10-Q 1 tv499421-10q.htm FORM 10-Q tv499421-10q - none - 10.5920955s
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 period ended June 30, 2018

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
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes  ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or a smaller reporting company. See definition of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐ Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). ☐ Yes  ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at August 1, 2018
Common Stock, par value $0.01
18,025,092

AmeriServ Financial, Inc.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
1
1
2
4
5
7
33
50
50
PART II. OTHER INFORMATION
51
51
51
51
51
51
52
i

Item 1. Financial Statements
AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
(Unaudited)
June 30,
2018
December 31,
2017
ASSETS
Cash and due from depository institutions
$ 26,971 $ 26,234
Interest bearing deposits
2,838 2,698
Short-term investments in money market funds
5,212 5,256
Total cash and cash equivalents
35,021 34,188
Investment securities:
Available for sale, at fair value
135,855 129,138
Held to maturity (fair value $38,106 on June 30, 2018 and $38,811 on December 31, 2017)
38,916 38,752
Loans held for sale
3,655 3,125
Loans
891,892 890,032
Less: Unearned income
385 399
 Allowance for loan losses
9,521 10,214
Net loans
881,986 879,419
Premises and equipment, net
12,216 12,734
Accrued interest income receivable
3,464 3,603
Goodwill
11,944 11,944
Bank owned life insurance
38,125 37,860
Net deferred tax asset
6,040 5,963
Federal Home Loan Bank stock
5,947 4,675
Federal Reserve Bank stock
2,125 2,125
Other assets
5,216 4,129
TOTAL ASSETS
$ 1,180,510 $ 1,167,655
LIABILITIES
Non-interest bearing deposits
$ 184,282 $ 183,603
Interest bearing deposits
743,894 764,342
Total deposits
928,176 947,945
Short-term borrowings
82,932 49,084
Advances from Federal Home Loan Bank
43,969 46,229
Guaranteed junior subordinated deferrable interest debentures, net
12,931 12,923
Subordinated debt, net
7,476 7,465
Total borrowed funds
147,308 115,701
Other liabilities
8,143 8,907
TOTAL LIABILITIES
1,083,627 1,072,553
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,607,511 shares issued and 18,044,692 outstanding on June 30, 2018; 26,585,403 shares issued and 18,128,247 outstanding on December 31, 2017
266 266
Treasury stock at cost, 8,562,819 shares on June 30, 2018 and 8,457,156 on December 31, 2017
(78,678) (78,233)
Capital surplus
145,771 145,707
Retained earnings
43,191 40,312
Accumulated other comprehensive loss, net
(13,667) (12,950)
TOTAL SHAREHOLDERS’ EQUITY
96,883 95,102
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,180,510 $ 1,167,655
See accompanying notes to unaudited consolidated financial statements.
1

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2018
2017
2018
2017
INTEREST INCOME
Interest and fees on loans
$ 10,125 $ 9,778 $ 19,943 $ 19,334
Interest bearing deposits
5 3 9 5
Short-term investments in money market funds
47 27 90 51
Investment securities:
Available for sale
1,101 945 2,130 1,846
Held to maturity
325 298 648 563
Total Interest Income
11,603 11,051 22,820 21,799
INTEREST EXPENSE
Deposits
1,973 1,504 3,754 2,940
Short-term borrowings
170 67 262 86
Advances from Federal Home Loan Bank
192 171 378 333
Guaranteed junior subordinated deferrable interest debentures
280 280 560 560
Subordinated debt
130 130 260 260
Total Interest Expense
2,745 2,152 5,214 4,179
NET INTEREST INCOME
8,858 8,899 17,606 17,620
Provision for loan losses
50 325 100 550
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
8,808 8,574 17,506 17,070
NON-INTEREST INCOME
Wealth management fees
2,447 2,240 4,873 4,550
Service charges on deposit accounts
357 385 740 759
Net gains on sale of loans
119 186 217 300
Mortgage related fees
72 83 111 158
Net realized gains (losses) on investment securities
32 (148) 59
Bank owned life insurance
133 310 265 451
Other income
553 519 1,258 1,040
Total Non-Interest Income
3,681 3,755 7,316 7,317
NON-INTEREST EXPENSE
Salaries and employee benefits
6,218 5,917 12,311 11,865
Net occupancy expense
611 639 1,281 1,313
Equipment expense
378 434 769 853
Professional fees
1,252 1,415 2,436 2,615
Supplies, postage and freight
164 161 332 355
Miscellaneous taxes and insurance
276 311 566 605
Federal deposit insurance expense
155 152 317 312
Other expense
1,256 1,288 2,418 2,484
Total Non-Interest Expense
10,310 10,317 20,430 20,402
PRETAX INCOME
2,179 2,012 4,392 3,985
Provision for income tax expense
435 623 881 1,248
NET INCOME
1,744 1,389 3,511 2,737
See accompanying notes to unaudited consolidated financial statements.
2

