DEFM14A 1 pbnc_defm14a.htm DEFM14A Blueprint
 
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
 
 
Filed by the Registrant Filed by a Party other than the Registrant
 
Check the appropriate box:
 
 
 
 
 
Preliminary Proxy Statement
 
 
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
 
 
Definitive Proxy Statement
 
 
 
Definitive Additional Materials
 
 
 
Soliciting Material Pursuant to § 240.14a-12
 
Paragon Commercial Corporation
(Name of Registrant as Specified in its Charter)
 
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
 
 
 
 
 
 
 
No fee required.
 
 
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
 
 
 
(1)
 
Title of each class of securities to which transaction applies:
 


 
 
(2)
 
Aggregate number of securities to which transaction applies:
 
 
 
 
 
(3)
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
 
 
 
(4)
 
Proposed maximum aggregate value of transaction:
 
 
 
 
 
(5)
 
Total fee paid:
 
 
 
 
 
Fee paid previously with preliminary materials.
 
 
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
 
 
(1)
 
Amount Previously Paid:
 
 
 
(2)
 
Form, Schedule or Registration Statement No.:
 
 
 
(3)
 
Filing Party:

 
 
(4)
 
Date Filed:



 
 
 
 
 
Prospectus of  
TowneBank
 
 
Proxy Statement of
Paragon Commercial Corporation
                                                                                                            
PROPOSED MERGER – YOUR VOTE IS VERY IMPORTANT
 
The board of directors of Paragon Commercial Corporation (“Paragon”) has unanimously approved a business combination in which Paragon will merge with and into TB Acquisition, LLC (“Merger Sub”), a wholly owned subsidiary of TowneBank (the “merger”). Paragon stockholders are being asked to approve the merger and related matters at a special meeting of stockholders to be held at Paragon Bank, located at 3535 Glenwood Avenue, Raleigh, North Carolina 27612, at 3:00 p.m. local time, on January 10, 2018.
 
On April 26, 2017, TowneBank, Merger Sub, Paragon and Paragon Commercial Bank (“Paragon Bank”) entered into an Agreement and Plan of Reorganization (the “merger agreement”) pursuant to which Paragon will merge with and into Merger Sub and, immediately thereafter, Paragon Bank will merge with and into TowneBank (the “bank merger”).
 
If the merger is consummated, each share of Paragon common stock will be converted into the right to receive 1.7250 shares of TowneBank common stock. Although the number of shares of TowneBank common stock that Paragon stockholders will receive is fixed, the market value of the merger consideration will fluctuate with the market price of TowneBank common stock and may increase or decrease prior to and following the merger. Based on the closing sale price for TowneBank common stock on the NASDAQ Global Select Market on April 26, 2017 ($34.35), the last trading day before public announcement of the merger, the 1.7250 exchange ratio represented approximately $59.25 in value for each share of Paragon common stock, or approximately $323.6 million in the aggregate based on the number of shares of Paragon common stock outstanding on such date. The most recent reported closing sale price for TowneBank common stock on the NASDAQ Global Select Market on November 24, 2017 was $33.25. The most recent reported closing sale price for Paragon common stock on the NASDAQ Capital Market on November 24, 2017 was $57.25. Based on the 1.7250 exchange ratio and the number of shares of Paragon common stock outstanding and reserved for issuance under equity compensation plans and agreements as of November 17, 2017, the estimated maximum number of shares of TowneBank common stock offered by TowneBank and issuable in the merger is 9,452,692. We urge you to obtain current market quotations for TowneBank (trading symbol “TOWN”) and Paragon (trading symbol “PBNC”).
 
This document serves as a proxy statement for the special meeting of Paragon stockholders and as a prospectus with respect to the offering and issuance of the shares of TowneBank common stock to be issued to Paragon stockholders in the merger. It describes the special meeting and includes important information about the proposed merger, the merger agreement and the companies participating in the merger. Please carefully read this proxy statement/prospectus, including the information in the “Risk Factors” section beginning on page 28.
 
If you are a Paragon stockholder, whether or not you plan to attend the special meeting, it is important that your shares be represented at the meeting and your vote recorded. Please take the time to vote by completing and mailing the enclosed proxy card or by voting via the Internet or telephone using the instructions given on the proxy card. Even if you return the proxy card, you may attend the special meeting and vote your shares in person. The board of directors of Paragon believes that the merger agreement and the transactions contemplated thereby, including the merger and the bank merger, are in the best interests of Paragon and the Paragon stockholders, and unanimously recommends that Paragon stockholders vote “FOR” all of the proposals described in this proxy statement/prospectus.
 
Neither the Securities and Exchange Commission nor the Federal Deposit Insurance Corporation, nor any state securities commission, has approved or disapproved of the securities to be issued in connection with the merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
 
The securities to be issued in the merger are not savings or deposit accounts or other obligations of either TowneBank or Paragon or any bank or non-bank subsidiary of either TowneBank or Paragon, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
 
This proxy statement/prospectus is dated November 27, 2017 and is first being mailed, along with the enclosed proxy card, to Paragon stockholders on or about December 1, 2017.
 
 

 
______________________________________________________________________________
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
______________________________________________________________________________
 
To be held on January 10, 2018
 
A special meeting of stockholders of Paragon Commercial Corporation will be held at Paragon Bank, located at 3535 Glenwood Avenue, Raleigh, North Carolina 27612, at 3:00 p.m. local time, on January 10, 2018 for the following purposes:
 
1. 
To consider and vote on a proposal to approve the Agreement and Plan of Reorganization, dated as of April 26, 2017, by and among TowneBank, TB Acquisition, LLC (“Merger Sub”), Paragon Commercial Corporation (“Paragon”) and Paragon Commercial Bank (“Paragon Bank”), including the related Plan of Merger (together, the “merger agreement”), pursuant to which Paragon will merge with and into Merger Sub and, immediately thereafter, Paragon Bank will merge with and into TowneBank, as more fully described in the accompanying proxy statement/prospectus (the “merger proposal”). A copy of the merger agreement is attached as Appendix A to the accompanying proxy statement/prospectus.
 
2. 
To consider and vote on a proposal to adjourn the meeting, if necessary or appropriate, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the meeting to approve the merger proposal (the “adjournment proposal”).
 
3. 
To transact such other business as may properly come before the meeting or any adjournments thereof.
 
All holders of record of Paragon common stock at the close of business on November 17, 2017 are entitled to notice of and to vote at the meeting and any adjournments thereof.
 
By Order of the Board of Directors,
 
Robert C. Hatley
President and Chief Executive Officer
 
November 27, 2017
 
The Paragon board of directors unanimously recommends that you vote “FOR” the merger proposal and “FOR” the adjournment proposal.
 
 
 
ADDITIONAL INFORMATION
 
This proxy statement/prospectus incorporates by reference important business and financial information about TowneBank and Paragon from other documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference, see “Where You Can Find More Information” on page 97. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this proxy statement/prospectus through the website of the Federal Deposit Insurance Corporation (the “FDIC”) at http://www.fdic.gov, through the website of the Securities and Exchange Commission (the “SEC”) at http://www.sec.gov, through the website of TowneBank at https://www.townebank.com and through the website of Paragon at https://www.paragonbank.com, or by requesting them in writing or by telephone at the contact information set forth below:
 
TowneBank
6001 Harbour View Boulevard
Suffolk, Virginia 23435
Attention:   Karen R. Minkoff
                   Vice President and Corporate Secretary
Telephone:  (757) 638-6780
 
 
 
Paragon Commercial Corporation
3535 Glenwood Avenue
Raleigh, North Carolina 27612
Attention:  Carol A. Isaac
                   Senior Vice President
Telephone: (919) 788-7770
 
Regan & Associates, Inc.
505 Eighth Avenue, Suite 800
New York, New York 10018
Attention:    James M. Dougan
                    Executive Vice President
Telephone:  1-800-737-3426
 
Information contained on the websites of TowneBank or Paragon, or any subsidiary of TowneBank or Paragon, does not constitute part of this proxy statement/prospectus and is not incorporated into other filings that TowneBank or Paragon makes with the FDIC and the SEC, respectively.
 
