Item 2.02 Results of operation and financial condition.
AMERISERV FINANCIAL, Inc. (the "Registrant") announced third quarter and first
nine months of 2020 results through September 30, 2020. For a more detailed
description of the announcement see the press release attached as Exhibit 99.1.
Item 8.01 Other events.
On October 20, 2020, the Registrant issued a press release announcing that its
Board of Directors declared a $0.025 per share quarterly common stock cash
dividend. The cash dividend is payable November 16, 2020 to shareholders of
record on November 2, 2020. The press release, attached hereto as Exhibit 99.1,
is incorporated herein.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
99.1 Press release dated October 20, 2020, announcing third quarter and first
nine months of 2020 earnings through September 30, 2020 and quarterly common
stock cash dividend.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERISERV FINANCIAL, Inc.
By /s/Michael D. Lynch
Michael D. Lynch
SVP & CFO
Date: October 20, 2020
Exhibit 99.1
AMERISERV FINANCIAL REPORTS EARNINGS FOR THE THIRD QUARTER AND FIRST NINE MONTHS
OF 2020 AND ANNOUNCES QUARTERLY COMMON STOCK CASH DIVIDEND
JOHNSTOWN, PA - AmeriServ Financial, Inc. (NASDAQ: ASRV) reported third quarter
2020 net income of $1,078,000, or $0.06 per diluted common share. This earnings
performance was a $611,000, or 36.2%, decrease from the third quarter of 2019
when net income totaled $1,689,000, or $0.10 per diluted common share. For the
nine-month period ended September 30, 2020, the Company reported net income of
$3,906,000, or $0.23 per diluted common share. This represents a 25.8% decrease
in earnings per share from the nine-month period of 2019 when net income totaled
$5,359,000, or $0.31 per diluted common share. The following table highlights
the Company's financial performance for both the three and nine month periods
ended September 30, 2020 and 2019:
Third Nine Months Ended Nine Months Ended
Third Quarter Quarter September 30, 2020 September 30, 2019
2020 2019
Net income $1,078,000 $1,689,000 $3,906,000 $5,359,000
Diluted earnings $ 0.06 $ 0.10 $0.23 $ 0.31
per share
Jeffrey A. Stopko, President and Chief Executive Officer, commented on the 2020
third quarter financial results: "Our community bank customer-focused business
model and conservative risk management posture has served us well so far in 2020
as our Company has experienced record levels of both loans and deposits while
dealing with the challenges presented by the COVID-19 pandemic. The decline in
earnings between years is due to our decision to further strengthen our
allowance for loan losses given the economic uncertainty resulting from the
pandemic. Additionally, over 32% of our total revenue in the third quarter of
2020 came from non-interest income sources which included record contributions
from our strong wealth management business and active residential mortgage
operation. Overall, I am pleased with how the AmeriServ team has served our
communities with consistent, safe and uninterrupted access to banking services
and personalized financial guidance and advice during this pandemic."
