Quarterly Report (10-q)

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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 March 31, 2021

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

For the transition period from ____________ to_____________

Commission File Number 0-11204

AmeriServ Financial, Inc.

(Exact name of registrant as specified in its charter)

	Pennsylvania	25-1424278
	(State or other jurisdiction of 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 May 1, 2021
Common Stock, par value $0.01		17,069,000

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AmeriServ Financial, Inc.

INDEX


	Page No.

PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements	2
Consolidated Balance Sheets (Unaudited) – March 31, 2021 and December 31, 2020	2
Consolidated Statements of Operations (Unaudited) – Three months ended March 31, 2021 and 2020	3
Consolidated Statements of Comprehensive Income (Unaudited) – Three months ended March 31, 2021 and 2020	4
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three months ended March 31, 2021 and 2020	5
Consolidated Statements of Cash Flows (Unaudited) – Three months ended March 31, 2021 and 2020	6
Notes to Unaudited Consolidated Financial Statements .	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosure About Market Risk	49
Item 4. Controls and Procedures	50
PART II. OTHER INFORMATION	50
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	50
Item 5. Other Information	50
Item 6. Exhibits	50

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Item 1. Financial Statements

AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	March 31, 2021		December 31, 2020
ASSETS
Cash and due from depository institutions	$	19,199	$	20,427
Interest bearing deposits		14,620		2,585
Short-term investments		3,405		8,492
Cash and cash equivalents		37,224		31,504
Investment securities:
Available for sale, at fair value		156,416		144,165
Held to maturity (fair value $49,583 on March 31, 2021 and $47,106 on December 31, 2020)		47,777		44,222
Loans held for sale		1,308		6,250
Loans		986,592		973,297
Less: Unearned income		1,343		1,202
Less: Allowance for loan losses		11,631		11,345
Net loans		973,618		960,750
Premises and equipment:
Operating lease right-of-use asset		736		758
Financing lease right-of-use asset		2,888		2,956
Other premises and equipment, net		14,220		14,336
Accrued interest income receivable		5,321		5,068
Goodwill		11,944		11,944
Bank owned life insurance		38,655		39,033
Net deferred tax asset		2,479		1,572
Federal Home Loan Bank stock		3,155		4,821
Federal Reserve Bank stock		2,125		2,125
Other assets		13,546		10,209
TOTAL ASSETS	$	1,311,412	$	1,279,713
LIABILITIES
Non-interest bearing deposits	$	207,425	$	177,533
Interest bearing deposits		909,666		877,387
Total deposits		1,117,091		1,054,920
Short-term borrowings		—		24,702
Advances from Federal Home Loan Bank		55,149		64,989
Operating lease liabilities		752		776
Financing lease liabilities		3,057		3,109
Guaranteed junior subordinated deferrable interest debentures		12,974		12,970
Subordinated debt		7,540		7,534
Total borrowed funds		79,472		114,080
Other liabilities		9,518		6,314
TOTAL LIABILITIES		1,206,081		1,175,314
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,697,819 shares issued and 17,069,000 shares outstanding on March 31, 2021; 26,688,963 shares issued and 17,060,144 shares outstanding on December 31, 2020		267		267
Treasury stock at cost, 9,628,819 shares on March 31, 2021 and 9,628,819 shares on December 31, 2020		(83,280)		(83,280)
Capital surplus		145,997		145,969
Retained earnings		56,295		54,641
Accumulated other comprehensive loss, net		(13,948)		(13,198)
TOTAL SHAREHOLDERS' EQUITY		105,331		104,399
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,311,412	$	1,279,713

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three months ended
	March 31,
	2021		2020

INTEREST INCOME
Interest and fees on loans	$	10,327	$	10,332
Interest bearing deposits		1		4
Short-term investments		7		72
Investment securities:
Available for sale		1,088		1,183
Held to maturity		346		353
Total Interest Income		11,769		11,944
INTEREST EXPENSE
Deposits		1,402		2,458
Short-term borrowings		1		12
Advances from Federal Home Loan Bank		237		284
Financing lease liabilities		27		29
Guaranteed junior subordinated deferrable interest debentures		280		280
Subordinated debt		130		130
Total Interest Expense		2,077		3,193
Net Interest Income		9,692		8,751
Provision for loan losses		400		175
Net Interest Income after Provision for Loan Losses		9,292		8,576
NON-INTEREST INCOME
Wealth management fees		2,872		2,554
Service charges on deposit accounts		201		286
Net gains on loans held for sale		495		237
Mortgage related fees		130		126
Bank owned life insurance		332		125
Other income		584		504
Total Non-Interest Income		4,614		3,832
NON-INTEREST EXPENSE
Salaries and employee benefits		6,941		6,704
Net occupancy expense		680		671
Equipment expense		390		395
Professional fees		1,314		1,154
Supplies, postage and freight		179		179
Miscellaneous taxes and insurance		292		275
Federal deposit insurance expense		155		26
Other expense		1,354		1,229
Total Non-Interest Expense		11,305		10,633

PRETAX INCOME		2,601		1,775
Provision for income taxes		520		366
NET INCOME	$	2,081	$	1,409
PER COMMON SHARE DATA:
Basic:
Net income	$	0.12	$	0.08
Average number of shares outstanding		17,064		17,043
Diluted:
Net income	$	0.12	$	0.08
Average number of shares outstanding		17,101		17,099

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2021		2020
COMPREHENSIVE INCOME
Net income	$	2,081	$	1,409
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan		558		528
Income tax effect		(117)		(111)
Unrealized holding gains (losses) on available for sale securities arising during period		(1,508)		1,170
Income tax effect		317		(246)
Other comprehensive income (loss)		(750)		1,341
Comprehensive income	$	1,331	$	2,750

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)


	Three months ended
	March 31,
	2021		2020
COMMON STOCK
Balance at beginning of period	$	267	$	267
New common shares issued for exercise of stock options (8,856, and 21,735 shares for the three months ended March 31, 2021 and 2020, respectively)		—		—
Balance at end of period		267		267
TREASURY STOCK
Balance at beginning of period		(83,280)		(83,129)
Treasury stock, purchased at cost (35,962 shares for the three months ended March 31, 2020)		—		(151)
Balance at end of period		(83,280)		(83,280)
CAPITAL SURPLUS
Balance at beginning of period		145,969		145,888
New common shares issued for exercise of stock options (8,856, and 21,735 shares for the three months ended March 31, 2021 and 2020, respectively)		24		49
Stock option expense		4		1
Balance at end of period		145,997		145,938
RETAINED EARNINGS
Balance at beginning of period		54,641		51,759
Net income		2,081		1,409
Cash dividend declared on common stock ($0.025 per share for the three months ended March 31, 2021 and 2020)		(427)		(423)
Balance at end of period		56,295		52,745
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET
Balance at beginning of period		(13,198)		(16,171)
Other comprehensive income (loss)		(750)		1,341
Balance at end of period		(13,948)		(14,830)
TOTAL STOCKHOLDERS’ EQUITY	$	105,331	$	100,840

See accompanying notes to unaudited consolidated financial statements.