To receive timely delivery of the documents in advance of the special meeting, please make your request no later than January 3, 2018.
 
 
i
 
 
In this proxy statement/prospectus:
 
 
Paragon Commercial Corporation is referred to as “Paragon”
 
 
Paragon Commercial Bank is referred to as “Paragon Bank”
 
 
TB Acquisition, LLC is referred to as “Merger Sub”
 
 
The merger of Paragon Commercial Corporation with and into TB Acquisition, LLC is referred to as the “merger”
 
 
The merger of Paragon Commercial Bank with and into TowneBank is referred to as the “bank merger”
 
 
The Agreement and Plan of Reorganization, dated as of April 26, 2017, by and among TowneBank, TB Acquisition, LLC, Paragon Commercial Corporation and Paragon Commercial Bank, including the related Plan of Merger, is referred to as the “merger agreement,” a copy of which is attached as Appendix A to this proxy statement/prospectus
 
 
The effective date and time of the merger set forth in the articles of merger filed with the Virginia State Corporation Commission (the “Virginia SCC”) and the North Carolina Secretary of State (the “North Carolina SOS”) effecting the merger are referred to collectively as the “effective date” of the merger
 
 
The proposal to approve the merger agreement is referred to as the “merger proposal”
 
 
The proposal to adjourn the special meeting, if necessary or appropriate, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the meeting to approve the merger proposal is referred to as the “adjournment proposal”
 
 
ii
 
TABLE OF CONTENTS
 
 
Page
 
 
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
1
SUMMARY 
5
SELECTED HISTORICAL FINANCIAL DATA OF TOWNEBANK 
15
SELECTED HISTORICAL FINANCIAL DATA OF PARAGON
17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
19
COMPARATIVE HISTORICAL AND PRO FORMA UNAUDITED SHARE DATA
27
RISK FACTORS  
28
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
34
THE SPECIAL MEETING                                                                                                                                 
35
Date, Place and Time         
35
Purposes of the Special Meeting 
35
Recommendation of Paragon’s Board of Directors
35
Record Date and Voting Rights; Quorum                                                                                                                           
35
Votes Required   
35
Stock Ownership of Paragon Executive Officers and Directors               
36
Voting at the Special Meeting                                                                                                                           
36
Revocation of Proxies                                                                                                                           
37
Solicitation of Proxies                                                                                                                           
37
PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING           
38
Approval of the Merger Proposal (Proposal No. 1)
38
Approval of the Adjournment Proposal (Proposal No. 2)
38
THE MERGER   
39
General                                                                                       
39
Background of the Merger             
39
Paragon’s Reasons for the Merger; Recommendation of Paragon’s Board of Directors
44
TowneBank’s Reasons for the Merger                        
46
Certain Paragon Unaudited Prospective Financial Information      
47
Opinion of Paragon’s Financial Advisor  
49
Interests of Certain Paragon Directors and Executive Officers in the Merger
57
Regulatory Approvals                                                                    
64
Appraisal or Dissenters’ Rights in the Merger     
64
Certain Differences in the Rights of Stockholders        
64
Accounting Treatment  
64
THE MERGER AGREEMENT                    
65
Structure of the Merger 
65
Merger Consideration  
65
Treatment of Paragon Stock Options and Restricted Stock Awards                                                               
65
Effective Date and Time; Closing                                               
66
Exchange of Paragon Shares for TowneBank Shares in the Merger                            
66
Corporate Governance         
67
Representations and Warranties                 
67
Business Pending the Merger                               
69
Assumption of Trust Preferred Capital Securities                                       
72
Employee Matters
72
Regulatory Matters                   
72
Required Stockholder Approval                                         
72
No Solicitation                         
73
Conditions to Completion of the Merger                                               
74
Termination of the Merger Agreement                   
75
Termination Fee             
77
Indemnification and Insurance                                             
77
Expenses
77
 
 
 
iii
 
 
Waiver and Amendment                     
77
Affiliate Agreements                                   
78
Possible Alternative Merger Structure 
78
Resales of TowneBank Common Stock                         
78
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES 
79
DESCRIPTION OF TOWNEBANK CAPITAL STOCK
82
Authorized and Outstanding Capital Stock
82
Common Stock            
82
Preferred Stock                               
83
Liability and Indemnification of Directors and Officers
83
TowneBank Common Stock is Not Insured by the FDIC                                               
83
COMPARATIVE RIGHTS OF STOCKHOLDERS                                  
84
Authorized Capital Stock                       
84
Dividend Rights   
84
Voting Rights
85
Directors and Classes of Directors          
85
Anti-takeover Provisions
85
Amendments to Articles of Incorporation and Bylaws         
89
Appraisal Rights
89
Director and Officer Exculpation   
90
Indemnification
91
MARKET FOR COMMON STOCK AND DIVIDENDS
92
INFORMATION ABOUT TOWNEBANK 
94
INFORMATION ABOUT PARAGON COMMERCIAL CORPORATION
94
CERTAIN BENEFICIAL OWNERSHIP OF PARAGON COMMON STOCK
95
LEGAL MATTERS    
96
EXPERTS
96
HOUSEHOLDING MATTERS 
96
FUTURE STOCKHOLDER PROPOSALS  
96
OTHER MATTERS        
96
WHERE YOU CAN FIND MORE INFORMATION
97
 
Appendix A
Agreement and Plan of Reorganization, including the Plan of Merger
A-1
Appendix B
Opinion of Raymond James & Associates, Financial Advisor to Paragon
B-1
 
 
iv
 
 
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
 
The following questions and answers briefly address some commonly asked questions about the special meeting of stockholders of Paragon and the merger. They may not include all of the information that is important to Paragon stockholders. We urge stockholders to read carefully this proxy statement/prospectus, including the appendices and the other documents referred to herein.
 
Additional important information is also contained in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page 97.
 
Q: 
What is the proposed transaction?
 
A: 
TowneBank, Merger Sub, Paragon and Paragon Bank have entered into the merger agreement whereby Paragon will merge with and into Merger Sub and, immediately thereafter, Paragon Bank will merge with and into TowneBank. As a result of the merger, Paragon stockholders will receive TowneBank common stock in exchange for their Paragon common stock. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.
 
Q: 
Why am I receiving this proxy statement/prospectus?
 
A: 
We are delivering this document to you because it is a proxy statement being used by the Paragon board of directors to solicit proxies from Paragon stockholders in connection with the special meeting of stockholders to approve the merger agreement. This document describes the proposals to be presented at the meeting.
 
This document is also a prospectus that is being delivered to Paragon stockholders because TowneBank is offering shares of its common stock to Paragon stockholders in connection with the merger.
 
This proxy statement/prospectus contains important information about the merger and the proposals being voted on at the special meeting. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending the meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.
 
Q: 
Why do TowneBank and Paragon want to merge?
 
A: 
TowneBank and Paragon believe that the proposed merger will create one of the leading community banking franchises in Virginia and North Carolina. The merger will further TowneBank’s strategic growth initiatives in attractive markets and Paragon stockholders are expected to benefit from the strength of the combined company. To review the reasons for the merger in more detail, see “The Merger − TowneBank’s Reasons for the Merger” on page 46 and “The Merger − Paragon’s Reasons for the Merger; Recommendation of Paragon’s Board of Directors” on page 44.
 
Q: 
In addition to the merger proposal, what else are Paragon’s stockholders being asked to vote on?
 
A: 
In addition to the merger proposal, Paragon is soliciting proxies from its stockholders with respect to a proposal to adjourn the meeting, if necessary or appropriate, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the meeting to approve the merger proposal.
 
Q: 
What will Paragon stockholders receive in the merger?
 
A: 
Under the merger agreement, holders of Paragon common stock will receive 1.7250 shares of common stock of TowneBank for each of their shares of Paragon common stock. This exchange ratio is fixed and will not be adjusted based upon changes in the market price of TowneBank common stock and Paragon common stock prior to the effective date of the merger. TowneBank stockholders will continue to own their existing shares, which will not be affected by the merger. See “The Merger Agreement – Merger Consideration” on page 65.
 
 
1
 
 
 
Q: 
Will the value of the merger consideration change between the date of this proxy statement/prospectus and the time the merger is completed?
 
A: 
Although the exchange ratio is fixed, the value of the merger consideration will fluctuate between the date of this proxy statement/prospectus and the completion of the merger based upon the market value for TowneBank common stock. Any fluctuation in the market price of TowneBank common stock after the date of this proxy statement/prospectus will change the value of the shares of TowneBank common stock that Paragon stockholders will receive. Paragon stockholders should obtain current market quotations for TowneBank common stock, which is traded on the NASDAQ Global Select Market.
 
Q: 
Are Paragon’s stockholders entitled to appraisal or dissenters’ rights?
 
A: 
No. Under North Carolina law, holders of securities that are listed on a NASDAQ market are not entitled to appraisal or dissenters’ rights. Paragon is a North Carolina corporation and Paragon’s common stock is listed on the NASDAQ Capital Market.
 
Q: 
What constitutes a quorum for the special meeting?
 
A: 
The presence at the special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Paragon common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business. Abstentions will be included in determining the number of shares present at the meeting for the purposes of determining the presence of a quorum.
 
Q: 
What do I need to do now to vote my shares?
 
A: 
After carefully reading and considering the information contained in this proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at the special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee.
 
Q: 
How do I vote?
 
A: 
By mail. You may vote before the special meeting by completing, signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope.
 
By the Internet or Telephone. You can also appoint the proxies to vote your shares for you by going to the Internet website https://www.iproxydirect.com/PBNC or by calling 1-866-752-VOTE (8683). When you are prompted for your “control number,” enter the number printed just above your name on the enclosed proxy card, and then follow the instructions provided. You may vote by the Internet or telephone only until 11:59 p.m. Eastern Time on January 9, 2018, which is the day before the special meeting.
 
In Person. You may also cast your vote in person at the special meeting. See below for the date, time and place of the special meeting. If your shares are held in “street name,” through a broker, bank or other nominee, that entity will send you separate instructions describing the procedure for voting your shares. “Street name” stockholders who wish to vote in person at the special meeting will need to present a proxy from the entity that holds the shares.
 
Q: 
If my shares are held in “street name” by a broker or other nominee, will my broker or nominee vote my shares for me if I do not provide instructions on how to vote my shares?
 
A: 
Your broker or other nominee does not have authority to vote on the proposals described in this proxy statement/prospectus if you do not provide instructions on how to vote. You should follow the directions your broker or other nominee provides in a voting instruction card or other form.
 
 
2
 
 
 
Q: 
When and where is the special meeting?
 
