First Resource Bank Announces Tenth Consecutive Year of Record Annual Earnings

First Resource Bank

EXTON, PA — First Resource Bank (OTCQX: FRSB) announced financial results for the three months and year ended December 31, 2020.

Highlights through the year ended December 31, 2020 included:

  • Net income grew 40%
  • Total interest income grew 8%, while total interest expense declined 14%
  • Non-interest bearing deposits grew 97%
  • Total deposits grew 33%
  • Total loans grew 21%
  • $58.8 million of Paycheck Protection Loans completed, $23.2 million were forgiven to date
  • Subordinated debt offering was completed totaling $6 million
  • Total assets increased 26%, ending the year at $424 million
  • Nonperforming assets to total assets improved by 79%
  • 98.7% of loans that were modified due to the pandemic have returned to a regular payment schedule
  • First Resource Bank was named Best Bank in Chester County by readers of the Daily Local News for the fourth consecutive year

Glenn B. Marshall, CEO, stated, “2020 was uniquely challenging in many ways and the First Resource Bank team stepped up at a critical time to directly help our customer base and the broader community. Our active participation in the Paycheck Protection Program (PPP) in 2020 was an opportunity to directly help many impacted small businesses and First Resource Bank has already begun active participation in the critical second round of PPP loans in 2021. Working with a community bank has never been more important and many small businesses have come to that realization allowing us the opportunity to win their business. I am extremely grateful for the new banking relationships we were able to develop in 2020 and thrilled by our ability to grow our business exponentially while continuing to exceed customers’ expectations.”

Net income for the quarter ended December 31, 2020 was $1,118,435, which compares to $815,406 for the previous quarter and $628,299 for the fourth quarter of the prior year. This was the most profitable quarter in the Bank’s history, aided by fee recognition as PPP loans were forgiven. Net income for the year ended December 31, 2020 was $3,250,967, a 40% increase as compared to the prior year.

Total interest income grew 10% when comparing the fourth quarter to the third quarter of 2020. This increase was driven by fees recognized in association with PPP loan forgiveness during the fourth quarter.

Total interest income rose 14% from $3,987,832 for the three months ended December 31, 2019 to $4,544,389 for the three months ended December 31, 2020. This increase was the result of 21% loan growth when comparing December 31, 2020 to a year prior, partially mitigated by a 34 basis point decline in loan yields when comparing the fourth quarter of 2019 to the fourth quarter of 2020. This loan yield decline is a result of lower-yielding PPP loans booked in the second and third quarters of 2020 and the impact of the Federal Reserve 150 basis point rate cuts in March 2020, partially offset by fees recognized in association with PPP loan forgiveness during the fourth quarter. Total interest income was $16,654,083 for the year ended December 31, 2020, an 8% increase over the prior year.

Total interest expense decreased 3% when comparing the fourth quarter to the third quarter of 2020. This decrease was driven by a 16 basis point decrease in the cost of deposits during the quarter, partially offset by an increase in interest expense on subordinated debt. Interest expense on deposits continues to be actively managed to lower costs.

Total interest expense decreased 26% from $1,116,149 for the three months ended December 31, 2019 to $825,984 for the three months ended December 31, 2020. The vast majority of this decreased expense was related to a 71 basis point decrease in the cost of money market accounts and a 67 basis point decrease in the cost of certificates of deposit, year over year. Overall interest expense was also mitigated by strong growth in non-interest bearing deposits, which increased 97% when comparing December 31, 2020 to the year prior.  Total interest expense for the year ended December 31, 2020 was $3,690,514, a 14% decrease over the prior year.

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Net interest income was $3,718,405 for the quarter ended December 31, 2020 as compared to $3,291,422 for the previous quarter, an improvement of 13%.  The net interest margin increased 16 basis points from 3.53% for the quarter ended September 30, 2020 to 3.69% for the quarter ended December 31, 2020. The overall yield on interest-earning assets increased 7 basis points during the fourth quarter led by a 52 basis point increase in loan yields to 5.18%. The cost of interest-bearing deposits decreased 16 basis points during the fourth quarter to 0.90%, with the majority of that decrease attributed to lower-cost money market accounts and certificates of deposit.

