NEWS RELEASE
Paragon Commercial Corporation Reports 22% Increase
in Earnings for the Fourth Quarter of 2016
Highlights:
■
Fourth quarter 2016 net income of $3.6 million, a 22% increase over the same period in the prior year
■
Annual 2016 net income of $13.4 million, a 19% increase over the prior year
■
Fully diluted earnings per share of $0.67 versus $0.65 for fourth quarter of 2015
■
Loan growth of $25.9 million in the fourth quarter
■
Credit quality remains strong with nonperforming loans at only 0.08% of total loans and no accruing loans past due greater than 30 days
■
Fourth quarter ROAA of 0.97% and ROAE of 10.68%
RALEIGH, N.C., January 18, 2017 – Paragon Commercial Corporation (the “Company” ) (Nasdaq: PBNC), parent company of Paragon Bank, today reported unaudited financial results for the three- and twelve-month periods ended December 31, 2016. Net income during the three-month period increased 22% to $3.6 million compared to $3.0 million for the same period in 2015. The increase in earnings was primarily driven by an increase in net interest income as a result of continued loan growth. The increase in net interest income was partially offset by a $200,000 loan loss provision as the Company increased its Allowance for Loan Losses commensurate with loan growth. In addition, the fourth quarter of 2016 included $443,000 in loss on write-down of foreclosed properties compared to only $287,000 for the same period in 2015. Fully diluted earnings per share (“EPS”) for the period were $0.67, an increase of $0.02 from the same period in 2015 despite 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. Despite increasing the share count by approximately 18% as a result of the IPO, the share addition only resulted in EPS dilution for one quarter. For the year ending December 31, 2016, the Company reported net income of $13.4 million, an increase of 19% over the $11.2 million of net income for the same period in 2015. Robert C. Hatley, President and CEO stated, “We continued our steady growth and performance in the fourth quarter. 2016 proved to be the most successful year in Paragon’s 17-year history. Our performance in loan growth, efficiency, credit quality, profitability, and deposit growth placed Paragon as a high achieving bank. We also completed a successful initial public offering in June. We are extremely pleased with the performance in our stock since our June IPO. This could not be accomplished if it were not for our staff, our unique business model and the outstanding markets we serve.”
The annualized return on average assets for the fourth quarter of 2016 was 0.97% and the annualized return on average equity was 10.68% compared to 0.89% and 12.26%, respectively, for the same ratios in the fourth quarter of 2015. Those ratios were impacted by the additional capital as a result of the IPO.
Consolidated Assets
Total consolidated assets on December 31, 2016 were $1.50 billion compared to $1.31 billion as of December 31, 2015. Assets increased during the quarter by $25.0 million as a result of strong loan demand.
Loan Portfolio
Loans outstanding increased by $25.9 million during the fourth quarter from $1.17 billion at September 30, 2016 to $1.19 billion at December 31, 2016. Commercial and industrial and owner occupied commercial real estate grew $14.0 million during the period and consumer real estate and other consumer lending increased $5.5 million while commercial real estate and multifamily combined remained relatively flat. The Company continues to see strong loan growth throughout the Raleigh, Charlotte and Cary markets.
Deposit Portfolio
Total deposits decreased by $26.8 million during the fourth quarter as the Company continued to pay down wholesale deposits in an effort to reduce its noncore deposit percentage. During the fourth quarter, an increase in demand account balances of $22.8 million was offset by decreases in money market and interest checking accounts of $25.1 million. However for the year, these types of accounts experienced a combined increase of $290.2 million or 44% compared to a decline in time deposits during the year of $100.8 million or 32%. During the fourth quarter, time deposits decreased by $24.6 million or 10% as the Company continued to implement its strategic initiative to reduce its reliance on time deposits.
