Ameriserv Financial Inc: Form 10-Q for the period ended Mar 31, 2025

THREE MONTHS ENDED MARCH 31, 2025 VS. THREE MONTHS ENDED MARCH 31, 2024

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

The Company reported first quarter 2025 net income of $1,908,000, or $0.12 per diluted common share. This performance represented a 9.1% increase in earnings per share compared to the first quarter of 2024 when net income totaled $1,904,000, or $0.11 per diluted common share. The Company achieved positive operating leverage in the first quarter of 2025 as total revenue increased while non-interest expenses declined. The increase in total revenue was caused by meaningful improvement in net interest income as the first quarter net interest margin increased by 31 basis points from the prior year quarter and 13 basis points on a sequential quarter basis.

While the Company benefitted from a provision for credit losses recovery in the first quarter of 2025, the size of the recovery was smaller than what was recognized in the first quarter of 2024. This along with a lower level of non-interest income offset the improvement in net interest income and non-interest expense resulting in the first quarter 2025 earnings being slightly above 2024 first quarter earnings.

**…..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 2025 to the first quarter of 2024 (in thousands, except percentages):

The Company's net interest income in the first quarter of 2025 increased by $1.2 million, or 13.5%, from the prior year's first quarter while the net interest margin of 3.01% for the first quarter of 2025 represented a 31-basis point improvement from the first quarter of 2024. The increase reflects controlled balance sheet growth, as both total loans and total deposits were at higher levels due to the Company’s effective business development strategies. This, combined with effective pricing strategies, resulted in both the total earning asset yield and cost of interest-bearing funds improving between years. The Federal Reserve’s action to lower interest rates during the latter portion of 2024 favorably impacted total interest-bearing deposits and borrowings costs. In addition, while the U.S. Treasury yield curve remained modestly inverted on the short end, the mid to long end of the curve demonstrated a normal upward slope and favorably impacted earning asset yields. Management believes that the Company’s balance sheet is well positioned for further quarterly net interest income growth and net interest margin improvement.

Total average loans in the first quarter of 2025 were higher than the 2024 first quarter average by $34.8 million, or 3.4%, due to consistent new loan funding opportunities throughout 2024. So far in 2025, payoff activity has surpassed new loan originations and has resulted in a $6.1 million, or 0.6%, decline in total loans since December 31, 2024. Overall, total loans continue to be well above the $1.0 billion threshold averaging $1.065 billion for the 2025 first quarter. Total loan interest income improved in the first quarter of 2025 compared to last year’s first quarter due to the increased level of average total loans outstanding, and a portion of commercial real estate (CRE) loans, that were booked at the onset of the COVID pandemic when interest rates were low, repricing upward during the first quarter of 2025. These favorable items resulted in total loan interest income improving by $732,000, or 5.3%, when the 2025 first quarter is compared to 2024.

Total investment securities averaged $231.4 million for the first quarter of 2025, which was $7.4 million, or 3.1%, lower than the $238.8 million average for the first quarter of last year. The decrease reflects management’s 2024 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. However, our liquidity position strengthened during the first quarter of 2025 due to deposit growth. Therefore, more funds were available to invest in the securities portfolio during a time when security yields improved, making purchases more attractive. As a result, the securities portfolio grew by $12.0 million, or 5.5%, since December 31, 2024. New investment security purchases were also necessary 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 caused interest income from investments to increase by $19,000, or 0.8%, for the first quarter of 2025 compared to the same period in 2024. Overall, the average balance of total interest earning assets increased from last year’s first quarter average by $35.0 million, or 2.8%, while total interest income increased by $798,000 or 4.9%, from the first quarter of 2024.

On the liability side of the balance sheet, total average deposits of $1.218 billion for the first quarter of 2025 were $58.2 million, or 5.0%, higher than the 2024 first quarter average. The increase reflects the Company’s successful business development efforts. Additionally, the Company’s core deposit base continued to demonstrate the strength and stability that it has for many years due to customer loyalty and confidence in AmeriServ Financial Bank. The Company does not utilize brokered deposits as a funding source. The loan to deposit ratio averaged 87.4% in the first quarter of 2025, which indicates that the Company has ample capacity to continue to grow its loan portfolio and is well positioned to support its customers and community during times of economic volatility.

