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EX-15.1 - REPORT OF S.R. SNODGRASS, A.C. RE UNAUDITED INTERIM FINANCIAL STATEMENT INFO. - AMERISERV FINANCIAL INC /PA/d233006dex151.htm
EX-15.2 - AWARENESS LETTER OF S.R. SNODGRASS, A.C. - AMERISERV FINANCIAL INC /PA/d233006dex152.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - AMERISERV FINANCIAL INC /PA/d233006dex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - AMERISERV FINANCIAL INC /PA/d233006dex322.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - AMERISERV FINANCIAL INC /PA/d233006dex321.htm
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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended September 30, 2011

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transaction period from              to             

Commission File Number 0-11204

 

 

AmeriServ Financial, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   25-1424278

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Main & Franklin Streets, P.O. Box 430, Johnstown, PA   15907-0430
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (814) 533-5300

 

 

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 1, 2011

Common Stock, par value $0.01   21,208,421

 

 

 


Table of Contents

AmeriServ Financial, Inc.

INDEX

 

     Page
No.
 
PART I. FINANCIAL INFORMATION:   

Item 1. Financial Statements

  

Consolidated Balance Sheets (Unaudited) - September 30, 2011 and December 31, 2010

     3   

Consolidated Statements of Operations (Unaudited) - Three and nine months ended September  30, 2011 and 2010

     4   

Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2011 and 2010

     5   

Notes to Unaudited Consolidated Financial Statements

     6   

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     27   

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     46   

Item 4. Controls and Procedures

     46   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     46   

Item 1A. Risk Factors

     46   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     47   

Item 3. Defaults Upon Senior Securities

     47   

Item 4. (Removed and Reserved)

     47   

Item 5. Other Information

     47   

Item 6. Exhibits

     47   

 

2


Table of Contents

Item 1. Financial Statements

AmeriServ Financial, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     September 30,
2011
    December 31,
2010
 

ASSETS

    

Cash and due from depository institutions

   $ 18,245      $ 14,160   

Interest bearing deposits

     13,244        1,716   

Short-term investments in money market funds

     4,697        3,461   
  

 

 

   

 

 

 

Cash and cash equivalents

     36,186        19,337   

Investment securities:

    

Available for sale

     185,277        164,811   

Held to maturity (fair value $11,150 on September 30, 2011 and $8,267 on December 31, 2010)

     10,507        7,824   

Loans held for sale

     4,163        7,405   

Loans

     663,663        671,253   

Less:           Unearned income

     417        477   

Allowance for loan losses

     16,069        19,765   
  

 

 

   

 

 

 

Net loans

     647,177        651,011   

Premises and equipment, net

     10,469        10,485   

Accrued income receivable

     3,176        3,210   

Goodwill

     12,613        12,950   

Bank owned life insurance

     35,127        34,466   

Net deferred tax asset

     12,390        16,058   

Federal Home Loan Bank stock

     6,202        7,233   

Federal Reserve Bank stock

     2,125        2,125   

Prepaid federal deposit insurance

     1,953        3,073   

Other assets

     6,074        8,986   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 973,439      $ 948,974   
  

 

 

   

 

 

 

LIABILITIES

    

Non-interest bearing deposits

   $ 148,080      $ 127,870   

Interest bearing deposits

     679,278        673,346   
  

 

 

   

 

 

 

Total deposits

     827,358        801,216   
  

 

 

   

 

 

 

Short-term borrowings

     0        4,550   

Advances from Federal Home Loan Bank

     9,707        9,750   

Guaranteed junior subordinated deferrable interest debentures

     13,085        13,085   
  

 

 

   

 

 

 

Total borrowed funds

     22,792        27,385   
  

 

 

   

 

 

 

Other liabilities

     9,125        13,315   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     859,275        841,916   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Preferred stock, no par value; $1,000 per share liquidation preference; 2,000,000 shares authorized; 21,000 shares issued and outstanding on September 30, 2011 and December 31, 2010.

     21,000        20,669   

Common stock, par value $0.01 per share; 30,000,000 shares authorized; 26,397,040 shares issued and 21,208,421 outstanding on September 30, 2011; 26,396,289 shares issued and 21,207,670 outstanding on December 31, 2010

     264        264   

Treasury stock at cost, 5,188,619 shares on September 30, 2011 and December 31, 2010

     (68,659     (68,659

Capital surplus

     145,059        145,045   

Retained earnings

     18,249        14,601   

Accumulated other comprehensive loss, net

     (1,749     (4,862
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     114,164        107,058   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 973,439      $ 948,974   
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

    

Three months ended

    

Nine months ended

 
     September 30,
2011
    September 30,
2010
     September 30,
2011
    September 30,
2010
 

INTEREST INCOME

       

Interest and fees on loans

   $ 8,888      $ 9,592       $ 26,775      $ 29,596   

Interest bearing deposits

     4        0         4        1   

Short-term investments in money market funds

     2        5         7        12   

Federal funds sold

     0        2         7        4   

Investment securities:

       

Available for sale

     1,499        1,354         4,527        4,029   

Held to maturity

     99        107         298        333   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Interest Income

     10,492        11,060         31,618        33,975   
  

 

 

   

 

 

    

 

 

   

 

 

 

INTEREST EXPENSE

       

Deposits

     2,038        2,668         6,438        8,428   

Short-term borrowings

     1        2         3        15   

Advances from Federal Home Loan Bank

     55        87         167        340   

Guaranteed junior subordinated deferrable interest debentures

     280        280         840        840   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Interest Expense

     2,374        3,037         7,448        9,623   
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME

     8,118        8,023         24,170        24,352   

Provision (credit) for loan losses

     (550     1,000         (2,325     5,250   
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES

     8,668        7,023         26,495        19,102   
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST INCOME

       

Trust fees

     1,570        1,357         4,743        4,184   

Investment advisory fees

     172        171         568        525   

Net realized (losses) gains on investment securities

     0        50         (358     157   

Net gains on loans held for sale

     186        278         603        568   

Service charges on deposit accounts

     640        565         1,661        1,748   

Bank owned life insurance

     227        260         661        772   

Other income

     729        832         2,205        2,247   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Non-Interest Income

     3,524        3,513         10,083        10,201   
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-INTEREST EXPENSE

       

Salaries and employee benefits

     5,702        5,415         16,776        15,850   

Net occupancy expense

     680        620         2,179        1,995   

Equipment expense

     435        401         1,275        1,246   

Professional fees

     983        1,034         2,874        3,250   

Supplies, postage and freight

     203        227         662        768   

Miscellaneous taxes and insurance

     344        345         1,024        1,052   

Federal deposit insurance expense

     262        430         1,184        1,102   

Other expense

     1,273        1,302         3,704        4,061   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Non-Interest Expense

     9,882        9,774         29,678        29,324   
  

 

 

   

 

 

    

 

 

   

 

 

 

PRETAX INCOME (LOSS)

     2,310        762         6,900        (21

Provision for income tax expense (benefit)

     744        153         2,133        (189
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME

     1,566        609         4,767        168   

Preferred stock dividends and accretion of preferred stock discount

     539        291         1,119        872   
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

   $ 1,027      $ 318       $ 3,648      $ (704
  

 

 

   

 

 

    

 

 

   

 

 

 

PER COMMON SHARE DATA:

       

Basic:

       

Net income (loss)

   $ 0.05      $ 0.02       $ 0.17      $ (0.03

Average number of shares outstanding

     21,208        21,224         21,208        21,224   

Diluted:

       

Net income (loss)

   $ 0.05      $ 0.02       $ 0.17      $ (0.03

Average number of shares outstanding

     21,227        21,225         21,231        21,229   

Cash dividends declared

   $ 0.00      $ 0.00       $ 0.00      $ 0.00   

See accompanying notes to unaudited consolidated financial statements.

 

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Table of Contents

AmeriServ Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Nine months ended  
     September 30,
2011
    September 30,
2010
 

OPERATING ACTIVITIES

  

Net income

   $ 4,767      $ 168   

Adjustments to reconcile net income to net cash provided by operating activities:

  

Provision (credit) for loan losses

     (2,325     5,250   

Depreciation expense

     1,098        1,065   

Net amortization of investment securities

     463        245   

Net realized losses (gains) on investment securities available for sale

     358        (157

Net gains on loans held for sale

     (603     (568

Amortization of deferred loan fees

     (182     (324

Origination of mortgage loans held for sale

     (39,021     (44,090

Sales of mortgage loans held for sale

     42,866        43,023   

Decrease in accrued interest income receivable

     34        49   

Decrease in accrued interest expense payable

     (928     (924

Earnings on bank owned life insurance

     (661     (772

Deferred income taxes

     3,668        (666

Stock based compensation expense

     14        55   

Decrease in prepaid Federal Deposit Insurance

     1,120        1,022   

Net decrease (increase) in other assets

     2,893        (480

Net decrease in other liabilities

     (3,265     (749
  

 

 

   

 

 

 

Net cash provided by operating activities

     10,296        2,147   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

  

