Business Overview and History
Southern First Bancshares, Inc. (NASDAQ:SFST) is a well-established community bank with a strong presence in the Southeastern United States. Founded in 1999, the company has steadily grown its operations, seamlessly navigating various economic environments and emerging as a respected financial institution known for its exceptional client service and prudent risk management.
Southern First Bancshares, Inc. is the holding company for Southern First Bank, a state-chartered bank with a primary focus on serving small to medium-sized businesses, professionals, and individuals in its core markets. The company operates a total of 12 retail offices, with eight located in the Greenville, Columbia, and Charleston markets of South Carolina, three in the Raleigh, Greensboro, and Charlotte markets of North Carolina, and one in Atlanta, Georgia.
Southern First Bancshares, Inc. was incorporated in March 1999 under the laws of South Carolina and is registered as a bank holding company under the Bank Holding Company Act of 1956. The company's primary business is to serve as the holding company for Southern First Bank, a South Carolina state bank. Initially, Southern First Bank was primarily engaged in accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation (FDIC), as well as providing commercial, consumer, and mortgage loans to the general public.
The company's expansion efforts have been strategic and measured. In 2012, Southern First expanded its footprint by opening three retail offices in the Raleigh, Greensboro, and Charlotte markets of North Carolina. This move allowed the company to diversify its loan and deposit portfolio while growing its client base in new geographic markets. In 2017, the company further extended its reach by opening a retail office in Atlanta, Georgia.
Throughout its history, Southern First Bancshares has faced and overcome various challenges. In the aftermath of the 2008 financial crisis, the company, like many community banks, had to navigate a prolonged period of economic uncertainty and increased regulatory scrutiny. During this time, Southern First focused on maintaining asset quality, strengthening its capital position, and investing in technology to better serve its clients. These efforts enabled the company to emerge from the crisis in a relatively strong position compared to many of its peers.
Financial Performance and Ratios
Southern First Bancshares has consistently delivered solid financial results, demonstrating its ability to navigate various economic conditions. For the fiscal year ended December 31, 2024, the company reported net income of $15.5 million, or $1.91 per diluted share, compared to $13.4 million, or $1.66 per diluted share, in the prior year. This represents a 15.7% increase in net income available to common shareholders.
The company's key financial ratios paint a picture of a well-capitalized and efficiently run institution. As of December 31, 2024, Southern First Bancshares had a total risk-based capital ratio of 12.7%, a Tier 1 risk-based capital ratio of 11.2%, and a leverage ratio of 8.6%, all of which exceed the regulatory requirements for "well-capitalized" status.
Additionally, the company's return on average assets (ROAA) was 0.38% and its return on average equity (ROAE) was 4.8% in 2024, indicating strong profitability and efficient deployment of capital. The company's efficiency ratio, a measure of operational efficiency, stood at 78.5% in 2024, reflecting its ability to maintain tight control over expenses while generating solid revenue.
For the most recent quarter (Q4 2024), Southern First Bancshares reported revenue of $25.2 million and net income of $5.6 million. The company achieved 5.6% year-over-year growth in net income, driven by a 3.6% increase in net interest income and a $2.3 million increase in noninterest income, partially offset by a $4.5 million increase in noninterest expenses.
Loan Portfolio and Asset Quality
Southern First's loan portfolio is primarily composed of commercial real estate loans, which accounted for 55.4% of the total loan portfolio as of December 31, 2024. The company has demonstrated a disciplined approach to underwriting, resulting in a relatively low level of nonperforming assets, which stood at 0.27% of total assets as of the end of 2024.
The allowance for credit losses, which covers potential loan losses, was $39.9 million, or 1.10% of total loans, as of December 31, 2024. This level of allowance reflects management's proactive approach to risk management and the high credit quality of the loan portfolio.
Southern First Bank's loan portfolio is diversified across various sectors. Commercial and consumer real estate loans accounted for 83.5% of total loans as of December 31, 2024. Commercial real estate loans are further divided into owner-occupied (17.9% of total loans) and non-owner occupied (25.5% of total loans) properties. Commercial construction loans represent 2.8% of the total loan portfolio.
On the consumer side, real estate loans, including first and second mortgages on residential properties, make up 31.1% of total loans. Home equity loans represent an additional 5.6% of the loan portfolio. Other consumer loans, such as installment and revolving credit, account for the remaining 1.2% of total loans.
