First Reliance Bancshares, Inc. Reports 4th Quarter 2018 Results And Reaffirms Stock Repurchase Plan

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Jan 25, 2019, 06:00 ET

FLORENCE, S.C., Jan. 25, 2019 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported fourth quarter 2018 net income of $1,205,120, or $0.15 per diluted share, up significantly from fourth quarter 2017 net loss of $2,719,627 or $0.35 per diluted share. The increase in net income for the fourth quarter of 2018 versus 2017 was due primarily to loan growth of $97.1 million, up 29.1% year over year, thus increasing net interest income by $1.0 million, or 26.6%, year over year, and the one-time gain on nonmarketable securities of $800,000. Also during the fourth quarter, the Company incurred new market expansion costs totaling approximately $200,000 and higher provision for loan losses, which was $285,918 in 2018's fourth quarter, versus no provision in the fourth quarter of 2017. The higher provision in 2018 was principally driven by higher loan balances, as asset quality improved over that period. For the twelve months ended December 31, 2018, net income was $2,466,087, or $0.31 per diluted share, versus a net loss of $689,360, or $0.13 per diluted share, for the twelve months ended December 31, 2017. Net income for 2018 reflects the impact of $877,420 in merger-related expenses related to the purchase of Independence Bancshares, Inc. in January 2018. Also during 2018, the Company expanded into Winston-Salem and Charlotte, NC and Myrtle Beach, SC, which reduced net income for the year by approximately $1.3 million.

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated, "We are very pleased with our fourth quarter operating results as we continue to see a positive impact on earnings with organic growth from our recent expansions and from our acquisition in Greenville, South Carolina. We have we begun an efficiency improvement initiative to remove legacy cost from our operations and are already beginning to results from this. For 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. Additionally, the Company announced the closure of our Loris, SC branch which is expected to reduce annual operating costs by $500,000."

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 27% at $5.2 million for the three months ended December 31, 2018, compared to the same period of 2017;
Loans increased 29% over the past year, with organic loan growth of $47.0 million and $50 million in loan growth attributed to the acquisition with Independence Bancshares in January 2018;
Deposits grew 35% over the past year, with organic deposit growth of $52 million and $71 million in deposit growth attributed to the acquisition of Independence Bancshares in January 2018;
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 100,000 share Common Stock and Series D Preferred Stock Repurchase program to create liquidity for our smaller shareholders;
Transaction accounts increased $30 million, or 19%, over the past year; and
Net interest margin continues to remain relatively stable at 4.30% as of December 31, 2018.

Review of Income Statement

Net interest income improved 27% to $5.2 million for the fourth quarter of 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 margin remained stable at to 4.30% for the quarter ended December 31, 2018 compared to the previous quarter. Yield on earning assets increased to 4.91% for the quarter ended December 31, 2018, compared to 4.89% for the third quarter of 2018. Cost of funds increased to 61 basis points for the fourth quarter of 2018, compared to 54 basis points for preceding quarter.

Noninterest income improved to $3.0 million for the quarter ended December 31, 2018, up from $2.0 million in the fourth quarter of 2017 primarily due to the one-time gain on nonmarketable securities and continuous improvement in gain on sale of mortgage loans. According to Jeffrey Paolucci, Executive Vice President and Chief Financial Officer,

"Gain on sale of mortgage loans increased modestly by $151,000 to $1.2 million for the three months ending December 31, 2018 compared to $1.0 million for the three months ending December 31, 2017 despite a higher interest rate environment and tighter operating margins. Our investment in a diversified mortgage income strategy continues to produce 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 $126.3 million, or 28%, to $584.9 million at December 31, 2018, compared to $458.6 million at December 31, 2017.

Loans receivable grew by $97.1 million, or 29%, to $430.8 million at December 31, 2018, compared to $333.7 million, at December 31, 2017 due to $47.1 million in organic loan growth in commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios, and $50.0 million in loans acquired in our merger with Independence Bancshares, Inc. in January 2018. Mr. Saunders added, "Earning asset growth and yield expansion has primarily been the result of our focus on dealer services, consumer and commercial loans throughout the bank. Additionally we see continuous growth in mortgage loans in all our markets including our newly acquired Greenville market, as well as our new markets which include Winston-Salem, Charlotte, and Myrtle Beach. Online mortgage applications continue to grow as customers want the convenience of applying online or using mobile devices. Over the next year, we expect to increase efficiencies as customers demand more virtual banking strategies which allow them to conduct transactions when, where and how they want to, as well as deploying online deposit and loan account opening."

