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First Reliance Bancshares, Inc. Reports 3rd Quarter 2018 Results And Reaffirms Stock Repurchase Initiative

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First Reliance Bancshares, Inc. Reports 3rd Quarter 2018 Results And Reaffirms Stock Repurchase Initiative

- $0.09 Net Income Per Diluted Share (as reported under Generally Accepted Accounting Principles)

PR Newswire

FLORENCE, S.C., Oct. 29, 2018 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC:FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported third quarter 2018 net income of $707,098, or $0.09 per diluted share down slightly from third quarter 2017 net income of $732,793 or $0.15 per diluted share.  The decrease in net income for the three month period of 2018 versus 2017 was due primarily to new market expansion costs which impacted third quarter earnings by approximately $400,000 and a higher provision for loan losses, which was $204,000 in 2018's third quarter, versus a credit of $226,000 in the year-ago quarter.  (The higher provision was principally driven by higher loan balances, as asset quality improved over that period.)  Third quarter 2018 net income would have been $1.2 million on a tax adjusted basis excluding these items.  Net income per share was also affected by the increase in total average common shares outstanding, which increased from 4,933,687 shares (diluted) in the third quarter of 2017 to 8,073,743 shares (diluted) in third quarter 2018, as a result of a successful $25.1 million private placement on common stock by the Company at the end of September 2017.  For the nine months ended 2018, net income was $1.3 million, or $0.16 per diluted share, versus $2.0 million, or $0.41 per diluted share one year ago.  The decrease in net income from one year ago was primarily due to new market expansion costs totaling $1.2 million during the first nine months of 2018, merger-related expenses which were $824,000 in the first half of 2018, and $224,428 in provision for loan losses, versus none in the year-ago quarter. 

First Reliance Bancshares

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated "We are very pleased with our third quarter operating results, especially considering a $224,438 provision for loan losses made during the third quarter and increased expenses associated with our three office expansion into North Carolina and Myrtle Beach markets in 2018.   We continue to see positive impact on earnings with organic growth from our recent expansions and from our acquisition in Greenville, South Carolina.  We are a purpose driven company and remain focused on our business model that outlines our value proposition.  While we are aware of the expense associated with expansion we have instituted an efficiency improvement initiative to remove legacy cost from our operations.  Excluding noninterest expenses associated with our three office expansion in 2018, our efficiency ratio would have been 77%.  For the remainder of 2018 and into 2019, we look to reduce operating expenses by $1.5 million, which we expect to improve our efficiency ratio further to the 70-72% range by 2020"

The Board of Directors of the Company recently authorized the repurchase of up to approximately 30,000 shares of the Company's Common Stock and Series D Preferred Stock in open market and privately negotiated transactions through December 31, 2018.  Year to date, the Company has repurchased approximately 14,793 shares of Common and Series D Preferred Stock.  The Board implemented the repurchase plan because it believes recent share trading prices undervalue the Company and to provide smaller investors a source of liquidity.

Highlights

  • Net interest income improved 28% at $5.1 million for the three months ended September 30, 2018, compared to the same period of 2017;
  • Loans increased 24% over the past year, with organic loan growth of $28.0 million;
  • Deposits grew 27% over the past year, with organic growth $20.0 million;
  • Announced the closure of the Loris, South Carolina branch effective December 31, 2018. Customers will be serviced from the Myrtle Beach office at 507, 21st Avenue N., Myrtle Beach, SC
  • Approved a 30,000 share Common Stock and Series D Preferred Stock Repurchase program to create liquidity for our smaller shareholders;
  • Non-interest bearing, interest bearing checking accounts and savings accounts increased 10% over the past year; and
  • Net interest margin continued to expand to 4.67% as of September 30, 2018, up from 4.37% one year ago as the Company continued to leverage its low cost of funds of 54 bps.

Review of Income Statement

Net interest income improved 28% to $5.1 million for the three months ended September 30, 2018, compared to the same period of 2017.  The increase in net interest income was due principally to growth in earning assets while net interest margins improved to 4.67% for the three months ended September 30, 2018 compared to 4.30% during the previous quarter. 

