Ameriserv Financial Inc: Form 10-Q for the period ended Mar 31, 2024

THREE MONTHS ENDED MARCH 31, 2024 VS. THREE MONTHS ENDED MARCH 31, 2023

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

The Company reported net income of $1,904,000, or $0.11 per diluted common share. This earnings performance represented a $389,000, or 25.7%, increase over the first quarter of 2023 when net income totaled $1,515,000, or $0.09 per diluted common share. The first quarter 2024 results demonstrate that the Company’s earnings improvement program is working. Implementing this program contributed to a decrease in non-interest expense, an increase in certain non-interest income items and higher investment security revenue. The Company also benefitted from its diversified revenue streams and saw another strong contribution from the wealth management business, which delivered record quarterly revenue. These factors resulted in total non-interest income representing 36% of total revenue for the quarter. Finally, after five consecutive quarters of decline, net interest income and margin increased in the first quarter of 2024 when compared to the more recent fourth quarter 2023 performance indicating that the Company has begun to reverse one of the major revenue challenges that it has faced with the inversion of the yield curve.

Overall, the favorable comparison in the Company’s performance in the first quarter of 2024 reflects a positive shift in the provision for credit losses and a reduction in non-interest expense, both of which more than offset the lower level of total revenue. Specifically, the Company benefitted from a provision for credit losses recovery in the first quarter of 2024 which represents a significant shift from a large provision expense in the first quarter of 2023. Total non-interest income was lower for the first quarter of 2024 compared to last year’s first quarter after a gain was recognized on the sale of Class B common stock shares of Visa Inc in 2023 and no such gain was recognized this year. This overshadowed significant improvement in other non-interest income line items. Total non-interest expense in the first quarter of 2024 declined and compared favorably to non-interest expense for the first quarter of 2023 primarily due to a lower level of legal and professional services costs.

**…..NET INTEREST INCOME AND MARGIN…..**The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings, and it is affected by interest rate fluctuations as well as changes in the amount and mix of earning assets and interest bearing liabilities. The following table compares the Company’s net interest income performance for the first quarter of 2024 to the first quarter of 2023 (in thousands, except percentages):

N/M — not meaningful

The Company's net interest income in the first quarter of 2024 decreased by $775,000, or 8.1%, from the prior year's first quarter while the net interest margin of 2.70% for the first quarter of 2024 represents a 33-basis point decrease from the first quarter of 2023. The decrease reflects net interest margin compression which has been prevalent in the banking industry since the Federal Reserve began tightening monetary policy in an effort to control inflation. Additionally, contributing to net interest margin compression is the inverted U.S. Treasury yield curve. While the Company’s net interest margin percentage in the first quarter of 2024 compares unfavorably to last year’s first quarter, it did improve since the fourth quarter of 2023 by seven basis points. This improvement reversed a declining trend that existed for five consecutive quarters and reflects the Federal Reserve keeping interest rates stable since July 2023 along with the impact of management’s pricing of loans and deposits.

Total average loans in the first quarter of 2024 were higher than the 2023 first quarter average by $43.3 million, or 4.4%. Strong loan pipelines during 2023 resulted in the loan portfolio demonstrating growth throughout the year. So far in 2024, payoff activity has surpassed loan originations which is consistent with what occurred during the first quarter of 2023 and has resulted in an $11.8 million, or 1.1%, decline in total loans since December 31, 2023. Overall, total loans continue to be above the $1.0 billion threshold averaging $1.030 billion for the 2024 first quarter. The higher interest rate environment along with the higher average total loans outstanding resulted in total loan interest income improving by $1.5 million, or 12.2%, for the first quarter of 2024 when compared to the first quarter of 2023.

Total investment securities averaged $256.7 million for the first quarter of 2024, which is $9.3 million, or 3.5%, lower than the $266.0 million average for the first quarter of last year. The decrease reflects management’s 2023 strategy to allocate more cash flow from the securities portfolio to higher yielding loans while the Company controlled the amount of high cost overnight borrowed funds. While yields on new security purchases exceeded the overall average yield of the existing securities portfolio, the spread between overnight borrowings and the yield on new securities ranged from negative to only marginally positive causing the slowdown in purchasing activity during 2023 and into 2024. Thus, new investment security purchases were primarily used to replace cash flow from maturing securities to maintain appropriate balances for pledging purposes related to public funds deposits. The improved yields for new securities purchases along with management’s execution of a late December 2023 investment portfolio repositioning strategy caused interest income from investments to increase by $140,000, or 6.2%. This repositioning strategy resulted in an approximate 2.1% yield improvement on $16.8 million of securities. Overall, the 2024 first quarter balance of total average interest earning assets increased over last year’s first quarter by $33.9 million, or 2.7%, while total interest income increased by $1.7 million, or 11.3%, since the first quarter of 2023.