Transaction deposits increased by $29.6 million, or 19%, to $186.5 million at December 31, 2018, from $156.9 million one year ago. Household checking accounts increased by 10.6% reflecting our strong year-over-year branch sales growth. "Our focus for 2019 will be on expanding treasury services to our business customers and offering a full suite of digital banking services to enhance the customer experience. We continue to see strong demand and use from our customers in mobile banking, bill pay, mobile deposit and online banking," said Mr. Saunders.

Nonperforming assets declined by $785,000 to $2.3 million at December 31, 2018 compared to one year ago. The Company reduced OREO by $1.4 million via third party sales over the past twelve months to $342,000. The ratio of nonperforming assets to total assets declined to 0.39% at December 31, 2018, compared to 0.67% one year earlier. The allowance for loan losses as a percentage of loans was 0.63% at December 31, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.72% one year earlier. For the fourth 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 December 31, 2018, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.51%	5.00%
Common equity tier 1 capital	11.41%	6.50%
Tier 1 capital ratio	11.41%	8.00%
Total capital ratio	12.05%	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 173 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, [email protected].

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

	December 31	September 30	December 31
	2018	2018	2017
Assets
Cash and cash equivalents:
Cash and due from banks	$ 4,638,333	$ 4,652,753	$ 3,494,469
Interest-bearing deposits with other banks	29,923,657	34,765,661	21,136,350
Total cash and cash equivalents	34,561,990	39,418,414	24,630,819

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

Securities available-for-sale	33,556,797	34,060,560	26,894,719
Securities held-to-maturity (Estimated fair value of $14,250,850, $14,422,622
and $17,372,835 at December 31, 2018, September 31, 2018 and December 31, 2017)	14,107,253	14,506,964	17,018,132
Nonmarketable equity securities	1,393,500	1,011,000	1,359,200
Trust Preferred Securities	0	2,300,000
Total investment securities	49,057,550	51,878,524	45,272,051

Mortgage loans held for sale	12,713,361	11,958,216	7,885,938

Loans receivable	430,795,894	405,245,246	333,675,253
Less allowance for loan losses	(2,788,189)	(2,470,592)	(2,453,875)
Loans, net	428,007,705	402,774,654	331,221,378

Premises, furniture and equipment, net	20,332,031	20,273,144	18,463,156
Accrued interest receivable	1,318,104	1,231,464	1,094,740
Other real estate owned	341,519	140,000	1,706,765
Cash surrender value life insurance	17,306,312	17,208,115	14,293,702
Net deferred tax assets	7,923,572	8,267,723	4,461,063
Mortgage servicing rights	9,023,859	8,456,680	6,357,666
Goodwill	684,217	690,917.00	-
Core deposit intangible	690,917	730,856.00	-
Other assets	2,714,930	3,618,914	3,132,443
Total assets	$ 584,929,070	$ 566,900,624	$ 458,621,741
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 103,201,256	$ 105,977,280	$ 86,209,099
Interest-bearing transaction accounts	83,251,128	83,153,827	70,642,041
Savings	120,801,342	131,155,688	118,996,069
Time deposits $250,000 and over	42,870,456	33,699,530	13,874,405
Other time deposits	126,044,528	116,258,761	63,372,449
Total deposits	476,168,710	470,245,086	353,094,063

Securities sold under agreement to repurchase	16,852,981	16,826,308	13,929,651
Advances from Federal Home Loan Bank	20,000,000	10,000,000	22,000,000
Notes Payable	-	-	-
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,874,132	4,863,985	4,911,963
Accrued interest payable	447,833	285,766	253,679
Other liabilities	4,106,964	3,427,573	3,969,060
Total liabilities	532,760,620	515,958,718	408,468,416

