Southern First reports results for second quarter 2022

July 26, 2022

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, 2022.

“I am incredibly proud of the Southern First team as they generated significant new client relationships and record loan growth for the second quarter,” stated Art Seaver, the company’s Chief Executive Officer. “During this time of high inflation, rising interest rates, and the resulting transition in housing and mortgage, our team’s efforts resulted in strong performance with solid growth in net interest income and book value.”

2022 Second Quarter Highlights

Net income was $7.2 million and diluted earnings per common share were $0.90 for Q2 2022
Net interest income increased 16.1% to $24.9 million at Q2 2022, compared to $21.4 million at Q2 2021
Total loans increased 26% to $2.8 billion at Q2 2022, compared to $2.3 billion at Q2 2021
Total deposits increased 24% to $2.9 billion at Q2 2022, compared to $2.3 billion at Q2 2021
Book value per common share increased to $35.39, or 11%, over Q2 2021
Completed move to new headquarters in Greenville, South Carolina
Net income for the second quarter of 2022 was $7.2 million, or $0.90 per diluted share, a $731 thousand decrease from the first quarter of 2022 and a $3.1 million decrease from the second quarter of 2021. The decrease in net income was driven by an increase in noninterest expenses, as well as an increased provision for credit losses and a decrease in mortgage banking income. Net interest income increased $1.7 million, or 7.4%, for the second quarter of 2022, compared with the first quarter of 2022, and increased $3.5 million, or 16.1%, compared to the second quarter of 2021. The increase in net interest income was driven by $184.5 million of loan growth during the second quarter of 2022.

The provision for credit losses was $1.8 million for the second quarter of 2022, compared to $1.1 million for the first quarter of 2022 and a negative provision of $1.9 million for the second quarter of 2021. The provision expense during the second quarter of 2022, calculated under the new CECL methodology, includes a $1.5 million provision for loan losses and a $250,000 provision for unfunded commitments, compared to a reversal in the provision during the second quarter of 2022 as the economy showed improvement after the onset of the pandemic.

Noninterest income totaled $2.3 million for the second quarter of 2022, a $662 thousand decrease from the first quarter of 2022 and a $1.4 million decrease from the second quarter of 2021. As the largest component of our noninterest income, mortgage banking income was the driving factor in the change in noninterest income from the prior quarter and the prior year due to lower mortgage origination volume during the past 12 months. In addition, we recorded a loss on disposal of assets during the second quarter of 2022 as we completed construction and relocated to our new headquarters building in Greenville, South Carolina.

Noninterest expense for the second quarter of 2022 was $15.8 million, or a $1.1 million increase from the first quarter of 2022, and a $2.3 million increase from the second quarter of 2021. Compensation and benefits expense increased from the prior periods due to hiring of new team members, combined with annual salary increases, while occupancy expense increased from the prior quarter and prior year due to costs associated with the relocation of our headquarters. Our insurance costs increased during the second quarter of 2022 related to higher FDIC insurance premiums, while the increase in professional fees related to higher legal, consulting and appraisal fees.

Our effective tax rate was 24.5% for the second quarter of 2022, 22.6% for the first quarter of 2022, and 23.3% for the second quarter of 2021. The higher tax rate in the second quarter of 2022 relates to the lesser impact of equity compensation transactions on our tax rate during the quarter.

Net interest income was $24.9 million for the second quarter of 2022, a $1.7 million increase from the first quarter of 2022, resulting primarily from a $2.8 million increase in interest income, on a tax-equivalent basis, partially offset by a $1.1 million increase in interest expense. The increase in interest income was driven by $221.3 million growth in average loan balances at an average rate of 3.82%, five basis points higher than the previous quarter. In comparison to the second quarter of 2021, net interest income increased $3.5 million, resulting primarily from $555.0 million growth in average loan balances during the 2022 period, despite a 19-basis point decrease in loan yield. Our net interest margin, on a tax-equivalent basis, was 3.35% for the second quarter of 2022, a two-basis point decrease from 3.37% for the first quarter of 2022, and a 15-basis point decrease from 3.50% for the second quarter of 2021. Reduced rates on our interest-earning assets, combined with higher costs on our interest-bearing liabilities, resulted in the lower net interest margin during the second quarter of 2022 in comparison to the second quarter of 2021.

Total nonperforming assets decreased by $1.6 million to $2.9 million for the second quarter of 2022, representing 0.09% of total assets, compared to 0.15% in the first quarter of 2022. The allowance for credit losses as a percentage of nonaccrual loans was 1,166.7% on June 30, 2022, compared to 726.9% on March 31, 2022 and 619.5% on June 30, 2021. During the second quarter of 2022, our classified asset ratio improved to 7.29%. The improvement over the second quarter of 2021 was primarily the result of five, or $14.1 million in the aggregate, hotel loans we upgraded from substandard during the first quarter of 2022.

Effective January 1, 2022, we early adopted the Current Expected Credit Loss (“CECL”) methodology for estimating credit losses, which resulted in an increase of $1.5 million to our allowance for credit losses and an increase of $2.0 million to our reserve for unfunded commitments. The tax-effected impact of these two items totaled $2.8 million and was recorded as an adjustment to our retained earnings as of January 1, 2022.

On June 30, 2022, the allowance for credit losses was $34.2 million, or 1.20% of total loans, compared to $32.9 million, or 1.24% of total loans, at March 31, 2022, and $41.9 million, or 1.86% of total loans, at June 30, 2021. We had net charge-offs of $277 thousand, or 0.04% annualized, for the second quarter of 2022 compared to net recoveries of $11 thousand for the first quarter of 2022. Net recoveries were $313 thousand for the second quarter of 2021. There was a provision for credit losses of $1.5 million for the second quarter of 2022 compared to a provision of $1.0 million for the first quarter of 2022 and a reversal of $1.9 million for the second quarter of 2021.

 

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 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 $3.3 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.