AMERISERV FINANCIAL INC /PA/

AmeriServ Financial, Inc. operates as a bank holding company within the highly regulated financial services industry, deriving substantially all of its income from banking, bank related services, and trust and wealth management related services. The company functions primarily as a coordinating and servicing unit for its wholly owned subsidiary, AmeriServ Financial Bank, which is a state bank chartered under the Pennsylvania Banking Code of 1965. The industry is characterized by strong competition from large national and regional banks, other community banks, credit unions, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, fintech companies, and other non-bank financial service providers, many of which have greater financial, marketing and technological resources. The company's primary market area includes Johnstown, Pennsylvania, where it is headquartered, along with operations in Allegheny, Cambria, Centre, Somerset, and Westmoreland counties in Pennsylvania and Washington county in Maryland, with loan production offices in Altoona and Wilkins Township in Pennsylvania. The Johnstown, PA MSA unemployment rate increased from a 4.1% average in 2024 to a 4.8% average in 2025, while the State College MSA unemployment rate increased from a 2.7% average in 2024 to a 3.2% average in 2025, and the Hagerstown, MD-Martinsburg, WV MSA unemployment rate increased from a 3.3% average in 2024 to a 3.8% average in 2025.

The company faces strong competition from large national and regional banks, other community banks, credit unions, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, fintech companies, and other non-bank financial service providers, many of which have greater financial, marketing and technological resources. Many of these competitors are not subject to the same regulatory restrictions and may be able to compete more effectively as a result. The company has a unique unionization situation, with approximately 139 non-supervisory employees represented by the United Steelworkers AFL-CIO-CLC, Local Union 2635-06, which creates both challenges and opportunities, as the company's salaries and benefit costs are higher than its non-union peers. The company has consistently viewed its positive union relationships as a potential source of additional revenue, citing examples such as the ERECT Funds where the AmeriServ Wealth and Capital Management division is trustee for this $248 million fund ¹ whose purpose is to invest in commercial construction projects with the requirement that they utilize union labor, and the Bank has been a preferred mortgage and consumer loan provider for the Pennsylvania State Education Association for 12 years, funding over $350 million ² in mortgage and consumer loans to unionized teachers and their family members since the inception of the partnership.

The company generates revenue through a general banking business conducted through 16 branch locations ³ in Pennsylvania and Maryland, offering retail banking services such as demand, savings and time deposits, checking accounts, money market accounts, secured and unsecured consumer loans, mortgage loans, safe deposit boxes, holiday club accounts, and money orders, as well as lending, depository and related financial services to commercial, industrial, financial, and governmental customers. The company also operates 17 automated bank teller machines (ATMs) ⁴ through its 24-hour banking network linked with NYCE and CIRRUS networks. The AmeriServ Wealth and Capital Management division of the Bank focuses on wealth management and administers assets valued at approximately $2.7 billion ⁵ that are not recognized on the company's balance sheet, including personal trust products and services, institutional trust products and services, and financial services providing the sale of mutual funds, annuities, and insurance products. The company does not use brokered deposits as a funding source and believes it has a stable core deposit base made up of traditional commercial bank products.

The company's loan portfolio is categorized into several segments. Commercial loans include credit extensions to commercial and industrial borrowers, secured by business assets including accounts receivable, inventory and/or equipment, and also include commercial loans secured by owner occupied real estate. Commercial loans secured by non-owner occupied real estate include various types of loans such as acquisition and construction of investment property, with the non-owner occupied commercial real estate loan concentration at 352% of total regulatory capital ⁶ at December 31, 2025, which decreased from 379% ⁷ at December 31, 2024, and these loans represented 50.4% ⁸ and 51.3% ⁹ of total loans as of December 31, 2025 and 2024, respectively. The non-owner occupied commercial real estate loan portfolio by property type at December 31, 2025 includes retail at $171,530 thousand ¹⁰, multi-family at $131,085 thousand ¹¹, and other commercial real estate at $217,935 thousand ¹², totaling $520,550 thousand ¹³. Residential mortgages are secured by residential property and underwritten pursuant to Fannie Mae underwriting guidelines, with the exception of Community Loan Program loans, and the Bank does not engage in subprime residential mortgage lending. Consumer loans include consumer installment loans and revolving credit plans, with a meaningful portion consisting of home equity loans secured by residential real estate.