Credit Quality
The Company recorded a $200,000 loan loss provision for the fourth quarter of 2016 as a result of the growth in total loans. There was no provision for loan losses for the quarter ended December 31, 2015. The allowance for loan losses as a percentage of total loans at December 31, 2016 was 0.66%, down from 0.68% in the third quarter of 2016, reflecting continued credit improvement as the Company posted a quarter with no accruing loans past due greater than 30 days at period end.
Asset quality continued to remain strong as nonperforming loans were 0.08% of total loans at December 31, 2016. Loans past due 30 days or greater at quarter end were 0.00% of total and the ratio of total nonperforming assets to total assets including foreclosed real estate was 0.38%.
Net Interest Income
Net interest income increased by $1.7 million during the fourth quarter of 2016 compared to the fourth quarter of 2015. Net interest income totaled $12.4 million during the period, representing a net interest margin of 3.58% on a tax equivalent basis, which was up 0.06% when compared to 3.52% in the fourth quarter of 2015. For the year ended December 31, 2016, net interest income increased $5.0 million compared to the year ended December 31, 2015.
Non-Interest Income
For the fourth quarter of 2016, non-interest income was $209,000 compared to $102,000 for the same period in 2015. The fourth quarter of 2016 was impacted by $443,000 in write-downs or loss on sale of foreclosed real estate compared to $287,000 in such losses in the same period of 2015.
Non-Interest Expenses
Non-interest expenses in the fourth quarter of 2016 were $7.0 million compared to $6.3 million in the fourth quarter of 2015. Personnel expense increased by $466,000 as the Company added lenders and staff to support its strong growth. This expense, however, was partially offset by declines in several other key categories including advertising and public relations which declined by $187,000 and FDIC and other supervisory fees which declined by $158,000 in the fourth quarter of 2016 compared to the fourth quarter of 2015.
MEDIA INQUIRIES:
Blair Kelly – MMI Public Relations, 919.233.6600 or BKelly@MMIpublicrelations.com
Scott Williams – Paragon Bank, SVP/Director of Marketing & Public Relations, 919.534.7385 or SWilliams@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: 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 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 |
| | | | | | |
| (Dollars in thousands, except per share data) | | | | | | | |
| Loans and loan fees | $13,261 | $12,544 | $11,840 | $11,190 | $11,311 | $48,835 | $43,500 |
| Investment securities | 1,264 | 1,214 | 1,369 | 1,219 | 1,238 | 5,066 | 4,786 |
| Federal funds and other interest income | 48 | 97 | 63 | 58 | 45 | 266 | 149 |
| Total Interest and Dividend Income | 14,573 | 13,855 | 13,272 | 12,467 | 12,594 | 54,167 | 48,435 |
| Interest-bearing checking and money markets | 1,064 | 966 | 836 | 857 | 769 | 3,723 | 2,756 |
| Time deposits | 560 | 588 | 556 | 567 | 704 | 2,271 | 3,313 |
| Borrowings and repurchase agreements | 530 | 534 | 579 | 492 | 391 | 2,135 | 1,315 |
| Total Interest Expense | 2,154 | 2,088 | 1,971 | 1,916 | 1,864 | 8,129 | 7,384 |
