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First Reliance Bancshares, Inc. Reports 4th Quarter 2018 Results And Reaffirms Stock Repurchase Plan

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FLORENCE, S.C., Jan. 25, 2019 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC:FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported fourth quarter 2018 net income of $1,205,120, or $0.15 per diluted share, up significantly from fourth quarter 2017 net loss of $2,719,627 or $0.35 per diluted share.  The increase in net income for the fourth quarter of 2018 versus 2017 was due primarily to loan growth of $97.1 million, up 29.1% year over year, thus increasing net interest income by $1.0 million, or 26.6%, year over year, and the one-time gain on nonmarketable securities of $800,000.  Also during the fourth quarter, the Company incurred new market expansion costs totaling approximately $200,000 and higher provision for loan losses, which was $285,918 in 2018's fourth quarter, versus no provision in the fourth quarter of 2017.  The higher provision in 2018 was principally driven by higher loan balances, as asset quality improved over that period.  For the twelve months ended December 31, 2018, net income was $2,466,087, or $0.31 per diluted share, versus a net loss of $689,360, or $0.13 per diluted share, for the twelve months ended December 31, 2017.  Net income for 2018 reflects the impact of $877,420 in merger-related expenses related to the purchase of Independence Bancshares, Inc. in January 2018.   Also during 2018, the Company expanded into Winston-Salem and Charlotte, NC and Myrtle Beach, SC, which reduced net income for the year by approximately $1.3 million

First Reliance Bancshares

F. R. Saunders, Jr., the Company's Chief Executive Officer, stated, "We are very pleased with our fourth quarter operating results as we continue to see a positive impact on earnings with organic growth from our recent expansions and from our acquisition in Greenville, South Carolina.  We have we begun an efficiency improvement initiative to remove legacy cost from our operations and are already beginning to results from this. For 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. Additionally, the Company announced the closure of our Loris, SC branch which is expected to reduce annual operating costs by $500,000."

The Board of Directors of the Company recently authorized the repurchase of up to approximately 100,000 shares of the Company's Common Stock and Series D Preferred Stock in open market and privately negotiated transactions through December 31, 2019.  The Board implemented the repurchase plan because it believes recent share trading prices undervalue the Company and to provide smaller shareholders with a source of liquidity.

Highlights

  • Net interest income improved 27% at $5.2 million for the three months ended December 31, 2018, compared to the same period of 2017;
  • Loans increased 29% over the past year, with organic loan growth of $47.0 million and $50 million in loan growth attributed to the acquisition with Independence Bancshares in January 2018;
  • Deposits grew 35% over the past year, with organic deposit growth of $52 million and $71 million in deposit growth attributed to the acquisition of Independence Bancshares in January 2018;
  • 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 100,000 share Common Stock and Series D Preferred Stock Repurchase program to create liquidity for our smaller shareholders;
  • Transaction accounts increased $30 million, or 19%, over the past year; and
  • Net interest margin continues to remain relatively stable at 4.30% as of December 31, 2018.

Review of Income Statement

Net interest income improved 27% to $5.2 million for the fourth quarter of 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 margin remained stable at to 4.30% for the quarter ended December 31, 2018 compared to the previous quarter.  Yield on earning assets increased to 4.91% for the quarter ended December 31, 2018, compared to 4.89% for the third quarter of 2018.  Cost of funds increased to 61 basis points for the fourth quarter of 2018, compared to 54 basis points for preceding quarter.

Noninterest income improved to $3.0 million for the quarter ended December 31, 2018, up from $2.0 million in the fourth quarter of 2017 primarily due to the one-time gain on nonmarketable securities and continuous improvement in gain on sale of mortgage loans.  According to Jeffrey Paolucci, Executive Vice President and Chief Financial Officer,

"Gain on sale of mortgage loans increased modestly by $151,000 to $1.2 million for the three months ending December 31, 2018 compared to $1.0 million for the three months ending December 31, 2017 despite a higher interest rate environment and tighter operating margins.  Our investment in a diversified mortgage income strategy continues to produce 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 $126.3 million, or 28%, to $584.9 million at December 31, 2018, compared to $458.6 million at December 31, 2017.

