First Reliance Bancshares, Inc. Reports Record 3rd Quarter 2019 Earnings Results Of $1.5 Million, Up 113%

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Oct 30, 2019, 15:38 ET

FLORENCE, S.C., Oct. 30, 2019 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), today reported net income of $1.5 million, or $0.19 per diluted share for the three-months ended September 30, 2019 compared to $707,098, or $0.09 per diluted share, for the same period one year ago. Net income for the nine-months ended September 30, 2019, was $3.5 million, or $0.43 per diluted share, compared to $1.3 million, or $0.16 per diluted share for the same period one year ago. Net income for the nine-month period represents a 177% increase and net income for the three-month period ending September 30, 2019, represents a 113% increase when compared to the same periods in 2018. The increase in net income for the third quarter of 2019 versus 2018 was due primarily to gains on sales of mortgage loans which increased by 83%, higher net interest income, which increased by 7%, and flat and controlled operating expenses.

Changes in key balance sheet items are summarized below:

	As of September 30, 2019
	Year-Over-Year		Quarter-to-Date		Year-to-Date
	(dollars in thousands)
Assets	$90,633	15.99%	$22,785	3.59%	$72,543	12.40%
Loans	$67,519	16.66%	*($2,763)	(0.58%)	$41,968	9.74%
Deposits	$38,640	8.22%	**($18,878)	(3.58%)	$32,717	6.87%
Equity	$5,510	10.82%	$1,292	2.34%	$4,284	8.21%

*Result of an intentional reduction in exposure to indirect automobile originations
**Result of an intentional reduction in high priced, non-core, time deposits in the amount of $25 million during the 3^rd quarter 2019

Increases in key income statement items are summarized below.

	For the Three Months Ended
	September 30, 2019	September 30, 2018	Increase
	(dollars in thousands)

Total revenue	$8,632	$7,401	$1,231	17%
Total non-interest expense	$6,295	$6,292	$3	0.05%
Net interest income	$5,488	$5,130	$358	7%
Non-interest income	$3,145	$2,271	$874	38%
Net Income	$1,508	$707	$801	113%

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated "We are having an exceptional year in both our new and existing markets, growing loans at 17%, deposits at 8% which includes a 17% increase in non-interest bearing transaction accounts year-over-year in a very competitive banking environment. Our focus on increasing profitability has generated a return on average equity at 9.26% for the nine-months ended September 30, 2019 compared to 6.20% for the same period one year ago. We have intentionally reduced our exposure to higher-cost time deposits and have diligently kept term funding short in duration which are the primary reasons for the decline in deposits during the third quarter of 2019. Our efficiency ratio is improving as we continue the process of implementing many cost cutting and efficiency initiatives as we improve this ratio over the next three years. Additionally, the investments we made last year with our expansions into North Carolina and Myrtle Beach markets are beginning to pay off as our revenues are up 17% year over year while expenses remained relatively flat."

Highlights

Diluted EPS increased 169%, to $0.43 per share for the nine-months ending September 30, 3019 compared to $0.16 per share one year ago;
Diluted EPS increased 111% to $0.19 per share for the three-months ending September 30, 3019 compared to $0.09 per share one year ago;
Net interest income improved 7% to $5.5 million for the three-months ended September 30, 2019, compared to the same period of 2018;
Tangible book value increased 13% to $6.71 at September 30, 2019, compared to $5.94 one year ago;
Revenues increased 17% and expenses remained relatively flat for the three-months ended September 30, 2019, compared to the same period of 2018;
Loans increased 17% or $68 million over the past year;
Deposits grew 8% or $39 million over the past year;
Noninterest income improved 38% to $3.1 million for the three-months ended September 30, 2019, compared to the same period of 2018.
Noninterest expenses fell by $235,000 for the three-months ended September 30, 2019, compared to the three months ended June 30, 2019
Return on average equity was 9.26% for the nine-months ended September 30, 2019 compared to 6.20% for the same period one year ago;
Return on average assets was 0.98% for the nine-months ended September 30, 2019 compared to 0.69% for the same period one year ago;
Received a one-time Small Bank Fund Credit from FDIC totaling $85,000 during the quarter;
Non-interest bearing transaction accounts increased $18 million, or 17%, over the past year;
Received regulatory approval to accept deposits and operate a full-service branch in Mooresville, North Carolina (Lake Norman area of the greater Charlotte area MSA) in early 2020.

