Southern First Reports Results for Second Quarter 2023

Greenville, South Carolina, July 25, 2023 - 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, 2023.

"I am proud of our team's performance during a volatile quarter for the banking industry," stated Art Seaver, the Company's Chief Executive Officer. "It was a strong quarter in terms of new deposit accounts, loan growth, mortgage production, and credit quality. We witnessed margin stabilization in the latter half of the quarter and expect continued momentum in the second half of the year."

2023 Second Quarter Highlights

● Net income was $2.5 million and diluted earnings per common share were $0.31 for Q2 2023
● Total deposits increased 20% to $3.4 billion at Q2 2023, compared to $2.9 billion at Q2 2022
● Total loans increased 24% to $3.5 billion at Q2 2023, compared to $2.8 billion at Q2 2022
● Book value per common share increased to $37.42 at Q2 2023, or 6%, over Q2 2022
● Credit quality remains strong with nonperforming assets to total assets of 0.08% and past due loans to total loans of 0.07% at Q2 2023
● Core deposits decreased 2% to $2.9 billion at Q2 2023, compared to Q1 2023 and increased 11% from Q2 2022
Quarter Ended
June 30 March 31 December 31 September 30 June 30
2023 2023 2022 2022 2022
Earnings ($ in thousands, except per share data):
Net income available to common shareholders $ 2,458 2,703 5,492 8,413 7,240
Earnings per common share, diluted 0.31 0.33 0.68 1.05 0.90
Total revenue(1) 21,561 22,468 25,826 28,134 27,149
Net interest margin (tax-equivalent)(2) 2.05% 2.36% 2.88% 3.19% 3.35%
Return on average assets(3) 0.26% 0.30% 0.63% 1.00% 0.92%
Return on average equity(3) 3.27% 3.67% 7.44% 11.57% 10.31%
Efficiency ratio(4) 80.67% 76.12% 63.55% 57.03% 58.16%
Noninterest expense to average assets (3) 1.82% 1.89% 1.87% 1.92% 2.02%
Balance Sheet ($ in thousands):
Total loans(5) $ 3,537,616 3,417,945 3,273,363 3,030,027 2,845,205
Total deposits 3,433,018 3,426,774 3,133,864 3,001,452 2,870,158
Core deposits(6) 2,880,507 2,946,567 2,759,112 2,723,592 2,588,283
Total assets 4,002,107 3,938,140 3,691,981 3,439,669 3,287,663
Book value per common share 37.42 37.16 36.76 35.99 35.39
Loans to deposits 103.05% 99.74% 104.45% 100.95% 99.13%
Holding Company Capital Ratios(7):
Total risk-based capital ratio 12.38% 12.67% 12.91% 13.58% 13.97%
Tier 1 risk-based capital ratio 10.40% 10.66% 10.88% 11.49% 11.83%
Leverage ratio 8.48% 8.80% 9.17% 9.44% 9.71%
Common equity tier 1 ratio(8) 9.99% 10.23% 10.44% 11.02% 11.33%
Tangible common equity(9) 7.53% 7.60% 7.98% 8.37% 8.60%
Asset Quality Ratios:
Nonperforming assets/ total assets 0.08% 0.12% 0.07% 0.08% 0.09%
Classified assets/tier one capital plus allowance for credit losses 4.68% 5.10% 4.71% 5.24% 7.29%
Loans 30 days or more past due/ loans(5) 0.07% 0.11% 0.11% 0.07% 0.10%
Net charge-offs (recoveries)/average loans(5) (YTD annualized) 0.03% 0.01% (0.05%) (0.06%) 0.02%
Allowance for credit losses/loans(5) 1.16% 1.18% 1.18% 1.20% 1.20%
Allowance for credit losses/nonaccrual loans 1,363.11% 854.33% 1,470.74% 1,388.87% 1,166.70%

[Footnotes to table located on page 6]

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income statements- Unaudited

