AMERISERV FINANCIAL INC /PA/

Previous wording

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

Current wording

PERFORMANCE OVERVIEW. The following table summarizes some of the Company’s key profitability performance indicators.

Previous wording

The Company reported a net loss of $3,346,000, or $0.20 per diluted common share, in 2023. This compares to net income of $7,448,000, or $0.43 per diluted common share, for 2022. The net loss was caused primarily by an increased provision for credit losses related to certain commercial real estate loans as well as management’s decision to execute an investment portfolio repositioning strategy. Specifically, Rite Aid, a national tenant in several commercial real estate properties financed by the Bank, declared bankruptcy in the fourth quarter of 2023 resulting in increased credit costs and charge-offs related to these loans. Total non-interest income was lower for the full year of 2023 when compared to last year primarily due to the recognition of a loss on the sale of investment securities in December of 2023. The Company believes that recognizing this loss on the investment securities positions the Company for improved interest earnings from the investment securities portfolio in 2024. Total non-interest expense is higher for the full year of 2023 compared to 2022, due to additional legal and professional services costs caused by litigation and responses to the actions of an activist investor. Overall, the Company’s 2023 net loss reflects the significantly higher provision for credit losses, decreased levels of both net interest income and non-interest income and increased total non-interest expense. Despite the net loss recognized for 2023, the Company continued to see several encouraging new business development results during the year which included a $47.6 million, or 4.8%, increase in total loans and the fourth consecutive quarter of growth in wealth management revenues. Additionally, the Company continued to maintain strong capital ratios that exceed the regulatory defined well capitalized status.

Current wording

The Company reported a net loss of $3.3 million, or $0.20 per diluted common share, in 2023. This compared to net income of $7.4 million, or $0.43 per diluted common share in 2022. The net loss was caused primarily by an increased provision for credit losses related to certain commercial real estate loans as well as management’s decision to execute an investment portfolio repositioning strategy. Additionally, total non-interest expense was higher for 2023, due to additional legal and professional services costs caused by litigation and responses to the actions of an activist investor. Overall, the Company’s 2023 net loss reflects the significantly higher provision for credit losses, decreased levels of both net interest income and non-interest income, and increased total non-interest expense.

Previous wording

NET INTEREST INCOME AND MARGIN. The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings; it is affected by interest rate fluctuations as well as changes in the amount

Current wording

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 years ended December 31, 2024 and 2023:

Previous wording

Overall, in 2022, the average balance of total interest earning assets was consistent with the full year 2021 average, totaling $1.2 billion. Specifically, total loans averaged $978 million in 2022 which was $11.2 million, or 1.1%, lower than the 2021 full year average. Short-term investments including commercial paper averaged $23.2 million in 2022 which was $24.1 million, or 50.9%, lower than the 2021 full year average. Total investment securities averaged $245.2 million in 2022 which was $35.3 million, or 16.8%, higher than the 2021 full year average. Despite the balance of total average interest earning assets remaining relatively unchanged from 2021, total interest income increased by $2.4 million, or 5.1%, between years due to an increase in the yield on earning assets, which increased from 3.76% to 3.95%.

Current wording

Overall, in 2024, the average balance of total interest earning assets was higher than the full year of 2023 average, totaling $1.3 billion. Specifically, total loans averaged $1.038 billion in 2024 which was $40.5 million, or 4.1%, higher than the 2023 full year average. Short-term investments and bank deposits averaged $3.9 million in 2024 which was relatively unchanged from the 2023 full year average. Total investment securities averaged $253.5 million in 2024 which was $8.7 million, or 3.3%, lower than the 2023 full year average. The increase in the average balance of total interest earning assets along with an improvement in the yield on earning assets, which increased from 4.84% to 5.18%, resulted in total interest income increasing by $5.6 million, or 9.3%, between years.

Previous wording

Total deposits, including non-interest bearing demand deposits, averaged $1.154 billion for the full year of 2023, which was $2.5 million, or 0.2%, lower than the $1.156 billion average for the full year of 2022. The 2023 full year average of short-term and FHLB borrowed funds was $57.9 million, which represented an increase of $15.4 million, or 36.2%. Overall, the cost of total interest bearing liabilities increased from 0.84% to 2.36%.

Current wording

Total deposits, including non-interest bearing demand deposits, averaged $1.169 billion for the full year of 2024, which was $15.0 million, or 1.3%, higher than the $1.154 billion average for the full year of 2023. The 2024 full year average of short-term and FHLB borrowed funds was $79.6 million, which represented an increase of $21.6 million, or 37.3%. Overall, the cost of total interest bearing liabilities increased from 2.36% to 2.77% which resulted in total interest expense increasing by $5.6 million, or 22.6%, between years.

