Dogwood State Bank : DSB Q2 2022 Earnings Release

Dogwood State Bank Surpasses $1 Billion in Assets

and Reports Second Quarter 2022 Results

Raleigh, North Carolina, July 22, 2022 - Dogwood State Bank (the "Bank") today announced its financial results for the three and six months ended June 30, 2022.

Second Quarter and Year-to-Date 2022 Highlights

• Total assets crossed the $1 billion threshold in Q2 2022.
• Net income improved to $2.3 million in Q2 2022, compared to $1.6 million in Q2 2021. Year-to-date net income improved to $4.8 million, compared to $2.6 million in the first six months of 2021.
• Diluted earnings per share improved to $0.16 per share in Q2 2022, compared to $0.12 per share in Q2 2021. Year-to-date diluted earnings per share improved to $0.34 per share, compared to $0.20 per share in the first six months of 2021.
• Total deposits increased by $22.6 million (11% annualized) from Q1 2022 and increased by $184.7 million (28%) from Q2 2021.
• The mix of non-interest deposits to total deposits improved to 39% as of June 30, 2022, compared to 33% as of both March 31, 2022 and June 30, 2021.
• Total loans, excluding PPP loans, increased by $64.2 million (37% annualized) from Q1 2022 and increased by $282.9 million (60%) from Q2 2021.
• In February 2022, the Bank closed a $12.0 million private placement offering of common stock at $18 per share.

"I am proud to share that in just three years following the recapitalization, Dogwood State Bank has grown past the $1 billion total asset threshold," commented Steve Jones, Chief Executive Officer. "This significant milestone represents the tremendous dedication and hard work of all our teammates and reflects the many customer relationships we have built across our North Carolina markets."

Net Interest Income

Net interest income was $8.5 million for the three months ended June 30, 2022, an increase from $6.1 million in the second quarter of 2021. The increase was due to significant growth in interest-earning assets over the past year along with a higher net interest margin.

Total average interest-earning assets increased to $937.1 million in the second quarter of 2022 from $727.4 million in the second quarter of 2021. Average loans, excluding PPP loans, increased by $258.5 million. Average PPP loan balances decreased by $127.3 million due to forgiveness payments. Average investment securities balances and interest-earning cash balances increased by $48.6 million and $30.0 million, respectively.

Net interest margin increased to 3.65% in the second quarter of 2022, compared to 3.34% in the second quarter of 2021. Net interest margin was benefited by an increase in interest-earning asset yields along with a decrease in cost of funds. The Federal Reserve's Board of Governors increased the federal funds rate by an aggregate 1.25% in the second quarter of 2022 and by 1.50% in the first six months of 2022.

Given the Bank's current balance sheet profile and interest rate position, higher market interest rates will tend to improve the net interest margin over time. Excluding the impact of PPP, net interest margin increased to 3.55% (non-GAAP) in the second quarter of 2022, compared to 3.38% (non-GAAP) in the second quarter of 2021.

Provision for Loan Losses and Asset Quality

Provision for loan losses was $583 thousand for the three months ended June 30, 2022, a decrease from $700 thousand in the second quarter of 2021. The decrease in provision expense reflects less uncertainty regarding the coronavirus pandemic, including risk rating upgrades to certain loans initially impacted by the pandemic. As a result, the Bank's allowance for loan losses to total loans, excluding PPP loans, declined to 1.01% as of June 30, 2022, compared to 1.12% as of both December 31, 2021 and June 30, 2021.

Asset quality metrics have remained strong with nonperforming loans declining to 0.09% of total loans as of June 30, 2022, compared to 0.10% as of December 31, 2021 and 0.16% as of June 30, 2021. Annualized net charge offs were 0.01% of average loans in the second quarter of 2022, compared to 0.10% in the second quarter of 2021.

Non-Interest Income

Non-interest income was $2.9 million for the three months ended June 30, 2022, a decrease from $3.7 million in the second quarter of 2021. Most of this decrease was related to a $949 thousand decline in government guaranteed lending ("GGL") income. GGL lending income declined due to lower secondary market premiums on sales of guaranteed U.S. Small Business Administration ("SBA") 7(a) loans and due to a $644 thousand impairment in the value of the Bank's SBA servicing asset in the second quarter of 2022. The GGL lending income decline was partially offset by an increase in the balance of guaranteed loans sold in the quarter.

