Press Release: First Reliance Reports Record 2Q16 Pre-tax Income of $1.5 million, up 121.2% from 2Q15

Press Release: First Reliance Reports Record 2Q16 Pre-tax Income of $1.5 million, up 121.2% from 2Q15

First Reliance Reports Record 2Q16 Pre-tax Income of $1.5 million, up 121.2% from 2Q15

PR Newswire

FLORENCE, S.C., Aug. 10, 2016

FLORENCE, S.C., Aug. 10, 2016 /PRNewswire/ — First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the “Company”) for First Reliance Bank (the “Bank”), reported second quarter 2016 income before income taxes of $1,468,533. This is the 10(th) consecutive quarter of profitability which has been fueled by strong loan and deposit growth, and expanding operating efficiencies. In the second quarter of 2016, income before income taxes is up 121.2% over $12,009 in the second quarter of 2015. Net income totaled $1,003,867 for the quarter ended June 30, 2016, After preferred dividends, second quarter 2016 net income available to common shareholders was $867,562, or $0.19 per diluted share. Management currently projects that net income available to common shareholders for the year ending December 31, 2016 will be approximately $0.60 per diluted share.

“As we’ve diversified our revenue sources, we have been on course to meet our business objectives for growth, profit and delinquency in both our indirect dealer services and our mortgage business lines. We are funding this growth with low cost core deposits and by increasing non-interest income and improving our efficiency. We continue to focus on growing our market presence in the Coastal and Midlands regions of South Carolina and have expanded into the Loris and North Myrtle Beach area of South Carolina,” said Rick Saunders, President and CEO. “We also continue to focus on delivering profits that are consistent and sustainable for our shareholders.”

Financial Highlights (at or for the periods ended June 30, 2016, except as noted):

   -- Redeemed $4.0 million of TARP preferred stock on May 31, 2016 and the 
      remaining balance of approximately $12.1 million in two installments on 
      July 8 and August 5, 2016.  The redemption of all TARP preferred stock is 
      expected to positively impact net income available to common shareholders 
      by $0.21 per common share, on an annualized basis. 
 
   -- Branch expansion into Loris and North Myrtle Beach. 
 
   -- Loans receivable have increased by $12.0 million, or 4.65%, from one year 
      ago. 
 
   -- Checking and Savings deposits increased 6.79% from June 30, 2015 as we 
      attract new customers through innovative programs and the launching of 
      our mobile deposit technology as part of our Reliance "On-The-Go" 
      convenient services. 
 
   -- Total revenues (net interest income plus noninterest income), increased 
      15.1% to $6.1 million in 2Q16 from $5.3 million in 2Q15, reflecting 
      balance sheet growth. 
 
   -- Operating Expenses are down 11.13% in 2Q16 as the Company continues to 
      improve operating efficiencies 
 
   -- Mortgage production volume reached a record level of $138.7 million for 
      the six months ended June 30, 2016, compared to $43.2 million for the six 
      months ended June 30, 2015 
 
   -- Net interest margin (NIM) was 4.49%, as the Company continues to leverage 
      its low cost of funds at 0.19 bps. 
 
   -- Nonperforming assets decreased $2.4 million from one year ago, reflecting 
      continued improvement in asset quality. 
 
   -- First Reliance Bank remains well-capitalized for regulatory purposes, 
      with a total risk-based capital ratio of 12.22%. 
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Statement of Operations

Net interest income for the quarter ended June 30, 2016 increased to $3.7 million compared to $3.6 million for the same period of 2015, largely reflecting increased loan volume and improving net interest margin.

Net interest margin increased by six basis points to 4.49% the second quarter of 2016, compared to 4.43% for the quarter ended December 31, 2015. “Our net interest margin is the foundation for the Company’s strong profitability and we strongly focus on maintaining and improving our earning asset mix while keeping our cost of funds at low levels,” said Jeff A. Paolucci, EVP & Chief Financial Officer.

Noninterest income increased 39% to $2.4 million for the second quarter of 2016, compared to $1.7 million for the second quarter of 2015. The increase in noninterest income was largely due to the increase in gains on sales of mortgage loans and growth in debit card income. Mortgage originations from combined retail and correspondent wholesale divisions totaled $138.7 million on 730 loans originated during the quarter ended June 30, 2016 compared to $43.2 million on 232 loans originated during the same quarter of 2015.

