Item 2.02 Results of operation and financial condition.
AMERISERV FINANCIAL, Inc. (the "Registrant") announced fourth quarter and full
year 2020 results through December 31, 2020. For a more detailed description of
the announcement see the press release attached as Exhibit 99.1.
Item 8.01 Other events.
On January 26, 2021, the Registrant issued a press release announcing that its
Board of Directors declared a $0.025 per share quarterly common stock cash
dividend. The cash dividend is payable February 22, 2021 to shareholders of
record on February 8, 2021. The press release, attached hereto as Exhibit 99.1,
is incorporated herein.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
99.1 Press release dated January 26, 2021, announcing fourth quarter and full
year 2020 earnings through December 31, 2020 and quarterly common stock cash
dividend.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERISERV FINANCIAL, Inc.
By /s/Michael D. Lynch
Michael D. Lynch
SVP & CFO
Date: January 26, 2021
Exhibit 99.1
AMERISERV FINANCIAL REPORTS EARNINGS FOR THE FOURTH QUARTER AND FULL YEAR OF
2020 AND ANNOUNCES QUARTERLY COMMON STOCK CASH DIVIDEND
JOHNSTOWN, PA - AmeriServ Financial, Inc. (NASDAQ: ASRV) reported fourth quarter
2020 net income of $692,000, or $0.04 per diluted common share. This earnings
performance represents a $23,000, or 3.4%, increase from the fourth quarter of
2019 when net income totaled $669,000, or $0.04 per diluted common share. For
the year ended December 31, 2020, the Company reported net income of $4,598,000,
or $0.27 per diluted common share. This represents a 22.9% decrease in earnings
per share from the full year of 2019 when net income totaled $6,028,000, or
$0.35 per diluted common share. The following table highlights the Company's
financial performance for both the three and twelve month periods ended December
31, 2020 and 2019.
Fourth Fourth Year Ended Year Ended
Quarter Quarter December 31, 2020 December 31, 2019
2020 2019
Net income $692,000 $669,000 $4,598,000 $6,028,000
Diluted earnings per share $ 0.04 $ 0.04 $ 0.27 $ 0.35Jeffrey A. Stopko, President and Chief Executive Officer, commented on the 2020
financial results: "The resiliency of our community bank customer-focused
business model was evident in 2020 as we dealt with the many unexpected
challenges resulting from the COVID-19 pandemic. We experienced record levels
of both loans and deposits as we served as an important financial resource to
small businesses and consumers in our marketplace. As a result of our
conservative risk management posture, we prudently built our allowance for loan
losses to address increased credit risk in certain sectors of our loan portfolio
which was a primary factor causing the decline in earnings between years. The
good diversification of our revenue was evident as 31% of our total revenue in
2020 came from non-interest income sources which included record contributions
from our strong wealth management business and active residential mortgage
operation. Overall, we enter 2021 with a strong balance sheet that we believe
will be further enhanced with additional deposits within our core markets when
we close a profitable branch acquisition in Somerset County that we previously
announced."
The Company's net interest income in the fourth quarter of 2020 increased by
$392,000, or 4.4%, from the prior year's fourth quarter and, for the full year
of 2020, increased by $925,000, or 2.6%, when compared to the full year of 2019.
The Company's net interest margin of 3.12% for the fourth quarter of 2020 and
3.19% for the full year of 2020 was 14 basis points lower than last year's
fourth quarter results and was 10 basis points lower when compared to the full
year of 2019. Fourth quarter 2020 results were indicative of the low interest
rate environment and the continued slow economic recovery currently being
experienced due to the uncertainty and volatility resulting from the pandemic.
COVID-19 cases increased during the quarter leading to government officials
recommending and re-implementing certain safety measures and restrictions on
businesses and individuals. As a result, AmeriServ once again closed our
lobbies to customer traffic, but continued to service our customers through
drive up access. Despite these pandemic related challenges, our balance sheet
experienced robust growth in 2020 which caused the increase in net interest
income despite the decline in the net interest margin due to pressures from the
low interest rate environment. The increase to net interest income along with a
higher level of non-interest income was more than offset by an increased loan
loss provision and higher non-interest expense resulting in a lower earnings
performance for the full year of 2020.