Previous wording

COMPONENT CHANGES IN NET INTEREST INCOME: 2023 VERSUS 2022. Regarding the separate components of net interest income, the Company’s total interest income in 2023 increased by $11.8 million, or 24.1%, when compared to 2022. Overall, the 2023 full year average balance of total interest earning assets increased over last year’s full year average by $17.3 million, or 1.4% as there was an increased level of average total loans and average total investment securities which were partially offset by a decreased level of short-term investments. Interest income was favorably impacted by an increase in the earning asset yield which improved by 89 basis points from 3.95% to 4.84%. All categories within the earning asset base demonstrated an interest income increase between years. The average total loan portfolio yield increased by 93 basis points from 4.25% to 5.18% in 2023 while the average yield on total investment securities increased by 43 basis points from 3.00% to 3.43%.

Current wording

COMPONENT CHANGES IN NET INTEREST INCOME: 2024 VERSUS 2023. Regarding the separate components of net interest income, the Company’s total interest income in 2024 increased by $5.6 million, or 9.3%, when compared to 2023. Overall, the 2024 full year average balance of total interest earning assets increased over last year’s full year average by $31.8 million, or 2.5%, as there was an increased level of average total loans which was partially offset by decreased levels of short-term investments and bank deposits and total investment securities. In addition, interest income was favorably impacted by an increase in the earning asset yield which improved by 34-basis points from 4.84% to 5.18%. Most categories within the earning asset base, particularly loans and investment securities, demonstrated an interest income increase between years. The average total loan portfolio yield increased by 29-basis points from 5.18% to 5.47% in 2024 while the average yield on total investment securities increased by 32-basis points from 3.43% to 3.75%.

Previous wording

yields for new federal agency mortgage-backed securities and federal agency bonds improving and exceeding the overall average yield of the existing securities portfolio causing interest income from investments to increase by $1.6 million, or 21.9%, for the 2023 year. In 2023, purchases of securities were slower than what occurred in the second half of 2022 as more funds were allocated to the loan portfolio while the Company controlled the amount of 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. Thus, new investment security purchases during 2023 were primarily used to replace cash flow from maturing securities to maintain appropriate balances for pledging purposes related to deposits of public funds. This is an example of how the inverted treasury yield curve impacts the Company’s balance sheet management strategies. Finally, the full year 2023 total average balance of short-term investments and bank deposits decreased since last year by $19.3 million, or 83.0%, as the Company re-deployed its excess liquidity into higher yield loans and securities.

Current wording

Total investment securities averaged $253.5 million for the full year of 2024, which was $8.7 million, or 3.3%, lower than the $262.2 million average for the full year of 2023. The decrease reflects management’s 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. 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 fund deposits. The improved yields for new securities purchases, along with management’s execution of an investment portfolio repositioning strategy in late December 2023, caused interest income from investments to increase by $515,000, or 5.7%, for the full year of 2024 compared to the full year of 2023. Finally, the full year of 2024 total average balance of short-term investments and bank deposits remained relatively consistent with last year totaling $3.9 million, as the Company re-deployed its excess liquidity into higher yield loans.

Previous wording

LIQUIDITY. The Company’s liquidity position continues to be strong. Total average deposits for the full year of 2023 were relatively consistent with the 2022 full year average, decreasing by only $2.5 million, or 0.2%. The modest decrease is reflective of a portion of the funds from the government stimulus programs leaving the balance sheet and also reflects greater pricing competition in the market to retain deposits because of the higher national interest rates. The Company’s core deposit base continued to demonstrate the strength and stability that it has for many years, even during times of turmoil when three large bank failures occurred earlier in 2023 and customer fear of contagion within the industry caused deposit flight. Total deposits grew during 2023 by $49.8 million, or 4.5%, on an end of period basis since December 31, 2022, demonstrating customer confidence in AmeriServ Financial Bank. The Company does not utilize brokered deposits as a funding source. In addition to its strong, loyal core deposit base, the Company has several

Current wording

On the liability side of the balance sheet, the full year of 2024 total average deposits were $15.0 million, or 1.3%, higher when compared to 2023. The increase reflects the Company’s successful business development efforts, which more than offset a portion of the funds leaving the balance sheet from normal deposit run-off caused by greater pricing competition in the market to retain deposits because of the interest rate environment. The Company’s core deposit base continued to demonstrate the strength and stability that it has for many years. Total deposits grew during 2024 by $42.6 million, or 3.7%, on an end of period basis since December 31, 2023, demonstrating customer loyalty and confidence in

