First Reliance Reports 3Q17 Net Income of $733,000, Tangible Book Value Increases 23% and Provides Update on Acquisition

News provided by

Nov 01, 2017, 16:30 ET

FLORENCE, S.C., Nov. 1, 2017 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported third quarter 2017 net income of $733,000, down 30% from third quarter 2016 net income of $1.04 million. Profitability continues to be led by strong loan and deposit growth and expanding operating efficiencies but has been impacted temporarily with the opening of two new branch offices and a decline in mortgage income stemming from a slowdown in correspondent bank mortgage originations. Diluted earnings per share for the three months ended September 30, 2017 was $0.15 compared to $0.23 in the third quarter of 2016.

"In September 2017, we completed a successful capital raise of $25.1 million and entered into a definitive agreement to acquire Independence Bancshares, Greenville, South Carolina. We expect to complete the acquisition in the first quarter of 2018. This expansion into the attractive Greenville market will continue to broaden our footprint throughout South Carolina. We also opened a loan production office in Winston-Salem North Carolina during the quarter and are planning additional expansion activities in North Carolina in the near term. While the costs of openings branch offices negatively impacted earnings in the short term, we expect these additional offices to begin making positive contributions to our earnings within 12 months of opening," says Rick Saunders, President and CEO.

Financial Highlights (at or for the nine months ended September 30, 2017, except as noted)

Entered into a definitive agreement to acquire Independence Bancshares, Inc., with an expectation of closing in the first quarter of 2018. The combined company is expected to have approximately $532.9 million in assets.
Completed a private placement of $25.1 million in common and preferred stock.
Strengthened capital position significantly, with a tangible book value per share of $6.91, up 23% from one year ago.
Achieved a return on assets of 0.65%.
Opened a loan production office in Winston-Salem, North Carolina.
Loan growth is up $41.6 million or 15%, while earning asset yields improved to 4.64% for the nine months ended September 30, 2017 compared to 4.52% for the same period of 2016.
Non-interest bearing checking accounts increased $10.8 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.
Repaid $7.0 million of senior debt with a portion of the proceeds from the private placement, which will reduce interest expense by approximately $350,000 annually.
Net interest margin (NIM) was 4.32% for the nine months ended September 30, 2017, as the Company continued to leverage its low cost of funds of 32 bp.

Review of Income Statement

Net interest income improved 14% at $4.0 million for the nine months ended September 30, 2017, compared to the same period of 2016 despite increased interest expense of $176,000 associated with the senior debt and subordinated debt incurred in 2016 to redeem preferred stock issued under the TARP program and growth in interest-bearing deposit balances. Late in the third quarter of 2017, the Company paid off its $7.0 million secured loan, which will reduce interest expense by approximately $350,000 annually. Net interest income improvement is due to growth in earning assets as well as an increase in earning asset yields to 4.64% for the nine months ended September 30, 2017 compared to 4.54% for the same period 2016.

Noninterest income decreased 8% to $6.4 million for the nine months ended September 30, 2017, compared to $6.9 million for the same period 2016. The decrease in noninterest income was largely due to 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 refinance opportunities. However, the Company's retail mortgage channel within each operating market increased production volumes year-over-year by $2.4 million and continues to build core franchise value and provide customer acquisition opportunities. "Despite the reduction in mortgage volumes in 2017 compared to 2016, the Company continues to increase its earning asset levels with overall loan production up 15% on a year-over-year basis while maintaining very strong earning asset yields," said Jeffrey Paolucci, Executive Vice President and CFO.

Balance Sheet and Asset Quality

Total assets increased $46.2 million, or 11% to $455.7 million at September 30, 2017, compared to $409.5 million from September 30, 2016.

Loans receivable grew by $41.6 million, or 15%, to $327 million at September 30, 2017, compared to $285 million, at September 30, 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 75% year-over-year and Consumer loans are up 27%.

Transaction and Savings deposits increased by $29.8 million, or 11%, to $291.8 million at September 30, 2017, from $262.1 million at September 30, 2016. Household checking accounts increased by 5% reflecting our strong year-over-year branch sales growth. "Our associates continue to deliver a differentiated level of service to our customers as is reflected in our 95% customer satisfaction score. Customers seem to like banking with us as our services per household remains strong and customers use of mobile banking continues to trend upward each month," said Saunders.

