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EX-32.1 - EXHIBIT 32.1 - AMERISERV FINANCIAL INC /PA/v431289_exh32x1.htm

 

 

 

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



 

FORM 10-K



 

 
(MARK ONE)
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

OR

 
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,
PENNSYLVANIA
  15907-0430
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (814) 533-5300



 

Securities registered pursuant to Section 12(b) of the Act:

 
Title Of Each Class   Name Of Each Exchange On Which Registered
Common Stock, Par Value $0.01 Per Share   The NASDAQ Stock Market LLC
8.45% Beneficial Unsecured Securities, Series A
(AmeriServ Financial Capital Trust I)
   
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None



 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was $62,809,831 as of June 30, 2015.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 18,870,811 shares outstanding as of January 29, 2016.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the proxy statement for the annual shareholders’ meeting are incorporated by reference in Parts II and III.

 

 


 
 

TABLE OF CONTENTS

FORM 10-K INDEX

 
  Page No.
PART I
        

Item 1.

Business

    1  

Item 1A.

Risk Factors

    11  

Item 1B.

Unresolved Staff Comments

    11  

Item 2.

Properties

    11  

Item 3.

Legal Proceedings

    11  

Item 4.

Mine Safety Disclosures

    11  
PART II
        

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities

    12  

Item 6.

Selected Consolidated Financial Data

    13  

Item 7.

Management’s Discussion and Analysis of Consolidated Financial Condition and
    Results of Operations

    14  

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

    34  

Item 8.

Financial Statements and Supplementary Data

    35  

Item 9.

Changes in and Disagreements With Accountants On Accounting and Financial     Disclosure

    91  

Item 9A.

Controls and Procedures

    91  

Item 9B.

Other Information

    91  
PART III
        

Item 10.

Directors, Executive Officers, and Corporate Governance

    92  

Item 11.

Executive Compensation

    92  

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related     Stockholder Matters

    93  

Item 13.

Certain Relationships and Related Transactions, and Director Independence

    93  

Item 14.

Principal Accountant Fees and Services

    93  
PART IV
        

Item 15.

Exhibits, Financial Statement Schedules

    94  
Signatures     96  

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PART I

ITEM 1. BUSINESS
GENERAL

AmeriServ Financial, Inc. (the Company) is a bank holding company organized under the Pennsylvania Business Corporation Law. The Company became a holding company upon acquiring all of the outstanding shares of AmeriServ Financial Bank (the Bank) in January 1983. The Company’s other wholly owned subsidiaries include AmeriServ Trust and Financial Services Company (the Trust Company), formed in October 1992, and AmeriServ Life Insurance Company (AmeriServ Life), formed in October 1987. When used in this report, the “Company” may refer to AmeriServ Financial, Inc. individually or AmeriServ Financial, Inc. and its direct and indirect subsidiaries.

The Company’s principal activities consist of owning and operating its three wholly owned subsidiary entities. At December 31, 2015, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of $1.149 billion, $903 million, and $119 million, respectively. The Company and its subsidiaries derive substantially all of their income from banking and bank-related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, accounting and taxes, loan review, auditing, investment accounting, marketing and risk management.

As a bank holding company, the Company is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking and Securities (the PDB). The Company is also under the jurisdiction of the Securities and Exchange Commission (the SEC) for matters relating to registered offerings and sales of its securities under the Securities Act of 1933, as amended, and the disclosure and regulatory requirements of the Securities Exchange Act of 1934, as amended. The Company’s common stock is listed on the NASDAQ Stock Market under the trading symbol “ASRV,” and the Company is subject to the NASDAQ rules applicable to listed companies.

AMERISERV FINANCIAL BANKING SUBSIDIARY
AMERISERV FINANCIAL BANK

The Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended (the Banking Code). Through 17 locations in Allegheny, Cambria, Centre, Somerset, and Westmoreland counties, Pennsylvania, the Bank conducts a general banking business. It is a full-service bank offering (i) retail banking services, such as demand, savings and time deposits, checking accounts, money market accounts, secured and unsecured consumer loans, mortgage loans, safe deposit boxes, holiday club accounts, money orders, and traveler’s checks; and (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as commercial real estate mortgage loans (CRE), short and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, real estate-construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services. The Bank also operates 19 automated bank teller machines (ATMs) through its 24-hour banking network that is linked with NYCE, a regional ATM network, and CIRRUS, a national ATM network. West Chester Capital Advisors (WCCA), a SEC registered investment advisor, is also a subsidiary of the Bank. The Company also operates loan production offices (LPOs) in Monroeville and Altoona in Pennsylvania, Hagerstown in Maryland and Harrisonburg in Virginia.

We believe that the Bank’s deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. The Bank’s business is not seasonal, nor does it have any risks attendant to foreign sources. A significant majority of the Bank’s customer base is located within a 150 mile radius of Johnstown, Pennsylvania, the Bank’s headquarters.

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The Bank is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the PDB. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios of the Bank at December 31, 2015:

 
Headquarters   Johnstown, PA
Total Assets   $ 1,108,994  
Total Investment Securities     129,902  
Total Loans and Loans Held for Sale (net of unearned income)     883,987  
Total Deposits     903,494  
Total Net Income     5,938  
Asset Leverage Ratio     8.97 % 
Return on Average Assets     0.55  
Return on Average Equity     5.80  
Total Full-time Equivalent Employees     247  
RISK MANAGEMENT OVERVIEW:

Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, which includes credit, interest rate and market, liquidity, operational, legal/compliance, strategic/reputational and security risk. The Company controls and monitors these risks with policies, procedures, and various levels of oversight from the Company’s Board of Directors (the Board) and management. The Company has both a Management Enterprise Risk Committee and a Board Enterprise Risk Committee to help manage and monitor the Company’s risk position.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. The Company uses its asset liability management policy to control and manage interest rate risk.

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors, debtholders and the funding of operating costs. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms resulting in an economic loss to the organization. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses (the ALL) to control and manage credit risk. The Company’s investment policy and hedging policy limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities. The following summarizes and describes the Company’s various loan categories and the underwriting standards applied to each:

Commercial Loans

This category includes credit extensions to commercial and industrial borrowers. Business assets, including accounts receivable, inventory and/or equipment, typically secure these credits. In appropriate instances, extensions of credit in this category are subject to collateral advance formulas. Balance sheet strength and profitability are considered when analyzing these credits, with special attention given to historical, current and prospective sources of cash flow, and the ability of the customer to sustain cash flow at acceptable levels. The Bank’s policy permits flexibility in determining acceptable debt service coverage ratios, with a minimum level of 1.1 to 1x desired. Personal guarantees are frequently required; however, as the financial strength of the borrower increases, the Bank’s ability to obtain personal guarantees decreases. In addition to economic risk, this category is impacted by the strength of the borrower’s management, industry risk and portfolio concentration risk each of which are also monitored and considered during the underwriting process.

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Commercial Loans Secured by Real Estate

This category includes various types of loans, including acquisition and construction of investment property, owner-occupied property and operating property. Maximum term, minimum cash flow coverage, leasing requirements, maximum amortization and maximum loan to value ratios are controlled by the Bank’s credit policy and follow industry guidelines and norms, and regulatory limitations. Personal guarantees are normally required during the construction phase on construction credits and are frequently obtained on mid to smaller CRE loans. In addition to economic risk, this category is subject to geographic and portfolio concentration risk, each of which are monitored and considered in underwriting.

Residential Real Estate — Mortgages

This category includes mortgages that are secured by residential property. Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae underwriting guidelines, with the exception of Community Reinvestment Act (CRA) loans, which have more liberal standards. The major risk in this category is that a significant downward economic trend would increase unemployment and cause payment default. The Bank does not engage and has never engaged, in subprime residential mortgage lending.

Consumer Loans

This category includes consumer installment loans and revolving credit plans. Underwriting is pursuant to industry norms and guidelines. The major risk in this category is a significant economic downturn.

INVESTMENTS

The investment securities portfolio of the Company and its subsidiaries is managed primarily to provide ample liquidity to fund, for example, loan growth and secondarily for earnings in a manner that is consistent with proper bank asset/liability management and current banking practices. The objectives of portfolio management include consideration of proper liquidity levels, interest rate and market valuation sensitivity, and profitability. The investment portfolio of the Company and its subsidiaries are proactively managed in accordance with federal and state laws and regulations and in accordance with generally accepted accounting principles (GAAP).

The investment portfolio is primarily made up of AAA rated agency mortgage-backed securities and short maturity agency securities. Beginning in 2012, the Company began to add high quality corporate securities and select taxable municipal securities to the portfolio. Management strives to maintain a relatively short duration in the portfolio. All holdings must meet standards documented in its investment policy.

Investment securities classified as held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair market value. The following table sets forth the cost basis and fair value of the Company’s investment portfolio as of the periods indicated:

Investment securities available for sale at:

     
  AT DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS)
U.S. Agency   $ 2,900     $ 5,931     $ 6,926  
Corporate bonds     18,541       15,497       11,992  
U.S. Agency mortgage-backed securities     96,801       102,888       121,480  
Total cost basis of investment securities available for sale   $ 118,242     $ 124,316     $ 140,398  
Total fair value of investment securities available for sale   $ 119,467     $ 127,110     $ 141,978  

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Investment securities held to maturity at:

     
  AT DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS)
Taxable municipal   $ 5,592     $ 3,364     $ 1,521  
U.S. Agency mortgage-backed securities     10,827       12,481       12,671  
Corporate bonds and other securities     5,000       3,995       3,995  
Total cost basis of investment securities held to maturity   $ 21,419     $ 19,840     $ 18,187  
Total fair value of investment securities held to maturity   $ 21,533     $ 20,213     $ 17,788  
DEPOSITS AND OTHER SOURCES OF FUNDS
Deposits

The Bank has a stable core deposit base made up of traditional commercial bank products that exhibits little fluctuation, other than jumbo certificates of deposits (CDs), which demonstrate some seasonality. The Company also utilizes certain Trust Company specialty deposits related to the ERECT Fund as a funding source which serve as an alternative to wholesale borrowings and can exhibit some limited degree of volatility.

