For the year ended 30 September 2025
Paragon Banking Group PLC
CAUTIONARY STATEMENT: Sections of this Annual Report, including but not limited to the Directors’ Report, the Strategic Report and the Directors’
Remuneration Report may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future
financial condition, business performance and results of the Group. These statements can be identified by the fact that they do not relate strictly to historical
or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’, ‘target’ and other words and terms of similar
meaning in connection with any discussion of future operating or financial performance but are not the exclusive means of identifying such statements. These
have been made by the directors in good faith using information available up to the date on which they approved this report, and the Group undertakes no
obligation to update or revise these forward-looking statements for any reason other than in accordance with its legal or regulatory obligations (including under the
UK Market Abuse Regulation, UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (‘FCA’)).
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of
the Group and depend upon circumstances that may or may not occur in the future that could cause actual results or events to differ materially from those expressed
or implied by the forward-looking statements. There are also a number of factors that could cause actual future financial conditions, business performance, results or
developments to differ materially from the plans, goals and expectations expressed or implied by these forward-looking statements and forecasts. As a result, you are
cautioned not to place reliance on such forward-looking statements as a prediction of actual results or otherwise.
These factors include, but are not limited to: material impacts related to foreign exchange fluctuations; macro-economic activity; the impact of outbreaks, epidemics or
pandemics, and the extent of their impact on overall demand for the Group’s services and products; potential changes in dividend policy; changes in government policy and
regulation (including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which the Group operates) and
the consequences thereof; actions by the Group’s competitors or counterparties; third party, fraud and reputational risks inherent in its operations; the UK’s exit from the EU;
unstable UK and global economic conditions and market volatility, including currency and interest rate fluctuations and inflation or deflation; the risk of a global economic
downturn; social unrest; acts of terrorism and other acts of hostility or war and responses to, and consequences of those acts; technological changes and risks to the security
of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; general changes in government policy that
may significantly influence investor decisions (including, without limitation, actions taken in support of managing and mitigating climate change and in supporting the global
transition to net zero carbon emissions); societal shifts in customer financing and investment needs; and other risks inherent to the industries in which the Group operates.
Nothing in this Annual Report should be construed as a profit forecast.
Financial and Operating Highlights
Results in brief
Strategic Report
The business and its performance in the year
The Accounts
The financial statements of the Group
Appendices to the Annual Report
Additional financial information
Independent Auditor’s Report
On the financial statements
Corporate Governance
How the business is controlled and how risk is managed
Contents
Page 4
Page 206
Page 8
Page 218
Page 225
Page 348
Page 354
Page 362
Page 358
Page 359
Page 96
Page 98
Page 100
Page 108
Page 126
Page 132
Page 142
Page 182
Page 200
Page 203
Page 24
Page 61
Page 10
Page 58
Page 27
Page 93
Financial highlights
C1. Independent auditor’s report
to the members of Paragon
Banking Group PLC
A1. Chair of the Board’s introduction
D1. Financial statements
D2. Notes to the accounts
E1. Appendices to the Annual Report
F1. Glossary
H1. Contacts
G1. Shareholder information
G2. Other public reporting
B1. Chair’s statement on corporate governance
B2. Corporate governance statement
B3. Board of Directors and senior management
B4. Governance framework
B5. Nomination Committee
B6. Audit Committee
B7. Remuneration Committee
B8. Risk management
B9. Directors’ report
B10. Statement of directors’ responsibilities
A3. Chief Executive’s review
A6. Citizenship and sustainability
A2. Business overview
A5. Future prospects
A4. Review of the year
A7. Approval of Strategic Report
2021
2022
2023
2024
2025
120
150
90
60
30
0
PENCE
109.7
101.1
94.2
69.9
59.3
2021
2022
2023
2024
2025
120
150
90
60
30
0
PENCE
68.7
91.2
129.2
88.5
65.2
2021
2022
2023
2024
2025
40
50
30
20
10
0
PENCE
43.9
40.4
28.6
37.4
26.1
Underlying basic earnings per share
Basic earnings per share Dividend per share
109.7 pence 91.2 pence 43.9 pence
2021
2022
2023
2024
2025
300
200
100
0
£ MILLION
292.7
293.9
277.6
221.4
194.2
Underlying profit before tax
£293.9 million
0.4% higher
(2024: £292.7 million)
8.5% higher
(2024: 101.1 pence)
2021
2022
2023
2024
2025
400
500
300
200
100
0
£ MILLION
199.9
253.8
256.5
213.7
417.9
Profit before tax
£256.5 million
1.1% higher
(2024: £253.8 million)
3.1% higher
(2024: 88.5 pence)
8.7% higher
(2024: 40.4 pence)
Financial and operating highlights
Nigel Terrington
Chief Executive
Paragon has delivered another strong performance in 2025,
demonstrating the strength and resilience of our specialist model
and building on our consistent track record of delivery. We’ve grown
our loan book, maintained excellent cost discipline and delivered
record underlying earnings per share, all while continuing
to deliver enhanced returns to our shareholders through
increased dividends and share buy-backs. Operationally, we’ve
made significant strides in digitalisation and we enter the new
financial year with good momentum.
Spring, our new app-based digital savings
brand, launched to the public in April 2025.
Using open banking to facilitate instant
transfers to and from customers’ current
accounts, Spring allows customers to earn
significantly better rates on balances that
were previously earning little or no interest.
Say hello to
2021
2022
2023
2024
2025
1,000
1,250
1,500
750
500
250
0
£ MILLION
1,420
1,420
1,411
1,417
1,242
2021
2022
2023
2024
2025
20
25
30
15
10
5
0
PERCENT
17.2
17.5
17.3
14.8
14.7
2021
2022
2023
2024
2025
15
20
10
5
0
£ BILLION
15.7
16.3
14.2
13.4
14.9
2021
2022
2023
2024
2025
6
7
5
4
3
2
1
0
POUNDS
6.11
6.55
5.79
5.33
4.34
2021
2022
2023
2024
2025
15
20
10
5
0
£ BILLION
16.3
16.3
13.3
10.7
9.3
2021
2022
2023
2024
2025
20
25
30
15
10
5
0
PERCENT
12.7
15.0
14.6
27.2
16.2
Equity
Underlying return on tangible equity
Total loans to customers
Tangible net assets per share
Retail deposits
Return on tangible equity
£1,420.2 million
17.5%
£16.3 billion
£6.55
£16.3 billion
14.6%
2021
2022
2023
2024
2025
15
20
10
5
0
PERCENT
15.5
16.3
13.6
14.2
15.4
Capital – CET1 Ratio
13.6%
Stable in the year
(2024: 14.2%)
(2024: £1,419.5 million)
(2024: 17.2%)
4.0% higher
(2024: £15.7 billion)
(2024: £6.11)
Stable in the year
(2024: £16.3 billion)
(2024: 15.0%)
The underlying basis excludes fair value
postings arising from hedging activities, but
not qualifying for hedge accounting. The other
exclusions from underlying results relate
principally to significant one-off costs, and to
acquisitions and asset sales in prior periods,
which do not form part of the day-to-day
activities of the Group, and which have impacted
on the reported results for the year concerned.
The calculation of return on tangible equity is
shown in note 57b. The derivation of underlying
profit before taxation (‘underlying profit’) and
other underlying measures is described in
Appendix A.
Trustpilot score rated by 2,789
savings and mortgage customers
4.7/5.0
A platinum employer
We were re-accredited
as an Investors in People
employer,reaching Platinum
status for the second,
successive time
£184.2 million
£100.0 million
43.9 pence
Total capital returned to
shareholders in 2025
Ordinary dividend
Share buy-back
per share (8.7% higher)
Page 5
Page 8
Page 10
Page 24
Page 27
Page 58
Page 61
Page 93
A1. Chair of the Board's introduction
The year in summary
A2. Business model and strategy
Overview of what the business does, its purpose and
strategy, and the significant risks to which it is exposed
A4. Review of the year
Our financial and operational performance in the year
A5. Future prospects
Our financial position, stability and resilience looking forward
A7. Approval of the Strategic Report
Approval of the Strategic Report
A3. Chief Executive’s review
Strategic summary of financial and operational performance,
our position at the year end and our future prospects
A6. Citizenship and sustainability
Our impact on customers, employees, the environment and
the community, including non-financial reporting
Strategic
Report
The business and its performance in the year
INTEGRITY | Megan
A1. Chair of the Board's introduction
Page 8
Dear Shareholder
I am pleased to report that Paragon has delivered
another year of strong financial and operational
performance which, with continued strong pricing
discipline and cost control, has delivered an
underlying Return on Tangible Equity (‘RoTE’) of
17.5% and underlying EPS growth of 8.5%. We
executed well on our strategy, with highlights
including the full deployment of our new
mortgage application system to all brokers,
and the launch of Spring, our innovative new
savings brand and app.
In my report last year, I referenced the
prospects for economic growth looking
challenging. This has been the case with
inflation staying higher for longer than
expected, geopolitical factors creating
volatility and some of the structural
challenges facing the UK proving
difficult to resolve. Paragon took the
signals of these issues seriously and
has continued to make clear choices
about costs, volume growth, risk and
pricing discipline. Whilst we expect
economic growth to remain subdued,
we continue to be well positioned to
capitalise on opportunities as they
are created.
We are encouraged by changes that
have been made or proposed during
the year to the regulatory framework
affecting UK banks. Recalibration
of these regulations is important
to reflect the evolving competitive
environment, growth aspirations, and
economic and financial conditions,
and will enable us to support more
customers. We remain, though, fully
conscious of the importance of the
overall framework of regulation,
why large parts of it were created in
response to the global financial crisis
of 2007-2008, and its fundamental
importance to economic stability.
Our purpose continues to be to support
the ambitions of the people and businesses
of the UK by delivering specialist financial
services at appropriate risk and sustainable
return for our shareholders. This purpose is
reflected in all our activities, investments and
the values that underpin how we work. All the
services we provide support economic growth.
We have remained relentlessly focussed on our
purpose, putting our strategies into action and
on the conservative management of our business.
During the year, we bought back 15.2 million of our
shares at an average price of around 820 pence
per share and a total cost of £124.7 million. Our
performance has allowed us to pay an interim dividend
of 13.6 pence per share during the year and declare a
final dividend of 30.3 pence per share. This represents
a total dividend for the year of 43.9 pence per share, with
the dividend covered approximately 2.5 times by underlying
earnings, in line with our policy. The Board has also authorised
a further share buy-back programme of up to £50.0 million.
Sustainability remains a core part of our strategy. We believe that
this focus on the welfare of our employees, equality and diversity,
the communities where we work, the provision of good outcomes
to our customers, and strong, proportionate governance
alongside an entrepreneurial culture makes economic sense
as well as being, fundamentally, the right thing to do.
We continue to believe that climate change is one of the most
serious challenges faced by the world. We have set a target
of reaching net zero for emissions attributable to our own
operations by 2030, and as part of reaching this goal, we have
started a project to upgrade our head office premises in Solihull
significantly increasing its energy-efficiency. This initiative will
enable us to achieve our 2030 target for the reduction of our
operational carbon footprint.
Achieving net zero across the broader scope of our activities
is, however, much more challenging. It requires concerted
action from governments, regulators and customers. We can
play a role in this, but only where there is customer demand
which principally needs to be created where such actions are
economically rational to them which, in some cases may require
incentivisation by governments.
Our broader support for customers remains a priority. Our aim
is for our customers always to be confident that we will consider
their needs and act fairly and responsibly in our dealings with
them. Meeting their needs – including helping them on their
sustainability journeys – is a responsibility we take seriously.
During the year our internal review of board performance
confirmed that the Board continues to work effectively. The
review highlighted the importance of the Board’s focus on
developments in new technology, customer-centricity and
ensuring time spent is appropriately balanced between
governance and strategy. An externally facilitated review will
be carried out in the next financial year.
At the next AGM, Hugo Tudor will retire from the Board. Hugo
has provided great insight and input to the Board during his term
as Senior Independent Director and Remuneration Committee
Chair, and I would like to thank him for all his contributions over
his ten years on the Board. We will not be replacing Hugo and
the number of non-executive directors on the Board will revert
to six. Two further non-executive directors, Barbara Ridpath and
Graeme Yorston, reach the end of their nine-year terms in 2026
and we will shortly start searches for their replacements.
We will continue to remain focussed on ensuring we have
effective governance, controls and processes and operate in
line with the UK Corporate Governance Code. We welcome
and support the modifications made to the Code during the
year and other steps to ensure regulation is proportionate and
encouraging of competition and growth.
I am proud of what Paragon has achieved in the last year. We
have continued to support the ambitions of the people and
businesses of the UK and have delivered another year of strong
financial and operational performance while delivering tangible
results on our diversification and digitalisation strategies.
Looking ahead, we expect further geopolitical issues and
UK-specific issues to affect economic growth in this country, but
we continue to be well positioned to capitalise on opportunities
as they are created, and to build on our well-defined strategies.
As ever, I would like to express my thanks to all my colleagues
on the Board, our suppliers and our talented and dedicated
employees for their hard work and commitment throughout the
year. We are fortunate to have a team of people with a blend of
long experience with Paragon and fresh perspectives from other
businesses and backgrounds, united behind our purpose and
delivering long-term value for our shareholders.
Robert East
Chair of the Board
3 December 2025
Page 9
Delivering on our purpose is fundamental to the success of our customers, our employees,
the economy and the wider world around us. By living our purpose, we have developed
and continue to evolve an innovative range of mortgage and commercial lending products
to support a unique group of customers with a distinctive set of needs, funded mostly by
retail deposits.
We focus on lending to customers who require specialist products in markets typically
underserved by larger high street banks. This approach requires us to be experts in these
areas and we seek to know more than our competitors about our customers and the
markets in which we operate, the products and services we offer, and the risks we take. We
see specialisation as what makes us different - as our competitive advantage - and it runs
through our business model and strategy.
Working together as one team also provides the opportunity for our people to achieve
their own ambitions, to grow and develop, to enjoy a successful career and to build strong
foundations for their lives outside of work.
Who we are
Our purpose is to support
the ambitions of the people
and businesses of the UK
by delivering specialist
financial services.
We have a deep
understanding of our
customers and their
markets, designing
products and services
to meet their needs
and expectations.
Listed on the London
Stock Exchange, we are
a FTSE-250 company,
headquartered in
Solihull and employing
around 1,400 people
across the UK.
We serve customers
in markets typically
underserved by large
high street banks.
A2.1 Business overview
Page 10
We offer buy-to-let mortgage finance for landlords operating
in the UK’s Private Rented Sector. A pioneer in this segment
of the mortgage market, we have originated £32.2 billion of
buy-to-let lending since the mid-1990s.
We support landlords at all stages of their development. A
large proportion of our customers have portfolios of four or
more properties, invest in a range of different property types
and have built their business through corporate structures.
Supporting customers across construction, transport,
manufacturing, agriculture, technology and professional
services with finance to invest in assets and improve cashflow.
Our products include hire purchase, business loans, and both
operating and finance leases.
Since the introduction of our first commercial lending
products in 2014, carefully targeted expansion in the
commercial lending market has been an area of strategic
focus. We concentrate our specialist expertise in four areas.
Delivering finance for non-bank specialist lenders.
Helping property developers to bring their plans to life
with competitive and flexible finance, including residential
development loans, bridging facilities and pre-planning
finance, as well as finance for purpose-built student
accommodation (‘PBSA’), build-to-rent, later living and
light commercial developments.
Providing finance through approved intermediaries and
dealers for cars, light commercial vehicles and leisure assets,
including motor homes and caravans.
The principal source of funding for our lending activities is
retail savings deposits, and we offer savings accounts to UK
households through our Paragon Bank and Spring brands,
supplemented by distribution through third-party banking
and wealth management platforms. Other funding is
derived from the tactical use of wholesale funding, including
covered and corporate bonds, and central bank facilities.
Our operations
Commercial Lending
SME lending
Structured lending
Development finance
Motor finance
Mortgage Lending
Savings
4.7/5
1 October 2024 to
30 September 2025
New lending
£1.49 billion
(2024: £1.49 billion)
New lending
£1.19 billion
(2024: £1.24 billion)
Landlord customers
46,900+
Business customers
42,700+
Direct customers
302,250 +
Loan assets
£13.88 billion
(+3.4%)
Loan assets
£2.46 billion
(+7.6%)
Savings deposits
£16.27 billion
(-0.2%)
New lending
£0.48 billion (2024: £0.48 billion)
New lending
£0.53 billion (2024: £0.51 billion)
Total facilities
£0.40 billion (2024: £0.33 billion)
New lending
£0.17 billion (2024: £0.16 billion)
Loan assets
£0.88 billion (+7.2%)
Loan assets
£0.96 billion (+8.6%)
Loan assets
£0.27 billion (+4.0%)
Loan assets
£0.36 billion (+8.8%)
Page 11
Meet our customers
Watch the film
As a specialist bank, we operate in a range of carefully selected lending markets which
have typically been underserved by the large high street banks. We work with a unique set
of customers and it is our purpose to help these customers achieve their ambitions by
delivering specialist financial services. To do this we develop deep expertise about the
dynamics that impact their markets and the assets they want to fund, and we back this
with the products and support that they need to thrive.
I want to provide places that people want to live in, and I invest in a property to get it to a
good standard. That way people will be happy to stay longer. Like me, Paragon believes there
are plenty of opportunities for people who want to stay in the rental sector and build long-term,
customer-focussed businesses.
Freddie Cairns Palmer, FKCP Consulting
Buy-to-let mortgages
Over £1 million of mortgage finance to
support business investment and growth.
Since selling his hydration business in 2021, Freddie Cairns Palmer
has invested in building a rental portfolio of eight properties. Currently
valued at over £3 million, Freddie aims to expand his rental portfolio
significantly in the next three years, hoping to eventually pass the
business to his daughter, who already works with him, and his son.
FKCP Consulting – sustainable, customer-focussed rental properties
Gloucestershire
Feedback
SupportProject
Customer
Page 12
I want to provide places that people want to live in, and I invest in a property to get it to a
good standard. That way people will be happy to stay longer. Like me, Paragon believes there
are plenty of opportunities for people who want to stay in the rental sector and build long-term,
customer-focussed businesses.
Watch the film
Watch the film
We’re delighted that Dundashill is now complete, and we have
been able to repay our facility to Paragon in full, whilst also taking
advantage of the bank’s Green Homes Initiative – a great incentive
for companies that prioritise building sustainable schemes.
Paragon has been great to work with, and we’re looking forward to
carrying on our partnership with them in the coming years.
Since founding HDM in 2022, our mission has been to empower
small and medium-sized business with access to rooftop solar
without the burden of upfront costs. Partnering with Paragon
Bank adds a strong layer of confidence for our customers.
Sam Lingawi, Partnerships & Investment Director, igloo
Gary Watt, Development Director, igloo
Dan Rogers, Founder of HDM Energies
We provided a £15.9 million finance facility under Paragon development
finance’s Green Homes Initiative, giving igloo a 50% reduction in loan
fees in return for delivering sustainable homes with an EPC rating of A.
We provide funding to HDM to support the acquisition and
installation of solar panels at the premises of SMEs with
whom they have entered a Power Purchase Agreement.
Under this innovative energy supply model, the SME pays
HDM for the generated power they use, with this income
stream supporting the loan repayments.
Phase one transformation of a disused industrial estate to a low-carbon
neighbourhood full of character that is built for the future:
• 78 three and four bedroom energy-efficient homes
• Solar panels, air source heat pumps and shower water heat recovery
systems, along with other energy saving features
• Solar provider with vision to unlock 2.5GW of rooftop solar
for UK SMEs by 2030
• Enables SMEs to cut energy costs and reduce their carbon
footprint without upfront costs
igloo Regeneration – the original sustainable developer
Dundashill, Glasgow
HDM Energies – provides SMEs with the
benefits of solar without the potentially
significant upfront cost
Hull, East Yorkshire
Feedback
Feedback
Support
Support
Project
Objective
Customer
Development finance
SME lending
Customer
Page 13
We focus on building our asset base by originating new loans, developing new products and diversifying into new markets.
We fund our assets using a variety of sources and take care to secure competitive funding over an appropriate
term to underpin our assets, meet working capital requirements and maintain a strong financial position.
Our business model
Our business model enables us to add value by focusing on meeting the specialist needs of a range
of different customers, while positioning ourselves to deliver returns for shareholders and meet our
broader obligations to stakeholders and society as a whole.
Buy-to-let
mortgages
Development
finance
SME
lending
Motor
finance
Structured
lending
Retail
deposits
Short-term bank
funding
Corporate
and covered
bonds
Central bank
funding
We have a broadly-based funding capability
We lend on diversified assets
Page 14
Shareholders Employees Society
Creating long-term shareholder value
by growing profits and dividends.
(See page 114).
Helping our people develop their
career and reach their potential.
(See page 116).
Helping the UK economy grow and
supporting the communities in which
we operate. (See page 118).
Customers Environment
Providing specialist lending products and savings accounts
to help our customers achieve their ambitions.
(See page 115).
Continually reducing our environmental impact and
designing products that support positive environmental
change. (See page 119).
43.9p
Dividend per share
5.1 days
Average training per
employee in 2025
2
510 +
Record number of paid volunteering
sessions to support charities and
local community groups
+68 +72
Net Promoter Score
(‘NPS’) for Paragon
Bank savings
account opening
NPS for Spring
savings account
opening
52.5%
New mortgage lending
on properties with an
EPC rating of A-C
Our Section 172 statement can
be found on pages 113-121
Customer
expertise
We have a deep
understanding of our
customers and their
markets, designing
products to meet their
needs and continually
striving to exceed their
expectations.
850
million +
items of customer data
analysed each month
Strong financial
foundations
We utilise capital
and debt positions
efficiently to maintain
balance sheet strength.
13.6%
CET1 ratio
Cost control
Distributing loan
products principally
through third party
brokers, collecting
savings deposits online,
and operating mainly
from a centralised
location means we run a
cost-efficient business.
34.8%
Underlying cost:
income ratio
Risk management
We lend conservatively
based on detailed
credit assessments
of the customer
and underlying loan
collateral to minimise
the risk of non-payment
and portfolio losses.
£41.9
million
Impairment charge
Culture
Our core values
underpin the way we
do business and how
we interact with our
customers and other
stakeholders with a
focus on delivering good
customer outcomes.
95%
of employees believe
their behaviour reflects
Paragon’s values
1
Management
expertise
We have an experienced
management team with
a through-the-cycle
track record.
16.8
years
Average length of
service of the executive
management team
Our people
We are committed
to helping all of our
employees reach
their potential
and we recognise
the importance of
development and
diversity in maintaining
a skilled and engaged
workforce.
Platinum accreditation
achieved for the second time
Technology
We are utilising
digital technology to
improve our productivity,
enhance our service to
customers and access
new markets.
New mobile savings
app, Spring, launched
1
Investors in People 2025, Employee Survey.
2
Employer skills survey, UK average 3.6 days.
We use our core strengths to achieve success
We deliver value for all our stakeholders
Page 15
Find out more about the progress we are making
on our strategic priorities on pages 18-23
Our strategy
Vision
To become the UK’s leading
technology-enabled
specialist bank and an
organisation of which our
employees are proud.
Purpose
To support the ambitions
of the people and
businesses of the UK
by delivering specialist
financial services.
Strategy
To focus on specialist
customers, delivering long-
term sustainable growth and
shareholder returns through
a low risk and robust model.
Our strategic framework and priorities
Deliver consistent growth in loan assets and funding by focusing our expertise in
specialist lending markets and building an award-winning savings franchise.
Develop resilience by diversifying into commercial lending alongside our traditional
stronghold in buy-to-let and maintain a broadly-based funding capability.
Transform our business using digital, API-driven, cloud-based technology to enhance customer
service, productivity and growth.
Move towards net zero, build skills and capability to support long-term growth and maintain strong relationships
with our stakeholders.
Generate strong levels of capital to support customers through the economic cycle, provide the capacity
for growth and shareholder returns.
• Loan book +4.0% in line with 10-year CAGR
• 23% growth in cash ISA accounts
• 44.3% of new lending now Commercial Lending
• £5.0 billion, FCA-approved covered bond programme established
• New mobile savings app, Spring, launched
• Digital mortgage origination platform launched market-wide
• 54% reduction in market-based emissions since 2019 base year
• Investors in People Platinum re-accreditation
• £1.2 billion Tier 1 equity
• 17.5% underlying return on tangible equity
Growth
Diversification
Digitalisation
Capital management
Sustainability
1.
2.
3.
4.
5.
Nigel Terrington, Chief Executive
Our strategy is to be a UK-focussed specialist bank, seeking to deliver strong and sustainable
returns over the long term. Our success is evidenced by our track record in mitigating volatility
and optimising risk adjusted returns, backed by our high-quality loan book, through-the-cycle
experience and deep understanding of the specialist markets in which we operate.
We have five strategic priorities that help us to deliver our strategy, underpinned by three strategic
pillars and eight important values.
Page 16
Our strategic pillars
A customer-focussed culture
Expert knowledge and experience,
supported by proprietary insight, data
and analytics to deliver deep understanding
and good outcomes for all our customers.
A dedicated team
An experienced, skilled
and engaged workforce,
and a unique culture
underpinned by our eight
corporate values.
Strong financial foundations
Prudentially strong, with a low-risk
approach to lending, reducing volatility
of underlying earnings and enhancing
sustainability of dividends.
We have identified a number of principal risks, arising from both the environment in which we operate and our business model,
which could impact our ability to achieve our strategic priorities. We have an Enterprise Risk Management Framework (‘ERMF’)
in place to ensure that these risks are monitored and managed in accordance with our risk appetite. These risks and the steps
the Group has taken to safeguard against them are discussed in more detail in Section B8.
Our strong and unique culture is underpinned by eight values that we strive to live up to every day. These values inform
the way we operate, what we stand for and how we work together to achieve our goals.
Principal risks
Risk resulting from inadequate or
failed internal procedures, people,
systems or external events.
Operational
Risk that the corporate plan does not
fully align to and support strategic
priorities or is not executed effectively.
Strategic
Risk of financial loss arising from a
loan customer or counterparty failing
to meet their financial obligations.
Credit
Risk of changes in the net value of, or net
income arising from, our assets and liabilities
from adverse movements in market prices.
Market
Risk of insufficient liquidity and
funding resources to enable us to
meet our obligations as they fall due.
Liquidity and funding
Risk of insufficient capital to
operate effectively and meet
minimum requirements.
Capital
Risk of poor behaviours or decision making
leading to failure to achieve good outcomes
for customers or to act with integrity.
Conduct
Risk of failing to meet the
expectations and standards
of our stakeholders.
Reputational
Risk of financial risks arising
through climate change impacting
our businesses and our strategy.
Climate change
Risk of making incorrect
decisions based on the
output of internal models.
Model
Fairness Professionalism Integrity Humour
Commitment Creativity Teamwork Respect
Our values
Meet the Faces of our values – a group of inspiring individuals
who bring our values to life every day – throughout this report.
Page 17
The total number of limited
companies established to hold
buy-to-let properties has grown
fourfold since 2016, surpassing
400,000 at the beginning of 2025.
Our approach
Delivering progress
£2.7 billion
new lending
£16.3 billion
total loans
and advances
(12 months ended 30 September 2025)
to customer at 30 September 2025
5.5% CAGR
(2020 - 2025)
5.3% CAGR
(2020 - 2025)
Growth
A2.2 Strategy in action:
Diversification SustainabilityCapital managementDigitalisation
We grow our lending in specialist market segments where customers are underserved
by the high street banks. We use our expert knowledge to grow both organically and by
acquisition in a low-risk and robust manner that allows us to balance our stakeholder
needs while delivering sustainable long-term returns.
Savings | ISAs: Out-pacing market growth
The current interest rate environment, combined with the limited tax-free savings
allowance, means that cash ISAs remain a convenient and tax-efficient way for many
people to save. Paragon has been committed to supporting cash ISA savers since
introducing the product in July 2016.
Mortgage lending | Buy-to-let. It’s in our DNA.
This year marks 30 years since our entry into the buy-to-let mortgage market. As the
market gets ever more competitive, we continue to adapt to meet the needs of the next
generation of landlords. A noticeable market dynamic is the growing number of new
landlords choosing to operate within a limited company structure. Our new mortgage
origination system is adapted to underwrite limited company applications quickly and
efficiently, and limited companies now comprise the majority of our completions.
Focus on specialist market segments with good underlying growth
Build market share by developing new products and extending distribution
Grow retention, encourage repeat business and extend customer lifecycle
SME lending | New green asset funding options for business customers
To support businesses on their path to net zero, our SME lending team expanded the
range of green assets and equipment they fund to include:
• Solar panels
• Combined heat and power pumps
• EV charging infrastructure
• Hydrogen refuellers
• Battery electric storage systems
• On-shore wind power
• Hydrogen-powered vehicles
and equipment
This bolsters our green lending capability, which already includes funding for electric
transport and construction assets.
Year-on-year change
+23% +15%
Deposit growth in Paragon
cash ISA accounts
Market-wide growth in
cash ISA accounts
Page 18
Our approach
Delivering progress
£500 million
inaugural deal heavily oversubscribed
£5 billion
covered bond programme established
£1.2 billion
New Commercial Lending
44.3%
Commercial Lending
28.0%
Commercial Lending
(12 months ended 30 September 2025)
(as a proportion of all new lending in 2025)
(as a proportion of operating profit in 2025)
8.4% CAGR
(2020 - 2025)
Diversification into commercial lending markets has been a key focus since gaining our
banking licence in 2014. Growing our expertise through a combination of carefully targeted
acquisitions and organic growth, the Commercial Lending division is now a significant
contributor to our income and profit.
Development finance | Build-to-rent success
Well-known among SME developers for our expertise in funding residential developments
and purpose-built student accommodation, our development finance team has extended
its range to include finance for build-to-rent developments as well as later living, care
homes and light commercial developments.
In November 2024, the team completed its first build-to-rent deal with Capital & Centric,
providing a £37 million finance package to support the restoration of Talbot Mill - one of
Manchester’s oldest surviving Victorian mills - into 190 rental homes.
Build capability in specialist commercial lending markets alongside buy-to-let
Develop a successful savings franchise, while maintaining access to central
bank and capital market funding
Enhance flexibility to stay resilient in the face of changing market conditions
Strategy in action:
Growth SustainabilityCapital managementDigitalisation
Diversification
We develop specialist lending and savings
products in existing and new markets to grow
our business and help make us more resilient to
changing market conditions.
Funding | Covered bond programme
In the last 10 years, our savings business has had to grow fast to support loan book
growth and refinance our liability structure which was historically focussed on the
mortgage-backed securities market and, more recently, TFSME funding from the
Bank of England.
Although this job is now complete, funding diversity remains important in establishing and
maintaining price control and managing our Net Interest Margin (‘NIM’).
This year, alongside the launch of our Spring savings offering, we extended our capability
in the wholesale funding markets, establishing a covered bond programme and building a
range of additional repo facilities with market participants.
Page 19
Delivering progress
94% +
proportion of core systems
now cloud-based
£27.4 million
spend on technology
in the year
of SME lending
applications
processed
through the
portal
63%
of broker
applications
input directly
1 in 3 cases
eligible for digitally supported
underwriting
33%
year-on-year
reduction in
processing time
from application
to approval
Strategy in action:
DiversificationGrowth SustainabilityCapital management
Digitalisation
We are transforming our technology by implementing digitally-
enabled, API-driven, cloud-based platforms to deliver outstanding
customer service, enhance efficiency, support decision-making
and reach more customers in new markets.
Our approach
Mortgage lending | Market-wide mortgage platform roll-out complete
The market-wide roll-out of our new, digital mortgage application system to all brokers, which completed in March
2025 has resulted in an up to 50% reduction in time from application to offer. Brokers and customers benefit from:
• 13 automated API links giving direct access to application-related data from the Group and from third parties,
including credit bureaux and Companies House
• Machine-learning AI to support data entry, extracting key information from submitted documents
• Real-time filtering so applications are matched immediately with suitable products or returned without delay
where they fall outside of criteria
Broker feedback has been positive and, by analysing key data, we have already been able to further streamline the
process for simple mortgage applications from landlords with up to 15 properties. The system also offers existing
customers the opportunity to apply for a further advance or new mortgage direct from their online accounts.
SME lending | Digitalisation of loan origination process drives end-to-end enhancements
The major upgrade of the SME lending front-end IT systems implemented two years ago, which provided portal
access for brokers, and the subsequent introduction of system-based tools to support decision-making, is
delivering significant customer and operational benefits.
Building on this success, we are now replacing our systems for the administration of SME accounts which will
enhance our capability to manage customer relationships through the life of their lease or loan.
Implement flexible, cloud-based and digital-first technology
Utilise API and Open Banking technologies to enhance customer propositions and deliver deeper insight
Leverage data and emerging technology to enhance customer and employee experience
93%
Page 20
Introducing Spring
At the end of April 2025 we launched Spring, a digital banking
franchise operating through a state-of-the-art mobile app, designed
to help customers earn more interest on their everyday money.
Your helpful savings companion
Too many people leave too much of their money in current accounts and linked savings with high street
banks, earning little or no interest. Spring aims to change that.
Using Spring, customers can connect to their current account in minutes and transfer money seamlessly
between the two while letting Spring work quietly in the background to earn them more money.
Strategically significant
Spring uses advanced technology to deliver
an innovative mobile savings app, leveraging
digitalisation to help us grow and diversify
our deposit base. It uses open banking and
integrates over 20 third-party services for
key functions including identity management,
payments and fraud detection.
Consumer-led development
Spring has been developed using extensive
consumer research, with branding concepts,
product parameters, screen designs and key
communications all put to customer testing
before launch.
Outstanding market response
Spring deposits reached over £425 million at
year end, growing seven times faster than our
initial, online Paragon Bank savings business
at its launch back in 2014. Customers are
giving the app a positive reception.
£600 billion+
amount of money held in
accounts earning little or
no interest
£24 billion
estimated amount of
interest income lost by
not seeking a better deal
10 million
number of savings accounts
with a balance over £5,000
earning interest at 1.5% or less
Easy, effortless and rewarding
Easy access
Withdraw anytime. No penalties or fees.
Make saving effortless
With a secure link to your current account.
24/7 support
Get help in the app or chat to our friendly
UK team
Source: CACI Current Account & Savings Database, August 2025
+72
maximum
score of 100
Likelihood to recommend
Advocacy | NPS Net
Promoter Score
Outsystems
Innovation
Awards 2025
Award for
business impact
Page 21
Movements in capital since 2020
0%
5%
Net lending
14.3%
14.3%
(0.5%)
(3.5%)
(5.4%)
(6.0%)
0.4%
13.6%
1.7%
13.6%
Dividends Share buy-backs Other
movements
CET1 ratio
(Sep 25)
Total capital ratio
(Sep 25)
IFRS
transitional
adjustment
Profit
after tax
CET1 ratio
(Sep 20)
15%
10%
20%
30%
25%
CET1 Tier-2
Our approach
Maintain a cautious risk appetite, operationally and commercially
Deliver a sustainable return on tangible equity of 15-20%
Grow our dividend and return excess capital to shareholders through a share buy-back programme
Consistent capital generation
Internal capital generation is a core strength. Since 2020, our trading performance has added 14.3 percentage points to our Common
Equity Tier 1 ratio, as shown in the chart below, providing capacity to support business growth and shareholder returns.
Dividend distribution combined with buy-back discipline
We distribute 40% of consolidated underlying earnings to shareholders in ordinary
circumstances, achieving a dividend cover ratio of approximately 2.5 times. A share
buy-back programme provides added discipline if excess funds cannot otherwise
be deployed in our businesses. Combining regular dividend payments with share
buy-backs, we have repatriated over £1.23 billion to shareholders since our first share
buy-back programme in 2015.
Aligning capital with risk
The UK Government’s Financial Services Growth and Competitiveness Strategy,
unveiled in July, included capital reforms announced by the Bank of England intended
to help mid-tier banks like Paragon grow and compete more effectively. We argued
strongly for these changes, which include, importantly:
• An increase in the total asset threshold at which banks enter the MREL capital
regime from £15 to £25 billion to £25 to £40 billion. This is the point at which banks
need to raise and hold additional capital to support lending
• Plans to revisit the £25 to £40 billion threshold every three years to keep it aligned
with nominal GDP growth
We continue to engage with the PRA on our IRB application.
Our Core Equity Tier 1 (‘CET1’) ratio and our Total Capital ratio at 30 September 2025 were both comfortably in excess of the 8.1%
regulatory minimum mandated for us by the banking regulator, the Prudential Regulation Authority (‘PRA’), in 2025.
£633.2 million
£683.0 million
Total dividends since 2015
Total share buy-backs announced since 2015
returning capital to shareholders
15.3%
Total Capital
Ratio
30 September 2025
13.6%
CET1 ratio
30 September 2025
Strategy in action:
DiversificationGrowth SustainabilityDigitalisation
Capital management
A strong balance sheet and diverse funding capability is fundamental to
our success. Capital management is a critical lever as we invest to grow our
business and people while evolving our technology, risk, governance and
enterprise frameworks.
Page 22
93%
93%
45%
54%
£782.3m
4.7/5
£21.0m£400.0m
of total purchased
electricity from
renewable sources
of our vehicle fleet
hybrid or fully electric
of waste diverted
from landfill
reduction in
market-based
emissions
compared
to the 2019
baseline
Future focus
Completing the decarbonisation of our head office remains our priority in our
commitment to becoming operationally net zero by 2030.
Financing a greener world
We work with industry, partners and policymakers to play a proactive part in
supporting our customers’ transitions to net zero, embedding sustainable finance
throughout our business.
Making a difference
We aim to positively impact our
customers, people and communities.
Our approach
Reduce our own emissions to become operationally net zero by 2030
Finance a greener world, delivering sustainable lending products to help
achieve the UK’s 2050 net zero goal
Make a positive difference to our people, customers and communities
Achieve the highest standards of business integrity and professionalism
Delivering progress
We continued to make progress across each of our environmental, social and
governance priorities, delivering achievements in key areas.
Reducing our own emissions
We are committed to reducing the impact our operations have on the environment.
Our 2025 highlights include:
Trustpilot score rated by 2,789
savings and mortgage customers
1 October 2024 – 30 September 2025
Reaccredited as a Platinum
employer by Investors in People
Status held by only 7% of organisations
assessed and held by Paragon since 2022
new mortgage lending on
EPC A-C properties, 52.5%
of total mortgage lending
of new motor finance
lending on electric and
plug-in hybrid vehicles
of funding allocated
to our Green Homes
Initiative by 2028
£59,000 raised by employees for
Guide Dogs UK, our charity of the
year, and £40,000 donated to other
good causes
513 volunteering sessions
completed by employees to support
community projects across the UK
Joined forces with Tech She Can,
an initiative set up to inspire girls
to pursue technology careers,
hosting a careers insight day at
our head office
Sponsorship of the inaugural
Solihull Pride to support and
celebrate the LGBTQ+ community
in our home town
Strategy in action:
DiversificationGrowth Capital management
Sustainability
Digitalisation
At Paragon, sustainability means understanding our responsibilities towards the
environment and the communities in which we operate, focusing our agenda on doing
the right thing for all our stakeholders and contributing to a world in which we can
all thrive.
A3. Chief Executive’s review
Page 24
Nigel Terrington
Chief Executive Officer
Introduction
We continue to grow the loan book in
our chosen specialist sectors through
the application of a highly centralised
and increasingly digitalised operating
model. This approach delivers
innovation in our specialist markets,
enhances customer experience and
improves efficiency, which combine
to drive up returns.
We maintained our disciplined
approach to pricing, refusing to chase
volume for its own sake. Despite this
focus on returns, we delivered 4.0%
growth in our loan book in the year
which reached £16.3 billion at the
year end (2024: £15.7 billion).
Our digitalisation strategy achieved
a number of major milestones. The
most exciting development in the
year was the roll-out of Spring, our new
app-based digital savings proposition,
which launched to the public in
April 2025. The Spring functionality
uses open banking to facilitate instant
transfers to and from customers’
current accounts, allowing them to earn
significantly better rates on balances that
typically were previously earning little or
no interest. This has been extremely well
received by a growing customer group – with
balances standing at over £425 million at the
year end, and climbing further since.
We also rolled-out a new, best-in-class,
buy-to-let origination platform to the wider
broker community earlier this year – reducing
friction while accelerating processing times to
improve customer experience. These platforms
represent the start of our digital customer capability,
providing a springboard for us to build and expand
offerings to better serve the needs of our customers.
Digital re-platforming continues to roll out across our
business, with the core banking platform for our SME
lending portfolio currently being replaced, following the
2023 delivery of an updated origination system.
As part of our digitalisation strategy, we have seen a careful
incorporation of AI into operations and decision-making while
remaining conscious of the related risks. Focussed on machine
learning, we have also investigated Gen AI applications, where
appropriate. Across the business we have carefully managed
costs and headcount growth, despite our active change
programme, supporting an industry-leading cost:income
ratio of 34.8% (2024: 36.1%).
Leveraging our strong ratings (Moody’s Baa3 / Fitch BBB+)
we became the UK’s 14th FCA-registered issuer of covered
bonds in the year, with our debut £500.0 million issue being
the first regulated covered bond in the UK supported purely
by buy-to-let assets. Alongside our Spring offering,
Paragon-branded savings products, our presence on deposit
platforms and Bank of England facilities, this further broadened
our funding options – optimising access to liquidity and
supporting the maintenance of margins in the year, against
the backdrop of an increasingly competitive savings market.
Financial performance
Controlled growth and careful management of our funding
options saw our net interest margin fall only 3 basis points, from
its 2024 level of 316 basis points to 313 basis points in the 2025
financial year. This was comfortably above the guidance given a
year ago of around 3%. Our average total loan balance rose from
£15.3 billion in 2024 to £16.0 billion in 2025, with the resulting net
interest income increasing from £483.2 million to £502.3 million.
Operating costs for the year were within our guidance levels,
despite the high level of change activity, with the bulk of our tech
spend continuing to be expensed rather than capitalised (the
value of unamortised software rising from £8.0 million to only
£8.8 million across the year).
At £335.8 million, our pre-provision profit was up 5.9%
year-on-year, reflecting the combination of margin
management and cost discipline.
The overall cost of credit rose to 26 basis points, with 82%
of the charge arising in the development finance portfolio,
where a cohort of loans written just prior to the inflationary and
interest rate peak in 2022 continued to generate impairment
requirements. At the year end the net balance of pre-2022
Stage 3 loans totalled £104 million, representing 11% of the
overall development finance portfolio. The rest of our loan book
saw only modest provisioning requirements, which were stable
year-on-year at a cost of risk of 5 basis points.
Underlying operating profits, before fair value adjustments
and one-off costs rose 0.4% to £293.9 million, and the completion
of the £100.0 million 2025 share buy-back supported an 8.5%
growth in underlying EPS to 109.7 pence per share (2024: 101.1
pence) (Appendix A). Our 40% payout ratio results in a proposed
final dividend of 30.3 pence per share and, if approved, a full year
dividend of 43.9 pence per share (2024: 40.4 pence).
Fair value movements on derivatives resulted in a charge of
£11.9 million (2024: £38.9 million). Fair value movements are
non-cash items which reverse over time and are excluded from
underlying performance metrics.
2025 marks a major milestone in our
strategic delivery. We have transformed
the way that we operate, leveraging
technology to empower our people.
Page 25
Strategic Report
In our 2025 half-year accounts we made a £6.5 million provision
in respect of potential liabilities arising from historical motor
commission practices. Since that time, the Supreme Court has
concluded on the three Court of Appeal cases it heard on the
subject and the FCA has announced the details of a proposed
industry-wide redress scheme. Whilst the redress scheme is
still in its consultation phase, it represents the most likely basis
against which to assess the level of our exposure.
We have therefore made a provision on the basis of our best
estimate of the impact of the FCA’s current proposed redress
scheme methodology, rather than adopting the previous
scenario-based approach. This resulted in a total provision
charge in the year for potential redress and estimated associated
costs of £25.5 million (2024: £nil). This charge has been excluded
from our analysis of underlying performance, as it relates to
historical, rather than current, trading.
However, while we have made the extra provision, we do not
believe it reflects the actual loss to customers or customer harm,
especially as we applied a low price / low commission model,
relative to the broader motor finance market at the time.
Statutory profit before tax for the year was £256.5 million
(2024: £253.8 million) and basic earnings per share on the
statutory basis was 91.2 pence per share (2024: 88.5 pence
per share) an increase of 3.1%.
Our effective tax rate increased to 29.7% in the year
(2024: 26.7%), largely due to the non-deductible nature of the
motor redress provision. The underlying tax rate was 26.2%
(2024: 27.4%). Statutory profit after tax fell 3.1% to £180.3 million
(2024: £186.0 million).
Trading performance
Total new advances for the financial year were in line with the
previous year at £2.7 billion (2024: £2.7 billion).
Within our Mortgage Lending division, new advances totalled
£1.5 billion (2024: £1.5 billion) which, when combined with
continued strong customer retention, resulted in the net loan
book increasing by 3.4% to £13.9 billion. Our legacy portfolios
continue to amortise, but our new buy-to-let portfolio, originated
after the global financial crisis of 2007-8, saw net growth of 7.8%.
The increase in buy-to-let arrears seen in the first half of the year
stabilised in the second half, with the 3-month plus measure
remaining almost unchanged from the half year at 52 basis points
(2024: 38 basis points). The buy-to-let pipeline remained healthy
and finished the year at £820.9 million (2024: £881.4 million).
The Commercial Lending portfolio grew by 7.6% in the year,
standing at £2.5 billion at the year end (2024: £2.3 billion).
Aggregate new advances totalled £1.2 billion (2024: £1.2 billion),
with both the development finance and motor businesses
showing growth and asset finance broadly flat. Structured lending
saw a reduction in net drawings, although the absolute scale
of facilities grew by £73.0 million in the year, to £403.0 million.
The year-end development finance pipeline, including undrawn
balances, rose 13.0% from its 30 September 2024 level, to
£701.0 million (2024: £620.6 million).
Sustainability
Sustainability remains at the heart of our strategy, and we
have made steady progress during the year in delivering on
the road map laid out in earlier periods. We keep the evolving
expectations of stakeholders, regulators and governments under
review, but have not, so far, identified any requirements for a
significant change to our present approach.
Capital and funding
The most notable funding developments in the year have been
the issue of our first covered bond and the launch of Spring,
as we adapted the mix of our funding options to optimise both
liquidity and margins.
During the year we completed our £100.0 million share buy-back
as we seek to optimise our capital efficiency, with our CET1 and
total capital ratios standing at 13.6% and 15.3% respectively
(2024: 14.2% and 16.0%). We continue to operate well in excess
of our regulatory capital requirements, with a CET1 headroom
of 2.7% of TRE and a strong surplus above our regulatory
capital requirement.
With Basel 3.1 currently expected to come into force in the UK
on 1 January 2027 we continue to press ahead with our IRB
application for buy-to-let. In addition, preparatory work for our
development finance portfolio is also well underway as the next
stage in our roll-out plan. We have submitted an updated set
of models and associated modules to the PRA following their
feedback on previous submissions and we continue to have close
contact with them as part of advancing our application process.
Our approach to capital management over the past ten years
has included operating a share buy-back programme alongside
our dividend distributions, returning £633.0 million of excess
capital to shareholders over this time. Our plans for 2026 broadly
maintain this approach and we have announced a further
£50.0 million share buy-back for the coming period.
Strategic outlook
2025 marks a major milestone in our strategic delivery. We have
transformed the way that we operate, leveraging technology
to empower our people. This has enabled us to better serve
the needs of our customers by solving problems while offering
value for money and improved service. While much has been
achieved, there is a lot more to do as we build on these existing
developments and expand further across the bank.
The benefits of this transformation will allow us to control our
costs, while paving the way for us to invest in new products and
capabilities that expand the markets we are able to serve and the
customers we can reach. Building on the strong positions in our
chosen markets, together with diversification on both sides of
the balance sheet combine to deliver sustainable returns for
our shareholders.
We invest these returns with discipline in competitive markets,
favouring risk and margin considerations over volume growth,
deploying capital management and prudential control, ensuring we
retain sufficient funds to develop our business, whilst at the same
time distributing any excess through dividends and buy-backs.
Conclusion
Our 2025 results continue to demonstrate the strength of our
franchise and evolving operating model. We have delivered
record underlying earnings per share, dividends and a
£100.0 million share buy-back while simultaneously transforming
the business, investing heavily in Paragon’s future. Customer
demand has been stop / start during the period, reflecting
the elevated political uncertainty with volatility in interest rate
expectations impacting all our businesses, but most notably the
buy-to-let and development finance customer base.
Despite relatively subdued external demand, we end 2025 with
solid pipelines and look towards 2026 with optimism. Inflation
appears to have peaked and interest rates now look set to fall,
with reduced volatility. Demand from SME customers is picking up
and, with a strong capital position and a strengthened proposition,
we remain well placed to serve all our customers’ ambitions.
Our strategic priorities remain unchanged. Our consistent
focus on sustainable growth, increased diversification that is
increasingly technology-enabled, and continuing internal capital
generation, puts us in a strong position to continue to deliver
healthy returns for our shareholders.
Nigel Terrington
Chief Executive Officer
3 December 2025
Page 26
A4. Review of the year
This section describes our activities in the year under these headings:
Lending and the
performance of each
of our business lines
Deposit-taking and
the other sources
of funding used
Our regulatory
capital, liquidity
and distributions
Our results
for the financial
year
Systems, people,
sustainability and risk
highlights for the period
A4.1 Business review
We report results analysed between two principal segments,
Mortgage Lending and Commercial Lending, based on types of
customers, products and the internal management structure.
These segments remain the same as those reported on in earlier
periods. New business advances in the year and year-end loan
balances for these segments are summarised below:
Advances
in the year
Net loan balances
at the year end
2025 2024 2025 2024
£m £m £m £m
Mortgage Lending 1,491.0 1,493.2 13,876.4 13,415.7
Commercial Lending 1,186.2 1,236.8 2,464.9 2,289.8
2,677.2 2,730.0 16,341.3 15,705.5
Total loan balances increased by 4.0% in the year, with strong
customer retention across our portfolios throughout the year.
Total advances decreased marginally, by 1.9% year-on-year,
although the pattern of movements was not consistent
between our specialist markets.
A4.1.1 Mortgage Lending
Our Mortgage Lending division principally provides buy-to-let
mortgages secured on UK residential property to specialist
landlords. We have been active in this market for almost thirty
years, which gives us deep data and a strong understanding of
the market through various economic cycles. Over this period
we have developed strong relationships with business providers,
landlords and trade bodies. These provide an unparalleled
understanding of both the buy-to-let market and the specialist
landlord customer base we target.
During the year we also offered a limited volume of loans to
non-specialist landlords, although this activity is non-core and
has diminished over recent years. The segment also includes
legacy assets from discontinued product lines, principally
residential first and second charge mortgages, although
these form a small fraction of the portfolio and are running
off over time.
Our focus on the specialist buy-to-let market facilitates detailed,
case-by-case underwriting, using systems and processes
tailored to the specific needs of this customer group, where our
focus on understanding and managing property risk, building
customer relationships and the intelligent use of digital solutions
to support our underwriting differentiate us from both mass
market and other specialist lenders.
Housing and mortgage market
While the UK’s economic performance in the period was mixed,
with interest rates falling only slowly and wage increases not yet
eradicating the inflationary impacts of recent years, the overall
outlook at the 2024 year end was mildly pessimistic. However,
a level of stability returned to the UK housing market in the
year. According to HMRC, the number of transactions over
year ended 30 September 2025 was 1,200,000, representing
a return to monthly transaction levels which had been normal
in the pre-Covid period. Some of this volume may have been a
response to stamp duty changes which took effect in April 2025,
with the March 2025 transactions level being particularly high.
This growth represents an increase of 14.4% in the number of
transactions compared to the last financial year
(2024: 1,050,000).
Despite some predictions to the contrary during the year, UK
house prices remained generally resilient. The Nationwide
House Price Index recorded an increase of 2.2% in the year,
slightly down on its 2024 performance, but continuing the same
gently upward trend, with Nationwide predicting a continuing
gradual recovery, supported by interest rate stability and positive
employment levels. This sentiment was generally echoed by
RICS in its September 2025 UK Residential Market Survey,
where it suggests a marginal decline in prices in the very short
term, moving to an upward trend later, but a potential period
of stagnation or lower prices in the short term, although it
summarises the prospects as ‘underwhelming’.
UK house prices have now been on a clear but gradual upward
trajectory for the two years ended in September 2025 and
closed the year only 0.6% below their August 2022 peak. A higher
average house price has been recorded at only two previous
month ends, meaning that the number of mortgage loans where
the security value is less now than it was at the point of advance
should be relatively low.
In response to the increased level of activity in the housing
market, new mortgage lending also strengthened in the year.
The Bank of England reported new approvals of £295.1 billion for
the year ended 30 September 2025, an increase of 21.7% on the
£242.4 billion reported for the previous financial year as activity
levels continue to recover towards their longer-term averages.
Business
review
Funding
review
Capital and
liquidity review
Financial
results
Operational
review
A4.1 A4.2 A4.3 A4.4 A4.5
Page 27
Strategic Report
Page 28
The increase was driven by a recovery in remortgage activity,
which increased by 30.5%, potentially led by the availability of
more attractive fixed rate mortgages. At the same time the value
of mortgages being refinanced with an existing lender increased
by only 7.5%. In contrast, loans for new purchases increased by
17.5%, more in line with the market activity figure.
Quarterly Bank of England UK mortgage approval data for the
last five financial years is set out below.
UK mortgage approvals (£m)
Five years ended 30 September 2025
0
10,000
20252024202320222021
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
At 30 September 2025 the UK Finance (‘UKF’) survey of
mortgage market arrears and possessions reported arrears
levels in general improving through the financial year, although
serious arrears did not begin to fall until the end of the period.
Possession numbers, however, continued to grow, reaching
a level higher than any seen since 2019, with a year-on-year
increase of 51%.
Private Rented Sector (‘PRS’) and buy-to-let mortgage market
The 2023-2024 English Housing Survey, published by the
Ministry of Housing, Communities and Local Government
in November 2024, shows that the PRS continues to
represent around 19% of English households, as it has
done since 2013-2014.
Our target customers in the buy-to-let sector are specialist
landlords active in the PRS. Such landlords will typically let four
or more properties, or operate with more complex properties
(such as homes in multiple occupation (‘HMOs’)). Most own
their properties through limited company structures and run
their portfolio as a business. They will have both a strong
understanding of their local lettings market and a high level of
personal day-to-day involvement. We are amongst a group of
mostly small, specialist lenders focussed on this part of the PRS,
which remains underserved by many of the larger banks, despite
an increased level of interest by them in the PRS in general.
While it is clear that the changing economic environment and
increasingly complex regulatory landscape has caused, and
is causing, some landlords to step away from the PRS, our
experience is that this reaction is concentrated amongst some
smaller non-specialist amateur landlords, while our specialist
customers remain committed to the sector.
The experience of these professional landlords, their level of
involvement with their lettings business and the diversification
of their income streams across properties make them less
vulnerable to cash flow shocks in the event of a downturn and
better able to cope when faced with an adverse economic
situation impacting them or their tenants.
The development of the regulatory landscape for the PRS
has been dominated for some time by the legislative changes
which became law as the Renters Rights Act 2025 in October
2025. The Act is largely based on proposals developed by the
previous government following the publication of a White Paper
in 2022, and resulted from a significant amount of input from
organisations representing lenders, tenants and landlords.
The provisions of the Act will begin to come into force in
May 2026 and we hope that care will be taken to ensure that
the implementation is proportionate and fully resourced. It is
important that the new regulatory environment, as it develops,
balances the needs of both tenants and landlords, recognising
the important role which responsible landlords play in satisfying
the UK’s housing needs, and in the economy more generally. We
believe, while it will impose additional burdens on our landlord
customers, the new legislation is unlikely to have a significant
impact on our business model, if properly implemented.
Survey data suggests that around two thirds of landlords in the
PRS claim to have a good awareness of the content of the Act,
with a significant number considering that it will have a negative
impact on their business, and a much larger number suggesting
it will have a negative impact on the PRS as a whole. A large
number suggested that the legislation will make them more
selective about who they let to.
During the year we have continued to engage with the UK
Government and with interested parliamentarians on the
development and potential implementation of the Renters
Rights Act, and on other matters relating to the PRS, both
directly and through industry bodies.
The residential rental market in the UK remains strong, with the
September 2025 RICS UK Residential Market Survey reporting
restricted supply, coupled with stable demand, leading to
upward pressure on rents. RICS members therefore anticipate
a continuing upward trend in rents, leading to a rise of around
3% over the next twelve months on a UK-wide basis, somewhat
more subdued than in recent years.
In its most recent data, published in September 2025, Zoopla
produce a similar growth forecast, despite reporting the softest
conditions in the UK rental market for 5 years. However, rents
continued to increase, with the average rent on new lets
increasing by 2.4% in the year to July 2025, and demand weaker in
the year. This is supported by research from Propertymark in its
September 2025 Housing Insight Report, which reported tenant
demand generally reducing through the 2025 financial year, but
still significantly outstripping supply, and average rents up 5.5%
year-on-year. Propertymark also reported that the number of
available rental properties had been relatively stable over the year,
with the level of rental arrears also remaining generally stable.
Activity in the buy-to-let mortgage market in the period was
marginally more positive than the trend of the general mortgage
market. New advances reported by UKF were £39.7 billion for the
year ended 30 September 2025, 28.5% higher than for the same
period the previous year (2024: £30.9 billion). Activity in both
the new house purchase market and the remortgage market
increased by similar amounts.
The proportion of borrowers transferring to new products offered
by their existing lender, which are not recorded as new cases in
the data, continued to represent the most substantial share of
refinancings, with around 64% of landlords adopting this form
of refinancing in the period, a decrease from around 68% a year
earlier, driven by the increase in the remortgage figures.
In research carried out amongst landlords in the PRS for the
final quarter of the financial year, around 68% of respondents
reported strong or very strong tenant demand, although this had
declined steadily through the year. The proportion of landlords
reporting that their business was profitable in the long term has
also gradually increased, despite economic headwinds, over the
last five years, with the vast majority (around 70%) reporting rent
increases in the last twelve months, and the number expecting
to raise rents in the next year only slightly smaller than this.
Page 29
Strategic Report
Average yields had continued to move gradually up, while rental
arrears were also reported as remaining broadly stable.
Despite this largely positive picture, landlords’ confidence
levels for their own businesses had declined in the period, with
an increased level of pessimism for future rental yields, and
capital gains. Their outlook for the UK economy as a whole was
particularly pessimistic, with hardly any respondents rating its
prospects as ‘good’ or ‘very good’.
The UKF analysis of arrears and possessions also provided
analysis of buy-to let cases. This differed significantly from
the wider mortgage data, with light arrears reducing more
significantly than those in the residential market, but the
most serious cases worsening through the twelve months to
September 2025, although they had begun to ease at the end
of the period.
While the picture from this data remains mixed, it would seem
to indicate continuing strength in the PRS, despite ongoing
pressures, albeit with a degree of caution on future prospects,
both on an economic and a regulatory basis. This should
support both cash flow and affordability for our landlord
customers, particularly those on fixed rate loans, who have
the ability to manage their assets over time to mitigate
potential payments shocks.
Mortgage Lending activity
New mortgage lending activity during the year is set out below.
Almost all the division’s lending in the period was to its target
specialist landlord customers.
2025 2024
£m £m
Originated assets
Specialist buy-to-let 1,468.8 1,477.9
Non-specialist buy-to-let 22.2 15.3
Total buy-to-let 1,491.0 1,493.2
Total mortgage originations were broadly similar to those seen
in 2024, with second half volumes reduced from the first half,
as the impact of the stamp duty changes from April accelerated
some transactions. Competition in the sector impacted on our
volumes, as we focussed on preserving margins on the business
we did lend.
The new business pipeline, however, grew through the second
half of the year, reaching £820.9 million at the year end. While
this is 6.9% lower than the level reported at the previous year end
(2024: £881.4 million), our pipeline measure has been impacted
by the effect of enhanced screening at application, introduced
as part of our new mortgage lending system. The new process
results in a lower pipeline measure, but with a higher conversion
rate expected, therefore comparison on a like-for-like basis
between pipeline data before and after its introduction is not
possible. When compared with the pipeline at 31 March 2025,
after the new system was introduced, the year-end pipeline was
24.0% higher, suggesting a positive start to next year’s lending.
We have well-established, digitally-enabled retention procedures
in place to support our customers as their fixed rates expire.
Track-to-fixed products remain available as an alternative to
fixed-rate loans, allowing customers to delay fixing their interest
rates, where appropriate, and our fixed rate product range
remains competitive for both existing and new customers.
Over 83% of the specialist landlord customers whose products
matured in the past year remained with us at the period end.
Specialist intermediaries are the principal source of our
buy-to-let applications, and we continue to strategically focus on
ensuring that the service they receive is excellent. Our regular
intermediary insight surveys in the year showed 94% were
satisfied with the ease of obtaining a response from our team
(2024: 95%), delivering a Net Promoter Score (‘NPS’) at offer
stage of +52 (2024: +55).
74% of intermediaries dealing with us rated our service
‘as good’ or ‘better than’ that provided by other lenders
(2024: 78%). Paragon Mortgages was also named ‘Buy-to-Let
Lender of the Year’ at the 2025 Financial Reporter Awards and
‘Best Professional Buy-to-let Lender’ at the 2025 Your Mortgage
Awards. Louisa Sedgwick, Managing Director – Mortgage
Lending, was also named ‘Business Leader of the Year’ at the
2025 Credit Strategy Leadership Awards.
The roll-out of our upgraded mortgage underwriting platform,
which covers the process from application to offer, continued
through the first half of the year, and by 31 March was available
to our full broker community. The new system is both easier
to navigate and more intuitive for users and offers enhanced
functionality to introducers. The new broker interface was
developed based on research amongst intermediaries, who
identified certainty, transparency and speed as the key attributes
of a successful system, which we have worked to deliver.
The new platform uses API technology, with 13 automated
connections enabling brokers to have direct access to data
related to an application, both from the Group and from third
parties, including credit bureaux and Companies House.
Machine-learning AI supports data entry, extracting key
information from submitted documents. These features enable
significantly more efficient application processing and also
permit applications to be filtered in real time as they are entered
by brokers. Therefore, cases wholly outside criteria never
enter our process, with the broker immediately able to seek
an alternative for their customer. These tools also support a
more effective assessment process internally, delivering more
capacity to our buy-to-let new lending function.
The new platform has been extremely well received so far, both
externally and internally, with a significant reduction in the
time from application to offer being particularly appealing to
intermediaries. Days to offer for more complex product types
have reduced by 20% on average, with some cases showing
an improvement of 50%. Alongside the system roll-out, the
feedback received from the initial cohorts of brokers to use the
platform was used to refine the system before the full roll-out,
and this process of feedback and enhancement continued
through the year.
The greater efficiency of the system gives us the capacity to
expand our network of relationships, expanding our presence
amongst mortgage clubs and broker networks, and giving
access to more opportunities in the future. The data handling
enhancements have also enabled us to launch a new ‘swift and
simple’ product for less complex single property applications,
allowing them to be handled more efficiently and cost-effectively.
We have also enhanced our processes for customers wishing to
take out a further advance.
Enhancements already delivered under the mortgage
digitalisation programme continue to demonstrate their value
to our business. The redemption and retention process which
went live in 2022 continues to underpin the division’s success in
this area, while one in three of our landlord customers now use
the flexibility of our self-service capability, reducing their need
to contact customer services. This gives us confidence in the
benefits that our new system, together with subsequent stages
of this project which will ultimately address the entire mortgage
life cycle, will bring to the business, our broker community and
our customers as they are rolled out.
Page 30
Overall, our buy-to-let franchise retains its strong position in the
market, with the new origination system delivering a step-change in
its capabilities, providing a more effective and responsive service
to landlords and brokers. We intend to continue to invest in our
mortgage systems, ensuring we remain fully equipped to meet the
needs of our customers and brokers as these develop over time.
While the PRS is currently subject to regulatory headwinds, this
has been the case, in one way or another for several years now.
However, these pressures have historically had the greatest impact
on non-specialist landlords, and this seems likely to remain the
case going forward. Despite these pressures the PRS remains
fundamental into meeting the nation’s housing needs. This means
that the viability of our landlord customers’ operations will continue,
and their ongoing requirement for finance to support them in
delivering housing solutions to households in the UK will underpin
our business going forward.
Environmental impacts
The potential for our mortgage lending business to affect, and
be affected by, climate change is fundamental to our overall
sustainability strategy. We therefore seek to mitigate this
risk, both through the application of scenario analysis to the
development of our underwriting procedures, and through
careful consideration of the specific risks relating to properties
on which we will lend. We also continue to develop systems and
refine data to allow our overall exposure to be measured and
the behaviour of the security portfolio under climate-related
stresses to be better understood.
As part of our response to combatting climate change, a range
of green buy-to-let mortgages is offered on all types of property
within our lending criteria. These products offer lower interest
rates for energy-efficient properties with EPC ratings of C or
higher, the currently accepted benchmark for energy-efficient
properties, which the UK Government proposes to make a
requirement for new tenancies by 2028, and for all buy-to-let
properties by 2030 under its proposed amendments to the
Minimum Energy Efficiency Standard (‘MEES’).
We have followed the consultation on the proposed MEES
amendments carefully. While we appreciate the objectives of
the proposals, we agree with the National Rental Landlords
Association and many other industry groups that the 2028
and 2030 target dates are impractical. Given the level of work
which would be required across the PRS, it seems unlikely that
sufficient appropriately qualified tradespeople will be available
to meet these timescales. We would also agree that the scope
of properties covered needs more detailed consideration.
We await the UK Government’s response to the consultation
process with interest.
Together with other UK banking entities, we have been working
with the UK Government to develop a more consistent approach to
the definition of green activities in the housing market and housing
finance sectors. It is unlikely that significant progress can be made
in greening the UK housing stock until all market participants have
a shared concept of what that should mean in detail.
Our new buy-to-let lending volumes on energy-efficient
properties, which have decreased by 1.6% in the year, only
slightly more than the reduction in total mortgage lending, are
set out below.
2025 2024
£m £m
EPC rated A or B 175.9 189.1
EPC rated C 606.4 606.2
Total rated A to C 782.3 795.3
Percentage with available
data (UK)
99.9% 99.8%
Our latest analysis identified EPC grades for properties
representing 96.3% by value of the mortgage book at
30 September 2025 (2024: 95.4%). Of these properties, 99.5%
were graded E or higher (2024: 99.4%) with 46.8% rated A, B or
C (2024: 45.4%). The year-on-year movements are principally
a result of the balance of new business, with over half of the
advances in the current year, 52.5% (2024: 53.3%) having one of
the top three grades.
While we monitor EPC ratings as a key metric for downstream
climate impacts, we are also conscious of the need to avoid
unintended consequences which might result from applying it
as an absolute lending criterion. Although upgrading existing
properties is beneficial to overall emissions, the demolition and
replacement of properties may be less so.
Potential physical risks to security values arising from climate
change are also monitored. This includes assessing a property’s
flood risk as part of the underwriting process. In addition, the
exposure relating to the current mortgage book is monitored
using specialist bureau data. This addresses the risk of
flooding from rivers, seas or surface water. The latest data, at
30 September 2025, showed that approximately 3.0% of
properties securing buy-to-let mortgages, where data was
available, were at ‘higher’ risk (2024: 3.1%).
Research carried out amongst PRS landlords in the third quarter
of 2025 suggested that around 60% of landlords have at least one
property which does not meet the EPC C standard, with many
having several. Almost all the landlords questioned said they had
at least some awareness of the MEES proposals, with two thirds
claiming a full understanding. Nearly half of the respondents said
they planned to carry out works to upgrade their properties ahead
of the potential MEES implementation.
We are currently developing additional products to support
existing landlord customers in making their properties more energy
efficient. Given that the majority of properties in the PRS require
some form of upgrade to meet the Government targets, this kind of
support will be vital to achieving the net zero target while protecting
the utility of the PRS as a source of housing provision.
Further information on these metrics and our wider
climate change agenda is given in Section A6.4.
Performance
The outstanding first and second charge mortgage balances
in the segment at the year end are set out below, analysed by
business line.
2025 2024
£m £m
Post-2010 assets
First charge buy-to-let 11,453.1 10,620.9
First charge owner-occupied 13.9 16.2
Second charge 41.2 56.7
11,508.2 10,693.8
Legacy and acquired assets
First charge buy-to-let 2,321.6 2,658.4
First charge owner-occupied 2.5 4.1
Second charge 44.1 59.4
13,876.4 13,415.7
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Strategic Report
The outstanding amount of the segment’s loans has continued
to increase, despite difficult market conditions, supported by a
strong retention performance. At 30 September 2025, the total
net mortgage portfolio was 3.4% higher than it had been twelve
months earlier. The majority of the book comprises buy-to-let
mortgage loans originated after 2010, with the balance of such
lending growing by 7.8% and now representing 82.5% of the
division’s total loan assets (2024: 79.2%). The remaining balance
comprises legacy and discontinued products, which continue to
run off over time.
The annual redemption rate on buy-to-let mortgage assets, at
7.0% (2024: 6.7%), has continued to be at a relatively low level.
This low rate reflects our strategic priority of managing customer
behaviour as fixed-rate periods end, with significant operational,
product and systems focus placed on customer retention.
This was achieved despite the potential impact of current rate
levels on customers who have been used to paying interest at
lower rates but have now reached the end of their fixed-rate
periods. Of the professional landlord customers whose
fixed-rate products matured in the year, 83.7% remained on
the book at 30 September 2025 (2024: 85.3%), despite
increased market competition in the year.
Three-month arrears on the buy-to-let book increased
marginally in the year to 0.52%, only slightly higher than the
0.51% reported at the half year (2024: 0.38%), with the payment
performance of our customers remaining strong, despite the
economic pressures in the UK. Arrears on post-2010 lending
were even lower, at 0.16% (2024: 0.11%). Our arrears remain very
low compared to the overall buy-to-let market, highlighting the
strength of our credit standards and account management
processes. UKF reported arrears of 0.75% across the sector at
30 September 2025, a reduction year-on-year (2024: 0.86%), and
less than the arrears seen in the wider mortgage market.
Our buy-to-let underwriting is focussed on a potential
customer’s credit quality and financial capability, underpinned
by a robust assessment of the security offered. Relying on a
detailed and thorough assessment of the value and suitability of
the property as security, this approach to valuation, including the
use of a specialist in-house valuation team, provides significant
confidence in security values, even in times of economic stress.
The loan-to-value coverage in our buy-to-let loan book, at 63.2%
(2024: 62.8%), represents significant security, supported by the
gradually increasing levels of UK house prices over the year.
Levels of interest cover and affordability in the portfolio remain
good, even on a stressed basis, leaving customers well placed
to develop their businesses going forward; indeed, on a simple
weighted average basis, our landlord customers now have
around £9.5 billion of equity in their mortgaged properties.
For accounting purposes, 5.4% of the segment’s gross balances
were considered as having a significant increase in credit risk
(‘SICR’) at the year end (2024: 5.8%), including 1.3% which
were credit impaired (2024: 1.4%). This represents a marginal
improvement, year-on-year in the overall credit position. This,
coupled with the closure of some older long-term default cases,
led to a marginal reduction in provision coverage to 23 basis
points (2024: 26 basis points). Coverage on fully performing
accounts also reduced slightly, supported by strong security
values, to 1 basis point (2024: 3 basis points).
Our receiver of rent process for buy-to-let assets helps to reduce
the level of losses by giving us direct access to rental flows
from the underlying properties, while allowing tenants to stay
in their homes. At the year end, 572 properties were managed
by a receiver on the customer’s behalf, a decrease of 11.0% over
the year (2024: 643 properties). The reduction relates, in part to
the resolution of a number of long-standing accounts, with the
number of ongoing cases where the receiver was appointed in
2020 or earlier falling by 38.8%.
Almost all current receiver of rent arrangements relate to pre-2010
lending, with cases being gradually resolved on a long-term basis to
ensure the best outcome for the business, our landlord customers
and their tenants. As part of the receivership process, an up-to-date
valuation of the property is obtained, therefore provisions on these
cases are based on up-to-date security values.
A4.1.2 Commercial Lending
The Commercial Lending division includes four specialist
business streams lending to, or through, commercial
organisations, mostly on a secured basis. This division has been
a principal source of our growth and diversification over recent
years, two of our major strategic priorities.
The four business lines comprise:
Development finance
Providing funding for property development projects, mostly
residential in nature
SME lending
Providing leasing for business assets and unsecured cash flow
lending for professional services firms, amongst other products
Structured lending
Providing finance for niche non-bank lenders
Motor finance
An operation focussed on specialist parts of the sector
Each of these businesses has its own specialist management
team appointed for their strong understanding of their specific
market. The principal competitors for each are small banks and,
increasingly, non-bank lenders. We operate principally in market
segments where the largest lenders have a limited presence,
creating both a credit availability issue for customers and,
consequently, opportunities for our businesses.
Our overarching strategy for the Commercial Lending division is
to target niches (either product types or customer groups) where
our skill sets and customer service culture can be best applied,
and our capital effectively deployed to optimise the relationship
between growth, risk and return.
Commercial Lending activity
Overall, our new lending measure in the Commercial Lending
segment decreased by 4.1% in the year. However, much of this
was the result of a lower increase in net balance in our revolving
structured lending operation. In the operations where gross new
lending can be measured (which excludes structured lending),
volumes increased by 2.4% year-on-year, with development finance
and motor finance both returning increases in volumes, despite the
cautious attitude to the UK economy being taken by many SMEs
and consumers, making them wary of long-term commitments.
Page 32
The new lending activity in the segment during the year is set
out below, analysed by principal business line. As the structured
lending business comprises revolving credit facilities, the net
movement in the period is shown (which can be negative).
2025 2024
£m £m
Development finance 527.2 511.9
SME lending 479.6 480.7
Motor finance 169.6 156.4
1,176.4 1,149.0
Structured lending 9.8 87.8
1,186.2 1,236.8
These advances continued the growth of the overall Commercial
Lending portfolio, with the total loan book increasing by 7.6% in
the year to £2,464.9 million (2024: £2,289.8 million), its highest
level to date. The increase in the portfolio over the last seven
years, all of which represents organic growth is illustrated below.
Commercial Lending balance outstanding (£m)
30 September 2019–2025
0
2025202420232022202120202019
Development finance
SME lending Structured lending Motor finance
500
1,000
1,500
2,000
2,500
Development finance
Activity in our development finance business continued to be
impacted by economic uncertainty in the UK, with nervousness
over potential inflationary pressures both from the October 2024
budget announcements, particularly their effect on labour costs,
and from the issues around international trade which emerged
in the year. This is despite the UK Government’s positive
statements on planning and housebuilding, including initiatives
to streamline the planning process in England and Wales, which
are yet to have a significant impact.
The market for financing quality projects remained competitive.
However, the level of new drawings in the year increased by
3.0% year-on-year to £527.2 million (2024: £511.9 million), despite
the potential headwinds and our strict management of yields,
with our long-term relationships with developers proving an
asset. The commitment value of new facilities which made their
first drawing in the period was only 5.4% lower, year-on-year, at
£527.8 million (2024: £558.2 million).
Our development finance customer base comprises primarily
smaller-scale, unlisted property developers, whose business
model relies on a continuing flow of new projects, and customers
continue to bring forward viable proposals despite concerns
over future economic conditions. Projects started over the last
three years have generally seen less issues than those started in
2022 and earlier, enhancing developers’ stability and confidence.
While we finance mostly residential developments, we also fund
an increasing balance of more specialist properties, including
purpose-built student accommodation (‘PBSA’), later living, care
homes and build-to-rent propositions, with further expansions in
eligible property types under consideration.
Prospects for future lending appear positive, with undrawn
balances on projects in progress strengthened by 3.5%
year-on-year, to £515.3 million (2024: £497.7 million), while the
new business credit approved pipeline closed the year at
£264.1 million, 30.7% higher than its September 2024 level
(2024: £202.1 million). A significant proportion of these balances,
particularly those related to projects which have already
started, would be expected to be drawn in the early part of the
coming financial year, providing a stronger base for our lending
performance in 2026.
Looking to the longer term, there is some evidence that despite
the uncertainty over the future direction of costs and government
policy, developers’ appetites for new projects remain positive,
resulting in a level of enquiries in the period which was 8.5%
higher than that seen in the comparable period a year earlier,
accompanied by a positive trend for conversions.
The business supports the development of the most
energy-efficient properties, those with an EPC rating of A,
through its Green Homes Initiative (‘GHI’). The GHI fund was
extended by a further £100.0 million during the year, to
£400.0 million. This scheme provides beneficial terms for
projects which focus on the development of EPC A grade
properties, and by 30 September 2025, £295.0 million of new
lending facilities had been agreed under this initiative
(2024: £184.7 million), with drawings in the year of
£113.8 million (2024: £71.7 million). This initiative rewards
energy-efficiency, improving the environment and reducing
fuel bills for the ultimate residents, while providing financial
benefits to customers.
Government data continues to show that the UK is building
insufficient homes to cover its longer-term housing requirements,
with new initiatives by the UK Government yet to generate any
meaningful impact. Meeting this demand could, subject to the
effect of any policy interventions, offer significant expansion
opportunities for smaller developers and for our development
finance business to support them. We also have a strong
presence in the PBSA market, where evidence suggests there is a
significant shortfall in high-quality provision going forward.
SME lending
Our SME lending business has a focus on construction
equipment and similar wheeled plant and is therefore exposed
to UK sentiment around capital investment. The nervousness
around the ultimate impacts of UK Government policy seen over
the course of the year, coupled with the continuing heightened
interest rate environment, have meant that the cautious attitude
towards instigating major capital projects seen at the last year
end has persisted through the period.
This has created a challenging operating environment for the
business and its customers, and there has been some pressure
around pricing across the market, with the business remaining
focussed on protecting its margins. However, despite these
external pressures, new lending in the SME lending business
overall was similar to that seen in 2024, at £479.6 million
(2024: £480.7 million).
Page 33
Strategic Report
The major upgrade to the business’s front-end IT systems
implemented two years ago as part of our digitalisation
strategy continues to further benefit operational effectiveness,
as incremental development continues, and more external
business partners are given access to a system portal which
enables them to input cases directly.
More business introducers are making use of the portal, with
almost 63% of applications input directly, compared to just
under 50% in the previous financial year. The system, which
now handles over 93% of new SME lending business, makes
effective use of a variety of system-based tools to support
decision-making, with one in three cases on the platform eligible
for auto decisioning, enabling our specialist underwriters to
focus on more complex cases. This combination provides
customers and brokers with a faster response to proposals.
These enhancements have delivered a 33% year-on-year
reduction in processing time from application to approval, while
also boosting conversion rates. These accelerated response
times significantly strengthen our proposition, positioning
us to become a preferred choice for brokers who might have
previously prioritised other lenders based on the speed of their
decision-making. Far more accounts are now completed on a
same day basis, and average times from application to payout
have almost halved, providing a faster and more competitive
experience for both brokers and customers.
These advances in technology have been transformative for
the business, and we hope to see further benefits from the
project launched in the period to replace the SME lending loan
administration system, supported by Alfa Systems, enhancing
our capability to manage customer relationships through the life
of their lease or loan.
Asset leasing volumes decreased by 3.5% year-on-year to
£319.0 million excluding government-backed balances
(2024: £330.7 million), in a mixed leasing market. The Finance
and Leasing Association (‘FLA’), reported an increase of only 3%
in new leasing business, excluding cars and high value items, in
the year lending to SMEs increasing by only 2% and segmental
figures showing significant variations in performance. Investment
in operating leases has also continued with £21.0 million of
assets acquired in the period (2024: £13.1 million). New business
applications were strong throughout the year, providing positive
indications for new business going forward.
During the period, the first significant volumes of lending under
the UK Government Growth Guarantee Scheme (‘GGS’) were
completed, with £47.7 million of mostly unsecured lending
provided to SME customers, backed by a 70% guarantee
provided by the British Business Bank (‘BBB’). The scheme
is intended to provide access to credit to SMEs which might
otherwise struggle to locate affordable funding, facilitating
growth in the UK economy.
Short-term lending to professional services firms outside
government-supported schemes reduced by 28.5% to
£96.6 million (2024: £135.2 million). These loans are often used
to spread the impact of tax and other significant liabilities, and
the level of take-up will be influenced by both the confidence
and the profitability levels of the underlying customer base,
both of which are likely to have been adversely affected by
the economic climate. At the same time, this market has been
highly competitive, and we have prioritised managing return,
particularly in view of the very short-term nature of this lending.
We monitor the potential impact on climate of the industries we
do business with, and support UK SMEs with green propositions.
While our initial offerings related to funding for alternative fuelled
assets in the transport, manufacturing and construction sectors,
the scope of green assets and equipment we will consider was
expanded in the period, and we have appointed a business
development director with a specific mandate to focus on
green propositions.