Purchases of investment securities – available for sale

     (73,542     (74,353

Purchases of investment securities – held to maturity

     (3,991     (1,123

Proceeds from sales of investment securities – available for sale

     16,518        2,742   

Proceeds from maturities of investment securities – available for sale

     39,745        48,081   

Proceeds from maturities of investment securities – held to maturity

     1,313        4,311   

Proceeds from redemption of regulatory stock

     1,031        0   

Long-term loans originated

     (98,583     (63,146

Principal collected on long-term loans

     113,424        88,846   

Loans purchased or participated

     (8,500     (3,845

Sale of other real estate owned

     797        735   

Purchases of premises and equipment

     (1,081     (2,651
  

 

 

   

 

 

 

Net cash used in investing activities

     (12,869     (403
  

 

 

   

 

 

 

FINANCING ACTIVITIES

  

Net increase in deposit accounts

     24,803        32,251   

Net decrease in other short-term borrowings

     (4,550     (23,420

Principal borrowings on advances from Federal Home Loan Bank

     0        34,000   

Principal repayments on advances from Federal Home Loan Bank

     (43     (49,040

Preferred stock dividends

     (788     (788
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     19,422        (6,997
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     16,849        (5,253

CASH AND CASH EQUIVALENTS AT JANUARY 1

     19,337        26,308   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30

   $ 36,186      $ 21,055   
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5


Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AmeriServ Financial, Inc. (the Company) and its wholly-owned subsidiaries, AmeriServ Financial Bank (Bank), AmeriServ Trust and Financial Services Company (Trust Company), and AmeriServ Life Insurance Company (AmeriServ Life). The Bank is a state-chartered full service bank with 18 locations in Pennsylvania. The Trust Company offers a complete range of trust and financial services and administers assets valued at $1.3 billion that are not recognized on the Company’s balance sheet at September 30, 2011. AmeriServ Life is a captive insurance company that engages in underwriting as a reinsurer of credit life and disability insurance.

In addition, the Parent Company is an administrative group that provides support in such areas as audit, finance, investments, loan review, general services, and marketing. Significant intercompany accounts and transactions have been eliminated in preparing the consolidated financial statements.

 

2. Basis of Preparation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments consisting only of normal recurring entries considered necessary for a fair presentation have been included. They are not, however, necessarily indicative of the results of consolidated operations for a full-year.

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

3. Accounting Policies

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this Update provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company has provided the necessary disclosures in Note 10.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other

 

6


Table of Contents

comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments in this Update should be applied retrospectively, and early adoption is permitted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other Topics (Topic 350), Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this Update apply to all entities, both public and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

4. 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 warrants to purchase 1,478,417 common shares, at exercise prices ranging from $2.20 to $6.10, and 1,453,142 common shares, at exercise prices ranging from $1.77 to $6.10, were outstanding as of September 30, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per common share because to do so would be antidilutive. Options to purchase 144,195 common shares at exercise prices ranging from $1.53 to $2.07 were outstanding as of September 30, 2011, and were included in the computation of dilutive earnings per common share. Dividends and accretion of discount on preferred shares are deducted from net income in the calculation of earnings per common share.

 

7


Table of Contents
    

Three months ended

September 30,

    

Nine months ended

September 30,

 
     2011      2010      2011      2010  
     (In thousands, except per share data)  

Numerator:

           

Net income

   $ 1,566       $ 609       $ 4,767       $ 168   

Preferred stock dividends and accretion of preferred stock discount

     539         291         1,119         872   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to common shareholders

   $ 1,027       $ 318       $ 3,648       $ (704
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted average common shares outstanding (basic)

     21,208         21,224         21,208         21,224   

Effect of stock options/warrants

     19         1         23         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding (diluted)

     21,227         21,225         21,231         21,229   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (Loss) per common share:

           

Basic

   $ 0.05       $ 0.02       $ 0.17       $ (0.03

Diluted

     0.05         0.02         0.17         (0.03

 

5. Comprehensive Income

For the Company, comprehensive income includes net income and unrealized holding gains and losses from available for sale investment securities and the pension obligation change for the defined benefit plan. The changes in other comprehensive income are reported net of income taxes, as follows (in thousands):

 

     Three months ended     Nine months ended  
     September 30,     September 30,  
     2011     2010     2011     2010  

Net income

   $ 1,566      $ 609      $ 4,767      $ 168   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

        

Pension obligation change for defined benefit plan

     201        142        707        426   

Income tax effect

     (69     (48     (240     (145

Reclassification adjustment for (gains) losses on available for sale securities included in net (income) loss

     —          (50     358        (157

Income tax effect

     —          16        (123     52   

Unrealized holding gains on available for sale securities arising during period

     1,995        (81     3,656        2,314   

Income tax effect

     (679     27        (1,245     (787
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     1,448        6        3,113        1,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 3,014      $ 615      $ 7,880      $ 1,871   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

6. Consolidated Statement of Cash Flows

On a consolidated basis, cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits, federal funds sold and short-term investments in money market funds. The Company made $69,000 in income tax payments in the first nine months of 2011 as compared to $170,000 for the first nine months of 2010. The Company made total interest payments of $8,376,000 in the first nine months of 2011 compared to $10,547,000 in the same 2010 period.

 

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Table of Contents
7. Investment Securities

The cost basis and fair values of investment securities are summarized as follows (in thousands):

Investment securities available for sale (AFS):

 

     September 30, 2011  
     Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

U.S. Agency

   $ 8,568       $ 47       $ (21   $ 8,594   

U.S. Agency mortgage- backed securities

     169,567         7,122         (6     176,683   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 178,135       $ 7,169       $ (27   $ 185,277   
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities held to maturity (HTM):

 

     September 30, 2011  
     Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

U.S. Agency mortgage- backed securities

   $ 7,507       $ 654       $ —        $ 8,161   

Other securities

     3,000         —           (11     2,989   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 10,507       $ 654       $ (11   $ 11,150   
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities available for sale (AFS):

 

     December 31, 2010  
     Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

U.S. Agency

   $ 15,956       $ 57       $ (69   $ 15,944   

U.S. Agency mortgage- backed securities

     145,727         3,714         (574     148,867   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 161,683       $ 3,771       $ (643   $ 164,811   
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities held to maturity (HTM):

 

     December 31, 2010  
     Cost
Basis
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

U.S. Agency mortgage- backed securities

   $ 6,824       $ 452       $ —        $ 7,276   

Other securities

     1,000         —           (9     991   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 7,824       $ 452       $ (9   $ 8,267   
  

 

 

    

 

 

    

 

 

   

 

 

 

Maintaining investment quality is a primary objective of the Company’s investment policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s Investor’s Service or Standard & Poor’s rating of “A.” At September 30, 2011 and December 31, 2010, 98.4% of the portfolio was rated “AAA”. None of the portfolio was rated below “A” or unrated at September 30, 2011. At September 30, 2011, the Company’s consolidated investment securities portfolio had a modified duration of approximately 1.55 years. Total proceeds from the sale of AFS securities were $16.5 million in the first nine months of 2011 compared to $2.7 million for the first nine months of 2010. The gross losses on investment security sales in the first nine months of 2011 were $358,000 compared to $157,000 of gross investment security gains for the first nine months of 2010.

 

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Table of Contents

The following tables present information concerning investments with unrealized losses as of September 30, 2011 and December 31, 2010 (in thousands):

Investment securities available for sale:

 

     September 30, 2011  
     Less than 12 months     12 months or longer      Total  
     Fair      Unrealized     Fair      Unrealized      Fair      Unrealized  
     Value      Losses     Value      Losses      Value      Losses  

U.S. Agency

   $ 5,047       $ (21   $ —         $ —         $ 5,047       $ (21

U.S. Agency mortgage-backed securities

     721         (6     —           —           721         (6
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,768       $ (27   $ —         $ —         $ 5,768       $ (27
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held to maturity:

 

     September 30, 2011  
     Less than 12 months     12 months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  

Other securities

   $ 1,990       $ (10   $ 999       $ (1   $ 2,989       $ (11
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,990       $ (10   $ 999       $ (1   $ 2,989       $ (11
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Investment securities available for sale:

 

     December 31, 2010  
     Less than 12 months     12 months or longer      Total  
     Fair      Unrealized     Fair      Unrealized      Fair      Unrealized  
     Value      Losses     Value      Losses      Value      Losses  

U.S. Agency

   $ 4,204       $ (69   $ —         $ —         $ 4,204       $ (69

U.S. Agency mortgage-backed securities

     38,202         (574     —           —           38,202         (574
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 42,406       $ (643   $ —         $ —         $ 42,406       $ (643
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held to maturity:

 

     December 31, 2010  
     Less than 12 months      12 months or longer     Total  
     Fair      Unrealized      Fair      Unrealized     Fair      Unrealized  
     Value      Losses      Value      Losses     Value      Losses  

Other securities

   $ —         $ —         $ 991       $ (9   $ 991       $ (9
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ —         $ —         $ 991       $ (9   $ 991       $ (9
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

The unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields fall, the fair value of securities will increase. There are five positions that are considered temporarily impaired at September 30, 2011. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, we do not intend to sell these securities and do not believe we will be required to sell these securities before they recover in value.

Contractual maturities of securities at September 30, 2011, are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties.

