Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ASRV > SEC Filings for ASRV > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for AMERISERV FINANCIAL INC /PA/

Form 10-Q for AMERISERV FINANCIAL INC /PA/


9-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("M.D.& A.")

…..2012 THIRD QUARTER SUMMARY OVERVIEW….. AmeriServ Financial, Inc. reported net income available to common shareholders of $1,056,000 or $0.05 per share for the third quarter of 2012. These earnings reflect stability with the $0.05 per share reported during the third quarter of 2011. There was a lower negative provision from AmeriServ's strong loan loss reserve in the third quarter of 2012. As the asset quality of AmeriServ's loan portfolio improves, a smaller loan loss reserve is acceptable to management and the Board of Directors. This good news about loan quality was accompanied by other positive events in the AmeriServ third quarter.

The Company continues to increase its loans even during this period of weakness in the economy. Net loans increased by $16 million in the third quarter, for a sixth consecutive positive quarter, and are now $62 million over the recession created low point which occurred in the first quarter of 2011. These gains reflect the hard work of AmeriServ's Commercial Relationship Officers. During the last year this group of professionals has averaged 414 calls per month on commercial clients throughout the area. AmeriServ is out calling on business loan customers every day and this strong loan growth is the result.

As previously mentioned, in August 2011, the US Treasury had approved AmeriServ as a Small Business Lending Fund participant. Treasury provided AmeriServ with an additional $21 million of capital in exchange for an issuance of 5% Series E Preferred Stock to encourage small business lending. But the Treasury also made a promise to AmeriServ. The premise behind the Small Business Lending Fund was that if AmeriServ increased its loans to small businesses by at least $21 million the Treasury would reduce the dividend rate on the Treasury held Series E Preferred Stock from 5% to 1%. AmeriServ reached that goal in the second quarter of 2012 and maintained it through the third quarter of 2012; therefore, beginning on October 1, 2012, the reduced dividend rate of 1% became effective for the fourth quarter and will be maintained to the extent this growth in small business lending is maintained over our baseline measure. This will reduce the dividend payment from approximately $250,000 in a quarter to $52,000 in a quarter, as long as AmeriServ meets the Treasury goals for the Company. This innovative program is helping small businesses receive loans while it is also helping AmeriServ increase its earnings per share.

Concurrently, AmeriServ deposits remain strong totaling now $49 million higher than at the recession period low of the fourth quarter of 2010. We are pleased that both businesses and consumers appreciate the strength of AmeriServ and choose to entrust their monies to us. A continuing high spot in the third quarter of 2012 is AmeriServ's mortgage origination team. Thus far, during 2012, AmeriServ has originated $81 million of residential mortgages to families throughout the region. This record represents a 46% increase over the first nine months of 2011, which was in itself a very strong year. It is a real pleasure for us to help our neighbors in this way. The majority of these new mortgages are sold immediately to the U.S. government sponsored mortgage secondary market.


Table of Contents

Not to be outdone by the AmeriServ Financial Bank, the AmeriServ Trust and Financial Services Company finished the third quarter with a net income contribution 18.1% ahead of the same period of 2011. This Company has been remade almost from top to bottom by the new leadership which came to AmeriServ in March 2010. The Trust Company operates six different business lines, each bringing fiduciary and wealth management services to individuals and companies. Management has reviewed and strengthened its infrastructure with the latest in technologies so as to offer flexibility to clients who trust their retirement savings or their bequests to the next generation to AmeriServ. We believe that this Trust Company has a bright future as it begins to stress the premier products of its several business lines in their particular markets.

AmeriServ is also moving rapidly in the new world of mobile banking. A new generation is asking banks to step out from old ways into the new technology. Therefore AmeriServ has a designated team designing and implementing banking for a virtual environment. This advance must be managed with care so as to protect every customer's privacy and to ensure the complete safety of a customer's funds. Still, it is this type of innovation that keeps the AmeriServ banking system dynamic. It is our aim to provide the best of the new technology in a way that pleases existing customers and attracts new customers.