Income Statement

Total revenue for the quarter ended September 30, 2019 totaled $8.6 million, an increase of $1.2 million, or 17%, compared to the same quarter one year ago. Net interest income increased 7% to $5.5 million for the third quarter of 2019 compared to the same period of 2018. According to Jeffrey A. Paolucci, Executive Vice President and Chief Financial Officer, "Despite experiencing a 50 basis point decline in interest rates by the Federal Reserve during the third quarter of 2019, our net interest income remained relatively flat compared to the second quarter of 2019. The increase in total revenue was due principally to strong, record-high secondary market mortgage loan originations, up 251% from one year ago, which are being temporarily funded with short-term wholesale funding liabilities. Net interest margin continues to perform well compared to our peers due to strong asset yields and a solid base of lower priced deposits. However, with our entry into new and more competitive markets and the flattening of the yield curve, we expect some compression in net interest margin for the balance of the year and continuing into 2020. Yield on earning assets increased to 5.07% for the quarter ended September 30, 2019, compared to 4.85% for the third quarter of 2018. Cost of funds remained relatively flat in the third quarter of 2019 at 96 basis points."

Non-interest income was $3.1 million for the quarter ended September 30, 2019, up significantly from $2.2 million in the third quarter of 2018 primarily due to increased gains on sales of mortgage loans. Mortgage loans held for sale increased to 251% to $42 million as of September 30, 2019 compared to $12 million for the prior year period. Year-to-date mortgage production volume is up 21% to $252 million as of September 30, 2019 compared to $208 million for the prior year period. "We are very pleased with record origination volumes in our mortgage line of business as we continue to service strong demand in our markets for new and refinanced mortgage loans. We anticipate strong mortgage origination volumes to continue into the fourth quarter of 2019 fueled by the low interest rate environment," said Mr. Paolucci. However, Mr. Paolucci cautioned that "the increase in our mortgage originations has generated a comparable increase in our Mortgage Servicing Rights (MSR) asset. As we look forward to the year-end valuation of our MSR asset, if the current levels of prepayment activity, which are driven largely by the falling interest rates, continue, we expect non-interest income in the fourth quarter to be adversely affected by a negative MSR valuation adjustment."

Balance Sheet
Total assets increased $91 million, or 16%, to $658 million at September 30, 2019, compared to $567 million at September 30, 2018. Loans receivable grew by $68 million, or 17%, to $473 million, at September 30, 2019, compared to $405 million, at September 30, 2018 due primarily to organic loan growth in our commercial, 1-4 family mortgage and consumer loan portfolios. Mr. Saunders added, "Our total household checking accounts increased 5% since the end of 2018, reflecting our strong branch sales growth. One of the main drivers of our margin performance is concentration on core transaction accounts. Obtaining the primary checking account for consumers and businesses continues to be a major focus for all of our bankers. We have increased our services per household to 5.5 since the end of 2018 and we continue to see strong growth in our cash management suite of deposit accounts and services for our business customers. As a result, small business cash management use has grown 21% and commercial business has grown 7% since the end of 2018."

Asset Quality

Our asset quality continues to be very strong, with nonperforming assets declining by $487,000 to $1.9 million at September 30, 2019 compared to one year ago. OREO and repossessed assets remain nominal. The ratio of nonperforming assets to total assets declined to 0.29% at September 30, 2019, compared to 0.42% one year earlier. The allowance for loan losses as a percentage of loans was 0.63% at September 30, 2019 (adjusted for purchase accounting marks on acquired loans), compared to 0.59% one year earlier. Year-date-date provision expense is up 125%, to $503,803 compared to the same period a year ago of $224,438 due to an increase in loans outstanding.

