Southern First Reports Results for Third Quarter 2020

Greenville, South Carolina, October 27, 2020 – Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, today announced its financial results for the three- and nine-month period ended September 30, 2020.

“I am proud of our team’s performance in this COVID environment. Our team of bankers has generated excellent loan growth, maintained our margin, and closed record volume of mortgage originations,” stated Art Seaver, the company’s Chief Executive Officer.

2020 Third Quarter Highlights
• Net income of $2.2 million, compared to $7.4 million for Q3 2019
• Diluted earnings per common share of $0.28 per share, compared to $0.95 for Q3 2019
• Loan loss provision of $11.1 million, compared to $650 thousand for Q3 2019

COVID-19 Update
• Payment modifications on 864 loans totaling $626.7 million as of September 30, 2020
o 68% of loan modifications, or $423.8 million, have returned to original payment status
• Loans within nine targeted industries represent 39% of total loan modifications as of September 30, 2020
o 64% of target industry modifications, or $157.3 million, have returned to original payment status
• Modified loans completing payment deferral period projected to total 89% by October 31, 2020
• Modified loans with remaining payment deferrals projected to be 3% of total loans by October 31, 2020
• Consolidation and sale of two Columbia, South Carolina offices complete

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, and has created an opportunity for us to consolidate our three Columbia, South Carolina offices into one location. The sale of the two Columbia office buildings was completed on October 9, 2020.

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 September 30, 2020, our clients had requested loan payment deferrals or payments of interest-only on 864 loans totaling $626.7 million, of which 91% were commercial loans. As of September 30, 2020, 68% of these loans have reached the end of their deferral period and have begun to resume normal payments. In addition, we expect 89% of modified loans to resume normal payment status by October 31, 2020. While our non-performing assets increased during the third quarter of 2020, the increase was not primarily driven by the economic pressures of COVID-19. Instead, the increase related to clients that were experiencing financial difficulty before the pandemic. In addition, our loans past due 30 days or more declined during the third quarter, with commercial loans representing 0.08% and consumer loans representing 0.18% of past due loans.

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 nine loan categories in targeted industries to monitor during this crisis. The table below identifies these segments as well as the outstanding and committed loan balances for each industry. Of the $244.4 million of loans modified in these categories as of September 30, 2020, 64% have begun to resume normal payments.

Net income for the third quarter of 2020 was $2.2 million, or $0.28 per diluted share, a $2.5 million decrease from the second quarter of 2020 and a $5.2 million decrease from the third quarter of 2019. For the nine months ended September 30, 2020, net income was $9.7 million, a decrease of 52.9% over the nine months ended September 30, 2019.

Net interest income increased $863 thousand for the third quarter of 2020, compared with the second quarter of 2020, and increased $3.4 million, or 19.4%, compared to the third quarter of 2019, which primarily reflects a reduction in deposit costs over each prior period. Net interest income for the first nine months of 2020 increased 17.9% compared with the first nine months of 2019, reflecting an increase in loan balances and a reduction in deposit costs from the prior year.

The provision for loan losses increased to $11.1 million for the third quarter of 2020, compared to $10.2 million for the second quarter and $650 thousand for the third quarter of 2019. The provision for loan losses totaled $27.3 million for the first nine months of 2020 compared to $1.25 million for the first nine months of 2019. The increased provision during the third quarter of 2020 was driven by qualitative adjustment factors related to the uncertain economic and business conditions at both the national and regional levels at September 30, 2020, 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.

Noninterest income totaled $7.6 million for the third quarter of 2020, a $1.6 million decrease from the second quarter of 2020, which was driven by net SBA lender fee income of $2.2 million received on PPP loans originated and then sold to a third party during the second quarter, partially offset by an increase in mortgage banking income. Noninterest income increased by $3.2 million from the third quarter of 2019 also due to an increase in mortgage banking income resulting from the continued favorable mortgage rate environment.

Noninterest expense for the third quarter of 2020 increased $1.5 million compared with the second quarter of 2020 and increased $2.7 million compared with the third quarter of 2019. The increases were due primarily to higher compensation and benefits expense related to mortgage banking, occupancy costs and other real estate owned expenses.

Our effective tax rate was 24.5% for the third quarter of 2020, 23.8% for the second quarter of 2020, and 22.3% for the third quarter of 2019. The higher tax rate this quarter relates to the favorable tax impact of stock option transactions in the prior periods.

Net interest income was $20.6 million for the third quarter of 2020, an $863 thousand increase from the second quarter of 2020. Interest income, on a tax-equivalent basis, decreased by $574 thousand due primarily to lower average loan balances, while interest expense decreased by $1.4 million driven by lower deposit costs. In comparison to the third quarter of 2019, net interest income increased $3.4 million due to higher loan balances and lower deposit costs, partially offset by lower yields on interest-earning assets and a higher subordinated debt balance. Our net interest margin, on a tax-equivalent basis, was 3.52% for the third quarter of 2020, a 10-basis point increase from 3.42% for the second quarter of 2020 and a 16-basis point increase from 3.36% for the third quarter of 2019. Lower deposit costs offset the lower loan yield during the third quarter of 2020, having a positive impact on our net interest margin.

Total nonperforming assets increased by $1.4 million to $10.4 million for the third quarter of 2020, representing 0.42% of total assets, compared to the second quarter of 2020, an increase of six basis points. The increase in nonperforming assets was primarily a result of $4.3 million of loans added to nonaccrual during the third quarter of 2020, of which $3.2 million related to three client relationships. In addition, $2.0 million of nonaccrual loans paid off and $2.2 million of loans were transferred to other real estate owned during the third quarter of 2020. The allowance for loan losses as a percentage of nonaccrual loans was 482.43% at September 30, 2020, compared to 350.74% at June 30, 2020 and 225.50% at September 30, 2019.

At September 30, 2020, the allowance for loan losses was $42.2 million, or 2.03% of total loans, compared to $31.6 million, or 1.55% of total loans, at June 30, 2020 and $15.8 million, or 0.86% of total loans, at September 30, 2019. Net charge-offs were $483 thousand, or 0.09% on an annualized basis, for the third quarter of 2020 compared to $1.1 million, or 0.20% of net charge-offs, annualized, for the second quarter of 2020. Net charge-offs were $946,000 for the third quarter of 2019. The provision for loan losses was $11.1 million for the third quarter of 2020 compared to $10.2 million for the second quarter of 2020 and $650 thousand for the third quarter of 2019. The increased provision during the three and nine months ended September 30, 2020 was driven by qualitative adjustment factors related to the uncertain economic and business conditions at both the national and regional levels at September 30, 2020, such as continued impact on the tourism and hospitality industries due to the pandemic, an increase in permanent job losses, and uncertainty in the political realm.

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 largest bank headquartered in South Carolina. Southern First Bank has been providing financial services since 1999 and now operates in 11 locations in the Greenville, Columbia, and Charleston markets of South Carolina as well as the Triangle and Triad regions of North Carolina and Atlanta, Georgia. Southern First Bancshares has consolidated assets of approximately $2.5 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,” “intend,” “plan,” “target,” 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-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, including, but not limited to, due to the negative impacts and disruptions resulting from the novel coronavirus, or COVID-19, on the economies and communities the company serves, which may have an adverse impact on the company’s business, operations and performance, and could have a negative impact on the company’s credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (3) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, 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, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the company; (6) changes in interest rates, which may affect the company’s net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of the company’s assets, including its investment securities; and (7) 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.


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