Previous wording

Total interest expense increased by $16.3 million, or 192.4%, for the full year of 2023 when compared to last year, due to higher deposit and borrowings interest expense. Deposit interest expense was higher by $14.6 million, or 227.1%, while the full year 2023 average volume of total interest-bearing deposits grew from the 2022 full year average by $21.1 million, or 2.2%. The rising national interest rates resulted in certain deposit products, particularly public funds, which are tied to a market index, repricing upward with the move in short-term national interest rates causing interest expense to increase. Additionally, increased market competition resulted in the Company increasing 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 full year average of non-interest bearing demand deposits declined by $23.6 million, or 11.0%, while, as mentioned above, total interest-bearing deposits increased by $21.1 million, or 2.2%. 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 1.82% for the full year of 2023, which is 126 basis points higher than total deposit cost of 0.56% for the full year of 2022.

Current wording

Total interest expense increased by $5.6 million, or 22.6%, for the full year of 2024 when compared to last year. Deposit interest expense was higher by $4.4 million, or 21.1%, for the full year as the average volume of total interest-bearing deposits grew by $27.9 million, or 2.9%, for the year. The year-over-year increase in total interest expense was primarily due to the impact of the rising national interest rates experienced during 2023, which resulted in certain deposit products, particularly public funds, which are tied to a market index, repricing upward. Additionally, increased market competition resulted in the Company raising rates on certain shorter-term certificates of deposit to retain funds. Also, there was an unfavorable deposit mix shift as the 2024 average of non-interest-bearing demand deposits declined by $12.9 million, or 6.7%, for the full year while, as mentioned above, total interest-bearing deposits increased. The pace of deposit cost increases slowed during the first three quarters of 2024 and then decreased during the fourth quarter as the Federal Reserve eased monetary policy during the final four months of 2024 by reducing short term interest rates by 100-basis points. This slowdown and reduction in deposit costs contributed to the stabilization and recent improvement in the net interest margin. The Company believes that deposit costs will decline further as the Federal Reserve continues their expected-tempered approach to reduce interest rates. Overall, for the full year of 2024, total interest bearing deposit costs were 2.57%, which was 39-basis points higher than total interest bearing deposit costs of 2.18% for the full year of 2023.

Previous wording

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) 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) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of 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 years ended December 31, 2023, 2022, and 2021 was $15,000, $13,000, and $18,000, 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.

Current wording

The table that follows provides an analysis of net interest income on a tax-equivalent basis (non-GAAP) 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) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of 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 years ended December 31, 2024 and 2023 was $26,000 and $15,000, 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.

Previous wording

The decline in accruing loan delinquency is primarily attributable to a decrease in commercial real estate loan delinquency. Non-performing assets totaled $12.4 million, or 1.19% of total loans, at December 31, 2023 which is an increase from the December 31, 2022 total of $5.2 million, or 0.52% of total loans. The increase in non-performing assets, as well as non-accrual loans, primarily reflects the partial charge-down and transfer into non-accrual status of one commercial real estate loan for a mixed-use retail/office property that has Rite Aid as a major tenant. Total classified loans increased $1.2 million since the prior year-end and now total $25.0 million. The increase in classified loans is the result of the risk rating downgrade of three commercial real estate loan relationships which were partially offset by the risk rating upgrade of a commercial and industrial loan and commercial real estate loan as well as the charge-off of a substandard credit during 2023.

Current wording

The increase in accruing loan delinquency since year-end 2023 was attributable to delinquency on a commercial loan relationship as well as an increase in residential mortgage and consumer loan delinquency. Non-performing loans totaled $10.9 million, or 1.02% of total loans, at December 31, 2024 which was a decrease from the December 31, 2023 total of $12.4 million, or 1.19% of total loans. The decrease in non-performing loans primarily reflects the Company’s foreclosure of and subsequent transfer to other real estate owned (OREO) of a $1.5 million non-accrual commercial real estate (CRE) loan and a $1.2 million commercial and industrial (C&I) loan returned to accruing status as well as a reduction in non-accrual residential mortgage loans. These decreases were partially offset by the transfer to non-accrual status of a $2.0 million CRE loan and a $400,000 C&I loan. Classified loans decreased $1.4 million, or 5.8%, from December 31, 2023 and totaled $23.6 million at December 31, 2024. Various risk rating as well as charge-down and normal paydown activity impacted classified loan balances during 2024. Specifically, the aforementioned transfer to OREO along with a $1.6 million charge-down of a substandard CRE loan and the risk rating upgrade of a $3.6 million non-owner occupied CRE loan contributed to the decrease in classified loans. These decreases were partially offset by the risk rating downgrade of a $6.4 million commercial and commercial real estate loan relationship.

Previous wording

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 December 31, 2023, the 25 largest credits represented 22.7% of total loans outstanding, which represents an increase from December 31, 2022 when it was 21.7%.

