REG - Paragon Banking Grp - Final Results <Origin Href="QuoteRef">PARA.L</Origin> - Part 3
23/11/2017 07:05
- Part 3: For the preceding part double click ID:nRSW2948Xb
295.9 64.6 13.7 (70.2) 2.1 725.9 (62.5) 969.5
Closing Equity 281.5 65.5 28.7 (70.2) 2.5 784.5 (83.1) 1,009.4
Year ended 30 September 2016
Share capital Share premium Capital redemption reserve Merger reserve Cash flow hedging reserve Profit and loss account Own shares Total equity
£m £m £m £m £m £m £m £m
Transactions arising from
Profit for the year - - - - - 116.0 - 116.0
Other comprehensive income - - - - 4.0 (30.4) - (26.4)
Total comprehensive income - - - - 4.0 85.6 - 89.6
Transactions with owners
Dividends paid (note 26) - - - - - (33.9) - (33.9)
Shares cancelled (13.7) - 13.7 - - (94.0) 94.0 -
Own shares purchased - - - - - - (59.9) (59.9)
Shares issued to ESOP 0.3 - - - - - (0.3) -
Exercise of share awards - - - - - (3.7) 3.7 -
Charge for share based remuneration - - - - - 4.4 - 4.4
Tax on share based remuneration - - - - - (0.2) - (0.2)
Net movement in equity in the year (13.4) - 13.7 - 4.0 (41.8) 37.5 -
Opening equity 309.3 64.6 - (70.2) (1.9) 767.7 (100.0) 969.5
Closing Equity 295.9 64.6 13.7 (70.2) 2.1 725.9 (62.5) 969.5
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2017
1. GENERAL INFORMATION
The financial information set out in the announcement does not constitute the Company's statutory accounts for the years
ended 30 September 2015, 30 September 2016 or 30 September 2017, but is derived from those statutory accounts, which have
been reported on by the Company's auditors. Statutory accounts for the years ended 30 September 2015 and 30 September 2016
have been delivered to the Registrar of Companies and those for the year ended 30 September 2017 will be delivered to the
Registrar following the Company's Annual General Meeting. The reports of the auditors in each case were unqualified, did
not draw attention to any matters by way of emphasis and did not contain an adverse statement under sections 498(2) or
498(3) of the Companies Act 2006.
Sections of this preliminary announcement, including but not limited to the Management Report, may contain forward-looking
statements with respect to certain of the plans and current goals and expectations relating to the future financial
condition, business performance and results of the Group. These have been made by the directors in good faith using
information available up to the date on which they approved this report. By their nature, all forward-looking statements
involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the
Group and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause
actual future financial conditions, business performance, results or developments to differ materially from the plans,
goals and expectations expressed or implied by these forward-looking statements and forecasts. Nothing in this document
should be construed as a profit forecast.
Copies of the Annual Report and Accounts for the year ended 30 September 2017 will be distributed to shareholders in due
course. Copies of this announcement can be obtained from the Company Secretary, Paragon Banking Group PLC at 51 Homer Road,
Solihull, West Midlands, B91 3QJ and on the Group's website at www.paragonbankinggroup.co.uk.
2. Change of Presentation
During September 2017, the Group underwent an internal reorganisation, as a result of which the majority of the Group's
activity is now undertaken through its banking subsidiary, Paragon Bank PLC ('The Bank') and other entities falling within
the scope of banking regulation. Following this reorganisation, the directors concluded that the financial statements of
the Group should be presented in a way which enhances comparability with other banking entities.
The changes made affect presentation only and the Group's accounting policies and its reported assets, liabilities, equity,
profits and cash flows in preceding years remain as previously disclosed.
The new Group structure also affects the segments reported by the Group under International Financial Reporting Standard 8
- 'Operating Segments' and in these financial statements new segments, reflecting the new organisational structure, have
been adopted, as described in note 8. As required by IFRS 8, comparative disclosures on the basis of the new segments have
been provided.
3. ACCOUNTING POLICIES
The annual financial statements of the Group for the year ended 30 September 2017 have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted for use in the European Union. Accordingly, the preliminary
financial information has been prepared in accordance with the recognition and measurement criteria of IFRS. Except as
noted below, the particular accounting policies adopted are those described in the Annual Report and Accounts of the Group
for the year ended 30 September 2016.
The critical accounting estimates and judgements affecting the condensed financial information are the same as those
described in note 6 to the accounts of the Group for the year ended 30 September 2016.
New and revised reporting standards
No new or revised reporting standards significantly affecting the Group's accounting have been issued since the approval of
the Group's financial statements for the year ended 30 September 2016.
