Southern First Reports Results for First Quarter 2023

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Greenville, South Carolina – Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, today announced its financial results for the three-month period ended March 31, 2023.

“While the current interest rate environment continues to be challenging in terms of margin and earnings, we are excited about the outstanding retail deposit growth and record number of client accounts opened during the first quarter of 2023,” stated Art Seaver, the Company’s Chief Executive Officer. “We continue to enjoy strong momentum in attracting new clients and recruiting great bankers, which will have a lasting impact on the performance of our Company.”

2023 First Quarter Highlights
-Net income was $2.7 million and diluted earnings per common share were $0.33 for Q1 2023
-Total deposits increased 27% to $3.4 billion at Q1 2023, compared to $2.7 billion at Q1 2022
-Total loans increased 28% to $3.4 billion at Q1 2023, compared to $2.7 billion at Q1 2022
-Book value per common share increased to $37.16 at Q1 2023, or 6%, over Q1 2022
-Record number of new account openings during Q1 2023

Net income for the first quarter of 2023 was $2.7 million, or $0.33 per diluted share, a $2.8 million decrease from the fourth quarter of 2022 and a $5.3 million decrease from the first quarter of 2022. Net interest income decreased $3.7 million for the first quarter of 2023, compared to the fourth quarter of 2022, and decreased $2.7 million, compared to the first quarter of 2022. The decrease in net interest income from the prior quarter and prior year was driven by an increase in interest expense on our deposit accounts related to the Federal Reserve’s 475-basis point interest rate hikes during the past 12 months.

The provision for credit losses was $1.8 million for the first quarter of 2023, compared to $2.3 million for the fourth quarter of 2022 and $1.1 million for the first quarter of 2022. The provision expense during the first quarter of 2023, calculated under the Current Expected Credit Loss (“CECL”) methodology adopted effective January 1, 2022, includes a $1.9 million provision for loan losses and a $30 thousand reversal of the reserve for unfunded commitments.

Noninterest income totaled $2.0 million for the first quarter of 2023, a $337 thousand increase from the fourth quarter of 2022 and an $883 thousand decrease from the first quarter of 2022. Mortgage banking income has typically been the largest component of our noninterest income; however, lower mortgage origination volume during the past 12 months, combined with our strategy to keep a larger percentage of these loans in our portfolio, has impacted our profitability. Consequently, mortgage banking income was $622 thousand for the first quarter of 2023, an increase of $331 thousand from the prior quarter income and an $872 thousand decrease from the first quarter of 2022.

Noninterest expense for the first quarter of 2023 was $17.1 million, a $691 thousand increase from the fourth quarter of 2022, and a $2.4 million increase from the first quarter of 2022. The increase in noninterest expense from the previous quarter was driven by increases in compensation and benefits, outside service and data processing costs, and insurance expense, while the increase from the prior year related to increases in compensation and benefits, occupancy, and insurance expenses. Compensation and benefits expense increased from the previous quarter and year, driven by annual salary increases, hiring of new team members, and higher benefits expense. Occupancy expense increased from the prior year due to costs associated with the construction and relocation of our headquarters, while insurance costs increased from the prior quarter and year due to higher FDIC insurance premiums.

Our effective tax rate was 23.6% for the first quarter, an increase from 22.5% for the fourth quarter of 2022 and from 22.6% for the first quarter of 2022. The higher tax rate in the first quarter of 2023 relates to the effect of equity compensation transactions on our tax rate during the quarter.

Net interest income was $20.4 million for the first quarter of 2023, a $3.7 million decrease from the fourth quarter of 2022, driven by a $7.0 million increase in interest expense, partially offset by a $3.3 million increase in interest income, on a taxable basis. The increase in interest expense was driven by $229.5 million growth in average interest-bearing deposit balances at an average rate of 2.78%, a 98-basis points increase over the previous quarter, partially offset by $169.5 million growth in average loan balances at a yield of 4.47%, an increase of 22-basis points from the fourth quarter of 2022. In comparison to the first quarter of 2022, net interest income decreased $2.7 million, resulting primarily from $701.5 million growth in average interest-bearing deposit balances during the 13 months ended March 31, 2023, combined with a 258-basis point increase in deposit rates. Our net interest margin, on a tax-equivalent basis, was 2.36% for the first quarter of 2023, a 52-basis point decrease from 2.88% for the fourth quarter of 2022 and a 101-basis point decrease from 3.37% for the first quarter of 2022. As a result of the Federal Reserve’s 475-basis point interest rate hikes during the past 12 months, the rate on our interest-bearing liabilities has increased by 255-basis points during the first quarter of 2023 in comparison to the first quarter of 2022. However, the yield on our interest-earning assets, driven by our loan portfolio, has increased by only 86-basis points during the same time period, resulting in the lower net interest margin during the first quarter of 2023.

Total nonperforming assets increased by $2.1 million during the first quarter of 2023, representing 0.12% of total assets, compared to 0.07% in the fourth quarter of 2023. The increase in nonperforming assets during the first quarter of 2023 results primarily from three commercial loans that went on nonaccrual status. In addition, our classified asset ratio increased to 5.10% for the first quarter of 2023 from 4.71% in the fourth quarter of 2022 and decreased from 7.83% in the first quarter of 2022. The improvement from the first quarter of 2022 was primarily the result of six hotel loans, or $18.5 million in the aggregate, we upgraded from substandard during the prior year.

On March 31, 2023, the allowance for credit losses was $40.4 million, or 1.18% of total loans, compared to $38.6 million, or 1.18% of total loans, at December 31, 2022, and $32.9 million, or 1.24% of total loans, at March 31, 2022. We had net charge-offs of $59 thousand, or 0.01% annualized, for the first quarter of 2023, compared to net recoveries of $22 thousand for the fourth quarter of 2022 and net recoveries of $11 thousand for the first quarter of 2022. There was a provision for credit losses of $1.9 million for the first quarter of 2023, compared to a provision of $2.3 million for the fourth quarter of 2022 and a provision of $1.0 million for the first quarter of 2022.

ABOUT SOUTHERN FIRST BANCSHARES
Southern First Bancshares, Inc., Greenville, South Carolina is a registered bank holding company incorporated under the laws of South Carolina. The company’s wholly owned subsidiary, Southern First Bank, is the second largest bank headquartered in South Carolina. Southern First Bank has been providing financial services since 1999 and now operates in 12 locations in the Greenville, Columbia, and Charleston markets of South Carolina as well as the Charlotte, Triangle and Triad regions of North Carolina and Atlanta, Georgia. Southern First Bancshares has consolidated assets of approximately $3.9 billion and its common stock is traded on The NASDAQ Global Market under the symbol “SFST.” More information can be found at
www.southernfirst.com.

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 are identified by words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “continue,” “lasting,” and “project,” 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 our company or any person that the future events, plans, or expectations contemplated by our 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 the company conducts operations may be different than expected; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan and deposit growth as well as pricing of each product, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, changes affecting oversight of the financial services industry or consumer protection; (5) the impact of changes to Congress on the regulatory landscape and capital markets; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could continue to have a negative impact on the company; (7) changes in interest rates, which may continue to affect the company’s net income, interest expense, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of the company’s assets, including its investment securities; and (8) elevated inflation which causes adverse risk to the overall economy, and could indirectly pose challenges to our clients and to our business; (9) any increase in FDIC assessments which will increase our cost of doing business; and (10) changes in accounting principles, policies, practices, or guidelines. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov). All subsequent written and oral forward-looking statements concerning the company or any person acting on its behalf is expressly qualified in its 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, except as required by law.