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)
(In thousands, except per share data)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2018
2017
2018
2017
PER COMMON SHARE DATA:
Basic:
Net income
$ 0.10 $ 0.07 $ 0.19 $ 0.15
Average number of shares outstanding
18,038 18,580 18,058 18,696
Diluted:
Net income
$ 0.10 $ 0.07 $ 0.19 $ 0.15
Average number of shares outstanding
18,140 18,699 18,158 18,808
Cash dividends declared
$ 0.020 $ 0.015 $ 0.035 $ 0.030
See accompanying notes to unaudited consolidated financial statements.
3

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018
2017
2018
2017
COMPREHENSIVE INCOME
Net income
$ 1,744 $ 1,389 $ 3,511 $ 2,737
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan
390 398 1,434 474
Income tax effect
(82) (136) (301) (162)
Unrealized holding gains (losses) on available for sale
securities arising during period
(824) 270 (2,490) 362
Income tax effect
173 (92) 523 (122)
Reclassification adjustment for (gains) losses on available for sale securities included in net income
(32) 148 (59)
Income tax effect
11 (31) 20
Other comprehensive income (loss)
(343) 419 (717) 513
Comprehensive income
$ 1,401 $ 1,808 $ 2,794 $ 3,250
See accompanying notes to unaudited consolidated financial statements.
4

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
June 30,
2018
2017
OPERATING ACTIVITIES
Net income
$ 3,511 $ 2,737
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
100 550
Depreciation expense
812 862
Net amortization of investment securities
193 238
Net realized (gains) losses on investment securities available for sale
148 (59)
Net gains on loans held for sale
(217) (300)
Amortization of deferred loan fees
(67) (85)
Origination of mortgage loans held for sale
(14,768) (22,687)
Sales of mortgage loans held for sale
14,455 21,451
(Increase) decrease in accrued interest income receivable
139 (215)
Decrease in accrued interest payable
(73) (148)
Earnings on bank owned life insurance
(265) (284)
Deferred income taxes
83 613
Stock based compensation expense
64 64
Other, net
(156) 255
Net cash provided by operating activities
3,959 2,992
INVESTING ACTIVITIES
Purchases of investment securities – available for sale
(22,460) (22,816)
Purchases of investment securities – held to maturity
(2,405) (7,790)
Proceeds from sales of investment securities – available for sale
4,479 7,206
Proceeds from maturities of investment securities – available for sale
8,629 12,165
Proceeds from maturities of investment securities – held to maturity
2,193 736
Purchases of regulatory stock
(9,603) (8,581)
Proceeds from redemption of regulatory stock
8,331 7,638
Long-term loans originated
(83,755) (81,477)
Principal collected on long-term loans
82,138 76,107
Loans purchased or participated
(2,643) (4,138)
Loans sold or participated
1,500
Proceeds from sale of other real estate owned
22 60
Proceeds from life insurance policies
614
Purchases of premises and equipment
(294) (1,327)
Net cash used in investing activities
(13,868) (21,603)
See accompanying notes to unaudited consolidated financial statements.
5

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)
(In thousands)
(Unaudited)
Six months ended
June 30,
2018
2017
FINANCING ACTIVITIES
Net decrease in deposit balances
(19,769) (11,411)
Net increase in other short-term borrowings
33,848 29,347
Principal borrowings on advances from Federal Home Loan Bank
3,740 4,500
Principal repayments on advances from Federal Home Loan Bank
(6,000) (5,000)
Purchase of treasury stock
(445) (1,869)
Common stock dividends
(632) (563)
Net cash provided by financing activities
10,742 15,004
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
833 (3,607)
CASH AND CASH EQUIVALENTS AT JANUARY 1
34,188 34,073
CASH AND CASH EQUIVALENTS AT JUNE 30
$ 35,021 $ 30,466
See accompanying notes to unaudited consolidated financial statements.
6