Total interest expense in the first quarter of 2025 favorably decreased by $386,000, or 5.2%, when compared to the first quarter of 2024. Deposit interest expense declined by $75,000, or 1.2%, despite total average interest-bearing deposits growing by $56.9 million, or 5.8%, compared to the first quarter of last year. The quarter-over-quarter decrease in total interest expense was primarily due to total interest-bearing deposit cost demonstrating a declining trend that coincided with the Federal Reserve easing monetary policy during the final four months of 2024. This reduction in interest-bearing deposit costs contributed to the previously mentioned improvement in the net interest margin. Overall, total deposit cost (including the benefit of non-interest-bearing demand deposits which grew between years) averaged 2.04% in the first quarter of 2025, which is an 11-basis point improvement from the first quarter of 2024.

Total borrowings interest expense decreased by $311,000, or 24.3%, in the first quarter of 2025 when compared to the first quarter of 2024. The Company’s utilization of overnight borrowed funds in the first quarter of 2025 was significantly lower than the 2024 first quarter level by $27.2 million, or 80.9%, due to the higher level of total average deposits. The decrease in borrowings interest expense also reflects the Federal Reserve’s 2024 action to ease monetary policy by 100 basis points which had an immediate and favorable impact on the cost of overnight borrowed funds. Advances from the Federal Home Loan Bank averaged $54.9 million for the first quarter of 2025, which was $7.0 million, or 14.6%, higher than the $47.9 million average for the 2024 first quarter. Management’s strategy to increase term advances to lock in lower rates than overnight borrowings was due to the inversion in the short end of the yield curve and has favorably impacted net interest income.

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, 2025 and 2024 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 for the three months ended March 31, 2025 and 2024 was $7,000 and $6,000, 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 recorded a $97,000 provision for credit losses recovery in the first quarter of 2025 after recording a provision recovery of $557,000 in the first quarter of 2024, resulting in an unfavorable change of $460,000. The provision for credit losses recovery in the first quarter of 2025 reflects the net impact of the following items: A $709,000 recovery was recognized on unfunded commitments and was based upon the results of an independent third-party validation recommendation to adjust the utilization rates used to calculate the provision. This recovery was partially offset by $647,000 of provision expense on investment securities primarily for establishing a full reserve for a corporate security in the available for sale (AFS) securities portfolio due to further credit deterioration after a partial reserve for this particular security was established last year. Finally, a $36,000 recovery was recognized for the loan portfolio due to favorable adjustments to historical loss rates used to calculate the allowance for loan credit losses in accordance with current expected credit losses (CECL) and a decrease in end of period loan balances since December 31, 2024.

**…..NON-INTEREST INCOME…..**Non-interest income for the first quarter of 2025 totaled $4.1 million and decreased by $826,000, or 16.7%, from the first quarter of 2024 performance. Factors contributing to the lower level of non-interest income for the quarter included:

• wealth management fees decreased by $402,000, or 12.3%, due to the volatility and uncertainty that exists in the financial markets due to government fiscal policy. Market conditions, particularly for equity securities, have been unfavorably impacted as major market indexes have fallen and caused wealth management fees to decline. Additionally, the Financial Services division benefitted from several large new business relationships in the first quarter of 2024. Overall, the fair market value of wealth management assets totaled $2.5 billion at March 31, 2025 and decreased by $72.2 million, or 2.8%, since December 31, 2024;
• a $322,000, or 31.8%, decrease in other income due to the net impact of several items. First, the decrease was due to the necessary adjustments to the fair value of a risk participation agreement as well as the credit valuation of the market value of the interest rate swap contracts that the Company executed to accommodate the needs of certain borrowers while managing its interest rate risk position. These adjustments reflect the changing national interest rates and were lower by $250,000 in comparison to the first quarter of last year. Second, the Company recognized a $250,000 signing bonus from the renewal of a contract with Visa during the first quarter of 2024 while there was no such bonus in 2025. Third, the Company recognized a $149,000 loss on the sale of an other real estate owned property in January 2025. Finally, and partially offsetting these unfavorable items, the Company recognized a $254,000 gain from the sale of the real estate of a former branch office in 2025; and
• a $73,000, or 21.7%, decrease in bank owned life insurance revenue resulting from the Company receiving a larger death claim in the first quarter of 2024.