Net interest income for the year ended December 31, 2020 was $12,963,569, a 17% improvement over net interest income of $11,113,630 for the year ended December 31, 2019. This growth was driven by a 9% increase in loan interest income and a 19% decline in deposit interest expense.

The provision for loan losses increased from $129,894 for the three months ended September 30, 2020 to $229,538 for the three months ended December 31, 2020. The provision for loan losses increased from $66,628 for the three months ended December 31, 2019, to $229,538 for the three months ended December 31, 2020. The provision for loan losses decreased from $786,129 for the year ended December 31, 2019 to $554,510 for the year ended December 31, 2020.

The allowance for loan losses to total loans was 0.86% at December 31, 2020 as compared to 0.78% at September 30, 2020 and 0.90% at December 31, 2019. Excluding PPP loans, which are 100% guaranteed by the SBA, the allowance for loan losses to total loans was 0.95% at December 31, 2020 and 0.93% at September 30, 2020. Non-performing assets consisted of non-performing loans of $382 thousand at December 31, 2020, a 73% decrease from the prior quarter. Non-performing assets to total assets decreased from 0.35% at September 30, 2020 to 0.09% at December 31, 2020.

Marshall noted, “Credit quality at December 31, 2020 is as good as it has been since 2007. I am thrilled with the progress made this year in resolving problem loans while ensuring that underwriting stays strong to avoid new problems in the future.”

Non-interest income for the quarter ended December 31, 2020 was $224,391, as compared to $136,863 for the previous quarter and $219,674 for the fourth quarter of the prior year. Swap referral fee income received in the fourth quarter of 2020 was $69,000, as compared to none in the third quarter of 2020 and $81,500 in the fourth quarter of 2019.

Non-interest income for the year ended December 31, 2020 was $781,794 as compared to $865,195 for the prior year. Swap referral fee income of $244,100 was received in 2020 as compared to $302,760 in 2019. There were no gains on sales of SBA loans in 2020 as compared to $24,463 in 2019.

Non-interest expense increased $30 thousand, or 1%, in the three months ended December 31, 2020 as compared to the prior quarter. The increase was primarily due to an increase in salaries and benefits, data processing, and other costs, partially offset by a decrease in occupancy costs. Non-interest expense increased $70 thousand, or 3%, when comparing the fourth quarter of 2020 to the fourth quarter of 2019. This increase was primarily attributed to an increase in salaries and benefits and advertising costs, partially offset by a decrease in other expenses.

Non-interest expense increased $827 thousand, or 10%, in the year ended December 31, 2020 as compared to the prior year. This increase was due to higher salaries and benefits expense associated with a higher headcount and higher occupancy costs.

President and Chief Financial Officer, Lauren C. Ranalli, stated, “Non-interest expenses are closely monitored at all times and the increase in employees in 2020 was critical to our growth and success. Non-interest expense to total assets has improved throughout 2020 and consistently remains better than our peers.”

Deposits grew a net $28.0 million, or 9%, from $330.1 million at September 30, 2020 to $358.0 million at December 31, 2020. During the fourth quarter, non-interest bearing deposits increased $18.2 million, or 22%, from $81.7 million at September 30, 2020 to $99.9 million at December 31, 2020. Interest-bearing checking balances increased $993 thousand, or 4%, from $22.7 million at September 30, 2020 to $23.7 million at December 31, 2020. Money market deposits increased $12.1 million, or 9%, from $128.4 million at September 30, 2020 to $140.5 million at December 31, 2020. Certificates of deposit decreased $3.3 million, or 3%, from $97.3 million at September 30, 2020 to $93.9 million at December 31, 2020.

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The deposit portfolio grew $88.2 million, or 33%, during the year ended December 31, 2020, with a $61.2 million increase in total checking balances and a $38.0 million increase in money market balances, partially offset by an $11.0 million decline in certificates of deposit balances. Checking balances represented 35% of total deposits at December 31, 2020, a significant increase from 23% at December 31, 2019.

