UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
2010
OR
¨ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-11204
AMERISERV FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA | 25-1424278 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
MAIN & FRANKLIN STREETS, P.O. BOX 430, JOHNSTOWN, PENNSYLVANIA | 15907-0430 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (814) 533-5300
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class | Name Of Each Exchange On Which Registered | |||
None | ||||
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value | Share Purchase Rights | |
(Title of class) | (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o¨ Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.o¨ Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.þ Yeso¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitionsdefinition of “large“accelerated filer, large accelerated filer” “accelerated filer” and “smallersmaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
|
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value was$65,115,304 $34,170,547 as of June 30, 2008.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 21,135,46621,207,670 shares outstanding as of January 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the proxy statement for the annual shareholders’ meeting are incorporated by reference in PartParts II and III.
Page No. | ||||||||
PART I | ||||||||
Item 1. | 3 | |||||||
Item 1A. | ||||||||
15 | ||||||||
Item | 15 | |||||||
Item | 15 | |||||||
Item | 15 | |||||||
Item 4. | 15 | |||||||
PART II | ||||||||
Item 5. | 16 | |||||||
Item 6. | ||||||||
Item 7. | Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations | |||||||
Item 7A. | ||||||||
Item 8. | ||||||||
Item 9. | Changes In and Disagreements With Accountants On Accounting and Financial Disclosure | |||||||
Item 9A. | ||||||||
Item 9B. | ||||||||
PART III | ||||||||
Item 10. | 88 | |||||||
Item 11. | ||||||||
Item | ||||||||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||||||
Item 14. | ||||||||
PART IV | ||||||||
Item 15. | 89 | |||||||
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AmeriServ Financial, Inc. (the Company) is a bank holding company organized under the Pennsylvania Business Corporation Law. The Company became a holding company upon acquiring all of the outstanding shares of AmeriServ Financial Bank (the Bank) on January 5, 1983. The Company’s other wholly owned subsidiaries include AmeriServ Trust and Financial Services Company (the Trust Company) formed in October 1992, and AmeriServ Life Insurance Company (AmeriServ Life) formed in October 1987.
The Company’s principal activities consist of owning and operating its three wholly owned subsidiary entities. At December 31, 2008,2010, the Company had, on a consolidated basis, total assets, deposits, and shareholders’ equity of $967$949 million, $695$801 million and $113$107 million, respectively. The Company and its subsidiaries derive substantially all of their income from banking and bank-related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, accounting and taxes, loan review, auditing, investment accounting, marketing and insurance risk management.
As previously stated, the Company is a bank holding company, andthe Company is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking. The Company is also under the jurisdiction of the Securities and Exchange Commission (SEC) for matters relating to offering and sale of its securities. The Company is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. The Company is listed on the NASDAQ Stock Market under the trading symbol “ASRV,” and is subject to the NASDAQ rules of NASDAQ forapplicable to listed companies.
AMERISERV FINANCIAL BANKING SUBSIDIARY
AMERISERV FINANCIAL BANK
The Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended. Through 18 locations in Allegheny, Cambria, Centre, Somerset, and Westmoreland Counties, Pennsylvania, AmeriServ Financial Bank conducts a general banking business. It is a full-service bankBank offering (i) retail banking services, such as demand, savings and time deposits, money market accounts, secured and unsecured loans, mortgage loans, safe deposit boxes, holiday club accounts, collection services, money orders, and traveler’s checks; (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as real estate-mortgage loans, short-short and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, real estate-construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services. The Bank also operates 2122 automated bank teller machines (ATMs) through its 24-Hour Banking Network that is linked with NYCE, a regional ATM network and CIRRUS, a national ATM network. On March 7, 2007, the Bank completed the acquisition of West Chester Capital Advisors (WCCA). WCCA is a registered investment advisor and as of December 31, 20082010 had $82$106 million in assets under management.
The Bank’s deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. In addition, the loan portfolio is also diversified so that one industry or group of related industries does not comprise a material portion of the loan portfolio. The Bank’s business is not seasonal, nor does it have any risks attendant to foreign sources.
The Bank is subject to supervision and regular examination by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios at December 31, 2008:
Headquarters | Johnstown, PA | |||
Chartered | 1933 | |||
Total Assets | $ | 937,050 | ||
Total Investment Securities | 131,893 | |||
Total Loans (net of unearned income) | 707,108 | |||
Total Deposits | 695,156 | |||
Total Net Income | 5,322 | |||
Asset Leverage Ratio | 9.30 | % | ||
Return on Average Assets | 0.60 | |||
Return on Average Equity | 5.69 | |||
Total Full-time Equivalent Employees | 286 |
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Headquarters | Johnstown, PA | |||
Total Assets | $ | 924,287 | ||
Total Investment Securities | 156,251 | |||
Total Loans and Loans Held for Sale (net of unearned income) | 678,181 | |||
Total Deposits | 801,416 | |||
Total Net Income | 2,496 | |||
Asset Leverage Ratio | 9.13 | % | ||
Return on Average Assets | 0.27 | |||
Return on Average Equity | 2.59 | |||
Total Full-time Equivalent Employees | 279 |
Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, which includes interest rate, credit, and liquidity risk. The Company controls and monitors these risks with policies, procedures, and various levels of managerial and Board oversight.
Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. The Company uses its asset liability management policy to control and manage interest rate risk.
Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors, debtholders and debtholders.the funding of operating costs. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses to control and manage credit risk. The Company’s investment policy and hedging policy strictly limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities. The following summarizes and describes the Company’s various loan categories and the underwriting standards applied to each:
Commercial
This category includes credit extensions to commercial and industrial borrowers. Business assets, including accounts receivable, inventory and/or equipment, typically secure these credits. In appropriate instances, extensions of credit in this category are subject to collateral advance formulas. Balance sheet strength and profitability are considered when analyzing these credits, with special attention given to historical, current and prospective sources of cash flow, and the ability of the customer to sustain cash flow at acceptable levels. Our policy permits flexibility in determining acceptable debt service coverage ratios, with a minimum level of 1.1 to 1 desired. Personal guarantees are frequently required; however, as the financial strength of the borrower increases, the Company’s ability to obtain personal guarantees decreases. In addition to economic risk, this
category is impacted by the management abilitystrength of the borrowerborrower’s management and industry risk, which are also considered during the underwriting process.
Commercial Loans Secured by Real Estate
This category includes various types of loans, including acquisition and construction of investment property, owner-occupied property and operating property. Maximum term, minimum cash flow coverage, leasing requirements, maximum amortization and maximum loan to value ratios are controlled by the Company’s credit policy and follow industry guidelines and norms, and regulatory limitations. Personal guarantees are normally required during the construction phase on construction credits, and are frequently obtained on mid to smaller commercial real estate loans. In addition to economic risk, this category is subject to geographic and portfolio concentration risk, which are monitored and considered in underwriting.
Real Estate — Mortgage
This category includes mortgages that are secured by residential property. Underwriting of loans within this category is pursuant to Freddie Mac/Fannie Mae underwriting guidelines, with the exception of Community Reinvestment Act (CRA) loans, which exhibit more liberal standards. The major risk in this category is that a significant downward economic trend would increase unemployment and cause payment default. The Company does not and has never engaged in sub-primesubprime residential mortgage lending.
Consumer
This category includes consumer installment loans and revolving credit plans. Underwriting is pursuant to industry norms and guidelines and is achieved through a process, which includes of the Appro Credit Scoring program.guidelines. The major risk in this category is a significant economic downturn.
INVESTMENTS AND THE ASSOCIATED INVESTMENT POLICIES
The investment securities portfolio of the Company and its subsidiaries is managed to provide ample liquidity in a manner that is consistent with proper bank asset/liability management and current banking practices. The objectives of portfolio management include consideration of proper liquidity levels, interest rate and market valuation sensitivity, and profitability. The investment portfolios of
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The investment portfolio is primarily made up of AAA rated agency mortgage-backed securities and short maturity agency securities. The purpose of this type of portfolio is to generate adequate cash flow to fund potential loan growth, as the market allows. Management strives to maintain a relatively short duration in the portfolio. All holdings must meet standards documented in the AmeriServ Financial Investment Policy.
Investment securities classified as held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair market value. The following table sets forth the cost basis and fair market value of the Company’s investment portfolio as of the periods indicated:
Investment securities available for sale at:
AT DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
U.S. Agency | $ | 15,956 | $ | 12,342 | $ | 10,387 | ||||||
U.S. Agency mortgage-backed securities | 145,727 | 116,088 | 114,380 | |||||||||
Other securities | — | — | 24 | |||||||||
Total cost basis of investment securities available for sale | $ | 161,683 | $ | 128,430 | $ | 124,791 | ||||||
Total fair value of investment securities available for sale | $ | 164,811 | $ | 131,272 | $ | 126,781 | ||||||
Investment securities held to maturity at:
AT DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
U.S. Treasury | $ | — | $ | 3,009 | $ | 3,082 | ||||||
U.S. Agency mortgage-backed securities | 6,824 | 7,602 | 9,562 | |||||||||
Other securities | 1,000 | 1,000 | 3,250 | |||||||||
Total cost basis of investment securities held to maturity | $ | 7,824 | $ | 11,611 | $ | 15,894 | ||||||
Total fair value of investment securities held to maturity | $ | 8,267 | $ | 11,996 | $ | 16,323 | ||||||
DEPOSITS AND OTHER SOURCES OF FUNDS INCLUDING REPAYMENTS AND MATURITIES OF LOANS, SALES AND MATURITIES OF INVESTMENTS AND FHLB ADVANCES
Deposits
The BankCompany has a loyal core deposit base made up of traditional commercial bank products that exhibits little fluctuation, other than Jumbojumbo CDs, which demonstrate some seasonality. The bankCompany also utilizes certain Trust Company specialty deposits related to the ErectERECT Fund as a funding source which serve as an alternative to wholesale borrowings and couldcan exhibit some degree of volatility.
The Bank,following table sets forth the average balance of the Company’s deposits and average rates paid thereon for the past three calendar years:
AT DECEMBER 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||
Demand: | ||||||||||||||||||||||||
Non-interest bearing | $ | 122,963 | — | % | $ | 114,473 | — | % | $ | 110,601 | — | % | ||||||||||||
Interest bearing | 58,118 | 0.30 | 62,494 | 0.41 | 64,683 | 1.01 | ||||||||||||||||||
Savings | 77,381 | 0.51 | 72,350 | 0.73 | 70,255 | 0.76 | ||||||||||||||||||
Money market | 186,560 | 0.87 | 169,823 | 1.44 | 107,843 | 2.24 | ||||||||||||||||||
Other time | 358,472 | 2.44 | 343,841 | 2.88 | 341,185 | 3.54 | ||||||||||||||||||
Total deposits | $ | 803,494 | 1.61 | $ | 762,981 | 2.02 | $ | 694,567 | 2.69 | |||||||||||||||
Interest expense on deposits consisted of the following:
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest bearing demand | $ | 176 | $ | 256 | $ | 653 | ||||||
Savings | 397 | 530 | 535 | |||||||||
Money market | 1,622 | 2,437 | 2,417 | |||||||||
Certificates of deposit in denominations of $100,000 or more | 834 | 1,186 | 1,744 | |||||||||
Other time | 7,916 | 8,700 | 10,331 | |||||||||
Total interest expense | $ | 10,945 | $ | 13,109 | $ | 15,680 | ||||||
Additionally, the following table provides more detailed maturity information regarding certificates of deposit issued in denominations of $100,000 or more as of December 31, 2010:
MATURING IN:
(IN THOUSANDS) | ||||
Three months or less | $ | 12,695 | ||
Over three through six months | 21,695 | |||
Over six through twelve months | 5,321 | |||
Over twelve months | 11,097 | |||
Total | $ | 50,808 | ||
Borrowings
The Company, when needed, uses both overnight borrowings and term advances from the Federal Home Loan Bank of Pittsburgh for liquidity management purposes. During the past several years the Company has significantly deleveraged its balance sheet and reduced its level of borrowings through investment portfolio cash flowflow.
The outstanding balances and security sales.
AT DECEMBER 31, 2010 | ||||||||
FEDERAL FUNDS PURCHASED | OTHER SHORT-TERM BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 4,550 | ||||
Maximum indebtedness at any month end | — | 9,230 | ||||||
Average balance during year | 9 | 3,110 | ||||||
Average rate paid for the year | 0.51 | % | 0.71 | % | ||||
Interest rate on year-end balance | — | 0.62 |
Balance Maximum indebtedness at any month end Average balance during year Average rate paid for the year Interest rate on year-end balance Balance Maximum indebtedness at any month end Average balance during year Average rate paid for the year Interest rate on year-end balance AT DECEMBER 31, 2009 FEDERAL
FUNDS
PURCHASED SHORT-TERM
BORROWINGS (IN THOUSANDS, EXCEPT RATES) $ — $ 25,775 5,968 54,649 1,358 19,670 0.50 % 0.67 % — 0.62 AT DECEMBER 31, 2008 FEDERAL
FUNDS
PURCHASED OTHER
SHORT-TERM
BORROWINGS (IN THOUSANDS, EXCEPT RATES) $ — $ 119,920 5,685 138,855 20 71,617 3.16 % 1.96 % — 0.60
Average amounts outstanding during the year represent daily averages. Average interest rates represent interest expense divided by the related average balances.
These borrowing transactions can range from overnight to one year in maturity. The average maturity was three days at the end of 2010, and two days at the end of 2009 and 2008.
Loans
The loan portfolio of the Company consisted of the following:
AT DECEMBER 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 78,322 | $ | 96,158 | $ | 110,197 | $ | 118,936 | $ | 91,746 | ||||||||||
Commercial loans secured by real estate(1) | 370,375 | 396,787 | 353,870 | 285,115 | 269,781 | |||||||||||||||
Real estate-mortgage(1) | 203,323 | 207,221 | 218,928 | 214,839 | 209,728 | |||||||||||||||
Consumer | 19,233 | 19,619 | 23,804 | 16,676 | 18,336 | |||||||||||||||
Loans | 671,253 | 719,785 | 706,799 | 635,566 | 589,591 | |||||||||||||||
Less: Unearned income | 477 | 671 | 691 | 471 | 514 | |||||||||||||||
Loans, net of unearned income | $ | 670,776 | $ | 719,114 | $ | 706,108 | $ | 635,095 | $ | 589,077 | ||||||||||
(1) | For each of the periods presented beginning with December 31, 2010, real estate-construction loans constituted 3.9%, 6.8%, 6.2%, 5.5% and 4.4% of the Company’s total loans, net of unearned income, respectively. |
Non-performing Assets
The following table presents information concerning non-performing assets:
AT DECEMBER 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||
Non-accrual loans | ||||||||||||||||||||
Commercial | $ | 3,679 | $ | 3,375 | $ | 1,128 | $ | 3,553 | $ | 494 | ||||||||||
Commercial loans secured by real estate | 6,731 | 11,716 | 484 | 225 | 195 | |||||||||||||||
Real estate-mortgage | 1,879 | 2,025 | 1,765 | 1,460 | 1,597 | |||||||||||||||
Total | 12,289 | 17,116 | 3,377 | 5,238 | 2,286 | |||||||||||||||
Past due 90 days or more and still accruing | ||||||||||||||||||||
Consumer | — | — | — | — | 3 | |||||||||||||||
Total | — | — | — | — | 3 | |||||||||||||||
Other real estate owned | ||||||||||||||||||||
Commercial loans secured by real estate | 436 | 871 | 701 | — | — | |||||||||||||||
Real estate-mortgage | 302 | 350 | 494 | 42 | 3 | |||||||||||||||
Total | 738 | 1,221 | 1,195 | 42 | 3 | |||||||||||||||
Total restructured loans not in non-accrual (TDR) | 1,337 | — | — | — | 1,302 | |||||||||||||||
Total non-performing assets including TDR | $ | 14,364 | $ | 18,337 | $ | 4,572 | $ | 5,280 | $ | 3,594 | ||||||||||
Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned | 2.12 | % | 2.53 | % | 0.65 | % | 0.83 | % | 0.61 | % |
The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. Other real estate owned is recorded at the lower of (1) fair value minus estimated costs to sell, or (2) carrying cost.
The following table sets forth, for the periods presented herein,indicated, (1) the Company has moderately grown its loan portfoliogross interest income that would have been recorded if non-accrual loans had been current in accordance with no adverse effecttheir original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on liquidity. The Company believes it will be ablesuch loans, and (3) the net reduction in interest income attributable to fund anticipated loan growth generally from investment securities portfolio cash flow and deposit growth.
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Interest income due in accordance with original terms | $ | 1,086 | $ | 553 | $ | 198 | $ | 215 | $ | 214 | ||||||||||
Interest income recorded | (458 | ) | (75 | ) | — | (24 | ) | (55 | ) | |||||||||||
Net reduction in interest income | $ | 628 | $ | 478 | $ | 198 | $ | 191 | $ | 159 | ||||||||||
Secondary Market Activities
The Residential Lending department of the BankCompany continues to originate one-to-four family mortgage loans for bothcustomers, some of which are sold to outside investors in the secondary market and some of which are retained for the AmeriServBank’s portfolio. Mortgages sold on the secondary market are sold to investors on a “flow” basis: Mortgages are priced and delivered on a “best efforts” pricing basis, with servicing released to the investor. Fannie Mae/Freddie Mac guidelines are used in underwriting all mortgages with the exception of CRA loans. The mortgagesMortgages with longer terms such as 20-year, 30-year, FHA, and VA loans are usually sold. The remaining
production of the department includes construction, adjustable rate mortgages, 10-year, 15-year, and bi-weekly mortgages. These loans are usually kept in the AmeriServ portfolioBank’s portfolios, although during periods of low interest rates 15-year loans are typically sold into the secondary market.
AMERISERV FINANCIAL NON-BANKING SUBSIDIARIES
AMERISERV TRUST AND FINANCIAL SERVICES COMPANY
AmeriServ Trust and Financial Services Company is a trust company organized under Pennsylvania law in October 1992. As one of the larger providers of trust and investment management products and services between Pittsburgh and Harrisburg, AmeriServ Trust and Financial Services Company is committed to delivering personalized, professional service to its clients. Its staff of approximately 4144 professionals administer assets valued at approximately $1.5$1.4 billion that are not recognized on the Company’s balance sheet at December 31, 2008.2010. The Trust Company has two primary business divisions, traditional trust and union collective investment funds. Traditional trustfocuses on wealth management. Wealth management includes personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts are included in this division.segment. The Wealth management business also includes the union collective investment funds, namely the ERECT and BUILD Funds (includes Build Fund of America and Build Fund of Indiana),funds which are designed to investuse union pension dollars in construction projects that utilize union labor. The BUILD fund is in the process of liquidation. At December 31, 2008,2010, AmeriServ Trust and Financial Services had total assets of $3.3$3.5 million and total shareholder’s equity of $3.0$3.1 million. In 2010, the Trust Company contributed earnings to the corporation as its gross revenue amounted to $5.6 million and the net income contribution was $208,000. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of Philadelphia and the Pennsylvania Department of Banking.
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MONETARY POLICIES
Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Board of Governors are: open market operations in U.S. Government securities, changes in the federal funds rate and discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Board of Governors have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.
COMPETITION
Our subsidiaries face strong competition from other commercial banks, savings banks, credit unions, savings and loan associations, and several other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions which are substantially larger and have greater financial resources than the subsidiary entities.Bank and the Trust Company. As the financial services industry continues to consolidate, the scope of potential competition affecting the subsidiary entities our subsidiaries
will also increase. For most of the services that the subsidiary entities perform, there is also competition from credit unions and issuers of commercial paper and money market funds. Such institutions, as well as brokerageBrokerage houses, consumer finance companies, insurance companies, and pension trusts are important competitors for various types of financial services. In addition, personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals.
MARKET AREA & ECONOMY
Nationally, the economy demonstrated recessionary conditions asis improving gradually, although it may take years to fully emerge from the Commerce Department stated that early indications show Gross Domestic Product fell atnegative effects of the recent economic downturn. The recovery has gathered more momentum, and will get an extra push in 2011 from a 3.8% annual ratefurther injection of fiscal stimulus including the extension of the Bush tax cuts for the next two years, the two percentage point cut in the fourth quarteremployee payroll tax rate for 2011, and a two-year extension of 2008, following a 0.5% dropdepreciation incentives for business investment. Business and consumer confidence are improving. The recent good news is suggesting 2011 GDP growth should come in the third quarter. Economic statistics reveal that the nation has been in a recession for more than a year.near 3.2%. The Fed will continue to be accommodative. Overall, the economy grew atis getting better, but is still not out-of-the-woods. The economy isn’t improving fast enough to make a noticeable reduction in unemployment. Risks, however, still loom, particularly from a weak 1.3%housing market and spending cuts and layoffs from state and local governments.
There are many mixed factors that will affect future economic growth. Positively impacting economic conditions will be 1.) The extension of the Bush tax cuts for another 2-years and extending jobless benefits and cutting payroll taxes in 2008, which was2011; 2.) The Federal Reserve’s monetary policy continuing to be accommodative as short-term rates will be near 0.0%; 3.) The lower value of the slowest expansion sincedollar in the 2001 recession. The investment inworld financial institutions by the United States government together with other programs instituted by the United States Treasury and the Federal Reserve in 2008 has kept the economy from collapsing further,markets should increase exports while the economic stimulus has not yet hadflow of goods from overseas will slow; 4.) Consumers are simultaneously saving more and paying down debt. As a chance to work. This means additional layoffs are likely to occur. However, most recessions generally last no longer than two years. Accordingly, most economists are predicting thatresult, there should be pent-up demand stemming from the current recession will end by the end of 2009. Consumer spending, which accounts for more than two thirdsseverity of the economy, decreased 3.5% in the fourth quarter of 2008 following a 3.8% drop in the third quarter, marking the worse back to back declines since quarterly records began in 1947. The Federal Reserve cut its overnight funds interest rate basically to zero, set up a host of special lending programs and is prepared to begin buying longer-term Treasury bonds, a move that could push down some borrowing rates, in a further effort to shore up the economy. The Fed is increasingly worried about the possibility of deflation,recession which could make it harder forresult in an increase in spending; 5.) Businesses also should have pent-up demand from a need to incorporate the economylatest technology to recover. Tight credit marketsbe competitive and cut costs.
Negatively impacting future economic conditions will be: 1.) Anemic employment gains while the few jobs that have made it more difficult for householdsbeen created have tended to be temporary or part time. 2.) Consumers and businesses will most likely not be willing to acquire debt; 3.) The sharp rise in prices of oil and food commodities should continue to reduce peoples buying power; as will the jump in mortgage rates, which has already significantly slowed re-financing; 4.) Capital constrained banks are not as eager to lend as they should be at this stage of a recovery; 5.) Our trading partners around the world have equally poor economies and offset the positive impact of the lower value of the dollar which will constrain exports; 6.) The actions of Washington on the budget deficit could cause people to assume future tax hikes and spending cuts which could cause consumers and businesses to borrow money. be less willing to spend.
The troubled housing market along with sharp increases toConsumer Price Index rose 0.5% in December, leaving inflation over the past 12 months at 1.5%. Core inflation, which strips out energy and food prices, particularlyshould rise a bit in 2011. The core CPI increased 0.1% in December and just 0.8% over the past 12 months. That’s the slowest pace since this data set began in 1958, and the chief reason the Federal Reserve remains unconcerned about the prospect of higher inflation. Confidence in the middleeconomic expansion remains fragile, but conditions should improve. It is expected that net job growth should be approximately 2.5 million in 2011, following an increase of 2008, negatively impacted other sectors of the economy. Labor markets were also hit hard with1.1 million in 2010. Still, the unemployment rate climbingwill remain high. Now at 9.0%, it’s likely to 7.6% in Januarydecline a bit further over the course of 2009, which is its highest level since 1992. The government has enacted an economic stimulus plan that includes tax breaks, public works spending and expanded health care and unemployment benefits. Also,2011. GDP growth will need to continue to be 3.2% or higher into 2012 to bring the Obama administration is moving forward with a plan to bolster the financial systems which was helped during 2008 with the TARP program. Overall, national economic growth is expected to average -0.5% in 2009.
6
Johnstown MSA were 1,700800 below the December 20072009 level, which represents the largest year over year decline since January 2002, with losses coming from both goods-producing andthe service-providing industries. However,industry while the opening of a technology park, and greatergoods producing industries have shown little change in their job levels. In the recent past, work on defense projects is expected to contributehas contributed to economic growth in the future. Local loan demandregion. However, a change in leadership due to the passing of a long time influential Congressman created cause for concern about the continued positive impact from the defense industry, although current activity in this sector remains good, in the commercial sector, but has slowed in the consumer sector.
Economic conditions are stronger in the State College PA market, but have also been negatively impacted by the struggling national economy. The unemployment rate for the State College MSA reached 5.1%5.5% late in December 2008,2010, which is the highest levelrepresents a 0.8% improvement since June 1992, butlast year and remains the lowest of all regions in the Commonwealth. Seasonally adjusted total nonfarm jobs for the MSA droppedincreased by 1,1002,100 since December 2007, representing the largest year over year loss since May 2005.2009. The Company plans to openopened a thirdnew branch office in the State College market during 20092010 as this area presents the Company with a more vibrant economic market and a much different demographic. A large percentage of the population in State College falls into the 18 to 34 year old age group, while potential customers in the Cambria/Somerset markets tend to be over 50 years of age. Overall, opportunities in the State College market are quite different and challenging, providing a promising source of business to profitably grow the Company.
The expansion of Marcellus Shale gas drilling could provide a meaningful economic opportunity for west-central Pennsylvania. The Marcellus Shale, which underlies a vast majority of the state, is the largest unconventional natural gas reserve in the world. There is enormous economic potential for Pennsylvania to take advantage of this reserve as new drilling techniques have unlocked vast resources previously impossible to reach. Technology developed recently at Penn State now allows drilling companies to reach the gas tucked inside a shale bed as much as two miles beneath the surface. The industry will create jobs in drilling and extraction, trucking and water treatment, gas line construction and maintenance, and in producing the materials for all of these needs. The projection for jobs and economic growth generated by the industry is a point of contention between industrialists and environmentalists. The environmental risks and potential regulation on drilling are key factors that could limit the potential growth and positive impact on the state.
EMPLOYEES
The Company employed 379374 people as of December 31, 2008,2010, in full- and part-time positions. Approximately 217199 non-supervisory employees of the BankCompany are represented by the United Steelworkers, of America, AFL-CIO-CLC, Local Union 2635-06/2635-07. The Bank’s current2635-06. In 2009, the Company successfully negotiated a new four year labor contract with the United Steelworkers Local that will expire on October 15, 2009.2013. The Bankcontract calls for annual wage increases of 1.5% in the first year, 2.0% in each of the second and third years, and 3.0% in the fourth year. The Company has not experienced a work stoppage since 1979. The BankCompany is one of 13 union-represented banks nationwide.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), among other things, identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. It requires U.S. federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. The FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to offerutilize brokered deposits and on other aspects of its operations. The FDICIA generally prohibits a bank from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized. An undercapitalized bank must develop a capital restoration plan, and its parent holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan.
As of December 31, 2008,2010, the Company believes that its bankBank subsidiary was well capitalized, based on the prompt corrective action guidelines described above. A bank’s capital category is determined solely for the purpose of applying the prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
TEMPORARY LIQUIDITY GUARANTEE PROGRAM
On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (TLGP). The TLGP was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the Department of Treasury, as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLGP the FDIC will (1)guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before June 30, 2009 and (2)provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdraw (NOW) accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts held at participating FDIC-insured institutions through December 31, 2009.2010. Coverage under the TLGP was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. As of December 31, 2008, theThe Company elected to participate in both guarantee programs.
7
The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with sectionSection 302(a) of the Sarbanes-Oxley act,Act, written certifications by the Company’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest, among other things, that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. In response to the Sarbanes-Oxley Act of 2002, the Company adopted a series of procedures to further strengthen its corporate governance practices. The Company also requires signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare. These procedures supplement the Company’s Code of Conduct Policy and other procedures that were previously in place. In 2005, the Company implemented a program designed to comply with Section 404 of the Sarbanes-Oxley Act. This program included the identification of key processes and accounts, documentation of the design of control effectiveness over process and entity level controls, and testing of the effectiveness of key controls.
PRIVACY PROVISIONS OF GRAMM-LEACH-BLILEY ACT
Under the Gramm-Leach-Bliley Act (GLB Act), federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about customers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provision of the GLB Act affects how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company believes it is in compliance with the various provisions of the GLB Act.
USA PATRIOT ACT OF 2001
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence
obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed a number of regulations that apply various requirements of the USA Patriot Act to financial institutions. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the Company.
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
The following Guide 3 information is includedDodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress. The federal agencies are given significant discretion in this Form 10-K as listed below:
8
AT DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
COST BASIS: | ||||||||||||
U.S. Treasury | $ | — | $ | 6,006 | $ | 6,011 | ||||||
U.S. Agency | 10,387 | 37,255 | 57,636 | |||||||||
Mortgage-backed securities | 114,380 | 98,484 | 113,460 | |||||||||
Other securities | 24 | 25 | 42 | |||||||||
Total cost basis of investment securities available for sale | $ | 124,791 | $ | 141,770 | $ | 177,149 | ||||||
Total fair value of investment securities available for sale | $ | 126,781 | $ | 140,582 | $ | 172,223 | ||||||
AT DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
COST BASIS: | ||||||||||||
U.S. Treasury | $ | 3,082 | $ | 3,153 | $ | 3,220 | ||||||
U.S. Agency | — | 3,473 | 3,471 | |||||||||
Mortgage-backed securities | 9,562 | 6,157 | 7,216 | |||||||||
Other securities | 3,250 | 5,750 | 6,750 | |||||||||
Total cost basis of investment securities held to maturity | $ | 15,894 | $ | 18,533 | $ | 20,657 | ||||||
Total fair value of investment securities held to maturity | $ | 16,323 | $ | 18,378 | $ | 20,460 | ||||||
Certain provisions of the following:
AT DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 110,197 | $ | 118,936 | $ | 91,746 | $ | 80,629 | $ | 72,011 | ||||||||||
Commercial loans secured by real estate | 353,870 | 285,115 | 269,781 | 249,204 | 225,661 | |||||||||||||||
Real estate-mortgage(1) | 218,928 | 214,839 | 209,728 | 201,111 | 201,406 | |||||||||||||||
Consumer | 23,804 | 16,676 | 18,336 | 20,391 | 23,285 | |||||||||||||||
Loans | 706,799 | 635,566 | 589,591 | 551,335 | 522,363 | |||||||||||||||
Less: Unearned income | 691 | 471 | 514 | 831 | 1,634 | |||||||||||||||
Loans, net of unearned income | $ | 706,108 | $ | 635,095 | $ | 589,077 | $ | 550,504 | $ | 520,729 | ||||||||||
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AT DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||
Non-accrual loans | ||||||||||||||||||||
Commercial | $ | 1,128 | $ | 3,553 | $ | 494 | $ | 2,315 | $ | 802 | ||||||||||
Commercial loans secured by real estate | 484 | 225 | 195 | 318 | 606 | |||||||||||||||
Real estate-mortgage | 1,313 | 875 | 1,050 | 1,070 | 2,049 | |||||||||||||||
Consumer | 452 | 585 | 547 | 446 | 412 | |||||||||||||||
Total | 3,377 | 5,238 | 2,286 | 4,149 | 3,869 | |||||||||||||||
Past due 90 days or more and still accruing | ||||||||||||||||||||
Consumer | — | — | 3 | 31 | — | |||||||||||||||
Total | — | — | 3 | 31 | — | |||||||||||||||
Other real estate owned | ||||||||||||||||||||
Commercial loans secured by real estate | 701 | — | — | — | — | |||||||||||||||
Real estate-mortgage | 494 | 42 | 3 | 130 | 15 | |||||||||||||||
Consumer | — | — | — | 5 | 10 | |||||||||||||||
Total | 1,195 | 42 | 3 | 135 | 25 | |||||||||||||||
Total non-performing assets | $ | 4,572 | $ | 5,280 | $ | 2,292 | $ | 4,315 | $ | 3,894 | ||||||||||
Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned | 0.65 | % | 0.83 | % | 0.39 | % | 0.78 | % | 0.75 | % | ||||||||||
Total restructured loans | $ | 1,360 | $ | 1,217 | $ | 1,302 | $ | 258 | $ | 5,685 |
The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of interest income actually recorded on such loans,deposit insurance for banks, savings institutions and (iii) the net reduction in interest income attributablecredit unions to such loans.
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Interest income due in accordance with original terms | $ | 198 | $ | 215 | $ | 214 | $ | 213 | $ | 469 | ||||||||||
Interest income recorded | — | (24 | ) | (55 | ) | (12 | ) | (19 | ) | |||||||||||
Net reduction in interest income | $ | 198 | $ | 191 | $ | 159 | $ | 201 | $ | 450 | ||||||||||
Bank and thrift holding companies with assets of the Company’s deposits and average rates paid thereon for the past three calendar years:
AT DECEMBER 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||
Demand: | ||||||||||||||||||||||||
Non-interest bearing | $ | 110,601 | — | % | $ | 105,306 | — | % | $ | 104,266 | — | % | ||||||||||||
Interest bearing | 64,683 | 1.01 | 67,132 | 1.76 | 57,817 | 1.05 | ||||||||||||||||||
Savings | 70,255 | 0.76 | 71,922 | 0.76 | 81,964 | 0.78 | ||||||||||||||||||
Money market | 107,843 | 2.24 | 158,947 | 3.80 | 172,029 | 3.34 | ||||||||||||||||||
Other time | 341,185 | 3.54 | 346,134 | 4.34 | 319,220 | 3.83 | ||||||||||||||||||
Total deposits | $ | 694,567 | 2.69 | $ | 749,441 | 3.54 | $ | 735,296 | 3.05 | |||||||||||||||
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YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest bearing demand | $ | 653 | $ | 1,184 | $ | 606 | ||||||
Savings | 535 | 549 | 644 | |||||||||
Money market | 2,417 | 6,040 | 5,743 | |||||||||
Certificates of deposit in denominations of $100,000 or more | 1,744 | 1,774 | 1,894 | |||||||||
Other time | 10,331 | 13,264 | 10,345 | |||||||||
Total interest expense | $ | 15,680 | $ | 22,811 | $ | 19,232 | ||||||
(IN THOUSANDS) | ||||
Three months or less | $ | 11,813 | ||
Over three through six months | 13,382 | |||
Over six through twelve months | 3,565 | |||
Over twelve months | 7,406 | |||
Total | $ | 36,166 | ||
The outstanding balancesDodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation and related information for federal funds purchasedso-called “golden parachute” payments, and other short-term borrowings are summarized as follows:
AT DECEMBER 31, 2008 | ||||||||
FEDERAL | OTHER | |||||||
FUNDS | SHORT-TERM | |||||||
PURCHASED | BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 119,920 | ||||
Maximum indebtedness at any month end | 5,685 | 138,855 | ||||||
Average balance during year | 20 | 71,617 | ||||||
Average rate paid for the year | 3.16 | % | 1.96 | % | ||||
Interest rate on year end balance | — | 0.60 |
AT DECEMBER 31, 2007 | ||||||||
FEDERAL | OTHER | |||||||
FUNDS | SHORT-TERM | |||||||
PURCHASED | BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 72,210 | ||||
Maximum indebtedness at any month end | 3,430 | 74,095 | ||||||
Average balance during year | 99 | 19,745 | ||||||
Average rate paid for the year | 5.18 | % | 4.89 | % | ||||
Interest rate on year end balance | — | 3.88 |
AT DECEMBER 31, 2006 | ||||||||
FEDERAL | OTHER | |||||||
FUNDS | SHORT-TERM | |||||||
PURCHASED | BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 49,091 | ||||
Maximum indebtedness at any month end | — | 61,728 | ||||||
Average balance during year | 43 | 32,778 | ||||||
Average rate paid for the year | 5.69 | % | 5.10 | % | ||||
Interest rate on year end balance | — | 5.48 |
11
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The banking industry is a consolidating industry in which acquisitions are frequent. However, some banking institutions may be reluctant to buy a unionized bank because of a perception that operating costs may be higher or that it could result in unionization of its work force. Additionally, there is the risk of a work stoppage ifDodd-Frank Act creates a new collective bargaining agreement cannot be negotiated beforeConsumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the end of the current agreement. Therefore, our stock price may be adversely affected because investors may conclude that there is a reduced likelihood that we will be acquiredauthority to prohibit “unfair, deceptive or could be an acquiror.
$10 billion in interest rates could reduce our income, cash flowsassets. Banks and asset values.
It is difficult to predict at this time what specific impact the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, will influence not only the interest we receive on our loans and investment securitiesDodd-Frank Act and the amount of interest we pay on deposits and borrowings, but it also will affect our ability to originate loans and obtain deposits and the value of our investment portfolio. If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn on our loans and other investments, our net interest income, and therefore our earnings, could be adversely affected. Our earnings also could be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other borrowings.
13
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 2. | PROPERTIES |
The principal offices of the Company and the Bank occupy the five-story AmeriServ Financial building at the corner of Main and Franklin Streets in Johnstown plus twelve floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 1314 other locations which are owned. Eight additional locations are leased with terms expiring from September 30, 2009January 1, 2010 to MarchAugust 31, 2018.
