Shares in Paragon Bank surged nearly eight per cent this morning after the FTSE 250 lender reported record interim profits and significant deposit inflows.
In the first half of the year, Paragon’s underlying profit jumped 22 per cent to £128.9m as the bank benefitted from rising interest rates.
The bank’s net interest margin (NIM), the difference between what it pays out and receives in interest payments, widened to 2.95 per cent. This helped its net interest income to jump to £212.4m from £175.2m last year.
Paragon upgraded its full year NIM guidance to around 3.0 per cent, signalling further gains to come.
New mortgage lending in the period was 19 per cent higher than the first half of last year. Paragon specialises in loans to professional landlords. It upgraded its guidance for full year mortgage lending to between £1.75bn and £1.9bn.
Paragon raised its interim dividend by 17 per cent and also announced an additional £50m buyback.
Chief executive Nigel Terrington told City A.M. he was “really pleased with the results”.
The bank’s deposit base grew by £11.9bn with the lender saying there was “no disruption to deposit gathering from the events in the US”.
Terrington said the deposit market “has been very liquid but in the last six to nine months in particular we’ve seen movement from easy access to fixed-term deposits”.
Fixed-term deposits offer higher rates of interest than easy access accounts or current accounts.
Across the market around £53bn has moved into fixed-term deposits since September, Terrington said, arguing that there was “more to come”. He pointed out that pre-financial crisis, 22 per cent of deposits were in fixed term savings. Currently that figure is just nine per cent.
“There’s still a lot more money going to move from low interest accounts – particularly at the clearers, whose interest rates are not so attractive – to other lenders”.
Credit quality remained strong reflected in a low impairment charge of £7.5m.
Terrington said that Paragon has “always sought a high quality loan book”.
He held a more optimistic outlook for the UK economy, arguing it “is more resilient that people give it credit for”, noting that “unemployment is really low and vacancies still stand above the unemployment rate”.