The Company's net interest income in the third quarter of 2020 increased
slightly by $27,000, or 0.3%, from the prior year's third quarter and, for the
first nine months of 2020, increased by $533,000, or 2.0%, when compared to the
first nine months of 2019. The Company's net interest margin of 2.97% for the
third quarter of 2020 and 3.16% for the nine-month timeframe was 21 basis points
lower than last year's third quarter results and was 8 basis points lower when
compared to the first nine months of 2019. Third quarter 2020 results were
indicative of the slow economic recovery currently being experienced due to the
uncertainty that exists from the pandemic and the upcoming Presidential
election. Although demonstrating increasing strength late in the third quarter,
the economic uncertainty resulted in slow commercial loan demand, which has an
unfavorable impact on our business model since commercial loans comprise
approximately 73% of our total loan portfolio. The slow loan demand combined
with the low Federal Reserve managed interest rates continues to pressure
earning asset margins and, along with an increased loan loss provision, more
than offset a higher level of non-interest income and resulted in a lower
earnings performance for both time periods in 2020. The Company's balance sheet
experienced robust growth during the second quarter of 2020 as a result of
AmeriServ's participation in the Small Business Administration's 100% guaranteed
Paycheck Protection Program (PPP) and the impact of other government sponsored
initiatives established to stimulate the economy. The higher level of loans and
deposits that resulted from these government sponsored programs remained on the
balance sheet throughout the third quarter. As a result, the average balance of
total interest earning assets for both the third quarter of 2020 and the
nine-month year to date time periods is higher compared to the same time periods
in 2019. Growth in total loans and short-term investments more than offset
total investment securities decreasing. The higher level of average earning
assets was primarily attributable to approximately $68 million of PPP loans that
have an interest rate of 1.0% and approximately $40 million of short-term
investments which earned 0.5% during the third quarter. These low earning
assets further contributed to the pressure being experienced on earning asset
margins, which are already unfavorably impacted by the low interest rate
environment. Excluding the low yielding PPP loans from the net interest margin
calculation for the 2020 third quarter would result in the net interest margin
percentage being 9 basis points higher and averaging 3.06%(1). Both
non-interest and interest bearing deposits also increased since last year
resulting in less reliance on short term borrowed funds. Effective management
of our funding costs along with the downward repricing of certain interest
bearing liabilities tied to market indexes resulted in total interest expense
decreasing nicely between years. This decrease to total interest expense more
than offset the decrease in total interest income resulting in the increase to
net interest income for both the third quarter and first nine months of 2020.
Total loans continued to reach a new record level and averaged $933 million in
the third quarter of 2020 which is $52.8 million, or 6.0%, higher than the $880
million average for the third quarter of 2019, while total average loans for the
first nine months of 2020 were $33.0 million, or 3.8%, higher than the 2019
nine-month average. The growth in total average loans was due primarily to the
Company's participation in the PPP program. As of September 30, 2020, the
Company processed 474 PPP loans totaling approximately $68 million to assist
small businesses and our community in this difficult economy. Also, the Company
recorded a total of $1.4 million of processing fee income and interest income
from PPP lending activity. Note that PPP processing fee income decreased
significantly by approximately $700,000 between the second and third quarters of
2020 as most of the allowable up-front fees from the PPP loans were already
recognized as income in the second quarter. The remaining portion of PPP
processing fees totals approximately $1.1 million and are being amortized into
income over the time period that the loans remain on our balance sheet or until
the PPP loan is forgiven at which time the remaining fee will be recognized
immediately as income. Normal commercial lending activity has been slow because
of the economic uncertainty but did improve as the third quarter progressed.
Commercial loan pipelines are currently at levels that are similar to where
they were prior to the pandemic. Overall on an end of period basis, excluding
total PPP loans, the total loan portfolio grew by approximately $20 million
since June 30, 2020. Residential mortgage loan activity continued to be
exceptionally strong given the lower interest rate environment. Through the
first nine months of 2020, residential mortgage loan production is 65.0% higher
than the production level achieved for the full year of 2019. Even though total
average loans increased compared to the same time periods last year and loan
interest income was enhanced by the PPP revenue, loan interest and fee income
decreased by $1.0 million, or 9.4%, for the quarter and also declined by $1.6
million, or 5.1%, for the nine months. The lower loan interest income reflects
the challenges that this record low interest rate environment has created. New
loans are being originated at lower yields and certain loans tied to LIBOR or
the prime rate reprice downward as both of these indices have moved down with
the Federal Reserve's decision to decrease the target federal funds interest
rate by a total of 225 basis points since June of 2019. Finally, the Company is
working prudently with our borrowers that have been negatively impacted from the
effects of this difficult economy by granting them loan payment modifications.
Requested modifications primarily consist of the deferral of principal and/or
interest payments for a period of three to six months and maturity date
extensions. Initially, the balance of loan modifications related to COVID-19
that were granted to our customers totaled $200 million. At September 30, 2020,
total loan modifications demonstrated an improving trend, decreasing by $55.6
million, or 27.8%, and totaled $144 million, or 15.2% of total loans.
