First Reliance Bancshares, Inc. Reports Record Mid Year Earnings Results, Up 258% Versus First Half Of 2018

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Aug 02, 2019, 06:00 ET

FLORENCE, S.C., Aug. 2, 2019 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), today reported net income of $2.0 million, or $0.25 per diluted share for the six-months ended June 30, 2019 compared to $553,869, or $0.07 per diluted share, for the same period one year ago. Net income for the three-months ended June 30, 2019, was $1.3 million, or $0.16 per diluted share, compared to $465,797, or $0.06 per diluted share for the same period one year ago. Net income for the six-months ended June 30, 2019 represents a 258% increase and net income for the three-months ended June 30, 2019, represents a 183% increase when compared to the same periods in 2018. The increase in net income for the second quarter of 2019 versus 2018 was due primarily to higher net interest income, which grew 13% and benefited from loan growth of $76 million, up 19% year over year.

Increases in key balance sheet items are summarized below:

	As of June 30, 2019
	Year-Over-Year		Quarter-to-Date		Year-to-Date
	(dollars in thousands}
Assets	$96,897	18.01%	$30,364	5.02%	$49,759	8.50%
Loans	$76,660	19.06%	$26,498	5.90%	$44,731	10.40%
Deposits	$77,288	17.16%	$15,380	3.00%	$51,594	10.83%
Equity	$4,731	9.38%	$1,979	3.72%	$2,991	5.73%

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated, "We are very pleased with our second quarter operating results as we continue to see a positive impact on earnings from organic growth following our recent expansions into Greenville and Myrtle Beach, South Carolina and Winston-Salem and Charlotte, North Carolina. Our existing markets are also performing well, attracting loans and deposits, in very competitive environments. Loan growth has been exceptional, growing consistently at a 5.0% per quarter pace. Our primary focus is on increasing our profitability and reducing our efficiency ratio. This initiative is a multi-pronged approach which we expect to begin showing results in 2019 with the fuller effect coming in 2020. We partnered with a vendor who has helped us examine all areas of the bank for more efficient processes, cost savings and revenue enhancements. We are in process of implementing many of these initiatives over the next several months. Our commitment is to drive our efficiency ratio down over the next three years. We named Ben Brazell as Chief Administrative Officer to oversee the implementation of all our growth and efficiency projects," said Saunders.

Highlights

Diluted EPS increased 259%, to $0.25 per share for the six-months ending June 30, 3019 compared to $0.07 per share one year ago;
Diluted EPS increased 185% to $0.16 per share for the three-months ending June 30, 3019 compared to $0.06 per share one year ago;
Net interest income improved 13% at $5.5 million for the three-months ended June 30, 2019, compared to the same period of 2018;
Tangible Book Value increased 8.38% to $6.46 for the period ending June 30, 2019, compared to $5.96 one year ago;
Loans increased 19% or $76 million over the past year;
Deposits grew 17% or $77 million over the past year;
Return on average equity was 7.50% for the six-months ended June 30, 2019 compared to 2.22% for the six-months ended period one year ago;
Return on average assets was 0.67% for the six-months ended June 30, 2019 compared to 0.21% for the six-months ended period one year ago;
Non-interest bearing transaction accounts increased $15 million, or 15%, over the past year;
Announced the closure of the Summerville, South Carolina branch effective June 15, 2019. Customers will be serviced from the Mount Pleasant office at 800 South Shelmore Blvd, Mount Pleasant, South Carolina or from the Charleston office at 25 Cumberland Street, Charleston, South Carolina;
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; and
Enacted new lease accounting standards effective March 31, 2019, resulting in an increase in premises, furniture and equipment and lease liability of $6.2 million.

Increases in key income statement items are summarized below.

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

Total revenue	$8,328	$7,016	$1,312	19%
Total non-interest expense	$6,581	$6,387	$194	3%
Net interest income	$5,530	$4,896	$634	13%
Non-interest income	$2,798	$2,120	$678	32%
Net Income	$1,320	$466	$854	183%

Income Statement

Total revenue for the quarter ended June 30, 2019 totaled $8.3 million, an increase of $1.3 million, or 19%, compared to the quarter ended one year ago. Net interest income increased 13% to $5.5 million for the second quarter of 2019 compared to the same period of 2018. According to Jeffrey A. Paolucci, Executive Vice President and Chief Financial Officer, "The increase in total revenue was due principally to strong loan growth for the second quarter, an increase in net interest margin to 4.19% as of June 30, 2019 from 4.17% for the same period one year ago, and strong net mortgage income and fee income growth. 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 5.14% for the quarter ended June 30, 2019, compared to 4.85% for the second quarter of 2018. Cost of funds remained flat at 96 basis points for the second quarter of 2019 compared to 46 basis points for the year prior quarter."

