SOURCE: Paragon Commercial Corporation

Paragon Commercial Corporation

July 20, 2016 07:30 ET

Paragon Commercial Corporation Reports 31% Increase in Earnings for the Second Quarter of 2016

RALEIGH, NC--(Marketwired - Jul 20, 2016) - Paragon Commercial Corporation (NASDAQ: PBNC)

Highlights:

  • Listing on Nasdaq in conjunction with a $28.7 million initial public offering of common stock
  • Fully diluted earnings per share of $0.75 versus $0.59 for second quarter of 2015
  • Second quarter 2016 net income of $3.5 million, a 31% increase over the prior year
  • Loan growth of $60.4 million in the second quarter
  • Credit quality remains strong with nonperforming loans at only 0.11% of total loans
  • Nonperforming assets decreased to 0.44% of total assets at June 30, 2016 compared to 1.10% for the same period in 2015
  • Second quarter ROAA of 1.00% and ROAE of 13.41%
  • Book value increased to $24.17 at June 30, 2016

Paragon Commercial Corporation (NASDAQ: PBNC), parent company of Paragon Bank, today reported unaudited financial results for the three- and six-month periods ended June 30, 2016. Net income during the three-month period increased 31% to $3.5 million compared to $2.7 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 as non-interest income and expense were relatively unchanged from the prior year. Fully diluted earnings per share for the period was $0.75, a 27% increase over the same period last year. For the six-month period ending June 30, 2016, the company reported net income of $6.3 million, an increase of 27% over the $5.0 million of net income for the same period in 2015. 

Robert C. Hatley, President and CEO, stated, "The second quarter was extremely meaningful for Paragon in a number of ways. We completed our IPO and subsequent listing on Nasdaq. The IPO provided growth capital, brought new institutional ownership to the company and provided additional liquidity for our shareholders. We had an outstanding quarter in every component of our financials. Our exceptional loan and deposit growth in a very competitive environment is in line with our expectations and due to our extraordinary staff in our key markets of Raleigh and Charlotte. That growth coupled with negligible non-interest expense growth contributed to our 1.00% return on average assets for the quarter. Management continues to concentrate our efforts in core deposit growth from our local markets. This effort has paid off in reduction of funding costs. Our credit quality continues to be among the best in North Carolina and the Southeast."

The return on average assets for the second quarter of 2016 was 1.00% and the return on average equity was 13.41% compared to 0.83% and 11.70%, respectively, for the same ratios in the second quarter of 2015. 

Consolidated Assets
Total consolidated assets on June 30, 2016 were $1.45 billion compared to $1.31 billion as of December 31, 2015. Assets increased during the quarter by $113.2 million as a result of loan demand and short term cash investments generated from core deposit growth.

Loan Portfolio
Loans outstanding increased by $60.4 million during the second quarter from $1.05 billion at March 31, 2016 to $1.11 billion at June 30, 2016. The company continues to see strong loan growth throughout the Raleigh, Charlotte and Cary markets.

Deposit Portfolio
Total deposits increased by $53.1 million during the second quarter as the company experienced strong local funding growth while simultaneously making an effort to reduce its noncore deposit percentage. The deposit portfolio mix continues to experience a shift from time deposits to core transactional accounts. During the quarter, demand account balances increased by $12.5 million while money market and interest checking accounts increased by $30.8 million, increases of 8% and 5%, respectively. During the same period, time deposits increased by only $9.8 million or 4% as the company continued to implement its strategic initiative to reduce its reliance on time deposits.

Credit Quality
The company recorded no loan loss provisions for the second quarter of 2016 due to net recoveries of past losses totaling $56,000 funding the allowance for loan losses for loan growth, as well as continued credit quality improvement. The provision for loan losses for the quarter ended June 30, 2015 was $179,000. The allowance for loan losses as a percentage of total loans at June 30, 2016 was 0.72%, down from 0.76% in the previous quarter.

Nonperforming loans were 0.11% and 0.05% of total loans at June 30, 2016 and March 31, 2016, respectively. Loans past due 30 days or greater at quarter end were 0.07% and 0.01% of total loans for those same periods. The ratio of total nonperforming assets to total assets including foreclosed real estate was 0.44% compared to 0.43% in the previous quarter.

