First Reliance 4Q15 Pre-tax Income more than doubles to $944,100 from 4Q14

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Feb 22, 2016, 07:09 ET

FLORENCE, S.C., Feb. 22, 2016 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported fourth quarter 2015 pre-tax profits of 944,100. This is the 8^th consecutive quarter of profitability which has been fueled by strong loan and deposit growth, and expanding operating efficiencies. In the fourth quarter of 2015, pre-tax income more than doubles to $944,100 from $373,561 in the fourth quarter a year ago. Net income totaled $634,101 for the quarter ended December 31, 2015, compared to $243,736. After preferred dividends, fourth quarter 2015 net income available to common shareholders was $271,491, or $0.06 per diluted share, compared to $(118,874), or $(0.02) per diluted share, in the fourth quarter a year ago.

Net income for 2015 year end, was $8.8 million, which included a $6.9 million deferred tax asset recapture, compared to $4.4 million, which included a $3.2 million deferred tax asset recapture for 2014. Year-to-date, net income available to common shareholders was $7.4 million, or $1.60 per diluted share, compared to $3.2 million, or $0.67 per diluted share, in the year ago period. Operating results improved reflecting the 2.1% asset growth over the past twelve months, generated by robust mortgage production and continued growth in consumer loan and 1-4 family mortgage originations.

"We're excited to report one of the most profitable quarters since we opened our doors sixteen years ago. We continue to focus on growing 1-4 family mortgage loans and consumer loans, along with the expansion of the mortgage and indirect dealer finance channels, which have produced steady growth in loans and revenues. We are also generating strong growth in no-cost/low-cost deposits and customer acquisition as the South Carolina economy expands. Our primary focus is to diversify our revenue channels, manage expenses, and improve our capital composition," said Rick Saunders, President and CEO.

Financial Highlights (at or for the periods ended December 31, 2015, except as noted)

As of year end 2015, net income to common shareholders more than doubled to $7.4 million, or $1.60 per diluted share.
Total revenues, (net interest income plus noninterest income), increased 12.2% to $5.3 million in 4Q15 from $4.7 million in 4Q14, reflecting balance sheet growth.
Year end 2015, net interest income increased 2% to $14.2 million from the like period in 2014, reflecting increased loan volumes and a declining cost of funds
Mortgage loans held for sale increased 309.64% to $8.1 million from a year ago, reflecting organic loan growth and steady demand in the housing market.
Net interest margin (NIM) was 4.43%
First Reliance Bancshares remains well-capitalized with total risk based capital ratio of 13.8%

Review of Income Statement

Net interest income increased 2.0% to $14.2 million compared to $13.9 million a year ago, largely reflecting increased loan volume and a declining cost of funds

Net interest margin declined by two basis points to 4.43% in the fourth quarter, compared to 4.45% on a linked quarter basis and declined four basis point from 4.47% from the fourth quarter a year ago."We maintained a solid net interest margin during the fourth quarter as a result of continued improvement in our earning asset mix, and reduced cost of funds," said Jeff A. Paolucci, EVP & Chief Financial Officer. "Contributing to a solid net interest margin, on a linked quarter basis, were the higher yields we generated from our loans.

Noninterest income increased 83% to $1.8 million for the fourth quarter 2015, compared to $1.0 million for the fourth quarter 2014. Year-to-date, noninterest income increased 49% to $6.4 million compared to $4.3 million for year ending 2014. The increase in noninterest income was largely due to the increase in gains on sales of mortgage loans and growth in debit card income.

Total operating expenses (noninterest expense) were $3.8 million for the fourth quarter 2015, unchanged from $3.8 million for the fourth quarter of 2014. Year end 2015, operating expenses were $17.3 million, compared to $16.2 million for year ending 2014. As reported last quarter, the year-over-year increase in operating expenses was the expansion of the mortgage division and the related increase in compensation. Year end 2015, operating expenses were $15.8 million, absent our investment in the mortgage expansion. As we further increase our mortgage lending operations and add new dealers to our indirect auto lending business lines, we expect revenues to grow further enhancing our operating efficiencies," commented Saunders.

Balance Sheet and Asset Quality

Total assets increased $7.6 million, or 2% to $375.3 million at December 31, 2015, compared to $367.8 million from December 31, 2014.

Loans grew by $4.7 million, or 2%, at December 31, 2015, compared to $252.4 million, at December 31, 2014, largely due to continued growth in consumer direct auto loans up 20% year-over-year. Other consumer loans were up 22% year-over-year; indirect auto financing loans were up 99%, and 1-4 family mortgage loans were up 26% year-over-year. "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. "The indirect auto finance business line, launched last year, is contributing to profitability, and is positioned for continued slow to moderate growth. Our mortgage loan growth this year is on target to financial goals, and we continue to see significant potential for growth in our loan origination pipelines. Our bankers are successful in their efforts to develop new relationships and expand existing relationships in the markets we serve."

