Southern First Bancshares : Reports Results for 2020

Southern First Reports 2020 Financial Results

Greenville, South Carolina, January 26, 2021 - Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, today announced its financial results for three-monthperiod and year ended December 31, 2020.

"While 2020 was a year of unprecedented challenges, I am incredibly proud of our team as they embraced our mission of 'impacting lives' in this pandemic environment," stated Art Seaver, the company's Chief Executive Officer. "We continue to add talented bankers as we expand our footprint, and we are excited to announce our first team in the Charlotte, North Carolina market."

2020 Fourth Quarter Highlights

• Net income of $8.6 million, compared to $7.2 million for Q4 2019
• Diluted earnings per common share of $1.10 per share, compared to $0.92 for Q4 2019
• Net interest margin of 3.55%, compared to 3.41% for Q4 2019
• Loan loss provision of $2.3 million, compared to $1.1 million for Q4 2019
• Announced expansion into Charlotte, North Carolina market

COVID-19 Update

• 96% of loan modifications, or $570.8 million, have returned to original payment status
• Monitoring loans within two targeted industries which represent $128.8 million, or 6%, of total loans

				Quarter Ended
		December 31	September 30	June 30	March 31	December 31
		2020	2020	2020	2020	2019
Earnings ($ in thousands, except per share data):
Net income available to common shareholders	$	8,601	2,217	4,678	2,832	7,198
Earnings per common share, diluted		1.10	0.28	0.60	0.36	0.92
Total revenue(1)		27,947	28,221	28,981	22,014	21,136
Net interest margin (tax-equivalent)(2)		3.55%	3.52%	3.42%	3.43%	3.41%
Return on average assets(3)		1.38%	0.36%	0.77%	0.51%	1.32%
Return on average equity(3)		15.51%	4.03%	8.78%	5.42%	14.18%
Efficiency ratio(4)		52.04%	50.26%	43.63%	56.20%	51.92%
Noninterest expense to average assets (3)		2.36%	2.34%	2.09%	2.23%	2.01%
Balance Sheet ($ in thousands):
Total loans(5)	$	2,142,867	2,078,540	2,036,801	2,030,261	1,943,525
Total deposits		2,142,758	2,181,056	2,188,643	2,025,698	1,876,124
Core deposits(6)		2,011,903	2,011,919	1,991,005	1,804,027	1,656,005
Total assets		2,482,587	2,479,411	2,482,295	2,372,249	2,267,195
Loans to deposits		100.01%	95.30%	93.06%	100.23%	103.59%
Holding Company Capital Ratios(7):
Total risk-based capital ratio		14.40%	14.15%	13.76%	13.59%	13.73%
Tier 1 risk-based capital ratio		11.99%	11.73%	11.37%	11.29%	11.63%
Leverage ratio		9.70%	9.47%	9.38%	10.00%	10.10%
Common equity tier 1 ratio(8)		11.34%	11.07%	10.72%	10.63%	10.94%
Tangible common equity(9)		9.20%	8.82%	8.71%	8.87%	9.08%
Asset Quality Ratios:
Nonperforming assets/ total assets		0.37%	0.42%	0.36%	0.42%	0.30%
Classified assets/tier one capital plus allowance for loan losses		8.18%	7.00%	7.51%	7.99%	7.93%
Loans 30 days or more past due		0.17%	0.26%	0.40%	0.60%	0.23%
Net charge-offs/average loans(5) (YTD annualized)		0.10%	0.11%	0.12%	0.04%	0.08%
Allowance for loan losses/loans(5)		2.06%	2.03%	1.55%	1.11%	0.86%
Allowance for loan losses/nonaccrual loans		547.14%	482.43%	350.74%	226.14%	244.95%

[Footnotes to table located on page 7]

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COVID-19 IMPACT

The COVID-19 pandemic has resulted in uncertain economic conditions across the globe, significantly impacting our business and that of many of our clients during 2020. As we progress through the pandemic, the majority of our team has returned to working in the office at this time; however, we maintain the ability to shift to working remotely as needed. Our offices continue to operate in a drive-thru only mode with "in-person" client meetings available by appointment to maintain the safety of our team and our clients. This strategy, combined with our digital technology, has been extremely effective in serving our clients.

Beginning late in the first quarter of 2020, we began granting loan modifications or deferrals to certain borrowers affected by the pandemic on a short-term basis of three to six months. As of December 31, 2020, substantially all of these loans have reached the end of their deferral period and have begun to resume normal payments.