Current wording

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 December 31, 2024, the 25 largest credits represented 24.0% of total loans outstanding, which represents an increase from December 31, 2023 when it was 22.7%.

Previous wording

Effective January 1, 2023, the Company adopted ASU 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(ASU 2016-13) and subsequent related updates. This standard replaces the incurred loss methodology for recognizing credit losses and 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, ASU 2016-13 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.

Current wording

ALLOWANCE AND PROVISION FOR CREDIT LOSSES. ASC 326,Financial Instruments - Credit Losses, 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 believes this is a critical accounting policy since it involves significant estimates and judgments.

Previous wording

The following table sets forth changes specific to the allowance for credit losses on the loan portfolio and certain ratios for the periods ended.

Current wording

The following table sets forth changes specific to the allowance for loan credit losses and certain ratios for the periods ended.

Previous wording

The following schedule sets forth the allocation of the allowance for credit losses among the various loan categories. The entire allowance for credit losses is available to absorb future loan losses in any loan category.

Current wording

The following schedule sets forth the allocation of the allowance for loan credit losses among the various loan categories. The entire allowance for loan credit losses is available to absorb future losses in any loan category.

Previous wording

Based on the Company’s current allowance for credit losses methodology and the related assessment of the inherent risk factors contained within the Company’s investment securities and loan portfolios, we believe that the allowance for

Current wording

Based on the Company’s current allowance for credit losses methodology and the related assessment of the inherent risk factors contained within the Company’s investment securities and loan portfolios, we believe that the allowance for credit losses was adequate at December 31, 2024 to cover losses within the Company’s investment securities and loan portfolios.

Previous wording

NON-INTEREST INCOME. Non-interest income for 2023 totaled $16.4 million, a decrease of $303,000, or 1.8%, from 2022. Factors contributing to this lower level of non-interest income in 2023 included:

Current wording

Non-interest income for 2023 totaled $16.4 million, a decrease of $303,000, or 1.8%, from 2022. Factors contributing to the lower level of non-interest income in 2023 included:

Previous wording

NON-INTEREST EXPENSE. Non-interest expense for 2023 totaled $49.4 million and increased by $1.4 million, or 2.8%, from 2022. Factors contributing to the higher non-interest expense in 2023 included:

Current wording

Non-interest expense for 2023 totaled $49.4 million and increased by $1.4 million, or 2.8%, from 2022. Factors contributing to the higher non-interest expense in 2023 included:

Previous wording

INCOME TAX EXPENSE. The Company recorded an income tax benefit of $1.0 million in 2023, compared to income tax expense of $1.8 million, or a 19.1% effective tax rate, in 2022, and compared to income tax expense of $1.7 million, or a 19.4% effective tax rate, in 2021. The income tax benefit in 2023 resulted from the Company’s recognition of a net loss. The Company’s deferred tax asset was $2.7 million at December 31, 2023 compared to $2.8 million at December 31, 2022, resulting primarily from the change in the allowance for credit losses which was offset by the change in the the fair value of the available for sale investment securities portfolio and the pension liability.

Current wording

INCOME TAX EXPENSE. The Company recorded an income tax expense of $798,000, or an effective tax rate of 18.1%, in 2024 compared to an income tax benefit of $1.0 million in 2023. The income tax benefit in 2023 resulted from the Company’s recognition of a net loss. The Company’s deferred tax asset was $1.4 million at December 31, 2024 compared to $2.7 million at December 31, 2023, resulting primarily from the change in the allowance for credit losses, the fair value of the available for sale investment securities portfolio, and the pension liability, which were partially offset by the net operating loss.

Previous wording

BALANCE SHEET. The Company’s total consolidated assets of $1.390 billion at December 31, 2023 increased by $25.8 million, or 1.9%, from the $1.364 billion level at December 31, 2022. This change was related, primarily, to increased levels of loans and other assets which were partially offset by a decrease in cash and cash equivalents and

Current wording

**BALANCE SHEET.**The Company’s total consolidated assets of $1.422 billion at December 31, 2024 increased by $32.7 million, or 2.4%, from the $1.390 billion level at December 31, 2023. This change was related to increased levels of cash and cash equivalents, total loans, other real estate owned (OREO) and repossessed assets, and other assets, which were partially offset by a decrease in investment securities. Specifically, loans and loans held for sale increased by $30.0 million, or 2.9%, as new loan originations exceeded payoff activity. Loan originations were strongest in the fourth quarter of 2024 and more than doubled payoff activity. Cash and cash equivalents increased by only $3.7 million, or 26.5%, as the excess liquidity created by the decrease in total investment securities and the increase in total deposits was primarily redirected to the loan portfolio. OREO and repossessed assets increased $1.7 million due to the foreclosure of a non-owner occupied commercial real estate loan secured by an office property during the second quarter of 2024. Finally, other assets increased $6.9 million, or 18.8%, due to an increase in the positive balance of the accrued pension liability. These increases were partially offset by a decrease of $10.2 million, or 4.5%, in total investment securities. The decrease reflects management’s 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.