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AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2021		2020
OPERATING ACTIVITIES
Net income	$	2,081	$	1,409
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		400		175
Depreciation and amortization expense		504		492
Net amortization of investment securities		78		65
Net gains on loans held for sale		(495)		(237)
Amortization of deferred loan fees		(430)		(26)
Origination of mortgage loans held for sale		(9,208)		(15,264)
Sales of mortgage loans held for sale		14,645		15,619
Increase in accrued interest receivable		(253)		(310)
Decrease in accrued interest payable		(454)		(150)
Earnings on bank-owned life insurance		(332)		(125)
Deferred income taxes		506		351
Stock compensation expense		4		1
Net change in operating leases		(24)		(23)
Other, net		(259)		(2,603)
Net cash provided by (used in) operating activities		6,763		(626)
INVESTING ACTIVITIES
Purchase of investment securities — available for sale		(25,443)		(6,223)
Purchase of investment securities — held to maturity		(4,365)		(2,618)
Proceeds from maturities of investment securities — available for sale		11,626		6,380
Proceeds from maturities of investment securities — held to maturity		790		467
Purchase of regulatory stock		(713)		(2,010)
Proceeds from redemption of regulatory stock		2,379		2,007
Long-term loans originated		(82,718)		(42,615)
Principal collected on long-term loans		69,880		52,578
Purchases of premises and equipment		(298)		(421)
Proceeds from sale of other real estate owned		—		21
Proceeds from life insurance policies		645		—
Net cash provided by (used in) investing activities		(28,217)		7,566
FINANCING ACTIVITIES
Net increase (decrease) in deposit balances		62,171		(2,920)
Net decrease in other short-term borrowings		(24,702)		(6,058)
Principal borrowings on advances from Federal Home Loan Bank		—		11,050
Principal repayments on advances from Federal Home Loan Bank		(9,840)		(6,500)
Principal payments on financing lease liabilities		(52)		(49)
Stock options exercised		24		49
Purchases of treasury stock		—		(151)
Common stock dividend paid		(427)		(423)
Net cash provided by (used in) financing activities		27,174		(5,002)
NET INCREASE IN CASH AND CASH EQUIVALENTS		5,720		1,938
CASH AND CASH EQUIVALENTS AT JANUARY 1		31,504		22,168
CASH AND CASH EQUIVALENTS AT MARCH 31	$	37,224	$	24,106

See accompanying notes to unaudited consolidated financial statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank) and AmeriServ Trust and Financial Services Company (the Trust Company). The Bank is a Pennsylvania state-chartered full service bank with 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 $2.5 billion that are not reported on the Company’s Consolidated Balance Sheets at March 31, 2021.

In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Intercompany accounts and transactions have been eliminated in preparing the Consolidated Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles, or GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from these estimates and the differences may be material to the Consolidated Financial Statements. The Company’s most significant estimates relate to the allowance for loan losses, goodwill, income taxes, investment securities, pension, and the fair value of financial instruments.

2. Basis of Preparation

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

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company, as a smaller reporting company, has adopted this ASU and continues to evaluate the impact that ASU 2016-13 will have on our consolidated financial statements. We are currently working with an industry leading third-party consultant and software provider to assist us in the implementation of ASU 2016-13. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

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In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from LIBOR to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company has identified its LIBOR exposure across product categories and is analyzing the risks associated with the LIBOR transition. However, it is too early to predict whether a new rate index replacement and the adoption of this ASU will have a material impact on the Company’s financial statements.

4. Revenue Recognition

ASU 2014-09, Revenue from Contracts with Customers – Topic 606, requires the Company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. Management determined that the primary sources of revenue associated with financial instruments, including interest and fee income on loans and interest on investments, along with certain 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 78.6% of the total revenue of the Company.

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

●

Wealth management fees - Wealth management fee income is primarily comprised of fees earned from the management and administration of trusts and customer investment portfolios. The Company’s performance obligation is generally satisfied over a period of time and the resulting fees are billed monthly or quarterly, based upon the month end market value of the assets under management. Payment is generally received after month end through a direct charge to customers’ accounts. Due to this delay in payment, a receivable of $825,000 has been established as of March 31, 2021 and is included in other assets on the Consolidated Balance Sheets in order to properly recognize the revenue earned but not yet received. Other performance obligations (such as delivery of account statements to customers) are generally considered immaterial to the overall transactions’ price. Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Also included within wealth management fees are commissions from the sale of mutual funds, annuities, and life insurance products. Commissions on the sale of mutual funds, annuities, and life insurance products are recognized when sold, which is when the Company has satisfied its performance obligation.

●

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

●

Other non-interest income - Other non-interest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned, ATM and VISA debit card fees, and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid (i.e. paid prior to issuance of annual bill), the revenue is recognized upon receipt of payment. The Company has determined that since rentals and renewals occur consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Gains and losses on the sale of other real estate owned are recognized at the completion of the property sale when the buyer obtains control of the real estate and all the performance obligations of the Company have been satisfied. The Company offers ATM and VISA debit cards to deposit account holders

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which allows our customers to access their account electronically at ATMs and POS terminals. Fees related to ATM and VISA debit card transactions are recognized when the transactions are completed and the Company has satisfied its performance obligation.

The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three month periods ending March 31, 2021 and 2020 (in thousands).


	Three months ended
	March 31,
	2021		2020
Non-interest income:
In-scope of Topic 606
Wealth management fees	$	2,872	$	2,554
Service charges on deposit accounts		201		286
Other		441		390
Non-interest income (in-scope of topic 606)		3,514		3,230
Non-interest income (out-of-scope of topic 606)		1,100		602
Total non-interest income	$	4,614	$	3,832

5. Earnings Per Common Share

Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. For the three month periods ending March 31, 2021 and 2020, options to purchase 182,000 common shares, with an exercise price of $3.83 to $4.22, and options to purchase 29,500 common shares, with an exercise price of $3.90 to $4.22, respectively, were outstanding but were not included in the computation of diluted earnings per common share because to do so would be antidilutive.


	Three months ended
	March 31,
	2021		2020

	(In thousands, except per share data)
Numerator:
Net income	$	2,081	$	1,409
Denominator:
Weighted average common shares outstanding (basic)		17,064		17,043
Effect of stock options		37		56
Weighted average common shares outstanding (diluted)		17,101		17,099
Earnings per common share:
Basic	$	0.12	$	0.08
Diluted		0.12		0.08

6. Consolidated Statement of Cash Flows

On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest bearing deposits and short-term investments in both money market funds and commercial paper. The Company made no income tax payments in the first three months of 2021 and 2020. The Company made total interest payments of $2,531,000 in the first three months of 2021 compared to $3,343,000 in the same 2020 period. During the first three months of 2021, the Company did not enter into any new lease agreements and during the same 2020 period, the Company entered into a new financing lease related to office equipment and recorded a right-of-use asset and lease liability of $63,000.

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7. Investment Securities

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

Investment securities available for sale (AFS):

March 31, 2021

GROSS

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

6,786

135

(33)

6,888

U.S. Agency mortgage-backed securities

75,758

2,016

(899)

76,875

Municipal

19,859

1,001

(83)

20,777

Corporate bonds

51,040

1,002

(166)

51,876

Total

153,443

4,154

(1,181)

156,416

Investment securities held to maturity (HTM):

March 31, 2021

GROSS

UNREALIZED

FAIR

COST BASIS

GAINS

LOSSES

VALUE

(IN THOUSANDS)

U.S. Agency

1,500

—

1,500

U.S. Agency mortgage-backed securities

9,317

311

(91)

9,537

Municipal

30,935

1,797

(261)

32,471

Corporate bonds and other securities

6,025

(29)

6,075

Total

47,777

2,187

(381)

49,583

Investment securities available for sale (AFS):


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

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

Investment securities held to maturity (HTM):


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

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

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 &

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Poor’s rating of “A.” At March 31, 2021, 47.1% of the portfolio was rated “AAA” as compared to 42.2% at December 31, 2020. Approximately 13.8% of the portfolio was either rated below “A” or unrated at March 31, 2021 as compared to 15.2% at December 31, 2020.

The Company sold no AFS securities during the first quarter of 2021 and 2020.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $123,462,000 at March 31, 2021 and $111,694,000 at December 31, 2020.

