Paragon Commercial Corporation Reports 31% Increase in

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	%