First Reliance Bancshares, Inc. Reports 2nd Quarter 2018 Results and Announces Stock Repurchase Initiative

- $0.06 Net Income Per Diluted Share (as reported under Generally Accepted Accounting Principles (GAAP))

- $0.07 Operating Earnings per Diluted Share, excluding a $0.01 per share charge related to non-recurring merger related expenses (a non-GAAP financial measure)

News provided by

First Reliance Bancshares, Inc.

Aug 10, 2018, 06:01 ET

FLORENCE, S.C., Aug. 10, 2018 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported second quarter 2018 net income of $465,797, or $0.06 per diluted share. The Company's operating earnings were $591,343, or $0.07 per diluted share. 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 second quarter were $125,546, or $0.01 per diluted share.

According to F. R. Saunders, Jr., the Company's Chief Executive Officer, "We continue to see positive impact on earnings with organic growth from our recent expansion into North Carolina and from our acquisition in Greenville. We are a purpose driven company and remain focused on our business model that outlines our value proposition. While we are aware of the expense associated with expansion we have instituted an efficiency improvement initiative to remove legacy cost from our operations. Excluding noninterest expenses associated with our three office expansion in 2018, our efficiency ratio would have been 77%. For the remainder of 2018 and into 2019, we look to reduce operating expenses by $1.5 million, which we expect to improve our efficiency ratio further to the 70-72% range".

Additionally during the quarter, the Board of Directors of the Company approved the repurchase of up to approximately 30,000 shares of the Company's Common Stock and Series D Preferred Stock in open market and privately negotiated transactions through December 31, 2018. Mr. Saunders indicated that the Company implemented the repurchase plan because we felt the share trading prices were undervalued and to provide smaller investors a source of liquidity.

Highlights

Net interest income improved 30% at $4.9 million for the three months ended June 30, 2018, compared to the same period of 2017;
Loans increased 28% over the past year, with annualized organic loan growth of 12%.
Loans increased $7.0 million during the second quarter of 2018
Deposits grew 26% in the past year, with organic growth $13.5 million during the second quarter of 2018;
Received regulatory approval for opening the Winston Salem, NC Branch;
Opened a loan production office in the Lake Norman market, just north of Charlotte, NC;
Approved a 30,000 share Common Stock and Series D Preferred Stock Repurchase Initiative;
Other real estate owned, or OREO, declined by $561,215 from $761,215 to $200,000 due to the sale of parcels during the quarter;
Non-interest bearing and interest bearing checking accounts increased 15% over the past year, with organic growth of $3.5 million during the second quarter of 2018; and
Net interest margin continued to expand to 4.33% as of June 30, 2018, up from 4.30% during the previous quarter as the Company continued to leverage its low cost of funds of 51 bps.

Review of Income Statement

Net interest income improved 30% at $4.9 million for the three months ended June 30, 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 improved to 4.33% for the three months ended June 30, 2018 compared to 4.30% during the previous quarter.

Noninterest income remained steady at $2.1 million for the three months ended June 30, 2018. "Gain on sale of mortgage loans decreased modestly by $100,144 to $1.3 million for quarter ending June 30, 2018 compared to $1.4 million for quarter ending June 30, 2017 despite a higher interest rate environment and tighter operating margins. Our investment in the diversified mortgage income strategy is paying off as purchase mortgage business continues to increase, servicing income is increasing, and delinquencies are nominal." said Jeffrey Paolucci, Executive Vice President and Chief Financial Officer.

Balance Sheet and Asset Quality

Total assets increased $93.9 million, or 23.2% to $537.8 million at June 30, 2018, compared to $436.5 million from June 30, 2017.

Loans receivable grew by $86.8 million, or 27.8%, to $399.2 million at June 30, 2018, compared to $312.4 million, at June 30, 2017 due to acquired loans from the acquisition of Independence Bancshares, Inc., in January 2018 totaling $50.5 million and organic loan growth of $36.3 million including commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios. Mr. Saunders added, "Our focus on consumer and commercial loans throughout the bank has helped us with earning asset growth and yield expansion. Our newly acquired Greenville market is expanding in commercial, consumer, and mortgage loans and we anticipate that is market will continue to help us grow. We also see continuous growth in commercial loans in our new markets which include Winston-Salem, Charlotte, and Myrtle Beach."

