First Reliance Bancshares Reports 3rd Quarter 2022 Results.

FLORENCE, S.C: 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 third quarter of 2022.

Third Quarter 2022 Highlights

Net income for the third quarter of 2022 increased 95.8% to $2.5 million, or $0.31 per diluted share, compared to $1.3 million, or $0.16 per diluted share, for the third quarter of 2021.

Return on average assets increased to 1.06% for September 30, 2022 compared to 0.45% at June 30, 2022 and 0.60% for the third quarter of 2021. Return on average equity increased to 15.60% for September 30, 2022 compared to 6.60% at June 30, 2022 and 7.29% for the third quarter of 2021.

Net interest income for the quarter was $8.2 million, which represents an increase of $0.9 million, or 12.4%, on a linked quarter basis and an increase of $2.0 million, or 31.6% compared to the same period in 2021.

Net interest margin expanded during the quarter to 3.71% at September 30, 2022 compared to 3.39% for the second quarter of 2022.

In the third quarter, $4.9 million of the mortgage servicing right assets were sold for a net gain of $632 thousand.

Total loans increased $8.7 million, or 5.4% annualized, to $646.6 million at September 30, 2022 from $638.0 million at June 30, 2022.

Total deposits increased $9.4 million, or 4.5% annualized, to $840.4 million at September 30, 2022 from $831.0 million at June 30, 2022. This growth was primarily driven by noninterest-bearing deposits and transaction accounts.

The Company had net charge-offs of $34 thousand, or annualized 0.02% of average loans during the quarter compared to net recoveries of $178 thousand, or annualized 0.12% of average loans, for the quarter ended June 30, 2022. Asset quality remains unchanged with nonperforming assets as a percentage of total assets of 0.06% at September 30, 2022 and June 30, 2022.

Cost of funds for the third quarter of 2022 increased to 0.33% from 0.21% on a linked quarter basis and from 0.24% for the same period in 2021.

Rick Saunders, Chief Executive Officer, remarked: "We had another quarter of increased core bank profitability, highlighted by a 32 basis point expansion in Net Interest Margin and improving expense management. In the face of rising interest rates, we have benefited from the strong deposit franchise that our team has cultivated. As we continue to execute our growth strategies, we are committed to ensuring that we remain disciplined in our approach to credit underwriting and pricing."

Financial Summary

Three Months Ended

Nine Months Ended

Sep 30

Jun 30

Mar 31

Dec 31

Sept 30

Sep 30

Sep 30

($ in thousands, except per share data)

2022

2022

2022

2021

2021

2022

2021

Earnings:

Net income available to common shareholders

$ 2,522

$ 1,064

$ 852

$ 932

$ 1,288

$ 4,438

$ 4,344

Earnings per common share, diluted

0.31

0.13

0.11

0.12

0.16

0.55

0.53

Total revenue(1)

11,103

9,404

9,097

9,253

9,570

29,604

29,655

Net interest margin

3.71 %

3.39 %

3.12 %

3.10 %

3.12 %

3.41 %

3.30 %

Return on average assets(2)

1.06 %

0.45 %

0.37 %

0.41 %

0.60 %

0.63 %

0.72 %

Return on average equity(2)

15.60 %

6.60 %

4.85 %

5.28 %

7.29 %

8.91 %

8.34 %

Efficiency ratio(3)

69.40 %

84.49 %

87.50 %

88.45 %

83.83 %

79.76 %

80.98 %

As of

Sep 30

Jun 30

Mar 31

Dec 31

Sept 30

(dollars in thousands)

2022

2022

2022

2021

2021

Balance Sheet:

Total assets

$ 946,437

$ 946,853

$ 953,784

$ 910,797

$ 911,057

Total loans receivable

646,634

637,953

592,089

586,446

564,738

Total deposits

840,392

830,992

837,663

780,833

787,501

Total transaction deposits(4) to total deposits

51.42 %

51.14 %

52.71 %

50.19 %

48.25 %

Loans to deposits

76.94 %

76.77 %

70.68 %

75.11 %

71.71 %

Bank Capital Ratios:

Total risk-based capital ratio

13.47 %

12.97 %

13.67 %

14.07 %

15.80 %

Tier 1 risk-based capital ratio

12.45 %

11.98 %

12.65 %

13.03 %

14.64 %

Tier 1 leverage ratio

9.84 %

9.66 %

9.67 %

9.66 %

10.24 %

Common equity tier 1 capital ratio

12.45 %

11.98 %

12.65 %

13.03 %

14.64 %

Asset Quality Ratios:

Nonperforming assets as a percentage of

total assets

0.06 %

0.06 %

0.11 %

0.10 %

0.15 %

Allowance for loan losses as a percentage of

total loans receivable

1.18 %

1.17 %

1.22 %

1.20 %

1.23 %

Footnotes to table located at the end of this release.

