UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

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

For the period ended June 30, 2013

o		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 x No o

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 x No o

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).Yes o No x

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, 2013
Common Stock, par value $0.01		18,784,188

TABLE OF CONTENTS

AmeriServ Financial, Inc.
INDEX

		Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements			1
Consolidated Balance Sheets (Unaudited) – June 30, 2013 and December 31, 2012			1
Consolidated Statements of Operations (Unaudited) – Three and six months ended June 30, 2013 and 2012			2
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three and six months ended June 30, 2013 and 2012			3
Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2013 and 2012			4
Notes to Unaudited Consolidated Financial Statements			5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosure About Market Risk			44
Item 4. Controls and Procedures			45
PART II. OTHER INFORMATION			46
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults Upon Senior Securities			46
Item 4. Mine Safety Disclosures			46
Item 5. Other Information			46
Item 6. Exhibits			46

TABLE OF CONTENTS

Item 1. Financial Statements

AMERISERV FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

		June 30, 2013				December 31, 2012
ASSETS
Cash and due from depository institutions		$	16,364			$	17,808
Interest bearing deposits			2,965				1,730
Short-term investments in money market funds			6,326				7,282
Total cash and cash equivalents			25,655				26,820
Investment securities:
Available for sale			149,656				151,538
Held to maturity (fair value $18,479 on June 30, 2013 and $14,266 on December 31, 2012)			18,628				13,723
Loans held for sale			6,625				10,576
Loans			745,516				721,802
Less: Unearned income			619				637
Allowance for loan losses			11,145				12,571
Net loans			733,752				708,594
Premises and equipment, net			12,844				11,798
Accrued interest income receivable			3,242				2,960
Goodwill			12,613				12,613
Bank owned life insurance			36,260				36,214
Net deferred tax asset			11,606				11,467
Federal Home Loan Bank stock			4,866				4,179
Federal Reserve Bank stock			2,125				2,125
Prepaid federal deposit insurance			—				1,444
Other assets			7,212				6,940
TOTAL ASSETS		$	1,025,084			$	1,000,991
LIABILITIES
Non-interest bearing deposits		$	159,287			$	156,223
Interest bearing deposits			680,985				679,511
Total deposits			840,272				835,734
Short-term borrowings			34,292				15,660
Advances from Federal Home Loan Bank			16,000				13,000
Guaranteed junior subordinated deferrable interest debentures			13,085				13,085
Total borrowed funds			63,377				41,745
Other liabilities			12,153				13,044
TOTAL LIABILITIES			915,802				890,523
SHAREHOLDERS' EQUITY
Preferred stock, no par value; $1,000 per share liquidation preference; 2,000,000 shares authorized; 21,000 shares issued and outstanding on June 30, 2013 and December 31, 2012			21,000				21,000
Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,402,007 shares issued and 18,784,188 outstanding on June 30, 2013; 26,398,540 shares issued and 19,164,721 outstanding on December 31, 2012			264				264
Treasury stock at cost, 7,617,819 and 7,233,819 shares on June 30, 2013 and December 31, 2012, respectively			(74,829	)			(73,658	)
Capital surplus			145,139				145,102
Retained earnings			24,971				23,139
Accumulated other comprehensive loss, net			(7,263	)			(5,379	)
TOTAL SHAREHOLDERS' EQUITY			109,282				110,468
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	1,025,084			$	1,000,991

 
 
