AmeriServ Financial Inc. Reports Operating Results (10-Q)
Ameriserv Financial Inc. has a market cap of $38.9 million; its shares were traded at around $1.83 with and P/S ratio of 0.7. ASRV is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: Considering the difficulties of these times, AmeriServ reported for the second quarter 2010 net income of $477,000 or $ 0.01 per share. This represented a substantial turnaround from the 2010 first quarter loss of $918,000 or $ 0.06 per share. While this means that for the first six months of the year 2010, AmeriServ has now reported a net loss of $441,000 or $0.05 per share, it also means that after four consecutive quarters of losses AmeriServ has returned to profitability. We do believe that this bottom line turnaround of $1.4 million from first quarter to second quarter is an indication that our heightened vigilance is having a positive effect. But please understand that this welcome return to profitability has not led to any celebrations or any relaxation of our vigilance. We will spend our days attempting to build on top of this turnaround quarter.
The Company reported second quarter 2010 net income of $477,000 or $0.01 per diluted common share. This represents an increase of $1.4 million from the second quarter 2009 net loss of $939,000 or $0.06 per diluted common share. Stabilization in our asset quality allowed us to record a lower provision for loan losses which was an important factor causing the increase in earnings between periods. Diluted earnings per share were impacted by the preferred dividend requirement on the CPP preferred stock which amounted to $262,000 and reduced the amount of net income available to common shareholders.
The Companys net interest income in the second quarter of 2010 was comparable with the prior year second quarter as it increased by only $37,000 or 0.5%. The Companys second quarter 2010 net interest margin of 3.83% was 17 basis points better than the 2009 second quarter margin of 3.66% and five basis points better than the more recent first quarter 2010 net interest margin of 3.78%. The improved margin performance and stable level of net interest income is reflective of the Companys strong liquidity position and its ability to reduce its funding costs during a period of deposit growth. Specifically, total deposits averaged $802 million in the second quarter of 2010, an increase of $34 million or 4.4% over the second quarter of 2009. The Company believes that uncertainties in the economy have contributed to growth in money market accounts, certificates of deposit and demand deposits as consumers and businesses have looked for safety in well capitalized community banks like AmeriServ Financial. The net interest margin also benefitted from approximately $150,000 in loan prepayment penalties in 2010 as the Company has focused on reducing its commercial real estate exposure during this period of economic weakness. Overall, total average loans outstanding have dropped by $29 million or 4.0% since December 31, 2009. We believe that this declining loan trend will continue and it will have a negative impact on the net interest margin in the second half of 2010.
The Company's total interest expense for the second quarter of 2010 decreased by $642,000 or 16.5% when compared to the same 2009 quarter. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 31 basis points to 1.82%. Managements decision to reduce interest rates paid on all deposit categories has not had any negative impact on deposit growth as consumers have sought the safety provided by well-capitalized community banks like AmeriServ Financial. This decrease in funding costs was aided by a drop in interest expense associated with a $19.5 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $45.7 million, but was partially offset by a $26.2 million increase in interest bearing deposits. Additionally, the Companys funding mix also benefited from a $7.8 million increase in non-interest bearing demand deposits. Overall, in the second quarter of 2010 the Company had the discipline to further reduce its use of borrowings as a funding source as wholesale borrowings averaged only 2.1% of total assets.
The Company recorded a $1.2 million provision for loan losses in the second quarter of 2010 compared to a $3.3 million provision in the second quarter of 2009, or a decrease of $2.1 million. For the second quarter 2010, net charge-offs amounted to $2.0 million or 1.13% of total loans compared to net charge-offs of $355,000 or 0.19% of total loans for the second quarter 2009. The higher net charge-offs in the second quarter of 2010 relate primarily to a $1.8 million charge-down of a non-performing student housing project which we currently expect to resolve through a note sale during the second half of 2010. The original balance of this loan was $5 million. Overall, during the second quarter, total non-performing assets declined modestly to $19.8 million or 2.85% of total loans. In summary, the allowance for loan losses provided 108% coverage of non-performing loans at June 30, 2010 compared to 115% coverage of non-performing loans at December 31, 2009.
The Company reported for the first six months of 2010 a net loss of $441,000 or $0.05 per diluted common share which was comparable with the net loss of $406,000 or $0.04 per diluted common share reported for the first six months of 2009. The benefit of a lower loan loss provision in 2010 was offset by higher non-interest expense and a reduced amount of non-interest income. Diluted earnings per share also declined by the preferred dividend requirement on the CPP preferred stock which amounted to $525,000 and increased the amount of the net loss available to common shareholders.
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