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), AmeriServ Trust and Financial Services Company (the Trust Company), and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a Pennsylvania state-chartered full service bank with 15 locations in Pennsylvania. The Trust Company offers a complete range of trust and financial services and administers assets valued at $2.2 billion that are not reported on the Company’s Consolidated Balance Sheet at June 30, 2018. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.
In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Significant intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.
2.
Basis of Preparation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. They are not, however, necessarily indicative of the results of consolidated operations for a full-year.
For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
3.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical measures it may elect at adoption, but does not anticipate the amendment will have a significant impact to the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the Company expects to recognize a right of use asset and a lease liability for its operating leases commitments. The Company also anticipates additional disclosures to be provided at adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the
7

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact that the Update will have on our consolidated financial statements. The overall impact of the amendment will be affected by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.
In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.
4.
Adoption of Accounting Standards
Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers — Topic 606 and all subsequent ASUs that modified ASC 606. The standard required a company to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at the time the transfer of goods or services takes place. The Company completed an assessment of revenue streams and review of the related contracts potentially affected by the new standard and concluded that ASU 2014-09 did not materially change the method in which it recognizes revenue. Therefore, implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. However, additional disclosures were added in the current period, which can be found in Note 5.
In January 2016, the FASB finalized ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.
The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit
8

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
price notion for disclosure purposes included in Note 19 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the June 30, 2018 disclosure. The Company estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values.
In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of  $22,000 and $(62,000), for the second quarter of 2018 and 2017, respectively, and $44,000 and $(124,000) for the six month period ending June 30, 2018 and 2017, respectively, from Salaries and employee benefits into Other expense on the Consolidated Statement of Operations. See Note 18 for additional information on the presentation of these pension cost components.
5.
Revenue Recognition
Management determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including investment security gains, loan servicing charges, gains on the sale of loans, and bank owned life insurance income are not within the scope of Topic 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 78.5% of the total revenue of the Company.
Noninterest income within the scope of Topic 606 are as follows:

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

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

Other noninterest income — Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, gain (loss) on sale of other real estate owned and other miscellaneous revenue streams. Safe deposit box rental fees are charged to the customer on an
9

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
annual basis and recognized when billed. However, if the safe deposit box rental fee is prepaid (i.e. paid prior to issuance of annual bill), the revenue is recognized upon receipt of payment. The Company has determined that since rentals and renewals occur consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Gains and losses on the sale of other real estate owned are recognized at the completion of the property sale when the buyer obtains control of the real estate and all the performance obligations of the Company have been satisfied.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six month periods ending June 30, 2018 and 2017 (in thousands).
Three months ended
June 30,
Six months ended
June 30,
2018
2017
2018
2017
Noninterest income:
In-scope of Topic 606
Wealth management fees
$ 2,447 $ 2,240 $ 4,873 $ 4,550
Service charges on deposit accounts
357 385 740 759
Other
435 431 852 826
Noninterest income (in-scope of topic 606)
3,239 3,056 6,465 6,135
Noninterest income (out-of-scope of topic 606)
442 699 851 1,182
Total noninterest income
$ 3,681 $ 3,755 $ 7,316 $ 7,317
6.
Earnings Per Common Share
Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are excluded for earnings per share purposes. For the six month period ending June 30, 2017, options to purchase 10,000 common shares, with an exercise price of  $4.00, 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
June 30,
Six months ended
June 30,
2018
2017
2018
2017
(In thousands, except per share data)
Numerator:
Net income
$ 1,744 $ 1,389 $ 3,511 $ 2,737
Denominator:
Weighted average common shares outstanding (basic)
18,038 18,580 18,058 18,696
Effect of stock options
102 119 100 112
Weighted average common shares outstanding (diluted)
18,140 18,699 18,158 18,808
Earnings per common share:
Basic
$ 0.10 $ 0.07 $ 0.19 $ 0.15
Diluted
0.10 0.07 0.19 0.15
10