See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
INTEREST INCOME
Interest and fees on loans		$	8,590			$	8,552			$	17,218			$	17,281
Interest bearing deposits			3				5				4				6
Short-term investments in money market funds			4				7				6				10
Investment securities:
Available for sale			907				1,210				1,863				2,489
Held to maturity			123				111				238				223
Total Interest Income			9,627				9,885				19,329				20,009
INTEREST EXPENSE
Deposits			1,288				1,668				2,638				3,430
Short-term borrowings			8				—				13				4
Advances from Federal Home Loan Bank			30				16				55				36
Guaranteed junior subordinated deferrable interest debentures			280				280				560				560
Total Interest Expense			1,606				1,964				3,266				4,030
NET INTEREST INCOME			8,021				7,921				16,063				15,979
Provision (credit) for loan losses			150				(500	)			(100	)			(1,125	)
NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES			7,871				8,421				16,163				17,104
NON-INTEREST INCOME
Trust fees			1,779				1,628				3,446				3,325
Investment advisory fees			220				177				434				370
Net realized gains on investment securities			—				12				71				12
Net gains on sale of loans			241				251				627				527
Service charges on deposit accounts			538				517				1,049				1,052
Bank owned life insurance			388				212				589				427
Other income			909				936				1,675				1,694
Total Non-Interest Income			4,075				3,733				7,891				7,407
NON-INTEREST EXPENSE
Salaries and employee benefits			6,176				5,976				12,507				11,962
Net occupancy expense			751				702				1,524				1,431
Equipment expense			455				473				910				924
Professional fees			1,150				937				2,185				1,860
Supplies, postage and freight			211				200				422				433
Miscellaneous taxes and insurance			365				355				741				710
Federal deposit insurance expense			151				114				285				243
Other expense			1,183				1,310				2,490				2,618
Total Non-Interest Expense			10,442				10,067				21,064				20,181
PRETAX INCOME			1,504				2,087				2,990				4,330
Provision for income tax expense			434				655				864				1,333
NET INCOME			1,070				1,432				2,126				2,997
Preferred stock dividends			52				262				104				525
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS		$	1,018			$	1,170			$	2,022			$	2,472
PER COMMON SHARE DATA:
Basic:
Net income		$	0.05			$	0.06			$	0.11			$	0.12
Average number of shares outstanding			19,039				19,584				19,103				20,132
Diluted:
Net income		$	0.05			$	0.06			$	0.11			$	0.12
Average number of shares outstanding			19,128				19,652				19,192				20,186
Cash dividends declared		$	0.01			$	0.00			$	0.01			$	0.00

 
 
See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
COMPREHENSIVE INCOME (LOSS)
Net income		$	1,070			$	1,432			$	2,126			$	2,997
Other comprehensive income (loss), before tax:
Pension obligation change for defined benefit plan			334				254				823				(148	)
Income tax effect			(114	)			(86	)			(280	)			50
Unrealized holding gains (losses) on available for sale securities arising during period			(3,122	)			281				(3,604	)			218
Income tax effect			1,062				(97	)			1,224				(74	)
Reclassification adjustment for gains on available for sale securities included in net income			—				(12	)			(71	)			(12	)
Income tax effect			—				4				24				4
Other comprehensive income (loss)			(1,840	)			344				(1,884	)			38
Comprehensive income (loss)		$	(770	)		$	1,776			$	242			$	3,035

 
 
See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six months ended June 30,
		2013				2012
OPERATING ACTIVITIES
Net income		$	2,126			$	2,997
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan losses			(100	)			(1,125	)
Depreciation expense			782				766
Net amortization of investment securities			449				533
Net realized gains on investment securities available for sale			(71	)			(12	)
Net gains on loans held for sale			(627	)			(527	)
Amortization of deferred loan fees			(159	)			(86	)
Origination of mortgage loans held for sale			(33,789	)			(39,517	)
Sales of mortgage loans held for sale			38,367				41,145
Decrease (increase) in accrued interest income receivable			(282	)			57
Decrease in accrued interest payable			(526	)			(492	)
Earnings on bank owned life insurance			(402	)			(427	)
Deferred income taxes			831				1,247
Stock based compensation expense			37				9
Decrease in prepaid Federal Deposit Insurance			1,444				200
Other, net			683				(621	)
Net cash provided by operating activities			8,763				4,147
INVESTING ACTIVITIES
Purchases of investment securities – available for sale			(30,907	)			(27,237	)
Purchases of investment securities – held to maturity			(6,432	)			(3,583	)
Proceeds from sales of investment securities – available for sale			1,218				4,221
Proceeds from maturities of investment securities – available for sale			27,547				28,730
Proceeds from maturities of investment securities – held to maturity			1,496				964
Purchases of regulatory stock			(2,316	)			—
Proceeds from redemption of regulatory stock			1,629				574
Long-term loans originated			(96,463	)			(124,086	)
Principal collected on long-term loans			77,971				103,653
Loans purchased or participated			(8,000	)			(10,000	)
Loans sold or participated			1,000				8,500
Proceeds from sale of other real estate owned			173				24
Proceeds from life insurance policy			356				—
Purchases of premises and equipment			(1,826	)			(977	)
Net cash used in investing activities			(34,554	)			(19,217	)
FINANCING ACTIVITIES
Net increase in deposit balances			4,459				37,613
Net increase (decrease) in other short-term borrowings			18,632				(15,765	)
Principal borrowings on advances from Federal Home Loan Bank			9,000				—
Principal repayments on advances from Federal Home Loan Bank			(6,000	)			(3,000	)
Purchases of treasury stock			(1,171	)			(4,061	)
Common stock dividends			(190	)			—
Preferred stock dividends			(104	)			(525	)
Net cash provided by financing activities			24,626				14,262
NET DECREASE IN CASH AND CASH EQUIVALENTS			(1,165	)			(808	)
CASH AND CASH EQUIVALENTS AT JANUARY 1			26,820				34,783
CASH AND CASH EQUIVALENTS AT JUNE 30		$	25,655			$	33,975

