Paragon Bank, which was founded in 1999 and launched an initial public offering last year, is being acquired by one of the largest banks headquartered in Virginia in an all-stock deal valued at $323.7 million.
The deal, technically a merger, was announced before the markets opened Thursday by Raleigh-based Paragon and TowneBank, which is based in Hampton Roads.
The sale price represents a 15 percent premium for Paragon shareholders, based on Wednesday’s closing price for Paragon shares.
Paragon has just three branches – in Raleigh, Cary and Charlotte – but has outsized assets totaling $1.55 billion as of March 31 as a result of its unorthodox business model.
Paragon originally operated under the name Paragon Commercial Bank and focused on business customers. But in 2013, it broadened its focus to include “private banking” for the well-heeled.
It’s a deal that doesn’t require an extensive branch network, said Peter Gwaltney, president and CEO of the N.C. Bankers Association.
Gwaltney pointed to data compiled by Financial Management Consulting Group that shows that, at the end of last year, Paragon’s branches had an average of $391.9 million in deposits. By contrast, the average for all banks chartered in North Carolina was $137.2 million in deposits per branch, and the median was $42.9 million per branch.
TowneBank touted the deal as enabling it to gain entry into “two of the fastest growing metropolitan areas in the United States, Charlotte and Raleigh.”
TowneBank CEO Robert Aston said that Paragon’s overall market share in both the Triangle and Charlotte is “fairly small,” so there’s plenty of room for growth.
Towne Bank has 37 branches in North and South Carolina and $8.2 billion in assets. Its mortgage and insurance subsidiaries, TowneBank Mortgage and Towne Insurance Agency, already have offices in Raleigh.
Paragon co-founder and CEO Bob Hatley said the bank has been looking to scale up by either acquiring another bank or being acquired.
In the banking industry, “consolidation is running pretty rampant and, frankly, there’s a lot to be said for scale,” Hatley said. He noted that Paragon has been selling off pieces of its loans just because the loans are too large for the bank to retain the entire amount.
With TowneBank’s resources, “we don’t have to do that anymore,” Hatley said. “Now we can keep those loans.”
Of about a half-dozen banks that Paragon talked to – either about acquiring or being acquired – only TowneBank had a similar business model focusing on businesses with annual revenue ranging from $5 million to $75 million plus affluent individuals.
“We couldn’t look around the country and find anybody more closely aligned with our culture and our model than them,” he said.
The Paragon brand will endure, operating as a division of TowneBank, and will be led by Hatley. In addition to becoming president and CEO of the Paragon division, Hatley also will be president of Towne’s North Carolina operations and will join the TowneBank board of directors along with Paragon’s chairman, Howard Jung.
TowneBank has a half-dozen branches in North Carolina.
Paragon shareholders will receive 1.725 shares of TowneBank common stock, valued at $59.25 based on TowneBank’s closing price on Wednesday, for each share of Paragon stock. That’s 15 percent higher than the $51.51 that Paragon shares fetched on Wednesday.
Paragon’s shares were priced at $34 when it launched its IPO last year. The bank’s shares were previously traded over the counter, but its stock sale was considered an IPO because the bank was initially funded by private investors and it didn’t issue any new stock when its shares began trading over the counter.
Paragon’s executive management team also will stay in place. They include: Matthew C. Davis, executive vice president and chief operating officer; James F. Fielding, senior vice president and chief credit officer; Brian K. Reid, Triangle market president; and Phillip R. Jurney, Charlotte market president.
However, Hatley said there likely will be layoffs of some back office employees who won’t be needed anymore because their functions are already handled by TowneBank employees.
“Our goal is to keep as many of those people as is absolutely possible,” Aston said.
The deal is expected to close in October or November.
Paragon also reported its first-quarter results Thursday. The bank’s net income totaled $3.4 million, up 18 percent from a year ago, primarily because of its expanding loan portfolio.