Noninterest income improved to $2.3 million for the three months ended September 30, 2018, up from $2.0 million one year ago.  According to Jeffrey Paolucci, Executive Vice President and Chief Financial Officer,

"Gain on sale of mortgage loans increased modestly by $99,116 to $1.2 million for the three months ending September 30, 2018 compared to $1.1 million for the three months ending September 30, 2017 despite a higher interest rate environment and tighter operating margins.  Our investment in a diversified mortgage income strategy is producing positive results as purchase mortgage business continues to increase, servicing income is increasing, and delinquencies are nominal."

Balance Sheet and Asset Quality

Total assets increased $111.2 million, or 24% to $566.9 million at September 30, 2018, compared to $455.7 million from September 30, 2017.

Loans receivable grew by $78 million, or 24%, to $405 million at September 30, 2018, compared to $327 million, at September 30, 2017 due to $50 million in loans acquired in our merger with Independence Bancshares, Inc. in January 2018 and organic loan growth of $28 million in commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios.  Mr. Saunders added, "Our focus on dealer services, consumer and commercial loans throughout the bank has enhanced earning asset growth and yield expansion.  We also see continuous growth in commercial and mortgage loans in our newly acquired Greenville market, as well as our new markets which include Winston-Salem, Charlotte, and Myrtle Beach.  Over the next year, we expect to deploy online account opening and online loan applications, as well as move toward digital signatures and a paperless document environment as we develop our virtual bank strategies." 

Transaction and savings deposits increased by $28 million, or 10%, to $320 million at September 30, 2018, from $291 million one year ago.  Household checking accounts increased by 3.5% reflecting our strong year-over-year branch sales growth.  "We continue to improve our products and services including treasury services and offering a full suite of digital banking services to enhance customer experience. We are seeing double digit growth in mobile banking transactions, bill pay, mobile deposit and online banking.  Person to person payments are increasing as well as customer use of financial management and budgeting tools," said Mr. Saunders.

Nonperforming assets declined $562,000 to $2.4 million at September 30, 2018 compared to one year ago.  The Company reduced OREO by $2 million via third party sales over the past twelve months to $140,000.  The ratio of nonperforming assets to total assets declined to 0.42% at September 30, 2018, compared to 0.65% one year earlier.  The allowance for loan losses as a percentage of loans was 0.59% at September 30, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.77% one year earlier.  For the third quarter of 2018, 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 September 30, 2018, capital ratios were as follows:

Ratio

First Reliance Bank

Well-capitalized Minimum

Tier 1 leverage ratio

9.77%

5.00%

Common equity tier 1 capital

11.91%

6.50%

Tier 1 capital ratio

11.91%

8.00%

Total capital ratio

12.48%

10.00%

 

ABOUT FIRST RELIANCE BANCSHARES, INC.

Founded in 1999, First Reliance Bancshares, Inc., (OTC:FSRL) is based in Florence, SC and has assets of approximately $567 million.  The Company employs more than 170 professional and has locations throughout the Carolinas.

First Reliance has redefined community banking with a commitment to making customers lives better, its founding principle.  Customers of the bank have given it a 94% customer satisfaction rating.  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 thirteen years since the program began.  We believe that this recognition confirms that our associates are engaged and committed to the Bank's 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 five unique community-customers programs, which include:  Hometown Heroes, a package of benefits for those serving our communities; Check N Save, an outreach program for the unbanked or under-banked; Moms First, a program recognizing inspiring mothers; and iMatter, a program supporting a younger audience.

The Company also offers a full suite of digital banking services, a Customer Service Guaranty, a Mortgage Service Guaranty, and is open on most traditional holidays.

