Dogwood State Bank Reports Third Quarter 2024 Results and Successful Integration of Community First
RALEIGH, N.C., Oct. 23, 2024 /PRNewswire/ -- Dogwood State Bank (OTC:DSBX) ("Dogwood" or the "Bank") announced today its financial results for the three and nine months ended September 30, 2024.
Third Quarter 2024 Financial Highlights
The acquisition of Community First Bancorporation ("Community First") was completed on August 1, 2024.
Adjusted net income (non-GAAP) improved to $6.4 million in Q3 2024, compared to $3.1 million in Q2 2024 and $2.9 million in Q3 2023.
Adjusted EPS (non-GAAP) increased to $0.36 per diluted share in Q3 2024, compared to $0.20 per share in Q2 2024 and $0.20 per share in Q3 2023.
Net interest margin expanded to 3.93% in Q3 2024, compared to 3.53% in Q2 2024 and 3.43% in Q3 2023.
SBA lending income rose to $2.8 million in Q3 2024, compared to $2.7 million in Q2 2024 and $2.4 million in Q3 2023. Dogwood was ranked 3rd largest North Carolina SBA lender and 29th largest in the nation in the SBA's most recent fiscal year.
Adjusted efficiency ratio (non-GAAP) improved to 60.8% in Q3 2024, compared to 62.1% in Q2 2024 and 65.1% in Q3 2023.
"Dogwood's third quarter 2024 results demonstrate our strong organic growth and operating momentum as well as enhanced earnings power from the Community First acquisition," commented Steve Jones, Chief Executive Officer. "The combination of these factors contributed to a 106% increase in adjusted net income compared to last quarter and a 79% growth in adjusted EPS over the same periods. I am also pleased to announce the successful conversion of Community First's customers and systems onto Dogwood's platform this past weekend, officially completing the merger integration process. Thanks to the hard work and dedication of our employees, we were able to ensure a smooth transition for our customers. Their commitment has been crucial in making this conversion a success, and we look forward to delivering even greater value as a unified company."
Community First Acquisition
On August 1, 2024, Dogwood completed the acquisition of Community First in an all-stock transaction. A total of 3.4 million shares of Dogwood voting common stock were issued in the transaction, which equated to total consideration paid of $54.3 million. Dogwood added $682.8 million in total assets, $474.1 million in gross loans, $572.1 million in total deposits, and $53.6 million in shareholders' equity to its balance sheet in the acquisition. As part of the purchase price allocation, $4.6 million in goodwill was recognized at acquisition.
Q3 2024 Earnings Performance
Dogwood reported a GAAP net loss in Q3 2024 of ($4.8) million, or ($0.28) per diluted share, compared to net income of $2.9 million, or $0.20 per diluted share, in Q3 2023. Current quarter GAAP earnings were negatively impacted by merger & acquisition expenses and a one-time provision charge on acquired non-purchased credit deteriorated ("PCD") loans, both of which were related to the acquisition of Community First.
Adjusted net income (non-GAAP) in Q3 2024, which excludes the impact of merger & acquisition expenses as well as the provision charge on acquired non-PCD loans, increased to $6.4 million, or $0.36 per diluted share, from $2.9 million, or $0.20 per diluted share, in Q3 2023. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in Q3 2024 was $8.8 million, an increase from $4.9 million in Q3 2023.
Net Interest Income
Net interest income was $18.2 million in Q3 2024, an increase from $11.0 million in Q3 2023. The increase was primarily due to significant growth in interest-earning assets over the past year, including an increase in assets from the Community First acquisition, and an expansion in net interest margin.
Total average interest-earning assets increased to $1.96 billion in Q3 2024 from $1.34 billion in Q3 2023. Average loans increased by $562.6 million. Average investment securities balances increased by $19.7 million.