The following table sets forth the average balance of the Company’s deposits and average rates paid thereon for the past three calendar years:

           
  AT DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS, EXCEPT PERCENTAGES)
Demand:
                                                     
Non-interest bearing   $ 171,175       —%     $ 155,365       %    $ 158,169       % 
Interest bearing     97,201       0.21       97,641       0.20       75,126       0.18  
Savings     94,425       0.17       89,554       0.16       87,819       0.16  
Money market     242,298       0.34       228,150       0.33       212,735       0.35  
Other time     287,783       1.24       300,915       1.26       312,741       1.33  
Total deposits   $ 892,882       0.66 %    $ 871,625       0.68 %    $ 846,590       0.75 % 
Loans

The loan portfolio of the Company consisted of the following:

         
  AT DECEMBER 31,
     2015   2014   2013   2012   2011
     (IN THOUSANDS)
Commercial   $ 181,115     $ 139,158     $ 120,120     $ 102,864     $ 83,124  
Commercial loans secured by real estate(1)     422,145       410,851       412,254       383,934       350,224  
Real estate-mortgage(1)     257,937       258,616       235,689       217,584       212,669  
Consumer     20,344       19,009       15,864       17,420       18,172  
Total loans     881,541       827,634       783,927       721,802       664,189  
Less: Unearned income     557       554       581       637       452  
Total loans, net of unearned income   $ 880,984     $ 827,080     $ 783,346     $ 721,165     $ 663,737  

(1) For each of the periods presented beginning with December 31, 2015, real estate-construction loans constituted 3.0%, 3.5%, 3.0%, 2.0% and 1.9% of the Company’s total loans, net of unearned income, respectively.

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Secondary Market Activities

The residential lending department of the Bank continues to originate one-to-four family mortgage loans for customers, the majority of which are sold to outside investors in the secondary market and some of which are retained for the Bank’s portfolio. Mortgages sold on the secondary market are sold to investors on a “flow” basis; mortgages are priced and delivered on a “best efforts” pricing basis, with servicing released to the investor. Fannie Mae/Freddie Mac guidelines are used in underwriting all mortgages with the exception of a limited amount of CRA loans. Mortgages with longer terms, such as 20-year, 30-year, FHA, and VA loans, are usually sold. The remaining production of the department includes construction, adjustable rate mortgages, quality non-salable loans, and bi-weekly mortgages. These loans are usually kept in the Bank’s portfolio. New portfolio production is predominately adjustable rate mortgages.

Non-performing Assets

The following table presents information concerning non-performing assets:

         
  AT DECEMBER 31,
     2015   2014   2013   2012   2011
     (IN THOUSANDS, EXCEPT PERCENTAGES)
Non-accrual loans:
                                            
Commercial   $ 4,260     $     $     $     $  
Commercial loans secured by real estate     18       778       1,632       4,623       3,870  
Real estate-mortgage     1,788       1,417       1,239       1,191       1,205  
Total     6,066       2,195       2,871       5,814       5,075  
Other real estate owned:
                                            
Commercial loans secured by real estate           384       344       1,101       20  
Real estate-mortgage     75       128       673       127       104  
Total     75       512       1,017       1,228       124  
Total restructured loans not in
non-accrual (TDR)
    156       210       221       182        
Total non-performing assets including TDR   $ 6,297     $ 2,917     $ 4,109     $ 7,224     $ 5,199  
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned     0.71 %      0.35 %      0.52 %      1.00 %      0.78 % 

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 (OREO) is measured at fair value based on appraisals, less cost to sell at the date of foreclosure. The Company had no loans past due 90 days or more, still accruing, for the periods presented.

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.

         
  YEAR ENDED DECEMBER 31,
     2015   2014   2013   2012   2011
     (IN THOUSANDS)
Interest income due in accordance with original terms   $ 94     $ 136     $ 178     $ 231     $ 376  
Interest income recorded                             (167 ) 
Net reduction in interest income   $ 94     $ 136     $ 178     $ 231     $ 209  

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AMERISERV FINANCIAL NON-BANKING SUBSIDIARIES
AMERISERV TRUST AND FINANCIAL SERVICES COMPANY

AmeriServ Trust and Financial Services Company is a trust company organized under Pennsylvania law in October 1992. Its staff of approximately 48 professionals administers assets valued at approximately $2.0 billion that are not recognized on the Company’s balance sheet at December 31, 2015. The Trust Company focuses on wealth management. Wealth management includes personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts are included in this segment. This segment also includes financial services which include the sale of mutual funds, annuities, and insurance products. The wealth management business also includes the union collective investment funds, namely the ERECT and BUILD funds which are designed to use union pension dollars in construction projects that utilize union labor. The BUILD fund is in the process of liquidation. At December 31, 2015, the Trust Company had total assets of $4.9 million and total stockholder’s equity of $4.6 million. In 2015, the Trust Company contributed earnings to the Company as its gross revenue amounted to $8.5 million and the net income contribution was $1.3 million. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of Philadelphia and the PDB.

AMERISERV LIFE

AmeriServ Life is a captive insurance company organized under the laws of the State of Arizona. AmeriServ Life engages in underwriting as reinsurer of credit life and disability insurance within the Company’s market area. Operations of AmeriServ Life are conducted in each office of the Company’s banking subsidiary. AmeriServ Life is subject to supervision and regulation by the Arizona Department of Insurance, the Pennsylvania Insurance Department, and the Board of Governors of the Federal Reserve System (the Federal Reserve). At December 31, 2015, AmeriServ Life had total assets of $389,000.

MONETARY POLICIES

Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve are: open market operations in U.S. Government securities, changes in the federal funds rate and discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Federal Reserve have had, and will continue to have, a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

COMPETITION

Our subsidiaries face strong competition from other commercial banks, savings banks, credit unions, savings and loan associations, and other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions which are substantially larger and have greater financial resources than the Bank and the Trust Company. As the financial services industry continues to consolidate, the scope of potential competition affecting our subsidiaries will also increase. Brokerage houses, consumer finance companies, insurance companies, and pension trusts are important competitors for various types of financial services. In addition, personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals.

MARKET AREA & ECONOMY

Johnstown, Pennsylvania, where the Company is headquartered, continues to have a cost of living that is lower than the national average. Johnstown is home to The University of Pittsburgh at Johnstown, Pennsylvania Highlands Community College and Cambria-Rowe Business College. The high-tech defense industry is now the main non-health care staple of the Johnstown economy, with the region fulfilling many Federal government contracts, punctuated by one of the premier defense trade shows in the U.S., the annual

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Showcase For Commerce. The city also hosts annual events such as the Flood City Music Festival and the Thunder in the Valley Motorcycle Rally, which draw several thousand visitors. The Johnstown, PA MSA unemployment rate improved from a 6.9% average in 2014 to a 6.5% average in 2015.

Economic conditions are stronger in the State College market and have demonstrated the same improvement experienced in the national economy. The community is a college town, dominated economically and demographically by the presence of the University Park campus of the Pennsylvania State University. “Happy Valley” is another often-used term to refer to the State College area, including the borough and the townships of College, Harris, Patton, and Ferguson. The unemployment rate for State College MSA improved from a 4.2% average in 2014 to a 3.8% average in 2015 and remains the one of the lowest of all regions in the Commonwealth. A large percentage of the population in State College falls into the 18 to 34 year old age group, while potential customers in the Cambria/Somerset markets tend to be over 50 years of age.

The Company also has loan production offices in Monroeville in Allegheny county, Altoona in Blair county, Pennsylvania, Hagerstown in Washington county, Maryland and Harrisonburg in Rockingham county, Virginia. Monroeville in Allegheny county, Pennsylvania is located 15 miles east of the city of Pittsburgh. While the city is historically known for its steel industry, today its economy is largely based on healthcare, education, technology and financial services. The city of Pittsburgh is home to many colleges, universities and research facilities, the most well-known of which are Carnegie Mellon University, Duquesne University and the University of Pittsburgh. Pittsburgh is rich in art and culture. Pittsburgh museums and cultural sites include the Andy Warhol Museum, the Carnegie Museum of Art, the Frick Art & Historical Center, and Pittsburgh Center for the Arts among numerous others. Pittsburgh is also the home of the Pirates, Steelers and Penguins. The unemployment rate for Pittsburgh MSA improved from a 5.6% average in 2014 to a 5.2% average in 2015.

Altoona is the business center of Blair county, Pennsylvania with a strong retail, government and manufacturing base. The top field of employment in Altoona and the metro area is healthcare. Its location along I-99 draws from a large trade area over a wide geographic area that extends to State College and Johnstown. It serves as the headquarters for Sheetz Corporation which ranks on Forbes list of the top privately owned companies. In addition to being located adjacent to I-99 and a major highway system, Altoona also has easy access to rail and air transportation. The unemployment rate in the Altoona MSA decreased from a 5.6% average in 2014 to a 5.1% average in 2015.

Hagerstown and Washington county, Maryland offers a rare combination of business advantages providing a major crossroads location that is convenient to the entire East Coast at the intersection of I-81 and I-70. It has a workforce of over 400,000 with strengths in manufacturing and technology. It also offers an affordable cost of doing business and living within an hour of the Washington, D.C./Baltimore regions. There are also plenty of facilities and land slated for industrial/commercial development. Hagerstown has become a choice location for manufacturers, financial services, and distribution companies. The Hagerstown, MD-Martinsburg, WV MSA unemployment rate improved from a 6.0% average in 2014 to a 5.5% average in 2015.

Harrisonburg is located on I-81, providing convenient access via interstate to Northern Virginia/Washington D.C., and Richmond, in addition to points north and south along I-81. The Shenandoah Valley Regional Airport provides the same amenities as larger airports and is located 20 minutes from Harrisonburg via I-81. It has a diverse and vibrant economy, with a good blend of business interests and employment opportunities. Rockingham county is one of the top agricultural producers in Virginia. Harrisonburg is home to James Madison University and Eastern Mennonite University. Continuing growth in education, health services and technology, plus a diverse mix of manufacturing, agriculture, retail, service and tourism helps Harrisonburg/Rockingham county prosper. The City of Harrisonburg Economic Development Department has established Harrisonburg Technology Park and the Harrison Downtown Technology Zone to attract technology based firms. The Harrisonburg MSA unemployment rate improved from a 5.2% average in 2014 to a 4.6% average in 2015.