No-cost/low cost deposits increased by $32.8 million, or 15.52%, to $244.3 million at December 31, 2015, from $211.5 million at December 31, 2014. For the year ended 2015, the Company grew household checking accounts by 2.2% as the Company continues to attract new customers through unique programs such as Hometown Heroes, Moms First and iMatter Programs. The Bank's brand of banking focuses on providing customers with an exceptional experience whether at a branch or using online and mobile banking services.

Asset quality has continued to improve and normalize with nonperforming assets decreasing during the quarter and year-over-year. Nonaccrual loans declined 26% to $3.2 million at December 31, 2015, compared to $4.3 million a year ago. Other-real-estate-owned (OREO) declined to $2.5 million at December 31, 2015, compared to $5.3 million at September 30, 2015 and were relatively flat at $2.4 million a year earlier.

Nonperforming assets (NPAs), consisting of nonperforming loans, OREO and loans delinquent 90 days or more, were $5.8 million, at December 31, 2015, compared to $7.1 million, at September 30, 2015 and $6.8 million, at December 31, 2014. The ratio of nonperforming assets was 1.56% to total assets at December 31, 2015, compared to 1.87% three months earlier, and 1.87% at December 31, 2014. The allowance for loan losses as a percentage of loans was 0.99% at December 31, 2015, compared to 1.15%, at December 31, 2014. For the year ended December 31, 2015, provisions to the allowance for loan losses were $777,677.

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. For the quarter ended December, 2015, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	10.87%	5.00%
Common equity tier 1 capital	12.93%	6.50%
Tier 1 capital ratio	12.93%	8.00%
Total capital ratio	13.79%	10.00%

As of December 31, 2015, total shareholders' equity increased $3.9 million from December 31, 2014. In May 2015, the Company paid deferred dividends on TARP preferred stock totaling $4.2 million and deferred interest payments on outstanding trust preferred securities totaling $876,657. All TARP and preferred stock payments are current. "We plan to pay back a portion of TARP through retained earnings in the second quarter of 2016. Then we will address the remaining portion of TARP at a later date, but will not enter any repayment strategy that would be more dilutive to capital than the current cost of TARP," said Saunders.

First Reliance's tangible book value was $5.23, at December 31, 2015, up from $4.34, at December 31, 2014. The Company currently trades at 86.7% of book value as of December 31, 2015.

"We continue to enhance our products and services, to optimize how we deliver a better experience to our customers. Last year we implemented a mortgage loan payment portal which provides convenient mortgage information, amortization schedules, and year end information. It also provides a convenient way customers can set up their mortgage payments. This year we will launch a consumer loan payment portal and a mobile deposit product as part of our Reliance "On-The-Go" convenient services. We will issue EMV chipped debit cards second quarter this year in order to provide another level of security for customers who enjoy the convenience of this service," said Saunders.

Regional Economic Conditions – December 2015

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, which is a proven, successful location for business and industry and home to over 130 companies that have a manufacturing presence. Perhaps that's why over the past five years new and expanding businesses have invested more than $1.1 billion dollars here, including companies like ESAB, Heinz, Honda, GE Healthcare, Johnson Controls, Monster.com, QVC, Roche, and OTIS Elevator. http://www.fcedp.com/business_climate

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 120 highly-talented associates and serves the Columbia, Lexington, Charleston, Mount Pleasant 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% (2013 results from an outside survey firm.)

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.

This press release contains forward-looking statements about branch openings within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements give our expectations or forecasts of future events. The preliminary results for the three and six months ended June 30, 2015 presented herein above are the Company's expectations. However, these results are subject to adjustment by management before the audit is completed and may be adjusted based upon the results of the audit. Should management or audit adjustments be necessary, audited results could differ materially from these preliminary results.

Any or all of our forward-looking statements here or in other publications may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results. Consequently, no forward- looking statements can be guaranteed. Our actual results may vary materially, and there are no assurances about the performance of our common stock.

We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future results or otherwise.

