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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-11204
AMERISERV FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
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25-1424278
(I.R.S. Employer
Identification No.) |
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MAIN & FRANKLIN STREETS,
P.O. BOX 430, JOHNSTOWN, PENNSYLVANIA
(Address of principal executive offices)
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15907-0430
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Registrants telephone number, including area code (814) 533-5300
Securities registered pursuant to Section 12(b) of the Act:
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Title Of Each Class
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Name Of Each Exchange On Which Registered |
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None |
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $2.50 Par Value
(Title of class)
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Share Purchase Rights
(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 Yes o 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
registrants 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 definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
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 registrants most
recently completed second fiscal quarter. The aggregate market value was $65,115,304 as of June
30, 2008.
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date. There were 21,135,466 shares outstanding as of January 31,
2009.
DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and the Part of the Form
10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant
to Rule 424(b) or (e) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders for fiscal year
ended December 24, 1980).
Portions of the annual shareholders report for the year ended December 31, 2008, are
incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting are incorporated by
reference in Part III.
Exhibit Index is located on page 74.
FORM 10-K INDEX
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Page No. |
PART I |
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Item 1.
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Business
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3 |
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Item 1A.
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Risk Factors
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12 |
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Item 1B.
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Unresolved Staff Comments
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15 |
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Item 2.
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Properties
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15 |
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Item 3.
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Legal Proceedings
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15 |
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Item 4.
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Submission of Matters to a Vote of Security Holders
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15 |
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PART II |
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Item 5.
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Market for the Registrants Common Stock and Related Stockholder Matters and Issuer Purchases of
Equity Securities
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16 |
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Item 6.
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Selected Consolidated Financial Data
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18 |
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Item 7.
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Managements Discussion and Analysis of Consolidated Financial Condition and Results of Operations
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20 |
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk
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35 |
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Item 8.
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Consolidated Financial Statements and Supplementary Data
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36 |
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Item 9.
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Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
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71 |
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Item 9A.
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Controls and Procedures
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71 |
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Item 9B.
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Other Information
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71 |
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PART III |
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Item 10.
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Directors and Executive Officers of the Registrant
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71 |
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Item 11.
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Executive Compensation
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71 |
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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71 |
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Item 13.
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Certain Relationships and Related Transactions and Director Independence
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71 |
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Item 14.
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Principal Accounting Fees and Services
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72 |
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PART IV |
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Item 15.
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Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K
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72 |
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Signatures
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74 |
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2
PART I
ITEM 1. BUSINESS
GENERAL
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 Companys
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 Companys principal activities consist of owning and operating its three wholly owned
subsidiary entities. At December 31, 2008, the Company had, on a consolidated basis, total assets,
deposits, and shareholders equity of $967 million, $695 million and $113 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 and 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 rules of NASDAQ for
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
bank 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 travelers checks; (ii) lending, depository and related
financial services to commercial, industrial, financial, and governmental customers, such as real
estate-mortgage loans, 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 21 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, 2008 had $82 million in assets under
management.
The Banks 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 Banks 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:
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Headquarters |
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Johnstown, PA |
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Chartered |
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1933 |
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Total Assets |
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937,050 |
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Total Investment Securities |
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131,893 |
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Total Loans (net of unearned income) |
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707,108 |
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Total Deposits |
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695,156 |
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Total Net Income |
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5,322 |
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Asset Leverage Ratio |
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9.30 |
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Return on Average Assets |
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0.60 |
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Return on Average Equity |
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5.69 |
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Total Full-time Equivalent Employees |
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286 |
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RISK MANAGEMENT OVERVIEW:
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 and
debtholders. 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 Companys 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
Companys 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 Companys 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 Companys ability to obtain personal guarantees decreases. In addition to economic
risk, this category is impacted by the management ability of the borrower 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 Companys 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-prime
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. The major risk in this category is a significant economic downturn.
MAJOR TYPES OF 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 Company and subsidiaries are proactively managed in accordance with federal and state laws
and regulations in accordance with generally accepted accounting principles.
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.
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS, INCLUDING REPAYMENTS AND MATURITIES OF LOANS, SALES
AND MATURITIES OF INVESTMENTS AND FHLB ADVANCES
Deposits
The Bank has a loyal core deposit base made up of traditional commercial bank products that
exhibits little fluctuation, other than Jumbo CDs, which demonstrate some seasonality. The bank
also utilizes certain Trust Company specialty deposits related to the Erect Fund as a funding
source which serve as an alternative to wholesale borrowings and could exhibit some degree of
volatility.
Borrowings
The Bank, 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 flow and security sales.
Loans
During the periods presented herein, the Company has moderately grown its loan portfolio with
no adverse effect on liquidity. The Company believes it will be able to fund anticipated loan
growth generally from investment securities portfolio cash flow and deposit growth.
Secondary Market Activities
The Residential Lending department of the Bank continues to originate one-to-four family
mortgage loans for both outside investors in the secondary market and for the AmeriServ 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, with servicing released to the investor. Freddie
Mac guidelines are used in underwriting all mortgages with the exception of CRA loans. The
mortgages 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 portfolio 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 41 professionals administer assets valued at approximately $1.5 billion at December
31, 2008. The Trust Company has two primary business divisions, traditional trust and union
collective investment funds. Traditional trust 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. The union collective investment funds, namely the ERECT and BUILD Funds
(includes Build Fund of America and Build Fund of Indiana), are designed to invest union pension
dollars in construction projects that utilize union labor. At December 31, 2008, AmeriServ Trust
and Financial Services had total assets of $3.3 million and total shareholders equity of $3.0
million. The Trust Company is subject to regulation and supervision by the Federal Reserve Bank of
Philadelphia and the Pennsylvania Department of Banking.
The diversification of the revenue-generating divisions within the trust company is one of the
primary reasons for its successful profitable growth. The specialized union collective funds have
attracted several national labor unions as investors as well as many local unions from a number of
states. At the end of 2008, assets in these union funds totaled approximately $325 million. In late
2008, both BUILD Funds were in liquidation status. The Company expects this fund to be liquidated
over a 3 to 5 year period given current real estate market conditions.
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The Trust Investment Division focuses on producing better-than-average investment returns by
offering an array of individually managed accounts and several asset allocation disciplines
utilizing non-proprietary mutual funds. In addition, the Tactical High Yield Bond Fund, the
Pathroad Funds and the Premier Equity Discipline are examples of the Investment Divisions ability
to respond to the needs and expectations of our clients. The diversified array of investment
options, experienced staff and good investment returns facilitate client retention and the
development of new clients.
In 2008, the Trust Company continued to be a solid contributor of earnings to the corporation
as its gross revenue amounted to $7.6 million and the net income contribution was $1.3 million.
AmeriServ Life
AmeriServ Life is a captive insurance company organized under the laws of the State of
Arizona. AmeriServ Life engages in underwriting as reinsurer of credit life and disability
insurance within the Companys market area. Operations of AmeriServ Life are conducted in each
office of the Companys banking subsidiary. AmeriServ Life is subject to supervision and regulation
by the Arizona Department of Insurance, the Insurance Department of the Commonwealth of
Pennsylvania, and the Federal Reserve. At December 31, 2008, AmeriServ Life had total assets of
$927,000 and total stockholders equity of $833,000.
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
The subsidiaries face strong competition from other commercial banks, savings banks, 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. As the financial services industry continues to consolidate, the scope of
potential competition affecting the subsidiary entities 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 brokerage 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 as the Commerce Department stated
that early indications show Gross Domestic Product fell at a 3.8% annual rate in the fourth quarter
of 2008, following a 0.5% drop in the third quarter. Economic statistics reveal that the nation
has been in a recession for more than a year. Overall, the economy grew at a weak 1.3% in 2008,
which was the slowest expansion since the 2001 recession. The investment in 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, while the
economic stimulus has not yet had 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 that the current recession will end by the end of 2009. Consumer
spending, which accounts for more than two thirds 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,
which could make it harder for the economy to recover. Tight credit markets have made it more
difficult for households and businesses to borrow money. The troubled housing market along with
sharp increases to energy and food prices, particularly in the middle of 2008, negatively impacted
other sectors of the economy. Labor markets were also hit hard with the unemployment rate climbing
to 7.6% in January 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, 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
The economy in Cambria and Somerset Counties in December 2008 produced seasonally adjusted
unemployment rates of 7.9% and 7.8%, respectively, as compared to national and state rates of 7.2%
and 6.7%, respectively. Local markets have been negatively impacted by the recessionary conditions
that exist in the national economy causing the unemployment rate to increase from last years
average of 5.4%. Johnstown, PA, where AmeriServ Financial, Inc is headquartered, is a national
leader in technology and was designated as the most affordable city in the nation by Forbes
Magazine. Johnstowns cost of living is approximately 30% lower than the national average. As of
December 31, 2008, total nonfarm jobs in the Johnstown MSA were 1,700 below the December 2007
level, which represents the largest year over year decline since January 2002, with losses coming
from both goods-producing and service-providing industries. However, the opening of a technology
park, and greater work on defense projects is expected to contribute to economic growth in the
future. Local loan demand 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% in December 2008, which is the highest level since June 1992, but remains
the lowest of all regions in the Commonwealth. Seasonally adjusted total nonfarm jobs for the MSA
dropped by 1,100 since December 2007, representing the largest year over year loss since May 2005.
