First Reliance Bancshares, Inc. Reports 1st Quarter 2018 Results And Completes Systems Integration Of Independence Bancshares

- $0.10 Net Income per Diluted Share, excluding a $0.09 per share charge related to non-recurring merger related expenses (a non-GAAP financial measure)

- $0.01 Net Income Per Diluted Share (as reported under Generally Accepted Accounting Principles (GAAP))

- Core operating earnings for the quarter grew by more than 24.0% as compared to the same period one year ago

- $0.10 Net Income per Diluted Share, excluding a $0.09 per share charge related to non recurring merger related expenses (a non GAAP financial measure)

News provided by

First Reliance Bancshares, Inc.

May 08, 2018, 04:01 ET

FLORENCE, S.C., May 8, 2018 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported first quarter 2018 net income of $88,072, or $0.01 per diluted share. The Company's core operating earnings were $786,170, or $0.10 per diluted share. Core operating earnings is a non-GAAP measure comprised of net income exclusive of non-recurring merger related expenses. Non-recurring merger related expenses incurred in the first quarter were $698,098, or $0.09 per diluted share.

According to Rick Saunders, the Company's Chief Executive Officer, "We continue to see the impact of solid organic growth and acquisitions on earnings. Core operating earnings for the first quarter of 2018 continued to improve with an increase of 84.4% compared to fourth quarter of 2017. We remain laser-focused on our business model that outlines our value proposition and have made excellent progress on growing core deposits, market expansion, and customer acquisition."

Several new significant developments have transpired for First Reliance over the past nine months, including:

raising $25.1 million of additional capital in September 2017;
Jack McElveen joining the bank in September 2017 as Chief Credit Officer;
Kemper Kenan joining the bank as City Executive for Greenville, South Carolina in late 2017;
David Barksdale joining the bank as President of North Carolina and Andy McDowell joining the bank as City Executive for Winston-Salem in early 2018;
Ben Brazell being named as President of South Carolina in early 2018; and
receiving regulatory approval to open our Myrtle Beach branch location and hiring Ron Paige as City Executive for the Myrtle Beach market early in the first quarter of 2018.

In addition, we expect to receive regulatory approval to convert the Winston Salem loan production office into a full service branch and will open a loan production office in the Lake Norman area of north Charlotte, North Carolina in the second quarter of 2018.

Acquisition of Independence Bancshares Inc.

On January 22, 2018, we completed the acquisition of Independence Bancshares, Inc. and its subsidiary, Independence National Bank ("Independence"). The systems conversion was completed on March 5, 2018. This expansion into the attractive Greenville market will continue to broaden our footprint throughout South Carolina. The acquisition was accounted for under the acquisition method of accounting. The assets and liabilities of Independence have been recorded at their estimated fair values and added to those of the Company as of the merger date. Included in the March 31, 2018 consolidated balance sheet were approximately $50.5 million of acquired loans, net of purchase accounting adjustments, $727,654 of recognized goodwill, $828,748 of recognized core deposit intangible asset, and $71.0 million of acquired deposits. The Company may continue to refine its valuation of acquired assets and liabilities for up to one year following merger date. Merger related expenses for the acquisition (fourth quarter 2017 and first quarter 2018) totaled $1.2 million.

Financial Highlights

Net interest income improved 37.2% at $1.3 million for the three months ended March 31, 2018, compared to the same period of 2017.
Excluding loans and deposits acquired, loan and deposit growth were $8.0 million and $12.8 million respectively, for the quarter ending March 31, 2018;
Other real estate owned, or OREO, declined by $945,550 from $1,706,765 to $727,654 due to the sale of parcels during the quarter;
Total loans increased by $58.5 million as a result of acquired loans of $50.5 million and organic loan growth of $8.0 million;
Total deposits increased by $83.8 million as a result of acquired deposits acquisition which contributed $71.0 million and organic deposit growth of $12.8 million;
Non-interest bearing checking accounts increased $14.6 million and comprised 23% of total deposits at March 31, 2018; and
Net interest margin was 4.30% for the three months ended March 31, 2018, as the Company continued to leverage its low cost of funds of 46 bps.