Previous wording

Total deposits increased by $49.8 million, or 4.5%, during 2023. This demonstrates customer confidence and the strength and loyalty of our core deposit base along with the successful acquisition of a large deposit account. As of December 31, 2023, the 25 largest depositors represented 22.4% of total deposits, which is an increase from December 31, 2022 when it was 18.8%. As of December 31, 2023 and 2022, the estimated amount of uninsured deposits was $384.5 million and $316.5 million, respectively. The estimate of uninsured deposits was done at a 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 with investment securities or FHLB letters of credit to protect these depositor funds. Total borrowings have decreased by $22.8 million, or 16.5%, since year-end 2022. 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 $47.7 million, or 53.8%. 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 began replacing matured FHLB term advances in 2023 leading to an increase in this line item of $24.8 million, or 125.5%.

Current wording

Total deposits increased by $42.6 million, or 3.7%, during 2024. This demonstrates customer confidence and the strength and loyalty of our core deposit base along with successful business development efforts, which more than offset a portion of funds leaving the balance sheet due to greater pricing competition. As of December 31, 2024, the 25 largest depositors represented 27.6% of total deposits, which is an increase from December 31, 2023 when it was 22.4%. As of December 31, 2024 and 2023, the estimated amount of uninsured deposits was $435.7 million and $384.5 million, respectively. The estimate of uninsured deposits was done at a 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 with investment securities or FHLB letters of credit to protect these depositor funds. Total borrowings have decreased by $14.8 million, or 17.3%, 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 $26.3 million, or 64.2%. 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, FHLB term advances increased in 2024 by $11.5 million, or 25.8%.

Previous wording

The Company’s total shareholders’ equity decreased by $3.9 million, or 3.7%, since year-end 2022. Capital was increased during 2023 by the positive impact on accumulated other comprehensive loss from the revaluation of the pension obligation totaling $1.7 million and the increased market value of the available for sale investment securities portfolio totaling $1.2 million. More than offsetting these increases was the $3.3 million net loss recognized for the year, the $2.1 million common stock cash dividend, the $1.2 million cumulative effect adjustment for the adoption of ASU 2016-13, and the $352,000 fair value adjustment on the interest rate hedges. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 13.03% and an asset leverage ratio of 7.80% at December 31, 2023. The Company’s book value per common share was $5.96, its tangible book value per common share was $5.16(1) and its tangible common equity to tangible assets ratio was 6.44%(1) at December 31, 2023. The decline in the Company’s book value and tangible book value per share in 2023 primarily reflects the net loss recognized for the year.

Current wording

The Company’s total shareholders’ equity increased by $5.0 million, or 4.9%, since year-end 2023. Capital was increased during 2024 by the Company’s $3.6 million of net income and the positive impact on accumulated other comprehensive loss from the recognition of the settlement charge in connection with the defined benefit pension plan and the revaluation of the pension obligation totaling $4.3 million, the increased market value of the available for sale investment securities portfolio totaling $398,000, and the fair value adjustment on the interest rate hedges totaling $217,000. These increases were partially offset by the $2.0 million common stock cash dividend and the $1.5 million common stock repurchase completed in accordance with the Stock Purchase Agreement executed with the activist shareholder. The Company returned approximately 56% of its 2024 earnings to its shareholders through the quarterly common stock cash dividend. The Company continues to be considered well capitalized for regulatory purposes with a risk based capital ratio of 12.70% and an asset leverage ratio of 7.68% at December 31, 2024. The Company’s book value per common share was $6.49 while its tangible book value per common share was $5.66(1) at December 31, 2024. The increase in the Company’s book value and tangible book value per share in 2024 reflects the favorable adjustment for both the unrealized loss on available for sale securities and the Company’s defined benefit pension plan and the accretive repurchase of 628,003 shares of common stock from the activist shareholder. In addition, the Company’s equity to assets ratio was 7.54% and its tangible common equity to tangible assets ratio was 6.64%(1) at December 31, 2024.

Previous wording

On the liability side of the balance sheet, for the full year of 2023, total average deposits were relatively consistent with the 2022 full year average, decreasing by only $2.5 million, or 0.2%. The modest decrease since last year is reflective of 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 increasing national interest rates. The Company’s core deposit base continued to demonstrate the strength and stability that it has for many years, even during times of turmoil when three large bank failures occurred early in 2023 and customer fear of contagion within the industry caused deposit flight. Total deposits grew during 2023 by $49.8 million, or 4.5%, on an end of period basis since December 31, 2022, demonstrating customer confidence in the 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 88.1% in the fourth quarter of 2023, 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.