The following tables present information concerning investments with unrealized losses as of March 31, 2021 and December 31, 2020 (in thousands):

Total investment securities:

March 31, 2021

LESS THAN 12 MONTHS

12 MONTHS OR LONGER

TOTAL

FAIR

UNREALIZED

FAIR

UNREALIZED

FAIR

UNREALIZED

VALUE

LOSSES

VALUE

LOSSES

VALUE

LOSSES

U.S. Agency

1,967

(33)

—

1,967

(33)

U.S. Agency mortgage-backed securities

28,534

(989)

101

(1)

28,635

(990)

Municipal

8,958

(297)

751

(47)

9,709

(344)

Corporate bonds and other securities

9,466

(130)

7,435

(65)

16,901

(195)

Total

48,925

(1,449)

8,287

(113)

57,212

(1,562)

Total investment securities:


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

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 76 positions that are considered temporarily impaired at March 31, 2021. 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.

The interest rate environment and market yields can also have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of March 31, 2021, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 101.1% of the par value.

Contractual maturities of securities at March 31, 2021 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, 2021 is

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39.4 months and is higher than the duration at December 31, 2020 which was 25.4 months. The duration remains within our internally established guideline to not exceed 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

March 31, 2021

Available for sale

Held to maturity

Cost Basis

Fair Value

Cost Basis

Fair Value

Within 1 year

4,587

4,634

3,400

3,398

After 1 year but within 5 years

26,757

27,575

8,164

8,552

After 5 years but within 10 years

50,613

51,944

19,061

20,270

After 10 years but within15 years

14,788

15,380

10,162

10,326

Over 15 years

56,698

56,883

6,990

7,037

Total

153,443

156,416

47,777

49,583

As of March 31, 2021 and December 31, 2020, the Company reported $474,000 and $443,000, respectively, of equity securities within other assets on the Consolidated Balance Sheets. These equity securities are held within a nonqualified deferred compensation plan in which a select group of executives of the Company can participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan and held within a rabbi trust. The assets of the rabbi trust are invested in various publicly listed mutual funds. The gain or loss on the equity securities (both realized and unrealized) is reported within other income on the Consolidated Statements of Operations. During the periods presented, the Company recorded both realized and unrealized gains/losses related to the equity securities. The amounts of such gains/losses were immaterial to the Consolidated Financial Statements. 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.

8. Loans

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


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

Loan balances at March 31, 2021 and December 31, 2020 are net of unearned income of $1,343,000 and $1,202,000, respectively. The unearned income balance at March 31, 2021 includes $853,000 of unrecognized fee income from the PPP loan originations compared to $755,000 at December 31, 2020. Real estate construction loans comprised 5.8% and 7.0% of total loans, net of unearned income at March 31, 2021 and December 31, 2020, respectively.

The ongoing COVID-19 pandemic is a fluid situation and continues to evolve, impacting the way many businesses operate. The pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, and consumer spending has resulted in less economic activity and significant volatility and disruption. Certain loans within our commercial and commercial real estate portfolios have been disproportionately adversely affected by the pandemic. Due to mandatory lockdowns and travel restrictions, certain industries, such as hospitality, travel, food service and restaurants and bars, have suffered as a result of COVID-19. The following table

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

March 31, 2021

Paycheck

Commercial loans

Commercial

Protection

secured by owner

secured by non-owner

and industrial

Program

occupied real estate

Total

1-4 unit residential

1,371

—

103

4,309

5,783

Multifamily/apartments/student housing

—

262

69,236

69,498

Office

33,608

2,776

9,445

36,987

82,816

Retail

7,824

608

22,252

129,982

160,666

Industrial/manufacturing/warehouse

82,131

33,434

17,158

42,059

174,782

Hotels

285

2,044

—

41,678

44,007

Eating and drinking places

710

18,946

4,354

1,877

25,887

Amusement and recreation

165

3,275

3,559

Mixed use

—

2,495

61,363

63,858

Other

17,709

9,356

36,013

19,911

82,989

Total

143,803

67,253

95,357

407,432

713,845


	December 31, 2020
			Paycheck		Commercial loans		Commercial loans
	Commercial		Protection		secured by owner		secured by non-owner
	and industrial		Program		occupied real estate		occupied real estate		Total
1-4 unit residential	$	1,450	$	—	$	105	$	6,139	$	7,694
Multifamily/apartments/student housing		—		—		469		66,879		67,348
Office		33,525		6,872		10,095		37,164		87,656
Retail		8,080		1,542		21,180		124,325		155,127
Industrial/manufacturing/warehouse		87,021		26,222		18,255		38,814		170,312
Hotels		329		837		—		41,779		42,945
Eating and drinking places		769		13,479		4,390		1,925		20,563
Amusement and recreation		190		46		3,307		38		3,581
Mixed use		—		—		2,411		65,585		67,996
Other		19,798		9,346		35,274		18,103		82,521
Total	$	151,162	$	58,344	$	95,486	$	400,751	$	705,743

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans.

An eligible business could apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly payroll costs; or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%; (b) a two-year (if originated prior to June 5, 2020) or five-year (if originated after June 5, 2020) loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers pursuant to standards as defined by the SBA. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and at least 60% of the loan proceeds are used for payroll expenses, with the remaining loan proceeds being used for other qualifying expenses such as interest on mortgages, rent, and utilities.

In addition, PPP allows certain eligible borrowers that previously received a PPP loan to apply for a second draw loan with the same general loans terms described above. The maximum loan amount of a second draw PPP loan is 2.5

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times, or 3.5 times for borrowers within the hospitality industry, the average monthly 2019 or 2020 payroll costs up to $2.0 million. Eligibility for a second draw PPP loan is based on the following criteria: (a) borrower previously received a first draw PPP loan and used the full amount for only authorized expenditures; (b) borrower has 300 or less employees; and (c) borrower can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The loan program is set to expire on May 31, 2021.

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

9. Allowance for Loan Losses

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


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


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

The Company recorded a $400,000 provision expense for loan losses in the first quarter of 2021 compared to a $175,000 provision expense recorded in the first quarter of 2020. Although higher than the first quarter of 2020 by $225,000, an improved credit quality outlook for the overall portfolio resulted in a lower loan loss provision in the first quarter of 2021 after three consecutive quarters of a provision increase. The Company, however, continues to believe that a strong allowance for loan losses is needed given the overall economic climate and the uncertainty that remains because of the impact that the COVID-19 pandemic is having on certain borrowers. The first quarter 2021 provision primarily reflects an increased allocation on two commercial loan relationships transferred into non-accrual status during the quarter and the rating downgrade of a loan in the health care industry. As a result, non-performing assets, while still well controlled, totaled $4.2 million, or 0.43% of total loans, at March 31, 2021 compared to $3.3 million, or 0.34% of total loans, at December 31, 2020. It should be noted that the 100% SBA guarantee on PPP loans minimizes the level of credit risk associated with the loans. As a result, such loans are assigned a 0% risk weight for purposes of calculating the Bank’s risk-based capital ratios. Therefore, it was deemed appropriate to not allocate any portion of the loan loss reserve for the PPP loans.

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

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result of the provision expense sharply exceeding net loan charge-offs over the last 12 months, the balance in the allowance for loan losses increased by $2.3 million, or 24.6%, to $11.6 million at March 31, 2021. The allowance for loan losses provided 274% coverage of non-performing assets, and 1.18% of total loans, at March 31, 2021, compared to 341% coverage of non-performing assets, and 1.16% of total loans, at December 31, 2020.