Total operating expenses (noninterest expense) decreased 11.13% to $4.6 million for the second quarter 2016, from $5.2 million for the second quarter of 2015. Despite an increase in related expenses associated with higher productions volumes within the mortgage division, the Company realized reductions FDIC insurance premiums, bank insurance, lower OREO carrying expenses, and outside professional fees. “We continue to realize significant noninterest expense savings as we formulate workflow synergies and improved operating efficiencies,” said Paolucci.

Balance Sheet and Asset Quality

Total assets increased $3.1 million, or 0.82% to $383.9 million at June 30, 2016, compared to $380.7 million at June 30, 2015.

Loans grew by $12.0 million, or 4.65%, at June 30, 2016, compared to $258.9 million, at June 30, 2015, largely due to continued growth in our 1-4 family mortgage portfolio and our consumer loan portfolios. 1-4 Family mortgage portfolio loans are up 57% year-over-year. Consumer loans are up 49.4%. “Our strategic focus has been on revenue diversification through growth in 1-4 mortgage and consumer loan channels. Growth in these sectors reduces our exposure to unreasonable competitive pricing pressures which results in better asset yields and also improves margins, along with a better diversified loan portfolio which reduces risk,” added Saunders.

Checking and Savings Deposits increased by $10.8 million, or 6.79 %, to $170.2 million at June 30, 2016, from $159.4 million at June 30, 2015. The Company grew household checking accounts by 2% year to date as the Company continues to attract new customers through unique programs such as Hometown Heroes, Moms First and iMatter Programs. “We continue to enhance our products and services, to optimize how we deliver a better experience to our customers whether at a branch or using online and mobile banking services. This past quarter we launched our consumer loan payment portal and mobile deposit as part of our Reliance “On-The-Go” convenient services. We completed issuing new EMV chipped debit cards to our customers in order to provide another level of security for customers who enjoy the convenience of this service,” said Saunders.

Asset quality continues to improve with nonperforming assets, consisting of nonperforming loans, OREO and loans delinquent 90 days or more, declined by $2.4 million to $5.2 million at June 30, 2016 compared to one year ago. The ratio of nonperforming assets to total assets was 1.37% at June 30, 2016, compared to 2.03% one year earlier. The allowance for loan losses as a percentage of loans was 0.98% at June 30, 2016, compared to 0.99% one year earlier. For the second quarter of 2016, loan charge offs were nominal and largely offset by 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 June 30, 2016, regulatory capital ratios were as follows:

 
Ratio                          First Reliance Bank  Well-capitalized Minimum 
Tier 1 leverage ratio           9.85.%              5.00% 
Common equity tier 1 capital   11.40%               6.50% 
Tier 1 capital ratio           11.40%               8.00% 
Total capital ratio            12.22%               10.00% 
 
 

As of June 30, 2016, total shareholders’ equity declined by $3.1 million from June 30, 2015. On May 31, 2016, the Company made a partial redemption of 4,000 shares, or 26.1%, of its 15,249 shares of outstanding Fixed Rate Cumulative Perpetual Preferred Stock Series A (“Series A-Preferred Stock”) that were originally issued to the United States Department of the Treasury under the Troubled Asset Relief Program Capital Purchase Program (“TARP”). On July 12, 2016, the Company redeemed an additional 7,000 shares of Series a Preferred Stock and on August 5, 2016 redeemed the remaining $5.1 million of its outstanding TARP preferred stock The redemption price was $1,000 per share, plus accrued and unpaid dividends. The redemptions were funded with the proceeds of a new $7.0 million senior credit facility $5.0 million in subordinated notes sold in privately negotiated transactions.

“We are pleased to be in a position to replace the securities originally issued to the U.S. Treasury under the TARP Capital Purchase Program with lower cost financing alternatives. This is a huge step forward for our company and allows us to move forward with new strategic initiatives, ” said Saunders.

First Reliance’s book value per share was $5.41, at June 30, 2016, up from $5.04, at June 30, 2016.

“We remain committed to shareholders, our customers and the communities we serve. As a local community bank, we felt it was important to recognize law enforcement officials in all of our markets for the job they do for the community and businesses. We held appreciation events in all of our markets to let law enforcement know we support them and appreciate them,” said Saunders. “This year is our 17(th) year of business and as we host anniversary events in our markets we are thankful for our customers and businesses who bank with us and support us. Our associates are highly involved in our communities and commit to giving over 800 hours of volunteer time annually. We are passionate about community banking and our purpose to make the lives of our customers better.”

