Southern First reports results for first quarter 2020

Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, announced its financial results for the three-month period ended March 31, 2020.

“As we find ourselves in the middle of this COVID-19 pandemic, the focus of our company has shifted to caring for our clients and team and focusing on the changing risk elements of our economy,” stated Art Seaver, the company’s Chief Executive Officer. “While our core earnings were solid, we felt it was prudent to increase our loan loss provision based on the rising unemployment and economic uncertainty in our markets related to COVID-19.”

2020 First Quarter Highlights
Net income of $2.8 million, compared to $6.0 million for Q1 2019
Diluted earnings per common share of $0.36 per share, compared to $0.78 for Q1 2019
Loan loss provision of $6.0 million, compared to $300 thousand for Q1 2019

COVID-19 Update
Payment modifications related to COVID-19 on 428 loans for $380.2 million through Q1 2020
Identification of nine specific targeted industries in order to monitor credit exposure
Active lender in the SBA Paycheck Protection Program (“PPP”)
Offices operating in a drive-thru only mode, as applicable
Approximately 70% of team members working remotely

Net income for the first quarter of 2020 was $2.8 million, a 52.9% decrease over the first quarter of 2019, while net interest income increased 14.4% for the first quarter of 2020 compared to the first quarter of 2019. The increase in net interest income was driven by growth in interest-earning assets, combined with a reduction in interest expense on interest-bearing deposits. In addition, the provision for loan losses increased to $6.0 million for the three months ended March 31, 2020, compared to $300 thousand for the three months ended March 31, 2019. The increased provision during the first quarter of 2020 is driven by the COVID-19 pandemic and qualitative adjustment factors related to the uncertain economic conditions, as well as an increase in past due and non-accrual loans at March 31, 2020.

Noninterest income increased $922 thousand, or 30.8%, during the three months ended March 31, 2020 compared to the three months ended March 31, 2019, driven primarily by higher mortgage banking income as a result of the favorable mortgage rate environment.

Noninterest expense increased $1.7 million, or 16.2%, for the first quarter of 2020 compared to the first quarter of 2019. The increase in noninterest expense during the three-month period ended March 31, 2020 was related primarily to increases in compensation and benefits, occupancy, and data processing and related costs as we continue to expand our footprint in South Carolina, North Carolina, and Georgia. Included in noninterest expense are mortgage banking expenses of $1.8 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively.

Our effective tax rate was 22.2% and 23.6% for the three-month periods ended March 31, 2020 and 2019, respectively.

Net interest income was $18.1 million for the first quarter of 2020, a $465 thousand increase from the fourth quarter of 2019 and a $2.3 million increase from the first quarter of 2019. The increase in net interest income as compared to the fourth quarter of 2019 resulted primarily from growth in our loan portfolio and lower costing deposit balances, partially offset by a reduction in cash and investment securities. The increase in net interest income in the first quarter of 2020, compared to the same period in 2019, was primarily due to loan growth and a reduction in the cost of our interest-bearing deposits. Our net interest margin, on a tax-equivalent basis, was 3.43% for the first quarter of 2020, a two-basis point increase from 3.41% for the fourth quarter of 2019 and a nine-basis point decrease from 3.52% for the first quarter of 2019. Our average interest-earning assets increased by $66.5 million during the first quarter of 2020, compared to the fourth quarter of 2019, resulting in interest income of $23.9 million, with a yield of 4.53%, while our average interest-bearing liabilities increased by $75.4 million, resulting in interest expense of $5.8 million, at a cost of 1.46%. While our average loans grew by $95.5 million during the first quarter of 2020, compared to the fourth quarter of 2019, our average federal funds sold and interest-bearing deposits decreased by $26.5 million during the same period, and the yield on interest-earning assets declined by nine basis points. In addition, our average interest-bearing liabilities, which consist primarily of interest-bearing deposits, increased by $75.4 million, during the first quarter of 2020, compared to the fourth quarter of 2019, and our total cost of funds declined 18 basis points during the same period. With the recent Federal Reserve moves that lowered the federal funds rate by 150 basis points during March 2020, we expect to experience continued pressure on our net interest margin.

Total nonperforming assets increased by $3.1 million to $9.9 million for the first quarter of 2020, compared to the fourth quarter of 2019, which represents 0.42% of total assets, an increase of 12 basis points. The increase in nonperforming assets was primarily a result of $3.2 million of loans added to nonaccrual status, driven by one commercial real estate loan. The allowance for loan losses as a percentage of nonaccrual loans was 226.14% at March 31, 2020, compared to 244.95% at December 31, 2019 and 265.35% at March 31, 2019.

At March 31, 2020, the allowance for loan losses was $22.5 million, or 1.11% of total loans, compared to $16.6 million, or 0.86% of total loans, at December 31, 2019 and $16.1 million, or 0.93% of total loans, at March 31, 2019. Net charge-offs were $180,000, or 0.04% on an annualized basis, for the first quarter of 2020 compared to $256,000, or 0.06% of net charge-offs, annualized, for the fourth quarter of 2019. Net charge-offs were $11,000 for the first quarter of 2019. The provision for loan losses was $6.0 million for the first quarter of 2020 compared to $1.1 million for the fourth quarter of 2019 and $300 thousand for the first quarter of 2019. The increased provision during the first quarter of 2020 is driven by the COVID-19 pandemic and qualitative adjustment factors related to the uncertain economic conditions, as well as an increase in past due and non-accrual loans at March 31, 2020.

As we work to assist clients affected by the pandemic, we are granting loan modifications or deferrals to certain borrowers on a short-term basis of three to six months. As of March 31, 2020, over 400 clients had requested loan payment deferrals or payments of interest only on loans totaling $380.2 million, of which 93.3% were commercial loans. At March 31, 2020, non-performing assets were not yet materially impacted by the economic pressures of COVID-19; however, accruing TDRs increased by $2.9 million due to loan modifications related to three client relationships already experiencing financial difficulty prior to the pandemic. In addition, as we closely monitor credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial clients, we have identified nine portfolios to monitor during this crisis. The table below identifies these segments as well as the outstanding and committed loan balances for each industry.

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 third largest bank headquartered in South Carolina. Southern First Bank has been providing financial services since 1999 and now operates in 13 locations in the Greenville, Columbia, and Charleston markets of South Carolina as well as the Triangle and Triad regions of North Carolina and Atlanta, Georgia. Southern First Bancshares has consolidated assets of approximately $2.4 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