REG - Paragon Grp Co PLC - Final Results <Origin Href="QuoteRef">PARA.L</Origin> - Part 3
23/11/2016 07:06
- Part 3: For the preceding part double click ID:nRSW8891Pb
financial year ended 30 September 2016. The Group has
stated its intention to operate a progressive dividend policy, maintaining the three times cover ratio going forward. The
Group considers that it has sufficient cash resources available to pay dividends at this level, and that the parent company
has abundant distributable reserves for this purpose.
The most common measure of dividend cover used by financial analysts is based on earnings and dividend per share. The Group
has confirmed that its dividend cover target will be based on this calculation. The expected level of dividend cover on
this basis in respect of the year, subject to the approval of the final dividend at the Annual General Meeting, is shown
below.
Note 2016 2015
Earnings per share (p) 40.5 35.5
Proposed dividend per share in respect of the year (p) 20 13.5 11.0
Dividend cover (times) 3.0 3.2
(b) Return on tangible equity
Return on tangible equity ('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 2016 is derived as follows
Note 2016 2015
£m £m
Profit for the year 116.0 107.1
Amortisation of intangible assets 1.6 1.4
Adjusted profit 117.6 108.5
Divided by
Opening equity 969.5 947.1
Opening intangible assets 12 (7.7) (7.9)
Opening tangible equity 961.8 939.2
Closing equity 969.5 969.5
Closing intangible assets 12 (105.4) (7.7)
Closing tangible equity 864.1 961.8
Average tangible equity 913.0 950.5
Return on Tangible Equity 12.9% 11.4%
This table is not subject to audit
(c) 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.
At 30 September 2016 the Group's regulatory capital of £1,005.6m (2015: £976.3m) 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 2016 is
set out below.
Note 2016 2015
£m £m
Total equity 969.5 969.5
Deductions
Proposed final dividend 20 (25.5) (21.8)
Intangible assets 12 (105.4) (7.7)
Deferred tax adjustment * - (0.3)
Common Equity Tier 1 ('CET1') capital 838.6 939.7
Other tier 1 capital - -
Total Tier 1 capital 838.6 939.7
Corporate bond 23 260.0 110.0
Less: amortisation adjustment † (97.8) (75.8)
162.2 34.2
Collectively assessed credit impairment allowances 4.8 2.4
Total Tier 2 capital 167.0 36.6
Total regulatory capital 1,005.6 976.3
* Deferred tax assets in subsidiary companies are required to be deducted from regulatory capital. This balance is
offset against the deferred tax liability in the consolidated accounts.
† 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 matures in 2017, this adjustment is required in respect of
this instrument. No such adjustment is required in respect of the Corporate Bond issued in the year, 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.
2016 2015
£m £m
Credit risk
Balance sheet assets 4,728.4 4,426.8
Off balance sheet 51.5 88.7
Total credit risk 4,779.9 4,515.5
Operational risk 445.7 363.6
Market risk - -
Other 61.9 50.2
Total exposure amount 5,287.5 4,929.3
% %
Solvency ratios
CET1 15.9 19.1
Total regulatory capital 19.0 19.8
This table is not subject to audit
The CRD IV risk weightings for credit risk exposures are calculated using the Standardised Approach, while the Basic
Indicator Approach for operational risk is used.
The table below shows the calculation of the leverage ratio, based on the consolidated balance sheet assets adjusted as
shown below. The PRA has set a minimum leverage ratio of 3.0% for UK firms.
