Quarterly Report (10-q)

Date : 08/12/2019 @ 8:14PM
Source : Edgar (US Regulatory)
Stock : AmeriServ Financial Inc (ASRV)
Quote : 4.17  0.0 (0.00%) @ 1:58PM

Quarterly Report (10-q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2019
☐   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from         to       
Commission File Number 0-11204
AmeriServ Financial, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
25-1424278
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
Main & Franklin Streets,
P.O. Box 430, Johnstown, PA
15907-0430
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (814) 533-5300
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class
Trading
Symbol
Name of Each Exchange On Which Registered
Common Stock
ASRV
The NASDAQ Stock Market LLC
8.45% Beneficial Unsecured Securities, Series A (AmeriServ Financial Capital Trust I)
ASRVP
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
 Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at August 1, 2019
Common Stock, par value $0.01
17,384,355

AmeriServ Financial, Inc.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
1
1
2
3
4
5
6
32
48
48
PART II. OTHER INFORMATION
49
49
49
49
49
49
50
i

Item 1.   Financial Statements
AmeriServ Financial, Inc.
   
CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
(Unaudited)
June 30,
2019
December 31,
2018
ASSETS
Cash and due from depository institutions
$ 21,609 $ 27,970
Interest bearing deposits
3,286 2,740
Short-term investments in money market funds
3,246 4,184
Total cash and cash equivalents
28,141 34,894
Investment securities:
Available for sale, at fair value
151,088 146,731
Held to maturity (fair value $40,775 on June 30, 2019 and $40,324 on December 31, 2018)
39,752 40,760
Loans held for sale
1,324 847
Loans
889,170 862,604
Less: Unearned income
413 322
Allowance for loan losses
8,102 8,671
Net loans
880,655 853,611
Premises and equipment:
Operating lease right-of-use asset
890
Financing lease right-of-use asset
3,207
Other premises and equipment, net
14,809 13,348
Accrued interest income receivable
3,916 3,489
Goodwill
11,944 11,944
Bank owned life insurance
38,652 38,395
Net deferred tax asset
3,710 3,637
Federal Home Loan Bank stock
4,763 4,520
Federal Reserve Bank stock
2,125 2,125
Other assets
5,607 6,379
TOTAL ASSETS
$ 1,190,583 $ 1,160,680
LIABILITIES
Non-interest bearing deposits
$ 158,293 $ 150,627
Interest bearing deposits
810,187 798,544
Total deposits
968,480 949,171
Short-term borrowings
35,190 41,029
Advances from Federal Home Loan Bank
53,124 46,721
Operating lease liabilities
907
Financing lease liabilities
3,253
Guaranteed junior subordinated deferrable interest debentures, net
12,947 12,939
Subordinated debt, net
7,499 7,488
Total borrowed funds
112,920 108,177
Other liabilities
7,707 5,355
TOTAL LIABILITIES
1,089,107 1,062,703
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized;
26,648,728 shares issued and 17,384,355 shares outstanding on June 30, 2019;
26,609,811 shares issued and 17,619,303 shares outstanding on December 31, 2018
266 266
Treasury stock at cost, 9,264,373 shares on June 30, 2019 and 8,990,508 shares on December 31, 2018
(81,741 ) (80,579 )
Capital surplus
145,883 145,782
Retained earnings
49,618 46,733
Accumulated other comprehensive loss, net
(12,550 ) (14,225 )
TOTAL SHAREHOLDERS’ EQUITY
101,476 97,977
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,190,583 $ 1,160,680
See accompanying notes to unaudited consolidated financial statements.
1

AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
INTEREST INCOME
Interest and fees on loans
$ 10,994 $ 10,125 $ 21,412 $ 19,943
Interest bearing deposits
7 5 13 9
Short-term investments in money market funds
59 47 128 90
Investment securities:
Available for sale
1,314 1,101 2,633 2,130
Held to maturity
391 325 743 648
Total Interest Income
12,765 11,603 24,929 22,820
INTEREST EXPENSE
Deposits
2,867 1,973 5,597 3,754
Short-term borrowings
136 170 238 262
Advances from Federal Home Loan Bank
261 192 496 378
Financing lease liabilities
29 59
Guaranteed junior subordinated deferrable interest debentures
281 280 561 560
Subordinated debt
130 130 260 260
Total Interest Expense
3,704 2,745 7,211 5,214
NET INTEREST INCOME
9,061 8,858 17,718 17,606
Provision (credit) for loan losses
50 (400 ) 100
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN
LOSSES
9,061 8,808 18,118 17,506
NON-INTEREST INCOME
Wealth management fees
2,419 2,447 4,815 4,873
Service charges on deposit accounts
317 357 627 740
Net gains on sale of loans
107 119 169 217
Mortgage related fees
77 72 121 111
Net realized gains (losses) on investment securities
30 30 (148 )
Bank owned life insurance
129 133 257 265
Other income
578 553 1,243 1,258
Total Non-Interest Income
3,657 3,681 7,262 7,316
NON-INTEREST EXPENSE
Salaries and employee benefits
6,348 6,218 12,649 12,311
Net occupancy expense
622 611 1,280 1,281
Equipment expense
387 378 748 769
Professional fees
1,249 1,252 2,369 2,436
Supplies, postage and freight
140 164 313 332
Miscellaneous taxes and insurance
294 258 571 539
Federal deposit insurance expense
80 155 160 317
Other expense
1,336 1,256 2,659 2,418
Total Non-Interest Expense
10,456 10,292 20,749 20,403
PRETAX INCOME
2,262 2,197 4,631 4,419
Provision for income tax expense
470 453 961 908
NET INCOME
1,792 1,744 3,670 3,511
PER COMMON SHARE DATA:
Basic:
Net income
$ 0.10 $ 0.10 $ 0.21 $ 0.19
Average number of shares outstanding
17,476 18,038 17,527 18,058
Diluted:
Net income
$ 0.10 $ 0.10 $ 0.21 $ 0.19
Average number of shares outstanding
17,560 18,140 17,611 18,158
See accompanying notes to unaudited consolidated financial statements.
2

AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2019
2018
2019
2018
COMPREHENSIVE INCOME
Net income
$ 1,792 $ 1,744 $ 3,670 $ 3,511
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan
403 390 (1,433 ) 1,434
Income tax effect
(85 ) (82 ) 301 (301 )
Unrealized holding gains (losses) on available for sale securities arising during period
1,820 (824 ) 3,583 (2,490 )
Income tax effect
(382 ) 173 (752 ) 523
Reclassification adjustment for (gains) losses on available for sale
securities included in net income
(30 ) (30 ) 148
Income tax effect
6 6 (31 )
Other comprehensive income (loss)
1,732 (343 ) 1,675 (717 )
Comprehensive income
$ 3,524 $ 1,401 $ 5,345 $ 2,794
See accompanying notes to unaudited consolidated financial statements.
3

AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
COMMON STOCK
Balance at beginning of period
266 266 266 266
New common shares issued for exercise of stock options
Balance at end of period
266 266 266 266
TREASURY STOCK
Balance at beginning of period
(81,055 ) (78,678 ) (80,579 ) (78,233 )
Treasury stock, purchased at cost (161,554 shares for the
three months ended June 30, 2019 and 273,865 and
105,663 shares for the six months ended June 30, 2019 and
2018, respectively)
(686 ) (1,162 ) (445 )
Balance at end of period
(81,741 ) (78,678 ) (81,741 ) (78,678 )
CAPITAL SURPLUS
Balance at beginning of period
145,870 145,739 145,782 145,707
New common shares issued for exercise of stock options
(5,233 and 11,291 shares for the three months ended
June 30, 2019 and 2018, respectively and 38,917 and
22,108 shares for the six months ended June 30, 2019 and
2018, respectively)
11 28 96 56
Stock option expense
2 4 5 8
Balance at end of period
145,883 145,771 145,883 145,771
RETAINED EARNINGS
Balance at beginning of period
48,262 41,807 46,733 40,312
Net income
1,792 1,744 3,670 3,511
Cash dividend declared on common stock
(436 ) (360 ) (785 ) (632 )
Balance at end of period
49,618 43,191 49,618 43,191
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period
(14,282 ) (13,324 ) (14,225 ) (12,950 )
Other comprehensive income (loss)
1,732 (343 ) 1,675 (717 )
Balance at end of period
(12,550 ) (13,667 ) (12,550 ) (13,667 )
TOTAL STOCKHOLDERS’ EQUITY
$ 101,476 $ 96,883 $ 101,476 $ 96,883
See accompanying notes to unaudited consolidated financial statements.
4