ITEM 3. | LEGAL PROCEEDINGS |
The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of both management and legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
15
ITEM 4. | (REMOVED AND RESERVED) |
ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of January 31, 2009,2011, the Company had 4,2014,069 shareholders of its common stock. AmeriServ Financial, Inc.’s common stock is traded on the NASDAQ Global Market System under the symbol ASRV.“ASRV.” The following table sets forth the actual high and low closing prices and the cash dividends declared per share for the periods indicated:
CASH | ||||||||||||
PRICES | DIVIDENDS | |||||||||||
HIGH | LOW | DECLARED | ||||||||||
Year ended December 31, 2008: | ||||||||||||
First Quarter | $ | 3.30 | $ | 2.21 | $ | 0.00 | ||||||
Second Quarter | 3.08 | 2.60 | 0.00 | |||||||||
Third Quarter | 2.98 | 2.37 | 0.00 | |||||||||
Fourth Quarter | 2.85 | 1.59 | 0.025 | |||||||||
Year ended December 31, 2007 | ||||||||||||
First Quarter | $ | 4.85 | $ | 4.52 | $ | 0.00 | ||||||
Second Quarter | 4.77 | 4.25 | 0.00 | |||||||||
Third Quarter | 4.26 | 3.33 | 0.00 | |||||||||
Fourth Quarter | 3.36 | 2.77 | 0.00 |
PRICES | CASH DIVIDENDS DECLARED | |||||||||||
HIGH | LOW | |||||||||||
Year ended December 31, 2010: | ||||||||||||
First Quarter | $ | 2.13 | $ | 1.42 | $ | 0.00 | ||||||
Second Quarter | 2.49 | 1.60 | 0.00 | |||||||||
Third Quarter | 1.89 | 1.40 | 0.00 | |||||||||
Fourth Quarter | 1.75 | 1.51 | 0.00 | |||||||||
Year ended December 31, 2009 | ||||||||||||
First Quarter | $ | 1.99 | $ | 1.43 | $ | 0.00 | ||||||
Second Quarter | 1.88 | 1.56 | 0.00 | |||||||||
Third Quarter | 2.09 | 1.54 | 0.00 | |||||||||
Fourth Quarter | 1.97 | 1.46 | 0.00 |
Information regarding restrictions on the Company’s ability to pay dividends is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources.” Information required by this section is presented in the “Equity Compensation Plan Information Table” section of the decision by the Company to accept a preferred stock investment under the U.S. Treasury’s CPP for a period of three years the Company is no longer permitted to repurchase stock or declare and pay common dividends without the consent of the U.S. Treasury.
Number Of | ||||||||||||
Shares That May | ||||||||||||
Total Number | Average Price | Yet Be | ||||||||||
Of Shares | Paid Per Share | Purchased | ||||||||||
October | 86,400 | $ | 2.53 | 656,800 | ||||||||
November | 411,600 | $ | 2.30 | 245,200 | ||||||||
December | 245,200 | $ | 2.32 | — |
16Shareholders.
ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA |
12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | |||||||||||||||||||||||||||
AmeriServ Financial, Inc. | $ | 100.00 | $ | 103.40 | $ | 87.60 | $ | 98.60 | $ | 55.40 | $ | 40.20 | ||||||||||||||||||||
NASDAQ Stock Market (US Companies) | 100.00 | 109.20 | 111.50 | 123.00 | 136.20 | 81.70 | ||||||||||||||||||||||||||
NASDAQ Bank Stocks | 100.00 | 113.60 | 111.50 | 126.80 | 101.60 | 79.70 | ||||||||||||||||||||||||||
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AT OR FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||||||
SUMMARY OF INCOME STATEMENT DATA: | ||||||||||||||||||||
Total interest income | $ | 47,819 | $ | 49,379 | $ | 46,565 | $ | 45,865 | $ | 50,104 | ||||||||||
Total interest expense | 18,702 | 25,156 | 22,087 | 21,753 | 26,638 | |||||||||||||||
Net interest income | 29,117 | 24,223 | 24,478 | 24,112 | 23,466 | |||||||||||||||
Provision for loan losses | 2,925 | 300 | (125 | ) | (175 | ) | 1,758 | |||||||||||||
Net interest income after provision for loan losses | 26,192 | 23,923 | 24,603 | 24,287 | 21,708 | |||||||||||||||
Total non-interest income | 16,424 | 14,707 | 12,841 | 10,209 | 14,012 | |||||||||||||||
Total non-interest expense | 35,637 | 34,672 | 34,692 | 49,420 | 50,091 | |||||||||||||||
Income (loss) from continuing operations before income taxes | 6,979 | 3,958 | 2,752 | (14,924 | ) | (14,371 | ) | |||||||||||||
Provision (benefit) for income taxes | 1,470 | 924 | 420 | (5,902 | ) | (5,845 | ) | |||||||||||||
Income (loss) from continuing operations | 5,509 | 3,034 | 2,332 | (9,022 | ) | (8,526 | ) | |||||||||||||
Loss from discontinued operations, net of income taxes * | — | — | — | (119 | ) | (1,193 | ) | |||||||||||||
Net income (loss) | $ | 5,509 | $ | 3,034 | $ | 2,332 | $ | (9,141 | ) | $ | (9,719 | ) | ||||||||
PER COMMON SHARE DATA FROM CONTINUING OPERATIONS: | ||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.25 | $ | 0.14 | $ | 0.11 | $ | (0.44 | ) | $ | (0.58 | ) | ||||||||
Diluted earnings (loss) per share | 0.25 | 0.14 | 0.11 | (0.44 | ) | (0.58 | ) | |||||||||||||
PER COMMON SHARE DATA FROM DISCONTINUED OPERATIONS*: | ||||||||||||||||||||
Basic loss per share | $ | — | $ | — | $ | — | $ | (0.01 | ) | $ | (0.08 | ) | ||||||||
Diluted loss per share | — | — | — | (0.01 | ) | (0.08 | ) | |||||||||||||
PER COMMON SHARE DATA: | ||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.25 | $ | 0.14 | $ | 0.11 | $ | (0.45 | ) | $ | (0.66 | ) | ||||||||
Diluted earnings (loss) per share | 0.25 | 0.14 | 0.11 | (0.45 | ) | (0.66 | ) | |||||||||||||
Cash dividends declared | 0.025 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
Book value at period end | 4.39 | 4.07 | 3.82 | 3.82 | 4.32 | |||||||||||||||
BALANCE SHEET AND OTHER DATA: | ||||||||||||||||||||
Total assets | $ | 966,929 | $ | 904,878 | $ | 895,992 | $ | 880,176 | $ | 1,009,232 | ||||||||||
Loans and loans held for sale, net of unearned income | 707,108 | 636,155 | 589,435 | 550,602 | 521,416 | |||||||||||||||
Allowance for loan losses | 8,910 | 7,252 | 8,092 | 9,143 | 9,893 | |||||||||||||||
Investment securities available for sale | 126,781 | 140,582 | 172,223 | 201,569 | 373,584 | |||||||||||||||
Investment securities held to maturity | 15,894 | 18,533 | 20,657 | 30,355 | 27,435 | |||||||||||||||
Deposits | 694,956 | 710,439 | 741,755 | 712,665 | 644,391 | |||||||||||||||
Total borrowings | 133,778 | 82,115 | 63,122 | 77,256 | 269,169 | |||||||||||||||
Stockholders’ equity | 113,252 | 90,294 | 84,684 | 84,474 | 85,219 | |||||||||||||||
Full-time equivalent employees | 353 | 351 | 369 | 378 | 406 |
AT OR FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||||||
SUMMARY OF INCOME STATEMENT DATA: | ||||||||||||||||||||
Total interest income | $ | 44,831 | $ | 47,455 | $ | 47,819 | $ | 49,379 | $ | 46,565 | ||||||||||
Total interest expense | 12,489 | 15,021 | 18,702 | 25,156 | 22,087 | |||||||||||||||
Net interest income | 32,342 | 32,434 | 29,117 | 24,223 | 24,478 | |||||||||||||||
Provision for loan losses | 5,250 | 15,150 | 2,925 | 300 | (125 | ) | ||||||||||||||
Net interest income after provision for loan losses | 27,092 | 17,284 | 26,192 | 23,923 | 24,603 | |||||||||||||||
Total non-interest income | 13,967 | 13,928 | 16,424 | 14,707 | 12,841 | |||||||||||||||
Total non-interest expense | 39,697 | 39,157 | 35,637 | 34,672 | 34,692 | |||||||||||||||
Income (loss) before income taxes | 1,362 | (7,945 | ) | 6,979 | 3,958 | 2,752 | ||||||||||||||
Provision (benefit) for income taxes | 80 | (3,050 | ) | 1,470 | 924 | 420 | ||||||||||||||
Net income (loss) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | $ | 3,034 | $ | 2,332 | |||||||||
PER COMMON SHARE DATA: | ||||||||||||||||||||
Basic earnings (loss) per share | $ | 0.01 | $ | (0.29 | ) | $ | 0.25 | $ | 0.14 | $ | 0.11 | |||||||||
Diluted earnings (loss) per share | 0.01 | (0.29 | ) | 0.25 | 0.14 | 0.11 | ||||||||||||||
Cash dividends declared | 0.00 | 0.00 | 0.025 | 0.00 | 0.00 | |||||||||||||||
Book value at period end | 4.07 | 4.09 | 4.39 | 4.07 | 3.82 | |||||||||||||||
BALANCE SHEET AND OTHER DATA: | ||||||||||||||||||||
Total assets | $ | 948,974 | $ | 970,026 | $ | 966,929 | $ | 904,878 | $ | 895,992 | ||||||||||
Loans and loans held for sale, net of unearned income | 678,181 | 722,904 | 707,108 | 636,155 | 589,435 | |||||||||||||||
Allowance for loan losses | 19,765 | 19,685 | 8,910 | 7,252 | 8,092 | |||||||||||||||
Investment securities available for sale | 164,811 | 131,272 | 126,781 | 140,582 | 172,223 | |||||||||||||||
Investment securities held to maturity | 7,824 | 11,611 | 15,894 | 18,533 | 20,657 | |||||||||||||||
Deposits | 801,216 | 786,011 | 694,956 | 710,439 | 741,755 | |||||||||||||||
Total borrowings | 27,385 | 64,664 | 146,863 | 95,200 | 63,122 | |||||||||||||||
Stockholders’ equity | 107,058 | 107,254 | 113,252 | 90,294 | 84,684 | |||||||||||||||
Full-time equivalent employees | 348 | 345 | 353 | 351 | 369 | |||||||||||||||
SELECTED FINANCIAL RATIOS: | ||||||||||||||||||||
Return on average total equity | 1.19 | % | (4.33 | )% | 5.93 | % | 3.51 | % | 2.74 | % | ||||||||||
Return on average assets | 0.13 | (0.51 | ) | 0.62 | 0.34 | 0.27 | ||||||||||||||
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end | 84.64 | 91.97 | 101.75 | 89.54 | 79.46 | |||||||||||||||
Ratio of average total equity to average assets | 11.25 | 11.72 | 10.40 | 9.79 | 9.73 | |||||||||||||||
Common stock cash dividends as a percent of net income available to common shareholders | — | — | 9.92 | — | — | |||||||||||||||
Interest rate spread | 3.51 | 3.37 | 3.21 | 2.54 | 2.67 | |||||||||||||||
Net interest margin | 3.79 | 3.72 | 3.64 | 3.06 | 3.12 | |||||||||||||||
Allowance for loan losses as a percentage of loans and loans held for sale, net of unearned income, at period end | 2.91 | 2.72 | 1.26 | 1.14 | 1.37 | |||||||||||||||
Non-performing assets as a percentage of loans, loans held for sale and other real estate owned, at period end | 2.12 | 2.53 | 0.65 | 0.83 | 0.39 | |||||||||||||||
Net charge-offs as a percentage of average loans and loans held for sale | 0.74 | 0.60 | 0.20 | 0.19 | 0.16 | |||||||||||||||
Ratio of earnings to fixed charges and preferred dividends:(1) | ||||||||||||||||||||
Excluding interest on deposits | 1.49 | X | (1.12 | )X | 3.17 | X | 2.60 | X | 1.93 | X | ||||||||||
Including interest on deposits | 1.10 | 0.53 | 1.37 | 1.16 | 1.12 | |||||||||||||||
Cumulative one year interest rate sensitivity gap ratio, at period end | 1.13 | 1.08 | 1.10 | 0.90 | 0.85 |
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AT OR FOR THE YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||||||
SELECTED FINANCIAL RATIOS: | ||||||||||||||||||||
Return on average total equity | 5.93 | % | 3.51 | % | 2.74 | % | (10.77 | )% | (11.44 | )% | ||||||||||
Return on average assets | 0.62 | 0.34 | 0.27 | (0.95 | ) | (0.76 | ) | |||||||||||||
Loans and loans held for sale, net of unearned income, as a percent of deposits, at period end | 101.75 | 89.54 | 79.46 | 77.26 | 80.92 | |||||||||||||||
Ratio of average total equity to average assets | 10.40 | 9.79 | 9.73 | 8.80 | 6.67 | |||||||||||||||
Common stock cash dividends as a percent of net income applicable to common stock | 9.92 | — | — | — | — | |||||||||||||||
Interest rate spread | 3.21 | 2.54 | 2.67 | 2.39 | 2.01 | |||||||||||||||
Net interest margin | 3.64 | 3.06 | 3.12 | 2.76 | 2.28 | |||||||||||||||
Allowance for loan losses as a percentage of loans and loans held for sale, net of unearned income, at period end | 1.26 | 1.14 | 1.37 | 1.66 | 1.90 | |||||||||||||||
Non-performing assets as a percentage of loans, loans held for sale and other real estate owned, at period end | 0.65 | 0.83 | 0.39 | 0.78 | 0.75 | |||||||||||||||
Net charge-offs as a percentage of average loans and loans held for sale | 0.20 | 0.19 | 0.16 | 0.11 | 0.68 | |||||||||||||||
Ratio of earnings to fixed charges and preferred dividends:(1) | ||||||||||||||||||||
Excluding interest on deposits | 3.17 | X | 2.60 | X | 1.93 | X | (1.35 | )X | 0.12 | X | ||||||||||
Including interest on deposits | 1.37 | 1.16 | 1.12 | 0.05 | 0.46 | |||||||||||||||
Cumulative one year interest rate sensitivity gap ratio, at period end | 1.10 | 0.90 | 0.85 | 0.89 | 0.78 |
(1) | The ratio of earnings to fixed charges and preferred dividends is computed by dividing the sum of income before taxes, fixed charges, and preferred dividends by the sum of fixed charges and preferred dividends. Fixed charges represent interest expense and are shown as both excluding and including interest on deposits. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) |
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007,2010, 2009, AND 2006
2010 SUMMARY OVERVIEW:
On January 25, 2011, AmeriServ inFinancial, Inc. (ASRV) released its financial results for the fourth quarter of 2008 exceeded2010 and for the full year of 2010. Net income for the fourth quarter was reported at $1,114,000 or $0.04 per share. This represents the fifth consecutive quarter of improved financial performance for ASRV and is an 83% increase over the third quarter of 2010 and a $2,793,000 increase in absolute dollars over the fourth quarter of 2009. These fourth quarter improved results enabled AmeriServ to record net income for the full year of 2010 of $1,282,000 or $0.01 per share. This performance produced a net income improvement of $6,177,000 over 2009, as each of the last three quarters of 2010 surpassed the same periodquarters of 20072009 by 75%. a wide margin.
This resulted fromimprovement cannot be attributed to a $71strong recovery of the national or regional economy as regional loan demand remains weak and regional unemployment remained well above 9% during the entire year. Rather, we believe that the improvement at ASRV is the result of Board and management actions recognizing that in a troubled economy it is important to introduce special monitoring activities to protect the franchise. The Asset Quality Task Force continues to meet weekly so as to recognize any weakness in specific loans. This vigilance provides an opportunity to both assist the borrower where possible and also to take the necessary steps to keep ASRV strong. The Asset Liability Management Committee also convenes regularly to measure the strength of capital and the necessary depth of liquidity. But perhaps most important of all is that those ASRV community bankers, who meet with customers regularly, continue to provide competitive banking products as well as helpful counsel. We understand that it is our responsibility to always provide our customers with a strong company, but side-by-side with friendly personal service. This has been the formula that has produced our improved performance in 2010.
A few years ago we promised that ASRV was going to return to its old fashioned community banking roots. That promise lies behind many of our activities in 2010. Specifically,
During 2010 ASRV provided $96 million increasefor residential mortgages to our neighbors in loans outstandingthis region. It was a record year for the ASRV mortgage bankers, and we and the local families they have helped salute their efforts.
During 2010 ASRV opened a 76 basis point increasenew branch bank on busy North Atherton Street in State College, Pennsylvania. This full service bank is already welcoming many new customers who have been attracted to a well located bank eager to serve them.
During 2010 our Commercial Banking Division was completely reorganized so as to provide the net interest margin.small and medium sized businesses in our region with quick access to responsive and professional relationship managers. We want every business in our market to know that we want their business and that our professionals will go the extra mile to get it, and keep it.
While working to push this positive agenda ahead, ASRV has also been rebuilding internally. During 2010 ASRV conducted nationwide executive searches to find new leadership for AmeriServ’s Trust Company and the Commercial Banking Division of AmeriServ Financial Bank. We were pleased with the quality of
the new executives we hired. Each of these executives has a strong record of achievement in previous assignments and is already focusing on a productive and profitable future for both of these key activities. |
It is especially important that we call to your attention our continuing plan to provide resources to AmeriServ’s Trust Company in support of its new strategic direction. The conservative balance sheetsize and scope of this wholly owned subsidiary provides the corporation with more customer service wealth management opportunities than many of our peers enjoy.
We do want you to know that AmeriServwe are quite aware of the economic challenges faced by our region and by America itself. It is this realistic view of conditions that has maintained since 2005 wascaused us to emphasize the need to make ASRV strong and safe. The capital levels at ASRV have been, and continue to be, well positioned forabove any requirement of the Pennsylvania Department of Banking or the Federal Reserve programBank of Philadelphia. Additionally, ASRV has been careful to lower interest rates. Atbuild and maintain a high level of liquidity during these volatile times when even the same time, AmeriServ had ample liquidity to respond to a number of attractive lending opportunities which increased net loans. The result was that the fourth quarter proved to be the strongest quarter recorded in 2008, with no unusual events.
It is when we consider the nature of reducing expenses, in 2008 expenses increased by 2.8%. This increase was not in salaries and benefits, but chiefly in external professional expenses to gain the best guidance as we manage through these turbulent times. Overall, we believe the fourth quarter and full year results were encouraging, especially considering the well documented troubles that persist in banking and which now have spread into the national and global economy.
PERFORMANCE OVERVIEW … The Board’s decision reflects our view that this additional capital further strengthens AmeriServ today — and for the future. Unfortunately, participation in the CPP forced us to suspend our recently announced common stock dividend. We requested an exception from this restriction in a detailed submission to the authorities, but our request was denied. We will continue to monitor the CPP program and file a new exception request as soon as conditions suggest an approval is possible. But for the present, as stated, we will strive to manage this 23% increase in capital to build an even stronger AmeriServ that is a sound, rewarding, long term investment.
20
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) | ||||||||||||
Net income (loss) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | |||||
Diluted earnings (loss) per share | 0.01 | (0.29 | ) | 0.25 | ||||||||
Return on average assets | 0.13 | % | (0.51 | )% | 0.62 | % | ||||||
Return on average equity | 1.19 | (4.33 | ) | 5.93 |
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS, EXCEPT | ||||||||||||
PER SHARE DATA AND RATIOS) | ||||||||||||
Net income | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
Diluted earnings per share | 0.25 | 0.14 | 0.11 | |||||||||
Return on average assets | 0.62 | % | 0.34 | % | 0.27 | % | ||||||
Return on average equity | 5.93 | 3.51 | 2.74 |
The Company reported a net loss of $4.9 million or $0.29 loss per diluted common share for 2009. This represented a decrease of $10.4 million from the 2008 net income of $5.5 million or $0.25 per diluted share for 2008. This represents an increase of $2.5 million or 82% over 2007 net income of $3.0 million or $0.14 per dilutedcommon share. The Company’s return on assets improved to 0.62% in 2008 compared to 0.34% in 2007. Our conservative balance sheet positioning allowed AmeriServ Financial to report improved financial performance during a historic period of turmoil and crisis within the financial markets. The Company has no direct exposure to sub-prime mortgages, Fannie Mae or Freddie Mac preferred stock, pooled trust preferred securities, or credit exposure to any of the large financial firms that have recently failed or been taken over. The growth in earnings in 2008 was driven by increased net interest income and higher non-interest revenue, which more than offset anAn increased provision for loan losses, reduced non-interest income, and higher non-interest expenses.
growth in net interest income that resulted from solid loan and deposit growth within our retail Bank in 2009 and effective balance sheet management in a higher provision for loan losses and increased income tax expense. The increase in non-interest revenue was attributable to the West Chester Capital Advisors acquisition, which was completed in March 2007. Also, the Company benefited from higher trust revenue and increased gains on asset sales in 2007.
NET INTEREST INCOME AND MARGIN. . . .TheMARGIN … The Company’s net interest income represents the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Net interest income is a primary source of the Company’s earnings; it is affected by interest rate fluctuations as well as changes in the amount and mix of earning assets and interest bearing liabilities. The following table summarizes the Company’s net interest income performance for each of the past three years:
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||
Interest income | $ | 47,819 | $ | 49,379 | $ | 46,565 | ||||||
Interest expense | 18,702 | 25,156 | 22,087 | |||||||||
Net interest income | 29,117 | 24,223 | 24,478 | |||||||||
Net interest margin | 3.64 | % | 3.06 | % | 3.12 | % |
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||
Interest income | $ | 44,831 | $ | 47,455 | $ | 47,819 | ||||||
Interest expense | 12,489 | 15,021 | 18,702 | |||||||||
Net interest income | 32,342 | 32,434 | 29,117 | |||||||||
Net interest margin | 3.79 | % | 3.72 | % | 3.64 | % |
2010 NET INTEREST PERFORMANCE OVERVIEW...OVERVIEW … The Company’s net interest income declined modestly in 2008 increased2010 by $4.9 milliononly $92,000 or 20.2% from the prior year0.28% when compared to 2009. Careful management of funding costs during a period when interest revenues declined and the balance sheet contracted allowed the Company to increase its net interest margin was up by 58seven basis points overto average 3.79% for the same comparative period. The Company’s balance sheet positioning allowed it to benefit from the significant Federal Reserve reductions in short-termfull year of 2010. This solid net interest rates and the return to a more traditional positively sloped yield curve. As a resultmargin performance is reflective of these changes, the Company’s interest expense onstrong liquidity position and its ability to reduce its funding costs during a period of deposit growth. Specifically, total deposits averaged $803 million for the full year of 2010, an increase of $41 million or 5.3% over 2009. Growth in non-interest bearing demand deposits was even greater at 7.4%. The Company believes that uncertainties in the economy have contributed to growth in money market accounts, certificates of deposit and borrowings declined at a faster rate than the interest income ondemand deposits as consumers and businesses have looked for safety in well capitalized community banks like AmeriServ Financial. Overall, total loans and investments.loans held for sale have declined by $45 million or 6.2% since December 31, 2009 as the Company has successfully focused on reducing its commercial real estate exposure and non-performing assets during this period of economic weakness. We expect the declining commercial real estate trend to continue during the first half of 2011. Additionally, an improved earning asset mix withour pipelines for new commercial and industrial lending opportunities continue to be thin. Consequently, we expect to book fewer investment securitiesnew commercial loans, which will cause the loan portfolio to shrink further through normal amortization and more loans outstanding also contributed to the increasedsome anticipated early loan pay-offs. This will put pressure on our net interest income and margin in 2008. Total loans increased by $71 million or 11.1% with $43 million of the growth occurring during the fourth quarter of 2008 as we were able to extend credit to quality borrowers within the communities in which we operate. Overall, net interest income has now increased for eight consecutive quarters.
COMPONENT CHANGES IN NET INTEREST INCOME: 20082010 VERSUS 2007...2009 … Regarding the separate components of net interest income, the Company’s total interest income for 2008in 2010 decreased by $1.6$2.6 million when compared to 2007.2009. This decrease was due to a 27an 18 basis point decreasedecline in the earning asset yield to 5.96%.5.26%, and a $9.9 million decrease in average earning assets due to the previously mentioned decline in loans. Investment securities have grown over this period, but not enough to absorb the overall decline in total loans. Within the earning asset base, the yield on the total loan portfolio decreased by 4514 basis points to 6.37%5.58% while the yield on total investment securities dropped by 54 basis points to 3.54%. Both of these yield declines reflect the impact of the lower interest rate environment that has now been in place for over 2 years. New investment securities and reflectsloans that are being booked typically have yields that are below the rate on the maturing instruments that they are replacing. Also the asset mix shift with fewer dollars invested in loans and more dollars invested in lower yielding short duration investment securities also negatively impacts the earning asset yield. Overall, the decline in loans combined with deposit growth caused the Company’s loan to deposit ratio to average 87.3% in 2010 compared to 95.1% in 2009.
The Company’s total interest expense for 2010 decreased by $2.5 million, or 16.9%, when compared to 2009. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 32 basis points to 1.75%. Management’s 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 an $11.1 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $43.1 million, but was partially offset by a $32 million increase in interest bearing deposits. Additionally, the Company’s funding mix also benefited from an $8.5 million increase in non-interest bearing demand deposits. Overall, in 2010 the Company had the discipline to further reduce its reliance on borrowings as a funding source as wholesale borrowings averaged only 2.3% of total assets. The Company also does not use brokered certificates of deposit as a funding source.
2009 NET INTEREST PERFORMANCE OVERVIEW … The Company’s net interest income in 2009 increased by $3.3 million, or 11.4%, from 2008 and the net interest margin rose by 8 basis points to 3.72% 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 yield curve in 2009. Specifically, total loans averaged $725 million in 2009, an increase of $83 million or 13.0% over 2008. This growth caused overall loan interest revenue to increase in 2009 despite the lower interest rate environment. The Company’s strong liquidity position had been supported by total deposits that averaged $763 million in 2009, an increase of $68 million or 9.8% over 2008. The Company believed that uncertainties in the financial markets and the economy has contributed to growth in money market accounts, certificates of deposit, and demand deposits as consumers looked for safety in well capitalized community banks like AmeriServ Financial Bank. Additionally, the Company benefited from a favorable $3.7 million decline in interest expense caused by the more rapid downward repricing of both deposits and Federal Home Loan Bank borrowings due to the market decline in short-term interest rates.
COMPONENT CHANGES IN NET INTEREST INCOME: 2009 VERSUS 2008 … Regarding the separate components of net interest income, the Company’s total interest income in 2009 decreased by $364,000 when compared to 2008. This decrease was due to a 52 basis point decline in the earning asset yield to 5.44%, that was partially mitigated by a $79 million increase in average earning assets due to the previously mentioned strong loan growth. Within the earning asset base, the yield on the total loan portfolio decreased by 65 basis points to 5.72% and reflected the lower interest rate environment in 20082009 as the Federal Reserve had reduced the federal funds rate by 400approximately 200 basis points duringin response to the financial market crisis that hit in the third quarter 2008. The total investment securities yield however, has increaseddecreased by five5 basis points to 4.13%4.08% while the yield on short-term money market funds dropped by 161 basis points to 0.35%. The Company took advantageBoth of the positively slopedthese yield curve in the second quarter of 2008 to position the investment portfolio for better future earnings by selling some ofdrops reflected the lower yielding securitiesinterest rate environment in the portfolio at a loss and replacing them with higher yielding securities with a modestly longer duration.
The $8.8$79 million, or 9.9%, increase in the volume of average earning assets was due to a $34.3an $83 million, or 5.6%13.0%, increase in average loans, partially offset by a $21.6$7 million, or 12.3%4.9%, decrease in average investment securities. TheThis loan growth was driven by increased
21
The Company’s total interest expense for 20082009 decreased by $6.5$3.7 million, or 25.7%19.7%, when compared to 2007.2008. This decrease in interest expense was due to a lower cost of funds. The totalfunds as the cost of funds for 2008 declined by 94 basis points to 2.75%both deposits and was driven down by lowerborrowings repriced downward with the reductions in short-term interest rates and a more favorable funding mix in 2008.rates. Specifically, the costscost of interest bearing deposits decreaseddeclined by 8567 basis points to 2.69%2.02%, while the cost of short-termall FHLB borrowings dropped by 293106 basis points to 1.96%1.22%. Total averageThis decrease in funding costs more than offset the additional interest expense associated
with a $46 million increase in the volume of interest bearing deposits decreased by $60.2 million or 9.3%liabilities due almost entirely to a decline in Trust Company specialty deposits as wholesale borrowings provided the Company with a lower cost funding source than these deposits for the majority of 2008. Wholesale borrowings averaged 9.3% of total assets in 2008.previously mentioned deposit growth. Additionally, the Company’s funding mix also benefited from a $5.3$3.9 million increase in non-interest bearing demand deposits and an increasedeposits. Overall, in retail money market deposits as customers have opted for short-term liquidity during this period of volatility and decline in the equity markets. With the recent increase in the Company’s loan to deposit ratio to slightly over 100%,2009 the Company expectshad the discipline to more actively utilize the trust specialty depositsfurther reduce its reliance on borrowings as a funding source in 2009 along with a more aggressive strategy to try to grow retail deposits.
The table that follows provides an analysis of net interest income on a tax-equivalent basis setting forth (i) average assets, liabilities, and stockholders’ equity, (ii) interest income earned on interest earning assets and interest expense paid on interest bearing liabilities, (iii) average yields earned on interest earning assets and average rates paid on interest bearing liabilities, (iv) interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing
22
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
INTEREST | INTEREST | INTEREST | ||||||||||||||||||||||||||||||||||
AVERAGE | INCOME/ | YIELD/ | AVERAGE | INCOME/ | YIELD/ | AVERAGE | INCOME/ | YIELD/ | ||||||||||||||||||||||||||||
BALANCE | EXPENSE | RATE | BALANCE | EXPENSE | RATE | BALANCE | EXPENSE | RATE | ||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Loans, net of unearned income | $ | 641,766 | $ | 41,100 | 6.37 | % | $ | 607,507 | $ | 41,654 | 6.82 | % | $ | 564,173 | $ | 37,693 | 6.64 | % | ||||||||||||||||||
Deposits with banks | 583 | 13 | 2.23 | 500 | 20 | 4.00 | 706 | 23 | 3.26 | |||||||||||||||||||||||||||
Federal funds sold | 114 | 4 | 3.54 | 2,278 | 121 | 5.26 | 62 | 3 | 5.21 | |||||||||||||||||||||||||||
Short-term investment in money market funds | 7,136 | 140 | 1.96 | 8,857 | 203 | 2.29 | 5,573 | 188 | 3.37 | |||||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||
Available for sale | 136,344 | 5,770 | 4.03 | 155,003 | 6,433 | 3.96 | 191,683 | 7,680 | 3.92 | |||||||||||||||||||||||||||
Held to maturity | 17,292 | 875 | 5.06 | 20,257 | 1,039 | 5.04 | 24,448 | 1,074 | 4.39 | |||||||||||||||||||||||||||
Total investment securities | 153,636 | 6,645 | 4.13 | 175,260 | 7,472 | 4.08 | 216,131 | 8,754 | 3.96 | |||||||||||||||||||||||||||
TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME | 803,235 | 47,902 | 5.96 | 794,402 | 49,470 | 6.23 | 786,645 | 46,661 | 5.93 | |||||||||||||||||||||||||||
Non-interest earning assets: | ||||||||||||||||||||||||||||||||||||
Cash and due from banks | 16,786 | 17,750 | 18,841 | |||||||||||||||||||||||||||||||||
Premises and equipment | 9,333 | 8,623 | 8,324 | |||||||||||||||||||||||||||||||||
Other assets | 72,249 | 70,369 | 68,920 | |||||||||||||||||||||||||||||||||
Allowance for loan losses | (7,837 | ) | (7,755 | ) | (8,750 | ) | ||||||||||||||||||||||||||||||
TOTAL ASSETS | $ | 893,766 | $ | 883,389 | $ | 873,980 | ||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||||||||||||||||||
Interest bearing demand | $ | 64,683 | $ | 654 | 1.01 | % | $ | 67,132 | $ | 1,184 | 1.76 | % | $ | 57,817 | $ | 606 | 1.05 | % | ||||||||||||||||||
Savings | 70,255 | 535 | 0.76 | 71,922 | 549 | 0.76 | 81,964 | 643 | 0.78 | |||||||||||||||||||||||||||
Money market | 107,843 | 2,417 | 2.24 | 158,947 | 6,040 | 3.80 | 172,029 | 5,741 | 3.34 | |||||||||||||||||||||||||||
Other time | 341,185 | 12,074 | 3.54 | 346,134 | 15,038 | 4.34 | 319,220 | 12,242 | 3.83 | |||||||||||||||||||||||||||
Total interest bearing deposits | 583,966 | 15,680 | 2.69 | 644,135 | 22,811 | 3.54 | 631,030 | 19,232 | 3.05 | |||||||||||||||||||||||||||
Federal funds purchased and other short-term borrowings | 71,636 | 1,403 | 1.96 | 19,844 | 972 | 4.89 | 32,821 | 1,672 | 5.09 | |||||||||||||||||||||||||||
Advances from Federal Home Loan Bank | 11,725 | 499 | 4.26 | 4,852 | 253 | 5.22 | 967 | 63 | 6.45 | |||||||||||||||||||||||||||
Guaranteed junior subordinated deferrable interest debentures | 13,085 | 1,120 | 8.57 | 13,085 | 1,120 | 8.57 | 13,085 | 1,120 | 8.57 | |||||||||||||||||||||||||||
TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE | 680,412 | 18,702 | 2.75 | 681,916 | 25,156 | 3.69 | 677,903 | 22,087 | 3.26 | |||||||||||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | 110,601 | 105,306 | 104,266 | |||||||||||||||||||||||||||||||||
Other liabilities | 9,816 | 9,703 | 6,765 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 92,937 | 86,464 | 85,046 | |||||||||||||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 893,766 | $ | 883,389 | $ | 873,980 | ||||||||||||||||||||||||||||||
Interest rate spread | 3.21 | 2.54 | 2.67 | |||||||||||||||||||||||||||||||||
Net interest income/net interest margin | 29,200 | 3.64 | % | 24,314 | 3.06 | % | 24,574 | 3.12 | % | |||||||||||||||||||||||||||
Tax-equivalent adjustment | (83 | ) | (91 | ) | (96 | ) | ||||||||||||||||||||||||||||||
Net interest income | $ | 29,117 | $ | 24,223 | $ | 24,478 | ||||||||||||||||||||||||||||||
23
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
AVERAGE BALANCE | INTEREST INCOME/ EXPENSE | YIELD/ RATE | AVERAGE BALANCE | INTEREST INCOME/ EXPENSE | YIELD/ RATE | AVERAGE BALANCE | INTEREST INCOME/ EXPENSE | YIELD/ RATE | ||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Loans, net of unearned income | $ | 701,502 | $ | 39,129 | 5.58 | % | $ | 725,241 | $ | 41,488 | 5.72 | % | $ | 641,766 | $ | 41,100 | 6.37 | % | ||||||||||||||||||
Deposits with banks | 1,795 | 1 | 0.06 | 1,782 | 4 | 0.23 | 583 | 13 | 2.23 | |||||||||||||||||||||||||||
Federal funds sold | 4,375 | 16 | 0.37 | 490 | 1 | 0.11 | 114 | 4 | 3.54 | |||||||||||||||||||||||||||
Short-term investment in money market funds | 3,834 | 4 | 0.10 | 9,022 | 30 | 0.35 | 7,136 | 140 | 1.96 | |||||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||
Available for sale | 151,691 | 5,281 | 3.48 | 131,804 | 5,340 | 4.05 | 136,344 | 5,770 | 4.03 | |||||||||||||||||||||||||||
Held to maturity | 9,574 | 433 | 4.52 | 14,346 | 630 | 4.36 | 17,292 | 875 | 5.06 | |||||||||||||||||||||||||||
Total investment securities | 161,265 | 5,714 | 3.54 | 146,150 | 5,970 | 4.08 | 153,636 | 6,645 | 4.13 | |||||||||||||||||||||||||||
TOTAL INTEREST EARNING ASSETS/ INTEREST INCOME | 872,771 | 44,864 | 5.26 | 882,685 | 47,493 | 5.44 | 803,235 | 47,902 | 5.96 | |||||||||||||||||||||||||||
Non-interest earning assets: | ||||||||||||||||||||||||||||||||||||
Cash and due from banks | 15,297 | 14,498 | 16,786 | |||||||||||||||||||||||||||||||||
Premises and equipment | 10,212 | 9,213 | 9,333 | |||||||||||||||||||||||||||||||||
Other assets | 80,206 | 72,574 | 72,249 | |||||||||||||||||||||||||||||||||
Allowance for loan losses | (21,218 | ) | (13,382 | ) | (7,837 | ) | ||||||||||||||||||||||||||||||
TOTAL ASSETS | $ | 957,268 | $ | 965,588 | $ | 893,766 | ||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing deposits: | ||||||||||||||||||||||||||||||||||||
Interest bearing demand | $ | 58,118 | $ | 176 | 0.30 | % | $ | 62,494 | $ | 256 | 0.41 | % | $ | 64,683 | $ | 654 | 1.01 | % | ||||||||||||||||||
Savings | 77,381 | 397 | 0.51 | 72,350 | 530 | 0.73 | 70,255 | 535 | 0.76 | |||||||||||||||||||||||||||
Money market | 186,560 | 1,622 | 0.87 | 169,823 | 2,437 | 1.44 | 107,843 | 2,417 | 2.24 | |||||||||||||||||||||||||||
Other time | 358,472 | 8,750 | 2.44 | 343,841 | 9,886 | 2.88 | 341,185 | 12,074 | 3.54 | |||||||||||||||||||||||||||
Total interest bearing deposits | 680,531 | 10,945 | 1.61 | 648,508 | 13,109 | 2.02 | 583,966 | 15,680 | 2.69 | |||||||||||||||||||||||||||
Federal funds purchased and other short-term borrowings | 3,119 | 22 | 0.71 | 21,028 | 140 | 0.67 | 71,636 | 1,403 | 1.96 | |||||||||||||||||||||||||||
Advances from Federal Home Loan Bank | 18,694 | 402 | 2.15 | 43,934 | 652 | 1.48 | 11,725 | 499 | 4.26 | |||||||||||||||||||||||||||
Guaranteed junior subordinated deferrable interest debentures | 13,085 | 1,120 | 8.57 | 13,085 | 1,120 | 8.57 | 13,085 | 1,120 | 8.57 | |||||||||||||||||||||||||||
TOTAL INTEREST BEARING LIABILITIES/INTEREST EXPENSE | 715,429 | 12,489 | 1.75 | 726,555 | 15,021 | 2.07 | 680,412 | 18,702 | 2.75 | |||||||||||||||||||||||||||
Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Demand deposits | 122,963 | 114,473 | 110,601 | |||||||||||||||||||||||||||||||||
Other liabilities | 11,188 | 11,428 | 9,816 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 107,688 | 113,132 | 92,937 | |||||||||||||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 957,268 | $ | 965,588 | $ | 893,766 | ||||||||||||||||||||||||||||||
Interest rate spread | 3.51 | 3.37 | 3.21 | |||||||||||||||||||||||||||||||||
Net interest income/net interest margin | 32,375 | 3.79 | % | 32,472 | 3.72 | % | 29,200 | 3.64 | % | |||||||||||||||||||||||||||
Tax-equivalent adjustment | (33 | ) | (38 | ) | (83 | ) | ||||||||||||||||||||||||||||||
Net interest income | $ | 32,342 | $ | 32,434 | $ | 29,117 | ||||||||||||||||||||||||||||||
2008 vs. 2007 | 2007 vs. 2006 | |||||||||||||||||||||||
INCREASE (DECREASE) | INCREASE (DECREASE) | |||||||||||||||||||||||
DUE TO CHANGE IN: | DUE TO CHANGE IN: | |||||||||||||||||||||||
AVERAGE | AVERAGE | |||||||||||||||||||||||
VOLUME | RATE | TOTAL | VOLUME | RATE | TOTAL | |||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||
INTEREST EARNED ON: | ||||||||||||||||||||||||
Loans, net of unearned income | $ | 3,258 | $ | (3,812 | ) | $ | (554 | ) | $ | 2,928 | $ | 1,033 | $ | 3,961 | ||||||||||
Deposits with banks | 4 | (11 | ) | (7 | ) | (14 | ) | 11 | (3 | ) | ||||||||||||||
Federal funds sold | (87 | ) | (30 | ) | (117 | ) | 118 | — | 118 | |||||||||||||||
Short-term investments in money market funds | (36 | ) | (27 | ) | (63 | ) | 33 | (18 | ) | 15 | ||||||||||||||
Investment securities: | ||||||||||||||||||||||||
Available for sale | (777 | ) | 114 | (663 | ) | (1,317 | ) | 70 | (1,247 | ) | ||||||||||||||
Held to maturity | (169 | ) | 5 | (164 | ) | (257 | ) | 222 | (35 | ) | ||||||||||||||
Total investment securities | (946 | ) | 119 | (827 | ) | (1,574 | ) | 292 | (1,282 | ) | ||||||||||||||
Total interest income | 2,193 | (3,761 | ) | (1,568 | ) | 1,491 | 1,318 | 2,809 | ||||||||||||||||
INTEREST PAID ON: | ||||||||||||||||||||||||
Interest bearing demand deposits | (42 | ) | (489 | ) | (531 | ) | 111 | 467 | 578 | |||||||||||||||
Savings deposits | (14 | ) | — | (14 | ) | (78 | ) | (16 | ) | (94 | ) | |||||||||||||
Money market | (1,591 | ) | (2,032 | ) | (3,623 | ) | (369 | ) | 668 | 299 | ||||||||||||||
Other time deposits | (213 | ) | (2,751 | ) | (2,964 | ) | 1,084 | 1,712 | 2,796 | |||||||||||||||
Federal funds purchased and other short-term borrowings | 561 | (129 | ) | 432 | (637 | ) | (63 | ) | (700 | ) | ||||||||||||||
Advances from Federal Home Loan Bank | 283 | (37 | ) | 246 | 199 | (9 | ) | 190 | ||||||||||||||||
Total interest expense | (1,016 | ) | (5,438 | ) | (6,454 | ) | 310 | 2,759 | 3,069 | |||||||||||||||
Change in net interest income | $ | 3,209 | $ | 1,677 | $ | 4,886 | $ | 1,181 | $ | (1,441 | ) | $ | (260 | ) | ||||||||||
2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||
INCREASE (DECREASE) DUE TO CHANGE IN: | INCREASE (DECREASE) DUE TO CHANGE IN: | |||||||||||||||||||||||
AVERAGE VOLUME | RATE | TOTAL | AVERAGE VOLUME | RATE | TOTAL | |||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||
INTEREST EARNED ON: | ||||||||||||||||||||||||
Loans, net of unearned income | $ | (1,350 | ) | $ | (1,009 | ) | $ | (2,359 | ) | $ | 1,146 | $ | (758 | ) | $ | 388 | ||||||||
Deposits with banks | — | (3 | ) | (3 | ) | 15 | (24 | ) | (9 | ) | ||||||||||||||
Federal funds sold | 3 | — | 3 | 9 | (12 | ) | (3 | ) | ||||||||||||||||
Short-term investments in money market funds | (16 | ) | 2 | (14 | ) | (78 | ) | (32 | ) | (110 | ) | |||||||||||||
Investment securities: | ||||||||||||||||||||||||
Available for sale | 805 | (864 | ) | (59 | ) | (156 | ) | (274 | ) | (430 | ) | |||||||||||||
Held to maturity | (216 | ) | 19 | (197 | ) | (265 | ) | 20 | (245 | ) | ||||||||||||||
Total investment securities | 589 | (845 | ) | (256 | ) | (421 | ) | (254 | ) | (675 | ) | |||||||||||||
Total interest income | (774 | ) | (1,855 | ) | (2,629 | ) | 671 | (1,080 | ) | (409 | ) | |||||||||||||
INTEREST PAID ON: | ||||||||||||||||||||||||
Interest bearing demand deposits | (17 | ) | (63 | ) | (80 | ) | (410 | ) | 12 | (398 | ) | |||||||||||||
Savings deposits | 40 | (173 | ) | (133 | ) | (5 | ) | — | (5 | ) | ||||||||||||||
Money market | 270 | (1,085 | ) | (815 | ) | 526 | (506 | ) | 20 | |||||||||||||||
Other time deposits | 439 | (1,575 | ) | (1,136 | ) | (2,158 | ) | (30 | ) | (2,188 | ) | |||||||||||||
Federal funds purchased and other short-term borrowings | (127 | ) | 9 | (118 | ) | (1,916 | ) | 653 | (1,263 | ) | ||||||||||||||
Advances from Federal Home Loan Bank | (1,248 | ) | 998 | (250 | ) | 1,046 | (893 | ) | 153 | |||||||||||||||
Total interest expense | (643 | ) | (1,889 | ) | (2,532 | ) | (2,917 | ) | (764 | ) | (3,681 | ) | ||||||||||||
Change in net interest income | $ | (131 | ) | $ | 34 | $ | (97 | ) | $ | 3,588 | $ | (316 | ) | $ | 3,272 | |||||||||
LOAN QUALITY. . .AmeriServQUALITY …AmeriServ Financial’s written lending policies require underwriting, loan documentation, and credit analysis standards to be met prior to funding any loan. After the loan has been approved and funded, continued periodic credit review is required. The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $250,000 within a 12-month period. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business loans $250,000 or less, residential mortgage loans and consumer loans. Individual loans within these pools are reviewed and removed from the pool if factors such as significant delinquency in payments of 90 days or more, bankruptcy, or other negative economic concerns indicate impairment. The following table sets forth information concerning AmeriServ Financial’sAmeriServ’s loan delinquency and other non-performing assets.
