Southern First(SFST) - 2022 Q3 - Quarterly Report

Financial Performance - Net income for the three months ended September 30, 2022, was $8.4 million, down from $14.0 million in the same period of 2021, with diluted EPS decreasing from $1.75 to $1.04[127]. - For the nine months ended September 30, 2022, net income was $23.6 million, compared to $34.7 million for the same period in 2021, with diluted EPS dropping from $4.36 to $2.93[128]. - Net interest income for Q3 2022 was $25.5 million, a 14.8% increase from $22.2 million in Q3 2021, driven by loan growth[129]. - Total noninterest expense for Q3 2022 was $16.0 million, a $2.0 million or 14.3% increase from $14.0 million in Q3 2021, driven by higher compensation and occupancy costs[154]. - The efficiency ratio for Q3 2022 was 57.0%, up from 53.2% in Q3 2021, reflecting decreased mortgage banking income and higher noninterest expenses[156]. Assets and Liabilities - Total assets increased by 17.6% to $3.44 billion as of September 30, 2022, compared to $2.93 billion at December 31, 2021[125]. - Total liabilities and shareholders' equity were $3.15 billion and $287.8 million, respectively, as of September 30, 2022, compared to $2.65 billion and $277.9 million at December 31, 2021[125]. - Deposits increased to $3.00 billion at September 30, 2022, from $2.56 billion at December 31, 2021[125]. - The investment securities portfolio was valued at $97.0 million, representing approximately 2.8% of total assets, with an unrealized loss of $17.7 million[158]. - As of September 30, 2022, cash and cash equivalents totaled $160.6 million, representing 4.7% of total assets, down from $167.2 million or 5.7% at December 31, 2021[184]. Loans and Credit Quality - Loans amounted to $3.03 billion at September 30, 2022, up from $2.49 billion at December 31, 2021[125]. - The loan portfolio included $2.58 billion in real estate loans, representing 85.2% of the total, a slight decrease from 85.5% at December 31, 2021[161]. - Nonperforming assets decreased to $2.6 million, or 0.08% of total assets, from $4.9 million, or 0.17% of total assets, at December 31, 2021[167]. - The allowance for credit losses was $36.3 million, or 1.20% of outstanding loans, providing coverage of 1,388.87% of nonperforming loans as of September 30, 2022[175]. - A provision for credit losses of $950,000 was recorded in Q3 2022, compared to a $6.0 million reversal in Q3 2021, driven by $184.8 million in loan growth[149]. Interest Income and Margin - The net interest margin on a tax-equivalent basis was 3.19% for Q3 2022, down from 3.38% in Q3 2021[129]. - The net interest spread decreased to 2.88% for the third quarter of 2022, down from 3.28% in the same period of 2021[138]. - For the nine months ended September 30, 2022, net interest margin (TE) decreased by 19 basis points to 3.30% compared to 3.49% for the same period in 2021[141]. - The yield on the loan portfolio has begun to increase following the Federal Reserve's interest rate hikes, resulting in a 19-basis point gain from 3.82% in the second quarter of 2022[136]. - Total interest income for the first nine months of 2022 was $13.6 million, with a net interest income of $73.5 million, reflecting an increase of $8.6 million or 13.3% compared to the same period in 2021[147]. Deposits and Funding - Retail deposits increased to $2.83 billion, or 94.2% of total deposits, while wholesale deposits decreased to $175.1 million, or 5.8% of total deposits[177]. - The loan-to-deposit ratio was 101% at September 30, 2022, compared to 97% at December 31, 2021[177]. - Core deposits grew to $2.72 billion at September 30, 2022, up from $2.48 billion at December 31, 2021[178]. - Time deposits of $250,000 or more totaled $283.4 million at September 30, 2022, compared to $84.4 million at December 31, 2021[182]. - The company maintains five federal funds purchased lines of credit totaling $118.5 million, with no borrowings against these lines as of September 30, 2022[185]. Risk Management and Economic Conditions - The company faces risks including changes in interest rates, credit losses, and competitive pressures in the banking industry[121]. - The company actively monitors interest rate risk exposure through asset/liability management to ensure adequate liquidity and balance between interest-sensitive assets and liabilities[213]. - Changes in the provision for credit losses can materially affect financial results, with estimates influenced by external factors such as economic conditions and real estate markets[214]. - The estimates for the allowance for credit losses are highly sensitive to changes in economic conditions, which could significantly impact the allowance and provision for credit losses[209]. - The company does not expect recently issued accounting standards to have a material impact on consolidated financial statements upon adoption[211].