Paragon Commercial Corporation Reports Loan Growth of 9% for the Second Quarter of 2017

Highlights:

Loan growth of $108.9 million in the second quarter of 2017, an increase of 13% year-to-date
Credit quality remains strong with nonperforming loans at only 0.04% of total loans and no accruing loans past due greater than 30 days at June 30, 2017
Net interest income of $13.0 million for the second quarter of 2017, an increase of 15% over the same period in the prior year
Second quarter 2017 net income of $3.3 million, only a $192,000 decrease over the same period in the prior year despite a $650,000 increase in loan loss provisions and $368,000 in merger related costs
Second quarter 2017 ROAA of 0.83% and ROAE of 9.19%

RALEIGH, NC / ACCESSWIRE / July 19, 2017 / Paragon Commercial Corporation (the “Company”) (NASDAQ: PBNC), parent company of Paragon Bank (the “Bank”), today reported unaudited financial results for the three-month period ended June 30, 2017. Net income during the three-month period decreased 6% to $3.3 million, compared to $3.5 million for the same period in 2016. The decrease in earnings was primarily driven by a $650,000 loan loss provision as the Company increased its allowance for loan losses commensurate with loan growth. There were no such loan loss provisions recorded during the same period in 2016. In addition, the Company incurred $368,000 in costs directly attributable to its pending merger with TowneBank. These increased costs were mostly offset by an increase in net interest income which was a result of continued loan growth. Fully diluted earnings per share (“EPS”) were $0.61 for the second quarter of 2017, compared to $0.75 for the same period in 2016. The decrease in EPS was directly attributable to the impact on average shares outstanding as a result of the additional shares issued as a result of the Company’s initial public offering (“IPO”) and listing on Nasdaq during the second quarter of 2016.

“Paragon’s loan growth continues to be outstanding. A major driver in the pending merger with TowneBank is our ability to generate growth in our loan portfolio to take advantage of our dynamic markets,” said Robert C. Hatley, President and CEO.

The annualized return on average assets for the second quarter of 2017 was 0.83% and the annualized return on average equity was 9.19%, compared to 1.00% and 13.41%, respectively, for the same ratios in the second quarter of 2016. Those ratios were impacted by the additional capital as a result of the IPO as well as the added loan loss provisions and merger related costs previously discussed.

Consolidated Assets

Total consolidated assets on June 30, 2017 were $1.64 billion compared to $1.50 billion as of December 31, 2016. Assets increased during the quarter by $85.5 million primarily as a result of strong loan demand.

Loan Portfolio

Loans outstanding increased by $108.9 million during the second quarter from $1.23 billion at March 31, 2017 to $1.34 billion at June 30, 2017. For the six months ended June 30, 2017, loans have increased $148.6 million, an annualized rate of 25.0%. All loan categories experienced strong growth except construction and land development, which decreased $7.9 million during the second quarter of 2017. Growth for the other loan categories for the same period was as follows: commercial real estate – $41.7 million, owner occupied commercial real estate – $9.7 million, multifamily – $14.7 million, consumer real estate – $24.5 million, commercial and industrial – $19.1 million, and consumer and other loans – $7.1 million. The Company continues to see strong loan growth throughout the Raleigh, Charlotte, and Cary markets.

Deposit Portfolio

Total deposits decreased by $90.1 million during the second quarter offsetting strong deposit growth in the first quarter. The first quarter’s growth was primarily driven by temporary increases in the balances of several existing deposit customers. For the year, deposits are up $2.5 million despite the Company’s continued effort to pay down wholesale deposits which have decreased by $36.8 million year-to-date. During the second quarter, demand account balances decreased $22.0 million and money market and interest checking accounts decreased $54.5 million. In addition, time deposits decreased $13.7 million, as the Company reduced its brokered deposit portfolio by $15.0 million or 27%. The decline in deposits required the Company to increase its Federal Home Loan Bank advances by $170.0 million during the quarter.

