FLORENCE, S.C. -- First Reliance Bancshares, Inc. (OTC: FSRL), the holding company (the "Company") for First Reliance Bank (the "Bank"), reported fourth quarter 2016 pre-tax profits of $1,441,795. This is the 12th consecutive quarter of profitability which continues to be fueled by strong loan and deposit growth, and expanding operating efficiencies. In the fourth quarter of 2016, pre-tax income is up 52.72% compared to $944,100 in the fourth quarter a year ago. Net income totaled $957,216 for the quarter ended December 3 1, 2016. Net income to common shareholders improved 252.38% in the fourth quarter of 2016 to $957,216 or $0.21 per diluted share from $271,491 or $0.14 per diluted share from fourth quarter 2015 as a result of redeeming 100% of the TARP funds in the third quarter of 2016.
"We continue to be successful in growing low cost core deposits which has funded strong loan growth in all our markets allowing us to grow earning assets and positively impact profitability. Our strong performance provides opportunities to increase our brand presence throughout South Carolina with further expansions into the Midlands and Coastal regions. Given that capital markets are responding positively to our industry, we are giving strong consideration to raise additional capital to fund our growth initiatives," said Rick Saunders, President and CEO.
Financial Highlights (at or for the periods ended December 31, 2016, except as noted)
EPS of $0.57 per diluted share for 2016, which includes TARP-Preferred dividends paid through the second quarter of 2016. TARP–Preferred stock was redeemed in the third quarter of 2016. Excluding preferred dividend payments, EPS would have been $0.77 per diluted share for 2016
EPS quarter over quarter improved 10%
Book value per share is $5.75 up 10% from one year ago
Return on Assets of 0.95% and Return on Equity of 14.56%
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 $28 million or 10.9% from one year ago while earning asset yields remained stable at 4.60% showing
Bank sold premises during the 4th quarter totaling $4.5 million with a gain on sale of $652,367
No and Low Cost Deposits increased 6.6% 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 39.10% to $6.5 million in 4Q16 from $4.7 million in 3Q15 reflecting balance sheet growth
Mortgage production volume reached record levels of $327.5 million as of year ending December 31, 2016 compared to $155.8 million one year ago
Net interest margin (NIM) was 4.37% as the Company continues to leverage its low cost of funds at 22bp
Bank total risk based capital ratio improved to 13.03% from 12.5% a quarter earlier and remains well-capitalized
Review of Income Statement
Net interest income decreased to $3.4 million compared to $3.5 million a year ago, largely reflecting increased interest expense of $177,994 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 22bp.
Noninterest income increased 78.15% to $3.2 million for the fourth quarter of 2016, compared to $1.8 million for the fourth quarter 2015. The increase in noninterest income was largely due to the increase in gains on sales of mortgage loans, increased valuations in mortgage servicing rights due to rising interest rates, growth in debit card income, and gains on the sale of bank premises. Mortgage originations from combined retail and correspondent wholesale divisions totaled $327.5 million on 1,698 loans originated as of December 31. 2016 compared to $155.8 million on 824 loans originated one year ago.
Balance Sheet and Asset Quality
Total assets increased $32.8 million, or 8.74% to $408.1 million at December 31, 2016, compared to $375.3 million from December 31, 2015.
Loans grew by $28.3 million, or 10.90%, at December 31, 2016, compared to $259.8 million, at December 31, 2015 largely due to continued growth in all our markets including commercial portfolio, 1-4 family mortgage portfolio and our consumer loan portfolios. 1-4 Family mortgage portfolio loans are up 8.1% year-over-year, commercial and industrial loans are up 9.6%, and Consumer loans are up 34.1 %. "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 $10.9 million, or 6.6%, to $177.9 million at December 31, 2016, from $167 million at December 31, 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. "Customer word of mouth attracts approximately 30% of our new accounts as customers are willing to refer for us. Our indirect auto loans and mortgage business line also have provided growth opportunities to attract new customers to our bank. We've focused on attracting small business customers which has had strong growth as word of mouth has spread about our commitment to our customers and the service they receive. We have expanded our Relationship Banker teams in the Low Country, Midlands and Coastal regions to service and attract new business customers," said Saunders.
Asset quality continues to improve with nonperforming assets, consisting of nonperforming loans, OREO and loans delinquent 90 days or more, declined by $358 thousand to $5.4 million at December 31, 2016 compared to one year ago. The ratio of nonperforming assets to total assets was 1.34% at December 31, 2016, compared to 1.56% one year earlier. The allowance for loan losses as a percentage of loans was 0.90% at December 31, 2016, compared to 0.99% one year earlier. For the fourth quarter of 2016, loan charge offs were nominal and largely offset by the bank recoveries.
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 31, 2016, capital ratios were as follows:
First Reliance's tangible book value was $5.75, at December 31, 2016, up 10% from $5.23, at December 31, 2015. The Company currently trades at 103.3% of book value as of December 31, 2016 and trades on an earnings per share multiple of 10.42 times.
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.
Providing an incredible experience remains the focus of the bank and the customer satisfaction score of 95%, which is well above bank industry satisfaction scores of 80%, is a strong indication of their commitment to excellence. Customer satisfaction in retail banking in today's world is tied to providing a great digital experience backed by personal service. First Reliance continues to enhance its online banking services and will focus on expanding customer payment systems for both consumer and business customers in the upcoming year.
Regional Economic Conditions – February 2017
According to recent reports, South Carolina's economy continued to improve as labor markets and employment grew 1.7% over previous year end, household conditions improved and housing market indicators were up 6.9%, 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:
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.