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 Bancshares, Inc., 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

















September 30

December 31

September 30



2018

2017

2017


Assets








Cash and cash equivalents:








Cash and due from banks

$

4,652,753

$

3,494,469

$

3,595,799


Interest-bearing deposits with other banks


34,765,661


21,136,350


34,771,527


Total cash and cash equivalents


39,418,414


24,630,819


38,367,326










Time deposits in other banks


253,003


102,020


102,020










Securities available-for-sale


34,060,560


26,894,719


17,994,798


Securities held-to-maturity (Estimated fair value of $14,422,622, $17,372,835.21,








and $18,117,507 at September 30, 2018, December 31, 2017, and September 30,
2017)


14,506,964


17,018,132


17,645,821


Nonmarketable equity securities


1,011,000


1,359,200


424,200


Trust Preferred Securities


2,300,000






Total investment securities


51,878,524


45,272,051


36,064,819










Mortgage loans held for sale


11,958,216


7,885,938


5,892,189










Loans receivable


405,245,246


333,675,253


327,001,685


Less allowance for loan losses


(2,470,592)


(2,453,875)


(2,561,166)


Loans, net


402,774,654


331,221,378


324,440,519










Premises, furniture and equipment, net


20,273,144


18,463,156


18,648,530


Accrued interest receivable


1,231,464


1,094,740


929,974


Other real estate owned


140,000


1,706,765


2,244,453


Cash surrender value life insurance


17,208,115


14,293,702


14,212,143


Net deferred tax assets


8,267,723


4,461,063


7,519,149


Mortgage servicing rights


8,456,680


6,357,666


5,856,286


Goodwill


690,917


-


-


Core deposit intangible


730,856


-


-


Other assets


3,618,914


3,132,443


1,384,072


Total assets

$

566,900,624

$

458,621,741

$

455,661,480


Liabilities and Shareholders' Equity








Liabilities








Deposits








Noninterest-bearing transaction accounts

$

105,977,280

$

86,209,099

$

89,974,860


Interest-bearing transaction accounts


83,153,827


70,642,041


73,063,770


Savings


131,155,688


118,996,069


128,822,217


Time deposits $250,000 and over


33,699,530


13,874,405


13,253,470


Other time deposits


116,258,761


63,372,449


64,073,962


Total deposits


470,245,086


353,094,063


369,188,279










Securities sold under agreement to repurchase


16,826,308


13,929,651


13,791,295


Advances from Federal Home Loan Bank


10,000,000


22,000,000


-


Notes Payable


-


-


-


Junior subordinated debentures


10,310,000


10,310,000


10,310,000


Subordinated debentures


4,863,985


4,911,963


4,776,800


Accrued interest payable


285,766


253,679


142,191


Other liabilities


3,427,573


3,969,060


3,321,321


Total liabilities


515,958,718


408,468,416


401,529,886










Shareholders' Equity








Preferred stock








Series A cumulative perpetual preferred stock -0  shares issued and outstanding 
at September 30, 2018, December 31, 2017 and September 30, 2017


-


-


-


Series B cumulative perpetual preferred stock - 0 shares issued and outstanding 
at September 30, 2018, December 31, 2017 and September 30, 2017


-


-


-


Series D preferred stock - 581, 599 and 599 shares issued and outstanding at
September 30, 2018, December 31, 2017 and September 30, 2017, respectively


581


599


599


Series E preferred stock -  410,499 shares issued and outstanding at December 31,
2017 and September 30, 2017, respectively


-


2,955,593


2,955,593


Common stock, $0.01 par value; 20,000,000 shares authorized,








8,002,172, 7,887,486 and 7,867,486 shares issued and outstanding








at September 30,  2018, December 31, 2017 and  September 30, 2017, respectively


80,022


78,875


78,675


Non-Voting Common Stock - 410,499  shares issued and outstanding as of
September 30, 2018


4,105


-


-


Capital surplus


84,333,757


46,941,229


47,934,844


Treasury stock, at cost, 83,015, 40,177 and 39,894 shares at September 30, 2018,








December 31, 2017 and September 30, 2017, respectively


(543,237)


(229,844)


(224,756)