It is obvious that these are challenging times. The economy of the nation and the region is better than some, but not as good as others. Therefore it is necessary to be on the alert for signs of economic troubles. The global economy has many challenges, the U.S. fiscal situation faces a year-end deadline on deficit reduction and Europe's troubles fill the news daily. In such times, AmeriServ's Board of Directors and management will continue to maintain a conservative balance sheet highlighted by strong capital, deep liquidity, good asset quality and careful expense management. But we will not sit idle; we will continue to stress customer service, new products and good old fashioned common sense. We believe strongly in community banking. It is our purpose to support our communities with fairly priced loans, with easy to use banking services and with rewarding wealth management counsel. We will not venture into financial gimmickry or into risky endeavors beyond our abilities. The basics of the Company are strong and the common stock price has increased by 52% in 2012 after gaining 23% in 2011. It is our intent to stay the course to continue to reward shareholders. The stock repurchase program contributed to an 8.8% growth in tangible book value per share since the end of 2011. These are the positive signs that reflect financial strength and increased investor confidence.

THREE MONTHS ENDED SEPTEMBER 30, 2012 VS. THREE MONTHS ENDED SEPTEMBER 30, 2011

…..PERFORMANCE OVERVIEW.....The following table summarizes some of the Company's
key performance indicators (in thousands, except per share and ratios).



                                             Three months ended               Three months ended
                                             September 30, 2012               September 30, 2011
Net income                                   $             1,307              $             1,566
Net income available to common
shareholders                                               1,056                            1,027
Diluted earnings per share                                  0.05                             0.05
Return on average assets
(annualized)                                                0.52 %                           0.64 %
Return on average equity
(annualized)                                                4.66 %                           5.52 %


Table of Contents

The Company reported its 10th consecutive profitable quarter in the third quarter of 2012 by reporting net income of $1,307,000. This represents a decrease of $259,000 from the third quarter 2011. Third quarter 2012 net income available to common shareholders was $1,056,000 or $0.05 per diluted common share which was consistent with the financial results reported for the third quarter of 2011. The improvements in asset quality continued to result in a credit provision for loan losses in the third quarter of 2012, but at a lesser level than in the third quarter of 2011. Third quarter 2012 net income was also positively impacted by modestly higher net interest income, increased non-interest income and reduced income tax expense. These positive items were partially offset by higher non-interest expense.

Diluted earnings per share in the third quarter of 2012 were negatively impacted by the preferred stock dividend related to the US Treasury SBLF program which amounted to $251,000 and reduced the amount of net income available to common shareholders. This amount, however, was less than the preferred stock dividend and accelerated preferred stock discount accretion related to the former TARP CPP preferred stock that totaled $539,000 in the third quarter of 2011. As previously mentioned, the Company has been successful in growing commercial loans in categories that qualify for the SBLF. As such, the dividend rate that AmeriServ currently pays on the SBLF preferred stock will drop from 5% to 1% - the lowest rate available under the SBLF program. This lower preferred dividend rate will increase quarterly net income available to common shareholders by approximately $200,000 beginning in the fourth quarter of 2012 and continuing at a minimum through the first quarter of 2013.

…..NET INTEREST INCOME AND MARGIN….. The Company's net interest income represents the amount by which interest income on average earning assets exceeds interest paid on average 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 average earning assets and average interest bearing liabilities. The following table compares the Company's net interest income performance for the third quarter of 2012 to the third quarter of 2011 (in thousands, except percentages):

                                 Three months ended           Three months ended
                                 September 30, 2012           September 30, 2011           $ Change           % Change
Interest income                 $             10,030         $             10,492         $     (462 )             (4.4 )%
Interest expense                               1,888                        2,374               (486 )            (20.5 )

Net interest income             $              8,142         $              8,118         $       24                0.3

Net interest margin                             3.59 %                       3.68 %            (0.09 )              N/M

