First Reliance Bancshares, Inc. Reports 1st Quarter 2019 Results and Reaffirms Stock Repurchase Plan

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May 01, 2019, 06:00 ET

FLORENCE, S.C., May 1, 2019 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported first quarter 2019 net income of $661,955, or $0.08 per diluted share, up significantly from first quarter 2018 net income of $88,072 or $0.01 per diluted share. The increase in net income for the first quarter of 2019 versus 2018 was due primarily to higher net interest income, which grew 9%, and benefited from loan growth of $57 million, up 14% year over year. Also during the first quarter of 2019, the Company made strides toward reducing non-interest expenses by $177,098 compared to first quarter 2018 (adjusted for merger related costs for both quarters) and incurred increased provision for loan loss expense of $145,547 in first quarter of 2019 compared to $20,477 in the first quarter of 2018 as outstanding loans grew by $57 million, or 15%, to $449 million at March 31, 2019, compared to $392 million, at March 31, 2018.

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated, "We are very pleased with our first quarter operating results as we continue to see a positive impact on earnings with organic growth from our recent expansions into Greenville and Myrtle Beach, South Carolina along with expansions into Winston-Salem and Charlotte, North Carolina. Today, market conditions are heated, and it is becoming increasingly more challenging to attract low-cost deposits and deploy these funds in higher yielding loans. As such, we are now shifting our primary focus to increasing our profitability and reducing our efficiency ratio. This initiative is a multi-pronged approach which will begin to show results in 2019 with the fuller effect coming in 2020. During 2018, we took a deep dive into how we do business now and how we need to do business going forward. This work identified in excess of $2.5 million of cost savings and revenue enhancements that will be implemented over a judicious timeline in order to minimize the effects on our customers. Our commitment is to drive our efficiency ratio down to the mid 60's over the next three years. Additionally, we closed our Loris, South Carolina branch in December 2018, and have announced the closing of our Summerville, South Carolina office in June 2019. These markets were not providing us the growth and returns necessary to keep them open. We will continue to analyze all our locations to ensure they are located and staffed for profitable growth," said Saunders.

The Board of Directors of the Company recently authorized the repurchase of up to approximately 100,000 shares of the Company's Common Stock and Series D Preferred Stock in open market and privately negotiated transactions through December 31, 2019. The Board implemented the repurchase plan because it believes recent share trading prices undervalue the Company and to provide smaller shareholders with a source of liquidity.

Highlights

Net interest income improved 9% at $5.1 million for the three months ended March 31, 2019, compared to the same period of 2018;
Loans increased 14% or $57 million over the past year;
Deposits grew 17% or $75 million over the past year;
Transaction accounts increased $17 million, or 9%, over the past year;
Announced the closure of the Loris, South Carolina branch effective December 31, 2018. Customers will be serviced from the Myrtle Beach office at 507, 21^st Avenue N., Myrtle Beach, SC;
Announced the closure of the Summerville, South Carolina branch effective June 15, 2019. Customers will be serviced from the Mount Pleasant office at 800 South Shelmore Blvd, Mount Pleasant, SC or from the Charleston office at 25 Cumberland Street, Charleston, SC;
Approved a 100,000 share Common Stock and Series D Preferred Stock Repurchase program to create liquidity for our smaller shareholders;
Began accepting deposits in our Winston-Salem, North Carolina branch office 3^rd quarter 2018;
Requesting approval from FDIC to accept deposits and operate a full service branch in Mooresville, North Carolina (Lake Norman area of the greater Charlotte area MSA) in 3rd quarter 2019; and
Enacted new lease accounting standards effective March 31, 2019 thus increasing premises, furniture and equipment and lease liability by $6.2 million.

Review of Income Statement

Net interest income improved 9% to $5.1 million for the first quarter of 2019, compared to the same period of 2018. According to Jeffrey Paolucci, Executive Vice President and Chief Financial Officer, "The increase in net interest income was due principally to growth in earning assets while net interest margin at 4.17% as of March 31, 2019 continues to perform well compared to our peers due to strong asset yields and solid base of lower priced deposits. With our entry into new and more competitive markets and the flattening of the yield curve, we are expecting some compression in our margins. Yield on earning assets increased to 5.11% for the quarter ended March 31, 2019, compared to 4.77% for the first quarter of 2018. Cost of funds increased to 96 basis points for the first quarter of 2019, compared to 46 basis points for the year prior quarter."

Noninterest income was $2.0 million for the quarter ended March 31, 2019, down from $2.4 million in the first quarter of 2018 primarily due to lesser gains on sale of mortgage loans. Also, the Company took a $300,000 servicing right income adjustment taken in March 2018, while no income adjustment was taken in March 2019.