Net Interest Income
Net interest income increased by $1.1 million during the second quarter of 2016 compared to the second quarter of 2015. Net interest income totaled $11.3 million during the period, representing a net interest margin of 3.55% on a tax equivalent basis, up 0.05% compared to the second quarter of 2015. For the six-month period ended June 30, 2016, net interest income increased $2.2 million compared to the six-month period ended June 30, 2015.

Non-Interest Income
For the second quarter of 2016, non-interest income was $381,000 compared to $324,000 for the same period in 2015. The second quarter of 2015 was impacted by $126,000 in losses on sale or write-down of foreclosed properties compared to $45,000 for the same period in 2016. 

Non-Interest Expense
Non-interest expense in the second quarter of 2016 was $6.5 million compared to $6.4 million in the second quarter of 2015. Personnel expense increased by $625,000 as the company added lenders and staff to support its strong growth. This expense, however, was offset by declines in several other key categories such as problem loan and unreimbursed loan costs, occupancy costs and professional fees which declined by $156,000, $146,000 and $136,000, respectively in the second quarter of 2016 compared to the second quarter of 2015.

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)
  June 30,
2016
    March 31,
2016
    Dec. 31,
2015
    Sept. 30,
2015
    June 30,
2015
    as of June 30,  
2016     2015  
Loans and loan fees   $11,840     $11,190     $11,311     $11,223     $10,899     $23,030     $20,966  
Investment securities   1,369     1,219     1,238     1,249     1,072     2,588     2,299  
Federal funds and other interest income   63     58     45     38     40     121     66  
Total Interest and Dividend Income   13,272     12,467     12,594     12,510     12,011     25,739     23,331  
Interest-bearing checking and money markets   836     857     769     727     645     1,693     1,260  
Time deposits   556     567     704     799     846     1,123     1,810  
Borrowings and repurchase agreements   579     492     391     328     307     1,071     596  
Total Interest Expense   1,971     1,916     1,864     1,854     1,798     3,887     3,666  
Net Interest Income   11,301     10,551     10,730     10,656     10,213     21,852     19,665  
Provision for loan losses   -     -     -     -     179     -     750  
Net Interest Income after Provision for Loan Losses   11,301     10,551     10,730     10,656     10,034     21,852     18,915  
Non-interest Income                                          
Increase in cash surrender value of bank owned life insurance   226     223     221     225     206     449     407  
Net gain (loss) on sale of securities   -     85     (26 )   145     -     85     423  
Deposit service charges and other fees   56     58     56     58     54     114     105  
Mortgage banking revenues   33     32     41     44     75     65     112  
Net loss on sale or write-down of other real estate   (45 )   (212 )   (287 )   (9 )   (126 )   (257 )   (463 )
Other noninterest income   111     80     97     81     115     191     224  
Total Non-interest Income   381     266     102     544     324     647     808  
                                           
Non-interest Expense                                          
Salaries and employee benefits   3,742     3,867     3,617     3,378     3,117     7,609     6,336  
Occupancy   342     344     344     366     488     686     837  
Furniture and equipment   502     492     495     482     451     994     901  
Data processing   279     296     257     267     299     575     579  
Directors fees and expenses   219     252     251     253     211     471     417  
Professional fees   182     237     123     159     318     419     455  
FDIC and other supervisory assessments   217     195     229     231     252     412     479  
Advertising and public relations   234     188     211     177     301     422     421  
Unreimbursed loan costs and foreclosure related expenses   142     69     124     281     298     211     469  
Other expenses   629     660     649     586     665     1,289     1,386  
Total Non-interest Expenses   6,488     6,600     6,300     6,180     6,400     13,088     12,280  
                                           
Income before income taxes   5,194     4,217     4,532     5,020     3,958     9,411     7,443  
Income tax expense   1,719     1,379     1,569     1,707     1,308     3,098     2,485  
Net income   $3,475     $2,838     $2,963     $3,313     $2,650     $6,313     $4,958  
                                           
Basic earnings per share   $0.76     $0.62     $0.65     $0.73     $0.59     $1.38     $1.10  
Diluted earnings per share   $0.75     $0.62     $0.65     $0.73     $0.59     $1.37     $1.10  
                           
   
PARAGON COMMERCIAL CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(Unaudited)  
               

(Dollars and shares in thousands)
  June 30,
2016
    March 31,
2016
    Dec. 31,
2015
    Sept. 30,
2015
    June 30,
2015
 