AT DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS, | ||||||||||||
EXCEPT PERCENTAGES) | ||||||||||||
Total loan past due 30 to 89 days | $ | 1,195 | $ | 3,559 | $ | 2,991 | ||||||
Total non-accrual loans | 3,377 | 5,238 | �� | 2,286 | ||||||||
Total non-performing assets(1) | 4,572 | 5,280 | 2,292 | |||||||||
Loan delinquency as a percentage of total loans and loans held for sale, net of unearned income | 0.17 | % | 0.56 | % | 0.51 | % | ||||||
Non-accrual loans as a percentage of total loans and loans held for sale, net of unearned income | 0.48 | 0.82 | 0.39 | |||||||||
Non-performing assets as a percentage of total loans and loans held for sale, net of unearned income, and other real estate owned | 0.65 | 0.83 | 0.39 | |||||||||
Non-performing assets as a percentage of total assets | 0.47 | 0.58 | 0.26 |
AT DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||
Total loan past due 30 to 89 days | $ | 2,791 | $ | 11,408 | $ | 4,396 | ||||||
Total non-accrual loans | 12,289 | 17,116 | 3,377 | |||||||||
Total non-performing assets including TDR(1) | 14,364 | 18,337 | 4,572 | |||||||||
Loan delinquency as a percentage of total loans and loans held for sale, net of unearned income | 0.41 | % | 1.58 | % | 0.62 | % | ||||||
Non-accrual loans as a percentage of total loans and loans held for sale, net of unearned income | 1.81 | 2.37 | 0.48 | |||||||||
Non-performing assets as a percentage of total loans and loans held for sale, net of unearned income, and other real estate owned | 2.12 | 2.53 | 0.65 | |||||||||
Non-performing assets as a percentage of total assets | 1.51 | 1.89 | 0.47 | |||||||||
Total classified loans (loans rated substandard or doubtful) | $ | 39,627 | $ | 48,587 | $ | 13,235 |
(1) | Non-performing assets are comprised of (i) loans that are on a non-accrual basis, (ii) loans that are contractually past due 90 days or more as to interest and principal payments, (iii) performing loans classified as troubled debt restructuring and |
As a result of successful ongoing problem credit resolution efforts, the Company realized asset quality improvements in 2010. These improvements are evidenced by reduced delinquency and lower levels have now remained well below 1%of non-performing assets and classified loans. Specifically, there was an $11 million decrease in non-performing assets during the fourth quarter of 2010. Only $1 million of this decline in non-performing assets related to actual loan losses realized through net charge-offs. The largest item responsible for the past three years and reflectlower level of non-performing assets in 2010 was the removal of a $9 million commercial loan relationship to a borrower in the restaurant industry from non-accrual status due to continued good loan portfolio quality. Non-performing assets have remainedoperating performance improvement. Classified loans also favorably dropped by $9.5 million in a range of $2.3 million2010 but still remain high by historical standards. This is due to $5.3 million for the past three years and ended 2008 at
24
ALLOWANCE AND PROVISION FOR LOAN LOSSES. . .LOSSES … As described in more detail in the Critical Accounting Policies and Estimates section of this MD&A, the Company uses a comprehensive methodology and procedural discipline to maintain an allowance for loan losses to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements;elements: 1) reservesan allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other
qualitative factors, which include delinquency and non-performing loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the bank’sCompany’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations whichthat accommodate each of the listed risk factors. The following table sets forth changes in the allowance for loan losses and certain ratios for the periods ended.
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES) | ||||||||||||||||||||
Balance at beginning of year | $ | 7,252 | $ | 8,092 | $ | 9,143 | $ | 9,893 | $ | 11,682 | ||||||||||
Transfer to reserve for unfunded loan commitments | — | — | — | — | (122 | ) | ||||||||||||||
Charge-offs: | ||||||||||||||||||||
Commercial | (405 | ) | (934 | ) | (769 | ) | (214 | ) | (1,107 | ) | ||||||||||
Commercial loans secured by real estate | (811 | ) | (12 | ) | (2 | ) | (113 | ) | (1,928 | ) | ||||||||||
Real estate-mortgage | (132 | ) | (79 | ) | (76 | ) | (145 | ) | (139 | ) | ||||||||||
Consumer | (365 | ) | (307 | ) | (397 | ) | (403 | ) | (867 | ) | ||||||||||
Total charge-offs | (1,713 | ) | (1,332 | ) | (1,244 | ) | (875 | ) | (4,041 | ) | ||||||||||
Recoveries: | ||||||||||||||||||||
Commercial | 299 | 40 | 115 | 77 | 410 | |||||||||||||||
Commercial loans secured by real estate | 39 | 38 | 41 | 15 | 7 | |||||||||||||||
Real estate-mortgage | 26 | 12 | 19 | 52 | 65 | |||||||||||||||
Consumer | 82 | 102 | 143 | 156 | 134 | |||||||||||||||
Total recoveries | 446 | 192 | 318 | 300 | 616 | |||||||||||||||
Net charge-offs | (1,267 | ) | (1,140 | ) | (926 | ) | (575 | ) | (3,425 | ) | ||||||||||
Provision for loan losses | 2,925 | 300 | (125 | ) | (175 | ) | 1,758 | |||||||||||||
Balance at end of year | $ | 8,910 | $ | 7,252 | $ | 8,092 | $ | 9,143 | $ | 9,893 | ||||||||||
Loans and loans held for sale, net of unearned income: | ||||||||||||||||||||
Average for the year | $ | 644,896 | $ | 610,685 | $ | 567,435 | $ | 528,545 | $ | 503,742 | ||||||||||
At December 31 | 707,108 | 636,155 | 589,435 | 550,602 | 521,416 | |||||||||||||||
As a percent of average loans and loans held for sale: | ||||||||||||||||||||
Net charge-offs | 0.20 | % | 0.19 | % | 0.16 | % | 0.11 | % | 0.68 | % | ||||||||||
Provision for loan losses | 0.45 | 0.05 | (0.02 | ) | (0.03 | ) | 0.35 | |||||||||||||
Allowance as a percent of each of the following: | ||||||||||||||||||||
Total loans and loans held for sale, net of unearned income | 1.26 | 1.14 | 1.37 | 1.66 | 1.90 | |||||||||||||||
Total delinquent loans (past due 30 to 89 days) | 745.61 | 203.77 | 270.54 | 209.65 | 298.79 | |||||||||||||||
Total non-accrual loans | 263.84 | 138.45 | 353.98 | 220.37 | 255.70 | |||||||||||||||
Total non-performing assets | 194.88 | 137.35 | 353.05 | 211.89 | 254.06 | |||||||||||||||
Allowance as a multiple of net charge-offs | 7.03 | x | 6.36 | x | 8.74 | x | 15.90 | x | 2.89 | x | ||||||||||
Total classified loans (loans rated substandard or doubtful) | $ | 13,235 | $ | 10,839 | $ | 15,163 | $ | 20,208 | $ | 22,921 |
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES) | ||||||||||||||||||||
Balance at beginning of year | $ | 19,685 | $ | 8,910 | $ | 7,252 | $ | 8,092 | $ | 9,143 | ||||||||||
Charge-offs: | ||||||||||||||||||||
Commercial | (835 | ) | (3,810 | ) | (405 | ) | (934 | ) | (769 | ) | ||||||||||
Commercial loans secured by real estate | (4,221 | ) | (840 | ) | (811 | ) | (12 | ) | (2 | ) | ||||||||||
Real estate-mortgage | (293 | ) | (128 | ) | (132 | ) | (79 | ) | (76 | ) | ||||||||||
Consumer | (282 | ) | (352 | ) | (365 | ) | (307 | ) | (397 | ) | ||||||||||
Total charge-offs | (5,631 | ) | (5,130 | ) | (1,713 | ) | (1,332 | ) | (1,244 | ) | ||||||||||
Recoveries: | ||||||||||||||||||||
Commercial | 226 | 601 | 299 | 40 | 115 | |||||||||||||||
Commercial loans secured by real estate | 48 | 14 | 39 | 38 | 41 | |||||||||||||||
Real estate-mortgage | 42 | 27 | 26 | 12 | 19 | |||||||||||||||
Consumer | 145 | 113 | 82 | 102 | 143 | |||||||||||||||
Total recoveries | 461 | 755 | 446 | 192 | 318 | |||||||||||||||
Net charge-offs | (5,170 | ) | (4,375 | ) | (1,267 | ) | (1,140 | ) | (926 | ) | ||||||||||
Provision for loan losses | 5,250 | 15,150 | 2,925 | 300 | (125 | ) | ||||||||||||||
Balance at end of year | $ | 19,765 | $ | 19,685 | $ | 8,910 | $ | 7,252 | $ | 8,092 | ||||||||||
Loans and loans held for sale, net of unearned income: | ||||||||||||||||||||
Average for the year | $ | 701,502 | $ | 725,241 | $ | 644,896 | $ | 610,685 | $ | 567,435 | ||||||||||
At December 31 | 678,181 | 722,904 | 707,108 | 636,155 | 589,435 | |||||||||||||||
As a percent of average loans and loans held for sale: | ||||||||||||||||||||
Net charge-offs | 0.74 | % | 0.60 | % | 0.20 | % | 0.19 | % | 0.16 | % | ||||||||||
Provision for loan losses | 0.75 | 2.09 | 0.45 | 0.05 | (0.02 | ) | ||||||||||||||
Allowance as a percent of each of the following: | ||||||||||||||||||||
Total loans and loans held for sale, net of unearned income | 2.91 | 2.72 | 1.26 | 1.14 | 1.37 | |||||||||||||||
Total delinquent loans (past due 30 to 89 days) | 708.17 | 172.55 | 202.68 | 203.77 | 270.54 | |||||||||||||||
Total non-accrual loans | 160.83 | 115.01 | 263.84 | 138.45 | 353.98 | |||||||||||||||
Total non-performing assets | 137.60 | 107.35 | 194.88 | 137.35 | 225.15 | |||||||||||||||
Allowance as a multiple of net charge-offs | 3.82 | x | 4.50 | x | 7.03 | x | 6.36 | x | 8.74 | x |
For the year-ended December 31, 2010, the Company recorded a $2.9$5.3 million loan loss provision for 2008loan losses compared to a $300,000 loan loss$15.2 million provision for 2007. The higher loanthe 2009 year, or a decrease of $9.9 million. Proactive monitoring of our asset quality has allowed us to carefully adjust downward the provision in 2008 was caused by the Company’s decision to strengthen its allowance for loan losses duein each quarter of 2010 while still maintaining solid loan loss reserve coverage ratios. We actively identify and seek prompt
resolution to problem credits in order to limit actual losses. Actual credit losses realized through charge-offs in 2010 approximated the downgrade of the rating classification of several specific performing commercial loans, uncertainties in the local and national economies and strong growth in total loans in 2008. Overallprovision levels, but are higher than 2009. For 2010, net charge-offs have trended upward over the past 4 years. Specifically, for 2008, net
25
The Company has no direct exposureappropriately strengthened its allowance for loan losses in 2009 in response to sub-prime mortgagedeterioration in asset quality. This deterioration in asset quality in 2009 was evidenced by higher levels of non-performing loans and classified loans than in 2008 and reflected the results of a comprehensive review of loans in either the commercial loan or investment portfolios.
The following schedule sets forth the allocation of the allowance for loan losses among various loan categories. This allocation is determined by using the consistent quarterly procedural discipline that was previously discussed. The entire allowance for loan losses is available to absorb future loan losses in any loan category.
AT DECEMBER 31, | ||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||
PERCENT OF | PERCENT OF | PERCENT OF | PERCENT OF | PERCENT OF | ||||||||||||||||||||||||||||||||||||
LOANS IN | LOANS IN | LOANS IN | LOANS IN | LOANS IN | ||||||||||||||||||||||||||||||||||||
EACH | EACH | EACH | EACH | EACH | ||||||||||||||||||||||||||||||||||||
CATEGORY | CATEGORY | CATEGORY | CATEGORY | CATEGORY | ||||||||||||||||||||||||||||||||||||
TO | TO | TO | TO | TO | ||||||||||||||||||||||||||||||||||||
AMOUNT | LOANS | AMOUNT | LOANS | AMOUNT | LOANS | AMOUNT | LOANS | AMOUNT | LOANS | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 2,841 | 15.6 | % | $ | 2,074 | 18.7 | % | $ | 2,361 | 15.6 | % | $ | 3,312 | 14.6 | % | $ | 2,173 | 13.8 | % | ||||||||||||||||||||
Commercial loans secured by real estate | 4,467 | 50.0 | 3,632 | 44.8 | 3,546 | 45.8 | 3,644 | 45.3 | 5,519 | 43.2 | ||||||||||||||||||||||||||||||
Real estate-mortgage | 325 | 31.1 | 316 | 33.9 | 424 | 35.6 | 381 | 36.5 | 346 | 38.9 | ||||||||||||||||||||||||||||||
Consumer | 925 | 3.3 | 835 | 2.6 | 1,000 | 3.0 | 1,022 | 3.6 | 1,074 | 4.1 | ||||||||||||||||||||||||||||||
Allocation to general risk | 352 | — | 395 | — | 761 | — | 784 | — | 781 | — | ||||||||||||||||||||||||||||||
Total | $ | 8,910 | 100.0 | % | $ | 7,252 | 100.0 | % | $ | 8,092 | 100.0 | % | $ | 9,143 | 100.0 | % | $ | 9,893 | 100.0 | % | ||||||||||||||||||||
AT DECEMBER 31, | ||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
AMOUNT | PERCENT OF LOANS IN EACH CATEGORY TO LOANS | AMOUNT | PERCENT OF LOANS IN EACH CATEGORY TO LOANS | AMOUNT | PERCENT OF LOANS IN EACH CATEGORY TO LOANS | AMOUNT | PERCENT OF LOANS IN EACH CATEGORY TO LOANS | AMOUNT | PERCENT OF LOANS IN EACH CATEGORY TO LOANS | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 3,851 | 11.5 | % | $ | 4,756 | 13.3 | % | $ | 2,841 | 15.6 | % | $ | 2,074 | 18.7 | % | $ | 2,361 | 15.6 | % | ||||||||||||||||||||
Commercial loans secured by real estate | 12,717 | 54.6 | �� | 12,692 | 54.9 | 4,467 | 50.0 | 3,632 | 44.8 | 3,546 | 45.8 | |||||||||||||||||||||||||||||
Real estate-mortgage | 1,117 | 31.1 | 1,015 | 29.2 | 1,004 | 31.1 | 979 | 33.9 | 1,206 | 35.6 | ||||||||||||||||||||||||||||||
Consumer | 206 | 2.8 | 204 | 2.6 | 246 | 3.3 | 172 | 2.6 | 218 | 3.0 | ||||||||||||||||||||||||||||||
Allocation to general risk | 1,874 | — | 1,018 | — | 352 | — | 395 | — | 761 | — | ||||||||||||||||||||||||||||||
Total | $ | 19,765 | 100.0 | % | $ | 19,685 | 100.0 | % | $ | 8,910 | 100.0 | % | $ | 7,252 | 100.0 | % | $ | 8,092 | 100.0 | % | ||||||||||||||||||||
Even though residential real estate-mortgage loans comprise 31.1% of the Company’s total loan portfolio, only $325,000$1,117,000 or 3.6%5.7% of the total allowance for loan losses is allocated against this loan category. The residential real estate-mortgage loan allocation is based upon the Company’s five-year historical average of actual loan charge-offs experienced in that category and other qualitative factors. The disproportionately higher allocations for commercial loans and commercial loans secured by real estate reflect the increased credit risk associated with this type of lending, the Company’s historical loss experience in these categories, and other qualitative factors.
Based on the Company’s allowance for loan loss methodology and the related assessment of the inherent risk factors contained within the Company’s loan portfolio, we believe that the allowance for loan losses was adequate at December 31, 20082010 to cover losses within the Company’s loan portfolio.
NON-INTEREST INCOME. . INCOME …Non-interest income for 20082010 totalled $16.4$14.0 million; an increase of $1.7 million$39,000, or 11.7%0.3%, from 2007.2009. Factors contributing to this increasedrelatively stable level of non-interest income in 20082010 included:
a $485,000, or 17.5% decrease in service charges on deposit accounts in 2010. Customers have maintained higher balances in their checking accounts, which have resulted in fewer overdraft fees in 2010. Additionally, regulatory changes which took effect in mid-August and are designed to limit customer overdraft fees on debit card transactions also negatively impacted deposit service charges.
26
a $307,000, or 47.2%, increase in gains realized on residential mortgage loan sales into the secondary market in 2010. As a result of another strong year of mortgage purchase and refinance activity in the Company’s primary market, there were $69 million of residential mortgage loans sold into the secondary market in 2010. Overall, the Company sold approximately 68% of its new residential mortgage loan production into the secondary market in order to help manage long term interest rate risk.
a $1.5 million decrease in revenue from bank owned life insurance (BOLI) due to fewer death claim payments in 2009.
a $1.2 million, or 16.2%, decline in trust and investment advisory fees due to reductions in the market value of assets managed due to lower equity and real estate values in 2009.
a $174,000, or 36.5%, increase in gains realized on residential mortgage loan sales into the secondary market in 2009. As a result of increased mortgage purchase and refinance activity in the Company’s primary market, there were $66 million of residential mortgage loans sold into the secondary market in 2009 compared to $37 million in 2008. Overall, the Company sold approximately 70% of its new residential mortgage loan production into the secondary market in 2009 in an effort to limit longer term interest rate risk.
the Company took advantage of market opportunities and generated $164,000 of gains on the sale of investment securities in 2009 compared to a $95,000 loss on a portfolio repositioning strategy executed in 2008.
NON-INTEREST EXPENSE. . . EXPENSE …Non-interest expense for 20082010 totalled $35.6$39.7 million; a $965,000$540,000, or 2.8%1.4%, increase from 2007.2009. Factors contributing to the higher non-interest expense in 20082010 included:
a $1.1 million, or 5.2%, increase in salaries and employee benefits expense due to higher medical insurance costs, increased pension expense, and greater incentive compensation expense reflecting increased commission payments related to the residential mortgage activity.
Other expense decreased by $613,000 primarily due to higher credit related costs in the prior year. Specifically, other real estate owned expense decreased by $749,000 due to the write-down and operating costs associated with an increased number of other real-estate owned properties in 2009.
a $331,000 or 8.2% increase in professional fees due to increased consulting expenses and recruitment costs in the Trust company and higher legal fees and loan workout costs at the Company.
Non-interest expense for 2007 totaled $34.72009 totalled $39.2 million; a $3.5 million, a $20,000 decreaseor 9.9%, increase from 2006. This overall decline in total non-interest expense occurred even after the inclusion of $820,000 of non-interest expenses from the acquired West Chester Capital Advisors.2008. Factors contributing to the net decrease inhigher non-interest expense in 20072009 included:
a $1.6 million increase in FDIC deposit insurance expense due to the recognition of a $435,000 expense for a special five basis point assessment mandated for all banks and higher recurring insurance premiums due to the need to strengthen the deposit insurance fund.
a $1.3 million, or 6.8%, increase in salaries and employee benefits expense due to higher sales, related incentive compensation, normal merit increases, severance costs and greater pension expense.
Other expense increased by $1.1 million primarily due to credit related costs. Specifically, other real estate owned expense increased by $715,000 due to the write-down and operating costs associated with an increased number of other real-estate owned properties while the Company also had to fund its reserve for unfunded commitments by an additional $118,000 in 2009.
a $450,000 increase in professional fees due to higher legal costs, recruitment fees, and greater consulting costs associated with a comprehensive review of the Trust Company in the fourth quarter of 2009.
a $757,000 decrease in core deposit amortization as a branch core deposit intangible was fully amortized by the end of the first quarter of 2009.
INCOME TAX EXPENSE. . . EXPENSE …The Company recorded an income tax expense of $1.5$80,000 or 5.9% effective tax rate in 2010 compared to income tax benefit of $3.1 million in 2008 which reflectsor an effective tax rate of 21.1%.38.4% in 2009. The income tax expense recorded in 20072008 was $924,000$1.5 million or an effective tax rate of 23.3%21.1%. The Company was able to record a lower effective tax rate in 2008 despite an increased level of pre-tax incomeall periods due to greater tax-free revenue from BOLI. BOLI is the Company’s largest source of tax-free income. The Company’s deferred tax asset declined to $12.7was $16.1 million at December 31, 2008 due2010 and relates primarily to the ongoing utilization of net operating loss carryforwards and improved market value of the AFS investment portfolio.
27
The commercial lending segment reported net income wasof $497,000 in 2010 compared to a net loss of $6.4 million in 2009 and net income of $2.3 million in 2008 compared2008. The increased earnings in 2010 were caused primarily by a $9.6 million reduction in the provision for loan losses due to $3.2 millionthe previously discussed improvements in 2007 and $2.6 millionasset quality. The loss in 2006. The reduced net income contribution in 20082009, however, was caused by an increased provision for loan losses due to the previously discussed strengthening of the allowance for loan losses as a result of the deterioration in asset quality experienced in 2009. The loan loss provision allocated to this segment was $12.3 million greater in 2009. Non-interest expenses also increased in 2009 due to higher other real-estate owned expenses and higher non-interest expenses.other loan work out related costs. These factorsnegative items more than offset an increased level of net interest income that resulted fromdue to the strongcommercial loan growth in commercial real-estate loans achieved in 2008. Assets within the commercial lending segment increased by $68 million or 16.9% during 2008 after achieving growth of 21.2% in 2007.
The trust segment’s net income contribution was $222,000 in 2010 compared to $148,000 in 2009 and $1.3 million in 2008 compared to $1.8 million2008. The increase in 2007. One factor responsiblenet income in 2010 resulted from a decline in expenses particularly within our investment advisory subsidiary. The major reason for the decrease between yearsin 2009 was due to less investment advisory and trustwealth management revenue as a result of fewer assets under management due toresulting from the declines experienced in the equity markets during 2008. Another factor causing the drop between years was increased non-interest expenses due in part to higher legal and professional costs incurred in conjunction with the movement of the union collective investment Build Fund into liquidation status. The Company expects this fund to be liquidated over a 3 to 5 year period given the current real estate markets. Specifically, the most significant decline has been in the value of real-estate assets in the
BUILD and ERECT Funds (a fund that invests union pension dollars in construction projects that utilize union labor) where the market conditions.value of assets has declined from $325 million at December 31, 2008 to $193 million at December 31, 2010. The trust segment’s net income contributionBUILD Fund is in 2007 amounted to $1.8 million, which was up $99,000 from 2006. Successful new business development and the acquisition of West Chester Capital Advisors caused revenues to increase at a faster pace than expenses in 2007.liquidation status. Overall, the fair market value of trust assets totaled $1.55$1.37 billion at December 31, 2008,2010, a decreasemodest increase of $329$8.4 million, or 17.5%0.6%, from the December 31, 20072009 total of $1.88$1.36 billion.
The investment/parent segment reported net loss of $699,000 in 2010 compared to net income of $379,000 in 2009 and a net loss of $783,000 in 2008 compared to losses of $3.9 million2008. The weaker performance in 2007 and $3.2 million2010 reflects lower net interest income as declining yields in 2006. Thethe investment securities portfolio have negatively impacted this segment. In 2009, the Company’s balance sheet positioning allowed it to benefit from the significant Federal Reserve reductions in short-term interest rates and the return to a more traditional positively sloped yield curve, which has caused net interest income in this segment to increase. This wasAlso, the primary factor responsible for the reduced net lossCompany realized $164,000 of investment security gains in 2008. In addition, the previously discussed investment portfolio repositioning2009 compared to improve the portfolio yield also benefitted this segment.
For greater discussion on the future strategic direction of the Company’s key business segments, see “Management’s Discussion and Analysis—Forward Looking Statements which begins on page 35.
BALANCE SHEET. . . SHEET …The Company’s total consolidated assets were $967$949 million at December 31, 2008 compared with $9052010, which was down by $21 million or 2.2% from the $970 million level at December 31, 2009. The Company’s loans and loan held for sale totaled $678 million at December 31, 2007, which represents an increase2010, a decrease of $62$44.7 million or 6.9%. This higher level6.2% from year-end 2009 as the Company focused on reducing its commercial real-estate loan concentration in 2010. Investment securities and short-term money market investments increased by $29.4 million in 2010 due to principal repayments in the loan portfolio being reinvested in the securities portfolio. The $1.3 million increase in premises and equipment related to the costs associated with the construction of assets resulted primarily from an increased level of loans. a new branch office in the State College market.
The Company’s loansdeposits totaled $707$801 million at December 31, 2008,2010, which was $15.2 million or 1.9% higher than December 31, 2009, due to an increase of $71 million or 11.2% from year-end 2007 duein almost all deposit categories. We believe that uncertainties in the financial markets and the economy have contributed to commercial real estate loan growth. The Company’s commercial loan pipelines remain strong as we enter 2009 we expect to see continueda second consecutive year of growth in new loan fundingsour deposits as consumers have looked for safety in well capitalized community banks like AmeriServ Financial Bank. As a result of this deposit growth and asset shrinkage, we were able to reduce FHLB borrowings by $37.3 million during the first half2010. Total FHLB borrowings now represent 1.5% of 2009. Investment securities declined by $16 million in 2008 duetotal assets compared to increased calls of agency securities and normal portfolio cash flow. The Company has elected to utilize this excess cash to fund loan growth. Short-term investments in money market funds increased to $16 million as a portion of the recently received proceeds from the $21 million Capital Purchase Program have been temporarily invested in this product.
LIQUIDITY …The Bank’sCompany’s liquidity position has been strong during the last several years when the Bank was undergoing a turnaround and a return to traditional community banking.years. Our core retail deposit base has remained stable throughout this periodgrown over the past two years and has been more than adequate to fund the Bank’sCompany’s operations. Cash flow from maturities, prepayments and amortization of securities was used to either fund the strong net loan growth that the Company has achieved over the past several years.(2009) or paydown borrowings (2010). We strive to operate our loan to deposit ratio in a range of 85% to 95%. At the end of 2008,December 31, 2010, the Company’s loan to
28
Liquidity can also be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and cash equivalents increaseddecreased by $6$7.0 million from December 31, 2007,2009, to December 31, 2008,2010, due to $52$22.1 million of cash used in financing activities. This was partially offset by $12.4 million of cash provided by financinginvesting activities and $6$2.7 million of cash provided by operating activities. This was partially offset by $52 million of cash used in investing activities. Within investing activities, cash provided by investment security maturities and sales exceeded purchases of new investment securities by $22 million. However, the net use of cash in investing activities was due to loan growth. Cash advanced for new loan fundings and purchases totaled $209totalled $86.9 million and was $72$42.8 million higherlower than the $137$129.7 million of cash received from loan principal payments and sales. Cash used for new investment security purchases exceeded
maturities and sales by $29.8 million. Within financing activities, the Company experienceddeposits increased by $16.3 million, which was used to help pay down short-term borrowings by $21.2 million.
The holding company had a net $17 million decline in deposits due to reduced certificatestotal of deposit. The Company more than replaced these deposits with short-term FHLB borrowings and advances, which we chose to increase by $52 million due to more attractive funding costs. The CPP preferred stock issuance also provided the Company with $21$16.7 million of cash, from financing activities.
Financial institutions must maintain liquidity to meet day-to-day requirements of depositors and borrowers, take advantage of market opportunities, and provide a cushion against unforeseen needs. Liquidity needs can be met by either reducing assets or increasing liabilities. Sources of asset liquidity are provided by short-term investment securities, time deposits with banks, federal funds sold, and short-term investments in money market funds, banker’s acceptances, and commercial paper.funds. These assets totaled $42$29 million at December 31, 20082010 and $8$33 million at December 31, 2007.2009. Maturing and repaying loans, as well as the monthly cash flow associated with mortgage-backed securities and security maturities are other significant sources of asset liquidity for the Company.
Liability liquidity can be met by attracting deposits with competitive rates, using repurchase agreements, buying federal funds, or utilizing the facilities of the Federal Reserve or the Federal Home Loan Bank systems. The Company utilizes a variety of these methods of liability liquidity. Additionally, the Company’s subsidiary bankBank is a member of the Federal Home Loan Bank, which provides the opportunity to obtain short- to longer-term advances based upon the Bank’sCompany’s investment in assets secured by one- to four-family residential real estate. At December 31, 2008,2010, the bankCompany had immediately available $183$244 million of overnight borrowing availability at the FHLB, $36 million of short-term borrowing availability at the Federal Reserve Bank and $10$23 million of unsecured federal funds lines with correspondent banks. The Company believes it has ample liquidity available to fund outstanding loan commitments if they were fully drawn upon.
CAPITAL RESOURCES. . .RESOURCES … The Company meaningfully exceeds all regulatory capital ratios for each of the periods presented and is considered well capitalized. The asset leverage ratio was 12.15% and11.20%, the Tier 1 capital ratio was 14.66%15.27%, and the risk based capital ratio was 16.54% at December 31, 2008 compared to 9.74% and 12.79% at December 31, 2007. The2010. Note that the impact of other comprehensive loss is excluded from the regulatory capital ratios. At December 31, 2008,2010, accumulated other comprehensive loss amounted to $4.2$4.9 million. The Company’s tangible equity to assets ratio was 8.90%10.05% and its tangible common equity to assets ratio was 8.30%7.94% at December 31, 2008.2010. We anticipate that our strong capital ratios maywill increase further increase in 20092011 due to the retention of all earnings, thatwhich will be partially offset by preferred dividend requirements and growth of thelimited balance sheet.
Our decision to accept the $21 million CPP preferred stock investment in December 2008 did strengthen our capital ratios. However as a result of this decision, for a period of three years we are no longer permitted to repurchase stock or declare and pay common dividends without the consent of the U.S. Treasury.
INTEREST RATE SENSITIVITY. . .SENSITIVITY … Asset/liability management involves managing the risks associated with changing interest rates and the resulting impact on the Company’s net interest income, net income and capital. The management and measurement of interest rate risk at AmeriServ Financialthe Company is performed by using the following tools: 1) simulation modeling, which analyzes the impact of interest rate changes on net interest income, net income and capital levels over specific future time periods. The simulation modeling forecasts earnings under a variety of scenarios that incorporate changes in the absolute level of interest rates, the shape of the yield curve, prepayments and changes in the volumes and rates of various loan and deposit categories. The simulation modeling incorporates assumptions about reinvestment and the repricing characteristics of certain assets and liabilities without stated contractual maturities; 2) market value of portfolio equity sensitivity analysis, and 3) static GAP analysis, which analyzes the extent to which interest rate sensitive assets and interest rate sensitive liabilities are matched at specific points in time. The overall interest rate risk position and strategies are reviewed by senior management and the Company’s Board of Directors on an ongoing basis.
