Paragon Banking Group Plc · LSE:PAG
Paragon Banking — FY2018 Earnings Presentation
29 slides from Paragon Banking's earnings presentation, December 2018
Slide 1: Paragon Banking Group PLC
Paragon Banking Group PLC Financial Results for twelve months ended 30 September 2018
Slide 2: 2018 results highlights
2018 results highlights 2 Strong financial performance and further strategic progress Strong operational Enhancing returns performance with strong capital base Strategy • New lending £2.3 billion (+25.9%) • Underlying operating profits up 7.8% • Diversified model and product range • Mortgages £1.6 b
Slide 3: Section 1: Financial Results
Section 1 Financial Results For twelve months ended 30 September 2018 Richard Woodman Chief Financial Officer
Slide 4: Profit performance
Profit performance 4 Underlying profits up 7.8% at £156.5 million £'m Statutory Adjustments Underlying Interest Receivable 451.8 0.3 451.5 • Statutory profits of £181.5 million include fair value movements Interest Payable (197.2) (2.2) (195.0) and one-off items relating to acquisitions and portfoli
Slide 5: Income statement
Income statement 5 Income growth underpinning stronger profits Underlying operating profits 300 Income Costs • Total income increased by 9.1% year-on-year to £275.8 million Impairments Operating profit 250 • Net interest margin +8bp to 2.21% 200 • Average loan book up 6.4% to £11.6 billion 150 100 £
Slide 6: Loan book
Loan book 6 Organic advances and acquisitions accelerate loan book growth Loans and advances to customers 14,000 Mortgages Commercial Lending Idem Capital 12,000 £million 10,000 8,000 • Like-for-like lending up 18.1% at £2.19 billion 6,000 4,000 • All lending up 25.9% to £2.33 billion 2,000 0 • Fast
Slide 7: Deposit funding
Deposit funding 7 Continued strong growth in retail savings deposits Deposit balances 6 Easy Access Savings 5 Notice Accounts 4 1 Yr FRB £ billion 18 Month FRB 3 2 Yr FRB • Total deposit balances increased by £1.7 billion during 2018 2 3 Yr FRB to £5.3 billion 1 4 Yr FRB 5 Yr FRB • Monthly average n
Slide 8: Net interest margin
Net interest margin 8 NIM progress reflects diversification benefits Underlying net interest margin 2.40 2.20 • NIM increased by 8bp year-on-year 2.21 2.00 2.15 2.13 1.99 2.04 • Mortgages NIM stable with a steadily growing portfolio 1.80 1.84 1.60 • Commercial Lending NIM lower as expected but faste
Slide 9: Operating expenses
Operating expenses 9 Further investment in growth platform Cost:income ratio progress 45 % • Operating expenses increased £9.6 million to £111.9 million reflecting: 40 • New acquisitions • GDPR / IFRS9 / IRB and other IT investment • Further investment planned in 2019 but low 30s% 35 cost:income rat
Slide 10: Credit performance
Credit performance 10 Bad debt levels reflect conservative risk appetite • Cost of credit remains low at 6bp BTL long-term cost of risk 0.4 % • 15 year BTL average cost of credit 9bp 0.3 • No emerging stress evident in behavioural scores 0.2 • Average first mortgage LTV 66.0% – compares 0.1 favourab
Slide 11: Group capital
Group capital 11 Capital levels remain strong Group consolidated capital Capital ratios Core Equity Tier-1 capital * £890.8m • Growth, M&A and distributions have brought CET1 to more “on-target” level Tier-2 capital £154.9m Total capital resources £1,045.7m Risk weightings Credit risk £5,855.1m • Ri
Slide 12: Capital bridge – 2017/2018
Capital bridge – 2017/2018 12 Continued strong capital generation employed in growth areas and distributions 20% 6.6% 7% 6.4% 18% (1.2%) 6% 2.6% 16% (2.0%) 5% 2.4% (1.4%) (0.1%) UK leverage ratio 14% 4% CET 1 ratio 12% 3% 15.9% 10% 13.8% 13.8% 2% 8% 1% 6% 0% FY 2017 Post-tax earnings Increases in Ac
Slide 13: Section 2: Business Development
Section 2 Business Development Nigel Terrington Chief Executive
Slide 14: Strong performance alongside strategic transformation
Strong performance alongside strategic transformation 14 • Total lending over last 5 years £7.7 billion Underlying earnings per share • Significant start-ups / acquisitions to deliver income diversification 2018 statutory 55.9p 60 • Bank formed in 2014 – restructured in 2017 to subsume Group 50 • Ma
Slide 15: Launch of Paragon Bank