 
 
See accompanying notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

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 18 locations in Pennsylvania. The Trust Company offers a complete range of trust and financial services and administers assets valued at $1.6 billion that are not reported on the Company’s balance sheet at June 30, 2013. 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, 2012.

3. Accounting Policies

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company’s disclosures reflecting the impact on its financial statements are presented in Note 12.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. This ASU is not expected to have a significant impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss,

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Accounting Policies  – (continued)

or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

4. 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 treated as retired for earnings per share purposes. Options and warrants to purchase 101,070 common shares, at exercise prices ranging from $3.23 to $5.75, and 244,083 common shares, at exercise prices ranging from $2.75 to $6.10, were outstanding as of June 30, 2013 and 2012, respectively, but were not included in the computation of diluted earnings per common share because to do so would be antidilutive. Dividends on preferred shares are deducted from net income in the calculation of earnings per common share.

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
		(In thousands, except per share data)
Numerator:
Net income		$	1,070			$	1,432			$	2,126			$	2,997
Preferred stock dividends			52				262				104				525
Net income available to common shareholders		$	1,018			$	1,170			$	2,022			$	2,472
Denominator:
Weighted average common shares outstanding (basic)			19,039				19,584				19,103				20,132
Effect of stock options			89				68				89				54
Weighted average common shares outstanding (diluted)			19,128				19,652				19,192				20,186
Earnings per common share:
Basic		$	0.05			$	0.06			$	0.11			$	0.12
Diluted			0.05				0.06				0.11				0.12

5. Consolidated Statement of Cash Flows

On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits, federal funds sold and short-term investments in money market funds. The Company made $34,000 in income tax payments in the first six months of 2013 as compared to $35,000 for the first six months of 2012. The Company made total interest payments of $3,792,000 in the first six months of 2013 compared to $4,522,000 in the same 2012 period. The Company had non-cash transfers to other real estate owned (OREO) in the amounts of $593,000 and $770,000 in the first six months of 2013 and 2012, respectively.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. 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, 2013
		Cost Basis				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
US Agency		$	8,049			$	39			$	(164	)		$	7,924
US Agency mortgage-backed securities			127,018				3,881				(928	)			129,971
Corporate bonds			11,991				30				(260	)			11,761
Total		$	147,058			$	3,950			$	(1,352	)		$	149,656

Investment securities held to maturity (HTM):

		June 30, 2013
		Cost Basis				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
US Agency mortgage-backed securities		$	13,621			$	325			$	(330	)		$	13,616
Taxable municipal			1,012				—				(61	)			951
Corporate bonds and other securities			3,995				—				(83	)			3,912
Total		$	18,628			$	325			$	(474	)		$	18,479

Investment securities available for sale (AFS):

		December 31, 2012
		Cost Basis				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
US Agency		$	5,848			$	70			$	(7	)		$	5,911
US Agency mortgage-backed securities			131,425				6,320				(10	)			137,735
Corporate bonds			7,992				3				(103	)			7,892
Total		$	145,265			$	6,393			$	(120	)		$	151,538

Investment securities held to maturity (HTM):

		December 31, 2012
		Cost Basis				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
US Agency mortgage-backed securities		$	9,318			$	578			$	—			$	9,896
Taxable municipal			410				6				—				416
Corporate bonds and other securities			3,995				14				(55	)			3,954
Total		$	13,723			$	598			$	(55	)		$	14,266

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, 2013, 89.7% of the portfolio was rated “AAA” as compared to 92.2% at December 31, 2012. 1.2% of the portfolio was either rated below “A” or unrated at June 30, 2013. The Company has no exposure to subprime mortgage loans in the investment portfolio. At June 30, 2013, the Company’s consolidated investment securities portfolio had a modified duration of approximately 2.89 years.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Investment Securities  – (continued)

Total proceeds from the sale of AFS securities for the first six months of 2013 were $1.2 million resulting in $71,000 of gross investment security gains. There were no sales of investment securities in the three months ended June 30, 2013. Total proceeds from the sale of AFS securities for the first six months of 2012 were $4.2 million resulting in $59,000 of gross investment security gains and $47,000 of gross investment security losses. All of the investment security sales activity for 2012 occurred in the second quarter.