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, 2019, capital ratios were as follows:

Ratio	First Reliance Bank		Well-Capitalized Minimum
Tier 1 leverage	9.12%	5.00%
Common equity tier 1 capital	10.53%	6.50%
Tier 1 capital	10.53%	8.00%
Total capital	11.13%	10.00%

ABOUT FIRST RELIANCE BANCSHARES, INC.

Founded in 1999, First Reliance Bancshares, Inc. (OTC: FSRL.OB), is based in Florence, South Carolina and has assets of approximately $658 million. The Company employs more than 140 professionals and has locations throughout South Carolina and central North Carolina. First Reliance has redefined community banking with a commitment to making customers lives better, its founding principle. Customers of the company have given it a 90% customer satisfaction rating well above the bank industry average of 81%. First Reliance is also one of three companies throughout South Carolina to receive the Best Places To Work in South Carolina award all 14 years since the program began. We believe that this recognition confirms that our associates are engaged and committed to our 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 two unique community-customers programs, which include: Hometown Heroes, a package of benefits for those serving our communities and Check N Save, an outreach program for the unbanked or under-banked. We also offer a full suite of digital banking services, a Customer Service Guaranty, a Mortgage Service Guaranty, and are 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, including the value of its MSR asset; (7) the business related to acquisitions 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 acquisitions may not be fully realized within expected timeframes; and (9) disruption from acquisitions 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, EVP & CFO
(888) 543-5510
[email protected]

First Reliance Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets

	September	December	September
	2019	2018	2018
Assets
Cash and cash equivalents:
Cash and due from banks	$ 5,341,563	$ 4,638,332	$ 4,652,753
Interest-bearing deposits with other banks	21,531,739	29,923,656	34,765,661
Total cash and cash equivalents	26,873,302	34,561,988	39,418,414

Time deposits in other banks	253,911	253,003	253,003

Securities available-for-sale	36,186,239	33,556,796	34,060,560
Securities held-to-maturity (Estimated fair value of $11,168,594, $14,250,850,
and $14,422,622 at September 30, 2019, December 31, 2018, and September 30, 2018)	10,801,197	14,107,252	14,506,964
Nonmarketable equity securities	2,423,200	1,393,500	1,011,000
Trust Preferred Securities	0	0	2,300,000
Total investment securities	49,410,636	49,057,548	51,878,524

Mortgage loans held for sale	41,958,752	12,713,361	11,958,216

Loans receivable	472,764,011	430,795,891	405,245,246
Less allowance for loan losses	(2,536,220)	(2,788,188)	(2,470,592)
Loans, net	470,227,791	428,007,703	402,774,654

Premises, furniture and equipment, net	20,015,914	20,310,879	20,273,144
Accrued interest receivable	1,338,483	1,318,104	1,231,464
Other real estate owned	164,295	341,519	140,000
Cash surrender value life insurance	17,596,276	17,306,312	17,208,115
Net deferred tax assets	6,728,982	7,923,572	8,267,723
Mortgage servicing rights	11,246,514	9,023,859	8,456,680
Goodwill	690,917	690,917	690,917
Core deposit intangible	553,524	684,217	730,856
Other assets	10,473,931	2,796,830	3,618,914
Total assets	$ 657,533,228	$ 584,989,812	$ 566,900,624
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 123,839,615	$ 103,201,256	$ 105,977,280
Interest-bearing transaction accounts	80,016,992	83,251,127	83,153,827
Savings	121,650,523	120,801,341	131,155,688
Time deposits $250,000 and over	40,716,010	42,870,456	33,699,530
Other time deposits	142,662,096	126,044,529	116,258,761
Total deposits	508,885,236	476,168,709	470,245,086