The Group's IFRS 9 project, described in note 2 of those financial statements, continues to make progress towards the
Group's implementation date for the standard of 1 October 2018. A more detailed report on progress will be given in the
Annual Report and Accounts for the year ending 30 September 2017.
Going concern
The business activities of the Group, its current operations and those factors likely to affect its future results and
development, together with a description of its financial position and funding position, are described in the Management
Report. The principal risks and uncertainties affecting the Group are described above.
Note 6 to the accounts for the year ended 30 September 2016 includes an analysis of the Group's working and regulatory
capital position and policies, while note 7 includes a detailed description of its funding structures, its use of financial
instruments, its financial risk management objectives and policies and its exposure to credit, interest rate and liquidity
risk. Critical accounting estimates affecting the results and financial position disclosed in that annual report are
discussed in note 5. The position and polices described in these notes remain materially unchanged to the date of this
preliminary announcement.
The Group has a formalised process of budgeting, reporting and review. The Group's planning procedures forecast its
profitability, capital position, funding requirement and cash flows. Detailed annual plans are produced for two year
periods with longer term forecasts covering a five year period, which include detailed income forecasts. These plans
provide information to the directors which is used to ensure the adequacy of resources available for the Group to meet its
business objectives, both on a short term and strategic basis.
The Group's securitisation funding structures ensure that both a substantial proportion of its originated loan portfolio
and a significant amount of its acquired Idem Capital assets are match-funded. Repayment of the securitisation borrowings
is restricted to funds generated by the underlying assets and there is limited recourse to the Group's general funds.
Recent and current loan originations utilising the Group's available warehouse facilities are refinanced through
securitisation or retail deposits from time to time.
The Group's retail deposits of £3,615.4 million (note 20), accepted through Paragon Bank are repayable within five years,
with 61.3% of this balance (£2,215.7 million) payable within twelve months of the balance sheet date. The liquidity
exposure represented by these deposits is monitored; a process supervised by the Asset and Liability Committee. The Group
is required to hold liquid assets in Paragon Bank to mitigate this liquidity risk. At 30 September 2017 Paragon Bank held
£615.0 million of balance sheet assets for liquidity purposes, in the form of central bank deposits (note 21). A further
£109.0 million of liquidity was provided by the Bank of England FLS, bringing the total to £724.0 million.
Paragon Bank manages its liquidity in line with the Board's risk appetite and the requirements of the PRA, which are
formally documented in the Board's approved Individual Liquidity Adequacy Assessment Process ('ILAAP'). The Bank maintains
a liquidity framework that includes a short to medium term cash flow requirement analysis, a longer term funding plan and
access to the Bank of England's liquidity insurance facilities, where an additional £84.1 million has been pre-positioned.
The earliest maturity of any of the Group's working capital debt is in December 2020, when the oldest of the Group's retail
bond issues matures.
The Group's cash analysis continues to show strong free cash balances, even after allowing for significant discretionary
cash flows, and its securitisation investments produce significant cash flows.
The Group has demonstrated its ability to raise retail and corporate bond debt when required through its Euro Medium Term
Note Programme and other programmes. The Group's access to debt is also enhanced by its corporate BBB- rating, reaffirmed
by Fitch Ratings in the year, and its status as an issuer is evidenced by the BB+ rating of its £150.0m Tier-2 bond issue.
At 30 September 2017, the Group had free cash balances of £305.5 million immediately available for use (note 14).
In order to assess the appropriateness of the going concern basis the directors considered the Group's financial position,
the cash flow requirements laid out in its forecasts, its access to funding, the assumptions underlying the forecasts and
the potential risks affecting them.
After performing this assessment, the directors concluded that it was appropriate for them to continue to adopt the going
concern basis in preparing the Annual Report and Accounts.
4. Fair values of financial assets and financial liabilities
IFRS 7 - 'Financial Instruments: Disclosures' requires that where assets are measured at fair value these measurements
should be classified using a fair value hierarchy reflecting the inputs used, and defines three levels.
· Level 1 measurements are unadjusted market prices
· Level 2 measurements are derived from observable data, such as market prices or rates
· Level 3 measurements rely on significant inputs which are not derived from observable data
As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based,
where possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by
unexpected market movements or other variances in the operation of the models or the assumptions used.
The Group had no financial assets or liabilities in the year ended 30 September 2017 or the year ended 30 September 2016
valued using level 3 measurements.
The Group has not reclassified any of its measurements during the year.
