First Reliance Bancshares Reports 4th Quarter 2017 Results And Completes Acquisition Of Independence Bancshares

-$0.34 Net Loss Per Diluted Share (as reported under Generally Accepted Accounting Principles ("GAAP"))

-$0.05 Adjusted Net Income per Diluted Share, excluding a $0.39 per Share Charge Related to the Jobs Cuts and Tax Act and non-recurring merger related expenses (a non-GAAP financial measure)

News provided by

First Reliance Bancshares, Inc.

Feb 28, 2018, 09:00 ET

FLORENCE, S.C., Feb. 28, 2018 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported a fourth quarter 2017 net loss of $2,719,627, or $0.34 per diluted share. The Company's adjusted net income was $426,266, or $0.05 per diluted share, excluding an estimated tax charge of $2.7 million, related to the Tax Cuts and Jobs Act and non-recurring merger related expenses incurred in the fourth quarter of $501,265 totaling $0.39 per diluted share. The tax charge was attributed entirely to the revaluation of the Company's deferred tax assets ("DTAs").

The Company's DTAs are estimates of future tax benefits that arose primarily from expenses that were reported on current and previous years' financial statements but are not deductible for tax purposes until future years' tax returns (e.g., provisions for loan losses for probably incurred losses that are reported on financial statements as compared to tax returns where deductions are reported only when loans are charged off). On December 22, 2017, when the Tax Cuts and Jobs Act was enacted, the Company's federal income tax rate decreased from 34% to 21% effective in 2018, and the DTAs were revalued accordingly. While the revaluation of DTAs decreases 2017 net income, the lower federal tax rate beginning in 2018 is expected to increase net income in the future years.

Core profitability continues to be driven by strong loan and deposit growth and expanding operating efficiencies, but has been impacted temporarily with the opening of two new branch offices, an OREO write-down of $541,527 on a pending sale totaling $1.6 million expected to close in the first quarter of 2018, and a decline in mortgage income stemming from a slowdown in correspondent bank mortgage originations.

On January 22, 2018, we completed the legal closing of the acquisition of Independence Bancshares, Inc. and its wholly-owned subsidiary, Independence National Bank ("Independence"). The operational conversion is scheduled for early March 2018. This expansion into the attractive Greenville market will continue to broaden our footprint throughout South Carolina. The closing of this transaction comes on the heels of several new significant developments for the Bank over the past six months, including raising $25.1 million of additional capital in September 2017, Jack McElveen joining the bank in September 2017 as Chief Credit Officer, Kemper Kenan joining the bank as City Executive for Greenville, South Carolina in late 2017, David Barksdale joining the bank as President of North Carolina in early 2018, and Ben Brazell being named as President of South Carolina in early 2018. In early first quarter of 2018, we received regulatory approval to open our Myrtle Beach branch location and hired Ron Paige as City Executive for the Myrtle Beach market.

Financial Highlights (at or for the twelve months ended December 31, 2017, except as noted)

Completed legal closing of Independence Banchshares on January 22, 2018. The combined company is expected to have approximately $532.9 million in assets. Operational full conversion of systems is expected to be completed by March 5, 2018.
Received regulatory approval for expansion into Myrtle Beach, South Carolina.
Planned expansion into Charlotte, North Carolina Q1 2018.
Opened a loan production office in Winston-Salem, North Carolina.
Loan growth is up $45.5 million, or 16%, while earning asset yields at the Bank remain stable at 4.61% for the twelve months ended December 31, 2017 compared to 4.60% for the same period of 2016.
Non-interest bearing checking accounts increased $10 million to 24% of total deposits from one year ago, as we continue to attract new customers through unique programs and the convenience of mobile banking.
Total Deposits increased $16.5 million from one year ago as the Company continues to leverage its low cost of funds at 36bps.
Net interest margin (NIM) was 4.29% for the twelve months ended December 31, 2017.

Review of Income Statement

Net interest income improved 9% at $1.2 million for the twelve months ended December 31, 2017, compared to the same period of 2016. Late in the third quarter of 2017, the Company paid off its $7.0 million senior secured loan, which will reduce interest expense by approximately $350,000 annually. The improvement in net interest income is due to growth in earning assets while earning asset yields remain stable at 4.61% for the twelve months ended December 31, 2017 compared to 4.60% for the same period 2016.

