Form 8-K
Item 2.02 Results of Operations and Financial Condition.
The information contained below in Item 7.01 regarding select preliminary financial results for the quarter ended December 31, 2023 is incorporated herein by reference.
The information in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure.
AmeriServ Financial Inc. Announces an Earnings Improvement Program, Investment Portfolio Repositioning and Allowance for Credit Losses Strengthening
AmeriServ Financial, Inc. (“AmeriServ” or the “Company”) (NASDAQ: ASRV) today announced several important strategic actions to better position the Company to achieve increased earnings performance in 2024. These strategic actions include:
| 1. | an Earnings Improvement Program; |
| 2. | investment portfolio repositioning; and |
| 3. | further strengthening of the Company’s allowance for credit losses. |
Earnings Improvement Program
The Earnings Improvement Program includes actions taken by the Company to either reduce non-interest expenses or enhance non-interest revenue. The non-interest expense reduction actions include: the consolidation of certain executive level positions in the wealth management business, the closure and consolidation of one branch office within the Johnstown market, a meaningful reduction in health care premium costs resulting from an extensive exploration of self-funding opportunities, and several position eliminations in mortgage banking, facilities and information technology. The non-interest revenue enhancements resulted from successful negotiations related to the renewal of an expiring contract with VISA. The Company expects the Earnings Improvement Program to generate approximately $1.5 million of additional pre-tax earnings in 2024.
Investment Portfolio Repositioning
In late December 2023, the Company sold $18 million of available for sale (AFS) investment securities which included both government agency obligations and municipal bonds. The Company recognized a $922,000 loss on these securities, which had an average yield of 3.1% and an effective duration of 3.3 years. AmeriServ used the proceeds from this sale to purchase new government agency mortgage-backed securities that have a yield of 5.2% and effective duration of 3.6 years. The Company expects to recover this loss in 3.7 years and generate additional net interest income from these transactions of approximately $325,000 in 2024. The fourth quarter loss realized on these sale transactions will have no impact on tangible capital or tangible book value per share since these securities were classified as AFS with the loss already reflected in the Company’s capital position at September 30, 2023. The Company expects a limited negative impact of less than ten basis points on regulatory capital ratios.
Strengthening AmeriServ’s Allowance for Credit Losses
The Company also expects to recognize an increased provision for credit losses and higher net charge-offs in the fourth quarter of 2023. Rite Aid, a national tenant in several commercial real estate properties financed by the Bank, declared bankruptcy in the fourth quarter of 2023. As a result of this action, the Bank updated its comprehensive evaluation of its exposure to Rite Aid throughout its loan portfolio as it received information on leases that Rite Aid either rejected or modified. The Company expects to recognize net charge-offs of approximately $3.3 million and a total provision for credit losses of approximately $6 million in the fourth quarter of 2023 due primarily to the Rite Aid bankruptcy. As a result of this action, the Company will build its allowance for credit losses and maintain solid coverage of both total loans and non-performing assets at December 31, 2023.
As a result primarily of the increased provision for credit losses along with the investment security loss, the Company expects to report a net loss for the fourth quarter of 2023 of approximately $5.4 million. After giving effect to this net loss, the regulatory capital ratios for both the Company and Bank are projected to be comfortably above the well capitalized threshold at year-end 2023. The unaudited results described in this Current Report on Form 8-K are estimates and are subject to revision. The Company is scheduled to report its full financial results for the year-ended December 31, 2023 on January 23, 2024.