AmeriServ Financial(ASRV) - 2021 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents AmeriServ Financial, Inc.'s unaudited consolidated financial statements as of September 30, 2021, including balance sheets, statements of operations, and cash flows Consolidated Financial Statements The unaudited financial statements show total assets increased to $1.34 billion by September 30, 2021, with Q3 net income of $1.43 million and nine-month net income of $5.22 million Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,338,886 | $1,279,713 | | Net Loans | $983,905 | $960,750 | | Total Investment Securities | $214,295 | $188,387 | | Total Deposits | $1,144,391 | $1,054,920 | | Total Borrowed Funds | $73,911 | $114,080 | | Total Shareholders' Equity | $113,736 | $104,399 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $9,226 | $8,791 | $28,785 | $27,015 | | Provision for loan losses | $350 | $675 | $850 | $1,300 | | Non-Interest Income | $4,416 | $4,304 | $13,429 | $11,903 | | Non-Interest Expense | $11,520 | $11,107 | $34,863 | $32,746 | | Net Income | $1,431 | $1,078 | $5,220 | $3,906 | | Diluted EPS | $0.08 | $0.06 | $0.31 | $0.23 | - Net cash provided by operating activities was $7.6 million for the first nine months of 2021, a significant turnaround from the $4.4 million used in the same period of 2020[18] - Net cash used in investing activities decreased substantially to $8.6 million from $60.9 million in the prior year period[18] Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, loan and investment portfolios, allowance for loan losses, borrowings, regulatory capital, and a May 2021 branch acquisition - On May 21, 2021, the Bank acquired a branch and related deposits from Citizen's Neighborhood Bank (CNB) for a $1.6 million premium, adding approximately $42 million in deposits[21][169][174] - The acquisition resulted in $1.7 million of goodwill and a $177,000 core deposit intangible asset[21][169][174] Loan Portfolio Composition (in thousands) | Loan Type | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial and industrial | $136,891 | $151,162 | | Paycheck Protection Program (PPP) | $29,260 | $58,344 | | Commercial loans secured by real estate | $532,557 | $496,237 | | Real estate - residential mortgage | $281,711 | $249,989 | | Consumer | $15,610 | $16,363 | | Total Loans (net of unearned income) | $996,029 | $972,095 | - The allowance for loan losses increased to $12.1 million at September 30, 2021, from $11.3 million at year-end 2020[64][66] - The allowance represented 1.22% of total loans and provided 389% coverage of non-performing assets[64][66] - On August 26, 2021, the Company issued $27 million in new subordinated notes at a 3.75% fixed rate[114] - Proceeds were used to retire approximately $20 million of existing, higher-cost subordinated debt and trust preferred securities[114] Regulatory Capital Ratios | Ratio | Company (Sept 30, 2021) | Bank (Sept 30, 2021) | Well Capitalized Minimum* | | :--- | :--- | :--- | :--- | | Total Capital | 13.61% | 12.28% | 10.00% | | Tier 1 Common Equity | 9.95% | 11.07% | 6.50% | | Tier 1 Capital | 9.95% | 11.07% | 8.00% | | Tier 1 Leverage | 7.87% | 8.87% | 5.00% | *Applies to the Bank only. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month 2021 financial results, highlighting increased net income, strong liquidity, stable asset quality, and strategic priorities Q3 2021 vs. Q3 2020 Performance Q3 2021 net income increased 32.7% to $1.4 million, driven by higher net interest income and wealth management fees, despite a pension settlement charge Q3 Key Performance Indicators | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net income (in thousands) | $1,431 | $1,078 | | Diluted earnings per share | $0.08 | $0.06 | | Return on average assets (annualized) | 0.41% | 0.34% | | Return on average equity (annualized) | 5.07% | 4.17% | - Net interest income increased by $435,000 (4.9%) YoY, although the net interest margin compressed by 12 basis points to 2.85%[187] - The improvement was due to loan growth and lower interest expense on deposits and borrowings[187] - The provision for loan losses was $350,000, down from $675,000 in Q3 2020, reflecting an improved credit quality outlook[206] - Non-interest income increased by $112,000 (2.6%), led by a $533,000 increase in wealth management fees[209] - This was largely offset by a $492,000 decrease in net gains on loans held for sale as the company retained more mortgages on its balance sheet[209] Nine Months 2021 vs. Nine Months 2020 Performance Nine-month 2021 net income rose 33.6% to $5.2 million, fueled by increased net interest and non-interest income and a lower loan loss provision Nine-Month Key Performance Indicators | Metric | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | | Net income (in thousands) | $5,220 | $3,906 | | Diluted earnings per share | $0.31 | $0.23 | | Return on average assets (annualized) | 0.52% | 0.43% | | Return on average equity (annualized) | 6.48% | 5.15% | - Net interest income for the nine-month period increased by $1.8 million (6.6%), while the net interest margin decreased by 9 basis points to 3.07%[215][217] - The decrease in total interest expense significantly outpaced the small decrease in total interest income[215][217] - The provision for loan losses decreased to $850,000 from $1.3 million in the prior-year period, reflecting improved credit quality[231] - Non-interest income grew by $1.5 million (12.8%), driven by a $1.4 million increase in wealth management fees[233] Financial Condition, Liquidity, and Capital Resources Total assets grew to $1.34 billion, supported by strong liquidity from deposit growth and capital ratios well above regulatory minimums - Total assets increased by $59.2 million (4.6%) since year-end 2020, driven by growth in loans, investment securities, and cash from a significant influx of deposits[241] - The allowance for loan losses stood at $12.1 million, or 1.22% of total loans (1.25% excluding PPP loans, a non-GAAP measure)[255][257] - The company's liquidity position is strong, supported by record deposit levels[258] - The loan-to-deposit ratio was 83.2%, indicating ample capacity for future loan growth[258] - The company and its bank subsidiary are considered well-capitalized, with a total capital ratio of 13.61% and a common equity tier 1 ratio of 9.95% at the company level[265] - The recent subordinated debt issuance favorably impacted total regulatory capital[265] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company manages interest rate risk, with a 100 basis point rate increase projected to boost net interest income by 3.0% Interest Rate Sensitivity Analysis | Interest Rate Scenario | Variability of Net Interest Income | Change in Market Value of Portfolio Equity | | :--- | :--- | :--- | | 200 bp increase | 5.6% | 35.8% | | 100 bp increase | 3.0% | 20.8% | | 100 bp decrease | (3.1)% | (1.7)% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[300] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[301] Part II. Other Information Item 1. Legal Proceedings The company reports no material legal proceedings pending or threatened against it or its subsidiaries - There are no material legal proceedings pending or threatened against the Company or its subsidiaries[302] Other Part II Items This section confirms no applicable risk factors, unregistered sales of equity securities, defaults, or mine safety disclosures - The company reports 'Not Applicable' or 'None' for Risk Factors (Item 1A), Unregistered Sales of Equity Securities (Item 2), Defaults Upon Senior Securities (Item 3), Mine Safety Disclosures (Item 4), and Other Information (Item 5)[302] Item 6. Exhibits This section lists filed exhibits, including corporate governance documents, debt agreements, and Sarbanes-Oxley certifications - Exhibits filed include the form of the new 3.75% Fixed-to-Floating Rate Subordinated Note, CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL data files[304]