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EMPLOYEES

The Company employed 341 people as of December 31, 2015 in full- and part-time positions. Approximately 162 non-supervisory employees of the Company are represented by the United Steelworkers, AFL-CIO-CLC, Local Union 2635-06. The Company is under a four year labor contract with the United Steelworkers Local that will expire on October 15, 2017. The contract calls for annual wage increases of 3.0%. Additionally, effective January 1, 2014, the Company implemented a soft freeze of its defined benefit pension plan for union employees. A soft freeze means that all existing union employees as of December 31, 2013 currently participating will remain in the defined benefit pension plan but any new union employees hired after January 1, 2014 will no longer be part of the defined benefit plan but instead will be offered retirement benefits under an enhanced 401(k) program. The Company has not experienced a work stoppage since 1979. The Company is one of an estimated ten union-represented banks nationwide.

INDUSTRY REGULATION

The banking and trust industry, and the operation of bank holding companies, is highly regulated by federal and state law, and by numerous regulations adopted by the federal banking agencies and state banking agencies. Bank regulation affects all aspects of conducting business as a bank, including such major items as minimum capital requirements, limits on types and amounts of investments, loans and other assets, as well as borrowings and other liabilities, and numerous restrictions or requirements on the loan terms and other products made available to customers, particularly consumers. Federal deposit insurance from the Federal Deposit Insurance Corporation (the FDIC) is required for all banks in the United States, and maintaining FDIC insurance requires observation of the various rules of the FDIC, as well as payment of deposit premiums. New branches, or acquisitions or mergers, are required to be pre-approved by the responsible agency, which in the case of the Company and the Bank is the Federal Reserve and the PDB. The Bank provides detailed financial information to its regulators, including a quarterly call report that is filed pursuant to detailed prescribed instructions to ensure that all U.S. banks report the same way. The U.S. banking laws and regulations are frequently updated and amended, especially in response to crises in the financial industry, such as the global financial crisis of 2008, which resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 (the Dodd-Frank Act), a statute affecting many facets of the financial industry.

While it is impractical to discuss all laws and regulations that regularly affect the business of the Company and its subsidiaries, set forth below is an overview of some of the major provisions and statutes that apply.

CAPITAL REQUIREMENTS

One of the most significant regulatory requirements for banking institutions is minimal capital, imposed as a ratio of capital to assets. The Federal Deposit Insurance Act, as amended (the FDIA), identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. It requires U.S. federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. The FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to utilize brokered deposits and on other aspects of its operations. Generally, a bank is prohibited from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized.

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As of December 31, 2015, the Company believes that its bank subsidiary was well capitalized, based on the prompt corrective action guidelines described above. As discussed below, however, the capital requirements for all banks are being increased under the Dodd-Frank Act. Specifically, on July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The final rules implement the “Basel III” regulatory capital reforms, as well as certain changes required by the Dodd-Frank Act. The July 2013 final rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. The new capital to risk-adjusted assets requirements (which includes the impact of the capital conservation buffer effective January 1, 2016) are as follows:

     
  Minimum Capital
     Effective January 1,   Well
Capitalized
     2015   2016
Common equity tier 1 capital ratio     4.5 %      5.125 %      6.5 % 
Tier 1 capital ratio     6.0 %      6.625 %      8.0 % 
Total capital ratio     8.0 %      8.625 %      10.0 % 

Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer, which is composed of common equity tier 1 capital, began on January 1, 2016 at the 0.625% level and will be phased in over a three year period (increasing by that amount on each January 1, until it reaches 2.5% on January 1, 2019). Implementation of the deductions and other adjustments to common equity tier 1 capital began on January 1, 2015 and will be phased-in over a three-year period (beginning at 40% on January 1, 2015, 60% on January 1, 2016 and an additional 20% per year thereafter). The Company is continuing to review the impact of these new rules and currently expects that its capital position will be more than adequate to meet the revised regulatory capital requirements.

DIVIDEND RESTRICTIONS

The primary source of cash to pay dividends, if any, to the Company’s shareholders and to meet the Company’s obligations is dividends paid to the Company by the Bank and the Trust Company. Dividend payments by the Bank to the Company are subject to the laws of the Commonwealth of Pennsylvania, the Banking Code, the FDIA and the regulation of the PDB and of the Federal Reserve. Under the Banking Act and the FDIA, a bank may not pay any dividends if, after paying such dividends, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in unsafe or unsound banking practices. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available from the immediately preceding year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiary. A bank holding company may not pay dividends when it is insolvent.

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The Company resumed paying quarterly cash dividends to common shareholders in 2013. For more information regarding quarterly cash dividends, see Part II, Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities below.

SARBANES-OXLEY ACT OF 2002

The Sarbanes-Oxley Act of 2002 is not a banking law, but contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s principal executive officer and principal financial officer are required. These certifications attest, among other things, that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. In response to the Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to further strengthen its corporate governance practices. The Company also requires signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare. These procedures supplement the Company’s Code of Conduct Policy and other procedures that were previously in place. In 2005, the Company implemented and has since maintained a program designed to comply with Section 404 of the Sarbanes-Oxley Act. This program included the identification of key processes and accounts, documentation of the design of control effectiveness over process and entity level controls, and testing of the effectiveness of key controls.

PRIVACY PROVISIONS

Federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company believes it is in compliance with the various provisions.

USA PATRIOT ACT

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed a number of regulations that apply various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the Company.

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

On July 21, 2010, the President signed into law the Dodd-Frank Act. This law significantly changed the previous bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.

A provision of the Dodd-Frank Act eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. The Dodd-Frank Act also broadened the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.

Bank and thrift holding companies with assets of less than $15 billion as of December 31, 2009, such as the Company, are permitted to include trust preferred securities that were issued before May 19, 2010, such as the Company’s 8.45% Trust Preferred Securities, as Tier 1 capital; however, trust preferred securities issued by

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a bank or thrift holding company (other than those with assets of less than $500 million) after May 19, 2010, will no longer count as Tier 1 capital. Such trust preferred securities still will be entitled to be treated as Tier 2 capital.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (the CFPB), a new independent regulatory agency with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Company will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations and gives state attorney generals the ability to enforce federal consumer protection laws.

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC’s public reference room, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Our Internet address is http://www.ameriserv.com. We make available free of charge on http://www.ameriserv.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company has no unresolved staff comments from the SEC for the reporting periods presented.

ITEM 2. PROPERTIES

The principal offices of the Company and the Bank occupy the five-story AmeriServ Financial building at the corner of Main and Franklin Streets in Johnstown plus twelve floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 13 other locations which are owned. Nine additional locations are leased with terms expiring from January 1, 2016 to August 31, 2030.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of both management and legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

As of January 29, 2016, the Company had 3,416 shareholders of record for its common stock. The Company’s common stock is traded on the NASDAQ Global Market System under the symbol “ASRV.” The following table sets forth the actual high and low closing prices and the cash dividends declared per share for the periods indicated:

     
  PRICES   CASH
DIVIDENDS
DECLARED
     HIGH   LOW
Year ended December 31, 2015:
                          
First Quarter   $ 3.13     $ 2.88     $ 0.01  
Second Quarter     3.44       3.00       0.01  
Third Quarter     3.41       3.20       0.01  
Fourth Quarter     3.39       3.16       0.01  
Year ended December 31, 2014
                          
First Quarter   $ 3.91     $ 3.00     $ 0.01  
Second Quarter     3.88       3.40       0.01  
Third Quarter     3.52       3.14       0.01  
Fourth Quarter     3.31       3.02       0.01  

The declaration of cash dividends on the Company’s common stock is at the discretion of the Board, and any decision to declare a dividend is based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants under any credit agreements and other contractual restrictions, Pennsylvania law, federal and Pennsylvania bank regulatory law, and other factors deemed relevant. Additionally, the Company’s previously announced common stock repurchase programs have been completed.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA

         
  AT OR FOR THE YEAR ENDED DECEMBER 31,
     2015   2014   2013   2012   2011
     (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA AND RATIOS)
SUMMARY OF INCOME STATEMENT DATA:
                                            
Total interest income   $ 41,881     $ 40,441     $ 39,343     $ 39,917     $ 41,964  
Total interest expense     6,520       6,397       6,482       7,714       9,681  
Net interest income     35,361       34,044       32,861       32,203       32,283  
Provision (credit) for loan losses     1,250       375       (1,100 )      (775 )      (3,575 ) 
Net interest income after provision (credit) for loan losses     34,111       33,669       33,961       32,978       35,858  
Total non-interest income     15,267       14,323       15,744       14,943       13,569  
Total non-interest expense     41,038       43,371       42,223       40,641       40,037  
Income before income taxes     8,340       4,621       7,482       7,280       9,390  
Provision for income taxes     2,343       1,598       2,289       2,241       2,853  
Net income   $ 5,997     $ 3,023     $ 5,193     $ 5,039     $ 6,537  
Net income available to common shareholders   $ 5,787     $ 2,813     $ 4,984     $ 4,211     $ 5,152  
PER COMMON SHARE DATA:
                                            
Basic earnings per share   $ 0.31     $ 0.15     $ 0.26     $ 0.21     $ 0.24  
Diluted earnings per share     0.31       0.15       0.26       0.21       0.24  
Cash dividends declared     0.04       0.04       0.03       0.00       0.00  
Book value at period end     5.19       4.97       4.91       4.67       4.37  
BALANCE SHEET AND OTHER DATA:
                                            
Total assets   $ 1,148,922     $ 1,089,263     $ 1,056,036     $ 1,000,991     $ 979,076  
Loans and loans held for sale, net of unearned income     883,987       832,131       786,748       731,741       670,847  
Allowance for loan losses     9,921       9,623       10,104       12,571       14,623  
Investment securities available for sale     119,467       127,110       141,978       151,538       182,923  
Investment securities held to maturity     21,419       19,840       18,187       13,723       12,280  
Deposits     903,294       869,881       854,522       835,734       816,420  
Total borrowed funds     117,483       93,965       79,640       41,745       34,850  
Stockholders’ equity     118,973       114,407       113,307       110,468       112,352  
Full-time equivalent employees     318       314       352       350       347  
SELECTED FINANCIAL RATIOS:
                                            
