First Reliance Reports Record 3Q16 Pre-Tax Income Of $1.6 Million, Up 60.25% From 3Q15

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Oct 31, 2016, 06:00 ET

FLORENCE, S.C., Oct. 31, 2016 /PRNewswire/ -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported third quarter 2016 pre-tax profits of $1,592,616. This is the 11^th consecutive quarter of profitability which continues to be fueled by strong loan and deposit growth, and expanding operating efficiencies. In the third quarter of 2016, pre-tax income is up 60.3% over $993,844 in the third quarter a year ago. Net income totaled $1,046,684 for the quarter ended September 30, 2016. Net income to common shareholders improved 243.9% in the third quarter of 2016 to $1,046,684 or $0.23 per diluted share from $304,377, or $0.06 per diluted share from second quarter 2016 as a result of redeeming 100% of the TARP funds in the third quarter of 2016. "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 invest in new strategic initiatives. Redemption of the TARP securities reduced the Company's after-tax interest expense and is expected to positively impact earnings per share on an annual basis by $0.21 per share, or approximately $977,000 additional net income to common shareholders," said Rick Saunders, President and CEO.

"The investments we made to diversify our revenue sources continue to have a positive impact on our bottom line. One of the company strengths has been to grow low cost deposits and we continue to be successful in growing our low cost core deposits in all our markets allowing us to fund our diversified loan growth. With our improved performance came an opportunity to increase 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.

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

EPS of $0.58 per diluted share through nine months of 2016
EPS quarter over quarter improved 283%
Book value per share is $5.60 up 8.1% from one year ago
Completion of Series A and B -Preferred Stock (TARP) redemption in third quarter 2016 with anticipated improvement in earnings per share of $0.21
Branch Expansion into Loris and North Myrtle Beach
Loan growth is up $27 million or 10.5% from one year ago
No and Low Cost Deposits increased 12.2% from the like period in 2015 as we attract new customers through unique programs and the launching of our mobile deposit technology as part of our Reliance "On-The-Go" convenient services
Total revenues increased 21.34% to $6.7 million in 3Q16 from $5.5 million in 3Q15 reflecting balance sheet growth
Mortgage production volume reached record levels of $248.6 million as of year to date September 30, 2016 compared to $102.4 million one year ago
Net interest margin (NIM) was 4.43% as the Company continues to leverage its low cost of funds at 20bp
Nonperforming Assets decreased $2.1 million from one year ago, reflecting continued improvement in asset quality
First Reliance Bancshares remains well-capitalized with total risk based capital ratio of 12.5%

Review of Income Statement
Net interest income decreased to $3.5 million compared to $3.6 million a year ago, largely reflecting increased interest expense of $137,230 associated with the secured loan and subordinated debt used to refinance higher cost Series A and B Preferred stock (TARP) and growth in interest-bearing deposit balances. The Company continues to leverage its low cost of funds at 20 bp.

Noninterest income increased 68.3% to $3.2 million for the third quarter of 2016, compared to $1.88 million for the third quarter 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 $248.6 million on 1,285 loans originated as of September 30, 3016 compared to $102.4 million on 532 loans originated one year ago.

Balance Sheet and Asset Quality

Total assets increased $22.1 million, or 5.71% to $409.5 million at September 30, 2016, compared to $387.4 million from September 30, 2015.

Loans grew by $27 million, or 10.45%, at September 30, 2016, compared to $258.3 million, at September 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 101.6% year-over-year. Consumer loans are up 39.0%. "Our strategic focus has been on revenue diversification through growth in 1-4 mortgage and consumer loan channels. We've seen steady growth in these sectors as the economies in our markets continue to improve in job growth, housing sales and new construction. Focus on these sectors allows for better asset yields, improved margins, along with a better diversified loan portfolio which reduces risk," added Saunders.

No-cost/low cost deposits increased by $19.2 million, or 12.2%, to $175.8 million at September 30, 2016, from $156.7 million at September 30, 2015. The Company grew household checking accounts by 3.04% year to date as the Company continues to attract new customers through unique programs such as Hometown Heroes, Moms First and iMatter Programs. "This past quarter we launched a new First Reliance At Work program which bundles many of our products and services with additional benefits that businesses can offer to their employees. Lastly, we've launched and marketed a new mortgage product called HomeReady designed for low to moderate income households who want to purchase a new home with very little money down if they meet the mortgage qualifications. We offer a wide range of mortgages which allow most people to buy a home, but what really sets us apart is the incredible service our mortgage team provides," said Saunders.

Asset quality continues to improve with nonperforming assets, consisting of nonperforming loans, OREO and loans delinquent 90 days or more, declined by $2.1 million to $5.1 million at September 30, 2016 compared to one year ago. The ratio of nonperforming assets to total assets was 1.27% at September 30, 2016, compared to 1.87% one year earlier. The allowance for loan losses as a percentage of loans was 0.90% at September 30, 2016, compared to 0.96% one year earlier. For the third quarter of 2016, 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. For the quarter ended December, 2015, capital ratios were as follows:

Ratio	First Reliance Bank	Well-capitalized Minimum
Tier 1 leverage ratio	9.88 %	5.00%
Common equity tier 1 capital	11.68%	6.50%
Tier 1 capital ratio	11.68%	8.00%
Total capital ratio	12.50%	10.00%

As of September 30, 2016, total shareholders' equity declined by $14.0 million from September 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 ("U.S. Treasury") under the Troubled Asset Relief Program Capital Purchase Program ("TARP"). In March 2013, the U.S. Treasury sold all 15,349 shares of Series A Preferred Stock and Fixed Rate Cumulative Perpetual Preferred Stock, Series B ("Series B Preferred Stock") previously held by it to private investors. The redemption price for the shares of Series A Preferred Stock was $1,000 per share, plus accrued and unpaid dividends. The total aggregate redemption prices of the shares of Series A Preferred Stock was $4 million. On July 12, 2016, the Company made a partial redemption of 7,000 shares of its Series A Preferred Stock at a redemption price of $1,000 per share, plus accrued and unpaid dividends. The total aggregate redemption price of the shares of Series A Preferred Stock redeemed was $7.0 million, plus accrued but unpaid dividends. The redemption was funded with the proceeds of a new senior credit facility. On August 5, 2016, the Company announced the redemption of the remaining 4,349 shares of Series A and all outstanding shares of it s Series B Preferred Stock, plus accrued but unpaid dividends. The redemption was funded with the proceeds of subordinated notes in privately negotiated transactions.

First Reliance's tangible book value was $5.60, at September 30, 2016, up 8.1% from $5.18, at September 30, 2015. The Company currently trades at 94.6% of book value as of September 30, 2016.

"Just prior to our third quarter earnings release our coastal and Florence markets experienced devastation from Hurricane Matthew. We acted quickly and implemented our disaster relief loan program to support businesses and customers who may have been affected. We are here to support our customers and communities in good times and through bad times," said Saunders.

First Reliance bank was named among the top 1% most extraordinary banks in the U.S. by the Institute of Extraordinary Banking. We are proud of our culture and our associates who are committed to our communities and making the lives of our customers better.

First Reliance Bank was also named a Best Adoption Friendly Work Place for eight consecutive years by the Dave Thomas Foundation For Adoption. The bank offers medical leave and an adoption reimbursement fund to associates at the bank who are interested in adopting children.

Regional Economic Conditions – August 2016
According to recent reports, South Carolina's economy continued to improve as labor markets strengthened, household conditions improved and housing market indicators were 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.

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 127 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%.

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.

First Reliance Bancshares, Inc. and Subsidiary
*Consolidated Balance Sheets*

	September 30	December 31	September 30
	2016	2015	2015
Assets
Cash and cash equivalents:
Cash and due from banks	$ 4,704,134	$ 3,703,357	$ 2,999,097
Interest-bearing deposits with other banks	11,455,124	16,357,619	17,434,712
Total cash and cash equivalents	16,159,258	20,060,976	20,433,809

Time deposits in other banks	101,816	101,612	101,511

Securities available-for-sale	18,671,693	11,255,855	11,531,847
Securities held-to-maturity (Estimated fair value of $24,158,913
and $26,270,623 at June 30, 2016 and December 31, 2015, respectively)	21,569,074	25,470,171	26,556,527
Nonmarketable equity securities	1,350,600	813,400	1,875,800
Total investment securities	41,591,367	37,539,426	39,964,173

Mortgage loans held for sale	14,784,129	8,070,283	16,472,337

Loans receivable	285,332,840	259,806,101	258,343,588
Less allowance for loan losses	(2,710,305)	(2,693,985)	(2,659,044)
Loans, net	282,622,535	257,112,116	255,684,544

Premises, furniture and equipment, net	22,658,107	22,856,744	22,958,506
Accrued interest receivable	876,684	979,347	951,162
Other real estate owned	2,553,284	2,506,733	5,343,211
Cash surrender value life insurance	13,878,383	13,615,610	13,531,035
Net deferred tax assets	8,763,732	9,950,018	10,189,892
Mortgage servicing rights	3,063,895	1,015,403	623,909.60
Other assets	2,405,986	1,502,230	1,105,836
Total assets	$ 409,459,176	$ 375,310,498	$ 387,359,924
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing transaction accounts	$ 79,139,444	$ 68,147,262	$ 73,222,526
Interest-bearing transaction accounts	73,626,962	76,304,111	61,982,714
Savings	109,334,379	99,870,631	96,870,036
Time deposits $250,000 and over	16,252,258	14,990,007	4,134,000
Other time deposits	48,958,506	44,612,452	54,990,317
Total deposits	327,311,549	303,924,463	291,199,593

Securities sold under agreement to repurchase	9,421,742	8,201,396	7,495,674
Advances from Federal Home Loan Bank	20,500,000	10,000,000	35,000,000
Notes Payable	7,000,000
Junior subordinated debentures	15,310,000	10,310,000	10,310,000
Accrued interest payable	192,940	54,002	49,834
Other liabilities	3,736,505	2,586,907	3,280,242
Total liabilities	383,472,736	335,076,768	347,335,343

Shareholders' Equity
Preferred stock
Series A cumulative perpetual preferred stock -0 shares issued and outstanding	0	15,179,709	15,179,710
Series B cumulative perpetual preferred stock - 0 shares issued and outstanding	0	767,000	767,000
Series D preferred stock - 59,982 shares issued and outstanding	600	612	619
Common stock, $0.01 par value; 20,000,000 shares authorized,
4,640,312 and 4,680,481 shares issued and outstanding
at September 30, 216 and December 31, 2015 , respectively	46,794	46,804	46,791
Capital surplus	25,068,897	26,007,698	26,367,114
Treasury stock, at cost, 39,069 and 38,249 shares at September 30, 2016 and
December 31, 2015, respectively	(219,105)	(217,230)	(212,324)
Nonvested restricted stock	(276,691)	(326,481)	(341,314)
Retained Earnings/Deficit	1,305,525	(1,259,166)	(1,893,267)
Accumulated other comprehensive income	60,420	34,784	110,252
Total shareholders' equity	25,986,440	40,233,730	40,024,581
Total liabilities and shareholders' equity	$ 409,459,176	$ 375,310,498	$ 387,359,924

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

	Three Months Ended	Three Months Ended
	September 30, 2016	September 30, 2015
Interest income:
Loans, including fees	$ 3,632,812	$ 3,551,679

Investment securities:
Taxable	199,673	224,989
Tax exempt	28,266	28,391
Other interest income	24,194	21,492
Total	3,884,945	3,826,551
Interest expense:
Time deposits	101,563	48,684
Other deposits	77,293	61,203
Other interest expense	215,033	79,356
Total	393,889	189,243

Net interest income	3,491,056	3,637,308
Provision for loan losses	-	31,959
Net interest income after provision for loan losses	3,491,056	3,605,349

Noninterest income:
Service charges on deposit accounts	355,003	374,846
Gain on sale of mortgage loans	2,349,825	1,063,822
Income from bank owned life insurance	87,395	83,796
Other service charges, commissions, and fees	296,282	291,364
Gain on sale of available-for-sale securities	13,261	-
Other	63,733	66,708
Total	3,165,499	1,880,536

Noninterest expenses:
Salaries and benefits	2,940,871	2,460,259
Occupancy	416,626	402,672
Furniture and equipment related expenses	381,442	374,570
Other	1,325,000	1,254,540
Total	5,063,939	4,492,041
Income before income taxes	1,592,616	993,844
Income tax	545,932	326,857
Net income	1,046,684	666,987
Preferred stock dividends accrued	0	362,610
Deemed dividends on preferred stock resulting from
net accretion of discount and amortization of premium	-	-
Net income available to common shareholders	$ 1,046,684	$ 304,377

Average common shares outstanding, basic	4,443,355	4,684,552
Average common shares outstanding, diluted	4,562,711	4,796,516

Income per common share:
Basic income per share	0.24	0.06
Diluted income per share	0.23	0.06

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

	Nine Months Ended	Nine Months Ended
	September 30, 2016	September 30, 2015
Interest income:
Loans, including fees	$ 10,746,475	$ 10,394,526

Investment securities:
Taxable	596,458	705,724
Tax exempt	84,879	85,252
Other interest income	83,156	100,126
Total	11,510,968	11,285,628
Interest expense:
Time deposits	263,587	267,844
Other deposits	219,492	133,831
Other interest expense	356,235	228,657
Total	839,314	630,332

Net interest income	10,671,653	10,655,295
Provision for loan losses	9,075	190,248
Net interest income after provision for loan losses	10,662,578	10,465,047

Noninterest income:
Service charges on deposit accounts	1,027,805	1,070,407
Gain on sale of mortgage loans	4,911,675	2,148,609
Income from bank owned life insurance	262,772	248,470
Other service charges, commissions, and fees	917,123	865,617
Gain on sale of available-for-sale securities	13,261	9,562
Other	176,692	243,374
Total	7,309,328	4,586,039

Noninterest expenses:
Salaries and benefits	8,116,877	7,191,488
Occupancy	1,187,262	1,185,764
Furniture and equipment related expenses	1,113,865	1,167,083
Other	3,672,530	3,965,164
Total	14,090,534	13,509,499
Income before income taxes	3,881,373	1,541,588
Income tax expense (benefit)	1,316,681	(6,636,660)
Net income	2,564,692	8,178,248
Preferred stock dividends accrued	0	1,087,830
Deemed dividends on preferred stock resulting from
net accretion of discount and amortization of premium	-	-
Net income available to common shareholders	$ 2,564,692	$ 7,090,418

Average common shares outstanding, basic	4,443,355	4,684,552
Average common shares outstanding, diluted	4,562,711	4,796,516

Income per common share:
Basic income per share	0.58	1.51
Diluted income per share	0.56	1.48

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, 2016	December 31, 2015	September 30, 2015
Income Statement Data
Net Interest Income	3,491,056	3,539,351	3,637,308
Provision for loan losses	-	587,430	31,959
Noninterest Income	3,165,499	1,987,751	1,880,536
Noninterest Expense	5,063,939	3,795,572	4,492,041
Income Tax (Benefit)	545,932	309,999	326,857
Net Income	1,046,684	634,101	666,987
Asset Quality
Loans 90 days past due & still accruing	-	85	-
Nonaccrual loans	2,590	3,224	1,852



Total nonperforming loans	2,590	3,309	1,852
OREO and repossessed assets	2,553	2,507	5,343
Total Nonperforming Assets	5,143	5,816	7,195

Nonperforming loans to loans	0.91%	1.27%	0.72%
Nonperforming assets to total assets	1.27%	1.56%	1.87%
Allowance for loan losses to total loans	0.90%	0.99%	0.96%
Allowance for loan losses to nonperforming loans	104.64%	81.41%	125.57%
Capital Data (at quarter end)
Book value per share	5.60	5.23	5.18
Tangible book value per share	5.60	5.23	5.18

Per Share Data
Shares Outstanding- basic	4,443,355	4,491,053	4,684,552
Shares Outstanding- diluted	4,562,711	4,595,203	4,796,516
Earning Per Share - basic	0.24	0.14	0.14
Earning Per Share -diluted	0.23	0.14	0.14

Profitability Ratios
Net Interest Margin	4.42%	4.43%	4.54%
Return on Assets	1.04%	2.35%	4.07%
Return on Equity	16.34%	21.90%	42.78%

Capital Adequacy- Bank Only
Tier 1 leverage ratio	9.87%	10.87%	10.75%
Common Equity Tier 1 capital	11.67%	12.93%	12.94%
Tier 1 capital ratio	11.67%	12.93%	12.94%
Total capital ratio	12.50%	13.79%	13.80%
Total risk weighted assets	327,873	311,316	308,996