First Reliance Bancshares, Inc. Reports 3rd Quarter 2018 Results And Reaffirms Stock Repurchase Initiative

- $0.09 Net Income Per Diluted Share (as reported under Generally Accepted Accounting Principles)

News provided by

Oct 29, 2018, 16:15 ET

FLORENCE, S.C., Oct. 29, 2018 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported third quarter 2018 net income of $707,098, or $0.09 per diluted share down slightly from third quarter 2017 net income of $732,793 or $0.15 per diluted share. The decrease in net income for the three month period of 2018 versus 2017 was due primarily to new market expansion costs which impacted third quarter earnings by approximately $400,000 and a higher provision for loan losses, which was $204,000 in 2018's third quarter, versus a credit of $226,000 in the year-ago quarter. (The higher provision was principally driven by higher loan balances, as asset quality improved over that period.) Third quarter 2018 net income would have been $1.2 million on a tax adjusted basis excluding these items. Net income per share was also affected by the increase in total average common shares outstanding, which increased from 4,933,687 shares (diluted) in the third quarter of 2017 to 8,073,743 shares (diluted) in third quarter 2018, as a result of a successful $25.1 million private placement on common stock by the Company at the end of September 2017. For the nine months ended 2018, net income was $1.3 million, or $0.16 per diluted share, versus $2.0 million, or $0.41 per diluted share one year ago. The decrease in net income from one year ago was primarily due to new market expansion costs totaling $1.2 million during the first nine months of 2018, merger-related expenses which were $824,000 in the first half of 2018, and $224,428 in provision for loan losses, versus none in the year-ago quarter.

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated "We are very pleased with our third quarter operating results, especially considering a $224,438 provision for loan losses made during the third quarter and increased expenses associated with our three office expansion into North Carolina and Myrtle Beach markets in 2018. We continue to see positive impact on earnings with organic growth from our recent expansions and from our acquisition in Greenville, South Carolina. 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 by 2020"

The Board of Directors of the Company recently authorized 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. Year to date, the Company has repurchased approximately 14,793 shares of Common and Series D Preferred Stock. The Board implemented the repurchase plan because it believes recent share trading prices undervalue the Company and to provide smaller investors a source of liquidity.

Highlights

Net interest income improved 28% at $5.1 million for the three months ended September 30, 2018, compared to the same period of 2017;
Loans increased 24% over the past year, with organic loan growth of $28.0 million;
Deposits grew 27% over the past year, with organic growth $20.0 million;
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
Approved a 30,000 share Common Stock and Series D Preferred Stock Repurchase program to create liquidity for our smaller shareholders;
Non-interest bearing, interest bearing checking accounts and savings accounts increased 10% over the past year; and
Net interest margin continued to expand to 4.67% as of September 30, 2018, up from 4.37% one year ago as the Company continued to leverage its low cost of funds of 54 bps.

Review of Income Statement

Net interest income improved 28% to $5.1 million for the three months ended September 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 4.67% for the three months ended September 30, 2018 compared to 4.30% during the previous quarter.

Noninterest income improved to $2.3 million for the three months ended September 30, 2018, up from $2.0 million one year ago. According to Jeffrey Paolucci, Executive Vice President and Chief Financial Officer,

"Gain on sale of mortgage loans increased modestly by $99,116 to $1.2 million for the three months ending September 30, 2018 compared to $1.1 million for the three months ending September 30, 2017 despite a higher interest rate environment and tighter operating margins. Our investment in a diversified mortgage income strategy is producing positive results as purchase mortgage business continues to increase, servicing income is increasing, and delinquencies are nominal."

Balance Sheet and Asset Quality

Total assets increased $111.2 million, or 24% to $566.9 million at September 30, 2018, compared to $455.7 million from September 30, 2017.

Loans receivable grew by $78 million, or 24%, to $405 million at September 30, 2018, compared to $327 million, at September 30, 2017 due to $50 million in loans acquired in our merger with Independence Bancshares, Inc. in January 2018 and organic loan growth of $28 million in commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios. Mr. Saunders added, "Our focus on dealer services, consumer and commercial loans throughout the bank has enhanced earning asset growth and yield expansion. We also see continuous growth in commercial and mortgage loans in our newly acquired Greenville market, as well as our new markets which include Winston-Salem, Charlotte, and Myrtle Beach. Over the next year, we expect to deploy online account opening and online loan applications, as well as move toward digital signatures and a paperless document environment as we develop our virtual bank strategies."