Note 2016 2015
£m £m
Total balance sheet assets 13,518.4 11,878.9
Less: Derivative assets 15 (1,366.4) (660.1)
On-balance sheet items 12,152.0 11,218.8
Less: Intangible assets 12 (105.4) (7.7)
Total on balance sheet exposures 12,046.6 11,211.1
Derivative assets 15 1,366.4 660.1
Potential future exposure on derivatives 68.6 69.1
Total derivative exposures 1,435.0 729.2
Post offer pipeline at gross notional amount 273.8 482.3
Adjustment to convert to credit equivalent amounts (136.9) (241.1)
Off balance sheet items 136.9 241.2
Tier 1 capital 838.6 939.7
Total leverage exposure 13,618.5 12,181.5
Basel III leverage ratio 6.2% 7.7%
This table is not subject to audit
4. 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 2016 are analysed as follows:
2016 2016 2015 2015
£m % £m %
Buy-to-let mortgages 9,621.2 89.6% 9,363.2 93.0%
Owner occupied mortgages 19.4 0.2% 47.6 0.5%
Total first residential mortgages 9,640.6 89.8% 9,410.8 93.5%
Secured loans 526.8 4.9% 387.1 3.9%
Loans secured on residential property 10,167.4 94.7% 9,797.9 97.4%
Development Finance 9.1 0.1% - -
Commercial Mortgages 2.9 - - -
Loans secured on property 10,179.4 94.8% 9,797.9 97.4%
Car loans 95.3 0.9% 43.4 0.4%
Retail finance loans 0.2 - 0.2 -
Other consumer loans 194.9 1.8% 220.9 2.2%
Asset finance loans 250.4 2.3% - -
Factoring and discounting balances 16.9 0.2% - -
Other loans 0.4 - - -
Total loans to customers 10,737.5 100.0% 10,062.4 100.0%
Other loans include unsecured loans either advanced by Group companies or acquired from their originators at a discount.
An analysis of the indexed loan to value ratio ('LTV') for those loan accounts secured on property by value at 30 September
2016 is set out below. For acquired accounts the effect of any discount on purchase is allowed for.
2016 2016 2015 2015
First Mortgages Secured Loans First Mortgages Secured Loans
% % % %
Loan to value ratio
Less than 70% 60.7 50.9 51.9 33.7
70% to 80% 23.4 17.8 27.6 16.3
80% to 90% 11.3 13.0 12.8 16.7
90% to 100% 2.2 8.9 4.9 13.5
Over 100% 2.4 9.4 2.8 19.8
100.0 100.0 100.0 100.0
Average loan to value ratio 67.1 72.7 69.5 80.9
Buy-to-let 67.2 69.7
Owner-occupied 27.5 28.8
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 5.3% in the year ended 30 September 2016 (2015: 3.8%).
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 2016 and 30 September 2015, compared to the industry averages at those dates published by the
Council of Mortgage Lenders ('CML') and the Finance and Leasing Association ('FLA'), was:
2016 2015
% %
First mortgages
Accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases 0.11 0.19
Buy-to-let accounts excluding receiver of rent cases 0.02 0.04
Owner-occupied accounts 3.23 3.55
CML data for mortgage accounts more than three months in arrears
Buy-to-let accounts including receiver of rent cases 0.55 0.66
Buy-to-let accounts excluding receiver of rent cases 0.50 0.60
Owner-occupied accounts 1.11 1.27
All mortgages 1.01 1.17
Secured loans
Accounts more than 2 months in arrears 17.15 19.56
FLA data for secured loans 12.50 15.40
Car loans
Accounts more than 2 months in arrears 0.30 0.67
FLA data for point of sale hire purchase 1.50 1.20
Asset finance loans
Accounts more than 2 months in arrears 0.82 -
FLA data for business lease / hire purchase loans 0.70 0.80
Other loans
Accounts more than 2 months in arrears 96.35 94.66
No published industry data for asset classes comparable to the Group's other books has been identified. Where revised data
at 30 September 2015 has been published by the FLA or CML, the comparative industry figures above have been amended.
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 CML in compiling its
statistics for the buy-to-let mortgage market as a whole.
The number of accounts in arrears will be higher for closed books such as the owner-occupied mortgage book and the retail
finance and unsecured loan books than for comparable active ones, as performing accounts pay off their balances, leaving
arrears accounts representing a greater proportion of the total.