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at December 31, 2018, September 30, 2018 and December 31, 2017	-	-	-
Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at December 31, 2018, September 30, 2018 and December 31, 2017	-	-	-
Series D preferred stock - 581, 581 and 599 shares issued and outstanding at December 31, 2018, September 30, 2018 and December 31, 2017, respectively	581	581	599
Series E preferred stock - 410,499 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively	-	-	2,955,593
Common stock, $0.01 par value; 20,000,000 shares authorized,
8,002,172, 8,002,712 and 7,887,486 shares issued and outstanding
at December 31, 2018, September 30, 2018 and December 31, 2017, respectively	80,022	80,022	78,875
Non-Voting Common Stock - 410,499 shares issued and outstanding as of December 31, 2018 and September 30, 2018	4,105	4,105	-
Capital surplus	84,247,424	84,333,757	46,941,229
Treasury stock, at cost, 94,505, 83,015 and 40,117 shares at December 31, 2018,
September 30, 2018 and December 31, 2017, respectively	(624,119)	(543,237)	(229,844)
Nonvested restricted stock	(1,508,631)	(1,583,981)	(868,399)
Retained Earnings/Deficit	(29,339,044)	(30,544,164)	1,573,382
Accumulated other comprehensive loss	(691,888)	(805,177)	(298,110)
Total shareholders' equity	52,168,450	50,941,906	50,153,325
Total liabilities and shareholders' equity	$ 584,929,070	$ 566,900,624	$ 458,621,741

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

	Three Months Ended	Three Months Ended	Three Months Ended
	December 31, 2018	September 30, 2018	December 31, 2017
Interest income:
Loans, including fees	$ 5,913,149	$ 5,639,520	$ 4,288,116

Investment securities:
Taxable	299,711	267,900	218,397
Tax exempt	34,283	35,894	34,476
Other interest income	153,108	108,003	84,235
Total	6,400,251	6,051,317	4,625,224
Interest expense:
Time deposits	796,162	593,527	236,411
Other deposits	142,706	146,083	101,606
Other interest expense	281,407	181,516	195,758
Total	1,220,275	921,126	533,775

Net interest income	5,179,977	5,130,191	4,091,449
Provision for loan losses	285,918	203,961	-
Net interest income after provision for loan losses	4,894,059	4,926,230	4,091,449

Noninterest income:
Service charges on deposit accounts	453,128	417,955	394,392
Gain on sale of mortgage loans	1,195,889	1,160,410	1,044,773
Income from bank owned life insurance	98,197	97,777	81,560
Other service charges, commissions, and fees	393,771	379,433	344,319
Gain/Loss on Nonmarketable securities	800,000	38,152	-
Other	100,909	176,833	90,683
Total	3,041,894	2,270,560	1,955,727

Noninterest expenses:
Salaries and benefits	3,900,590	3,820,567	3,185,613
Occupancy	571,866	566,876	433,315
Furniture and equipment related expenses	503,636	397,381	427,176
Other	1,372,967	1,507,140	1,621,888
Merger Related Expenses	53,776	-	501,265
Total	6,402,835	6,291,964	6,169,257
Income before income taxes	1,533,118	904,826	(122,081)
Income Tax Expense	327,998	197,728	2,597,546
Net income (loss)	1,205,120	707,098	(2,719,627)
Net income (loss) available to common shareholders	$ 1,205,120	$ 707,098	$ (2,719,627)

Average common shares outstanding, basic	7,934,841	7,948,962	7,847,201
Average common shares outstanding, diluted	8,040,316	8,073,743	7,997,597

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

Non-GAAP finanical measurements (unaudited)

Net income (loss) available to common shareholders before adjustments	$ 1,205,120	$ 707,098	$ (2,719,627)
Adjustments
Income tax expense - tax rate change	-	-	2,644,628
Merger related costs	53,776	-	501,265
Total Adjustments	53,776	-	3,145,893

Net income after adjustments (non-GAAP)	$ 1,258,896	$ 707,098	$ 426,266

Adjusted Income per common share:
Basic income per share (non-GAAP)	$ 0.16	$ 0.09	$ 0.05
Diluted income per share (non-GAAP)	$ 0.16	$ 0.09	$ 0.05