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7.
Consolidated Statement of Cash Flows
On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits and short-term investments in money market funds with original maturities at 90 days or less. The Company made $800,000 in income tax payments in the first six months of 2018 and $630,000 in the same 2017 period. The Company made total interest payments of  $5,287,000 in the first six months of 2018 compared to $4,328,000 in the same 2017 period. The Company had $160,000 non-cash transfers to other real estate owned (OREO) in the first six months of 2018 compared to $20,000 non-cash transfers in the same 2017 period.
8.
Investment Securities
The cost basis and fair values of investment securities are summarized as follows (in thousands):
Investment securities available for sale (AFS):
June 30, 2018
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 6,768 $ $ (238) $ 6,530
US Agency mortgage-backed securities
84,185 313 (1,861) 82,637
Municipal
10,755 29 (392) 10,392
Corporate bonds
36,901 155 (760) 36,296
Total
$ 138,609 $ 497 $ (3,251) $ 135,855
Investment securities held to maturity (HTM):
June 30, 2018
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency mortgage-backed securities
$ 8,524 $ 79 $ (192) $ 8,411
Municipal
24,352 50 (679) 23,723
Corporate bonds and other securities
6,040 13 (81) 5,972
Total
$ 38,916 $ 142 $ (952) $ 38,106
Investment securities available for sale (AFS):
December 31, 2017
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency
$ 6,612 $ $ (40) $ 6,572
US Agency mortgage-backed securities
79,854 611 (719) 79,746
Municipal
7,198 27 (189) 7,036
Corporate bonds
35,886 322 (424) 35,784
Total
$ 129,550 $ 960 $ (1,372) $ 129,138
11

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Investment securities held to maturity (HTM):
December 31, 2017
Cost
Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
US Agency mortgage-backed securities
$ 9,740 $ 149 $ (45) $ 9,844
Municipal
22,970 203 (238) 22,935
Corporate bonds and other securities
6,042 38 (48) 6,032
Total
$ 38,752 $ 390 $ (331) $ 38,811
Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of  “A.” At June 30, 2018, 56.6% of the portfolio was rated “AAA” as compared to 57.8% at December 31, 2017. Approximately 10.7% of the portfolio was either rated below “A” or unrated at June 30, 2018 as compared to 9.7% at December 31, 2017.
The Company sold no AFS securities during the second quarter of 2018. Total proceeds from the sale of AFS securities for the first six months of 2018 were $4.5 million resulting in $15,000 of gross investment security gains and $163,000 of gross investment security losses. The Company sold $1.6 million AFS securities in the second quarter of 2017 resulting in $32,000 of gross investment security gains and sold $7.2 million AFS securities in the first half of 2017 resulting in $59,000 of gross investment security gains.
The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $99,139,000 at June 30, 2018 and $117,181,000 at December 31, 2017.
The following tables present information concerning investments with unrealized losses as of June 30, 2018 and December 31, 2017 (in thousands):
Total investment securities:
June 30, 2018
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
US Agency
$ 4,684 $ (158) $ 1,846 $ (80) $ 6,530 $ (238)
US Agency mortgage-backed securities
53,287 (1,273) 18,095 (780) 71,382 (2,053)
Municipal
19,815 (469) 9,465 (602) 29,280 (1,071)
Corporate bonds and other securities
18,520 (371) 12,585 (470) 31,105 (841)
Total
$ 96,306 $ (2,271) $ 41,991 $ (1,932) $ 138,297 $ (4,203)
Total investment securities:
December 31, 2017
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
US Agency
$ 5,923 $ (39) $ 399 $ (1) $ 6,322 $ (40)
US Agency mortgage-backed securities
36,783 (253) 22,625 (511) 59,408 (764)
Municipal
8,657 (109) 7,727 (318) 16,384 (427)
Corporate bonds and other securities
7,123 (71) 13,655 (401) 20,778 (472)
Total
$ 58,486 $ (472) $ 44,406 $ (1,231) $ 102,892 $ (1,703)
12

