AmeriServ Financial, Inc.

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

	Three months ended March 31,
	2019			2018
INTEREST INCOME
Interest and fees on loans		$	10,418		$	9,818
Interest bearing deposits			6			4
Short-term investments in money market funds			69			43
Investment securities:
Available for sale			1,319			1,029
Held to maturity			352			323
Total Interest Income			12,164			11,217
INTEREST EXPENSE
Deposits			2,730			1,781
Short-term borrowings			102			92
Advances from Federal Home Loan Bank			235			186
Financing lease liabilities			30			—
Guaranteed junior subordinated deferrable interest debentures			280			280
Subordinated debt			130			130
Total Interest Expense			3,507			2,469
NET INTEREST INCOME			8,657			8,748
Provision (credit) for loan losses			(400)			50
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES			9,057			8,698
NON-INTEREST INCOME
Wealth management fees			2,396			2,426
Service charges on deposit accounts			310			383
Net gains on sale of loans			62			98
Mortgage related fees			44			39
Net realized losses on investment securities			—			(148)
Bank owned life insurance			128			132
Other income			665			705
Total Non-Interest Income			3,605			3,635
NON-INTEREST EXPENSE
Salaries and employee benefits			6,301			6,093
Net occupancy expense			658			670
Equipment expense			361			391
Professional fees			1,120			1,184
Supplies, postage and freight			173			168
Miscellaneous taxes and insurance			277			290
Federal deposit insurance expense			80			162
Other expense			1,323			1,162
Total Non-Interest Expense			10,293			10,120
PRETAX INCOME			2,369			2,213
Provision for income tax expense			491			446
NET INCOME			1,878			1,767

Three months ended
March 31,
   2018 2017
INTEREST INCOME

Interest and fees on loans $ 9,818 $ 9,556
Interest bearing deposits 4 2
Short-term investments in money market funds 43 24
Investment securities:

Available for sale 1,029 901
Held to maturity 323 265
Total Interest Income 11,217 10,748
INTEREST EXPENSE

Deposits 1,781 1,436
Short-term borrowings 92 19
Advances from Federal Home Loan Bank 186 162
Guaranteed junior subordinated deferrable interest debentures 280 280
Subordinated debt 130 130
Total Interest Expense 2,469 2,027
NET INTEREST INCOME 8,748 8,721
Provision for loan losses 50 225
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,698 8,496
NON-INTEREST INCOME

Trust and investment advisory fees 2,278 2,166
Service charges on deposit accounts 383 374
Net gains on sale of loans 98 114
Mortgage related fees 39 75
Net realized gains (losses) on investment securities (148 ) 27
Bank owned life insurance 132 141
Other income 853 665
Total Non-Interest Income 3,635 3,562
NON-INTEREST EXPENSE

Salaries and employee benefits 6,093 5,948
Net occupancy expense 670 674
Equipment expense 391 419
Professional fees 1,184 1,200
Supplies, postage and freight 168 194
Miscellaneous taxes and insurance 290 294
Federal deposit insurance expense 162 160
Other expense 1,162 1,196
Total Non-Interest Expense 10,120 10,085
PRETAX INCOME 2,213 1,973
Provision for income tax expense 446 625
NET INCOME $ 1,767 $ 1,348
PER COMMON SHARE DATA:

Basic:

Net income $ 0.10 $ 0.07
Average number of shares outstanding 18,079 18,814
Diluted:

Net income $ 0.10 $ 0.07
Average number of shares outstanding 18,181 18,922
Cash dividends declared $ 0.015 $ 0.015

See accompanying notes to unaudited consolidated financial statements.

Three months ended
March 31,
   2018 2017
OPERATING ACTIVITIES

Net income $ 1,767 $ 1,348
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 50 225
Depreciation expense 405 428
Net amortization of investment securities 103 126
Net realized (gains) losses on investment securities available for sale 148 (27 )
Net gains on loans held for sale (98 ) (114 )
Amortization of deferred loan fees (35 ) (51 )
Origination of mortgage loans held for sale (4,061 ) (7,583 )
Sales of mortgage loans held for sale 6,441 8,178
(Increase) decrease in accrued interest income receivable 48 (84 )
Decrease in accrued interest payable (121 ) (139 )
Earnings on bank owned life insurance (132 ) (141 )
Deferred income taxes 447 623
Amortization of deferred issuance costs 9 10
Stock based compensation expense 32 42
Other, net (1,410 ) (233 )
Net cash provided by operating activities 3,593 2,608
INVESTING ACTIVITIES

Purchases of investment securities – available for sale (13,168 ) (14,195 )
Purchases of investment securities – held to maturity (855 ) (6,476 )
Proceeds from sales of investment securities – available for sale 4,479 5,653
Proceeds from maturities of investment securities – available for sale 3,695 6,570
Proceeds from maturities of investment securities – held to maturity 917 375
Purchases of regulatory stock (3,924 ) (4,531 )
Proceeds from redemption of regulatory stock 4,334 3,606
Long-term loans originated (28,694 ) (50,495 )
Principal collected on long-term loans 44,999 37,520
Loans purchased or participated (2,000 ) (150 )
Proceeds from sale of other real estate owned 12 23
Purchases of premises and equipment (77 ) (702 )
Net cash provided by (used in) investing activities 9,718 (22,802 )
FINANCING ACTIVITIES

Net decrease in deposit balances (3,739 ) (3,010 )
Net increase (decrease) in other short-term borrowings (12,189 ) 20,922
Principal borrowings on advances from Federal Home Loan Bank 1,740 3,500
Principal repayments on advances from Federal Home Loan Bank (2,000 ) (3,000 )
Purchase of treasury stock (445 ) (992 )
Common stock dividends (272 ) (283 )
Net cash provided by (used in) financing activities (16,905 ) 17,137
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,594 ) (3,057 )
CASH AND CASH EQUIVALENTS AT JANUARY 1 34,188 34,073
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 30,594 $ 31,016

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), AmeriServ Trust and Financial Services Company (the Trust Company), and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a Pennsylvania state-chartered full service bank with 15 locations in ~~Pennsylvania.~~Pennsylvania and 1 location in Maryland. The Trust Company offers a complete range of trust and financial services and administers assets valued at $2.2 billion that are not reported on the Company’s ~~consolidated balance sheet~~Consolidated Balance Sheets at March 31, ~~2018.~~2019. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.

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

2. Basis of Preparation

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

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

2018.

3. Recent Accounting Pronouncements

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

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Recent Accounting Pronouncements – (continued)

effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact that the Update will have on our consolidated financial statements. We are currently working with an industry leading third-party consultant and software provider to assist us in the implementation of this standard. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

4. Adoption of Accounting Standards

In ~~March 2017,~~February 2016, the FASB issued ASU ~~2017-08,~~~~Receivables~~2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) — ~~Nonrefundable Fees and Other Costs (Subtopic 310-20).~~ ~~The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium~~Targeted Improvements, which, among other things, provides an additional transition method that would allow entities to ~~be amortized to the earliest call date. The amendments do~~ not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the ~~amendments~~guidance in ~~this Update on a modified retrospective basis through~~ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment ~~directly~~ to the opening balance of retained earnings ~~as of the beginning of~~in the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

4. Adoption of Accounting Standards

~~Effective January 1, 2018, the~~The Company adopted ASU 2016-02 and its related amendments as of January 1, 2019, which resulted in the recognition of operating and financing right-of-use assets totaling $932,000 and $3.3 million, respectively, as well as operating and financing lease liabilities totaling $932,000 and $3.3 million, respectively. The Company elected to adopt the transition relief provisions from ASU 2018-11 and recorded the impact of adoption as of January 1, 2019, without restating any prior-year amounts or disclosures. The related policy elections made by the Company and the additional lease disclosures can be found in Note 13. There was no cumulative effect adjustment to the opening balance of retained earnings required.

5. Revenue Recognition

ASU 2014-09,Revenue from Contracts with Customers — Topic 606 ~~and all subsequent ASUs that modified ASC 606. The standard required a company~~, requires the Company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. The Company completed an assessment of revenue streams and review of the related contracts potentially affected by the new standard and concluded that ASU 2014-09 did not materially change the method in which it recognizes revenue. Therefore, implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. However, additional disclosures were added in the current period, which can be found in Note 5.

~~In January 2016, the FASB finalized ASU 2016-01,~~~~Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Adoption of Accounting Standards – (continued)

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

~~In March 2017, the FASB issued ASU 2017-07,~~~~Compensation — Retirement Benefits (Topic 715)~~. The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of $22,000 and $(62,000) from Salaries and employee benefits into Other expense on the Consolidated Statement of Operations for the periods ended March 31, 2018 and 2017, respectively. See Note 18 for additional information on the presentation of these pension cost components.

5. Revenue Recognition

~~Management~~ determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including net realized gains (losses) on investment ~~security gains, loan servicing charges,~~securities, mortgage related fees, net gains on ~~the~~loans held for sale, ~~of loans,~~ and bank owned life insurance ~~income~~ are not within the scope of Topic 606. ~~As a result, no changes were made during the period related to these~~These sources of revenue ~~which~~ cumulatively comprise ~~78.3%~~80.2% of the total revenue of the Company.

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

~~Trust and investment advisory~~•

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

•

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Revenue Recognition – (continued)

•

Other noninterest income — Other noninterest income consists of other recurring revenue streams such as ~~commissions for the sale of mutual funds, annuities, and life insurance products,~~ safe deposit box rental fees, gain (loss) on sale of other real estate owned and other miscellaneous revenue streams. ~~Commissions on the sale of mutual funds, annuities, and life insurance products are recognized when sold, which is when the Company has satisfied its performance obligation.~~ Safe deposit box rental fees are charged to the customer on an annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid (i.e. paid prior to issuance of annual bill), the revenue is recognized upon receipt of payment. The Company has determined that since rentals and renewals occur consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Gains and losses on the sale of other real estate owned are recognized at the completion of the property sale when the buyer obtains control of the real estate and all the performance obligations of the Company have been satisfied.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the ~~three months ended~~three-month period ending March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands).

	Three months ended March 31,
	2019			2018
Noninterest income:
In-scope of Topic 606
Wealth management fees		$	2,396		$	2,426
Service charges on deposit accounts			310			383
Other			420			417
Noninterest income (in-scope of topic 606)			3,126			3,226
Noninterest income (out-of-scope of topic 606)			479			409
Total noninterest income		$	3,605		$	3,635

Three months ended
March 31,
   2018 2017
Noninterest income:

In-scope of Topic 606

Trust and investment advisory fees $ 2,278 $ 2,166
Service charges on deposit accounts 383 374
Other 566 540
Noninterest income (in-scope of topic 606) 3,227 3,080
Noninterest income (out-of-scope of topic 606) 408 482
Total noninterest income $ 3,635 $ 3,562

6. Earnings Per Common Share

Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. ~~The Company had no~~For the three-month period ending March 31, 2019, options to purchase 12,000 common shares, ~~excluded from~~with an exercise price of $4.19 to $4.22, were outstanding but were not included in the computation of diluted earnings per common share ~~since all option exercise prices were below the average closing price for both the first quarter of 2018 and 2017.~~

because to do so would be antidilutive.

	Three months ended March 31,
	2019			2018
	(In thousands, except per share data)
Numerator:
Net income		$	1,878		$	1,767
Denominator:
Weighted average common shares outstanding (basic)			17,578			18,079
Effect of stock options			86			102
Weighted average common shares outstanding (diluted)			17,664			18,181
Earnings per common share:
Basic		$	0.11		$	0.10
Diluted			0.11			0.10

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. Consolidated Statement of Cash Flows

On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits and short-term investments in money market funds with original maturities of 90 days or less. The Company made no income tax payments in the first three months of ~~2018~~2019 and ~~$3,000 in the same 2017 period.~~2018. The Company made total interest payments of ~~$2,590,000~~$3,524,000 in the first three months of ~~2018~~2019 compared to ~~$2,166,000~~$2,590,000 in the same ~~2017~~2018 period. The Company had ~~$158,000~~$18,000 non-cash transfers to other real estate owned (OREO) in the first three months of ~~2018~~2019 compared to ~~$20,000~~$158,000 non-cash transfers in the same ~~2017~~2018 period.

As a result of the adoption of ASU 2016-02, Leases (Topic 842) as of January 1, 2019, the Company had non-cash transactions associated with the recognition of the right-of-use assets and lease liabilities. Specifically, the Company recognized a right-of-use asset and lease liability of $932,000 related to operating leases and a right-of-use asset and lease liability of $3.3 million related to financing leases.

8. Investment Securities

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

Investment securities available for sale (AFS):

	March 31, 2019
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency		$	7,606		$	3		$	(65)		$	7,544
US Agency mortgage-backed securities			94,806			983			(537)			95,252
Municipal			13,298			228			(110)			13,416
Corporate bonds			38,334			127			(648)			37,813
Total		$	154,044		$	1,341		$	(1,360)		$	154,025

March 31, 2018
Cost
Basis Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
US Agency $ 6,821 $ — $ (166 ) $ 6,655
US Agency mortgage-backed securities 82,648 396 (1,498 ) 81,546
Taxable municipal 8,929 8 (347 ) 8,590
Corporate bonds 35,922 254 (577 ) 35,599
Total $ 134,320 $ 658 $ (2,588 ) $ 132,390

Investment securities held to maturity (HTM):

Investment securities available for sale (AFS):

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Investment securities held to maturity (HTM):

	December 31, 2018
	Cost Basis			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Agency mortgage-backed securities		$	9,983		$	78		$	(132)		$	9,929
Municipal			24,740			131			(404)			24,467
Corporate bonds and other securities			6,037			13			(122)			5,928
Total		$	40,760		$	222		$	(658)		$	40,324

December 31, 2017
Cost
Basis Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
US Agency mortgage-backed securities $ 9,740 $ 149 $ (45 ) $ 9,844
Taxable municipal 22,970 203 (238 ) 22,935
Corporate bonds and other securities 6,042 38 (48 ) 6,032
Total $ 38,752 $ 390 $ (331 ) $ 38,811

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investment Securities – (continued)

Maintaining investment quality is a primary objective of the ~~Company's~~Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a ~~Moody's Investor's~~Moody’s Investor’s Service or Standard & ~~Poor's~~Poor’s rating of “A.” At March 31, ~~2018, 57.4%~~2019, 58.5% of the portfolio was rated “AAA” as compared to ~~57.8%~~57.5% at December 31, ~~2017.~~2018. Approximately ~~9.4%~~8.4% of the portfolio was either rated below “A” or unrated at March 31, ~~2018~~2019 as compared to ~~9.7%~~10.0% at December 31, ~~2017.~~

2018.