Transaction and savings deposits increased by $36.3 million, or 12.7%, to $322.9 million at June 30, 2018, from $286.7 million one year ago. Household checking accounts increased by 3.2% 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. We recently added person-to-person payments and financial planning, budgeting, and other money management tools to further enhance customer experience," said Mr. Saunders.

Nonperforming assets declined $2.1 million to $2.4 million at June 30, 2018 compared to one year ago. The Company reduced OREO by $2.0 million via third party sales over the past twelve months to $200,000. The ratio of nonperforming assets to total assets declined to 0.45% at June 30, 2018, compared to 1.04% one year earlier. The allowance for loan losses as a percentage of loans was 0.58% at June 30, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.90% one year earlier. For the second quarter of 2018, loan charge offs were nominal and largely offset by the bank recoveries.

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 June 30, 2018, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	10.22%	5.00%
Common equity tier 1 capital	12.32%	6.50%
Tier 1 capital ratio	12.32%	8.00%
Total capital ratio	12.88%	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 $538 million. The Company employs more than 170 professional 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 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 thirteen 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.

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

	June 30	December 31	June 30
	2018	2017	2017
Assets
Cash and cash equivalents:
Cash and due from banks	$ 4,442,320	$ 3,494,469	$ 4,906,241
Interest-bearing deposits with other banks	28,589,512	21,136,350	28,249,142
Total cash and cash equivalents	33,031,832	24,630,819	33,155,383

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

Securities available-for-sale	25,083,661	26,894,719	17,571,627
Securities held-to-maturity (Estimated fair value of $15,809,271, $17,372,835.21,
and $19,070,573 at June 30, 2018, December 31, 2017, and June 30, 2017)	15,759,600	17,018,132	18,527,443
Nonmarketable equity securities	543,500	1,359,200	734,500
Total investment securities	41,386,761	45,272,051	36,833,570

Mortgage loans held for sale	6,919,940	7,885,938	5,642,044

Loans receivable	399,262,647	333,675,253	312,432,694
Less allowance for loan losses	(2,356,562)	(2,453,875)	(2,867,446)
Loans, net	396,906,085	331,221,378	309,565,248

Premises, furniture and equipment, net	20,406,445	18,463,156	18,714,423
Accrued interest receivable	1,130,259	1,094,740	935,200
Other real estate owned	200,000	1,706,765	2,242,328
Cash surrender value life insurance	17,110,338	14,293,702	14,129,444
Net deferred tax assets	8,406,261	4,461,063	7,821,793
Mortgage servicing rights	7,815,798	6,357,666	5,316,588
Goodwill	690,917	-	-
Core deposit intangible	779,033	-	-
Other assets	2,833,303	3,132,443	2,023,258
Total assets	$ 537,869,224	$ 458,621,741	$ 436,481,198
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 102,528,351	$ 86,209,099	$ 87,709,487
Interest-bearing transaction accounts	86,316,598	70,642,041	76,220,974
Savings	134,090,144	118,996,069	122,745,794
Time deposits $250,000 and over	28,581,126	13,874,405	9,736,164
Other time deposits	98,959,447	63,372,449	60,128,507
Total deposits	450,475,666	353,094,063	356,540,926

Securities sold under agreement to repurchase	18,133,207	13,929,651	16,534,007
Advances from Federal Home Loan Bank	-	22,000,000	7,300,000
Notes Payable	-	-	7,000,000
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,895,329	4,911,963	4,814,252
Accrued interest payable	284,173	253,679	309,486
Other liabilities	3,342,548	3,969,060	5,345,864
Total liabilities	487,440,923	408,468,416	408,154,535

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at June 30, 2018, December 31, 2017 and June 30, 2017	-	-	-

Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at June 30, 2018, December 31, 2017 and June 30, 2017	-	-	-

Series D preferred stock - 587, 599 and 599 shares issued and outstanding at June 30, 2018, December 31, 2017 and June 30, 2017, respectively	587	599	599

Series E preferred stock - 410,499 shares issued and outstanding at December 31, 2017	-	2,955,593	-