 

Maturity    Available for Sale      Held to Maturity  
     Cost
Basis
     Fair
Value
     Cost
Basis
     Fair
Value
 

0-1 year

   $ —         $ —         $ 1,000       $ 999   

1-5 years

     8,568         8,594         2,000         1,990   

5-10 years

     16,606         17,600         —           —     

10-15 years

     77,922         80,891         —           —     

Over 15 years

     75,039         78,192         7,507         8,161   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 178,135       $ 185,277       $ 10,507       $ 11,150   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
8. Loans

The loan portfolio of the Company consists of the following (in thousands):

 

     September 30,
2011
     December 31,
2010
 

Commercial

   $ 78,626       $ 78,322   

Commercial loans secured by real estate

     356,718         369,904   

Real estate – mortgage

     209,430         203,317   

Consumer

     18,472         19,233   
  

 

 

    

 

 

 

Loans, net of unearned income

   $ 663,246       $ 670,776   
  

 

 

    

 

 

 

Loan balances at September 30, 2011 and December 31, 2010 are net of unearned income of $417,000 and $477,000, respectively.

Real estate-construction loans comprised 2.2%, and 3.9% of total loans, net of unearned income, at September 30, 2011 and December 31, 2010, respectively. The Company has no exposure to sub prime mortgage loans in either the loan or investment portfolios.

 

9. Allowance for Loan Losses

An analysis of the changes in the allowance for loan losses follows (in thousands, except ratios):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Balance at beginning of period

   $ 16,958      $ 20,737      $ 19,765      $ 19,685   

Charge-offs:

    

Commercial

     —          (277     (942     (482

Commercial loans secured by real estate

     (646     (645     (1,284     (3,596

Real estate-mortgage

     (5     (87     (45     (245

Consumer

     (42     (78     (152     (212
  

 

 

   

 

 

   

 

 

   

 

 

 

Total charge-offs

     (693     (1,087     (2,423     (4,535
  

 

 

   

 

 

   

 

 

   

 

 

 

Recoveries:

    

Commercial

     292        63        816        216   

Commercial loans secured by real estate

     10        1        76        38   

Real estate-mortgage

     17        18        43        23   

Consumer

     35        21        117        76   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total recoveries

     354        103        1,052        353   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (339     (984     (1,371     (4,182

Provision (credit) for loan losses

     (550     1,000        (2,325     5,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 16,069      $ 20,753      $ 16,069      $ 20,753   
  

 

 

   

 

 

   

 

 

   

 

 

 

As a percent of average loans and loans held for sale, net of unearned income:

        

Annualized net charge-offs

     0.20     0.56     0.28     0.79

Annualized provision (credit) for loan losses

     (0.33     0.57        (0.47     0.99   

Allowance as a percent of loans and loans held for sale, net of unearned income at period end

     2.41        2.97        2.41        2.97   

 

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Table of Contents

The following tables summarize the rollforward of the allowance for loan loss by portfolio segment (in thousands).

 

     Balance at
December 31,
2010
     Charge-
Offs
    Recoveries      Provision
(Credit)
    Balance at
September 30,
2011
 

Commercial

   $ 3,851       $ (942   $ 816       $ 735      $ 4,460   

Commercial loans secured by real estate

     12,717         (1,284     76         (3,017     8,492   

Real estate- mortgage

     1,117         (45     43         222        1,337   

Consumer

     206         (152     117         25        196   

Allocation for general risk

     1,874         —          —           (290     1,584   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 19,765       $ (2,423   $ 1,052       $ (2,325   $ 16,069   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The following tables summarize the primary segments of the loan portfolio (in thousands).

 

     At September 30, 2011  
     Commercial      Commercial
Loans
Secured By
Real Estate
     Real
Estate-
Mortgage
     Consumer      Total  

Individually evaluated for impairment

   $ 24       $ 4,273       $ —         $ —         $ 4,297   

Collectively evaluated for impairment

     78,602         352,445         209,430         18,472         658,949   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 78,626       $ 356,718       $ 209,430       $ 18,472       $ 663,246   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At September 30, 2011  
     Commercial      Commercial
Loans
Secured By
Real Estate
     Real
Estate-
Mortgage
     Consumer      Allocation
for
General
Risk
     Total  

Specific reserve allocation

   $ —         $ 1,208       $ —         $ —         $ —         $ 1,208   

General reserve allocation

     4,460         7,284         1,337         196         1,584         14,861   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 4,460       $ 8,492       $ 1,337       $ 196       $ 1,584       $ 16,069   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2010  
     Commercial      Commercial
Loans
Secured By
Real Estate
     Real
Estate-
Mortgage
     Consumer      Total  

Individually evaluated for impairment

   $ 4,065       $ 8,082       $ —         $ —         $ 12,147   

Collectively evaluated for impairment

     74,257         361,822         203,317         19,233         658,629   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 78,322       $ 369,904       $ 203,317       $ 19,233       $ 670,776   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2010  
     Commercial      Commercial
Loans
Secured By
Real Estate
     Real
Estate-
Mortgage
     Consumer      Allocation
for
General
Risk
     Total  

Specific reserve allocation

   $ 1,905       $ 1,901       $ —         $ —         $ —         $ 3,806   

General reserve allocation

     1,946         10,816         1,117         206         1,874         15,959   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 3,851       $ 12,717       $ 1,117       $ 206       $ 1,874       $ 19,765   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The overall risk profile for the commercial loan segment is driven by non-owner occupied commercial real estate (CRE) loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, as the majority of the commercial portfolio is centered in these types of accounts. The residential mortgage loan segment is comprised of first lien amortizing residential mortgage loans and home equity loans. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates for possible impairment any individual loan in the commercial segment with a loan balance in excess of $100,000 that is in nonaccrual status or classified as a Troubled Debt Restructure (TDR). Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment

 

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Table of Contents

include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a TDR agreement.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs for collateral dependent loans. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The need for an updated appraisal on collateral dependent loans is determined on a case by case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for loan losses. At a minimum, annual documented reevaluation of the property is completed by the bank’s Assigned Risk department to support the value of the property.

When reviewing an appraisal associated with an existing real estate transaction, the Assigned Risk department must determine if there have been material changes to the underlying assumptions in the appraisal which affect the original estimate of value. Some of the factors that could cause material changes to reported values include:

 

   

the passage of time;

 

   

the volatility of the local market;

 

   

the availability of financing;

 

   

natural disasters;

 

   

the inventory of competing properties;

 

   

new improvements to, or lack of maintenance of, the subject property or competing properties upon physical inspection by the bank;

 

   

changes in underlying economic and market assumptions, such as material changes in current and projected vacancy, absorption rates, capitalization rates, lease terms, rental rates, sales prices, concessions, construction overruns and delays, zoning changes, etc.; and

 

   

environmental contamination.

The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced or distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Assigned Risk department

 

13


Table of Contents

personnel determine that a reasonable value cannot be derived based on available information, a new appraisal is ordered. The determination of the need for a new appraisal, versus completion of a property valuation by the bank’s Assigned Risk department personnel rests with the Assigned Risk department and not the originating account officer.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands).

 

     September 30, 2011  
     Impaired Loans with
Specific Allowance
     Impaired
Loans
with No
Specific
Allowance
     Total Impaired Loans  
     Recorded
Investment
     Related
Allowance
     Recorded
Investment
     Recorded
Investment
     Unpaid
Principal
Balance
 

Commercial

   $ —         $ —         $ 24       $ 24       $ 731   

Commercial loans secured by real estate

     2,937         1,208         1,336         4,273         5,111   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 2,937       $ 1,208       $ 1,360       $ 4,297       $ 5,842   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2010  
     Impaired Loans with
Specific Allowance
     Impaired
Loans
with No
Specific
Allowance
     Total Impaired Loans  
     Recorded
Investment
     Related
Allowance
     Recorded
Investment
     Recorded
Investment
     Unpaid
Principal
Balance
 

Commercial

   $ 4,041       $ 1,905       $ 24       $ 4,065       $ 4,842   

Commercial loans secured by real estate

     4,938         1,901         3,144         8,082         8,341   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 8,979       $ 3,806       $ 3,168       $ 12,147       $ 13,183   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands).

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2011      2010      2011      2010  

Average investment in impaired loans

   $ 5,857       $ 20,417       $ 8,222       $ 19,085   

Interest income recognized on a cash basis on impaired loans

     —           169         173         464   

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized. The first five “Pass” categories are aggregated, while the Pass 6, Special Mention, Substandard and Doubtful categories are disaggregated to separate pools. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due, or for which any portion of the loan represents a specific allocation of the allowance for loan losses are placed in Substandard or Doubtful.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process, which dictates that, at a minimum, credit reviews are mandatory for all commercial and commercial mortgage loan relationships with aggregate balances in excess of $250,000 within a 12-month period. Generally, consumer and residential mortgage loans are included

 

14


Table of Contents

in the Pass categories unless a specific action, such as bankruptcy, delinquency, or death occurs to raise awareness of a possible credit event. The Company’s commercial relationship managers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. Risk ratings are assigned by the account officer, but require independent review and rating concurrence from the Company’s internal Loan Review Department. The Loan Review Department is an experienced independent function which reports directly to the Board Audit Committee. The scope of commercial portfolio coverage by the Loan Review Department is defined and presented to the Audit Committee for approval on an annual basis. The anticipated scope of coverage for 2011 requires a minimum range-of-coverage of 60% to 70% of the commercial loan portfolio.