The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits, and certain Federal Home Loan Bank borrowings was $95,910,000 at June 30, 2013 and $94,206,000 at December 31, 2012.

The following tables present information concerning investments with unrealized losses as of June 30, 2013 and December 31, 2012 (in thousands):

Investment securities available for sale:

		June 30, 2013
		Less than 12 months								12 months or longer								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
US Agency		$	5,885			$	(164	)		$	—			$	—			$	5,885			$	(164	)
US Agency mortgage-backed securities			35,465				(928	)			—				—				35,465				(928	)
Corporate bonds			6,796				(195	)			2,935				(65	)			9,731				(260	)
Total		$	48,146			$	(1,287	)		$	2,935			$	(65	)		$	51,081			$	(1,352	)

Investment securities held to maturity:

		June 30, 2013
		Less than 12 months								12 months or longer								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
US Agency mortgage-backed securities		$	7,594			$	(330	)		$	—			$	—			$	7,594			$	(330	)
Taxable municipal			951				(61	)			—				—				951				(61	)
Corporate bonds and other securities			919				(76	)			2,993				(7	)			3,912				(83	)
Total		$	9,464			$	(467	)		$	2,993			$	(7	)		$	12,457			$	(474	)

Investment securities available for sale:

		December 31, 2012
		Less than 12 months								12 months or longer								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
US Agency		$	993			$	(7	)		$	—			$	—			$	993			$	(7	)
US Agency mortgage-backed securities			1,140				(8	)			349				(2	)			1,489				(10	)
Corporate bonds			6,898				(103	)			—				—				6,898				(103	)
Total		$	9,031			$	(118	)		$	349			$	(2	)		$	9,380			$	(120	)

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Investment Securities  – (continued)

Investment securities held to maturity:

		December 31, 2012
		Less than 12 months								12 months or longer								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Corporate bonds and other securities		$	965			$	(35	)		$	1,981			$	(20	)		$	2,946			$	(55	)
Total		$	965			$	(35	)		$	1,981			$	(20	)		$	2,946			$	(55	)

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 53 positions that are considered temporarily impaired at June 30, 2013. 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, 2013 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.

Investment securities available for sale:

		June 30, 2013
Cost Basis		US Agency				US Agency Mortgage-Backed Securities				Corporate Bonds				Total Investment Securities Available For Sale
After 1 year but within 5 years		$	7,049			$	1,159			$	7,993			$	16,201
After 5 years but within 10 years			1,000				14,051				3,998				19,049
After 10 years but within 15 years			—				60,386				—				60,386
Over 15 years			—				51,422				—				51,422
Total		$	8,049			$	127,018			$	11,991			$	147,058

		June 30, 2013
Fair Value		US Agency				US Agency Mortgage-Backed Securities				Corporate Bonds				Total Investment Securities Available For Sale
After 1 year but within 5 years		$	6,970			$	1,235			$	7,900			$	16,105
After 5 years but within 10 years			954				14,501				3,861				19,316
After 10 years but within 15 years			—				61,233				—				61,233
Over 15 years			—				53,002				—				53,002
Total		$	7,924			$	129,971			$	11,761			$	149,656

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Investment Securities  – (continued)

Investment securities held to maturity:

		June 30, 2013
Cost Basis		US Agency Mortgage-Backed Securities				Corporate Bonds and Other Securities				Total Investment Securities Held To Maturity
Within 1 year		$	—			$	2,000			$	2,000
After 1 year but within 5 years			—				1,000				1,000
After 5 years but within 10 years			1,777				—				1,777
After 10 years but within 15 years			—				1,012				1,012
Over 15 years			11,844				995				12,839
Total		$	13,621			$	5,007			$	18,628

		June 30, 2013
Fair Value		US Agency Mortgage-Backed Securities				Corporate Bonds and Other Securities				Total Investment Securities Held To Maturity
Within 1 year		$	—			$	2,000			$	2,000
After 1 year but within 5 years			—				993				993
After 5 years but within 10 years			1,662				—				1,662
After 10 years but within 15 years			—				950				950
Over 15 years			11,954				920				12,874
Total		$	13,616			$	4,863			$	18,479

