Paragon Bank shares hit 17-year high as lender posts bumper profits

Paragon Banking Group shares jumped to their highest level since 2007 after the firm reported bumper half-year profits and raised its guidance.

The Solihull-based lender’s pre-tax profits soared by 138.6 per cent to £110.6million in the six months ending March, due to lower fair value reversals.

Underlying profits increased by 13.5 per cent to £146.3million, surpassing analyst expectations of £140million thanks to cost control measures, rising margins and loan volumes.

Paragon’s net interest margin – the difference between what banks charge borrowers and pay savers – expanded by 24 basis points year-on-year to 319 points.

The FTSE 250 bank now anticipates its NIM for the full year to surpass 3.1 per cent, above the top end of initial guidance. 

At the same time, it expects mortgage and commercial lending to come in towards the top end of previous forecasts, with the former totalling £1.4billion to £1.6billion and the latter between £1.1billion and £1.2billion, respectively.

New mortgage lending slumped by over a third to £649.3million during the half-year period as elevated interest rates discouraged more Britons from purchasing homes.

Yet total operating income still grew by 12 per cent to £246.6million, while retail deposit balances leapt by almost a quarter to £14.8billion.

The Bank of England raised the UK base rate on 14 successive occasions from late 2021 to summer 2023 in response to rising inflation caused by escalating energy prices and loosening Covid-related restrictions.

Banks have consequently hiked the rates on home loans faster than the interest on savings accounts, providing them with a significant windfall.

Shares in Paragon climbed 8 per cent to £8.34 just after 8am on Wednesday before retreating to be 2.1 per cent up at £7.86 near midday.

Nigel Terrington, Paragon’s long-time chief executive, said the business had ‘delivered another strong operational and financial performance.’ 

Terrington added: ‘The strength of our business model, long-term track record, and improving customer sentiment means the group is well placed to continue supporting our customers’ ambitions.’

Following the latest trading update, Paragon plans to pay investors a 13.2 pence per share interim dividend, a 20 per cent hike from last year, and buy another £50million of its shares.

This means the company, founded in 1985 as the National Home Loans Corporation, will have returned more than £1billion to shareholders over the past nine years.