Loans receivable grew by $97.1 million, or 29%, to $430.8 million at December 31, 2018, compared to $333.7 million, at December 31, 2017 due to $47.1 million in organic loan growth in commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios, and $50.0 million in loans acquired in our merger with Independence Bancshares, Inc. in January 2018.  Mr. Saunders added, "Earning asset growth and yield expansion has primarily been the result of our focus on dealer services, consumer and commercial loans throughout the bank.  Additionally we see continuous growth in mortgage loans in all our markets including our newly acquired Greenville market, as well as our new markets which include Winston-Salem, Charlotte, and Myrtle Beach. Online mortgage applications continue to grow as customers want the convenience of applying online or using mobile devices. Over the next year, we expect to increase efficiencies as customers demand more virtual banking strategies which allow them to conduct transactions when, where and how they want to, as well as deploying online deposit and loan account opening." 

Transaction deposits increased by $29.6 million, or 19%, to $186.5 million at December 31, 2018, from $156.9 million one year ago.  Household checking accounts increased by 10.6% reflecting our strong year-over-year branch sales growth.  "Our focus for 2019 will be on expanding treasury services to our business customers and offering a full suite of digital banking services to enhance the customer experience. We continue to see strong demand and use from our customers in mobile banking, bill pay, mobile deposit and online banking," said Mr. Saunders. 

Nonperforming assets declined by $785,000 to $2.3 million at December 31, 2018 compared to one year ago.  The Company reduced OREO by $1.4 million via third party sales over the past twelve months to $342,000.  The ratio of nonperforming assets to total assets declined to 0.39% at December 31, 2018, compared to 0.67% one year earlier.  The allowance for loan losses as a percentage of loans was 0.63% at December 31, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.72% one year earlier.  For the fourth 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 December 31, 2018, capital ratios were as follows:

Ratio

First Reliance Bank

Well-capitalized Minimum

Tier 1 leverage ratio

9.51%

5.00%

Common equity tier 1 capital 

11.41%

6.50%

Tier 1 capital ratio

11.41%

8.00%

Total capital ratio

12.05%

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 173 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, jpaolucci@firstreliance.com.

First Reliance Bancshares, Inc. and Subsidiary




Consolidated Balance Sheets









December 31

September 30

December 31


2018

2018

2017

Assets




Cash and cash equivalents:




Cash and due from banks

$           4,638,333

$               4,652,753

$            3,494,469

Interest-bearing deposits with other banks

29,923,657

34,765,661

21,136,350

Total cash and cash equivalents

34,561,990

39,418,414

24,630,819





Time deposits in other banks

253,003

253,003

102,020





Securities available-for-sale

33,556,797

34,060,560

26,894,719

Securities held-to-maturity (Estimated fair value of $14,250,850, $14,422,622




and $17,372,835 at December 31, 2018, September 31, 2018 and December 31, 2017)

14,107,253

14,506,964

17,018,132

Nonmarketable equity securities

1,393,500

1,011,000

1,359,200

Trust Preferred Securities

0

2,300,000


Total investment securities

49,057,550

51,878,524

45,272,051





Mortgage loans held for sale

12,713,361

11,958,216

7,885,938





Loans receivable

430,795,894

405,245,246

333,675,253

Less allowance for loan losses

(2,788,189)

(2,470,592)

(2,453,875)

