Paragon Banking Group Plc · LSE:PAG
Paragon Banking — H1 2019 Earnings Presentation
32 slides from Paragon Banking's earnings presentation, May 2019
Slide 1: Paragon Banking Group PLC Financial Results for six months ended 31 March 2019
Paragon Banking Group PLC Financial Results for six months ended 31 March 2019
Slide 2: HY 2019 - results highlights
HY 2019 - results highlights 2 Delivering on strategic transformation Strong operational performance Delivering financial returns Strategic development bearing fruit • Strong organic growth across all lending • Operating profits +8.7% • Increasingly diversified asset and liability divisions £1.3 bil
Slide 3: Section 1: Financial Results
Section 1 Financial Results For six months ended 31 March 2019 Richard Woodman Chief Financial Officer
Slide 4: Income statement
Income statement 4 Consistent profit delivery as strategic focus develops Operating profits 200 Income Costs • Total income up 13.8% to £148.0 million Impairments Operating profit • NIM 8bp higher at 2.24% • Loan book up 10.4% 150 • Cost increase 15.3% with Titlestone integration and higher 100 proj
Slide 5: Loan book
Loan book 5 Strong growth in new lending Originations and investments • 10.4% increase in loan balances 1,500 Mortgages Commercial Lending Idem Capital • Pre-financial crisis portfolio dampens headline balance sheet 1,250 growth rate but supports NIM expansion £million 1,000 • Excluding old book run
Slide 6: Deposit funding
Deposit funding 6 Good progress, cautious mix, attractively priced Deposit balances 6 Easy Access Savings 5 Notice Accounts 4 1 Yr FRB £ billion 3 18 Month FRB • Deposit balances grown to £5.9 billion at 31 March 2019 2 2 Yr FRB 1 3 Yr FRB • Average cost 1.81% at period end 0 4 Yr FRB 5 Yr FRB • Up
Slide 7: Net interest income
Net interest income 7 Positive rate and volume drivers in key divisions [x] Net interest income • Favourable rate and volume variances in Mortgages 160 Increases Reductions • Lower redemptions • New book margins exceeding old 140 £ million • Portfolio growth 120 • Favourable rate and volume variance
Slide 8: Operating expenses
Operating expenses 8 Pace of development and project costs driving cost increases Cost:income ratio % 45 42.2 42.8 • Move to banking model in 2014 generated additional overhead 40.4 40.7 40 35.2 • Commercial Lending acquisitions operate with higher underlying 35 33.9 32.2 CIR than Mortgages 30 • IT
Slide 9: Credit performance
Credit performance 9 Credit metrics remain strong Cost of risk % 0.7 0.6 0.5 0.4 0.3 • Bad debts now reported under IFRS 9 0.2 0.1 • P&L charge higher in H1 2019 but lower than H2 2018 0.0 and in line with prior periods H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 H1 2019
Slide 10: Below-the-line items
Below-the-line items 10 March interest rate profile drove fair value and pension deficit charges 5 year swap rate Pension – assets and liabilities 1.6 140 1.5 130 1.4 120 £ million 1.3 % 110 1.2 100 1.1 90 1.0 80 01-Oct-18 01-Nov-18 01-Dec-18 01-Jan-19 01-Feb-19 01-Mar-19 01-Apr-19 30-Sep-18 31-Oct-
Slide 11: Group capital
Group capital 11 Prudent capital ratios maintained Group consolidated capital Core Equity Tier-1 capital * £918.7m Capital ratios Tier-2 capital £150.0m Total capital resources £1,068.7m • CET1 ratio 13.7% (13.4% with IFRS 9 fully loaded) Credit risk £6,123.9m • Circa 0.3% impact from anomalous rate
Slide 12: Capital bridge – FY 2018 / H1 2019
Capital bridge – FY 2018 / H1 2019 12 Capital position remains strong and stable 18% 6.4% 6.5% 7% 16% 6% (0.3%) 2.3% (0.0%) 1.0% (0.6%) (0.2%) 14% - 5% UK leverage ratio 12% 4% CET 1 ratio 10% 3% 13.8% 13.7% 13.7% 8% 2% 6% 1% 4% 0% FY 2018 IFRS 9 transitional Underlying post- Increases in Distributi
Slide 13: Section 2: Building a specialist bank
Section 2 Building a specialist bank Nigel Terrington Chief Executive
Slide 14: Our strategy: strategic levers targeting specialist markets
Our strategy has been … 14 • To transform business from a monoline lender to a broadly based and diversified specialist bank STRONG ORGANIC GROWTH DRIVING UP RoTE • Focusing on specialist markets where we can Targeting specialist markets make a difference Strategic levers PRODUCT DIVERSIFICATION • E
Slide 15: Building a specialist bank
Building a specialist bank 15 Whilst delivering sustainable performance • This has required significant effort and investment: Underlying earnings per share • Starting a bank H1 2019 statutory 22.5p 30 • Redesigning and restructuring the Group 25 25.0 • Organic lending start-ups 20 22.5 pence 20.7 1
Slide 16: Increasingly focused on specialist BTL and SMEs
Building a specialist bank 16 Increasingly focused on specialist BTL and SMEs • All markets competitive but specialist focus avoids commodotised Significant shift in flow of new loan originations in 3 years sectors • Professional landlords now 88.0% of new BTL flow 100% 90% 18.0% • Four acquisitions