Ranalli noted, “Checking deposit growth in 2020 was tremendous and that allowed us to be less dependent on higher-cost forms of funding such as money markets and certificates of deposit. We embraced the opportunity to grow deposit relationships with PPP customers that were new to the Bank and were successful in doing so. Our customer service excellence is paramount in everything we do as evidenced by our Best Bank in Chester County accolades for the last four consecutive years.”

The loan portfolio decreased $8.0 million, or 2%, during the fourth quarter from $347.0 million at September 30, 2020 to $338.9 million at December 31, 2020, with strong growth in commercial real estate and construction loans offset by a decline in commercial loans due to SBA Paycheck Protection Program loan payoffs. Year-to-date net loan growth in 2020 was $58.7 million, or 21%, with the majority of that growth in commercial business loans as a result of the SBA’s Paycheck Protection Program and commercial real estate loans. Commercial construction loans consist primarily of suburban residential construction which declined 15% in 2020 due to strong demand in local residential housing markets that caused the construction project cycle to be accelerated creating less outstanding loan balances and faster payoffs. Residential inventory has been extremely limited in 2020 causing these construction projects to sell quickly.

The following table illustrates the composition of the loan portfolio:

Dec. 31,

2020

Dec. 31,

2019

Commercial real estate $  227,224,196 $  203,427,712
Commercial construction 24,925,050 29,353,830
Commercial business 66,555,149 30,805,290
Consumer 20,235,647 16,615,540
Total loans $  338,940,042 $  280,202,372
Total stockholder’s equity increased $1.1 million, or 4%, from $30.3 million at September 30, 2020 to $31.5 million at December 31, 2020, 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 December 31, 2020, book value per share grew 39 cents, or 4%, to $11.32.

Total assets increased $29.1 million, or 7% during the fourth quarter of 2020, with growth in investments primarily funded by deposit growth. Total assets increased $88 million, or 26% during the year ended December 31, 2020, with growth in loans and cash funded by deposit growth.

Selected Financial Data:
Balance Sheets (unaudited)
December 31,
2020
December 31,
2019
Cash and due from banks $   26,008,820 $     2,516,374
Time deposits at other banks 599,000 599,000
Investments 43,060,035 37,120,798
Loans 338,940,042 280,202,372
Allowance for loan losses (2,907,023) (2,507,845)
Premises & equipment 8,380,269 8,675,596
Other assets 10,353,164 9,812,630
Total assets $ 424,434,307 $ 336,418,925
Non-interest bearing deposits $   99,898,323 $   50,616,321
Interest-bearing checking 23,726,721 11,797,456
Money market 140,480,421 102,433,910
Time deposits 93,919,651 104,952,207
  Total deposits 358,025,116 269,799,894
Short term borrowings 10,896,000
Long term borrowings 24,206,000 21,045,500
Subordinated debt 7,940,649 3,994,591
Other liabilities 2,806,732 2,705,583
Total liabilities 392,978,497 308,441,568
Total stockholders’ equity 31,455,810 27,977,357
Total Liabilities &

Stockholders’ Equity

$ 424,434,307 $ 336,418,925
Performance Statistics
(unaudited)
Qtr Ended

Dec. 31,

2020

Qtr Ended

Sept. 30,

2020

Qtr Ended

June 30,

2020

Qtr Ended

Mar. 31,

2020

Qtr Ended

Dec. 31,

2019

Net interest margin 3.69% 3.53% 3.50% 3.69% 3.73%
Nonperforming loans/

Total loans

0.11% 0.40% 0.41% 0.49% 0.50%
Nonperforming assets/

Total assets

0.09% 0.35% 0.36% 0.41% 0.42%
Allowance for loan losses/

Total loans

0.86%** 0.78%** 0.76%** 0.89% 0.90%
Average loans/Average

assets

81.4% 88.7% 87.4% 84.9% 84.9%
Non-interest expenses*/

Average assets

2.20% 2.34% 2.50% 2.71% 2.75%
Earnings per share – basic

and diluted

$0.41 $0.29 $0.24 $0.23 $0.23
Book value per share $11.32 $10.93 $10.65 $10.39 $10.10
Total shares outstanding 2,779,607 2,776,551 2,773,686 2,770,755 2,768,729
*  Annualized
** Excluding PPP loans, the allowance for loan losses/total loans was 0.95% at December 31, 2020, 0.93% at September 30, 2020 and 0.91% at June 30, 2020.
Year Ended

