Dogwood State Bank (OTC: DSBX) (“Dogwood” or the “Bank”) announced today its financial results for the three months ended March 31, 2025.
First Quarter 2025 Highlights
- Net income rose to $7.4 million ($0.39 per diluted share) in Q1 2025, compared to $6.2 million ($0.32 per diluted share) in Q4 2024 and $1.8 million ($0.12 per diluted share) in Q1 2024.
- Adjusted net income (non-GAAP) rose to $7.5 million ($0.39 per diluted share) in Q1 2025, compared to $6.6 million ($0.35 per diluted share) in Q4 2024 and $2.6 million ($0.17 per diluted share) in Q1 2024.
- Return on average assets increased to 1.34% in Q1 2025, compared to 1.13% in Q4 2024 and 0.53% in Q1 2024.
- Adjusted return on average assets (non-GAAP) increased to 1.36% in Q1 2025, compared to 1.22% in Q4 2024 and 0.74% in Q1 2024.
- Net interest margin expanded to 4.20% in Q1 2025, compared to 4.13% in Q4 2024 and 3.41% in Q1 2024.
- Efficiency ratio improved to 59.7% in Q1 2025, compared to 63.5% in Q4 2024 and 76.4% in Q1 2024.
- Tangible book value per share grew to $11.36 at March 31, 2025, which was an increase of $0.45 per share since December 31, 2024 and an increase of $0.55 per share since March 31, 2024.
“I am extremely proud of our operating metrics this quarter as we continue to achieve record results,” commented Steve Jones, Chief Executive Officer. “Our strong earnings performance reflects solid business fundamentals and disciplined execution. This success is a testament to the dedication and expertise of our team whose continued efforts are driving sustainable value for our shareholders.”
Q1 2025 Earnings Performance vs. Q1 2024
Dogwood reported net income in Q1 2025 of $7.4 million, or $0.39 per diluted share, compared to $1.8 million, or $0.12 per diluted share, in Q1 2024. Current quarter earnings benefited from an expanded net interest margin, higher SBA lending income, and the acquisition of Community First Bancorporation (“Community First”) in Q3 2024.
Adjusted net income (non-GAAP) in Q1 2025, which excludes the impact of merger & acquisition expenses, increased to $7.5 million, or $0.39 per diluted share, from $2.6 million, or $0.17 per diluted share, in Q1 2024. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in Q1 2025 was $10.8 million, which was an increase from $4.3 million in Q1 2024.
Net Interest Income
Net interest income was $21.6 million in Q1 2025, an increase from $11.3 million in Q1 2024. 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 $2.09 billion in Q1 2025 from $1.34 billion in Q1 2024. Average loans increased by $706.6 million. Average investment securities balances increased by $50.6 million.
Net interest margin expanded to 4.20% in Q1 2025 from 3.41% in Q1 2024. Lower cost of funds and 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 Q1 2025, an increase from $921 thousand in Q1 2024. The allowance for credit losses to total loans was 1.10% as of Q1 2025, compared to 1.08% as of Q4 2024 and 1.07% Q1 2024.
Nonperforming loans were 0.41% of total loans as of Q1 2025, compared to 0.33% as of Q4 2024, and 0.18% as of Q1 2024. Annualized net charge-offs were 0.11% of average loans in Q1 2025, compared to 0.13% in Q4 2024 and 0.10% in Q1 2024. The majority of charge offs recognized in Q1 2025 were related to unguaranteed portions of U.S. Small Business Administration (“SBA”) loans.
Non-Interest Income
Non-interest income was $4.8 million in Q1 2025, an increase from $2.9 million in Q1 2024. This increase was primarily due to $994 thousand of growth in SBA lending income as well as $615 thousand of growth in deposit service charges and debit card income.
SBA lending income rose due to a combination of higher balances of guaranteed loans sold in the secondary market, higher premiums on sales of guaranteed loans sold, and higher servicing fee income. The weighted average net premium on SBA loans sold in Q1 2025 was 9.25%, an increase from 8.81% in Q1 2024. Guaranteed balances of SBA loans sold totaled $33.6 million in Q1 2025, which was an increase from $20.8 million in Q1 2024.
Deposit service charges and debit card income increased by $615 thousand, which was primarily due to the Community First acquisition.