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

At March 31, 2021

Commercial Loans

Secured by

Non-Owner

Real Estate-

Occupied

Residential

Allocation for

Commercial

Real Estate

Mortgage

Consumer

General Risk

Total

Loans:

Individually evaluated for impairment

2,574

—

2,582

Collectively evaluated for impairment

303,839

407,424

255,319

16,085

982,667

Total loans

306,413

407,432

255,319

16,085

985,249

Allowance for loan losses:

Specific reserve allocation

472

—

480

General reserve allocation

3,100

5,440

1,329

121

1,161

11,151

Total allowance for loan losses

3,572

5,448

1,329

121

1,161

11,631


	At December 31, 2020
			Commercial Loans
			Secured by
			Non-Owner		Real Estate-
			Occupied		Residential				Allocation for
	Commercial		Real Estate		Mortgage		Consumer		General Risk		Total
Loans:
Individually evaluated for impairment	$	847	$	8	$	—	$	—			$	855
Collectively evaluated for impairment		304,145		400,743		249,989		16,363				971,240
Total loans	$	304,992	$	400,751	$	249,989	$	16,363			$	972,095
Allowance for loan losses:
Specific reserve allocation	$	96	$	8	$	—	$	—	$	—	$	104
General reserve allocation		3,376		5,365		1,292		115		1,093		11,241
Total allowance for loan losses	$	3,472	$	5,373	$	1,292	$	115	$	1,093	$	11,345

The segments of the Company’s loan portfolio are disaggregated into classes that allows management to monitor risk and performance. The loan classes used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio. The commercial loan segment includes both the commercial and industrial and the owner occupied commercial real estate loan classes while the remaining segments are not separated into classes as management monitors risk in these loans at the segment level. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans secured by residential real estate. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). In addition, consumer and residential mortgage loans with a balance of $150,000 or more are evaluated for impairment. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the

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

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

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

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

●

the passage of time;

●

the volatility of the local market;

●

the availability of financing;

●

natural disasters;

●

the inventory of competing properties;

●

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

●

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

●

environmental contamination.

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

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

At March 31, 2021

IMPAIRED

LOANS WITH

IMPAIRED LOANS WITH

NO SPECIFIC

SPECIFIC ALLOWANCE

ALLOWANCE

TOTAL IMPAIRED LOANS

UNPAID

RECORDED

RELATED

RECORDED

PRINCIPAL

INVESTMENT

ALLOWANCE

INVESTMENT

BALANCE

(IN THOUSANDS)

Commercial

2,574

472

—

2,574

2,577

Commercial loans secured by non-owner occupied real estate

—

Total impaired loans

2,582

480

—

2,582

2,607


	At December 31, 2020
					IMPAIRED
					LOANS WITH
	IMPAIRED LOANS WITH				NO SPECIFIC
	SPECIFIC ALLOWANCE				ALLOWANCE		TOTAL IMPAIRED LOANS
									UNPAID
	RECORDED		RELATED		RECORDED		RECORDED		PRINCIPAL
	INVESTMENT		ALLOWANCE		INVESTMENT		INVESTMENT		BALANCE

	(IN THOUSANDS)
Commercial	$	847	$	96	$	—	$	847	$	850
Commercial loans secured by non-owner occupied real estate		8		8		—		8		30
Total impaired loans	$	855	$	104	$	—	$	855	$	880

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


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

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.

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

In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $2,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.

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

At March 31, 2021

SPECIAL

PASS

MENTION

SUBSTANDARD

DOUBTFUL

TOTAL

(IN THOUSANDS)

Commercial and industrial

126,834

12,401

2,828

1,740

143,803

Paycheck Protection Program (PPP)

67,253

—

67,253

Commercial loans secured by owner occupied real estate

93,296

928

1,133

—

95,357

Commercial loans secured by non-owner occupied real estate

377,352

25,124

4,948

407,432

Total

664,735

38,453

8,909

1,748

713,845


	At December 31, 2020
			SPECIAL
	PASS		MENTION		SUBSTANDARD		DOUBTFUL		TOTAL

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

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

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


	At March 31, 2021
			NON-
	PERFORMING		PERFORMING		TOTAL

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


	At December 31, 2020
			NON-
	PERFORMING		PERFORMING		TOTAL

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

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


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

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


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

	(IN THOUSANDS)
Commercial and industrial	$	148,023	$	536	$	2,603	$	—	$	3,139	$	151,162	$	—
Paycheck Protection Program (PPP)		58,344		—		—		—		—		58,344	$	—
Commercial loans secured by owner occupied real estate		95,486		—		—		—		—		95,486		—
Commercial loans secured by non-owner occupied real estate		399,850		230		671		—		901		400,751		—
Real estate – residential mortgage		246,279		776		1,178		1,756		3,710		249,989		—
Consumer		16,274		82		—		7		89		16,363		—
Total	$	964,256	$	1,624	$	4,452	$	1,763	$	7,839	$	972,095	$	—

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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.

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

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


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

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

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

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


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

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

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


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

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

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

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

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

Loan Modifications Related to COVID-19

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

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


	At March 31, 2021				At December 31, 2020
			% of Outstanding				% of Outstanding
	Balance		Non-PPP Loans		Balance		Non-PPP Loans
	(in thousands)				(in thousands)
CRE/Commercial	$	47,501	7.1	%	$	47,037	7.0	%
Home Equity/Consumer		37	0.0			83	0.1
Residential Mortgage		2,094	1.4			1,943	1.3
Total	$	49,632	5.4		$	49,063	5.3

The balance of loan modifications related to COVID-19 at March 31, 2021 represents an increase of $569,000, or 1.2%, from the balance of loans modified for COVID-19 at December 31, 2020. Even though the balance of loans subject to deferral increased during the first quarter of 2021, the current level of borrowers requesting payment deferrals is down sharply from its peak level of approximately $200 million that occurred at June 30, 2020. As a result of these loan modifications, the Company has recorded $1.2 million of accrued interest income that has not been received as of March 31, 2021.

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


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

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

11. Short-Term and Federal Home Loan Bank Borrowings

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


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


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

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

12. Lease Commitments

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

Many of our leases include both lease (e.g., minimum rent payments) and non-lease components, such as common area maintenance charges, utilities, real estate taxes, and insurance. The Company has elected to account for the variable non-lease components separately from the lease component. Such variable non-lease components are reported in net occupancy expense on the Consolidated Statements of Operations when incurred. These variable non-lease components

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


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

Certain of the Company's leases contain options to renew the lease after the initial term. Management considers the Company's historical pattern of exercising renewal options on leases and the performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, 2021 and December 31, 2020.


	March 31, 2021				December 31, 2020

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

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


March 31, 2021
	OPERATING		FINANCING

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

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December 31, 2020
	OPERATING		FINANCING

	(IN THOUSANDS)
Undiscounted cash flows due:
Within 1 year	$	120	$	316
After 1 year but within 2 years		98		320
After 2 years but within 3 years		69		309
After 3 years but within 4 years		69		249
After 4 years but within 5 years		69		248
After 5 years		520		2,760
Total undiscounted cash flows		945		4,202
Discount on cash flows		(169)		(1,093)
Total lease liabilities	$	776	$	3,109

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, 2021 and December 31, 2020, the Company had no short-term leases.

13. Accumulated Other Comprehensive Loss

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

Three months ended March 31, 2021

Three months ended March 31, 2020

Net

Unrealized

Gains and

Losses on

Defined

Losses on

Defined

Investment

Benefit

Investment

Benefit

Securities

Pension

Securities

Pension

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

AFS⁽¹⁾

Items⁽¹⁾

Total⁽¹⁾

Beginning balance

3,539

(16,737)

(13,198)

1,715

(17,886)

(16,171)

Other comprehensive income (loss) before reclassifications

(1,191)

(128)

(1,319)

924

(95)

829

Amounts reclassified from accumulated other comprehensive loss

—

569

—

512

Net current period other comprehensive income (loss)

(1,191)

441

(750)

924

417

1,341

Ending balance

2,348

(16,296)

(13,948)

2,639

(17,469)

(14,830)

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

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


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

(1) Amounts in parentheses indicate credits.

(2) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (see Note 18 for additional details).