29
OVER | OVER | |||||||||||||||||||
3 MONTHS | 6 MONTHS | |||||||||||||||||||
3 MONTHS | THROUGH | THROUGH | OVER | |||||||||||||||||
OR LESS | 6 MONTHS | 1 YEAR | 1 YEAR | TOTAL | ||||||||||||||||
INTEREST SENSITIVITY PERIOD | (IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES) | |||||||||||||||||||
RATE SENSITIVE ASSETS: | ||||||||||||||||||||
Loans and loans held for sale | $ | 225,644 | $ | 55,561 | $ | 93,070 | $ | 323,923 | $ | 698,198 | ||||||||||
Investment securities | 12,207 | 23,238 | 34,638 | 72,592 | 142,675 | |||||||||||||||
Short-term assets | 17,179 | — | — | — | 17,179 | |||||||||||||||
Regulatory stock | 7,614 | — | — | 2,125 | 9,739 | |||||||||||||||
Bank owned life insurance | — | — | 32,929 | — | 32,929 | |||||||||||||||
Total rate sensitive assets | $ | 262,644 | $ | 78,799 | $ | 160,637 | $ | 398,640 | $ | 900,720 | ||||||||||
RATE SENSITIVE LIABILITIES: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Non-interest bearing deposits | $ | — | $ | — | $ | — | $ | 116,372 | $ | 116,372 | ||||||||||
NOW | 4,379 | — | — | 56,521 | 60,900 | |||||||||||||||
Money market | 116,667 | — | — | 13,025 | 129,692 | |||||||||||||||
Other savings | 17,670 | — | — | 53,012 | 70,682 | |||||||||||||||
Certificates of deposit of $100,000 or more | 11,813 | 13,382 | 3,565 | 7,406 | 36,166 | |||||||||||||||
Other time deposits | 104,374 | 25,239 | 35,546 | 115,985 | 281,144 | |||||||||||||||
Total deposits | 254,903 | 38,621 | 39,111 | 362,321 | 694,956 | |||||||||||||||
Borrowings | 119,932 | 12 | 3,029 | 23,890 | 146,863 | |||||||||||||||
Total rate sensitive liabilities | $ | 374,835 | $ | 38,633 | $ | 42,140 | $ | 386,211 | $ | 841,819 | ||||||||||
INTEREST SENSITIVITY GAP: | ||||||||||||||||||||
Interval | (112,191 | ) | 40,166 | 118,497 | 12,429 | — | ||||||||||||||
Cumulative | $ | (112,191 | ) | $ | (72,025 | ) | $ | 46,472 | $ | 58,901 | $ | 58,901 | ||||||||
Period GAP ratio | 0.70 | X | 2.04 | X | 3.81 | X | 1.03 | X | ||||||||||||
Cumulative GAP ratio | 0.70 | 0.83 | 1.10 | 1.07 | ||||||||||||||||
Ratio of cumulative GAP to total assets | (11.60 | )% | (7.45 | )% | 4.81 | % | 6.09 | % |
INTEREST SENSITIVITY PERIOD | 3 MONTHS OR LESS | OVER 3 MONTHS THROUGH 6 MONTHS | OVER 6 MONTHS THROUGH 1 YEAR | OVER 1 YEAR | TOTAL | |||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS AND PERCENTAGES) | ||||||||||||||||||||
RATE SENSITIVE ASSETS: | ||||||||||||||||||||
Loans and loans held for sale | $ | 202,515 | $ | 52,899 | $ | 86,290 | $ | 316,712 | $ | 658,416 | ||||||||||
Investment securities | 18,276 | 9,075 | 15,364 | 129,920 | 172,635 | |||||||||||||||
Short-term assets | 5,177 | — | — | — | 5,177 | |||||||||||||||
Regulatory stock | 7,233 | — | — | 2,125 | 9,358 | |||||||||||||||
Bank owned life insurance | — | — | 34,466 | — | 34,466 | |||||||||||||||
Total rate sensitive assets | $ | 233,201 | $ | 61,974 | $ | 136,120 | $ | 448,757 | $ | 880,052 | ||||||||||
RATE SENSITIVE LIABILITIES: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Non-interest bearing deposits | $ | — | $ | — | $ | — | $ | 127,870 | $ | 127,870 | ||||||||||
NOW | 4,442 | — | — | 54,764 | 59,206 | |||||||||||||||
Money market | 150,631 | — | — | 22,603 | 173,234 | |||||||||||||||
Other savings | 19,190 | — | — | 57,572 | 76,762 | |||||||||||||||
Certificates of deposit of $100,000 or more | 12,796 | 21,695 | 5,321 | 10,996 | 50,808 | |||||||||||||||
Other time deposits | 87,089 | 27,543 | 47,069 | 151,635 | 313,336 | |||||||||||||||
Total deposits | 274,148 | 49,238 | 52,390 | 425,440 | 801,216 | |||||||||||||||
Borrowings | 4,565 | 15 | 29 | 22,776 | 27,385 | |||||||||||||||
Total rate sensitive liabilities | $ | 278,713 | $ | 49,253 | $ | 52,419 | $ | 448,216 | $ | 828,601 | ||||||||||
INTEREST SENSITIVITY GAP: | ||||||||||||||||||||
Interval | (45,512 | ) | 12,721 | 83,701 | 541 | — | ||||||||||||||
Cumulative | $ | (45,512 | ) | $ | (32,791 | ) | $ | 50,910 | $ | 51,451 | $ | 51,451 | ||||||||
Period GAP ratio | 0.84 | X | 1.26 | X | 2.60 | X | 1.00 | X | ||||||||||||
Cumulative GAP ratio | 0.84 | 0.90 | 1.13 | 1.06 | ||||||||||||||||
Ratio of cumulative GAP to total assets | (4.80 | )% | (3.46 | )% | 5.36 | % | 5.42 | % |
When December 31, 2008,2010, is compared to December 31, 2007,2009, there has been limited change in the ratio of theCompany’s modestly positive cumulative GAP to total assetsratio through one year became more positive due to an anticipated increase in asset prepayment speeds.year. While the Company does have a negative gapGAP position through six months, the absolute low level of rates makes this table more difficult to analyze since there is little room for certain liabilities to reprice downward further.
Management places primary emphasis on simulation modeling to manage and measure interest rate risk. The Company’s asset/liability management policy seeks to limit net interest income variability over the first twelve months of the forecast period to +/-7.5%, which include interest rate movements of 200 basis points. Additionally, the Company also uses market value sensitivity measures to further evaluate the balance sheet exposure to changes in interest rates. The Company monitors the trends in market value of portfolio equity sensitivity analysis on a quarterly basis.
The following table presents an analysis of the sensitivity inherent in the Company’s net interest income and market value of portfolio equity. The interest rate scenarios in the table compare the Company’s base forecast, which was prepared using a flat interest rate scenario, to scenarios that reflect immediate interest rate changes of 100 and 200 basis points. Note that we suspended the 200 basis point downward rate shock since it has little value due to the absolute low level of interest rates. Each rate scenario contains unique prepayment and repricing assumptions that are applied to the Company’s existing balance sheet that was developed under the flat interest rate scenario.
VARIABILITY OF | CHANGE IN | |||||||
NET INTEREST | MARKET VALUE OF | |||||||
INTEREST RATE SCENARIO | INCOME | PORTFOLIO EQUITY | ||||||
200 bp increase | (0.7 | )% | 6.6 | % | ||||
100 bp increase | 1.7 | 6.2 | ||||||
100 bp decrease | (9.6 | ) | (14.9 | ) |
INTEREST RATE SCENARIO | VARIABILITY OF NET INTEREST INCOME | CHANGE IN MARKET VALUE OF PORTFOLIO EQUITY | ||||||
200 bp increase | 2.1 | % | 2.9 | % | ||||
100 bp increase | 2.4 | 3.8 | ||||||
100 bp decrease | (7.4 | ) | (12.0 | ) |
The variability of net interest income is negative in the 100 basis point downward rate scenario as the Company has more exposure to assets repricing downward to a greater extent than liabilities due to the absolute low level of interest rates with the fed funds rate currently at 0.25%. There is only limitedThe variability of net interest income variabilityis positive in the increasingupward rate shocks as the Company has better diversified its loan portfolio with the interest rate scenarios.on more loans now tied to LIBOR. Also, the Company expects that it will not have to reprice its core deposit accounts up as quickly when interest rates rise. The market value of portfolio equity increases in the upward rate shocks due to the improved value of the Company’s core deposit base. Negative variability of market value of portfolio equity occurredoccurs in the downward rate shock due to a reduced value for core deposits.
30
The amount of loans outstanding by category as of December 31, 2008,2010, which are due in (i) one year or less, (ii) more than one year through five years, and (iii) over five years, are shown in the following table. Loan balances are also categorized according to their sensitivity to changes in interest rates.
MORE | ||||||||||||||||
THAN ONE | ||||||||||||||||
ONE | YEAR | |||||||||||||||
YEAR OR | THROUGH | OVER FIVE | TOTAL | |||||||||||||
LESS | FIVE YEARS | YEARS | LOANS | |||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||
Commercial | $ | 30,654 | $ | 66,319 | $ | 13,224 | $ | 110,197 | ||||||||
Commercial loans secured by real estate | 39,622 | 132,074 | 182,174 | 353,870 | ||||||||||||
Real estate-mortgage | 54,201 | 77,716 | 88,011 | 219,928 | ||||||||||||
Consumer | 8,133 | 2,143 | 13,528 | 23,804 | ||||||||||||
Total | $ | 132,610 | $ | 278,252 | $ | 296,937 | $ | 707,799 | ||||||||
Loans with fixed-rate | $ | 71,304 | $ | 148,603 | $ | 140,388 | $ | 360,295 | ||||||||
Loans with floating-rate | 61,306 | 129,649 | 156,549 | 347,504 | ||||||||||||
Total | $ | 132,610 | $ | 278,252 | $ | 296,937 | $ | 707,799 | ||||||||
Percent composition of maturity | 18.7 | % | 39.3 | % | 42.0 | % | 100.0 | % | ||||||||
Fixed-rate loans as a percentage of total loans | 50.9 | % | ||||||||||||||
Floating-rate loans as a percentage of total loans | 49.1 | % |
ONE YEAR OR LESS | MORE THAN ONE YEAR THROUGH FIVE YEARS | OVER FIVE YEARS | TOTAL LOANS | |||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||
Commercial | $ | 25,974 | $ | 42,570 | $ | 9,778 | $ | 78,322 | ||||||||
Commercial loans secured by real estate | 50,585 | 175,024 | 144,766 | 370,375 | ||||||||||||
Real estate-mortgage | 61,058 | 79,725 | 69,945 | 210,728 | ||||||||||||
Consumer | 4,383 | 9,345 | 5,505 | 19,233 | ||||||||||||
Total | $ | 142,000 | $ | 306,664 | $ | 229,994 | $ | 678,658 | ||||||||
Loans with fixed-rate | $ | 86,442 | $ | 174,361 | $ | 101,617 | $ | 362,420 | ||||||||
Loans with floating-rate | 55,558 | 132,303 | 128,377 | 316,238 | ||||||||||||
Total | $ | 142,000 | $ | 306,664 | $ | 229,994 | $ | 678,658 | ||||||||
Percent composition of maturity | 20.9 | % | 45.2 | % | 33.9 | % | 100.0 | % | ||||||||
Fixed-rate loans as a percentage of total loans | 53.4 | % | ||||||||||||||
Floating-rate loans as a percentage of total loans | 46.6 | % |
The loan maturity information is based upon original loan terms and is not adjusted for principal paydowns and rollovers. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal.
CONTRACTUAL OBLIGATIONS. . .TheOBLIGATIONS … The following table presents, as of December 31, 2008,2010, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.
PAYMENTS DUE IN | ||||||||||||||||||||||||
NOTE | ONE YEAR | ONE TO THREE | THREE TO FIVE | OVER FIVE | ||||||||||||||||||||
REFERENCE | OR LESS | YEARS | YEARS | YEARS | TOTAL | |||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||
Deposits without a stated maturity | 8 | $ | 377,646 | $ | — | $ | — | $ | — | $ | 377,646 | |||||||||||||
Certificates of deposit* | 8 | 200,784 | 86,957 | 30,823 | 24,255 | 342,819 | ||||||||||||||||||
Borrowed funds* | 10 | 125,420 | 11,190 | 147 | 692 | 137,449 | ||||||||||||||||||
Guaranteed junior subordinated deferrable interest debentures* | 10 | — | — | — | 32,158 | 32,158 | ||||||||||||||||||
Pension obligation | 13 | 1,500 | — | — | — | 1,500 | ||||||||||||||||||
Lease commitments | 14 | 613 | 945 | 428 | 391 | 2,377 |
PAYMENTS DUE IN | ||||||||||||||||||||||||
NOTE REFERENCE | ONE YEAR OR LESS | ONE TO THREE YEARS | THREE TO FIVE YEARS | OVER FIVE YEARS | TOTAL | |||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||
Deposits without a stated maturity | 8 | $ | 437,072 | $ | — | $ | — | $ | — | $ | 437,072 | |||||||||||||
Certificates of deposit* | 8 | 206,430 | 117,568 | 22,979 | 39,443 | 386,420 | ||||||||||||||||||
Borrowed funds* | 10 | 4,641 | 9,673 | 186 | 589 | 15,089 | ||||||||||||||||||
Guaranteed junior subordinated deferrable interest debentures* | 10 | — | — | — | 29,947 | 29,947 | ||||||||||||||||||
Pension obligation | 14 | 1,500 | — | — | — | 1,500 | ||||||||||||||||||
Lease commitments | 15 | 959 | 1,337 | 948 | 2,704 | 5,948 |
* | Includes interest based upon interest rates in effect at December 31, |
OFF BALANCE SHEET ARRANGEMENTS. . . ARRANGEMENTS …The BankCompany incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Bank
Company uses the same
31
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. . .ESTIMATES … The accounting and reporting policies of the Company are in accordance with Generally Accepted Accounting Principles and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses, goodwill, and core deposit intangibles and income taxes, and investment securities are deemed critical because they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by the Company could result in material changes in the Company’s financial position or results of operation.
ACCOUNT — Allowance for Loan Losses
BALANCE SHEET REFERENCE — Allowance for Loan Losses
INCOME STATEMENT REFERENCE — Provision for Loan Losses
DESCRIPTION
The allowance for loan losses is calculated with the objective of maintaining reserve levels believed by management to be sufficient to absorb estimated probable credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the credit portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, likelihood of customer default, loss given default, exposure at default, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on consumer loans and residential mortgages, and general amounts for historical loss experience. This process also considers economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios. All of these factors may be susceptible to significant change. Also, the allocation of the allowance for credit losses to specific loan pools is based on historical loss trends and management’s judgment concerning those trends.
Commercial and commercial mortgagereal estate loans are the largest category of credits and the most sensitive to changes in assumptions and judgments underlying the determination of the allowance for loan loss. Approximately $7.3$16.6 million, or 82%84%, of the total allowance for loan losses at December 31, 20082010 has been allottedallocated to these two loan categories. This allocation also considers other relevant factors such as actual versus estimated losses, economic trends, delinquencies, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.
ACCOUNT — Goodwill and core deposit intangibles
BALANCE SHEET REFERENCE — Goodwill and core deposit intangibles
INCOME STATEMENT REFERENCE — Goodwill impairment and amortization of core deposit intangibles
DESCRIPTION
The Company considers our accounting policies related to goodwill and core deposit intangibles to be critical because the assumptions or judgment used in determining the fair value of assets and liabilities acquired in past acquisitions are subjective and complex. As a result, changes in these assumptions or judgment could have a significant impact on our financial condition or results of operations.
The fair value of acquired assets and liabilities, including the resulting goodwill, was based either on quoted market prices or provided by other third party sources, when available. When third party information was not available, estimates were made in good faith by management primarily through the use of internal cash flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are susceptible to significant changes. The Company routinely utilizes the services of an independent third party that is regarded within the banking industry as an expert in valuing core deposits to monitor the ongoing value and changes in the Company’s core deposit base. These core deposit valuation updates are based upon specific data provided from statistical analysis of the bank’sCompany’s own deposit behavior to estimate the duration of these non-maturity deposits combined with market interest rates and other economic factors.
32
Goodwill which has an indefinite useful life is tested for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value is more than the estimated fair value. The Company’s testing in 20082010 indicated that its goodwill was not impaired. However, during the third quarter of 2009, the Company did reduce the goodwill allocated to West Chester Capital Advisors (WCCA) by $547,000. This reduction resulted from a purchase price adjustment as the principals of WCCA did not fully earn a deferred contingent payment that had been accrued as a liability of the Company at the time of acquisition.
Core deposit intangibles that have a finite life will continue to beare amortized over their useful life and are also regularly evaluated for impairment.
As of December 31, 2010, goodwill was not considered impaired; however, deteriorating economic conditions could result in impairment, which could adversely affect earnings in future periods.
ACCOUNT — Income Taxes
BALANCE SHEET REFERENCE — Deferred Tax Asset and Current Taxes Payable
INCOME STATEMENT REFERENCE — Provision for Income Taxes
DESCRIPTION
The provision for income taxes is the sum of income taxes both currently payable and deferred. The changes in deferred tax assets and liabilities are determined based upon the changes in differences between the basis of assetassets and liabilities for financial reporting purposes and the basis of assets and liabilities as measured by the enacted tax rates that management estimates will be in effect when the differences reverse.
In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of tax differences, make certain assumptions regarding whether tax differences are permanent or temporary and the related timing of the expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. As of December 31, 2008,2010, we believe that all of the deferred tax assets recorded on our balance sheet will ultimately be recovered and that no valuation allowances were needed.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
ACCOUNT — Investment Securities
BALANCE SHEET REFERENCE — Investment Securities
INCOME STATEMENT REFERENCE — Net realized gains (losses) on investment securities
DESCRIPTION
Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statements of Operations. At December 31, 2008, 97%2010, all of the
33
FORWARD LOOKING STATEMENTS. . .
THE STRATEGIC FOCUS:
The challenge for the future is to improve earnings performance to peer levels through a disciplined focus on community banking and improving the profitability of our growing Trust Company. In accordance with our strategic plan, AmeriServ will maintain its focus as a community bank delivering banking and trust services to the best of our ability. This companyCompany will not succumb to the lure of quick fixes and fancy financial gimmicks. We have seen where that path leads, and have marveled at how many knowledgeable people fall victim. It is our plan
to continue to build AmeriServ into a potent banking force in this region and in this industry. Our focus encompasses the following:
Customer Service — it is the existing and prospective customer that AmeriServ must satisfy. This means good products and fair prices. But it also means quick response time and professional competence. It means speedy problem resolution and a minimizing of bureaucratic frustrations. AmeriServ is training and motivating its staff to meet these standards.
Revenue Growth — It is necessary for AmeriServ to focus on growing revenues. This means loan growth, deposit growth and fee growth. It also means close coordination between all customer service areas so as many revenue producing products as possible can be presented to existing and prospective customers. The Company’s Strategic Plan contains action plans in each of these areas. This challenge will be met by seeking to exceed customer expectations in every area. An examination of the peer bank database provides ample proof that a well executed community banking business model can generate a reliable and rewarding revenue stream.
Expense Rationalization — a quick review of recent AmeriServ financial statements tells the story of a continuing process ofFinancial remains focused on trying to rationalize expenses. This has not been a program of broad based cuts, but has been targeted so AmeriServ stays strong but spends less. However, this initiative takes on new importance because it is critical to be certain that future expenditures are directed to areas that are playing a positive role in the drive to improve revenues.
This Form 10-K contains various forward-looking statements and includes assumptions concerning the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results, and prospects, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions. These forward-looking statements are based upon current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important factors (some of which are beyond the Company’s control) which could cause
34
Such factors include the following: (i) the effect of changing regional and national economic conditions; (ii) the effects of trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (iii) significant changes in interest rates and prepayment speeds; (iv) inflation, stock and bond market, and monetary fluctuations; (v) credit risks of commercial, real estate, consumer, and other lending activities; (vi) changes in federal and state banking and financial services laws and regulations; (vii) the presence in the Company’s market area of competitors with greater financial resources than the Company; (viii) the timely development of competitive new products and services by the Company and the acceptance of those products and services by customers and regulators (when required); (ix) the willingness of customers to substitute competitors’ products and services for those of the Company and vice versa; (x) changes in consumer spending and savings habits; (xi) unanticipated regulatory or judicial proceedings; and (xii) other external developments which could materially impact the Company’s operational and financial performance.
The foregoing list of important factors is not exclusive, and neither such list nor any forward-looking statement takes into account the impact that any future acquisition may have on the Company and on any such forward-looking statement.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, and liquidity risk. The Company controls and monitors these risks with policies, procedures, and various levels of managerial and Board oversight. The Company’s objective is to optimize profitability while managing and controlling risk within Board approved policy limits.
Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets, liabilities, and hedges. The Company uses its asset liability management policy and hedging policy to control and manage interest rate risk.
Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors, debtholders and debtholders.to fund operating expenses. The Company uses its asset liability management policy and contingency funding plan to control and manage liquidity risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. The Company’s primary credit risk occurs in the loan portfolio. The Company uses its credit policy and disciplined approach to evaluating the adequacy of the allowance for loan losses to control and manage credit risk. The Company’s investment policy and hedging policy strictly limit the amount of credit risk that may be assumed in the investment portfolio and through hedging activities.
For information regarding the market risk of the Company’s financial instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity in the MD&A presented on pages 30-32.Sensitivity.” The Company’s principal market risk exposure is to interest rates.
35
ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
ASSETS | ||||||||
Cash and due from depository institutions | $ | 17,945 | $ | 24,715 | ||||
Interest bearing deposits | 1,601 | 197 | ||||||
Short-term investments in money market funds | 15,578 | 4,359 | ||||||
Cash and cash equivalents | 35,124 | 29,271 | ||||||
Investment securities: | ||||||||
Available for sale | 126,781 | 140,582 | ||||||
Held to maturity (market value $16,323 at December 31, 2008 and $18,378 at December 31, 2007) | 15,894 | 18,533 | ||||||
Loans held for sale | 1,000 | 1,060 | ||||||
Loans | 706,799 | 635,566 | ||||||
Less: Unearned income | 691 | 471 | ||||||
Allowance for loan losses | 8,910 | 7,252 | ||||||
Net loans | 697,198 | 627,843 | ||||||
Premises and equipment, net | 9,521 | 8,450 | ||||||
Accrued income receivable | 3,735 | 4,032 | ||||||
Goodwill | 13,497 | 13,497 | ||||||
Core deposit intangibles | 108 | 973 | ||||||
Bank owned life insurance | 32,929 | 32,864 | ||||||
Net deferred tax asset | 12,651 | 13,750 | ||||||
Regulatory stock | 9,739 | 7,204 | ||||||
Other assets | 8,752 | 6,819 | ||||||
TOTAL ASSETS | $ | 966,929 | $ | 904,878 | ||||
LIABILITIES | ||||||||
Non-interest bearing deposits | $ | 116,372 | $ | 113,380 | ||||
Interest bearing deposits | 578,584 | 597,059 | ||||||
Total deposits | 694,956 | 710,439 | ||||||
Short-term borrowings | 119,920 | 72,210 | ||||||
Advances from Federal Home Loan Bank | 13,858 | 9,905 | ||||||
Guaranteed junior subordinated deferrable interest debentures | 13,085 | 13,085 | ||||||
Total borrowed funds | 146,863 | 95,200 | ||||||
Other liabilities | 11,858 | 8,945 | ||||||
TOTAL LIABILITIES | 853,677 | 814,584 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, no par value; 2,000,000 shares authorized; there were 21,000 shares issued and outstanding on December 31, 2008, and no shares issued or outstanding on December 31, 2007 | 20,447 | — | ||||||
Common stock, par value $2.50 per share; 30,000,000 shares authorized; 26,317,450 shares issued and 21,128,831 shares outstanding on December 31, 2008; 26,279,916 shares issued and 22,188,997 shares outstanding on December 31, 2007 | 65,794 | 65,700 | ||||||
Treasury stock at cost, 5,188,619 shares on December 31, 2008 and 4,090,919 shares on December 31, 2007 | (68,659 | ) | (65,824 | ) | ||||
Capital surplus | 79,353 | 78,788 | ||||||
Retained earnings | 20,533 | 15,602 | ||||||
Accumulated other comprehensive loss, net | (4,216 | ) | (3,972 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 113,252 | 90,294 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 966,929 | $ | 904,878 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
ASSETS | ||||||||
Cash and due from depository institutions | $ | 14,160 | $ | 20,835 | ||||
Interest bearing deposits | 1,716 | 1,707 | ||||||
Short-term investments in money market funds | 3,461 | 3,766 | ||||||
Cash and cash equivalents | 19,337 | 26,308 | ||||||
Investment securities: | ||||||||
Available for sale | 164,811 | 131,272 | ||||||
Held to maturity (market value $8,267 at December 31, 2010 and $11,996 at December 31, 2009) | 7,824 | 11,611 | ||||||
Loans held for sale | 7,405 | 3,790 | ||||||
Loans | 671,253 | 719,785 | ||||||
Less: Unearned income | 477 | 671 | ||||||
Allowance for loan losses | 19,765 | 19,685 | ||||||
Net loans | 651,011 | 699,429 | ||||||
Premises and equipment, net | 10,485 | 9,229 | ||||||
Accrued income receivable | 3,210 | 3,589 | ||||||
Goodwill | 12,950 | 12,950 | ||||||
Bank owned life insurance | 34,466 | 33,690 | ||||||
Net deferred tax asset | 16,058 | 15,925 | ||||||
Regulatory stock | 9,358 | 9,739 | ||||||
Prepaid federal deposit insurance | 3,073 | 4,538 | ||||||
Other assets | 8,986 | 7,956 | ||||||
TOTAL ASSETS | $ | 948,974 | $ | 970,026 | ||||
LIABILITIES | ||||||||
Non-interest bearing deposits | $ | 127,870 | $ | 118,232 | ||||
Interest bearing deposits | 673,346 | 667,779 | ||||||
Total deposits | 801,216 | 786,011 | ||||||
Short-term borrowings | 4,550 | 25,775 | ||||||
Advances from Federal Home Loan Bank | 9,750 | 25,804 | ||||||
Guaranteed junior subordinated deferrable interest debentures | 13,085 | 13,085 | ||||||
Total borrowed funds | 27,385 | 64,664 | ||||||
Other liabilities | 13,315 | 12,097 | ||||||
TOTAL LIABILITIES | 841,916 | 862,772 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, no par value; $1,000 per share liquidation preference; 2,000,000 shares authorized; there were 21,000 shares issued and outstanding on December 31, 2010 and 2009 | 20,669 | 20,558 | ||||||
Common stock, par value $0.01 per share; 30,000,000 shares authorized: 26,396,289 shares issued and 21,207,670 shares outstanding on December 31, 2010; par value $2.50 per share; 26,410,528 shares issued and 21,221,909 shares outstanding on December 31, 2009 | 264 | 264 | ||||||
Treasury stock at cost, 5,188,619 shares on December 31, 2010 and 2009 | (68,659 | ) | (68,659 | ) | ||||
Capital surplus | 145,045 | 144,984 | ||||||
Retained earnings | 14,601 | 14,480 | ||||||
Accumulated other comprehensive loss, net | (4,862 | ) | (4,373 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 107,058 | 107,254 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 948,974 | $ | 970,026 | ||||
See accompanying notes to consolidated financial statements.
36
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS, | ||||||||||||
EXCEPT PER SHARE DATA) | ||||||||||||
INTEREST INCOME | ||||||||||||
Interest and fees on loans: | ||||||||||||
Taxable | $ | 40,817 | $ | 41,345 | $ | 37,366 | ||||||
Tax exempt | 200 | 218 | 231 | |||||||||
Deposits with banks | 13 | 20 | 23 | |||||||||
Short-term investments in money market funds | 140 | 203 | 188 | |||||||||
Federal funds sold | 4 | 121 | 3 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 5,770 | 6,433 | 7,680 | |||||||||
Held to maturity | 875 | 1,039 | 1,074 | |||||||||
Total Interest Income | 47,819 | 49,379 | 46,565 | |||||||||
INTEREST EXPENSE | ||||||||||||
Deposits | 15,680 | 22,811 | 19,232 | |||||||||
Short-term borrowings | 1,403 | 972 | 1,672 | |||||||||
Advances from Federal Home Loan Bank | 499 | 253 | 63 | |||||||||
Guaranteed junior subordinated deferrable interest debentures | 1,120 | 1,120 | 1,120 | |||||||||
Total Interest Expense | 18,702 | 25,156 | 22,087 | |||||||||
Net Interest Income | 29,117 | 24,223 | 24,478 | |||||||||
Provision for loan losses | 2,925 | 300 | (125 | ) | ||||||||
Net Interest Income after Provision for Loan Losses | 26,192 | 23,923 | 24,603 | |||||||||
NON-INTEREST INCOME | ||||||||||||
Trust fees | 6,731 | 6,753 | 6,519 | |||||||||
Net gains on loans held for sale | 477 | 307 | 105 | |||||||||
Net realized losses on investment securities | (95 | ) | — | — | ||||||||
Service charges on deposit accounts | 3,069 | 2,579 | 2,561 | |||||||||
Investment advisory fees | 779 | 974 | — | |||||||||
Bank owned life insurance | 2,695 | 1,268 | 1,207 | |||||||||
Other income | 2,768 | 2,826 | 2,449 | |||||||||
Total Non-Interest Income | 16,424 | 14,707 | 12,841 | |||||||||
NON-INTEREST EXPENSE | ||||||||||||
Salaries and employee benefits | 19,217 | 19,339 | 18,669 | |||||||||
Net occupancy expense | 2,561 | 2,494 | 2,410 | |||||||||
Equipment expense | 1,677 | 2,045 | 2,349 | |||||||||
Professional fees | 3,582 | 3,197 | 3,208 | |||||||||
Supplies, postage, and freight | 1,252 | 1,211 | 1,167 | |||||||||
Miscellaneous taxes and insurance | 1,395 | 1,436 | 1,567 | |||||||||
FDIC deposit insurance expense | 113 | 88 | 192 | |||||||||
Amortization of core deposit intangibles | 865 | 865 | 865 | |||||||||
Federal Home Loan Bank prepayment penalties | 91 | — | — | |||||||||
Other expense | 4,884 | 3,997 | 4,265 | |||||||||
Total Non-Interest Expense | 35,637 | 34,672 | 34,692 | |||||||||
INCOME BEFORE INCOME TAXES | 6,979 | 3,958 | 2,752 | |||||||||
Provision for income taxes | 1,470 | 924 | 420 | |||||||||
NET INCOME | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
PER COMMON SHARE DATA: | ||||||||||||
Basic: | ||||||||||||
Net income | $ | 0.25 | $ | 0.14 | $ | 0.11 | ||||||
Average number of shares outstanding | 21,833 | 22,171 | 22,141 | |||||||||
Diluted: | ||||||||||||
Net income | $ | 0.25 | $ | 0.14 | $ | 0.11 | ||||||
Average number of shares outstanding | 21,975 | 22,173 | 22,149 | |||||||||
Cash dividends declared | $ | 0.025 | $ | 0.00 | $ | 0.00 |
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, | ||||||||||||
EXCEPT PER SHARE DATA) | ||||||||||||
INTEREST INCOME | ||||||||||||
Interest and fees on loans: | ||||||||||||
Taxable | $ | 39,020 | $ | 41,359 | $ | 40,817 | ||||||
Tax exempt | 76 | 91 | 200 | |||||||||
Interest bearing deposits with banks | 1 | 4 | 13 | |||||||||
Short-term investments in money market funds | 16 | 30 | 140 | |||||||||
Federal funds sold | 4 | 1 | 4 | |||||||||
Investment securities: | ||||||||||||
Available for sale | 5,281 | 5,340 | 5,770 | |||||||||
Held to maturity | 433 | 630 | 875 | |||||||||
Total Interest Income | 44,831 | 47,455 | 47,819 | |||||||||
INTEREST EXPENSE | ||||||||||||
Deposits | 10,945 | 13,109 | 15,680 | |||||||||
Federal funds purchased | — | 7 | 1 | |||||||||
Short-term borrowings | 22 | 133 | 1,402 | |||||||||
Advances from Federal Home Loan Bank | 402 | 652 | 499 | |||||||||
Guaranteed junior subordinated deferrable interest debentures | 1,120 | 1,120 | 1,120 | |||||||||
Total Interest Expense | 12,489 | 15,021 | 18,702 | |||||||||
Net Interest Income | 32,342 | 32,434 | 29,117 | |||||||||
Provision for loan losses | 5,250 | 15,150 | 2,925 | |||||||||
Net Interest Income after Provision for Loan Losses | 27,092 | 17,284 | 26,192 | |||||||||
NON-INTEREST INCOME | ||||||||||||
Trust fees | 5,571 | 5,648 | 6,731 | |||||||||
Net gains on loans held for sale | 958 | 651 | 477 | |||||||||
Net realized gains (losses) on investment securities | 157 | 164 | (95 | ) | ||||||||
Service charges on deposit accounts | 2,284 | 2,769 | 3,069 | |||||||||
Investment advisory fees | 713 | 648 | 779 | |||||||||
Bank owned life insurance | 1,227 | 1,208 | 2,695 | |||||||||
Other income | 3,057 | 2,840 | 2,768 | |||||||||
Total Non-Interest Income | 13,967 | 13,928 | 16,424 | |||||||||
NON-INTEREST EXPENSE | ||||||||||||
Salaries and employee benefits | 21,602 | 20,526 | 19,217 | |||||||||
Net occupancy expense | 2,691 | 2,632 | 2,561 | |||||||||
Equipment expense | 1,680 | 1,692 | 1,677 | |||||||||
Professional fees | 4,363 | 4,032 | 3,582 | |||||||||
Supplies, postage, and freight | 997 | 1,117 | 1,252 | |||||||||
Miscellaneous taxes and insurance | 1,396 | 1,374 | 1,395 | |||||||||
Federal deposit insurance expense | 1,575 | 1,670 | 113 | |||||||||
Amortization of core deposit intangibles | — | 108 | 865 | |||||||||
Federal Home Loan Bank prepayment penalties | — | — | 91 | |||||||||
Other expense | 5,393 | 6,006 | 4,884 | |||||||||
Total Non-Interest Expense | 39,697 | 39,157 | 35,637 | |||||||||
PRETAX INCOME (LOSS) | 1,362 | (7,945 | ) | 6,979 | ||||||||
Provision for income taxes (benefit) | 80 | (3,050 | ) | 1,470 | ||||||||
NET INCOME (LOSS) | 1,282 | (4,895 | ) | 5,509 | ||||||||
Preferred stock dividends and accretion of preferred stock discount | 1,161 | 1,158 | 35 | |||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | 121 | $ | (6,053 | ) | $ | 5,474 | |||||
(continued on next page)
AMERISERV FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, | ||||||||||||
EXCEPT PER SHARE DATA) | ||||||||||||
PER COMMON SHARE DATA: | ||||||||||||
Basic: | ||||||||||||
Net income (loss) | $ | 0.01 | $ | (0.29 | ) | $ | 0.25 | |||||
Average number of shares outstanding | 21,224 | 21,172 | 21,833 | |||||||||
Diluted: | ||||||||||||
Net income (loss) | $ | 0.01 | $ | (0.29 | ) | $ | 0.25 | |||||
Average number of shares outstanding | 21,226 | 21,174 | 21,975 | |||||||||
Cash dividends declared | $ | 0.00 | $ | 0.00 | $ | 0.025 |
See accompanying notes to consolidated financial statements.
37
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
COMPREHENSIVE INCOME | ||||||||||||
Net income | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
Other comprehensive income (loss), before tax: | ||||||||||||
Pension obligation change for defined benefit plan | (3,745 | ) | 21 | — | ||||||||
Income tax effect | 1,273 | (7 | ) | — | ||||||||
Unrealized holding gains on available for sale securities arising during period | 3,471 | 3,683 | 1,309 | |||||||||
Income tax effect | (1,180 | ) | (1,252 | ) | (444 | ) | ||||||
Reclassification adjustment for losses on available for sale securities included in net income | (95 | ) | — | — | ||||||||
Income tax effect | 32 | — | — | |||||||||
Other comprehensive income (loss) | (244 | ) | 2,445 | 865 | ||||||||
Comprehensive income | $ | 5,265 | $ | 5,479 | $ | 3,197 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Net income (loss) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | |||||
Other comprehensive loss, before tax: | ||||||||||||
Pension obligation change for defined benefit plan | (1,031 | ) | (1,093 | ) | (3,745 | ) | ||||||
Income tax effect | 352 | 372 | 1,273 | |||||||||
Unrealized holding gains on available for sale securities arising during period | 446 | 1,018 | 3,280 | |||||||||
Income tax effect | (152 | ) | (346 | ) | (1,115 | ) | ||||||
Reclassification adjustment for (gains) losses on available for sale securities included in net income (loss) | (157 | ) | (164 | ) | 95 | |||||||
Income tax effect | 53 | 56 | (32 | ) | ||||||||
Other comprehensive loss | (489 | ) | (157 | ) | (244 | ) | ||||||
Comprehensive income (loss) | $ | 793 | $ | (5,052 | ) | $ | 5,265 | |||||
See accompanying notes to consolidated financial statements.