The methods by which fair value is established for each class of financial assets and liabilities is set out below.
a) Assets and liabilities carried at fair value
Derivative financial assets and liabilities
Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to
determine the fair values of its derivative assets and liabilities, for which observable prices in active markets are not
available. These are principally present value calculations based on estimated future cash flows arising from the
instruments, discounted using a risk adjusted interest rate. The principal inputs to these valuation models are LIBOR
benchmark interest rates for the currencies in which the instruments are denominated, sterling, euros and dollars. The
cross currency basis swaps have a notional principal related to the outstanding currency borrowings and therefore the
estimated rate of repayment of these notes also affects the valuation of the swaps. In order to determine the fair values
the management applies valuation adjustments to observed data where that data would not fully reflect the attributes of the
instrument being valued, such as particular contractual features or the identity of the counterparty. The management
reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all relevant
factors. These valuations are based on market information and they are therefore classified as level 2 measurements.
Short term investments
The short term investments described in note 15 are freely traded securities for which a market price quotation is
available and are classified as level 1 measurements.
b) Assets and liabilities carried at amortised cost
Cash, bank loans and securitisation borrowings
The fair values of cash and cash equivalents, bank loans and overdrafts and asset backed loan notes, which are carried at
amortised cost are considered to be not materially different from their book values. In arriving at that conclusion market
inputs have been considered but because all the assets mature within three months of the year end and the interest rates
charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This also applies to
the parent company's loans to its subsidiaries.
While the Group's asset backed loan notes are listed, the quoted prices for an individual note may not be indicative of the
fair value of the issue as a whole, due to the specialised nature of the market in such instruments and the limited number
of investors participating in it and an adjustment is required. As these valuation exercises are not wholly market based
they are considered to be level 2 measurements.
Corporate debt
The Group's retail and corporate bonds are listed on the London Stock Exchange and there is presently a reasonably liquid
market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a
fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement.
Retail deposits
To assess the likely fair value of the Group's retail deposit liabilities, the directors have considered the estimated cash
flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs
such as redemption rates. Given the mixture of observable and non-observable inputs, these are considered to be level 2
measurements.
Loan assets
To assess the likely fair value of the Group's loan assets in the absence of a liquid market, the directors have considered
the estimated cash flows expected to arise from the Group's investments in its loans to customers based on a mixture of
market based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of
observable and non-observable inputs these are considered to be level 2 measurements.
Sundry assets and liabilities
Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be
materially different to their carrying values.
The fair values for financial assets and liabilities held at amortised cost, other than those where carrying values are so
low that any difference would be immaterial, determined in accordance with the methodologies set out above is summarised
below.
2017 2017 2016 2016
Carrying amount Fair Carrying amount Fair
value value
£m £m £m £m
Financial assetsLoans and receivables
Loans to customers 11,124.1 11,191.9 10,737.5 10,754.4
Cash 1,496.9 1,496.9 1,237.6 1,237.6
12,621.0 12,688.8 11,975.1 11,992.0
Financial liabilitiesOther liabilities
Asset backed loan notes 6,475.8 6,475.8 8,374.1 8,374.1
Corporate and retail bonds 444.8 480.4 554.3 573.3
Retail deposits 3,615.4 3,615.1 1,873.9 1,887.2
Secured bank borrowings 1,306.0 1,306.0 1,573.0 1,573.0
11,842.0 11,877.3 12,375.3 12,407.6
5. Capital management
(a) Dividend cover
The Board reviewed its dividend policy following the Group's reorganisation in September 2017, concluding that the changes
made would make the Group's use of working capital more efficient and that there was, therefore, less need to retain
earnings to support future growth. It therefore determined that the targeted dividend cover ratio (on the basis set out
below) would be reduced from 3.00 times, initially to 2.75 times for the current year and then to 2.50 times. The Company
considers it has access to sufficient cash resources to pay dividends at this level and that its distributable reserves are
abundant for this purpose.
For the purposes of dividend policy, the Group defines dividend cover based on earnings and dividend per share. This is the
most common measure used by financial analysts. The expected level of dividend cover in respect of the year, subject to the
approval of the final dividend at the Annual General Meeting, is shown below.
Note 2017 2016
Earnings per share (p) 13 43.1 40.5
Proposed dividend per share in respect of the year (p) 26 15.7 13.5
Dividend cover (times) 2.75 3.00
(b) Return on tangible equity ('RoTE')
RoTE is a measure of an entity's profitability used by investors. RoTE is defined by the Group by comparing the profit
after tax for the year, adjusted for amortisation charged on intangible assets, to the average of the opening and closing
equity positions, excluding intangible assets and goodwill.
