Paragon Banking Group Plc · LSE:PAG
Paragon Banking — H1 2023 Earnings Presentation
37 slides from Paragon Banking's earnings presentation, May 2023
Slide 1: Financial results six months to March 2023
Paragon Banking Group PLC Financial results Six months to 31 March 2023
Slide 2: Strong performance and well positioned
Strong performance and well positioned Purpose … • Strong performance despite challenging environment … to support the • Healthy trading volumes and good momentum with upgraded guidance ambitions of the • Continued prioritisation of NIM and high credit standards people and businesses of the UK by de
Slide 3: Strong operational and financial performance
Strong operational and financial performance • Operating profit £128.9 million, up 22.2% on H1 2022 • Pre-provision profit up 27.7% • Underlying EPS +28.0% Financial performance • NIM 2.95%, +38bps on H1 2022 • Cost:income ratio 38.1% • Underlying RoTE 18.7% • Interim dividend 11.0p; DPS +17.0% on H
Slide 4: Financial overview
Financial overview Richard J Woodman Chief Financial Officer
Slide 5: Income statement
Income statement £ million 2023 H1 2022 H1 Change Net interest income 212.4) 175.2) +21.2%) Other income 7.9) 6.5) +21.5%) … Total operating income 220.3) 181.7) +21.2%) Strong margin growth supported by volume growth Operating expenses (83.8) (74.9) +11.9%) Reflects inflationary impacts and digital
Slide 6: Segmental results
Segmental results Strong performance from both divisions Underlying £ million Mortgage Lending Commercial Lending Central Total Total operating income (H1:23) 136.6) 72.2) 11.5) 220.3) Change (v H1:22) +13.7) +15.8) +9.1) +38.6) Operating expenses (12.3) (13.3) (58.2) (83.8) Change (v H1:22) (0.4) (
Slide 7: Net interest margin
Net interest margin NIM progression – Group (%) 3.20 2.95 • Sub-SONIA priced savings augmenting 3.00 Structural margin margins 2.80 progression • Commercial Lending book (with higher 2.60 2.57 yields) growing faster than Mortgage accelerated by rate portfolio 2.40 2.24 2.29 2.32 environment • Full y
Slide 8: Operating expenses
Operating expenses Underlying cost:income ratio (%) 60.0 55.0 • Year-on-year cost growth 11.9% 50.0 Cost:income ratio • Headcount of 1,537 as at 31 March 2023 45.0 42.8 41.8 42.5 41.2 40.0 38.1 below 40% despite • Continued focus on digitalisation to improve proposition and increase 35.0 inflationar
Slide 9: Economic outlook
Economic outlook • Four scenarios updated from September 2022 Scenarios Base Upside Downside Severe • Maintained even balance of base/upside and downside/severe scenarios to reflect ongoing Weighting 40% 10% 30% 20% uncertainty Impact of 100% £60.8m £55.1m £68.5m £89.2m • Downside/severe mix maintai
Slide 10: Impairments
Impairments Impairment overlay FY 2020 FY 2021 FY 2022 H1 2023 (£m) (£m) (£m) (£m) • Greater proportion of impairment covered by Calculated provision £62.0 £46.0 £48.5 £58.2 core models given cautious MES Judgmental overlay £19.8 £19.4 £15.0 £10.0 • Judgmental overlays reduced to £10 million Total £
Slide 11: Capital movements during the period
Capital movements during the period FY 2022 / H1 2023 22% 9% 7.9% 7.6% 20% 8% 18% 1.3% 0.8% 7% 0.1% 0.3% 0.3% 0.7% 2.1% 16% 0.2% 6% UK leverage ratio 14% 5% CET1 ratio 12% 4% 10% 16.3% 3% 15.6% 15.6% 8% 2% Tier-1 capital Tier-2 capital 6% 1% 4% 0% FY 2022 Underlying FV impact on IFRS 9 Net lending D
Slide 12: Group capital
Group capital Capital ratios Group consolidated capital • 15.6% CET1 represents a strong surplus over Core Equity Tier-1 capital * £1,170.4m regulatory minimum Tier-2 capital £150.0m • Group has no AT1 in capital structure Total capital resources £1,320.4m • Tier 2 bond matures in 2026 Credit risk £
Slide 13: Dividend per share
Dividend per share Dividend per share (pence) 35.0 Reflects fair value Interim Final movements and 30.0 variance to “normal” • Stronger than policy interim dividend cost of risk Reflects designed to restore a more normal trend variance to 25.0 after Covid-related noise “normal” cost 4.0 of risk Divi
