~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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 loan program is set to expire on May 31, 2021.

As of March 31, 2021, the Company had 389 PPP loans outstanding totaling $67.3 million and has recorded a total of $897,000 of processing fee income and interest income from PPP lending activity in the first quarter of 2021. Also, there is approximately $853,000 of PPP processing fees that will be amortized into income over the time period that the loans remain on our balance sheet or until the PPP loan is forgiven at which time the remaining fee will be recognized immediately as income.

Allowance for Loan Losses

The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three month periods ending March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands).


	Three months ended March 31, 2021
	Balance at		Charge-						Balance at
	December 31, 2020		Offs		Recoveries		Provision		March 31, 2021
Commercial	$	3,472	$	(122)	$	17	$	205	$	3,572
Commercial loans secured by non-owner occupied real estate		5,373		—		13		62		5,448
Real estate-residential mortgage		1,292		(17)		5		49		1,329
Consumer		115		(24)		14		16		121
Allocation for general risk		1,093		—		—		68		1,161
Total	$	11,345	$	(163)	$	49	$	400	$	11,631

Three months ended March 31, 2020

Balance at
December 31, 2019

Charge-
Offs
Recoveries
Provision
(Credit)

Balance at
March 31, 2020

Commercial $ 3,951 $ — $ — $ (91) $ 3,860
Commercial loans secured by non-owner
occupied real estate
3,119 — 14 155 3,288
Real estate-residential mortgage 1,159 (92) 6 68 1,141
Consumer 126 (62) 14 42 120
Allocation for general risk 924 — — 1 925
Total $ 9,279 $ (154) $ 34 $ 175 $ 9,334

Three months ended March 31, 2019

Balance at
December 31, 2018

Charge-
Offs
Recoveries
Provision
(Credit)

Balance at
March 31, 2019

Commercial $ 3,057 $ — $ 5 $ (448) $ 2,614
Commercial loans secured by non-owner occupied real estate 3,389 (63) 11 36 3,373
Real estate-residential mortgage 1,235 (61) 8 31 1,213
Consumer 127 (82) 18 62 125
Allocation for general risk 863 — — (81) 782
Total $ 8,671 $ (206) $ 42 $ (400) $ 8,107


	Three months ended March 31, 2020
	Balance at		Charge-				Provision		Balance at
	December 31, 2019		Offs		Recoveries		(Credit)		March 31, 2020
Commercial	$	3,951	$	—	$	—	$	(91)	$	3,860
Commercial loans secured by non-owner occupied real estate		3,119		—		14		155		3,288
Real estate-residential mortgage		1,159		(92)		6		68		1,141
Consumer		126		(62)		14		42		120
Allocation for general risk		924		—		—		1		925
Total	$	9,279	$	(154)	$	34	$	175	$	9,334

The Company recorded a ~~$175,000~~$400,000 provision expense for loan losses in the first quarter of ~~2020~~2021 compared to a ~~$400,000~~$175,000 provision ~~recovery~~expense recorded in the first quarter of ~~2019.~~2020. Although higher than the first quarter of 2020 by $225,000, an improved credit quality outlook for the overall portfolio resulted in a lower loan loss provision in the first quarter of 2021 after three consecutive quarters of a provision increase. The ~~2020 provision reflects the loan growth experienced since last year along with our decision~~Company, however, continues to ~~strengthen certain qualitative factors within our~~believe that a strong allowance for loan losses ~~calculation due to~~is needed given the overall economic climate and the uncertainty ~~caused by~~that remains because of the ~~COVID-19 pandemic. While future losses are possible due to~~impact that the COVID-19 pandemic ~~losses were not incurred as~~is having on certain borrowers. The first quarter 2021 provision primarily reflects an increased allocation on two commercial loan relationships transferred into non-accrual status during the quarter and the rating downgrade of a loan in the health care industry. As a result, non-performing assets, while still well controlled, totaled $4.2 million, or 0.43% of total loans, at March 31, ~~2020 which is why~~2021 compared to $3.3 million, or 0.34% of total loans, at December 31, 2020. It should be noted that the ~~provision~~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 ~~period isn’t higher. For~~PPP loans.

The Company experienced low net loan charge-offs of $114,000, or 0.05% of total loans, in the first ~~three months~~quarter of ~~2020, the Company experienced~~2021 which was comparable to net loan charge-offs of $120,000, or 0.06% of total loans, ~~compared to~~in the first quarter of 2020. As a

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result of the provision expense sharply exceeding net loan charge-offs ~~of $164,000, or 0.08% of total loans,~~over the last 12 months, the balance in the ~~first three months~~allowance for loan losses increased by $2.3 million, or 24.6%, to $11.6 million at March 31, 2021. The allowance for loan losses provided 274% coverage of ~~2019. Overall, the Company’s asset quality remains strong as its~~ non-performing assets, ~~totaled $2.2 million, or only 0.26%~~and 1.18% of total loans, at March 31, ~~2020. The allowance for loan losses provided 416%~~2021, compared to 341% coverage of non-performing assets, and ~~1.06% of total loans, at March 31, 2020, compared to 397% coverage of non-performing assets, and 1.05%~~1.16% of total loans, at December 31, ~~2019.~~

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

2020.

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

At March 31, 2021

Commercial Loans

Secured by

Non-Owner

Real Estate-

Occupied

Residential

Allocation for

Commercial

Real Estate

Mortgage

Consumer

General Risk

Total

Loans:

Individually evaluated for impairment

2,574

—

2,582

Collectively evaluated for impairment

303,839

407,424

255,319

16,085

982,667

Total loans

306,413

407,432

255,319

16,085

985,249

Allowance for loan losses:

Specific reserve allocation

472

—

480

General reserve allocation

3,100

5,440

1,329

121

1,161

11,151

Total allowance for loan losses

3,572

5,448

1,329

121

1,161

11,631

At March 31, 2020
Commercial
Commercial Loans
Secured by
Non-Owner
Occupied
Real Estate

Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment $ 833 $ 8 $ — $ — $ 841
Collectively evaluated for impairment 253,388 370,258 230,207 17,955 871,808
Total loans $ 254,221 $ 370,266 $ 230,207 $ 17,955 $ 872,649
Allowance for loan losses:
Specific reserve allocation $ 79 $ 8 $ — $ — $ — $ 87
General reserve allocation 3,781 3,280 1,141 120 925 9,247
Total allowance for loan losses $ 3,860 $ 3,288 $ 1,141 $ 120 $ 925 $ 9,334

At December 31, 2019
Commercial
Commercial Loans
Secured by
Non-Owner
Occupied
Real Estate

Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment $ 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
Allowance for loan losses:
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, 2020
			Commercial Loans
			Secured by
			Non-Owner		Real Estate-
			Occupied		Residential				Allocation for
	Commercial		Real Estate		Mortgage		Consumer		General Risk		Total
Loans:
Individually evaluated for impairment	$	847	$	8	$	—	$	—			$	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
Allowance for loan losses:
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

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.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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 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

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loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

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

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

●

the passage of time;

●

the volatility of the local market;

●

the availability of financing;

●

natural disasters;

●

the inventory of competing properties;

●

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

●

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 passage of time;~~

•

~~the volatility of the local market;~~

•

~~the availability of financing;~~

•

~~natural disasters;~~

•

~~the inventory of competing properties;~~

•

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

•

~~environmental contamination.~~

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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.

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

At March 31, 2021

IMPAIRED

LOANS WITH

IMPAIRED LOANS WITH

NO SPECIFIC

SPECIFIC ALLOWANCE

ALLOWANCE

TOTAL IMPAIRED LOANS

UNPAID

RECORDED

RELATED

RECORDED

PRINCIPAL

INVESTMENT

ALLOWANCE

INVESTMENT

BALANCE

(IN THOUSANDS)

Commercial

2,574

472

—

2,574

2,577

Commercial loans secured by non-owner occupied real estate

—

Total impaired loans

2,582

480

—

2,582

2,607

March 31, 2020

Impaired Loans with
Specific Allowance

Impaired Loans with
no Specific Allowance
Total Impaired Loans

Recorded
Investment

Related
Allowance

Recorded
Investment

Recorded
Investment

Unpaid
Principal
Balance

Commercial $ 833 $ 79 $ — $ 833 $ 833
Commercial loans secured by non-owner occupied real estate 8 8 — 8 30
Total impaired loans $ 841 $ 87 $ — $ 841 $ 863

December 31, 2019

Impaired Loans with
Specific Allowance

Impaired Loans with
no Specific Allowance
Total Impaired Loans

Recorded
Investment

Related
Allowance

Recorded
Investment

Recorded
Investment

Unpaid
Principal
Balance

Commercial $ 816 $ 84 $ — $ 816 $ 816
Commercial loans secured by non-owner occupied real estate 8 8 — 8 30
Total impaired loans $ 824 $ 92 $ — $ 824 $ 846


	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	$	—	$	847	$	850
Commercial loans secured by non-owner occupied real estate		8		8		—		8		30
Total impaired loans	$	855	$	104	$	—	$	855	$	880

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


	Three months ended
	March 31,
	2021		2020
Average impaired balance:
Commercial	$	1,711	$	825
Commercial loans secured by non-owner occupied real estate		8		8
Average investment in impaired loans	$	1,719	$	833
Interest income recognized:
Commercial	$	12	$	12
Commercial loans secured by non-owner occupied real estate		—		—
Interest income recognized on a cash basis on impaired loans	$	12	$	12

Three months ended
March 31,

2020 2019
Average loan balance:
Commercial $ 825 $ —
Commercial loans secured by non-owner occupied real estate 8 11
Average investment in impaired loans $ 833 $ 11
Interest income recognized:
Commercial $ 12 $ —
Commercial loans secured by non-owner occupied real estate — —
Interest income recognized on a cash basis on impaired loans $ 12 $ —

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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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.

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

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

At March 31, 2021

SPECIAL

PASS

MENTION

SUBSTANDARD

DOUBTFUL

TOTAL

(IN THOUSANDS)

Commercial and industrial

126,834

12,401

2,828

1,740

143,803

Paycheck Protection Program (PPP)

67,253

—

67,253

Commercial loans secured by owner occupied real estate

93,296

928

1,133

—

95,357

Commercial loans secured by non-owner occupied real estate

377,352

25,124

4,948

407,432

Total

664,735

38,453

8,909

1,748

713,845

March 31, 2020
Pass
Special
Mention
Substandard Doubtful Total
Commercial and industrial $ 154,456 $ 790 $ 11,665 $ — $ 166,911
Commercial loans secured by owner occupied real estate 84,661 1,345 1,304 — 87,310
Commercial loans secured by non-owner occupied real estate 368,681 — 1,577 8 370,266
Total $ 607,798 $ 2,135 $ 14,546 $ 8 $ 624,487

December 31, 2019
Pass
Special
Mention
Substandard Doubtful Total
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


	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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio ~~classes (in thousands).~~classes.


	At March 31, 2021
			NON-
	PERFORMING		PERFORMING		TOTAL

	(IN THOUSANDS)
Real estate – residential mortgage	$	253,663	$	1,656	$	255,319
Consumer		16,078		7		16,085
Total	$	269,741	$	1,663	$	271,404

March 31, 2020
Performing Non-Performing Total
Real estate – residential mortgage $ 228,803 $ 1,404 $ 230,207
Consumer 17,955 — 17,955
Total $ 246,758 $ 1,404 $ 248,162

December 31, 2019
Performing Non-Performing Total
Real estate – residential mortgage $ 233,760 $ 1,479 $ 235,239
Consumer 18,255 — 18,255
Total $ 252,015 $ 1,479 $ 253,494


	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 (in thousands).~~loans.


	At March 31, 2021
													90 DAYS
			30 – 59		60 – 89								PAST DUE
			DAYS		DAYS		90 DAYS		TOTAL		TOTAL		AND STILL
	CURRENT		PAST DUE		PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING

	(IN THOUSANDS)
Commercial and industrial	$	143,803	$	—	$	—	$	—	$	—	$	143,803	$	—
Paycheck Protection Program (PPP)		67,253		—		—		—		—		67,253	$	—
Commercial loans secured by owner occupied real estate		95,266		91		—		—		91		95,357		—
Commercial loans secured by non-owner occupied real estate		407,432		—		—		—		—		407,432		—
Real estate – residential mortgage		252,395		1,918		22		984		2,924		255,319		—
Consumer		16,059		18		1		7		26		16,085		—
Total	$	982,208	$	2,027	$	23	$	991	$	3,041	$	985,249	$	—

March 31, 2020
Current
30 – 59
Days
Past Due

60 – 89
Days
Past Due

90 Days
Past Due

Total
Past Due

Total
Loans

90 Days
Past Due
and Still
Accruing

Commercial and industrial $ 160,550 $ 6,361 $ — $ — $ 6,361 $ 166,911 $ —
Commercial loans secured by owner occupied real estate 87,197 113 — — 113 87,310 —
Commercial loans secured by non-owner occupied real
estate
370,266 — — — — 370,266 —
Real estate – residential mortgage 226,532 1,445 1,259 971 3,675 230,207 —
Consumer 17,901 42 12 — 54 17,955 —
Total $ 862,446 $ 7,961 $ 1,271 $ 971 $ 10,203 $ 872,649 $ —


	At December 31, 2020
														90 DAYS
			30 – 59			60 – 89								PAST DUE
			DAYS			DAYS		90 DAYS		TOTAL		TOTAL		AND STILL
	CURRENT		PAST DUE			PAST DUE		PAST DUE		PAST DUE		LOANS		ACCRUING

	(IN THOUSANDS)
Commercial and industrial	$	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		95,486		—			—		—		—		95,486		—
Commercial loans secured by non-owner occupied real estate		399,850		230			671		—		901		400,751		—
Real estate – residential mortgage		246,279		776			1,178		1,756		3,710		249,989		—
Consumer		16,274		82			—		7		89		16,363		—
Total	$	964,256	$	1,624		$	4,452	$	1,763	$	7,839	$	972,095	$	—

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~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

December 31, 2019
Current
30 – 59
Days
Past Due

60 – 89
Days
Past Due

90 Days
Past Due

Total
Past Due

Total
Loans

90 Days
Past Due
and Still
Accruing

Commercial and industrial $ 173,922 $ — $ — $ — $ — $ 173,922 $ —
Commercial loans secured by owner occupied real estate 91,538 117 — — 117 91,655 —
Commercial loans secured by non-owner occupied real estate 363,635 — — — — 363,635 —
Real estate – residential mortgage 231,022 2,331 864 1,022 4,217 235,239 —
Consumer 18,190 42 23 — 65 18,255 —
Total $ 878,307 $ 2,490 $ 887 $ 1,022 $ 4,399 $ 882,706 $ —

The Company experienced an increase in loan delinquency during the first quarter of 2020. The increase was primarily due to the unexpected death of a borrower late in 2019, which was previously reported in our Form 10-K dated December 31, 2019. The estate, which is made up of significant real estate holdings and other unique assets, is currently in the process of liquidation. Therefore, this $6.3 million commercial and industrial loan exhibited delinquency during the quarter.

