First Resource Bank Announces Second Quarter Results; Year to Date Net Income Grew 31% Over the Prior Year

First Resource Bank

EXTON, PA — First Resource Bank (OTCQX: FRSB) announced financial results for the three months ended June 30, 2020.

Highlights for the second quarter of 2020 included:

  • Year-to-date net income grew 31% over the prior year
  • Second quarter net income grew 6% over the prior quarter
  • Total loans grew 21% over the last six months
  • PPP loans totaling $58 million closed during the second quarter
  • Total deposits increased 20% over the last six months
  • Non-interest bearing deposits grew 67% over the last six months
  • First Resource Bank was named a “Best Place to Work” by the Philadelphia Business Journal for the second consecutive year

Glenn B. Marshall, CEO, stated, “The second quarter was unique as we continued to operate and grow First Resource Bank through a global pandemic. We embraced the opportunity to help our existing customers and new customers through the Paycheck Protection Program (PPP) and were highly successful in doing so. Approximately 36% of our PPP loans were for new customers to the Bank and we are working to expand those relationships.  Additionally, our disaster recovery plans, which had been in place for years, worked flawlessly as we were abruptly transitioned to working remotely in mid-March. I am extremely proud of the First Resource Bank team for their hard work and successful outcomes that were generated in the second quarter.”

Net income for the quarter ended June 30, 2020 was $676,987, which compares to $640,139 for the previous quarter and $631,520 for the second quarter of the prior year.

Total interest income grew slightly when comparing the second quarter to the first quarter of 2020. Interest earned from the tremendous loan growth during the second quarter was partially offset by the impact of the Federal Reserve rate cuts in March.

Total interest income rose 4% from $3,819,446 for the three months ended June 30, 2019 to $3,987,232 for the three months ended June 30, 2020. This increase was the result of 25% loan growth when comparing June 30, 2020 to a year prior, partially mitigated by a 75 basis point decline in loan yields when comparing the second quarter of 2019 to the second quarter of 2020. This loan yield decline is a result of lower yielding PPP loans booked in the second quarter of 2020 and the full quarter’s impact of the Federal Reserve 150 basis point rate cuts in March 2020.

Total interest income was $7,966,767 for the six months ended June 30, 2020, a 7% increase over the same period in the prior year.

Total interest expense decreased 13% when comparing the second quarter to the first quarter of 2020. This decrease was driven by a 38 basis point decrease in the cost of money market accounts and a 14 basis point decrease in the cost of certificates of deposit during the quarter.

Total interest expense decreased 12% from $1,065,036 for the three months ended June 30, 2019 to $937,509 for the three months ended June 30, 2020. The vast majority of this decreased expense was related to a 58 basis point decrease in the cost of money market accounts, year over year. Overall interest expense was also mitigated by strong growth in non-interest bearing deposits, which increased 78% when comparing June 30, 2020 to the year prior.

Total interest expense for the six months ended June 30, 2020 was $2,013,025, a 1% decrease over the same period in the prior year.

Net interest income was $3,049,723 for the quarter ended June 30, 2020 as compared to $2,904,019 for the previous quarter, an improvement of 5%.  The net interest margin declined 19 basis points from 3.69% for the quarter ended March 31, 2020 to 3.50% for the quarter ended June 30, 2020. The overall yield on interest earning assets decreased 49 basis points during the second quarter led by a 58 basis point decrease in loan yields to 4.84%. The cost of interest bearing deposits decreased 31 basis points during the second quarter to 1.30%, with the majority of that decrease attributed to lower cost money market accounts and certificates of deposit.

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Net interest income for the six months ended June 30, 2020 was $5,953,742, an 11% improvement over net interest income of $5,380,437 for the six months ended June 30, 2019. This growth was driven by an 8% increase in loan interest income.

The provision for loan losses decreased from $144,033 for the three months ended March 31, 2020 to $51,045 for the three months ended June 30, 2020. The provision for loan losses decreased from $158,992 for the three months ended June 30, 2019, to $51,045 for the three months ended June 30, 2020. The provision for loan losses decreased from $634,944 for the six months ended June 30, 2019 to $195,078 for the six months ended June 30, 2020.

Marshall noted, “Management has worked to resolve loan delinquencies and to anticipate future credit challenges. In the first half of 2019, we resolved one large legacy problem loan which led to an unusually high provision for loan losses during that period.”

The allowance for loan losses to total loans was 0.76% at June 30, 2020 as compared to 0.90% at December 31, 2019 and 0.93% at June 30, 2019. Excluding PPP loans, which are 100% guaranteed by the SBA, the allowance for loan losses to total loans was 0.91% at June 30, 2020. Non-performing assets consisted of non-performing loans of $1.4 million at June 30, 2020 and was unchanged from the prior quarter. Non-performing assets to total assets decreased from 0.41% at March 31, 2020 to 0.36% at June 30, 2020, primarily due to growth in total assets related to PPP loans.

Non-interest income for the quarter ended June 30, 2020 was $136,534, as compared to $284,006 for the previous quarter and $262,597 for the second quarter of the prior year. Swap referral fee income of $27,100 was received in the second quarter of 2020, as compared to $148,000 in the prior quarter and $114,100 in the second quarter of 2019.