A: 
The special meeting will be held at 3:00 p.m. local time, on January 10, 2018 at Paragon Bank, located at 3535 Glenwood Avenue, Raleigh, North Carolina 27612.
 
Q: 
What vote is required to approve each proposal at the special meeting?
 
A: 
Approval of the merger proposal requires the affirmative vote of at least a majority of the outstanding shares of Paragon common stock entitled to vote on the proposal.
 
Approval of the adjournment proposal requires the affirmative vote of at least a majority of the shares cast on the proposal, whether or not a quorum is present.
 
Q: 
What if I do not vote on the matters relating to the merger?
 
A: 
With respect to the merger proposal, if you fail to vote or fail to instruct your broker or other nominee how to vote, your failure to vote will have the same effect as a vote against such proposal. If you respond with an “abstain” vote, your proxy will have the same effect as a vote against such proposal. If you are a holder of record of Paragon common stock and you sign and return your proxy card but do not indicate how you want to vote on the merger proposal, your proxy will be counted as a vote in favor of such proposal.
 
With respect to the adjournment proposal, if you fail to vote or fail to instruct your broker or other nominee how to vote, your failure to vote will have no effect on such proposal.
 
Q: 
May I change my vote after I have delivered my proxy or voting instruction card?
 
A: 
Yes. If you are a holder of record Paragon common stock, you may change your vote at any time before your proxy is voted at the special meeting. You may do this in any of the following ways:
 
● 
by sending a notice of revocation to the Paragon corporate secretary;
 
● 
by sending a completed proxy card bearing a later date than your original proxy card;
 
● 
by voting via the Internet or telephone any time after delivering your proxy or voting instruction card; or
 
● 
by attending the special meeting and voting in person. In each such case, your attendance alone will not revoke any proxy.
 
If you choose either of the first two methods, your notice or new proxy card must be actually received before the voting takes place at the special meeting.
 
If your shares are held in a stock brokerage account or by a bank or other nominee, you should call your broker or other nominee for additional information.
 
Q: 
What are the material U.S. federal income tax consequences of the merger to Paragon stockholders?
 
A: 
The merger of Paragon with and into Merger Sub will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, a holder of Paragon common stock generally will not recognize any gain or loss for U.S. federal income tax purposes as a result of the exchange of the holder’s shares of Paragon common stock for shares of TowneBank common stock pursuant to the merger, except with respect to any cash received in lieu of fractional shares of TowneBank common stock. For greater detail, see “Material U.S. Federal Income Tax Consequences” beginning on page 79. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the specific tax consequences of the merger to you.
 
 
3
 
 
 
Q: 
If I am a Paragon stockholder with shares represented by stock certificates, should I send in my Paragon stock certificates now?
 
A: 
No. Please do not send your stock certificates with your proxy card.
 
If you are a holder of Paragon stock, you will receive written instructions from the exchange agent after the merger is completed on how to exchange your Paragon stock certificates for shares of TowneBank common stock and receive your check in lieu of any fractional shares of TowneBank common stock.
 
Q: 
What should I do if I hold my shares of Paragon common stock in book-entry form?
 
A: 
After the completion of the merger, TowneBank will send you instructions on how to exchange your shares of Paragon common stock held in book-entry form for shares of TowneBank common stock and receive your check in lieu of fractional shares of TowneBank common stock.
 
Q: 
What happens if I sell or transfer ownership of shares of Paragon common stock after the record date for the special meeting?
 
A: 
The record date for the special meeting is earlier than the expected date of completion of the merger. Therefore, if you sell or transfer ownership of your shares of Paragon common stock after the record date for the special meeting, but prior to the merger, you will retain the right to vote at the special meeting, but the right to receive the merger consideration will transfer with the shares of Paragon common stock.
 
Q: 
Who should I contact if I have any questions about the proxy materials or voting?
 
A: 
If you have any questions about the merger or if you need assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement/prospectus or the enclosed proxy card, you should contact Carol A. Isaac, Senior Vice President, at (919) 788-7770 or by writing to Paragon Commercial Corporation, 3535 Glenwood Avenue Raleigh, North Carolina 27612, Attention: Carol A. Isaac. You may also obtain more information about the merger and the proxy materials by contacting Regan & Associates, Inc., Paragon’s proxy solicitor, at 1-800-737-3426.
 
If your shares are held in a stock brokerage account or by a bank or other nominee, you should call your broker or other nominee for additional information.
 
 
4
 
SUMMARY
 
This summary highlights selected information from this proxy statement/prospectus. We urge you to read carefully the proxy statement/prospectus and the other documents to which this proxy statement/prospectus refers to understand fully the merger and the other matters to be considered at the special meeting. See “Where You Can Find More Information” beginning on page 97. Each item in this summary includes a page reference directing you to a more complete description of that item.
 
The Parties to the Merger
 
TowneBank
 
TowneBank is a Virginia chartered commercial bank headquartered in Portsmouth, Virginia providing diversified financial services through its banking and non-banking divisions and subsidiaries. TowneBank currently operates 37 banking offices throughout Richmond, Virginia, the Greater Hampton Roads area in southeastern Virginia and in northeastern North Carolina. As of September 30, 2017, TowneBank had total consolidated assets of approximately $8.61 billion, total consolidated loans, net of unearned income, of approximately $5.91 billion, total consolidated deposits of approximately $6.59 billion and consolidated stockholders’ equity of approximately $1.13 billion.
 
The principal executive offices of TowneBank are located at 5716 High Street, Portsmouth, Virginia 23703, and its telephone number is (757) 638-7500. TowneBank’s website can be accessed at https://www.townebank.com. Information contained on TowneBank’s website does not constitute part of, and is not incorporated into, this proxy statement/prospectus. TowneBank’s common stock is traded on the NASDAQ Global Select Market under the symbol “TOWN.” Additional information about TowneBank is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”
 
TB Acquisition, LLC (“Merger Sub”)
 
TB Acquisition, LLC, a Virginia limited liability company and wholly owned subsidiary of TowneBank, was organized on April 24, 2017 by TowneBank solely for the purpose of facilitating the merger. TB Acquisition, LLC has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.
 
Paragon Commercial Corporation and Paragon Commercial Bank
 
Paragon Commercial Corporation is a bank holding company headquartered in Raleigh, North Carolina providing commercial banking services through its wholly-owned North Carolina chartered bank subsidiary, Paragon Commercial Bank. Paragon Bank currently operates three full-service banking offices serving the Charlotte and Research Triangle markets in the piedmont region of North Carolina. As of September 30, 2017, Paragon had total consolidated assets of approximately $1.74 billion, total consolidated loans, net of unearned income, of approximately $1.39 billion, total consolidated deposits through Paragon Bank of approximately $1.29 billion and consolidated stockholders’ equity of approximately $149.1 million.
 
The principal executive offices of Paragon are located at 3535 Glenwood Avenue Raleigh, North Carolina 27612, and its telephone number is (919) 788-7770. Paragon’s website can be accessed at https://www.paragonbank.com. Information contained on Paragon’s website does not constitute part of, and is not incorporated into, this proxy statement/prospectus. Paragon’s common stock is traded on the NASDAQ Capital Market under the symbol “PBNC.” Additional information about Paragon is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”
 
The Merger (page 39)
 
TowneBank and Paragon are proposing a combination of our companies through the merger of Paragon with and into Merger Sub and, immediately thereafter, the merger of Paragon Bank with and into TowneBank, pursuant to the terms and conditions of the merger agreement. The parties expect to complete the merger and bank merger early in the first quarter of 2018. The merger agreement is attached to this proxy statement/prospectus as Appendix A. We encourage you to read the merger agreement because it is the legal document that governs the merger.
 
 
5
 
 
Consideration to be Received in the Merger by Paragon Stockholders (page 65)
 
In the proposed merger, holders of Paragon common stock will receive 1.7250 shares of TowneBank common stock for each of their shares of Paragon common stock outstanding immediately before the effective date of the merger, and cash in lieu of any fractional shares. The number of shares of TowneBank common stock delivered for each share of Paragon common stock in the merger is referred to as the “exchange ratio.” The exchange ratio is fixed and will not be adjusted based upon changes in the market price of TowneBank common stock or Paragon common stock prior to the effective date of the merger.  Based on the closing sale price for TowneBank common stock on the NASDAQ Global Select Market on April 26, 2017 ($34.35), the last trading day before public announcement of the merger, the 1.7250 exchange ratio represented approximately $59.25 in value for each share of Paragon common stock, or approximately $323.6 million in the aggregate based on the number of shares of Paragon common stock outstanding on such date. Based on the closing sale price for TowneBank common stock on the NASDAQ Global Select Market on November 24, 2017 ($33.25), the last trading day before the date of this proxy statement/prospectus, the 1.7250 exchange ratio represented approximately $57.36 in value for each share of Paragon common stock, or approximately $313.2 million in the aggregate based on the number of shares of Paragon common stock outstanding on such date. It is expected that existing holders of Paragon common stock will own approximately 13% of TowneBank’s outstanding common stock, on a fully diluted basis, after the merger.
 
Shares of TowneBank common stock held by TowneBank stockholders will remain unchanged in the merger. It is expected that existing holders of TowneBank common stock will own approximately 87% of TowneBank’s outstanding common stock, on a fully diluted basis, after the merger.
 
