Southern First Expands Interest Income as Loans Grow
Net interest margin widened 37 bps YoY to 2.87% as new lending lifted quarterly net interest income by $7.1 million.
Southern First Bancshares (SFST), the regional bank holding company, increased second-quarter net interest income by $7.1 million, or 28%, YoY as new loan volume expanded earning assets. Growth held near the 29% pace recorded in the first quarter, while net interest margin widened 37 bps YoY to 2.87% and narrowed 1 bp QoQ. The first-quarter margin had included $543,000 of interest recovered on a large nonaccrual loan.
The lending franchise added $88 million of loans during the quarter, a 9% annualized pace that moderated from $97.1 million and 10% annualized growth in the first quarter. Net loans rose 7.6% YoY to $3.986 billion, while the yield on average loans increased 7 bps YoY and 2 bps QoQ to 5.35%.
Retail deposits supplied more of that growth. Balances increased $184 million during the quarter, or 22% annualized, after rising $207.8 million at a 27% annualized rate in the first quarter. Retail deposits grew 15.6% YoY as wholesale balances fell $181.3 million, or 32.3%, and declined $122.3 million QoQ.
That shift kept the cost of average deposits at 2.37%, down 38 bps YoY. Retail-deposit costs edged 5 bps higher QoQ to 2.11% but remained 31 bps below the year-earlier level. Non-interest-bearing balances were essentially flat QoQ at $799.2 million and rose 5% YoY, with growth concentrated in interest-bearing NOW and money-market accounts.
Capital increased sharply after Southern First issued 1.2 million common shares for $65.2 million in gross proceeds. Its common-equity Tier 1 ratio rose 178 bps QoQ to 12.81%, while the tangible-common-equity ratio increased 133 bps to 9.62%. The company used part of the strengthened capital position to redeem higher-rate subordinated notes that were being phased out of regulatory-capital treatment.
Credit costs eased as the provision for credit losses declined $275,000 QoQ, following a $650,000 increase in the first quarter, and the allowance held at 1.10% of loans. Net charge-offs remained about $96,000, or 0.01% of average loans annualized, while nonperforming assets edged up 1 bp QoQ to 0.27% of assets.
Fee revenue and expense control added to the operating leverage. Noninterest income increased to $3.5 million from $3.3 million a year earlier as deposit-service fees rose 53% YoY and 15% QoQ, partly reflecting greater emphasis on treasury-management services. Total revenue increased 25% to $35.9 million, while noninterest expense fell to 1.75% of average assets from 1.86% a year earlier.
Loan and retail-deposit growth both slowed from the first quarter but remained at annualized rates of 9% and 22%, respectively, leaving Southern First’s funding mix less dependent on wholesale deposits as lending continued to support net interest income.