Non-Interest Expense
Non-interest expense was $15.8 million in Q1 2025, an increase from $10.8 million in Q1 2024. This increase was primarily due to a $2.8 million increase in compensation and benefits expense, which was partially related to higher headcount from the Community First acquisition as well as other investments that have been made in human capital across the Bank to support organic growth. Increases in expense items such as occupancy and equipment (+$622 thousand), software (+$253 thousand), data processing (+$440 thousand), and FDIC insurance (+$176 thousand) were primarily due to the Community First acquisition. Further, amortization of the Community First core deposit intangible, which was recognized at acquisition, added $583 thousand to expense in the quarter.
The increase in expenses was partially offset by a decrease of $830 thousand in merger & acquisition expenses related to the Community First acquisition.
Income Taxes
Dogwood incurred tax expense of $2.2 million in Q1 2025, an increase from $588 thousand in Q1 2024. The effective tax benefit rate was 22.7% in Q1 2025, which was comparable to the effective tax rate of 22.8% in Q1 2024.
Q1 2025 Earnings Performance vs. Q4 2024
Dogwood reported net income in Q1 2025 of $7.4 million, or $0.39 per diluted share, compared to $6.2 million, or $0.32 per diluted share, in Q4 2024. Current quarter earnings benefited from an expanded net interest margin and higher SBA lending income.
Adjusted net income (non-GAAP) in Q1 2025, which excludes the impact of merger & acquisition expenses, increased to $7.5 million, or $0.39 per diluted share, from $6.6 million, or $0.35 per diluted share, in Q4 2024. Adjusted pre-tax, pre-provision net revenue (non-GAAP) in Q1 2025 was $10.8 million, which was an increase from $9.7 million in Q4 2024.
Net Interest Income
Net interest income was $21.6 million in Q1 2025, an increase from $21.1 million in Q4 2024. The increase was due to growth in interest-earning assets and an expansion in net interest margin.
Total average interest-earning assets increased to $2.09 billion in Q1 2025 from $2.04 billion in Q4 2024. Average loans increased by $59.9 million. Average investment securities balances increased by $11.6 million.
Net interest margin expanded to 4.20% in Q1 2025 from 4.13% in Q4 2024. The primary driver of the improved net interest margin was a drop in cost of funds, which decreased from 2.50% in Q4 2024 to 2.42% in Q1 2025.
Provision for Credit Losses and Asset Quality
Provision for credit losses was $1.1 million in Q1 2025, which was flat compared to Q4 2024. The allowance for credit losses to total loans was 1.10% as of Q1 2025, compared to 1.08% as of Q4 2024.
Nonperforming loans were 0.41% of total loans as of Q1 2025, compared to 0.33% as of Q4 2024. Annualized net charge-offs were 0.11% of average loans in Q1 2025, compared to 0.13% in Q4 2024. The majority of charge offs recognized in Q1 2025 were related to unguaranteed portions of SBA loans.
Non-Interest Income
Non-interest income was $4.8 million in Q1 2025, an increase from $3.7 million in Q4 2024. This increase was primarily due to $972 thousand of growth in SBA lending income. SBA lending income rose due to a combination of higher balances of guaranteed loans sold in the secondary market, higher premiums on sales of guaranteed loans sold, and higher servicing fee income. The weighted average net premium on SBA loans sold in Q1 2025 was 9.25%, an increase from 8.95% in Q4 2024. Guaranteed balances of SBA loans sold totaled $33.6 million in Q1 2025, which was an increase from $23.2 million in Q4 2024.
Non-Interest Expense
Non-interest expense was $15.8 million in Q1 2025, which was flat compared to Q4 2024. Occupancy and equipment expense was $175 thousand higher partially due to the recent openings of Dogwood’s new Greenville, SC and Charleston, SC offices. Other non-interest expenses were also $282 thousand higher due to a variety of items. The increase in expenses was offset by a decrease of $467 thousand in merger & acquisition expenses related to the Community First acquisition.
Income Taxes
Dogwood incurred tax expense of $2.2 million in Q1 2025, an increase from $1.8 million in Q4 2024. The effective tax benefit rate was 22.7% in Q1 2025, which was flat compared to the effective tax rate in Q4 2024.
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