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


	December 31, 2018	December 31, 2017
Interest income:
Loans, including fees	$ 22,010,885	$ 16,321,881

Investment securities:
Taxable	1,039,259	802,815
Tax exempt	147,949	118,969
Other interest income	426,598	225,924
Total	23,624,691	17,469,589
Interest expense:
Time deposits	2,191,437	732,399
Other deposits	534,571	410,459
Other interest expense	964,474	1,028,926
Total	3,690,482	2,171,784

Net interest income	19,934,210	15,297,805
Provision for loan losses	510,356	-
Net interest income after provision for loan losses	19,423,854	15,297,805

Noninterest income:
Service charges on deposit accounts	1,597,211	1,502,286
Gain on sale of mortgage loans	5,138,659	4,845,075
Income from bank owned life insurance	390,557	328,716
Other service charges, commissions, and fees	1,510,404	1,341,171
Gain/Loss on Nonmarketable securities	838,152	-
Other	392,454	324,003
Total	9,867,437	8,341,251

Noninterest expenses:
Salaries and benefits	15,408,131	12,075,338
Occupancy	2,227,136	1,685,622
Furniture and equipment related expenses	2,021,352	1,646,687
Other	5,549,559	501,265
Merger Related Expense	877,420	4,803,246
Total	26,083,598	20,712,158
Income before income taxes	3,207,693	2,926,898
Income tax expense	741,606	3,616,258
Net (loss) income	2,466,087	(689,360)
Net (loss) income available to common shareholders	$ 2,466,087	$ (689,360)

Average common shares outstanding, basic	7,738,547	5,465,868
Average common shares outstanding, diluted	7,867,587	5,606,149

Income (loss) per common share:
Basic income (loss) per share	$ 0.32	$ (0.13)
Diluted income (loss) per share	$ 0.31	$ (0.13)

Non-GAAP finanical measuremnets (unaudited)

Net (loss) income available to common shareholders before adjustments	$ 2,466,087	$ (689,360)
Adjustments
Income tax expense - tax rate change	-	2,644,628
Merger related costs	877,420	501,265
Total Adjustments	877,420	3,145,893

Net income after adjustments (non-GAAP)	$ 3,343,507	$ 2,456,533

Adjusted Income per common share:
Basic income per share (non-GAAP)	$ 0.43	$ 0.45
Diluted income per share (non-GAAP)	$ 0.42	$ 0.44

Asset Quality and Capital Adequacy

(dollars in thousands, except asset quality and per share data)	As of and for the Three Months Ended
	December 31, 2018	December 31, 2017	September 30, 2018
Asset Quality
Loans 90 days past due & still accruing	10	-	-
Nonaccrual loans	1,923	1,353	2,245



Total nonperfoming loans	1,933	1,353	2,245

OREO and repossessed assets	342	1,707	140
Total Nonperforming Assets	2,275	3,060	2,385

Accruing TDRs	4,746	1,294	4,715

Nonperforming loans to loans	0.48%	0.41%	0.56%
Nonperforming assets to total assets	0.39%	0.67%	0.42%
Allowance for loan losses to total loans	0.63%	0.72%	0.59%
Allowance for loan losses to nonperforming loans	144.24%	181.37%	0.00%
Book value per share	6.27	6.01	6.12
Tangible book value per share	6.11	6.01	5.94

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,934,841	7,847,201	7,948,962
QTD Weighted Average Shares Outstanding- diluted	8,040,316	7,997,597	8,073,743
Earning Per Share - basic	$ 0.15	$ (0.35)	$ 0.09
Earning Per Share -diluted	0.15	(0.35)	0.09

Profitability Ratios
Net Interest Margin	4.30%	4.29%	4.30%
Return on Average Assets	0.68%	0.26%	0.69%
Return on Average Equity	6.17%	2.41%	6.20%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.51%	9.50%	9.77%
Common Equity Tier 1 capital	11.41%	11.64%	11.91%
Tier 1 capital ratio	11.41%	11.64%	11.91%
Total capital ratio	12.05%	12.32%	12.48%