Securities sold under agreement to repurchase	14,121,732	16,852,981	16,826,308
Federal Funds Purchased	9,000,000	-	-
Advances from Federal Home Loan Bank	43,300,000	20,000,000	10,000,000
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,838,413	4,934,877	4,863,985
Accrued interest payable	353,131	447,883	285,766
Lease Liabilty	5,863,520	0	0
Other liabilities	4,409,075	4,106,913	3,427,573
Total liabilities	601,081,107	532,821,363	515,958,718

Shareholders' Equity
Preferred stock
Series D preferred stock - 575, 581 and 581 shares issued and outstanding at September 30 2019, December 31, 2018, and September 30, 2018, respectively	575	581	581
Common stock, $0.01 par value; 20,000,000 shares authorized, 7,989,277, 8,002,712 and 8,002,172 shares issued and outstanding at September 30, 2019, December 31, 2018, and September 30, 2018, respecitvely	79,893	80,022	80,022
Non-Voting Common Stock - 410,499 shares issued and outstanding as of September 30, 2019, December 31, 2018 and September 30, 2018	4,105	4,105	4,105
Capital surplus	50,777,617	50,904,763	84,333,757
Treasury stock, at cost, 176,602, 94,505 and 83,015 at Septemner 30, 2019,
December 31, 2018 and September 30, 2018, respectively	(1,227,361)	(624,120)	(543,237)
Nonvested restricted stock	(1,009,881)	(1,508,630)	(1,583,981)
Retained Earnings/Deficit	7,493,244	4,003,616	(30,544,164)
Accumulated other comprehensive loss	333,929	(691,888)	(805,177)
Total shareholders' equity	56,452,121	52,168,449	50,941,906
Total liabilities and shareholders' equity	$ 657,533,228	$ 584,989,812	$ 566,900,624


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

	Three Months Ended	Three Months Ended	Three Months Ended
	September 30, 2019	December 31, 2018	September 30, 2018
Interest income:
Loans, including fees	$ 6,688,510	$ 5,913,149	$ 5,639,520

Investment securities:
Taxable	292,321	299,711	267,900
Tax exempt	34,255	34,283	35,894
Other interest income	68,073	153,108	108,003
Total	7,083,159	6,400,251	6,051,317
Interest expense:
Time deposits	1,112,929	796,162	593,527
Other deposits	145,889	142,706	146,083
Other interest expense	336,752	281,407	181,516
Total	1,595,570	1,220,275	921,126

Net interest income	5,487,589	5,179,977	5,130,191
Provision for loan losses	208,256	285,918	203,961
Net interest income after provision for loan losses	5,279,333	4,894,059	4,926,230

Noninterest income:
Service charges on deposit accounts	437,494	453,128	417,955
Gain on sale of mortgage loans	2,121,055	1,195,889	1,160,410
Income from bank owned life insurance	97,590	98,197	97,777
Other service charges, commissions, and fees	381,828	393,771	379,433
Gain on Nonmarketable securities	588	800,000	38,152
Other	105,962	100,909	176,833
Total	3,144,517	3,041,894	2,270,560

Noninterest expenses:
Salaries and benefits	3,819,396	3,865,590	3,820,567
Occupancy	602,140	571,866	566,876
Furniture and equipment related expenses	440,033	503,636	397,381
Other	1,433,527	1,316,045	1,507,140
Merger Related Expenses	-	181,551	-
Total	6,295,096	6,438,688	6,291,964
Income before income taxes	2,128,754	1,497,265	904,826
Income Tax Expense	621,081	327,998	197,728
Net income	1,507,673	1,169,267	707,098
Net income available to common shareholders	$ 1,507,673	$ 1,169,267	$ 707,098

Average common shares outstanding, basic	7,946,356	7,935,950	7,949,027
Average common shares outstanding, diluted	8,076,759	8,041,425	8,073,807

Income per common share:
Basic income per share	$ 0.19	$ 0.15	$ 0.09
Diluted income per share	$ 0.19	$ 0.15	$ 0.09


