Paragon Banking Group PLC · LSE:PAG
Paragon Banking — H1 2018 Earnings Presentation
29 slides from Paragon Banking's earnings presentation, 2018
Slide 1: Financial Results for six months ended 31 March 2018
Paragon Banking Group PLC Financial Results for six months ended 31 March 2018
Slide 2: 2018 H1 results highlights
2018 H1 results highlights 2 Strong lending growth with improved shareholder returns, alongside major medium term transition programme Strong operational Enhancing returns Strategic performance with strong capital base development • New lending – £1.0 billion (+28.9%) • Operating profits up 4.7% • B
Slide 3: Strong financial delivery alongside major medium term transition programme
Strong financial delivery alongside major medium term transition programme 3 • Total lending over last 5 years £7.2 billion • Significant investment in start-ups to deliver income diversification • 3 acquisitions completed Underlying earnings per share * • Bank formed 2014 - restructured 2017 to sub
Slide 4: Financial Results
Section 1 Financial Results For six months ended 31 March 2018 Richard Woodman Chief Financial Officer
Slide 5: Profitability
Profitability 5 NIM growth and strong credit performance underpin profit growth Operating profits • Total income increased by 5.2% 150 Income Costs Impairments Operating profit • Net interest margin improved to 2.16%, with further progression expected with growth of new product lines 100 • Average l
Slide 6: Segmental performance
Segmental performance 6 Segments re-aligned from 2017 Six months ended 31 March 2018 (£ m) Commercial • Three operating segments: Mortgages Lending Idem Capital Central Total Interest income 145.1 19.6 46.8 1.8 213.3 • Mortgages Interest expense (67.3) (7.3) (5.2) (12.2) (92.0) (buy-to-let, resident
Slide 7: Mortgages
Mortgages 7 Profit contribution of £72.3 million in 2018 H1 Originations Loans and advances • Profit contribution of £72.3 million 2018 H1 £721.0m 2018 H1 £10,119.5m (2017 H1: £68.5 million) • Buy-to-let yield progression reflects stable 2017 H1 £587.7m 2017 H1 £9,795.3m new business yields in the p
Slide 8: Commercial Lending
Commercial Lending 8 Profit contribution of £6.2 million in 2018 H1 • Profit contribution of £6.2 million (2017 H1: £6.6 million) Originations Loans and advances • Reflects run-off of higher yield historical 2018 H1 2018 H1 £269.3m £680.1m asset finance portfolios and competitive pricing for new dea
Slide 9: Idem Capital
Idem Capital 9 Profit contribution of £37.5 million in 2018 H1 Investments Loans and advances 2018 H1 £ nil 2018 H1 £547.1m • Profit contribution of £37.5 million (2017 H1: £39.6 million) 2017 H1 £95.4m 2017 H1 £676.1m • Idem Capital portfolio reflects run-off 2016 H1 £739.7m of historical portfolio
Slide 10: Central
Central 10 Central funding and support functions Profit / (loss) contribution • Tier-2 and retail bond issues support Group liquidity (£42.6m) 2018 H1 requirements (£44.6m) 2017 H1 • Diversification and lending growth providing economies of scale 2016 H1 (£40.7m) • Operating leverage to reduce as ne
Slide 11: Net interest margin
Net interest margin 11 Further NIM enhancements as legacy BTL portfolio runs off Net interest margin 2.5 2.16 2.0 2.08 2.10 2.09 • NIM improved to 2.16% in 2018 H1 1.94 1.84 • TFS drawings of £944.4 million following closure of scheme 1.5 • Main area of volatility arises from timing of % Idem Capita
Slide 12: Retail savings deposits
Retail savings deposits 12 Central to funding strategy – supported by tactical securitisation Deposit balance and cost of funds • Balance sheet growth building on savings deposit foundations 4.0 2.5% 2.15% • Savings balances £4.3 billion 3.5 1.75% 2.0% • Second quarter growth slower given planned 3.
