,523)

(865)

(489)
Amortization of deferred loan fees

(707)

(142)

(149)
Origination of mortgage loans held for sale

(87,140)

(49,460)

(28,916)
Sales of mortgage loans held for sale

87,281

46,304

31,683
Decrease (increase) in accrued interest receivable

(1,619)

40

114
Increase (decrease) in accrued interest payable

(525)

546

302
Earnings on bank-owned life insurance

(782)

(521)

(536)
Deferred income taxes

1,614

179

2,665
Stock compensation expense

3

7

14
Net change in operating leases

(89)

(67)

—
Other, net

(7,140)

(493)

(6,188)
Net cash provided by (used in) operating activities

(1,373)

4,890

7,984
INVESTING ACTIVITIES






Purchase of investment securities — available for sale

(36,519)

(18,084)

(45,427)
Purchase of investment securities — held to maturity

(9,359)

(2,257)

(5,746)
Proceeds from maturities of investment securities — available for sale

36,215

23,559

16,299
Proceeds from maturities of investment securities — held to maturity

4,985

3,007

3,651
Proceeds from sales of investment securities — available for sale

—

3,374

9,466
Purchase of regulatory stock

(9,979)

(13,557)

(18,681)
Proceeds from redemption of regulatory stock

9,143

14,092

18,836
Long-term loans originated

(301,210)

(205,603)

(155,191)
Principal collected on long-term loans

212,179

185,054

181,582
Purchases of premises and equipment

(1,325)

(2,821)

(2,144)
Proceeds from sale of other real estate owned

63

214

46
Proceeds from life insurance policies

490

—

—
Net cash provided by (used in) investing activities

(95,317)

(13,022)

2,691
FINANCING ACTIVITIES






Net increase in deposit balances

94,407

11,342

1,226
Net increase (decrease) in other short-term borrowings

2,290

(18,617)

(8,055)
Principal borrowings on advances from Federal Home Loan Bank

36,050

22,527

12,492
Principal repayments on advances from Federal Home Loan Bank

(24,729)

(15,580)

(12,000)
Principal payments on financing lease liabilities

(203)

(173)

—
Stock options exercised

78

99

61
Purchases of treasury stock

(151)

(2,550)

(2,346)
Common stock dividend paid

(1,716)

(1,642)

(1,347)
Net cash provided by (used in) financing activities

106,026

(4,594)

(9,969)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

9,336

(12,726)

706
CASH AND CASH EQUIVALENTS AT JANUARY 1

22,168

34,894

34,188
CASH AND CASH EQUIVALENTS AT DECEMBER 31

$
31,504

$
22,168

$
34,894

See accompanying notes to consolidated financial statements.

4645

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND NATURE OF OPERATIONS:

AmeriServ Financial, Inc. (the Company) is a bank holding company, headquartered in Johnstown, Pennsylvania. Through its banking subsidiary, the Company operates 1617 banking locations in five southwestern Pennsylvania counties and Hagerstown, Maryland. These branches provide a full range of consumer, mortgage, and commercial financial products. ~~In a press release dated January 15,~~On May 21, 2021, ~~the Company announced the execution of a definitive agreement whereby~~ AmeriServ ~~will acquire a branch and deposit customers~~Financial Bank completed its acquisition from ~~two locations in southwestern Pennsylvania of~~ Citizen’s Neighborhood Bank (CNB), an operating division of Riverview ~~Bank.~~Bank, the branch and related deposit customers in Meyersdale, Pennsylvania and the deposit customers in Somerset, Pennsylvania. The ~~transaction~~Meyersdale branch is ~~subject to regulatory approvals~~operating under the AmeriServ name and ~~satisfaction of customary~~the Somerset customers are being serviced from the full service AmeriServ office at 108 West Main Street. The related deposits totaled approximately $42 million at closing ~~conditions~~ and ~~is expected to close in the second quarter of 2021.~~were acquired for a 3.71% deposit premium, or $1.6 million.

The AmeriServ Trust and Financial Services Company (the Trust Company) offers a complete range of trust and financial services and administers assets valued at approximately ~~$2.5~~$2.7 billion that are not recognized on the Company’s Consolidated Balance Sheets at December 31, ~~2020.~~2021.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of AmeriServ Financial, Inc. and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), the Trust Company, and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a Pennsylvania state-chartered full service bank with 1516 locations in Pennsylvania and 1 location in Maryland. AmeriServ Life was a captive insurance company that engaged in underwriting as a reinsurer of credit life and disability insurance. New business ceased being generated by AmeriServ Life in 2005. Since that time, outstanding insurance policies have been running off, and the final policy has expired. On September 30, 2020, the Arizona Corporation Commission approved the Articles of Dissolution for AmeriServ Life. The remaining assets of AmeriServ Life were transferred to AmeriServ Financial, Inc. and the subsidiary was formally closed on December 31, 2020.

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 losses, ~~goodwill,~~intangible assets, income taxes, investment securities, pension, and the fair value of financial instruments.

INVESTMENT SECURITIES:

Securities are classified at the time of purchase as investment securities held to maturity 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 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 stockholders’ equity on a net of tax basis. Any securities classified as trading assets are reported at fair value with unrealized aggregate appreciation/depreciation included in income on a net of tax basis. The Company does not engage in trading activity.

Realized gains or losses on securities sold are computed upon the adjusted cost of the specific securities sold. Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. The Company

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

believes 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. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

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.

FEDERAL HOME LOAN BANK STOCK:

The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time any such situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance; (3) the impact of legislative and regulatory changes on the customer base of FHLB; and (4) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.

LOANS:

Interest income is recognized using the level yield method related to principal amounts outstanding. The Company typically discontinues the accrual of interest income when loans become 90 days past due in either principal or interest. In addition, if circumstances warrant, the accrual of interest may be discontinued prior to 90 days. Payments received on non-accrual loans are credited to principal until full recovery of principal has been recognized; or the loan has been returned to accrual status. The only exception to this policy is for residential mortgage loans wherein interest income is recognized on a cash basis as payments are received. A non-accrual commercial loan is placed on accrual status after becoming current and remaining current for twelve consecutive payments. Residential mortgage loans are placed on accrual status upon becoming current.

LOAN FEES:

Loan origination and commitment fees, net of associated direct costs, are deferred and amortized into interest and fees on loans over the loan or commitment period. Fee amortization is determined by the effective interest method.

LOANS HELD FOR SALE:

Certain newly originated residential mortgage loans are classified as held for sale, because it is management’s intent to sell these residential mortgage loans. The residential mortgage loans held for sale are carried at the lower of aggregate cost or fair value.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

TRANSFERS OF FINANCIAL ASSETS:

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

PREMISES AND EQUIPMENT:

Premises and equipment are stated at cost less accumulated depreciation and amortization. Land is carried at cost. Depreciation is charged to operations over the estimated useful lives of the premises and equipment using the straight-line method with a half-year convention. Useful lives of up to 30 years for buildings and up to 10 years for equipment are utilized. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or useful lives of the improvements, whichever is shorter. Maintenance, repairs, and minor alterations are charged to current operations as expenditures are incurred.

LEASES:

The Company has operating and financing leases for several office locations and equipment. Generally, the underlying lease agreements do not contain any material residual value guarantees or material restrictive covenants. Many of our leases include both lease (e.g., minimum rent payments) and non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance. The Company has elected to account for the variable non-lease components separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of Operations when incurred. These variable non-lease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets.

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

Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of December 31, 2021 and 2020, the Company had no short-term leases. ~~As of December 31, 2019, the Company had one short-term equipment lease which it has elected to not record on the Consolidated Balance Sheets.~~

ALLOWANCE FOR LOAN LOSSES AND CHARGE-OFF PROCEDURES:

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. 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

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

loan portfolio. The difference between estimated and actual losses is reconciled through the nature of the migration analysis.

●

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.

●

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 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.

ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT:

The allowance for unfunded loan commitments and letters of credit is maintained at a level believed by management to be sufficient to absorb estimated losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers and the terms and expiration dates of the unfunded credit facilities. Net adjustments to the allowance for unfunded loan commitments and letters of credit are provided for in the unfunded commitment reserve expense line item within other expense in the Consolidated Statements of Operations and a separate reserve is recorded within the other liabilities line item of the Consolidated Balance Sheets.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

BANK-OWNED LIFE INSURANCE:

The Company has purchased life insurance policies on certain employees. These policies are recorded on the Consolidated Balance Sheets at their cash surrender value, or the amount that can be realized. Income from these policies and changes in the cash surrender value are recorded in bank owned life insurance within non-interest income. Additionally, income is accrued on certain policies that have reached the minimum floor rate of return. This guaranteed

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

portion of income is not added to the cash surrender value of the policy until the policy anniversary date and is reported in other assets on the Consolidated Balance Sheets.

INTANGIBLE ASSETS:

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. Goodwill is not amortized, but is periodically evaluated for impairment. The Company tests goodwill for impairment on at least an annual basis. This approach could cause more volatility in the Company’s reported net income because impairment losses, if any, could occur irregularly and in varying amounts.

Identifiable intangible assets are amortized to their estimated residual values over their expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of a core deposit intangible which is being amortized on an accelerated basis over a ten-year useful life.

EARNINGS PER COMMON SHARE:

Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. Options to purchase 22,000, 139,759, ~~12,000,~~ and ~~5,000~~12,000 shares of common stock were outstanding during 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively, but were not included in the computation of diluted earnings per common share because to do so would be anti-dilutive. Exercise prices of anti-dilutive options to purchase common stock outstanding were ~~$3.18-~~$4.00-$4.22, ~~$4.19-~~$3.18-$4.22, and ~~$4.22~~$4.19-$4.22 during 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively.


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS, EXCEPT PER SHARE DATA)						(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income	$	4,598	$	6,028	$	7,768	$	7,072	$	4,598	$	6,028
Denominator:
Weighted average common shares outstanding (basic)		17,053		17,359		17,933		17,073		17,053		17,359
Effect of stock options		10		81		104		41		10		81
Weighted average common shares outstanding (diluted)		17,063		17,440		18,037		17,114		17,063		17,440
Earnings per common share:
Basic	$	0.27	$	0.35	$	0.43	$	0.41	$	0.27	$	0.35
Diluted		0.27		0.35		0.43		0.41		0.27		0.35

STOCK-BASED COMPENSATION:

The Company uses the modified prospective method for accounting of stock-based compensation. The fair value of each option grant is estimated on the grant date using the Binomial or Black-Scholes option pricing model and the expense is recognized ratably over the service period. Forfeitures are recognized as they occur. See Note 19 for details on the assumptions used.

ACCUMULATED OTHER COMPREHENSIVE LOSS:

The Company presents the components of other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss). These components are comprised of the change in the defined benefit pension obligation and the unrealized holding gains (losses) on available for sale securities, net of any reclassification adjustments for realized gains and losses.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~$315,000~~$200,000 in income tax payments in 2021; $315,000 in 2020; and $785,000 in ~~2019; and $875,000 in 2018.~~2019. The Company had non-cash transfers to other real estate owned (OREO) and repossessed assets in the amounts of $8,000 in 2021; $40,000 in 2020; and $75,000 in ~~2019; and $166,000 in 2018.~~2019. During 2020, the Company entered into ~~two~~2 new financing leases, ~~one~~1 related to office equipment and the other to a branch location, and recorded a right-of-use asset and lease liability of $149,000. As a result of the adoption of ASU 2016-02, Leases (Topic 842) as of January 1, 2019, the Company had non-cash transactions associated with the recognition of the right-of-use assets and lease liabilities. Specifically, the Company recognized a right-of-use asset and lease liability of $932,000 related to operating leases and a right-of-use asset and lease liability of $3.3 million related to financing leases. In addition, as a result of the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), the Company had a non-cash transaction in the amount of $640,000 associated with the recognition of a receivable for wealth management fees as of December 31, 2019. The Company ~~also had a non-cash transfer of the AMT credit carryforward to other assets in the amount of $287,000 in 2018. The Company~~ made total interest payments of $8,049,000 in 2021; $11,040,000 in 2020; and $13,779,000 in ~~2019; and $11,298,000 in 2018.~~2019.

In addition to the branch acquisition related information disclosed on the Consolidated Statements of Cash Flows, the following were recorded as non-cash transfers on the corresponding lines of the Consolidated Balance Sheets as of December 31, 2021 (in thousands).


Acquisition of Riverview Bank Branches
Non-cash assets acquired
Loans	$	36
Other premises and equipment, net		158
Intangible assets		1,844
		2,038
Non-cash liabilities assumed
Non-interest bearing deposits		(7,372)
Interest bearing deposits		(35,060)
Other liabilities		(37)
		(42,469)
Net non-cash liabilities assumed	$	(40,431)

INCOME TAXES:

Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the corresponding asset or liability from period to period. Deferred tax assets are reduced, if necessary, by the amounts of such benefits that are not expected to be realized based upon available evidence.

INTEREST RATE CONTRACTS:

The Company recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets and measures those instruments at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and hedged item related to the hedged risk are recognized in earnings. Changes in fair value of derivatives designated and accounted as cash flow hedges, to the extent they are effective as hedges, are recorded in “Other Comprehensive Income,” 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.

The Company periodically enters into derivative instruments to meet the financing, interest rate and equity risk management needs of its customers. Upon entering into these instruments to meet customer needs, the Company enters

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.~~earnings in amounts that offset. These instruments and their offsetting positions are recorded in other assets and other liabilities on the Consolidated Balance Sheets.

PENSION:

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 employees selected lump sum distributions exceed the total amount of service and interest component costs of the net periodic pension cost in a particular year.

The service cost component of net periodic benefit cost is determined by aggregating the product of the discounted cash flows of the plan’s service cost for each year and an individual spot rate (referred to as the “spot rate” approach). The interest cost component is determined by aggregating the product of the discounted cash flows of the plan’s

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

projected benefit obligations for each year and an individual spot rate. Management believes this methodology is an appropriate measure of the service cost and interest cost as each year’s cash flows are specifically linked to the interest rates of bond payments in the same respective year. Our pension benefits are described further in Note 17 of the Notes to Consolidated Financial Statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

We group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level I — Valuation is based upon quoted prices for identical instruments traded in active markets.

Level II — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level III — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset.

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in generally accepted accounting principles.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

as 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 a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

~~In November 2019, the FASB issued ASU 2019-10,~~ ~~Financial Instruments~~ – ~~Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)~~. This update ~~defers the~~is effective ~~date of ASU 2016-13~~ for SEC filers that are eligible 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, ~~has adopted this ASU and~~ 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. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

transition from LIBOR to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company has identified its LIBOR exposure across product categories and is analyzing the risks associated with the LIBOR transition. However, it is too early to predict whether a new rate index replacement and the adoption of this ASU will have a material impact on the Company’s financial statements.

3. 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 noninterest 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 ~~79.7%~~76.8% of the total revenue of the Company.

Non-interest income within the scope of Topic 606 are as follows:

●

Wealth management fees – Wealth management fee income is primarily comprised of fees earned from the management and administration of trusts and customer investment portfolios. The Company’s performance obligation is generally satisfied over a period of time and the resulting fees are billed monthly or quarterly, based upon the month end market value of the assets under management. Payment is generally received after month end through a direct charge to customers’ accounts. Due to this delay in payment, a receivable of ~~$825,000~~$850,000 has been established as of December 31, ~~2020~~2021 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

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Fees related to ATM and VISA debit card transactions are recognized when the transactions are completed and the Company has satisfied it performance obligation.

The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2021, 2020, ~~2019,~~ and ~~2018~~2019 (in thousands).


	AT DECEMBER 31,						AT DECEMBER 31,
	2020		2019		2018		2021		2020		2019

Non-interest income:
In-scope of Topic 606
Wealth management fees	$	10,212	$	9,730	$	9,659	$	11,986	$	10,212	$	9,730
Service charges on deposit accounts		903		1,271		1,420		965		903		1,271
Other		1,708		1,759		1,720		2,017		1,708		1,759
Non-interest income (in-scope of topic 606)		12,823		12,760		12,799		14,968		12,823		12,760
Non-interest income (out-of-scope of topic 606)		3,452		2,013		1,425		2,793		3,452		2,013
Total non-interest income	$	16,275	$	14,773	$	14,224	$	17,761	$	16,275	$	14,773

4. CASH AND DUE FROM DEPOSITORY INSTITUTIONS

Cash and due from depository institutions totaled $24.7 million and $20.4 million as of December 31, 2021 and 2020, respectively. The Federal Reserve reduced reserve requirements to ~~zero~~0 as of March 26, 2020. As

Table of December 31, 2019, required federal reserves of $3.0 million were included in “Cash and due from depository institutions” for facilitating the implementation of monetary policy by the Federal Reserve System. Such required reserves were computed by applying prescribed ratios to the classes of average deposit balances. They were held in the form of vault cash and a depository amount held with the Federal Reserve Bank.Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. INVESTMENT SECURITIES

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

Investment securities available for sale:

DECEMBER 31, 2020

DECEMBER 31, 2021

GROSS

UNREALIZED

FAIR

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

2,971

181

—

3,152

7,371

(70)

7,387

U.S. Agency mortgage-backed securities

65,398

2,533

(18)

67,913

80,136

1,202

(1,171)

80,167

Municipal

19,000

1,348

—

20,348

20,066

851

(25)

20,892

Corporate bonds

52,315

666

(229)

52,752

53,843

1,028

(146)

54,725

Total

139,684

4,728

(247)

144,165

161,416

3,167

(1,412)

163,171

Investment securities held to maturity:

DECEMBER 31, 2020

DECEMBER 31, 2021

GROSS

UNREALIZED

FAIR

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

2,500

—

(11)

2,489

U.S. Agency mortgage-backed securities

8,119

369

—

8,488

10,556

203

(115)

10,644

Municipal

30,076

2,455

(49)

32,482

33,188

1,734

(103)

34,819

Corporate bonds and other securities

6,027

113

(4)

6,136

7,507

(7)

7,564

Total

44,222

2,937

(53)

47,106

53,751

2,001

(236)

55,516

Investment securities available for sale:


	DECEMBER 31, 2020
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE

	(IN THOUSANDS)
U.S. Agency	$	2,971	$	181	$	—	$	3,152
U.S. Agency mortgage-backed securities		65,398		2,533		(18)		67,913
Municipal		19,000		1,348		—		20,348
Corporate bonds		52,315		666		(229)		52,752
Total	$	139,684	$	4,728	$	(247)	$	144,165

Investment securities held to maturity:


	DECEMBER 31, 2020
			GROSS		GROSS
			UNREALIZED		UNREALIZED		FAIR
	COST BASIS		GAINS		LOSSES		VALUE

	(IN THOUSANDS)
U.S. Agency mortgage-backed securities	$	8,119	$	369	$	—	$	8,488
Municipal		30,076		2,455		(49)		32,482
Corporate bonds and other securities		6,027		113		(4)		6,136
Total	$	44,222	$	2,937	$	(53)	$	47,106

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Investment securities available for sale:~~

DECEMBER 31, 2019

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR


COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency

$
5,084

$
32

$
—

$
5,116
U.S. Agency mortgage-backed securities

80,046

1,681

(94)

81,633
Municipal

14,678

509

(17)

15,170
Corporate bonds

39,769

342

(281)

39,830
Total

$
139,577

$
2,564

$
(392)

$
141,749

~~Investment securities held to maturity:~~

DECEMBER 31, 2019

GROSS

GROSS

UNREALIZED

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)
U.S. Agency mortgage-backed securities

$
9,466

$
251

$
(4)

$
9,713
Municipal

24,438

941

(53)

25,326
Corporate bonds and other securities

6,032

58

(47)

6,043
Total

$
39,936

$
1,250

$
(104)

$
41,082

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 Investors Service or Standard & Poor’s rating of A. At December 31, ~~2020, 42.2%~~2021, 47.1% of the portfolio was rated AAA as compared to ~~53.4%~~42.2% at December 31, ~~2019.~~2020. Approximately ~~15.2%~~14.7% and ~~9.1%~~15.2% of the portfolio was rated below A or unrated on December 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. agencies, that exceeded 10% of shareholders’ equity at December 31, ~~2020.~~2021.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $122,574,000 at December 31, 2021 and $111,694,000 at December 31, ~~2020 and $117,076,000 at December 31, 2019.~~2020.

The Company realized $84,000 of gross investment security gains in 2021, sold no0 investment securities during 2020, and realized $118,000 of gross investment security gains in ~~2019 and $15,000 of gross investment security gains and $454,000 of gross investment security losses in 2018.~~2019. On a net basis, the realized gain for 2021 was $66,000 after factoring in tax expense of $18,000 and the realized gain for 2019 was $93,000 after factoring in tax expense of ~~$25,000 and the realized loss for 2018 was $347,000 after factoring in a tax benefit of $92,000.~~$25,000. Proceeds from sales of investment securities available for sale were $960,000 for 2021 and $3.4 million for ~~2019~~2019.