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

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

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

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

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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~10.~~

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

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


	March 31, 2021			December 31, 2020
Non-accrual loans:
Commercial and industrial	$	2,501		$	16
Commercial loans secured by non-owner occupied real estate		8			8
Real estate – residential mortgage		1,656			2,469
Consumer		7			7
Total		4,172			2,500

TDR’s not in non-accrual:
Commercial and industrial		73			831
Total		73			831
Total non-performing assets including TDR	$	4,245		$	3,331
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned		0.43	%		0.34	%

March 31,
2020

December 31,
2019

Non-accrual loans
Commercial and industrial $ 25 $ —
Commercial loans secured by non-owner occupied real estate 8 8
Real estate – residential mortgage 1,404 1,479
Total 1,437 1,487
Other real estate owned
Real estate-residential mortgage — 37
Total — 37
TDR’s not in non-accrual
Commercial and industrial 807 815
Total 807 815
Total non-performing assets including TDR $ 2,244 $ 2,339
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned 0.26% 0.26%

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

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


	Three months ended
	March 31,
	2021		2020
Interest income due in accordance with original terms	$	22	$	17
Interest income recorded		—		—
Net reduction in interest income	$	22	$	17

Three months ended
March 31,

2020 2019
Interest income due in accordance with original terms $ 17 $ 15
Interest income recorded — —
Net reduction in interest income $ 17 $ 15

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

The following table details the loan modified as a TDR during the three month period ending March 31, 2021 (dollars in thousands).


Loans in non-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

The Company had no loans modified as TDRs during the three month ~~periods~~period ending March 31, ~~2020 and 2019.~~

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~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

2020.

All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDRs was ~~$85,000~~$143,000 and ~~$92,000~~$103,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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The Company had no loans that were classified as TDRs or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, ~~2019~~2020 and ~~2018,~~2019, respectively, and that subsequently defaulted during these reporting periods.

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

Loan Modifications Related to COVID-19

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 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 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 60th day after the end of the COVID-19 national emergency so long as the loan was current on payments as of December 31, 2019. The suspension of TDR identification and accounting triggered by the effects of the COVID-19 pandemic was extended by the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. The period established by Section 4013 of the CARES Act was extended to the earlier of January 1, 2022 or 60 days after the date on which the national COVID-19 emergency terminates. Additionally, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

In response to the COVID-19 pandemic, the Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. The following table presents information comparing loans which were subject to a loan modification related to COVID-19, as of March 31, 2021 and December 31, 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 March 31, 2021				At December 31, 2020
			% of Outstanding				% of Outstanding
	Balance		Non-PPP Loans		Balance		Non-PPP Loans
	(in thousands)				(in thousands)
CRE/Commercial	$	47,501	7.1	%	$	47,037	7.0	%
Home Equity/Consumer		37	0.0			83	0.1
Residential Mortgage		2,094	1.4			1,943	1.3
Total	$	49,632	5.4		$	49,063	5.3

The balance of loan modifications related to COVID-19 at March 31, 2021 represents an increase of $569,000, or 1.2%, from the balance of loans modified for COVID-19 at December 31, 2020. Even though the balance of loans subject to deferral increased during the first quarter of 2021, the 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 of accrued interest income that has not been received as of March 31, 2021.

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


	At March 31, 2021			At December 31, 2020
	Number of Loans	Balance		Number of Loans	Balance
		(in thousands)			(in thousands)
Type of Payment Relief
Interest only payments	13	$	32,427	11	$	26,900
Complete payment deferrals	54		17,205	59		22,163
Total	67	$	49,632	70	$	49,063

~~11.~~

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Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals during this difficult economic time. Deferral extension requests are considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt, and issued regulatory guidance. At March 31, 2021, the COVID-19 related modifications within the commercial real estate and commercial loan portfolios are to 18 borrowers, most of which are borrowers in the hospitality industry who were granted a second loan payment deferral, with loans totaling approximately $48 million. In order to properly monitor the increased credit risk associated with the modified loans, the Asset Quality Task Force is meeting at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers.

11. Short-Term and Federal Home Loan Bank Borrowings

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


	At March 31, 2021
				Weighted
Type	Maturing	Amount		Average Rate
Open Repo Plus	Overnight		—	—	%
FHLB Advances	2021		14,496	1.30
	2022		20,888	2.03
	2023		15,568	1.59
	2024		4,197	1.19
Total FHLB advances			55,149	1.65
Total short-term and FHLB borrowings		$	55,149	1.65	%

At March 31, 2020
Type Maturing Amount
Weighted
Average Rate

Open Repo Plus Overnight $ 16,354 0.36%
Advances 2020 12,229 1.74
2021 9,496 2.28
2022 20,888 2.03
2023 13,568 1.76
2024 2,037 1.86
Total advances 58,218 1.94
Total FHLB borrowings $ 74,572 1.59%

At December 31, 2019
Type Maturing Amount
Weighted
Average Rate

Open Repo Plus Overnight $ 22,412 1.81%
Advances 2020 18,729 1.75
2021 9,496 2.28
2022 17,838 2.21
2023 5,568 2.48
2024 2,037 1.86
Total advances 53,668 2.08
Total FHLB borrowings $ 76,080 2.00%


	At December 31, 2020
				Weighted
Type	Maturing	Amount		Average Rate
Open Repo Plus	Overnight	$	24,702	0.41	%
FHLB Advances	2021		24,336	1.00
	2022		20,888	2.03
	2023		15,568	1.59
	2024		4,197	1.19
Total FHLB advances			64,989	1.48
Total short-term and FHLB borrowings		$	89,691	1.19	%

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

12.

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~~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.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three month periods ending March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands).


	Three months ended
	March 31,
	2021		2020
Lease cost
Financing lease cost:
Amortization of right-of-use asset	$	68	$	67
Interest expense		27		29
Operating lease cost		29		29
Total lease cost	$	124	$	125

Three months ended
March 31, 2020

Three months ended
March 31, 2019

Lease cost
Financing lease cost:
Amortization of right-of-use asset $ 67 $ 64
Interest expense 29 30
Operating lease cost 29 29
Total lease cost $ 125 $ 123

Certain of the ~~Company’s~~Company's leases contain options to renew the lease after the initial term. Management considers the ~~Company’s~~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. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.


	March 31, 2021				December 31, 2020

	Operating		Financing		Operating		Financing
Weighted-average remaining term (years)	11.2		15.8		11.4		16.0
Weighted-average discount rate	3.50	%	3.53	%	3.49	%	3.52	%

March 31, 2020 December 31, 2019
Operating Financing Operating Financing
Weighted-average remaining term (years) 11.7 16.7 11.9 17.1
Weighted-average discount rate 3.46% 3.57% 3.46% 3.60%

The following table presents the undiscounted cash flows due related to operating and financing leases, along with a reconciliation to the discounted amount recorded on the Consolidated Balance ~~Sheets (in thousands).~~Sheets.


March 31, 2021
	OPERATING		FINANCING

	(IN THOUSANDS)
Undiscounted cash flows due:
Within 1 year	$	120	$	317
After 1 year but within 2 years		85		320
After 2 years but within 3 years		69		290
After 3 years but within 4 years		69		251
After 4 years but within 5 years		69		231
After 5 years		504		2,714
Total undiscounted cash flows		916		4,123
Discount on cash flows		(164)		(1,066)
Total lease liabilities	$	752	$	3,057

March 31, 2020
Operating Financing
Undiscounted cash flows due:
Within 1 year $ 118 $ 302
After 1 year but within 2 years 120 289
After 2 years but within 3 years 85 291
After 3 years but within 4 years 69 276
After 4 years but within 5 years 69 251
After 5 years 573 2,943
Total undiscounted cash flows 1,034 4,352
Discount on cash flows (192) (1,175)
Total lease liabilities $ 842 $ 3,177

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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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

December 31, 2019
Operating Financing
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

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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~one~~no short-term ~~equipment lease which it has elected to not record on the Consolidated Balance Sheets.~~

leases.

13.

Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

Three months ended March 31, 2020 Three months ended March 31, 2019

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

Defined
Benefit
Pension
Items(1)

Total(1)

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

Defined
Benefit
Pension
Items(1)

Total(1)

Beginning balance $ 1,715 $ (17,886) $ (16,171) $ (1,409) $ (12,816) $ (14,225)
Other comprehensive income (loss) before reclassifications 924 (95) 829 1,393 (1,739) (346)
Amounts reclassified from accumulated other comprehensive loss — 512 512 — 289 289
Net current period other comprehensive income (loss) 924 417 1,341 1,393 (1,450) (57)
Ending balance $ 2,639 $ (17,469) $ (14,830) $ (16) $ (14,266) $ (14,282)

Three months ended March 31, 2021

Three months ended March 31, 2020

Net

Unrealized

Gains and

Losses on

Defined

Losses on

Defined

Investment

Benefit

Investment

Benefit

Securities

Pension

Securities

Pension

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

Beginning balance

3,539

(16,737)

(13,198)

1,715

(17,886)

(16,171)

Other comprehensive income (loss) before reclassifications

(1,191)

(128)

(1,319)

924

(95)

829

Amounts reclassified from accumulated other comprehensive loss

—

569

—

512

Net current period other comprehensive income (loss)

(1,191)

441

(750)

924

417

1,341

Ending balance

2,348

(16,296)

(13,948)

2,639

(17,469)

(14,830)

~~(1)~~

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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

Amount reclassified from accumulated
other comprehensive loss(1)

Details about accumulated other comprehensive loss
components

For the three
months ended
March 31, 2020

For the three
months ended
March 31, 2019

Affected line item in the consolidated
statement of operations

Realized gains on sale of
securities
$ — $ — Net realized (gains) losses on investment securities
— — Provision for income tax expense
$ — $ — Net of tax
Amortization of estimated defined benefit pension plan loss(2)
$ 648 $ 366 Other expense
(136) (77) Provision for income tax expense
$ 512 $ 289 Net of tax
Total reclassifications for the period $ 512 $ 289 Net income


	Amount reclassified from accumulated
	other comprehensive loss⁽¹⁾
	For the three		For the three
Details about accumulated other	months ended		months ended		Affected line item in the
comprehensive loss components	March 31, 2021		March 31, 2020		statement of operations
Amortization of estimated defined benefit pension plan loss⁽²⁾
	$	720	$	648	Other expense
		(151)		(136)	Provision for income taxes
	$	569	$	512
Total reclassifications for the period	$	569	$	512

(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 18 for additional details).

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14.

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~~Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, common equity tier 1, and tier 1 capital to risk-weighted assets (as defined) and tier 1 capital to average assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of March 31, ~~2020,~~2021, the Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action promulgated by the Federal Reserve. The Company believes that no conditions or events have occurred that would change this conclusion as of such date. To be categorized as well capitalized, the Bank must maintain minimum total capital, common equity tier 1 capital, tier 1 capital, and tier 1 leverage ratios as set forth in the ~~table (in thousands, except ratios).~~table.

At March 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)

137,792

13.03

126,693

12.04

8.00

10.00

Tier 1 Common Equity (To Risk Weighted Assets)

107,335

10.15

114,153

10.85

4.50

6.50

Tier 1 Capital (To Risk Weighted Assets)

119,242

11.28

114,153

10.85

6.00

8.00

Tier 1 Capital (To Average Assets)

119,242

9.30

114,153

9.00

4.00

5.00


	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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

At March 31, 2020
COMPANY BANK
MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES

TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*

AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted
Assets)
$ 133,286 13.41% $ 120,917 12.23% 8.00% 10.00%
Common Equity Tier 1 (To Risk
Weighted Assets)
103,726 10.44 110,766 11.20 4.50 6.50
Tier 1 Capital (To Risk Weighted
Assets)
115,618 11.64 110,766 11.20 6.00 8.00
Tier 1 Capital (To Average Assets) 115,618 9.94 110,766 9.64 4.00 5.00
At December 31, 2019
COMPANY BANK
MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES

TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
REGULATIONS*

AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted
Assets)
$ 132,544 13.49% $ 119,477 12.23% 8.00% 10.00%
Common Equity Tier 1 (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.

~~Applies to the Bank only.~~

Additionally, while not a regulatory capital ratio, the Company’s tangible common equity ratio was 7.69% (non-GAAP) at March 31, 2020. See the discussion of the tangible common equity ratio under the Balance Sheet section of the MD&A.

15.

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

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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.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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 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.

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 19.

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

At March 31, 2021

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

46,468

2.57

Monthly

(185)

Swap liabilities

N/A

(46,468)

(2.57)

Monthly

185

Net exposure

—

At March 31, 2020
HEDGE TYPE
AGGREGATE
NOTIONAL
AMOUNT

WEIGHTED
AVERAGE
RATE
RECEIVED/(PAID)

REPRICING
FREQUENCY

INCREASE
(DECREASE) IN
INTEREST
EXPENSE

SWAP ASSETS FAIR VALUE $ 33,037 3.93% MONTHLY $ (45)
SWAP LIABILITIES FAIR VALUE (33,037) (3.93) MONTHLY 45
NET EXPOSURE — — —
At March 31, 2019
HEDGE TYPE
AGGREGATE
NOTIONAL
AMOUNT

WEIGHTED
AVERAGE
RATE
RECEIVED/(PAID)

REPRICING
FREQUENCY

INCREASE
(DECREASE) IN
INTEREST
EXPENSE

SWAP ASSETS FAIR VALUE $ 21,745 4.79% MONTHLY $ 9
SWAP LIABILITIES FAIR VALUE (21,745) (4.79) MONTHLY (9)
NET EXPOSURE — — —

At March 31, 2020

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

33,037

3.93

Monthly

(45)

Swap liabilities

N/A

(33,037)

(3.93)

Monthly

Net exposure

—

Risk Participation Agreement

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

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 19. The notional amount of the risk participation agreement outstanding at March 31, 2021 was $2.7 million.

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The Company monitors and controls all derivative products with a comprehensive Board of Directors approved Hedging Policy. This policy permits a total maximum notional amount outstanding of $500 million for interest rate swaps, interest rate caps/floors, and swaptions. All hedge transactions must be approved in advance by the Investment Asset/Liability Committee (ALCO) of the Board of Directors, unless otherwise approved, as per the terms, within the Board of Directors approved Hedging Policy. The Company had no caps or floors outstanding at March 31, ~~2020~~2021 and ~~2019.~~2020. None of the ~~Company’s~~Company's derivatives are designated as hedging instruments.

16.

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 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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

The contribution of the major business segments to the Consolidated Statements of Operations for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands):


	Three months ended
	March 31, 2021
	Total revenue		Net income (loss)
Community banking	$	13,160	$	3,320
Wealth management		2,887		662
Investment/Parent		(1,741)		(1,901)
Total	$	14,306	$	2,081

Three months ended
March 31, 2020

Total
revenue

Net
income (loss)

Community banking $ 11,448 $ 2,524
Wealth management 2,568 487
Investment/Parent (1,433) (1,602)
Total $ 12,583 $ 1,409

Three months ended
March 31, 2019

Total
revenue

Net
income (loss)

Community banking $ 11,093 $ 2,948
Wealth management 2,417 444
Investment/Parent (1,248) (1,514)
Total $ 12,262 $ 1,878


	Three months ended
	March 31, 2020
	Total revenue		Net income (loss)
Community banking	$	11,448	$	2,524
Wealth management		2,568		487
Investment/Parent		(1,433)		(1,602)
Total	$	12,583	$	1,409

17.

Commitments and Contingent Liabilities

The Company had various outstanding commitments to extend credit approximating ~~$217.5~~$235.0 million and ~~$195.5~~$213.9 million along with standby letters of credit of ~~$14.1~~$13.2 million and ~~$14.7~~$13.3 million as of March 31, ~~2020~~2021 and

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December 31, ~~2019,~~2020, respectively. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Bank uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

The carrying amount of the liability for AmeriServ obiligations related to unfunded commitments and standby letters of credit was $909,000 at March 31, 2021 and $872,000 at December 31, 2020.

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.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

18.