Review of Income Statement

Net interest income improved 37.2% at $1.3 million for the three months ended March 31, 2018, compared to the same period of 2017. The increase in net interest income was due principally to growth in earning assets while net interest margins were 4.30% for the three months ended March 31, 2018 compared to 4.26% for the same period 2017.

Noninterest income remained steady at $2.4 million for the three months ended March 31, 2018. Consolidated mortgage production volume increased $4.2 million to $60.3 million for the three months ended March 31, 2018 compared to $56.2 million for the same period 2017. Fees from retail banking activities were $116,550 for the three months ended March 31, 2018 compared to $235,073 for the same period one year ago. Fees from correspondent and wholesale mortgage channels were $302,576 for the three months ended March 31, 2018 compared to $503,778 for the same period one year ago.

Balance Sheet and Asset Quality

Total assets increased $112.3 million, or 26.7% to $532.3 million at March 31, 2018, compared to $420.0 million from March 31, 2017.

Loans receivable grew by $88.5 million, or 29.3%, to $389.7 million at March 31, 2018, compared to $301.2 million, at March 31, 2017 due to acquired loans totaling $50.5 million and organic loan growth of $38.0 million including commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios. 1-4 family mortgage portfolio loans were up 28%, commercial real estate loans were up 29%, and consumer loans were up 25%, year over year. Mr. Saunders added, "Continued earning asset growth and yield expansion is our focus throughout 2018 with emphasis on consumer and commercial loans throughout the branch network and commercial loan growth in our new markets which include Winston-Salem, Charlotte, and Myrtle Beach."

Transaction and savings deposits increased by $46.6 million, or 16.9%, to $322.9 million at March 31, 2018, from $276.2 million one year ago. Household checking accounts increased by 4.5% reflecting our strong year-over-year branch sales growth. "We continue to improve our products and services involving customer controls of debit card and online banking features and plan to add financial planning, budgeting, and other money management tools to further enhance the exceptional customer experience," said Mr. Saunders.

Nonperforming assets declined $2.3 million to $2.6 million at March 31, 2018 compared to one year ago. The Company reduced OREO by $1.7 million via third party sales over the past twelve months to $761,215. The ratio of nonperforming assets to total assets declined to 0.46% at March 31, 2018, compared to 0.80% one year earlier. The allowance for loan losses as a percentage of loans was 0.62% at March 31, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.90% one year earlier. For the first quarter of 2018, loan charge offs were nominal and largely offset by the bank recoveries.

Capital

The Company downstreamed $15 million into the Bank in the first quarter 2018. First Reliance Bank continues to remain well capitalized under all regulatory measures with capital ratios exceeding the statutory well-capitalized thresholds by an ample margin. At March 31, 2018, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	10.53%	5.00%
Common equity tier 1 capital	12.63%	6.50%
Tier 1 capital ratio	12.63%	8.00%
Total capital ratio	13.23%	10.00%

Customers of the bank have given it a 95% customer satisfaction rating for five consecutive years. First Reliance Bank is also one of three companies throughout South Carolina who have received the Best Places To Work in South Carolina award all twelve years since the program began. We believe that this recognition confirms that our associates are engaged and committed to the Bank's brand and the communities we serve.

ABOUT FIRST RELIANCE BANCSHARES, INC.

First Reliance Bancshares, Inc. is the holding company for First Reliance Bank. The Bank was founded in 1999, employs approximately 170 highly-talented associates and serves the Columbia, Lexington, Greenville, Charleston, Mount Pleasant, Summerville, Loris, Myrtle Beach, and Florence markets in South Carolina and Winston-Salem and Charlotte, North Carolina. First Reliance Bank offers several unique customer programs which include a Hometown Heroes package of benefits for those who are serving our communities, Check 'N Save, a community outreach program for the unbanked or under-banked, a Moms First program, and an iMatter program targeted to young people. The Bank also offers a Customer Service Guaranty, a Mortgage Service Guaranty, FREE Coin Machines, Mobile Banking, Mobile mortgage applications, and is open on most traditional bank holidays. Its commitment to making customers' lives better and the idea that "There's More to Banking Than Money" has earned the Bank a customer satisfaction rating of 95%.