Assets                                        
Cash and due from banks   $ 100,115     $ 51,559     $ 55,530     $ 118,297     $ 77,949  
Investment securities - available for sale, at fair value     186,323       182,157       168,896       172,513       168,048  
Loans-net of unearned income and deferred fees     1,105,344       1,044,981       1,016,156       998,232       991,445  
Allowance for loan losses     (7,986 )     (7,931 )     (7,641 )     (7,618 )     (7,569 )
      1,097,358       1,037,050       1,008,515       990,614       983,876  
Premises and equipment, net     16,124       16,281       16,433       16,538       16,611  
Bank owned life insurance     28,723       28,497       28,274       28,052       27,827  
Federal Home Loan Bank stock, at cost     8,613       7,232       8,061       7,636       8,699  
Accrued interest receivable     4,092       3,858       3,795       3,609       3,944  
Deferred tax assets     3,264       4,304       4,118       5,141       5,527  
Other real estate owned and reposessed property     5,183       5,228       5,453       13,017       13,679  
Other assets     4,538       5,011       6,836       5,776       7,259  
Total Assets   $ 1,454,333     $ 1,341,177     $ 1,305,911     $ 1,361,193     $ 1,313,419  
                                         
Liabilities and Shareholders' Equity                                        
Liabilities                                        
Deposits:                                        
Demand, non-interest bearing   $ 179,070     $ 166,556     $ 158,974     $ 161,878     $ 162,758  
Money market accounts and interest checking     654,954       624,199       504,092       501,822       489,675  
Time deposits     266,177       256,378       319,781       392,080       372,402  
Total deposits     1,100,201       1,047,133       982,847       1,055,780       1,024,835  
Repurchase agreements and federal funds purchased     22,690       24,494       30,580       25,978       26,546  
Borrowings     175,000       146,673       169,800       160,422       146,039  
Subordinated debentures     18,558       18,558       18,558       18,558       18,558  
Other liabilities     6,175       4,147       6,468       6,162       6,297  
Total Liabilities     1,322,624       1,241,005       1,208,253       1,266,900       1,222,275  
                                         
Stockholders' equity                                        
Common stock, $0.008 par value     43       37       37       37       36  
Additional paid in capital     79,845       53,235       53,147       52,993       52,694  
Retained earnings     51,673       48,198       45,360       42,397       39,084  
Accumulated other comprehensive (loss) income     148       (1,298 )     (886 )     (1,134 )     (670 )
Total Shareholders' Equity     131,709       100,172       97,658       94,293       91,144  
Total Liabilities and Shareholders' Equity   $ 1,454,333     $ 1,341,177     $ 1,305,911     $ 1,361,193     $ 1,313,419  
                                         
         
PARAGON COMMERCIAL CORPORATION
LOANS
(Unaudited)
         

(In thousands except per share data)
  June 30,
2016
  March 31,
2016
  Dec. 31,
2015
  Sept. 30,
2015
  June 30,
2015
Loans                              
Construction and land development   $ 63,819   $ 68,316   $ 64,704   $ 70,997   $ 72,867
Commercial real estate:                              
  Commercial real estate     340,475     320,791     305,723     300,696     303,056
  Commercial real estate - owner occupied     158,612     144,168     147,017     141,563     134,177
  Farmland     1,002     1,313     1,332     1,348     1,054
  Multifamily, nonresidential and junior liens     93,945     86,610     79,171     84,228     81,876
    Total commercial real estate     594,034     552,882     533,243     527,835     520,163
Consumer real estate:                              
  Home equity lines     85,883     80,940     78,943     75,687     69,566
  Secured by 1-4 family residential, secured by 1st deeds of trust     186,054     171,355     167,709     164,555     162,370
  Secured by 1-4 family residential, secured by 2nd deeds of trust     3,656     3,731     3,723     3,642     3,750
    Total consumer real estate     275,593     256,026     250,375     243,884     235,686
Commercial and industrial loans     157,640     153,159     153,669     138,571     144,420
Consumer and other     14,258     14,598     14,165     16,945     18,309
  Total loans   $ 1,105,344   $ 1,044,981   $ 1,016,156   $ 998,232   $ 991,445
                                 
   
PARAGON COMMERCIAL CORPORATION  
OTHER FINANCIAL HIGHLIGHTS  
(Unaudited)  
   