Pension Benefits

The Company has a noncontributory defined benefit pension plan covering certain employees who work at least 1,000 hours per year. The participants have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ten-year period of employment. Plan assets are primarily debt securities (including USU.S. Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of AmeriServ Financial, Inc. common stock which is limited to 10% of the plan’s assets), mutual funds, and short-term cash equivalent instruments. The net periodic pension cost for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands):


	Three months ended
	March 31,
	2021		2020
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost	$	463	$	441
Interest cost		221		319
Expected return on plan assets		(946)		(817)
Recognized net actuarial loss		720		648
Net periodic pension cost	$	458	$	591

Three months ended
March 31,

2020 2019
Components of net periodic benefit cost
Service cost $ 441 $ 374
Interest cost 319 402
Expected return on plan assets (817) (762)
Recognized net actuarial loss 648 366
Net periodic pension cost $ 591 $ 380

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

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

19.

Disclosures about Fair Value Measurements and Financial Instruments

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

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

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

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

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Assets and ~~Liability~~Liabilities Measured and Recorded on a Recurring Basis

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

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

The fair values of the ~~fair value~~interest rate swaps used for interest rate risk management ~~represents~~and the ~~amount the Company would expect to receive or pay to terminate such agreements. These fair values~~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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, by level within the fair value hierarchy (in thousands).

Fair Value Measurements at March 31, 2021

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

Equity securities (1)

474

—

Available for sale securities:

U.S. Agency

6,888

—

6,888

—

U.S. Agency mortgage-backed securities

76,875

—

76,875

—

Municipal

20,777

—

20,777

—

Corporate bonds

51,876

—

51,876

—

Interest rate swap asset (1)

1,158

—

1,158

—

Interest rate swap liability (2)

(1,158)

—

(1,158)

—

Risk participation agreement (2)

(4)

—

(4)

—

Fair Value Measurements at March 31, 2020
Total (Level 1) (Level 2) (Level 3)
Equity securities $ 386 $ 386 $ — $ —
Available for sale securities:
US Agency 3,967 — 3,967 —
US Agency mortgage-backed securities 82,084 — 82,084 —
Municipal 15,824 — 15,824 —
Corporate bonds 40,841 — 40,841 —
Fair value swap asset 3,520 — 3,520 —
Fair value swap liability (3,520) — (3,520) —
Fair Value Measurements at December 31, 2019
Total (Level 1) (Level 2) (Level 3)
Equity securities $ 366 $ 366 $ — $ —
Available for sale securities:
US Agency 5,116 — 5,116 —
US Agency mortgage-backed securities 81,633 — 81,633 —
Municipal 15,170 — 15,170 —
Corporate bonds 39,830 — 39,830 —
Fair value swap asset 959 — 959 —
Fair value swap liability (959) — (959) —


	Fair Value Measurements at December 31, 2020
	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)		—

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

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

Assets Measured and Recorded on a Non-Recurring Basis

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired

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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 March 31, 2021 and December 31, 2020, collateral-based impaired loans

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

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


	Fair Value Measurements
March 31, 2021	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	258	$	—	$	—	$	258

Fair Value Measurements at March 31, 2020
Total (Level 1) (Level 2) (Level 3)
Impaired loans $ 258 $ — $ — $ 258
Fair Value Measurements at December 31, 2019
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
March 31, 2020
Fair Value
Estimate

Valuation
Techniques

Unobservable
Input
Range(Wgtd Avg)
Impaired loans $ 258
Appraisal of collateral(1)

Appraisal adjustments(2)
0% to 100% (3)%
Quantitative Information About Level 3 Fair Value Measurements
December 31, 2019
Fair Value
Estimate

Valuation
Techniques

Unobservable
Input
Range(Wgtd Avg)
Impaired loans $ 255
Appraisal of collateral(1)

Appraisal adjustments(2)
0% to 100% (3%)
Other real estate owned 37
Appraisal of collateral(1)

Appraisal
adjustments(2)
Liquidation expenses

0% to 57% (38%)
21% to 134% (30%)


	Fair Value Measurements
December 31, 2020	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Impaired loans	$	258	$	—	$	—	$	258


	Quantitative Information About Level 3 Fair Value Measurements
			Valuation	Unobservable
March 31, 2021	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, 2020	Fair Value		Techniques	Input	Range (Wgtd Ave)
Impaired loans	$	258	Appraisal of	Appraisal	0% to 100% (3%)
			collateral (1)	adjustments(2)

~~(1)~~

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

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

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

~~(2)~~

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Fair values have been determined by the Company using independent third party valuations that use the best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash and cash equivalents, bank owned life insurance, regulatory stock, accrued interest receivable and payable, deposits with no stated maturities, and short-term borrowings have fair values which approximate the recorded carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements.

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

March 31, 2020

Carrying
Value

Fair
Value
(Level 1) (Level 2) (Level 3)
FINANCIAL ASSETS:
Investment securities – HTM $ 42,068 $ 44,236 $ — $ 41,242 $ 2,994
Loans held for sale 4,750 4,889 4,889 — —
Loans, net of allowance for loan loss and unearned
income
863,315 867,308 — — 867,308
FINANCIAL LIABILITIES:
Deposits with no stated maturities $ 646,074 $ 642,965 $ — $ — $ 642,965
Deposits with stated maturities 311,519 315,616 — — 315,616
All other borrowings(1)
78,694 85,321 — — 85,321
December 31, 2019

Carrying
Value

Fair
Value
(Level 1) (Level 2) (Level 3)
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 no stated maturities $ 651,469 $ 631,023 $ — $ — $ 631,023
Deposits with stated maturities 309,044 310,734 — — 310,734
All other borrowings(1)
74,134 76,323 — — 76,323

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~~(1)~~

March 31, 2021

Carrying

Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)

FINANCIAL ASSETS:

Investment securities – HTM

47,777

49,583

—

46,586

2,997

Loans held for sale

1,308

1,322

—

Loans, net of allowance for loan loss and unearned income

973,618

978,185

—

978,185

FINANCIAL LIABILITIES:

Deposits with stated maturities

302,130

305,296

—

305,296

All other borrowings ⁽¹⁾

75,663

79,657

—

79,657


	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

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

(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.

20.

~~Subsequent Events Related to the COVID-19 Pandemic~~

~~Paycheck Protection Program~~

Risks and Uncertainties

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act 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 can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of

~~TABLE OF CONTENTS~~

~~AmeriServ Financial, Inc.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~disbursement. The SBA will guarantee 100%~~impact of the ~~PPP loans made~~ongoing COVID-19 pandemic is fluid and continues to ~~eligible borrowers. The entire principal amount~~evolve, adversely affecting many of the ~~borrower’s PPP loan, including any accrued interest, is eligible to be reduced by~~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 ~~loan forgiveness amount under the PPP so long as employee and compensation levels~~financial markets. The ultimate extent of the ~~business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.~~

As of May 4, 2020, the Company has obtained SBA approval for approximately 400 PPP loans totaling in excess of $61 million. These loans will generate approximately $1.9 million in fee income for the Company.

~~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 modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (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 accounting purposes. 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 60th ~~day after the end~~impact of the COVID-19 ~~national emergency. Similarly,~~pandemic on the ~~Financial Accounting Standards Board has confirmed that short-term modifications made~~Company’s business, financial condition, and results of operations is currently uncertain and will depend 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~~various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory, and private sector responses to the pandemic, including the distribution and effectiveness of COVID-19 vaccines, and the associated impacts on the economy, financial markets and our customers, employees, and vendors. While the full effects of the pandemic remain unknown, the Company ~~has begun~~is committed to ~~prudently execute loan modifications for existing loan customers. The following table presents information regarding loans for which payment relief has been requested, as of May 4, 2020,~~supporting its customers, employees, and communities during this difficult time.

21. Branch Aquisition

On January 12, 2021, AmeriServ Financial Bank, the Company’s wholly owned banking subsidiary, entered into a branch purchase and assumption agreement related to ~~COVID-19.~~

Balance
% of
Outstanding
Loans

(in thousands)
CRE/Commercial $ 201,658 31.2%
Home Equity/Consumer 5,551 5.5
Residential Mortgage 4,033 3.1
Total $ 211,242 24.1

~~Requested modifications primarily consist~~the branch and deposit customers of Citizen’s Neighborhood Bank (CNB), an operating division of Riverview Bank, located in Meyersdale, Pennsylvania and to the ~~deferral~~deposit customers of ~~principal and/or interest payments~~CNB at the branch located in Somerset, Pennsylvania. As of March 31, 2021, the related deposits totaled approximately $45 million and will be acquired for a ~~period~~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 accretive to the Company’s earnings and the approximate 2% dilution to the Company’s tangible book value will be earned back in less

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than three years. The transaction has received the necessary regulatory approvals and is scheduled to ~~six months. The following table presents the composition of the types of payment relief that have been granted.~~

Type of Payment Relief
Number of
Loans
Balance
(in thousands)
Interest only payments 84 $ 96,163
Complete payment deferrals 304 115,079
Total 388 $ 211,242

~~TABLE OF CONTENTS~~close on May 22, 2021.

~~Item 2.~~

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

Item 2.

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

…~~..2020~~..2021 FIRST QUARTER SUMMARY OVERVIEW…..AmeriServ reported first quarter ~~2020~~2021 net income of $2,081,000, or $0.12 per diluted common share. This represents a 47.7%, or $672,000, increase from the first quarter of 2020 when net income totaled $1,409,000, or $0.08 per share. ~~This~~It also represents ~~a 25.0%,~~an increase of $1,389,000 or ~~$469,000, decrease from the first quarter of 2019 when net income totaled $1,878,000, or $0.11 per share.~~

~~These 2020 results represent a strong recovery from~~almost 300% above the fourth quarter of ~~2019. In~~2020.

The first quarter of 2021 did not resemble any previous first quarter in the ~~fourth quarter, the Company experienced two negative events which reduced net income to $669,000 or $0.04 per diluted share. Therefore, the 2020 net income~~history of ~~$1,409,000 and $0.08 per diluted common share represented double the result~~AmeriServ. Normally, first quarters are a challenge because of the ~~fourth~~weather issues common to the Laurel Highlands of Western Pennsylvania. It is always a shorter quarter ~~of 2019. This supports the Company’s position that the loss~~ on the ~~CRA investment,~~calendar than the other three because of February and its 28 days. We have learned over the ~~events surrounding~~years to use this quarter to prepare for the ~~unexpected death~~more active quarters when the snow and cold have finally disappeared but in 2021 the issue of primary concern was not the weather but the pandemic. There have been varying levels of governmental restrictions to incorporate into the business of banking. There has been the impact of the pandemic on entire industries and on individual enterprises within those industries. One of the major challenges has been the need to adjust policies and procedures to maintain an acceptable level of safety and soundness with many staff members functioning on a ~~large borrower, did~~remote basis solely through computer access. There have been questions that have never been asked before and answers that changed time-tested routine procedures. However, the goals remained fixed, that is to provide professional banking services, to continue to provide the availability of credit in each of AmeriServ’s markets, and to pledge the soundness of AmeriServ as an important financial resource for both consumers and commercial businesses.

For example, during the first quarter, AmeriServ has been very active in the second round of the Federal government sponsored Payroll Protection Program (PPP.) This program assists both small and medium-sized businesses. The hundreds of loans that AmeriServ has entered into this program have been essential in saving more than 16,000 jobs. Paradoxically though, it may seem due to this program, AmeriServ’s total level of outstanding loans on March 31, 2021 was at an all-time record for the franchise.

Also, many AmeriServ customers have been recipients of the various governmental stimulus funding programs. However, the very wise AmeriServ customers have not ~~weaken asset quality.~~

~~Any review~~performed as the learned economists predicted. These stimulus funds appear not to have been spent but are being managed with great care. Spending is being deemphasized, debts are being paid down and many Americans are building their own personal “rainy day fund.” During 2020, the level of AmeriServ customer deposits increased by almost $100 million. From the period of January 1, 2021 to the end of the first quarter, an additional growth of ~~2020 would not be complete without reference to~~$62 million in customer deposits has occurred. It is these deposit increases that have made the ~~international pandemic. For the most part, January~~loan increases possible and February were normal. In the northern part of the U.S., the winter season always experiences a reduction in economic activity. However, in 2020, the events of COVID-19 began to appear in late January and intensify in February, to the degree that, in mid-March, the Federal and state governments declared a virtual shut down of normal activities everywhere. While some business enterprises such as banks were deemed to be essential, their normal activities were subject to substantial change due to governmental restrictions. All AmeriServ banking office lobbies have been closed since March 23, 2020 to walk-in traffic except by appointment. On any given day, one third or more of the AmeriServ employee work force have been working remotely from home using computers to maintain customer access on a virtual basis. Increasingly, transactions are being routed through electronic means using ATMs, online banking and email communications. Fortunately, AmeriServ has been using these technologies for years with the support of FIS (Fidelity Information Services), the largest provider of technology tofurther strengthened the entire American community banking industry.

~~This~~

However, there is ~~not nearly~~yet more – so as to counter the ~~entire story. As encouraged by Federal regulatory authorities, AmeriServ has been actively participating in the numerous programs offered~~economic negatives brought about by the ~~Administration, by Congress and by~~pandemic, the Federal Reserve ~~System. For example, as~~Board has deemed essentially zero interest rates to be necessary. This action has reduced the profitability of ~~April 24,~~community bank loan portfolios but also created a strong mortgage refinancing boom. Many thoughtful Americans have seized on these low rates to reduce their very important cost of housing. AmeriServ continues to work extremely hard to meet demand for mortgages at these low rates. 2020 ~~AmeriServ has assisted approximately 270 customers to submit~~was a very busy year for mortgages and ~~receive funding of over $43 million under the Paycheck Protection Program. Recognizing the economic impact of COVID-19 on the small and medium sized businesses~~2021 could rival it.

We have also seen projections that ~~AmeriServ services, there have been interim modifications made to more than 20%~~25-30% of the ~~outstanding balance of existing business loans so that these businesses can survive and fill their role as one of the regional job creators~~consumer stimulus money is being invested in ~~the local economy. This effort has only been possible because of the tremendous dedication of the AmeriServ workforce.~~

It is also interesting to note that in spite of these events, our first quarter 2020 average loan totals have remained stable with the fourth quarter of 2019, our deposit totals have remained around $980 million, on average, exactly where they have been since the second quarter of 2019. The action of the Federal Reserve System to reduce interest rates has reduced interest revenue but interest expense has also declined and should decline further. There are expenses to be provided for because of COVID-19 but so far non-interest expenses are only 3% above the totals for the same quarter in 2019.

~~Wealth management revenues were 6.6% above 2019 even with the increased volatility of~~ financial markets. Since ~~full year 2019 represented a record year for~~AmeriServ wealth management ~~fee income,~~is active in these markets, it ~~will be~~continues to increase its total asset values. In 2020, it grew by over $200 million and has added another $37 million already in 2021. This growth centers in retirement planning and in the use of any capital appreciation dollars to help fund those retirement plans.

In these volatile times, rest assured for prudency, we have continued to strengthen our allowance for loan losses and maintain close contact with any commercial borrowers who are challenged.

But while the pandemic has been with us, there has also been time for other things. In May 2021, AmeriServ’s retail bank is expected to acquire two branches in the Meyersdale area strengthening our abilities to serve Somerset

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County. It is yet another sign that AmeriServ can respond to a ~~challenge~~pandemic today but also can plan for them to maintain that pace especially with the recent decline in equity markets. However, there are nine months remaining in 2020 in which to search for positive investment opportunities for our clients and ourselves.

