First Resource Bank Announces Second Quarter Results; Achieves Organic Loan Growth of 7% for Quarter, 17% Year-to-Date

First Resource Bank (OTCQX FRSB)

EXTON, PA — First Resource Bank (OTCQX: FRSB) announced financial results for the three months ended June 30, 2021.

Glenn B. Marshall, CEO, stated, “We continue to see a reopening of our trade area as the economy recovers from the shutdowns that we all experienced in the second quarter of 2020. We were honored to participate in both rounds of the Paycheck Protection Program (PPP) which saved thousands of jobs and families in our community. First Resource Bank operates in a great market with a strong local economy and we are thrilled to see our customer base thrive and grow along with us.”

Highlights for the second quarter of 2021 included:

  • Net income of $1.1 million, exceeding the prior year second quarter by 56%
  • 7% loan growth during the second quarter, excluding PPP loan activity
  • Total interest income grew 19% over the prior year second quarter
  • Total interest expense declined 28% over the prior year second quarter
  • Net interest margin improved 18 basis points during the quarter
  • Named the Best Community Bank on the Main Line by readers of Main Line Today
  • Earned the #1 ranking among medium-sized companies as a “Best Place to Work” by the Philadelphia Business Journal
  • Completed a 5% stock dividend

Marshall stated, “As our region embraced the vaccine, we saw a surge of loan opportunity in our market area. Our outstanding second quarter and six-month period loan growth came at a time when our PPP team was seeing positive results from their forgiveness efforts. During the second quarter we replaced our PPP loans that were forgiven with new organic loan growth. We are hopeful that both teams can continue to balance one another over the remainder of 2021.”

Net income for the quarter ended June 30, 2021 was $1,056,574, which compares to $905,664 for the previous quarter and $676,987 for the second quarter of the prior year.

Total interest income increased 11% when comparing the second quarter of 2021 to the first quarter of 2021. This increase was driven by 7% organic growth in loans, excluding PPP loans, as well as higher fees recognized as interest income in association with PPP loan forgiveness during the second quarter of 2021 as compared to the prior quarter. The Bank recognized $384 thousand in PPP fees in the first quarter of 2021 and $614 thousand in the second quarter of 2021 which represents both the amortization of fees for individual loans based on the original maturity schedule and the balance of fees recognized when the loan is forgiven by the Small Business Administration.

Total interest income rose 19% from $3,987,232 for the three months ended June 30, 2020 to $4,742,205 for the three months ended June 30, 2021. This increase was the result of 12% loan growth when comparing June 30, 2021 to a year prior, which increases to 26% loan growth when excluding PPP loans for both periods. Increased interest income from loan growth was offset by a 7 basis point decline in loan yields when comparing the second quarter of 2020 to the second quarter of 2021.

Total interest expense decreased 3% when comparing the second quarter of 2021 to the first quarter of 2021. This decrease was driven by an 8 basis point decrease in the cost of interest-bearing deposits during the quarter. Interest expense on deposits continues to be actively managed to lower costs.

Total interest expense decreased 28% from $937,509 for the three months ended June 30, 2020 to $678,419 for the three months ended June 30, 2021. The vast majority of this decreased expense was related to an overall 61 basis point decline in the cost of interest-bearing deposits, led by a 25 basis point decrease in the cost of money market accounts and a 78 basis point decrease in the cost of certificates of deposit, year over year. Overall interest expense was also mitigated by strong growth in noninterest-bearing deposits, which increased 46% when comparing June 30, 2021 to the year prior.

READ:  Vishay Precision Group Announces Date for Third Quarter Fiscal 2021 Earnings Conference Call

Net interest income was $4,063,786 for the quarter ended June 30, 2021 as compared to $3,570,705 for the previous quarter, a 14% increase. The net interest margin increased 18 basis points from 3.59% for the quarter ended March 31, 2021 to 3.77% for the quarter ended June 30, 2021. The overall yield on interest earning assets increased 10 basis points during the second quarter led by a 3 basis point increase in loan yields to 4.77%, aided by a higher loan to asset ratio at June 30, 2021 as compared to March 31, 2021. The cost of interest-bearing deposits decreased 8 basis points during the first quarter to 0.69%, with the majority of that decrease attributed to lower cost money market accounts and certificates of deposit. Continued growth in noninterest-bearing deposits fueled a decline in the total cost of deposits from 0.57% at March 31, 2021 to 0.50% at June 30, 2021.