Return on average assets     0.54 %      0.29 %      0.51 %      0.51 %      0.68 % 
Return on average total equity     5.10       2.61       4.69       4.51       5.90  
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end     97.86       95.66       92.07       87.56       82.17  
Ratio of average total equity to average assets     10.65       10.92       10.86       11.36       11.49  
Common stock cash dividends as a percent of net income available to common shareholders     13.03       26.73       11.36              
Interest rate spread     3.33       3.36       3.39       3.43       3.47  
Net interest margin     3.49       3.52       3.56       3.65       3.72  
Allowance for loan losses as a percentage of loans, net of unearned income, at period end     1.13       1.16       1.29       1.74       2.20  
Non-performing assets as a percentage of loans and other real estate owned, at period end     0.71       0.35       0.52       1.00       0.78  
Net charge-offs as a percentage of average loans     0.11       0.11       0.18       0.19       0.24  
Ratio of earnings to fixed charges and preferred dividends:(1)
                                            
Excluding interest on deposits     4.68X       3.30X       5.13X       3.80X       4.11X  
Including interest on deposits     2.19       1.67       2.07       1.80       1.83  
Cumulative one year interest rate sensitivity gap ratio, at period end     1.23       1.13       1.09       1.30       1.29  

(1) The ratio of earnings to fixed charges and preferred dividends is computed by dividing the sum of income before taxes, fixed charges, and preferred dividends by the sum of fixed charges and preferred dividends. Fixed charges represent interest expense and are shown as both excluding and including interest on deposits.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company including the related notes thereto, included elsewhere herein.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015, 2014, AND 2013

2015 SUMMARY OVERVIEW:

Net income was $1,374,000, or $0.07 per share, for the fourth quarter of 2015. This was $625,000, or $0.03 per share, higher than the fourth quarter of 2014. Net income for the full year was $5,997,000, or $0.31 per share, which represents an increase by $2,974,000, or $0.16 per share, from 2014. The Company’s 2015 results illustrate the effectiveness from very specific profitability improvement actions executed to permit the Company to continue growing the business but to avoid expense increases so as to improve per share profitability.

We have previously emphasized the Company’s determination to become a significant competitor in every market where the company has a presence. The reports from the marketplace continue to be encouraging. Net loan growth year over year totaled almost $52 million while deposits increased by $33 million as both of these activities set new year ending records for AmeriServ. These marketplace successes also found support from a more efficient company. Operating non-interest expense was $1.7 million, or 3.9%, lower than 2014. The now proven effectiveness of the 2014 profitability efforts has resulted in a new enthusiasm among staff members for ways to trim expenses.

This is not to say that 2015 was without its challenges. The worldwide energy turmoil resulted in the bankruptcy of a Western Pennsylvania energy related company. However, the Company’s total loan portfolio still contains a lower level of troubled loans than the average level at the Company’s peer banks across the nation. The lending standards of the Company remain consistent with the goal of supporting qualified borrowers over the ups and downs of the business cycle.

The Federal Reserve’s interest rate policies that were adopted in 2008 have severely punished the thrifty, those living on pensions and community banks throughout the country. The squeeze on the banker’s net interest margin hurts the availability of credit. It is understandable that the Federal Reserve would respond to events like the freezing of credit markets in 2008, but this seemed to encourage the Federal Reserve to seek to manage the entire economy permanently. Let us hope they can unwind their involvement without further disturbances in this very large and complex economy.

The Board and the management team of the Company remain committed to a continuation of time tested banking management practices. These include strong capital, deep liquidity and a conservative balance sheet. To further these goals, in January 2016, the Company paid off the $21 million of US Treasury preferred shares related to the SBLF program using cash on hand and net proceeds from the private placement of $7.65 million in aggregate principal amount of 6.5% fixed rate subordinated notes. These SBLF funds were a way for the Treasury to encourage banks to lend to small businesses. It worked very well! The Company increased its roster of small business borrowers throughout its regions. However, the Treasury would have increased its dividend rate on the preferred shares from 1% per year to 9% per year in February 2016. The Company will continue to lend to small businesses and will continue to be a well-capitalized community bank, but the Company will not experience this dividend rate increase for those shares are retired. This action was spelled out in detail in the Company’s press release from January 28, 2016.

Finally, a comment about the turmoil in financial markets. The domestic economy of the U.S. has been dynamic and ever-changing throughout history. The question we are all forced to answer is how much risk to accept in our economic affairs. The events of 2015 would suggest that it is best to limit risk when contemplating a dynamic economy. This has been and will be our guiding principle as we pursue our climb to financial respectability in 2016 and beyond.

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PERFORMANCE OVERVIEW... The following table summarizes some of the Company’s key profitability performance indicators for each of the past three years.

     
  YEAR ENDED DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS, EXCEPT
PER SHARE DATA AND RATIOS)
Net income   $ 5,997     $ 3,023     $ 5,193  
Net income available to common shareholders     5,787       2,813       4,984  
Diluted earnings per share     0.31       0.15       0.26  
Return on average assets     0.54 %      0.29 %      0.51 % 
Return on average equity     5.10       2.61       4.69  

The Company reported net income available to common shareholders of $5.8 million, or $0.31 per diluted common share, for 2015. This represented a 107% increase in earnings per share from 2014 where net income available to common shareholders totaled $2.8 million, or $0.15 per diluted share. Factors causing this increase in earnings were solid loan and deposit growth in our community banking business which contributed to an increase of $1.3 million, or 3.9%, in net interest income while increasing revenue from our trust and wealth management business contributed to 7.5% growth in non-interest income in 2015. Additionally, operating expenses declined by $2.3 million, or 5.4%, as we improved the ongoing efficiency of the Company by successfully executing several profitability improvement initiatives.

The Company reported net income available to common shareholders of $2.8 million, or $0.15 per diluted common share, for 2014. This represented a 42.3% decrease in earnings per share from 2013 where net income available to common shareholders totalled $5.0 million, or $0.26 per diluted share. Factors contributing to this reduction in earnings were a $1.5 million unfavorable swing in the provision for loan losses, a $1.4 million reduction in non-interest revenue, and a $1.1 million increase in non-interest expense. The non-interest expense increase included a $669,000 goodwill impairment charge and a $376,000 fourth quarter pension charge related to 25 employees who elected to participate in an early retirement incentive program. These negative items were partially offset by a $1.2 million increase in net interest income due to continued growth of our loan portfolio while maintaining excellent asset quality.

The Company reported net income available to common shareholders of $5.0 million, or $0.26 per diluted common share, for 2013. This represented a 23.8% increase in earnings per share from 2012 where net income available to common shareholders totalled $4.2 million, or $0.21 per diluted share. Growth in total revenue, improved asset quality, and effective capital management caused the increase in earnings per share in 2013. Specifically, a $658,000 increase in net interest income resulted from continued strong growth of our loan portfolio, as total loans grew by $55 million, or 7.5%. Material loan growth occurred in loan categories that qualified for the SBLF through the Company’s loan production offices. As a result of this growth in SBLF qualified loans, the Company locked in the lowest preferred dividend rate available under the program of 1% until its redemption in the first quarter of 2016. This lower rate saved the Company $619,000 in preferred stock dividend payments in 2013 and was a key factor contributing to the earnings per share growth. Additionally, the calculation of earnings per share benefitted from a 713,000, or 3.6%, reduction in average shares outstanding due to the success of the Company’s common stock repurchase program that was completed in the second quarter of 2013. There was also $325,000 more earnings benefit from negative loan loss provisions in 2013 due to the Company’s improved asset quality. These positive items were partially offset by a $1.6 million or 3.9% increase in non-interest expense and slightly higher income tax expense.

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NET INTEREST INCOME AND MARGIN... The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings; it is affected by interest rate fluctuations as well as changes in the amount and mix of earning assets and interest bearing liabilities. The following table summarizes the Company’s net interest income performance for each of the past three years:

     
  YEAR ENDED DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS, EXCEPT RATIOS)
Interest income   $ 41,881     $ 40,441     $ 39,343  
Interest expense     6,520       6,397       6,482  
Net interest income     35,361       34,044       32,861  
Net interest margin     3.49 %      3.52 %      3.56 % 

2015 NET INTEREST PERFORMANCE OVERVIEW... The Company’s net interest income increased by $1.3 million, or 3.9%, for the full year of 2015 when compared to the full year 2014 as net interest margin compression was more than fully mitigated by earning asset growth, a greater level of prepayment fees on early loan payoffs and an increased dividend from the FHLB of Pittsburgh. The Company’s net interest margin of 3.49% for the full year 2015 was three basis points lower than the net interest margin of 3.52% for the full year 2014. The earning asset growth occurred in the loan portfolio as total loans averaged $857 million for the full year of 2015 which is $52 million, or 6.5%, higher than the $805 million average for the full year of 2014. This loan growth reflects the successful results of the Company’s sales calling efforts, with an emphasis on generating commercial loans and owner occupied commercial real estate loans particularly through its loan production offices in the stronger growth markets of Pittsburgh and Altoona in Pennsylvania, Hagerstown, Maryland and Harrisonburg, Virginia. Overall, total interest income increased by $1.4 million, or 3.6%, for the full year 2015.

Total interest expense has been well controlled in 2015 as it increased by $123,000, or 1.9%, for the full year of 2015 due to tight control of our cost of funds through disciplined deposit pricing. Total deposit interest expense decreased by $137,000, or 2.8%, in 2015 when compared to last year. Even with this reduction in deposit costs, the Company continues to have a strong loyal core deposit base and success in cross-selling new loan customers into deposit products. Specifically, total deposits averaged $893 million for full year of 2015 which is $21 million, or 2.4%, higher than the $872 million average in 2014. The Company is pleased that a meaningful portion of this deposit growth occurred in non-interest bearing demand deposit accounts. This decreased interest expense for deposits has been more than offset by a $260,000 increase in the interest cost for borrowings as the Company has utilized more FHLB term advances to extend borrowings and provide protection against rising interest rates.

Overall, the Company expects that it will need to continue to grow earning assets to achieve net interest income growth in 2016 as net interest margin compression is expected to continue given the ongoing challenges of the exceptionally low interest rate environment. Solid commercial loan pipelines suggest that the Company should be able to again grow the loan portfolio in 2016 although we expect pricing pressures on new commercial loans to continue to be intense.