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are 208 positions that are considered temporarily impaired at June 30, 2018. 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.
Contractual maturities of securities at June 30, 2018 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at June 30, 2018 is 47.2 months and is higher than the duration at December 31, 2017 which was 44.3 months. The duration remains within our internal established guideline range of 24 to 60 months which we believe is appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.
Total investment securities:
June 30, 2018
Available for sale
Held to maturity
Cost
Basis
Fair
Value
Cost
Basis
Fair
Value
Within 1 year
$ 77 $ 77 $ 1,000 $ 995
After 1 year but within 5 years
18,827 18,618 3,665 3,593
After 5 years but within 10 years
47,901 46,930 14,981 14,656
After 10 years but within15 years
28,160 27,567 14,663 14,351
Over 15 years
43,644 42,663 4,607 4,511
Total
$ 138,609 $ 135,855 $ 38,916 $ 38,106
9.
Loans
The loan portfolio of the Company consists of the following (in thousands):
June 30,
2018
December 31,
2017
Commercial:
Commercial and industrial
$ 168,365 $ 159,192
Commercial loans secured by owner occupied real estate
91,170 89,935
Commercial loans secured by non-owner occupied real estate
370,854 373,845
Real estate – residential mortgage
243,467 247,278
Consumer
17,651 19,383
Loans, net of unearned income
$ 891,507 $ 889,633
Loan balances at June 30, 2018 and December 31, 2017 are net of unearned income of  $385,000 and $399,000, respectively. Real estate-construction loans comprised 3.9% and 4.1% of total loans, net of unearned income at June 30, 2018 and December 31, 2017, respectively.
13

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10.
Allowance for Loan Losses
The following tables summarize the rollforward of the allowance for loan losses by portfolio segment for the three and six month periods ending June 30, 2018 and 2017 (in thousands).
Three months ended June 30, 2018
Balance at
March 31,
2018
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30,
2018
Commercial
$ 3,984 $ (412) $ 4 $ (10) $ 3,566
Commercial loans secured by non-owner occupied real
estate
3,550 13 123 3,686
Real estate – residential mortgage
1,267 (103) 67 22 1,253
Consumer
142 (53) 23 13 125
Allocation for general risk
989 (98) 891
Total
$ 9,932 $ (568) $ 107 $ 50 $ 9,521
Three months ended June 30, 2017
Balance at
March 31,
2017
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30,
2017
Commercial
$ 4,024 $ $ 6 $ (206) $ 3,824
Commercial loans secured by non-owner occupied real
estate
3,746 13 729 4,488
Real estate – residential mortgage
1,168 (60) 17 25 1,150
Consumer
149 (33) 43 (20) 139
Allocation for general risk
993 (203) 790
Total
$ 10,080 $ (93) $ 79 $ 325 $ 10,391
Six months ended June 30, 2018
Balance at
December 31,
2017
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30,
2018
Commercial
$ 4,298 $ (574) $ 12 $ (170) $ 3,566
Commercial loans secured by non-owner occupied real estate
3,666 26 (6) 3,686
Real estate – residential mortgage
1,102 (217) 77 291 1,253
Consumer
128 (152) 35 114 125
Allocation for general risk
1,020 (129) 891
Total
$ 10,214 $ (943) $ 150 $ 100 $ 9,521
Six months ended June 30, 2017
Balance at
December 31,
2016
Charge-
Offs
Recoveries
Provision
(Credit)
Balance at
June 30,
2017
Commercial
$ 4,041 $ $ 13 $ (230) $ 3,824
Commercial loans secured by non-owner occupied real estate
3,584 (14) 24 894 4,488
Real estate – residential mortgage
1,169 (154) 75 60 1,150
Consumer
151 (96) 61 23 139
Allocation for general risk
987 (197) 790
Total
$ 9,932 $ (264) $ 173 $ 550 $ 10,391
14