The Company’s consolidated investment securities portfolio had an effective duration of approximately 3.46 years. The weighted average expected maturity for available for sale securities at December 31, 2021 for U.S. agency, U.S. agency mortgage-backed, corporate bond, and ~~$9.5 million~~municipal securities was 8.50, 5.29, 4.83, and 4.63 years, respectively. The weighted average expected maturity for ~~2018.~~

held to maturity securities at December 31, 2021 for U.S. agency, U.S. agency mortgage-backed, corporate bond/other securities, and municipal securities was 8.40, 5.33, 4.19, and 6.05 years, respectively. The following table sets forth the contractual maturity distribution of the investment securities, cost basis and fair market values ~~and the weighted average yield for each type and range of maturity~~ as of December 31, ~~2020. Yields are not presented on a tax-equivalent basis, but are based upon the cost basis and are weighted for the scheduled maturity. The Company’s consolidated investment~~2021.

Investment securities ~~portfolio had an effective duration of approximately 2.11 years. The weighted average expected maturity for~~ available for sale securities at December 31, 2020 for U.S. agency, U.S. agency mortgage-backed, corporate bond, and municipal securities was 11.28, 3.66, 4.38, and 4.99 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 2020 for U.S. agency mortgage-backed, corporate bond/other securities, and municipal securities 4.52, 2.40, and 6.21 years, respectively.sale:

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

MORTGAGE-

SECURITIES

CORPORATE

BACKED

AVAILABLE

U. S. AGENCY

MUNICIPAL

BONDS

SECURITIES

FOR SALE

(IN THOUSANDS)

COST BASIS

Within 1 year

—

700

3,002

3,724

After 1 year but within 5 years

—

11,099

22,648

2,034

35,781

After 5 years but within 10 years

5,497

8,267

27,543

6,657

47,964

Over 10 years

1,874

—

650

71,423

73,947

Total

7,371

20,066

53,843

80,136

161,416

FAIR VALUE

Within 1 year

—

708

3,014

3,745

After 1 year but within 5 years

—

11,647

22,797

2,133

36,577

After 5 years but within 10 years

5,438

8,537

28,250

6,910

49,135

Over 10 years

1,949

—

664

71,101

73,714

Total

7,387

20,892

54,725

80,167

163,171

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Investment securities available for sale:~~

AT DECEMBER 31, 2020

TOTAL














U.S. AGENCY

INVESTMENT

MORTGAGE-

SECURITIES

CORPORATE

BACKED

AVAILABLE FOR

U. S. AGENCY

MUNICIPAL

BONDS

SECURITIES

SALE

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS





















Within 1 year

$
—

—
%
$
598

2.14
%
$
4,459

2.64
%
$
—

—
%
$
5,057

2.58
%
After 1 year but within 5 years

—

—

7,104

2.76

15,119

2.70

2,332

3.18

24,555

2.76

After 5 years but within 10 years

741

2.69

11,298

3.01

32,087

4.07

5,958

2.60

50,084

3.62

After 10 years but within 15 years

—

—

—

—

650

3.92

15,481

2.70

16,131

2.75

Over 15 years

2,230

2.68

—

—

—

—

41,627

2.31

43,857

2.33

Total

$
2,971

2.68

$
19,000

2.89

$
52,315

3.55

$
65,398

2.46

$
139,684

2.93

FAIR VALUE



















Within 1 year

$
—



$
601



$
4,487



$
—



$
5,088



After 1 year but within 5 years

—



7,483



15,224



2,457



25,164



After 5 years but within 10 years

780



12,264



32,389



6,235



51,668



After 10 years but within 15 years

—

—

652



16,269



16,921



Over 15 years

2,372



—



—



42,952



45,324



Total

$
3,152



$
20,348



$
52,752



$
67,913



$
144,165

Investment securities held to maturity:

AT DECEMBER 31, 2021

TOTAL

U.S. AGENCY

INVESTMENT

CORPORATE

MORTGAGE-

SECURITIES

BONDS AND

BACKED

HELD TO

U.S. AGENCY

MUNICIPAL

OTHER

SECURITIES

MATURITY

(IN THOUSANDS)

COST BASIS

Within 1 year

—

200

—

200

After 1 year but within 5 years

—

5,130

6,021

1,037

12,188

After 5 years but within 10 years

2,500

21,287

500

457

24,744

Over 10 years

—

6,571

986

9,062

16,619

Total

2,500

33,188

7,507

10,556

53,751

FAIR VALUE

Within 1 year

—

205

—

205

After 1 year but within 5 years

—

5,431

6,078

1,064

12,573

After 5 years but within 10 years

2,489

22,540

500

485

26,014

Over 10 years

—

6,643

986

9,095

16,724

Total

2,489

34,819

7,564

10,644

55,516

AT DECEMBER 31, 2020


U.S. AGENCY












MORTGAGE-

TOTAL INVESTMENT

BACKED

CORPORATE

SECURITIES

SECURITIES

MUNICIPAL

BONDS AND OTHER

HELD TO MATURITY

(IN THOUSANDS, EXCEPT YIELDS)

COST BASIS

















Within 1 year

$
—

—
%
$
400

2.84
%
$
3,000

2.95
%
$
3,400

2.94
%
After 1 year but within 5 years

1,068

2.83

4,080

3.25

3,027

3.47

8,175

3.28

After 5 years but within 10 years

—

—

18,768

3.38

—

—

18,768

3.38

After 10 years but within 15 years

1,718

3.55

6,513

3.01

—

—

8,231

3.12

Over 15 years

5,333

2.01

315

3.50

—

—

5,648

2.09

Total

$
8,119

2.44

$
30,076

3.28

$
6,027

3.21

$
44,222

3.11

FAIR VALUE

















Within 1 year

$
—



$
403



$
2,998



$
3,401



After 1 year but within 5 years

1,132



4,383



3,138



8,653



After 5 years but within 10 years

—



20,478



—



20,478



After 10 years but within 15 years

1,856



6,874



—



8,730



Over 15 years

5,500



344



—



5,844



Total

$
8,488



$
32,482



$
6,136



$
47,106

~~Table~~The following table presents information concerning investments with unrealized losses as of ~~Contents~~December 31, 2021 (in thousands):

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~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 following table presents information concerning investments with unrealized losses as of December 31, 2020 (in thousands):

Total investment securities:


	DECEMBER 31, 2020												DECEMBER 31, 2020
	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL				LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
	FAIR		UNREALIZED		FAIR		UNREALIZED		FAIR		UNREALIZED		FAIR		UNREALIZED		FAIR		UNREALIZED		FAIR		UNREALIZED
	VALUE		LOSSES		VALUE		LOSSES		VALUE		LOSSES		VALUE		LOSSES		VALUE		LOSSES		VALUE		LOSSES
U.S. Agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Agency mortgage-backed securities		6,394		(17)		123		(1)		6,517		(18)	$	6,394	$	(17)	$	123	$	(1)	$	6,517	$	(18)
Municipal		—		—		751		(49)		751		(49)		—		—		751		(49)		751		(49)
Corporate bonds and other securities		13,083		(162)		7,929		(71)		21,012		(233)		13,083		(162)		7,929		(71)		21,012		(233)
Total	$	19,477	$	(179)	$	8,803	$	(121)	$	28,280	$	(300)	$	19,477	$	(179)	$	8,803	$	(121)	$	28,280	$	(300)

~~The following table presents information concerning investments with unrealized losses as of December 31, 2019 (in thousands):~~

~~Total investment securities:~~

DECEMBER 31, 2019

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED


VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES
U.S. Agency

$
—

$
—

$
—

$
—

$
—

$
—
U.S. Agency mortgage-backed securities

7,084

(23)

8,562

(75)

15,646

(98)
Municipal

2,269

(18)

1,123

(52)

3,392

(70)
Corporate bonds and other securities

7,797

(85)

11,783

(243)

19,580

(328)
Total

$
17,150

$
(126)

$
21,468

$
(370)

$
38,618

$
(496)

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 4189 positions that are considered temporarily impaired at December 31, ~~2020.~~2021. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value 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 December 31, ~~2020,~~2021, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only ~~101.2%~~101.0% of the par value.

As of December 31, ~~2020~~2021 and ~~2019,~~2020, the Company reported ~~$443,000~~$526,000 and ~~$366,000,~~$443,000, respectively, of equity securities within other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) is reported within other income on the Consolidated Statements of Operations. The realized gain on equity securities was $36,000 and $2,000 during 2021 and ~~$13,000 during~~ 2020, ~~and 2019,~~ respectively. The unrealized gain was $7,000 and $3,000 in 2021 and 2020, ~~and the unrealized loss was $5,000 in 2019.~~respectively. Additionally, the Company has recognized a deferred compensation liability, which is equal to the balance of the equity securities and is reported within other liabilities on the Consolidated Balance Sheets.

6. LOANS

The loan portfolio of the Company consisted of the following:


	AT DECEMBER 31,
	2021		2020

	(IN THOUSANDS)
Commercial:
Commercial and industrial	$	134,182	$	151,162
Paycheck Protection Program (PPP)		17,311		58,344
Commercial loans secured by owner occupied real estate ⁽¹⁾		99,644		95,486
Commercial loans secured by non-owner occupied real estate ⁽¹⁾		430,825		400,751
Real estate − residential mortgage ⁽¹⁾		287,996		249,989
Consumer		15,096		16,363
Loans, net of unearned income	$	985,054	$	972,095

AT DECEMBER 31,

2020

2019

(IN THOUSANDS)
Commercial:

Commercial and industrial

$
151,162

$
173,922
Paycheck Protection Program (PPP)

58,344

—
Commercial loans secured by owner occupied real estate

95,486

91,655
Commercial loans secured by non-owner occupied real estate

400,751

363,635
Real estate − residential mortgage

249,989

235,239
Consumer

16,363

18,255
Loans, net of unearned income

$
972,095

$
882,706

(1)	Real estate construction loans constituted 5.6% and 7.0% of the Company’s total loans, net of unearned income as of December 31, 2021 and 2020, respectively.

Loan balances at December 31, ~~2020~~2021 and ~~2019~~2020 are net of unearned income of ~~$1,202,000~~$826,000 and ~~$384,000,~~$1,202,000, respectively. The unearned income balance at December 31, ~~2020~~2021 includes ~~$755,000~~$386,000 of unrecognized fee income from PPP loan ~~originations.~~originations compared to $755,000 at December 31, 2020. Real estate construction loans comprised ~~7.0%~~5.6% and ~~4.9%~~7.0% of total loans net of unearned income at December 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company has no exposure to subprime mortgage loans in either the loan or investment portfolios. The Company has no direct loan exposure to foreign countries. Additionally, the Company has no significant industry lending concentrations. As of December 31, ~~2020~~2021 and ~~2019,~~2020, loans to customers engaged in similar activities and having similar economic characteristics, as defined by standard industrial classifications, did not exceed 10% of total loans. Additionally, the majority of the Company’s lending occurs within a 250-mile radius of the Johnstown market.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the ordinary course of business, the subsidiaries have transactions, including loans, with their officers, directors, and their affiliated companies. In management’s opinion, these transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated parties and do not involve more than the normal credit risk. These loans totaled ~~$615,000~~$601,000 and ~~$544,000~~$615,000 at December 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

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, 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. Due to mandatory lockdowns and travel restrictions, certain industries, such as hospitality, travel, food service and restaurants and bars, have suffered as a result of COVID-19.

The following table provides information regarding our potential COVID-19 risk concentrations for commercial and commercial real estate loans by industry type at December 31, 2021 and 2020 (in thousands).

DECEMBER 31, 2021

Paycheck

Commercial loans

Commercial

Protection

secured by owner

secured by non-owner

and industrial

Program

occupied real estate

Total

1-4 unit residential

1,246

—

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

5,402

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


	DECEMBER 31, 2020
			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	$	1,450	$	—	$	105	$	6,139	$	7,694
Multifamily/apartments/student housing		—		—		469		66,879		67,348
Office		33,525		6,872		10,095		37,164		87,656
Retail		8,080		1,542		21,180		124,325		155,127
Industrial/manufacturing/warehouse		87,021		26,222		18,255		38,814		170,312
Hotels		329		837		—		41,779		42,945
Eating and drinking places		769		13,479		4,390		1,925		20,563
Personal care		4,118		621		—		9,356		14,095
Amusement and recreation		190		46		3,307		38		3,581
Mixed use		—		—		2,411		65,585		67,996
Other		15,680		8,725		35,274		8,747		68,426
Total	$	151,162	$	58,344	$	95,486	$	400,751	$	705,743

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

$
1,450

$
—

$
105

$
6,139

$
7,694
Multifamily/apartments/student housing

—

—

469

66,879

67,348
Office

33,525

6,872

10,095

37,164

87,656
Retail

8,080

1,542

21,180

124,325

155,127
Industrial/manufacturing/warehouse

87,021

26,222

18,255

38,814

170,312
Hotels

329

837

—

41,779

42,945
Eating and drinking places

769

13,479

4,390

1,925

20,563
Amusement and recreation

190

46

3,307

38

3,581
Mixed use

—

—

2,411

65,585

67,996
Other

19,798

9,346

35,274

18,103

82,521
Total

$
151,162

$
58,344

$
95,486

$
400,751

$
705,743

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides emergency economic relief to individuals and businesses impacted by 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, the Company was automatically authorized to originate PPP loans.

An eligible business could apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly ~~“payroll~~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 interest payments deferred for six months from 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 to 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.

In addition, PPP allows certain eligible borrowers that previously received a PPP loan to apply for a second draw loan with the same general terms described above. The maximum loan amount of a second draw PPP loan is 2.5 times, or 3.5 times for borrowers within the hospitality industry, the average monthly 2019 or 2020 payroll costs up to $2.0 million. Eligibility for a second draw PPP loan is based on the following criteria: (a) borrower previously received a first draw PPP loan and used the full amount for only authorized expenditures; (b) borrower has 300 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.

As of December 31, ~~2020,~~2021, the Company had ~~364~~114 PPP loans outstanding totaling ~~$58.3~~$17.3 million and has recorded a total of ~~$1.9~~$2.3 million of processing fee income and interest income from PPP lending activity. Also, there is approximately ~~$755,000~~$386,000 of PPP processing fees that will be amortized into income over the time period that the loans remain on our balancec sheet or until the PPP loan is forgiven at which time the remaining fee will be recognized immediately as income.

~~Table~~ As of ~~Contents~~December 31, 2020, the Company had 364 PPP loans outstanding totaling $58.3 million and has recorded a total of $1.9 million of processing fee income and interest income from PPP lending activity.

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

7. ALLOWANCE FOR LOAN LOSSES

The following table summarizes the rollforward of the allowance for loan losses by portfolio segment (in thousands).

BALANCE AT

CHARGE-

PROVISION

BALANCE AT

CHARGE-

PROVISION

BALANCE AT

DECEMBER 31, 2019

OFFS

RECOVERIES

(CREDIT)

DECEMBER 31, 2020

OFFS

RECOVERIES

(CREDIT)

DECEMBER 31, 2021

Commercial

3,951

(111)

(372)

3,472

(146)

(344)

3,071

Commercial loans secured by non-owner occupied real estate

3,119

—

2,210

5,373

968

6,392

Real estate − residential mortgage

1,159

(233)

304

1,292

(17)

266

1,590

Consumer

126

(143)

115

(131)

113

Allocation for general risk

924

—

169

1,093

139

1,232

Total

9,279

(487)

178

2,375

11,345

(294)

247

1,100

12,398

BALANCE AT

CHARGE-

PROVISION

BALANCE AT


DECEMBER 31, 2018

OFFS

RECOVERIES

(CREDIT)

DECEMBER 31, 2019
Commercial

$
3,057

$
(9)

$
22

$
881

$
3,951
Commercial loans secured by non-owner occupied real estate

3,389

(63)

48

(255)

3,119
Real estate − residential mortgage

1,235

(98)

118

(96)

1,159
Consumer

127

(262)

52

209

126
Allocation for general risk

863

—

—

61

924
Total

$
8,671

$
(432)

$
240

$
800

$
9,279

BALANCE AT

CHARGE-

PROVISION

BALANCE AT


DECEMBER 31, 2017

OFFS

RECOVERIES

(CREDIT)

DECEMBER 31, 2018
Commercial

$
4,298

$
(574)

$
31

$
(698)

$
3,057
Commercial loans secured by non-owner occupied real estate

3,666

—

51

(328)

3,389
Real estate − residential mortgage

1,102

(380)

119

394

1,235
Consumer

128

(251)

61

189

127
Allocation for general risk

1,020

—

—

(157)

863
Total

$
10,214

$
(1,205)

$
262

$
(600)

$
8,671

For 2020, the Company recorded a $2,375,000 provision expense for loan losses compared to an $800,000 provision expense in 2019. The Company continues to build the allowance for loan losses given the overall economic climate and the uncertainty that exists because of the COVID-19 pandemic. The 2020 provision reflects managements strengthening certain qualitative factors within the allowance for loan losses calculation and downgrades of loan relationships that are reflective of the industries that have been especially negatively impacted from the pandemic, primarily the hospitality industry, and are demonstrating a slow pace of recovery. The effect of these downgrades was an increase in the allowance for the commercial loans secured by non-owner occupied real estate portfolio. The recovery efforts of many of these borrowers experiencing a downgrade stalled during the fourth quarter of 2020 due to the rise in COVID cases which caused additional safety measures and restrictions to be put in place on their businesses. While these borrowers need additional time to recover, we remain encouraged by their efforts to work through the pandemic and signs of improvement in their operations. The decrease in the allowance balance for the commercial loan portfolio is the result of two substantial commercial loans which were previously classified as substandard being upgraded. In addtion, the growth in the allowance balance for residential mortgage loans is the result of the increased origination activity experienced within this portfolio during 2020 given the lower interest rate environment. 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.

6160

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	BALANCE AT		CHARGE-				PROVISION		BALANCE AT
	DECEMBER 31, 2019		OFFS		RECOVERIES		(CREDIT)		DECEMBER 31, 2020
Commercial	$	3,951	$	(111)	$	4	$	(372)	$	3,472
Commercial loans secured by non-owner occupied real estate		3,119		—		44		2,210		5,373
Real estate − residential mortgage		1,159		(233)		62		304		1,292
Consumer		126		(143)		68		64		115
Allocation for general risk		924		—		—		169		1,093
Total	$	9,279	$	(487)	$	178	$	2,375	$	11,345


	BALANCE AT		CHARGE-				PROVISION		BALANCE AT
	DECEMBER 31, 2018		OFFS		RECOVERIES		(CREDIT)		DECEMBER 31, 2019
Commercial	$	3,057	$	(9)	$	22	$	881	$	3,951
Commercial loans secured by non-owner occupied real estate		3,389		(63)		48		(255)		3,119
Real estate − residential mortgage		1,235		(98)		118		(96)		1,159
Consumer		127		(262)		52		209		126
Allocation for general risk		863		—		—		61		924
Total	$	8,671	$	(432)	$	240	$	800	$	9,279

The Company experienced net loan charge-offs of $309,000, or 0.03% of total loans, in 2020 compared to net loan charge-offs of $192,000, or 0.02% of total loans, in 2019. As a result of the provision expense sharply exceeding net loan charge-offs, the balance in the$344,000 allowance for loan losses ~~increased by over $2 million in 2020. Overall, non-performing assets totaled $3.3 million, or 0.34% of total loans, at~~credit recorded during the year ended December 31, ~~2020. The~~2021 within the commercial portfolio was attributable to lower criticized commercial and industrial loans outstanding resulting from upgrades of certain credits originally impacted by the pandemic, as well as lower historical loss rates. While a $968,000 allowance for loan losses ~~provided 341% coverage of non-performing assets, and 1.16% of total loans, at~~provision was recorded for the non-owner occupied commercial real estate portfolio which stemmed from overall portfolio growth as well as elevated classified commercial real estate balances.

For the year ended December 31, 2020, compared to 397% coverage of non-performing assets, and 1.05% of total loans, at December 31, 2019. Note that the reserve coverage of total loans, excluding PPP loans, is 1.23% (non-GAAP) at December 31, 2020. See the reconciliation of the non-GAAP measure of the reserve coverage of total loans, excluding PPP loans, within the Allowance and Provision for Loan Losses section of the MD&A.