Nonperforming assets declined $2.1 million to $2.9 million at September 30, 2017 compared to one year ago. The ratio of nonperforming assets to total assets declined to 0.65% at September 30, 2017, compared to 1.27% one year earlier. The allowance for loan losses as a percentage of loans was 0.77% at September 30, 2017, compared to 0.90% one year earlier. For the third quarter of 2017, loan charge offs were nominal and largely offset by 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 September 30, 2017, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.66%	5.00%
Common equity tier 1 capital	11.75%	6.50%
Tier 1 capital ratio	11.75%	8.00%
Total capital ratio	12.46%	10.00%

First Reliance's tangible book value was $6.91, at September 30, 2017, up 23% from $5.60, at September 30, 2016. As of September 29, 2017, the Company's stock closed at a price of $7.35 per share, 106.4% of book value.

As of September 30, 2017, total shareholders' equity increased by $28.1 million from September 30, 2016. In late third quarter 2017, Company announced the closing of a private placement of common and non-voting preferred stock to various investors from which it received gross proceeds of $25.1 million and paid off its $7 million secured loan, which will reduce interest expense by approximately $350,000 annually. Concurrent with the announcement of the completion of the private placement, the Company announced the entry into a definitive agreement to acquire Independence Bancshares, Inc. ("Independence" or "IEBS") and its wholly-owned bank subsidiary, Independence National Bank, of Greenville, South Carolina, which has approximately $90.0 million in assets and $76.1 million in deposits. Under the terms of the merger agreement, Independence shareholders will receive merger consideration of $11.0 million in cash, comprised of $0.125 for each outstanding common share of IEBS and the redemption of $8.425 million of Independence's convertible preferred stock at the redemption price of $1,000 per share. The Company expects to recover Independence's deferred tax assets and other related tax benefits totaling approximately $1.9 million. The transaction is expected to be slightly dilutive to First Reliance's 2018 tangible book value per share, including one-time transaction costs, and double-digit accretive to First Reliance's fully diluted earnings per share for 2018.

"We are excited to expand into both the Greenville, South Carolina market and into the Winston-Salem, North Carolina market. These are both very good growth markets for our Company and will complement our brand of community banking," says Saunders.

First Reliance Bank recently celebrated its 18^th Anniversary in business and held celebrations for customers and Hometown Heroes throughout its market areas. The bank is committed to offering customers an incredible experience and holds celebrations and special customer events throughout the year including special contests through its social media. Customers of the bank have given it a 95% customer satisfaction rating for five consecutive years. First Reliance 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. This recognition reinforces that our associates are engaged and committed to the Bank and the communities we serve.

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 140 highly-talented associates and serves the Columbia, Lexington, Charleston, Mount Pleasant, Summerville, Loris, North 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%.

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 acquisitions may not be fully realized within expected timeframes; and (9) disruption from the Independence 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*

	September 30	December 31	September 30
	2017	2016	2016
Assets
Cash and cash equivalents:
Cash and due from banks	$ 3,595,799	$ 4,810,304	$ 4,704,134
Interest-bearing deposits with other banks	34,771,527	22,287,560	11,455,124
Total cash and cash equivalents	38,367,326	27,097,864	16,159,258

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

Securities available-for-sale	17,994,798	17,862,635	18,671,693
Securities held-to-maturity (Estimated fair value of $18,117,507
$20,842,140 and $22,512,322 at September 30, 2017, December 31, 2016 and September 30, 2016)	17,645,821	20,438,084	21,569,074
Nonmarketable equity securities	424,200	734,300	1,350,600
Total investment securities	36,064,819	39,035,019	41,591,367

Mortgage loans held for sale	5,892,189	5,355,532	14,784,129

Loans receivable	327,001,685	288,126,331	285,332,840
Less allowance for loan losses	(2,561,166)	(2,648,535)	(2,710,305)
Loans, net	324,440,519	285,477,796	282,622,535

Premises, furniture and equipment, net	18,648,530	18,873,718	22,658,107
Accrued interest receivable	929,974	961,449	876,684
Other real estate owned	2,244,453	2,870,484	2,553,284
Cash surrender value life insurance	14,212,143	13,964,986	13,878,383
Net deferred tax assets	7,519,149	8,463,657	8,763,732
Mortgage servicing rights	5,856,286	4,211,582	3,063,895
Other assets	1,384,072	1,707,519	2,405,986
Total assets	$ 455,661,480	$ 408,121,422	$ 409,459,176
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 89,974,860	$ 76,175,393	$ 79,139,444
Interest-bearing transaction accounts	73,063,770	76,736,892	73,626,962
Savings	128,822,217	115,741,395	109,334,379
Time deposits $250,000 and over	13,253,470	17,757,192	16,252,258
Other time deposits	64,073,962	50,124,647	48,958,506
Total deposits	369,188,279	336,535,519	327,311,549