The common stock of First Reliance Bancshares, Inc. is traded under the symbol FSRL.OB. Additional information about the Company is available on the Company's web site at www.firstreliance.com.

Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements include but are not limited to statements with respect to our plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," and "projects," as well as similar expressions. Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans, or expectations contemplated by the Company will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company's loan portfolio and allowance for loan losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in the U.S. legal and regulatory framework including, but not limited to, the Dodd-Frank Act and regulations adopted thereunder; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (7) the business related to the acquisition of Independence may not be integrated successfully or such integration may take longer to accomplish than expected; (8) the expected cost savings and any revenue synergies from the Independence acquisition may not be fully realized within expected timeframes; and (9) disruption from the Independence acquisition may make it more difficult to maintain relationships with clients, associates, or suppliers. All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Contact Jeffrey A. Paolucci, Executive Vice President and Chief Financial Officer, (888)543-5510.

First Reliance Bancshares, Inc. and Subsidiary
*Consolidated Balance Sheets*

	March 31	December 31	March 31
	2018	2017	2017
Assets
Cash and cash equivalents:
Cash and due from banks	$ 4,229,533	$ 3,494,469	$ 5,148,814
Interest-bearing deposits with other banks	23,862,041	21,136,350	18,048,484
Total cash and cash equivalents	28,091,574	24,630,819	23,197,298

Time deposits in other banks	2,752,252	102,020	101,919

Securities available-for-sale	25,748,692	26,894,719	17,571,229
Securities held-to-maturity (Estimated fair value of $18,870,274.81, $17,372,835.21,
and $19,602,624.30 at March 31, 2018, December 31, 2017, and March 31, 2017)	16,273,831	17,018,132	19,242,080
Nonmarketable equity securities	1,006,800	1,359,200	806,700
Total investment securities	43,029,323	45,272,051	37,620,009

Mortgage loans held for sale	8,964,502	7,885,938	7,087,154

Loans receivable	392,270,200	333,675,253	304,024,206
Less allowance for loan losses	(2,493,665)	(2,453,875)	(2,785,916)
Loans, net	389,776,535	331,221,378	301,238,290

Premises, furniture and equipment, net	20,178,871	18,463,156	18,702,546
Accrued interest receivable	1,090,420	1,094,740	867,318
Other real estate owned	761,215	1,706,765	2,414,662
Cash surrender value life insurance	17,012,489	14,293,702	14,046,700
Net deferred tax assets	8,535,933	4,461,063	8,158,865
Mortgage servicing rights	7,142,777	6,357,666	4,702,803
Goodwill	727,654	-	-
Core deposit intangible	828,748	-	-
Other assets	3,463,924	3,132,443	1,910,134
Total assets	$ 532,356,217	$ 458,621,741	$ 420,047,698
Liabilities and Shareholders' Equity
Liabilities
Deposits	$ 322,836,766	$ 46,603,364	$ 276,233,402
Noninterest-bearing transaction accounts	$ 100,824,151	$ 86,209,099	$ 84,866,269
Interest-bearing transaction accounts	84,618,230	70,642,041	74,571,228
Savings	137,394,385	118,996,069	116,795,905
Time deposits $250,000 and over	26,396,238	13,874,405	9,649,918
Other time deposits	87,742,736	63,372,449	57,778,166
Total deposits	436,975,740	353,094,063	343,661,486

Securities sold under agreement to repurchase	16,980,383	13,929,651	14,727,395
Advances from Federal Home Loan Bank	10,000,000	22,000,000	9,000,000
Notes Payable	-	-	7,000,000
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,873,264	4,911,963	4,804,997
Accrued interest payable	181,378	253,679	213,673
Other liabilities	3,049,650	3,969,060	2,781,224
Total liabilities	482,370,415	408,468,416	392,498,775