~~For 2019, the Company recorded an $800,000 provision expense~~a $372,000 allowance for loan losses ~~compared~~credit was recognized for the commercial portfolio due to portfolio contraction, reduced classified asset levels, and lower historical loss factors. In addition, a ~~$600,000~~$2.2 million allowance for loan losses provision ~~recovery~~was recorded for ~~2018, or an increase of $1.4 million between years.~~ the non-owner occupied commercial real estate portfolio which resulted from overall portfolio growth coupled with escalated criticized asset levels driven primarily by pandemic related downgrades.

The ~~2019~~$881,000 allowance for loan losses provision ~~expense reflects~~recorded during the ~~growth within the loan portfolio and the increase in classified loans. Specifically, the~~year ended December 31, 2019 ~~provision expense~~ within the commercial ~~segment~~portfolio was driven by the rating downgrade of a $6.5 million performing commercial and industrial loan to substandard as a result of the unexpected death of a borrower. This downgrade caused a $675,000 increase in the fourth quarter 2019 provision expense. This rating action was prudent due to 2 sizable downgrades that occurred during the ~~inherent uncertainties associated with~~year. Additionally, a ~~large estate liquidation. Additionally,~~$255,000 allowance for loan losses credit was recorded for the ~~2019 provision credit within commercial loans secured by~~ non-owner occupied commercial real estate was driven, primarily, by a relaxation of the economic qualitative factors applied to the Pass rated portion of this loan segment. The Company experienced net loan charge-offs of only $192,000, or 0.02% of total loans, in 2019 compared to net loan charge-offs of $943,000, or 0.11% of total loans, in 2018. Nonperforming assets totaled $2.3 million, or only 0.26% of total loans, at December 31, 2019.portfolio as, despite portfolio growth, criticized and classified asset levels were reduced.

The following tables summarize the loan portfolio and allowance for loan losses by the primary segments of the loan portfolio.

AT DECEMBER 31, 2020

AT DECEMBER 31, 2021

COMMERCIAL LOANS

SECURED BY NON-

REAL ESTATE −

SECURED BY NON-

REAL ESTATE −

OWNER OCCUPIED

RESIDENTIAL

OWNER OCCUPIED

RESIDENTIAL

Loans:

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

TOTAL

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

TOTAL

(IN THOUSANDS)

Individually evaluated for impairment

847

—

855

2,165

2,170

Collectively evaluated for impairment

304,145

400,743

249,989

16,363

971,240

248,972

430,820

287,996

15,096

982,884

Total loans

304,992

400,751

249,989

16,363

972,095

251,137

430,825

287,996

15,096

985,054

AT DECEMBER 31, 2020

COMMERCIAL LOANS

ALLOCATION

SECURED BY NON-

REAL ESTATE −

FOR

Allowance

OWNER OCCUPIED

RESIDENTIAL

GENERAL

for loan losses:

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

RISK

TOTAL

(IN THOUSANDS)
Specific reserve allocation

$
96

$
8

$
—

$
—

$
—

$
104
General reserve allocation

3,376

5,365

1,292

115

1,093

11,241
Total allowance for loan losses

$
3,472

$
5,373

$
1,292

$
115

$
1,093

$
11,345

AT DECEMBER 31, 2019

COMMERCIAL LOANS

SECURED BY NON-

REAL ESTATE −

OWNER OCCUPIED

RESIDENTIAL

Loans:

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

TOTAL

(IN THOUSANDS)
Individually evaluated for impairment

$
816

$
8

$
—

$
—

$
824
Collectively evaluated for impairment

264,761

363,627

235,239

18,255

881,882
Total loans

$
265,577

$
363,635

$
235,239

$
18,255

$
882,706

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AT DECEMBER 31, 2019

COMMERCIAL LOANS

ALLOCATION

SECURED BY NON-

REAL ESTATE −

FOR

Allowance

OWNER OCCUPIED

RESIDENTIAL

GENERAL

for loan losses:

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

RISK

TOTAL

(IN THOUSANDS)
Specific reserve allocation

$
84

$
8

$
—

$
—

$
—

$
92
General reserve allocation

3,867

3,111

1,159

126

924

9,187
Total allowance for loan losses

$
3,951

$
3,119

$
1,159

$
126

$
924

$
9,279

AT DECEMBER 31, 2021

COMMERCIAL LOANS

ALLOCATION

SECURED BY NON-

REAL ESTATE −

FOR

Allowance

OWNER OCCUPIED

RESIDENTIAL

GENERAL

for loan losses:

COMMERCIAL

REAL ESTATE

MORTGAGE

CONSUMER

RISK

TOTAL

(IN THOUSANDS)

Specific reserve allocation

628

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


	AT DECEMBER 31, 2020
			COMMERCIAL LOANS
			SECURED BY NON-		REAL ESTATE −
			OWNER OCCUPIED		RESIDENTIAL
Loans:	COMMERCIAL		REAL ESTATE		MORTGAGE		CONSUMER		TOTAL

	(IN THOUSANDS)
Individually evaluated for impairment	$	847	$	8	$	0	$	0	$	855
Collectively evaluated for impairment		304,145		400,743		249,989		16,363		971,240
Total loans	$	304,992	$	400,751	$	249,989	$	16,363	$	972,095


	AT DECEMBER 31, 2020
			COMMERCIAL LOANS						ALLOCATION
			SECURED BY NON-		REAL ESTATE −				FOR
Allowance			OWNER OCCUPIED		RESIDENTIAL				GENERAL
for loan losses:	COMMERCIAL		REAL ESTATE		MORTGAGE		CONSUMER		RISK		TOTAL

	(IN THOUSANDS)
Specific reserve allocation	$	96	$	8	$	0	$	0	$	0	$	104
General reserve allocation		3,376		5,365		1,292		115		1,093		11,241
Total allowance for loan losses	$	3,472	$	5,373	$	1,292	$	115	$	1,093	$	11,345

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 nonaccrual status or classified as a Troubled Debt Restructure (TDR). In addition, consumer and residential mortgage loans with a balance of ~~$150,000~~$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

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Assigned Risk Department to support the value of the property.

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

●

the passage of time;

●

the volatility of the local market;

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

●

~~the availability of financing;~~

●

~~natural disasters;~~the availability of financing;

●

~~the inventory of competing properties;~~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 Assigned Risk Department personnel determine 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 Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.

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

AT DECEMBER 31, 2020

AT DECEMBER 31, 2021

IMPAIRED

LOANS WITH

IMPAIRED LOANS WITH

NO SPECIFIC

IMPAIRED LOANS WITH

NO SPECIFIC

SPECIFIC ALLOWANCE

ALLOWANCE

TOTAL IMPAIRED LOANS

SPECIFIC ALLOWANCE

ALLOWANCE

TOTAL IMPAIRED LOANS

UNPAID

RECORDED

RELATED

RECORDED

PRINCIPAL

RECORDED

RELATED

RECORDED

PRINCIPAL

INVESTMENT

ALLOWANCE

INVESTMENT

BALANCE

INVESTMENT

ALLOWANCE

INVESTMENT

BALANCE

(IN THOUSANDS)

Commercial

847

—

847

850

2,165

628

—

2,165

2,260

Commercial loans secured by non-owner occupied real estate

—

Total impaired loans

855

104

—

855

880

2,170

633

—

2,170

2,287

AT DECEMBER 31, 2019

IMPAIRED

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

816

$
84

$
—

$
816

$
816
Commercial loans secured by non-owner occupied real estate

$
8

$
8

$
—

$
8

$
30
Total impaired loans

$
824

$
92

$
—

$
824

$
846

6463

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	AT DECEMBER 31, 2020
					IMPAIRED
					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	$	847	$	96	$	0	$	847	$	850
Commercial loans secured by non-owner occupied real estate		8		8		0		8		30
Total impaired loans	$	855	$	104	$	0	$	855	$	880

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


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS)						(IN THOUSANDS)
Average impaired balance:
Commercial	$	839	$	597	$	228	$	2,301	$	839	$	597
Commercial loans secured by non-owner occupied real estate		8		10		12		7		8		10
Average investment in impaired loans	$	847	$	607	$	240	$	2,308	$	847	$	607
Interest income recognized:
Commercial	$	38	$	30	$	—	$	15	$	38	$	30
Commercial loans secured by non-owner occupied real estate		—		—		—		0		0		0
Interest income recognized on a cash basis on impaired loans	$	38	$	30	$	—	$	15	$	38	$	30

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” categories are aggregated, while the Pass-6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $1,000,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced, independent function which reports directly to the Board’s Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for ~~2020~~2021 required review of a minimum of ~~40%~~36% of the commercial loan portfolio.

In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $2,000,000, all credits rated Special Mention

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

AT DECEMBER 31, 2021

SPECIAL

PASS

MENTION

SUBSTANDARD

DOUBTFUL

TOTAL

(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

430,825

Total

639,765

26,341

14,208

1,648

681,962


	AT DECEMBER 31, 2020
			SPECIAL
	PASS		MENTION		SUBSTANDARD		DOUBTFUL		TOTAL

	(IN THOUSANDS)
Commercial and industrial	$	134,186	$	13,722	$	3,254	$	—	$	151,162
Paycheck Protection Program (PPP)		58,344		—		—		—		58,344
Commercial loans secured by owner occupied real estate		92,189		2,154		1,143		—		95,486
Commercial loans secured by non-owner occupied real estate		371,815		23,980		4,948		8		400,751
Total	$	656,534	$	39,856	$	9,345	$	8	$	705,743

AT DECEMBER 31, 2019

SPECIAL


PASS

MENTION

SUBSTANDARD

DOUBTFUL

TOTAL

(IN THOUSANDS)
Commercial and industrial

$
161,147

$
853

$
11,922

$
—

$
173,922
Commercial loans secured by owner occupied real estate

88,942

1,384

1,329

—

91,655
Commercial loans secured by non-owner occupied real estate

362,027

—

1,600

8

363,635
Total

$
612,116

$
2,237

$
14,851

$
8

$
629,212

It is generally the policy of the Bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs, unless the balance is minor. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is generally the policy of the Bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio classes.

AT DECEMBER 31, 2020

AT DECEMBER 31, 2021

NON-

PERFORMING

TOTAL

PERFORMING

TOTAL

(IN THOUSANDS)

Real estate – residential mortgage

247,520

2,469

249,989

286,843

1,153

287,996

Consumer

16,356

16,363

15,096

Total

263,876

2,476

266,352

301,939

1,153

303,092

AT DECEMBER 31, 2019




NON-


PERFORMING

PERFORMING

TOTAL

(IN THOUSANDS)
Real estate – residential mortgage

$
233,760

$
1,479

$
235,239
Consumer

18,255

—

18,255
Total

$
252,015

$
1,479

$
253,494

6665

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	AT DECEMBER 31, 2020
			NON-
	PERFORMING		PERFORMING		TOTAL

	(IN THOUSANDS)
Real estate – residential mortgage	$	247,520	$	2,469	$	249,989
Consumer		16,356		7		16,363
Total	$	263,876	$	2,476	$	266,352

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 DECEMBER 31, 2020														AT DECEMBER 31, 2021
													90 DAYS														90 DAYS
			30 – 59		60 – 89								PAST DUE				30 – 59		60 – 89								PAST DUE
			DAYS		DAYS		90 DAYS		TOTAL		TOTAL		AND STILL				DAYS		DAYS		90 DAYS		TOTAL		TOTAL		AND STILL
	CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING		CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING

	(IN THOUSANDS)														(IN THOUSANDS)
Commercial and industrial	$	148,023	$	536	$	2,603	$	—	$	3,139	$	151,162	$	—	$	133,918	$	14	$	250	$	—	$	264	$	134,182	$	—
Paycheck Protection Program (PPP)		58,344		—		—		—		—		58,344	$	—		17,311		—		—		—		—		17,311		—
Commercial loans secured by owner occupied real estate		95,486		—		—		—		—		95,486		—		99,454		—		190		—		190		99,644		—
Commercial loans secured by non-owner occupied real estate		399,850		230		671		—		901		400,751		—		428,790		2,035		—		—		2,035		430,825		—
Real estate – residential mortgage		246,279		776		1,178		1,756		3,710		249,989		—		283,178		2,449		1,240		1,129		4,818		287,996		—
Consumer		16,274		82		—		7		89		16,363		—		14,938		151		7		—		158		15,096		—
Total	$	964,256	$	1,624	$	4,452	$	1,763	$	7,839	$	972,095	$	—	$	977,589	$	4,649	$	1,687	$	1,129	$	7,465	$	985,054	$	—


	AT DECEMBER 31, 2019														AT DECEMBER 31, 2020
													90 DAYS														90 DAYS
			30 – 59		60 – 89								PAST DUE				30 – 59		60 – 89								PAST DUE
			DAYS		DAYS		90 DAYS		TOTAL		TOTAL		AND STILL				DAYS		DAYS		90 DAYS		TOTAL		TOTAL		AND STILL
	CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING		CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING

	(IN THOUSANDS)														(IN THOUSANDS)
Commercial and industrial	$	173,922	$	—	$	—	$	—	$	—	$	173,922	$	—	$	148,023	$	536	$	2,603	$	—	$	3,139	$	151,162	$	—
Paycheck Protection Program (PPP)																58,344		—		—		—		—		58,344		—
Commercial loans secured by owner occupied real estate		91,538		117		—		—		117		91,655		—		95,486		—		—		—		—		95,486		—
Commercial loans secured by non-owner occupied real estate		363,635		—		—		—		—		363,635		—		399,850		230		671		—		901		400,751		—
Real estate – residential mortgage		231,022		2,331		864		1,022		4,217		235,239		—		246,279		776		1,178		1,756		3,710		249,989		—
Consumer		18,190		42		23		—		65		18,255		—		16,274		82		—		7		89		16,363		—
Total	$	878,307	$	2,490	$	887	$	1,022	$	4,399	$	882,706	$	—	$	964,256	$	1,624	$	4,452	$	1,763	$	7,839	$	972,095	$	—

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.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: (1) an allowance established on specifically identified problem loans, (2) formula driven general reserves established for loan categories based upon historical loss

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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.

8. NON-PERFORMING ASSETS INCLUDING TROUBLED DEBT RESTRUCTURINGS

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, (iii) performing loans classified as TDR and (iv) OREO (real estate acquired through foreclosure and in-substance ~~foreclosures~~foreclosures) and repossessed ~~assets).~~assets.

The following table presents information concerning non-performing assets including TDR:


	AT DECEMBER 31,
	2021			2020

	(IN THOUSANDS, EXCEPT
	PERCENTAGES)
Non-accrual loans:
Commercial and industrial	$	2,165		$	16
Commercial loans secured by non-owner occupied real estate		5			8
Real estate – residential mortgage		1,153			2,469
Consumer		—			7
Total		3,323			2,500

TDR’s not in non-accrual:
Commercial and industrial		—			831
Total		—			831
Total non-performing assets including TDR	$	3,323		$	3,331
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 DECEMBER 31,


2020

2019

(IN THOUSANDS, EXCEPT

PERCENTAGES)

Non-accrual loans:

Commercial and industrial

$
16

$
—

Commercial loans secured by non-owner occupied real estate

8

8

Real estate – residential mortgage

2,469

1,479

Consumer

7

—

Total

2,500

1,487

Other real estate owned:





Real estate – residential mortgage

—

37

Total

—

37

TDR’s not in non-accrual:

Commercial and industrial

831

815

Total

831

815

Total non-performing assets including TDR

$
3,331

$
2,339

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

0.34
%

0.26
%

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had no0 loans past due 90 days or more for the periods presented 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.

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

To be considered a TDR, both of the following criteria must be met:

●

the borrower must be experiencing financial difficulties; and

●

the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered.

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

●

the borrower is currently in default on their loan(s);

●

the borrower has filed for bankruptcy;

●

the borrower has insufficient cash flows to service their loan(s); or

●

the borrower is unable to obtain refinancing from other sources at a market rate similar to rates available to a non-troubled debtor.

Factors that indicate that a concession has been granted include, but are not limited to:

●

the borrower is granted an interest rate reduction to a level below market rates for debt with similar risk; or

●

the borrower is granted a material maturity date extension, or extension of the amortization plan to provide payment relief. For purposes of this policy, a material maturity date extension will generally include any maturity date extension, or the aggregate of multiple consecutive maturity date extensions, that exceed 120 days. A restructuring that results in an insignificant delay in payment, i.e. 120 days or less, is not necessarily a TDR. Insignificant payment delays occur when the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value, and will result in an insignificant shortfall in the originally scheduled contractual amount due, and/or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the original maturity or the original amortization.

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

Any loan modification where the loan currently maintains a criticized or classified risk rating, i.e. Special Mention, Substandard or Doubtful, or where the loan will be assigned a criticized or classified rating after the modification is evaluated to determine the need for TDR classification. The specific ALL reserve for loans modified as TDR’s was ~~$103,000~~$132,000 and ~~$92,000~~$103,000 as of December 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

6968

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table details the loan modified as a TDR during the year ended December 31, 2021 (dollars in thousands).


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	477	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate

The following table details the loans modified in TDRs during the year ended December 31, 2020 (dollars in thousands).


Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	750	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate
Commercial and industrial	1		47	Extension of maturity date with a below market interest rate

~~The following table details the loans modified in TDRs during the year ended December 31, 2019 (dollars in thousands).~~

Loans in accrual status

# of Loans

Current Balance

Concession Granted
Commercial and industrial

2

$
816

Extension of maturity date with a below market interest rate

Loans in non-accrual status

Commercial loans secured by non-owner occupied real estate

1

$
8

Extension of maturity date

In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the borrower supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six consecutive months prior to consideration for removing the loan from non-accrual TDR status. However, a loan will continue to be on non-accrual status until, consistent with our policy, the borrower has made a minimum of six consecutive payments in accordance with the terms of the loan.

There were no0 loans that were modified as TDR’s in the previous 12 months and defaulted during the reporting periods ending December 31, 2021, 2020 ~~2019~~ or ~~2018,~~2019, respectively

All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed.

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. OREO isand repossessed assets are recorded at the lower of (1) fair value minus estimated costs to sell or (2) carrying cost.

Foreclosed assets acquired in settlement of loans carried at fair value less estimated costs to sell are included in other assets on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, there were no0 residential real estate foreclosed assets included in other assets. As of December 31, ~~2019, a total of $37,000 of residential real estate foreclosed assets were included in other assets. As of December 31, 2020,~~2021, the Company had initiated formal foreclosure procedures on ~~$119,000~~$116,000 of consumer residential mortgages.

Loan Modifications Related to COVID-19

Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2020 or the 60^th 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.

In response to the COVID-19 pandemic, the Company ~~has~~remains committed to prudently ~~executed~~working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan ~~modifications for existing loan customers.~~payment modifications. The following table presents information comparing loans which were subject to a loan modification related to COVID-19, as of December 31, ~~2020~~2021 and ~~September 30,~~ 2020. Note that the percentage of outstanding loans presented below was calculated based on loan totals excluding PPP loans. Management believes that this method more accurately reflects the concentration of COVID-19 related modifications within the loan portfolio.


	At December 31, 2020				At September 30, 2020				At December 31, 2021				At December 31, 2020
			% of Outstanding				% of Outstanding				% of Outstanding				% of Outstanding
	Balance		Non-PPP Loans		Balance		Non-PPP Loans		Balance		Non-PPP Loans		Balance		Non-PPP Loans
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
CRE/Commercial	$	47,037	7.0	%	$	140,132	21.8	%	$	7,488	1.1	%	$	47,037	7.0	%
Home Equity/Consumer		83	0.1			160	0.2			57	0.1			83	0.1
Residential Mortgage		1,943	1.3			4,069	2.9			203	0.1			1,943	1.3
Total	$	49,063	5.3		$	144,361	16.4		$	7,748	0.8		$	49,063	5.3

The balance of loan modifications related to COVID-19 at December 31, ~~2020~~2021 represents a decrease of ~~$95.3~~$41.3 million, or ~~66.0%~~84.2%, from the balance of loans modified for COVID-19 ~~reported in the third quarter 2020 10-Q which totaled $144 million.~~at December 31, 2020. 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 ~~$1.2 million~~$541,000 of accrued interest income that has not been received as of December 31, ~~2020.~~2021.

~~Requested~~Borrower requested modifications primarily consist of the deferral of principal and/or interest payments for a period of three to six ~~months and maturity date extensions.~~months. The following table presents the composition of the types of payment relief that have been granted.