Slide 13: Risk adjusted margin and lead credit indicators
Risk adjusted margin and lead credit indicators 13 Continued strong risk metrics Risk adjusted margin • Risk adjusted margin stood at 2.28% 3% Annualised impairment (%) Annualised revenue (%) • Arrears performance on BTL portfolio remains 2% exemplary at 9bp 2.28% 2.22% • Updated lead indicator beha
Slide 14: Capital and leverage
Capital and leverage 14 Strongly capitalised balance sheet underpins growth options Group consolidated capital Capital ratios Core Equity Tier-1 capital * £886.1m • CET1 reduced to 15.5% Tier-2 capital £153.8m Total capital resources £1,039.9m • Total capital ratio remains strong at 18.2% Credit ris
Slide 15: Capital ratios and progression
Capital ratios and progression 15 Profitability supporting growth and capital return 20% Of which 0.3% 6.8% 7% 6.6% relates to acquisition of Iceberg 18.2% 18% 6% (0.3%) 1.1% (0.7%) 16% 5% (0.5%) UK leverage ratio 14% 4% CET 1 ratio 12% 3% 15.9% 15.5% 15.5% 10% 2% 8% 1% 6% 0% FY 2017 Post-tax earnin
Slide 16: Guidance
Guidance 16 Item Original Updated Comment 2018 FY guidance 2018 FY guidance Mortgages £1.6 billion + Unchanged Combined buy-to-let, residential and second charge mortgage Volumes volumes still expected to exceed £1.6 billion Commercial Lending £0.5 billion + £0.6 billion + Addition of flows from Ice
Slide 17: Business Development
Section 2 Business Development Nigel Terrington Chief Executive
Slide 18: Increasing product diversification
Increasing product diversification 18 New income streams delivering strong growth Gross income (% of total) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mortgages Commercial Lending Idem Capital Non-bank, securitised, monoline lender Buy-to-let 100% Diversified banking group Idem Capital 80% Mo
Slide 19: Mortgages – buy-to-let new lending
Mortgages – buy-to-let new lending 19 Volumes building in professional landlord sector Group buy-to-let completions 900 • Lending up 20.6% (to £0.7 billion) on 2017, in line with 800 Impact of SDLT changes 823.6 guidance 700 670.5 600 556.2 £ million 500 446.2 • Significant growth in complex / profe
Slide 20: Mortgages – buy-to-let outlook
Mortgages – buy-to-let outlook 20 Increasing opportunities to grow market share % of specialist buy-to-let lending 90% Corporate Complex 80% 70% 36.9% 60% 50% 34.8% 40% 43.9% 30% • Strong year-on-year growth and market share gains expected 20% 49.4% 37.0% focussed on complex / professional landlords
Slide 21: Mortgages – residential mortgages
Mortgages – residential mortgages 21 Second charge mortgages Specialist residential mortgages • Clear focus on prime lending • Continued development of pilot offering, with £22.6 million of new lending • £27.9 million of new lending (2017 H1: £31.1 million) • Increasing opportunities following struc
Slide 22: Commercial Lending - asset finance
Commercial Lending - asset finance 22 Further distribution and product development delivered Asset finance – new originations • New business volumes £163.8 million, up 53.7% year-on-year • Lower yields due to … 120 Technology finance Commercial vehicles • Mix effect, transition from Tier 3 to Tier 2
Slide 23: Commercial Lending - motor finance
Commercial Lending - motor finance 23 Excellent lending growth whilst broadening product proposition Motor finance originations • Although new car sales weak, second hand sales remain +57.7% Originations Net loan book more resilient £195.4m 200 • Motor finance market up 5.3% 180 160 • Regulatory con
Slide 24: Commercial Lending – development finance and structured lending
Commercial Lending – development finance and structured lending 24 Development finance Structured lending • Loan book £57.0 million from standing start in 2016 • Senior debt to non-bank financial institutions • Momentum building, committed pipeline of £109.6 million • Addressing certain segments whe
Slide 25: Idem Capital
Idem Capital 25 Strong financial performance in a highly competitive market Portfolio purchase investment 225 208.8 200 175 150 125 121.9 100 99.2 83.5 95.4 £ million • Portfolio performance remains exemplary 75 57.6 53.8 50 20.7 35.2 20.9 • Cumulative cash flow now 109.4% of 25 22.7 16.2 2.6 underw
Slide 26: Increasingly diversified funding strategy
Increasingly diversified funding strategy 26 Capacity and breadth of funding increasing Funding mix Diversification of new funding mix 12,000 Legacy New Warehouses Corporate bonds RMBS 8,000 Idem Capital Retail bonds Savings 10,000 7,000 123 699 TFS 283 3,142 4,481 5,997 6,739 6,000 1,800 £ million
Slide 27: Conclusion
Conclusion 27 Strong delivery against major medium term transition programme Strong loan growth Increasing Enhancing Improving capital with increasing income stream operational and funding specialisation diversification leverage efficiency • Major medium term transition in progress • Product diversi
Slide 28: Disclaimer
Disclaimer 28 • 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
Slide 29: Paragon Banking Group PLC
Paragon Banking Group PLC Financial Results for year ended 31 March 2018
Paragon Banking Group — H1 2018 Earnings Presentation on 6ix