Southern First Reports Results for Second 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 June 30, 2023.

“I am proud of our team’s performance during a volatile quarter for the banking industry,” stated Art Seaver, the Company’s Chief Executive Officer. “It was a strong quarter in terms of new deposit accounts, loan growth, mortgage production, and credit quality. We witnessed margin stabilization in the latter half of the quarter and expect continued momentum in the second half of the year.”

2023 Second Quarter Highlights
• Net income was $2.5 million and diluted earnings per common share were $0.31 for Q2 2023
• Total deposits increased 20% to $3.4 billion at Q2 2023, compared to $2.9 billion at Q2 2022
• Total loans increased 24% to $3.5 billion at Q2 2023, compared to $2.8 billion at Q2 2022
• Book value per common share increased to $37.42 at Q2 2023, or 6%, over Q2 2022
• Credit quality remains strong with nonperforming assets to total assets of 0.08% and past due loans to total loans of 0.07% at Q2 2023
• Core deposits decreased 2% to $2.9 billion at Q2 2023, compared to Q1 2023 and increased 11% from Q2 2022

Net income for the second quarter of 2023 was $2.5 million, or $0.31 per diluted share, a $244 thousand decrease from the first quarter of 2023 and a $4.8 million decrease from the second quarter of 2022. Net interest income decreased $1.6 million for the second quarter of 2023, compared to the first quarter of 2023, and decreased $6.1 million, compared to the second quarter of 2022. The decrease in net interest income from the prior quarter and prior year was driven primarily by an increase in interest expense on our deposit accounts related to the Federal Reserve’s 500-basis point interest rate hikes during the past 16 months.

The provision for credit losses was $910 thousand for the second quarter of 2023, compared to $1.8 million for the first quarter of 2023 and for the second quarter of 2022. The provision expense during the second quarter of 2023 includes a $1.1 million provision for loan losses and a $185 thousand reversal of the reserve for unfunded commitments.

Noninterest income totaled $2.7 million for the second quarter of 2023, a $692 thousand increase from the first quarter of 2023 and an $471 thousand increase from the second quarter of 2022. Mortgage banking income is the largest component of our noninterest income. For the second quarter of 2023, mortgage banking income was $1.3 million, an increase of $715 thousand from the prior quarter income and an $153 thousand increase from the second quarter of 2022.

Noninterest expense for the second quarter of 2023 was $17.4 million, a $288 thousand increase from the first quarter of 2023, and a $1.6 million increase from the second quarter of 2022. The increase in noninterest expense from the previous quarter was driven by increases in insurance expense and professional fees, 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 year, driven by annual salary increases and the hiring of new team members. Occupancy expense increased from the prior year due primarily to increased depreciation and maintenance expense on our new headquarters building, while insurance costs increased from the prior quarter and year due to higher FDIC insurance premiums.

Our effective tax rate was 24.5% for the second quarter of 2023, 23.6% for the first quarter of 2023, and 24.5% for the second quarter of 2022. The higher tax rate in the second quarter of 2023 as compared to the first quarter of 2023 relates primarily to the effect of equity compensation transactions on our tax rate during the quarter.

Net interest income was $18.8 million for the second quarter of 2023, a $1.6 million decrease from the first quarter of 2023, driven by a $6.0 million increase in interest expense, partially offset by a $4.4 million increase in interest income, on a taxable basis. The increase in interest expense was driven by $88.9 million growth in average interest-bearing deposit balances at an average rate of 3.39%, a 61-basis points increase over the previous quarter, partially offset by $176.7 million growth in average loan balances at an average yield of 4.69%, an increase of 22-basis points from the first quarter of 2023. In comparison to the second quarter of 2022, net interest income decreased $6.1 million, resulting primarily from $662.5 million growth in average interest-bearing deposit balances during the 12 months ended June 30, 2023, combined with a 301-basis point increase in deposit rates. Our net interest margin, on a tax-equivalent basis, was 2.05% for the second quarter of 2023, a 31-basis point decrease from 2.36% for the first quarter of 2023 and a 130-basis point decrease from 3.35% for the second quarter of 2022. As a result of the Federal Reserve’s 500-basis point interest rate hikes during the past 12 months, the rate on our interest-bearing liabilities has increased by 299-basis points during the second quarter of 2023 in comparison to the second quarter of 2022. However, the yield on our interest-earning assets, driven by our loan portfolio, has increased by only 99-basis points during the same time period, resulting in the lower net interest margin during the second quarter of 2023.

Total nonperforming assets decreased by $1.7 million during the second quarter of 2023, representing 0.08% of total assets, compared to 0.12% in the first quarter of 2023. The decrease in nonperforming assets during the second quarter of 2023 results primarily from two commercial loans that were sold and one commercial loan returning to accrual status. In addition, our classified asset ratio decreased to 4.68% for the second quarter of 2023 from 5.10% in the first quarter of 2023 and from 7.29% in the second quarter of 2022.

On June 30, 2023, the allowance for credit losses was $41.1 million, or 1.16% of total loans, compared to $40.4 million, or 1.18% of total loans, at March 31, 2023, and $34.2 million, or 1.20% of total loans, at June 30, 2022. We had net charge-offs of $425 thousand, or 0.03% annualized, for the second quarter of 2023, compared to net charge-offs of $59 thousand for the first quarter of 2023 and net charge-offs of $277 thousand for the second quarter of 2022. There was a provision for credit losses of $1.1 million for the second quarter of 2023, compared to a provision of $1.9 million for the first quarter of 2023 and a provision of $1.5 million for the second 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 $4.0 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,” “preliminary”, “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; (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 have increased and may continue to 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.