The improvement in the arrears position for car loans shown above is due to the recommencement of lending in this market,
through Paragon Bank, with the new performing cases reducing the overall average.
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 2016 and at 30 September 2015 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
2016 2015
£m £m
Not past due 9,528.1 9,274.0
Arrears less than 3 months 82.1 100.8
Performing accounts 9,610.2 9,374.8
Arrears 3 to 6 months 2.4 4.6
Arrears 6 to 12 months 2.8 4.1
Arrears over 12 months 11.0 15.8
Possessions and similar cases 31.1 28.8
Impairment population 47.3 53.3
Total gross balances 9,657.5 9,428.1
Impairment provision on live cases (16.4) (15.3)
Timing adjustments (0.5) (2.0)
Carrying balance 9,640.6 9,410.8
Consumer and Asset Finance
Secured loans Car loans Asset finance loans Total
£m £m £m £m
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
30 September 2015
Not past due 265.2 43.3 - 308.5
Arrears less than 2 months 25.7 0.2 - 25.9
Performing accounts 290.9 43.5 - 334.4
Arrears 2 to 6 months 20.2 - - 20.2
Arrears 6 to 9 months 8.9 - - 8.9
Arrears 9 to 12 months 7.4 - - 7.4
Arrears over 12 months 63.5 0.4 - 63.9
Specifically impaired asset finance cases - - - -
Impairment population 100.0 0.4 - 100.4
Total gross balances 390.9 43.9 - 434.8
Impairment provision on live cases (5.4) (0.5) - (5.9)
Timing adjustments 1.6 - - 1.6
Carrying balance 387.1 43.4 - 430.5
Other Loans
2016 2015
£m £m
Not past due 4.1 6.7
Arrears less than 1 month 0.3 0.5
Performing accounts 4.4 7.2
Arrears 1 to 3 months 0.4 0.5
Arrears 3 to 6 months 0.7 0.9
Arrears 6 to 12 months 2.3 2.7
Arrears over 12 months 203.5 226.5
Impairment population 206.9 230.6
Total gross balances 211.3 237.8
Impairment provision (16.4) (16.9)
Timing adjustments - -
Carrying balance 194.9 220.9
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, Estimated Remaining Collections ('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 included in the Idem Capital
division, are set out below, analysed by the balance sheet line on which they appear. These are derived using the same
models and assumptions used in the EIR calculations, but the differing bases of calculation lead to different outcomes.
2016 2016 2016 2015 2015 2015
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
Idem Capital 283.3 398.4 454.3 432.9 555.1 647.3
Paragon Bank 250.6 252.9 286.4 - - -
Loans to customers 533.9 651.3 740.7 432.9 555.1 647.3
Investments in structured entities - - - 18.1 25.7 30.4
533.9 651.3 740.7 451.0 580.8 677.7
Amounts shown as loans to customers above include loans disclosed as first mortgages and other loans (note 13).
5. ACQUISITIONS
The Group acquired two businesses in the year ended 30 September 2016. Paragon Bank Asset Finance Limited ('PBAF') was
acquired on 3 November 2015 and Premier Asset Finance Limited ('Premier') was acquired on 30 September 2016. The
disclosures required by IFRS 3 - 'Business Combinations' in respect of these acquisitions are given in notes 6 and 7.
Amounts shown in other notes in respect of these acquisitions are analysed as shown below.
PBAF Premier Total
Note Note 6 Note 7
£m £m £m
Goodwill arising on acquisition 12 79.1 17.7 96.8
Intangible assets acquired 12 1.0 0.1 1.1
Property, plant and machinery acquired 12.4 - 12.4
Loans to customers acquired 221.7 - 221.7
Deferred tax balances at acquisition 3.5 - 3.5
Cash flows on acquisition 305.3 4.8 310.1
Acquisition related costs 2.8 0.3 3.1
Had both acquisitions taken place on 1 October 2015, the consolidated revenue of the Group for the year ended 30 September
2016 would have been £448.8m and its consolidated profit before tax for the period would have been £145.2m.