Loans, net

428,007,705

402,774,654

331,221,378





Premises, furniture and equipment, net

20,332,031

20,273,144

18,463,156

Accrued interest receivable

1,318,104

1,231,464

1,094,740

Other real estate owned

341,519

140,000

1,706,765

Cash surrender value life insurance

17,306,312

17,208,115

14,293,702

Net deferred tax assets

7,923,572

8,267,723

4,461,063

Mortgage servicing rights

9,023,859

8,456,680

6,357,666

Goodwill

684,217

690,917.00

-

Core deposit intangible

690,917

730,856.00

-

Other assets

2,714,930

3,618,914

3,132,443

Total assets

$         584,929,070

$           566,900,624

$        458,621,741

Liabilities and Shareholders' Equity




Liabilities




Deposits




Noninterest-bearing transaction accounts

$        103,201,256

$          105,977,280

$          86,209,099

Interest-bearing transaction accounts

83,251,128

83,153,827

70,642,041

Savings

120,801,342

131,155,688

118,996,069

Time deposits $250,000 and over

42,870,456

33,699,530

13,874,405

Other time deposits

126,044,528

116,258,761

63,372,449

Total deposits

476,168,710

470,245,086

353,094,063





Securities sold under agreement to repurchase

16,852,981

16,826,308

13,929,651

Advances from Federal Home Loan Bank

20,000,000

10,000,000

22,000,000

Notes Payable

-

-

-

Junior subordinated debentures

10,310,000

10,310,000

10,310,000

Subordinated debentures

4,874,132

4,863,985

4,911,963

Accrued interest payable

447,833

285,766

253,679

Other liabilities

4,106,964

3,427,573

3,969,060

Total liabilities

532,760,620

515,958,718

408,468,416





Shareholders' Equity




Preferred stock




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

-

-

-

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

-

-

-

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

581

581

599

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

-

-

2,955,593

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




8,002,172, 8,002,712 and 7,887,486 shares issued and outstanding




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

80,022

80,022

78,875

Non-Voting Common Stock - 410,499  shares issued and outstanding as of December 31,
2018 and September 30, 2018

4,105

4,105

-

Capital surplus

84,247,424

84,333,757

46,941,229

Treasury stock, at cost, 94,505, 83,015 and  40,117 shares at December 31, 2018, 



September 30, 2018 and December 31, 2017, respectively

(624,119)

(543,237)

(229,844)

Nonvested restricted stock

(1,508,631)

(1,583,981)

(868,399)

Retained Earnings/Deficit

(29,339,044)

(30,544,164)

1,573,382

Accumulated other comprehensive loss

(691,888)

(805,177)

(298,110)

Total shareholders' equity

52,168,450

50,941,906

50,153,325

Total liabilities and shareholders' equity

$         584,929,070

$          566,900,624

$         458,621,741

 

First Reliance Bancshares, Inc. and Subsidiary




Consolidated Statements of Operations









Three Months Ended

Three Months Ended

Three Months Ended


December 31, 2018

September 30, 2018

December 31, 2017

Interest income:




Loans, including fees

$               5,913,149

$               5,639,520

$               4,288,116





Investment securities:




Taxable

299,711

267,900

218,397

Tax exempt

34,283

35,894

34,476

Other interest income

153,108

108,003

84,235

Total

6,400,251

6,051,317

4,625,224

Interest expense:




Time deposits

796,162

593,527

236,411

Other deposits

142,706

146,083

101,606

Other interest expense

281,407

181,516

195,758

Total

1,220,275

921,126

533,775





Net interest income

5,179,977

5,130,191

4,091,449

Provision for loan losses

285,918

203,961

-

Net interest income after provision for loan losses

4,894,059

4,926,230

4,091,449





Noninterest income:




Service charges on deposit accounts

453,128

417,955

394,392

Gain on sale of mortgage loans

1,195,889

1,160,410

1,044,773

Income from bank owned life insurance

98,197

97,777

81,560

Other service charges, commissions, and fees

393,771

379,433

344,319

Gain/Loss on Nonmarketable securities

800,000

38,152

-

Other

100,909

176,833

90,683

Total

3,041,894

2,270,560

1,955,727





Noninterest expenses:




Salaries and benefits

3,900,590

3,820,567

3,185,613

Occupancy

571,866

566,876

433,315

Furniture and equipment related expenses

503,636

397,381

427,176

Other

1,372,967

1,507,140

1,621,888

Merger Related Expenses

53,776

-

501,265

Total

6,402,835

6,291,964

6,169,257

Income before income taxes

1,533,118

904,826

(122,081)

Income Tax Expense

327,998

197,728

2,597,546

Net income (loss) 

1,205,120

707,098

(2,719,627)

Net  income (loss) available to common shareholders

$                1,205,120

$                   707,098

$               (2,719,627)





Average common shares outstanding, basic

7,934,841

7,948,962

7,847,201

Average common shares outstanding, diluted

8,040,316

8,073,743

7,997,597





Income (loss)  per common share:




Basic (loss) income per share

$                         0.15

$                         0.09

$                         (0.35)

Diluted (loss) income per share

$                         0.15

$                         0.09

$                         (0.35)





Non-GAAP finanical measurements (unaudited)








Net income (loss) available to common shareholders before adjustments

$                1,205,120

$                   707,098

$               (2,719,627)

Adjustments




Income tax expense - tax rate change

-

-

2,644,628

Merger related costs

53,776

-

501,265

Total Adjustments

53,776

-

3,145,893





Net income after adjustments (non-GAAP)

$               1,258,896

$                   707,098

$                  426,266





Adjusted Income per common share:




Basic income per share  (non-GAAP)

