SOUTHERN FIRST BANCSHARES INC - FORM 8-K - EX-99.1 - EARNINGS PRESS RELEASE FOR THE PERIOD ENDED SEPTEMBER 30, 2018 - October 23, 2018

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8-K - CURRENT REPORT - SOUTHERN FIRST BANCSHARES INCsfb3459821-8k.htm

Exhibit 99.1


Southern First Reports Results for Third Quarter of 2018

Greenville, South Carolina, October 23, 2018 – Southern First Bancshares, Inc. (NASDAQ: SFST), holding company for Southern First Bank, today reported net income available to common shareholders of $5.8 million, or $0.75 per diluted share, for the third quarter of 2018. In comparison, net income available to common shareholders was $4.3 million, or $0.55 per diluted share, for the third quarter of 2017. For the nine months ended September 30, 2018, net income available to common shareholders was $16.5 million, or $2.13 per diluted share. In comparison, net income to common shareholders for the nine months ended September 30, 2017 was $11.0 million, or $1.50 per diluted share.

2018 Third Quarter Highlights
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Net income available to common shareholders increased 36% to $5.8 million for Q3 2018 compared to $4.3 million for Q3 2017

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Total loans increased 22% to $1.62 billion at Q3 2018, compared to $1.33 billion at Q3 2017

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Total deposits increased 18% to $1.59 billion at Q3 2018, compared to $1.34 billion at Q3 2017

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Total core deposits increased 20% to $1.39 billion at Q3 2018, compared to $1.16 billion at Q3 2017

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Net interest margin remained at 3.60% for Q3 2018 compared to Q3 2017

“I am proud of our Southern First team and our third quarter results as we report record earnings and loan growth for the quarter,” stated Art Seaver, the company’s Chief Executive Officer. “Our team continues to build and develop client relationships in each of our markets, generating strong momentum as we finish out 2018.”

     
      Quarter Ended
September 30       June 30       March 31       December 31       September 30
2018 2018 2018 2017 2017
Earnings ($ in thousands, except per share data):
Net income available to common shareholders $      5,782 5,510 5,214 2,080 4,250
Earnings per common share, diluted 0.75 0.71 0.67 0.27 0.55
Total revenue(1) 18,034 17,383 16,462 15,789 15,851
Net interest margin (tax-equivalent)(2) 3.60 % 3.49 % 3.63 % 3.59 % 3.60 %
Return on average assets(3) 1.28 % 1.26 % 1.28 % 0.52 % 1.09 %
Return on average equity(3) 13.98 % 14.03 % 13.88 % 5.50 % 11.60 %
Efficiency ratio(4) 56.49 % 57.41 % 55.92 % 54.61 % 55.55 %
Balance Sheet ($ in thousands):
Total loans(5) $ 1,620,201 1,533,447 1,459,382 1,387,070 1,327,739
Total deposits 1,589,483 1,567,982 1,520,523 1,381,123 1,342,577
Core deposits(6) 1,390,626 1,387,928 1,336,363 1,221,363 1,160,906
Total assets 1,857,707 1,787,784 1,729,299 1,624,625 1,557,684
Holding Company Capital Ratios(7):
Total risk-based capital ratio 12.50 % 12.77 % 13.01 % 13.27 % 13.58 %
Tier 1 risk-based capital ratio 11.48 % 11.70 % 11.90 % 12.11 % 12.38 %
Leverage ratio 10.15 % 9.96 % 10.27 % 10.26 % 10.36 %
Common equity tier 1 ratio(8) 10.66 % 10.83 % 10.98 % 11.15 % 11.37 %
Tangible common equity(9) 8.99 % 9.00 % 8.95 % 9.21 % 9.47 %
Asset Quality Ratios:
Nonperforming assets as a percentage of total assets 0.33 % 0.44 % 0.43 % 0.46 % 0.39 %
Net charge-offs as a percentage of average loans(5) (YTD annualized) 0.06 % 0.04 % 0.05 % 0.10 % 0.08 %
Allowance for loan losses as a percentage of loans(5) 1.00 % 1.05 % 1.09 % 1.12 % 1.17 %
Allowance for loan losses as a percentage of nonaccrual loans 270.54 % 208.52 % 217.92 % 212.60 % 278.05 %
[Footnotes to table located on page 3]

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Operating Results
Net interest margin was 3.60% for the third quarter of 2018 and 2017. During the third quarter of 2018, our average interest-earning assets increased by $233.4 million, compared to the third quarter of 2017, while the yield on our interest-earning assets increased by 30 basis points. In comparison, our average interest-bearing liabilities increased by $180.7 million during the third quarter of 2018, compared to the third quarter of 2017, with the respective cost increasing by 40 basis points.