6. Acqusition of paragon bank asset finance
On 3 November 2015 the Group acquired the entire share capital of Paragon Bank Asset Finance Limited (formerly Five Arrows
Leasing Group Limited) from Rothschild & Co. PBAF is the parent company of a group of companies ('PBAF Group') providing a
range of asset finance products to UK SMEs, including equipment, vehicle and construction equipment finance and is also a
provider of lease servicing. The acquisition allows the Group to diversify its range of both products and the markets it
serves within the financial services sector.
The Group acquired 100% of the voting equity interests in PBAF and the consideration was satisfied entirely in cash. Cash
transferred on completion was £308.2m, £117.0m in respect of equity and £191.2m to settle existing debt owed by PBAF Group
to the vendor. There are no contingent consideration arrangements. Transaction costs of £1.7m have been included in
operating expenses for the year ended 30 September 2016.
The principal operating companies of the PBAF Group are listed below.
Paragon Bank Asset Finance Limited (Five Arrows Leasing Group Limited at acquisition) Holding company and portfolio administration
Dash Commercial Finance Limited Asset finance
Paragon Bank Business Finance PLC (Five Arrows Business Finance PLC at acquisition) Asset finance
Paragon Bank Technology Finance Limited(Five Arrows Media Finance Limited at acquisition) Asset finance
Specialist Fleet Services Limited Asset finance and contract hire
Specialist Fleet Services Limited
Asset finance and contract hire
The contribution of PBAF Group to consolidated revenue for the year ended 30 September 2016 was £40.2m and its contribution
to consolidated profit before tax for the period is set out below.
£m £m
Contribution to consolidated profit excluding costs of acquisition 9.4
Transaction costs (1.7)
Other acquisition related expenses (1.1)
(2.8)
Contribution to consolidated profit after costs of acquisition 6.6
The amounts recognised in the consolidated accounts on acquisition in respect of the identifiable assets acquired and
liabilities assumed are set out below. The amounts presented are considered to be materially consistent with the existing
accounting policies of the Group.
Note £m £m
Non-current assets
Operating lease assets 10.6
Other property, plant and equipment 1.8
Property, plant and equipment 12.4
Intangible assets a 1.0
Loans to customers b 221.7
Deferred tax 3.5
238.6
Current assets
Other receivables 5.2
Cash c 3.4
8.6
247.2
Current liabilities
Financial liabilities- bank overdraft c 0.5
Current tax liabilities 0.2
Other liabilities 14.3
15.0
Non-current liabilities
Other liabilities 3.1
3.1
Total liabilities 18.1
Total net identifiable assets 229.1
Goodwill d 79.1
Consideration c 308.2
a) Intangible assets
Identifiable intangible assets acquired represent broker networks and trading arrangements. They will be amortised over a
ten year period.
b) Loans to customers
The financial assets acquired at 3 November 2015 comprised:
Fair value Gross Contractual Value Contractual flows not to be collected
£m £m £m
Asset finance leases 203.6 207.7 2.2
Commercial mortgages 3.6 4.2 0.5
Factoring and discounting 14.1 14.1 -
Other loans 0.4 0.4 -
Loans to customers 221.7 226.4 2.7
c) Cash flows on acquisition
Net cashflows on acquisition were:
Total
£m
Payment for shares 117.0
Settlement of existing vendor balances 191.2
Consideration paid on completion 308.2
Cash (3.4)
Bank overdraft 0.5
Net cash outflow (note 5) 305.3
The fair value and the gross contractual value of the cash balances acquired was equal to their book value, there are no
contractual flows which are expected not to be collectable.
d) Goodwill
The goodwill of £79.1m arising from the acquisition consists of the values of the business relationships, market positions
and knowledge base inherent in the business which do not qualify for recognition as intangible assets. These will be
utilised in the future development of the acquired business and in expanding the Group's asset finance activities. None of
the goodwill is expected to be deductible for tax purposes.