Net interest margin expanded to 3.93% in Q3 2024 from 3.43% in Q3 2023. While cost of funds increased by 0.24% over the periods under comparison, 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 $5.9 million in Q3 2024, an increase from $1.1 million in Q3 2023. This increase was primarily due to a one-time provision charge of $5.3 million on acquired non-PCD loans. The allowance for credit losses to total loans was 1.09% as of September 30, 2024, compared to 1.08% as of June 30, 2024 and 1.10% as of September 30, 2023.
Nonperforming loans were 0.18% of total loans as of September 30, 2024, compared to 0.17% as of June 30, 2024, and 0.16% as of September 30, 2023. Annualized net charge offs were 0.17% of average loans in Q3 2024, which was lower than 0.30% in Q3 2023. The vast majority of charge offs recognized in Q3 2024 were related to unguaranteed portions of U.S. Small Business Administration ("SBA") loans.
Non-Interest Income
Non-interest income was $4.2 million in Q3 2024, an increase from $3.0 million in Q3 2023. This increase was primarily related to SBA lending income as well as service charges and debit card income.
SBA lending income rose by $439 thousand due to higher secondary market premiums on sales of guaranteed loans sold in the quarter and higher servicing fee income. The weighted average net premium on SBA loans sold in Q3 2024 was 9.64%, an increase from 7.72% in Q3 2023. Guaranteed balances of SBA loans sold totaled $29.3 million in Q3 2024, which was a decrease from $35.2 million in Q3 2023.
Service charges and debit card income increased by $466 thousand, which was primarily due to the Community First acquisition.
Non-Interest Expense
Non-interest expense was $22.7 million in Q3 2024, an increase from $9.1 million in Q3 2023. Merger & acquisition expenses of $9.1 million were incurred in Q3 2024 to complete the Community First acquisition. These one-time expenses included placement agent fees, professional fees, executive change in control payments, vendor termination payments, and other merger-related costs. Further, amortization of the Community First core deposit intangible which was recognized in the acquisition added $408 thousand to expense in the quarter.
Also contributing to the increase in non-interest expense, compensation and benefits grew by $2.6 million due partially to the increased headcount from the Community First acquisition as well as other investments that have been made in human capital across the Bank to support its organic growth, including entering new markets.
Increases in expense items such as occupancy and equipment, software, data processing, and FDIC insurance were primarily due to the Community First acquisition.
Income Taxes
Dogwood generated a tax benefit of $1.4 million in Q3 2024, compared to tax expense of $902 thousand in Q3 2023. The effective tax benefit rate was 23.2% in Q3 2024, which was slightly lower than the effective tax rate of 23.5% in Q3 2023.
Year-to-Date 2024 Earnings Performance
Dogwood reported a GAAP net loss in the first nine months of 2024 ("YTD 2024") of ($288) thousand, or ($0.02) per diluted share, compared to net income of $7.7 million, or $0.52 per diluted share, in the first nine months of 2023 ("YTD 2023"). YTD 2024 GAAP earnings were negatively impacted by merger & acquisition expenses and a one-time provision charge on acquired PCD loans, both of which were related to the acquisition of Community First.
Adjusted net income (non-GAAP) in Q3 2024, which excludes the impact of merger & acquisition expenses as well as the provision charge on acquired non-PCD loans, increased to $12.0 million, or $0.75 per diluted share, from $7.7 million, or $0.52 per diluted share, in YTD 2023. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in YTD 2024 was $19.1 million, an increase from $13.4 million in YTD 2023.
Net Interest Income
Net interest income was $42.0 million in YTD 2024, an increase from $30.9 million in YTD 2023. The increase was due to significant growth in interest-earning assets over the past year, including an increase in assets from the Community First acquisition, and an expansion in net interest margin.
Total average interest-earning assets increased to $1.53 billion in YTD 2024 from $1.16 billion in YTD 2023. Average loans increased by $346.2 million. Average investment securities balances increased by $18.2 million, and average interest-earning cash balances increased $10.2 million.