The bank maintains a diversified loan portfolio and limits the amount of loans to any single borrower. As of December 31, 2024, the ten largest borrower relationships represented 7.9% of the total loan portfolio.
Funding and Liquidity
Southern First Bancshares has a well-diversified funding base, with a strong emphasis on core deposits. As of December 31, 2024, the company had total deposits of $3.44 billion, with 84% represented by retail deposits. The company has also leveraged brokered deposits, which accounted for 16% of total deposits, to supplement its funding needs.
The company maintains a robust liquidity position, with cash and cash equivalents totaling $162.9 million, or 4.0% of total assets, as of December 31, 2024. Additionally, the company has access to various sources of funding, including Federal Home Loan Bank (FHLB) advances, federal funds purchased lines of credit, and a holding company line of credit, which provide additional liquidity as needed.
Southern First Bank's primary source of funding is core deposits, which totaled $3.44 billion as of December 31, 2024. This includes $683.1 million in noninterest-bearing deposits and $2.76 billion in interest-bearing deposits, such as checking, money market, and savings accounts. The bank also utilizes $967.6 million in time deposits, including $774.0 million in deposits greater than $250,000, some of which are brokered deposits obtained outside the bank's primary markets.
The company has six federal funds purchased lines of credit totaling $128.5 million, which were fully unused at year-end. As a member of the FHLB of Atlanta, Southern First Bank had $807.5 million of unused borrowing capacity from the FHLB as of December 31, 2024, based on $14.5 million of FHLB stock owned and qualifying mortgages available to secure future borrowings.
The company's debt-to-equity ratio stood at 0.80 as of December 31, 2024, indicating a balanced capital structure.
Growth Strategies and Outlook
Southern First Bancshares has a proven track record of organic growth, focused on expanding its client base and deepening existing relationships within its core markets. The company's ClientFIRST model, which emphasizes personalized service and relationship-based banking, has been a key driver of its success, allowing it to differentiate itself from larger regional and national banks.
Going forward, the company plans to continue its strategic expansion by selectively opening new offices in contiguous markets, as well as leveraging its experienced team of local bankers to identify and capture growth opportunities. The company also remains committed to disciplined underwriting and maintaining a high-quality loan portfolio, which has been a hallmark of its performance.
Risks and Challenges
While Southern First Bancshares has demonstrated resilience, the company is not immune to the challenges faced by the banking industry. Some of the key risks include:
1. Interest Rate Risk: The company's net interest margin and profitability may be affected by fluctuations in interest rates, which could impact the yields on its interest-earning assets and the costs of its interest-bearing liabilities.
2. Competition: The company operates in a highly competitive environment, with both larger regional banks and smaller community banks vying for the same client base. Maintaining its competitive edge through superior service and innovative product offerings is crucial.
3. Regulatory Environment: As a financial institution, Southern First Bancshares is subject to extensive regulations and oversight, which could result in increased compliance costs and operational complexity.
4. Credit Risk: The company's loan portfolio, particularly its commercial real estate exposures, could be susceptible to deterioration in economic conditions, leading to increased loan losses and provisions for credit losses.
Despite these risks, Southern First Bancshares has a proven track record of navigating various challenges and delivering consistent financial performance. The company's strong capitalization, prudent risk management, and experienced leadership team position it well to continue its growth trajectory and enhance shareholder value.
Industry Trends
The banking industry has experienced moderate growth in the 2-3% CAGR range over the past 5 years, driven by factors such as rising interest rates, increased lending activity, and growing consumer demand. Southern First Bancshares has performed in line with these industry trends, demonstrating its ability to capitalize on market opportunities while maintaining a strong focus on risk management and client relationships.
Conclusion
Southern First Bancshares, Inc. (NASDAQ:SFST) is a well-respected community bank that has successfully carved out a niche in the Southeastern United States. With its client-centric approach, disciplined underwriting, and strategic expansion, the company has demonstrated its ability to deliver consistent financial performance and create value for its shareholders. While the banking industry faces ongoing challenges, Southern First Bancshares appears well-equipped to navigate the evolving landscape and capitalize on future growth opportunities.
The company's diverse loan portfolio, stable funding base, and prudent risk management practices have positioned it for continued financial success in its core Southeast and Mid-Atlantic markets. As Southern First Bancshares continues to execute its growth strategy and adapt to changing market conditions, it remains an attractive option for investors seeking exposure to a well-managed regional banking institution with a strong track record of performance and potential for future growth.