Transaction and savings deposits increased by $28 million, or 10%, to $320 million at September 30, 2018, from $291 million one year ago. Household checking accounts increased by 3.5% reflecting our strong year-over-year branch sales growth. "We continue to improve our products and services including treasury services and offering a full suite of digital banking services to enhance customer experience. We are seeing double digit growth in mobile banking transactions, bill pay, mobile deposit and online banking. Person to person payments are increasing as well as customer use of financial management and budgeting tools," said Mr. Saunders.

Nonperforming assets declined $562,000 to $2.4 million at September 30, 2018 compared to one year ago. The Company reduced OREO by $2 million via third party sales over the past twelve months to $140,000. The ratio of nonperforming assets to total assets declined to 0.42% at September 30, 2018, compared to 0.65% one year earlier. The allowance for loan losses as a percentage of loans was 0.59% at September 30, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.77% one year earlier. For the third 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 September 30, 2018, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.77%	5.00%
Common equity tier 1 capital	11.91%	6.50%
Tier 1 capital ratio	11.91%	8.00%
Total capital ratio	12.48%	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 $567 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 94% 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 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

	September 30		December 31		September 30
	2018		2017		2017
Assets
Cash and cash equivalents:
Cash and due from banks	$	4,652,753	$	3,494,469	$	3,595,799
Interest-bearing deposits with other banks		34,765,661		21,136,350		34,771,527
Total cash and cash equivalents		39,418,414		24,630,819		38,367,326

Time deposits in other banks		253,003		102,020		102,020

Securities available-for-sale		34,060,560		26,894,719		17,994,798
Securities held-to-maturity (Estimated fair value of $14,422,622, $17,372,835.21,
and $18,117,507 at September 30, 2018, December 31, 2017, and September 30, 2017)		14,506,964		17,018,132		17,645,821
Nonmarketable equity securities		1,011,000		1,359,200		424,200
Trust Preferred Securities		2,300,000
Total investment securities		51,878,524		45,272,051		36,064,819

Mortgage loans held for sale		11,958,216		7,885,938		5,892,189

Loans receivable		405,245,246		333,675,253		327,001,685
Less allowance for loan losses		(2,470,592)		(2,453,875)		(2,561,166)
Loans, net		402,774,654		331,221,378		324,440,519

Premises, furniture and equipment, net		20,273,144		18,463,156		18,648,530
Accrued interest receivable		1,231,464		1,094,740		929,974
Other real estate owned		140,000		1,706,765		2,244,453
Cash surrender value life insurance		17,208,115		14,293,702		14,212,143
Net deferred tax assets		8,267,723		4,461,063		7,519,149
Mortgage servicing rights		8,456,680		6,357,666		5,856,286
Goodwill		690,917		-		-
Core deposit intangible		730,856		-		-
Other assets		3,618,914		3,132,443		1,384,072
Total assets	$	566,900,624	$	458,621,741	$	455,661,480
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$	105,977,280	$	86,209,099	$	89,974,860
Interest-bearing transaction accounts		83,153,827		70,642,041		73,063,770
Savings		131,155,688		118,996,069		128,822,217
Time deposits $250,000 and over		33,699,530		13,874,405		13,253,470
Other time deposits		116,258,761		63,372,449		64,073,962
Total deposits		470,245,086		353,094,063		369,188,279

Securities sold under agreement to repurchase		16,826,308		13,929,651		13,791,295
Advances from Federal Home Loan Bank		10,000,000		22,000,000		-
Notes Payable		-		-		-
Junior subordinated debentures		10,310,000		10,310,000		10,310,000
Subordinated debentures		4,863,985		4,911,963		4,776,800
Accrued interest payable		285,766		253,679		142,191
Other liabilities		3,427,573		3,969,060		3,321,321
Total liabilities		515,958,718		408,468,416		401,529,886