	At December 31, 2020			At September 30, 2020			At December 31, 2021			At December 31, 2020
	Number of Loans	Balance		Number of Loans	Balance		Number of Loans	Balance		Number of Loans	Balance
		(in thousands)			(in thousands)			(in thousands)			(in thousands)
Type of Payment Relief
Interest only payments	11	$	26,900	67	$	74,680	6	$	3,768	11	$	26,900
Complete payment deferrals	59		22,163	127		69,681	5		3,980	59		22,163
Total	70	$	49,063	194	$	144,361	11	$	7,748	70	$	49,063

Management iscontinues to carefully ~~monitoring~~monitor asset quality with a particular focus on customers that have requested payment deferrals during this difficult economic time. ~~As we reached the end of the initial deferral time periods, deferral~~Deferral extension requests ~~were~~are considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt as well as issued regulatory guidance. At December 31, ~~2020,~~2021, the COVID-19 related modifications within the commercial real estate and commercial loan portfolios are to 195 borrowers ~~most of which are borrowers who were granted a second loan payment deferral,~~primarily in the hospitality and personal care industries, with loans totaling approximately ~~$47~~$7.5 million. In order to properly monitor the increased credit risk associated with the modified loans, the Asset Quality Task Force is meeting at

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. PREMISES AND EQUIPMENT

An analysis of premises and equipment follows:


	AT DECEMBER 31,				AT DECEMBER 31,
	2020		2019		2021		2020

	(IN THOUSANDS)				(IN THOUSANDS)
Land	$	1,198	$	1,198	$	1,225	$	1,198
Premises		28,070		27,711		28,944		28,070
Furniture and equipment		8,502		8,632		8,908		8,502
Leasehold improvements		1,174		1,174		1,174		1,174
Total at cost		38,944		38,715		40,251		38,944
Less: Accumulated depreciation and amortization		24,608		24,072		26,169		24,608
Premises and equipment, net	$	14,336	$	14,643	$	14,082	$	14,336

The Company recorded depreciation and amortization expense of $1.7 million for 2021, $1.6 million for 2020, and $1.5 million for ~~2019 and 2018.~~2019.

The Company utilizes a contract cleaner to provide janitorial services for several office locations. The contract cleaner is owned by a Director of the Company. The amount paid to this related party totaled $241,000, $232,000, ~~$218,000,~~ and ~~$221,000~~$218,000 for the years ended December 31, 2021, 2020, ~~2019,~~ and ~~2018,~~2019, respectively.

10. LEASE COMMITMENTS

The Company has operating and financing leases for several office locations and equipment. Several assumptions and judgments were made when applying the requirements of ASU 2016-02, Leases (Topic 842), to the Company’s lease commitments, including the allocation of consideration in the contracts between lease and non-lease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments. See Note 1 for information on policy elections.

The following table presents the lease cost associated with both operating and financing leases for the years ended December 31, 2021, 2020, and 2019. ~~Total rent expense recorded during the year ended December 31, 2018 was $415,000.~~



	YEAR ENDED DECEMBER 31,				YEAR ENDED DECEMBER 31,
		2020		2019		2021		2020		2019

	(IN THOUSANDS)				(IN THOUSANDS)
Lease cost
Financing lease cost:
Amortization of right-of-use asset	$	271	$	258	$	272	$	271	$	258
Interest expense		112		117		106		112		117
Operating lease cost		116		117		116		116		117
Total lease cost	$	499	$	492	$	494	$	499	$	492

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at December 31, ~~2020~~2021 and ~~2019.~~2020.

AT DECEMBER 31,

2021

2020

OPERATING

FINANCING

OPERATING

FINANCING

Weighted-average remaining term (years)

11.0

15.5

11.4

16.0

Weighted-average discount rate

3.53

3.56

3.49

3.52

AT DECEMBER 31,

2020

2019


OPERATING


FINANCING

OPERATING


FINANCING

Weighted-average remaining term (years)

11.4

16.0

11.9

17.1

Weighted-average discount rate

3.49
%

3.52
%

3.46
%

3.60
%

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the undiscounted cash flows due related to operating and financing leases as of December 31, ~~2020~~2021 and ~~2019,~~2020, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets.

DECEMBER 31, 2020

OPERATING

FINANCING

(IN THOUSANDS)
Undiscounted cash flows due:

Within 1 year

$
120

$
316
After 1 year but within 2 years

98

320
After 2 years but within 3 years

69

309
After 3 years but within 4 years

69

249
After 4 years but within 5 years

69

248
After 5 years

520

2,760
Total undiscounted cash flows

945

4,202
Discount on cash flows

(169)

(1,093)
Total lease liabilities

$
776

$
3,109


DECEMBER 31, 2021
	OPERATING		FINANCING

	(IN THOUSANDS)
Undiscounted cash flows due in:
2022	$	98	$	320
2023		69		309
2024		69		249
2025		69		248
2026		69		181
Thereafter		452		2,578
Total undiscounted cash flows		826		3,885
Discount on cash flows		(144)		(986)
Total lease liabilities	$	682	$	2,899

DECEMBER 31, 2019

OPERATING

FINANCING

(IN THOUSANDS)
Undiscounted cash flows due:

Within 1 year

$
118

$
296
After 1 year but within 2 years

120

275
After 2 years but within 3 years

98

277
After 3 years but within 4 years

69

274
After 4 years but within 5 years

69

236
After 5 years

589

3,007
Total undiscounted cash flows

1,063

4,365
Discount on cash flows

(198)

(1,202)
Total lease liabilities

$
865

$
3,163


DECEMBER 31, 2020
	OPERATING		FINANCING

	(IN THOUSANDS)
Undiscounted cash flows due in:
2021	$	120	$	316
2022		98		320
2023		69		309
2024		69		249
2025		69		248
Thereafter		520		2,760
Total undiscounted cash flows		945		4,202
Discount on cash flows		(169)		(1,093)
Total lease liabilities	$	776	$	3,109

The Company leases approximately 1,049 square feet of office space within its headquarters building to a Director of the Company. The amount paid by this related party totaled ~~$13,000~~$13,000 for the years ended December 31, 2021, 2020, ~~2019,~~ and ~~2018~~2019 and is reported in net occupancy expense on the Consolidated Statements of Operations.

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

11. DEPOSITS

The following table sets forth the balance of the Company’s deposits:


	AT DECEMBER 31,
	2021		2020

	(IN THOUSANDS)
Demand:
Non-interest bearing	$	211,106	$	177,533
Interest bearing		235,582		200,969
Savings		133,163		112,353
Money market		267,202		219,919
Certificates of deposit		292,325		344,146
Total deposits	$	1,139,378	$	1,054,920

AT DECEMBER 31,


2020

2019

(IN THOUSANDS)
Demand:




Non-interest bearing

$
177,533

$
136,462
Interest bearing

200,969

177,767
Savings

112,353

95,933
Money market

219,919

208,343
Certificates of deposit in denominations of $100,000 or more

48,931

38,770
Other time

295,215

303,238
Total deposits

$
1,054,920

$
960,513

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the balance of ~~other time deposits and~~ certificates of deposit ~~of $100,000 or more~~ as of December 31, ~~2020~~2021 maturing in the periods presented:

CERTIFICATES OF

DEPOSIT

CERTIFICATES OF

YEAR:

OTHER TIME DEPOSITS

OF $100,000 OR MORE

TOTAL

DEPOSIT

(IN THOUSANDS)

2021

174,109

45,646

219,755

2022

63,046

2,714

65,760

182,694

2023

23,670

400

24,070

55,286

2024

15,146

171

15,317

19,827

2025

10,293

—

10,293

13,542

2026 and after

8,951

—

8,951

2026

8,330

2027 and after

12,646

Total

295,215

48,931

344,146

292,325

The aggregate amount of ~~time deposit accounts (including~~ certificates of ~~deposit)~~deposit that ~~meet or~~ exceed the FDIC insurance limit of $250,000 at December 31, 2021 and 2020 ~~and 2019~~ are ~~$81.7~~$66.7 million and ~~$69.0~~$81.7 million, respectively.

The amount of related party deposits totaled ~~$938,000~~$2,177,000 and ~~$1,875,000~~$938,000 at December 31, 2021 and 2020, ~~and 2019,~~ respectively

12. SHORT-TERM BORROWINGS

Short-term borrowings, which consist of federal funds purchased and other short-term borrowings are summarized as follows:

AT DECEMBER 31, 2020


FEDERAL


FUNDS

SHORT-TERM


PURCHASED

BORROWINGS

(IN THOUSANDS, EXCEPT RATES)

Balance

$
—

$
24,702

Maximum balance at any month end

2,000

41,632

Average balance during year

18

4,929

Average rate paid for the year

0.87
%

0.58
%
Interest rate on year-end balance

—

0.41


	AT DECEMBER 31, 2021
	FEDERAL
	FUNDS			SHORT-TERM
	PURCHASED			BORROWINGS

	(IN THOUSANDS, EXCEPT RATES)
Balance	$	—		$	—
Maximum balance at any month end		—			4,077
Average balance during year		—			389
Average rate paid for the year		—	%		0.37	%
Interest rate on year-end balance		—			0.28


	AT DECEMBER 31, 2020
	FEDERAL
	FUNDS			SHORT-TERM
	PURCHASED			BORROWINGS

	(IN THOUSANDS, EXCEPT RATES)
Balance	$	0		$	24,702
Maximum balance at any month end		2,000			41,632
Average balance during year		18			4,929
Average rate paid for the year		0.87	%		0.58	%
Interest rate on year-end balance		—			0.41

7473

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AT DECEMBER 31, 2019


FEDERAL


FUNDS

SHORT-TERM


PURCHASED

BORROWINGS

(IN THOUSANDS, EXCEPT RATES)

Balance

$
—

$
22,412

Maximum balance at any month end

—

49,615

Average balance during year

58

11,030

Average rate paid for the year

3.04
%

2.59
%
Interest rate on year-end balance

—

1.81


	AT DECEMBER 31, 2019
	FEDERAL
	FUNDS			SHORT-TERM
	PURCHASED			BORROWINGS

	(IN THOUSANDS, EXCEPT RATES)
Balance	$	0		$	22,412
Maximum balance at any month end		—			49,615
Average balance during year		58			11,030
Average rate paid for the year		3.04	%		2.59	%
Interest rate on year-end balance		—			1.81

AT DECEMBER 31, 2018


FEDERAL


FUNDS

SHORT-TERM


PURCHASED

BORROWINGS

(IN THOUSANDS, EXCEPT RATES)

Balance

$
—

$
41,029

Maximum balance at any month end

—

82,932

Average balance during year

54

33,073

Average rate paid for the year

1.70
%

2.17
%
Interest rate on year-end balance

—

2.62

Average amounts outstanding during the year represent daily averages. Average interest rates represent interest expense divided by the related average balances.

These borrowing transactions have an average maturity of overnight.

13. ADVANCES FROM FEDERAL HOME LOAN BANK, GUARANTEED JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES AND SUBORDINATED DEBT

Advances from the FHLB consist of the following:


	AT DECEMBER 31, 2021
	WEIGHTED
	AVERAGE YIELD		BALANCE

MATURING	(IN THOUSANDS, EXCEPT RATES)
2022	1.88	%	$	22,888
2023	1.59			15,568
2024	1.19			4,197
Total advances from FHLB	1.71		$	42,653


	AT DECEMBER 31, 2020
	WEIGHTED
	AVERAGE YIELD		BALANCE

MATURING	(IN THOUSANDS, EXCEPT RATES)
2021	1.00	%	$	24,336
2022	2.03			20,888
2023	1.59			15,568
2024	1.19			4,197
Total advances from FHLB	1.48		$	64,989

AT DECEMBER 31, 2019

WEIGHTED


AVERAGE YIELD

BALANCE
MATURING

(IN THOUSANDS, EXCEPT RATES)
2020

1.75
%
$
18,729
2021

2.28

9,496
2022

2.21

17,838
2023

2.48

5,568
2024

1.86

2,037
Total advances from FHLB

2.08

$
53,668

The Company’s subsidiary Bank is a member of the FHLB which provides this subsidiary with the opportunity to obtain short to longer-term advances based upon the Company’s investment in assets secured by one- to four-family

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~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

residential real estate and certain types of commercial and commercial real estate loans. The rate on open repo plus advances, which are typically overnight borrowings, 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. At December 31, ~~2020,~~2021, the Company had immediately available ~~$329~~$365 million of overnight borrowing capability at the FHLB, ~~$31~~$32 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks.

Guaranteed Junior Subordinated Deferrable Interest Debentures:

On April 28, 1998, the Company completed a $34.5 million public offering of 8.45% ~~Trust Preferred Securities,~~trust preferred securities, which ~~represent~~represented undivided beneficial interests in the assets of a Delaware business trust, AmeriServ Financial Capital Trust I. The ~~Trust Preferred Securities will mature~~trust preferred securities would have matured on June 30, 2028, and ~~are~~were callable at par at the option of the

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company after June 30, 2003. Proceeds of the issue were invested by AmeriServ Financial Capital Trust I in ~~Junior Subordinated Debentures~~junior subordinated debentures issued by the Company. The ~~Trust Preferred Securities are~~trust preferred securities were listed on NASDAQ under the symbol ASRVP. The Company used $22.5 million of proceeds from a private placement of common stock to redeem ~~Trust Preferred Securities~~trust preferred securities in 2005 and 2004. ~~The net balance as~~In addition, the Company used approximately $12 million of ~~December 31, 2020 and 2019 was $13.0 million.~~proceeds from a private placement of subordinated notes to retire the remaining outstanding trust preferred securities on September 30, 2021.

Subordinated Debt:

On December 29, 2015, the Company completed a private placement of $7.65 million in aggregate principal amount of fixed rate subordinated notes to certain accredited investors. The subordinated notes ~~mature~~would have matured December 31, 2025 and ~~have~~had a 6.50% fixed interest rate for the entire term. This subordinated debt ~~has~~had been structured to qualify as ~~Tier~~tier 2 capital under the Federal Reserve’s capital guidelines and was non-callable for five years. The Company used the proceeds from this private placement and other cash on hand to redeem all $21 million of its issued and outstanding SBLF preferred stock on January 27, 2016. The Company used approximately $7.7 million of proceeds from a private placement of subordinated notes to retire this subordinated debt on September 30, 2021.

On August 26, 2021, the Company completed a private placement of $27 million in fixed-to-floating rate subordinated notes to certain accredited investors. The notes mature September 1, 2031 and are non-callable for five years. The notes have a fixed annual interest rate of 3.75%, payable until September 1, 2026. From and including September 1, 2026, the interest rate will reset quarterly to the then-current three-month Secured Overnight Financing Rate (SOFR) plus 3.11%. This subordinated debt has been structured to qualify as tier 2 capital under the Federal Reserve’s capital guidelines. As previously disclosed, the Company used approximately $20 million of the net proceeds to retire its existing subordinated debt and trust preferred securities on September 30, 2021. The remainder of the proceeds are being utilized for general corporate purposes, including the downstream of $3.5 million as capital to the bank. The net balance of subordinated debt as of December 31, ~~2020~~2021 was $26.6 million. This compares to the net balance of guaranteed junior subordinated deferrable interest debentures (trust preferred securities) of $13.0 million and ~~2019 was~~subordinated debt of $7.5 ~~million.~~million as of December 31, 2020.

14. DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS

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

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

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

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

Assets and Liability Measured and Recorded on a Recurring Basis

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

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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.

The fair values of the interest rate swaps 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 ~~liability~~liabilities measured and reported on the Consolidated Balance Sheets on a recurring basis at their fair value as of December 31, ~~2020~~2021 and ~~2019,~~2020, by level within the fair value hierarchy (in thousands).


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2021 USING
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Equity securities (1)	$	526	$	526	$	—	$	—
Available for sale securities:
U.S. Agency		7,387		0		7,387		0
U.S. Agency mortgage-backed securities		80,167		—		80,167		—
Municipal		20,892		0		20,892		0
Corporate bonds		54,725		0		54,725		0
Interest rate swap asset (1)		1,226		0		1,226		0
Interest rate swap liability (2)		(1,226)		—		(1,226)		—
Risk participation agreement (2)		0		0		0		0


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Equity securities (1)	$	443	$	443	$	—	$	—
Available for sale securities:
U.S. Agency		3,152		—		3,152		—
U.S. Agency mortgage-backed securities		67,913		—		67,913		—
Municipal		20,348		—		20,348		—
Corporate bonds		52,752		—		52,752		—
Interest rate swap asset (1)		3,320		—		3,320		—
Interest rate swap liability (2)		(3,320)		—		(3,320)		—

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING


TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)
Equity securities (1)

$
443

$
443

$
—

$
—
Available for sale securities:

U.S. Agency

3,152

—

3,152

—
U.S. Agency mortgage-backed securities

67,913

—

67,913

—
Municipal

20,348

—

20,348

—
Corporate bonds

52,752

—

52,752

—
Fair value swap asset (1)

3,320

—

3,320

—
Fair value swap liability (2)

(3,320)

—

(3,320)

—

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2019 USING


TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)
Equity securities (1)

$
366

$
366

$
—

$
—
Available for sale securities:

U.S. Agency

5,116

—

5,116

—
U.S. Agency mortgage-backed securities

81,633

—

81,633

—
Municipal

15,170

—

15,170

—
Corporate bonds

39,830

—

39,830

—
Fair value swap asset (1)

959

—

959

—
Fair value swap liability (2)

(959)

—

(959)

—

(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 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 December 31, 2021, impaired loans evaluated using the collateral method with a carrying value of $5,000 were reduced by a specific valuation allowance totaling $5,000 resulting in a net fair value of 0. At December 31, 2020, impaired loans with a carrying value of $266,000 were reduced by a specific valuation allowance totaling $8,000 resulting in a net fair value of $258,000. ~~At December 31, 2019, impaired loans with a carrying value~~

Table of ~~$263,000 were reduced by a specific valuation allowance totaling $8,000 resulting in a net fair value of $255,000.~~Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.~~OREO and repossessed assets.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2021 USING
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	—	$	0	$	0	$	—


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	258	$	0	$	0	$	258


	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, 2020	Fair Value		Techniques	Input	Range (Wgtd Avg)
Impaired loans	$	258	Appraisal of	Appraisal	0% to 100% (3%)
			collateral (1)	adjustments(2)

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING


TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)
Impaired loans

$
258

$
—

$
—

$
258

FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2019 USING


TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)
Impaired loans

$
255

$
—

$
—

$
255
Other real estate owned

37

—

—

37

Quantitative Information About Level 3 Fair Value Measurements

Valuation

Unobservable

December 31, 2020

Fair Value

Techniques

Input

Range (Wgtd Ave)

Impaired loans

$
258

Appraisal of

Appraisal

0% to 100% (3%)

collateral (1)

adjustments(2)

Quantitative Information About Level 3 Fair Value Measurements

Valuation

Unobservable

December 31, 2019

Fair Value

Techniques

Input

Range (Wgtd Ave)

Impaired loans

$
255

Appraisal of

Appraisal

0% to 100% (3%)



collateral (1)

adjustments(2)

Other real estate owned


37

Appraisal of

Appraisal

0% to 57% (38%)

collateral (1)

adjustments(2)

Liquidation

21% to 134% (30%)

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.