Greater optionality around capital deployment 15 2008 2010 2014 2015 2016 2017 2018 Buy-to-Let Idem Capital Gross income (% of total) Motor finance Retail deposits Mortgages Commercial Lending Idem Capital 100% Launch of Paragon Bank Second charge mortgages Asset finance (Five Arrows*) 80% Developme
Slide 16: Buy-to-let new lending
Buy-to-let new lending 16 Strong new lending and reducing redemptions driving loan book growth Buy-to-let completions 1,600 Impact of SDLT changes 1,400 1,495.5 1,200 1,399.9 1,326.6 £ million 1,000 1,161.0 800 • BTL new lending up 6.8% to £1,495.5 million 600 656.6 400 • Growth in complex / profess
Slide 17: Buy-to-let outlook
Buy-to-let outlook 17 Focus on complex / professional % of specialist buy-to-let lending 90% 80% 70% • Continued focus on complex / professional landlords 60% 50% 87.8% • Competitive environment 40% 64.5% 79.3% 30% 20% 50.7% • Simple / amateur pricing competitive reflecting wider mortgage market 10%
Slide 18: Development finance
Development finance 18 Significantly enhanced by Titlestone acquisition • July 2018 – Titlestone acquisition Development finance originations and loan book growth • £227.4 million book acquired • Significantly strengthens and expands organic business 400 Originations £352.8m • Total book size £352.8
Slide 19: Asset finance
Asset finance 19 Further distribution and product development delivered Asset finance – new originations • New business volumes £354.7 million, up 61.2% year-on-year 400 Technology finance £354.7m Construction equipment • Lower margins associated with strategic move towards higher 350 Commercial veh
Slide 20: Idem Capital
Idem Capital 20 Optimising returns through disciplined capital allocation • Excellent financial performance Portfolio purchase investment and disposals • Cumulative cash flow now 109.6% of underwriting estimate 225 208.8 • Market remains highly competitive 200 • Disciplined risk and pricing stance m
Slide 21: Increasingly diversified funding strategy
Increasingly diversified funding strategy 21 Capacity and breadth of funding increasing Funding mix Diversification of new funding mix 8,000 12,000 Legacy New Warehouses Corporate bonds 7,000 RMBS Idem Capital 10,000 123 283 699 6,000 Retail bonds Savings 3,142 4,481 5,997 7,475 ILTR TFS 1,800 £ mil
Slide 22: Brexit risks
Brexit risks 22 A strong starting point A resilient balance sheet • UK domestic lending only, no notable direct exposures to trade and or currency risks • 98.2% of loan book secured • Prudent risk appetite • 91.6% of loan book secured on property • Exemplary credit record • Average BTL LTV of 66.1%
Slide 23: Conclusion
Conclusion 23 Strategic delivery supports Strong financial and operational progress positive medium term outlook • Good financial performance • Significant strategic change in recent years • Strong loan book growth in specialist segments • Further growth with continued focus on specialist areas • Di
Slide 24: Appendix
Section 3 Appendix
Slide 25: Mortgages
Mortgages 25 Portfolio growth with stable margins Originations Loans and advances 2018 £1,623.2m 2018 £10,473.5m • Loan book now approaching £10.5 billion 2017 £1,464.5m 2017 £9,953.9m • Originations in line with £1.6 billion guidance 2016 £1,205.9m 2016 £9,694.7m • Segmental profit increased from 2
Slide 26: Commercial Lending
Commercial Lending 26 Strong organic and acquisitive growth Originations Loans and advances 2018 £710.0m 2018 £1,133.2m 2017 £388.9m 2017 £558.8m • Total originations increased by 82.6% to 2016 £233.2m 2016 £375.0m £710.0 million. Excluding acquisitions made 2015 £43.9m 2015 £43.2m in the year the i
Slide 27: Idem Capital
Idem Capital 27 Strong cash flow and partial portfolio disposal Investments Loans and advances 2018 £83.4m 2018 £521.1m • Idem Capital investments remain lumpy 2017 £98.0m 2017 £611.4m in nature 2016 £667.8m 2016 £208.8m • New investments augment new product origination rather than 2015 £104.4m 2015
Slide 28: Central
Central 28 Unallocated costs stable Profit / (loss) contribution (£86.4m) 2018 (£88.1m) 2017 (£77.4m) 2016 • Central funding costs reduced year-on-year (£61.1m) 2015 • Overheads increased, particularly around technology Corporate / central funding Unallocated / central costs spend given resilience-b
Slide 29: Disclaimer
Disclaimer 29 • 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