First Reliance Bancshares Reports First Quarter 2023 Results

FLORENCE, S.C., April 26, 2023 /PRNewswire/ — First Reliance Bancshares, Inc. (OTC:FSRL), the holding company for First Reliance Bank (collectively, “First Reliance” or the “Company”), today announced its financial results for the first quarter of 2023.

First Quarter 2023 Highlights

• Net income increased 60.9% for the first quarter of 2023 to $1.4 million, or $0.17 per diluted share, compared to $0.9 million, or $0.11 per diluted share, for the first quarter of 2022.
• Net interest income for the quarter was $7.3 million, which represents a decrease of $0.6 million, or 7.8%, on a linked quarter basis and an increase of $0.7 million, or 10.6% compared to the same period in 2022.
• Net interest margin decreased during the quarter to 3.34% at March 31, 2023, compared to 3.68% for the fourth quarter of 2022, but increased 22 basis points compared to the same period in 2022.
• Total loans increased $8.7 million, or 5.2% annualized, to $670.0 million at March 31, 2023, from $661.3 million at December 31, 2022.
• Total deposits increased $38.7 million, or 19.4% annualized, to $836.9 million at March 31, 2023, from $798.2 million at December 31, 2022.
• In the first quarter of 2023, the company adopted ASU 2016-13 (“CECL”). The day one impact was a $886 thousand increase to the unfunded commitment reserve, a $114 thousand increase to our allowance for credit losses, and a $254 thousand increase in the deferred tax asset which resulted in a decline in equity of $723 thousand.
• Asset quality remained steady with nonperforming assets as a percentage of total assets of 0.05% at March 31, 2023, and December 31, 2022. The Company had net charge-offs of $102.4 thousand or annualized 0.06% of average loans during the quarter compared to net charge-offs of $85.4 thousand, or annualized 0.05% of average loans, for the quarter ended December 31, 2022.
• Cost of funds for the first quarter of 2023 increased to 1.24% from 0.71% on a linked quarter basis and from 0.22% for the same period in 2022.

Rick Saunders, Chief Executive Officer, remarked: “Our first quarter results reflect the strength of our balance sheet as we continued to grow deposits and added quality loans, while maintaining strong capital and liquidity.  We were also able to increase our tangible book value per share $0.37 to $8.04 during the quarter despite adopting CECL in the first quarter of 2023.  We have always put the client at the center of our mission and those relationships are essential to executing our strategic plan.  We look forward to continuing to serve our clients’ banking needs.”

Financial Summary

		Three Months Ended
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
($ in thousands, except per share data)	2023	2022	2022	2022	2022
Earnings:
Net income available to common shareholders	$     1,371	$     1,493	$     2,522	$     1,064	$          852
Earnings per common share, diluted	0.17	0.18	0.31	0.13	0.11
Total revenue(1)	9,430	9,417	11,103	9,404	9,097
Net interest margin	3.34 %	3.68 %	3.71 %	3.39 %	3.12 %
Return on average assets(2)	0.57 %	0.65 %	1.06 %	0.45 %	0.37 %
Return on average equity(2)	8.53 %	9.78 %	15.60 %	6.60 %	4.85 %
Efficiency ratio(3)	79.20 %	78.14 %	69.40 %	84.49 %	87.50 %

 

	As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Balance Sheet:
Total assets	$  1,000,535	$       937,113	$       946,437	$       946,853	$       953,784
Total loans receivable	669,969	661,251	646,634	637,953	592,089
Total deposits	836,902	798,184	840,392	830,992	837,663
Total transaction deposits(4) to total deposits	46.46 %	51.05 %	51.42 %	51.14 %	52.71 %
Loans to deposits	80.05 %	82.84 %	76.94 %	76.77 %	70.68 %
Bank Capital Ratios:
Total risk-based capital ratio	13.45 %	13.43 %	13.47 %	12.97 %	13.67 %
Tier 1 risk-based capital ratio	12.41 %	12.43 %	12.45 %	11.98 %	12.65 %
Tier 1 leverage ratio	10.14 %	10.37 %	9.84 %	9.66 %	9.67 %
Common equity tier 1 capital ratio	12.41 %	12.43 %	12.45 %	11.98 %	12.65 %
Asset Quality Ratios:
Nonperforming assets as a percentage of    total assets	0.05 %	0.05 %	0.06 %	0.06 %	0.11 %
Allowance for loan losses as a percentage of    total loans receivable	1.20 %	1.16 %	1.18 %	1.17 %	1.22 %
Footnotes to table located at the end of this release.