15. DISCLOSURES ABOUT 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.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values based on US GAAP measurements and recorded carrying values at December 31, ~~2020~~2021 and ~~2019,~~2020, for the remaining financial instruments not required to be measured or reported at fair value were as follows:

AT DECEMBER 31, 2021

Carrying

Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)

FINANCIAL ASSETS:

Investment securities – HTM

53,751

55,516

—

52,523

2,993

Loans held for sale

983

1,022

—

Loans, net of allowance for loan loss and unearned income

972,656

969,681

—

969,681

FINANCIAL LIABILITIES:

Deposits with stated maturities

292,325

294,280

—

294,280

All other borrowings ⁽¹⁾

69,256

69,506

—

69,506


	AT DECEMBER 31, 2020
	Carrying
	Value			Fair Value		(Level 1)		(Level 2)		(Level 3)

		(IN THOUSANDS)
FINANCIAL ASSETS:
Investment securities – HTM	$	44,222	$	47,106	$	—	$	44,108	$	2,998
Loans held for sale		6,250		6,428		6,428		—		—
Loans, net of allowance for loan loss and unearned income		960,750		969,433		—		—		969,433
FINANCIAL LIABILITIES:
Deposits with stated maturities		344,146		347,927		—		—		347,927
All other borrowings⁽¹⁾		85,493		90,907		—		—		90,907

AT DECEMBER 31, 2020


Carrying








Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)
FINANCIAL ASSETS:










Investment securities – HTM

$
44,222

$
47,106

$
—

$
44,108

$
2,998
Loans held for sale

6,250

6,428

6,428

—

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

960,750

969,433

—

—

969,433
FINANCIAL LIABILITIES:










Deposits with stated maturities

311,064

314,845

—

—

314,845
All other borrowings ⁽¹⁾

85,493

90,907

—

—

90,907

AT DECEMBER 31, 2019


Carrying

Value


Fair Value


(Level 1)


(Level 2)


(Level 3)

(IN THOUSANDS)
FINANCIAL ASSETS:

Investment securities – HTM

$
39,936

$
41,082

$
—

$
38,129

$
2,953
Loans held for sale

4,868

4,970

4,970

—

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

873,427

873,908

—

—

873,908
FINANCIAL LIABILITIES:










Deposits with stated maturities

309,044

310,734

—

—

310,734
All other borrowings ⁽¹⁾

74,134

76,323

—

—

76,323

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

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

16. INCOME TAXES

The expense for income taxes is summarized below and includes both federal and applicable state corporate income taxes:


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS)						(IN THOUSANDS)
Current	$	(400)	$	1,393	$	(988)	$	973	$	(400)	$	1,393
Deferred		1,614		179		2,665		729		1,614		179
Income tax expense	$	1,214	$	1,572	$	1,677	$	1,702	$	1,214	$	1,572

7978

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation between the federal statutory tax rate and the Company’s effective consolidated income tax rate is as follows:


	YEAR ENDED DECEMBER 31,												YEAR ENDED DECEMBER 31,
	2020				2019				2018				2021				2020				2019
	AMOUNT		RATE		AMOUNT		RATE		AMOUNT		RATE		AMOUNT		RATE		AMOUNT		RATE		AMOUNT		RATE

	(IN THOUSANDS, EXCEPT PERCENTAGES)												(IN THOUSANDS, EXCEPT PERCENTAGES)
Income tax expense based on federal statutory rate	$	1,221	21.0	%	$	1,596	21.0	%	$	1,983	21.0	%	$	1,843	21.0	%	$	1,221	21.0	%	$	1,596	21.0	%
Tax exempt income		(188)	(3.2)			(131)	(1.4)			(131)	(1.4)			(253)	(2.9)			(188)	(3.2)			(131)	(1.4)
Other		181	3.1			107	1.1			(175)	(1.8)			112	1.3			181	3.1			107	1.1
Total expense for income taxes	$	1,214	20.9	%	$	1,572	20.7	%	$	1,677	17.8	%	$	1,702	19.4	%	$	1,214	20.9	%	$	1,572	20.7	%

The following table highlights the major components comprising the deferred tax assets and liabilities for each of the periods presented:


	AT DECEMBER 31,				AT DECEMBER 31,
	2020		2019		2021		2020

	(IN THOUSANDS)				(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loan losses	$	2,382	$	1,949	$	2,604	$	2,382
Unfunded commitment reserve		183		215		208		183
Premises and equipment		686		1,129		743		686
Lease liabilities		816		—		752		816
Accrued pension obligation		—		1,093
Other		149		230		175		149
Total tax assets		4,216		4,616		4,482		4,216
DEFERRED TAX LIABILITIES:
Investment accretion		(88)		(82)		(51)		(88)
Unrealized investment security gains		(941)		(456)		(369)		(941)
Lease right-of-use assets		(780)		—		(704)		(780)
Accrued pension obligation		(646)		—		(4,098)		(646)
Other		(189)		(102)		(194)		(189)
Total tax liabilities		(2,644)		(640)		(5,416)		(2,644)
Net deferred tax asset	$	1,572	$	3,976
Net deferred tax asset (liability)					$	(934)	$	1,572

At December 31, ~~2020~~2021 and ~~2019,~~2020, the Company had no valuation allowance established against its deferred tax assets as we believe the Company will generate sufficient future taxable income to fully utilize these assets.

As a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017, the Company’s AMT tax credits that were not used to reduce regular taxes were eligible for a 50% refund in 2018 to 2020 and a 100% refund in 2021. Due to this change, the AMT tax credit was fully utilized as of December 31, 2019.

~~The change in net deferred tax assets and liabilities consist of the following:~~

YEAR ENDED

DECEMBER 31,

2020

2019

(IN THOUSANDS)
Unrealized gains recognized in comprehensive income

$
(485)

$
(830)
Pension obligation of the defined benefit plan not yet recognized in income

(305)

1,348
Deferred provision for income taxes

(1,614)

(179)
Net increase (decrease)

$
(2,404)

$
339

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Company utilizes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company has no tax liability for uncertain tax positions. The Company’s federal and state income tax returns for taxable years through 2017 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. EMPLOYEE BENEFIT PLANS

PENSION PLAN:

The Company has a noncontributory defined benefit pension plan covering ~~all~~certain employees who work at least 1,000 hours per year. The participants shall have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ten-year period of employment. Effective January 1, 2013, the Company implemented a soft freeze of its defined benefit pension plan for non-union employees. A soft freeze means that all existing employees as of December 31, 2012 will remain in the defined benefit pension plan but any new non-union employees hired after January 1, 2013 will no longer be part of the defined benefit plan but instead will be offered retirement benefits under an enhanced ~~401 (k)~~401(k) program. The Company implemented a similar soft freeze of its defined benefit pension plan for union employees effective January 1, 2014. The Company executed these changes to help reduce its pension costs in future years. Plan assets are primarily debt securities (including U.S. Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of the Company’s common stock valued at ~~$1.5~~$1.8 million and is limited to 10% of the plan’s assets), mutual funds, and short-term cash equivalent instruments. The following actuarial tables are based upon data provided by an independent third party as of December ~~31, 2020.~~31.

PENSION BENEFITS:


	YEAR ENDED DECEMBER 31,				YEAR ENDED DECEMBER 31,
	2020		2019		2021		2020

	(IN THOUSANDS)				(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	49,561	$	41,094	$	54,861	$	49,561
Service cost		1,676		1,470		1,708		1,676
Interest cost		1,281		1,569		894		1,281
Actuarial loss		6,085		7,758		273		6,085
Settlements						(6,516)		—
Benefits paid		(3,742)		(2,330)		(933)		(3,742)
Benefit obligation at end of year		54,861		49,561		50,287		54,861
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year		44,831		38,478		58,447		44,831
Actual return on plan assets		8,358		5,483		11,434		8,358
Employer contributions		9,000		3,200		8,000		9,000
Settlements						(6,516)		—
Benefits paid		(3,742)		(2,330)		(933)		(3,742)
Fair value of plan assets at end of year		58,447		44,831		70,432		58,447
Funded status of the plan	$	3,586	$	(4,730)	$	20,145	$	3,586


	YEAR ENDED DECEMBER 31,
	2021		2020

	(IN THOUSANDS)
AMOUNTS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC PENSION COST:
Amounts recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	9,319	$	20,628
Total	$	9,319	$	20,628

8180

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31,


2020

2019

(IN THOUSANDS)
AMOUNTS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC PENSION COST:



Amounts recognized in accumulated other comprehensive loss consists of:



Net actuarial loss

$
20,628

$
22,113
Total

$
20,628

$
22,113


	YEAR ENDED DECEMBER 31,
	2021		2020

	(IN THOUSANDS)
ACCUMULATED BENEFIT OBLIGATION:
Accumulated benefit obligation	$	46,319	$	50,435

YEAR ENDED DECEMBER 31,


2020

2019

(IN THOUSANDS)
ACCUMULATED BENEFIT OBLIGATION:




Accumulated benefit obligation

$
50,435

$
45,501

The weighted-average assumptions used to determine benefit obligations at December 31, ~~2020~~2021 and ~~2019~~2020 were as follows:


	YEAR ENDED DECEMBER 31,				YEAR ENDED DECEMBER 31,
	2020		2019		2021		2020
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate	2.47	%	3.20	%	2.80	%	2.47	%
Salary scale	2.50		2.50		2.50		2.50


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS)						(IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost	$	1,676	$	1,470	$	1,482	$	1,708	$	1,676	$	1,470
Interest cost		1,281		1,569		1,273		894		1,281		1,569
Expected return on plan assets		(3,241)		(3,025)		(2,798)		(4,008)		(3,241)		(3,025)
Special termination benefit liability		—		—		63
Recognized net actuarial loss		2,453		1,649		1,548
Amortization of net loss								2,421		2,453		1,649
Settlement charge								1,736		—		—
Net periodic pension cost	$	2,169	$	1,663	$	1,568	$	2,751	$	2,169	$	1,663

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 $1.7 million settlement charge in connection with its definded benefit pension plan in 2021. A settlement charge must be recognized when the total dollar amount of lump sum distributions paid from the pension plan to retired employees exceed a threshold of expected annual service and interest costs in the current year. In 2021, all but one employee that retired elected to take a lump sum distribution as opposed to collecting future monthly annuity payments since the value of the lump sums was elevated due to historically low interest rates. It is important to note that since the retired employees have chosen to take the lump sum payments, these individuals are no longer included in the pension plan. Therefore, we anticipate that the Company’s normal annual pension expense should be lower in the future.

The accrued pension liability, which had a positive (debit) balance of $19.5 million and $3.0 million, was reclassified to other assets on the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively. The

YEAR ENDED DECEMBER 31,


2020

2019

2018

(IN THOUSANDS)
OTHER CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE LOSS




Net loss

$
968

$
5,300

$
4,683
Recognized loss

(2,453)

(1,649)

(1,548)
Total recognized in other comprehensive loss before tax effect

$
(1,485)

$
3,651

$
3,135
Total recognized in net benefit cost and other comprehensive loss before tax effect

$
684

$
5,314

$
4,703

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

balance of the accrued pension liability became a positive value as a result of the Company’s contributions to the plan during the year and the revaluation of the obligation due to the recognition of the settlement charge in 2021.


	YEAR ENDED DECEMBER 31,
	2021		2020		2019

	(IN THOUSANDS)
OTHER CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE LOSS
Net (gain) loss	$	(7,153)	$	968	$	5,300
Recognized loss		(4,157)		(2,453)		(1,649)
Total recognized in other comprehensive loss before tax effect	$	(11,310)	$	(1,485)	$	3,651
Total recognized in net benefit cost and other comprehensive loss before tax effect	$	(8,559)	$	684	$	5,314

For the year ended December 31, ~~2020,~~2021, actuarial ~~losses~~gains in the projected benefit obligation were primarily the result of the ~~decrease~~increase in discount rate. Other sources of gain/loss such as plan experience, updated census data and minor adjustments to actuarial assumptions, including updates to lump sum interest rates, lump sum mortality tables, and mortality improvement scales, generated a combined loss of less than 4% of expected year end obligations.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018~~2019 were as follows:


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate	3.20	%	4.28	%	3.63	%	2.48	%	3.20	%	4.28	%
Expected return on plan assets	7.00		7.50		7.50		7.00		7.00		7.50
Rate of compensation increase	2.50		2.50		2.50		2.50		2.50		2.50

The Company has assumed a 7.00% long-term expected return on plan assets. This assumption was based upon the plan’s historical investment performance over a longer-term period of 1520 years combined with the plan’s investment objective of balanced growth and income. Additionally, this assumption also incorporates a targeted range for equity securities of approximately 60% of plan assets.

PLAN ASSETS:

The plan’s measurement date is December 31, ~~2020.~~2021. This plan’s asset allocation at December 31, ~~2020~~2021 and ~~2019,~~2020, by asset category are as follows:


	YEAR ENDED DECEMBER 31,
	2021		2020
ASSET CATEGORY:
Cash and cash equivalents	0.1	%	1.2	%
Domestic equities	12.1		10.6
Mutual funds/ETFs	84.1		82.2
International equities	0.3		0
Corporate bonds	3.4		6.0
Total	100.0	%	100.0	%

YEAR ENDED DECEMBER 31,


2020

2019

ASSET CATEGORY:





Cash and cash equivalents

1
%
1
%
Domestic equities

11

8

Mutual funds/ETFs

82

82

International equities

—

1

Corporate bonds

6

8

Total

100
%
100
%

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The major categories of assets in the Company’s ~~Pension Plan~~pension plan as of year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value.


	YEAR ENDED DECEMBER 31,				YEAR ENDED DECEMBER 31,
	2020		2019		2021		2020

	(IN THOUSANDS)				(IN THOUSANDS)
Level 1:
Cash and cash equivalents	$	725	$	186	$	56	$	725
Domestic equities		6,219		3,782		8,488		6,219
Mutual funds/ETFs		48,009		36,469		59,306		48,009
International equities		—		620		199		0
Level 2:
Corporate bonds		3,494		3,774		2,383		3,494
Total fair value of plan assets	$	58,447	$	44,831	$	70,432	$	58,447

Cash and cash equivalents may include uninvested cash balances along with money market mutual funds, treasury bills, or other assets normally categorized as cash equivalents. Domestic equities may include common or preferred stocks, covered options, rights or warrants, or American Depository Receipts which are traded on any U.S. equity market. Mutual funds/ETFs may include any equity, fixed income, balanced, international, or global mutual fund or exchange traded fund including any propriety fund managed by the Trust Company. Agencies may include any U.S. government agency security or asset-backed security. Collective investment funds may include equity, fixed income, or

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

balanced collective investment funds managed by ~~the Trust Company.~~West Chester Capital Advisors. Corporate bonds may include any corporate bond or note.

The investment strategy objective for the pension plan is a balance of growth and income. This objective seeks to develop a portfolio for acceptable levels of current income together with the opportunity for capital appreciation. The balanced growth and income objective reflects a relatively equal balance between equity and fixed income investments such as debt securities. The allocation between equity and fixed income assets may vary by a moderate degree but the plan typically targets a range of equity investments between 50% and 60% of the plan assets. This means that fixed income and cash investments typically approximate 40% to 50% of the plan assets. The plan is also able to invest in ASRV common stock up to a maximum level of 10% of the market value of the plan assets (at December 31, ~~2020,~~2021, 2.6% of the plan assets were invested in ASRV common stock). This asset mix is intended to ensure that there is a steady stream of cash from maturing investments to fund benefit payments.

CASH FLOWS:

The Company presently expects that the contribution to be made to the ~~Plan~~plan in ~~2021~~2022 will ~~be at least $6.0~~approximate $5.0 million. Funding requirements for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management or cost reduction purposes the Company may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ESTIMATED FUTURE BENEFIT PAYMENTS:

The following benefit payments, which reflect future service, as appropriate, are expected to be paid.


	ESTIMATED FUTURE		ESTIMATED FUTURE
YEAR:	BENEFIT PAYMENTS		BENEFIT PAYMENTS
	(IN THOUSANDS)		(IN THOUSANDS)
2021	$	4,733
2022		4,864	$	4,608
2023		4,410		4,302
2024		4,557		4,456
2025		4,064		3,944
Years 2026-2030		15,463
2026				3,923
Years 2027-2031				12,088

401(k) PLAN:

The Company maintains a qualified 401(k) plan that allows for participation by Company employees. Under the plan, employees may elect to make voluntary, pretax contributions to their accounts which the Company will match one half on the first 2% of contribution up to a maximum of 1%. The Company also contributes 4% of salaries for union members who are in the plan. Effective January 1, 2013, any new non-union employees receive a 4% non-elective contribution and these employees may elect to make voluntary, pretax contributions to their accounts which the Company will match one half on the first 6% of contribution up to a maximum of 3%. Effective January 1, 2014, any new union employees receive a 4% non-elective contribution and these employees may elect to make voluntary, pretax contributions to their accounts which the Company will match dollar for dollar up to a maximum of 4%. Contributions by the Company charged to operations were $704,000, $653,000 ~~$604,000~~ and ~~$503,000~~$604,000 for the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively. The fair value of plan assets includes ~~$719,000~~$434,000 pertaining to the value of the Company’s common stock ~~and Trust Preferred securities~~ that ~~are~~was held by the plan at December 31, ~~2020.~~2021.

DEFERRED COMPENSATION PLAN:

The Company maintains a nonqualified deferred compensation plan in which a select group of executives are permitted to participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan. The Company has established a rabbi trust to provide funding for the benefits payable under our deferred compensation plan. As of December 31, ~~2020~~2021 and ~~2019,~~2020, the Company reported a deferred compensation liability of ~~$443,000~~$526,000 and ~~$366,000,~~$443,000, respectively, within other liabilities on the Consolidated Balance Sheets. For the year ended December 31, ~~2020~~2021 and ~~2019,~~2020, the Company recognized ~~$7,000~~$44,000 and ~~$9,000,~~$7,000, respectively, of deferred compensation plan expense which is reported within other expense on the Consolidated Statements of Operations. See Note 5 (Investment

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Securities) for additional disclosures related to the nonqualified deferred compensation plan and assets held within the rabbi trust.

Except for the above described benefit plans, the Company has no significant additional exposure for any other post-retirement or post-employment benefits.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. COMMITMENTS AND CONTINGENT LIABILITIES

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. Commitments to extend credit are obligations to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. Collateral which secures these types of commitments is the same as for other types of secured lending such as accounts receivable, inventory, fixed assets, and real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financings, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Letters of credit are issued both on an unsecured and secured basis. Collateral securing these types of transactions is similar to collateral securing the Company’s commercial loans.

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. At December 31, ~~2020,~~2021, the Company had various outstanding commitments to extend credit approximating $216.6 million and standby letters of credit of $13.1 million, compared to commitments to extend credit of $213.9 million and standby letters of credit of $13.3 million ~~compared to commitments to extend credit of $195.5 million and standby letters of credit of $14.7 million~~ at December 31, ~~2019.~~2020.

Standby letters of credit had terms ranging from 1 to 5 years with annual extension options available. Standby letters of credit of approximately $8.5 million were secured as of December 31, ~~2020~~2021 and ~~approximately $9.2 million at December 31, 2019.~~2020. The carrying amount of the liability for AmeriServ obligations related to unfunded commitments and standby letters of credit was $989,000 at December 31, 2021 and $872,000 at December 31, ~~2020 and $1,025,000 at December 31, 2019.~~2020.

Pursuant to its bylaws, the Company provides indemnification to its directors and officers against certain liabilities incurred as a result of their service on behalf of the Company. In connection with this indemnification obligation, the Company can advance on behalf of covered individuals costs incurred in defending against certain claims. 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.

19. STOCK COMPENSATION PLANS

The Company uses the modified prospective method for accounting for stock-based compensation and recognized ~~$3,000~~$43,000 of compensation expense for the year 2021, $3,000 in 2020 and $7,000 in ~~2019 and $14,000 in 2018.~~2019.

During ~~2011,~~2021, the Company’s Board adopted, and its shareholders approved, the AmeriServ Financial, Inc. ~~2011 Stock~~2021 Equity Incentive Plan (the Plan) authorizing the grant of options or restricted stock covering ~~800,000~~600,000 shares of common stock. This Plan replaced the expired ~~2001~~2011 Stock ~~Option~~Incentive Plan. Under the Plan, options or restricted stock can be granted

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(the~~ (the Grant Date) to directors, officers, and employees that provide services to the Company and its affiliates, as selected by the compensation committee of the Board. The option price at which a granted stock option may be exercised will not be less than 100% of the fair market value per share of common stock on the Grant Date. The maximum term of any option granted under the Plan cannot exceed 10 years. Generally, options vest over a three-year period and become exercisable in equal installments over the vesting period. At times, options with a one year vesting period may also be issued.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Company’s ~~Stock~~Equity Incentive Plan at December 31, 2021, 2020, ~~2019,~~ and ~~2018,~~2019, and changes during the years then ended is presented in the table and narrative following:


	YEAR ENDED DECEMBER 31,									YEAR ENDED DECEMBER 31,
	2020			2019			2018			2021			2020			2019
		WEIGHTED			WEIGHTED			WEIGHTED			WEIGHTED			WEIGHTED			WEIGHTED
		AVERAGE			AVERAGE			AVERAGE			AVERAGE			AVERAGE			AVERAGE
	SHARES	EXERCISE PRICE		SHARES	EXERCISE PRICE		SHARES	EXERCISE PRICE		SHARES	EXERCISE PRICE		SHARES	EXERCISE PRICE		SHARES	EXERCISE PRICE
Outstanding at beginning of year	296,648	$	3.02	336,313	$	2.91	360,721	$	2.85	230,913	$	3.14	296,648	$	3.02	336,313	$	2.91
Granted	—		—	7,000		4.19	5,000		4.22	160,000		3.84	—		—	7,000		4.19
Exercised	(38,235)		2.06	(40,917)		2.45	(24,408)		2.49	(21,356)		2.68	(38,235)		2.06	(40,917)		2.45
Forfeited	(27,500)		3.30	(5,748)		2.44	(5,000)		1.92	(510)		3.23	(27,500)		3.30	(5,748)		2.44
Outstanding at end of year	230,913		3.14	296,648		3.02	336,313		2.91	369,047		3.47	230,913		3.14	296,648		3.02
Exercisable at end of year	224,580		3.11	282,565		2.96	307,814		2.86	206,713		3.18	224,580		3.11	282,565		2.96
Weighted average fair value of options granted in current year		$	—		$	0.62		$	0.56		$	1.78		$	—		$	0.62

A total of ~~224,580~~206,713 of the ~~230,913~~369,047 options outstanding at December 31, ~~2020,~~2021, are exercisable and have exercise prices between ~~$2.28~~$2.75 and $4.22, with a weighted average exercise price of ~~$3.11~~$3.18 and a weighted average remaining contractual life of ~~3.38~~2.71 years. The remaining ~~6,333~~162,334 options that are not yet exercisable have exercise prices between ~~$4.19~~$3.83 and ~~$4.22,~~$4.19, with a weighted average exercise price of ~~$4.20~~$3.84 and a weighted average remaining contractual life of ~~8.07~~9.11 years. The fair value of each option grant is estimated on the date of grant using the Binomial or Black-Scholes option pricing model with the following assumptions used for grants in 2021, 2020, ~~2019,~~ and ~~2018. No~~2019. NaN stock options were granted during 2020.