Specifically, our loan portfolio benefitted from the increasing commercial loan
production that began late in the third quarter and continued throughout the
fourth quarter. We also continued to experience strong residential mortgage
loan production. This commercial real estate and residential mortgage loan
growth combined with AmeriServ's early participation in the Small Business
Administration's (SBA) 100% guaranteed Paycheck Protection Program (PPP) and the
impact of other government sponsored initiatives resulted in a higher level of
both loans and deposits which remained on the balance sheet throughout the year.
Overall, the average balance of total interest earning assets for both the
fourth quarter of 2020 and the full year time periods is higher compared to the
same time periods in 2019. Significantly contributing to the loan growth in
2020 was the addition of the PPP loans to the balance sheet. The level of PPP
loans did decrease by approximately $10 million since the end of the third
quarter of 2020 as we work through the forgiveness process with our customers.
Similar to the record level of total loans that we have experienced, total
deposits are also at record levels. Both non-interest and interest bearing
deposits increased since last year primarily because of government stimulus and
consumers changing their spending habits because of the pandemic. The low
interest rate environment is positively impacting deposit and borrowings
interest expense cost. Effective management of our funding costs along with the
downward repricing of certain interest bearing liabilities tied to market
indices resulted in total interest expense decreasing nicely between years.
This decrease to total interest expense more than offset the decrease in total
interest income resulting in the increase to net interest income for both the
fourth quarter and full year of 2020.
Total loans reached a new record level and averaged $970 million in the fourth
quarter of 2020 which is $93.3 million, or 10.6%, higher than the $877 million
average for the fourth quarter of 2019, while total average loans for the full
year of 2020 were $48.1 million, or 5.5%, higher than the 2019 full year
average. Contributing to the growth in total average loans was the Company's
participation in the PPP program, robust residential mortgage loan production
and the return of more normal commercial loan growth later in the year. During
2020, the Company processed 477 PPP loans totaling $68.7 million to assist small
businesses and our community in this difficult economy. Also, the Company
recorded a total of $1.9 million of processing fee income and interest income
from PPP lending activity. The remaining portion of PPP processing fees totals
approximately $755,000 and is being amortized into income over the time period
that the loans remain on our balance sheet or until the PPP loan is forgiven at
which time the remaining fee will be recognized immediately as income. In late
December 2020, the Federal Government passed a new $900 billion pandemic relief
bill which includes $284.5 billion for the re-opening of the SBA Paycheck
Protection Program. The Company will again assist our business customers and
participate in the program in 2021.
Normal commercial lending production improved during the final four months of
the year with commercial loan pipelines also improving to pre-COVID levels.
Overall, on an end of period basis and excluding total PPP loans, the total
loan portfolio grew by approximately $39.1 million since September 30, 2020.
Residential mortgage loan production continued to be exceptionally strong and
reached a record level given the lower interest rate environment. For the full
year of 2020, residential mortgage loan production totaled $142 million and was
139% higher than the production level of $60 million achieved for the full year
of 2019. Even though total average loans increased compared to the same time
periods last year and loan interest income was enhanced by the PPP revenue, loan
interest and fee income decreased by $660,000, or 6.1%, for the quarter and also
declined by $2.3 million, or 5.4%, for the full year. The lower loan interest
income reflects the challenges that this record low interest rate environment
has created. New loans are being originated at lower yields and certain loans
tied to LIBOR or the prime rate reprice downward as both of these indices have
moved down with the Federal Reserve's decision to decrease the target federal
funds interest rate by a total of 225 basis points since June of 2019. The
Company remains committed to continue working prudently with our borrowers that
have been negatively impacted from the effects of this difficult economy. In
2020, the Company, as suggested by the Federal Reserve, granted loan payment
modifications to customers experiencing difficulty during this tough economic
time. Requested modifications primarily consist of the deferral of principal
and/or interest payments for a period of three to six months and maturity date
extensions. Initially, the balance of loan modifications related to COVID-19
that were granted to our customers totaled $200 million. At December 31, 2020,
70 loans for approximately $49.1 million, or 5.0% of total loans, were on a
payment modification plan, most of which are borrowers who were granted a second
loan payment deferral. Management is carefully monitoring asset quality with a
particular focus on customers that have requested these payment deferrals. As
we reached the end of the initial deferral time periods, deferral extension
requests were considered based upon the customer's needs and their impacted
industry, borrower and guarantor capacity to service debt as well as issued
regulatory guidance.