 

 

CONDENSED CONSOLIDATED INCOME STATEMENTS – Unaudited

		Three Months Ended
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
($ in thousands, except per share data)	2023	2022	2022	2022	2022
Interest income
Loans	$        8,260	$        7,848	$        7,555	$        6,781	$        6,380
Investment securities	1,343	1,247	1,097	840	571
Other interest income	362	316	321	176	73
Total interest income	9,965	9,411	8,973	7,797	7,024
Interest expense
Deposits	1,922	1,106	446	212	197
Other interest expense	769	417	283	252	252
Total interest expense	2,691	1,523	729	464	449
Net interest income	7,274	7,888	8,244	7,333	6,575
Provision for loan losses	248	115	170	110	85
Net interest income after provision for loan    losses	7,026	7,773	8,074	7,223	6,490
Noninterest income
Mortgage banking income	916	378	1,721	897	1,420
Service fees on deposit accounts	326	330	343	357	362
Debit card and other service charges,    commissions, and fees	517	500	536	559	498
Income from bank owned life insurance	244	92	91	89	88
Gain (Loss) on disposal of fixed assets	19	24	(10)	–	10
Other income	134	205	178	168	144
Total noninterest income	2,156	1,529	2,859	2,070	2,522
Noninterest expense
Compensation and benefits	4,652	4,364	4,505	5,059	5,079
Occupancy and equipment	892	883	923	890	893
Data processing, technology, and communications	869	878	846	789	837
Professional fees	196	207	185	180	180
Marketing	226	279	206	184	74
Other	634	748	1,040	843	897
Total noninterest expense	7,469	7,359	7,705	7,945	7,960
Income before provision for income taxes	1,713	1,943	3,228	1,348	1,052
Income tax expense	342	450	706	284	200
Net income available to common shareholders	$        1,371	$        1,493	$        2,522	$        1,064	$             852
Weighted average common shares – basic	7,807	7,775	7,777	7,782	7,784
Weighted average common shares – diluted	8,189	8,152	8,073	8,094	8,100
Basic income per common share	$           0.18	$           0.19	$           0.32	$           0.14	$           0.11
Diluted income per common share	$           0.17	$           0.18	$           0.31	$           0.13	$           0.11

Net income for the three months ended March 31, 2023, was $1.4 million, or $0.17 per diluted common share, compared to $0.9 million, or $0.11 per diluted common share, for the three months ended March 31, 2022.  

Noninterest income for the three months ended March 31, 2023, was $2.2 million, a decrease of $0.3 million from $2.5 million for the same period in 2022.  Noninterest income is largely driven by the Company’s mortgage banking division, which produced net revenue of $0.9 million during the three months ended March 31, 2023, compared to $1.4 million for the same period in 2022.  The decrease in mortgage noninterest income is primarily due to a decrease in sales volume compared to the prior year quarter in 2022.  Additionally, the Bank continues to portfolio select loans out of the higher margin retail channel which has also contributed to reduced gain on sale proceeds.   Income from bank owned life insurance increased $156 thousand compared to the first quarter of 2022 due to the receipt of a death benefit during the first quarter of 2023.

Noninterest expense for the three months ended March 31, 2023, was $7.5 million, a decrease of $0.5 million from $8.0 million for the same period in 2022.  This decrease was primarily driven by a decrease in compensation and benefits and other expense somewhat offset by an increase in marketing expense compared to first quarter 2022.    