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
PRICING MODEL ASSUMPTION RANGES	2020		2019		2018		2021		2020		2019
Risk-free interest rate	—	%	2.65	%	3.13	%	1.27 - 1.42	%	—	%	2.65	%
Expected lives in years	—		10		10		10		—		10
Expected volatility	—	%	15.75	%	15.59	%	40.38 - 45.03	%	—	%	15.75	%
Expected dividend rate	—	%	1.91	%	1.90	%	2.60 - 2.61	%	—	%	1.91	%

The intrinsic value of stock options exercised was $27,000, $56,000, and $71,000 in 2021, 2020, and ~~$42,000 in 2020,~~ 2019, ~~and 2018,~~ respectively.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the periods ending December 31, 2021, 2020, ~~2019,~~ and ~~2018~~2019 (in thousands):


	YEAR ENDING DECEMBER 31, 2021						YEAR ENDED DECEMBER 31, 2020						YEAR ENDING DECEMBER 31, 2019
	Net						Net						Net
	Unrealized						Unrealized						Unrealized
	Gains and						Gains and						Gains and
	Losses on		Defined				Losses on		Defined				Losses on		Defined
	Investment		Benefit				Investment		Benefit				Investment		Benefit
	Securities		Pension				Securities		Pension				Securities		Pension
	AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾
Beginning balance	$	3,539	$	(16,737)	$	(13,198)	$	1,715	$	(17,886)	$	(16,171)	$	(1,409)	$	(12,816)	$	(14,225)
Other comprehensive income (loss) before reclassifications		(2,087)		5,555		3,468		1,824		(789)		1,035		3,217		(6,373)		(3,156)
Amounts reclassified from accumulated other comprehensive loss		(66)		3,284		3,218		—		1,938		1,938		(93)		1,303		1,210
Net current period other comprehensive income (loss)		(2,153)		8,839		6,686		1,824		1,149		2,973		3,124		(5,070)		(1,946)
Ending balance	$	1,386	$	(7,898)	$	(6,512)	$	3,539	$	(16,737)	$	(13,198)	$	1,715	$	(17,886)	$	(16,171)

YEAR ENDING DECEMBER 31, 2020

YEAR ENDED DECEMBER 31, 2019

YEAR ENDING DECEMBER 31, 2018


Net





Net





Net




Unrealized

Unrealized

Unrealized

Gains and

Gains and

Gains and

Losses on

Defined

Losses on

Defined

Losses on

Defined

Investment

Benefit

Investment

Benefit

Investment

Benefit

Securities

Pension

Securities

Pension

Securities

Pension

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾
Beginning balance

$
1,715

$
(17,886)

$
(16,171)

$
(1,409)

$
(12,816)

$
(14,225)

$
(327)

$
(12,623)

$
(12,950)
Other comprehensive income (loss) before reclassifications

1,824

(789)

1,035

3,217

(6,373)

(3,156)

(1,429)

(1,416)

(2,845)
Amounts reclassified from accumulated other comprehensive loss

—

1,938

1,938

(93)

1,303

1,210

347

1,223

1,570
Net current period other comprehensive income (loss)

1,824

1,149

2,973

3,124

(5,070)

(1,946)

(1,082)

(193)

(1,275)
Ending balance

$
3,539

$
(16,737)

$
(13,198)

$
1,715

$
(17,886)

$
(16,171)

$
(1,409)

$
(12,816)

$
(14,225)

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

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the periods ending December 31, 2021, 2020, ~~2019,~~ and ~~2018~~2019 (in thousands):


	Amount reclassified from accumulated
	other comprehensive loss⁽¹⁾

Details about accumulated other	YEAR ENDING		YEAR ENDING		YEAR ENDING		Affected line item in the
comprehensive loss components	DECEMBER 31, 2021		DECEMBER 31, 2020		DECEMBER 31, 2019		statement of operations
Realized gains on sale of securities
	$	(84)	$	—	$	(118)	Net realized gains on investment securities
		18		—		25	Provision for income taxes
	$	(66)	$	—	$	(93)
Amortization of estimated defined benefit pension plan loss⁽²⁾
	$	4,157	$	2,453	$	1,649	Other expense
		(873)		(515)		(346)	Provision for income taxes
	$	3,284	$	1,938	$	1,303
Total reclassifications for the period	$	3,218	$	1,938	$	1,210

Amount reclassified from accumulated

other comprehensive loss⁽¹⁾

Details about

other comprehensive

accumulated

YEAR ENDING

YEAR ENDING

YEAR ENDING

Affected line item in the
loss components

DECEMBER 31, 2020

DECEMBER 31, 2019

DECEMBER 31, 2018

statement of operations
Realized (gains) losses on sale of securities

$
—

$
(118)

$
439

Net realized (gains) losses on investment securities

—

25

(92)

Provision for income taxes

$
—

$
(93)

$
347

Amortization of estimated defined benefit pension plan loss⁽²⁾

$
2,453

$
1,649

$
1,548

Other expense

(515)

(346)

(325)

Provision for income taxes

$
1,938

$
1,303

$
1,223

Total reclassifications for the period

$
1,938

$
1,210

$
1,570

(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).

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. INTANGIBLE ASSETS

The Company’s Consolidated Balance Sheets show both tangible assets (such as loans, buildings, and investments) and intangible assets (such as ~~goodwill)~~goodwill and core deposit intangible). Goodwill has an indefinite life and is not amortized. Instead such intangible is evaluated for impairment at the reporting unit level at least annually. Any resulting impairment would be reflected as a non-interest expense. Of the Company’s goodwill of ~~$11.9~~$13.6 million, ~~$9.5~~$11.2 million is allocated to the community banking segment and $2.4 million relates to the WCCA acquisition which is included in the wealth management segment. The balance of the Company’s goodwill at December 31, 2021 and 2020 was $13.6 million and ~~2019 was~~ $11.9 ~~million.~~million, respectively. During 2021, the Company recorded $1.7 million of goodwill as a result of the Riverview Bank branch acquisition. See Note 28 for the disclosures related to the branch acquisition.

Other intangible assets, such as core deposit intangible, are assigned useful lives, which are amortized on an accelerated basis over their useful lives. During 2021, the Company recorded a core deposit intangible of $177,000 as a result of the Riverview Bank branch acquisition. As of December 31, 2021, accumulated amortization on the core deposit intangible totaled $19,000. See Note 27 for the disclosures related to the branch acquisition.

As of December 31, 2021, the estimated future amortization expense for the core deposit intangible associated with the Riverview branch acquisition is as follows (in thousands):


2022	$	30
2023		27
2024		24
2025		21
2026		17
After five years		39
	$	158

22. 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 ~~Pittsburgh National Bank (PNC).~~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 ~~PNC~~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. For the years ended December 31, ~~2020~~2021 and ~~2019,~~2020, the Company received ~~$196,000~~$191,000 and ~~$120,000,~~$196,000, respectively, in fees on the interest rate swap transactions, which are recognized as revenue when received.

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 14.

The following table summarizes the interest rate swap transactions that impacted the Company’s ~~2020~~2021 and ~~2019~~2020 performance (in thousands, except percentages).

DECEMBER 31, 2020

DECEMBER 31, 2021

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

46,760

2.91

Monthly

(523)

N/A

67,280

2.59

Monthly

(857)

Swap liabilities

N/A

(46,760)

(2.91)

Monthly

523

N/A

(67,280)

(2.59)

Monthly

857

Net exposure

—

DECEMBER 31, 2020

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

46,760

2.91

Monthly

(523)

Swap liabilities

N/A

(46,760)

(2.91)

Monthly

523

Net exposure

—

~~Table~~Risk Participation Agreement

The Company entered into a risk participation agreement (RPA) with the lead bank of ~~Contents~~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.

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~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 14. The notional amount of the risk participation agreement outstanding at December 31, 2021 was $2.5 million.

DECEMBER 31, 2019

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE
Swap assets

N/A

$
31,668

4.44
%
Monthly

$
(18)
Swap liabilities

N/A

(31,668)

(4.44)

Monthly

18
Net exposure

—

—



—

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, ~~with~~within the Board of Directors approved Hedging Policy. The Company had no caps or floors outstanding at December 31, ~~2020~~2021 and ~~2019.~~2020. None of the Company’s derivatives are designated as hedging instruments.

23. 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 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

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The contribution of the major business segments to the Consolidated Statements of Operations were as follows:

YEAR ENDED DECEMBER 31, 2021

COMMUNITY

WEALTH

INVESTMENT/

BANKING

MANAGEMENT

PARENT

TOTAL

(IN THOUSANDS)

Net interest income (expense)

45,934

(6,923)

39,083

Provision for loan loss

1,100

Non-interest income

5,649

11,986

126

17,761

Non-interest expense

35,636

8,349

2,985

46,970

Income (loss) before income taxes

14,847

3,709

(9,782)

8,774

Income tax expense (benefit)

2,797

841

(1,936)

1,702

Net income (loss)

12,050

2,868

(7,846)

7,072

Total assets

1,111,856

10,822

212,882

1,335,560


	YEAR ENDED DECEMBER 31, 2020
	COMMUNITY		WEALTH		INVESTMENT/
	BANKING		MANAGEMENT		PARENT		TOTAL

	(IN THOUSANDS)
Net interest income (expense)	$	42,862	$	55	$	(6,550)	$	36,367
Provision for loan loss		2,375		0		0		2,375
Non-interest income		6,022		10,212		41		16,275
Non-interest expense		34,136		7,683		2,636		44,455
Income (loss) before income taxes		12,373		2,584		(9,145)		5,812
Income tax expense (benefit)		2,303		598		(1,687)		1,214
Net income (loss)	$	10,070	$	1,986	$	(7,458)	$	4,598
Total assets	$	1,086,653	$	10,471	$	185,609	$	1,282,733

YEAR ENDED DECEMBER 31, 2020

COMMUNITY

WEALTH

INVESTMENT/

BANKING

MANAGEMENT

PARENT

TOTAL

(IN THOUSANDS)
Net interest income (expense)

$
42,862

$
55

$
(6,550)

$
36,367
Provision for loan loss

2,375

—

—

2,375
Non-interest income

6,022

10,212

41

16,275
Non-interest expense

34,136

7,683

2,636

44,455
Income (loss) before income taxes

12,373

2,584

(9,145)

5,812
Income tax expense (benefit)

2,303

598

(1,687)

1,214
Net income (loss)

$
10,070

$
1,986

$
(7,458)

$
4,598
Total assets

$
1,083,819

$
10,285

$
185,609

$
1,279,713

YEAR ENDED DECEMBER 31, 2019

COMMUNITY

WEALTH

INVESTMENT/

BANKING

MANAGEMENT

PARENT

TOTAL

(IN THOUSANDS)
Net interest income (expense)

$
40,865

$
81

$
(5,504)

$
35,442
Provision for loan loss

800

—

—

800
Non-interest income

5,407

9,736

(370)

14,773
Non-interest expense

31,856

7,340

2,619

41,815
Income (loss) before income taxes

13,616

2,477

(8,493)

7,600
Income tax expense (benefit)

2,715

593

(1,736)

1,572
Net income (loss)

$
10,901

$
1,884

$
(6,757)

$
6,028
Total assets

$
981,787

$
10,361

$
179,036

$
1,171,184

YEAR ENDED DECEMBER 31, 2018

COMMUNITY

WEALTH

INVESTMENT/

BANKING

MANAGEMENT

PARENT

TOTAL

(IN THOUSANDS)
Net interest income (expense)

$
39,195

$
71

$
(3,772)

$
35,494
Credit provision for loan loss

(600)

—

—

(600)
Non-interest income

4,832

9,651

(259)

14,224
Non-interest expense

30,809

7,319

2,745

40,873
Income (loss) before income taxes

13,818

2,403

(6,776)

9,445
Income tax expense (benefit)

2,764

554

(1,641)

1,677
Net income (loss)

$
11,054

$
1,849

$
(5,135)

$
7,768
Total assets

$
966,910

$
9,345

$
184,425

$
1,160,680

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	YEAR ENDED DECEMBER 31, 2019
	COMMUNITY		WEALTH		INVESTMENT/
	BANKING		MANAGEMENT		PARENT		TOTAL

	(IN THOUSANDS)
Net interest income (expense)	$	40,865	$	81	$	(5,504)	$	35,442
Provision for loan loss		800		0		0		800
Non-interest income		5,407		9,736		(370)		14,773
Non-interest expense		31,856		7,340		2,619		41,815
Income (loss) before income taxes		13,616		2,477		(8,493)		7,600
Income tax expense (benefit)		2,715		593		(1,736)		1,572
Net income (loss)	$	10,901	$	1,884	$	(6,757)	$	6,028
Total assets	$	981,787	$	10,361	$	179,036	$	1,171,184

24. 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).

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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 December 31, 2021 and 2020 ~~and 2019,~~, the Company 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 Company 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 DECEMBER 31, 2021

TO BE WELL

MINIMUM

CAPITALIZED

REQUIRED

UNDER

FOR

PROMPT

CAPITAL

CORRECTIVE

ADEQUACY

ACTION

COMPANY

BANK

PURPOSES

REGULATIONS*

AMOUNT

RATIO

AMOUNT

RATIO

(IN THOUSANDS, EXCEPT RATIOS)

Total Capital (To Risk Weighted Assets)

149,177

14.04

133,881

12.66

8.00

10.00

Tier 1 Common Equity (To Risk Weighted Assets)

109,292

10.29

120,656

11.41

4.50

6.50

Tier 1 Capital (To Risk Weighted Assets)

109,292

10.29

120,656

11.41

6.00

8.00

Tier 1 Capital (To Average Assets)

109,292

8.17

120,656

9.12

4.00

5.00

Table of Contents

AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	AT DECEMBER 31, 2020
											TO BE WELL
									MINIMUM		CAPITALIZED
									REQUIRED		UNDER
									FOR		PROMPT
									CAPITAL		CORRECTIVE
									ADEQUACY		ACTION
	COMPANY				BANK				PURPOSES		REGULATIONS*
	AMOUNT		RATIO		AMOUNT		RATIO		RATIO		RATIO

	(IN THOUSANDS, EXCEPT RATIOS)
Total Capital (To Risk Weighted Assets)	$	135,777	12.93	%	$	125,182	11.95	%	8.00	%	10.00	%
Tier 1 Common Equity (To Risk Weighted Assets)		105,653	10.06			112,965	10.78		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)		117,556	11.20			112,965	10.78		6.00		8.00
Tier 1 Capital (To Average Assets)		117,556	9.29			112,965	9.03		4.00		5.00

AT DECEMBER 31, 2019

TO BE WELL

MINIMUM

CAPITALIZED

REQUIRED

UNDER

FOR

PROMPT

CAPITAL

CORRECTIVE

ADEQUACY

ACTION

COMPANY

BANK

PURPOSES

REGULATIONS*


AMOUNT

RATIO

AMOUNT

RATIO

RATIO

RATIO

(IN THOUSANDS, EXCEPT RATIOS)

Total Capital (To Risk Weighted Assets)

$
132,544

13.49
%
$
119,477

12.23
%
8.00
%
10.00
%
Tier 1 Common Equity (To Risk Weighted Assets)

102,841

10.47

109,173

11.17

4.50

6.50

Tier 1 Capital (To Risk Weighted Assets)

114,729

11.68

109,173

11.17

6.00

8.00

Tier 1 Capital (To Average Assets)

114,729

9.87

109,173

9.50

4.00

5.00

*Applies to the Bank only.

~~Additionally, while not a~~It should be noted that, in addition to earnings performance positively impacting regulatory capital, the August 26, 2021 issuance of $27 million in subordinated debt resulted in the total capital ratios at both the Company and the Bank improving to a greater degree than they otherwise would have between years. This improvement is due to the new $27 million subordinated debt issuance being larger than the aggregate $20 million of debt instruments that it replaced. The new $27 million of subordinated debt qualifies as tier 2 capital at the Company and replaced $13.1 million of guaranteed junior subordinated debt, which qualified as tier 1 capital, and $7.65 million of subordinated debt that, similar to the new subordinated debt, qualified as tier 2 capital. As a result, the tier 1 capital ratio decreased at the ~~Company’s tangible~~Company and is now equal to the tier 1 common equity ~~ratio (non-GAAP)~~ratio. Since the new subordinated debt issuance was ~~7.29% and 7.48% for 2020 and 2019, respectively. See~~greater than the ~~discussion~~aggregate total of the ~~tangible common equity ratio under~~debt instruments that it replaced, the ~~Balance Sheet section~~Parent Company downstreamed $3.5 million as capital to the Bank. This new capital at the Bank qualifies as tier 1 capital and resulted in further improvement to all of ~~the MD&A.~~its regulatory capital ratios.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25. PARENT COMPANY FINANCIAL INFORMATION

The parent company functions primarily as a coordinating and servicing unit for all subsidiary entities. Provided services include general management, accounting and taxes, loan review, internal auditing, investment advisory,

~~Table of Contents~~

~~AMERISERV FINANCIAL, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

marketing, insurance, risk management, general corporate services, and financial and strategic planning. The following financial information relates only to the parent company operations:

BALANCE SHEETS


	AT DECEMBER 31,				AT DECEMBER 31,
	2020		2019		2021		2020

	(IN THOUSANDS)				(IN THOUSANDS)
ASSETS
Cash	$	100	$	100	$	100	$	100
Short-term investments		1,998		2,544		5,533		1,998
Cash and cash equivalents		2,098		2,644		5,633		2,098
Investment securities available for sale		3,789		3,758		3,692		3,789
Equity investment in banking subsidiary		111,513		104,843		127,874		111,513
Equity investment in non-banking subsidiaries		7,327		7,830		6,707		7,327
Other assets		1,289		978		866		1,289
TOTAL ASSETS	$	126,016	$	120,053	$	144,772	$	126,016
LIABILITIES
Guaranteed junior subordinated deferrable interest debentures	$	12,970	$	12,955	$	—	$	12,970
Subordinated debt		7,534		7,511		26,603		7,534
Other liabilities		1,113		973		1,620		1,113
TOTAL LIABILITIES		21,617		21,439		28,223		21,617
STOCKHOLDERS’ EQUITY
Total stockholders’ equity		104,399		98,614		116,549		104,399
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	126,016	$	120,053	$	144,772	$	126,016

STATEMENTS OF OPERATIONS


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS)						(IN THOUSANDS)
INCOME
Inter-entity management and other fees	$	2,708	$	2,556	$	2,430	$	2,520	$	2,708	$	2,556
Dividends from banking subsidiary		2,000		3,800		3,500		2,000		2,000		3,800
Dividends from non-banking subsidiaries		1,944		1,105		1,190		1,550		1,944		1,105
Interest, dividend and other income		106		186		119		115		106		186
TOTAL INCOME		6,758		7,647		7,239		6,185		6,758		7,647
EXPENSE
Interest expense		1,642		1,642		1,642		1,798		1,642		1,642
Salaries and employee benefits		2,667		2,614		2,610		2,871		2,667		2,614
Other expense		1,749		1,707		1,733		1,783		1,749		1,707
TOTAL EXPENSE		6,058		5,963		5,985		6,452		6,058		5,963
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES		700		1,684		1,254
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES								(267)		700		1,684
Benefit for income taxes		(681)		(676)		(722)		(802)		(681)		(676)
Equity in undistributed earnings of subsidiaries		3,217		3,668		5,792		6,537		3,217		3,668
NET INCOME	$	4,598	$	6,028	$	7,768	$	7,072	$	4,598	$	6,028
COMPREHENSIVE INCOME	$	7,571	$	4,082	$	6,493	$	13,758	$	7,571	$	4,082

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOWS


	YEAR ENDED DECEMBER 31,						YEAR ENDED DECEMBER 31,
	2020		2019		2018		2021		2020		2019

	(IN THOUSANDS)						(IN THOUSANDS)
OPERATING ACTIVITIES
Net income	$	4,598	$	6,028	$	7,768	$	7,072	$	4,598	$	6,028
Adjustment to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(3,217)		(3,668)		(5,792)		(6,537)		(3,217)		(3,668)
Stock compensation expense		3		7		14		43		3		7
Other – net		(55)		(427)		433		1,204		(133)		(526)
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,329		1,940		2,423		1,782		1,251		1,841
INVESTING ACTIVITIES
Purchase of investment securities – available for sale		(1,254)		—		(1,002)		(1,008)		(1,254)		—
Proceeds from maturity and sales of investment securities – available for sale		1,246		1,085		1,462		991		1,246		1,085
Capital contribution to banking subsidiary								(3,500)		—		—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(8)		1,085		460		(3,517)		(8)		1,085
FINANCING ACTIVITIES
Redemption of guaranteed junior subordinated deferrable interest debentures								(12,018)		—		—
Subordinated debt issuance, net								26,589		—		—
Redemption of subordinated debt								(7,650)		—		—
Stock options exercised								57		78		99
Purchases of treasury stock		(151)		(2,550)		(2,346)		0		(151)		(2,550)
Common stock dividends paid		(1,716)		(1,642)		(1,347)		(1,708)		(1,716)		(1,642)
NET CASH USED IN FINANCING ACTIVITIES		(1,867)		(4,192)		(3,693)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(546)		(1,167)		(810)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES								5,270		(1,789)		(4,093)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS								3,535		(546)		(1,167)
CASH AND CASH EQUIVALENTS AT JANUARY 1		2,644		3,811		4,621		2,098		2,644		3,811
CASH AND CASH EQUIVALENTS AT DECEMBER 31	$	2,098	$	2,644	$	3,811	$	5,633	$	2,098	$	2,644

The ability of the subsidiary Bank to upstream cash to the parent company is restricted by regulations. Federal law prevents the parent company from borrowing from its subsidiary Bank unless the loans are secured by specified assets. Further, such secured loans are limited in amount to ten percent of the subsidiary Bank’s capital and surplus. In addition, the Bank is subject to legal limitations on the amount of dividends that can be paid to its shareholder. The dividend limitation generally restricts dividend payments to a bank’s retained net income for the current and preceding two calendar years. Cash may also be upstreamed to the parent company by the subsidiaries as an inter-entity management fee. The subsidiary Bank had a combined ~~$109,715,000~~$118,693,000 of restricted surplus and retained earnings at December 31, ~~2020.~~2021.