Net interest income for the six months ended June 30, 2021 was $7,634,491, a 28% improvement over net interest income of $5,953,742 for the six months ended June 30, 2020. This growth was driven by a 15% increase in loan interest income and a 40% decrease in deposit interest expense.

The provision for loan losses increased from $240,153 for the three months ended March 31, 2021 to $270,453 for the three months ended June 30, 2021. The provision for loan losses increased from $51,045 for the three months ended June 30, 2020, to $270,453 for the three months ended June 30, 2021.

Marshall noted, “The provision for loan losses in the second quarter may look odd at first when you consider that credit quality is as strong as it’s been since 2007 and total loans are almost level with the first quarter. When you get behind the numbers, the paid-off SBA guaranteed PPP loans required a very low reserve ratio as compared to organic loans that replaced them. The increased provision for loan losses in the second quarter is reflective of the strong organic loan growth in the quarter.”

The allowance for loan losses to total loans was 0.87% at June 30, 2021 as compared to 0.83% at March 31, 2021, 0.86% at December 31, 2020 and 0.76% at June 30, 2020. Excluding PPP loans, which are 100% guaranteed by the SBA, the allowance for loan losses to total loans was 0.93% at June 30, 2021, 0.95% at March 31, 2021 and December 31, 2020 and 0.91% at June 30, 2020. Non-performing assets consisted of non-performing loans of $164 thousand at June 30, 2021, a 57% decline from the prior quarter. Non-performing assets to total assets were 0.04% at June 30, 2021, down from 0.09% in the prior quarter.

Non-interest income for the quarter ended June 30, 2021 was $181,213, as compared to $177,761 for the previous quarter and $136,534 for the second quarter of the prior year. There was no swap referral fee income received in the first or second quarters of 2021, as compared to $27,100 in the second quarter of 2020.

Non-interest income for the six months ended June 30, 2021 was $358,974 as compared to $420,540 for the same period in the prior year. Swap referral fee income of $175,100 was received in the first six months of 2020 as compared to none in the first six months of 2021.

Non-interest expense increased $275 thousand, or 12%, in the three months ended June 30, 2021 as compared to the prior quarter. The increase was primarily due to an increase in salaries and benefits, advertising, data processing, and other costs, partially offset by a decrease in occupancy costs. Part of the increase in salaries and benefits expenses, data processing expenses and other costs are attributed to a significant technology enhancement project during the second quarter. Non-interest expense increased $358 thousand, or 16%, when comparing the second quarter of 2021 to the second quarter of 2020. This increase was primarily attributed to an increase in salaries and benefits costs, data processing and other costs. The technology enhancement project during the second quarter of 2021 included numerous one-time expenses in each of those categories.

READ:  CubeSmart Announces the Date of Third Quarter 2021 Earnings Release

Deposits grew a net $12.3 million, or 3%, from $382.1 million at March 31, 2021 to $394.4 million at June 30, 2021. During the second quarter, noninterest-bearing deposits increased $18.0 million, or 17%, from $105.6 million at March 31, 2021 to $123.5 million at June 30, 2021. Interest-bearing checking balances decreased $1.6 million, or 5%, from $31.8 million at March 31, 2021 to $30.2 million at June 30, 2021. Money market deposits increased $4.6 million, or 3%, from $154.1 million at March 31, 2021 to $158.8 million at June 30, 2021. Certificates of deposit decreased $8.7 million, or 10%, from $90.6 million at March 31, 2021 to $81.9 million at June 30, 2021. Between June 30, 2021 and June 30, 2020, total deposits grew 22%, with tremendous checking and money market growth partially offset by a decline in certificates of deposit.

President and Chief Financial Officer, Lauren C. Ranalli, stated, “We continue to focus internal resources on checking growth and those efforts continue to pay off. Growth in checking and money market deposits have allowed us to shed higher cost certificates of deposit as they mature, lowering our overall cost of funds and increasing our net interest margin. We continue to benefit from disruption in the market to gain checking relationships. Our success in this area is attributed to our award-winning customer service as evidenced by our 46% increase in noninterest-bearing checking balances year over year.”

