AmeriServ Financial Inc. Reports Operating Results (10-Q)
Ameriserv Financial Inc. has a market cap of $34.1 million; its shares were traded at around $1.61 with and P/S ratio of 0.6. ASRV is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: On October 19th AmeriServ announced its financial results for the third quarter of 2010. Net income was reported at $609,000 or $0.02 per share. This performance is well above the loss of $2,810,000 in the third quarter of 2009, but perhaps more importantly, it represents an increase of $132,000 or 28% above the second quarter of 2010. This performance means that AmeriServ, as a company, is now profitable for the year 2010 as is AmeriServ Financial Bank and AmeriServ Trust and Financial Services Company. We were encouraged by the continuation in the quarter of a strong net interest margin which kept net interest income relatively stable. Non-interest income was at the highest level since the second quarter of 2008. Our retail bankers were especially pleased to see our customers continue to add to the deposits they entrust to us. In 2010 alone our deposit totals have increased by over $32 million.
The Company reported third quarter 2010 net income of $609,000 or $0.02 per diluted common share. This represents an increase of $3.4 million from the third quarter 2009 net loss of $2.8 million or $0.15 per diluted common share. A lower provision for loan losses was an important factor causing the increase in earnings between periods. Proactive monitoring of our asset quality has allowed us to carefully adjust downward the provision for loan losses for four consecutive quarters while still maintaining solid loan loss reserve coverage ratios. The third quarter of 2010 also benefitted from modest increases in net interest income and non-interest income which helped offset an increase in non-interest expense. Diluted earnings per share were impacted by the preferred dividend requirement on the CPP preferred stock which amounted to $263,000 and reduced the amount of net income available to common shareholders.
The Companys net interest income improved modestly in the third quarter of 2010 increasing by $98,000 or 1.2%. The Companys third quarter 2010 net interest margin of 3.70% was also 13 basis points better than the 2009 third quarter margin of 3.57%. This improved performance 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 $814 million in the third quarter of 2010, an increase of $29 million or 3.7% over the third 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. Interest income has dropped as total loans outstanding have declined by $24 million or 3.3% since December 31, 2009 as we have focused on reducing our commercial real estate exposure during this period of economic weakness. We believe that this declining loan trend will continue and it will have a negative impact on the net interest margin and net interest income in the fourth quarter of 2010.
The Company's total interest expense for the third quarter of 2010 decreased by $736,000 or 19.5% 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 38 basis points to 1.68%. 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 $10.7 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $29.0 million, but was partially offset by an $18.3 million increase in interest bearing deposits. Additionally, the Companys funding mix also benefited from a $10.6 million increase in non-interest bearing demand deposits. Overall, in the third quarter of 2010 the Company had the discipline to further reduce its use of borrowings as a funding source as wholesale borrowings averaged only 1.5% of total assets.
The Company recorded a $1.0 million provision for loan losses in the third quarter of 2010 compared to a $6.3 million provision in the third quarter of 2009, or a decrease of $5.3 million. For the third quarter 2010, net charge-offs amounted to $984,000 or 0.56% of total loans compared to net charge-offs of $651,000 or 0.35% of total loans for the third quarter 2009. The higher net charge-offs in the third quarter of 2010 relate largely to an additional $535,000 charge-down of a non-performing student housing project which we are striving to resolve through a note sale by the end of 2010. Overall, during the third quarter, total non-performing assets increased by $5.7 million to $25.5 million or 3.64% of total loans as certain commercial borrowers continue to be impacted by the weak economy. Of the total $5.7 million increase, $3.5 million relates to three commercial real estate loans that are each current on their payments but we still elected to transfer to non-performing status given our concern on the borrowers ultimate ability to service the debt. In summary, the allowance for loan losses provided 84% coverage of non-performing loans at September 30, 2010 compared to 115% coverage of non-performing loans at December 31, 2009.
The Company reported for the first nine months of 2010 net income of $168,000 or $0.03 loss per diluted common share which was a significant improvement over the net loss of $3.2 million or $0.19 per diluted common share reported for the first nine months of 2009. The benefit of a lower loan loss provision and higher net interest income caused the earnings improvement in 2010. These positive items were partially offset by increased 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 $788,000 and reduced the amount of net income available to common shareholders.
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