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at March 31, 2018, December 31, 2017 and March 31, 2017	-	-	-
Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at March, 31, 2018, December 31, 2017 and March 31, 2017	-	-	-
Series D preferred stock - 587, 599 and 599 shares issued and outstanding at March 31, 2018, December 31, 2017 and March 31, 2017, respectively	587	599	599
Series E preferred stock - 410,499, 410,499 and 0 shares issued and outstanding at March 31, 2018, December 31, 2017 and March 31, 2017, respectively	2,955,593	2,955,593	-
Common stock, $0.01 par value; 20,000,000 shares authorized,
8,004,772, 7,887,486 and 4,708,891 shares issued and outstanding
at March 31, 2018, December 31, 2017 and March 31, 2017	80,047	78,875	47,089
Capital surplus	81,170,550	46,941,229	25,241,707
Treasury stock, at cost, 41,032, 40,583 and 39,069 shares at March 31, 2018,
December 31, 2017 and March 31, 2017, respectively	(233,192)	(229,844)	(219,106)
Nonvested restricted stock	(1,664,674)	(868,399)	(247,932)
Retained Earnings/Deficit	(31,671,363)	1,573,382	2,896,784
Accumulated other comprehensive loss	(651,747)	(298,110)	(170,218)
Total shareholders' equity	49,985,802	50,153,325	27,548,923
Total liabilities and shareholders' equity	$ 532,356,217	$ 458,621,741	$ 420,047,698

First Reliance Bancshares, Inc. and Subsidiary
*Consolidated Statements of Operations*

	Three Months Ended	Three Months Ended	Three Months Ended
	March 31, 2018	December 31, 2017	March 31, 2017
Interest income:
Loans, including fees	$ 5,092,527	$ 4,288,116	$ 3,675,451

Investment securities:
Taxable	245,539	218,397	198,657
Tax exempt	38,910	34,476	28,201
Other interest income	62,124	84,235	37,558
Total	5,439,100	4,625,224	3,939,867
Interest expense:
Time deposits	334,231	236,411	128,501
Other deposits	108,360	101,606	91,899
Other interest expense	268,081	195,758	271,751
Total	710,672	533,775	492,151

Net interest income	4,728,428	4,091,449	3,447,716
Provision for loan losses	20,477	-	151,500
Net interest income after provision for loan losses	4,707,951	4,091,449	3,296,216

Noninterest income:
Service charges on deposit accounts	371,154	394,392	345,947
Gain on sale of mortgage loans	1,498,497	1,044,773	1,608,433
Income from bank owned life insurance	96,734	81,560	81,715
Other service charges, commissions, and fees	348,271	344,319	325,294
Other	120,685	90,683	70,918
Total	2,435,341	1,955,727	2,432,307

Noninterest expenses:
Salaries and benefits	3,839,036	3,185,613	2,835,033
Occupancy	540,574	433,315	400,632
Furniture and equipment related expenses	578,132	427,176	400,637
Other	1,345,636	1,621,888	1,155,058
Merger Related Expenses	698,098	501,265	-
Total	7,001,476	6,169,257	4,791,360
Income before income taxes	141,816	(122,081)	937,163
Income Expense	53,744	2,597,546	303,121
Net (loss) income	88,072	(2,719,627)	634,042
Net (loss) income available to common shareholders	$ 88,072	$ (2,719,627)	$ 634,042

Average common shares outstanding, basic	7,994,494	7,847,201	4,585,048
Average common shares outstanding, diluted	8,075,546	7,997,597	4,718,546

Income (loss) per common share:
Basic (loss) income per share	$ 0.01	$ (0.35)	$ 0.14
Diluted (loss) income per share	$ 0.01	$ (0.34)	$ 0.13

Non-GAAP financial measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$ 88,072	$ (2,719,627)	$ 634,042
Adjustments
Income tax expense - tax rate change	-	2,644,628	-
Merger related costs	698,098	501,265	-
Total Adjustments	698,098	3,145,893	-

Net income after adjustments (non-GAAP)	$ 786,170	$ 426,266	$ 634,042

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.10	$ 0.05	$ 0.14
Diluted (loss) income per share (non-GAAP)	$ 0.10	$ 0.05	$ 0.13

First Reliance Bancshares, Inc. and Subsidiary
*Consolidated Statements of Operations*


	March 31, 2018	December 31, 2017	March 31, 2017
Interest income:
Loans, including fees	$ 5,092,527	$ 16,321,881	$ 3,675,451

