Building a new bank through a pandemic has turned out well so far for Raleigh’s Dogwood State Bank, which recently raised $28 million to further expansion.
CEO Steve Jones’ strategy is to open one office in key N.C. cities, hire experienced lenders and take market share from bigger banks. Dogwood has $612 million in assets, 110 employees and offices in Charlotte, Greenville, Morehead City, Raleigh and Wilmington. It has hired experienced lenders in Fayetteville and Sanford with plans to open branches there, Jones says.
Capital hasn’t been Dogwood’s problem given that it raised $70 million in 2019 from three institutions — Philadelphia-based Patriot Financial, McLean, Va.-based FJ Capital Management and Baltimore-based T. Rowe Price Associates — plus $30 million from wealthy individuals and families. With that money Jones and Executive Chairman Scott Custer led a recapitalization with the owner of Morehead City-based Sound Bank and opened a headquarters in Raleigh.
With the bank earning a $178,000 profit last year, six months ahead of forecast, Jones says he raised the $28 million from 200 new “friends and family” shareholders in seven business days. Dogwood’s stock, which trades infrequently over-the-counter, is held by about 400 individuals.
The pandemic-spurred Payment Protection Program helped Dogwood get in the door with many clients as it lent about $100 million last year, Jones says. It expects to lend nearly as much in the second PPP round, which Jones notes has been more “gummy” because of various new rules.
About nine Dogwood lenders joined from Wells Fargo, which is undergoing major leadership changes under CEO Charles Scharf. The San Francisco-based successor to Wachovia has had a dominant market share in the Triangle for many years, so “this disruption point has really created an opportunity for a community bank like Dogwood,” Jones says. Others are also taking advantage, including Nashville, Tenn.-based Pinnacle Financial Partners, which recently hired a five-person team from Wells Fargo in Raleigh.
The squeeze on net interest margin because of historically low rates is difficult for all lenders, “but good managements figure out ways to make money in every rate environment,” Jones says. Small Business Administration loans are a big focus at Dogwood with 20 people working on that program alone, he says.
Conventional wisdom is that commercial banks need diverse income sources to supplement net interest margin, but so far Dogwood is sticking with traditional lending and deposit-gathering. The company makes some residential mortgages, but that hasn’t been an emphasis. “It’s a competitive advantage in not having a branch on every corner,” Jones says. “We’re going to stick to our business model and make it best in class.”
Jones and Custer worked together for many years at Yadkin Financial and RBC banks before moving to Dogwood.