Southern First Reports Results for Third Quarter 2023

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Oct 19, 2023

PR Newswire

GREENVILLE, S.C., Oct. 19, 2023 /PRNewswire/ -- Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, today announced its financial results for the three-month period ended September 30, 2023.

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"Our team generated improved performance over the prior quarter as evidenced by the growth in book value, general margin stability, capital accretion, and outstanding credit quality," stated Art Seaver, the Company's Chief Executive Officer. "While the monetary policy of the Federal Reserve has increased interest rates dramatically and resulted in a significant decline in loan demand, we are proud of our efforts to grow client relationships and support the needs of our clients and communities."

2023 Third Quarter Highlights

  • Net income was $4.1 million and diluted earnings per common share were $0.51 for Q3 2023
  • Core deposits remained at $2.9 billion at Q3 2023, compared to Q2 2023 and increased 5% from Q3 2022
  • Total loans increased 2% (annualized) to $3.6 billion at Q3 2023, compared to Q2 2023 and increased 17%, from $3.0 billion at Q3 2022
  • Book value per common share increased to $37.57 at Q3 2023, or 4%, over Q3 2022
  • Credit quality remains strong with nonperforming assets to total assets of 0.11% and past due loans to total loans of 0.13% at Q3 2023
  • Net interest margin was 1.97% for Q3 2023, compared to 2.05% for Q2 2023 and 3.19% for Q3 2022
  • Improvement in common equity tier 1 and risk-based capital ratios during Q3 2023, compared to Q2 2023

Quarter Ended

September 30

June 30

March 31

December 31

September 30

2023

2023

2023

2022

2022

Earnings ($ in thousands, except per share data):

Net income available to common shareholders

$

4,098

2,458

2,703

5,492

8,413

Earnings per common share, diluted

0.51

0.31

0.33

0.68

1.04

Total revenue(1)

22,094

21,561

22,468

25,826

28,134

Net interest margin (tax-equivalent)(2)

1.97 %

2.05 %

2.36 %

2.88 %

3.19 %

Return on average assets(3)

0.40 %

0.26 %

0.30 %

0.63 %

1.00 %

Return on average equity(3)

5.35 %

3.27 %

3.67 %

7.44 %

11.57 %

Efficiency ratio(4)

78.31 %

80.67 %

76.12 %

63.55 %

57.03 %

Noninterest expense to average assets (3)

1.69 %

1.82 %

1.89 %

1.87 %

1.92 %

Balance Sheet ($ in thousands):

Total loans(5)

$

3,553,632

3,537,616

3,417,945

3,273,363

3,030,027

Total deposits

3,347,771

3,433,018

3,426,774

3,133,864

3,001,452

Core deposits(6)

2,866,574

2,880,507

2,946,567

2,759,112

2,723,592

Total assets

4,019,957

4,002,107

3,938,140

3,691,981

3,439,669

Book value per common share

37.57

37.42

37.16

36.76

35.99

Loans to deposits

106.15 %

103.05 %

99.74 %

104.45 %

100.95 %

Holding Company Capital Ratios(7):

Total risk-based capital ratio

12.56 %

12.40 %

12.67 %

12.91 %

13.58 %

Tier 1 risk-based capital ratio

10.58 %

10.42 %

10.66 %

10.88 %

11.49 %

Leverage ratio

8.17 %

8.48 %

8.80 %

9.17 %

9.44 %

Common equity tier 1 ratio(8)

10.17 %

10.00 %

10.23 %

10.44 %

11.02 %

Tangible common equity(9)

7.56 %

7.53 %

7.60 %

7.98 %

8.37 %

Asset Quality Ratios:

Nonperforming assets/ total assets

0.11 %

0.08 %

0.12 %

0.07 %

0.08 %

Classified assets/tier one capital plus allowance for credit losses

4.72 %

4.68 %

5.10 %

4.71 %

5.24 %

Loans 30 days or more past due/ loans(5)

0.13 %

0.07 %

0.11 %

0.11 %

0.07 %

Net charge-offs (recoveries)/average loans(5) (YTD annualized)

0.01 %

0.03 %

0.01 %

(0.05 %)

(0.06 %)

Allowance for credit losses/loans(5)

1.16 %

1.16 %

1.18 %

1.18 %

1.20 %

Allowance for credit losses/nonaccrual loans

953.25 %

1,363.11 %

854.33 %

1,470.74 %

1,388.87 %

[Footnotes to table located on page 6]

INCOME STATEMENTS – Unaudited

Quarter Ended

September 30

June 30

March 31

December 31

September 30

(in thousands, except per share data)

2023

2023

2023

2022

2022

Interest income

Loans

$

43,542

41,089

36,748

33,939

29,752

Investment securities

1,470

706

613

562

506

Federal funds sold

2,435

891

969

525

676

Total interest income

47,447

42,686

38,330

35,026

30,934

Interest expense

Deposits

25,130

21,937

17,179

10,329

5,021

Borrowings

2,972

1,924

727

578

459

Total interest expense

28,102

23,861

17,906

10,907

5,480

Net interest income

19,345

18,825

20,424

24,119

25,454

Provision for (reversal of) credit losses

(500)

