AmeriServ Financial, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results. AmeriServ is a Pennsylvania-based regional bank with community banking, wealth management and investment/parent operations. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted.
Financial performance and condition
| Metric | Q1 2020 / March 31, 2020 | Comparable period / prior year-end |
|---|---|---|
| Net income; diluted EPS | $1.409 million; $0.08 | Q1 2019: $1.878 million; $0.11 |
| Net interest income; net interest margin | $8.751 million; 3.21% | Q1 2019: $8.657 million; 3.24% |
| Non-interest income; non-interest expense | $3.832 million; $10.633 million | Q1 2019: $3.605 million; $10.293 million |
| Net interest income after loan-loss provision | $8.576 million | Q1 2019: $9.057 million |
| Total assets; shareholders’ equity | $1,168.4 million; $100.8 million | December 31, 2019: $1,171.2 million; $98.6 million |
| Loans, net of unearned income; allowance | $872.6 million; $9.334 million | December 31, 2019: $882.7 million; $9.279 million |
| Deposits; total borrowed funds | $957.6 million; $99.1 million | December 31, 2019: $960.5 million; $100.6 million |
| Cash and cash equivalents | $24.1 million | December 31, 2019: $22.2 million |
Q1 return on average assets was 0.48% and return on average equity was 5.69%, versus 0.66% and 7.84%, respectively, in Q1 2019. Book value per share was $5.92; tangible book value per share was $5.22 and tangible common equity to tangible assets was 7.69% (both non-GAAP). The quarterly common dividend was $0.025 per share.
Cash from operating activities was negative $0.626 million, investing activities provided $7.566 million and financing activities used $5.002 million; cash and cash equivalents increased by $1.938 million. The Bank was classified as well capitalized. Company regulatory ratios were 13.41% total capital, 10.44% common equity tier 1, 11.64% tier 1 capital and 9.94% tier 1 leverage.
Changes versus comparable periods
- Net income fell 25.0% year over year, and diluted EPS declined from $0.11 to $0.08. Net interest income rose 1.1%, as lower interest expense more than offset lower interest income; net interest margin slipped three basis points.
- Non-interest income increased 6.3%, while non-interest expense increased 3.3%. Higher wealth management and mortgage-related income helped, while salaries and benefits rose, including higher pension expense.
- The loan-loss provision shifted from a $0.400 million recovery in Q1 2019 to $0.175 million of expense in Q1 2020. Management cited loan growth and added qualitative reserves for COVID-19 uncertainty.
- Compared with year-end, total assets declined 0.2%, loans and loans held for sale declined $10.2 million, and deposits declined $2.9 million. Equity increased $2.2 million, partly reflecting earnings and improved unrealized investment-security values.
Outlook, COVID-19, risks and unusual items
- Management provided no numerical earnings or revenue guidance. It characterized liquidity, capital and asset quality as strong, but identified prolonged COVID-19 effects and very low interest rates as significant uncertainties. Management expected pandemic effects on wealth management fees to be more apparent in Q2.
- As of May 4, the Company had SBA approval for about 400 Paycheck Protection Program loans totaling more than $61 million, expected to generate about $1.9 million in fees. The filing also reports 388 COVID-related payment-relief modifications granted, totaling $211.2 million, or 24.1% of outstanding loans; most involved three-to-six-month payment relief. Earlier MD&A reported more than $43 million funded for about 270 customers as of April 24.
- The filing identifies commercial and commercial real estate borrowers, including hospitality, travel, food service, restaurants and bars, as potentially more exposed to pandemic disruption. Commercial real estate and commercial loans were also the largest loan-loss allowance categories. Non-owner-occupied commercial real estate loans equaled 331% of regulatory capital.
- Accruing loan delinquency rose to $8.525 million, or 0.97% of loans, largely due to a $6.3 million commercial and industrial loan associated with a deceased borrower’s estate. Non-performing assets were $2.244 million, or 0.26% of loans; net charge-offs were $0.120 million. Management cautioned that Q1 results do not fully reflect pandemic effects.
- Liquidity included $364 million of overnight FHLB borrowing availability, $30 million of Federal Reserve short-term availability and $35 million of unsecured correspondent-bank lines. Outstanding commitments to extend credit were approximately $217.5 million, with $14.1 million in standby letters of credit.
- The Federal Reserve’s March rate cuts reduced yields on new and repricing loans; management noted that a 100-basis-point downward rate shock would reduce modeled net interest income by 3.0%. The Company completed its previously announced repurchase program, buying 526,000 shares for $2.23 million over 12 months; evaluation of a new program was on hold.
- The Company had not yet adopted the current expected credit losses standard (CECL), whose effective date for the Company was deferred to fiscal years beginning after December 15, 2022. It was evaluating implementation and could not estimate the adoption adjustment.
Important facts for investors to verify
- Track loan modifications, payment performance after relief periods, PPP fees and forgiveness, and subsequent credit-loss provisions as pandemic impacts emerge.
- Monitor the $6.3 million delinquent commercial loan and the substantial commercial real estate concentration, including hotels, retail, multifamily and other affected sectors.
- Assess whether low rates further pressure net interest margin and earnings, and compare subsequent results with Q1’s 3.21% margin.
- Review liquidity, deposit trends, borrowing capacity and capital levels alongside outstanding commitments and the Company’s decision to pause additional buybacks.
- Confirm whether the expected Q2 decline in wealth management fees and pandemic-related operating or credit costs materialized; the filing provides no quantified full-year forecast.