N/M - not meaningful

The Company's net interest income in the third quarter of 2012 increased modestly by $24,000, or 0.3%, when compared to the third quarter of 2011. The third quarter 2012 net interest margin of 3.59% was nine basis point lower than the 3.68% margin for last year's third quarter. The decreased net interest margin reflects the challenges of a flatter yield curve which has pressured interest revenue in 2012. The Company has been able to overcome this net interest margin pressure and keep net interest income relatively constant by reducing its cost of funds and growing its earning assets, particularly loans. Specifically, total loans outstanding have increased for six consecutive quarters and now are $39.2 million, or 5.9%, higher than they were at September 30, 2011. This loan growth reflects the successful results of the Company's more intensive sales calling efforts with an emphasis on generating commercial loans and owner occupied commercial real estate loans which qualify as SBLF loans, particularly through its new loan production offices. Strong commercial loan pipelines suggest that the Company should be able to continue to grow the loan portfolio during the fourth quarter of 2012.


Table of Contents

Despite this growth in loans, total interest revenue dropped by $462,000 between years and reflects the lower interest rate environment and flatter yield curve. Interest revenue has also been negatively impacted by increased premium amortization on mortgage backed securities due to faster mortgage prepayment speeds. However, careful management of funding costs has allowed the Company to mitigate this drop in interest revenue during the past year. Specifically, interest expense in the third quarter of 2012 declined by $486,000 from the same prior year quarter due to the Company's proactive efforts to reduce deposit and borrowing costs. Even with this reduction in deposit costs, the Company still experienced solid growth in deposits which increased by $22.8 million or 2.8% over the past 12 months.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended September 30, 2012 and September 30, 2011 setting forth (i) average assets, liabilities, and stockholders' 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) the Company's 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) the Company's net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of these tables, loan balances do include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. Additionally, a tax rate of 34% is used to compute tax-equivalent yields.


Table of Contents

Three months ended September 30 (In thousands, except percentages)

                                                        2012                                       2011
                                                       Interest                                   Interest
                                         Average        Income/       Yield/        Average        Income/       Yield/
                                         Balance        Expense        Rate         Balance        Expense        Rate
Interest earning assets:
Loans and loans held for sale, net of
unearned income                         $ 701,104      $   8,814         4.95 %    $ 663,230      $   8,895         5.28 %
Interest bearing deposits                   5,265              2         0.17          9,861              4         0.16
Short-term investment in money market
funds                                       4,717              4         0.25          3,547              2         0.24
Federal funds sold                             -              -            -              -              -            -
Investment securities - AFS               173,094          1,108         2.56        189,481          1,499         3.16
Investment securities - HTM                14,380            109         3.03          9,747             99         4.06

Total investment securities               187,474          1,217         2.60        199,228          1,598         3.21

Total interest earning
assets/interest income                    898,560         10,037         4.43        875,866         10,499         4.77
Non-interest earning assets:
Cash and due from banks                    17,090                                     16,228
Premises and equipment                     11,019                                     10,535
Other assets                               81,526                                     79,342
Allowance for loan losses                 (13,167 )                                  (17,032 )

TOTAL ASSETS                            $ 995,028                                  $ 964,939

Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand                 $  63,321      $      30         0.19 %    $  59,099      $      35         0.24 %
Savings                                    86,373             42         0.19         83,280             64         0.30
Money markets                             216,644            220         0.40        193,921            272         0.56
Other time                                328,410          1,295         1.57        346,639          1,667         1.91

Total interest bearing deposits           694,748          1,587         0.91        682,939          2,038         1.18
Short-term borrowings:
Other short-term borrowings                 3,808              2         0.25            227              1         0.64
Advances from Federal Home Loan Bank        4,417             19         1.65          9,715             55         2.29

Guaranteed junior subordinated
deferrable interest debentures             13,085            280         8.57         13,085            280         8.57

Total interest bearing
liabilities/interest expense              716,058          1,888         1.05        705,966          2,374         1.34
Non-interest bearing liabilities:
Demand deposits                           150,844                                    134,767
Other liabilities                          16,467                                     11,634
Shareholders' equity                      111,659                                    112,572

TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY                                  $ 995,028                                  $ 964,939

Interest rate spread                                                     3.38                                       3.43
Net interest income/ Net interest
margin                                                     8,149        3.58  %                       8,125         3.68 %
Tax-equivalent adjustment                                     (7 )                                       (7 )

Net Interest Income                                    $   8,142                                  $   8,118

…..PROVISION FOR LOAN LOSSES..... Sustained improvements in asset quality evidenced by low levels of non-performing assets, net charge-offs, and classified loans allowed the Company to again reverse a portion of the allowance for loan losses into earnings in the third quarter of 2012 while still maintaining strong coverage ratios. At September 30, 2012, non-performing assets totaled $5.4 million or 0.77% of total loans. This represents the fifth consecutive quarter where non-performing assets have been near the $5 million level. Criticized and classified loans also


Table of Contents

dropped by $11 million or 20.7% during the past 12 months. Actual credit losses realized through net charge-offs have also declined in 2012. For the third quarter of 2012, net charge-offs totaled $288,000 or 0.16% of total loans which represents a decrease from the third quarter of 2011 when net charge-offs totaled $339,000 or 0.20% of total loans. As a result of this sustained asset quality improvement, the Company recorded a negative provision for loan losses of $200,000 in the third quarter of 2012 compared to a negative provision of $550,000 in the third quarter of 2011. When determining the provision for loan losses, the Company considers a number of factors some of which include periodic credit reviews, non-performing asset, loan delinquency and charge-off trends, concentrations of credit, loan volume trends and broader local and national economic trends. In summary, the allowance for loan losses provided 282% coverage of non-performing loans at September 30, 2012, compared to 288% of non-performing loans at December 31, 2011.

.....NON-INTEREST INCOME..... Non-interest income for the third quarter of 2012 totaled $3.6 million and increased $125,000, or 3.5%, from the third quarter 2011 performance. Factors contributing to this higher level of non-interest income in 2012 included:

* a $76,000 increase in gains realized on residential mortgage loan sales into the secondary market due to increased mortgage loan production in the third quarter of 2012. The lower long term interest rate environment, resulting from the Federal Reserve's interest rate policies, has contributed to increased mortgage purchase and refinance activity in 2012.

* a $159,000 increase in other income again reflecting higher revenue from residential mortgage banking activities such as underwriting and documentation preparation fees. Also, a $79,000 increase in revenue from financial services (annuity and mutual funds sales) was another item contributing to the higher level of other income in the third quarter of 2012.

* a $73,000 decrease in deposit service charges due to fewer customer overdraft fees reflecting regulatory changes in this area.

.....NON-INTEREST EXPENSE..... Non-interest expense for the third quarter of 2012 totaled $10.1 million and increased by $205,000, or 2.1%, from the prior year's third quarter. Factors contributing to the higher non-interest expense in 2012 included:

* a $430,000 increase in salaries and employee benefits expense due to higher salaries expense, incentive compensation and pension expense in the third quarter of 2012. The 2012 personnel expenses also reflect the staffing costs associated with new loan production offices in Altoona and Harrisburg, Pennsylvania, and Hagerstown, Maryland.

* a $158,000 decrease in FDIC deposit insurance expense due to a change in the calculation methodology which took effect in the second half of 2011 and the Company's improved risk profile resulting primarily from better asset quality.


Table of Contents

NINE MONTHS ENDED SEPTEMBER 30, 2012 VS. NINE MONTHS ENDED SEPTEMBER 30, 2011

…..PERFORMANCE OVERVIEW.....The following table summarizes some of the Company's
key performance indicators (in thousands, except per share and ratios).