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14. Regulatory Capital

The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. For a more detailed discussion, see the Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

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

At March 31, 2021

TO BE WELL

MINIMUM

CAPITALIZED

REQUIRED

UNDER

FOR

PROMPT

CAPITAL

CORRECTIVE

ADEQUACY

ACTION

COMPANY

BANK

PURPOSES

REGULATIONS*

AMOUNT

RATIO

AMOUNT

RATIO

(IN THOUSANDS, EXCEPT RATIOS)

Total Capital (To Risk Weighted Assets)

137,792

13.03

126,693

12.04

8.00

10.00

Tier 1 Common Equity (To Risk Weighted Assets)

107,335

10.15

114,153

10.85

4.50

6.50

Tier 1 Capital (To Risk Weighted Assets)

119,242

11.28

114,153

10.85

6.00

8.00

Tier 1 Capital (To Average Assets)

119,242

9.30

114,153

9.00

4.00

5.00


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

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

*	Applies to the Bank only.

15. Derivative Hedging Instruments

The Company can use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. The Company can use derivative instruments, primarily interest rate swaps, to manage interest rate risk and match the rates

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on certain assets by hedging the fair value of certain fixed rate debt, which converts the debt to variable rates and by hedging the cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.

Interest Rate Swap Agreements

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest rate swap agreements with customers and a large financial institution that specializes in these types of transactions. These arrangements involve the exchange of interest payments based on the notional amounts. The Company entered into floating rate loans and fixed rate swaps with our customers. Simultaneously, the Company entered into offsetting fixed rate swaps with this large financial institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay PNC the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations.

These swaps are considered free-standing derivatives and are reported at fair value within other assets and other liabilities on the Consolidated Balance Sheets. Disclosures related to the fair value of the swap transactions can be found in Note 19.

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

At March 31, 2021

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

46,468

2.57

Monthly

(185)

Swap liabilities

N/A

(46,468)

(2.57)

Monthly

185

Net exposure

—

At March 31, 2020

INCREASE

AGGREGATE

WEIGHTED

(DECREASE)

NOTIONAL

AVERAGE RATE

REPRICING

IN INTEREST

HEDGE TYPE

AMOUNT

RECEIVED/(PAID)

FREQUENCY

EXPENSE

Swap assets

N/A

33,037

3.93

Monthly

(45)

Swap liabilities

N/A

(33,037)

(3.93)

Monthly

Net exposure

—

Risk Participation Agreement

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

RPAs are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings with a corresponding offset within other liabilities. Disclosures related to the fair value of the RPA can be found in Note 19. The notional amount of the risk participation agreement outstanding at March 31, 2021 was $2.7 million.

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

16. Segment Results

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

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

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


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


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

17. Commitments and Contingent Liabilities

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

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December 31, 2020, respectively. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Bank uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending. The carrying amount of the liability for AmeriServ obiligations related to unfunded commitments and standby letters of credit was $909,000 at March 31, 2021 and $872,000 at December 31, 2020.

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

18. Pension Benefits

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


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

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

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

19. Disclosures about Fair Value Measurements and Financial Instruments

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

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

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

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

Assets and Liabilities Measured and Recorded on a Recurring Basis

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

Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the 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 interest rate swaps used for interest rate risk management and the risk participation agreement associated with a commercial real estate loan are based on an external derivative valuation model using data inputs from similar transactions as of the valuation date and classified Level 2.

The following table presents the assets and liabilities measured and reported on the Consolidated Balance Sheets on a recurring basis at their fair value as of March 31, 2021 and December 31, 2020, by level within the fair value hierarchy (in thousands).

Fair Value Measurements at March 31, 2021

TOTAL

(LEVEL 1)

(LEVEL 2)

(LEVEL 3)

Equity securities (1)

474

—

Available for sale securities:

U.S. Agency

6,888

—

6,888

—

U.S. Agency mortgage-backed securities

76,875

—

76,875

—

Municipal

20,777

—

20,777

—

Corporate bonds

51,876

—

51,876

—

Interest rate swap asset (1)

1,158

—

1,158

—

Interest rate swap liability (2)

(1,158)

—

(1,158)

—

Risk participation agreement (2)

(4)

—

(4)

—


	Fair Value Measurements at December 31, 2020
	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Equity securities (1)	$	443	$	443	$	—	$	—
Available for sale securities:
U.S. Agency		3,152		—		3,152		—
U.S. Agency mortgage-backed securities		67,913		—		67,913		—
Municipal		20,348		—		20,348		—
Corporate bonds		52,752		—		52,752		—
Interest rate swap asset (1)		3,320		—		3,320		—
Interest rate swap liability (2)		(3,320)		—		(3,320)		—

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

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

Assets Measured and Recorded on a Non-Recurring Basis

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

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loans are reported at the fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted using unobservable inputs. At March 31, 2021 and December 31, 2020, collateral-based impaired loans with a carrying value of $266,000 were reduced by a specific valuation allowance totaling $8,000 resulting in a net fair value of $258,000.

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

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


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


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


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


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

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

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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March 31, 2021

Carrying

Value

Fair Value

(Level 1)

(Level 2)

(Level 3)

(IN THOUSANDS)

FINANCIAL ASSETS:

Investment securities – HTM

47,777

49,583

—

46,586

2,997

Loans held for sale

1,308

1,322

—

Loans, net of allowance for loan loss and unearned income

973,618

978,185

—

978,185

FINANCIAL LIABILITIES:

Deposits with stated maturities

302,130

305,296

—

305,296

All other borrowings ⁽¹⁾

75,663

79,657

—

79,657


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

		(IN THOUSANDS)
FINANCIAL ASSETS:
Investment securities – HTM	$	44,222	$	47,106	$	—	$	44,108	$	2,998
Loans held for sale		6,250		6,428		6,428		—		—
Loans, net of allowance for loan loss and unearned income		960,750		969,433		—		—		969,433
FINANCIAL LIABILITIES:
Deposits with stated maturities		311,064		314,845		—		—		314,845
All other borrowings⁽¹⁾		85,493		90,907		—		—		90,907

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

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

20. Risks and Uncertainties

The impact of the ongoing COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of the Company’s customers. The pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, and consumer spending has resulted in less economic activity, and significant volatility and disruption in the financial markets. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition, and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory, and private sector responses to the pandemic, including the distribution and effectiveness of COVID-19 vaccines, and the associated impacts on the economy, financial markets and our customers, employees, and vendors. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees, and communities during this difficult time.

21. Branch Aquisition

On January 12, 2021, AmeriServ Financial Bank, the Company’s wholly owned banking subsidiary, entered into a branch purchase and assumption agreement related to the branch and deposit customers of Citizen’s Neighborhood Bank (CNB), an operating division of Riverview Bank, located in Meyersdale, Pennsylvania and to the deposit customers of CNB at the branch located in Somerset, Pennsylvania. As of March 31, 2021, the related deposits totaled approximately $45 million and will be acquired for a 3.71% deposit premium. The Meyersdale branch will continue in operation under the AmeriServ name, and the Somerset branch customers will be serviced from the neighboring full service AmeriServ office at 108 West Main Street. On a pro forma basis, AmeriServ will have the fourth largest deposit market share in Somerset County with four branches and $150 million in deposits. This transaction will be immediately accretive to the Company’s earnings and the approximate 2% dilution to the Company’s tangible book value will be earned back in less

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than three years. The transaction has received the necessary regulatory approvals and is scheduled to close on May 22, 2021.

Item 2.

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

…..2021 FIRST QUARTER SUMMARY OVERVIEW….. AmeriServ reported first quarter 2021 net income of $2,081,000, or $0.12 per diluted common share. This represents a 47.7%, or $672,000, increase from the first quarter of 2020 when net income totaled $1,409,000, or $0.08 per share. It also represents an increase of $1,389,000 or almost 300% above the fourth quarter of 2020.

