10-Q 1 sfst4329051-10q.htm QUARTERLY REPORT
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Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to

Commission file number 000-27719

 

Southern First Bancshares, Inc.

(Exact name of registrant as specified in its charter)

South Carolina   58-2459561
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
6 Verdae Boulevard    
Greenville, S.C.   29607
(Address of principal executive offices)   (Zip Code)

864-679-9000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock SFST The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller Reporting Company
    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

8,156,109 shares of common stock, par value $0.01 per share, were issued and outstanding as of April 30, 2024.

 

 

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
March 31, 2024 Form 10-Q

INDEX

Page
PART I – CONSOLIDATED FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Balance Sheets 3
     
  Consolidated Statements of Income 4
     
  Consolidated Statements of Comprehensive Income 5
     
  Consolidated Statements of Shareholders’ Equity 6
     
  Consolidated Statements of Cash Flows 7
     
  Notes to Unaudited Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 42
     
Item 4. Controls and Procedures 42
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 43
     
Item 1A. Risk Factors 43
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
     
Item 3. Defaults upon Senior Securities 43
     
Item 4. Mine Safety Disclosures 43
     
Item 5. Other Information 43
     
Item 6. Exhibits 43

2

PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

                 
 
   March 31,   December 31, 
(dollars in thousands, except share data)  2024   2023 
   (Unaudited)   (Audited) 
ASSETS          
Cash and cash equivalents:          
Cash and due from banks  $13,925    28,020 
Federal funds sold   144,595    119,349 
Interest-bearing deposits with banks   8,789    8,801 
Total cash and cash equivalents   167,309    156,170 
Investment securities:          
Investment securities available for sale   125,996    134,702 
Other investments   18,499    19,939 
Total investment securities   144,495    154,641 
Mortgage loans held for sale   11,842    7,194 
Loans   3,643,766    3,602,627 
Less allowance for credit losses   (40,441)   (40,682)
Loans, net   3,603,325    3,561,945 
Bank owned life insurance   52,878    52,501 
Property and equipment, net   93,007    94,301 
Deferred income taxes, net   12,321    12,200 
Other assets   20,527    16,837 
Total assets  $4,105,704    4,055,789 
LIABILITIES          
Deposits  $3,460,681    3,379,564 
FHLB advances and related debt   240,000    275,000 
Subordinated debentures   36,349    36,322 
Other liabilities   53,418    52,436 
Total liabilities   3,790,448    3,743,322 
SHAREHOLDERS’ EQUITY          
Preferred stock, par value $.01 per share, 10,000,000 shares authorized   -    - 
Common stock, par value $.01 per share, 10,000,000 shares authorized, 8,156,109 and 8,088,186 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively   82    81 
Nonvested restricted stock   (5,257)   (3,596)
Additional paid-in capital   124,159    121,777 
Accumulated other comprehensive loss   (11,797)   (11,342)
Retained earnings   208,069    205,547 
Total shareholders’ equity   315,256    312,467 
Total liabilities and shareholders’ equity  $4,105,704    4,055,789 

See notes to consolidated financial statements that are an integral part of these consolidated statements.

3

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

                 
 
   For the three months 
   ended March 31, 
(dollars in thousands, except share data)  2024   2023 
Interest income          
Loans  $45,605    36,748 
Investment securities   1,478    613 
Federal funds sold and interest-bearing deposits with banks   1,280    969 
Total interest income   48,363    38,330 
Interest expense          
Deposits   26,932    17,179 
Borrowings   2,786    727 
Total interest expense   29,718    17,906 
Net interest income   18,645    20,424 
Provision for (reversal of) credit losses   (175)   1,825 
Net interest income after provision for (reversal of) credit losses   18,820    18,599 
Noninterest income          
Mortgage banking income   1,164    622 
Service fees on deposit accounts   387    325 
ATM and debit card income   544    555 
Income from bank owned life insurance   377    332 
Other income   192    210 
Total noninterest income   2,664    2,044 
Noninterest expenses          
Compensation and benefits   10,857    10,356 
Occupancy   2,557    2,457 
Outside service and data processing costs   1,846    1,629 
Insurance   955    689 
Professional fees   618    660 
Marketing   369    366 
Other   898    947 
Total noninterest expenses   18,100    17,104 
Income before income tax expense   3,384    3,539 
Income tax expense   862    836 
Net income  $2,522    2,703 
Earnings per common share          
Basic  $0.31    0.34 
Diluted   0.31    0.33 
Weighted average common shares outstanding          
Basic   8,110,249    8,025,876 
Diluted   8,141,921    8,092,270 
           

See notes to consolidated financial statements that are an integral part of these consolidated statements.

4

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

                 
         
   For the three months
ended March 31,
 
(dollars in thousands)  2024   2023 
Net income  $2,522    2,703 
Other comprehensive income (loss):          
Unrealized gain (loss) on securities available for sale:          
Unrealized holding gain (loss) arising during the period, pretax   (578)   2,070 
Tax benefit (expense)   123    (435)
Other comprehensive income (loss)   (455)   1,635 
Comprehensive income  $2,067    4,338 

See notes to consolidated financial statements that are an integral part of these consolidated statements.