Nonvested restricted stock


(1,583,981)


(868,399)


(780,209)


Retained Earnings/Deficit


(30,544,164)


1,573,382


4,293,010


Accumulated other comprehensive loss


(805,177)


(298,110)


(126,162)


Total shareholders' equity


50,941,906


50,153,325


54,131,594


Total liabilities and shareholders' equity

$

566,900,624

$

458,621,741

$

455,661,480


 

 

First Reliance Bancshares, Inc. and Subsidiary








Consolidated Statements of Operations

















Three Months Ended

Three Months Ended

Three Months Ended



September 30, 2018

December 31, 2017

September 30, 2017


Interest income:








Loans, including fees

$

5,639,520

$

4,288,116

$

4,305,528










Investment securities:








Taxable


267,900


218,397


190,457


Tax exempt


35,894


34,476


28,136


Other interest income


108,003


84,235


62,148


Total


6,051,317


4,625,224


4,586,269


Interest expense:








Time deposits


593,527


236,411


199,277


Other deposits


146,083


101,606


109,980


Other interest expense


181,516


195,758


284,415


Total


921,126


533,775


593,672










Net interest income


5,130,191


4,091,449


3,992,597


Provision for loan losses


203,961


-


(226,296)


Net interest income after provision for loan losses


4,926,230


4,091,449


4,218,893










Noninterest income:








Service charges on deposit accounts


417,955


394,392


399,479


Gain on sale of mortgage loans


1,160,410


1,044,773


1,061,294


Income from bank owned life insurance


97,777


81,560


82,699


Other service charges, commissions, and fees


379,433


344,319


330,742


Gain/Loss on Nonmarketable securities


38,152


-


-


Other


176,833


90,683


84,467


Total


2,270,560


1,955,727


1,958,681










Noninterest expenses:








Salaries and benefits


3,820,567


3,185,613


3,107,198


Occupancy


566,876


433,315


434,458


Furniture and equipment related expenses


397,381


427,176


399,267


Other


1,507,140


1,621,888


1,126,451


Merger Related Expenses


-


501,265


-


Total


6,291,964


6,169,257


5,067,374


Income before income taxes


904,826


(122,081)


1,110,200


Income Tax Expense


197,728


2,597,546


377,407


Net income (loss) 


707,098


(2,719,627)


732,793


Net  income (loss) available to common shareholders

$

707,098

$

(2,719,627)

$

732,793










Average common shares outstanding, basic


7,948,962


7,847,201


4,794,084


Average common shares outstanding, diluted


8,073,743


7,997,597


4,933,667










Income (loss)  per common share:








Basic (loss) income per share

$

0.09

$

(0.35)

$

0.15


Diluted (loss) income per share

$

0.09

$

(0.35)

$

0.15










Non-GAAP financial measurements (unaudited)
















Net income (loss) available to common shareholders before adjustments

$

707,098

$

(2,719,627)

$

732,793


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)

$

707,098

$

426,266

$

732,793










Adjusted Income per common share:








Basic income per share  (non-GAAP)

$

0.09

$

0.05

$

0.15


Diluted income per share  (non-GAAP)

$

0.09

$

0.05

$

0.15


 

 

First Reliance Bancshares, Inc. and Subsidiary








Consolidated Statements of Operations

























September 30, 2018

December 31, 2017

September 30, 2017


Interest income:








Loans, including fees

$

16,097,736

$

16,321,881

$

12,033,766










Investment securities:








Taxable


739,548


802,815


584,420


Tax exempt


113,666


118,969


84,492


Other interest income


273,490


225,924


141,688


Total


17,224,440


17,469,589


12,844,366


Interest expense:








Time deposits


1,395,275


732,399


495,986


Other deposits


391,865


410,459


306,855


Other interest expense


683,067


1,028,926


833,167


Total


2,470,207


2,171,784


1,636,008










Net interest income


14,754,233


15,297,805


11,206,358


Provision for loan losses


224,438


-


-


Net interest income after provision for loan losses


14,529,795


15,297,805


11,206,358










Noninterest income:








