First Reliance Bancshares Reports Third Quarter 2021 Results

FLORENCE, S.C., Oct. 21, 2021 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC:FSRL), the holding company for First Reliance Bank (collectively, "First Reliance" or the "Company"), today announced its financial results for the third quarter of 2021.

Third Quarter 2021 Highlights

• Net income for the third quarter of 2021 was $1.3 million, or $0.16 per diluted share, compared to $4.5 million, or $0.56 per diluted share, for the third quarter of 2020.
• Total assets increased $78.8 million, or 37.9% annualized, to $911.1 million at September 30, 2021 from $832.2 million at June 30, 2021.
• Total loans increased $38.4 million, or 29.2% annualized, to $564.7 million at September 30, 2021 from $526.4 million at June 30, 2021.
• Total deposits increased $76.0 million, or 42.7% annualized, to $787.5 million at September 30, 2021 from $711.5 million at June 30, 2021. This growth was primarily driven by noninterest-bearing deposits and money market deposits, which increased $30.7 million and $46.5 million, respectively.
• Net interest income for the quarter was $6.3 million, which represents an increase of $44 thousand, or 0.7%, on a linked quarter basis and a decrease of $0.5 million, or 7.5%, compared to the same period in 2020.
• Included within net interest income for the three months ended June 30, 2021 and the three months ended September 30, 2020 was $0.3 million and $0.9 million, respectively, of PPP interest and accelerated fee income. The Company sold the PPP portfolios in full during those periods.
• Asset quality remained strong, with nonperforming assets as a percentage of total assets decreasing to 0.15% at September 30, 2021 from 0.17% at June 30, 2021.
• The Company had net recoveries of $511 thousand, or annualized (0.37%) of average loans during the quarter compared to net recoveries of $6 thousand, or annualized (0.00%) of average loans, for the same period in 2020.
• Cost of funds for the third quarter of 2021 decreased to 0.24% from 0.29% on a linked quarter basis and from 0.52% for the same period in 2020.
• On August 5, 2021, the Company redeemed all $5.0 million of its 7.00% fixed-to-floating rate subordinated notes. On September 22, 2021, the Company issued $10.0 million of 3.375% fixed-to-floating rate subordinated notes with a 10-year maturity and a call option after 5 years.

Rick Saunders, Chief Executive Officer, remarked on the quarter: "Our third quarter results are representative of our continued focus on organic growth and improving operating scale.  The operating environment for the banking industry remains challenging with normalizing mortgage revenues and continued low interest rates.  However, despite these challenges, we are continuing to execute the early phase of our growth strategy.  We had another quarter of extraordinary deposit growth and continued to grow our loan portfolio within our conservative underwriting framework.  Annualized deposit growth of 42.7% and annualized loan growth of 29.2% during the quarter is reflective of our team's ability to move their relationships to First Reliance.  I'm especially proud that we continue to maintain our deposit mix, with over 48% of total deposits being comprised of checking balances."  

Mr. Saunders continued, "As our loan growth continues, we expect our balance sheet mix to normalize over time, especially as it relates to cash.  While our large cash position continues to create downward pressure on net interest margin, revenue, and efficiency, the short-term duration of this asset has protected book value and provides future earnings potential.  As the rate environment becomes more favorable, the Company will have more opportunities to deploy this cash strategically."

Mr. Saunders concluded, "I would like to thank all of our associates for their continued hard work and their commitment to our customers, our communities, and our shareholders."

Financial Summary

Footnotes to table located at the end of this release.

Footnotes to table located at the end of this release.

CONDENSED CONSOLIDATED INCOME STATEMENTS – Unaudited

Net income for the three months ended September 30, 2021 was $1.3 million, or $0.16 per diluted common share, compared to $4.5 million, or $0.56 per diluted common share, for the three months ended September 30, 2020.  Net income for the nine months ended September 30, 2021 totaled $4.3 million, or $0.53 per diluted common share, compared to $9.2 million, or $1.15 per diluted common share for the nine months ended September 30, 2020.

