RALEIGH, N.C., July 30, 2024 /PRNewswire/ — Dogwood State Bank (OTCQX:DSBX) (“Dogwood”) announced today its financial results for the three and six months ended June 30, 2024 as it prepares to close its previously announced acquisition of Community First Bancorporation and Community First Bank, Inc. (“Community First”) this Thursday, August 1, 2024.
Second Quarter 2024 Financial Highlights
Net income grew to $2.7 million in Q2 2024 from $1.8 million in Q1 2024 and $2.0 million in Q2 2023. Dogwood incurred merger and acquisition expenses of $562 thousand in Q2 2024 and $958 thousand in Q1 2024 related to the acquisition of Community First.
Net income, after adjusting for merger and acquisition expenses (non-GAAP), improved to $3.1 million in Q2 2024 from $2.6 million in Q1 2024 and $2.0 million in Q2 2023.
Net interest margin increased to 3.53% in Q2 2024 from 3.41% in Q1 2024 and 3.50% in Q2 2023.
SBA lending income rose to $2.7 million in Q2 2024 from $2.2 million in Q1 2024 and $2.2 million in Q2 2023.
Loans held for investment grew by $87.8 million in Q2 2024 and by $240.5 million over the past twelve months.
Deposits grew by $35.3 million in Q2 2024 and by $185.6 million over the past twelve months.
“This week marks a pivotal moment as we prepare for the successful completion of our acquisition of Community First,” commented Steve Jones, Chief Executive Officer. “We look forward to welcoming our new customers, employees, and shareholders to the Dogwood family. We believe this strategic transaction will position Dogwood for enhanced earnings growth and long-term value creation.”
Mr. Jones continued, “Our second quarter results reflect Dogwood’s strong operating momentum heading into the Community First acquisition. We achieved robust loan and core deposit growth, meaningfully expanded our net interest margin, and grew SBA lending income on a higher volume of SBA loan sales and improved secondary market premiums.”
Community First Acquisition
On January 31, 2024, Dogwood entered into a merger agreement to acquire Community First in an all-stock transaction. Under the terms of the merger agreement, each outstanding share of Community First common stock will be exchanged for 0.5875 shares of Dogwood voting common stock, and each outstanding share of Community First preferred stock will be exchanged for 64.7719 shares of Dogwood voting common stock. A total of 3.4 million shares of Dogwood voting common stock will be issued in the acquisition of Community First.
As of June 30, 2024, on a pro forma basis reflecting the acquisition of Community First, Dogwood had approximately $2.2 billion in assets, $1.7 billion in loans, and $1.8 billion in deposits. In Q2 2024, the Bank incurred pre-tax merger and acquisition expenses of $562 thousand. For the first half of 2024, merger and acquisition expenses totaled $1.5 million.
Q2 2024 Earnings Performance
Net income in Q2 2024 was $2.7 million, or $0.17 per diluted share, compared to $2.0 million, or $0.13 per diluted share, in Q2 2023. This increase was primarily due to higher net interest income, partially offset by $562 million of merger and acquisition expenses in Q2 2024 related to the acquisition of Community First.
Adjusted net income (non-GAAP) in Q2 2024, which excludes the impact of merger and acquisition expenses, was $3.1 million, or $0.20 per diluted share, which was an increase from $2.0 million, or $0.13 per share in Q2 2023. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in Q2 2024 was $6.0 million, an increase from $4.3 million in Q2 2023.
Net Interest Income
Net interest income was $12.5 million in Q2 2024, an increase from $9.9 million in Q2 2023. The increase was primarily due to significant growth in interest-earning assets over the past year and some improvement in net interest margin.
Total average interest-earning assets increased to $1.43 billion in Q2 2024 from $1.13 billion in Q2 2023. Average loans increased by $249.2 million. Average investment securities balances increased by $12.2 million, and average interest-earning cash balances increased by $35.8 million.
Net interest margin improved to 3.53% in Q2 2024 from 3.50% in Q2 2023. While cost of funds increased by 0.66% over the periods under comparison due to significant increases in the federal funds target rate in 2022 and 2023, higher yields on interest-earning assets coupled with a more favorable mix of those assets contributed to the improved net interest margin.