Noninterest income decreased 17% to $8.34 million for the twelve months ended December 31, 2017, compared to $10 million for the same period 2016. The decrease in noninterest income was largely due to a one time gain on the sale of bank premise totaling $652,367 in the fourth quarter 2016 and the decrease in gains on sale of mortgage loans on a year-over-year basis as a result of lower production volumes within the Company's correspondent mortgage channel due to lower levels of refinancing opportunities. However, the Company's retail mortgage channel within each operating market increased production volumes year-over-year by $4 million and continues to build core franchise value and provide customer acquisition opportunities.

Balance Sheet and Asset Quality

Total assets increased $50.2 million, or 12% to $458.4 million at December 31, 2017, compared to $408.1 million from December 31, 2016.

Loans receivable grew by $45.5 million, or 15%, to $333.6 million at December 31, 2017, compared to $288.1 million, at December 31, 2016 largely due to continued growth in all our markets including commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios. 1-4 Family mortgage portfolio loans are up 26%, Commercial Real Estate loans are up 22%, and Consumer loans are up 20% year over year. "Continued earning asset growth is the primary focus going into 2018 with emphasis on consumer and commercial loans throughout the branch network and commercial loan growth in our new markets which include Winston-Salem and Myrtle Beach.

Transaction and Savings deposits increased by $7.1 million, or 11%, to $275.8 million at December 31, 2017, from $268.6 million at December 31, 2016. Household checking accounts increased by 4% reflecting our strong year-over-year branch sales growth. "We continue to focus on creating an exceptional customer experience to drive a differentiated level of service to our customers and we continuously upgrade customer channels to expand customer convenience and improve our efficiency," said Rick Saunders, Chief Executive Officer.

Nonperforming assets declined $2.4 million to $3.0 million at December 31, 2017 compared to one year ago. The Company incurred a write down on OREO totaling $541,527 during the quarter relating to a pending sale totaling $1.6 million expected to close in the first quarter of 2018. The ratio of nonperforming assets to total assets declined to 0.67% at December 31, 2017, compared to 1.34% one year earlier. The allowance for loan losses as a percentage of loans was 0.72% at December 31, 2017, compared to 0.90% one year earlier. For the fourth quarter of 2017, 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, 2017, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.50%	5.00%
Common equity tier 1 capital	11.64%	6.50%
Tier 1 capital ratio	11.64%	8.00%
Total capital ratio	12.32%	10.00%

ABOUT FIRST RELIANCE BANCSHARES, INC.

First Reliance Bancshares, Inc. is the holding company for First Reliance Bank. The Bank was founded in 1999, employs approximately 160 talented associates and serves the Columbia, Lexington, Greenville, Charleston, Mount Pleasant, Summerville, Loris, Myrtle Beach, and Florence markets in South Carolina and Winston-Salem, North Carolina. First Reliance Bank offers several unique customer programs which include a Hometown Heroes package of benefits for those who are serving our communities, Check 'N Save, a community outreach program for the unbanked or under-banked, a Moms First program, and an iMatter program targeted to young people. The Bank also offers a Customer Service Guaranty, a Mortgage Service Guaranty, FREE Coin Machines for customers to use, Mobile Banking, Mobile mortgage applications, and is open on most traditional bank holidays. Its commitment to making customers' lives better and the idea that "There's More to Banking Than Money" has earned the Bank a customer satisfaction rating of 95%. 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 twelve years since the program began.

The common stock of First Reliance Bancshares, Inc. is traded under the symbol FSRL.OB. 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 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

	December 31	September 30	December 31
	2017	2017	2016
Assets
Cash and cash equivalents:
Cash and due from banks	$ 3,494,466	$ 3,595,799	$ 4,810,304
Interest-bearing deposits with other banks	21,136,349	34,771,527	22,287,560
Total cash and cash equivalents	24,630,815	38,367,326	27,097,864

Time deposits in other banks	102,020	102,020	101,816

Securities available-for-sale	26,894,718	17,994,798	17,862,635
Securities held-to-maturity (Estimated fair value of $17,372,835.21, $18,117,507
and $20,842,140 at December 31, 2017, September 30, 2017 and December 31, 2016)	17,018,132	17,645,821	20,438,084
Nonmarketable equity securities	1,359,200	424,200	734,300
Total investment securities	45,272,050	36,064,819	39,035,019

Mortgage loans held for sale	7,885,938	5,892,189	5,355,532

Loans receivable	333,675,252	327,001,685	288,126,331
Less allowance for loan losses	(2,453,875)	(2,561,166)	(2,648,535)
Loans, net	331,221,377	324,440,519	285,477,796