On the liability side of the balance sheet, total average deposits of $1.160 billion for the first quarter of 2024 were $10.4 million, or 0.9%, higher than the 2023 first quarter average. The increase reflects the Company’s successful business development efforts which more than offset a portion of the funds from the government stimulus programs leaving the balance sheet and greater pricing competition in the market to retain deposits because of the higher interest rates. The Company’s core deposit base continued to demonstrate the strength and stability that it has had for many years. On March 31, 2024, total deposits grew by $18.2 million, or 1.6%, since December 31, 2023, demonstrating customer loyalty and confidence in AmeriServ Financial Bank. The Company does not utilize brokered deposits as a funding source. In addition to its loyal core deposit base, the Company has several other sources of liquidity, including a significant unused borrowing capacity at the Federal Home Loan Bank (FHLB), overnight lines of credit at correspondent banks and access to the Federal Reserve Discount Window. The loan to deposit ratio averaged 88.8% in the first quarter of 2024, which indicates that the Company has ample capacity to continue to grow its loan portfolio and is well positioned to support our customers and our community during times of economic volatility.

Total interest expense in the first quarter of 2024 increased by $2.4 million, or 48.0%, when compared to the first quarter of 2023, due to higher deposit and borrowings interest expense. Deposit interest expense was higher by $2.0 million, or 48.0%, while the first quarter 2024 average volume of total interest-bearing deposits grew from the 2023 first quarter average by $28.7 million, or 3.0%. The rising national interest rates in 2023 resulted in certain deposit products, particularly public funds, which are tied to a market index, repricing upward with the move in short-term interest rates causing interest expense to increase. Additionally, increased market competition resulted in the Company raising rates on certain shorter-term certificates of deposit to retain funds. Another factor contributing to net interest margin compression was an unfavorable deposit mix shift as the first quarter 2024 average of non-interest bearing demand deposits declined by $18.3 million, or 9.3%, while, as mentioned above, total interest-bearing deposits increased by $28.7 million, or 3.0%. For interest rate risk management purposes and to offset a portion of the unfavorable impact that rising funding costs are having on net interest income, management proactively executed $70 million of interest rate hedge transactions during 2023 to fix the cost of certain deposits that are indexed and move with short-term interest rates. These hedging transactions reduced the Company’s negative variability of net interest income in a rising interest rate environment and helped slow net interest margin compression. Overall, total deposit cost averaged 2.15% for the first quarter of 2024, which is 67 basis points higher than total deposit cost of 1.48% for the first quarter of 2023.

Total borrowings interest expense increased by $415,000, or 48.1%, when comparing the first quarter of 2024 and the first quarter of 2023. The increase primarily results from the impact that the higher interest rates had on total borrowings cost. While the Company has utilized fewer overnight borrowed funds so far in 2024, the level of advances from the Federal Home Loan Bank have increased. Total fed funds purchased and other short-term borrowings averaged $33.6 million for the first quarter of 2024 after averaging $40.7 million for the first quarter of 2023. Advances from the Federal Home Loan Bank averaged $47.9 million in the first quarter of 2024 which is $30.2 million, or 170.9%, higher than the $17.7 million average in the first quarter of 2023. The increase in term advances results from management increasing its usage of this product to lock in lower rates than overnight borrowings due to the inversion in the yield curve. Therefore, the increase to borrowings interest expense in 2024 reflects a greater utilization of FHLB term borrowings.

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) for the three-month periods ended March 31, 2024 and 2023 setting forth (i) average assets, liabilities, and shareholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) the Company’s interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) the Company’s net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of this table, loan balances include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred. Regulatory stock is included within available for sale investment securities for this analysis. Additionally, a tax rate of 21% was used to compute tax-equivalent interest income and yields (non-GAAP). The tax equivalent adjustments to interest income on loans and municipal securities for the three months ended March 31, 2024 and 2023 was $6,000 and $3,000, respectively, which is reconciled to the corresponding GAAP measure at the bottom of the table. Differences between the net interest spread and margin from a GAAP basis to a tax-equivalent basis were not material.

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

**…..PROVISION FOR CREDIT LOSSES…..**The Company recognized a $557,000 provision for credit losses recovery in the first quarter of 2024 after recognizing a $1.179 million provision for credit losses expense in the first quarter of 2023. This represents a favorable shift of $1.7 million. The first quarter 2024 provision for credit losses recovery is the net impact of several items. A $293,000 recovery from the loan portfolio was recognized during the first quarter of 2024 due to payoff activity that resulted in the total loan portfolio balance decreasing since year-end 2023.

Additionally, contributing to this portion of the recovery was a favorable adjustment to the loss and qualitative factors used to calculate the allowance for loan losses in accordance with ASC 326, Financial Instruments – Credit Losses (CECL). Within the investment portfolio, a $435,000 recovery was recognized on a $926,000 reserve that was established in the first quarter of 2023 for a Signature Bank subordinated debt investment after this bond was successfully sold in the first quarter of 2024. These recoveries more than offset a $116,000 reserve established for an available for sale corporate security and an additional $53,000 that was contributed to the reserve for HTM securities in accordance with CECL.