AmeriServ Financial, Inc.
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 30,
2019
2018
OPERATING ACTIVITIES
Net income
$ 3,670 $ 3,511
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses
(400 ) 100
Depreciation and amortization expense
927 812
Net amortization of investment securities
133 193
Net realized (gains) losses on investment securities – available for sale
(30 ) 148
Net gains on loans held for sale
(169 ) (217 )
Amortization of deferred loan fees
(60 ) (67 )
Origination of mortgage loans held for sale
(11,437 ) (14,768 )
Sales of mortgage loans held for sale
11,129 14,455
(Increase) decrease in accrued interest receivable
(427 ) 139
Increase (decrease) in accrued interest payable
167 (73 )
Earnings on bank owned life insurance
(257 ) (265 )
Deferred income taxes
685 83
Stock compensation expense
5 8
Net change in operating leases
(25 )
Other, net
214 (156 )
Net cash provided by operating activities
4,125 3,903
INVESTING ACTIVITIES
Purchase of investment securities – available for sale
(10,663 ) (22,460 )
Purchase of investment securities – held to maturity
(2,405 )
Proceeds from sales of investment securities – available for sale
530 4,479
Proceeds from maturities of investment securities – available for sale
9,263 8,629
Proceeds from maturities of investment securities – held to maturity
971 2,193
Purchase of regulatory stock
(8,977 ) (9,603 )
Proceeds from redemption of regulatory stock
8,734 8,331
Long-term loans originated
(105,659 ) (83,755 )
Principal collected on long-term loans
95,377 82,138
Loan participations purchased
(20,982 ) (2,643 )
Loan participations sold
4,605 1,500
Proceeds from sale of other real estate owned
198 22
Purchase of premises and equipment
(2,214 ) (294 )
Net cash used in investing activities
(28,817 ) (13,868 )
FINANCING ACTIVITIES
Net increase (decrease) in deposit balances
19,309 (19,769 )
Net increase (decrease) in other short-term borrowings
(5,839 ) 33,848
Principal borrowings on advances from Federal Home Loan Bank
8,403 3,740
Principal repayments on advances from Federal Home Loan Bank
(2,000 ) (6,000 )
Principal payments on financing lease liabilities
(83 )
Stock options exercised
96 56
Purchase of treasury stock
(1,162 ) (445 )
Common stock dividends
(785 ) (632 )
Net cash provided by financing activities
17,939 10,798
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(6,753 ) 833
CASH AND CASH EQUIVALENTS AT JANUARY 1
34,894 34,188
CASH AND CASH EQUIVALENTS AT JUNE 30
$ 28,141 $ 35,021
See accompanying notes to unaudited consolidated financial statements.
5

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 and 1 location in Maryland. The Trust Company offers a complete range of trust and financial services and administers assets valued at $2.3 billion that are not reported on the Company’s Consolidated Balance Sheets at June 30, 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 Annual Report on Form 10-K for the year ended December 31, 2018.
3.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. 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.
On July 17, 2019, the FASB voted to create a proposal to delay the implementation of the current expected credit loss (CECL) model under ASU 2016-13 for smaller public companies. Once the proposal is finalized, smaller reporting companies (as defined by the Securities and Exchange Commission) would have until January 2023 to implement CECL. The Company, as a smaller reporting company, continues to monitor the status of the proposal.
6

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4.
Adoption of Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) — Targeted Improvements , which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. 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 , requires the Company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. Management has determined that the primary sources of revenue associated with financial instruments, including interest and fee income on loans and interest on investments, along with certain noninterest revenue sources including net realized gains (losses) on investment securities, mortgage related fees, net gains on loans held for sale, and bank owned life insurance are not within the scope of Topic 606. These sources of revenue cumulatively comprise 80.4% of the total revenue of the Company.
Noninterest income within the scope of Topic 606 are as follows:

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

Service charges on deposit accounts — The Company has contracts with its deposit account customers where fees are charged for certain items or services. Service charges include account analysis fees, monthly service fees, overdraft fees, and other deposit account related fees. Revenue related to account analysis fees and service fees is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. Fees attributable to specific performance obligations of the Company (i.e. overdraft fees, etc.) are recognized at a defined point in time based on completion of the requested service or transaction.
7

