NEWS RELEASE
Paragon Commercial Corporation Reports 21% Increase in
Net Income for the Third Quarter of 2017
Highlights:
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Third quarter 2017 net income of $4.2 million, a $717,000 or 20.8% increase over the same period in the prior year, mostly due to higher levels of interest income as a result of loan portfolio growth
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Loan growth of $50.1 million in the third quarter of 2017 and $198.7 million year-to-date, an annualized increase of 22.3% year-to-date
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Third quarter 2017 earnings per share of $0.77, a $0.13 or 20.3% increase over the same period in the prior year
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Net interest income of $13.8 million for the third quarter of 2017, an increase of 17.6% over the same period in the prior year
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Credit quality remains strong with nonperforming loans at only 0.03% of total loans at September 30, 2017
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Annualized third quarter 2017 ROAA of 0.99% and ROAE of 11.34%
RALEIGH, N.C., October 26, 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 September 30, 2017. Net income during the three-month period increased 20.8% to $4.2 million compared to $3.5 million for the same period in 2016. The increase in earnings was primarily driven by a $2.1 million increase in net interest income, which was a result of continued loan growth. Income during the third quarter of 2017 was impacted by loan loss provision of $405,000, compared to $391,000 for the same period in 2016. In addition, the Company incurred $98,000 in additional costs directly attributable to its pending merger with TowneBank. Fully diluted earnings per share (“EPS”) were $0.77 for the third quarter of 2017 compared to $0.64 for the same period in 2016.
“Once again our quarterly results reflected outstanding growth, earnings, efficiency and quality. Our year-to-date loan growth is an impressive 17%. We recorded a return on average assets of 0.99% or $4.1 million, which is the largest earnings quarter in our history. Our efficiency ratio is among the lowest in NC and our credit quality is at levels not seen since 2007. Our dependence on brokered deposits is now at an all-time low of 1.76%. These are outstanding quarterly results which would make any bank CEO very proud.” said Robert C. Hatley, President and CEO.
The annualized return on average assets for the third quarter of 2017 was 0.99% and the annualized return on average equity was 11.34% compared to 0.95% and 10.35%, respectively, for the same ratios in the third quarter of 2016. The improvements in the third quarter and first nine months of 2017, compared to the respective periods of 2016, primarily reflect the benefit of balance sheet growth.
Consolidated Assets
Total consolidated assets as of September 30, 2017 were $1.74 billion compared to $1.50 billion as of December 31, 2016. Assets increased during the quarter by $108.4 million from $1.64 billion as of June 30, 2017 to the current level primarily as a result of strong loan demand and increased cash as a result of strong deposit growth during the quarter.
Loan Portfolio
Loans outstanding increased by $50.1 million during the third quarter from $1.34 billion at June 30, 2017 to $1.39 billion at
September 30, 2017. For the nine months ended September 30, 2017, loans have increased $198.7 million, an annualized rate of 22.3%. All loan categories experienced strong growth, except commercial and industrial loans, which decreased $2.9 million during the third quarter of 2017. Growth for some of the other loan categories for the same period was as follows: commercial real estate - $32.7 million, construction and land development - $4.8 million and consumer real estate - $15.5 million. The Company continues to see strong loan growth throughout the Raleigh, Charlotte and Cary markets.
Deposit Portfolio
Total deposits increased by $113.4 million during the third quarter of 2017. For the first nine months of 2017, deposits are up $115.9 million despite the Company’s continued effort to pay down wholesale deposits, which have decreased by $54.1 million year-to-date. During the third quarter of 2017, demand account balances increased $52.6 million and money market and interest checking accounts increased $71.1 million. Time deposits decreased $10.3 million, driven by reduction in the brokered deposit portfolio of $17.3 million. As a result of the strong deposit growth, the Company was able to decrease its Federal Home Loan Bank advances by $10.0 million during the quarter despite its strong loan growth during the same period.