Total investment securities averaged $188 million for the full year of 2020
which is $6.2 million, or 3.2%, lower than the $194 million average for 2019.
The Company was selective in 2020 when purchasing the more typical types of
securities that have been purchased historically as the market was less
favorable for purchases, offering a lower return given the differences in the
position and shape of the U.S. Treasury yield curve from last year. To somewhat
offset the unfavorable market for the more traditional types of purchases, the
Company has been active since March purchasing corporate securities,
particularly subordinated debt issued by other financial institutions along with
taxable municipal securities. Subordinated debt offers higher yields than the
typical types of securities in which we invest and is particularly attractive
given the current low interest rate environment and flat shape of the yield
curve. Management believes it to be acceptable to increase our investments in
bank subordinated debt in a gradual and diversified manner, given the heavily
regulated nature of the industry combined with our intensive due diligence
process and adherence to our internal guidelines for these types of investments.
Our liquidity position continues to be strong due to the significant influx of
deposits that resulted from the government stimulus programs and as customers
continue to be cautious and are demonstrating reduced spending activity due to
the economic uncertainty. As described in our third quarter earnings release,
average short-term investments were higher than they have been historically
which presented the challenge of profitably deploying this excess liquidity
given a steady decline in yields on short term investment products as 2020
progressed. The pressure to find a suitable return on these excess liquid funds
eased during the fourth quarter given the loan growth that occurred. Due to the
loan growth, short term investment balances returned to a more normal, lower
level in the fourth quarter of 2020. Interest income on total investments
decreased between the full year of 2020 and full year of 2019 by $580,000, or
8.5%. Overall, total interest income on loans and investments decreased by $2.9
million, or 5.8%, between years.
Total interest expense for the full year of 2020 decreased by $3.8 million, or
26.6%, when compared to 2019, due to lower levels of both deposit and borrowing
interest expense. Deposit interest expense in the full year of 2020 was lower
by $3.6 million, or 31.8%. Total average deposits, again, reached a record
level, averaging $1.067 billion for the quarter, which is $82.4 million, or
8.4%, higher than the 2019 fourth quarter average reflecting the benefit of
government stimulus programs and reduced consumer spending in 2020. In
addition, the Company's loyal core deposit base continues to be a source of
strength for the Company during periods of market volatility. Management
continued to effectively execute several deposit product pricing decreases given
the low interest rate environment and the downward pressure that the low
interest rates are having on the net interest margin. As a result, the Company
experienced deposit cost relief. Overall, total deposit cost, including demand
deposits, averaged 0.59% in the fourth quarter of 2020 compared to 1.09% in the
fourth quarter of 2019 or a meaningful decrease of 50 basis points. The
Company's loan to deposit ratio averaged 90.9% in the fourth quarter of 2020
which we believe indicates that the Company has ample capacity to continue to
grow its loan portfolio and is well positioned to continue assisting our
customers and the community given the impact that the COVID-19 pandemic is
having on the economy.
