Southern First Bancshares, Inc. — 2023 Form 10-K
Business context and period. Annual report for the fiscal year ended December 31, 2023. Southern First is a bank holding company operating Southern First Bank, with offices in South Carolina, North Carolina and Georgia. Its relationship-focused community banking business centers on commercial, consumer and mortgage lending and deposit gathering.
Financial performance and condition
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total assets | $4.06 billion | $3.69 billion | Up 9.9% |
| Gross loans | $3.60 billion | $3.27 billion | Up 10.1%; net loans were $3.56 billion |
| Deposits | $3.38 billion | $3.13 billion | Up 7.8% |
| Net interest income | $77.7 million | $97.6 million | Down 20.5% |
| Net interest margin, tax-equivalent | 2.07% | 3.19% | Down 112 basis points |
| Net income | $13.4 million | $29.1 million | Down 53.9%; diluted EPS was $1.66 versus $3.61 |
| Noninterest income / expense | $9.9 million / $68.8 million | $9.6 million / $62.9 million | Expense rose 9.4%; efficiency ratio increased to 78.7% from 58.7% |
| Operating cash flow | $17.7 million | $50.3 million | Cash and cash equivalents ended at $156.2 million, down from $170.9 million |
Funding, liquidity and capital. Year-end FHLB advances and other borrowings were $275.0 million, up from $175.0 million; subordinated debentures were $36.3 million. The loan-to-deposit ratio was 107%. Brokered deposits totaled $379.4 million, or 11.2% of deposits; estimated uninsured deposits were $1.3 billion. Available liquidity included $108.5 million in unused correspondent federal funds lines, $542.8 million in unused FHLB capacity and $227.1 million pledged and available at the Federal Reserve Discount Window. The Bank reported 12.28% total risk-based capital, 11.03% CET1 and an 8.47% leverage ratio, and was categorized as well capitalized.
Credit and securities. The allowance for credit losses was $40.7 million, or 1.13% of gross loans, versus $38.6 million, or 1.18%, in 2022. Net charge-offs were $166,000; nonperforming assets rose to $4.0 million from $2.6 million. Real estate secured 84.8% of loans, including commercial real estate at 47.9%. Available-for-sale securities had a $14.4 million unrealized loss at year-end, primarily attributed to interest-rate changes; management said it did not intend, and was not likely required, to sell them before recovery.
Material changes versus 2022
- Higher asset yields and loan growth lifted interest income by $59.9 million, but interest expense rose $79.9 million, principally from higher deposit rates; net interest income and margin consequently fell.
- Provision for credit losses declined to $1.3 million from $6.2 million. Loan growth was $329.3 million, compared with $783.5 million in 2022.
- Noninterest expense rose $5.9 million. Notable increases included FDIC insurance premiums, up $2.1 million, and occupancy expense, up $1.2 million.
- Retail deposits were 88.8% of deposits, down from 92.5%; brokered deposits increased to $379.4 million from $236.2 million. The year-end loan-to-deposit ratio rose to 107% from 104%.
Outlook, commentary and risks
Management provided no specific numerical earnings or growth guidance. It anticipates continued pressure on net interest spread and margin as deposits reprice faster than loans. Its year-end rate-sensitivity analysis estimated net interest income would decline 4.26% under a 100-basis-point rate increase and rise 5.85% under a 100-basis-point decrease, based on stated assumptions.
- Interest-rate and funding exposure: Approximately 84% of loans were fixed-rate. Deposit competition, uninsured deposit outflows, brokered deposit renewal costs and the $494.4 million of certificates of deposit scheduled to mature in 2024 could affect funding costs and liquidity.
- Credit and real estate concentration: A substantial share of loans is real-estate secured. Commercial real estate and multifamily loans equaled 271.4% of Bank risk-based capital; management said this was below the cited 300% supervisory indicator. A commercial relationship accounted for $8.1 million of loans 30–59 days past due at year-end.
- Regulatory and governance matters: The Bank’s most recent CRA examination rating was “Needs to Improve,” which restricts certain expansionary activities pending a subsequent rating. The filing says the Bank was well capitalized.
- Leadership change: CFO D. Andrew Borrmann announced his resignation on February 27, 2024, effective March 29, 2024. The filing identifies succession and retention of key personnel as risks.
- Other items: The company has not paid common dividends and does not intend to do so for the foreseeable future. Management reported no material pending litigation. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Deposit retention, pricing and maturity outcomes—particularly 2024 certificate maturities, uninsured balances and brokered funding.
- Subsequent trends in net interest margin, deposit costs, loan yields and the bank’s interest-rate sensitivity.
- Performance of commercial real estate exposures, delinquent relationships, nonperforming loans and allowance adequacy.
- Progress on the CRA rating and the CFO succession, including any effects on regulatory flexibility or execution.
- Liquidity access and the implications of securities unrealized losses if asset sales or additional funding become necessary.