The investment securities portfolio is primarily made up of highly rated agency mortgage-backed securities, high quality corporate securities, municipal securities, and agency securities, with management striving to maintain a portfolio duration that is less than 60 months ¹⁴. Investment securities classified as held to maturity are carried at amortized cost while those classified as available for sale are reported at fair market value. The weighted average yield for total investment securities available for sale at December 31, 2025 is 4.24% ¹⁵, and for held to maturity securities is 3.85% ¹⁶. The company also participates in limited trading activity with securities classified as trading assets purchased with the intent of selling them in the near term (less than 30 days) ¹⁷ to generate profits from short-term changes in price. The company's deposit base includes demand deposits (non-interest bearing averaging $174,295 thousand ¹⁸ in 2025 and $178,686 thousand ¹⁹ in 2024, interest bearing averaging $249,972 thousand ²⁰ in 2025 and $225,741 thousand ²¹ in 2024), savings averaging $121,945 thousand ²² in 2025 and $120,231 thousand ²³ in 2024, money market averaging $324,166 thousand ²⁴ in 2025 and $314,138 thousand ²⁵ in 2024, and time deposits averaging $365,700 thousand ²⁶ in 2025 and $330,013 thousand ²⁷ in 2024, with total deposits averaging $1,236,078 thousand ²⁸ in 2025 and $1,168,809 thousand ²⁹ in 2024, and average rates paid of 2.06% ³⁰ in 2025 and 2.18% ³¹ in 2024.

The company employed 311 people ³² as of December 31, 2025, in full- and part-time positions, with approximately 139 non-supervisory employees represented by the United Steelworkers AFL-CIO-CLC, Local Union 2635-06 under a four-year labor contract expiring on October 16, 2029 ³³, which calls for annual wage increases of 4% ³⁴ for each of the first three years and 3% ³⁵ for the fourth year. The company has not experienced a work stoppage since 1979. The company's common stock is listed on The NASDAQ Stock Market under the trading symbol ASRV, and the aggregate market value of voting and non-voting common equity held by non-affiliates was $46,410,960 ³⁶ as of June 30, 2025. There were 16,964,267 shares ³⁷ outstanding as of March 13, 2026. The company had total assets of $1.5 billion ³⁸, deposits of $1.2 billion ³⁹, and shareholders' equity of $119.3 million ⁴⁰ on a consolidated basis at December 31, 2025.

The company's financial performance for the fiscal year ended December 31, 2025 reflects the operations of a community bank navigating a complex economic environment characterized by sweeping tariffs, a cooling labor market, rising consumer prices, and a prolonged U.S. federal government shutdown, yet the U.S. economy and major stock indexes delivered a third consecutive year of double-digit gains. The S&P 500 rose 16.4% ⁴¹, the U.S. Treasury 10-year yield fell 40-basis points to 4.17% ⁴², and Real GDP increased by 2.2% ⁴³ for the full year. The Federal Reserve executed three interest rate cuts of 25-basis points each, bringing the target range to 3.50% to 3.75% ⁴⁴ by December 2025. The Consumer Price Index ended the year at approximately 2.7% ⁴⁵, and unemployment edged higher to end the year at 4.6% ⁴⁶. The Bank's total net income was $8,640 thousand ⁴⁷, with a return on average assets of 0.60% ⁴⁸ and a return on average equity of 6.45% ⁴⁹.

The company's growth strategy includes leveraging its unique union relationships as a potential source of additional revenue, as demonstrated by the ERECT Funds where the AmeriServ Wealth and Capital Management division is trustee for this $248 million fund ⁵⁰ whose purpose is to invest in commercial construction projects with the requirement that they utilize union labor. The Bank has also been a preferred mortgage and consumer loan provider for the Pennsylvania State Education Association for 12 years, which provides the opportunity to expand lending in these products throughout Pennsylvania, having funded over $350 million ⁵¹ in mortgage and consumer loans to unionized teachers and their family members since the inception of the partnership. The company also operates loan production offices in Altoona and Wilkins Township in Pennsylvania to expand its geographic reach.

The company's wealth management division, AmeriServ Wealth and Capital Management, administers assets valued at approximately $2.7 billion ⁵² that are not recognized on the company's balance sheet, representing a significant source of fee-based revenue and growth potential. The division offers personal trust products and services such as personal investment portfolio management, estate planning and administration, custodial services and pre-need trusts, as well as institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts, along with financial services providing the sale of mutual funds, annuities, and insurance products. The division also offers the union collective investment funds, the ERECT Funds, which are designed to use union pension dollars in construction projects that utilize union labor.

The company's cost structure is influenced by its unique unionization situation, with approximately 139 non-supervisory employees represented by the United Steelworkers AFL-CIO-CLC, Local Union 2635-06 under a four-year labor contract that calls for annual wage increases of 4% ⁵³ for each of the first three years and 3% ⁵⁴ for the fourth year, expiring on October 16, 2029 ⁵⁵. The company's salaries and benefit costs are higher than its non-union peers as it offers good wages and strong benefits which include affordable health care and strong retirement benefits with a portion of current union employees participating in a defined benefit pension plan. The company has adopted a hybrid remote work policy for certain positions and promotes health and wellness by encouraging work-life balance and, where appropriate, offering flexible work schedules.