COMPONENT CHANGES IN NET INTEREST INCOME: 2015 VERSUS 2014... Regarding the separate components of net interest income, the Company’s total interest income in 2015 increased by $1.4 million, or 3.6%, when compared to 2014. This increase was due to a $44.4 million increase in average earning assets due to an increase in average loans, partially offset by a four basis point decline in the earning asset yield from 4.18% to 4.14%. Within the earning asset base, the yield on the total loan portfolio decreased by eight basis points from 4.52% to 4.44% as a greater level of prepayment fees on early loan payoffs was more than offset by the impact from new loans having yields that are below the rate on the maturing instruments that they are replacing. However, the yield on total investment securities increased by seven basis points from 2.60% to 2.67% due to an increased dividend from the FHLB of Pittsburgh and a reduction in premium amortization on mortgage backed securities which resulted from a slowdown in mortgage prepayment speeds in 2015. Investment securities interest revenue declined by $223,000 in 2015 due to a $12 million decrease in the average investment securities portfolio as the Company has utilized cash flow from securities to help fund the previously mentioned loan growth.

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The Company’s total interest expense for 2015 increased by $123,000, or 1.9%, when compared to 2014. This increase in interest expense was due to an increased level of average FHLB borrowed funds which more than offset a lower cost of funds as the cost of interest bearing liabilities declined by one basis point to 0.81%. Management’s strategy to carefully price interest rates paid on all deposit categories has not had a negative impact on deposit growth and reflects the loyalty of the bank’s core deposit base. The overall cost of interest bearing deposits decreased by two basis points to 0.66% in spite of a $5.4 million increase in the total average volume. The Company has utilized term advances from the FHLB, with maturities ranging between three and five years, to help fund its earning asset growth and manage interest rate risk. The average balance of FHLB term advances has increased by $13 million while the average cost of these advances has increased by 20 basis points to 1.21%. Overall, total FHLB borrowings averaged $71 million or 6.4% of total assets during 2015.

2014 NET INTEREST INCOME PERFORMANCE OVERVIEW... The Company’s net interest income for the full year 2014 increased by $1.2 million, or 3.6%, when compared to the full year 2013. The Company’s net interest margin of 3.52% for the full year 2014 was four basis points lower than the net interest margin of 3.56% for the full year 2013. The Company has been able to mitigate this net interest margin pressure and to increase net interest income by both growing its earning assets and reducing its cost of funds. Specifically, the earning asset growth has occurred in the loan portfolio as total loans averaged a record $805 million for the full year 2014 which is $58 million, or 7.8%, higher than the $746 million average for the 2013 year. This loan growth reflects the successful results of the Company’s more intensive sales calling efforts, with an emphasis on generating commercial loans and owner occupied CRE loans, which qualify as SBLF loans. Interest income in 2014 has also benefitted from reduced premium amortization on mortgage backed securities due to slower mortgage prepayment speeds. Overall, total interest income increased by $1.1 million in 2014. Additionally, the increase in loans caused the Company’s loan to deposit ratio to average 92.3% in 2014 compared to 88.2% in 2013.

Total interest expense for the 2014 year declined by $85,000 from the full year 2013 due to the Company’s proactive efforts to reduce deposit costs. Even with this reduction in deposit costs, the Company still experienced growth in deposits which reflects the loyalty of our core deposit base and ongoing efforts to cross sell new loan customers into deposit products. Specifically, total deposits averaged a record level of $872 million for the full year 2014 which is $25 million, or 3.0%, higher than the $847 million average for the full year 2013. This decreased interest expense for deposits has been partially offset by a $190,000 increase in the interest cost for borrowings as the Company has utilized more Federal Home Loan Bank (FHLB) term advances to extend borrowings and provide protection against rising interest rates.

COMPONENT CHANGES IN NET INTEREST INCOME: 2014 VERSUS 2013... Regarding the separate components of net interest income, the Company’s total interest income in 2014 increased by $1.1 million when compared to 2013. This increase was due to a $44.1 million increase in average earning assets due to an increase in average loans partially offset by a nine basis point decline in the earning asset yield from 4.27% to 4.18%. Within the earning asset base, the yield on the total loan portfolio decreased by 19 basis points from 4.71% to 4.52% as new loans typically have yields that are below the rate on the maturing instruments that they are replacing. However, the yield on total investment securities increased by 10 basis points from 2.50% to 2.60% due primarily to a reduction in premium amortization on mortgage backed securities due to a slowdown in mortgage prepayment speeds in 2014. Investment securities interest revenue declined by $122,000 in 2014 due to an $11 million decrease in the average investment securities portfolio as the Company has utilized cash flow from securities to help fund the previously mentioned loan growth.

The Company’s total interest expense for 2014 decreased by $85,000, or 1.3%, when compared to 2013. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by six basis points to 0.82%. Management’s decision to further reduce interest rates paid on all deposit categories has not had a negative impact on deposit growth and reflects the loyalty of the bank’s core deposit base. This decrease in funding costs occurred in spite of a $43.4 million increase in the volume of average interest bearing liabilities. The Company has utilized term advances from the FHLB, with maturities ranging between three and five years, to help fund its earning asset growth and manage interest rate risk. The average balance of FHLB term advances has increased by $15 million while the average cost of these advances has increased by only 17 basis points to 1.01%. Overall, total FHLB borrowings averaged $52 million or 4.9% of total assets during 2014.

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The table that follows provides an analysis of net interest income on a tax-equivalent basis setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of these tables loan balances include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of approximately 34% is used to compute tax-equivalent yields.

                 
                 
  YEAR ENDED DECEMBER 31,
     2015   2014   2013
     AVERAGE
BALANCE
  INTEREST
INCOME/
EXPENSE
  YIELD/
RATE
  AVERAGE
BALANCE
  INTEREST
INCOME/
EXPENSE
  YIELD/
RATE
  AVERAGE
BALANCE
  INTEREST
INCOME/
EXPENSE
  YIELD/
RATE
     (IN THOUSANDS, EXCEPT PERCENTAGES)
Interest earning assets:
                                                                                
Loans, net of unearned income   $ 857,015     $ 38,024       4.44 %    $ 804,721     $ 36,366       4.52 %    $ 746,490     $ 35,145       4.71 % 
Deposits with banks     2,198       8       0.34       7,227       5       0.07       8,027       6       0.08  
Federal funds sold                                         79             0.05  
Short-term investment in money market funds     10,700       14       0.14       1,243       7       0.49       3,260       8       0.24  
Investment securities:
                                                                                
Available for sale     124,383       3,250       2.61       137,839       3,528       2.56       150,621       3,701       2.46  
Held to maturity     20,576       614       2.98       19,399       559       2.88       17,900       508       2.84  
Total investment securities     144,959       3,864       2.67       157,238       4,087       2.60       168,521       4,209       2.50  
TOTAL INTEREST EARNING ASSETS/INTEREST INCOME     1,014,872       41,910       4.14       970,429       40,465       4.18       926,377       39,368       4.27  
Non-interest earning assets:
                                                                                
Cash and due from banks     17,312                         16,919                         16,795                    
Premises and equipment     12,617                         13,282                         12,839                    
Other assets     69,201                         69,423                         75,360                    
Allowance for loan losses     (9,766 )                  (9,951 )                  (11,434 )             
TOTAL ASSETS   $ 1,104,236                 $ 1,060,102                 $ 1,019,937              
Interest bearing liabilities:
                                                                                
Interest bearing deposits:
                                                                                
Interest bearing demand   $ 97,201     $ 199       0.21 %    $ 97,641     $ 191       0.20 %    $ 75,126     $ 138       0.18 % 
Savings     94,425       156       0.17       89,554       144       0.16       87,819       139       0.16  
Money market     242,298       817       0.34       228,150       761       0.33       212,735       736       0.35  
Other time     287,783       3,580       1.24       300,915       3,793       1.26       312,741       4,151       1.33  
Total interest bearing
deposits
    721,707       4,752       0.66       716,260       4,889       0.68       688,421       5,164       0.75  
Federal funds purchased and other short-term borrowings     24,582       86       0.35       18,783       55       0.29       17,973       46       0.26  
Advances from Federal Home Loan Bank     46,166       558       1.21       32,885       333       1.01       18,170       152       0.84  
Guaranteed junior subordinated deferrable interest debentures     13,085       1,120       8.57       13,085       1,120       8.57       13,085       1,120       8.57  
Subordinated debt     62       4       6.72                                      
TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE     805,602       6,520       0.81       781,013       6,397       0.82       737,649       6,482       0.88  
Non-interest bearing liabilities:
                                                                                
Demand deposits     171,175                         155,365                         158,169                    
Other liabilities     9,871                         7,969                         13,378                    
Stockholders’ equity     117,588                   115,755                   110,741              
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,104,236                 $ 1,060,102                 $ 1,019,937              
Interest rate spread                       3.33                         3.36                         3.39  
Net interest income/net interest margin              35,390       3.49 %               34,068       3.52 %               32,886       3.56 % 
Tax-equivalent adjustment           (29 )                  (24 )                  (25 )       
Net interest income         $ 35,361                 $ 34,044                 $ 32,861        

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Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The table below sets forth an analysis of volume and rate changes in net interest income on a tax-equivalent basis. For purposes of this table, changes in interest income and interest expense are allocated to volume and rate categories based upon the respective percentage changes in average balances and average rates. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.