7. Loans

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

		June 30, 2013				December 31, 2012
Commercial		$	116,153			$	102,822
Commercial loans secured by real estate			390,044				383,339
Real estate – mortgage			221,736				217,584
Consumer			16,964				17,420
Loans, net of unearned income		$	744,897			$	721,165

Loan balances at June 30, 2013 and December 31, 2012 are net of unearned income of $619,000 and $637,000, respectively. Real estate-construction loans comprised 2.6%, and 2.0% of total loans, net of unearned income, at June 30, 2013 and December 31, 2012, respectively. The Company has no exposure to subprime mortgage loans in the loan portfolio.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. 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, 2013 and 2012 (in thousands).

		Balance at March 31, 2013				Charge-Offs				Recoveries				Provision (Credit)				Balance at June 30, 2013
Commercial		$	2,667			$	—			$	20			$	93			$	2,780
Commercial loans secured by real estate			5,989				—				34				(40	)			5,983
Real estate-mortgage			1,267				(18	)			12				18				1,279
Consumer			147				(41	)			28				12				146
Allocation for general risk			890				—				—				67				957
Total		$	10,960			$	(59	)		$	94			$	150			$	11,145

		Balance at March 31, 2012				Charge-Offs				Recoveries				Provision (Credit)				Balance at June 30, 2012
Commercial		$	2,483			$	—			$	90			$	(221	)		$	2,352
Commercial loans secured by real estate			8,555				(31	)			170				(316	)			8,378
Real estate-mortgage			1,250				(99	)			5				50				1,206
Consumer			166				(107	)			11				85				155
Allocation for general risk			1,324				—				—				(98	)			1,226
Total		$	13,778			$	(237	)		$	276			$	(500	)		$	13,317

		Balance at December 31, 2012				Charge-Offs				Recoveries				Provision (Credit)				Balance at June 30, 2013
Commercial		$	2,596			$	—			$	31			$	153			$	2,780
Commercial loans secured by real estate			7,796				(1,480	)			142				(475	)			5,983
Real estate-mortgage			1,269				(47	)			67				(10	)			1,279
Consumer			150				(79	)			40				35				146
Allocation for general risk			760				—				—				197				957
Total		$	12,571			$	(1,606	)		$	280			$	(100	)		$	11,145

		Balance at December 31, 2011				Charge-Offs				Recoveries				Provision (Credit)				Balance at June 30, 2012
Commercial		$	2,365			$	(99	)		$	112			$	(26	)		$	2,352
Commercial loans secured by real estate			9,400				(172	)			200				(1,050	)			8,378
Real estate-mortgage			1,270				(139	)			29				46				1,206
Consumer			174				(134	)			22				93				155
Allocation for general risk			1,414				—				—				(188	)			1,226
Total		$	14,623			$	(544	)		$	363			$	(1,125	)		$	13,317

As a result of successful ongoing problem credit resolution efforts, the Company achieved further asset quality improvements in the first six months of 2013. These improvements are evidenced by reduced levels of non-accrual loans, non-performing assets, classified assets and low loan delinquency levels that continue to be well below 1% of total loans. The higher charge-off in the commercial loans secured by real estate relate primarily to one loan for which a specific reserve had been previously established. The largest portion of the credit provision occurred in commercial loans secured by real-estate as this is the category that experienced the most meaningful improvement in asset quality.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

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, 2013
		Commercial				Commercial Loans Secured by Real Estate				Real Estate- Mortgage				Consumer				Total
Individually evaluated for impairment		$	—			$	2,238			$	—			$	12			$	2,250
Collectively evaluated for impairment			116,153				387,806				221,736				16,952				742,647
Total loans		$	116,153			$	390,044			$	221,736			$	16,964			$	744,897

		At June 30, 2013
		Commercial				Commercial Loans Secured by Real Estate				Real Estate- Mortgage				Consumer				Allocation for General Risk				Total
Specific reserve allocation		$	—			$	747			$	—			$	—			$	—			$	747
General reserve allocation			2,780				5,236				1,279				146				957				10,398
Total allowance for loan losses		$	2,780			$	5,983			$	1,279			$	146			$	957			$	11,145

		At December 31, 2012
		Commercial				Commercial Loans Secured by Real Estate				Real Estate- Mortgage				Consumer				Total
Individually evaluated for impairment		$	—			$	4,793			$	—			$	13			$	4,806
Collectively evaluated for impairment			102,822				378,546				217,584				17,407				716,359
Total loans		$	102,822			$	383,339			$	217,584			$	17,420			$	721,165

