Indicate by check mark whether the registrant is an
emerging growth company as defined in Rule 405 of the Securities
Act of 1933 (230.405 of this chapter) or Rule 12b-2 of the
Securities Exchange Act of 1934 (240.12b-2 of this chapter).
Emerging growth company ( )
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ( )
Form 8-K
Item 2.02 Results of operation and financial condition.
AMERISERV FINANCIAL, Inc. (the "Registrant")
announced second quarter and first six months of 2020 results
through June 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
July 21, 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
August 17, 2020 to shareholders of record on August 3, 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 July 21, 2020, announcing second
quarter and first six months of 2020 earnings through June 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: July 21,
2020
Exhibit 99.1
AMERISERV FINANCIAL REPORTS EARNINGS FOR THE SECOND QUARTER AND
FIRST SIX MONTHS OF 2020 AND ANNOUNCES QUARTERLY COMMON STOCK CASH
DIVIDEND
JOHNSTOWN, PA - AmeriServ Financial, Inc. (NASDAQ:
ASRV) reported second quarter 2020 net income of $1,419,000, or
$0.08 per diluted common share. This earnings performance was
a $373,000, or 20.8%, decrease from the second quarter of 2019 when
net income totaled $1,792,000, or $0.10 per diluted common share.
For the six-month period ended June 30, 2020, the Company
reported net income of $2,828,000, or $0.17 per diluted common
share. This represents a 19.1% decrease in earnings per share
from the six-month period of 2019 when net income totaled
$3,670,000, or $0.21 per diluted common share. The following
table highlights the Company’s financial performance for both the
three and six month periods ended June 30, 2020 and 2019:
|
|
|
|
|
| |
|
|
Second Quarter
2020
|
Second Quarter 2019
|
|
Six Months Ended June 30, 2020
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Net
income
|
$1,419,000
|
$1,792,000
|
|
$2,828,000
|
$3,670,000
|
|
Diluted earnings per share
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$ 0.08
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$ 0.10
|
|
$0.17
|
$ 0.21
|
Jeffrey A. Stopko, President and Chief Executive
Officer, commented on the 2020 second quarter financial results:
"AmeriServ Financial Inc. again reported sound earnings in the
second quarter of 2020 while navigating through the challenges
presented by the COVID-19 pandemic and the resultant economic
shutdown. 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. 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, the diversification of our revenue, with almost
30% coming from non-interest income sources including a strong
wealth management business and active residential mortgage
operation, is beneficial to our company. Overall, I am most
proud of how the AmeriServ team has stepped up and worked
tirelessly with customers to provide them with resources to address
the financial challenges that they are experiencing in 2020 as a
result of the pandemic.”
The Company's net interest income in the second
quarter of 2020 increased by $412,000, or 4.5%, from the prior
year's second quarter and, for the first six months of 2020,
increased by $506,000, or 2.9%, when compared to the first six
months of 2019. The Company’s net interest margin of 3.30%
for the second quarter of 2020 and 3.26% for the six-month
timeframe matched 2019 results for the quarter and was one basis
point lower for the six -month period. The second quarter of
2020 represented the first full quarter’s impact of the COVID-19
pandemic in the financial industry. An economic shutdown
experienced for the majority of the second quarter along with a
record low interest rate environment continued to pressure earning
asset margins and caused an increased loan loss provision resulting
in a lower earnings performance for both time periods. The
continued pressure on earning asset margins is offset by a sharply
higher level of loan fees and interest income due to the Company’s
participation in the Paycheck Protection Program (PPP), which was
created under the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) to provide emergency economic relief to individuals
and businesses impacted by the COVID-19 pandemic. The PPP
initiative along with other government sponsored programs
established to stimulate the economy resulted in the Company
experiencing robust growth on both sides of the balance sheet as
total loans and total deposits are at record levels. Total
interest earning assets increased due to growth in total loans and
short-term investments which more than offset total investment
securities decreasing. Both, non-interest and interest
bearing deposits increased resulting in less reliance on higher
cost 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 between years. The 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 second quarter and first six months of 2020.
Total loans reached a record level and averaged
$913 million in the second quarter of 2020 which is $29.2 million,
or 3.3%, higher than the $883 million average for the second
quarter of 2019, while total average loans for the first six months
of 2020 were $23.1 million, or 2.6%, higher than the 2019 six-month
level. The growth in total loans was due primarily to the
Company’s participation in the PPP as normal commercial lending
activity decreased significantly due to the economic shutdown.
