Things have changed but we're doing well, says Paragon

Oliver Gill
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A careful balancing act: Paragon has decided to transition its business model while being careful not to leave core operations behind (Source: Getty)

Challenger bank Paragon's shares jumped nearly four per cent in trading this morning after revealing increased profits over what the FTSE 250 lender called a "transitional year".

The figures

Underlying profit for the 12 months to 30 September rose by 9.1 per cent to £147m from £135m last year, while statutory profit before tax increased by 6.7 per cent to £143m.

Earnings per share rose by 14.1 per cent to 40.5p and Paragon hiked its dividend by 22.7 per cent to 13.5p per share.

House completions by customers totalled £1.6bn, up from £1.5bn in 2015. Buy-to-let completions made up a large amount of the completions but fell year-on-year from £1.3bn to £1.1bn.

Read more: Surge in buy-to-let loans dries up pipeline for lender Paragon

Why it's interesting

The company called the last 12 months "a transitional year". This is because, as chief exec Nigel Terrington put it: "Paragon's operating model is undergoing significant change, as it transitions from a non-bank, securitised, monoline lender into a retail funded banking group."

In simple terms what this means is that the FTSE 250 group has been on a spending spree, picking up a couple of new businesses to change the way it operates – Five Arrows Leasing Group Premier Asset Finance.

Read more: FCA considers new rules following Plevin v Paragon

The logic? The smaller business market. Terrington said the purchases give Paragon "a strong platform to build on the significant growth potential in the UK SME finance market".

What the company said

Terrington said:

Whilst the year has been disrupted by fiscal and regulatory changes, as well as political and macro economic factors, our customers’ performance has been exemplary and new business activity has seen encouraging growth recently.

Paragon Bank is increasingly at the heart of the Group’s development, with its deposit book now exceeding £2bn and its franchise firmly established. .

We continue to believe that over the medium term the banking markets will undergo structural change which will favour specialist lending institutions such as Paragon and we are well positioned to take advantage of the opportunities that will arise.”

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