           
  2015 vs. 2014   2014 vs. 2013
     INCREASE (DECREASE)
DUE TO CHANGE IN:
  INCREASE (DECREASE)
DUE TO CHANGE IN:
     AVERAGE
VOLUME
  RATE   TOTAL   AVERAGE
VOLUME
  RATE   TOTAL
     (IN THOUSANDS)
INTEREST EARNED ON:
                                                     
Loans, net of unearned income   $ 1,398     $ 260     $ 1,658     $ 3,853     $ (2,632 )    $ 1,221  
Deposits with banks     16       (13 )      3             (1 )      (1 ) 
Short-term investments in money market funds     42       (35 )      7       (1 )            (1 ) 
Investment securities:
                                                     
Available for sale     (276 )      (2 )      (278 )      (332 )      159       (173 ) 
Held to maturity     53       2       55       44       7       51  
Total investment securities     (223 )            (223 )      (288 )      166       (122 ) 
Total interest income     1,233       212       1,445       3,564       (2,467 )      1,097  
INTEREST PAID ON:
                                                     
Interest bearing demand deposits     9       (1 )      8       39       14       53  
Savings deposits     17       (5 )      12       5             5  
Money market     70       (14 )      56       118       (93 )      25  
Other time deposits     (226 )      13       (213 )      (150 )      (208 )      (358 ) 
Federal funds purchased and other short-term borrowings     28       3       31       3       6       9  
Advances from Federal Home Loan Bank     200       25       225       145       36       181  
Subordinated debt     4             4                    
Total interest expense     102       21       123       160       (245 )      (85 ) 
Change in net interest income   $ 1,131     $ 191     $ 1,322     $ 3,404     $ (2,222 )    $ 1,182  

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LOAN QUALITY... The Company’s written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding any loan. After the loan has been approved and funded, continued periodic credit review is required. The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. 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. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business relationships with aggregate balances of $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and removed from the pool if factors such as significant delinquency in payments of 90 days or more, bankruptcy, or other negative economic concerns indicate impairment. The following table sets forth information concerning the Company’s loan delinquency and other non-performing assets.

     
  AT DECEMBER 31,
     2015   2014   2013
     (IN THOUSANDS, EXCEPT PERCENTAGES)
Total accruing loans past due 30 to 89 days   $ 4,396     $ 2,643     $ 3,264  
Total non-accrual loans     6,066       2,195       2,871  
Total non-performing assets including TDRs(1)     6,297       2,917       4,109  
Loan delinquency as a percentage of total loans, net of unearned income     0.50 %      0.32 %      0.42 % 
Non-accrual loans as a percentage of total loans, net of unearned income     0.69       0.27       0.37  
Non-performing assets as a percentage of total loans, net of unearned income, and other real estate owned     0.71       0.35       0.52  
Non-performing assets as a percentage of total assets     0.55       0.27       0.39  
Total classified loans (loans rated substandard or doubtful)   $ 8,566     $ 11,229     $ 11,779  

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

The Company continues to maintain strong asset quality even though non-performing loans increased late in 2015. The increase was largely due to the transfer into non-accrual status of a $4.1 million loan to a customer in the fracking industry that filed for bankruptcy protection in the fourth quarter. Of this total $4.1 million loan, $2.5 million relates to an equipment loan that was used to finance certain components of a new frack water treatment plant and $1.6 million relates to a loan that was used to finance the purchase of 10 truck tractors and 5 truck trailers. At year-end 2015, the Company had established specific reserves within its allowance for loan losses of $865,000 on the water treatment plant loan and $469,000 on the tractor and trailer loan. Recent developments from the bankruptcy process indicate that the truck tractors and trailers should be returned from the borrower to the Company for disposition in the near future. In regards to the frack water treatment plant, the Company has not yet been able to determine if the plant is fully operational despite the borrower’s intent to get the plant in that condition in order to maximize potential value. The Company’s ultimate loss on this loan would increase significantly should the plant not be able to be sold as a turn-key operation ready plant. This is the Company’s only meaningful direct loan exposure to the energy industry. The continued successful ongoing problem credit resolution efforts of the Company is demonstrated in the table above as levels of non-accrual loans, non-performing assets, classified loans and low loan delinquency levels are well below 1% of total loans. We continue to closely monitor the loan portfolio given the uneven recovery in the economy and the number of relatively large-sized commercial and CRE loans within the portfolio. As of December 31, 2015, the 25 largest credits represented 24.0% of total loans outstanding.

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ALLOWANCE AND PROVISION FOR LOAN LOSSES... As described in more detail in the Critical Accounting Policies and Estimates section of this MD&A, 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 following table sets forth changes in the ALL and certain ratios for the periods ended.

         
  YEAR ENDED DECEMBER 31,
     2015   2014   2013   2012   2011
     (IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
Balance at beginning of year   $ 9,623     $ 10,104     $ 12,571     $ 14,623     $ 19,765  
Charge-offs:
                                            
Commercial     (170 )      (172 )      (50 )      (345 )      (953 ) 
Commercial loans secured by real
estate
    (250 )      (708 )      (1,777 )      (796 )      (1,700 ) 
Real estate-mortgage     (753 )      (322 )      (139 )      (420 )      (85 ) 
Consumer     (188 )      (121 )      (154 )      (200 )      (203 ) 
Total charge-offs     (1,361 )      (1,323 )      (2,120 )      (1,761 )      (2,941 ) 
Recoveries:
                                            
Commercial     101       141       80       138       831  
Commercial loans secured by real
estate
    111       231       481       245       331  
Real estate-mortgage     171       71       122       54       53  
Consumer     26       24       70       47       159  
Total recoveries     409       467       753       484       1,374  
Net charge-offs     (952 )      (856 )      (1,367 )      (1,277 )      (1,567 ) 
Provision (credit) for loan losses     1,250       375       (1,100 )      (775 )      (3,575 ) 
Balance at end of year   $ 9,921     $ 9,623     $ 10,104     $ 12,571     $ 14,623  
Loans and loans held for sale, net of unearned income:
                                            
Average for the year   $ 857,015     $ 804,721     $ 746,490     $ 688,736     $ 662,746  
At December 31     880,984       827,080       786,748       731,741       670,847  
As a percent of average loans:
                                            
Net charge-offs     0.11 %      0.11 %      0.18 %      0.19 %      0.24 % 
Provision (credit) for loan losses     0.15       0.05       (0.15 )      (0.11 )      (0.54 ) 
Allowance as a percent of each of the following:
                                            
Total loans, net of unearned income     1.13       1.16       1.29       1.74       2.20  
Total accruing delinquent loans (past due 30 to 89 days)     225.68       364.09       309.56       363.74       440.58  
Total non-accrual loans     163.55       438.21       351.93       216.22       288.14  
Total non-performing assets     157.55       329.89       245.90       174.02       281.27  
Allowance as a multiple of net charge-offs     10.42x       11.24x       7.39x       9.84x       9.33x  

For 2015, the Company recorded a $1,250,000 provision for loan losses which represented an increase of $875,000 when compared to the 2014 full year provision of $375,000. The higher provision that was needed this year was largely due to the transfer into non-accrual status of a $4.1 million loan to a customer in the fracking industry that filed for bankruptcy protection in the fourth quarter. The higher provision recorded in 2015 was also needed to support the continuing growth of the loan portfolio and cover net loan charge-offs. For the full year, there were net loan charge-offs of $952,000, or 0.11% of total loans, in 2015 compared to net loan charge-offs of $856,000, or 0.11% of total loans, in 2014. Overall, even with the fourth quarter

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increase in non-performing assets, the Company continued to maintain strong asset quality in 2015. At December 31, 2015, non-performing assets totaled $6.3 million, or 0.71% of total loans. When determining the provision for loan losses, the Company considers a number of factors, some of which include periodic credit reviews, non-performing assets, loan delinquency and charge-off trends, concentrations of credit, loan volume trends and broader local and national economic trends. In summary, the allowance for loan losses provided 158% coverage of non-performing loans, and 1.13% of total loans, at December 31, 2015, compared to 400% coverage of non-performing loans, and 1.16% of total loans, at December 31, 2014. The Company presently expects that it will have greater positive loan loss provisions in 2016 to support the expected growth of the loan portfolio.

For 2014, the Company recorded a $375,000 provision for loan losses compared to a $1.1 million negative provision for the 2013 year. This represents an unfavorable swing of $1.5 million between years and is a significant factor contributing to the lower earnings in 2014. The positive provision in 2014 was needed to partially cover net loan charge-offs and support the continuing growth of the loan portfolio. In 2014, actual credit losses realized through net charge-offs totaled $856,000, or 0.11% of average total loans, which represents a decrease from the 2013 year when net charge-offs totaled $1.4 million, or 0.18% of average total loans. Overall, for the 2014 year, the Company continued to maintain outstanding asset quality. At December 31, 2014, non-performing assets totaled $2.9 million, or only 0.35% of total loans, which represents the first time that our non-performing assets have been under $3 million since 2007. In summary, the ALL provided a strong 400% coverage of non-performing loans, and 1.16% of total loans, at December 31, 2014, compared to 327% coverage of non-performing loans, and 1.29% of total loans, at December 31, 2013.

The following schedule sets forth the allocation of the ALL among various loan categories. This allocation is determined by using the consistent quarterly procedural discipline that was previously discussed. The entire ALL is available to absorb future loan losses in any loan category.

                   
                   
    AT DECEMBER 31,     
     2015   2014   2013   2012   2011
     AMOUNT   PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
  AMOUNT   PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
  AMOUNT   PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
  AMOUNT   PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
  AMOUNT   PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
LOANS
          (IN THOUSANDS, EXCEPT PERCENTAGES)     
Commercial   $ 4,244       20.6 %    $ 3,262       16.8 %    $ 2,844       15.3 %    $ 2,596       14.3 %    $ 2,365       12.5 % 
Commercial loans secured by real estate     3,449       47.9       3,902       49.6       4,885       52.6       7,796       53.2       9,400       52.8  
Real estate-mortgage     1,173       29.3       1,310       31.3       1,260       30.1       1,269       30.2       1,270       32.0  
Consumer     151       2.2       190       2.3       136       2.0       150       2.3       174       2.7  
Allocation to general risk     904             959             979             760             1,414        
Total   $ 9,921       100.0 %    $ 9,623       100.0 %    $ 10,104       100.0 %    $ 12,571       100.0 %    $ 14,623       100.0 % 

Even though residential real estate-mortgage loans comprise 29.3% of the Company’s total loan portfolio, only $1.2 million or 11.8% of the total ALL is allocated against this loan category. The residential real estate-mortgage loan allocation is based upon the Company’s three-year historical average of actual loan charge-offs experienced in that category and other qualitative factors. The disproportionately higher allocations for commercial loans and commercial loans secured by real estate reflect the increased credit risk associated with this type of lending, the Company’s historical loss experience in these categories, and other qualitative factors. The large decline in the part of the allowance allocated to commercial loans secured by real estate reflects the continued asset quality improvements in this sector.

Based on the Company’s ALL methodology and the related assessment of the inherent risk factors contained within the Company’s loan portfolio, we believe that the ALL is adequate at December 31, 2015 to cover losses within the Company’s loan portfolio.