**…..NON-INTEREST INCOME…..**Non-interest income for the first quarter of 2024 totaled $4.9 million and decreased by $560,000, or 10.2%, from the first quarter of 2023 performance. Factors contributing to the lower level of non-interest income for the quarter included:

• during the first quarter of 2023, the Company recognized a $1.7 million gain from AmeriServ Financial Bank selling all 7,859 shares of Class B common stock of Visa Inc. There was no such gain during the first quarter of this year;
• a $555,000, or 121.4%, increase in other income due to the recognition of a $250,000 signing bonus that resulted from successful negotiations related to the renewal of an expiring contract with Visa. Also contributing to the favorable comparison in other income between quarters was an adjustment to the fair value of a risk participation agreement as well as the recognition of a positive credit valuation adjustment to the market value of the interest rate swap contracts that the Company executed to accommodate the needs of certain borrowers while managing our interest rate risk position. These favorable adjustments totaled $262,000 and were impacted by the increase in interest rates since the first quarter of 2023;
• wealth management fees improved by $528,000, or 19.3%, to a record level for the first quarter of 2024 due in part to strong performance from our Financial Services division that resulted from new business growth. Also, the increase in wealth management fees reflects the improving market conditions particularly for equity securities as major market indexes have risen to record highs during the first quarter of 2024. Overall, the fair market value of wealth management assets totaled $2.6 billion at March 31, 2024 and increased by $248.5 million, or 10.6%, since March 31, 2023; and
• a $98,000, or 41.0%, increase in bank owned life insurance revenue due to the receipt of a death claim.

**…..NON-INTEREST EXPENSE…..**Non-interest expense for the first quarter of 2024 totaled $11.9 million and decreased by $99,000, or 0.8%, from the prior year’s first quarter. Factors contributing to the lower level of non-interest expense for the quarter included:

• a $306,000, or 23.4%, decrease in professional fees primarily due to lower expenses for legal and professional services caused by litigation and responses to the actions of an activist investor. The amount spent on activist related costs totaled $255,000 in the first quarter of 2024 compared to $599,000 in the first quarter of 2023;
• a $130,000, or 104.0%, increase in FDIC insurance due to an increase in both the asset assessment base as well as the assessment rate;
• an $81,000, or 7.5%, increase in data processing and IT expense due to additional expenses related to monitoring our computing and network environment; and
• a $58,000, or 0.8%, decrease in salaries and employee benefits due to the net impact of certain items within this broad category. Total health care cost was $406,000, or 41.1%, lower compared to last year’s first quarter and reflects management’s effective negotiations with our current health care provider that resulted in not having to recognize any premium costs in January 2024. This favorable item was partially offset by an increased level of incentive compensation by $243,000, or 89.2%, which corresponds to the strong performance of our wealth management division, as well as increased expenses related to payroll taxes and employer 401(k) contributions.

**…..INCOME TAX EXPENSE…..**The Company recorded income tax expense of $483,000, or an effective tax rate of 20.2%, in the first quarter of 2024. This compares to income tax expense of $372,000, or an effective tax rate of 19.7%, for the first quarter of 2023.

**…..SEGMENT RESULTS.…..**The community banking segment reported a net income contribution of $5,021,000 in the three months of 2024 which was $1,353,000 higher than the net income contribution in the first three months of 2023. The increase between time periods results from the strength that this segment provides to the Company which was determined by a thorough funds transfer pricing analysis. In short, a funds transfer pricing analysis determines how funding (deposits) and use of this funding (loans) by each segment contributes to the overall profitability of the Company by providing an estimated positive or negative dollar value of the segment’s contribution to the Company. Overall, the funds transfer pricing analysis indicated that the community banking segment provided an additional $1.1 million benefit to the Company in the three months of 2024 when compared to the three months of 2023. Despite this benefit that community banking provides, this segment was unfavorably impacted from net interest margin compression as total deposit interest expense increased to a higher level than the increase to total loan interest income by $510,000. Net interest margin compression has been prevalent in the banking industry since the Federal Reserve began tightening monetary policy in an effort to control inflation combined with an inverted U.S. Treasury yield curve. Another factor contributing to the net interest margin compression experienced by the Company was an unfavorable deposit mix shift as exhibited by the three-month average of non-interest-bearing demand deposits declining by $18.3 million, or 9.3%, while total interest-bearing deposits increased by $28.7 million, or 3.0%. The improvement is due to the Federal Reserve keeping interest rates stable since July 2023 along with the impact of management’s pricing of loans and deposits. This segment benefitted from a higher level of total average loans in the first three months of 2024 by $43.3 million, or 4.4%. Growth occurred in all major categories. Overall, total loan interest income improved by $1.5 million, or 12.2%, for the first three months of 2024 when compared to the first three months of last year. Deposit interest expense was higher by $2.0 million, or 48.0%, while, as mentioned above, the 2024 three-month average volume of total interest-bearing deposits increased by $28.7 million, or 3.0%. The higher national interest rates along with increased market competition to retain and attract deposits contributed to deposit costs increasing. This segment was favorably impacted by the Company recording a $291,000 recovery for the allowance for credit losses on our loan portfolio and unfunded commitments in the first three months of 2024 compared to $284,000 of provision expense for credit losses on loans and unfunded commitments in last year’s first three months. This was discussed previously in the Provision for Credit Losses section within this document. Non-interest income increased due to the Company recognizing a $250,000 signing bonus that resulted from successful negotiations related to the renewal of an expiring contract with Visa. Also, this segment was favorably impacted by a positive adjustment to the fair market value of an interest rate swap related risk participation agreement as well as the recognition of a favorable credit valuation adjustment to the market value of the interest rate swap contracts that the Company executed to accommodate the needs of certain commercial borrowers while managing our interest rate risk position. Non-interest expense, within the community banking segment, in the three months of 2024 compares unfavorably to last year’s first three months primarily due to a higher level of FDIC deposit insurance expense.