Current wording

LIQUIDITY. The Company’s liquidity position continues to be strong. Total average deposits for the full year of 2024 were $15.0 million, or 1.3%, higher compared to the 2023 full year average. The increase is reflective of the Company’s successful business development efforts, which more than offset a portion of the funds leaving the balance sheet from normal deposit run-off caused by greater pricing competition in the market to retain deposits because of the interest rate environment. The Company’s core deposit base continued to demonstrate the strength and stability that it has for many years. Total deposits grew during 2024 by $42.6 million, or 3.7%, on an end of period basis 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 strong, 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, 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.

Previous wording

Average short-term investments demonstrated a lower average balance in 2023 compared to last year by $19.3 million, or 83.0%. The average balance of FHLB term borrowings was lower in 2023 compared to 2022 by $11.1 million, or 33.3%, as the strength of the Company’s liquidity position allowed management to let FHLB term advances mature during 2022 and not be replaced. However, given the inversion in the yield curve, FHLB term advances have rates that are lower than the cost of overnight borrowed funds. Therefore, management replaced matured FHLB term advances in 2023. The challenge remains as to the uncertainty regarding the duration that the higher than historical level of deposits will remain on the balance sheet which will be determined by customer behavior as the economic conditions change. 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. 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. In 2023, purchases of securities were slow as more funds were allocated to the loan portfolio. Loan pipelines continue to be strong, and the loan portfolio demonstrated consistent growth in 2023. We strive to operate our loan to deposit ratio in a range of 80% to 100%. The Company’s loan to deposit ratio averaged 86.4% in 2023, 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.

Current wording

Average short-term investments remained relatively stable during 2024 compared to last year, decreasing slightly by $89,000, or 2.3%. Advances from the FHLB averaged $51.6 million in 2024 which was $29.4 million, or 132.7%, higher than the $22.2 million average in 2023. 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. 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 during 2024 was lower than the 2023 level. Short-term borrowings averaged $28.0 million in 2024 after averaging $35.8 million in 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. In 2024, purchases of securities were slow as more funds were allocated to the loan portfolio. Loan pipelines are currently at a typical level. 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 2024, 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. We are also well positioned to service our existing loan pipeline and grow our loan to deposit ratio while remaining within our guideline parameters.

Previous wording

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents decreased by $8.9 million from December 31, 2022, to $14.0 million at December 31, 2023, due to $40.0 million of net cash used in investing activities more than offsetting $24.8 million of net cash provided in financing activities and $6.3 million of net cash provided by operating activities. Within investing activities, cash advanced for new loans originated totaled $200.8 million and was $50.9 million higher than the $149.9 million of cash received from loan principal payments. Within financing activities, total short-term borrowings decreased by $47.7 million, total FHLB borrowings increased by $24.8 million while total deposits increased by $49.9 million.

Current wording

Liquidity can also be analyzed by utilizing the Consolidated Statements of Cash Flows. Cash and cash equivalents increased by $3.7 million from December 31, 2023 to $17.7 million at December 31, 2024 due to $24.1 million of net cash provided in financing activities and $2.7 million of net cash provided by operating activities more than offsetting $23.1 million of net cash used in investing activities. Within investing activities, cash advanced for new loans originated totaled $183.0 million and was $33.5 million higher than the $149.5 million of cash received from loan principal payments. Within financing activities, total short-term borrowings decreased by $26.3 million, total FHLB borrowings increased by $11.5 million while total deposits increased by $42.6 million.

Previous wording

The holding company had $8.2 million of cash, short-term investments, and investment securities at December 31, 2023, which represents a $1.4 million decrease from the holding company’s cash position since December 31, 2022. Dividend payments from our subsidiaries provided ongoing cash to the holding company. At December 31, 2023, our subsidiary Bank had $7.4 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 payout level with respect to its common stock.

Current wording

The holding company had $6.8 million of cash, short-term investments, and investment securities at December 31, 2024, which represents a $1.4 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 December 31, 2024, our subsidiary Bank had $2.9 million of cash available for immediate dividends to the holding company under applicable regulatory formulas. Overall, we believe that the holding company has sufficient liquidity to meet its subordinated debt interest payments and its dividend payout level with respect to its common stock.

Previous wording

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 $14.0 million and $23.0 million at December 31, 2023 and December 31, 2022, 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.

Current wording

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 $17.7 million and $14.0 million at December 31, 2024 and 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.

