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

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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.    

First Reliance Bancshares

"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 18th 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

 

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

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SOURCE First Reliance Bancshares, Inc.

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