Non-interest income was $2.8 million for the quarter ended June 30, 2019, up significantly from $2.1 million in the second quarter of 2018 primarily due to increased gains on sale of mortgage loans. Mortgage loans held for sale increased to 293% to $27 million as of June 30, 2019 compared to $7 million for the prior year period. Mortgage production is up 3% to $80 million as of June 30, 2019 compared to $78 million for the prior year period. "We are very pleased with volumes in our mortgage line of business as we continue to service strong demand in our markets for new and refinanced mortgage loans. We offer existing and new customers of the bank a broad range of mortgage loan products which fit the needs of most anyone who comes to us," said Mr. Paolucci.

Balance Sheet
Total assets increased $97 million, or 18%, to $635 million at June 30, 2019, compared to $538 million at June 30, 2018. Loans receivable grew by $76 million, or 19%, to $476 million, at June 30, 2019, compared to $399 million, at June 30, 2018 due primarily to organic loan growth in our commercial, 1-4 family mortgage and consumer loan portfolios. Mr. Saunders added, "We are now accepting deposits in our Winston-Salem and Myrtle Beach branch offices and plan to accept deposits in our Mooresville-Charlotte location in early 2020. Since the end of 2018, we have increased deposits by 471% and loans by 310% in our Winston-Salem market and increased deposits by 82% and loans by 413% in our Myrtle Beach market, while total household checking accounts increased 5.5%, reflecting our strong branch sales growth. One of the main drivers of our margin performance is concentration on core transaction accounts. Obtaining the main 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 5.4 since the end of 2018. In 2018, we added a Director of Treasury Services to work closely with our bankers and to develop a full suite of deposit accounts and services for our business customers. As a result, small business cash management use has grown 15% and commercial business has grown 4% since the end of 2018."

Asset Quality

Our asset quality continues to be very strong, with nonperforming assets increasing only slightly by $150,000 to $2.5 million at June 30, 2019 compared to one year ago. OREO and repossessed assets remain nominal. The ratio of nonperforming assets to total assets declined to 0.40% at June 30, 2019, compared to 0.45% one year earlier. The allowance for loan losses as a percentage of loans was 0.59% at June 30, 2019 (adjusted for purchase accounting marks on acquired loans), compared to 0.58% one year earlier.

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, 2019, capital ratios were as follows:

Ratio	First Reliance Bank	Well-Capitalized Minimum
Tier 1 leverage	9.19%	5.00%
Common equity tier 1 capital	10.56%	6.50%
Tier 1 capital	10.56%	8.00%
Total capital	11.18%	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 $635 million. The Company employs more than 166 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. 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 five 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; (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.

First Reliance Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets

	June	December	June
	2019	2018	2018
Assets
Cash and cash equivalents:
Cash and due from banks	$ 5,084,271	$ 4,638,332	$ 4,442,320
Interest-bearing deposits with other banks	11,672,571	29,923,656	28,589,512
Total cash and cash equivalents	16,756,842	34,561,988	33,031,832

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

Securities available-for-sale	37,464,213	33,556,796	25,083,661
Securities held-to-maturity (Estimated fair value of $11,769,710, $14,250,850,
and $15,809,271 at June 30, 2019, December 31, 2018, and June 30, 2018)	11,422,660	14,107,252	15,759,600
Nonmarketable equity securities	948,400	1,393,500	543,500
Total investment securities	49,835,273	49,057,548	41,386,761

Mortgage loans held for sale	27,225,698	12,713,361	6,919,940

Loans receivable	475,526,532	430,795,891	399,262,647
Less allowance for loan losses	(2,960,174)	(2,788,188)	(2,356,562)
Loans, net	472,566,358	428,007,703	396,906,085