Premises, furniture and equipment, net	18,467,655	18,648,530	18,873,718
Accrued interest receivable	1,094,739	929,974	961,449
Other real estate owned	1,706,765	2,244,453	2,870,484
Cash surrender value life insurance	14,293,703	14,212,143	13,964,986
Net deferred tax assets	4,351,198	7,519,149	8,463,657
Mortgage servicing rights	6,357,666	5,856,286	4,211,582
Other assets	2,615,000	1,384,072	1,707,519
Total assets	$ 457,998,926	$ 455,661,480	$ 408,121,422
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 86,209,100	$ 89,974,860	$ 76,175,393
Interest-bearing transaction accounts	70,642,041	73,063,770	76,736,892
Savings	118,996,069	128,822,217	115,741,395
Time deposits $250,000 and over	14,265,647	13,253,470	17,757,192
Other time deposits	62,981,207	64,073,962	50,124,647
Total deposits	353,094,064	369,188,279	336,535,519

Securities sold under agreement to repurchase	13,929,651	13,791,295	11,088,526
Advances from Federal Home Loan Bank	22,000,000	-	8,000,000
Notes Payable	-	-	6,893,211
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Subordinated debentures	4,850,023	4,776,800	4,896,398
Accrued interest payable	253,677	142,191	298,950
Other liabilities	3,408,184	3,321,321	3,431,091
Total liabilities	407,845,599	401,529,885	381,453,695

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at December 31, 2017, September 30, 2017 and December 31, 2016	-	-	-

Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at December 31, 2017, September 30, 2017 and December 31, 2016	-	-	-

Series D preferred stock - 599, 599 and 600 shares issued and outstanding at December 31, 2017, September 30, 2017 and December 31, 2016, respectively	599	599	600

Series E preferred stock - 410,499 shares issued and outstanding at December 31, 2017 and September 30, 2017	2,955,593	2,955,593	-
Common stock, $0.01 par value; 20,000,000 shares authorized,
7,846,903, 7,827,592 and 4,679,881 shares issued and outstanding
at December 31, 2017, September 30, 2017 and December 31, 2016, respectively	78,875	78,675	46,798
Capital surplus	46,941,231	47,934,844	25,071,543
Treasury stock, at cost, 40,583 shares at December 31, 2017, and 39,894 at
September 30, 2017 and 39,374 shares at December 31, 2016	(229,843)	(224,756)	(219,106)
Nonvested restricted stock	(868,400)	(780,209)	(262,153)
Retained Earnings/Deficit	1,573,383	4,293,010	2,262,742
Accumulated other comprehensive (loss) income	(298,111)	(126,162)	(232,697)
Total shareholders' equity	50,153,327	54,131,594	26,667,727
Total liabilities and shareholders' equity	$ 457,998,926	$ 455,661,480	$ 408,121,422


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

	Three Months Ended	Three Months Ended	Three Months Ended
	December 31, 2017	September 30, 2017	December 31, 2016
Interest income:
Loans, including fees	$ 4,288,116	$ 4,305,528	$ 3,617,498

Investment securities:
Taxable	218,397	190,457	205,420
Tax exempt	34,476	28,136	28,220
Other interest income	84,235	62,148	26,422
Total	4,625,224	4,586,269	3,877,560
Interest expense:
Time deposits	236,411	199,277	113,044
Other deposits	101,606	109,980	81,088
Other interest expense	195,758	284,415	274,014
Total	533,775	593,672	468,146

Net interest income	4,091,449	3,992,597	3,409,414
Provision for loan losses	-	226,296	-
Net interest income after provision for loan losses	4,091,449	4,218,893	3,409,414

Noninterest income:
Service charges on deposit accounts	394,392	399,479	357,712
Gain on sale of mortgage loans	1,044,773	1,061,294	1,698,913
Income from bank owned life insurance	81,560	82,699	86,602
Other service charges, commissions, and fees	344,319	330,742	318,904
Gain on sale of available-for-sale securities	-	-	-
Other	90,683	84,467	716,450
Total	1,955,727	1,958,681	3,178,581

Noninterest expenses:
Salaries and benefits	3,185,613	3,107,198	3,153,885
Occupancy	433,315	434,458	385,007
Furniture and equipment related expenses	427,176	399,267	403,977
Other	1,621,888	1,126,451	1,203,331
Merger Related Expenses	501,265	-	-
Total	6,169,257	5,067,374	5,146,200
Income before income taxes	(122,081)	1,110,200	1,441,795
Income tax	2,597,546	377,407	484,579
Net (loss) income	(2,719,627)	732,793	957,216
Preferred stock dividends accrued	-	-	-
Net (loss) income available to common shareholders	$ (2,719,627)	$ 732,793	$ 957,216