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Other noninterest income — Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an 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 and six month periods ending June 30, 2019 and 2018 (in thousands).
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
Noninterest income:
In-scope of Topic 606
Wealth management fees
$ 2,419 $ 2,447 $ 4,815 $ 4,873
Service charges on deposit accounts
317 357 627 740
Other
435 435 854 852
Noninterest income (in-scope of topic 606)
3,171 3,239 6,296 6,465
Noninterest income (out-of-scope of topic 606)
486 442 966 851
Total noninterest income
$ 3,657 $ 3,681 $ 7,262 $ 7,316
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. For the three and six month periods ending June 30, 2019, options to purchase 12,000 common shares, 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 because to do so would be antidilutive. There were no antidilutive securities during either period of 2018.
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
(In thousands, except per share data)
Numerator:
Net income
$ 1,792 $ 1,744 $ 3,670 $ 3,511
Denominator:
Weighted average common shares outstanding (basic)
17,476 18,038 17,527 18,058
Effect of stock options
84 102 84 100
Weighted average common shares outstanding (diluted)
17,560 18,140 17,611 18,158
Earnings per common share:
Basic
$ 0.10 $ 0.10 $ 0.21 $ 0.19
Diluted
0.10 0.10 0.21 0.19
8

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 $300,000 in income tax payments in the first six months of 2019 and $800,000 in the same 2018 period. The Company made total interest payments of  $7,044,000 in the first six months of 2019 compared to $5,287,000 in the same 2018 period. The Company had $75,000 non-cash transfers to other real estate owned (OREO) in the first six months of 2019 compared to $160,000 non-cash transfers in the same 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):
June 30, 2019
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 7,489 $ 54 $ $ 7,543
US Agency mortgage-backed securities
90,523 1,602 (167 ) 91,958
Municipal
13,994 499 (22 ) 14,471
Corporate bonds
37,312 258 (454 ) 37,116
Total
$ 149,318 $ 2,413 $ (643 ) $ 151,088
Investment securities held to maturity (HTM):
June 30, 2019
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency mortgage-backed securities
$ 9,501 $ 197 $ (18 ) $ 9,680
Municipal
24,216 881 (44 ) 25,053
Corporate bonds and other securities
6,035 49 (42 ) 6,042
Total
$ 39,752 $ 1,127 $ (104 ) $ 40,775
Investment securities available for sale (AFS):
December 31, 2018
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 7,685 $ 4 $ (160 ) $ 7,529
US Agency mortgage-backed securities
90,169 516 (1,158 ) 89,527
Municipal
13,301 114 (234 ) 13,181
Corporate bonds
37,359 131 (996 ) 36,494
Total
$ 148,514 $ 765 $ (2,548 ) $ 146,731
9

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
Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of  “A.” At June 30, 2019 and December 31, 2018, 57.5% of the portfolio was rated “AAA”. Approximately 8.7% of the portfolio was either rated below “A” or unrated at June 30, 2019 as compared to 10.0% at December 31, 2018.
The Company sold $530,000 AFS securities in the second quarter and first six months of 2019 resulting in $30,000 of gross investment security gains. The Company sold no AFS securities during the second quarter of 2018. Total proceeds from the sale of AFS securities for the first six months of 2018 were $4.5 million resulting in $15,000 of gross investment security gains and $163,000 of gross investment security losses.
The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $121,682,000 at June 30, 2019 and $115,536,000 at December 31, 2018.
The following tables present information concerning investments with unrealized losses as of June 30, 2019 and December 31, 2018 (in thousands):
Total investment securities:
June 30, 2019
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
US Agency
$ $ $ $ $ $
US Agency mortgage-backed securities
21,440 (185 ) 21,440 (185 )
Municipal
2,468 (66 ) 2,468 (66 )
Corporate bonds and other securities
4,922 (77 ) 18,182 (419 ) 23,104 (496 )
Total
$ 4,922 $ (77 ) $ 42,090 $ (670 ) $ 47,012 $ (747 )
Total investment securities:
December 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
$ 244 $ (6 ) $ 5,631 $ (154 ) $ 5,875 $ (160 )
US Agency mortgage-backed securities
17,718 (177 ) 39,983 (1,113 ) 57,701 (1,290 )
Municipal
6,601 (71 ) 15,880 (567 ) 22,481 (638 )
Corporate bonds and other securities
15,221 (440 ) 17,038 (678 ) 32,259 (1,118 )
Total
$ 39,784 $ (694 ) $ 78,532 $ (2,512 ) $ 118,316 $ (3,206 )
10