The wealth management segment’s net income contribution increased by $318,000 in the first three months of 2024 from the first three months of 2023. The increase reflects the strong performance from the Financial Services division that resulted from new business growth. Also, wealth management fees increased due to the improving market conditions particularly for equity securities as the major market indexes rose to record highs during the first quarter of 2024. Overall, the fair market value of wealth management assets totaled $2.6 billion at March 31, 2024 and increased by $249.0 million, or 10.6%, since March 31, 2023. Also contributing to the higher level of net income for this segment were lower levels of salaries expense and health care costs. Overall, wealth management revenues reached a historically high level. Partially offsetting the improvement in wealth management revenue for the three-month period were higher levels of incentive compensation and professional fees.

The investment/parent segment reported a net loss of $3,883,000 in the three months of 2024 which is greater than the net loss of $2,601,000 in the first three months of 2023 by $1,282,000. The funds transfer pricing analysis within this segment caused the loss reported within this segment to be higher due to the inverted yield curve and the higher funding costs on our balance sheet. Also contributing to the higher net loss for this segment was the $1.7 million gain recognized during the first quarter of 2023 from the sale of the Class B common stock of Visa Inc. that the Bank owned which was only partially offset by a $1.4 million favorable shift from the Bank recognizing a $435,000 provision recovery from the subordinated debt investment with Signature Bank after a $926,000 provision expense was recognized on this same investment in the first quarter of 2023. This segment was also unfavorably impacted by $415,000 of additional total borrowings interest expense due to the higher average balance of FHLB term borrowings. Favorably impacting net income for this segment were lower expenses by $344,000 for legal and professional services costs and an increased level of interest income from investment securities by $150,000 as the higher interest rates and a portfolio restructuring in late 2023 resulted in an improved overall total securities yield.

**…..BALANCE SHEET…..**The Company’s total consolidated assets were $1.4 billion at March 31, 2024, which declined by $5.1 million, or 0.4%, from the December 31, 2023 asset level. This change was related, primarily, to reduced total loans which were partially offset by increased levels of cash and cash equivalents, investment securities, leases, and other assets. Specifically, total loans decreased $11.8 million, or 1.1%, as payoff activity so far in 2024 has surpassed loan originations. During 2023 and into 2024, the spread between overnight borrowings and the yield on new investment securities ranged from negative to only marginally positive causing a slowdown in purchasing activity. Thus, the $729,000, or 0.3%, increase in investment securities was used to replace cash flow from maturing securities to maintain appropriate balances for pledging purposes related to public funds deposits. The slowdown in loan originations and investment security purchases along with an increase in total deposits led to a $3.4 million, or 24.4%, increase in cash and cash equivalents. The $1.2 million, or 38.1%, increase in the right-of-use asset for operating and financing leases resulted from the execution of two new leases for office locations and one new lease of equipment during the first quarter of 2024. Finally, other assets increased $2.0 million, or 5.3%, due to an increase in the market values for the interest rate swaps and hedges as well as amounts prepaid for state shares tax.

Total deposits increased by $18.2 million, or 1.6%, in the first three months of 2024. This demonstrates customer confidence and the strength and loyalty of our core deposit base. As of March 31, 2024, the 25 largest depositors represented 22.9% of total deposits, which is an increase from December 31, 2023, when it was 22.4%. As of March 31, 2024 and December 31, 2023, the estimated amount of uninsured deposits was $395.9 million and $384.5 million, respectively. The estimate of uninsured deposits was done at the single account level and does not take into account total customer balances in the Bank. It should be noted that approximately 50% of these uninsured deposits relate to public funds from municipalities, government entities, and school districts which by law are required to be collateralized by investment securities or FHLB letters of credit to protect these depositor funds. Total borrowings have decreased by $23.5 million, or 20.3%, since year-end 2023. This change was driven by a decrease in short-term borrowings which was partially offset by an increase in FHLB term advances. Specifically, short-term borrowings decreased by $29.5 million, or 72.0%. Given the high cost of overnight borrowed funds, management has been effectively controlling the usage of this funding source. In addition, the inversion in the yield curve has caused FHLB term advances to have rates that are lower than the cost of overnight borrowed funds. Therefore, management increased usage of FHLB term advances in the first quarter of 2024 leading to an increase in this line item of $4.9 million, or 10.9%.

The Company’s total shareholders’ equity increased by $1.7 million, or 1.6%, during the first three months of 2024. The increase in capital is the result of the Company’s earnings performance during the first quarter of 2024 more than offsetting our common stock dividend payments to shareholders. In addition, the improved market value adjustment on the interest rate hedges had a positive impact on accumulated other comprehensive loss which more than offset the reduced market value of the available for sale investment securities portfolio and the pension adjustment.