Overall, the Company has processed 448 PPP loans totaling $67
million to assist small businesses and our community in this
difficult economy. As of June 30, 2020, the Company has
recorded a total of $1.0 million of processing fee income and
interest income from PPP lending activity. The Small Business
Administration guarantees 100% of the PPP loans made to eligible
borrowers which minimizes the level of credit risk associated with
the loans. As a result, such loans are assigned a 0% risk
weight for purposes of calculating the Bank’s risk-based capital
ratios. In addition to the PPP lending activity, residential
mortgage loan activity is exceptionally strong given the lower
interest rate environment. Through the first six months of
2020, residential mortgage loan production is more than double the
production level achieved through the first six months of 2019 and
very near the level of production that was achieved in the full
year of 2019. The Company is also encouraged that commercial
loan pipelines have recently rebounded and are currently
approaching levels that are similar to where they were prior to the
pandemic. Even though total average loans increased compared
to the same periods last year and loan interest income was enhanced
by the PPP revenue, loan interest revenue decreased by $546,000, or
5.0%, for the quarter and also declined by $632,000, or 3.0%, for
the six 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.
Total investment securities averaged $187 million
in the first six months of 2020 which is $12.4 million, or 6.2%,
lower than the $199 million average for the first six 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 prudent to increase our
investments in bank subordinated debt in a gradual and diversified
manner, given our familiarity with the banking industry and the
heavily regulated nature of the industry combined with our
intensive due diligence process.
Our liquidity position is exceptionally strong due
to the significant influx of deposits that resulted from the
government stimulus programs and reduced customer spending activity
due to the shutdown of the economy. As a result, average
short-term investments increased by $31.4 million in the second
quarter of 2020 and by $20.6 million for the first six months when
compared to 2019. Therefore, the challenge exists to
profitably deploy this excess in short term assets, which
management has responded by utilizing the commercial paper market.
Overall, interest income on investments decreased between the
first six months of 2020 and first six months of 2019 by $292,000,
or 8.3%. Overall in the first half of 2020, total interest
income decreased by $924,000, or 3.7%, between years.
Total interest expense for the first six months of
2020 decreased by $1.4 million, or 19.8%, when compared to 2019,
due to lower levels of both deposit and borrowing interest expense.
Through six months, deposit interest expense in 2020 is lower
by $1.3 million, or 22.7%. Total deposits grew significantly
during the second quarter of 2020 to reach a record level,
averaging $1.036 billion for the quarter, which is $55.5 million,
or 5.7%, higher than the 2019 second quarter average. This
robust growth between years is the result of consumers’ behavior
to: 1.) deposit their PPP funds into deposit accounts, 2.) deposit
government stimulus checks into the bank and 3.) keep higher
balances in their accounts since they are not able to spend as much
as they otherwise would because of the COVID-19 pandemic’s impact
to the economy and our community. 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
prudently and effectively executed several deposit product pricing
decreases given the declining interest rate environment and the
downward pressure that the falling interest rates have 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 51 basis points since the
second quarter of 2019 and averaged 0.88% in the second 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 0.73% in the second quarter of 2020
compared to 1.17% in the second quarter of 2019. The
Company's loan to deposit ratio averaged 88.1% in the second
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 given the impact that the COVID-19
pandemic is having on the economy.
The Company experienced a $160,000, or 9.9%,
decrease in the interest cost of borrowings in the first six months
of 2020 when compared to the first six months of 2019. The
decline is a result of lower total average borrowings between years
combined with the impact from 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 second quarter
average term advance borrowings balance increased by approximately
$9.2 million, or 18.2%, when compared to the second quarter of 2019
as the Company took advantage of the lower yield curve and its flat
shape to prudently extend borrowings. As a result, the
combined growth of average FHLB term advances and total average
deposits resulted in total average overnight borrowed funds
decreasing between years by $16.1 million, or 79.2%, for the
quarter. Overall, the 2020 second quarter average of total
FHLB borrowed funds was $64.0 million, which represents a decrease
of $6.9 million, or 9.7%, from the 2019 second quarter.