Treatment of Paragon Stock Options and Restricted Stock Awards (page 65)
 
In the merger, each outstanding option to purchase shares of Paragon common stock shall be converted into an option to acquire, on the same terms and conditions (except as otherwise described herein) as were applicable under such Paragon stock option, the number of shares of TowneBank common stock equal to the product of (i) 1.7250 multiplied by (ii) the number of shares of Paragon common stock subject to the Paragon stock option. Such product shall be rounded down to the nearest whole number. The exercise price per share (rounded up to the next whole cent) of such replacement TowneBank stock option shall equal (i) the exercise price per share of shares of Paragon common stock that were purchasable pursuant to the Paragon stock option divided by (ii) 1.7250. As of November 17, 2017, there were 19,375 options outstanding to purchase shares of Paragon common stock.
 
In the merger, all outstanding Paragon restricted stock awards that are unvested or contingent will be converted into TowneBank restricted stock awards, with the same terms and conditions (except as otherwise described herein) as were in effect immediately prior to the completion of the merger, subject to any accelerated vesting as a result of the merger to the extent provided by the terms of the applicable plan or agreements under such plans. The number of shares subject to the restricted stock awards will be adjusted based on the exchange ratio. As of November 17, 2017, there were 36,350 shares subject to unvested restricted stock awards granted under Paragon’s equity compensation plans.
 
Dividend Information (page 92)
 
TowneBank is currently paying a quarterly cash dividend on shares of its common stock at a rate of $0.14 per share, and has consistently paid a dividend on its common stock since 2003. TowneBank does not intend to change its dividend strategy of paying a quarterly cash dividend, but has and will continue to evaluate that decision based on a quarterly review of earnings, growth, capital and such other factors that the TowneBank board of directors considers relevant to the dividend decision process. Paragon does not currently pay a regular cash dividend.
 
 
6
 
 
Material U.S. Federal Income Tax Consequences (page 79)
 
The merger of Paragon with and into Merger Sub will be treated as a “reorganization” within the meaning of Section 368(a) of the Code. Subject to the limitations and qualifications described in “Material U.S. Federal Income Tax Consequences” (page 79), for U.S. federal income tax purposes, the merger generally will be tax-free to Paragon stockholders as to the shares of TowneBank common stock they receive in the merger. However, Paragon stockholders may recognize gain or loss in connection with cash received in lieu of any fractional shares of TowneBank common stock they would otherwise be entitled to receive. Additionally, it is a condition to Paragon’s and TowneBank’s obligations to complete the merger that they each receive a legal opinion from their respective outside legal counsel that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368 of the Code. These opinions, however, will not bind the Internal Revenue Service, which could take a different view.
 
The tax consequences of the merger to you will depend on your own situation and the consequences described in this proxy statement/prospectus may not apply to you. Paragon stockholders will also be required to file certain information with their federal income tax returns and to retain certain records with regard to the merger. In addition, you may be subject to state, local or foreign tax laws and consequences that are not addressed in this proxy statement/prospectus. You are urged to consult with your own tax advisor for a full understanding of the tax consequences of the merger to you.
 
Paragon’s Reasons for the Merger; Recommendation of Paragon’s Board of Directors (page 44)
 
Paragon’s board of directors has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are in the best interests of Paragon and its stockholders and has unanimously approved the merger agreement. The Paragon board of directors unanimously recommends that Paragon stockholders vote “FOR” the approval of the merger proposal and “FOR” the approval of the adjournment proposal.  In making its recommendations, a number of substantive reasons were considered by the Paragon board, including, among others:
 
● 
a review of the prospects, challenges and risks of Paragon remaining independent versus merging with TowneBank given the current and prospective environment in the financial services industry, including national and local economic conditions, competition and consolidation in the financial services industry, and the regulatory and compliance environment;
 
● 
the ability of Paragon’s stockholders to benefit from the combined bank’s potential growth and stock appreciation, and the expectation that the combined entity will have superior future earnings and prospects compared to Paragon’s earnings and prospects on an independent basis;
 
● 
the expected cash dividend payments to be received by Paragon’s stockholders, as stockholders of TowneBank following the merger, due to the quarterly cash dividend paid by TowneBank (currently $0.14 per share), although TowneBank has no obligation to pay dividends in any particular amounts or at any particular times;
 
● 
the advantages of being part of a larger entity, including the expectation of cost savings and operating efficiencies and the ability of a larger institution to compete in the banking environment and to leverage overhead costs, including the cost of financial technology, which the Paragon board believes is likely to continue to increase in the future;
 
● 
the financial and other terms of the merger, including the fixed exchange ratio, expected tax treatment, and deal protection provisions, which Paragon reviewed with its outside financial and legal advisors;
 
● 
the greater potential for increased liquidity in the market for common stock of the combined institution, versus an institution of Paragon’s size; and
 
● 
the familiarity of Paragon’s board of directors and management team with TowneBank and its business, operations, culture, customers, directors, executive officers and employees.
 
 
7
 
 
Paragon also considered the opinion of Raymond James & Associates, Inc. (“Raymond James”) rendered to the Paragon board of directors on April 26, 2017 with respect to the fairness, as of such date, from a financial point of view, to the holders of Paragon’s outstanding common stock of the exchange ratio to be received by such holders in the merger pursuant to the merger agreement. For additional discussion of the factors considered by Paragon’s board of directors in reaching its decision to approve the merger agreement, see “The Merger – Paragon’s Reasons for the Merger; Recommendation of Paragon’s Board of Directors.”
 
TowneBank’s Reasons for the Merger (page 46)
 
TowneBank’s board of directors has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are in the best interests of TowneBank and its stockholders and has approved the merger agreement. In making its recommendations, a number of substantive reasons were considered by the TowneBank board, including, among others:
 
● 
the attractiveness and growth potential of the North Carolina markets from a banking perspective, and the fact that it is a natural strategic expansion of TowneBank’s banking franchise that currently covers a large portion of Virginia and the Outer Banks in eastern North Carolina;
 
● 
the opportunity to enter the two biggest markets in North Carolina with an acquisition of significant scale, involving a well-respected, high-quality and locally-based financial institution;
 
● 
TowneBank’s expectations and analyses, and its financial advisor’s analyses, of the financial metrics, including expected immediate earnings per share accretion and low single-digit tangible book value dilution projected to be earned back in approximately two years;
 
● 
TowneBank’s belief that the merger will accelerate TowneBank’s achievement of its financial performance goals;
 
● 
the current and prospective environment in the financial services industry, including national and local economic conditions, competition and consolidation in the financial services industry, the regulatory and compliance environment, and the likely effect of the foregoing factors on TowneBank with and without the merger; and
 
● 
the significant experience in the financial services industry of the members of Paragon’s senior management team who will become members of TowneBank’s management team and continue TowneBank’s tradition of local management and decision-making.
 
For additional discussion of the factors considered by TowneBank’s board of directors in reaching its decision to approve the merger agreement, see “The Merger – TowneBank’s Reasons for the Merger.”
 
Opinion of Paragon’s Financial Advisor (page 49)
 
At the April 26, 2017 meeting of the Paragon board of directors, representatives of Raymond James rendered Raymond James’ written opinion to the Paragon board dated April 26, 2017, as to the fairness, as of such date, from a financial point of view, to the holders of Paragon’s outstanding common stock of the exchange ratio to be received by such holders in the merger pursuant to the merger agreement, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.
 
The full text of the written opinion of Raymond James, dated April 26, 2017, which sets forth, among other things, the various qualifications, assumptions and limitations on the scope of the review undertaken, is attached as Appendix B to this proxy statement/prospectus. Raymond James provided its opinion for the information and assistance of the Paragon board of directors (solely in each director’s capacity as such) in connection with, and for purposes of, its consideration of the merger and its opinion only addresses whether the exchange ratio to be received by the holders of Paragon common stock in the merger pursuant to the merger agreement was fair, from a financial point of view, to such holders. The opinion of Raymond James did not address any other term or aspect of the merger agreement or the merger contemplated thereby. The Raymond James opinion does not constitute a recommendation to the Paragon board or any holder of Paragon common stock as to how the board, such stockholder or any other person should vote or otherwise act with respect to the merger or any other matter.
 
8
 
 
Regulatory Approvals (page 72)
 
TowneBank, Paragon and Paragon Bank cannot complete the merger without prior approval from the FDIC, the Virginia SCC and the North Carolina Commissioner of Banks (“NCCOB”). The parties have received the required approvals from each of the FDIC, Virginia SCC and NCCOB. The parties have also received a waiver from the Federal Reserve Bank of Richmond (the “Reserve Bank”) of the requirement to file an application under Section 3 of the Bank Holding Company Act of 1956, as amended, for approval of the merger. Accordingly, all regulatory approvals and waivers required for the merger have been obtained.
 