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)

The following table sets forth certain unaudited quarterly consolidated financial data regarding the Company:

2020 QUARTER ENDED

2021 QUARTER ENDED

DEC. 31

SEPT. 30

JUNE 30,

MARCH 31,

DEC. 31

SEPT. 30

JUNE 30

MARCH 31

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest income

11,640

11,237

12,061

11,944

11,690

11,372

11,838

11,769

Interest expense

2,288

2,446

2,588

3,193

1,392

2,146

1,971

2,077

Net interest income

9,352

8,791

9,473

8,751

10,298

9,226

9,867

9,692

Provision for loan losses

1,075

675

450

175

250

350

100

400

Net interest income after provision for loan losses

8,277

8,116

9,023

8,576

10,048

8,876

9,767

9,292

Non-interest income

4,372

4,304

3,767

3,832

4,332

4,416

4,399

4,614

Non-interest expense

11,709

11,107

11,006

10,633

12,107

11,520

12,038

11,305

Income before income taxes

940

1,313

1,784

1,775

2,273

1,772

2,128

2,601

Provision for income taxes

248

235

365

366

421

341

420

520

Net income

692

1,078

1,419

1,409

1,852

1,431

1,708

2,081

Basic earnings per common share

0.04

0.06

0.08

0.11

0.08

0.10

0.12

Diluted earnings per common share

0.04

0.06

0.08

0.11

0.08

0.10

0.12

Cash dividends declared per common share

0.025


	2019 QUARTER ENDED								2020 QUARTER ENDED
	DEC. 31		SEPT. 30		JUNE 30,		MARCH 31,		DEC. 31		SEPT. 30		JUNE 30		MARCH 31

	(IN THOUSANDS, EXCEPT PER SHARE DATA)								(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income	$	12,405	$	12,433	$	12,765	$	12,164	$	11,640	$	11,237	$	12,061	$	11,944
Interest expense		3,445		3,669		3,704		3,507		2,288		2,446		2,588		3,193
Net interest income		8,960		8,764		9,061		8,657		9,352		8,791		9,473		8,751
Provision (credit) for loan losses		975		225		—		(400)
Net interest income after provision (credit) for loan losses		7,985		8,539		9,061		9,057
Provision for loan losses										1,075		675		450		175
Net interest income after provision for loan losses										8,277		8,116		9,023		8,576
Non-interest income		3,416		4,095		3,657		3,605		4,372		4,304		3,767		3,832
Non-interest expense		10,563		10,503		10,456		10,293		11,709		11,107		11,006		10,633
Income before income taxes		838		2,131		2,262		2,369		940		1,313		1,784		1,775
Provision for income taxes		169		442		470		491		248		235		365		366
Net income	$	669	$	1,689	$	1,792	$	1,878	$	692	$	1,078	$	1,419	$	1,409
Basic earnings per common share	$	0.04	$	0.10	$	0.10	$	0.11	$	0.04	$	0.06	$	0.08	$	0.08
Diluted earnings per common share		0.04		0.10		0.10		0.11		0.04		0.06		0.08		0.08
Cash dividends declared per common share		0.025		0.025		0.025		0.020		0.025		0.025		0.025		0.025

27. ~~RISKS AND UNCERTAINTIES~~BRANCH ACQUISITION

On May 21, 2021, AmeriServ Financial Bank, the Company’s wholly owned banking subsidiary, completed its previously announced acquisition from Citizen’s Neighborhood Bank (CNB), an operating division of Riverview Bank, the branch and deposit customers in Meyersdale, Pennsylvania and the deposit customers in Somerset, Pennsylvania. On this date, the Meyersdale branch continued in operation under the AmeriServ name while the Somerset branch customers were transferred to the full service AmeriServ office at 108 West Main Street. Pursuant with the terms of the purchase and assumption agreement, the related deposits, totaling approximately $42 million on the closing date, were acquired for a 3.71% deposit premium, or $1.6 million.

The ~~impact~~acquisition was accounted for under the acquisition method of accounting as prescribed by FASB Accounting Standards Codification 805, Business Combinations, as amended. Accordingly, the COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of the Company’s customers. The pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, and consumer spending has resulted in less economic activity, and significant volatility and disruption in the financial markets. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition, andacquisition’s results of operations ~~is currently uncertain and will depend on various developments and other factors, including, among others,~~have been included in the ~~duration and scope~~Company’s results of operations as of the ~~pandemic, as well as governmental, regulatory, and private sector responses~~date of acquisition. Under this method of accounting, the purchase price has been allocated to the ~~pandemic,~~respective assets acquired and ~~the associated impacts~~liabilities assumed based on ~~the~~their

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AMERISERV FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~economy, financial markets~~estimated fair values. Management made significant estimates and ~~our customers, employees,~~exercised significant judgment in accounting for the acquisition.

In accordance with the purchase and ~~vendors. While~~assumption agreement, the ~~full effects~~purchase price of the ~~pandemic remain unknown,~~real property (i.e. premise and equipment) was equal to the net book value as of the date of acquisition. The Company determined that the net book value was a reasonable proxy of fair value based on review of appraisals on record at Riverview Bank. The Company engaged a consultant to assist in the valuation of the core deposit intangible asset and fair value of certificates of deposit. Core deposits include demand deposits, interest-bearing checking, money market, and savings accounts. The core deposit intangible value assigned to the acquired deposits was determined using the income approach and represents the future economic benefit of the potential cost savings from acquiring those core deposits compared to the cost of obtaining generally higher cost FHLB borrowings. Certificates of deposit (CDs) are not considered to be core deposits as they typically are less stable and generally do not have an all-in favorable funding advantage to alternative funding sources. The fair value of CDs represents the present value of the certificates’ expected contractual payments discounted by market rates for similar CDs.

The following table reflects the basis of assets acquired and liabilities assumed from Riverview Bank as of the acquisition date (in thousands).


Consideration received
Cash received			$	40,154

Fair value of assets acquired
Cash and cash equivalents	$	258
Loans		36
Premises and equipment		158
Core deposit intangible		177
Other assets		19
				648
Fair value of liabilities assumed
Deposits		(42,432)
Other liabilities		(37)
				(42,469)

Total fair value of identifiable net assets				(41,821)

Goodwill resulting from acquisition			$	1,667

The Company recorded goodwill and other intangibles associated with the acquisition of the Meyersdale and Somerset branches from Riverview Bank totaling $1.8 million. Goodwill is ~~committed~~not amortized, but is periodically evaluated for impairment. The Company did not recognize any impairment during the year ended December 31, 2021. The carrying amount of the goodwill at December 31, 2021 related to ~~supporting its customers, employees, and communities during this difficult time.~~the Riverview branch acquisition was $1.7 million.

~~28. SUBSEQUENT EVENTS~~

~~On January 15,~~Identifiable intangible assets are amortized to their estimated residual values over their expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. During the year ended December 31, 2021, ~~the Company issued a press release announcing the execution~~0 such adjustments were recorded. The identifiable intangible assets consist of a ~~definitive agreement regarding~~core deposit intangible which is being amortized on an accelerated basis over a ten-year useful life. The gross carrying amount of the core deposit intangible at December 31, 2021 was $177,000 with $19,000 accumulated amortization as of that date.

The amount of revenue of the acquired business since the acquisition by AmeriServ Financial Bank, the Company’s wholly owned banking subsidiary, of the branch and deposit customers of Citizen’s Neighborhood Bank (CNB), an operating division of Riverview Bank, located in Meyersdale, Pennsylvaniadate, and the ~~deposit customers~~pro-forma results of CNB at the branch located in Somerset, Pennsylvania. As of the agreement date, the related deposits totaled approximately $48 million and will be acquired for a 3.71% deposit premium. The Meyersdale branch will continue in operation under the AmeriServ name, and the Somerset branch customers will be serviced from the neighboring full service AmeriServ office at 108 West Main Street. On a pro forma basis, AmeriServ will have the fourth largest deposit market share in Somerset County with four branches and $150 million in deposits. This transaction will be immediately accretiveoperations, are not material to the Company’s earnings and the approximate 2% dilution to the Company’s tangible book value will be earned back in less than three years. The transaction is subject to regulatory approvals and satisfaction of customary closing conditions and is expected to close in the second quarter of 2021.financial statements.

In late December 2020, the Federal Government passed a new $900 billion pandemic relief bill which includes $284.5 billion for the re-opening of the Paycheck Protection Program. The Company will again assist our business customers and participate in the program in 2021. As of February 28, 2021, the Company has originated 141 loans totaling $24.2 million under the new round of the Paycheck Protection Program.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholdersandthe Board of Directors of AmeriServ Financial, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AmeriServ Financial, Inc. and subsidiaries (the “Company”) as of December 31, ~~2020~~2021 and ~~2019;~~2020; the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flowsfor each of the three years in the period ended December31, ~~2020;~~ 2021;and the related notes to the consolidated financial statements (collectively, the ~~“financial statements”)~~financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2020~~2021 and ~~2019,~~2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2020,~~2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

ThesefinancialstatementsaretheresponsibilityoftheCompany’smanagement.Ourresponsibility istoexpressanopinionontheCompany’sfinancialstatementsbasedonouraudits.Weareapublic accountingfirmregisteredwiththe Public Company Accounting Oversight Board (United States) (~~PCAOB)~~(PCAOB) and are required to be independent, withrespecttothe Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB.

WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for ouropinion.

Critical Audit Matters

Thecriticalauditmatterscommunicatedbelowaremattersarisingfromthecurrentperiodauditof the financial statements that were communicated or required to be communicated to the audit committeeandthat:(1)relatetoaccountsordisclosuresthatarematerialtothefinancial ~~statements~~statements; and(2)involvedourespeciallychallenging,subjective,orcomplexjudgments.Thecommunication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which theyrelate.

Allowance for Loan Losses (ALL) – Qualitative Factors

Description of the Matter

The Company’s loan portfolio totaled ~~$972.1~~$985.1 million as of December 31, ~~2020,~~2021, and the associated ALL was ~~$11.3~~$12.4 million. As discussed in Notes 1, 6, and 7 to the consolidated financial statements, determining the amount of the ALL requires significant judgment about the collectability of loans, which includes an assessment of quantitative factors such as historical loss experience within each risk category of loans and testing of certain commercial loans for impairment. Management applies additional qualitative adjustments to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the historical loss experience.Qualitativeadjustmentsaremadebaseduponchangesinlendingpoliciesandpractices, economicconditions,changesintheloanportfoliomix,trendsinloandelinquenciesandclassified loans, collateral values, and concentrations of credit risk for the commercial loanportfolios.

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~~Allowance for Loan Losses (ALL) – Qualitative Factors (Continued)~~

We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of ~~subjectivity, which is magnified by the uncertainty resulting from the COVID-19 pandemic.~~subjectivity. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation involved a high degree of subjectivity.

How We Addressed the Matter in Our Audit

We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to the ALL. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which included, among others, management’s review and approval controls designed to assess the need and level of qualitative adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.

To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all relevant risks were reflected in the ~~ALL and the need to consider qualitative adjustments, including the potential effect of COVID-19 on the adjustments.~~ALL.

Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy,andrelevanceofthedataandinputsutilizedinmanagement’sestimate.Forexample,we compared the inputs and data to the Company’s historical loan performance data and third-party macroeconomic data and considered the existence of new or contrary information. We also compared the ~~overall~~ ALL to the base range of historical losses to evaluate the level of reserves, including the reasonableness of qualitative adjustments. Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes in external market factors, the Company’sloanportfolio, various internal risk metrics, andassetqualitytrends.

We also utilized internal credit review specialists with knowledge to evaluate the appropriateness ofmanagement’srisk-ratingprocesses,toensurethattheriskratingsappliedtothecommercialloan portfolio werereasonable.

We have served as the Company’s auditor since 2007.

/s/S.R. Snodgrass, P.C.

Cranberry Township, Pennsylvania

March ~~10, 2021~~14, 2022

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REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

We, as management of AmeriServ Financial, Inc., are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company’s system of internal control over financial reporting as of December 31, ~~2020,~~2021, in relation to criteria for effective internal control over financial reporting as described in “2013 Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, ~~2020,~~2021, its system of internal control over financial reporting is effective and meets the criteria of the “2013 Internal Control — Integrated Framework”.

Management is responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders designated by the Federal Reserve as safety and soundness laws and regulations.

Management has assessed compliance by the Company with the designated laws and regulations relating to safety and soundness. Based on the assessment, management believes that the Company complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, ~~2020.~~2021.

/s/ JEFFREY A. STOPKO		/s/ MICHAEL D. LYNCH
Jeffrey A. Stopko		Michael D. Lynch
President & Chief Executive Officer		~~Senior~~Executive Vice President & Chief Financial Officer

Johnstown, PA

March ~~10, 2021~~14, 2022

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STATEMENT OF MANAGEMENT RESPONSIBILITY

March ~~10, 2021~~14, 2022

To the Stockholders and Board of Directors of AmeriServ Financial, Inc.

Management of AmeriServ Financial, Inc. and its subsidiaries have prepared the consolidated financial statements and other information in the Annual Report and Form 10-K in accordance with United States generally accepted accounting principles and are responsible for its accuracy.

In meeting its responsibility, management relies on internal accounting and related control systems, which include selection and training of qualified personnel, establishment and communication of accounting and administrative policies and procedures, appropriate segregation of responsibilities, and programs of internal audit. These systems are designed to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets and that assets are safeguarded against unauthorized use or disposition. Such assurance cannot be absolute because of inherent limitations in any internal control system.

Management also recognizes its responsibility to foster a climate in which Company affairs are conducted with the highest ethical standards. The Company’s Code of Conduct, furnished to each employee and director, addresses the importance of open internal communications, potential conflicts of interest, compliance with applicable laws, including those related to financial disclosure, the confidentiality of proprietary information, and other items. There is an ongoing program to assess compliance with these policies.

The Audit Committee of the Company’s Board of Directors consists solely of independent directors. The Audit Committee meets periodically with management and the independent auditors to discuss audit, financial reporting, and related matters. S.R. Snodgrass P.C. and the Company’s internal auditors have direct access to the Audit Committee.

	/s/ JEFFREY A. STOPKO		/s/ MICHAEL D. LYNCH
	Jeffrey A. Stopko		Michael D. Lynch
	President & Chief Executive Officer		~~Senior~~Executive Vice President & Chief Financial Officer

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of December 31, ~~2020,~~2021, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, ~~2020.~~2021.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Management’s assessment of internal control over financial reporting for the fiscal year ended December 31, ~~2020~~2021 is included in Item 8.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this section relating to Directors of the Registrant is presented in the “Election of ASRV Directors” section of the Proxy Statement for the Annual Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this section is presented in the ~~“Compensation~~“Compensation/Human Resources Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” ~~the~~ “Compensation Committee Report,” and “Compensation Paid to Executive Officers” sections of the Proxy Statement for the Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table summarizes the number of shares remaining for issuance under the Company’s outstanding ~~stock~~equity incentive plans as of December 31, ~~2020.~~2021.

Equity Compensation Plan Information

Number of securities

remaining available for

future issuance under

Number of securities

Weighted-average

equity compensation

Number of securities

Weighted-average

equity compensation

to be issued upon exercise

exercise price of

plans (excluding

to be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

of outstanding options,

outstanding options,

securities reflected in

warrants and rights

column (a))

warrants and rights

column (a))

Plan category

(a)

(b)

(c)

(a)

(b)

(c)

Equity compensation plans approved by security holders

230,913

3.14

472,168

369,047

3.47

600,000

Equity compensation plans not approved by security holders

—

Total

230,913

3.14

472,168

369,047

3.47

600,000

Information required by this section is presented in the “Principal ~~Owners”~~Shareholders” and “Security Ownership of Directors and Management” sections of the Proxy Statement for the Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this section is presented in the “Director Independence and Transactions with Related Parties” section of the Proxy Statement for the Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this section is presented in the “Independent Registered Accounting Firm” section of the Proxy Statement for the Annual Meeting of Shareholders.

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PART IV

ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

CONSOLIDATED FINANCIAL STATEMENTS FILED:

The consolidated financial statements listed below are from this ~~2020~~2021 Form 10-K and Part II — Item 8. Page references are to this Form 10-K.

CONSOLIDATED FINANCIAL STATEMENTS:

AmeriServ Financial, Inc. and Subsidiaries
Consolidated Balance Sheets	40
Consolidated Statements of Operations	41
~~Consolidated Statements of Operations~~	42
Consolidated Statements of Comprehensive Income (Loss)	43
Consolidated Statements of Changes in Stockholders’ Equity	44
Consolidated Statements of ~~Changes in Stockholders’ Equity~~Cash Flows	45
Notes to Consolidated Financial Statements ~~of Cash Flows~~	46
~~Notes to Consolidated Financial Statements~~	47
Report of Independent Registered Public Accounting Firm (PCAOB ID 00074)	9697
Report of Management’s Assessment of Internal Control Over Financial Reporting	98
~~Statement of Management Responsibility~~	99
Statement of Management Responsibility	100

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:

These schedules are not required or are not applicable under SEC accounting regulations and therefore have been omitted.

EXHIBITS:

The exhibits listed below are filed herewith or to other filings.