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
	2015	2015	2014
Assets
Cash and cash equivalents:
Cash and due from banks	3,703,357	2,999,097	4,955,110
Interest-bearing deposits with other banks	16,357,619	17,434,712	17,891,077
Total cash and cash equivalents	20,060,976	20,433,809	22,846,187

Time deposits in other banks	101,612	101,511	101,409

Securities available-for-sale	11,255,855	11,531,847	13,045,588
Securities held-to-maturity (Estimated fair value of $26,270,623
and $32,242,017 at December 31, 2015 and 2014, respectively)	25,470,171	26,556,526	31,384,418
Nonmarketable equity securities	813,400	1,875,800	1,502,400
Total investment securities	37,539,426	39,964,173	45,932,406

Mortgage loans held for sale	8,070,283	16,972,426	1,970,068

Loans receivable	259,806,101	258,467,408	255,381,014
Less allowance for loan losses	(2,693,985)	(2,659,044)	(3,002,922)
Loans, net	257,112,116	255,808,364	252,378,092

Premises, furniture and equipment, net	22,856,744	22,862,349	23,395,306
Accrued interest receivable	979,347	951,162	1,034,316
Other real estate owned	2,506,733	5,343,211	2,444,253
Cash surrender value life insurance	13,615,610	13,531,035	13,282,565
Net deferred tax assets	9,950,018	10,189,892	3,198,771
Mortgage servicing rights	1,015,403	-	-
Other assets	1,502,230	1,201,992	1,172,948
Total assets	375,310,498	387,359,924	367,756,321
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	68,147,262	73,222,526	65,445,513
Interest-bearing transaction accounts	76,304,111	61,982,714	57,229,738
Savings	99,870,631	96,870,036	88,822,371
Time deposits $250,000 and over	14,990,007	27,441,311	27,814,120
Other time deposits	44,612,452	31,683,006	46,006,876
Total deposits	303,924,463	291,199,593	285,318,618

Securities sold under agreement to repurchase	8,201,396	7,495,674	7,573,403
Advances from Federal Home Loan Bank	10,000,000	35,000,000	25,000,000
Junior subordinated debentures	10,310,000	10,310,000	10,310,000
Accrued interest payable	54,002	49,834	806,079
Other liabilities	2,586,907	3,280,242	2,380,554
Total liabilities	335,076,768	347,335,343	331,388,654
Commitments and contingencies - Notes 4 and 15
Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock - 15,349 shares issued and outstanding	15,179,709	15,179,710	15,179,709
Series B cumulative perpetual preferred stock - 767 shares issued and outstanding	767,000	767,000	767,000
Series D preferred stock - 612 shares issued and outstanding	612	-	-
Common stock, $0.01 par value; 20,000,000 shares authorized,
4,680,481 and 4,739,823 shares issued and outstanding
at December 31, 2015 and 2014, respectively	46,804	47,410	47,398
Capital surplus	26,007,698	26,367,114	30,914,242
Treasury stock, at cost, 38,249 and 35,176 shares at December 31, 2015 and
2014, respectively	(217,230)	(212,324)	(205,512)
Nonvested restricted stock	(326,481)	(341,314)	(385,330)
Retained deficit	(1,259,166)	(1,893,267)	(10,071,514)
Accumulated other comprehensive income	34,784	110,252	121,674
Total shareholders' equity	40,233,730	40,024,581	36,367,667
Total liabilities and shareholders' equity	375,310,498	387,359,924	367,756,321


First Reliance Bancshares, Inc. and Subsidiary
*Consolidated Statements of Operations*
*For the years ended December 31, 2015 and 2014*

	2015	2014	% Increase
Interest income:			(Decrease)
Loans, including fees	$ 13,866,514	$ 13,758,531	0.78%

Investment securities:
Taxable	925,411	1,120,902	-17.44%
Tax exempt	113,599	114,081	-0.42%
Other interest income	129,247	80,517	60.52%
Total	15,034,771	15,074,031	-0.26%
Interest expense:
Time deposits	327,768	706,565	-53.61%
Other deposits	209,324	129,677	61.42%
Other interest expense	303,036	323,314	-6.27%
Total	840,128	1,159,556	-27.55%

Net interest income	14,194,643	13,914,475	2.01%
Provision for loan losses	777,678	706,891	10.01%
Net interest income after provision for loan losses	13,416,965	13,207,584	1.59%

Noninterest income:
Service charges on deposit accounts	1,430,808	1,624,575	-11.93%
Income from mortgage operations	3,110,229	953,743	226.11%
Income from bank owned life insurance	333,046	336,872	-1.14%
Other service charges, commissions, and fees	1,161,788	1,076,560	7.92%
Gain on sale of available-for-sale securities	9,562	5,321	79.70%
Other	328,365	284,518	15.41%
Total	6,373,798	4,281,589	48.87%

Noninterest expenses:
Salaries and benefits	9,747,542	7,317,950	33.20%
Occupancy	1,628,527	1,529,855	6.45%
Furniture and equipment related expenses	1,583,048	1,690,837	-6.37%
Other	4,345,959	5,624,164	-22.73%
Total	17,305,076	16,162,806	7.07%
Income before income taxes	2,485,687	1,326,367	87.41%
Income tax	(6,326,661)	(3,081,244)	105.33%
Net income	8,812,348	4,407,611	99.93%
Preferred stock dividends accrued	1,450,440	1,220,205	18.87%
Deemed dividends on preferred stock resulting from
net accretion of discount and amortization of premium	-	31,218	-100.00%
Net income available to common shareholders	$ 7,361,908	$ 3,156,188	133.25%