Common stock, $0.01 par value; 20,000,000 shares authorized,
8,001,572, 7,887,486 and 4,773,291 shares issued and outstanding
at June 30, 2018, December 31, 2017 and June 30, 2017, respectively	80,016	78,875	47,733
Non-Voting Common Stock - 410,499 shares issued and outstanding as of June 30, 2018	4,105	-	-
Capital surplus	84,349,087	46,941,229	25,691,582
Treasury stock, at cost, 64,799, 40,177 and 39,374 shares at June 30, 2018,
December 31, 2017 and June 30, 2017, respectively	(411,798)	(229,844)	(221,203)
Nonvested restricted stock	(1,661,417)	(868,399)	(673,733)
Retained Earnings/Deficit	(31,246,948)	1,573,382	3,560,217
Accumulated other comprehensive loss	(685,331)	(298,110)	(78,532)
Total shareholders' equity	50,428,301	50,153,325	28,326,663
Total liabilities and shareholders' equity	$ 537,869,224	$ 458,621,741	$ 436,481,198


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

	Three Months Ended	Three Months Ended	Three Months Ended
	June 30, 2018	December 31, 2017	June 30, 2017
Interest income:
Loans, including fees	$ 5,365,689	$ 4,288,116	$ 4,052,786

Investment securities:
Taxable	226,109	218,397	195,305
Tax exempt	38,862	34,476	28,155
Other interest income	103,363	84,235	41,984
Total	5,734,023	4,625,224	4,318,230
Interest expense:
Time deposits	467,517	236,411	168,207
Other deposits	137,422	101,606	106,976
Other interest expense	233,470	195,758	277,001
Total	838,409	533,775	552,184

Net interest income	4,895,614	4,091,449	3,766,046
Provision for loan losses	0	-	74,796
Net interest income after provision for loan losses	4,895,614	4,091,449	3,691,250

Noninterest income:
Service charges on deposit accounts	354,974	394,392	362,467
Gain on sale of mortgage loans	1,283,863	1,044,773	1,384,007
Income from bank owned life insurance	97,849	81,560	82,744
Other service charges, commissions, and fees	388,929	344,319	340,816
Other	(5,973)	90,683	77,934
Total	2,119,642	1,955,727	2,247,968

Noninterest expenses:
Salaries and benefits	3,847,938	3,185,613	2,908,554
Occupancy	547,820	433,315	417,217
Furniture and equipment related expenses	542,203	427,176	419,605
Other	1,323,816	1,621,888	1,193,025
Merger Related Expenses	125,546	501,265	-
Total	6,387,323	6,169,257	4,938,401
Income before income taxes	627,933	(122,081)	1,000,817
Income Tax Expense	162,136	2,597,546	338,184
Net (loss) income	465,797	(2,719,627)	662,633
Net (loss) income available to common shareholders	$ 465,797	$ (2,719,627)	$ 662,633

Average common shares outstanding, basic	8,065,932	7,847,201	4,693,073
Average common shares outstanding, diluted	8,126,732	7,997,597	4,830,339

Income (loss) per common share:
Basic (loss) income per share	$ 0.06	$ (0.35)	$ 0.14
Diluted (loss) income per share	$ 0.06	$ (0.34)	$ 0.14

Non-GAAP finanical measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$ 465,797	$ (2,719,627)	$ 662,633
Adjustments
Income tax expense - tax rate change	-	2,644,628	-
Merger related costs	125,546	501,265	-
Total Adjustments	125,546	3,145,893	-

Net income after adjustments (non-GAAP)	$ 591,343	$ 426,266	$ 662,633

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.07	$ 0.05	$ 0.14
Diluted (loss) income per share (non-GAAP)	$ 0.07	$ 0.05	$ 0.14

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


	June 30, 2018	December 31, 2017	June 30, 2017
Interest income:
Loans, including fees	$ 10,458,216	$ 16,321,881	$ 7,728,237