NET INTEREST INCOME AND MARGIN – Unaudited

	For the  Three Months Ended
	March 31, 2023				March 31, 2022
	Average	Income/	Yield/		Average	Income/	Yield/
(dollars in thousands)	Balance	Expense	Rate		Balance	Expense	Rate
Assets
Interest-earning assets
Federal funds sold and interest-bearing deposits	$      40,162	$              349	3.53 %		$    139,225	$              66	0.19 %
Investment securities	163,024	1,343	3.34 %		107,863	571	2.15 %
Nonmarketable equity securities	2,013	13	2.65 %		614	7	4.80 %
Loans held for sale	9,675	155	6.51 %		19,922	164	3.33 %
Loans	668,741	8,105	4.91 %		587,161	6,216	4.29 %
Total interest-earning assets	883,615	9,965	4.57 %		854,785	7,024	3.33 %
Allowance for credit losses	(7,837)				(7,103)
Noninterest-earning assets	78,697				80,270
Total assets	$   954,475				$    927,952
Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$   141,342	$              105	0.30 %		$    163,581	$              19	0.05 %
Savings & money market	302,198	1,417	1.90 %		275,051	84	0.12 %
Time deposits	109,959	400	1.47 %		120,378	94	0.32 %
Total interest-bearing deposits	553,499	1,922	1.41 %		559,010	197	0.14 %
FHLB advances and other borrowings	44,435	430	3.93 %		15,516	24	0.62 %
Subordinated debentures	25,695	339	5.34 %		25,663	228	3.60 %
Total interest-bearing liabilities	623,629	2,691	1.75 %		600,189	449	0.30 %
Noninterest bearing deposits	253,263				245,502
Other liabilities	13,313				12,071
Shareholders’ equity	64,270				70,190
Total liabilities and shareholders’ equity	$   954,475				$    927,952
Net interest income (tax equivalent) / interest   rate spread		$         7,274	2.82 %			$       6,575	3.03 %
Net Interest Margin			3.34 %				3.12 %

Net interest income for the three months ended March 31, 2023, was $7.3 million compared to $6.6 million for the three months ended March 31, 2022.  This increase was primarily driven by an increase in interest-earning assets, as well as an increase in interest rates.  Yield on interest-earning assets increased to 4.57% for the three months ended March 31, 2023, from 3.33% for the same period in 2022. 

CONDENSED CONSOLIDATED BALANCE SHEETS – Unaudited

	As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Assets
Cash and cash equivalents:
Cash and due from banks	$             4,233	$             3,917	$                 4,147	$                 7,702	$                 4,672
Interest-bearing deposits with banks	71,590	29,880	60,537	45,683	116,192
Total cash and cash equivalents	75,823	33,797	64,684	53,385	120,864
Time deposits in other banks	–	259	259	257	257
Investment securities:
Investment securities available for sale	164,150	162,097	160,504	164,440	144,422
Other investments	2,570	1,921	658	657	521
Total investment securities	166,720	164,018	161,162	165,097	144,943
Mortgage loans held for sale	16,236	7,940	4,599	19,648	23,528
Loans receivable:
Loans	669,969	661,251	646,634	637,953	592,089
Less allowance for credit losses	(8,052)	(7,660)	(7,630)	(7,494)	(7,206)
Loans receivable, net	661,917	653,591	639,004	630,459	584,883
Property and equipment, net	22,634	22,811	22,868	23,100	23,222
Mortgage servicing rights	10,491	10,441	10,182	14,893	14,536
Bank owned life insurance	17,906	18,836	18,744	18,653	18,564
Deferred income taxes	8,263	8,629	8,629	7,376	5,862
Other assets	20,545	16,791	16,306	13,985	17,125
Total assets	1,000,535	937,113	946,437	946,853	953,784
Liabilities
Deposits	$       836,902	$       798,184	$           840,392	$           830,992	$           837,663
Federal Home Loan Bank advances	45,000	30,000	–	–	–
Federal funds and repurchase agreements	12,974	7,368	3,726	13,805	11,886
Subordinated debentures	15,389	15,381	15,373	15,365	15,357
Junior subordinated debentures	10,310	10,310	10,310	10,310	10,310
Reserve for unfunded commitments	754	–	–	–	–
Other liabilities	12,743	12,574	14,472	12,412	11,937
Total liabilities	934,072	873,817	884,273	882,884	887,153
Shareholders’ equity
Preferred stock – Series D non-cumulative, no par   value	1	1	1	1	1
Common Stock – $.01 par value; 20,000,000 shares   authorized	88	87	88	88	88
Treasury stock, at cost	(4,598)	(4,502)	(4,364)	(4,333)	(4,419)
Nonvested restricted stock	(2,765)	(2,121)	(2,291)	(2,500)	(2,572)
Additional paid-in capital	54,984	53,968	54,013	54,088	53,980
Retained earnings	30,564	29,916	28,423	25,901	24,837
Accumulated other comprehensive (loss) income	(11,811)	(14,053)	(13,706)	(9,276)	(5,284)
Total shareholders’ equity	66,463	63,296	62,164	63,969	66,631
Total liabilities and shareholders’ equity	$   1,000,535	$       937,113	$           946,437	$           946,853	$           953,784