We now make finance available for the acquisition of solar
panels, wind turbines, hydroelectric turbines and geothermal
heat pumps, together with other equipment supporting SME
customers who wish to transition their businesses towards net
zero. These types of initiatives are expected to increase going
forward as such considerations are prioritised by customers and
potentially incentivised by governments and regulators.
The most recent outlook survey conducted by the FLA, for
the quarter ended 30 September 2025, showed generally
weakening confidence over the year amongst asset finance
lenders. Lenders were more negative on businesses appetite
for investment with the overwhelming majority of respondents
expecting a marginal worsening in conditions. This led to a more
pessimistic outlook for business volumes year-on-year, together
with a more widespread expectation of increasing arrears.
Overall sentiment in the SME market, however, remains
cautiously positive, with published surveys showing optimism
slowly increasing through the year, although significant concerns
about cost pressures remain, including those related to the
October 2024 budget, and capital commitments are being
treated with caution.
The SME loan market remains challenging, with pressure on
both volumes and pricing, and the impact of the downward
trend in interest rates offset by a wider caution over costs
and the direction of the UK economy. However, our business
remains well positioned to address the current environment,
while maintaining both credit quality and margins. The
digital capabilities introduced over the last few years have
also enhanced our competitive position, by both improving
operational cost-effectiveness and supporting an excellent
standard of service to customers, which will continue as our
digitalisation programme continues.
The level of industry expertise and customer understanding
in our SME lending operation, supported by the continuing
programme of systems and process enhancements, is ultimately
what positions us well to satisfy customer requirements in
this sector going forward and we continue to develop the
business. While we have increased our focus on the agriculture
and renewable energy sectors, we remain a small player in a
substantial market, providing us with the ability to outperform,
even if broader trends are more difficult.
Structured lending
Our structured lending business performed positively in the year,
extending our customer base and maintaining its outstanding
credit quality. The total amount of drawn facilities, at £267.3 million,
was 4.0% greater than a year earlier (2024: £256.9 million), and
the total available facilities in place had increased by 22.1% over
the year to £403.0 million (2024: £330.0 million). This resulted
from four new facilities totalling £48.0 million agreed in the
period, several significant extensions on existing facilities, and a
positive retention performance on maturing facilities. All facilities
continued to be managed in line with their agreements.
These facilities generally fund non-bank lenders of various
kinds, provide us with increased product diversification and are
constructed to provide a credit buffer in the event of default in the
ultimate customer population. The business has an experienced
team of account managers who receive regular reporting on the
performance of the security assets and maintain a high level of
contact with clients to safeguard its position. To date we have not
recorded any losses on structured lending facilities.
Page 34
During the period, we partnered with the BBB for the first time
on a structured lending deal. The BBB agreed to use its ‘Enable
Guarantee’ programme to support our provision of a senior
facility of up to £100.0 million arranged with LE Capital, an
existing customer. The Enable Guarantee programme is intended
to facilitate the provision of finance to SMEs, in line with the UK
Government’s growth agenda. Our client utilises this facility to
fund stocking finance loans, guaranteed by the BBB, to small
car dealerships, enabling them to buy used vehicles for resale.
The arrangement with the BBB includes incentives for electric
and hybrid vehicles, helping to promote their take-up. This is
the first time the Enable Guarantee scheme has been used in a
structured lending context, and gives us the opportunity to agree
far larger facilities than would otherwise be the case, enabling
more SMEs to access finance.
In a major green initiative, we partnered with HDM Energies in
providing a tailored lending solution to support the provision of
equipment for power purchase agreements, enabling SMEs to
access rooftop solar energy systems. This facilitates the reduction
of their carbon footprints, enabling their net-zero journeys.
We continue to assess further structured lending opportunities
which would broaden the range of products and industries
supported, diluting the concentration risk inherent in this form of
lending. These evaluations have a significant focus on the viability
of the underlying customer activity, and the availability of any
third-party support.
Motor finance
Our motor finance operation targets propositions not addressed
by mass-market lenders, including specialist makes and vehicle
types. These include light commercial vehicles (‘LCVs’) and
leisure vehicles including motorhomes, caravans, static caravans
and campervans. Our new business is largely sourced through
specialist brokers, however there is a small flow generated
through motor dealerships and other suppliers.
Volumes in the year continue to be constrained by market
conditions, especially in the first half. Customers continued to
be discouraged by the elevated interest rate environment and an
uncertain outlook. Car finance volumes for the industry overall,
reported by the FLA, generally increased year-on-year. The FLA’s
data showed new consumer car lending up by 8% overall for the
year ended 30 September 2025, although the amount of used
car business, which represents a significant part of our portfolio,
had increased by only 2%.
New lending in our motor finance business was stronger than
the general market increasing by 8.4% to £169.6 million
(2024: £156.4 million). Volumes were strongest in the second
half of the year as interest rates continued to fall, with new
business for the half year at £98.9 million, 39.3% higher than
the level for the first half and 16.6% higher than the comparable
period in 2024. This was despite a continued focus on margin
management in the period.
Lending to finance the acquisition of battery-powered electric
vehicles (‘BEVs’), including LCVs, continued to be an important
part of our proposition in the year. These vehicles contribute
towards greenhouse gas (‘GHG’) reduction, and for
September 2025 the Society of Motor Manufacturers and
Traders (‘SMMT’) reported the highest ever number of
BEV registrations. In September 2025 the SMMT reported
that BEVs formed 23% of all new UK car registrations
(September 2024: 20%) and 6% of those for new LCVs
(September 2024: 6%), where diesel vehicles continue
to dominate the market.
We advanced £8.4 million of new loans on BEVs in the year,
similar to the level in the previous year (2024: £9.1 million). BEV
lending comprised 5% of our total motor finance lending, with total
lending on all electric vehicles, including hybrids, representing
12.4% of our total volume. With the business focusing on used
vehicles, the proportion of BEV lending will lag the growth in
new registrations, however progress continues to be made. This
initiative will support the green aspirations of our customers, as
electric vehicles become a more widely viable and popular option
and increasing numbers enter the used car market.
Our motor finance business remains a stable, specialist
franchise, with strong introducer relationships, and is well placed
to continue to develop into the future.
Performance
Our Commercial Lending portfolio continued its growth in the year,
with outstanding balances increasing by 7.6% year-on-year. This
part of the business has been central to our strategic focus on
diversification, and all of its four principal business lines expanded
loan books in the period.
The loan balances in the Commercial Lending segment, analysed
by product type, are set out below.
2025 2024
£m £m
Asset leasing 709.1 664.4
Professions finance 39.3 53.0
CBILS, BBLS, RLS and GGS 64.1 41.5
Invoice finance 35.4 32.7
Unsecured business lending 28.8 25.9
Total SME lending 876.7 817.5
Development finance 960.4 884.0
Structured lending 267.3 256.9
Motor finance 360.5 331.4
2,464.9 2,289.8
Credit performance on our Commercial Lending books was
generally satisfactory, despite the continuing pressures felt
by the UK SME sector on costs, interest rates and broader
economic and political uncertainty. However, the overall cost of
risk continued to be impacted by the performance of a cohort of
development finance lending originated in 2022 and earlier.
As we have previously reported, since the point at which these
projects had been evaluated by the customer and by us, they had
been subject to sharp increases in build costs and interest rates,
well in excess of the stressed position considered at the point
of underwriting. This type of issue is typical of the development
finance product in a stressed environment, and our experience is
not dissimilar to that of other lenders in the field.
We have continued to monitor these cases, with a number
requiring additional provision in the period, as the process of
realisation and repayment has progressed, and some additional
cases, principally from the same lending cohort, being defaulted.
The majority of the additional default cases were already
identified as Stage 2 for IFRS 9 impairment purposes at the
beginning of the period, and relatively few additional cases of this
maturity remain in the portfolio.
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Strategic Report
All development finance exposures are subject to regular
internal monitoring and graded on a case-by-case basis and by
30 September 2025 there were 23 accounts identified as being
at risk and therefore attributed to IFRS 9 Stage 3 for impairment
purposes (2024: 19). The long-standing legacy case which had
been outstanding at 30 September 2024 was resolved in the
period (2024: one).
The position and performance of each of these defaulted
accounts has been carefully examined, and up-to-date cash
flow projections have been stressed for IFRS 9 provisioning
purposes, generating an additional impairment charge for the
period, with additional focussed testing on Stage 3 accounts to
address any further potential issues in the recovery process.
The additional provision which had been made at
30 September 2024 to allow for any further such cases has now
been released, as the majority of lending in this cohort has either
moved to IFRS 9 Stage 2 or 3, been repaid, or progressed to a
stage of completion where full repayment can be more reliably
predicted. However, the additional stress testing on Stage 3
cases has generated extra provision.
Despite these issues, the majority of the portfolio has performed
well, and security across the development finance portfolio
more generally remains strong. The average loan to gross
development value for the portfolio at the period end, was
63.8% (2024: 63.0%), which provides a significant credit buffer
if projects encounter issues.
Despite some economic pessimism the arrears positions of our
leasing businesses have improved over the year. Leasing arrears
in SME lending reduced to 0.11% (2024: 0.14%) with motor finance
arrears improving to 0.91% (2024: 1.06%), with the performance
of both portfolios comparing favourably to averages published
by the FLA. Despite these continuing positive trends, we monitor
performance of these assets carefully and have processes in
place to ensure any customers encountering problems achieve
good outcomes.
In January 2024 the FCA announced a review of historical
commission arrangements across the motor finance industry,
focussed on discretionary commission arrangements (‘DCA’s).
We were active in the motor finance market, principally since
2014, with a limited amount of lending in 2007 and 2008. In
common with general market practice we offered some lending
on a DCA basis through motor finance dealers, and hence an
element of our historical motor finance lending was within the
scope of the review.
Since the launch of the FCA review, a number of other legal
and regulatory processes related to these arrangements have
progressed. These included the legal cases of Johnson, Wrench
and Hopcraft, heard by both the Court of Appeal and the
Supreme Court in the year, and the Clydesdale judicial review
case, heard in the High Court.
The resolution of these legal cases in the latter part of the
financial year enabled the FCA to publish the results of its review
in October 2025, together with its proposals for a programme of
redress which would apply to all DCA lending carried out since
2007. This scope is wider than expected by many in the industry,
while, conversely, the average redress is less than many,
particularly consumer interests, had expected.
The regulator’s proposals remain under consultation at this
time, with a final announcement from the FCA not expected
until early 2026. However, FCA statements since the publication
of the consultation indicate that the proposals represent its firm
view it is unlikely to significantly change its position, with lenders
being asked to demonstrate their readiness to roll out redress
programmes once the conclusions of the consultation
are announced.
In view of this we have made a provision of £25.5 million at
30 September 2025 (2024: £nil) based on the potential impact
of the FCA proposals as presently drafted, including the costs
of running a redress programme. It should be noted that the
outcome of the consultation, or potential subsequent legal
challenges, might result in either a greater or lesser liability, but
the provision represents our current best estimate. Further
information on this provision can be found in note 39 to
the accounts.
Whilst the BBB has reported (in its May 2025 progress report)
that 17% of loans under its Covid-related guarantee schemes
have defaulted, with loans under the Bounce Back Loan Scheme
(‘BBLS’) representing 91% of defaults by value, we have not seen
significant issues in our portfolios, possibly due to our primary
focus on lending to existing customers, whose credit history
was already well known to us, and to our limited exposure to the
BBLS product.
These portfolios contained only £1.0 million of Stage 2
accounts at gross carrying value at 30 September 2025
(2024: £1.3 million), and only £0.6 million of credit impaired cases
(2024: £1.1 million), with our remaining BBLS exposure having
reduced to £1.3 million (2024: £2.2 million). Our total claims made
up to 30 September 2025 under the government guarantee were
£4.8 million, with only £0.1 million of this balance still outstanding
at the year end.
In the structured lending business, we conduct monthly
monitoring of the performance of the underlying asset pool, to
ensure the value of security remains adequate. We rely on our
data monitoring and verification processes to ensure these
reviews are able to detect any credit issues. Performance in the
year has been broadly in line with expectations, with generally
stable metrics across the book and all accounts classified in
IFRS 9 Stage 1 at the year end. The one Stage 2 case identified at
30 September 2024 was redeemed in the period, with no loss.
For IFRS 9 impairments purposes, 12.1% of gross balances for
the Commercial Lending segment as a whole were considered
as having an SICR (2024: 12.7%) including 6.1% which were credit
impaired (2024: 5.1%). The overwhelming majority of these cases
were related to the development finance business, with most
of the increase in credit impaired cases related to development
finance cases which had moved from Stage 2 in the year.
Provision coverage in the division increased to 223 basis
points (2024: 177 basis points), principally due to the enhanced
provision on defaulted development finance cases noted above.
Coverage on fully performing accounts reduced from 62 basis
points at 30 September 2024 to 48 basis points at the year end.
This reflects the strong performance of the books in general and
the reduction in the number of live development finance cases
related to pre-2023 lending.
Page 36
A4.2 Funding review
Since the launch of Paragon Bank in 2014, our retail
deposit-taking franchise has been central to our funding
strategy, with our Paragon-branded offering having grown
strongly over time. This year saw a major advance with the
launch of our Spring savings operation. This interfaces with
customers through an up-to-the-minute app, offering us an
additional route to market, enhancing resilience and providing
attractive new options to existing and new customers.
Our deposit franchise is supplemented with central bank and
wholesale funding, including repurchase agreements, creating an
adaptable and sustainable funding model, including contingent
funding options, which can respond to developments in our
business, its operating environment and the external economic
and regulatory landscape. This was enhanced in the period when
we became only the fourteenth institution to be authorised as a
covered bond issuer by the FCA.
Paragon Banking Group PLC, our parent company, enjoys
investment grade credit ratings, supporting the AAA rating of our
covered bond, and enabling us to access cost effective funding,
as well as enhancing options for raising finance for strategic
initiatives on a timely basis. Fitch confirmed their BBB+ rating
in February 2025, with Moody’s also beginning coverage during
the year, with an initial rating of Baa3, which was confirmed in
October 2025, after the year end.
During the year, our funding requirement generally decreased,
as expiring facilities, including Bank of England TFSME amounts
were repaid, reducing the need to hold excess liquidity. The
year end liquidity position is higher than at the previous year
end to allow for the repayment of most of the remaining TFSME
drawing, made shortly after the year end. The sizes of our retail
deposit portfolios were, therefore, carefully managed in the year,
facilitating the management of margins.
In the wholesale funding market, we made our first issue of
bonds under the newly approved covered bond programme,
while continuing the early repayment programme for our
TFSME drawings and making more extensive use of other
Bank of England facilities.
Our funding at 30 September 2025 is summarised as follows:
2025 2024 2023
£m £m £m
Retail deposit balances 16,265.7 16,298.0 13,265.3
Securitised and
warehouse funding
- - 28.0
Central bank facilities 950.0 755.0 2,750.0
Covered bonds 499.2 - -
Tier-2 and retail bonds 150.1 149.9 258.2
Sale and repurchase
agreements
100.0 100.0 50.0
Total on balance
sheet funding
17,965.0 17,302.9 16,351.5
Off balance sheet
liquidity facilities
150.0 150.0 150.0
18,115.0 17,452.9 16,501.5
At 30 September 2025, the proportion of easy access deposits,
which are repayable on demand, was 47.2% of total on balance
sheet funding, slightly increased from the position at the start of
the period (2024: 44.6%), while the average tenor of our wholesale
borrowings had lengthened with the covered bond issue.
At the end of the year £2,896.1 million of cash and
investments were available for liquidity and other purposes
(2024: £2,844.8 million), with the diversification of the liquidity
portfolio continuing with the purchase of further UK government
securities and covered bonds issued by UK financial institutions
in the year. The overall level of liquid resources, however, remains
broadly similar to that a year earlier, although this fell after the
year end following the TFSME repayment in October 2025.
The appropriate level of cash reserves is monitored on an
ongoing basis as part of our capital and liquidity strategy, which
continues to be based on a conservative view of the economic
outlook, while allowing for the developing needs of the business.
Our long-term funding strategy has been to use retail deposits
as our primary funding source, accessing the debt markets
on an opportunistic basis for additional funding requirements.
The delivery of this strategy is illustrated by the chart below
which shows, at each of the financial year ends since 2016, the
outstanding funding balance by type.
Funding by type (£m)
30 September 2017–2025
0
202520242023202220212020201920182017
Securitisation
Retail deposits
Covered bonds
Central BankUnsecured bonds
6,000
4,000
10,000
2,000
8,000
12,000
14,000
16,000
18,000
The division of our funding balance between wholesale and
retail elements remained relatively stable in the period, with
the wholesale element around the 10% level. At the end of the
period, retail deposits were 90.5% of all on balance sheet
funding (2024: 94.2%).
Over recent years we have also focussed on developing
contingent funding sources as part of our overall strategy.
Holdings of our own securities, investment securities issued
by others and assets pre-positioned with the Bank of England
provide ready access to additional funding, if required, without
incurring the carry cost of additional borrowings.
Hedging strategies continue to form an important part of
our balance sheet risk management. This includes the use of
derivative financial instruments, such as interest rate swaps,
to protect our income and operating model from adverse
fluctuations in market interest rates. This was important during
the year, with movements in interest rates expected, but little
consensus on the scale and timings of those changes.
Page 37
Strategic Report
A4.2.1 Retail funding
April 2025 saw the launch of Spring Savings (‘Spring’),
representing the most significant development in our
deposit-taking business since it was launched in 2014. This
in-house app-based franchise offers enhanced functionality
and is expected to appeal to a fundamentally different market to
the users of our existing Paragon-branded savings proposition,
diversifying our funding base still further and adding resilience
and agility to our operations.
Spring represents the culmination of a major programme
of customer research and systems development, including
extensive testing of the app in ‘real-life’ conditions across our
whole workforce and their families and friends. This has created
an attractive offering based on advanced digital technology,
providing a new approach to savings for customers. The second
half of the year has seen Spring further maturing, with learnings
from real-world experience and customer feedback used to drive
continuing enhancements of systems, products and processes.
The UK savings market provides a reliable liquid, scalable and
cost-effective source of funding, addressing many different
types of customer needs. Our focus continues to be on offering
sterling deposit products to UK households and our existing
delivery channels will continue in parallel with Spring, which is
intended to complement, rather than replace our other offerings.
Our Paragon-branded operation, with its streamlined online
presence and support for telephone and postal options, is
supported by an outsourced administration function, and is
supplemented by additional routes to market provided by our
presence on third-party wealth management platforms and
savings marketplaces. These, too, largely address different types
of customers to the Paragon brand.
Each of our franchises offers a different mix of competitive
interest rates, attractive and innovative products and
high-quality customer service, focussing on the needs of
distinct groups of users to generate and retain deposit
balances. Products currently offered include cash ISAs, term
and notice deposits, and easy access accounts, with the
substantial majority of balances insured by the Financial
Services Compensation Scheme (‘FSCS’).
We enjoy a significant market position in the cash ISA market,
developed over nine years, which has contributed strongly over
recent years as interest rates have increased, making ISA savings
more attractive. Our products performed strongly again across
the 2025 ISA season, which is concentrated in March and April,
with good take-up of both fixed and variable rate products. As a
result, our cash ISA deposit balance increased 23% year-on-year.
While the UK Government imposed additional restrictions on
cash ISAs in its November 2025 budget, these do not affect
savers over 65 years of age, who represent 60% of our ISA
balances, and have a limited impact on younger savers. However,
we continue to monitor the possibility of further regulatory or
governmental intervention in this area carefully and are engaged
with the relevant authorities on the future of this type of product.
The protection provided to depositors by the FSCS both
incentivises larger savers to divide their deposits between several
institutions and reduces the perceived risk which might discourage
potential customers from depositing with less familiar institutions.
At 30 September 2025, this FSCS protection covered around 95%
of our deposit balances. After the year end, the PRA announced an
increase in the level of FSCS cover from £85,000 to £120,000 per
person, which should further enhance our proposition.
Over recent years the development of our savings business
has been focussed on the management of our digital
footprint, supported by investment in our people, systems
and relationships. While Spring represents a major step forward
in this process, it is not the end of our strategic ambitions and
we will continue to focus on enhancing our offerings and
diversifying our profile over time, through the further
enhancement of Spring and other digital developments.
The growth of the retail funding balance over recent years is set
out below.
Retail deposits (£m)
At 30 September 2017–2025
0
202520242023202220212020201920182017
4,000
2,000
10,000
8,000
6,000
12,000
14,000
16,000
20,000
18,000
During the year, UK deposit balances from individuals reported
by the Bank of England remained relatively stable. Balances at
30 September 2025 reached £1.83 trillion (2024: £1.75 trillion),
a year-on-year increase of 4.6%, exceeding the CPIH inflation
rate of 4.0% for the year, and therefore representing a real-terms
increase in total savings, despite the continuing pressure on
household incomes.
Within the savings market, cash ISAs, a product where we
have historically been strong, saw significant increases, with
the Bank of England reporting total balances increasing by
14.8% year-on-year, reaching a record level of £435 billion
(2024: £379 billion). Conversely the strong move towards
non-ISA fixed term and notice deposits seen during the last
financial year was reversed, with a 4.2% (£10.5 billion) decrease
in such deposits from individuals over the year. Some of this
reduction will relate to a shift to other savings products, including
cash ISAs and National Savings (‘NS&I’) deposits. NS&I deposits
by individuals, which fulfil a similar function to term deposits,
increased by 4.2% in the period and represent £244 billion of
individual savings at 30 September 2025.
Over the financial year our retail deposit franchise continued
to perform strongly, delivering our funding requirements at an
attractive cost, compared to other alternatives. While the
overall balance reduced marginally, by 0.2%, over the year to
£16,265.7 million, this was in line with our strategic funding
requirements (2024: £16,298.0 million). While our deposit
base has grown strongly since the inception of Paragon Bank,
future movements are likely to be governed by balance sheet
management, rather than necessarily just seeking growth.
The movement towards variable rate products in our deposit book
seen in the second half of 2024 continued, as new fixed rates on
offer continued to fall, in line with future market benchmark rate
expectations, making their pricing less attractive.
Portfolio stability is enhanced by customer retention, increased
diversification and the effect of the FSCS guarantee, which
are all likely to reduce the potential for liquidity impacts, while
the profile of our target customers suggests they may be more
resilient than average in the event of future economic stresses.
Page 38
Savings accounts at the financial year end are analysed below.
Average
interest rate
Proportion
of deposits
2025 2024 2025 2024
% % % %
Fixed rate deposits 4.32% 4.77% 46.9% 50.7%
Variable rate deposits 3.61% 4.19% 53.1% 49.3%
All balances 3.95% 4.49% 100.0% 100.0%
Average interest rates paid to our savers continued to move
downwards during the year in line with the gradual fall in
base rates, although expectations of future falls moderated.
The Bank of England has reported a fall in average interest
rates for easy access accounts of 47 basis points over the year
to 2.13% (2024: 2.60%), with a 25 basis point fall in the average
market rate for new 2-year fixed rate deposits to 3.76%
(2024: 4.01%) and similar falls across other product types.
Market savings rates remain just below SONIA levels.
However, the gap has continued to close in the year, with the
overnight benchmark decreasing 98 basis points from 4.95% at
30 September 2024 to 3.97% at 30 September 2025, twice the
fall in the easy access savings rate noted above.
The level of tightening on variable rates in our book over the
period has been similar to that seen in the market generally,
with the average variable rate being paid at the year end
representing a 36 basis point discount to SONIA, a reduction of
40 basis points over the year (2024: 76 basis points). This was
an expected effect of the more stable interest rate environment
and of careful margin management, combined with a reduced
requirement to expand the portfolio.
The average initial term of our Paragon-branded fixed rate
deposits at 30 September 2025 remained stable at 19 months
(2024: 20 months). At the same time the proportion of the
deposit portfolio represented by these products reduced, both in
line with market movements, and as we targeted an increase in
variable rate balances.
Our Spring savings offering was launched to the public in April 2025.
Following this launch it has grown on a carefully managed trajectory,
amassing over £425.0 million of balances by 30 September 2025.
Growth is expected to continue into the new financial year as the
customer base increases and our offering is further enhanced.
Significant optionality is provided by our presence on third party
investment platforms and digital banks’ savings marketplaces.
These channels account for just over a quarter of our savings base,
providing access to a wider range of customer demographics. The
markets targeted by these third parties largely differ from those
targeted by either Spring or our Paragon-branded operation,
offering enhanced opportunities to manage inflows and costs.
These customer groups also demonstrate differing levels of price
sensitivity, reflecting their different needs and objectives.
As at 30 September 2025, nine such relationships were in place
(2024: nine), representing 25% of the total deposit base (2024: 23%),
although the distribution of the balance between the relationships
varied over the period. We have the necessary systems capacity
and control framework to scale these operations, further increasing
our reach through these channels, if appropriate and cost effective.
However, with the launch of Spring, we are aiming to prioritise the
development of our own brands and customer propositions, making
it likely that the proportion of deposits sourced from third-party
platforms will decline over time.
Our strategy in the savings market relies on providing a high-quality
customer offering and we conduct insight surveys throughout the
customer journey. Results in the year are summarised below:
Survey timing 2025 2024
At account opening
Would ‘probably’
or ‘definitely’ take a
second product
90% 89%
NPS +68 +66
At maturity
Would ‘probably’
or ‘definitely’ take a
second product
88% 89%
NPS +60 +63
These results maintain our strongly positive position, despite
generally falling interest rates and a competitive environment,
demonstrating that our customer-facing infrastructure serves
us well in retaining and developing customers.
This is further borne out by our customer retention levels.
Despite the short-term nature of the product and the ease with
which deposits can be moved between institutions, over 50% of
our deposit balances at 30 September 2025 relate to customers
who have been with us for four years or more.
Our service standards were also recognised in the 2025
MoneyComms Top Performers list, where Paragon Bank was
named as ‘Best Easy Access Cash ISA Provider’.
Spring is an increasingly important part of our funding mix, but
we also believe it will stimulate real change in the UK savings
market. We know there is more than £500 billion of money
belonging to UK savers sitting in zero or low interest accounts,
costing them more than £20 billion in lost interest each year. We
want to change this, and believe that Spring, offering competitive
rates and deploying open banking technology, will help build a
better saving culture while enhancing savers’ returns.
The launch of Spring is a significant development in the evolution
of our savings operation, providing the scope for increased
growth, where our funding needs require it. At the same time,
the continuing strong performance of our Paragon-branded
and third-party offerings allows for a careful and measured
introduction of Spring.
Our retail savings franchise continues to develop, providing
a stable foundation for our funding strategy, with increasing
diversity and enhanced optionality for the effective and flexible
management of volumes and interest rates. The increase in
the FSCS limit from 1 December 2025 will also offer increased
opportunities. The trend towards increasing diversification,
our consistently strong service delivery and the effect of the
FSCS guarantee are also likely to reduce the potential for
liquidity impacts.
The strategic development of the business will continue, going
forward, with Spring a particular area of focus. Across our
franchises, we will look to broaden product ranges and address
wider demographics. We will also focus on enhancing our service
propositions by continuing to develop systems, processes and
people to ensure we are able to address savers’ increasingly
sophisticated needs.
Page 39
Strategic Report
A4.2.2 Wholesale funding
Our potential options for wholesale institutional borrowings
include securitisation funding, warehouse bank debt, covered
bonds and unsecured bond issuance.
The Company’s Long-Term Issuer Default Rating, a measure
of its strength as an issuer, was confirmed at BBB+ by Fitch in
February 2025 with a stable outlook, with Paragon Bank PLC, its
principal operating subsidiary retaining its own BBB+ rating.
In November 2024, Moody’s published its first ratings on our
business, with the Company assigned a Long-Term Issuer rating
of Baa3 and the Bank rated Baa2. These ratings were confirmed
by Moody’s in October 2025, after the year end. The additional
ratings will allow more flexibility in funding options in future, while
potentially helping to manage funding costs.
During the year we became the fourteenth UK institution to be
authorised as a covered bond issuer by the FCA. The typical
credit ratings and tenors of covered bonds mean that they are
attractive to a different, and wider range, of investors than some
of the other instrument types we have historically issued. Our
inaugural programme, under which we can issue covered bonds
up to a value of £5.0 billion was established on 24 February 2025,
with Paragon Bank as the issuer, and our first issue of covered
bonds was made on 11 March 2025.
The principal amount of the covered bonds issued was
£500.0 million. They have a three-year term and an interest cost
of 0.6% above SONIA. Security is provided by a pool of buy-to-let
mortgage assets, the first time this asset class had been used in
such an issue, and the bonds are rated AAA by Fitch and Aaa by
Moody’s. The issue met with significant demand with over
£1.4 billion of orders from a diverse range of investors, meaning
the offer was nearly three times oversubscribed. It also received
the ‘Best Debut’ Award in the 2025 Covered Bond Report
Awards for Excellence.
While the covered bond cost is currently dilutive to NIM, we
see this as a strategic development that extends the maturity
profile of our liabilities and increases optionality. The programme
diversifies our potential funding sources, accessing a more
stable investor base, and enabling us to issue bonds with
a relatively short preparation and lead time, when market
conditions are attractive. We would expect to issue further
covered bonds under the programme in the medium term, in
response to our developing funding strategy.
Paragon Mortgages has been one of the principal issuers of
UK residential mortgage-backed securities (‘RMBS’), although
our reliance on RMBS as a regular source of funding has been
significantly reduced over recent years. All our most recent
issuance has been held internally, providing access to contingent
funding, rather than placed in the market, and no external
indebtedness is currently in place. The amount of internal notes
in issue will reduce further after the year end, with the repayment
of the Paragon Mortgages (No. 27) PLC notes in October 2025,
and the expected repayment of the Paragon Mortgages (No. 28)
PLC notes in December 2025.
Our funding strategy includes further RMBS transactions to
support contingent liquidity, and the potential for external
issuance is reviewed with each new transaction.
For shorter-term requirements we access the short-term repo
market, with £100.0 million of sale and repurchase transactions
with financial institutions outstanding at the year end
(2024: £100.0 million). During the year we have continued
our policy of broadening the range of counterparties we
work with in such transactions, increasing optionality in
our liquidity management.
Wholesale funding currently satisfies only a small part of our
overall funding requirements, although this was temporarily
elevated following the covered bond issue in the year. It reduced
again shortly after the year end, with the October 2025 TFSME
repayment. Our strategy remains to access wholesale funding on
a tactical basis, when interest rates and conditions are attractive,
and to provide contingent funding and support liquidity. We
retain the operational capability and third-party relationships to
undertake such transactions when required.
Capital markets in the UK were generally relatively stable in the
year, although there were periods of volatility, several driven by
global reaction to changes in US economic and trade policy.
However, demand for wholesale debt remained strong and
pricing attractive for issuers. We continue to see the wholesale
markets as a useful, and potentially cost-effective funding source
and keep a range of potential funding solutions under review.
A4.2.3 Central bank facilities
During the year we have continued to make appropriate use of
funding facilities provided to the UK banking sector by the Bank
of England, utilising internally held RMBS and mortgage loan
assets as collateral.
For some time, the principal element of this funding has been the
Term Funding Scheme for SMEs (‘TFSME’), introduced by the
Bank of England in response to the Covid-19 pandemic. However,
we have continued to make prepayments of our facility, ahead
of the October 2025 due date for most of these borrowings, with
the amount outstanding at 30 September 2025 having reduced
to £250.0 million (2024: £750.0 million). Almost all of this balance
was repaid in October 2025, shortly after the year end.
We have access to other Bank of England funding channels,
including the Indexed Long-Term Repo (‘ILTR’) and Short-Term
Repo (‘STR’) schemes, providing shorter-term funding for
liquidity purposes. In common with other institutions, we have
increased our use of these facilities in the year, with outstanding
ILTR drawings at 30 September 2025 of £700.0 million
(2024: £5.0 million).
Our extended use of ILTR is in line with the PRA’s expectations
for the sector, expressed in a statement made in December
2024. In this statement the regulator stated that it considers the
use of ILTR to be part of routine sterling liquidity management
and anticipates usage by all banks to rise in the future.
Central bank facilities will continue to be utilised from
time to time, where their use is appropriate and cost-effective, or
to test operational access.
To provide contingent funding, if and when required, mortgage
loans have been pre-positioned with the Bank of England to act
as collateral for any future drawings. This provides access to
potential liquidity at 30 September 2025 of up to £4,168.3 million
(2024: £4,445.9 million). Further capacity is provided by our
retained AAA-rated asset backed notes and investment
securities which can also be used to access Bank of England
funding arrangements.
A4.2.4 Derivatives and hedging
Derivative assets and liabilities continue to be used to hedge
interest rate risk arising from fixed rate loans and deposits.
We pre-hedge a proportion of our lending pipeline, which can
result in derivative positions being established before loans are
completed. This strategy has not materially changed in the period.
Page 40
Upward movements in interest rate expectations over recent
financial periods have resulted in large derivative asset balances
being carried on the balance sheet at fair value. However, the
30 September 2025 position has reduced somewhat, due to
both reductions in swap rates in the year and the amortisation
of older swaps.
The size of these balances and the volatility in rates have also
led to significant profit and loss account impacts, although in the
year ended 30 September 2025 these have been smaller than
those seen in previous periods. Such gains or losses, which tend
to zero over time, are ancillary to our lending and deposit-taking
activities and we undertake no trading in derivatives.
We also hedge our tier-2 fixed interest rate borrowings and have
hedged the interest rate risk on the investments in gilts held as
part of the liquidity buffer.
During the year we have continued to manage our balance sheet
hedging position. This is intended to protect net interest margins
from the impact of future falls in interest rates on equity, which
otherwise would cause a fixed / floating mismatch between the
asset and liability sides of the balance sheet.
An amount of fixed rate mortgage lending has been attributed
to provide natural equity hedging, forming a net free reserve
hedge. The size of the hedge was reviewed during the year
and increased, with £1,400.0 million being attributed at
30 September 2025 (2024: £1,200.0 million). The year-end
amount represents our current target hedging level, covering the
majority of the equity balance. However, this form of hedging has
no direct accounting impact.
Further information on all the above borrowings is given in
notes 32 to 36, while derivatives and hedging activities are
described in more detail in note 24
A4.3 Capital and
liquidity review
Our development since the licencing of Paragon Bank in 2014
has been based on a philosophy of maintaining a strong level of
equity and regulatory capital through the economic cycle. Strong
financial foundations form one of the three pillars of our strategy,
and we manage our balance sheet to maintain our capital
strength. This enables us to ensure that our regulatory capital
and liquidity positions are sufficient to safeguard depositors
and provide us with the capacity both to meet our underlying
strategic objectives and to enable us to take advantage of other
opportunities which may arise going forward.
The year has seen continuing developments in the UK’s economic
environment, with little movement in principal metrics and no
significant trends establishing themselves over the period. There
remains a sense of a pause in economic momentum as the impacts
of the financial and other policy initiatives of the UK Government
elected in 2024 remain unclear. Some major initiatives only began
to take effect during the year, while others remained proposals at
the year end. The Basel 3.1 process to reform the regulatory capital
regime has continued to progress and the near-final proposals
published in September 2024 were delayed to allow a further review
of their impact on growth to be carried out.
In the face of the potential uncertainties inherent in this
environment, we have remained focussed on ensuring that
our capital strength remains sufficient to withstand potential
pressures and address future changes in requirements. At the
same time, we have been able to continue our stated distribution
policy, approving buy-backs of up to £100.0 million in the period
and announcing dividends for the period in line with policy.
For regulatory purposes our capital comprises shareholders’
equity and a tier-2 bond. This structure is kept under regular
review as the business develops. We have no outstanding
Additional Tier 1 (‘AT1’) issuance, but have the capacity to issue
such securities, if considered appropriate, under an authority
granted by shareholders at the 2025 Annual General Meeting
(‘AGM’), which will be proposed for renewal at the 2026 meeting.
A4.3.1 Regulatory capital
Our regulatory capital position has remained robust during the
year, and we have continued to carefully manage capital in line
with risk appetite. Our business is subject to supervision by the
PRA and, as part of this supervision, the regulator sets a Total
Capital Requirement (‘TCR’), the minimum amount of regulatory
capital which we must hold. This is defined under the international
Basel 3 rules, implemented through the PRA Rulebook.
The TCR is held in order to safeguard depositors in the event
of the business incurring severe losses and includes elements
determined based on our Total Risk Exposure (‘TRE’) measure,
together with fixed elements. The TCR is specific to our business
and is set on the basis of periodic supervisory reviews carried
out by the regulator, with the most recent results received
during the year.
The positive outcome of this review means that our TCR at
30 September 2025 represented 8.1% of TRE, a reduction from
the previous year end (2024: 8.7%), and only slightly greater than
the minimum TCR allowed under the Basel 3 framework of 8.0%.
This low TCR level gives us advantages in capital management
and reflects the regulator’s assessment of our risk strategy
and their view of the appropriateness of our systems for the
management of capital and risk.
We were granted transitional relief for the capital impacts of the
adoption of the IFRS 9 impairment regime, along with most other
UK banks. Additional relief was granted in 2020 for the impact on
capital of provisions created in response to the Covid pandemic.
These reliefs were fully phased out from 1 October 2024, and
therefore the regulatory basis of capital and the fully loaded
basis (excluding the impact of reliefs) have now converged.
Our principal capital measures, CET1 and Total Regulatory
Capital (‘TRC’) are set out below on both bases.
Regulatory basis Fully loaded basis
2025 2024 2025 2024
£m £m £m £m
Capital
CET1 capital 1,172.4 1,177.9 1,172.4 1,175.2
Total Regulatory
Capital (‘TRC’)
1,322.4 1,327.9 1,322.4 1,325.2
Exposure
TRE 8,630.7 8,278.7 8,630.7 8,276.0
Requirements
TCR 701.2 724.1 701.2 723.8
Capital buffers 388.4 372.5 388.4 372.4
Our CET1 capital comprises equity shareholders’ funds, adjusted
as required by the Regulatory Capital Rules of the PRA (note 57)
and can be used for all capital purposes. TRC, in addition, includes
tier-2 capital in the form of our Tier-2 Bond. This tier-2 capital can
be used to meet up to 25% of the TCR. Capital levels on both
measures in the year have remained broadly stable, with positive
operational performance continuing to support the capital
position, even after allowing for paid and proposed distributions.
Page 41
Strategic Report
The year-on-year reduction in TCR requirements shown above
relates principally to the result of the supervisory review described
above, offset by the impact of asset growth in the period.
CET1 capital must also cover the buffers required by the ‘Capital
Buffers’ part of the PRA Rulebook, the Counter-Cyclical Buffer
(‘CCyB’) and Capital Conservation Buffer (‘CCoB’). These apply
to all firms and are based on a percentage of their TRE. Further
buffers may be set by the PRA on a firm-by-firm basis but cannot
be disclosed.
The CCoB remained at 2.5%, its long-term rate, throughout
the year (2024: 2.5%), while the UK CCyB remained at
2.0% (2024: 2.0%). The Financial Policy Committee (‘FPC’) of the
Bank of England has stated that it expects the UK CCyB rate in
a standard environment to be 2.0%.
Our capital ratios, after allowing for the proposed dividend for the
year, but excluding the effect of future share buy-backs, are set
out below.
Basic Fully loaded
2025 2024 2025 2024
CET1 ratio 13.6% 14.2% 13.6% 14.2%
Total capital ratio 15.3% 16.0% 15.3% 16.0%
UK leverage ratio 6.6% 7.0% 6.6% 7.0%
While these ratios have fallen in the year, the reduction is similar
to that in our capital requirement, meaning that the capital
headroom represented has changed little over the year.
The PRA published near-final proposals in September 2024 for
changes to its Rulebook to reflect the impact of the revisions
to the international Basel 3 framework made by the Basel
Committee on Banking Supervision (‘BCBS’), referred to as
Basel 3.1. While the BCBS is responsible for the international
Basel regime, it is implemented by competent authorities in each
economic jurisdiction, including the PRA in the case of the UK.
These changes, which will affect both firms applying Internal
Ratings Based (‘IRB’) approaches to capital and those using the
Standardised Approach, were originally intended to take effect
on 1 January 2026. In January 2025, however, the PRA announced
a delay to 1 January 2027, while it considered the potential impact
of global take-up of the reforms, particularly in the USA, in light of
UK Government announcements on competitiveness, as it was
concerned that there was a risk of impacting the international
competitiveness of UK banks and the UK financial services
sector, as an investment proposition, more widely.
The PRA has stated that it remains committed to the
1 January 2027 impact date and no significant changes to the
proposed regime for large and medium sized firms have yet
been announced. Additionally, in October 2025 the regulator
announced changes in its wider, Pillar 2A capital processes which
assume the implementation of the proposals as currently drafted.
The current near-final Basel 3.1 changes principally impact
on our buy-to-let and SME lending portfolios and have been
evaluated as part of our capital planning. We estimate that the
changes would reduce our CET1 ratio by 100 basis points, based
on the 30 September 2025 position. However, our forecasts
indicate that sufficient capital is being held to meet the
proposed scenario.
The PRA has also set out the first stages of its future approach
to the supervision of UK institutions, following the country’s
exit from the EU. The regulator has defined a category of ‘Small
Domestic Deposit Takers’ (‘SDDTs’) which will be subject to a
lighter regulatory touch in some areas. To apply for designation
as an SDDT an institution must operate only in the UK, have
limited trading activities, less than £20.0 billion of assets, and
must not operate an IRB approach to credit risk. The proposed
capital regime for SDDTs was published in near final form by the
PRA in October 2025.
We currently meet the criteria to qualify as an SDDT, however, our
longer-term goal remains the adoption of a Basel 3.1 IRB basis for
capital, but this will be subject to the PRA granting its permission.
We have applied to the regulator for the required authorisation to
adopt an IRB approach, and we continue to refine our submission
for the buy-to-let business. This is currently being processed
by the PRA, and we are engaging closely with the regulator. In
addition, we have also prepared much of the documentation to
support an IRB approach for our development finance assets,
which represents the next stage of our IRB road map.
A4.3.2 Liquidity
We hold liquid assets to meet cash requirements in the short
and long term, as well as to provide a buffer under stress. There
is also a regulatory requirement to hold liquidity in Paragon Bank.
Our policy is to maintain strong levels of liquidity cover, and this
policy impacts operational capital and funding requirements.
Our liquidity is principally held in the form of deposits at the
Bank of England, with the proportion represented by highly-rated
listed securities such as gilts and UK covered bonds increasing
during the year as we continued to diversify our holdings.
The Board regularly reviews liquidity risk appetite and closely
monitors several key internal and external measures. The most
significant of these, which are calculated for Paragon Bank’s
regulatory group on a basis which is standardised across the
banking industry, are the Liquidity Coverage Ratio (‘LCR’) and
Net Stable Funding Ratio (‘NSFR’).
The LCR measures short-term resilience and compares available
highly-liquid assets to forecast short-term stressed outflows,
calculated according to a regulatory formula, with a 30-day
horizon. The monthly average of the Bank’s LCR for the period
was 154.0% compared to 211.5% during the 2024 financial year.
This reduction reflects both the refinement of our liquidity policy
as our deposit book matures, releasing excess amounts, and the
utilisation of liquidity to facilitate debt repayments over the past
two years, particularly on our TFSME borrowings. The average
LCR has been on a managed downward path for some time, and
the 2025 year end level should be regarded as being closer to the
long-term norm than that at the previous year end.
The NSFR is a longer-term measure of liquidity with a one-
year horizon, supporting the management of balance sheet
maturities. At 30 September 2025 the Bank’s NSFR stood at
135.0% (30 September 2024: 139.5%), broadly similar to its
position twelve months earlier.
A4.3.3 Dividends and distribution policy
The sustainable enhancement of shareholder returns, while
protecting the capital base, is fundamental to our capital
strategy. The continuing positive results and our capital outlook
forecasts support the ongoing return of capital to investors, both
as dividends and through our share buy-back programme.
Page 42
Our long-standing dividend policy is to distribute 40% of
consolidated underlying earnings to shareholders in ordinary
circumstances, achieving a dividend cover ratio of approximately
2.5 times. We use market buy-backs of shares to manage overall
capital levels, where these enhance shareholder value and excess
capital is available, addressing the expectations and requirements
of different types of investors and potential investors.
An interim dividend for the year of 13.6 pence per share
(2024: 13.2 pence per share) was paid in July 2025, in line
with our policy of paying an interim dividend equal to half
the previous year’s final dividend. For our final dividend the
Board is proposing, subject to approval at the AGM on
4 March 2026, a final dividend for the year of 30.3 pence
per share (2024: 27.2 pence per share). This would give a total
dividend of 43.9 pence per share (2024: 40.4 pence per share).
In calculating this dividend, we have disregarded fair value
losses, in the same way as we have disregarded similar gains in
earlier periods, of which these losses are essentially a reversal. In
addition we have considered whether it is appropriate to reduce
the level of dividend in respect of our provision for historical
motor finance commission liabilities and concluded that, given
the capital strength of the Group and the time period to which
these liabilities relate, it is appropriate to exclude their impact,
meaning that current investors’ return will be based on current
trading performance.
The dividend proposed therefore represents approximately 40%
of underlying profit, giving a dividend cover on the adjusted basis
of 2.5 times (2024: 2.5 times), in line with policy (Appendix D).
The progress of the dividend for the year is shown in the
chart below.
Dividend for the year (pence)
In respect of the years 2016–2025
0
2025202420232022202120202019201820172016
25
20
15
10
5
30
35
40
45
50
The directors have considered the distributable reserves
and available cash and other resources of the Company and
concluded that the proposed dividend is appropriate.
At 30 September 2024 an irrevocable authority to purchase
the Company’s own shares had been put in place, as part of
our 2024 share buy-back programme, which was incomplete
at that point. £16.3 million of shares were purchased under
that authority during the current year, leaving £7.5 million of
the originally announced programme outstanding. As part of
its November 2024 capital discussions, the Board authorised
the completion of this remaining balance following the
announcement of the 2024 results.
At the same time, the Board authorised a buy-back programme
for the current financial year of £50.0 million, which was
extended to £100.0 million in June 2025, and was completed
in September 2025.
£124.7 million, including costs, was expended during the year
under these programmes (note 43) (2024: £76.6 million).
As part of the November 2025 review of capital management
described above, the Board decided that it was appropriate
to authorise a further share buy-back programme of up to
£50.0 million for the 2026 financial year. These purchases will
commence shortly after the announcement of the results for the
2025 financial year in December 2025.
The Company has the general authority to make such purchases,
granted at the AGM on 5 March 2025. Any purchases made
under these programmes will be announced through the
Regulatory News Service (‘RNS’) of the London Stock Exchange
and the shares will initially be held in treasury.
During November 2025, the Board confirmed the existing
dividend policy, subject to an assessment of prevailing
conditions at the time of each dividend, addressing matters
such as future operational and regulatory capital requirements,
business strategy and external economic risks.
A4.4 Financial results
The year ended 30 September 2025 has seen a strong operating
performance, with a growing book, stable margins and costs
well controlled, despite the external pressures imposed by
a competitive market and rising UK labour costs. Economic
uncertainty in the UK remained a factor, although the majority of
our customers continue to manage the current elevated interest
rate environment successfully, leaving us well placed to continue
to deliver on our strategy going forward.
Underlying profit (Appendix A), which excludes fair value gains
and one-off items, increased marginally in the year, reaching
£293.9 million (2024: £292.7 million), with improved net interest
earnings offset by an increase in bad debt provisions, the
majority of which arose in our development finance operation.
With the continuing share buy-back programme in the year, this
result generated growth in underlying basic earnings per share
(‘EPS’) of 8.5%, which reached 109.7 pence per share
(2024: 101.1 pence per share) (Appendix A).
The progression of our underlying earnings per share over the
last six years is shown below.
Underlying earnings per share (pence)
Year ended 30 September 2020–2025
0
20252024202320222020 2021
80
60
40
100
120
20
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Strategic Report
The statutory results for the year also include a provision
for potential liabilities in respect of historical motor finance
commission issues of £25.5 million, which we have estimated
following the basis of redress set out in the FCA consultation
published in October 2025. We have excluded this from
underlying profit as a one-off item relating to historical events
rather than to current trading. We also continue to exclude fair
value items arising from hedge accounting from the underlying
results, as we have done in previous years, although the impact
in the current year is much reduced from earlier periods.
Together these items reduce our statutory profit before tax to
£256.5 million, a similar level to the previous year (2024: £253.8
million), with basic earnings per share at 91.2 pence per share,
increased by 3.1% (2024: 88.5 pence per share).
A4.4.1 Consolidated results
For the year ended 30 September 2025
2025 2024
£m £m
Interest receivable 1,249.0 1,314.7
Interest payable and similar charges (746.7) (831.5)
Net interest income 502.3 483.2
Net leasing income 6.1 6.2
Other income 6.7 7.0
Total operating income 515.1 496.4
Operating expenses (179.3) (179.2)
Provisions for losses (41.9) (24.5)
Underlying profit 293.9 292.7
Provisions for liabilities (25.5) -
Fair value net (losses) (11.9) (38.9)
Operating profit being profit on ordinary
activities before taxation
256.5 253.8
Tax charge on profit on ordinary activities (76.2) (67.8)
Profit on ordinary activities after taxation 180.3 186.0
2025 2024
Dividend – rate per share for the year 43.9p 40.4p
Basic earnings per share 91.2p 88.5p
Diluted earnings per share 87.9p 85.2p
Income
Our total operating income increased by 3.8% in the year to
£515.1 million (2024: £496.4 million). The principal element of
this remains our net interest from customer lending, which rose
by 4.0%, year-on-year, to £502.3 million, from the £483.2 million
recorded in 2024. The main factor behind this increase was
the continuing growth in our net loan book, with the average
outstanding balance increasing by 4.8% to £16,023.4 million
(2024: £15,289.9 million) (Appendix B).
This was offset, to a degree, by a marginal tightening in net
interest margin (‘NIM’), which decreased overall by 3 basis
points, in the face of a more normalised environment for both
lending and retail savings, together with a more stable level of
benchmark interest rates than seen in some recent periods. This
effect was seen across our operations, with both the Mortgage
Lending and Commercial Lending divisions seeing their margins
tightening a little.
The progression of the Group’s NIM over the past five years is
set out below.
Total basis points
Year ended 30 September
2025 313
2024 316
2023 309
2022 269
2021 239
The long-term management of NIM across our business lines is
fundamental to the achievement of our business strategy, and
the use of a variety of funding options to underpin our position.
We do not focus on short-term lending volumes at the expense
of yields, preferring to build a strong book for the longer term.
To this end, we carefully deploy our available capital and manage
our lending risk appetites over time to optimise overall returns
on a sustainable basis.
Interest income from our loan assets is accounted for using
the effective interest rate (‘EIR’) method set out in IFRS 9. This
spreads the impact of initial and terminal fees received from
the customer or paid to third parties through the life of the
account and, where an account has different interest charging
bases during its life, attempts to spread this effect. This applies
particularly to our buy-to-let mortgage accounts where the
majority of cases have a fixed initial rate. The pattern of income
recognition is therefore based on estimates of customer
settlement behaviour and future charging rates. During the
year these projections have remained relatively stable, so the
required adjustments to recognition patterns have been minor.
Our other operating income which comprises net income from
operating leases and sundry fees, mostly related to lending
activity, reduced slightly to £12.8 million (2024: £13.2 million).
This movement related mostly to account fee income, where
portfolio performance led to a reduction in the number of
fee-charging incidents.
Costs
Inflationary pressures continued to impact on our cost base in
the year, coupled with the effect of the increase in the rate of
employers National Insurance (‘NI’) contributions from April 2025.
Despite these headwinds, however, our operating cost base, at
£179.3 million, increased only 0.1% (2024: £179.2 million), as our
firm focus on cost control was maintained.
Employment costs continue to form the largest part of the cost
base, representing 61.5% of the total (2024: 62.0%). Average
headcount for the year, at 1,400, was 3.0% lower than the 1,444
reported in 2024, despite our loan book growth, as we continued
to generate efficiencies. However, the impact of market-based pay
increases received by most employees at the start of the period,
and the increased employers NI rate meant that employment
costs fell only 0.8%, to £110.2 million (2024: £111.1 million).
Costs not related to employment, at £69.1 million, were 1.5% higher
than those recorded in the 2024 financial year (2024: £68.1 million),
impacted by recent years’ inflation in the UK as suppliers pass
on their cost increases when contracts are renewed. This will be
affected by the NI increase, particularly going forward, as many of
our principal suppliers, such as IT and professional consultants
and providers of outsourced services also have cost bases
dominated by people costs.
Page 44
Within these costs, our spend on technology increased by
6.2% to £27.4 million, in contrast to the wider cost base
(2024: £25.8 million), as a number of major projects, including
our Spring savings platform and our new buy-to-let mortgage
origination system, went live. Technology related employment
costs, at £10.2 million increased more than employment costs
in general (2024: £10.0 million), representing our strategy of
developing internal capacity as part of our digitalisation plan.
Technology costs not related to employment increased 8.9%
to £17.2 million from £15.8 million in 2024, a further impact of
our ongoing cloud-based digitalisation strategy. In addition,
£2.6 million of software was capitalised (2024: £4.5 million), a
relatively low amount for projects of this magnitude, meaning
that the drag on future profits is reduced, with only £8.8 million
held on the balance sheet at the year end (2024: £8.0 million).
The progress of our cost:income ratio (Appendix C) over the last
five years is set out below.
Underlying Statutory
% %
Year ended 30 September
2025 34.8 34.8
2024 36.1 36.1
2023 36.6 36.6
2022 39.4 38.9
2021 41.7 41.7
Our cost:income ratio continued its gradual improvement
this year, despite the significant headwinds in the UK economy,
pressure on margins and the ongoing levels of spend required
to support our digitalisation journey. It is also important to note
that within this ratio there has been a change in the nature of
the costs being incurred, as technology is enhanced and
efficiencies generated.
Cost control is a fundamental component of our business
strategy, but we see this not simply as a process to reduce costs,
but to apply resources where they can generate the greatest
benefit, as efficiently as possible. While the achievement of a
sustainably lower cost:income ratio is therefore a long-term
aspiration, our short-term priorities will always be focussed on
the delivery of our business strategy, the meeting of regulatory
expectations and the enhancement of operational capacity for
the future.
Impairment provisions
The charge recognised in respect of credit losses on our loan
books in the year rose to £41.9 million (2024: £24.5 million).
However, this increase represented a mixed performance across
our loan portfolios, with almost all of the increase related to our
development finance portfolio, which accounted for £34.2 million
of the charge (2024: £17.8 million). Of the development finance
provision in the year, 98.3% relates to the cohort of loans approved
prior to September 2022, highlighted in our previous reporting.
These loans were underwritten before the sharp increases
in building costs, including labour and materials costs, and
interest rates which impacted on developers from the latter
part of 2022, invalidating the original project assessments and
generating losses. More of these cases encountered difficulties
in the year, and those cases already in default experienced more
complexities as they were worked out. However, other than the
identified default cases, few accounts of this vintage remain in
the portfolio, and the performance of subsequent lending in the
business has not generated the same level of concern.
Provision levels in this operation are inflated by the IFRS 9
requirement to discount expected recoveries to the balance
sheet date using the EIR. This impact is particularly marked for
portfolios where EIRs are relatively high, such as development
finance. This discounting of recoveries has added £9.4 million to
the charge for the year, but the IFRS 9 treatment does mean that
income will continue to be recognised at the EIR on the net loan
balance going forward.
Outside development finance, provisions increased by only
£1.0 million, with most customers continuing to perform, despite
the continuing economic pressures for UK consumers and
SMEs, arising from inflation and interest rates. These, while
generally gently falling in the year, remained stubbornly high and
it still remains unclear to what extent the rises in consumer and
business costs over recent years have fully impacted on credit
quality. Similarly, the ultimate impact on the UK economy of the
financial and other policies introduced or planned by the new
administrations in the UK and USA, cannot be predicted with any
certainty. This means that the mildly positive outlook for credit
seen in the year may soon be subject to new pressures.
Our recognition of credit losses is governed by the accounting
standard IFRS 9, which requires the directors to take a view
on the future performance of our loan assets and to base
provisioning on expected credit losses (‘ECL’). Where the
economic outlook is complex, or where there is little relevant
historical data to base loss predictions upon, this can be a
challenging exercise.
The progress of the impairment charge and cost of risk in the
last five years is set out below.
Charge /
(release)
Cost
of risk
£m %
Year ended 30 September
2025 41.9 0.26
2024 24.5 0.16
2023 18.0 0.12
2022 14.0 0.10
2021 (4.7) (0.04)
The fluctuations shown above represent the progress of the UK
economy over the period, with the 2021 release representing
the recalibration of provisioning after the Covid-19 pandemic.
The following years saw increasing impacts from rising costs
and interest rates, with issues in the development finance book
particularly impacting the two most recent years.
Multiple economic scenarios and impacts
We use statistical models to support our estimation of ECLs,
where possible, with their performance regularly monitored,
reviewed and updated. These models project losses for our
largest books based on the performance of loan accounts up to
the reporting date and the impact of anticipated future economic
conditions. The use of these models therefore requires the use
of a range of forward-looking economic scenarios which are each
evaluated and then weighted to form an overall projection.
For portfolios where detailed models cannot be used, generally
because the number of accounts is low, available historic loss
data insufficient for statistical forecasting methodologies to be
validly applied, or both, the potential impact of these economic
scenarios is also considered. In the current period this applied
particularly to the development finance portfolio where the
potential impacts of higher build costs, falling development
values and longer project timescales were considered in our
assessment of expected loss.
Page 45
Strategic Report
At 30 September 2025, there was generally more consensus on
the central forecast for the UK’s economic outlook than at the
previous year end, albeit with most forecasters taking a more
benign but still mildly pessimistic view of prospects. However,
the range of plausible alternative outcomes around that central
position remains large.
Despite the mild improvements in most UK economic metrics
in the period, forecasters remain cautious, noting a potential for
interest rates to decline only slowly, inflation to remain stubborn
as a result of pressure on employment costs, house price growth
to remain subdued or negative and growth to remain minimal.
The current UK economic environment of comparatively high
interest rates and low growth is a relatively unusual one, with
history therefore providing little guidance in forecasting.
Broader scope forecasting risks arise from the impact of new
government policies either recently introduced or planned
in both the UK and overseas, and also from ongoing armed
conflicts in Eastern Europe, the Middle East and elsewhere.
These factors may cause outturns to be significantly divergent
from consensus economic forecasts.
To reflect the possible range of economic outcomes, four
scenarios have been constructed for provisioning purposes,
based on forecasts from several public and private bodies,
synthesised to produce internally coherent sets of data. The
general trend of the central forecast follows that published by
the Bank of England in August 2025. This reflects a pattern
of solid but unimpressive growth for the UK economy, with
inflation rising in the short term, although returning to target
levels towards the end of the forecast period. Bank base rates
continue to fall, although we expect the Bank of England to move
cautiously in light of concerns over inflation. House prices, which
have been more resilient than many had forecast, continue to
increase modestly in the short term, strengthening toward the
end of the forecast.
Compared with the central forecast adopted at
30 September 2024, this is a little more optimistic, with
unemployment and interest rates at lower levels and a more
positive outlook for house prices in the short term. However,
GDP and inflation remain on a similar trajectory. The scenario
also begins from the actual September 2025 position, so that
variances against the 2024 scenarios in the year are reflected,
with house prices at 30 September 2025, especially, starting the
forecast period at a higher level than previously modelled.
The upside and downside scenarios are derived from our central
forecast. The upside scenario assumes that inflation remains
lower than generally expected, driving faster growth and higher
employment and enabling the Bank of England to cut the base
rate further and faster than in the central case, while house
prices recover more strongly. Conversely, the downside case
represents increased pressure on CPI, leading to increases of
base rates in the short term, with reduced economic confidence
leading to stagnant growth, declining house prices and a pick-up
in unemployment levels.
The severe scenario has been derived from the most recent
Annual Cyclical Scenario (‘ACS’) published by the Bank of
England in March 2025. This includes persistently high interest
rates, causing a pronounced recession impacting on growth and
employment levels, with a significant fall in house prices.
The weightings applied to each scenario have been reviewed and
revised. The consensus view for the UK economic outlook is a little
more settled and more benign than it was at 30 September 2024.
However, the potential for significant downside impacts from the
domestic economic climate and wider geopolitical factors remains.
This has led to a wide range of potential paths for the UK economy
being suggested, with an emphasis on the potential downsides.
On balance, it was decided that it was still appropriate to
continue our move back towards a more normal set of economic
weightings, closer to those seen in the early years of IFRS 9,
before the impacts of Brexit and Covid. However, the analysis
also suggested a cautious approach, with a continued focus on
the downside scenarios. Therefore, the weighting of the severe
scenario has been reduced, with the weightings of the upside
and downside held steady. The forecast economic assumptions
within each scenario, and the weightings applied, are set out
in more detail in note 20, with the impact of the change in
weightings shown in note 21.
To illustrate the impact of these scenarios on the IFRS 9
modelling, the impairment provisions before judgemental
adjustments are set out below on the weighted average basis,
and also shown on a single scenario basis, weighting each of the
central and severe scenarios at 100%.
2025 2024
Unadjusted
provision
Cover
ratio
Unadjusted
provision
Cover
ratio
£m £m
Weighted average 84.8 0.52% 70.0 0.45%
Central scenario 80.5 0.49% 64.8 0.41%
Severe scenario 109.1 0.66% 93.9 0.59%
The increase in model generated provision coverage results from
economic pressures on customers manifesting themselves,
to some extent, in the year, with the marginally higher levels
of cases which were in arrears at some point during the year
increasing default probabilities on such cases. This is a natural
result of the pressures which customers have been subjected to
for some time now beginning to impact performance.
There is little recent historical evidence of the impact of a
sustained period of high interest rates and inflation on customer
credit, and both products and regulatory expectations have
evolved significantly since interest rates last reached current
levels. Our models have therefore been derived from datasets
which include very few observations representative of the current
type of economic environment and little evidence on which to
base conclusions on how rapidly or severely customer behaviour
might respond to the current type of economic climate.
The distribution of gross balances by IFRS 9 stage (defined in
note 20) produced by our impairment methodology at the two
most recent year ends is set out below.
2025 2024
Stage 1 93.5% 93.2%
Stage 2 4.4% 4.9%
Stage 3 2.0% 1.8%
POCI 0.1% 0.1%
Total 100.0% 100.0%
The staging of our book remains similar to that seen at the 2024
year end, with some movement into Stage 3, mostly arising in
development finance, and mild improvement elsewhere. Given the
relative economic stability in the period, this is to be expected.
Page 46
Judgemental adjustments
Where key economic measures are at materially different
levels to those which existed when the impairment models
were created, management may add judgemental overlays to
calculated impairment levels. These are required where it is
considered, taking account of all available evidence, that current
or anticipated levels of delinquency and / or loss in the modelled
portfolios could exceed those implied by the model outputs, or
where the normal methodology for provisioning on non-modelled
books does not cover all identified risks.
Examples of such circumstances include the period of the Covid
pandemic and its aftermath, and the period of rapid growth in
interest rates and inflation which commenced in late 2022. Whilst
the current economic outlook at 30 September 2025 appears
more stable than was seen in those periods, the cumulative effect
of a longer period of elevated interest rates is also potentially
challenging for the effectiveness of the provisioning models, and
we have seen particular challenges in the pre-2022 cohort of
development finance lending.
Having reviewed these potential additional impacts, we have:
• Reduced the adjustment in our buy-to-let mortgage book to
£1.5 million (2024: £3.0 million). This overlay was principally
to allow for idiosyncratic impacts affecting legacy portfolios
which might not be handled well by the approach in the
model. Given the reduction in the number of such cases over
the period, the full amount is no longer required
• Released the £1.0 million adjustment in our motor finance
book and the £1.0 million adjustment to the SME lending
model output. These adjustments were made to compensate
for potential issues with newly introduced models, and are
being released on the basis of monitoring outputs for the year
• Removed the temporary uplift to provision floors in the
non-modelled development finance book, which was
intended to allow for increased incidence of distress in
pre-2022 projects, which had increased the impairment
provision by £1.5 million. These cases now have an additional
year’s seasoning and relatively few cases remain in Stage
1 or Stage 2. However, the Stage 3 population has had an
additional stress applied to allow for the potential future
downside, increasing provision levels by £1.5 million
The judgemental adjustments generated by this process,
analysed by division, are summarised below.
2025 2024
£m £m
Mortgage Lending 1.5 3.0
Commercial Lending 1.5 3.5
3.0 6.5
We continue to monitor the appropriateness and scale of each
of these overlays and consider the extent to which any of the
elements giving rise to them can or should be incorporated into
models and standard processes.
Ratios and trends
The results of the ECL modelling and other provisioning,
including the impact of the economic scenarios described above,
together with the adjustments adopted to address uncertainties
over the future performance of accounts, has resulted in the
overall provision amounts and coverage ratios set out below.
2025 2024 2023
£m £m £m
Calculated provision 84.8 70.0 67.1
Judgemental adjustments 3.0 6.5 6.5
Total 87.8 76.5 73.6
Cover ratio
Mortgage Lending 0.23% 0.26% 0.33%
Commercial Lending 2.23% 1.77% 1.56%
Total 0.53% 0.48% 0.49%
Following the judgemental adjustments, these ratios remain
broadly in line with those seen in recent periods, although
with an uplift in coverage in the Commercial Lending division
attributable to development finance impairments.
Future levels of coverage will be dependent on the performance
of the UK economy and its impact on our business, our
customers and their markets.
Provisions for liabilities
Since January 2024, historical practices in the motor finance
industry for the payment of commissions to business
introducers have been subject to a process of heightened legal
and regulatory scrutiny, including actions by the FCA and the
Financial Ombudsman Service (‘FOS’) and customer litigation
and judicial review processes before the English courts. These
actions are discussed in more detail in Section A4.1.2 above and
in note 39 to the accounts.
While we have not been directly involved in any significant
legal or regulatory actions to date, we have been active in this
market, principally since 2014, and did have DCA arrangements
in place. While we consider that our lending policies complied
with regulatory requirements and general market practice at the
relevant time, this lending would be in scope for any potential
redress scheme.
During the year the Court of Appeal’s general finding of liability
against the lenders in the cases of Johnson, Wrench and
Hopcraft, handed down in October 2024, was set aside by
the Supreme Court, except for certain specific matters in the
Johnson case. However, the FCA, in October 2025, published a
Consultation Paper (CP 25/27) setting out a scheme of redress in
motor finance cases, based on its investigations into the market
over the last eighteen months.
This scheme was broader in scope than lenders had anticipated
but also delivered lower levels of compensation than some
consumer interests considered appropriate. The FCA is therefore
expected to receive significant volumes of representations, and
a final policy is not expected to be published until early in 2026.
Page 47
Strategic Report
We have calculated our potential exposure to these matters
on the basis that the approach set out in CP 25/27 is adopted
by the regulator as its final position, which seems quite likely,
given comments made by senior FCA office holders since its
publication. This exercise indicated a potential provision of
£25.5 million, for redress, interest, and the costs of running a
redress programme as envisaged by the FCA. While the FCA
proposal might be changed before finalisation, or challenged by
other interested parties, resulting in a greater or lesser liability,
we believe that this provision represents the most likely outcome
at the balance sheet date.
This amount has been excluded from the underlying results
due to its historical nature, and because it is therefore likely to
obscure operating trends within our businesses.
At 30 September 2024 it was considered possible that a scheme
would either not be brought forward or would only be limited in
its scope. Our assessment of exposure at that date included
scenarios with these outcomes alongside those including
various potential options for redress schemes. Given the size of
the outcome, no provision was reflected in the 2024 accounts.
We would expect to be able to update stakeholders further on
this matter in the 2026 half-yearly report, when the regulatory
and legal processes currently in progress are expected to have
progressed further.
Fair value movements
The fair value line in our profit and loss account primarily
reports fair value movements arising from interest rate hedging
arrangements. These are put in place to protect margins when
fixed interest rate products are offered in either our savings or
lending markets, enabling us to continue to honour offers to
customers in the event of significant interest rate movements.
We also hedge certain fixed rate investments and liabilities.
We have a cautious approach to interest rate risk and consider
our exposures to be appropriately economically hedged. No
speculative derivative trading is undertaken, and all fair value
movements relate to banking book exposures.
The accounting entries included in this balance are primarily
non-cash items, which reverse over the life of the hedging
arrangement and such movements are essentially considered
to represent the anticipation of gains belonging economically to
later accounting periods and their subsequent unwinding. They
are therefore excluded from underlying results.
During the 2022 financial year, particularly during the second
half, there was a significant level of volatility in UK benchmark
interest rate expectations, resulting in a fair value gain of
£191.9 million being recorded in the year. This impact was
amplified by the approach adopted to pipeline hedging at that
time and the retention strategy applied to five-year fixed loans
maturing in that period, which meant that the pipeline was larger
and of longer duration (and hence more exposed to movements
in rates) than at most other times.
In the year ended 30 September 2025 the unwinding of this large
gain, which had begun in 2023, continued to impact the fair value
line, although to a lesser extent than in earlier periods. Coupled
with the accounting hedge ineffectiveness in the period and the
effect of new pipeline hedges, this resulted in a loss on fair value
items of £11.9 million being reported (2024: £38.9 million).
We also have £369.0 million (at net notional value) of derivative
contracts at 30 September 2025 which are unmatched for hedge
accounting, although form part of the economic hedging position
(2024: £126.6 million). These derivatives must be carried at a fair
value based on expected cash flows over their contractual lives.
As a substantial proportion of this balance has a lifetime of two
to five years, volatility in the interest rate markets can generate
substantial month-to-month fluctuations in this valuation which
have to be included in profit.
Tax
We operate only in the UK and materially all our profit falls within
the scope of UK taxation. The standard rate of corporation tax
applicable to the business in the year was therefore 25.0%
(2024: 25.0%), with the surcharge applicable to the profits of
Paragon Bank at 3.0% (2024: 3.0%). The effective tax rate applied
to our profits has increased from 26.7% in 2024 to 29.7% during
2025, with the increase principally relating to the disallowable
element of the charge for historical motor finance commission
liabilities and other related adjustments (note 12).
The effective tax rate on underlying profit, which excludes this
provision was 26.2% (2024: 27.4%), with the change mostly
related to other timing differences (Appendix A).
Results
Our resulting statutory profit before tax for the year was increased
by 1.1% to £256.5 million (2024: £253.8 million), with the underlying
profit increasing to £293.9 million (2024: £292.7 million). Profit
after tax was decreased by 3.1% at £180.3 million due to the higher
effective tax rate described above (2024: £186.0 million).
In addition, other comprehensive expenditure of £1.2 million, net
of tax, was recorded (2024: income of £5.4 million), relating to
valuation movements on our defined benefit pension scheme
(the ‘Plan’).
Total consolidated accounting equity at the year end, after
dividends and share buy-backs was £1,420.2 million
(2024: £1,419.5 million), and consolidated tangible equity was
£1,248.1 million (2024: £1,248.0 million), representing a tangible
net asset value of £6.55 per share (2024: £6.11 per share) and a
net asset value on the statutory basis of £7.45 per share
(2024: £6.95 per share) (Appendix E).
Page 48
A4.4.2 Assets and liabilities
The key driver of movements in our balance sheet is the size and
composition of our loan book. This, together with our policies on
capital and liquidity, determines our required funding and hence
the level of our liabilities.
The loan portfolio grew by 4.0% year-on-year during 2025, with
growth in both segments of the business. More detail on these
movements is given in the business review in Section A4.1.
Our assets and liabilities at the end of the financial year are
summarised below.
Summary balance sheet
30 September 2025
2025 2024 2023
£m £m £m
Investment in customer loans
Mortgage Lending 13,876.4 13,415.7 12,902.3
Commercial Lending 2,464.9 2,289.8 1,972.0
16,341.3 15,705.5 14,874.3
Hedging adjustments (5.4) (75.2) (379.3)
Derivative financial assets 275.4 391.8 615.4
Cash and investments 3,015.7 2,952.8 2,994.3
Pension surplus 23.5 22.2 12.7
Intangible assets 172.1 171.5 168.2
Other assets 107.4 101.4 134.6
Total assets 19,930.0 19,270.0 18,420.2
Equity 1,420.2 1,419.5 1,410.6
Retail deposits 16,265.7 16,298.0 13,265.3
Hedging adjustments 5.1 16.7 (30.9)
Other borrowings 1,699.8 1,005.3 3,086.4
Derivative financial liabilities 68.2 99.7 39.9
Provisions for liabilities 25.5 - -
Other liabilities 445.5 430.8 648.9
Total equity and liabilities 19,930.0 19,270.0 18,420.2
Funding structure and cash resources
Our retail and wholesale funding balance increased by 3.8%
during the year, a similar increase to the growth in the loan book.
This is despite a managed reduction in target funding over the
period, and the growth would be less if the TFSME funding,
which was repaid in early October, is excluded.
The year-end liquidity buffer has been further diversified,
with additional investment securities purchased for liquidity
purposes in the year. At 30 September 2025, £626.2 million of
highly-rated UK government and commercial bonds were held
(2024: £427.4 million), as well as liquidity buffer deposits at the
Bank of England.
The proportion of our funding represented by retail deposits
reduced a little to 90.5% (2024: 94.2%). This level is depressed by
the TFSME drawings awaiting repayment in October 2025, and
our long-term funding strategy remains focussed on our retail
deposit-taking businesses. Movements in funding balances are
discussed in more detail in Section A4.2.
Derivatives and hedging
The derivative assets and liabilities shown in the table above
relate almost entirely to arrangements for hedging interest rate
risk on fixed rate mortgage and savings products. These assets
and liabilities are held at fair value, with the valuation based on
future expectations of interest rates. The size of the balances
is driven by the difference between current expectations for
variable rates and the fixed rates applicable to the hedged items,
set at the point of origination, meaning that where market rates
have moved sharply, large balances will be carried, which will
reduce as the derivatives move towards their maturity dates.
During the year, market interest rate expectations began to turn
downwards, to some extent, with asset swap valuations falling
back, and in some cases turning negative, while swaps put in
place in the lower rate environments of three or more years ago
continued to amortise.
As a result, the year end derivative asset position of
£275.4 million was reduced by £116.4 million, year-on-year
(2024: £391.8 million), with derivative liabilities, which
decreased by £31.5 million to £68.2 million, also impacted
(2024: £99.7 million).
While these movements do contribute to the fair value
accounting adjustments, they are largely offset by movements
in the hedging adjustments to loan assets and deposit liabilities,
with the adjustment in assets reducing by £69.8 million in the
year and that in liabilities reducing by £11.6 million, a net
£81.4 million movement.
Pension obligations
The IAS 19 valuation surplus on our defined benefit pension
scheme increased slightly from £22.2 million at the start of the
year to £23.5 million at the year end. The assumptions for this
valuation are based on market-derived interest and bond rates
and can be subject to fluctuation where market rates do not
move in parallel. However, the scheme’s investment strategy
includes a high level of hedging, which should mitigate market
impacts on the surplus amount.
The changes in inputs between the valuations at the beginning
and end of the year are smaller than those seen in some recent
periods, with the principal differences being the movement in
the discount rate used in evaluating scheme liabilities, based
on long-term corporate bond yields, which increased from
5.10% to 6.05%, and that in the assumed rate of RPI inflation,
based on gilt yields, which fell slightly, from 3.05% to 3.00%.
These movements reduced the Plan’s gross liabilities, although
this was largely offset by a downward valuation of Plan assets,
driven by the hedging strategy. Overall, these movements led
to a pre-tax valuation loss of £1.4 million being booked in other
comprehensive income (2024: gain of £7.2 million).
Other assets and liabilities
Other assets increased by £6.0 million, from £101.4 million to
£107.4 million in the year, mostly a result of new assets acquired
for leasing under operating leases.
Other liabilities increased from £430.8 million to £445.5 million at
30 September 2025. This was principally a result of an increase
in collateral received against swap assets, which increased by
£86.2 million, driven by changes in derivative positions and the
distribution of those positions between counterparties. This
was offset by a reduction in other sundry balances including the
£23.8 million accrual which was made at 30 September 2024 for
the completion of that year’s share buy-backs.
The motor commission redress provision has been recognised
as a separate balance sheet item.
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A4.4.3 Segmental results
The underlying operating profits of the two segments described
in the Lending Review in Section A4.1 are detailed fully in note 2
and are summarised below.
2025 2024
£m £m
Segmental profit
Mortgage Lending 264.2 257.7
Commercial Lending 82.6 88.3
346.8 346.0
Unallocated central costs and income (52.9) (53.3)
293.9 292.7
Central administration and funding costs, principally the costs
of service areas, establishment costs and bond interest have not
been allocated, nor has interest income from surplus liquidity.
The size of these unallocated balances is broadly similar,
year-on-year.
Mortgage Lending
Our Mortgage Lending division continued to increase its asset
base while controlling margins in a competitive environment,
a result built on strong customer relationships and retention
in the professional buy-to-let sector. Net interest grew by 1.9%
in the year to £287.7 million (2024: £282.3 million), with the
3.7% growth in average net loan balances, to £13,646.1 million
(2024: £13,159.0 million) offsetting a tightening of net
margins. NIM decreased 4 basis points to 211 basis points
(2024: 215 basis points), with margins on fixed-rate accounts
protected by hedging arrangements.
Overall credit performance of the book improved slightly in the
period, with long-term issues continuing to be resolved. The
number of properties with a receiver of rent in place reduced by
10.5%, with the number of long-standing (pre-2020 appointment)
receiverships 38.9% less than a year earlier. While arrears have
marginally increased in the year, only 1.3% of the gross loan book
by value at the year end was considered to be credit impaired
(2024: 1.4%), including an increase in IFRS 9 Stage 3 cases from
£171.1 million to £176.1 million, mostly a result of the increase in
three-month arrears cases.
The charge for impairment increased to £6.3 million in the year
(2024: £5.6 million) although the cost of credit risk for the year
increased only slightly, to 5 basis points (2024: 4 basis points)
(Appendix B). The low cost of risk reflects the high levels of
security cover in the division’s portfolios.
Overall contribution from the division for the year increased by
2.5% to £264.2 million (2024: £257.7 million).
Commercial Lending
Our Commercial Lending division continued to grow its loan
portfolio strongly, with the total average loan balance growing by
11.6% to £2,377.3 million (2024: £2,130.9 million), which, together
with a relatively small decrease in NIM from 586 basis points to
570 basis points, generated an increase of 8.6% in net interest
to £135.5 million (2024: £124.8 million). This reflected changes
in the proportion of segmental income generated in each of
the division’s operations, coupled with the increase in average
funding costs seen during the year.
Operating profit before impairment charges for the year was
£118.2 million, an increase of 10.3%, slightly ahead of the growth
in income (2024: £107.2 million), due to efficiencies from our
investment in systems and process improvements.
Impairment charges for the year, at £35.6 million, had increased
significantly from the 2024 financial year (2024: £18.9 million),
with this increase concentrated in the development finance
operation. Charges outside development finance increased to
£1.4 million (2024: £1.1 million), with credit performance largely
stable in the motor finance and SME lending elements of the
portfolio, with low arrears and relatively few defaulted cases.
6.1% by gross value of cases in the segment’s portfolio were
considered to be credit impaired at 30 September 2025, compared
to 5.1% at the previous year end. However, a substantial amount
of this balance relates to development finance projects, where
security cover can be high. In development finance the lending
cohort approved in 2022 and earlier continues to experience
issues, with a number of further cases entering Stage 3 in the
year, some of which have encountered significant distress.
Development finance Stage 3 cases increased by £43.4 million
at gross value, more than the £42.2 million increase seen in the
segment’s IFRS 9 Stage 3 balances as a whole. Losses in this
business are highly cyclical and generally linked to idiosyncratic
factors or economic shocks and these losses follow several years
where loss levels were minimal.
These factors led to a reduction in segmental profit of 6.5% to
£82.6 million (2024: £88.3 million).
A4.5 Operations review
Our strategy as a specialist bank relies on in-depth knowledge
of the sectors in which we operate, bespoke systems and the
careful management of risk across all our operations. Delivery
of our purpose, “to support the ambitions of the people and
businesses of the UK by delivering specialist financial services”,
relies on our customer-focussed culture and a dedicated team.
Our recognition of the importance of an experienced, skilled
and engaged workforce facilitated by effective systems, detailed
use of analytics and focussed use of data lies at the heart of our
business model.
This operations review discusses how our business has been
conducted over the year, and anticipated developments going
forward, under the following headings:
A4.5.1 Operations (systems, infrastructure and conduct)
A4.5.2 Governance
A4.5.3 People
A4.5.4 Sustainability (including environmental impacts)
A4.5.5 Risk (including risk profile and risk management)
A4.5.6 Regulatory change
Our long-term programme to enhance processes and technology
has reached significant milestones in the year. The Spring
savings business was launched and the roll-out of our new
mortgage origination system was completed. In parallel, we have
continued to invest in our people and processes, in these areas
and across the wider business, to ensure the effectiveness of our
operations going forward. It was particularly pleasing to retain
Platinum Investors in People status in our triennial reassessment
in the year, recognising our focus on this area.