The loan portfolio increased by $921 thousand during the second quarter from $379.8 million at March 31, 2021 to $380.8 million at June 30, 2021. Excluding PPP loan activity, the loan portfolio increased $23.1 million, or 7%, from $333.2 million at March 31, 2021 to $356.4 million at June 30, 2021, with strong growth in commercial real estate, construction loans and commercial business loans partially offset by a decline in consumer loans. Year-to-date loan growth in 2021 was $41.8 million or 12%. Excluding PPP loan activity, year-to-date loan growth was $51.8 million, or 17%. The loan portfolio grew $41.8 million, or 12% from $339.0 million at June 30, 2020 to $380.8 million at June 30, 2021. Excluding PPP loans, the loan portfolio grew $74.0 million, or 26% from June 30, 2020 to June 30, 2021.

The following table illustrates the composition of the loan portfolio:

June 30,

2021

Dec. 31,

2020

June 30,

2020

Commercial real estate

$  277,919,949

$  227,224,196

$  209,771,247

Commercial construction

30,724,320

24,925,050

24,698,846

Commercial business

56,477,796

66,555,149

87,958,509

Consumer

15,644,478

20,235,647

16,571,930

Total loans

$  380,766,543

$  338,940,042

$  339,000,532

Total stockholder’s equity increased $1.1 million, or 3%, from $32.3 million at March 31, 2021 to $33.4 million at June 30, 2021, primarily due to net income generated, partially offset by a decline in the unrealized gain/loss position of the investment portfolio. During the quarter ended June 30, 2021, book value per share grew 35 cents, or 3%, to $11.42.

Total assets increased $13.2 million, or 3% during the second quarter of 2021, with growth in cash and due from banks funded by deposit growth. PPP loan activity of $22.2 million in net payoffs (forgiveness payments less new originations) in the second quarter of 2021 were replaced with $23.1 million in organic loan growth.

Selected Financial Data:

Balance Sheets (unaudited)

June 30, 2021

December 31, 2020

Cash and due from banks

$   41,245,286

$   26,008,820

Time deposits at other banks

599,000

599,000

Investments

17,957,320

43,060,035

Loans

380,766,543

338,940,042

Allowance for loan losses

(3,326,784)

(2,907,023)

Premises & equipment

8,259,701

8,380,269

Other assets

12,071,297

10,353,164

Total assets

$ 457,572,363

$ 424,434,307

Noninterest-bearing deposits

$ 123,545,865

$   99,898,323

Interest-bearing checking

30,177,054

23,726,721

Money market

158,758,776

140,480,421

Time deposits

81,906,722

93,919,651

  Total deposits

394,388,417

358,025,116

Short term borrowings

Long term borrowings

21,158,000

24,206,000

Subordinated debt

5,946,896

7,940,649

Other liabilities

2,682,324

2,806,732

Total liabilities

424,175,637

392,978,497

Total stockholders’ equity

33,396,726

31,455,810

Total Liabilities &

     Stockholders’ Equity

$ 457,572,363

$ 424,434,307

Performance Statistics (unaudited)

Qtr Ended

June 30,

2021

Qtr Ended

Mar. 31,

2021

Qtr Ended

Dec. 31,

2020

Qtr Ended

Sept. 30,

2020

Qtr Ended

June 30,

2020

Net interest margin

3.77%

3.59%

3.69%

3.53%

3.50%

Nonperforming loans/

   Total loans

0.04%

0.10%

0.11%

0.40%

0.41%

Nonperforming assets/

   Total assets

0.04%

0.09%

0.09%

0.35%

0.36%

Allowance for loan losses/

   Total loans

0.87%**

0.83%**

0.86%**

0.78%**

0.76%**

Average loans/Average

   assets

86.4%

84.4%

81.4%

88.7%

87.4%

Non-interest expenses*/

   Average assets

2.36%

2.29%

2.20%

2.34%

2.50%

Earnings per share – basic

   and diluted***

$0.31

$0.31

$0.39

$0.28

$0.23

Book value per share***

$11.42

$11.07

$10.78

$10.41

$10.14

Total shares outstanding

2,923,777

2,782,251

2,779,607

2,776,551

2,773,686

*  Annualized

** Excluding PPP loans, the allowance for loan losses/total loans was 0.93% at June 30, 2021, 0.95% at March 31, 2021, 0.95% at December 31, 2020, 0.93% at September 30, 2020 and 0.91% at June 30, 2020.