ABOUT FIRST RELIANCE BANCSHARES, INC. AND ITS MARKETS

Press Release: First Reliance Reports Record 2Q16 -2-

First Reliance Bancshares, Inc. is the holding company for First Reliance Bank. The Bank was founded in 1999, employs approximately 120 highly-talented associates and serves the Columbia, Lexington, Charleston, Mount Pleasant, Loris, North Myrtle Beach and Florence markets in South Carolina. First Reliance Bank offers several unique customer programs which include a Hometown Heroes package of benefits to serve 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, 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 was named a Best Places To Work for eleven consecutive years. It is also one of four businesses in South Carolina that is in the Best Places To Work Hall of Fame because it has received the award each year the program has been in existence.

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.

Regional Economic Conditions — August 2016

According to recent reports, South Carolina’s economy continued to improve as labor market strengthened, household conditions improved and housing market indicators were mostly positive, particularly on a year-over-year basis. For more information on labor markets, household conditions and housing markets in South Carolina, please visit the link below:

https://www.richmondfed.org//media/richmondfedorg/research/regional_economy/reports/snapshot/pdf/snapshot_sc.pdf

First Reliance is headquartered in Florence County, South Carolina, which is a proven, successful location for business and industry and home to over 130 companies that have a manufacturing presence. Over the past five years new and expanding businesses have invested more than $1.1 billion dollars in the county, including companies like ESAB, Heinz, Honda, GE Healthcare, Johnson Controls, Monster.com, QVC, Roche, and OTIS Elevator. For more information on the business climate in Florence County, please visit the link below:

http://www.fcedp.com/business_climate

The website links provided above regarding regional economic conditions are provided for convenience only and the Company undertakes no responsibility for the accuracy of information provided at these websites.

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; and (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. 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 
 
                            June 30             December 31     June 30 
                            2016                2015            2015 
Assets 
Cash and cash equivalents: 
Cash and due from banks     $   4,601,349       $  3,703,357    $   2,695,509 
Interest-bearing deposits 
with other banks            11,168,524          16,357,619      11,250,251 
Total cash and cash 
equivalents                 15,769,873          20,060,976      13,945,760 
 
Time deposits in other 
banks                       101,715             101,612         101,511 
 
Securities 
available-for-sale          10,725,883          11,255,855      11,675,354 
Securities 
held-to-maturity 
(Estimated fair value of 
$24,158,913 
  and $26,270,623 at June 
  30, 2016 and December 
  31, 2015, respectively)   23,010,384          25,470,171      28,225,174 
Nonmarketable equity 
securities                  394,300             813,400         1,705,800 
Total investment 
securities                  34,130,567          37,539,426      41,606,328 
 
Mortgage loans held for 
sale                        12,183,376          8,070,283       13,809,338 
 
Loans receivable            271,020,546         259,806,101     258,990,043 
Less allowance for loan 
losses                      (2,661,400)         (2,693,985)     (2,553,931) 
Loans, net                  268,359,146         257,112,116     256,436,112 
 
Premises, furniture and 
equipment, net              22,834,270          22,856,744      23,056,133 
Accrued interest 
receivable                  888,782             979,347         967,738 
Other real estate owned     2,591,144           2,506,733       5,608,743 
Cash surrender value life 
insurance                   13,790,989          13,615,610      13,447,239 
Net deferred tax assets     9,225,552           9,950,018       10,504,779 
Mortgage servicing rights   2,124,707           1,015,403       95,145.23 
Other assets                1,856,607           1,502,230       1,168,900 
Total assets                $  383,856,728      $  375,310,498  380,747,726 
Liabilities and 
Shareholders' Equity 
Liabilities 
Deposits 
Noninterest-bearing 
transaction accounts        $  77,796,392.33    $  68,147,262   69,660,700 
Interest-bearing 
transaction accounts        67,830,270          76,304,111      66,833,047 
Savings                     110,741,095         99,870,631      91,218,703 
Time deposits $250,000 and 
over                        19,781,396          14,990,007      3,879,989 
Other time deposits         47,098,401          44,612,452      56,106,996 
Total deposits              323,247,554         303,924,463     287,699,435 
 