Management is carefully monitoring asset quality with a particular focus on
customers that have requested these payment deferrals and does expect a
significant number of the remaining loans with payment modifications to return
to normal payment status during the fourth quarter of 2020. As we reach the end
of the deferral time periods, deferral extension requests will be considered
based upon the customer's needs and their impacted industry, borrower and
guarantor capacity to service debt and current as well as any additional
regulatory guidance.
Total investment securities averaged $187 million in the first nine months of
2020 which is $9.9 million, or 5.0%, lower than the $197 million average for the
first nine months of 2019. The Company continues to be selective this year when
purchasing the more typical types of securities that have been purchased
historically as the market is less favorable given the differences in the
position and shape of the U.S. Treasury yield curve from the prior year. The
Company has been active since March purchasing corporate securities,
particularly subordinated debt issued by other financial institutions.
Subordinated debt offers higher yields than the typical types of securities in
which we invest and is particularly attractive given the current low interest
rate environment and flat shape of the yield curve. Management believes it to
be acceptable to increase our investments in bank subordinated debt in a gradual
and diversified manner, given the heavily regulated nature of the industry
combined with our intensive due diligence process.
Our liquidity position continues to be exceptionally strong due to the
significant influx of deposits that resulted from the government stimulus
programs and as customers continue to be cautious and are demonstrating reduced
spending activity due to the economic uncertainty. As a result, average
short-term investments increased by $28.7 million in the third quarter of 2020
and by $23.3 million for the first nine months when compared to 2019. The
challenge of profitably deploying this excess liquidity resulted in management
investing in high quality commercial paper given their short maturities and
higher rates of return. However, as the third quarter progressed, the yields on
commercial paper demonstrated a steady decline, making it even more challenging
to find a suitable return for our excess liquidity. Overall, interest income on
total investments decreased between the first nine months of 2020 and first nine
months of 2019 by $475,000, or 9.1%. Overall, through nine months in 2020,
total interest income decreased by $2.1 million, or 5.7%, between years.
Total interest expense for the first nine months of 2020 decreased by $2.7
million, or 24.4%, when compared to 2019, due to lower levels of both deposit
and borrowing interest expense. Through nine months, deposit interest expense
in 2020 is lower by $2.4 million, or 28.7%. Total deposits grew significantly
during the second quarter of 2020 because of the government stimulus programs
and consumers being more cautious with their spending. The higher level of
total deposits remained on the Company's balance sheet throughout the third
quarter. Similar to total loans, total average deposits, again, reached a
record level, averaging $1.054 billion for the quarter, which is $69.1 million,
or 7.0%, higher than the 2019 third quarter average. In addition, the Company's
loyal core deposit base continues to be a source of strength for the Company
during periods of market volatility. Management continued to effectively
execute several deposit product pricing decreases given the low interest rate
environment and the downward pressure that the low interest rates are having on
the net interest margin. As a result, the Company experienced deposit cost
relief. Specifically, the Company's average cost of interest bearing deposits
declined by 59 basis points since the third quarter of 2019 and averaged 0.79%
in the third quarter of 2020. Also offsetting a portion of the net interest
margin pressure from the lower national interest rates is a significant portion
of the deposit growth occurring in non-interest bearing demand deposits.
Overall, total deposit cost, including demand deposits, averaged 0.65% in the
third quarter of 2020 compared to 1.17% in the third quarter of 2019. The
Company's loan to deposit ratio averaged 88.6% in the third quarter of 2020
which we believe indicates that the Company has ample capacity to grow its loan
portfolio and is well positioned to continue assisting our customers and the
community given the impact that the COVID-19 pandemic is having on the economy.