Noninterest income was $2.5 million for the three months ended September 30, 2018 and 2017. For the nine months ended September 30, 2018 and 2017, noninterest income was $7.7 million and $7.2 million, respectively. While total noninterest income was relatively unchanged for the three-month period ended September 30, 2018 as compared to the same period in 2017, ATM and debit card income increased and mortgage banking income and service fees on deposit accounts decreased during the third quarter of 2018. The increase in noninterest income during the nine-month period ended September 30, 2018 was driven primarily by increases in mortgage banking income, ATM and debit card income and other income, partially offset by a decrease in service fees on deposit accounts. Mortgage banking revenue comprises a significant portion of our noninterest income and totaled $1.4 million and $4.3 million for the three and nine months ended September 30, 2018, respectively, and $1.4 million and $4.1 million for the three and nine months ended September 30, 2017, respectively.

Noninterest expense was $10.2 million and $8.8 million for the three months ended September 30, 2018 and 2017, respectively, and $29.4 million and $25.9 million for the nine months ended September 30, 2018 and 2017, respectively. The increase in noninterest expense during both the three- and nine-month periods ended September 30, 2018 was driven primarily by increases in compensation and benefits, occupancy, and insurance expense, while professional fees also contributed to the increase during the nine-months ended September 30, 2018. Included in noninterest expense are mortgage banking expenses of $1.1 million and $3.2 million for the three and nine months ended September 30, 2018, respectively, and $970 thousand and $2.9 million for the three and nine months ended September 30, 2017, respectively.

During the three months ended September 30, 2018, we recorded total credit costs of $401 thousand, including a $400 thousand provision for loan losses and $1,000 of expenses related to the sale and management of other real estate owned. In addition, we had net charge-offs for the third quarter of 2018 of $360 thousand, or 0.09% of average loans, annualized. During the three months ended September 30, 2017, our total credit costs were $528 thousand, including a $500 thousand provision for loan losses and $28 thousand of expenses related to the sale and management of other real estate owned. Net loan charge-offs for the third quarter of 2017 were $365 thousand, or 0.11% of average loans, annualized. For the nine months ended September 30, 2018 and 2017, total credit costs were $1.3 million and $1.5 million, respectively. Our allowance for loan losses was $16.1 million, or 1.00% of gross loans, at September 30, 2018, which provides approximately 271% coverage of nonaccrual loans, compared to $15.6 million, or 1.17% of gross loans, and approximately 278% coverage of nonaccrual loans at September 30, 2017.

Nonperforming assets were $6.1 million, or 0.33% of total assets, as of September 30, 2018. Comparatively, nonperforming assets were $6.0 million, or 0.39% of total assets, at September 30, 2017. Of the $6.1 million in total nonperforming assets as of September 30, 2018, nonperforming loans represent $6.0 million and other real estate owned represents $117 thousand. Classified assets totaled 9% of tier 1 capital plus the allowance for loan losses at September 30, 2018, compared to 11% at September 30, 2017.

Gross loans were $1.6 billion, excluding mortgage loans held for sale, as of September 30, 2018, compared to $1.3 billion at September 30, 2017. Core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, totaled to $1.4 billion at September 30, 2018 compared to $1.2 billion at September, 2017.

Shareholders’ equity totaled $166.9 million as of September 30, 2018, compared to $149.7 million at December 31, 2017, and $147.4 million at September 30, 2017. As of September 30, 2018, our capital ratios continue to exceed the regulatory requirements for a “well capitalized” institution.