| Net Interest Income | 12,419 | 11,767 | 11,301 | 10,551 | 10,730 | 46,038 | 41,051 |
| Provision for loan losses | 200 | 391 | - | - | - | 591 | 750 |
| Net Interest Income after Provision for Loan Losses | 12,219 | 11,376 | 11,301 | 10,551 | 10,730 | 45,447 | 40,301 |
| Non-interest Income | | | | | | | |
| Increase in cash surrender value of bank owned life insurance | 247 | 220 | 226 | 223 | 221 | 916 | 853 |
| Net gain (loss) on sale of securities | 21 | - | - | 85 | (26) | 106 | 542 |
| Deposit service charges and other fees | 64 | 65 | 56 | 58 | 56 | 243 | 219 |
| Mortgage banking revenues | 48 | 59 | 33 | 32 | 41 | 172 | 197 |
| Net loss on sale or write-down of other real estate | (443) | - | (45) | (212) | (287) | (700) | (759) |
| Other non-interest income | 272 | 94 | 111 | 80 | 97 | 557 | 402 |
| Total Non-interest Income | 209 | 438 | 381 | 266 | 102 | 1,294 | 1,454 |
| | | | | | | |
| Non-interest Expense | | | | | | | |
| Salaries and employee benefits | 4,083 | 3,912 | 3,742 | 3,867 | 3,617 | 15,604 | 13,331 |
| Occupancy | 393 | 362 | 342 | 344 | 344 | 1,441 | 1,547 |
| Furniture and equipment | 560 | 456 | 502 | 492 | 495 | 2,010 | 1,878 |
| Data processing | 270 | 270 | 279 | 296 | 257 | 1,115 | 1,103 |
| Directors fees and expenses | 193 | 219 | 219 | 252 | 251 | 883 | 921 |
| Professional fees | 429 | 208 | 182 | 237 | 123 | 1,056 | 737 |
| FDIC and other supervisory assessments | 71 | 220 | 217 | 195 | 229 | 703 | 939 |
| Advertising and public relations | 210 | 239 | 234 | 188 | 397 | 871 | 934 |
| Unreimbursed loan costs and foreclosure related expenses | 145 | 172 | 142 | 69 | 124 | 528 | 874 |
| Other expenses | 654 | 720 | 629 | 660 | 463 | 2,663 | 2,496 |
| Total Non-interest Expenses | 7,008 | 6,778 | 6,488 | 6,600 | 6,300 | 26,874 | 24,760 |
| | | | | | | |
| Income before income taxes | 5,420 | 5,036 | 5,194 | 4,217 | 4,532 | 19,867 | 16,995 |
| Income tax expense | 1,798 | 1,581 | 1,719 | 1,379 | 1,569 | 6,477 | 5,761 |
| Net income | $3,622 | $3,455 | $3,475 | $2,838 | $2,963 | $13,390 | $11,234 |
| | | | | | | |
| Basic earnings per share | $0.67 | $0.64 | $0.76 | $0.62 | $0.65 | $2.69 | $2.49 |
| Diluted earnings per share | $0.67 | $0.64 | $0.75 | $0.62 | $0.65 | $2.68 | $2.47 |
PARAGON COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | |
| (Dollars and shares in thousands) | | | | | |
| Assets | | | | | |
| Cash and due from banks | $43,005 | $73,706 | $100,115 | $51,559 | $55,530 |
| Investment securities - available for sale, at fair value | 197,441 | 178,606 | 186,323 | 182,157 | 168,896 |
| Loans-net of unearned income and deferred fees | 1,191,280 | 1,165,345 | 1,105,344 | 1,044,981 | 1,016,156 |
| Allowance for loan losses | (7,909) | (7,925) | (7,986) | (7,931) | (7,641) |
| | 1,183,371 | 1,157,420 | 1,097,358 | 1,037,050 | 1,008,515 |
| Premises and equipment, net | 15,642 | 15,858 | 16,124 | 16,281 | 16,433 |
| Bank owned life insurance | 34,190 | 28,943 | 28,723 | 28,497 | 28,274 |
| Federal Home Loan Bank stock, at cost | 8,400 | 5,425 | 8,613 | 7,232 | 8,061 |
| Accrued interest receivable | 4,368 | 4,022 | 4,092 | 3,858 | 3,795 |