Credit Quality

The Company recorded a $650,000 loan loss provision for the second quarter of 2017 as a result of the growth in total loans. There was no provision for loan losses for the quarter ended June 30, 2016. The allowance for loan losses as a percentage of total loans at June 30, 2017 and December 31, 2016 was 0.67% and 0.66%, respectively.

Asset quality continued to remain strong as nonperforming loans were 0.04% of total loans at June 30, 2017. There were no loans past due 30 days or greater at quarter-end and the ratio of total nonperforming assets to total assets including foreclosed real estate was 0.32%.

Net Interest Income

Net interest income increased by $1.7 million or 15% during the second quarter of 2017 compared to the second quarter of 2016. Net interest income totaled $13.0 million during the period, representing a net interest margin of 3.51% on a tax-equivalent basis, which was down 0.04% when compared to 3.55% in the second quarter of 2016. Net interest margin decreased primarily as a result of increased rates in FHLB borrowings as a result of the recent moves in target rates by the Federal Reserve.

Non-Interest Income

For the second quarter of 2017, non-interest income was $494,000, compared to $381,000 for the same period in 2016. The second quarter of 2016 was negatively impacted by $45,000 in write-downs or loss on sale of foreclosed real estate. There were no losses on foreclosed real estate in the second quarter of 2017.

Non-Interest Expense

Non-interest expenses in the second quarter of 2017 were $7.9 million, compared to $6.5 million in the second quarter of 2016. Personnel expense increased by $568,000 as the Company added lenders and staff to support its strong growth. In addition, the Company incurred $368,000 in merger related costs in 2017 as a result of the pending merger with TowneBank. There were no such costs in the second quarter of 2016.

MEDIA INQUIRIES:

Blair Kelly – MMI Public Relations, 919.233.6600 or BKelly@MMIpublicrelations.com
Meghan Killela – Paragon Bank, 919.534.7402 or MKillela@ParagonBank.com

INVESTOR INQUIRIES:

Steve Crouse – Paragon Bank, Chief Financial Officer, 919.534.7404 or SCrouse@ParagonBank.com

NEW MEDIA CONTENT:

Paragon Bank LinkedIn Page: http://linkd.in/P0o9Wc

ABOUT PARAGON COMMERCIAL CORPORATION

Paragon Commercial Corporation is the parent company of Paragon Bank, which provides a private banking experience to businesses, professionals, executives, entrepreneurs, and other individuals. Founded in Raleigh, North Carolina in 1999, Paragon Bank provides banking services through highly responsive professionals, an extensive courier service, online and mobile technologies, free worldwide ATM access, and a select number of strategically placed offices in Raleigh, Cary, and Charlotte, NC. For more information, visit http://ParagonBank.com.

FORWARD-LOOKING STATEMENTS

Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include, without limitation: failure to obtain all regulatory approvals and meet other closing conditions pursuant to the Agreement and Plan of Reorganization, dated as of April 26, 2017, by and among TowneBank, TB Acquisition, LLC, and the Company (the “TowneBank Merger”), including approval by the stockholders of the Company, on the expected terms and time schedule: delay in closing the TowneBank Merger; difficulties and delays in integrating TowneBank’ s and the Company’s businesses or fully realizing cost savings and other benefits; business disruption as a result of the TowneBank Merger; customer acceptance of TowneBank products and services; potential difficulties encountered in expanding into a new market following the TowneBank Merger; the effects of future economic conditions; governmental fiscal and monetary policies; legislative and regulatory changes; the risks of changes in interest rates; management of growth; fluctuations in our financial results; reliance on key personnel; our ability to compete effectively; privacy, security and other risks associated with our business; and the other factors set forth from time to time in our SEC filings, copies of which are available free of charge within the Investor Relations section of our website at https://paragonbank.com/investor-relations/ or upon request from our investor relations department. Paragon Commercial Corporation assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

USE OF NON-GAAP FINANCIAL MEASURES

Some of the financial measures included in this press release are not measures of financial performance recognized by the United States generally accepted accounting principles, or GAAP. These non-GAAP financial measures are “overhead to average assets” and “efficiency ratio.” Our management uses these non-GAAP financial measures in its analysis of our performance and because of market expectations of use of these ratios to evaluate the Company. Management believes each of these non-GAAP financial measures provides useful information about our financial condition and results of operation.