7. Acqusition of PREMIER ASSET FINANCE
The Group acquired 100% of the voting equity interests in Premier and the consideration will be satisfied entirely in cash.
Cash transferred on completion was £7.0m, with a further payment to be made, following the agreement of completion
accounts, estimated at £1.9m.
Further contingent consideration is payable in cash, up to a maximum of £12.0m based on the future performance of the
acquired business. £10.6m has been provided in the accounts in respect of this contingent consideration, based on the net
present value of the maximum amount. This is considered to be the fair value of the consideration at the transaction date,
based on initial forecasts for the business. Transaction costs of £0.3m have been included in operating expenses for the
year ended 30 September 2016.
As the acquisition occurred on 30 September 2016 the contribution of Premier to consolidated revenue for the year ended 30
September 2016 was £nil and its contribution to consolidated profit before tax for the period comprised only the
transaction costs set out above.
The amounts recognised in the consolidated accounts on acquisition in respect of the identifiable assets acquired and
liabilities assumed are set out below. The amounts presented are considered to be materially consistent with the existing
accounting policies of the Group. Due to the proximity of the acquisition date to the year end, the Group has yet to
finalise its exercise to determine these balances and therefore the amounts presented in this note should be considered as
provisional. Final amounts will be presented with the Group's annual results for the year ending 30 September 2017.
Note £m £m
Non-current assets
Property, plant and equipment -
Intangible assets a 0.1
0.1
Current assets
Other receivables 0.2
Cash b 2.2
2.4
2.5
Current liabilities
Corporation tax payable 0.2
Other liabilities 0.5
0.7
Total liabilities 0.7
Total net identifiable assets 1.8
Goodwill c 17.7
Consideration d 19.5
a) Intangible assets
Identifiable intangible assets acquired represent broker networks and trading arrangements. They will be amortised over a
ten year period.
b) Cash flows on acquisition
Net cashflows on acquisition were:
Total
£m
Consideration paid on completion 7.0
Cash (2.2)
Net cash outflow (note 5) 4.8
The fair value and the gross contractual value of the cash balances acquired was equal to their book value, there are no
contractual flows which are expected not to be collectable.
c) Goodwill
The goodwill of £17.7m arising from the acquisition consists of the values of the business relationships, market positions
and knowledge base inherent in the business which do not qualify for recognition as intangible assets. These will be
utilised in the future development of the acquired business and in expanding the Group's asset finance activities. None of
the goodwill is expected to be deductible for tax purposes.
d) Consideration
The total consideration accounted for on acquisition was:
Total
£m
Consideration paid on completion (note (c)) 7.0
Accrual for payment due on agreement of completion accounts 1.9
Contingent consideration 10.6
Total consideration 19.5
8. SEGMENTAL INFORMATION
The Group analyses its operations, both for internal management reporting and external financial reporting, on the basis of
the entities within the Group generating its assets. The segments used are described below:
· Paragon Mortgages includes revenue, in the form of interest and ancillary income, from the Group's first mortgage
operations, other than the buy-to-let lending of Paragon Bank, and from other assets remaining in legacy portfolios.
· Idem Capital includes revenue generated from assets purchased by the Group's debt investment business, Idem Capital
Holdings Limited, other than those financed by Paragon Bank and from third party loan administration activity.
· Paragon Bank includes revenue, in the form of interest and ancillary income, generated from the Group's regulated
banking business, Paragon Bank PLC and its subsidiary companies including PBAF Group.
Each of these businesses invests in consumer finance assets or SME finance, and an analysis of the Group's financial assets
by type and segment is shown in note 13.
Dedicated financing and administration costs of each of these businesses are allocated to the segment. Shared costs, and
the financing costs of the Group's working capital invested, are allocated based on the segment's use of those resources.