Credit Quality
The Company recorded a $405,000 loan loss provision for the third quarter of 2017 as a result of the growth in total loans. There was $391,000 in provision for loan losses for the quarter ended September 30, 2016. The allowance for loan losses as a percentage of total loans at September 30, 2017 and December 31, 2016 was 0.68% and 0.66%, respectively.
Asset quality continued to remain strong as nonperforming loans were 0.03% of total loans and the ratio of total nonperforming assets to total assets including foreclosed real estate was 0.22% at September 30, 2017.
Net Interest Income
Net interest income increased by $2.1 million or 17.6% during the third quarter of 2017 compared to the third quarter of 2016. Net interest income totaled $13.8 million during the third quarter of 2017, representing a net interest margin of 3.47% on a tax-equivalent basis, unchanged from the third quarter of 2016. Net interest margin was the same primarily as a result of increased rates in Federal Home Loan Bank borrowings offset by higher yields on average total interest earning assets. The yield on these assets was 4.20% in the third quarter of 2017 compared to 4.07% for the same period in 2016.
Non-Interest Income
For the third quarter of 2017, non-interest income was $274,000 compared to $438,000 for the same period in 2016. The third quarter of 2017 was negatively impacted by $311,000, primarily as a result of the write-down and loss on foreclosed real estate. There were no such losses in the third quarter of 2016.
Non-Interest Expense
Non-interest expense in the third quarter of 2017 was $7.4 million compared to $6.8 million in the third quarter of 2016. Personnel expense increased by $353,000 as the Company added temporary personnel to compensate for the departure of employees who have left the Bank due to the pending merger with TowneBank. The Bank also added more lenders and staff to support its strong growth. In addition, the Company incurred $98,000 in additional merger-related costs in the third quarter of 2017 as a result of the pending merger with TowneBank. There were no such costs in the third 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 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 |
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| | | | | | | | |
| | | |
| | | | | | | |
| (Dollars in thousands, except per share data) | | | | | | | |
| Loans and loan fees | $15,241 | $14,014 | $13,070 | $13,261 | $12,544 | $42,325 | $35,574 |
| Investment securities | 1,501 | 1,465 | 1,403 | 1,264 | 1,214 | 4,369 | 3,802 |
| Federal funds and other interest income | 73 | 71 | 159 | 48 | 97 | 303 | 218 |
| Total Interest and Dividend Income | 16,815 | 15,550 | 14,632 | 14,573 | 13,855 | 46,997 | 39,594 |
| Interest-bearing checking and money markets | 1,125 | 1,127 | 1,074 | 1,064 | 966 | 3,326 | 2,659 |
| Time deposits | 472 | 458 | 511 | 560 | 588 | 1,441 | 1,711 |
| Borrowings and repurchase agreements | 1,376 | 947 | 728 | 530 | 534 | 3,051 | 1,605 |
| Total Interest Expense | 2,973 | 2,532 | 2,313 | 2,154 | 2,088 | 7,818 | 5,975 |
| Net Interest Income | 13,842 | 13,018 | 12,319 | 12,419 | 11,767 | 39,179 | 33,619 |
| Provision for loan losses | 405 | 650 | 159 | 200 | 391 | 1,214 | 391 |