**…..NON-INTEREST EXPENSE…..**Non-interest expense for the first quarter of 2025 totaled $11.8 million and decreased by $101,000, or 0.9%, from the prior year’s first quarter. Factors contributing to the lower level of non-interest expense for the quarter included:

• a $317,000, or 31.6%, decrease in professional fees as first quarter 2024 legal and professional services costs were unfavorably impacted by litigation and responses to the actions of an activist investor. This matter was resolved in June 2024 as a result of a Settlement Agreement. Professional fees were also favorably impacted by reduced recruitment costs in the first quarter of 2025;
• a $106,000, or 1.5%, increase in salaries and employee benefits due to the net impact of certain items within this broad category. Health care costs were $333,000 higher as the Company did not have to recognize any premium costs in January 2024 due to the effective negotiations with its health care provider last year. Total salaries cost increased by $113,000, or 2.3%, due to annual salary merit increases. Partially offsetting these higher costs within total salaries and employee benefits was a reduced level of incentive compensation by $293,000, largely in the Wealth Management division. Additionally, the service cost associated with the Company’s defined benefit pension plan decreased by $63,000, or 25.2%. The reduced pension expense in the first quarter of 2025 reflects the retirement of employees who chose to take the lump sum distribution. These individuals are no longer included in the pension plan which favorably impacts the Company’s basic pension expense; and
• a $93,000, or 8.0%, increase in data processing and IT expense due to additional expenses related to monitoring the Company’s computing and network environment.

**…..INCOME TAX EXPENSE…..**The Company recorded income tax expense of $478,000, or an effective tax rate of 20.0%, in the first quarter of 2025. This compares to income tax expense of $483,000, or an effective tax rate of 20.2%, in the first quarter of 2024.

**…..BALANCE SHEET…..**The Company’s total consolidated assets were $1.4 billion at March 31, 2025, which increased by $9.2 million, or 0.6%, from the December 31, 2024 asset level. This change was related primarily to increased levels of cash and cash equivalents and investment securities which were partially offset by reduced total loans and other real estate owned (OREO) and repossessed assets. Specifically, investment securities increased by $12.0 million, or 5.5%, as the Company’s liquidity position strengthened during the first quarter of 2025 allowing more funds to be available to invest in the securities portfolio. Additionally, the increased liquidity resulted in cash and cash equivalents increasing by $5.9 million, or 33.2%. So far in 2025, loan payoff activity has surpassed new loan originations resulting in a $6.1 million, or 0.6%, decline in total loans since December 31, 2024. OREO and repossessed assets decreased $1.4 million, or 82.8%, since year-end due to the sale of a foreclosed office property during the first quarter of 2025.

Total deposits increased by $15.8 million, or 1.3%, in the first three months of 2025. Management believes this demonstrates customer confidence and the strength and loyalty of the Company’s core deposit base. As of March 31, 2025, the 25 largest depositors represented 28.3% of total deposits, which is an increase from December 31, 2024 when it was 27.6%. As of March 31, 2025 and December 31, 2024, the estimated amount of uninsured deposits was $437.1 million and $435.7 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 60% 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 short-term and FHLB borrowings were reduced by $7.6 million, or 10.7%, since year-end 2024 as a result of the higher level of deposits. Specifically, short-term borrowings decreased by $4.3 million, or 29.2%, while FHLB term advances decreased $3.3 million, or 5.9%, in the first three months of 2025.

The Company’s total shareholders’ equity increased by $3.5 million, or 3.3%, during the first three months of 2025. The increase in capital was the result of the Company’s earnings performance during the first quarter of 2025 more than offsetting its common stock dividend payments to shareholders. In addition, the improved market value of the available for sale investment securities portfolio had a positive impact on accumulated other comprehensive loss.