Page 50
This continuing focus ensures that our operations are ready to
support our strategy going forward, while taking account of the
interests and aspirations of all our stakeholders.
More detailed information on sustainability and
corporate citizenship is given in Section A6.
A4.5.1 Operations
Systems
Digitalisation has been at the heart of the development of
our businesses over recent years, touching all aspects of our
operations. Significant investment has been made on a long-term
basis in our ‘IT Road map’ to ensure effective service delivery
to our customers, enhance the resilience of the business and
support our people’s capabilities. This has included migration of
processing to the cloud and the provision of new systems and
functionality in various business areas, with several significant
milestones achieved in the year.
Our new Spring savings business (‘Spring’) was launched in
April 2025. This is a wholly digital offering, operating through a
bespoke app, downloadable to customers’ phones, developed
by our in-house team in conjunction with experts in the field.
This also delivered the functionality for in-house savings
administration for the first time since the launch of
Paragon Bank in 2014.
The Spring infrastructure makes use of significant software tools
not previously used in our infrastructure. The system includes
our first chatbot and has a significant reliance on types of API
technology not previously used in our IT environment, with
over twenty different API connections to support the customer
experience. The app also includes machine-learning artificial
intelligence (‘AI’) features, which, as well as supporting the
chatbot, are used to enhance cyber security and anti-fraud
protection and to reduce operational burdens.
Several of the fundamental building blocks in the Spring
infrastructure, including those related to cyber and fraud
protections, are shared with our other principal IT Road map
applications, in line with one of the principal objectives of our
digitalisation strategy. This means that the learnings from each
project can be fed back to inform future developments across
all our businesses, that technical skills are more interchangeable
within the business and that our IT environment, as a whole, is
more resilient. In particular, the development work on APIs can
be leveraged in future projects across the business.
The successful delivery of the Spring infrastructure was
recognised in September 2025, when we were named as winners
of the 2025 OutSystems Innovation Award for business impact.
These awards, run by a leading software development platform,
recognise project delivery on a global basis, with other winners
including Roche, Clarins and Pokémon.
In our 2024 annual report, we noted the initial launch of our new,
state-of-the-art mortgage origination system. During the current
year this was rolled out across our whole mortgage broker
community. Since March 2025, all our brokers have had access
to the new system and have been submitting cases through
it. This
means that the IT Road map has now delivered new
origination systems for our buy-to-let mortgage, development
finance and SME lending businesses, covering the majority of
new business flows.
Since the launch of these systems, we have continued to
review feedback from both customers and users, rolling out
enhancements in response. We have also continued to enhance
systems already delivered under the road map as our real-life
experience of their capabilities and potential develops, with
upgrades being delivered monthly.
One of the largest remaining projects on the IT Road map also
made significant progress in the year. We appointed Alfa Systems
to support our new post-completion system in SME lending.
This will replace a number of legacy systems, streamlining
processing, providing enhanced flexibility and improving the
experience for customers and intermediaries. Development has
progressed during the period with input sought from both users
and customers.
We continued to develop our broader infrastructure environment
in the year, with an upgrade to contact centre software rolled out
across the business, and significant work carried out to ensure
that our cyber-security systems remain up-to-date.
The introduction of AI into the systems of financial services
businesses is currently one of the more significant challenges
across the sector. As noted above, machine learning AI is playing
an increasingly important role in systems for underwriting,
administration and fraud prevention, amongst other uses.
The use of generative AI has, to date, been more limited, but
we have undertaken several pilot projects to establish proofs in
concept and to support the development of the training and risk
management approaches needed to ensure the risks involved in
any such use are appropriately controlled.
Moving into 2026, we will continue to progress on the IT Road map
with major projects under way, many focussing on customers’
in-life experience of their products. These both build on the work
delivered so far and leverage user feedback to enhance systems
delivered to date. In parallel we will continue to make more
general enhancements to the tools used to support our people in
delivering on their own objectives.
Facilities
Our hybrid working model remains in place. This approach is
popular with our people and aligns with our business model,
allowing business areas to adopt the working methods which
best suit the needs of their customers, operations and people.
We have no current plans to change this approach, despite the
move back to increased expectations of office attendance seen
elsewhere in the sector.
The majority of our people work at one of our offices two or
three days in each week and office occupancy has remained at
similar daily levels to previous periods. Around three quarters
of our people attend our Homer Road, Solihull, head office at
some time in each month. We continue to develop our premises
in line with the requirements of this model of working and
the first stages of the modernisation of this building began
in the year. This has the dual objectives of providing updated
facilities to better support hybrid working, and improving our
carbon footprint, with the refurbishment being one of our key
operational sustainability objectives.
Our head office at Homer Road in Solihull, which was completed
in the early 1990s is both the largest and the least up-to-date
of our facilities, with our London and Southampton premises
relatively modern in comparison, and far more sustainable. This
programme of refurbishment will, therefore, bring our estate
more into line with the current expectations of stakeholders,
employees and potential employees.
Operational resilience has been a significant area of focus
over recent years, with regulators codifying their expectations.
March 2025 was set as the date by which firms had to be able
to demonstrate the appropriateness and robustness of their
planning, enabling them to remain within impact tolerances and
we were pleased with the positive results of our self-assessment
at that point, which was further reviewed by our Internal Audit
function. The introduction of Spring, which has increased our
reliance on third parties and upgraded the technology we have in
place has been a significant part of our ongoing resilience work
in the year, and appropriate controls have been put in place to
ensure our profile remains robust.
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Strategic Report
Customers
We maintained our focus on high-quality customer service
throughout the period. Regular surveys are conducted with
customers and business introducers to monitor satisfaction,
and these have remained positive during the year (as set out
in Sections A4.1 and A4.2). The FCA Consumer Duty is now
fundamentally embedded in our processes, and has informed all
new developments, including the launch of Spring. Our second
formal internal Consumer Duty Annual Report was presented
to, and approved by, the Board in the year. While not all our
business lines are covered by the Duty, its ethos is reflected in
our approach to customer service across all our businesses.
A particular focus during the year has been services provided to
customers in vulnerable circumstances. Our services to these
customers were reviewed, continuing training provided to our
people and specialist resources enhanced across the business
to ensure needs were met appropriately.
During the year we have continued to monitor the emerging
issues in the motor finance sector surrounding historical
commission arrangements and charging practices, including the
FCA review, which was ongoing throughout the period, and other
legal and regulatory processes addressing related matters. With
the conclusion of some of the legal cases and the publication
of the FCA’s consultation on a proposed redress scheme in
October 2025, the likely future direction of this process has
become clearer, and we have appropriate contingency planning
in place to put such a scheme into effect.
During the year motor finance commission complaint cases were
handled in line with the FCA’s moratorium and will be processed
as and when further directions are received from the regulator.
Our other complaint volumes remained low, and our level of
adverse FOS determinations was in line with industry averages.
A4.5.2 Governance
We believe that high standards of corporate governance are
fundamental to the effective execution of our strategy. The
Group is subject to the 2018 UK Corporate Governance Code
(the ‘Code’), and we have continued to comply with the Code’s
principles and provisions throughout the period.
From 1 October 2025, most of the provisions of the new 2024
edition of the Code, have applied to us. Provision 29, which
relates to financial control is not applicable to us until the 2027
financial year. During the year we conducted a governance review
to ensure that our processes align to the new Code, and we can
confirm that we expect to be able to comply with the applicable
provisions of that Code in the financial year ending
30 September 2026.
We have also commenced a project to embed the expectations
of the new Provision 29 into our risk management and
governance structures. As a financial services firm, our
framework of risk and controls is already designed to meet
the expectations of our regulators, and we expect to be able
to comply with the new requirements building largely on our
existing structures.
Our annual general meeting (‘AGM’) was held on 5 March 2025.
All resolutions were carried comfortably with at least 96% of
votes in favour, and the Board extends its thanks to those
shareholders who participated. Detailed results can be found on
our corporate website.
At the time of our 2024 results announcement, we reported
on the tender process in respect of our external audit which
had been carried out by the Audit Committee. The Committee
recommended the appointment of Deloitte LLP in place of
KPMG LLP. The Board accepted this recommendation and will
propose a resolution to appoint Deloitte LLP as external auditor
at the 2026 AGM, with effect from the conclusion of the meeting.
Deloitte LLP will therefore first report on our accounts for the
financial year ending 30 September 2026.
With the signing of this year’s accounts KPMG will have
completed a full ten-year cycle and we thank the firm, and
particularly the partners and audit staff involved in the
engagement, for their diligent work and the level of constructive
challenge provided over the past decade.
More details on our corporate governance
arrangements are set out in Section B.
Board of directors and senior management
Throughout the year the Board has comprised two executive
directors, six independent non-executive directors, one
non-independent non-executive director and the Chair, who
was considered independent on appointment.
At 30 September 2025, it included four female directors,
comprising 40% of its membership, with one of the senior
roles designated by the FCA held by a woman, Alison Morris,
the Senior Independent Director. Half of the Board’s principal
committees are also chaired by female directors.
Hugo Tudor, our non-independent non-executive director, has
announced his intention of stepping down from the Board at
the conclusion of the forthcoming AGM, in March 2026. Hugo
has served over a decade on the Board, having held the roles
of Senior Independent Director and Chair of the Remuneration
Committee. Hugo’s term covers almost the whole life of Paragon
Bank, significant acquisitions in SME lending and development
finance, a near doubling of the Group’s assets and equity and
many other major changes. Throughout this period of change
and growth, Hugo has contributed his experience and wisdom to
the Board’s discussions, and his curiosity, challenge and counsel
will be much missed. We wish him well for the future.
In a reorganisation at the beginning of the year, Sarah Mayne,
the Chief Internal Auditor, joined the executive committees as
a member, having previously attended their meetings as an
observer. Sarah’s appointment brought the number of executive
committee members to thirteen, and the percentage of female
members to 30.8%, a level it remained at throughout the year.
Following the year end Anne Barnett, our Chief People Officer,
retired from that role and from the executive committees. She
joined Paragon in 2004 and has held her current role since
2008. This period has seen significant changes in our business,
affecting our people in many different ways, with the challenge of
these developments running parallel with ever-increasing legal
and regulatory expectations of employers, and with a heightened
focus on the position of employees as stakeholders as part of the
emerging sustainability agenda. Anne’s commitment and skill in
guiding our business through this landscape has been invaluable.
From 1 November 2025, Anne’s role as Chief People Officer and
her place on the executive committees was assumed by Andrea
Knott, our former Head of Human Resources, who worked
closely with Anne over the last five years. Andrea was responsible
for the development of our EDI strategy and our People Forum
over recent years, and has an in-depth understanding of our
businesses’ strategic, legal and regulatory priorities.
Page 52
Remuneration policy
The last triennial review of our directors’ remuneration policy
was approved at the 2023 AGM, and a further approval at the
2026 AGM will be required. Our Remuneration Committee has
therefore reviewed the policy in light of changes in regulatory and
stakeholder expectations since 2023. As part of this process, we
sought input from shareholders and other interested parties, and
we thank those who took the time to contribute. We found their
views useful and incorporated their feedback into the drafting of
the new policy, as appropriate.
The proposed policy is set out as section B7.2 of the Group’s
2025 Annual Report and Accounts, and we urge shareholders
to support it at the forthcoming AGM. If shareholders or their
representatives have any questions or concerns, we would be
pleased if they raise them through the office of the Company
Secretary, before the AGM takes place.
A4.5.3 Management and people
Around 1,400 people work for the Group across the UK, with
the majority based at our head office in Solihull, continuing
to work with hybrid working arrangements. Our people are
the cornerstone of our success, and we are proud to be an
accredited Platinum employer under the Investors in People
(‘IIP’) programme. We focus on providing opportunities for
varied and rewarding careers, offering extensive training and
development opportunities to enable them to meet their own
ambitions, whilst delivering on our strategic objectives.
Conditions and culture
In April 2025, we were reaccredited as a Platinum IIP employer
for the second time. This status is held by only 7% of the
organisations assessed by IIP, and we are proud to have
achieved such recognition. The triennial re-accreditation process
included a confidential, externally managed all-employee survey,
which achieved a response rate of 71% (2022: 73%). IIP assessors
also randomly selected 10% of employees for interview. Notably,
we outperformed peer organisations of similar size across
all nine IIP indicators, reaffirming our leadership in people
management and organisational development. Employee
engagement continued to trend positively, exceeding the
financial services and the all-industry average benchmarks.
Furthermore, 90% of employees reported feeling confident in
being themselves at work, highlighting the inclusive nature of our
environment. This reaccreditation reflects our strategic focus
on cultivating a high-performing, inclusive, and values-driven
working environment.
As we continue our digitalisation journey, we continue to review
our operating model, so that we are organised in a way that
allows us to best serve our customers, preserve our specialist
skills, and realise the benefits of our investments. Our approach
anticipates future challenges and opportunities, ensuring that
the resourcing required to effectively support sustainable growth
is in place, so that we can operate in the most cost-efficient
way possible.
Our employees continued to show flexibility during the year
with many undertaking secondments and transfers to different
areas of the business, often supporting transformation
programmes, meaning the needs of our customers continued to
be appropriately met.
During the year, we updated our Code of Conduct to ensure
that FCA requirements regarding non-financial misconduct are
clearly communicated to employees. While this is not an area of
concern, we have further strengthened our controls regarding
bullying, harassment and other forms of inappropriate behaviour.
This has included the provision of enhanced eLearning, to
support the message that behaviour of this type will not be
tolerated, and ensuring that members of our employee networks
are enabled to support employees in speaking up, should they
be made aware of any concerns. Enhancements made reflect
the FCA’s expanded Conduct Rules (‘COCON’) and reinforce
our zero-tolerance stance. In addition, we have enhanced our
reporting and investigation procedures, so we can continue
to be certain that all concerns are managed with fairness,
confidentiality and rigour.
With an employee attrition rate, excluding redundancies, of
11.1% (2024: 10.8%), our retention levels continue to be better
than the national average. These positive levels are further
bolstered by 60% of employees achieving over five years’
service and 13.5% achieving over twenty years with the Group.
We have continued to support our employees and enhance
working conditions, with paternity leave entitlements increased
in the year and the qualifying service period for all enhanced
maternity, paternity and similar pay reduced to twelve months.
We have closely monitored the progress of the UK Government’s
Employment Rights Bill, currently in its final parliamentary
stages. We have assessed its potential impacts on our
employment practices and procedures and consider that we
are well placed to manage its introduction into law.
We retain our accreditation from the UK Living Wage Foundation
and minimum pay has exceeded the levels set by the Foundation
throughout the year. The minimum wage paid to our employees
increased to £13.46 per hour from 1 November 2025, with a
higher level for London-based employees.
Our profit related pay scheme continues to provide employees
with a benefit linked to our financial performance. In the current
year, as a result of the 2024 profit, an additional £2,642 was paid to
all full-time employees below senior management level. Employees
also benefitted in the year from our maturing 2022 three-year
Sharesave scheme, being able to buy shares with a market value
in the region of £8.70 each for an option price of £3.91.
Equality and diversity
Continued progress has been made on our equality, diversity,
and inclusion (‘EDI’) agenda during the year, with the launch of
an updated strategy to employees, with three main focus areas:
gender, ethnicity and socio-economic background (‘SEB’).
The EDI Network continues to inform our plans in this area,
and is sponsored at executive level by Ben Whibley, the
Chief Risk Officer.
The drive to capture diversity data for as many employees
as possible continues, with fresh initiatives in the year and,
by September 2025, 83.6% (2024: 80.9%) of employees had
completed a diversity profile on the HR management system.
The collation of this data from employees provides us with an
enhanced ability to monitor and improve the diversity of the
workforce going forward and ensure the experiences of our
employees are not unfavourably impacted based on diversity
characteristics. Executive Committee and Board members
are regularly provided with data demonstrating the progress
being made.
We remain committed to improving workforce diversity and
ensuring that talented people from all backgrounds can reach
their full potential by breaking down barriers to progression and
are pleased to have already met our Women in Finance target
of 40.0% female representation in Senior Management roles
by December 2025, achieving 40.4% representation at
30 September 2025 (2024: 37.9%).
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Strategic Report
Last year, in line with the expectations of the Parker Review, we
committed to achieve 5% ethnic minority representation in Senior
Management roles by December 2027. At 30 September 2025
this had increased to 3.5% from 1.7% a year earlier. Developing
the strength of our talent pipeline to provide candidates for
these roles in future, and critically reviewing external recruitment
procedures, will be central to achieving this stretching target.
To support our efforts to improve socio-economic equality we
continue our partnership with both Progress Together and Future
First, a social mobility charity supporting inner city colleges and
schools. As a youth-friendly employer, we are committed to
creating opportunities for young people and bridging the
gap between education and employment. Through a range
school and college events, we help students develop the skills
and experiences they need, through meaningful and good
quality experiences.
A4.5.4 Sustainability
Sustainability, including resilience in the face of climate change
risks, is core to our strategy: to focus on specialist customers,
delivering long-term sustainable growth and returns through a
low risk and robust business model. Sustainability influences
every aspect of our business and means:
• Delivering sustainable lending through the design of products
• Reducing the impact of our operations on the environment
• Ensuring we have a positive effect on our stakeholders
and communities
Sustainability issues are coordinated on a group-wide basis
by the Sustainability Committee, which reports directly to
the Executive Performance Committee. The Sustainability
Committee is responsible for driving the Group’s initiatives on
climate change and progressing other projects in the field of
sustainability, ensuring that information on all such initiatives is
shared across our businesses and facilitates the development of
a coordinated and proactive approach.
In December 2025 we publish our fifth Responsible Business
Report, our annual sustainability report. This provides more
detailed information on sustainability initiatives and demonstrates
how sustainability is embedded. It can be found, alongside other
information and documentation relevant to ESG issues, on our
corporate website at www.paragonbankinggroup.co.uk.
Climate change
We have made a commitment to achieve net zero in line with,
and in support of, UK Government commitments. In doing so
we recognise that net zero cannot be achieved by any entity
in isolation and therefore our commitment is dependent on
appropriate government and industry support and action.
As members of Bankers for Net Zero (‘B4NZ’), we are active
in providing input into the wider efforts of the financial
services industry to creating a clear pathway to support the
decarbonisation of the UK economy.
We have designated climate change as a principal risk within our
Enterprise Risk Management Framework. This means that our
response to climate change issues is considered within our overall
strategy at board level. These risks fall into two main groups:
• Physical risks (which arise from the impact of more
frequent or severe weather-related events on our business
or our customers)
• Transitional risks (which come from the speed, nature and
level of regulations designed to promote the adoption of a
low-carbon economy)
Information and measures on climate-related risks and
opportunities are considered at board level through the CEO’s
monthly reports. Developments in sustainable products and
climate-related exposures are considered for each of our business
lines as part of strategy deep dives which feed into the annual
board strategy event and into our business planning process.
No new material risks related to climate change were identified
during the year. As there has been no material change in the
business model the previous year’s risk reviews, carried out on
each key business area supported by the ESG and Credit Risk
teams were not repeated. The climate change scenario analysis
exercise was not reperformed as the existing outputs and
conclusions were deemed fit for purpose.
As part of the ongoing development of our climate-related
reporting, we have enhanced our analysis of financed emissions,
and a more detailed emissions balance sheet is being presented
in the 2025 Annual Report and Accounts (Section A6.4).
Developments within business lines which contribute towards our
climate risk strategy are set out in the relevant business reviews.
As a financial services provider the direct environmental impact
of our operational footprint is considered low. However, we
recognise the importance of reducing the impact our operations
have on the environment. We have committed to reduce our
operational footprint to net zero by 2030 and it is now reported
on a quarterly basis to the Sustainability Committee, with a
summary report escalated to the Board.
In support of this net zero target, certified carbon offsets
equivalent to our operational footprint for the twelve months
ended 30 September 2025 have been purchased, in the same
way as for the three preceding financial years. We intend to
repeat this for each future year, but accept that reducing impacts
is preferable to offsetting, where possible.
Initiatives to reduce operational environmental impacts during
the year include:
• Commencing a project to decarbonise and refurbish our
Solihull head office building based on the decarbonisation
assessment delivered during 2023, with work due to
commence in 2026.
• Further energy efficiency measures put in place at our
Solihull head office.
• Continuing to electrify our company car fleet and working to
reduce unnecessary business travel. At 30 September 2025,
93% of all company cars were either fully electric or hybrid
(2024: 95%). We also offer an electric car scheme via salary
sacrifice to all employees, providing those not entitled to a
company vehicle with access to lower emissions travel. These
initiatives are expected to reduce both direct and indirect
travel emissions.
• Continuing to transition our electricity supplies to renewable
or low carbon sources. During the year 93% of our purchased
electricity was certified as renewable.
• ESG due diligence at the beginning of the relationship with all
significant new suppliers, considering climate-related targets
and greenhouse gas reporting.
Social engagement
During the year, the employee-led Paragon Charity Committee
raised £59,000 for Guide Dogs, the charity chosen by
employees. For the financial year ending 30 September 2026,
CRY (Cardiac Risk in the Young) has been selected as the
beneficiary of the committee’s fundraising activities.
Page 54
Our employee volunteering initiative also continued to make
an impact in our communities during the year. Employees are
entitled to an annual paid volunteering day, and opportunities
offered during the year have focussed on supporting people who
are experiencing poverty; providing educational opportunities for
children and young people; and improving the local environment.
Projects supported have included initiatives building on
long-standing relationships with charities and schools, such as:
Oasis MIND Garden providing mental health support to local
people; several ‘forest-schools’ at local primary schools; canal
and river charities; and woodland and parkland charities.
We are pleased to report that engagement in the volunteering
programme across all our locations has increased significantly
this year, with the number of volunteer sessions completed in
the financial year rising to 513 (2024: 460).
Customer experience
Customers are at the heart of our business, and we are
committed to delivering good customer outcomes and continuing
to find ways to enhance the customer journey and experience
in all our operations. Customer-focussed management groups
are dedicated to improving customer journeys and supporting
customers on an ongoing basis. Our internal Customer
Vulnerability Awareness Group continues to raise awareness
around vulnerabilities, making sure that impacted customers
are considered throughout every stage of their financial journey.
During the year initiatives to improve the experience of such
customers have included an improved bereavement process for
buy-to-let and residential mortgage customers, and group-wide
communications highlighting real-life case studies.
The Customer and Conduct Committee monitors complaint
volumes, identifies any trends and ensures issues are resolved
effectively and lessons learnt, and throughout the year complaint
metrics have remained positive, excluding the effect of motor
finance related cases.
A4.5.5 Risk
The effective management of risk remains crucial to the
achievement of our strategic objectives. Our risk governance
framework is designed around a formal three lines of defence
model (business areas, the risk and compliance function and
internal audit), which is supervised at board level. This is part of a
formal Enterprise Risk Management Framework (‘ERMF’), which
is fundamental to our management of risk.
The effectiveness of the ERMF is ensured through clear articulation
of risk strategy, risk appetites and policies that are understood
throughout our businesses and enable us to assess and deal
with new and emerging risks in a consistent and considered way.
This is coupled with embedded oversight and regular review and
governance across all of our financial and non-financial risks,
allowing any changes in risk profile to be identified and addressed
in a prompt, agile and transparent manner.
Risk environment
The maintenance of a robust risk management approach has
assumed an ever-greater role in navigating the evolving risk
environment over the last twelve months. Whilst some threats
have receded or been resolved, the risk landscape remains
dynamic against a background of heightened global tensions.
These, in turn, have the potential to impact the operating
environment in a variety of ways as we navigate our business
through a diverse landscape of risk issues, ranging from
economic uncertainty to heightened cyber security threats.
Our ability to evaluate the potential impact of these challenges
on our businesses on an ongoing basis remains fundamental
to maintaining both resilience and our focus on delivering good
outcomes for customers.
Whilst there is a greater degree of stability in the domestic
economy compared to the situations which followed events
such as the Covid-19 outbreak of 2020 and the UK mini budget
of 2022, there are a number of factors that could disrupt this
relative equilibrium. The approach to international trade of the
new US Administration, and the aggressive tariffs it imposed
during 2025, have the potential to dislocate global trade, to a
greater or lesser extent, which will, in turn, impact the future
trajectory of the UK economy. Although the UK has not, so far,
been impacted by some of the most severe tariff levels, it is
acknowledged that US economic policy continues to evolve and
has the potential to develop on an unusually rapid timescale.
We continue to assess the impact of varying scenarios as to
how this may affect UK economic conditions in general and our
business models in particular through our use of stress testing
and scenario modelling.
Against this backdrop however, our specific risk landscape
remains complex, with significant interplay between macro
challenges and specific issues impacting the UK financial services
sector, whether operational or regulatory, including those specific
to our core businesses. It is important therefore that our ERMF
remains relevant, scalable and pragmatic in order to support us in
assessing, mitigating and managing the risks identified.
During the year our risk governance and oversight processes
have been integral in monitoring the evolving legal and regulatory
situation in respect of historical motor finance commissions.
We have remained close to the developments in this area
since the FCA initially launched its investigation into the use of
discretionary commission arrangements (‘DCA’s) in January 2024
and have managed related customer complaints in line with the
FCA’s developing guidance and timeframes.
The Supreme Court ruling in August 2025 in the cases of
Johnson, Wrench and Hopcraft clarified the legal basis on
which claims for redress could be made, enabling the FCA to
produce a Consultation Paper outlining an industry-wide redress
scheme in October 2025. Whilst we await the final outcome of
this consultation process, we have undertaken comprehensive
scenario analysis to ensure we are operationally ready to meet
requirements and timeframes once known.
Throughout the year we continued to monitor the progress of the
reforms in the PRS being introduced through the Renters’ Rights
Act 2025, which include ending ‘no fault’ Section 21 evictions
and introducing a ‘Decent Homes Standard’ for rental homes.
The legislation received royal assent shortly after the year end
and is expected to come into force early in 2026. As that date
approaches, we remain focussed on how these changes can
be practically implemented. At the same time, we continue to
assess and remain focussed on how these proposals might
impact the risk profile of our buy-to-let portfolio and the viability
of our landlord customers.
The armed conflict in Ukraine and the unfolding events in the
Middle East as attempts at peace are brokered continue to be
issues of global concern. There is ongoing uncertainty as to
how these situations might develop, and their effects on the
global economy are still emerging. Impacts on the UK economy
have been relatively limited, to date, but the situation remains
dynamic and there remains a significant potential for supply
chain issues to emerge.
In addition to the economic impacts, we remain vigilant to the
wider threats posed by international hostilities including those
to physical security and the potential of increased cyber threats.
Significant cyber-related attacks have been reported over the
last year affecting both major UK institutions, and international
organisations and infrastructure. Whilst the origin of these
attacks is varied and not necessarily directly attributable to the
wider geopolitical situation, it is clear that an increased risk of
cyber disruption is an inherent consequence of our increasing
reliance on digitalisation, one we share with many UK firms.
Therefore, cyber risk remains high on our risk agenda, and our
programme of ongoing threat analysis and investment in the
rapid identification and containment of any perceived cyber
threat is core to our risk management strategy.
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Strategic Report
Following the general election in July 2024 the UK government
continued to implement its economic policies, with the stated
aim of stimulating growth while addressing the UK’s budgetary
deficit and dealing with ongoing cost of living and wider
economic challenges. We have monitored these policy changes
and their initial impacts throughout the year, assessing potential
impacts on our businesses and those of our customers. With the
November 2025 budget also likely to have significant economic
consequences, the impact of UK economic policy remains an
area of focus going forward.
Whilst the future contains the prospect of significant economic
uncertainties and we maintain vigilance as the global and
UK situation evolves, we have continued to successfully
manage issues as they arise and mitigate their impacts on
our businesses. We remain comfortable we are well-placed to
manage emerging and other risks appropriately, whilst balancing
the needs of our various stakeholders. In particular:
• Interest rates have continued to edge downwards during
the period, and although those movements are slower
than previously anticipated, the relatively stable forecast
provides a reassuring outlook for lending. However, we are
aware that inflationary pressures and high costs of living
remain a challenge for many individuals and businesses, and
we continue to closely monitor potential impacts on both
customers and employees
• We continued to focus on high-quality lending, continuing to
apply prudent credit policies. Actual and projected arrears
trends are assessed in setting lending criteria. Adjustments to
origination credit policy are made, when appropriate, to cater
for both economy-wide or idiosyncratic sector events. This
philosophy underlies the positive through-the-cycle credit
performance across the lending portfolios
• Whilst the current risk profile of loans across our lending
portfolios does not indicate any noticeable signs of
significantly increased widespread financial stress, we
continue to take a forward-looking, as well as current, view
of affordability, and adjust credit policy to ensure loan
repayments are sustainable for customers where necessary
• We take our responsibilities in respect of customers in vulnerable
circumstances extremely seriously and continue to ensure that,
where appropriate forbearance solutions are necessary, these
are tailored to individual customer circumstances and aligned to
regulatory guidance and expectations
Risk management
Our ERMF is fundamental to our ability to ensure that we remain
alert to emerging risks facilitating their effective identification,
assessment and mitigation. The solid foundation provided by
the ERMF has supported the development of our approach
to risk management, with the level of maturity around risk
understanding across our businesses continuing to become
embedded within day-to-day operations, with risk issues
addressed promptly and losses remaining well within appetite.
Our risk management capability is based on a strategy of
continuous improvement with the Group’s values emphasising
the importance of risk management. The “tone from the top” is
important in embedding these values, and ensures that effective
risk management is always central to business decision-making.
Against a volatile risk environment, the ERMF is crucial in
providing assurance that new and developing risks are promptly
identified, assessed and managed, with appropriate escalation
and oversight provided.
As the risk landscape continues to change and present new
challenges, the role of the ERMF remains critical, both in the
early identification of risk issues, and in providing a mechanism
to manage them. We remain confident that the ERMF continues
to be effective in allowing us to address the current uncertainties
in a way that supports us in making pragmatic and appropriate
risk-based decisions.
The importance of well-understood and embedded risk
management tools has been further reinforced through the
successful delivery of key initiatives during the year, including
significant milestones in our ongoing digital road map. We also
developed our operational resilience framework to the point where
the business had set, and was operating within impact tolerances,
by the prescribed regulatory deadline of 31 March 2025. The ERMF
has provided a consistent mechanism to define and quantify risks,
drive ownership, assurance and resolve issues, and has been
fundamental to controlled and risk-aware implementations of
these and other key initiatives. It will continue to be an enabler of
risk-aware strategic and regulatory delivery going forward.
The ERMF has also been integral to the launch of our new
savings proposition, Spring. Not only has it enabled the
identification of the consequent changes to our risk profile
in an effective and consistent way, but it has also provided a
mechanism to ensure focus on higher-risk areas and drive timely
and proportionate assurance across these material risks. At the
same time, the ERMF gave us a framework to make considered
risk-informed decisions at key project milestones.
Whilst the benefits of new technologies and product offerings
have enhanced our financial and operational resilience, we are
mindful of the incremental risks around cyber security, data
protection and reliance on third party servicers that potentially
arise as a consequence of such changes. We continue to
actively assess these risks using the capabilities of the ERMF, as
balances and transaction volumes on Spring savings products
increase, ensuring that the controls remain scalable and that
customers are protected from cyber threats and receive good
outcomes, both on their Spring accounts and across all our
products and services.
We remain mindful that risks continue to evolve and therefore
our risk management framework must continue to keep
pace with the internal and external challenges we face. As
new technologies such as generative AI become more widely
disseminated, regulatory expectations continue to drive high
standards, while the interaction of these technologies with
the operational environment poses new challenges. We are
committed to ensuring our ERMF remains capable of meeting
the risk management demands these new situations create, as
they emerge.
We have responded to these challenges on an ongoing basis
and continue to respond to them as appropriate. During the
year we have hired more specialist oversight resources for the
Second Line in data management and related areas, as well as
developing a more formal governance framework around the
effective and appropriate use of AI across our businesses.
Our focus on forward-looking and emerging risk identification
continues to be a priority area and we have further enhanced
horizon-scanning and reporting processes over the last twelve
months to facilitate discussion and to ensure that we can
pre-empt any risk issues as early as possible.
The importance of the ERMF as a mechanism in setting and
managing our risk appetites is critical. It has been key to
assessing and navigating the economic and global headwinds
as well as a diverse variety of specific threats and sectoral
challenges which continue to manifest themselves. Despite
the dynamic risk landscape there are a number of fundamental
ongoing risk management initiatives which are imperative to the
successful execution of our strategy. Good progress continues
to be made on these and we remain focussed on delivering these
commitments which we deem priority areas:
• Operational resilience – Having successfully met all
requirements of the final rules and guidance on ‘building
operational resilience in financial services’ published in 2021
by the FCA, PRA and Bank of England we remain focussed
on continuous embedding and improvement of our resilience
capabilities. Our regular self-assessment framework ensures
we continue to identify potential vulnerabilities promptly
and that we challenge existing processes to drive ongoing
refinement of critical business services and tolerances.
Page 56
Our scenario testing approach is fully embedded into
day-to-day operations meaning that important business
services are mapped and tested using severe but plausible
scenarios to test the ability of the infrastructure, key
dependencies and third parties to recover from disruption in
a stressed situation, using a scenario library which is updated
on a regular basis.
Resilience by design is a fundamental component of our
approach, particularly as we continue with our digitalisation
programme. We are committed to ensuring that the
digitalisation process is executed so as not to compromise
our ability to remain resilient during development and
implementation, and to ultimately deliver technologies and
processes which increase overall resilience as a key outcome.
• Cyber security – A robust cyber security framework to identify
and contain such threats is critical to our operations. With
high-profile disruptive attacks during the last twelve months,
we remain alert to the evolving nature of this risk and the
potential consequences of a severe cyber attack. The safety
and integrity of our customers’ and employees’ data, and the
ability to provide continuity of service are fundamental.
Investment in cyber prevention and enhancing threat
monitoring across our operations, including third party
oversight, has been significant and remains a priority. We
have invested in leading cyber defence technologies, and
continue to analyse wider industry learnings and intelligence
to bolster defences and address any identified vulnerabilities.
Furthermore, as described above, the potential impact of AI
developments has been a priority.
• IRB – Our buy-to-let application continues to remain the
focus of our IRB project. A refreshed set of models and
associated modules has been submitted to the PRA following
feedback and we continue to have ongoing close contact with
the regulator as part of the application process. Preparatory
work on our development finance portfolio, the next element
in our proposed roll-out, is also well under way.
• Stress testing – Ongoing enhancements to stress testing
procedures were introduced to ensure the robustness
of capital and liquidity positions. This included further
refinement of our IRB stress testing models for buy-to-let
and development finance.
• Third-party dependency – We have further strengthened
oversight frameworks and undertaken work to ensure the
resilience of critical suppliers as reliance on such contractors
continues to increase, particularly following the onboarding of
a number of new relationships to support the delivery of our
Spring savings offering.
• Climate – We continued to address the potential impact of
climate change on the management of our financial risks,
considering this as part of the wider sustainability agenda.
We continue to monitor and focus on the ongoing progress of
these initiatives to ensure the expectations of regulators and
wider stakeholders are met whilst maintaining good outcomes
for customers.
Significant and emerging risks
The principal significant and emerging risk areas expected to
impact our businesses during the coming year ending
30 September 2026 and beyond include:
• Interest rates – Whilst rates have followed a slow downward
trajectory, there is still uncertainty over the speed and timing
of any potential future reductions. We continue to closely
monitor UK and macro-economic trends, assessing their
impact on lending and savings to ensure we are well placed
to manage the associated risks.
• Strategic risk – Interest rates remaining higher for longer
has resulted in an increase in strategic risk. Competition for
deposits has increased, raising the cost of deposits relative to
reference rates, and demand for property backed loans has
reduced, reflecting heightened macro economic and political
uncertainty. We would expect strategic risk to moderate as
the speed and timing of potential interest rate reductions
becomes less uncertain.
• Motor finance commissions – We continue to monitor
the FCA’s work in relation to historical motor finance
commissions and assess how this may impact our business
both in terms of our exposure under any remediation scheme,
and the operational implications of such a scheme. Whilst
the comparatively small size of our motor finance portfolio
means our expected exposure remains manageable, a final
assessment of the operational and financial impact cannot be
made until the FCA finalises its proposals.
• Compliance expectations – Whilst the FCA has signalled a
move towards reducing the regulatory burden, expectations
around consumer protection remain consistently high. We
have maintained our focus on providing support to customers
facing financial difficulties, continuing to set high standards
for ourselves. Consumer Duty is embedded into our culture
and the way we conduct business, and we remain committed
to ensuring that good outcomes and a culture of continuous
improvement remain the focus of customer interactions.
• Financial crime – Methods of financial crime become ever
more sophisticated year-on-year, and the launch of our Spring
proposition has inevitably added additional vulnerabilities
in this area. In response, the programme of continuous
improvement in our financial crime technology and resources
remains a key focus and an important consideration in our
wider strategic change initiatives, and we remain alert to
changing threats. We have invested heavily in ensuring that
regulatory expectations are met in respect of anti-money
laundering and wider financial crime control frameworks, and
this commitment is ongoing.
• Climate – We remain focussed on increasing our
understanding of the impact and potential timings of risks
associated with climate change. Whilst the UK Government
maintains its stated intention to move towards a goal of
net zero carbon by 2050, uncertainty still remains as to the
detailed policies and regulations required to enable this. As
global and domestic strategies are further refined, we seek
to ensure that the impact of climate change is considered
as a core driver for our operational and lending strategies,
ensuring we are well placed to adapt and progress as the
outlook becomes more certain.
Further details regarding the risk governance model,
together with the principal risks and uncertainties faced by
our businesses, the ways in which they are managed and
mitigated and the extent to which these have changed in
the year, are set out in Section B8 of this annual report.
A4.5.6 Regulation
Paragon Bank is authorised by the PRA and regulated by the PRA
and the FCA. The Group is subject to consolidated supervision by
the PRA, and a number of subsidiary entities are authorised and
regulated by the FCA. As a result, current and projected regulatory
changes continue to pose a significant risk for our business.
Our governance and risk management framework is instrumental
in ensuring the impacts of all new regulatory requirements are
clearly understood and mitigated as far as possible. Regular
reports on key regulatory developments are received at both
executive and board risk committees.
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Strategic Report
During the year all relevant regulatory publications have been
considered, their implications identified and required changes
implemented within an appropriate timeframe. We engage in
regular dialogue with regulators and respond to all their requests
promptly. The volume of requests for information from the FCA has
continued to remain high, as expected, with a particular continuing
focus on information to support its ongoing activity around
historical motor finance commission arrangements. We respond to
all such requests in a timely fashion and maintain robust controls
to support the delivery of good outcomes for customers.
The following regulatory developments currently in progress
have the greatest potential impact on our businesses:
• Motor finance commissions – We continue to monitor
all developments in respect of the motor finance market
and historical discretionary commission arrangements.
The decision of the Supreme Court in the cases of Johnson,
Wrench and Hopcraft clarified the law in this area, however
the specific details are still subject to finalisation following
the publication of the FCA’s Consultation Paper on redress.
Until the FCA publishes is final rules, the full impact cannot
be accurately assessed, but we are actively involved in the
consultation process and will continue to monitor any further
developments, ensuring we are well positioned to implement
the FCA’s ultimate requirements for remediation or
redress activity.
• Basel 3.1 and the regulatory capital framework – In
March 2025, the PRA announced a one-year delay to the
implementation of the Basel 3.1 rules to 1 January 2027 – a
decision made in consultation with HM Treasury to reflect
the delays to the equivalent reforms in the USA. Before
implementation the PRA intends to rebase and adjust all
firms’ Pillar 2A requirements and PRA buffers, publishing
a revised Statement of Policy (SoP5/15) in October 2025.
Changes to methodologies, where relevant to Paragon, have
been incorporated in capital planning.
• Minimum requirements of own funds and eligible
liabilities (‘MREL’) – Following an extensive consultation
process, the Bank of England published a Policy Statement
amending its approach to setting MREL requirements. Most
relevant for our business were the changes to the threshold at
which the requirement applies. This increased from £15 billion
- £25 billion to £25 billion - £40 billion. The Bank of England
has also committed to reviewing the thresholds every three
years. While discretion remains with the Bank of England
on when to apply the MREL framework to a firm within the
threshold, the changes are a positive step and provide
significant headroom for our business to grow
without entering the regime.
• Solvent exit planning – In the early part of 2024, the
PRA published its final policy on solvent exit plans for
non-systemic banks and building societies (PS5/24). It
requires firms to undertake a Solvent Exit Analysis (‘SEA’)
and, when the circumstances require it, develop a Solvent
Exit Execution Plan. We completed our initial SEA ahead of
the October 2025 deadline and will continue to refine this to
reflect any feedback and best practice.
• Foundation IRB approach for residential mortgage
exposures – The PRA published a Discussion Paper in
July 2025 outlining its initial thoughts on the introduction
of a simplified approach to IRB, under which firms would
use internal models for probability of default, while applying
fixed supervisory values for loss given default and exposure
at default. While still at an early stage in the development
of a potential policy, the PRA believes this approach could
provide a proportionate and risk sensitive alternative to both
the standardised approach and the advanced IRB approach
(‘AIRB’). We continue to progress with our AIRB application
but are monitoring developments in this area closely.
• Changes to the Sterling Monetary Framework – In
December 2024, the Bank of England published a discussion
paper ‘Transitioning to a Repo-led Operating Framework’
where the Bank set out its plans to move to a demand-driven
framework in the second half of 2025. A key part of this is
the expectation that ILTR and STR facilities provided by the
Bank will play a greater role in ongoing liquidity management
at firms than before. We are well positioned to meet Bank of
England expectations in this area and have incorporated the
ILTR into our ongoing liquidity management.
• Supporting customers and their financial resilience – The
FCA’s published strategy for 2025 to 2030 has reinforced the
regulator’s ongoing commitment to focusing on strengthening
protection for consumers. We continue to focus on providing
support to our customers and their individual needs and this
will remain a key priority across all our operational areas.
• Increase in the FSCS covered deposits level – The PRA
has announced an increase in the level of FSCS covered
deposits for each customer from £85,000 to £120,000, to
take account of inflation since the limit was last changed. In
addition, the limit applicable to temporary high balance claims
will also be increased. The new limit will be implemented from
1 December 2025. We continue to monitor developments in
this area and will incorporate any changes required.
• Climate change – Oversight of the progress on our
climate change agenda by the Sustainability Committee
includes consideration of regulatory requirements as these
emerge. The PRA published Consultation Paper 10/25, on
managing the financial risks associated with climate change,
in April 2025 which built on their 2019 publication, and looks
to further enhance and embed firms’ approaches to managing
climate-related risks. We are actively working through the
PRA requirements ensuring that we have no material gaps as
we embed climate risk oversight across all aspects of
the business.
Certain regulations applying in the financial services sector only
affect entities over a certain size, which the Group might meet
within its current planning horizon, although the potential for
MREL to apply has reduced in the year, as described above. We
consider whether and when these regulations might apply in light
of the growth implicit in our business plans and put appropriate
arrangements in place to ensure we would be able to comply at
that point.
Whilst there are several specific regulatory developments
detailed above which are expected to have direct and specific
impacts on our operations, there continue to be wider regulatory,
legal and political developments where further clarification and
implementation strategies are yet to be provided. We are fully
engaged in relevant discussions through industry, regulatory
and governmental bodies and undertake ongoing monitoring
and assessment, to ensure any specific implications for our
businesses are identified early on.
We are particularly mindful of the development of UK
Government policy as legislation is brought forward to further
election and other commitments and to respond to wider
economic, social and industrial challenges. In July, the Chancellor
of the Exchequer announced ‘The Leeds Reforms’ (a specific
set of proposals aimed at simplifying the regulatory landscape
and promoting growth within the financial sector) alongside the
Financial Services Growth and Competitiveness Strategy (a
ten-year sector plan for financial services). The implications
of these interventions on the regulatory landscape may be
significant and we, together with others in the sector, continue
to monitor any changes which might impact our businesses.
We also continue to participate in relevant consultations as the
opportunity arises.
Given our engagement and proactive approach to new and
emerging regulatory change we believe we are well placed
to address any impacts which our businesses are presently
exposed to.
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A5. Future prospects
The Code requires the directors to consider and report on our
future prospects. In particular, it requires that they:
• Explain how they have assessed the prospects of the
business and whether, on this basis, they have a reasonable
expectation that it will be able to continue in operation (the
‘viability statement’)
• State whether they consider it is appropriate to adopt the
going concern basis of accounting in the preparation of the
financial statements presented in Section D (the ‘going
concern statement’)
In addition, UK Listing Rule UKLR 6.6.6 R(3) requires the
directors to make these statements and to prepare the
viability statement in accordance with the ‘Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting’ published by the Financial Reporting
Council (‘FRC’) in September 2014.
The nature of our business activities, current operations and
those factors likely to affect the future results and development
of the business, together with a description of our financial
position and funding position, are set out in the Chairman’s
Introduction in Section A1, Chief Executive’s Review in Section
A3 and the business review in Section A4. The principal risks and
uncertainties affecting us, and the steps taken to mitigate these
risks are described in Section B8.5.
Section B8 of this annual report describes our risk
management system and the three lines of defence model
which it is based upon.
Note 57 to the accounts includes an analysis of our working
and regulatory capital position and policies, while notes 59 to
61 include a detailed description of how the business is funded,
our use of financial instruments, our financial risk management
objectives and policies and our exposure to credit, interest rate
and liquidity risk. Critical accounting judgements and estimates
affecting the results and financial position disclosed in this
annual report are discussed in notes 64 and 65.
Financial forecasts
We operate a formalised process of budgeting, reporting and
review. These planning procedures forecast profitability, capital
position, funding requirement and cash flows. Detailed annual
plans are produced for two-year periods with longer-term
forecasts covering a five-year period, including detailed income
forecasts. These provide information to the directors which is
used to ensure the adequacy of resources available to meet
business objectives, both on a short-term and strategic basis.
The plans for the period which commenced on 1 October 2025
have been approved by the Board and have been compiled taking
into consideration cash flows, dividend cover, encumbrance,
liquidity and capital requirements as well as other key financial
ratios throughout the period.
Current economic and market conditions are reflected at the
start of the plan with consideration given to how these will
evolve over the plan period and affect the business model. The
economic assumptions used are consistent with the economic
scenarios considered for determining impairment provisions.
The plan is compiled by consolidating separate forecasts for
each business segment to form the top-level projection. This
allows full visibility of the basis of compilation and enables
detailed variance analysis to identify anomalies or unrealistic
movements. Cost forecasts and new business volumes are
agreed with the heads of the various business areas to ensure
that targets are realistic and operationally viable. Forecast loan
impairment levels reflect the economic scenarios and weightings
used in provisioning calculations at 30 September 2025.
Extensive use is made of stress testing in compiling and
reviewing the forecasts. This stress testing approach was
reviewed in detail during the year as part of the annual ICAAP
cycle, where testing considered the impact of a number of severe
but plausible scenarios. During the planning process, sensitivity
analysis was carried out on a number of key assumptions that
underpin the forecast to evaluate the impact of principal and
emerging risks.
The key stresses modelled in detail to evaluate the forecast were:
• Increase in buy-to-let volumes. This examined the impact of
higher volumes at a reduced yield on profitability and illustrated
the extent to which capital resources and liquidity would be
stretched due to the higher cash and capital requirements
• Prolonged reduction in buy-to-let volumes. This analysis
explored the effect of heightened competition in the
buy-to-let market, highlighting its influence on our return
metrics, portfolio composition and overall profitability
• Higher funding costs. Higher cost on all new savings
deposits, both front book and back book throughout the
forecast horizon. This scenario illustrates the impact of a
significant, prolonged margin squeeze on profitability, and
whether this would cause significant impacts on any capital,
liquidity or encumbrance ratios
• Increased buy-to-let redemptions. Higher redemption
rates for buy-to-let mortgages reaching the end of their fixed
rate period. This illustrates the potential risk inherent in the
five-year fixed rate business
• Reduced development finance volumes and yield. This
replicates a significant increase in competition within
the sector, reducing yields and impacting market share,
demonstrating how a lower mix of our highest margin product
impacts on contribution to costs and other profitability ratios
• Increased economic stress on customers. As well as
modelling the impact of each of the economic scenarios
set out in note 22 across the forecast horizon, the severe
economic scenario was also modelled over the five-year
horizon. To ensure this represented a worst-case scenario
all other assumptions were held steady, although in reality
adjustments to new business appetite and other factors
would be made
• Combined downside stress. The IFRS 9 downside economic
scenario described in note 22 was modelled out for the plan
horizon along with a plausible set of other adverse factors to
the business model, creating a prolonged tail-risk
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Strategic Report
The stresses noted above excluded potential management
actions which would, in a real-life situation, be taken to mitigate
their impact. Their purpose was to demonstrate how such
stresses may affect our financing, capital and liquidity positions,
in turn highlighting areas which might impact the Group’s going
concern status. Under each scenario, the business was able
to both meet its obligations across the forecast horizon and
maintain a surplus over its regulatory requirements for both
capital and liquidity through the application of normal balance
sheet management activities.
Potential operational risks are also assessed as part of our
annual ICAAP process, focusing on the impacts of a series of
severe but plausible scenarios. This analysis did not create
outputs that cast doubt on the ability of the business to continue
as a going concern.
The potential impacts of climate change on our businesses were
also reviewed. This exercise included a re-assessment of work
carried out in 2024, leveraging the Bank of England Climate
Biennial Exploratory Scenario (‘CBES’). The analysis is described
in more detail in Section A6.4.
These exercises support the Board in its assessment of the
Group’s ability to continue on a going concern basis, together
with its longer-term viability. They also demonstrate the range of
management actions within the Board’s control to mitigate any
plausible and foreseeable failure scenario.
The opening position for our forecasting and these reviews
includes a strong capital and liquidity base, supporting the
management of any significant outflows of deposits and / or
reduced inflows from customer receipts. The forecasts, even
under reasonable further levels of stress, show the Group
retaining sufficient equity, capital, cash and liquidity resources
to satisfy its regulatory and operational requirements across the
forecast period.
Risk assessment
The Board discusses, reviews and approves the principal risks
identified for the Group on an annual basis. The process included
debate and challenge regarding the most material areas for
focus, and no material changes were proposed to the principal
risks as a result of the 2025 review.
The principal risks are considered at each Executive Risk
Committee (‘ERC’) meeting and also at each meeting of the
board-level Risk and Compliance Committee.
During the year the work of the Risk and Compliance Committee,
of which all directors are members or attendees included:
• Consideration of new or emerging risks and regulatory
developments
• Consideration and challenge of management’s rating of the
various risk categories
• Consideration of the continuing appropriateness of risk
appetites set by the Board and the monitoring of compliance
against these risk appetites using a combination of qualitative
and quantitative measures
• Consideration of any material risk events, their impacts
and the adequacy of actions undertaken by management
to address them, together with an assessment of the root
causes of these events
A fuller description of the activities of the Risk and Compliance
Committee is provided in Section B8.2.
The Board monitors the UK’s political and economic situation
closely, where the prevailing heightened rates of interest and
the ongoing effects of the price rises of recent years, which
affected both consumers and businesses, continue to have
consequences for our operations. These factors result in an
increased potential for vulnerability amongst customers and
add to pressures on affordability. The potential policy impacts of
the UK government elected in 2024, both on the economy and
on the operations of our customers have also been a significant
area of focus.
In addition, the directors specifically considered the impact
on risk and viability through review and approval of key
risk assessments, including the Internal Capital Adequacy
Assessment Process (‘ICAAP’), Internal Liquidity Adequacy
Assessment Process (‘ILAAP’), completed after the year end,
and the Recovery Plan.
At the year end the directors reviewed their on-going risk
management activities and the most recent risk information
available when concluding on the position of the Group at the
balance sheet date.
The directors concluded that a robust assessment of all our
designated principal risks had been undertaken, particularly
addressing those risks that would potentially threaten the
business model, future performance, solvency or liquidity.
These principal risks are set out in Section B8.5 of the Risk
Management Report.
Availability of funding and liquidity
In considering going concern and viability, the availability of
funding and liquidity is a key consideration. This includes our
retail deposits, wholesale funding, central bank lending and
other contingent liquidity options.
Our retail deposits of £16,265.7 million (note 31), raised through
Paragon Bank, are repayable within five years, with 90.8% of
this balance (£14,765.3 million) payable within twelve months of
the balance sheet date. The liquidity exposure represented by
these deposits is closely monitored; a process supervised by
the ALCO. We are required to hold liquid assets in Paragon Bank
to mitigate this liquidity risk. At 30 September 2025, Paragon
Bank held £2,736.7 million of balance sheet assets for liquidity
purposes, in the form of central bank deposits and investment
securities. A further £150.0 million of liquidity was provided by
the off balance sheet long / short transaction, bringing the total
to £2,886.7 million.
Paragon Bank manages its liquidity in line with the Board’s risk
appetite and the requirements of the PRA, which are formally
documented in the Board’s approved ILAAP, updated annually.
The Bank maintains a liquidity framework that includes a short
to medium-term cash flow requirement analysis, a longer-term
funding plan and access to the Bank of England’s liquidity
insurance facilities, where pre-positioned assets would support
further drawings of £4,168.3 million (2024: £4,445.9 million).
Holdings of our own externally rated mortgage backed loan
notes can also be used to access the Bank of England’s liquidity
facilities or other funding arrangements. At 30 September 2025
we had £1,614.2 million (2024: £1,797.2 million) of such notes
available for use, of which £1,353.2 million were rated AAA
(2024: £1,536.2 million). The available AAA notes would give
access to £1,055.5 million if used to support drawings on
Bank of England facilities (2024: £751.9 million).
The earliest maturity of any our wholesale debt at the balance
sheet date was the central bank debt payable in October 2025,
which was satisfied on its due date. No other long-term debt falls
due before March 2027.
Page 60
We have regularly accessed the capital markets for warehouse
funding and corporate and retail bonds over recent years and
continue to be able to access these markets. We also have
access to the short-term repo market which is utilised from
time to time for liquidity purposes.
During the year, a covered bond programme was established,
under which we can issue up to £5,000.0 million of bonds from
time to time, when market conditions are acceptable, with
relatively short preparation and lead time.
Our access to debt is enhanced by the BBB+ corporate rating,
confirmed by Fitch Ratings in February 2025, and our new
Baa3 corporate rating, issued by Moody’s Investor Services in
November 2024. Our status as an issuer is evidenced by the
BBB-, investment grade, rating of our £150.0 million Tier-2 bonds
awarded by Fitch.
Our forecast cash analysis, which includes the impact of all
scheduled debt and deposit repayments, continues to show
a strong position, even after allowing scope for significant
discretionary payments and capital distributions.
As described in note 57, our capital base is subject to
consolidated supervision by the PRA. The capital position at
30 September 2025 was in excess of regulatory requirements
and our forecasts indicate this will continue to be the case,
even allowing for currently proposed changes in the UK’s
capital requirements framework.
Viability statement
In making the viability statement the directors considered the
three-year period commencing on 1 October 2025. This aligns
with the horizons used for the risk evaluation exercise which is
performed annually and facilitated by the CRO.
The directors considered:
• The financial and business position at the year end, described
in Sections A3 and A4
• The forecasts and the assumptions on which they were based
• Prospective access to future funding, both wholesale and retail
• Stress testing carried out as part of the ICAAP, ILAAP and
forecasting processes
• The activities of the risk management process throughout
the period
• Risk monitoring activities carried out by the Risk and
Compliance Committee
• Internal Audit reports in the year
Having considered all the factors described above, the directors
believe that the Group is well placed to manage its business
risks, including solvency and liquidity risks, successfully.
On this basis, the directors have a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period commencing
on 1 October 2025.
While this statement is given in respect of the three-year
period specified above, it should be noted that the risk
evaluation exercise also includes a high-level view extending to
September 2030 and the directors have no reason to believe
that the business will not be viable over the longer term.
However, given the inherent uncertainties involved in forecasting
over longer periods, the shorter period has been adopted for the
purposes of this viability statement.
Going concern statement
Accounting standards require the directors to assess the
Group’s ability to continue to adopt the going concern basis of
accounting. In performing this assessment, the directors consider
all available information about the future, the possible outcomes
of events and changes in conditions and the realistically possible
responses to such events and conditions that would be available
to them, having regard to the ‘Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting’
published by the FRC in September 2014. The guidance requires
that this assessment covers a period of at least twelve months
from the date of approval of the financial statements.
In order to assess the appropriateness of the going concern
basis, the directors considered the financial position, the cash
flow requirements laid out in the forecasts, our access to funding,
the assumptions underlying the forecasts and the potential risks
affecting them. As part of this exercise the potential impact on
funding, capital and cash of our exposure to issues relating to
historic motor finance commissions was considered.
After performing this assessment, the directors concluded that it
was appropriate for them to continue to adopt the going concern
basis in preparing the Annual Report and Accounts.
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Strategic Report
A6. Citizenship and sustainability
The long-term interests of our shareholders, employees,
customers, communities and other stakeholders are best served
by acting responsibly and maintaining high standards of corporate
governance and responsibility across all areas of our business.
Sustainability is one of our five strategic priorities and is central
to our success. We aim to minimise the environmental impact
of our operations and those of our customers, create positive
outcomes for all stakeholders and support the communities in
which we operate.
Our Sustainability Committee ensures a strategic focus at
senior management level. Chaired by Deborah Bateman,
External Relations Director, with Andrew Smithson, Balance
Sheet Risk Director as Deputy Chair, the Committee comprises
relevant Performance ExCo members, including the three
managing directors responsible for our product lines, and other
senior managers. It meets quarterly and reports regularly to
Performance ExCo and the Board.
Our approach is underpinned by regular reviews of those
sustainability topics that are materially important to our
businesses and our stakeholders. This year, the Sustainability
Committee reviewed our 2024 materiality assessment and
updated the topics where necessary. The resulting assessment
included many of the matters we had previously identified and
reported on, and developments in these areas are supported
by our over-arching focus on building a resilient business,
supported by a strong culture.
The Committee also considered the United Nations’ (‘UN’)
Sustainable Development Goals (‘SDGs’) and agreed on five
high impact goals that we could actively support through our
core activities:
UN Goal 4 UN Goal 5
Quality Education Gender Equality
UN Goal 8 UN Goal 11
Decent Work and
Economic Growth
Sustainable Cities
and Communities
UN Goal 13
Climate Action
The Board receives an annual sustainability update, alongside
regular strategic updates from the CEO. This update reviews
developments on climate and the wider sustainability landscape
and sets out proposed future initiatives and aspirations. It is
supported by a detailed climate assessment within the ICAAP,
covering inherent strategic risks and opportunities. The Risk and
Compliance Committee provides ongoing oversight through its
review of the CRO’s risk report.
We promote awareness of these issues through our
group-wide Sustainability Charter, which is supported by
internal communications campaigns and online training for
all employees, which have continued through the year.
Further details on our sustainability agenda are available in our
annual Responsible Business Report, published each December
on our corporate website at www.paragonbankinggroup.co.uk.
The Board’s consideration of sustainability issues
in decision-making, in line with Section 172 of the
Companies Act, is outlined in Section B4.3.
A6.1 Non-financial
and sustainability
information statement
Information on certain environmental, social and governance
matters is included in this strategic report in accordance with
Sections 414CA and 414CB of the Companies Act 2006 (the ‘Act’).
In addition to the description of our business model, discussed
in Section A2, the remaining disclosures are given in this Section
A6. This includes a discussion of our risk, policies, outcomes and
key performance indicators with respect to each of the five areas
set out in the Act. The matters specified in the Act are discussed
in the following sections.
Area Reference
(a)
Environmental matters Section A6.4
(b)
Employees Section A6.3
(c)
Social matters Section A6.5
(d)
Respect for human rights Section A6.6
(e)
Anti-corruption and anti-bribery matters Section A6.7
The climate-related financial disclosures required by the Act are
presented in Section A6.4 in accordance with the approach set
out by the Taskforce on Climate-related Financial Disclosures
(‘TCFD’). This approach covers all matters set out in Section 2A
of Paragraph 414CB of the Act.
This section also includes the information on the directors’
engagement with employees required by Section 11 (1)(b) of
Schedule 7 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended)
(‘Schedule 7’) (in Section A6.3) and the information on business
relationships with suppliers and customers required by Section
11B of that schedule (in Section A6.7 and Section A6.2).
Sustainability analysts frequently request details of any
significant fines or penalties incurred by companies for ESG
related incidents, or confirmation that there were no such
incidents. We have incurred no such fines greater than
US$ 100.0 million in the year (2024: none). Information on
penalties and disciplinary incidents relating to sustainability
issues is given below in each section, where relevant.
Page 62
A6.2 Customers
Our strategic objective is to be a prudent, risk-focussed,
specialist bank with a closely controlled, cost efficient operating
model. Customers are at the heart of our business and, as
a specialist bank, we use our expertise to provide financial
products and support to help them achieve their ambitions.
The last year has seen ongoing evidence of our work to ensure
that our customers are receiving good outcomes, in line with our
values, and aligning with FCA Consumer Duty principles. While
the Consumer Duty does not cover all our customers, with some
Commercial Lending and buy-to-let mortgage activities outside
its scope, the Principle of the Consumer Duty informs our
approach to all customers.
Fundamental to our strategy is a comprehensive approach
to understanding customer needs, addressing challenges
and implementing effective solutions to enhance the overall
customer experience. Customer surveys, net promotor
scores (‘NPS’) and complaints data provide evidence that our
businesses remain dedicated to delivering good outcomes for
customers and continuously improving the services they receive.
The Annual Price and Fair Value Assessments required by the
Consumer Duty across all regulated product lines confirmed
strong alignment between pricing, customer outcomes and
perceived value. Non-regulated products have a similar review
either biennially or annually, dependant on product risk. Our
savings customers represent the largest proportion of our
customers, by number, and our savings products consistently
offer better rates than the big six banks, with no customer fees
and UK-based support.
Trustpilot ratings for our Paragon-branded savings products,
which are set out in the chart below, have remained consistently
high at 4.7/5.0 throughout the year, with customer service and
transparency frequently praised.
0
20252023 2024
3.0
2.0
1.0
4.0
5.0
Our “Think Customer!” ethos is embedded across all our
businesses, with independent feedback from our Investors
in People assessment (Section A6.3) confirming that our
customer-centric culture is ‘stronger than 2022’, the previous
review date, and ‘surpasses that of many high-performing
organisations’.
Customers can be confident that we will always consider their
needs and act fairly and responsibly in our dealings with them.
To ensure this, several customer-focussed management groups
are dedicated to improving customer journeys and supporting
customers on an ongoing basis.
Customers in vulnerable circumstances
We recognise the potential impact of our businesses on
customers in vulnerable circumstances. For a number of years,
a cross-function working group has been in place, focussed on
these customers, their needs and any additional support they
might require, while ensuring that our people, processes and
products are able to meet those needs. There are also specialist
teams and Vulnerability Champions across our business
operations, providing a point of referral for customers in
vulnerable circumstances. Over the last twelve months initiatives
to improve the experience of such customers have included:
• Introducing a Vulnerability Knowledge Series on our
eLearning platform, providing information and short training
modules to support agents’ ability to manage customer
interactions in a variety of vulnerable circumstances
• Improving our bereavement process for buy-to-let and
residential mortgage customers, including a bereavement
guide to provide support during the process
• Expanding the Specialist Support Team across our Customer
Operations division, which works with those customers who
require enhanced support
• Publishing group-wide communications highlighting real-life
case studies, showing the experiences of our customers and
how they have been supported
The most significant drivers of vulnerability for customers across
all our businesses during the year are set out below.
Drivers of vulnerability
0
Oct 24
Nov 24
Dec 24
Jan 25
Feb 25
Mar 25
Apr 25
May 25
Jun 25
Jul 25
Aug 25
Sep 25
Health ResilienceCapabilityLife event
20%
40%
60%
80%
100%
Our SME lending, structured lending and development finance
customers are predominantly companies, partnerships or
SPVs, and therefore do not directly experience vulnerable
circumstances in the same way. However, it is recognised
that the people performing key functions in these businesses,
whether they are directors, owners or managers are susceptible
to the events or triggers that can lead to vulnerability. Therefore,
our supporting standards ensure we have processes for all our
product lines and customer types.
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Strategic Report
The chart below demonstrates the fluctuations in the numbers
of customers identified as being customers in vulnerable
circumstances (‘CiVC’) during the year.
CiVC volumes
4,000
Oct 24
Nov 24
Dec 24
Jan 25
Feb 25
Mar 25
Apr 25
May 25
Jun 25
Jul 25
Aug 25
Sep 25
4,200
4,400
4,800
5,000
5,400
5,200
4,600
Support and understanding
Customer support and understanding are two of the key
outcomes aligning to the core delivery requirements of the
FCA’s Consumer Duty and our values. While we strive to always
provide excellent service, it is inevitable that issues will arise
from time to time. To identify areas for improvement we utilise
feedback or complaints from customers, and our own extensive
outcomes-based testing activity. As well us being considered
at a group-wide level, our business areas each have their own
monthly meetings where senior management discuss outputs
from complaints and outcomes testing, to identify where they
can improve the customer experience. This applies to all our
regulated and unregulated business lines, including SME lending
and development finance.
We regard these as opportunities to improve our processes,
and consequently management teams meet monthly to discuss
customer feedback and complaints to understand how the levels
of service that customers, and potential customers, demand
and expect can be maintained and enhanced. One output of this
process in the year was the issue of a new, simplified Power of
Attorney Guide and a more streamlined related process. This is
intended to make it easier for customers, particularly those in
vulnerable circumstances, and their representatives to register
or activate a Power of Attorney.
Service quality
The desire to provide a high standard of service to our
customers, while achieving good outcomes for them, is an
important commercial differentiator which has helped us build
strong relationships over many years. The ongoing and planned
activity across all business units is aimed at ensuring that
customers can be confident that:
• Products and services are designed to meet their needs
• People they deal with will be appropriately skilled and
experienced to provide the services they require
• Information given to them will be clear and jargon free
• Products will perform as expected
• They will not face unreasonable post-sale barriers to change a
product, switch provider, submit a claim or make a complaint
• All complaints will be listened to, and claims assessed
carefully, fairly and promptly
• Where applicable, they will be made aware of how they can
refer their complaint to the FOS
• If they are in vulnerable circumstances, have additional
support needs and / or in financial difficulties, a high level
of support will be provided, and they will be signposted to
sources of independent advice
• They will be made aware of the FSCS and the protection this
provides for them, with a reminder issued annually
• Our standards will protect consumers and deliver good
customer outcomes
This pro-active approach accords with the FCA’s Principles
for Business, particularly regarding delivering good customer
outcomes, preventing customer harm and ensuring that all
communications are clear, fair and not misleading. Performance
in respect of these requirements is monitored and procedures
regularly adjusted to deliver better customer solutions.
The Board and executive management are committed to
maintaining and developing this culture across our businesses.
Complaints
There will be occasions where we do not get things right and,
consequently, this will give customers cause to complain. The
effective resolution of complaints is a key focus of our customer
service approach, with all business areas following the FCA’s
Dispute Resolution Sourcebook (‘DISP’) to ensure consistent
and good customer outcomes.
Handling
We aim to resolve complaints at the first point of contact, where
possible, but acknowledge that some complaints will require
further specialist investigation and time to resolve. Where this is
the case, regular contact is maintained with the customer to keep
them informed of the progress of their complaint. Complaints
relating to motor finance commissions have been handled in
accordance with FCA instructions. Excluding these issues, we
have demonstrated strong complaints performances across our
business areas, with volumes either stable or declining.
Where applicable, ‘Alternative Dispute Resolution’ information is
provided to customers to allow them to appeal to independent
third parties if they are not satisfied with our response to their
initial complaint. These include the FOS and the FLA. Where
customers feel the need to appeal externally, we co-operate
fully and promptly with any investigations, and support any
settlements and awards made by these parties.
Monitoring
To ensure the delivery of consistently good customer outcomes,
we have established complaint reporting forums in all business
areas, which enable the effective discussion of complaint
volumes, trends and root cause analysis. This ensures that all
business lines effectively resolve customer complaints, learn
from the issues raised and take reasonable steps to address any
underlying causes of those complaints.
The effectiveness of this activity is regularly assessed through
independent first line outcomes testing, ensuring ongoing
competence in the identification and resolution of complaints.
The reporting of this activity flows to the Customer and Conduct
Committee (‘CCC’), ensuring complaint visibility is provided at
the highest levels of the business.
Page 64
We actively seek feedback on our complaint handling process,
using an automated survey as appropriate, with customers
invited to provide feedback on the way in which they feel their
complaints have been dealt with. The results are used to share
best practice, improve agent education, and identify potential
process improvements.
There is an active Complaints Community Group that meets
regularly, where all business areas are represented. This
ensures complaints are handled consistently and that industry
updates, knowledge and best practice are shared with all
business units concerned with complaint handling. SME lending
and development finance have their own internal complaints
departments but follow our minimum group standards when
dealing with complaints and are represented on the Complaints
Community Group.
We focus on FOS complaints data as a high-level satisfaction
metric, and incident rates remained low throughout the year.
Consolidated information for the two group companies required
to report to FOS, for the four most recent FOS reporting periods,
is set out below.
Six months ended
30 June
2025
31 December
2024
30 June
2024
31 December
2023
Cases reported 129 54 79 48
Uphold rate 37.0% 43.0% 16.0% 26.1%
The upward movement in the number of cases reported is
principally a function of increased complaint levels around motor
finance, which have been seen across the industry, potentially
driven by publicity around the FCA’s commission review and
related litigation. Over 60% of cases escalated to FOS during the
30 June 2025 period were motor commissions related.
The most recent published data from FOS is for the six months
ended 30 June 2025. The overall industry uphold rate reported in
this period was 32% compared to 33% in the six months ended
31 December 2024 and 35% in the six months ended 30 June 2024.
FOS data across the financial services industry is published on the
ombudsman’s website at www.financial-ombudsman.org.uk.
We routinely benchmark our complaints performance against
the FCA bi-annual complaints data, comparing key complaint
metrics to our peers and against the industry. Metrics on
customer complaints are an important management information
measure for the Board and form part of the determination of
management bonuses and the vesting conditions for the
share-based remuneration described in the Directors’
Remuneration Report (Section B7).
We continue to monitor the progress of the FCA’s review of
historical commission practices in the motor finance sector,
and other legal and regulatory developments in this area.
While we offered products that fall within the scope of these
initiatives, principally between 2014 and 2020, we consider that
all our lending was in accordance with regulatory requirements
and market practice at the time, and that customers received
outcomes in line with their expectations.
In accordance with the FCA’s instructions, we have paused
complaint handling for motor finance commission cases, where
applicable. In each of these cases we have followed the FCA
rules for processing such complaints, with all complaints being
acknowledged. Our total number of paused complaints at
30 September 2025 was around 13,200 and we have plans in
place to ensure that these can be progressed in a timely fashion
once the pause comes to an end.
A6.3 People
We employ around 1,400 people across the UK, with the majority
based at our head office in Solihull. Our people are central to our
success, and we support a flexible hybrid working model that
supports a healthy work-life balance. We recognise the strategic
value of a diverse and agile workforce in driving engagement,
inclusion and long-term retention.
We are committed to providing fulfilling career opportunities,
offering a broad range of training and development opportunities
that support personal growth and professional development
enabling our people to realise their ambitions while contributing
to the delivery of our business objectives.
Employee engagement
Since launching onboarding and leaver surveys in April 2024,
the average completion rate across all surveys has been 64%,
with feedback supporting the development of our employee
value proposition, informing plans for the future of our working
environments and enhancing our understanding of the broader
employee experience.
In results to date, 98% of respondents expressed pride in working
at Paragon, with 98% stating a belief that people consistently go
the extra mile to meet customer needs. The most frequently used
words to describe the business were ‘welcoming’, ‘professional’
and ‘supportive’. Divisional survey data is now being shared with
Performance ExCo members to support proactive action within
their respective areas, with HR guidance.
Investors in People
During the year we completed our triennial Investors in People
(‘IIP’) accreditation. As part of this process 71% of our employees
participated in a comprehensive survey, with the results
demonstrating strong engagement and a shared dedication to
our organisational culture.
In April 2025, we were able to announce the retention of
Platinum IIP status, a distinction held by only 7% of organisations
assessed. We achieved a benchmark score of 725 out of 900,
maintaining a strong position despite a modest decline from
the previous assessment (2022: 755 of 900). Notably, we
outperformed peer organisations of similar size across all nine
IIP indicators, reaffirming our leadership in people management
and organisational development.
Our employee engagement score continues to trend positively
in the IIP findings, with our score rising to 90% (2022: 87%),
exceeding the financial services benchmark by 7%, and the
all-industry average by 11%. Furthermore, 90% of employees
reported that they felt confident to be themselves at work,
highlighting our inclusive environment. This reaccreditation
validates our strategic focus on cultivating a high-performing,
inclusive, and values-driven workplace.
Employment conditions
All our employees are based in the UK, and we are committed
to upholding all aspects of UK employment law, including
legislation addressing terms of service, working conditions, day
one flexible working, carers leave, maternity and paternity leave,
adoption and shared parental leave protection, equal pay and
treatment, and payroll taxation.
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In response to the UK Government’s recent consultation
on employment rights, we have proactively assessed the
potential implications of proposed reforms. These include the
introduction of day-one entitlements, including paternity leave
and protection from unfair dismissal, alongside enhanced
safeguards for whistleblowers. We have conducted a review of
internal policies and processes ensuring continued compliance
and alignment with best practice. In addition, we are actively
monitoring developments and responding to emerging changes,
whilst ensuring that all managers and employees understand
their responsibilities and the impact of these reforms through
communications and training.
The impact of the April 2025 rise in employer’s National
Insurance contribution rates, is significant for a business where
people are a significant part of the cost base. We have therefore
strengthened oversight of employee-related costs and vacancy
management to mitigate the impact, as far as possible.
We minimise the use of short-term and temporary staff, with no
use of zero-hour contracts. As of 30 September 2025, people on
temporary or short-term contracts accounted for only 1.8% of the
workforce (2024: 0.6%). We will normally only employ those over
the age of 18, except in connection with apprenticeship or other
formal training programmes.
We continue to support the Better Hiring Charter, developed
by the Better Hiring Institute (‘BHI’), which promotes fair,
transparent and inclusive recruitment practices. In line with its
principles, we have strengthened transparency in job advertising,
enhanced inclusive language in role descriptions, and taken
steps to reduce barriers for under-represented groups.
Our voluntary employee turnover has remained stable during
the year at 9.4% (2024: 9.1%). The overall attrition rate, excluding
redundancy, at 11.1% for the year (2024: 10.8%), remains lower
than the average rate in the banking and finance sector. The
most recent published comparable rates for the sector were the
19.8% reported by Reward Gateway in 2024, and the 12.8% rate
for the financial services sector published by CIPD and Office of
National Statistics in May 2024.
We benefit from a diverse workforce spanning four generational
groups, retaining the extensive experience of a significant
number of long-serving employees at all levels. 22.8% of the
workforce at 30 September 2025 had served for over ten years
with 13.5% having been with us for more than two decades.
Most of our roles involve hybrid working with over 60% of
employees working from home for some part of their working
week. Flexible working is strongly encouraged across all areas to
support a healthy work-life balance and to ensure we retain the
skills and experience of our employees. Formal flexible working
arrangements are in place for 25.1% of employees (2024: 24.8%),
with 72.3% of these working part-time (2024: 71.4%). Compliance
with the UK’s Working Time Regulations is regularly monitored.
We offer most full-time employees a minimum of 26 days
holiday per year, excluding public holidays, in excess of UK
legal requirements. In addition, all employees are granted an
additional full day’s leave for both Christmas Eve and New Year’s
Eve; meaning that most full-time employees have a minimum of
28 days paid leave each year, in addition to public holidays.
We have been an accredited Living Wage Foundation employer
since June 2016. As such, we pay eligible employees at least
the Real Living Wage, set by the Foundation. We also ensure
that wages paid by contractors and suppliers meet the same
threshold. This Real Living Wage Rate was £12.60 per hour at
30 September 2025, and rose to £13.45 per hour in October
2025, with a higher rate of £14.80 payable for London-based
employees. As such, it is higher than the UK’s national minimum
wage rate, and we are therefore also compliant with the statutory
requirement. From 1 November 2025 our minimum wage rate
was £13.46 per hour, equivalent to a full-time equivalent annual
wage of £26,250.
As part of our sustainability strategy, we operate salary
sacrifice schemes for cycle-to-work and electric vehicles.
At 30 September 2025, 5% of employees opted for one or both
schemes, which are described further in Section A6.4.
We offer employees a defined contribution pension scheme
which complies with the UK Government’s auto-enrolment
requirements; 89.0% of employees are members of this scheme
(2024: 87.6%). Additionally, a legacy defined benefit pension
scheme is also in place for long-serving employees. Overall, the
Group is contributing towards the retirement provision of 94.5%
of its employees (2024: 93.9%).
During the year, in response to employee feedback, we
introduced a Pension Bonus Exchange scheme enabling
employees to exchange part or all of their cash bonus for an
employer pension contribution. This supports long-term financial
wellbeing and offers employees National Insurance savings, tax
relief and accelerated pension growth.
Culture
All employees are required to attest annually to our employee
Code of Conduct, confirming their understanding of the
expectations which it sets out. At 30 September 2025, 100%
of employees had done so. The Code of Conduct provides
guidance on expected behaviours when interacting with
colleagues, customers and other stakeholders, and is crucial for
fostering and embedding our strong risk culture.
Over the past year, in light of the FCA’s recent consultation
papers on non-financial misconduct, we have updated our
Code of Conduct to ensure employees fully understand our
expectations of them. These updates include more details on our
zero-tolerance approach to bullying, harassment and other forms
of inappropriate behaviour. We have delivered training to our
employee networks to ensure they are in a position to support
employees who want to raise concerns, and have enhanced our
reporting and investigation procedures to ensure all such issues
are managed with fairness, confidentiality and rigour.
The Code of Conduct is published on our corporate website at
www.paragonbankinggroup.co.uk as well as being available to all
employees on our internal intranet.
We continue to align individual performance with our strategic
objectives through the use of Purpose and Performance Profiles
(‘PPP’) for all employees. This ensures that personal goals
are clearly linked to organisational priorities. In line with our
commitment to providing a quality customer experience,
“Think Customer” objectives have been embedded across all
roles, making customer focus a measurable and integral part of
our culture.
Equality, diversity, and inclusion
Following the formalisation of our Equality, Diversity and
Inclusion (‘EDI’) strategy, during the last financial year, we
established a clear focus on three areas of diversity: gender,
ethnicity and socio-economic background (‘SEB’).
Our vision is to:
• Ensure that all individuals, regardless of their background,
have the opportunity for personal and professional growth,
and feel included, valued and respected
• Create and promote opportunities where diverse talent can
thrive, everyone is treated equitably and all perspectives are
encouraged to contribute, leading to innovative solutions
• Work towards a culture that reflects the diversity of
our communities
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We chose to focus on gender, ethnicity and SEB in support of
our commitment to the FTSE Women Leaders Review and the
Parker Review. SEB has been identified as a “golden thread”
characteristic in our industry, which often intersects with many
other characteristics. This focus also aligns with our role as
founding members of Progress Together, the industry body
dedicated to advancing socio-economic diversity within
financial services.
As part of our focus on these areas we have committed to
achieving 40% female representation in Senior Management by
December 2025, and 5% ethnic minority representation in Senior
Management by December 2027, where ‘Senior Management’ is
defined as executive committee members and their direct reports,
excluding administrative employees, in line with the definition
adopted by the FTSE Women Leaders and Parker Reviews.
We promote equality amongst all employees through our
policies, procedures and practices. Every employee is entitled
to a work environment that upholds dignity, equality and
respect for all. We do not tolerate any acts of unlawful or unfair
discrimination (including harassment) committed against an
employee, contractor, job applicant, or visitor because of a
protected characteristic such as:
• sex
• gender reassignment
• marriage and civil partnership
• pregnancy and maternity
• race (including ethnic origin, colour, nationality, and
national origin)
• disability
• sexual orientation
• religion and / or belief
• age
Discrimination on the basis of work pattern (part-time working,
fixed term contract, flexible working) which is unjustifiable will
also not be tolerated.
The Board believes the achievement of a balanced workforce
at all levels delivers the best culture, behaviours, customer
outcomes, profitability and productivity and therefore supports
the success of the business. The Nomination Committee, whose
annual report can be found in Section B5, provides board-level
oversight on all inclusivity matters affecting our employees.
Our internal EDI Network continues to play a vital role in shaping
our strategy and driving forward key initiatives, with executive
sponsorship from Ben Whibley, Chief Risk Officer. The network
remains focussed on deepening awareness and understanding of
the value of an inclusive culture and diverse workforce, supported
by a range of internal communications. Recent celebrations
included Black History Month, Disability History Month,
International Women’s Day, International Men’s Day and Pride at
Paragon — including our support for Solihull Pride, reflecting our
commitment to both inclusion and the local community.
Specific initiatives in place during the year are described below:
Inclusive hiring and smarter talent sourcing
In line with our commitment to inclusive hiring and attracting
high-quality talent, during the year we conducted a
comprehensive review of our recruitment agency relationships.