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded a $50,000 provision for loan losses in the second quarter of 2018 compared to a $325,000 provision for loan losses in the second quarter of 2017. For the first six months of 2018, the Company recorded a $100,000 provision for loan losses compared to a $550,000 provision for loan losses in the first six months of 2017. The lower 2018 provision reflects our overall strong asset quality, the successful workout of several criticized loans, and reduced loan portfolio balances. For the first six months of 2018, the Company experienced net loan charge-offs of  $793,000, or 0.18% of total loans, compared to net loan charge-offs of  $91,000, or 0.02% of total loans, in 2017. The higher 2018 net loan charge-offs reflect the final work-out of several non-performing loans on which reserves had previously been established.
The following tables summarize the loan portfolio and allowance for loan loss by the primary segments of the loan portfolio (in thousands).
At June 30, 2018
Commercial
Commercial Loans
Secured by Non-Owner
Occupied Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ $ 12 $ $ $ 12
Collectively evaluated for impairment
259,535 370,842 243,467 17,651 891,495
Total loans
$ 259,535 $ 370,854 $ 243,467 $ 17,651 $ 891,507
Allowance for loan losses:
Specific reserve allocation
$ $ $ $ $ $
General reserve allocation
3,566 3,686 1,253 125 891 9,521
Total allowance for loan losses
$ 3,566 $ 3,686 $ 1,253 $ 125 $ 891 $ 9,521
At December 31, 2017
Commercial
Commercial Loans
Secured by Non-Owner
Occupied Real Estate
Real Estate-
Residential
Mortgage
Consumer
Allocation for
General Risk
Total
Loans:
Individually evaluated for impairment
$ 1,213 $ 547 $ $ $ 1,760
Collectively evaluated for impairment
247,914 373,298 247,278 19,383 887,873
Total loans
$ 249,127 $ 373,845 $ 247,278 $ 19,383 $ 889,633
Allowance for loan losses:
Specific reserve allocation
$ 909 $ $ $ $ $ 909
General reserve allocation
3,389 3,666 1,102 128 1,020 9,305
Total allowance for loan losses
$ 4,298 $ 3,666 $ 1,102 $ 128 $ 1,020 $ 10,214
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. 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.
15

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management evaluates for possible impairment any individual loan in the commercial or commercial real estate segment with a loan balance in excess of  $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a TDR.
Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs for collateral dependent loans. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The need for an updated appraisal on collateral dependent loans is determined on a case-by-case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for loan losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s internal Loan Review Department to support the value of the property.
When reviewing an appraisal associated with an existing collateral real estate 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.
16

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.
The following tables present impaired loans by portfolio segment, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands).
June 30, 2018
Impaired Loans with
Specific Allowance
Impaired
Loans with no
Specific
Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
Commercial
$ $ $ $ $
Commercial loans secured by non-owner occupied
real estate
12 12 34
Total impaired loans
$ $ $ 12 $ 12 $ 34
December 31, 2017
Impaired Loans with
Specific Allowance
Impaired
Loans with no
Specific
Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
Commercial
$ 1,202 $ 909 $ 11 $ 1,213 $ 1,215
Commercial loans secured by non-owner occupied
real estate
547 547 600
Total impaired loans
$ 1,202 $ 909 $ 558 $ 1,760 $ 1,815
The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands).
Three months ended
June 30,
Six months ended
June 30,
2018
2017
2018
2017
Average loan balance:
Commercial
$ 457 $ 815 $ 709 $ 708
Commercial loans secured by non-owner occupied real estate
13 170 191 173
Average investment in impaired loans
$ 470 $ 985 $ 900 $ 881
Interest income recognized:
Commercial
$ $ $ $
Commercial loans secured by non-owner occupied real estate
Interest income recognized on a cash basis on impaired loans
$ $ $ $
17

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass-6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of  $250,000 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 from the Company’s internal Loan Review Department. The Loan Review Department is an experienced independent function which reports directly to the Board’s Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for 2018 requires review of a minimum range of 50% to 55% of the commercial loan portfolio.
In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $1,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis. Additionally, the Asset Quality Task Force, which is a group comprised of senior level personnel, meets monthly to monitor the status of problem loans.
The following table presents the classes of the commercial and commercial real estate loan portfolios summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands).
June 30, 2018
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 166,074 $ $ 2,291 $ $ 168,365
Commercial loans secured by owner occupied real
estate
88,419 1,605 1,146 91,170
Commercial loans secured by non-owner occupied
real estate
358,905 11,659 278 12 370,854
Total
$ 613,398 $ 13,264 $ 3,715 $ 12 $ 630,389
18

