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 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:
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