Noninterest income for the three months ended September 30, 2021 was $3.3 million, a decrease of $4.8 million from $8.1 million for the same period in 2020.  Noninterest income is largely driven by the Company's mortgage banking division, which produced net revenue of $2.2 million on $124 million of mortgage sale volume during the three months ended September 30, 2021.  The primary driver of the decrease in mortgage banking income period-over-period was a decrease in margin on loan sales.  Additionally, growth in the retail channel drove the increased utilization of bank portfolio products.  This negatively affected gain on sale during the quarter by approximately $0.4 million. 

Noninterest expense for the three months ended September 30, 2021 was consistent with the same period in 2020 at $8.0 million.  Increases in compensation and benefits expense of $0.4 million and electronic data processing expense of $0.1 million were offset by decreases in furniture and equipment expense of $0.2 million and other expenses of $0.2 million.  Included in compensation and benefits for the current quarter is approximately $24 thousand in severance expense.  The additional increase in compensation and benefits is driven mainly by increased headcount year-over-year.

NET INTEREST INCOME AND MARGIN – Unaudited

Net interest income for the three months ended September 30, 2021 was $6.3 million compared to $6.8 million for the three months ended September 30, 2020.  Included within the three months ended September 30, 2020 was approximately $0.9 million of interest and accelerated fee income on PPP loans, which were sold in August 2020.  Adjusting for this PPP income, net interest income increased by $0.4 million, or 7.5%, for the three months ended September 30, 2021 compared to the same period in 2020.  This increase was primarily driven by an increase in interest-earning assets as well as a decrease in the cost of interest-bearing liabilities, which decreased from 0.70% to 0.34%. Improvements in costs of interest-bearing liabilities continue to be offset to some extent by downward pressure on asset yield.  Yield on interest-earning assets decreased to 3.36% for the three months ended September 30, 2021 from 3.93% (excluding PPP interest and fee income) for the same period in 2020.  This decrease was driven by both a change in balance sheet mix and an overall decrease in interest rates stemming from decreases in the federal funds target rate during 2020. 

Net interest income for the nine months ended September 30, 2021 was $18.1 million compared to $18.6 million for the nine months ended September 30, 2020.  As mentioned previously, the prior period amounts were positively affected by $0.9 million of interest and fee income on PPP loans.  If interest and fee income on PPP loans are removed from both nine-month periods, net interest income increased by $0.2 million, or 1.1%, period over period. 

CONDENSED CONSOLIDATED BALANCE SHEETS – Unaudited

COMMON STOCK SUMMARY - Unaudited

Footnotes to table located at the end of this release.

ASSET QUALITY MEASURES – Unaudited

Our asset quality remained strong through September 30, 2021, with nonperforming assets remaining at $1.4 million.  The ratio of nonperforming assets to total assets decreased to 0.15% at September 30, 2021 from 0.17% at June 30, 2021.  Other real estate owned and repossessed assets remain nominal.  The allowance for loan losses as a percentage of total loans receivable increased slightly to 1.23% at September 30, 2021, compared to 1.20% at June 30, 2021.  The Company had net recoveries of $511 thousand for the three months ended September 30, 2021 compared to net recoveries of $6 thousand for the same period in 2020.  Included in net recoveries for the current quarter was a $532 thousand recovery of a previous charge-off from a single borrower.

LOAN COMPOSITION – Unaudited

DEPOSIT COMPOSITION – Unaudited

Footnotes to tables:

ABOUT FIRST RELIANCE

Founded in 1999, First Reliance Bancshares, Inc. (OTC: FSRL.OB), is based in Florence, South Carolina and has assets of approximately $911 million.  The Company employs more than 187 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 93% 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 15 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.

FORWARD-LOOKING STATEMENTS

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.  Moreover, a trade war or other governmental action related to tariffs or international trade agreements or policies, as well as Covid-19 or other potential epidemics or pandemics, have the potential to negatively impact ours and/or our customers' costs, demand for our customers' products, and/or the U.S. economy or certain sectors thereof and, thus, adversely affect our business, financial condition, and results of operations.  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:
Robert Haile
SEVP & Chief Financial Officer
(843) 656-5000
[email protected]

SOURCE First Reliance Bancshares