This process identified the five suppliers who have provided
us with the greatest number of candidates, and we are actively
collaborating with them to ensure shortlisting practices are
aligned with our EDI objectives.
To further strengthen our resourcing strategy, we have expanded
our use of LinkedIn which provides direct access to diverse
talent pools; inclusive job description tools; and advanced
analytics to monitor EDI progress. This approach has not only
enhanced candidate quality through a more targeted approach
but also delivered considerable cost efficiencies.
Socio-economic diversity
We continue to promote socio-economic diversity in the
financial sector as a founding member of “Progress Together”.
Anne Barnett, our Chief People Officer throughout the year,
was appointed as a non-executive director on the organisation’s
board during the year, an appointment that reflects our
dedication to driving meaningful change and championing
inclusive representation throughout the industry.
During the year we took part in a pilot of the Accelerated
Progress Programme (‘APP’) in partnership with Progress
Together, together with other financial services firms. This
is a unique, twelve-month cross-company programme,
designed to develop, empower and unlock the potential of
high-performing low-SEB middle managers, with individuals
receiving development, mentoring and the opportunity to work
collaboratively across organisations on defined projects.
We also continued our partnership with Future First, a social
mobility charity, forming working relationships with inner-city
colleges and schools as a means of attracting talent from
more diverse backgrounds. In the year, 19.8% of the employee
volunteering sessions described in Section A6.5 were completed
in schools (2024: 13.3%).
The Good Youth Employment Charter
We recognise the benefits of early careers and the diversity of
skills that young employees can bring, and remain committed
to the Good Youth Employment Charter. We are also a Gold
Member of the ‘5% club’, which promotes the provision of early
careers roles such as apprenticeships, graduate positions and
student placements. As part of this commitment, we have set a
target that such early careers roles will comprise at least 5% of
our workforce by September 2027, compared to 2.6% at
30 September 2025 (2024: 1.6%).
As a youth-friendly employer, we work to create opportunities
for young people, and to bridge the gap between education
and employment through a range of events with schools and
colleges, helping them to gain the skills and experiences they
need, through meaningful and good quality experiences. Our
involvement in providing these opportunities is described further
in the community involvement section (Section A6.5).
Race at Work Charter
We are a signatory of the Race at Work Charter and remain
committed to meeting the charter requirements. This
commitment includes the continuation of ‘Mission Include,’
a mentoring scheme for employees from under-represented
groups. The programme provides high-potential employees
with a mentor from another organisation who is also a member
of an under-represented group or an ally. During the period we
supported four employees through this programme.
We have also continued our internal ‘Ignite’ development
programme, tailored for employees who have specific protected
characteristics or who may face more barriers in the workplace.
The programme focuses on providing greater career support
to our employees in under-represented groups and addressing
personal development needs such as making an impact, building
personal brand, and networking.
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In line with the Parker Review expectations, we have made
a commitment to achieving 5% ethnic minority representation
in Senior Management roles by December 2027. As of
30 September 2025, representation stands at 3.5% (2024: 1.7%).
Disability Confident
Employees at 30 September 2025 identifying as having a
disability comprise 6.9% of those completing their diversity
profiles (2024: 6.3%). We are a Disability Confident Employer
under the UK Government Disability Confident scheme. As
well as continuing to provide paid employment to people with
disabilities, providing appropriate training opportunities to such
employees, and complying with all relevant legislation, we meet
the five core commitments of a Disability Confident organisation:
• It will ensure its recruitment process is inclusive
and accessible
• It will communicate and promote vacancies
• It will offer an interview to disabled people
• It will anticipate and provide reasonable adjustments
as required
• It will support any existing employee who acquires a disability
or long-term health condition, enabling them to stay in work
Disability Confident Employer status represents level two of
the scheme and we are working towards level three – ‘Disability
Confident Leader.’
We give full and fair consideration to applications for
employment made by people with disabilities. We also make
every effort to retrain and support employees who are affected
by disability during their employment, including the provision
of flexible working to assist their return to work, and we aim to
ensure all employees with disabilities have the opportunity to
fulfil their potential.
Gender diversity
The Women in Finance Charter, sponsored by HM Treasury, is
an initiative amongst financial services companies in the UK,
aimed at promoting equality of opportunity in the workplace.
Ben Whibley, CRO, is the executive sponsor and progress
against the Charter requirements is monitored by the
Performance ExCo, Nomination Committee and the Board.
In the second phase of our charter journey we committed to
achieving 40% female representation in Senior Management by
31 December 2025. We are proud to have reached this target at
30 September 2025, with 40.4% female representation in Senior
Management (2024: 37.9%).
Our focus on developing female talent to support our Women in
Finance Charter commitments has continued. 49% of employees
receiving management development are female, and we
continue to support the 30% Club Mission Gender Equity
cross-company mentoring programme run by Moving Ahead.
Feedback from mentors and mentees continues to be
favourable. Since taking part, 36% of participants have advanced
their careers within the business, with 27% achieving promotions.
In comparison, research conducted for Moving Ahead showed
an average promotion rate of 10% for female managers. The
next cohort of employees began their development journey in
November 2025.
Collecting diversity monitoring data
During the year we have continued to encourage employees
to complete their diversity profiles in our central HR system.
Data collected includes information on gender identity, sexual
orientation, ethnicity and race, religion, SEB, disabilities
and caring responsibilities. At 30 September 2025, 83.6% of
employees had completed their profile (2024: 80.9%), although
response rates on different diversities continue to vary.
Gender pay
As required by legislation, we have calculated our gender
pay gap as at April 2025. These results will be published on
the UK Government website and on our own website and are
summarised below.
April April
2025 2024
Median gender pay gap 33.6% 31.0%
Mean gender pay gap 34.7% 35.8%
Median bonus pay gap 2.0% 1.0%
Mean bonus pay gap 79.0% 75.4%
This year’s gender pay measures are broadly similar to those
for 2024 and remain larger than we would like. Monitoring of
these differences continues, but analysis attributes them to
be principally due to the seniority and nature of roles that men
and women are undertaking in the organisation. The marginal
decrease in the number of women in the upper quartile is
contributing towards the small increase in the median pay gap.
The results are broadly in line with the median figure of 31.6% for
the financial services sector reported by the Office of National
Statistics in their 2025 Annual Survey of Hours and Earnings
(‘ASHE’), published in October 2025 (2024: 31.9%). The mean
pay gap for the industry reported by the ASHE, which is more
influenced by operational structures, was 25.3% (2024: 28.0%).
Roles in the lower pay quartiles are typically operational in
nature, predominantly filled by female employees. Throughout
the workforce, females account for most of the part-time working
arrangements and, due to the nature of the gender pay gap
calculation taking no account of the hours worked by employees
in calculating averages, this further increases the size of the
gender pay gap.
The majority of our employees are eligible for a bonus under the
Profit Related Pay (‘PRP’) scheme. As all qualifying employees
receive the same bonus on an FTE basis, this results in the
small median bonus pay gap. The pay gap data includes
discretionary bonus awards for 21.4% of employees (36.7%
of whom were women) and amounts for share-based awards
for 6.4% of the workforce, of whom 25.0% are female. This
means that discretionary and share-based bonus schemes are
disproportionately awarded to men, and the size of the mean
bonus gap is further driven by the bonuses awarded to the most
senior executives, the majority of whom are male.
We analyse gender pay gap data on an ongoing basis to identify
potential issues and determine what action might be required.
However, work carried out during the year, reviewing groups
of directly comparable positions, did not suggest evidence of
systematic gender bias or unequal pay practices.
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Composition of the workforce
During the year, the workforce remained static with
1,411 employees at the year end (2024: 1,411). Information
on the composition of the workforce at the year end is
summarised below:
2025 2025 2024 2024
Females Males Females Males
All employees
Number 720 691 724 687
Percentage 51.0% 49.0% 51.3% 48.7%
Directors
Number 4 6 4 6
Percentage 40.0% 60.0% 40.0% 60.0%
Senior managers
Number 11 31 12 33
Percentage 26.2% 73.8% 26.7% 73.3%
Other managers
Number 108 196 110 185
Percentage 35.5% 64.5% 37.3% 62.7%
In this table ‘managers’ include all employees with management
responsibilities. The definition of ‘senior manager’ used in
the table above is that required by the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013 which
differs from that used by the FTSE Women Leaders Initiative and
for internal purposes.
Ethnic minority representation in the workforce is analysed
below using the same categories as in the previous table. The
table shows employees identifying as members of a non-white
ethnic group as a percentage of the total workforce and as a
percentage of the 79.5% of employees declaring their ethnicity
(2024: 80.9%).
All employees Declared ethnicities
2025 2024 2025 2024
All employees 14.2% 12.9% 17.8% 16.7%
Directors 10.0% 10.0% 10.0% 10.0%
Senior managers 2.4% 2.2% 2.6% 2.6%
Other managers 10.5% 10.2% 12.3% 12.0%
Health and wellbeing
We remain dedicated to supporting our employees’ wellbeing,
providing continued support with emotional, physical, financial,
and social wellbeing issues. Our Chief People Officer is the
designated Executive Sponsor for Wellbeing, ensuring that this
commitment goes to the highest levels of management.
The focus on financial wellbeing and employee benefits has
continued in response to ongoing cost-of-living issues, with
various campaigns and support avenues, including providing
access to free will writing services, support with budgeting and
debt management, as well as pensions advice.
We continue to support the Mortgage Industry Mental Health
Charter (‘MIMHC’), reflecting our ongoing commitment to
championing mental health across the mortgage sector. Through
active engagement with this industry-led initiative, we are helping
to raise awareness, challenge stigma, and promote a culture
where mental wellbeing is recognised as a business priority. Our
involvement underscores our dedication to fostering a more
inclusive, empathetic and resilient industry.
We provide access to trained mental health first aiders, with
additional training available to all team members on grief and
bereavement, trauma, and suicide awareness from external
specialists. In addition, we have four Menopause Champions,
two of whom are male, committed to providing additional
support to employees and managers, focussing on employee
engagement, productivity, and retention of the female workforce.
In addition to the support provided by our Wellbeing team,
employees also have access to a dedicated Wellbeing Hub
signposting specialist support services providing help with issues
such domestic violence or bereavement, as well as numerous
resources to help with a wide range of wellbeing issues.
We continue to support the Pregnancy Loss Pledge, encouraging
a supportive environment where people feel able to discuss and
disclose pregnancy or loss without fear of being disadvantaged
or discriminated against.
During the period, enhancements to our parental leave policy
were introduced, increasing paternity pay from two to six weeks
and reducing the qualifying service period for all enhanced pay
from 24 to 12 months. These changes are in addition to the
fertility policy introduced last year, further supporting employees
through key life stages.
This year we continued a focus on men’s health with an
International Men’s Day lunch-and-learn on prostate cancer
awareness and a “Tough-to-Talk” suicide awareness workshop
tailored for male employees. In addition, access to prostate
cancer checks for eligible male employees has been introduced.
Following feedback from an all-employee benefit survey,
supported by the People Forum, we introduced a new
externally-supported wellbeing platform, enhancing the support
available to employees. This enhanced platform offers seamless
access to a wide range of 24/7 health, wellbeing and travel
support services in one location.
Key features include:
• Eldercare support
• Second medical opinion and cancer care profiling
• Mental wellbeing resources
The Vitality Health programme continues to be available to all
employees. This provides access to an extensive range of physical
wellbeing products and services, including health reviews,
online GP services and Vitality Wellbeing Coaches. Additionally,
free exercise classes are available in our offices, as part of our
commitment to enhancing employees’ physical wellbeing.
Training and development
Throughout the year, we maintained our strategic focus on
employee development, ensuring employees across the
organisation had access to high-quality learning opportunities.
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Strategic Report
Line managers are encouraged to regularly review PPPs and
engage in ongoing performance discussions throughout the year.
This continuous approach supports individual development,
strengthens talent management and contributes to effective
succession planning. Talent calibration sessions held with
leadership teams further embed consistency and fairness in
performance and development practices, ensuring a balanced
and transparent assessment, while also identifying opportunities
to nurture and advance internal talent.
Training was delivered through a blended approach, combining
virtual and in-person formats aligned to both strategic priorities
and operational requirements. Key initiatives included:
mandatory regulatory training through online learning modules;
delivery of AI enablement workshops, equipping teams with the
skills to leverage Copilot and maximize the use of AI tools; and
targeted training to support business developments, notably
supporting operational teams in the successful launch of the
new Spring savings offering.
During the year, a key area of focus was supporting the teams
dealing with Borrowers in Financial Difficulty, ensuring both
agents and team leaders were equipped with the skills and
confidence to manage these sensitive conversations effectively.
Additionally, we invested in enhancing the coaching capabilities
of team leaders, enabling them to drive high performance,
deliver meaningful feedback, and support the wellbeing and
development of their teams.
Additionally, we continued to invest in the long-term capability
of the business by supporting individuals undertaking
apprenticeships and professional qualifications, alongside
running targeted programmes to foster career progression and
internal mobility.
We currently have 51 individuals completing professional
qualifications (2024: 61), including 16 undertaking the London
Institute of Banking and Finance CeMap mortgage qualification
(2024: 21). Of these 49% are female (2024: 51%) contributing
towards our EDI objectives.
On average employees received 5.14 days training each in the
period (2024: 4.4 days). This is above the average figure of 3.6
days per person reported by the 2024 Employer Skills Survey,
published by the UK Department for Education in July 2025.
Development opportunities form a key part of our EDI strategy,
and our commitments to the Mission Gender Equity, Mission
Include and Ignite programmes are described above.
At 30 September 2025, 36 apprenticeships were in progress in
a variety of roles (2024: 21). Over the last year three individuals
successfully completed an apprenticeship in the business.
These apprenticeships covered a range of specialist and
operational roles including IT, audit and customer services.
Our apprenticeship levy utilisation reached 31.9%
(2024: 38.8%), reflecting a strategic move towards more
cost-effective programmes that continue to deliver high-quality
development opportunities. We have also pledged 10% of our
levy entitlement to fund apprenticeships in smaller SMEs,
focusing on construction apprenticeships in the SME sector.
Employees’ involvement
The directors acknowledge the importance of keeping all
employees informed about the progress of the business.
Executive directors provide biannual updates on business
progress to the entire workforce which continue to be delivered
through video messages. Executive Committee members also
use the intranet to deliver updates on important initiatives
within the business from time to time. ‘Network News,’ an email
newsletter, regularly provides employees with the latest news
and information from across the People Forum, Wellbeing Team,
EDI Network and Charity Committee.
The Paragon People Forum meets regularly and is attended by
employee representatives from each area of the business. Its
main purpose is to facilitate communication and information
sharing throughout the business, providing a platform for
employees to be consulted and to offer feedback on matters
affecting them.
The People Forum has been designated as the primary channel
through which the Board receives information on the views of
the workforce, either through directors’ attendance at meetings
or through the Chief People Officer who reports to the Executive
Committee and the Nomination Committee on matters raised.
This satisfies the ‘Employee Voice’ provisions of the UK
Corporate Governance Code.
During the period representatives met with non-executive
directors and guest speakers to discuss topics such as improved
communication, culture, and employee engagement. Initiatives
launched in the Forum provided input into the enhancements to
our parental leave policy, discussed above.
To involve employees in our financial performance, we offer a
Sharesave share option scheme and a profit-sharing scheme
to all employees below management level. The profit-sharing
scheme provided a benefit of around £2,642 to eligible
employees on a full-time equivalent basis, while employees who
were members of the 2022 three-year Sharesave scheme, which
matured in the year, were able to buy shares with a market value
in the region of £8.70 each for an option price of £3.91.
At 30 September 2025, 61.7% of current employees were
members of one or more Sharesave scheme (2024: 63.6%) and
86.8% were eligible for profit-related pay in respect of the 2025
financial year (2024: 87.3%).
Health and Safety
Over the past year, we have consistently met all applicable
health and safety regulations, implementing best management
practices across our operations. We remain committed to
creating a safe and healthy work environment for employees,
contractors, visitors, and members of the public affected by our
activities. While our primary source of health and safety related
risk arises from the vehicle maintenance operations of Specialist
Fleet Services Limited (‘SFS’), the health, safety and wellbeing
of employees across the whole business is a key focus of our
people policies.
All employees are encouraged to raise health and safety concerns
either directly through our Health and Safety team, site-specific
health and safety contacts, or through their People Forum
representatives, fostering a culture of continuous improvement.
Workplace safety measures
To support safe and effective working conditions, whether
employees are working in an office or remotely, we conduct
regular reviews to ensure relevant standards are being met
and appropriate equipment is available. We have implemented
procedures to maintain a healthy work environment with clear
communication of key policies and processes being integral to
our safety and wellbeing strategy.
Given the head office’s central Solihull location and its
consequent exposure to indirect impacts from neighbouring
properties, an annual testing programme is run, covering
scenarios including fire evacuation, network grid disruptions and
physical security scenarios. These tests are designed to simulate
potential disruptions and confirm the resilience of operations
and resource preparedness.
Regular inspections and audits are conducted across all
locations to detect safety and welfare issues and to monitor
emerging trends. Where hazards are identified, these are
recorded, actioned and closed out within the timescales set.
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Training and awareness
During the year role-specific health and safety training has
been delivered for employees with remote-working
responsibilities such as our surveyor, IT, property, maintenance,
and development finance teams. This training enhances
awareness of critical safety considerations.
Safety communications delivered over our internal intranet
covered a range of topics including fire evacuation, work-related
driving, emergency evacuation plans, IT equipment safety
checks and individual responsibilities. These are supplemented
by published group policies that provide information, instruction
and supervision, and by ongoing training to empower employees
in upholding our safety standards.
SFS employees in automotive workshop roles receive, on
average, 40 hours of continuous training annually, tailored to
the specific risks associated with their technical roles and
working environment.
Governance and systems
Health, safety and sustainability are overseen by a dedicated
team within the facilities function. This team ultimately reports to
the Chief Operating Officer, the Executive Committee member
responsible for Health and Safety matters. Health and Safety
incidents are classified as operational risk incidents within the
ERMF, monitored through the operational risk management
system, and subjected to the same risk evaluation processes
as other operational risks overseen by the Operational Risk
Committee (‘ORC’).
The Group, excluding SFS, holds ISO45001:2018 certification
for its Occupational Health and Safety Management System
(‘OHSMS’). This system is subject to regular audits by the
Enterprise Risk function and annual external verification by a
UKAS-accredited auditor to ensure compliance. The OHSMS
governs compliance and promotes continuous improvement
across all applicable locations.
SFS, as a result of the higher risk level inherent in its activities,
has its own dedicated health and safety manager and operates
its own ISO45001:2018 certified OHSMS. This is audited for
compliance on an annual basis by a UKAS-accredited auditor.
Incidents are investigated using specialist local resource with
access to group support as required.
Performance overview
Health and Safety performance remains strong, with a
consistently low level of incidents. In the financial year ending
30 September 2025, no prosecutions or enforcement actions in
respect of health and safety issues occurred (2024: none).
Compliance across sites is monitored continuously, with
adequate numbers of trained fire marshals, first aiders
and safety personnel in place throughout the year. 9 minor
incidents classified as relating-to-work activity or to the building
environment were recorded during the year (2024: 17), along with
1 lost-time incident resulting in 5 lost days (2024: 2 incidents,
12 days). No notifiable incident reports were required under the
Reporting of Incidents, Disease and Dangerous Occurrences
Regulations 2013 (‘RIDDOR’) (2024: 2).
Reported ‘near-miss’ incident levels remained low, with 10 cases
documented in the year (2024: 9). All reports were scrutinised
for root causes, with follow-up actions developed collaboratively
with employees to eliminate risk, correct unsafe behaviours and
prevent future occurrences.
A6.4 Environmental impact
Climate change is one of the biggest challenges faced by
the world today and we continue our strategic focus on both
managing our own response and supporting those of our
customers. We have committed to achieving net zero, across
all attributable greenhouse gas (‘GHG’) emissions, including
financed emissions, by 2050 but, in doing so, recognise that net
zero cannot be achieved by any organisation in isolation and
that this commitment cannot be achieved without significant
and continued government and regulatory focus and broader
industry initiatives.
In support of our long-term commitment to net zero, we have
committed to reducing the GHG emissions of our operational
footprint to net zero by 2030, acknowledging our responsibility for
these direct impacts and our responsibility for addressing them.
Through membership of a number of significant initiatives,
including Bankers for Net Zero (‘B4NZ’), the Partnership for
Carbon Accounting Financials (‘PCAF’), UK Finance (‘UKF’) and
the Green Finance Institute (‘GFI’), we support the wider efforts
of the financial services industry to minimise the impact it has on
climate change.
This section of our Annual Report and Accounts provides
disclosures on our climate-related impacts and the way in
which we manage them on the basis set out by the Taskforce on
Climate-related Financial Disclosures (‘TCFD’). More detail on
how the disclosures suggested by the TCFD are presented is set
out at the end of this section.
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Strategic Report
The major milestones achieved to date on our journey to net
zero, and our aspirations for the future, are set out below.
Year Achievement / aspirations
2020
• Climate change designated as a principal risk
2021
• Sustainability Committee established to monitor progress
on climate, ESG and sustainability focus areas
• Financed emissions of the mortgage portfolio reported for
the first time
2022
• Became a member of B4NZ
• Began offsetting operational footprint emissions
• Baseline to track commitment to net zero emissions
operational footprint by 2030
2023
• Became a member of PCAF
• Enhanced climate change scenario analysis.
Science-based target pathway analysis undertaken for
the mortgage portfolio
• Expanded financed emissions balance sheet to include
elements of our Commercial Lending division
• Decarbonisation assessment of our head office
building, which contributes to over 30% of
operational footprint emissions
2024
• Refurb-to-let product launched to support landlord
customers who wish to upgrade their property
• Input to UK Government consultation on EPC data strategy,
thr ough B4NZ membership
• Third party review of our financed emissions framework
conducted with no significant gaps identified
2025
• Reduced operational footprint by 54% from 2019 baseline
• Input to UK Government consultation on EPC reform and
Minimum Energy Efficiency Standard (‘MEES’) for the Private
Rental Sector
• Commenced planning of our project to decarbonise and
refurbish our head office
• Published our full financed emissions balance sheet
2026
• Work to decarbonise our head office to commence
• Monitor impact of UK Government consultation on EPC
reform and MEES
• Board approved action plan to close any gaps identified in
the recent PRA Consultation Paper CP10/25, which sets out
future enhancements of Supervisory Statement SS3/19
• Incorporate, where appropriate, the requirements of UK
Sustainability Reporting Standards
2030
• Net zero across emissions associated with our
operational footprint
2050
• Committed to net zero across all greenhouse gas
emission scopes
Impacts of climate change
Our environmental impacts can be considered under two
headings, internal impacts (‘operational footprint’) and the
impact of our lending activities (the external or downstream
impacts). As we are mainly engaged in the financial services
industry, operating in the UK, our own operational activities
are considered to have a relatively low direct impact on the
environment and climate change.
We have offset the emissions attributable to our operational
footprint in the year ended 30 September 2025 through the
purchase of carbon credits certified under the Gold Standard
programme, one of the most widely accepted international
certification systems. More detail on the Group’s approach to
managing the environmental impact of its own activities and
operations is provided under ‘(f) Operational impacts’.
Our external, or downstream, impacts arise from the use to
which customers put the funds loaned to them. Most directly,
for asset-backed lending, including lending on property, it relates
to the impacts of the asset being financed and its use by
the customer.
These downstream impacts give rise to two related groups of
risks for our business:
• Physical risks – Increased financial risks as a direct result
of climate change and other environmental factors. As an
example, increased flooding risk might have an adverse
impact on security asset valuations
• Transitional risks – Financial or reputational risks arising
from policy, legal, technology and market changes aimed
at mitigating the impacts of climate change. Such changes
and pressures might impact the ability to realise a security,
continue a business line or serve certain types of customers
These classifications are used internally to categorise the
financial risks of climate change. We continue to work to further
embed the consideration of both forms of risk across all lending
activities, and their interaction with other principal risks, as part
of our overall risk management framework.
While our impact on nature and biodiversity is considered low,
we recognise the co-dependency between nature and climate
change. Our developing approach to managing the impact of
climate change also considers any related impacts on nature and
biodiversity, both operationally and from our lending activities.
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Progress during the year
During 2025 we continued to deliver on the priorities set out in previous reporting. The table below highlights progress on our climate
journey in the year, set out by the principal TCFD pillars of governance, strategy, risk management and metrics and targets.
Governance
• Reporting and escalation to the Board continues to focus on providing progress updates across our sustainability strategy
and validating that the current approach is fit-for-purpose and aligned with developing policy initiatives
• Confirmation to the Board that our qualitative review and quantitative scenario analysis assessment of climate change,
which was incorporated in the 2024 board-approved ICAAP, remained fit for purpose. The assessment also outlined the
implications of aligning the business model with the UK Climate Change Committee’s net zero pathway
Strategy
• We continue to promote positive sustainable public policy, providing input to UK Government consultations on EPC
reform and MEES independently and through our memberships of B4NZ and UK Finance
• Through UK Finance, we provided input across a range of regulatory and policy developments, among them the PRA’s
consultation on a proposed update to its supervisory statement on the management of climate-related risks (CP10/25),
and consultations in respect of the UK Sustainability Reporting Standards, assurance of sustainability disclosures, and
Transition Plan Requirements
• Our range of products to support customers on their journey to be more sustainable was extended. Our further advance
proposition was improved to provide an immediate indication of how much landlords can borrow against any of their
properties, enabling them to enhance the energy efficiency of their properties and portfolios. The funding available
through the Green Homes Initiative in our development finance operation was further increased to £400 million
• A Business Development Director was appointed in our SME lending business with expertise in sustainable finance,
to further enhance our offerings to UK SMEs
Risk management
• The internal climate change scenario analysis exercise conducted as part of the 2024 ICAAP was revisited. It was
concluded that there was no significant change to the business model and the analysis therefore continued to be fit for
purpose. It was not, therefore, re-run. No significant vulnerabilities to climate change were identified
• Continued enhancement of support provided to customers transitioning to new low-carbon technologies whilst
maintaining our robust credit standards
• Principal risk policy for climate-related risk updated and approved by the Board further embedding climate change risk
within the ERMF
• Review of cross-cutting nature of climate change risk and its impact on other principal risks is ongoing
Metrics and targets
• 54.2% reduction in market-based emissions for our operational footprint compared to 2019 baseline (2024: 48.3%)
• Financed emissions balance sheet reporting extended to cover our full lending balance sheet. Reporting covers 100% of
relevant balances
• 52.5% of new advances in our mortgage portfolio were EPC rated A-C (2024: 53.4%)
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Strategic Report
(a) Governance
i) Climate and sustainability governance structure
The governance structure
outlines how climate and
sustainability related
matters are escalated
throughout the business
and upwards to the Board.
The approach to managing
climate change risk is
incorporated within
the ERMF to ensure
a consistent and
comprehensive approach
is taken across the
business. In addition to this
reporting structure, the
Sustainability Committee
and its working groups provide relevant reports to the ERC
and its sub-committees where appropriate. To ensure climate
risk is adequately considered across the business the terms
of reference of key executive risk sub-committees incorporate
the consideration of climate change. The overall governance
structure is described more fully in Section B.
ii) Board oversight of climate change
Climate change risk is a principal risk within the ERMF
(described in Section B8), therefore, information and metrics
on climate change risk are considered at board level and tabled
at Risk and Compliance Committee meetings throughout the
year as part of the wider report from the CRO. The CFO has
been designated as the director responsible for climate change
matters and has an individual performance target to understand
and assess the financial risks arising from climate change and
to oversee these risks within the overall business strategy and
risk appetites. Performance against this objective is assessed
annually and impacts the bonus or incentive he receives (see
Section B7).
Regular engagement by the Board and enhanced governance
act as key channels for the consideration of climate change
within the setting of performance objectives and their
monitoring. The Board is updated on a regular basis through
the CEO’s monthly report, which provides oversight of
sustainability and climate-related matters and how they
impact strategy. The Board is also provided with more detailed
updates on emerging issues and developments through regular
presentations conducted by our sustainability team.
The Audit Committee is responsible for the supervision of
climate-related financial reporting and related assurance matters,
and considers such matters as part of its regular annual agenda.
iii) Sustainability Committee and climate change
working groups
The Sustainability Committee, chaired by the External Relations
Director, is a dedicated sustainability governance forum with a
broad ESG perspective, including climate change, and reports
to the Performance ExCo and the Board on a regular basis. The
committee is provided with updates on our key sustainability
focus areas, opportunities and progress within business
areas and any wider industry and regulatory developments on
sustainability and climate-related issues.
The committee oversees and challenges the identification
and management of current, potential and emerging climate
change risks and opportunities across all our businesses. This
includes oversight of quarterly management information for the
mortgage portfolio on climate-related matters, such as data on
concentrations of monthly advances, pre and post offer pipeline
cases and the financed emissions of the portfolio as a whole.
The number of working groups which report directly into
the Sustainability Committee has been reduced this year
as sustainability becomes embedded into all our business
areas. The remaining working group has been focussed on the
measurement of financed emissions to facilitate business input
into these calculations, and to build understanding across our
operations of both the impact of climate change on the assets
we finance and the impact of those assets on climate change.
Initiatives completed during the year, with the support of
the climate change working groups and the Sustainability
Committee, include:
• Reviewing and approving offsetting and verification proposals
for operational emissions
• Approving the methodology for financed emissions for
additional lending lines and updates to our Basis of Reporting
• Reviewing the output from the survey conducted on our
employees’ commuting habits
• Quarterly reporting on our operational footprint to track
reductions against the 2019 baseline
• Working with UKF, B4NZ, the Climate Financial Risk
Forum (‘CFRF’) Scenario Analysis industry Working Group
(‘SAWG’) and PCAF to leverage experience and develop our
understanding whilst also providing input to discussions on
future policy and processes
Enhanced governance and increased climate-related
reporting into the Sustainability Committee and executive risk
sub-committees provide a robust process for identifying and
managing climate-related risks and opportunities across
our businesses.
Working Groups
Paragon Banking Group PLC Board
Executive Performance Committee (ExCo)
Sustainability Committee
Page 74
(b) Strategy
Making a positive contribution to net zero continues to be
a focus in addressing climate change. We are committed to
achieving net zero for all operational and attributable lending
and investment emissions by 2050, supporting national
decarbonisation goals. However the scale of the challenge ahead
is considerable, and it is clear that without support both from the
industry as a whole, and from national and international policy
makers and regulators, no business is likely to achieve net zero
solely by its own efforts.
Core to our climate change strategy is to act where we can
have a positive and meaningful impact. Our decarbonisation
approach focuses on reducing the emissions associated with
our operational footprint, and on reducing financed emissions
through customer engagement and education, and by lending
on sustainable products. We also actively engage in public
policy advocacy through industry initiatives and collaborations,
including UKF, B4NZ and the GFI, promoting the development of
the policy and regulatory framework necessary to support a just
and fair transition to net zero.
Our purpose and our overall strategic objectives are not
expected to change significantly in response to the impacts
of climate change. However, we continue to monitor the UK
Government consultations on both EPC reform and MEES,
in order to support our customers on their net zero journey.
There is some concern, though, that the proposed MEES
requirements, as they stand, may be unachievable for some
landlords, given the uncertainty of the EPC reform, and the
availability of skilled tradespeople to perform the necessary
upgrade works.
Our products, customers and the types of assets we fund will
evolve over time as the UK economy transitions to net zero, but
this is fully aligned with our purpose of supporting the ambitions
of the people and the businesses of the UK by delivering
specialist financial services.
There continue to be some areas where technological
advancements are required, to help us meet our goals, and those
of our customers. These include the availability of affordable
like-for-like replacements where customers wish to move away
from assets powered by fossil fuels. It is expected that these
technologies and their supporting infrastructure will become
available in the future aligned with the UK economy’s planned
transition to net zero by 2050.
i) Climate-related opportunities
Business opportunities related to climate change are
continuously identified and addressed through the efforts of
our various business lines and the governance and escalation
structure of the Sustainability Committee. Our strategy aims to
support customers in their transition to a low-carbon economy.
Sustainable finance is a vital mechanism to drive the transition
to a low-carbon economy, and we continue to develop products
to support customers on their individual sustainability journeys.
To incentivise the purchase of more energy-efficient properties,
discounted interest rates are offered for landlords securing their
mortgage on properties with an EPC rating of C or better.
Since the launch of these products, new inflows of mortgages
with these higher EPC ratings have exceeded concentrations in
the extant portfolio. We also provide support to landlords who
wish to carry out work to upgrade EPC ratings in their existing
portfolios through our refurb-to-let and further advance products.
In the development finance business, our Green Homes Initiative
(‘GHI’) offers reduced exit fees to customers constructing highly
energy-efficient properties, where the majority of units in a
development need to achieve the maximum EPC rating of A to
receive the discount. The initiative was launched in 2021 and
has been expanded since, following its continued success, with
the available funds most recently increasing during the year to
£400.0 million in total. It should be noted that discounts under
the GHI are only available once the EPC rating of the completed
development is certified.
We also aim to provide support to enable net zero transition and
the identification of further opportunities, through education
and engagement with customers, brokers, stakeholders and
other industry initiatives. In particular, educational articles
and blogs have been published covering the development and
implementation of new EPC requirements for the PRS as they
emerge, outlining who they are likely to affect, when they are
likely to take effect, and how they are expected to be enforced,
as these themes developed over the year.
ii) Use of scenario analysis
The risks and opportunities from climate change may impact
over the short term (zero to five years), medium term (five to ten
years) or long term (over ten years). These timelines go beyond
a typical planning horizon of five years to appropriately consider
the climate change risks which may materialise over a longer
period of time.
Our climate change scenario analysis exercise was last
reperformed as part of the 2024 ICAAP, considering the
longer-term risks of climate change. This analysis built on
previous risk analyses, which had identified those areas which
are most significant to our strategic goals. The mortgage lending
and motor finance portfolios were prioritised in the quantitative
climate change risk assessment, due to the availability of
climate-related data for these asset types. However, the scenario
analysis was not reperformed this year, as a review of the
analysis performed in 2024 against any changes in the business,
regulation and policy, concluded that the existing outputs and
conclusions are still reliable.
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Strategic Report
The 2024 approach leveraged the Bank of England’s Climate Biennial Exploratory Scenario (‘CBES’) and Network for Greening the
Financial System (‘NGFS’) to provide a comparable and consistent outcome. Details of the forecasting approaches are outlined below.
Scenario Outcome
Transition risk
To assess transition risk across the mortgage portfolio the
NGFS ‘Net Zero 2050’ and ‘Fragmented World’ scenarios
were used to forecast key macroeconomic variables under
the influence of climate change.
In addition, the impact of achieving compliance with the
proposed EPC rating of C Minimum Energy Efficiency
Standards (‘MEES’) in the PRS was considered.
These two stress drivers were combined to assess the
outcome on credit and capital across the mortgage portfolio.
Across the motor finance portfolio, asset values were
stressed using the CBES early action and late action
scenarios to provide an additional Residual Value stress and
assess the impact on credit performance.
The outcomes of the analysis suggest that, due to the
extended time horizons over which climate risks may
materialise, the continued ongoing uncertainty in future UK
Government policy and the minor overall increase to expected
credit losses in the scenario, there is currently no significant
and quantifiable link to asset values or impairments
attributable to the climate-related factors considered.
Physical risk
The flood risk across the mortgage portfolio was projected
to 2050 and 2080 in line with the CBES scenarios. The flood
risk projections considered Representative Concentration
Pathways (‘RCP’) of varying severity with RCP 8.5 considered
in the ‘no additional action scenario’ and RCP 2.6 and
4.5 considered in the ‘early action’ and ‘late action’
scenarios respectively.
The analysis focussed on identifying the percentage of the
portfolio exposed to high flood risk, and the percentage that
would fall into a 1-in-100 year flood risk event zone.
Across the scenarios considered, the analysis indicated a
small overall impact over the short and medium term, and,
considering both the lack of historic losses and the controls
currently in place, the impact of flood risk on mortgage values
is not considered to be significant.
The involvement of our experienced team of in-house
surveyors in the assessment of applications is a key factor in
ensuring that this risk is tightly managed.
Net zero scenario analysis
Analysis was performed considering the emissions across
the entirety of our value chain.
Although the assessment considered all the attributable
emissions, this scenario analysis focussed on the
decarbonisation of the mortgage lending and motor finance
portfolios, aligned with the 1.5°C UK Climate Change
Committee’s Balanced Net Zero Pathway scenario.
The analysis considered the implication of a 2030 interim
decarbonisation target, and the key contributors to achieving
the required emissions reductions.
Across the mortgage lending portfolio, the analysis
identified retrofitting and the electrification of heat as key
levers. For motor finance, battery electric vehicle adoption
is a key influence.
The roll-out of low-emission electricity across the UK
also supports the decarbonisation of both asset classes
particularly as electric technology is further adopted.
The analysis indicated a key dependency for portfolio
decarbonisation on appropriate government policy and
strategy to drive consumer demand for decarbonisation,
retrofit investment and the electrification of heat
and transport.
The qualitative review of climate change risk and opportunities by business areas undertaken in 2024 was not repeated given that there
have been no significant changes to the business model or market environment since it was conducted. This process will be updated in
the coming year to take account of the recent PRA Consultation Paper on the management of climate-related risks (CP10/25). This will
ensure that climate change risks are mitigated or risk accepted, and opportunities captured, wherever material, across our business.
The review will be facilitated by the sustainability team in conjunction with business line representatives and presented to Board. The
2024 review did not identify any significant impacts on future cash flows, financing arrangements or the cost of capital.
Climate change scenario analysis has improved our understanding of key climate change risk drivers, their potential impact, and the
available mitigants. Our approach to scenario analysis will continue to mature as the learnings from the SAWG are incorporated. This
year these focussed on updates to the scenario narrative tool to reflect the latest NGFS scenarios.
Qualitative review and quantitative scenario analysis are central to identifying and assessing the impact and materiality of
climate-related risks and opportunities across all of our businesses. The results of the previous year’s assessments identified
no significant gaps or vulnerabilities related to climate change, and this year’s review reconfirmed that current processes are
fit-for-purpose. The outcomes were presented to, and approved by, the Sustainability Committee and the Board. The delivery of
the review across the business further embeds the consideration of climate change within our planning and strategic development
processes on a business-as-usual basis.
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(c) Risk management
Climate change continues to be further embedded within the ERMF which is designed to align and embed risk management practices
across the organisation and for all types of risk. It also provides a methodology for identifying, escalating and monitoring each element
of our risk profile. As a designated principal risk, climate change is considered alongside all other such risks in the evaluation of all
major capital expenditure, acquisition and divesture proposals.
More detail on the ERMF and our approach to climate change
as a principal risk is set out in Sections B8.4 and B8.5.
i) Potential risks identified over the short, medium and long term
Although the impacts of climate change are already current, there is still significant uncertainty around the channels and timings
through which the related financial and non-financial risk impacts might materialise. The table below outlines examples of risk drivers
considered to be most significant to our business and strategy, and the timeframes over which they might impact. We prioritise risk by
magnitude of expected impact and likelihood of the risk materialising.
Source Risk driver Most relevant
lending area
Most relevant
principal risks
Timeframe Expected impact
Transition risk
Current and
emerging
regulation
Continued
tightening of
energy efficiency
regulations
in the private
rented sector
and buildings
regulations in
the UK
Mortgage lending Credit, capital,
liquidity and
operational
Short and
medium term
Low
Although controls
are in place to
reduce the risk
of impacts from
current and future
regulation, the
potential fast pace
of change of policy
and regulation in
this area could
increase the impact
The output of our
scenario analysis
indicated a minor
overall impact to
credit and capital
Technology Transition to
low-carbon
technologies
which could
impact asset
values and
infrastructure
requirements
Includes the
risk that some
new low-carbon
technologies may
prove ineffective
SME lending and
motor finance
Credit Short and
medium term
Low
A prudent
approach to new
and developing
technology is
taken and we have
robust controls
and reporting to
limit exposure
to obsolescent
technologies
Reputation Increased
stakeholder,
shareholder
and regulatory
scrutiny if there is
perceived to be a
lack of action to
mitigate climate
change
All Reputational Short and
medium term
Low
We have a robust
climate change
strategy, and our
businesses have a
very low exposure
to climate sensitive
sectors
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Strategic Report
Source Risk driver Most relevant
lending area
Most relevant
principal risks
Timeframe Expected impact
Physical risk
Acute Damage to
property, business
disruption and
higher insurance
costs from climate
driven events such
as flooding
Mortgage lending
and development
finance
Credit, capital and
operational
Short, medium
and long term
Low
Both our business
assets and our
lending portfolios
have low exposure
to physical risk and
appropriate controls
and procedures are
in place to reduce
the impact of this
risk
Scenario analysis
performed on the
mortgage lending
portfolio found
that the impact
of flood risk is
not considered
significant
Chronic Alterations
in weather
patterns affecting
subsidence and
ground stability
which may damage
mortgaged
property assets
Mortgage lending
and development
finance
Credit Long term Very low
Appropriate controls
are in place, and
the longer impact
duration offers
sufficient time to
adapt to changes in
risk profiles
ii) Assessment at underwriting
One of our principal tools for managing climate-related risk is the
assessment made at a loan’s underwriting stage. This acts as a
key mitigant to the environmental and climate risk factors most
likely to have an impact on the business or our customers.
Assessment of current environmental risks and forward-looking
climate change risks are factored into our business processes.
When assessing the appropriateness of a property as security on
a buy-to-let mortgage, indicators such as the EPC rating of the
property and other climate-related factors are considered. Since
2018 all properties accepted as a security have been required
to have a minimum EPC rating of E at the time of offer, unless
valid exemptions are in place. We note the potential for the
recent consultation on EPC Reform and MEES to increase these
requirements in the future.
Valuation reports are prepared by surveyors on each property
and include an assessment of coastal erosion, ground stability
and flood risk based on the surveyor’s expert knowledge of the
local area, historic events and information from insurers. As part
of the conservative approach taken, these risks are assessed
on a property-by-property basis. Additionally, it is essential for
us to ensure that a property is, and remains, insurable, including
for both subsidence and flood risk, providing cover across the
mortgage book.
In development finance the initial due diligence considers
flood risk, ground instability, local ecology and the impact of
current and future regulations. In addition, each project has
an independent monitoring surveyor assigned throughout the
life of the build, part of whose task is to monitor these risks as
they emerge and to assess how they are being considered and
mitigated by the customer, where material.
iii) Quantifying climate exposure
EPC ratings assess the energy-efficiency of a property and are a
key measure of transition risk across the mortgage portfolio. The
Credit Committee and the Credit Risk function have an ongoing
programme to analyse the potential for any linkage between
EPC and loan performance. To date, neither this programme,
nor the scenario analysis performed, most recently in 2024,
have identified any requirement to adjust current processes or
lending criteria. Our EPC data capture process continues to be
enhanced to improve our understanding of current exposure, but
also for use in longer-term climate scenario analysis.
The Sustainability Committee and the Credit Committee monitor
the energy performance of mortgaged properties to ensure
that an excessive build-up in concentration of less-efficient
properties is avoided.
As of 30 September 2025, UK legislation required properties
in the PRS to have EPC ratings of E or better, although recent
consultations have proposed a requirement for an EPC or
equivalent rating of C or better. While the timings and impacts of
future public policy initiatives, coupled with changes in market
preferences on energy efficiency, remain uncertain, tightening
of standards and increased demand for more energy-efficient
properties are both expected in the short to medium term.
At present there is no direct significant or quantifiable link to
asset values or impairment attributable to energy efficiency
alone. This is expected to evolve continuously throughout the
UK’s pathway to net zero by 2050.
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Our most recent survey of landlords operating in the buy-to-let
sector, for the quarter ended 30 September 2025, showed that
just under three quarters of those surveyed had at least one
property with an EPC grade of D or less. However, 95% had at
least some knowledge of the proposals described above, which
would require them to upgrade such properties, with 64% claiming
they had a detailed understanding. 28% of the respondents stated
that they plan to make improvements to upgrade their properties
to EPC C or above, in response to the proposals.
The challenge of decarbonising UK residential real estate and
the related risks are shared by all property-based lenders and
their customers. We will continue to support the transition,
leveraging our strong balance sheet, robust credit standards and
long-standing relationships with professional landlords.
(d) Metrics and targets
i) Mortgage Lending
The Mortgage Lending division is focussed on first charge
buy-to-let mortgages, and also includes limited balances related
to legacy owner-occupied first and second charge mortgage
books, where no new lending takes place. Energy efficiency
(measured by EPC grades) and flood risk are key metrics
used to assess climate risk across the mortgage portfolio.
Climate analysis to date has been principally targeted on the
buy-to-let portfolio.
The tables below summarise the principal exposure metrics
for first charge buy-to-let mortgages. The movement in EPC
ratings reflects both the underwriting of more energy-efficient
loans during the period and the capture of new ratings where an
updated EPC has been obtained by the customer.
Indicator Measure 2025 2024
EPC Grading A or B 9.2% 8.8%
Grading C 37.6% 36.6%
Grading A to C 46.8% 45.4%
Grading D or E 52.7% 54.0%
Grading F or G 0.5% 0.6%
We perform an annual flood risk assessment of the mortgage
lending portfolio, based on location-specific data covering the
whole of the UK. This assessment includes flood risk from rivers,
surface water and coastal flooding. Data has been obtained
for 97.8% of properties on the mortgage book (2024: 97.5%),
summarised below as at the year end.
Indicator Measure 2025 2024
Flood risk
Very high risk 0.1% 0.1%
High risk 2.9% 3.0%
High or very high risk 3.0% 3.1%
These results indicate that only a small balance of the property
assets securing mortgages in our portfolio are at higher risk.
We have yet to experience any loss attributable to flood or
ground instability.
As well as addressing the current flood risk, the annual
assessment also includes a projection of the potential future
flood risk out to 2055 under various climate scenarios. The
analysis was used to evaluate whether there is likely to be any
build-up of medium to long term risk if current underwriting
processes were to remain unchanged. Although some increase
in risk was projected over the period, the findings were
considered by internal property and credit risk experts, and the
marginal increase was not considered to be substantial.
The proportion of new mortgage lending on properties with EPC
grades of A to C remained broadly stable in the year, reflecting
the finite number of properties which meet this category, and
our balanced approach to long-term emissions reduction, and
meeting our business objectives.
The distribution of EPC grades amongst the 99.9% of new
buy-to-let mortgages advanced during the year where an EPC
was available (2024: 99.8%), is set out below.
Indicator Measure 2025 2024
EPC Grading A to B 11.8% 12.7%
Grading C 40.7% 40.7%
Grading A to C 52.5% 53.4%
Grading D or E 47.4% 46.4%
Grading A to E 99.9% 99.8%
Grading F or G 0.1% 0.2%
New completions continue to have a higher average EPC grade
than the total portfolio stock, shifting the overall mix towards
more energy-efficient properties, a trend which should be
continued by our green mortgage range and other products.
However, banks focussing their lending on EPC A-C rated
properties will not, of itself, deliver the desired changes in the
UK housing stock, where England and Wales have median EPC
ratings of C and D respectively.
ii) Commercial Lending
Our Commercial Lending division comprises SME lending,
development finance, motor finance and structured lending
operations. Within the division the initial focus of climate analysis
has been on the SME lending business.
The exposure to carbon-related assets across the SME lending
business, which has the widest range of different exposure
types has been assessed, while acknowledging that the term
‘carbon-related assets’ can be subject to a broad range of
interpretations.
Customers which are limited companies have been analysed
into broad industry groups using SIC (Standard Industrial
Classification) codes, with the potential exposure of each
industrial sector to increased climate risk then considered.
Higher risk sectors were identified as part of our climate risk
assessment and discussed with internal industry experts.
Although these sectors are identified as having heightened
climate-related risks, regular review of industry performance
coupled with credit control and other processes leave a low
overall residual risk.
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Strategic Report
The proportion of our SME lending customers, by value,
operating in these higher-risk sectors is broadly similar to that
reported in the previous year, and is set out below:
Sector Relative
climate risk
exposure
Residual
risk after
controls
2025 2024
Construction
Moderately
High
Low 18.5% 18.3%
Transportation and storage Low 13.2% 12.1%
Mining and quarrying Low 1.0% 1.2%
Administrative and
support service activities
Medium
Low 20.3% 20.8%
Agriculture, forestry
and fishing
Low 1.4% 1.9%
Water supply, sewerage,
waste management and
remediation activities
Low 2.7% 2.7%
Manufacturing Low 10.2% 8.6%
Wholesale and retail trade;
repair of motor vehicles
and motorcycles
Low 6.3% 6.4%
Electricity, gas, steam and
air conditioning supply
Low 0.2% 0.2%
Total increased climate
risk exposure
73.8% 72.0%
The administrative and support service sector is not typically
considered to be one with an increased level of climate risk,
however the sector includes activities such as plant hire, and
the customers and assets funded in this sector can be closely
aligned with the other sectors above that are identified as having
increased climate change risk.
Measures addressing other climate risk elements within the
Commercial Lending division, such as the environmental
impacts of business assets financed and the classification
of development finance projects by environmental rating,
continue to evolve.
iii) Integration of climate change within remuneration
and culture
The determination of the levels at which PSP awards for executive
directors vest include a climate metric. The metric, which is
subject to annual review, focuses on the development and
delivery of the process to manage operational emissions and the
financed emissions attributable to lending portfolios. More detail
is set out in the Directors’ Remuneration Report (Section B7).
Employee engagement on climate change continued in
the year, with communication activity on sustainability taking
place through the business. The aim of this activity is to
further embed the consideration of climate change within
business-as-usual processes.
Activity delivered during the year included a month-long internal
communications campaign supporting the publication of the
2024 Responsible Business Report with intranet articles and
social media posts highlighting our work to tackle climate
change. This culminated in a drop-in session for employees to
ask questions and put forward suggestions related to climate
change opportunities. Other internal campaigns focussed on the
introduction of food waste separation and improved recycling
facilities, as well as an initiative to rehome surplus office furniture.
Throughout the year, initiatives that support customers on their
net zero journeys were also featured on the intranet, while our
‘Expert Insight’ series featured thought leadership articles from
senior managers on topics such as sustainability standards for
new homes. Regular updates have been provided to employees
during the year about our plans to decarbonise our head office,
ranging from intranet articles to discussions with our
employee-led People Forum.
In addition, our employee volunteering strategy (Section A6.5)
has been expanded to include more opportunities for colleagues
to support causes focussed on environmental improvements
and tackling climate change. These included gardening,
woodland and forest school-based activities.
Each employee also has a PPP which encourages
sustainable behaviours, with a section dedicated to setting
sustainability-related and climate change related objectives.
(e) Financed emissions
Our financed, or downstream, emissions, which are considered
as Scope 3 emissions, are those generated by customers which
are facilitated by the financing we provide. As set out above, we
have committed to reaching net zero by 2050, which will include
reducing the financed emissions associated with our lending
portfolios, which make up the significant majority of emissions
across our value chain.
Strategy in this area will continue to evolve, delivering initiatives
and products to drive emission reductions across each of our
business areas. There continues to be an external dependency
on emissions reductions driven by policy, customer behaviour,
and infrastructure and technology developments across the
sectors in which we operate.
Absolute financed emissions have been calculated in
accordance with the PCAF standard. Under this approach
a lender is considered to be responsible for a proportion of
emissions relating to assets which they finance based on an
‘attribution factor’. The financed emissions reported are based
on the customers’ Scope 1 and 2 emissions and do not cover any
connected Scope 3 (value chain) emissions.
Emissions intensity is a measure of the amount of greenhouse
gases (‘GHG’s) which are emitted by a business for each unit of
economic or physical activity. Emissions intensities are calculated
in accordance with the PCAF standard to provide comparable
data. However, this comparability will be compromised by
differences in method, data quality and assumptions used by
each firm in its financed emissions calculations.
For further details on the methodologies and data used
for financed emissions reporting refer to the 2025 basis
of reporting available on the sustainability section of our
corporate website.
i) Scope 3 financed emissions balance sheet
The financed emissions balance sheet set out below shows
emissions related to 100% of assets covered by the PCAF
standard by exposure (2024: 85%). This year we have met our
ambition to increase coverage to all of our financed emissions
within the PCAF scope. However, there remain limitations on the
availability and accuracy of suitable emissions data, reflected in
our PCAF data quality scores.
It is understood that the individual methodologies will develop
over time, however this data provides an initial baseline from
which future emissions reporting can be improved on, either
driven by data enhancement (quality or expansion) or by a
change in the consensus approach.
Page 80
PCAF Scope 3 financed emissions balance sheet
Business area Balance Data
coverage
Absolute financed
emissions
1
Economic
emission
intensity
2
Physical emissions
intensity
3
Physical
activity factor
Indicative PCAF
data quality score
12
£m kilotonnes CO
2
e tonnes CO
2
e per
£m balance
kgCO
2
e per physical
activity factor
Scopes
1 and 2
Scope
3
30 September 2025
Mortgages
4
13,876.4 100% 240.9 - 17.3 44.2 /m
2
3.1
Motor finance
5
360.5 100% 21.6 - 57.3 0.3
6
/mile 3.1
SME lending
5
876.7 100% 209.2 57.4 297.4
7
0.7
6
/mile 4.5
Development finance
8
960.4 100% 5.5 43.5 48.7 316.3 /m
2
3.1
Structured lending
9
267.3 100% 12.5 2.6 56.3 n/a
6
n/a 4.8
Investment securities
10
626.2 100% 55.1 34.1 n/a n/a
6
n/a 2.6
Other assets
2,962.5 Not in scope of financed emissions balance sheet
11
Total
19,930.0 100% 544.9 137.7 40.2 n/a n/a 3.2
PCAF Scope 3 financed emissions balance sheet
Business
area
Asset type Balance Data
coverage
Absolute financed
emissions
1
Economic
emission
intensity
2
Physical emissions
intensity
3
Physical
activity factor
Indicative PCAF
data quality score
12
£m kilotonnes CO
2
e tonnes CO
2
e per
£m balance
kgCO
2
e per physical
activity factor
30 September 2024
Mortgages
4
13,415.7 100% 234.7 17.4 44.7 /m
2
3.1
Motor
finance
Passenger
vehicles and
LCVs
5
225.9 100% 14.6 65.3 0.3 /mile 2.4
Leisure
vehicles
105.5 Excluded
5
SME
lending
Motor
vehicles
5
172.1 100% 57.9 335.5 0.3 /mile 2.9
Other assets 680.3 Under development
5
Development finance 884.0 Under development
8
Structured lending 256.9 Under development
9
Investment securities 427.4 Under development
10
Other assets 3,102.2 Not in scope of financed emissions balance sheet
11
Total 19,270.0
Notes on calculation methods
1. Absolute financed emissions are attributed to the Group on a loan-to-value basis.
2. Economic emission intensity refers to absolute emissions per pound of lending or investment.
3. Physical emission intensity is a measure of absolute emissions per physical output based on the customer or asset being financed.
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Strategic Report
4. Emissions related to mortgage assets are calculated using
EPC data which has not been altered or updated. Where EPC
data is not available, emission intensity is estimated based on
property archetypes and data available in the EPC database.
5. For lending on passenger and light commercial vehicles in the
SME lending and motor finance divisions, the number plates
provide accurate scope 1 emissions data when combined
with estimated annual mileage. Where no emissions data is
available from the DVLA, emissions data is sourced from the
PCAF emissions factor database, based on make and model,
or the UK Government GHG conversion factors. For other
assets / sectors, industry average emissions are used.
Prior year reporting excluded leisure vehicles (motor homes,
caravans and campervans) from the motor finance portfolio,
and heavy goods vehicles and plant, aircraft mortgages, invoice
finance, professions finance and unsecured lending under BBB
sponsored schemes, from the SME lending portfolio.
6. Physical emissions intensity across the motor finance and
SME lending portfolios covers those motorised assets with
asset-specific data available. It excludes the emissions
associated with leisure vehicles (motor homes, caravans
and campervans), buses, coaches, HGVs and other
non-motor assets, since these rely on industry averages and
the reporting of these emissions is therefore not meaningful
on a year-on-year basis.
7. The economic emission intensity of the SME lending portfolio
is significantly higher than the other portfolios due to the use
of industry average emissions, as asset specific emissions
data is not available.
8. Development information data fields are used where available
to calculate the emissions associated with the development
finance loan. PCAF embodied carbon database is used to
source the project emissions. These emissions were not
reported in the prior year.
9. Structured lending approach to calculate financed emissions
is aligned with the Securitised and Structured Product
asset class in the PCAF standard. These emissions were not
reported in the prior year.
10. Investment securities are held as part of our liquidity balance.
The approach to calculating the emissions associated with
the government debt securities is aligned with the Sovereign
Debt asset class in the PCAF standard, whereas those for
covered bond holdings are aligned to the Securitised and
Structured Product asset class in the PCAF standard
As there is limited potential to influence the emissions of the
issuers of these securities, economic intensity emissions are
not included for these investments.
11. Out of scope assets include cash, derivative financial assets,
intangible assets, pension surplus and other receivables.
Operational property, plant and equipment assets are also
out of scope for this purpose. Their attributable emissions are
considered under Scopes 1, 2 or 3 in the operational footprint
outlined in ‘(f) operational impacts’.
12. PCAF data quality score has been calculated in accordance
with the PCAF guidance. A PCAF score of 1 is considered to
be a more accurate estimation of financed emissions, while a
PCAF score of 5 is considered to have a much larger margin
of error.
(f) Operational impact
Our principal business activity is the provision of mortgage
and commercial finance and therefore, in common with other
such businesses, the overall direct environmental impact of our
operational footprint is considered to be low.
A group company, Specialist Fleet Services (‘SFS’), leases refuse
collection vehicles to local authorities throughout the UK and
undertakes additional aftersales activities that include servicing,
maintenance and breakdown support, hence has the most
significant potential environmental impacts. There has been
some growth in this company’s operations over the year with
additional locations, and new contracts commencing.
The main environmental impacts of the Group’s other
operations are limited to those affecting all commercial
organisations such as office and resource use, procurement in
offices and business travel.
Our operations are not considered to be significantly exposed
to the financial risks of climate change materialising from either
transitional or physical risks.
i) Policy
We comply with all applicable laws and regulations relating to
the environment and include these within our legal compliance
framework. Group-wide recycling and awareness campaigns are
run with employees to reduce various forms of waste such as
food, consumables and energy.
ii) Risk management
The Group Property function, which reports ultimately to the
Chief Operating Officer, manages the environmental risks
inherent in our operations. The second line Operational Risk
team and the ORC monitor compliance within the wider ERMF.
Group Property is responsible for the oversight of all premises
occupied by the business and compile information on energy
use and waste production. All locations, whether directly owned
or tenanted, have their energy data and emissions actively
tracked. This is reported at the Sustainability Committee and the
Performance ExCo and escalated upwards to the Board.
SFS operates from a number of workshops around the UK
and has exposure to several different waste streams (oils,
vehicle parts, etc) generated in the normal course of its vehicle
maintenance activities. These are effectively managed under
an environmental management system that is certificated to an
International Standard – ISO14001:2015. A dedicated health and
safety manager has direct responsibility for environmental issues
at all SFS sites.
We comply with the Energy Savings and Opportunities Scheme
(‘ESOS’), a UK Government initiative that requires companies
to identify and report on their energy consumption. Our most
recent ESOS compliance notification was submitted to the
Environment Agency in June 2024 and our ESOS action plan was
submitted in December 2024, with the next Environment Agency
submission to review our action plan due December 2025.
iii) Supply chain and procurement
Our principal purchase ledger suppliers comprise our
outsourced savings administrator, legal and professional
services providers, building lessors and IT service providers.
They are therefore exposed to similar operational environmental
risks to those of the Group.
We remain committed to identifying, targeting and addressing
inefficiencies within our supply chain and work with key suppliers
to identify solutions to reduce the environmental impacts of our
business activities, whether direct or indirect.
Page 82
The due diligence and onboarding process for new suppliers
considers sustainability and environmental factors as part of
the supplier approval process. As we onboard new suppliers,
and gather additional data on existing suppliers whose business
impact is considered high or critical, we assess this information
to increase our understanding of supplier information, informing
and influencing decision making.
All pre-printed stationery items used in the business are from
renewable sources certified by FSC.
Sources certified as renewable by the Office of Gas and
Electricity Markets (‘OFGEM’) accounted for 93.2% (2024: 95.1%)
of the electricity directly purchased in the year. The reduction
is due to an overall decrease in usage at sites where we control
the procurement of power, predominately from our Solihull
head office which uses renewable electricity. Non-renewable
electricity usage is from sites where our landlord appoints the
supplier and the feasibility of changing to renewable electricity
is discussed during the lease renewal process. For all new lease
arrangements sustainability matters are taken into consideration
before a location is selected.
iv) Environmental initiatives
Environmental initiatives undertaken in the period include:
• Further improvements to the energy efficiency of the
head office through amending heating parameters to
regulate demand
• Following the relocation of IT server equipment, a programme
to decommission cooling units in our IT server rooms
was completed in the year. This will reduce electricity
consumption and coolant evaporation
• The roll-out of electric and hybrid vehicles across our
company car fleet, supported by better quality emissions
factor data, has also significantly contributed to the
reductions. At 30 September 2025, 38% of all company cars
were electric-only, with the percentage increasing to 93%
when plug-in electric / petrol hybrids are included
• Our green car salary sacrifice scheme continues to support
increased take-up of electric vehicles amongst employees,
reducing the emissions impact of commuting
v) Performance indicators
Our environmental key performance indicators have been
determined having regard to the Reporting Guidelines published
by the Department of Business, Energy and Industrial Strategy
(‘BEIS’) and the Department for Environment, Food and Rural
Affairs (‘DEFRA’) in March 2019, and are set out below.
We do not consider that we have significant direct environmental
impacts or risks under the headings ‘Resource Efficiency and
Materials’, ‘Emissions to Land, Air and Water’ or ‘Biodiversity and
Ecosystem Services’ set out in the Guidelines, due to the nature
of our business activities.
This information is presented for the twelve months ended
30 September in each year and includes all entities consolidated
in the financial statements. Normalised data is based on total
operating income of £515.1 million (2024: £496.4 million).
In 2022 we designated 2019 as the operational footprint baseline
against which we measure progress on carbon reduction, and
data for this year is presented below.
Operational footprint greenhouse gas (‘GHG’) emissions
2025 2024 2019
Baseline
Tonnes
CO
2
e
Tonnes
CO
2
e
Tonnes
CO
2
e
Scope 1 (Direct emissions)
Combustion of fuel:
Operation of gas heating boilers 347 468 520
Petrol and diesel used
by company cars
334 323 465
Operation of facilities:
Air conditioning systems 25 27 24
706 818 1,009
Scope 2 (Energy indirect emissions)
Electricity consumption
(Location-based)
378 475 995
Electricity consumption
(Market-based)
74 70 990
Total scopes 1 and 2 (Location-based) 1,084 1,293 2,004
Total scopes 1 and 2 (Market-based) 780 888 1,999
Normalised tonnes - Scope 1 and 2
CO
2
e per £m income (Location-based)
2.1 2.6 6.6
Normalised tonnes - Scope 1 and 2
CO
2
e per £m income (Market-based)
1.5 1.8 6.7
Scope 3 (Other indirect emissions)
Fuel and energy related activities not
included in scope 1 or 2
360 421 520
Water consumption 4 3 14
Waste generated in operations 58 44 88
Total scope 3 422 468 622
Total scopes 1, 2 and 3 (Location-based) 1,506 1,761 2,626
Total scopes 1, 2 and 3 (Market-based) 1,202 1,356 2,621
Normalised tonnes Scope 1, 2 and 3
CO
2
e per £m income (Location-based)
2.9 3.5 8.8
Normalised tonnes Scope 1, 2 and 3
CO
2
e per £m income (Market-based)
2.3 2.7 8.8
The amounts shown above for location-based total Scope 1
and Scope 2 emissions are those required to be reported under
the Companies Act (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018.
All these emissions relate to activities in the UK and its
offshore area.
CO
2
equivalent (‘CO
2
e’) values above, other than for Scope 1
petrol and diesel used by company cars, and market-based
Scope 2 elements, are calculated using the UK Government
GHG Conversion Factors for Company Reporting published on
10 June 2025. Scope 1 emissions related to petrol and diesel used
by company cars use DVLA data. Market-based emissions have
been calculated in accordance with GHG Protocol guidelines.
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Strategic Report
The market-based method for calculating emissions relating
to electricity use reflects the specific source of the electricity
purchased and derives emission factors from information
provided by suppliers and related data, where such data is
available. This differs from the location-based method, which
reflects average emissions for electricity supplied through the
UK grid, based on figures published by the UK Government.
Where our available data does not meet the Scope 2 Quality
Criteria, the emissions are estimated utilising the UK grid
conversion factor. The methodology is detailed in the Basis of
Reporting, as noted above.
The majority of emissions reported relate to the provision of
heat, light and power to offices and other operational premises.
Emissions attributable to employees working from home are not,
at present, included within the scope of the regulations.
GHG emissions reduction target
Our target is to achieve net zero across our operational footprint
by 2030.
• Operational footprint is defined as Scope 1 (direct) emissions,
Scope 2 (indirect energy) emissions and those Scope 3
(other) emissions related to power, waste, water and business
travel. It therefore excludes downstream or other upstream
emissions from our value chain
• Net zero is defined as a reduction in these market-based
emissions to zero, or to a residual level consistent with
reaching net zero emissions at the global or sector level in
eligible 1.5°C aligned pathways with any residual emissions
being neutralised by removal offsets
To date, a 54% reduction in market-based emissions compared to
the 2019 baseline has been achieved (2024: 48%). This reduction
continues to be principally driven by the shift to hybrid working.
Further reductions in both location and market-based emissions
compared to 2024 reflect the reduction in gas use following the
centralisation of our Solihull operations in one building, additional
energy efficiency measures put in place at our head office and
further electrification of the company car fleet.
Our aim is to deliver our net zero operational footprint
commitment through the decarbonisation of heating across
our offices and other sites, the electrification of business travel,
switching to low-carbon green electricity where possible, and
the reduction and recycling of waste across all our locations. It
cannot be expected that progress towards net zero emissions
will be smooth, nor that significant reductions can be delivered
every year. Emissions reductions will result from the delivery of
specific initiatives, rather than gradually, although they should
also be reduced by the wider roll out of low-carbon infrastructure
and technology across the UK.
Carbon offsetting
The emissions attributable to our operational footprint for the
year ended 30 September 2025, set out in the table above, have
been offset. Offsetting has been achieved through the purchase,
after the year end, of carbon credits certified under the Gold
Standard, one of the most widely accepted international
certification systems. Emissions for the preceding year ended
30 September 2024 were offset following the end of that year in
a similar way.
Offsetting is not regarded as a long-term solution for operational
emissions, and our offsetting commitment is supported by an
ambition to achieve net zero across these emissions by 2030.
Any residual emissions will be neutralised by removal offsets, but
the use of these is expected to be limited. We see responsible
involvement in the voluntary carbon market as a crucial step
to driving internal investment and change, with offsetting the
operational footprint formulating a carbon price which can be
used to support decision-making and investment into internal
emission reductions.
Assurance
The emissions data set out in the table above has been
independently verified. The limited verification procedures
provide an appropriate level of assurance that the emissions
produced have been offset, with the level of assurance having
been considered and approved by the Audit Committee.
The verification was undertaken by SE Advisory Services, an
independent carbon management company, and was aligned with
the ISO 14064-3: 2019 Standard with specification and guidance
for the verification and validation of greenhouse gas statements.
The SE Advisory Services opinion stated that nothing had come
to their attention which indicated that the location-based and
market-based emissions totals set out above were not fairly
stated and are not a fair representation of the GHG data and
information provided, or had not been prepared in accordance
with the criteria set out above.
Compliance with environmental laws and regulations
The Group has not been involved in any prosecutions, accidents
or similar non-compliances in respect of environmental matters,
nor incurred any fines in respect of such matters.
Power usage
Mains electricity and natural gas from the UK grid is used to
provide heat, light and power to our office buildings and other
premises, with a proportion of this power certified as renewable
by suppliers. Energy is also consumed in powering company
vehicles, which is included in Scope 1 and 2 above, and through
business travel of employees, which is included in Scope 3. The
amount of power used in the year ended 30 September 2025 is
shown below.
2025 2024 2019
Baseline
MWh MWh MWh
Renewable electricity 1,884.5 2,106.8 3,123.5
Other electricity 265.0 199.1 768.1
Electricity 2,149.5 2,305.9 3,891.6
Natural gas 1,896.7 2,560.6 2,817.1
Motor fuel 1,779.4 1,636.1 2,303.7
Total 5,825.6 6,502.6 9,012.4
Normalised MWh per £m income 11.3 13.1 30.3
Page 84
Consumption levels have seen a general decrease from 2024
linked to reduced electricity consumption following the delivery
of energy savings measures at our principal Solihull office and
the centralisation of Solihull-based employees there. Reported
motor fuel consumption has increased due to additional
consumption in SFS, other electricity has increased due to
mileage claims on the increased number of electric and plug-in
hybrid cars operated by employees.
Gas and electricity usage are based on consumption recorded
on purchase invoices. Vehicle usage is based upon expense
claims and recorded mileage. Energy is classified as renewable
based on OFGEM accreditation received from the suppliers. In
addition, our London office purchased gas through the Green
Gas Certification Scheme (‘GGCS’) meaning it has lower carbon
emissions and supports the greening of the UK gas network.
Water usage
Water usage is limited to the consumption of piped water in the
UK and no water is extracted directly. Water usage in the year
ended 30 September 2025 was 12,118m
3
(2024: 7,910m
3
), based
on consumption recorded on purchase invoices. Normalised
consumption was 23.5m
3
per £m income (2024: 15.9m
3
per £m
income). Water usage has increased due to the requirement to
flush systems regularly at a vacated office building in line with
statutory compliance requirements.
Waste
SFS is the most significant producer of waste amongst our
businesses. Its vehicle servicing activities generate a variety
of different waste streams – including various grades of oil and
a range of metals and plastics. These wastes are managed
responsibly in accordance with an ISO14001:2015 certificated
management system. Waste streams generated by SFS are
disposed of in accordance with the waste hierarchy before being
consigned to approved waste transfer stations under contract
and Waste Transfer Notes obtained.
Waste output excluding SFS consists of a mixture of general
office waste types, principally paper and cardboard with some
wood, plastic and metals. Facilities are provided in our offices
for recycling paper, cardboard, newspapers, glass, plastics and
aluminium and steel cans. Batteries and printer and photocopier
cartridges are collected and sent for recycling. The largest part of
our recycled outputs relates to waste paper.
Since June 2023 we have partnered with a specialist waste
solution provider to segregate waste streams and maximise
recycling opportunities. During the year we introduced food
waste bins within our premises, further separating 1.45 tonnes
of waste. The collection of better-quality data on waste
generation also means that internal recycling campaigns can
be appropriately targeted. All waste is either recycled, used in
waste-to-energy initiatives or sent to landfill.
Amounts of waste generated in the year ended 30 September 2025
together with the methods of disposal are shown below.
2025 2024 2019
Baseline
Tonnes Tonnes Tonnes
Recycled 48 151 122
Recovery through
Waste-to-Energy initiatives
43 45 -
Landfill 112 85 187
203 281 309
Normalised tonnes per £m income 0.39 0.57 0.75
Waste generation data is based upon volumes reported on
disposal invoices.
Our long-term aim is to increase the proportion of waste which
is diverted from landfills, prioritising recycling over recovery
initiatives. Total waste decreased compared to 2024, however
the amount of waste being sent to landfill has increased because
of waste generated from the clearing of office space vacated in
the consolidation of our Solihull premises.
Travel and commuting
Our company car policy supports our efforts to decarbonise. It
targets the elimination of diesel and petrol-only vehicles from
the fleet by 31 December 2025 and to meet this objective the
following steps have been agreed:
• No diesel or petrol vehicles have been ordered on a
permanent basis since January 2022
• CO
2
emissions for fleet vehicles have been restricted to
75g/km with annual reviews set each April to ensure
continuing alignment with the objectives
• New orders will be restricted to electric-only vehicles
from 1 October 2026, subject to the progress of the UK
Government’s decarbonisation plan and the availability of
suitable vehicles
• All non-electric cars will be removed from the company car
fleet by 30 September 2031
At 30 September 2025 only 7% of our company car fleet was
petrol or diesel (2024: 5%), with 38% electric-only (2024: 24%).
We continue to expand the number of EV charging points
available to employees and by December 2025 diesel vehicles
will not be used within our company car fleet. Our aim is to
reduce emissions from commuting and business travel
by employees. Other initiatives include our green car and
cycle-to-work schemes, offering employees a tax-efficient way
to purchase an electric or plug-in hybrid vehicle or a new bicycle
via salary sacrifice arrangements.
(g) Future developments
Activities in our climate change programme going forward
also include:
• Appointing preferred suppliers and seeking relevant planning
permissions for our head office decarbonisation project
• Expanding our portfolio decarbonisation pathways as
published pathways develop
• Monitoring the process to introduce UK SRS and its potential
impact on our reporting
• Increased specialisation on sustainable finance and
larger-scale lending for infrastructure and energy projects
within the SME lending business
• Undertaking engagement activities with SME customers,
through our appointed Green Champions and Business
Development Director
• Continuing to work towards reducing the operational footprint
to net zero by 2030
• Further engaging and promoting positive sustainable public
policy across industry and government, through membership
of UK Finance, B4NZ and other industry bodies
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Strategic Report
i) Emissions across the value chain
There are significant challenges in data collection and accurate calculation for Scope 3 emissions, however we are committed to
disclosing downstream Scope 3 emissions where significant and relevant to our stakeholders, and where the data is sufficiently
mature to form a reliable basis for analysis and decision-making. Although industry-wide emissions data continues to improve, the
timelines for delivering decision-useful emissions data remain uncertain.
The table below outlines the key emissions from all scopes across the value chain and their current reporting status. Due to the
similarity between the types of assets funded in the SME lending business under finance leases and operating leases, emissions
attributable to operating leases are considered within the financed emissions balance sheet.
To date our emissions reporting has focussed on the operational footprint, where good progress has been made on emissions
reductions, and financed emissions, which are the most significant emissions across our value chain. During the year the financed
emissions balance sheet was enhanced and now covers our full financed emissions within the PCAF scope. We continue to work
towards expanding the emissions sources we are able to report on.
Scope Emissions source Significance
of emissions
Approach Commitments
Scope 1 Combustion of fossil fuels and the
evaporation of coolants in owned or
controlled assets
Very Low Included within ‘(f)
Operational impact'
Offset from 2022
Commitment to net
zero by 2030
Scope 2 Purchased electricity, heat and steam Very Low Included within ‘(f)
Operational impact’
Scope 3 Fuel and energy related activities not
in Scope 1 or 2
Very Low Included within ‘(f)
Operational impact’
Waste generated in operations
Water consumption
Scope 3 Working from home emissions and
employee commuting
Very Low Under development
In support of the UK
Government goal
of net zero by 2050
the Group has made
a commitment to
achieve net zero by
2050
Scope 3 Supply chain emissions Low Under development
Scope 3 Financed emissions – Mortgages High Reported in ‘(e) Financed
emissions’
Scope 3 Financed emissions –
Commercial Lending
Very High Reported in ‘(e) Financed
emissions’
(h) TCFD reporting
UK Listing Rule UKLR 6.6.6(8) requires the Group to disclose whether it has included climate-related financial disclosures consistent
with the TCFD recommendations and explain any areas of non-consistency. The climate-related disclosures set out above are
consistent with the recommendations of the TCFD and the expectations set out in the Listing Rules. The TCFD framework provides
guidance (using a principles-based framework) for companies to use for disclosure on climate-related risks and opportunities.
In preparing the disclosures set out above, consideration has been given to the 2021 TCFD Implementing Guidance and the
Supplemental Guidance for Banks, the FRC 2023 and 2024 Thematic Review of climate-related disclosures and the FCA Review of
TCFD-aligned disclosures by premium listed companies. The disclosures articulate the current status of our climate-related activities
and highlight those areas for future development, at an appropriate level to enable users to assess our exposure to, and approach to
addressing, climate-related risks and opportunities.
The UK Government’s proposed adoption of the International Sustainability Standards Board (‘ISSB’) IFRSS 1 and IFRSS2 standards,
with some amendments, as UKSRS S1 and S2, and subsequent changes will impact future reporting, and we continue to monitor the
output of the consultation.
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The following table sets out the sections of this part of the annual report in which material relevant to each TCFD pillar may be found.
Governance Relevant section
Disclose the organisation’s governance around climate-related risks and opportunities
a. Describe the board’s oversight of climate-related risks and opportunities (a) ii) and iii)
b. Describe management’s role in assessing and managing climate-related risks and opportunities (a) i), ii) and iii)
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the
organisation’s businesses, strategy, and financial planning where such information is material
a. Describe the climate-related risks and opportunities the organisation has identified over the
short, medium, and long term
(b) i) and ii)
(c) i)
b. Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning
(b) i) and ii)
(f) iii) and iv)
c. Describe the resilience of the organisation’s strategy, taking into consideration different
climate-related scenarios, including a 2°C or lower scenario
(b) ii)
(g)
Risk management
Disclose how the organisation identifies, assesses, and manages climate-related risks
a. Describe the organisation’s processes for identifying and assessing climate-related risks (a) i) and iii)
(b) ii)
b. Describe the organisation’s processes for managing climate-related risks (b) i)
(c) ii) and iii)
(d) i) and ii)
c. Describe how processes for identifying, assessing, and managing climate-related risks are
integrated into the organisation’s overall risk management
(a) i) and iii)
(c) ii) and iii)
Metrics and targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and
opportunities where such information is material
a. Disclose the metrics used by the organisation to assess climate-related risks and opportunities
in line with its strategy and risk management process
(b) ii)
(c) iii)
(d) i), ii) and iii)
b. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions and the related risks (e) i)
(f) v)
(g) i)
c. Describe the targets used by the organisation to manage climate-related risks and opportunities
and performance against targets
(b) i)
(f) v)
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Strategic Report
A6.5 Social and community
We operate entirely within the United Kingdom and therefore
within the legal and regulatory framework of the UK, but we also
acknowledge the importance of corporate responsibility and
citizenship, striving to go beyond what is required in relationships
with customers, the wider community and other stakeholders.
We are a specialist lender, providing funding for business
propositions in the development finance and SME lending
markets which might struggle to attract interest from larger
lenders, helping to support the SMEs which are crucial to the
UK economy. We also support the provision of housing in the
UK through buy-to-let lending to the PRS.
Where possible, we use our lending relationships to promote
good practice amongst our customers. The buy-to-let mortgage
division requires minimum standards from its landlord
customers in the properties we fund, helping to drive up
standards in the PRS for tenants and potential tenants.
As described in Section A6.4, we have products structured to
encourage customers to reduce their environmental impacts,
helping to drive action on climate change, and we continue to
develop our offerings in these areas, recognising the challenges
some of our customer groups face in progressing towards
net zero.
We also actively engage with industry and other external bodies,
particularly those focussed on climate change and diversity to
ensure best practice within the organisation. Details of some
of these initiatives are given in the people and environmental
impact sections of this report (Sections A6.3 and A6.4).
Industry initiatives
Through our activity with trade organisations in the UK, we are
helping to formulate public policy and share experience on best
practice to drive forward better financial provision. We have been
particularly active in initiatives to enable the PRS to serve the UK
housing market more effectively.
We also regularly engage directly with Government to help
inform departments on how market trends are impacting
landlords, their sentiment and behaviours. Nigel Terrington,
our CEO, has been a member of HM Treasury’s Home Finance
Forum, and takes an active role in engaging with regulators and
government on banking matters. He also acts as Chair of the
Mid-Tier Banking Group and, in that capacity, has represented
the industry before various parliamentary committees in the
year. During the year we have also been represented on the
Bank of England Residential Property Forum, which provides
input to policy at the highest levels. Other members of our
senior management have also given evidence to UK and Welsh
parliamentary committees during the year.
Membership of bodies such as UKF and the FLA enables us to
be part of shaping the future provision of financial services to the
benefit of the whole community. We play an active role in these
bodies, with representatives on working groups covering a range
of topics. Louisa Sedgwick, Managing Director – Mortgages is
currently a Deputy Chair of the Intermediary Mortgage Lenders
Association, while John Phillipou, the Managing Director of
our SME lending operation, currently serves as Chair of the
FLA. Their national profile in their respective industries was
recognised in the year with Louisa being named as ‘Business
Leader of the Year – Mortgages’ by the 2025 Credit Strategy
Leadership Awards and John receiving the Editor’s Choice
Award at the 2025 Leasing World Gold Awards.
Our Mortgage Lending business continues to work with
industry and government across a number of policy areas, most
notably the Renters’ Rights Act 2025 and MEES for privately
rented property. The business has engaged extensively on
the implementation of the Renters Rights Act to promote a
sustainable private rented sector that focuses on improved
standards, as well as balancing the interests of landlords and
tenants. Additionally, we have stressed the requirement for
pragmatic implementation of MEES to reflect the significant
work required to deliver the UK Government’s objectives and to
minimise disruption to the PRS.