No profit has been recognised in the segmental disclosures below in respect of transfers of loan assets between segments.
The costs arising from the PBAF and Premier acquisitions in the period of £3.1m are included in the Paragon Bank segmental
profit and loss account for the year.
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 2016
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
Interest receivable 264.2 76.4 70.8 411.4
Interest payable (144.5) (11.9) (31.8) (188.2)
Net interest income 119.7 64.5 39.0 223.2
Other operating income 8.1 4.0 8.7 20.8
Total operating income 127.8 68.5 47.7 244.0
Operating expenses (31.8) (23.1) (37.6) (92.5)
Provisions for (losses) (6.1) - (1.6) (7.7)
89.9 45.4 8.5 143.8
Fair value net (losses) (0.4) - (0.2) (0.6)
Operating profit / (loss) 89.5 45.4 8.3 143.2
Tax charge (27.2)
Profit after tax 116.0
Year ended 30 September 2015
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
Interest receivable 263.2 71.6 6.2 341.0
Interest payable (128.1) (9.9) (5.6) (143.6)
Net interest income 135.1 61.7 0.6 197.4
Other operating income 8.5 5.3 0.3 14.1
Total operating income 143.6 67.0 0.9 211.5
Operating expenses (44.0) (17.7) (9.5) (71.2)
Provisions for (losses) (5.6) - - (5.6)
94.0 49.3 (8.6) 134.7
Fair value net (losses) (0.4) - (0.1) (0.5)
Operating profit / (loss) 93.6 49.3 (8.7) 134.2
Tax charge (27.1)
Profit after tax 107.1
The assets and liabilities attributable to each of the segments at 30 September 2016, 30 September 2015 and 30 September
2014 were:
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
30 September 2016
Segment assets 11,044.9 314.2 2,159.3 13,518.4
Segment liabilities (10,560.9) (71.6) (1,916.4) (12,548.9)
484.0 242.6 242.9 969.5
30 September 2015
Segment assets 10,622.9 481.2 774.8 11,878.9
Segment liabilities (9,927.7) (276.5) (705.2) (10,909.4)
695.2 204.7 69.6 969.5
30 September 2014
Segment assets 10,343.3 445.8 106.0 10,895.1
Segment liabilities (9,658.8) (226.6) (62.6) (9,948.0)
684.5 219.2 43.4 947.1
All of the assets shown above were located in the United Kingdom.
9. OTHER INCOME
2016 2015
£m £m
Loan account fee income 7.7 6.7
Insurance income 1.2 1.2
Third party servicing 7.4 4.9
Other income 1.5 1.3
17.8 14.1
10. 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 and gains 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.
11. Earnings per share
Earnings per ordinary share is calculated as follows:
2016 2015
Profit for the year (£m) 116.0 107.1
Basic weighted average number of ordinary shares ranking for dividend during the year (million) 286.5 301.9
Dilutive effect of the weighted average number of share options and incentive plans in issueduring the year (million) 5.5 5.9
Diluted weighted average number of ordinary shares ranking for dividend during the year (million) 292.0 307.8
Earnings per ordinary share - basic 40.5p 35.5p
- diluted 39.7p 34.8p
12. INTangible assets
2016 2015 2014
£m £m £m
Goodwill 98.4 1.6 1.6
Computer software 2.1 1.6 1.3
Other intangible assets 4.9 4.5 5.0
At 30 September 2016 105.4 7.7 7.9
The increase in goodwill relates primarily to goodwill and intangible assets arising on acquisition (note 5).
Other intangible assets comprise brands and the benefit of business networks recognised on the acquisition of subsidiary
companies.
