Market Overview

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

Share:

-$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)

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").

First Reliance Bancshares

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





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

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/first-reliance-bancshares-reports-4th-quarter-2017-results-and-completes-acquisition-of-independence-bancshares-300605745.html

SOURCE First Reliance Bancshares, Inc.

View Comments and Join the Discussion!