Quarter Ended
June 30 March 31 December 31 September 30 June 30
(in thousands, except per share data) 2023 2023 2022 2022 2022
Interest income
Loans $ 41,089 36,748 33,939 29,752 26,610
Investment securities 706 613 562 506 448
Federal funds sold 891 969 525 676 180
Total interest income 42,686 38,330 35,026 30,934 27,238
Interest expense
Deposits 21,937 17,179 10,329 5,021 1,844
Borrowings 1,924 727 578 459 510
Total interest expense 23,861 17,906 10,907 5,480 2,354
Net interest income 18,825 20,424 24,119 25,454 24,884
Provision for credit losses 910 1,825 2,325 950 1,775
Net interest income after provision for credit losses 17,915 18,599 21,794 24,504 23,109
Noninterest income
Mortgage banking income 1,337 622 291 1,230 1,184
Service fees on deposit accounts 331 325 316 318 327
ATM and debit card income 536 555 558 542 548
Income from bank owned life insurance 338 332 344 315 315
Loss on disposal of fixed assets - - - - (394)
Other income 194 210 198 275 285
Total noninterest income 2,736 2,044 1,707 2,680 2,265
Noninterest expense
Compensation and benefits 10,287 10,356 9,576 9,843 9,915
Occupancy 2,518 2,457 2,666 2,442 2,219
Outside service and data processing costs 1,705 1,629 1,521 1,529 1,528
Insurance 897 689 551 507 367
Professional fees 751 660 788 555 693
Marketing 335 366 282 338 329
Other 900 947 1,029 832 737
Total noninterest expenses 17,393 17,104 16,413 16,046 15,788
Income before provision for income taxes 3,258 3,539 7,088 11,138 9,586
Income tax expense 800 836 1,596 2,725 2,346
Net income available to common shareholders $ 2,458 2,703 5,492 8,413 7,240
Earnings per common share - Basic $ 0.31 0.34 0.69 1.06 0.91
Earnings per common share - Diluted 0.31 0.33 0.68 1.04 0.90
Basic weighted average common shares 8,051 8,026 7,971 7,972 7,945
Diluted weighted average common shares 8,069 8,092 8,071 8,065 8,075

[Footnotes to table located on page 6]

Net income for the second quarter of 2023 was $2.5 million, or $0.31 per diluted share, a $244 thousand decrease from the first quarter of 2023 and a $4.8 million decrease from the second quarter of 2022. Net interest income decreased $1.6 million for the second quarter of 2023, compared to the first quarter of 2023, and decreased $6.1 million, compared to the second quarter of 2022. The decrease in net interest income from the prior quarter and prior year was driven primarily by an increase in interest expense on our deposit accounts related to the Federal Reserve's 500-basis point interest rate hikes during the past 16 months.

The provision for credit losses was $910 thousand for the second quarter of 2023, compared to $1.8 million for the first quarter of 2023 and for the second quarter of 2022. The provision expense during the second quarter of 2023 includes a $1.1 million provision for loan losses and a $185 thousand reversal of the reserve for unfunded commitments.

Noninterest income totaled $2.7 million for the second quarter of 2023, a $692 thousand increase from the first quarter of 2023 and an $471 thousand increase from the second quarter of 2022. Mortgage banking income is the largest component

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of our noninterest income. For the second quarter of 2023, mortgage banking income was $1.3 million, an increase of $715 thousand from the prior quarter income and an $153 thousand increase from the second quarter of 2022.

Noninterest expense for the second quarter of 2023 was $17.4 million, a $288 thousand increase from the first quarter of 2023, and a $1.6 million increase from the second quarter of 2022. The increase in noninterest expense from the previous quarter was driven by increases in insurance expense and professional fees, while the increase from the prior year related to increases in compensation and benefits, occupancy, and insurance expenses. Compensation and benefits expense increased from the previous year, driven by annual salary increases and the hiring of new team members. Occupancy expense increased from the prior year due primarily to increased depreciation and maintenance expense on our new headquarters building, while insurance costs increased from the prior quarter and year due to higher FDIC insurance premiums.

Our effective tax rate was 24.5% for the second quarter of 2023, 23.6% for the first quarter of 2023, and 24.5% for the second quarter of 2022. The higher tax rate in the second quarter of 2023 as compared to the first quarter of 2023 relates primarily to the effect of equity compensation transactions on our tax rate during the quarter.