Net interest margin expanded to 3.66% in YTD 2024 from 3.56% in YTD 2023. While cost of funds increased by 0.67% over the periods under comparison, 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 $8.8 million in YTD 2024, an increase from $3.5 million in YTD 2023. The increase in provision expense was primarily due to a one-time provision charge of $5.3 million on acquired non-PCD loans.
Non-Interest Income
Non-interest income was $10.5 million in YTD 2024, an increase from $8.4 million in YTD 2023. This increase was primarily related to SBA lending income as well as service charges and debit card income.
SBA lending income rose by $1.1 million due to higher secondary market premiums on sales of guaranteed loans sold YTD and higher servicing fee income. The weighted average net premium on SBA loans sold in YTD 2024 was 9.52%, an increase from 8.14% in YTD 2023. Guaranteed balances of SBA loans sold totaled $79.5 million in YTD 2024, which was relatively consistent with $79.7 million in YTD 2023.
Service charges and debit card income increased by $446 thousand, which was primarily due to the Community First acquisition.
Non-Interest Expense
Non-interest expense was $44.0 million in YTD 2024, an increase from $25.9 million in YTD 2023. Merger & acquisition expenses of $10.7 million were incurred in YTD 2024 to complete the Community First acquisition. These one-time expenses included placement agent fees, professional fees, executive change in control payments, vendor termination payments, and other merger-related costs. Further, amortization of the Community First core deposit intangible which was recognized in the acquisition added $408 thousand to expense.
Also contributing to the increase in non-interest expense, compensation and benefits grew by $4.6 million due partially to the increased headcount from the Community First acquisition as well as other investments that have been made in human capital across the Bank to support its organic growth, including entering new markets.
Increases in expense items such as occupancy and equipment, software, data processing, and FDIC insurance were primarily due to the Community First acquisition.
Income Taxes
Dogwood generated a tax benefit of $46 thousand in YTD 2024, compared to tax expense of $2.2 million in YTD 2023. The effective tax benefit rate was 13.8% in YTD 2024, compared to the effective tax rate of 21.9% in YTD 2023.
About Dogwood State Bank
Dogwood State Bank is a state-chartered community bank headquartered in Raleigh, North Carolina, with approximately $2.2 billion in total assets. Dogwood provides a wide range of banking products and services through its online offerings and twenty branch offices in North Carolina, South Carolina, and Eastern Tennessee. Dogwood also specializes in providing lending services to small businesses through its Dogwood State Bank Small Business Lending division. 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
Nine Months Ended
(Dollars in thousands, except per share data)
Sep 302024
Jun 302024
Mar 312024
Dec 312023
Sept 302023
Sep 302024
Sep 302023
Net interest income
$ 18,157
$ 12,521
$ 11,312
$ 11,900
$ 11,005
$ 41,990
$ 30,884
Provision for credit losses
5,857
2,017
921
1,638
1,063
8,795
3,526
Net interest income after provision
12,300
10,504
10,391
10,262
9,942
33,195
27,358
Non-interest income
SBA lending
2,801
2,717
2,197
1,838
2,362
7,715
6,583
Service charges and debit card income