Provision for Credit Losses and Asset Quality
Provision for credit losses was $2.0 million in Q2 2024, an increase from $1.7 million in Q2 2023. The increase in provision expense was partially due to a $196 thousand increase in net charge-offs along with stronger net loan growth over the same periods. The Bank’s allowance for credit losses to total loans was 1.08% as of June 30, 2024, compared to 1.07% as of March 31, 2024 and 1.12% as of June 30, 2023.
Nonperforming loans were 0.17% of total loans as of June 30, 2024, compared to 0.17% as of March 31, 2024 and 0.19% as of June 30, 2023. Annualized net charge offs were 0.33% of average loans in Q2 2024, consistent with 0.33% in Q2 2023. Substantially all charge offs recognized in Q2 2024 were related to unguaranteed portions of U.S. Small Business Administration (“SBA”) loans.
Non-Interest Income
Non-interest income was $3.4 million in Q2 2024, an increase from $2.8 million in Q2 2023. Most of this increase was related to SBA lending income. SBA lending income rose by $562 thousand due to higher secondary market premiums on sales of guaranteed loans and an increase in the volume of guaranteed SBA 7(a) loans sold in the quarter.
The weighted average net premium on SBA loans sold in Q2 2024 was 9.90%, an increase from 9.07% in Q2 2023. Guaranteed balances of SBA loans sold totaled $29.3 million in Q2 2024, an increase from $22.6 million in Q2 2023. Loan production under the SBA’s 7(a) loan program totaled $44.6 million in Q2 2024, compared to $28.3 million in Q2 2023.
Non-Interest Expense
Non-interest expense was $10.5 million in Q2 2024, an increase from $8.4 million in Q2 2023. The largest contributor to this increase was compensation and benefits, which increased by $1.1 million. Significant investments have been made in human capital across the Bank to support its growth. Additionally, merger and acquisition expenses of $562 thousand incurred in Q2 2024 related to the acquisition of Community First.
Income Taxes
Income tax expense was $811 thousand in Q2 2024, compared to $550 thousand in Q2 2023. The effective tax rate was 23.41% in Q2 2024, which was higher than 21.74% in Q2 2023.
Year-to-Date 2024 Earnings Performance
Net income in the first six months of 2024 (“YTD 2024”) was $4.5 million, or $0.30 per diluted share, compared to $4.8 million, or $0.33 per diluted share, in the first six months of 2023 (“YTD 2023”). This decrease was primarily due to $1.5 million of merger and acquisition expenses in YTD 2024 related to the pending acquisition of Community First.
Adjusted net income (non-GAAP) in YTD 2024, which excludes the impact of merger and acquisition expenses, was $5.7 million, or $0.37 per diluted share, which was an increase from $4.8 million, or $0.33 per share in YTD 2023. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in YTD 2024 was $10.3 million, an increase from $8.5 million in YTD 2023.
Net Interest Income
Net interest income was $23.8 million in YTD 2024, an increase from $19.9 million in YTD 2023. The increase was due to significant growth in interest-earning assets over the past year, partially offset by a lower net interest margin YTD 2024 compared to YTD 2023. Net interest margin was negatively impacted by funding costs rising at a faster rate than interest-earning asset yields.
Total average interest-earning assets increased to $279 million in YTD 2024 from $1.2 million in YTD 2023 to $1.5 million in YTD 2024. Average loans increased by $237.0 million. Average investment securities balances increased by $10.6 million, and average interest-earning cash balances increased $31.3 million. Net interest margin decreased to 3.47% in YTD 2024, compared to 3.64% in YTD 2023.
Provision for Credit Losses and Asset Quality
Provision for credit losses was $2.9 million in YTD 2024, an increase from $2.5 million in YTD 2023. The increase in provision expense was primarily due to a $266 thousand increase in net charge-offs.
Non-Interest Income
Non-interest income was $6.3 million in YTD 2024, an increase from $5.4 million in YTD 2023. Most of this increase was related to SBA lending income. SBA lending income increased by $693 thousand due to higher secondary market premiums on sales of guaranteed loans and an increase in the volume of guaranteed SBA 7(a) loans sold YTD.
The weighted average net premium on SBA loans sold in YTD 2024 was 9.45%, an increase from 8.47% in YTD 2023. Guaranteed balances of SBA loans sold totaled $50.2 million in YTD 2024, an increase from $44.5 million in YTD 2023. Loan production under the SBA’s 7(a) loan program totaled $78.1 million in YTD 2024, compared to $59.4 million in YTD 2023.