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 two industries considered to be at higher risk for credit loss. The table below identifies the outstanding and committed loan balances for each of these industries. Of the $128.8 million of loans modified in these industries as of December 31, 2020, 95% have begun to resume normal payments.

								December 31, 2020
								% Past
	#	Balance	% of Total	Total	%	Deferral	%	Due 30	% on
	Loans	Modified	Deferral	Days or
(dollars in thousands)	Loans	Outstanding	Outstanding	Balance	Modified	Complete	Complete	More	Nonaccrual
Hotels	24	$ 115,620	5.4%	$ 61,643	53.3%	$ 53,643	87.0%	-%	-%
Restaurants	56	13,184	0.6%	5,291	40.1%	5,116	96.7%	-%	-%
Total	80	$ 128,804	6.0%	$ 66,934	52.0%	$ 85,759	87.8%	-%	-%

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INCOME STATEMENTS - Unaudited

				Quarter Ended
		Dec 31	Sept 30	Jun 30	Mar 31	Dec 31
(in thousands, except per share data)		2020	2020	2020	2020	2019
Interest income
Loans	$	23,171	23,042	23,554	23,367	23,124
Investment securities		325	310	384	396	438
Federal funds sold		51	63	53	103	334
Total interest income		23,547	23,415	23,991	23,866	23,896
Interest expense
Deposits		1,861	2,393	3,627	5,174	5,771
Borrowings		383	385	590	594	492
Total interest expense		2,244	2,778	4,217	5,768	6,263
Net interest income		21,303	20,637	19,774	18,098	17,633
Provision for loan losses		2,300	11,100	10,200	6,000	1,050
Net interest income after provision for loan losses		19,003	9,537	9,574	12,098	16,583
Noninterest income
Mortgage banking income		5,064	6,277	5,776	2,668	2,181
Service fees on deposit accounts		190	211	197	262	260
ATM and debit card income		483	465	394	398	441
Income from bank owned life insurance		281	270	270	270	281
Gain on sale of securities, net		-	-	-	-	719
Loss on extinguishment of debt		-	-	(37)	-	(1,496)
Net lender fees on PPP loan sale		-	-	2,247	-	-
Other income		626	361	360	318	1,117
Total noninterest income		6,644	7,584	9,207	3,916	3,503
Noninterest expense
Compensation and benefits		6,836	6,666	6,394	6,390	5,762
Mortgage production costs		3,057	2,666	2,368	1,807	1,719
Occupancy		1,596	1,601	1,496	1,533	1,425
Other real estate owned expenses		550	673	-	-	(22)
Outside service and data processing costs		1,052	1,046	1,055	1,070	1,002
Insurance		385	377	298	320	70
Professional fees		501	395	475	400	366
Marketing		146	165	86	230	168
Other		421	594	472	622	483
Total noninterest expenses		14,544	14,183	12,644	12,372	10,973
Income before provision for income taxes		11,103	2,938	6,137	3,642	9,113
Income tax expense		2,502	721	1,459	810	1,915
Net income available to common shareholders	$	8,601	2,217	4,678	2,832	7,198
Earnings per common share - Basic	$	1.11	0.29	0.61	0.37	0.94
Earnings per common share - Diluted		1.10	0.28	0.60	0.36	0.92
Basic weighted average common shares		7,741	7,732	7,722	7,679	7,608
Diluted weighted average common shares		7,836	7,815	7,819	7,827	7,811

[Footnotes to table located on page 7]

Twelve Months Ended

December 31

2020 2019

93,133 88,928

1,415 2,102

270 1,622

94,818 92,652

13,055 23,730

1,953 1,653

15,008 25,383

79,810 67,269

29,600 2,300

50,210 64,969

19,785 9,923

860 1,061

1,741 1,728

1,091 1,001

• 727

1. (1,496)
   2,247 -
   1,666 2,039

27,353 14,983

26,287 23,826

9,898 6,436

6,226 5,513

1,223 (26)

4,223 3,782

1,380 813

1,771 1,327

628 791

2,108 2,011

53,744 44,473

23,819 35,479

5,491 7,621

18,328 27,858

2.37 3.70

2.34 3.58

7,719 7,528

7,824 7,773

Net income for the fourth quarter of 2020 was $8.6 million, or $1.10 per diluted share, a $6.4 million increase from the third quarter of 2020 and a $1.4 million increase from the fourth quarter of 2019. For the year ended December 31, 2020, net income was $18.3 million, a decrease of 34.2% over the year ended December 31, 2019, driven primarily by the increase in provision for loan losses.

