Southern First Reports Results for Second Quarter of 2012

GREENVILLE, SC – July 24, 2012 – Southern First Bancshares, Inc.(NASDAQ: SFST), holding company for Southern First Bank, N.A. (alsodoing business as Greenville First Bank),  announced that net income forthe second quarter of 2012 was $815 thousand compared to $628 thousandfor the second quarter of 2011.

After dividends paid to the USTreasury on preferred stock, net income available to the commonshareholders was $589 thousand compared to $343 thousand for the secondquarter of 2011. For the six months ended June 30, 2012, net income was$1.5 million and net income to common shareholders was $988 thousand. Incomparison, net income for the six months ended June 30, 2011 was $1.2million and the net income to common shareholders was $596thousand. 2012 Strategic Highlights

• Completion of the partial redemption of TARP Capital
• Company exits US Treasury’s TARP program
• Announced plans to expand into Charleston, South Carolina

2012 Second Quarter Operating Highlights

• Net income increased 30% to $815,000 during the 2nd quarter of 2012 compared to the prior year
• Net interest margin for the 2nd quarter of 2012 increased to 3.61% compared to 3.28% in 2011
• Loan balances increased to $618.9 million for the 2nd quarter compared to $578.0 million in June 2011
• Nonperforming assets improved to 1.70% at 2nd quarter 2012 compared to 1.73% in 2011

Partial Repurchase of SFST’s Preferred Shares
On June 27, 2012, the U.S. Treasury sold its preferred stock of thecompany through a public offering structured as a modified Dutchauction. The company bid on a portion of the preferred stock in theauction after receiving approval from its regulators to do so. Theclearing price per share for the preferred shares was $904.00 (comparedto a par value of $1,000.00 per share) and the company was successful inrepurchasing 1,000 shares of the 17,299 shares of preferred stockoutstanding through the auction process. Included in the second quarterof 2012 operating results are approximately $95 thousand of costsincurred by the company related to the offering. These costs are nottax-deductible. The net balance sheet impact was a reduction toshareholders’ equity of $904 thousand which is comprised of a decreasein preferred stock of $1.0 million and a $96 thousand increase toretained earnings related to the discount on the shares repurchased.However, the redemption of the $1.0 million in preferred shares willsave the Company $50,000 annually in dividend expenses.
 
“The partial redemption of our preferred shares sends a powerful messageabout the performance and capital strength of Southern First”,commented Art Seaver, the company’s Chief Executive Officer. “If thecompany’s earnings continue to produce excess capital, redeemingadditional shares of preferred stock could be a strategic option in thefuture.”
 
Company exits US Treasury’s TARP program
Southern First also announced the company’s exit from the US Treasury’sTARP program. As noted above, the US Treasury elected to sell itspreferred shares in the company through a public offering structured as amodified Dutch auction. This auction was successful and resulted in theUS Treasury selling its complete ownership in Southern FirstBancshares. 16,299 shares of preferred stock remain outstanding, none ofwhich are held by the U.S. Treasury. The company’s previously mentionedpartial redemption of preferred shares was executed through thisauction. The company is no longer subject to any restrictions imposed bythe US Treasury under the TARP program. In addition, the Company hasreceived all regulatory approval necessary to repurchase the 399,970.34warrants issued and outstanding from Treasury. The transaction isexpected to close in the third quarter of 2012.
 
“While the restrictions imposed by the government under the TARP programwere relatively minor, we are delighted that the government no longerhas any ownership interest in Southern First’s preferred stock,” Seavercommented.
 
Expansion into Charleston, South Carolina
On July 16, 2012, the company announced its pending expansion intoCharleston, South Carolina with the hiring of Mr. Lenwood Howell asExecutive Vice President and Charleston Regional Executive. Mr. Howellhas over 17 years of banking experience in the Charleston market, mostrecently as market executive for the National Bank of South Carolina(Synovus).
 
“This has been a significant quarter in terms of strategicaccomplishments,” commented Seaver. “We are incredibly excited about theaddition of Len Howell to our team and our pending expansion to theCharleston market. Len Howell is well known by our executive team andhis leadership and 17 year experience in the Charleston market willbring significant value to our company.”
 
Operating Results
“Our second quarter earnings represent the strongest quarterly earningsperformance in over four years” stated Seaver. “The growth of earningassets and expansion of net interest margin have clearly impacted ourearnings momentum.”
 
Net interest margin for the second quarter of 2012 improved to 3.61%from 3.45% for the first quarter of 2012, and increased 33 basis pointsfrom 3.28% for the second quarter of 2011. The net interest margin forthe six months ended June 30, 2012 was 3.53% compared to 3.23% for thesix months ended June 30, 2011. The primary driver of the increased netinterest margin is the $40.9 million growth in loan balances during thepast twelve months, combined with the 51 basis point decrease in thecost of our interest bearing liabilities.
 