Dec. 31,

2020

Year Ended

Dec. 31,

2019

Net interest margin 3.60% 3.81%
Return on assets 0.86% 0.76%
Return on equity 10.93% 8.72%
Earnings per share-basic and diluted $1.17 $0.84
Income Statements (unaudited)
Qtr. Ended

Dec. 31,

2020

Qtr. Ended

Sept. 30,

2020

Qtr. Ended

June 30,

2020

Qtr. Ended

Mar. 31,

2020

Qtr. Ended

Dec. 31,

2019

INTEREST INCOME
Loans, including fees $4,439,471 $4,038,794 $3,879,732 $3,814,235 $3,819,667
Securities 93,928 101,768 104,900 118,005 129,178
Other 10,990 2,365 2,600 47,295 38,987
 Total interest income 4,544,389 4,142,927 3,987,232 3,979,535 3,987,832
INTEREST EXPENSE
Deposits 581,982 653,243 742,578 885,915 930,953
Borrowings 117,995 120,795 127,446 122,116 117,350
Subordinated debt 126,007 77,467 67,485 67,485 67,846
 Total interest expense 825,984 851,505 937,509 1,075,516 1,116,149
Net interest income 3,718,405 3,291,422 3,049,723 2,904,019 2,871,683
Provision for loan losses 229,538 129,894 51,045 144,033 66,628
Net interest income after
provision for loan losses
3,488,867 3,161,528 2,998,678 2,759,986 2,805,055
NON-INTEREST INCOME
BOLI income 36,852 37,125 37,067 37,050 38,067
Referral fee income 69,000 27,100 148,000 81,500
Gain on sale of SBA loans
Other 118,539 99,738 72,367 98,956 100,107
 Total non-interest income 224,391 136,863 136,534 284,006 219,674
NON-INTEREST EXPENSE
Salaries & benefits 1,405,431 1,386,212 1,373,036 1,328,471 1,267,867
Occupancy & equipment 238,406 261,166 228,216 252,370 251,297
Professional fees 95,238 96,936 98,492 92,161 94,744
Advertising 80,279 72,390 64,011 66,278 54,660
Data processing 146,147 131,351 135,936 139,483 127,721
Other 349,074 336,144 396,808 371,641 447,905
Total non-interest

expense

2,314,575 2,284,199 2,296,499 2,250,404 2,244,194
Income before income tax expense 1,398,683 1,014,192 838,713 793,588 780,535
Federal income tax expense 280,248 198,786 161,726 153,449 152,236
Net income $1,118,435 $  815,406 $  676,987 $  640,139 $  628,299
Income Statements (unaudited)
Year

Ended
December 31,

2020

Year

Ended
December 31,

2019

INTEREST INCOME
Loans $ 16,172,232 $ 14,793,138
Investments 418,601 509,268
Other 63,250 100,073
 Total interest income 16,654,083 15,402,479
INTEREST EXPENSE
Deposits 2,863,718 3,556,578
Borrowings 488,352 461,971
Subordinated debt 338,444 270,300
 Total interest expense 3,690,514 4,288,849
Net interest income 12,963,569 11,113,630
Provision for loan losses 554,510 786,129
Net interest income after provision for
loan losses
12,409,059 10,327,501
NON-INTEREST INCOME
BOLI income 148,094 151,692
Referral fee income 244,100 302,760
Gain on sale of SBA loans 24,463
Other 389,600 386,280
 Total non-interest income 781,794 865,195
NON-INTEREST EXPENSE
Salaries & benefits 5,493,150 4,826,060
Occupancy & equipment 980,158 817,652
Professional fees 382,827 384,113
Advertising 282,958 206,182
Data processing 552,917 532,578
Other non-interest expense 1,453,667 1,552,300
Total non-interest expense 9,145,677 8,318,885
Pre-tax income 4,045,176 2,873,811
Tax expense 794,209 552,043
Net income $   3,250,967 $   2,321,768

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