The company's operational strategy includes maintaining 16 branch locations ⁵⁶ and 17 automated bank teller machines (ATMs) ⁵⁷ through its 24-hour banking network, along with loan production offices in Altoona and Wilkins Township in Pennsylvania. The company employs 311 people ⁵⁸ as of December 31, 2025, and is committed to having a workforce that reflects the communities in which it serves, focusing on sourcing and hiring with fair and equitable approaches and creating an environment where all employees can develop and thrive. The company's Information Security Program is built on the FFIEC IT Handbooks, NIST Cybersecurity Framework, CIS Cybersecurity Controls, and industry best practice, utilizing a defense in depth strategy that leverages multiple security measures to protect company assets and information.

The company's capital allocation strategy is primarily driven by regulatory requirements and dividend restrictions. The primary source of cash to pay dividends to shareholders is dividends paid to the company by the Bank, which are subject to the laws of the Commonwealth of Pennsylvania, the Banking Code, the FDIA and the regulation of the PDB and the Federal Reserve. Under the Banking Act and the FDIA, a bank may not pay any dividends if, after paying such dividends, it would be undercapitalized under applicable capital requirements. It is the policy of the Federal Reserve that bank holding companies should generally pay cash dividends on common stock only out of income available from the immediately preceding year and only if prospective earnings retention is consistent with the organization's expected future needs and financial condition. The company's common stock is listed on The NASDAQ Stock Market under the trading symbol ASRV.

The company faces structural headwinds from a declining population trend in its primary market of Johnstown, Pennsylvania, which creates a growth challenge moving forward. The Johnstown, PA MSA unemployment rate increased from a 4.1% average in 2024 to a 4.8% average in 2025. The company also faces headwinds from the highly competitive financial services industry, where many competitors have greater financial, marketing and technological resources and are not subject to the same regulatory restrictions. Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods, including internet-based commerce, alternative payment processing systems, lending platforms, prepaid debit cards, digital currencies, and emerging technologies such as artificial intelligence and quantum computing, which have the potential to intensify competition and accelerate disruption in the financial services industry.

The company faces significant regulatory constraints as a bank holding company and state bank, subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking and Securities, as well as the SEC for matters relating to registered offerings and sales of its securities. The company is subject to minimum capital requirements with common equity tier 1 capital ratio of 7.00% ⁵⁹, tier 1 capital ratio of 8.50% ⁶⁰, and total capital ratio of 10.50% ⁶¹ for minimum capital plus buffer, and well capitalized thresholds of 6.50% ⁶², 8.00% ⁶³, and 10.00% ⁶⁴ respectively. The company's non-owner occupied commercial real estate loan concentration stood at 352% of total regulatory capital ⁶⁵ at December 31, 2025, which banking regulators have expressed concerns about, potentially requiring enhanced risk management practices, stricter underwriting, internal controls, and possibly higher levels of allowances for credit losses and capital levels.

The company faces material credit risk from its significant concentration in non-owner occupied commercial real estate loans, which represented 50.4% ⁶⁶ of total loans at December 31, 2025, with a concentration of 352% of total regulatory capital ⁶⁷, and these loans are generally viewed as having more risk of default than residential real estate loans as they depend on cash flows from the property's tenants to service the debt, which may be affected significantly by general economic conditions or a downturn in the local economy. The company also faces interest rate risk from the sensitivity of net interest income and the market value of financial instruments to changes in interest rates, as the Federal Reserve executed three interest rate cuts of 25-basis points each during 2025, bringing the target range to 3.50% to 3.75% ⁶⁸ by December 2025. Liquidity risk is present as the company had an estimated $476.2 million ⁶⁹ in uninsured deposits at December 31, 2025, though approximately 60% ⁷⁰ of these relate to public funds required to be collateralized. The company faces competitive risk from large national and regional banks, fintech companies, and other non-bank financial service providers with greater financial, marketing and technological resources, as well as from emerging technologies such as artificial intelligence and quantum computing that have the potential to intensify competition and accelerate disruption in the financial services industry.

Management's message to shareholders, as conveyed through the business description and risk management overview, emphasizes the company's focus on risk identification and management as essential elements for successful management, with the company seeking to identify, manage and monitor credit, interest rate and market, liquidity, operational, legal/compliance, strategic/reputational and security risk through policies, procedures, and various levels of oversight from the Board of Directors and management. The company has a Management Enterprise Risk Committee with Board of Director representation to help manage and monitor the company's risk position, which is reported formally to the Board, at a minimum, on a semi-annual basis. Management emphasizes the company's unique union relationships as a potential source of additional revenue, highlighting the ERECT Funds where the AmeriServ Wealth and Capital Management division is trustee for this $248 million fund ⁷¹ and the Bank's 12-year partnership as a preferred mortgage and consumer loan provider for the Pennsylvania State Education Association, which has funded over $350 million ⁷² in mortgage and consumer loans. Management also highlights the company's robust and diligent risk management framework to monitor the non-owner occupied commercial real estate segment, including periodic stress testing analysis, a robust semi-annual risk assessment, and analysis of key underwriting metrics such as debt service coverage ratios and loan-to-value ratios.