Shares of Paragon Bank hit a 17-year high as the lender posted huge profits
- Solihull-based lender’s pre-tax profit rose 138.6% to £110.6m
- Paragon plans to pay investors an interim dividend of 13.2 pence per share
Paragon Banking Group shares rose to the highest level since 2007 after the company reported huge half-year profits and raised its expectations.
The Solihull-based lender’s pre-tax profit rose 138.6 per cent to £110.6 million in the six months ended March, due to lower fair value reversals.
Underlying profit rose 13.5 percent to £146.3 million, beating analyst expectations of £140 million, thanks to cost control measures, rising margins and lending volumes.
Rising profits: Paragon Banking Group revealed pre-tax profits rose 138.6 percent to £110.6 million in the six months ending March
Paragon’s net interest margin – the difference between what banks charge borrowers and what savers pay – grew 24 basis points year-over-year to 319 points.
The FTSE 250 bank now expects its full-year NIM to exceed 3.1 percent, above the top end of initial guidance.
At the same time, the bank expects mortgage and commercial lending to be near the high end of previous forecasts, with the former at £1.4 billion to £1.6 billion respectively and the latter between £1.1 billion and £1.2 billion.
New mortgage lending fell by more than a third over the half-year to £649.3 million, as higher interest rates put more Britons off buying homes.
Yet total operating income still rose 12 percent to £246.6 million, while retail deposits rose by almost a quarter to £14.8 billion.
The Bank of England has raised Britain’s key interest rate 14 times in a row from late 2021 to summer 2023 in response to rising inflation due to escalating energy prices and the easing of Covid-related restrictions.
The banks therefore increased the interest on home loans faster than the interest on savings accounts, which earned them a significant windfall.
Shares in Paragon rose 8 per cent to £8.34 just after 8am on Wednesday, before rising 2.1 per cent to £7.86 around midday.
Nigel Terrerington, former chief executive of Paragon, said the company had “continued to deliver strong operational and financial performance”.
Terrington added: ‘The strength of our business model, long-term track record and improving customer sentiment mean the group is well placed to continue to support our customers’ ambitions.’
Following the latest trading update, Paragon plans to pay investors an interim dividend of 13.2 pence per share, a 20 percent increase on last year, and buy a further £50 million worth of shares.
This means that the company, founded in 1985 as the National Home Loans Corporation, will have returned more than £1 billion to shareholders over the past nine years.