We continue to work with B4NZ where the focus is on EPC
reform and the improvement of the usefulness and accuracy
of EPC data. We have supported UK Finance in the industry
response to the proposed MEES in the PRS, and the
consultations on UK sustainability reporting standards and
updated regulatory requirements in relation to management of
climate-related risks.
Through the Better Hiring Institute, Anne Barnett, our Chief
People Officer throughout the year, has worked with the All-Party
Parliamentary Group on Modernising Employment, enhancing
parliamentarians’ knowledge of employment issues, with reform
in this area a primary focus of the new UK Government.
We have also been active in industry diversity initiatives and
are represented in the Women in Property initiative and other
programmes described in Section A6.3.
Supporting charity
As part of our commitment to corporate citizenship we support
charity initiatives, both by making direct donations and also
by supporting the fundraising activities of the employee-led
Paragon Charity Committee. A designated member of our
executive committees, Deborah Bateman, the External Relations
Director and Chair of the Sustainability Committee, oversees
strategy in this area.
For direct donations, we focus on supporting organisations
serving the communities in which we operate, as well as the
fundraising efforts of individual employees. We also operate
a Give-As-You-Earn Scheme through payroll. Contributions
made in the year across these initiatives totalled £47,000
(2024: £42,000).
Charities which benefitted from donations included Hospice UK,
Lily Mae Foundation, Arrive Alive, Marie Curie, Pets as Therapy
and Kids in Action as well as many local sports clubs and
community groups.
Our Charity Committee consists of employees who give up
their own time to organise a variety of fundraising activities
throughout the year, with support from the business. All
employees are given the opportunity to nominate a ‘Charity
of the Year’ for each financial year, and a vote is carried out
amongst employees to select the charity to benefit from the
year’s fundraising activities.
During the year ended 30 September 2025, £59,000 was
raised for Guide Dogs, which helps people with sight loss live
the life they choose. The chosen charity for the year ending
30 September 2026 is Cardiac Risk in the Young (‘CRY’), with a
new year of fundraising already under way and more events
being planned across our locations.
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Community initiatives
We are involved in a number of initiatives within our local
communities, both on a corporate level and through our
employee volunteering programmes.
In 2025, our EDI Network led on Paragon’s sponsorship of the
inaugural Solihull Pride event, demonstrating our allyship with
the LGBTQIA+ community.
Employees are encouraged to undertake at least one paid
volunteering session each year as part of our sustainability
strategy. As a specialist lender, we are conscious of the potential
impact our operations may have on society and the environment.
Therefore, community volunteering opportunities have focussed
on supporting people experiencing poverty, providing educational
opportunities for children and young people and improving the
local environment. These have included initiatives building on
long-standing relationships with charities and schools.
Engagement in the volunteering programme across all our
locations has increased significantly this year, with the number
of volunteer sessions completed in the financial year totalling
513 (2024: 460).
Some examples of community projects supported are
highlighted below.
People experiencing poverty
St Basils is a charity which works with people aged 16 to 25
who are homeless or at risk of homelessness, helping almost
4,000 young people per year across the West Midlands.
19 of our people worked on projects to renovate and improve
accommodation sites across the region, including painting and
decorating, gardening and site clearance.
The Children’s Book Project is a nationwide charity which
redistributes thousands of new and gently used books to children
and their families across the UK. During the year, 26 employees
gave their time to organise, sort and pack books for delivery to
children and families with a high level of financial need.
For Christmas 2024, employees again donated food and luxury
items to Age UK, in what has become a festive tradition. 54
hampers of festive food and gifts were donated to families in
need across the West Midlands.
Educational opportunities
Working with schools. In total 94 employees supported careers
fairs, work experience events and education initiatives including
interview skills preparation. We worked with schools and colleges
local to our Solihull head office, including Arden Academy,
Alderbrook School and Solihull Sixth Form College, whilst
supporting schools across the West Midlands, including Colmers
School and Small Heath Academy, with activities ranging from
careers days, financial literacy skills sessions, workshops and
mentoring sessions.
Support has also been provided to help improve the outdoor
wildlife areas for Cheswick Green Primary School, Heronswood
Primary School and Evergreen School.
Enhancing employability. Our strategy focussed on bridging
the gap between education and employment, with a focus on
supporting young people from under-represented groups. This
includes a partnership with Future First, a charity which aims to
improve social mobility in the UK. Our input centred on working
with King Edward VI Sheldon Heath Academy in Birmingham,
creating opportunities for mixed-ability year 10 students
through an insights day, as well as supporting the academy’s
volunteer and alumni network and participating in a virtual
mentoring campaign.
These initiatives are intended to break down barriers which
might unfairly exclude young people from Black, Asian and
ethnic minority groups, as well as those young people from lower
socio-economic backgrounds or those with additional needs.
This year, we partnered with Tech She Can, an initiative set up
to inspire and educate girls and women to study technology
subjects and pursue technology careers. Much of its work is
focussed on schools where there is a high proportion of students
from lower socio-economic backgrounds. This involved hosting
a group of year nine students from Coundon Court School in
Coventry at a careers insight day at our head office. People from
across the business spent the day with students, helping to
break down stereotypes and showcase the creativity and impact
that tech careers can offer, with sessions covering marketing,
sustainability and technology trends.
Environmental benefits
Oasis Mental Health Support is a Solihull-based charity which
provides emotional and therapeutic support for local residents.
This year, 71 employees volunteered their services at the
charity’s horticulture and conservation project in Knowle, helping
to maintain the facilities for users to be able to enjoy the wildlife
meadow, ponds and woodland area.
Thrive uses gardening to bring about positive changes in the
lives of people living with disabilities or ill health, or who are
isolated, disadvantaged or vulnerable. This year 11 of our
London-based people worked on a gardening project at
Battersea Park.
Spencer’s Retreat is a countryside care farm on the outskirts
of Solihull, which is part of The Langdale Trust. The farm is a fun,
safe and understanding environment for children with special
needs and their families and, this year, 25 employees gave their
time to help maintain the farm area for users.
Newlife undertakes de-labelling activities to recycle clothing,
allowing them to sell items in their stores. Clothing recycling
prevents items from going to landfill where they contribute
to pollution. In total, 11 employees volunteered at the Newlife
warehouse in Cannock.
Other projects
Other projects supported include the Midlands Air Ambulance,
which provides pre-hospital care and lifesaving intervention
through the operation of helicopter-led emergency medical
services, and Naomi House and Jacksplace, which provide
hospice care to life limited and life threatened children and
young adults across central southern England. 38 employees
volunteered at Wythall Animal Sanctuary which cares for sick,
injured or orphaned wildlife, while 18 employees volunteered
their time to support St Richard’s Hospice in Worcester.
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Strategic Report
Taxation policy and payments
Our tax strategy is to comply with all relevant tax obligations
whilst co-operating fully with the tax authorities. We recognise
that in generating profits which can be distributed to
shareholders the business benefits from resources provided by
government and the payment of tax is a contribution towards the
cost of those resources. We will only undertake such tax planning
as supports commercial activities and, in the UK context, is not
contrary to the intention of Parliament.
As a group containing a bank, we are subject to The Code of
Practice on Taxation for Banks (the ‘Bank Tax Code’) published
by His Majesty’s Revenue and Customs (‘HMRC’) in March
2013. We have previously confirmed to HMRC that we are
unconditionally committed to complying with the Bank Tax Code,
and formally re-approved the tax governance policies and the tax
strategy outlined above.
During each financial year since 2018 a tax strategy document
for that period, approved by the Board of Directors, has been
published on the Group’s corporate website, in accordance
with the Finance Act 2016. These documents address the
following matters:
• our approach to risk management and governance
arrangements in relation to UK taxation
• our attitude towards tax planning (so far as affecting
UK taxation)
• the level of risk in relation to UK taxation that we are prepared
to accept
• our approach towards our dealings with HMRC
The most recent such statement was published during the year
and can be found in the Investor Relations section of our website
in ‘Results, Reports and Presentations’.
The published tax strategy is owned by the Board collectively
in accordance with HMRC’s published expectations. The CFO
has been designated as the Senior Accounting Officer for tax
purposes and, as such, reviews compliance with our policies
each year and certifies the appropriateness of our tax accounting
arrangements to HMRC.
We have an open and positive relationship with HMRC, meeting
with their representatives on a regular basis, and are committed
to full disclosure and transparency in all matters.
The Group is resident and operates in the UK and generates
revenues for the UK authorities both through corporation tax and
other taxes directly borne, but also through substantial payroll
taxes. Materially all our taxable income arises in the UK, and we
have no presence in the tax jurisdictions generally considered to
enable tax base erosion and profit shifting (‘BEPS’).
Taxes borne directly include UK corporation tax on profits,
including the Banking Surcharge, and payroll-based taxes,
including employers National Insurance (‘NI’) contributions
and Apprenticeship Levy payments. In addition, as a financial
institution, we are unable to recover the majority of the
VAT charged by suppliers and this represents a cost of
doing business.
Taxes collected on behalf of HMRC include payroll
deductions from our employees, in the form of PAYE and
employees NI contributions and VAT relating to certain
income from customers.
The amounts borne and collected during the period were
as follows.
2025 2025 2024 2024
£m £m £m £m
Taxes borne directly
UK Taxation
Corporation tax 69.7 70.2
Employers’ payroll taxes 13.1 12.2
Economic crime levy 0.6 0.1
Irrecoverable VAT and other
indirect taxes
7.5 6.7
Stamp duty 0.8 -
Total UK national taxation 91.7 89.2
Local taxation
Business rates 2.0 1.8
93.7 91.0
Taxes collected
Employees' payroll taxes 31.4 30.7
VAT (0.7) 0.4
30.7 31.1
124.4 122.1
The net repayment of VAT in the year arose predominantly
because the VAT recoverable at the inception of new operating
and finance leases in the SME lending business, exceeded
the VAT payable on the periodic rentals received under such
contracts, essentially representing a timing difference.
Overall, the tax borne and that collected on behalf of the
UK Government demonstrates the economic activity of our
business, its contribution to the UK economy and state and the
value added to society more broadly.
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A6.6 Human rights
We remain committed to respecting human rights across
all areas of our operations. This commitment is deeply rooted
in our corporate purpose and values and is actively upheld
through our established policies, governance frameworks
and ethical standards.
We place particular emphasis on rights relating to
non-discrimination, fair treatment and respect for
privacy—recognising their relevance and potential impact on
our key stakeholder groups: customers, employees and
suppliers. These principles are embedded in our culture and
reflected in our Code of Conduct, guiding behaviour and
decision-making across the whole of our operations.
We operate exclusively within the UK and are therefore subject
to the Human Rights Act 1998, which incorporates the European
Convention on Human Rights into UK law. We recognise
the broad influence of this legislation on the UK’s legal and
regulatory landscape and have systems in place to ensure our
policies and procedures remain fully aligned with all applicable
legal requirements. This enables us to proactively identify and
respond to emerging human rights obligations, ensuring our
operations continue to reflect best practice and uphold the
highest standards of ethical conduct.
The Board and CEO have overarching responsibility for our
human rights framework, ensuring that policies and practices
are aligned with recognised standards, providing active oversight
across all relevant areas. We adopt a proactive approach to
identifying, preventing and mitigating human rights risks, while
seeking to enhance positive impacts through strong governance
and operational discipline. This commitment is embedded in key
areas, including employment practices, equality and diversity,
the FCA Consumer Duty, and information security.
We remain steadfast in our commitment to upholding human
rights and eliminating modern slavery across our operations
and supply chains. Through robust due diligence frameworks,
enhanced transparency, and meaningful engagement with
employees, partners and communities, we continue to identify
and address human rights risks. This approach reflects our belief
that the protection of human rights is a shared responsibility.
One which is embedded across all levels of our organisation
and central to our commitment to ethical leadership and
continuous improvement.
Our approach to responsible business conduct is underpinned
by a comprehensive set of policies, procedures and frameworks
that promote and safeguard human rights across all levels of the
organisation. These are developed and approved through formal
governance structures, ensuring accountability and alignment
with regulatory and ethical standards.
These policies ensure that employees and business partners
operate in accordance with UK legislation and regulatory
requirements, promoting best practice across our operations.
They are regularly reviewed by the relevant business areas,
approved in accordance with governance procedures, and
communicated to all employees to support consistent
understanding and compliance.
Compliance with human rights legislation is an integral part
of our broader compliance framework. Any breaches are
taken seriously and addressed through our established risk
management processes, and where appropriate, escalated
through our disciplinary procedures to ensure accountability.
Our commitment to supporting our people’s
employment rights is described in Section A6.3
We are committed to upholding the principles of the Modern
Slavery Act 2015 and fully support its objective to raise
awareness and prevent all forms of modern slavery and human
trafficking. We take a zero-tolerance approach to exploitation
and embed this commitment across our operations and supply
chains, applying a robust, risk-based framework to supplier
engagement, ensuring our operations and supply chains
remain free from such practices. This approach reflects our
commitment to ethical business practices and compliance with
the Modern Slavery Act 2015.
Our expectations are clearly defined in our internal policies
and Supplier Code of Conduct, which set out the standards
we require from all third-party partners. Through ongoing due
diligence and monitoring, we work collaboratively with suppliers
to uphold integrity, transparency and accountability across our
business relationships.
Our annual Modern Slavery and Human Trafficking Statement
outlines our approach and is available on our corporate website
at www.paragonbankinggroup.co.uk.
We conduct extensive monitoring of policy implementation and
are not aware of any incidents involving human rights abuses
or breaches of Modern Slavery legislation as a result of the
organisation’s activities. No fines or prosecutions in respect
of non-compliance with human rights legislation, including
Modern Slavery legislation, have been incurred in the financial
year (2024: none).
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Strategic Report
A6.7 Business practices
Our approach to doing business is set out in our Code of
Conduct, which draws together a framework of detailed policies.
All employees are expected to read and attest to the code on
an annual basis, and we provide training to ensure the code is
fully understood.
The code covers obligations to colleagues and customers
and compliance with the legal, regulatory and ethical aspects
of the way people discharge their individual roles within the
organisation. The Code of Conduct is publicly available on our
corporate website at www.paragonbankinggroup.co.uk.
Business partners
Our business model relies on maintaining good relationships
with our principal business partners, primarily financial
intermediaries, such as mortgage brokers and purchase
ledger suppliers, including those for establishment costs and
professional services.
A commitment to the fair treatment of all suppliers is central to
our approach. In return, we expect suppliers to help deliver a
high standard of service to our customers and act responsibly.
Our Supplier Code of Conduct sets out our overall approach
to supplier engagement and corporate responsibility and,
importantly, the standards of behaviour expected from suppliers.
The code is periodically reviewed and updated to ensure
alignment with current requirements and is available on our
corporate website (www.paragonbankinggroup.co.uk).
We place great importance on positive supplier relationships,
both with intermediaries and with our suppliers of goods
and services. Major suppliers have strong relationships with
the relevant areas of the business, but we also recognise
the importance of smaller providers. During 2025 we have
conducted a programme of training for our supplier relationship
managers in order to ensure that the principles of our supplier
management policy and processes continue to be understood
and embedded within the group.
Sustainability matters such as employment practices,
environmental impacts and procedures to ensure compliance
with laws and regulations, remain a focus to ensure these align
with our expectations and values. Our purchasing process
now collects this data as part of the due diligence process at
onboarding for significant suppliers, and it is intended that data
held is validated from time to time on a continuing basis.
The Supplier Code of Conduct also includes our conduct
commitments and our expectations of business partners
in relation to bribery and corruption, data protection and
modern slavery. It contains important information concerning
employment practices, approach to health and safety,
community matters and environmental policies.
The only significant outsourcing arrangements used in the year
relate to:
• the administration of savings operations by the outsourcing
arm of a major UK building society
• third-party (‘cloud-based’) hosting of IT systems by a
leading supplier
• provision of IT systems for payment processing by a leading
business in this field
• provision of the hosted administration platform for our invoice
finance business by an industry specialist
All these activities take place within the UK and all data
remains onshore.
When outsourcing activities, we retain responsibility for those
services and the associated risks. We remain focussed on
meeting regulatory requirements under the PRA Supervisory
Statement on Outsourcing and Third Party Risk Management
(SS2/21) which, inter alia, incorporates the European Banking
Authority’s Guidelines on outsourcing into UK regulation. Our
alignment with these requirements strengthens resilience
throughout the supply chain.
Our aim is to pay all our suppliers within 30 days of receiving
a valid invoice, where correct procedures are followed, and
we actively engage with suppliers if issues arise. To support
suppliers in avoiding such issues, invoicing guidance is
published on our website.
We are a signatory to the UK’s Fair Payment Code (‘FPC’),
administered by the Office of the Small Business Commissioner
and as such commit to paying 95% of all invoices within 60 days,
unless there is good reason for non-payment.
Our central administration company, Paragon Finance PLC,
reports its payment performance semi-annually under the
‘Reporting on Payment Practices and Performance Regulations
2017’. Data for the six-month reporting periods ended
30 September in the three most recent years, calculated on
the basis set out in the regulations, is shown below.
Six months ended 30 September
2025 2024 2023
Average time to pay invoices (days) 19 22 21
Invoices paid within 60 days 97% 95% 94%
Sensitive business sectors
As part of our resilient model for sustainable finance, we identify
sectors that are misaligned with our sustainability strategy and
to which we prohibit direct lending. We will continue to reflect on
and challenge those sectors to ensure that they remain relevant
and aligned with delivering a just transition.
Anti-corruption
We carry out business fairly, honestly and openly. Our
comprehensive anti-bribery and anti-corruption policy, endorsed
by the directors, forms part of our Code of Conduct. These
policies cover all employees and are operated throughout the
business. We will not make or accept bribes, nor will we condone
the offering or receiving of bribes on our behalf. We will always
avoid doing business with those who do not accept our values
and who may harm the reputation of our businesses.
An annual bribery risk assessment is carried out, as required by
the Bribery Act 2010 and continues to conclude that the Group
is not a company with a high risk of bribery. We conduct all our
business within the UK and all significant outsourced operations
also take place within the country. The UK is not considered a
jurisdiction with a high incidence of corrupt practices, ranking
twentieth safest out of 180 countries and territories in the
Corruption Perceptions Index for 2024, the most recent to be
published. However, we take our responsibilities seriously and
do not tolerate bribery in any form, on any scale and therefore
keep policies and procedures under regular review. We have
committed to self-reporting any identified serious incident of
bribery or corruption.
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Group policies cover the conduct of our business, interaction
with suppliers and contractors and the giving or receiving of gifts
and corporate hospitality. They prohibit facilitation payments.
Before new suppliers are approved, our procedures require that
they must be assessed against our anti-bribery and corruption
policy standard, which is a key document within our suite of risk
policies. This policy standard is updated, and a risk assessment
conducted, on an annual basis.
All employees are required to read the anti-bribery and
corruption policy standard and undertake annual on-line
training to assess their understanding. The anti-bribery culture
forms part of the induction course for all new employees and is
reinforced at subsequent training sessions. Any employee found
to be in breach of these policies will be subject to disciplinary
action. No such disciplinary action has taken place in the year
ended 30 September 2025.
The Head of Financial Crime Risk, who also holds the Money
Laundering Reporting Officer (‘MLRO’) responsibility for
the Group, is responsible for ensuring the Bribery Act risk
assessment and resulting policies and procedures are in place
and reviewed on a regular basis. This role is part of the ‘second
line’ Risk and Compliance function and reports to the CRO.
They are also responsible for ensuring any changes in the law
are noted and applied to our policies and procedures, where
appropriate. In the last year there have been no material changes
in legislation or guidance in the UK.
The Group has not been involved in any incidents resulting
in prosecutions, fines or penalties, or in similar incidents of
non-compliance in respect of bribery, corruption or other illegal
business practices (2024: none).
Anti-money laundering and financial crime
As a financial services entity, we also have procedures in place
to ensure that our business cannot be used to facilitate money
laundering, sanctions abuse or other forms of financial crime.
These are consistently reviewed to ensure they remain robust.
We continue to monitor the increasing complexity of financial
crime risk, regulatory enforcement action and any potential
or actual changes to the legislative framework to manage the
emerging threats.
We are covered by the UK Market Abuse Regulation (‘MAR’)
which contains prohibitions of insider dealing, unlawful
disclosure of inside information and market manipulation, and
provisions to prevent and detect these. Our internal policies,
including the group-wide dealing policy, ensure that any inside
information is properly identified and controlled, and that any
employee or third party in possession of such information is
identified and monitored. The identification of inside information
is supervised by the Disclosure Committee, a committee of the
Board of Directors (Section B4.1).
Employees receive regular annual training in these areas, with
their understanding being tested and levels of completion
monitored through the governance framework and reported to
regulators where appropriate.
Management responsibility
Our senior legal officer is the General Counsel, Marius van
Niekerk, who is a member of the executive committees and
attends meetings of the Board. The CRO, Ben Whibley, has
overall responsibility for the risk and compliance functions.
He is also a member of the executive committees and reports
directly to the Risk and Compliance Committee of the Board
(see Section B8).
All business heads are responsible for having the appropriate
controls in place in their areas to ensure that employees adhere
to our anti-money laundering, anti-bribery and anti-corruption
policies and procedures and other policies relating to business
practices at all times. This is monitored as part of our risk
management process and reviewed, as appropriate, by the
Internal Audit function.
Whistleblowing
A whistleblowing hotline, run by an independent third party,
Protect, is available to employees who have concerns over any
aspects of our business practices. This is described further in
Section B4.6.
Page 93
Strategic Report
Section A of this Annual Report comprises a Strategic Report
for the Group. The information on how the directors have
discharged their duties under s172 of the Companies Act 2006
included in Section B4.3 of the corporate governance report is
also included in this strategic report by reference.
This Strategic Report has been drawn up and presented in
accordance with, and in reliance upon, applicable English
company law, in particular Chapter 4A of the Companies Act
2006, and the liabilities of the directors in connection with
this report shall be subject to the limitations and restrictions
provided by such law.
It should be noted that the Strategic Report has been prepared
for the Group as a whole, and therefore gives greater emphasis
to those matters which are significant to the Company and its
subsidiaries when viewed as a whole.
Approved by the Board of Directors and signed on behalf of
the Board.
Marius van Niekerk
General Counsel and Company Secretary
3 December 2025
A7. Approval of Strategic Report
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Corporate
Governance
How we run our business and how risk is managed
B1. Chair of the Board’s statement
An overview of governance in the year
B2. Corporate Governance statement
How the Company complied with the Code in the year
B4. Governance framework
The system of governance, committee structure and how the Board fulfils its duties
B7. Remuneration Committee
Policies and procedures determining how directors are remunerated
B8. Risk management
How we identify and manage risk in our businesses
B9. Directors’ report
Other information about the structure of the Company required by legislation
B10. Directors’ responsibilities
Statement of the responsibilities of the directors in relation to the preparation of the
financial statements
B3. Board and senior management
The directors and the operation of the Board during the year
B6. Audit Committee
How we control our external and internal audit processes and our financial reporting systems
B5. Nomination Committee
Policies and procedures on governance, board appointments and diversity
PROFESSIONALISM | Olly
B1. Chair’s statement on
corporate governance
Dear Shareholder
This section of the Annual
Report describes our
approach to corporate
governance, together
with the activities of
the Board and its
committees in the
year, including the
most significant
issues we have
considered. We
also explain how
we comply with
the UK Corporate
Governance Code
and address
stakeholder
expectations as to
how a business like
ours should be run.
The year has been
largely stable for
our businesses
and for the Board
itself. As a business,
we have continued
to execute the
strategy previously
set out for you in
annual reports. We
have done so against
a UK economic
environment which
has been little changed
across the year,
although the potential
for headwinds from
UK Government policy
and international
events remains.
Governance of our
digitalisation programme
was a particular focus for
your Board in the year, with
the completion of two major
developments. The launch of our
Spring savings proposition and the
new origination platform introduced
in our buy-to-let mortgage operation
were both significant milestones.
Ensuring that these were effectively
completed in a risk-controlled manner
was an important priority.
The potential impacts of the financial and
other policies of the UK Government elected in
2024, were also a significant area for discussion
in the Board during the year. Initiatives already
enacted or in process will impact directly on our
operations and businesses, or those of our customers,
while a wider universal impact on the UK economy, can
also be expected.
Page 96
In common with much of the financial services industry, we
have spent considerable time monitoring the implications
of the ongoing issues surrounding liabilities in respect of
historical motor finance commission practices. This situation
developed significantly in the year and has financial, operational,
conduct and risk implications for our business. Given the FCA’s
publication of proposals in October, we hope that these matters
can be resolved quickly, in a way which is both proportionate and
equitable for all parties involved.
The PRA process to transition the UK to Basel 3.1 capital rules
continued to move towards finalisation in the year, and the Board
kept developments under review, alongside progress on our own
IRB application. We remained confident in our capital position.
In the field of corporate governance and audit regulation, however,
progress has been less swift and the expected proposals for
the reform of the FRC and other related changes have not been
forthcoming from the UK Government. I hope that when they
are published, they continue the measured and proportionate
approach which has historically typified the UK regime.
The Board appreciates the value which our corporate
governance framework brings to the activities of the business
and the discipline which the UK corporate governance
framework has instilled over time. We always seek to comply
with the Code, in a way that is proportionate and relevant to
our activities. The new edition of the Code applies to the Group
from 1 October 2025, excepting some provisions, and we are
confident that we are in a strong position to remain compliant
under the new provisions.
The remaining provisions of the 2024 Code, which relate to
risk management and control, and which apply to us from
1 October 2026 are being addressed through an ongoing
project, led by our Risk division. The flexibility which the new
Code gives to boards to design systems of governance, risk
management and control which are specific to their operations
is very welcome and the work done to date indicates that the
risk management framework we already have in place addresses
many of its requirements.
In common with other entities in the regulated financial services
sectors, the disciplines of governance and risk management are
well established in our business. This should make transition to
the final provisions of the 2024 Code smoother than for some
other sectors, and we expect to have completed our work by the
required deadline.
Engagement
The Board values feedback from investors and other
stakeholders and I was pleased to note the high level of
shareholder support for the resolutions proposed at the
2025 AGM. I also value the feedback received from investors
and their representatives in the run-up to that meeting. We take
careful note of the analysis provided and would encourage all
shareholders to engage in this process.
I have also been pleased to have had the opportunity of meeting a
number of shareholders during the year. These conversations allow
me to share investor insights and priorities with the Board and
enable us to include these in our considerations of group strategy.
I would like to thank those stakeholders who made time to meet
with us and would encourage all stakeholders to take advantage of
opportunities for dialogue when they arise in the future.
Included with this annual report and accounts (in Section B7.2) is
the revised directors remuneration policy which will be proposed
for your approval at the 2026 AGM. This reflects changes in
regulatory requirements and shareholder expectations since
the current policy was approved three years ago. The proposed
policy was developed through interactions with expert advisers,
shareholders, proxy agencies and other representatives, and while
it can never be possible to adopt all suggestions made, we trust
that shareholders will find that their voices have been listened to
and feel able to support the proposals.
Members of the Board have continued to attend some of the
meetings of our People Forum, and value the insights provided
on many operational and strategic matters. I have also continued
to spend time with employees in many areas of the business, and
I thank them for their time and valuable input.
Inclusion
During the year we have continued to be encouraged by the
development of the EDI network and our wider inclusion
and diversity strategy. Our strategy requires continuous
development of products, people and processes and that cannot
be achieved without diversity of thought and outlook at all levels.
I am pleased to report that we have achieved our phase 2
target under the FTSE Women Leaders initiative ahead of our
December 2025 deadline. Over 40% of senior management roles
are now held by women, and we also continue to make progress
against our Parker Review commitments in respect of ethnic
minority representation.
We continue to monitor developments in this area, particularly
as the UK Government has signalled the likelihood of further
intervention. We hope that any proposals will be proportionate
and will help to support industry, regulatory and other initiatives
already in place.
Board and committee membership
During the year we carried out an internal board performance
review. I was pleased with the progress made, and with the
conclusion that the Board continued to perform effectively.
Next year’s performance review will be externally facilitated, in
line with best practice.
Board membership was stable in the period, with no changes
in responsibilities. However, Hugo Tudor, a non-independent,
non-executive director has indicated his wish to stand down from
the Board at the conclusion of the forthcoming AGM, having
completed eleven years’ service since he joined the Board in 2014.
I would like to extend my thanks to Hugo for his contribution
to the Group’s governance as a director, Senior Independent
Director and Chair of the Remuneration Committee, over a
period which covers almost the entire life of Paragon Bank, and
which saw significant expansions in the Commercial Lending
space. His expertise and counsel will be missed.
With two of my fellow directors approaching the Code’s
recommended nine-year term limit during 2026, board
succession will form an important focus for us over the coming
twelve months, both as part of the board performance review
process and more widely. I look forward to updating shareholders
on this process in future communications.
Conclusion
I am confident that not only has the Board complied with
the provisions of the Code and its other legal and regulatory
obligations, but that it has successfully discharged its
responsibilities to ensure the good governance of our operations
and the safeguarding of all our stakeholders’ interests. I invite
shareholders to join us on 4 March 2026 in London for our
Annual General Meeting, where there will be an opportunity to
put questions to the Board. I hope to see as many shareholders
as possible in attendance.
Robert East
Chair of the Board
3 December 2025
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Corporate Governance
Page 98
B2. Corporate Governance Statement
The Board is committed to the principles of corporate governance contained in the UK Corporate Governance Code issued by the
FRC in July 2018 (the ‘Code’). The Code is publicly available on the FRC website at www.frc.org.uk.
Throughout the year ended 30 September 2025, the Company complied with the principles and provisions of the Code.
An updated version of the Code was published by the FRC in January 2024 (the ‘2024 Code’). Almost all the provisions of the
2024 Code will apply to the Company from its financial year ending 30 September 2026, and work has taken place in the year to
ensure that it was in a position to comply with these elements from 1 October 2025.
The remaining amendment to the Code, relating to Provision 29 which addresses risk management and controls, applies to the Group
from its financial year ending 30 September 2027 and work continues on the implementation of this provision.
The table below cross-references the individual Code Principles to the sections of this report which explain how they have been
applied in our corporate governance structure.
Section 1: Board Leadership and Company Purpose
A. The Company is led by an effective and entrepreneurial board, who promote the long-term
sustainable success of the Company, generating shareholder value and contributing to
wider society
B3
B. The Company’s purpose, values and strategy, which align with its culture, have been established
and are promoted by the Board
B4.2
C. The Board ensures that necessary resources are in place for the Company to meet its objectives
and measure performance and has established a framework of effective controls, which enables
risk to be assessed and managed
B8
D. The Board ensures effective engagement with stakeholders and encourages their participation B4.3
E. The Board ensures that workforce policies and practices are consistent with the Company’s
values and support its long-term sustainable success. The workforce should be able to raise any
matters of concern
B4.3 and B4.6
Section 2: Division of Responsibilities
F. The Chair is objective and leads the Board effectively, facilitating constructive relations and
effective contribution from non-executive directors
B4.1
G. The Board includes an appropriate combination of executive and non-executive directors, with a
clear division of responsibilities
B4.1
H. Non-executive directors have sufficient time to meet their board responsibilities. They provide
constructive challenge, strategic guidance, offer specialist advice and hold management to
account
B4.2
I. The Board, supported by the Company Secretary, has the policies, processes, information, time
and resources required to function effectively and efficiently
B4.1
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Corporate Governance
Section 3: Composition, Succession and Evaluation
J. Appointments to the Board are subject to a formal, rigorous and transparent procedure, and
an effective succession plan is in place for Board and senior management. Appointments and
succession plans are based on merit and objective criteria and promote diversity
B5
K. There is an appropriate mix of skills, experience and knowledge. Tenure and membership of the
Board and its committees are regularly reviewed
B5
L. The annual board evaluation provides an opportunity for the directors to consider their collective
and individual effectiveness and decide where there are areas for improvement
B4.4
Section 4: Audit, Risk and Internal Control
M.
The policies and procedures, established by the Board, ensure the independence and
effectiveness of internal and external audit functions. The Board has satisfied itself of the integrity
of financial and narrative statements
B6
N. The Board presents a fair, balanced and understandable assessment of the Company’s position
and prospects
B6
O. The Board has established procedures to manage risk, oversee the internal control framework
and determine the principal risks the Company is willing to take in order to achieve its long-term
strategic objectives
B8
Section 5: Remuneration
P.
Remuneration policies and practices support strategy and promote long-term sustainable
success. Executive remuneration is aligned to the Company’s purpose, values and successful
delivery of long-term strategy
B7
Q. A formal and transparent procedure has been established to develop policy and determine
director and senior management remuneration. No director is involved in deciding their own
remuneration outcome
B7
R. The directors exercise independent judgement and discretion over remuneration outcomes,
taking account of company and individual performance and wider circumstances
B7
* All directors have a broad knowledge of our business, but the ‘areas of expertise’ highlight specific areas in relation to an individual’s contribution to its long-term sustainable success
B3.1 Board of Directors
Members of the Board of Directors at the date of approval of the Annual Report are set out below.
Key
Committee memberships at 30 September 2025 are indicated as follows.
Nomination
Committee
Audit
Committee
Remuneration
Committee
Risk and Compliance
Committee
Disclosure
Committee
Appointed to the Board as
independent non-executive Chair of
the Board in 2022.
Experience
Robert has over 40 years’ experience
in UK financial services, including at
board level, as CEO and Chair.
During his executive career he held
senior roles at Barclays. He was also
CEO of Cattles, where he led the
restructuring and wind down of its
operations from 2010 to 2016.
He has held positions as Chair of
Vanquis Bank, Skipton Building
Society and Hampshire Trust Bank.
He has previously served as a non-
executive director on the boards of
Provident Financial Group, Skipton
Building Society and Hampshire Trust
Bank, where he was also Chair of the
Risk Committee.
Robert holds a Diploma in Financial
Studies (DipFS) from the London
Institute of Banking and Finance and is
an associate of the Chartered Institute
of Bankers (‘CIB’).
Specific areas of expertise*
• Strong track record of leading
and chairing financial services
businesses
• Extensive experience in, and
understanding of, banking and the
financial services sector
• Significant experience of leading
transformational change
Current external appointments
Director of RCWJ Limited
Robert D East
Chair of the Board
Nomination Committee Chair
B3. Board of Directors and
senior management
Page 100
Appointed to the Board as Treasury
Director in 1990, became Finance
Director in 1992 and CEO in 1995.
Experience
Nigel’s early career began in
investment banking, which included
working for UBS, where he ran its
Financial Institutions Group. He joined
Paragon in 1987, becoming Treasurer
shortly thereafter, before being
appointed as Finance Director and
then Chief Executive.
Nigel takes an active role in engaging
with regulators and government on
banking matters, particularly those
which impact the UK mid-tier banking
community. He was previously a
member of HM Treasury’s Home
Finance Forum and a member of
the Bank of England Residential
Property Forum.
Until September 2023, Nigel was a
member of the Board of UK Finance,
having previously served as Chair of
UK Finance’s Specialist Bank Advisory
Committee, Chair of the Council of
Mortgage Lenders (‘CML’), Chair of
the Intermediary Mortgage Lenders
Association (‘IMLA’), Chair of the FLA
Consumer Finance Division and a
board member of the FLA.
He is an associate of the CIB and in
2017 received an Honorary Doctorate
from Birmingham City University for
services to the finance industry.
Specific areas of expertise*
• Strategic and detailed
understanding of banking and
of our business, its markets, its
operations and its people
• Leadership of Paragon’s
diversification from a monoline
buy-to-let lender to a broad-based
specialist banking group
• Long-term, through-the-cycle
expertise, including successful
management of the business
through the 1992 and 2007
financial crises
Current external appointments
Trustee of Banking on Barnardo’s
Committee
Nigel S Terrington
Chief Executive Officer
Appointed to the Board
as Director of Corporate
Development in 2012 and became
CFO in June 2014.
Experience
Richard joined the business in
1989 and has held various senior
strategic and financial roles,
including Director of Business
Analysis and Planning, and
Managing Director of
Idem Capital.
He has taken a lead role in
strategic development and, in
particular, in the loan portfolio
acquisition programme through
Idem Capital and the Group’s
Mergers and Acquisitions (‘M&A’)
programme.
He is a member of the Chartered
Institute of Management
Accountants.
Specific areas of expertise*
• Broad expertise gained from
long-term, through-the-cycle,
knowledge and understanding
of our business, its markets
and its operations, in particular
its financial management
controls and reporting,
liquidity, stress testing and
capital management
• Executive director responsible
for climate change matters
and, alongside the Group’s
CRO, Richard takes a lead on
progressing Paragon’s IRB
accreditation
Current external appointments
Director of Woodman Portfolio
Holdings Limited
Director of Rose Wine Limited
Director of Chalet Woodman
S.à r.l.
Richard J Woodman
Chief Financial Officer
Appointed in 2020 – five years served
Senior Independent Director since
August 2023.
Experience
Alison is a chartered accountant
and was a partner in PwC’s financial
services audit practice until the end
of 2019.
She joined PwC in 1982 and spent
her career with the organisation
in a range of internal and external
audit roles across asset and wealth
management, as well as banking and
capital markets.
She led audit projects for a range
of banking clients, as well as other
companies across the FTSE-100
and FTSE-250 and held a number
of leadership roles within PwC,
including sitting on the executive
management team which led their
audit practice.
Alison was a non-executive director
of M&G Group Limited, where she
was also audit committee chair, M&G
Investment Management Limited
and M&G Alternatives Investment
Management Limited, all companies
within the M&G PLC group.
Specific areas of expertise*
• Recent and relevant experience of
the financial services sector
• Detailed and specialist knowledge
of accounting and auditing
practice as well as of the audit
market and accounting regulations
Current external appointments
Non-executive director of Sabre
Insurance Group PLC and Sabre
Insurance Company Limited, and
chair of the Sabre Insurance Group
audit committee.
Non-executive director of Quilter PLC
and its subsidiaries, Quilter Life &
Pensions Limited, Quilter Investment
Platform Limited and Quilter Financial
Planning Limited, and member
of the Quilter plc audit, risk and
remuneration committees. On
1 October 2025, after the year end,
she was appointed chair of the
Quilter PLC audit committee
and joined its governance and
nominations committee as a member.
Alison C M Morris
Non-executive director
Audit Committee Chair
* All directors have a broad knowledge of our business, but the ‘areas of expertise’ highlight specific areas in relation
to an individual’s contribution to its long-term sustainable success
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Corporate Governance
Appointed in 2020 – five years served.
Experience
Peter’s career in financial services has
spanned over forty years, including
eight years as CEO of Leeds Building
Society between 2011 and 2019, where
he previously held the role
of Operations Director.
He is Chair of Mortgage Brain Holdings
Limited and was a non-executive
director and Chair of the Risk
Committee at Pure Retirement from
2019 until 2022.
He was chair of the CML for three
years and was a member of the
Board of UK Finance.
Peter is a fellow of the Royal Society
of Arts and an associate of the CIB.
Specific areas of expertise*
• Specialist retail banking and
mortgage lending expertise
• Detailed knowledge of the financial
services sector
Current external appointments
Chair of Mortgage Brain
Holdings Limited
Director / trustee, secretary,
treasurer and chair of the finance and
governance committee of Leeds
Rugby Foundation
Director, secretary, deputy chair and
treasurer of Leeds Rugby Foundation
Services Limited
Appointed in 2017 – eight years served.
Experience
Barbara has worked in finance for
most of her career, in New York,
London and Paris at the Federal
Reserve Bank of New York, Standard
& Poor’s and JPMorgan.
She was instrumental in the
development of UK mortgage
securitisation in the late 1980s and
went on to lead the Standard & Poor’s
Ratings Group in Europe, the Middle
East and Africa.
Barbara is currently a non-executive
director of ORX in Switzerland, a
trade association for non-financial
operational risk professionals
(including cyber risk), and a director of
ORX UK Limited. She was previously
a non-executive director of Open
Banking Limited and Change
Banking Limited.
Specific areas of expertise*
• Strong knowledge of the operation
and implementation of operational
risk management systems
• Detailed knowledge of the
securitisation market
Current external appointments
Non-executive director of ORX in
Switzerland and director of ORX
UK Limited
Chair of the Ethical Investment
Advisory Group of the Church
of England
Member of the International
Advisory Council of the Institute of
Business Ethics
Appointed in 2014 – eleven years
served
Senior Independent Director between
July 2020 and August 2023
Hugo was deemed to be a non-
independent non-executive director
from the close of the 2024 AGM.
Experience
Hugo spent 26 years in the fund
management industry, originally with
Schroders and most recently with
BlackRock, covering a wide range
of UK equities.
He is a Chartered Financial Analyst and
a Chartered Accountant.
Specific areas of expertise*
• Detailed knowledge of the investor
perspective
• A strong understanding of the
executive remuneration market
Current external appointments
Director of Damus Capital Limited
Director of Porthcothan
Property Limited
Director of Sevenoaks Vine
Cricket Club Limited
Director of Vitec Global Limited,
Vitec Air Systems Limited and Vitec
Aspida Limited
Peter A Hill
Non-executive director
Risk and Compliance
Committee Chair
Barbara A Ridpath
Non-executive director
Hugo R Tudor
Non-independent non-executive
director
* All directors have a broad knowledge of our business, but the ‘areas of expertise’ highlight specific areas in relation to an individual’s contribution to its long-term sustainable success
Page 102
Appointed in 2017 – eight years served.
Experience
Graeme Yorston was Group Chief
Executive of Principality Building
Society, the sixth largest mutual in the
UK. He has over 50 years’ experience
in financial services having carried
out a number of senior roles at Abbey
National (now Santander) including
IT Director for the Retail Bank and
Regional Director, and ran a number of
significant change programmes.
Graeme has served on the CBI Council
for Wales, the Board of Business in
the Community in Wales and was the
Prince of Wales’s Ambassador for BITC
in Wales for two years.
He was awarded Director of the Year
in Wales by the Institute of Directors
in 2016. Graeme is a Fellow of the CIB,
holds an MBA from Warwick Business
School and was awarded an Honorary
Doctorate in Business Administration
by Cardiff Metropolitan University
in 2017.
Specific areas of expertise*
• Strong retail banking sector
knowledge and experience
particularly in marketing,
communications and customer
service
• Detailed experience of overseeing
business change and IT systems
• Previously Board Champion for
Consumer Duty
Current external appointments
Director of Calon Lan Consultancy
Appointed in 2023 – two years served.
Experience
Zoe’s extensive executive career
included over sixteen years’ experience
at the Coca-Cola Company across a
variety of roles that culminated in her
role as UK Marketing Director.
Zoe is a board member at AG Barr
PLC, a FTSE-250 consumer goods
business, where she is chair of the
ESG Committee and member of the
Remuneration Committee.
She is also a Fellow of Chapter Zero,
which works in partnership with the
Global Climate Initiative to build a
community of non-executive directors
equipped to lead crucial UK boardroom
discussions on the impact of climate
change as organisations transition
from ambition to action.
Specific areas of expertise*
• Extensive fast-moving consumer
goods, consumer brand and digital
marketing expertise
• ESG strategy and governance
Current external appointments
Non-executive director of AG Barr PLC
Non-executive director of International
Schools Partnership Limited
Non-executive director of Project Step
TopCo Limited – from 1 October 2025,
after the year end
Appointed in 2022 – three years served.
Experience
Tanvi brings a diverse range of skills
and knowledge to the Board, built up
over an executive career of more than
30 years.
She began her career at Credit Suisse
as a derivatives trader, then went on
to work with IBM as a management
consultant before joining ABN AMRO,
and then Barclays Wealth, where
she was Managing Director of Global
Research and Investments.
In 2015, Tanvi co-founded the wealth
management firm, Saranac Partners,
where she was CEO until 2021 and a
non-executive director until 2022.
Tanvi’s non-executive career has
also included roles on the Board
of Ofqual, the qualifications and
examinations regulator, and the
Student Loans Company.
Specific areas of expertise*
• Strong finance, advisory and
regulatory experience
Current external appointments
Director of Ashrah Advisory Limited
Non-executive member of the
supervisory council of Luminar
Bank AS
Graeme H Yorston
Non-executive director
Zoe L Howorth
Non-executive director
Tanvi P Davda
Remuneration Committee Chair
Non-executive director
* All directors have a broad knowledge of our business, but the ‘areas of expertise’ highlight specific areas in relation to an individual’s contribution to its long-term sustainable success
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Corporate Governance
Sarah Mayne*
Chief Internal
Auditor
Since 2024
Page 104
B3.2 Executive Committees
The membership of our executive committees at 30 September 2025 is set out below, together with their tenure in their current role.
All members sit on both the Executive Performance Committee (‘Performance ExCo’) and the Executive Risk Committee (‘ERC’).
* Sarah Mayne became a member of the Committees in October 2024, having previously attended their
meetings as an observer.
† Marius van Niekerk was appointed as Company Secretary in April 2025 to serve for the duration of the
previous Company Secretary, Ciara Murphy’s maternity leave (B4.2).
After the year end, on 1 November 2025, Anne Barnett stepped down as Chief People Officer, and from the
executive committees. Anne was replaced by Andrea Knott, previously the Head of HR, on the same date.
Richard Woodman
Zish Khan
Nigel Terrington
Dave Newcombe
Louisa Sedgwick
Michael Helsby
Ben Whibley
Deborah Bateman
Derek Sprawling
Anne Barnett
Chief Financial
Officer (‘CFO’)
Since 2014
Chief Operating
Officer (‘COO’)
Since 2022
Chief Executive
Officer (‘CEO’)
Since 1995
Managing Director,
Commercial
Lending
Since 2019
Managing Director,
Mortgages
Since 2024
Strategic
Development
Director
Since 2018
Marius van Niekerk†
Peter Shorthouse
General Counsel
and Company
Secretary
Since 2019
Treasury and
Structured
Finance Director
Since 2010
Chief Risk
Officer (‘CRO’)
Since 2019
External Relations
Director
Since 2009
Managing Director,
Savings
Since 2024
Chief People
Officer (‘CPO’)
Since 2009
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Corporate Governance
B3.3 The Board’s activities in the year
Matters considered by the Board
During the year, the Board undertook a range of activities, in addition to its regular discussions of performance and strategy.
These included:
• Continued consideration of the impact of interest rate movements, inflation and other macro-economic uncertainties in the UK on
our businesses
• Regulatory change, including the impact of the MREL Policy Statement, capital requirements in respect of Basel 3.1
implementation, conduct regulation and historical motor finance commissions
• Monitoring progress of our digitalisation programme
In addition, the Board regularly receives and reviews reports prior to its meetings covering such matters as strategy, market
competition, business performance and results in each of our business areas. The Board also receives updates on potential corporate
development opportunities, legal and governance matters, regulatory changes, treasury and funding, the work of its committees and
investor relations and shareholder feedback.
Information regarding the Board’s programme of training and development can be found in Section B4.5.
A non-exhaustive list of other significant matters overseen by the Board during the year is set out below by theme:
Topic Meeting
Business strategy
Updates on our change programme Oct 2024, Feb,
Apr, Jul 2025
Update on matters discussed at the NED Technology Change Group meeting Oct 2024,
Feb 2025
Approval of the corporate plan for the financial years ending 2025 to 2029
(More detail on the Group’s strategy can be found in Sections A3 and A4)
Nov 2024
Detailed update on progress of significant elements of our digitalisation strategy, including the launch
and marketing of the Spring savings business
Dec 2024,
Feb 2025
Deep dive review of the SME lending business provided by senior management Apr 2025
Deep dive review of Customer Operations provided by senior management Jul 2025
The output and conclusions of the strategy event, including the actions proposed Jul 2025
Risk and regulation
Approval of the 2024 ILAAP (the 2025 ILAAP was due to be presented for approval after year end) Oct 2024
Approval of the 2025 ICAAP Apr 2025
Approval of Consumer Duty Annual Report for 2025 Jul 2025
Update on our IRB application Jul 2025
Approval of the 2025 Recovery Plan, including Solvent Exit Analysis Jul 2025
Annual review and approval of the Group’s principal risk categories Jul 2025
Review of our procurement approach, supplier base, assurance approach and timeliness of payments Jul 2025
Update on the implications of regulatory change including the impact of the final MREL Policy Statement,
capital requirements in respect of Basel 3.1 implementation, and conduct regulation amongst other matters
Jul 2025
Page 106
Topic Meeting
Cyber security / operational resilience
Update on AI, including its governance across the industry Oct 2024
Approval of 2025 operational resilience self-assessment Apr 2025
Update on cyber security, delivered by the IT Director, Head of Cyber Security and COO Apr 2025
Update from the COO on technology and change across the business Apr 2025
Update on procurement and suppliers including material outsourcing arrangements Jul 2025
Corporate governance
Consideration of the output of the 2024 board performance review and progress on prioritised
actions arising
(Further detail can be found in Section B4.4)
Oct 2024
Review and approval of the board training plan, following the review and recommendation by the
Nomination Committee of the board skills matrix
(Further details of this process are given in Sections B4.5 and B5.3)
Nov 2024
Recommendation of the declaration of a final dividend of 27.2 pence per share in respect of the financial
year ended 30 September 2024 and of a share buy-back programme for 2025 (with up to £50.0 million
announced with the preliminary results)
Nov 2024
Annual review of the Corporate Governance Policy Framework Feb 2025
Consideration of the annual whistleblowing report, which provided the Board with the assurance of
the integrity of the Whistleblowing Policy, independence of the process and details of disclosures and
developing trends identified during the reporting period, and approval of the Whistleblowing Policy
Mar 2025
Approval of the Modern Slavery and Human Trafficking Statement and Policy following an annual review Mar 2025
Annual review of tax strategy and compliance, and approval of policy statement Mar 2025
Approval of the declaration of an interim dividend of 13.6 pence per share and an agreement to increase
the total amount of the share buy-back programme from £50.0 million to £100.0 million as part of the
half-year consideration of the Group’s capital position
May 2025
Consideration and approval of the proposed approach for the 2025 board performance review May 2025
Sustainability
Consideration of employee feedback and other matters raised and discussed at the November 2024 and
May 2025 People Forum meetings
Nov 2024,
July 2025
Consideration of shareholder feedback following the year-end results announcement Dec 2024,
Feb 2025
Reflection on 2025 AGM and related shareholder engagement Mar 2025
Approval of 2025 all-employee sharesave plan invitation Apr 2025
Buy-to-let customer insight presentation delivered by senior management from the Insight and Mortgage
Lending teams
May 2025
Consideration of shareholder feedback following the half-year results announcement Jul 2025
The Board’s normal September meeting took place on 1 October 2025, after the year end and therefore events which took place at
that meeting are not included in the table above.
The way in which the Board discharged its duty to consider the interests of all stakeholders in these discussions is discussed in
Section B4.3. Contributors to board papers are required to consider and highlight any potential principal stakeholder impacts of any
proposal as a matter of course.
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Corporate Governance
In addition, the CEO’s reporting to the Board provided regular updates on:
• Key strategic priorities
• Macroeconomic environment
• Operational resilience
• Sustainability
• Customers
• People
• Technology and Change
• Public affairs
• Corporate development opportunities
The activities of the Board’s principal committees are discussed in their respective reports in Sections B5 to B8.
Board and committee attendance
The attendance of individual directors at the regular meetings of the Board and its main committees in the year is set out below, with
the number of meetings each was eligible to attend shown in parentheses. Directors who are unable to attend meetings still receive
the relevant papers and any comments / questions from them are reported to the meeting via the Chair. Directors have also attended
a number of ad hoc meetings (not included in the table below), workshops and training sessions during the year and have contributed
to discussions outside the meeting calendar.
Board and committee attendance
Director Board* Audit
Committee*
Risk and Compliance
Committee
Remuneration
Committee
Nomination
Committee
Robert D East 9 (9) - 5 (5) 6 (6) 2 (2)
Nigel S Terrington 9 (9) - - - -
Richard J Woodman 9 (9) - - - -
Tanvi P Davda 9 (9) 4 (4) 5 (5) 6 (6) 2 (2)
Peter A Hill 9 (9) 4 (4) 5 (5) - -
Zoe L Howorth 9 (9) - 5 (5) 6 (6) -
Alison C M Morris 9 (9) 4 (4) 5 (5) 6 (6) 2 (2)
Hugo R Tudor 9 (9) - - - -
Barbara A Ridpath 9 (9) 4 (4) 5 (5) - 2 (2)
Graeme H Yorston 9 (9) - 5 (5) 6 (6) 2 (2)
*Both the Board and the Audit Committee held their regular tenth and fifth meetings respectively on 1 October 2025, after the year end.
Directors also attended an annual two-day strategy event, to enable more detailed discussion of strategy and potential future
developments. This event has been a regular fixture in our governance calendar for a number of years and is also attended by
executive management.
Board and committee structure –
the forums through which corporate
governance operates and how they
relate to each other
Performance review – how the
Board ensures the framework is,
and will remain, fit-for-purpose
Elements of the governance framework –
how the framework operates
Board training – how the Board ensures
that its members develop and maintain
the necessary level of skills and knowledge
for the framework to operate as required
Board and stakeholders – how the
Board discharges its duty to promote
the success of the business having
regard to stakeholder interests
Whistleblowing – how concerns may
be raised and the action that is taken
B4.1
B4.4
B4.2
B4.5
B4.3
B4.6
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B4.1 Board and committee structures
Board leadership, group purpose and the Group Corporate Governance Policy Framework
The Board of Directors is responsible for promoting the long-term, sustainable success of our business, generating value for
shareholders and contributing to wider society. It establishes our overall purpose, values and strategy and ensures that these and our
culture are aligned. The Board is also responsible for the delivery of these within a robust corporate governance framework. Purpose,
values and strategy are described in Section A2 and the corporate governance framework is described in the following pages.
The Board of the Company and its subsidiaries are supported by the Group Corporate Governance Policy Framework (the
‘Framework’). The Framework provides key components of how the Board, assisted by its committees, governs the business of the
Company. Application of the Framework is within the context of other requirements, such as applicable laws, the regulatory regime for
deposit taking banks, the UK Listing Rules, the Articles of Association of the Company and the Disclosure Guidance and Transparency
Rules. On appointment, directors are briefed on their duties and responsibilities as a director of a listed company and are thereafter
provided with annual training updates.
Board and committee structure and membership
The Board and the CEO operate through a number of sub-committees covering a range of matters, set out below.
B4. Governance framework
This section describes how Corporate Governance operates within our business, setting out:
Paragon Board Paragon Board Committee Executive Committee Executive Sub-Committee
Risk and Compliance Sub-Committee Sub-Committee Legal Ownership
Delegated Authority
Performance
oversight
Risk oversight
Paragon Banking Group PLC Board
Paragon Bank PLC Board
Paragon CEO
Nomination
Committee
Remuneration
Committee
Executive
Performance Committee
(Performance ExCo)
Executive
Risk Committee
(ERC)
Audit
Committee
Disclosure
Committee
Model Risk
Committee
Risk and Compliance
Committee
Credit
Committee
Sustainability
Committee
Operational Risk
Committee
Asset and Liability
Committee
Customer and
Conduct Committee
Sanctioning
Committee
Pricing
Committee
Capital
Committee
Liquidity Outlook
Committee
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Corporate Governance
Summarised information on each of the board committees is set out below.
Committee Audit Remuneration Risk and Compliance Nomination
Chair A C M Morris T P Davda P A Hill R D East
Minimum number of meetings
as per their Terms of Reference
4 3 4 2
Further information Section B6 Section B7 Section B8 Section B5
Members Independent
non-executive
Audit Remuneration Risk and
Compliance
Nomination
R D East Chair* No Yes Yes Yes
T P Davda Yes From 1 November 2024 Yes Yes Yes
P A Hill Yes Yes No Yes No
Z L Howorth Yes No Yes Yes No
A C M Morris Yes Yes Yes Yes Yes
B A Ridpath Yes Yes No Yes Yes
H R Tudor No† No No No No
G H Yorston Yes No Yes Yes Yes
*Considered independent on appointment as Chair of the Board of Directors on 1 September 2022.
†Ceased to be considered independent from 6 March 2024.
In addition to the above, Hugo Tudor attends Model Risk Committee meetings, representing the non-executive directors.
Hugo Tudor reached nine years on the Board on 23 November 2023. The Board agreed at the time that his appointment would be
renewed for a further 12 months, but that he would be deemed to be a non-independent non-executive director from the conclusion of
the 2024 AGM on 6 March 2024.
Due to the skills and experience that Hugo brings to the Board, particularly in respect of remuneration matters, and his insights into
investor priorities, debt and equity markets and fund management, it was agreed in 2024 that he would remain a director for a further
twelve months, to 23 November 2025, subject to his re-election at the 2025 AGM.
On 1 October 2025, after the year end, the Board agreed that Hugo’s term be further extended until the close of the 2026 AGM on
4 March 2026. Hugo will not be seeking re-election at that AGM and will step down from the Board at its conclusion.
In addition to the board committees outlined in the above tables, the Board has established a Disclosure Committee which assists in
the design, implementation and periodic evaluation of the Group’s disclosure controls and procedures. It also monitors compliance
with these disclosure controls, considers the requirements for announcements and determines the disclosure treatment of material
information. The Disclosure Committee’s members are the CEO, CFO and the External Relations Director, of which any two can form
a quorum.
The informal ‘NED Technology Change Group’ (the ‘Change Group’), was established in 2021 and included some of the non-executive
directors, the COO and senior managers from the IT and Change functions. The Change Group met on an as-needed basis during
the year to receive high-level strategic updates on the change programme (the methods and processes of making changes to IT
systems and business procedures), the IT strategy and wider technology trends. These meetings also facilitated challenge by the
non-executive directors and increased their understanding of current issues and developments in these areas.
Following a review of the approach to oversight of Technology and Change, including consideration of industry-wide practices and
engagement with attendees of the Change Group, it was decided by the Board, on 24 July 2025, that all material change programme
updates would be subject to Board review and approval going forward, and that the Change Group would be disbanded.
Executive committee structures
The Group’s executive management sit on two executive committees, the Performance ExCo and the ERC.
The Performance ExCo provides support to the CEO in the day-to-day running and management of the Group and, where appropriate,
items discussed at the Performance ExCo are escalated to the Board for further discussion and / or decision.
The ERC supports the CEO with monitoring adherence to risk appetite statements and identifying, assessing and controlling the
principal risks within the Group and reporting on these to the Board. The ERC also reviews the appropriateness and effectiveness of
the Group’s risk management framework from time to time as appropriate, and reviews and considers emerging risks facing the Group.
More information on the work of the ERC is provided in Section B8.2
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Sub-committees
Performance ExCo sub-committees
The Sustainability Committee reports directly to the Performance ExCo. Its members are the External Relations Director, who chairs
the committee, Balance Sheet Risk Director, Managing Director – Commercial Lending, Managing Director – Mortgages, Managing
Director – Savings, COO, Chief People Officer and Enterprise Risk Director. The Committee’s purpose is to deliver a coordinated,
transparent approach to sustainability matters, including key areas such as environmental impacts (including climate change), social
considerations, commercial implications, disclosure and insight.
More information on the work of the Sustainability Committee is provided in Section A6
Under the authority provided to it under the Delegated Executive Authority and the Matters Reserved for the Board, it was agreed by the
Performance ExCo on 27 May 2025 that the Transaction Committee, a sub-committee which reported directly to it, would be removed in
order to simplify the executive committee structure, with its duties now falling within the direct remit of the Performance ExCo.
ERC sub-committees
Four principal executive risk sub-committees, with membership consisting of appropriate senior employees, report to the ERC.
All these committees are described further in the Risk Management Section, B8. The governance structure also includes further
sub-committees which provide focus on specific risk elements and report to the principal sub-committees.
All sub-committees which report to either the ERC or Performance ExCo, were reviewed during the year to determine whether further
enhancements could be introduced, whilst maintaining rigorous oversight and control.
All sub-committees operate within defined terms of reference and sufficient resources are made available to them to undertake
their duties.
B4.2 Elements of the Governance Framework
Culture
We are proud of the culture embedded in our business, and the Board monitors the alignment of this culture with our purpose, values
and strategy on an ongoing basis. In the event of a change in business model, operations and / or strategy, the Board would consider
the culture of the business as part of a review of our purpose as a whole. The interests of customers and employees are at the heart of
our strategy, business and culture.
While the assessment and monitoring of our culture is a business-as-usual activity for the Board, it also considers culture as part
of its review of our purpose and as part of the internal board performance review. No amendments were made to our purpose and
no material actions in respect of culture were identified in the latest performance review. The Board considered its own effectiveness
in promoting and monitoring our culture as part of the 2025 internal performance review. No significant issues in this respect
were noted.
Our cultural focus is demonstrated through our status as a Platinum Investors in People (‘IIP’) employer, where we received our
triennial reaccreditation during the year. This highlights our commitment to a structured and highly effective framework for leading,
developing and rewarding our people. We are also accredited by the Living Wage Foundation, and we encourage our suppliers to apply
the same standards. Our cultural focus on delivering good outcomes when dealing with customers both predates the introduction of
the FCA Consumer Duty and has a wider scope. This focus has long been fundamental to our outlook and practices.
To assess and promote our corporate culture, non-executive directors have attended meetings of our People Forum as part of the
Board’s commitment to engage directly with the workforce and to assess whether our purpose, values, strategy and culture are
aligned. Further detail can be found at B5.3. Direct employee feedback, together with feedback received through the People Forum
and IIP survey, were reviewed in depth by the Nomination Committee, with updates provided to the Board. The high-quality learning
and coaching culture of the business was noted.
The citizenship and sustainability section (A6) demonstrates how our culture is
reflected in relationships with customers, employees and the wider community
Matters reserved for the Board
The schedule of matters reserved for the Board is reviewed annually and made available on our corporate website. The current
year’s review had regard to the requirements of the 2024 Code. The document details key matters which are required to be or, in the
interests of the Company and its stakeholders, should only be decided by the Board. Whilst a number of matters are reserved for the
Board, the Board delegates certain responsibilities and authorities to the CEO, CFO and board committees.
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Corporate Governance
Division of responsibilities between the Chair, CEO and Senior Independent Director
There is a clear division of responsibilities between the running of the Board and the executive responsibility for the day-to-day
running of the business. The Chair leads the Board and is responsible for its overall effectiveness, thereby promoting the high
standard of corporate governance to which the Company subscribes. The CEO leads the day-to-day executive management of the
business and provides regular reporting to the Board.
The respective responsibilities of the Chair of the Board, the CEO and the Senior Independent Director are set out in the division of
responsibilities statement, which is reviewed by the Board annually and made available on our corporate website.
The Chair’s other business commitments are set out in the biographical details section (Section B3.1).
Role of non-executive directors
Throughout the year the independent non-executive directors have formed the majority of the Board, providing effective balance
and challenge.
In addition to the general legal and regulatory responsibilities of all directors, non-executive directors’ more specific responsibilities
include providing independent oversight. Non-executive directors who are members of the Remuneration Committee determine
appropriate levels of remuneration for executive directors and other senior management. Non-executive directors take into account
the views of shareholders and other stakeholders, and certain directors attended People Forum meetings during the year, which
provided an opportunity for engagement with employees. More detail on these interactions can be found in Section A6.3.
During the year, Hugo Tudor attended the MRC on behalf of the non-executive directors. Throughout the year, Graeme Yorston served
as the Consumer Duty Board Champion as part of our implementation of the FCA Consumer Duty principles. Following a publication
by the FCA in which it stated that it no longer expected firms to appoint a Consumer Duty Champion, it was agreed that the role would
not be retained and Graeme Yorston stepped down as Champion accordingly. As outlined in Section B4.1, certain non-executive
directors also met with the change and IT functions during the year.
All non-executive directors are appointed for fixed terms and must ensure they have sufficient time available to discharge their
responsibilities and regularly update their knowledge and familiarity with the business. The Chair of the Board was considered
independent on appointment on 1 September 2022. The non-executive directors met with the Chair, from time to time, without the
executive directors being present.
At the AGM, the Chair of the Board will confirm to shareholders, when proposing the re-election or election of any non-executive
director, that following the formal performance review, the individual’s performance continues to be effective and demonstrates
commitment to the role. The letters of appointment of the non-executive directors will be available for inspection at the AGM.
Role of the Senior Independent Director
Alison Morris has served as Senior Independent Director throughout the financial year. The Senior Independent Director provides a
sounding board for the Chair and serves as an intermediary for the other directors, when necessary. The Senior Independent Director
is available to shareholders if they have concerns and where contact through the normal channels has failed to resolve such concerns
or for which such contact is inappropriate.
The Senior Independent Director is responsible for leading the appraisal of the Chair of the Board’s performance with the
non-executive directors. As part of the internal board performance review carried out in the year, which is described in Section B4.4,
an appraisal of the Chair was carried out by the Senior Independent Director in conjunction with the members of the Board.
Conflicts of interest
The Board has agreed a policy for managing conflicts and a process to identify and, if appropriate, authorise any conflicts that might
arise in relation to significant shareholdings and / or third parties. At each meeting of the Board and its committees, actual or potential
conflicts of interest in respect of any director are reviewed. A conflicts register is also maintained by the Company Secretary, which is
reviewed by the Board twice a year.
The Board recognises the benefits that can flow from non-executive directors holding other appointments but requires them to disclose
the nature and extent of any such commitments to the Board (in accordance with the Articles of Association) before entering into any
arrangements that might affect the time they can devote to the business.
Executive directors would not normally be expected to hold any significant external directorships. However, where external directorships
are held or proposed to be held, this is discussed with the Chair and disclosed to the Company Secretary for individual consideration.
Company Secretary
During the year the Group’s General Counsel, Marius van Niekerk, was appointed by the Board to serve as Company Secretary for the
duration of the previous Company Secretary, Ciara Murphy’s maternity leave.
All directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that board procedures
are complied with, advising the Board on governance matters, supporting the Chair, and helping the Board and its committees to
function efficiently. Both the appointment and removal of the Company Secretary are matters reserved for the Board.
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Subsidiary governance
A number of the corporate entities within the Group are regulated either by the PRA and / or the FCA. The Company has oversight of
these entities as part of its overall responsibility for the management of the Group and ensures that the Group’s values and standards
in regulated spheres are met.
Composition and succession
Composition and succession for the Board and senior management are considered within the Nomination Committee’s report (see
Section B5).
The Board is mindful of the FCA’s UK Listing Rule requirements in relation to gender and ethnic diversity at board and executive
management level, which are a particular area of focus for the Board and the Nomination Committee. The Group was fully compliant
with these requirements for its year ended 30 September 2025 and the Board expects that it will remain so. The Board monitors
progress against the targets set by the Group in response to the FTSE Women Leaders Review and Parker Review as detailed further
in Section B5.4.
Board performance review and training
The performance of the Board, individual directors and the Board’s main committees are reviewed annually, and our policy is that
externally facilitated reviews should take place triennially, as required by the Code. The most recent externally facilitated board
performance review took place during the financial year ended 30 September 2023. During the most recent financial year an internal
review was conducted. Further details are given in Section B4.4.
The non-executive directors have received training during the year on various topics relevant to the Group. Further detail on the
training undertaken is set out in Section B3.3 and Section B4.5.
Audit, risk and internal control
Information on how the Group has applied the provisions of the Code relating to audit, risk and internal control is set out in Sections
B6 and B8.
Section B8, the Risk Report, describes the Group’s risk management and internal control framework, and the Board’s role in
monitoring and supervising it. It also sets out the Group’s principal risks (in Section B8.5).
Section A5 describes the Board’s assessment of the Group’s emerging and principal risks, its future prospects and the
appropriateness of the adoption of the going concern basis in the preparation of the annual financial statements.
The directors’ responsibility for the financial statements is described in Section B10.
Remuneration
Information on how the Group has applied the provisions of the Code relating to remuneration is set out in the Directors’
Remuneration Report in Section B7.
Whistleblowing
The Group maintains a whistleblowing process to enable employees to raise concerns anonymously. Information on whistleblowing is
provided in Section B4.6.
Further information
Documents referred to in the Corporate Governance section are available on our corporate website
(www.paragonbankinggroup.co.uk). These include:
• Matters Reserved for the Board
• Division of responsibilities between the Chair, CEO and Senior Independent Director
• Terms of Reference – Audit, Disclosure, Nomination, Remuneration and Risk and Compliance Committees
• Group Corporate Governance Policy Framework
• Internal Audit Charter
• Tax Strategy
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Corporate Governance
B4.3 Board and stakeholders
Consideration of stakeholders
In addition to good corporate governance, maintaining a reputation for high standards of business conduct in all our operations is
a key priority for the Board, and management of conduct risk is a key part of the risk management framework. Section A6 sets out
information on our approach to corporate responsibility and sustainability, including people policies and engagement with employees,
involvement in industry initiatives, support for the community, and environmental, social and conduct impacts.
The Board, in its deliberations and decision-making processes, takes into account the views of stakeholders and, where applicable,
considers the impact of those decisions on the communities and environment within which we operate. The Board is mindful of its
duty to act in good faith and to promote the long-term, sustainable success of the business for the benefit of its shareholders and with
regard to the interests of all its stakeholders.
The Board is kept updated on all material issues affecting stakeholders by the executive directors and receives regular updates
from ExCo members, other senior managers and external advisers. Members of the Board also engage directly with employees,
shareholders and regulators, as further detailed below.
The Board confirms that, for the year ended 30 September 2025, it has acted to promote the long-term sustainable success of the
Group for the benefit of its members as a whole and continues to have due regard to the following matters set out in s172 (1) of the
Companies Act 2006:
a. The likely consequences of any decision in the long-term;
b. The interests of the Company’s employees;
c. The need to foster the Company’s business relationships with suppliers, customers and others;
d. The impact of the Company’s operations on the community and the environment;
e. The desirability of the Company maintaining a reputation for high standards of business conduct; and
f. The need to act fairly as between members of the Company.
Companies are required to describe in the Annual Report how the directors have had regard to the matters set out above when
performing their duties. The table below sets out how the Board and senior management take the above factors into account when
engaging with our key stakeholders, how this is aligned to our strategic priorities and culture and why the stakeholders listed are
significant for us.
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Shareholders
Creating long-term shareholder value through growing profits and dividends (s172(1) a, f)
Our strategy is to build a specialist bank for our customers, which delivers sustainable growth and shareholder returns through
a low-risk and robust model.
How we engage and / or monitor
• During the year, 107 meetings were held with analysts and institutional investors under our
Investor Relations Programme. This included results roadshows and investor events. In addition,
the CEO and CFO hold regular analyst briefing meetings
• A comprehensive update on Investor Relations is presented to the Board on a quarterly basis
• The Remuneration Committee carries out comprehensive engagement and seeks the views
of major shareholders and shareholder advisory groups. A thorough consultation process was
undertaken in respect of the new Remuneration Policy, which will be presented to shareholders
for approval at the 2026 AGM
• The Board receives an in-depth update on Investor Relations, which includes investor feedback,
following the publication of our financial results
Outcome
• The data on shareholder feedback provided helps the Board align our strategy with the interests
of shareholders
• Shareholder feedback was considered and incorporated where appropriate into the proposed
new Remuneration Policy (Section B7.2)
• Increasing shareholder interaction helps to frame our response to reporting and targeting in
relation to sustainability matters, in particular climate change risk
• At the AGM in March 2025, all resolutions were approved by shareholders with over 96% of votes
cast in favour of each resolution
• A total dividend for the year of 43.9 pence per share is proposed, and a further share buy-back
programme of up to £100.0 million was authorised in the year
Further information on how we seek to engage with and consider the views of all shareholders
is given below.
Our approach to capital and distributions is set out in Section A4.3
Discussions with investors on remuneration matters are discussed
in the Remuneration Report (Section B7)
Capital
management
Growth
Diversification
Digitalisation
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Corporate Governance
Customers
Supporting the ambitions of the people and businesses of the UK by delivering specialist financial services (s172(1) c)
Our customers are at the heart of our business, and our eight core values underpin the way we interact with them every day.
Engagement with our customers enables us to maintain our deep understanding of them and the markets they operate in,
designing products to meet their needs and continually striving to exceed their expectations.
How we engage and / or monitor
• Regular customer satisfaction surveys on key product lines are reported to the Board
• Buy-to-let mortgage customers were invited to attend a strategy event, hosted by the COO, to
share their future plans, key challenges and shared information on how we could support their
financial needs
• The Board subsequently attended a deep-dive presentation on insight into the buy-to-let
business, which included feedback from customers on how the Group could best meet
their needs
• Focussed analysis on key customer groups is undertaken, including quarterly surveys of SME
and buy-to-let customers
• Customer Insight data is included in the CEO’s report presented at each board meeting
• The Board reviewed and approved the Group’s second Consumer Duty Annual Report, which
covered all in-scope products
• The Board continues to monitor developments regarding potential liabilities in respect of
historical motor finance commissions in light of the FCA review of the sector, its consultation
on its proposed approach to redress and other legal and regulatory developments relating to
these matters
• Customer metrics are a key element of the Performance Share Plan (‘PSP’)
Outcome
• All employees are required to complete ‘Think Customer!’ training
• Greater understanding of customers and their priorities is used to refine product offerings,
documentation and processes
• Internal colleague and Friends and Family launches of our new Spring savings app were
undertaken to enable testing of a greater breadth and depth of good customer journey
scenarios prior to public launch. This helped obtain insight and feedback, as well as strengthen
our operational readiness for public launch to ensure an exceptional customer experience
• A new Vulnerability Knowledge e-learning series was introduced, including a Customers in
Vulnerable Circumstances module to help employees develop awareness, skills and confidence
to support customers who may face additional challenges
• An improved bereavement process for buy-to-let and residential mortgage customers was
introduced to provide additional support
• Simplified power of attorney process introduced for savings customers
• Our new buy-to-let mortgage origination platform was extended to existing customers to permit
a full digital mortgage application process
• Complaint levels (excluding motor finance) remain low by industry standards
Further information on the Group’s relationship with its customers
is set out in Section A6.2
Digitalisation
Sustainability
Diversification
Growth
Page 116
Employees
Helping all of our people to develop their career and reach their potential (s172(1) b)
By working together, we help our customers to achieve their ambitions and we need a wide range of skills and expertise
to succeed. Our shared values and focus on employee engagement provide the foundation for our success and help us to
attract, develop and retain talent.
How we engage and / or monitor
• An all-employee survey was conducted as part of the IIP re-accreditation process
• Onboarding and leaver surveys are carried out to enhance feedback opportunities and
drive improvements
• The Chief People Officer updates the Board and ExCo on employee feedback from surveys and
from the People Forum, as well as other metrics
• Feedback from the People Forum and regular updates from the Chief People Officer enable the
Board to support and understand employees and their engagement
• The Chair and non-executive directors attend our employee-led People Forum on a regular basis
• Designated ExCo members with responsibility for gender diversity and wider diversity regularly
report progress on these matters
• Our EDI network is sponsored by a member of ExCo and, during the year, members of the Board
and ExCo are invited to attend employee listening circles
• The Nomination Committee receives six-monthly updates on succession planning and EDI
network feedback from the Chief People Officer and the Head of Human Resources
• People metrics are a key element of the PSP
Outcome
• We were reaccredited as an Investor in People with Platinum IIP employer status during the year
• We are a Disability Confident Employer under the UK Government Disability Confident scheme
• New health and wellbeing benefits were launched during the year following feedback received
from the 2024 benefits survey and the People Forum, as well as a new wellbeing platform,
enhancing the support available to employees
• Tailored career development programmes are embedded at all levels
• Pension Bonus Exchange scheme introduced, enabling employees to exchange part or all of
their cash bonus for an employer pension contribution, supporting long-term financial wellbeing
• New EDI e-learning module rolled out for all employees
• HR data dashboards were rolled out to track performance and to embed focus on business
areas’ people plans
Further information on the involvement of the Group’s people and
the impact of policies on them, can be found in Section A6.3
Sustainability
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Corporate Governance
Regulators
Engaging transparently and openly with regulators to ensure we comply with current regulatory requirements and
maintain the Company’s reputation for high standards of business conduct (s172(1) c, e)
One of our key values is to be honest and open in everything we do. Frequent and transparent communication with regulators
enables us to plan for regulatory change and maintain our high ethical standards.
How we engage and / or monitor
• Regular engagement with the PRA throughout the year on key regulatory matters
including IRB implementation
• Direct contact between the Chair and non-executive directors and regulators
• ExCo and Board are kept updated on all interaction with the FCA and PRA
• SMCR is embedded throughout the organisation, with conduct measures monitored monthly,
overseen by the ERC
• Dialogue maintained with HMRC, with the CFO designated as Senior Accounting Officer, directly
responsible for our tax policies
• The risk element of the PSP includes an assessment of any material regulatory breaches
Outcome
• All changes to the Board and Senior Management Functions are approved by the regulator,
where required
• The Risk Adjustment Review Group, with authority delegated by the Remuneration Committee,
identifies and considers instances of potential risk adjustment for MRTs and others on a more
formal and structured basis
Further information on our tax policies is set out in Section A6.5
Capital
management
Sustainability
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Society and community
Helping the UK economy grow and supporting the communities in which we operate (s172(1) d)
We aim to be an energetic and valuable contributor to the communities in which we operate. Our commitment includes active
involvement in a range of community volunteering and charity partnerships.
How we engage and / or monitor
• Members of the senior team are active in industry bodies, gaining insight into thinking about how
the sector impacts communities and public policy
• ExCo members actively support community activities within the business
• Employees support a nominated charity each year via payroll donations and fund-raising efforts
• All employees are given one day per year to volunteer for specific initiatives
Outcome
• We are partnered with Future First, supporting young people from disadvantaged and low-
income backgrounds
• In the twelve months ended 30 September 2025 employees raised £59,000 for Guide Dogs
• Our employee-led Charity Committee is sponsored by a member of ExCo
• Employees were encouraged and supported to take part in a range of volunteering activities
• 513 employee volunteering sessions were used to support specific initiatives in
local communities
Further information about our charitable and community
involvement is set out in Section A6.5
Sustainability
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Corporate Governance
Environment and climate change
Continually reducing our environmental impact and designing products that support positive environmental change
(s172(1) d)
We take care to identify, manage and minimise our impact on the environment, both in terms of the impact of our lending
products and our own operational impact.
How we engage and / or monitor
• The executive-level Sustainability Committee addresses all climate-related issues across the
business, escalating to the Board as appropriate
• Climate change is designated as a principal risk
• The Board receives updates on the potential risks and strategic impacts of climate change
• Participated in the UK Government consultation on EPC reform and the MEES for the private
rental sector independently and through our membership of B4NZ and UK Finance
• The Board has objectives in place against current energy performance to further reduce
consumption and emissions
• The CFO has been designated as the responsible director for climate change matters
• The annual ICAAP, approved by the Board, includes climate change scenario analysis
Outcome
• Our range of buy-to-let mortgage products includes incentives for those landlords who wish to
invest in energy-efficient properties
• The Green Homes Initiative in our development finance business was extended in the year
• Our motor finance business offers loans to finance battery electric vehicles, including light
commercial vehicles
• Operational emissions for the year have been offset with purchased carbon credits certified
under the Gold Standard programme
• Environmental / climate change targets are considered as part of the Remuneration Policy
• Our Responsible Business Report is published annually. Our corporate website has a dedicated
sustainability section
• The 2025 Responsible Business Report includes our inaugural climate transition plan, described
in Section A6.4
Further information on our management of climate change risk and
our environment policies is set out in Section A6.4
Sustainability
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Business partners and suppliers
Commitment to the fair treatment of all business partners. In return, we expect our partners to help us deliver a high
standard of service to our customers and act responsibly (s172(1) c)
We believe that working well with our business partners and suppliers is central to our purpose and key to our continued
success.
How we engage and / or monitor
• Key business partner relationships, including intermediaries and suppliers are identified, actively
monitored and reported to ExCo and the Board
• The Board was provided with an update on our procurement approach and the composition of
our supplier base, including material outsourcing arrangements, the assurance approach and
timeliness of payments
• Regular feedback surveys conducted amongst intermediaries with the results fed back to ExCo
and Board
• Our Supplier Code of Conduct sets out our overall approach to supplier engagement and our
expectations of suppliers
• A questionnaire covering broad sustainability topics is issued to new suppliers as part of the
onboarding process
Outcome
• New digital platform rolled out to all mortgage intermediaries, reflecting feedback received
from brokers
• Intermediary feedback key to updating and streamlining other operational systems
and processes
• Our suppliers understand the minimum standards we expect from them and our commitments
and expectations around bribery and corruption, data protection and modern slavery
• Ongoing engagement with our key suppliers ensuring operational resilience and reduced risk
• We are a signatory to the UK’s Fair Payment Code, and ensuring that suppliers are paid promptly
is a priority
Our management of business partner relationships is discussed
further in Section A6.7
Digitalisation
Sustainability
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Corporate Governance
Shareholder relations
The Board encourages communication with the Company’s institutional and private investors. All shareholders have at least twenty
working days’ notice of the AGM, at which the directors and committee chairs are available to answer questions. The AGM is normally
held in London during business hours and provides an opportunity for directors to report to investors on our activities, to answer their
questions and receive their views. At all AGMs, shareholders have an opportunity to vote separately on each resolution and all proxy
votes lodged are counted and the balances for, against and directed to be withheld in respect of each resolution are announced.