During the second quarter of 2012, the company recorded total creditcosts of $1.5 million compared to $1.2 million during the second quarterof 2011. Of the $1.5 million in credit costs, $1.3 million related tothe provision for loan losses while $176 thousand related primarily tothe loss on sale of one property in other real estate owned. Inaddition, loan charge-offs for the quarter were $1.3 million and relatedprimarily to two large commercial loans. Comparatively, the companyrecorded a loan loss provision of $650 thousand and expenses related toreal estate owned of $548 thousand during the same period in 2011. Forthe six months ended June 30, 2012, total credit costs were $2.9million, consisting of a $2.5 million provision for loan losses andexpenses of $454 thousand related to expenses from the sale andmanagement of other real estate owned. Total credit costs were $2.4million during the six months ended June 30, 2011 and related to a $1.4million provision for loan losses and $1.0 million of expenses from thesale and management of other real estate owned. The company’s allowancefor loan losses was $9.1 million, or 1.48%, of loans at June 30, 2012which provides approximately 88% coverage of non-performing loans.
 
Noninterest income was $741 thousand and $618 thousand for the threemonths ended June 30, 2012 and 2011, respectively. For the six monthsended June 30, 2012 and 2011, noninterest income was $1.6 million and$1.2 million, respectively. The increase in noninterest income duringthe three month period is related primarily to increases in income frombank owned life insurance and in rental income. During the six monthperiod of 2012, noninterest income increased due primarily to increasesin loan fee income, service charges on deposit accounts, income frombank owned life insurance, and rental income. In addition, incomederived from mortgage originations is a significant part of ournoninterest income at $169 thousand and $338 thousand for the threemonths and six months ended June 30, 2012, respectively.
 
In addition, our noninterest expense was $4.7 million and $4.9 millionfor the three months ended June 30, 2012 and 2011, respectively.Noninterest expense for the six months ended June 30, 2012 and 2011 was$9.4 milli
on and $9.3 million, respectively. The $200 thousand decreasein noninterest expense during the three month period related primarilyto reduced expenses related to the sale and management of real estateowned and lower insurance costs, partially offset by increases insalaries and benefits expense, occupancy, data processing and relatedcosts, and professional fees. During the six months ended June 30, 2012,noninterest expense increased $112 thousand compared to the prior yeardue to increased salaries and benefits, occupancy, data processing andrelated costs, and professional fees; however, these increases werepartially offset by reduced costs related to the sale and management ofreal estate owned and insurance expenses.
 
Nonperforming assets decreased to $12.9 million, or 1.70%, of totalassets as of June 30, 2012 compared to $13.1 million, or 1.73%, at June30, 2011. Of the $12.9 million in total nonperforming assets as of June30, 2012, nonperforming loans represent $10.4 million and other realestate owned represents $2.5 million. During the second quarter of 2012,the company recorded $1.3 million in net charge-offs, or 0.88% ofaverage loans on an annualized basis. Classified assets remain animprovement from the prior year at 44% of tier 1 capital plus theallowance for loan losses at June 30, 2012, compared to 49% at June 30,2011.
 
Gross loans were $618.9 million as of June 30, 2012 compared to $598.6million at December 31, 2011 and $578.0 million at June 30, 2011. The$20.2 million increase in loan balances during the first six months of2012 was concentrated primarily in residential mortgage loans. Coredeposits increased $32.5 million to $426.6 million at June 30, 2012compared to June 30, 2011. The increase in retail funding continued toenable the company to reduce its wholesale funding by approximately $36million during the last twelve month period. As a result, brokereddeposits now represent only 2.7% of total funding for the bank comparedto 9.2% at June 30, 2011. The company has reduced its brokered depositsby over $200 million since June 2009.
 
Shareholders’ equity totaled $63.2 million as of June 30, 2012, a $2.4million increase from the same period in 2011. With a tier 1 leverageratio of 9.83% and total risk based capital ratio of 13.34%, thecompany’s capital ratios exceed the regulatory requirements for a “wellcapitalized” institution. Tangible common equity increased to 6.24% atJune 30, 2012 from 5.84% at June 30, 2011.

During the third quarter of 2011, the Company determined that it hadbeen accounting for its preferred stock and related discount accretionin error. All amounts and ratios related to preferred stock, discountaccretion, net income (loss) to common shareholders and earnings (loss)per common share have been restated for periods prior to September 30,2011. The error was not material to the interim and annual financialstatements.
 

About Southern First
Southern First Bancshares, Inc., Greenville, South Carolina is aregistered bank holding company incorporated under the laws of SouthCarolina. The Company consists of Southern First Bank, N.A., the 9thlargest bank headquartered in South Carolina; which also does businessas Greenville First Bank, N.A. in Greenville County. Since 1999 SouthernFirst Bancshares has been providing financial services and now operatesin six locations in the Greenville and Columbia markets of SouthCarolina. Southern First Bancshares has assets of approximately $760million and its stock is traded in the NASDAQ Global Market under thesymbol SFST. More information can be found at www.southernfirst.com.