August 29, 2014
Dear Fellow Shareholder:
Momentum at Paragon continues. Aided by balance-sheet growth and continued improvement in asset quality, net income for the second quarter was 61% higher than income for the first quarter of this year. Highlights of the second quarter included:
- Total assets increased from $280.6 million at the end of the first quarter to $288.8 million at the end of the second quarter. Since the end of the second quarter of 2013, total assets have increased $28.5 million, or 11%.
- Gross loans increased slightly in the second quarter to $210.6 million. Over the last twelve months, loans have increased $27.5 million, or 15.02%.
- Demand Deposit Accounts recovered from the first quarter seasonal low by increasing $6.3 million, or 14.4%, during the second quarter.
- Over the last twelve months, core deposits have increased $10.3 million, or 5.1%, to $211.3 million.
- Repurchase agreements increased $7.8 million, or 87%, since the end of 2013. Most of this growth occurred during the latter part of June as a result of a single customer transaction.
- Book value per share increased to $7.75 at June 30, 2014, compared to $7.46 at the end of 2013.
- Capital levels remain some of the highest of our peer group with Total Risk-Based Capital at 15.82% and the Leverage Ratio at 10.70% on June 30.
- In the second quarter, net interest income increased approximately 3% over net interest income in the first quarter adjusted for a large recovery recorded in the first quarter. Net interest income increased 17.45% during the second quarter of 2013 on a non-adjusted basis.
- The net interest margin was 3.64% for the second quarter of 2014 compared to 3.42% during the second quarter of 2013. The improvement was due to both an increase in the rate on earning assets and a decrease in the cost to fund those earning assets.
- Non-interest income increased $227 thousand over the first quarter of 2014 but was $246 thousand less than the second quarter of 2013. This variance was primarily related to dispositions of foreclosed properties and the change in value of our interest-rate caps. More importantly, core non-interest income increased $85 thousand, or 24.7%, over the first quarter and was $46 thousand or 12.1% higher than the second quarter of 2013.
- In the second quarter, non-interest expense was $147.6 thousand less than the first quarter and $15 thousand less than the second quarter of 2013. The primary driver of this progress was the continued improvement of credit quality.
- Second quarter pre-tax income increased 55% over the first quarter of 2014, and pre-tax income for the first six months of 2014 was 73% higher than the first six months of 2013.
- The ratio of nonperforming assets to total assets decreased from 2.57% at the end of the first quarter to 2.35% at the end of the second quarter. At the end of 2013, the ratio was 2.88%.
- During the first six months of 2014, we have resolved $1.5 million in nonperforming assets with a 78% recovery rate.
- The allowance for loan losses reserve to gross loans was 1.50% at June 30, 2014. That ratio is lower than the 1.59% at March 31 but higher than at the end of 2013 when the ratio was 1.47%.
- As a result of Paragon’s improved asset quality, no provision for loan losses has been needed this year.
We were pleased recently to announce the addition to the Paragon Team of Richard Harris in Commercial Lending and Mark Winburne in Paragon Wealth Solutions. Both of these men have had many years of experience and will contribute to Paragon’s plan to increase net interest income through growth of our balance sheet and to increase non-interest income.
Thank you for voting Paragon Bank as “Best Bank” in the 2014 Memphis Most publication as voted by readers of The Commercial Appeal. We are grateful for your business and support.
Robert S. Shaw, Jr. Michael A. Edwards Lewis W. Perkins, III
Chief Executive Officer President Chief Financial Officer
Chief Operating Officer