In addition to loan monitoring by the account officer and Loan Review Department, the Company also requires presentation of all credits rated Pass-6 with aggregate balances greater than $1,000,000, all credits rated Special Mention or Substandard with aggregate balances greater than $250,000, and all credits rated Doubtful with aggregate balances greater than $100,000 on an individual basis to the Company’s Loan Loss Reserve Committee on a quarterly basis.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands).

 

$000,000 $000,000 $000,000 $000,000 $000,000
     September 30, 2011  
     Pass      Special
Mention
     Substandard      Doubtful      Total  

Commercial

   $ 75,391       $ 192       $ 3,043       $ —         $ 78,626   

Commercial loans secured by real estate

     307,721         26,850         21,652         495         356,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 383,112       $ 27,042       $ 24,695       $ 495       $ 435,344   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

$000,000 $000,000 $000,000 $000,000 $000,000
     December 31, 2010  
     Pass      Special
Mention
     Substandard      Doubtful      Total  

Commercial

   $ 61,961       $ 8,797       $ 5,793       $ 1,771       $ 78,322   

Commercial loans secured by real estate

     306,555         33,165         29,754         430         369,904   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 368,516       $ 41,962       $ 35,547       $ 2,201       $ 448,226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

It is the policy of the bank that the outstanding balance of any residential mortgage loan that exceeds 90-days past due as to principal and/or interest is transferred to non-accrual status and an evaluation is completed to determine the fair value of the collateral less selling costs. A charge down is recorded for any deficiency balance determined from the collateral evaluation. The remaining non-accrual balance is reported as impaired with no specific allowance. It is the policy of the bank that the outstanding balance of any consumer loan that exceeds 90-days past due as to principal and/or interest is charged off. The following tables present the performing and non-performing outstanding balances of the residential and consumer portfolios (in thousands).

 

     September 30, 2011  
     Performing      Non-performing  

Real estate-mortgage

   $ 208,091       $ 1,339   

Consumer

     18,472         —     
  

 

 

    

 

 

 

Total

   $ 226,563       $ 1,339   
  

 

 

    

 

 

 

 

     December 31, 2010  
     Performing      Non-performing  

Real estate-mortgage

   $ 201,438       $ 1,879   

Consumer

     19,233         —     
  

 

 

    

 

 

 

Total

   $ 220,671       $ 1,879   
  

 

 

    

 

 

 

 

15


Table of Contents

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands).

 

    September 30, 2011  
    Current     30-59
Days
Past
Due
    60-89
Days
Past
Due
    90 Days
Past  Due

And
Accruing
    Total
Past
Due
    Non-Accrual     Total
Loans
 

Commercial

  $ 78,602      $ —        $ —        $ —        $ —        $ 24      $ 78,626   

Commercial loans secured by real estate

    352,399        655        —          —          655        3,664        356,718   

Real estate-mortgage

    205,477        2,268        346        —          2,614        1,339        209,430   

Consumer

    18,443        —          29        —          29        —          18,472   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 654,921      $ 2,923      $ 375      $ —        $ 3,298      $ 5,027      $ 663,246   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2010  
    Current     30-59
Days
Past
Due
    60-89
Days
Past
Due
    90 Days
Past Due
And
Accruing
    Total
Past
Due
    Non-Accrual     Total
Loans
 

Commercial

  $ 74,643      $ —        $ —        $ —        $ —        $ 3,679      $ 78,322   

Commercial loans secured by real estate

    362,890        283        —          —          283        6,731        369,904   

Real estate-mortgage

    199,003        1,892        543        —          2,435        1,879        203,317   

Consumer

    19,160        29        44        —          73        —          19,233   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 655,696      $ 2,204      $ 587      $ —        $ 2,791      $ 12,289      $ 670,776   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.

Management tracks the historical net charge-off activity at each risk rating grade level for the entire commercial portfolio and at the aggregate level for the consumer, residential mortgage and small business portfolios. A historical charge-off factor is calculated utilizing a rolling 12 consecutive historical quarters for the commercial portfolios. This historical charge-off factor for the consumer, residential mortgage and small business portfolios are based on a three year historical average of actual loss experience.

The Company uses a comprehensive methodology and procedural discipline to maintain an ALL to absorb inherent losses in the loan portfolio. The Company believes this is a critical accounting policy since it involves significant estimates and judgments. The allowance consists of three elements: 1) an allowance established on specifically identified problem loans, 2) formula driven general reserves established for loan categories based upon historical loss experience and other qualitative factors which include delinquency and non-performing loan trends, economic trends, concentrations of credit, trends in loan volume, experience and depth of management, examination and audit results, effects of any changes in lending policies, and trends in policy, financial information, and documentation exceptions, and 3) a general risk reserve which provides support for variance from our assessment of the previously listed qualitative factors, provides protection against credit risks resulting from other inherent risk factors contained in the Company’s loan portfolio, and

 

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recognizes the model and estimation risk associated with the specific and formula driven allowances. The qualitative factors used in the formula driven general reserves are evaluated quarterly (and revised if necessary) by the Company’s management to establish allocations which accommodate each of the listed risk factors.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

 

10. Non-performing Assets Including Trouble Debt Restructurings

The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):

 

     September 30,
2011
    December 31,
2010
 

Non-accrual loans

    

Commercial

   $ 24      $ 3,679   

Commercial loans secured by real estate

     3,664        6,731   

Real estate-mortgage

     1,339        1,879   
  

 

 

   

 

 

 

Total

     5,027        12,289   
  

 

 

   

 

 

 

Other real estate owned

    

Commercial loans secured by real estate

     —          436   

Real estate-mortgage

     4        302   
  

 

 

   

 

 

 

Total

     4        738   
  

 

 

   

 

 

 

Total restructured loans not in non-accrual (TDR)

     313        1,337   
  

 

 

   

 

 

 

Total non-performing assets including TDR

   $ 5,344      $ 14,364   
  

 

 

   

 

 

 

Total non-performing assets as a percent of loans and loans held for sale, net of unearned income, and other real estate owned

     0.80     2.12

Consistent with accounting and regulatory guidance, the bank recognizes a TDR when the bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the bank’s objective in offering a troubled debt restructure is to increase the probability of repayment of the borrower’s loan.

To be considered a TDR, both of the following criteria must be met:

 

 

the borrower must be experiencing financial difficulties; and

 

 

the bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would not otherwise be considered.

Factors that indicate a borrower is experiencing financial difficulties include, but are not limited to:

 

 

the borrower is currently in default on their loan(s);

 

 

the borrower has filed for bankruptcy;

 

 

the borrower has insufficient cash flows to service their loan(s); and

 

 

the borrower is unable to obtain refinancing from other sources at a market rate similar to rates available to a non-troubled debtor.

 

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Factors that indicate that a concession has been granted include, but are not limited to:

 

 

the borrower is granted an interest rate reduction to a level below market rates for debt with similar risk; or

 

 

the borrower is granted a material maturity date extension, or extension of the amortization plan to provide payment relief. For purposes of this policy, a material maturity date extension will generally include any maturity date extension, or the aggregate of multiple consecutive maturity date extensions, that exceed 120 days. A restructuring that results in an insignificant delay in payment, i.e. 120 days or less, is not necessarily a TDR. Insignificant payment delays occur when the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value, and will result in an insignificant shortfall in the originally scheduled contractual amount due, and/or the delay in timing of the restructured payment period is insignificant relative to the frequency of payments, the original maturity or the original amortization.

The determination of whether a restructured loan is a TDR requires consideration of all of the facts and circumstances surrounding the modification. No single factor is determinative of whether a restructuring is a TDR. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean that the borrower is experiencing financial difficulty. Accordingly, determination of whether a modification is a TDR involves a large degree of judgment.

Any loan modification where the borrower’s aggregate exposure is at least $250,000 and where the loan currently maintains a criticized or classified risk rating, i.e. OLEM, Substandard or Doubtful, or where the loan will be assigned a criticized or classified rating after the modification is evaluated to determine the need for TDR classification.

The following table details the TDRs that were granted during the quarter ending September 30, 2011 (dollars in thousands).

 

Loans in non-accrual status

   # of
Loans
   Current
Balance
    

Concession Granted

Commercial loan secured by real estate

   1    $ 1,130      

Extension of maturity date

The following table details the TDRs that were granted during the nine month period ending at September 30, 2011 (dollars in thousands).

 

Loans in accrual status

   # of
Loans
   Current
Balance
    

Concession Granted

Commercial loan secured by real estate

   1    $ 313      

Extension of maturity date

 

Loans in non-accrual status

   # of
Loans
   Current
Balance
    

Concession Granted

Commercial loan secured by real estate

   3    $ 2,129      

Extension of maturity date

The following table details the TDRs at December 31, 2010 (dollars in thousands).

 

Loans in accrual status

   # of
Loans
   Current
Balance
    

Concession Granted

Commercial loan secured by real estate

   2    $ 1,337      

Extension of maturity date

 

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In all instances where loans have been modified in troubled debt restructurings the pre- and post-modified balances are the same.

Once a loan is classified as a TDR, this classification will remain until documented improvement in the financial position of the account supports confidence that all principal and interest will be paid according to terms. Additionally, the customer must have re-established a track record of timely payments according to the restructured contract terms for a minimum of six (6) consecutive months prior to consideration for removing the loan from TDR status. However, a loan will continue to be on non-accrual status until, consistent with our policy, the borrower has made a minimum of 12 consecutive payments in accordance with the terms of the loan.