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NON-INTEREST INCOME... Non-interest income for 2015 totalled $15.3 million, an increase of $944,000, or 6.6%, from 2014. Factors contributing to this higher level of non-interest income in 2015 included:

a $869,000 increase in Bank Owned Life Insurance (BOLI) revenue for the full year due to the receipt of four death claims in 2015.
a $579,000, or 7.5%, increase in trust and investment advisory fees as a result of increased assets under management which reflects successful new business development activities as well as effective management of existing customer accounts in this volatile market environment. Trust assets under administration totalled $2.0 billion as of December 31, 2015.
a $207,000, or 10.6%, decrease in service charges on deposit accounts due to fewer overdraft charges and account analysis fees as customers have generally maintained higher balances in their checking accounts in 2015.
mortgage related fees dropped by $199,000 for the full year due to less mortgage refinance activity in 2015.
there was a decrease of $106,000 in revenue from investment security sale transactions as the Company recognized a lower level of gains on the sale of securities with low balances in 2015 compared to gains realized on the sale of rapidly pre-paying mortgage backed securities in 2014.

Non-interest income for 2014 totalled $14.3 million, a decrease of $1.4 million, or 9.0%, from 2013. Factors contributing to this lower level of non-interest income in 2014 included:

reduced revenue from residential mortgage banking activities was caused by both lower refinance activity due to higher mortgage rates and reduced purchase activity in 2014. As a result, gains realized on residential mortgage loan sales into the secondary market declined by $341,000 or 31.3% and mortgage related fees dropped by $183,000 due largely to lower mortgage origination and underwriting fees.
a $216,000, or 9.9% decrease in service charges on deposit accounts due to fewer overdraft charges and account analysis fees as customers have generally maintained higher balances in their checking accounts in 2014.
a $250,000, or 25.1%, decrease in Bank Owned Life Insurance (BOLI) revenue due largely to the receipt of a death claim payment in 2013.
a $357,000 decrease in other income due to a $226,000 reduction in financial services commission revenue and a net unfavorable swing of $140,000 on OREO property transactions.

NON-INTEREST EXPENSE... Non-interest expense for 2015 totalled $41.0 million, which represents a $2.3 million, or 5.4%, decrease from 2014. Factors contributing to the lower non-interest expense in 2015 included:

salaries and employee benefits were down by $918,000, or 3.7%, for the full year of 2015, due to 21 fewer average full time equivalent employees as certain employees who elected to participate in an early retirement program in late 2014 were not replaced in order to achieve efficiencies identified as part of a profitability improvement program. As part of this early retirement program, the Company recognized a $400,000 pension charge in the fourth quarter of 2014.
the recognition of a $669,000 goodwill impairment charge related to its investment advisory subsidiary in the third quarter of 2014. There was no such charge in 2015.
professional fees decreased by $406,000, or 7.5% for the year as a result of lower legal fees, director’s fees and consulting costs in 2015.

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Non-interest expense for 2014 totalled $43.4 million, a $1.1 million, or 2.7%, increase from 2013. Factors contributing to the higher non-interest expense in 2014 included:

professional fees increased by $1.1 million in 2014 due to higher legal costs related to litigation against WCCA’s former CEO, the consulting costs associated with our profitability improvement project and new recurring costs related to outsourcing our computer operations and statement processing to a third party vendor. The overall cost savings benefit from outsourcing these services is captured in lower personnel costs in these departments and reduced software expense, which is a key factor contributing to the decline in other expenses of $199,000 in 2014.
the recognition of a $669,000 goodwill impairment charge during the third quarter of 2014. The voluntary departure of WCCA’s former CEO, and the related litigation against him for violations of his employment agreement, caused disruption within the WCCA customer base during 2014. This disruption ultimately led to the loss of certain clients and a reduction in the projected earnings capacity of WCCA which caused the Company to incur the goodwill impairment charge.
a $293,000 decrease in miscellaneous taxes and insurance due to reduced Pennsylvania bank shares tax expense resulting from a change in the calculation methodology that took effect January 1, 2014.
a $155,000, or 0.6%, decrease in salaries and employee benefits expense due to lower salaries and incentive compensation in 2014. This reduction occurred even with a $376,000 pension charge in the fourth quarter of 2014 related to 25 employees who elected to participate in an early retirement incentive program.

INCOME TAX EXPENSE... The Company recorded income tax expense of $2.3 million, or an effective tax rate of 28.1%, in 2015 compared to the income tax expense of $1.6 million, or an effective tax rate of 34.6%, for 2014. The higher income tax expense is due to the Company’s increased earnings in 2015 as the Company’s effective tax rate is lower than 2014 due to an increase in tax free revenue from bank owned life insurance. BOLI is the Company’s largest source of tax-free earnings. Contributing to the higher effective tax rate in 2014 was the non-deductibility of the goodwill impairment charge for tax purposes. The Company’s deferred tax asset was $9.0 million at December 31, 2015 and relates primarily to AMT carryforwards and the ALL.

SEGMENT RESULTS... Retail banking’s net income contribution was $3.0 million in 2015 compared to $2.2 million in 2014 and $2.8 million in 2013. The increased net income contribution in 2015 reflects increased net interest income and reduced non-interest expense. Net interest income was positively impacted by an increased funding benefit from deposits provided by this segment, which more than fully mitigated the ongoing net interest margin pressure from the continued low interest rate environment. Lower personnel costs and increased efficiencies related to the profitability improvement program were the primary contributor to the reduced level of non-interest expense as a result of fewer FTEs after certain employees elected to participate in the early retirement program late in 2014. These positive items more than offset a lower level of non-interest income as increased revenue from BOLI was more than offset by reduced deposit service charges and lower residential mortgage banking revenues.

The commercial banking segment reported net income of $5.4 million in 2015 compared to net income of $4.2 million in 2014 and $5.0 million in 2013. The net income contribution for 2015 increased as a result of strong growth in the commercial and commercial real estate loan portfolios which resulted in a higher level of net interest income. Also positively impacting net income was a greater level of prepayment fees on early loan payoffs. Additionally, similar to the retail segment, total non-interest expenses were lower due to the early retirement program and other increased efficiencies from the profitability program. Partially offsetting these favorable items was an increase of $740,000 in the provision for loan losses.

The trust segment’s net income contribution was $1.3 million in 2015 compared to $564,000 in 2014 and $1.2 million in 2013. The net income contribution for 2015 reflects increased trust and investment advisory fees as a result of increased assets under management which reflects successful new business development activities as well as effective management of existing customer accounts in this volatile market environment. Also, WCCA returned to profitability as the client base stabilized and began to exhibit growth. The 2014 year was negatively impacted by the previously discussed $669,000 goodwill impairment charge at WCCA.

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Slightly offsetting these favorable items was lower financial services revenue due to fewer production personnel in 2015. Additionally, expenses for the trust segment were negatively impacted by approximately $300,000 of professional fees related to addressing a trust operations trading error. We expect to incur an additional $300,000 to $400,000 of costs in the first quarter of 2016 to complete and resolve this matter. Overall, the fair market value of trust assets under administration totaled $1.975 billion at December 31, 2015, an increase of $90.9 million, or 4.8%, from the December 31, 2014 total of $1.884 billion.

The investment/parent segment reported a net loss of $3.8 million in 2015 which was comparable with the net loss of $3.9 million in 2014 and $3.8 million in 2013. Overall this segment has felt the most earnings pressure from the continued low interest rate environment and declining investment security balances which have been utilized to help fund loan growth. Additionally, all of the interest expense of the trust preferred securities is allocated to this segment. The Company did generate investment security gains of $71,000 in 2015 and $177,000 in 2014 from the sale of certain low balance, rapidly prepaying mortgage backed securities which had a favorable impact on earnings in this segment.

For greater discussion on the future strategic direction of the Company’s key business segments, see “Management’s Discussion and Analysis — Forward Looking Statements.”

BALANCE SHEET... The Company’s total consolidated assets of $1.149 billion at December 31, 2015 grew by $60 million or 5.5% from the $1.089 billion level at December 31, 2014. This asset growth was due primarily to a $51.9 million or 6.2% increase in total loans in 2015. This loan growth reflects the successful results of the Company’s more intensive sales calling efforts with an emphasis on generating commercial loans and owner occupied CRE loans particularly through its loan production offices. This loan increase was partially offset by a $6.1 million decrease in investment securities as the Company utilized this item to help fund the loan growth.

The Company also funded the previously mentioned asset growth with a combination of both increased deposits ($33 million) and FHLB borrowings ($16 million). The FHLB term advances, with maturities between 3 and 5 years, now total $48 million as the Company has utilized these advances to help manage interest rate risk in a rising rate environment. Late in December, the Company successfully completed a $7.65 million subordinated debt issuance. Other liabilities decreased by $1.8 million due to a decrease in the Company’s pension liability. Total stockholders’ equity increased by $4.6 million since year-end 2014 mainly due to increased retained earnings as the Company’s net income available to common shareholders more than exceeded funds used for common stock cash dividend payments. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 15.55% and an asset leverage ratio of 11.41% at December 31, 2015. The Company’s book value per common share was $5.19, its tangible book value per common share was $4.56 and its tangible common equity to tangible assets ratio was 7.57% at December 31, 2015.

LIQUIDITY... The Company’s liquidity position has been strong during the last several years. Our core retail deposit base has grown over the past four years and has been adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities was also used to help fund loan growth. We strive to operate our loan to deposit ratio in a range of 85% to 100%. At December 31, 2015, the Company’s loan to deposit ratio was 97.9%. Given current commercial loan pipelines and the continued development of our four existing loan production offices, we are optimistic that we can maintain our loan to deposit ratio at its current level and within our guideline parameters.

Liquidity can also be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents increased by $15.6 million from December 31, 2014, to December 31, 2015, due to $55.7 million of cash provided by financing activities and $9.8 of cash provided by operating activities. This was partially offset by $49.9 million of cash used in investing activities. Within investing activities, cash advanced for new loan fundings and purchases totalled $261.3 million and was $54.2 million higher than the $207.2 million of cash received from loan principal payments and sales. Within financing activities, deposits increased by $33.3 million, which was used to help fund the overall loan growth experienced in 2015. Total FHLB borrowings increased as advances, both short-term and long term, exceeded pay downs by $6 million and was also utilized to fund earning asset growth. Late in December, the Company successfully completed a $7.65 million subordinated debt issuance.