First Reliance cash and cash equivalents totaled $75.8 million at March 31, 2023, compared to $33.8 million at December 31, 2022.  Cash with the Federal Reserve Bank totaled $70.8 million compared to $28.8 million at December 31, 2022.

At March 31, 2023, and December 31, 2022, First Reliance did not have any Held-to-Maturity (HTM) securities.  All debt securities were classified as available for sale (AFS) securities with balances of $164.2 million and $162.1 million, respectively.  The unrealized loss recorded on these securities totaled $15.6 million compared to $18.6 million, respectively, an improvement in the first quarter of $3.0 million (before taxes).

As of March 31, 2023, deposits increased by $38.7 million or 19.4% annualized.  The bank had estimated uninsured and uncollaterialized deposits of $252.8 million, or 30.2% of total bank deposits.

The Company had $45.0 million in outstanding borrowings with the Federal Home Loan Bank (FHLB) of Atlanta at March 31, 2023, up from $30.0 million at December 31, 2022.  The Company had remaining credit availability in excess of $235 million with the FHLB of Atlanta, subject to collateral requirements.

First Reliance also has access to more than $37.0 million through the Federal Reserve Bank discount window with posted collateral.  There are currently no borrowings against the Federal Reserve Bank discount window.

COMMON STOCK SUMMARY – Unaudited

			As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(shares in thousands)	2023	2022	2022	2022	2022
Voting common shares outstanding	8,763	8,730	8,793	8,801	8,782
Treasury shares outstanding	(601)	(590)	(575)	(571)	(545)
Total common shares outstanding	8,162	8,140	8,218	8,230	8,237
Tangible book value per common share(5)	$                     8.04	$                     7.67	$                     7.46	$                     7.66	$                     7.98
Stock price:
High	$                     8.80	$                     9.50	$                     9.40	$                     9.85	$                  10.20
Low	$                     6.70	$                     8.60	$                     9.00	$                     9.25	$                     9.75
Period end	$                     7.44	$                     8.72	$                     9.14	$                     9.25	$                     9.85

ASSET QUALITY MEASURES – Unaudited 

	As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Nonperforming Assets
Commercial
Owner occupied RE	$                        80	$                     134	$                     135	$                     140	$                       144
Non-owner occupied RE	–	–	–	–	295
Construction	–	–	–	–	–
Commercial business	278	76	146	81	–
Consumer
Real estate	–	1	2	3	343
Home equity	–	–	–	–	–
Construction	–	–	–	–	–
Other	65	119	130	160	104
Nonaccruing loan modifications	71	143	160	173	190
Total nonaccrual loans	$                     494	$                     473	$                     573	$                     557	$                  1,076
Other real estate owned	–	–	–	–	–
Total nonperforming assets	$                     494	$                     473	$                     573	$                     557	$                  1,076
Nonperforming assets as a percentage of:
Total assets	0.05 %	0.05 %	0.06 %	0.06 %	0.11 %
Total loans receivable	0.07 %	0.07 %	0.09 %	0.09 %	0.18 %
Accruing loan modifications	$                1,381	$                1,151	$                1,312	$                1,349	$                  1,393
	Three Months Ended
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Allowance for Credit Losses
Balance, beginning of period	$                  7,660	$                  7,630	$                  7,494	$                  7,206	$                    7,040
CECL adoption	$                     114	$                          –	$                          –	$                          –	$                            –
Loans charged-off	125	101	76	11	19
Recoveries of loans previously charged-off	23	16	42	189	100
Net charge-offs (recoveries)	102	85	34	(178)	(81)
Provision for loan losses	380	115	170	110	85
Balance, end of period	$                8,052	$                7,660	$                7,630	$                7,494	$                  7,206
Allowance for credit losses to gross loans receivable	1.20 %	1.16 %	1.18 %	1.17 %	1.22 %
Allowance for credit losses to nonaccrual loans	1629.96 %	1619.45 %	1331.59 %	1345.42 %	669.70 %
Footnotes to table located at the end of this release.