Securities sold under agreement to repurchase	13,791,295	11,088,526	9,421,742
Advances from Federal Home Loan Bank	-	8,000,000	20,500,000
Notes Payable	-	6,893,211	7,000,000
Junior subordinated debentures	10,310,000	10,310,000	15,310,000
Subordinated debentures	4,776,800	4,896,398	-
Accrued interest payable	142,191	298,950	192,940
Other liabilities	3,321,321	3,431,091	3,736,505
Total liabilities	401,529,885	381,453,695	383,472,736

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding at September 30, 2017, December 31, 2016 and September 30 , 2016	-	-	-
Series B cumulative perpetual preferred stock - 0 shares issued and outstanding at September 30, 2017, December 31, 2016 and September 30, 2016	-	-	-
Series D preferred stock - 599 , 600 and 600 shares issued and outstanding at September 30, 2017, December 31, 2016 and September 30, 2016, respectively	599	600	600
Series E preferred stock - 410,499 shares issued and outstanding at September 30, 2017	4,105	-	-
Common stock, $0.01 par value; 20,000,000 shares authorized,
7,827,592.000, 4,679,881.000 and 4,640,312.000 shares issued and outstanding
at September 30, 2017, December 31, 2016 and September 30, 2016, respectively	78,675	46,798	46,794
Capital surplus	50,886,332	25,071,543	25,068,897
Treasury stock, at cost, 39,894 shares at September 30, 2017 and 39,374 at
December 31, 2016 and 39,609 shares at September 30, 2016	(224,756)	(219,106)	(219,105)
Nonvested restricted stock	(780,209)	(262,153)	(276,691)
Retained Earnings/Deficit	4,293,010	2,262,742	1,305,525
Accumulated other comprehensive (loss) income	(126,162)	(232,697)	60,420
Total shareholders' equity	54,131,594	26,667,727	25,986,440
Total liabilities and shareholders' equity	$ 455,661,480	$ 408,121,422	$ 409,459,176

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

	Three Months Ended	Three Months Ended	Three Months Ended
	September 30, 2017	December 31, 2016	September 30, 2016
Interest income:
Loans, including fees	$ 4,305,528	$ 3,617,498	$ 3,632,812

Investment securities:
Taxable	190,457	205,420	199,673
Tax exempt	28,136	28,220	28,266
Other interest income	62,148	26,422	24,194
Total	4,586,269	3,877,560	3,884,945
Interest expense:
Time deposits	199,277	113,044	101,563
Other deposits	109,980	81,088	77,293
Other interest expense	284,415	274,014	215,033
Total	593,672	468,146	393,889

Net interest income	3,992,597	3,409,414	3,491,056
Provision for loan losses	226,296	-	-
Net interest income after provision for loan losses	4,218,893	3,409,414	3,491,056

Noninterest income:
Service charges on deposit accounts	399,479	357,712	355,003
Gain on sale of mortgage loans	1,061,294	1,698,913	2,008,703
Income from bank owned life insurance	82,699	86,602	87,395
Other service charges, commissions, and fees	330,742	318,904	296,282
Gain on sale of available-for-sale securities	-	-	13,261
Other	84,467	716,450	63,733
Total	1,958,681	3,178,581	2,824,377

Noninterest expenses:
Salaries and benefits	3,107,198	3,153,885	2,940,871
Occupancy	434,458	385,007	416,626
Furniture and equipment related expenses	399,267	403,977	381,442
Other	1,126,451	1,203,331	983,878
Total	5,067,374	5,146,200	4,722,817
Income before income taxes	1,110,200	1,441,795	1,592,616
Income tax	377,407	484,579	545,932
Net Income	732,793	957,216	1,046,684
Preferred stock dividends accrued	-	-	-
Net income available to common shareholders	$ 732,793	$ 957,216	$ 1,046,684

Average common shares outstanding, basic	4,794,084	4,438,570	4,443,355
Average common shares outstanding, diluted	4,933,667	4,554,138	4,562,711