“Overhead to average assets” reflects the amount of non-interest expenses incurred in comparison to the total size of the Company and provides investors with an additional measure of our productivity.

The efficiency ratio shows the amount of revenue generated for each dollar spent and provides investors with a measure of our productivity.

These non-GAAP disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables at the end of this release under the caption, “Reconciliation of Non-GAAP Financial Measures.”

PARAGON COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Three Months Ended

Year to Date

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

as of June 30,

(Dollars in thousands, except per share data)

2017

2016

2017

2016

Loans and loan fees

14,014

13,070

13,261

12,544

11,840

27,084

23,030

Investment securities

1,465

1,403

1,264

1,214

1,369

2,868

2,588

Federal funds and other interest income

159

230

121

Total Interest and Dividend Income

15,550

14,632

14,573

13,855

13,272

30,182

25,739

Interest-bearing checking and money markets

1,127

1,074

1,064

966

836

2,201

1,693

Time deposits

458

511

560

588

556

969

1,123

Borrowings and repurchase agreements

947

728

530

534

579

1,675

1,071

Total Interest Expense

2,532

2,313

2,154

2,088

1,971

4,845

3,887

Net Interest Income

13,018

12,319

12,419

11,767

11,301

25,337

21,852

Provision for loan losses

650

159

200

391

–

809

–

Net Interest Income after Provision for Loan Losses

12,368

12,160

12,219

11,376

11,301

24,528

21,852

Non-interest Income

Increase in cash surrender value of bank owned life insurance

255

258

247

220

226

513

449

Net gain (loss) on sale of securities

–

Deposit service charges and other fees

130

114

Mortgage banking revenues

Net loss on sale or write-down of other real estate

–

(443

)

–

(45

)

–

(257

)

Other noninterest income

145

132

272

111

277

191

Total Non-interest Income

494

503

209

438

381

997

647

Non-interest Expense

Salaries and employee benefits

4,310

4,462

4,083

3,912

3,742

8,772

7,609

Occupancy

373

359

393

362

342

732

686

Furniture and equipment

451

502

473

430

390

953

882

Data processing

580

530

438

339

524

1,110

820

Directors fees and expenses

253

224

193

219

477

471

Professional fees

244

203

429

208

182

447

419

FDIC and other supervisory assessments

201

166

220

217

367

412

Advertising and public relations

297

221

210

239

234

518

422

Unreimbursed loan costs and foreclosure related expenses

104

174

145

172

142

278

211

Merger related costs

368

–

368

–

Other expenses

676

771

573

677

496

1,447

1,156

Total Non-interest Expenses

7,857

7,612

7,008

6,778

6,488

15,469

13,088

Income before income taxes

5,005

5,051

5,420

5,036

5,194

10,056

9,411

Income tax expense

1,722

1,697

1,798

1,581

1,719

3,419

3,098

Net income

3,283

3,354

3,622

3,455

3,475

6,637

6,313

Basic earnings per share

0.61

0.62

0.67

0.64

0.76

1.23

1.38

Diluted earnings per share

0.61

0.62

0.67

0.64

0.75

1.23

1.37

PARAGON COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

(Dollars and shares in thousands)

2017

2016

Assets

Cash and due from banks

17,564

56,478

43,005

73,706

100,115

Investment securities – available for sale, at fair value

203,534

194,008

197,441

178,606

186,323

Loans-net of unearned income and deferred fees

1,339,860

1,230,953

1,191,280

1,165,345

1,105,344

Allowance for loan losses

(8,921

)