| Deferred tax assets | 4,841 | 3,361 | 3,264 | 4,304 | 4,118 |
| Other real estate owned and reposessed property | 4,740 | 5,183 | 5,183 | 5,228 | 5,453 |
| Other assets | 7,769 | 6,335 | 4,538 | 5,011 | 6,836 |
| Total Assets | $1,503,767 | $1,478,859 | $1,454,333 | $1,341,177 | $1,305,911 |
| | | | | | |
| Liabilities and Stockholders' Equity | | | | | |
| Liabilities | | | | | |
| Deposits: | | | | | |
| Demand, non-interest bearing | $211,202 | $188,398 | $179,070 | $166,556 | $158,974 |
| Money market accounts and interest checking | 742,046 | 767,124 | 654,954 | 624,199 | 504,092 |
| Time deposits | 219,007 | 243,563 | 266,177 | 256,378 | 319,781 |
| Total deposits | 1,172,255 | 1,199,085 | 1,100,201 | 1,047,133 | 982,847 |
| Repurchase agreements and federal funds purchased | 20,174 | 19,796 | 22,690 | 24,494 | 30,580 |
| Borrowings | 150,000 | 100,000 | 175,000 | 146,673 | 169,800 |
| Subordinated debentures | 18,558 | 18,558 | 18,558 | 18,558 | 18,558 |
| Other liabilities | 6,679 | 6,398 | 6,175 | 4,147 | 6,468 |
| Total Liabilities | 1,367,666 | 1,343,837 | 1,322,624 | 1,241,005 | 1,208,253 |
| | | | | | |
| Stockholders' equity | | | | | |
| Common stock, $0.008 par value | 44 | 44 | 43 | 37 | 37 |
| Additional paid in capital | 80,147 | 80,015 | 79,845 | 53,235 | 53,147 |
| Retained earnings | 58,750 | 55,128 | 51,673 | 48,198 | 45,360 |
| Accumulated other comprehensive (loss) income | (2,840) | (165) | 148 | (1,298) | (886) |
| Total Stockholders' Equity | 136,101 | 135,022 | 131,709 | 100,172 | 97,658 |
| Total Liabilities and Stockholders' Equity | $1,503,767 | $1,478,859 | $1,454,333 | $1,341,177 | $1,305,911 |
PARAGON COMMERCIAL CORPORATION
LOANS
(Unaudited)
| | | | | | |
| (In thousands except per share data) | | | | | |
| Loans | | | | | |
| Construction and land development | $79,738 | $74,605 | $63,819 | $68,316 | $64,704 |
| Commercial real estate: | | | | | |
| Commercial real estate | 365,569 | 355,839 | 340,475 | 320,791 | 305,723 |
| Commercial real estate - owner occupied | 186,892 | 178,631 | 158,612 | 144,168 | 147,017 |
| Farmland | - | 994 | 1,002 | 1,313 | 1,332 |
| Multifamily, nonresidential and junior liens | 89,191 | 96,643 | 93,945 | 86,610 | 79,171 |
| Total commercial real estate | 641,652 | 632,107 | 594,034 | 552,882 | 533,243 |
| Consumer real estate: | | | | | |
| Home equity lines | 87,489 | 86,361 | 85,883 | 80,940 | 78,943 |
| Secured by 1-4 family residential, secured by 1st deeds of trust | 195,343 | 190,913 | 186,054 | 171,355 | 167,709 |
| Secured by 1-4 family residential, secured by 2nd deeds of trust | 4,289 | 4,358 | 3,656 | 3,731 | 3,723 |
| Total consumer real estate | 287,121 | 281,632 | 275,593 | 256,026 | 250,375 |
| Commercial and industrial loans | 170,709 | 164,913 | 157,640 | 153,159 | 153,669 |
| Consumer and other | 12,060 | 12,088 | 14,258 | 14,598 | 14,165 |
| Total loans | 1,191,280 | 1,165,345 | 1,105,344 | 1,044,981 | 1,016,156 |
PARAGON COMMERCIAL CORPORATION
OTHER FINANCIAL HIGHLIGHTS
(Unaudited)
| | Three Months Ended |
| | | | | | |
| (In thousands, except per share data) | | | | | |
| Selected Average Balances: | | | | | |
| Average total assets | $1,489,487 | $1,452,526 | $1,393,722 | $1,323,397 | $1,330,518 |
