Paragon trading 'strong' after solid third quarter

Specialist lender and banking group Paragon reported “strong” new business for the financial year-to-date on Wednesday, with a further £575.7m in new lending completed in the third quarter, taking aggregate advances to £1.44bn for the nine months since 1 October.

The FTSE 250 company claimed there was growth in each of its main lending products, with new buy-to-let lending rising to £1.01bn in the year-to-date, from £989.6m at the same time last year.

New lending in asset finance was up to £165.5m from £99.3m, while specialist lending rose to £164.6m from £99.8m.

Paragon said new investment in its Idem Capital division had more than halved year-on-year at £95.4m in the nine months to 30 June, from £208.8m in the same period in the 2016 year.

“I am pleased with the group's performance for the year to date,” said chief executive Nigel Terrington.

“Our strong capital and funding resources provide the foundations for further growth alongside returning additional sums to shareholders via the enhanced buy-back programme.”

Looking closer at its divisions, Paragon said its buy-to-let application flows remained “strong”, reflecting market share gains in an otherwise subdued market.

It said its growth reflected increasing demand from “more complex and professional” customers, with the proportion of those customers in the pipeline rising to 70% during the quarter, compared to 61.8% at the beginning of the year.

The pipeline - 58.5% of which is for remortgage - continued to be “healthy” at £699.8m at the end of the quarter, the board said.

Paragon launched its updated complex lending proposition on 17 July, well in advance of the Prudential Regulation Authority's 1 October deadline.

The company said 96% of lending in the quarter took place through Paragon Bank, reflecting its increasingly important role in financing the group's new lending flows.

Redemption levels also rose on the new buy-to-let portfolio as it continued to mature, taking the annualised redemption rate for 2017 to 20.6% for the new book and 10.9% for the total portfolio.

The company’s asset finance division continued to make “good progress”, Paragon claimed, with new business levels increasing to £58.8m in the quarter as target markets, systems and operations continue to develop in line with the group's strategy.

In its specialist lending division, combined completion volumes for the group's other specialist business streams - car finance, development finance, second mortgage lending and residential mortgages - totalled £58.9m for the quarter, which the board said reflected the “measured expansion” planned for those product lines.

The group's residential mortgage initiative continued as a pilot lending project while system and distribution testing takes place, Paragon added.

Paragon also noted that Idem Capital made no new investments in the quarter, but maintained a strong pipeline of opportunities, both where it invests alone and where it partners with Paragon Bank.

“Our new business streams continue to develop well and the increasingly complex focus in buy-to-let demand is also supporting absolute growth and market share gains for Paragon,” Nigel Terrington added.

On the funding side, Paragon Bank’s savings deposit balances rose to £2.9bn as at 30 June, and currently exceeded £3bn, with more than 100,000 customers.

The company said further drawings of £175m were made under the Term Funding Scheme during the quarter, with total drawings standing at £450m on 30 June.

Paragon noted that during May one of its buy-to-let securitisations - Paragon Mortgages (no.19) - was called, with £119m buy-to-let loans being acquired by Paragon Bank.

More recently, a call notice was given on one of its legacy securitisations - Paragon Mortgages (no.7) - where the loans would be refinanced by Paragon Bank during August.

In July, the group’s non-bank origination company was sold to Paragon Bank, meaning all subsequent origination activity would take place in either the bank or one of its subsidiaries.

The group said its £110m subordinated bond issue was repaid in April as planned, and Idem Capital extended its bilateral facility with Citi by £70m.

Group free cash stood at £255.6m at the end of June.

“The credit quality of the portfolio remains exemplary, with just nine basis points of three month plus arrears on the buy-to-let portfolio at the quarter end,” Paragon’s board said in its statement.

“All portfolios continue to exhibit strong behavioural scores suggesting no emerging signs of stress.”

The company said its capital position remained “strong”, with an unaudited CET1 ratio of 16.1% as at 30 June.

Paragon concluded its £50m share buyback during July and, given its cash and capital position, said it would extend the 2017 buyback by up to an additional £15m.

It said the group’s capital management plans would be reviewed at the end of the year as usual, and would be communicated to investors with its preliminary announcement on 23 November.

Paragon concluded it was continuing to see “good progress” in each of its business lines, and was continuing to trade in line with expectations, reiterating its guidance for the year.

“The group is well-placed for the next phase of PRA underwriting rule changes, which will provide Paragon with a further competitive advantage.”