Ameriserv Financial Inc. a financial holding company is the parent of Ameriserv Financial and AmeriServ Trust & Financial Services in Johnstown Standard Mortgage Corporation in Atlanta AmeriServ Associates of State College and AmeriServ Life Insurance Company in Arizona. Ameriserv Financial Inc. has a market cap of $34.3 million; its shares were traded at around $1.62 with and P/S ratio of 0.6.
Highlight of Business Operations:AmeriServ reported a net loss of $2.8 million or $0.15 per share for the third quarter and a net loss of $3.2 million or $0.19 per share for the first nine months of 2009. This was caused primarily by a material provision to our loan loss reserve. Specifically, it reflected the performance of two major shared credits, one an industrial company and one in the restaurant business, as well as performance downgrades of other commercial borrowers. It continues to be our policy to provide specific loan reserves in a very disciplined, realistic way whenever we believe the situation so demands. Experience has taught us that the way to survive in times such as these is to work closely with our borrowers to help them find an appropriate course of action, but to also build reserves sufficiently in the event that no solution can be found. In these troubled times, it is the strong capital and the conservative balance sheet which AmeriServ maintains that makes such necessary actions possible.
The Company reported a net loss of $2.8 million or $0.15 loss per diluted common share for the third quarter of 2009. This represents a decrease of $4.0 million from the third quarter 2008 net income of $1.1 million or $0.05 per diluted common share. An increased provision for loan losses and higher non-interest expense were the primary factors causing the decline in earnings between periods. We appropriately increased our allowance for loan losses to respond to deterioration in asset quality evidenced by higher levels of nonperforming assets and classified loans as the continued recessionary economic environment is clearly impacting our commercial borrowers. This higher provision for loan losses more than offset increased net interest income that resulted from solid loan and deposit growth within our retail bank. Diluted earnings per share also declined by the preferred dividend requirement on the CPP preferred stock in 2009, which amounted to $263,000 and increased the amount of the net loss available to common shareholders.
The Companys net interest income in the third quarter of 2009 increased by $694,000 or 9.6% from the prior years third quarter while the net interest margin declined by two basis points to 3.57% over the same comparative period. The increased net interest income in 2009 resulted from the Companys ability to generate a relatively stable net interest margin on a larger earning asset base. Specifically, total loans averaged $730 million in the third quarter of 2009, an increase of $92 million or 14.5% over the third quarter of 2008. The loan growth was driven by increased commercial real-estate loan production as the majority of increased residential mortgage loan production has been sold into the secondary market. The Companys strong liquidity position has been supported by total deposits that averaged $785 million in the third quarter of 2009, an increase of $87 million or 12.5% over the same 2008 quarter. We believe that uncertainties in the financial markets and the economy have contributed to growth in money market accounts, time deposits, and demand deposits as consumers have looked for safety in well capitalized community banks like AmeriServ Financial. Additionally, the Company also benefitted from a favorable decline in interest expense caused by the more rapid downward repricing of both deposits and FHLB borrowings due to the market decline in short-term interest rates. When the Companys third quarter 2009 net interest margin of 3.57% is compared to the more recent second quarter 2009 net interest margin of 3.66%, the nine basis point decline was due primarily to the reduced interest revenue on a higher level of non-accrual loans.
..PROVISION FOR LOAN LOSSES..... The Company appropriately strengthened its allowance for loan losses in the third quarter and first nine months of 2009 in response to deterioration in asset quality. Specifically, non-performing assets increased by $9.0 million from $14.7 million or 1.98% of total loans at June 30, 2009 to $23.7 million or 3.28% of total loans at September 30, 2009. (See the loan quality section of this MD&A for more specific discussion on the credits causing the increase.) As a result of this asset quality deterioration, the Company recorded a $6.3 million provision for loan losses in the third quarter of 2009 compared to a $775,000 provision in the third quarter of 2008, or an increase of $5.5 million. When determining the provision for loan losses, the Company considers a number of factors, some of which include periodic credit reviews, non-performing, delinquency and charge-off trends, concentrations of credit, loan volume trends and broader local and national economic trends. In addition to the higher level of non-performing loans, the increased loan loss provision in 2009 was also caused by the Companys decision to strengthen its allowance for loan losses due to the downgrade of the rating classification of several performing commercial loans and uncertainties in the local and national economies. The Companys net charge-offs in the third quarter of 2009 amounted to $651,000 or 0.35% of total loans. This amount was higher than the net charge-offs of $61,000 or 0.04% of total loans experienced in the third quarter of 2008. Overall, the allowance for loan losses provided 94% coverage of non-performing loans and was 2.66% of total loans at September 30, 2009 compared to 264% of non-performing loans and 1.26% of total loans at December 31, 2008.
The Company reported a net loss of $3.2 million or $0.19 per diluted common share for the first nine months of 2009. This represents a decrease of $7.1 million from the first nine months of 2008 net income of $3.9 million or $0.18 per diluted common share. Diluted earnings per share declined more significantly than net income due to the preferred dividend requirement on the CPP preferred stock in 2009, which amounted to $785,000 and reduced the amount of net income available to common shareholders. An increased provision for loan losses, reduced non-interest income, and higher non-interest expenses were the main factors causing the decrease in net income in 2009. These negative items more than offset good growth in net interest income due to increased loans outstanding and effective balance sheet management in a declining interest rate environment.
The Companys net interest income in the first nine months of 2009 increased by $3.3 million or 15.8% from the prior years first nine months and the net interest margin rose by 16 basis points to 3.65% over the same comparative period. The increased net interest income and margin resulted from a combination of good balance sheet growth and the pricing benefits achieved from a steeper positively sloped yield curve. Specifically, total loans averaged $726 million in the first nine months of 2009, an increase of $94 million or 14.8% over the first nine months of 2008. Total deposits averaged $756 million in the first nine months of 2009, an increase of $58 million or 8.3% over the same 2008 period. The Company also benefitted from the cost of funds declining at a faster pace than the earning asset yield in 2009. Specifically, effective balance sheet management strategies caused the cost of funds to decrease by 79 basis points, while the earning asset yield dropped by only 48 basis points.
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