The Group's consolidated RoTE for the year ended 30 September 2017 is derived as follows:
Note 2017 2016
£m £m
Profit for the year 117.1 116.0
Amortisation of intangible assets 1.6 1.6
Adjusted profit 118.7 117.6
Divided by
Opening equity 969.5 969.5
Opening intangible assets 19 (105.4) (7.7)
Opening tangible equity 864.1 961.8
Closing equity 1,009.4 969.5
Closing intangible assets 19 (104.4) (105.4)
Closing tangible equity 905.0 864.1
Average tangible equity 884.5 913.0
Return on Tangible Equity 13.4% 12.9%
This table is not subject to audit
(c) Gearing
The Board of Directors regularly review the proportion of working capital represented by debt and equity. Net debt is
calculated as total debt, other than securitised and warehouse debt, valued at principal value, less free cash up to a
maximum of the total debt. Adjusted equity comprises all components of equity (share capital, share premium, capital
redemption reserve, retained earnings, and revaluation surplus) other than amounts recognised in equity relating to cash
flow hedges.
The debt and equity amounts at 30 September 2017 and at 30 September 2016 were as follows:
Note 2017 2016
£m £m
Debt
Corporate bonds 150.0 260.0
Retail bonds 297.5 297.5
Bank overdraft 0.6 1.2
Less: Applicable free cash 14 (305.5) (383.1)
Net debt 142.6 175.6
Equity
Total equity 1,009.4 969.5
Less: cash flow hedging reserve (2.5) (2.1)
Adjusted equity 1,006.9 967.4
Total working capital 1,149.5 1,143.0
Debt 12.4% 15.4%
Equity 87.6% 84.6%
Total working capital 100.0% 100.0%
The movements in the proportion of working capital represented by debt and equity during the year ended 30 September 2017,
including the scheduled repayment of the £110.0m corporate bond in the year, resulted primarily from the operation of the
policy described above.
Regulatory capital
The Group is subject to supervision by the PRA on a consolidated basis, as a group containing an authorised bank. As part
of this supervision the regulator will issue individual capital guidance setting an amount of regulatory capital, defined
under the international Basel III rules, implemented through the Capital Requirements Regulation and Directive ('CRD IV'),
which the Group is required to hold relative to its risk weighted assets in order to safeguard depositors against the risk
of losses being incurred by the Group.
The Group's regulatory capital is monitored by the Board of Directors, its Risk and Compliance Committee and the Asset and
Liability Committee, who ensure that appropriate action is taken to ensure compliance with the regulator's requirements.
The future regulatory capital requirement is also considered as part of the Group's forecasting and strategic planning
process.
The tables below demonstrate that at 30 September 2017 the Group's regulatory capital of £1,030.5m (2016: £1,005.6m) was
comfortably in excess of that required by the regulator.
The Group's regulatory capital differs from its equity as certain adjustments are required by the regulator. A
reconciliation of the Group's equity to its regulatory capital determined in accordance with CRD IV at 30 September 2017 is
set out below.
Note 2017 2016
£m £m
Total equity 1,009.4 969.5
Deductions
Proposed final dividend 26 (28.9) (25.5)
Intangible assets 19 (104.4) (105.4)
Common Equity Tier 1 ('CET1') capital 876.1 838.6
Other tier 1 capital - -
Total Tier 1 capital 876.1 838.6
Corporate bond 150.0 260.0
Less: amortisation adjustment † - (97.8)
150.0 162.2
Collectively assessed credit impairment allowances 4.4 4.8
Total Tier 2 capital 154.4 167.0
Total regulatory capital 1,030.5 1,005.6
† When tier 2 capital instruments have less than five years to maturity the amount eligible as regulatory capital
reduces by 20% per annum. As the Group's £110.0m Corporate Bond matured in 2017, this adjustment was required in respect of
this instrument at 30 September 2016. No such adjustment is required in respect of the Corporate Bond issued in the year
ended 30 September 2016, which matures in 2026.
The total exposure amount calculated under the CRD IV framework against which this capital is held, and the proportion of
these assets it represents, are calculated as shown below.
2017 2016
£m £m
Credit risk
Balance sheet assets 4,907.7 4,728.4
Off balance sheet 68.3 51.5
Total credit risk 4,976.0 4,779.9
Operational risk 464.9 445.7
Market risk - -
Other 67.8 61.9
Total exposure amount 5,508.7 5,287.5
% %
Solvency ratios
CET1 15.9 15.9
Total regulatory capital 18.7 19.0
This table is not subject to Audit
The table below shows the calculation of the UK leverage ratio, based on the consolidated balance sheet assets adjusted as
shown. The PRA has proposed a minimum UK leverage ratio of 3.258% for UK firms.