The Company experienced a $215,000, or 9.0%, decrease in the interest cost of
borrowings in the first nine months of 2020 when compared to the first nine
months of 2019. The decline is a result of the Federal Reserve's actions to
decrease interest rates and the impact that these rate decreases have on the
cost of overnight borrowed funds and the replacement of matured FHLB term
advances. The total 2020 third quarter average term advance borrowings balance
increased by approximately $18.1 million, or 32.4%, when compared to the third
quarter of 2019 as the Company took advantage of the lower yield curve to
prudently extend borrowings. The rate on certain FHLB term advances is lower
than the rate on overnight borrowings. As a result, the combined growth of
average FHLB term advances and total average deposits resulted in less reliance
on overnight borrowed funds, which decreased between years by $4.6 million, or
76.4%, for the quarter. Overall, the 2020 third quarter average of total
short-term and FHLB borrowed funds was $75.3 million, which represents an
increase of $13.5 million, or 21.8%, from the 2019 third quarter.
The Company recorded a $675,000 provision expense for loan losses in the third
quarter of 2020 as compared to a $225,000 provision expense recorded in the
third quarter of 2019. For the first nine months of 2020, the Company recorded
a $1.3 million provision expense for loan losses compared to a $175,000
provision recovery recorded in the first nine months of 2019, which represents a
net unfavorable shift of $1,475,000. The Company continues to build the
allowance for loan losses given the overall economic climate and the uncertainty
that exists because of the COVID-19 pandemic. The 2020 provision reflects
management strengthening certain qualitative factors within the allowance for
loan losses calculation as well as the third quarter rating downgrade of several
loans totaling approximately $29 million from the hotel industry. The hotel
industry has been especially negatively impacted from the pandemic and is
demonstrating a slow pace of recovery from the economic lockdown. While we
anticipate that our hotel borrowers will need additional time to recover, we
remain encouraged by their signs of increasing occupancy rates. Additionally,
during the third quarter, two substantial commercial loans previously classified
as substandard were upgraded, while another troubled commercial loan paid off.
The rating improvements on these loans helped limit the increase in the loan
loss provision during the third quarter of 2020. The Company experienced low
net loan charge-offs of $296,000, or 0.04% of total loans, in the first nine
months of 2020 compared to net loan charge-offs of $152,000, or 0.02% of total
loans, for the same time period of 2019. Non-performing assets totaled $2.6
million, or 0.27% of total loans, at September 30, 2020 and are below industry
levels. As mentioned previously, management is carefully monitoring asset
quality with a particular focus on customers that have requested payment
deferrals during this difficult economic time. The Asset Quality Task Force is
meeting monthly to review these particular relationships, receiving input from
the business lenders regarding their ongoing discussions with the borrowers. In
summary, the allowance for loan losses provided 395% coverage of non-performing
assets, and 1.08% of total loans, at September 30, 2020, compared to 397%
coverage of non-performing assets, and 1.05% of total loans, at December 31,
2019. Note that the reserve coverage of total loans, excluding PPP loans, is
1.17%(1) at September 30, 2020. The Small Business Administration guarantees
100% of the PPP loans made to eligible borrowers which minimizes the level of
credit risk associated with these loans.
Total non-interest income in the third quarter of 2020 increased by $209,000, or
5.1%, from the prior year's third quarter, and increased by $546,000, or 4.8%,
in the first nine months of 2020 when compared to the first nine months of 2019.
Income from residential mortgage loan sales into the secondary market increased
by $102,000, or 25.2%, for the quarter and increased by $505,000, or 88.0%, for
the first nine months due to the strong level of residential mortgage loan
production. The higher level of residential mortgage loan production also
resulted in mortgage related fees increasing by $64,000, or 66.0%, for the
quarter and by $214,000, or 98.2%, for the nine months. Wealth management fees
increased by $173,000, or 7.1%, in the third quarter of 2020 and by $383,000, or
5.3%, for the nine months of 2020 compared to the same time periods in 2019. In
addition to an improved level of fee income from the Financial Services business
unit, the entire Wealth Management Division has been resilient and performed
well in spite of the volatility of the markets and a major market value decline
that occurred in late March has been fully recovered by the end of the third
quarter of 2020. Other income compares favorably for the quarter by $43,000, or
6.9%, while other income compares unfavorably for the nine-month time period by
208,000, or 11.2%, after the Company recognized a gain in 2019 on the sale of
equity shares from a previous acquisition. Slightly offsetting these favorable
items was service charges on deposit accounts decreasing by $115,000, or 35.8%,
for the quarter and by $280,000, or, 29.5%, for the first nine months. Consumer
spending activity based fees such as deposit service charges, which include
overdraft fees, decreased significantly with the shutdown of the economy and has
been slow to improve given the pace of the economic recovery. Finally, the
Company has not recognized a gain or loss on security sales this year. In 2019,
an $88,000 gain was recognized during the third quarter of 2019 which
contributed to a $118,000 gain recognized during the first nine months of last
year.
