Paragon Banking : Tuesday, 06/06/2023

PARAGON BANKING GROUP PLC

Half Year Financial Report

For the six months ended 31 March 2023

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Paragon Banking Group PLC

Under Stock Exchange embargo until 7.00 a.m. Tuesday 6 June 2023

Strong financial and operational performance, with

further balance sheet growth

Paragon Banking Group PLC ('Paragon' or 'the Group'), the specialist banking group, today

announces its half-year results for the six months ended 31 March 2023

Nigel Terrington, Chief Executive of Paragon said:

"We are delighted to deliver another strong financial and operational performance, achieving record interim operating profits, alongside robust growth in our loan book.

New mortgage lending increased by 19.1% due to our focus on supporting professional landlords, who continue to see strong portfolio growth and tenant demand. Our commercial lending loan book increased by 13.9%, supporting Paragon's diversification strategy. The Group has a high quality loan book, 99% of which is secured, virtually all on low LTV properties. Notwithstanding the more volatile and disruptive environment, our portfolios are performing resiliently.

Savings balances grew by 20.5% year-on-year, underpinning our strong liquidity and supporting improvements to our net interest margin, which we now expect to be around 3% this financial year.

Our capital ratios are strong and liquidity levels remain high which enabled us to announce today a further increase in our share buy-back programme from £50 million to £100 million.

We are well placed to continue to support our customers and deliver strong returns for our shareholders as we look to capitalise on the opportunities that the environment will inevitably produce."

Financial highlights:

• Underlying profit increased 22.2% to £128.9 million (2022 H1: £105.5 million)*
• Underlying EPS increased 28.0% to 42.5 pence (2022 H1: 33.2 pence)*
• Statutory profit before tax down 67.7% at £46.4 million (2022 H1: £143.6 million) reflecting the unwinding of £82.5 million of the £191.9 million of fair value gains recognised in 2022, with statutory EPS decreased 63.1% to 16.4 pence (2022 H1: 44.4 pence)
• Continued NIM enhancement to 2.95% (2022 H1: 2.57%). Guidance increased to circa 3.00% for full year
• Cost:income ratio reduced to 38.1% (2022 H1: 41.2%)
• Capital base remains strong - CET1 15.6% (31 March 2022: 15.4%)
• Underlying RoTE 18.7% (2022 H1: 15.5%)*
• Interim dividend up 17.0% at 11.0 pence (2022 H1: 9.4 pence)
• Additional £50.0 million share buy-back announced for H2

Half-year report - 31 March 2023

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Paragon Banking Group PLC

• Deposit base grew to £11.9 billion (2022 H1: £9.9 billion). 94%+ FSCS insured, no disruption to deposit gathering from the events in the US

* For underlying basis, see Appendix A

Operational highlights:

• Total new lending increased 6.9% to £1.59 billion (2022 H1: £1.49 billion) driving a 4.6% year- on-year growth in the loan book
• New mortgage lending of £1.02 billion was 19.1% higher than the £0.86 billion achieved in 2022 H1, with a continued focus on professional landlords who represented 98.6% of completions in the period
• New commercial lending totalled £0.57 billion, 9.4% down on 2022 H1 with outperformance in the SME and motor divisions being offset, as expected, by lower net completions in development finance
• Buy-to-letpipeline stood at £0.81 billion compared to £1.34 billion a year earlier, reflecting strong completions and weak application flows in the post mini-budget period. Recent application flows are stronger, with the pipeline up nearly 20% from its intra-period low and continuing to increase after the period end
• As expected, the development finance pipeline reflects the national picture on housing development, with developer caution regarding prices, cost inflation and supply chain reliability. The pipeline at 31 March 2023 stood at £0.71 billion compared to £0.86 billion a year earlier
• Buy-to-letredemptions ran at an annualised rate of 10.7% for 2023 H1, compared to 6.9% in the comparable period in 2022. The rate was particularly high in the disrupted environment in Q1, at an annualised 13.5%, but has since moderated to a more normal level of 7.8% in Q2
• Continued progress being made with the PRA on IRB accreditation, but timetable remains dependent on PRA requirements and its resource availability
• Paragon has responded to the PRA Basel 3.1 consultation paper. Impact of proposals as drafted would be a reduction of 2.3% of CET1 if IRB accreditation was delayed beyond the proposed Basel 3.1 implementation date of 1 January 2025

Guidance summary:

Updated guidance is given below for mortgage lending volumes, net interest margin and share buy-backs.