| Net Interest Income after Provision for Loan Losses | 13,437 | 12,368 | 12,160 | 12,219 | 11,376 | 37,965 | 33,228 |
| Non-interest Income | | | | | | | |
| Increase in cash surrender value of bank owned life insurance | 258 | 255 | 258 | 247 | 220 | 771 | 669 |
| Net gain on sale of securities | - | - | - | 21 | - | - | 85 |
| Deposit service charges and other fees | 75 | 68 | 62 | 64 | 65 | 205 | 179 |
| Mortgage banking revenues | 6 | 26 | 51 | 48 | 59 | 83 | 124 |
| Net loss on sale or write-down of other real estate | (311) | - | - | (443) | - | (311) | (257) |
| Other noninterest income | 246 | 145 | 132 | 272 | 94 | 523 | 285 |
| Total Non-interest Income | 274 | 494 | 503 | 209 | 438 | 1,271 | 1,085 |
| | | | | | | | |
| Non-interest Expense | | | | | | | |
| Salaries and employee benefits | 4,265 | 4,310 | 4,462 | 4,083 | 3,912 | 13,037 | 11,521 |
| Occupancy | 390 | 373 | 359 | 393 | 362 | 1,122 | 1,048 |
| Furniture and equipment | 418 | 451 | 502 | 473 | 430 | 1,371 | 1,312 |
| Data processing | 547 | 580 | 530 | 438 | 339 | 1,657 | 1,159 |
| Directors fees and expenses | 226 | 253 | 224 | 193 | 219 | 703 | 690 |
| Professional fees | 149 | 244 | 203 | 429 | 208 | 596 | 627 |
| FDIC and other supervisory assessments | 176 | 201 | 166 | 71 | 220 | 543 | 632 |
| Advertising and public relations | 228 | 297 | 221 | 210 | 239 | 746 | 661 |
| Unreimbursed loan costs and foreclosure related expenses | 214 | 104 | 174 | 145 | 172 | 492 | 383 |
| Merger related costs | 98 | 368 | - | - | - | 466 | - |
| Other expenses | 663 | 676 | 771 | 573 | 677 | 2,110 | 1,833 |
| Total Non-interest Expenses | 7,374 | 7,857 | 7,612 | 7,008 | 6,778 | 22,843 | 19,866 |
| | | | | | | | |
| Income before income taxes | 6,337 | 5,005 | 5,051 | 5,420 | 5,036 | 16,393 | 14,447 |
| Income tax expense | 2,165 | 1,722 | 1,697 | 1,798 | 1,581 | 5,584 | 4,679 |
| Net income | $4,172 | $3,283 | $3,354 | $3,622 | $3,455 | $10,809 | $9,768 |
| | | | | | | | |
| Basic earnings per share | $0.77 | $0.61 | $0.62 | $0.67 | $0.64 | $2.00 | $2.02 |
| Diluted earnings per share | $0.77 | $0.61 | $0.62 | $0.67 | $0.64 | $2.00 | $2.00 |
PARAGON COMMERCIAL CORPORATION |
CONSOLIDATED BALANCE SHEETS |
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| | | | | | |
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| (Dollars and shares in thousands) | | | | | |
| Assets | | | | | |
| Cash and due from banks | $83,428 | $17,564 | $56,478 | $43,005 | $73,706 |
| Investment securities - available for sale, at fair value | 197,159 | 203,544 | 194,008 | 197,441 | 178,606 |
| Loans-net of unearned income and deferred fees | 1,389,987 | 1,339,860 | 1,230,953 | 1,191,280 | 1,165,345 |
| Allowance for loan losses | (9,402) | (8,921) | (8,125) | (7,909) | (7,925) |
| | 1,380,585 | 1,330,939 | 1,222,828 | 1,183,371 | 1,157,420 |
| Premises and equipment, net | 15,296 | 15,233 | 15,420 | 15,642 | 15,858 |
| Bank owned life insurance | 34,961 | 34,703 | 34,448 | 34,190 | 28,943 |
| Federal Home Loan Bank stock, at cost | 12,403 | 12,828 | 5,603 | 8,400 | 5,425 |
| Accrued interest receivable | 4,840 | 4,690 | 4,403 | 4,368 | 4,022 |
| Deferred tax assets | 4,270 | 3,882 | 4,734 | 4,841 | 3,361 |
| Other real estate owned and repossessed property | 3,399 | 4,690 | 4,740 | 4,740 | 5,183 |
