First Reliance Bancshares, Inc. (OTC:FSRL), the holding company for First Reliance Bank (collectively, "Company" or the "Company"), today announced its financial results for the three-month period ended June 30, 2020.

2020 Second Quarter Highlights

• Pre-tax pre-provision earnings of $6.3 million, a 255.8% increase over Q2 2019;
• Net income for Q2 2020 improved to $3.9 million, a 195.5% increase over Q2 2019;
• Diluted EPS improved to $0.49 per common share, a 206.3% increase over Q2 2019;
• Tangible book value increased 13.6% over Q2 2019 to $7.34;
• Total risk-based capital improved 213 basis points to 13.31% for Q2 2020, compared to 11.18% for Q2 2019;
• Total assets increased 20.2% to $763 million at Q2 2020, compared to $635 million at Q2 2019;
• Cost of funds decreased 49 basis points to 0.63% at Q2 2020, compared to 1.12% for Q2 2019;
• Transaction deposits to total deposits increased to 49.6% at Q2 2020, compared to 38.2% at Q2 2019;
• Completed $5.5 million subordinated debt issuance June 2020 with funds retained at the holding company;
• Net interest margin decreased to 3.55% (decreased to 3.73% excluding PPP loans) for Q2 2020, compared to 4.05% for Q2 2019;
• Provision expense totaled $1.2 million for Q2 2020 compared to $169 thousand for Q2 2019;
• Total loan deferrals outstanding as of Q2 2020 totaled $14.7 million or 2.9% of total loans;
• Asset quality continued to be strong, with nonperforming assets to average assets at 0.21% and past due ratio at 0.34% at Q2 2020;
• Consolidated Charleston market offices and Charlotte market offices;
• Opened Stratford Road branch office in Winston Salem, North Carolina in Q2 2020; and
• Record mortgage revenues of $8.1 million for Q2 2020 compared to $1.8 million for Q2 2019.

"We are extremely pleased to report that First Reliance achieved record-setting net income of $3.9 million, or $0.49 per diluted common share, for the three months ended June 30, 2020. Our financial performance in Q2 2020 positions the Company to continue its successful financial performance from 2019," Rick Saunders, President and CEO of First Reliance said. "This is the best quarter in the Company's 21-year history, showing excellent loan growth, increased capital levels, higher liquidity levels, and record-setting mortgage volumes.

"During Q2 2020, First Reliance recognized record mortgage revenues of $8.1 million compared to $1.8 million during the same period one year ago.  Additionally, we completed the issuance of $5.5 million of subordinated debt to be held at the holding company, with no immediate plans to inject into the Bank. We have strategically slowed loan growth, focusing on diversifying our revenue streams, growing our core deposit base, and eliminating unnecessary expenses.

"The conditions surrounding COVID-19 and the corresponding economic outlook remain uncertain.  While there is much unknown about the economic impact of the pandemic, our Company has reacted by crafting effective response plans and also preparing our balance sheet and our resources for an uncertain future. In order to aid our many business customers in their time of financial hardship, we modified or deferred payments on 414 loans up to 60 days, totaling $82.2 million during Q2 2020. As of June 30, 2020, total loan deferrals had reduced to $14.7 million on 44 loans, which included $12 million on 21 loans on their second deferral. 

"In order to protect our customers and employees during the COVID-19 Pandemic, we again moved to drive-through only on July 17, 2020. We continue to serve our customers through other channels or in person when requested.  In order to protect against economic uncertainty as related to the COVID-19 pandemic, we have performed stress testing on our loan portfolio, as well as capital and liquidity needs. Results indicated no material exposure to industries with an elevated risk to Covid-19 within our loan portfolio. 

"We are proud to have worked throughout the pandemic to meet everyday banking needs, to provide the emergency relief needs of our customers and communities, and to protect our bank as much as possible against economic downturn. We are thankful for the continuing support shown by our customers, communities, and our shareholders."   

Payroll Protection Program ("PPP")

During the quarter, the Company was a participating lender in the Small Business Administration ("SBA") Payroll Protection Program created under the Coronavirus Aid, Relief, and Economic Security Act. The Company directly originated 186 PPP loans totaling $30.2 million. Gross origination fees from the PPP loans that we originated are currently expected to total $1.1 million, based on our current expectations with respect to the eligibility of such PPP loans to qualify for loan forgiveness. During the quarter, the Company recognized $94 thousand of the $1.1 million in estimated fees by originating PPP loans, with the remaining balance expected to be recognized over the next several quarters.

Net income for the three months ended June 30, 2020 was $3.9 million, or $0.49 per diluted common share, compared to $1.3 million, or $0.16 per diluted common share, for the three months ended June 30, 2019. Net Income for the six months ended June 30, 2020 totaled $4.8 million, or $0.59 per diluted common share, compared to $2.0 million, or $0.25 per diluted common share for the six months ended June 20, 2019.

Noninterest income for the three-months ended June 30, 2020 was $7.4 million, a $4.6 million increase from $2.8 million for the same period one-year ago. Noninterest income is largely driven by the Company's mortgage banking division. In the second quarter of 2020, mortgage production volumes reached $223 million as compared with $76 million for the same period one-year ago. The mortgage pipeline remains robust and the Company is projecting volumes for Q3 2020 slightly lower but modestly consistent with second quarter 2020 volumes. "As mortgage rates reached all-time record lows, we saw unprecedented mortgage volume throughout our markets in the second quarter of 2020.  Our mortgage team is working tirelessly to support the demand and help our customers with refinancing their homes, renovations, or new home purchases," said CEO Saunders.