Net interest income and margin- Unaudited

For the Three Months Ended
June 30, 2023 March 31, 2023 June 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 $ 71,004 $ 891 5.03% $ 85,966 $ 969 4.57% $ 80,909 $ 180 0.89%
Investment securities, taxable 93,922 623 2.66% 87,521 530 2.46% 98,527 404 1.64%
Investment securities, nontaxable(2) 10,200 108 4.24% 10,266 106 4.21% 10,382 56 2.16%
Loans(10) 3,511,225 41,089 4.69% 3,334,530 36,748 4.47% 2,795,274 26,610 3.82%
Total interest-earning assets 3,686,351 42,711 4.65% 3,518,283 38,353 4.42% 2,985,092 27,250 3.66%
Noninterest-earning assets 155,847 161,310 154,659
Total assets $3,842,198 $3,679,593 $3,139,751
Interest-bearing liabilities
NOW accounts $ 297,234 537 0.72% $ 303,176 440 0.59% $ 389,563 144 0.15%
Savings & money market 1,727,009 15,298 3.55% 1,661,878 11,992 2.93% 1,267,174 1,200 0.38%
Time deposits 573,095 6,102 4.27% 543,425 4,747 3.54% 278,101 500 0.72%
Total interest-bearing deposits 2,597,338 21,937 3.39% 2,508,479 17,179 2.78% 1,934,838 1,844 0.38%
FHLB advances and other borrowings 135,922 1,382 4.08% 18,243 200 4.45% 53,179 105 0.79%
Subordinated debentures 36,251 542 6.00% 36,224 527 5.90% 36,143 405 4.49%
Total interest-bearing liabilities 2,769,511 23,861 3.46% 2,562,946 17,906 2.83% 2,024,160 2,354 0.47%
Noninterest-bearing liabilities 771,388 818,123 833,943
Shareholders' equity 301,299 298,524 281,648
Total liabilities and shareholders' equity $3,842,198 $3,679,593 $3,139,751
Net interest spread 1.19% 1.59% 3.19%
Net interest income (tax equivalent) / margin $18,850 2.05% $20,447 2.36% $24,896 3.35%
Less:tax-equivalent adjustment(2) 25 23 12
Net interest income $18,825 $20,424 $24,884

[Footnotes to table located on page 6]

Net interest income was $18.8 million for the second quarter of 2023, a $1.6 million decrease from the first quarter of 2023, driven by a $6.0 million increase in interest expense, partially offset by a $4.4 million increase in interest income, on a taxable basis. The increase in interest expense was driven by $88.9 million growth in average interest-bearing deposit balances at an average rate of 3.39%, a 61-basis points increase over the previous quarter, partially offset by $176.7 million growth in average loan balances at an average yield of 4.69%, an increase of 22-basis points from the first quarter of 2023. In comparison to the second quarter of 2022, net interest income decreased $6.1 million, resulting primarily from $662.5 million growth in average interest-bearing deposit balances during the 12 months ended June 30, 2023, combined with a 301-basis point increase in deposit rates. Our net interest margin, on a tax-equivalent basis, was 2.05% for the second quarter of 2023, a 31-basis point decrease from 2.36% for the first quarter of 2023 and a 130-basis point decrease from 3.35% for the second

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quarter of 2022. As a result of the Federal Reserve's 500-basis point interest rate hikes during the past 12 months, the rate on our interest-bearing liabilities has increased by 299-basis points during the second quarter of 2023 in comparison to the second quarter of 2022. However, the yield on our interest-earning assets, driven by our loan portfolio, has increased by only 99-basis points during the same time period, resulting in the lower net interest margin during the second quarter of 2023.

