Paragon quarterly profit in line with expectations

Banking group Paragon’s first quarter profits were in line with expectations due to cost controls and good trends in high margins and volumes, as the company transitions to a lending and operational model.

The FTSE 250 company made profit of £33.1m in the quarter ended 31 December, which was in line expectations, driven by good trends in volumes, margins, cost control and bad debts.

The cost of the company’s subordinated bonds will dampen reported profits in the early part of the 2017 financial year prior to the repayment of the £110m bond maturing in April.

Paragon remains confident in achieving its expectations for the year.

Each of the Paragon’s lending and investment entities generated quarter-on-quarter volume growth, with total investments of £380.7m, up from £254.4m in the previous quarter, up from £460.6m the previous year.

Asset finance in particular volume growth grew to £55.7m, from £49m in the previous quarter.

Chief executive Nigel Terrington said: "We have made a strong start to a year that will see the Group continue its transition to a lending and operational model that is orientated around Paragon Bank. The lending growth we have seen in asset finance is encouraging and reflects the increasing diversification of the Group. Lending across all divisions and the strong growth in the buy-to-let pipeline bodes well for the year as a whole".

The company said that in the final months of 2016 the buy-to-let market saw lenders tightening criteria ahead of the Prudential Regulation Authority’s underwriting changes which took full effect on 1 January, but Paragon had implemented the majority of these changes a year ago, and as market criteria tightened during the last quarter, its pipeline continued to grow from its low point in the summer.

Paragon said that it is It is too early to determine the full extent of the changes on the market, and the further changes due later in the year, however its strong pipeline, positions the company to achieve its new business volumes for the year.

Buy-to-let growth volumes increased to £185.2m in the quarter, from £171.3m the previous quarter, but fell from £400.9m the previous year. At the end of December the company had a pipeline of £639.8m.

The Idem Capital business had a “strong trading period, with £95.4m of gross investments, following the temporary withdrawal of vendors from the market around the EU referendum, while the asset finance business maintained its post-acquisition quarter-on-quarter growth trend.

The funding focus continues to be based upon its retail deposit taking activities through Paragon Bank, where deposit levels grew to £2.03bn, from £1.05bn last year. Paragon Bank has made its first drawing under the Bank of England's new term funding scheme, to support further lending growth and it expect additional drawings during the year.

The focus on retail deposit funding resulted in the Paragon not renewing one of its warehouse lines, resulting in re-draw facilities reducing by £300m.

At the end of December the company’s cash balance stood at £269m and its common equity tier one (CET1) ratio rose to 16.1%.

The company has also made over 25% of the year’s £50m investment through a share buy-back programme.