Premises, furniture and equipment, net	20,133,374	20,310,879	20,406,445
Accrued interest receivable	1,424,304	1,318,104	1,130,259
Other real estate owned	164,295	341,519	200,000
Cash surrender value life insurance	17,498,686	17,306,312	17,110,338
Net deferred tax assets	7,293,378	7,923,572	8,406,261
Mortgage servicing rights	10,307,543	9,023,859	7,815,798
Goodwill	690,917	690,917	690,917
Core deposit intangible	595,551	684,217	779,033
Other assets	10,002,954	2,796,830	2,833,303
Total assets	$ 634,748,518	$ 584,989,812	$ 537,869,224
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 117,862,240	$ 103,201,256	$ 102,528,351
Interest-bearing transaction accounts	83,694,869	83,251,127	86,316,598
Savings	117,490,936	120,801,341	134,090,144
Time deposits $250,000 and over	43,775,583	42,870,456	28,581,126
Other time deposits	164,939,550	126,044,529	98,959,447
Total deposits	527,763,178	476,168,709	450,475,666

Securities sold under agreement to repurchase	14,161,727	16,852,981	18,133,207
Federal Funds Purchased	4,000,000	-	-
Advances from Federal Home Loan Bank	6,600,000	20,000,000	-
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,899,907	4,934,877	4,895,329
Accrued interest payable	575,836	447,883	284,173
Lease Liabilty	6,000,634
Other liabilities	5,277,600	4,106,913	3,342,548
Total liabilities	579,588,882	532,821,363	487,440,923

Shareholders' Equity
Preferred stock
Series D preferred stock - 579, 581 and 587 shares issued and outstanding at June 30 2019, December 31, 2018, and June 30, 2018, respectively	579	581	587
Common stock, $0.01 par value; 20,000,000 shares authorized, 8,038,877, 8,002,712 and 7,869,772 shares issued and outstanding at June 30, 2019, December 31, 2018, and June 30, 2018, respecitvely	80,389	80,022	80,016
Non-Voting Common Stock - 410,499 shares issued and outstanding as of June 30, 2019, December 31, 2018 and June 30, 2018	4,105	4,105	4,105
Capital surplus	51,137,325	50,904,763	84,349,087
Treasury stock, at cost, 116,042, 94,505 and 64,999 at June 30, 2019,
December 31, 2018 and June 30, 2018, respectively	(863,872)	(624,120)	(411,798)
Nonvested restricted stock	(1,426,972)	(1,508,630)	(1,661,417)
Retained Earnings/Deficit	5,985,572	4,003,616	(31,246,948)
Accumulated other comprehensive loss	242,510	(691,888)	(685,331)
Total shareholders' equity	55,159,636	52,168,449	50,428,301
Total liabilities and shareholders' equity	$ 634,748,518	$ 584,989,812	$ 537,869,224

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

	Three Months Ended	Three Months Ended	Three Months Ended
	June 30, 2019	December 31, 2018	June 30, 2018
Interest income:
Loans, including fees	$ 6,602,505	$ 5,913,149	$ 5,365,689

Investment securities:
Taxable	313,108	299,711	226,109
Tax exempt	34,227	34,283	38,862
Other interest income	82,133	153,108	103,363
Total	7,031,973	6,400,251	5,734,023
Interest expense:
Time deposits	1,091,030	796,162	467,517
Other deposits	135,397	142,706	137,422
Other interest expense	275,789	281,407	233,470
Total	1,502,216	1,220,275	838,409

Net interest income	5,529,758	5,179,977	4,895,614
Provision for loan losses	150,000	285,918	-
Net interest income after provision for loan losses	5,379,758	4,894,059	4,895,614

Noninterest income:
Service charges on deposit accounts	399,025	453,128	354,974
Gain on sale of mortgage loans	1,799,722	1,195,889	1,283,863
Income from bank owned life insurance	96,878	98,197	97,849
Other service charges, commissions, and fees	387,205	393,771	388,929
Gain on Nonmarketable securities	2,667	800,000	-
Other	112,377	100,909	(5,973)
Total	2,797,874	3,041,894	2,119,642

Noninterest expenses:
Salaries and benefits	4,074,027	3,865,590	3,847,938
Occupancy	581,933	571,866	547,820
Furniture and equipment related expenses	475,754	503,636	542,203
Other	1,449,045	1,316,045	1,323,816
Merger Related Expenses	-	181,551	125,546
Total	6,580,759	6,438,688	6,387,323
Income before income taxes	1,596,873	1,497,265	627,933
Income Tax Expense	276,874	327,998	162,136
Net income	1,319,999	1,169,267	465,797
Net income available to common shareholders	$ 1,319,999	$ 1,169,267	$ 465,797