Balance sheets- Unaudited

Ending Balance
June 30 March 31 December 31 September 30 June 30
(in thousands, except per share data) 2023 2023 2022 2022 2022
Assets
Cash and cash equivalents:
Cash and due from banks $ 24,742 22,213 18,788 16,530 21,090
Federal funds sold 170,145 242,642 101,277 139,544 124,462
Interest-bearing deposits with banks 10,183 7,350 50,809 4,532 36,538
Total cash and cash equivalents 205,070 272,205 170,874 160,606 182,090
Investment securities:
Investment securities available for sale 91,548 94,036 93,347 91,521 98,991
Other investments 12,550 10,097 10,833 5,449 5,065
Total investment securities 104,098 104,133 104,180 96,970 104,056
Mortgage loans held for sale 15,781 6,979 3,917 9,243 18,329
Loans (5) 3,537,616 3,417,945 3,273,363 3,030,027 2,845,205
Less allowance for credit losses (41,105) (40,435) (38,639) (36,317) (34,192)
Loans, net 3,496,511 3,377,510 3,234,724 2,993,710 2,811,013
Bank owned life insurance 51,791 51,453 51,122 50,778 50,463
Property and equipment, net 96,964 97,806 99,183 99,530 96,674
Deferred income taxes 12,356 12,087 12,522 18,425 15,078
Other assets 19,536 15,967 15,459 10,407 9,960
Total assets $ 4,002,107 3,938,140 3,691,981 3,439,669 3,287,663
Liabilities
Deposits $ 3,433,018 3,426,774 3,133,864 3,001,452 2,870,158
FHLB Advances 180,000 125,000 175,000 60,000 50,000
Subordinated debentures 36,268 36,241 36,214 36,187 36,160
Other liabilities 51,307 50,775 52,391 54,245 48,708
Total liabilities 3,700,593 3,638,790 3,397,469 3,151,884 3,005,026
Shareholders' equity
Preferred stock - $.01 par value; 10,000,000 shares authorized - - - - -
Common Stock - $.01 par value; 10,000,000 shares authorized 81 80 80 80 80
Nonvested restricted stock (4,051) (4,462) (3,306) (3,348) (3,230)
Additional paid-in capital 120,912 120,683 119,027 118,433 117,714
Accumulated other comprehensive loss (12,710) (11,775) (13,410) (14,009) (10,143)
Retained earnings 197,282 194,824 192,121 186,629 178,216
Total shareholders' equity 301,514 299,350 294,512 287,785 282,637
Total liabilities and shareholders' equity $ 4,002,107 3,938,140 3,691,981 3,439,669 3,287,663
Common Stock
Book value per common share $ 37.42 37.16 36.76 35.99 35.39
Stock price:
High 31.34 45.05 49.50 47.16 50.09
Low 21.33 30.70 41.46 41.66 42.25
Period end 24.75 30.70 45.75 41.66 43.59
Common shares outstanding 8,058 8,048 8,011 7,997 7,986

[Footnotes to table located on page 6]

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Asset quality measures- Unaudited

Quarter Ended
June 30 March 31 December 31 September 30 June 30
(dollars in thousands) 2023 2023 2022 2022 2022
Nonperforming Assets
Commercial
Non-owner occupied RE $ 754 1,384 247 253 981
Commercial business 137 1,196 182 79 -
Consumer
Real estate 1,053 1,075 1,099 904 552
Home equity 1,072 1,078 1,099 1,379 1,398
Total nonaccrual loans 3,016 4,733 2,627 2,615 2,931
Other real estate owned - - - - -
Total nonperforming assets $ 3,016 4,733 2,627 2,615 2,931
Nonperforming assets as a percentage of:
Total assets 0.08% 0.12% 0.07% 0.08% 0.09%
Total loans 0.09% 0.14% 0.08% 0.09% 0.10%
Classified assets/tier 1 capital plus allowance for credit losses 4.68% 5.10% 4.71% 5.24% 7.29%
Quarter Ended
June 30 March 31 December 31 September 30 June 30
(dollars in thousands) 2023 2023 2022 2022 2022
Allowance for Credit Losses
Balance, beginning of period $ 40,435 38,639 36,317 34,192 32,944
Loans charged-off (440) (161) - - (316)
Recoveries of loans previously charged-off 15 102 22 1,600 39
Net loans (charged-off) recovered (425) (59) 22 1,600 (277)
Provision for credit losses 1,095 1,855 2,300 525 1,525
Balance, end of period $ 41,105 40,435 38,639 36,317 34,192
Allowance for credit losses to gross loans 1.16 % 1.18 % 1.18 % 1.20 % 1.20 %
Allowance for credit losses to nonaccrual loans 1,363.11 % 854.33 % 1,470.74 % 1,388.87 % 1,166.70 %
Net charge-offs to average loans QTD (annualized) 0.03 % 0.01 % 0.00 % (0.22 %) 0.04 %

Total nonperforming assets decreased by $1.7 million during the second quarter of 2023, representing 0.08% of total assets, compared to 0.12% in the first quarter of 2023. The decrease in nonperforming assets during the second quarter of 2023 results primarily from two commercial loans that were sold and one commercial loan returning to accrual status. In addition, our classified asset ratio decreased to 4.68% for the second quarter of 2023 from 5.10% in the first quarter of 2023 and from 7.29% in the second quarter of 2022.