Non-interest income for the six months ended June 30, 2020 was $420,540 as compared to $418,852 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 $114,100 in the first six months of 2019. There were no gains on sales of SBA loans in the first six months of 2020 as compared to $24,463 in the first six months of 2019.

Non-interest expense increased $46 thousand, or 2%, in the three months ended June 30, 2020 as compared to the prior quarter. The increase was primarily due to an increase in salaries and benefits and other costs, partially offset by a decrease in occupancy. Non-interest expense increased $221 thousand, or 11%, when comparing the second quarter of 2020 to the second quarter of 2019. This increase was primarily attributed to an increase in salaries and benefits, occupancy, advertising and other costs.

Non-interest expense increased $618 thousand, or 16%, in the six months ended June 30, 2020 as compared to the same period in the prior year. This increase was due to higher salaries and benefits expense, occupancy, advertising, data processing and other costs, partially offset by lower professional fees.

Deposits grew a net $53.4 million, or 20%, from $270.7 million at March 31, 2020 to $324.1 million at June 30, 2020. During the second quarter, non-interest bearing deposits increased $33.7 million, or 67%, from $50.7 million at March 31, 2020 to $84.5 million at June 30, 2020. Interest-bearing checking balances increased $6.2 million, or 38%, from $16.3 million at March 31, 2020 to $22.6 million at June 30, 2020. Money market deposits increased $20.8 million, or 21%, from $98.7 million at March 31, 2020 to $119.5 million at June 30, 2020. Certificates of deposit decreased $7.4 million, or 7%, from $105.0 million at March 31, 2020 to $97.6 million at June 30, 2020. The deposit portfolio grew $54.3 million, or 20%, in the first six months of 2020, with a $44.6 million increase in total checking balances and a $17.1 million increase in money market balances, partially offset by a $7.3 million decline in certificates of deposit balances. Total deposits grew $70.9 million, or 28%, from $253.3 million at June 30, 2019 to $324.1 million at June 30, 2020, with growth in all deposit categories, but notably an 86% increase in total checking deposits. Checking balances represented 33% of total deposits at June 30, 2020, a significant increase from 23% at December 31, 2019.

President and Chief Financial Officer, Lauren C. Ranalli, stated, “This tremendous deposit growth in the second quarter was aided by our success with the Paycheck Protection Program; however, ongoing efforts in this area are continuing to generate strong results separate from PPP. Our focus on growing low cost checking deposits has allowed us to reduce our reliance on higher cost certificates of deposit and mitigate compression in the net interest margin.”

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The loan portfolio grew $54.7 million, or 19%, during the second quarter from $284.3 million at March 31, 2020 to $339.0 million at June 30, 2020, with the majority of that growth in commercial business loans as a result of the SBA’s Paycheck Protection Program. Year-to-date net loan growth in 2020 was $58.8 million, or 21%, with the majority of that growth in commercial business and commercial real estate loans. The loan portfolio grew $68.5 million, or 25%, from $270.5 million at June 30, 2019 to $339.0 million at June 30, 2020, with the majority of that growth in commercial business and commercial real estate loans.

The following table illustrates the composition of the loan portfolio:

June 30,
2020

Dec. 31,
2019

June 30,
2019

Commercial real estate

$  209,771,247

$  203,427,712

$  187,706,105

Commercial construction

24,698,846

29,353,830

30,313,979

Commercial business

87,958,509

30,805,290

32,868,079

Consumer

16,571,930

16,615,540

19,627,636

Total loans

$  339,000,532

$  280,202,372

$  270,515,799

Total stockholder’s equity increased $766 thousand, or 3%, from $28.8 million at March 31, 2020 to $29.5 million at June 30, 2020, primarily due to net income generated and an improvement in the unrealized gain/loss position of the investment portfolio. During the quarter ended June 30, 2020, book value per share grew 26 cents, or 3%, to $10.65.

Total assets increased $44.6 million, or 13% during the second quarter of 2020, with significant growth in loans funded by deposit growth and deployment of excess cash.

Selected Financial Data:
Balance Sheets (unaudited)

June 30,
2020

December 31,
2019

Cash and due from banks

$   13,947,416

$     2,516,374

Time deposits at other banks

599,000

599,000

Investments

15,951,495

37,120,798

Loans

339,000,532

280,202,372

Allowance for loan losses

(2,579,224)

(2,507,845)

Premises & equipment

8,515,626

8,675,596

Other assets

9,924,279

9,812,630

Total assets

$ 385,359,124

$ 336,418,925

Non-interest bearing deposits

$   84,483,667

$   50,616,321

Interest-bearing checking

22,556,062

11,797,456

Money market

119,488,321

102,433,910

Time deposits

97,607,971

104,952,207

  Total deposits

324,136,021

269,799,894

Short term borrowings

10,896,000

Long term borrowings

24,858,000

21,045,500

Subordinated debt

3,998,838

3,994,591

Other liabilities

2,820,259

2,705,583

Total liabilities

355,813,118

308,441,568

Total stockholders’ equity

29,546,006

27,977,357

Total Liabilities &

     Stockholders’ Equity

$ 385,359,124

$ 336,418,925

Performance Statistics
(unaudited)