The first quarter of 2021 did not resemble any previous first quarter in the history of AmeriServ. Normally, first quarters are a challenge because of the weather issues common to the Laurel Highlands of Western Pennsylvania. It is always a shorter quarter on the calendar than the other three because of February and its 28 days. We have learned over the years to use this quarter to prepare for the more active quarters when the snow and cold have finally disappeared but in 2021 the issue of primary concern was not the weather but the pandemic. There have been varying levels of governmental restrictions to incorporate into the business of banking. There has been the impact of the pandemic on entire industries and on individual enterprises within those industries. One of the major challenges has been the need to adjust policies and procedures to maintain an acceptable level of safety and soundness with many staff members functioning on a remote basis solely through computer access. There have been questions that have never been asked before and answers that changed time-tested routine procedures. However, the goals remained fixed, that is to provide professional banking services, to continue to provide the availability of credit in each of AmeriServ’s markets, and to pledge the soundness of AmeriServ as an important financial resource for both consumers and commercial businesses.

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

Also, many AmeriServ customers have been recipients of the various governmental stimulus funding programs. However, the very wise AmeriServ customers have not performed as the learned economists predicted. These stimulus funds appear not to have been spent but are being managed with great care. Spending is being deemphasized, debts are being paid down and many Americans are building their own personal “rainy day fund.” During 2020, the level of AmeriServ customer deposits increased by almost $100 million. From the period of January 1, 2021 to the end of the first quarter, an additional growth of $62 million in customer deposits has occurred. It is these deposit increases that have made the loan increases possible and further strengthened the entire American community banking industry.

However, there is yet more – so as to counter the economic negatives brought about by the pandemic, the Federal Reserve Board has deemed essentially zero interest rates to be necessary. This action has reduced the profitability of community bank loan portfolios but also created a strong mortgage refinancing boom. Many thoughtful Americans have seized on these low rates to reduce their very important cost of housing. AmeriServ continues to work extremely hard to meet demand for mortgages at these low rates. 2020 was a very busy year for mortgages and 2021 could rival it.

We have also seen projections that 25-30% of the consumer stimulus money is being invested in financial markets. Since AmeriServ wealth management is active in these markets, it continues to increase its total asset values. In 2020, it grew by over $200 million and has added another $37 million already in 2021. This growth centers in retirement planning and in the use of any capital appreciation dollars to help fund those retirement plans.

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

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

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County. It is yet another sign that AmeriServ can respond to a pandemic today but also can plan for tomorrow’s growth as part of our Banking for Life pledge.

We are encouraged by the financial results in the first quarter however, we are not celebrating. The pandemic and its challenges remain. We thank our staff for their dedication and our customers for their confidence in us.

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

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


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

The Company reported net income of $2,081,000, or $0.12 per diluted common share. This earnings performance represented a $672,000, or 47.7%, increase from the first quarter of 2020 when net income totaled $1,409,000, or $0.08 per diluted common share. The benefits of our community bank customer-focused business model and the diversification of our revenue streams contributed to AmeriServ Financial’s best earnings quarter since the third quarter of 2018. We continued to achieve record levels of both loans and deposits as we served as an important financial resource to small businesses and consumers in our marketplace. Additionally, 32% of total revenue in the first quarter of 2021 came from non-interest income sources which included record contributions from our strong wealth management business and active residential mortgage operation.

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


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

N/M — not meaningful

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

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

The average balance of total interest earning assets for the first quarter of 2021 continued to grow and is now $119 million, or 10.9%, higher than the first quarter of 2020. Likewise, on the liability side of the balance sheet, total average deposits increased by $121 million, or 12.3%, since last year primarily because of government stimulus and consumers/businesses changing their spending habits because of the pandemic. Overall, total interest expense decreased significantly more than the decrease in total interest income, resulting in net interest income increasing for the first quarter of 2021 compared to last year’s first quarter.

As stated previously, total loans reached a new record level and averaged $982 million in the first quarter of 2021 which is $105 million, or 11.9%, higher than the $877 million average for the first quarter of 2020. The slowly improving economy was evident in our lending activity as we continued to experience commercial loan growth during the first quarter of 2021 along with commercial loan pipelines returning to pre-COVID levels. Additionally, the strong level of residential mortgage loan production experienced in 2020 continued into the first quarter of 2021. Residential mortgage loan production totaled $29.7 million in the first quarter of 2021 and was 64.0% higher than the production level of $18.1 million achieved in last year’s first quarter. Along with continued robust residential mortgage loan production and additional normal commercial loan growth, loan volumes were positively impacted by the second round of the 100% guaranteed PPP loans, which was announced in late December 2020 as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and implemented during the middle of January 2021. Note that there were no PPP loans on the balance sheet in the first quarter of 2020 as the initial round of the program was not implemented until the second quarter of 2020. The Company, again, elected to participate in this renewed program to assist small businesses in our community in this difficult economy. During the first quarter of 2021, the Company processed 219 PPP loans totaling $30.8 million. Also, the Company recorded a total of $897,000 of processing fee income and interest income from PPP lending activity in the first quarter of 2021. Finally, on an end of period basis, excluding total PPP loans, the total loan portfolio grew by approximately $41.9 million, or 4.8%, since the end of the first quarter of 2020.

Total investment securities averaged $190 million for the first quarter of 2021 which is $1.6 million, or 0.8%, higher than the $189 million average for the first quarter of 2020. The Company continues to be selective when purchasing securities due to the low interest rate environment. However, the yield curve began to steepen during the latter part of the first quarter as the long end of the U.S. Treasury yield curve increased while the short end of the curve remained relatively stable. This resulted in improved yields for federal agency mortgage-backed securities and federal agency bonds, and management decided to add more of these investments to our portfolio. The Company also continues to purchase corporate securities, particularly subordinated debt issued by other financial institutions, along with taxable municipal securities.

Our liquidity position continues to be strong due to the significant influx of deposits. Later in the first quarter, the President signed into law another round of economic stimulus as part of the American Rescue Plan Act of 2021. The stimulus checks delivered to most Americans and the financial assistance provided to municipalities and school districts as part of this program contributed to total deposits increasing significantly and reaching a record level. The challenges this excess liquidity presents are twofold. First, there is uncertainty regarding the duration that these excess funds will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. The second challenge is to profitably deploy this excess liquidity given the current low yields on short-term investment products. As a result, short-term investment balances averaged $31 million in the first quarter of 2021 which remains high by historical standards. Therefore, future loan growth and continued prudent investment in securities is critical to achieve the best return on the excess funds. The low interest rate environment resulted in interest income on total investments decreasing between the first quarter of 2021 and the first quarter of 2020. Overall, total interest income on both loans and investments decreased by $175,000, or 1.5%, between years despite increased volume.

Total interest expense for the first quarter of 2021 decreased by $1.1 million, or 35.0%, when compared to the first quarter of 2020, due to lower levels of both deposit and borrowing interest expense. Deposit interest expense was lower by $1.1 million, or 43.0%, despite the previously mentioned record increase in deposits that occurred during the first quarter of 2021 reflecting new deposit inflows as well as the loyalty of the bank’s core deposit base. Management continues to effectively execute several deposit product pricing reductions in order to address the net interest margin

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challenges presented by the low interest rate environment. As a result, the Company experienced some deposit cost relief. Specifically, our total deposit cost averaged 0.52% in the first quarter of 2021 compared to 1.01% in the first quarter of 2020, representing a meaningful decrease of 49 basis points. Overall, the Company’s loan to deposit ratio averaged 89.0% in the first quarter of 2021, which we believe indicates that the Company has ample capacity to continue to grow its loan portfolio and is well positioned to continue assisting our customers and the community to recover from the impact that the COVID-19 pandemic is having on our local economy.