The 2026 AGM will take place at 9am on 4 March 2026, at the offices of the Company at 25th Floor, 20 Fenchurch Street,
London EC3M 3BY.
The CEO and CFO have a full programme of meetings with institutional investors and during the year ended 30 September 2025,
meetings were held with investors from the UK, Europe and North America.
From time to time other presentations are made to institutional investors and analysts to enable them to gain a greater understanding
of important aspects of the Group’s business.
The Chair of the Board and the Chair of the Remuneration Committee held meetings with shareholder advisory groups covering
governance and remuneration matters as set out in the Remuneration Report in Section B7. Following the publication of the 2024
Annual Report and Accounts and the 2025 AGM notice, we invited our largest stakeholders, who collectively represent over 90% of
the Company’s total voting rights, to share their views ahead of the Company’s 2025 AGM.
The Board believes that engagement with shareholders is an important part of both our governance framework and the stewardship
aims of investors. Therefore, investors’ comments from these interactions are communicated to the Board who take the views
expressed into account when determining strategy.
The Senior Independent Director, Alison Morris, is also made aware of views expressed by shareholders whether to other members
of the Board, via our brokers or through the Investor Relations team. Meetings between the Senior Independent Director and
shareholders can be arranged through the offices of the Company Secretary.
The External Relations Director updates each meeting of the Performance ExCo on changes in the Group’s shareholder base and on
shareholder interactions.
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B4.4 Board performance review
The effectiveness of the Board, individual directors and the Board’s main committees is reviewed annually, with this year’s review
being internally facilitated as permitted by the Code. The Board also monitored progress on the recommendations from the internal
review carried out in 2024. The next external performance review will be conducted during 2026, having last been undertaken in 2023.
2025 board performance review
In line with recognised best practice, board performance reviews are undertaken on an annual basis to increase board effectiveness
and to identify areas for improvement.
In drafting this disclosure on our board performance review, the Corporate Governance Institute (‘CGI’) guidance note ‘Reporting on
board performance reviews: Guidance for listed companies’, published in September 2023, was consulted.
Performance review methodology
In constructing the questions for this year’s performance review, which considered the performance of the Board, its committees,
and all individual directors, including the Chair, the following sources were considered: i) the 2024 internal performance review; ii) the
Code, and iii) FRC guidance.
The Board performance review considered composition, the balance of skills, experience, independence, knowledge and diversity,
how the Board works together and other points pertinent to its effectiveness.
The steps involved in the performance review process and their timings are set out below.
Phase and timing Activities
Review and completion of questionnaires
(July 2025)
Board members were asked to complete questionnaires issued by
Company Secretariat, which assessed the performance of the Board
and each of its committees, as well as the performance of the Chair.
Meetings (August 2025) The Chair appraised the performance of the non-executive directors,
meeting with each non-executive director on a one-to-one basis to
evaluate their performance and agree development areas.
The Senior Independent Director, in conjunction with the non-
executive directors and without the Chair present, appraised the
performance of the Chair.
Board discussion and presentation (September
and October 2025)
In advance of discussion at the relevant board and committee
meetings, summaries of findings were shared with the Chair and each
committee chair, as appropriate, for discussion.
Actions were agreed for implementation and monitoring.
Key findings
Overall, the review confirmed that the Board continued to operate effectively. More detailed findings from the board performance
review included the following, against which progress will be reported next year:
• In light of the speed at which technology and AI are developing, there was appetite to increase the time spent thereon, including use
cases, governance framework and controls. These areas would be kept under review and progress had already been made in terms
of more detailed reporting in respect of technology and change. The desire for greater technology expertise on the Board would also
be considered as part of the recruitment of non-executive directors as incumbents reached the end of their nine-year tenures
• In respect of enhancing customer-centricity, there was a drive to increase engagement with customers and business partners. The
Board would also reflect on achieving an appropriate balance in its discussions between financial and customer-related matters
• Longer-term strategic issues and developments have been considered as warranting greater focus, as had the need to strike
the appropriate balance between strategic issues and governance-related matters. The board planner, the prevalence of
governance-related issues and the balance of time allocations would be reviewed to ensure that the time available for strategic
debate is appropriate
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Corporate Governance
2024 internal board performance review
During the financial year ended 30 September 2024, an internal review of the performance of the Board and its committees was
undertaken. The review process is described in Section B4.4 of the Group’s annual report and accounts for that year.
The review identified a number of focus areas and recommendations, which have been addressed in the course of the previous and
current financial year as follows:
Recommendation Actions taken
A business performance review template will be put in
place to ensure consistent assessment of, and focus
on, the performance of each business area
Business performance review templates were distributed across
our operations, and were revised and finalised throughout the
year in order to ensure efficiency, focus on key topics and the
streamlining of discussion
In response to employee feedback, People Forum
sessions with non-executive directors will be more
informal and unstructured in future, so that better
engagement can be generated
Non-executive directors were invited to a networking lunch with the
People Forum, which permitted open discussion and engagement
regarding employee sentiment
Whilst competitive insight is already considered as part
of board discussions, a greater emphasis on competitor
analysis will be factored into future presentations
An analysis of the market was undertaken as part of the buy-to-
let insight session, which provided oversight on our approach to
increased competition within the mortgage market. Competition
was also a key element of discussion at the annual strategy event
So as to ensure an appropriate balance between
debate and presentation, presenters are advised
to take papers as read when appropriate, with the
introduction of the revised review template noted above
helping to ensure time is focussed on key debating /
discussion points
Time allocations for more routine items were carefully managed
throughout the year to ensure there was sufficient time for debate
and challenge in respect of more strategic matters
Other performance review activities
In addition to the 2025 internal performance review, the Nomination Committee also evaluated:
• Whether each non-executive director had sufficient time to devote to their board duties
• The independence of non-executive directors
• Whether each director should be put forward for re-election at the 2026 AGM
• The structure, size and composition (skills, experience, knowledge and diversity) of the Board and its committees
Where appropriate, recommendations were then put to the Board for deliberation. More details of these considerations are given in
the Report of the Nomination Committee (Section B5).
A review of the performance of the executive directors, including any observations from the internal board performance review, took
place at the Remuneration Committee meeting in September 2025 that considered remuneration packages for 2025/26 and variable
remuneration outcomes for 2024/25. Further information on this process is given in the Directors’ Remuneration Report (Section B7).
At the 2026 AGM, the Chair will confirm to shareholders, when proposing the re-election of any non-executive director that, following
formal performance review, their performance continues to be effective and demonstrates commitment to their role. The letters of
appointment of the non-executive directors will be available for inspection at the AGM.
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B4.5 Board training and development
Oversight of the Board’s training and development programme is the responsibility of the Nomination Committee and contributes
to ensuring the ongoing effectiveness of the Board. Details of the committee’s activities in this area are set out in the Nomination
Committee section (B5).
Induction
All directors receive an induction training schedule tailored to their individual requirements upon joining the Board. The induction,
which is designed and arranged by the Chief People Officer in consultation with the Chair and Company Secretary, includes meetings
with existing directors, senior management and other key personnel, to assist new directors in increasing their knowledge of the
Group’s operations, management and governance structures, as well as key issues for the Group.
Development
At the start of the financial year each board member had completed a skills matrix self-assessment to assist in identifying the key areas
for ongoing board development and to assess the necessary skills and experience when considering future board succession planning.
Following consideration of the skills matrix, the Board approved the training approach for the current year in November 2024.
Going forward, the annual board performance review and board strategy event will be used to identify collective training needs for
each year. Individual training and development requirements are discussed as part of each directors’ own performance review. The
Nomination Committee will provide oversight on behalf of the Board in line with its Terms of Reference.
A number of topics agreed for board development were delivered during the financial year, with further topics agreed for the coming
period. This programme aims to retain a diverse balance of skills and increase coverage in key areas to support oversight and delivery
of the corporate plan. Topics for board training sessions are recommended to, and approved, by the Board and provide for a balance
of subjects between technical matters, customer insight, risk management, governance and professional development.
Separately, ongoing individual development opportunities have been provided during the period and will continue to be made
available during the forthcoming financial year. A training schedule is maintained by our Human Resources department in conjunction
with the Company Secretary.
Business insight and awareness sessions, and deep dives covering particular areas are held regularly to provide non-executive
directors with the appropriate depth of knowledge to contribute effectively at board meetings on key business topics.
The non-executive directors have received presentations during the year on various aspects of the activities of the business, to
support their on-going awareness and development. The Board has dedicated several days during the year to training and will
undertake additional training as required by our strategic and operational needs.
Specific detailed training sessions were provided in the year on the following subjects.
Topic Board meeting
Legal and regulatory: covering topics including UK MAR, directors’ duties, developments relating to
historical motor commissions, and the overall legal / regulatory landscape
Mar 2025
Prudential Risk: covering the approach to public affairs in the prudential space, PRA priorities for 2025
and key regulatory developments, delivered by the Prudential Risk team
Mar 2025
Solvent Exit Analysis and Solvent Exit Execution Plan: delivered by a professional services firm and the
Balance Sheet Risk team
Mar 2025
Cyber Risk and Security: delivered by a combination of in-house experts and an external cyber security
solutions provider
Apr 2025
Debt Capital Markets: including an overview of types of debt issuance, contingent liquidity and peer analysis,
delivered by the Treasury team
Jul 2025
2024 Corporate Governance Code Provision 29: covering the changes to the Code, key questions for the
Board, material control scoping, and assurance, delivered by a professional services firm
Jul 2025
EDI: covering topics such as EDI strategy, the internal EDI Network and future initiatives, delivered by the
Chair of the EDI Network
Jul 2025
In addition, all directors completed a variety of regular training modules that are mandatory for all our employees. These are delivered
online and cover risk management, financial crime, customer outcomes, regulatory requirements and sustainability matters including
EDI, amongst other topics.
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Corporate Governance
B4.6 Whistleblowing
We have an established policy whereby employees can make disclosures regarding potential wrongdoing within our operations on
a confidential basis, in accordance with the Public Interest Disclosure Act 1998 (‘PIDA’). We appreciate the importance of generating
an environment where employees feel able to raise concerns safely, and therefore the policy provides that no employee making
such a disclosure should suffer any detriment by doing so. Our whistleblowing advisory service is operated at arm’s length, by a
third-party charity, Protect. This process was supervised by the Board during the year, in accordance with Code requirements, and
any amendments to the policy required the approval of the Board. The Board reviews the policy on an annual basis.
The Senior Independent Director and Chair of the Audit Committee, Alison Morris, is our designated Whistleblowing Champion.
She is responsible for overseeing the integrity, independence and effectiveness of the Whistleblowing policy.
Management oversight of the process is provided by the Whistleblowing Group, which ensures that disclosures are properly
assessed, whistleblowers’ identities are protected, and all cases are handled in an appropriate, fair and consistent manner. The
Whistleblowing Group comprises the Chief People Officer, CRO, Chief Internal Auditor, Conduct and Compliance Director and the
Whistleblowing Champion. Whistleblowing Group members attend training sessions provided by Protect to ensure our policy and
processes remain consistent with current and emerging industry standards.
Employees can make disclosures through a variety of mechanisms, such as through line management, directly to a member of the
Whistleblowing Group, to Protect, or directly to the FCA or PRA, our regulators. An email address is also provided for individuals to
raise concerns. In addition, Whistleblowing Group members use information received through management oversight activity to
identify incidents that may constitute a qualifying disclosure under PIDA requirements. Employees are kept informed of investigations
(should they wish to be) and, in the event they are dissatisfied with the investigation, or any action taken as a result, they may request
a confidential meeting with any member of the Whistleblowing Group to discuss the matter further.
To ensure that the policy is embedded throughout our operations, all employees completed an e-learning module on the
requirements of PIDA and our whistleblowing policy during the year. This year the format and content of the training was enhanced to
reflect learnings from recent training, and to reinforce the steps taken to protect people who make disclosures.
During the year ended 30 September 2025, there were six instances of disclosures which resulted in a requirement for full
consideration and investigation by the Whistleblowing Group (2024: three). These cases were fully investigated and concluded, with
appropriate control enhancements implemented where necessary.
Procedures whereby customers who are dissatisfied with our response to any complaint about their treatment may seek recourse to
an external party are discussed in Section A6.2.
B5. Nomination Committee
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Corporate Governance
B5.1 Introduction by the Chair
Dear Shareholder
As the Chair of the Nomination Committee, I am pleased to present our report for the year. The
Committee is tasked by the Board with supporting delivery of strategy through oversight of the
composition of the Board and its committees, robust succession planning, supervising our diversity
and inclusion strategy and monitoring workforce engagement.
During the year the composition of the Board has remained unchanged, however we are mindful of
the tenure of non-executive directors, and succession planning remains a key area of focus. With this
in mind the Committee recommended the extension of Hugo Tudor’s tenure for a further three months
until the 2026 AGM, recognising the valuable skills and experience he brings, especially in his deep
understanding of executive remuneration and investor priorities.
During the year Anne Barnett, Chief People Officer, signalled her intention to retire after over twenty years
with the Group. On behalf of the Board, I would like to express our deepest gratitude for her exceptional
dedication throughout her tenure; her contributions have been instrumental in shaping the Group’s
success and culture through a period of significant growth and change. Succession planning for her role has
therefore been a priority over the year, and the Committee was pleased to oversee the internal promotion
of Andrea Knott to Chief People Officer, taking effect from 1 November 2025 (subject to regulatory approval).
This promotion further evidences our ability to develop quality candidates for senior roles from amongst our
own people, something for which Anne can take significant credit.
Beyond governance matters, we have placed a strong emphasis on promoting equality, diversity and inclusion
across all levels of the organisation. The Committee closely monitors employee engagement to foster a positive
and inclusive workplace culture. It was particularly pleasing to see the Group recognised as a Platinum Investors
in People employer for the second consecutive time, a testament to our ongoing commitment to the development
of our people and to workplace excellence. These efforts reflect our fundamental belief that a diverse and engaged
workforce is essential to achieving our strategic goals and upholding our reputation as a responsible employer.
Looking ahead, the Board and the Committee will continue to focus on developing a strong pipeline of talent, upholding
high standards of governance, and fostering a culture of excellence. In addition, we remain committed to actively engaging
with employees to seek direct feedback on organisational culture, ensuring that their perspectives inform our ongoing
efforts to cultivate a positive, inclusive and high-performing working environment across all our businesses.
Overall, I consider that the Committee has fully satisfied its mandate from the Board during the year.
Robert East
Chair of the Board and the Nomination Committee
3 December 2025
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B5.2 Operation of the Committee
The Nomination Committee, chaired by the Board Chair and comprising four independent non-executive directors, oversees director
appointments for the Company and Paragon Bank PLC. The Committee leads the recruitment process, recommends candidates,
reviews board composition, considers director re-appointments and independence, and ensures succession planning for the Board
and senior management.
The Committee also promotes equality, diversity and inclusion (‘EDI’), participates in external EDI programmes, and monitors
employee engagement to assess organisational culture.
Formal terms of reference for the Committee are in place. They are reviewed annually and were updated to align with the 2024 Code
before the start of the year. These terms are available on our corporate website at www.paragonbankinggroup.co.uk. Membership and
attendance details for the Committee are set out in Section B3.3.
B5.3 Matters considered by the Committee during the year
Board appointments
In November 2023, Hugo Tudor reached his nine-year tenure on the Board. At the conclusion of Hugo’s first nine years in office the
Committee recommended that he should continue as a director for a further twelve-month period, but that he should be deemed to
be a non-independent non-executive director from the conclusion of the 2024 AGM in March 2024.
In September 2024, the Committee recommended to the Board that this appointment should be extended for a further year until
November 2025. This recommendation was based on the skills and experience that Hugo brings to the Board, particularly in respect
of remuneration matters, and his insights into investor priorities, debt and equity markets, and fund management.
Since the last update, the Committee has further recommended to the Board that Hugo’s tenure as a non-independent non-executive
director be extended by an additional three months, so that his appointment will now continue until the close of the 2026 AGM.
In accordance with its annual process, the Committee considered the appropriateness of the re-appointment of the other serving
directors and recommended to the Board that resolutions for their re-appointment should be proposed at the forthcoming AGM.
Senior management appointments
Following a review of governance processes, on 1 October 2024 the Chief Internal Auditor, Sarah Mayne, became a member of
the Group’s executive committees, having previously attended as an observer. Other than this, no changes have been made to
the membership of the Group’s executive committees during the year. The Committee has maintained its oversight of executive
leadership stability and is satisfied that the current management structure continues to support our strategic objectives and
operational requirements.
However, following notification from Anne Barnett, our Chief People Officer, of her intention to retire, the Committee has proactively
managed the succession planning process for this key leadership role. After a thorough review, Andrea Knott, the existing Head
of Human Resources, was approved as the successful internal candidate to succeed Anne, with her appointment as Chief People
Officer taking effect from 1 November 2025 subject to regulatory approval. This appointment reflects the Committee’s commitment to
developing internal talent and ensuring continuity in the Group’s leadership.
Succession planning
Succession plans for the Board and executive committees were reviewed this year, and the Committee continued to track non-
executive director tenure to ensure effective oversight and continuity of governance. The level of focus was enhanced in the period as
some long-serving non-executive directors began to near the nine-year maximum term recommended by the Code.
The succession planning approach was also subject to an Internal Audit review during the year; this highlighted a small number of
improvements which have all been acted upon, with oversight from the Committee. We are satisfied that each identified point has
been appropriately addressed and closed. The Committee will continue to monitor the effectiveness of these enhancements as part
of its ongoing responsibilities.
The Human Resources function manages succession planning for senior leaders, ensuring that emergency cover is in place for
executive directors and their teams, and that a strong pipeline of internal talent is available for key roles, especially where recruitment
is likely within five years. Where possible, high-potential internal successors are identified for these roles, with these employees
receiving tailored development plans, supported and overseen by the Committee.
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Corporate Governance
In addition to regular talent reviews, succession plans are updated in response to business strategy changes or external
developments so that they remain fit for purpose. While we prefer to develop internal candidates to maintain our culture and
organisational knowledge, we also value external hires for the fresh perspectives, skills and experience they bring to the Group.
This balanced approach ensures a resilient leadership structure that supports both stability and innovation within our organisation.
Board development
The development activities for the directors described in Section B4.5 were informed by a board skills matrix commended to the
Board by the Committee before the beginning of the year. This process was reviewed during the year and the matrix approach was
retired for the coming year.
In future, collective training needs will be identified through the board performance review and discussions at the annual strategy
event, with individual development requirements identified through each director’s own performance review.
The Committee will continue to oversee development activities to ensure that the agreed activities are progressed and that individual
directors are receiving the support they need to contribute fully to the Board’s activities, and satisfy regulatory expectations.
Diversity
We recognise the importance of diversity, including gender and ethnic diversity, at all levels of the organisation. The Committee
initially gave its formal approval to the EDI strategy in 2024. Since then, it has actively monitored progress against the agreed strategic
priorities. Its activities have included enhanced oversight of diversity data, regular engagement with EDI network members, and
interaction with the Chair of the EDI Network as part of the Committee’s meetings. In addition, the Board has received dedicated
training on EDI matters, and the Committee has maintained ongoing tracking of progress against established diversity targets.
As of 30 September 2025, the Group achieved its Women in Finance Charter phase two target, reaching 40.4% female representation
in senior leadership roles (defined as executive committee members and their direct reports), an increase from 37.9% in 2024. The
Group also continues to comply with the FTSE Women Leaders Review target, maintaining at least 40% female representation on the
Board. In relation to ethnic diversity, the Group has made progress towards its voluntary Parker Review target of 5.0% ethnic minority
representation in senior management by 31 December 2027, recording 3.6% as of 30 September 2025. The Committee remains
committed to ongoing monitoring and action to further advance diversity and inclusion at all levels of the organisation.
Board and executive management diversity
We prioritise diversity on the Board, valuing a range of genders, experiences and backgrounds to ensure a balanced mix of skills and
knowledge. The EDI policy extends to the Board, its committees, executive teams, senior management and the entire workforce,
addressing age, gender, ethnicity, sexual orientation, disability, and varied educational and socio-economic backgrounds.
Our compliance with the FCA Listing Rule, alongside voluntary targets aligned with the Parker Review and Women in Finance Charter,
reflects our commitment to workforce diversity at all levels. The data on board and senior management diversity required by UK
Listing Rule UKLR 6.6.6R (10) is set out below.
Gender
Number of board
members
Percentage of
the Board
Number of senior
positions on the Board
Number in executive
management
Percentage of executive
management
30 September 2025
Men 6 60% 3 9 64%
Women 4 40% 1 5 36%
Not specified /
prefer not to say
- - - - -
Total 10 100% 4 14 100%
30 September 2024
Men 6 60% 3 9 64%
Women 4 40% 1 5 36%
Not specified /
prefer not to say
- - - - -
Total 10 100% 4 14 100%
Page 130
Ethnic background
Number of board
members
Percentage of
the Board
Number of senior
positions on the Board
Number in executive
management
Percentage of executive
management
30 September 2025
White British or
other White
9 90% 4 13 93%
Mixed / multiple
ethnic groups
- - - - -
Asian / Asian British 1 10% - 1 7%
Black / African /
Caribbean /
Black British
- - - - -
Other ethnic group
including Arab
- - - - -
Not specified /
prefer not to say
- - - - -
Total 10 100% 4 14 100%
30 September 2024
White British or
other White
9 90% 4 13 93%
Mixed / multiple
ethnic groups
- - - - -
Asian / Asian British 1 10% - 1 7%
Black / African /
Caribbean /
Black British
- - - - -
Other ethnic group
including Arab
- - - - -
Not specified /
prefer not to say
- - - - -
Total 10 100% 4 14 100%
For the purposes of the tables above, senior board positions are defined as the Chair of the Board, Chief Executive Officer (‘CEO’),
Chief Financial Officer (‘CFO’), and Senior Independent Director. In accordance with the Listing Rules, executive management
encompasses members of the executive committees and the Company Secretary; this interpretation may differ from definitions used
in other contexts.
In the data presented for 2024, we have interpreted this definition to include the Chief Internal Auditor. However, she joined the
executive committees as a member on 1 October 2024, having previously attended meetings as an observer during the year ended
30 September 2024.
Gender is determined based on the legal gender recorded in the Company’s payroll records. Ethnicity data reflects each
individual’s voluntary response to a diversity questionnaire, which utilised classifications aligned with those of the UK Office for
National Statistics (‘ONS’).
As at both 30 September 2025 and 30 September 2024, the Company met the targets set out in the FCA UK Listing Rules at
UKLR 6.6.6R(9):
• At least 40% of directors were women
• At least one of the senior board positions was held by a woman
• At least one director was from an ethnic minority background
There have been no changes in board composition between the year end and the approval date of this Annual Report and Accounts
that would impact the Company’s compliance with these targets. The Committee anticipates that the Company will continue to
demonstrate such levels of representation over the longer-term.
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Corporate Governance
Wider diversity within the Group
We recognise that cultivating a diverse workforce at every level fosters an optimal organisational culture, positive behaviours,
favourable customer outcomes, increased profitability and enhanced productivity, ultimately driving our business success.
Our commitment is to eliminate discrimination and actively promote equality, diversity and inclusion among all employees.
This commitment is reflected in our policies, procedures, practices and professional interactions with colleagues, customers, and
third parties.
The purpose of our EDI policy is to clearly define our approach and expectations, particularly for line managers, ensuring thorough
understanding and effective management across the organisation.
Implementation occurs through the development and communication of HR processes and procedures that support this policy,
making it accessible to all team members, and encouraging engagement through ongoing training and communications initiatives that
reinforce its intent.
The Committee notes that employee participation in providing diversity data had increased from 80.9% at the start of the year
to 83.6% at 30 September 2025. While this increase is small, the Committee is satisfied that both the EDI Network and Human
Resources team continue to take proactive steps to encourage engagement and thereby improve the rate of profile completion
year-on-year.
This progress underpins our culture of commitment to our EDI objectives and has informed targeted activities—such as focussed
communication campaigns to raise awareness, celebrate differences and expand development opportunities for under-represented
groups. The Committee continues to monitor these initiatives closely and is satisfied with the advances made.
Further details regarding the actions taken in collaboration with the EDI Network—including commitments under the Race at Work
Charter and the Disability Confident Employer Scheme—are outlined in Section A6.3.
During the year, the Committee reviewed our gender pay report and supporting analysis, carefully considering changes from
previous reports and assessing ongoing challenges posed by reporting requirements, management structure and broader strategic
developments that influence efforts to close the gender pay gap, in line with sector trends. Addressing the gender pay gap will remain
a focus for the Committee, as will engaging with any extension of these rules to cover other diversities, as currently proposed by the
UK Government.
Our diversity policies are detailed in Section A6.3. Comprehensive information on workforce composition, including gender and
ethnic representation within senior management and their direct reports, along with gender pay gap statistics, can also be found in
that section.
Workforce engagement
The Committee has received regular updates on workforce engagement, and the Chair and other board members have engaged
directly with the workforce throughout the year through both formal and informal channels. Additionally, non-executive directors have
attended People Forum meetings during the year to discuss topics including executive pay and reward, ways of working, and the office
environment at our Solihull head office. These meetings provide employees with an opportunity to question board members and offer
direct feedback, and form a regular feature of the board calendar.
The Committee welcomed the Group’s reaccreditation as a Platinum Investors in People employer during the year, recognising this
as a testament to the ongoing commitment to supporting and developing the workforce throughout the organisation. Furthermore,
the Committee is pleased to see greater insight into employee engagement being gathered, through the introduction of onboarding
and exit surveys, and welcomes the pilot of pulse surveys. The Committee is interested to see the changes these insights may drive
and intends to use these data points in its monitoring of organisational culture, alongside the continued opportunities for direct
engagement with the People Forum and EDI Network.
Culture
The Board acknowledges its enhanced responsibility, under the new Code, to demonstrate a thorough understanding of our
organisational and risk culture. To this end, the Board employs a comprehensive approach to cultural oversight, actively seeking
and assessing a broad range of cultural indicators through multiple board-level committees. This approach includes not only the
regular review of employee engagement insights and diversity data, but also the evaluation of feedback from workforce engagement
initiatives, and onboarding and exit surveys, described above. This will extend to pulse surveys over the coming year as we expand and
strengthen our channels of employee feedback.
In addition, bi-annual risk culture dashboards are provided to the Risk and Compliance Committee, with no concerns noted during the
reporting period. The Committee’s scrutiny of progress on diversity and inclusion actions ensures that insights from all these varied
sources inform its assessment and stewardship of organisational culture. This enables the Board is to evidence the effectiveness of
its oversight and actions in shaping a positive, inclusive culture across the business as a whole.
B6. Audit Committee
Page 132
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Corporate Governance
B6.1 Statement by the Chair of the Audit Committee
Dear Shareholder
While the financial year which has
just ended has, perhaps, been less
economically eventful than many recent
periods, it has still provided much
to fill the Committee’s agenda. It is
our job to ensure that the financial
and other external reporting the
business provides for the benefit of
stakeholders is reliable and based
on a properly controlled reporting
and management framework
and this has impacted in several
different and challenging ways.
Accounting judgements have
been dominated by issues
around potential liabilities
connected to historical
motor finance commissions
and ongoing challenges
to expected credit loss
allowances. These areas have
a high degree of subjectivity,
and we have engaged with
management and KPMG
LLP (‘KPMG’), the external
auditor, throughout the year
to ensure the judgements
and assumptions underlying
our final accounting positions
are subject to appropriately
rigorous challenge.
The Group’s motor finance
lending is within scope
of the FCA enquiry into
historical motor commission
practices and related litigation
and regulatory processes.
Expectations have changed
rapidly over the year and the
Committee has focussed on
understanding the potential
impact on the Group and on
determining the appropriate size
and timing of any provision for
liabilities. With the publication of
the FCA’s much-delayed proposed
redress approach in October 2025,
there now seems to be a greater
degree of certainty on exposure
levels, and a significant part of our year
end work focussed on understanding
and challenging management’s
proposals on provisions.
While expected credit losses continued
to be an area of interest for the Committee
in the year, we were gratified to see a better
performance across most of our loan books
than many had feared, with the majority of our
customers coping better with continuing high
interest rates and inflationary pressures than might
have been anticipated. Provisioning for credit losses
under IFRS 9 remains an inherently judgemental area
and consequently presents us with an ongoing challenge.
However, we are pleased that the Group has been able to
maintain a consistent approach to this exercise and
we reached a notable milestone with the retirement of
the last of the original PD models introduced for the
2019 financial year.
Despite the generally positive performance, however, our
development finance portfolio has continued to experience the
issues which emerged in the previous financial year, and has
thus been the focus of much of our attention, as we analysed
the current and likely pressures on specific cohorts of lending to
challenge provision levels.
Overall, we were happy with the rigour with which management
had analysed all the relevant judgement areas in preparing the
accounts, and the way these were presented to us, and felt
happy to commend the final positions to the Board.
As I explained in last year’s accounts, this is KPMG’s tenth
year as external auditors and we therefore, as required by law,
held a competitive tender during 2024 to appoint an external
auditor for the year ending 30 September 2026 and subsequent
years. As a result of this process the Committee recommended
the appointment of Deloitte LLP (‘Deloitte’), with the Board
accepting that recommendation.
Consequently, the supervision of the external audit transition,
as Deloitte undertook preparatory work during the course of the
year, was an important element of the Committee’s agenda. I
am pleased with the progress to date, including my interactions
with the incoming auditors, and look forward to working with the
Deloitte team in the future.
I would like to take this opportunity to express our gratitude
to the outgoing external auditor, KPMG, for their efforts over
the last ten years. The period has seen significant growth and
change for our business, with a commensurate increase in the
size and complexity of the audit effort required. KPMG have
presented the Committee with a robust level of challenge over
their decade in office. Michael McGarry and his team leave with
the Committee’s good wishes, and we would also like to thank
his predecessors as engagement partner and all the KPMG
engagement staff over the last ten years for their efforts.
The oversight of the Internal Audit function continued to be
an important part of both the duties of the Committee and my
responsibilities as Chair throughout the year. We consider that a
strong and effective Internal Audit function is vital to the proper
control of the operations of our businesses and the management
of risk across our operations. I was pleased that this year’s internal
review of effectiveness produced positive results, and offer the
Committee’s thanks to Sarah Mayne, our Chief Internal Auditor,
and her team for their diligence over the course of the year.
This year saw some minor changes to our internal audit
procedures as we adopted the newly updated Global Internal
Auditing Standards. This demonstrates that our approach aligns
to current best practice, giving us additional confidence in the
outputs produced.
With the majority of the provisions of the 2024 Code applying to
our governance framework from 1 October 2025, the preparation
for these changes was important to the Committee in the
year. However, Provision 29 of the new Code, which applies
from 1 October 2026, is an area of greater change and deals
with expectations in respect of control and risk management.
Naturally these provisions were a matter of direct interest for
the Committee, and we have monitored the progress of the
Group’s project to align to the new Provision. I was gratified to
note that the changes required will be incremental rather than
general, with our existing control systems and enterprise risk
management system forming a substantial foundation for the
developments required.
We continue to monitor developments as firms in the sector and
across industry more widely develop best practice in addressing
the new Code, particularly matters relating to Provision 29 and
material controls reporting.
Page 134
B6.2 Operations of the
Committee
At the start of the year end the Audit Committee comprised
three independent non-executive directors of the Company.
Additionally, Tanvi Davda became a member of the Committee
on 1 November 2024, bringing the current membership to four.
The terms of reference of the Committee include all matters
indicated by Disclosure and Transparency Rule DTR 7.1 and the
Code. These terms of reference were most recently updated in
September 2025 and are available on our corporate website. The
Committee’s key responsibilities include:
• Monitoring the integrity of financial reporting
• Reviewing the risk management and internal financial
control systems
• Monitoring and reviewing the effectiveness of the internal
audit function
• Monitoring the relationship between the business and the
external auditor
It also provides a forum through which the external auditor and
the internal audit function report to the non executive directors.
The operations of the Committee are conducted in accordance
with the FRC ‘Audit Committees and the External Audit:
Minimum Standard’ (the ‘Minimum Standard’).
The Chief Internal Auditor, Sarah Mayne, reports to the Chair of
the Committee. She attends all meetings of the Committee and
also reports regularly to the Risk and Compliance Committee.
The Committee considers that, as a whole, it possesses the
competence relevant to the sector in which we operate required
by the Code. Alison Morris has competence in accounting and
auditing, having been a senior partner in a major accountancy
firm, specialising in audit and assurance for financial services
entities, while other committee members have substantial
experience in various aspects of the financial services industry
obtained over the course of their careers. Details of Committee
members’ relevant experience are set out in Section B3.1.
The Committee meets at least four times a year and has an
agenda linked to events in our financial calendar. Meetings
generally take place before the half-year and year-end reporting
dates in March and September and before the approval of
results in May and November. The Committee normally invites
the Chair of the Board, the executive directors, CRO, Group
Financial Controller, Chief Internal Auditor and a partner and
other representatives from the external auditor to attend
meetings of the Committee, although it reserves the right to
request any of these individuals to withdraw if appropriate.
During the current year representatives of the incoming auditor,
Deloitte LLP, have also been invited to certain meetings, as part
of their preparations to assume office.
The Committee meets with representatives of the external
auditor without management present four times in its annual
meeting cycle. Similar meetings, in the absence of management,
are also held with the Chief Internal Auditor. For the meeting
cycle which concluded on 1 October 2025, only three of these
meetings fell into the related financial year, with the fourth on
1 October 2025.
Once more, we began the year in the expectation of new
legislation in the corporate governance and reporting space,
and a new mandate for the FRC, which was expected to become
the Auditing, Reporting and Governance Authority (‘ARGA’).
These proposals were signalled in the first King’s Speech of the
new UK administration. However, the proposals expected to be
published during the year have been delayed. The Committee
will continue to monitor developments with these proposals
and other reporting initiatives signalled by the UK Government,
evaluating potential impacts on our audit, reporting and
governance arrangements.
For the coming year ending 30 September 2026, the main
priorities for the Committee will include:
• Continuing to monitor the ongoing credit risk environment
and its impact on impairments, both in terms of
forward-looking indicators and in terms of the support
actual results give to our modelling approaches
• Keeping developments in respect of historical motor finance
commissions, and the Group’s provisions for them, under
review, as the FCA’s final requirements emerge and their
impacts become clearer
• Ensuring that our control processes and internal audit
capabilities continue to evolve alongside developments in the
business and emerging best practice. In particular ensuring
that our control environment is sufficient to support the
expectations of Provision 29 of the new Code, from the year
ending 30 September 2027, when it becomes applicable
• Monitoring the external audit transition, with KPMG
completing their final audits of subsidiary companies and
Deloitte auditing our financial statements for the first time
• Analysing how the business might be impacted by new
accounting, reporting and governance initiatives, particularly
the new UK Government’s developing corporate governance
and auditing agenda, and ensuring we are properly positioned
to respond to them
The 2025 financial year has been another challenging one for the
Committee. Accounting judgements remained complex and finely
balanced, taking up a significant amount of our time, but the overall
theme has been one of change and development. I was pleased to
welcome my colleague Tanvi Davda, the Chair of our Remuneration
Committee, to the Committee in November 2024. In addition,
our governance processes matured in the year, in anticipation of
the new Code, the new Global Internal Auditing Standards were
brought in, and the external audit transition progressed.
I thank my colleagues on the Committee for their engagement
with all these matters as they progressed through the year, and
the wider Board for their support. I look forward with interested
anticipation to the continuing development of all these themes
into 2026. I would also like to thank all the people across the
business whose input has supported the Committee’s work in
the year and who have contributed to the creation of this Annual
Report and Accounts.
The Committee and I are happy that this Annual Report properly
represents our business, its risk profile, financial position and
results, and we commend it to shareholders for approval at the
AGM in March 2026, along with the resolutions concerning the
appointment of Deloitte for their first year as external auditors,
and the fixing of their remuneration.
Alison Morris
Chair of the Audit Committee
3 December 2025
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Corporate Governance
During the year ended 30 September 2025, the Committee
met four times. The normal fifth meeting of its annual cycle was
held on 1 October 2025, after the end of the financial year. The
Committee’s principal activities were:
• Review of the annual and half-yearly financial statements to
ensure these properly present the activities of the business in
accordance with accounting standards, law, regulations and
market practice
• Consideration of the appropriateness and application of our
accounting policies for the recognition of interest income and
loan impairment, amongst other significant accounting issues
• Consideration of the results of the work carried out by the
external auditor on the annual and half-yearly financial
reporting including their views on significant judgements,
disclosures and the control environment
• Considering and concluding upon the annual report on the
effectiveness of risk management controls, prepared by
Internal Audit and the CRO
• Review of other financial information published, such as
Pillar III disclosures required by banking regulations
• Considering the level of assurance to be obtained in
respect of climate-related disclosures published in the
2025 Annual Report
• Receiving and considering reports from Deloitte LLP, the
incoming external auditor, on their work preparatory to their
2026 audit of the Group, as part of the audit transition process
• Review of the terms of reference of the Committee, and
recommendation of revised terms to the Board for approval
• Consideration of the potential impact of the ongoing
developments in corporate governance reform, including
the introduction of the 2024 Code, on our business and
on the role and activities of the Committee, in particular
the implementation of Provision 29 on the effectiveness of
internal controls
• Consideration of our readiness to address other
forthcoming accounting and reporting changes which will
affect the business
• Consideration of the results of the Internal Quality
Assessment of the Internal Audit function carried out in
the year
• Approval of the Internal Audit Plan and monitoring progress
against it
• Assessing the adequacy of the resources available to the
Internal Audit function
• Receiving and considering reports on internal audit reviews
conducted throughout the business
From time to time, where there are major changes in
accounting policies or audit arrangements in progress, the
Chair of the Committee may seek engagement or hold meetings
with shareholders.
Details of the Committee members’ attendance at meetings are
given in Section B3.3.
B6.3 Significant issues
addressed by the Committee
in relation to the Financial
Statements
The Committee considers whether the accounting policies
we adopt are suitable and whether significant estimates and
judgements made by management are appropriate. In evaluating
these financial statements for the year ended 30 September
2025 the Committee particularly considered:
• The levels of impairment provision against loan assets under
IFRS 9 and particularly the uncertainties arising from the
elevated interest rate environment, the inflationary pressures
of recent years, and the potential impact of both geopolitical
events and the policies of the new UK Government on the
economy and on our customers
• The calculation of interest income under the Effective
Interest Rate (‘EIR’) method, particularly for buy-to-let
mortgage assets
• The requirement for provisions in respect of the impact
of legal and regulatory issues regarding commissions on
historical motor finance business and the appropriateness of
related disclosures in the financial statements and the annual
report more widely
• The requirement for any impairment provision against the
purchased goodwill carried in the balance sheet, based on the
most recent forecasts for the businesses concerned
• The valuation of the surplus in our defined benefit
pension scheme
• The viability statement which we are required to make under
the Code
• The capital and funding position, our forecasts for future
periods, and their impact on the going concern assessment
required in preparing the financial statements
In each case the Committee considered whether these matters
were clearly and sufficiently disclosed in the accounts, with
appropriate sensitivities shown for all significant estimates.
The Committee also considered whether this Annual Report,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy.
In each of these areas the Committee was provided with
papers prepared by management, and reviewed by the external
auditor, discussing the position shown in the accounts, the
underlying market conditions and assumptions, and the
methodology adopted for any calculations. The papers also
detailed any changes in approach from previous periods.
These were reviewed in detail and discussed with the relevant
group employees and the results of this work were considered,
together with the results of testing by the external auditor. There
were no material or significant disagreements between the
management and the external auditor.
Page 136
Particular matters which the Committee focussed on in each of these areas were:
Matter Particular areas of focus
Loan impairment IFRS 9 requires that companies provide for future ECLs on any financial asset held on the balance
sheet on the amortised cost basis. These provisions are forward-looking in nature so are heavily
dependent on the use of judgement and estimation to evaluate both the likelihood and potential
amount of loss.
The economic environment, although more stable than in previous years still features relatively
high interest rates, while costs of living and doing business remain elevated by the inflation of
recent years. There remains uncertainty as to the economic impacts of recently enacted and
proposed UK Government policies, coupled with more general geopolitical concerns, which serve
to add complexity to any forecasting exercise. Our ECL models are based on observed data from
the recent low-rate, low-inflation environment and therefore may not be as reliable outside that
economic framework. These factors increase the potential requirement for judgement in arriving
at final estimates and hence the level of scrutiny required.
To satisfy itself that the process applied resulted in an appropriate level of provisioning, the
Committee considered particularly:
• The methods used to estimate probabilities of loss and potential losses, both mechanical and
judgemental
• The assumptions used as inputs in these calculations
• The economic projections used in deriving ECLs and the weightings applied to each scenario
• The appropriateness of the calculated provisions in light of the economy more generally
• The appropriateness of judgemental adjustments made to compensate for factors not fully
addressed in the modelling
• The particular issues affecting certain cohorts of development finance lending and how they
have been addressed for impairment purposes
To assess these decisions, the Committee considered actual results in the year compared to
those predicted by the impairment methodology and the continuing relevance of historical
information used in the process, based on present economic conditions, lending and account
administration practices.
The Committee also considered other intelligence on customers’ credit prospects available
through wider management information to ensure that the provisioning approach was consistent
with all known data.
Further information on these estimates can be found in note 65(a) to the accounts, the
impairment charge for the year and the movements in provision for impairment are shown in
notes 18 to 22. Exposure to credit risk is discussed in note 59
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Corporate Governance
Matter Particular areas of focus
Interest income
recognition
Income from loan balances is recognised on an EIR basis, which is intended to produce a
constant yield throughout the behavioural life of the loan, taking account of such matters as
costs of procuration and initially fixed or discounted interest rates. The calculation therefore
rests on assumptions about the future behaviour of customers, particularly at the end of a fixed
rate period.
The Committee assessed the appropriateness of the assumptions made, considering
performance of the portfolios against expectations and the impact of changes in
product specifications.
Particular consideration was given to our buy-to-let mortgage portfolio where redemption rates,
and income profiles subsequent to initial fixed rate periods, were areas of focus.
Further information on these estimates can be found in note 65(b) to the accounts, and the
interest income recognised on this basis is shown in note 4
Historical motor
finance commissions
We are exposed to liabilities in respect of historical motor finance commission practices. IAS 37
requires that a provision should be made where an outflow of economic benefits is likely and can
be reliably estimated.
The Committee considered the situation giving rise to the provision, reviewing internal and
external information, including the FCA consultation on its proposed redress scheme, to
determine whether the management’s conclusion on the likelihood of an outflow was appropriate.
It further considered the methodology used to arrive at the provision amount and whether this was
appropriate considering the Group’s position and the calculation basis proposed by the regulator.
Further information on this provision is set out in note 39
Goodwill impairment An assessment of whether the carrying value of the acquired goodwill carried in our balance
sheet, which is not subject to amortisation under IFRS, remains appropriate or whether any
impairment has occurred is required at least annually.
In considering whether any impairment of goodwill had occurred, the Committee particularly
considered forecasts for the future cash flows of the acquired businesses and their
reasonableness in light of current trading performance, together with our strategy for these
operations. The derivation of the discount rate used was also an area of focus.
The potential impairment of goodwill is discussed in notes 65(c) and 29
Defined benefit
pension obligations
The surplus on our defined benefit pension plan is valued in accordance with IAS 19, which
requires an actuarial valuation of the plan liabilities. Such a valuation is based on assumptions
including market interest rates, inflation and mortality rates in the Plan.
In order to satisfy itself as to the appropriateness of these assumptions, the Committee
considered their derivation and the market data underlying them. These were compared to market
benchmarks and advice from actuarial advisers. The Committee also considered benchmarking
data provided by the external auditor.
The Committee also considered the appropriateness of recognising the surplus in the balance sheet.
Further information on the Plan surplus, the basis of valuation and the assumptions underlying
it can be found in note 56 to the accounts, along with an analysis of sensitivities to the more
significant assumptions.
Viability statement The Board is required by the Code and the Listing Rules to make a viability statement in the
Annual Report. The Committee has been asked to express an opinion to the Board as to whether
this statement could properly be made.
The Committee considered aspects of the work of the Board and its various committees which
addressed our business model, risk profile, access to funds and future strategy. They also
considered guidance issued by the FRC and stress testing which had been carried out in the year,
particularly focussing on the levels of potential variability in the forecasting.
A fuller discussion of the directors’ consideration of the viability statement is set out in Section A5
Page 138
Matter Particular areas of focus
Going concern The Board is required by the Code and the Listing Rules to make a going concern statement in the
Annual Report. The Committee has been asked to express an opinion to the Board as to whether
this statement could properly be made.
The Committee considered our detailed forecasts and the implicit cash and capital requirements.
It also considered internal stress testing procedures, including the ICAAP and ILAAP outputs,
prepared for regulatory purposes.
The Committee discussed availability of funding, potential stress events and the impact of the
economic environment, including the uncertainties created by the continuing elevated levels of
interest rates and costs for our customers, the UK economy generally and our operations
in particular.
A fuller discussion of the directors’ consideration of the going concern statement is set out in
Section A5 and in note 66 to the accounts
Internal control and
risk management
The Board is required to make statements in the Annual Report and Accounts relating to our
systems of internal controls and risk management.
The Committee considered evaluations prepared by the Risk and Internal Audit functions,
together with the findings of internal audit reports in the year and its own engagement with senior
management and our management information.
The Board statements on internal control and risk management are set out in Section B8 and B9
Fair, balanced and
understandable
The Board is required by the Code to state whether, in its view, the Annual Report is fair, balanced
and understandable. The Committee has been asked to express an opinion to the Board as to
whether this statement could properly be made.
The Committee considered the draft Annual Report for the financial year, as a whole, satisfying
itself that the process for the preparation and review of its various sections was appropriate. The
Committee especially focussed on areas where disclosure requirements had changed or where
new activities or considerations were to be reported on. For all significant judgement areas the
Committee considered whether the disclosures made were consistent with its understanding of
those matters and provided sufficient and appropriate information to a user of the accounts.
Based on this exercise, and the Committee’s own understanding of the business in the year,
it determined whether the Annual Report, overall, portrayed the activities of the business, its
financial position and its results properly.
The Committee was able to reach satisfactory conclusions on all these areas and therefore resolved to commend the Annual Report
to the Board for approval, and to advise the Board that it could conclude that the Annual Report is fair, balanced and understandable.
Earlier in the year the Committee had considered each of these areas, where applicable, in the same manner in concluding that it
could commend our half-yearly financial report for the six months ended 31 March 2025 to the Board for approval.
The Committee’s consideration of the financial statements for the year ended 30 September 2024, which took place in the year under
review, is discussed in the Audit Committee report for that year.
The PRA Rulebook requires that a firm’s Pillar III report is subject to the same review processes as its annual report and accounts.
The Committee therefore reviewed the annual and half-yearly Pillar III reports, considering whether they included all material matters
required by the PRA Rulebook and whether they formed a fair representation of these matters
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Corporate Governance
B6.4 External Auditor
The Committee is responsible for assessing the effectiveness
of the external audit process, for monitoring the independence
and objectivity of the external auditor, and for making
recommendations to the Board in relation to the appointment
and remuneration of external auditors. The Committee is also
responsible for developing and implementing our policy on the
provision of non-audit services by the external auditor, which was
reviewed in the year. In managing the external audit relationship,
the Committee has had regard to the FRC Minimum Standard:
Audit Committees and the External Audit, published in May 2023.
Audit tendering
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 (the ‘Order’)
requires that only the Committee can agree the fees and
terms of service of the external auditors, initiate and supervise
a tendering process, or recommend the appointment of an
external auditor to the Board following a tender process. The
Group has complied with the requirements of the Order during
the year.
KPMG were appointed as auditors, following a
competitive tender process, with effect from the year ended
30 September 2016 at the AGM in February 2016. The financial
year ended 30 September 2025 is the tenth reported on by
KPMG. Michael McGarry has been the KPMG engagement
partner since the year ended 30 September 2023 and the
current year is the third for which Michael has held this
responsibility. It is the policy of both the Group and the
external auditor that no engagement partner should serve
for more than five years.
We are subject to a legal requirement to undertake an audit
tender once ten years have elapsed, meaning that a tender
process for external audit services for the year ending
30 September 2026 was required. This process was completed
during the year ended 30 September 2024 and was described in
the Audit Committee’s report in the Annual Report for that year.
This process resulted in a recommendation that Deloitte LLP
should be appointed as external auditor, subject to approval at
the 2026 AGM.
Other than the legal requirements of the Order and the general
constraints imposed by the current structure of the UK audit
market, including independence requirements, the Committee
has not identified any factors which might restrict its choice of
external auditor.
Before recommending the appointment of Deloitte LLP as
the Group’s external auditor to the AGM, the Committee must
consider whether they are able to provide the required service
to the appropriate standard and are independent of the Group.
To this end, the Committee considered whether Deloitte’s
understanding of the business, their access to appropriate
financial services and regulatory specialists within their firm,
both locally and nationally, and their understanding of the
sectors in which we operate were appropriate to our needs.
As part of this exercise the Committee also considered the
transparency report published by Deloitte, and the FRC’s most
recent Audit Quality Review (‘AQR’) audit inspection review on
Deloitte, published in July 2025.
As a result of these exercises the Committee concluded
that it would recommend to the Board that a resolution
to appoint Deloitte as external auditor for the year ending
30 September 2026 should be proposed at the
forthcoming AGM.
Audit effectiveness
Notwithstanding the proposed change in external auditor
referred to above, the Committee has considered the
effectiveness of the external audit for the year ended
30 September 2025 and our relationship with the external
auditor, KPMG, on an on-going basis, and has conducted a
formal review of the effectiveness of the annual audit before
commending this Annual Report to the Board. This review
consisted of the following steps:
• A list of relevant questions was considered by senior
management, who submitted their responses in writing to the
Committee in advance of the meeting convened to consider
the Annual Report
• The external auditor was also asked to provide feedback on
the degree to which their audit plan had been efficiently and
effectively carried out
• The Committee members considered their experience of the
audit process in advance of that meeting
• At the meeting the Committee discussed the results of
the exercise with senior financial management without the
external auditor present
• The Committee then addressed the evaluation, as
appropriate, with the external auditors
The Committee was able to conclude, on the basis of this
exercise and its experience over the year, that the external
audit process remained effective, and that the auditor was
independent and objective, up to the signing date of this report.
A further review will be carried out following the completion of
audit procedures on all group companies and reported on in next
year’s Annual Report.
The effectiveness review addressing the conduct of the
2024 audit, undertaken at the time of approval of the 2024
consolidated accounts, was updated once the external audit
process for all group companies had been completed. This
affirmed the original conclusion, that the external audit was
independent and objective and that the audit process was
effective for that financial year.
Independence policy
Each of the Committee, the current external auditor and the
proposed external auditor have safeguards in place to avoid any
compromise of the independence and objectivity of the external
auditor. The Committee considers the independence of the
Group’s external auditor annually and there is a formal policy
setting out measures to ensure that independence is preserved.
The policy is designed to ensure that neither the nature of the
service to be provided, nor the level of reliance placed on the
services, could impact the objectivity of the external auditor’s
opinion on the financial statements.
The current policy, which is consistent with the FRC Ethical
Standard for auditors, limits the use of the external auditor to
supply non-audit services to those services where the use of
the external auditor is expected or mandated by legislation or
regulation. The Committee must approve any engagement of
the external auditor for non-audit work, except where the fee
involved is clearly trivial. The policy also sets out rules for the
employment of former employees of the external auditor and
procedures for monitoring such persons within the organisation.
The Committee reviews, on a regular basis, the levels of fees
paid to all major accounting firms and the nature of any ongoing
relationships to identify any matters which might impact on those
firms’ ability to tender for the group audit at any future date.
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Fees paid to the external auditor
Fees paid to the external auditor are shown in note 9 to the
accounts. The ‘other services’ provided by KPMG include
only services required to be provided by external auditors by
legislation or regulation, including the review of half-yearly
financial information, profit verification for regulatory purposes,
and reporting on financial matters required in our covered
bond prospectus.
Audit fees of group entities for the year, including fees for
the review of the half-year report, have increased by 9.2% to
£3,075,000 (2024: £2,817,000). This was principally a result
of continuing general inflation in professional services fees,
particularly for more specialist resource.
The EU Audit Regulation (which remains directly applicable in
the UK under Brexit legislation for the time being) contains a
70% cap on non-audit fees for services provided to EEA Public
Interest Entities (‘PIEs’). For this purpose, non-audit services
include audit-related services other than those services required
by EU or national law such as reporting on interim financial
information and regulatory profit confirmations, which are
required by non-statutory regulations.
Non-audit fees paid to the auditor for the year ended
30 September 2025 should be no more than 70% of the average
of the audit fees for 2022, 2023 and 2024. As this average was
£2,318,000, the non-audit fee cap for the year was £1,627,000.
Fees paid to KPMG, the external auditor, for non-audit services,
as defined by the Regulation, during the year were £275,000
(2024: £200,000), well within the cap. All these fees were for
services related to the external audit, as described above, and
additional work in connection with our covered bond issue.
We actively consider other providers for the type of non-audit
services typically provided by accounting firms. We maintain
on-going relationships relating to tax, remuneration and
regulatory advice with firms other than the external auditor’s
firm and consider discrete projects on a case-by-case basis.
We engaged with a number of firms, including some outside
the ‘big four’ largest audit firms, in considering appointments
for assignments during the year, assessing each firm’s
appropriateness for the particular assignment before an
appointment was made. Fees paid to audit firms (excluding VAT),
excluding the external audit and related fees can be analysed as
shown below:
2025 2024
£000 £000
Auditors – KPMG 70 -
Other big four firms 1,436 1,177
Other firms 84 42
1,590 1,219
We maintain relationships with all the major accounting firms
and consider a variety of providers for these types of assignment.
Fees paid to the incoming external auditor, Deloitte, in the year
were £12,000. These fees related to assignments which were
completed before Deloitte began their work on audit transition,
and do not impact on Deloitte’s independence for the purposes
of their proposed appointment as external auditors.
B6.5 Internal Audit
The Committee is responsible for considering and approving
the remit of the Internal Audit function, approving the Internal
Audit Plan (‘IAP’), and ensuring the function has adequate
resources and appropriate access to information, to enable it
to perform its function effectively and in accordance with the
relevant professional standards. It also receives the function’s
reports and evaluates the adequacy of management’s responses
to them. The Committee also ensures that the internal audit
function has adequate standing and is free from management or
other restrictions which may impair its independence.
Objective
Internal Audit receives its authority through the mandate granted
by the Audit Committee. The primary purpose of Internal Audit
is to help the Board and senior management to protect the
assets, reputation and sustainability of the Group. It does this
by providing independent, risk-based and objective assurance,
advice, insight and foresight and challenging and influencing
senior management to improve the effectiveness of governance,
risk management and internal controls.
Internal Audit forms the third line of defence in our risk
management model (Section B8). The scope and responsibilities
of Internal Audit are set out in the Internal Audit Charter, which
is reviewed annually by the Committee, most recently in May
2025. The Charter was updated in November 2024 to address
the introduction of the new UK Internal Auditing Code of Practice
and Global Internal Auditing Standards which came into effect
in January 2025. A copy of the current Charter is available in the
Governance section of our corporate website.
Internal Audit maintains a good working relationship with the
external audit team, meeting regularly throughout the year,
independently of other senior management.
The function is led by the Chief Internal Auditor, Sarah Mayne,
who reports directly to, and has a close working relationship
with, the Chair of the Committee. She became a member of
Performance ExCo and ERC on 1 October 2024, having previously
attended all meetings of the committees as an observer.
Operations
In September 2025, the Committee considered and approved
the annual IAP for the year ending 30 September 2026, which is
based on an assessment of the key risks faced by the Group. The
IAP is produced on a six (month) plus six basis, to facilitate its
revision during the year, based on the ongoing assessment of key
risks or in response to the requirements of the Group. The IAP
for the financial year ended 30 September 2025 was approved
before the beginning of the year, with the plus six half-year review
of the IAP completed by the Committee in March 2025, when a
small number of changes were approved.
Progress in respect of the plan is monitored throughout the
year with the Chief Internal Auditor providing an update to
each meeting of the Committee. A private session is also held
between the Chief Internal Auditor and the Committee without
management present at least twice a year.
The Chief Internal Auditor met regularly throughout the year with
the Chair of the Committee to discuss progress against plan,
outstanding agreed actions, and departmental resourcing. Ahead
of finalisation of the IAP for the year ending 30 September 2026,
the Chair of the Committee met with the Chief Internal Auditor to
discuss audit planning priorities, key business risks and to assess
current resourcing.
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Corporate Governance
All internal audit reports are circulated to the Board. During the
year the Board has received reports covering themes including:
prudential, model and credit risk management; the operation of
lending and customer-focussed areas; management of financial
crime; change management; and IT.
Significant findings of internal audit reports and management’s
responses are discussed at meetings of the Committee
throughout the year. Overdue actions graded medium or above
are reviewed and challenged at both the Committee and the
Risk and Compliance Committee. The Chief Internal Auditor also
provides an update on key risk themes emerging from Internal
Audit reviews to the Risk and Compliance Committee and is an
attendee at all executive risk sub-committees (as described in
Section B8.2).
On an annual basis, Internal Audit reports to the Committee
on its assessment of the effectiveness of the operation of
risk management and control arrangements, including details
of themes raised within internal audit reports. Review of this
assessment is one of the means by which the Committee
assesses and challenges related management judgements and
conclusions as disclosed in this Annual Report and Accounts, as
noted above.
The last such report, completed in November 2025, concluded
that these arrangements were operating effectively (Section
B6.3). The Committee also considered and concluded upon the
independence of the Internal Audit function at this time.
Resources
The Chief Internal Auditor provides the Committee with regular
assessments of the skills required to conduct the IAP and
whether the internal audit budget is sufficient to recruit and
retain staff, or to procure other resources, with relevant expertise
and experience. The Committee approves the budget for Internal
Audit and assesses the resource plan on an ongoing basis,
to ensure that the internal audit function has sufficient and
appropriately skilled resources to complete the plan and that the
ongoing capabilities of Internal Audit remain strong, to support
future assurance. Alongside the review and approval of the IAP,
the Committee formally confirms that it is satisfied that these
resources are appropriate.
During the year, several technical and specialist reviews have
been co-sourced under agreements with third-party firms, on a
subject matter expertise basis, where it was deemed by the Chief
Internal Auditor that such skills would complement and develop
those of the internal team.
Effectiveness
The Committee assesses the effectiveness of the internal audit
function by reference to standards published by the Chartered
Institute of Internal Auditors (‘CIIA’) on an annual basis. In May
2025, the Committee considered the output of an internally
produced effectiveness review, following the external quality
assessment (‘EQA’), undertaken by an independent specialist
firm during 2023.
The internal effectiveness review, which was supported by
feedback from stakeholders across our businesses, concluded
that the function was operating effectively in accordance with
required standards.
As a matter of policy, the Committee intends to commission
an EQA at least every five years and, as such, an EQA review will
next take place during the year ending 30 September 2028. In
the intervening years the Committee will consider the outputs
of internal effectiveness reviews undertaken on a self-
assessment basis.
B7. Remuneration Report
This report covers the activities of the Remuneration Committee for the year ended
30 September 2025 and sets out the remuneration details for the executive and
non-executive directors of the Company. It has been prepared in accordance with
Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008, as amended, and the principles of the Code.
This report consists of the Statement by the Chair of the Committee (B7.1), the full
Remuneration Policy proposed to apply from the close of the AGM on 4 March 2026
(B7.2) and the Annual Report on Remuneration (B7.3).
The full Remuneration Policy applying to the Group in the year, is set out in the Annual
Report and Accounts for the year ended 30 September 2022, a copy of which can be
found at www.paragonbankinggroup.co.uk.
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Corporate Governance
B7.1 Statement by the Chair of the Remuneration Committee
The information provided in this section is not subject to audit
Dear Shareholder
As Chair of the Remuneration Committee, I am
pleased to present the Directors’ Remuneration Report
for the year ended 30 September 2025. The Committee
also presents its proposed Directors’ Remuneration
Policy (the ‘Policy’) and details of the approach to
its implementation in 2026 (subject to shareholder
approval at the AGM in March 2026).
This report provides a comprehensive overview
of the structure of the executive directors’
remuneration framework, its alignment with the
business strategy and with the remuneration of
other employees. Additionally, it sets out how the
Committee has addressed its responsibilities
during the year and explains the rationale for
our decision making.
Business performance and variable pay
earned in the year
The outcome of variable pay awards this
year reflects another year of strong financial
performance which is detailed throughout this
Annual Report and Accounts. Both executive
directors are being awarded an annual bonus
of 90.2% of maximum opportunity. The basis
for these awards is shown in the balanced
scorecard assessment later in this report.
The Performance Share Plan (‘PSP’) awards
that are due to vest in December 2025 will vest
at 90.07% of maximum. This also reflects strong
performance across the period with underlying
EPS increasing by 56.9% across the three-year
period and the non-financial metrics producing
outcomes in the top quartile representing the
delivery of good customer outcomes and reflective
of our strong people and risk-focussed culture. It is
the first year in which the climate metric has vested,
and its performance has also been positive showing
the Group’s commitment to sustainability.
Further information about our sustainability
commitments can be found in Section A6
Review of the Directors’ Remuneration Policy
The current Policy has been in place since 2023, when it was
approved at the AGM with a 97% vote in favour. It structured
remuneration within the constraints of the regulatory regime
that prevailed at the time.
The Remuneration Committee conducted its review of the
Policy in a significantly different regulatory context to that in
place in 2023. Following recent changes to regulation, including
the removal of the bonus cap, we were able to consider updating
the Policy to better align with our core remuneration design
principles, which were embodied in the Policy in operation prior
to 2020. It also provided us with the opportunity to have a Policy
with greater similarity to our FTSE-250 peers, resulting in a
more competitive total remuneration positioning (quantum and
structure) compared to them and the broader market.
Remuneration principles
We sought to adhere to three key principles in determining the
proposed changes for this Policy review:
• Simplification and market alignment: wherever possible we
wanted to simplify the Policy and move to an approach that is
more reflective of our FTSE-250 peers in terms of structure
and quantum
• Strengthen shareholder alignment
• Recognise the sustained outperformance of our
long-standing executive directors
In Section B7.2.1 we lay out how these principles have informed
our proposed changes and the rationale for each change.
Shareholder consultation on changes
We have consulted widely with our major shareholders on the Policy
proposals with positive feedback received. Further details of the
consultations and discussions are in Section B7.2.1.
The Remuneration Committee believes these Policy proposals
support a strong performance culture, alignment with shareholders
and drive the long-term growth and success of Paragon.
Summary of proposed changes to Directors’
Remuneration Policy
• Reduction in fixed pay of 16.5%, including removal of the
salary in shares element
• Return of incentive opportunities to those that applied pre
bonus cap (200% of salary for both bonus and PSP)
• Increase in the weighting of financial metrics in the bonus and
PSP to 75% and replacement of the risk elements of each
scorecard with overall risk underpins
• Increase in the executive director shareholding requirement
to 300% of salary
• Introduction of mandatory deferral of 50% of annual bonus,
reducing to 20% if the shareholding requirement is met
Further details on these proposals can be found
in Section B7.2.2
Conclusion
Our remuneration policy remains consistently applied, with this
year’s outcomes for executive directors aligned to Paragon’s
strong performance both in absolute terms and relative to peers.
I would like to express my appreciation to the shareholders and
other stakeholders who met with me and the Chair of the Board
this year for their valuable insights, and to all shareholders for
their ongoing support.
I recommend this report to shareholders and ask you to continue
to support the work of the Committee by voting in favour of the
resolutions to approve the new Remuneration Policy set out
in Section B7.2 and the Company’s Directors’ Remuneration
Report set out in Section B7.3 that are being put to the AGM
in March 2026.
Tanvi Davda
Chair of the Remuneration Committee
3 December 2025
B7.2 Policy statement
B7.2.1 Introduction
(This introduction does not form part of the Policy, which is set
out in section B7.2.2)
This part of the Directors’ Remuneration Report sets out the
Directors’ Remuneration Policy (the ‘Policy’) that will be subject
to shareholder approval at the Annual General Meeting to be
held on 4 March 2026. This Policy is expected to apply for a
period of three years, unless revised by a vote of shareholders
ahead of that time.
The Company’s current Directors’ Remuneration Policy was
approved at the 2023 AGM and was heavily driven by the
regulatory environment, and in particular with the need to
comply with the 2:1 bonus cap. It therefore included features
that were not our natural preference, including a pay mix that
featured more fixed pay and less variable pay than we would
have chosen, and the payment of part of the salary in shares.
Subsequent changes to regulation, including the removal of the
2:1 bonus cap in late 2023, provide the opportunity to ensure
that, going forward, the Policy will provide greater alignment
to performance and shareholder experience. Broadly, we
are proposing to revise the Policy to revert to the incentive
opportunities that were in force prior to the introduction of the
bonus cap.
Over the course of summer 2025, we engaged extensively
contacting approximately 70% of our shareholder base and
meeting with nearly 54% (based on shareholder analysis at
30 September 2025). We were pleased that the shareholders we
consulted with were broadly supportive of our proposals. Their
engagement and feedback have shaped the final Policy outlined
in Section B7.2.2.
The following pages set out our proposed Policy and the changes
we are making in detail.
Objectives
In commencing our review of the Policy, there were three key areas
we were looking to address (and which formed the basis of our
discussions with shareholders as part of the consultation process):
1. Simplification and market alignment
We are proposing to utilise the flexibility available from the
removal of the bonus cap, which will result in a simpler Policy that
is more aligned with the structure of financial services peers and
the wider FTSE. This includes the removal of the requirement to
pay part of the salary in shares.
2. Strengthen shareholder alignment
The constrained variable incentive opportunities in the existing
Policy limit the extent to which we can fully align directors’
remuneration with the shareholder experience. The Policy put
forward seeks to improve this alignment both by increasing the
proportion of remuneration which is variable, and by increasing
the weight given to financial metrics in its calculation.
3. Recognising sustained performance
The directors have delivered strong performance over many
years, with underlying earnings per share up 199.7% over the past
ten years and dividend per share up 299.1% over the same period.
The Policy proposed is more aligned with incentivising
performance, resulting in lower outcomes if performance
is weaker and the potential for higher outcomes for the
achievement of more stretching performance targets than is the
case under the existing policy. This in turn will continue to drive
growth in the business and returns for shareholders.
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Overview of the proposed Policy
The table below summarises the proposed Policy based on directors’ 2025 remuneration. It excludes the wider workforce aligned
salary increase of 3.0% effective from 1 October 2025.
Proposed changes Rationale
Fixed pay
• Reduction in total fixed pay of 16.5%
• Removal of salary in shares
• No change in pension contribution rate
• Simpler
• Rebalances pay from fixed to variable
• More market aligned structure (no salary in shares,
lower fixed)
• Reverts to pre-2020 Policy
Variable pay opportunity
• Bonus increased from 98% of salary to 200%
of (the lower) salary
• PSP increased from 118% of salary to 200%
of (the lower) salary
• Increases pay for performance with more
stretching targets
• Strengthens shareholder alignment
• Greater market alignment (lower fixed but higher variable)
• Reverts to pre-2020 Policy
Variable pay metrics
• Increase in the percentage of the quantifiable financial
metrics to at least 75% (bonus: previously 60%; PSP:
previously 50%)
• Reduce the number of metrics, including replacing the risk
metric with a risk underpin
• Emphasises key financial targets
• Simpler
• Recognises the increased variable pay opportunity
Shareholding requirement
• Increase from 200% of salary to 300% of salary • Increases shareholder alignment
• Recognises the increased variable pay opportunity
Bonus deferral
• Annual bonus deferral of 50% (previously deferral applied
only when required by regulation)
• Where the shareholding requirement is achieved, this
reduces to 20% of bonus*
• Simpler
• Strengthens shareholder alignment
• Greater market alignment
• Restores bonus deferral which was also a feature of the
pre-2020 Policy
*Subject to meeting banking remuneration regulatory requirements
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Corporate Governance
PSP vesting and bonus deferral
Following publication of the new PRA / FCA remuneration regulations in October 2025, the implementation of our Policy will comply
with both the PRA / FCA remuneration regulations applicable to larger UK banks as well as the requirements of the UK Corporate
Governance Code.
In practice, for the year ending 30 September 2026 this will mean that:
• The upfront element of any annual bonus will be delivered in cash
• The deferred bonus element will be deferred into shares vesting pro-rata over three years
• After the three-year PSP performance period, 75% of the resulting shares will vest on the third anniversary of the grant and be
subject to a two-year holding period (on a net of tax basis) and the remaining 25% will vest after a further year and be subject to a
one-year holding period
The impact of the proposed changes on quantum can be summarised as follows:
Current and Proposed Policy
N S Terrington (CEO) R J Woodman (CFO)
0
MaxFixed pay 50% vesting
1,055
2,110
881
16.5%
decrease
16.5%
decrease
17.7%
increase
17.7%
increase
29.1%
increase
29.1%
increase
2,484
3,165
4,086
1,335
667
557
1,571
2,002
2,584
ProposedCurrent Current ProposedProposed Current
Salary - cash Salary - shares Pension
Bonus PSP
2,500
2,000
1,500
1,000
500
3,000
3,500
4,000
5,000
4,500
MaxFixed pay 50% vesting
ProposedCurrent Current ProposedProposed Current
£ ‘000
0
2,500
2,000
1,500
1,000
500
3,000
3,500
4,000
5,000
4,500
£ ‘000
Early release of outstanding salary in shares
Our current Policy stipulates that the salary in shares element will be released pro-rata over five years. At 30 September 2025, shares
held on this basis represented 44,584 (3.4%) of Nigel Terrington’s total beneficial holding of 1,328,622 shares, and 28,228 (5.7%) of
Richard Woodman’s total beneficial holding of 493,659 shares. In line with our objective of simplification, and given the small value of
outstanding salary in shares, we are proposing to release the outstanding salary in shares tranches in one block during 2026.
Shareholders are asked to approve this change, which will simplify the ongoing remuneration structure by avoiding an overhang from
the previous policy as well as removing a significant administrative burden which provides limited additional shareholder alignment
given the large existing shareholdings of our current executive directors.
Page 146
Shareholder engagement
We consulted extensively with 54% of our shareholders over summer 2025, and we were pleased that the investors we consulted with
were broadly supportive of our proposals. They were particularly supportive of the:
• Changes to variable pay performance metrics, including the increased weighting to quantifiable financial metrics and making risk
an underpin
• Removal of salary in shares
• Increased shareholding requirement
• Block release of the outstanding salary in shares
• Reversion to the pre-2020 policy incentive opportunities, and the resulting rebalancing from fixed to variable pay
Some shareholders had particular views on specific areas of our initial proposals. The Committee reflected on all the feedback
received and as a result, we made some adjustments to our proposals reflecting the comments. In particular:
• We further reduced fixed pay
• We further increased the weighting towards quantifiable financial metrics in both the annual bonus and PSP
• We increased the level of bonus deferral that will apply when the shareholding requirement has been met
Shareholders also told us that given the increase in variable pay opportunities there should be a corresponding increase in the level
of stretch in the performance metrics. The Committee understands shareholder views in this area, and the need for higher payouts
to reflect stronger performance. Whilst bonus targets for 2026 will be disclosed retrospectively in the usual way, this shareholder
feedback is reflected in the EPS PSP targets disclosed in Section B7.3.3, where stretch performance is 24% higher than that included
in the previous grant.
Market positioning
While positioning relative to peers was not a key driver in our decision-making, when developing our proposals we were mindful
of their impact on our market positioning. We considered the impact of our proposals against a peer group of FTSE-250 financial
services companies, which we consider to be the most appropriate reference point. While we strived to use a sector-specific peer
group, following a degree of consolidation, the vast majority of banks are now either significantly larger or smaller than Paragon in
size and complexity, and therefore do not provide suitable context for benchmarking.
As a result, we have included the following firms within our pay benchmarking peer group: Aberdeen Group; AJ Bell; Alpha Group
International; Ashmore Group; Bridgepoint Group; Caledonia Investments; CMC Markets; Direct Line Group; Foresight Group
Holdings; IG Group; IntegraFin Holdings; Investec; IP Group; JTC Group; Jupiter Fund Management; Just Group; Lancashire Holdings;
Lion Finance Group; Man Group; Metro Bank Holdings; Molten Ventures; Ninety One; OSB Group; Plus500; Quilter; Rathbones
Group; Sirius Real Estate; TBC Bank Group; TP ICAP Group; and XPS Pensions Group. We have also added Shawbrook Group,
following their recent Initial Public Offering.
As demonstrated in the chart below, we are positioned above median based on a 3-month market capitalisation to 30 September.
Further, looking at long-term returns, we have consistently delivered above upper quartile levels of Total Shareholder Return.
3 month average market capitalisation TSR
Market capitalisation is three month average to 30 September 2025 TSR is calculated as the percentage change to the spot value on the
30 September 2025 from the spot value on the 1 October of the
relevant prior year
0
Market Capitalisation 3y TSR 5y TSR
LQ - M M - UQ Paragon Banking GroupLQ - M M - UQ Paragon Banking Group
2,000
1,500
1,000
500
2,500
£ ‘m
0
50%
100%
150%
200%
300%
250%
%
Data sourced from Datastream from LSEG.
Page 147
Corporate Governance
As demonstrated in the chart below, the proposals result in a package that is between the median and the upper quartile on both a
total target and total maximum basis. As maximum awards would only be paid for exceptional performance, we believe this positioning
is appropriate and ensures we have the ability to incentivise and recognise the performance of our current executive team, as well as
being able to attract future executives at the appropriate time in the future.
N S Terrington R J Woodman
0
Total Maximum RemunerationTotal Target Remuneration
LQ - M M - UQ Paragon - proposedParagon - current LQ - M M - UQ Paragon - proposedParagon - current
2,000
1,500
1,000
500
5,000
4,000
4,500
2,500
3,000
3,500
0
2,000
1,500
1,000
500
5,000
4,000
4,500
2,500
3,000
3,500
£ ‘000
Total Maximum RemunerationTotal Target Remuneration
£ ‘000
CEO CFO
B7.2.2 Proposed policy
Elements of the remuneration policy for executive directors
The executive directors receive a combination of fixed and performance-related elements of remuneration. Fixed remuneration
consists of salary, benefits and pension scheme contributions or alternative retirement benefit provision. Performance-related
remuneration consists of participation in the annual bonus plan (including deferral) and the award of shares under the PSP. The
performance-related elements of remuneration are intended to represent an appropriate proportion of executive directors’ potential
total remuneration.
Page 148
Purpose and link
to strategy
Operation Maximum opportunity Performance
conditions
Base salary
To provide a fixed
component, set such
that the overall package
is competitive, reflects
the scope of individual
responsibilities and
recognises sustained
individual performance
in the role.
Base salaries are paid monthly in
cash. They are typically reviewed
annually, taking into account a
number of factors including (but
not limited to) the value of the
individual to the business, the
scope of their role, their skills and
experience and their performance.
The Committee also takes into
account pay and conditions of
employees in the Group as a
whole, business performance and
prevailing market conditions.
Base salary is reviewed each
year across the organisation. If
the Committee is satisfied with
the individual’s performance,
increases will usually broadly
follow those awarded for the
rest of the organisation, in salary
percentage terms. There is no
maximum salary set.
Increases above the level awarded
for the rest of the organisation
may on occasion be awarded in
appropriate circumstances which
may include, but are not limited to:
• changes in the scope or
responsibilities of a
director’s role
• development or performance
in role
• a change in the size and/or
complexity of the business
• change in market practice or a
director’s salary substantially
falling behind a market
competitive rate and / or
• external factors such as
changes in regulatory
requirements
Whilst no formal
performance conditions
apply, an individual’s
performance in role is
taken into account in
determining any
salary increase.
Benefits
To provide market
levels of benefits on a
cost-effective basis.
Private health cover for the
executive and their family, life
insurance cover of up to seven
times’ salary and company car or
cash alternative.
Private health care benefits are
provided through third party
providers and therefore the cost to
the company and the value to the
director may vary from year-to-year.
Other benefits may be offered
from time to time taking into
account individual circumstances.
Whilst no absolute maximum
level of benefits has been set,
the level of benefits provided
is determined taking into
account individual circumstances,
overall cost to the business
and market practice.
None.
Retirement benefits
To provide competitive
post-retirement benefits.
Executive directors receive
an annual contribution to the
Company’s defined contribution
pension scheme or a cash
supplement in lieu of contribution
(or a combination thereof).
Maximum 10% of salary for
both incumbent and newly
recruited executive directors.
This level is in line with that
which applies to the majority of
the workforce. The maximum
for executive directors may be
increased in line with any increase
available to the wider workforce.
None.
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Corporate Governance
Purpose and link
to strategy
Operation Maximum opportunity Performance
conditions
Annual bonus
To incentivise executive
directors to achieve
specific, predetermined
goals that drive delivery
of the Company’s
operational objectives.
To reward individual
performance.
To encourage retention
and alignment with
shareholders’ interests.
Each executive director’s
annual bonus is based on a mix
of financial and non-financial
performance measures
measured over one year.
The annual bonus is
non-pensionable. Malus and
clawback apply to the annual
bonus as described in the notes
to this table.
The annual bonus will be
delivered in a combination of
shares and / or cash and will,
in combination with the PSP
award, be structured in line with
the PRA / FCA remuneration
regulatory requirements.
50% of the annual bonus will
be deferred.
Where an executive director
has achieved their shareholding
requirement, the required deferral
will be reduced to 20% of the
annual bonus.
Maximum annual bonus potential
is 200% of salary in respect of any
given financial year.
For threshold performance a
bonus of 25% of maximum will
be awarded, for target 50% of
maximum. For performance below
threshold, no bonus is payable.
If a bonus is based on a strategic
measure or personal objective,
the Committee will determine the
extent of vesting between 0% and
100% based on its assessment of
the extent to which the measure
or objective has been achieved.
Deferred shares may carry
an entitlement to dividend
equivalents. Where regulations
prevent the payment of dividend
equivalents over the deferral
period, the number of deferred
shares awarded will be calculated
by reference to a discounted
share price reflecting the lack
of entitlement to dividends or
dividend equivalents.
The performance targets
are set by the Committee
at the start of the year.
Performance measures
and their weightings are
reviewed annually to
maintain appropriateness
and relevance.
Performance is assessed
against a range of
measures, with at
least 75% relating to
quantifiable financial
metrics and any balance
reflecting non-financial
measures and / or
achievement of key
personal and strategic
measures.
Performance Share Plan (‘PSP’)
To incentivise executive
directors to achieve
enhanced returns for
shareholders.
To encourage
long-term retention
of key executives.
To align the interests
of executives and
shareholders.
An annual award of shares
subject to continued service
and performance conditions
assessed over a three-year
performance period.
Awards that vest will, in
combination with the annual
bonus, be deferred to meet
PRA / FCA remuneration
regulatory requirements. In
all circumstances, the awards
will comply with UK Corporate
Governance Code provisions in
relation to the combined vesting
and holding period.
Maximum award is 200% of salary.
Up to 25% of the award will vest
for threshold performance.
Awards may carry an entitlement
to dividend equivalents. Where
regulations prevent the payment
of dividend equivalents over the
vesting period, the number of
shares awarded will be calculated
by reference to a discounted
share price reflecting the lack
of entitlement to dividends or
dividend equivalents.
The Committee will
take into consideration
prior performance when
assessing the value of the
PSP grant.
Forward-looking
performance is measured
against a long-term
scorecard of challenging
performance measures
that reflect the Company’s
strategic priorities.
Performance conditions
will include at least 75%
relating to quantifiable
financial measures (such
as adjusted EPS and /
or relative TSR). Non-
financial measures may
include customer and
sustainability.
Performance measures
and their weightings,
where multiple measures
are used, are reviewed
annually to maintain
appropriateness
and relevance.
Page 150
Purpose and link
to strategy
Operation Maximum opportunity Performance
conditions
Shareholding guidelines
To further align the
interests of executives
and shareholders.
To incentivise executive
directors to achieve
enhanced returns for
shareholders.
All executive directors are
required to hold a number of
shares in the Company with a
market value of 300% of their
salary. The guideline must be met
within a reasonable timeframe
(typically expected to be within
five years of appointment).
Executive directors are normally
required to retain 50% of the
shares acquired through the
annual bonus or PSP (after sales
to cover tax) until the guideline
is met.
Shares that count towards
meeting the requirements include
beneficially owned shares, vested
share awards, the estimated after-
tax value of share awards under
the annual bonus or PSP that
are no longer subject to further
performance assessment.
For two years following cessation
of role, an executive director
must retain a number of shares
(determined on cessation) equal
to their shareholding guideline (or
their actual shareholding if lower).
Shares that have been purchased
by the executive director will not
be included for the purposes of
determining the number of shares
to be retained.
No maximum. None.