Securities sold under 
agreement to repurchase     9,783,721           8,201,396       9,243,707 
$4                          -                   10,000,000      31,000,000 
Junior subordinated 
debentures                  10,310,000          10,310,000      10,310,000 
Accrued interest payable    55,123              54,002          49,304 
Other liabilities           3,396,038           2,586,907       2,773,983 
Total liabilities           346,792,436         335,076,768     341,076,429 
 
Shareholders' Equity 
Preferred stock 
Series A cumulative 
perpetual preferred stock 
- 4,349 shares issued and 
outstanding                 11,179,710          15,179,709      15,179,709 
Series B cumulative 
perpetual preferred stock 
- 767 shares issued and 
outstanding                 767,000             767,000         767,000 
Series D preferred stock - 
402 shares issued and 
outstanding                 402                 612             - 
Common stock, $0.01 par 
value; 20,000,000 shares 
authorized, 
4,640,576 and 4,680,481 
shares issued and 
outstanding 
at June 30, 216 and 
December 31, 2015 , 
respectively                46,992              46,804          47,410 
Capital surplus             25,223,967          26,007,698      26,729,724 
Treasury stock, at cost, 
38,805 and 38,249 shares 
at June 30, 2016 and 
December 31, 2015, 
respectively                (217,885)           (217,230)       (206,010) 
 

Press Release: First Reliance Reports Record 2Q16 -3-

Nonvested restricted stock  (291,229)           (326,481)       (356,147) 
Retained Earnings/Deficit   258,839             (1,259,166)     (2,560,255) 
Accumulated other 
comprehensive income        96,496              34,784          69,866 
Total shareholders' equity  37,064,292          40,233,730      39,671,297 
Total liabilities and 
shareholders' equity        $  383,856,728      $  375,310,498  $  380,747,726 
 
 
First Reliance Bancshares, Inc. and Subsidiary 
Consolidated Statements of Operations 
 
                                        Three Months Ended  Three Months Ended 
                                        June 30, 2016       June 30, 2015 
Interest income: 
Loans, including fees                   $  3,675,342        $  3,460,697 
 
Investment securities: 
Taxable                                 182,357             233,139 
Tax exempt                              28,284              28,408 
Other interest income                   33,597              55,492 
Total                                   3,919,580           3,777,736 
Interest expense: 
Time deposits                           86,953              83,325 
Other deposits                          73,749              40,089 
Other interest expense                  69,417              92,208 
Total                                   230,119             215,622 
 
Net interest income                     3,689,461           3,562,114 
Provision for loan losses               9,075               79,462 
Net interest income after provision 
 for loan losses                        3,680,386           3,482,652 
 
Noninterest income: 
Service charges on deposit accounts     340,147             334,682 
Gain on sale of mortgage loans          1,637,512           935,970 
Income from bank owned life insurance   87,736              82,641 
Other service charges, commissions, 
 and fees                               308,233             295,023 
Gain on sale of available-for-sale 
 securities                             -                   9,562 
Other                                   55,805              93,950 
Total                                   2,429,433           1,751,828 
 
Noninterest expenses: 
Salaries and benefits                   2,693,569           2,630,913 
Occupancy                               399,157             405,337 
Furniture and equipment related 
 expenses                               371,790             400,458 
Other                                   1,176,770           1,785,763 
Total                                   4,641,286           5,222,471 
Income before income taxes              1,468,533           12,009 
Income tax                              464,666             (6,985,823) 
Net income                              1,003,867           6,997,832 
Preferred stock dividends accrued       136,305             362,610 
Deemed dividends on preferred stock 
resulting from 
net accretion of discount and 
amortization of premium                 -                   - 
Net income available to common 
 shareholders                           $   867,562         $  6,635,222 
 
Average common shares outstanding, 
 basic                                  4,438,478           4,717,006 
Average common shares outstanding, 
 diluted                                4,541,668           4,810,215 
 
Income per common share: 
Basic income per share                  0.20                1.41 
Diluted income per share                0.19                1.38 
 
 
First Reliance Bancshares, Inc. and Subsidiary 
Consolidated Statements of Operations 
 
                                            Six Months Ended  Six Months Ended 
                                            June 30, 2016     June 30, 2015 
Interest income: 
Loans, including fees                       $  7,113,662      $  6,842,846 
 