Previous wording

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 December 31, 2023, the Company had $294 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.

Current wording

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 December 31, 2024, the Company

Previous wording

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 9.46%, the tier 1 capital ratio was 9.46%, and the total capital ratio was 13.03% at December 31, 2023. The Company’s tier 1 leverage ratio was 7.80% at December 31, 2023. We anticipate that we will maintain our strong capital ratios throughout 2024.

Current wording

CAPITAL RESOURCES. The Bank 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 9.19%, the tier 1 capital ratio was 9.19%, and the total capital ratio was 12.70% at December 31, 2024. The Company’s tier 1 leverage ratio was 7.68% at December 31, 2024. We anticipate that we will maintain our strong capital ratios throughout 2025.

Previous wording

Capital generated from earnings will be utilized to pay the common stock cash dividend and will support controlled balance sheet growth. Total Parent Company cash was $8.2 million at December 31, 2023. 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 375% of regulatory capital at December 31, 2023. It should be noted that this ratio increased from 350% at December 31, 2022 due to growth in non-owner occupied commercial real estate loan balances as well as a slight decrease in total regulatory capital between years.

Current wording

Capital generated from earnings will be utilized to pay the common stock cash dividend and will support controlled balance sheet growth. Total Parent Company cash was $6.8 million at December 31, 2024. 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 379% of regulatory capital at December 31, 2024. It should be noted that this ratio increased from 375% at December 31, 2023 due to growth in non-owner occupied commercial real estate loan balances which more than offset the increase in total regulatory capital between years.

Previous wording

Our focus is on preserving capital to support customer lending and allow the Company to take advantage of business opportunities as they arise. Despite the net loss recognized during 2023, the Company’s Board of Directors expects to continue the common stock dividend at its current level of $0.03 per quarter given the Company’s strong capital position and projected earnings improvement in 2024. While the Company has frequently executed common stock buyback programs in the past, we presently do not have one in place due to the drop in our tangible common equity ratio to 6.44%(1). At December 31, 2023, the Company had approximately 17.1 million common shares outstanding.

Current wording

Our focus is on preserving capital to support customer lending and allow the Company to take advantage of business opportunities as they arise. The Company’s Board of Directors expects to continue the common stock dividend at its current level of $0.03 per quarter given the Company’s strong capital position and projected earnings power. While the Company has frequently executed common stock buyback programs in the past, we presently do not have one in place due to the reduced level of our tangible common equity ratio at 6.64%(1). At December 31, 2024, the Company had approximately 16.5 million common shares outstanding.

Previous wording

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

Current wording

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

Previous wording

When December 31, 2023 is compared to December 31, 2022, the Company’s cumulative GAP ratio through three months indicates that the Company’s balance sheet is slightly liability sensitive, representing a significant decline in the level of liability sensitivity to a near neutral position. The shift primarily results from a substantial decrease in the level of short-term borrowings, which are immediately impacted by changes to national interest rates. The Company also experienced a modest decrease in the balance of deposits that have an interest rate that is indexed to the market. Although we are still experiencing a higher than historical level of funds in money market type accounts as customers seek to benefit from the higher interest rates in the economy. We are beginning to see loan customer preference for fixed rate loans soften given the expectation that interest rates have peaked and will decline later in 2024. The Company’s interest rate sensitivity position shifts from being liability sensitive to an asset sensitive position over three months and beyond as more of our loans begin to reprice. Finally, the balance of FHLB term advances at December 31, 2023 increased $24.8 million, or 125.5%, from the prior year, due to the inversion in the yield curve resulting in FHLB term advances having interest rates that are lower than the cost of overnight borrowings.

Current wording

When December 31, 2024 is compared to December 31, 2023, the Company’s cumulative GAP ratio through three months indicates that the Company’s balance sheet is liability sensitive and demonstrates an increase in the level of liability sensitivity. The increase primarily results from a substantial increase in the level of interest-bearing deposits while short-term borrowings and total rate sensitive assets remained relatively consistent. We experienced a higher level of interest-bearing demand deposits and time deposits which more than offset a decline in the level of money market accounts. The Company’s interest rate sensitivity position shifts from being liability sensitive to an asset sensitive position over six months and beyond as more of our loans begin to reprice. In particular, a significant level of commercial real estate loans that were booked during the onset of COVID when interest rates were significantly lower are scheduled to reprice in the second half of 2025 and through 2026. Finally, the balance of FHLB term advances at December 31, 2024 increased $11.5 million, or 25.8%, from the prior year, due to the modest inversion in the short end of the yield curve resulting in FHLB term advances having interest rates that are lower than the cost of overnight borrowings.

Previous wording

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

Current wording

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.