The Company experienced a $60,000, or 8.2%, decrease in the interest cost of borrowings in the first quarter of 2021 when compared to the first quarter of 2020. The decline is a result of the Federal Reserve’s actions to decrease interest rates and the impact that these rate decreases have on the cost of overnight borrowed funds and the replacement of matured FHLB term advances. The total 2021 first quarter average term advance borrowings balance increased by approximately $3.7 million, or 6.6%, when compared to the first quarter of 2020. As a result of the combined growth of average FHLB term advances and total average deposits there was less reliance on overnight borrowed funds, which decreased between years by $1.7 million, or 59.4%, for the quarter.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended March 31, 2021 and 2020 setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) the Company’s interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) the Company’s net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of this table, loan balances include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of 21% was used to compute tax-equivalent interest income and yields (non-GAAP). The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended March 31, 2021 and 2020 was $5,000 and $7,000,respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.

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


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

…..PROVISION FOR LOAN LOSSES…..The Company recorded a $400,000 provision expense for loan losses in the first quarter of 2021 as compared to a $175,000 provision expense in the first quarter of 2020. Although higher than the first quarter of 2020 by $225,000, an improved credit quality outlook for the overall portfolio resulted in a lower loan loss provision in the first quarter of 2021 after three consecutive quarters of a provision increase. The Company, however, continues to believe that a strong allowance for loan losses is needed given the overall economic climate and the uncertainty that remains because of the impact that the COVID-19 pandemic is having on certain borrowers. The first

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quarter 2021 provision expense primarily reflects an increased allocation on two commercial loan relationships transferred into non-accrual status during the quarter and the rating downgrade of a loan in the health care industry. As a result, non-performing assets, while still well controlled, totaled $4.2 million, or 0.43% of total loans, at March 31, 2021 compared to $3.3 million, or 0.34% of total loans, at December 31, 2020. The Company experienced low net loan charge-offs of $114,000, or 0.05% of total loans, in the first quarter of 2021 which was comparable to net loan charge-offs of $120,000, or 0.06% of total loans, in the first quarter of 2020. In summary, the allowance for loan losses provided 274% coverage of non-performing assets, and 1.18% of total loans, at March 31, 2021, compared to 341% coverage of non-performing assets, and 1.16% of total loans, at December 31, 2020. The reserve coverage of total loans, excluding PPP loans, was 1.27% (non-GAAP) at March 31, 2021. See the reconciliation of the non-GAAP measure of the reserve coverage of total loans, excluding PPP loans, within the Allowance for Loan Losses Section of the MD&A.

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

●

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

●

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

●

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

●

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

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

●

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

●

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

●

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

●

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

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

…..SEGMENT RESULTS.….. The community banking segment reported a net income contribution of $3,320,000 in the first quarter of 2021 which was higher by $796,000 from the first quarter of last year. The improvement between years is due to a higher level of total revenue which more than offset an increased level of non-interest expense as well as a higher provision exense for loan losses. Net interest income improved between years as the reduction to total interest expense more than offset the reduction to total interest income. The additional processing fee income and interest income that the Company recorded from PPP lending activity, which totaled $897,000 for the first quarter, nearly offset the unfavorable impact that the lower interest rate environment had on the Company’s earning asset margin performance. As a result, total loan interest income remained relatively consistent between years. Also favorably impacting net interest income was this segment experiencing deposit cost relief as total deposit interest expense decreased between years due to management’s action to lower pricing of several deposit products, given the declining interest rate environment. The decrease to total deposit interest expense occurred even though total deposits reached a record level which is described previously in the MD&A. Also favorably impacting net income from this segment was a greater level of non-interest income. The exceptionally strong level of residential mortgage loan activity in 2021 resulted in this segment recognizing a higher gain on the sale of residential mortgage loans in the secondary market and a corresponding greater level of mortgage related fee income. This segment also benefitted from the greater level of Bank Owned Life Insurance (BOLI) revenue. These favorable items were partially offset by the Company recording a $400,000 provision expense for loan losses for the first quarter of 2021 compared to a $175,000 provision expense in the first quarter of 2020. This was discussed previously in the Provision for Loan Losses section within this document. Finally, and also unfavorably impacting net income were higher expenses for total employee costs, professional fees, FDIC insurance expense and additional costs associated with our upcoming branch acquisition.

The wealth management segment’s net income contribution was $662,000 in the first quarter of 2021 which was $175,000 higher than the first quarter of 2020. The increase is due to wealth management fees increasing as the entire wealth management division has been resilient since the pandemic began and is performing well managing client accounts and adding new business despite the major market value decline that occurred in late March 2020. The wealth management division also benefitted from a lower level of meals & travel related expenses due to travel restrictions from the pandemic. Slightly offsetting these favorable items were higher levels of professional fees and incentive compensation. Overall, the fair market value of trust assets under administration totaled $2.518 billion at March 31, 2021, an increase of $534 million, or 26.9%, from the March 31, 2020 total of $1.984 billion.

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

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

Total deposits increased by $62.2 million, or 5.9%, in the first three months of 2021. This robust growth is the result of government stimulus and consumers/businesses changing their spending habits because of the COVID-19 pandemic. Looking into the near future, we expect that our deposit balances will be positively impacted in the second quarter of

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2021 by the acquisition of two branch offices from Riverview Bank, which we anticipate should provide approximately $45 million of additional deposits. This branch acquisition is described in our Current Report on Form 8-K filed on January 15, 2021. As of March 31, 2021, the 25 largest depositors represented 22.0% of total deposits, which is a slight increase from December 31, 2020 when it was 21.1%. Total borrowings have decreased by $34.6 million, or 30.3%, since year-end 2020. The decrease was driven, primarily, by a lower level of both short-term borrowings and FHLB term advances. Specifically, at March 31, 2021, the Company had no short-term borrowings outstanding as compared to $24.7 million at December 31, 2020. In addition, FHLB term advances decreased by $9.8 million, or 15.1%, and totaled $55.1 million at March 31, 2021. The Company has utilized the FHLB term advances to help manage interest rate risk.

The Company’s total shareholders’ equity increased by $932,000 over the first three months of 2021 due to the retention of earnings more than offsetting our common stock dividend payments to shareholders. Additionally, the value of the investment securities portfolio decreased during the first quarter which had an unfavorable impact on accumulated other comprehensive loss.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of 13.03%, and a common equity tier 1 capital ratio of 10.15% at March 31, 2021. See the discussion of the Basel III capital requirements under the Capital Resources section below. As of March 31, 2021, the Company’s book value per common share was $6.17 and its tangible book value per common share was $5.47 (non-GAAP). When compared to December 31, 2020, book value per common share and tangible book value per common share each improved by $0.05 per common share. The tangible common equity to tangible assets ratio was 7.19% (non-GAAP) at March 31, 2021 and declined by 10 basis points when compared to December 31, 2020.

The tangible common equity ratio and tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible equity by tangible assets or shares outstanding. The Company believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures, and, because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. The following table sets forth the calculation of the Company’s tangible common equity ratio and tangible book value per share at March 31, 2021 and December 31, 2020 (in thousands, except share and ratio data):


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

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


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

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

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

Overall, the Company continued to maintain good asset quality in the first three months of 2021 as evidenced by low levels of non-accrual loans, non-performing assets, and loan delinquency levels that continue to be below 1% of total loans. The increase in non-accrual loans is the result of two commercial loan relationships, one of which was previously designated as a troubled debt restructure (TDR), being transferred into non-accrual status during the first quarter of 2021. Additionally, the Company experienced a substantial decrease in accruing loan delinquency primarily attributable to the curing of commercial account delinquency during the quarter.

The Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals. The Asset Quality Task Force meets at least monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers. Deferral extension requests are considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt and issued regulatory guidance. See the disclosures regarding COVID-19 related modifications within the Non-Performing Assets Including Troubled Debt Restructurings (TDR) footnote.

We also continue to closely monitor the loan portfolio given the number of relatively large-sized commercial and commercial real estate loans within the portfolio. As of March 31, 2021, the 25 largest credits represented 21.9% of total loans outstanding, which represents a decrease from the first quarter of 2020 when it was 24.2%.

