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2015 Fourth Quarter Shareholder Letter


Dear Fellow Shareholder:

2015 was a record-breaking year for Paragon Bank.  Some record-breaking highlights include:

·       Paragon had its highest quarterly revenue during the fourth quarter and the highest annual revenue for the year 2015.

·       Loan volumes at December 31, 2015, were the highest in Paragon’s eleven-year history.

·       The net interest margin for 2015 was the highest in Paragon’s history.  We believe we are well positioned for future increases in interest rates.

·       Due to the record levels of loans and the improving net interest margin, Paragon recorded its highest level of net interest income during 2015.

·       At December 31, 2015, Paragon had its highest year-end balance of demand deposits.

·       Core deposits, which excludes brokered deposits, were at record levels at December 31, 2015.

·       Paragon’s Memphis operations had record core income during 2015, excluding the first quarter of 2014 when a one-time $287 thousand interest recovery was recorded.

·       Aided by $1.3 million in gains from the sale of guaranteed SBA loans, noninterest income was a record for 2015.

·       At December 31, 2015, nonperforming assets as a percentage of total assets were at the lowest level since the second quarter of 2007.  

Paragon’s Small Business Capital Group was formed during the fourth quarter of 2014.  During 2015, the group’s first full year in operation, business ramped up substantially as we closed $40.5 million in loans.  During the year, $15.8 million in loans were sold for a gain of $1.3 million.  Unlike 2015, we began 2016 with $24.3 million in loans that closed in 2015 and are anticipated to sell during 2016.  As a result, revenues for 2016 are expected to be substantially higher than for 2015.  With this strong start to 2016, the Small Business Capital Group should contribute substantially to Paragon’s goal of sustained above-peer profitability.        

Other the highlights of the 4th quarter and 2015 include:

Balance Sheet

·       Gross loans increased $30.5 million or 14.2% during 2015.

·       Total deposits increased $27.9 million or 12.5% while core deposits, which exclude wholesale CD’s, increased 5.5% or $11.9 million.

·       Paragon’s capital levels remain strong and sufficient for future growth.  At December 31, the Total Risk-Based Capital Ratio was 15.24% while the Leverage Ratio was 10.51%.

Income Statement

·       Net interest income for the year increased 2.3% from $9.8 million to $10.1 million.  Interest income continues to be impacted negatively by the reduction in income from the smaller investment securities portfolio.  During 2015, investment securities decreased from $42.5 million to $35.5 million.  As a result, interest income from investment securities decreased approximately $270 thousand.

·       The net interest margin for 2015 was 3.69% compared to 3.62% during 2014 after adjusting for a one-time $278 thousand interest recovery recognized during 2014.

·       Noninterest income increased from $1.4 million to $2.9 million or 111.7% during 2015.  Core noninterest income increased 87.5%, or $1.4 million.  The largest increase in noninterest income was from the Small Business Capital Group, whose income increased from $38 thousand to $1.1 million.  Most categories of noninterest income increased including service charge income, mortgage banking income, and Paragon’s Solutions line of services income.  Mortgage banking income increased 38.8% to $699 thousand for 2015.  

·       The percentage of income from noninterest sources to total income increased from 13.5% in 2014 to 22.5% in 2015.  This diversifies Paragon’s income stream so that the bank is not dependent on one source of income and is less subject to changes in income caused by changes in interest rates. 

·       Noninterest expense increased $1.9 million or 18.2%.  Most of this increase was a result of the Small Business Capital Group being part of Paragon for all of 2015 as opposed to only the fourth quarter of 2014.  Noninterest expense for the Memphis operations increased 3.04% over 2014. 

Asset Quality

·       During 2015, nonperforming assets decreased 55% from $4.7 million to $2.1 million.

·       The ratio of nonperforming assets to total assets decreased from 1.73% to .69% during 2015.

·       During 2015, Paragon made a $289 thousand provision for loan losses compared to reversing $475 thousand during 2014.  This new provision was made, not because of any deterioration of loan quality, but as a result of the robust 2015 loan growth.

In addition to record 2015 revenues, Paragon was honored with several awards:  

·       Small Business of the Year Finalist, Memphis Business Journal

·       Best Places to Work Finalist, Memphis Business Journal

·       Top Places to Work Finalist, The Commercial Appeal

On January 28 of this year we also received the Large Business of the Year Award by the Germantown Chamber of Commerce at their annual dinner gala. 

We look forward to updating you on our 2015 performance and our first quarter 2016 results at our annual shareholders’ meeting on May 19, 2016.




Robert S. Shaw, Jr.                              Michael A. Edwards                            Lewis W. Perkins, III
Chief Executive Officer           President and Chief Operating Officer      Chief Financial Officer 

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