The Company recorded a $450,000 provision expense
for loan losses in the second quarter of 2020 as compared to a zero
provision recorded in the second quarter of 2019. For the
first six months of 2020, the Company recorded a $625,000 provision
expense for loan losses compared to a $400,000 provision recovery
recorded in the first six months of 2019, which represents a net
unfavorable shift of $1,025,000. The 2020 provision reflects
management’s decision to strengthen certain qualitative factors
within our allowance for loan losses calculation due to the
economic uncertainty caused by the COVID-19 pandemic. The
Company’s asset quality remains strong as evidenced by low levels
of loan delinquency, net loan charge-offs and non-performing
assets. The Company experienced net loan charge-offs of
$205,000, or 0.05% of total loans, in the first half of 2020
compared to net loan charge-offs of $169,000, or 0.04% of total
loans, in the first half of 2019. Non-performing assets
totaled $3.1 million, or 0.34% of total loans, at June 30, 2020 and
are below industry levels. 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 311%
coverage of non-performing assets, and 1.04% of total loans, at
June 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 1.13% at
June 30, 2020.
Total non-interest income in the second quarter of
2020 increased by $110,000, or 3.0%, from the prior year's second
quarter, and increased by $337,000, or 4.6%, in the first half of
2020 when compared to the first half of 2019. Income from
residential mortgage loan sales into the secondary market increased
by $228,000, or 213.1%, for the quarter and increased by $403,000,
or 238.5%, for the first six 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 $68,000, or 88.3%, for the quarter and
by $150,000, or 124.0%, for the six months. Wealth management
fees increased by $52,000, or 2.1%, in the second quarter of 2020
and by $210,000, or 4.4%, for the first half of 2020 compared to
the same time period 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. Slightly
offsetting these favorable items was service charges on deposit
accounts decreasing by $141,000, or 44.5%, for the quarter and by
$165,000, or, 26.3%, for the first six months. Consumer
spending activity based fees such as deposit service charges, which
include overdraft fees, decreased significantly with the shutdown
of the economy. Finally, the economic shutdown also resulted
in other income comparing unfavorably for the quarter by $90,000,
or 15.6%, and, also, declined by $251,000, or 20.2%, for the six
months of 2020. The six- month unfavorable comparison also
results from the Company recognizing a gain in 2019 on the sale of
equity shares from a previous acquisition.
The Company's total non-interest expense in the
second quarter of 2020 increased by $550,000, or 5.3%, when
compared to the second quarter of 2019 and increased in the first
half of 2020 by $890,000, or 4.3%, when compared to 2019. The
increase in both time periods was due to higher salaries &
benefits expense of $271,000, or 4.3%, for the quarter and
$674,000, or 5.3%, for the first six months of 2020. Within
salaries & benefits, pension expense increased by $188,000, or
50.8%, for the quarter between years and increased by $376,000, or
51.9%, for the six 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 and greater commissions
earned as a result of increased residential mortgage loan
production while total salaries are higher for the six-month time
period only in 2020 by $193,000, or 2.2%. Total professional
fees increased by $82,000, or 6.6%, in the second quarter of 2020
and by $116,000, or 4.9%, for the first half 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. Other
expenses are higher in both time periods as the Company incurred
approximately $80,000 of expense for personal protective equipment
(PPE) and related supplies so far in 2020 to keep our employees and
customers safe during the pandemic. Finally, FDIC deposit insurance
expense is $50,000, or 62.5%, higher for the quarterly comparison
only as this line returned to a more normal level after the credit
from the application of the Small Bank Assessment Credit regulation
expired.
The Company recorded an income tax expense of
$365,000, or an effective tax rate of 20.5%, in the second quarter
of 2020. This compares to an income tax expense of $470,000,
or an effective tax rate of 20.8%, for the second quarter of 2019.
Similarly, for the first six months of 2020, the Company
recorded income tax expense of $731,000, or an effective tax rate
of 20.5%, compared to income tax expense of $961,000 in 2019, or an
effective tax rate of 20.8%.
The Company had total assets of $1.24 billion,
shareholders' equity of $102.6 million, a book value of $6.01 per
common share and a tangible book value(1) of $5.31 per
common share at June 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 August 17, 2020 to shareholders of record on
August 3, 2020. This cash dividend represents a 3.5%
annualized yield using the July 17, 2020 closing stock price of
$2.87. For the first six months of 2020, the Company’s
dividend payout ratio amounted to 29.4%.
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 new 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
June 30,
2020
(Dollars in
thousands, except per share and ratio data)
(Unaudited)
2020