Balance Sheet

Total assets increased $72 million, or 14%, to $604 million at March 31, 2019, compared to $532 million at March 31, 2018. Loans receivable grew by $57 million, or 15%, to $449 million at March 31, 2019, compared to $392 million, at March 31, 2018 due to organic loan growth in our commercial, 1-4 family mortgage portfolios and consumer loan portfolios. Mr. Saunders added, "With increased competition for low cost funding and pressure on operating margins, we are focusing our growth efforts to markets with deep client relationships that are less price sensitive. Our growth experience in the new markets of Winston-Salem, Mooresville-Charlotte, and Myrtle Beach is better than expected with loan growth in one year totaling $31 million in Winston-Salem, $12 million in Mooresville-Charlotte, and $12 million in Myrtle Beach. We are now accepting deposits in our Winston-Salem and Myrtle Beach branch offices and plan to accept deposits in our Mooresville-Charlotte location by third quarter 2019. Our completed acquisition of Independence National Bank in 2018 positioned us in the Greenville, SC market and boosted our loans and deposits. Upstate South Carolina is arguably one of the best markets in the Southeast and we look forward to continued growth opportunities in Greenville and surrounding areas. Transaction deposits increased by $17 million, or 9%, to $202 million at March 31, 2019, from $185 million one year ago. Household checking accounts increased by 10% reflecting our strong year-over-year branch sales growth. One of the main drivers of our strong margin is our concentration of core transaction accounts. Obtaining the main checking account for consumers and businesses is a major focus for all of our bankers. During 2018, we added a Director of Treasury Services to work closely with our bankers and to develop a full suite of deposit accounts and services for our business customers. We continue to enhance our deposit offerings to retain and attract this low-cost deposit base."

Asset Quality

"Our asset quality continues to be very positive with nonperforming assets declining by $61,000 to $2.2 million at March 31, 2019 compared to one year ago. OREO and repossessed assets remain nominal. The ratio of nonperforming assets to total assets declined to 0.37% at March 31, 2019, compared to 0.49% one year earlier. The allowance for loan losses as a percentage of loans was 0.65% at March 31, 2019 (adjusted for purchase accounting marks on acquired loans), compared to 0.62% one year earlier. For the first quarter of 2019, Company recoveries offset and out-paced loan charge offs with a positive net recovery of $73,000. We are very pleased with the current quality of our loan portfolio. During 2018, we made additions to our credit team and introduced new technology and processes for more efficient credit approvals, closings, and fundings," added Mr. Saunders.

Capital

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, 2019, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.48%	5.00%
Common equity tier 1 capital	10.98%	6.50%
Tier 1 capital ratio	10.98%	8.00%
Total capital ratio	11.64%	10.00%

ABOUT FIRST RELIANCE BANCSHARES, INC.

Founded in 1999, First Reliance Bancshares, Inc., (OTC: FSRL.OB) is based in Florence, SC and has assets of approximately $604 million. The Company employs more than 166 professionals and has locations throughout the Carolinas. First Reliance has redefined community banking with a commitment to making customers lives better, its founding principle. Customers of the bank have given it a 95% customer satisfaction rating. 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 13 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. In addition to offering a full range of personalized community banking products and services for individuals, small businesses, and corporations, First Reliance offers five unique community-customers programs, which include: Hometown Heroes, a package of benefits for those serving our communities; Check N Save, an outreach program for the unbanked or under-banked; Moms First, a program recognizing inspiring mothers; and iMatter, a program supporting a younger audience. The Company also offers a full suite of digital banking services, a Customer Service Guaranty, a Mortgage Service Guaranty, and is open on most traditional holidays.

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 Bancshares, Inc., 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, [email protected].

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

	March	December	March
	2019	2018	2018
Assets
Cash and cash equivalents:
Cash and due from banks	$ 5,028,887	$ 4,638,332	$ 4,229,533
Interest-bearing deposits with other banks	21,397,846	29,923,656	23,862,041
Total cash and cash equivalents	26,426,733	34,561,988	28,091,574

Time deposits in other banks	253,345	253,003	2,752,252

Securities available-for-sale	38,975,898	33,556,796	25,748,692
Securities held-to-maturity (Estimated fair value of $11,936,060, $14,250,850,
and $18,870,275 at March 31, 2019, December 31, 2018, and March 31, 2018)	11,728,233	14,107,252	16,273,831
Nonmarketable equity securities	948,400	1,393,500	1,006,800
Trust Preferred Securities	0	0	0
Total investment securities	51,652,531	49,057,548	43,029,323