Non-Interest Expense
Non-interest expense was $21.3 million in YTD 2024, an increase from $16.8 million in YTD 2023. Some of the increase was related to compensation and benefits, which increased by $2.0 million. Significant investments have been made in human capital across the Bank to support its growth, including recent growth into the Piedmont-Triad NC market. Additionally, merger and acquisition expenses of $1.5 million were incurred YTD 2024 related to the acquisition of Community First.
Income Taxes
Income tax expense was $1.4 million in YTD 2024, compared to $1.3 million in YTD 2023. The effective tax rate was 23.75% in YTD 2024, which was higher than 20.83% in YTD 2023.
About Dogwood State Bank
Dogwood State Bank is a state-chartered community bank headquartered in Raleigh, North Carolina, with approximately $1.5 billion in total assets. Dogwood provides a wide range of banking products and services through its online offerings and branch offices across North Carolina. Dogwood also specializes in providing lending services to small businesses through Dogwood State Bank Small Business Lending. Dogwood is focused on becoming the bank for businesses, business owners, professionals, and their employees and redefining what it means to Bank Local. By leveraging leadership, investing in technology, and committing to personalized, superior customer service, Dogwood is changing the landscape of community banking.
Forward-Looking Statements
Statements made in this press release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this press release and are based on current expectations and involve a number of assumptions. Forward-looking statements can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors that could have a material effect on the Bank’s operations and future prospects include but are not limited to: the expected growth opportunities or cost savings from the proposed merger (the “merger”) of Community First and Community First Bank, Inc. with and into the Bank may not be fully realized or may take longer to realize than expected; the businesses of the Bank and Community First may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; deposit attrition, operating costs, customer losses and business disruption prior to and following the merger, including adverse effects on relationships with employees and customers, may be greater than expected; the regulatory and shareholder approvals required for the merger may not be obtained; changes in interest rates, general economic and business conditions; legislative/regulatory changes; the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality and composition of the Bank’s loan and securities portfolios; demand for loan products and other financial services in our market areas; inflation; deposit flows; competition; our implementation of new technologies and ability to develop and maintain secure and reliable electronic systems; changes in the securities markets; and changes in accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
This press release contains financial information determined by methods other than in accordance with United States generally accepted accounting principles (“GAAP”). The Bank uses the non-GAAP financial measures discussed herein in its analysis of the Bank’s performance. The Bank’s management believes that these non-GAAP financial measures enhance comparability of results of operations with prior periods by excluding the impact of items or events that may obscure trends in the Bank’s performance. These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Please refer to the Non-GAAP Reconciliation table for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
Quarterly Financial Tables
Dogwood State Bank
Income Statements
Quarter Ended
Six Months Ended
(Dollars in thousands, except per share data)
Jun 30
2024
Mar 31
2024
Dec 31
2023
Sept 30
2023
Jun 30
2023
Jun 30
2024
Jun 30
2023
Net interest income
$ 12,521
$ 11,312
$ 11,900
$ 11,005
$ 9,853
$ 23,833