38
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
PREFERRED STOCK | ||||||||||||
Balance at beginning of period | $ | — | $ | — | $ | — | ||||||
New shares issued (21,000 shares) | 20,447 | — | — | |||||||||
Balance at end of period | 20,447 | — | — | |||||||||
COMMON STOCK | ||||||||||||
Balance at beginning of period | 65,700 | 65,618 | 65,508 | |||||||||
New shares issued (37,534 shares) | 94 | 82 | 110 | |||||||||
Balance at end of period | 65,794 | 65,700 | 65,618 | |||||||||
TREASURY STOCK | ||||||||||||
Balance at beginning of period | (65,824 | ) | (65,824 | ) | (65,824 | ) | ||||||
Treasury stock, purchased at cost (1,097,700 shares) | (2,835 | ) | — | — | ||||||||
Balance at end of period | (68,659 | ) | (65,824 | ) | (65,824 | ) | ||||||
CAPITAL SURPLUS | ||||||||||||
Balance at beginning of period | 78,788 | 78,739 | 78,620 | |||||||||
New common shares issued (37,534 shares) | 5 | 37 | 64 | |||||||||
Stock option expense | 7 | 12 | 55 | |||||||||
Common stock warrant issued (1,312,500 shares) | 553 | — | — | |||||||||
Balance at end of period | 79,353 | 78,788 | 78,739 | |||||||||
RETAINED EARNINGS | ||||||||||||
Balance at beginning of period | 15,602 | 12,568 | 10,236 | |||||||||
Net income | 5,509 | 3,034 | 2,332 | |||||||||
Cash dividend declared on preferred stock | (35 | ) | — | — | ||||||||
Cash dividend declared on common stock of $0.025 on 21,771,237 shares | (543 | ) | — | — | ||||||||
Balance at end of period | 20,533 | 15,602 | 12,568 | |||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||||
Balance at beginning of period | (3,972 | ) | (6,417 | ) | (4,066 | ) | ||||||
Cumulative effect of adoption of change in accounting for pension obligation, net of tax effect | — | — | (3,216 | ) | ||||||||
Other comprehensive income | (244 | ) | 2,445 | 865 | ||||||||
Balance at end of period | (4,216 | ) | (3,972 | ) | (6,417 | ) | ||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 113,252 | $ | 90,294 | $ | 84,684 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
PREFERRED STOCK | ||||||||||||
Balance at beginning of period | $ | 20,558 | $ | 20,447 | $ | 20,447 | ||||||
Accretion of preferred stock discount | 111 | 111 | — | |||||||||
Balance at end of period | 20,669 | 20,558 | 20,447 | |||||||||
COMMON STOCK | ||||||||||||
Balance at beginning of period | 264 | 65,794 | 65,700 | |||||||||
New shares issued for dividend reinvestment plan | — | 51 | 94 | |||||||||
Change in par value (from $2.50 per share to $0.01 per share) | — | (65,582 | ) | — | ||||||||
Restricted stock | — | 1 | — | |||||||||
Balance at end of period | 264 | 264 | 65,794 | |||||||||
TREASURY STOCK | ||||||||||||
Balance at beginning of period | (68,659 | ) | (68,659 | ) | (65,824 | ) | ||||||
Treasury stock, purchased at cost (1,097,700 shares) | — | — | (2,835 | ) | ||||||||
Balance at end of period | (68,659 | ) | (68,659 | ) | (68,659 | ) | ||||||
CAPITAL SURPLUS | ||||||||||||
Balance at beginning of period | 144,984 | 79,353 | 78,788 | |||||||||
New common shares issued for dividend reinvestment plan (2,033 shares) | 3 | 22 | 5 | |||||||||
Stock option expense | 18 | 11 | 7 | |||||||||
Common stock warrant issued (1,312,500 shares) | — | — | 553 | |||||||||
Change in par value (from $2.50 per share to $0.01 per share) | — | 65,582 | — | |||||||||
Restricted stock | 40 | 16 | — | |||||||||
Balance at end of period | 145,045 | 144,984 | 79,353 | |||||||||
RETAINED EARNINGS | ||||||||||||
Balance at beginning of period | 14,480 | 20,533 | 15,602 | |||||||||
Net income (loss) | 1,282 | (4,895 | ) | 5,509 | ||||||||
Accretion of preferred stock discount | (111 | ) | (111 | ) | — | |||||||
Cash dividend declared on preferred stock | (1,050 | ) | (1,047 | ) | (35 | ) | ||||||
Cash dividend declared on common stock of $0.025 per share | — | — | (543 | ) | ||||||||
Balance at end of period | 14,601 | 14,480 | 20,533 | |||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||||
Balance at beginning of period | (4,373 | ) | (4,216 | ) | (3,972 | ) | ||||||
Other comprehensive loss | (489 | ) | (157 | ) | (244 | ) | ||||||
Balance at end of period | (4,862 | ) | (4,373 | ) | (4,216 | ) | ||||||
TOTAL STOCKHOLDERS’ EQUITY | $ | 107,058 | $ | 107,254 | $ | 113,252 | ||||||
See accompanying notes to consolidated financial statements.
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Provision for loan losses | 2,925 | 300 | (125 | ) | ||||||||
Depreciation and amortization expense | 1,533 | 1,505 | 1,700 | |||||||||
Amortization expense of core deposit intangibles | 865 | 865 | 865 | |||||||||
Net amortization of investment securities | 193 | 387 | 597 | |||||||||
Net realized losses on investment securities — available for sale | 95 | — | — | |||||||||
Net gain on sale of fixed assets | — | (248 | ) | — | ||||||||
Net realized gains on loans held for sale | (477 | ) | (307 | ) | (105 | ) | ||||||
Amortization of deferred loan fees | (466 | ) | (518 | ) | (393 | ) | ||||||
Origination of mortgage loans held for sale | (36,923 | ) | (26,720 | ) | (11,714 | ) | ||||||
Sales of mortgage loans held for sale | 37,460 | 26,325 | 11,454 | |||||||||
Decrease (increase) in accrued interest receivable | 297 | 133 | (40 | ) | ||||||||
Increase (decrease) in accrued interest payable | (899 | ) | 530 | 1,029 | ||||||||
Earnings on bank-owned life insurance | (2,695 | ) | (1,268 | ) | (1,207 | ) | ||||||
Net decrease in other assets | 459 | 779 | 59 | |||||||||
Net increase in other liabilities | 1,048 | 3,000 | 627 | |||||||||
Net cash provided by operating activities | 8,924 | 10,333 | 5,079 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchase of investment securities — available for sale | (68,610 | ) | (6,768 | ) | (8,823 | ) | ||||||
Purchase of investment securities — held to maturity | (4,464 | ) | — | (1,500 | ) | |||||||
Purchase of regulatory stock | (8,268 | ) | (5,824 | ) | (3,363 | ) | ||||||
Proceeds from maturities of investment securities — available for sale | 59,299 | 41,988 | 33,098 | |||||||||
Proceeds from maturities of investment securities — held to maturity | 7,052 | 2,054 | 11,104 | |||||||||
Proceeds from sales of investment securities — available for sale | 25,941 | — | — | |||||||||
Proceeds from redemption of regulatory stock | 5,733 | 3,975 | 4,996 | |||||||||
Long-term loans originated | (152,535 | ) | (180,558 | ) | (142,247 | ) | ||||||
Principal collected on long-term loans | 133,043 | 163,819 | 112,027 | |||||||||
Loans purchased or participated | (56,182 | ) | (33,762 | ) | (10,004 | ) | ||||||
Loans sold or participated | 3,950 | 4,500 | 1,600 | |||||||||
Net decrease (increase) in other short-term loans | 90 | (332 | ) | (377 | ) | |||||||
Purchases of premises and equipment | (2,604 | ) | (1,667 | ) | (1,597 | ) | ||||||
Proceeds from sale of premises and equipment | — | 522 | 50 | |||||||||
Proceeds from insurance policies | 2,635 | — | — | |||||||||
Acquisition of West Chester Capital Advisors | — | 2,200 | — | |||||||||
Net cash used in investing activities | (54,920 | ) | (9,853 | ) | (5,036 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Net (decrease) increase in deposit accounts | (16,526 | ) | (31,316 | ) | 22,608 | |||||||
Net increase (decrease) in other short-term borrowings | 47,710 | 23,119 | (14,093 | ) | ||||||||
Principal borrowings on advances from Federal Home Loan Bank | 11,000 | 9,004 | — | |||||||||
Principal repayments on advances from Federal Home Loan Bank | (7,047 | ) | (45 | ) | (41 | ) | ||||||
Guaranteed junior subordinated deferrable interest debenture dividends paid | (1,016 | ) | (1,016 | ) | (1,016 | ) | ||||||
Common stock dividend paid | (543 | ) | — | — | ||||||||
Proceeds from dividend reinvestment and stock purchase plan and stock options exercised | 106 | 131 | 173 | |||||||||
Purchases of treasury stock | (2,835 | ) | — | — | ||||||||
Preferred stock issuance | 21,000 | — | — | |||||||||
Net cash (used in) provided by financing activities | 51,849 | (123 | ) | 7,631 | ||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 5,853 | 357 | 7,674 | |||||||||
CASH AND CASH EQUIVALENTS AT JANUARY 1 | 29,271 | 28,914 | 21,240 | |||||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31 | $ | 35,124 | $ | 29,271 | $ | 28,914 | ||||||
YEAR ENDED DECEMBER 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Provision for loan losses | 5,250 | 15,150 | 2,925 | |||||||||
Depreciation and amortization expense | 1,496 | 1,586 | 1,533 | |||||||||
Amortization expense of core deposit intangibles | — | 108 | 865 | |||||||||
Net amortization of investment securities | 467 | 231 | 193 | |||||||||
Net realized (gains) losses on investment securities — available for sale | (157 | ) | (164 | ) | 95 | |||||||
Net realized gains on loans held for sale | (958 | ) | (651 | ) | (477 | ) | ||||||
Amortization of deferred loan fees | (407 | ) | (456 | ) | (466 | ) | ||||||
Origination of mortgage loans held for sale | (71,643 | ) | (67,775 | ) | (36,923 | ) | ||||||
Sales of mortgage loans held for sale | 68,986 | 65,636 | 37,460 | |||||||||
Decrease in accrued interest receivable | 379 | 146 | 297 | |||||||||
Increase (decrease) in accrued interest payable | (595 | ) | 74 | (899 | ) | |||||||
Earnings on bank-owned life insurance | (1,032 | ) | (1,021 | ) | (1,038 | ) | ||||||
Deferred income taxes | (126 | ) | (3,274 | ) | 1,099 | |||||||
Stock compensation expense | 61 | 73 | 106 | |||||||||
Decrease (increase) in prepaid Federal Deposit Insurance | 1,465 | (4,538 | ) | — | ||||||||
Net increase in other assets | (2,532 | ) | (2,922 | ) | (3,479 | ) | ||||||
Net increase in other liabilities | 784 | 1,085 | 1,048 | |||||||||
Net cash provided by operating activities | 2,720 | (1,607 | ) | 7,848 | ||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchase of investment securities — available for sale | (97,789 | ) | (55,171 | ) | (68,610 | ) | ||||||
Purchase of investment securities — held to maturity | (1,123 | ) | — | (4,464 | ) | |||||||
Purchase of regulatory stock | — | — | (8,268 | ) | ||||||||
Proceeds from maturities of investment securities — available for sale | 61,483 | 46,778 | 59,299 | |||||||||
Proceeds from maturities of investment securities — held to maturity | 4,914 | 4,225 | 7,052 | |||||||||
Proceeds from sales of investment securities — available for sale | 2,742 | 4,746 | 25,941 | |||||||||
Proceeds from redemption of regulatory stock | 381 | — | 5,733 | |||||||||
Long-term loans originated | (82,922 | ) | (132,551 | ) | (152,535 | ) | ||||||
Principal collected on long-term loans | 129,655 | 128,554 | 133,043 | |||||||||
Loans purchased or participated | (3,845 | ) | (25,343 | ) | (56,182 | ) | ||||||
Loans sold or participated | — | 12,950 | 3,950 | |||||||||
Net (increase) decrease in other short-term loans | (134 | ) | 116 | 90 | ||||||||
Purchases of premises and equipment | (2,762 | ) | (1,294 | ) | (2,604 | ) | ||||||
Sale of equipment | 10 | — | — | |||||||||
Sale of other real estate owned | 1,300 | 2,874 | 166 | |||||||||
Proceeds from insurance policies | 451 | 452 | 2,635 | |||||||||
Net cash provided by (used in) investing activities | 12,361 | (13,664 | ) | (54,754 | ) | |||||||
FINANCING ACTIVITIES | ||||||||||||
Net increase (decrease) in deposit accounts | 16,277 | 89,606 | (16,526 | ) | ||||||||
Net (decrease) increase in other short-term borrowings | (21,225 | ) | (94,145 | ) | 47,710 | |||||||
Principal borrowings on advances from Federal Home Loan Bank | 34,000 | 350,000 | 11,000 | |||||||||
Principal repayments on advances from Federal Home Loan Bank | (50,054 | ) | (338,055 | ) | (7,047 | ) | ||||||
Common stock dividend paid | — | — | (543 | ) | ||||||||
Preferred stock dividend paid | (1,050 | ) | (951 | ) | — | |||||||
Purchases of treasury stock | — | — | (2,835 | ) | ||||||||
Preferred stock issuance | — | — | 21,000 | |||||||||
Net cash (used in) provided by financing activities | (22,052 | ) | 6,455 | 52,759 | ||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (6,971 | ) | (8,816 | ) | 5,853 | |||||||
CASH AND CASH EQUIVALENTS AT JANUARY 1 | 26,308 | 35,124 | 29,271 | |||||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31 | $ | 19,337 | $ | 26,308 | $ | 35,124 | ||||||
See accompanying notes to consolidated financial statements.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE YEARS ENDED
DECEMBER 31, 2008, 20072010, 2009 AND 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND NATURE OF OPERATIONS:
AmeriServ Financial, Inc. (the Company) is a bank holding company, headquartered in Johnstown, Pennsylvania. Through its banking subsidiary the Company operates 18 banking locations in five southwestern Pennsylvania counties. These branches provide a full range of consumer, mortgage, and commercial financial products. The AmeriServ Trust and Financial Services Company (Trust Company) offers a complete range of trust and financial services and administers assets valued at approximately $1.5$1.4 billion that are not recognized on the Company’s Balance Sheet at December 31, 2008. On March 7, 2007, the Bank completed the acquisition of West Chester Capital Advisors (WCCA). WCCA (a subsidiary of the bank) is a registered investment advisor and at December 31, 2008 had $82 million in assets under management.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of AmeriServ Financial, Inc. and its wholly-owned subsidiaries, AmeriServ Financial Bank (the Bank), Trust Company, and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a state-chartered full service bank with 18 locations in Pennsylvania. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.
Intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.Consolidated Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles, or GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statementsConsolidated Financial Statements and accompanying notes. Actual results may differ from these estimates and the differences may be material to the consolidated financial statements.Consolidated Financial Statements. The Company’s most significant estimate is the allowance for loan losses.
INVESTMENT SECURITIES:
Securities are classified at the time of purchase as investment securities held to maturity if it is management’s intent and the Company has the ability to hold the securities until maturity. These held to maturity securities are carried on the Company’s books at cost, adjusted for amortization of premium and accretion of discount which is computed using the level yield method which approximates the effective interest method. Alternatively, securities are classified as available for sale if it is management’s intent at the time of purchase to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. Securities classified as available for sale include securities which may be sold to effectively manage interest rate risk exposure, prepayment risk, and other factors (such as liquidity requirements). These available for sale securities are reported at fair value with unrealized aggregate appreciation/depreciation excluded from income and credited/charged to accumulated other comprehensive income/loss within stockholders’ equity on a net of tax basis. Any securities classified as trading assets are reported at fair value with unrealized aggregate appreciation/depreciation included in income on a net of tax basis. The Company does not engage in trading activity.
Realized gains or losses on securities sold are computed upon the adjusted cost of the specific securities sold. Available-for-sale and held-to-maturity securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s
performance, the creditworthiness of the issuer and the Company’s intent and ability to hold the security to recovery.
FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank of Pittsburgh and as such, is required to maintain a minimum investment in stock of the Federal Home Loan Bank that varies with the level of advances outstanding with the Federal Home Loan Bank. The stock is bought from and sold to the Federal Home Loan Bank based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) The significance of the decline in net assets of the Federal Home Loan Bank as compared to the capital stock amount and the length of time this situation has persisted (b) Commitments by the Federal Home Loan Bank to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) The impact of legislative and regulatory changes on the customer base of the Federal Home Loan Bank and (d) The liquidity position of the Federal Home Loan Bank.
The Federal Home Loan Bank of Pittsburgh has incurred losses in the prior two years and has suspended the payment of dividends. The losses are primarily attributable to impairment of private label mortgage backed securities associated with the extreme economic conditions in place over the last two years. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. More consideration was given to the long-term prospects for the Federal Home Loan Bank as opposed to the recent stress caused by the difficult economic conditions the world is facing. Management also considered that the Federal Home Loan Bank’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, new shares of FHLB Stock continue to exchange hands at the $100 par value and the Company received a $381,000 partial redemption of its Federal Home Loan Bank stock in the fourth quarter of 2010.
LOANS:
Interest income is recognized using methods which approximate a level yield related to principal amounts outstanding. The BankCompany discontinues the accrual of interest income when loans become 90 days past due in either principal or interest. In addition, if circumstances warrant, the accrual of interest may be discontinued prior to 90 days. Payments received on non-accrual loans are credited to principal until full recovery of principal has been recognized; or the loan has been returned to accrual status. The only exception to this policy is for residential mortgage loans wherein interest income is recognized on a cash basis as payments are received. A non-accrual commercial loan is placed on accrual status after becoming current and remaining current for twelve consecutive payments. Residential mortgage loans are placed on accrual status upon becoming current.
LOAN FEES:
Loan origination and commitment fees, net of associated direct costs, are deferred and amortized into interest and fees on loans over the loan or commitment period. Fee amortization is determined by the effective interest method.
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Certain newly originated fixed-rate residential mortgage loans are classified as held for sale, because it is management’s intent to sell these residential mortgage loans. The residential mortgage loans held for sale are carried at the lower of aggregate cost or market value.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to operations over the estimated useful lives of the premises and equipment using the straight-line method with a half-year convention. Useful lives of up to 30 years for buildings and up to 10 years for equipment are utilized. Leasehold improvements are amortized using the straight-line method over the terms of the respective leases or useful lives of the improvements, whichever is shorter. Maintenance, repairs, and minor alterations are charged to current operations as expenditures are incurred.
ALLOWANCE FOR LOAN LOSSES AND CHARGE-OFF PROCEDURES:
As a financial institution, which assumes lending and credit risks as a principal element of its business, the Company anticipates that credit losses will be experienced in the normal course of business. Accordingly, the Company consistently applies a comprehensive methodology and procedural discipline to perform an analysis which is updated on a quarterly basis at the Bank level to determine both the adequacy of the allowance for loan losses and the necessary provision for loan losses to be charged against earnings. This methodology includes:
Review of all criticized and impaired loans with balances over $250,000 ($100,000 for loans classified as doubtful or worse) to determine if any specific reserve allocations are required on an individual loan basis. The specific reserve allocations established for these criticized and impaired loans is based on careful analysis of the loan’s performance, the related collateral value, cash flow considerations and the financial capability of any guarantor. For impaired loans the measurement of impairment may be based upon: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate; 2) the observable market price of the impaired loan; or 3) the fair value of the collateral of a collateral dependent loan.
The application of formula driven reserve allocations for all commercial and commercial real-estate loans by using a three-year migration analysis of net losses incurred within each risk grade for the entire commercial loan portfolio. The difference between estimated and actual losses is reconciled through the nature of the migration analysis.
The application of formula driven reserve allocations to consumer and residential mortgage loans which are based upon historical net charge-off experience for those loan types. The residential mortgage loan allocation is based upon the Company’s three-year historical average of actual loan net charge-offs experienced in that category. The same methodology is used to determine the allocation for consumer loans except the allocation is based upon an average of the most recent actual three-year historical net charge-off experience for consumer loans.
The application of formula driven reserve allocations to all outstanding loans is based upon review of historical losses and qualitative factors, which include but are not limited to, economic trends, delinquencies, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy, financial information and documentation exceptions.
Management recognizes that there may be events or economic factors that have occurred affecting specific borrowers or segments of borrowers that may not yet be fully reflected in the information that the Company uses for arriving at reserves for a specific loan or portfolio segment. Therefore, the Company believes that there is estimation risk associated with the use of specific and formula driven allowances.
After completion of this process, a formal meeting of the Loan Loss Reserve Committee is held to evaluate the adequacy of the reserve.
When it is determined that the prospects for recovery of the principal of a loan have significantly diminished, the loan is charged against the allowance account; subsequent recoveries, if any, are credited to the allowance account. In addition, non-accrual and large delinquent loans are reviewed monthly to determine potential losses.
The Company’s policy is to individually review, as circumstances warrant, each of its commercial and commercial mortgage loans to determine if a loan is impaired. At a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $250,000 within a 12-month period. The Company defines classified loans as those loans rated substandard or doubtful. The Company has also identified three pools of small dollar value homogeneous loans which are evaluated collectively for impairment. These separate pools are for small business loans $250,000 or less, residential mortgage loans
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ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT:
The allowance for unfunded loan commitments and letters of credit is maintained at a level believed by management to be sufficient to absorb estimated losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers and the terms and expiration dates of the unfunded credit facilities. Net adjustments to the allowance for unfunded loan commitments and letters of credit are provided for in the unfunded commitment reserve expense line item within other expense in the consolidated statement of income and a separate reserve is recorded within the liabilities section of the consolidated balance sheet in other liabilities.
TRUST FEES:
Trust fees are recorded on the cash basis which approximates the accrual basis for such income.
BANK-OWNED LIFE INSURANCE:
The Company has purchased life insurance policies on certain employees. These policies are recorded on the Consolidated Balance Sheet at their cash surrender value, or the amount that can be realized. Income from these policies and changes in the cash surrender value are recorded in bank owned life insurance within non-interest income.
INTANGIBLE ASSETS:
Intangible Assets
Intangible assets consist of core deposit acquisition premiums. Core deposit acquisition premiums, which were developed by specific core deposit life studies, are amortized using the straight-line method over periods not exceeding 10 years. The recoverability of the carrying value of intangible assets is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense.
Goodwill
The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (“FAS”) No. 142,Goodwill and Other Intangible Assets.This statement, among other things, requiresusing a two-step process for testing the impairment of goodwill on at least an annual basis. This approach could cause more volatility in the Company’s reported net income because impairment losses, if any, could occur irregularly and in varying amounts. The Company performs an annual impairment analysis of goodwill. Based on the fair value of the reporting unit, estimated using the expected present value of future cash flows, noNo impairment of goodwill was recognized in 2008 or 2007.
EARNINGS PER COMMON SHARE:
Basic earnings per share include only the weighted average common shares outstanding. Diluted earnings per share include the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation. Treasury shares are treated as retired for earnings per share purposes. Options and warrant to purchase 1,539,509, 220,892,1,467,142, 1,546,109, and 213,9741,539,509 shares of common stock were outstanding during 2008, 20072010, 2009 and 2006,2008, respectively, but were not included in the computation of diluted earnings per common share because to do so would be anti-dilutive. Exercise prices of anti-dilutive options and warrant to purchase common stock outstanding were $2.40-$1.73-$6.10, $4.02-$1.77-$6.10, and $4.86-$2.40-$6.216.10 during 2008, 20072010, 2009 and 2006,2008, respectively. Dividends on preferred shares are excludeddeducted from net income in the calculation of earnings per common share.
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The Company uses the Company adopted Statementmodified prospective method for accounting of Financial Accounting Standards (FAS) #123(R) “Share-Based Payment” using the “modified prospective” method. Under this method, awards that are granted, modified, or vested after December 15, 2005, are measured and accounted for in accordance with FAS #123(R).stock-based compensation. The Company recognized $7,000$18,000, $11,000 and $12,000$7,000 of pretax compensation expense for the year 20082010, 2009 and 2007.2008. The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions used for the grants: risk-free interest rates ranging from 2.76% to 4.70%3.83%; expected lives of 10 years; expected volatility ranging from 33.28% to 37.22%35.74% and expected dividend yields of 0%.
ACCUMULATED OTHER COMPREHENSIVE LOSS:
The Company presents the components of other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss). These components are comprised of the change in the pension obligation and the unrealized holding gains on available for sale securities, net of any reclassification adjustments for realized gains and losses.
The following table sets forth the components of accumulated other comprehensive loss, net of tax:
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Pension obligation for defined benefit plan | $ | (6,926 | ) | $ | (6,249 | ) | ||
Unrealized holding gains on available for sale securities | 2,064 | 1,876 | ||||||
Total accumulated other comprehensive loss | $ | (4,862 | ) | $ | (4,373 | ) | ||
CONSOLIDATED STATEMENT OF CASH FLOWS:
On a consolidated basis, cash and cash equivalents include cash and due from banks,depository institutions, interest bearing deposits, with banks, federal funds sold and short-term investments in money market funds. The Company made $200,000$174,000 in income tax payments in 2008; $138,0002010; $126,000 in 2007;2009; and $169,000$200,000 in 2006.2008. The Company had non-cash transfers to other real estate owned (OREO) in the amounts of $788,000 in 2010; $2,900,000 in 2009; and $1,319,000 in 2008. The Company made total interest payments of $13,084,000 in 2010; $15,963,000 in 2009; and $19,601,000 in 2008; $24,626,000 in 2007; and $21,058,000 in 2006.
INCOME TAXES:
Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the corresponding asset or liability from period to period. Deferred tax assets are reduced, if necessary, by the amounts of such benefits that are not expected to be realized based upon available evidence.
INTEREST RATE CONTRACTS:
The Company accounts for derivative instruments and hedging activities in accordance with FAS 133, “Accounting for Derivative Instruments and Hedging Activities (as amended).” The company recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets and measures those instruments at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and hedged item related to the hedged risk are recognized in earnings. Changes in fair value of derivatives designated and accounted as cash flow hedges, to the extent they are effective as hedges, are recorded in “Other Comprehensive Income,” net of deferred taxes and are subsequently reclassified to earnings when the hedged transaction affects earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.
The Company typically enters into derivative instruments to meet the financing, interest rate and equity risk management needs of its customers. Upon entering into these instruments to meet customer needs, the Company enters into offsetting positions to minimize interest rate and equity risk to the Company. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings. These instruments and their offsetting positions are recorded in other assets and other liabilities on the Consolidated Balance Sheets. As of December 31, 2008, the notional amount of the customer related derivative financial instrument was $9 million with an average maturity of 60 months, an average interest receive rate of 5.25% and an average interest pay rate of 4.40%.
RECENT ACCOUNTING STANDARDS:
In December 2007,2009, the FASB issued FAS No. 141 (revised 2007),ASU 2009-16,Business CombinationsAccounting for Transfer of Financial Assets(“FAS 141(R)), which establishes principles. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and requirements for howcomparability of the information that an acquirer recognizes and measuresentity provides in its financial statements about a transfer of financial assets; the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
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In April 2008,January 2010, the FASB issued FASB Staff PositionASU No. 142-3,2010-06,Determination of the Useful Life of Intangible Assets(“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptionsFair Value Measurements and Disclosures (Topic 820): Improving Disclosures about renewal or extension used in estimating the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible AssetsFair Value Measurements. This standard is intendedASU 2010-06 amends Subtopic 820-10 to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142clarify existing disclosures, require new disclosures, and the period of expected cash flows usedincludes conforming amendments to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for financial statements issuedinterim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2008.2010 and for interim periods within those fiscal years. The measurement provisionsadoption of this standard will apply onlyguidance did not have a significant impact on the Company’s financial statements or the Company has presented the necessary disclosures in the Notes 11 &12 herein.
In February 2010, the FASB issued ASU 2010-08,Technical Corrections to intangible assetsVarious Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation or the Company has presented the necessary disclosures in the Note 21 herein.
In July 2010, FASB issued ASU No. 2010-20,Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company acquiredis currently evaluating the impact the adoption of this guidance will have on the Company’s financial position or results of operations.
In December, 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date.date for public entities. The Company is currently evaluating the impact the adoption of the FSPstandard will have on the Company’s financial position or results of operations.
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 20082010 and 2007,2009, included $587,000 and $9,107,000, respectively,$150,000 of reserves required to be maintained under Federal Reserve Bank regulations.
3. INVESTMENT SECURITIES
The cost basis and fair values of investment securities are summarized as follows:
Investment securities available for sale:
AT DECEMBER 31, 2008 | ||||||||||||||||
GROSS | GROSS | |||||||||||||||
UNREALIZED | UNREALIZED | FAIR | ||||||||||||||
COST BASIS | GAINS | LOSSES | VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Agency | $ | 10,387 | $ | 188 | $ | — | $ | 10,575 | ||||||||
U.S. Agency mortgage-backed securities | 114,380 | 2,057 | (248 | ) | 116,189 | |||||||||||
Other securities | 24 | — | (7 | ) | 17 | |||||||||||
Total | $ | 124,791 | $ | 2,245 | $ | (255 | ) | $ | 126,781 | |||||||
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AT DECEMBER 31, 2010 | ||||||||||||||||
COST BASIS | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES | FAIR VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Agency | $ | 15,956 | $ | 57 | $ | (69 | ) | $ | 15,944 | |||||||
U.S. Agency mortgage-backed securities | 145,727 | 3,714 | (574 | ) | 148,867 | |||||||||||
Total | $ | 161,683 | $ | 3,771 | $ | (643 | ) | $ | 164,811 | |||||||
Investment securities held to maturity: | ||||||||||||||||
AT DECEMBER 31, 2010 | ||||||||||||||||
COST BASIS | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES | FAIR VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Agency mortgage-backed securities | $ | 6,824 | $ | 452 | $ | — | $ | 7,276 | ||||||||
Other securities | 1,000 | — | (9 | ) | 991 | |||||||||||
Total | $ | 7,824 | $ | 452 | $ | (9 | ) | $ | 8,267 | |||||||
Investment securities available for sale: | ||||||||||||||||
AT DECEMBER 31, 2009 | ||||||||||||||||
COST BASIS | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES | FAIR VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Agency | $ | 12,342 | $ | 26 | $ | (76 | ) | $ | 12,292 | |||||||
U.S. Agency mortgage-backed securities | 116,088 | 3,128 | (236 | ) | 118,980 | |||||||||||
Total | $ | 128,430 | $ | 3,154 | $ | (312 | ) | $ | 131,272 | |||||||
Investment securities held to maturity: | ||||||||||||||||
AT DECEMBER 31, 2009 | ||||||||||||||||
COST BASIS | GROSS UNREALIZED GAINS | GROSS UNREALIZED LOSSES | FAIR VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Treasury | $ | 3,009 | $ | 13 | $ | — | $ | 3,022 | ||||||||
U.S. Agency mortgage-backed securities | 7,602 | 373 | — | 7,975 | ||||||||||||
Other securities | 1,000 | — | (1 | ) | 999 | |||||||||||
Total | $ | 11,611 | $ | 386 | $ | (1 | ) | $ | 11,996 | |||||||
AT DECEMBER 31, 2008 | ||||||||||||||||
GROSS | GROSS | |||||||||||||||
UNREALIZED | UNREALIZED | FAIR | ||||||||||||||
COST BASIS | GAINS | LOSSES | VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Treasury | $ | 3,082 | $ | 118 | $ | — | $ | 3,200 | ||||||||
U.S. Agency mortgage-backed securities | 9,562 | 321 | — | 9,883 | ||||||||||||
Other securities | 3,250 | — | (10 | ) | 3,240 | |||||||||||
Total | $ | 15,894 | $ | 439 | $ | (10 | ) | $ | 16,323 | |||||||
AT DECEMBER 31, 2007 | ||||||||||||||||
GROSS | GROSS | |||||||||||||||
UNREALIZED | UNREALIZED | FAIR | ||||||||||||||
COST BASIS | GAINS | LOSSES | VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Treasury | $ | 6,006 | $ | 5 | $ | — | $ | 6,011 | ||||||||
U.S. Agency | 37,255 | 44 | (12 | ) | 37,287 | |||||||||||
U.S. Agency mortgage-backed securities | 98,484 | 105 | (1,328 | ) | 97,261 | |||||||||||
Other securities | 25 | — | (2 | ) | 23 | |||||||||||
Total | $ | 141,770 | $ | 154 | $ | (1,342 | ) | $ | 140,582 | |||||||
AT DECEMBER 31, 2007 | ||||||||||||||||
GROSS | GROSS | |||||||||||||||
UNREALIZED | UNREALIZED | FAIR | ||||||||||||||
COST BASIS | GAINS | LOSSES | VALUE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
U.S. Treasury | $ | 3,153 | $ | 55 | $ | — | $ | 3,208 | ||||||||
U.S. Agency | 3,473 | 23 | — | 3,496 | ||||||||||||
U.S. Agency mortgage-backed securities | 6,157 | 13 | — | 6,170 | ||||||||||||
Other securities | 5,750 | — | (246 | ) | 5,504 | |||||||||||
Total | $ | 18,533 | $ | 91 | $ | (246 | ) | $ | 18,378 | |||||||
Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investors Service or Standard & Poor’s rating of A. At December 31, 2008,97.7%2010, 99.4% of the portfolio was rated AAA as compared to 96.4%99.3% at December 31, 2007. Less than 1.0%2009. None of the portfolio was rated below A or unrated on December 31, 2008.2010. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. Treasury and U.S. Agencies, that exceeded 10% of shareholders’ equity at December 31, 2008.
The book value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits, and certain Federal Home Loan Bank borrowings was $119,267,000$86,894,000 at December 31, 20082010 and $146,365,000$103,196,000 at December 31, 2007. 2009.
The Company realized $157,000 of gross investment gains and no investment security losses in 2010, and $164,000 of gross investment gains and no investment security losses in 2009, and $42,000 of gross investment security gains and $137,000 of gross investment security losses for 2008 and no security gains or losses on available for sale securities in 2007 or 2006.2008. The Company realized no gross investment security gains and losses on held to maturity securities in 2008, 20072010, 2009 or 2006.2008. On a net basis, the realized losses gain for 2010 was $104,000, after factoring the tax expense of $53,000, the realized gains in 2009
amounted to $63,000 in 2008,$108,000, after factoring in tax expense of $56,000 and realized losses in 2008 of $63,000 after factoring in a tax benefit of $32,000. Proceeds$32,000.Proceeds from sales of investment securities available for sale were $25$2.7 million for 2010, $4.7 million for 2009, and $25.9 million during 2008. There were no sales of investment securities for 2007 or 2006.
The following table sets forth the contractual maturity distribution of the investment securities, cost basis and fair market values, and the weighted average yield for each type and range of maturity as of December 31, 2008.2010. Yields are not presented on a tax-equivalent basis, but are based upon the cost basis and are weighted for the scheduled maturity. The Company’s consolidated investment securities portfolio had a modified duration of approximately 1.803.12 years. The weighted average expected maturity for available for sale securities at December 31, 20082010 for U.S. Agency and U.S. Agency Mortgage-Backed was 4.45, and other securities was 2.80, 16.84, and 1.04.03 years, respectively. The weighted average expected maturity for held to maturity securities at December 31, 20082010 for U.S. Treasury, U.S. Agency Mortgage-Backed and other securities was 1.17, 24.393.07 and 1.48 years.