CONDENSED CONSOLIDATED INCOME STATEMENTS - Unaudited

Three Months Ended

Nine Months Ended

Sep 30

Jun 30

Mar 31

Dec 31

Sept 30

Sep 30

($ in thousands, except per share data)

2022

2022

2022

2021

2021

2022

2021

Interest income

Loans

$ 7,555

$ 6,781

$ 6,380

$ 6,663

$ 6,382

$ 20,716

$ 18,623

Investment securities

1,097

840

571

359

294

2,508

844

Other interest income

321

176

73

79

58

570

155

Total interest income

8,973

7,797

7,024

7,101

6,734

23,794

19,622

Interest expense

Deposits

446

212

197

224

257

855

798

Other interest expense

283

252

252

256

213

787

740

Total interest expense

729

464

449

480

470

1,642

1,538

Net interest income

8,244

7,333

6,575

6,621

6,264

22,152

18,084

Provision for loan losses

170

110

85

95

100

365

208

Net interest income after provision for loan

losses

8,074

7,223

6,490

6,526

6,164

21,787

17,876

Noninterest income

Mortgage banking income

1,721

897

1,420

1,407

2,151

4,038

8,124

Service fees on deposit accounts

343

357

362

356

315

1,062

865

Debit card and other service charges,

commissions, and fees

536

559

498

543

532

1,593

1,495

Income from bank owned life insurance

91

89

88

93

94

268

281

Gain on sale of securities, net

-

-

-

-

42

-

81

Gain on sale of loans

-

-

-

-

-

-

326

(Loss) Gain on disposal of fixed assets

(10)

-

10

69

-

(1)

-

Other income

178

168

144

164

172

492

399

Total noninterest income

2,859

2,070

2,522

2,632

3,306

7,452

11,571

Noninterest expense

Compensation and benefits

4,505

5,059

5,079

4,965

5,268

14,642

15,777

Occupancy and equipment

923

890

893

862

784

2,707

2,359

Data processing, technology, and communications

846

789

837

920

852

2,473

2,634

Professional fees

185

180

180

202

234

544

715

Marketing

206

184

74

150

113

464

270

Other

1,040

843

897

1,085

772

2,781

2,259

Total noninterest expense

7,705

7,945

7,960

8,184

8,023

23,611

24,014

Income before provision for income taxes

3,228

1,348

1,052

974

1,447

5,628

5,433

Income tax expense

706

284

200

42

159

1,190

1,089

Net income available to common shareholders

$ 2,522

$ 1,064

$ 852

$ 932

$ 1,288

$ 4,438

$ 4,344

Weighted average common shares - basic

7,777

7,782

7,784

7,785

7,750

7,781

7,737

Weighted average common shares - diluted

8,073

8,094

8,100

8,096

8,084

8,088

8,160

Basic income per common share

$ 0.32

$ 0.14

$ 0.11

$ 0.12

$ 0.17

$ 0.57

$ 0.56

Diluted income per common share

$ 0.31

$ 0.13

$ 0.11

$ 0.12

$ 0.16

$ 0.55

$ 0.53

Net income for the three months ended September 30, 2022 was $2.5 million, or $0.31 per diluted common share, compared to $1.3 million, or $0.16 per diluted common share, for the three months ended September 30, 2021. Net income for the nine months ended September 30, 2022 totaled $4.4 million, or $0.55 per diluted common share, compared to $4.3 million, or $0.53 per diluted common share for the nine months ended September 30, 2021.

Noninterest income for the three months ended September 30, 2022 was $2.9 million, a decrease of $0.4 million from $3.3 million for the same period in 2021. Noninterest income is largely driven by the Company's mortgage banking division, which produced net revenue of $1.7 million during the three months ended September 30, 2022. During the third quarter, the Company sold mortgage servicing rights related to approximately $503.8 million of underlying mortgages for a $0.6 million net gain on sale mortgage servicing rights. Additionally, mortgage sales volume decreased $67.4 million to $56.6 million compared to third quarter 2021 due to the effect of rising mortgage rates.

Noninterest expense for the three months ended September 30, 2022 was $7.7 million, a decrease of $0.3 million from $8.0 million for the same period in 2021. This decrease was primarily driven by a decrease in core bank and mortgage compensation and benefits somewhat offset by an increase in other noninterest expense compared to third quarter 2021.

NET INTEREST INCOME AND MARGIN - Unaudited

For the Three Months Ended

September 30, 2022

September 30, 2021

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

$ 66,503

$ 317

1.89 %

$ 159,307

$ 51

0.13 %

Investment securities

163,843

1,097

2.66 %

55,049

294

2.12 %

Nonmarketable equity securities

522

4

3.61 %

837

7

3.38 %

Loans held for sale

10,073

152

5.98 %

32,181

244

3.01 %

Loans

639,929

7,403

4.59 %

548,028

6,138

4.44 %

Total interest-earning assets

880,870

8,973

4.04 %

795,402

6,734

3.36 %

Allowance for loan losses

(7,570)

(6,764)

Noninterest-earning assets

81,448

75,650

Total assets

$ 954,748

$ 864,288

Liabilities and Shareholders' Equity

Interest-bearing liabilities

NOW accounts

$ 152,444

$ 29

0.08 %

$ 133,577

$ 16

0.05 %

Savings & money market

304,629

321

0.42 %

246,212

101

0.16 %

Time deposits

108,258

95

0.35 %

132,972

140

0.42 %

Total interest-bearing deposits

565,331

445

0.31 %

512,761

257

0.20 %

FHLB advances and other borrowings

11,264

5

0.16 %

19,839

48

0.96 %

Subordinated debentures

25,679

279

4.31 %

18,144

165

3.61 %

Total interest-bearing...