Average common shares outstanding, basic	7,847,201	4,794,084	4,438,570
Average common shares outstanding, diluted	7,997,597	4,933,667	4,554,138

Income per common share:
Basic (loss) income per share	$ (0.35)	$ 0.15	$ 0.22
Diluted (loss) income per share	$ (0.34)	$ 0.15	$ 0.21



Non-GAAP financial measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$ (2,719,627)	$ 732,793	$ 957,216
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)	$ 426,266	$ 732,793	$ 957,216

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.05	$ 0.15	$ 0.22
Diluted (loss) income per share (non-GAAP)	$ 0.05	$ 0.15	$ 0.21


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


	December 31, 2017	December 31, 2016
Interest income:
Loans, including fees	$ 16,321,881	$ 14,363,973

Investment securities:
Taxable	802,817	801,878
Tax exempt	118,968	113,099
Other interest income	225,923	109,578
Total	17,469,589	15,388,528
Interest expense:
Time deposits	732,397	366,955
Other deposits	410,461	300,580
Other interest expense	1,028,925	630,250
Total	2,171,783	1,297,785

Net interest income	15,297,807	14,090,743
Provision for loan losses	-	9,075
Net interest income after provision for loan losses	15,297,807	14,081,668

Noninterest income:
Service charges on deposit accounts	1,502,285	1,385,517
Gain on sale of mortgage loans	4,845,072	6,153,308
Income from bank owned life insurance	328,717	349,374
Other service charges, commissions, and fees	1,341,171	1,236,026
Gain on sale of available-for-sale securities	-	13,261
Gain on sale of premises	-	652,367
Other	324,002	240,780
Total	8,341,247	10,030,633

Noninterest expenses:
Salaries and benefits	12,075,338	11,270,540
Occupancy	1,685,622	1,572,271
Furniture and equipment related expenses	1,646,685	1,517,840
Other	4,803,246	4,428,482
Merger Related Expense	501,265	-
Total	20,712,156	18,789,133
Income before income taxes	2,926,897	5,323,168
Income tax expense (benefit)	3,616,257	1,801,260
Net (loss) income	(689,360)	3,521,908
Preferred stock dividends accrued	-	937,848
Deemed dividends on preferred stock resulting from	-	-
net accretion of discount and amortization of premium	-	-
Net (loss) income available to common shareholders	$ (689,360)	$ 2,584,060

Average common shares outstanding, basic	5,465,867	4,438,570
Average common shares outstanding, diluted	5,606,149	4,554,138

Income per common share:
Basic (loss) income per share	$ (0.13)	$ 0.58
Diluted (loss) income per share	$ (0.12)	$ 0.57


Non-GAAP financial measurements (unaudited)

Net (loss) income available to common shareholders before adjustments	$ (689,360)	$ 2,584,060
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)	$ 2,456,533	$ 3,521,908

Adjusted Income per common share:
Basic (loss) income per share (non-GAAP)	$ 0.45	$ 0.58
Diluted (loss) income per share (non-GAAP)	$ 0.44	$ 0.57

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, 2017	September 30, 2017	December 31, 2016
Asset Quality
Loans 90 days past due & still accruing	-	-	-
Nonaccrual loans	1,353	703	2,588



Total nonperfoming loans	1,353	703	2,588
OREO and repossessed assets	1,707	2,244	2,870
Total Nonperforming Assets	3,060	2,947	5,458

Nonperforming loans to loans	0.43%	0.23%	0.90%
Nonperforming assets to total assets	0.67%	0.65%	1.34%
Allowance for loan losses to total loans	0.72%	0.77%	0.90%
Allowance for loan losses to nonperforming loans	181.37%	364.32%	102.34%
Capital Data (at quarter end)
Book value per share	6.07	6.54	5.75
Tangible book value per share	6.07	6.54	5.75

Per Share Data
QTD Weighted Average Shares Outstanding- basic	7,847,201	4,794,084	4,438,570
QTD Weighted Average Shares Outstanding- diluted	7,997,597	4,933,667	4,554,138
Earning Per Share - basic	$ (0.35)	$ 0.15	$ 0.22
Earning Per Share -diluted	(0.34)	0.15	0.21

Profitability Ratios
Net Interest Margin	4.29%	4.32%	4.37%
Return on Assets	-2.41%	0.65%	0.95%
Return on Equity	-21.99%	5.49%	14.56%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.50%	9.66%	9.97%
Common Equity Tier 1 capital	11.64%	11.75%	12.21%
Tier 1 capital ratio	11.64%	11.75%	12.21%
Total capital ratio	12.32%	12.46%	13.03%
Total risk weighted assets	365,136	357,250	323,406