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AT DECEMBER 31, 2008 | ||||||||||||||||||||||||||||||||||||||||
AFTER 1 YEAR | AFTER 5 YEARS | |||||||||||||||||||||||||||||||||||||||
BUT WITHIN | BUT WITHIN | |||||||||||||||||||||||||||||||||||||||
WITHIN 1 YEAR | 5 YEARS | 10 YEARS | AFTER 10 YEARS | TOTAL | ||||||||||||||||||||||||||||||||||||
AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT YIELDS) | ||||||||||||||||||||||||||||||||||||||||
COST BASIS | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency | $ | 996 | 5.30 | % | $ | 9,391 | 3.94 | % | $ | — | — | % | $ | — | — | % | $ | 10,387 | 4.08 | % | ||||||||||||||||||||
U.S. Agency mortgage- backed securities | — | — | 13,899 | 4.75 | 16,261 | 4.93 | 84,220 | 4.58 | 114,380 | 4.65 | ||||||||||||||||||||||||||||||
Other securities | 24 | 4.70 | — | — | — | — | — | — | 24 | 4.70 | ||||||||||||||||||||||||||||||
Total investment securities available for sale | $ | 1,020 | 5.29 | % | $ | 23,290 | 4.27 | % | $ | 16,261 | 4.93 | % | $ | 84,220 | 4.58 | % | $ | 124,791 | 4.60 | % | ||||||||||||||||||||
FAIR VALUE | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency | $ | 1,016 | $ | 9,559 | $ | — | $ | — | $ | 10,575 | ||||||||||||||||||||||||||||||
U.S. Agency mortgage- backed securities | — | 13,901 | 16,812 | 85,476 | 116,189 | |||||||||||||||||||||||||||||||||||
Other securities | 17 | — | — | — | 17 | |||||||||||||||||||||||||||||||||||
Total investment securities available for sale | $ | 1,033 | $ | 23,460 | $ | 16,812 | $ | 85,476 | $ | 126,781 | ||||||||||||||||||||||||||||||
AT DECEMBER 31, 2010 | ||||||||||||||||||||||||||||||||||||||||
WITHIN 1 YEAR | AFTER 1 YEAR BUT WITHIN 5 YEARS | AFTER 5 YEARS BUT WITHIN 10 YEARS | AFTER 10 YEARS | TOTAL | ||||||||||||||||||||||||||||||||||||
AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT YIELDS) | ||||||||||||||||||||||||||||||||||||||||
COST BASIS | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency | $ | — | — | % | $ | 12,456 | 2.21 | % | $ | 3,500 | 3.10 | % | $ | — | — | % | $ | 15,956 | 2.40 | % | ||||||||||||||||||||
U.S. Agency mortgage-backed securities | 429 | 1.53 | — | — | % | 17,536 | 4.27 | 127,762 | 3.45 | 145,727 | 3.54 | |||||||||||||||||||||||||||||
Total investment securities available for sale | $ | 429 | 1.53 | % | $ | 12,456 | 2.21 | % | $ | 21,036 | 4.08 | % | $ | 127,762 | 3.45 | % | $ | 161,683 | 3.43 | % | ||||||||||||||||||||
FAIR VALUE | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency | $ | — | $ | 12,441 | $ | 3,503 | $ | — | $ | 15,944 | ||||||||||||||||||||||||||||||
U.S. Agency mortgage-backed securities | 429 | — | 18,526 | 129,912 | 148,867 | |||||||||||||||||||||||||||||||||||
Total investment securities available for sale | $ | 429 | $ | 12,441 | $ | 22,029 | $ | 129,912 | $ | 164,811 | ||||||||||||||||||||||||||||||
Investment securities held to maturity:
AT DECEMBER 31, 2008 | ||||||||||||||||||||||||||||||||||||||||
AFTER 5 YEARS | ||||||||||||||||||||||||||||||||||||||||
AFTER 1 YEAR BUT | BUT WITHIN | |||||||||||||||||||||||||||||||||||||||
WITHIN 1 YEAR | WITHIN 5 YEARS | 10 YEARS | AFTER 10 YEARS | TOTAL | ||||||||||||||||||||||||||||||||||||
AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT YIELDS) | ||||||||||||||||||||||||||||||||||||||||
COST BASIS | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury | $ | — | — | % | $ | 3,082 | 3.98 | % | $ | — | — | % | $ | — | — | % | $ | 3,082 | 3.98 | % | ||||||||||||||||||||
U.S. Agency mortgage -backed securities | — | — | — | — | — | — | 9,562 | 5.36 | 9,562 | 5.36 | ||||||||||||||||||||||||||||||
Other securities | 2,250 | 3.60 | 1,000 | 3.39 | — | — | — | 3,250 | 3.54 | |||||||||||||||||||||||||||||||
Total investment securities held to maturity | $ | 2,250 | 3.60 | % | $ | 4,082 | 3.84 | % | $ | — | — | % | $ | 9,562 | 5.36 | % | $ | 15,894 | 4.72 | % | ||||||||||||||||||||
FAIR VALUE | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury | $ | — | $ | 3,200 | $ | — | $ | — | $ | 3,200 | ||||||||||||||||||||||||||||||
U.S. Agency mortgage -backed securities | — | — | — | 9,883 | 9,883 | |||||||||||||||||||||||||||||||||||
Other securities | 2,249 | 991 | — | — | 3,240 | |||||||||||||||||||||||||||||||||||
Total investment securities held to maturity | $ | 2,249 | $ | 4,191 | $ | — | $ | 9,883 | $ | 16,323 | ||||||||||||||||||||||||||||||
AT DECEMBER 31, 2010 | ||||||||||||||||||||||||||||||||||||||||
WITHIN 1 YEAR | AFTER 1 YEAR BUT WITHIN 5 YEARS | AFTER 5 YEARS BUT WITHIN 10 YEARS | AFTER 10 YEARS | TOTAL | ||||||||||||||||||||||||||||||||||||
AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | AMOUNT | YIELD | |||||||||||||||||||||||||||||||
(IN THOUSANDS, EXCEPT YIELDS) | ||||||||||||||||||||||||||||||||||||||||
COST BASIS | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency mortgage-backed securities | $ | — | — | % | $ | — | — | % | $ | — | — | % | $ | 6,824 | 5.29 | % | $ | 6,824 | 5.29 | % | ||||||||||||||||||||
Other securities | — | — | 1,000 | 1.01 | — | — | — | 1,000 | 1.01 | |||||||||||||||||||||||||||||||
Total investment securities held to maturity | $ | — | — | % | $ | 1,000 | 1.01 | % | $ | — | — | % | $ | 6,824 | 5.29 | % | $ | 7,824 | 4.78 | % | ||||||||||||||||||||
FAIR VALUE | ||||||||||||||||||||||||||||||||||||||||
U.S. Agency mortgage-backed securities | $ | — | $ | — | $ | — | $ | 7,276 | $ | 7,276 | ||||||||||||||||||||||||||||||
Other securities | — | 991 | — | — | 991 | |||||||||||||||||||||||||||||||||||
Total investment securities held to maturity | $ | — | $ | 991 | $ | — | $ | 7,276 | $ | 8,267 | ||||||||||||||||||||||||||||||
The following tables present information concerning investments with unrealized losses as of December 31, 20082010 (in thousands):
Investment securities available for sale:
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR | UNREALIZED | FAIR | UNREALIZED | FAIR | UNREALIZED | |||||||||||||||||||
VALUE | LOSSES | VALUE | LOSSES | VALUE | LOSSES | |||||||||||||||||||
U.S. Agency mortgage-backed securities | $ | 31,063 | $ | (226 | ) | $ | 3,375 | $ | (22 | ) | $ | 34,438 | $ | (248 | ) | |||||||||
Other | — | — | 17 | (7 | ) | 17 | (7 | ) | ||||||||||||||||
Total investment securities available for sale | $ | 31,063 | $ | (226 | ) | $ | 3,392 | $ | (29 | ) | $ | 34,455 | $ | (255 | ) | |||||||||
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | |||||||||||||||||||
U.S. Agency | $ | 4,204 | $ | (69 | ) | $ | — | $ | — | $ | 4,204 | $ | (69 | ) | ||||||||||
U.S. Agency mortgage-backed securities | 38,202 | (574 | ) | — | — | 38,202 | (574 | ) | ||||||||||||||||
Total investment securities available for sale | $ | 42,406 | $ | (643 | ) | $ | — | $ | — | $ | 42,406 | $ | (643 | ) | ||||||||||
Investment securities held to maturity:
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR | UNREALIZED | FAIR | UNREALIZED | FAIR | UNREALIZED | |||||||||||||||||||
VALUE | LOSSES | VALUE | LOSSES | VALUE | LOSSES | |||||||||||||||||||
Other | $ | — | $ | — | $ | 3,240 | $ | (10 | ) | $ | 3,240 | $ | (10 | ) | ||||||||||
Total investment securities held to maturity | $ | — | $ | — | $ | 3,240 | $ | (10 | ) | $ | 3,240 | $ | (10 | ) | ||||||||||
47
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | |||||||||||||||||||
Other securities | $ | — | $ | — | $ | 991 | $ | (9 | ) | $ | 991 | $ | (9 | ) | ||||||||||
Total investment securities held to maturity | $ | — | $ | — | $ | 991 | $ | (9 | ) | $ | 991 | $ | (9 | ) | ||||||||||
Investment securities available for sale:
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR | UNREALIZED | FAIR | UNREALIZED | FAIR | UNREALIZED | |||||||||||||||||||
VALUE | LOSSES | VALUE | LOSSES | VALUE | LOSSES | |||||||||||||||||||
U.S. Agency | $ | — | $ | — | $ | 25,963 | $ | (12 | ) | $ | 25,963 | $ | (12 | ) | ||||||||||
U.S. Agency mortgage-backed securities | 4,388 | (31 | ) | 81,085 | (1,297 | ) | 85,473 | (1,328 | ) | |||||||||||||||
Other | 23 | (2 | ) | — | — | 23 | (2 | ) | ||||||||||||||||
Total investment securities available for sale | $ | 4,411 | $ | (33 | ) | $ | 107,048 | $ | (1,309 | ) | $ | 111,459 | $ | (1,342 | ) | |||||||||
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | |||||||||||||||||||
U.S. Agency | $ | 7,424 | $ | (76 | ) | $ | — | $ | — | $ | 7,424 | $ | (76 | ) | ||||||||||
U.S. Agency mortgage-backed securities | 17,525 | (236 | ) | — | — | 17,525 | (236 | ) | ||||||||||||||||
Total investment securities available for sale | $ | 24,949 | $ | (312 | ) | $ | — | $ | — | $ | 24,949 | $ | (312 | ) | ||||||||||
Investment securities held to maturity:
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR | UNREALIZED | FAIR | UNREALIZED | FAIR | UNREALIZED | |||||||||||||||||||
VALUE | LOSSES | VALUE | LOSSES | VALUE | LOSSES | |||||||||||||||||||
Other | $ | — | $ | — | $ | 5,504 | $ | (246 | ) | $ | 5,504 | $ | (246 | ) | ||||||||||
Total investment securities held to maturity | $ | — | $ | — | $ | 5,504 | $ | (246 | ) | $ | 5,504 | $ | (246 | ) | ||||||||||
LESS THAN 12 MONTHS | 12 MONTHS OR LONGER | TOTAL | ||||||||||||||||||||||
FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | FAIR VALUE | UNREALIZED LOSSES | |||||||||||||||||||
Other securities | $ | — | $ | — | $ | 999 | $ | (1 | ) | $ | 999 | $ | (1 | ) | ||||||||||
Total investment securities held to maturity | $ | — | $ | — | $ | 999 | $ | (1 | ) | $ | 999 | $ | (1 | ) | ||||||||||
The unrealized losses due to interest rates whereare primarily a result of increases in market yields from the Company hastime of purchase. In general, as market yields rise, the positive intent and ability to holdvalue of securities will decrease; as market yields fall, the investment for a periodfair value of time sufficient to allow a market recovery, declines in value below cost are not assumed to be other than temporary.securities will increase. There are 2128 positions that are considered temporarily impaired at December 31, 2008. The Company reviews its position quarterly2010. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and has asserted that at December 31, 2008, the declines outlineddoes not believe it will be required to sell these securities before they recover in the above table represent temporary declines and the Company does have the ability and intent to hold those securities to maturity or to allow a market recovery.
4. LOANS
The loan portfolio of the Company consisted of the following:
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
Commercial | $ | 110,197 | $ | 118,936 | ||||
Commercial loans secured by real estate | 353,870 | 285,115 | ||||||
Real estate-mortgage | 218,928 | 214,839 | ||||||
Consumer | 23,804 | 16,676 | ||||||
Loans | 706,799 | 635,566 | ||||||
Less: Unearned income | 691 | 471 | ||||||
Loans, net of unearned income | $ | 706,108 | $ | 635,095 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Commercial | $ | 78,322 | $ | 96,158 | ||||
Commercial loans secured by real estate | 369,904 | 396,123 | ||||||
Real estate-mortgage | 203,317 | 207,214 | ||||||
Consumer | 19,233 | 19,619 | ||||||
Loans, net of unearned income | $ | 670,776 | $ | 719,114 | ||||
Loan balances at December 31, 2010 and 2009 are net of unearned income of $477,000 and $671,000, respectively.
Real estate construction loans comprised 6.2%3.9% and 5.5%6.8% of total loans net of unearned income at December 31, 20082010 and 2007,2009, respectively. The Company has no exposure to sub primesubprime mortgage loans in either
the loan or investment portfolios. The Company has no direct credit exposure to foreign countries. Additionally, the Company has no significant industry lending concentrations. As of December 31, 20082010 and 2007,2009, loans to customers engaged in similar activities and having similar economic characteristics, as defined by standard industrial classifications, did not exceed 10% of total loans.
In the ordinary course of business, the subsidiaries have transactions, including loans, with their officers, directors, and their affiliated companies. TheseIn managements opinion, these transactions were on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated parties and do not involve more than the normal credit risk. These loans totaled $6,121,000$1,028,000 and $4,729,000$1,183,000 at December 31, 20082010 and 2007,2009, respectively. An analysis of these related party loans follows:
YEAR ENDED | ||||||||
DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
Balance January 1 | $ | 4,729 | $ | 3,977 | ||||
New loans | 2,209 | 1,457 | ||||||
Payments | (817 | ) | (705 | ) | ||||
Balance December 31 | $ | 6,121 | $ | 4,729 | ||||
48
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Balance January 1 | $ | 1,183 | $ | 6,121 | ||||
New loans | 198 | 1,220 | ||||||
Payments | (353 | ) | (4,130 | ) | ||||
Reduction due to director retirement | — | (2,028 | ) | |||||
Balance December 31 | $ | 1,028 | $ | 1,183 | ||||
An analysis of the changes in the allowance for loan losses follows:
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Balance January 1 | $ | 7,252 | $ | 8,092 | $ | 9,143 | ||||||
Provision for loan losses | 2,925 | 300 | (125 | ) | ||||||||
Recoveries on loans previously charged-off | 446 | 192 | 318 | |||||||||
Loans charged-off | (1,713 | ) | (1,332 | ) | (1,244 | ) | ||||||
Balance December 31 | $ | 8,910 | $ | 7,252 | $ | 8,092 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Balance January 1 | $ | 19,685 | $ | 8,910 | $ | 7,252 | ||||||
Provision for loan losses | 5,250 | 15,150 | 2,925 | |||||||||
Recoveries on loans previously charged-off | 461 | 755 | 446 | |||||||||
Loans charged-off | (5,631 | ) | (5,130 | ) | (1,713 | ) | ||||||
Balance December 31 | $ | 19,765 | $ | 19,685 | $ | 8,910 | ||||||
The following table summarizes the primary segments of the loan portfolio.
AT DECEMBER 31, 2010 | ||||||||||||||||||||
COMMERCIAL | COMMERCIAL LOANS SECURED BY REAL ESTATE | REAL ESTATE- MORTGAGE | CONSUMER | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Individually evaluated for impairment | $ | 4,065 | $ | 8,082 | $ | — | $ | — | $ | 12,147 | ||||||||||
Collectively evaluated for impairment | 74,257 | 361,822 | 203,317 | 19,233 | 658,629 | |||||||||||||||
Total loans | $ | 78,322 | $ | 369,904 | $ | 203,317 | $ | 19,233 | $ | 670,776 | ||||||||||
Specific reserve allocation General reserve allocation Total allowance for loan losses Individually evaluated for impairment Collectively evaluated for impairment Total loans Specific reserve allocation General reserve allocation Total allowance for loan losses AT DECEMBER 31, 2010 COMMERCIAL COMMERCIAL
LOANS
SECURED BY
REAL ESTATE REAL
ESTATE-
MORTGAGE CONSUMER ALLOCATION
FOR
GENERAL
RISK TOTAL (IN THOUSANDS) $ 1,905 $ 1,901 $ — $ — $ — $ 3,806 1,946 10,816 1,117 206 1,874 15,959 $ 3,851 $ 12,717 $ 1,117 $ 206 $ 1,874 $ 19,765 AT DECEMBER 31, 2009 COMMERCIAL COMMERCIAL
LOANS
SECURED BY
REAL ESTATE REAL
ESTATE-
MORTGAGE CONSUMER TOTAL (IN THOUSANDS) $ 3,082 $ 11,996 $ — $ — $ 15,078 93,076 384,127 207,214 19,619 704,036 $ 96,158 $ 396,123 $ 207,214 $ 19,619 $ 719,114 AT DECEMBER 31, 2009 COMMERCIAL COMMERCIAL
LOANS
SECURED BY
REAL ESTATE REAL
ESTATE-
MORTGAGE CONSUMER ALLOCATION
FOR
GENERAL
RISK TOTAL (IN THOUSANDS) $ 1,090 $ 3,905 $ — $ — $ — $ 4,995 3,666 8,787 1,015 204 1,018 14,690 $ 4,756 $ 12,692 $ 1,015 $ 204 $ 1,018 $ 19,685
The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The overall risk profile for the commercial loan segment is driven by non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, as the majority of the commercial portfolio is centered in these types of accounts. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
Management evaluates for possible impairment any individual loan in the commercial segment with a loan balance in excess of $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of larger relationship that is impaired, or are classified as a troubled debt restructuring agreement.
Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary.
DECEMBER 31, 2010 | ||||||||||||||||||||
IMPAIRED LOANS WITH SPECIFIC ALLOWANCE | IMPAIRED LOANS WITH NO SPECIFIC ALLOWANCE | TOTAL IMPAIRED LOANS | ||||||||||||||||||
RECORDED INVESTMENT | RELATED ALLOWANCE | RECORDED INVESTMENT | RECORDED INVESTMENT | UNPAID PRINCIPAL BALANCE | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 4,041 | $ | 1,905 | $ | 24 | $ | 4,065 | $ | 4,842 | ||||||||||
Commercial loans secured by real estate | 4,938 | 1,901 | 3,144 | 8,082 | 8,341 | |||||||||||||||
Total impaired loans | $ | 8,979 | $ | 3,806 | $ | 3,168 | $ | 12,147 | $ | 13,183 | ||||||||||
DECEMBER 31, 2009 | ||||||||||||||||||||
IMPAIRED LOANS WITH SPECIFIC ALLOWANCE | IMPAIRED LOANS WITH NO SPECIFIC ALLOWANCE | TOTAL IMPAIRED LOANS | ||||||||||||||||||
RECORDED INVESTMENT | RELATED ALLOWANCE | RECORDED INVESTMENT | RECORDED INVESTMENT | UNPAID PRINCIPAL BALANCE | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 2,967 | $ | 1,090 | $ | 115 | $ | 3,082 | $ | 3,795 | ||||||||||
Commercial loans secured by real estate | 11,996 | 3,905 | — | 11,996 | 12,020 | |||||||||||||||
Total impaired loans | $ | 14,963 | $ | 4,995 | $ | 115 | $ | 15,078 | $ | 15,815 | ||||||||||
The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated.
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Average investment in impaired loans | $ | 18,202 | $ | 11,248 | $ | 1,605 | ||||||
Interest income recognized on a cash basis on impaired loans | 458 | 75 | — |
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass 6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $250,000 within a 12-month period. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced independent function which reports directly to the Board Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The approved scope of coverage for 2010 required a minimum range-of-coverage of 60% to 70% of the commercial loan portfolio. Actual coverage was 68% of the aggregate commercial loan portfolio balance as of December 31, 2010.
In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $1,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis.
The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system.
DECEMBER 31, 2010 | ||||||||||||||||||||
PASS | SPECIAL MENTION | SUBSTANDARD | DOUBTFUL | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 61,961 | $ | 8,797 | $ | 5,793 | $ | 1,771 | $ | 78,322 | ||||||||||
Commercial loans secured by real estate | 306,555 | 33,165 | 29,754 | 430 | 369,904 | |||||||||||||||
Total | $ | 368,516 | $ | 41,962 | $ | 35,547 | $ | 2,201 | $ | 448,226 | ||||||||||
DECEMBER 31, 2009 | ||||||||||||||||||||
PASS | SPECIAL MENTION | SUBSTANDARD | DOUBTFUL | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Commercial | $ | 69,510 | $ | 8,086 | $ | 17,074 | $ | 1,488 | $ | 96,158 | ||||||||||
Commercial loans secured by real estate | 324,911 | 43,212 | 28,000 | — | 396,123 | |||||||||||||||
Total | $ | 394,421 | $ | 51,298 | $ | 45,074 | $ | 1,488 | $ | 492,281 | ||||||||||
It is the policy of the bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is the policy of the bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off.
DECEMBER 31, 2010 | ||||||||
PERFORMING | NON-PERFORMING | |||||||
(IN THOUSANDS) | ||||||||
Real estate-mortgage | $ | 201,438 | $ | 1,879 | ||||
Consumer | 19,233 | — | ||||||
Total | $ | 220,671 | $ | 1,879 | ||||
DECEMBER 31, 2009 | ||||||||
PERFORMING | NON-PERFORMING | |||||||
(IN THOUSANDS) | ||||||||
Real estate-mortgage | $ | 205,189 | $ | 2,025 | ||||
Consumer | 19,619 | — | ||||||
Total | $ | 224,808 | $ | 2,025 | ||||
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans.
DECEMBER 31, 2010 | ||||||||||||||||||||||||||||
CURRENT | 30-59 DAYS PAST DUE | 60-89 DAYS PAST DUE | 90 DAYS PAST DUE | TOTAL PAST DUE | NON- ACCRUAL | TOTAL LOANS | ||||||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||||||
Commercial | $ | 74,643 | $ | — | $ | — | $ | — | $ | — | $ | 3,679 | $ | 78,322 | ||||||||||||||
Commercial loans secured by real estate | 362,890 | 283 | — | — | 283 | 6,731 | 369,904 | |||||||||||||||||||||
Real estate-mortgage | 199,003 | 1,892 | 543 | — | 2,435 | 1,879 | 203,317 | |||||||||||||||||||||
Consumer | 19,160 | 29 | 44 | — | 73 | — | 19,233 | |||||||||||||||||||||
Total | $ | 655,696 | $ | 2,204 | $ | 587 | $ | — | $ | 2,791 | $ | 12,289 | $ | 670,776 | ||||||||||||||
DECEMBER 31, 2009 | ||||||||||||||||||||||||||||
CURRENT | 30-59 DAYS PAST DUE | 60-89 DAYS PAST DUE | 90 DAYS PAST DUE | TOTAL PAST DUE | NON- ACCRUAL | TOTAL LOANS | ||||||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||||||||||
Commercial | $ | 92,783 | $ | — | $ | — | $ | — | $ | — | $ | 3,375 | $ | 96,158 | ||||||||||||||
Commercial loans secured by real estate | 375,812 | 8,595 | — | — | 8,595 | 11,716 | 396,123 | |||||||||||||||||||||
Real estate-mortgage | 202,479 | 2,056 | 654 | — | 2,710 | 2,025 | 207,214 | |||||||||||||||||||||
Consumer | 19,516 | 68 | 35 | — | 103 | — | 19,619 | |||||||||||||||||||||
Total | $ | 690,590 | $ | 10,719 | $ | 689 | $ | — | $ | 11,408 | $ | 17,116 | $ | 719,114 | ||||||||||||||
An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio,
assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.
Management tracks the historical net charge-off activity at each risk rating grade level for the entire commercial portfolio and at the aggregate level for the consumer, residential mortgage and small business portfolios. A historical charge-off factor is calculated utilizing a rolling 12 consecutive historical quarters for the commercial portfolios. This historical charge-off factor for the consumer, residential mortgage and small business portfolios are based on a three year historical average of actual loss experience.
As described in more detail in the Summary of Significant Accounting Policies section in Note 1, the Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: 1) an allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other qualitative factors which include delinquency and non-performing loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations which accommodate each of the listed risk factors.
“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
6. NON-PERFORMING ASSETS
Non-performing assets are comprised of (i) loans which are on a non-accrual basis, (ii) loans which are contractually past due 90 days or more as to interest or principal payments, (iii) performing loans classified as troubled debt restructuring and (iii)(iv) other real estate owned (real estate acquired through foreclosure, in-substance foreclosures and repossessed assets).
The following tables present information concerning non-performing assets:
AT DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS, EXCEPT | ||||||||||||
PERCENTAGES) | ||||||||||||
Non-accrual loans | ||||||||||||
Commercial | $ | 1,128 | $ | 3,553 | $ | 494 | ||||||
Commercial loans secured by real estate | 484 | 225 | 195 | |||||||||
Real estate-mortgage | 1,313 | 875 | 1,050 | |||||||||
Consumer | 452 | 585 | 547 | |||||||||
Total | 3,377 | 5,238 | 2,286 | |||||||||
Past due 90 days or more and still accruing | ||||||||||||
Consumer | — | — | 3 | |||||||||
Total | — | — | 3 | |||||||||
Other real estate owned | ||||||||||||
Commercial loans secured by real estate | 701 | — | — | |||||||||
Real estate-mortgage | 494 | 42 | 3 | |||||||||
Total | 1,195 | 42 | 3 | |||||||||
Total non-performing assets | $ | 4,572 | $ | 5,280 | $ | 2,292 | ||||||
Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned | 0.65 | % | 0.83 | % | 0.39 | % | ||||||
Total restructured loans (included in non-accrual loans above) | $ | 1,360 | $ | 1,217 | $ | 1,302 |
AT DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||
Non-accrual loans | ||||||||||||
Commercial | $ | 3,679 | $ | 3,375 | $ | 1,128 | ||||||
Commercial loans secured by real estate | 6,731 | 11,716 | 484 | |||||||||
Real estate-mortgage | 1,879 | 2,025 | 1,765 | |||||||||
Total | 12,289 | 17,116 | 3,377 | |||||||||
Other real estate owned | ||||||||||||
Commercial loans secured by real estate | 436 | 871 | 701 | |||||||||
Real estate-mortgage | 302 | 350 | 494 | |||||||||
Total | 738 | 1,221 | 1,195 | |||||||||
Total restructured loans not in non-accrual (TDR) | 1,337 | — | — | |||||||||
Total non-performing assets including TDR | $ | 14,364 | $ | 18,337 | $ | 4,572 | ||||||
Total non-performing assets as a percent of loans and loans held for sale, | 2.12 | % | 2.53 | % | 0.65 | % |
The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above. Other real estate owned is recorded at the lower of 1) fair value minus estimated costs to sell, or 2) carrying cost.
The Company had non-accrual loans totaling $1,612,000$10,410,000 and $3,778,000$15,091,000 being specifically identified as impaired and a corresponding allocation reserve of $755,000$3,806,000 and $694,000$4,995,000 at December 31, 20082010 and 2007,2009, respectively. The average outstanding balance for loans being specifically identified as impaired was $1,605,000$18,202,000 for 20082010 and $3,907,000$11,248,000 for 2007.2009. A majority of the impaired loans are secured by sellable collateral,collateral; the estimated timing of the liquidation of the collateral and the estimated fair value of the collateral are evaluated in measuring the impairment. The interest income recognized on impaired loans during 2010, 2009 and 2008 2007was $458,000, $75,000 and 2006 was $123,000, $0, and $34,000, respectively.
The following table sets forth, for the periods indicated, (i)(1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (ii)(2) the amount of interest income actually recorded on such loans, and (iii)(3) the net reduction in interest income attributable to such loans.
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest income due in accordance with original terms | $ | 198 | $ | 215 | $ | 214 | ||||||
Interest income recorded | (148 | ) | (40 | ) | (87 | ) | ||||||
Net reduction in interest income | $ | 50 | $ | 175 | $ | 127 | ||||||
49
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest income due in accordance with original terms | $ | 1,086 | $ | 553 | $ | 198 | ||||||
Interest income recorded | (458 | ) | (75 | ) | — | |||||||
Net reduction in interest income | $ | 628 | $ | 478 | $ | 198 | ||||||
An analysis of premises and equipment follows:
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
Land | $ | 1,208 | $ | 1,208 | ||||
Premises | 20,845 | 20,041 | ||||||
Furniture and equipment | 13,501 | 15,681 | ||||||
Leasehold improvements | 599 | 612 | ||||||
Total at cost | 36,153 | 37,542 | ||||||
Less: Accumulated depreciation and amortization | 26,632 | 29,092 | ||||||
Net book value | $ | 9,521 | $ | 8,450 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Land | $ | 1,208 | $ | 1,208 | ||||
Premises | 22,780 | 21,541 | ||||||
Furniture and equipment | 7,087 | 13,994 | ||||||
Leasehold improvements | 512 | 599 | ||||||
Total at cost | 31,587 | 37,342 | ||||||
Less: Accumulated depreciation and amortization | 21,102 | 28,113 | ||||||
Net book value | $ | 10,485 | $ | 9,229 | ||||
The Company recorded depreciation expense of $1.5 million, $1.6 million and $1.5 million for 2010, 2009 and $1.7 million for 2008, 2007 and 2006, respectively.
8. DEPOSITS
The following table sets forth the balance of the Company’s deposits:
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
Demand: | ||||||||
Non-interest bearing | $ | 116,372 | $ | 113,380 | ||||
Interest bearing | 60,900 | 63,199 | ||||||
Savings | 70,682 | 69,155 | ||||||
Money market | 129,692 | 117,973 | ||||||
Certificates of deposit in denominations of $100,000 or more | 36,166 | 41,390 | ||||||
Other time | 281,144 | 305,342 | ||||||
Total deposits | $ | 694,956 | $ | 710,439 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Demand: | ||||||||
Non-interest bearing | $ | 127,870 | $ | 118,232 | ||||
Interest bearing | 59,206 | 61,292 | ||||||
Savings | 76,762 | 72,557 | ||||||
Money market | 173,234 | 181,139 | ||||||
Certificates of deposit in denominations of $100,000 or more | 50,808 | 45,169 | ||||||
Other time | 313,336 | 307,622 | ||||||
Total deposits | $ | 801,216 | $ | 786,011 | ||||
Interest expense on deposits consisted of the following:
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest bearing demand | $ | 653 | $ | 1,184 | $ | 606 | ||||||
Savings | 535 | 549 | 644 | |||||||||
Money market | 2,417 | 6,040 | 5,743 | |||||||||
Certificates of deposit in denominations of $100,000 or more | 1,744 | 1,774 | 1,894 | |||||||||
Other time | 10,331 | 13,264 | 10,345 | |||||||||
Total interest expense | $ | 15,680 | $ | 22,811 | $ | 19,232 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Interest bearing demand | $ | 176 | $ | 256 | $ | 653 | ||||||
Savings | 397 | 530 | 535 | |||||||||
Money market | 1,622 | 2,437 | 2,417 | |||||||||
Certificates of deposit in denominations of $100,000 or more | 834 | 1,186 | 1,744 | |||||||||
Other time | 7,916 | 8,700 | 10,331 | |||||||||
Total interest expense | $ | 10,945 | $ | 13,109 | $ | 15,680 | ||||||
The following table sets forth the balance of other time deposits and certificates of deposit of $100,000 or more as of December 31, 20082010 maturing in the periods presented:
CERTIFICATES OF | ||||||||
DEPOSIT | ||||||||
OTHER TIME DEPOSITS | OF $100,000 OR MORE | |||||||
YEAR | (IN THOUSANDS) | |||||||
2008 | $ | 165,136 | $ | 28,760 | ||||
2009 | 50,410 | 3,707 | ||||||
2010 | 23,207 | 1,285 | ||||||
2011 | 14,655 | 433 | ||||||
2012 | 9,396 | 1,704 | ||||||
2013 and after | 18,340 | 277 | ||||||
Total | $ | 281,144 | $ | 36,166 | ||||
50
YEAR | OTHER TIME DEPOSITS | CERTIFICATES OF DEPOSIT OF $100,000 OR MORE | ||||||
(IN THOUSANDS) | ||||||||
2011 | $ | 161,758 | $ | 39,711 | ||||
2012 | 64,794 | 8,211 | ||||||
2013 | 33,991 | 2,553 | ||||||
2014 | 7,496 | 149 | ||||||
2015 | 12,651 | 184 | ||||||
2016 and after | 32,646 | — | ||||||
Total | $ | 313,336 | $ | 50,808 | ||||
(IN THOUSANDS) | ||||
Three months or less | $ | 11,813 | ||
Over three through six months | 13,382 | |||
Over six through twelve months | 3,565 | |||
Over twelve months | 7,406 | |||
Total | $ | 36,166 | ||
(IN THOUSANDS) | ||||
MATURING IN: | ||||
Three months or less | $ | 12,695 | ||
Over three through six months | 21,695 | |||
Over six through twelve months | 5,321 | |||
Over twelve months | 11,097 | |||
Total | $ | 50,808 | ||
9. FEDERAL FUNDS PURCHASED AND SHORT-TERM BORROWINGS
The outstanding balances and related information for federal funds purchased and other short-term borrowings are summarized as follows:
AT DECEMBER 31, 2008 | ||||||||
FEDERAL | ||||||||
FUNDS | SHORT-TERM | |||||||
PURCHASED | BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 119,920 | ||||
Maximum indebtedness at any month end | 5,685 | 138,855 | ||||||
Average balance during year | 20 | 71,617 | ||||||
Average rate paid for the year | 3.16 | % | 1.96 | % | ||||
Interest rate on year end balance | — | 0.60 |
AT DECEMBER 31, 2007 | ||||||||
FEDERAL | ||||||||
FUNDS | SHORT-TERM | |||||||
PURCHASED | BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 72,210 | ||||
Maximum indebtedness at any month end | 3,430 | 74,095 | ||||||
Average balance during year | 99 | 19,745 | ||||||
Average rate paid for the year | 5.18 | % | 4.89 | % | ||||
Interest rate on year end balance | — | 3.88 |
AT DECEMBER 31, 2010 | ||||||||
FEDERAL FUNDS PURCHASED | SHORT-TERM BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 4,550 | ||||
Maximum indebtedness at any month end | — | 9,230 | ||||||
Average balance during year | 9 | 3,110 | ||||||
Average rate paid for the year | 0.51 | % | 0.71 | % | ||||
Interest rate on year end balance | — | 0.62 |
AT DECEMBER 31, 2009 | ||||||||
FEDERAL FUNDS PURCHASED | SHORT-TERM BORROWINGS | |||||||
(IN THOUSANDS, EXCEPT RATES) | ||||||||
Balance | $ | — | $ | 25,775 | ||||
Maximum indebtedness at any month end | 5,968 | 54,649 | ||||||
Average balance during year | 1,358 | 19,670 | ||||||
Average rate paid for the year | 0.50 | % | 0.67 | % | ||||
Interest rate on year end balance | — | 0.62 |
Average amounts outstanding during the year represent daily averages. Average interest rates represent interest expense divided by the related average balances.
These borrowing transactions can range from overnight to one year in maturity. The average maturity was three days at the end of 2010 and two days at the end of 2008 and 2007.
10. | ADVANCES FROM FEDERAL HOME LOAN BANK AND GUARANTEED JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
Borrowings and advances from the FHLB consist of the following:
AT DECEMBER 31, 2008 | ||||||||
WEIGHTED | ||||||||
AVERAGE YIELD | BALANCE | |||||||
MATURING | (IN THOUSANDS) | |||||||
Overnight | 1.96 | % | $ | 119,920 | ||||
2009 | 4.17 | 3,004 | ||||||
2010 | 3.36 | 10,000 | ||||||
2011 and after | 6.44 | 854 | ||||||
Total advances | 3.72 | 13,858 | ||||||
Total FHLB borrowings | 2.14 | % | $ | 133,778 | ||||
51
AT DECEMBER 31, 2010 | ||||||||
MATURING | WEIGHTED AVERAGE YIELD | BALANCE | ||||||
(IN THOUSANDS) | ||||||||
Overnight | 0.62 | % | $ | 4,550 | ||||
2012 | 1.82 | 4,000 | ||||||
2013 | 2.04 | 5,000 | ||||||
2016 and after | 6.44 | 750 | ||||||
Total advances | 2.28 | 9,750 | ||||||
Total FHLB borrowings | 1.75 | % | $ | 14,300 | ||||
AT DECEMBER 31, 2009 | ||||||||
MATURING | WEIGHTED AVERAGE YIELD | BALANCE | ||||||
(IN THOUSANDS) | ||||||||
Overnight | 0.62 | % | $ | 25,775 | ||||
2010 | 1.67 | 22,000 | ||||||
2012 | 1.97 | 3,000 | ||||||
2016 and after | 6.44 | 804 | ||||||
Total advances | 1.85 | 25,804 | ||||||
Total FHLB borrowings | 1.24 | % | $ | 51,579 | ||||
AT DECEMBER 31, 2007 | ||||||||
WEIGHTED | ||||||||
AVERAGE YIELD | BALANCE | |||||||
MATURING | (IN THOUSANDS) | |||||||
Overnight | 3.88 | % | $ | 72,210 | ||||
2009 | 4.62 | 9,004 | ||||||
2010 and after | 6.45 | 901 | ||||||
Total advances | 4.79 | 9,905 | ||||||
Total FHLB borrowings | 3.99 | % | $ | 82,115 | ||||
Guaranteed Junior Subordinated Deferrable Interest Debentures:
On April 28, 1998, the Company completed a $34.5 million public offering of 8.45% Trust Preferred Securities, which represent undivided beneficial interests in the assets of a Delaware business trust, AmeriServ Financial Capital Trust I. The Trust Preferred Securities will mature on June 30, 2028, and are callable at par at the option of the Company after June 30, 2003. Proceeds of the issue were invested by AmeriServ Financial Capital Trust I in Junior Subordinated Debentures issued by AmeriServ Financial, Inc. Unamortized deferred
issuance costs associated with the Trust Preferred Securities amounted to $302,000$271,000 as of December 31, 20082010 and are included in other assets on the consolidated balance sheet, and are being amortized on a straight-line basis over the term of the issue. The Trust Preferred securities are listed on NASDAQ under the symbol ASRVP. AmeriServ Financial Capital Trust I was deconsolidated in the first quarter of 2004 in accordance with FASB Interpretation #46(R) Consolidation of Variable Interest Entities (FIN 46(R)). The Company used $22.5 million of proceeds from a private placement of common stock to redeem Trust Preferred Securities in 2005 and 2004. The balance as of December 31, 20082010 and 20072009 was $13.1 million.
11. DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS
The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. The FASB issued Staff Position No. 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removed leasing transactions accounted for under FAS No. 13 and related guidance from the scope of FAS No. 157. The FASB also issued Staff Position No.157-2,Partial Deferral of the Effective Date of Statement 157, which deferred the effective date of FAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.
Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may
52
Residential real estate loans held for sale are carried at fair value on a recurring basis. Residential real estate loans are valued based on quoted market prices from purchase commitments from market participants and are classified as Level 1.
The fair value of the swap asset is based on an external derivative valuation model using data inputs as of the valuation date and classified Level 2.
The following table presents the assets reported on the balance sheet at their fair value as of December 31, 2008,2010 and 2009, by level within the fair value hierarchy. As required by FAS No. 157, financialFinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Assets Measured on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value Measurements at December 31, 2008 Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Available for sale securities | $ | 126,781 | $ | 17 | $ | 126,764 | $ | — | ||||||||
Loans held for sale | 1,000 | 1,000 | — | — | ||||||||||||
Fair value swap asset | 336 | — | 336 | — |
Fair Value Measurements at December 31, 2008 Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Impaired loans | $ | 857 | $ | — | $ | 857 | $ | — | ||||||||
Other real estate owned | 1,195 | — | 1,195 | — |
Fair Value Measurements at December 31, 2010 Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Agency securities | $ | 15,944 | $ | — | $ | 15,944 | $ | — | ||||||||
U.S. Agency mortgage-backed securities | 148,867 | — | 148,867 | — | ||||||||||||
Fair value swap asset | 420 | — | 420 | — |
Assets: U.S. Agency securities U.S. Agency mortgage-backed securities Fair value swap asset Fair Value Measurements at December 31, 2009 Using Total Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 12,292 $ — $ 12,292 $ — 118,980 — 118,980 — 154 — 154 —
Loans considered impaired under FAS 114,“Accounting by Creditors for Impairment of a Loan,” as amended by FAS 118,“Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosure,”are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurringreported at fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the underlying collateral or (2)if the full charge-off ofrepayment is expected solely from the carrying value. All of the Company’scollateral. Collateral values are estimated using Level 2 inputs based on observable market data which at times are discounted. At December 31, 2010, impaired loans are classified as level 2.