Note 2017 2016
£m £m
Total balance sheet assets 13,682.2 13,518.4
Less: Derivative assets 18 (906.6) (1,366.4)
Central bank deposits 14 (615.0) (315.0)
CRDs (1.6) (0.6)
On-balance sheet items 12,159.0 11,836.4
Less: Intangible assets 19 (104.4) (105.4)
Total on balance sheet exposures 12,054.6 11,731.0
Derivative assets 18 906.6 1,366.4
Potential future exposure on derivatives 191.3 68.6
Total derivative exposures 1,097.9 1,435.0
Post offer pipeline at gross notional amount 417.9 273.8
Adjustment to convert to credit equivalent amounts (208.9) (136.9)
Off balance sheet items 209.0 136.9
Tier 1 capital 876.1 838.6
Total leverage exposure 13,361.5 13,302.9
UK leverage ratio 6.6% 6.3%
This table is not subject to audit
This leverage ratio is prescribed by the PRA and differs from the Basel and the CRR ratio due to the exclusion of central
bank deposits from exposures.
6. Credit risk
The Group's business objectives rely on maintaining a high-quality customer base and place strong emphasis on good credit
management, both at the time of acquiring or underwriting a new loan, where strict lending criteria are applied, and
throughout the loan's life.
The Group's credit risk is primarily attributable to its loans to customers. There are no significant concentrations of
credit risk to individual counterparties due to the large number of customers included in the portfolios.
The Group's loan assets at 30 September 2017 are analysed as follows:
2017 2017 2016 2016
£m % £m %
Buy-to-let mortgages 9,836.5 88.4% 9,621.2 89.6%
Owner occupied mortgages 19.0 0.2% 19.4 0.2%
Total first residential mortgages 9,855.5 88.6% 9,640.6 89.8%
Second charge mortgage loans 490.7 4.4% 526.8 4.9%
Loans secured on residential property 10,346.2 93.0% 10,167.4 94.7%
Development finance 42.3 0.4% 9.1 0.1%
Commercial mortgages 2.7 - 2.9 -
Loans secured on property 10,391.2 93.4% 10,179.4 94.8%
Motor finance loans 163.0 1.5% 95.3 0.9%
Other consumer loans 219.1 2.0% 195.1 1.8%
Asset finance loans 325.0 2.9% 250.4 2.3%
Factoring and discounting balances 23.8 0.2% 16.9 0.2%
Other loans 2.0 - 0.4 -
Total loans to customers 11,124.1 100.0% 10,737.5 100.0%
An analysis of the indexed loan to value ratio ('LTV') for those loan accounts secured on property by value at 30 September
2017 is set out below. For acquired accounts the effect of any discount on purchase is allowed for.
2017 2017 2016 2016
First Mortgages Secured Loans First Mortgages Secured Loans
% % % %
Loan to value ratio
Less than 70% 62.1 56.7 60.7 50.9
70% to 80% 25.0 17.5 23.4 17.8
80% to 90% 9.5 11.5 11.3 13.0
90% to 100% 1.3 7.1 2.2 8.9
Over 100% 2.1 7.2 2.4 9.4
100.0 100.0 100.0 100.0
Average loan to value ratio 66.3 70.0 67.1 72.7
Of which:
Buy-to-let 66.4 67.2
Owner-occupied 30.9 27.5
The regionally indexed LTVs shown above are affected by changes in house prices, with the Nationwide house price index, for
the UK as a whole, registering an annual increase of 2.0% in the year ended 30 September 2017 (2016: 5.3%).
The number of accounts in arrears by asset class, based on the most commonly quoted definition of arrears for the type of
asset, at 30 September 2017 and 30 September 2016, compared to the industry averages at those dates published by UK Finance
(formerly the CML) ('UKF') and the FLA, was:
2017 2016
% %
First mortgages
Accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases 0.08 0.11
Buy-to-let accounts excluding receiver of rent cases 0.02 0.02
Owner-occupied accounts 3.55 3.23
UKF data for mortgage accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases 0.45 0.52
Buy-to-let accounts excluding receiver of rent cases 0.41 0.47
Owner-occupied accounts 0.95 1.03
All mortgages 0.86 0.94
Second charge mortgage loans
Accounts more than 2 months in arrears
All accounts 17.55 17.15
Post-2010 originations 0.06 0.00
Legacy cases 16.75 16.33
Purchased assets 19.69 17.86
FLA data for secured loans 10.70 12.40
Car loans
Accounts more than 2 months in arrears 0.67 0.30
FLA data for point of sale hire purchase 1.70 1.50
Asset finance loans
Accounts more than 2 months in arrears 0.97 0.82
FLA data for business lease / hire purchase loans 0.60 0.60
Other loans
Accounts more than 2 months in arrears 96.03 96.35
No published industry data for asset classes comparable to the Group's other books has been identified. Where revised data
at 30 September 2016 has been published by the FLA or UKF, the comparative industry figures above have been amended.