13. FInancial Assets
Note 2016 2015 2014
£m £m £m
Loans and receivables 10,391.8 10,019.0 9,250.2
Finance lease receivables 345.7 43.4 5.7
Loans to customers 10,737.5 10,062.4 9,255.9
Fair value adjustments from portfolio hedging 12.5 5.2 0.5
Investments in structured entities - 18.1 19.3
Derivative financial assets 15 1,366.4 660.1 693.9
12,116.4 10,745.8 9,969.6
The Group's loan assets and investments in structured entities at 30 September 2016, analysed between the segments
described in note 4 are as follows:
Paragon Mortgages Idem Capital Paragon Bank Total
£m £m £m £m
At 30 September 2016
First mortgages 8,620.4 13.7 1,015.6 9,649.7
Consumer loans 147.6 269.6 400.0 817.2
Asset finance - - 250.4 250.4
Other loans - - 20.2 20.2
Loans to customers 8,768.0 283.3 1,686.2 10,737.5
Investments in structured entities - - - -
Total investments in loans 8,768.0 283.3 1,686.2 10,737.5
At 30 September 2015
First mortgages 9,046.7 14.5 349.6 9,410.8
Consumer loans 175.0 418.4 58.2 651.6
Asset finance - - - -
Other loans - - - -
Loans to customers 9,221.7 432.9 407.8 10,062.4
Investments in structured entities - 18.1 - 18.1
Total investments in loans 9,221.7 451.0 407.8 10,080.5
The Group calculates its headline arrears measure for buy-to-let mortgages 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. Other receivership cases are included. This is consistent with the methodology used by the CML
in compiling statistics for the buy-to-let mortgage market as a whole.
14. IMPAIRMENT PROVISIONS ON LOANS TO CUSTOMERS
The following amounts in respect of impairment provisions, net of allowances for recoveries of written off assets, have
been deducted from the appropriate assets in the balance sheet.
First Mortgages Other Finance leases Total
loans and receivables
£m £m £m £m
At 1 October 2014 87.0 27.0 0.8 114.8
Charge for the year 3.6 2.4 (0.4) 5.6
Amounts written off (4.5) (3.5) 0.2 (7.8)
Amounts recovered (0.1) (1.5) - (1.6)
At 30 September 2015 86.0 24.4 0.6 111.0
Charge for the year 4.8 2.6 0.3 7.7
Amounts written off (2.1) (2.0) (1.3) (5.4)
Amounts recovered 0.1 (2.4) 1.6 (0.7)
At 30 September 2016 88.8 22.6 1.2 112.6
Of the above balances, the following provisions were held in respect of realised losses not charged off, which remain on
the balance sheet and provided for in full.
First mortgages Other Finance leases Total
loans and receivables
£m £m £m £m
At 30 September 2016 72.4 0.1 0.1 72.6
At 30 September 2015 70.7 0.3 0.1 71.1
15. Derivative Financial Assets and Liabilities
Note 2016 2015 2014
£m £m £m
Derivative financial assets 13 1,366.4 660.1 693.9
Derivative financial liabilities 21 (15.8) (6.7) (1.1)
1,350.6 653.4 692.8
Of which:
Foreign exchange basis swaps 1,364.8 659.8 693.5
Other derivatives (14.2) (6.4) (0.7)
1,350.6 653.4 692.8
The Group's securitisation borrowings are denominated in sterling, euros and US dollars. All currency borrowings are
swapped at inception so that they have the effect of sterling borrowings. These swaps provide an effective hedge against
exchange rate movements, but the requirement to carry them at fair value leads, when exchange rates have moved
significantly since the issue of the notes, to large balances for the swaps being carried in the balance sheet. This is
currently the case with both euro and US dollar swaps, although the debit balance is compensated for by retranslating the
borrowings at the current exchange rate.
16. SHORT TERM INVESTMENTS
This amount represents fixed rate securities issued by the UK Government for which a liquid market exists and are held as
part of the liquidity requirement of Paragon Bank PLC. As such they are designated as 'Available for Sale', as defined by
IAS 39 - 'Financial Instruments: Recognition and Measurement' and are consequently shown at fair value which corresponds to
their market value.
