Southern First Reports Results for Second Quarter of 2010

GREENVILLE, SC – July 20, 2010 – Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, NA (also doing business as Greenville First Bank), today announced that net income for the second quarter of 2010 was $94 thousand compared to $355 thousand for the second quarter of 2009.  The lower net income in the 2010 period is primarily due to an increase of $1.3 million in the provision for loan losses, partially offset by a $1.1 million gain on sale of investments.  After our dividend payment to the US Treasury as preferred shareholder, the net loss to common shareholders for the second quarter of 2010 was $238 thousand.
 
Net income for the six months ended June 30, 2010 was $113 thousand compared to net income of $843 thousand for the first six months in 2009.  Similarly, the decrease in net income is primarily related to the after tax impact of a $2.0 million additional provision for loan losses, partly offset by a $1.1 million gain on sale of investments. 
 
“The company’s performance in the second quarter was in line with our expectations as higher credit costs and higher FDIC insurance premiums continue to negatively impact our earnings,” stated Art Seaver, the company’s CEO. “Our primary focus continues to be managing and reducing the risks in our loan portfolio. Nonperforming loans decreased for the quarter to 2.13% of total loans. However, as a result of an increase in real estate owned, our nonperforming assets ratio at June 30, 2010 increased to 2.40%. Although we believe that our other real estate is fairly valued, the current soft real estate market is a factor in the amount of time it takes to sell these assets,” commented Seaver. Nonperforming assets consisted of $12.3 million of nonperforming loans and $5.5 million of other real estate owned at June 30, 2010. During the first six months of 2010, the company recorded $3.1 million in net charge-offs, or 1.08% on an annualized basis, and increased its provision for loan losses to $3.7 million compared to $1.7 million during the 2009 period. The company’s reserve for loan losses increased to $8.4 million or 1.44% of loans at June 30, 2010.
 
Southern First Bank continues to attract retail deposits at a record pace. Total retail deposits have increased $84.5 million during the first six months of 2010. This pace represents a 49% annualized growth rate in retail deposits. This increase in retail funding enabled the company to reduce its wholesale deposits by over $42 million during the first six months of 2010. “The investments in infrastructure in both our Greenville and Columbia markets have resulted in record new client relationships,” commented Seaver. “Clients continue to respond to the unique ClientFIRST level of service they find at Southern First. With over 75% of the new deposit growth coming from new transaction accounts, we are excited as more clients continue to choose Southern First as their primary bank.” During the second quarter of 2010, the company opened $21.5 million in new core transaction accounts representing a 290% increase over the same period in 2009.

Net interest margin continues to hamper the performance of our company. The higher level of liquidity and higher level of non-performing assets negatively impacted the company’s margin during the second quarter. The company expects improvement over the latter half of 2010 with the focus on improving overall loan yields and lowering deposit costs.

Shareholder’s equity totaled $59.9 million as of June 30, 2010, an increase of 1.0% from the same period in 2009. With a tier 1 leverage ratio of 9.65% and total risk based capital ratio of 13.12%, the company’s capital ratios far exceed the regulatory requirements for a “well capitalized” institution.
 
Total assets were $741.4 million at June 30, 2010, a 0.2% decrease over total assets of $743.1 million at June 30, 2009. Total loans were $572.4 million as of June 30, 2010, a 1.9% increase over loans at June 30, 2009.  Total assets increased 3.1% since December 31, 2009. The modest increase in assets during the first six months is primarily a result of increases in cash of $15.6 million and $5.8 million in loans.  In addition, during the first six months of 2010, our deposits increased $42.2 million.
 
The Company’s book value per common share was $14.23 as of June 30, 2010, while the closing stock price on that day was $7.25 per share.