Slide 14: Business performance review and strategic priorities
Business performance review and strategic priorities Nigel S Terrington Chief Executive
Slide 15: Strategic priorities
Strategic priorities We have five clear strategic priorities underpinned by three strategic pillars Our strategy is driven by our purpose and helps us achieve our vision to Growth Diversification Digitalisation Capital management Sustainability become the UK’s leading technology-enabled Our strategi
Slide 16: Strategic priorities
Strategic priorities • 6.9% year-on-year growth in new lending Growth • 16.6% new lending CAGR since 2015 • Commercial Lending 36.1% of Group’s H1 2023 new lending Diversification • Commercial Lending profit contribution £56.7 million (H1 2020: £13.7m) • Technology transformation accelerating Digita
Slide 17: Continued focus on professional landlords driving loan book growth
Continued focus on professional landlords driving loan book growth Specialist new business (£m) Redemptions (% of book) Net loan book (£m) 1,200 1,400 12% 14,000 1,000 1,200 12,000 10% Completions (£m) Loan Book (£m) 1,000 10,000 Pipeline (£m) 800 8% 8,000 Redemptions 800 600 600 6,000 400 6% 400 4,
Slide 18: Proven resilience of business model through-the-cycle
Proven resilience of business model through-the-cycle Arrears rate 3mths+ (bp) Average LTV 350 Paragon buy-to-let 85% 70% >80% LTV Average LTV 300 % of book over 80% LTV UK Finance buy-to-let (inc. RoR) 80% 60% 250 75% 50% Average LTV 200 70% 40% 150 65% 30% 100 60% 20% 46bp 55% 10% 50 0 25bp 50% 0%
Slide 19: Commercial Lending provides increased diversification
Commercial Lending provides increased diversification Commercial Lending operating profit (£m) 60 40 20 • 36% of Group’s new lending 0 • H1 2023 profit contribution £56.7 million H1 2020 H1 2021 H1 2022 H1 2023 v £13.7 million in H1 2020 Robust growth in • 95% of the Commercial Lending book is loan
Slide 20: Commercial Lending – Development Finance
Commercial Lending – Development Finance Originations and loan book growth (£m) 900 Originations Net loan book £765.8m 800 £672.9m 700 • Volumes reduced to £273.1 million, as expected 600 £502.3m £552.3m 500 • Loan book increased by 13.8% to £765.8 million 400 £323.7m £273.1m 300 £229.5m £197.8m 200
Slide 21: Commercial Lending – SME Lending
Commercial Lending – SME Lending Originations and loan book growth (£m) • Volumes +21% to £220.0 million • Loan book +15% to £735.3 million Originations Net loan book • Over 72% of new business flows via new portal 800 £735.3m • Further technology delivery in H2 2023 700 £606.6m £638.9m • Strong cre
Slide 22: Commercial Lending – Motor and Structured Lending
Commercial Lending – Motor and Structured Lending Loan book growth Motor Finance – Motor Finance and Structured Lending (£m) 350 Motor finance Structured lending • Volumes +13.9% to £86.2 million • Loan book +21.1% to £286.1 million 300 £290.4m £286.1m • Targeting niche markets such as leisure secto
Slide 23: Strong deposit growth with improved cost of funding
Strong deposit growth with improved cost of funding New deposits (£m) 900 Adapting to higher rate environment 800 700 600 • Continued strong growth in deposit book 500 – £11.9 billion, +20.5% 400 300 Material change in • Higher rates have changed customer behaviour 200 100 0 customer behaviour Jul-2
Slide 24: Conclusions
Conclusions Strong H1 performance and upgraded FY guidance FY:23 guidance update Volumes: 2023 trading performance Outlook • Buy-to-let upgraded £1.75 – £1.9 billion (30-Sept: £1.6-£1.9bn) • Strong financial performance • Strong capital ratios and internal capital • Commercial Lending £1.1 – £1.3 bi
Slide 25: Appendix
Appendix f paragon
Slide 26: Strategic priorities – digitalisation