Mortgage loans held for sale	12,180,449	12,713,361	8,964,502

Loans receivable	449,028,477	430,795,891	392,270,200
Less allowance for loan losses	(3,000,560)	(2,788,188)	(2,493,665)
Loans, net	446,027,917	428,007,703	389,776,535

Premises, furniture and equipment, net	26,490,764	20,310,879	20,178,871
Accrued interest receivable	1,348,416	1,318,104	1,090,420
Other real estate owned	229,295	341,519	761,215
Cash surrender value life insurance	17,401,808	17,306,312	17,012,489
Net deferred tax assets	7,698,885	7,923,572	8,535,933
Mortgage servicing rights	9,575,367	9,023,859	7,142,777
Goodwill	690,917	690,917	727,654.00
Core deposit intangible	639,115	684,217	828,748.00
Other assets	3,768,239	2,796,830	3,463,924
Total assets	$ 604,383,781	$ 584,989,812	$ 532,356,217
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 116,847,979	$ 103,201,256	$ 100,824,151
Interest-bearing transaction accounts	85,550,093	83,251,127	84,618,230
Savings	114,705,765	120,801,341	137,394,385
Time deposits $250,000 and over	43,361,348	42,870,456	26,396,238
Other time deposits	151,917,075	126,044,529	87,742,736
Total deposits	512,382,260	476,168,709	436,975,740

Securities sold under agreement to repurchase	7,348,743	16,852,981	16,980,384
Advances from Federal Home Loan Bank	6,600,000	20,000,000	10,000,000
Notes Payable	-	-	-
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,853,045	4,934,877	4,873,264
Accrued interest payable	410,128	447,883	181,378
Lease Liabilty	6,238,784
Other liabilities	3,059,909	4,106,913	3,049,650
Total liabilities	551,202,870	532,821,363	482,370,416

Shareholders' Equity
Preferred stock
Series D preferred stock - 581, 581 and 587 shares issued and outstanding at March 31 2019, December 31, 2018, and March 31, 2018, respectively	581	581	587
Series E preferred stock - 0 shares issued and outstanding at March 31, 2019 and December 31, 2018, 410,499 shares issued and outstanding at March 31, 2018	-	-	2,955,593
Common stock, $0.01 par value; 20,000,000 shares authorized, 8,032,833, 8,002,172 and 7,889,772 shares issued and outstanding at March 31, 2019, December 31, 2018, and March 31, 2018, respectively	80,328	80,022	80,047
Non-Voting Common Stock - 410,499 shares issued and outstanding as of March 31, 2019 and December 31, 2018, 0 shares outstanding as of March 31, 2018	4,105	4,105	-
Capital surplus	51,080,816	50,904,763	81,170,550
Treasury stock, at cost, 110,023, 94,505 and 41,032 at March 31, 2019,
December 31, 2018 and March 31, 2018, respectively	(743,143)	(624,120)	(233,192)
Nonvested restricted stock	(1,533,362)	(1,508,630)	(1,664,674)
Retained Earnings/Deficit	4,665,572	4,003,616	(31,671,363)
Accumulated other comprehensive loss	(373,986)	(691,888)	(651,747)
Total shareholders' equity	53,180,911	52,168,449	49,985,801
Total liabilities and shareholders' equity	$ 604,383,781	$ 584,989,812	$ 532,356,217

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

	Three Months Ended	Three Months Ended	Three Months Ended
	March 31, 2019	December 31, 2018	March 31, 2018
Interest income:
Loans, including fees	$ 6,138,497	$ 5,913,149	$ 5,092,527

Investment securities:
Taxable	299,938	299,711	245,539
Tax exempt	34,312	34,283	38,910
Other interest income	87,911	153,108	62,124
Total	6,560,658	6,400,251	5,439,100
Interest expense:
Time deposits	967,550	796,162	334,231
Other deposits	139,151	142,706	108,360
Other interest expense	312,525	281,407	268,081
Total	1,419,226	1,220,275	710,672

Net interest income	5,141,432	5,179,977	4,728,428
Provision for loan losses	145,547	285,918	20,477
Net interest income after provision for loan losses	4,995,885	4,894,059	4,707,951

Noninterest income:
Service charges on deposit accounts	398,227	453,128	371,154
Gain on sale of mortgage loans	1,001,504	1,195,889	1,498,497
Income from bank owned life insurance	95,496	98,197	96,734
Other service charges, commissions, and fees	370,759	393,771	348,271
Gain on Sale of Investment Securities	21,168
Gain on Nonmarketable securities	12,380	800,000	-
Other	97,054	100,909	120,685
Total	1,996,588	3,041,894	2,435,341