During the past 12 months, the Company had one restructured commercial real-estate loan in non-accrual status that defaulted from making the required payments. As a result of this, the Company sold the property at auction and recognized a charge-off of $701,000. The borrowers are making monthly payments to repay the Company for this charge-off. Additionally, we initiated foreclosure on two of the non-accrual commercial real-estate TDR’s in the third quarter of 2011 that were not performing under the restructured terms. This caused us to record a net charge-off of $640,000 on these loans. The two restructured loans as of December 31, 2010, have been repaid in-full.

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 (in thousands).

 

     Three months
ended
September 30,
    Nine months
ended
September 30,
 
     2011      2010     2011     2010  

Interest income due in accordance with original terms

   $ 84       $ 281      $ 313      $ 818   

Interest income recorded

     —           (112     (173     (354
  

 

 

    

 

 

   

 

 

   

 

 

 

Net reduction in interest income

   $ 84       $ 169      $ 140      $ 464   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

11. Federal Home Loan Bank Borrowings

Total Federal Home Loan Bank (FHLB) borrowings and advances consist of the following (in thousands, except percentages):

 

     At September 30, 2011  

Type

   Maturing    Amount      Weighted
Average
Rate
 

Open Repo Plus

   Overnight    $ —           —  

Advances

   2012      4,000         1.82   
   2013      5,000         2.04   
   2016 and after      707         6.43   
     

 

 

    

Total advances

        9,707         2.27   
     

 

 

    

Total FHLB borrowings

      $ 9,707         2.27
     

 

 

    

 

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     At December 31, 2010  

Type

   Maturing    Amount      Weighted
Average
Rate
 

Open Repo Plus

   Overnight    $ 4,550         0.62

Advances

   2012      4,000         1.82   
   2013      5,000         2.04   
   2016 and after      750         6.44   
     

 

 

    

Total advances

        9,750         2.28   
     

 

 

    

Total FHLB borrowings

      $ 14,300         1.75
     

 

 

    

The rate on Open Repo Plus advances can change daily, while the rates on the advances are fixed until the maturity of the advance.

 

12. Preferred Stock

TARP CPP:

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 US 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 US financial system.

On December 19, 2008, the Company sold to the US 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 US Treasury also received a warrant to purchase up to 1,312,500 shares of the Company’s common stock. The warrant has a term of 10 years and is exercisable at any time, in whole or in part, at an exercise price of $2.40 per share. The $21 million in proceeds was allocated to the Series D Preferred Stock and the warrant based on their relative fair values at issuance (approximately $20.4 million was allocated to the Series D Preferred Stock and approximately $600,000 to the warrant). The difference between the initial value allocated to the Series D Preferred Stock of approximately $20.4 million and the liquidation value of $21 million will be charged to retained earnings over the first five years of the contract. Cumulative dividends on Series D Preferred Stock were payable quarterly at 5% through December 19, 2013 and at a rate of 9% thereafter. The Company redeemed all of the shares of the Series D Preferred Stock on August 11, 2011.

SBLF:

On August 11, 2011, the Company received $21 million from the Small Business Lending Fund (SBLF). The SBLF is a voluntary program sponsored by the US Treasury that encourages small business lending by providing capital to qualified community banks at favorable rates. The initial interest rate on the SBLF funds will be 5% and may be decreased to as low as 1% if growth thresholds are met for outstanding small business loans. The Company used the SBLF proceeds to repurchase $21 million of outstanding preferred shares issued under the TARP Capital Purchase Program. On November 2, 2011, the Company repurchased from the US Treasury the stock purchase warrant associated with the TARP CPP for $825,000.

 

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13. Regulatory Capital

The Company is subject to various capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

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 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of September 30, 2011, 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 1 risk-based, and Tier 1 leverage ratios as set forth in the table. Additionally, while not a regulatory capital ratio, the Company’s tangible common equity ratio was 8.38% at September 30, 2011 (in thousands, except ratios).

 

     AS OF SEPTEMBER 30, 2011  
     ACTUAL     FOR CAPITAL
ADEQUACY
PURPOSES
    TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
PROVISIONS
 
     AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO  
     (IN THOUSANDS, EXCEPT RATIOS)  

Total Capital (To Risk Weighted Assets)

               

Consolidated

   $ 119,698         17.31   $ 55,325         8.00   $ 69,157         10.00

AmeriServ Financial Bank

     100,987         14.72        54,882         8.00        68,603         10.00   

Tier 1 Capital (To Risk Weighted Assets)

               

Consolidated

     110,953         16.04        27,663         4.00        41,494         6.00   

AmeriServ Financial Bank

     92,310         13.46        27,441         4.00        41,162         6.00   

Tier 1 Capital (To Average Assets)

               

Consolidated

     110,953         11.70        37,918         4.00        47,398         5.00   

AmeriServ Financial Bank

     92,310         9.96        37,079         4.00        46,349         5.00   

 

     AS OF DECEMBER 31, 2010  
     ACTUAL     FOR CAPITAL
ADEQUACY
PURPOSES
    TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
ACTION
PROVISIONS
 
     AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT      RATIO  
     (IN THOUSANDS, EXCEPT RATIOS)  

Total Capital (To Risk Weighted Assets)

               

Consolidated

   $ 113,954         16.54   $ 55,118         8.00   $ 68,898         10.00

AmeriServ Financial Bank

     92,172         13.57        54,333         8.00        67,916         10.00   

Tier 1 Capital (To Risk Weighted Assets)

               

Consolidated

     105,193         15.27        27,559         4.00        41,339         6.00   

AmeriServ Financial Bank

     83,533         12.30        27,166         4.00        40,749         6.00   

Tier 1 Capital (To Average Assets)

               

Consolidated

     105,193         11.20        37,555         4.00        46,944         5.00   

AmeriServ Financial Bank

     83,533         9.13        36,588         4.00        45,735         5.00   

 

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Table of Contents
14. Segment Results

The financial performance of the Company is also monitored by an internal funds transfer pricing profitability measurement system which produces line of business results and key performance measures. The Company’s major business units include retail banking, commercial banking, 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 and lending to both individuals and small businesses. Lending activities include residential mortgage loans, direct consumer loans, and small business commercial loans. Commercial banking to businesses includes commercial loans, and commercial real-estate loans. The trust segment contains our wealth management businesses, which include the Trust Company, West Chester Capital Advisors- our registered investment advisory firm and financial services. Wealth management includes personal trust products and services such as personal portfolio investment management, estate planning and administration, custodial services and pre-need trusts. Also, institutional trust products and services such as 401(k) plans, defined benefit and defined contribution employee benefit plans, and individual retirement accounts are included in this segment. Financial services include the sale of mutual funds, annuities, and insurance products. The wealth management businesses also includes the union collective investment funds, namely the ERECT and BUILD funds which are designed to use union pension dollars in real estate investments and construction projects that utilize union labor. 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 the 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 for the three and nine months ended September 30, 2011 and 2010 were as follows (in thousands):

 

$000,000 $000,000 $000,000 $000,000 $000,000
    Three months ended
September  30, 2011
    Nine months ended
September 30, 2011
    September 30,
2011
 
    Total
revenue
    Net
income
(loss)
    Total
revenue
    Net
income
(loss)
    Total assets  

Retail banking

  $ 6,710      $ 774      $ 19,447      $ 1,366      $ 330,441   

Commercial banking

    3,665        1,443        10,654        4,993        442,925   

Trust

    1,817        179        5,541        624        4,289   

Investment/Parent

    (550     (830     (1,389     (2,216     195,784   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 11,642      $ 1,566      $ 34,253      $ 4,767      $ 973,439   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

$000,000 $000,000 $000,000 $000,000 $000,000
    Three months ended
September 30, 2010
    Nine months ended
September 30, 2010
    September 30,
2010
 
    Total
revenue
    Net
income
(loss)
    Total
revenue
    Net
income
(loss)
    Total assets  

Retail banking

  $ 6,600      $ 458      $ 19,004      $ 952      $ 313,138   

Commercial banking

    3,079        192        9,745        (614     503,978   

Trust

    1,541        95        4,759              164        3,513   

Investment/Parent

    316        (136     1,045        (334     138,715   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 11,536      $ 609      $ 34,553      $ 168      $ 959,344   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
15. Commitments and Contingent Liabilities

The Company had various outstanding commitments to extend credit approximating $114.3 million and standby letters of credit of $11.1 million as of September 30, 2011. The Company’s exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit and standby letters of credit is represented by their contractual amounts. The Bank uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.

Additionally, the Company is also subject to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of the Company, neither the resolution of these claims nor the funding of these credit commitments will have a material adverse effect on the Company’s consolidated financial position, results of operation or cash flows.