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FINANCIAL HIGHLIGHTS - Unaudited
 
     Quarter Ended      3rd Qtr      Nine Months Ended      YTD
September 30 2018-2017 September 30 2018-2017
(in thousands, except per share data) 2018       2017 % Change 2018 2017 % Change
Earnings Summary
Interest income $ 19,865 15,955 24.5 % 55,578 44,845 23.9 %
Interest expense 4,364 2,646 64.9 % 11,423 7,577 50.8 %
Net interest income 15,501 13,309 16.5 % 44,155 37,268 18.5 %
Provision for loan losses 400 500 (20.0 )% 1,300 1,500 (13.3 )%
Noninterest income 2,533 2,542 (0.4 )% 7,725 7,156 8.0 %
Noninterest expense 10,188 8,806 15.7 % 29,372 25,929 13.3 %
Income before provision for income taxes 7,446 6,545 13.8 % 21,208 16,995 24.8 %
Income tax expense 1,664 2,295 (27.5 )% 4,702 6,030 (22.0 )% 
Net income available to common shareholders $ 5,782 4,250 36.0 % 16,506 10,965 50.5 %
Basic weighted average common shares 7,400 7,282 1.6 % 7,369 6,905 6.7 %
Diluted weighted average common shares 7,746 7,668 1.0 % 7,741 7,291 6.2 %
Earnings per common share – Basic $ 0.78 0.58 34.5 % 2.24 1.59 40.9 %
Earnings per common share – Diluted 0.75 0.55 36.4 % 2.13 1.50 42.0 %
 
Quarter Ended 3rd Qtr Quarter Ended
September 30 2018-2017 June 30       March 31 December 31
(in thousands, except per share data) 2018 2017 % Change 2018 2018 2017
Balance Sheet Highlights
Assets $ 1,857,707 1,557,684 19.3 % 1,787,784 1,729,299   1,624,625
Investment securities 71,815 81,504 (11.9 )% 73,126 61,562 72,065
Mortgage loans held for sale 9,298 9,124 1.9 % 8,075 10,885 11,790
Loans (5) 1,620,201 1,327,739 22.0 % 1,533,447 1,459,382 1,387,070
Allowance for loan losses 16,140 15,579 3.6 % 16,100 15,852 15,523
Other real estate owned 117 420 (72.1 )% 117 242 242
Noninterest bearing deposits 300,331 272,759 10.1 % 310,709 297,892 295,680
Interest bearing deposits 1,289,152 1,069,818 20.5 % 1,257,273 1,222,631 1,085,443
Total deposits 1,589,483 1,342,577 18.4 % 1,567,982 1,520,523 1,381,123
Other borrowings 68,500 39,200 74.7 % 28,600 28,600 67,200
Junior subordinated debentures 13,403 13,403 - 13,403 13,403 13,403
Tangible common equity 166,944 147,449 13.2 % 160,856 154,739 149,686
Total shareholders’ equity 166,944 147,449 13.2 % 160,856 154,739 149,686
Common Stock
Book value per common share $ 22.41 20.15 11.2 % 21.66 20.96 20.37
Stock price:
High 47.00 37.45 25.5 % 48.35 46.55 42.90
Low 39.20 33.50 17.0 % 44.20 41.00 36.75
Period end 39.30 36.35 8.1 % 44.20 44.50 41.25
Common shares outstanding 7,449 7,319 1.8 % 7,426 7,382 7,348
Other
Loans to deposits 101.93 % 98.89 % 3.1 % 97.80 % 95.98 % 100.43 %
Team members 223 198 12.6 % 224 211 198
Average Balances ($ in thousands):
Loans(5) $      1,592,279 1,314,061 21.2 % 1,491,246 1,444,343 1,351,355
Deposits 1,555,618 1,328,481 17.1 % 1,543,045 1,431,967 1,369,547
Assets 1,786,656 1,549,875 15.3 % 1,757,155 1,645,846 1,589,206
Equity 164,100 145,294 12.9 % 157,575 152,374 149,928
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 and nine month periods.
(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) September 30, 2018 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 loans held for sale.