OREO is measured at fair value based on appraisals, less cost to sell at the date of foreclosure, valuationsforeclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.
Assets Measured on a Non-recurring Basis
Assets measured at fair value on a non-recurring basis are summarized below (in thousands):
Fair Value Measurements at December 31, 2010 Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Impaired loans | $ | 8,341 | $ | — | $ | 8,341 | $ | — | ||||||||
Other real estate owned | 738 | — | 738 | — |
Fair Value Measurements at December 31, 2009 Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Impaired loans | $ | 9,268 | $ | — | $ | 9,268 | $ | — | ||||||||
Other real estate owned | 1,221 | — | 1,221 | — |
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.
53
2008 | 2007 | |||||||||||||||
ESTIMATED | RECORDED | ESTIMATED | RECORDED | |||||||||||||
FAIR VALUE | BOOK BALANCE | FAIR VALUE | BOOK BALANCE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
FINANCIAL ASSETS: | ||||||||||||||||
Investment securities | $ | 143,104 | $ | 142,675 | $ | 163,319 | $ | 163,474 | ||||||||
Regulatory stock | 9,739 | 9,739 | 7,204 | 7,204 | ||||||||||||
Net loans (including loans held for sale), net of allowance for loan loss | 701,066 | 698,198 | 632,609 | 628,903 | ||||||||||||
Accrued income receivable | 3,735 | 3,735 | 4,032 | 4,032 | ||||||||||||
Bank owned life insurance | 32,929 | 32,929 | 32,864 | 32,864 | ||||||||||||
Fair value swap asset | 336 | 336 | — | — | ||||||||||||
FINANCIAL LIABILITIES: | ||||||||||||||||
Deposits with no stated maturities | $ | 377,646 | $ | 377,646 | $ | 363,707 | $ | 363,707 | ||||||||
Deposits with stated maturities | 320,201 | 317,310 | 347,361 | 346,732 | ||||||||||||
Short-term borrowings | 119,920 | 119,920 | 72,210 | 72,210 | ||||||||||||
All other borrowings | 31,472 | 26,943 | 25,811 | 22,990 | ||||||||||||
Accrued interest payable | 4,062 | 4,062 | 4,961 | 4,961 | ||||||||||||
Fair value swap liability | 336 | 336 | — | — |
2010 | 2009 | |||||||||||||||
FAIR VALUE | RECORDED BOOK BALANCE | FAIR VALUE | RECORDED BOOK BALANCE | |||||||||||||
(IN THOUSANDS) | ||||||||||||||||
FINANCIAL ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 19,337 | $ | 19,337 | $ | 26,308 | $ | 26,308 | ||||||||
Investment securities | 173,078 | 172,635 | 143,268 | 142,883 | ||||||||||||
Regulatory stock | 9,358 | 9,358 | 9,739 | 9,739 | ||||||||||||
Loans held for sale | 7,542 | 7,405 | 3,840 | 3,790 | ||||||||||||
Loans, net of allowance for loan loss and unearned income | 651,866 | 651,011 | 695,930 | 699,429 | ||||||||||||
Accrued income receivable | 3,210 | 3,210 | 3,589 | 3,589 | ||||||||||||
Bank owned life insurance | 34,466 | 34,466 | 33,690 | 33,690 | ||||||||||||
Fair value swap asset | 420 | 420 | 154 | 154 | ||||||||||||
FINANCIAL LIABILITIES: | ||||||||||||||||
Deposits with no stated maturities | $ | 437,072 | $ | 437,072 | $ | 433,220 | $ | 433,220 | ||||||||
Deposits with stated maturities | 369,972 | 364,144 | 357,275 | 352,791 | ||||||||||||
Short-term borrowings | 4,550 | 4,550 | 25,775 | 25,775 | ||||||||||||
All other borrowings | 25,419 | 22,835 | 41,272 | 38,889 | ||||||||||||
Accrued interest payable | 3,541 | 3,541 | 4,136 | 4,136 | ||||||||||||
Fair value swap liability | 420 | 420 | 154 | 154 |
The fair value of cash and cash equivalents, regulatory stock, accrued income receivable, short-term borrowings, and accrued interest payable are equal to the current carrying value.
The fair value of investment securities is equal to the available quoted market price.
The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is based upon the treasury yield curve adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk.
The fair value of bank owned life insurance is based upon the cash surrender value of the underlying policies and matches the book value.
Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.
The fair value of other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.
The fair values of the fair value swaps used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company’s remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.
54
The expense for income taxes is summarized below:
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Current | $ | 121 | $ | 116 | $ | 76 | ||||||
Deferred | 1,349 | 808 | 344 | |||||||||
Income tax expense | $ | 1,470 | $ | 924 | $ | 420 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
Current | $ | 206 | $ | 170 | $ | 121 | ||||||
Deferred | (126 | ) | (3,220 | ) | 1,349 | |||||||
Income tax (benefit) expense | $ | 80 | $ | (3,050 | ) | $ | 1,470 | |||||
The reconciliation between the federal statutory tax rate and the Company’s effective consolidated income tax rate is as follows:
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
AMOUNT | RATE | AMOUNT | RATE | AMOUNT | RATE | |||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||
Income tax expense based on federal statutory rate | $ | 2,373 | 34.0 | % | $ | 1,346 | 34.0 | % | $ | 936 | 34.0 | % | ||||||||||||
Tax exempt income | (985 | ) | (14.1 | ) | (506 | ) | (12.8 | ) | (478 | ) | (17.4 | ) | ||||||||||||
Reversal of valuation allowance | — | — | — | — | (100 | ) | (3.6 | ) | ||||||||||||||||
Other | 82 | 1.2 | 84 | 2.1 | 62 | 2.3 | ||||||||||||||||||
Total expense for income taxes | $ | 1,470 | 21.1 | % | $ | 924 | 23.3 | % | $ | 420 | 15.3 | % | ||||||||||||
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
AMOUNT | RATE | AMOUNT | RATE | AMOUNT | RATE | |||||||||||||||||||
(IN THOUSANDS, EXCEPT PERCENTAGES) | ||||||||||||||||||||||||
Income tax (benefit) expense based on federal statutory rate | $ | 463 | 34.0 | % | $ | (2,701 | ) | (34.0 | )% | $ | 2,373 | 34.0 | % | |||||||||||
Tax exempt income | (443 | ) | (32.5 | ) | (443 | ) | (5.6 | ) | (985 | ) | (14.1 | ) | ||||||||||||
Other | 60 | 4.4 | 94 | 1.2 | 82 | 1.2 | ||||||||||||||||||
Total (benefit) expense for income taxes | $ | 80 | 5.9 | % | $ | (3,050 | ) | (38.4 | )% | $ | 1,470 | 21.1 | % | |||||||||||
December 31, 20082010 and 2007,2009, deferred taxes are included in the accompanying Consolidated Balance Sheets. The following table highlights the major components comprising the deferred tax assets and liabilities for each of the periods presented:
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
DEFERRED TAX ASSETS: | ||||||||
Allowance for loan losses | $ | 3,029 | $ | 2,465 | ||||
Unfunded commitment reserve | 167 | 135 | ||||||
Premises and equipment | 1,102 | 876 | ||||||
Accrued pension obligation | 1,165 | 100 | ||||||
Unrealized investment security losses | — | 403 | ||||||
Net operating loss carryforwards | 6,362 | 8,539 | ||||||
Alternative minimum tax credits | 1,301 | 1,132 | ||||||
Other | 396 | 332 | ||||||
Total tax assets | 13,522 | 13,982 | ||||||
DEFERRED TAX LIABILITIES: | ||||||||
Investment accretion | (36 | ) | (26 | ) | ||||
Unrealized investment security gains | (676 | ) | — | |||||
Other | (159 | ) | (206 | ) | ||||
Total tax liabilities | (871 | ) | (232 | ) | ||||
Net deferred tax asset | $ | 12,651 | $ | 13,750 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
DEFERRED TAX ASSETS: | ||||||||
Allowance for loan losses | $ | 6,720 | $ | 6,692 | ||||
Unfunded commitment reserve | 298 | 240 | ||||||
Premises and equipment | 1,193 | 796 | ||||||
Accrued pension obligation | 1,867 | 1,510 | ||||||
Net operating loss carryforwards | 5,444 | 6,028 | ||||||
Alternative minimum tax credits | 1,352 | 1,389 | ||||||
Other | 504 | 459 | ||||||
Total tax assets | 17,378 | 17,114 | ||||||
DEFERRED TAX LIABILITIES: | ||||||||
Investment accretion | (34 | ) | (30 | ) | ||||
Unrealized investment security gains | (1,064 | ) | (967 | ) | ||||
Other | (222 | ) | (192 | ) | ||||
Total tax liabilities | (1,320 | ) | (1,189 | ) | ||||
Net deferred tax asset | $ | 16,058 | $ | 15,925 | ||||
At December 31, 2008,2010 and 2009, the Company had no valuation allowance established against its deferred tax assets as we believe the Company will generate sufficient future taxable income to fully utilize all net operating loss carryforwards and AMT tax credits.
The change in net deferred tax assets and liabilities consist of the following:
YEAR ENDED | ||||||||
DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
Investment write-ups due to FAS #115, charged to equity | $ | (1,079 | ) | $ | (1,272 | ) | ||
Pension obligation of the defined benefit plan not yet recognized in income | 1,329 | (7 | ) | |||||
Deferred provision for income taxes | (1,349 | ) | (808 | ) | ||||
Net decrease | $ | (1,099 | ) | $ | (2,087 | ) | ||
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Unrealized gains or losses recognized in comprehensive income | $ | (98 | ) | $ | (291 | ) | ||
Pension obligation of the defined benefit plan not yet recognized in income | 357 | 345 | ||||||
Deferred benefit (provision) for income taxes | (126 | ) | 3,220 | |||||
Net increase | $ | 133 | $ | 3,274 | ||||
The Company has alternative minimum tax credit carryforwards of approximately $1.3$1.4 million at December 31, 2008.2010. These credits have an indefinite carryforward period. The Company also has an $18.7a $16.0 million net operating loss carryforward that will begin to expire in the year 2024.
55
14. EMPLOYEE BENEFIT PLANS
PENSION PLANS:
The Company has a noncontributory defined benefit pension plan covering all employees who work at least 1,000 hours per year. The participants shall have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ten year period of employment. Plan assets are primarily debt securities (including U.S. Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of AmeriServ Financial, Inc. common stock valued at $414,000$329,000 and is limited to 10% of the plansplan’s assets), mutual funds, and short-term cash equivalent instruments. The following actuarial tables are based upon data provided by an independent third party as of December 31, 2008.
PENSION BENEFITS:
YEAR ENDED DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
CHANGE IN BENEFIT OBLIGATION: | ||||||||
Benefit obligation at beginning of year | $ | 16,231 | $ | 15,410 | ||||
Service cost | 926 | 927 | ||||||
Interest cost | 937 | 880 | ||||||
Actuarial (gain) loss | (78 | ) | 109 | |||||
Special termination benefits | — | 85 | ||||||
Benefits paid | (1,215 | ) | (1,180 | ) | ||||
Benefit obligation at end of year | 16,801 | 16,231 | ||||||
CHANGE IN PLAN ASSETS: | ||||||||
Fair value of plan assets at beginning of year | 15,929 | 15,091 | ||||||
Actual return on plan assets | (2,912 | ) | 918 | |||||
Employer contributions | 1,400 | 1,100 | ||||||
Benefits paid | (1,215 | ) | (1,180 | ) | ||||
Fair value of plan assets at end of year | 13,202 | 15,929 | ||||||
Funded status of the plan—under funded | $ | (3,599 | ) | $ | (302 | ) | ||
YEAR ENDED DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
AMOUNTS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC PENSION COST: | ||||||||
Amounts recognized in accumulated other comprehensive income (loss) consists of: | ||||||||
Transition asset | $ | 17 | $ | 17 | ||||
Prior service cost | (4 | ) | (4 | ) | ||||
Net actuarial loss (gain) | 3,711 | (34 | ) | |||||
Total | $ | 3,724 | $ | (21 | ) | |||
YEAR ENDED DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
ACCUMULATED BENEFIT OBLIGATION: | ||||||||
Accumulated benefit obligation | $ | 14,850 | $ | 14,254 | ||||
56
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
CHANGE IN BENEFIT OBLIGATION: | ||||||||
Benefit obligation at beginning of year | $ | 19,855 | $ | 16,801 | ||||
Service cost | 1,097 | 1,021 | ||||||
Interest cost | 1,186 | 1,058 | ||||||
Actuarial loss | 2,129 | 1,278 | ||||||
Benefits paid | (930 | ) | (303 | ) | ||||
Benefit obligation at end of year | 23,337 | 19,855 | ||||||
CHANGE IN PLAN ASSETS: | ||||||||
Fair value of plan assets at beginning of year | 15,479 | 13,202 | ||||||
Actual return on plan assets | 1,700 | 1,080 | ||||||
Employer contributions | 1,500 | 1,500 | ||||||
Benefits paid | (930 | ) | (303 | ) | ||||
Fair value of plan assets at end of year | 17,749 | 15,479 | ||||||
Funded status of the plan — under funded | $ | (5,588 | ) | $ | (4,376 | ) | ||
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
AMOUNTS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC PENSION COST: | ||||||||
Amounts recognized in accumulated other comprehensive income (loss) consists of: | ||||||||
Transition asset | $ | (42 | ) | $ | (58 | ) | ||
Prior service cost | (51 | ) | (36 | ) | ||||
Net actuarial loss | 10,743 | 9,553 | ||||||
Total | $ | 10,650 | $ | 9,459 | ||||
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
ACCUMULATED BENEFIT OBLIGATION: | ||||||||
Accumulated benefit obligation | $ | 21,678 | $ | 17,906 | ||||
YEAR ENDED DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(PERCENTAGES) | ||||||||
WEIGHTED AVERAGE ASSUMPTIONS: | ||||||||
Discount rate | 6.25 | % | 6.00 | % | ||||
Salary scale | 2.50 | 2.50 |
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
COMPONENTS OF NET PERIODIC BENEFIT COST: | ||||||||||||
Service cost | $ | 926 | $ | 927 | $ | 882 | ||||||
Interest cost | 937 | 880 | 816 | |||||||||
Expected return on plan assets | (1,232 | ) | (1,146 | ) | (1,007 | ) | ||||||
Amortization of prior year service cost | 4 | 4 | 4 | |||||||||
Amortization of transition asset | (17 | ) | (17 | ) | (17 | ) | ||||||
Recognized net actuarial loss due to special termination benefit | — | 85 | — | |||||||||
Recognized net actuarial loss | 355 | 370 | 398 | |||||||||
Net periodic pension cost | $ | 973 | $ | 1,103 | $ | 1,076 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(PERCENTAGES) | ||||||||
WEIGHTED AVERAGE ASSUMPTIONS: | ||||||||
Discount rate | 5.25 | % | 5.75 | % | ||||
Salary scale | 2.50 | 2.50 |
COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost Interest cost Expected return on plan assets Amortization of prior year service cost Amortization of transition asset Recognized net actuarial loss Net periodic pension cost YEAR ENDED DECEMBER 31, 2010 2009 2008 (IN THOUSANDS) $ 1,097 $ 1,021 $ 926 1,186 1,058 937 (1,467 ) (1,234 ) (1,232 ) 15 11 4 (17 ) (17 ) (17 ) 706 555 355 $ 1,520 $ 1,394 $ 973
The estimated net loss, prior service cost and transition asset for the defined benefit pension plan that will be will amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next year are $475,000, $11,000,$811,000, $7,000, and $(17,000)($17,000), respectively.
The weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2008, 20072010, 2009 and 20062008 were as follows:
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(PERCENTAGES) | ||||||||||||
WEIGHTED AVERAGE ASSUMPTIONS: | ||||||||||||
Discount rate | 6.00 | % | 6.00 | % | 6.00 | % | ||||||
Expected return on plan assets | 8.00 | 8.00 | 8.00 | |||||||||
Rate of compensation increase | 2.50 | 2.50 | 2.50 |
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(PERCENTAGES) | ||||||||||||
WEIGHTED AVERAGE ASSUMPTIONS: | ||||||||||||
Discount rate | 5.75 | % | 6.25 | % | 6.00 | % | ||||||
Expected return on plan assets | 8.00 | 8.00 | 8.00 | |||||||||
Rate of compensation increase | 2.50 | 2.50 | 2.50 |
The Company has assumed an 8% long-term expected return on plan assets. This assumption was based upon the plan’s historical investment performance over a longer-term period of 15 years combined with the plan’s investment objective of balanced growth and income. Additionally, this assumption also incorporates a targeted range for equity securities of 50% toapproximately 60% of plan assets.
PLAN ASSETS:
The plan’s measurement date is December 31, 2008.2010. This plan’s asset allocations at December 31, 20082010 and 2007,2009, by asset category are as follows:
ASSET CATEGORY: | 2008 | 2007 | ||||||
Equity securities | 17 | % | 59 | % | ||||
Debt securities and short-term investments | 83 | 41 | ||||||
Total | 100 | % | 100 | % | ||||
2010 | 2009 | |||||||
(PERCENTAGES) | ||||||||
ASSET CATEGORY: | ||||||||
Cash and cash equivalents | — | % | 6 | % | ||||
Domestic equities | 9 | 12 | ||||||
Mutual funds/ETFs | 78 | 73 | ||||||
Agencies | 1 | 3 | ||||||
Corporate bonds | 12 | 6 | ||||||
Total | 100 | % | 100 | % | ||||
The major categories of assets in the Company’s Pension Plan as of year end is presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value.
YEAR ENDED DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
Level 1: | ||||||||
Cash and cash equivalents | $ | — | $ | 854 | ||||
Domestic equities | 1,550 | 1,911 | ||||||
Mutual funds/ETFs | 13,909 | 11,245 | ||||||
Level 2: | ||||||||
Agencies | 252 | 524 | ||||||
Corporate bonds | 2,038 | 945 | ||||||
Total fair value of plan assets | $ | 17,749 | $ | 15,479 | ||||
Cash and cash equivalents may include uninvested cash balances along with money market mutual funds, treasury bills, or other assets normally categorized as cash equivalents. Domestic equities may include common or preferred stocks, covered options, rights or warrants, or ADRs which are traded on any U.S. equity market. Mutual funds/ETFs may include any equity, fixed income, balanced, international, or global mutual fund or exchange traded fund including any propriety fund managed by the Trust Company. Agencies may include any U.S. government agency security or asset-backed security. Collective investment funds may include equity, fixed income, or balanced collective investment funds managed by the Trust Company. Corporate bonds may include any corporate bond or note.
The investment strategy objective for the pension plan is a balance of growth and income. This objective seeks to develop a portfolio for acceptable levels of current income together with the opportunity for capital appreciation. The balanced growth and income objective reflects a relatively equal balance between equity and fixed income investments such as debt securities. The allocation between equity and fixed income assets may vary by a moderate degree but the plan typically targets a range of equity investments between 50% and 60% of the plan assets. This means that fixed income and cash investments typically approximate 40% to 50% of the plan assets. The investment manager deviated from this targeted range due to the volatility experienced in the equity markets in 2008. The plan is also able to invest in ASRV common stock up to a maximum level of 10% of the market value of the plan assets (at December 31, 2008, 2.7%2010, 1.9% of the plan assets were invested in ASRV common stock). This asset mix is intended to ensure that there is a steady stream of cash from maturing investments to fund benefit payments.
57
The BankCompany presently expects that the contribution to be made to the Plan in 20092011 will be comparable with recent years of approximately $1.5 million.
ESTIMATED FUTURE BENEFIT PAYMENTS:
The following benefit payments, which reflect future service, as appropriate, are expected to be paid (in thousands).
2009 | $ | 1,497 | ||
2010 | 1,884 | |||
2011 | 1,992 | |||
2012 | 2,002 | |||
2013 | 2,244 | |||
Years 2014—2018 | 10,964 |
2011 | $ | 1,967 | ||
2012 | 1,941 | |||
2013 | 2,083 | |||
2014 | 2,140 | |||
2015 | 2,100 | |||
Years 2016 — 2020 | 11,098 |
401(k) PLAN:
The BankCompany maintains a qualified 401(k) plan that allows for participation by BankCompany employees. Under the plan, employees may elect to make voluntary, pretax contributions to their accounts, and the BankCompany contributes 4% of salaries for union members who are in the plan. Contributions by the BankCompany charged to operations were $226,000$208,000 and $218,000$206,000 for the years ended December 31, 20082010 and 2007,2009, respectively. The fair value of plan assets includes $266,000$257,000 pertaining to the value of the Company’s common stock and Trust Preferred securities that isare held by the plan at December 31, 2008.
Except for the above benefit plans, the Company has no significant additional exposure for any other post-retirement or post-employment benefits.
15. LEASE COMMITMENTS
The Company’s obligation for future minimum lease payments on operating leases at December 31, 2008,2010, is as follows:
FUTURE MINIMUM | ||||
LEASE PAYMENTS | ||||
YEAR | (IN THOUSANDS) | |||
2009 | $ | 613 | ||
2010 | 514 | |||
2011 | 431 | |||
2012 | 256 | |||
2013 | 172 | |||
2014 and thereafter | 391 |
YEAR | FUTURE MINIMUM LEASE PAYMENTS | |||
(IN THOUSANDS) | ||||
2011 | $ | 959 | ||
2012 | 745 | |||
2013 | 592 | |||
2014 | 468 | |||
2015 | 480 | |||
2016 and thereafter | 2,704 |
In addition to the amounts set forth above, certain of the leases require payments by the Company for taxes, insurance, and maintenance. Rent expense included in total non-interest expense amounted to $502,000, $567,000 and $514,000, $492,000in 2010, 2009, and $423,000, in 2008, 2007, and 2006, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The BankCompany incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend credit and standby letters of credit. Such commitments and standby letters of credit involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. Commitments to extend credit are obligations to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The BankCompany evaluates each customer’s creditworthiness on a case-by-case basis. Collateral which secures these types of commitments is the same as for other types of secured lending such as accounts receivable, inventory, and fixed assets.
Standby letters of credit are conditional commitments issued by the BankCompany to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including normal business activities, bond financings, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Letters of credit are issued both on an unsecured and secured basis. Collateral securing these types of transactions is similar to collateral securing the Bank’sCompany’s commercial loans.
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Company uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending. At December 31, 20082010 the Company had various outstanding commitments to extend credit approximating $112,192,000$84,879,000 and standby letters of credit of $13,064,000,$11,548,000, compared to commitments to extend credit of $93,583,000$99,275,000 and standby letters of credit of $7,884,000$11,695,000 at December 31, 2007.2009. Standby letters of credit had terms ranging from 1 to 4 years.2 years with annual extension options available. Standby letters of credit of approximately $10.1$5.5 million were secured as of December 31, 20082010 and approximately $5.1$10.2 million at December 31, 2007.2009. The carrying amount of the liability for AmeriServ obligations related to unfunded commitments and standby letters of credit was $492,000$875,000 at December 31, 20082010 and $398,000$704,000 at December 31, 2007.
Pursuant to its bylaws, the Company provides indemnification to its directors and officers against certain liabilities incurred as a result of their service on behalf of the Company. In connection with this indemnification obligation, the Company can advance on behalf of covered individuals costs incurred in defending against certain claims. Additionally, the Company is also subject to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of the Company, neither the resolution of these claims nor the funding of these credit commitments will have a material adverse effect on the Company’s consolidated financial position, results of operation or cash flows.
17. PREFERRED STOCK
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (initially introduced as the Troubled Asset Relief Program or “TARP”(“TARP”) was enacted. On October 14, 2008, the U.S. Treasury announced its intention to inject capital into financial institutions under the TARP Capital Purchase Program (the “CPP”). The CPP is a voluntary program designed to provide capital to healthy, well managed financial institutions in order to increase the availability of credit to businesses and individuals and help stabilize the U.S. financial system.
On December 19, 2008, the Company sold to the U.S. Treasury for an aggregate purchase price of $21 million in cash 21,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series D. In conjunction with the purchase of these senior preferred shares, the U.S. Treasury also received a warrant to purchase up to 1,312,500 shares of the Company’s common stock. The warrant has a term of 10 years and is exercisable at any time, in whole or in part, at an exercise price of $2.40 per share. The $21 million in proceeds was allocated to the Series D Preferred Stock and the warrant based on their relative fair values at issuance (approximately $20.4 million was allocated to the Series D Preferred Stock and approximately $600,000 to the warrant). The difference between the initial value allocated to the Series D Preferred Stock of approximately $20.4 million and the liquidation value of $21 million will be charged to surplusretained earnings over the first threefive years of the contract. Cumulative dividends on Series D Preferred Stock are payable quarterly at 5% through December 19, 2013 and at a rate of 9% thereafter. As a result of the decision by the Company to accept a preferred stock investment under the U.S. Treasury’s CPP for a period of three years the Company is no longer permitted to repurchase stock or declare and pay dividends on common stock without the consent of the U.S. Treasury.
18. STOCK COMPENSATION PLANS
The Company uses the Company adopted Statement of Financial Accounting Standards (FAS) #123(R) “Share-Based Payment” using the “modified perspective” method. Under thismodified perspective method awards that are granted, modified, or settled after December 31, 2005, are measuredfor accounting for stock-based compensation and accounted for in accordance with FAS #123(R). As a result of this adoption the Company recognized $7,000$18,000 of pretax compensation expense for the year 2008, $12,0002010, $11,000 in 20072009 and $56,000$7,000 in 2006.
In 2001, the Company’s Board of Directors adopted a shareholder approved Stock Incentive Plan (the Plan) authorizing the grant of options or restricted stock covering 800,000 shares of common stock. This Plan replaced the expired 1991 Stock Option Plan. Under the Plan, options or restricted stock can be granted (the Grant Date) to directors, officers, and employees that provide services to the Company and its affiliates, as selected by the compensation committee of the Board of Directors. The option price at which a stock option may be exercised shall not be less than 100% of the fair market value per share of common stock on the Grant Date. The maximum term of any option granted under the Plan cannot exceed 10 years. Generally, under the Plan on or after the first
anniversary of the Grant Date, one-third of such options may be exercised. On or after the second anniversary of the Grant Date, two-thirds of such options may be exercised minus the aggregate number of such options previously exercised. On or after the third anniversary of the Grant Date, the remainder of the options may be exercised.
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YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
WEIGHTED | WEIGHTED | WEIGHTED | ||||||||||||||||||||||
AVERAGE | AVERAGE | AVERAGE | ||||||||||||||||||||||
EXERCISE | EXERCISE | EXERCISE | ||||||||||||||||||||||
SHARES | PRICE | SHARES | PRICE | SHARES | PRICE | |||||||||||||||||||
Outstanding at beginning of year | 228,392 | $ | 5.09 | 247,208 | $ | 5.03 | 372,645 | $ | 5.33 | |||||||||||||||
Granted | 21,217 | 2.86 | 900 | 4.60 | 1,233 | 4.70 | ||||||||||||||||||
Exercised | — | — | (5,834 | ) | 2.71 | (21,667 | ) | 3.21 | ||||||||||||||||
Forfeited | (17,600 | ) | 4.86 | (13,882 | ) | 5.02 | (105,003 | ) | 6.46 | |||||||||||||||
Outstanding at end of year | 232,009 | 4.90 | 228,392 | 5.09 | 247,208 | 5.03 | ||||||||||||||||||
Exercisable at end of year | 217,564 | 5.04 | 227,381 | 5.09 | 223,314 | 4.93 | ||||||||||||||||||
Weighted average fair value of options granted in current year | $ | 1.39 | $ | 2.59 | $ | 2.69 |
YEAR ENDED DECEMBER 31 | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
SHARES | WEIGHTED AVERAGE EXERCISE PRICE | SHARES | WEIGHTED AVERAGE EXERCISE PRICE | SHARES | WEIGHTED AVERAGE EXERCISE PRICE | |||||||||||||||||||
Outstanding at beginning of year | 293,609 | $ | 4.23 | 232,009 | $ | 4.90 | 228,392 | $ | 5.09 | |||||||||||||||
Granted | 105,041 | 1.78 | 69,100 | 1.69 | 21,217 | 2.86 | ||||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Forfeited | (141,363 | ) | 4.31 | (7,500 | ) | 1.77 | (17,600 | ) | 4.86 | |||||||||||||||
Outstanding at end of year | 257,287 | 3.18 | 293,609 | 4.23 | 232,009 | 4.90 | ||||||||||||||||||
Exercisable at end of year | 118,571 | 4.79 | 245,469 | 4.69 | 217,564 | 5.04 | ||||||||||||||||||
Weighted average fair value of options granted in current year | $ | 0.39 | $ | 0.37 | $ | 1.39 |
A total of 217,564118,571 of the 232,009257,287 options outstanding at December 31, 2008,2010, have exercise prices between $2.31$1.68 and $6.10, with a weighted average exercise price of $5.04$4.79 and a weighted average remaining contractual life of 3.31 years. Options outstanding at December 31, 2008 reflect option ranges of: $2.31 to $3.49 totaling 14,572 options which have a weighted average exercise price of $2.78 and a weighted average remaining contractual life of 6.55 years; and $4.02 to $6.10 totaling 202,992 options which have a weighted average exercise price of $5.20 and a weighted average remaining contractual life of 3.074.14 years. All of these options are exercisable. The remaining 14,445138,716 options that are not yet exercisable have exercise prices between $2.85$1.53 and $4.60,$3.01, with a weighted average exercise price of $2.90$1.82 and a weighted average remaining contractual life of 9.229.07 years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2008, 2007,2010, 2009, and 2006.
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
BLACK-SCHOLES ASSUMPTION RANGES | ||||||||||||
Risk-free interest rate | 2.76-3.34% | 4.52% | 4.70% | |||||||||
Expected lives in years | 10 | 10 | 10 | |||||||||
Expected volatility | 33.28% | 36.84% | 37.22% | |||||||||
Expected dividend rate | 0% | 0% | 0% |
YEAR ENDED DECEMBER 31 | ||||||
BLACK-SCHOLES ASSUMPTION RANGES | 2010 | 2009 | 2008 | |||
Risk-free interest rate | 3.21-3.83% | 2.83-3.47% | 2.76-3.34% | |||
Expected lives in years | 10 | 10 | 10 | |||
Expected volatility | 34.60-35.74% | 33.67-34.09% | 33.28% | |||
Expected dividend rate | 0% | 0% | 0% |
19. DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
The Company’s Dividend Reinvestment and Common Stock Purchase Plan (the Purchase Plan) provides each record holder of Common Stock with a simple and convenient method of purchasing additional shares without payment of any brokerage commissions, service charges or other similar expense. A participant in the Purchase Plan may purchase shares of Common Stock by electing either to (1) reinvest dividends on all of his or her shares of Common Stock (if applicable) or (2) make optional cash payments of not less than $10 and up to a maximum of $2,000 per month and continue to receive regular dividend payments on his or her other shares. A participant may withdraw from the Purchase Plan at any time.
In the case of purchases from AmeriServ Financial, Inc. of treasury or newly-issued shares of Common Stock, the average market price is determined by averaging the high and low sale price of the Common Stock as reported on the NASDAQ on the relevant investment date. At December 31, 2008,During 2010, the Company issued 37,5342,033 shares and at December 31, 2010 had 48,0003,355 unissued reserved shares available under the Purchase Plan. In the case of
purchases of shares of Common Stock on the open market, the average market price will be the weighted average purchase price of shares purchased for the Purchase Plan in the market for the relevant investment date.
20. INTANGIBLE ASSETS
The Company’s consolidated balance sheet showsConsolidated Balance Sheets show both tangible assets (such as loans, buildings, and investments) and intangible assets (such as goodwill and core deposits). Goodwill and other intangible assets with indefinite lives are not amortized. Instead such intangibles are evaluated for impairment at the reporting unit level at least annually. Any resulting impairment would be reflected as a non-interest expense. Of the Company’s goodwill of $13.5$13.0 million, $9.5 million is allocated to the retail banking segment and $4$3.5 million relates to the West Chester Capital Advisors (WCCA) acquisition which is included in the trust segment. Goodwill in both of these segments was evaluated for impairment on its annual impairment evaluation date. The result of these evaluations indicated that the Company’s goodwill had no impairment. During the third quarter of 2009, the Company did reduce the goodwill allocated to West Chester Capital Advisors by $547,000. This reduction resulted from a purchase price adjustment as the principals of WCCA did not fully earn a deferred contingent payment that had been accrued for at the time of acquisition. The Company’s only intangible asset, other than goodwill, iswas its core deposit intangible, which has a remaining finite life of approximately two months.
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AT DECEMBER 31, | ||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
CORE DEPOSIT | ||||||||||||||||
INTANGIBLES | GOODWILL | |||||||||||||||
Balance January 1 | $ | 973 | $ | 1,838 | $ | 13,497 | $ | 9,544 | ||||||||
Addition due to WCCA | — | — | — | 3,953 | ||||||||||||
Amortization expense | (865 | ) | (865 | ) | — | — | ||||||||||
Balance December 31 | $ | 108 | $ | 973 | $ | 13,497 | $ | 13,497 | ||||||||
AT DECEMBER 31, | ||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
CORE DEPOSIT INTANGIBLES | GOODWILL | |||||||||||||||
Balance January 1 | $ | — | $ | 108 | $ | 12,950 | $ | 13,497 | ||||||||
Reduction from purchase price adjustment of WCCA | — | — | — | (547 | ) | |||||||||||
Amortization expense | — | (108 | ) | — | — | |||||||||||
Balance December 31 | $ | — | $ | — | $ | 12,950 | $ | 12,950 | ||||||||
21. DERIVATIVE HEDGING INSTRUMENTS
The Company can use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. The Company can use derivative instruments, primarily interest rate swaps, to manage interest rate risk and match the rates on certain assets by hedging the fair value of certain fixed rate debt, which converts the debt to variable rates and by hedging the cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.
To accommodate a customer need and support the Company’s asset/liability positioning, we entered into an interest rate swap with the customer and Pittsburgh National Bank (PNC) in the fourth quarter of 2008. This arrangement involves the exchange of interest payments based on the notional amounts. The Company entered into a floating rate loan and a fixed rate swap with our customer. Simultaneously, the Company entered into an offsetting fixed rate swap with PNC. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay PNC the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. This transaction allows the Company’s customer to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. The $144,000 fee the Company received on the transaction is being amortized into income over the term of the swap.
The following table summarizes the interest rate swap transactions that impacted the Company’s 20082010 performance:
INCREASE | ||||||||||||||||||||||||||||
(DECREASE) IN | ||||||||||||||||||||||||||||
MATURITY | NOTIONAL | RATE | RATE | REPRICING | INTEREST | |||||||||||||||||||||||
START DATE | DATE | HEDGE TYPE | AMOUNT | RECEIVED | PAID | FREQUENCY | EXPENSE | |||||||||||||||||||||
12/12/08 | 12/24/13 | FAIR VALUE | $ | 9,000,000 | 5.25 | % | 4.40 | % | MONTHLY | $ | 4,250 | |||||||||||||||||
12/12/08 | 12/24/13 | FAIR VALUE | 9,000,000 | 4.40 | 5.25 | MONTHLY | (4,250 | ) | ||||||||||||||||||||
$ | — | |||||||||||||||||||||||||||
START DATE | MATURITY DATE | HEDGE TYPE | NOTIONAL AMOUNT | RATE RECEIVED | RATE PAID | REPRICING FREQUENCY | INCREASE (DECREASE) IN INTEREST EXPENSE | |||||||||||||||||||||
12/12/08 | 12/24/13 | FAIR VALUE | $ | 9,000,000 | 5.25 | % | 2.78 | % | MONTHLY | $ | 227,582 | |||||||||||||||||
12/12/08 | 12/24/13 | FAIR VALUE | 9,000,000 | 2.78 | 5.25 | MONTHLY | (227,582 | ) | ||||||||||||||||||||
$ | — | |||||||||||||||||||||||||||
The Company monitors and controls all derivative products with a comprehensive Board of Director approved hedging policy. This policy permits a total maximum notional amount outstanding of $500 million for interest rate swaps, interest rate caps/floors, and swaptions. All hedge transactions must be approved in advance by the Investment Asset/Liability Committee (ALCO) of the Board of Directors. The Company had no interest rate swaps, caps or floors outstanding at December 31, 2007.
22. SEGMENT RESULTS
The financial performance of the Company is also monitored by an internal funds transfer pricing profitability measurement system which produces line of business results and key performance measures. The Company’s major business units include retail banking, commercial lending, trust, and investment/parent. The reported results reflect the underlying economics of the business segments. Expenses for centrally provided services are allocated based upon the cost and estimated usage of those services. The businesses are match-funded and interest rate risk is centrally managed and accounted for within the investment/parent business segment. The key performance measure the Company focuses on for each business segment is net income contribution.