The Company continues to be considered well capitalized for regulatory purposes with a total capital ratio of 13.10%, and a common equity tier 1 capital ratio of 9.53% at March 31, 2024. See the discussion of the Basel III capital requirements under the Capital Resources section below. As of March 31, 2024, the Company’s book value per common share was $6.06 and its tangible book value per common share was $5.26(1). When compared to December 31, 2023, book value per common share and tangible book value per common share improved by $0.10 per common share. The improvement in the Company’s book value and tangible book value per share in the first three months of 2024 compared to last year-end reflects the improvement in earnings performance as well as a positive market value adjustment for the interest rate hedges which more than offset a decrease in the fair value of the Company’s available for sale investment securities and a negative pension adjustment. The tangible common equity to tangible assets ratio was 6.58%(1) at March 31, 2024 and increased by 14-basis points when compared to December 31, 2023.

(1) Non-GAAP financial information, see “Reconciliation of Non-GAAP Financial Measures” later in this MD&A.

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

* 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, and (iii) other real estate owned and repossessed assets.

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

The slight increase in accruing loan delinquency since year-end 2023 is attributable to an increase in commercial real estate loan delinquency which was partially offset by a decrease in consumer and residential mortgage loan delinquency. Non-performing assets decreased from $12.4 million at December 31, 2023 to $12.2 million at March 31, 2024 primarily due to a reduction in non-accrual commercial real estate loans. Non-performing assets were at 1.18% of total loans as of March 31, 2024. The Company recognized net loan charge-offs of $121,000, or 0.05% of total average loans, in the first quarter of 2024 which is relatively consistent with net loan charge-offs of $116,000, or 0.05% of total average loans, in the first quarter of 2023. Classified loans decreased $426,000, or 1.7%, from December 31, 2023 and totaled $24.6 million at March 31, 2024 as a result of normal paydown activity.

We also continue to closely monitor the loan portfolio given the number of relatively large-sized commercial and commercial real estate loans within the portfolio. As of March 31, 2024, the 25 largest credits represented 22.7% of total loans outstanding, which remained unchanged since December 31, 2023.

Commercial Real Estate Loan Exposure

A significant portion of the Company's loan portfolio consists of commercial real estate loans, including owner occupied properties, non-owner-occupied properties, and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans and depend on cash flows from the owner’s business or the property’s tenants to service the debt. The borrower’s cash flows may be affected significantly by general economic conditions, a downturn in the local economy or in occupancy rates in the market where the property is located, any of which could increase the likelihood of default. Commercial real estate loans also typically have larger loan balances, and, therefore, the deterioration of one or a few of these loans could cause a significant increase in the percentage of the Company's non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for credit losses for loans, and an increase in charge-offs, all of which could have a material adverse effect on the Company's business, financial condition, and results of operations.

The banking regulatory agencies have recently expressed concerns about weaknesses in the current commercial real estate market. Banking regulators generally give commercial real estate lending greater scrutiny and may require banks with higher levels of commercial real estate loans to implement enhanced risk management practices, including stricter underwriting, internal controls, risk management policies, more granular reporting, and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures. If the Company's banking regulators determine that our commercial real estate lending activities are particularly risky and are subject to such heightened scrutiny, the Company may incur significant additional costs or be required to restrict certain of our commercial real estate lending activities. Furthermore, failures in the Company's risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which could have a material adverse effect on the Company's business, financial condition, and results of operations.

There is a particular emphasis on ensuring that the subsidiary bank has appropriate levels of capital to support its non-owner occupied commercial real estate loan concentration, which stood at 369% at March 31, 2024. It should be noted that this ratio improved from 375% at December 31, 2023 due to contraction in non-owner occupied commercial real estate loan balances as well as an increase in total regulatory capital. Further, non-owner occupied commercial real estate loans represented 49.6% and 49.3% of total loans as of March 31, 2024 and December 31, 2023, respectively.

The commercial real estate loan segment includes the non-owner occupied commercial real estate loan classes of retail, multi-family, and other. The following table presents our non-owner occupied commercial real estate loan portfolio by property type.

(In thousands)

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

The allowance for loan credit losses declined since December 31, 2023 by $414,000, or 2.8%, to $14.6 million at March 31, 2024. Even with this modest decrease, the allowance for loan credit losses is $2.5 million, or 20.7%, higher than the allowance for loan credit losses at March 31, 2023. The increase since last year’s first quarter end is due to the Company strengthening its allowance for loan credit losses during the fourth quarter of 2023. Overall, the Company continues to maintain solid coverage of both total loans and non-performing assets as the allowance for loan credit losses provided 120% coverage of non-performing assets and 1.43% of total loans at March 31, 2024.

The allowance for credit losses on the investment securities portfolio was comprised of $116,000 on available for sale securities and $90,000 on held to maturity securities as of March 31, 2024. This compares to $926,000 on available for sale securities and $37,000 on held to maturity securities as of December 31, 2023. The allowance for credit losses on available for sale securities decreased $810,000, or 87.5%, since year-end 2023 due to the successful sale of the Signature Bank subordinated debt investment during the first quarter of 2024.