The Company experienced a $255,000, or 8.1%, decrease in the interest cost of
borrowings in the full year of 2020 when compared to the full year of 2019. The
decline is a result of the Federal Reserve's actions to decrease interest rates
and the impact that these rate decreases have on the cost of overnight borrowed
funds and the replacement of matured FHLB term advances. The total 2020 full
year average term advance borrowings balance increased by approximately $11.7
million, or 22.4%, when compared to the full year of 2019 as the Company took
advantage of the lower yield curve to prudently extend borrowings. The rate on
certain FHLB term advances is lower than the rate on overnight borrowings. As a
result, the combined growth of average FHLB term advances and total average
deposits resulted in less reliance on overnight borrowed funds, which decreased
between years by $6.1 million. Overall, the 2020 full year average of total
short-term and FHLB borrowed funds was $69.0 million, which represents an
increase of $5.6 million, or 8.8%, from 2019.
The Company recorded a $1,075,000 provision expense for loan losses in the
fourth quarter of 2020 as compared to a $975,000 provision expense recorded in
the fourth quarter of 2019. For the full year of 2020, the Company recorded a
$2,375,000 provision expense for loan losses compared to an $800,000 provision
expense recorded in the full year of 2019. The Company continues to build the
allowance for loan losses given the overall economic climate and the uncertainty
that exists because of the COVID-19 pandemic. The 2020 provision reflects
management strengthening certain qualitative factors within the allowance for
loan losses calculation and downgrades of loan relationships that are reflective
of the industries that have been especially negatively impacted from the
pandemic and are demonstrating a slow pace of recovery. Earlier this year,
several loans from the hotel industry were downgraded. The downgrade of a
hospitality related credit and a large transportation related credit, as well as
the loan growth experienced during the fourth quarter also resulted in the
provision increasing between the third and fourth quarters of 2020. The
recovery efforts of many of these borrowers experiencing a downgrade stalled
during the fourth quarter due to the rise in COVID cases which caused additional
safety measures and restrictions to be put in place on their businesses. While
these borrowers will need additional time to recover, we remain encouraged by
their efforts to work through the pandemic and signs of improvement in their
operations. The Company experienced low net loan charge-offs of $309,000, or
0.03% of total loans, in 2020 compared to net loan charge-offs of $192,000, or
0.02% of total loans, for 2019. As a result of the provision expense sharply
exceeding net loan charge-offs, the balance in the allowance for loan losses
increased by over $2 million in 2020. Non-performing assets totaled $3.3
million, or 0.34% of total loans, at December 31, 2020, and are below industry
levels. As mentioned previously, management is carefully monitoring asset
quality with a particular focus on loan customers that have requested a second
payment deferral during this difficult economic time. The Asset Quality Task
Force is meeting at least monthly to review these particular relationships,
receiving input from the business lenders regarding their ongoing discussions
with the borrowers. In summary, the allowance for loan losses provided 341%
coverage of non-performing assets, and 1.16% of total loans, at December 31,
2020, compared to 397% coverage of non-performing assets, and 1.05% of total
loans, at December 31, 2019. Note that the reserve coverage of total loans,
excluding PPP loans, is 1.23%(1) at December 31, 2020. The Small Business
Administration guarantees 100% of the PPP loans made to eligible borrowers which
minimizes the level of credit risk associated with these loans.