The Company's total non-interest expense in the third quarter of 2020 increased
by $604,000, or 5.8%, when compared to the third quarter of 2019 and increased
in the first nine months of 2020 by $1,494,000, or 4.8%, when compared to 2019.
The increase in both time periods was due to higher salaries & benefits expense
of $514,000, or 8.1%, for the quarter and $1,188,000, or 6.3%, for the nine
months of 2020. Within salaries & benefits, pension expense increased by
$71,000, or 15.5%, for the quarter between years and increased by $447,000, or
37.8%, for the nine months. This significant increase results from the
unfavorable impact that the lower interest rate environment has on the discount
rates that are used to revalue the defined benefit pension obligation each year.
In addition, the higher salaries & benefits expense for both time periods is
also due to increased health care costs ($90,000, or 11.9%, for the quarter and
$330,000, or 14.5%, for the nine months) and greater incentive compensation
($160,000, or 52.5%, for the quarter and $327,000, or 39.0%, for the nine
months) primarily due to commissions earned as a result of increased residential
mortgage loan production. Total salaries are higher by $92,000, or 2.1%, for the
third quarter and by $285,000, or 2.2%, for the nine months. Total professional
fees increased by $97,000, or 7.6%, in the third quarter of 2020 and by
$213,000, or 5.8%, for the first nine months of the year. The increase results
from higher appraisal fees due to the significantly higher level of residential
mortgage loan production, higher legal fees related to PPP loan processing and a
higher level of outside professional services related costs. FDIC deposit
insurance expense is $140,000 higher for the quarter and $136,000, or 85.0%
higher for the nine months as this line returned to a more normal level after
the benefit from the application of the Small Bank Assessment Credit regulation
expired earlier this year. Finally, and slightly offsetting these higher
expenses was other expense comparing favorably to last year's third quarter by
$197,000, or 10.0%, and by $126,000, or 2.3% for the nine months. The favorable
comparison for both time periods between years is due to a lower level of meals
& travel related costs that is related to travel restrictions from the pandemic
as well as reduced outside processing fees and telephone costs. The nine-month
favorable comparison for other expense also resulted from a credit recognized
earlier in the year for the unfunded commitment reserve.
The Company recorded an income tax expense of $235,000, or an effective tax rate
of 17.9%, in the third quarter of 2020. This compares to an income tax expense
of $442,000, or an effective tax rate of 20.7%, for the third quarter of 2019.
The lower effective tax rate and income tax expense in the third quarter of
2020 reflected a modest income tax credit recognized to correct an over accrual
of income tax expense that occurred earlier this year. Similarly, for the first
nine months of 2020, the Company recorded income tax expense of $966,000, or an
effective tax rate of 19.8%, compared to income tax expense of $1,403,000 in
2019, or an effective tax rate of 20.7%.
The Company had total assets of $1.26 billion, shareholders' equity of $103.4
million, a book value of $6.06 per common share and a tangible book value(1) of
$5.36 per common share at September 30, 2020. The Company continued to maintain
strong capital ratios that exceed the regulatory defined well capitalized
status.
QUARTERLY COMMON STOCK CASH DIVIDEND
The Company's Board of Directors declared a $0.025 per share quarterly common
stock cash dividend. The cash dividend is payable November 16, 2020 to
shareholders of record on November 2, 2020. This cash dividend represents a
3.3% annualized yield using the October 16, 2020 closing stock price of $3.02.
