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Paragon National Bank Announces Results for the Second Quarter 2008


Paragon National Bank announced its second quarter and year-to-date results.

Total assets for the quarter ended June30, 2008, were $354.6million, an increase of $87.5million, or 33%, compared to the second quarter of 2007. Total loans were $231.7million at June 30, 2008, increasing 21%, or $40.1 million compared to the same period one year ago.   

For the six months ended June30, 2008, total deposits grew a robust $40.0million, or 17%, to $276.5 million compared to $236.5 million at December 31, 2007. Non-interest bearing deposits increased by $10.6million, or 54% for the first six months of 2008 compared to a $918,000 increase for the first six months of 2007.  Paragon’s core funding, defined as total deposits, excluding certificates of deposit, totaled $106.1 million at June 30, 2008, compared to $83.6 million for the same period ending during 2007.  This represents a $22.5 million or 27% increase from the same period last year.   Robert S. Shaw, Jr., President and Chief Executive Officer, said, “Paragon’s substantial increase in core deposits represents the outstanding results of a successful calling effort from the bank’s relationship managers and business development officers.  The Memphis community continues to embrace our business plan of local banking from local professionals, and, as a result, Paragon is winning the battle for market share.”

Net interest income for the six months ended June30, 2008, totaled $4.2 million, increasing $136,000 over the same period during 2007.  This increase in net interest income was the result of continued growth in loans and investments over the past twelve months, offset by a decline in net interest margin.  Paragon continues to be directly impacted by the interest-rate reductions initiated by the Federal Reserve and our level of non-performing assets.  Because loans generally reprice more quickly than deposits, the declining interest rate environment has compressed the net interest margin.  Paragon’s net interest margin was 2.68% for the first half of 2008 versus 3.41% during the same period in 2007. This margin should improve in the third quarter as deposits begin to reprice at lower rates.     

The local real estate market continues to experience a downturn, especially as it relates to the acquisition, construction, and development of residential housing.   This downturn has severely impacted the Paragon residential real estate loan portfolio as loan delinquencies have increased during the first half of 2008.  As a result, Paragon has moved to aggressively address this issue by increasing the loan loss provision to $1.8 million for the second quarter of 2008 compared to $124,000 for the same period in 2007.  The increase in the provision for loan losses brings the Paragon allowance for loan losses to 1.96% of loans, versus 1.46% in the first quarter of 2008.  

Non-performing loans increased to $14.9 million or to 6.41% of total loans at June 30, 2008. The increase of approximately $12.0 million during the second quarter is attributable almost exclusively to deterioration in the residential real estate portfolio.  Paragon has specific reserves totaling $1.6 million on this group of non-accrual loans.      

At June 30, 2008, real estate acquired in settlement of loans totaled $3.6 million.  An experienced loan workout consultant was recently engaged to focus on the workout and resolution of non-performing assets. The strategy is to resolve each problem asset individually as soon as possible while minimizing the loss to the bank.  Although future market conditions are uncertain, management does not currently anticipate taking any further write-down on the disposition of these assets.    

Senior Credit Officer Andrew H. Taylor stated, “With respect to residential real estate, the current economic environment remains very challenging.  However, we will continue to address our problem loans aggressively  and liquidate foreclosed real estate as soon as practical.    At June 30, 2008, based on current market conditions, we feel  confident our  loan loss reserve is adequate and will absorb estimated losses. ” 

As a result of the larger loan loss provisions, Paragon reported a net loss of $1.9 million, or $(0.57) per share, for the second quarter of 2008, compared with net earnings of $12,000 in the second quarter of 2007 and $25,000 in the first quarter of 2008.

By maintaining a strong capital position and balance sheet, Paragon  should be able to weather these difficult times.  Paragon’s capital position significantly exceeds all regulatory guidelines for being “well capitalized.” Total risk-based capital and Tier 1 risk-based capital ratios at June 30, 2008, were 11.79% and 10.53%, respectively, compared with minimum regulatory capital requirements of 10% and 6% to be considered “well capitalized.”

About Paragon National Bank

Paragon National Bank is the Memphis region’s most service-oriented and locally focused bank. Paragon provides small and mid-sized businesses, their owners, and employees with a complete package of both business and personal banking solutions delivered online and in person. Paragon stands out in the crowd of Memphis banks with its local ownership and focus, cutting edge technology, and the experienced Paragon team.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this letter include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “target,” “plan,” “project” or “continue” or the negatives thereof or other variations thereon or similar terminology, and are made on the basis of management’s plans and current analyses of Paragon National Bank (the “Company”), its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions in the Memphis market, the bank’s short operating history, its startup losses, possible borrower credit problems, potential loss of key executives and employees, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors, in some cases, have affected, and in the future could affect the Company’s financial performance and could cause actual results for the current fiscal year and beyond to differ materially from those expressed or implied in such forward-looking statements. The Company does not undertake to publicly update or revise its forward-looking statements.

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