Arrears information is not given for development finance or factoring activities as the structure of the products means
that such a measure is not relevant.
The Group calculates its headline arrears measure for buy-to-let mortgages, shown above, based on the numbers of accounts
three months or more in arrears, including purchased Idem Capital assets, but excluding those cases in possession and
receiver of rent cases designated for sale. This is consistent with the methodology used by the UKF in compiling its
statistics for the buy-to-let mortgage market as a whole.
The number of accounts in arrears will be higher for legacy books than for comparable active ones, as performing accounts
pay off their balances, leaving arrears accounts representing a greater proportion of the total.
The figures shown above for secured loans and other loans include purchased portfolios which generally include a high
proportion of cases in arrears at the time of purchase and where this level of performance is allowed for in the discount
to current balance represented by the purchase price.
The payment status of the carrying balances of the Group's live loan assets, before provision for impairment, at 30
September 2017 and at 30 September 2016 split between those accounts considered as performing and those included in the
population for impairment testing, is shown below. Balances for immaterial asset classes are not shown. Asset finance loans
below includes other related loan balances. Fully provided non-live accounts are excluded from the tables below
Days past due is not a relevant measure for the development finance or invoice discounting businesses, due to their
particular contractual arrangements.
First Mortgages
2017 2016
£m £m
Not past due 9,724.2 9,528.1
Arrears less than 3 months 112.6 82.1
Performing accounts 9,836.8 9,610.2
Arrears 3 to 6 months 1.1 2.4
Arrears 6 to 12 months 1.9 2.8
Arrears over 12 months 7.7 11.0
Possessions and similar cases 22.5 31.1
Impairment population 33.2 47.3
Total gross balances 9,870.0 9,657.5
Impairment provision on live cases (12.7) (16.4)
Timing adjustments (1.8) (0.5)
Carrying balance 9,855.5 9,640.6
Consumer and Asset Finance
Second charge mortgage loans Car loans Asset finance loans Total
£m £m £m £m
30 September 2017
Not past due 400.8 158.0 315.3 874.1
Arrears less than 2 months 20.5 5.0 10.0 35.5
Performing accounts 421.3 163.0 325.3 909.6
Arrears 2 to 6 months 14.9 0.7 0.5 16.1
Arrears 6 to 9 months 7.1 0.2 0.7 8.0
Arrears 9 to 12 months 5.4 0.1 - 5.5
Arrears over 12 months 46.2 0.3 0.1 46.6
Specifically impaired asset finance cases - - 2.7 2.7
Impairment population 73.6 1.3 4.0 78.9
Total gross balances 494.9 164.3 329.3 988.5
Impairment provision on live cases (2.1) (1.2) (3.1) (6.4)
Timing adjustments (2.1) (0.1) (1.2) (3.4)
Carrying balance 490.7 163.0 325.0 978.7
30 September 2016
Not past due 415.0 92.7 251.6 759.3
Arrears less than 2 months 33.3 3.0 1.5 37.8
Performing accounts 448.3 95.7 253.1 797.1
Arrears 2 to 6 months 20.3 0.2 1.0 21.5
Arrears 6 to 9 months 8.3 - 0.3 8.6
Arrears 9 to 12 months 7.4 - - 7.4
Arrears over 12 months 51.0 0.2 0.4 51.6
Specifically impaired asset finance cases - - 3.3 3.3
Impairment population 87.0 0.4 5.0 92.4
Total gross balances 535.3 96.1 258.1 889.5
Impairment provision on live cases (3.4) (0.6) (0.5) (4.5)
Timing adjustments (5.1) (0.2) (3.9) (9.2)
Carrying balance 526.8 95.3 253.7 875.8
Arrears in the tables above are based on the contractual payment status of the customers concerned. Where assets have been
purchased by the Idem Capital loan investment business, customers may already have been in arrears at the time of
acquisition and an appropriate adjustment made to the consideration paid.
In the debt purchase industry, ERC is commonly used as a measure of the value of a portfolio. This is defined as the sum of
the undiscounted cash flows expected to be received over a specified future period. In the Group's view, this measure may
be suitable for heavily discounted, unsecured, distressed portfolios, but is less applicable for the types of portfolio in
which the Group has invested, where cash flows are higher on acquisition, loans may be secured on property and customers
may not be in default. In such cases, the IAS 39 amortised cost balance, at which these assets are carried in the Group
balance sheet, provides a better indication of value.