On June 30, 2023, the allowance for credit losses was $41.1 million, or 1.16% of total loans, compared to $40.4 million, or 1.18% of total loans, at March 31, 2023, and $34.2 million, or 1.20% of total loans, at June 30, 2022. We had net charge-offs of $425 thousand, or 0.03% annualized, for the second quarter of 2023, compared to net charge-offs of $59 thousand for the first quarter of 2023 and net charge-offs of $277 thousand for the second quarter of 2022. There was a provision for credit losses of $1.1 million for the second quarter of 2023, compared to a provision of $1.9 million for the first quarter of 2023 and a provision of $1.5 million for the second quarter of 2022.

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LOAN COMPOSITION - Unaudited

Quarter Ended
June 30 March 31 December 31 September 30 June 30
(dollars in thousands) 2023 2023 2022 2022 2022
Commercial
Owner occupied RE $ 613,874 615,094 612,901 572,972 551,544
Non-owner occupied RE 951,536 928,059 862,579 799,569 741,263
Construction 115,798 94,641 109,726 85,850 84,612
Business 511,719 495,161 468,112 419,312 389,790
Total commercial loans 2,192,927 2,132,955 2,053,318 1,877,703 1,767,209
Consumer
Real estate 1,047,904 993,258 931,278 873,471 812,130
Home equity 185,584 180,974 179,300 171,904 161,512
Construction 61,044 71,137 80,415 77,798 76,878
Other 50,157 39,621 29,052 29,151 27,476
Total consumer loans 1,344,689 1,284,990 1,220,045 1,152,324 1,077,996
Total gross loans, net of deferred fees 3,537,616 3,417,945 3,273,363 3,030,027 2,845,205
Less-allowance for credit losses (41,105) (40,435) (38,639) (36,317) (34,192)
Total loans, net $ 3,496,511 3,377,510 3,234,724 2,993,710 2,811,013

DEPOSIT COMPOSITION - Unaudited

Quarter Ended
June 30 March 31 December 31 September 30 June 30
(dollars in thousands) 2023 2023 2022 2022 2022
Non-interest bearing $ 698,084 740,534 804,115 791,050 799,169
Interest bearing:
NOW accounts 308,762 303,743 318,030 357,862 364,189
Money market accounts 1,692,900 1,748,562 1,506,418 1,452,958 1,320,329
Savings 36,243 39,706 40,673 42,335 41,944
Time, less than $250,000 114,691 106,679 89,877 79,387 62,340
Time and out-of-market deposits, $250,000 and over 582,338 487,550 374,751 277,860 282,187
Total deposits $ 3,433,018 3,426,774 3,133,864 3,001,452 2,870,158
Footnotes to tables:
(1) Total revenue is the sum of net interest income and noninterest income.
(2) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.
(3) Annualized for the respective three-month period.
(4) Noninterest expense divided by the sum of net interest income and noninterest income.
(5) Excludes mortgage loans held for sale.
(6) Excludes out of market deposits and time deposits greater than $250,000.
(7) June 30, 2023 ratios are preliminary.
(8) The common equity tier 1 ratio is calculated as the sum of common equity divided by risk-weighted assets.

(9) The tangible common equity ratio is calculated as total equity less preferred stock divided by total assets.

(10) Includes mortgage loans held for sale.

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 second 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 $4.0 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.

FORWARD-LOOKING STATEMENTS

Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements are identified by words such as "believe," "expect," "anticipate," "estimate," "preliminary", "intend," "plan," "target," "continue," "lasting," and "project," as well as similar expressions. Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-

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looking information should not be construed as a representation by our company or any person that the future events, plans, or expectations contemplated by our company will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which the company conducts operations may be different than expected; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan and deposit growth as well as pricing of each product, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (4) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, changes affecting oversight of the financial services industry or consumer protection; (5) the impact of changes to Congress on the regulatory landscape and capital markets; (6) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could continue to have a negative impact on the company; (7) changes in interest rates, which may continue to affect the company's net income, interest expense, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of the company's assets, including its investment securities; (8) elevated inflation which causes adverse risk to the overall economy, and could indirectly pose challenges to our clients and to our business; (9) any increase in FDIC assessments which have increased and may continue to increase our cost of doing business; and (10) changes in accounting principles, policies, practices, or guidelines. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC's Internet site (http://www.sec.gov). All subsequent written and oral forward-looking statements concerning the company or any person acting on its behalf is expressly qualified in its entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

FINANCIAL & MEDIA CONTACT:

ART SEAVER 864-679-9010

WEB SITE: www.southernfirst.com

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Southern First Bancshares Inc. published this content on 25 July 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 July 2023 13:03:04 UTC.