                                              Nine months ended               Nine months ended
                                             September 30, 2012              September 30, 2011
Net income                                   $             4,304             $             4,767
Net income available to common
shareholders                                               3,528                           3,648
Diluted earnings per share                                  0.18                            0.17
Return on average assets
(annualized)                                                0.59 %                          0.66 %
Return on average equity
(annualized)                                                5.15 %                          5.81 %

For the nine month period ended September 30, 2012, the Company reported net income of $4,304,000 and net income available to common shareholders of $3,528,000 or $0.18 per diluted common share. While net income available to common shareholders was down by $120,000 or 3.3%, diluted earnings per share increased by $0.01 or 5.9% due to the success of the Company's common stock repurchase program. Specifically, during the first nine months of 2012, the Company repurchased 1,667,000 shares or 8.0% of its outstanding common stock at an average price of $2.49 in conjunction with the terms of its previously announced common stock repurchase program. The improvements in asset quality continued to result in a credit provision for loan losses in the first nine months of 2012, but at a lesser level than in the first nine months of 2011. The Company's 2012 net income was also negatively impacted by a modest reduction in net interest income and a controlled 2.0% increase in non-interest expense. These negative items were partially offset by sharply higher non-interest income and reduced income tax expense in the first nine months of 2012.

.....NET INTEREST INCOME AND MARGIN.....The following table compares the Company's net interest income performance for the first nine months of 2012 to the first nine months of 2011 (in thousands, except percentages):

                                 Nine months ended             Nine months ended
                                September  30, 2012           September  30, 2011          $ Change           % Change
Interest income                $              30,039         $              31,618         $  (1,579 )             (5.0 )%
Interest expense                               5,918                         7,448            (1,530 )            (20.5 )

Net interest income            $              24,121         $              24,170         $     (49 )             (0.2 )

Net interest margin                             3.63 %                        3.70 %           (0.07 )              N/M

N/M - not meaningful

The Company's net interest income in the first nine months of 2012 decreased modestly by $49,000 or 0.2%, when compared to the first nine months of 2011. The first nine months 2012 net interest margin of 3.63% was down seven basis points when compared to the 3.70% net interest margin for last year's first nine months. The decreased net interest income and net interest margin in 2012 reflects the challenges of a lower interest rate environment and flatter yield curve which has caused interest revenue to decrease to a greater extent than interest expense. The Company currently expects this net interest margin pressure to persist in the fourth quarter of 2012 and into 2013 given the Federal Reserve announcement of the Quantitative Easing 3 Program. Additionally, in September 2012, the Federal Reserve announced that it anticipates that exceptionally low interest rates will be maintained at least through mid-2015.


Table of Contents

…..COMPONENT CHANGES IN NET INTEREST INCOME..… Regarding the separate components of net interest income, the Company's total interest income for the first nine months of 2012 decreased by $1.6 million or 5.0% when compared to the same 2011 period. This decrease was due to a 32 basis point decline in the earning asset yield to 4.53%. Within the earning asset base, the yield on the total loan portfolio decreased by 31 basis points to 5.08% while the yield on total investment securities dropped by 49 basis points to 2.75%. In the current interest rate environment, new investment securities and loans that are being booked typically have yields that are below the rate on the maturing instruments that they are replacing. Despite a $21 million or 3.1% increase in total average loans, total loan interest revenue dropped by $692,000 between years and reflects the impact of this lower interest rate environment. Investment securities interest revenue has also been negatively impacted by increased premium amortization on mortgage backed securities of $336,000 due to faster mortgage prepayment speeds.

The Company's total interest expense for the first nine months of 2012 decreased by $1.5 million or 20.5% when compared to the same 2011 period. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 29 basis points to 1.12%. Management's decision to further reduce interest rates paid on all deposit categories has not had a negative impact on deposit growth as consumers and businesses have sought the safety and liquidity provided by well capitalized banks like AmeriServ Financial. Even with this reduction in deposit costs, the Company still experienced solid growth in deposits which increased by $22.8 million or 2.8% over the past 12 months. The Company continues to maintain strong liquidity as evidenced by a loan to deposit ratio of 83.1% at September 30, 2012.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the nine month periods ended September 30, 2012 and September 30, 2011. For a detailed discussion of the components and assumptions . . .

  Add ASRV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ASRV - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.