Total non-interest income in the fourth quarter of 2020 increased by $956,000,
or 28.0%, from the prior year's fourth quarter, and increased by $1,502,000, or
10.2%, for the full year of 2020 when compared to the full year of 2019. A
significant factor contributing to the improvement in both time periods was the
Company recognizing a $500,000 impairment charge on a Community Reinvestment Act
(CRA) related investment in 2019 and there was no charge in 2020 since the full
investment was written off last year. The more normal types of activity between
years included: income from residential mortgage loan sales into the secondary
market increased by $153,000, or 52.6%, for the quarter and increased by
$658,000, or 76.1%, for the full year due to the record level of residential
mortgage loan production. The higher level of residential mortgage loan
production also resulted in mortgage related fees increasing by $43,000, or
51.2%, for the quarter and by $257,000, or 85.1%, for the full year. Wealth
management fees increased by $99,000, or 4.0%, in the fourth quarter of 2020 and
by $482,000, or 5.0%, for the full year of 2020 compared to the same time
periods in 2019. In addition to an improved level of fee income from the
financial services business unit, the entire wealth management division has been
resilient and performed well in spite of the major market value decline that
occurred in late March. The market value of wealth management assets recovered
and improved from the pre-pandemic valuation, exceeding the March 31, 2020
market value by 25% and also exceeding the market value as of December 31, 2019
by 11%. Revenue from bank owned life insurance increased by $211,000 for the
quarter and $261,000 for the full year due to the receipt of a $91,000 death
claim and a financial floor taking hold which caused increased earnings and a
higher rate of return on certain policies. Somewhat offsetting these favorable
items was service charges on deposit accounts decreasing by $88,000, or 27.2%,
for the quarter and by $368,000, or 29.0%, for the full year. Consumer spending
activity-based fees such as deposit service charges, which include overdraft
fees, decreased significantly with the shutdown of the economy and has been slow
to improve given the pace of the economic recovery. Finally, the Company did
not recognize a gain or loss on security sales in 2020 after a $118,000 gain was
recognized last year.
The Company's total non-interest expense in the fourth quarter of 2020 increased
by $1.1 million, or 10.8%, when compared to the fourth quarter of 2019 and
increased for the full year of 2020 by $2.6 million, or 6.3%, when compared to
2019. The increase in both time periods was partly due to higher salaries &
benefits expense of $773,000, or 12.0%, for the quarter and $2.0 million, or
7.7%, for the full year of 2020. Within salaries & benefits, factors causing
the increase included increased health care costs ($95,000, or 12.4%, for the
quarter and $424,000, or 13.9%, for the full year) and greater incentive
compensation ($316,000, or 114.5%, for the quarter and $645,000, or 57.9%, for
the full year) primarily due to commissions earned as a result of increased
residential mortgage loan production. Additionally, pension expense increased
by $59,000, or 12.3%, for the quarter and $506,000, or 30.4%, for the full year
when 2020 is compared to 2019. The significant increase between years results
from the unfavorable impact that the lower interest rate environment has on the
discount rates that are used to revalue the defined benefit pension obligation
each year. Total salaries are also higher by $341,000, or 7.6%, for the quarter
and by $625,000, or 3.5%, for the year primarily due to separation costs related
to the elimination of a management position and merit increases. Total
professional fees increased by $121,000, or 9.8%, in the fourth quarter of 2020
and by $334,000, or 6.8%, for the year. The increase results from higher
appraisal fees due to the significantly higher level of residential mortgage
loan production, higher legal fees related to PPP loan processing, personnel
related matters and an increased level of outside professional services related
costs. FDIC deposit insurance expense is $245,000 higher for the quarter and
$381,000 higher for the year as this line returned to a more normal level after
the benefit from the application of the Small Bank Assessment Credit regulation
expired earlier this year. Finally, and slightly offsetting the higher year
over year expenses was other expense comparing favorably to 2019 by $98,000, or
1.3%, for the full year due to reduced outside processing fees and telephone
costs as well as a lower level of meals & travel costs that is related to travel
restrictions from the pandemic. The favorable comparison for other expense also
resulted from a reduction recognized earlier in the year for the unfunded
commitment reserve.
The Company recorded an income tax expense of $248,000, or an effective tax rate
of 26.4%, in the fourth quarter of 2020. This compares to an income tax expense
of $169,000, or an effective tax rate of 20.2%, for the fourth quarter of 2019.
The higher effective tax rate and income tax expense in the fourth quarter of
2020 reflected the recognition of additional income tax expense due to the
write-off of a deferred tax asset that will not be realized due to the
dissolution of the Company's small life insurance subsidiary. Overall, for the
full year of 2020, the Company recorded income tax expense of $1.2 million, or
an effective tax rate of 20.9%, compared to income tax expense of $1.6 million
in 2019, or an effective tax rate of 20.7%.