The Company sold no AFS securities during the first quarter of 2019. The Company sold $4.5 million AFS securities in the first quarter of 2018 resulting in $148,000 of gross investment security ~~losses and sold $5.7 million AFS securities in the first three months of 2017 resulting in $27,000 of gross investment security gains.~~

losses.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was ~~$115,980,000~~$118,370,000 at March 31, ~~2018~~2019 and ~~$117,181,000~~$115,536,000 at December 31, ~~2017.~~

2018.

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

Total investment securities:

	March 31, 2019
	Less than 12 months						12 months or longer						Total
	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
US Agency		$	—		$	—		$	5,891		$	(65)		$	5,891		$	(65)
US Agency mortgage-backed securities			—			—			40,841			(590)			40,841			(590)
Municipal			—			—			13,384			(261)			13,384			(261)
Corporate bonds and other securities			12,344			(213)			19,229			(513)			31,573			(726)
Total		$	12,344		$	(213)		$	79,345		$	(1,429)		$	91,689		$	(1,642)

March 31, 2018
Less than 12 months 12 months or longer Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
US Agency $ 6,005 $ (165 ) $ 400 $ (1 ) $ 6,405 $ (166 )
US Agency mortgage-backed securities 51,033 (985 ) 17,925 (670 ) 68,958 (1,655 )
Taxable municipal 18,562 (412 ) 8,431 (525 ) 26,993 (937 )
Corporate bonds and other securities 15,181 (233 ) 13,635 (420 ) 28,816 (653 )
Total $ 90,781 $ (1,795 ) $ 40,391 $ (1,616 ) $ 131,172 $ (3,411 )

Total investment securities:

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are ~~190~~129 positions that are considered temporarily impaired at March 31, ~~2018.~~2019. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in ~~value.~~

value or mature.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investment Securities – (continued)

Contractual maturities of securities at March 31, ~~2018~~2019 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at March 31, ~~2018~~2019 is ~~46.9~~41.7 months and is ~~higher~~lower than the duration at December 31, ~~2017~~2018 which was ~~44.3~~44.1 months. The duration remains within our internal established guideline range of 24 to 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

	March 31, 2019
	Available for sale						Held to maturity
	Cost Basis			Fair Value			Cost Basis			Fair Value
Within 1 year		$	1,006		$	1,005		$	1,000		$	953
After 1 year but within 5 years			22,552			22,456			5,192			5,168
After 5 years but within 10 years			44,406			44,189			19,023			19,149
After 10 years but within 15 years			29,382			29,521			9,816			9,971
Over 15 years			56,698			56,854			5,497			5,489
Total		$	154,044		$	154,025		$	40,528		$	40,730

March 31, 2018
Available for sale Held to maturity
Cost Basis Fair Value Cost Basis Fair Value
Within 1 year $ 400 $ 400 $ 2,000 $ 1,983
After 1 year but within 5 years 14,019 13,920 2,671 2,610
After 5 years but within 10 years 47,258 46,766 14,441 14,200
After 10 years but within 15 years 26,940 26,332 14,789 14,556
Over 15 years 45,703 44,972 4,762 4,692
Total $ 134,320 $ 132,390 $ 38,663 $ 38,041

9. Loans

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

	March 31, 2019			December 31, 2018
Commercial:
Commercial and industrial		$	157,555		$	158,279
Commercial loans secured by owner occupied real estate			86,934			91,905
Commercial loans secured by non-owner occupied real estate			365,281			356,543
Real estate – residential mortgage			235,109			237,964
Consumer			17,636			17,591
Loans, net of unearned income		$	862,515		$	862,282

March 31,
2018 December 31,
2017
Commercial $ 158,776 $ 159,192
Commercial loans secured by real estate 451,787 463,780
Real estate – mortgage 244,322 247,278
Consumer 19,988 19,383
Loans, net of unearned income $ 874,873 $ 889,633

Loan balances at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are net of unearned income of ~~$376,000~~$367,000 and ~~$399,000,~~$322,000, respectively. Real estate-construction loans comprised ~~3.8%~~3.3% and ~~4.1%~~3.5% of total loans, net of unearned income at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses

The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the ~~three month periods~~three-month period ending March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands).

	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, 2018
	Balance at December 31, 2017			Charge- Offs			Recoveries			Provision (Credit)			Balance at March 31, 2018
Commercial		$	4,298		$	(162)		$	8		$	(160)		$	3,984
Commercial loans secured by non-owner occupied real estate			3,666			—			13			(129)			3,550
Real estate-residential mortgage			1,102			(114)			10			269			1,267
Consumer			128			(99)			12			101			142
Allocation for general risk			1,020			—			—			(31)			989
Total		$	10,214		$	(375)		$	43		$	50		$	9,932

Three months ended March 31, 2018
Balance at
December 31,
2017 Charge-Offs Recoveries Provision
(Credit) Balance at
March 31,
2018
Commercial $ 4,299 $ — $ 1 $ (316 ) $ 3,984
Commercial loans secured by real estate 3,666 (162 ) 11 35 3,550
Real estate – mortgage 1,102 (114 ) 19 260 1,267
Consumer 128 (99 ) 12 101 142
Allocation for general risk 1,019 — — (30 ) 989
Total $ 10,214 $ (375 ) $ 43 $ 50 $ 9,932

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

Three months ended March 31, 2017
Balance at
December 31,
2016 Charge-Offs Recoveries Provision
(Credit) Balance at
March 31,
2017
Commercial $ 4,041 $ — $ 7 $ (24 ) $ 4,024
Commercial loans secured by real estate 3,584 (14 ) 2 175 3,747
Real estate – mortgage 1,169 (94 ) 66 26 1,167
Consumer 151 (63 ) 19 42 149
Allocation for general risk 987 — — 6 993
Total $ 9,932 $ (171 ) $ 94 $ 225 $ 10,080

The Company recorded a ~~$50,000~~$400,000 loan loss provision ~~for loan losses~~recovery in the first quarter of ~~2018~~2019 compared to a ~~$225,000~~$50,000 provision ~~for loan losses~~expense recorded in the first quarter of ~~2017.~~2018. The ~~lower 2018~~2019 provision recovery reflects our overall strong asset quality, ~~the successful workout of several~~reduced criticized loans, and ~~reduced~~lower loan portfolio balances. ~~The~~For the first three months of 2019, the Company experienced net loan charge-offs of $164,000, or 0.08% of total loans, compared to net loan charge-offs of $332,000, or 0.15% of total loans, in ~~2018 compared to net loan charge-offs~~the first quarter of ~~$77,000, or 0.04% of total loans, in 2017.~~2018. Overall, the Company continued to maintain ~~strong~~outstanding asset quality as its ~~nonperforming~~non-performing assets totaled ~~$2.2~~$1.2 million, or only ~~0.25%~~0.14% of total loans, at March 31, ~~2018. In summary, the~~2019. The allowance for loan losses provided ~~460%~~694% coverage of non-performing assets, and ~~1.14%~~0.94% of total loans, at March 31, ~~2018,~~2019, compared to ~~337%~~629% coverage of non-performing assets, and ~~1.15%~~1.00% of total loans, at December 31, ~~2017.~~

2018.

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, 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		$	—		$	11		$	—		$	—					$	11
Collectively evaluated for impairment			244,489			365,270			235,109			17,636						862,504
Total loans		$	244,489		$	365,281		$	235,109		$	17,636					$	862,515
Allowance for loan losses:
Specific reserve allocation		$	—		$	11		$	—		$	—		$	—		$	11
General reserve allocation			2,614			3,362			1,213			125			782			8,096
Total allowance for loan losses		$	2,614		$	3,373		$	1,213		$	125		$	782		$	8,107

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

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

The segments of the Company’s loan portfolio are disaggregated ~~to a level~~into classes that allows management to monitor risk and performance. The loan ~~segments~~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 and therefore, no further disaggregation into classes is necessary.~~portfolio. The ~~overall risk profile for the~~ commercial loan segment ~~is impacted by~~includes both the commercial and industrial and the owner occupied commercial real estate ~~(CRE) loans, which include loans secured by owner occupied nonfarm nonresidential properties,~~loan classes while the remaining segments are not separated into classes as ~~a meaningful portion of the commercial portfolio is centered~~management monitors risk in these ~~types of accounts.~~loans at the segment level. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans secured by residential real estate. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment with a loan balance in excess of $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a TDR.

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

When reviewing an appraisal associated with an existing ~~collateral~~ 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;

•

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

natural disasters;

•

the inventory of competing properties;

•

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

•

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

•

environmental contamination.

The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.

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

	March 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 loans secured by non-owner occupied real estate		$	11		$	11		$	—		$	11		$	33
Total impaired loans		$	11		$	11		$	—		$	11		$	33

March 31, 2018
Impaired Loans with
Specific Allowance Impaired
Loans with
no Specific
Allowance Total Impaired Loans
Recorded
Investment Related
Allowance Recorded
Investment Recorded
Investment Unpaid
Principal
Balance
Commercial $ 902 $ 835 $ 11 $ 913 $ 922
Commercial loans secured by real estate — — 13 13 35
Total impaired loans $ 902 $ 835 $ 24 $ 926 $ 957

December 31, 2017
Impaired Loans with
Specific Allowance Impaired
Loans with
no Specific
Allowance Total Impaired Loans
Recorded
Investment Related
Allowance Recorded
Investment Recorded
Investment Unpaid
Principal
Balance
Commercial $ 1,201 $ 909 $ 11 $ 1,212 $ 1,215
Commercial loans secured by real estate — — 547 547 600
Total impaired loans $ 1,201 $ 909 $ 558 $ 1,759 $ 1,815
16

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

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

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

	Three months ended March 31,
	2019			2018
Average loan balance:
Commercial		$	—		$	1,063
Commercial loans secured by non-owner occupied real estate			11			280
Average investment in impaired loans		$	11		$	1,343
Interest income recognized:
Commercial		$	—		$	—
Commercial loans secured by non-owner occupied real estate			—			—
Interest income recognized on a cash basis on impaired loans		$	—		$	—

Three months ended
March 31,
   2018 2017
Average loan balance:

Commercial $ 1,063 $ 490
Commercial loans secured by real estate 280 176
Average investment in impaired loans $ 1,343 $ 666
Interest income recognized:

Commercial $ 8 $ 6
Commercial loans secured by real estate — 2
Interest income recognized on a cash basis on impaired loans $ 8 $ 8

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

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

In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than ~~$1,000,000,~~$2,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

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).

	March 31, 2019
	Pass			Special Mention			Substandard			Doubtful			Total
Commercial and industrial		$	154,114		$	1,702		$	1,739		$	—		$	157,555
Commercial loans secured by owner occupied real estate			84,301			1,496			1,137			—			86,934
Commercial loans secured by non-owner occupied real estate			358,806			6,271			193			11			365,281
Total		$	597,221		$	9,469		$	3,069		$	11		$	609,770

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

March 31, 2018
Pass Special

Mention Substandard Doubtful Total
Commercial $ 153,689 $ 2,140 $ 2,704 $ 243 $ 158,776
Commercial loans secured by real estate 441,330 10,112 332 13 451,787
Total $ 595,019 $ 12,252 $ 3,036 $ 256 $ 610,563

December 31, 2017
Pass Special
Mention Substandard Doubtful Total
Commercial $ 153,728 $ 2,175 $ 2,759 $ 530 $ 159,192
Commercial loans secured by real estate 452,740 10,153 874 13 463,780
Total $ 606,468 $ 12,328 $ 3,633 $ 543 $ 622,972

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

	March 31, 2019
	Performing			Non-Performing
Real estate – residential mortgage		$	233,970		$	1,139
Consumer			17,636			—
Total		$	251,606		$	1,139

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

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

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

	March 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		$	157,555		$	—		$	—		$	—		$	—		$	157,555		$	—
Commercial loans secured by owner occupied real estate			86,934			—			—			—			—			86,934			—
Commercial loans secured by non-owner occupied real estate			365,281			—			—			—			—			365,281			—
Real estate – residential mortgage			231,558			2,213			753			585			3,551			235,109			—
Consumer			17,463			172			1			—			173			17,636			—
Total		$	858,791		$	2,385		$	754		$	585		$	3,724		$	862,515		$	—

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

March 31, 2018
Current 30 – 59
Days
Past Due 60 – 89
Days
Past Due 90 Days
Past Due Total
Past Due Total
Loans 90 Days Past
Due and Still
Accruing
Commercial $ 158,522 $ 243 $ — $ 11 $ 254 $ 158,776 $ —
Commercial loans secured by real estate 446,505 5,282 — — 5,282 451,787 —
Real estate – mortgage 240,783 1,823 686 1,030 3,539 244,322 —
Consumer 19,511 469 8 — 477 19,988 —
Total $ 865,321 $ 7,817 $ 694 $ 1,041 $ 9,552 $ 874,873 $ —

December 31, 2017
Current 30 – 59
Days
Past Due 60 – 89
Days
Past Due 90 Days
Past Due Total
Past Due Total
Loans 90 Days
Past Due
and Still
Accruing
Commercial $ 159,181 $ — $ — $ 11 $ 11 $ 159,192 $ —
Commercial loans secured by real estate 457,722 5,238 534 286 6,058 463,780 —
Real estate – mortgage 243,393 2,373 671 841 3,885 247,278 —
Consumer 19,262 76 45 — 121 19,383 —
Total $ 879,558 $ 7,687 $ 1,250 $ 1,138 $ 10,075 $ 889,633 $ —

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.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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,

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations which accommodate each of the listed risk factors.

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

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

11. 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, 2019			December 31, 2018
Non-accrual loans
Commercial loans secured by non-owner occupied real estate		$	11		$	11
Real estate-residential mortgage			1,139			1,210
Total			1,150			1,221
Other real estate owned
Commercial loans secured by owner occupied real estate			—			157
Real estate-residential mortgage			18			—
Total			18			157
TDR’s not in non-accrual			—			—
Total non-performing assets including TDR		$	1,168		$	1,378
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned			0.14%			0.16%

March 31,
2018 December 31,
2017
Non-accrual loans

Commercial $ 913 $ 1,212
Commercial loans secured by real estate 13 547
Real estate – mortgage 1,063 1,257
Total 1,989 3,016
Other real estate owned

Commercial 157 —
Real estate-mortgage 11 18
Total 168 18
TDR’s not in non-accrual — —
Total non-performing assets including TDR $ 2,157 $ 3,034
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned 0.25 % 0.34 %

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,
	2019			2018
Interest income due in accordance with original terms		$	15		$	27
Interest income recorded			—			—
Net reduction in interest income		$	15		$	27

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Non-performing Assets Including Troubled Debt Restructurings (TDR) – (continued)

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

The Company had no loans modified as TDRs during the ~~three month~~three-month period ending March 31, ~~2018~~2019 and ~~2017.~~

In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same. The specific ALL reserve for loans modified as TDR’s was $835,000 and $507,000 as of March 31, 2018 and 2017, respectively. 2018.