**…..LIQUIDITY…..**The Company’s liquidity position continues to be strong. Total average deposits are $10.4 million, or 0.9%, higher when compared to the 2023 first three-month average. The increase reflects the Company’s successful business development efforts which more than offset a portion of the funds from the government stimulus programs leaving the balance sheet and greater pricing competition in the market to retain deposits because of the higher interest rates. The Company’s core deposit base continued to demonstrate the strength and stability that it has had for many years. On March 31, 2024, total deposits grew by $18.2 million, or 1.6%, since December 31, 2023, demonstrating customer loyalty and confidence in AmeriServ Financial Bank. The Company does not utilize brokered deposits as a funding source. In addition to its loyal core deposit base, the Company has several other sources of liquidity, including a significant unused borrowing capacity at the Federal Home Loan Bank (FHLB), overnight lines of credit at correspondent banks and access to the Federal Reserve Discount Window. Overall, deposit volumes continue to remain at a high level. The core deposit base is adequate to fund the Company’s operations. Cash flow from maturities, prepayments and amortization of securities is used to help fund loan growth.

Average short-term investments remained relatively stable in the first three months of 2024 compared to the first three months of last year, decreasing slightly by $163,000, or 3.7%. Advances from the Federal Home Loan Bank averaged $47.9 million in the first quarter of 2024 which is $30.2 million, or 170.9%, higher than the $17.7 million average in the first quarter of 2023. The increase to term advances results from management increasing our usage of this product to lock in lower rates than overnight borrowings due to the inversion in the yield curve. Management continues to monitor the changing economic conditions and adjust pricing strategies accordingly which largely determines customer behavior and the level of total deposits as well as shifts within the total deposit mix. Also, diligent monitoring and management of our short-term investment position and our level of overnight borrowed funds remains a priority. Given the high cost of overnight borrowed funds, management has been effectively controlling the usage of this funding source. The Company has utilized fewer overnight borrowed funds so far in 2024. Total fed funds purchased and other short-term borrowings averaged $33.6 million for the first quarter of 2024 after averaging $40.7 million for the first quarter of 2023. Continued loan growth and prudent investment in securities are critical to achieve the best return on the normal level of earning asset cash flow that occurs each month. So far in 2024, purchases of securities have continued to follow the same trend exhibited during the full year of 2023. Securities purchases have been slow as more funds have been allocated to the loan portfolio. Loan pipelines are at slightly lower levels than what we have recently experienced. However, total average loans in the first quarter of 2024 were higher than the 2023 first quarter average by $43.3 million, or 4.4%. We strive to operate our loan to deposit ratio in a range of 80% to 100%. The Company’s loan to deposit ratio averaged 88.8% in the first quarter of 2024, which indicates that the Company has ample capacity to continue to grow its loan portfolio and is strongly positioned to support our customers and our community during times of economic volatility. We are also well positioned to service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters.

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by $3.4 million from December 31, 2023, to $17.4 million at March 31, 2024, due to $12.6 million of net cash provided by investing activities which more than offset $7.0 million of net cash used in financing activities and $2.2 million of net cash used in operating activities. Within investing activities, cash advanced for new loans originated totaled $40.0 million and was $12.4 million lower than the $52.4 million of cash received from loan principal payments. Within financing activities, total short-term borrowings decreased by $29.5 million, total FHLB borrowings increased by $4.9 million while total deposits increased by $18.2 million. Within operating activities, $2.1 million of mortgage loans held for sale were originated while $1.3 million of mortgage loans were sold into the secondary market.

The holding company had $6.0 million of cash, short-term investments, and investment securities at March 31, 2024, which represents a $2.2 million decrease from the holding company’s cash position since December 31, 2023. Dividend payments from our subsidiaries provided ongoing cash to the holding company. At March 31, 2024, our subsidiary Bank had $2.6 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Management follows a policy that limits dividend payments from the Trust Company to 75% of annual net income. Overall, we believe that the holding company has sufficient liquidity to meet its subordinated debt interest payments and its dividend payments on its common stock.

Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investments, interest bearing deposits with banks, and federal funds sold. These assets totaled $17.4 million and $14.0 million at March 31, 2024 and December 31, 2023, 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-term to longer-term advances based upon the Company’s investment in certain residential mortgage, commercial real estate, and commercial and industrial loans. At March 31, 2024, the Company had $323 million of overnight borrowing availability at the FHLB, $43 million of short-term borrowing availability at the Federal Reserve Bank and $35 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.

**…..CAPITAL RESOURCES…..**The Bank meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Company’s common equity tier 1 capital ratio was 9.53%, the tier 1 capital ratio was 9.53%, and the total capital ratio was 13.10% at March 31, 2024. The Company’s tier 1 leverage ratio was 7.89% at March 31, 2024. We anticipate that we will maintain our strong capital ratios throughout the remainder of 2024.

Our focus is on preserving capital to support customer lending and allow the Company to take advantage of business opportunities as they arise. We currently believe that we have sufficient capital and earnings power to continue to pay our common stock cash dividend at its current rate of $0.03 per quarter. While the Company has frequently executed common stock buyback programs in the past, we presently do not have one in place due to our tangible common equity ratio being at 6.58%(1). At March 31, 2024, the Company had approximately 17.1 million common shares outstanding.