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


	Sepetmber 30, 2019	December 31, 2018	September 30, 2018
Interest income:
Loans, including fees	$ 19,429,512	$ 22,010,885	$ 16,097,736

Investment securities:
Taxable	905,367	1,039,259	739,548
Tax exempt	102,794	147,950	113,666
Other interest income	238,117	426,598	273,490
Total	20,675,790	23,624,692	17,224,440
Interest expense:
Time deposits	3,171,510	2,191,437	1,395,275
Other deposits	420,436	534,572	391,865
Other interest expense	925,066	964,475	683,067
Total	4,517,012	3,690,484	2,470,207

Net interest income	16,158,778	19,934,208	14,754,233
Provision for loan losses	503,803	510,356	224,438
Net interest income after provision for loan losses	15,654,975	19,423,852	14,529,795

Noninterest income:
Service charges on deposit accounts	1,234,747	1,597,211	1,144,083
Gain on sale of mortgage loans	4,922,280	5,138,660	3,942,770
Income from bank owned life insurance	289,965	390,557	292,360
Other service charges, commissions, and fees	1,139,792	1,510,405	1,116,633
Gain on sale of Investment Securities	21,168	-	-
Gain on Nonmarketable securities	15,635	800,000	38,152
Other	315,393	487,529	291,545
Total	7,938,980	9,924,362	6,825,543

Noninterest expenses:
Salaries and benefits	11,651,023	15,373,131	11,507,541
Occupancy	1,773,515	2,227,135	1,655,270
Furniture and equipment related expenses	1,386,847	2,021,351	1,517,716
Other	4,190,749	5,549,562	4,176,592
Merger Related Expense	37,211	1,005,195	823,644
Total	19,039,345	26,176,374	19,680,763
Income before income taxes	4,554,610	3,171,840	1,674,575
Income tax expense	1,064,982	741,606	413,608
Net income	3,489,628	2,430,234	1,260,967
Net income available to common shareholders	$ 3,489,628	$ 2,430,234	$ 1,260,967

Average common shares outstanding, basic	7,949,247	7,738,843	7,672,419
Average common shares outstanding, diluted	8,065,989	7,867,882	7,809,313

Income (loss) per common share:
Basic income (loss) per share	$ 0.44	$ 0.31	$ 0.16
Diluted income (loss) per share	$ 0.43	$ 0.31	$ 0.16

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, 2019		December 31, 2018		September 30, 2018
Asset Quality
Loans 90 days past due & still accruing	-		10		-
Nonaccrual loans	1,734		1,923		2,245






Total nonperforming loans	1,734		1,933		2,245
OREO and repossessed assets	164		342		140
Total Nonperforming Assets	1,898		2,275		2,385

Accruing TDRs	3,119		4,746		-

Nonperforming loans to loans	0.37%		0.45%		0.56%
Nonperforming assets to total assets	0.29%		0.39%		0.42%
Allowance for loan losses to total loans	0.63%		0.63%		0.59%
Allowance for loan losses to nonperforming loans	146.26%		144.24%		110.05%
Capital Data (at quarter end)
Book value per share	6.86		6.27		6.12
Tangible book value per share	6.71		6.11		5.94

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,946,356		7,935,950		7,949,027
QTD Weighted Average Shares Outstanding- diluted	8,076,759		8,041,425		8,073,807
Earning Per Share - basic	$	0.19	$	0.15	$	0.09
Earning Per Share -diluted	0.19		0.15		0.09

Profitability Ratios
Net Interest Margin	4.11%		4.30%		4.67%
Return on Average Assets	0.98%		0.45%		0.69%
Return on Average Equity	9.26%		4.88%		6.20%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.12%		9.51%		9.77%
Common Equity Tier 1 capital	10.53%		11.40%		11.91%
Tier 1 capital ratio	10.53%		11.40%		11.91%
Total capital ratio	11.13%		12.05%		12.48%
Total risk weighted assets	-		466,353		440,743