The total nominal value of the securities at 30 September 2016 was £7.0m (2015: £40.0m), the weighted average coupon was
1.75% (2015: 4.41%) and their carrying value was £7.1m (2015: £41.1m).
17. Cash and CASH EQUIVALENTS
2016 2015 2014
£m £m £m
Balances with central banks 315.0 286.0 -
Balances with other banks 922.6 770.0 848.8
1,237.6 1,056.0 848.8
Only 'Free Cash' is unrestrictedly available for the Group's general purposes. Cash received in respect of loan assets is
not immediately available, due to the terms of the warehouse facilities and the securitisations. Cash held in the Group's
banking subsidiary is subject to regulatory rules covering liquidity and capital adequacy and is shown as 'Bank Cash'
below.
'Cash and Cash Equivalents' also includes balances held by the Trustees of the Paragon Employee Share Ownership Plans which
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:
2016 2015 2014
£m £m £m
Free cash 366.5 199.9 177.3
Securitisation cash 537.1 530.9 609.0
Bank cash 331.6 323.3 60.6
ESOP cash 2.4 1.9 1.9
1,237.6 1,056.0 848.8
'Cash and Cash Equivalents' includes current bank balances, money market placements and fixed rate sterling term deposits
with London banks, and balances with the Bank of England.
18. Called-up share capital
The share capital of the Company consists of a single class of £1 ordinary shares.
Movements in the issued share capital in the year were:
2016 2015
Number Number
Ordinary shares
At 1 October 2015 309,349,316 307,308,283
Shares issued 218,872 2,041,033
Shares cancelled (13,716,094) -
At 30 September 2016 295,852,094 309,349,316
During the year the Company issued 163,045 shares at par (2015: 1,050,000) to the trustees of its ESOP Trust in order that
they could fulfil their obligations under the Group's share based award arrangements. It also issued 55,827 shares (2015:
991,033) to satisfy options granted under sharesave schemes for a consideration of £68,070 (2015: £1,365,944).
On 18 August 2016 13,716,094 shares held in treasury were cancelled by the Company.
19. RESERVES
(a) The Group
2016 2015 2014
£m £m £m
Share premium account 64.6 64.6 64.1
Capital redemption reserve 13.7 - -
Merger reserve (70.2) (70.2) (70.2)
Cash flow hedging reserve 2.1 (1.9) 0.6
Profit and loss account 725.9 767.7 693.5
736.1 760.2 688.0
20. equity Dividend
Amounts recognised as distributions to equity shareholders in the Group and the Company in the period:
2016 2015 2016 2015
Per share Per share £m £m
Equity dividends on ordinary shares
Final dividend for the year ended 30 September 2015 7.4p 6.0p 21.7 18.3
Interim dividend for the year ended 30 September 2016 4.3p 3.6p 12.2 10.8
11.7p 9.6p 33.9 29.1
Amounts paid and proposed in respect of the year:
2016 2015 2016 2015
Per share Per share £m £m
Interim dividend for the year ended 30 September 2016 4.3p 3.6p 12.2 10.8
Proposed final dividend for the year ended 30 September 2016 9.2p 7.4p 25.5 21.8
13.5p 11.0p 37.7 32.6
Dividends of £0.0m (2015: £0.0m) were paid by the Company in respect of shares held by ESOP trusts on which dividends had
not been waived.
The proposed final dividend for the year ended 30 September 2016 will be paid on 13 February 2017, subject to approval at
the Annual General Meeting, with a record date of 6 January 2017. The dividend will be recognised in the accounts when it
is paid.
21. FInancial Liabilities
Note 2016 2015 2014
£m £m
- More to follow, for following part double click ID:nRSW8891PdRecent news on Paragon Banking
See all newsREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Result of AGM
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Transaction in Own Shares
AnnouncementREG - Paragon Banking Grp - Total Voting Rights
Announcement