The major source of concern is the very low interest rates and the impact that these low interest rates will have on our net interest margin. But the AmeriServ balance sheet is conservative and strong. AmeriServ’s liquidity is strong and increasing, and AmeriServ’s asset quality for both loans and securities is above thattomorrow’s growth as part of our ~~peers in this industry.~~

~~Once again,~~Banking for Life pledge.

We are encouraged by the issue before us remains COVID-19. We have supported our customers. We hope to return to the agenda that prevailed prior to COVID-19 soon. For now, we will focus on safe and sound banking and intelligent involvementfinancial results in the ~~programs~~first quarter however, we are not celebrating. The pandemic and its challenges remain. We thank our ~~government is promoting~~staff for their dedication and ~~funding.~~

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our customers for their confidence in us.

THREE MONTHS ENDED MARCH 31, ~~2020~~2021 VS. THREE MONTHS ENDED MARCH 31, ~~2019~~

2020

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


	Three months ended			Three months ended
	March 31, 2021			March 31, 2020
Net income	$	2,081		$	1,409
Diluted earnings per share		0.12			0.08
Return on average assets (annualized)		0.65	%		0.48	%
Return on average equity (annualized)		8.04	%		5.69	%

Three months ended
March 31, 2020

Three months ended
March 31, 2019

Net income $ 1,409 $ 1,878
Diluted earnings per share 0.08 0.11
Return on average assets (annualized) 0.48% 0.66%
Return on average equity (annualized) 5.69% 7.84%

The Company reported net income of $2,081,000, or $0.12 per diluted common share. This earnings performance represented a $672,000, or 47.7%, increase from the first quarter of 2020 when net income totaled $1,409,000, or $0.08 per diluted common share. ~~This~~The benefits of our community bank customer-focused business model and the diversification of our revenue streams contributed to AmeriServ Financial’s best earnings ~~performance represents a $469,000, or 25.0%, decrease from~~quarter since the ~~first~~third quarter of ~~2019 when net income totaled $1,878,000, or $0.11 per diluted common share. AmeriServ Financial, Inc. reported sound earnings~~2018. We continued to achieve record levels of both loans and deposits as we served as an important financial resource to small businesses and consumers in our marketplace. Additionally, 32% of total revenue in the first quarter of ~~2020 while taking the necessary actions to begin to position~~2021 came from non-interest income sources which included record contributions from our ~~Company for the economic uncertainty created by the coronavirus pandemic. We are entering the second quarter of 2020 with~~ strong ~~liquidity, good capital~~wealth management business and ~~an increased allowance for loan losses which is higher by $1.2 million from the March 31, 2019 level.~~

active residential mortgage operation.

…..NET INTEREST INCOME AND MARGIN…..The Company’s net interest income represents the amount by which interest income on ~~average~~ earning assets exceeds interest paid on ~~average~~ interest bearing liabilities. Net interest income is a primary source of the Company’s earnings, and it is ~~effected~~affected by interest rate fluctuations as well as changes in the amount and mix of ~~average~~ earning assets and ~~average~~ interest bearing liabilities. The following table compares the Company’s net interest income performance for the first quarter of ~~2020~~2021 to the first quarter of ~~2019~~2020 (in thousands, except percentages):

Three months ended
March 31, 2020

Three months ended
March 31, 2019
$ Change % Change
Interest income $ 11,944 $ 12,164 $ (220) (1.8)%
Interest expense 3,193 3,507 (314) (9.0)
Net interest income $ 8,751 $ 8,657 $ 94 1.1
Net interest margin 3.21% 3.24% (0.03)% N/M


	Three			Three
	months ended			months ended
	March 31, 2021			March 31, 2020			$ Change			% Change
Interest income	$	11,769		$	11,944		$	(175)		(1.5)	%
Interest expense		2,077			3,193			(1,116)		(35.0)
Net interest income	$	9,692		$	8,751		$	941		10.8
Net interest margin		3.23	%		3.21	%		0.02	%	N/M

N/M — not meaningful

The Company’s net interest income in the first quarter of ~~2020~~2021 increased by ~~$94,000,~~$941,000, or ~~1.1%~~10.8%, from the prior year’s first ~~quarter. The Company’s~~quarter while the net interest margin of 3.23% was two basis points higher than the net interest margin of 3.21% for the first quarter of ~~2020 was three basis points lower than~~2020. The first quarter of 2021 results were indicative of the Company’s continuing response to the challenges presented by the pandemic, including the current low interest rate environment as well as economic uncertainty and volatility. The economy has been demonstrating some improvement due to the positive impact of the COVID-19 vaccine distribution and the gradual easing of social restrictions that businesses and consumers have been operating under. The Company continues to experience robust balance sheet growth as, both, total loans and total deposits reached new record levels due to business development efforts and the government implementing new stimulus programs during the quarter. Net interest income improved as net interest margin pressure from the low interest rate environment was offset by fee income from existing Paycheck Protection Program (PPP) loan forgiveness and new fee

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income from the most recent second round of PPP loans implemented earlier in the quarter. The low interest rate environment is also positively impacting deposit and borrowings interest expense cost.

The average balance of total interest earning assets for the first quarter of 2019. The change in the U.S. Treasury yield curve between years impacted the Company’s net interest margin. The overall U.S. Treasury yield curve shifted downward since last year while the shape of the curve remained relatively flat, demonstrating inversion in certain segments at various times during2021 continued to grow and is now $119 million, or 10.9%, higher than the first quarter of 2020. ~~Late in~~Likewise, on the ~~quarter, the outbreak~~liability side of the ~~COVID-19 pandemic caused the yield curve to move down further. Correspondingly, the Federal Reserve’s actions to lower the fed funds rate~~balance sheet, total average deposits increased by ~~150 basis points in March, caused the short end~~$121 million, or 12.3%, since last year primarily because of government stimulus and consumers/businesses changing their spending habits because of the ~~yield curve to decrease and result in the curve exhibiting a more normal steeper shape.~~

Total earning assets increased in the first quarter of 2020 and partially offset the unfavorable impact that the lower level of national interest rates had on total interest income. The increase in total average earning assets was due to growth in total loans and short-term investments while total investment securities decreased. Interest bearing deposits increased and resulted in less reliance on higher cost borrowed funds. Effective management of our funding costs along with the downward repricing of certain interest bearing liabilities tied to market indexes resulted inpandemic. Overall, total interest expense ~~decreasing between years. The decrease to total interest expense~~decreased significantly more than ~~offset~~ the decrease in total interest income, resulting in net interest income increasing ~~between years.~~

~~Total~~for the first quarter of 2021 compared to last year’s first quarter.

As stated previously, total loans reached a new record level and averaged ~~$877~~$982 million in the first quarter of ~~2020~~2021 which ~~was $17~~is $105 million, or ~~2.0%~~11.9%, higher than the ~~$860~~$877 million average for the first quarter of ~~2019.~~2020. The ~~impact from the strong level of loan~~

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~~production in 2019~~slowly improving economy was ~~still~~ evident in ~~the increased total~~our lending activity as we continued to experience commercial loan ~~portfolio average balance~~growth during the first quarter of ~~2020. Also,~~2021 along with commercial loan pipelines returning to pre-COVID levels. Additionally, the strong level of residential mortgage loan ~~closings~~production experienced in 2020 continued into the first quarter of 2021. Residential mortgage loan production totaled $29.7 million in the first quarter of 2021 and was 64.0% higher than the production level of $18.1 million achieved in last year’s first quarter. Along with continued robust residential mortgage loan production and additional normal commercial loan growth, loan volumes were positively impacted by the second round of the 100% guaranteed PPP loans, which was announced in late December 2020 as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and implemented during the middle of January 2021. Note that there were no PPP loans on the balance sheet in the first quarter of 2020 ~~nearly tripled~~as the ~~level~~initial round of ~~closings experienced during~~the program was not implemented until the second quarter of 2020. The Company, again, elected to participate in this renewed program to assist small businesses in our community in this difficult economy. During the first quarter of ~~2019 due to~~2021, the ~~significantly lower level~~Company processed 219 PPP loans totaling $30.8 million. Also, the Company recorded a total of ~~national~~$897,000 of processing fee income and interest ~~rates. However, loan payoff~~income from PPP lending activity ~~exceeded total new loan originations~~ in the first quarter of ~~2020 resulting in a $10 million decline in~~2021. Finally, on an end of period basis, excluding total PPP loans, the total loan portfolio ~~balance~~grew by approximately $41.9 million, or 4.8%, since ~~December 31, 2019. Even though total average loans increased compared to~~ the ~~same period last year, loan interest and fee income decreased by $86,000, or 0.8%, between~~end of the first quarter of 2020 and last year’s first quarter. The lower loan interest income reflects the impact of the lower interest rate environment as new loans originated at lower yields and certain loans tied to LIBOR or the prime rate repriced downward as both of these indices have moved down with the Federal Reserve’s decision to decrease the target federal funds interest rate three times in the second half of 2019, and more significantly, twice in March of this year.

2020.

Total investment securities averaged ~~$189~~$190 million infor the first quarter of ~~2020~~2021 which is ~~$9.5~~$1.6 million, or ~~4.8%~~0.8%, ~~lower~~higher than the ~~$198~~$189 million average for the first quarter of ~~2019. Investment security purchases in 2020 have been more~~2020. The Company continues to be selective when purchasing securities due to the low interest rate environment. However, the yield curve began to steepen during the latter part of the first quarter as the ~~market is less favorable for purchasing activity given the difference in the position and shape~~long end of the U.S. Treasury yield curve ~~from~~increased while the ~~prior year.~~short end of the curve remained relatively stable. This resulted in improved yields for federal agency mortgage-backed securities and federal agency bonds, and management decided to add more of these investments to our portfolio. The ~~limited level~~Company also continues to purchase corporate securities, particularly subordinated debt issued by other financial institutions, along with taxable municipal securities.

Our liquidity position continues to be strong due to the significant influx of ~~purchases that did occur during~~deposits. Later in the first quarter, the President signed into law another round of ~~2020 primarily focused on federal agency mortgage backed securities due~~economic stimulus as part of the American Rescue Plan Act of 2021. The stimulus checks delivered to most Americans and the ~~ongoing cash flow~~financial assistance provided to municipalities and school districts as part of this program contributed to total deposits increasing significantly and reaching a record level. The challenges this excess liquidity presents are twofold. First, there is uncertainty regarding the duration that these ~~securities provide. Purchases also included high quality corporate and taxable municipal securities.~~excess funds will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. The ~~Company also responded~~second challenge is to profitably deploy this excess liquidity given the ~~uncertain economic environment by maintaining~~current low yields on short-term investment products. As a ~~strong liquidity position as average~~result, short-term ~~investments in money market funds increased by $9.7~~investment balances averaged $31 million in the first quarter of ~~2020. Interest~~2021 which remains high by historical standards. Therefore, future loan growth and continued prudent investment in securities is critical to achieve the best return on the excess funds. The low interest rate environment resulted in interest income on ~~investment securities decreased~~total investments decreasing between the first quarter of ~~2020~~2021 and the first quarter of ~~2019 by $135,000, or 8.1%.~~2020. Overall, total interest income on both loans and investments decreased by ~~$220,000,~~$175,000, or ~~1.8%~~1.5%, between ~~years.~~

years despite increased volume.

Total interest expense for the first quarter of ~~2020~~2021 decreased by ~~$314,000,~~$1.1 million, or ~~9.0%~~35.0%, when compared to ~~2019,~~the first quarter of 2020, due to lower levels of both deposit and borrowing interest expense. Deposit interest expense ~~in 2020~~ was lower by ~~$272,000,~~$1.1 million, or ~~10.0%. Overall,~~43.0%, despite the ~~Company’s loyal core deposit base continues to be a source of strength for the Company~~previously mentioned record increase in deposits that occurred during ~~periods of market volatility. Total average deposits grew since~~ the first quarter of ~~2019 and totaled $983 million~~2021 reflecting new deposit inflows as well as the loyalty of the bank��s core deposit base. Management continues to effectively execute several deposit product pricing reductions in order to address the net interest margin

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challenges presented by the low interest rate environment. As a result, the Company experienced some deposit cost relief. Specifically, our total deposit cost averaged 0.52% in the first quarter of 2021 compared to 1.01% in the first quarter of 2020, ~~which was $13.8 million, or 1.4%, higher than~~representing a meaningful decrease of 49 basis points. Overall, the 2019 first quarter average. This represents the fourth consecutive quarter that total deposits have averaged in a relatively narrow range of $980 to $985 million. Management prudently and effectively executed several deposit product pricing decreases given the declining interest rate environment and the corresponding downward pressure that these falling interest rates have on the net interest margin. As a result, the Company is experiencing deposit cost relief. Specifically, the Company’s average cost of interest bearing deposits declined by 17 basis points between the first quarter of 2020 and the first quarter of 2019. The Company’s loan to deposit ratio averaged ~~89.2%~~89.0% in the first quarter of ~~2020~~2021, which we believe indicates that the Company has ample capacity to continue to grow its loan portfolio and is well positioned ~~well~~ to ~~assist~~continue assisting our customers and the community ~~given~~to recover from the impact that the COVID-19 pandemic is having on ~~the~~our local economy.

The Company experienced a ~~$42,000,~~$60,000, or ~~5.4%~~8.2%, decrease in the interest cost of borrowings in the first quarter of ~~2020~~2021 when compared to the first quarter of ~~2019.~~2020. The decline is a result of ~~lower total average borrowings between years combined with the impact from~~ the Federal Reserve’s actions to decrease interest rates ~~since the middle of 2019~~ and the impact that these rate decreases ~~had~~have on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total ~~2020~~2021 first quarter average term advance borrowings balance increased by approximately ~~$8.3~~$3.7 million, or ~~17.7%~~6.6%, when compared to the first quarter of ~~2019 as the Company took advantage of yield curve inversions to prudently extend borrowings.~~2020. As a result of the combined growth of average FHLB term advances and total average deposits ~~resulted in total average~~there was less reliance on overnight borrowed funds, ~~decreasing~~which decreased between years by ~~$12.5~~$1.7 million, or ~~81.1%. Overall,~~59.4%, for the ~~2020 first quarter average of FHLB borrowed funds was $58.2 million, which represents a decrease of $4.2 million, or 6.7%.~~

quarter.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended March 31, ~~2020~~2021 and ~~2019~~2020 setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) the Company’s interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) the Company’s net interest

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margin (net interest income as a percentage of average total interest earning assets). For purposes of ~~these tables,~~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 investment securities for this analysis. Additionally, a tax rate of 21% was used to compute tax-equivalent interest income and ~~yields(non-GAAP)~~yields (non-GAAP). The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended March 31, 2021 and 2020 was $5,000 and ~~2019 was~~ $7,000, ~~and $6,000,~~ respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.