| Other assets | 7,584 | 7,494 | 7,365 | 7,769 | 6,335 |
| Total Assets | $1,743,925 | $1,635,567 | $1,550,027 | $1,503,767 | $1,478,859 |
| | | | | | |
| Liabilities and Stockholders' Equity | | | | | |
| Liabilities | | | | | |
| Deposits: | | | | | |
| Demand, non-interest bearing | $253,511 | $200,944 | $222,904 | $211,202 | $188,398 |
| Money market accounts and interest checking | 865,355 | 794,255 | 848,705 | 742,046 | 767,124 |
| Time deposits | 169,277 | 179,531 | 193,249 | 219,007 | 243,563 |
| Total deposits | 1,288,143 | 1,174,730 | 1,264,858 | 1,172,255 | 1,199,085 |
| Repurchase agreements and federal funds purchased | 21,064 | 21,256 | 19,529 | 20,174 | 19,796 |
| Borrowings | 260,000 | 270,000 | 100,000 | 150,000 | 100,000 |
| Subordinated debentures | 18,558 | 18,558 | 18,558 | 18,558 | 18,558 |
| Other liabilities | 7,107 | 5,730 | 6,937 | 6,679 | 6,398 |
| Total Liabilities | 1,594,872 | 1,490,274 | 1,409,882 | 1,367,666 | 1,343,837 |
| | | | | | |
| Stockholders' equity | | | | | |
| Common stock, $0.008 par value | 44 | 44 | 44 | 44 | 44 |
| Additional paid in capital | 80,822 | 80,721 | 80,323 | 80,147 | 80,015 |
| Retained earnings | 69,559 | 65,387 | 62,104 | 58,750 | 55,128 |
| Accumulated other comprehensive (loss) income | (1,372) | (859) | (2,326) | (2,840) | (165) |
| Total Stockholders' Equity | 149,053 | 145,293 | 140,145 | 136,101 | 135,022 |
| Total Liabilities and Stockholders' Equity | $1,743,925 | $1,635,567 | $1,550,027 | $1,503,767 | $1,478,859 |
PARAGON COMMERCIAL CORPORATION |
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| | | | | | |
| (In thousands except per share data) | | | | | |
| Loans | | | | | |
| Construction and land development | $75,465 | $70,661 | $78,552 | $79,738 | $74,605 |
| Commercial real estate: | | | | | |
| Commercial real estate | 448,762 | 433,486 | 391,795 | 365,569 | 356,833 |
| Commercial real estate - owner occupied | 221,661 | 202,982 | 193,291 | 186,892 | 178,631 |
| Multifamily, nonresidential and junior liens | 104,892 | 106,106 | 91,368 | 89,191 | 96,643 |
| Total commercial real estate | 775,315 | 742,574 | 676,454 | 641,652 | 632,107 |
| Consumer real estate: | | | | | |
| Home equity lines | 92,285 | 87,229 | 86,550 | 87,489 | 86,361 |
| Secured by 1-4 family residential, secured by 1st deeds of trust | 242,655 | 231,903 | 208,504 | 195,343 | 190,913 |
| Secured by 1-4 family residential, secured by 2nd deeds of trust | 4,425 | 4,712 | 4,247 | 4,289 | 4,358 |
| Total consumer real estate | 339,365 | 323,844 | 299,301 | 287,121 | 281,632 |
| Commercial and industrial loans | 178,765 | 181,644 | 162,580 | 170,709 | 164,913 |
| Consumer and other | 21,077 | 21,137 | 14,066 | 12,060 | 12,088 |
| Total loans | 1,389,987 | 1,339,860 | 1,230,953 | 1,191,280 | 1,165,345 |
PARAGON COMMERCIAL CORPORATION |
OTHER FINANCIAL HIGHLIGHTS |
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| | | | | | |
| | |
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| (In thousands, except per share data) | | | | | |
| Selected Average Balances: | | | | | |
| Average total assets | $1,681,192 | $1,586,566 | $1,557,830 | $1,489,487 | $1,452,526 |
| Average earning assets | 1,615,475 | 1,527,475 | 1,492,181 | 1,409,467 | 1,378,081 |