Service charges on deposit accounts


1,144,083


1,502,286


1,107,893


Gain on sale of mortgage loans


3,942,770


4,845,075


3,800,299


Income from bank owned life insurance


292,360


328,716


247,157


Other service charges, commissions, and fees


1,116,633


1,341,171


996,853


Gain/Loss on Nonmarketable securities


38,152


-


-


Other


291,545


324,003


233,319


Total


6,825,543


8,341,251


6,385,521










Noninterest expenses:








Salaries and benefits


11,507,541


12,075,338


8,889,725


Occupancy


1,655,270


1,685,622


1,252,307


Furniture and equipment related expenses


1,517,716


1,646,687


1,219,509


Other


4,176,592


501,265


3,181,358


Merger Related Expense


823,644


4,803,246


-


Total


19,680,763


20,712,158


14,542,899


Income before income taxes


1,674,575


2,926,898


3,048,980


Income tax expense 


413,608


3,616,258


1,018,711


Net (loss) income


1,260,967


(689,360)


2,030,269


Net (loss) income available to common shareholders

$

1,260,967

$

(689,360)

$

2,030,269










Average common shares outstanding, basic


7,672,397


5,465,868


4,794,084


Average common shares outstanding, diluted


7,809,291


5,606,149


4,933,667










Income (loss) per common share:








Basic income (loss)  per share

$

0.16

$

(0.13)

$

0.42


Diluted income (loss) per share

$

0.16

$

(0.13)

$

0.41










Non-GAAP financial measurements (unaudited)
















Net (loss) income available to common shareholders before adjustments

$

1,260,967

$

(689,360)

$

2,030,269


Adjustments








Income tax expense - tax rate change


-


2,644,628


-


Merger related costs


823,644


501,265


-


Total Adjustments


823,644


3,145,893


-










Net income after adjustments (non-GAAP)

$

2,084,611

$

2,456,533

$

2,030,269










Adjusted Income per common share:








Basic income per share  (non-GAAP)

$

0.27

$

0.45

$

0.42


Diluted income per share  (non-GAAP)

$

0.27

$

0.44

$

0.41


 

 

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, 2018

December 31, 2017

September 30, 2017

Asset Quality







Loans 90 days past due & still accruing


-


-


-

Nonaccrual loans


2,245


1,353


703






















Total nonperforming loans


2,245


1,353


703








OREO and repossessed assets


140


1,707


2,244

Total Nonperforming Assets


2,385


3,060


2,947








Nonperforming loans to loans


0.56%


0.41%


0.23%

Nonperforming assets to total assets


0.42%


0.67%


0.65%

Allowance for loan losses to total loans


0.59%


0.72%


0.77%

Allowance for loan losses to nonperforming loans


110.05%


181.37%


364.32%

Capital Data (at quarter end)







Book value per share


6.12


6.00


6.54

Tangible book value per share


5.94


6.00


6.54








Per Share Data







QTD Weighted Average Shares Outstanding- basic


8,065,932


7,847,201


4,794,084

QTD Weighted Average Shares Outstanding- diluted


8,126,732


7,997,597


4,933,667

Earning Per Share - basic

$

0.09

$

(0.35)

$

0.15

Earning Per Share -diluted


0.09


(0.35)


0.15








Profitability Ratios







Net Interest Margin


4.67%


4.29%


4.32%

Return on Average Assets


0.69%


0.26%


0.85%

Return on Average Equity


6.20%


2.41%


7.93%








Capital Adequacy- Bank Only







Tier 1 leverage ratio


9.77%


9.50%


9.66%

Common Equity Tier 1 capital


11.91%


11.64%


11.75%

Tier 1 capital ratio


11.91%


11.64%


11.75%

Total capital ratio


12.48%


12.32%


12.46%

Total risk weighted assets


440,743


365,136


357,250

 

 

 

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SOURCE First Reliance Bancshares, Inc.

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