The Bank continues to be considered well capitalized for regulatory purposes with a total capital ratio of 12.27%, and a common equity tier 1 capital ratio of 11.07% at March 31, 2025. See the discussion of the Basel III capital requirements under the Capital Resources section below. As of March 31, 2025, the Company’s book value per common share was $6.70 and its tangible book value per common share was $5.88(1). Book value per common share increased by $0.64, or 10.6%, and tangible book value per common share increased by $0.62, or 11.8%, since March 31, 2024, due to a favorable adjustment for both the unrealized loss on available for sale securities and the Company’s defined benefit pension plan along with the accretive repurchase of 628,003 shares of common stock in June 2024. In addition, the Company’s equity to asset ratio was 7.74% and its tangible common equity to tangible assets ratio was 6.85%(1) at March 31, 2025. The tangible common equity ratio increased by 21-basis points when compared to December 31, 2024.

(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 loans, and classified loans (in thousands, except percentages):

* Non-performing loans are comprised of loans that are on a non-accrual basis and loans that are contractually past due 90 days or more as to interest and principal payments.

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

The increase in accruing loan delinquency since year-end 2024 was attributable to an increase in commercial real estate (CRE) loan delinquency related to one loan relationship secured by retail properties. Non-performing loans increased from $10.9 million at December 31, 2024 to $13.7 million at March 31, 2025 due to the transfer of a $3.3 million CRE loan into non-accrual status which more than offset a $300,000 reduction in non-accrual residential mortgage loans. The aforementioned reduction in non-accrual residential mortgage loans contributed to a decrease in classified loans. Specifically, classified loans decreased $398,000, or 1.7%, from December 31, 2024 and totaled $23.2 million at March 31, 2025.

Non-performing loans represented 1.29% of total loans as of March 31, 2025. The Company recognized net loan charge-offs of $64,000, or 0.02% of total average loans, in the first three months of 2025 compared to net loan charge-offs of $121,000, or 0.05% of total average loans, in the first three months of 2024.

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, 2025, the 25 largest credits represented 24.3% of total loans outstanding, which is relatively consistent with December 31, 2024 when it was 24.0%.

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 376% as of March 31, 2025. It should be noted that this ratio improved from 379% at December 31, 2024 due to the growth of total regulatory capital in the first three months of 2025. Further, non-owner occupied commercial real estate loans represented 51.6% and 51.3% of total loans as of March 31, 2025 and December 31, 2024, 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, 2024 by $100,000, or 0.7%, to $13.8 million at March 31, 2025. The allowance balance contracted as a result of improved historical loss rates and qualitative adjustments coupled with a decrease in loan balances since year-end 2024. Overall, the Company continues to maintain solid coverage of both total loans and non-performing loans as the allowance for loan credit losses provided 101% coverage of non-performing loans and 1.30% of total loans at March 31, 2025.

The allowance for credit losses on the investment securities portfolio was comprised of $1.0 million on available for sale securities and $96,000 on held to maturity securities as of March 31, 2025. This compares to $360,000 on available for sale securities and $89,000 on held to maturity securities as of December 31, 2024. The allowance for credit losses on available for sale securities increased $640,000 since year-end 2024 as a result of the establishment of a full reserve for a corporate security due to further credit deterioration after a partial reserve for this particular security was established last year.

**…..LIQUIDITY…..**The Company’s liquidity position strengthened during the first quarter of 2025 due to deposit growth. Total average deposits were $58.2 million, or 5.0%, higher when compared to the 2024 first three-month average. The increase reflects the Company’s successful business development efforts. The Company’s core deposit base continued to demonstrate the strength and stability that it has had for many years. On March 31, 2025, total deposits grew by $15.8 million, or 1.3%, since December 31, 2024, demonstrating customer loyalty and confidence in AmeriServ Financial Bank. 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 Company does not utilize brokered deposits as a funding source. 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 can also be used to help fund loan growth.