 

Our asset quality remained strong through March 31, 2023, with nonperforming assets remaining at $0.5 million, which represents 0.05% of total assets.  The allowance for credit losses as a percentage of total loans receivable increased to 1.20% at March 31, 2023, compared to 1.16% at December 31, 2022.  The allowance for credit losses increased $114 thousand due to the day one entries related to the adoption of CECL in the first quarter of 2023.  The Company had net charge-offs of $102 thousand for the three months ended March 31, 2023, compared to net recoveries of $81 thousand for the same period in 2022.

LOAN COMPOSITION – Unaudited

	As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Commercial real estate	$             401,534	$             391,661	$             378,589	$             368,316	$             334,508
Consumer real estate	156,562	151,533	147,110	142,711	123,908
Commercial and industrial	71,350	69,243	67,200	67,239	66,285
Consumer and other	40,523	48,814	53,735	59,687	67,388
Total loans, net of deferred fees	669,969	661,251	646,634	637,953	592,089
Less allowance for loan losses	8,052	7,660	7,630	7,494	7,206
Total loans, net	$             661,917	$             653,591	$             639,004	$             630,459	$             584,883

DEPOSIT COMPOSITION – Unaudited

	As of
	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
(dollars in thousands)	2023	2022	2022	2022	2022
Noninterest-bearing	$        249,688	$        255,427	$        277,587	$        265,049	$        273,118
Interest-bearing:
DDA and NOW accounts	139,130	152,012	154,550	159,939	168,401
Money market accounts	265,264	221,550	232,711	230,840	217,812
Savings	54,247	65,494	71,929	66,727	61,246
Time, less than $250,000	97,223	80,549	76,530	78,735	84,874
Time, $250,000 and over	31,350	23,152	27,085	29,702	32,212
Total deposits	$        836,902	$        798,184	$        840,392	$        830,992	$        837,663

 

Footnotes to tables:
(1)	Total revenue is the sum of net interest income and noninterest income.
(2)	Annualized for the respective period.
(3)	Noninterest expense divided by the sum of net interest income and noninterest income.
(4)	Includes noninterest-bearing and interest-bearing DDA and NOW accounts.
(5)	The tangible book value per share is calculated as total shareholders’ equity less intangible assets, divided by period-end outstanding common shares.

ABOUT FIRST RELIANCE

Founded in 1999, First Reliance Bancshares, Inc. (OTC: FSRL.OB), is based in Florence, South Carolina and has assets of approximately $1.00 billion. The company employs more than 170 professionals and has locations throughout South Carolina and central North Carolina. First Reliance has redefined community banking with a commitment to making customers’ lives better, its founding principle. Customers of the company have given it a 93% customer satisfaction rating, well above the bank industry average of 81%. First Reliance is also one of two companies throughout South Carolina to receive the Best Places to Work in South Carolina award all 17 years since the program began. We believe that this recognition confirms that our associates are engaged and committed to our brand and the communities we serve. The company offers a full range of personalized community banking products and services for individuals, small businesses, and corporations.  The company also offers a full suite of digital banking services, Treasury Services, a Customer Service Guaranty, a Mortgage Service Guaranty, and First Reliance Wealth Strategies.

FORWARD-LOOKING STATEMENTS

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 credit losses; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit 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, including the value of its MSR asset; (7) the business related to acquisitions 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 acquisitions may not be fully realized within expected timeframes; and (9) disruption from acquisitions may make it more difficult to maintain relationships with clients, associates or suppliers.  Moreover, a trade war or other governmental action related to tariffs or international trade agreements or policies, as well as Covid-19 or other potential epidemics or pandemics, have the potential to negatively impact ours and/or our customers’ costs, demand for our customers’ products, and/or the U.S. economy or certain sectors thereof and, thus, adversely affect our business, financial condition, and results of operations.  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:

Robert Haile

SEVP & Chief Financial Officer

(843) 656-5000

rhaile@firstreliance.com

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SOURCE First Reliance Bancshares