Allan R. Dennison's two years at AmeriServ Financial in Johnstown, Pa., have been eventful.
Since taking over as president and chief executive officer in February 2004, Mr. Dennison, 59, has fixed a serious asset quality problem; sold a money-losing mortgage servicing subsidiary and an underperforming branch in Harrisburg, Pa.; raised more than $36 million of fresh capital by selling stock to institutional investors; and deleveraged AmeriServ's balance sheet, selling off securities and retiring nearly $250 million of high-interest debt.
Now comes the hard part.
After two years of heavy losses related to the restructuring, AmeriServ, the parent of the $880 million-asset AmeriServ Bank, desperately needs to rebuild its earnings stream, Mr. Denison said - no easy feat in slow-growing south central Pennsylvania.
Buying a company in a faster-growing region is not really an option, since AmeriServ used the bulk of the new capital it raised paying the hefty prepayment penalties it incurred when it extinguished its borrowings.
Nor is selling a realistic prospect. Robert E. Kafafian, a consultant, said potential acquirers see AmeriServ as a troubled bank that is in a sluggish market and is hamstrung by a unionized work force. (AmeriServ is one of only a handful of union banks; its employees are represented by the United Steelworkers.)
So, Mr. Dennison's strategy is to build his bank by taking business away from others.
"Our challenge is to get better than our competitors," he said in an interview Tuesday. "That part is not easy. It requires constant reinforcement. The message I'm preaching is that we have to have the courage to stay the course."
There are signs the recovery is under way. If not for the prepayment fees it shelled out in the third quarter, AmeriServ would have made about $1.7 million in 2005. Also working in its favor as it enters its rebuilding phase is that it no longer has a regulatory enforcement order hanging over its head.
AmeriServ announced Tuesday that the Federal Reserve and the Pennsylvania Department of Banking had terminated a 3-year-old memorandum of understanding that among other things prohibited it from paying dividends, buying back stock, and taking on debt without the regulators' approval.
Just as important, perhaps, the termination frees up a good deal of management's time that had been taken up preparing status reports and other information for regulators.
"It's not the endgame, but it puts us in a position to focus all our attention on our earnings performance," Mr. Dennison said.
The company's best short-term options for boosting earnings, he said, lie in expanding its trust and asset management business lines and raising its profile in State College, Pa., where it has two of its 20 branches.
State College is probably AmeriServ's most attractive marketplace, Mr. Dennison said, but it is also its most competitive. Between June 30, 2004, and June 30, 2005, AmeriServ's deposits in State College shrank by 12%, to $15.2 million, according to the Federal Deposit Insurance Corp., largely because other banks are aggressively expanding there. At least nine bank branches have opened in State College in the last three years.
Though AmeriServ has no plans to add branches there, Mr. Dennison said it has hired a regional president for that market and plans to add lenders as part of a push to attract more commercial customers.
"We haven't been able to focus as much as we'd like or grow as much as we'd like" in State College, "but I still think there is a chance for us to get some more market share," he said.
One consistent bright spot for AmeriServ has been its trust and asset management business. It has capitalized on its status as a union bank to leverage business from unions around the country. In the past five years the amount of union pension money it manages has more than doubled, to $400 million, and Mr. Dennison said it expects continued growth in 2006.
Over all, AmeriServ has $1.6 billion of assets under management, and it generated $6.1 million of fee income in 2005.
Mr. Kafafian, the president and CEO of Kafafian Group Inc. of Parsippany, N.J., said AmeriServ is one of only a few banks its size to have achieved critical mass in the wealth management field. The break-even point for most banks is $500 million of assets under management, he said.
"Those that are that big or bigger are in a great position to take advantage of the opportunities the market offers them," Mr. Kafafian said.
AmeriServ's financial woes date to 2000, when it spun off another bank subsidiary, Three Rivers Bank and Trust of Monroeville, Pa., in a public offering. At the time, the CEO of the company, which was then known as USBancorp, said ownership of a unionized bank was dragging down Three Rivers' value. (AmeriServ changed its name in 2001 to eliminate confusion with the larger U.S. Bancorp of Minneapolis.)
The company tried to replace the lost earnings by acquiring a mortgage company and embarking on an ambitious leverage program, only to see both moves turn sour. It reported annual losses in three of the past four years, including $9.1 million in 2005 and $9.7 million in 2004.
Richard Vader, a managing director at McColl Partners in Charlotte, called AmeriServ "the poster child of a company that did not manage itself well." Worse, he said, the losses stemming from the deleveraging of its balance sheet kept it from exploring acquisition opportunities and "limited its ability to diversify out of a very low-growth market."
Mr. Dennison's goal now is to work AmeriServ's performance up to the level of its peers.
"It's a valid point that our core market is not high-growth, but it is stable and our local competitors perform very well," he said. "There is no reason why we should not perform just as well."