Strategic priorities – digitalisation Our digitalisation journey is designed to: • Complement our deep underwriting expertise with faster decision-making processes • Enhanced servicing capabilities by empowering customers to access what they need and when they need it • Improve efficiency, resilienc
Slide 27: Strategic priorities – sustainability
Strategic priorities – sustainability Commitment to achieve net zero by Progress in H1 ESG ratings 2050 – subject to Government policy • Sustainable product development continues: We are most actively engaging with the following ESG and industry • In Development Finance, funding for Green Homes rati
Slide 28: Strong growth in key ratios
Underlying return on tangible equity Underlying earnings per share (pence) 50 40 42.5 30 • Longer term trends restored after Covid-period 33.2 20 25.0 25.2 interruption 17.4 19.1 20.7 22.5 17.6 10 14.9 12.3 0 H1 2013 H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 H1 2019 H1 2020 H1 2021 H1 2022 H1 2023 Str
Slide 29: Net interest income
Net interest income Net interest income (£m) 250 200 150 Wider margins and 100 • NII growth higher in all divisions higher volumes H1 2022 Mortgage Lending Commercial Lending Central H1 2023 driving net interest • Rate and volume effects remain positive Rate and volume influences (£m) growth 10 Rate
Slide 30: Provisions by stage and segment
Provisions by stage and segment IFRS 9 impairments Mortgage Lending Commercial Lending Total Stage 1 11,779.6 1,828.7 13,608.3 Stage 2 701.8 130.1 831.9 Stage 3 134.5 23.0 157.5 POCI 18.6 6.8 25.4 Gross loan book 12,634.5 1,988.6 14,623.1 Stage 1 5.9 15.7 21.6 Stage 2 4.4 2.6 7.0 Stage 3 30.9 3.9 34
Slide 31: Impairments
Impairments IFRS 9 provisions (£m) – Mortgage Lending H1 2023 41.2 • Overlays stand at £10.0 million H1 2022 34.7 • MES impacts most material on Stage 3 assets, in particular house price assumptions 0 5 10 15 20 25 30 35 40 45 50 Stage 1 Stage 2 Stage 3 IFRS 9 provisions (£m) – Commercial Lending Po
Slide 32: Diversification
Diversification Diversified loan growth Diversified funding Funding by type (£m) Originations £million H1 2023 H1 2022 Change Specialist BTL 1,004.5 838.8 +19.8%) 16,000 Securitisation Tier-2 bond Retail bonds Central Bank Retail deposits Repo Other mortgages 13.9 16.5 (15.8%) 14,000 Commercial Lend
Slide 33: Mortgage Lending
Mortgage Lending Originations Loans and advances H1 2023 £1,018.4m H1 2023 £12,593.3m H1 2022 £855.3m H1 2022 £12,193.4m H1 2021 £724.6m H1 2021 £11,380.4m Non-BTL portfolios in H1 2020 £792.8m H1 2020 £10,987.5m run-off 0 Amateur BTL 200 400 Specialist BTL 600 Residential 800 1000 Second charge mor
Slide 34: Commercial Lending
Commercial Lending Originations Loans and advances H1 2023 £574.4m H1 2023 £1,961.6m H1 2022 £634.2m H1 2022 £1,721.5m H1 2021 £401.7m H1 2021 £1,435.9m H1 2020 £481.3m H1 2020 £1,518.6m Trend profit, book and 0 SME lending 200 Motor finance600 400 800 SME lending 1000Motor finance * NIM growth desp
Slide 35: Central
Central Underlying profit / (loss) contribution (£46.7m) H1 2023 Cost growth more than • Growth in Op-Ex reflects inflation and (£47.8m) H1 2022 digitalisation progress offset by favourable (£55.8m) H1 2021 central funding • Rate environment strongly positive for benefits central segment, which bear
Slide 36: Balance sheet
Balance sheet £million H1 2023 H1 2022 Change (%) Mortgage Lending 12,593.3 12193.4 +3.3%) Commercial Lending 1961.6 1721.5 +13.9%) Loans and advances to customers 14,554.9 13,914.9 +4.6%) Cash 2,275.4 1,500.4 +51.7%) Other assets 490.1 335.7 +46.0%) Total assets 17,320.4 15,751.0 +10.0%) Capital an
Slide 37: Disclaimer
Disclaimer • This presentation has been issued by Paragon Banking Group PLC (“Paragon”). • It is supplied for information only and may not be reproduced or redistributed. This presentation is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe
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