The Company plans to open a third branch office in the State College market during 2009 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.
EMPLOYEES
The Company employed 379 people as of December 31, 2008, in full- and part-time positions.
Approximately 217 non-supervisory employees of the Bank are represented by the United Steelworkers
of America, AFL-CIO-CLC, Local Union 2635-06/2635-07. The Banks current labor contract with the
Steelworkers Local will expire on October 15, 2009. The Bank has not experienced a work stoppage
since 1979. The Bank 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 offer 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 banks compliance with the plan up to the lesser of 5% of the banks assets at the
time it became undercapitalized and the amount needed to comply with the plan.
As of December 31, 2008, the Company believes that its bank subsidiary was well capitalized,
based on the prompt corrective action guidelines described above. A banks 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 banks 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 nations 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. 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, the Company
elected to participate in both guarantee programs.
7
SARBANES-OXLEY ACT OF 2002
The Sarbanes-Oxley Act of 2002 contains important requirements for public companies in the
area of financial disclosure and corporate governance. In accordance with section 302(a) of the
Sarbanes-Oxley act, written certifications by the Companys Chief Executive Officer and Chief
Financial Officer are required. These certifications attest that the Companys 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 Companys 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.
STATISTICAL DISCLOSURES FOR BANK HOLDING COMPANIES
The following Guide 3 information is included in this Form 10-K as listed below:
I. |
|
Distribution of Assets, Liabilities, and Stockholders Equity; Interest Rates and Interest
Differential Information. Information required by this
section is presented on pages 21-24, and 30-32. |
II. |
|
Investment Portfolio Information required by this section is presented on pages 10 and 46-49. |
III. |
|
Loan Portfolio Information required by this section appears on pages 10-11 and 25-27. |
IV. |
|
Summary of Loan Loss Experience Information required by this section is presented on pages
26-27. |
V. |
|
Deposits Information required by this section follows on pages 11-12. |
VI. |
|
Return on Equity and Assets Information required by this section is presented on page 20. |
VII. |
|
Short-Term Borrowings Information required by this section is presented on page 12. |
8
INVESTMENT PORTFOLIO
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 Companys investment
portfolio as of the periods indicated:
Investment securities available for sale at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
LOAN PORTFOLIO
The loan portfolio of the Company consisted 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For each of the periods presented beginning with December 31, 2008, real
estate-construction loans constituted 6.2%, 5.5%, 4.4%, 5.5% and 6.3% of the Companys
total loans, net of unearned income, respectively. |
9
NON-PERFORMING ASSETS
The following table presents information concerning non-performing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 indicated, (i) 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) the amount of interest income actually recorded on such loans, and (iii) the net
reduction in interest income attributable 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS
The following table sets forth the average balance of the Companys 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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 |
|
|
|
|
|
|
|
|
|
|
|
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, 2008:
MATURING IN:
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
FEDERAL FUNDS PURCHASED AND OTHER 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 |
|
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 |
|
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 two days at the end of 2008 and 2007 and three days at the end of 2006.
11
ITEM 1A. RISK FACTORS
Investors should carefully consider the risks described below before investing in our common
stock. The risks described below are not the only ones facing the Company. Additional risks not
currently known to us or that we currently believe are immaterial also may impair our business.
Our business could be harmed by any of these risks. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your investment. In assessing
these risks, you should also refer to the other information contained or incorporated by reference
in this Form 10-K, including our consolidated financial statements and related notes. Other
corporate information is available at www.AmeriServFinancial.com
Failure to successfully execute our turnaround strategy would adversely affect future earnings.
At the end of 2003, we adopted a turnaround strategy that consisted of three distinct
elements. These were:
|
|
|
In 2003, stabilizing AmeriServ and taking immediate steps to eliminate or minimize those
risk elements that posed a threat to our survival; |
|
|
|
|
In 2004 and 2005, executing steps to eliminate the key structural impediments to
sustainable, improved earnings; and |
|
|
|
|
Articulating and executing, over the long-term, a strategy centered on community banking
and continued expansion of our successful trust business that is intended to produce
consistent future earnings. |
We believe we accomplished the first two elements of the turnaround strategy. With our
earnings growth in 2007 and 2008, we achieved meaningful progress towards the third element of the
turnaround. However, this final element of the turnaround requires sustained execution of our
business plan to drive our financial performance closer to peer bank levels. If we are unable to
achieve the last element of the turnaround strategy, our financial condition and results of
operations will not dramatically improve and may deteriorate.
We are subject to lending risks.
There are risks inherent in making all loans. These risks include interest rate changes over
the time period in which loans may be repaid and changes in the national economy or the economy of
our regional market that affect the ability of our borrowers to repay their loans or the value of
the collateral securing these loans.
At December 31, 2008, 65.6% of our net loan portfolio consisted of commercial and commercial
mortgage loans, including construction loans. Commercial loans are generally viewed as having more
risk of default than residential real estate loans or consumer loans. These types of loans also
are typically larger than residential real estate loans and consumer loans. Because our loan
portfolio contains a significant number of commercial and commercial mortgage loans with relatively
large balances, the deterioration of one or a few of these loans would cause a significant increase
in non-performing loans. An increase in non-performing loans could result in a net loss of
earnings from these loans, an increase in our provision for loan losses and an increase in loan
charge-offs.
Our financial condition and results of operations would be adversely affected if our allowance for
loan losses is not sufficient to absorb actual losses or if we are required to increase our
allowance.
Despite our underwriting criteria, we may experience loan delinquencies and losses for reasons
beyond our control, such as general economic conditions. At December 31, 2008, we had
non-performing assets equal to 0.65% of total loans and loans held for sale, net of unearned income
and other real estate owned. In order to absorb losses associated with non-performing assets, we
maintain an allowance for loan losses based on, among other things, historical experience, an
evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality.
Determination of the allowance inherently involves a high degree of subjectivity and requires us
to make significant estimates of current credit risks and future trends, all of which may undergo
material changes. We may be required to increase our allowance for loan losses for any of several
reasons. State and federal regulators, in reviewing our loan portfolio as part of a regulatory
examination, may request that we increase our allowance for loan losses. Changes in economic
conditions affecting borrowers, new information regarding existing loans, identification of
additional problem loans and other factors, both within and outside of our control, may require an
increase in our allowance. In addition, if charge-offs in future periods exceed our allowance for
loan losses, we will need additional increases in our allowance for loan losses. Any increases in
our allowance for loan losses will result in a decrease in our net income and, possibly, our
capital, and may materially affect our results of operations in the period in which the allowance
is increased.
We have unionized employees, which increases our costs and may deter any acquisition proposal.
The Bank is party to a collective bargaining agreement with the United Steelworkers of
America, which represents approximately 57% of our employees. In 2007, our current contract was
extended until October 15, 2009. Terms of the contract extension remain the same as the prior
contract with the exception of a 2.0% wage increase in the first year, and a 2.5% increase in the
second year. As
12
a result of provisions in the contract, generally known as work rules, we sometimes cannot
take steps that would reduce our operating costs. Furthermore, to our knowledge, we are one of
only 13 unionized banking institutions in the United States. 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 if a new collective bargaining agreement cannot be negotiated before 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 acquired or could be an acquiror.
Changes in interest rates could reduce our income, cash flows and asset values.
Our income, cash flows and the value of our assets depend to a great extent on the difference
between the interest rates we earn on interest-earning assets, such as loans and investment
securities, as well as the interest rates we pay on interest-bearing liabilities such as deposits
and borrowings. These rates are highly sensitive to many factors which are beyond our control,
including general economic conditions and policies of various governmental and regulatory agencies
and, in particular, 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 securities 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.
Because our operations are concentrated in Cambria and Somerset Counties, Pennsylvania, we are
subject to economic conditions in this area, which typically lag behind economic activity in other
areas.
Some of our loans and the majority of our deposit activities are based in Cambria and Somerset
Counties, located in southwestern Pennsylvania. As a result, our financial performance will depend
largely upon economic conditions in this area. Economic activity in this geographic market
generally lags behind the economic activity in Pennsylvania and the nation. Similarly,
unemployment in this market area is typically higher than the unemployment rate in Pennsylvania and
the nation, although this difference has declined in recent years as our local economy has become
more diversified. Adverse local economic conditions could cause us to experience a reduction in
deposits, an increase in the number of borrowers who default on their loans and a reduction in the
value of the collateral securing their loans, all of which could adversely affect our
profitability.
A portion of our trust business is dependent on a union client base.
In an effort to capitalize on the Banks union affiliation, our Trust Company operates the
ERECT Funds and the BUILD Funds that seek to attract investment from union pension funds. These
funds then use the investments to make loans and/or equity investments on construction projects
that use union labor. At December 31, 2008, approximately $325 million was invested by unions in
the ERECT and BUILD Funds. This represents approximately 21.2% of the total assets administered by
the Trust Company. Therefore, the Trust Company is dependent on a discrete union client base for a
portion of its assets under management and its resulting revenue and net income. In late 2008 both
BUILD Funds were in liquidation status. The Company expects this fund to be liquidated over a 3 to 5
year period given the current real estate market conditions.
The Company may be adversely affected by the soundness of other financial institutions.