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


	2021						2020
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income	$	981,877	$	10,332	4.22	%	$	877,097	$	10,339	4.68	%
Short-term investments and bank deposits		30,852		8	0.10			18,527		76	1.63
Investment securities – AFS		145,917		1,088	2.98			147,656		1,183	3.27
Investment securities – HTM		44,529		346	3.11			41,224		353	3.43
Total investment securities		190,446		1,434	3.01			188,880		1,536	3.31
Total interest earning assets/interest income		1,203,175		11,774	3.93			1,084,504		11,951	4.40
Non-interest earning assets:
Cash and due from banks		18,071						19,087
Premises and equipment		17,983						18,593
Other assets		70,260						65,146
Allowance for loan losses		(11,582)						(9,317)
TOTAL ASSETS	$	1,297,907					$	1,178,013
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand	$	195,972	$	60	0.12	%	$	167,066	$	242	0.60	%
Savings		115,632		38	0.13			97,166		41	0.17
Money markets		246,895		172	0.28			229,838		464	0.81
Time deposits		349,605		1,132	1.31			341,948		1,711	2.01
Total interest bearing deposits		908,104		1,402	0.63			836,018		2,458	1.18
Short-term borrowings		1,180		1	0.39			2,908		12	1.67
Advances from Federal Home Loan Bank		58,949		237	1.63			55,292		284	2.07
Guaranteed junior subordinated deferrable interest debentures		13,085		280	8.57			13,085		280	8.57
Subordinated debt		7,650		130	6.80			7,650		130	6.80
Lease liabilities		3,841		27	2.83			3,993		29	2.86
Total interest bearing liabilities/interest expense		992,809		2,077	0.85			918,946		3,193	1.40
Non-interest bearing liabilities:
Demand deposits		195,305						146,840
Other liabilities		4,862						12,615
Shareholders’ equity		104,931						99,612
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,297,907					$	1,178,013
Interest rate spread					3.08						3.00
Net interest income/ Net interest margin (non-GAAP)				9,697	3.23	%				8,758	3.21	%
Tax-equivalent adjustment				(5)						(7)
Net Interest Income (GAAP)			$	9,692					$	8,751

2020 2019

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Interest earning assets:
Loans and loans held for sale, net of unearned income $ 877,097 $ 10,339 4.68% $ 860,169 $ 10,424 4.80%
Short-term investment in money market funds and bank deposits 18,527 76 1.63 8,793 75 3.42
Investment securities – AFS 147,656 1,183 3.27 157,112 1,319 3.38
Investment securities – HTM 41,224 353 3.43 41,252 352 3.34
Total investment securities 188,880 1,536 3.31 198,364 1,671 3.37
Total interest earning assets/interest income 1,084,504 11,951 4.40 1,067,326 12,170 4.57
Non-interest earning assets:
Cash and due from banks 19,087 21,899
Premises and equipment 18,593 18,128
Other assets 65,146 62,081
Allowance for loan losses (9,317) (8,665)
TOTAL ASSETS $ 1,178,013 $ 1,160,769
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 167,066 $ 242 0.60% $ 163,893 $ 409 1.01%
Savings 97,166 41 0.17 97,851 40 0.17
Money markets 229,838 464 0.81 241,727 674 1.13
Time deposits 341,948 1,711 2.01 315,389 1,607 2.07
Total interest bearing deposits 836,018 2,458 1.18 818,860 2,730 1.35
Short-term borrowings 2,908 12 1.67 15,413 102 2.64
Advances from Federal Home Loan Bank 55,292 284 2.07 46,984 235 2.03
Guaranteed junior subordinated deferrable interest debentures 13,085 280 8.57 13,085 280 8.57
Subordinated debt 7,650 130 6.80 7,650 130 6.80
Lease liabilities 3,993 29 2.86 4,224 30 2.83
Total interest bearing liabilities/interest expense 918,946 3,193 1.40 906,216 3,507 1.57
Non-interest bearing liabilities:
Demand deposits 146,840 150,246
Other liabilities 12,615 7,141
Shareholders’ equity 99,612 97,166
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,178,013 $ 1,160,769
Interest rate spread 3.00 3.00
Net interest income/ Net interest margin 8,758 3.21% 8,663 3.24%
Tax-equivalent adjustment (7) (6)
Net Interest Income $ 8,751 $ 8,657

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…..PROVISION FOR LOAN LOSSES…..The Company recorded a ~~$175,000~~$400,000 provision expense for loan losses in the first quarter of ~~2020~~2021 as compared to a ~~$400,000~~$175,000 provision ~~recovery~~expense in the first quarter of ~~2019, which represents~~2020. Although higher than the first quarter of 2020 by $225,000, an improved credit quality outlook for the overall portfolio resulted in a ~~net unfavorable shift~~lower loan loss provision in the first quarter of ~~$575,000.~~2021 after three consecutive quarters of a provision increase. The ~~2020 provision expense reflects the loan growth experienced since last year along with management’s decision~~Company, however, continues to ~~strengthen certain qualitative factors within our~~believe that a strong allowance offor loan losses ~~calculation due to~~is needed given the overall economic climate and the uncertainty ~~caused by~~that remains because of the ~~COVID-19 pandemic. While future losses are possible due to~~impact that the COVID-19 pandemic ~~losses were not incurred as~~is having on certain borrowers. The first

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quarter 2021 provision expense primarily reflects an increased allocation on two commercial loan relationships transferred into non-accrual status during the quarter and the rating downgrade of a loan in the health care industry. As a result, non-performing assets, while still well controlled, totaled $4.2 million, or 0.43% of total loans, at March 31, ~~2020 which is why the provision for the period isn’t higher.~~2021 compared to $3.3 million, or 0.34% of total loans, at December 31, 2020. The ~~Company’s asset quality continues to remain strong as evidenced by~~Company experienced low ~~levels of loan delinquency,~~ net loan charge-offs ~~and non-performing assets. The Company experienced~~of $114,000, or 0.05% of total loans, in the first quarter of 2021 which was comparable to net loan charge-offs of $120,000, or 0.06% of total loans, in the ~~2020 first quarter compared to net loan charge-offs of $164,000, or 0.08% of total loans, in the~~ first quarter of ~~2019. Non-performing assets totaled $2.2 million, or only 0.26% of total loans, at March 31,~~ 2020. In summary, the allowance for loan losses provided ~~416%~~274% coverage of non-performing assets, and ~~was 1.06%~~1.18% of total loans, at March 31, ~~2020,~~2021, compared to ~~397%~~341% coverage of non-performing assets, and ~~1.05%~~1.16% of total loans, at December 31, ~~2019.~~

2020. The reserve coverage of total loans, excluding PPP loans, was 1.27% (non-GAAP) at March 31, 2021. See the reconciliation of the non-GAAP measure of the reserve coverage of total loans, excluding PPP loans, within the Allowance for Loan Losses Section of the MD&A.

…..NON-INTEREST INCOME…..Non-interest income for the first quarter of ~~2020~~2021 totaled ~~$3.8~~$4.6 million and increased ~~$227,000,~~by $782,000, or ~~6.3%~~20.4%, from the first quarter ~~2019~~of 2020 performance. Factors contributing to ~~this~~the higher level of non-interest income for the quarter included:

●

a $318,000 increase in wealth management fees as the entire wealth management division has been resilient since the pandemic began and is performing well managing client accounts and adding new business despite the major market value decline that occurred in late March 2020. The market value of wealth management assets is now in excess of $2.5 billion and has fully recovered and improved from the pre-pandemic valuation, exceeding the March 31, 2020 market value by 27%;

●

a $258,000 increase in income from residential mortgage loan sales into the secondary market due to a higher level of residential mortgage loan production along with an improved gain on sale in the first quarter of 2021;

●

a $207,000 increase in bank owned life insurance income due to the receipt of a $159,000 death claim and a financial floor taking hold which caused increased earnings and a higher rate of return on certain policies; and

●

an $85,000 decrease in service charges on deposit accounts as a result of fewer overdraft fees due to customers maintaining higher deposit balances.

•

a $175,000 increase in income from residential mortgage loan sales into the secondary market due to the strong level of residential mortgage loan production in the first quarter of 2020. Correspondingly there was an $82,000 increase in mortgage related fee income;

•

~~a $161,000 decrease in other income as the Company recognized a gain in 2019 on the sale of equity shares from a previous acquisition and no such gain was recognized in 2020;~~

•

a $158,000 increase in wealth management fees due to management’s effective execution of managing client accounts and an improved equity market which positively impacted market values for assets under management in the first two months of the first quarter of 2020. The late first quarter 2020 negative impact to the equity market from the COVID-19 pandemic and the pandemic’s impact on the Company’s wealth management fees will be more evident in this year’s second quarter financial results.

…..NON-INTEREST EXPENSE…..Non-interest expense for the first quarter of ~~2020~~2021 totaled ~~$10.6~~$11.3 million and increased by ~~$340,000,~~$672,000, or ~~3.3%~~6.3%, from the prior year’s first quarter. Factors contributing to the higher level of non-interest expense for the quarter included:

●

a $237,000 increase in salaries & employee benefits expense due to several factors, including incentive compensation and health care costs. Incentive compensation increased by $217,000 primarily due to commissions earned as a result of the strong residential mortgage loan production and incentives earned from the good performance in the wealth management division. Also contributing to the higher salaries & employee benefits expense was increased health care costs by $97,000. Partially offsetting these increases within total salaries & employee benefits were lower salaries expense by $139,000 due to the level of full time equivalent employees being lower by five;

●

a $160,000 increase in professional fees resulted from an increased level of outside professional services related costs, increased fees due to the significantly higher level of residential mortgage loan production and PPP activity, and higher legal fees;

●

a $129,000 increase in FDIC deposit insurance expense due to an increase in the asset assessment base along with the benefit of the Small Bank Assessment Credit being fully utilized in the first quarter of 2020; and

●

a $125,000 increase in other expense due to a higher level of expense related to the unfunded commitment reserve along with $110,000 of costs incurred related to the upcoming branch acquisition from Riverview Bank. Slightly offsetting these increased items and favorably impacting other expense was a lower level of meals & travel costs that is related to travel restrictions from the pandemic.

•

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a $403,000 increase in salaries & benefits expense due to pension expense increasing by $188,000, or 53.0% between years. This significant increase to pension expense results from the unfavorable impact that the lower interest rate environment has on the discount rates that are used to revalue the defined benefit pension obligation each year. In addition, the higher salaries & benefits expense is also due to increased health care costs, greater incentive compensation as a result of increased residential mortgage loan production, and increased salaries expense. The higher salaries expense reflects annual merit increases and the addition of several employees to address management succession planning;

•

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

•

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

•

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

…..INCOME TAX EXPENSE…..The Company recorded an income tax expense of $520,000, or an effective tax rate of 20.0%, in the first quarter of 2021. This compares to an income tax expense of $366,000, or an effective tax rate of 20.6%, infor the first quarter of 2020. ~~This compares to an income tax expense of $491,000, or an effective tax rate of 20.7%, for the first quarter of 2019.~~

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…..SEGMENT RESULTS.…... The community banking segment reported a net income contribution of ~~$2,524,000~~$3,320,000 in the first quarter of ~~2020~~2021 which was ~~down~~higher by ~~$424,000~~$796,000 from the first quarter of ~~2019.~~last year. The ~~primary driver for the lower~~improvement between years is due to a higher level of net income in 2020 was the Company recording an $175,000 provision expense for loan losses compared to a $400,000 provision recovery in 2019 which resulted in a net unfavorable shift of $575,000 between years. This is discussed previously in the Allowance and Provision for Loan Losses section within this document. Also, unfavorably impacting net income was total ~~employee costs increasing and slightly higher occupancy & equipment costs. Partially offsetting these higher costs and favorably impacting net income was a decrease to total deposit interest expense~~revenue which more than offset an increased level of non-interest expense as well as a ~~decrease in total~~higher provision exense for loan losses. Net interest income ~~resulting in this segment’s net~~improved between years as the reduction to total interest expense more than offset the reduction to total interest income. The additional processing fee income and interest income ~~increasing between years. The downward shift in~~that the ~~U.S. Treasury yield curve between years along with~~Company recorded from PPP lending activity, which totaled $897,000 for the ~~Federal Reserve’s actions to decrease~~first quarter, nearly offset the ~~fed funds rate by 150 basis points impacted the Company’s net interest margin performance. The lower loan interest income reflects the~~unfavorable impact ofthat the lower interest rate environment had on the Company’s earning asset margin performance. As a result, total loan interest income remained relatively consistent between years. Also favorably impacting net interest income was this segment experiencing deposit cost relief as ~~new loans originated at lower yields and certain loans tied~~total deposit interest expense decreased between years due to ~~LIBOR or the prime rate repriced downward as both of these indices have moved down. On the liability side of the balance sheet,~~ management’s action to ~~decrease~~lower pricing of several deposit products, given the declining interest rate ~~environment,~~environment. The decrease to total deposit interest expense occurred even though total deposits reached a record level which is described previously in the MD&A. Also favorably impacting net income from this segment was a greater level of non-interest income. The exceptionally strong level of residential mortgage loan activity in 2021 resulted in this segment ~~experiencing deposit cost relief. This segment recognized~~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, both of which resulted~~income. This segment also benefitted from the ~~higher~~greater level of ~~residential mortgage~~Bank Owned Life Insurance (BOLI) revenue. These favorable items were partially offset by the Company recording a $400,000 provision expense for loan ~~production. Finally, and also favorably impacting this segments level of net income was a credit recognized~~losses for the ~~unfunded commitment reserve~~first quarter of 2021 compared to a $175,000 provision expense in the first quarter of ~~2020 as well as~~2020. This was discussed previously in the ~~lower~~Provision for Loan Losses section within this document. Finally, and also unfavorably impacting net income were higher expenses for total employee costs, professional fees, FDIC insurance ~~expense.~~expense and additional costs associated with our upcoming branch acquisition.

The wealth management segment’s net income contribution was ~~$487,000~~$662,000 in the first quarter of ~~2020~~2021 which was ~~$43,000~~$175,000 higher than the first quarter of ~~2019.~~2020. The increase is due to wealth management fees increasing as ~~this segment was positively impacted by management’s effective execution of~~the entire wealth management division has been resilient since the pandemic began and is performing well managing client accounts and ~~increased~~adding new business despite the major market ~~values for assets under~~value decline that occurred in late March 2020. The wealth management ~~which improved in the first two months~~division also benefitted from a lower level of ~~the first quarter of 2020. As stated previously in this document, the late first quarter 2020 negative impact~~meals & travel related expenses due to ~~the equity market~~travel restrictions from the ~~COVID-19 pandemic and the pandemic’s impact on the Company’s wealth management fees will be more evident in this year’s second quarter financial results.~~pandemic. Slightly offsetting ~~the higher management fee income~~these favorable items were higher levels of professional fees and incentive ~~compensation and equipment costs.~~compensation. Overall, the fair market value of trust assets under administration totaled ~~$1.984~~$2.518 billion at March 31, ~~2020, a decrease~~2021, an increase of ~~$246~~$534 million, or ~~11.0%~~26.9%, from the March 31, ~~2019~~2020 total of ~~$2.230~~$1.984 billion.

The investment/parent segment reported a net loss of ~~$1,602,000~~$1,901,000 in the first quarter of ~~2020~~2021 which is a greater loss by ~~$88,000 since~~$299,000 than the first quarter of ~~2019.~~2020. The increased loss was due to ~~total average~~ securities interest income decreasing by a higher amount than the decrease to total ~~borrowed funds. As a result,~~short term FHLB borrowings interest expense. Also, short-term investment interest income decreased even though the Company experienced exceptionally strong growth in its liquidity position between years from the ~~investment securities portfolio decreased by more than~~significant influx of deposits that resulted from the ~~decrease to interest expense on borrowed funds.~~

government stimulus programs.

