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Letter to Our Shareholders


Thank you for your continued support of Paragon National Bank. Without the support of our shareholders, we could not be heading in the positive direction we are today.

Daily, media coverage includes various topics of financial interest including debit card fees, enhanced regulatory standards, Occupy Wall Street, and historically low interest rates.  Meanwhile, Paragon continues to concentrate on the needs of our individual and small business customers with our personal service and local knowledge.  In a 2011 study, as a result of that focus, we were named the top small business lender in Memphis by the U.S. Small Business Administration.  To let others know about our commitment to quality customer service, we have begun running two new advertisements in various print media which feature bank customers interacting with a Paragon employee.  We hope that you will see these and continue to spread the word about what it means for Paragon to be your community bank. 
We are pleased to report that Ashley Cullum, Paragon’s Assistant Vice President of Business Development, was recently selected as part of the Memphis Business Journal’s 2011 Top 40 Under 40.  We are proud of Ashley.  She exemplifies Paragon’s commitment to our community and our customers.  Paragon has had an employee selected as a part of the Top 40 Under 40 during five of the seven years we have been in business.  We believe that this is additional confirmation of the quality of the team you have at Paragon.   
With historically low interest rates reported in the news, we have seen a large increase in mortgage loans enhance our non-interest income.  The increase in mortgage loans is due in large part to refinances to these lower rates.  The effect on Paragon’s net income will be seen in the fourth quarter after the fee income from these transactions is recorded.   If you know of someone who is considering refinancing, please tell them about Paragon’s Mortgage Department with its focus on customer service and great rates. 
With these topics in mind, we are pleased to provide you with the following financial highlights in addition to the attached financial statements for the quarter ended September 30, 2011.  Net income for the quarter was $235 thousand or $.06 per share, which compares very favorably to a net loss of $541 thousand or ($.15) per share for the quarter ended September 30, 2010.  Net income was $554 thousand for the nine months ended September 30, 2011, or $.15 per share versus a loss of $1.38 million and ($.38) per share during the same period in 2010.  The improvement in our performance can be attributed to increasing the core earnings capacity of Paragon through increased net interest income, decreased loan loss provision, decreased overhead, and increased fee income.  This improvement can also be attributed to our continued stabilization of the level and number of non-performing assets. 
Net interest income for the nine months ended September 30, 2011, increased $510 thousand to $6.6 million compared to $6.1 million during the same period in 2010.  For the nine months ended September 30, 2011, the loan loss provision was $712 thousand versus $1.2 million during the same period in 2010, a decrease of $503 thousand.   Non-interest expense for the nine months ended September 30, 2011, decreased $500 thousand to $6.7 million from $7.2 million.  Our tangible book value per share improved to $7.23 per share at September 30, 2011, up $.48 per share from $6.75 at December 31, 2010.  
Your Board of Directors is extremely pleased with the bank’s progress and is enthusiastic about the future and the opportunities we believe will be available to our bank because of our strong capital position, brand, and commitment to our community banking model. We are deeply grateful for your involvement with Paragon National Bank. You are our best source of referrals for our products and services. Please continue referring your family, friends, and associates to one of our locations and thus enhance the value of your investment. 


Robert S. Shaw Jr.                                  Lewis W. Perkins III                    
President/Chief Executive Officer             EVP/Chief Financial Officer          
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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