811
340
351
343
345
1,502
1,056
Bank-owned life insurance
301
219
211
201
187
733
550
Securities gains (losses), net
(8)
(6)
6
5
94
(8)
72
Gain on payoff of FHLB advances
-
-
-
1,230
-
-
-
Other
293
161
85
93
49
537
158
Total non-interest income
4,198
3,431
2,850
3,710
3,037
10,479
8,419
Non-interest expense
Compensation and benefits
8,598
6,683
6,506
6,910
6,003
21,787
17,229
Occupancy and equipment
1,025
707
719
634
590
2,451
1,769
Software
497
344
346
343
346
1,187
1,032
Loan related costs
182
314
290
254
305
786
660
Data processing
648
315
261
245
263
1,224
765
Professional fees
208
235
225
242
250
668
729
FDIC insurance
287
204
240
239
222
731
495
Merger and acquisition expenses
9,139
562
958
14
-
10,659
-
Amortization of other intangible assets
408
4
11
18
24
423
93
Other
1,731
1,102
1,259
1,274
1,137
4,092
3,132
Total non-interest expense
22,723
10,470
10,815
10,173
9,140
44,008
25,904
Net income (loss) before income taxes
(6,225)
3,465
2,426
3,799
3,839
(334)
9,873
Income tax expense (benefit)
(1,445)
811
588
865
902
(46)
2,159
Net income (loss)
$ (4,780)
$ 2,654
$ 1,838
$ 2,934
$ 2,937
$ (288)
$ 7,714
Pre-Tax, Pre-Provision Net Revenue (PPNR)(1)
$ (368)
$ 5,482
$ 3,347
$ 5,437
$ 4,902
$ 8,461
$ 13,399
Adjusted PPNR(1)
8,771
6,044
4,305
5,451
4,902
19,120
13,399
Per Share Data:
Earnings per share (EPS) - basic
$ (0.28)
$ 0.18
$ 0.13
$ 0.20
$ 0.20
$ (0.02)
$ 0.55
Adjusted EPS - basic(1)
0.37
0.21
0.18
0.21
0.20
0.77
0.55
Earnings per share - diluted
(0.28)
0.17
0.12
0.20
0.20
(0.02)
0.52
Adjusted EPS - diluted(1)
0.36
0.20
0.17
0.20
0.20
0.75
0.52
Performance Ratios:
Return on average assets (ROA)
-0.97 %
0.71 %
0.53 %
0.80 %
0.87 %
-0.02 %
0.84 %
Adjusted ROA(1)
1.30 %
0.83 %
0.74 %
0.81 %
0.87 %
0.99 %
0.84 %
Return on average equity (ROE)
-9.07 %
6.16 %
4.44 %
7.15 %
7.32 %
-0.21 %
6.77 %
Adjusted ROE(1)
12.09 %
7.16 %
6.22 %
7.18 %
7.32 %
8.77 %
6.77 %
Return on tangible common equity (ROTCE)(1)
-9.93 %
6.42 %
4.63 %
7.48 %
7.66 %
-0.22 %
7.10 %
Adjusted ROTCE(1)
13.24 %
7.46 %
6.50 %
7.51 %
7.66 %
9.32 %
7.10 %
Net interest margin
3.93 %
3.53 %
3.41 %
3.42 %
3.43 %
3.66 %
3.57 %
Efficiency ratio
101.65 %
65.63 %
76.37 %
65.17 %
65.09 %
83.87 %
65.91 %
Adjusted efficiency ratio(1)
60.76 %
62.11 %
69.60 %
65.08 %
65.09 %
63.56 %
65.91 %
(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)
Sep 302024
Jun 302024
Mar 312024
Dec 312023
Sept 302023
Assets
Cash and due from banks
$ 7,622
$ 2,514
$ 2,353
$ 5,191
$ 5,261
Interest-earning deposits with banks
146,732
59,073
91,365
123,474
220,206
Total cash and cash equivalents
154,354
61,587
93,718
128,665
225,467
Investment securities available for sale
95,290
58,989
55,984
49,244
40,887
Investment securities held to maturity
73,144
74,404
76,119
77,557
78,614
Marketable equity securities
335
329
336
329
324
Total investment securities
168,769
133,722
132,439
127,130
119,825
Loans held for sale
7,924
11,030
8,146
15,274
20,329
Loans
1,757,828
1,236,722
1,148,899
1,095,339
1,036,636
Less allowance for credit losses
(19,143)
(13,349)
(12,344)
(11,943)
(11,385)
Loans, net
1,738,685
1,223,373
1,136,555
1,083,396
1,025,251
Bank-owned life insurance
44,743
27,888
27,669
27,458
27,257
Premises and equipment, net
35,378
19,713
18,838
18,707
19,522
SBA servicing asset
5,026
4,568
4,373
3,967
3,913
Goodwill
11,603
7,016
7,016
7,016
7,016
Other intangible assets, net
11,972
-
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