2023 FY metric	Original guidance	Updated guidance
Mortgage Lending advances	£1.6bn - £1.9bn	Upgraded to £1.75bn - £1.9bn
Commercial Lending advances	£1.1bn - £1.3bn	Unchanged
Net Interest Margin	Increase to at least 289 bp	Increase to circa 300bp
Operating expenses	circa £170m	Unchanged
Buy-back	Up to £50m	Increase to up to £100m

Half-yearly report - 31 March 2023

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Paragon Banking Group PLC

For further information, please contact:

Paragon Banking Group PLC

Nigel Terrington, Chief Executive

Richard Woodman, Chief Financial Officer

Tel:	0121 712 2505

Headland Consultancy

Lucy Legh / Charlie Twigg

Email:	[e-mail]
Tel:	020 3805 4822

The Group will be holding a results presentation for sell-side analysts on Tuesday 6 June 2023 at 9:30am at UBS, 5 Broadgate, London EC2M 2QS.

This will be webcast live at:https://secure.emincote.com/client/paragon/half-year-results

The presentation material will be available on the Group's website at www.paragonbankinggroup.co.uk/investorsfrom 7:00am, with a webcast replay available from 2:00pm.

Cautionary statement

Your attention is drawn to the cautionary statement set out at the end of this document.

Half-yearly report - 31 March 2023

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Paragon Banking Group PLC

Interim Management Report

1 OVERVIEW

During the six months ended 31 March 2023, the Group has continued to provide the lending and savings products its customers expect, delivering 4.6% year-on-year loan book growth, maintaining strong liquidity by increasing the savings deposit base, improving customer retention and increasing returns, with underlying profit rising 22.2% compared to the first half in 2022 and underlying return on tangible equity standing at an annualised 18.7%. This is despite material market volatility and substantial increases in market interest rates in the period, which opened with the impacts of the September 2022 mini-budget in the UK and closed with the repercussions of the collapses of Credit Suisse, Silicon Valley Bank and other US lenders.

LENDING ACTIVITY

Buy-to-let application flows were slow at the start of the period, when fixed rate pricing was elevated following the negative impacts of the mini-budget. Strong pipeline conversions have seen the value of new advances reach £1.02 billion, an increase of over 19% when compared to the first half of 2022. The disruption to application flows at the start of the period, coupled with this conversion rate, saw the pipeline reduce to £0.81 billion, rebuilding from a low point in early February 2023. Customer retention rates remain strong, with over 70% of maturing fixed rate business being retained during the period and portfolio-wide redemptions running at an annualised 10.7%, with redemption activity strongest on the legacy, variable rate portfolio.

Our original guidance for Mortgage Lending volumes for 2023 was a range from £1.60 billion to £1.90 billion - we now expect the result for the year to be in the range of £1.75 billion to £1.90 billion.

The four sub-divisions in the Commercial Lending segment have seen differing levels of market demand and performance during the first half. At £0.22 billion (31 March 2022: £0.18 billion), SME lending advances were 21.0% up on the equivalent period last year and motor finance lending also grew, by 13.9% to £0.09 billion (31 March 2022: £0.08 billion). The development finance business saw activity levels depressed, in line with the national housebuilding market, with drawdowns down 15.6% and new enquiry levels more subdued, particularly in the final calendar quarter of 2022. The structured lending portfolio saw modest net redemptions in the period. The net new business flows, however, resulted in the net book value for the segment increasing by 13.9% year-on-year, finishing the first half at £1.96 billion (31 March 2022: £1.72 billion).

We retain our guidance for Commercial Lending completions in 2023, with the expected level staying in the £1.1 billion to £1.3 billion range.

Half-year report - 31 March 2023

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