Financial service institutions are interrelated as a result of trading, clearing,
counterparty, or other relationships. The Company has exposure to many different industries and
counterparties, and routinely executes transactions with counterparties in the financial services
industry, including commercial banks, brokers and dealers, investment banks, and other
institutional clients. Many of these transactions expose the Company to credit risk in the event of
a default by a counterparty or client. In addition, the Companys credit risk may be exacerbated
when the collateral held by the Company cannot be realized upon or is liquidated at prices not
sufficient to recover the full amount of the credit or derivative exposure due to the Company.
Reduced wholesale funding capacity or higher borrowing costs due to capital constraints at the
Federal Home Loan Bank of Pittsburgh, would reduce the Companys liquidity and negatively impact
earnings and net interest margin. Any such losses could have a material adverse affect on the
Companys financial condition and results of operations.
Our future success will depend on our ability to compete effectively in a highly competitive market
and geographic area.
We face substantial competition in all phases of our operations from a variety of different
competitors, including commercial banks, savings and loan associations, mutual savings banks,
credit unions, consumer finance companies, factoring companies, insurance companies and money
market mutual funds. There is very strong competition among financial services providers in our
13
principal service area. Due to their size, many competitors can achieve economies of scale
and, as a result, may offer a broader range of products and services as well as better pricing for
those products and services than we can.
We believe that our ability to compete successfully depends on a number of factors, including:
|
|
|
Our ability to build upon existing customer relationships and market position; |
|
|
|
|
Competitors interest rates and service fees; |
|
|
|
|
Our ability to attract and retain a qualified workforce; |
|
|
|
|
The scope of our products and services; |
|
|
|
|
The relevance of our products and services to customer needs and demands and the rate at
which we and our competitors introduce them; |
|
|
|
|
Satisfaction of our customers with our customer service; and |
|
|
|
|
Industry and general economic trends. |
If we experience difficulty in any of these areas, our competitive position could be
materially adversely affected, which will affect our growth and profitability.
Some of the financial services organizations with which we compete are not subject to the same
degree of regulation as is imposed on federally insured financial institutions. As a result, those
non-bank competitors may be able to access funding and provide various services more easily or at
less cost than we can, adversely affecting our ability to compete effectively.
We may be adversely affected by government regulation.
We are subject to extensive federal and state banking regulation and supervision. Banking
regulations are intended primarily to protect our depositors funds and the federal deposit
insurance funds, not shareholders. Regulatory requirements affect our lending practices, capital
structure, investment practices, dividend policy and growth. Failure to meet minimum capital
requirements could result in the imposition of limitations on our operations that would adversely
impact our operations and could, if capital levels drop significantly, result in our being required
to cease operations. Changes in governing law, regulations or regulatory practices could impose
additional costs on us or adversely affect our ability to obtain deposits or make loans and, as a
consequence, our revenues and profitability.
Environmental liability associated with lending activities could result in losses.
In the course of our business, we may foreclose on and take title to properties securing our
loans. If hazardous substances were discovered on any of these properties, we may be liable to
governmental entities or third parties for the costs of remediation of the hazard, as well as for
personal injury and property damage. Many environmental laws can impose liability regardless of
whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the
disposal of hazardous or toxic substances at another site, we may be liable for the costs of
cleaning up and removing those substances from the site, even if we neither own nor operate the
disposal site. Environmental laws may require us to incur substantial expenses and may materially
limit use of properties we acquire through foreclosure, reduce their value or limit our ability to
sell them in the event of a default on the loans they secure. In addition, future laws or more
stringent interpretations or enforcement policies with respect to existing laws may increase our
exposure to environmental liability.
RISKS ASSOCIATED WITH THE COMPANYS COMMON STOCK
The Companys stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you
want and at prices you find attractive. The Companys stock price can fluctuate significantly in
response to a variety of factors including, among other things:
|
|
|
Actual or anticipated variations in quarterly results of operations; |
|
|
|
|
Operating and stock price performance of other companies that investors deem comparable
to the Company; |
|
|
|
|
News reports relating to trends, concerns and other issues in the financial services
industry; |
|
|
|
|
Perceptions in the marketplace regarding the Company and/or its competitors; |
|
|
|
|
New technology used, or services offered, by competitors; |
|
|
|
|
Changes in government regulations; and |
|
|
|
|
Geopolitical conditions such as acts or threats of terrorism or military conflicts. |
14
General market fluctuations, industry factors and general economic and political conditions
and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends,
could also cause the Companys stock price to decrease regardless of operating results.
The trading volume in the Companys common stock is less than that of other larger financial
services companies.
Although the Companys common stock is listed for trading on the NASDAQ Global Market System
(NASDAQ), the trading volume in its common stock is less than that of other larger financial
services companies. A public trading market having the desired characteristics of depth, liquidity
and orderliness depends on the presence in the marketplace of willing buyers and sellers of the
Companys common stock at any given time. This presence depends on the individual decisions of
investors and general economic and market conditions over which the Company has no control. Given
the lower trading volume of the Companys common stock, significant sales of the Companys common
stock, or the expectation of these sales, could cause the Companys stock price to fall.
An investment in our common stock is not an insured deposit.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the
Federal Deposit Insurance Corporation, commonly referred to as the FDIC, any other deposit
insurance fund or by any other public or private entity. Investment in our common stock is
inherently risky for the reasons described in this Risk Factors section and is subject to the
same market forces that affect the price of common stock in any company. As a result, if you
acquire our common stock, you may lose some or all of your investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved staff comments from the SEC for the reporting period presented.
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 13 other
locations which are owned. Eight additional locations are leased with terms expiring from September
30, 2009 to March 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 Companys consolidated financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to its shareholders through the solicitation of proxies
or otherwise during the fourth quarter of the fiscal year covered by this report.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
COMMON STOCK
As of January 31, 2009, the Company had 4,201 shareholders of its common stock. AmeriServ
Financial, Inc.s common stock is traded on the NASDAQ Global Market System under the symbol 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 |
|
As a result of the decision by the Company to accept a preferred stock investment under the
U.S. Treasurys 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.
The following table summarizes share repurchase activity for the quarter ended December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
All shares are repurchased under Board of Directors authorization. In December 2007, the
Board authorized a new program to repurchase 1.1 million shares.
16
PERFORMANCE GRAPH
The following Performance Graph and related information shall not be deemed Soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that the Company specifically
incorporates it by reference into such filing.
Comparison of Five Year Cumulative Total Returns
Among AmeriServ Financial, Inc., NASDAQ Stock Market,
and NASDAQ Bank Stocks
The following table compares total shareholder returns for the Company over the past five
years to the NASDAQ Stock Market and the NASDAQ Bank Stocks assuming a $100 investment made on
December 31, 2003. Each of the three measures of cumulative return assumes reinvestment of
dividends. The stock performance shown on the graph above is not necessarily indicative of future
price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
* |
|
The Company sold its remaining mortgage servicing rights of Standard Mortgage Corporation,
its former mortgage servicing subsidiary, in December 2004 and incurred discontinued
operations activity of this non-core business in 2005. |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
19
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (MD&A)
The following discussion and analysis of financial condition and results of operations of
AmeriServ Financial, Inc. should be read in conjunction with the consolidated financial statements
of AmeriServ Financial, Inc. including the related notes thereto, included elsewhere herein.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
2008 SUMMARY OVERVIEW:
The net income of AmeriServ in the fourth quarter of 2008 exceeded net income for the same
period of 2007 by 75%. This resulted from a $71 million increase in loans outstanding and a 76
basis point increase in the net interest margin. The conservative balance sheet that AmeriServ has
maintained since 2005 was well positioned for the Federal Reserve program to lower interest rates.
At 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.
The impact of the fourth quarter on the full year was significant. Net income in 2008 totaled
$5.5 million and surpassed that of 2007 by 82% as earnings per share increased from $0.14 per share
in 2007 to $0.25 per share in 2008. Return on assets for the full year was 0.62% or 28 basis points
above the full year 2007. These performance improvements were in spite of the decline in the equity
markets which reduced the late year revenue streams of both the Trust Company and West Chester
Capital Advisors
However, all this is not to say that 2008 was a year without challenges. The stumbles in the
economy caused AmeriServ to increase its loan loss provision by $2.6 million over 2007 to improve
its coverage of non-performing assets to 195% (as compared with 137% at December 31, 2007). After
two years 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.
During 2007 and 2008, and now extending into 2009, we have become sadly familiar with a new
set of phrases. We speak daily of sub-prime mortgages, of a credit crunch, of financial bailouts
and the like. We hear leading economists and governmental experts tell us that their next
recommended program will finally be the answer to the nations dilemma. But we have also noticed
in spite of these frequently encouraging pronouncements the economy has continued its decline.
Employment reductions have become commonplace, bankruptcy filings are disturbingly frequent and
none of the hastily designed economic solutions have arrested the decline.
Here at AmeriServ we observe these developments with an attitude of careful concern. As a
company operating in the heart of the Rust Belt, we learned it is foolhardy to swim against the
tide. During the period 2002 through 2005, we learned just how difficult it is to overcome mounting
real world difficulties. Our positive performance during the troubles of 2008 tells us that
AmeriServ is once again a healthy company.