However, to aid comparability the 84 and 120 month ERC values for the Group's purchased assets, are set out below. These
are derived using the same models and assumptions used in the EIR calculations, but the differing bases of calculation lead
to different outcomes.
2017 2017 2017 2016 2016 2016
Carrying value 84 month ERC 120 month ERC Carrying value 84 month ERC 120 month ERC
£m £m £m £m £m £m
Loans to customers 503.5 608.9 688.8 533.9 651.3 740.7
Amounts shown as loans to customers above include loans disclosed as first mortgages and other loans (note 16).
7. Acqusitions
During the year ended 30 September 2016, the Group acquired two businesses, Paragon Asset Finance ('PAF') on 3 November
2015 and Premier Asset Finance ('Premier') on 30 September 2016.
No adjustments have been made in the year to the fair values at acquisition for PAF reported in the financial statements
for the year ended 30 September 2016 and these values are now therefore final.
Following the agreement of the completion accounts for Premier during the year the cash consideration payable was reduced
by £0.3m and the goodwill balance has been adjusted accordingly. No other fair value balances at acquisition have been
revised.
8. SEGMENTAL INFORMATION
Following the reorganisation announced in the year, the Group now analyses its operations, both for internal management
reporting and external financial reporting, on the basis of the markets from which its assets are generated. The segments
used are described below:
· Mortgages, including the Group's buy-to-let, and owner-occupied first and second charge lending and related
activities
· Commercial Lending, including the Group's motor finance and other equipment leasing activities, together with other
offerings targeted towards SME customers
· Idem Capital, including loan assets acquired from third parties and legacy assets which share certain credit
characteristics with them
Dedicated financing and administration costs of each of these businesses are allocated to the segment. Shared central costs
are not allocated between segments, nor is income from central cash balances or the carrying cost of unallocated savings
balances.
Loans to customers and operating lease assets are allocated to segments as are dedicated securitisation funding
arrangements and their related cross currency basis swaps and cash balances.
Retail deposits and their related costs are allocated to the segments based on the utilisation of those deposits. Retail
deposits raised in advance of lending are not allocated.
Other assets and liabilities are not allocated between segments.
The costs arising in the year ended 30 September 2016 from the PAF and Premier acquisitions of £3.1m have not been
allocated, as they are not directly related to customer financing activity.
All of the Group's operations are conducted in the UK, all revenues arise from external customers and there are no
inter-segment revenues. No customer contributes more than 10% of the revenue of the Group.
Financial information about these business segments, prepared on the same basis as used in the consolidated accounts of the
Group, is shown below.
Year ended 30 September 2017
Mortgages Commercial Lending IdemCapital Total Segments
£m £m £m £m
Interest receivable 274.7 33.8 98.9 407.4
Interest payable (123.6) (10.6) (11.4) (145.6)
Net interest income 151.1 23.2 87.5 261.8
Other operating income 9.6 9.9 0.7 20.2
Total operating income 160.7 33.1 88.2 282.0
Direct costs (13.7) (18.9) (10.8) (43.4)
Provisions for losses (3.7) (0.1) (1.5) (5.3)
143.3 14.1 75.9 233.3
Year ended 30 September 2016
Mortgages Commercial Lending IdemCapital Total Segments
£m £m £m £m
Interest receivable 282.2 25.9 101.0 409.1
Interest payable (139.5) (8.3) (13.2) (161.0)
Net interest income 142.7 17.6 87.8 248.1
Other operating income 7.7 8.4 4.7 20.8
Total operating income 150.4 26.0 92.5 268.9
Direct costs (12.4) (16.2) (11.4) (40.0)
Provisions for losses (4.8) (0.8) (2.1) (7.7)
133.2 9.0 79.0 221.2
The assets and liabilities attributable to each of the segments at 30 September 2017 and 30 September 2016 on the basis
described above were:
Mortgages Commercial Lending IdemCapital Total Segments
£m £m £m £m
30 September 2017
Assets
Loans to customers 9,953.9 558.8 611.4 11,124.1
Operating lease assets - 23.4 - 23.4
Cross currency basis swaps 896.3 - - 896.3
Securitisation Cash 543.0 - 31.0 574.0
11,393.2 582.2 642.4 12,617.8
Segment liabilities
Allocated deposits 3,401.2 686.9 249.8 4,337.9
Securitisation funding 7,597.1 - 184.7 7,781.8
10,998.3 686.9 434.5 12,119.7
Mortgages Commercial Lending IdemCapital Total Segments
£m £m £m £m
30 September 2016
Assets
Loans to customers 9,694.7 375.0 667.8 10,737.5
Operating lease assets - 16.0 - 16.0
Cross currency basis swaps 1,364.8 - - 1,364.8
Securitisation Cash 460.3 - 76.8 537.1
11,519.8 391.0 744.6 12,655.4
Segment liabilities
Allocated deposits 1,091.1 494.9 254.6 1,840.6
Securitisation funding 9,668.6 - 278.5 9,947.1
10,759.7 494.9 533.1 11,787.7
An analysis of the Group's financial assets by type and segment is shown in note 16. All of the assets shown above were
located in the UK.
