November 4, 2017
Dear Fellow Shareholder:
Paragon had another strong quarter and saw near record revenue during the third quarter, increasing $128 thousand over the second quarter to $4.7 million and only $65 thousand below record revenue during the third quarter of 2016. Net income for the quarter was approximately $550 thousand. Net income through nine months is more than 17% higher than last year. Year-to-date return on equity is 6.63% compared to 6.04% after three quarters of 2016.
- During the third quarter, gross loans increased $8.5 million, or 11.5%, on an annualized basis, to $305.8 million, the highest level in Paragon’s history.
- Through the first three quarters of 2017, total deposits have increased approximately $9 million. The largest increase has been brokered deposits, which have grown approximately $17 million over the last nine months. During 2017 Paragon has instituted several initiatives intended to increase core deposits during the next few quarters.
- At September 30, tangible book value per share was $8.87, an increase of 56 cents per share during the first nine months of 2017, or an annualized growth rate of almost 9%.
- Total revenue increased $128 thousand, or 3% over the second quarter, just 1% less than the record revenue of the 3rd quarter of 2016.
- Net interest margin was 4.02% for the third quarter of 2017 compared to 4.20% for the second quarter of this year and to 4.17% for the third quarter of 2016. The decrease in the margin was related primarily to a decrease in income from loan fees. The level of loan fees varies with the timing of when loans are made, especially in our Specialty Lending Division.
- Noninterest income increased approximately 16% during the third quarter compared to the second quarter. Income from Paragon’s Small Business Capital Group increased by approximately $367 thousand. That increase was partially offset by an increase in losses recognized on OREO of approximately $217 thousand. These write downs were on the five remaining real estate parcels that Paragon owns.
- For the Small Business Administration’s fiscal year ending September 30, 2017, Paragon was the 118th largest SBA lender in the United States and the largest SBA lender headquartered in the Memphis Metropolitan Statistical Area.
- Through the end of the third quarter, year-to-date noninterest expense has increased approximately 3% over the first three quarters of last year. The increases are primarily due to new employees and professional fees. The new employees were related to new business initiatives started in the fourth quarter of 2016. For the third quarter, noninterest expense increased only .28%, or $10 thousand, over the third quarter of 2016.
- Core income for the third quarter, which excludes OREO gains and losses, OREO expenses, investment security gains and losses, and the loan loss provision, increased approximately 27% over core income for the second quarter of this year.
- Nonperforming assets dropped below $1 million and were .23% of total assets at September 30. Nonperforming assets are at their lowest level in more than 10 years.
- Despite the improved asset quality, Paragon recorded a loan loss provision of $284 thousand during the third quarter. This provision was recorded due to the loan growth achieved during the quarter.
- The ratio of the allowance for loan losses to gross loans increased slightly during the quarter from 1.52% to 1.53%. The ratio has increased from 1.44% at December 31, 2016.
We are excited to announce that on December 1, 2017, Paragon will be launching our new website. The new site will have a modern design, improved navigation, and new search functionality so that you can more easily find the information you need. There will be a more robust Newsroom with the latest Paragon news as well as practical financial information and resources. Do not worry, access to internet banking will not be affected. The login screen can be accessed via the login button at the top right of the homepage.
You have probably read that after several years of extremely low rates, interest rates are beginning to rise. As a result, we are offering a new CD special of 1.51% APY* for five months. If you are interested, please call your relationship manager or one of our banking centers for details. Any special is subject to change at any time, so act now to take advantage of this special rate.
Robert S. Shaw, Jr. Michael A. Edwards Lewis W. Perkins, III
Chief Executive Officer President and Chief Operating Officer Chief Financial Officer