Now the challenge is to keep it healthy while the banking industry and the global economy
continue to experience what can only be termed as stunning losses. It was this commitment to
protect the reinvented AmeriServ that caused the Board of Directors to elect to participate in the
Treasury Department Capital Purchase Program (CPP). The infusion of $21 million of new capital on
December 19, 2008, serves as a sort of rainy day fund to protect our shareholders should this
recession deepen into a depression. However, it also provides a solid foundation so AmeriServ can
continue to make new job-creating business loans in the community, thus enabling local consumers to
pay their bills and feed their families.
In better times this additional capital can also position AmeriServ to be immediately
proactive once the long promised economic recovery begins. The Boards 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.
PERFORMANCE OVERVIEW. . .The following table summarizes some of the Companys key
profitability performance indicators for each of the past three years.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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
diluted share. The Companys 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 an increased provision for
loan losses and higher non-interest expenses.
The Company reported net income of $3.0 million or $0.14 per diluted share for 2007. This
represented an increase of $702,000 or 30.1% when compared to net income of $2.3 million or $0.11
per diluted share for 2006. The increase in net income in 2007 was due to increased non-interest
revenue and lower non-interest expense, which more than offset the negative impact of reduced net
interest income, 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. . . .The Companys 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 Companys 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 Companys 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 |
% |
2008 NET INTEREST PERFORMANCE OVERVIEW... The Companys net interest income in 2008 increased
by $4.9 million or 20.2% from the prior year and the net interest margin was up by 58 basis points
over the same comparative period. The Companys 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. As a result of these changes, the Companys
interest expense on deposits and borrowings declined at a faster rate than the interest income on
loans and investments. Additionally, an improved earning asset mix with fewer investment securities
and more loans outstanding also contributed to the increased 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: 2008 VERSUS 2007... Regarding the separate
components of net interest income, the Companys total interest income for 2008 decreased by $1.6
million when compared to 2007. This decrease was due to a 27 basis point decrease in the earning
asset yield to 5.96%. Within the earning asset base, the yield on the total loan portfolio
decreased by 45 basis points to 6.37% and reflects the lower interest rate environment in 2008 as
the Federal Reserve reduced the federal funds rate by 400 basis points during 2008. The total
investment securities yield, however, has increased by five basis points to 4.13%. The Company took
advantage of the positively sloped yield curve in the second quarter of 2008 to position the
investment portfolio for better future earnings by selling some of the lower yielding securities in
the portfolio at a loss and replacing them with higher yielding securities with a modestly longer
duration.
The $8.8 million increase in the volume of average earning assets was due to a $34.3 million
or 5.6% increase in average loans partially offset by a $21.6 million or 12.3% decrease in average
investment securities. The loan growth was driven by increased
21
commercial real estate loans as a result of successful new business development efforts particularly in the suburban Pittsburgh
market. The Company has found increased commercial lending opportunities in the Pittsburgh market
in 2008 due to the retrenchment of several larger competitors as a result of the turmoil in the
financial markets. The decline in investment securities was caused by the call of certain agency
securities and ongoing cash flow from mortgage-backed securities. The Company has elected to
utilize this cash from lower yielding securities to fund higher yielding loans in an effort to
improve the Companys earning asset yield.
The Companys total interest expense for 2008 decreased by $6.5 million or 25.7% when compared
to 2007. This decrease in interest expense was due to a lower cost of funds. The total cost of
funds for 2008 declined by 94 basis points to 2.75% and was driven down by lower short-term
interest rates and a more favorable funding mix in 2008. Specifically, the costs of interest
bearing deposits decreased by 85 basis points to 2.69% while the cost of short-term borrowings
dropped by 293 basis points to 1.96%. Total average interest bearing deposits decreased by $60.2 million or 9.3% 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. Additionally, the Companys funding mix also benefited from a $5.3 million
increase in non-interest bearing demand deposits and an increase 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 Companys loan to deposit ratio to slightly over
100%, the Company expects to more actively utilize the trust specialty deposits as a funding source
in 2009 along with a more aggressive strategy to try to grow retail deposits.
2007 NET INTEREST PERFORMANCE OVERVIEW... The Companys 2007 net interest income on a
tax-equivalent basis decreased by $260,000 or 1.1% from 2006 due to a six basis point drop in the
net interest margin to 3.06%. The decline in both net interest income and net interest margin
resulted from the Companys cost of funds increasing at a faster pace than the earning asset yield,
particularly during the first six months of 2007. This resulted from deposit customer preference
for higher yielding certificates of deposit and money market accounts due to the inverted/flat
yield curve with short-term interest rates exceeding intermediate to longer term rates during that
period. This net interest margin pressure overshadowed solid loan and deposit growth within our
community bank. Average loans in 2007 grew by $43 million or 7.7% while average deposits increased
by $14 million or 1.9% when compared to 2006. However, the Federal Reserve reductions in short-term
interest rates that began late in the third quarter of 2007 favorably impacted the Company. On a
quarterly basis, the Companys net interest margin showed improvement throughout 2007 increasing
from 2.97% in the first quarter to 3.08% in the fourth quarter. This helped to reverse a trend of
four consecutive quarters of net interest income and margin contraction experienced in 2006 where
the margin declined from 3.20% to a low of 2.93% in the fourth quarter.
COMPONENT CHANGES IN NET INTEREST INCOME: 2007 VERSUS 2006...Regarding the separate components
of net interest income, the Companys total interest income for 2007 increased by $2.8 million or
6.0% when compared to 2006. This increase was due to a 30 basis point increase in the earning asset
yield to 6.23%, and was aided by an $8 million increase in average earning assets. Within the
earning asset base, the yield on the total loan portfolio increased by 18 basis points to 6.82% and
reflects the higher interest rate environment in place during most of 2007, which allowed the
Company to book new loans at rates moderately higher than those currently in the portfolio. The
yield on the total investment securities portfolio increased by 12 basis points to 4.08% as the
Company has generally elected to not replace maturing lower yielding securities. Also reduced
amortization expense on the Companys lower balance of mortgage-backed securities favorably
impacted the portfolio yield.
The $8 million increase in average earning assets was due to a $43 million or 7.7% increase in
average loans, partially mitigated by a $38 million or 17.0% reduction in average investment
securities. This loan growth was driven by increased commercial and commercial real estate loans as
a result of successful new business development efforts. In 2007 the Company focused on growing the
higher yielding and more rate sensitive commercial loans at a faster rate than the commercial
real-estate loans. The decline in investment securities was caused by regularly scheduled
maturities and ongoing cash flow from mortgage-backed securities.
The Companys total interest expense for 2007 increased by $3.1 million or 13.9% when compared
to 2006. This increase in interest expense was due to a higher cost of funds and an increase in
total average interest bearing liabilities which were $4.0 million higher in 2007. The total cost
of funds for 2007 increased by 43 basis points to 3.69% and was driven up by higher short-term
interest rates and increased deposits when compared to 2006. Specifically, total average deposits
increased by $14 million or 1.9% compared to 2006, while the cost of interest bearing deposits
increased by 49 basis points to 3.54%. The increased cost of deposits reflects the higher
short-term interest rate environment for the majority of 2007 as well as a customer movement of
funds from lower cost savings accounts into higher yielding certificates of deposit. Average
wholesale borrowings declined by $9 million in 2007 and averaged only 2.8% of total assets in 2007.
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
liabilities), and (v) net interest margin (net interest income as a percentage of average
total interest earning assets). For purposes of these tables loan balances exclude non-accrual
loans, but interest income recorded on non-accrual loans on a cash basis, which is deemed to be
immaterial, is included in interest income. Regulatory stock is included within available for sale
investment securities for this analysis. Additionally, a tax rate of approximately 34% is used to
compute tax-equivalent yields.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Net interest income may also be analyzed by segregating the volume and rate components of
interest income and interest expense. The table below sets forth an analysis of volume and rate
changes in net interest income on a tax-equivalent basis. For purposes of this table, changes in
interest income and interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates. Changes in net interest income
that could not be specifically identified as either a rate or volume change were allocated
proportionately to changes in volume and changes in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN QUALITY. . .AmeriServ Financials 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 Companys 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 Financials
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 |
|
|
|
|
(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 and (iii)
other real estate owned. |
Loan delinquency levels have now remained well below 1% for the past three years and reflect
the continued good loan portfolio quality. Non-performing assets have remained in a range of $2.3
million to $5.3 million for the past three years and ended 2008 at
24
$4.6 million or 0.65% of total loans. The $708,000 decline since year-end 2007 reflects the successful workout during the first
quarter of 2008 of the Companys largest non-performing commercial mortgage loan. While we are
pleased with our asset quality, we continue to closely monitor the portfolio given the recessionary
economy and the number of relatively large sized commercial and commercial real estate loans within the portfolio. As of December 31, 2008, the 25 largest
credits represented 29.0% of total loans outstanding.
The Company had two loans totaling $1.4 million at December 31, 2008, that had been
restructured which involved granting loan rates less than that of the market rate. Both of these
loans are currently in non-accrual status and are currently not performing with the amended terms.