The additions to non-current assets, excluding financial assets, in the year which are included in segmental assets above
are investments of £12.9m (2016: £8.7m) in assets held for leasing under operating leases, included in the Commercial
Lending segment. All other such additions were not allocated to segments.
The segmental assets and liabilities may be reconciled to the consolidated balance sheet as shown below.
2017 2016
£m £m
Total segment assets 12,617.8 12,655.4
Unallocated assets
Central cash and investments 922.9 707.6
Unallocated derivatives 10.3 1.6
Operational property, plant and equipment 22.8 23.2
Intangible assets 104.4 105.4
Other 4.0 25.2
Total assets 13,682.2 13,518.4
2017 2016
£m £m
Total segment liabilities 12,119.7 11,787.7
Unallocated liabilities
Unallocated retail deposits (722.5) 33.3
Derivative financial instruments 7.1 15.8
Central borrowings 1,145.4 555.5
Tax liabilities 22.3 18.7
Retirement benefit obligations 29.8 58.4
Other 71.1 79.5
Total liabilities 12,672.9 12,548.9
9. Interest receivable
2017 2016
£m £m
Interest receivable in respect of
Loans and receivables 375.1 377.8
Finance leases 28.8 22.6
Factoring income 2.2 3.0
Interest on loans to customers 406.1 403.4
Other interest receivable 3.1 5.6
Income from structured entities - 2.4
Total interest on financial assets 409.2 411.4
10. Interest payable and similar charges
Note 2017 2016
£m £m
On retail deposits 47.9 29.5
On asset backed loan notes 70.2 103.4
On corporate bonds 13.1 4.8
On retail bonds 18.6 18.5
On central bank facilities 1.1 -
On bank loans and overdrafts 22.7 29.7
Total interest on financial liabilities 173.6 185.9
On pension scheme deficit 22 1.3 0.8
Discounting on contingent consideration 0.3 -
Other finance costs 1.4 1.5
176.6 188.2
11. OTHER INCOME
2017 2016
£m £m
Loan account fee income 9.0 7.7
Broker commissions 3.6 1.3
Third party servicing 3.3 7.4
Other income 1.3 1.4
17.2 17.8
12. FAIR VALUE NET (losses)
The fair value net (loss) represents the accounting volatility on derivative instruments which are matching risk exposure
on an economic basis generated by the requirements of IAS 39. Some accounting volatility arises on these items due to
accounting ineffectiveness on designated hedges, or because hedge accounting has not been adopted or is not achievable on
certain items. The losses are primarily due to timing differences in income recognition between the derivative instruments
and the economically hedged assets and liabilities. Such differences will reverse over time and have no impact on the cash
flows of the Group.
13. Earnings per share
Earnings per ordinary share is calculated as follows:
2017 2016
Profit for the year (£m) 117.2 116.0
Basic weighted average number of ordinary shares ranking for dividend during the year (million) 271.6 286.5
Dilutive effect of the weighted average number of share options and incentive plans in issueduring the year (million) 8.0 5.5
Diluted weighted average number of ordinary shares ranking for dividend during the year (million) 279.6 292.0
Earnings per ordinary share - basic 43.1p 40.5p
- diluted 41.9p 39.7p
14. Cash and CASH EQUIVALENTS
2017 2016 2015
£m £m £m
Balances with central banks 615.0 315.0 286.0
Balances with other banks 881.9 922.6 770.0
1,496.9 1,237.6 1,056.0
Only 'Free Cash' is unrestrictedly available for the Group's general purposes. Cash received in respect of loan assets
funded through warehouse facilities and securitisations is not immediately available, due to the terms of those
arrangements.
Balances with central banks form part of the liquidity buffer of Paragon Bank PLC and are therefore not available for the
Group's general purposes.
Cash held by the Trustees of the Paragon Employee Share Ownership Plans may only be used to invest in the shares of the
Company, pursuant to the aims of those plans.
The total consolidated 'Cash and Cash Equivalents' balance may be analysed as shown below:
2017 2016 2015
£m £m £m
Free cash 305.5 383.1 237.2
Securitisation cash 574.0 537.1 530.9
- More to follow, for following part double click ID:nRSW2948XdRecent news on Paragon Banking
See all newsREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
Announcement