*** Per share data restated to reflect the 5% stock dividend paid in May 2021.

Income Statements (unaudited)

Qtr. Ended

June 30,

2021

Qtr. Ended

Mar. 31,

2021

Qtr. Ended

Dec. 31,

2020

Qtr. Ended

Sept. 30,

2020

Qtr. Ended

June 30,

2020

INTEREST INCOME

Loans, including fees

$4,641,636

$4,169,912

$4,439,471

$4,038,794

$3,879,732

Securities

94,794

96,260

93,928

101,768

104,900

Other

5,775

6,022

10,990

2,365

2,600

 Total interest income

4,742,205

4,272,194

4,544,389

4,142,927

3,987,232

INTEREST EXPENSE

Deposits

481,151

499,622

581,982

653,243

742,578

Borrowings

104,145

108,743

117,995

120,795

127,446

Subordinated debt

93,123

93,124

126,007

77,467

67,485

 Total interest expense

678,419

701,489

825,984

851,505

937,509

Net interest income

4,063,786

3,570,705

3,718,405

3,291,422

3,049,723

Provision for loan losses

270,453

240,153

229,538

129,894

51,045

Net interest income after provision for loan losses

3,793,333

3,330,552

3,488,867

3,161,528

2,998,678

NON-INTEREST INCOME

BOLI income

47,505

44,523

36,852

37,125

37,067

Referral fee income

69,000

27,100

Gain on sale of SBA loans

Other

133,708

133,238

118,539

99,738

72,367

 Total non-interest income

181,213

177,761

224,391

136,863

136,534

NON-INTEREST EXPENSE

Salaries & benefits

1,592,369

1,432,259

1,405,431

1,386,212

1,373,036

Occupancy & equipment

255,537

262,501

238,406

261,166

228,216

Professional fees

98,035

89,413

95,238

96,936

98,492

Advertising

87,788

61,683

80,279

72,390

64,011

Data processing

188,220

149,633

146,147

131,351

135,936

Other

432,851

383,951

349,074

336,144

396,808

Total non-interest

     expense

2,654,800

2,379,440

2,314,575

2,284,199

2,296,499

Income before income tax expense

1,319,746

1,128,873

1,398,683

1,014,192

838,713

Federal income tax expense

263,172

223,209

280,248

198,786

161,726

Net income

$1,056,574

$905,664

$1,118,435

$  815,406

$  676,987

Income Statements (unaudited)

Six Months

Ended
June 30,

2021

Six Months

Ended
June 30,

2020

INTEREST INCOME

Loans

$   8,811,548

$   7,693,967

Investments

191,054

222,905

Other

11,797

49,895

 Total interest income

9,014,399

7,966,767

INTEREST EXPENSE

Deposits

980,773

1,628,493

Borrowings

212,888

249,562

Subordinated debt

186,247

134,970

 Total interest expense

1,379,908

2,013,025

Net interest income

7,634,491

5,953,742

Provision for loan losses

510,606

195,078

Net interest income after provision for loan losses

7,123,885

5,758,664

NON-INTEREST INCOME

BOLI income

92,028

74,117

Referral fee income

175,100

Gain on sale of SBA loans

Other

266,946

171,323

 Total non-interest income

358,974

420,540

NON-INTEREST EXPENSE

Salaries & benefits

3,024,628

2,701,507

Occupancy & equipment

518,038

480,586

Professional fees

187,448

190,653

Advertising

149,471

130,289

Data processing

337,853

275,419

Other non-interest expense

816,802

768,449

Total non-interest expense

5,034,240

4,546,903

Pre-tax income

2,448,619

1,632,301

Tax expense

486,381

315,175

Net income

$   1,962,238

$   1,317,126

Thanks for visiting! MyChesCo brings reliable information and resources to Chester County, Pennsylvania. Please consider supporting us in our efforts. Your generous donation will help us continue this work and keep it free of charge. Show your support today by clicking here and becoming a patron.