ALLOWANCE AND PROVISION FOR LOAN 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; 1) reserves
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 banks 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 Companys management to establish allocations which
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 |
|
The Company recorded a $2.9 million loan loss provision for 2008 compared to a $300,000 loan
loss provision for 2007. The higher loan provision in 2008 was caused by the Companys decision to
strengthen its allowance for loan losses due to 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. Overall net charge-offs have trended upward over the past 4
years. Specifically, for 2008, net
25
charge-offs have amounted to $1.3 million or 0.20% of total
loans compared to net charge-offs of $1.1 million or 0.19% of total loans for 2007. Overall, the allowance for loan losses provided 195% coverage of non-performing
assets and was 1.26% of total loans at December 31, 2008 compared to 137% of non-performing assets
and 1.14% of total loans at December 31, 2007. The Company has no direct exposure to sub-prime
mortgage loans in either the loan or investment portfolios.
For 2007, the provision for loan losses amounted to $300,000 compared to a negative loan loss
provision of $125,000 for 2006 and $175,000 for 2005. The Company did experience higher net
charge-offs in 2007, as net charge-offs amounted to $1.1 million or 0.19% of total loans compared
to net charge-offs of $926,000 or 0.16% of total loans for 2006. The Companys 2007 net charge-offs
were materially impacted by a third quarter $875,000 complete charge-off of a commercial loan that
resulted from fraud committed by the borrower.
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Even though residential real estate-mortgage loans comprise 31.1% of the Companys total loan
portfolio, only $325,000 or 3.6% of the total allowance for loan losses is allocated against this
loan category. The residential real estate-mortgage loan allocation is based upon the Companys
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 Companys historical loss experience in these categories, and other qualitative
factors.
Based on the Companys allowance for loan loss methodology and the related assessment of the
inherent risk factors contained within the Companys loan portfolio, we believe that the allowance
for loan losses was adequate at December 31, 2008 to cover losses within the Companys loan
portfolio.
NON-INTEREST INCOME. . Non-interest income for 2008 totalled $16.4 million; an increase of
$1.7 million or 11.7% from 2007. Factors contributing to this increased level of non-interest
income in 2008 included:
|
- |
|
a $1.4 million increase in revenue from bank owned life insurance (BOLI) due to increased
payments of death claims in 2008. |
|
|
- |
|
a $170,000 increase in gains on loans held for sale due to increased residential mortgage
loan sales into the secondary market in 2008. There were $37.5 million of residential
mortgage loans sold into the secondary market in 2008 compared to $26.7 million in 2007. |
|
|
- |
|
a $490,000 or 19.0% increase in deposit service charges due to increased overdraft fees
and greater service charge revenue that resulted from a realignment of the banks checking
accounts to include more fee based products. |
|
|
- |
|
a $195,000 decrease in investment advisory fees as a result of a drop in assets under
management due to the declines experienced in the equity markets in 2008. |
26
Non-interest income for 2007 totaled $14.7 million; a $1.9 million or 14.5% increase from the
2006 performance. Factors contributing to the net increase in non-interest income in 2007 included:
|
- |
|
a $974,000 increase in investment advisory fees resulting from the acquisition of West
Chester Capital Advisors in March 2007. |
|
|
- |
|
a $234,000 or 3.6% increase in trust fees due to continued successful new business
development efforts. The fair market value of trust customer assets grew by 5.9% to $1.9
billion at December 31, 2007. |
|
|
- |
|
a $202,000 increase in gains realized on residential mortgage loan sales into the secondary
market in 2007. There were $26.3 million of residential mortgage loans sold into the
secondary market in 2007 compared to $11.5 million in 2006. |
|
|
- |
|
other income increased by $377,000 in 2007 or 15.4% due in part to a $200,000 gain realized
on the sale of a bank owned operations facility that was no longer being fully utilized. The
Company also benefited from a $69,000 gain realized on the sale of a closed branch facility
in the third quarter of 2007. |
NON-INTEREST EXPENSE. . . Non-interest expense for 2008 totalled $35.6 million; a $965,000 or
2.8% increase from 2007. Factors contributing to the higher non-interest expense in 2008 included:
|
- |
|
a $887,000 increase in other expense was largely caused by the non-recurrence of a
favorable $400,000 recovery related to previous mortgage servicing operation that was
realized in 2007 and greater marketing, other real estate owned, and telephone expenses in
2008. The higher other real estate expense was due to the Company taking possession of a
commercial apartment building in the first half of 2008. |
|
|
- |
|
a $385,000 increase in professional fees due to higher legal costs related to the Trust
Company matters, and higher consulting and other professional fees related to productivity
studies in 2008. |
|
|
- |
|
a $122,000 decrease in salaries and employee benefits due primarily to lower medical
insurance premiums in 2008 as a result of a switch in carriers. |
|
|
- |
|
a $368,000 decrease in equipment expense resulting from the benefits achieved on the
migration to a new core data processing operating system and mainframe processor. |
|
|
- |
|
a $91,000 penalty realized on the prepayment of $6 million of Federal Home Loan Bank debt.
This charge resulted from the Companys decision to retire some higher cost advances and
replace them with lower cost current market rate borrowings in order to reduce ongoing
interest expense. |
Non-interest expense for 2007 totaled $34.7 million, a $20,000 decrease 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. Factors contributing to the
net decrease in non-interest expense in 2007 included:
|
- |
|
salaries and employee benefits increased by $670,000 or 3.6% due primarily to $588,000 of
personnel costs related to the West Chester Capital Advisors acquisition and an $85,000
curtailment charge for an early retirement program. |
|
|
- |
|
equipment expense decreased by $304,000 or 12.9% due to lower depreciation expense and
maintenance costs. |
|
|
- |
|
FDIC deposit insurance expense declined by $104,000 or 54.2% due to the termination of the
Memorandum of Understanding that the Company had been operating under in the first quarter of
2006. |
|
|
- |
|
other expenses declined by $268,000 due to a recovery on a previous mortgage loan servicing
operation and our continuing focus on cost reduction and rationalization that has resulted in
numerous expense reductions in categories such as software amortization, collection costs,
telephone costs, and other taxes and insurance. |
INCOME TAX EXPENSE. . . The Company recorded an income tax expense of $1.5 million in 2008
which reflects an effective tax rate of 21.1%. The income tax expense recorded in 2007 was $924,000
or an effective tax rate of 23.3%. The Company was able to record a lower effective tax rate in
2008 despite an increased level of pre-tax income due to greater tax-free revenue from BOLI. BOLI
is the Companys largest source of tax-free income. The Companys deferred tax asset declined to
$12.7 million at December 31, 2008 due to the ongoing utilization of net operating loss
carryforwards and improved market value of the AFS investment portfolio.
27
SEGMENT RESULTS. . . Retail bankings net income contribution was $2.7 million in 2008
compared to $2.0 million in 2007 and $1.2 million in 2006. The 2008 net income is better than 2007
due to the positive impact of increased non-interest revenue in line items such as deposit service
charges, bank owned life insurance, and gain on residential mortgage loan sales. Retail banking
also benefited from reduced non-interest expenses due to lower salaries/benefits costs and reduced
occupancy costs as a result of the consolidation and closing of two offices in our branch network.
These items more than offset reduced net interest income and a higher provision for loan losses.
Retail bankings net income contribution in 2007 was $776,000 better than 2006 also due to higher
non- interest income and lower non-interest expense. The reduced net interest income in 2007
reflected increased deposit costs due to the negative impact that the flat to inverted yield curve
had on customers shifting into higher cost certificates of deposit.
The commercial lending segment net income was $2.3 million in 2008 compared to $3.2 million in
2007 and $2.6 million in 2006. The reduced net income contribution in 2008 was caused by an
increased provision for loan losses due to the previously discussed strengthening of the allowance
for loan losses and higher non-interest expenses. These factors more than offset an increased level
of net interest income that resulted from the strong 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 segments net income contribution was $1.3 million in 2008 compared to $1.8 million
in 2007. One factor responsible for the decrease between years was less investment advisory and
trust revenue as a result of fewer assets under management due to 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
market conditions. The trust segments net income contribution 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.
Overall, the fair market value of trust assets totaled $1.55 billion at December 31, 2008, a
decrease of $329 million or 17.5% from the December 31, 2007 total of $1.88 billion.
The investment/parent segment reported a net loss of $783,000 in 2008 compared to losses of
$3.9 million in 2007 and $3.2 million in 2006. The Companys 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 was the primary factor responsible for the reduced net loss in 2008.
In addition, the previously discussed investment portfolio repositioning to improve the portfolio
yield also benefitted this segment.
For greater discussion on the future strategic direction of the Companys key business
segments, see Forward Looking Statements which begins on page 35.
BALANCE SHEET. . . The Companys total consolidated assets were $967 million at December 31,
2008 compared with $905 million at December 31, 2007, which represents an increase of $62 million
or 6.9%. This higher level of assets resulted primarily from an increased level of loans. The
Companys loans totaled $707 million at December 31, 2008, an increase of $71 million or 11.2% from
year-end 2007 due to commercial real estate loan growth. The Companys commercial loan pipelines
remain strong as we enter 2009 we expect to see continued growth in new loan fundings during the
first half of 2009. Investment securities declined by $16 million in 2008 due 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.