Noninterest expense increased by $396 thousand or 6%, for the second quarter of 2020 compared to the same period one-year ago.  The increase in noninterest expense is attributed to higher mortgage division expenses of $565 thousand over the same period one year ago which contributed to the $4.6 million increase in noninterest income during the second quarter 2020. Expense control continues to be in the forefront of the Company's strategic efforts and measures are being implemented where feasible. During the second quarter 2020, the Company consolidated its Charleston market offices and Charlotte market offices to gain operating efficiencies with continued focus building an infrastructure to support future growth when the pandemic subsides.

Net interest income increased $339 thousand, or 6.2%, to $5.9 million for the three months ended June 30, 2020 compared to $5.5 million for the three months ended June 30, 2019. The increase in net interest income resulted primarily from the growth in our loan portfolio, a significant increase in noninterest bearing deposits, and lower cost deposit balances. The Company continues to reduce its cost of funds which declined to 0.63% as of June 30, 2020 from 1.12% for the same period one year ago. Transaction deposits increased by $87.3 million, to $288.9 million for the second quarter 2020 from $201.5 million one year ago and were aided in part by deposit growth as a result of participating in the Paycheck Protection Program. Despite the growth in net interest income, the net interest margin for the three months ended June 30, 2020 decreased 50 basis points (and decreased 32 basis points excluding PPP loans) to 3.55% from 4.05% for the three months ended June 30, 2019, due primarily from the origination of lower yielding Paycheck Protection Program loans and realizing a full quarterly impact of the 150 basis point decrease in interest rates by the Federal Reserve on variable rate loans. While a low rate environment for an extended period of time will exert margin pressure, the Company has actively managed the balance sheet to minimize the impact on earnings. The Company intentionally reduced its exposure to higher cost deposits and focused on building relationships and growing deposits through core checking account acquisition. Transaction accounts (see footnote No. 5) to total deposits increased to a record high 49.6% for the three-months ended June 30, 2020 compared to 39.2% for the same period one-year ago. The Company continues to experience double-digit growth in commercial deposit accounts and treasury services.  Customers are doing more business overall and seem to like the Company's brand of banking, as reflected in the strong services per household number of 5.8.

Total assets increased 20.2% to $763 million at June 30, 2020, compared to $635 million at June 30, 2019. Total loans grew by $36 million, or 7.7%, to $512 million at June 30, 2020, compared to $476 million for the same period one-year ago due to primarily Paycheck Protection Program loan originations, organic loan growth in our commercial, 1-4 family mortgage and consumer loan portfolios. 

CEO Saunders said, "We are one of the very few community banks strategically positioned for growth in the premier markets in the Carolinas. Because of this potential, our long history and our strong culture, we have attracted new talent from other financial institutions as we aim to take advantage of current market disruptions."

"As our North Carolina presence has grown, we relocated and expanded the Winston-Salem office into a full service branch site in May to position the Company for future growth in the Winston-Salem market. We are also actively looking for branch sites in the Lake Norman and other fast growing markets in the Charlotte MSA. With developing economic uncertainty, current and future market expansion plans will be evaluated prudently." For example, we have moved breaking ground for a new Myrtle Beach branch – Grissom Parkway out a little further into the near future as we continue to monitor the impact COVID-19 has on the economy.

ASSET QUALITY MEASURES - Unaudited

Our asset quality continued to be strong through June 30, 2020, with nonperforming assets declining by $489 thousand to $1.6 million at June 30, 2020 compared to the same date one-year ago. The ratio of nonperforming assets to total assets declined to 0.21% at June 30, 2020, a decrease of 12 basis points compared to June 30, 2019. OREO and repossessed assets remain nominal. The allowance for loan losses as a percentage of loans improved to 0.92% at June 30, 2020 (adjusted for purchase accounting marks on acquired loans), compared to 0.68% one year earlier due primarily to provisioning associated with the anticipated economic impact of the COVID-19 pandemic. "While we have not seen increased delinquencies or any direct impact of COVID-19 to our asset quality, we believe it is prudent to reflect this pandemic in our allowance models. During Q2 2020, we made provisions for loan losses totaling $1.2 million compared to $169 thousand for the same period one year ago. Year to date through June 30, 2020, the Company has funded $1.6 million in provisions for loan losses compared to $296 thousand during the six months of 2019. We are actively performing stress tests on our loan portfolio, monitoring the political and regulatory landscape, and also monitoring COVID-19 hotspots and the impact it may have on the markets we serve. The Company continues to actively monitor loan deferral levels which have declined to $14.7 million or less than 3% of the loan portfolio as of the end of the second quarter 2020 and there has not been any unusual or unforeseen credit line drawdowns to date and no increase in overdraft activity. The Company has minimal exposure to any industry that may have an elevated exposure to Covid-19", said CEO Saunders. Net charge offs remain nominal.

Footnotes to tables:

ABOUT FIRST RELIANCE BANCSHARES

Founded in 1999, First Reliance Bancshares, Inc. (OTC: FSRL.OB), is based in Florence, South Carolina and has assets of approximately $763 million. The Company employs more than 150 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 three companies throughout South Carolina to receive the Best Places To Work in South Carolina award all 15 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. In addition to offering a full range of personalized community banking products and services for individuals, small businesses, and corporations, First Reliance offers two unique community-customers programs, which include: Hometown Heroes, a package of benefits for those serving our communities and Check N Save, an outreach program for the unbanked or under-banked.  We also offer a full suite of digital banking services, a Customer Service Guaranty, a Mortgage Service Guaranty, and are open on most traditional holidays.

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 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; (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.