 

16. Pension Benefits

The Company has a noncontributory defined benefit pension plan covering all employees who work at least 1,000 hours per year. The participants shall have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee’s years of service and average annual earnings for the highest five consecutive calendar years during the final ten year period of employment. Plan assets are primarily debt securities (including U.S. Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of AmeriServ Financial, Inc. common stock which is limited to 10% of the plan’s assets), mutual funds, and short-term cash equivalent instruments. The net periodic pension cost for the three and nine months ended September 30, 2011 and 2010 were as follows (in thousands):

 

     Three months
ended
   

Nine months

ended

 
     September 30,     September 30,  
     2011     2010     2011     2010  

Components of net periodic benefit cost

        

Service cost

   $ 303      $ 255      $ 909      $ 765   

Interest cost

     301        265        903        795   

Expected return on plan assets

     (393     (309     (1,179     (927

Amortization of prior year service cost

     2        4        6        12   

Amortization of transition asset

     (4     (4     (12     (12

Recognized net actuarial loss

     203        142        609        426   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 412      $ 353      $ 1,236      $ 1,059   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

17. Disclosures About Fair Value Measurements

The following disclosures establish 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 within this 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

 

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and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The fair value of the swap asset and liability is based on an external derivative valuation model using data inputs as of the valuation date and classified Level 2.

The following tables present the assets reported on the balance sheet at their fair value as of September 30, 2011 and December 31, 2010, by level within the fair value hierarchy. 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 and Liability Measured on a Recurring Basis

Assets and liability measured at fair value on a recurring basis are summarized below (in thousands):

 

$000,000 $000,000 $000,000 $000,000
     Fair Value Measurements at September 30, 2011 Using  
     Total      (Level 1)      (Level 2)      (Level 3)  

U.S. Agency securities

   $ 8,594       $ —         $ 8,594       $ —     

U.S. Agency mortgage-backed securities

     176,683         —           176,683         —     

Fair value of swap asset

     408         —           408         —     

Fair value of swap liability

     408         —           408         —     

 

$000,000 $000,000 $000,000 $000,000
     Fair Value Measurements at December 31, 2010 Using  
     Total      (Level 1)      (Level 2)      (Level 3)  

U.S. Agency securities

   $ 15,944       $ —         $ 15,944       $ —     

U.S. Agency mortgage-backed securities

     148,867         —           148,867         —     

Fair value of swap asset

     420         —           420         —     

Fair value of swap liability

     420         —           420         —     

Loans considered impaired 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. As detailed in the allowance for loan loss footnote, impaired loans are reported at fair value of the underlying collateral if the repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on observable market data which at times are discounted. At September 30, 2011, impaired loans with a carrying value of $4.3 million were reduced by a specific valuation allowance totaling $1.2 million resulting in a net fair value of $3.1 million.

 

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Other real estate owned (OREO) is measured at fair value based on appraisals, 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.

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 September 30, 2011 Using  
     Total      (Level 1)      (Level 2)      (Level 3)  

Impaired loans

   $ 3,089       $ —         $ —         $ 3,089   

Other real estate owned

     4         —           —           4   

 

     Fair Value Measurements at December 31, 2010 Using  
     Total      (Level 1)      (Level 2)      (Level 3)  

Impaired loans

   $ 8,341       $ —         $ —         $ 8,341   

Other real estate owned

     738         —           —           738   

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.

Fair values have been determined by the Company using independent third party valuations that use the 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 on US GAAP measurements, and recorded book balances at September 30, 2011 and December 31, 2010, were as follows (in thousands):

 

     September 30, 2011      December 31, 2010  
     Fair Value      Recorded
Book
Balance
     Fair Value      Recorded
Book
Balance
 

FINANCIAL ASSETS:

           

Cash and cash equivalents

   $ 36,186       $ 36,186       $ 19,337       $ 19,337   

Investment securities

     196,427         195,784         173,078         172,635   

Regulatory stock

     8,327         8,327         9,358         9,358   

Loans held for sale

     4,240         4,163         7,542         7,405   

Net loans, net of allowance for loan loss and unearned income

     652,890         647,177         651,866         651,011   

Accrued income receivable

     3,176         3,176         3,210         3,210   

Bank owned life insurance

     35,127         35,127         34,466         34,466   

Fair value swap asset

     408         408         420         420   

FINANCIAL LIABILITIES:

           

Deposits with no stated maturities

   $ 487,475       $ 487,475       $ 437,072       $ 437,072   

Deposits with stated maturities

     345,009         339,883         369,972         364,144   

Short-term borrowings

     —           —           4,550         4,550   

All other borrowings

     27,895         22,792         25,419         22,835   

Accrued interest payable

     2,613         2,613         3,541         3,541   

Fair value swap liability

     408         408         420         420   

 

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The fair value of cash and cash equivalents, regulatory stock, accrued income receivable, short-term borrowings, and accrued interest payable are equal to the current carrying value.

The fair value of investment securities is equal to the available quoted market price. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment with an investor. All loans in the held for sale account conform to Fannie Mae underwriting guidelines, with the specific intent of the loan being purchased by an investor at the predetermined rate structure. Loans in the held for sale account have specific delivery dates that must be executed to protect the pricing commitment (typically a 30, 45, or 60 day lock period).

The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is based upon the treasury yield curve adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk.

The fair value of bank owned life insurance is based upon the cash surrender value of the underlying policies and matches the book value.

Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.

The fair value of all other borrowings is based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.

The fair values of the swaps used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company’s remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“M.D. & A.”)

2011 THIRD QUARTER SUMMARY OVERVIEW Third quarter of 2011 net income was $1.6 million or $0.05 per share. This represents an improvement of $957,000 over the third quarter of 2010, as well as an achievement of a sixth consecutive profitable quarter. Through the first nine months of 2011, AmeriServ has now earned $4.6 million better than the first nine months of 2010. This places earnings per share at $0.17 as compared with a loss of $0.03 per share during the first nine months of 2010.

Perhaps the most striking improvement is that since September 2010 non-performing assets have been reduced by almost $20 million to just $5.3 million or 0.80% of total loans with only $2.4 million of actual charge-offs. AmeriServ has proven that quick and decisive action to identify potentially troubled loans and careful monitoring by our Asset Quality Task Force is an effective way to minimize income crippling losses. The pursuit of this methodology has permitted a provision reduction of $2.3 million in the allowance for loan losses during 2011 without diminishing the coverage of non-performing assets. Actually, the coverage of non-performing assets has improved from 138% on December 31, 2010 to 301% on September 30, 2011. Those funds transferred back from the allowance for loan losses have become a part of the AmeriServ Financial Bank total of retained earnings, thus further strengthening the Company during these uncertain economic times.

This strengthening has also permitted AmeriServ to concentrate more fully on the business of banking. The result is that loans outstanding increased by $11 million during the third quarter, ending the recession induced decline in loans which began in 2009. Deposit levels also resumed their growth after a decline in the second quarter of 2011. Deposit totals have now increased in five of the last seven quarters. The stronger than anticipated recovery of the Trust Company enabled AmeriServ to report the highest quarterly level of non-interest Income in 2011. A continuing emphasis on efficiency and productivity resulted in the third consecutive quarter of stable operating expenses. The positive force of these improvements can all be traced to a continuing focus on the careful execution of a plan not merely to weather this recession successfully, but to emerge from it stronger so we can be proactive when the long promised recovery period materializes.

Additionally, on August 11, 2011, AmeriServ redeemed its $21 million preferred stock issued to the US Treasury. This transaction related to the Capital Purchase Program, later referred to by the media as TARP. You may recall that following the failure of Lehman Brothers in the fall of 2008, AmeriServ entered into the US Treasury program to protect the franchise during those turbulent times. Those funds are now repaid and, on November 2, 2011, we repurchased the TARP common stock warrant which the US Treasury obtained in 2008 for $825,000. The purchase of this warrant by AmeriServ removes any possibility of the US Treasury acquiring 1.3 million common shares of AmeriServ and thereby protects our shareholders from any dilution of the value of their current holdings. At the same time, AmeriServ applied to be named, and was so designated, as a Small Business Lending Fund Bank by the US Treasury. This designation brought AmeriServ $21 million of US Treasury funding, currently at a rate of 5% per year, through a preferred share issuance. It is most important to note that should AmeriServ increase its small business loans in the near future, under the US Treasury formula, AmeriServ’s interest rate on the preferred stock could be reduced to a little as 1% per year. It could go to 9% if our commercial loans do not increase, but this is no worse than if we had not converted from the TARP Program.

 

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So as to achieve a better rate, AmeriServ’s bankers have mounted a strong small business loan development program, supported by a robust multi-media marketing campaign. The records show AmeriServ making as many as 400 business development calls per month so as to support the US Treasury SBLF program, to help small businesses in our region, and to reduce the annual cost of the Treasury funding.

A further word about the Trust Company. New leadership has been in place in the Trust Company since March 2010. Through the first nine months of 2011, the Trust Company has more than doubled the net income reported during the first nine months of 2010. These positive results have been achieved while simultaneously enhancing procedures and systems and beginning a well-coordinated new business development program. Just ahead for the Trust Company is the integration of the skills of the West Chester Capital Advisors with the wealth management skills of the investment department of the Trust Company. This combination will stretch across all of the special investment disciplines that each unit has developed. In such turbulent economic times, it is important that the Trust Company have complete flexibility in providing clients with proven methods for protecting and growing their financial nest eggs.

During this month, the management team placed before the Board of Directors and the regulatory authorities a new Strategic Plan (Plan) for 2012-2015. The Plan continues to maintain a strong and carefully managed balance sheet while seeking to grow revenues and thereby continue to increase earnings. The Plan is structured around seven key strategic initiatives, each of which has its own set of specially designed action plans. The Strategic Planning Team has been putting this Plan together since April in planning sessions where there were no sacred cows or politically correct ground rules. The Board has recently approved the adoption of this Strategic Plan.