EXHIBIT NUMBER	DESCRIPTION	PRIOR FILING OR EXHIBIT PAGE NUMBER HEREIN

3.1	Amended and Restated Articles of Incorporation as amended through August 11, 2011.	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 effective April 2, 2020.	Exhibit 3.1 to the Current Report on Form 8-K filed on April 6, 2020

10.1	Employment Agreement, dated April 27, 2015, between AmeriServ Financial, Inc. and Jeffrey A. Stopko.	Exhibit 10.1 to the Current Report on Form 8-K filed on April 28, 2015

10.2	AmeriServ Financial, Inc. ~~2011~~2021 Stock Incentive Plan	Appendix A to the Definitive Proxy Statement, filed under Schedule 14A, filed on March ~~21, 2011~~23, 2021

10.3	AmeriServ Financial, Inc. Deferred Compensation Plan	Exhibit 10.1 to the Current Report on Form 8-K filed on October 21, 2014

10.4	Employment Agreement, dated February 19, 2016, between AmeriServ Financial, Inc. and Michael D. Lynch	Exhibit 10.1 to the Current Report on Form 8-K filed on February 24, 2016

103

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EXHIBIT NUMBER	DESCRIPTION	PRIOR FILING OR EXHIBIT PAGE NUMBER HEREIN

21.1	Subsidiaries of the Registrant.	Attached

23.1	Consent of Independent Registered Public Accounting Firm	Attached

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.	Attached

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.	Attached

32.1	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	Attached

32.2	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	Attached

101	The following information from AMERISERV FINANCIAL, INC.’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements.	Attached

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AmeriServ Financial, Inc.
	(Registrant)

	By :	/s/ Jeffrey A. Stopko
		Jeffrey A. Stopko
		President & CEO
Date: March ~~10, 2021~~14, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March ~~10, 2021:~~14, 2022:

/s/ Allan R. Dennison	Chairman	/s/ Michael D. Lynch	~~SVP~~EVP & CFO
Allan R. Dennison	Director	Michael D. Lynch

/s/ Jeffrey A. Stopko	President & CEO	/s/ Margaret A. O’Malley	Director
Jeffrey A. Stopko	Director	Margaret A. O’Malley

/s/ J. Michael Adams, Jr.	Director	/s/ Daniel A. Onorato	Director
J. Michael Adams, Jr.		Daniel A. Onorato

/s/ Craig G. Ford	Director	/s/ Mark E. Pasquerilla	Director
Craig G. Ford		Mark E. Pasquerilla

/s/ Kim W. Kunkle	Director	/s/ Sara A. Sargent	Director
Kim W. Kunkle		Sara A. Sargent

~~104~~105

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AMERISERV FINANCIAL, INC.

AMERISERV FINANCIAL BANK OFFICE LOCATIONS

AMERISERV LOAN PRODUCTION LOCATIONS

HEADQUARTERS

Main Office Johnstown

216 Franklin Street

Johnstown, PA 15901

1-800-837-BANK (2265)

Carrolltown

101 ~~South~~S. Main Street

Carrolltown, PA 15722

Central City

104 Sunshine Avenue

Central City, PA 15926

Derry

112 ~~South~~S. Chestnut Street

Derry, PA 15627

East Hills Drive Up

1213 Scalp Avenue

Johnstown, PA 15904

Eighth Ward

1059 Franklin Street

Johnstown, PA 15905

Hagerstown

12806 Shank Farm Way

Hagerstown, MD 21742

Lovell Park

179 Lovell Avenue

Ebensburg, PA 15931

Meyersdale

135 Center Street

Meyersdale, PA 15552

Nanty Glo

1383 Shoemaker Street

Nanty Glo, PA 15943

North Atherton

1857 ~~North~~N. Atherton Street

State College, PA 16803

Northern Cambria

4206 Crawford Avenue

Suite 1

Northern Cambria, PA 15714

Pittsburgh

United Steelworkers Building

60 Boulevard of the Allies

Suite 100

Pittsburgh, PA 15222

Seward

6858 Route 711

Suite 1

Seward, PA 15954

Somerset

108 ~~West~~W. Main Street

Somerset, PA 15501

University Heights

1404 Eisenhower Boulevard

Johnstown, PA 15904

Westmont

110 Plaza Drive

Johnstown, PA 15905

Windber

1501 Somerset Avenue

Windber, PA 15963

Altoona

3415 Pleasant Valley Boulevard

Pleasant Valley Shopping Center

Altoona, PA 16602

Wilkins Township

201 Penn Center Boulevard

Suite 200

Pittsburgh, PA 15235

24-hr ATM available at all branches except Pittsburgh where there is no ATM available

~~105~~106

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SHAREHOLDER INFORMATION

SECURITIES MARKETS

AmeriServ Financial, Inc. Common Stock is publicly traded and quoted on the NASDAQ National Market System. The common stock is traded under the symbol of “ASRV.” The listed market makers for the stock are:

	Piper Sandler Companies 1251 Avenue of the Americas 6th Floor New York, NY 10020 Telephone: (800) 635-6860		~~Keefe Bruyette & Woods, Inc. 787 Seventh Avenue Equitable Bldg — 4~~th ~~Floor New York, NY 10019 Telephone: (800) 966-1559~~

	Stifel Nicolaus 7111 Fairway Drive, STE 301 Palm Beach Gardens, FL 33418 Telephone: (561) 615-5300

	Raymond James & Associates 222 S. Riverside Plaza, 7th Floor Chicago, IL 60606 Telephone: (312) 655-2961		Virtu Financial, Inc. 1 Liberty Plaza New York, NY 10006 Telephone: (888) 931-4357

	~~Raymond James & Associates 222 S. Riverside Plaza, 7~~th ~~Floor Chicago, IL 60606 Telephone: (312) 655-2961~~

CORPORATE OFFICES

The corporate offices of AmeriServ Financial, Inc. are located at 216 Franklin Street, Johnstown, PA 15901.

Mailing address:

P.O. Box 430

Johnstown, PA 15907-0430

(814) 533-5300

AGENTS

The transfer agent and registrar for AmeriServ Financial, Inc.’s common stock is:

Computershare Investor Services

P.O. Box 505000

Louisville, KY 40233-5000

Shareholder Inquiries: 1-800-730-4001

Internet Address: http://www.Computershare.com

INFORMATION

Analysts, investors, shareholders, and others seeking financial data about AmeriServ Financial, Inc. or any of its subsidiaries’ annual and quarterly reports, proxy statements, 10-K, 10-Q, 8-K, and call reports — are asked to contact Jeffrey A. Stopko, President & Chief Executive Officer at (814) 533-5310 or by e-mail at JStopko@AmeriServ.com. The Company also maintains a website (www.AmeriServ.com) that makes available, free of charge, such reports and proxy statements and other current financial information, such as press releases and SEC documents, as well as the corporate governance documents under the Investor Relations tab on the Company’s website. Information contained on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K.

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AMERISERV FINANCIAL, INC.

Board of Directors		General Officers

J. Michael Adams, Jr. ~~Chief Counsel to the Pennsylvania DCED~~Mike Adams & Associates LLC Allan R. Dennison Non-Executive Chairman of the Board of all Subsidiaries Craig G. Ford Non-Executive Vice Chairman of the Board of all Subsidiaries Kim W. Kunkle President & CEO, Laurel Holdings, Inc Margaret A. O’Malley Attorney-at-Law Yost & O’Malley	Daniel A. Onorato Executive Vice President, Chief Corporate Affairs and Communications Officer of Highmark Health Mark E. Pasquerilla President, Pasquerilla Enterprises L.P. Sara A. Sargent Owner/President, The Sargent’s Group Jeffrey A. Stopko, CPA President & Chief Executive Officer AmeriServ Financial, Inc. & AmeriServ Financial Bank	Jeffrey A. Stopko, CPA President & Chief Executive Officer Michael D. Lynch Executive Vice President, Chief Financial Officer, Chief Investment Officer & Chief Risk Officer Susan Tomera Angeletti Senior Vice President, Director - Corporate Marketing & Alternative Delivery Laura L. Fiore Senior Vice President, Chief Auditor Wendy M. Gressick Senior Vice President, Chief Loan Review Officer ~~Michael D. Lynch~~ ~~Senior Vice President, Chief Financial Officer, Chief Investment Officer & Chief Risk Officer~~ Anthony M. Gojmerac Vice President, Purchasing & Facilities Officer Jessica L. Johnson Vice President & Manager of Regulatory Accounting Tammie L. Slavick Vice President, Financial & Profitability Analysis Sharon M. Callihan Corporate Secretary

~~107~~108

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AMERISERV FINANCIAL, INC.

AMERISERV FINANCIAL BANK

Board of Directors

General Officers

J. Michael Adams, Jr.

~~Chief Counsel to the Pennsylvania DCED~~Mike Adams & Associates LLC

Allan R. Dennison

Non-Executive Chairman of the Board of all Subsidiaries

Craig G. Ford

Non-Executive Vice Chairman of the Board of all Subsidiaries

Kim W. Kunkle

President & CEO,

Laurel Holdings, Inc.

Margaret A. O’Malley

Attorney-at-Law

Yost & O’Malley

Daniel A. Onorato

Executive Vice President, Chief Corporate Affairs and Communications Officer of Highmark Health

Mark E. Pasquerilla

President, Pasquerilla Enterprises L.P.

Sara A. Sargent

Owner/President,

The Sargent’s Group

Jeffrey A. Stopko, CPA

President & Chief Executive Officer AmeriServ Financial, Inc. & AmeriServ Financial Bank

Jeffrey A. Stopko, CPA

President & Chief Executive Officer

Michael R. Baylor

Executive Vice President & Chief Commercial Banking Officer

~~Russell B. Flynn~~

~~Senior Vice President, Retail Lending~~

~~Bettina D. Fochler~~

~~Senior Vice President, Chief Credit Officer~~

~~Kevin H. Justice~~

~~Senior Vice President, Area Executive, Hagerstown~~

~~Wayne A. Kessler~~

~~Senior Vice President, Area Executive, Johnstown~~

Michael D. Lynch

~~Senior~~Executive Vice President, Chief Financial Officer, Chief Investment Officer & Chief Risk Officer

Robert J. Cabala

Senior Vice President, Area Executive, Johnstown

Mitchell D. Edwards

Senior Vice President, Commercial Relationship Manager

Russell B. Flynn

Senior Vice President, Retail Lending

Bettina D. Fochler

Senior Vice President, Chief Credit Officer

Kevin H. Justice

Senior Vice President, Area Executive, Hagerstown

Kerri L. Mueller

Senior Vice President, Retail Banking

Matthew C. Rigo

Senior Vice President, Area Executive, Wilkins Township

Michele M. Scanlan

Senior Vice President, Chief Human Resources Officer

Tara M. Shaffer

Senior Vice President, Area Executive, State College

Shana M. Stiles

Senior Vice President, BSA & Chief Compliance Officer

Charlene J. Tessari

Senior Vice President, Operations - Application

Catherine M. Torok

Senior Vice President, Chief Information Officer

Thomas R. Boyd, Jr.

Vice President, Commercial Relationship Manager

Carie L. Braniff

Vice President, Corporate Security Officer

Angela M. Briggs

Vice President, Deposit Operations Mgr.

~~Robert J. Cabala~~

~~Vice President, Commercial Relationship Manager~~

George T. Chaney II

Vice President, Portfolio Manager

~~Jennifer~~Lori L. ~~Devan~~Czekaj-Thompson

Vice President, ~~Chief Compliance Officer~~Commercial Relationship Manager

Benjamin M. Danley

Vice President, Commercial Relationship Manager

Bernard A. Eckenrode

Vice President, Commercial Relationship Manager

~~Mitchell D. Edwards~~

~~Vice President, Commercial Relationship Manager~~

Jason D. Eminhizer

Vice President, Commercial Relationship Manager

Christine E. Fisher

Vice President, Business Services

Stephen M. Gagan

Vice President, Director of Information Technology

Anthony M. Gojmerac

Vice President, Purchasing & Facilities Officer

Chelsea M. Hartnett

Vice President, Manager Credit Analysis

Melissa A. Lohr

Vice President, Collections & ~~Assigned Risk~~Loan Administration

Randy S. McLaughlin

Vice President, Regional Sales Officer

David J. O’Leary

Vice President, Residential Mortgage Lending

Donald E. Rhodes

Vice President, Commercial Relationship Manager

~~James E. Ryan~~Heidi L. Rosenberger

Vice President, ~~Director of IT~~Retail Operations

Cynthia L. Stewart

Vice President, Mortgage Administration

~~Shana Stiles~~Anthony T. Weisenburger

Vice President, ~~BSA & Assistant Corporate Services~~Portfolio Manager

~~Charlene J. Tessari~~

~~Vice President, Operations - Application~~

~~Catherine M. Torok~~

~~Vice President, Chief Information Security Officer~~

Michelle D. Wyandt

Vice President, Supervisor Credit Analysis

~~108~~109

Table of Contents

AMERISERV FINANCIAL, INC.

AMERISERV TRUST & FINANCIAL

SERVICES COMPANY

WEST CHESTER

CAPITAL ADVISORS

Board of Directors

J. Michael Adams, Jr.

~~Chief Counsel to the Pennsylvania DCED~~Mike Adams & Associates LLC

Richard W. Bloomingdale

President, PA AFL-CIO

Allan R. Dennison

Non-Executive Chairman of the Board of all Subsidiaries

Craig G. Ford

Non-Executive Vice Chairman of the Board of all Subsidiaries

James T. Huerth

President & Chief Executive Officer, AmeriServ Trust & Financial Services Company

George B. Kaufman

Attorney-at-Law

Kim W. Kunkle

President & CEO,

Laurel Holdings, Inc.

Mark E. Miller

Retired Director of Support Services, Somerset

Hospital & President, Pine Grill, Inc.

Margaret A. O’Malley

Attorney-at-Law

Yost & O’Malley

Sara A. Sargent

Owner/President

The Sargent’s Group

Jeffrey A. Stopko, CPA

President & Chief Executive Officer, AmeriServ Financial, Inc. & AmeriServ Financial Bank

General Officers

James T. Huerth

President & Chief Executive Officer

David A. Finui

Executive Vice President, Director -

Wealth and Capital Management

Michael D. Lynch
Executive Vice President, Treasurer

Robert J. Cabala
Senior Vice President, Area Executive, Johnstown

Nicholas E. Debias, Jr., CTA

Senior Vice President, Senior Wealth Management Advisor

Bettina D. Fochler

Senior Vice President, Chief Credit Officer

~~Wayne Kessler~~
Michael P. Geiser
Senior Vice President, ~~Area Executive, Johnstown~~Trust Operations Manager

~~Michael D. Lynch~~
~~Senior Vice President, Treasurer~~

Christopher C. Sheedy

Senior Vice President & Director Specialty Real Estate

Kathleen M. Wallace

Senior Vice President, Retirement Services Manager

Timothy E. Walters

Senior Vice President, Diversified Services Wealth Advisor

Mary Ann Brustle

Vice President, Risk Management & Trust Compliance Officer

~~Michael P. Geiser~~
Keashia R. Holtzman-Kishlock
Vice President, Trust ~~Operations Manager~~Accounting Officer

~~Dennis E. Hunt~~
James A. Hotchkiss
Vice President, ~~Retirement Services Officer~~Welath Management Advisor

Mark F. Lumley

Vice President, Assistant Trust Operations Manager

Justin F. Maser

Vice President, Portfolio Manager

Scott D. Porterfield

Vice President, Wealth Management Advisor

Trust Company Office Locations

216 Franklin Street

AmeriServ Financial Bank Building

Johnstown, PA 15901-1911

140 South Main Street

Greensburg, PA 15601

J. Michael Adams, Jr.

~~Chief Counsel to the Pennsylvania DCED~~Mike Adams & Associates LLC

Allan R. Dennison

Non-Executive Chairman of the Board of all Subsidiaries

Craig G. Ford

Non-Executive Vice Chairman of the Board of all Subsidiaries

James T. Huerth

President & Chief Executive Officer,

AmeriServ Trust & Financial Services Company

Steven M. Krawick, AAMS, CMFC

President & Chief Executive Officer,

West Chester Capital Advisors

Jeffrey A. Stopko, CPA

President & Chief Executive Officer,

AmeriServ Financial, Inc. & AmeriServ Financial Bank

General Officers

Steven M. Krawick, AAMS, CMFC

President & Chief Executive Officer

Michael D. Lynch

~~Senior~~Executive Vice President, Chief Financial Officer & Treasurer

Frank J. Lapinsky

Vice President, Chief Administrative Officer & Portfolio Manager

~~Mary F. Stanek~~
~~Vice President, Portfolio Manager~~

Office Location

216 Franklin Street

AmeriServ Financial Bank Building

Johnstown, PA 15901-1911

~~109~~110

		Page No.
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	1411
Item 1B.	Unresolved Staff Comments	1412
Item 2.	Properties	1412
Item 3.	Legal Proceedings	1512
Item 4.	Mine Safety Disclosures	1512
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1613
Item 6.	Selected Consolidated Financial Data	1714
Item 7.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations	1815
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 8.	Consolidated Financial Statements and Supplementary Data	40
Item 8.9.	~~Consolidated Financial Statements and Supplementary Data~~	41
~~Item 9.~~	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~100~~101
Item 9A.	Controls and Procedures	~~100~~101
Item 9B.	Other Information	~~100~~101
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	~~101~~102
Item 11.	Executive Compensation	~~101~~102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~101~~102
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~101~~102
Item 14.	Principal Accountant Fees and Services	~~101~~102
PART IV
Item 15.	Exhibits, Financial Statement Schedules	~~102~~103
	Signatures	~~104~~105


	AT DECEMBER 31, 2018
	FEDERAL
	FUNDS			SHORT-TERM
	PURCHASED			BORROWINGS

	(IN THOUSANDS, EXCEPT RATES)
Balance	$	—		$	41,029
Maximum balance at any month end		—			82,932
Average balance during year		54			33,073
Average rate paid for the year		1.70	%		2.17	%
Interest rate on year-end balance		—			2.62


	YEAR ENDED
	DECEMBER 31,
	2020		2019

	(IN THOUSANDS)
Unrealized gains recognized in comprehensive income	$	(485)	$	(830)
Pension obligation of the defined benefit plan not yet recognized in income		(305)		1,348
Deferred provision for income taxes		(1,614)		(179)
Net increase (decrease)	$	(2,404)	$	339


	YEAR ENDING DECEMBER 31, 2020						YEAR ENDED DECEMBER 31, 2019						YEAR ENDING DECEMBER 31, 2018
	Net						Net						Net
	Unrealized						Unrealized						Unrealized
	Gains and						Gains and						Gains and
	Losses on		Defined				Losses on		Defined				Losses on		Defined
	Investment		Benefit				Investment		Benefit				Investment		Benefit
	Securities		Pension				Securities		Pension				Securities		Pension
	AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾		AFS⁽¹⁾		Items⁽¹⁾		Total⁽¹⁾
Beginning balance	$	1,715	$	(17,886)	$	(16,171)	$	(1,409)	$	(12,816)	$	(14,225)	$	(327)	$	(12,623)	$	(12,950)
Other comprehensive income (loss) before reclassifications		1,824		(789)		1,035		3,217		(6,373)		(3,156)		(1,429)		(1,416)		(2,845)
Amounts reclassified from accumulated other comprehensive loss		—		1,938		1,938		(93)		1,303		1,210		347		1,223		1,570
Net current period other comprehensive income (loss)		1,824		1,149		2,973		3,124		(5,070)		(1,946)		(1,082)		(193)		(1,275)
Ending balance	$	3,539	$	(16,737)	$	(13,198)	$	1,715	$	(17,886)	$	(16,171)	$	(1,409)	$	(12,816)	$	(14,225)


	Amount reclassified from accumulated
	other comprehensive loss⁽¹⁾
Details about
other comprehensive
accumulated	YEAR ENDING		YEAR ENDING		YEAR ENDING		Affected line item in the
loss components	DECEMBER 31, 2020		DECEMBER 31, 2019		DECEMBER 31, 2018		statement of operations
Realized (gains) losses on sale of securities
	$	—	$	(118)	$	439	Net realized (gains) losses on investment securities
		—		25		(92)	Provision for income taxes
	$	—	$	(93)	$	347
Amortization of estimated defined benefit pension plan loss⁽²⁾
	$	2,453	$	1,649	$	1,548	Other expense
		(515)		(346)		(325)	Provision for income taxes
	$	1,938	$	1,303	$	1,223
Total reclassifications for the period	$	1,938	$	1,210	$	1,570


	YEAR ENDED DECEMBER 31, 2018
	COMMUNITY		WEALTH		INVESTMENT/
	BANKING		MANAGEMENT		PARENT		TOTAL

	(IN THOUSANDS)
Net interest income (expense)	$	39,195	$	71	$	(3,772)	$	35,494
Credit provision for loan loss		(600)		—		—		(600)
Non-interest income		4,832		9,651		(259)		14,224
Non-interest expense		30,809		7,319		2,745		40,873
Income (loss) before income taxes		13,818		2,403		(6,776)		9,445
Income tax expense (benefit)		2,764		554		(1,641)		1,677
Net income (loss)	$	11,054	$	1,849	$	(5,135)	$	7,768
Total assets	$	966,910	$	9,345	$	184,425	$	1,160,680