Noninterest expenses:
Salaries and benefits	3,757,601	3,865,590	3,839,036
Occupancy	589,442	571,866	540,574
Furniture and equipment related expenses	471,059	503,636	578,132
Other	1,308,178	1,316,045	1,345,636
Merger Related Expenses	37,211	181,551	698,098
Total	6,163,491	6,438,688	7,001,476
Income before income taxes	828,982	1,497,265	141,816
Income Tax Expense	167,027	327,998	53,744
Net income	661,955	1,169,267	88,072
Net income available to common shareholders	$ 661,955	$ 1,169,267	$ 88,072

Average common shares outstanding, basic	7,950,432	7,934,841	7,888,139
Average common shares outstanding, diluted	8,057,750	8,040,316	8,046,466

Income per common share:
Basic income per share	$ 0.08	$ 0.15	$ 0.01
Diluted income per share	$ 0.08	$ 0.15	$ 0.01

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


	March 31, 2019	December 31, 2018	March 31, 2018
Interest income:
Loans, including fees	$ 6,138,497	$ 22,010,885	$ 5,092,527

Investment securities:
Taxable	299,938	1,039,259	245,539
Tax exempt	34,312	147,950	38,910
Other interest income	87,911	426,598	62,124
Total	6,560,658	23,624,692	5,439,100
Interest expense:
Time deposits	967,550	2,191,437	334,231
Other deposits	139,151	534,572	108,360
Other interest expense	312,525	964,475	268,081
Total	1,419,226	3,690,484	710,672

Net interest income	5,141,432	19,934,208	4,728,428
Provision for loan losses	145,547	510,356	20,477
Net interest income after provision for loan losses	4,995,885	19,423,852	4,707,951

Noninterest income:
Service charges on deposit accounts	398,227	1,597,211	371,154
Gain on sale of mortgage loans	1,001,504	5,138,660	1,498,497
Income from bank owned life insurance	95,496	390,557	96,734
Other service charges, commissions, and fees	370,759	1,510,405	348,271
Gain on sale of Investment Securities	21,168	-	-
Gain on Nonmarketable securities	12,380	800,000	-
Other	97,054	487,529	120,685
Total	1,996,588	9,924,362	2,435,341

Noninterest expenses:
Salaries and benefits	3,757,601	15,373,131	3,839,036
Occupancy	589,442	2,227,135	540,574
Furniture and equipment related expenses	471,059	2,021,351	578,132
Other	1,308,178	5,549,562	1,345,636
Merger Related Expense	37,211	1,005,195	698,098
Total	6,163,491	26,176,374	7,001,476
Income before income taxes	828,982	3,171,840	141,816
Income tax expense	167,027	741,606	53,744
Net income	661,955	2,430,234	88,072
Net income available to common shareholders	$ 661,955	$ 2,430,234	$ 88,072

Average common shares outstanding, basic	7,950,432	7,738,547	7,888,139
Average common shares outstanding, diluted	8,057,750	7,867,586	8,046,466

Income (loss) per common share:
Basic income (loss) per share	$ 0.08	$ 0.31	$ 0.01
Diluted income (loss) per share	$ 0.08	$ 0.31	$ 0.01

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, 2019	December 31, 2018	March 31, 2018
Asset Quality
Loans 90 days past due & still accruing	-	10	-
Nonaccrual loans	1,985	1,923	1,836






Total nonperfoming loans	1,985	1,933	1,836

OREO and repossessed assets	229	342	761
Total Nonperforming Assets	2,214	2,275	2,597

Accruing TDRs	3,720	4,746	-

Nonperforming loans to loans	0.48%	0.45%	0.46%
Nonperforming assets to total assets	0.37%	0.39%	0.49%
Allowance for loan losses to total loans	0.65%	0.63%	0.62%
Allowance for loan losses to nonperforming loans	151.16%	144.24%	135.82%
Capital Data (at quarter end)
Book value per share	6.38	6.27	5.99
Tangible book value per share	6.22	6.11	5.79

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,950,432	7,934,841	7,888,139
QTD Weighted Average Shares Outstanding- diluted	8,057,750	8,040,316	8,046,466
Earning Per Share - basic	$ 0.08	$ 0.15	$ 0.01
Earning Per Share -diluted	0.08	0.15	0.01

Profitability Ratios
Net Interest Margin	4.17%	4.30%	4.30%
Return on Average Assets	0.69%	0.69%	0.69%
Return on Average Equity	6.33%	6.33%	6.85%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.48%	9.51%	10.54%
Common Equity Tier 1 capital	10.98%	11.40%	12.65%
Tier 1 capital ratio	10.98%	11.40%	12.65%
Total capital ratio	11.64%	12.05%	13.24%
Total risk weighted assets	492,386	466,353	429,511