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.
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.
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 $58.7 million, or 21%, with the majority of that growth in commercial business loans as a result of the SBA’s Paycheck Protection Program and commercial real estate loans. Commercial construction loans consist primarily of suburban residential construction which declined 15% in 2020 due to strong demand in local residential housing markets that caused the construction project cycle to be accelerated creating less outstanding loan balances and faster payoffs. Residential inventory has been extremely limited in 2020 causing these construction projects to sell quickly.
The following table illustrates the composition of the loan portfolio:
|Commercial real estate||$ 227,224,196||$ 203,427,712|
|Total loans||$ 338,940,042||$ 280,202,372|
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 $88 million, or 26% during the year ended December 31, 2020, with growth in loans and cash funded by deposit growth.
|Selected Financial Data:
Balance Sheets (unaudited)
|Cash and due from banks||$ 26,008,820||$ 2,516,374|
|Time deposits at other banks||599,000||599,000|
|Allowance for loan losses||(2,907,023)||(2,507,845)|
|Premises & equipment||8,380,269||8,675,596|
|Total assets||$ 424,434,307||$ 336,418,925|
|Non-interest bearing deposits||$ 99,898,323||$ 50,616,321|
|Short term borrowings||–||10,896,000|
|Long term borrowings||24,206,000||21,045,500|
|Total stockholders’ equity||31,455,810||27,977,357|
|Total Liabilities &
|$ 424,434,307||$ 336,418,925|
|Net interest margin||3.69%||3.53%||3.50%||3.69%||3.73%|
|Allowance for loan losses/
|Earnings per share – basic
|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|
|** 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.|
|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)|
|Loans, including fees||$4,439,471||$4,038,794||$3,879,732||$3,814,235||$3,819,667|
|Total interest income||4,544,389||4,142,927||3,987,232||3,979,535||3,987,832|
|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
|Referral fee income||69,000||–||27,100||148,000||81,500|
|Gain on sale of SBA loans||–||–||–||–||–|
|Total non-interest income||224,391||136,863||136,534||284,006||219,674|
|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|
|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)|
|Loans||$ 16,172,232||$ 14,793,138|
|Total interest income||16,654,083||15,402,479|
|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
|Referral fee income||244,100||302,760|
|Gain on sale of SBA loans||–||24,463|
|Total non-interest income||781,794||865,195|
|Salaries & benefits||5,493,150||4,826,060|
|Occupancy & equipment||980,158||817,652|
|Other non-interest expense||1,453,667||1,552,300|
|Total non-interest expense||9,145,677||8,318,885|
|Net income||$ 3,250,967||$ 2,321,768|
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