Slide 17: Buy-to-let: professional landlords driving growth
Buy-to-let 17 Professional landlords driving growth Buy-to-let gross mortgage lending • Despite fiscal and regulatory changes, buy-to-let volumes 50 44.5 House purchase Remortgages have remained robust 40 34.2 35.3 35.9 • Remortgages have been the key driver 30 £ billion • Purchase business increasi
Slide 18: Buy-to-let: better customer retention
Buy-to-let 18 Better customer retention driving loan book growth Buy-to-let redemptions 30 25 20 • Redemption levels reducing, helping to drive up net loan growth 15 % 10 • Increasingly professional/complex with greater retention 5 potential 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13
Slide 19: Commercial Lending – development finance
Commercial Lending – development finance 19 Significantly strengthened existing platform Originations and loan book growth 450 £426.0m • Integration now fully completed, on time and delivering good Originations progress 400 Net loan book • Broadening geographic footprint 350 • Some uncertainty due t
Slide 20: Commercial Lending – asset finance
Commercial Lending – asset finance 20 Growing market share with improved platform delivery New originations 250 Technology finance • Market £32.1 billion (+6.5%) Construction equipment £211.0m • Paragon’s new business flow £211.0 million, with multiple 200 Commercial vehicles niches (+28.8%) Busines
Slide 21: Building a deposit franchise
Building a deposit franchise 21 Deposit growth has much further to go Deposit market growing at same pace as loans • Built £5.9 billon deposit franchise from scratch Deposit growth Loan growth 8% • Focus on attracting term balances and understanding behavioural 7% attributes of the book kept cost of
Slide 22: Net interest margin
Net interest margin 22 Trend improvements underpinned by strategic business mix Net interest margin 2.40 2.20 • 30bp improvement over 5 years 2.24 2.00 2.16 2.08 2.10 2.09 • Structurally NIM accretive for new business despite run-off 1.80 1.94 in Idem Capital (which carried highest margins) 1.60 1.4
Slide 23: Structural improvement in NIM
Structural improvement in NIM 23 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% 7.40% 7% 3.7% 10.2% 6% 5% 4.00% 4.05% 44.3% 4% 3% 2.54% 41.8% 2% 1% 0% Legacy
Slide 24: Through-the-cycle track record
Through-the-cycle track record 24 Lead indicators continue to be positive • Credit performance, data use and experience are differentiators for Paragon Bank • No emerging stress evident in behavioural scores • 15 year BTL average cost of credit 9bp, average LTV 67.7% Forward looking credit metrics (
Slide 25: Capital optimisation
Capital optimisation 25 Recycling capital to improve returns • Track record of returns • Dividends – £198.1 million paid to shareholders over last five years • Buy-backs – £190.0 million over last five years • Bank restructure created enhanced capital mobility • Idem Capital portfolio sale effective
Slide 26: Conclusion
Conclusion 26 Significant strategic transformation in recent years … Continued strong financial Strategic delivery supports and operational progress positive medium-term outlook • Excellent H1 delivery – strong new lending, loan book • Strong delivery in specialist markets will deliver premium growt
Slide 27: Section 3: Appendix
Section 3 Appendix
Slide 28: Mortgages
Mortgages 28 Steady growth and strong margins Originations Loans and advances • Steady NIM improvement as legacy book H1 2019 £833.9m H1 2019 £10,783.9m amortises H1 2018 £721.0m H1 2018 £10,119.5m • Net loan growth supported by lower H1 2017 £587.7m H1 2017 £9,795.3m redemption levels in first half
Slide 29: Commercial Lending
Commercial Lending 29 Historic acquisitions underpin strong lending growth Originations Loans and advances • Purchase of Titlestone accelerated progress H1 2019 £455.3m H1 2019 £1,283.9m H1 2018 £269.3m H1 2018 £680.1m • Acquired portfolio generated 83bp of period NIM expansion H1 2017 £180.7m H1 20
Slide 30: Idem Capital
Idem Capital 30 Stable cash flow from amortising portfolio Investments Loans and advances • Profit contribution reflects natural H1 2019 nil H1 2019 £457.8m run-off, portfolio sales in 2018 and normalised settlement levels in 2019 H1 2018 H1 2018 £547.1m nil • Environment remains intensely H1 2017 £
Slide 31: Central
Central 31 Cost growth reflects IT investment and project expenses Profit / (loss) contribution • Full period benefit from TFS (H1 2018 only partial) (£47.1m) H1 2019 • Central costs included staff incentives for wider Group (£42.6m) H1 2018 (£44.6m) H1 2017 (£40.7m) H1 2016 (£30.7m) H1 2015 Corpora
Slide 32: Disclaimer
Disclaimer 32 • 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
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