Loan production under the SBA's 7(a) loan program totaled $38.0 million in the second quarter of 2022, compared to $44.5 million in the second quarter of 2021. Guaranteed balances of SBA loans sold increased to $31.9 million in the second quarter of 2022, compared to $23.2 million in the second quarter of 2021. The weighted average net premium on SBA loans sold in the second quarter of 2022 was 8.99%, which was a decrease from 13.28% in the second quarter of 2021.

Non-Interest Expense

Non-interest expense was $7.9 million for the three months ended June 30, 2022, an increase from $7.0 million in the second quarter of 2021. Most of the increase was related to compensation and benefits, which increased by $659 thousand. Significant investments have been made in human capital across the Bank over the past couple of years to support its rapid growth, which resulted in increased expenses in this area.

Income Taxes

Income tax expense was $655 thousand for the three months ended June 30, 2022, compared to $468 thousand in the second quarter of 2021. The effective tax rate was 22.22% in the second quarter of 2022, which was relatively consistent with an effective tax rate of 22.31% in the second quarter of 2021.

Capital Raise

In February 2022, the Bank completed a $12.0 million capital raise, which consisted of a private placement offering of 664,316 shares of common stock at $18.00 per share. Ward & Smith, P.A. served as legal counsel to the Bank for the offering. The Bank did not use a placement agent. This growth capital is intended to accelerate the buildout of the Bank's statewide, North Carolina banking franchise.

About Dogwood State Bank

Dogwood State Bank is a North Carolina state-chartered community bank headquartered in Raleigh, North Carolina, with approximately $1.0 billion in total assets. The Bank provides a wide range of banking products and services through its digital offerings and branch offices in Charlotte, Greenville, Morehead City, Raleigh, Sanford, and Wilmington, North Carolina. The Bank also specializes in providing lending services to small businesses through its Dogwood State Bank Small Business Lending Division. For more information, visit DogwoodStateBank.com.

Disclosures About Forward Looking Statements

All statements in this Shareholder Update that are not historical are forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. 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. Such forward-looking statements are subject to factors that could cause actual results to differ materially from those discussed. Dogwood State Bank wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. These statements are not guarantees of future performance. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. We do not undertake any obligation to publicly update any forward- looking statements, whether as a result of new information, future events or otherwise.

Quarterly Financial Tables

Dogwood State Bank
Income Statement					Quarter Ended									Six Months Ended
									Jun 30		Mar 31		Dec 31		Sept 30		Jun 30					Jun 30		Jun 30
(Dollars in thousands, except per share data)		2022		2022		2021		2021		2021					2022		2021
Net interest income	$	8,528	$	7,559	$	7,244	$	6,850	$	6,058	$	16,087	$	11,844
Provision for loan losses		583		438		870		536		700					1,021		1,462
Net interest income after provision		7,945		7,121		6,374		6,314		5,358					15,066		10,382
Non-interest income			2,337													5,945
Government-guaranteed lending			3,608		3,787		4,004		3,286						5,487
Service charges and debit card income		325		316		267		218		211					641		394
Bank-owned life insurance		178		160		179		168		118					338		233
Securities gains (losses), net		(5)		23		(3)		(5)		15					18		12
Other		60		(276)		58		62		89					(216)		145
Total non-interest income			2,895		3,831		4,288		4,447		3,719					6,726		6,271
Non-interest expense			5,479													10,812
Compensation and benefits			5,333		11,302		5,355		4,820						9,172
Occupancy and equipment		593		574		550		509		505					1,167		951
Data processing		303		281		281		248		249					584		492
Amortization of other intangible assets		58		64		71		77		84					122		175
Other		1,459		1,476		1,356		1,342		1,321					2,935		2,520
Total non-interest expense			7,892		7,728		13,560		7,531		6,979					15,620		13,310
Net income (loss) before income taxes			2,948		3,224		(2,898)		3,230		2,098					6,172		3,343
Income tax expense (benefit)		655		719		(2,167)		712		468					1,374		737
Net income (loss)			$	2,293	$	2,505	$	(731)	$	2,518	$	1,630				$	4,798	$	2,606
Per Share Data:	$	0.17										$	0.35
Earnings per share - basic		$	0.19	$	(0.05)	$	0.19	$	0.12	$	0.21
Earnings per share - diluted		$	0.16	$	0.18	$	(0.05)	$	0.18	$	0.12			$	0.34	$	0.20
Performance Ratios:		0.92%													1.00%
Return on average assets			1.08%		-0.32%		1.19%		0.85%						0.72%
Return on average equity		6.95%		8.06%		-2.39%		8.36%		5.58%					7.49%		4.85%
Return on tangible common equity		7.36%		8.55%		-2.54%		8.92%		5.96%					7.94%		5.22%
Net interest margin		3.65%		3.48%		3.45%		3.45%		3.34%					3.57%		3.46%
Efficiency ratio		69.09%		67.85%		117.59%		66.66%		71.38%					68.47%		73.48%