The Companys deposits totalled $695 million at December 31, 2008, which was $15 million or
2.2% lower than December 31, 2007 due to a decline in certificates of deposit. The Company elected
to use more wholesale borrowings as a funding source because they cost less than certificates of
deposit during the majority of 2008. As a result, total FHLB short-term borrowings and advances
increased by $52 million during 2008. The Companys total stockholders equity increased by $23
million since year-end 2007 to $113 million due primarily to the issuance of $21 million of
preferred stock through the U.S. Treasurys Capital Purchase Program(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. The remainder of the increase in
capital was due to the net retention of earnings after repurchasing stock and paying one common
dividend in 2008. Overall, the Company has a strong capital position and is considered well
capitalized for regulatory purposes with an asset leverage ratio of 12.15% at December 31, 2008
compared to 9.74% at December 31, 2007. The Companys book value per share at December 31, 2008 was
$4.39 and its tangible book value per share was $3.75.
LIQUIDITY. . . The Banks liquidity position has been strong during the last several years
when the Bank was undergoing a turnaround and a return to traditional community banking. Our core
retail deposit base has remained stable throughout this period and has been adequate to fund the
Banks operations. Cash flow from maturities, prepayments and amortization of securities was used
to fund the strong net loan growth that the Company has achieved over the past several years. At
the end of 2008, the Companys loan to
28
deposit ratio for the first time exceeded 100%, and as a
result we plan to focus more aggressively on raising deposits in 2008 to fund future loan growth.
We do not expect to increase borrowings above their current level.
Liquidity can also be analyzed by utilizing the Consolidated Statement of Cash Flows. Cash and
cash equivalents increased by $6 million from December 31, 2007, to December 31, 2008, due to $52
million of cash provided by financing activities and $6 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 $209 million and was
$72 million higher than the $137 million of cash received from loan principal payments and sales.
Within financing activities, the Company experienced a net $17 million decline in deposits due to
reduced certificates 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 million of cash from
financing activities.
The parent company had $23 million of cash and short-term investments at December 31, 2008
compared to $4 million at December 31, 2007. Dividend payments from subsidiaries and the settlement
of the inter-company tax position also provide ongoing cash to the parent. As of December 31, 2008,
the subsidiary bank had $3.9 million of cash available for dividend upstream per the applicable
regulatory formulas.
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, short-term investments in money market funds, bankers acceptances, and commercial
paper. These assets totaled $42 million at December 31, 2008 and $8 million at December 31, 2007.
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 Companys subsidiary bank is a member of the Federal Home Loan Bank, which
provides the opportunity to obtain short- to longer-term advances based upon the Banks investment
in assets secured by one- to four-family residential real estate. At December 31, 2008, the bank
had immediately available $183 million of overnight borrowing availability at the FHLB and $10
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. . . The Company exceeds all regulatory capital ratios for each of the
periods presented and is considered well capitalized. The asset leverage ratio was 12.15% and the
Tier 1 capital ratio was 14.66% at December 31, 2008 compared to 9.74% and 12.79% at December 31,
2007. The impact of other comprehensive loss is excluded from the regulatory capital ratios. At
December 31, 2008, accumulated other comprehensive loss amounted to $4.2 million. The Companys
tangible equity to assets ratio was 8.90% and its tangible common equity to assets ratio was 8.30%
at December 31, 2008. We anticipate that our strong capital ratios may further increase in 2009 due
to the retention of all earnings that will be partially offset by preferred dividend requirements
and growth of the balance sheet.
In January 2008, the Companys Board of Directors approved a repurchase program to buyback up
to 5% or approximately 1.1 million of its outstanding common shares. The Company completed this
program in 2008 by repurchasing 1,098,000 shares of its common stock at an average price of $2.58.
The Company also used $544,000 of cash to pay a 2.5 cent common dividend to its shareholders in the
fourth quarter of 2008. As a result of our decision to accept the $21 million CPP preferred stock
investment, 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. . . Asset/liability management involves managing the risks
associated with changing interest rates and the resulting impact on the Companys net interest
income, net income and capital. The management and measurement of interest rate risk at AmeriServ
Financial 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 Companys Board of Directors on an ongoing basis.
29
The following table presents a summary of the Companys static GAP positions at December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
When December 31, 2008, is compared to December 31, 2007, the ratio of the cumulative GAP to
total assets through one year became more positive due to an anticipated increase in asset
prepayment speeds. While the Company does have a negative gap 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 Companys 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 Companys net
interest income and market value of portfolio equity. The interest rate scenarios in the table
compare the Companys 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 Companys 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 |
) |
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 limited net interest income variability in the increasing interest rate
scenarios. The market value of portfolio equity increases in the upward rate shocks due to improved
value of the Companys core deposit base. Negative variability of market value of portfolio equity
occurred in the downward rate shock due to a reduced value for core deposits.
30
Within the investment portfolio at December 31, 2008, 89% of the portfolio is classified as
available for sale and 11% as held to maturity. The available for sale classification provides
management with greater flexibility to manage the securities portfolio to better achieve overall
balance sheet rate sensitivity goals and provide liquidity to fund loan growth if needed. The mark
to market of the available for sale securities does inject more volatility in the book value of
equity, but has no impact on regulatory capital. There are 21 securities that are temporarily impaired at December 31, 2008. The Company reviews its
securities quarterly and has asserted that at December 31, 2008, the impaired value of securities
represents temporary declines due to movements in interest rates and the Company does have the
ability and intent to hold those securities to maturity or to allow a market recovery. Furthermore,
it is the Companys intent to manage its long-term interest rate risk by continuing to sell newly
originated fixed-rate 30-year mortgage loans into the secondary market. The Company also
periodically sells 15-year fixed rate mortgage loans into the secondary market as well. For the
year 2008, 65% of all residential mortgage loan production was sold into the secondary market.
The amount of loans outstanding by category as of December 31, 2008, 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 |
% |
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. . .The following table presents, as of December 31, 2008, 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 |
|
|
|
|
* |
|
Includes interest based upon interest rates in effect at December 31, 2008. Future changes in
market interest rates could materially affect contractual amounts to be paid. |
OFF BALANCE SHEET ARRANGEMENTS. . . The Bank 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 Companys 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 uses the same
31
credit and collateral policies in making commitments and conditional obligations as for all
other lending. The Company had various outstanding commitments to extend credit approximating
$112,192,000 and standby letters of credit of $13,064,000 as of December 31, 2008. The Company can
also 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. As of December 31, 2008, the Company had $18 million in interest
rate swaps outstanding.
CRITICAL ACCOUNTING POLICIES AND 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 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
Companys 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. Managements
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 managements judgment
concerning those trends.
Commercial
and commercial mortgage 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 million, or 82%, of the total allowance for loan losses at December 31,
2008 has been allotted 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 Companys core deposit base. These core deposit valuation updates are based upon specific data
provided from statistical analysis of the banks own deposit behavior to estimate the duration of
these non-maturity deposits combined with market interest rates and other economic factors.
32
Goodwill arising from business combinations represents the value attributable to
unidentifiable intangible elements in the business acquired. The Companys goodwill relates to
value inherent in the banking business and the value is dependent upon the Companys ability to
provide quality, cost-effective services in the face of free competition from other market
participants on a regional basis. This ability relies upon continuing investments in processing
systems, the development of value-added service features and the ease of use the Companys
services. As such, goodwill value is supported ultimately by revenue that is driven by the volume
of business transacted and the loyalty of the Companys deposit base over a longer time frame. The
quality and value of a Companys assets is also an important factor to consider when performing
goodwill impairment testing. A decline in earnings as a result of a lack of growth or the
inability to deliver cost-effective value added services over sustained periods can lead to
impairment of goodwill.
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 Companys testing in 2008 indicated that its goodwill was
not impaired. Core deposit intangibles that have a finite life will continue to be amortized over
their useful life and are also regularly evaluated for impairment.
As of December 31, 2008, goodwill and core deposit intangibles were 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
In accordance with the liability method of accounting for income taxes specified in Statement
of Financial Accounting Standards (FAS) #109, Accounting for Income Taxes 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 asset 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, 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 securitys performance, the creditworthiness of the issuer and
the Companys 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% of the
33
unrealized losses in the available-for-sale security portfolio were comprised of securities
issued by Government agencies, U.S. Treasury or Government sponsored agencies. The Company
believes the price movements in these securities are dependent upon the movement in market interest
rates. The Companys management also maintains the intent and ability to hold securities in an
unrealized loss position to the earlier of the recovery of losses or maturity.
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 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 company 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 Companys 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 of 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.
Each of the preceding charges has become the focus at AmeriServ, particularly in the three
major customer service, revenue generating areas.
|
1. |
|
THE RETAIL BANK this business unit had a successful 2008 and is eager to continue to
grow. It has a solid array of banking services that includes deposit gathering, consumer
lending and residential mortgages. With its broad distribution of community offices in its
primary market, this business unit provides a solid foundation for the company to grow from. |
|
|
2. |
|
COMMERCIAL LENDING this business unit is already in a growth mode. It has totally
revised procedures and has recruited an experienced professional staff. But it also has the
skills and energy to provide financial advice and counsel. The challenge is to shorten
response time, to eliminate bureaucracy and to always understand the needs of the customer.
This business unit has already proven its value with record loan production in each of the
past two years. The challenge is to maintain this momentum and to continue working to
maximize its potential. |
|
|
3. |
|
TRUST COMPANY the Trust Company has already proven its ability to grow its assets
under management along with its fees. It has restructured itself into a true 21st Century
business model which has improved its marketplace focus. It has a positive investment
performance record which enables it to excel in traditional trust functions such as wealth
management. But also, it has shown creativity in building a position of substance in the
vast world of union managed pension funds. Resources will continue to be channeled to the
Trust Company so that this kind of creativity can continue to lead to new opportunities.