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The holding company had a total of $30.4 million of cash, short-term investments, and investment securities at December 31, 2015. Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the holding company. At December 31, 2015, our subsidiary Bank had $3.5 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. As such, the holding company has strong liquidity to meet its trust preferred debt service requirements, its subordinated debt interest payments, and its common stock dividends, which in total should approximate $2.1 million over the next twelve months.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investment securities, time deposits with banks, federal funds sold, and short-term investments in money market funds. These assets totaled $45 million and $33 million at December 31, 2015 and 2014, respectively. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.

Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the FHLB systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bank is a member of the FHLB, which provides the opportunity to obtain short- to longer-term advances based upon the Company’s investment in assets secured by one- to four-family residential real estate. At December 31, 2015, the Company had $350 million of overnight borrowing availability at the FHLB, $33 million of short-term borrowing availability at the Federal Reserve Bank and $39 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

CAPITAL RESOURCES... The Company meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The asset leverage ratio was 11.41% and the risk based capital ratio was 15.55% at December 31, 2015. We anticipate that we will maintain our strong capital ratios throughout 2016. Capital generated from earnings will be utilized to pay the common stock cash dividend and will also support anticipated balance sheet growth. Our common dividend payout ratio for the full year 2015 was 13.0%. Late in 2015, the Company issued $7.65 million of subordinated debt which qualifies as Tier 2 capital for regulatory capital calculation purposes. This resulted in the holding company cash position being $30.3 million at year end 2015. In the first quarter of 2016, we have used the net proceeds from the subordinated debt issuance along with a meaningful portion of holding company cash to redeem the SBLF preferred stock prior to the interest rate on the SBLF increasing from 1% to 9%. As a result of the SBLF redemption, we expect that holding company cash will be approximately $10.0 million by the end of the first quarter of 2016 and then build as the year progresses.

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The final rules implement the “Basel III” regulatory capital reforms, as well as certain changes required by the Dodd-Frank Act. The July 2013 final rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. The new minimum capital to risk-adjusted assets requirements are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the new rules (10.0% to be considered “well capitalized”). Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The new minimum capital requirements are effective on January 1, 2015. The capital conservation buffer requirements phase in over a three-year period beginning January 1, 2016 at the 0.625% level. Implementation of the deductions and other adjustments to common equity tier 1 capital began on January 1, 2015 and will be phased-in over a three-year period (beginning at 40% on January 1, 2015, 60% on January 1, 2016 and an additional 20% per year thereafter).

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The Company’s capital position will be more than adequate to meet the revised regulatory capital requirements.

INTEREST RATE SENSITIVITY... Asset/liability management involves managing the risks associated with changing interest rates and the resulting impact on the Company’s net interest income, net income and capital. The management and measurement of interest rate risk at the Company is performed by using the following tools: 1) simulation modeling, which analyzes the impact of interest rate changes on net interest income, net income and capital levels over specific future time periods. The simulation modeling forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments and changes in the volumes and rates of various loan and deposit categories. The simulation modeling incorporates assumptions about reinvestment and the repricing characteristics of certain assets and liabilities without stated contractual maturities; 2) market value of portfolio equity sensitivity analysis, and 3) static GAP analysis, which analyzes the extent to which interest rate sensitive assets and interest rate sensitive liabilities are matched at specific points in time. The overall interest rate risk position and strategies are reviewed by senior management and the Company’s Board on an ongoing basis.

The following table presents a summary of the Company’s static GAP positions at December 31, 2015:

         
INTEREST SENSITIVITY PERIOD   3 MONTHS
OR LESS
  OVER
3 MONTHS
THROUGH
6 MONTHS
  OVER
6 MONTHS
THROUGH
1 YEAR
  OVER
1 YEAR
  TOTAL
     (IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES)
RATE SENSITIVE ASSETS:
                                            
Loans and loans held for sale   $ 267,002     $ 54,080     $ 95,989     $ 466,916     $ 883,987  
Investment securities     26,328       6,077       13,159       95,322       140,886  
Short-term assets     25,067                         25,067  
Regulatory stock     4,628                   2,125       6,753  
Bank owned life insurance                 37,228             37,228  
Total rate sensitive assets   $ 323,025     $ 60,157     $ 146,376     $ 564,363     $ 1,093,921  
RATE SENSITIVE LIABILITIES:
                                            
Deposits:
                                            
Non-interest bearing deposits   $     $     $     $ 188,947     $ 188,947  
NOW     4,654                   87,383       92,037  
Money market     210,107                   48,711       258,818  
Other savings     23,487                   70,462       93,949  
Certificates of deposit of $100,000 or more     6,868       12,588       8,832       3,134       31,422  
Other time deposits     52,853       26,757       23,164       135,347       238,121  
Total deposits     297,969       39,345       31,996       533,984       903,294  
Borrowings     49,748             11,000       56,735       117,483  
Total rate sensitive liabilities   $ 347,717     $ 39,345     $ 42,996     $ 590,719     $ 1,020,777  
INTEREST SENSITIVITY GAP:
                                            
Interval     (24,692 )      20,812       103,380       (26,356 )       
Cumulative   $ (24,692 )    $ (3,880 )    $ 99,500     $ 73,144     $ 73,144  
Period GAP ratio     0.93X       1.53X       3.40X       0.96X           
Cumulative GAP ratio     0.93       0.99       1.23       1.07           
Ratio of cumulative GAP to total assets     (2.15 )%      (0.34 )%      8.66 %      6.37 %          

When December 31, 2015 is compared to December 31, 2014, the Company’s cumulative GAP ratio through one year indicates that the Company’s balance sheet is still asset sensitive with some improvement noted between years. We continue to see loan customer preference for fixed rate loans given the overall low level of interest rates. Also, we have extended some term advances with the FHLB to help manage our

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interest rate risk position. Overall, the absolute low level of short interest rates makes this table more difficult to analyze since there is little room for certain deposit liabilities to reprice downward further.

Management places primary emphasis on simulation modeling to manage and measure interest rate risk. The Company’s asset/liability management policy seeks to limit net interest income variability over the first twelve months of the forecast period to +/-7.5%, which include interest rate movements of 200 basis points. Additionally, the Company also uses market value sensitivity measures to further evaluate the balance sheet exposure to changes in interest rates. The Company monitors the trends in market value of portfolio equity sensitivity analysis on a quarterly basis.

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

   
INTEREST RATE SCENARIO   VARIABILITY
OF NET
INTEREST
INCOME
  CHANGE IN
MARKET
VALUE OF
PORTFOLIO
EQUITY
200 bp increase     2.7 %      19.5 % 
100 bp increase     1.4       11.4  
100 bp decrease     (2.6 )      (14.3 ) 

The Company believes that its overall interest rate risk position is well controlled. The variability of net interest income is modestly positive in the upward rate shocks due to the Company’s short duration investment securities portfolio and scheduled repricing of loans tied to LIBOR or prime. Also, the Company expects that it will not have to reprice its core deposit accounts up as quickly when interest rates rise. The variability of net interest income is negative in the 100 basis point downward rate scenario as the Company has more exposure to assets repricing downward to a greater extent than liabilities due to the absolute low level of interest rates with the fed funds rate currently at 0.25%. The market value of portfolio equity increases in the upward rate shocks due to the improved value of the Company’s core deposit base. Negative variability of market value of portfolio equity occurs in the downward rate shock due to a reduced value for core deposits.

Within the investment portfolio at December 31, 2015, 85% of the portfolio is classified as available for sale and 15% as held to maturity. The available for sale classification provides management with greater flexibility to manage the securities portfolio to better achieve overall balance sheet rate sensitivity goals and provide liquidity if needed. The mark to market of the available for sale securities does inject more volatility in the book value of equity, but has no impact on regulatory capital. There are 64 securities that are temporarily impaired at December 31, 2015. The Company reviews its securities quarterly and has asserted that at December 31, 2015, the impaired value of securities represents temporary declines due to movements in interest rates and the Company does have the ability and intent to hold those securities to maturity or to allow a market recovery. Furthermore, it is the Company’s intent to manage its long-term interest rate risk by continuing to sell newly originated fixed-rate 30-year mortgage loans into the secondary market (excluding construction and any jumbo loans). The Company also sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year 2015, 82% of all residential mortgage loan production was sold into the secondary market.

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The amount of loans outstanding by category as of December 31, 2015, which are due in (i) one year or less, (ii) more than one year through five years, and (iii) over five years, are shown in the following table. Loan balances are also categorized according to their sensitivity to changes in interest rates.

       
  ONE YEAR
OR LESS
  MORE THAN
ONE YEAR
THROUGH
FIVE YEARS
  OVER FIVE
YEARS
  TOTAL
LOANS
     (IN THOUSANDS, EXCEPT RATIOS)
Commercial   $ 46,371     $ 68,921     $ 65,773     $ 181,066  
Commercial loans secured by real estate     43,502       128,271       249,865       421,637  
Real estate-mortgage     22,384       59,343       179,213       260,940  
Consumer     8,356       6,731       5,257       20,344  
Total   $ 120,613     $ 263,266     $ 500,108     $ 883,987  
Loans with fixed-rate   $ 49,386     $ 121,504     $ 281,889     $ 452,779  
Loans with floating-rate     71,227       141,762       218,219       431,208  
Total   $ 120,613     $ 263,266     $ 500,108     $ 883,987  
Percent composition of maturity     13.6 %      29.8 %      56.6 %      100.0 % 
Fixed-rate loans as a percentage of total loans                                51.2 % 
Floating-rate loans as a percentage of total loans                                48.8 % 

The loan maturity information is based upon original loan terms and is not adjusted for principal paydowns and rollovers. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal.

CONTRACTUAL OBLIGATIONS... The following table presents, as of December 31, 2015, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

           
  PAYMENTS DUE IN
     NOTE
REFERENCE
  ONE YEAR
OR LESS
  ONE TO
THREE
YEARS
  THREE TO
FIVE
YEARS
  OVER
FIVE
YEARS
  TOTAL
     (IN THOUSANDS)
Deposits without a stated maturity     8     $ 633,751     $