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

The specific ALL reserve for loans modified as TDR’s was $11,000 as of March 31, 2019 and December 31, 2018.

The Company had no loans that were classified as TDR’s or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, ~~2017~~2018 and ~~2016,~~2017, respectively, and that subsequently defaulted during these reporting periods.

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

12. Federal Home Loan Bank Borrowings

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

	At March 31, 2019
Type	Maturing	Amount			Weighted Average Rate
Open Repo Plus	Overnight		$	30,912		2.70%
Advances	2019			11,500		1.53
	2020			16,729		1.74
	2021			9,496		2.28
	2022			7,996		2.81
	2023			2,850		2.65
Total advances				48,571		2.02
Total FHLB borrowings			$	79,483		2.29%

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

At March 31, 2018
Type Maturing Amount Weighted
Average Rate
Open Repo Plus Overnight $ 36,895 1.87 %
Advances 2018 10,000 1.52
   2019 12,500 1.51
   2020 16,729 1.74
   2021 6,000 1.90
   2022 740 2.60
Total advances 45,969 1.66
Total FHLB borrowings $ 82,864 1.76 %

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Lease Commitments

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

The Company has elected to account for the variable nonlease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable nonlease components are reported in net occupancy expense on the Consolidated Statements of Operations when paid. These variable nonlease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets. The following table presents the lease cost associated with both operating and financing leases for the three-month period ending March 31, 2019 (in thousands). Total rent expense recorded during the three-month period ended March 31, 2018 was $117,000

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

Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive 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 as of January 1, 2019. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, 2019.

	Operating		Financing
Weighted-average remaining term (years)		12.4		17.5
Weighted-average discount rate		3.44%		3.59%

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	Operating			Financing
Undiscounted cash flows due:
Within 1 year		$	117		$	295
After 1 year but within 2 years			118			289
After 2 years but within 3 years			120			276
After 3 years but within 4 years			85			278
After 4 years but within 5 years			69			262
After 5 years			641			3,184
Total undiscounted cash flows			1,150			4,584
Discount on cash flows			(222)			(1,289)
Total lease liabilities		$	928		$	3,295

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, 2019, the Company had no leases that had a term of twelve months or less.

14. Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Three months ended March 31, 2019									Three months ended March 31, 2018
	Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)			Net Unrealized Gains and (Losses) on Investment Securities AFS(1)			Defined Benefit Pension Items(1)			Total(1)
Beginning balance		$	(1,409)		$	(12,816)		$	(14,225)		$	(327)		$	(12,623)		$	(12,950)
Other comprehensive income (loss) before reclassifications			1,393			(1,739)			(346)			(1,316)			517			(799)
Amounts reclassified from accumulated other comprehensive loss			—			289			289			117			308			425
Net current period other comprehensive income (loss)			1,393			(1,450)			(57)			(1,199)			825			(374)
Ending balance		$	(16)		$	(14,266)		$	(14,282)		$	(1,526)		$	(11,798)		$	(13,324)

Three months ended March 31, 2018 Three months ended March 31, 2017
Net
Unrealized
Gains and
(Losses) on
Investment Securities
AFS⁽¹⁾ Defined
Benefit
Pension
Items⁽¹⁾ Total⁽¹⁾ Net
Unrealized
Gains and
(Losses) on
Investment
Securities
AFS⁽¹⁾ Defined
Benefit
Pension
Items⁽¹⁾ Total⁽¹⁾
Beginning balance $ (327 ) �� $ (12,623 ) $ (12,950 ) $ (171 ) $ (11,406 ) $ (11,577 )
Other comprehensive income (loss) before reclassifications (1,316 ) 517 (799 ) 62 (210 ) (148 )
Amounts reclassified from accumulated other comprehensive loss 117 308 425 (18 ) 260 242
Net current period other comprehensive income (loss) (1,199 ) 825 (374 ) 44 50 94
Ending balance $ (1,526 ) $ (11,798 ) $ (13,324 ) $ (127 ) $ (11,356 ) $ (11,483 )

~~(1)~~

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

(1)

Amounts in parentheses indicate debits on the Consolidated Balance Sheets.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Amount reclassified from accumulated other comprehensive loss(1)
Details about accumulated other comprehensive loss components	For the three months ended March 31, 2019			For the three months ended March 31, 2018			Affected line item in the consolidated statement of operations
Realized loss on sale of securities		$	—		$	148	Net realized loss on investment securities
			—			(31)	Provision for income tax expense
		$	—		$	117	Net of tax
Amortization of estimated defined benefit pension plan loss		$	366		$	390	Other expense
			(77)			(82)	Provision for income tax expense
		$	289		$	308	Net of tax
Total reclassifications for the period		$	289		$	425	Net income

Amount reclassified from accumulated other
comprehensive loss⁽¹⁾
Details about accumulated other
comprehensive loss components For the
three months
ended
March 31,
2018 For the
three months
ended
March 31,
2017 Affected line item in the consolidated
statement of operations
Realized (gains) losses on sale of securities $ 148 $ (27 ) Net realized (gains) losses on
  investment securities
   (31 ) 9 Provision for income tax expense
   $ 117 $ (18 ) Net of tax
Amortization of estimated defined benefit pension plan loss $ 390 $ 395 Other expense
   (82 ) (135 ) Provision for income taxes
   $ 308 $ 260 Net of tax
Total reclassifications for the period $ 425 $ 242 Net income

~~(1)~~

~~Amounts in parentheses indicate credits.~~

(1)

Amounts in parentheses indicate credits.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.

15. Regulatory Capital

The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the ~~Company's~~Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The ~~Company's~~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~~Company’s consolidated financial statements. For a more detailed discussion see the Capital Resources section of the ~~MD&A.~~

M.D. & A.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and ~~Tier~~tier 1 capital to risk-weighted assets ~~Tier~~(as defined), tier 1 capital to average assets, and common equity ~~Tier I~~tier 1 capital (as defined in the regulations) to risk-weighted ~~assets (RWA) (as defined).~~assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of March 31, ~~2018,~~2019, the Bank was categorized as “Well Capitalized” under the regulatory framework for prompt corrective action promulgated by the Federal Reserve. The Company believes that no conditions or events have occurred that would change this conclusion as of such date. To be categorized as Well Capitalized, the Bank must maintain minimum Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital, and Tier 1 leverage ratios as set forth in the table (in thousands, except ratios).

AT MARCH 31, 2018
COMPANY BANK MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES TO BE WELL
CAPITALIZED
UNDER
PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted Assets) $ 127,352 13.45 % $ 113,196 12.00 % 8.00 % 10.00 %
Tier 1 Common Equity (To Risk Weighted Assets) 97,190 10.26 102,364 10.85 4.50 6.50
Tier 1 Capital (To Risk Weighted Assets) 109,050 11.52 102,364 10.85 6.00 8.00
Tier 1 Capital (To Average Assets) 109,050 9.54 102,364 9.09 4.00 5.00

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14. Regulatory Capital – (continued)

	At March 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)		$	129,825		13.37%		$	116,107		12.01%		8.00%		10.00%
Common Equity Tier 1 (To Risk Weighted Assets)			101,399		10.44			107,050		11.08		4.50		6.50
Tier 1 Capital (To Risk Weighted Assets)			113,275		11.67			107,050		11.08		6.00		8.00
Tier 1 Capital (To Average Assets)			113,275		9.87			107,050		9.45		4.00		5.00

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

AT DECEMBER 31, 2017
COMPANY BANK MINIMUM
REQUIRED
FOR CAPITAL
ADEQUACY
PURPOSES TO BE WELL
CAPITALIZED
UNDER
PROMPT
CORRECTIVE
ACTION
REGULATIONS*
AMOUNT RATIO AMOUNT RATIO RATIO RATIO
Total Capital (To Risk Weighted Assets) $ 126,276 13.21 % $ 110,681 11.64 % 8.00 % 10.00 %
Tier 1 Common Equity (To Risk Weighted Assets) 95,882 10.03 99,552 10.47 4.50 6.50
Tier 1 Capital (To Risk Weighted Assets) 107,682 11.26 99,552 10.47 6.00 8.00
Tier 1 Capital (To Average Assets) 107,682 9.32 99,552 8.75 4.00 5.00

~~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 ~~7.36%~~7.54% at March 31, ~~2018.~~

15.2019. See the discussion of the tangible common equity ratio under the “Balance Sheet” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (M.D. & A.).

16. Derivative Hedging Instruments

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

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest rate swap agreements with customers and a large financial institution that specializes in these types of transactions. These arrangements involve the exchange of interest payments based on the notional amounts. The Company entered into floating rate loans and fixed rate swaps with our customers. Simultaneously, the Company entered into offsetting fixed rate swaps with Pittsburgh National Bank

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(PNC). In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay PNC the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations.

~~TABLE OF CONTENTS~~

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

15. Derivative Hedging Instruments – (continued)

The following table summarizes the interest rate swap transactions that impacted the Company’s first ~~quarter~~three months of 2019 and 2018 ~~and 2017~~ performance.

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		$	21,744,694		4.79%	MONTHLY		$	9,008
SWAP LIABILITIES	FAIR VALUE			(21,744,694)		(4.79)	MONTHLY			(9,008)
NET EXPOSURE				—		—				—

At March 31, 2018
	HEDGE TYPE	AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/(PAID)		REPRICING FREQUENCY	INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS	FAIR VALUE		$	16,813,329		3.88%	MONTHLY		$	(23,543)
SWAP LIABILITIES	FAIR VALUE			(16,813,329)		(3.88)	MONTHLY			23,543
NET EXPOSURE				—		—				—

AT MARCH 31, 2018
HEDGE TYPE AGGREGATE
NOTIONAL
AMOUNT WEIGHTED
AVERAGE
RATE
RECEIVED/
(PAID) REPRICING
FREQUENCY INCREASE
(DECREASE)
IN INTEREST
EXPENSE
SWAP ASSETS FAIR VALUE $ 16,813,329 3.88 % MONTHLY $ (23,543 )
SWAP LIABILITIES FAIR VALUE (16,813,329 ) (3.88 ) MONTHLY 23,543
NET EXPOSURE — — —

AT MARCH 31, 2017
HEDGE TYPE AGGREGATE
NOTIONAL
AMOUNT WEIGHTED
AVERAGE
RATE
RECEIVED/
(PAID) REPRICING
FREQUENCY INCREASE
(DECREASE)
IN INTEREST
EXPENSE
SWAP ASSETS FAIR VALUE $ 5,000,000 3.10 % MONTHLY $ (15,367 )
SWAP LIABILITIES FAIR VALUE (5,000,000 ) (3.10 ) MONTHLY 15,367
NET EXPOSURE — — —

The Company monitors and controls all derivative products with a comprehensive Board of Director 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, 2019 and 2018.

16.

17. Segment Results

The financial performance of the Company is also monitored by an internal funds transfer pricing profitability measurement system which produces line of business results and key performance measures. The Company’s major business units include retail banking, commercial banking, ~~trust,~~wealth management, and investment/parent. The reported results reflect the underlying economics of the business segments. Expenses for centrally provided services are allocated based upon the cost and estimated usage of those services. The businesses are match-funded and interest rate risk is centrally managed and accounted for within the investment/parent business segment. The key performance measure the Company focuses on for each business segment is net income contribution.

Retail banking includes the deposit-gathering branch franchise and lending to both individuals and small businesses. Lending activities include residential mortgage loans, direct consumer loans, and ~~local~~small business commercial loans. Commercial banking to businesses includes commercial loans, business services, and CRE loans. The ~~trust segment contains our~~ wealth management ~~businesses which include~~segment includes the Trust Company, ~~and~~ West Chester Capital Advisors (WCCA), our registered investment advisory firm, and Financial Services. Wealth management ~~includes~~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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 ~~includes~~include the union collective investment funds, primarily the ERECT ~~fund~~funds which are designed to use union pension dollars in construction projects that utilize union labor. The investment/parent includes the net results of investment securities and

~~TABLE OF CONTENTS~~

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16. Segment Results – (continued)

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, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):

	Three months ended March 31, 2019
	Total revenue			Net income (loss)
Retail banking		$	6,674		$	1,181
Commercial banking			4,419			1,767
Wealth management			2,417			444
Investment/Parent			(1,248)			(1,514)
Total		$	12,262		$	1,878

	Three months ended March 31, 2018
	Total revenue			Net income (loss)
Retail banking		$	6,139		$	706
Commercial banking			4,455			1,560
Wealth management			2,443			508
Investment/Parent			(653)			(1,007)
Total		$	12,384		$	1,767

Three months ended
March 31, 2018
Total revenue Net income
(loss)
Retail banking $ 6,139 $ 706
Commercial banking 4,455 1,560
Trust 2,443 508
Investment/Parent (653 ) (1,007 )
Total $ 12,384 $ 1,767

Three months ended
March 31, 2017
Total revenue Net income
(loss)
Retail banking $ 6,243 $ 617
Commercial banking 4,725 1,472
Trust 2,326 367
Investment/Parent (1,011 ) (1,108 )
Total $ 12,283 $ 1,348

17.18. Commitments and Contingent Liabilities

The Company had various outstanding commitments to extend credit approximating ~~$180.0~~$214.0 million and ~~$165.1~~$177.8 million along with standby letters of credit of $16.5 million and $16.7 million as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~In addition, there were outstanding standby letters of credit of $10.0 million in each period.~~ 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.

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

~~TABLE OF CONTENTS~~

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

18.19. Pension Benefits

The Company has a noncontributory defined benefit pension plan covering certain employees who work at least 1,000 hours per year. The participants shall have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ~~ten year~~ten-year period of employment. Plan assets are primarily debt securities (including US Treasury and Agency securities,

TABLE OF CONTENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):

	Three months ended March 31,
	2019			2018
Components of net periodic benefit cost
Service cost		$	374		$	409
Interest cost			402			303
Expected return on plan assets			(762)			(711)
Recognized net actuarial loss			366			386
Net periodic pension cost		$	380		$	387

Three months ended
March 31,
2018 2017
Components of net periodic benefit cost
Service cost $ 409 $ 390
Interest cost 303 326
Expected return on plan assets (711 ) (631 )
Recognized net actuarial loss 386 367
Net periodic pension cost $ 387 $ 452

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

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

19.

20. Disclosures about Fair Value Measurements and Financial Instruments

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

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

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

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

Assets and Liability Measured and Recorded on a Recurring Basis

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

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

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	Fair Value Measurements at March 31, 2019
	Total			(Level 1)			(Level 2)			(Level 3)
US Agency securities		$	7,544		$	—		$	7,544		$	—
US Agency mortgage-backed securities			95,252			—			95,252			—
Municipal securities			13,416			—			13,416			—
Corporate bonds			37,813			—			37,813			—
Fair value swap asset			210			—			210			—
Fair value swap liability			(210)			—			(210)			—

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

Fair Value Measurements at March 31, 2018
Total (Level 1) (Level 2) (Level 3)
US Agency securities $ 6,655 $ — $ 6,655 $ —
US Agency mortgage-backed securities 81,546 — 81,546 —
Taxable municipal 8,590 — 8,590 —
Corporate bonds 35,599 — 35,599 —
Fair value swap asset 511 — 511 —
Fair value swap liability (511 ) — (511 ) —

Fair Value Measurements at December 31, 2017
Total (Level 1) (Level 2) (Level 3)
US Agency securities $ 6,572 $ — $ 6,572 $ —
US Agency mortgage-backed securities 79,746 — 79,746 —
Taxable municipal 7,036 — 7,036 —
Corporate bonds 35,784 — 35,784 —
Fair value swap asset 92 — 92 —
Fair value swap liability (92 ) — (92 ) —

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

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. As detailed in the allowance for loan loss footnote, impaired loans are reported at the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted. At March 31, 2019 and December 31, 2018, impaired loans with a carrying value of ~~$926,000~~$11,000 were reduced by a specific valuation allowance totaling ~~$835,000~~$11,000 resulting in a net fair value of ~~$91,000. At December 31, 2017, impaired loans with a carrying value of $1.8 million were reduced by a specific valuation allowance totaling $909,000 resulting in a net fair value of $850,000.~~

zero.

Other real estate owned is measured at fair value based on appraisals, less estimated ~~cost~~costs to ~~sell.~~sell at the date of foreclosure. Valuations are periodically performed by ~~management.~~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.

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

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

	Fair Value Measurements at March 31, 2019
	Total			(Level 1)			(Level 2)			(Level 3)
Impaired loans		$	—		$	—		$	—		$	—
Other real estate owned			18			—			—			18

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

Fair Value Measurements at March 31, 2018
Total (Level 1) (Level 2) (Level 3)
Impaired loans $ 91 $ — $ — $ 91
Other real estate owned 168 — — 168

March 31, 2018 Quantitative Information About Level 3 Fair Value Measurements
Fair Value
Estimate Valuation
Techniques Unobservable Input Range(Wgtd Avg)
Impaired loans $ 91 Appraisal of
collateral⁽¹⁾^,⁽³⁾ Appraisal
adjustments⁽²⁾
0% to 100%(90%)
Other real estate owned 168 Appraisal of
collateral⁽¹⁾^,⁽³⁾ Appraisal
adjustments⁽²⁾
Liquidation
expenses 0% to 25%(2%)
0% to 186%(35%)

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December 31, 2017 Quantitative Information About Level 3 Fair Value Measurements
Fair Value Estimate Valuation Techniques Unobservable Input Range(Wgtd Avg)
Impaired loans $ 850 Appraisal of
collateral⁽¹⁾^,⁽³⁾ Appraisal
adjustments⁽²⁾
21% to 75%(54%)
Other real estate owned 18 Appraisal of
collateral⁽¹⁾^,⁽³⁾ Appraisal
adjustments⁽²⁾
Liquidation
expenses 16% to 64%(29%) 2% to 206%(79%)

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~(1)~~

Quantitative Information About Level 3 Fair Value Measurements

March 31, 2019

Fair Value ~~is generally determined through independent appraisals~~
Estimate

Valuation
Techniques

Unobservable
Input

Range
(Wgtd Avg)

Impaired loans

—

Appraisal of ~~the underlying~~ collateral ~~which generally include various level 3 inputs which are not identifiable.~~(1),(3)

Appraisal adjustments(2)

100% (100)%

Other real estate
owned

Appraisal of collateral(1),(3)

Appraisal adjustments(2)
Liquidation expenses

43% to 44% (44)%
21% to 24% (21)%

~~(2)~~

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

Quantitative Information About Level 3 Fair Value Measurements

December 31, 2018

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range
(Wgtd Avg)

Impaired loans

—

Appraisal of collateral(1),(3)

Appraisal adjustments(2)

100% (100)%

Other real estate
owned

157

Appraisal of collateral(1),(3)

Appraisal adjustments(2)
Liquidation expenses

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

~~(3)~~

~~Includes qualitative adjustments by management and estimated liquidation expenses.~~

(1)
Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

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

(3)
Includes qualitative adjustments by management and estimated liquidation expenses.

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 ~~and loans and deposits with floating interest rates~~ have ~~estimated~~ fair values which approximate the recorded ~~book balances.~~

carrying values. The fair value measurements for all of these financial instruments are Level 1 measurements.

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

The ~~estimation methodologies used, the~~ estimated fair values based on US GAAP measurements and recorded ~~book balances~~carrying values at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, for the remaining financial instruments not recorded at fair value on a recurring basis were as follows (in thousands):

	March 31, 2019
	Carrying Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM		$	40,528		$	40,730		$	—		$	37,807		$	2,923
Loans held for sale			619			658			658			—			—
Loans, net of allowance for loan loss and unearned income			854,408			844,344			—			—			844,344
FINANCIAL LIABILITIES:
Deposits with stated maturities		$	287,671		$	287,582		$	—		$	—		$	287,582
All other borrowings(1)			69,007			72,010			—			—			72,010

	December 31, 2018
	Carrying Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
FINANCIAL ASSETS:
Investment securities – HTM		$	40,760		$	40,324		$	—		$	37,398		$	2,926
Loans held for sale			847			871			871			—			—
Loans, net of allowance for loan loss and unearned income			853,611			836,122			—			—			836,122
FINANCIAL LIABILITIES:
Deposits with stated maturities		$	277,505		$	277,010		$	—		$	—		$	277,010
All other borrowings(1)			67,148			69,692			—			—			69,692

March 31, 2018
   Carrying
Value Fair Value (Level 1) (Level 2) (Level 3)
FINANCIAL ASSETS:

Cash and cash equivalents $ 30,594 $ 30,594 $ 30,594 $ — $ —
Investment securities – AFS 132,390 132,390 — 132,390 —
Investment securities – HTM 38,663 38,041 — 35,084 2,957
Regulatory stock 6,390 6,390 6,390 — —
Loans held for sale 843 862 862 — —
Loans, net of allowance for loan loss and unearned income 864,941 850,224 — — 850,224
Accrued interest income receivable 3,555 3,555 3,555 — —
Bank owned life insurance 37,992 37,992 37,992 — —
Fair value swap asset 511 511 — 511 —
FINANCIAL LIABILITIES:

Deposits with no stated maturities $ 682,946 $ 682,946 $ 682,946 $ — $ —
Deposits with stated maturities 261,260 261,070 — — 261,070
Short-term borrowings 36,895 36,895 36,895 — —
All other borrowings 66,366 68,894 — — 68,894
Accrued interest payable 1,633 1,633 1,633 — —
Fair value swap liability 511 511 — 511 —

December 31, 2017
   Carrying
Value Fair Value (Level 1) (Level 2) (Level 3)
FINANCIAL ASSETS:

Cash and cash equivalents $ 34,188 $ 34,188 $ 34,188 $ — $ —
Investment securities – AFS 129,138 129,138 — 129,138 —
Investment securities – HTM 38,752 38,811 — 35,859 2,952
Regulatory stock 6,800 6,800 6,800 — —
Loans held for sale 3,125 3,173 3,173 — —
Loans, net of allowance for loan loss and unearned income 879,419 873,784 — — 873,784
Accrued interest income receivable 3,603 3,603 3,603 — —
Bank owned life insurance 37,860 37,860 37,860 — —
Fair value swap asset 92 92 — 92 —
FINANCIAL LIABILITIES:

Deposits with no stated maturities $ 688,648 $ 688,648 $ 688,648 $ — $ —
Deposits with stated maturities 259,297 260,153 — — 260,153
Short-term borrowings 49,084 49,084 49,084 — —
All other borrowings 66,617 69,684 — — 69,684
Accrued interest payable 1,754 1,754 1,754 — —
Fair value swap liability 92 92 — 92 —

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AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

~~The fair value of cash and cash equivalents, regulatory stock, accrued interest income receivable, short-term borrowings, and accrued interest payable are equal to the current carrying value.~~

The fair value of investment securities is equal to the available quoted market price for similar securities. 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 Level 3 securities are valued by discounted cash flows using the US Treasury rate for the remaining term of the securities.

~~Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment with an investor.~~ All loans in the held for sale account conform to Fannie Mae underwriting guidelines, with the specific intent of the loan being purchased by an investor at the predetermined rate structure. Loans in the held for sale account have specific delivery dates that must be executed to protect the pricing commitment (typically a 30, 45, or 60 day lock period).

The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is based upon the treasury yield curve adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk. In accordance with ASU 2016-01, the discount rates used to determine fair value incorporate interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans.

~~The fair value of bank owned life insurance is based upon the cash surrender value of the underlying policies and matches the book value.~~

Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.

~~The fair value of all~~ other borrowings ~~is based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.~~

~~The fair values of the fair value swaps used for~~include advances from Federal Home Loan Bank, guaranteed junior subordinated deferrable interest ~~rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.~~

~~Commitments to extend credit~~debentures, and standby letters of credit are financial instruments generally not subject to sale, and fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure. The contractual amounts of unfunded commitments are presented in Note 17.

subordinated debt.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“M.D. & A.”)

…~~2018~~..2019 FIRST QUARTER SUMMARY OVERVIEW…..AmeriServ reported first quarter ~~2018~~2019 net income of $1,878,000, or $0.11 per share. This represented a $0.01, or 10.0%, increase in earnings ~~of $1,767,000 or $0.10~~ per share outdistancing the first quarter of 2017 when net income was $1,348,000 or $0.07 per share. The return on equity in the first quarter was the best in over fifteen years. This supported the recently announced one half cent increase in the dividend to $0.02 per share. A contributing factor to the increased earnings was a reduction in the federal tax rate from ~~34% to 21%.~~

Asset quality continues to be strong, capital levels already meet the Basel III requirements, which are not mandatory until 2019. Net interest margins improved as the Fed rate increases began to take effect.

~~Recognizing the accelerated pace of change in 21~~^st century life, AmeriServ set forth a new financial service environment. In two locations, State College in Centre County and Richland Township in Cambria County, Pennsylvania, AmeriServ established two state of the art financial centers. These centers can service commercial and consumer borrowers, they can totally accomplish a residential mortgage or a consumer loan, and they can provide counsel and advice on wealth management and retirement planning. No longer must a customer search for counsel or advice, it is all there in the AmeriServ Financial Center. Any service, any product, or even the latest breakthrough in self-service, mobile banking can be made available to customers through the financial center. The AmeriServ Financial Center combines the best of self-service banking with the best of counsel and advice. AmeriServ has brought the financial institution to the customer.

~~Banking and wealth management is a dynamic business. We believe our improved performance in~~ the first quarter of 2018 ~~was based on~~where net income totaled $1,767,000, or $0.10 per share.

The Company continued to sustain and operate at the higher level of earnings that has recently been experienced. It is encouraging to report this achievement occurred even though we faced the challenges presented by a flattening yield that also at certain times inverted. AmeriServ partners with our community under the premise of Banking for Life for consumers and helping commercial firms grow as well as becoming more ~~than the tax legislation. We believe it was result of our firm commitment to making AmeriServ a 21~~^st ~~century company. It starts with a concern for every shareholder and customer. There is a message to shareholders~~efficient in ~~our improved tangible book value and in our increased dividend. There is a message to~~serving our customers in the markets where we are active. Our confidence in our ~~adopting~~earnings is reflected in the ~~community financial center service format.~~

recent announcements of an increased common stock dividend and a new common stock repurchase program.

THREE MONTHS ENDED MARCH 31, ~~2018~~2019 VS. THREE MONTHS ENDED MARCH 31, ~~2017~~

~~…PERFORMANCE OVERVIEW…~~2018

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

	Three months ended March 31, 2019			Three months ended March 31, 2018
Net income		$	1,878		$	1,767
Diluted earnings per share			0.11			0.10
Return on average assets (annualized)			0.66%			0.62%
Return on average equity (annualized)			7.84%			7.55%

Three months
ended
March 31, 2018 Three months
ended
March 31, 2017
Net income $ 1,767 $ 1,348
Diluted earnings per share 0.10 0.07
Return on average assets (annualized) 0.62 % 0.47 %
Return on average equity (annualized) 7.55 % 5.74 %

The Company reported first quarter ~~2018~~2019 net income of ~~$1,767,000,~~$1,878,000, or ~~$0.10~~$0.11 per diluted common share. This ~~represented~~earnings performance was a ~~$0.03,~~$111,000, or ~~42.9%~~6.3%, ~~increase in earnings per share~~improvement from the first quarter of ~~2017~~2018 where net income totaled ~~$1,348,000,~~$1,767,000, or ~~$0.07~~$0.10 per diluted common share. The improved earnings in the first quarter of ~~2018 growth~~2019 resulted from a combination of ~~lower income tax~~outstanding asset quality and good non-interest expense ~~positive operating leverage, and effective capital management.~~

The Company also announced that its Board of Directors declared a $0.02 per share quarterly common stock cash dividend. This new quarterly dividend amount represents a 33% increase from the previous $0.015 per share quarterly dividend. The cash dividend is payable May 21, 2018 to shareholders of record on May 7, 2018. This increased cash dividend represents an approximate 2.0% annualized yield using a recent common stock price of $4.10 and represents a payout ratio of 20% based upon the Company’s reported first quarter 2018 earnings per share of $0.10.

control.

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~~…NET~~.....NET INTEREST INCOME AND ~~MARGIN…~~MARGIN.....The Company’s net interest income represents the amount by which interest income on average earning assets exceeds interest paid on average interest bearing liabilities. Net interest income is a primary source of the Company’s earnings, and it is effected by interest rate fluctuations as well as changes in the amount and mix of average earning assets and average interest bearing liabilities. The following table compares the Company’s net interest income performance for the first quarter of ~~2018~~2019 to the first quarter of ~~2017~~2018 (in thousands, except percentages):

	Three months ended March 31, 2019			Three months ended March 31, 2018			$ Change			% Change
Interest income		$	12,164		$	11,217		$	947		8.4%
Interest expense			3,507			2,469			1,038		42.0
Net interest income		$	8,657		$	8,748		$	(91)		(1.0)
Net interest margin			3.24%			3.29%			(0.05)%		N/M

Three months ended
March 31, 2018 Three months ended
March 31, 2017 $ Change % Change
Interest income $ 11,217 $ 10,748 $ 469 4.4 %
Interest expense 2,469 2,027 442 21.8
Net interest income $ 8,748 $ 8,721 $ 27 0.3
Net interest margin 3.29 % 3.27 % 0.02 N/M

N/M — not meaningful

The Company’s net interest income in the first quarter of ~~2018 increased~~2019 decreased by ~~$27,000,~~$91,000, or ~~0.3%~~1.0%, from the prior year’s first quarter. The Company’s net interest margin of 3.24% for the first quarter of 2019 was five basis points lower than the net interest margin of 3.29% for the first quarter of ~~2018 was two basis points higher than the net interest margin of 3.27% for the first quarter 2017.~~2018. The ~~2018 increase~~2019 decrease in net interest income and the ~~improved~~reduced net interest margin performance are the result of ~~continued growth of the investment securities portfolio,~~ a ~~change in the mix~~lower level of total ~~investment securities and the positive impact from the higher interest rate environment.~~loans between years. The ~~growth of investment securities offset a~~ decrease in the balance of total loans ~~as total average earning assets were relatively stable compared to the first quarter of 2017. Specifically,~~was offset by growth in total investment securities resulting in total average interest earning assets remaining relatively stable between years, increasing modestly by $550,000, or 0.1%. Also contributing to net interest income decreasing was the upward repricing of interest bearing liabilities combined with a higher level of average interest bearing liabilities.

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Total investment securities averaged ~~$177~~$198 million in the first quarter of ~~2018~~2019 which ~~was $8.9~~is $21.2 million, or ~~5.3%~~12.0%, higher than the ~~$168~~$177 million average for the first quarter of 2017. Total loans averaged $881 million for the first quarter of 2018 which was $8.4 million, or 0.9%, lower than the 2017 first quarter average. Also favorably impacting net interest income was the Company continuing to limit increases in its cost of funds through controlled but competitive deposit pricing.

2018. The growth in the investment securities portfolio is the result of ~~a continuation of~~ the ~~strategy~~rising interest rate environment experienced during 2018 which provided an attractive market for additional security purchases. Purchases primarily focused on federal agency mortgage backed securities due to the ongoing cash flow that these securities provide. Also, management ~~implemented last year, which included the~~continued its portfolio diversification ~~of the mix of the investment securities~~strategy through purchases of high quality corporate and taxable municipal securities. ~~This revised strategy for securities~~Investment security purchases continued during the first quarter of 2019, but were more selective as the market was ~~facilitated by~~less favorable as the ~~increase~~yield curve flattened and at times became inverted in ~~national~~the short to mid-term portion of the curve. Overall, interest ~~rates and resulted in improved opportunities to purchase additional securities and grow the portfolio. As a result, interest~~income on investments increased between the first quarter of ~~2018~~2019 and the first quarter of ~~2017~~2018 by ~~$207,000,~~$319,000, or ~~17.4%~~23.6%. ~~The combination of a higher level of early loan payoffs and a slowdown in loan production resulted in the decrease in the loan portfolio.~~

Total ~~loan production was negatively impacted~~loans averaged $860 million in the fourth quarter of 2017 because of the uncertainty that existed in the market during this time from potential borrowers regarding the timing that corporate tax reform would be enacted. Although loan pipelines grew and are currently strong, the fourth quarter 2017 slowdown in loan production carried forward into the first quarter of 2019 which is $21.3 million, or 2.4%, lower than the $881 million average for the first quarter of 2018. The impact from total loan payoffs exceeding loan originations that was experienced during most of 2018 ~~and, along with the increased loan pre-payment activity, resulted~~was still evident in the total loan portfolio ~~demonstrating a decrease~~average balance during the first quarter of 2019. Loan payoffs slowed during the first quarter of this year and were matched by loan originations resulting in the total loan portfolio remaining relatively consistent with the year end 2018 level. Even though total average loans decreased since last ~~year’s first quarter. The Company expects that its loan portfolio will resume growth in the second quarter of 2018. However, even with the decrease in total loan volume,~~year, loan interest income increased by ~~$262,000,~~$600,000, or ~~2.7%~~6.1%, between the first quarter of ~~2018~~2019 and ~~the~~last year’s first ~~quarter of 2017.~~quarter. The higher loan interest income ~~resulted from~~reflects new loans originating at higher yields ~~due to the higher interest rates and also reflected~~as well as the upward repricing of certain loans tied to LIBOR or the prime rate as both of these indices have moved up with the Federal Reserve’s decision to increase the target federal funds interest ~~rate.~~rate in 2018. Overall, total interest income increased by ~~$469,000,~~$947,000, or ~~4.4%~~8.4%, between years.

Total interest expense for the first quarter of ~~2018~~2019 increased by ~~$442,000,~~$1.0 million, or ~~21.8%~~42.0%, when compared to 2018, due to higher levels of both deposit and borrowing interest expense. Deposit interest expense in 2019 was higher by $949,000, or 53.3%, for the first quarter which reflects certain indexed money market accounts repricing upward due to the impact of the Federal Reserve increasing interest rates during 2018. The Company also has experienced ~~a decrease in~~increasing market competitive pressure to retain existing deposit customers and attract new customer deposits. Customer product preference changed as well since last year as movement of funds occurred from lower yielding money market accounts into higher yielding certificates of deposits. Overall, total deposits ~~which was reflective of the rising national interest rates as the decline occurred in money market deposit accounts. It was anticipated that as interest rates rise~~continued to grow for a portion of these funds would move into other higher rate alternative bank deposit products having a stated maturity or leave for other non-banking products. We have indeed experienced growth in our term deposit products due to some of these deposit funds shifting into CDs or IRAs. Growth in these accounts also reflects our ongoing business development efforts as well as the loyalty

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~~of our core deposit base that provides a strong foundation to support our balance sheet. Overall, however, the runoff of money market deposits has more than offset the growth of term deposit products~~third consecutive quarter and ~~resulted in the decrease in the balance of total deposits. Specifically, total deposits~~ averaged ~~$960~~$969 million in the first quarter of ~~2018~~2019 which was ~~$15.5~~$8.7 million, or ~~1.6%~~0.9%, ~~lower~~higher than the ~~$976 million average for the~~2018 first quarter of 2017. Deposit interest expense in 2018 increased by $345,000, or 24.0%, due to the higher interest rate environment as deposit pricing increased in a controlled, but competitive, manner and certain indexed money market accounts repriced upward after the Federal Reserve interest rate increases. Overall, theaverage. The Company’s loan to deposit ratio averaged ~~91.78%~~88.8% in the first quarter of ~~2018~~2019 which we believe indicates that the Company has ample capacity to grow its loan portfolio. The Company experienced ~~a $97,000,~~an $89,000, or ~~16.4%~~12.9%, increase in the interest cost for borrowings in the first quarter of ~~2018~~2019 due to the ~~immediate~~ impact that the 2018 increases in the ~~Federal Funds Rate~~federal funds rate had on the cost of overnight borrowed ~~funds.~~funds and the replacement of matured FHLB term advances. Also, due to a ~~higher level of total borrowed funds, which were necessary to offset~~new accounting pronouncement that became effective January 1, 2019, the ~~decrease in total deposits caused borrowings~~Company recognized additional interest expense ~~to increase. For the~~on its financing property leases. The 2019 first quarter average of ~~2018, total average~~ FHLB borrowed funds was $62.4 million, which represented a decrease of ~~$68.1 million, increased by $13.7~~$5.7 million, or ~~25.2%~~8.4%, ~~when compared~~due to the ~~first quarter of 2017.~~

increase in total average deposits.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended March 31, ~~2018~~2019 and ~~March 31, 2017~~2018 setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) the Company’s interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) the Company’s net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of these tables, loan balances do include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of 21% is used to compute tax-equivalent interest income and yields.

The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended March 31, 2019 and 2018 was $6,000.

…~~PROVISION~~..PROVISION FOR LOAN ~~LOSSES…~~LOSSES.....The Company recorded a ~~$50,000~~$400,000 loan loss provision ~~for loan losses~~recovery in the first quarter of ~~2018~~2019 as compared to a ~~$225,000~~$50,000 provision ~~for loan losses~~expense recorded in the first quarter of ~~2017.~~2018. The ~~lower 2018~~2019 provision recovery reflects our overall ~~strong~~excellent asset quality, ~~the successful workout of several~~reduced criticized loans and ~~reduced loan portfolio balances.~~the lower level of total loans outstanding. The Company experienced net loan charge-offs of $164,000, or 0.08% of total loans, in the 2019 first quarter compared to net loan charge-offs of $332,000, or 0.15% of total loans, in ~~2018 compared to net loan charge-offs~~the first quarter of ~~$77,000, or 0.04% of total loans, in 2017.~~2018. Overall, the Company continued to maintain ~~strong~~outstanding asset quality as its nonperforming assets totaled ~~$2.2~~$1.2 million, or only ~~0.25%~~0.14% of total loans, at March 31, ~~2018.~~2019. In summary, the allowance for loan losses provided ~~460%~~694% coverage of non-performing assets, and ~~1.14%~~was 0.94% of total loans, at March 31, ~~2018,~~2019, compared to ~~337%~~629% coverage of non-performing assets, and ~~1.15%~~1.00% of total loans, at December 31, ~~2017.~~

~~…NON-INTEREST INCOME…~~2018.

.....NON-INTEREST INCOME.....Non-interest income for the first quarter of ~~2018~~2019 totaled $3.6 million and ~~increased $73,000,~~decreased $30,000, or ~~2.0%~~0.8%, from the first quarter ~~2017~~2018 performance. Factors contributing to this ~~higher~~lower level of non-interest income for the quarter included:

~~a $188,000 increase in other income~~*

There was ~~primarily due to~~no investment security sale activity during the ~~recognition~~first quarter of ~~a $156,000 gain on the sell of shares of stock that~~2019 after the Company ~~owned from a financial services provider. Also favorably impacting other income were higher interchange fees and additional income from greater debit card usage;~~

~~a $188,000 reduction in the net realized gain/loss on investment securities from $27,000 gain in 2017 to~~recognized a $148,000 loss in ~~2018. Management elected~~the first quarter of 2018 from the sale of several low balance, low yielding securities;

a $73,000 decrease in revenue from deposit service charges due to ~~rid the portfolio~~a reduced level of ~~a portion of lower coupon securities~~overdraft fee income as the ~~higher national interest rates resulted in their market value decreasing since last year;~~bank is no longer charging a fee on overdrafts that result from signature based point of sale debit card transactions;

a $112,000 increase in Trust and investment advisory fees as the Company benefitted from increased market values for assets under management. Wealth management continues to be an important strategic focus of the Company; and

a $36,000 decrease in ~~mortgage related fee income~~net gains on loans sold into the secondary market due to lower residential mortgage loan production ~~which also resulted~~ in the first quarter of 2019; and

a ~~corresponding lower level~~$30,000 reduction in wealth management fees after the equity market declined late in 2018 and negatively impacted market values for assets under management in the first quarter of ~~income from residential mortgage loan sales into the secondary market by $16,000.~~this year.

~~…NON-INTEREST EXPENSE…~~

.....NON-INTEREST EXPENSE.....Non-interest expense for the first quarter of ~~2018~~2019 totaled ~~$10.1~~$10.3 million and increased by ~~$35,000,~~$173,000, or only ~~0.4%~~1.7%, from the prior year’s first quarter. Factors contributing to the ~~lower~~higher level of non-interest expense infor the quarter included:

a ~~$145,000 or 2.4%~~$208,000 increase in salaries & benefits expense due to annual merit increases, four additional employees hired at our new financial banking center in Hagerstown, Maryland and higher ~~salaries and incentive compensation~~health care costs. These increased expenses more than ~~offsetting~~offset reduced levels of pension expense and ~~health care costs. Health care~~incentive compensation;

a $161,000 increase in other expenses due to additional costs ~~are lower this year as our union employees changed healthcare providers as per terms~~related to the redesign of the ~~new collective bargaining agreement;~~improved Company website and an increase to the unfunded commitment reserve;

an $82,000 decrease in FDIC insurance cost due to a reduction to our deposit insurance assessment;

a $64,000 or 3.8%, decrease in the supplies and postage, miscellaneous taxes, and other expense line items due to reduced check card processing costs, supplies usage, armored transport costs and telephone expense;

~~a $28,000, or 6.7%, decrease in equipment expense due to the Company’s ongoing focus to reduce and control expenses; and~~

~~a $16,000, or 1.3%,~~ decrease in professional fees due to reduced costs from ~~outsourced~~other professional ~~services.~~services and lower legal fees, and;

~~…INCOME~~

a combined $42,000 reduction in occupancy & equipment costs is primarily attributable to the Company’s ongoing efforts to carefully manage and contain non-interest expense.

.....INCOME TAX ~~EXPENSE…~~EXPENSE.....The Company recorded an income tax expense of $491,000, or an effective tax rate of 20.7%, in the first quarter of 2019. This compares to an income tax expense of $446,000, or an effective tax rate of 20.1%, infor the first quarter of 2018. This compares to an income tax expense of $625,000, or an effective tax rate of 31.7%, for the first quarter of 2017. The lower effective tax rate and income tax expense in the first quarter of 2018 reflects the benefits of corporate tax reform as a result of the enactment of the “Tax Cuts and Jobs Act” late in the fourth quarter of 2017.

…~~SEGMENT RESULTS…~~..SEGMENT RESULTS.….Retail banking’s net income contribution was ~~$706,000~~$1,181,000 in the first quarter of ~~2018~~2019 which was up by ~~$89,000~~$475,000 from the net income contribution for the same ~~2017~~2018 period. ~~This~~The increase reflects a ~~lower~~higher level of ~~non-interest expense due to the Company’s focus on reducing and controlling costs~~

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which resulted in lower employee expense due to the closure of one branch office and reduced health care and pension costs. The branch office that closed along with our efforts to reduce and control expenses resulted in occupancy & equipment costs and miscellaneous expenses declining between periods. The Retail banking segment also benefitted from the recognition of a lower loan loss provision in 2018 and the lower corporate income tax rate that resulted from the enactment of the “Tax Cuts and Jobs Act” which caused a reduction in income tax expense. Slightly offsetting these favorable items was a decrease in net interest income ~~due to a~~as the funding benefit for deposits provided by this segment improved. This funding benefit more than offset the impact of lower ~~level of~~ residential ~~real estate loan origninations in 2018 combined with~~mortgage lending production and the immediate upward repricing of money market deposit accounts because of the increases to the Federal Funds Rate.

Retail banking was positively impacted by the lower level of non-interest expense due to the lower FDIC insurance expense and the Company’s ongoing focus to reduce and control

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costs which resulted in lower occupancy & equipment expenses. The Retail banking segment also benefitted from the recognition of a loan loss provision recovery in 2019. Slightly offsetting these favorable items was non-interest income decreasing due to the lower deposit service charge income and the decrease to net gains on loan sales into the secondary market.

The commercial banking segment reported net income of ~~$1.56 million~~$1,767,000 in the first quarter of ~~2018~~2019 which was ~~$88,000~~ higher ~~when~~by $207,000 compared to ~~2017 results.~~the first quarter of 2018. The higher level of net income ~~for the first quarter of 2018~~ was due to the ~~lower provision for loan losses and reduced income tax expense. The lower~~ loan loss provision ~~in 2018 reflects~~recovery that resulted from our ~~overall strong~~outstanding asset quality and the ~~successful workout~~lower level of ~~several criticized loans, and reduced loan portfolio balances. Also,~~ total ~~employee costs are lower due to reduced pension expense and three fewer~~ commercial ~~relationship managers in 2018. Partially offsetting these favorable items was lower loan interest income due to a reduced volume of commercial~~& industrial and commercial real estate loans ~~this year~~in the portfolio. The provision recovery more than offset the negative impact from loan interest income not increasing by as much that it otherwise could have because of the lower volume of the total commercial loan portfolio. However, new loans did originate at higher yields and existing loans tied to LIBOR or the prime rate repriced upward as both of these indices moved up with the Federal Reserve’s fed funds interest rate increases. Also, negatively impacting net income was total employee costs increasing due to ~~loan originations occurring at~~ a ~~slower pace so far this year and early loan prepayment activity being~~ higher level of full time equivalent employees in ~~2018. Also, miscellaneous expenses are higher in 2018.~~

the commercial banking segment.

The ~~trust~~wealth management segment reported net income of ~~$508,000~~$444,000 in the first quarter of ~~2018~~2019 which was ~~$141,000 higher~~$64,000 lower than the ~~2017 first quarter.~~same period for 2018. The ~~increase~~decrease is due to ~~Trust and investment advisory~~wealth management fees ~~increasing~~decreasing as this segment ~~has benefitted from increased~~was negatively impacted by decreased market values for assets under ~~management.~~management after the equity markets declined late in the fourth quarter of 2018. Slightly offsetting this unfavorable item was lower professional fees due to lower legal fees and costs for other professional services. Wealth management continues to be an important strategic focus of the Company. Also contributing to the higher level of net income from this segment was a lower level of professional fees. Slightly offsetting these favorable items was higher employee costs due to higher salaries because of additional investment in talent, and a greater level of incentive compensaton.

The investment/parent segment reported a net loss of ~~$1.0 million~~$1,514,000 in the first quarter of ~~2018,~~2019 which is ~~lower than~~a greater loss by $507,000 since the first quarter of 2018. The increased loss ~~reported last year by $101,000. The decreased loss between years is reflective~~was the result of overnight borrowed funds having a higher cost due to the ~~higher level of investment securities on~~increase to national interest rates during 2018 and the ~~Company’s balance sheet resulting from~~immediate impact that the Company’s strategic decision diversify the portfolio and purchase more high quality corporate and taxable municipal securities. Even with this improvement, this segment continues to feel the most earnings pressure from the continued lowrising interest rate ~~environment.~~

~~…BALANCE SHEET…~~environment has on overnight borrowed funds. Additionally, maturing FHLB term advances repriced upward through 2018 and during the first quarter of 2019.

.....BALANCE SHEET.....The Company’s total consolidated assets were ~~$1.151~~$1.17 billion at March 31, ~~2018,~~2019, which ~~decreased~~increased by ~~$16.5~~$7.0 million, or ~~1.4%~~0.6%, from the December 31, ~~2017~~2018 asset level. ~~The decrease~~This change was driven by an increased level of investment securities and fixed assets. Specifically, total investment securities grew by $7.1 million, or 3.8%, and as a result of the adoption of ASU 2016-02, Leases (Topic 842), the Company reported $4.2 million of right of use assets within the fixed assets line of the Consolidated Balance Sheet at March 31, 2019. These increases were partially offset by a reduction ~~in the~~of total ~~loan portfolio. Specifically, total loans declined by $17.1~~cash and cash equilvalents of $5.2 million, or ~~1.9%, during the period and more than offset growth in investment securities~~15.0%.

Total deposits increased by ~~$3.2~~$8.6 million, or ~~1.9%.~~

~~Total deposits decreased by $3.7 million, or 0.4%~~0.9% in the first three months of ~~2018.~~2019. As of March 31, 2019, the 25 largest depositors represented 21.8% of total deposits, which is a slight decrease from December 31, 2018 when it was 22.7%. Total ~~FHLB~~ borrowings have decreased by ~~$12.4~~$4.0 million, or 3.7%, since year-end ~~2017.~~2018. The decrease in borrowed funds occurred in short term borrowings as a result of the increase in total deposits. The decrease in short term borrowings more than offset increases in FHLB term advances ~~remained relatively stable, declining slightly~~and lease liabilities. Specifically, total FHLB term advances increased by ~~$260,000~~$1.9 million, or 4.0%, and ~~total $46 million as the~~totaled $49 million. The Company has utilized these term advances to help manage interest rate risk and favorably position our balance sheet for a rising rate environment. In addition, the Company reported $4.2 million of lease liabilities as a result of the adoption of ASU 2016-02, Leases (Topic 842). The Company’s total shareholders’ equity increased by ~~$708,000~~$1.1 million over the first three months of ~~2018~~2019 due to the retention of earnings more than offsetting our common stock dividend payment to shareholders and the impact of our common stock buyback ~~program, which is addressed on page 40.~~

program.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of ~~13.45%~~13.37%, and a common equity tier 1 capital ratio of ~~10.26%~~10.44% at March 31, ~~2018.~~2019. (See the discussion of the Basel III capital requirements under the “Capital Resources” section.) ~~The~~As of March 31, 2019, the Company’s book value per common share was ~~$5.31,~~$5.65 and its tangible book value per common share was ~~$4.65, and its~~$4.97 (non-gaap). Both of these ratios improved by $0.09 per common share when compared to December 31, 2018. The tangible common equity to tangible assets ratio was ~~7.36%~~7.54% (non-gaap) at March 31, 2019 and improved by five basis points when compared to December 31, 2018.

The tangible common equity ratio and tangible book value per share are considered to be non-gaap measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The following table sets forth the calculation of the Company’s tangible common equity ratio at March 31, 2019 and December 31, 2018 (in thousands, except ratio):

	March 31, 2019			December 31, 2018
Total shareholders’ equity		$	99,061		$	97,977
Less: Goodwill			11,944			11,944
Tangible equity			87,117			86,033
Total assets			1,167,682			1,160,680
Less: Goodwill			11,944			11,944
Tangible assets			1,155,738			1,148,736
Tangible common equity ratio			7.54%			7.49%
Total shares outstanding			17,540,676			17,619,303
Tangible book value per share			4.97%			4.88%

.....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, 2019			December 31, 2018			March 31, 2018
Total accruing loan delinquency (past due 30 to 89 days)		$	2,568		$	4,752		$	8,155
Total non-accrual loans			1,150			1,221			1,989
Total non-performing assets including TDR*			1,168			1,378			2,157
Accruing loan delinquency, as a percentage of total loans, net of unearned income			0.30%			0.55%			0.93%
Non-accrual loans, as a percentage of total loans, net of unearned income			0.13			0.14			0.23
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned			0.14			0.16			0.25
Non-performing assets as a percentage of total assets			0.10			0.12			0.19
As a percent of average loans, net of unearned income:
Annualized net charge-offs			0.08			0.11			0.15
Annualized provision (credit) for loan losses			(0.19)			(0.07)			0.02
Total classified loans (loans rated substandard or doubtful)		$	4,219		$	4,302		$	4,355

March 31,
2018 December 31,
2017 March 31,
2017
Total accruing loan delinquency (past due 30 to 89 days) $ 8,155 $ 8,178 $ 7,715
Total non-accrual loans 1,989 3,016 1,463
Total non-performing assets including TDR* 2,157 3,034 1,488
Accruing loan delinquency, as a percentage of total loans, net of unearned income 0.93 % 0.92 % 0.86 %
Non-accrual loans, as a percentage of total loans, net of unearned income 0.23 0.34 0.16
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned 0.25 0.34 0.17
Non-performing assets as a percentage of total assets 0.19 0.26 0.13
As a percent of average loans, net of unearned income:

Annualized net charge-offs 0.15 0.06 0.04
Annualized provision for loan losses 0.02 0.09 0.10
Total classified loans (loans rated substandard or doubtful) $ 4,355 $ 5,433 $ 3,878

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.

Overall, the Company continued to maintain strong asset quality in the first ~~quarter~~three months of ~~2018~~2019 as evidenced by low levels of non-accrual loans, non-performing assets, classified loans, and loan delinquency levels that continue to be below 1% of total loans. We also continue to closely monitor the loan portfolio given the ~~continued slow recovery in the regional economy and the~~ number of relatively large-sized commercial and commercial real estate loans within the portfolio. As of March 31, ~~2018,~~2019, the 25 largest credits represented ~~26.4%~~26.1% of total loans outstanding, which represents a slight decrease from the first quarter ~~2017~~of 2018 when it was ~~27.3%~~26.4%.

~~…ALLOWANCE~~

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

	March 31, 2019			December 31, 2018			March 31, 2018
Allowance for loan losses		$	8,107		$	8,671		$	9,932
Allowance for loan losses as a percentage of each of the following:
total loans, net of unearned income			0.94%			1.00%			1.14%
total accruing delinquent loans (past due 30 to 89 days)			315.69			182.47			121.79
total non-accrual loans			704.96			710.16			499.35
total non-performing assets			694.09			629.25			460.45

March 31,
2018 December 31,
2017 March 31,
2017
Allowance for loan losses $ 9,932 $ 10,214 $ 10,080
Allowance for loan losses as a percentage of each of the following total loans, net of unearned income 1.14 % 1.15 % 1.12 %
total accruing delinquent loans (past due 30 to 89 days) 121.79 124.90 130.65
total non-accrual loans 499.35 338.66 689.00
total non-performing assets 460.45 336.65 677.42

The Company recorded a $400,000 loan loss provision recovery in the first three months of 2019 compared to a $50,000 provision expense for loan losses in the first three months of 2018 ~~compared to~~that resulted in a ~~$225,000 provision for loan losses in the first three months~~positive change of ~~2017 or a decrease of $175,000 million~~$450,000 between periods. The loan loss provision recovery in ~~2018~~2019 reflects our overall strong asset quality, ~~the successful workout of several~~reduced criticized loans, and ~~reduced~~lower loan portfolio balances.

~~…LIQUIDITY…~~

.....LIQUIDITY.....The Company’s liquidity position has been strong during the last several years. Our core retail deposit base has been more than adequate to fund the Company’s operations. Payments and prepayments from the loan portfolios, as well as, cash flow from maturities, prepayments and amortization of securities were also used to help fund new loan originations. We strive to operate our loan to deposit ratio in a range of 80% to 100%. For the first three months of ~~2018,~~2019, the Company’s loan to deposit ratio has averaged

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~~91.8%~~ 88.76%. We ~~are optimistic that we can increase the~~expect our loan to deposit ratio ~~in 2018 given commercial loan pipelines, continued growth from our loan production offices and our focus on small business lending.~~

to grow moderately through the remainder of 2019.

Liquidity can be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents decreased by ~~$3.6~~$5.2 million from December 31, ~~2017~~2018 to March 31, ~~2018,~~2019, due to ~~$16.9~~$6.5 million of net cash used in investing activities and $0.4 million of net cash used by financing activities ~~partially offset by $9.7~~more than offsetting $1.7 million of net cash provided by ~~investing activities and $3.6 million provided by~~ operating activities. ~~Within financing activities, short term borrowed funds decreased by $12.2 million while total deposit balances decreased by $3.7 million.~~ Within investing activities, cash advanced for new loan fundings and loan participation purchases ~~(excluding residential mortgages sold in the secondary market) totaled $30.7~~was $49.0 million, ~~and~~which was ~~$14.3~~$0.4 million ~~lower~~higher than the ~~$45.0~~$48.6 million of cash received from loan principal ~~payments and participations sold.~~payments. Also cash utilized for new investment security purchases totaled ~~$14.0~~$9.1 million ~~which more than~~ exceeded cash provided from investment security maturities and sales of ~~$9.1~~$3.7 million. Within financing activities, short term borrowed funds decreased by $10.1 million while total deposit balances increased by $8.6 million. Within operating activities, sales of residential mortgage loans of ~~$6.4~~$4.2 million ~~more than~~ offset new residential mortgage loan originations of ~~$4.1~~$3.9 million. At March 31, ~~2018,~~2019, the Company had immediately available ~~$376~~$354 million of overnight borrowing capacity at the FHLB and $35 million of unsecured federal funds lines with correspondent banks.

The holding company had ~~$9.5~~$8.1 million of cash, short-term investments, and investment securities at March 31, ~~2018.~~2019. Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. At March 31, ~~2017,~~2019, our subsidiary Bank had ~~$3.8~~$8.1 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that limits dividend payments from the Trust Company to 75% of annual net income. Overall, we believe that the holding company has strong liquidity to meet its trust preferred debt service requirements, its subordinated debt interest payments, its increased common stock dividend, and support ~~any~~the common stock repurchase program.

~~…CAPITAL~~

.....CAPITAL RESOURCES…..The Bank meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was ~~10.26%~~10.44%, the tier 1 capital ratio was ~~11.52%~~11.67%, and the total capital ratio was ~~13.45%~~13.37% at March 31, ~~2018.~~2019. The Company’s tier 1 leverage ratio was ~~9.54%~~9.87% at March 31, ~~2018.~~2019. We anticipate that we will maintain our strong capital ratios throughout the remainder of ~~2018.~~2019. Capital generated from earnings will be utilized to pay the common stock cash dividend, fund the stock repurchase program, and will also support controlled balance sheet growth. There is a particular emphasis on ensuring that the subsidiary bank has appropriate levels of capital to support its non-owner occupied commercial real estate loan concentration which stood at ~~337%~~335% of regulatory capital at March 31, ~~2018.~~

On January 24, 2017, the Company’s Board of Directors approved a new common stock repurchase program which called for AmeriServ Financial, Inc. to buy back up to 5% or approximately 945,000 shares of its outstanding common stock during the next 18 months. 2019.

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The shares were purchased from time to time in open market, privately negotiated, or block transactions. This common stock repurchase program did not obligate the Company to acquire any specific number of shares and could have been modified, suspended or discontinued at any time. During the first three months of 2018, the Company was able to repurchase 105,663 shares of its common stock and return $445,000 million of capital to its shareholders through this program. This represented the completion of the most recently authorized buyback program as all 945,000 common stock shares have been repurchased and a total of $3.8 million was returned to our shareholders over the past 14 months. As of March 31, 2018, the Company had approximately 18.0 million shares of its common stock outstanding.

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

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

The ~~revisions from the previous standards include~~capital rules also impose a ~~revised definition of~~ capital ~~the introduction of a minimum Common Equity Tier 1 capital ratio and changed risk weightings for certain assets. The implementation~~conservation buffer (“CCB”) on top of the ~~new rules will be phased in over this four-year period ending~~three minimum risk-weighted asset ratios listed above. As of January 1, 2019, ~~with~~the CCB has been fully phased-in and is 2.5%. Banking institutions that fail to meet the effective minimum ~~capital requirements becoming increasingly more strict each year of~~ratios once the ~~transition. The new minimum capital requirements~~CCB is taken into account (that is, 7.0% for ~~each ratio, both, initially on January 1, 2015 and at the end of the transition on January 1, 2019, are as follows: A~~ common equity tier 1 capital ~~ratio of 4.50%~~

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~~initially and 7.00% at January 1, 2019; a~~to risk-weighted assets, 8.5% for tier 1 capital ~~ratio of 6.00%~~to risk-weighted assets and ~~8.50%; a~~10.5% for total capital ~~ratio of 8.00% and 10.50%; and a tier 1 leverage ratio of 5.00% and 5.00%. Under the new rules, in order~~ to ~~avoid limitations~~risk-weighted assets) will be subject to constraints on capital distributions, ~~(including dividend payments~~including dividends and share repurchases, and certain discretionary ~~bonus payments to~~ executive ~~officers), a banking organization must hold a capital conservation buffer above its minimum risk-based~~compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (four quarter trailing net income, net of distributions and tax effects not reflected in net income). The Company and the Bank meet all capital requirements, ~~which increases over~~including the ~~transition period, from 0.625% of total risk weighted assets in 2016 to 2.50% in 2019. The Company continues~~fully phased-in buffer, and continue to be committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a return to our shareholders.

On April 16, 2019, the Company announced that its Board of Directors approved a new common stock repurchase program which calls for AmeriServ Financial Inc. to buy back up to 3%, or approximately 526,000 shares, of its outstanding common stock during the next 12 months. The authorized repurchases will be made from time to time in either the open market or through privately negotiated transactions. The timing, volume and nature of share repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time. No assurance can be given that any particular amount of common stock will be repurchased. This buyback program may be modified, extended or terminated by the Board of Directors at any time. At March 31, 2019, the Company had approximately 17.5 million common shares outstanding. In the first quarter of 2019, the Company completed a common stock repurchase program where it bought back 540,000 shares, or 3% of its common stock, over a 9-month period at a total cost of $2.38 million.

The Company also announced that its Board of Directors declared a $0.025 per share quarterly common stock cash dividend. This new quarterly dividend amount represents a 25% increase from the previous $0.02 per share quarterly dividend. The cash dividend is payable May 20, 2019 to shareholders of record on May 6, 2019. This increased cash dividend represents an approximate 2.5% annualized yield using a recent common stock price of $4.05 and represents a payout ratio of 22.7% based upon the Company’s reported first quarter 2019 earnings per share of $0.11.

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

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to average consolidated assets not less than 8% or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. In November 2018, as directed pursuant to the Act, the federal bank regulatory agencies issued proposed rules for a community bank leverage ratio (“CBLR”) for certain community banking organizations. Under the proposed rules, a bank or holding company would be eligible to elect the CBLR framework if the institution had less than $10.0 billion in total consolidated assets, met certain risk-based qualifying criteria and had a CBLR greater than 9%. A qualifying community banking organization that elected to opt in to the CBLR framework would not be subject to risk-based and leverage capital requirements under the Basel III rules. Additionally, the Act requires the enactment of a number of other implementing regulations, the details of which may have a material effect on the ultimate impact of the law. The Company continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Company’s business, operations, or financial results.

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

Interest Rate Scenario	Variability of Net Interest Income		Change in Market Value of Portfolio Equity
200bp increase		0.4%		14.5%
100bp increase		0.7		9.4
100bp decrease		(1.8)		(16.0)

Interest Rate Scenario Variability of Net
Interest Income Change in Market Value
of Portfolio Equity
200bp increase 2.1 % 19.5 %
100bp increase 1.3 11.1
100bp decrease (1.4 ) (15.4 )

The Company believes that its overall interest rate risk position is well controlled. The variability of net interest income is ~~positive~~near neutral in the upward rate shocks due to the impact of the decreasing total loan portfolio balance and the level of overnight borrowed funds on the balance sheet. This is offset by the Company’s short duration investment securities portfolio ~~the~~and scheduled repricing of loans tied to LIBOR or ~~prime, and the extension of a portion of borrowed funds.~~prime. Also, the Company ~~expects that it~~ will ~~not have~~continue its disciplined approach to ~~reprice~~price its core deposit ~~accounts up as quickly as~~in a controlled but competitive manner when interest rates rise. The variability of net interest income is negative in the 100 basis point downward rate scenario as the Company has more exposure to assets repricing downward to a greater extent than liabilities due to the absolute low level of interest rates with the fed funds rate currently at ~~approximately 1.25%~~a targeted range of 2.25% to 2.50%. The market value of portfolio equity increases in the upward rate shocks due to the improved value of the Company’s core deposit base. Negative variability of market value of portfolio equity occurs in the downward rate shock due to a reduced value for core deposits.

~~…OFF~~

.....OFF BALANCE SHEET ARRANGEMENTS…..The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company had various outstanding commitments to extend credit approximating ~~$180.0~~$214.0 million and standby letters of credit of ~~$10.0~~$16.5 million as of March 31, ~~2018.~~2019. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

~~…CRITICAL~~

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

ACCOUNT — Allowance for Loan Losses
BALANCE SHEET REFERENCE — Allowance for loan losses
INCOME STATEMENT REFERENCE — Provision (credit) for loan losses
DESCRIPTION

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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 ~~loss.~~losses. Approximately ~~$7.5~~$6.0 million, or ~~76%~~74%, of the total allowance for loan losses at March 31, ~~2018~~2019 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and ~~TDR~~troubled debt restructured (TDR) loans, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for loan losses may be required that would adversely impact earnings in future periods.

ACCOUNT — Goodwill
BALANCE SHEET REFERENCE — Goodwill
INCOME STATEMENT REFERENCE — Goodwill impairment
DESCRIPTION

The Company considers our accounting policies related to goodwill to be critical because the assumptions or judgment used in determining the fair value of assets and liabilities acquired in past acquisitions are subjective and complex. As a result, changes in these assumptions or judgment could have a significant impact on our financial condition or results of operations.

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

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

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ACCOUNT — Income Taxes
BALANCE SHEET REFERENCE — Net deferred tax asset
INCOME STATEMENT REFERENCE — Provision for income tax expense
DESCRIPTION

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

In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of March 31, ~~2018,~~2019, we believe that all of the deferred tax assets recorded on our balance sheet will ultimately be recovered and that no valuation allowances were needed.

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

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

Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Operations. At March 31, ~~2018,~~2019, the unrealized losses in the available-for-sale security portfolio were comprised of securities issued by government agencies or government sponsored agencies and certain high quality corporate and taxable

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municipal securities. The Company believes the unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

…FORWARD

.....FORWARD LOOKING ~~STATEMENT…~~

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

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serving our communities through employee involvement and a philanthropic spirit. We will strive to provide our shareholders with consistently improved financial performance; the products, services and know-how needed to forge lasting banking for life customer relationships; a work environment that challenges and rewards staff; and the manpower and financial resources needed to make a difference in the communities we serve. Our strategic initiatives will focus on these four key constituencies:

•

Shareholders — We ~~are committed~~strive to ~~increasing~~increase earnings per ~~share growth;~~share; identifying and managing revenue growth and expense reduction; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share by 10 percent year-over-year and narrowing the financial performance gap between AmeriServ and its peer banks. ~~Our~~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 ~~will be educated~~ as to the meaning/importance of earnings per share as a performance measure. We will develop a value added combination for increasing revenue and reducing expenses that is rooted in developing and offering high-quality financial products and services; an existing branch network; electronic banking capabilities with 24/7 convenience; and providing truly exceptional customer service. We will ~~opportunistically explore expansion avenues located beyond the AmeriServ footprint while maintaining a well-capitalized position. We will also~~ 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~~The Company ~~is committed~~expects to ~~providing~~provide exceptional customer ~~service;~~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;~~cycle, and further defining the role technology plays in anticipating and satisfying customer needs. We ~~will provide~~anticipate providing leading banking systems and solutions to improve and enhance customers’ Banking for Life experience. We will provide customers with a comprehensive offering of financial solutions including retail and business banking, home mortgages and wealth management at one location. We ~~are committed to redesign~~have upgraded and modernized select branches to be more inviting and technologically savvy to meet the needs of the next generation of AmeriServ customers without abandoning the needs of our existing demographic.

•

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

•

Communities — We will continue to promote and encourage employee community involvement and leadership while fostering a positive corporate image. This will be accomplished by

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demonstrating our commitment to the communities it serves through assistance in providing affordable housing programs for low-to-moderate-income families; donations to qualified charities; and the time and talent contributions of AmeriServ staff to a wide-range of charitable and civic organizations.

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

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provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

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

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

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

Item ~~4.…CONTROLS~~4.....CONTROLS AND ~~PROCEDURES…~~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, ~~2018,~~2019, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, ~~2018,~~2019, are effective.

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

Item 4. Mine Safety Disclosures

Item 5. Other Information

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Item 6. Exhibits


3.1		Amended and Restated Articles of Incorporation as amended through August 11, 2011 (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-8 ~~(File~~ (File No. 333-176869) filed on September 16, 2011).
	3.2		Bylaws, as amended and restated on ~~May 18, 2017~~April 23, 2019 (Incorporated by reference to Exhibit 3.2 to the Current report on Form 8-K filed on ~~May 23, 2017)~~April 24, 2019).
	15.1		Report of S.R. Snodgrass, P.C. regarding unaudited interim financial statement information.
	15.2		Awareness Letter of S.R. Snodgrass, P.C.
	31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
	101		The following information from AMERISERV FINANCIAL, INC.’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2018,~~2019, formatted in XBRL (eTensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and ~~(iv)~~(vi) Notes to the Unaudited Consolidated Financial Statements.

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

~~AmeriServ Financial, Inc.~~
~~Registrant~~

				AmeriServ Financial, Inc. Registrant
	Date: May ~~11, 2018~~10, 2019			/s/ Jeffrey A. Stopko Jeffrey A. Stopko President and Chief Executive Officer
	Date: May ~~11, 2018~~10, 2019			/s/ Michael D. Lynch Michael D. Lynch Senior Vice President and Chief Financial Officer

	Pennsylvania			25-1424278
~~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)


Large accelerated filero ☐			Accelerated filero ☐	Non-accelerated filero ☒
		Smaller reporting companyx ☒
	Emerging growth companyo ☐

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


Class		Outstanding at May 1, ~~2018~~2019
	Common Stock, par value $0.01	~~18,033,401~~	17,542,676


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


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


	Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements		1
Consolidated Balance Sheets (Unaudited) – March 31, ~~2018~~2019 and December 31, ~~2017~~2018		1
Consolidated Statements of Operations (Unaudited) – Three months ended March 31, ~~2018~~2019 and ~~2017~~2018		2
Consolidated Statements of Comprehensive Income (Unaudited) – Three months ended March 31, ~~2018~~2019 and ~~2017~~2018		4	3
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three months ended March 31, 2019 and 2018		5
Consolidated Statements of Cash Flows (Unaudited) – Three months ended March 31, ~~2018~~2019 and ~~2017~~2018		6	4
Notes to Unaudited Consolidated Financial Statements		58
Item 2. ~~Management's~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		3032
Item 3. Quantitative and Qualitative Disclosure About Market Risk		4244
Item 4. Controls and Procedures		4244
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		4245
Item 1A. Risk Factors		4245
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4345
Item 3. Defaults Upon Senior Securities		4345
Item 4. Mine Safety Disclosures		4345
Item 5. Other Information		4345
Item 6. Exhibits		4446

	March 31, 2019			December 31, 2018
ASSETS
Cash and due from depository institutions		$	21,675		$	27,970
Interest bearing deposits			3,940			2,740
Short-term investments in money market funds			4,056			4,184
Total cash and cash equivalents			29,671			34,894
Investment securities:
Available for sale, at fair value			154,025			146,731
Held to maturity (fair value $40,730 on March 31, 2019 and $40,324 on December 31, 2018)			40,528			40,760
Loans held for sale			619			847
Loans			862,882			862,604
Less: Unearned income			367			322
Allowance for loan losses			8,107			8,671
Net loans			854,408			853,611
Premises and equipment:
Operating lease right-of-use asset			911			—
Financing lease right-of-use asset			3,272			—
Other premises and equipment, net			14,378			13,348
Accrued interest income receivable			3,932			3,489
Goodwill			11,944			11,944
Bank owned life insurance			38,523			38,395
Net deferred tax asset			4,323			3,637
Federal Home Loan Bank stock			4,035			4,520
Federal Reserve Bank stock			2,125			2,125
Other assets			4,988			6,379
TOTAL ASSETS		$	1,167,682		$	1,160,680
LIABILITIES
Non-interest bearing deposits		$	152,695		$	150,627
Interest bearing deposits			805,084			798,544
Total deposits			957,779			949,171
Short-term borrowings			30,912			41,029
Advances from Federal Home Loan Bank			48,571			46,721
Operating lease liabilities			928			—
Financing lease liabilities			3,295			—
Guaranteed junior subordinated deferrable interest debentures, net			12,943			12,939
Subordinated debt, net			7,493			7,488
Total borrowed funds			104,142			108,177
Other liabilities			6,700			5,355
TOTAL LIABILITIES			1,068,621			1,062,703
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,643,495 shares issued and 17,540,676 shares outstanding on March 31, 2019; 26,609,811 shares issued and 17,619,303 shares outstanding on December 31, 2018			266			266
Treasury stock at cost, 9,102,819 shares on March 31, 2019 and 8,990,508 shares on December 31, 2018			(81,055)			(80,579)
Capital surplus			145,870			145,782
Retained earnings			48,262			46,733
Accumulated other comprehensive loss, net			(14,282)			(14,225)
TOTAL SHAREHOLDERS’ EQUITY			99,061			97,977
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,167,682		$	1,160,680