Further demonstrating the strength of the Company’s liquidity position, average short-term investments grew in the first three months of 2025 compared to the first three months of last year by $7.6 million, or 180.8%. Advances from the FHLB averaged $54.9 million in the first quarter of 2025 which is $7.0 million, or 14.6%, higher than the $47.9 million average in the first quarter of 2024. Management’s strategy to increase term advances to lock in lower rates than overnight borrowings due to the inversion in the short end of the yield curve has favorably impacted net interest income. 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’s utilization of overnight borrowed funds so far in 2025 has been lower than the 2024 level. Total short-term borrowings averaged $6.4 million for the first quarter of 2025 after averaging $33.6 million for the first quarter of 2024. 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. Due to the Company’s strengthened liquidity position, more funds were available to invest in the securities portfolio during a time when security yields improved, making purchases so far in 2025 more attractive. In addition, loan pipelines are currently at a typical level. Total average loans in the first quarter of 2025 were higher than the 2024 first quarter average by $34.8 million, or 3.4%. We strive to operate our loan to deposit ratio in a range of 80% to 100%. The Company’s loan to deposit ratio averaged 87.4% in the first quarter of 2025, 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. We are also strongly positioned to service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters.

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by $5.9 million from December 31, 2024, to $23.6 million at March 31, 2025, due to $7.7 million of net cash provided by financing activities and $599,000 of net cash provided by operating activities which more than offset $2.4 million of net cash used in investing activities. Within investing activities, cash advanced for new loans originated totaled $32.9 million and was $5.5 million lower than the $38.4 million of cash received from loan principal payments. Within financing activities, total short-term borrowings decreased by $4.3 million, total borrowings on advances from FHLB decreased by $3.3 million while total deposits increased by $15.8 million.

The holding company had $5.7 million of cash, short-term investments, and investment securities at March 31, 2025, which represented a $1.1 million decrease from the holding company’s cash position since December 31, 2024. Dividend payments from our subsidiary provide ongoing cash to the holding company. At March 31, 2025, our subsidiary Bank had $762,000 of cash available for immediate dividends to the holding company under applicable regulatory formulas. Additionally, during the first quarter of 2025, the holding company established a $3 million line of credit with PNC Bank which can be used for general corporate purposes. There were no borrowings under the line at March 31, 2025. 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 $23.6 million and $17.7 million at March 31, 2025 and December 31, 2024, 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, 2025, the Company had $295 million of overnight borrowing availability at the FHLB, $40 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 exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The Bank’s common equity tier 1 capital ratio was 11.07%, the tier 1 capital ratio was 11.07%, and the total capital ratio was 12.27% at March 31, 2025. The Bank’s tier 1 leverage ratio was 9.20% at March 31, 2025. We anticipate that we will maintain our strong capital ratios throughout the remainder of 2025.

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:

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. The Company had a book value of $6.70 per common share and a tangible book value of $5.88(1) per common share on March 31, 2025. In addition, our common equity ratio was 7.74% and our tangible common equity ratio was 6.85%(1). At March 31, 2025, the Company had approximately 16.5 million common shares outstanding.

(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 while interest rates were rising. The fed funds rate is unchanged from year-end 2024 and is currently at a targeted range of 4.25% to 4.50%. The Federal Reserve has not taken further action to change interest rates so far in 2025.

The variability of net interest income is positive in the upward rate shocks due to scheduled maturities and repricing within 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. Also, 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 variability of net interest income is negative in the downward rate scenarios as the Company has more exposure to assets repricing downward to a greater extent than liabilities. 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 $243.1 million and standby letters of credit of $8.4 million as of March 31, 2025. 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, 2025 and December 31, 2024 (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 — Recovery for credit losses

DESCRIPTION

The Company measures 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. At times, based on management judgment, the Company may establish an allowance for credit losses in excess of the amount that the fair value is less than the amortized cost basis based on the specific circumstances surrounding the security.

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, which 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 cancelable. 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 (though none are 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; and (xv) 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, 2025, 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, 2025 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.