Income per common share:
Basic income per share	$ 0.15	$ 0.22	$ 0.24
Diluted income per share	0.15	0.21	0.23

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


	September 2017	December 2016	September 2016
Interest income:
Loans, including fees	$ 12,033,766	$ 14,363,973	$ 10,746,475

Investment securities:
Taxable	584,420	801,878	596,458
Tax exempt	84,492	113,099	84,879
Other interest income	141,688	109,578	83,156
Total	12,844,366	15,388,528	11,510,968
Interest expense:
Time deposits	495,986	366,955	263,587
Other deposits	308,855	300,580	219,492
Other interest expense	833,167	630,250	356,235
Total	1,638,008	1,297,785	839,314

Net interest income	11,206,358	14,090,743	10,671,653
Provision for loan losses	-	9,075	9,075
Net interest income after provision for loan losses	11,206,358	14,081,668	10,662,578

Noninterest income:
Service charges on deposit accounts	1,107,893	1,385,517	1,027,805
Gain on sale of mortgage loans	3,800,299	6,153,308	4,570,554
Income from bank owned life insurance	247,157	349,374	262,772
Other service charges, commissions, and fees	996,853	1,236,026	917,123
Gain on sale of available-for-sale securities	-	13,261	13,261
Gain on sale of premises	-	652,367	-
Other	233,319	240,780	176,692
Total	6,385,521	10,030,633	6,968,207

Noninterest expenses:
Salaries and benefits	8,889,725	11,270,540	8,116,877
Occupancy	1,252,307	1,572,271	1,187,262
Furniture and equipment related expenses	1,219,509	1,517,840	1,113,865
Other	3,181,358	4,428,482	3,331,408
Total	14,542,899	18,789,133	13,749,412
Income before income taxes	3,048,980	5,323,168	3,881,373
Income tax expense (benefit)	1,018,711	1,801,260	1,316,681
Net income	2,030,269	3,521,908	2,564,692
Preferred stock dividends accrued	-	937,848	-
Deemed dividends on preferred stock resulting from	-	-	-
net accretion of discount and amortization of premium	-	-	-
Net income available to common shareholders	$ 2,030,269	$ 2,584,060	$ 2,564,692

Average common shares outstanding, basic	4,794,084	4,438,570	4,443,355
Average common shares outstanding, diluted	4,933,667	4,554,138	4,562,711

Income per common share:
Basic income per share	0.42	$ 0.58	$ 0.58
Diluted income per share	0.41	0.57	0.56

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, 2017	December 31, 2016	September 30, 2016
Income Statement Data
Net Interest Income	3,992,597	3,409,414	3,491,056
Provision for loan losses	226,296	-	-
Noninterest Income	1,958,681	3,178,581	3,165,499
Noninterest Expense	5,067,374	5,146,200	4,722,817
Income Tax (Benefit)	377,407	484,579	545,932
Net Income	732,793	957,216	1,046,684
Asset Quality
Loans 90 days past due & still accruing	-	-	-
Nonaccrual loans	703	2,588	2,590



Total nonperfoming loans	703	2,588	2,590
OREO and repossessed assets	2,244	2,870	2,553
Total Nonperforming Assets	2,947	5,458	5,143

Nonperforming loans to loans	0.23%	0.90%	0.91%
Nonperforming assets to total assets	0.65%	1.34%	1.27%
Allowance for loan losses to total loans	0.77%	0.90%	0.90%
Allowance for loan losses to nonperforming loans	364.32%	102.34%	104.64%
Capital Data (at quarter end)
Book value per share	6.91	5.75	5.60
Tangible book value per share	6.91	5.75	5.60

Per Share Data
QTD Weighted Average Shares Outstanding- basic	4,794,084	4,438,570	4,443,355
QTD Weighted Average Shares Outstanding- diluted	4,933,667	4,554,138	4,562,711
Earning Per Share - basic	$ 0.15	$ 0.22	$ 0.24
Earning Per Share -diluted	0.15	0.21	0.23

Profitability Ratios
Net Interest Margin	4.32%	4.37%	4.42%
Return on Assets	0.65%	0.95%	1.04%
Return on Equity	5.49%	14.56%	16.34%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.66%	9.97%	9.87%
Common Equity Tier 1 capital	11.75%	12.21%	11.67%
Tier 1 capital ratio	11.75%	12.21%	11.67%
Total capital ratio	12.46%	13.03%	12.51%
Total risk weighted assets	357,250	323,406	327,872