5

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

                                                                         
     
   For the three months ended March 31, 
(dollars in thousands,   Common stock   Preferred stock   Nonvested
restricted
   Additional
paid-in
   Accumulated
other
comprehensive
   Retained     
except share data)  Shares   Amount   Shares   Amount   stock   capital   income (loss)   earnings   Total 
December 31, 2022   8,011,045   $80    -   $-   $(3,306)  $119,027   $(13,410)  $192,121   $294,512 
Net income   -    -    -    -    -    -    -    2,703    2,703 
Proceeds from exercise of stock options   1,000    -    -    -    -    17    -    -    17 
Issuance of restricted stock    35,930    -    -    -    (1,521)   1,521    -    -    - 
Compensation expense related to restricted stock, net of tax   -    -    -    -    365    -    -    -    365 
Compensation expense related to stock options, net of tax    -    -    -    -    -    118    -    -    118 
Other comprehensive income   -    -    -    -    -    -    1,635    -    1,635 
                                              
March 31, 2023    8,047,975   $80    -   $-   $(4,462)  $120,683   $(11,775)  $194,824   $299,350 
December 31, 2023   8,088,186   $81    -   $-   $(3,596)  $121,777   $(11,342)  $205,547   $312,467 
Net income   -    -    -    -    -    -    -    2,522    2,522 
Proceeds from exercise of stock options   11,000    -    -    -    -    167    -    -    167 
Issuance of restricted stock, net of forfeitures   56,923    1    -    -    (2,112)   2,111    -    -    - 
Compensation expense related to restricted stock, net of tax   -    -    -    -    451    -    -    -    451 
Compensation expense related to stock options, net of tax   -    -    -    -    -    104    -    -    104 
Other comprehensive loss   -    -    -    -    -    -    (455)   -    (455)
                                              
March 31, 2024   8,156,109   $82    -   $-   $(5,257)  $124,159   $(11,797)  $208,069   $315,256 

 

See notes to consolidated financial statements that are an integral part of these consolidated statements.

6

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

                 
 
   For the three months ended
March 31,
 
(dollars in thousands)  2024   2023 
Operating activities          
Net income  $2,522    2,703 
Adjustments to reconcile net income to cash provided by operating activities:          
Provision for (reversal of) credit losses   (175)   1,825 
Depreciation and other amortization   1,214    1,203 
Accretion and amortization of securities discounts and premium, net   131    129 
Net change in operating leases   39    53 
Compensation expense related to stock options and restricted stock grants   555    483 
Gain on sale of loans held for sale   (1,014)   (530)
Loans originated and held for sale   (36,524)   (17,892)
Proceeds from sale of loans held for sale   32,890    15,360 
Increase in cash surrender value of bank owned life insurance   (377)   (331)
Increase in other assets   (3,690)   (508)
Increase (decrease) in other liabilities   1,505    (1,258)
Net cash (used for) provided by operating activities   (2,924)   1,237 
Investing activities          
Increase (decrease) in cash realized from:          
Increase in loans, net   (41,380)   (144,641)
Purchase of property and equipment   (280)   (180)
Purchase of investment securities:          
Available for sale   (5,191)   - 
Other investments   (4,302)   (18,264)
Payments and maturities, calls and repayments of investment securities:          
Available for sale   13,190    1,252 
Other investments   5,742    19,000 
Net cash used for investing activities   (32,221)   (142,833)
Financing activities          
Increase in cash realized from:          
Increase in deposits, net   81,117    292,910 
Decrease in Federal Home Loan Bank advances and other borrowings, net   (35,000)   (50,000)
Proceeds from the exercise of stock options   167    17 
Net cash provided by financing activities   46,284    242,927 
Net increase in cash and cash equivalents   11,139    101,331 
Cash and cash equivalents at beginning of the period   156,170    170,874 
Cash and cash equivalents at end of the period  $167,309    272,205 
Supplemental information          
Cash paid for          
Interest  $27,617    16,801 
Schedule of non-cash transactions          
Unrealized gain (loss) on securities, net of income taxes   (455)   1,635 

See notes to consolidated financial statements that are an integral part of these consolidated statements.

7

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Summary of Significant Accounting Policies

Nature of Business

Southern First Bancshares, Inc. (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2024. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated.

Business Segments

The Company, through the Bank, provides a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. These services include demand, time and savings deposits, lending services and ATM processing and mortgage banking services. While the Company’s management periodically reviews limited production information for these revenue streams, that information is not complete as it does not include a full allocation of revenue, costs and capital from key corporate functions. Management will continue to evaluate these lines of business for separate reporting as facts and circumstances change.  Accordingly, the Company’s various banking operations are not considered by management to constitute more than one reportable operating segment.

Risk and Uncertainties

In the normal course of its business, the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets. Credit risk is the risk of default within the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company. There were three significant bank failures in the first five months of 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits. Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses. As a result of the recent bank failures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which has and could continue to increase the cost of our FDIC insurance assessments. The ultimate impact of these bank failures on the economy, financial institutions and their depositors, as well as any governmental regulatory responses or actions resulting from the same, remains difficult to predict at this time.