Also, synergies need to be developed between the Trust Company and West Chester Capital
Advisors so that revenue growth can be further enhanced. |
This Form 10-K contains various forward-looking statements and includes assumptions concerning
the Companys 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 Companys control) which could cause
34
the actual results or events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions.
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 Companys 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
Companys 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 Companys
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 and
debtholders. 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 Companys 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
Companys 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 Companys financial instruments, see Interest Rate
Sensitivity in the MD&A presented on pages 30-32. The Companys principal market risk exposure is
to interest rates.
35
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERISERV FINANCIAL, INC.
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 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
36
AMERISERV FINANCIAL, INC.
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 |
|
See accompanying notes to consolidated financial statements.
37
AMERISERV FINANCIAL, INC.
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 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
AMERISERV FINANCIAL, INC.
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 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
AMERISERV FINANCIAL, INC.
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 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
AMERISERV FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 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 billion 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. 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 statements and accompanying notes. Actual results may differ
from these estimates and the differences may be material to the consolidated financial statements.
The Companys 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 managements intent and the Company has the ability to hold the securities until maturity.
These held to maturity securities are carried on the Companys 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 managements 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 Companys 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 securitys performance, the
creditworthiness of the issuer and the Companys intent and ability to hold the security to
recovery.
LOANS:
Interest income is recognized using methods which approximate a level yield related to
principal amounts outstanding. The Bank 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.
41
LOANS HELD FOR SALE:
Certain newly originated fixed-rate residential mortgage loans are classified as held for
sale, because it is managements 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 established for these criticized
and impaired loans is based on careful analysis of the loans 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 loans 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 mortgage loans
which are based upon historical net charge-off experience for those loan types. The
residential mortgage loan allocation is based upon the Companys five-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 Companys 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
42
and consumer loans. Individual loans within these pools are reviewed and evaluated for
specific impairment if factors such as significant delinquency in payments of 90 days or more,
bankruptcy, or other negative economic concerns indicate impairment.
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 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, requires a two-step process for testing the impairment of goodwill on at least an annual
basis. This approach could cause more volatility in the Companys 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, no 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, and 213,974
shares of common stock were outstanding during 2008, 2007 and 2006, respectively, but were not
included in the computation of diluted earnings per common share to do so would be anti-dilutive.
Exercise prices of options and warrant to purchase common stock outstanding were $2.40-$6.10,
$4.02-$6.10, and $4.86-$6.21 during 2008, 2007 and 2006, respectively. Dividends on preferred
shares are excluded from net income in the calculation of earnings per common share.
43
STOCK-BASED COMPENSATION:
On January 1, 2006, the Company adopted Statement 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). The Company recognized $7,000 and $12,000 of pretax compensation
expense for the year 2008 and 2007. 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%; expected lives of 10 years; expected
volatility ranging from 33.28% to 37.22% and expected dividend yields of 0%.
CONSOLIDATED STATEMENT OF CASH FLOWS:
On a consolidated basis, cash and cash equivalents include cash and due from banks, interest
bearing deposits with banks, federal funds sold and short-term investments in money market funds.
The Company made $200,000 in income tax payments in 2008; $138,000 in 2007; and $169,000 in 2006.
The Company made total interest payments of $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, the FASB issued FAS No. 141 (revised 2007), Business Combinations (FAS
141(R)), which establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements 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 Companys results of operations or financial position.
In February 2008, 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. Also in February 2008, the FASB 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.
The adoption of this standard is not expected to have a material effect on the Companys results
of operations or financial position.
44
In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. FAS No. 160 amends ARB No. 51 to establish
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary,
which is sometimes referred to as minority interest, is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial statements. Among other
requirements, this statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interest. FAS No.
160 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
Companys results of operations or financial position.
In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, to require enhanced disclosures about derivative instruments and hedging
activities. The new standard has revised financial reporting for derivative instruments and hedging
activities by requiring more transparency about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under FAS No. 133, Accounting
for Derivative Instruments and Hedging Activities; and how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and cash flows. FAS No.
161 requires disclosure of the fair values of derivative instruments and their gains and losses in
a tabular format. It also requires entities to provide more information about their liquidity by
requiring disclosure of derivative features that are credit risk-related. Further, it requires
cross-referencing within footnotes to enable financial statement users to locate important
information about derivative instruments. FAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with early application
encourage. The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life
of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing assumptions about renewal or extension used in estimating the useful life of a
recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets. This standard
is intended to improve the consistency between the useful life of a recognized intangible asset
under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset
under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. The measurement provisions of this standard will
apply only to intangible assets of the Company acquired after the effective date. The Company is
currently evaluating the impact the adoption of the FSP will have on the Companys results of
operations.
In December 2008, the FASB issued FASB Staff Position (FSP) No. FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets. This FSP amends FASB Statement No. 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, to improve
an employers disclosures about plan assets of a defined benefit pension or other postretirement
plan. The disclosures about plan assets required by the FSP are to be provided for fiscal years
ending after December 15, 2009. The adoption of this FSP is not expected to have a material effect
on the Companys results of operations or financial position.
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 2008 and 2007, included $587,000 and $9,107,000,
respectively, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Investment securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains and losses are calculated by the specific identification method.
Maintaining investment quality is a primary objective of the Companys investment policy
which, subject to certain limited exceptions, prohibits the purchase of any investment security
below a Moodys Investors Service or Standard & Poors rating of A. At December 31, 2008, 97.7% of
the portfolio was rated AAA as compared to 96.4% at December 31, 2007. Less than 1.0% of the
portfolio was rated below A or unrated on December 31, 2008. 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 at
December 31, 2008 and $146,365,000 at December 31, 2007. The Company realized $42,000 of gross
investment security gains and $137,000 of gross security losses for 2008 and no security gains or
losses on available for sale securities in 2007 or 2006. The Company realized no gross investment
security gains and losses on held to maturity securities in 2008, 2007 or 2006. On a net basis,
the realized losses amounted to $63,000 in 2008, after factoring in tax benefit of $32,000.
Proceeds from sales of investment securities available for sale were $25 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. Yields are not presented on a tax-equivalent basis, but
are based upon the cost basis and are weighted for the scheduled maturity. The Companys
consolidated investment securities portfolio had a modified duration of approximately 1.80 years.
The weighted average expected maturity for available for sale securities at December 31, 2008 for
U.S. Agency, U.S. Agency Mortgage-Backed, and other securities was 2.80, 16.84, and 1.0 years,
respectively. The weighted average expected maturity for held to maturity securities at December
31, 2008 for U.S. Treasury, U.S. Agency Mortgage-Backed and other securities was 1.17, 24.39 and
1.48 years.
46
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present information concerning investments with unrealized losses as of
December 31, 2008 (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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
The following tables present information concerning investments with unrealized losses as of
December 31, 2007 (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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fixed maturity investments with unrealized losses due to interest rates where the Company
has the positive intent and ability to hold the investment for a period of time sufficient to allow
a market recovery, declines in value below cost are not assumed to be other than temporary. There
are 21 positions that are temporarily impaired at December 31, 2008. The Company reviews its
position quarterly and has asserted that at December 31, 2008, the declines outlined 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 |
|
|
|
|
|
|
|
|
Real estate construction loans comprised 6.2% and 5.5% of total loans net of unearned income
at December 31, 2008 and 2007, respectively. The Company has no exposure to sub prime 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, 2008 and 2007, 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. 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 and
$4,729,000 at December 31, 2008 and 2007, 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
5. ALLOWANCE FOR LOAN LOSSES
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 |
|
|
|
|
|
|
|
|
|
|
|
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, and (iii)
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 |
|
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 and $3,778,000 being specifically
identified as impaired and a corresponding allocation reserve of $755,000 and $694,000 at December
31, 2008 and 2007, respectively. The average outstanding balance for loans being specifically
identified as impaired was $1,605,000 for 2008 and $3,907,000 for 2007. A majority of the impaired
loans are secured by sellable 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 2008, 2007 and 2006 was $123,000, $0 and
$34,000, respectively.
The following table sets forth, for the periods indicated, (i) 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) the amount of interest income actually recorded on such loans, and (iii) 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
7. PREMISES AND EQUIPMENT
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 |
|
|
|
|
|
|
|
|
The Company recorded depreciation expense of $1.5 million, $1.5 million and $1.7 million for
2008, 2007 and 2006, respectively.
8. DEPOSITS
The following table sets forth the balance of the Companys 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 |
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the balance of other time deposits and certificates of deposit
of $100,000 or more as of December 31, 2008 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
The maturities on certificates of deposit greater than $100,000 or more as of December 31,
2008, are as follows:
MATURING IN:
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
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 |
|
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 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, 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 |
|
|
|
|
|
|
|
|
|
The Companys subsidiary bank is a member of the FHLB which provides this subsidiary with the
opportunity to obtain short to longer-term advances based upon the banks investment in assets
secured by one- to four-family residential real estate. The rate on open repo plus advances, which
are typically overnight borrowings, can change daily, while the rate on the advances is fixed until
the maturity of the advance. All FHLB stock, along with an interest in certain mortgage loans and
mortgage-backed securities, with an aggregate statutory value equal to the amount of the advances,
are pledged as collateral to the FHLB of Pittsburgh to support these borrowings. At December 31,
2008, the bank had immediately available $183 million of overnight borrowing capability at the FHLB
and $10 million of unsecured federal funds lines with correspondent banks.