…..BALANCE SHEET…..The Company’s total consolidated assets were ~~$1.17~~$1.3 billion at March 31, ~~2020,~~2021, which ~~decreased~~increased by ~~$2.8~~$31.7 million, or ~~0.2%~~2.5%, from the December 31, ~~2019~~2020 asset level. This change was related, primarily, to ~~a decreased level~~increased levels of cash and cash equivalents, investment securities, and loans. Specifically, cash and cash equivalents increased $5.7 million, or 18.2%, as the Company experienced a significant influx of deposits resulting from the government stimulus program and financial assistance provided to municipalities and school districts. Total investment securities increased $15.8 million, or 8.4%, as the steepening of the U.S. Treasury yield curve in the latter part of the first quarter 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 securities, particularly subordinated debt issued by other financial institutions, along with taxable municipal securities. In addition, loans, net of unearned fees, and loans held for sale ~~decreased~~increased by ~~$10.2~~$8.2 million, or ~~1.1%. This decrease was partially offset~~0.8%, as a result of the Company’s participation in the PPP and higher levels of residential mortgage loan production.

Total deposits increased by ~~an increase in cash and cash equivalents of $1.9~~$62.2 million, or ~~8.7%, total investment securities of $3.1 million, or 1.7%, and other assets of $2.2 million, or 36.3% driven by an increase in the fair value of the interest rate swap assets.~~

~~Total deposits decreased by $2.9 million, or 0.3%~~5.9%, in the first three months of ~~2020.~~2021. This robust growth is the result of government stimulus and consumers/businesses changing their spending habits because of the COVID-19 pandemic. Looking into the near future, we expect that our deposit balances will be positively impacted in the second quarter of

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2021 by the acquisition of two branch offices from Riverview Bank, which we anticipate should provide approximately $45 million of additional deposits. This branch acquisition is described in our Current Report on Form 8-K filed on January 15, 2021. As of March 31, ~~2020,~~2021, the 25 largest depositors represented ~~20.6%~~22.0% of total deposits, which is a slight ~~decrease~~increase from December 31, ~~2019~~2020 when it was ~~20.9%~~21.1%. Total borrowings have decreased by ~~$1.5~~$34.6 million, or ~~1.5%~~30.3%, since year-end ~~2019.~~2020. The decrease was driven, primarily, by ~~the reduction in short term~~a lower level of both short-term borrowings ~~of $6.1 million, or 27.0%. The decrease in short term borrowings more than offset the increase in~~and FHLB term advances. Specifically, ~~total~~at March 31, 2021, the Company had no short-term borrowings outstanding as compared to $24.7 million at December 31, 2020. In addition, FHLB term advances ~~increased~~decreased by ~~$4.6~~$9.8 million, or ~~8.5%~~15.1%, and totaled ~~$58.2 million.~~$55.1 million at March 31, 2021. The Company has utilized ~~these~~the FHLB term advances to help manage interest rate ~~risk and the inversion demonstrated by the U.S. Treasury yield curve allowed the Company to prudently extend borrowings.~~

risk.

The Company’s total shareholders’ equity increased by ~~$2.2 million~~$932,000 over the first three months of ~~2020~~2021 due to the retention of earnings more than offsetting our common stock dividend ~~payment~~payments to ~~shareholders~~

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~~and the impact of our common stock buyback program.~~shareholders. Additionally, the ~~improved~~ value of the investment securities portfolio decreased during the first quarter which had ~~a positive~~an unfavorable impact on accumulated other comprehensive loss.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of ~~13.41%~~13.03%, and a common equity tier 1 capital ratio of ~~10.44%~~10.15% at March 31, ~~2020.~~2021. See the discussion of the Basel III capital requirements under the Capital Resources section below. As of March 31, ~~2020,~~2021, the Company’s book value per common share was ~~$5.92~~$6.17 and its tangible book value per common share was ~~$5.22~~$5.47 (non-GAAP). When compared to December 31, ~~2019,~~2020, book value per common share and tangible book value per common share each improved by ~~$0.14~~$0.05 per common share. The tangible common equity to tangible assets ratio was ~~7.69%~~7.19% (non-GAAP) at March 31, ~~2020~~2021 and ~~improved~~declined by 2110 basis points when compared to December 31, ~~2019.~~

2020.

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 March 31, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands, except share and ratio data):


	March 31,			December 31,
	2021			2020
Total shareholders’ equity	$	105,331		$	104,399
Less: Goodwill		11,944			11,944
Tangible equity		93,387			92,455
Total assets		1,311,412			1,279,713
Less: Goodwill		11,944			11,944
Tangible assets		1,299,468			1,267,769
Tangible common equity ratio (non-GAAP)		7.19	%		7.29	%
Total shares outstanding		17,069,000			17,060,144
Tangible book value per share (non-GAAP)	$	5.47		$	5.42

March 31,
2020

December 31,
2019

Total shareholders’ equity $ 100,840 $ 98,614
Less: Goodwill 11,944 11,944
Tangible equity 88,896 86,670
Total assets 1,168,355 1,171,184
Less: Goodwill 11,944 11,944
Tangible assets 1,156,411 1,159,240
Tangible common equity ratio (non-GAAP) 7.69% 7.48%
Total shares outstanding 17,043,644 17,057,871
Tangible book value per share (non-GAAP) $ 5.22 $ 5.08

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

March 31,
2020

December 31,
2019

March 31,
2019

Total accruing loan delinquency (past due 30 to 89 days) $ 8,525 $ 2,956 $ 2,568
Total non-accrual loans 1,437 1,487 1,150
Total non-performing assets including TDR* 2,244 2,339 1,168
Accruing loan delinquency, as a percentage of total loans, net of unearned income 0.97% 0.33% 0.30%
Non-accrual loans, as a percentage of total loans, net of unearned income 0.16 0.17 0.13
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned 0.26 0.26 0.14
Non-performing assets as a percentage of total assets 0.19 0.20 0.10
As a percent of average loans, net of unearned income:
Annualized net charge-offs 0.06 0.02 0.08
Annualized provision (credit) for loan losses 0.08 0.09 (0.19)
Total classified loans (loans rated substandard or doubtful)** $ 15,958 $ 16,338 $ 4,219


	March 31,			December 31,			March 31,
	2021			2020			2020
Total accruing loan delinquency (past due 30 to 89 days)	$	1,443		$	5,504		$	8,525
Total non-accrual loans		4,172			2,500			1,437
Total non-performing assets including TDRs*		4,245			3,331			2,244
Accruing loan delinquency, as a percentage of total loans, net of unearned income		0.15	%		0.56	%		0.97	%
Non-accrual loans, as a percentage of total loans, net of unearned income		0.42			0.26			0.16
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned		0.43			0.34			0.26
Non-performing assets as a percentage of total assets		0.32			0.26			0.19
As a percent of average loans, net of unearned income:
Annualized net charge-offs		0.05			0.03			0.06
Annualized provision for loan losses		0.17			0.26			0.08
Total classified loans (loans rated substandard or doubtful)**	$	12,320		$	11,829		$	15,958

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

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

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

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

Overall, the Company continued to maintain good asset quality in the first three months of ~~2020~~2021 as evidenced by low levels of non-accrual loans, non-performing assets, and loan delinquency levels that continue to be ~~near or~~ below 1% of total loans. The ~~Company did experience an~~ increase in ~~accruing~~non-accrual loans is the result of two commercial loan ~~delinquency~~relationships, one of which was previously designated as a troubled debt restructure (TDR), being transferred into non-accrual status during the first quarter of ~~2020. The increase was~~2021. Additionally, the Company experienced a substantial decrease in accruing loan delinquency primarily ~~due~~attributable to the ~~unexpected death~~curing of a borrower late in 2019, which was previously reported in our Form 10-K dated December 31, 2020. The estate, which is made up of significant real estate holdings and other unique assets, is currently in the process of liquidation. Therefore, this $6.3 million commercial ~~and industrial loan exhibited~~account delinquency during the quarter.

The Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals. The Asset Quality Task Force meets at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers. Deferral extension requests are considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt and issued regulatory guidance. See the disclosures regarding COVID-19 related modifications within the Non-Performing Assets Including Troubled Debt Restructurings (TDR) 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 March 31, ~~2020,~~2021, the 25 largest credits represented ~~24.2%~~21.9% of total loans outstanding, which represents a decrease from the first quarter of ~~2019~~2020 when it was ~~26.1%~~24.2%.

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


	March 31,			December 31,			March 31,
	2021			2020			2020
Allowance for loan losses	$	11,631		$	11,345		$	9,334
Allowance for loan losses as
a percentage of each of the following:
total loans, net of unearned income		1.18	%		1.16	%		1.06	%
total accruing delinquent loans
(past due 30 to 89 days)		806.03			206.12			109.49
total non-accrual loans		278.79			453.80			649.55
total non-performing assets		273.99			340.59			415.94

March 31,
2020

December 31,
2019

March 31,
2019

Allowance for loan losses $ 9,334 $ 9,279 $ 8,107
Allowance for loan losses as a percentage of each of the following:
total loans, net of unearned income 1.06% 1.05% 0.94%
total accruing delinquent loans (past due 30 to 89 days) 109.49 313.90 315.69
total non-accrual loans 649.55 624.01 704.96
total non-performing assets 415.94 396.71 694.09

The Company recorded a ~~$175,000~~$400,000 provision expense for loan losses in the first three months of ~~2020~~2021 compared to a ~~$400,000~~$175,000 provision ~~recovery~~expense in the first three months of ~~2019, which represents~~2020. As mentioned previously, the Company continues to believe that a ~~net unfavorable change of $575,000 between periods. The 2020 provision reflects the loan growth experienced since last year along with our decision to strengthen certain qualitative factors within our~~strong allowance for loan losses ~~calculation due to~~is needed given the overall economic climate and the uncertainty ~~caused by~~that remains because of the impact that the COVID-19 ~~pandemic.~~pandemic is having on certain borrowers. As a result of the provision expense sharply exceeding net loan charge-offs over the last 12 months, the balance in the allowance for loan losses increased by $2.3 million, or 24.6%, to $11.6 million at March 31, 2021. The Company’s asset quality continues to remain strong as evidenced by low levels of ~~loan delinquency,~~ net loan charge-offs and non-performing assets. Note that the reserve coverage to total loans, excluding PPP loans, is 1.27% (non-GAAP) at March 31, 2021.

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 March 31, 2021 (in thousands, except percentages).


	MARCH 31,
	2021
Allowance for loan losses	$	11,631
Total loans, net of unearned income⁽¹⁾		985,249
Reserve coverage		1.18	%
Reserve coverage to total loans, excluding PPP loans:
Allowance for loan losses	$	11,631
Total loans, net of unearned income⁽¹⁾		985,249
PPP loans		(67,253)
		917,996
Non-GAAP reserve coverage		1.27	%

…..LIQUIDITY….. The Company’s liquidity position continues to be ~~strong. Our core retail deposit base has remained relatively stable over~~exceptionally strong due to the ~~past several years. 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 the economic uncertainty. As a result, total deposits reached a record level, averaging $1.103 billion for the first quarter of 2021. 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. ~~Total average deposits grew since the first quarter of 2019, representing the fourth consecutive quarter that total deposits have averaged in a relatively narrow range of $980 to $985 million.~~ The core deposit base is adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities is used to help fund loan growth. ~~The Company also responded to the uncertain economic environment by maintaining a strong liquidity position as average~~Average short-term investments ~~in money market~~were higher than they have been historically which presents the challenge of profitably deploying this excess liquidity given the current low yields on short term investment products. An additional challenge is the uncertainty regarding the duration that these excess funds will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. Total average short-

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term investments increased by ~~$9.7~~$12.3 million in the first quarter of 2021 compared to the first quarter of 2020. Overall, the significant inflow of deposits are being held in these low yielding products while their durability is assessed. We strive to operate our loan to deposit ratio in a range of ~~85%~~80% to 100%. ~~At March 31, 2020, the~~The Company’s loan to deposit ratio ~~was 91.6%.~~averaged 89.0% in the first quarter of 2021. The Company has ample capacity to continue to grow its loan portfolio and is well positioned to continue assisting our customers and the community to recover from the impact that the COVID-19 pandemic is having on our local economy. We are also well positioned ~~well~~ to ~~support our local economy and provide the necessary assistance to our community partners during this period of pandemic as well as~~ service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters.

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by ~~$1.9~~$5.7 million from December 31, ~~2019,~~2020, to ~~$24.1~~$37.2 million at March 31, ~~2020,~~2021, due to ~~$7.6~~$27.2 million of cash provided by ~~investing~~financing activities and $6.8 million of cash provided by operating activities which more than offset ~~$5.0~~$28.2 million of cash used in investing activities. Within financing activities, deposits increased by $62.2 million while total short-term and ~~$626,000 of cash used in operating activities.~~FHLB borrowings decreased by $34.5 million. Within investing activities, cash advanced for new ~~loan fundings~~loans originated totaled ~~$42.6~~$82.7 million and was ~~$10.0~~$12.8 million ~~lower~~higher than the ~~$52.6~~$69.9 million of cash received from loan principal payments. Within ~~financing~~operating activities, ~~deposits decreased by $2.9~~$9.2 million of mortgage loans held for sale were originated while ~~total FHLB borrowings declined as short-term borrowings decreased by $6.1~~$14.6 million ~~and advances increased by $4.6 million.~~

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of mortgage loans were sold into the secondary market.

The holding company had ~~$6.7~~$6.5 million of cash, short-term investments, and investment securities at March 31, ~~2020.~~2021. Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. At March 31, ~~2020,~~2021, our subsidiary Bank had ~~$10.4~~$8.3 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that limits dividend payments from the Trust Company to 75% of annual net income. Overall, we believe that the holding company has ~~strong~~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 ~~investment securities,~~investments, time deposits with banks, and federal funds ~~sold, and short-term investments in money market funds.~~sold. These assets totaled ~~$24.1~~$37.2 million and ~~$22.2~~$31.5 million at March 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 March 31, ~~2020,~~2021, the Company had ~~$364~~$377 million of overnight borrowing availability at the FHLB, ~~$30~~$33 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

…..CAPITAL RESOURCES…..The Bank meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was ~~10.44%~~10.15%, the tier 1 capital ratio was ~~11.64%~~11.28%, and the total capital ratio was ~~13.41%~~13.03% at March 31, ~~2020.~~2021. The Company’s tier 1 leverage ratio was ~~9.94%~~9.30% at March 31, ~~2020.~~2021. We anticipate that we will maintain our strong capital ratios throughout the remainder of ~~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 ~~331%~~348% of regulatory capital at March 31, ~~2020.~~2021. While we work through the COVID-19 pandemic, our focus is on preserving capital to support customer lending and managing heightened credit risk due to the downturn in the economy. Additionally, we currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its current rate of $0.025 per quarter.

In the first quarter of 2020, the Company completed the common stock repurchase program, which it had announced on April 16, 2019, where it bought back 526,000 shares, or 3% of its common stock, over a 12-month period at a total cost of $2.23 million. Specifically, during the first three months of 2020, the Company was able to repurchase 35,962 shares of its common stock and return $151,000 of capital to its shareholders through this program. Evaluation of a new common stock buyback program is on hold. At March 31, ~~2020,~~2021, the Company had approximately ~~17.0~~17.1 million common shares outstanding.

The Basel III capital standards establish the minimum capital levels in addition to the well capitalized requirements under the federal banking regulations prompt corrective action. The capital rules also impose a 2.5% capital conservation buffer (“CCB”) on top of the three minimum risk-weighted asset ratios. Banking institutions that fail to meet the

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effective minimum ratios once the CCB is taken into account will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (four quarter trailing net income, net of distributions and tax effects not reflected in net income). The Company and the Bank meet all capital requirements, including the CCB, and continue to be committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a return to our shareholders.