Dogwood State Bank
Balance Sheet				Ending Balance as of
		Jun 30		Mar 31		Dec 31		Sept 30		Jun 30
(Dollars in thousands, except per share data)		2022		2022		2021		2021		2021
Assets	$	1,956
Cash and due from banks	$	1,831	$	2,705	$	1,835	$	2,005
Interest-earning deposits with banks		55,871		65,149		92,402		111,651		90,302
Investment securities		116,946		114,246		111,513		98,970		73,038
Loans held for sale		10,404		11,043		9,331		16,987		2,851
PPP loans		15,368		31,598		61,327		89,010		120,447
Loans, excluding PPP loans		757,829		693,632		591,679		511,963		474,945
Less allowance for loan losses		(7,631)		(7,062)		(6,625)		(5,871)		(5,335)
Loans, net		750,198		686,570		585,054		506,092		469,610
Bank-owned life insurance		26,349		26,171		26,268		26,307		18,639
Premises and equipment, net		15,801		16,162		16,360		14,652		15,509
Servicing assets		2,908		2,943		2,390		1,791		1,417
Goodwill		7,016		7,016		7,016		7,016		7,016
Other intangible assets, net		221		279		343		414		491
Other assets		11,573		11,315		10,380		6,549		6,609
Total assets	$	1,014,611	$	974,323	$	925,089	$	881,274	$	807,934
Liabilities and Shareholders' Equity
Deposits:	$	332,258
Noninterest-bearing	$	276,270	$	236,162	$	226,463	$	217,839
Interest-bearing		519,802		553,182		551,551		516,348		449,501
Total deposits		852,060		829,452		787,713		742,811		667,340
FHLB advances		15,000		-		4,000		4,000		10,000
Lease obligations		8,352		8,549		8,584		6,845		6,967
Other liabilities		6,771		5,378		5,835		6,631		5,443
Total liabilities		882,183		843,379		806,132		760,287		689,750
Total shareholders' equity		132,428		130,944		118,957		120,987		118,184
Total liabilities and shareholders' equity	$	1,014,611	$	974,323	$	925,089	$	881,274	$	807,934
Per Share Information:		13,796,916
Shares outstanding			13,796,916		13,122,600		13,461,385		13,441,385
Book value per share	$	9.60	$	9.49	$	9.07	$	8.99	$	8.79
Tangible book value per share (non-GAAP)	$	9.07	$	8.96	$	8.50	$	8.44	$	8.23
Capital Ratios:		13.05%
Equity to assets			13.44%		12.86%		13.73%		14.63%
Tangible common equity to tangible assets (non-GAAP)		12.43%		12.79%		12.16%		13.00%		13.83%
Tier 1 leverage		12.89%		13.37%		12.39%		13.50%		14.57%
Common equity Tier 1 capital		15.35%		16.28%		16.68%		19.56%		21.05%
Tier 1 capital		15.35%		16.28%		16.68%		19.56%		21.05%
Total capital		16.29%		17.21%		17.70%		20.60%		22.09%
Asset Quality:	$	493
Non-accrual loans	$	555	$	565	$	707	$	743
Loans 90 days or more past due and accruing		202		299		60		26		26
Other real estate owned		-		-		-		-		-
Total nonperforming assets	$	695	$	854	$	625	$	733	$	769
Nonperforming loans to loans		0.09%		0.12%		0.11%		0.14%		0.16%
Nonperforming assets to total assets		0.07%		0.09%		0.07%		0.08%		0.10%
Nonperforming assets to loans and other real estate owned		0.09%		0.12%		0.11%		0.14%		0.16%
Past due loans to loans (excludes non-accrual loans)		0.07%		0.13%		0.30%		0.56%		0.14%
Allowance for loan losses to loans		1.01%		1.02%		1.12%		1.15%		1.12%
Allowance for loan losses to nonperforming loans		1097.99%		826.93%		1060.00%		800.95%		693.76%