		At December 31, 2012
		Commercial				Commercial Loans Secured by Real Estate				Real Estate- Mortgage				Consumer				Allocation for General Risk				Total
Specific reserve allocation		$	—			$	1,586			$	—			$	—			$	—			$	1,586
General reserve allocation			2,596				6,210				1,269				150				760				10,985
Total allowance for loan losses		$	2,596			$	7,796			$	1,269			$	150			$	760			$	12,571

The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The loan segments used are consistent with the internal reports evaluated by the Company’s management and Board of Directors to monitor risk and performance within various segments of its loan portfolio and therefore, no further disaggregation into classes is necessary. The overall risk profile for the commercial loan segment is impacted by non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, as a meaningful but declining portion of the commercial portfolio is centered in these types of accounts. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans. 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 segment with a loan balance in excess of $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

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

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

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

When reviewing an appraisal associated with an existing 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 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

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk Department personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the Bank’s Assigned Risk Department personnel rests with the Assigned Risk Department and not the originating account officer.

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

		June 30, 2013
		Impaired Loans with Specific Allowance								Impaired Loans with no Specific Allowance				Total Impaired Loans
		Recorded Investment				Related Allowance				Recorded Investment				Recorded Investment				Unpaid Principal Balance
Commercial loans secured by real estate		$	2,187			$	747			$	51			$	2,238			$	2,320
Consumer			—				—				12				12				12
Total impaired loans		$	2,187			$	747			$	63			$	2,250			$	2,332

		December 31, 2012
		Impaired Loans with Specific Allowance								Impaired Loans with no Specific Allowance				Total Impaired Loans
		Recorded Investment				Related Allowance				Recorded Investment				Recorded Investment				Unpaid Principal Balance
Commercial loans secured by real estate		$	4,239			$	1,586			$	554			$	4,793			$	4,850
Consumer			—				—				13				13				13
Total impaired loans		$	4,239			$	1,586			$	567			$	4,806			$	4,863

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,
		2013				2012				2013				2012
Average loan balance:
Commercial		$	—			$	—			$	—			$	17
Commercial loans secured by real estate			2,294				3,350				3,131				3,506
Consumer			12				—				12				—
Average investment in impaired loans		$	2,306			$	3,350			$	3,143			$	3,523
Interest income recognized:
Commercial		$	—			$	—			$	—			$	—
Commercial loans secured by real estate			—				—				—				—
Consumer			—				—				—				—
Interest income recognized on a cash basis on impaired loans		$	—			$	—			$	—			$	—

Management uses a ten 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.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

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 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 2013 requires review of a minimum 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 bi-weekly to monitor the status of problem loans.

The following table presents the classes of the commercial 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, 2013
		Pass				Special Mention				Substandard				Doubtful				Total
Commercial		$	105,664			$	7,681			$	2,808			$	—			$	116,153
Commercial loans secured by real estate			353,891				24,971				10,704				478				390,044
Total		$	459,555			$	32,652			$	13,512			$	478			$	506,197

		December 31, 2012
		Pass				Special Mention				Substandard				Doubtful				Total
Commercial		$	99,886			$	28			$	2,908			$	—			$	102,822
Commercial loans secured by real estate			343,885				20,836				17,010				1,608				383,339
Total		$	443,771			$	20,864			$	19,918			$	1,608			$	486,161

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 the policy of the Bank that the

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

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

		June 30, 2013
		Performing				Non-Performing
Real estate-mortgage		$	220,599			$	1,137
Consumer			16,952				12
Total		$	237,551			$	1,149

		December 31, 2012
		Performing				Non-Performing
Real estate-mortgage		$	216,393			$	1,191
Consumer			17,407				13
Total		$	233,800			$	1,204

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, 2013
		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		$	116,153			$	—			$	—			$	—			$	—			$	116,153			$	—
Commercial loans secured by real estate			389,038				—				447				559				1,006				390,044				—
Real estate-mortgage			218,769				1,654				414				899				2,967				221,736				—
Consumer			16,921				43				—				—				43				16,964				—
Total		$	708,784			$	1,697			$	861			$	1,458			$	4,016			$	744,897			$	—

		December 31, 2012
		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		$	102,775			$	—			$	47			$	—			$	47			$	102,822			$	—
Commercial loans secured by real estate			379,834				—				2,545				960				3,505				383,339				—
Real estate-mortgage			213,300				3,240				303				741				4,284				217,584				—
Consumer			17,371				16				33				—				49				17,420				—
Total		$	713,280			$	3,256			$	2,928			$	1,701			$	7,885			$	721,165			$	—

An allowance for loan losses (“ALL”) is maintained to absorb losses 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.