Qtr Ended

June 30,

2020

Qtr Ended

Mar. 31,

2020

Qtr Ended

Dec. 31,

2019

Qtr Ended

Sept. 30,

2019

Qtr Ended

June 30,

2019

Net interest margin

3.50%

3.69%

3.73%

3.81%

3.85%

Nonperforming loans/

   Total loans

0.41%

0.49%

0.50%

0.89%

0.83%

Nonperforming assets/

   Total assets

0.36%

0.41%

0.42%

0.94%

0.91%

Allowance for loan losses/

   Total loans

0.76%***

0.89%

0.90%

0.90%

0.93%

Average loans/Average

   assets

87.4%

84.9%

84.9%

87.2%

87.4%

Non-interest expenses*/

   Average assets

2.50%

2.71%

2.75%

2.71%

2.75%

Earnings per share – basic

   and diluted **

$0.24

$0.23

$0.23

$0.25

$0.23

Book value per share

$10.65

$10.39

$10.10

$9.88

$9.63

Total shares outstanding

2,773,686

2,770,755

2,768,729

2,766,330

2,764,241

*  Annualized

** Per share data has been restated to reflect a 5% stock dividend paid in May 2019.

*** Excluding PPP loans, the allowance for loan losses/total loans was 0.91%

Income Statements (unaudited)

Qtr. Ended

June 30,

2020

Qtr. Ended

Mar. 31,

2020

Qtr. Ended

Dec. 31,

2019

Qtr. Ended

Sept. 30,

2019

Qtr. Ended

June 30,

2019

INTEREST INCOME

Loans, including fees

$3,879,732

$3,814,235

$3,819,667

$3,855,582

$3,679,137

Securities

104,900

118,005

129,178

124,908

126,881

Other

2,600

47,295

38,987

18,348

13,428

 Total interest income

3,987,232

3,979,535

3,987,832

3,998,838

3,819,446

INTEREST EXPENSE

Deposits

742,578

885,915

930,953

938,804

886,280

Borrowings

127,446

122,116

117,350

130,679

111,271

Subordinated debt

67,485

67,485

67,846

67,845

67,485

 Total interest expense

937,509

1,075,516

1,116,149

1,137,328

1,065,036

Net interest income

3,049,723

2,904,019

2,871,683

2,861,510

2,754,410

Provision for loan losses

51,045

144,033

66,628

84,557

158,992

Net interest income after
provision for loan losses

2,998,678

2,759,986

2,805,055

2,776,953

2,595,418

NON-INTEREST INCOME

BOLI income

37,067

37,050

38,067

38,205

37,965

Referral fee income

27,100

148,000

81,500

107,160

114,100

Gain on sale of SBA loans

Other

72,367

98,956

100,107

81,304

110,532

 Total non-interest income

136,534

284,006

219,674

226,669

262,597

NON-INTEREST EXPENSE

Salaries & benefits

1,373,036

1,328,471

1,267,867

1,266,493

1,238,114

Occupancy & equipment

228,216

252,370

251,297

189,381

185,402

Professional fees

98,492

92,161

94,744

88,083

101,117

Advertising

64,011

66,278

54,660

82,357

35,401

Data processing

135,936

139,483

127,721

142,587

135,151

Other

396,808

371,641

447,905

376,707

380,297

Total non-interest

     expense

2,296,499

2,250,404

2,244,194

2,145,608

2,075,482

Income before income tax
expense

838,713

793,588

780,535

858,014

782,533

Federal income tax expense

161,726

153,449

152,236

167,285

151,013

Net income

$  676,987

$  640,139

$  628,299

$  690,729

$  631,520

Income Statements (unaudited)

Six Months

Ended
June 30,

2020

Six Months

Ended
June 30,

2019

INTEREST INCOME

Loans

$   7,693,967

$   7,117,889

Investments

222,905

255,182

Other

49,895

42,738

 Total interest income

7,966,767

7,415,809

INTEREST EXPENSE

Deposits

1,628,493

1,686,821

Borrowings

249,562

213,942

Subordinated debt

134,970

134,609

 Total interest expense

2,013,025

2,035,372

Net interest income

5,953,742

5,380,437

Provision for loan losses

195,078

634,944

Net interest income after provision for
loan losses

5,758,664

4,745,493

NON-INTEREST INCOME

BOLI income

74,117

75,420

Referral fee income

175,100

114,100

Gain on sale of SBA loans

24,463

Other

171,323

204,869

 Total non-interest income

420,540

418,852

NON-INTEREST EXPENSE

Salaries & benefits

2,701,507

2,291,700

Occupancy & equipment

480,586

376,974

Professional fees

190,653

201,286

Advertising

130,289

69,165

Data processing

275,419

262,270

Other non-interest expense

768,449

727,688

Total non-interest expense

4,546,903

3,929,083

Pre-tax income

1,632,301

1,235,262

Tax expense

315,175

232,522

Net income

$   1,317,126

$   1,002,740

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