Average common shares outstanding, basic	7,958,719	7,934,841	8,065,932
Average common shares outstanding, diluted	8,071,222	8,040,316	8,126,732

Income per common share:
Basic income per share	$ 0.17	$ 0.15	$ 0.06
Diluted income per share	$ 0.16	$ 0.15	$ 0.06

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


	June 30, 2019	December 31, 2018	June 30, 2018
Interest income:
Loans, including fees	$ 12,741,002	$ 22,010,885	$ 10,458,216

Investment securities:
Taxable	613,046	1,039,259	471,648
Tax exempt	68,539	147,950	77,772
Other interest income	170,044	426,598	165,487
Total	13,592,631	23,624,692	11,173,123
Interest expense:
Time deposits	2,058,581	2,191,437	801,748
Other deposits	274,547	534,572	245,782
Other interest expense	588,314	964,475	501,551
Total	2,921,442	3,690,484	1,549,081

Net interest income	10,671,190	19,934,208	9,624,042
Provision for loan losses	295,547	510,356	20,477
Net interest income after provision for loan losses	10,375,643	19,423,852	9,603,565

Noninterest income:
Service charges on deposit accounts	797,253	1,597,211	726,128
Gain on sale of mortgage loans	2,801,225	5,138,660	2,782,360
Income from bank owned life insurance	192,374	390,557	194,583
Other service charges, commissions, and fees	757,965	1,510,405	737,200
Gain on sale of Investment Securities	21,168	-	-
Gain on Nonmarketable securities	15,047	800,000	-
Other	209,431	487,529	114,712
Total	4,794,463	9,924,362	4,554,983

Noninterest expenses:
Salaries and benefits	7,831,628	15,373,131	7,686,974
Occupancy	1,171,375	2,227,135	1,088,394
Furniture and equipment related expenses	946,813	2,021,351	1,120,335
Other	2,757,222	5,549,562	2,669,452
Merger Related Expense	37,211	1,005,195	823,644
Total	12,744,249	26,176,374	13,388,799
Income before income taxes	2,425,857	3,171,840	769,749
Income tax expense	443,901	741,606	215,880
Net income	1,981,956	2,430,234	553,869
Net income available to common shareholders	$ 1,981,956	$ 2,430,234	$ 553,869

Average common shares outstanding, basic	7,954,598	7,738,547	8,030,507
Average common shares outstanding, diluted	8,064,509	7,867,586	8,098,737

Income (loss) per common share:
Basic income (loss) per share	$ 0.25	$ 0.31	$ 0.07
Diluted income (loss) per share	$ 0.25	$ 0.31	$ 0.07

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, 2019	December 31, 2018	June 30, 2018
Asset Quality
Loans 90 days past due & still accruing	-	10	-
Nonaccrual loans	2,388	1,923	2,202






Total nonperforming loans	2,388	1,933	2,202

OREO and repossessed assets	164	342	200
Total Nonperforming Assets	2,552	2,275	2,402

Accruing TDRs	2,630	4,746	-

Nonperforming loans to loans	0.50%	0.45%	0.55%
Nonperforming assets to total assets	0.40%	0.39%	0.45%
Allowance for loan losses to total loans	0.59%	0.63%	0.58%
Allowance for loan losses to nonperforming loans	123.96%	144.24%	107.02%
Capital Data (at quarter end)
Book value per share	6.62	6.27	6.14
Tangible book value per share	6.46	6.11	5.96

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,958,719	7,934,841	8,065,932
QTD Weighted Average Shares Outstanding- diluted	8,071,222	8,040,316	8,126,732
Earning Per Share - basic	$ 0.17	$ 0.15	$ 0.06
Earning Per Share -diluted	0.16	0.15	0.06

Profitability Ratios
Net Interest Margin	4.19%	4.30%	4.17%
Return on Average Assets	0.67%	0.45%	0.21%
Return on Average Equity	7.50%	4.88%	2.22%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.19%	9.51%	10.22%
Common Equity Tier 1 capital	10.56%	11.40%	12.32%
Tier 1 capital ratio	10.56%	11.40%	12.32%
Total capital ratio	11.18%	12.05%	12.88%
Total risk weighted assets	524,912	466,353	428,996