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at September 30, 2018, December 31, 2017 and September 30, 2017		-		-		-
Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at September 30, 2018, December 31, 2017 and September 30, 2017		-		-		-
Series D preferred stock - 581, 599 and 599 shares issued and outstanding at September 30, 2018, December 31, 2017 and September 30, 2017, respectively		581		599		599
Series E preferred stock - 410,499 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively		-		2,955,593		2,955,593
Common stock, $0.01 par value; 20,000,000 shares authorized,
8,002,172, 7,887,486 and 7,867,486 shares issued and outstanding
at September 30, 2018, December 31, 2017 and September 30, 2017, respectively		80,022		78,875		78,675
Non-Voting Common Stock - 410,499 shares issued and outstanding as of September 30, 2018		4,105		-		-
Capital surplus		84,333,757		46,941,229		47,934,844
Treasury stock, at cost, 83,015, 40,177 and 39,894 shares at September 30, 2018,
December 31, 2017 and September 30, 2017, respectively		(543,237)		(229,844)		(224,756)
Nonvested restricted stock		(1,583,981)		(868,399)		(780,209)
Retained Earnings/Deficit		(30,544,164)		1,573,382		4,293,010
Accumulated other comprehensive loss		(805,177)		(298,110)		(126,162)
Total shareholders' equity		50,941,906		50,153,325		54,131,594
Total liabilities and shareholders' equity	$	566,900,624	$	458,621,741	$	455,661,480

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

	Three Months Ended		Three Months Ended		Three Months Ended
	September 30, 2018		December 31, 2017		September 30, 2017
Interest income:
Loans, including fees	$	5,639,520	$	4,288,116	$	4,305,528

Investment securities:
Taxable		267,900		218,397		190,457
Tax exempt		35,894		34,476		28,136
Other interest income		108,003		84,235		62,148
Total		6,051,317		4,625,224		4,586,269
Interest expense:
Time deposits		593,527		236,411		199,277
Other deposits		146,083		101,606		109,980
Other interest expense		181,516		195,758		284,415
Total		921,126		533,775		593,672

Net interest income		5,130,191		4,091,449		3,992,597
Provision for loan losses		203,961		-		(226,296)
Net interest income after provision for loan losses		4,926,230		4,091,449		4,218,893

Noninterest income:
Service charges on deposit accounts		417,955		394,392		399,479
Gain on sale of mortgage loans		1,160,410		1,044,773		1,061,294
Income from bank owned life insurance		97,777		81,560		82,699
Other service charges, commissions, and fees		379,433		344,319		330,742
Gain/Loss on Nonmarketable securities		38,152		-		-
Other		176,833		90,683		84,467
Total		2,270,560		1,955,727		1,958,681

Noninterest expenses:
Salaries and benefits		3,820,567		3,185,613		3,107,198
Occupancy		566,876		433,315		434,458
Furniture and equipment related expenses		397,381		427,176		399,267
Other		1,507,140		1,621,888		1,126,451
Merger Related Expenses		-		501,265		-
Total		6,291,964		6,169,257		5,067,374
Income before income taxes		904,826		(122,081)		1,110,200
Income Tax Expense		197,728		2,597,546		377,407
Net income (loss)		707,098		(2,719,627)		732,793
Net income (loss) available to common shareholders	$	707,098	$	(2,719,627)	$	732,793

Average common shares outstanding, basic		7,948,962		7,847,201		4,794,084
Average common shares outstanding, diluted		8,073,743		7,997,597		4,933,667

Income (loss) per common share:
Basic (loss) income per share	$	0.09	$	(0.35)	$	0.15
Diluted (loss) income per share	$	0.09	$	(0.35)	$	0.15

Non-GAAP financial measurements (unaudited)

Net income (loss) available to common shareholders before adjustments	$	707,098	$	(2,719,627)	$	732,793
Adjustments
Income tax expense - tax rate change		-		2,644,628		-
Merger related costs		-		501,265		-
Total Adjustments		-		3,145,893		-

Net income after adjustments (non-GAAP)	$	707,098	$	426,266	$	732,793

Adjusted Income per common share:
Basic income per share (non-GAAP)	$	0.09	$	0.05	$	0.15
Diluted income per share (non-GAAP)	$	0.09	$	0.05	$	0.15

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


	September 30, 2018		December 31, 2017		September 30, 2017
Interest income:
Loans, including fees	$	16,097,736	$	16,321,881	$	12,033,766