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


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

MINIMUM
CAPITAL RATIO

MINIMUM
CAPITAL RATIO
PLUS CAPITAL
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

…..INTEREST RATE SENSITIVITY…..The following table presents an analysis of the sensitivity inherent in the Company’s net interest income and market value of portfolio equity. The interest rate scenarios in the table compare the Company’s base forecast, which was prepared using a flat interest rate scenario, to scenarios that reflect immediate interest rate changes of 100 and 200 basis points. Note that we suspended the 200 basis point downward rate shock since it has little value due to the absolute low level of interest rates. Each rate scenario contains unique prepayment and repricing assumptions that are applied to the Company’s existing balance sheet that was developed under the flat interest rate scenario.


	VARIABILITY OF		CHANGE IN
	NET INTEREST		MARKET VALUE OF
INTEREST RATE SCENARIO	INCOME		PORTFOLIO EQUITY
200 bp increase	6.0	%	40.3	%
100 bp increase	3.2		23.6
100 bp decrease	(3.0)		(3.2)

Interest Rate Scenario
Variability of Net
Interest Income

Change in Market
Value of
Portfolio Equity

200bp increase 8.7% 43.9%
100bp increase 4.8 25.0
100bp decrease (3.0) (29.8)

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

…..OFF BALANCE SHEET ARRANGEMENTS…..The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company had various outstanding commitments to extend credit approximating ~~$217.5~~$235.0 million and standby letters of credit of ~~$14.1~~$13.2 million as of March 31, ~~2020.~~2021. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

…..REGULATORY UPDATE….. A final rule adopted by the federal banking agencies in February 2019 provides banking organizations with the option to phase in, over a three-year period, the adverse day-one regulatory capital effects of the adoption of ASU 2019-10, “Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates” (the “CECL accounting standard”). On March 27, 2020, the federal banking agencies issued an interim final rule that gives banking organizations that implement CECL before the end of 2020 the option to delay for two years CECL’s adverse effects on regulatory capital (CECL Interim Final Rule). This is in addition to

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the three-year transition period already in place, resulting in an optional five-year transition. The agencies noted this relief is being provided in order to allow banking organizations to better focus on lending to creditworthy households and businesses affected by recent strains on the U.S. economy caused by COVID-19. Comments on the CECL Interim Final Rule are due by May 15, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), was enacted into law on March 27, 2020, provides banking organizations with the option to not comply with CECL until the earlier of (i) the termination date of the national emergency concerning COVID-19 declared by the President under the National Emergencies Act or (ii) December 31, 2020. The federal banking agencies issued a statement on March 31, 2020, indicating that banking organizations that elect to use the optional, temporary statutory relief will be able to elect the remaining period of regulatory capital relief provided under the CECL Interim Final Rule after the end of the statutory relief period. Alternatively, banking organizations may adopt the CECL accounting standard as planned in 2020 and use the regulatory capital relief provided under the CECL Interim Final Rule starting at the time of their adoption of CECL.

Federal, state, and local governments have adopted various statutes, rules, regulations, orders, and guidelines in order to address the COVID-19 pandemic and the adverse economic effects of this pandemic on individuals, families, businesses, and governments. Financial institutions, including the Company, are

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affected by many of these measures, including measures that are broadly applicable to businesses operating in the communities where the Company does business. These measures include “stay-at-home orders” that allow only essential businesses to operate. Financial services firms are generally regarded as “essential businesses” under these orders, but financial services firms, like other essential businesses, are required to operate in a manner that seeks to protect the health and safety of their customers and employees.

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

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

The CARES Act also authorizes temporary changes to certain provisions applicable to banking organizations. Among other changes, Section 4013 of the CARES Act gives financial institutions the right to elect to suspend GAAP principles and regulatory determinations for loan modifications relating to COVID-19 that would otherwise be categorized as TDRs from March 1, 2020, through the earlier of December 31, 2020, or 60 days after the COVID-19 national emergency ends. On April 7, 2020, the federal banking agencies, in consultation with state bank regulators, issued an interagency statement clarifying the interaction between (i) their earlier statement discussing whether loan modifications relating to COVID-19 need to be treated as TDRs and (ii) the CARES Act provision on this subject. In this interagency statement, the agencies also said that when exercising supervisory and enforcement responsibility with respect to consumer protection requirements, they will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency and that they do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to this emergency and the institution made good faith efforts to support borrowers and comply with the consumer protection requirements and addressed any needed corrective action.

~~On September 17, 2019, the FDIC finalized a rule that introduces an optional simplified measure~~ The suspension of ~~capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required~~TDR identification and accounting triggered by the ~~Economic Growth, Regulatory Relief and Consumer Protection~~

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~~Act.~~effects of the COVID-19 pandemic was extended by the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. The ~~CBLR framework is designed to reduce burden~~period established by ~~removing~~Section 4013 of the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9.0%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. The CARES Act ~~reduced the minimum ratio~~was extended 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 risk-based capital. The CBLR framework will be available for banks to use in their March 31, 2020, Call Report. The CARES Act provides that if a qualifying community bank falls below the CBLR, it “shall have a reasonable grace period to satisfy” the CBLR. This provision terminates on the earlier of ~~December 31, 2020~~January 1, 2022 or 60 days after the date on which the ~~President declares that the coronavirus~~national COVID-19 emergency ~~is terminated. The Company will not opt into the CBLR framework for the Bank.~~

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 ~~has~~had also announced ~~that it will be creating~~the creation of main street lending facilities to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses. The Company ~~may participate~~has not participated in ~~some or all~~any of ~~them.~~

these facilities to date.

Additionally, on March 15, 2020, the Federal Reserve reduced the target range for the federal funds rate to 00% 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.

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

ACCOUNT — Pension liability

BALANCE SHEET REFERENCE — Other liabilities

INCOME STATEMENT REFERENCE — Salaries and employee benefits and Other expense

DESCRIPTION

Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense. 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. Our pension benefits are described further in Note 18 of the Notes to Unaudited Consolidated Financial Statements.

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ACCOUNT — Allowance for Loan Losses

BALANCE SHEET REFERENCE — Allowance for loan losses

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

DESCRIPTION

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

Commercial and commercial real estate loans are the largest category of credits and the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan losses. Approximately ~~$7.1~~$9.0 million, or ~~77%~~78%, of the total allowance for loan losses at March 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.

ACCOUNT — Goodwill

BALANCE SHEET REFERENCE — Goodwill

INCOME STATEMENT REFERENCE — Goodwill impairment

DESCRIPTION

The Company considers our accounting policies related to goodwill to be critical because the assumptions or judgment used in determining the fair value of assets and liabilities acquired in past acquisitions are subjective and

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complex. As a result, changes in these assumptions or judgment could have a significant impact on our financial condition or results of operations.

The fair value of acquired assets and liabilities, including the resulting goodwill, was based either on quoted market prices or provided by other third party sources, when available. When third party information was not available, estimates were made in good faith by management primarily through the use of internal cash flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are susceptible to significant changes. The Company routinely utilizes the services of an independent third party that is regarded within the banking industry as an expert in valuing core deposits to monitor the ongoing value and changes in the Company’s core deposit base. These core deposit valuation updates are based upon specific data provided from statistical analysis of the Company’s own deposit behavior to estimate the duration of these non-maturity deposits combined with market interest rates and other economic factors.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Company’s goodwill relates to value inherent in the banking and wealth management businesses, and the value is dependent upon the Company’s ability to provide quality, cost-effective services in the face of free competition from other market participants on a regional basis. This ability relies upon continuing investments in processing systems, the development of value-added service features and the ease of use of the Company’s services. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted and the loyalty of the Company’s deposit and customer base over a longer time frame. The quality and value of a Company’s

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assets is also an important factor to consider when performing goodwill impairment testing. A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective value added services over sustained periods can lead to the impairment of goodwill.

Goodwill, which has an indefinite useful life, is tested for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value is more than the estimated fair value.

ACCOUNT — Income Taxes

BALANCE SHEET REFERENCE — Net deferred tax asset

INCOME STATEMENT REFERENCE — Provision for income ~~tax expense~~
taxes

DESCRIPTION

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

In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of March 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 which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

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ACCOUNT — Investment Securities

BALANCE SHEET REFERENCE — Investment securities

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

DESCRIPTION

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Operations. At March 31, ~~2020,~~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.

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…..FORWARD LOOKING STATEMENT…..

THE STRATEGIC FOCUS:

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

●

Shareholders — We strive to increase earnings per share; identifying and managing revenue growth and expense control and reduction; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share and narrowing the financial performance gap between AmeriServ and its peer banks. We try to return earnings to shareholders through a combination of dividends and share repurchases subject to maintaining sufficient capital to support balance sheet growth and economic uncertainty. We strive to educate our employee base as to the meaning/ importance of earnings per share as a performance measure. We will develop a value added combination for increasing revenue and controlling expenses that is rooted in developing and offering high-quality financial products and services; an existing branch network; electronic banking capabilities with 24/7 convenience; and providing truly exceptional customer service. We will explore branch consolidation opportunities and further leverage union affiliated revenue streams, prudently manage the Company’s risk profile to improve asset yields and increase profitability and continue to identify and implement technological opportunities and advancements to drive efficiency for the holding company and its affiliates.

●

Customers — The Company expects to provide exceptional customer service, identifying opportunities to enhance the Banking for Life philosophy by providing products and services to meet the financial needs in every step through a customer’s life cycle, and further defining the role technology plays in anticipating and satisfying customer needs. We anticipate providing leading banking systems and solutions to improve and enhance customers’ Banking for Life experience. We will provide customers with a comprehensive offering of 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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Shareholders — We strive to increase earnings per share; identifying and managing revenue growth and expense control and reduction; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share and narrowing the financial performance gap between AmeriServ and its peer banks. We try to return up to 75 percent of earnings to shareholders through a combination of dividends and share repurchases subject to maintaining sufficient capital to support balance sheet growth. We strive to educate our employee base as to the meaning/importance of earnings per share as a performance measure. We will develop a value added combination for increasing revenue and controlling expenses that is rooted in developing and offering high-quality financial products and services; an existing branch network; electronic banking capabilities with 24/7 convenience; and providing truly exceptional customer service. We will explore branch consolidation opportunities and further leverage union affiliated revenue streams, prudently manage the Company’s risk profile to improve asset yields and increase profitability and continue to identify and implement technological opportunities and advancements to drive efficiency for the holding company and its affiliates.

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

●

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

●

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

•

This Form 10-Q contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results, and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan” or similar expressions. These forward-looking statements are based upon current expectations, are subject to risk and uncertainties and are applicable only as of the dates of such statements. Forward-looking statements involve risks,

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uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Form 10-Q. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

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

Item 3…..QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK…..

The Company manages market risk, which for the Company is primarily interest rate risk, through its asset liability management process and committee, see further discussion in Interest Rate Sensitivity section of the MD&A.

Table of Contents

Item 4…..CONTROLS AND PROCEDURES…..

(a) Evaluation of Disclosure Controls and Procedures.The Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and the operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, ~~2020,~~2021, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, ~~2020,~~2021, are effective.

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

~~TABLE OF CONTENTS~~

Part II Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not Applicable

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

~~Following are the Company’s monthly common stock purchases during the first quarter of 2020. All shares are repurchased under Board of Directors authorization.~~

Period
Total number of
shares purchased

Average price
paid per share

Total number of
shares purchased
as part of publicly
announced plan

Maximum number
of shares that may
yet be purchased
under the plan

January 1 – 31, 2020 14,500 $ 4.20 14,500 21,462
February 1 – 29, 2020 21,462 4.20 21,462 —
March 1 – 31, 2020 — — — —
Total 35,962 35,962

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

~~TABLE OF CONTENTS~~

Item 6. Exhibits


3.1		Amended and Restated Articles of Incorporation as amended through August 11, 2011 (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-8 (File No. 333-176869) filed on September 16, 2011).
3.2	~~3.2~~		Bylaws, as amended and restated on April 2, 2020 (Incorporated by reference to Exhibit 3.1 to the Current report on Form 8-K filed on April 6, 2020).
15.1	~~15.1~~		Report of S.R. Snodgrass, P.C. regarding unaudited interim financial statement information.
15.2	~~15.2~~		Awareness Letter of S.R. Snodgrass, P.C.
31.1	~~31.1~~		Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	~~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.

Table of Contents

32.1
	~~32.1~~	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	~~32.2~~	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101	~~101~~	The following information from AMERISERV FINANCIAL, INC.’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020~~2021 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to the Unaudited Consolidated Financial Statements.

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


		AmeriServ Financial, Inc. ~~Registrant~~
	Registrant

Date: May ~~8, 2020~~10, 2021		/s/ Jeffrey A. Stopko
	Jeffrey A. Stopko
	President and Chief Executive Officer

Date: May ~~8, 2020~~10, 2021		/s/ Michael D. Lynch
	Michael D. Lynch ~~Senior~~
	Executive Vice President and Chief Financial Officer


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

Large Accelerated Filer ◻	~~Large accelerated filer ☐~~ Accelerated Filer ◻	Non-accelerated Filer ⌧		~~Accelerated filer ☐~~			~~Non-accelerated filer ☒~~			Smaller ~~reporting company ☒~~	Reporting Company ⌧
			Emerging growth ~~company ☐~~	Company ◻

	~~Class~~
Class		Outstanding at May 1, ~~2020~~2021
	Common Stock, par value $0.01		17,069,000	~~17,043,644~~

			~~Page No.~~
~~PART I. FINANCIAL INFORMATION:~~		Page No.
~~Item 1.~~ ~~Financial Statements~~				1
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements	2
Consolidated Balance Sheets (Unaudited) – March 31, ~~2020~~2021 and December 31, ~~2019~~2020				1	2
Consolidated Statements of Operations (Unaudited) – Three months ended March 31, ~~2020~~2021 and ~~2019~~2020				2	3
Consolidated Statements of Comprehensive Income (Unaudited) – Three months ended March 31, ~~2020~~2021 and ~~2019~~2020				3	4
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three months ended March 31, ~~2020~~2021 and ~~2019~~2020				4	5
Consolidated Statements of Cash Flows (Unaudited) – Three months ended March 31, ~~2020~~2021 and ~~2019~~2020				5	6
Notes to Unaudited Consolidated Financial Statements .				6	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				33
Item 3. Quantitative and Qualitative Disclosure About Market Risk				48	49
Item 4. Controls and Procedures				48	50
PART II. OTHER INFORMATION		50
Item 1. Legal Proceedings				49	50
Item 1A. Risk Factors				49	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				49	50
Item 3. Defaults Upon Senior Securities				49	50
Item 4. Mine Safety Disclosures				49	50
Item 5. Other Information				49	50
Item 6. Exhibits ~~Exhibits~~				50