(8,125

)

(7,909

)

(7,925

)

(7,986

)

1,330,939

1,222,828

1,183,371

1,157,420

1,097,358

Premises and equipment, net

15,233

15,420

15,642

15,858

16,124

Bank owned life insurance

34,703

34,448

34,190

28,943

28,723

Federal Home Loan Bank stock, at cost

12,828

5,603

8,400

5,425

8,613

Accrued interest receivable

4,690

4,403

4,368

4,022

4,092

Deferred tax assets

3,882

4,734

4,841

3,361

3,264

Other real estate owned and repossessed property

4,690

4,740

5,183

Other assets

7,504

7,365

7,769

6,335

4,538

Total Assets

1,635,567

1,550,027

1,503,767

1,478,859

1,454,333

Liabilities and Stockholders’ Equity

Liabilities

Deposits:

Demand, non-interest bearing

200,944

222,904

211,202

188,398

179,070

Money market accounts and interest checking

794,255

848,705

742,046

767,124

654,954

Time deposits

179,531

193,249

219,007

243,563

266,177

Total deposits

1,174,730

1,264,858

1,172,255

1,199,085

1,100,201

Repurchase agreements and federal funds purchased

21,256

19,529

20,174

19,796

22,690

Borrowings

270,000

100,000

150,000

100,000

175,000

Subordinated debentures

18,558

Other liabilities

5,730

6,937

6,679

6,398

6,175

Total Liabilities

1,490,274

1,409,882

1,367,666

1,343,837

1,322,624

Stockholders’ equity

Common stock, $0.008 par value

Additional paid in capital

80,721

80,323

80,147

80,015

79,845

Retained earnings

65,387

62,104

58,750

55,128

51,673

Accumulated other comprehensive (loss) income

(859

)

(2,326

)

(2,840

)

(165

)

148

Total Stockholders’ Equity

145,293

140,145

136,101

135,022

131,709

Total Liabilities and Stockholders’ Equity

1,635,567

1,550,027

1,503,767

1,478,859

1,454,333

PARAGON COMMERCIAL CORPORATION
LOANS
(Unaudited)

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

(In thousands except per share data)

2017

2016

Loans

Construction and land development

70,661

78,552

79,738

74,605

63,819

Commercial real estate:

Commercial real estate

433,486

391,795

365,569

355,839

340,475

Commercial real estate – owner occupied

202,982

193,291

186,892

178,631

158,612

Farmland

–

994

1,002

Multifamily, nonresidential and junior liens

106,106

91,368

89,191

96,643

93,945

Total commercial real estate

742,574

676,454

641,652

632,107

594,034

Consumer real estate:

Home equity lines

87,229

86,550

87,489

86,361

85,883

Secured by 1-4 family residential, secured by 1st deeds of trust

231,903

208,504

195,343

190,913

186,054

Secured by 1-4 family residential, secured by 2nd deeds of trust

4,712

4,247

4,289

4,358

3,656

Total consumer real estate

323,844

299,301

287,121

281,632

275,593

Commercial and industrial loans

181,644

162,580

170,709

164,913

157,640

Consumer and other

21,137

14,066

12,060

12,088

14,258

Total loans

1,339,860

1,230,953

1,191,280

1,165,345

1,105,344

PARAGON COMMERCIAL CORPORATION
OTHER FINANCIAL HIGHLIGHTS
(Unaudited)

Three Months Ended

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

(In thousands, except per share data)

2017

2016

Selected Average Balances:

Average total assets

1,586,566

1,557,830

1,489,487

1,452,526

1,393,722

Average earning assets

1,527,475

1,492,181

1,409,467

1,378,081

1,310,510

Average loans

1,272,604

1,209,314

1,184,790

1,135,448

1,071,325

Average total deposits

1,197,472

1,165,010

1,169,062

1,123,277

1,019,133

Average stockholders’ equity

142,832

138,005

135,656

133,494

103,682

Performance Ratios:

Return on average assets

0.83

0.86

0.97

0.95

1.00

Return on average equity

9.19

9.72

10.68

10.35

13.41

Tangible common equity ratio

8.88

9.04

9.05

9.13

9.06

Total interest-earning assets

1,569,602

1,482,570

1,435,505

1,408,456

1,373,728

Tax equivalent net interest margin

3.51

3.44

3.58

3.47

3.55

Overhead to average assets (1)

1.98

1.95

1.88

1.87

1.86

Efficiency ratio (1)

54.09

57.88

52.66

54.38

54.13

Credit Ratios:

Non-accrual loans

492

500

968

948

1,220

Other real estate owned

4,690

4,740

5,183

Nonperforming assets to total assets

0.32

0.34

0.38

0.41

0.44

Nonperforming loans to total loans

0.04

0.08

0.11

Loans past due >30 days and still accruing

–

499

346

Net loan charge-offs (recoveries)

(146

)

(57

)

216

452

(56

)

Annualized net charge-offs/average loans

-0.05

-0.02

0.07

0.16

-0.02

Allowance for loan losses/total loans

0.67

0.66

0.68

0.72

Allowance for loan losses/nonperforming loans

1813

1625

817

836

655

Per share data:

Average diluted common shares outstanding

5,413,270

5,422,590

5,422,817

5,445,641

4,624,326

End of quarter common shares outstanding

5,458,528

5,452,088

5,450,713

5,450,042

5,449,886

Book value per common share

26.62

25.70

24.97

24.77

24.17

(1) This measure is not a measure recognized under United States generally accepted accounting principles, or GAAP, and is therefore considered to be a non-GAAP financial measure. Please see “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation of this measure to the most directly comparable GAAP measure.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

“Overhead to average assets” is defined as non-interest expense less merger related costs divided by total average assets. We believe overhead to average assets is an important indicator of the Company’s level of non-interest expenses relative to the Company’s overall size, which assists in the evaluation of our productivity. While the overhead to average assets ratio is a measure of productivity, its value reflects the attributes of the business model we employ.

Three Months Ended

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

(Dollars in thousands)

2017

2016

Overhead to Average Assets

Non-interest expense

7,857

7,612

7,008

6,778

6,488

Less merger related costs

368

–

Adjusted non-interest expense

7,489

7,612

7,008

6,778

6,488

Average Assets

1,586,566

1,557,830

1,489,487

1,452,526

1,393,722

Overhead to Average Assets

1.89

1.95

1.88

1.87

1.86

“Efficiency ratio” is defined as total non-interest expense less merger related costs divided by adjusted operating revenue. Adjusted operating revenue is equal to net interest income (taxable equivalent) plus non-interest income, adjusted to exclude the impacts of gains and losses on the sale of securities and gains and losses on the sale or write-down of foreclosed real estate because we believe the timing of the recognition of those items to be discretionary. We believe the efficiency ratio is important as an indicator of productivity because it shows the amount of revenue generated by our operations for each dollar spent. While the efficiency ratio is a measure of productivity, its value reflects the attributes of the business model we employ.

Three Months Ended

June 30,

March 31,

Dec. 31,

Sept. 30,

June 30,

(Dollars in thousands)

2017

2016

Efficiency Ratio

Non-interest expense

7,857

7,612

7,008

6,778

6,488

Less merger related costs

368

–

Adjusted non-interest expense

7,489

7,612

7,008

6,778

6,488

Net interest taxable equivalent income

13,351

12,649

12,676

12,026

11,560

Non-interest income

494

503

209

438

381

Less gain on investment securities

–

(21

)

–

Plus loss on sale or writedown of foreclosed real estate

–

443

–

Adjusted operating revenue

13,845

13,152

13,307

12,464

11,986

Efficiency ratio

54.09

57.88

52.66

54.38

54.13

SOURCE: Paragon Commercial Corporation

ReleaseID: 468893

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