The Basel III capital standards establish the minimum capital levels in addition to the well capitalized requirements under the federal banking regulations prompt corrective action. The capital rules also impose a 2.5% capital conservation buffer (CCB) on top of the three minimum risk-weighted asset ratios. Banking institutions that fail to meet the effective minimum ratios once the CCB is taken into account will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (four quarter trailing net income, net of distributions and tax effects not reflected in net income). The Company and the Bank meet all capital requirements, including the CCB, and continue to be committed to maintaining strong capital levels that exceed regulatory requirements while also supporting balance sheet growth and providing a return to our shareholders.

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

(1) Non-GAAP financial information, see “Reconciliation of Non-GAAP Financial Measures” later in this MD&A.

**…..INTEREST RATE SENSITIVITY…..**The following table presents an analysis of the sensitivity inherent in the Company’s net interest income and market value of portfolio equity. The interest rate scenarios in the table compare the Company’s base forecast, which was prepared using a flat interest rate scenario, to scenarios that reflect immediate interest rate changes of 100 and 200 basis points. 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.

The Company believes that its overall interest rate risk position is well controlled. The execution of $70 million of interest rate hedges during 2023, in order to fix the cost of certain deposits that are indexed and move with short-term interest rates, reduced the Company’s negative variability of net interest income in a rising interest rate environment and helped slow net interest margin compression. The fed funds rate is currently at a targeted range of 5.25% to 5.50% as the Federal Reserve has not changed interest rates since the third quarter of 2023.

Overall, the Company’s interest rate risk position is relatively neutral. The variability of net interest income is slightly negative in the upward rate scenarios as the Company is marginally more exposed to liabilities repricing upward to a greater extent than assets. Specifically, the cost of funds is immediately impacted when short-term national interest rates increase because certain deposit products and overnight borrowed funds move with the market. This was partially offset by the Company’s investment securities portfolio and the scheduled repricing of loans tied to an index, such as SOFR or prime. In addition to the interest rate hedges discussed above, the Company has effectively utilized interest rate swaps for interest rate risk management purposes. The interest rate swaps allow our customers to lock in fixed interest rates while the Company retains the benefit of interest rates moving with the market. Regarding interest bearing liabilities, the Company will continue its disciplined approach to price its core deposit accounts in a controlled but competitive manner and control the amount of overnight borrowed funds. 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 shocks due to a reduced value for core deposits.

**…..OFF BALANCE SHEET ARRANGEMENTS…..**The Company incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company had various outstanding commitments to extend credit approximating $253.1 million and standby letters of credit of $8.0 million as of March 31, 2024. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

**…..RECONCILIATION OF NON-GAAP FINANCIAL MEASURES…..**This document contains certain financial information determined by methods other than in accordance with generally accepted accounting principles in the United States (GAAP). The tangible common equity ratio and tangible book value per share are considered to be non-GAAP measures and are calculated by dividing tangible common equity by tangible assets or shares outstanding. The Company believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures, and, because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies.

The following table sets forth the calculation of the Company’s tangible common equity ratio and tangible book value per share at March 31, 2024 and December 31, 2023 (in thousands, except share and ratio data):

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

ACCOUNT — Pension liability

BALANCE SHEET REFERENCE — Other assets

INCOME STATEMENT REFERENCE — Salaries and employee benefits and Other expense

DESCRIPTION

Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation of future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense. Additionally, pension expense can also be impacted by settlement accounting charges if the amount of employee selected lump sum distributions exceed the total amount of service and interest component costs of the net periodic pension cost in a particular year. Our pension benefits are described further in Note 15 of the Notes to Unaudited Consolidated Financial Statements.

ACCOUNT — Allowance for Credit Losses

BALANCE SHEET REFERENCE — Investment securities, net of allowance for credit losses, Allowance for credit losses – loans, Other liabilities

INCOME STATEMENT REFERENCE — Provision (recovery) for credit losses

DESCRIPTION

Effective January 1, 2023, the Company adopted ASC 326, Financial Instruments - Credit Losses and subsequent related updates. This standard requires the Company to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held to maturity (HTM) securities, and off-balance sheet credit exposures such as unfunded commitments. In addition, ASC 326 requires credit losses on available for sale (AFS) debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell the security.

The Company measures expected credit losses on held to maturity debt securities, which are comprised of U.S. government agency and mortgage-backed securities as well as taxable municipal, corporate, and other bonds. The Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the taxable municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the PD/LGD method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. Based on management judgment, certain qualitative adjustments, such as the Company’s historical loss experience and/or the issuer’s credit quality, may be applied.

The Company measures expected credit losses on available for sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis.

The allowance for credit losses (ACL) is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged-off against the ACL when they are deemed uncollectible.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The allowance for credit losses is calculated with the objective of maintaining reserve levels believed by management to be sufficient to absorb current expected credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the credit portfolio and other relevant factors. However, this quarterly evaluation is inherently subjective as it requires material estimates. This process also considers economic conditions, for a reasonable and supportable forecast period of two years. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.

The Company estimates expected credit losses over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

ACCOUNT — Derivatives (interest rate swaps/hedges)

BALANCE SHEET REFERENCE — Other assets and Other liabilities

INCOME STATEMENT REFERENCE — Other income

DESCRIPTION

The Company periodically enters into derivative instruments to meet the financing, interest rate and equity risk management needs of its customers or the Bank.