Sharesave plan
To provide all employees
with the opportunity to
become shareholders on
the same terms.
Periodic invitations are made
to participate in the Company’s
Sharesave plan.
A savings contract over three
or five years where the funds
are used on maturity to either
purchase shares by exercising
options or are returned to
the participant.
The option is granted at a
discount to the share price at the
time of grant of up to 20%.
The Sharesave plan provides
tax benefits in the UK subject
to satisfying certain HMRC
requirements and is operated on
an ‘all-employee’ basis.
HMRC monthly savings
limits apply.
None.
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Corporate Governance
Illustrations of the application of the remuneration policy
The charts below illustrate the remuneration opportunity provided to each executive director at different levels of performance for the
coming year. As Sharesave awards are provided on an all employee basis, they have not been included in the above analysis.
N S Terrington R J Woodman
0
Minimum
£933
Targe t
£2,583
Maximum
£4,233
Maximum with share
price appreciation
£5,059
Total fixed Bonus LT I P Potential outcome of a 50% share price increase on the LTIP
2,500
2,000
1,500
1,000
500
3,000
3,500
4,000
5,000
4,500
£ ‘000
0
Minimum
£589
Targe t
£1,633
Maximum
£2,677
Maximum with share
price appreciation
£3,199
2,500
2,000
1,500
1,000
500
3,000
3,500
4,000
5,000
4,500
£ ‘000
CEO CFO
100% 36%
32%
32%
22%
39%
39%
18%
33%
33%
16%
100% 36%
32%
32%
22%
39%
39%
18%
33%
33%
16%
The basis of calculation for the above graphs and key assumptions used are as follows:
Minimum Target Maximum Maximum with 50%
share price growth
Fixed elements of remuneration
• Total fixed pay is based on the rebalanced salary including the 3% annual increase as described in
Section B7.3.3
• Pension is the value of the cash supplement in lieu of pension
• Benefits are value based on the estimated cash cost to the company
Annual bonus
(pay-out as percentage of maximum opportunity)
0% 50% 100% 100%
PSP
(vesting as percentage of maximum opportunity)
0% 50% 100%
100% plus 50%
share price growth
Malus and clawback
Annual bonus and PSP awards are subject to malus and clawback provisions in exceptional circumstances including the following:
• if a higher payment than would otherwise have been the case is paid as a result of a material misstatement of a group
company’s results
• any error or inaccurate or misleading information or assumptions relating to a financial year
• if an individual was party to behaviour that resulted in serious reputational damage to a group company or a relevant business unit
• if there is reasonable evidence of employee misbehaviour or material error
• a group company or relevant business unit suffers a material failure of risk management, taking account of the individual’s
proximity to and / or responsibility for the event
• if an individual contributed to any regulatory sanctions
• if a group company or relevant business unit suffers a material downturn in its financial performance
• situations where there is a significant increase in the Group’s or business unit’s economic or regulatory capital base
Any incentive awards may be reduced or cancelled before vesting or clawed back for a period of up to seven years from the grant date.
This may be extended to ten years in the event of ongoing internal / regulatory investigation at the end of the seven-year period.
Page 152
Choice of performance measures and approach to target setting
Annual bonus
The choice of the performance measures applicable to the annual bonus scheme reflects the Committee’s belief that incentives
should be appropriately challenging and tied to the achievement of financial and non-financial measures (including key strategic and / or
personal measures).
The Committee reviews the measures each year and varies them as appropriate to reflect the priorities for the business in the year ahead.
A sliding scale of targets is set for each measure to encourage continuous improvement and the delivery of above-target performance.
PSP
The Committee will take into consideration prior Group and individual performance when assessing the value of the PSP grant level
for executive directors.
Forward-looking performance is measured against a long-term scorecard of financial and non-financial performance measures that
reflect the Company’s strategic priorities.
Financial metrics could include EPS, which would measure long-term profitability, and / or TSR that considers shareholder value
creation as a measure of market expectations of future performance. Non-financial metrics could include customer and other
sustainability-related measures that would provide a focus on key measures of the Company’s long-term sustainability-related
strategic aims. Non-financial metrics would be assessed across a range of quantitative and qualitative measures which are
business critical.
Performance measures and their weightings are reviewed annually, prior to grant, to maintain appropriateness and relevance.
Discretion
The Committee retains the flexibility to adjust the formulaic vesting level of incentive awards in instances where the outcome would
otherwise be unreflective of the wider shareholder experience and / or materially inappropriate in the context of unexpected or
unforeseen circumstances relating to the Company.
If an event occurs (such as a material acquisition or divestment) which results in the annual bonus and / or PSP performance
conditions and / or targets and / or number of shares granted being deemed no longer appropriate, then the Committee will have
the ability to adjust the measures and / or targets and / or weightings and / or number of shares so that the incentive arrangements
achieve their original purpose.
Awards granted over shares may be settled in cash, in whole or in part. The Company does not intend to settle awards granted to
executive directors in cash and would do so only where the particular circumstances make that appropriate, for example where there
is a regulatory restriction on the delivery of shares or to enable the payment of tax liabilities relating to the award.
Awards under the Company’s share plans may vest early in the event of demerger, special dividend, or other event which the
Committee considers would affect the Company’s share price, or in the event of a change of control. The extent to which PSP
awards will vest will be determined considering the extent to which performance conditions have been satisfied (as assessed by the
Committee) and, unless the Committee determines otherwise, the proportion of the vesting period that has elapsed.
Recruitment and conditions of service
Policy on recruitment and promotion
Salaries for newly recruited directors will be set to reflect their skills and experience, the Company’s intended pay positioning and the
market rate for the role. If it is considered appropriate to appoint a new director on a below-market salary (for example, to allow the
director to gain experience in the role) the individual’s salary may be increased to a market level by way of a series of above inflation
increases over such period as the Committee determines, subject to their performance and development in the role. Pension will be
in line with the Policy.
A new appointee would be offered benefits comparable to existing directors, as well as other reasonable expenses such as legal, tax
equalisation and relocation costs (if necessary, on a net of tax basis).
The prevailing maximum bonus opportunity for existing directors will not be exceeded for any newly recruited director and would
normally be pro-rated to reflect the proportion of the year worked. It may be necessary to set different performance measures and
targets initially dependent on the timing of the appointment and the nature of the role taken up. Guaranteed bonuses will not be offered.
Long-term incentive awards will be granted in line with the policy outlined for existing directors, with the same maximum opportunity
for any newly-recruited director. Awards may be granted shortly after an appointment (subject to the Company not being in a
prohibited period).
The Committee may make payments or grant awards to a newly-recruited executive to buy out entitlements or opportunities (for
example, bonus and share awards) which will lapse on the executive’s departure from a previous position. In doing so, the Committee
will take into account relevant factors, including performance conditions attached to the lapsing arrangements and the time over
which they would have vested. The approach to buy-out awards will be in line with the PRA remuneration rules, which state that the
terms of any replacement awards should be no more generous than the award forfeited on departure from the former employer.
Page 153
Corporate Governance
Notice periods and terms of engagement
The maximum notice period required under the executive directors’ rolling contracts is one year and the Committee reviews the terms
of these contracts periodically. All new executive directors will have service contracts that are terminable by the Company and the
executive director on a maximum of twelve months’ notice.
Arrangements on cessation of employment
Policy on termination payments
The Company has discretion to make a payment in lieu of notice in respect of all or part of the notice period. Any such payment would
consist of salary, benefits, and pension for the relevant part of the notice period. Specific change of control provisions or entitlements
to enhanced redundancy payments are excluded.
Annual bonus for the year of cessation
The payment of annual bonuses will be at the discretion of the Committee on an individual basis and the decision as to whether or
not to award an annual bonus in full or in part will be dependent on a number of factors, including the circumstances of the individual’s
departure. For example, in certain good leaver situations (injury or disability, redundancy, employment transferred outside the
Group, or any other reason the Committee decides) a bonus may be payable at the Committee’s discretion, based on an assessment
of performance. Any annual bonus awards will be pro-rated for time in service during the annual bonus period and will, subject to
performance, be paid at the usual time and in the usual form (although the Committee retains discretion to pay the annual bonus
award earlier in appropriate circumstances).
Unvested Deferred Share Bonus Plan (‘DSBP’) Awards at cessation
For awards granted under the DSBP (as part of annual bonus arrangements), good leaver status would result in awards vesting at the
usual time, unless the Committee determines they should vest earlier in appropriate circumstances. In other circumstances, DSBP
awards will lapse.
Unvested PSP Awards at cessation
The default treatment for outstanding unvested PSP awards will be that they lapse on cessation of employment. In good leaver
circumstances (as described above), unvested awards will continue until the normal vesting date, vest subject to the satisfaction of
the performance conditions, and be released at the end of the originally anticipated holding period. However, the Committee may
permit the award to vest and be released at cessation of employment subject to the satisfaction of the performance conditions
(as assessed by the Committee) or vest and be released at the end of the performance period subject to the satisfaction of the
performance conditions. In any such case, the extent of vesting will be reduced to reflect the proportion of the performance period
that has elapsed at the date of cessation, unless the Committee determines otherwise.
Vested Awards subject to a holding period at cessation
If an individual leaves employment during a holding period, the default position will be for the holding period to continue for its
originally anticipated length. The Committee may permit the award to be released early, subject to any regulatory considerations.
Other payments at cessation
The leaver provisions for any buyout award granted in connection with the recruitment of a director would be determined at the time
of grant.
Any statutory entitlements or sums to settle or compromise claims in connection with the termination would be paid as necessary. In
the appropriate circumstances, outplacement services, legal fees and relocation expenses may be provided at normal market rates
for directors, along with payments in respect of accrued holiday.
Consideration of employment conditions elsewhere in the Group
There is no employee representative on the Committee. However, employees have the opportunity to make comments on any
aspect of the Group’s activities through employee forums and surveys, and the views of employees are taken into account by
Human Resources. One of the duties of the Chief People Officer is to brief the Board on employee views and, as a regular invitee
to Committee meetings, this ensures that decisions are made with appropriate insight to employees’ views. In addition, the People
Forum considers the relationship between executive remuneration and pay and reward across the Group on a regular basis.
In determining pay levels for the employees as a whole, the Group annually considers externally provided benchmark levels for
comparable jobs as well as individual development and performance. The general level of increase resulting from this review informs
the Committee’s deliberations on appropriate pay levels for the executive directors, together with external data specific to their roles
which is used to ensure that the levels of remuneration are appropriate.
Section B7.3.4 sets out further information on the remuneration of our executive directors and the wider workforce.
Page 154
Consideration of shareholders’ views
The Committee considers shareholder feedback received in relation to the AGM each year. This feedback, together with additional
feedback received during any other meetings that take place from time to time, is then considered as part of the annual review of the
Directors’ Remuneration Policy.
Details of our engagement with shareholders during summer 2025 in relation to the Policy, including the feedback received and how
this influenced the final Policy are set out in Section B7.2.1.
Legacy arrangements
Existing commitments
The Committee retains discretion to make any remuneration payment or payment for loss of office (including the exercising of any
discretion available in respect of any such payment) outside of this Remuneration Policy:
• where the terms of the payment were agreed before this Remuneration Policy came into effect, provided in the case of any
payment whose terms were agreed after 6 February 2014 and before this Remuneration Policy became effective, the remuneration
payment or payment for loss of office was permitted under the Company’s relevant former Directors’ Remuneration Policy
• where the terms of the payment were agreed at a time when the relevant individual was not a director of the Company and, in the
opinion of the Committee, the payment was not in consideration of the individual becoming a director of the Company
For these purposes, ‘payment’ includes the satisfaction of awards of variable remuneration and, in relation to an award over shares,
the terms of the payment are agreed at the time the award is granted.
Salary delivered in shares – unwind
Shares delivered as part of salary under the previous policy will be released, once the new Policy is approved, in one tranche. The
executive directors already have all rights to these shares, which formed part of fixed pay and to which no performance conditions
were attached, except the ability to transfer or sell. Under the previous policy these were released over a five year period. For ease of
administration reasons, given that salary in shares does not form part of the proposed new Policy, these shares will be released in full
during 2026. At September 2025 these shares equated to 3.4% of N S Terrington’s overall interest in the shares of the Company and
5.7% of R J Woodman’s total share interests.
Elements of the remuneration policy for the Chair of the Board and non-executive directors
Purpose and link
to strategy
Operation Maximum opportunity Performance
conditions
Fees
To ensure that the
Group can attract and
retain the appropriate
number and mix of non-
executive directors with
the correct experience
to provide balance,
oversight and challenge.
Non-executive director fees
are reviewed annually and
are subject to the Articles of
Association. The Chair’s fee is
set by the Committee, whilst the
non-executive directors’ fees are
determined by the Board. Both
the Board and the Committee
consider external advice when
determining the relevant fees.
The Board and the Committee
will exercise judgement in
determining the extent to which
the Chair’s and non-executive
directors’ fees are altered in line
with market practice, given the
requirement to attract and retain
the appropriate skills and the
expected time commitments.
Non executive directors are
paid an annual base fee with
additional fees for additional
roles (for example, Senior
Independent Director or chair
of a board committee).
Fees may be paid in cash
or shares.
The Board will review fees
periodically to assess whether
they remain competitive and
appropriate in light of changes
in roles, responsibilities and / or
time commitment of the non-
executive directors. Increases
above those awarded for the rest
of the organisation may be made
to reflect the periodic nature of
any review.
The Articles of Association
of the Company contain a
maximum level of fees that can
be paid annually to non-executive
directors (currently £2,000,000).
This is reviewed by the Board
from time to time.
None.
Page 155
Corporate Governance
Purpose and link
to strategy
Operation Maximum opportunity Performance
conditions
Benefits
To ensure that the Group
can attract and retain the
appropriate mix of non-
executive directors with
the correct experience
to provide balance,
oversight and challenge.
The Chair is eligible for private
health cover on an individual or
family basis in the same way as
the executive directors. The Chair
is also entitled to life assurance.
Neither the Chair nor the
non-executive directors are
eligible to participate in any of
the Company’s incentive or
pension schemes.
The Chair and non-executive
directors may be eligible to
receive reimbursement for travel
and other reasonable expenses
incurred as part of performing
their duties.
Where benefits are provided
to the Chair or non-executive
directors, they will be provided
at a level considered to be
appropriate, taking into account
individual circumstances.
None.
Notice periods and terms of engagement
Chair and non-executive director appointments are for three years unless terminated earlier by, and at the discretion of, the director
or the Company. The required notice period is one year for the Chair and three months for the non-executive directors.
Policy on appointment
Any new Chair or non-executive director will be paid in line with the Policy table above. No sign-on payments are offered to a new Chair
or non-executive director.
Policy on termination payments
The Chair and non-executive directors are not entitled to receive compensation for early termination of their terms of engagement.
There are no obligations in the non-executive directors’ letters of appointment that could give rise to payments for loss of office.
Page 156
B7.3 Annual Report on Remuneration
Contents of the annual remuneration report:
• The Remuneration Committee, key responsibilities and advisers (B7.3.1)
• Directors’ remuneration for the year ended 30 September 2025 (B7.3.2)
• Application of the remuneration policy for the year ending 30 September 2026 (B7.3.3)
• Other information including Fair Pay (B7.3.4)
Remuneration summary
The information provided in this section of the Directors’ Remuneration Report is not subject to audit
Alignment of remuneration to strategy during the financial year:
Strategic priority How success is measured Where the priority is measured
Bonus PSP
Growth Loan book growth and margins Financial performance EPS and relative TSR
Diversification Liquidity – increasing sources
of funding
Growing profitability beyond
buy-to-let
Risk measures and
financial performance
EPS, relative TSR and
risk assessment
Digitalisation Increasing direct business
flows and reducing customer
lead times
Financial performance EPS and relative TSR
Capital
management
Credit quality Risk measures and
financial performance
Risk assessment and EPS
Capital strength and efficiency Risk measures Relative TSR and
risk assessment
Cost control Profit measures and
personal objectives
EPS
Sustainability Sustainable earnings Financial performance Relative TSR, EPS and
risk assessment
Reducing the impact our
operations have on the
environment together with a
customer and people
focussed culture
Personal objectives include
ensuring good customer
outcomes and support for
Paragon’s customers
Customer metrics focus on
the views of customers across
their Paragon lifecycle, people
metrics focus on the employee
journey and climate metrics
focus on emissions of the Group
and its portfolios
Page 157
Corporate Governance
B7.3.1 The Remuneration Committee, key responsibilities and advisers
The information provided in this section of the Directors’ Remuneration Report is not subject to audit
Committee membership
The Committee during the year comprised the following independent non-executive directors (the Chair of the Board
being considered independent on appointment): Robert East (Chair of the Board), Tanvi Davda (Chair of the Committee),
Zoe Howorth, Alison Morris and Graeme Yorston.
The relevant experience of each director is set out in Section B3.1. Information on the number of committee meetings held
and the individual attendance of members is given in Section B3.3.
None of the committee members has any personal financial interest (other than as a shareholder) or conflict of interest arising
from cross-directorships or day-to-day involvement in running the business. The Committee is mindful of conflicts of interest
arising in the operation of the Remuneration Policy and has measures in place to address this such as no individual being
present when decisions are made on their own remuneration.
Key responsibilities
The Committee:
• Decides the Company’s policy on executive remuneration and sets the remuneration for each of the executive directors,
the Chair of the Board, the Company Secretary and all MRTs under the rules of the PRA / FCA. This includes the Chief
Internal Auditor, the Chief Risk Officer and all other members of the executive committees
• Reviews workplace remuneration and related policies and the alignment of incentives and rewards with culture; and takes
those matters into account when setting the remuneration policy for executive directors
• Considers the group-wide Internal Remuneration Policy, which applies to all employees
• Considers and approves the identification of MRTs for the purpose of financial services regulatory remuneration rules
Attendees
The CEO, CFO, Chief People Officer, Chief Risk Officer, General Counsel, External Relations Director, the other non-executive
directors (including the Chair of the Risk and Compliance Committee) and the Group’s external remuneration advisors attend
by invitation.
Advisors
When deciding the remuneration for the year for executive directors and senior management the Committee considered
advice from:
• Independent advisors – PricewaterhouseCoopers LLP (‘PwC’)
• The CEO, the CFO, the Chair of the Risk and Compliance Committee, the Chief People Officer, the Chief Risk Officer and
the External Relations Director
Independent advisors: additional information
Appointment process – PwC were appointed by the Committee following review processes in the financial year ended 2021
and are members of the Remuneration Consultants Group and as such voluntarily operate under its Code of Conduct in
relation to executive remuneration in the UK. This supports the Committee’s view that all advice received during the year was
objective and independent.
Connections to the Group – the Committee is satisfied that the PwC team providing remuneration advice to the Committee
does not have any connection with the Group, or any individual director, that may impair its independence and / or objectivity.
Fees – the total fees paid to PwC for advice to the Committee during the year amounted to £344,284 (including VAT) partly on
a fixed-fee and partly on a time and materials basis.
Other services – PwC provided the business with other professional services during the year including regulatory support and
support with our IRB implementation.
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Corporate Governance
Statement of voting at Annual General Meeting
The voting outcome for the resolution to approve the Annual Report on Remuneration at our AGM held on 5 March 2025, and the
resolution to approve the Directors’ Remuneration Policy at the AGM held on 1 March 2023 are set out below.
Resolution Votes for % for Votes against % against Total votes cast Votes withheld
Annual Report on Remuneration (2025) 148,182,494 96.99% 4,594,010 3.01% 152,776,504 4,597,046
Remuneration Policy (2023) 177,558,900 96.99% 5,517,947 3.01% 183,076,847 5,928,955
B7.3.2 Directors’ remuneration for the year ended 30 September 2025
The information provided in this section of the Directors’ Remuneration Report has been audited
This section discusses the remuneration of the executive directors, the Chair and the non-executive directors in respect of
the year, together with their interests in the shares of the Company. It also sets out the shareholding requirements expected
of executive directors.
Single total figure of remuneration and supporting disclosures
Single total figure of remuneration for executive directors
The chart and subsequent table below summarises the single total figure of remuneration for each of our executive directors. As
demonstrated, a significant proportion of the overall outcome is a result of strong share price performance over the duration of the
performance period of the long-term awards.
CEO Total Remuneration Outcomes
CFO Total Remuneration Outcomes
2024
2025
Salaries Benefits Pension
Bonus LTIP - excluding share price appreciation LTIP - share price appreciation
0 4,5004,0003,5003,0002,5002,0001,5001,000500
£ ‘000
£ ‘000
N S Terrington
R J Woodman
2024
2025
0 4,5004,0003,5003,0002,5002,0001,5001,000500
Page 160
Note N S Terrington R J Woodman Total
Year ended 30 September 2025 £000 £000 £000
Fixed remuneration
Salaries (a) 977 618 1,595
Allowances and benefits (b) 25 15 40
Pension allowance (c) 78 50 128
Total fixed remuneration 1,080 683 1,763
Variable remuneration
Bonus (d) 864 546 1,410
Long-term share awards (e) 2,368 1,492 3,860
Total variable remuneration 3,232 2,038 5,270
Total 4,312 2,721 7,033
Note N S Terrington R J Woodman Total
Year ended 30 September 2024 £000 £000 £000
Fixed remuneration
Salaries (a) 949 600 1,549
Allowances and benefits (b) 22 15 37
Pension allowance (c) 76 48 124
Total fixed remuneration 1,047 663 1,710
Variable remuneration
Bonus (d) 890 562 1,452
Long-term share awards (e) 1,727 1,087 2,814
Total variable remuneration 2,617 1,649 4,266
Total 3,664 2,312 5,976
Notes to the single total figure table for executive directors
a) Salaries
During the financial year 20% of each executive directors’ salary was paid quarterly in shares. The share element was not subject to
performance conditions, was not pensionable, and is released over five years in equal tranches.
b) Allowances and benefits
This includes private health cover and a company car allowance (£10,000 to £12,000). Also included is the reimbursement of: (i) costs
associated with the purchase of shares in respect of salary as shares arrangements and (ii) certain travel costs incurred in connection
with the performance of executive director duties which constitute a taxable benefit in kind. The amounts are those that HMRC treat
as taxable together with an allowance provided to cover the tax liability. The amount will vary with the amount of brokerage costs /
travel undertaken by the executive director.
c) Pension allowance
Both executive directors received a cash allowance in lieu of pension of 10% of cash salary, which is in line with the pension
contribution payable in respect of the wider workforce.
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Corporate Governance
d) Bonus
Maximum bonus opportunity during the year was 98% of salary, in line with the remuneration policy. Based on the performance measures
set out below, a bonus of 90.2% of maximum opportunity was awarded. The Committee determined that the formulaic outcomes under the
bonus framework were fair and appropriate because of the very strong financial and non-financial performance and exemplary leadership
shown over the period, therefore it was decided that no discretion should be applied to the outcome.
Under the regulatory requirements for deferral there are no deferral requirements to be met for this financial year. However, the regulatory
and policy requirement for 50% of the upfront bonus to be delivered in shares will be met as follows:
Delivered in
Executive
director
Salary Maximum
opportunity
Percentage
award
Total bonus Upfront cash Upfront shares
1
£000 % of salary % of max £000 £000 £000
N S Terrington 977 98.0 90.2 864 432 432
R J Woodman 618 98.0 90.2 546 273 273
1
Delivered as shares, with all shareholder rights except the right to transfer or sell shares until a year from the award date has lapsed.
Balanced scorecard assessment
Measure Weighting Threshold Target Maximum Actual Outcome
Financial performance 60% 55.2%
Underlying profit 24% £267.9m £287.9m £297.9m £293.9m 19.2%
RoTE (underlying) 24% 15.3% 16.8% 17.5% 17.5% 24.0%
NIM 6% 2.81% 2.96% 3.03% 3.13% 6.0%
Cost:income ratio 6% 39.0% 37.2% 36.3% 34.8% 6.0%
Measure Weighting How measured Outcome
Risk 20% Qualitative assessment by the Remuneration Committee of: 18.0%
• Strong capital and liquidity management with measures all significantly
within risk appetite
• Strong credit performance across all portfolios, other than a defined
cohort of development finance lending
• Positive risk culture embedded leading to a strong overall risk framework
Measure Weighting How measured Outcome
Personal performance 20%
Qualitative assessment by the Remuneration Committee of individual targets
as detailed below for each director.
17.0%
Overall outcome 90.2%
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Individual targets Actual performance
Nigel Terrington
Strong leadership to deliver the business plan
and financial performance, within agreed risk
appetites, upholding our values and always
delivering good customer outcomes
• Record operating profit before tax of £293.9 million
• Margin outperformance with NIM of 313 basis points
• Tight management of costs with strategies deployed to avoid
material inflation
• IIP Platinum status reaccreditation achieved and shortlisted for IIP
employer of the year
Seek opportunities to grow the Group’s revenue
streams and continue to build diversification
strategy to build scale through organic or
inorganic action at an appropriate time and risk
• Product development expansion across mortgages, launching
a ‘swift and simple’ product for non-complex single property
applications, and in savings, with the launch of Spring
• Successful extension of Guaranteed Growth Scheme delivered
around £31 million in funding to more than 200 SMEs
Continue with technology development to
digitalise the business for our customers, with
improved service delivery, faster decision
making and improved cost efficiencies
• Successful launch of Spring, Paragon’s first digital savings app
which is the first of its kind to leverage open banking to enable
savers to easily switch their savings to a competitive rate. Winner
of OutSystems Innovation Award for Business Impact
• New mortgage origination platform fully operational for all new
applications from April 2025
• Machine learning AI incorporated within digital lending and
savings platforms
Continue to develop the savings strategy,
expanding the addressable market and over
time, utilising technology, including open
banking, to broaden the customer reach
• Spring delivered balances of over £425 million at year end (following
launch in April 2025)
• Achieving the highest scoring savings bank rating on Trustpilot at
4.9/5 and twice the average benchmark for customer engagement
Continue to progress the sustainability strategy
by supporting customers to meet their climate
change requirements and obligations
• Delivered the first power purchase agreement (a long-term contract
between an electricity generator and a buyer) for SME
• Completed first solar facility in August 2025
• £295 million of new facilities under our development finance
Green Homes Initiative
Continue to build a succession plan pipeline for
executive committee roles
• Succession planning for executive committee and other senior
roles delivering internal replacement options for known near-term
departures, including the Chief People Officer
• Ongoing development of ExCo leaders including MD Mortgages
achieving Business Leader of the Year – Mortgages award
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Corporate Governance
Individual targets Actual performance
Richard Woodman
Strong leadership to deliver the business plan
and financial performance, within agreed risk
appetites, upholding our values and always
delivering good customer outcomes
• Record operating profit before tax of £293.9 million
• Tight management of costs with strategies deployed to avoid
material inflation
• Strong oversight and management of the investor relations
programme with positive feedback following our half-year results and
a greater number of sales-teams updates
Maintain appropriate capital, liquidity and
funding buffers to allow the business to both
support its customers and other stakeholders,
specifically in a falling rate environment
• Strong capital buffers maintained with CET1 ratio of 13.6%
(2024: 14.2%)
• Excellent liquidity maintained with over £5 billion of collateral to
support potential central bank facility utilisation
• Risk management framework embedded with preparations for the
implementation of Code Provision 29 underway
Progress our thinking on the risks of climate
change and embed the management of
climate-related risks within our strategic plans,
risk appetites and disclosures
• Operational footprint emissions reduction from 2019 baseline
reached 54% (2024: 48%) with a decarbonisation plan agreed for the
head office building as the next phase
• Increased lending activity across sustainable products within each
key business line
Broaden funding options, actual and
contingent, including the addition of a
covered bond capability
• Covered bond delivered to broaden the Group’s funding options
and winner of the Best Debut award at the 2025 Covered Bond
Report awards
• Fitch corporate rating maintained and Moodys added
• Funding optimised through increased utilisation of ILTR,
development of Spring, and third-party deposit platforms
Progress the Group’s IRB programme to boost
risk capability and longer-term capital efficiency
• Further extensive engagement with regulators including
model updates
• Credit grade analysis reflected in loan decisioning
e) Share awards: Paragon Performance Share Plan
The amount shown in the single figure table in respect of share awards represents the value of those awards for the performance
period ended 30 September 2025, as set out below.
Vesting in year to 30 September 2025 Vesting in year to 30 September 2024
N S Terrington R J Woodman N S Terrington R J Woodman
Grant date Dec 2022 Dec 2022 Dec 2021 Dec 2021
Shares granted 290,331 182,847 208,611 131,325
Vesting percentage 90.07% 90.07% 95.21% 95.21%
Shares vesting 261,501 164,690 198,618 125,034
£ £ £ £
Share price at vesting 9.0581
1
9.0581
1
7.715
2
7.715
2
Dividend equivalent per share - - 0.981 0.981
Value per share at vesting 9.0581 9.0581 8.696 8.696
Value of award at vesting 2,368,702 1,491,778 1,727,182 1,087,296
Value of award at vesting attributable to
share price appreciation only
952,674 599,982 454,438 286,078
1
The PSP value for the year ended 30 September 2025 has been determined using the average closing share price for the three months ended 30 September 2025 as an estimate.
The actual value of the awards will not be finalised until the share price on the vesting date in December 2025, following the Preliminary Results announcement, is known.
2
The PSP value for the year ended 30 September 2024 has been restated based on the market value of the shares on 16 December 2024 (the Stock Exchange trading date nearest
the vesting date of 15 December 2024).
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The PSPs which vested in 2024 cannot be exercised for two years following the completion of the three-year performance period,
in line with the holding period in the remuneration policy. During this period the executive directors will continue to be entitled to
dividend equivalents.
The PSPs which will vest in December 2025 with the first vesting on or around the third anniversary of the grant date and the last
instalment vesting on or around the seventh anniversary of the grant date with a one year holding period post vesting. There is no
entitlement to dividend equivalents attached to this PSP award.
The Committee considered the increase of 67.28% in the share price between grant and vesting and reflected that there were no
matters either in the Company’s management of capital or its underlying performance which gave rise to any circumstances in which
this increase could be attributed to a windfall gain.
The determination of the vesting outcomes for the December 2022 grant is described below. The determination for the December 2021
grant was set out in the Directors’ Remuneration Report for the year ended 30 September 2024.
Performance outcome in respect of the year ended 30 September 2025
Awards granted in December 2022 under the PSP are subject to performance conditions measured over the three financial years
ended 30 September 2025. The metrics are split between financial and non-financial performance conditions.
The awards were granted at 180% of salary. Overall vesting as a percentage of maximum award was 162.13%.
The detail of the outturns of each of the conditions was as follows:
PSP grant in December 2022: financial performance conditions
Weighting
Threshold vesting for
25% of maximum award
Maximum
vesting
Actual
performance
Vesting
outcome
Relative TSR 25%
Median performance
(being 38.3%)
Upper quartile performance
(being 153.5%)
Between median and upper
quartile performance
(being 107.9% and ranked
5th out of 13)
67.86%
Underlying basic EPS 25% 74.4 pence 88.1 pence or more 109.7 pence 100.00%
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Corporate Governance
PSP grant in December 2022: non-financial performance conditions
Weighting Actual
performance
Vesting
outcome
Risk 10.0%
50% of the risk metric is determined by the Committee based on an assessment by the
CRO of six key elements of our risk appetite: regulatory breaches, conduct, operational,
capital, liquidity and credit losses. This noted that over the vesting period:
• There were no material regulatory breaches
• Risk adjusted margins above expectations across the period
• Operational risk appetites including metrics relating to operational losses, issue
management, IT and cyber security, and people, where outcomes, as a whole,
have been positive throughout most of the period
• No breaches of risk appetite throughout the period. Surplus capital has been
maintained and managed effectively, with a share buy-back programme in place
for the last three financial years
8.8%
10.0% Based on a strategic risk assessment by the Committee reflecting the management
of risk with regard to the delivery of our medium-term strategy noting that over the
vesting period:
• Low volatility in the earnings profile and strong long-term record on impairments
across the period under review show Paragon as one of the highest rated UK banks
• A cautious set of MES assumptions to manage the challenges from the
economic environment
• Consistently robust capital ratios with earnings-led CET1 accretion stronger than
growth in capital requirements and dividend
• Building a diversified funding profile is important and significant progress has been
achieved to date. In addition to deposit platforms, Spring savings and a covered
bond programme, we have contingent funding capacity in excess of £5 billion
• Earnings remain diversified, with the Commercial Lending division contributing
over 28% of underlying operating profit. New lending volumes total around 80%
of those generated by Mortgage Lending
10.0%
Climate 10.0% Development of an emissions
balance sheet
• Financed emissions balance sheet
delivered in this report covering financed
emissions of all assets covered by PCAF
standard (see Section A6.4)
10.0%
Development of targets for the
management of financed emissions
• Emission reductions pathways and
decarbonisation assessment delivered
across mortgages and motor finance
developed as part of 2024 ICAAP
scenario analysis
• Published inaugural transition plan (in
the Responsible Business Report 2024),
with an ambition for a 35% reduction in
mortgage-financed emissions intensity by
2030 compared to 2022 baseline
Establishment and progress with
a framework to set and manage
operational emission reduction
targets
• Commitment to reduce greenhouse gas
emissions of our operational footprint
to net zero by 2030. 54% reduction from
baseline by September 2025
• Quarterly reporting on emissions
reduction to Sustainability Committee
• Commencement of Homer Road’s
decarbonisation and refurbishment
project
Customer 10.0% Customer insight feedback on key
product lines
• NPS scores were maintained or improved
across the period with the majority of
scores being above the industry average
and some significantly above
• Customer satisfaction was 80% which was
above the industry average of 77%
9.3%
Customer complaints relative to risk
appetite levels
• Complaints consistently below risk
appetite tolerance excluding complaints
related to motor finance DCA matters
Page 166
PSP grant in December 2022: non-financial performance conditions
Weighting Actual
performance
Vesting
outcome
People 10.0%
Employee engagement
• Employee engagement excellent across
the whole period measured using the
independent all-employee survey for
Investors in People (‘IIP’), feedback from
new joiners and leavers and grievance
data. The survey which formed part of
the IIP triennial reaccreditation process
was completed by 71% of employees and
achieved an overall engagement score of
90% which is above the IIP average
10.0%
Voluntary attrition compared to the
industry averages
• Voluntary attrition data at 9.4% compared
to the industry average of 12.8% for
financial services (CIPD voluntary
employee turnover rate - latest data)
Gender diversity of senior
management
• Gender diversity in senior management
achieved the target level of 40% set
in 2022 ahead of the December 2025
deadline
There is no vesting for below threshold performance. There is straight-line vesting between the threshold and maximum for the TSR
and EPS conditions. For the other metrics, the assessment is based on a number of elements, as set out above, and can result in any
outcome between 0% and 100%.
Vesting was also subject to the Committee’s determination that individual performance and the underlying financial performance of
the business were satisfactory given the level of vesting. In respect of both these points the Committee concluded that the vesting
level was appropriate for all participants.
Awards granted during the year ended 30 September 2025
On 13 December 2024 the following awards were granted as part of the executive directors’ variable remuneration in respect of the year
ended 30 September 2024. These awards were designed to fulfil the majority of the regulatory requirement, in place at that time, that
60% of executive directors’ variable remuneration is deferred, with awards under the DSBP fulfilling the remainder of the requirement.
The awards were granted as nil-cost options, under the PSP with a face value of 118% of salary in line with the Policy.
Executive director Salary Percentage grant Face value of grant Number of shares
£000 £000
N S Terrington 949 118% 1,120 181,660
R J Woodman 600 118% 708 114,779
The value of these awards will be disclosed in the single figure table for the year ending 30 September 2027, at the end of the
performance period.
These awards have a three-year performance period, from 1 October 2024 to 30 September 2027, and are exercisable in equal annual
tranches from the third to the seventh anniversaries of the grant.
The prices used to translate the monetary amounts of each tranche to a number of shares were based on market price data. The
price was derived from the average closing mid-market price of the Company’s shares on each of the five dealing days following the
announcement of our results for the year ended 30 September 2024, discounted to allow for the fact that no dividend equivalents are
payable in connection with this grant. This dividend adjustment was based on market estimates of the expected dividend yield.
Following these calculations, the adjusted price used for the tranche that becomes exercisable on the third anniversary of the grant
was £6.825 with the prices of the tranches which become exercisable in the four succeeding years being £6.494, £6.179, £5.879 and
£5.594 respectively reflecting the dividend yield adjustment.
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Corporate Governance
These awards are subject to the following performance conditions.
Financial measures
Performance
measure
Weighting
Threshold vesting for
25% of maximum award
Maximum
vesting
Relative TSR 25.0% Median performance Upper quartile performance
Underlying Basic EPS 25.0% 104.0 pence 125.0 pence or more
Non-financial measures
Measures Weighting
Risk 20.0%
50% weighting is determined by the Committee based on an assessment by the CRO of the six key
elements of our risk appetite: regulatory breaches, conduct, operational, capital, liquidity and
credit losses
50% weighting on a strategic risk assessment to reflect the management of risk with regard to the
delivery of our medium-term strategy
Climate 10.0%
Consideration will be given to i) operational footprint emissions reduction ii) financed
emissions decarbonisation assessments; iii) development of sustainable products and iv) education
and engagement
Customer 10.0%
Consideration will be given to (i) customer insight feedback on key product lines and (ii) customer
complaints relative to risk appetite levels
People 10.0%
Consideration will be given to (i) employee engagement, (ii) voluntary attrition compared to industry
averages and (iii) diversity of senior management
There is no vesting for below threshold performance. For the EPS and TSR metrics vesting rises from 25% at threshold to 100% at
maximum on a straight-line basis. The other metrics are assessed based on a number of elements, as set out above, which can result
in any outcome between 0% and 100%.
In addition, prior to any awards vesting, the Committee must be satisfied that the performance of the employee and the underlying
financial performance of the Group are satisfactory.
Relative TSR measure
The comparator group for the purposes of the relative TSR condition is:
Arbuthnot Banking Group PLC Barclays PLC Close Brothers Group PLC
Funding Circle Holdings PLC LendInvest PLC Lloyds Banking Group PLC
Metro Bank Holdings PLC NatWest Group PLC OSB Group PLC
Secure Trust Bank PLC S&U PLC Vanquis Banking Group PLC
f) Share awards: Sharesave
In December 2024 Sharesave awards which had vested in the previous financial year were exercised by the executive directors. The
Sharesave scheme is an all-employee share plan with the option price for the 2021 grant of £4.24 per award. These awards are not
subject to tax or national insurance and the option price is funded by monthly saving from salary. The option price is based on a 20%
discount to market price at grant equating to a £4,000 benefit in respect of this grant for each director. This has not been included in
the above table, in order to ensure that year-on-year comparison is consistent as Sharesave exercises are not annual occurrences.
Page 168
Single figure of total remuneration for the Chair of the Board and non-executive directors
Year ended 30 September 2025 Year ended 30 September 2024
Fees Benefits
1
Total Fees Benefits
1
Total
£000 £000 £000 £000 £000 £000
Chair of the Board
R D East 289 2 291 280 2 282
Non-executive director
T P Davda 106 - 106 100 - 100
P A Hill 106 - 106 104 - 104
Z L Howorth 86 - 86 83 - 83
A C M Morris 126 - 126 124 - 124
B A Ridpath 86 - 86 83 - 83
H R Tudor 76 - 76 81 - 81
G H Yorston 86 - 86 83 - 83
Total 961 2 963 938 2 940
1
The Chair of the Board receives private health cover on an individual or family basis in the same way as the executive directors. The Chair is also eligible for life cover.
Payments for loss of office
No payments for loss of office in respect of directors were made during the year ended 30 September 2025.
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Corporate Governance
Directors’ interest in shares and shareholding requirements
Directors’ share interests
The interests of the executive directors in the shares of the Company as at 30 September 2025 (including those held by their
connected persons) were:
N S Terrington R J Woodman
Number Number
Unvested awards subject to performance conditions
PSP 446,824 282,318
Unvested awards not subject to performance conditions
DSBP 59,293 37,416
Sharesave - 2,431
Total unvested awards 506,117 322,165
Vested but unexercised awards
PSP
1
688,283 433,419
DSBP - -
Total vested but unexercised awards 688,283 433,419
Shares beneficially held
Acquired as salary in shares / RBA or regulatory related annual bonus requirements and subject to
restrictions related to disposal
71,546 45,263
Not subject to restrictions on disposal 1,257,076 448,396
Total shares beneficially held 1,328,622 493,659
Total interest in shares 2,523,022 1,249,243
Awards exercised in the year
PSP 290,965 183,245
DSBP 74,912 45,473
Sharesave 4,245 4,245
Total awards exercised in the year 370,122 232,963
1
For the purposes of the table above, the awards granted in December 2022 are assumed to be vested but unexercised in respect of the percentage which will vest, 90.07%, and to
have lapsed in respect of the balance.
Awards under the PSP and DSBP schemes noted above were granted in the form of nil cost options.
The interests of the Chair of the Board and the non-executive directors at 30 September 2025, which consist entirely of ordinary
shares, beneficially held, were as follows:
2025
R D East 10,000
T P Davda 6,019
P A Hill 3,066
Z L Howorth 6,541
A C M Morris 4,168
B A Ridpath 4,358
H R Tudor 49,790
G H Yorston 9,100
As at 28 November 2025, the last practicable date prior to approving this Report, the Company has not been advised of any changes
to the interests of the directors and their connected persons as set out in the tables above.
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Share ownership guidelines
Executive directors are required to hold a minimum number of shares in the Company with a value of 200% of their total salary (both
the cash and shares element).
For the purposes of these guidelines, directors’ shareholdings include all beneficial holdings and unexercised share awards, other
than those which are subject to performance conditions, as set out in the table above. The value of shares is calculated on a net of
income tax and national insurance basis where relevant.
The chart below compares the executive directors’ holdings at 30 September 2025 to those required by the guidelines, expressed in
value terms as a percentage of salary. Valuation is based on a three-month average price at 30 September 2025.
Directors’ shareholding guidelines
R J Woodman
N S Terrington
Policy requirement
0% 1,600%1400%1200%1000%800%600%400%200%
% of salary
30 September 2025
At 30 September 2025, the holdings of executive directors were in accordance with guideline levels.
Post-employment shareholding requirement
The post-cessation shareholding requirement requires that for two years following cessation of employment, an executive director
must retain relevant shares so as to have a value (as at cessation) equal to the shareholding guidelines based on their immediately
pre-cessation salary, or (if lower) the number of shares actually held at the date of departure.
Relevant shares include all unexercised share awards not subject to a performance condition and those beneficial holdings acquired
as part of a director’s remuneration arrangements.
No former directors are subject to these guidelines.
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Corporate Governance
B7.3.3 Application of remuneration policy for the year ending 30 September 2026
The information provided in this section of the Directors’ Remuneration Report is not subject to audit.
Overview
The intended changes to the executive directors’ remuneration arising from the proposed new Policy being put to the AGM in March
2026 are detailed in B7.2. It is intended, subject to the approval of the new Policy at the AGM, that the proposed changes come into
effect from the financial year commencing on 1 October 2025.
Executive directors
Fixed pay
The rebalancing of fixed and variable pay arising from the proposed new Policy, subject to approval at the AGM, results in the outcomes
detailed in the table. Pension contribution remains at 10% of cash salary. The change in salary paid in cash between October 2024 and
October 2025 includes an increase of 3% which was in line with the average increase applicable to the wider workforce:
Salary with effect from
1 October 2025,
with 3.0% increase
Proforma salary with
effect from 1 October 2025
after rebalancing
Salary with effect from
1 October 2024
£000 £000 £000
N S Terrington Salary – paid in cash 825 801 782
Salary – paid in shares - - 195
Total salary 825 801 977
R J Woodman Salary – paid in cash 522 506 494
Salary – paid in shares - - 124
Total salary 522 506 618
Annual bonus
In line with the proposed new Policy, the bonus opportunity for the financial year ending 30 September 2026 will be 200% of salary.
Under the proposed new Policy, performance will be assessed using a balanced scorecard of measures with an increased weighting
on financial measures from that used in 2025. These will represent 75% of the overall award, with the remaining 25% of the bonus
relating to personal performance. A risk modifier will underpin the total bonus outcome.
The financial performance measures will consist of core profit and RoTE, together with a range of other quantifiable metrics derived
from our financial plans and strategic development. The two primary measures of underlying profit and underlying RoTE comprise
80% of the financial performance award, but the Committee annually determines the appropriate secondary measures by reference
to the strategic focus for the year. For 2026 the secondary measures will cover margin and costs.
The Committee has chosen not to disclose, in advance, the targets which apply to these measures as it considers them to be
commercially sensitive. Retrospective disclosure of the targets and performance against them will be set out in next year’s Annual
Report on Remuneration except to the extent that any measure / target remains commercially sensitive.
PSP awards
PSP awards in respect of variable remuneration for the year ended 30 September 2025 are expected to be made in March 2026.
Awards made to the executive directors will represent a value of 200% of salary, with the number of shares to be awarded calculated
on the basis of market data shortly after the announcement of the preliminary results, to align with the more usual December grant
date and start of the performance period.
Prior to granting the PSP, the Committee will give due consideration to the need to apply any adjustment to reflect the potential
for a windfall gain. At this stage, and considering the current share price relative to the share price used to grant the PSP awards in
December 2024, the Committee does not consider that any adjustment is needed; however, this will be kept under review. As now
permitted by the PRA, these awards will carry an entitlement to dividend equivalents. Therefore, no discount to current share price will
be required when calculating the numbers of awards to be granted.
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The intended performance conditions and weightings are set out below.
In addition, there is an individual performance condition and risk and group underlying performance underpins which must be met
prior to vesting occurring.
Financial metrics
Performance
measure
Weighting
Threshold vesting for
25% of maximum award
Maximum
vesting
Relative TSR 37.5% Median performance Median performance +10% per annum
Underlying basic EPS 37.5% 120 pence 155 pence or more
Non-financial metrics
Performance
measure
Weighting
Customer 12.5%
Consideration will be given to:
• customer insight feedback on key product lines
• customer complaints relative to risk appetite levels
Sustainability 12.5%
Consideration will be given to:
• operational footprint emissions reduction
• financed emissions decarbonisation assessments
• sustainable products
• employee engagement
• diversity of the workforce including senior management representation
There is no vesting for below threshold performance. For the EPS and TSR metrics, vesting rises from 25% at threshold to 100% at
maximum on a straight-line basis. For the customer and sustainability metrics these are assessed across a number of elements as set
out above and can result in any outcome between 0% and 100%.
Customer and Sustainability metrics
These metrics are broadly similar to the existing customer, people and climate metrics. Given the increased weighting towards financial
metrics, as shareholders emphasised during the consultation process, it was necessary to review the level and operation of the
non-financial metrics in the PSP. Sustainability is one of our strategic pillars and a customer-focussed culture is one of our strategic
priorities, consequently the opportunity to restructure these metrics to better reflect these goals was taken. In order to provide sufficient
impact on the PSP it was determined to split the non-financial metrics between a customer metric at 12.5% of the overall conditions and
a sustainability metric, currently encompassing climate and people elements at the same level. The constituents of each element will be
considered annually to determine whether or not they continue to reflect Paragon’s strategic aims.
TSR metric
As noted in last year’s Chair’s letter, consideration was given this year to the TSR metric and, in particular, the way in which consolidation
in the sector has left the bespoke peer group relatively small. Consequently, the outcomes of this condition can be more volatile than
would be expected given Paragon’s strong performance. After reflection, the Committee agreed to retain the current peer group with no
additions (as no other companies were considered sufficiently comparable to be included) but to adjust the calculation with the aim of
reducing the sensitivity of the outcome to individual comparators.
The calculation for threshold performance will remain as achievement of the median of the peer group as it has been previously but the
calculation for stretch will be achieved by median plus 10% per annum. In between the two points, as previously, there will be straight-line
vesting. The Committee will annually review the market to consider whether or not any further companies can be added to the peer group
for subsequent grants.
EPS metric
The underlying EPS targets have been updated using the financial forecasts for the period beginning on 1 October 2025. These
detail the plans for the next two years with a longer-term forecast covering a five-year period and include detailed income forecasts.
These forecasts have been approved by the Board and have been compiled taking into consideration cash flow, dividend cover,
encumbrance, liquidity and capital requirements as well as other key financial ratios throughout the period. These forecasts are
rigorously challenged during the Board approval process, and the Committee then uses the outcome from that process to determine
the EPS target and ensure it is stretching across the PSP awards’ three-year performance period.
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Corporate Governance
Chair of the Board and non-executive director fees
During the year the fees payable to the Chair of the Board and non-executive directors were reviewed by the Remuneration
Committee and Board respectively, and the increases set out below approved to take effect from 1 October 2025. Both the Chair and
base non-executive director fee will be increased by 3% in line with the rate applied for the executive directors and the average of the
wider workforce.
Each non-executive director receives a base annual fee of £78,000 (2024: £75,705) with those non-executive directors who are chairs
of committees receiving an additional £30,000 fee, while other non-executive directors receive £10,000 per annum in respect of their
committee duties. The Senior Independent Director receives an additional £20,000 per annum for undertaking that role.
Fee with effect from
1 October 2025 1 October 2024
£000 £000
Chair of the Board 298.0 289.0
Non-executive directors
Senior independent director (when also a committee chair) 128.0 125.7
Other committee chairs 108.0 105.7
Other non-executive directors who are committee members 88.0 85.7
Other non-executive directors 78.0 75.7
B7.3.4 Other information
The information provided in this section of the Directors’ Remuneration Report is not subject to audit
This section provides information related to remuneration across our business. It includes a description of the overall
approach to employee remuneration, together with information showing how executive directors’ remuneration compares
with that for other employees, and how it aligns with stakeholders’ interests more widely.
Ensuring fair pay across the Group: our remuneration philosophy
Remuneration philosophy
Our remuneration philosophy supports our strategic pillars of a customer-focussed culture and dedicated team. This remuneration
philosophy has remained unchanged for many years and seeks to recognise fairly the contribution of all employees. Our philosophy is to:
Ensure fair pay across the Group We pay at least the UK Living Wage Foundation’s rates to all employees (except
those on a training rate of pay such as apprenticeships) and aim to ensure that
this is paid by our suppliers too.
Our performance culture fosters a balance between sustainable commercial
outcomes with ethical and responsible conduct, customer-centricity and
employee wellbeing.
Reflecting equality, diversity and inclusivity policies into remuneration
decisions involves using pay gap analysis to identify and correct any
systemic inequalities in pay structures, ensuring fair and transparent
compensation practices.
Packages are competitive, regulatory compliant and aligned to our strategy
and purpose.
Motivate individuals to obtain high
performance alongside effective risk
management across the annual and
longer-term cycles
Both short and long-term variable pay awards for ExCo and other employees
include a risk element. Risk is also one of the measures of success within
Purpose and Performance Profiles in place across the employee base.
Give the greatest salary increases
to those who are the strongest
performers and furthest away from
benchmarking data
All salary review proposals are compared to relevant external benchmarks and
internal talent performance ratings.
Align variable pay awards within clear
risk principles with the aim to drive
sustainable growth
Incentives are structured to reward balanced performance where excessive
risk-taking is discouraged and individual accountability is reinforced.
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Remuneration philosophy in operation: the wider picture
Employee Remuneration
element
Operation of the remuneration element
All employees
Salary Salaries reflect the scope of individual responsibilities and recognise sustained
individual performance in the role. They are determined in line with performance,
culture, external market conditions and retention factors. The Committee is made
aware of the outcomes of salary reviews across the business before it determines
those of the executive directors, Company Secretary and MRTs.
NomCo and RemCo consider gender pay and other pay ratios, with RemCo also
annually reviewing matters relating to fair pay, to ensure fairness is considered in the
way pay decisions are made. Further details on diversity and inclusion can be found
in Section A6.3.
Benefits Provision of market competitive benefits (contractual and voluntary) designed to
promote financial and emotional wellbeing, and which enable individuals to tailor
benefits to suit their lifestyle. This includes the choice of private healthcare on the
same basis as the executive directors for senior employees. A number of legacy
arrangements exist.
Pension The majority of employees can join the Paragon Worksave Pension Plan, our defined
contribution pension plan. Employee contributions are matched equally by the
employer up to 6% of salary; employee contributions of 6% or more are matched by
an employer contribution of 10% of salary (the same level of contribution made in
respect of the executive directors).
A number of legacy arrangements exist, including the defined benefit Paragon
Pension Plan.
Sharesave Paragon’s Sharesave scheme is available to all employees enabling them to become
shareholders through this tax-efficient mechanism.
At the end of the financial year, approximately 63% of employees held Sharesave
options. This number has been broadly consistent over the last five years reflecting
the continued and ongoing alignment between employees and shareholders, as well
as employee commitment to our growth.
This take-up compares very favourably both to the banking sector and other
corporates, with the average banking sector take-up in 2024 reported by Proshare
being 36% (compared to the 40% achieved in Paragon for that year).
All employees
(below senior
manager
level)
Profit related
pay
All employees below senior management level (around 87% of employees) are
eligible to participate in the Group’s profit related pay scheme, which pays out a flat
sum to all eligible employees based on a percentage of the Group’s profits.
Senior
management
Annual bonus Bonus awards are usually made to senior management but can be made in certain
circumstances to other employees. Maximum bonus potential varies across the
business depending on role and experience.
Objectives which are used to help determine bonuses are set on a regular basis for
all employees and reflect the employee’s role and seniority level.
PSP
Incentivises the achievement of enhanced returns for shareholders and encourages
long-term retention of key employees.
This is an annual award of shares subject to continued service and performance
conditions assessed over a three-year performance period.
The maximum award level (except in exceptional circumstances) for employees
other than the executive directors is 100% of salary which is generally only granted to
members of the executive committee.
For MRTs these awards will be used to meet PRA and FCA remuneration regulatory
requirements and will be subject to those requirements as to how they vest.
Executive
Directors
Shareholding
requirements
200% of salary currently to be increased to 300% under the proposed Policy.
Our supply
chain
Contractors’ staff employed at our sites, including cleaners and security personnel
receive at least the Living Wage Foundation minimum rate.
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Corporate Governance
How our pay principles aligned to the Code during the year ended 30 September 2025
Principle Application Example
Clarity The executive director and all-employee
remuneration policies are clearly communicated
to directors and all employees.
The Remuneration Committee Chair and Chair
of the Board regularly consult with our major
shareholders as part of our commitment to a
transparent and open relationship.
The Remuneration Report in this document is
available to all employees as is the group-wide
Internal Remuneration Policy.
Details on the application of the Directors’
Remuneration Policy, including incentive
outcomes for the current year, as well as
proposed performance measures and targets
for future years, are clearly set out in this report.
The Internal Remuneration Policy details the
application of remuneration structures which are
aligned across the business and consist of salary;
pension; variable cash bonuses; share schemes
and benefits.
Discussion on executive remuneration and how it
aligns to the workforce forms part of the regular
People Forum discussions with the Chair of the
Committee.
As noted in the Chair’s letter, simplification was
a key principle adopted in developing the
proposed Policy.
Simplicity Straightforward remuneration structures apply to
all levels of our employees.
The Committee has sought to ensure that the
Directors’ Remuneration Policy and outcomes
which result from it are easy to understand for
both participants and shareholders.
Proportionality Bonus awards reflect annual performance, while
PSP awards reflect performance over the longer
term with performance measures and targets
clearly linked to strategy.
The Committee also has the discretion to override
formulaic outturns to ensure outcomes do not
reward poor performance.
The links between awards and delivery of strategy
and performance are shown in the table above,
entitled ‘Alignment of remuneration to strategy
during the financial year’.
Performance conditions require a minimum level
of performance to be achieved before any pay-out
under variable pay schemes is considered.
Predictability Minimum, target and maximum levels of award
for executive directors are shown within the
Remuneration Policy.
The current Policy in full is set out in Section B7.3
of the Annual Report and Accounts for 2022.
Alignment to
culture
The demonstration of our values and strong
culture are reflected throughout our pay structure.
This alignment applies when determining
incentive outcomes for all employees as well as
through our commitments to EDI policies and the
Living Wage Foundation.
The current and proposed Remuneration Policies
are fully aligned with our pay principles.
Demonstration of our values underpins our
variable incentive frameworks. 25% of PSP awards
for directors and other senior managers are
assessed against ESG-related metrics to ensure
alignment to our sustainability strategy.
We have paid at least the Living Wage Foundation
rate to all employees for a number of years as part
of our commitment to workforce equality and we
are committed to reducing our gender pay gap.
See the remainder of this Section B7.3.4 for more
details and Section A6.
Risk The pay arrangements for executive directors
are consistent with, and promote, effective risk
management through alignment with our risk
appetite.
Risk underpins are included within variable
remuneration arrangements to align with
regulatory expectations and shareholder interests.
All members of the Remuneration Committee
are also members of the Risk and Compliance
Committee, ensuring that risk is appropriately
taken into account when determining
remuneration policy and its outturns.
The risk conditions for the annual and long-
term incentive plans are tested annually by the
Committee. The Committee has discretion to
override formulaic outcomes.
Both annual bonuses for MRTs and PSP
outcomes for all participants are subject to malus
and clawback provisions.
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How the Committee considers the views of all employees
The People Forum considers the relationship between executive remuneration and pay-and-reward across the business on a regular
basis. In November 2024 and November 2025 the Chair of the Committee met with the Forum to engage on and explain the process
of determining executive remuneration, and to discuss remuneration across the wider workforce. These meetings form a regular part
of the Forum’s annual calendar.
Additionally, employees have the opportunity to make comments on any aspects of our activities both through the other regular
People Forum meetings and through surveys, and the views of employees are taken into account by Human Resources. One of the
duties of the Chief People Officer is to brief the Board on employee views, and her attendance at board committee meetings as a
regular invitee also helps to ensure that decisions are made with appropriate insight into those views.
Remuneration comparisons
Comparison of annual change in directors’ pay with the average employee
The table below shows, for the last five financial years, the percentage change in the salary, benefits and bonuses of each of the
directors who held office during both the year and the previous year, compared against the percentage change in each of those
components of pay for an average employee.
Information on directors who were no longer directors at the beginning of the current financial year is not included in the prior
year data. Neither do these tables contain information for any director in their year of appointment as they would have received no
remuneration in the comparator period.
Salaries and fees Allowances and benefits Bonus
2025
N S Terrington 3.0% 13.6% (2.9)%
R J Woodman 3.0% 0.0% (2.9)%
R D East 3.2% 0.0% -
T P Davda 6.0% - -
P A Hill 1.9% - -
Z L Howorth 3.6% - -
A C M Morris 1.6% - -
B A Ridpath 3.6% - -
H R Tudor (6.2)% - -
G H Yorston 3.6% - -
Average employee 5.9% (2.1)% (5.2)%
2024
N S Terrington 3.0% 0.0% 1.6%
R J Woodman 3.1% 0.0% 1.6%
R D East 10.0% 0.0% -
T P Davda (a) 25.0% - -
P A Hill 4.0% - -
Z L Howorth From 01/06/23 (b) 207.4% - -
A C M Morris (a) 20.4% - -
B A Ridpath 3.8% - -
H R Tudor (a) (30.8)% - -
G H Yorston 3.8% - -
Average employee 6.6% 4.1% 16.3%
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Corporate Governance
Salaries and fees Allowances and benefits Bonus
2023
N S Terrington 46.4% 17.6% (3.2)%
R J Woodman 47.0% 7.1% (3.0)%
R D East From 01/09/22 (b) 1,114.2% - -
T P Davda From 01/09/22 (b) 1,233.3% - -
P A Hill 11.1% - -
A C M Morris 14.4% - -
B A Ridpath 14.2% - -
H R Tudor 17.0% - -
G H Yorston 14.2% - -
Average employee 4.9% (4.5)% (13.2)%
2022
N S Terrington 5.0% 21.4% 4.9%
R J Woodman 5.0% 16.7% 4.8%
P A Hill From 27/10/20 (b) 18.4% - -
A C M Morris 5.9% - -
B A Ridpath 7.7% - -
H R Tudor 5.3% - -
G H Yorston 7.7% - -
Average employee 5.1% (2.1)% 15.0%
2021
N S Terrington 6.4% (46.2)% 45.3%
R J Woodman 6.5% - 45.5%
A C M Morris From 26/03/20 (b) 93.2% - -
B A Ridpath - - -
H R Tudor (a) 9.2% - -
G H Yorston - - -
Average employee 1.0% (5.9)% 101.7%
(a) Change of responsibilities in the year
(b) Appointed during the comparator year
Further information in respect of the constituents of the above table is provided below:
For commentary on movements between prior years please see the relevant years’ Annual Report.
Other information
‘Allowances and benefits’ – are calculated using the data provided in the single figure tables and their composition is described in
note (b) to the executive directors’ single figure table and in the notes to the other directors’ single figure table for the Chair.
The changes in the average employee section of the table for this item in cash terms are due to a decrease of less than £45 between
2024 and 2025 and remain at a similar level to prior years.
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CEO pay comparatives over 10 years
The following table shows the total remuneration, as included in the single figure table, and the amount vesting under short-term and
long-term incentives as a percentage of the maximum that could have been achieved, in respect of the CEO, over the past ten years.
Single figure of
total remuneration
Annual bonus earned
against maximum opportunity
Long-term incentive vesting outcome
against maximum opportunity
£000 % %
2025 4,312 90.2 90.07
2024 3,644 95.7 95.21
2023 3,287 97.0 96.41
2022 3,377 96.0 93.13
2021 2,991 96.1 97.00
2020 2,174 66.1 72.00
2019 3,001 89.4 95.44
2018 2,426 90.0 72.47
2017 2,305 90.0 63.51
2016 1,956 75.0 50.00
Performance graph and table
The following graph shows the Company’s TSR performance compared with the performance of the FTSE-250 index. This graph shows
the value, by 30 September 2025, of £100 invested in Paragon Banking Group PLC on 30 September 2015, compared with £100 invested
in the FTSE-250 index. This index was selected because it represents a cross-section of UK companies of comparable size to Paragon.
Ten-year return index for the FTSE-250
Ten years ended 30 September 2025
£0
2019 2020 2021 2022 2023 2024 20252018201720162015
£50
£100
£150
£200
£250
£300
£350
£400
ParagonFTSE-250
Value (£)
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Corporate Governance
CEO pay ratio
The table below sets out the CEO pay ratio compared to the 25th, median and 75th percentile employee. In each of the years
reported, we have used Option A as defined in the Companies (Miscellaneous Reporting) Regulations 2018, as this calculation
methodology was considered to be the most accurate method. This option is calculated in accordance with the single figure table
methodology as at 30 September 2025.
The 25th, median and 75th percentile pay ratios were calculated using the full-time equivalent remuneration (prepared in the
same manner as those for the single figure table) for all UK employees during the financial year. Certain employees participate in
discretionary bonus schemes and long-term incentive schemes.
Remuneration decisions for all employees, including the executive directors, are made taking into account our remuneration
philosophy. The CEO pay ratio, as an outcome of those decisions, is therefore reflective of our reward and progression policies.
Year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio
2025 Option A 130:1 93:1 59:1
2024 Option A 117:1 83:1 53:1
2023 Option A 110:1 81:1 52:1
2022 Option A 112:1 84:1 52:1
2021 Option A 113:1 83:1 50:1
2020 Option A 88:1 64:1 37:1
2019 Option A 125:1 95:1 55:1
The base salaries and total remuneration details relating to the relevant identified employees in the two most recent years are shown below.
2025 2024
25th percentile pay Median pay 75th percentile pay 25th percentile pay Median pay 75th percentile pay
£ £ £ £ £ £
Base salary 28,000 39,000 64,000 26,000 40,000 55,000
Total remuneration 33,000 46,000 73,000 31,000 44,000 69,000
Change in CEO pay ratios
The changes in the CEO pay ratios shown above across all three datapoints (with the exception of the early part of the Covid pandemic
included in 2020) show a consistency of approach to remuneration for all employees over the seven years for which data is presented.
As set out in the Policy, a significant proportion of the CEO’s remuneration is share-based, including the PSP. As shown in the single
figure table, the CEO’s remuneration for 2025 is 18% higher than in 2024, driven primarily by the increase in the share price during the
PSP’s performance period. This has resulted in an 11% increase in the CEO pay ratio across the 25th, 50th and 75th percentiles, as
only the most senior employees participate in the PSP. Some variation in the CEO pay ratio from year to year is expected given the
CEO has a higher proportion of variable pay.
The median pay ratio for each financial year is consistent with Paragon’s remuneration and career progression policies which
recognise the different roles and responsibilities of our employees, in particular, the higher variable pay opportunity of our CEO
relative to other employees.
Gender pay
Details of our gender pay gap analysis are shown in Section A6.3. Gender pay review and reporting are overseen by the Nomination
Committee (Section B5) as part of its responsibilities in respect of diversity.
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Relative importance of spend on pay
Set out below is a summary of our levels of expenditure on pay and other significant cash outflows.
Note 2025 2024 Change
£m £m £m
Wages and salaries 53 87.3 86.5 0.8
Dividend paid 44 81.0 83.5 (2.5)
Share buy-backs 43 124.7 76.6 48.1
Loan advances 2,677.2 2,730.0 (52.8)
Corporation tax paid 45 69.7 70.3 (0.6)
Loan advances are shown above as this is the principal application of cash used to generate income. Corporation tax is contributed
out of profit to the UK Government.
Other information
Notice periods and terms of engagement
The maximum notice period required under the executive directors’ contracts is one year. Their contracts are dated as follows:
Director Contract Date
N S Terrington 1 September 1990 (as amended 7 January 1993, 16 February 1993, 30 October 2001, 10 March 2010 and 21 March 2023)
R J Woodman 8 February 1996 (as amended 10 March 2010 and 21 March 2023)
All new executive directors will have service contracts that are terminable by the Company and the executive director on a
maximum of twelve months’ notice. Chair and non-executive director appointments are for three years unless terminated earlier by,
and at the discretion of, the director or the Company. The required notice period is one year for the Chair and three months for the
non-executive directors.
Current terms of engagement for the Chair and non-executive directors apply for the following periods:
Director Original appointment date Current letter of appointment end date
R D East 1 September 2022 31 August 2028
T P Davda 1 September 2022 31 August 2028
P A Hill 27 October 2020 26 October 2026
Z L Howorth 1 June 2023 31 May 2026
A C M Morris 26 March 2020 25 March 2026
B A Ridpath 20 September 2017 19 September 2026
H R Tudor 24 November 2014 4 March 2026
G H Yorston 20 September 2017 19 September 2026
For further details on the tenure of H R Tudor, see Section B4.1 and Section B5.
How malus and clawback have operated during the year
Malus and clawback have not been used during the financial year under review.
Details of how malus and clawback operate, and the selected periods over which they are enforceable, are shown in the
proposed Remuneration Policy set out in Section B7.2. The selected periods have been designed to meet PRA / FCA remuneration
regulatory requirements.
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B7.4 Approval of Directors’ Remuneration Report
This Directors’ Remuneration Report, Section B7 of the Annual Report and Accounts, including the Statement by the Chair of the
Committee, the Annual Report on Remuneration and the Policy Report, has been prepared in accordance with Schedule 8 to The
Large and Medium-sized Companies and Groups (Account and Reports) Regulations 2008, as amended, and has been approved by
the Board of Directors.
Signed on behalf of the Board of Directors.
Tanvi Davda
Chair of the Remuneration Committee
3 December 2025
B8. Risk management
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Corporate Governance
B8.1 Statement by the Chair of the Risk
and Compliance Committee
Dear Shareholder
I am pleased to present the report for the Board Risk
and Compliance Committee (‘RCC’) for the year ended
30 September 2025. The Committee is the body
responsible for overseeing all risk matters within the
Group including robust independent oversight of
our risk management framework and capabilities.
It provides challenge and validation to ensure
effective assessment of the Group’s risk profile
including areas of emerging risk. As Chair of the
Committee, I welcome the opportunity to confirm
how we, as a committee, have discharged our
responsibilities in this respect during the year
and have continued to ensure that risk-based
decision making, and the infrastructure that
supports this, remain at the heart of our
strategic priorities.
The risk outlook over the last twelve months
has remained consistent in our assessment at
an overall level albeit there have been some
movements in risk exposure levels between
principal risks, and there remain several wider
industry and economic matters that continue
to play out which require ongoing vigilance.
The Committee met five times during the
year, and this frequency ensures it can
assess any changes to the risk environment
in a timely way as issues emerge. There are
however certain issues that have remained on
the Committee’s radar throughout the period
which have evolved in nature requiring the
Committee to demonstrate its effectiveness
in mobilising to provide guidance and
oversight on these, in addition to other
matters, as the need arises.
When I wrote to you this time last year, I cited
several uncertainties that were dominating the
risk landscape despite a more stable economic
outlook prevailing. These areas have remained
a focus for the Committee as they develop, and
more clarity emerges. At the beginning of the
reporting period the Court of Appeal judgement in
the cases of Johnson, Wrench and Hopcraft relating
to motor commission practices was published
and the full implications of this were still open to
speculation. The Committee has continued to track
subsequent legal and industry challenges to this ruling,
culminating in the publication of the FCA Consultation
Paper on a proposed redress methodology in early
October. Whilst there is still significant clarification
required in how any scheme will be implemented, the
Committee has spent considerable time evaluating the
possible outcomes and impacts on our risk profile and
reviewing the operational implications of scenarios to
ensure that whatever the final requirements, we are
organisationally equipped to meet these in line with
regulatory and customer expectations.
There were also considerable uncertainties at the start of the
reporting period around the impact of the new government
and its impact on the economy. These pressures were evident
against a background of international conflict together with a
looming US election, given the impact that a US administration
potentially has on dictating the global economic outlook.
We have seen this in action during the year as the new
administration has embarked on its policy on tariffs and
the volatility that has ensued.
These issues are still a prominent feature of the risk landscape
and will continue to play out for the foreseeable future. The
Committee has continued to follow and assess the ramifications
at each meeting particularly focussing on how these may impact
the ongoing management of our principal risks, including credit
performance, liquidity and capital requirements, the adequacy
of non-financial reporting, and compliance obligations. Our
vigilance in these matters enables us to navigate the potential
risks arising in the wider context and ensure that our risk
strategy remains appropriate and supports delivery of the
corporate plan. The Committee has therefore provided close
oversight and challenge over key initiatives that enable us to
manage our principal risks in the most effective manner whilst
delivering on agreed commitments including the launch of
the covered bond programme and Spring, both of which help
manage liquidity risk by providing additional sources of liquidity
for the Group.
The Committee has had a busy agenda over the year, but its
effectiveness has been underpinned by the tools and processes
embedded within our ERMF which ensures that material issues
are escalated to the Committee for consideration in a timely and
informative manner.
I am pleased that the Committee continues to receive high
quality, comprehensive information on relevant risk matters
enabling it to understand and opine appropriately and to provide
an effective steer in line with its stated purpose.
The maturity of our systems for identifying and managing risk
has developed considerably over the last few years. Robust risk
management practices are seen as an enabler of our strategic
vision and fundamental to our culture as an organisation. The
Committee reinforces this through its oversight of the risk
considerations of performance and remuneration including
providing recommendations from a risk management
perspective to RemCo.
As a committee we advocate a culture of continuous
improvement in our risk management capabilities. This drive
is enabled by ongoing training in a variety of risk matters for
Committee members. We also welcome periodic insights from
key individuals around the business providing Committee
members with the opportunity to understand the day-to-day
risk issues being managed across our operational areas and the
challenges these can present. This includes a blend of views
across all lines of defence which helps give the Committee a
holistic and balanced view of key themes.
Focus during 2025
The Committee has focussed on managing those risk areas we
deemed a priority at the start of the financial year. Whilst we
recognise that the landscape is dynamic and the exposures can
evolve during the period under review, we remain committed to
ensuring that we deliver against these stated objectives.
I can confirm the Committee has diligently provided oversight
and consideration of the following agreed priority areas:
• Ongoing oversight of the implementation of Basel 3.1 has
remained a focus of the Committee. With the delay to
implementation by one year until January 2027 announced in
January and associated changes proposed by the PRA, the
Committee continues to oversee the Group’s impact analysis
of such proposals and remains close to further regulatory
developments in this area
Page 184
• Continuous monitoring of the development in respect of the
legal and regulatory announcements on motor commissions.
During the year we have received regular reporting on
complaints levels and have tracked the approach to dealing
with these to ensure this is in line with the FCA’s expectations
and timeframes. With the publication of the FCA’s proposed
approach to redress in October 2025 the Committee remains
key in overseeing the Group’s operational readiness to
undertake any activity once the policy is finalised, and fully
expects the oversight of any programme of activity to remain
a priority agenda item over the coming twelve months
• The risk impacts of strategic transformation have received
significant focus at the Committee throughout the year. The
launch of Spring provided an exciting opportunity for the
Group counterbalanced by the need for a comprehensive
assessment of the incremental risks such a proposition may
pose. The Committee continues to advocate the importance
of strategic change and the benefit of a longer-term reduction
in operational risk as a consequence
• Overseeing the progress and final successful delivery of the
programme of activity to meet the March 2025 regulatory
deadline for full compliance in respect of operational resilience
requirements, with the business able to clearly demonstrate it
can operate consistently within stated impact tolerances
• Oversight and review of the Group’s ongoing journey and
progress in obtaining IRB accreditation as the business
addresses PRA feedback and moves towards the next stages
• Detailed monitoring of the risks associated with cyber has
continued to remain high on the agenda. The Committee has
received dedicated training during the year which has been
complemented by regular updates including more specific
ad hoc analysis in response to high-profile attacks reported
publicly. In addition, the Committee has reviewed the Group’s
ransomware playbook in the event it should ever need to
be deployed
• The Committee has continued to review the progress in
embedding the FCA Consumer Duty as it drives our
business-as-usual framework and helps support focus on
ensuring delivery of good outcomes for all customers. During
the year the Committee has received the Consumer Duty
dashboard at each meeting to evidence and assess the
application of the duty to all in-scope products. In addition,
the Committee approved the annual Consumer Duty report
which provides a comprehensive self-assessment against
all requirements under the Duty and evidences our strong
customer-centric approach
Whilst the Committee remains focussed on its stated priorities,
it is important that it remains flexible and responsive to areas
of concern or new challenges that have manifested themselves
over the year. The Committee’s core responsibilities are
unequivocally laid out in its terms of reference, and these have
been adhered to during the year.
However, the Committee successfully balances its stated duties
with the need to dedicate appropriate time to wider sectoral or
group-specific issues arising that require a clear understanding
and assessment of associated risks. During the year the
following risk topics have required significant attention, oversight
and steer from the Committee:
• Ongoing oversight of the impact of global and UK economic
policy on the Group’s principal risks. The downward trajectory
of interest rates has ensured stability within our buy-to-let
business which continues to show resilience despite the
challenges of recent years. However, inflation remains high,
and the impacts of global economic forces continue to
exert a significant influence on the UK economy. Within this
context the Committee has maintained close oversight of the
broader economic trends and any impacts this may have on
our principal risks particularly ensuring liquidity buffers are
maintained and market risks are navigated in line with
risk appetite
• The Committee has received regular updates on credit
performance and arrears trends providing oversight and
approval of credit policy decisions across the lending
portfolios. Continued focus has been on development finance
where legacy credit issues are being closely managed as the
influences of higher interest rates and material costs from
prior periods have crystallised. The Committee has provided
oversight in resolution of these issues as they are concluded
and the position stabilised
• In addition to the significant focus on the cyber profile the
Committee has specifically considered the impact of AI in
exacerbating this risk. It has also focussed on the wider risk
impacts of increasing AI deployment, whether in assisting
in productivity and analysis, or through engagement of third
parties. To support the controlled and ethical use of AI, whilst
recognising the commercial and operation benefits it can
bring, the Committee has overseen the establishment of
a more formal AI governance approach. This has included
Committee approval of a dedicated AI policy which prescribes
the creation of a centralised inventory for AI usage, and
oversight mechanisms for proposed use cases to ensure
a proportionate risk assessment is undertaken as AI
deployment expands
• Continued oversight of our financial crime systems and
controls including approval of the financial crime assurance
plan undertaken by the Second Line, review of the MLRO
report and ongoing progress against stated actions as part of
our strategy of continuous improvement in AML processes
such as further enhancements around transaction monitoring
• Ongoing review of our risk management arrangements
including the outcomes of ongoing risk monitoring and
activities undertaken by the Risk function to support the
embedding of an open and transparent risk culture that
underpins our strategic objectives. This included a private
session with the CRO to enable the Committee to understand
first hand any risk challenges and to ensure that the structure
and resources within the Risk and Compliance team continue
to support the wider business aspirations and structures
Other items addressed by the Committee have been undertaken
in accordance with its mandate and terms of reference. In
addition, the Committee has reviewed and approved key items
that support the management and assessment of the risk profile,
as set out in Section B8.2.
In accordance with the Code during the year a Committee
Evaluation Review was facilitated internally which concluded
that the Committee was functioning effectively. The position
was positive with minor observations around potential crossover
with Board discussions and challenge as to whether the size
of the Committee was appropriate. The Committee remains
comfortable with the overall structure and coverage and no
changes were deemed necessary.
2026 and beyond
The Committee remains focussed on monitoring the Group’s
principal risks and any potential or actual impacts to its risk
profile from the diverse range of drivers that may influence
this including those that emanate from the macroeconomic
environment, climate change, consumer behaviour or the
regulatory and political landscape. Over the coming financial
year, the Committee will continue to assess the impact of these
and other factors in discharging its responsibilities which are
centred around its ability to provide effective oversight of the
management of financial and non-financial risk exposures from a
current and projected perspective.
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Corporate Governance
There are several ongoing issues which the Committee is
aware require close oversight and monitoring as their impacts
are clarified. The broad geopolitical situation remains fragile
and has the potential to affect risk types in many ways ranging
from economic in nature, impacts on the supply of goods and
services, cyber threats and overall security concerns. The
Committee continues to assess how such scenarios could play
out, and the wider risk impacts they may have.
The role of the Committee in reviewing and challenging
the thinking and analysis undertaken remains invaluable
particularly as its members can bring diverse perspectives,
experience and specialisms to its discussions. I feel therefore
that the Committee remains an effective body to steer the
Group’s approach to risk management, responding ably to new
challenges which may come to the fore.
Inevitably much focus by the Committee over the next year
will be on issues which have a direct bearing on the UK and
its financial services sector. Whilst there is still a degree of
uncertainty as to the direction of some areas of government
policy given the budgetary challenges it faces, together with the
wider global environmental agenda, there are known initiatives
and regulation that will need to be considered and fully assessed
by the Committee in the next twelve months. Specific topics of
focus include:
• The Renters’ Rights Act 2025, intended to provide better
protection for both tenants and landlords. The Committee has
tracked the progress of the bill to date and has considered
the implications for the buy-to-let market and any consequent
impact on the risk profile of our portfolio. The Committee
will continue to remain close during the transition period
to ensure that consequences of implementation are fully
understood and any risks to our customers are identified and
managed in a controlled way
• Consultations on reforms to the energy performance of
buildings, and on improving the energy performance of
privately rented homes in England and Wales, were launched
during the year with the Committee closely following their
progress. Whilst the consultation periods are now closed,
and further clarification awaited, the Committee continues to
monitor the potential impacts on the wider rental industry and
the risks to our current and future landlord population, given
the rating methodology and timeframes proposed within
the consultations
The Committee is well positioned to respond to detailed
requirements resulting from these and other pending changes in
the operating environment as proven by its ability to respond to
risk challenges that have emerged in prior periods in an agile and
pragmatic manner. The Committee will ensure the impacts are fully
assessed and understood, and any new and emerging issues are
identified with robust assessment of the implications, to ensure
effective management in accordance with our risk appetite.
Other priorities for the Committee will include continued
oversight of certain themes that are already high on the
Committee’s agenda:
• Developments in respect of historical motor finance
commissions, once the FCA consultation period closes and
final rules are published, currently expected to be early in
2026. The Committee fully expects to provide oversight of any
programme of redress undertaken, ensuring it fully complies
with regulatory requirements and complaints continue to be
handled in line with prescribed timeframes. In addition, the
Committee will review operational, system, financial crime and
other implications of any remediation programme ensuring
any impacts are assessed and addressed appropriately whilst
delivering desired outcomes to our customers
• Progress towards Basel 3.1 implementation as further clarity
from the PRA is received in respect of their consultation on
rebasing Pillar 2A and PRA buffers which accompanies the
revised implementation timeframes
• Progress in obtaining IRB accreditation together with
oversight and review of the programme of activities in
supporting this
• The Group’s continuing commitment to driving good
outcomes for customers, which remains at the forefront
of the Committee’s consideration of all risk matters. It will
continue to monitor the results of customer interactions to
ensure these support the Group’s values and facilitate prompt
identification of any signs of customer vulnerability and the
provision of appropriate forbearance as necessary
• The Group’s transformation programmes across all lending
lines which remain a strategic priority together with a
commitment to continuous improvement of Spring following
the successful launch. Focus on the controlled execution of
these initiatives is a key area of attention for the Committee
including maintaining ongoing resilience during periods of
extensive change and the oversight of new and additional third
parties engaged to support the move to further digitalisation
• Risks posed by and to the technological environment will
remain a key topic of interest for the Committee. The dynamic
and sophisticated nature of cyber threats will continue to be
closely monitored, together with the review of any changes
to the risk profile brought about through more extensive use
of AI
• As further clarity is received on UK government policy,
both from an economic perspective or on its wider agenda
including its approach to climate change, the Committee will
review and assess any impacts on risk appetite. It is clear that
the turbulence arising from US Government policies poses
a challenge to global markets and the Committee continues
to review a range of scenarios and associated impacts on the
risk profile to ensure management of financial risks remains
within stated tolerances
• With the forthcoming changes to the Code the Committee will
have a core role in supporting the Board’s proposed approach
to fulfilling its obligation in providing an attestation covering
the effectiveness of its material controls, in conjunction with
the Audit Committee. Over the coming year the approach will
be refined and the oversight provided by the Committee on an
ongoing basis across the risk and control environment will be
a fundamental feed into the attestation required in due course
As can be seen, the Committee has undertaken a
comprehensive programme of oversight and challenge on a
diverse set of risk topics throughout the year and fully expects
this to extend into 2026. Despite its heavy agenda, it has
navigated the various risk matters in a timely and pragmatic
fashion ensuring that the Group’s approach to risk management
supports its broader strategy and the risk implications of any
decisions are duly considered, including awareness of emerging
risks that may impact the Group’s operations. The Committee
has therefore met its fundamental objective of advising the
Board on all material risk matters and I can therefore confirm has
operated in accordance with its Terms of Reference.