    Three Months Ended  

(In thousands, except per share data)
  June 30,
2016
    March 31,
2016
    Dec. 31,
2015
    Sept. 30,
2015
    June 30,
2015
 
Selected Average Balances:                                        
Average total assets   $ 1,393,722     $ 1,323,397     $ 1,330,518     $ 1,342,111     $ 1,279,887  
Average earning assets     1,310,510       1,235,237       1,239,027       1,240,640       1,196,615  
Average loans     1,071,325       1,019,396       1,004,627       999,857       973,610  
Average total deposits     1,019,133       994,219       1,010,610       1,010,398       937,700  
Average shareholders' equity     103,682       99,090       96,688       93,498       90,607  
                                         
Performance Ratios:                                        
Return on average assets     1.00 %     0.86 %     0.89 %     0.99 %     0.83 %
Return on average equity     13.41 %     11.46 %     12.26 %     14.17 %     11.70 %
Tangible common equity ratio     9.06 %     7.47 %     7.48 %     6.93 %     6.94 %
Total interest-earning assets   $ 1,373,728     $ 1,257,254     $ 1,224,106     $ 1,280,961     $ 1,223,755  
Tax equivalent net interest margin     3.55 %     3.54 %     3.52 %     3.49 %     3.50 %
Overhead to average assets (1)     1.86 %     1.99 %     1.89 %     1.84 %     2.00 %
Efficiency ratio (1)     54.13 %     59.04 %     55.44 %     54.88 %     59.05 %
                                         
Credit Ratios:                                        
Non-accrual loans   $ 1,220     $ 487     $ 513     $ 738     $ 754  
Other real estate owned   $ 5,183     $ 5,228     $ 5,453     $ 13,017     $ 13,679  
Nonperforming assets to total assets     0.44 %     0.43 %     0.46 %     1.01 %     1.10 %
Nonperforming loans to total loans     0.11 %     0.05 %     0.05 %     0.07 %     0.08 %
Loans past due >30 days and still accruing   $ 346     $ 127     $ -     $ -     $ -  
Net loan charge-offs (recoveries)   $ (56 )   $ (289 )   $ (23 )   $ (49 )   $ 162  
Annualized net charge-offs/average loans     -0.02 %     -0.11 %     -0.01 %     -0.02 %     0.07 %
Allowance for loan losses/total loans     0.72 %     0.76 %     0.75 %     0.76 %     0.76 %
Allowance for loan losses/
nonperforming loans
    655 %     1629 %     1489 %     1032 %     1004 %
                                         
Per share data:                                        
Average diluted common shares outstanding     4,624,326       4,574,455       4,567,023       4,565,963       4,528,553  
End of quarter common shares outstanding     5,449,886       4,581,334       4,581,334       4,580,434       4,553,141  
Book value per common share   $ 24.17     $ 21.87     $ 21.32     $ 20.59     $ 20.02  
                                         
(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.

       
    Three Months Ended  

(Dollars in thousands)
  June 30,
2016
    March 31,
2016
    Dec. 31,
2015
    Sept. 30,
2015
    June 30,
2015
 
Overhead to Average Assets                                        
Non-interest expense   $ 6,488     $ 6,600     $ 6,300     $ 6,180     $ 6,400  
Average Assets     1,393,722       1,323,397       1,330,518       1,342,111       1,279,887  
                                         
Overhead to Average Assets     1.86 %     1.99 %     1.89 %     1.84 %     2.00 %
                                         

"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.

       
    Three Months Ended  

(Dollars in thousands)
  June 30,
2016
    March 31,
2016
    Dec. 31,
2015
    Sept. 30,
2015
    June 30,
2015
 
Efficiency Ratio                                        
Non-interest expense   $ 6,488     $ 6,600     $ 6,300     $ 6,180     $ 6,400  
                                         
Net interest taxable equivalent income   $ 11,560     $ 10,785     $ 10,949     $ 10,853     $ 10,388  
Non-interest income     381       266       102       544       324  
Less gain on investment securities     -       (85 )     26       (145 )     -  
Plus loss on sale or writedown of foreclosed real estate     45       212       287       9       126  
  Adjusted operating revenue   $ 11,986     $ 11,178     $ 11,364     $ 11,261     $ 10,838  
                                         
Efficiency ratio     54.13 %     59.04 %     55.44 %     54.88 %     59.05 %

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