Conditions to Completion of the Merger (page 74)
 
The parties’ respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:
 
● 
approval of the merger proposal by the Paragon stockholders;
 
● 
approval of the merger by the necessary federal and state regulatory authorities, provided that no such approvals contain any conditions, restrictions or requirements that would, after the merger, (i) have or be reasonably likely to have a material adverse effect on TowneBank, in the reasonable opinion of TowneBank, or (ii) be unduly burdensome, in the reasonable opinion of TowneBank;
 
● 
clearance of the proxy statement/prospectus by the SEC for use in definitive form, provided it is not subject to any stop order or any threatened stop order (or an order, demand, request or other action with similar effect) of the SEC;
 
● 
approval from the NASDAQ Stock Market for the listing on the NASDAQ Global Select Market of the shares of TowneBank common stock to be issued in the merger;
 
● 
the absence of any statute, rule, regulation, judgment, decree, injunction or other order of a court, regulatory agency or other governmental authority that prohibits the completion of the merger;
 
● 
the accuracy of the other parties’ representations and warranties in the merger agreement, subject to the material adverse effect standard in the merger agreement;
 
● 
each party’s performance in all material respects of its obligations under the merger agreement;
 
● 
the receipt by TowneBank from Williams Mullen, TowneBank’s outside legal counsel, of a written legal opinion to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code and the receipt by Paragon from Wyrick Robbins Yates & Ponton LLP (“Wyrick Robbins”), Paragon’s outside legal counsel, of a written legal opinion to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code; and
 
 
9
 
 
 
● 
the execution and delivery of certain agreements by key employees of Paragon and Paragon Bank concerning their employment with TowneBank and related matters after the effective date of the merger, such agreements not being breached or terminated, and such employees continuing to be employed by Paragon or Paragon Bank.
 
Where the merger agreement and/or law permits, TowneBank or Paragon and Paragon Bank could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.
 
Timing of the Merger (page 66)
 
TowneBank and Paragon expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including after stockholder approval is received at the special meeting of Paragon and the continuation of all required regulatory approvals. We currently expect to complete the merger early in the first quarter of 2018. However, it is possible that factors outside of either party’s control could require us to complete the merger at a later time or not to complete it at all.
 
Interests of Paragon Directors and Executive Officers in the Merger (page 57)
 
The directors and executive officers of Paragon have interests in the merger that differ from, or are in addition to, their interests as stockholders of Paragon. These interests exist because of, among other things:
 
● 
new employment and other agreements between TowneBank and certain executive officers of Paragon pursuant to which such individuals will serve in senior officer positions at TowneBank upon completion of the merger and will receive annual base salaries and other compensation and benefits;
 
● 
new change in control agreements between TowneBank and certain executive officers of Paragon, which will only become effective in the event of a change in control of TowneBank and pursuant to which such individuals may receive severance payments and other benefits in connection with a change in control of TowneBank;
 
● 
the potential receipt by certain executive officers of Paragon of change in control, severance or termination payments in the event such officers do not continue their employment with TowneBank after the merger as contemplated under the new employment agreements with TowneBank;
 
● 
the appointment of Paragon directors to the board of directors of TowneBank effective at the effective date of the merger, and the expected compensation for such service;
 
● 
the accelerated vesting of unvested outstanding restricted stock awards held by executive officers and directors of Paragon, with an aggregate value of approximately $2.0 million as of the record date for the special meeting, assuming a value of $54.46 per share of Paragon common stock (the average closing market price of Paragon common stock over the first five business days following the first public announcement of the merger); and
 
● 
the agreement by TowneBank to indemnify the officers and directors of Paragon against certain liabilities arising before the effective date of the merger and TowneBank’s purchase of a six year “tail” prepaid policy for the current officers and directors of Paragon, subject to a cap on the cost of such policy equal to 250% of Paragon’s current annual premium.
 
The members of the Paragon board of directors knew about these additional interests and considered them when they approved the merger agreement and the merger. See “The Merger – Interests of Certain Paragon Directors and Executive Officers in the Merger” on page 57.
 
 
10
 
 
No Solicitation (page 73)
 
Paragon has agreed that, while the merger agreement is in effect, it will not directly or indirectly:
 
● 
initiate, solicit or encourage any inquiries or proposals with respect to any “acquisition proposal” (as defined in the merger agreement); or
 
● 
engage or participate in any negotiations or discussions concerning, or provide any confidential or nonpublic information relating to, an acquisition proposal.
 
The merger agreement does not, however, prohibit Paragon from considering an unsolicited bona fide acquisition proposal from a third party if certain specified conditions are met.
 
Termination of the Merger Agreement (page 75)
 
Termination by TowneBank, Merger Sub, Paragon and Paragon Bank. The merger agreement may be terminated and the merger abandoned by TowneBank, Merger Sub, Paragon and Paragon Bank, at any time before the merger is completed, by mutual consent of the parties.
 
Termination by TowneBank and Merger Sub or Paragon and Paragon Bank. The merger agreement may be terminated and the merger abandoned by TowneBank and Merger Sub or Paragon and Paragon Bank if:
 
● 
the merger and bank merger have not been completed by March 31, 2018, unless the failure to complete the merger and bank merger by such time was caused by a breach or failure to perform an obligation under the merger agreement by the terminating party;
 
● 
the Paragon stockholders do not approve the merger agreement;
 
● 
there is a breach or inaccuracy of any representation or warranty of TowneBank or Paragon contained in the merger agreement that would cause the failure of the closing conditions described above to be met, which is not cured within 30 days following notice or by its nature cannot be cured within such time period, unless the party wishing to terminate is in breach of any representation, warranty, covenant or agreement;
 
● 
there is a material breach by TowneBank or Paragon of any covenant or agreement contained in the merger agreement, and the breach is not cured within 30 days following notice to the other party or by its nature cannot be cured within such time period, unless the party wishing to terminate is in breach of any representation, warranty, covenant or agreement; or
 
● 
any of the conditions precedent to the obligations of TowneBank or Paragon to consummate the merger set forth in the merger agreement cannot be satisfied or fulfilled by March 31, 2018, unless the party wishing to terminate is in breach of any representation, warranty, covenant or agreement.
 
Termination by TowneBank and Merger Sub. TowneBank may terminate the merger agreement at any time before the merger is completed if:
 
● 
without TowneBank’s prior consent, Paragon or Paragon Bank enters into an agreement with respect to a business combination transaction or an acquisition directly from Paragon of securities representing 15% or more of Paragon common stock;
 
● 
a tender offer or exchange offer for 15% or more of the outstanding shares of Paragon common stock is commenced, and the Paragon board recommends that Paragon stockholders tender their shares in the offer or otherwise fails to recommend that they reject the offer; or
 
 
11
 
 
 
● 
at any time before the special meeting, (i) Paragon materially breaches its agreement regarding the non-solicitation of other business combination offers, (ii) the board of directors of Paragon fails to recommend approval of the merger agreement to its stockholders, withdraws, modifies or changes such recommendation, or authorizes, adopts, approves, recommends or otherwise declares advisable a superior proposal, in each case in a manner that is adverse in any respect to the interests of TowneBank, or (iii) Paragon materially breaches its covenants in the merger agreement requiring the calling and holding of a meeting of stockholders to consider the merger agreement.
 
Termination by Paragon and Paragon Bank. Paragon and Paragon Bank may terminate the merger agreement at any time before the merger is completed if:
 
● 
at any time before the special meeting, the board of directors of Paragon determines to enter into an agreement with respect to an unsolicited “superior proposal” (as defined in the merger agreement and described herein) which has been received and considered by Paragon in material compliance with the merger agreement, provided that (i) Paragon has notified TowneBank at least three business days in advance of its intent to accept such superior proposal, (ii) Paragon has, upon TowneBank’s request, discussed with TowneBank the circumstances giving rise to the decision to accept the superior proposal and negotiated in good faith with TowneBank to facilitate TowneBank’s evaluation of whether to improve the terms and conditions of the merger agreement, (iii) if TowneBank has made an offer to improve the terms of the merger agreement, Paragon’s board of directors has determined in good faith, after consultation with its financial and outside legal advisors, and taking into account TowneBank’s improved offer, that the superior proposal would continue to constitute a superior proposal under the merger agreement, and (iv) if the terms of the superior proposal change materially, Paragon has continued to provide the same notice and opportunity for TowneBank to improve its offer at least two business days in advance of accepting the superior proposal; or
 
● 
the Paragon board of directors so determines, at any time during the five-day period beginning on the later of (i) the date on which the last approval, consent or waiver of any governmental authority required to complete the merger is received and all statutory waiting periods have expired, or (ii) the date on which the Paragon stockholders approve the merger agreement, if the price of TowneBank common stock has declined by more than 20% over a designated measurement period on an actual basis and declined by more than 20% relative to the NASDAQ Bank Index during the same period, unless TowneBank elects to increase the number of shares of TowneBank common stock to be paid to Paragon stockholders (which it is not obligated to do).
 
In the event of termination, the merger agreement will become null and void, except that certain provisions thereof relating to fees and expenses (including the obligation to pay the termination fee described below in certain circumstances) and confidentiality of information exchanged between the parties will survive any such termination.
 
Termination Fee and Expenses (page 77)
 
Paragon must pay TowneBank a termination fee of $12.0 million if the merger agreement is terminated by either party under certain specified circumstances. The termination and payment circumstances are more fully described elsewhere in this proxy statement/prospectus. See “The Merger Agreement – Termination Fee” on page 77 and in Article 7 of the merger agreement.
 
In general, whether or not the merger is completed, TowneBank and Paragon will each pay its respective expenses incident to preparing, entering into and carrying out the terms of the merger agreement. The parties will share the costs of all filing fees paid to the SEC and other governmental authorities.
 
The Special Meeting (page 35)
 
The special meeting will be held on January 10, 2018 at 3:00 p.m. local time, at Paragon Bank, located at 3535 Glenwood Avenue, Raleigh, North Carolina 27612. At the special meeting, the stockholders of Paragon will be asked to vote on the following matters:
 
● 
the merger proposal; and
 
● 
the adjournment proposal.
 