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


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

The Company recorded a $400,000 provision expense for loan losses in the first three months of 2021 compared to a $175,000 provision expense in the first three months of 2020. As mentioned previously, the Company continues to believe that a strong allowance for loan losses is needed given the overall economic climate and the uncertainty that remains because of the impact that the COVID-19 pandemic is having on certain borrowers. As a result of the provision expense sharply exceeding net loan charge-offs over the last 12 months, the balance in the allowance for loan losses increased by $2.3 million, or 24.6%, to $11.6 million at March 31, 2021. The Company’s asset quality continues to remain strong as evidenced by low levels of net loan charge-offs and non-performing assets. Note that the reserve coverage to total loans, excluding PPP loans, is 1.27% (non-GAAP) at March 31, 2021.

Management believes that this non-GAAP measure provides a greater understanding of ongoing operations and enhances comparability of results of operations with prior periods. The Company believes that investors may use this non-GAAP measure to analyze the Company’s financial condition without the impact of unusual items or events that may obscure trends in the Company’s underlying financial condition. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. The following table sets forth the calculation of the Company’s allowance for loan loss reserve coverage to total loans (GAAP) and the reserve coverage to total loans, excluding PPP loans (non-GAAP), at March 31, 2021 (in thousands, except percentages).


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

…..LIQUIDITY….. The Company’s liquidity position continues to be exceptionally strong due to the significant influx of deposits that resulted from the government stimulus programs and as customers continue to be cautious and are demonstrating reduced spending activity due to the economic uncertainty. As a result, total deposits reached a record level, averaging $1.103 billion for the first quarter of 2021. In addition, the Company’s loyal core deposit base continues to prove to be a source of strength for the Company during periods of market volatility. The core deposit base is adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities is used to help fund loan growth. Average short-term investments were higher than they have been historically which presents the challenge of profitably deploying this excess liquidity given the current low yields on short term investment products. An additional challenge is the uncertainty regarding the duration that these excess funds will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. Total average short-

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

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by $5.7 million from December 31, 2020, to $37.2 million at March 31, 2021, due to $27.2 million of cash provided by financing activities and $6.8 million of cash provided by operating activities which more than offset $28.2 million of cash used in investing activities. Within financing activities, deposits increased by $62.2 million while total short-term and FHLB borrowings decreased by $34.5 million. Within investing activities, cash advanced for new loans originated totaled $82.7 million and was $12.8 million higher than the $69.9 million of cash received from loan principal payments. Within operating activities, $9.2 million of mortgage loans held for sale were originated while $14.6 million of mortgage loans were sold into the secondary market.

The holding company had $6.5 million of cash, short-term investments, and investment securities at March 31, 2021. Additionally, dividend payments from our subsidiaries also provide ongoing cash to the holding company. At March 31, 2021, our subsidiary Bank had $8.3 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that limits dividend payments from the Trust Company to 75% of annual net income. Overall, we believe that the holding company has good liquidity to meet its trust preferred debt service requirements, its subordinated debt interest payments, and its common stock dividend.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investments, time deposits with banks, and federal funds sold. These assets totaled $37.2 million and $31.5 million at March 31, 2021 and December 31, 2020, respectively. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the FHLB systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bank is a member of the FHLB, which provides the opportunity to obtain short- to longer-term advances based upon the Company’s investment in certain residential mortgage, commercial real estate, and commercial and industrial loans. At March 31, 2021, the Company had $377 million of overnight borrowing availability at the FHLB, $33 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

…..CAPITAL RESOURCES…..The Bank meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was 10.15%, the tier 1 capital ratio was 11.28%, and the total capital ratio was 13.03% at March 31, 2021. The Company’s tier 1 leverage ratio was 9.30% at March 31, 2021. We anticipate that we will maintain our strong capital ratios throughout the remainder of 2021. There is a particular emphasis on ensuring that the subsidiary bank has appropriate levels of capital to support its non-owner occupied commercial real estate loan concentration, which stood at 348% of regulatory capital at March 31, 2021. While we work through the COVID-19 pandemic, our focus is on preserving capital to support customer lending and managing heightened credit risk due to the downturn in the economy. Additionally, we currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its current rate of $0.025 per quarter. At March 31, 2021, the Company had approximately 17.1 million common shares outstanding.

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

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

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


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

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


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

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

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

…..REGULATORY UPDATE…..The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law on March 27, 2020. Federal, state, and local governments have adopted various statutes, rules, regulations, orders, and guidelines in order to address the COVID-19 pandemic and the adverse economic effects of this pandemic on individuals, families, businesses, and governments. Financial institutions, including the Company, are

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

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

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

The CARES Act also authorizes temporary changes to certain provisions applicable to banking organizations. Among other changes, Section 4013 of the CARES Act gives financial institutions the right to elect to suspend GAAP principles and regulatory determinations for loan modifications relating to COVID-19 that would otherwise be categorized as TDRs from March 1, 2020, through the earlier of December 31, 2020, or 60 days after the COVID-19 national emergency ends. On April 7, 2020, the federal banking agencies, in consultation with state bank regulators, issued an interagency statement clarifying the interaction between (i) their earlier statement discussing whether loan modifications relating to COVID-19 need to be treated as TDRs and (ii) the CARES Act provision on this subject. In this interagency statement, the agencies also said that when exercising supervisory and enforcement responsibility with respect to consumer protection requirements, they will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency and that they do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to this emergency and the institution made good faith efforts to support borrowers and comply with the consumer protection requirements and addressed any needed corrective action. The suspension of TDR identification and accounting triggered by the effects of the COVID-19 pandemic was extended by the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. The period established by Section 4013 of the CARES Act was extended to the earlier of January 1, 2022 or 60 days after the date on which the national COVID-19 emergency terminates.

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

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

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

ACCOUNT — Pension liability

BALANCE SHEET REFERENCE — Other liabilities

INCOME STATEMENT REFERENCE — Salaries and employee benefits and Other expense

DESCRIPTION

Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense. Additionally, pension expense can also be impacted by settlement accounting charges if the amount of employees selected lump sum distributions exceed the total amount of service and interest component costs of the net periodic pension cost in a particular year. Our pension benefits are described further in Note 18 of the Notes to Unaudited Consolidated Financial Statements.

ACCOUNT — Allowance for Loan Losses

BALANCE SHEET REFERENCE — Allowance for loan losses

INCOME STATEMENT REFERENCE — Provision for loan losses

DESCRIPTION

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

Commercial and commercial real estate loans are the largest category of credits and the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan losses. Approximately $9.0 million, or 78%, of the total allowance for loan losses at March 31, 2021 has been allocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, levels of non-performing and troubled debt restructured (TDR) loans, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for loan losses may be required that would adversely impact earnings in future periods.

ACCOUNT — Goodwill

BALANCE SHEET REFERENCE — Goodwill

INCOME STATEMENT REFERENCE — Goodwill impairment

DESCRIPTION

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

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

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

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

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

ACCOUNT — Income Taxes

BALANCE SHEET REFERENCE — Net deferred tax asset

INCOME STATEMENT REFERENCE — Provision for income taxes

DESCRIPTION

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

In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of March 31, 2021, we believe that all of the deferred tax assets recorded on our balance sheet will ultimately be recovered and that no valuation allowances were needed.

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

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ACCOUNT — Investment Securities

BALANCE SHEET REFERENCE — Investment securities

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

DESCRIPTION

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

…..FORWARD LOOKING STATEMENT…..

THE STRATEGIC FOCUS:

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

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

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

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

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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.

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

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

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

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

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

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

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Item 4…..CONTROLS AND PROCEDURES…..

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

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

Part II Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not Applicable

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits


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

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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, 2021 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to the Unaudited Consolidated Financial Statements.

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


	AmeriServ Financial, Inc.
	Registrant

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

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