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and industrial
$ 156,448 $ 500 $ 2,000 $ 244 $ 159,192
Commercial loans secured by owner occupied real
estate
87,215 1,675 759 286 89,935
Commercial loans secured by non-owner occupied
real estate
362,805 10,153 874 13 373,845
Total
$ 606,468 $ 12,328 $ 3,633 $ 543 $ 622,972
It is generally the policy of the Bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs, unless the balance is minor. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is generally the policy of the bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolio classes (in thousands).
June 30, 2018
Performing
Non-Performing
Real estate – residential mortgage
$ 242,479 $ 988
Consumer
17,651
Total
$ 260,130 $ 988
December 31, 2017
Performing
Non-Performing
Real estate – residential mortgage
$ 246,021 $ 1,257
Consumer
19,383
Total
$ 265,404 $ 1,257
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands).
June 30, 2018
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 168,365 $ $ $ $ $ 168,365 $
Commercial loans secured by owner occupied real estate
91,170 91,170
Commercial loans secured by non – owner occupied real estate
370,773 81 81 370,854
Real estate-residential mortgage
239,471 2,773 371 852 3,996 243,467
Consumer
17,600 38 13 51 17,651
Total
$ 887,379 $ 2,892 $ 384 $ 852 $ 4,128 $ 891,507 $
19

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Current
30 – 59
Days
Past Due
60 – 89
Days
Past Due
90 Days
Past Due
Total
Past Due
Total
Loans
90 Days
Past Due
and Still
Accruing
Commercial and industrial
$ 159,181 $ $ $ 11 $ 11 $ 159,192 $
Commercial loans secured by owner occupied real estate
89,649 286 286 89,935
Commercial loans secured by non-owner occupied real estate
368,073 5,238 534 5,772 373,845
Real estate – residential mortgage
243,393 2,373 671 841 3,885 247,278
Consumer
19,262 76 45 121 19,383
Total
$ 879,558 $ 7,687 $ 1,250 $ 1,138 $ 10,075 $ 889,633 $
An allowance for loan losses (“ALL”) is maintained to support loan growth and cover charge-offs from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.
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.
20

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11.
Non-performing Assets Including Troubled Debt Restructurings (TDR)
The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):
June 30,
2018
December 31,
2017
Non-accrual loans
Commercial and industrial
$ $ 353
Commercial loans secured by owner occupied real estate
859
Commercial loans secured by non-owner occupied real estate
12 547
Real estate – residential mortgage
988 1,257
Total
1,000 3,016
Other real estate owned
Commercial loans secured by owner occupied real estate
157
Real estate – residential mortgage
3 18
Total
160 18
TDR’s not in non-accrual
Total non-performing assets including TDR
$ 1,160 $ 3,034
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned
0.13% 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
June 30,
Six months ended
June 30,
2018
2017
2018
2017
Interest income due in accordance with original terms
$ 22 $ 17 $ 49 $ 33
Interest income recorded
Net reduction in interest income
$ 22 $ 17 $ 49 $ 33
Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.
The Company had no loans modified as TDRs during the three and six month periods ending June 30, 2018.
The following table details the loans modified as TDRs during the three and six month periods ended June 30, 2017 (dollars in thousands).
Loans in non-accrual status
# of Loans
Current Balance
Concession Granted
Commercial loan
2 $ 678 Extension of maturity date with
interest only period
21

AmeriServ Financial, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same. As of June 30, 2018, there was no specific ALL for the one loan modified as a TDR. The specific ALL reserve for loans modified as TDR’s was $467,000 as of June 30, 2017. All TDR’s are individually evaluated for impairment and a related allowance is recorded, as needed.
The Company had no loans that were classified as TDR’s or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2018 and 2017 (six month periods) and April 1, 2018 and 2017 (three month periods), respectively, and that subsequently defaulted during these reporting periods.
The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above.
12.
Federal Home Loan Bank Borrowings
Total Federal Home Loan Bank (FHLB) borrowings and advances consist of the following (in thousands, except percentages):
At June 30, 2018
Type
Maturing
Amount
Weighted
Average Rate
Open Repo Plus
Overnight
$ 82,932 2.10%
Advances
2018
6,000 1.54
2019
12,500 1.51
2020
16,729 1.74
2021
6,000 1.90
2022
2,740 2.77
Total advances
43,969 1.73
Total FHLB borrowings
$ 126,901 1.97%
At December 31, 2017
Type
Maturing
Amount
Weighted
Average Rate
Open Repo Plus
Overnight
$ 49,084 1.54%
Advances
2018
12,000 1.48
2019
12,500 1.51
2020
16,729 1.74
2021
5,000