Investment securities:
Taxable	471,648	802,815	393,962
Tax exempt	77,772	118,969	56,356
Other interest income	165,487	225,924	79,541
Total	11,173,123	17,469,589	8,258,096
Interest expense:
Time deposits	801,748	732,399	296,708
Other deposits	245,782	410,459	198,874
Other interest expense	501,551	1,028,926	548,752
Total	1,549,081	2,171,784	1,044,334

Net interest income	9,624,042	15,297,805	7,213,762
Provision for loan losses	20,477	-	226,296
Net interest income after provision for loan losses	9,603,565	15,297,805	6,987,466

Noninterest income:
Service charges on deposit accounts	726,128	1,502,286	708,413
Gain on sale of mortgage loans	2,782,360	4,845,075	2,992,440
Income from bank owned life insurance	194,583	328,716	164,459
Other service charges, commissions, and fees	737,200	1,341,171	666,110
Other	114,712	324,003	148,853
Total	4,554,983	8,341,251	4,680,275

Noninterest expenses:
Salaries and benefits	7,686,974	12,075,338	5,743,587
Occupancy	1,088,394	1,685,622	817,849
Furniture and equipment related expenses	1,120,335	1,646,687	820,242
Other	2,669,452	501,265	2,348,083
Merger Related Expense	823,644	4,803,246	-
Total	13,388,799	20,712,158	9,729,761
Income before income taxes	769,749	2,926,898	1,937,980
Income tax expense	215,880	3,616,258	641,304
Net (loss) income	553,869	(689,360)	1,296,676
Net (loss) income available to common shareholders	$ 553,869	$ (689,360)	$ 1,296,676

Average common shares outstanding, basic	8,030,507	5,465,868	4,693,073
Average common shares outstanding, diluted	8,098,737	5,606,149	4,830,339

Income (loss) per common share:
Basic (loss) income per share	$ 0.07	$ (0.13)	$ 0.28
Diluted (loss) income per share	$ 0.07	$ (0.12)	$ 0.27

Non-GAAP finanical measuremnets (unaudited)

Net (loss) income available to common shareholders before adjustments	$ 553,869	$ (689,360)	$ 1,296,676
Adjustments
Income tax expense - tax rate change	-	2,644,628	-
Merger related costs	823,644	501,265	-
Total Adjustments	823,644	3,145,893	-

Net income after adjustments (non-GAAP)	$ 1,377,513	$ 2,456,533	$ 1,296,676

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.17	$ 0.45	$ 0.28
Diluted (loss) income per share (non-GAAP)	$ 0.17	$ 0.44	$ 0.27

Asset Quality and Capital Adequacy

(dollars in thousands, except asset quality and per share data)	As of and for the Three Months Ended
	June 30, 2018	December 31, 2017	June 30, 2017
Asset Quality
Loans 90 days past due & still accruing	-	-	-
Nonaccrual loans	2,202	1,353	2,273



Total nonperfoming loans	2,202	1,353	2,273

OREO and repossessed assets	200	1,707	2,242
Total Nonperforming Assets	2,402	3,060	4,515

Nonperforming loans to loans	0.55%	0.41%	0.73%
Nonperforming assets to total assets	0.45%	0.67%	1.04%
Allowance for loan losses to total loans	0.58%	0.72%	0.90%
Allowance for loan losses to nonperforming loans	107.02%	181.37%	126.15%
Capital Data (at quarter end)
Book value per share	6.04	6.01	5.98
Tangible book value per share	6.04	6.01	5.98

Per Share Data
QTD Weighted Average Shares Outstanding- basic	8,065,932	7,847,201	4,693,073
QTD Weighted Average Shares Outstanding- diluted	8,126,732	7,997,597	4,830,339
Earning Per Share - basic	$ 0.06	$ (0.35)	$ 0.14
Earning Per Share -diluted	0.06	(0.34)	0.14

Profitability Ratios
Net Interest Margin	4.33%	4.29%	4.32%
Return on Assets	0.35%	-2.40%	0.62%
Return on Equity	3.75%	-21.99%	9.49%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	10.22%	9.50%	9.92%
Common Equity Tier 1 capital	12.32%	11.64%	11.99%
Tier 1 capital ratio	12.32%	11.64%	11.99%
Total capital ratio	12.88%	12.32%	12.83%
Total risk weighted assets	428,996	365,136	342,279