According to Rick Saunders, the Company's Chief Executive Officer, "We continue to see the impact of solid organic growth and acquisitions on earnings.  Core operating earnings for the first quarter of 2018 continued to improve with an increase of 84.4% compared to fourth quarter of 2017.  We remain laser-focused on our business model that outlines our value proposition and have made excellent progress on growing core deposits, market expansion, and customer acquisition."

Several new significant developments have transpired for First Reliance over the past nine months, including:

• raising $25.1 million of additional capital in September 2017;

• Jack McElveen joining the bank in September 2017 as Chief Credit Officer;

• Kemper Kenan joining the bank as City Executive for Greenville, South Carolina in late 2017;

• David Barksdale joining the bank as President of North Carolina and Andy McDowell joining the bank as City Executive for Winston-Salem in early 2018;

• Ben Brazell being named as President of South Carolina in early 2018; and

• receiving regulatory approval to open our Myrtle Beach branch location and hiring Ron Paige as City Executive for the Myrtle Beach market early in the first quarter of 2018.

In addition, we expect to receive regulatory approval to convert the Winston Salem loan production office into a full service branch and will open a loan production office in the Lake Norman area of north Charlotte, North Carolina in the second quarter of 2018.

Acquisition of Independence Bancshares Inc.

On January 22, 2018, we completed the acquisition of Independence Bancshares, Inc. and its subsidiary, Independence National Bank ("Independence").  The systems conversion was completed on March 5, 2018.  This expansion into the attractive Greenville market will continue to broaden our footprint throughout South Carolina.  The acquisition was accounted for under the acquisition method of accounting.  The assets and liabilities of Independence have been recorded at their estimated fair values and added to those of the Company as of the merger date.  Included in the March 31, 2018 consolidated balance sheet were approximately $50.5 million of acquired loans, net of purchase accounting adjustments, $727,654 of recognized goodwill, $828,748 of recognized core deposit intangible asset, and $71.0 million of acquired deposits.  The Company may continue to refine its valuation of acquired assets and liabilities for up to one year following merger date.  Merger related expenses for the acquisition (fourth quarter 2017 and first quarter 2018) totaled $1.2 million. 

Financial Highlights

• Net interest income improved 37.2% at $1.3 million for the three months ended March 31, 2018, compared to the same period of 2017.

• Excluding loans and deposits acquired, loan and deposit growth were $8.0 million and $12.8 million respectively, for the quarter ending March 31, 2018;

• Other real estate owned, or OREO, declined by $945,550 from $1,706,765 to $727,654 due to the sale of parcels during the quarter;

• Total loans increased by $58.5 million as a result of acquired loans of $50.5 million and organic loan growth of $8.0 million;

• Total deposits increased by $83.8 million as a result of acquired deposits acquisition which contributed $71.0 million and organic deposit growth of $12.8 million;

• Non-interest bearing checking accounts increased $14.6 million and comprised 23% of total deposits at March 31, 2018; and

• Net interest margin was 4.30% for the three months ended March 31, 2018, as the Company continued to leverage its low cost of funds of 46 bps.

Review of Income Statement

Net interest income improved 37.2% at $1.3 million for the three months ended March 31, 2018, compared to the same period of 2017.  The increase in net interest income was due principally to growth in earning assets while net interest margins were 4.30% for the three months ended March 31, 2018 compared to 4.26% for the same period 2017.                  

Noninterest income remained steady at $2.4 million for the three months ended March 31, 2018.  Consolidated mortgage production volume increased $4.2 million to $60.3 million for the three months ended March 31, 2018 compared to $56.2 million for the same period 2017.  Fees from retail banking activities were $116,550 for the three months ended March 31, 2018 compared to $235,073 for the same period one year ago.  Fees from correspondent and wholesale mortgage channels were $302,576 for the three months ended March 31, 2018 compared to $503,778 for the same period one year ago. 

Balance Sheet and Asset Quality

Total assets increased $112.3 million, or 26.7% to $532.3 million at March 31, 2018, compared to $420.0 million from March 31, 2017.   

Loans receivable grew by $88.5 million, or 29.3%, to $389.7 million at March 31, 2018, compared to $301.2 million, at March 31, 2017 due to acquired loans totaling $50.5 million and organic loan growth of $38.0 million including commercial portfolios, 1-4 family mortgage portfolios and our consumer loan portfolios.  1-4 family mortgage portfolio loans were up 28%, commercial real estate loans were up 29%, and consumer loans were up 25%, year over year.  Mr. Saunders added, "Continued earning asset growth and yield expansion is our focus throughout 2018 with emphasis on consumer and commercial loans throughout the branch network and commercial loan growth in our new markets which include Winston-Salem, Charlotte, and Myrtle Beach."

Transaction and savings deposits increased by $46.6 million, or 16.9%, to $322.9 million at March 31, 2018, from $276.2 million one year ago.  Household checking accounts increased by 4.5% reflecting our strong year-over-year branch sales growth.  "We continue to improve our products and services involving customer controls of debit card and online banking features and plan to add financial planning, budgeting, and other money management tools to further enhance the exceptional customer experience," said Mr. Saunders.

Nonperforming assets declined $2.3 million to $2.6 million at March 31, 2018 compared to one year ago.  The Company reduced OREO by $1.7 million via third party sales over the past twelve months to $761,215.  The ratio of nonperforming assets to total assets declined to 0.46% at March 31, 2018, compared to 0.80% one year earlier.  The allowance for loan losses as a percentage of loans was 0.62% at March 31, 2018 (adjusted for purchase accounting marks on acquired loans), compared to 0.90% one year earlier.  For the first quarter of 2018, loan charge offs were nominal and largely offset by the bank recoveries. 

Capital

The Company downstreamed $15 million into the Bank in the first quarter 2018.  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.  At March 31, 2018, capital ratios were as follows:

Customers of the bank have given it a 95% customer satisfaction rating for five consecutive years.  First Reliance Bank is also one of three companies throughout South Carolina who have received the Best Places To Work in South Carolina award all twelve years since the program began.  We believe that this recognition confirms that our associates are engaged and committed to the Bank's brand and the communities we serve.