But a necessary word of caution – we are pleased to be able to report such progress on so many fronts. However, we also remain aware that it seems quite likely that the difficult economic times will continue, and perhaps have become even more challenging of late. We have learned that problems do not solve themselves and no bank is an island. Therefore our Asset Quality Task Force continues to meet on a regular schedule, searching for any signs of the feared double dip recession in our loan portfolio. AmeriServ also continues to maintain capital ratios well above those required by regulation and has a deep level of liquidity. As a further step, the Board is examining the wisdom of creating a Board level risk committee structured identically to that required by the regulatory authorities of the largest banks in the nation. We have seen hard times and we have watched other banks fall along the way. Therefore we will not sacrifice any of our strength, but we will maintain that strength even as we seek to improve earnings.

THREE MONTHS ENDED SEPTEMBER 30, 2011 VS. THREE MONTHS ENDED SEPTEMBER 30, 2010

PERFORMANCE OVERVIEW The following table summarizes some of the Company’s key performance indicators (in thousands, except per share and ratios).

 

     Three months ended     Three months ended  
     September 30, 2011     September 30, 2010  

Net income

   $ 1,566      $ 609   

Diluted earnings per share

     0.05        0.02   

Return on average assets (annualized)

     0.64     0.25

Return on average equity (annualized)

     5.52     2.24

 

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The Company reported third quarter 2011 net income of $1.6 million or $0.05 per diluted common share. This represents an increase $957,000 from the third quarter 2010 net income of $609,000 or $0.02 per diluted common share. Continued improvement in asset quality and a higher level of revenue were the key factors causing our increased earnings in the third quarter of 2011. These positive items were partially offset by modestly higher non-interest expense and increased income tax expense. Diluted earnings per share in the third quarter of 2011 were negatively impacted by the accelerated preferred stock discount accretion related to the repayment of the TARP CPP preferred stock which amounted to $267,000 and reduced the amount of net income available to common shareholders.

NET INTEREST INCOME AND MARGIN The Company’s net interest income represents the amount by which interest income on average earning assets exceeds interest paid on average interest bearing liabilities. Net interest income is a primary source of the Company’s earnings, and it is affected by interest rate fluctuations as well as changes in the amount and mix of average earning assets and average interest bearing liabilities. The following table compares the Company’s net interest income performance for the third quarter of 2011 to the third quarter of 2010 (in thousands, except percentages):

 

     Three months ended
September  30, 2011
    Three months ended
September  30, 2010
    $ Change     % Change  

Interest income

   $ 10,492      $ 11,060      $ (568     (5.1 )% 

Interest expense

     2,374        3,037        (663     (21.8
  

 

 

   

 

 

   

 

 

   

Net interest income

   $ 8,118      $ 8,023      $ 95        1.2   
  

 

 

   

 

 

   

 

 

   

Net interest margin

     3.68     3.70     (0.02     N/M   

N/M - not meaningful

The Company’s net interest income in the third quarter of 2011 increased by $95,000 or 1.2% from the prior year’s third quarter. The Company’s third quarter 2011 net interest margin of 3.68% was two basis points lower than the 2010 third quarter margin of 3.70%. The quarterly net interest margin has now operated near the 3.70% level for the past five consecutive quarters. Careful management of funding costs allowed the Company to reduce interest expense to a greater extent than the decline in interest revenue. Specifically, quarterly interest expense has declined by $663,000 since the third quarter of 2010 due to reduced deposit costs and a lower borrowed funds position. This reduction in deposit costs has not impacted average deposit balances which have increased modestly by $3.6 million during this same period. The Company is pleased that there has been $9.7 million of growth in average non-interest bearing demand deposit accounts whose balances have grown by 7.7% since the third quarter of 2010. The Company believes that continued uncertainties in the economy have contributed to growth in deposits as consumers and businesses have looked for safety and liquidity in well capitalized community banks like AmeriServ Financial.

Both net interest income and the net interest margin were negatively impacted by reduced loan balances. Specifically, total loans averaged $663 million in the third quarter of 2011, a decrease of $31 million or 4.5% from the third quarter of 2010. The lower balances reflect the results of the Company’s focus on reducing its commercial real estate exposure and problem loans during this period. However, total loan balances appear to have bottomed in the first quarter of 2011. Loans have increased by $23 million over the past two quarters reflecting the successful results of the Company’s more intensive calling efforts. The Company has strengthened its excellent liquidity position by reinvesting excess cash in high quality investment securities and

 

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short-term investments whose average balance has increased by $32 million over this same period.

COMPONENT CHANGES IN NET INTEREST INCOME Regarding the separate components of net interest income, the Company’s total interest income for the third quarter of 2011 decreased by $568,000 or 5.1% when compared to the same 2010 quarter. This decrease was due to a 34 basis point decline in the earning asset yield to 4.77%. Within the earning asset base, the yield on the total loan portfolio decreased by 16 basis points to 5.28% while the yield on total investment securities dropped by 27 basis points to 3.21%. New investment securities and loans that are being booked typically have yields that are below the rate on the maturing instruments that they are replacing. Also, this asset mix shift with fewer dollars invested in loans and more dollars invested in lower yielding short duration investment securities also negatively impacts the earning asset yield. Improved commercial loan pipelines suggest that the Company may be able to grow the loan portfolio in the fourth quarter of 2011.

The Company’s total interest expense for the third quarter of 2011 decreased by $663,000 or 21.8% when compared to the same 2010 quarter. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 34 basis points to 1.34%. Management’s decision to reduce interest rates paid on all deposit categories has not had any negative impact on deposit growth as consumers have sought the safety and liquidity provided by well-capitalized community banks like AmeriServ Financial. This decrease in funding costs was aided by a drop in interest expense associated with a $10.8 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $4.8 million, and was combined with a $6.0 million decrease in interest bearing deposits. The Company replaced these interest bearing liabilities with non-interest bearing demand deposits which increased by $9.7 million.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the three month periods ended September 30, 2011 and September 30, 2010 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) AmeriServ Financial’s interest rate spread (the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing liabilities), and (v) AmeriServ Financial’s net interest margin (net interest income as a percentage of average total interest earning assets). For purposes of these tables, loan balances do include non-accrual loans, and interest income on loans includes loan fees or amortization of such fees which have been deferred, as well as interest recorded on certain non-accrual loans as cash is received. Additionally, a tax rate of 34% is used to compute tax-equivalent yields.

 

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Three months ended September 30 (In thousands, except percentages)

 

     2011     2010  
     Average
Balance
    Interest
Income/
Expense
    Yield/
Rate
    Average
Balance
    Interest
Income/
Expense
    Yield/
Rate
 

Interest earning assets:

            

Loans and loans held for sale, net of unearned income

   $ 663,230      $ 8,895        5.28   $ 694,432      $ 9,600        5.44

Interest bearing deposits

     9,861        4        0.16        1,781        —          0.02   

Short-term investment in money market funds

     3,547        2        0.24        5,075        5        0.40   

Federal funds sold

     —          —          —          6,184        2        0.12   

Investment securities – AFS

     189,481        1,499        3.16        158,553        1,354        3.41   

Investment securities – HTM

     9,747        99        4.06        9,339        107        4.65   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total investment securities

     199,228        1,598        3.21        167,892        1,461        3.48   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total interest earning assets/interest income

     875,866        10,499        4.77        875,364        11,068        5.11   

Non-interest earning assets:

            

Cash and due from banks

     16,228            14,889       

Premises and equipment

     10,535            10,645       

Other assets

     79,342            80,888       

Allowance for loan losses

     (17,032         (21,173    
  

 

 

       

 

 

     

TOTAL ASSETS

   $ 964,939          $ 960,613       
  

 

 

       

 

 

     

Interest bearing liabilities:

            

Interest bearing deposits:

            

Interest bearing demand

   $ 59,099      $ 35        0.24   $ 59,014      $ 30        0.20

Savings

     83,280        64        0.30        79,038        79        0.40   

Money markets

     193,921        272        0.56        187,563        410        0.87   

Other time

     346,639        1,667        1.91        363,327        2,149        2.35   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total interest bearing deposits

     682,939        2,038        1.18        688,942        2,668        1.54   

Short-term borrowings:

            

Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings

     227        1        0.64        1,258        2        0.69   

Advances from Federal Home Loan Bank

     9,715        55        2.29        13,434        87        2.57   

Guaranteed junior subordinated deferrable interest debentures

     13,085        280        8.57        13,085        280        8.57   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total interest bearing liabilities/interest expense

     705,966        2,374        1.34        716,719        3,037        1.68   

Non-interest bearing liabilities:

            

Demand deposits

     134,767            125,117       

Other liabilities

     11,634            10,624       

Shareholders’ equity

     112,572            108,153       
  

 

 

       

 

 

     

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 964,939          $ 960,613       
  

 

 

       

 

 

     

Interest rate spread

         3.43            3.43   

Net interest income/Net interest margin

       8,125        3.68       8,031        3.70

Tax-equivalent adjustment

       (7         (8  
    

 

 

       

 

 

   

Net Interest Income

     $ 8,118          $ 8,023     
    

 

 

       

 

 

   

 

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PROVISION FOR LOAN LOSSES The improvements in asset quality evidenced by lower levels of non-performing assets and classified loans allowed the Company to reverse a portion of the allowance for loan losses into earnings in 2011 while still increasing the coverage ratio. During the first nine months of 2011, total non-performing assets decreased by $9.0 million or 62.8% to $5.3 million or 0.80% of total loans as a result of successful resolution efforts. Classified loans rated substandard or doubtful also dropped by $13.1 million or 33.1% during this same period. As a result of this improvement, the Company recorded a negative provision for loan losses of $550,000 in the third quarter of 2011 compared to a $1.0 million provision in the third quarter of 2010. Actual credit losses realized through net charge-offs have also declined sharply in 2011. For the third quarter of 2011, net charge-offs totaled $339,000 or 0.20% of total loans which represents a decrease from the third quarter of 2010 when net charge-offs totaled $984,000 or 0.56% of total loans. When determining the provision for loan losses, the Company considers a number of factors some of which include periodic credit reviews, non-performing asset loan delinquency and charge-off trends, concentrations of credit, loan volume trends and broader local and national economic trends. In summary, the allowance for loan losses provided 301% coverage of non-performing loans at September 30, 2011, compared to 145% of non-performing loans at December 31, 2010.