The Company had total assets of $1.28 billion, shareholders' equity of $104.4
million, a book value of $6.12 per common share and a tangible book value(1) of
$5.42 per common share at December 31, 2020. Tangible book value increased by
$0.34 since December 31, 2019. The Company continued to maintain strong capital
ratios that exceed the regulatory defined well capitalized status.
QUARTERLY COMMON STOCK CASH DIVIDEND
The Company's Board of Directors declared a $0.025 per share quarterly common
stock cash dividend. The cash dividend is payable February 22, 2021 to
shareholders of record on February 8, 2021. This cash dividend represents a
2.9% annualized yield using the January 19, 2021 closing stock price of $3.50.
For the full year of 2020, the Company's dividend payout ratio amounted to
37.0%.
Forward-Looking Statements
This press release contains forward-looking statements as defined in the
Securities Exchange Act of 1934 and is subject to the safe harbors created
therein. Such statements are not historical facts and include expressions about
management's confidence and strategies and management's current views and
expectations about new and existing programs and products, relationships,
opportunities, technology, market conditions, dividend program, proposed branch
acquisition, including the timing, anticipated benefits, and financial impact
thereof, and future payment obligations. These statements may be identified by
such forward-looking terminology as "continuing," "expect," "look," "believe,"
"anticipate," "may," "will," "should," "projects," "strategy," or similar
statements. Actual results may differ materially from such forward-looking
statements, and no reliance should be placed on any forward-looking statement.
Factors that may cause results to differ materially from such forward-looking
statements include, but are not limited to, unanticipated changes in the
financial markets and the direction of interest rates; volatility in earnings
due to certain financial assets and liabilities held at fair value; competition
levels; loan and investment prepayments differing from our assumptions;
insufficient allowance for credit losses; a higher level of loan charge-offs and
delinquencies than anticipated; material adverse changes in our operations or
earnings; a decline in the economy in our market areas; changes in relationships
with major customers; changes in effective income tax rates; higher or lower
cash flow levels than anticipated; inability to hire or retain qualified
employees; a decline in the levels of deposits or loss of alternate funding
sources; a decrease in loan origination volume or an inability to close loans
currently in the pipeline; changes in laws and regulations; adoption,
interpretation and implementation of accounting pronouncements; operational
risks, including the risk of fraud by employees, customers or outsiders;
unanticipated effects of our banking platform; risks and uncertainties relating
to the duration of the COVID-19 pandemic, and actions that may be taken by
governmental authorities to contain the pandemic or to treat its impact; and the
inability to successfully implement or expand new lines of business or new
products and services. These forward-looking statements involve risks and
uncertainties that could cause AmeriServ's results to differ materially from
management's current expectations. Such risks and uncertainties are detailed in
AmeriServ's filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended December 31, 2019. Forward-looking
statements are based on the beliefs and assumptions of AmeriServ's management
and on currently available information. The statements in this press release are
made as of the date of this press release, even if subsequently made available
by AmeriServ on its website or otherwise. AmeriServ undertakes no responsibility
to publicly update or revise any forward-looking statement.
(1) Non-GAAP Financial Information. See "Reconciliation of Non-GAAP Financial
Measures" at end of release.
AMERISERV FINANCIAL, INC.
NASDAQ: ASRV
SUPPLEMENTAL FINANCIAL PERFORMANCE DATA
December 31, 2020
(Dollars in thousands, except per share and ratio data)
(Unaudited)
2020
1QTR 2QTR 3QTR 4QTR YEAR TO DATE
PERFORMANCE DATA FOR
THE PERIOD:
Net income $1,409 $1,419 $1,078 $692 $4,598
PERFORMANCE
PERCENTAGES
(annualized):
Return on average 0.48% 0.46% 0.34% 0.21% 0.37%
assets
Return on average 5.69 5.63 4.17 2.66 4.52
equity
Return on average 6.46 6.38 4.72 3.01 5.12
tangible common
equity (B)
Net interest margin 3.21 3.30 2.97 3.12 3.19
Net charge-offs
. . .© Edgar Online, source Glimpses
AMERISERV FINANCIAL, INC. 
