Paragon Banking Group Plc · LSE:PAG
Paragon Banking — FY2019 Earnings Presentation
31 slides from Paragon Banking's earnings presentation, December 2019
Slide 1: Paragon Banking Group PLC – Building a specialist bank
Paragon Banking Group PLC Building a specialist bank Financial results 12 months ended 30 September 2019 2019 Financial Results
Slide 2: 2019 – financial results highlights
2019 – financial results highlights Building a specialist bank Financial highlights Diversified lending Capital and funding • Underlying operating profits up 5.0% to • New lending £2.5 billion (2018: £2.3 billion) +8.5% • Savings franchise broadened £164.4 million • Mortgages new advances £1.56 bill
Slide 3: Financial results
Financial results 12 months ended 30 September 2019 Richard J Woodman Chief Financial Officer 3 2019 Financial Results
Slide 4: Income statement
Income statement £million 2019x 2018x Change Net interest income 278.4) 256.5) +8.5%) Structural shift generates margin and volume improvements Other income 19.2) 19.3) (0.5%) Broadly stable – lower redemption fees Total operating income 297.6) 275.8) +7.9%) Operating expenses (125.2) (111.9) +11.9%
Slide 5: Balance sheet
Balance sheet £million 2019 2018 Change (%) Mortgages 10,344.1 10,473.5 (1.2%) Reflects £0.7 billion PM12 disposal Commercial Lending 1,452.1 1,133.2 +28.1%) Led by development finance and SME lending Idem Capital 389.9 521.1 (25.2%) Strong cash flow amortising portfolio Loans and advances to custom
Slide 6: Segmental results
Segmental results Core business line contributions more than offset by expected Idem Capital earnings fade Underlying £million Mortgages Commercial Lending Idem Capital Central Total Total operating income (2019) 184.6) 76.0) 55.7) (18.7) 297.6) Change (v 2018) +19.4) +32.9) (32.8) +2.3) +21.8) Oper
Slide 7: Diversified loan growth and funding
Diversified loan growth Diversified funding Funding by type (£m) Securitisation Tier 2 bond Retail bonds Central Bank Retail deposits Originations £million 2019 2018 Change 14,000 Mortgages 1,564.4 1,623.2 (3.6%) Commercial Lending 968.0 710.0 +36.3%) 12,000 Idem Capital 4.2 83.4 (95.0%) Total 2,536
Slide 8: Net interest income
Net interest income Structural NIM improvement continues Net interest income (£m) 340 Increases Reductions Overall 300 • Underlying NIM increased by 8bp to 229bp, reduced by 1bp given IFRS9 260 income recognition approach on Stage 3 assets (cost of risk reduced £ for £) 220 Mortgages 180 • Charging
Slide 9: Operating expenses
Operating expenses Full year Titlestone costs and ongoing project spend Underlying cost:income ratio (%) 45 • Cost:income ratio increased year-on-year 40.6 42.1 40.5 • Full year impact of Titlestone 40 36.7 • Continued investment in technology / infrastructure 33.7 35 33.2 • Project costs include on
Slide 10: Credit performance
Credit performance Strong credit performance maintained First mortgages cost of risk (%) Total Group 0.80 0.70 Buy-to-let 0.60 • First year under IFRS9. Economic scenarios re-weighted to a net downside case 0.50 given year end uncertainties 0.40 0.30 • Cost of risk reduced by 1bp given reduced incom
Slide 11: Below the line items
Below the line items Falling rates impact fair values and pension deficit, residual disposed of at a premium Fair value movements Gain on residual sale Pension deficit • Three broad categories in September balance sheet • Residual interest in PM12 (legacy securitisation) sold in • Deficit on DB sche
Slide 12: Capital bridge
Capital bridge Little change year-on-year – capital allocation focused on Mortgages and Commercial Lending FY 2018 / FY 2019 Tier 1 capital Tier 2 capital 6.7% 18% 7% 6.4% 16% 6% 18.2% (0.6%) 2.0% (0.9%) (0.4%) 2.2% (0.0%) (0.2%) 14% 5% UK leverage ratio 12% 4% CET 1 ratio 10% 3% 13.8% 13.7% 13.7% 8
Slide 13: Group capital
Group capital Strong ratios maintained – 1.3% of CET1 distributed via dividend or buy-back Group consolidated capital Core Equity Tier-1 capital * £922.0m Tier-2 capital £150.0m Capital ratios • CET1 and TCR remain strong Total capital resources £1,072.0m • Capital requirements up by £75.6 million i
Slide 14: Building a specialist bank
Building a specialist bank Nigel S Terrington Chief Executive 14 2019 Financial Results
Slide 15: Delivering our strategic vision
Delivering our strategic vision To be the leading specialist bank supporting UK consumers, property investors, homeowners and small businesses Strategic priorities • Specialisation Delivery focusing on building strong positions in our chosen markets • Diversification • Clear and dedicated customer f
Slide 16: Building a specialist bank: long-term sustainable delivery
Building a specialist bank Long-term sustainable delivery with change Underlying earnings per share (pence) 60 FY19 statutory 49.4p • Strategic transformation whilst improving returns 50 51.1 48.2 • Bank formation and subsequent restructuring 40 43.3 40.7 • 4 acquisitions 30 36.6 31.8 • 5 start-ups