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ASSET QUALITY MEASURES - Unaudited
 
      Quarter Ended
September 30       June 30       March 31       December 31       September 30
(dollars in thousands) 2018 2018 2018 2017 2017
Nonperforming Assets
Commercial
Owner occupied RE $ - - - - 244
Non-owner occupied RE 1,680 1,689 1,525 1,581 2,049
Construction - - - - -
Commercial business 89 94 102 910 1,116
Consumer
Real estate 1,153 1,174 1,091 992 1,267
Home equity 850 1,598 1,730 1,145 195
Construction - - - - -
Other - - - 1 2
Nonaccruing troubled debt restructurings 2,194 3,166 2,826 2,673 730
Total nonaccrual loans 5,966 7,721 7,274 7,302 5,603
Other real estate owned 117 117 242 242 420
Total nonperforming assets $ 6,083 7,838 7,516 7,544 6,023
Nonperforming assets as a percentage of:
Total assets 0.33 % 0.44 % 0.43 % 0.46 % 0.39 %
Total loans 0.38 % 0.51 % 0.52 % 0.54 % 0.45 %
Accruing troubled debt restructurings $ 6,699 7,397 5,649 5,145 6,954
 
Quarter Ended
September 30 June 30 March 31 December 31 September 30
(dollars in thousands) 2018 2018 2018 2017 2017
Allowance for Loan Losses
Balance, beginning of period $ 16,100 15,852 15,523 15,579 15,444
Loans charged-off (556 ) (311 ) (293 ) (676 ) (399 )
Recoveries of loans previously charged-off 196 159 122 120 34
Net loans charged-off (360 ) (152 ) (171 ) (556 ) (365 )
Provision for loan losses 400 400 500 500 500
Balance, end of period $ 16,140 16,100 15,852 15,523 15,579
Allowance for loan losses to gross loans 1.00 % 1.05 % 1.09 % 1.12 % 1.17 %
Allowance for loan losses to nonaccrual loans 270.54 % 208.52 % 217.92 % 212.60 % 278.05 %
Net charge-offs to average loans QTD (annualized) 0.09 % 0.04 % 0.05 % 0.17 % 0.11 %
 
LOAN COMPOSITION
 
Quarter Ended
September 30 June 30 March 31 December 31 September 30
(dollars in thousands) 2018 2018 2018 2017 2017
Commercial
Owner occupied RE $      372,120 358,169 339,444 316,818 317,262
Non-owner occupied RE 399,166 355,309 339,231 312,798 301,360
Construction 68,415 73,655 56,210 51,179 32,332
Business 244,348 238,402 234,820 226,158 214,898
Total commercial loans 1,084,049 1,025,535 969,705 906,953 865,852
Consumer
Real estate 311,271 290,433 275,731 273,050 250,483
Home equity 163,654 156,630 155,507 156,141 150,371
Construction 38,015 38,400 35,017 28,351 38,766
Other 23,212 22,449 23,422 22,575 22,267
Total consumer loans 536,152 507,912 489,677 480,117 461,887
Total gross loans, net of deferred fees 1,620,201 1,533,447 1,459,382 1,387,070 1,327,739
Less—allowance for loan losses (16,140 ) (16,100 ) (15,852 ) (15,523 ) (15,579 )
Total loans, net $ 1,604,061 1,517,347 1,443,530 1,371,547 1,312,160

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DEPOSIT COMPOSITION
 
      Quarter Ended
September 30       June 30       March 31       December 31       September 30
(dollars in thousands) 2018 2018 2018 2017 2017
Non-interest bearing $      300,331 310,709 297,892 295,680 272,758
Interest bearing:
NOW accounts 237,860 251,511 243,418 229,945 209,607
Money market accounts 680,824 659,353 642,333 545,029 533,575
Savings 16,041 15,913 15,952 16,298 15,659
Time, less than $100,000 62,744 60,632 56,778 55,461 54,133
Time and out-of-market deposits, $100,000 and over 291,683 269,864 264,150 238,710 256,845
Total deposits $ 1,589,483 1,567,982 1,520,523 1,381,123 1,342,577