8

The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject the Company to changes with respect to the valuation of assets, the amount of required credit loss allowance and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.

The Bank makes loans to individuals and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions of North Carolina and Atlanta, Georgia for various personal and commercial purposes. The Bank’s loan portfolio has a concentration of real estate loans. As of March 31, 2024 and 2023, real estate loans represented 84.3% and 84.8%, respectively, of total loans. However, borrowers’ ability to repay their loans is not dependent upon any specific economic sector.

As of March 31, 2024, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by future credit losses.

The Company maintains access to multiple sources of liquidity, including a $15.0 million holding company line of credit with another bank which could be used to support capital ratios at the subsidiary bank. As of March 31, 2024, the $15.0 million line was unused.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets.

Reclassifications

Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Newly Issued, But Not Yet Effective Accounting Standards

In December 2022, the FASB issued amendments to defer the sunset date of the Reference Rate Reform Topic of the Accounting Standards Codification from December 31, 2022 to December 31, 2024, because the current relief in Reference Rate Reform Topic may not cover a period of time during which a significant number of modifications may take place. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect these amendments to have a material effect on its financial statements.

9

NOTE 2 – Investment Securities

The amortized costs and fair value of investment securities are as follows:

Schedule of amortized costs and fair value of investment securities                                
 
   March 31, 2024 
   Amortized   Gross Unrealized   Fair 
(dollars in thousands)   Cost   Gains   Losses   Value 
Available for sale                     
Corporate bonds   $2,140    -    253    1,887 
US treasuries    999    -    111    888 
US government agencies    20,183    -    1,986    18,197 
State and political subdivisions    22,579    -    3,042    19,537 
Asset-backed securities    34,247    33    76    34,204 
Mortgage-backed securities   60,782    -    9,499    51,283 
Total investment securities available for sale  $140,930    33    14,967    125,996 
                     
    December 31, 2023 
    Amortized    Gross Unrealized    Fair  
    Cost    Gains    Losses    Value 
Available for sale                    
Corporate bonds  $2,147    -    237    1,910 
US treasuries   9,495    1    102    9,394 
US government agencies   20,594    -    1,938    18,656 
State and political subdivisions   22,642    11    2,912    19,741 
Asset-backed securities   33,450    2    216    33,236 
Mortgage-backed securities   60,730    -    8,965    51,765 
Total investment securities available for sale  $149,058    14    14,370    134,702 

Contractual maturities and yields on the Company’s investment securities at March 31, 2024 and December 31, 2023 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Schedule of maturities and yields on the company’s investment securities                                                                                
                     
 March 31, 2024 
   Less than one year   One to five years   Five to ten years   Over ten years   Total 
(dollars in thousands)   Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield 
Available for sale                                                  
Corporate bonds   $-    -   $-    -   $1,887    2.01%  $-    -   $1,887    2.01%
US treasuries   -    -    888    1.27%   -    -    -    -    888    1.27%
US government agencies    980    0.45%   2,380    1.00%   14,837    4.38%   -    -    18,197    3.72%
State and political subdivisions    -    -    902    1.94%   5,744    1.89%   12,891    2.15%   19,537    2.07%
Asset-backed securities    -    -    211    6.21%   -    -    33,993    6.61%   34,204    6.61%
Mortgage-backed securities    -    -    6,626    1.29%   3,419    1.54%   41,238    2.04%   51,283    1.91%
Total investment securities   $980    0.45%  $11,007    1.37%  $25,887    3.28%  $88,122    3.82%  $125,996    3.47%
                                                   
    December 31, 2023 
    Less than one year    One to five years    Five to ten years    Over ten years    Total 
(dollars in thousands)   Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield 
Available for sale                                                  
Corporate bonds  $-    -   $-    -   $1,910    2.01%  $-    -   $1,910    2.01%
US treasuries   8,497    5.42%   897    1.27%   -    -    -    -    9,394    5.02%
US government agencies   970    0.45%   2,385    1.00%   15,301    4.41%   -    -    18,656    3.77%
State and political subdivisions   -    -    906    1.94%   5,769    1.89%   13,066    2.15%   19,741    2.06%
Asset-backed securities   -    -    296    (6.13%)   -    -    32,940    6.63%   33,236    6.57%
Mortgage-backed securities   -    -    4,795    1.15%   5,400    1.59%   41,570    2.00%   51,765    1.87%
Total investment securities  $9,467    4.91%  $9,279    0.98%  $28,380    3.20%  $87,576    3.76%  $134,702    3.55%

10

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

Schedule of gross unrealized losses on investment securities and fair market value of related securities                                                                                
             
           March 31, 2024 
   Less than 12 months   12 months or longer   Total 
(dollars in thousands)  #   Fair
value
   Unrealized
losses
   #   Fair
value
   Unrealized
losses
   #   Fair
value
   Unrealized
losses
 
Available for sale                                             
Corporate bonds   -   $