First Reliance Reports First Quarter 2020 Financial Results

FLORENCE, S.C., May 5, 2020 /PRNewswire/ -- First Reliance Bancshares, Inc. FSRL, holding company for First Reliance Bank ("Company"), today announced its financial results for the three-month period ended March 31, 2020.

2020 First Quarter Highlights

• Net income improved to $858 thousand, a 29.4% increase over Q1 2019;
• Diluted EPS improved to $0.11 per share, a 37.5% increase over Q1 2019;
• Absent a $0.33 per share charge related to the quarterly mortgage servicing rights valuation adjustment, Net Income after Adjustments (a non-GAAP financial measure) would be $3.5 million, or $0.44 per diluted share;
• Net interest margin increased 14 basis points to 4.09% for Q1 2020, compared to 3.95% for Q1 2019;
• Tangible book value increased 9.81% over Q1 2019 to $6.83;
• Total assets increased 9.35% to $661 million at Q1 2020, compared to $604 million at Q1 2019;
• Total loans increased 7.03% to $481 million at Q1 2020, compared to $449 million at Q1 2019;
• Transaction deposits to total deposits increased to 49.1% at Q1 2020, compared to 39.5% at Q1 2019;
• Tier 1 Leverage Capital "Bank level" increased to 10.29% at Q1 2020, compared to 9.48% at Q1 2019;
• Asset quality at the end of Q1 2020 continued to be strong, with nonperforming assets to average assets at 0.26%;
• Frank Bullard joins the First Reliance team as Charleston Market President; and
• Record mortgage volume levels of $74.2 million for Q1 2020.

Rick Saunders, President and CEO of First Reliance said, "our Company began fiscal year 2020 positioned to continue the successful financial performance of 2019, reporting very good loan growth, increasing capital levels, higher liquidity levels, and record-setting mortgage volumes during the first quarter of 2020.  When COVID-19 thrust us all into a worldwide pandemic, First Reliance moved to protect its community's health and economic interests. In order to help ensure the safety of our associates, the welfare of our customers, and the strength of our Company, First Reliance invoked its Crisis Management Team and Pandemic Response Plan in early March to swiftly address the unique  challenges presented to the Bank and its management, employees, customers, and communities.  Our team quickly implemented associate communications and rolled out customer relief programs for Skip-a-Payment, loan payment deferrals, and forbearance options on loans and mortgages.  We closed our lobbies, except by appointment, in order to keep our customers and associates safe.  Additionally, we aided customers in using our robust digital banking services, and we increased the amount that could be deposited through mobile banking.  We are a participating lender in the Small Business Administration ("SBA") Paycheck Protection Program ("PPP"), and we will continue to work with our customers who are participating in the PPP to support their employees and business operations.  As additional funds are dedicated to the PPP by Congress, we intend to work with those customers who would like to participate, but have not yet, in the PPP.  We have developed and implemented an efficient process to allow our customers to apply, get approved from the SBA and get the PPP loans closed quickly, so the proceeds are in our customers' accounts as soon as possible.  To date, we have accepted 798 PPP loan applications totaling $58 million.  We have also responded to the needs of many of our customers by granting short-term loan modifications to borrowers who are, or may be, unable to meet their contractual payment obligations because of the effect of COVID-19.  I am proud of our First Reliance team's accomplishments in the first quarter and its deep dedication to the communities it serves as evidenced during the current crisis. Looking forward, when our customers can reopen for business and governmental orders limiting activities are lifted, our Company is positioned to continue our first quarter's strong performance."

Net income for the first quarter of 2020 was $858 thousand, or $0.11 per diluted share, compared to $663 thousand, or $0.08 per diluted share, for the first quarter of 2019.  In the first quarter of 2020, the Company took a $0.33 per share charge for the quarterly mortgage servicing rights ("MSR") valuation adjustment totaling $3.5 million.  Absent the MSR adjustment, net income after adjustments (a non-GAAP financial measure) would be $3.5 million, or $0.44 per diluted share for the three-months ending March 31, 2020.  Despite the MSR adjustment, total revenues for the three-months ended March 31, 2020 were $7.5 million, up 5.63% from $7.1 million for the same period one-year ago. 

Noninterest income for the three-months ending March 31, 2020 was $1.7 million, a $200 thousand decline from $1.9 million for the same period one-year ago.  Noninterest income is largely driven by the Company's mortgage banking division.  Net income for the three-month period ending March 31, 2020 was impacted by a quarterly MSR valuation adjustment totaling $3.5 million.  The MSR valuation is negatively impacted by reductions in the United States Treasury 10-year index, which reached record lows during the first quarter 2020.  While the MSR valuation was impacted by low interest rates, the favorable interest rate environment provided the Company with record level mortgage volumes which is expected to carry forward and may offset the negative MSR valuation adjustment.  In the first quarter of 2020, mortgage production volumes reached $74.2 million as compared with $50.5 million for the same period one-year ago.  The mortgage pipeline remains robust and the Company is projecting volumes for Q2 2020 to more than double that of first quarter 2020.  "As mortgage rates reached all-time record lows, we saw unprecedented mortgage volume throughout our markets in the first quarter of 2020.  Our mortgage team is working tirelessly to support the demand and help our customers with refinancing their homes, renovations, or new home purchases," said CEO Saunders.

