AmeriServ Financial Reports Earnings For The Second Quarter And First Six Months Of 2016

JOHNSTOWN, Pa., July 19, 2016

	Second Quarter 2016	Second Quarter 2015		Six Months Ended June 30, 2016	Six Months Ended June 30, 2015 ARIVA.DE Börsen-Geflüster Kurse Ameriserv F 2,585 $ -7,35%
Net income	$1,362,000	$1,421,000		$95,000	$2,790,000
Net income available to common shareholders	$1,362,000	$1,369,000		$80,000	$2,685,000
Diluted earnings per share	$ 0.07	$ 0.07		$ 0.00	$0.14

Jeffrey A. Stopko, President and Chief Executive Officer, commented on the 2016 second quarter financial results: "I was pleased with the solid growth in both loan and deposits that AmeriServ Financial achieved in the second quarter as customers are responding positively to our banking for life focus.  Additionally, our previously announced expense reduction measures are taking hold as the second quarter 2016 non-interest expense is at its lowest level since the third quarter of 2011.  This expense discipline is necessary as we continue to operate in a challenging interest rate environment that pressures our net interest margin.  Finally, our asset quality continues to be very strong, with non-performing assets amounting to only 0.25% of total loans at June 30, 2016."

The Company's net interest income in the second quarter of 2016 decreased by $314,000, or 3.6%, from the prior year's second quarter and for the first six months of 2016 decreased by $690,000, or 3.9%, when compared to the first six months of 2015.  The Company's net interest margin of 3.27% for the first six months of 2016 was 24 basis points lower than the net interest margin of 3.51% for the first half of 2015.  There was a similar net interest margin decline of 22 basis points between the second quarter of 2016 and the prior year's second quarter.  The reduction in net interest income is a direct result of net interest margin compression that is prevalent in the banking industry as well as additional interest expense that is associated with the Company's late fourth quarter 2015 issuance of subordinated debt.  The prolonged low interest rate environment  that  exists  in the economy,  along with intense market competition for loans, more than offset the Company continuing to grow earning assets and control its cost of funds through disciplined deposit pricing.  Specifically, the earning asset growth occurred in the loan portfolio as total loans averaged $885 million in the first half of  2016  which is $35.5  million, or  4.2%,  higher  than the  $849  million average  for the first half of 2015.  This loan growth reflects the successful results of the Company's business development efforts, with an emphasis on generating commercial loans and owner occupied commercial real estate loans particularly through its loan production offices.  Despite this meaningful loan growth experienced between years, loan interest income decreased by $62,000, or 0.3%.  Interest income on investments showed some growth in the second quarter of 2016 but is down for the six month period as the Company benefited from a special dividend from the FHLB of Pittsburgh in the first half of 2015.  Overall, total interest income decreased by $121,000, or 0.6%, in the first half of 2016. 

Total interest expense for the first half of 2016 increased by $569,000, or 17.8%, due to higher levels of both borrowings and deposit interest expense.  The Company experienced a $330,000 increase in the interest cost for borrowings in the first half of 2016 with $258,000 of this increase attributable to the Company's recent subordinated debt issuance.  Specifically, the Company issued $7.65 million of subordinated debt which has a 6.50% fixed interest rate in late December 2015.  The proceeds from the subordinated debt issuance, along with other cash on hand, was used to redeem all $21 million of our outstanding SBLF preferred stock on January 27, 2016.  The remainder of the increase in borrowings interest expense was due to a greater utilization of FHLB term advances to extend borrowings for interest rate risk management purposes. 

The Company experienced significant growth in deposits between years which is a reflection of the loyalty and stability of our core deposit base that provides a strong foundation from which this growth builds.  Management's ability to acquire new core deposit funding from outside of our traditional market areas as well as our ongoing efforts to cross sell new loan customers into deposit products were the primary reasons for this growth.  Specifically, total deposits averaged $933 million for the first half of 2016 which is $38.9 million, or 4.4%, higher than the $894 million average for the first half of 2015.  The Company is also pleased that a meaningful portion of this deposit growth occurred in non-interest bearing demand deposit accounts.  Deposit interest expense through six months of 2016 increased by $239,000, or 10.2%, due to the higher balance of deposits along with certain money market accounts repricing upward after the December 2015 Federal Reserve fed funds interest rate increase.

The Company recorded a $250,000 provision for loan losses in the second quarter of 2016 compared to a $200,000 provision for loan losses in the second quarter of 2015.  For the six month period in 2016, the Company recorded a $3,350,000 provision for loan losses compared to a $450,000 provision for loan losses in the first six months of 2015.  The substantially higher than typical provision and net loan charge-offs recorded in the first quarter of 2016 were necessary to resolve the Company's only meaningful direct loan exposure to the energy industry, the specifics of which were discussed in detail in the Company's first quarter results.  The provision recorded in the second quarter of 2016 was more typical of what is required to support the continuing growth of the loan portfolio and cover net loan charge-offs.  The Company experienced net loan charge-offs of $24,000, or 0.01% of total loans, in the second quarter of 2016, compared to net loan charge-offs of $172,000, or 0.08% of total loans, in the second quarter of 2015.  For the six month periods, there were net loan charge-offs of $3.5 million, or 0.80%, of total loans, in first half of 2016, compared to net loan charge-offs of $356,000, or 0.08% of total loans,  in 2015.  Overall, the Company continued to maintain outstanding asset quality in the first half of 2016.  At June 30, 2016, non-performing assets totaled $2.2 million, or only 0.25% of total loans.  In summary, the allowance for loan losses  provided  a  strong  437%  coverage  of  non-performing  loans,  and  1.09%  of  total  loans, at June 30, 2016, compared to 158% coverage of non-performing loans, and 1.13% of total loans, at December 31, 2015.