Retail banking includes the deposit-gathering branch franchise, lending to both individuals and small businesses, and financial services. Lending activities include residential mortgage loans, direct consumer loans, and small business commercial loans. Financial services include the sale of mutual funds, annuities, and insurance products. Commercial lending to businesses includes commercial
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The contribution of the major business segments to the consolidated results of operations were as follows:
YEAR ENDED DECEMBER 31, 2008 | ||||||||||||||||||||
COMMERCIAL | INVESTMENT/ | |||||||||||||||||||
RETAIL BANKING | LENDING | TRUST | PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 17,373 | $ | 10,328 | $ | 85 | $ | 1,331 | $ | 29,117 | ||||||||||
Provision for loan loss | 585 | 2,340 | — | — | 2,925 | |||||||||||||||
Non-interest income | 8,253 | 865 | 7,511 | (205 | ) | 16,424 | ||||||||||||||
Non-interest expense | 21,610 | 5,849 | 5,694 | 2,484 | 35,637 | |||||||||||||||
Income (loss) before income taxes | 3,431 | 3,004 | 1,902 | (1,358 | ) | 6,979 | ||||||||||||||
Income taxes (benefit) | 691 | 705 | 649 | (575 | ) | 1,470 | ||||||||||||||
Net income (loss) | $ | 2,740 | $ | 2,299 | $ | 1,253 | $ | (783 | ) | $ | 5,509 | |||||||||
Total assets | $ | 350,864 | $ | 470,084 | $ | 3,306 | $ | 142,675 | $ | 966,929 | ||||||||||
YEAR ENDED DECEMBER 31, 2007 | ||||||||||||||||||||
COMMERCIAL | INVESTMENT/ | |||||||||||||||||||
RETAIL BANKING | LENDING | TRUST | PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 18,207 | $ | 9,199 | $ | 159 | $ | (3,342 | ) | $ | 24,223 | |||||||||
Provision for loan loss | 60 | 240 | — | — | 300 | |||||||||||||||
Non-interest income | 6,312 | 588 | 7,728 | 79 | 14,707 | |||||||||||||||
Non-interest expense | 21,932 | 5,463 | 5,155 | 2,122 | 34,672 | |||||||||||||||
Income (loss) before income taxes | 2,527 | 4,084 | 2,732 | (5,385 | ) | 3,958 | ||||||||||||||
Income taxes (benefit) | 548 | 892 | 935 | (1,451 | ) | 924 | ||||||||||||||
Net income (loss) | $ | 1,979 | $ | 3,192 | $ | 1,797 | $ | (3,934 | ) | $ | 3,034 | |||||||||
Total assets | $ | 336,291 | $ | 402,222 | $ | 2,891 | $ | 163,474 | $ | 904,878 | ||||||||||
YEAR ENDED DECEMBER 31, 2006 | ||||||||||||||||||||
COMMERCIAL | INVESTMENT/ | |||||||||||||||||||
RETAIL BANKING | LENDING | TRUST | PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 18,822 | $ | 7,328 | $ | 343 | $ | (2,015 | ) | $ | 24,478 | |||||||||
Provision for loan loss | (34 | ) | (91 | ) | — | — | (125 | ) | ||||||||||||
Non-interest income | 5,732 | 540 | 6,521 | 48 | 12,841 | |||||||||||||||
Non-interest expense | 23,120 | 4,735 | 4,291 | 2,546 | 34,692 | |||||||||||||||
Income (loss) before income taxes | 1,468 | 3,224 | 2,573 | (4,513 | ) | 2,752 | ||||||||||||||
Income taxes (benefit) | 265 | 626 | 875 | (1,346 | ) | 420 | ||||||||||||||
Net income (loss) | $ | 1,203 | $ | 2,598 | $ | 1,698 | $ | (3,167 | ) | $ | 2,332 | |||||||||
Total assets | $ | 357,083 | $ | 331,849 | $ | 2,716 | $ | 204,344 | $ | 895,992 | ||||||||||
YEAR ENDED DECEMBER 31, 2010 | ||||||||||||||||||||
RETAIL BANKING | COMMERCIAL LENDING | TRUST | INVESTMENT/ PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 18,940 | $ | 12,252 | $ | 60 | $ | 1,090 | $ | 32,342 | ||||||||||
Provision for loan loss | 268 | 4,982 | — | — | 5,250 | |||||||||||||||
Non-interest income | 6,875 | 663 | 6,286 | 143 | 13,967 | |||||||||||||||
Non-interest expense | 23,906 | 7,463 | 6,013 | 2,315 | 39,697 | |||||||||||||||
Income (loss) before income taxes | 1,641 | 470 | 333 | (1,082 | ) | 1,362 | ||||||||||||||
Income taxes (benefit) | 379 | (27 | ) | 111 | (383 | ) | 80 | |||||||||||||
Net income (loss) | $ | 1,262 | $ | 497 | $ | 222 | $ | (699 | ) | $ | 1,282 | |||||||||
Total assets | $ | 317,210 | $ | 455,609 | $ | 3,520 | $ | 172,635 | $ | 948,974 | ||||||||||
YEAR ENDED DECEMBER 31, 2009 | ||||||||||||||||||||
RETAIL BANKING | COMMERCIAL LENDING | TRUST | INVESTMENT/ PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 18,057 | $ | 11,924 | $ | 68 | $ | 2,385 | $ | 32,434 | ||||||||||
Provision for loan loss | 523 | 14,627 | — | — | 15,150 | |||||||||||||||
Non-interest income | 6,872 | 628 | 6,299 | 129 | 13,928 | |||||||||||||||
Non-interest expense | 23,202 | 7,694 | 6,141 | 2,120 | 39,157 | |||||||||||||||
Income (loss) before income taxes | 1,204 | (9,769 | ) | 226 | 394 | (7,945 | ) | |||||||||||||
Income taxes (benefit) | 256 | (3,399 | ) | 78 | 15 | (3,050 | ) | |||||||||||||
Net income (loss) | $ | 948 | $ | (6,370 | ) | $ | 148 | $ | 379 | $ | (4,895 | ) | ||||||||
Total assets | $ | 323,053 | $ | 500,552 | $ | 3,538 | $ | 142,883 | $ | 970,026 | ||||||||||
YEAR ENDED DECEMBER 31, 2008 | ||||||||||||||||||||
RETAIL BANKING | COMMERCIAL LENDING | TRUST | INVESTMENT/ PARENT | TOTAL | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Net interest income | $ | 17,373 | $ | 10,328 | $ | 85 | $ | 1,331 | $ | 29,117 | ||||||||||
Provision for loan loss | 585 | 2,340 | — | — | 2,925 | |||||||||||||||
Non-interest income | 8,253 | 865 | 7,511 | (205 | ) | 16,424 | ||||||||||||||
Non-interest expense | 21,610 | 5,849 | 5,694 | 2,484 | 35,637 | |||||||||||||||
Income (loss) before income taxes | 3,431 | 3,004 | 1,902 | (1,358 | ) | 6,979 | ||||||||||||||
Income taxes (benefit) | 691 | 705 | 649 | (575 | ) | 1,470 | ||||||||||||||
Net income (loss) | $ | 2,740 | $ | 2,299 | $ | 1,253 | $ | (783 | ) | $ | 5,509 | |||||||||
Total assets | $ | 350,864 | $ | 470,084 | $ | 3,306 | $ | 142,675 | $ | 966,929 | ||||||||||
23. REGULATORY CAPITAL
The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.
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AS OF DECEMBER 31, 2008 | ||||||||||||||||||||||||
TO BE WELL | ||||||||||||||||||||||||
FOR CAPITAL | CAPITALIZED UNDER | |||||||||||||||||||||||
ADEQUACY | PROMPT CORRECTIVE | |||||||||||||||||||||||
ACTUAL | PURPOSES | ACTION PROVISIONS | ||||||||||||||||||||||
AMOUNT | RATIO | AMOUNT | RATIO | AMOUNT | RATIO | |||||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||||||||||
Total Capital (To Risk Weighted Assets) | ||||||||||||||||||||||||
Consolidated | $ | 120,035 | 15.90 | % | $ | 60,377 | 8.00 | % | $ | 75,472 | 10.00 | % | ||||||||||||
AmeriServ Financial Bank | 92,333 | 12.56 | 58,813 | 8.00 | 73,517 | 10.00 | ||||||||||||||||||
Tier 1 Capital (To Risk Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 110,633 | 14.66 | 30,189 | 4.00 | 45,283 | 6.00 | ||||||||||||||||||
AmeriServ Financial Bank | 83,143 | 11.31 | 29,407 | 4.00 | 44,110 | 6.00 | ||||||||||||||||||
Tier 1 Capital (To Average Assets) | ||||||||||||||||||||||||
Consolidated | 110,633 | 12.15 | 36,414 | 4.00 | 45,518 | 5.00 | ||||||||||||||||||
AmeriServ Financial Bank | 83,143 | 9.30 | 35,751 | 4.00 | 44,688 | 5.00 |
AS OF DECEMBER 31, 2007 | ||||||||||||||||||||||||
TO BE WELL | ||||||||||||||||||||||||
FOR CAPITAL | CAPITALIZED UNDER | |||||||||||||||||||||||
ADEQUACY | PROMPT CORRECTIVE | |||||||||||||||||||||||
ACTUAL | PURPOSES | ACTION PROVISIONS | ||||||||||||||||||||||
AMOUNT | RATIO | AMOUNT | RATIO | AMOUNT | RATIO | |||||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||||||||||
Total Capital (To Risk Weighted Assets) | ||||||||||||||||||||||||
Consolidated | $ | 92,404 | 13.94 | % | $ | 53,017 | 8.00 | % | $ | 66,271 | 10.00 | % | ||||||||||||
AmeriServ Financial Bank | 83,612 | 12.75 | 52,458 | 8.00 | 65,573 | 10.00 | ||||||||||||||||||
Tier 1 Capital (To Risk Weighted Assets) | ||||||||||||||||||||||||
Consolidated | 84,754 | 12.79 | 26,508 | 4.00 | 39,762 | 6.00 | ||||||||||||||||||
AmeriServ Financial Bank | 75,962 | 11.58 | 26,229 | 4.00 | 39,344 | 6.00 | ||||||||||||||||||
Tier 1 Capital (To Average Assets) | ||||||||||||||||||||||||
Consolidated | 84,754 | 9.74 | 34,811 | 4.00 | 43,514 | 5.00 | ||||||||||||||||||
AmeriServ Financial Bank | 75,962 | 8.84 | 34,391 | 4.00 | 42,989 | 5.00 |
63
AS OF DECEMBER 31, 2010 | ||||||||||||||||||||||||
ACTUAL | FOR CAPITAL ADEQUACY PURPOSES | TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS | ||||||||||||||||||||||
AMOUNT | RATIO | AMOUNT | RATIO | AMOUNT | RATIO | |||||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||||||||||
Total Capital (To Risk Weighted Assets) Consolidated | $ | 113,954 | 16.54 | % | $ | 55,118 | 8.00 | % | $ | 68,898 | 10.00 | % | ||||||||||||
AmeriServ Financial Bank | 92,172 | 13.57 | 54,333 | 8.00 | 67,916 | 10.00 | ||||||||||||||||||
Tier 1 Capital (To Risk Weighted Assets) Consolidated | 105,193 | 15.27 | 27,559 | 4.00 | 41,339 | 6.00 | ||||||||||||||||||
AmeriServ Financial Bank | 83,533 | 12.30 | 27,166 | 4.00 | 40,749 | 6.00 | ||||||||||||||||||
Tier 1 Capital (To Average Assets) Consolidated | 105,193 | 11.20 | 37,555 | 4.00 | 46,944 | 5.00 | ||||||||||||||||||
AmeriServ Financial Bank | 83,533 | 9.13 | 36,588 | 4.00 | 45,735 | 5.00 |
AS OF DECEMBER 31, 2009 | ||||||||||||||||||||||||
ACTUAL | FOR CAPITAL ADEQUACY PURPOSES | TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS | ||||||||||||||||||||||
AMOUNT | RATIO | AMOUNT | RATIO | AMOUNT | RATIO | |||||||||||||||||||
(IN THOUSANDS, EXCEPT RATIOS) | ||||||||||||||||||||||||
Total Capital (To Risk Weighted Assets) Consolidated | $ | 113,166 | 15.33 | % | $ | 59,072 | 8.00 | % | $ | 73,840 | 10.00 | % | ||||||||||||
AmeriServ Financial Bank | 88,524 | 12.15 | 58,297 | 8.00 | 72,871 | 10.00 | ||||||||||||||||||
Tier 1 Capital (To Risk Weighted Assets) Consolidated | 103,798 | 14.06 | 29,536 | 4.00 | 44,304 | 6.00 | ||||||||||||||||||
AmeriServ Financial Bank | 79,276 | 10.88 | 29,148 | 4.00 | 43,722 | 6.00 | ||||||||||||||||||
Tier 1 Capital (To Average Assets) Consolidated | 103,798 | 11.06 | 37,528 | 4.00 | 46,911 | 5.00 | ||||||||||||||||||
AmeriServ Financial Bank | 79,276 | 8.71 | 36,399 | 4.00 | 45,499 | 5.00 |
The parent company functions primarily as a coordinating and servicing unit for all subsidiary entities. Provided services include general management, accounting and taxes, loan review, internal auditing, investment advisory, marketing, insurance risk management, general corporate services, and financial and strategic planning. The following financial information relates only to the parent company operations:
BALANCE SHEETS
AT DECEMBER 31, | ||||||||
2008 | 2007 | |||||||
(IN THOUSANDS) | ||||||||
ASSETS | ||||||||
Cash | $ | 106 | $ | 100 | ||||
Short-term investments in money market funds | 14,202 | 3,053 | ||||||
Investment securities available for sale | 8,813 | 1,007 | ||||||
Equity investment in banking subsidiary | 97,434 | 93,427 | ||||||
Equity investment in non-banking subsidiaries | 4,938 | 4,720 | ||||||
Guaranteed junior subordinated deferrable interest debenture issuance costs | 302 | 318 | ||||||
Other assets | 1,527 | 1,508 | ||||||
TOTAL ASSETS | $ | 127,322 | $ | 104,133 | ||||
LIABILITIES | ||||||||
Guaranteed junior subordinated deferrable interest debentures | $ | 13,085 | $ | 13,085 | ||||
Other liabilities | 985 | 754 | ||||||
TOTAL LIABILITIES | 14,070 | 13,839 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Total stockholders’ equity | 113,252 | 90,294 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 127,322 | $ | 104,133 | ||||
AT DECEMBER 31, | ||||||||
2010 | 2009 | |||||||
(IN THOUSANDS) | ||||||||
ASSETS | ||||||||
Cash | $ | 100 | $ | 102 | ||||
Short-term investments in money market funds | 2,632 | 2,915 | ||||||
Investment securities available for sale | 13,996 | 16,943 | ||||||
Equity investment in banking subsidiary | 97,156 | 94,225 | ||||||
Equity investment in non-banking subsidiaries | 4,801 | 4,840 | ||||||
Guaranteed junior subordinated deferrable interest debenture issuance costs | 271 | 287 | ||||||
Other assets | 2,779 | 2,119 | ||||||
TOTAL ASSETS | $ | 121,735 | $ | 121,431 | ||||
LIABILITIES | ||||||||
Guaranteed junior subordinated deferrable interest debentures | $ | 13,085 | $ | 13,085 | ||||
Other liabilities | 1,592 | 1,092 | ||||||
TOTAL LIABILITIES | 14,677 | 14,177 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Total stockholders’ equity | 107,058 | 107,254 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 121,735 | $ | 121,431 | ||||
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
INCOME | ||||||||||||
Inter-entity management and other fees | $ | 2,254 | $ | 2,363 | $ | 2,351 | ||||||
Dividends from banking subsidiary | 6,000 | — | — | |||||||||
Dividends from non-banking subsidiaries | 1,250 | 1,580 | 1,722 | |||||||||
Interest and dividend income | 292 | 167 | 120 | |||||||||
TOTAL INCOME | 9,796 | 4,110 | 4,193 | |||||||||
EXPENSE | ||||||||||||
Interest expense | 1,121 | 1,121 | 1,121 | |||||||||
Salaries and employee benefits | 2,004 | 1,910 | 2,008 | |||||||||
Other expense | 1,336 | 1,223 | 1,184 | |||||||||
TOTAL EXPENSE | 4,461 | 4,254 | 4,313 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES | 5,335 | (144 | ) | (120 | ) | |||||||
Benefit for income taxes | 651 | 583 | 640 | |||||||||
Equity in undistributed earnings of subsidiaries | (477 | ) | 2,595 | 1,812 | ||||||||
NET INCOME | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
64
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
INCOME | ||||||||||||
Inter-entity management and other fees | $ | 2,362 | $ | 2,254 | $ | 2,254 | ||||||
Dividends from banking subsidiary | — | — | 6,000 | |||||||||
Dividends from non-banking subsidiaries | 205 | 460 | 1,250 | |||||||||
Interest and dividend income | 499 | 625 | 292 | |||||||||
TOTAL INCOME | 3,066 | 3,339 | 9,796 | |||||||||
EXPENSE | ||||||||||||
Interest expense | 1,121 | 1,121 | 1,121 | |||||||||
Salaries and employee benefits | 2,333 | 2,162 | 2,004 | |||||||||
Other expense | 1,529 | 1,441 | 1,336 | |||||||||
TOTAL EXPENSE | 4,983 | 4,724 | 4,461 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES | (1,917 | ) | (1,385 | ) | 5,335 | |||||||
Benefit for income taxes | 722 | 627 | 651 | |||||||||
Equity in undistributed earnings of subsidiaries | 2,477 | (4,137 | ) | (477 | ) | |||||||
NET INCOME (LOSS) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | |||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(IN THOUSANDS) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 5,509 | $ | 3,034 | $ | 2,332 | ||||||
Adjustment to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Equity in undistributed earnings of subsidiaries | 477 | (2,595 | ) | (1,812 | ) | |||||||
Other — net | 1,176 | 1,445 | 1,043 | |||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 7,162 | 1,884 | 1,563 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchase of investment securities — available for sale | (9,720 | ) | (999 | ) | (3,112 | ) | ||||||
Proceeds from maturity of investment securities — available for sale | 2,008 | 3,053 | — | |||||||||
Capital contribution to banking subsidiary | (5,000 | ) | — | — | ||||||||
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (12,712 | ) | 2,054 | (3,112 | ) | |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of common stock | 99 | 131 | 173 | |||||||||
Proceeds from issuance of preferred stock | 21,000 | — | — | |||||||||
Treasury stock, purchased at cost | (2,835 | ) | — | — | ||||||||
Common stock dividends paid | (543 | ) | — | — | ||||||||
Guaranteed junior subordinated deferrable interest debentures dividends paid | (1,016 | ) | (1,016 | ) | (1,016 | ) | ||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 16,705 | (885 | ) | (843 | ) | |||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | 11,155 | 3,053 | (2,392 | ) | ||||||||
CASH AND CASH EQUIVALENTS AT JANUARY 1 | 3,153 | 100 | 2,492 | |||||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31 | $ | 14,308 | $ | 3,153 | $ | 100 | ||||||
YEAR ENDED DECEMBER 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(IN THOUSANDS) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) | $ | 1,282 | $ | (4,895 | ) | $ | 5,509 | |||||
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||||||
Equity in undistributed earnings of subsidiaries | (2,477 | ) | 4,137 | 477 | ||||||||
Stock compensation expense | 61 | 73 | 99 | |||||||||
Other — net | (107 | ) | (462 | ) | 160 | |||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (1,241 | ) | (1,147 | ) | 6,245 | |||||||
INVESTING ACTIVITIES | ||||||||||||
Purchase of investment securities – available for sale | (4,044 | ) | (16,099 | ) | (9,720 | ) | ||||||
Proceeds from maturity of investment securities – available for sale | 7,050 | 7,906 | 2,008 | |||||||||
Capital contribution to banking subsidiary | (1,000 | ) | (1,000 | ) | (5,000 | ) | ||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 2,006 | (9,193 | ) | (12,712 | ) | |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of preferred stock | — | — | 21,000 | |||||||||
Treasury stock, purchased at cost | — | — | (2,835 | ) | ||||||||
Common stock dividends paid | — | — | (543 | ) | ||||||||
Preferred stock dividends paid | (1,050 | ) | (951 | ) | — | |||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (1,050 | ) | (951 | ) | 17,622 | |||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (285 | ) | (11,291 | ) | 11,155 | |||||||
CASH AND CASH EQUIVALENTS AT JANUARY 1 | 3,017 | 14,308 | 3,153 | |||||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31 | $ | 2,732 | $ | 3,017 | $ | 14,308 | ||||||
The ability of the subsidiary bankBank to upstream cash to the parent company is restricted by regulations. Federal law prevents the parent company from borrowing from its subsidiary bankBank unless the loans are secured by specified assets. Further, such secured loans are limited in amount to ten percent of the subsidiary bank’sBank’s capital and surplus. In addition, the Bank is subject to legal limitations on the amount of dividends that can be paid to its shareholder. The dividend limitation generally restricts dividend payments to a bank’s retained net income for the current and preceding two calendar years. Cash may also be upstreamed to the parent company by the subsidiaries as an inter-entity management fee. At December 31, 2008,2010, the subsidiary bankBank was not permitted to upstream anany additional $3,899,000 in cash dividends to the parent company. The subsidiary bankBank had a combined $102,984,000$97,311,000 of restricted surplus and retained earnings at December 31, 2008.
25. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited quarterly consolidated financial data regarding the Company:
2008 QUARTER ENDED | ||||||||||||||||
DEC. 31 | SEPT. 30 | JUNE 30 | MARCH 31 | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||
Interest income | $ | 12,355 | $ | 11,732 | $ | 11,450 | $ | 12,282 | ||||||||
Interest expense | 4,170 | 4,501 | 4,484 | 5,547 | ||||||||||||
Net interest income | 8,185 | 7,231 | 6,966 | 6,735 | ||||||||||||
Provision for loan losses | 625 | 775 | 1,375 | 150 | ||||||||||||
Net interest income after provision for loan losses | 7,560 | 6,456 | 5,591 | 6,585 | ||||||||||||
Non-interest income | 3,476 | 3,767 | 5,343 | 3,838 | ||||||||||||
Non-interest expense | 9,049 | 8,784 | 9,025 | 8,779 | ||||||||||||
Income before income taxes | 1,987 | 1,439 | 1,909 | 1,644 | ||||||||||||
Provision for income taxes | 372 | 290 | 393 | 415 | ||||||||||||
Net income | $ | 1,615 | $ | 1,149 | $ | 1,516 | $ | 1,229 | ||||||||
Basic earnings per common share | 0.07 | 0.05 | 0.07 | 0.06 | ||||||||||||
Diluted earnings per common share | 0.07 | 0.05 | 0.07 | 0.06 | ||||||||||||
Cash dividends declared per common share | 0.025 | 0.00 | 0.00 | 0.00 |
65
2010 QUARTER ENDED | ||||||||||||||||
DEC. 31 | SEPT. 30 | JUNE 30 | MARCH 31 | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||
Interest income | $ | 10,856 | $ | 11,060 | $ | 11,450 | $ | 11,465 | ||||||||
Interest expense | 2,866 | 3,037 | 3,242 | 3,344 | ||||||||||||
Net interest income | 7,990 | 8,023 | 8,208 | 8,121 | ||||||||||||
Provision for loan losses | — | 1,000 | 1,200 | 3,050 | ||||||||||||
Net interest income after provision for loan losses | 7,990 | 7,023 | 7,008 | 5,071 | ||||||||||||
Non-interest income | 3,766 | 3,513 | 3,388 | 3,300 | ||||||||||||
Non-interest expense | 10,373 | 9,774 | 9,786 | 9,764 | ||||||||||||
Income (loss) before income taxes | 1,383 | 762 | 610 | (1,393 | ) | |||||||||||
Provision (benefit) for income taxes | 269 | 153 | 133 | (475 | ) | |||||||||||
Net income (loss) | $ | 1,114 | $ | 609 | $ | 477 | $ | (918 | ) | |||||||
Basic earnings (loss) per common share | $ | 0.04 | $ | 0.02 | $ | 0.01 | $ | (0.06 | ) | |||||||
Diluted earnings (loss) per common share | 0.04 | 0.02 | 0.01 | (0.06 | ) | |||||||||||
Cash dividends declared per common share | 0.00 | 0.00 | 0.00 | 0.00 |
2009 QUARTER ENDED | ||||||||||||||||
DEC. 31 | SEPT. 30 | JUNE 30 | MARCH 31 | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||
Interest income | $ | 11,767 | $ | 11,698 | $ | 12,055 | $ | 11,935 | ||||||||
Interest expense | 3,570 | 3,773 | 3,884 | 3,794 | ||||||||||||
Net interest income | 8,197 | 7,925 | 8,171 | 8,141 | ||||||||||||
Provision for loan losses | 3,750 | 6,300 | 3,300 | 1,800 | ||||||||||||
Net interest income after provision for loan losses | 4,447 | 1,625 | 4,871 | 6,341 | ||||||||||||
Non-interest income | 3,422 | 3,454 | 3,491 | 3,561 | ||||||||||||
Non-interest expense | 10,793 | 9,566 | 9,636 | 9,162 | ||||||||||||
Income (loss) before income taxes | (2,924 | ) | (4,487 | ) | (1,274 | ) | 740 | |||||||||
Provision (benefit) for income taxes | (1,245 | ) | (1,677 | ) | (335 | ) | 207 | |||||||||
Net income (loss) | $ | (1,679 | ) | $ | (2,810 | ) | $ | (939 | ) | $ | 533 | |||||
Basic (loss) earnings per common share | $ | (0.09 | ) | $ | (0.15 | ) | $ | (0.06 | ) | $ | 0.01 | |||||
Diluted (loss) earnings per common share | (0.09 | ) | (0.15 | ) | (0.06 | ) | 0.01 | |||||||||
Cash dividends declared per common share | 0.00 | 0.00 | 0.00 | 0.00 |
2007 QUARTER ENDED | ||||||||||||||||
DEC. 31 | SEPT. 30 | JUNE 30 | MARCH 31 | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||
Interest income | $ | 12,442 | $ | 12,454 | $ | 12,308 | $ | 12,175 | ||||||||
Interest expense | 6,209 | 6,432 | 6,295 | 6,220 | ||||||||||||
Net interest income | 6,233 | 6,022 | 6,013 | 5,955 | ||||||||||||
Provision for loan losses | 150 | 150 | — | — | ||||||||||||
Net interest income after provision for loan losses | 6,083 | 5,872 | 6,013 | 5,955 | ||||||||||||
Non-interest income | 3,860 | 4,022 | 3,592 | 3,233 | ||||||||||||
Non-interest expense | 8,704 | 8,773 | 8,522 | 8,673 | ||||||||||||
Income before income taxes | 1,239 | 1,121 | 1,083 | 515 | ||||||||||||
Provision for income taxes | 315 | 247 | 275 | 87 | ||||||||||||
Net income | $ | 924 | $ | 874 | $ | 808 | $ | 428 | ||||||||
Basic earnings per common share | 0.04 | 0.04 | 0.04 | 0.02 | ||||||||||||
Diluted earnings per common share | 0.04 | 0.04 | 0.04 | 0.02 | ||||||||||||
Cash dividends declared per common share | 0.00 | 0.00 | 0.00 | 0.00 |
66
Audit Committee
AmeriServ Financial, Inc.
We have audited the accompanying consolidated balance sheets of AmeriServ Financial, Inc. and subsidiaries (the “Company”) and subsidiaries as of December 31, 20082010 and 2007,2009, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008.2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AmeriServ Financial, Inc. and subsidiaries as of December 31, 20082010 and 2007,2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008,2010, in conformity with U.S. generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
Wexford, PA
March 2, 2009
677, 2011
68
INTERNAL CONTROL OVER FINANCIAL REPORTING
AmeriServ Financial, Inc. is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.
We, as management of AmeriServ Financial, Inc., are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
Management assessed the Company’s system of internal control over financial reporting as of December 31, 2008,2010, in relation to criteria for effective internal control over financial reporting as described in “Internal Control –— Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2008,2010, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control –— Integrated Framework”. S.R. Snodgrass A.C., independentThis annual report does not include an attestation report of the Company’s registered public accounting firm has issued an attestation report on management’s assessment of the Company’sregarding internal control over financial reporting.
/s/ | /s/ JEFFREY A. STOPKO | |
Jeffrey A. Stopko | ||
President & | ||
Chief Executive Officer | Executive Vice President & Chief Financial Officer |
Johnstown, PA
February 19, 2009
6917, 2011
February 19, 2009
To the Stockholders and
Board of Directors of
AmeriServ Financial, Inc.
Management of AmeriServ Financial, Inc. and its subsidiaries have prepared the consolidated financial statements and other information in the Annual Report and Form 10-K in accordance with generally accepted accounting principles and are responsible for its accuracy.
In meeting its responsibility, management relies on internal accounting and related control systems, which include selection and training of qualified personnel, establishment and communication of accounting and administrative policies and procedures, appropriate segregation of responsibilities, and programs of internal audit. These systems are designed to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets and that assets are safeguarded against unauthorized use or disposition. Such assurance cannot be absolute because of inherent limitations in any internal control system.
Management also recognizes its responsibility to foster a climate in which Company affairs are conducted with the highest ethical standards. The Company’s Code of Conduct, furnished to each employee and director, addresses the importance of open internal communications, potential conflicts of interest, compliance with applicable laws, including those related to financial disclosure, the confidentiality of proprietary information, and other items. There is an ongoing program to assess compliance with these policies.
The Audit Committee of the Company’s Board of Directors consists solely of outside directors. The Audit Committee meets periodically with management and the independent auditors to discuss audit, financial reporting, and related matters. S.R. Snodgrass A.C. and the Company’s internal auditors have direct access to the Audit Committee.
/s/ | /s/ JEFFREY A. STOPKO | |
Jeffrey A. Stopko | ||
President & | ||
Chief Executive Officer | Executive Vice President & Chief Financial Officer |
70
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management Report on Internal Control over Financial Reporting.The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Management’s assessment of internal control over financial reporting for the fiscal year ended December 31, 20082010 is included in Item 8.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information required by this section relating to Directors of the Registrant is presented in the “Election of ASRV Directors” section of the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 11. | EXECUTIVE COMPENSATION |
Information required by this section is presented in the “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” the “Compensation Committee Report,” and “Compensation Paid to Executive Officers” sections of the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information required by this section is presented in the “Principal Owners” and “Security Ownership of Management” sections of the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information required by this section is presented in the “Director Independence and Transactions with Related Parties” section of the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information required by this section is presented in the “Security Ownership of Management”“Independent Registered Accounting Firm” section of the Proxy Statement for the Annual Meeting of Shareholders.
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ITEM 15. | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES |
CONSOLIDATED FINANCIAL STATEMENTS FILED:
The consolidated financial statements listed below are from this 20082010 Form 10-K and Part II — Item 8. Page references are to this Form 10-K.
CONSOLIDATED FINANCIAL STATEMENTS:
AmeriServ Financial, Inc. and Subsidiaries | ||||
40 | ||||
41 | ||||
43 | ||||
44 | ||||
45 | ||||
46 | ||||
Statement of | ||||
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
These schedules are not required or are not applicable under Securities and Exchange Commission accounting regulations and therefore have been omitted.
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EXHIBITS:
EXHIBIT NUMBER | DESCRIPTION | |||||
PRIOR FILING OR EXHIBIT | ||||||
PAGE NUMBER HEREIN | ||||||
3.1 | Amended and Restated Articles of Incorporation as amended through | Exhibit 3.1 to | ||||
3.2 | Bylaws, as amended and restated on | Exhibit 3.2 to | ||||
3.3 | Certificate of Designation of Rights of Fixed Rate Cumulative Perpetual Preferred Stock, Series D. | Exhibit 3.1 to Form 8-K Filed December 22, 2008 | ||||
4.1 | Warrant, dated December 19, 2008, to | Exhibit 4.1 to Form 8-K Filed December 22, 2008 | ||||
10.1 | Agreement, dated | Exhibit July 28, 2009 | ||||
21.1 | Subsidiaries of the Registrant. | Below | ||||
23.1 | Consent of Independent Registered Public Accounting Firm | Below | ||||
31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | Below | ||||
31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | Below | ||||
32.1 | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | Below | ||||
32.2 | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | Below | ||||
99.1 | Chief Executive Officer Certification pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008, as Amended | Below | ||||
99.2 | Chief Financial Officer Certification pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008, as Amended | Below |
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AmeriServ Financial, Inc. (Registrant) | ||||
By: | /s/ Glenn L. Wilson | |||
Glenn L. Wilson | ||||
President & CEO | ||||
Date: February 19, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 19, 2009:
/s/ Craig G. Ford | Chairman | ||||||||
Craig G. Ford | Director | ||||||||
/s/ Glenn L. Wilson | President, CEO & Director | /s/ Jeffrey A. Stopko | EVP & CFO | ||||||
Glenn L. Wilson | Jeffrey A. Stopko | ||||||||
/s/ J. Michael Adams, Jr. | Director | ||||||||
/s/ Very Rev. Christian R. Oravec | Director | ||||||||
J. Michael Adams, Jr. | Very Rev. Christian R. Oravec | ||||||||
/s/ | Director | /s/ Mark E. Pasquerilla | Director | ||||||
Allan R. Dennison | Mark E. Pasquerilla | ||||||||
/s/ | Director | /s/ Howard M. Picking, III | Director | ||||||
Daniel R. DeVos | Howard M. Picking, III | ||||||||
/s/ James C. Dewar | Director | /s/ Sara A. Sargent | Director | ||||||
James C. Dewar | Sara A. Sargent | ||||||||
/s/ Bruce E. Duke, III | Director | /s/ Thomas C. Slater | Director | ||||||
Bruce E. Duke, III | Thomas C. Slater | ||||||||
/s/ James M. Edwards, Sr. | Director | /s/ Robert L. Wise | Director | ||||||
James M. Edwards, Sr. | Robert L. Wise | ||||||||
/s/ Kim W. Kunkle | Director | ||||||||
Kim W. Kunkle | |||||||||
/s/ Margaret A. O’Malley | Director | ||||||||
Margaret A. O’Malley |
AMERISERV FINANCIAL, INC.
AMERISERV FINANCIAL BANK OFFICE LOCATIONS | REMOTE ATM BANKING LOCATIONS | |||||||
* | Main Office Downtown 216 Franklin Street PO Box 520 Johnstown, PA 15907-0520 1-800-837-BANK (2265) | * | Seward Office 1 Roadway Plaza 6858 Route 711 Suite One Seward, PA 15954-9501 | East Hills Drive-up, Main Office, 216 Franklin Street, Johnstown | ||||
†* | Westmont Office 110 Plaza Drive Johnstown, PA 15905-1211 | * | Windber Office 1501 Somerset Avenue Windber, PA 15963-1745 | The Galleria, Johnstown Goga’s Service Station, Cairnbrook | ||||
†* | University Heights Office 1404 Eisenhower Boulevard Johnstown, PA 15904-3218 | Central City Office 104 Sunshine Avenue Central City, PA 15926-1129 | AMERISERV RESIDENTIAL LENDING LOCATIONS | |||||
* | Eighth Ward Office 1059 Franklin Street Johnstown, PA 15905-4303 | * | Somerset Office 108 W. Main Street Somerset, PA 15501-2035 | Main Office Downtown 216 Franklin Street PO Box 520 Johnstown, PA 15907-0520 | ||||
* | West End Office 163 Fairfield Avenue Johnstown, PA 15906-2347 | * | Derry Office 112 South Chestnut Street Derry, PA 15627-1938 | Altoona Office 87 Logan Boulevard Altoona, PA 16602-3123 | ||||
* | Carrolltown Office 101 South Main Street Carrolltown, PA 15722-0507 | * | South Atherton Office 734 South Atherton Street State College, PA 16801-4628 | Pittsburgh Loan Center 300 Penn Center Boulevard Suite 402 Pittsburgh, PA 15235-5507 | ||||
* | Northern Cambria Office 4206 Crawford Avenue Suite 1 Northern Cambria, PA 15714-1342 | * | Pittsburgh Office 60 Boulevard of the Allies Suite 100 Pittsburgh, PA 15222-1232 | |||||
†* | Lovell Park Office 179 Lovell Avenue Ebensburg, PA 15931-0418 | * | North Atherton Office 1857 N. Atherton Street State College, PA 16803-1521 | |||||
* | Nanty Glo Office 1383 Shoemaker Street Nanty Glo, PA 15943-1254 | *= †= | 24-Hour ATM Banking Available Seven Day a Week Banking Available | |||||
†* | Galleria Mall Office 500 Galleria Drive Suite 100 Johnstown, PA 15904-8911 | |||||||
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SECURITIES MARKETS
AmeriServ Financial, Inc. Common Stock is publicly traded and quoted on the NASDAQ National Market System. The common stock is traded under the symbol of “ASRV.” The listed market makers for the stock are:
Sandler O’Neill & Partners, L.P.
919 Third Avenue
6th Floor
New York, NY 10022
Telephone: (800) 635-6860
Stifel Nicolaus
1407 Eisenhower BoulevardOak Ridge East
Johnstown, PA 15904Telephone: (814) 266-7900
Telephone: (814) 269-9211
Keefe Bruyette & Woods, Inc.
787 Seventh Avenue
Equitable Bldg — 4th Floor
New York, NY 10019
Telephone: (800) 966-1559
Knight Capital Group, Inc.
545 Washington Boulevard
Jersey City, NJ 07310
Telephone: (800) 544-7508
Janney Montgomery Scott, LLC
1801 Market Street, 8th Floor
Philadelphia, PA 19103-1675
Telephone: (215) 665-6000
CORPORATE OFFICES
The corporate offices of AmeriServ Financial, Inc. are located at 216 Franklin Street, Johnstown, PA 15901. Mailing address:
P.O. Box 430
Johnstown, PA 15907-0430
(814) 533-5300
AGENTS
The transfer agent and registrar for AmeriServ Financial, Inc.’s common stock is:
Computershare Investor Services
P O Box 43078
Providence, RI 02940-3078
Shareholder Inquiries: 1-800-730-4001
Internet Address:http://www.Computershare.comwww. Computershare.com
INFORMATION
Analysts, investors, shareholders, and others seeking financial data about AmeriServ Financial, Inc. or any of its subsidiaries’ annual and quarterly reports, proxy statements, 10-K, 10-Q, 8-K, and call reports — are asked to contact Jeffrey A. Stopko, SeniorExecutive Vice President & Chief Financial Officer at (814) 533-5310 or by e-mail atJStopko@AMERISERVFINANCIAL.comJStopko@AmeriServ.com. The Company also maintains a website (www.AmeriServFinancial.comwww.AmeriServ.com) that makes available, free of charge, such reports and proxy statements and other current financial information, such as press releases and SEC documents, as well as the corporate governance documents under the Investor Relations tab on the Company’s website.
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