 
12
 
 
 
The Special Meeting – Record Date and Votes Required (page 35)
 
You can vote at the special meeting of stockholders if you owned Paragon common stock at the close of business on November 17, 2017. On that date, Paragon had 5,460,447 shares of common stock outstanding and entitled to vote. For each proposal presented at the special meeting, a stockholder can cast one vote for each share of Paragon common stock owned on the record date.
 
The votes required to approve the proposals at the special meeting are as follows:
 
● 
The merger proposal requires the affirmative vote of at least a majority of the outstanding shares of Paragon common stock entitled to vote on the proposal.
 
● 
The adjournment proposal requires the affirmative vote of at least a majority of the shares cast and entitled to vote on the proposal, whether or not a quorum is present.
 
Affiliate Agreements Entered into by Directors, Executive Officers and Significant Stockholders of Paragon (page 78)
 
Each of the directors and executive officers of Paragon, and each holder of 10% or more of Paragon’s common stock, has entered into an agreement with TowneBank and Paragon pursuant to which such individual or entity has agreed, subject to several conditions and exceptions, to vote all of the Paragon shares over which such individual or entity has voting authority in favor of the merger agreement and against any competing acquisition proposal, respectively, subject to certain exceptions, including that certain shares held in a fiduciary capacity are not covered by the agreement. As of November 17, 2017, the record date for the special meeting, directors and executive officers of Paragon are entitled to vote 473,838 shares of Paragon common stock, or approximately 9% of the total voting power of the shares of Paragon common stock outstanding on that date. As of the same date, BancTenn Corp, the only holder of 10% or more of the outstanding common stock of Paragon, was entitled to vote 800,125 shares of Paragon common stock, or approximately 15% of the total voting power of the shares of Paragon common stock outstanding on that date.
 
No Appraisal or Dissenters’ Rights (page 64)
 
Under North Carolina law, the stockholders of Paragon are not entitled to appraisal or dissenters’ rights in connection with the merger.
 
Stockholders of TowneBank and Paragon Have Different Rights (page 84)
 
TowneBank is a Virginia corporation governed by the Virginia Stock Corporation Act (the “Virginia SCA”). Paragon is a North Carolina corporation governed by the North Carolina Business Corporation Act (the “North Carolina BCA”). In addition, the rights of TowneBank and Paragon stockholders are governed by their respective articles of incorporation and bylaws. Upon completion of the merger, Paragon stockholders will become stockholders of TowneBank, and as such their stockholder rights will then be governed by the articles of incorporation and bylaws of TowneBank, each as amended, and by the Virginia SCA. The rights of stockholders of TowneBank differ in certain respects from the rights of stockholders of Paragon.
 
The Merger Will Be Accounted for Under the Acquisition Method of Accounting (page 64)
 
TowneBank will use the acquisition method of accounting to account for the merger.
 
 
13
 
 
 
Listing of TowneBank Common Stock (page 92)
 
TowneBank will list the shares of common stock to be issued in the merger on the NASDAQ Global Select Market, the market on which TowneBank’s common shares are currently listed.
 
Market Prices and Share Information (page 92)
 
TowneBank’s common stock is listed on the NASDAQ Global Select Market under the symbol “TOWN” and Paragon’s common stock is listed on the NASDAQ Capital Market under the symbol “PBNC.” The following table sets forth the closing sale prices per share of TowneBank common stock as reported on the NASDAQ Global Select Market and Paragon common stock as reported on the NASDAQ Capital Market on April 26, 2017, the last trading day before we announced the signing of the merger agreement, and on November 24, 2017, the last trading day before the date of this proxy statement/prospectus.
 
 
 
TowneBank
Common Stock
 
 
Paragon
Common Stock
 
 
 
 
 
 
 
 
April 26, 2017
 $34.35 
 $51.51 
November 24, 2017
 $33.25
 $57.25
 
TowneBank cannot assure Paragon stockholders that its stock price will continue to trade at or above the prices shown in the table above. You should obtain current stock price quotations for TowneBank common stock and Paragon common stock from a newspaper, via the Internet or by calling your broker.
 
Risk Factors (page 28)
 
You should consider all the information contained in or incorporated by reference into this proxy statement/prospectus in deciding how to vote for the proposals presented in the proxy statement/prospectus. In particular, you should consider the factors described under “Risk Factors.”
 
 
 
14
 
SELECTED HISTORICAL FINANCIAL DATA OF TOWNEBANK
 
The following table sets forth certain of TowneBank’s consolidated financial data as of the end of and for each of the years in the five-year period ended December 31, 2016 and as of and for the nine months ended September 30, 2017 and 2016. The historical consolidated financial information as of the end of and for each of the years in the five-year period ended December 31, 2016, is derived from TowneBank’s audited consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus. The consolidated financial information as of and for the nine-month periods ended September 30, 2017 and 2016 is derived from TowneBank’s unaudited consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus. In TowneBank’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the nine months ended September 30, 2017 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2017.
 
The selected historical financial data below is only a summary and should be read in conjunction with the consolidated financial statements of TowneBank that are incorporated by reference into this proxy statement/prospectus and their accompanying notes.
 
TowneBank
 
 
As of and For the Nine Months Ended September 30,
 
 
 
 
 
(Unaudited)
 
 
As of and For the Year Ended December 31,
 
 
 
2017
 
 
2016
 
 
2016
 
 
2015
 
 
2014
 
 
2013
 
 
2012
 
 
 
 (Dollars in thousands, except per share information)   
 
Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 226,639 
 182,798 
 254,616 
 212,873 
 172,512 
 170,290 
 173,506 
Interest expense
  31,183 
  26,074 
  35,740 
  32,431 
  26,776 
  26,395 
  29,222 
Net interest income
  195,456 
  156,724 
  218,876 
  180,442 
  145,736 
  143,895 
  144,284 
Provision for loan losses
  4,557 
  3,526 
  5,357 
  3,027 
  492 
  4,248 
  16,155 
Net interest income after
provision for loan losses
  190,899
 
  153,198
 
  213,519
 
  177,415
 
  145,244
 
  139,647
 
  128,129
 
Noninterest income
  144,645 
  115,704 
  155,222 
  117,283 
  96,729 
  90,528 
  84,189 
Noninterest expenses
  222,553 
  194,992 
  267,828 
  202,157 
  178,864 
  168,792 
  158,749 
Income before income taxes and
noncontrolling interest
  112,991 
  73,910 
  100,913 
  92,541 
  63,109 
  61,383 
  53,569 
Income tax expense
  33,488 
  21,538 
  28,698 
  26,876 
  18,179 
  17,135 
  13,964 
Net income
 79,503 
 52,372 
 72,215 
 65,665 
 44,930 
 44,248 
 39,605 
Net (income) loss attributable to
noncontrolling interest
  (4,173)
  (4,118)
  (4,965)
  (3,283)
  (2,761)
  (2,486)
  (1,674)
Net income attributable to TowneBank
 75,330 
 48,254 
 67,250 
 62,382 
 42,169 
 41,762 
 37,931 
 
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
Balance Sheet Data:
    
    
    
    
    
    
    
Assets
 8,614,794 
 7,830,142 
 7,973,915 
 6,296,574 
 4,982,485 
 4,672,997 
 4,405,923 
Loans, net of unearned income
  5,910,479 
  5,651,642 
  5,807,221 
  4,519,393 
  3,564,389 
  3,381,194 
  3,226,426 
Deposits
  6,548,462 
  6,146,947 
  6,035,197 
  4,914,027 
  3,846,602 
  3,567,104 
  3,380,052 
Total equity
  1,140,851 
  1,078,878 
  1,086,558 
  820,194 
  618,276 
  585,318 
  559,879 
 
    
    
    
    
    
    
    
Ratios:
    
    
    
    
    
    
    
Return on average assets
  1.22%
  0.93%
  0.93%
  1.03%
  0.87%
  0.93%
  0.90%
Return on average equity
  9.04%
  6.99%
  6.98%
  7.75%
  6.95%
  7.27%
  6.95%
Return on average assets - tangible
  1.33%
  1.01%
  1.02%
  1.10%
  0.93%
  0.95%
  0.93%
Return on average equity - tangible
  13.09%
  9.80%
  9.93%
  10.34%
  9.16%
  9.18%
  8.79%
Efficiency ratio (1)
  65.44%
  71.58%
  71.59%
  68.11%
  73.76%
  72.19%
  70.41%
Common equity to total assets
  13.11%
  13.63%
  13.48%
  12.88%
  10.69%
  10.70%
  9.50%
Tangible common equity /
tangible assets
  9.86%
  10.14%
  10.07%
  10.30%
  8.19%
  8.34%
  6.99%
 
 
15
 
  
TowneBank
 
 
 
As of and For the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Nine Months Ended September 30, 
 

 
 
 
(Unaudited) 
 
 
As of and For the Year Ended December 31,
 
 
 
