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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