Average common shares outstanding, basic	4,491,053	4,612,758	-2.64%
Average common shares outstanding, diluted	4,595,204	4,688,981	-2.00%

Income per common share:
Basic income per share	$1.64	$0.68	141.18%
Diluted income per share	1.60	0.67	138.81%


First Reliance Bancshares, Inc. and Subsidiary
Consolidated Statements of Operations

	Three Months Ended	Three Months Ended	Three Months Ended
	December 2015	September 2015	December 2014
Interest income:
Loans, including fees	3,471,988	3,551,679	3,700,418

Investment securities:
Taxable	219,687	224,989	274,576
Tax exempt	28,347	28,391	28,469
Other interest income	29,121	21,492	23,561
Total	3,749,143	3,826,551	4,027,024
Interest expense:
Time deposits	59,924	48,684	143,752
Other deposits	75,493	61,203	31,879
Other interest expense	74,378	79,355	79,120
Total	209,795	189,243	254,751

Net interest income	3,539,348	3,637,309	3,772,273
Provision for loan losses	587,430	31,959	609,065
Net interest income after provision for loan losses	2,951,918	3,605,350	3,163,208

Noninterest income:
Service charges on deposit accounts	360,401	374,846	420,533
Gain on sale of mortgage loans	961,618	1,136,805	162,419
Income from bank owned life insurance	84,576	83,796	84,824
Other service charges, commissions, and fees	296,171	291,364	269,168
Gain on sale of available-for-sale securities	-	-	-
Other	81,407	67,698	37,690
Total	1,784,173	1,954,509	974,634

Noninterest expenses:
Salaries and benefits	2,556,054	2,460,258	1,922,094
Occupancy	442,763	402,672	404,502
Furniture and equipment related expenses	415,965	374,570	512,736
Other	377,209	1,324,928	924,949
Total	3,791,991	4,562,428	3,764,281
Income before income taxes	944,100	997,431	373,561
Income tax	309,999	326,857	129,825
Net income	634,101	670,574	243,736
Preferred stock dividends accrued	362,610	362,610	362,610
Deemed dividends on preferred stock resulting from
net accretion of discount and amortization of premium	-	-	-
Net income available to common shareholders	271,491	307,964	(118,874)

Average common shares outstanding, basic	4,428,514	4,684,552	4,738,875
Average common shares outstanding, diluted	4,551,758	4,796,516	4,808,932
	-	-
Income per common share:	-	-
Basic income per share	0.06	0.07	(0.03)
Diluted income per share	0.06	0.06	(0.02)

Asset Quality and Capital Adequacy

(dollars in thousands, except per share data)	Period ended
	December 31, 2015	September 30, 2015	December 31, 2014
Asset Quality
Loans 90 days past due & still accruing	85	-	25
Nonaccrual loans	3,224	1,851	4,381
Total nonperfoming loans	3,309	1,851	4,406
OREO and repossessed assets	2,507	5,343	2,444
Total Nonperforming Assets	5,816	7,194	6,850

Nonperforming loans to loans	1.27%	0.72%	1.73%
Nonperforming assets to total assets	1.56%	1.87%	1.87%
Allowance for loan losses to total loans	0.99%	0.96%	1.15%
Allowance for loan losses to nonperforming loans	81.41%	143.58%	68.15%
	(2,693,985.00)	(2,659,044.00)	(3,002,922.00)
Capital Data (at quarter end)
Book value per share	5.23	5.18	4.34
Tangible book value per share	5.23	5.18	4.34

Per Share Data
Shares Outstanding- basic	4,491,053	4,709,602	4,612,758
Shares Outstanding- diluted	4,595,203	4,807,387	4,688,981
Earning Per Share - basic	$ 1.64	$ 1.51	$ 0.68
Earning Per Share -diluted	$ 1.60	$ 1.47	$ 0.67

Profitability Ratios
Net Interest Margin	4.43%	4.45%	4.47%
Return on Assets	2.35%	2.93%	1.23%
Return on Equity	21.90%	29.77%	13.14%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	10.87%	10.75%	11.28%
Common Equity Tier 1 capital	12.93%	12.94%	N/A
Tier 1 capital ratio	12.93%	12.94%	13.93%
Total capital ratio	13.79%	13.80%	14.95%
Total risk weighted assets	311,316	308,996	294,740