	March 31, 2021		December 31, 2020
ASSETS
Cash and due from depository institutions	$	19,199	$	20,427
Interest bearing deposits		14,620		2,585
Short-term investments		3,405		8,492
Cash and cash equivalents		37,224		31,504
Investment securities:
Available for sale, at fair value		156,416		144,165
Held to maturity (fair value $49,583 on March 31, 2021 and $47,106 on December 31, 2020)		47,777		44,222
Loans held for sale		1,308		6,250
Loans		986,592		973,297
Less: Unearned income		1,343		1,202
Less: Allowance for loan losses		11,631		11,345
Net loans		973,618		960,750
Premises and equipment:
Operating lease right-of-use asset		736		758
Financing lease right-of-use asset		2,888		2,956
Other premises and equipment, net		14,220		14,336
Accrued interest income receivable		5,321		5,068
Goodwill		11,944		11,944
Bank owned life insurance		38,655		39,033
Net deferred tax asset		2,479		1,572
Federal Home Loan Bank stock		3,155		4,821
Federal Reserve Bank stock		2,125		2,125
Other assets		13,546		10,209
TOTAL ASSETS	$	1,311,412	$	1,279,713
LIABILITIES
Non-interest bearing deposits	$	207,425	$	177,533
Interest bearing deposits		909,666		877,387
Total deposits		1,117,091		1,054,920
Short-term borrowings		—		24,702
Advances from Federal Home Loan Bank		55,149		64,989
Operating lease liabilities		752		776
Financing lease liabilities		3,057		3,109
Guaranteed junior subordinated deferrable interest debentures		12,974		12,970
Subordinated debt		7,540		7,534
Total borrowed funds		79,472		114,080
Other liabilities		9,518		6,314
TOTAL LIABILITIES		1,206,081		1,175,314
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,697,819 shares issued and 17,069,000 shares outstanding on March 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 March 31, 2021 and 9,628,819 shares on December 31, 2020		(83,280)		(83,280)
Capital surplus		145,997		145,969
Retained earnings		56,295		54,641
Accumulated other comprehensive loss, net		(13,948)		(13,198)
TOTAL SHAREHOLDERS' EQUITY		105,331		104,399
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,311,412	$	1,279,713

	March 31, 2020			December 31, 2019
ASSETS
Cash and due from depository institutions		$	17,675		$	15,642
Interest bearing deposits			2,890			2,755
Short-term investments in money market funds			3,541			3,771
Total cash and cash equivalents			24,106			22,168
Investment securities:
Available for sale, at fair value			142,716			141,749
Held to maturity (fair value $44,236 on March 31, 2020 and $41,082 on December 31, 2019)			42,068			39,936
Loans held for sale			4,750			4,868
Loans			873,055			883,090
Less: Unearned income			406			384
Allowance for loan losses			9,334			9,279
Net loans			863,315			873,427
Premises and equipment:
Operating lease right-of-use asset			825			846
Financing lease right-of-use asset			3,074			3,078
Other premises and equipment, net			14,660			14,643
Accrued interest income receivable			3,759			3,449
Goodwill			11,944			11,944
Bank owned life insurance			39,041			38,916
Net deferred tax asset			3,705			3,976
Federal Home Loan Bank stock			3,988			3,985
Federal Reserve Bank stock			2,125			2,125
Other assets			8,279			6,074
TOTAL ASSETS		$	1,168,355		$	1,171,184
LIABILITIES
Non-interest bearing deposits		$	145,630		$	136,462
Interest bearing deposits			811,963			824,051
Total deposits			957,593			960,513
Short-term borrowings			16,354			22,412
Advances from Federal Home Loan Bank			58,218			53,668
Operating lease liabilities			842			865
Financing lease liabilities			3,177			3,163
Guaranteed junior subordinated deferrable interest debentures, net			12,959			12,955
Subordinated debt, net			7,517			7,511
Total borrowed funds			99,067			100,574
Other liabilities			10,855			11,483
TOTAL LIABILITIES			1,067,515			1,072,570
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,672,463 shares issued and 17,043,644 shares outstanding on March 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 March 31, 2020 and 9,592,857 shares on December 31, 2019			(83,280)			(83,129)
Capital surplus			145,938			145,888
Retained earnings			52,745			51,759
Accumulated other comprehensive loss, net			(14,830)			(16,171)
TOTAL SHAREHOLDERS’ EQUITY			100,840			98,614
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,168,355		$	1,171,184

	Three months ended March 31,
	2020			2019
INTEREST INCOME
Interest and fees on loans		$	10,332		$	10,418
Interest bearing deposits			4			6
Short-term investments in money market funds			72			69
Investment securities:
Available for sale			1,183			1,319
Held to maturity			353			352
Total Interest Income			11,944			12,164
INTEREST EXPENSE
Deposits			2,458			2,730
Short-term borrowings			12			102
Advances from Federal Home Loan Bank			284			235
Financing lease liabilities			29			30
Guaranteed junior subordinated deferrable interest debentures			280			280
Subordinated debt			130			130
Total Interest Expense			3,193			3,507
NET INTEREST INCOME			8,751			8,657
Provision (credit) for loan losses			175			(400)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES			8,576			9,057
NON-INTEREST INCOME
Wealth management fees			2,554			2,396
Service charges on deposit accounts			286			310
Net gains on sale of loans			237			62
Mortgage related fees			126			44
Bank owned life insurance			125			128
Other income			504			665
Total Non-Interest Income			3,832			3,605
NON-INTEREST EXPENSE
Salaries and employee benefits			6,704			6,301
Net occupancy expense			671			658
Equipment expense			395			361
Professional fees			1,154			1,120
Supplies, postage and freight			179			173
Miscellaneous taxes and insurance			275			277
Federal deposit insurance expense			26			80
Other expense			1,229			1,323
Total Non-Interest Expense			10,633			10,293
PRETAX INCOME			1,775			2,369
Provision for income tax expense			366			491
NET INCOME			1,409			1,878
PER COMMON SHARE DATA:
Basic:
Net income		$	0.08		$	0.11
Average number of shares outstanding			17,043			17,578
Diluted:
Net income		$	0.08		$	0.11
Average number of shares outstanding			17,099			17,664

	March 31, 2020
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency		$	3,895		$	72		$	—		$	3,967
US Agency mortgage-backed securities			78,862			3,278			(56)			82,084
Municipal			14,925			899			—			15,824
Corporate bonds			41,693			470			(1,322)			40,841
Total		$	139,375		$	4,719		$	(1,378)		$	142,716


	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

	December 31, 2019
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency		$	5,084		$	32		$	—		$	5,116
US 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

	March 31, 2020
	Less than 12 months						12 months or longer						Total
	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
US Agency		$	—		$	—		$	—		$	—		$	—		$	—
US Agency mortgage-backed securities			2,363			(19)			1,885			(37)			4,248			(56)
Municipal			144			(1)			757			(49)			901			(50)
Corporate bonds and other securities			12,784			(786)			6,958			(542)			19,742			(1,328)
Total		$	15,291		$	(806)		$	9,600		$	(628)		$	24,891		$	(1,434


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


	March 31, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	143,803	$	151,162
Paycheck Protection Program (PPP)		67,253		58,344
Commercial loans secured by owner occupied real estate		95,357		95,486
Commercial loans secured by non-owner occupied real estate		407,432		400,751
Real estate − residential mortgage		255,319		249,989
Consumer		16,085		16,363
Loans, net of unearned income	$	985,249	$	972,095

	Commercial and industrial			Commercial loans secured by owner occupied real estate			Commercial loans secured by non-owner occupied real estate			Total
1 – 4 unit residential		$	1,603		$	133		$	3,439		$	5,175
Multifamily/apartments/student housing			—			359			53,065			53,424
Office			37,929			10,280			38,218			86,427
Retail			4,129			21,333			108,763			134,225
Industrial/manufacturing/warehouse			101,464			17,698			40,115			159,277
Hotels			419			—			45,764			46,183
Eating and drinking places			887			4,434			597			5,918
Amusement and recreation			210			3,384			57			3,651
Mixed use			—			1,574			65,631			67,205
Other			20,270			28,115			14,617			63,002
Total		$	166,911		$	87,310		$	370,266		$	624,487


	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
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

	Three months ended March 31, 2020
	Balance at December 31, 2019			Charge- Offs			Recoveries			Provision (Credit)			Balance at March 31, 2020
Commercial		$	3,951		$	—		$	—		$	(91)		$	3,860
Commercial loans secured by non-owner occupied real estate			3,119			—			14			155			3,288
Real estate-residential mortgage			1,159			(92)			6			68			1,141
Consumer			126			(62)			14			42			120
Allocation for general risk			924			—			—			1			925
Total		$	9,279		$	(154)		$	34		$	175		$	9,334

	Three months ended March 31, 2019
	Balance at December 31, 2018			Charge- Offs			Recoveries			Provision (Credit)			Balance at March 31, 2019
Commercial		$	3,057		$	—		$	5		$	(448)		$	2,614
Commercial loans secured by non-owner occupied real estate			3,389			(63)			11			36			3,373
Real estate-residential mortgage			1,235			(61)			8			31			1,213
Consumer			127			(82)			18			62			125
Allocation for general risk			863			—			—			(81)			782
Total		$	8,671		$	(206)		$	42		$	(400)		$	8,107

	At March 31, 2020
	Commercial			Commercial Loans Secured by Non-Owner Occupied Real Estate			Real Estate- Residential Mortgage			Consumer			Allocation for General Risk			Total
Loans:
Individually evaluated for impairment		$	833		$	8		$	—		$	—					$	841
Collectively evaluated for impairment			253,388			370,258			230,207			17,955						871,808
Total loans		$	254,221		$	370,266		$	230,207		$	17,955					$	872,649
Allowance for loan losses:
Specific reserve allocation		$	79		$	8		$	—		$	—		$	—		$	87
General reserve allocation			3,781			3,280			1,141			120			925			9,247
Total allowance for loan losses		$	3,860		$	3,288		$	1,141		$	120		$	925		$	9,334

	At December 31, 2019
	Commercial			Commercial Loans Secured by Non-Owner Occupied Real Estate			Real Estate- Residential Mortgage			Consumer			Allocation for General Risk			Total
Loans:
Individually evaluated for impairment		$	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
Allowance for loan losses:
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

	March 31, 2020
	Impaired Loans with Specific Allowance						Impaired Loans with no Specific Allowance			Total Impaired Loans
	Recorded Investment			Related Allowance			Recorded Investment			Recorded Investment			Unpaid Principal Balance
Commercial		$	833		$	79		$	—		$	833		$	833
Commercial loans secured by non-owner occupied real estate			8			8			—			8			30
Total impaired loans		$	841		$	87		$	—		$	841		$	863

	March 31, 2020
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial and industrial		$	154,456		$	790		$	11,665		$	—		$	166,911
Commercial loans secured by owner occupied real estate			84,661			1,345			1,304			—			87,310
Commercial loans secured by non-owner occupied real estate			368,681			—			1,577			8			370,266
Total		$	607,798		$	2,135		$	14,546		$	8		$	624,487

	March 31, 2020
	Performing			Non-Performing			Total
Real estate – residential mortgage		$	228,803		$	1,404		$	230,207
Consumer			17,955			—			17,955
Total		$	246,758		$	1,404		$	248,162

	March 31, 2020
	Current			30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due			Total Past Due			Total Loans			90 Days Past Due and Still Accruing
Commercial and industrial		$	160,550		$	6,361		$	—		$	—		$	6,361		$	166,911		$	—
Commercial loans secured by owner occupied real estate			87,197			113			—			—			113			87,310			—
Commercial loans secured by non-owner occupied real estate			370,266			—			—			—			—			370,266			—
Real estate – residential mortgage			226,532			1,445			1,259			971			3,675			230,207			—
Consumer			17,901			42			12			—			54			17,955			—
Total		$	862,446		$	7,961		$	1,271		$	971		$	10,203		$	872,649		$	—

	March 31, 2020			December 31, 2019
Non-accrual loans
Commercial and industrial		$	25		$	—
Commercial loans secured by non-owner occupied real estate			8			8
Real estate – residential mortgage			1,404			1,479
Total			1,437			1,487
Other real estate owned
Real estate-residential mortgage			—			37
Total			—			37
TDR’s not in non-accrual
Commercial and industrial			807			815
Total			807			815
Total non-performing assets including TDR		$	2,244		$	2,339
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned			0.26%			0.26%

	At March 31, 2020
Type	Maturing	Amount			Weighted Average Rate
Open Repo Plus	Overnight		$	16,354		0.36%
Advances	2020			12,229		1.74
	2021			9,496		2.28
	2022			20,888		2.03
	2023			13,568		1.76
	2024			2,037		1.86
Total advances				58,218		1.94
Total FHLB borrowings			$	74,572		1.59%

	Three months ended March 31, 2020			Three months ended March 31, 2019
Lease cost
Financing lease cost:
Amortization of right-of-use asset		$	67		$	64
Interest expense			29			30
Operating lease cost			29			29
Total lease cost		$	125		$	123

	March 31, 2020				December 31, 2019
	Operating		Financing		Operating		Financing
Weighted-average remaining term (years)		11.7		16.7		11.9		17.1
Weighted-average discount rate		3.46%		3.57%		3.46%		3.60%

	Three months ended March 31, 2020									Three months ended March 31, 2019
	Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)
Beginning balance		$	1,715		$	(17,886)		$	(16,171)		$	(1,409)		$	(12,816)		$	(14,225)
Other comprehensive income (loss) before reclassifications			924			(95)			829			1,393			(1,739)			(346)
Amounts reclassified from accumulated other comprehensive loss			—			512			512			—			289			289
Net current period other comprehensive income (loss)			924			417			1,341			1,393			(1,450)			(57)
Ending balance		$	2,639		$	(17,469)		$	(14,830)		$	(16)		$	(14,266)		$	(14,282)

	Amount reclassified from accumulated other comprehensive loss(1)
Details about accumulated other comprehensive loss components	For the three months ended March 31, 2020			For the three months ended March 31, 2019			Affected line item in the consolidated statement of operations
Realized gains on sale of securities		$	—		$	—	Net realized (gains) losses on investment securities
			—			—	Provision for income tax expense
		$	—		$	—	Net of tax
Amortization of estimated defined benefit pension plan loss(2)		$	648		$	366	Other expense
			(136)			(77)	Provision for income tax expense
		$	512		$	289	Net of tax
Total reclassifications for the period		$	512		$	289	Net income

	At March 31, 2020
	COMPANY					BANK					MINIMUM REQUIRED FOR CAPITAL ADEQUACY PURPOSES		TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION REGULATIONS*
	AMOUNT			RATIO		AMOUNT			RATIO		RATIO		RATIO
Total Capital (To Risk Weighted Assets)		$	133,286		13.41%		$	120,917		12.23%		8.00%		10.00%
Common Equity Tier 1 (To Risk Weighted Assets)			103,726		10.44			110,766		11.20		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)			115,618		11.64			110,766		11.20		6.00		8.00
Tier 1 Capital (To Average Assets)			115,618		9.94			110,766		9.64		4.00		5.00

	At March 31, 2020
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	33,037		3.93%	MONTHLY		$	(45)
SWAP LIABILITIES	FAIR VALUE			(33,037)		(3.93)	MONTHLY			45
NET EXPOSURE				—		—				—

	At March 31, 2019
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	21,745		4.79%	MONTHLY		$	9
SWAP LIABILITIES	FAIR VALUE			(21,745)		(4.79)	MONTHLY			(9)
NET EXPOSURE				—		—				—

	Three months ended March 31, 2020
	Total revenue			Net income (loss)
Community banking		$	11,448		$	2,524
Wealth management			2,568			487
Investment/Parent			(1,433)			(1,602)
Total		$	12,583		$	1,409

	Fair Value Measurements at March 31, 2020
	Total			(Level 1)			(Level 2)			(Level 3)
Equity securities		$	386		$	386		$	—		$	—
Available for sale securities:
US Agency			3,967			—			3,967			—
US Agency mortgage-backed securities			82,084			—			82,084			—
Municipal			15,824			—			15,824			—
Corporate bonds			40,841			—			40,841			—
Fair value swap asset			3,520			—			3,520			—
Fair value swap liability			(3,520)			—			(3,520)			—

Pennsylvania

25-1424278

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

Main & Franklin Streets,
P.O. Box 430, Johnstown, PA

15907-0430

(Address of principal executive offices)

(Zip Code)