2017
 
 
2016
 
 
2016
 
 
2015
 
 
2014
 
 
2013
 
 
2012
 
Asset Quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 44,398 
 40,655 
 42,001 
 38,359 
 35,917 
 38,380 
 40,427 
Nonaccrual loans
 8,768 
 11,337 
 13,099 
 8,670 
 6,741 
 12,753 
 40,691 
Other real estate owned
 25,123 
 22,884 
 24,505 
 34,420 
 35,115 
 39,534 
 30,297 
ALL / total outstanding loans
  0.75%
  0.72%
  0.72%
  0.85%
  1.01%
  1.14%
  1.25%
ALL / total outstanding loans
excluding purchased loans
  0.86%
  0.91%
  0.87%
  0.94%
  1.02%
  1.15%
  1.27%
ALL / nonperforming loans
  506.36%
  358.60%
  320.64%
  442.43%
  532.81%
  300.95%
  99.35%
NPLs / total outstanding loans
  0.15%
  0.20%
  0.23%
  0.19%
  0.19%
  0.38%
  1.26%
Net charge-offs /average outstanding loans
(annualized)
  0.03%
  0.05%
  0.03%
  0.01%
  0.09%
  0.19%
  0.51%
 
    
    
    
    
    
    
    
Per Share Data:
    
    
    
    
    
    
    
Earnings per share, basic
 1.21 
 0.88 
 1.18 
 1.22 
 1.18 
 1.14 
 1.03 
Earnings per share, diluted
 1.21 
 0.87 
 1.18 
 1.22 
 1.18 
 1.14 
 1.03 
Cash dividends paid
 0.41 
 0.38 
 0.51 
 0.47 
 0.43 
 0.38 
 0.33 
Market value per share
 33.50 
 24.03 
 33.25 
 20.87 
 15.12 
 15.39 
 15.49 
Book value per common share
 18.04 
 17.11 
 17.20 
 15.71 
 14.88 
 14.39 
 13.30 
Price to earnings ratio,
diluted (2)
  27.69
  27.62
  28.18
  17.11
  12.81
  13.50
  15.04
Price to book value ratio (3)
  1.86
  1.40
  1.93
  1.33
  1.02
  1.07
  1.16
Dividend payout ratio
  33.88%
  43.68%
  43.22%
  38.52%
  36.44%
  33.33%
  32.04%
Weighted average shares
outstanding, basic
  62,144,905 
  55,113,221 
  56,837,018 
  51,064,719 
  35,160,747 
  32,863,962 
  30,772,130 
Weighted average shares
outstanding, diluted
  62,368,929 
  55,238,139 
  56,983,305 
  51,161,241 
  35,209,080 
  32,920,288 
  31,043,620 
_______________
(1) 
Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income excluding gains or losses on investment securities.
(2) 
The diluted price to earnings ratio is calculated by dividing the period’s closing market price per share by the diluted earnings per share for the period.
(3) 
The price to book ratio is calculated by dividing the period’s closing market price per share by the period’s book value per share.
 
 
16
 
 
SELECTED HISTORICAL FINANCIAL DATA OF PARAGON
 
The following table sets forth certain of Paragon’s consolidated financial data as of the end of and for each of the years in the five-year period ended December 31, 2016 and as of and for the nine months ended September 30, 2017 and 2016. The historical consolidated financial information as of the end of and for each of the years in the five-year period ended December 31, 2016, is derived from Paragon’s audited consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus. The consolidated financial information as of and for the nine-month periods ended September 30, 2017 and 2016 is derived from Paragon’s unaudited consolidated financial statements, which are incorporated by reference into this proxy statement/prospectus. In Paragon’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the nine months ended September 30, 2017 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ending December 31, 2017.
 
The selected historical financial data below is only a summary and should be read in conjunction with the consolidated financial statements of Paragon that are incorporated by reference into this proxy statement/prospectus and their accompanying notes.
 
 
 
As of and For the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Nine Months Ended September 30,
 

 
 
 
(Unaudited)
 
 
  As of and For the Year Ended December 31,
 
 
 
2017
 
 
2016
 
 
2016
 
 
2015
 
 
2014
 
 
2013
 
 
2012
 
 
 
  (Dollars in thousands, except per share information)       
 
Results of Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 30,182 
 25,739 
 54,167 
 48,435 
 42,783 
 40,601 
 38,888 
Interest expense
  4,845 
  3,887 
  8,129 
  7,384 
  8,678 
  10,518 
  14,414 
Net interest income
  25,337 
  21,852 
  46,038 
  41,051 
  34,105 
  30,083 
  24,474 
Provision for loan losses
  809 
  - 
  591 
  750 
  538 
  156 
  929 
Net interest income after
provision for loan losses
  24,528 
  21,852 
  45,447 
  40,301 
  33,567 
  29,927 
  23,545 
Noninterest income
  997 
  647 
  1,294 
  1,454 
  704 
  (2,075)
  (706)
Noninterest expenses
  15,469 
  13,088 
  26,874 
  24,760 
  21,909 
  20,174 
  17,909 
Income before income taxes
  10,056 
  9,411 
  19,867 
  16,995 
  12,362 
  7,678 
  4,930 
Income tax expense
  3,419 
  3,098 
  6,477 
  5,761 
  4,403 
  2,754 
  1,756 
Net income
 6,637 
 6,313 
 13,390 
 11,234 
 7,959 
 4,924 
 3,174 
 
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
Balance Sheet Data:
    
    
    
    
    
    
    
Assets
 1,635,567 
 1,454,333 
 1,503,767 
 1,305,911 
 1,165,255 
 1,035,771 
 957,670 
Loans, net of unearned income
  1,339,860 
  1,105,344 
  1,191,280 
  1,016,156 
  868,405 
  767,392 
  722,366 
Deposits
  1,174,730 
  1,100,201 
  1,172,255 
  982,847 
  883,640 
  770,152 
  733,814 
Total equity
  145,293 
  131,709 
  136,101 
  97,658 
  87,662 
  77,603 
  75,985 
 
    
    
    
    
    
    
    
Ratios:
    
    
    
    
    
    
    
Return on average assets
  0.85%
  0.93%
  0.95%
  0.87%
  0.72%
  0.49%
  0.33%
Return on average equity
  9.45%
  12.45%
  11.35%
  12.20%
  9.64%
  6.44%
  4.30%
Efficiency ratio (1)
  57.30%
  56.50%
  54.92%
  56.64%
  60.16%
  62.99%
  68.58%
Common equity to total assets
  8.88%
  9.06%
  8.34%
  7.10%
  7.48%
  7.65%
  7.62%
 
 
17
 
 
 
 
As of and For the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited) 
 
 
As of and For the Year Ended December 31,
 
 
 
 
 
 
2017
 
 
2016
 
 
2016
 
 
2015
 
 
2014
 
 
2013
 
 
2012
 
Asset Quality:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 8,921 
 7,986 
 7,909 
 7,641 
 6,869 
 6,939 
 10,348 
Nonaccrual loans
 492 
 1,220 
 968 
 513 
 420 
 1,589 
 16,105 
Other real estate owned
 4,690 
 5,183 
 4,740 
 5,453 
 14,991 
 18,174 
 18,756 
ALL / total outstanding loans
  0.67%
  0.72%
  0.66%
  0.75%
  0.79%
  0.90%
  1.43%
ALL / nonperforming loans
  1813.21%
  654.59%
  817.05%
  1489.47%
  1635.48%
  436.69%
  64.25%
NPLs / total outstanding loans
  0.04%
  0.11%
  0.08%
  0.05%
  0.05%
  0.21%
  2.23%
Net charge-offs /average outstanding loans
(annualized)
 (0.05%)
 (0.02%)
  0.03%
  0.00%
  0.08%
  0.48%
  0.56%
 
    
    
    
    
    
    
    
Per Share Data (2):
    
    
    
    
    
    
    
Earnings per share, basic
 1.23 
 1.38 
 2.69 
 2.49 
 1.79 
 1.11 
 0.72 
Earnings per share, diluted
 1.23 
 1.37 
 2.68 
 2.47 
 1.77 
 1.11 
 0.72 
Cash dividends paid
 - 
 - 
 - 
 - 
 - 
 - 
 - 
Market value per share (3)
 52.47 
 35.25 
 43.72 
 27.25 
 10.00 
 8.80 
 8.00 
Book value per common
share
 26.62 
 24.17 
 24.97 
 21.32 
 19.35 
 17.49 
 17.20 
Price to earnings ratio,
diluted (4)
  21.33 
  12.86 
  16.31 
  11.03 
  5.65 
  7.92 
  11.13 
Price to book value ratio (5)
  1.97 
  1.46 
  1.75 
  1.28 
  0.52 
  0.50 
  0.47 
Dividend payout ratio
  0.00%
  0.00%
  0.00%
  0.00%
  0.00%
  0.00%
  0.00%
Weighted average shares
outstanding, basic
  5,394,870 
  4,563,349 
  4,968,970 
  4,509,884 
  4,456,002 
  4,433,875 
  4,440,750 
Weighted average shares
outstanding, diluted
  5,409,046 
  4,607,533 
  5,004,751 
  4,547,906 
  4,495,013 
  4,433,875 
  4,416,000 
_______________
(1) 
Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income excluding gains or losses on investment securities.
(2) 
Share and per share data has been adjusted to reflect the 125-for-1 stock split effective June 23, 2014.
(3) 
Paragon common stock has been listed on NASDAQ since June 16, 2016. From April 16, 2015 through June 16, 2016, Paragon’s common stock was quoted on the OTCQX marketplace. Prior to that, Paragon’s common stock was traded in privately negotiated transactions.
(4) 
The diluted price to earnings ratio is calculated by dividing the period’s closing market price per share by the diluted earnings per share for the period.
(5) 
The price to book ratio is calculated by dividing the period’s closing market price per share by the period’s book value per share.
 