For the first nine months of 2020, the Company's dividend payout ratio amounted
to 32.6%.
Forward-Looking Statements
This press release contains forward-looking statements as defined in the
Securities Exchange Act of 1934 and is subject to the safe harbors created
therein. Such statements are not historical facts and include expressions about
management's confidence and strategies and management's current views and
expectations about new and existing programs and products, relationships,
opportunities, technology, market conditions, dividend program and future
payment obligations. These statements may be identified by such forward-looking
terminology as "continuing," "expect," "look," "believe," "anticipate," "may,"
"will," "should," "projects," "strategy," or similar statements. Actual results
may differ materially from such forward-looking statements, and no reliance
should be placed on any forward-looking statement. Factors that may cause
results to differ materially from such forward-looking statements include, but
are not limited to, unanticipated changes in the financial markets and the
direction of interest rates; volatility in earnings due to certain financial
assets and liabilities held at fair value; competition levels; loan and
investment prepayments differing from our assumptions; insufficient allowance
for credit losses; a higher level of loan charge-offs and delinquencies than
anticipated; material adverse changes in our operations or earnings; a decline
in the economy in our market areas; changes in relationships with major
customers; changes in effective income tax rates; higher or lower cash flow
levels than anticipated; inability to hire or retain qualified employees; a
decline in the levels of deposits or loss of alternate funding sources; a
decrease in loan origination volume or an inability to close loans currently in
the pipeline; changes in laws and regulations; adoption, interpretation and
implementation of accounting pronouncements; operational risks, including the
risk of fraud by employees, customers or outsiders; unanticipated effects of our
banking platform; risks and uncertainties relating to the duration of the
COVID-19 pandemic, and actions that may be taken by governmental authorities to
contain the pandemic or to treat its impact; and the inability to successfully
implement or expand new lines of business or new products and services. These
forward-looking statements involve risks and uncertainties that could cause
AmeriServ's results to differ materially from management's current expectations.
Such risks and uncertainties are detailed in AmeriServ's filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 2019. Forward-looking statements are based on the
beliefs and assumptions of AmeriServ's management and on currently available
information. The statements in this press release are made as of the date of
this press release, even if subsequently made available by AmeriServ on its
website or otherwise. AmeriServ undertakes no responsibility to publicly update
or revise any forward-looking statement.
(1)
Non-GAAP Financial Information. See "Reconciliation of Non-GAAP Financial
Measures" at end of release.
AMERISERV FINANCIAL, INC.
NASDAQ: ASRV
SUPPLEMENTAL FINANCIAL PERFORMANCE DATA
September 30, 2020
(Dollars in thousands, except per share and ratio data)
(Unaudited)
2020
1QTR 2QTR 3QTR YEAR TO DATE
PERFORMANCE DATA FOR
THE PERIOD:
Net income $1,409 $1,419 $1,078 $3,906
PERFORMANCE
PERCENTAGES
(annualized):
Return on average 0.48% 0.46% 0.34% 0.43%
assets
Return on average 5.69 5.63 4.17 5.15
equity
Return on average 6.46 6.38 4.72 5.84
tangible common
equity (B)
Net interest margin 3.21 3.30 2.97 3.16
Net charge-offs
(recoveries) as a 0.06 0.04 0.04 0.04
percentage of average
loans
Loan loss provision 0.08 0.20 0.29 0.19
(credit) as a
percentage of
average loans
Efficiency ratio 84.46 83.09 84.79 84.10
EARNINGS PER COMMON
SHARE:
Basic $0.08 $0.08 $0.06 $0.23
Average number of 17,043 17,052 17,059 17,051
common shares
outstanding
Diluted 0.08 0.08 0.06 0.23
Average number of 17,099 17,056 17,062 17,063
common shares
outstanding
Cash dividends paid $0.025 $0.025 $0.025 $0.075
per share
2019
. . .© Edgar Online, source Glimpses
AMERISERV FINANCIAL, INC. 