Noninterest expense decreased by $110 thousand or 3%, for the first quarter of 2020 compared to the same period one-year ago.  The decrease in noninterest expense is primarily attributable to planned expense reduction efforts with declines in compensation and benefits and professional fees.  Expense control continues to be in the forefront of the Company's strategic efforts and measures are being implemented where feasible; however, additional costs of the initial setup of working remote and deep cleaning of offices may offset all or a portion of these expense control measures.  "On the First Reliance front, approximately 32% of our associates are working from home in order to limit the number of associates in our buildings for social distancing, while helping to ensure appropriate backup should anyone be exposed to the Covid-19 virus.  Our associates took it upon themselves to send positive messages to our customers through video on our social media.  We are showing our customers how much we truly care about them," said Rick Saunders, CEO and President.

Net interest income was $5.8 million for the first quarter of 2020, a 13.1% increase from the first quarter of 2019.  The increase in net interest income as compared to the first quarter of 2019 resulted primarily from the growth in our loan portfolio, a significant increase in noninterest bearing deposits, and lower cost deposit balances.  Despite experiencing a 225 basis drop in interest rates by the Federal Reserve since August 2019, our net interest margin improved to 4.09% for the first quarter of 2020, a 14 basis point increase from 3.95% for the first quarter of 2019.  The improvement to date is attributable primarily to a reduction in our cost of funds and $35 million of growth in noninterest bearing deposits. While a low rate environment for an extended period of time will exert margin pressure, the Company has actively positioned the balance sheet to help protect earnings. The Company intentionally reduced its exposure to higher cost deposits and focused on building relationships and growing deposits through core checking account acquisition.  Transaction accounts (see footnote No. 5) to total deposits increased to a record high 49.06% for the three-months ended March 31, 2020 compared to 39.50% for the same period one-year ago.  The Company experienced double digit growth in commercial deposit accounts and treasury services.  Customers are doing more business overall and seem to like the Company's brand of banking, as reflected in the strong services per household number of 5.6%.

Total assets increased 9.35% to $661 million at March 31, 2020, compared to $604 million at March 31, 2019.  Total loans grew by $32 million, 7.03%, to $481 million at March 31, 2020, compared to $449 million for the same period one-year ago due to primarily organic loan growth in our commercial, 1-4 family mortgage and consumer loan portfolios. 

Rick Saunders, President and CEO of First Reliance said, "We recently announced that Frank Bullard joined First Reliance Bank as President of our Charleston market.  Mr. Bullard is responsible for the strategic expansion of First Reliance Bank's footprint in the Charleston market as well as oversee sales management and community development throughout that footprint.  Mr. Bullard has over 37 years of experience in the banking industry.  In addition, Mark Brady joined the First Reliance team as President of the Charlotte market.  Mr. Brady will lead the strategic  expansion of First Reliance Bank's footprint in the Charlotte area as well as oversee sales management and community development throughout that footprint.  Susan Lambertson joined First Reliance Bank as Manager of our Winston-Salem branch.   We welcome our new associates and look forward to continued growth opportunities in Charleston, Winston-Salem and Charlotte areas.

We will be breaking ground for a new Myrtle Beach branch – Grissom Parkway, as plans have been approved to begin building a new modern and hi-tech branch.  As our North Carolina presence has grown, we are relocating and expanding the Winston-Salem office into a full service branch site in May, which will allow us to position ourselves for future growth in the Winston-Salem market.  We are also actively looking for branch sites in the Lake Norman and other fast growing markets in the Charlotte MSA.  With developing economic uncertainty, current and future market expansion plans will be evaluated prudently. We will be closing our downtown Charleston branch in May and relocating our associates to our thriving Mt. Pleasant branch on Shelmore Boulevard.  We consulted with a majority of our downtown Charleston customers prior to this decision to determine the impacts to their business needs. Overwhelmingly they indicate our company service quality, along with our digital services and Mt. Pleasant location, would meet their banking needs.  This change benefits our customers, the Charleston community and our shareholders."

Our asset quality continued to be strong through March 31, 2020, with nonperforming assets declining by $494 thousand to $1.7 million at March 31, 2020 compared to the same date one-year ago.  The ratio of nonperforming assets to total assets declined to 0.26% at March 31, 2020, a decrease of 11 basis points compared to March 31, 2019.  OREO and repossessed assets remain nominal.  The allowance for loan losses as a percentage of loans improved to 0.81% at March 31, 2020 (adjusted for purchase accounting marks on acquired loans), compared to 0.72% one year earlier due primarily to provisioning associated with the anticipated economic impact of the COVID-19 pandemic.  "While we have not seen any direct impact of COVID-19 to our asset quality, we believe it is prudent to reflect this pandemic in our allowance models", said CEO Saunders.  Year-to-date provision expense is up 156.9% to $375 thousand compared to the same period one-year ago.  Net charge offs remain nominal.

Footnotes to tables:

ABOUT FIRST RELIANCE BANCSHARES

Founded in 1999, First Reliance Bancshares, Inc. FSRL, is based in Florence, South Carolina and has assets of approximately $661 million.  The Company employs more than 148 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.

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 coronavirus 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:
Jeffrey A. Paolucci, EVP & CFO
(888) 543-5510
jpaolucci@firstreliance.com

SOURCE First Reliance Bancshares, Inc.