$ 19,880
Provision for credit losses
2,017
921
1,638
1,063
1,725
2,938
2,464
Net interest income after provision
10,504
10,391
10,262
9,942
8,128
20,895
17,416
Non-interest income
SBA lending
2,717
2,197
1,838
2,362
2,155
4,914
4,221
Service charges and debit card income
340
351
343
345
358
691
711
Bank-owned life insurance
219
211
201
187
183
430
363
Securities gains (losses), net
(6)
6
5
94
(13)
–
(22)
Gain on payoff of FHLB advances
–
–
1,230
–
–
–
–
Other
161
85
93
49
69
246
110
Total non-interest income
3,431
2,850
3,710
3,037
2,752
6,281
5,383
Non-interest expense
Compensation and benefits
6,683
6,506
6,910
6,003
5,567
13,189
11,226
Occupancy and equipment
707
719
634
590
591
1,426
1,179
Software
344
346
343
346
359
690
686
Loan related costs
314
290
254
305
174
604
355
Data processing
315
261
245
263
247
576
502
Professional fees
235
225
242
250
236
460
479
FDIC insurance
204
240
239
222
169
444
273
Merger and acquisition expenses
562
958
14
–
–
1,520
–
Amortization of other intangible assets
4
11
18
24
31
15
69
Other
1,102
1,259
1,274
1,137
976
2,361
1,996
Total non-interest expense
10,470
10,815
10,173
9,140
8,350
21,285
16,765
Net income before income taxes
3,465
2,426
3,799
3,839
2,530
5,891
6,034
Income tax expense
811
588
865
902
550
1,399
1,257
Net income
$ 2,654
$ 1,838
$ 2,934
$ 2,937
$ 1,980
$ 4,492
$ 4,777
Pre-Tax, Pre-Provision Net Revenue (PPNR)(1)
$ 5,482
$ 3,347
$ 5,437
$ 4,902
$ 4,255
$ 8,829
$ 8,498
Adjusted PPNR(1)
6,044
4,305
5,451
4,902
4,255
10,349
8,498
Per Share Data:
Earnings per share (EPS) – basic
$ 0.18
$ 0.13
$ 0.20
$ 0.20
$ 0.14
$ 0.31
$ 0.34
Adjusted EPS – basic(1)
0.21
0.18
0.21
0.20
0.14
0.39
0.34
Earnings per share – diluted
0.17
0.12
0.20
0.20
0.13
0.30
0.33
Adjusted EPS – diluted(1)
0.20
0.17
0.20
0.20
0.13
0.37
0.33
Performance Ratios:
Return on average assets (ROA)
0.71 %
0.53 %
0.80 %
0.87 %
0.67 %
0.62 %
0.83 %
Adjusted ROA(1)
0.83 %
0.74 %
0.81 %
0.87 %
0.67 %
0.79 %
0.83 %
Return on average equity (ROE)
6.16 %
4.44 %
7.15 %
7.32 %
5.05 %
5.32 %
6.47 %
Adjusted ROE(1)
7.16 %
6.22 %
7.18 %
7.32 %
5.05 %
6.70 %
6.47 %
Return on tangible common equity (ROTCE)(1)
6.42 %
4.63 %
7.48 %
7.66 %
5.29 %
5.54 %
6.79 %
Adjusted ROTCE(1)
7.46 %
6.50 %
7.51 %
7.66 %
5.29 %
6.99 %
6.79 %
Net interest margin
3.53 %
3.41 %
3.42 %
3.43 %
3.50 %
3.47 %
3.64 %
Efficiency ratio
65.63 %
76.37 %
65.17 %
65.09 %
66.24 %
70.68 %
66.36 %
Adjusted efficiency ratio(1)
62.11 %
69.60 %
65.08 %
65.09 %
66.24 %
65.63 %
66.36 %
(1) Denotes a non-GAAP measure. Refer to the non-GAAP reconciliation subsequently included in these materials for a reconciliation to the most directly
comparable GAAP measure. “Adjusted” items exclude the impact of merger and acquisition expenses.
Dogwood State Bank
Balance Sheets
Ending Balance
(In thousands, except per share data)
Jun 30
2024
Mar 31
2024
Dec 31
2023
Sept 30
2023
Jun 30
2023
Assets
Cash and due from banks
$ 2,514
$ 2,353
$ 5,191
$ 5,261
$ 5,471
Interest-earning deposits with banks
59,073
91,365
123,474
220,206
105,237
Total cash and cash equivalents
61,587
93,718
128,665
225,467
110,708
Investment securities available for sale
58,989
55,984
49,244
40,887
39,565
Investment securities held to maturity
74,404
76,119
77,557
78,614
79,759
Marketable equity securities
329
336
329
324
230
Total investment securities
133,722
132,439
127,130
119,825
119,554
Loans held for sale
11,030
8,146
15,274
20,329
13,884
Loans
1,236,722
1,148,899
1,095,339
1,036,636
996,193
Less allowance for credit losses
(13,349)
(12,344)
(11,943)
(11,385)
(11,204)
Loans, net
1,223,373
1,136,555
1,083,396
1,025,251
984,989
Bank-owned life insurance
27,888
27,669
27,458
27,257
27,069
Premises and equipment, net
19,713
18,838
18,707
19,522
18,648
SBA servicing asset
4,568
4,373
3,967
3,913
3,879
Goodwill
7,016
7,016
7,016
7,016
7,016
Other intangible assets, net
–
4
15
33
58
Other assets
21,854
19,750
20,060
19,845
16,714
Total assets
$ 1,510,751
$ 1,448,508
$ 1,431,688
$ 1,468,458
$ 1,302,519
Liabilities and Shareholders’ Equity