Previous wording

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 took action during 2023 to increase the rate a total of 100 basis points.

Current wording

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 4.25% to 4.50% as the Federal Reserve took action during the third and fourth quarters of 2024 to ease monetary policy and decrease the rate a total of 100 basis points.

Previous wording

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 variability of net interest income is neutral in the downward rate scenarios. 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.

Current wording

The Company’s interest rate risk position is relatively neutral. The variability of net interest income was slightly negative in the upward rate scenarios as the Company was marginally more exposed to liabilities repricing upward to a greater extent than assets. Specifically, the cost of funds was 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. Overall, based on the slight change in the variability of net interest income in the various interest rate scenarios, the Company is well positioned to sustain either a rate increase or decrease.

Previous wording

Within the investment securities portfolio at December 31, 2023, 74.2% of the portfolio was classified as available for sale and 25.8% as held to maturity. The available for sale classification provides management with greater flexibility to manage the securities portfolio to better achieve overall balance sheet rate sensitivity goals and provide liquidity if needed. The mark to market of the available for sale securities does inject more volatility in the book value of equity, but has no impact on regulatory capital. There were 270 available for sale securities that were in an unrealized loss position at December 31, 2023. These unrealized losses are primarily a result of increases in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, no provision for credit losses has been recorded for these securities. Management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature. Furthermore, it is the Company’s intent to manage its long-term interest rate risk by continuing to sell a portion of newly originated fixed-rate 30-year mortgage loans into the secondary market (excluding construction and any jumbo loans). The Company sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year ended December 31, 2023, 34.0% of all residential mortgage loan production was sold into the secondary market.

Current wording

Within the investment securities portfolio at December 31, 2024, 73.0% of the portfolio was classified as available for sale and 27.0% as held to maturity. The available for sale classification provides management with greater flexibility to manage the securities portfolio to better achieve overall balance sheet rate sensitivity goals and provide liquidity if needed. The mark to market of the available for sale securities does inject more volatility in the book value of equity, but has no impact on regulatory capital. There were 259 available for sale securities that were in an unrealized loss position at December 31, 2024. These unrealized losses were primarily a result of increases in market yields from the time of purchase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, no provision for credit losses has been recorded for these securities. Management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature. Furthermore, it is the Company’s intent to manage its long-term interest rate risk by continuing to sell a portion of newly originated fixed-rate 30-year mortgage loans into the secondary market (excluding construction and any jumbo loans). The Company sells 15-year fixed-rate mortgage loans into the secondary market as well, depending on market conditions. For the year ended December 31, 2024, 41.2% of all residential mortgage loan production was sold into the secondary market.

Previous wording

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

Current wording

The loan maturity information was based upon original loan terms. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal.

Previous wording

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’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. The Company had various outstanding commitments to extend credit approximating $236.6 million and standby letters of credit of $8.2 million as of December 31, 2023.

Current wording

**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’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. The Company had various outstanding commitments to extend credit approximating $233.2 million and standby letters of credit of $8.7 million as of December 31, 2024.

Previous wording

The Company can also use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. As of December 31, 2023, the Company had $76.5 million in the notional amount of interest rate swap assets outstanding, with a fair value of $4.6 million. Simultaneously, the Company had $76.5 million in the notional amount of interest rate swap liabilities outstanding, with a negative fair value of $4.7 million. The Company entered into risk participation agreements (RPAs) with the lead bank of two commercial real estate loan arrangements. As a participating bank, the Company guarantees the performance on a borrower-related interest rate swap contract. The notional amount of the RPAs outstanding at December 31, 2023 was $6.8 million, with a negative fair value of $410,000. In addition, the Company has entered into three interest rate swaps with a total notional value of $70 million in order to hedge the interest rate risk associated with certain floating-rate time deposit accounts. At December 31, 2023, the hedges had a negative fair value of $446,000.

Current wording

The Company can also use various interest rate contracts, such as interest rate swaps, caps, and floors to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. As of December 31, 2024, the Company had $66.5 million in the notional amount of interest rate swap assets outstanding, with a fair value of $4.7 million. Simultaneously, the Company had $66.5 million in the notional amount of interest rate swap liabilities outstanding, with a negative fair value of $4.7 million. The Company entered into a risk participation agreement (RPA) with the lead bank of a commercial real estate loan arrangement. As a participating bank, the Company guarantees the performance on a borrower-related interest rate swap contract. The notional amount of the RPA outstanding at December 31, 2024 was $4.9 million, with a negative fair value of $207,000. In addition, the Company has entered into three interest rate swaps with a total notional value of $70 million in order to hedge the interest rate risk associated with certain floating-rate time deposit accounts. At December 31, 2024, the hedges had a negative fair value of $169,000.