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Allowance for Loan Losses  – (continued)

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.

9. 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, 2013				December 31, 2012
Non-accrual loans
Commercial loans secured by real estate		$	2,073			$	4,623
Real estate-mortgage			1,137				1,191
Total			3,210				5,814
Other real estate owned
Commercial loans secured by real estate			1,101				1,101
Real estate-mortgage			540				127
Total			1,641				1,228
TDR’s not in non-accrual			177				182
Total non-performing assets including TDR		$	5,028			$	7,224
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned			0.67	%			1.00	%

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

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

To be considered a TDR, both of the following criteria must be met:

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

Factors that indicate that a concession has been granted include, but are not limited to:

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

Any loan modification where the borrower’s aggregate exposure is at least $250,000 and where the loan currently maintains a criticized or classified risk rating, i.e. Special Mention, Substandard or Doubtful, or where the loan will be assigned a criticized or classified rating after the modification is evaluated to determine the need for TDR classification.

The Company had no loans modified as TDR’s for the three or six month periods ended on June 30, 2013.

The following table details the loans modified as TDRs during both the three and six month periods ended June 30, 2012 (dollars in thousands).

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Loans in accrual status

# of Loans

Current Balance

Concession Granted

Commercial loan secured by real estate

2

$140

Extension of maturity date

Loans in non-accrual status

# of Loans

Current Balance

Concession Granted

Commercial loan secured by real estate

4

$2,527

Extension of maturity date

In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the borrower supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six consecutive months prior to consideration for removing the loan from non-accrual TDR status. However, a loan will continue to be on non-accrual status until, consistent with our policy, the borrower has made a minimum of six consecutive monthly payments in accordance with the terms of the loan.

The following table presents the recorded investment in loans that were modified as TDR’s during each 12-month period prior to the current reporting periods, which begin January 1, 2013 and 2012 (six month periods) and April 1, 2013 and 2012 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
Recorded investment of defaults
Commercial loan secured by real estate		$	2,104			$	32			$	656			$	32
Total		$	2,104			$	32			$	656			$	32

All TDR’s are individually evaluated for impairment and a related allowance is recorded, as needed. All TDR’s which defaulted in the above table had a related allowance adequate to reserve for anticipated losses.

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. Other real estate owned is recorded at fair value minus estimated costs to sell.

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,
		2013				2012				2013				2012
Interest income due in accordance with original terms		$	39			$	55			$	102			$	118
Interest income recorded			—				—				—				—
Net reduction in interest income		$	39			$	55			$	102			$	118

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. 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, 2013
Type		Maturing				Amount				Weighted Average Rate
Open Repo Plus			Overnight			$	34,292				0.25	%
Advances			2015				4,000				0.52
			2016				6,000				0.71
			2017				5,000				0.91
			2018				1,000				1.13
Total advances							16,000				0.75
Total FHLB borrowings						$	50,292				0.41	%

		At December 31, 2012
Type		Maturing				Amount				Weighted Average Rate
Open Repo Plus			Overnight			$	15,660				0.25	%
Advances			2015				4,000				0.52
			2016				5,000				0.74
			2017				4,000				0.92
Total advances							13,000				0.73
Total FHLB borrowings						$	28,660				0.47	%

The rate on Open Repo Plus advances can change daily, while the rates on the advances are fixed until the maturity of the advance.

11. Preferred Stock

SBLF:

On August 11, 2011, pursuant to the Small Business Lending Fund (SBLF), the Company issued and sold to the US Treasury 21,000 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series E (Series E Preferred Stock) for the aggregate proceeds of $21 million. The SBLF is a voluntary program sponsored by the US Treasury that encourages small business lending by providing capital to qualified community banks at favorable rates. The initial interest rate on the Series E Preferred Stock had been initially set at 5% per annum and may be decreased to as low as 1% per annum if growth thresholds were met for qualified outstanding small business loans. The Company used the proceeds from the Series E Preferred Stock issued to the US Treasury to repurchase all 21,000 shares of its outstanding preferred shares previously issued to the US Treasury under the TARP Capital Purchase Program.