$                         0.16

$                         0.09

$                         0.05

Diluted income per share  (non-GAAP)

$                         0.16

$                         0.09

$                         0.05

 

First Reliance Bancshares, Inc. and Subsidiary



Consolidated Statements of Operations










December 31, 2018

December 31, 2017

Interest income:



Loans, including fees

$               22,010,885

$               16,321,881




Investment securities:



Taxable

1,039,259

802,815

Tax exempt

147,949

118,969

Other interest income

426,598

225,924

Total

23,624,691

17,469,589

Interest expense:



Time deposits

2,191,437

732,399

Other deposits

534,571

410,459

Other interest expense

964,474

1,028,926

Total

3,690,482

2,171,784




Net interest income

19,934,210

15,297,805

Provision for loan losses

510,356

-

Net interest income after provision for loan losses

19,423,854

15,297,805




Noninterest income:



Service charges on deposit accounts

1,597,211

1,502,286

Gain on sale of mortgage loans

5,138,659

4,845,075

Income from bank owned life insurance

390,557

328,716

Other service charges, commissions, and fees

1,510,404

1,341,171

Gain/Loss on Nonmarketable securities

838,152

-

Other

392,454

324,003

Total

9,867,437

8,341,251




Noninterest expenses:



Salaries and benefits

15,408,131

12,075,338

Occupancy

2,227,136

1,685,622

Furniture and equipment related expenses

2,021,352

1,646,687

Other

5,549,559

501,265

Merger Related Expense

877,420

4,803,246

Total

26,083,598

20,712,158

Income before income taxes

3,207,693

2,926,898

Income tax expense 

741,606

3,616,258

Net (loss) income

2,466,087

(689,360)

Net (loss) income available to common shareholders

$                 2,466,087

$                  (689,360)




Average common shares outstanding, basic

7,738,547

5,465,868

Average common shares outstanding, diluted

7,867,587

5,606,149




Income (loss) per common share:



Basic income (loss)  per share

$                         0.32

$                         (0.13)

Diluted income (loss) per share

$                         0.31

$                         (0.13)




Non-GAAP finanical measuremnets (unaudited)






Net (loss) income available to common shareholders before adjustments

$                2,466,087

$                  (689,360)

Adjustments



Income tax expense - tax rate change

-

2,644,628

Merger related costs

877,420

501,265

Total Adjustments

877,420

3,145,893




Net income after adjustments (non-GAAP)

$                3,343,507

$                2,456,533




Adjusted Income per common share:



Basic income per share  (non-GAAP)

$                         0.43

$                         0.45

Diluted income per share  (non-GAAP)

$                         0.42

$                         0.44

 

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, 2018

December 31, 2017

September 30, 2018

Asset Quality




Loans 90 days past due & still accruing

10

-

-

Nonaccrual loans

1,923

1,353

2,245













Total nonperfoming loans

1,933

1,353

2,245





OREO and repossessed assets

342

1,707

140

Total Nonperforming Assets

2,275

3,060

2,385





Accruing TDRs

4,746

1,294

4,715





Nonperforming loans to loans

0.48%

0.41%

0.56%

Nonperforming assets to total assets

0.39%

0.67%

0.42%

Allowance for loan losses to total loans

0.63%

0.72%

0.59%

Allowance for loan losses to nonperforming loans

144.24%

181.37%

0.00%

Book value per share

6.27

6.01

6.12

Tangible book value per share

6.11

6.01

5.94





Per Share Data




QTD Weighted Average Shares Outstanding- basic

7,934,841

7,847,201

7,948,962

QTD Weighted Average Shares Outstanding- diluted

8,040,316

7,997,597

8,073,743

Earning Per Share - basic

$                    0.15

$                    (0.35)

$                    0.09

Earning Per Share -diluted

0.15

(0.35)

0.09





Profitability Ratios




Net Interest Margin

4.30%

4.29%

4.30%

Return on Average Assets

0.68%

0.26%

0.69%

Return on Average Equity

6.17%

2.41%

6.20%





Capital Adequacy- Bank Only




Tier 1 leverage ratio

 

9.51%

9.50%

9.77%

Common Equity Tier 1 capital

11.41%

11.64%

11.91%

Tier 1 capital ratio

11.41%

11.64%

11.91%

Total capital ratio

12.05%

12.32%

12.48%

 

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SOURCE First Reliance Bancshares, Inc.

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