The Company recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets and measures those instruments at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and hedged item related to the hedged risk are recognized in earnings. Changes in fair value of derivatives designated and accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive loss, net of deferred taxes and are subsequently reclassified to earnings when the hedged transaction affects earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we may enter into interest rate swap agreements with customers and a large financial institution that specializes in these types of transactions. The Company enters into offsetting positions to minimize interest rate and equity risk to the Company. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings in amounts that offset. These instruments and their offsetting positions are recorded in other assets and other liabilities on the Consolidated Balance Sheets.

…..FORWARD LOOKING STATEMENT…..

THE STRATEGIC FOCUS:

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

• Shareholders — We strive to increase earnings per share; identifying and managing revenue growth and expense control; and managing risk. Our goal is to increase value for AmeriServ shareholders by growing earnings per share and narrowing the financial performance gap between AmeriServ and its peer banks. We try to return earnings to shareholders through a combination of dividends and share repurchases (none currently authorized) subject to maintaining sufficient capital to support balance sheet growth and economic uncertainty. We strive to educate our employee base as to the meaning/importance of earnings per share as a performance measure. Our goal is to develop a value added combination for increasing revenue and controlling expenses that is rooted in developing and offering high-quality financial products and services; an existing branch network; electronic banking capabilities with 24/7 convenience; and providing truly exceptional customer service. We explore branch consolidation opportunities and further leverage union affiliated revenue streams, prudently manage the Company’s risk profile to improve asset yields and increase profitability and continue to identify and implement technological opportunities and advancements to drive efficiency for the holding company and its affiliates.
• Customers — The Company expects to provide exceptional customer service, identifying opportunities to enhance the Banking for Life philosophy by providing products and services to meet the financial needs in

every step through a customer’s life cycle, and further defining the role technology plays in anticipating and satisfying customer needs. We anticipate providing leading banking systems and solutions to improve and enhance customers’ Banking for Life experience. We will provide customers with a comprehensive offering of financial solutions including retail and business banking, home mortgages and wealth management at one location. We have upgraded and modernized select branches to be more inviting and technologically savvy to meet the needs of the next generation of AmeriServ customers without abandoning the needs of our existing demographic.

• Staff — We are committed to developing high-performing employees, establishing and maintaining a culture of trust and effectively and efficiently managing staff attrition. We will employ a work force succession plan to manage anticipated staff attrition while identifying and grooming high performing staff members to assume positions with greater responsibility within the organization. We will employ technological systems and solutions to provide staff with the tools they need to perform more efficiently and effectively.
• Communities — We will continue to promote and encourage employee community involvement and leadership while fostering a positive corporate image. This will be accomplished by demonstrating our commitment to the communities we serve through assistance in providing affordable housing programs for low-to-moderate-income families; donations to qualified charities; and the time and talent contributions of AmeriServ staff to a wide-range of charitable and civic organizations.

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

Such factors include the following: (i) the effect of changing regional and national economic conditions; (ii) the effects of trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve; (iii) significant changes in interest rates and prepayment speeds; (iv) inflation, stock and bond market, and monetary fluctuations; (v) credit risks of commercial, real estate, consumer, and other lending activities; (vi) changes in federal and state banking and financial services laws and regulations and supervisory actions by such regulators, including bank failures; (vii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (viii) the timely development of competitive new products and services by the Company and the acceptance of those products and services by customers and regulators (when required); (ix) the willingness of customers to substitute competitors’ products and services for those of the Company and vice versa; (x) changes in consumer spending and savings habits; (xi) unanticipated regulatory or judicial proceedings; (xii) the ability to attract new or retain existing deposits or to retain or grow loans, including growth from unfunded closed loans; (xiii) the ability to generate future revenue growth or to control future growth in non-interest expense, including, but not limited to, those related to technological changes, including changes regarding artificial intelligence and cybersecurity, changes affecting oversight of the financial services industry, and changes intended to manage or mitigate climate and related environmental risks; (xiv) the impact of failure in, or breach of, our operational or security systems or those of third parties with whom we do business, including as a result of cyberattacks or an increase in the incidence of fraud, illegal payments, security breaches or other illegal acts impacting us or our customers; (xv) expense and reputational impact on the Company as a result of litigation and other continuing activities of an activist shareholder; (xvi) legal, reputational, and financial risks resulting from the MOVEit cyber incident, our ongoing investigation of the incident, including the Company’s potential discovery of additional information related to the incident in connection with this investigation, any potential regulatory inquiries and/or litigation to which the Company may become subject in connection with this incident, the extent of remediation and other additional costs that may be incurred by the Company in connection with this incident, the extent of insurance coverage and contractual indemnification, the potential that other third-party vendors may have been affected by the MOVEit vulnerability in a manner that may compromise client data, including personally identifiable information; and (xvii) other external developments which could materially impact the Company’s operational and financial performance.

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

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

(a) Evaluation of Disclosure Controls and Procedures. The Company’s management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and the operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, 2024 are effective.

(b) Changes in Internal Controls. There have been no changes in AmeriServ Financial, Inc.’s internal controls over financial reporting (as defined in Rule 13a-15(f)) that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.