Investment securities:
Taxable	245,539	802,815	198,657
Tax exempt	38,910	118,969	28,201
Other interest income	62,124	225,924	37,558
Total	5,439,100	17,469,589	3,939,867
Interest expense:
Time deposits	334,231	732,399	128,501
Other deposits	108,360	410,459	91,899
Other interest expense	268,081	1,028,926	271,751
Total	710,672	2,171,784	492,151

Net interest income	4,728,428	15,297,805	3,447,716
Provision for loan losses	20,477	-	151,500
Net interest income after provision for loan losses	4,707,951	15,297,805	3,296,216

Noninterest income:
Service charges on deposit accounts	371,154	1,502,286	345,947
Gain on sale of mortgage loans	1,498,497	4,845,075	1,608,433
Income from bank owned life insurance	96,734	328,716	81,715
Other service charges, commissions, and fees	348,271	1,341,171	325,294
Other	120,685	324,003	70,918
Total	2,435,341	8,341,251	2,432,307

Noninterest expenses:
Salaries and benefits	3,839,036	12,075,338	2,835,033
Occupancy	540,574	1,685,622	400,632
Furniture and equipment related expenses	578,132	1,646,687	400,637
Other	1,345,636	501,265	1,155,058
Merger Related Expense	698,098	4,803,246	-
Total	7,001,476	20,712,158	4,791,360
Income before income taxes	141,816	2,926,898	937,163
Income tax expense	53,744	3,616,258	303,121
Net (loss) income	88,072	(689,360)	634,042
Net (loss) income available to common shareholders	$ 88,072	$ (689,360)	$ 634,042

Average common shares outstanding, basic	7,994,494	5,465,868	4,585,048
Average common shares outstanding, diluted	8,075,546	5,606,149	4,718,546

Income (loss) per common share:
Basic (loss) income per share	$ 0.01	$ (0.13)	$ 0.14
Diluted (loss) income per share	$ 0.01	$ (0.12)	$ 0.13

Non-GAAP financial measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$ 88,072	$ (689,360)	$ 634,042
Adjustments
Income tax expense - tax rate change	-	2,644,628	-
Merger related costs	698,098	501,265	-
Total Adjustments	698,098	3,145,893	-

Net income after adjustments (non-GAAP)	$ 786,170	$ 2,456,533	$ 634,042

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.10	$ 0.45	$ 0.14
Diluted (loss) income per share (non-GAAP)	$ 0.10	$ 0.44	$ 0.13

Asset Quality and Capital Adequacy

(dollars in thousands, except asset quality and per share data)	As of and for the Three Months Ended
	March 31, 2018	December 31, 2017	March 31, 2017
Asset Quality
Loans 90 days past due & still accruing	-	-	-
Nonaccrual loans	1,836	1,353	2,440



Total nonperforming loans	1,836	1,353	2,440
OREO and repossessed assets	761	1,707	2,415
Total Nonperforming Assets	2,597	3,060	4,855

Nonperforming loans to loans	0.47%	0.41%	0.80%
Nonperforming assets to total assets	0.46%	0.67%	1.16%
Allowance for loan losses to total loans	0.62%	0.72%	0.90%
Allowance for loan losses to nonperforming loans	135.82%	181.37%	114.18%
Capital Data (at quarter end)
Book value per share	5.91	6.01	5.90
Tangible book value per share	5.91	6.01	5.90

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,994,494	7,847,201	4,585,048
QTD Weighted Average Shares Outstanding- diluted	8,075,546	7,997,597	4,718,546
Earning Per Share - basic	$ 0.01	$ (0.35)	$ 0.14
Earning Per Share -diluted	0.01	(0.34)	0.13

Profitability Ratios
Net Interest Margin	4.30%	4.29%	4.26%
Return on Assets	0.07%	-2.40%	0.61%
Return on Equity	0.71%	-21.99%	9.33%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	10.53%	9.50%	10.11%
Common Equity Tier 1 capital	12.63%	11.64%	11.88%
Tier 1 capital ratio	12.63%	11.64%	11.88%
Total capital ratio	13.23%	12.32%	12.71%
Total risk weighted assets	429,548	365,136	338,089