The Series E Preferred Stock has an aggregate liquidation preference of approximately $21 million and qualifies as Tier 1 Capital for regulatory purposes. The terms of the Series E Preferred Stock provide for the payment of non-cumulative dividends on a quarterly basis. The dividend rate, as a percentage of the liquidation amount, may fluctuate while the Series E Preferred Stock is outstanding based upon changes in the level of “qualified small business lending” (“QSBL”) by the Bank from its average level of QSBL at each of the four quarter ends leading up to June 30, 2010 (the “Baseline”) as follows:

DIVIDEND PERIOD ANNUALIZED

ANNUALIZED DIVIDEND RATE

BEGINNING

ENDING

August 11, 2011

December 31, 2011

5.0%

January 1, 2012

December 31, 2013

1.0% to 5.0%

January 1, 2014

February 7, 2016

1.0% to 7.0%(1)

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Preferred Stock  – (continued)

DIVIDEND PERIOD ANNUALIZED

ANNUALIZED DIVIDEND RATE

BEGINNING

ENDING

February 8, 2016

Redemption

9.0%(2)

In addition to the applicable dividend rates described above, beginning on January 1, 2014 and on all dividend payment dates thereafter ending on April 1, 2016, if we fail to increase our level of QSBL compared to the Baseline, we will be required to pay a quarterly lending incentive fee of 0.5% of the liquidation value. As of June 30, 2013, the Company had increased its QSBL to a level that reduced the dividend rate to 1%. This 1% rate will continue at least through the fourth quarter of 2013.

As long as shares of Series E Preferred Stock remain outstanding, we may not pay dividends to our common shareholders (nor may we repurchase or redeem any shares of our common stock) during any quarter in which we fail to declare and pay dividends on the Series E Preferred Stock and for the next three quarters following such failure. In addition, under the terms of the Series E Preferred Stock, we may only declare and pay dividends on our common stock (or repurchase shares of our common stock), if, after payment of such dividend, the dollar amount of our Tier 1 capital would be at least ninety percent (90%) of Tier 1 capital as of June 30, 2011, excluding any charge-offs and redemptions of the Series E Preferred Stock (the “Tier 1 Dividend Threshold”). The Tier 1 Dividend Threshold is subject to reduction, beginning January 1, 2014, based upon the extent by which, if at all, the QSBL at September 30, 2013 has increased over the Baseline.

We may redeem the Series E Preferred Stock at any time at our option, at a redemption price of 100% of the liquidation amount plus accrued but unpaid dividends, subject to the approval of our federal banking regulator.

12. Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax, for the three and six months ended June 30, 2013 (in thousands):

Three months ended June 30, 2013		Net Unrealized Gains and Losses on Investment Securities AFS(1)				Defined Benefit Pension Items(1)				Total
Balance at April 1, 2013		$	3,774			$	(9,197	)		$	(5,423	)
Other comprehensive loss before reclassifications			(2,060	)			—				(2,060	)
Amounts reclassified from accumulated other comprehensive loss			—				220				220
Net current period other comprehensive income (loss)			(2,060	)			220				(1,840	)
Balance at June 30, 2013		$	1,714			$	(8,977	)		$	(7,263	)

TABLE OF CONTENTS

AMERISERV FINANCIAL, INC.
  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Accumulated Other Comprehensive Loss  – (continued)

Six months ended June 30, 2013		Net Unrealized Gains and Losses on Investment Securities AFS(1)				Defined Benefit Pension Items(1)				Total
Balance at January 1, 2013		$	4,141			$	(9,520	)		$	(5,379	)
Other comprehensive income (loss) before reclassifications			(2,380	)			103				(2,277	)
Amounts reclassified from accumulated other comprehensive loss			(47	)			440				393
Net current period other comprehensive income (loss)			(2,427	)			543				(1,884	)
Balance at June 30, 2013		$	1,714			$	(8,977	)		$	(7,263	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss for the three and six months ended June 30, 2013 (in thousands):

Three months ended June 30, 2013 Details about accumulated other comprehensive loss components		Amount reclassified from accumulated other comprehensive loss(1)				Affected line item in the statement of operations
Amortization of defined benefit items(2)
Estimated net loss		$	341				Salaries and employee benefits
Prior service cost			(5	)			Salaries and employee benefits
Transition asset			(2	)			Salaries and employee benefits
			334				Total before tax
			(114	)			Provision for income tax expense
		$	220				Net of tax
Total reclassifications for the period		$	220				Net of tax