Net interest income increased $666 thousand for the fourth quarter of 2020, compared with the third quarter of 2020, and increased $3.7 million, or 20.8%, compared to the fourth quarter of 2019, which primarily reflects a reduction in deposit costs over each prior period. Net interest income for the year ended December, 31 2020 increased 18.6% compared with the year ended December, 31 2019, reflecting an increase in loan balances and a reduction in deposit costs from the prior year.

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The provision for loan losses decreased to $2.3 million for the fourth quarter of 2020, compared to $11.1 million for the third quarter and $1.1 million for the fourth quarter of 2019. The provision for loan losses totaled $29.6 million for the year ended December, 31 2020 compared to $2.3 million for the year ended December 31, 2019. The increased provision for the year ended December 31, 2020 was driven by qualitative adjustment factors related to the uncertain economic and business conditions at both the national and regional levels that remain at December 31, 2020. Factors such as the continued impact on the tourism and hospitality industries due to the pandemic, an increase in permanent job losses, and uncertainty in the political realm have driven this increase.

Noninterest income totaled $6.6 million for the fourth quarter of 2020, a $940 thousand decrease from the third quarter of 2020 and a $3.1 million increase from the fourth quarter of 2019. 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.

Noninterest expense for the fourth quarter of 2020 increased $361 thousand compared with the third quarter of 2020 and increased $3.6 million compared with the fourth quarter of 2019. The increases were due primarily to higher compensation and benefits expense, mortgage production costs and other real estate owned expenses.

Our effective tax rate was 22.5% for the fourth quarter of 2020, 24.5% for the third quarter of 2020, and 21.0% for the fourth quarter of 2019. The lower tax rate this quarter relates to the favorable tax impact of stock option transactions during the quarter.

NET INTEREST INCOME AND MARGIN - Unaudited

												For the Three Months Ended
		December 31, 2020		September 30, 2020			December 31, 2019
		Average	Income/	Yield/		Average	Income/	Yield/		Average	Income/	Yield/
(dollars in thousands)		Balance	Expense	Rate(3)		Balance	Expense	Rate(3)		Balance	Expense	Rate(3)
Interest-earning assets
Federal funds sold and interest-bearing
deposits	$	112,473	$	51	0.18%	$	162,092	$	63	0.15%	$	72,563	$	334	1.83%
Investment securities, taxable		83,260		273	1.30%		77,365		261	1.34%		69,712		417	2.37%
Investment securities, nontaxable(2)		9,311		68	2.89%		7,136		64	3.55%		3,249		27	3.33%
Loans(10)	2,182,619	23,171	4.22%	2,088,746	23,042	4.39%	1,908,067		23,124	4.81%
Total interest-earning assets	2,387,663	23,563	3.93%	2,335,339	23,430	3.99%	2,053,591		23,902	4.62%
Noninterest-earning assets		90,519					104,065					115,686
Total assets	$2,478,182				$2,439,404				$2,169,277
Interest-bearing liabilities
NOW accounts	$	276,780		42	0.06%	$	264,786		50	0.08%	$	221,248		169	0.30%
Savings & money market	1,058,573		903	0.34%	1,021,850		1,176	0.46%		927,734		3,799	1.62%
Time deposits		260,579		916	1.40%		296,186		1,167	1.57%		326,615		1,803	2.19%
Total interest-bearing deposits	1,595,932		1,861	0.46%	1,582,822		2,393	0.60%	1,475,597		5,771	1.55%
FHLB advances and other borrowings		272		-	-		-		-	-		6,420		46	2.78%
Subordinated debentures		35,981		383	4.23%		35,954		385	4.26%		35,896		446	4.93%
Total interest-bearing liabilities	1,632,185		2,244	0.55%	1,618,776		2,778	0.68%	1,517,913		6,263	1.64%
Noninterest-bearing liabilities		625,422					601,896					450,025
Shareholders' equity		220,575					218,732					201,339
Total liabilities and shareholders'
equity	$2,478,182				$2,439,404				$2,169,277
Net interest spread					3.38%					3.31%					2.98%
Net interest income (tax equivalent) /
margin			$21,319	3.55%			$20,652	3.52%			$	17,639	3.41%
Less: tax-equivalent adjustment(2)				16					15					6
Net interest income			$21,303				$20,637				$	17,633

[Footnotes to table located on page 7]

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