Slide 17: Increasingly focused on specialist BTL and SMEs
Building a specialist bank Increasingly focused on specialist BTL and SMEs Significant shift in flow of new loan originations in 3 years (%) 100% • Specialist focus avoids low return commoditised sectors 12.7% 90% • As a specialist we seek to achieve a deeper understanding of: 80% 14.1% 38.2% • The
Slide 18: Buy-to-let
Buy-to-let BTL gross mortgage lending (£bn) Market 50 House purchase Remortgages Other 42.3 40.0 40.0 • Despite fiscal and regulatory changes, BTL volumes remained robust 40 37.3 • Remortgage activity continues to dominate (71.4%) 30 • Purchase activity increasingly focused towards specialist landlo
Slide 19: Buy-to-let: keeping our customers for longer
Buy-to-let Keeping our customers for longer BTL redemptions (%) 30 • Redemption levels broadly flat in H2 2019 25 • Specialist landlords showing improved loyalty 20 • Improved retention strategies – direct and broker initiatives 15 • 5 year products extending redemption profile • Expect lower redemp
Slide 20: Commercial Lending – development finance
Commercial Lending – development finance Building on solid foundations Originations and loan book growth (£m) 600 Originations Net loan book • Integration of Titlestone and legacy Paragon platforms completed £506.5m • Originations of £362.9 million up 13.1% on pro-forma FY 2018 levels 500 • Some unc
Slide 21: Commercial Lending – SME lending
Commercial Lending – SME lending Improved service delivery with enhanced yields Originations and loan book growth (£m) 600 £576.2m 550 Originations* • Business successfully re-focused to support mid-market businesses 500 Net loan book £485.1m • Rebranded Asset Finance to SME lending 450 • New busine
Slide 22: Idem Capital
Idem Capital Opportunistic investments whilst maintaining strict pricing and quality discipline Cumulative portfolio cash flow (£m) • Portfolio continues to perform well – cash flow 109.8% of expectations 1400 Actual Estimated 1200 • Market remains highly competitive. Pricing has softened a little b
Slide 23: Building a deposit franchise
Building a deposit franchise Expanding our addressable market in a changing market New deposits (£m) / deposit rate (%) 400 2.0% • Built strong franchise 1.8% 350 1.85%1.86% 1.73%1.77% 1.73%1.69% 1.76% 1.6% • £6.4 billion balances 1.65%1.64% 1.68% 300 1.61% 1.61% 1.63% • Broad product range 1.53%1.5
Slide 24: Structural improvement in NIM
Structural improvement in NIM Our front book / back book structural dynamic is rare in today’s UK banking market Evidenced via higher yields in new portfolio Swapping lower margin legacy book for higher margin BTL / SME 8% 7.41% Drag from Idem Capital materially less significant from FY 2021 7% 3.2%
Slide 25: Conclusion
Conclusion A low risk disciplined banking model that continues … with increasing opportunities for growth to deliver … • Solid financial progress – underlying profit up 5% to £164.4m • Disciplined and risk conscious, particularly in this environment • Strong new lending growth, focused on optimising
Slide 26: Appendix
Appendix 26 2019 Financial Results
Slide 27: Mortgages
Mortgages Steady underlying growth and structural NIM improvement Originations Loans and advances FY 2019 £1,564.4m FY 2019 £10,344.1m FY 2018 £1,623.2m FY 2018 £10,473.5m • BTL new advances stable FY 2017 £1,464.5m FY 2017 £9,953.9m • Specialist residential lower as guided FY 2016 £1,205.9m FY 2016
Slide 28: Commercial Lending
Commercial Lending Divisional development accelerated by 2018 Titlestone acquisition Originations Loans and advances FY 2019 £968.0m FY 2019 £1,452.1m • Development finance advances up 165.3% given FY 2018 £710.0m FY 2018 £1,133.2m full year effect of Titlestone FY 2017 £388.9m FY 2017 £558.8m • Mot
Slide 29: Idem Capital
Idem Capital Portfolio amortising quickly given strong cash performance Investments Loans and advances • NIM reduction reflects FY 2019 £4.2m FY 2019 £389.9m September 2018 portfolio sale FY 2018 £521.1m FY 2018 £83.4m and portfolio amortisation FY 2017 £611.4m • Unsecured loans -30.1% year- FY 2017
Slide 30: Central
Central Central funding stable, but costs higher reflecting project spend Underlying profit / (loss) contribution (£95.3m) FY 2019 (£86.4m) FY 2018 (£88.1m) FY 2017 (£77.4m) FY 2016 • Next corporate debt maturity scheduled in December 2020 Corporate / central funding Unallocated / central costs • Ce
Slide 31: Disclaimer
Disclaimer • This presentation has been issued by Paragon Banking Group PLC (“Paragon”). This presentation is directed only at persons in the United Kingdom who fall either within Article 19 (Investment Professionals) or Article 49 (High net worth companies) of the Financial Services and Markets Act