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 65 positions that are considered temporarily impaired at June 30, 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 or mature.
Contractual maturities of securities at June 30, 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 June 30, 2019 is 37.2 months and is lower than the duration at December 31, 2018 which was 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:
June 30, 2019
Available for sale
Held to maturity
Cost
Basis
Fair
Value
Cost
Basis
Fair
Value
Within 1 year
$ 2,500 $ 2,502 $ 1,000 $ 995
After 1 year but within 5 years
20,264 20,319 5,178 5,196
After 5 years but within 10 years
44,101 44,554 20,018 20,696
After 10 years but within 15 years
28,373 28,849 8,201 8,477
Over 15 years
54,080 54,864 5,355 5,411
Total
$ 149,318 $ 151,088 $ 39,752 $ 40,775
As of June 30, 2019, the Company reported $328,000 of equity securities within Other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) will be reported within Other income on the Consolidated Statements of Operations. Additionally, the Company has recognized a deferred compensation liability, which is equal to the balance of the equity securities and is reported within Other liabilities on the Consolidated Balance Sheets.
9.
Loans
The loan portfolio of the Company consists of the following (in thousands):
June 30,
2019
December 31,
2018
Commercial: Commercial and industrial
$ 172,428 $ 158,279
Commercial loans secured by owner occupied real estate
83,003 91,905
Commercial loans secured by non-owner occupied real estate
375,673 356,543
Real estate – residential mortgage
239,916 237,964
Consumer
17,737 17,591
Loans, net of unearned income
$ 888,757 $ 862,282
11

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Loan balances at June 30, 2019 and December 31, 2018 are net of unearned income of  $413,000 and $322,000, respectively. Real estate-construction loans comprised 4.0% and 3.5% of total loans, net of unearned income at June 30, 2019 and December 31, 2018, respectively.
10.
Allowance for Loan Losses
The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three and six month periods ending June 30, 2019 and 2018 (in thousands).
Three months ended June 30, 2019
Balance at
March 31, 2019
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30, 2019
Commercial
$ 2,614 $ $ $ (76 ) $ 2,538
Commercial loans secured by non-owner occupied real estate
3,373 13 39 3,425
Real estate – residential mortgage
1,213 (10 ) 68 (53 ) 1,218
Consumer
125 (88 ) 12 75 124
Allocation for general risk
782 15 797
Total
$ 8,107 $ (98 ) $ 93 $ $ 8,102
Three months ended June 30, 2018
Balance at
March 31, 2018
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30, 2018
Commercial
$ 3,984 $ (412 ) $ 4 $ (10 ) $ 3,566
Commercial loans secured by non-owner occupied real estate
3,550 13 123 3,686
Real estate – residential mortgage
1,267 (103 ) 67 22 1,253
Consumer
142 (53 ) 23 13 125
Allocation for general risk
989 (98 ) 891
Total
$ 9,932 $ (568 ) $ 107 $ 50 $ 9,521
Six months ended June 30, 2019
Balance at
December 31, 2018
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30, 2019
Commercial
$ 3,057 $ $ 5 $ (524 ) $ 2,538
Commercial loans secured by non-owner occupied real estate
3,389 (63 ) 24 75 3,425
Real estate – residential mortgage
1,235 (71 ) 76 (22 ) 1,218
Consumer
127 (170 ) 30 137 124
Allocation for general risk
863 (66 ) 797
Total
$ 8,671 $ (304 ) $ 135 $ (400 ) $ 8,102
Six months ended June 30, 2018
Balance at
December 31, 2017
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30, 2018
Commercial
$ 4,298 $ (574 ) $ 12 $ (170 ) $ 3,566
Commercial loans secured by non-owner occupied real estate
3,666 26 (6 ) 3,686
Real estate – residential mortgage
1,102 (217 ) 77 291 1,253
Consumer
128 (152 ) 35 114 125
Allocation for general risk
1,020 (129 ) 891
Total
$ 10,214 $ (943 ) $ 150 $ 100 $ 9,521
12