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 as of December 31, 2008 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, 2008 and 2007 was $13.1
million.
11. DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted the provisions of FAS No. 157, Fair Value
Measurements, for financial assets and financial liabilities. FAS No. 157 provides enhanced
guidance for using fair value to measure assets and liabilities. 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.
FAS No. 157 establishes a hierarchal disclosure framework associated with the level of pricing
observability utilized in measuring assets and liabilities at fair value. The three broad levels
defined by FAS No. 157 hierarchy are as follows:
|
|
|
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 managements 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
include dealer
quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit information and the bonds terms and
conditions, among other things. This applies to all available for sale securities except U.S.
Treasury and equity securities which are considered to be Level 1.
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 following table presents the assets reported on the balance sheet at their fair value as
of December 31, 2008, by level within the fair value hierarchy. As required by FAS No. 157,
financial 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 |
|
|
|
|
|
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, 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 |
|
|
|
|
|
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 nonrecurring fair value adjustments to reflect (1)
partial write-downs that are based on the observable market price or current appraised value of the
collateral, or (2) the full charge-off of the carrying value. All of the Companys impaired loans
are classified as level 2.
Other real estate owned (OREO) is measured at fair value, less cost to sell at the date of
foreclosure, 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.
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 Companys 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
Estimated fair values have been determined by the Company using independent third party
valuations that uses best available data (Level 2) and an estimation methodology (level 3) the
Company believes is suitable for each category of financial instruments. Management believes that
cash, cash equivalents, and loans and deposits with floating interest rates have estimated fair
values which approximate the recorded book balances. The estimation methodologies used, the
estimated fair values based off of FAS 157 measurements, and recorded book balances at December 31,
2008 and 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
The fair value of investment securities is equal to the available quoted market price.
The fair value of regulatory stock is equal to the current carrying value.
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 accrued income receivable is equal to the current carrying value.
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 short-term borrowings is equal to the current carrying value.
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 value of accrued interest payable is equal to the current carrying value.
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 Companys remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary under historical
cost accounting.
There is not a material difference between the notional amount and the estimated fair value of
the off-balance sheet items which total $112.2 million at December 31, 2008, and are primarily
comprised of unfunded loan commitments which are generally priced at market at the time of funding.
54
13. INCOME TAXES
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 |
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the federal statutory tax rate and the Companys 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 and 2007, 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, 2008, 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 |
) |
|
|
|
|
|
|
|
The Company has alternative minimum tax credit carryforwards of approximately $1.3 million at
December 31, 2008. These credits have an indefinite carryforward period. The Company also has an
$18.7 million net operating loss carryforward that will begin to expire in the year 2024.
55
The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement 109, effective January 1, 2007. FIN No. 48 prescribes a
recognition threshold and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax
positions should be recognized in the financial statements only when it is more likely than not
that the tax position will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information. A tax position that meets the
more-likely-than-not recognition threshold is measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should be recognized in
the first subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not recognition threshold should
be derecognized in the first subsequent financial reporting period in which that threshold is no
longer met. FIN No. 48 also provides guidance on the accounting for and disclosure of unrecognized
tax benefits, interest and penalties. The adoption of FIN No. 48 did not have a significant impact
on the Companys financial statements.
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 employees
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 and is limited to 10% of the plans
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 planunder 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
The weighted-average assumptions used to determine benefit obligations at December 31, 2008
and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss, prior service cost and transition asset for the defined benefit
pension plan that be will amortized from accumulated other comprehensive income (loss) into net
periodic benefit cost over the next year are $475,000, $11,000, and $(17,000), respectively.
The weighted-average assumptions used to determine net periodic benefit cost for the years
ended December 31, 2008, 2007 and 2006 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 |
|
The Company has assumed an 8% long-term expected return on plan assets. This assumption was
based upon the plans historical investment performance over a longer-term period of 15 years
combined with the plans investment objective of balanced growth and income. Additionally, this
assumption also incorporates a targeted range for equity securities of 50% to 60% of plan assets.
PLAN ASSETS:
The plans measurement date is December 31, 2008. This plans asset allocations at December
31, 2008 and 2007, 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 |
% |
|
|
|
|
|
|
|
|
|
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% 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
CASH FLOWS:
The Bank presently expects that the contribution to be made to the Plan in 2009 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 20142018
|
|
|
10,964 |
|
401(k) PLAN:
The Bank maintains a qualified 401(k) plan that allows for participation by Bank employees.
Under the plan, employees may elect to make voluntary, pretax contributions to their accounts, and
the Bank contributes 4% of salaries for union members who are in the plan. Contributions by the
Bank charged to operations were $226,000 and $218,000 for the years ended December 31, 2008 and
2007, respectively. The fair value of plan assets includes $266,000 pertaining to the value of the
Companys common stock that is 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 Companys obligation for future minimum lease payments on operating leases at December 31,
2008, is as follows:
|
|
|
|
|
|
|
FUTURE MINIMUM |
|
|
LEASE PAYMENTS |
YEAR |
|
(IN THOUSANDS) |
2009
|
|
$ |
613 |
|
2010
|
|
|
514 |
|
2011
|
|
|
431 |
|
2012
|
|
|
256 |
|
2013
|
|
|
172 |
|
2014 and thereafter
|
|
|
391 |
|
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 $514,000, $492,000 and $423,000, in 2008, 2007, and 2006, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank 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 Bank evaluates each customers 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 Bank 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 Banks commercial loans.
58
The Companys 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 uses the same credit and collateral policies in making commitments
and conditional obligations as for all other lending. At December 31, 2008 the Company had various
outstanding commitments to extend credit approximating $112,192,000 and standby letters of credit
of $13,064,000, compared to commitments to extend credit of $93,583,000 and standby letters of
credit of $7,884,000 at December 31, 2007. Standby letters of credit had terms ranging from 1 to 4
years. Standby letters of credit of approximately $10.1 million were secured as of December 31,
2008 and approximately $5.1 million at December 31, 2007. The carrying amount of the liability for
AmeriServ obligations related to standby letters of credit was $492,000 at December 31, 2008 and
$398,000 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 Companys 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) 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 Companys 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 surplus over the first three 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. Treasurys 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
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (FAS)
#123(R) Share-Based Payment using the modified perspective method. Under this method, awards
that are granted, modified, or settled after December 31, 2005, are measured and accounted for in
accordance with FAS #123(R). As a result of this adoption the Company recognized $7,000 of pretax
compensation expense for the year 2008, $12,000 in 2007 and $56,000 in 2006.
In 2001, the Companys 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.
59
A summary of the status of the Companys Stock Incentive Plan at December 31, 2008, 2007, and
2006, and changes during the years then ended is presented in the table and narrative following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
A total of 217,564 of the 232,009 options outstanding at December 31, 2008, have exercise
prices between $2.31 and $6.10, with a weighted average exercise price of $5.04 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 3.07 years. All of these options are exercisable. The
remaining 14,445 options have exercise prices between $2.85 and $4.60, with a weighted average
exercise price of $2.90 and a weighted average remaining contractual life of 9.22 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, 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% |
19. DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
The Companys 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,
the Company issued 37,534 shares and had 48,000 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 Companys consolidated balance sheet shows 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 Companys goodwill of $13.5 million, $9.5 million is
allocated to the retail banking segment and $4 million relates to the West Chester Capital Advisors
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
Companys goodwill had no impairment. The Companys only intangible asset, other than
goodwill, is its core deposit intangible, which has a remaining finite life of approximately two
months.
60
As of December 31, 2008, the Companys core deposit intangibles had an original cost of $17.6
million with accumulated amortization of $17.5 million. The weighted average amortization period of
the Companys core deposit intangibles at December 31, 2008, is two months. Estimated amortization
expense for 2009 is $108,000.
A reconciliation of the Companys intangible asset balances for 2008 and 2007 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 Companys 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 Companys 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 Companys
2008 performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
(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 |
) |
|
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|
|
|
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|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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 Companys 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
61
loans, and commercial real-estate loans. The trust segment has two primary business
divisions, traditional trust and union collective investment funds. Traditional trust 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 segment. The union
collective investment funds, namely the ERECT and BUILD Funds are designed to invest union pension
dollars in construction projects that utilize union labor. The financial results of WCCA, an
investment advisory firm, have been incorporated into the trust segment beginning March 7, 2007.
The investment/parent includes the net results of investment securities and borrowing activities,
general corporate expenses not allocated to the business segments, interest expense on guaranteed
junior subordinated deferrable interest debentures, and centralized interest rate risk management.
Inter-segment revenues were not material.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Companys assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Companys 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 Companys financial statements.
62
Quantitative measures established by regulation to ensure capital adequacy require the Company
to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital
to risk-weighted assets, and of Tier I capital to average assets. As of December 31, 2008 and 2007,
the Federal Reserve categorized the Company as Well Capitalized under the regulatory framework for
prompt corrective action. The Company believes that no conditions or events have occurred that
would change this conclusion. To be categorized as well capitalized, the Company must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
&n |