NON-INTEREST INCOME Non-interest income for the third quarter of 2011 totaled $3.5 million; a modest increase of $11,000 or 0.3% from the third quarter 2010 performance. Factors contributing to this higher level of non-interest income in 2011 included:

 

 

a $213,000 increase in trust fees as our wealth management and fiduciary businesses benefited from the implementation of new fee schedules in 2011.

 

 

a $92,000 decrease in gains realized on residential mortgage loan sales into the secondary market due to a reduced level of mortgage refinancing in the third quarter of 2011 when compared to the prior year.

 

 

a $103,000 decrease in other income due to reduced revenue on fixed annuity sales, fewer letter of credit fees and a $26,000 loss realized on the sale of an other real estate owned property in the third quarter of 2011.

NON-INTEREST EXPENSE Non-interest expense for the third quarter of 2011 totaled $9.9 million and increased by $108,000 or 1.1% from the prior year’s third quarter. Factors contributing to the higher non-interest expense in 2011 included:

 

 

a $287,000 increase in salaries and employee benefits expense due to increased medical insurance costs, higher pension expense and greater incentive compensation expense.

 

 

a $168,000 decrease in FDIC expense due to a change in the assessment methodology that benefitted community banks and improvements in our own key asset quality metrics.

 

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NINE MONTHS ENDED SEPTEMBER 30, 2011 VS. NINE MONTHS ENDED SEPTEMBER 30, 2010

PERFORMANCE OVERVIEW The following table summarizes some of the Company’s key performance indicators (in thousands, except per share and ratios).

 

     Nine months ended
September  30, 2011
    Nine months ended
September  30, 2010
 

Net income

   $ 4,767      $ 168   

Diluted earnings (loss) per share

     0.17        (0.03

Return on average assets (annualized)

     0.66     0.02

Return on average equity (annualized)

     5.81     0.21

The Company reported net income of $4.8 million or $0.17 per diluted common share for the first nine months of 2011. This represents an increase of $4.6 million over the net income of $168,000 or ($0.03) per diluted share reported for the same nine month period in 2010. Continued improvements in asset quality were a key factor causing our increased earnings in the first nine months of 2011. This positive item was partially offset by a decline in net interest income attributed primarily to lower loan balances and lower non-interest income resulting from the Company’s decision to realize an investment security loss in order to position the portfolio for higher future yields. Earnings were also negatively impacted by moderately higher non-interest expenses and increased income tax expense due to the Company’s improved profitability. Diluted earnings per share were impacted by the preferred dividend requirement and the accretion of the preferred stock discount on the CPP preferred stock which amounted to $1.1 million and reduced the amount of net income available to common shareholders.

NET INTEREST INCOME AND MARGIN The following table compares the Company’s net interest income performance for the first nine months of 2011 to the first nine months of 2010 (in thousands, except percentages):

 

     Nine months ended
September  30, 2011
    Nine months ended
September  30, 2010
    $ Change     % Change  

Interest income

   $ 31,618      $ 33,975      $ (2,357     (6.9 )% 

Interest expense

     7,448        9,623        (2,175     (22.6
  

 

 

   

 

 

   

 

 

   

Net interest income

   $ 24,170      $ 24,352      $ (182     (0.7
  

 

 

   

 

 

   

 

 

   

Net interest margin

     3.70     3.77     (0.07     N/M   

N/M - not meaningful

The Company’s net interest income in the first nine months of 2011 decreased by $182,000 or 0.7% from the prior year’s first nine months. The Company’s first nine months 2011 net interest margin of 3.70% was seven basis points lower than the 2010 first nine months margin of 3.77%. Reduced loan balances were the primary factor causing the drop in both net interest income and net interest margin between the first nine month periods. Specifically, total loans averaged $658 million in the first nine months of 2011, a decrease of $47 million or 6.7% from the first nine months of 2010. The Company has strengthened its excellent liquidity position by electing to reinvest these net loan paydowns in high quality investment securities and short-term investments whose average balance has increased by $47 million over this same period.

 

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Careful management of funding costs has allowed the Company to mitigate a significant portion of the drop in interest revenue during the past twelve months. Specifically, interest expense has declined by $2.2 million since the first nine months of 2010 due to reduced deposit costs and a lower borrowed funds position. This reduction in deposit costs has not impacted average deposit balances which have increased by $14 million or 1.8% during this same period.

COMPONENT CHANGES IN NET INTEREST INCOME Regarding the separate components of net interest income, the Company’s total interest income for the first nine months of 2011 decreased by $2.4 million or 6.9% when compared to the same 2010 period. This decrease was due to a 43 basis point decline in the earning asset yield to 4.85% and a modest $587,000 drop in average earning assets between periods due to the previously mentioned decline in loans. Investment securities and short-term investments have grown over this period but not enough to absorb the overall decline in total loans. Within the earning asset base, the yield on the total loan portfolio decreased by 17 basis points to 5.39% while the yield on total investment securities dropped by 44 basis points to 3.24%. New investment securities and loans that are being booked typically have yields that are below the rate on the maturing instruments that they are replacing. Also, this asset mix shift with fewer dollars invested in loans and more dollars invested in lower yielding short duration investment securities also negatively impacts the earning asset yield.

The Company’s total interest expense for the first nine months of 2011 decreased by $2.2 million or 22.6% when compared to the same 2010 period. This decrease in interest expense was due to a lower cost of funds as the cost of interest bearing liabilities declined by 38 basis points to 1.41%. Management’s decision to reduce interest rates paid on all deposit categories has not had any negative impact on deposit growth as consumers have sought the safety and liquidity provided by well-capitalized community banks like AmeriServ Financial. This decrease in funding costs was aided by a drop in interest expense associated with an $11.8 million decrease in the volume of interest bearing liabilities. Specifically, the average balance of all FHLB borrowings declined by $14.1 million, but was partially offset by a $2.3 million increase in interest bearing deposits. Additionally, the Company’s funding mix also benefited from an $11.8 million increase in non-interest bearing demand deposits. Overall, in 2011 the Company was able to further reduce its use of borrowings as a funding source as wholesale borrowings averaged only 1.0% of total assets.

The table that follows provides an analysis of net interest income on a tax-equivalent basis for the nine month periods ended September 30, 2011 and September 30, 2010. For a detailed discussion of the components and assumptions included in the table, see the paragraph before the quarterly table on page 31.

 

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Table of Contents

Nine months ended September 30 (In thousands, except percentages)

 

     2011     2010  
     Average
Balance
    Interest
Income/
Expense
    Yield/
Rate
    Average
Balance
    Interest
Income/
Expense
    Yield/
Rate
 

Interest earning assets:

            

Loans and loans held for sale, net of unearned income

   $ 658,442      $ 26,798        5.39   $ 705,656      $ 29,621        5.56

Interest bearing deposits

     4,546        4        0.09        1,785        1        0.09   

Short-term investment in money market funds

     3,451        7        0.27        4,301        12        0.39   

Federal funds sold

     7,784        7        0.11        3,754        4        0.09   

Investment securities – AFS

     189,145        4,527        3.19        148,053        4,029        3.63   

Investment securities – HTM

     9,435        298        4.21        9,841        333        4.51   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total investment securities

     198,580        4,825        3.24        157,894        4,362        3.68   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total interest earning assets/interest income

     872,803        31,641        4.85        873,390        34,000        5.28   

Non-interest earning assets:

            

Cash and due from banks

     15,598            14,952       

Premises and equipment

     10,504            10,011       

Other assets

     79,323            80,141       

Allowance for loan losses

     (18,309         (21,347    
  

 

 

       

 

 

     

TOTAL ASSETS

   $ 959,919          $ 957,147       
  

 

 

       

 

 

     

Interest bearing liabilities:

            

Interest bearing deposits:

            

Interest bearing demand

   $ 57,143      $ 94        0.22   $ 58,247      $ 120        0.27

Savings

     81,241        201        0.33        77,701        324        0.56   

Money markets

     190,642        835        0.59        186,229        1,307        0.94   

Other time

     352,643        5,308        2.01        357,165        6,677        2.50   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total interest bearing deposits

     681,669        6,438        1.26        679,342        8,428        1.66   

Short-term borrowings: