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

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 endedDecember 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 Carolinaeconomy 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, unchangedfrom $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:

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.