| Average earning assets | 1,409,467 | 1,378,081 | 1,310,510 | 1,235,237 | 1,239,027 |
| Average loans | 1,184,790 | 1,135,448 | 1,071,325 | 1,019,396 | 1,004,627 |
| Average total deposits | 408,949 | 1,123,277 | 1,019,133 | 994,219 | 1,010,610 |
| Average stockholders' equity | 135,656 | 133,494 | 103,682 | 99,090 | 96,688 |
| | | | | | |
| Performance Ratios: | | | | | |
| Return on average assets | 0.97% | 0.95% | 1.00% | 0.86% | 0.89% |
| Return on average equity | 10.68% | 10.35% | 13.41% | 11.46% | 12.26% |
| Tangible common equity ratio | 9.05% | 9.13% | 9.06% | 7.47% | 7.48% |
| Total interest-earning assets | $1,435,505 | $1,408,456 | $1,373,728 | $1,257,254 | $1,224,106 |
| Tax equivalent net interest margin | 3.58% | 3.47% | 3.55% | 3.54% | 3.52% |
| Overhead to average assets (1) | 1.88% | 1.87% | 1.86% | 1.99% | 1.89% |
| Efficiency ratio (1) | 52.66% | 54.38% | 54.13% | 59.04% | 55.44% |
| | | | | | |
| Credit Ratios: | | | | | |
| Non-accrual loans | $968 | $948 | $1,220 | $487 | $513 |
| Other real estate owned | $4,740 | $5,183 | $5,183 | $5,228 | $5,453 |
| Nonperforming assets to total assets | 0.38% | 0.41% | 0.44% | 0.43% | 0.46% |
| Nonperforming loans to total loans | 0.08% | 0.08% | 0.11% | 0.05% | 0.05% |
| Loans past due >30 days and still accruing | $- | $499 | $346 | $127 | $- |
| Net loan charge-offs (recoveries) | $216 | $452 | $(56) | $(289) | $(23) |
| Annualized net charge-offs (recoveries)/average loans | 0.07% | 0.16% | -0.02% | -0.11% | -0.01% |
| Allowance for loan losses/total loans | 0.66% | 0.68% | 0.72% | 0.76% | 0.75% |
| Allowance for loan losses/nonperforming loans | 817% | 836% | 655% | 1629% | 1489% |
| | | | | | |
| Per share data: | | | | | |
| Average diluted common shares outstanding | 5,422,817 | 5,445,641 | 4,624,326 | 4,574,455 | 4,567,023 |
| End of quarter common shares outstanding | 5,450,713 | 5,450,042 | 5,449,886 | 4,581,334 | 4,581,334 |
| Book value per common share | $24.97 | $24.77 | $24.17 | $21.87 | $21.32 |
(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 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.
| | |
| | | | | | |
| (Dollars in thousands) | | | | | |
| Overhead to Average Assets | | | | | |
| Non-interest expense | $7,008 | $6,778 | $6,488 | $6,600 | $6,300 |
| Average Assets | 1,489,487 | 1,452,526 | 1,393,722 | 1,323,397 | 1,330,518 |
| | | | | | |
| Overhead to Average Assets | 1.88% | 1.87% | 1.86% | 1.99% | 1.89% |
“Efficiency ratio” is defined as total non-interest expense 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.
| | |
| | | | | | |
| (Dollars in thousands) | | | | | |
| Efficiency Ratio | | | | | |
| Non-interest expense | $7,008 | $6,778 | $6,488 | $6,600 | $6,300 |
| | | | | | |
| Net interest taxable equivalent income | $12,676 | $12,026 | $11,560 | $10,785 | $10,949 |
| Non-interest income | 209 | 438 | 381 | 266 | 102 |
| Net gain (loss) on investment securities | (21) | - | - | (85) | 26 |
| Net loss on sale or writedown of foreclosed real estate | 443 | - | 45 | 212 | 287 |
| Adjusted operating revenue | $13,307 | $12,464 | $11,986 | $11,178 | $11,364 |
| | | | | | |
| Efficiency ratio | 52.66% | 54.38% | 54.13% | 59.04% | 55.44% |