NONINTEREST INCOME & EXPENSE - Unaudited
 
      Quarter Ended       3rd Qtr       Nine Months Ended       YTD
September 30 2018-2017 September 30 2018-2017
(dollars in thousands) 2018       2017 % Change 2018       2017 % Change
Noninterest income
Mortgage banking income $      1,354 1,403 (3.5 )% 4,311 4,063 6.1 %
Service fees on deposit accounts 257 324 (20.7 )% 769 886 (13.2 )%
ATM and debit card income 381 284 34.2 % 1,085 818 32.6 %
Income from bank owned life insurance 221 224 (1.3 )% 662 590 12.2 %
Other income 320 307 4.2 % 898 799 12.4 %
Total noninterest income $ 2,533 2,542 (0.4 )% 7,725 7,156 8.0 %
Noninterest income to average assets (3) 0.56 % 0.65 % (13.8 )% 0.60 % 0.65 % (7.7 )%
 
Noninterest expense
Compensation and benefits $ 6,599 5,698 15.8 % 18,808 16,496 14.0 %
Occupancy 1,350 1,043 29.4 % 3,763 3,042 23.7 %
Data processing and related costs 841 794 5.9 % 2,400 2,362 1.6 %
Insurance 376 258 45.7 % 987 845 16.8 %
Professional fees 275 334 (17.7 )% 1,208 1,029 17.4 %
Marketing 215 199 8.0 % 652 605 7.8 %
Other 532 480 10.8 % 1,554 1,550 0.3 %
Total noninterest expenses $ 10,188 8,806 15.7 % 29,372 25,929 13.3 %
Noninterest expense to average assets (3) 2.26 % 2.25 % 0.4 % 2.27 % 2.35 % (3.4 )%


AVERAGE YIELD/RATE - Unaudited
 
      Quarter Ended
September 30       June 30       March 31       December 31       September 30
2018 2018 2018 2017 2017
Yield/Rate(3)
Interest-earning assets
Federal funds sold         1.95 % 1.82 % 1.62 %         1.29 %          1.31 %
Investment securities, taxable 2.65 % 2.49 % 2.18 % 1.95 % 2.05 %
Investment securities, nontaxable 3.89 % 3.68 % 4.19 % 3.91 % 3.67 %
Loans(10) 4.77 % 4.70 % 4.65 % 4.59 % 4.59 %
Total interest-earning assets 4.61 % 4.42 % 4.44 % 4.31 % 4.31 %
Interest-bearing liabilities
NOW accounts 0.20 % 0.17 % 0.15 % 0.16 % 0.18 %
Savings & money market 1.34 % 1.25 % 1.07 % 0.90 % 0.84 %
Time deposits 1.79 % 1.61 % 1.38 % 1.21 % 1.08 %
Total interest-bearing deposits 1.24 % 1.14 % 0.97 % 0.84 % 0.78 %
FHLB advances and other borrowings 3.13 % 3.35 % 3.25 % 3.36 % 3.50 %
Junior subordinated debentures 4.47 % 4.79 % 3.48 % 3.49 % 3.43 %
Total interest-bearing liabilities 1.33 % 1.23 % 1.06 % 0.96 % 0.93 %
Net interest spread 3.28 % 3.19 % 3.38 % 3.35 % 3.38 %
Net interest income (tax equivalent) / margin 3.60 % 3.49 % 3.63 % 3.59 % 3.60 %

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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 third largest bank headquartered in South Carolina. Southern First Bancshares has been providing financial services since 1999 and now operates in 13 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 $1.9 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 “believes,” “expects,” “continues,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” and “projects,” 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 we conduct operations may be different than expected resulting in, among other things, a deterioration in our credit quality or a reduced demand for credit, including the resultant effect on the company’s loan portfolio and allowance for loan losses; (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 the United States legal and regulatory framework; and (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. 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). Any subsequent written and oral forward-looking statement 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.
 

FINANCIAL CONTACT: MIKE DOWLING 864-679-9070

MEDIA CONTACT: ART SEAVER 864-679-9010

WEB SITE: www.southernfirst.com

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SOUTHERN FIRST BANCSHARES INC Reports