 
18
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of TowneBank and Paragon, as an acquisition by TowneBank of Paragon using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Paragon will be recorded by TowneBank at their respective fair values as of the date the merger is completed. The pro forma financial information should be read in conjunction with the Annual Report on Form 10-K and the Annual Report to Stockholders for the year ended December 31, 2016 of TowneBank, and the Annual Report on Form 10-K for the year ended December 31, 2016 for Paragon, which are incorporated by reference herein. See “Selected Historical Financial Data of TowneBank” on page 15, “Selected Historical Financial Data of Paragon” on page 17, “Information About TowneBank” on page 94, “Information About Paragon Commercial Corporation” on page 94 and “Where You Can Find More Information” on page 97.
 
The merger was announced on April 27, 2017. As a result of the merger, the holders of shares of Paragon common stock will receive 1.7250 shares of TowneBank common stock for each share of Paragon common stock held immediately prior to the effective date of the merger. Each share of TowneBank common stock outstanding immediately prior to the merger will continue to be outstanding after the merger. In the merger, each outstanding option to purchase shares of Paragon common stock will be converted into an option to acquire, on the same terms and conditions (except as otherwise described herein) as were in effect immediately prior to the completion of the merger, shares of TowneBank common stock. The number of shares underlying the stock options and the exercise price per share will be adjusted based on the exchange ratio. Similarly, all outstanding Paragon restricted stock awards which are unvested or contingent will be converted into TowneBank restricted stock awards, with the same terms and conditions (except as otherwise described herein) as were in effect immediately prior to the completion of the merger, subject to any accelerated vesting as a result of the merger to the extent provided by the terms of the applicable plan or agreements under such plans. The number of shares subject to the restricted stock awards will be adjusted based on the exchange ratio.
 
The merger of Paragon with and into Merger Sub is intended to be treated as a “reorganization” for federal income tax purposes; TowneBank and Paragon stockholders are not expected to recognize, for federal income tax purposes, any gain or loss on the merger or the receipt of shares of TowneBank common stock, except with respect to any cash received in lieu of fractional shares of TowneBank common stock. For more information, see “Material U.S. Federal Income Tax Consequences” on page 79.
 
The unaudited pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2017. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2017 and the year ended December 31, 2016 give effect to the merger as if the transaction had occurred on January 1, 2016.
 
The unaudited pro forma condensed combined financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined companies had the companies actually been combined at the beginning of the periods presented. The adjustments included in this unaudited pro forma condensed combined financial information are preliminary and may be revised and may not agree to actual amounts recorded by TowneBank upon consummation of the merger. This financial information does not reflect the benefits of the expected cost savings and expense efficiencies, opportunities to earn additional revenue, potential impacts of current market conditions on revenues or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been consummated on the date or at the beginning of the period indicated or which may be attained in the future. The unaudited pro forma condensed combined financial information should be read in conjunction with and is qualified in its entirety by reference to the historical consolidated financial statements and related notes thereto of TowneBank and its subsidiaries, which are incorporated in this document by reference, and the historical consolidated financial statements and related notes thereto of Paragon and its subsidiaries, which are also incorporated by reference.
 
 
19
 
 
TOWNEBANK AND PARAGON
 
 
 
 
 
 
 
 
 
 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
 
 
 
 
 
 
 
As of September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Merger
 
 
 
 
 
 
 
 TowneBank
 
 
 Paragon
 
 
 Pro Forma
 
 
 
 Pro Forma
 
 
 
(As Reported)
 
 
(As Reported)
 
 
Adjustments
 
 
 
Combined
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 $647,728 
 $3,983 
 $(4,279)
(a)
 $647,432 
Interest bearing deposits in financial institutions
  5,055 
  79,445 
  - 
 
  84,500 
Total Cash and Cash Equivalents
  652,783 
  83,428 
  (4,279)
 
  731,932 
Securities available-for-sale, at fair value
  831,483 
  197,159 
  - 
 
  1,028,642 
Securities held-to-maturity, at amortized cost
  62,487 
  - 
  - 
 
  62,487 
Federal Home Loan Bank stock, at amortized cost
  29,586 
  12,403 
  - 
 
  41,989 
Total Securities
  923,556 
  209,562 
  - 
 
  1,133,118 
Mortgage loans held for sale
  318,595 
  - 
  - 
 
  318,595 
Loans, net of unearned income and deferred costs:
  5,910,479 
  1,389,987 
  (29,556)
(b)
  7,270,910 
Less: Allowance for loan losses
  (44,398)
  (9,402)
  9,402 
(c)
  (44,398)
Net Loans
  5,866,081 
  1,380,585 
  (20,154)
 
  7,226,512 
Premises and equipment, net
  196,975 
  15,296 
  - 
 
  212,271 
Goodwill
  270,901 
  - 
  177,500 
(d)
  448,401 
Other intangible assets, net
  39,751 
  - 
  17,770 
(e)
  57,521 
Bank-owned life insurance policies
  193,823 
  34,961 
  - 
 
  228,784 
Other assets
  152,329 
  20,093 
  (673)
(f)
  171,749 
TOTAL ASSETS
 $8,614,794 
 $1,743,925 
 $170,164 
 
 $10,528,883 
 
    
    
    
 
    
LIABILITIES AND EQUITY
    
    
    
 
    
Liabilities
    
    
    
 
    
Deposits:
    
    
    
 
    
   Noninterest-bearing demand
 $2,212,047 
 $253,511 
 $- 
 
 $2,465,558 
   Interest-bearing
  4,336,415 
  1,034,632 
  288 
(g)
  5,371,335 
Total Deposits
  6,548,462 
  1,288,143 
  288 
 
  7,836,893 
Subordinated debt
  247,128 
  18,558 
  (4,595)
(h)
 $261,091 
Advances from the Federal Home Loan Bank
  527,072 
  260,000 
  - 
 
  787,072 
Repurchase agreements and other borrowings
  23,195 
  21,064 
  - 
 
  44,259 
Total Borrowings
  797,395 
  299,622 
  (4,595)
 
  1,092,422 
Other liabilities
  128,086 
  7,107 
  - 
 
  135,193 
TOTAL LIABILITIES
  7,473,943 
  1,594,872 
  (4,307)
 
  9,064,508 
Shareholders' Equity
    
    
    
 
    
Preferred stock
  - 
  - 
  - 
 
  - 
Common stock
  104,387 
  44 
  15,656 
(i)(j)
  120,087 
Capital Surplus
  748,444 
  80,822 
  227,002 
(i)(j)
  1,056,268 
Retained earnings
  279,165 
  69,559 
  (69,559)
(i)
  279,165 
Accumulated other comprehensive income (loss)
  (2,408)
  (1,372)
  1,372 
(i)
  (2,408)
TOTAL SHAREHOLDERS' EQUITY
  1,129,588 
  149,053 
  174,471 
 
  1,453,112 
Noncontrolling interest
  11,263 
  - 
  - 
 
  11,263 
TOTAL EQUITY
  1,140,851 
  149,053 
  174,471 
 
  1,464,375 
TOTAL LIABILITIES AND EQUITY
 $8,614,794 
 $1,743,925 
 $170,164 
 
 $10,528,883 
 
    
    
    
 
    
See accompanying notes to condensed consolidated financial statements.
 
 
20
 
 
TOWNEBANK AND PARAGON
 
 
 
 
 
 
 
 
 
 
 
 
 
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars and shares in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 TowneBank
 
 
 Paragon
 
 
 Pro Forma
 
 
 
 Pro Forma
 
 
 
(As Reported)
 
 
(As Reported)
 
 
Adjustments
 
 
 
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and dividend income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
 $204,667 
 $42,325 
 $3,908 
 (k)
 $250,900 
Other interest income
  21,972 
  4,672 
  - 
 
  26,644 
Total interest and dividend income
  226,639 
  46,997 
  3,908 
 
  277,544 
 
    
    
    
 
    
Interest expense:
    
    
    
 
    
Interest on deposits
  20,690 
  4,767 
  (53)
 (l)
  25,404
Other interest expense
  10,493 
  3,051 
  - 
 
  13,544 
Total interest expense
  31,183 
  7,818 
  (53)
 
  38,948
 
    
    
    
 
    
Net interest income
  195,456 
  39,179 
  3,961 
 
  238,596 
Provision for loan losses
  4,557 
  1,214 
  - 
 
  5,771 
Net interest income after provision for loan losses
  190,899 
  37,965 
  3,961 
 
  232,825 
 
    
    
    
 
    
Noninterest income:
    
    
    
 
    
Residential mortgage banking income,net
  58,314 
  83 
  - 
 
  58,397 
Real estate brokerage and property management income, net
  22,664 
  - 
  - 
 
  22,664 
Insurance commissions and other title fees and income, net
  39,818 
  - 
  - 
 
  39,818 
Service charges on deposit accounts
  7,785 
  205 
  - 
 
  7,990 
Credit card merchant fees, net
  3,804 
  - 
  - 
 
  3,804 
Bank-owned life insurance
  4,321 
  771 
  - 
 
  5,092 
Other operating income
  7,939 
  212 
  - 
 
  8,151 
Total noninterest income
  144,645 
  1,271 
  -