Investment securities: 
Taxable                                     396,784           480,735 
Tax exempt                                  56,613            56,861 
Other interest income                       58,963            78,634 
Total                                       7,626,022         7,459,076 
Interest expense: 
Time deposits                               162,025           219,160 
Other deposits                              142,199           72,628 
Other interest expense                      141,201           149,302 
Total                                       445,426           441,090 
 
Net interest income                         7,180,597         7,017,986 
Provision for loan losses                   9,075             158,289 
Net interest income after provision for 
 loan losses                                7,171,522         6,859,697 
 
Noninterest income: 
Service charges on deposit accounts         672,801           695,562 
Gain on sale of mortgage loans              2,561,849         1,084,787 
Income from bank owned life insurance       175,378           164,674 
Other service charges, commissions, and 
 fees                                       620,841           574,253 
Gain on sale of available-for-sale 
 securities                                 -                 9,562 
Other                                       112,959           176,666 
Total                                       4,143,828         2,705,504 
 
Noninterest expenses: 
Salaries and benefits                       5,176,005         4,731,230 
Occupancy                                   770,637           783,092 
Furniture and equipment related expenses    732,424           792,513 
Other                                       2,347,530         2,710,624 
Total                                       9,026,595         9,017,459 
Income before income taxes                  2,288,754         547,742 
Income tax expense (benefit)                770,749           (6,963,516) 
Net income                                  1,518,005         7,511,258 
Preferred stock dividends accrued           136,305           181,305 
Deemed dividends on preferred stock 
resulting from 
net accretion of discount and amortization 
of premium                                  -                 - 
Net income available to common 
 shareholders                               $  1,381,700      $  7,329,953 
 
Average common shares outstanding, basic    4,438,478         4,722,333 
Average common shares outstanding, diluted  4,541,668         4,813,030 
 
Income per common share: 
Basic income per share                      0.31              1.55 
Diluted income per share                    0.30              1.52 
 
 
Asset Quality and Capital Adequacy 
 
(dollars in thousands, except 
asset quality and per share 
data)                          As of and for the Three Months Ended 
                               June 30, 2016  December 31, 2015  June 30, 2015 
Income Statement Data 
Net Interest Income            3,689,461      3,539,351          3,562,114 
Provision for loan losses      9,075          587,430            79,462 
Noninterest Income             2,429,433      1,987,751          1,751,828 
Noninterest Expense            4,641,286      3,795,572          5,222,471 
Income Tax (Benefit)           464,666        309,999            (6,985,823) 
Net Income                     1,003,867      634,101            6,997,832 
Asset Quality 
Loans 90 days past due & 
 still accruing                -              85                 - 
Nonaccrual loans               2,636          3,224              2,033 
 
 
 
Total nonperforming loans      2,636          3,309              2,033 
OREO and repossessed assets    2,591          2,507              5,609 
Total Nonperforming Assets     5,227          5,816              7,642 
 
Nonperforming loans to loans   0.97%          1.27%              0.78% 
Nonperforming assets to total 
 assets                        1.37%          1.56%              2.03% 
Allowance for loan losses to 
 total loans                   0.98%          0.99%              0.99% 
Allowance for loan losses to 
 nonperforming loans           100.96%        81.41%             125.57% 
Capital Data (at quarter end) 
Book value per share           5.41           5.23               5.04 
Tangible book value per share  5.41           5.23               5.04 
 
Per Share Data 
Shares Outstanding- basic      4,438,478      4,491,053          4,722,333 
Shares Outstanding- diluted    4,541,668      4,595,203          4,813,030 
Earning Per Share - basic      0.20           1.64               1.44 
Earning Per Share -diluted     0.19           1.60               1.41 
 
Profitability Ratios 
Net Interest Margin            4.49%          4.43%              4.49% 
Return on Assets               1.06%          2.35%              4.07% 
Return on Equity               10.98%         21.90%             42.78% 
 
Capital Adequacy- Bank Only 
Tier 1 leverage ratio          9.85%          10.87%             10.90% 
Common Equity Tier 1 capital   11.40%         12.93%             12.69% 
Tier 1 capital ratio           11.40%         12.93%             12.69% 
Total capital ratio            12.22%         13.79%             13.52% 
Total risk weighted assets     324,668        311,316            309,842 
 
 
 

Contact:

Jeffrey A. Paolucci, EVP & CFO

(888) 543-5510

jpaolucci[a]firstreliance.com

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