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Total average interest-earning assets increased to $2.04 billion in Q4 2024 from $1.27 billion in Q4 2023. Average loans increased by $749.8 million.  Average investment securities balances increased by $50.8 million.

Net interest margin expanded to 4.13% in Q4 2024 from 3.43% in Q4 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 $1.1 million in Q4 2024, a decrease from $1.6 million in Q4 2023.  The allowance for credit losses to total loans was 1.08% as of Q4 2024, compared to 1.09% as of both Q3 2024 and Q4 2023.

Nonperforming loans were 0.33% of total loans as of Q4 2024, compared to 0.18% as of Q3 2024, and 0.15% as of Q4 2023.  Annualized net charge offs were 0.13% of average loans in Q4 2024, compared to 0.17% in Q3 2024 and 0.02% in Q4 2024.  The vast majority of charge offs recognized in Q4 2024 were related to unguaranteed portions of U.S. Small Business Administration ("SBA") loans.

Non-Interest Income

Non-interest income was $3.7 million in both Q4 2024 and Q4 2023.  SBA lending income as well as service charges & debit card income increased over this period, but a $1.2 million gain on the early payoff of $50 million of term FHLB advances in Q4 2023 offset these increases.

SBA lending income rose by $381 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 Q4 2024 was 8.95%, an increase from 8.14% in Q4 2023.  Guaranteed balances of SBA loans sold totaled $23.2 million in Q4 2024, which was a decrease from $25.4 million in Q4 2023.

Service charges and debit card income increased by $611 thousand, which was primarily due to the Community First acquisition.

Non-Interest Expense

Non-interest expense was $15.8 million in Q4 2024, an increase from $10.2 million in Q4 2023.  Merger & acquisition expenses of $595 thousand were incurred in Q4 2024 related to the Community First acquisition.  These one-time expenses were primarily related to the systems conversion and other integration-related costs.  Further, amortization of the Community First core deposit intangible, which was recognized in the acquisition, added $599 thousand to expense in the quarter.

Also contributing to the increase in non-interest expense, compensation and benefits grew by $2.5 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.

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 had tax expense of $1.8 million in Q4 2024, compared to tax expense of $865 thousand in Q4 2023.  The effective tax benefit rate was 22.73% in Q4 2024, which was similar to the effective tax rate of 22.77% in Q4 2023.

Full Year 2024 Earnings Performance

Dogwood reported GAAP net income in 2024 of $5.9 million, or $0.35 per diluted share, compared to net income of $10.6 million, or $0.72 per diluted share, in 2023. GAAP earnings in 2024 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 2024, which excludes the impact of merger & acquisition expenses as well as the provision charge on acquired non-PCD loans, increased to $18.7 million, or $1.12 per diluted share, from $10.6 million, or $0.72 per diluted share, in 2023.  Adjusted pre-tax, pre-provision net revenue (non-GAAP) in 2024 was $28.8 million, an increase from $18.8 million in 2023.

Net Interest Income

Net interest income was $63.1 million in 2024, an increase from $42.8 million in 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 $1.66 billion in 2024 from $1.22 billion in 2023.  Average loans increased by $435.8 million.  Average investment securities balances increased by $25.3 million.

Net interest margin expanded to 3.80% in 2024 from 3.52% in 2023.  While cost of funds increased by 0.44% 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 $9.9 million in 2024, an increase from $5.2 million in 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 $14.2 million in 2024, an increase from $12.1 million in 2023.  This increase was primarily related to SBA lending income as well as service charges and debit card income, partially offset by a $1.2 million gain on the early payoff of term FHLB advances in 2023.

SBA lending income rose by $1.5 million due to higher secondary market premiums on sales of guaranteed loans sold during the year and higher servicing fee income.  The weighted average net premium on SBA loans sold in 2024 was 9.39%, an increase from 8.14% in 2023.  Guaranteed balances of SBA loans sold totaled $102.7 million in 2024, which was a decrease from $105.1 million in 2023.

Service charges and debit card income increased by $1.1 million, which was primarily due to the Community First acquisition.

Non-Interest Expense

Non-interest expense was $59.8 million in 2024, an increase from $36.1 million in 2023.  Merger & acquisition expenses of $11.3 million were incurred in 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 $1.0 million to expense.

Also contributing to the increase in non-interest expense, compensation and benefits grew by $7.0 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.

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 had tax expense of $1.8 million in 2024, compared to tax expense of $3.0 million in 2023.  The effective tax rate was 23.12% in 2024, which was slightly higher than the effective tax rate of 22.12% in 2023.

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 $682.5 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, $4.8 million in goodwill was recognized at acquisition.

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-one 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.

Financial Tables