| Average loans | 1,359,440 | 1,272,604 | 1,209,314 | 1,184,790 | 1,135,448 |
| Average total deposits | 1,176,609 | 1,197,472 | 1,165,010 | 1,169,062 | 1,123,277 |
| Average stockholders' equity | 147,212 | 142,832 | 138,005 | 135,656 | 133,494 |
| | | | | | |
| Performance Ratios: | | | | | |
| Return on average assets | 0.99% | 0.83% | 0.86% | 0.97% | 0.95% |
| Return on average equity | 11.34% | 9.19% | 9.72% | 10.68% | 10.35% |
| Tangible common equity ratio | 8.55% | 8.88% | 9.04% | 9.05% | 9.13% |
| Total interest-earning assets | $1,678,994 | $1,569,602 | $1,482,570 | $1,435,505 | $1,408,456 |
| Tax equivalent net interest margin | 3.47% | 3.51% | 3.44% | 3.58% | 3.47% |
| Overhead to average assets (1) | 1.73% | 1.89% | 1.95% | 1.88% | 1.87% |
| Efficiency ratio (1) | 49.50% | 54.09% | 57.88% | 52.66% | 54.38% |
| | | | | | |
| Credit Ratios: | | | | | |
| Non-accrual loans | $466 | $492 | $500 | $968 | $948 |
| Other real estate owned | $3,399 | $4,690 | $4,740 | $4,740 | $5,183 |
| Nonperforming assets to total assets | 0.22% | 0.32% | 0.34% | 0.38% | 0.41% |
| Nonperforming loans to total loans | 0.03% | 0.04% | 0.04% | 0.08% | 0.08% |
| Loans past due >30 days and still accruing | $149 | $- | $59 | $- | $499 |
| Net loan charge-offs (recoveries) | $(76) | $(146) | $(57) | $216 | $452 |
| Annualized net charge-offs/average loans | -0.02% | -0.05% | -0.02% | 0.07% | 0.16% |
| Allowance for loan losses/total loans | 0.68% | 0.67% | 0.66% | 0.66% | 0.68% |
| Allowance for loan losses/nonperforming loans | 2018% | 1813% | 1625% | 817% | 836% |
| | | | | | |
| Per share data: | | | | | |
| Average diluted common shares outstanding | 5,421,388 | 5,413,270 | 5,422,590 | 5,422,817 | 5,439,596 |
| End of quarter common shares outstanding | 5,459,982 | 5,458,528 | 5,452,088 | 5,450,713 | 5,450,042 |
| Book value per common share | $27.30 | $26.62 | $25.70 | $24.97 | $24.77 |
(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.
| | |
| | | | | | |
| (Dollars in thousands) | | | | | |
| Overhead to Average Assets | | | | | |
| Non-interest expense | $7,374 | $7,857 | $7,612 | $7,008 | $6,778 |
| Less merger related costs | 98 | 368 | - | - | - |
| Adjusted non-interest expense | $7,276 | $7,489 | $7,612 | $7,008 | $6,778 |
| | | | | | |
| Average Assets | $1,681,192 | $1,586,566 | $1,557,830 | $1,489,487 | $1,452,526 |
| | | | | | |
| Overhead to Average Assets | 1.73% | 1.89% | 1.95% | 1.88% | 1.87% |
“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.
| | |
| | | | | | |
| (Dollars in thousands) | | | | | |
| Efficiency Ratio | | | | | |
| Non-interest expense | $7,374 | $7,857 | $7,612 | $7,008 | $6,778 |
| Less merger related costs | 98 | 368 | - | - | - |
| Adjusted non-interest expense | $7,276 | $7,489 | $7,612 | $7,008 | $6,778 |
| | | | | | |
| Net interest taxable equivalent income | $14,114 | $13,351 | $12,649 | $12,676 | $12,026 |
| Non-interest income | 274 | 494 | 503 | 209 | 438 |
| Less gain on investment securities | - | - | - | (21) | - |
| Plus loss on sale or writedown of foreclosed real estate | 311 | - | - | 443 | - |
| Adjusted operating revenue | $14,699 | $13,845 | $13,152 | $13,307 | $12,464 |
| | | | | | |
| Efficiency ratio | 49.50% | 54.09% | 57.88% | 52.66% | 54.38% |