Total non-interest income in the second quarter of 2016 increased by $50,000, or 1.4%, from the prior year's second quarter, and for the first six months of 2016 decreased by $225,000, or 3.0%, when compared to the first six months of 2015.  For the second quarter, the increase was primarily due to a higher level of other income by $107,000 and gains from investment security sales transactions by $32,000, both of which more than offset decreased revenue from mortgage loan sales by $40,000 and reduced fees from service charges on deposit accounts by $25,000.  For the six month period, a greater recognition of gains from investment security sale transactions by $89,000 along with a higher level of other income by $92,000 was more than offset by lower levels of revenue from bank owned life insurance by $198,000 after the Company received a death claim in 2015 and no such claim occurred in 2016.  Also, decreased refinance activity and a reduced level of new mortgage loan originations in the first six months of 2016 resulted in lower revenue from mortgage loan sales by $124,000 and reduced fees from residential mortgage lending activity by $63,000.  Finally despite the volatility in the equity and bond markets in 2016, trust and investment advisory fees were relatively consistent increasing modestly by $8,000 for the six month period.

Total non-interest expense in the second quarter of 2016 decreased by $200,000, or 2.0%, from the prior year's second quarter and for the first six months of 2016 increased by $101,000, or 0.5%, when compared to the first six months of 2015.  As noted in our first quarter 2016 earnings release, the non-recurring costs for legal and accounting services that were necessary to resolve a trust operations trading error are the reasons for the negative comparison for the six month period.  With those particular expenses now largely behind us, the second quarter of 2016 non-interest expense comparison to 2015 is favorable and reflective of the Company's ongoing focus and successful efforts to reduce and control non-interest expenses.  Professional fees continue to compare unfavorably by increasing $171,000, or 6.9%, for the six month time period, but compare favorably by decreasing $83,000, or 6.5%, for the second quarter.  Our cost control efforts are also clearly evident, both, for the quarter and six month time period comparisons as occupancy and equipment related expenses are lower by $99,000, or 8.3%, for the second quarter and lower by $233,000, or 9.3%, for the six months.  Salaries and employee benefits were down by $76,000, or 1.3%, in the second quarter but are up slightly by $17,000, or 0.1%, in the first half of 2016.  The favorable comparison between the second quarter of 2016 and the second quarter of 2015 is due to the previously disclosed branch consolidation in the State College Market and reduction of staff in the executive office.  Finally, the Company recorded an income tax expense of $28,000, or an effective tax rate of 22.8%, in the first six months of 2016 which is lower when compared to the income tax expense of $1,249,000, or an effective tax rate of 30.9%, for the first six months of 2015.  The lower income tax expense and effective tax rate is due to the first quarter 2016 loss recognized by the Company.  However, as described throughout this release, we are pleased to report that the actions taken for an immediate improvement in the second quarter of 2016 to a more typical and expected profitability level have proven successful.  We anticipate this to continue in the second half of the year.

The Company had total assets of $1.1 billion, shareholders' equity of $99.2 million, a book value of $5.25 per common share and a tangible book value of $4.62 per common share at June 30, 2016.  The Company continued to maintain strong capital ratios that exceed the regulatory defined well capitalized status and had a tangible common equity to tangible assets ratio of 7.72% at June 30, 2016. 

This news release may contain forward-looking statements that involve risks and uncertainties, as defined in the Private Securities Litigation Reform Act of 1995, including the risks detailed in the Company's Annual Report and Form 10-K to the Securities and Exchange Commission.  Actual results may differ materially.

NASDAQ: ASRV
SUPPLEMENTAL FINANCIAL PERFORMANCE DATA
June 30, 2016
(Dollars In Thousands, Except Per Share And Ratio Data)
(Unaudited)
		2016
		1QTR	2QTR	YEAR
				TO DATE
PERFORMANCE DATA FOR THE PERIOD:
Net income		(1,267)	1,362	95
Net income available to common shareholders		(1,282)	1,362	80
PERFORMANCE PERCENTAGES (annualized):
Return on average assets		(0.45%)	0.48%	0.02%
Return on average equity		(4.86)	5.60	2.66
Net interest margin		3.30	3.23	3.27
Net charge-offs as a percentage of average loans		1.60	0.01	0.80
Loan loss provision as a percentage of average loans		1.42	0.11	0.76
Efficiency ratio		89.24	82.05	85.61
PER COMMON SHARE:
Net income:
Basic		(0.07)	0.07	-
Average number of common shares outstanding		18,884	18,897	18,890
Diluted		(0.07)	0.07	-
Average number of common shares outstanding		18,884	18,948	18,943
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