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company did not record a provision for loan losses in the second quarter of 2019 as compared to a $50,000 provision recorded in the second quarter of 2018. For the first six months of 2019, the Company recorded a $400,000 loan loss provision recovery compared to a $100,000 provision expense recorded in the first six months of 2018. The 2019 provision recovery reflects our overall strong asset quality, reduced level of criticized loans and net loan charge-offs, and the lower six-month average loan portfolio balances. For the first six months of 2019, the Company experienced net loan charge-offs of  $169,000, or 0.04% of total loans, compared to net loan charge-offs of  $793,000, or 0.18% of total loans, in the first six months of 2018. Overall, the Company continued to maintain outstanding asset quality as its non-performing assets totaled $1.7 million, or only 0.19% of total loans, at June 30, 2019. The allowance for loan losses provided 482% coverage of non-performing assets, and 0.91% of total loans, at June 30, 2019, compared to 629% coverage of non-performing assets, and 1.00% of total loans, at December 31, 2018.
The following tables summarize the loan portfolio and allowance for loan loss by the primary segments of the loan portfolio (in thousands).
At June 30, 2019
Commercial
Commercial Loans
Secured by Non-Owner
Occupied Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ 750 $ 10 $ $ $ 760
Collectively evaluated for impairment
254,681 375,663 239,916 17,737 887,997
Total loans
$ 255,431 $ 375,673 $ 239,916 $ 17,737 $ 888,757
Allowance for loan losses:
Specific reserve allocation
$ 78 $ 10 $ $ $ $ 88
General reserve allocation
2,460 3,415 1,218 124 797 8,014
Total allowance for loan losses
$ 2,538 $ 3,425 $ 1,218 $ 124 $ 797 $ 8,102
At December 31, 2018
Commercial
Commercial Loans
Secured by Non-Owner
Occupied Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ $ 11 $ $ $ 11
Collectively evaluated for impairment
250,184 356,532 237,964 17,591 862,271
Total loans
$ 250,184 $ 356,543 $ 237,964 $ 17,591 $ 862,282
Allowance for loan losses:
Specific reserve allocation
$ $ 11 $ $ $ $ 11
General reserve allocation
3,057 3,378 1,235 127 863 8,660
Total allowance for loan losses
$ 3,057 $ 3,389 $ 1,235 $ 127 $ 863 $ 8,671
The segments of the Company’s loan portfolio are disaggregated into classes that allows management to monitor risk and performance. The loan classes used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio. The commercial loan segment includes both the commercial and industrial
13

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
and the owner occupied commercial real estate loan classes while the remaining segments are not separated into classes as management monitors risk in these loans at the segment level. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans secured by residential real estate. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment 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.
The need for an updated appraisal on collateral dependent loans is determined on a case-by-case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for loan losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s internal Assigned Risk Department to support the value of the property.
When reviewing an appraisal associated with an existing real estate collateral dependent transaction, the Bank’s internal Assigned Risk Department must determine if there have been material changes to the underlying assumptions in the appraisal which affect the original estimate of value. Some of the factors that could cause material changes to reported values include:

the passage of time;

the volatility of the local market;

the availability of financing;

natural disasters;

the inventory of competing properties;

new improvements to, or lack of maintenance of, the subject property or competing properties upon physical inspection by the Bank;
14

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

environmental contamination.
The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.
The following tables present impaired loans by portfolio segment, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands).
June 30, 2019
Impaired Loans with
Specific Allowance
Impaired Loans with
no Specific Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
Commercial
$ 750 $ 78 $ $ 750 $ 750
Commercial loans secured by non-owner occupied real estate
10 10 10 32
Total impaired loans
$ 760 $ 88 $ $ 760 $ 782
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
June 30,
Six months ended
June 30,
2019
2018
2019
2018
Average loan balance:
Commercial
$ 375 $ 457 $ 250 $ 709
Commercial loans secured by non-owner occupied real estate
11 13 11 191
Average investment in impaired loans
$ 386 $ 470 $ 261 $ 900
Interest income recognized:
Commercial
$ 4 $ $ 4 $
Commercial loans secured by non-owner occupied real estate
Interest income recognized on a cash basis on impaired loans
$ 4 $ $ 4 $
15

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass-6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of  $1,000,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced, independent function which reports directly to the Board’s Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for 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 $2,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.
The following table presents the classes of the commercial and commercial real estate loan portfolios summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands).
June 30, 2019
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 167,272 $ 3,471 $ 1,685 $ $ 172,428
Commercial loans secured by owner occupied real
estate
80,162 1,679 1,162 83,003
Commercial loans secured by non-owner occupied
real estate
369,242 6,234 187 10 375,673
Total
$ 616,676 $ 11,384 $ 3,034 $ 10 $ 631,104
16

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 154,510 $ 2,089 $ 1,680 $ $ 158,279
Commercial loans secured by owner occupied real
estate
86,997 3,769 1,139 91,905
Commercial loans secured by non-owner occupied
real estate
349,954 6,316 262 11 356,543
Total
$ 591,461 $ 12,174 $ 3,081 $ 11 $ 606,727
It is generally the policy of the Bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs, unless the balance is minor. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is generally the policy of the Bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio classes (in thousands).
June 30, 2019
Performing
Non-Performing
Real estate – residential mortgage
$ 239,052 $ 864
Consumer
17,737
Total
$ 256,789 $ 864
December 31, 2018
Performing
Non-Performing
Real estate – residential mortgage
$ 236,754 $ 1,210
Consumer
17,591
Total
$ 254,345 $ 1,210
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands).
June 30, 2019
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 172,428 $ $ $ $ $ 172,428 $
Commercial loans secured by owner occupied real estate
83,003 83,003
Commercial loans secured by
non-owner occupied real estate
375,673 375,673
Real estate – residential mortgage
235,940 2,723 779 474 3,976 239,916
Consumer
17,508 220 9 229 17,737
Total
$ 884,552 $ 2,943 $ 788 $ 474 $ 4,205 $ 888,757 $
17

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 158,279 $ $ $ $ $ 158,279 $
Commercial loans secured by owner occupied real estate
91,905 91,905
Commercial loans secured by
non-owner occupied real estate
355,963 580 580 356,543
Real estate – residential mortgage
232,465 3,651 472 1,376 5,499 237,964
Consumer
17,408 153 30 183 17,591
Total
$ 856,020 $ 4,384 $ 502 $ 1,376 $ 6,262 $ 862,282 $
An allowance for loan losses (“ALL”) is maintained to support loan growth and cover charge-offs from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are complemented by consideration of other qualitative factors.
Management tracks the historical net charge-off activity at each risk rating grade level for the entire commercial portfolio and at the aggregate level for the consumer, residential mortgage and small business portfolios. A historical charge-off factor is calculated utilizing a rolling 12 consecutive historical quarters for the commercial portfolios. This historical charge-off factor for the consumer, residential mortgage and small business portfolios are based on a three-year historical average of actual loss experience.
The Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: 1) an allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other qualitative factors which include delinquency, non-performing and TDR loans, loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations which accommodate each of the listed risk factors.
“Pass” rated credits are segregated from “Criticized” and “Classified” credits for the application of qualitative factors.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
18

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11.
Non-performing Assets Including Troubled Debt Restructurings (TDR)
The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):
June 30,
2019
December 31,
2018
Non-accrual loans
Commercial loans secured by non-owner occupied real estate
$ 10 $ 11
Real estate – residential mortgage
864 1,210
Total
874 1,221
Other real estate owned
Commercial loans secured by owner occupied real estate
157
Real estate – residential mortgage
57
Total
57 157
TDR’s not in non-accrual
Commercial and industrial
750
Total
750
Total non-performing assets including TDR
$ 1,681 $ 1,378
Total non-performing assets as a percent of loans, net of unearned income,
and other real estate owned
0.19 % 0.16 %
The Company had no loans past due 90 days or more for the periods presented which were accruing interest.
The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans (in thousands).
Three months ended
June 30,
Six months ended
June 30,
2019
2018
2019
2018
Interest income due in accordance
with original terms
$ 14 $ 22 $ 29 $ 49
Interest income recorded
Net reduction in interest income
$ 14 $ 22 $ 29 $ 49
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.
19

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table details the loan modified as a TDR during the three and six month periods ended June 30, 2019 (dollars in thousands).
Loans in accrual status
# of Loans
Current Balance
Concession Granted
Commercial and industrial
1 $ 750 Extension of maturity date with
a below market interest rate
The Company had no loans modified as TDR’s during the three and six month periods ending June 30, 2018.
All TDR’s are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDR’s was $88,000 and $11,000 as of June 30, 2019 and December 31, 2018, respectively.
The Company had no loans that were classified as TDR’s or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2018 and 2017 (six month periods) and April 1, 2018 and 2017 (three month periods), respectively, and that subsequently defaulted during these reporting periods.
The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above.
12.
Federal Home Loan Bank Borrowings
Total Federal Home Loan Bank (FHLB) borrowings and advances consist of the following (in thousands, except percentages):
At June 30, 2019
Type
Maturing
Amount
Weighted
Average Rate
Open Repo Plus
Overnight
$ 35,190 2.46 %
Advances
2019
10,500 1.53
2020
16,729 1.74
2021
9,496 2.28
2022
9,831 2.68
2023
5,568 2.48