	March 31, 2018			December 31, 2017
ASSETS
Cash and due from depository institutions	$	22,798		$	26,234
Interest bearing deposits		2,794			2,698
Short-term investments in money market funds		5,002			5,256
Total cash and cash equivalents		30,594			34,188
Investment securities:
Available for sale, at fair value		132,390			129,138
Held to maturity (fair value $38,041 on March 31, 2018 and $38,811 on December 31, 2017)		38,663			38,752
Loans held for sale		843			3,125
Loans		875,249			890,032
Less: Unearned income		376			399
Allowance for loan losses		9,932			10,214
Net loans		864,941			879,419
Premises and equipment, net		12,406			12,734
Accrued interest income receivable		3,555			3,603
Goodwill		11,944			11,944
Bank owned life insurance		37,992			37,860
Net deferred tax asset		5,585			5,963
Federal Home Loan Bank stock		4,265			4,675
Federal Reserve Bank stock		2,125			2,125
Other assets		5,857			4,129
TOTAL ASSETS	$	1,151,160		$	1,167,655
LIABILITIES
Non-interest bearing deposits	$	179,137		$	183,603
Interest bearing deposits		765,069			764,342
Total deposits		944,206			947,945
Short-term borrowings		36,895			49,084
Advances from Federal Home Loan Bank		45,969			46,229
Guaranteed junior subordinated deferrable interest debentures, net		12,927			12,923
Subordinated debt, net		7,470			7,465
Total borrowed funds		103,261			115,701
Other liabilities		7,883			8,907
TOTAL LIABILITIES		1,055,350			1,072,553
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,596,220 shares issued and 18,033,401 outstanding on March 31, 2018; 26,585,403 shares issued and 18,128,247 outstanding on December 31, 2017		266			266
Treasury stock at cost, 8,562,819 shares on March 31, 2018 and 8,457,156 on December 31, 2017		(78,678	)		(78,233	)
Capital surplus		145,739			145,707
Retained earnings		41,807			40,312
Accumulated other comprehensive loss, net		(13,324	)		(12,950	)
TOTAL SHAREHOLDERS’ EQUITY		95,810			95,102
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,151,160		$	1,167,655


	Three months ended March 31,
	2018			2017
INTEREST INCOME
Interest and fees on loans	$	9,818		$	9,556
Interest bearing deposits		4			2
Short-term investments in money market funds		43			24
Investment securities:
Available for sale		1,029			901
Held to maturity		323			265
Total Interest Income		11,217			10,748
INTEREST EXPENSE
Deposits		1,781			1,436
Short-term borrowings		92			19
Advances from Federal Home Loan Bank		186			162
Guaranteed junior subordinated deferrable interest debentures		280			280
Subordinated debt		130			130
Total Interest Expense		2,469			2,027
NET INTEREST INCOME		8,748			8,721
Provision for loan losses		50			225
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,698			8,496
NON-INTEREST INCOME
Trust and investment advisory fees		2,278			2,166
Service charges on deposit accounts		383			374
Net gains on sale of loans		98			114
Mortgage related fees		39			75
Net realized gains (losses) on investment securities		(148	)		27
Bank owned life insurance		132			141
Other income		853			665
Total Non-Interest Income		3,635			3,562
NON-INTEREST EXPENSE
Salaries and employee benefits		6,093			5,948
Net occupancy expense		670			674
Equipment expense		391			419
Professional fees		1,184			1,200
Supplies, postage and freight		168			194
Miscellaneous taxes and insurance		290			294
Federal deposit insurance expense		162			160
Other expense		1,162			1,196
Total Non-Interest Expense		10,120			10,085
PRETAX INCOME		2,213			1,973
Provision for income tax expense		446			625
NET INCOME	$	1,767		$	1,348
PER COMMON SHARE DATA:
Basic:
Net income	$	0.10		$	0.07
Average number of shares outstanding		18,079			18,814
Diluted:
Net income	$	0.10		$	0.07
Average number of shares outstanding		18,181			18,922
Cash dividends declared	$	0.015		$	0.015


	March 31, 2018
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	6,821	$	—	$	(166	)	$	6,655
US Agency mortgage-backed securities		82,648		396		(1,498	)		81,546
Taxable municipal		8,929		8		(347	)		8,590
Corporate bonds		35,922		254		(577	)		35,599
Total	$	134,320	$	658	$	(2,588	)	$	132,390


	December 31, 2017
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Agency	$	6,612	$	—	$	(40	)	$	6,572
US Agency mortgage-backed securities		79,854		611		(719	)		79,746
Taxable municipal		7,198		27		(189	)		7,036
Corporate bonds		35,886		322		(424	)		35,784
Total	$	129,550	$	960	$	(1,372	)	$	129,138


	Three months ended March 31, 2018
	Balance at December 31, 2017		Charge-Offs			Recoveries		Provision (Credit)			Balance at March 31, 2018
Commercial	$	4,299	$	—		$	1	$	(316	)	$	3,984
Commercial loans secured by real estate		3,666		(162	)		11		35			3,550
Real estate – mortgage		1,102		(114	)		19		260			1,267
Consumer		128		(99	)		12		101			142
Allocation for general risk		1,019		—			—		(30	)		989
Total	$	10,214	$	(375	)	$	43	$	50		$	9,932


	Three months ended March 31, 2017
	Balance at December 31, 2016		Charge-Offs			Recoveries		Provision (Credit)			Balance at March 31, 2017
Commercial	$	4,041	$	—		$	7	$	(24	)	$	4,024
Commercial loans secured by real estate		3,584		(14	)		2		175			3,747
Real estate – mortgage		1,169		(94	)		66		26			1,167
Consumer		151		(63	)		19		42			149
Allocation for general risk		987		—			—		6			993
Total	$	9,932	$	(171	)	$	94	$	225		$	10,080


	At December 31, 2017
Loans:	Commercial		Commercial Loans Secured by Real Estate		Real Estate – Mortgage		Consumer		Allocation for General Risk		Total
Individually evaluated for impairment	$	1,212	$	547	$	—	$	—			$	1,759
Collectively evaluated for impairment		157,980		463,233		247,278		19,383				887,874
Total loans	$	159,192	$	463,780	$	247,278	$	19,383			$	889,633
Allowance for loan losses:
Specific reserve allocation	$	909	$	—	$	—	$	—	$	—	$	909
General reserve allocation		3,390		3,666		1,102		128		1,019		9,305
Total allowance for loan losses	$	4,299	$	3,666	$	1,102	$	128	$	1,019	$	10,214


	March 31, 2018
	Impaired Loans with Specific Allowance				Impaired Loans with no Specific Allowance		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
Commercial	$	902	$	835	$	11	$	913	$	922
Commercial loans secured by real estate		—		—		13		13		35
Total impaired loans	$	902	$	835	$	24	$	926	$	957


	March 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	153,689	$	2,140	$	2,704	$	243	$	158,776
Commercial loans secured by real estate		441,330		10,112		332		13		451,787
Total	$	595,019	$	12,252	$	3,036	$	256	$	610,563


	March 31, 2018
	Current		30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days Past Due		Total Past Due		Total Loans		90 Days Past Due and Still Accruing
Commercial	$	158,522	$	243	$	—	$	11	$	254	$	158,776	$	—
Commercial loans secured by real estate		446,505		5,282		—		—		5,282		451,787		—
Real estate – mortgage		240,783		1,823		686		1,030		3,539		244,322		—
Consumer		19,511		469		8		—		477		19,988		—
Total	$	865,321	$	7,817	$	694	$	1,041	$	9,552	$	874,873	$	—


	Amount reclassified from accumulated other comprehensive loss⁽¹⁾
Details about accumulated other comprehensive loss components	For the three months ended March 31, 2018			For the three months ended March 31, 2017			Affected line item in the consolidated statement of operations
Realized (gains) losses on sale of securities	$	148		$	(27	)		Net realized (gains) losses on investment securities
		(31	)		9			Provision for income tax expense
	$	117		$	(18	)		Net of tax
Amortization of estimated defined benefit pension plan loss	$	390		$	395			Other expense
		(82	)		(135	)		Provision for income taxes
	$	308		$	260			Net of tax
Total reclassifications for the period	$	425		$	242			Net income


AT MARCH 31, 2018
	HEDGE TYPE		AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/ (PAID)			REPRICING FREQUENCY		INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS		FAIR VALUE	$	16,813,329			3.88	%		MONTHLY	$	(23,543	)
SWAP LIABILITIES		FAIR VALUE		(16,813,329	)		(3.88	)		MONTHLY		23,543
NET EXPOSURE				—			—					—


AT MARCH 31, 2017
	HEDGE TYPE		AGGREGATE NOTIONAL AMOUNT			WEIGHTED AVERAGE RATE RECEIVED/ (PAID)			REPRICING FREQUENCY		INCREASE (DECREASE) IN INTEREST EXPENSE
SWAP ASSETS		FAIR VALUE	$	5,000,000			3.10	%		MONTHLY	$	(15,367	)
SWAP LIABILITIES		FAIR VALUE		(5,000,000	)		(3.10	)		MONTHLY		15,367
NET EXPOSURE				—			—					—


	Three months ended March 31, 2018
	Total revenue			Net income (loss)
Retail banking	$	6,139		$	706
Commercial banking		4,455			1,560
Trust		2,443			508
Investment/Parent		(653	)		(1,007	)
Total	$	12,384		$	1,767


	Three months ended March 31, 2017
	Total revenue			Net income (loss)
Retail banking	$	6,243		$	617
Commercial banking		4,725			1,472
Trust		2,326			367
Investment/Parent		(1,011	)		(1,108	)
Total	$	12,283		$	1,348


	Three months ended March 31, 2018			Three months ended March 31, 2017
Net income	$	1,767		$	1,348
Diluted earnings per share		0.10			0.07
Return on average assets (annualized)		0.62	%		0.47	%
Return on average equity (annualized)		7.55	%		5.74	%

​For the quarterly period ended March 31, 2018

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934​For the transition period from to

​

Item 1. Financial Statements

​

​

​

2018.

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Recent Accounting Pronouncements – (continued)

4. Adoption of Accounting Standards

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Adoption of Accounting Standards – (continued)

5. Revenue Recognition

5. Revenue Recognition – (continued)

6. Earnings Per Common Share

Investment securities held to maturity (HTM):

Investment securities available for sale (AFS):

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investment Securities – (continued)

Total investment securities:

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investment Securities – (continued)

9. Loans

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

10. Allowance for Loan Losses – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

10. Allowance for Loan Losses – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

10. Allowance for Loan Losses – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Allowance for Loan Losses – (continued)

11. Non-performing Assets Including Troubled Debt Restructurings (TDR) – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Federal Home Loan Bank Borrowings – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.​

14. Regulatory Capital – (continued)

15.2019. See the discussion of the tangible common equity ratio under the “Balance Sheet” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (M.D. & A.).

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

15. Derivative Hedging Instruments – (continued)

16.

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16. Segment Results – (continued)

17.18. Commitments and Contingent Liabilities

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

18.19. Pension Benefits

19.

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

AmeriServ Financial, Inc.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

19. Disclosures about Fair Value Measurements and Financial Instruments – (continued)

​

recent announcements of an increased common stock dividend and a new common stock repurchase program.

…FORWARD

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

Item 3. Defaults Upon Senior Securities

Item 4. Mine Safety Disclosures

Item 5. Other Information

Item 6. Exhibits

For the quarterly period ended March 31, 2018

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

For the transition period from to

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14.

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AmeriServ Financial, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	2019								2018
	Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate
Interest earning assets:
Loans and loans held for sale, net of unearned income		$	860,169		$	10,424		4.80%		$	881,485		$	9,824		4.47%
Interest bearing deposits			1,020			6		2.45			1,025			4		1.51
Short-term investment in money market funds			7,773			69		3.55			7,133			43		2.44
Investment securities – AFS			157,112			1,319		3.38			138,027			1,029		2.98
Investment securities – HTM			41,252			352		3.34			39,106			323		3.30
Total investment securities			198,364			1,671		3.37			177,133			1,352		3.05
Total interest earning assets/interest income			1,067,326			12,170		4.57			1,066,776			11,223		4.22
Non-interest earning assets:
Cash and due from banks			21,899								21,859
Premises and equipment			18,128								12,623
Other assets			62,081								62,374
Allowance for loan losses			(8,665)								(10,251)
TOTAL ASSETS		$	1,160,769							$	1,153,381
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand		$	163,893		$	409		1.01%		$	133,379		$	242		0.74%
Savings			97,851			40		0.17			97,304			40		0.17
Money markets			241,727			674		1.13			253,665			422		0.67
Time deposits			315,389			1,607		2.07			293,858			1,077		1.49
Total interest bearing deposits			818,860			2,730		1.35			778,206			1,781		0.93
Short-term borrowings			15,413			102		2.64			22,261			92		1.64
Advances from Federal Home Loan Bank			46,984			235		2.03			45,838			186		1.64
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			4,224			30		2.83			—			—		—
Total interest bearing liabilities/interest expense			906,216			3,507		1.57			867,040			2,469		1.15
Non-interest bearing liabilities:
Demand deposits			150,246								182,215
Other liabilities			7,141								9,170
Shareholders’ equity			97,166								94,956
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,160,769							$	1,153,381
Interest rate spread								3.00								3.07
Net interest income/Net interest margin						8,663		3.24%						8,754		3.29%
Tax-equivalent adjustment						(6)								(6)
Net Interest Income					$	8,657							$	8,748


	March 31, 2018			December 31, 2017			March 31, 2017
Total accruing loan delinquency (past due 30 to 89 days)	$	8,155		$	8,178		$	7,715
Total non-accrual loans		1,989			3,016			1,463
Total non-performing assets including TDR*		2,157			3,034			1,488
Accruing loan delinquency, as a percentage of total loans, net of unearned income		0.93	%		0.92	%		0.86	%
Non-accrual loans, as a percentage of total loans, net of unearned income		0.23			0.34			0.16
Non-performing assets, as a percentage of total loans, net of unearned income, and other real estate owned		0.25			0.34			0.17
Non-performing assets as a percentage of total assets		0.19			0.26			0.13
As a percent of average loans, net of unearned income:
Annualized net charge-offs		0.15			0.06			0.04
Annualized provision for loan losses		0.02			0.09			0.10
Total classified loans (loans rated substandard or doubtful)	$	4,355		$	5,433		$	3,878


Interest Rate Scenario	Variability of Net Interest Income			Change in Market Value of Portfolio Equity
200bp increase		2.1	%		19.5	%
100bp increase		1.3			11.1
100bp decrease		(1.4	)		(15.4	)


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, 2018		20,700	$	4.23		20,700		84,963
February 1 – 28, 2018		84,963		4.21		84,963		—
March 1 – 31, 2018		—		—		—		—
Total		105,663	$	4.21		105,663		—

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, 2019		9,765		$	4.20		9,765		102,546
February 1 – 28, 2019		97,255			4.24		97,255		5,291
March 1 – 31, 2019		5,291			4.29		5,291		—
Total		112,311					112,311