910

1,825

2,325

950

Net interest income after provision for credit losses

19,845

17,915

18,599

21,794

24,504

Noninterest income

Mortgage banking income

1,208

1,337

622

291

1,230

Service fees on deposit accounts

356

331

325

316

318

ATM and debit card income

588

536

555

558

542

Income from bank owned life insurance

349

338

332

344

315

Other income

248

194

210

198

275

Total noninterest income

2,749

2,736

2,044

1,707

2,680

Noninterest expense

Compensation and benefits

10,231

10,287

10,356

9,576

9,843

Occupancy

2,562

2,518

2,457

2,666

2,442

Outside service and data processing costs

1,744

1,705

1,629

1,521

1,529

Insurance

1,243

897

689

551

507

Professional fees

504

751

660

788

555

Marketing

293

335

366

282

338

Other

725

900

947

1,029

832

Total noninterest expenses

17,302

17,393

17,104

16,413

16,046

Income before provision for income taxes

5,293

3,258

3,539

7,088

11,138

Income tax expense

1,195

800

836

1,596

2,725

Net income available to common shareholders

$

4,098

2,458

2,703

5,492

8,413

Earnings per common share – Basic

$

0.51

0.31

0.34

0.69

1.06

Earnings per common share – Diluted

0.51

0.31

0.33

0.68

1.04

Basic weighted average common shares

8,053

8,051

8,026

7,971

7,972

Diluted weighted average common shares

8,072

8,069

8,092

8,071

8,065

[Footnotes to table located on page 6]

Net income for the third quarter of 2023 was $4.1 million, or $0.51 per diluted share, a $1.6 million increase from the second quarter of 2023 and a $4.3 million decrease from the third quarter of 2022. Net interest income increased $520 thousand for the third quarter of 2023, compared to the second quarter of 2023, and decreased $6.1 million, compared to the third quarter of 2022. The increase in net interest income from the prior quarter was primarily driven by an increase in interest income on loans and federal funds sold. The decrease in net interest income from the prior year was driven primarily by an increase in interest expense on our deposit accounts related to the Federal Reserve's 525-basis point interest rate hikes during the past 19 months.

There was a reversal of the provision for credit losses of $500 thousand for the third quarter of 2023, compared to a provision of $910 thousand for the second quarter of 2023 and a provision of $950 thousand for the third quarter of 2022. The provision reversal during the third quarter of 2023 includes a $100 thousand reversal of the provision for credit losses and a $400 thousand reversal of the reserve for unfunded commitments. The reversal of the provision for credit losses was driven by lower expected loss rates, while the reversal of the reserve for unfunded commitments was driven by a decrease in the balance of unfunded commitments at September 30, 2023, compared to the previous quarter and year.

Noninterest income was $2.7 million for each of the third quarter of 2023, the second quarter of 2023, and the third quarter of 2022. Mortgage banking income continues to be the largest component of our noninterest income at $1.2 million for the third quarter of 2023, $1.3 million for the second quarter of 2023, and $1.2 million for the third quarter of 2022.

Noninterest expense for the third quarter of 2023 was $17.3 million, a $91 thousand decrease from the second quarter of 2023, and a $1.3 million increase from the third quarter of 2022. The decrease in noninterest expense from the previous quarter was driven by decreases in professional fees and other noninterest expenses, while the increase from the prior year related to increases in compensation and benefits, outside service and data processing costs, and insurance expenses. Compensation and benefits expenses increased from the previous year, driven by annual salary increases and the hiring of new team members. Outside service and data processing costs increased due to an increase in software licensing and maintenance costs, while insurance costs increased due to higher FDIC insurance premiums.

Our effective tax rate was 22.6% for the third quarter of 2023, 24.6% for the second quarter of 2023, and 24.5% for the third quarter of 2022. The lower tax rate in the third quarter of 2023 as compared to the previous quarters of 2023 relates primarily to the effect of equity compensation transactions and return to provision differences on our tax rate during the quarter.

NET INTEREST INCOME AND MARGIN - Unaudited

For the Three Months Ended

September 30, 2023

June 30, 2023

September 30,2022

(dollars in thousands)

Average
Balance

Income/
Expense

Yield/
Rate(3)

Average
Balance

Income/
Expense

Yield/
Rate(3)

Average
Balance

Income/
Expense

Yield/
Rate(3)

Interest-earning assets

Federal funds sold and interest-bearing deposits

$ 181,784

$ 2,435

5.31 %

$ 71,004

$ 891

5.03 %

$ 122,071

$ 676

2.20 %

Investment securities, taxable

148,239

1,429

3.82 %

93,922

623

2.66 %

91,462

449

1.95 %

Investment securities, nontaxable(2)

7,799

55

2.77 %

10,200

108

4.24 %

10,160

74

2.89 %

Loans(10)

3,554,478

43,542

4.86 %

3,511,225

41,089

4.69 %

2,941,350

29,752

4.01 %

Total interest-earning assets

3,892,300

47,461

4.84 %

3,686,351

42,711

4.65 %

3,165,043

30,951

3.88 %

Noninterest-earning assets

159,103

155,847

159,233

Total assets

$4,051,403

$3,842,198

$3,324,726

Interest-bearing liabilities

NOW accounts

$ 297,028

620

0.83 %

$ 297,234

537

0.72 %

$ 361,500

178

0.20 %

Savings & money market

1,748,638

16,908

3.84 %

1,727,009

15,298

3.55 %

1,417,181

3,663

1.03 %

Time deposits

648,949

7,602

4.65 %

573,095

6,102

4.27 %

361,325

1,180

1.30 %

Total interest-bearing deposits

2,694,615

25,130

3.70 %

2,597,338

21,937

3.39 %

2,140,006

5,021

0.93 %

FHLB advances and other borrowings