Investment securities:
Taxable		739,548		802,815		584,420
Tax exempt		113,666		118,969		84,492
Other interest income		273,490		225,924		141,688
Total		17,224,440		17,469,589		12,844,366
Interest expense:
Time deposits		1,395,275		732,399		495,986
Other deposits		391,865		410,459		306,855
Other interest expense		683,067		1,028,926		833,167
Total		2,470,207		2,171,784		1,636,008

Net interest income		14,754,233		15,297,805		11,206,358
Provision for loan losses		224,438		-		-
Net interest income after provision for loan losses		14,529,795		15,297,805		11,206,358

Noninterest income:
Service charges on deposit accounts		1,144,083		1,502,286		1,107,893
Gain on sale of mortgage loans		3,942,770		4,845,075		3,800,299
Income from bank owned life insurance		292,360		328,716		247,157
Other service charges, commissions, and fees		1,116,633		1,341,171		996,853
Gain/Loss on Nonmarketable securities		38,152		-		-
Other		291,545		324,003		233,319
Total		6,825,543		8,341,251		6,385,521

Noninterest expenses:
Salaries and benefits		11,507,541		12,075,338		8,889,725
Occupancy		1,655,270		1,685,622		1,252,307
Furniture and equipment related expenses		1,517,716		1,646,687		1,219,509
Other		4,176,592		501,265		3,181,358
Merger Related Expense		823,644		4,803,246		-
Total		19,680,763		20,712,158		14,542,899
Income before income taxes		1,674,575		2,926,898		3,048,980
Income tax expense		413,608		3,616,258		1,018,711
Net (loss) income		1,260,967		(689,360)		2,030,269
Net (loss) income available to common shareholders	$	1,260,967	$	(689,360)	$	2,030,269

Average common shares outstanding, basic		7,672,397		5,465,868		4,794,084
Average common shares outstanding, diluted		7,809,291		5,606,149		4,933,667

Income (loss) per common share:
Basic income (loss) per share	$	0.16	$	(0.13)	$	0.42
Diluted income (loss) per share	$	0.16	$	(0.13)	$	0.41

Non-GAAP financial measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$	1,260,967	$	(689,360)	$	2,030,269
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)	$	2,084,611	$	2,456,533	$	2,030,269

Adjusted Income per common share:
Basic income per share (non-GAAP)	$	0.27	$	0.45	$	0.42
Diluted income per share (non-GAAP)	$	0.27	$	0.44	$	0.41

Asset Quality and Capital Adequacy

(dollars in thousands, except asset quality and per share data)	As of and for the Three Months Ended
	September 30, 2018		December 31, 2017		September 30, 2017
Asset Quality
Loans 90 days past due & still accruing		-		-		-
Nonaccrual loans		2,245		1,353		703



Total nonperforming loans		2,245		1,353		703

OREO and repossessed assets		140		1,707		2,244
Total Nonperforming Assets		2,385		3,060		2,947

Nonperforming loans to loans		0.56%		0.41%		0.23%
Nonperforming assets to total assets		0.42%		0.67%		0.65%
Allowance for loan losses to total loans		0.59%		0.72%		0.77%
Allowance for loan losses to nonperforming loans		110.05%		181.37%		364.32%
Capital Data (at quarter end)
Book value per share		6.12		6.00		6.54
Tangible book value per share		5.94		6.00		6.54

Per Share Data
QTD Weighted Average Shares Outstanding- basic		8,065,932		7,847,201		4,794,084
QTD Weighted Average Shares Outstanding- diluted		8,126,732		7,997,597		4,933,667
Earning Per Share - basic	$	0.09	$	(0.35)	$	0.15
Earning Per Share -diluted		0.09		(0.35)		0.15

Profitability Ratios
Net Interest Margin		4.67%		4.29%		4.32%
Return on Average Assets		0.69%		0.26%		0.85%
Return on Average Equity		6.20%		2.41%		7.93%

Capital Adequacy- Bank Only
Tier 1 leverage ratio		9.77%		9.50%		9.66%
Common Equity Tier 1 capital		11.91%		11.64%		11.75%
Tier 1 capital ratio		11.91%		11.64%		11.75%
Total capital ratio		12.48%		12.32%		12.46%
Total risk weighted assets		440,743		365,136		357,250