The work of the Committee remains, as ever, dependent on having
a firmly embedded risk management framework, strong escalation
and risk governance mechanisms and ultimately a team of
capable risk practitioners within the business lines and across
all three lines of defence. The infrastructure which underpins
the Committee is imperative in driving the information flow and
focus on the right matters. Given these strong foundations the
Committee can move confidently into the new financial year in the
knowledge it is well-placed to oversee known and emerging risks
that may arise in a timely and pragmatic manner.
Peter Hill
Chair of the Risk and Compliance Committee
3 December 2025
Page 186
This report sets out our approach to the management of risk in executing our business strategy.
How the Board, through the Risk and Compliance Committee,
sets objectives for risk management in the business and
assesses their achievement.
This includes the processes through which risk exposure is
monitored at a senior level.
The systems adopted to achieve the Board’s objectives,
including the processes for setting risk appetites and
monitoring performance against them.
The overall approach to risk management in the business,
set by the Board and disseminated to all levels of its
operations, which informs the development of the risk
management framework.
The principal risks identified by these systems, how they
are mitigated and the extent to which these exposures have
developed over the reporting period.
Risk governance
Risk management framework
Risk management culture
Principal risks and mitigations
B8.2
B8.4
B8.3
B8.5
B8.2 Risk governance
The Board has overall responsibility for the approach to risk management and internal control within the Group, including the
establishment and monitoring of the risk management and internal control framework, identifying the nature and extent of the
principal risks faced by the business and setting risk appetites in respect of each of those risks. It has established the Risk and
Compliance Committee to support it in fulfilling these responsibilities.
The Board’s approach to governance and its committee structures are described in Section B4.1. The committee structure and lines
of oversight in relation to risk management, which were in place throughout the year, are set out below.
Risk and
Compliance
Committee
Chief
Executive
Officer
Executive Risk
Committee
(‘ERC’)
Asset and Liability
Committee
(‘ALCO')
Customer and
Conduct Committee
(‘CCC')
Credit
Committee
Operational Risk
Committee
(‘ORC')
Model Risk
Committee
(‘MRC')
Risk and Compliance Committee
The Risk and Compliance Committee comprises the independent non-executive directors and the Chair of the Board. The terms of
reference, which were reviewed and approved by the Board in October 2024 and again in October 2025, after the end of the year, align with
the Code and good practice. Changes made to the terms of reference in October 2024 reflect the 2024 Code and associated Guidance.
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Corporate Governance
The Committee’s responsibilities include reviewing, on behalf of
the Board:
• Recommendations and matters escalated from the ERC
• Current and future risk appetite, including the extent and
categories of risk which the Board regards as acceptable
• The effectiveness of the ERMF and the extent to which risks
inherent in our business activities and strategic objectives are
controlled within the risk appetite established by the Board
• The effectiveness of systems and controls for compliance
with statutory and regulatory obligations
• The appropriateness of our risk culture, to ensure it supports
the Board’s agreed risk appetite
• The effectiveness of our strategies to promote good
outcomes for customers and integrity in the market as central
to our operations and culture
• The effectiveness of the business in addressing issues
requiring remedial attention to ensure actions are completed
in a timely manner and minimise the potential for risk appetite
thresholds to be exceeded
• Processes for compliance with laws, regulations and ethical
codes of practice and the prevention of fraud
• Reports from the Internal Audit function relating to matters
within its remit
The Committee provides oversight and challenge to
enterprise-wide risk management arrangements, which are
managed through the ERC. It also retains oversight responsibility
for model risk. The Committee delegates the review and approval
of material aspects of the rating and estimation processes
in relation to credit and finance models to the Model Risk
Committee (‘MRC’).
The Committee meets at least four times a year and covers
an evolving and diverse agenda striking a balance between
ongoing and standing items, together with focussing on topical
or emerging issues that require timely attention. The executive
directors, Chief Risk Officer (‘CRO’), Chief Operating Officer,
General Counsel and Chief Internal Auditor are invited to attend
meetings of the Committee. However, it reserves the right to
request any of these individuals to withdraw or to request the
attendance of any other employee.
At each meeting the Committee reviews the report from the
CRO which details a summary of the risk profile across all
principal risks and any changes since the prior period. This
includes analysis of risks arising from the economic outlook
together with geopolitical, regulatory change and legislative
risks that may impact the Group and its customers.
The Committee meets annually with the CRO, without the
presence of executive management, to discuss his remit and any
issues arising from it.
The Committee also has the power to requisition a meeting with
the Chief Internal Auditor and / or the external auditor without
the presence of executive management to discuss any matters
that any of these parties believe should be discussed privately.
Standing items covered in each meeting of the Committee include:
• Reviews of the principal risks
• Review of the emerging and corporate risk register, including
the consideration of new or emerging risks and regulatory
developments and their impacts. Particular focus in the year
was given to:
o Competition in respect of areas such as buy-to-let
and savings
o Potential impact of the economic and social policies of the
new UK government including the Renters Rights Act 2025
o The macroeconomic environment including the effects of
tariff negotiations and interest rate changes
o Operational Resilience
o The capital impacts of Basel 3.1 and our IRB application
• Consideration and challenge of management’s rating of the
various risk categories
• Consideration of the root causes and impacts of material
risk events and the adequacy of actions undertaken by
management to address them
In addition, during the last year, the Committee:
• Reviewed the risk appetite for each of our principal risks to
ensure they remained consistent with the delivery of our
strategic objectives, proposing any changes to the Board,
as required
• Reviewed the group policy for AI to support our increasing use
of such tools in a controlled manner
• Reviewed updates to the ERMF including the approach to
assessing risk culture and its maturity
• Regularly reviewed the design, approach and depth of
outcomes based testing for customer and conduct risk as
it continued to develop and considered the outcomes of
this testing
• Continued to monitor progress in respect of the
application for regulatory approval of our IRB approach to
credit risk management
• Reviewed the second annual Consumer Duty report, which
sets out our performance against FCA requirements and
which covered all in-scope products for the first time, following
the July 2024 implementation for closed book products
• Reviewed the ongoing embedding of our approach to
Operational Resilience, ensuring we successfully met the
March 2025 regulatory deadline for demonstrating the ability
of the business to remain within stated impact tolerances.
This has also included regular focus on the impacts of our
technology transformation programme on the risk and
resilience profile
• Received ongoing updates on the broader cyber landscape,
including specific focus on the attacks on major UK retailers
in the year, and the potential risk posed to resilience by
cyber crime
• Maintained oversight of our long-term digitalisation
programme, considering the execution risk inherent in
any such transformation, evaluating the impact across
the principal risks of the adoption of new systems and
ways of working and ensuring that the development of risk
management and control systems proceeds in parallel with
that of operational applications
• Provided oversight on our progress in responding to
the increasing challenges posed by climate change and
the further embedding of climate change risk through
enhancements to measures and standards to support our
broader climate change commitments
• Reviewed the framework for metrics and triggers relating to
reputational risk appetite and considered enhancements to
the oversight of reputational risk
• Undertook ongoing oversight of third-party outsourcing
and material supplier arrangements to ensure that the
management of these remains commensurate with
risk appetite
Page 188
• Monitored the impact of ongoing conflicts in the Middle East
and Eastern Europe on supply chains
• Reviewed the potential impact on our capital requirements of
the implementation of Basel 3.1
• Monitored the ongoing developments surrounding the
FCA’s review of historical commission practices in the motor
finance market
• Conducted deep dive reviews into targeted risk areas,
particularly where broader industry issues or regulatory
publications have required an internal impact analysis.
During the year themes for these reviews included:
o The potential operational risks relating to the FCA motor
finance commission review
o The ongoing work in respect of fair treatment of customers
to ensure that appropriate support is in place for those
customers facing financial difficulties
• Undertook focussed reviews of each of the principal risks
individually on a regular basis
• Reviewed, challenged and approved the Management
Responsibilities Map
• Reviewed, challenged and approved the terms of reference of
the MRC
• Reviewed, challenged and approved the Compliance
Monitoring Plan and its subsequent updates
• Provided review and challenge to the Second Line Risk
Assurance Plan
• Reviewed, challenged and approved the annual report of the
Money Laundering Reporting Officer (‘MLRO’), which illustrated
the continued ongoing focus on AML controls following the
closure of our programme to enhance AML systems and
processes in 2024 (which had achieved its objectives)
• Considered and approved the scenario library, which
underlies the stress testing conducted for ICAAP, ILAAP and
forecasting purposes
• Considered and challenged reports in relation to the
ICAAP and Recovery Plan (including Solvent Exit analysis),
recommending approval to the Board
• Considered and challenged reports in relation to the 2024
ILAAP, recommending approval to the Board and undertook
preliminary work in respect of the 2025 ILAAP, which was
presented and approved after the year end
• Provided oversight of balance sheet hedging arrangements
• Challenged and approved various key risk policies
• Reviewed the potential impacts of regulatory publications
including FCA and PRA priorities
To ensure the Committee is able to provide effective oversight,
members undertake regular training on risk matters through a
comprehensive board education programme (Section B4.5).
During the year the members of the Committee have attended
sessions on a wide variety of relevant risk topics from internal
and external subject matter experts including:
• Deep dives across business areas
• Solvent Exit Analysis and Solvent Exit Execution Plan
• Provision 29 of the 2024 Code
• Prudential Risk
• Historical motor finance commissions developments
• Conduct and regulatory updates and developments
• Cyber risk
Model Risk Committee (‘MRC’)
The MRC reports directly to the Risk and Compliance
Committee and comprises senior managers from Risk, Finance
and the main business areas. It is chaired by the CRO and
attended by Hugo Tudor, a non-executive director. The role of
the MRC is to review and make recommendations on all material
aspects of the rating and estimation processes in relation to key
credit and finance models. The MRC also acts as the ‘Designated
Committee’ for IRB purposes, approving all material aspects of
IRB rating systems.
Executive risk committees
Executive Risk Committee (‘ERC’)
The purpose of the ERC is to assist the CEO in maintaining and
refining the risk management framework, monitoring adherence
to risk appetite statements and identifying, assessing and
managing the principal risks. The ERC was established under the
specific authority of the CEO, is chaired by the CRO, and has the
same membership as Performance ExCo. The ERC monitors the
interaction and integration of business objectives, strategy and
business plans with risk appetite and risk strategy and escalates
breaches and significant matters to the Risk and Compliance
Committee, recommending changes as appropriate.
Key areas of focus for the ERC include:
• Reviewing, as appropriate from time to time, the
appropriateness and effectiveness of the ERMF and
supporting frameworks to manage and mitigate risk
• Reviewing the approach to controlling each principal risk and
its capability to identify and manage such risks
• Reviewing the emerging and corporate risk register, including
reviewing emerging risks as they arise, considering their
potential impact on business objectives, strategy and business
plans, as well as risk choices, appetite and thresholds
• Periodically reviewing the effectiveness of internal control and
risk systems, including material outsourced arrangements
and risks associated therewith, particularly where they might
impact customers
• Ensuring compliance with relevant PRA and FCA
regulations (excluding the SMCR, which is overseen by the
Performance ExCo)
• Reviewing the process and outcome of the ICAAP, ILAAP and
Recovery Plan (including Solvent Exit analysis) and making
recommendations to the Risk and Compliance Committee
and Board for approval
• Considering the implications of any proposed legislative or
regulatory changes that may be material to risk appetite, risk
exposure, risk management and regulatory compliance
The ERC is supported by an Asset and Liability Committee,
Customer and Conduct Committee, Credit Committee and
Operational Risk Committee, which focus on specific aspects
of the Group’s risk profile. Each of these bodies operates within
terms of reference formally approved by the ERC. Their primary
functions are described below.
The ERC retains direct responsibility for those principal risk
areas which impact across multiple aspects of the Group’s
operations, including climate change risk, reputational risk and
strategic risk.
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Corporate Governance
Asset and Liability Committee (‘ALCO’)
The ALCO comprises heads of relevant functions and is chaired
by the Balance Sheet Risk Director.
The principal purpose of the ALCO is to monitor and review
the financial risk management of the Group’s balance sheet
in accordance with the stated risk appetite of the Board. As
such, it is responsible for overseeing all aspects of market risk,
liquidity and funding risk, pricing and capital management as
well as the treasury control framework. The ALCO operates
within clearly delegated authorities, monitoring exposures and
providing recommendations on actions required. It also monitors
performance against risk appetite on an on-going basis and
makes recommendations for revisions to risk appetites through
the ERC to the Risk and Compliance Committee.
Customer and Conduct Committee (‘CCC’)
The CCC comprises heads of relevant functions and is chaired
by the Conduct and Compliance Director.
The CCC is responsible for overseeing the management of
conduct risk and regulatory compliance risk (including financial
crime risk), so that they are managed within appetite and
customers receive good outcomes.
The CCC considers conduct risk information such as: details
of conduct or regulatory compliance breaches; systems and
procedures for delivering good outcomes to customers (such
as in relation to customer vulnerability); the product governance
framework; and monitoring reports. It also considers product
reviews from a customer perspective. It is responsible for
overseeing adherence to FCA Consumer Duty principles
and outcomes through robust oversight both during the
implementation project and subsequently, and the review
and challenge of the annual Consumer Duty report prior to
escalation to the Board.
With respect to compliance, the CCC is responsible for
overseeing the maintenance of effective systems and controls
to meet conduct-related regulatory obligations. It is also
responsible for reviewing the quality, adequacy, resources, scope
and nature of the work of the Compliance function, including the
annual Compliance Monitoring Plan.
Credit Committee
The Credit Committee comprises senior managers from the
Risk and Compliance, Finance and Operations functions and is
chaired by the Credit Risk Director.
The Credit Committee approves credit risk policies in respect of
customer exposures and defines risk grading and underwriting
criteria. It also provides guidance and makes recommendations
to implement strategic plans for credit. The Credit Committee
oversees the management of the credit portfolios, the
post-origination risk management processes and the
management of past due or impaired credit accounts. It also
monitors performance against appetite on an on-going basis
and makes recommendations for revisions to the credit risk
appetites to the Board or the Risk and Compliance Committee.
The Credit Committee also operates the most senior
lending mandate.
Operational Risk Committee (‘ORC’)
The ORC comprises the heads of relevant functions and lines of
business and is chaired by the Enterprise Risk Director.
The ORC is responsible for overseeing operational risk and
resilience arrangements, including those systems and controls
intended to counter the risk that the Group might be used to
further financial crime. Although the CCC is the prime oversight
body relating to Financial Crime, the ORC retains oversight
through the annual review of the MLRO report, and of
fraud-related risk events, given that financial crime is an
Operational Risk category.
The remit of the ORC also includes risks arising from personnel,
technology and environmental matters within the business,
including those arising from the use of third parties. The ORC
considers key operational risk information such as key risk
indicators, themes within risk registers, emerging risks, loss
events, control failures and operational resilience measures. It also
monitors performance against risk appetite on an on-going basis.
B8.3 Risk management
culture
A strong, embedded corporate culture is a priority for the Group.
Our values are fundamental to the day-to-day operations of
our businesses, driving an open, diverse and customer-centric
culture. At the heart of this strategy is a commitment by the
Board to maintaining a strong risk culture to underpin these
values. This risk culture promotes effective risk management
that is both consistent and commensurate with the nature,
complexity and risk profile of our businesses and core to our
strategic objectives. An effective and embedded risk culture
is seen as a key enabler to ensuring the ERMF remains fit
for purpose and is understood and considered across all our
operational activities.
The importance of risk management is a pervasive theme
at all levels of the business, and employees are expected to
understand, and have accountability for, the risks they take.
Appropriate risk management and the behaviours expected to
deliver this are core to our performance management process,
driving specific risk management objectives for all employees.
Our Code of Conduct, which applies to all employees, further
underlines the importance of, and individual responsibility for,
risk management.
We continue to ensure that our approach to measuring and
monitoring risk culture remains proportionate and evolves in line
with our overarching strategy and with regulatory expectations.
The ERMF has successfully provided the tools to support
key regulatory initiatives such as the Consumer Duty and
Operational Resilience, ensuring these are firmly embedded
and understood. A commitment to considering risk at all times
is seen as the core foundation to successfully delivering key
strategic change in a controlled and risk-aware manner. The
launch of the Spring savings proposition during the year firmly
relied on the ERMF to identify, assess and mitigate the potential
incremental risks associated with such an offering, and the
significant systems and process changes which come with it.
Ongoing activities undertaken during the year demonstrate the
importance of a robust risk culture in continuing to support our
approach to managing risk. These included:
• Regular reporting to risk committees and the Board on risk
culture based on four agreed components: Leadership and
Direction; Individual Commitment; Joint Ownership; and
Governance, together with clear measures to evidence these
• Mandatory training across core elements of the ERMF for
all employees including a dedicated risk-focussed induction
session as part of onboarding for new starters
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• Use of Purpose and Performance Profiles (‘PPPs’) for
all employees ensuring that all have formal risk-related
objectives relevant to their role, reinforcing our commitment
to “Think Risk”
• Periodic risk maturity assessment across each area of the
business including an evaluation of each area’s perception
of risk and how its risk management activities are viewed
and put into practice together with clear remedial actions
where appropriate
The ongoing importance of risk culture continues to be
reinforced by senior management and the Board, and is
embedded through various practices, supporting and protecting
our wider strategic goals. This approach is essential to protecting
customers, shareholders, creditors and other stakeholders,
while safeguarding our reputation. In particular:
• The fair treatment of customers and the delivery of good
outcomes, particularly for those customers considered to
be vulnerable or in financial difficulty, is central to our risk
management approach
• Robust risk management, conducted within an open and
transparent environment, remains at the heart of all decision-
making, from board-level downwards
• Business is carried out only where the potential risk to the
Group and our customers has been evaluated together with
the potential reward, and where the residual risk exposure
remains within defined risk appetites
• The risk management framework ensures that risks are
owned and managed in a consistent way
The Risk and Compliance Committee receives biannual
reporting on risk culture, including performance against an
agreed-on set of qualitative and quantitative measures, with
outcomes positive in the year.
Our risk culture has been central in ensuring historically low
levels of credit and operational losses, and a positive record on
conduct issues.
B8.4 Risk management
framework
Introduction
The Enterprise Risk Management Framework (‘ERMF’)
is designed to enable management to identify and focus
attention on the risks most significant to the objectives of our
businesses and to provide an early warning of events that put
those objectives at risk, ensuring that appropriate mitigants are
introduced to maintain risk levels within a stated risk appetite set
through a formal process overseen at board level. The framework
and the associated governance arrangements are designed to
provide a clear organisational structure with distinct, transparent
and consistent lines of accountability and responsibility in the
facilitation of risk management.
Effective risk management is core to the execution of our strategy,
and the ERMF and its supporting frameworks provide clear
requirements for managing our risks appropriately. We continue to
ensure that the framework evolves to reflect the changing business,
regulatory and economic landscape and emerging threats.
Therefore, we remain committed to continuous improvement
in our enterprise-wide risk management system to ensure it
remains proportionate and fit-for-purpose. Core to this approach
is ensuring that appropriate tools for effective risk identification,
assessment, treatment, monitoring and reporting are embedded
at all levels of our businesses. This includes understanding those
material controls which, if they fail, could cause significant financial,
reputational, regulatory or other harm to the Group.
Our ERMF has been in place for several years, and our focus
is on ensuring it remains appropriate and continues to provide
an effective mechanism to manage all categories of risk and
respond to the changing business environment in a practical
manner. The ERMF is well-understood across the business, but
it remains dynamic, and any changes to the operating landscape,
our business practices or regulatory guidance are reflected on
an ongoing basis.
Activities to ensure the ongoing relevance and importance of the
ERMF during the year have included the enhancement of the risk
management learning module, completed by all employees, and
the strengthening of our approach to risk management assurance,
through harmonising activities across assurance functions.
The annual refresh of all our principal risk policies has been
undertaken. This year this included a re-assessment to fully
reflect any incremental risks and controls brought about by our
new Spring savings operation, thereby ensuring the policies
remain relevant and comprehensive. As a result of this, the
risk and control assessments undertaken across the Group
have been refined to ensure that at least the minimum controls
expected to manage the principal risks, as they impact the
business area concerned, are reflected in their respective risk
assessments. Assessment of the appropriateness of our risk
management software has also continued and further work is
scheduled over the next year to ensure we have appropriate
tools to meet future risk management requirements and help to
embed ERMF practices, including more effective analysis and
aggregation of risk data.
The advent of an enhanced risk system will facilitate the further
challenge and review of risk data to ensure its completeness,
relevance and quality. In turn, this will be crucial in supporting the
work being undertaken in parallel to meet the new requirements
set out in Provision 29 of the revised Code. Our ability to map
and aggregate our existing risk and controls data is fundamental
to our approach in defining and assessing the effectiveness
of our material controls for this purpose. The ERMF and its
structure within the organisation is the fundamental enabler
for us to address the requirements under the revised Code,
providing, as it does, well-understood tools to identify, assess,
monitor, report and provide assurance over the agreed
population of material controls, including the appropriate board-
level oversight.
Enterprise risk management framework
The ERMF is intended to provide a robust, proportionate,
structured and consistent approach to the management of risk
within agreed appetites, thereby supporting the achievement
of our strategic objectives. The framework therefore enables
the Board to fulfil its responsibility to maintain an effective risk
management and internal control framework.
The key objectives of our ERMF are to:
• Define a strategy to support our attitude to risk, including
outlining the approach taken to setting qualitative statements
and quantitative metrics to define and assess our risk
appetites and tolerance for risk across principal risk exposures
• Establish a consistent risk taxonomy, describing the principal
risk categories (set out in Section B8.5) and the more granular
aspects of each of these risks
• Promote an appropriate risk culture across the business,
ensuring that risk is considered as part of all key strategic and
business decision-making throughout our operations
• Establish consistent standards for the identification,
assessment, treatment, monitoring and reporting of risk
exposure and loss experience
• Promote risk management techniques to proactively reduce
the frequency and severity of risk events, driving control
improvements where necessary
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Corporate Governance
• Facilitate adherence to regulatory requirements, including
threshold conditions and capital standards
• Support the regulatory requirements associated with the
ICAAP, the ILAAP and the Recovery Plan
• Provide the Board, senior management and relevant
committees with risk reporting that is relevant and
appropriate, enabling timely action to be taken in response
• Define risk policies which align to the principal risks and
identify the minimum control requirements and key indicators
to manage and measure these risks
The ERMF therefore supports the risk appetite framework
described in more detail below.
Three lines of defence model
The ERMF is operationalised using a ‘three lines of defence’
model to delineate responsibilities in the management of
risk. This ensures adequate segregation in the oversight and
assurance of risk and can be summarised as follows:
Three lines of defence
Line 1
Operational and support areas that own and manage risk within
agreed limits
Line 2
Risk and Compliance function which designs, implements and
oversees the ERMF and provides support and challenge
Line 3
Internal Audit function which independently assesses the
effectiveness of risk management
• The first line of defence (‘Line 1’), comprises executive
directors, managers and employees in operational and
support areas. Line 1 has day-to-day responsibility for:
o Risk identification, assessment, treatment, monitoring
and reporting
o Control implementation, and ongoing monitoring and
assessment of operations
o Management, escalation and reporting of risk issues
against stated appetites
Risk Champions are appointed within all business areas to support
the embedding of an effective risk culture across our business
• The second line of defence (‘Line 2’) is provided by the
independent Risk and Compliance function. This division
is headed by the CRO, who is a member of the Executive
Performance Committee and chairs the ERC. The function is
overseen by the Risk and Compliance Committee, ERC and
its supporting executive committees. Line 2 provides support
and independent challenge on all risk-related
issues, specifically:
o Developing, maintaining and monitoring effectiveness of
the ERMF across the business
o Developing and maintaining supporting risk processes
within that framework, ensuring these are consistent with
the Board’s risk appetite
o Ensuring that risks identified by Line 1 are measured,
monitored, controlled and reported consistently and on a
timely basis
o Maintaining open and constructive engagement with the
regulatory authorities
The CRO attends meetings of the Risk and Compliance
Committee and the Board to report directly to the directors
on risk issues and has a close working relationship with the
Chair of the Risk and Compliance Committee, an independent
non-executive director.
• The third line of defence (‘Line 3’) is provided by the Internal
Audit function, which is responsible for reviewing the
effectiveness of Line 1 and Line 2. This function is overseen
by the Audit Committee and led by the Chief Internal Auditor
who reports directly to the Chair of the Audit Committee.
Internal Audit provides independent assurance on:
o Line 1 and Line 2 risk management activities
o Effectiveness of the ERMF
o Appropriateness and effectiveness of internal controls
o Effectiveness of policy implementation
Further information on the work of the Internal Audit function is
given in the report of the Audit Committee (Section B6.5).
Risk appetite framework
The risk appetite framework outlines our approach to setting and
monitoring risk appetite. The framework stipulates the approach
to setting risk appetite statements, measures, tolerances and
reporting requirements, escalation obligations and the frequency
of review. The framework is subject to board approval.
The following principles are integral in determining risk appetite:
• Alignment to principal risks
• Alignment to strategic objectives
• Appropriateness of calibration to drive timely action
• Facilitation of ongoing monitoring of the risk profile
We have in place a tiered approach to setting and monitoring
risk appetite informed by these principles. A set of board-owned
(Level 1) metrics has been established. These are monitored
by the Risk and Compliance Committee on an ongoing
basis and any threshold breaches in respect of these are
immediately escalated to the Board. These board-level metrics
are underpinned by more extensive executive-level metrics,
which are reportable to the ERC and escalated to the Risk and
Compliance Committee when appropriate. All metrics and
thresholds are reviewed regularly to reflect any changes in risk
appetite, to ensure they remain appropriate.
Risk appetite is central to the effective implementation and
operation of the ERMF. The risk appetite framework ensures that:
• All principal risks have strategically aligned qualitative risk
appetite statements and quantitative measures
• There are appropriate board and executive level risk appetite
metrics monitored on an ongoing basis
• Calibration of appetite thresholds is appropriate and drives
timely management action
Capital Risk
Description Mitigation Year-on-year change
The risk that our capital
becomes insufficient to
operate effectively, including
meeting minimum regulatory
requirements, operating
within board-approved risk
appetite, and supporting our
strategic goals.
The Bank of England has
published its final policy
for the implementation of
the Basel 3.1 standards in
the UK, currently intended
to be effective from
1 January 2027, which raises
the capital requirement for
buy-to-let mortgage loans, our
largest asset class.
A robust process exists over reporting capital
metrics, both internally and to the PRA, with
a comprehensive annual ICAAP assessment
including all material capital risks.
An internal capital buffer is maintained in
excess of minimum regulatory requirements
to protect against unexpected losses and
intra-period volatility.
We continue to engage with the PRA
in respect of the application for the
accreditation of our IRB approach to
buy-to-let credit risk, responding to
feedback as the regulator proceeds with
its internal assessment process.
We retain the option to apply for the Small
Domestic Deposit Takers (‘SDDT’) regime in
due course.
The delivery of the Basel 3.1 policy
statement package was a significant
milestone for the overall UK capital risk
framework, but there are still certain
areas that will only be finalised through
engagement with the regulator, which has
stated that it intends to use the exercise
of supervisory judgement in order
support a smooth transition, as firms
move between capital regimes.
In January 2025, we received our latest
SREP from the PRA, reducing capital
requirements and leaving us with a higher
surplus to regulatory requirements at
the 2025 year end than was the case a
year earlier.
Macroeconomic downside risks
continue to present headwinds, but
our strong underlying profitability
and considerable headroom over
requirements provide us with significant
capacity to support lending to UK
households and businesses.
Further information about our management of capital, including quantitative capital measures, is set out in note 57 to
the accounts.
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B8.5 Principal risks and mitigations
The Group is exposed to a number of principal risks and uncertainties that arise from the operation of our business model and
strategy. A summary of those risks and uncertainties, which could prevent the achievement of our strategic objectives, how we
seek to mitigate those risks and the change in the perceived level of each risk in the last financial year are described below. Further
information on these risks is provided in our Pillar 3 report, published on our corporate website.
This analysis represents the gross risk position as presented to, and discussed by, the Risk and Compliance Committee as part of its
ongoing monitoring of our risk profile.
The risks are set out in accordance with our classification of principal risks, approved by the Board during the year.
Capital
risk
Liquidity and
funding risk
Market
risk
Credit
risk
Model
risk
Reputational
risk
Strategic
risk
Climate change
risk
Conduct
risk
Operational
risk
The principal risks remain consistent from the previous financial year.
Operational risk includes a number of subsidiary risks, including: risks related to the use of IT (information technology, information
security, data protection and data management), including cyber risk; risks related to our employees and employment practices; risks
related to change management; risks related to our use of significant third parties to facilitate our operations; financial crime risk; and
risks related to financial reporting and control.
The changes in the perceived level of each risk during the last financial year are indicated using the symbols shown below:
Risk increasing Risk decreasing Risk stable
Liquidity and Funding Risk
Description Mitigation Year-on-year change
The risk that we have
insufficient funds to meet our
financial obligations as they
fall due.
Retail deposit-taking is central
to our funding plans and
therefore changes in market
conditions could impact the
ability of the business to
maintain the level of funding
required to sustain normal
business activity.
We maintain a diversified range of both retail
and wholesale funding sources to cover
current and future business requirements.
Comprehensive treasury policies are in
place to ensure sufficient liquid assets are
maintained and that all financial obligations
can be met as they fall due, even under
stressed conditions.
We have a dedicated Treasury function,
responsible for the day-to-day management
of overall liquidity and wholesale funding.
The Board, through the delegated authority
provided to the ALCO, sets limits for the level,
composition and maturity of funding and
liquidity resources.
The covered bond programme, put in
place during the year, provides a relatively
quick and cost-effective means of raising
additional wholesale funding when conditions
are appropriate.
Holdings of our own mortgage-backed
securities and other investment assets,
together with mortgage assets pre-positioned
with the Bank of England, provide ready
access to liquidity if required.
We remain well placed to access funding
from a wide range of sources to meet
future funding requirements. Access
to the retail savings market has been
effective during the year through both
direct and intermediated deposit platform
distribution channels and has been
further increased by the launch of the
Spring savings proposition. Our covered
bond programme was established in the
year and the inaugural £500.0 million
issuance was successfully completed in
March 2025.
Liquidity and Funding Risk is therefore
considered to have reduced from its
level at the start of the year given the
above initiatives. In addition, a substantial
amount of TFSME funding was repaid
in the year, with the majority of the
remainder repaid shortly after the year
end. The collateral released by this
repayment materially increased our
capacity to access contingent liquidity,
and we have increased our usage of the
Bank of England’s Indexed Long-Term
Repo facility.
More detailed information on our liquidity risk profile, including quantitative data, is set out in note 60 to the accounts.
Market Risk
Description Mitigation Year-on-year change
The risk that changes in the
interest rates at which we
lend and those at which we
borrow may adversely affect
net interest income and
profitability.
This risk is managed within board-approved
risk appetite limits, with comprehensive
treasury policies in place to ensure that the
risks posed by changes and mismatches in
interest rates are effectively managed.
Day-to-day management of interest rate risk
is the responsibility of the treasury function,
with control and oversight provided by ALCO.
We seek to match the maturity profile
of assets and liabilities and use financial
instruments, such as interest rate swaps,
to hedge the exposure arising from
repricing mismatches.
Reference rates of interest have reduced
gradually in the period, but remain at a high
level compared to much of recent history.
There remains a particular focus on risk
management in this area to ensure net
interest margin is managed effectively. As
part of this strategy, the net free reserves
hedge was increased by £0.2 billion to
£1.4 billion during the period.
Our overall market risk profile, relative
to the balance sheet, has remained
broadly similar to that at the previous year
end and associated risk levels remain
generally stable.
More detailed information on our management of market risk is set out in note 61 to the accounts.
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Corporate Governance
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Credit Risk
Description Mitigation Year-on-year change
Credit risk elements which
could carry the risk of
unexpected material
losses include:
• Customer risks through
failure to screen potential
borrowers, or to manage
repayments
• Concentration risk in
credit portfolios through
an uneven distribution of
exposures of borrowers,
asset classes, sectors
or geographies
• Reduction in the value of
collateral owned by the
Group, or secured against
debt owed to it
• Wholesale counterparty
risk
• Outsourcer default risk
We have a robust credit risk framework
supported by comprehensive policies in place
that set out detailed criteria which must be
met before loans are approved. Exceptions to
credit policies require approval by the Credit
Risk function, operating under a mandate
from the Credit Committee.
A range of sources are used to inform
expectations of key external factors such as
interest rate movements and house price
inflation which, in turn, guide policy and
underwriting.
We also continue to develop opportunities to
diversify the range of activities and income
streams, consistent with the strategic
objective of operating as a prudent,
risk-focussed specialist lender.
The majority of our loans by value continue to
be secured against UK residential property at
conservative loan-to-value levels. The primary
collateral therefore forms part of a highly
mature, sustainable market, demonstrated
over many decades of operation.
Exposure to wholesale counterparty credit
risk is limited to counterparties that meet
specific credit rating criteria set out in our
comprehensive treasury policies. Exposure to
approved counterparties is monitored daily
by senior management within the Treasury
function with all exposures managed in
accordance with ALCO-approved limits.
Ongoing monitoring of the credit rating
and financial performance of all outsourced
relationships and critical suppliers
is undertaken.
Credit risk pressure has generally eased
throughout the second half of the 2025
financial year with borrowers benefitting
from the lower interest rate environment,
and the level of payment increases for
those buy-to-let customers reaching
the end of product incentive periods
continuing to reduce. The development
finance sector has seen some reduction
in cost price inflation along with
improvements in material and labour
availability, although the average time to
sell completed properties has lengthened
and we have continued to encounter
credit issues on projects approved
before September 2022. SME customers
continue to trade robustly.
The mildly positive outlook for interest
rates continues to be reflected in
market pricing for mortgage products
and supports customer demand for
residential property. As a result asset
values have been, and are expected to
remain firm, although sales continue to
take longer to realise.
Prudent lending policies have been
maintained throughout the period, with
added insight and control supported
by the broader sourcing and usage of
digitalised data.
The potential headwinds inherent in the
current economic outlook, set against
the expectation of minor interest rate
reductions over the next reporting period
and the generally strong performance
of our lending portfolios, mean that the
overall assessment of credit risk
remains stable.
More information on our retail and wholesale credit risk profiles, including quantitative credit measures, is set out in note
59 to the accounts.
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Corporate Governance
Model Risk
Description Mitigation Year-on-year change
Statistical models are used
across our businesses to
inform financial decision-
making and hence it
is imperative that the
environment in which these
models are designed,
implemented and operate is
subject to appropriate rigour.
A robust framework of management and
governance is in place to manage the
risks associated with the use of internally
developed models. This includes the
MRC which oversees the development,
implementation and ongoing monitoring of
models used in the business.
Our formal Model Risk Management
Framework provides a structured and
disciplined approach to the management of
model risk. It includes clear development,
implementation and ongoing oversight
principles, together with requirements for
independent validation based on model
materiality criteria.
PRA Supervisory Statement SS 1/23, which
addresses model risk management principles
for banks, applies to firms with permission to
use internal models to calculate regulatory
capital. We are undertaking a programme of
work to ensure compliance with the principles
of the Supervisory Statement in advance of
receiving IRB accreditation and consider that
we are well-placed to meet its requirements
within the timeframes required. This, in turn,
means that our approach to managing this
risk more generally complies with recognised
external benchmarks.
It is recognised that the increasing use
of internally developed models will drive
a commensurate increase in potential
risk. However, given the strength of our
model risk management framework and
oversight processes and our continuing
investment in this area, model risk
remains within appetite and the outlook
remains stable.
Information on our use of models in impairment provision calculations is given in note 19 to the accounts.
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Reputational Risk
Description Mitigation Year-on-year change
Maintenance of a strong
reputation across all business
lines, operational activities
and the conduct of employees
and associated third parties is
core to our philosophy.
Detrimental reputational
impacts could result from
internal actions, or external
events, as a consequence of
the crystallisation of other
principal risks, through failure
to safeguard the integrity of
our brand or meet external
expectations in our business
practices, or any combination
of these.
Our Reputational Risk Policy supports
reputational risk management across
our businesses. Reputational issues are
considered at Board and ExCo level and,
where relevant, are identified, reviewed
and escalated through the risk committee
governance structure.
The reputational impacts of changes to
strategy, pricing, people, processes or third-
party relationships are explicitly considered
in our decision-making processes and are
reviewed by the External Relations Director.
We will not undertake any activity which we
consider might be damaging to our reputation.
Employees adhere to defined standards of
conduct, encompassing policies, procedures
and ways of working. These are set out in our
publicly available Code of Conduct.
We have an experienced External
Relations function which manages all our
communications and ensures that our
reputation is protected. Reputational risk is
monitored through tracking both traditional
and social media coverage, net promoter
scores, review platform feedback and our
regular customer surveys.
Any material risk events are reviewed for
reputational impact and mitigating actions
are initiated as appropriate.
The launch of our Spring savings
operation has expanded our digital
presence and, to reflect this, our
approach to monitoring and managing
reputational risk has been enhanced
during the year. We remain focussed on
continuing to manage our reputation and
protect our brand effectively across all
our business lines.
Whilst we are mindful that reputational
threats can emanate from a variety of
different sources, we remain well-placed
to respond quickly and efficiently to any
potential reputational issue.
Strategic Risk
Description Mitigation Year-on-year change
Our strategy as a specialist
lender is key to our operating
model and business planning.
However, there is a risk that
changes to the business
model, or macroeconomic,
geopolitical, regulatory,
competitive or other external
factors may impact delivery of
strategic objectives.
We closely monitor economic developments
in the UK and overseas, with support from
leading independent macro-economic and
other advisors.
Stress testing is performed to assess the
expected performance of our business under
a range of operating conditions. This provides
the Board with an informed understanding and
appreciation of the capacity of the business to
withstand shocks of varying severities.
We continue to exploit opportunities to
diversify both the range of our activities and
income streams and the optionality available
in our existing activities, consistent with the
strategic objective of operating as a prudent,
risk-focussed lender.
The macro-economic outlook remains
complex. Internationally, the environment
has remained volatile, with trade wars
and continued conflicts in Europe and
the Middle East weighing on confidence.
Domestically, while the turn in the interest
rate cycle is a welcome development,
inflation has been more persistent than
initially predicted. This, in turn, has held
back real GDP growth and kept the
pace of interest rate reductions modest.
The future rate trajectory will be key in
determining the outlook for our margins
and volume growth given that the level
of interest rates impacts both spreads
and broader customer confidence in
the economic outlook. Looking forward
there remains uncertainty around the
performance of the UK economy in
both the medium and longer term, while
global geopolitical risks are likely to
remain elevated.
Despite this volatile environment our
businesses have remained resilient
throughout the year, and we have
made strong progress in meeting the
strategic targets in our corporate plan.
In particular, we have continued to make
significant progress with our digitalisation
programme, with key deliverables
completed in the year. This remains an
ongoing priority. However, we continue
to operate in competitive markets, with
the retail savings market, in particular,
seeing its dynamics changing as UK
interest rates fall, putting pressure on our
strategic position.
We recognise that the potential
for geopolitical and associated
macro-economic impacts remains
elevated. This in turn could lead to further
economic and property market disruption
within the UK, presenting a risk to the
execution of our strategy.
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Corporate Governance
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Climate Risk
Description Mitigation Year-on-year change
We consider the impact of
climate change both directly
on our business and indirectly
through our third-party
relationships or lending
activities.
This includes both the
transitional risk to our strategy
and profile through external
measures to progress to a
low-carbon environment,
and any physical risks arising
from changes to the natural
environment that could impact
the calculation and valuation
of assets and liabilities.
We proactively manage physical risk relating
to security taken on our loan assets and have
specific underwriting policies aimed at the
mitigation of, for example, risks associated
with flooding, coastal erosion and subsidence.
The Sustainability Committee provides
comprehensive oversight of climate initiatives
across each business line, whilst the Credit
Committee additionally monitors the
performance of mortgaged property collateral
against EPC data, and concentrations of
electric vehicles.
The potential for transition risk is monitored
within the different business lines, with
external events prompting consideration
of amendments to credit policy and
underwriting criteria, as appropriate. Other
climate risk mitigants, such as offering
sustainable products, are used to support
the evolution of our balance sheet in line with
the markets in which we operate, mitigating
stranded asset risk.
We continue to actively engage with public
forums such as Bankers for Net Zero (‘B4NZ’)
and UK Finance to support the development
of future policy and regulation.
Ongoing and enhanced climate change
analysis, supported by scenario testing,
continues to be developed and expanded to
cover a broader asset range to inform longer-
term strategic planning.
We have continued to make progress on
our climate change agenda, with activity
focussed on enhancing our financed
emissions balance sheet, continued
public policy advocacy through B4NZ,
and responding both independently and
through UK Finance to climate-related
consultations.
The levels of regulatory scrutiny and
public interest in this area continue to
be high with an increased focus from
regulators and the UK Government.
However, our approach has further
matured in the year whilst maintaining a
proportionate approach to managing the
risks and opportunities associated with
climate change.
Although there remains uncertainty
in respect of the timing and impact of
government and regulatory interventions
in this area, our scenario analysis
assessment indicates that exposure to
climate change impacts is being managed
appropriately and does not pose a
significant or increasing risk.
Information on our management of climate-related risks, including our financed emissions balance sheet, is set out in
Section A6.4 in accordance with the recommendations of the TCFD.
Conduct Risk
Description Mitigation Year-on-year change
The commitment to delivering
good customer outcomes is at
the heart of our culture
and strategy.
Conduct risk arises where
culture and behaviours fail
to promote the customer’s
best interests and avoid
foreseeable consumer harm,
resulting in poor outcomes
for them.
The management of conduct risk is tailored to
each specific product and customer type and
includes dedicated quality and control teams.
Control teams focus on validating process
adherence, measuring the delivery of good
customer outcomes, and overseeing the
appropriate management of those customers
showing signs of vulnerability, including those
in financial difficulties.
All employees, whether customer-facing or
not, have clear customer focussed objectives,
acknowledging their ability to drive a culture
designed to deliver good customer outcomes.
Our approach to employee remuneration
means that very few employees are
included in financial incentive schemes.
The remuneration policy is reviewed by the
Remuneration Committee annually and
individual schemes require approval from the
Chief People Officer, CFO and Conduct and
Compliance Director before implementation.
We remain cognisant of the ever-
increasing need to tailor support to
individual customer circumstances, and
this year has seen ongoing focus in this
area, particularly around our treatment of
customers showing signs of vulnerability
or financial stress.
The ongoing legal and regulatory activity
relating to historic motor commissions
has been, and will continue to be, closely
monitored. We remain committed to
ensuring that all customers receive
good outcomes and therefore are keen
to understand the FCA’s proposals for a
redress scheme. Clarity in this respect
will ensure we can swiftly and effectively
implement the regulators requirements,
removing uncertainty for customers who
have made, or who wish to make a claim.
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Corporate Governance
Operational Risk
Description Mitigation Year-on-year change
Operational risk arises
across the business
through the possible
inadequacy or failure
of internal processes,
people and systems
or from the impact of
external events.
Operational risk is
inherently diverse in
nature. All our activities
create various forms of
operational risk which
need to be managed
through a strong control
and oversight structure.
Exposure to operational
risk will be exacerbated
through periods of
transformation and /
or stress.
We have an established operational risk
framework which enables timely and accurate
analysis of operational risk exposures and drives
accountability and remedial actions where
issues are identified.
Operational risk is managed through a
comprehensive framework of policies which are
designed to ensure that all key operational risks
are managed consistently across the business.
The operating landscape continues to evolve
at a rapid pace, bringing with it innovative
technologies. Whilst we are keen to embrace
these opportunities, the ongoing resilience of
the Group remains a core priority. The increasing
use of AI, the commitment to harness digital
capability as part of our IT Road map and the
reliance on third parties all inevitably increase
the opportunities for malevolent cyber activity
against our business. In response, we continue
to invest in cyber defences, and ensuring we are
well-prepared in the event of any cyber threat
remains a priority area. Our cyber risk profile
is, therefore, subject to continual monitoring
and enhancement given the dynamic nature of
the threat. We continue to monitor the external
landscape and react promptly to any intelligence
on cyber threats that have the potential to cause
us detriment.
Whilst remaining alert to such emerging
threats we also recognise the need to
reduce operational risk exposures inherent
in legacy systems and processes. Strategic
transformation across all lending lines is key
to remaining resilient and ensuring that our
infrastructure remains scalable and robust
across all product lines. As we undertake such
activity the impact on our resilience and the
impact on inherent operational risks is assessed
on a continual basis to ensure it remains within
risk appetite.
A well-embedded change framework ensures
that all changes are managed in a controlled way.
Operational resilience remains a key driver, with
consideration at all stages of the project lifecycle.
A consequence of the Group’s change
programme is the expanding use of third-party
providers. We have several significant suppliers
and outsourced activities particularly in respect
of material IT services and the Paragon-branded
savings offering. The number of such suppliers
has expanded significantly over the year with the
launch of the Spring savings business.
The robust oversight of third parties remains
critical to overall resilience, and we have a
well-established third-party framework to
ensure effective oversight across the lifecycle
of such relationships including contingency
arrangements in the event of an exit scenario.
We are focussed on building an engaged and
highly skilled workforce through the delivery
of effective reward, succession planning,
recruitment, development and retention
strategies. In addition, we remain committed to
the wellbeing of all employees and responding
to their feedback, enabled through our multiple
employee networks.
The nature and volume of cyber attacks across the
broader UK business landscape continues to evolve.
There have been certain notable and well-publicised
attacks on high profile targets during the year,
which caused significant disruption to the affected
entities. However, we do not consider that we have
a higher than average likelihood of being subject to
cyber threats and our perceived threat level remains
elevated, unchanged year-on-year. We continue to
proactively monitor the cyber landscape and consider
the likelihood and impact of both a direct attack on
the Group and a more systemic industry-wide issue
such as the Crowdstrike outage in 2024.
Despite our assessment of cyber risk remaining
consistent, consideration of and mitigation of
cyber threats is fundamental to our activities. We
continue to invest heavily in this area, particularly
in key controls around data loss prevention and
vulnerability management. Ongoing cyber risk
assessment is undertaken and is fully embedded in
our approach to transformation activity, with cyber
risk mitigation remaining a key driver of activities
such as technology strategy including extending the
use of AI enabled applications and the corporate
insurance programme.
Recruitment challenges seen previously have eased
during the period and retention rates for employees
remain generally stable. Maintaining a skilled and
engaged workforce is a priority and we continue to
assess and invest in our people. We are cognisant
that wider cost-of-living challenges still exist, and
inflationary pressures are a feature of the economic
landscape. We therefore continue to assess the
potential that these may manifest themselves as
heightened risk exposures across key operational
risk categories, such as financial crime. However, we
actively assess our resource profile and capabilities
to ensure resources are deployed appropriately to
manage any associated risks.
Regulatory compliance expectations continue to
rise, and we are committed to ensuring that we
remain compliant in our operational activities. We
engage on an ongoing basis with our regulators
to ensure that we are well placed to address any
particular areas of focus albeit as expectations
increase, gaps may be identified which will need
addressing to reduce inherent exposures.
Strategic transformation remains a priority focus.
The automation and efficiencies that these initiatives
bring will support more effective operational risk
management in the longer term. However, it is
recognised that significant change can exacerbate
operational strains in the short term. Potential for
such issues is being carefully managed through
robust governance and oversight as exemplified
in the delivery of Spring. Therefore, the volume
of transformative activity throughout the year is
not considered to have adversely affected the
assessment of our operational risk profile
Operational risks are diverse in nature with
the operating environment constantly evolving
through dynamic technologies and the changing
external landscape. Despite these challenges we
continue to maintain a robust control environment
with operational risk related losses remaining
at comparable levels to previous years, and the
business has therefore seen no material adverse
changes to its operational risk profile during the year.
Page 200
B9. Directors’ report
The directors of Paragon Banking Group PLC (registered number
2336032) submit their Report prepared in accordance with
Schedule 7 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (‘Schedule 7’),
which also includes additional disclosures made in accordance
with the UK Listing Rules (‘UKLR’) and the Disclosure Guidance
and Transparency Rules (‘DTR’) issued by the FCA.
Certain information required by these provisions is included in
other sections of this Annual Report and incorporated in this
Directors’ Report by reference. These items are set out under
‘Information presented in other sections’ at the end of this report.
Directors
The names of the directors of the Company at the date of this
report, together with their biographical details, are given in
Section B3.1. All the directors listed in that section were directors
of the Company throughout the year.
Directors’ interests
The directors’ interests in the shares of the Company are
disclosed in the Directors’ Remuneration Report in Section B7.
There have been no changes in the directors’ interests in the
share capital of the Company since 30 September 2025.
Other than as outlined in the Directors’ Remuneration Report in
Section B7, the directors had no interests in securities issued by
the Company. The directors have no interests in the shares or
debentures of the Company’s subsidiary companies.
A director has a statutory duty to avoid a situation in which he or
she has, or can have, an interest that conflicts or possibly may
conflict with the interests of the Company. A director will not be
in breach of that duty if the relevant matter has been authorised
in accordance with the Articles of Association of the Company
(the ‘Articles’) by the other directors. The Articles include the
relevant authorisation for directors to approve such conflicts,
if appropriate.
None of the directors had, either during or at the end of the year,
any material interest in any contract of significance with the
Company or its subsidiaries. Further details on the directors’
remuneration and service contracts / appointment letters can be
found in the Directors’ Remuneration Report in Section B7.
Directors’ powers and appointment of directors
The appointment and replacement of the Company’s directors is
governed by the Articles, the Code, the Companies Act 2006 and
related legislation, and the individual service contracts and terms
of appointment of the directors. The powers of the directors, and
their service contracts and terms of appointment, are described in
the Corporate Governance section, Section B4.
The Articles may only be amended by special resolution of the
Company’s shareholders in a general meeting and were last
amended in 2021. The Company’s Articles set out the powers of
the directors and rules governing the appointment and removal
of directors. The Articles can be viewed at the Group’s corporate
website at www.paragonbankinggroup.co.uk.
Under Article 83 of the Articles, all directors are required to submit
themselves for re-election annually, in accordance with the Code.
Accordingly, all current directors will retire and seek re-election at
the forthcoming AGM, in March 2026, with the exception of Hugo
Tudor who will not be seeking re-election at the AGM and will step
down as director of the Company upon its conclusion.
None of the directors has a service contract with the Company
requiring more than 12 months’ notice of termination to be given.
Directors’ indemnity and insurance
Under Article 159 of the Articles, the Company has qualifying
third party indemnity provisions for the benefit of its directors, for
the purposes of Section 234 of the Companies Act 2006, in the
form of directors’ and officers’ liability insurance. These were in
place throughout the year and remain in force at the date of this
report. The directors’ and officers’ liability insurance also covers all
directors of the Company’s subsidiary entities.
Share capital and distributions
Share capital
Details of the issued share capital of the Company, together with
details of movements in its issued share capital in the year, are
given in note 41 to the accounts. The Company has one class
of ordinary shares which carries no right to fixed income. Each
ordinary share carries the right to one vote at general meetings
of the Company. The rights and obligations attaching to ordinary
shares are set out in the Articles.
There are no specific restrictions on the size of a member’s
holding or on the transfer of shares. Both of these matters are
governed by the general provisions of the Articles and prevailing
legislation. The directors are not aware of any agreements
between holders of the Company’s shares in respect of voting
rights or which might result in restrictions on the transfer
of securities.
Details of employee share schemes are set out in note 55 to
the accounts. Votes attaching to shares held by the Group’s
employee benefit trust are not exercised at general meetings
of the Company.
The Company presently has the authority to issue ordinary
shares up to a value of £68.0 million and to make market
purchases of up to 20.5 million £1 ordinary shares. These
authorities expire at the conclusion of the forthcoming AGM
on 4 March 2026 and resolutions will be put to that meeting
proposing that they are renewed.
Purchase of own shares
The existing authority under Section 724 of the Companies Act
2006, referred to above, given to the Company at the AGM on
5 March 2025 enables it to purchase its own ordinary shares up
to a limit of 10% of its issued share capital, excluding treasury
shares (the Company’s own shares already purchased by it but
not cancelled).
Page 201
Corporate Governance
This authority will expire at the conclusion of the next AGM,
and the Board considers it would be appropriate to renew this
authority. It therefore intends to seek shareholder approval to
purchase ordinary shares of up to 10% of its issued share capital
at the forthcoming AGM in line with current investor sentiment.
Details of the resolution renewing the authority are included in
the Notice of AGM. These shares will be initially held in treasury.
Shares held as treasury shares can in the future be cancelled,
re-sold or used to provide shares for employee share schemes.
At 1 October 2024, £23.8 million of a buy-back programme of up
to £100.0 million, announced in the financial year ended
30 September 2024 and described in the annual report for that
year, remained outstanding. This was completed in the 2025
financial year.
Additionally, on 3 December 2024 a further share buy-back
programme of up to £50.0 million was announced. The reasons
for this programme were set out in Section 3.3 of the preliminary
results announcement for the year ended 30 September 2024.
The programme was extended to £100.0 million on 4 June 2025
for reasons set out in Section 4.3 of the Half Year Financial Report
for the six months ended 31 March 2025, published on that day.
This programme was completed on 30 September 2025.
During the year 15,179,040 £1 ordinary shares (2024: 10,798,682)
having an aggregate nominal value of £15,179,040
(2024: £10,789,682), were purchased under these programmes
and initially held as treasury shares. Total consideration paid in
the year was £124.7 million, including costs (2024: £76.6 million).
On 19 March 2025, 6,200,000 ordinary shares previously held
in treasury were cancelled, leaving a balance held in treasury of
2,906,387 shares. The cancelled shares had a nominal value of
£6,200,000 and represented 3.05% of the issued share capital
excluding treasury shares at that time.
On 3 September 2025, 7,000,000 ordinary shares previously held
in treasury were cancelled leaving a balance held in treasury of
2,161,416 shares. The cancelled shares had a nominal value of
£7,000,000 and represented 3.58% of the issued share capital
excluding treasury shares at that time.
During the year 648,477 shares held in treasury were transferred
to the holders of maturing options granted under the Group’s
Sharesave share option plan (2024: 653,069). Consideration
received in respect of these shares was £2.4 million
(2024: £2.1 million).
The number of treasury shares held at 30 September 2025 was
3,418,725 (2024: 2,124,162), representing 1.76% of the issued share
capital excluding treasury shares (2024: 1.02%). The maximum
holding of treasury shares during the year was 9,161,416
(2024: 13,711,796) representing 4.69% of the issued share capital
excluding treasury shares at that time (2024: 6.38%).
Dividends
An interim dividend of 13.6 pence per share was paid during the
year (2024: 13.2 pence per share).
The directors recommend a final dividend of 30.3 pence per share
(2024: 27.2 pence per share) which would give a total dividend
for the year of 43.9 pence per share (2024: 40.4 pence per share)
subject to approval at the forthcoming AGM.
Major shareholdings
Notifications of the following major voting interests in the
Company’s ordinary share capital, notifiable in accordance with
Chapter 5 of the DTR, had been received by the Company as at
30 September 2025.
Shareholder % Held Notification
date
Black Rock Inc. 5.35 11/06/2025
J P Morgan Asset Management Holdings Inc. 5.20 30/09/2025
Royal London Asset Management 5.04 26/04/2023
Dimensional Fund Advisors LP 5.00 21/07/2021
Janus Henderson Group PLC 4.99 20/03/2024
Liontrust Investment Partners LLP 4.99 15/05/2024
Franklin Templeton Fund Management Limited 4.96 10/01/2022
On 2 October 2025, J P Morgan Asset Management Holdings
notified the Company that its voting interest in the Company’s
shares had decreased to 5.11%, and subsequently, on 7 October
2025, notified the Company that its voting interest had fallen
below the minimum disclosure threshold.
The percentages quoted above were calculated by reference to
the total voting rights (‘TVR’) at the relevant date.
As at 28 November 2025, no further changes had been notified
to the Company.
Significant agreements
A change in control of the Company resulting from a takeover
may lead to changes to, or termination of, certain agreements to
which the Company is a party. These include certain insurance
policies and employee share plans.
The Company does not have any agreements with any director
or employee that would provide compensation for loss of office
or employment resulting from a takeover of the Company, except
that provisions of the Company’s share-based remuneration
arrangements may cause outstanding awards and options to
vest and become exercisable on a change of control, subject,
where applicable, to the satisfaction of any performance
conditions at that time and any required pro-rating of awards.
Research and development
During the year, the Group undertook certain projects to develop
its IT capabilities which met the definition of research and
development set out in the guidelines issued by the Department
of Business, Innovation and Skills in 2010. Claims in respect of
these activities were made in the Group’s tax returns. The amounts
involved were modest in the context of the Group’s accounts.
Political expenditure
During the year ended 30 September 2025 no political donations
were made by any group company (2024: £nil).
Page 202
Auditors
The directors have taken all reasonable steps to make
themselves and the Company’s auditors, KPMG, aware of
any information needed in preparing the audit of the financial
statements for the year and, as far as each of the directors
is aware, there is no relevant audit information of which the
auditors are unaware. This confirmation is given and should be
interpreted in accordance with the provisions of section 418 of
the Companies Act 2006.
Having regard to regulatory requirements relating to external
auditor tenure, during the year ended 30 September 2024, the
directors undertook a tender process in respect of the external
audit for the year ending 30 September 2026. The form and
results of this process are described in the report of the Audit
Committee (Section B6) in the Annual Report and Accounts for
that year.
That process resulted in a decision by the Board of Directors,
on the recommendation of the Audit Committee, to appoint
Deloitte LLP as external auditor of the Company, subject to
shareholder approval.
Therefore, a resolution for the appointment of Deloitte LLP,
which has expressed its willingness to accept office as external
auditor of the Company, is to be proposed at the forthcoming
AGM, as well as a resolution to give the directors the authority to
determine the auditors’ remuneration.
The full text of the relevant resolutions is set out in the Notice of
AGM accompanying this Annual Report.
Annual General Meeting
The AGM of the Company will take place on 4 March 2026
in London. A notice convening the AGM and outlining the
resolutions to be proposed at the AGM is being circulated to
shareholders with this Annual Report and Accounts.
Listing Rule UKLR 6.6.1R
There are no matters which the Company is required to report
under Listing Rule UKLR6.6.1, other than certain matters
concerning its employee share ownership trust (note 43).
The Paragon Banking Group PLC Employee Trust is an
independent trust which holds shares for the benefit of
employees and former employees of the Group in order to satisfy
awards under employee share plans. The Company funds the
trust from time to time, to enable it to acquire shares to satisfy
these awards. During the year, the trust made market purchases
of 1.0 million ordinary shares (2024: 2.0 million). As the shares
included in these arrangements are held on the consolidated
balance sheet, this has no effect on the amounts reported by
the Group.
The trustee will only vote on those shares in accordance with
the instructions given to the trustee and in accordance with the
terms of the trust deed. The trustee has waived the trust’s right
to dividends on all shares held within the trust.
Details of the shares held by the trust are set out in note 43 and
details of the share-based remuneration arrangements are given
in note 55.
Information presented in other sections
Certain information required to be included in a directors’ report
by Schedule 7 can be found in other sections of the Annual
Report, as described below. All the information presented in
these sections is incorporated by reference into this Directors’
Report and is deemed to form part of this report. Readers are
also referred to the cautionary statement on page 2.
• The Group’s business activities, together with commentary on
the likely future developments in the business of the Group
(including the factors likely to affect future development
and performance) and its summarised financial position are
included in the Strategic Report (Section A)
• A description of the Group’s financial risk management
objectives and policies, including hedging policies, and its
exposure to risks (including price, credit, liquidity and cash
flow risk) arising from its use of financial instruments is set
out in note 58 to the accounts and related notes
• Information concerning directors’ contractual arrangements
and entitlements under share-based remuneration
arrangements is given in Section B7, the Directors’
Remuneration Report
• An explanation of the Board’s activities in relation to assessing
and monitoring how the Company has aligned with its stated
purpose and culture can be found in Sections B1 and B3.3
• Information concerning employment practices, employee
engagement, the Group’s approach to diversity, the
employment of disabled persons and the involvement of
employees in the business, is given in Section A6.3 – ‘People’
• Information on the Group’s business relationships and
how the directors have had regard to the need to foster
these relationships with suppliers, customers and other
stakeholders, and the effect of that regard, including on the
principal decisions taken by the Group during the financial
year (which is crucial to the long-term sustainability of the
business), can be found in Section B4.3 of the Corporate
Governance Report and in Section A6 of the Strategic Report
• Disclosures concerning greenhouse gas emissions are given
in Section A6.4 – ‘Environmental Issues’
• Disclosures concerning the Group’s ability to continue to
adopt the going concern basis of accounting and the Group’s
viability statement are given in Section A5
Rule DTR7.2.1 of the DTR requires the Group’s disclosures on
Corporate Governance to be included in the Directors’ Report.
This information is presented in Sections B2, B3, B4, B5, B6, B7
and B8 and the information in these sections is incorporated by
reference into this Directors’ Report and is deemed to form part
of this report.
Rule DTR4.1.5 of the DTR requires that the annual report of
a listed company contains a management report containing
certain prescribed information. This Directors’ Report, including
the other sections of the Annual Report incorporated by
reference, comprises a management report for the Group for the
year ended 30 September 2025 for the purposes of the DTR.
This section B9 of this Annual Report, together with the other
sections of the Annual Report incorporated by reference,
comprise a Directors’ Report for the Company which has been
drawn up and presented in accordance with, and in reliance
upon, applicable English company law and the liabilities of the
directors in connection with this report shall be subject to the
limitations and restrictions provided by such law.
Approved by the Board of Directors and signed on behalf of
the Board.
Marius van Niekerk
General Counsel and Company Secretary
3 December 2025
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Corporate Governance
B10. Responsibility statement
The directors are responsible for preparing this Annual Report,
including the consolidated and company financial statements in
accordance with applicable law and regulations.
Company law, including the Companies Act 2006 (the
‘Companies Act’), requires the directors to prepare consolidated
financial statements for the Group and separate financial
statements for the Company in respect of each financial year.
In respect of the financial statements for the year ended
30 September 2025, that law requires the directors to prepare
the consolidated financial statements in accordance with
UK-adopted international accounting standards in conformity
with the requirements of the Companies Act and they have also
elected to prepare the separate financial statements of the
Company on the same basis.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and
the Group’s profit or loss for the year. In preparing each of the
consolidated and company financial statements the directors
are also required to:
• select suitable accounting policies and apply them consistently
• make judgements and estimates that are reasonable, relevant
and reliable
• state whether the consolidated and company financial
statements have been prepared in accordance with
UK-adopted international accounting standards
• assess the ability of the Group and the Company to continue
as a going concern, disclosing, as applicable, matters related
to going concern
• use the going concern basis of accounting unless they intend
to liquidate the Company and / or the Group or to cease
operations or they have no realistic alternative to doing so
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
• provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance
The directors are responsible for keeping adequate accounting
records for the Company that are sufficient to record and explain
its transactions, disclose with reasonable accuracy at any time
its financial position and enable them to ensure that its financial
statements comply with the requirements of the Companies Act.
They are responsible for the implementation of such internal
control processes as they deem necessary to enable the
preparation of financial statements which are free from material
misstatements, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for the preparation of a strategic report, directors’
report, directors’ remuneration report and corporate governance
statement, which comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website (www.paragonbankinggroup.co.uk). Legislation in the
UK governing the preparation and dissemination of financial
statements differs from legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule
(‘DTR’) 4.1.16R, the financial statements will form part of the
annual financial report prepared in accordance with DTR 4.1.17R
and 4.1.18R. The auditor’s report on these financial statements
provides no assurance over whether the annual financial report
has been prepared in accordance with those requirements.
Confirmation by the Board of Directors
The Board of Directors currently comprises:
R D East
(Chair of the Board)
G H Yorston
(Non-executive director)
N S Terrington
(CEO)
A C M Morris
(Senior Independent Director)
R J Woodman
(CFO)
P A Hill
(Non-executive director)
H R Tudor
(Non-executive director)
T P Davda
(Non-executive director)
B A Ridpath
(Non-executive director)
Z L Howorth
(Non-executive director)
Each of the directors named above confirms that, to the best of
their knowledge:
• The financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company and of the Group taken as a whole
• The Directors’ Report, including those other sections of
the Annual Report incorporated by reference, comprises
a management report for the purposes of the DTR, and
includes a fair review of the development and performance
of the business and the consolidated position of the Group
taken as a whole, together with a description of the principal
risks and uncertainties that it faces
• The Annual Report (including the consolidated and company
financial statements), taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position, performance,
business model and strategy
Approved by the Board of Directors as the persons responsible
within the Company.
Signed on behalf of the Board.
Marius van Niekerk
General Counsel and Company Secretary
3 December 2025
Page 206
C1. Independent Auditor’s Report to the
members of Paragon Banking Group PLC
Report by the independent auditor of the Company,
KPMG LLP, on the financial statements.
Independent
Auditor’s Report
On the financial statements
FAIRNESS | Chris
Page 206
C1. Independent auditor’s report
To the members of Paragon Banking Group PLC
1. Our opinion is unmodified
We have audited the financial statements of
Paragon Banking Group PLC (“the Company” and,
together with its subsidiaries, “the Group”) for the year
ended 30 September 2025 which comprise the:
• Consolidated Statement of Profit or Loss
• Consolidated Statement of Comprehensive Income
• Consolidated and Company Balance Sheets
• Consolidated and Company Cash Flow Statements
• Consolidated and Company Statements of Movements
in Equity
• Related notes, including the accounting policies in note 63,
other than the disclosures labelled as unaudited in note 57.
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as at
30 September 2025 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards;
• the Company financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards and as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We believe that the
audit evidence we have obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion is consistent with our
report to the Audit Committee.
We were first appointed as auditor by the shareholders on
9 February 2016. The period of total uninterrupted engagement
is for the ten financial years ended 30 September 2025. We
have fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited
by that standard were provided.
2. Key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the
financial statements and include the most significant assessed
risks of material misstatement (whether or not due to fraud)
identified by us, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. We
summarise below the key audit matters in decreasing order of
audit significance, in arriving at our audit opinion above, together
with our key audit procedures to address those matters and,
as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are
based on procedures undertaken, in the context of, and solely
for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently
are incidental to that opinion, and we do not provide a separate
opinion on these matters.
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Auditor’s Report
Key audit matter Our response
Impairment allowances on loans to customers
Risk vs 2024
(£87.8 million; 2024: £76.5 million)
Refer to the Audit Committee Report, accounting policy
note 63, the critical accounting estimates note 65 and
notes 18 to 23 (financial disclosures).
Subjective estimate
The measurement of expected credit losses (‘ECL’)
involves significant judgements and estimates. There
remains some uncertainty and volatility in the UK
economy, which continues to impact the subjectivity in the
estimate. Additionally, there has been a material increase
in ECL on the development finance loan portfolio, resulting
in an increased risk profile year-on-year. This is primarily
attributable to an increase in ECL on stage 3 accounts
that are individually assessed.
The key areas where we identified greater levels of
management judgement and therefore increased levels
of audit focus in the Group’s estimation of ECL are set
out below:
For the buy-to-let loan book:
Economic scenarios – IFRS 9 requires the Group to
measure ECL on a forward-looking basis reflecting
a range of future economic conditions. Significant
management judgement is applied to determine the
economic scenarios and the probability weightings
assigned to each economic scenario.
Judgemental adjustments – The Group makes
adjustments to the model-driven ECL results to address
issues relating to model responsiveness or emerging
trends relating to the current economic environment
as well as risks not captured by the models. Such
adjustments are inherently subjective and require
significant management judgement in estimating these
amounts. The judgemental adjustments recorded
are immaterial, therefore the risk is regarding the
completeness of these adjustments.
Significant Increase in Credit Risk (‘SICR’) – The
criteria selected to identify a significant increase in
credit risk is a key area of judgement within the Group’s
ECL calculation as these criteria determine whether a
12-month or lifetime provision is recorded.
Model estimations – Inherently judgemental modelling
is used to estimate ECLs which involves determining
Probabilities of Default (‘PD’), Loss Given Default (‘LGD’),
and Exposures at Default (‘EAD’). The LGD model
assumptions are the key drivers of the Group’s ECL
results and are therefore the most significant judgemental
aspect of the Group’s ECL modelling approach.
For the development finance loan book:
Individually-assessed stage 3 loans – The assessment
of ECL on stage 3 loans is performed on an individual
basis. Significant management judgement is applied to
determine the amount and timing of forecast cash flows
on these loans in order to estimate the ECL.
We performed the tests below rather than seeking to rely
on the Group’s controls because the nature of the balance
is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our procedures included:
• Our economic scenario expertise: We involved our
own economic specialists to assist us in:
o assessing the reasonableness of the Group’s
methodology for determining the economic
scenarios used and the probability weightings
applied to them; and
o assessing the overall reasonableness of the
economic forecasts by comparing the Group’s
forecasts to our own modelled forecasts.
• Our credit risk modelling expertise: We involved our
own credit risk modelling specialists to assist us in:
o evaluating the Group’s impairment methodologies
for compliance with IFRS 9;
o evaluating the model output for a selection of
models by independently recoding the model in
line with the corresponding model functionality and
comparing our output with the Group’s; and
o assessing the completeness of the Group’s SICR
criteria and its ongoing effectiveness for a selection
of models.
• Test of details: Additionally, key aspects of our
testing included:
o testing the key LGD assumptions impacting
the Group’s overall ECL model calculation to
assess their reasonableness. This included
performing sensitivity analysis to understand
the significance of certain assumptions, and
assessing the key assumptions against the
Group’s historical experience;
o for a selection of portfolios, evaluating the
compliance and completeness of the Group’s SICR
criteria. In addition, we independently applied the
Group’s staging methodology to assess whether
each loan has been assigned to the correct stage
per the Group’s approved staging criteria;
o for a selection of portfolios, reperforming the
calculation of the LGD and the ECL measured on
the loan portfolio; and
o for a selection of performing and credit-impaired
loans within the development finance portfolio,
assessing the reasonableness of the ECL estimate.
• Benchmarking assumptions: Key aspects of our
testing involved:
o assessing the completeness of judgemental
adjustments to the model-driven ECL by
performing benchmarking to comparable peer
group organisations and using our knowledge
of the Group and its industry to challenge
the completeness of risks addressed in the
adjustments; and
o testing the key LGD assumptions impacting
the Group’s overall ECL model calculation by
comparing the Group’s assumptions to those of
comparable peer group organisations.
Page 208
Key audit matter Our response
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
allowances on loans to customers has a high degree
of estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times
that amount.
As a consequence of the inherent estimation uncertainty
arising from the above matters, we have identified a
specific fraud risk.
The financial statements disclose the sensitivities
estimated by the Group (note 24).
Disclosure quality
The disclosures regarding the Group’s application of
IFRS 9 are important in explaining the key judgements
and material inputs to the IFRS 9 ECL results, as well
as the sensitivity of the ECL results to changes in these
judgements or the directors’ assumptions, in light of the
estimation uncertainty arising.
• Sensitivity analysis: We performed sensitivity analysis
over the key assumptions including the economic
scenarios and weightings as well as certain LGD
assumptions, by applying alternative assumptions.
• Assessing transparency: We assessed whether
the disclosures appropriately reflect and address
the uncertainty which exists when determining the
Group’s overall ECL. As a part of this, we assessed
the sensitivity analysis that is disclosed. In addition,
we challenged whether the disclosure of the key
judgements and assumptions made is sufficiently clear.
Our results
As a result of our work, we found the impairment
provision recognised and the related disclosures to be
acceptable (2024: acceptable).
Key audit matter Our response
Interest receivable on originated loan accounts
Risk vs 2024
(£888.5 million; 2024: £819.8 million)
Refer to the Audit Committee Report, accounting policy
note 63, the critical accounting estimates note 65 and
note 4 (financial disclosures).
Subjective estimate
The recognition of interest receivable on originated
loan accounts under the effective interest rate (‘EIR’)
method requires the directors to apply judgement, the
most critical of which are the loans’ expected behavioural
life assumptions.
There remains some uncertainty and volatility in the UK
economy, which continues to impact the subjectivity in
the estimate.
The Group determines its expected behavioural life
assumptions based on its forecasting processes which
incorporate historical experience and judgement as to
what the future rates will be and the expected customer
behaviour. This judgement extends significantly into
the future which creates a high degree of estimation
uncertainty and subjects the judgement to future
market changes.
We performed the tests below rather than seeking to rely
on the Group’s controls because the nature of the balance
is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our procedures included:
• Historical comparison: We critically assessed
the Group’s analysis and key assumptions over the
repayment profiles by comparing them to the Group’s
historical trends and actual portfolio behaviour. We
also applied alternative repayment profiles based on
our recalculations. The historical comparison included
considering the potential impact of the current
economic environment on the behavioural
life assumption.
• Our sector experience: We critically assessed the
key assumptions used in determining the Group’s
expected behavioural lives against our own knowledge
of industry experience and trends.
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Auditor’s Report
Key audit matter Our response
The cohorts of loans and advances for which the
assumptions are most significant are the post-2010
originated buy-to-let assets.
The effect of these matters is that, as part of our risk
assessment, we determined that the EIR adjustment
and corresponding interest receivable on originated loan
accounts has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a
whole. As a consequence of the inherent estimation
uncertainty arising from the behavioural life, we have
identified a specific fraud risk.
The financial statements disclose the sensitivities
estimated by the Group (note 64).
Disclosure quality
The disclosures regarding the Group’s application of
EIR accounting are important in explaining the key
judgements and material inputs to the EIR adjustment, as
well as the sensitivity of the EIR adjustment to changes in
these judgements or the directors’ assumptions.
• Sensitivity analysis: We performed sensitivity
analysis over the repayment profiles by applying
alternative profiles incorporating the results from the
above procedures.
• Assessing transparency: We assessed whether the
disclosures appropriately reflect and address the
estimation uncertainty that exists when determining
the Group’s EIR adjustments and interest receivable.
We assessed the sensitivity analysis that is disclosed.
In addition, we challenged whether the disclosure
of the critical estimates and assumptions made is
sufficiently clear.
Our results
As a result of our work, we found the interest receivable
on originated loan accounts and the related disclosures
to be acceptable (2024: acceptable).
Key audit matter Our response
Recoverability of development finance goodwill
Risk vs 2024
(£49.8 million; 2024: £49.8 million)
Refer to the Audit Committee Report, accounting policy
note 63, the critical accounting estimates note 65 and
note 29 (financial disclosures).
Forecast-based assessment
The carrying amount of the Group’s goodwill is significant
to the financial statements and there may be risks to its
recoverability due to changes in market factors since
acquisition. The estimation of the recoverable amount
requires the directors to apply judgement in determining the
key assumptions. The development finance cash-generating
unit (‘CGU’) is the area where these assumptions are most
significant. Conversely, the SME lending CGU reflects a greater
level of headroom, reducing the associated risk of impairment.
As a result, while we continue to perform procedures over the
recoverability of goodwill for the SME lending CGU, this has not
been considered a key audit matter for the current year.
The most significant assumptions are the forecast future cash
flows (projected income) and the discount rate. There remains
some uncertainty and volatility in the UK economy, which
continues to impact the subjectivity in the estimate.
The effect of these matters is that, as part of our risk
assessment, we determined that the recoverability of goodwill
in respect of the development finance CGU has a high degree
of estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial
statements as a whole. As a consequence of the inherent
estimation uncertainty arising from the above matters, we have
identified a specific fraud risk.
The financial statements (note 29) disclose the sensitivity
estimated by the Group.
Disclosure quality
The disclosures regarding the Group’s goodwill are important
in explaining the key judgements and material inputs to the
goodwill impairment assessment, as well as the sensitivity of the
recoverable amount (and therefore the impairment conclusion)
to changes in these judgements or the directors’ assumptions.
We performed the tests below rather than seeking to rely
on the Group’s controls because the nature of the balance
is such that we would expect to obtain audit evidence
primarily through the detailed procedures described.
Our procedures included:
•
Historical comparisons: We compared the Group’s
previous forecasting of cash flows with actual results to
assess forecasting accuracy.
•
Benchmarking assumptions: We compared the
Group’s assumptions to externally derived data in
relation to key inputs such as discount rates and
challenged the directors on the forecast business
performance. This included considering the impact
of uncertainties arising from the current economic
environment in the forecasts.
•
Our industry experience: We used our knowledge
of the Group and our experience of the industry that
the Group operates in to independently assess the
appropriateness of the key assumptions, including the
discount rate and cash flow forecasts. We independently
assessed the appropriateness of the discount rate and
compared the rate against market participants’ views.
•
Sensitivity analysis: We performed break-even
analysis and applied alternative scenarios considering
the discount rates and sensitising the forecast future
cash flows.
•
Assessing transparency: We assessed whether the
disclosures appropriately reflect and address the
uncertainty that exists when determining the estimated
recoverable amount. As part of this, we assessed
the sensitivity analysis that is disclosed. In addition,
we challenged whether the disclosure of the key
judgements and assumptions made is sufficiently clear.
Our results
As a result of our work, we found the resulting carrying
amount of goodwill and the related disclosures to be
acceptable (2024: acceptable).
Page 210
We continue to perform procedures over the valuation of the retirement benefit pension obligation. However, following a reduction in
the subjectivity of key assumptions in recent years, we have not assessed this as one of the most significant risks in our current year
audit and, therefore, it is not separately identified in our report this year.
Key audit matter Our response
Recoverability of Company’s investment
in subsidiaries
Risk vs 2024
(£639.2 million; 2024: £636.8 million)
Refer to the Audit Committee Report, accounting policy
note 63 and note 30 (financial disclosures).
Low risk, high value
The carrying amount of the Company’s investments in
subsidiaries (being, principally, its investment in Paragon
Bank PLC) represents the majority of the Company’s
total assets.
Their recoverability is not at a high risk of significant
misstatement or subject to significant judgement.
However, given their materiality in the context of the
Company financial statements, this is the area that
has the greatest effect on our audit of the Company’s
financial statements.
We performed the tests below rather than seeking to
rely on the Company’s controls because the nature of
the balance is such that we would expect to obtain
audit evidence primarily through the detailed
procedures described.
Our procedures included:
•
Test of detail: Comparing the carrying amount of
100% of the Company’s investments with the relevant
subsidiary’s draft balance sheet to identify whether
their net assets, being an approximation of their
minimum recoverable amount, are in excess of their
carrying amount. We also assessed whether those
subsidiaries have historically been profit-making.
• Assessing subsidiary audits: Considering the
results of our work on those subsidiaries’ profits and
net assets.
Our results
As a result of our work, we found the carrying amount of
the Company’s investments in subsidiaries and the related
provision movement to be acceptable (2024: acceptable).
Page 211
Auditor’s Report
3. Our application of materiality and
an overview of the scope of our audit
Materiality for the Group financial statements as a whole
was set at £13.0 million determined with reference to a
benchmark of Group profit before tax, normalised to exclude
fair value movements and provision for liabilities, of
£293.9 million (2024: £11.0 million determined with reference
to a benchmark of Group profit before tax normalised to exclude
fair value movements, of £292.7 million). We adjusted for these
items because they do not represent the normal, continuing
operations of the Group. This materiality level represents 4.4%
(2024: 3.8%) of the stated benchmark. We performed audit
procedures on the items excluded from the normalised Group
profit before tax used as the benchmark for our materiality.
Materiality for the Company financial statements as a whole was
set at £7.5 million (2024: £7.0 million), determined with reference
to a benchmark of current year net assets, of which it represents
1.1% (2024: 1.0%).
In line with our audit methodology, our procedures on
individual account balances and disclosures were performed
to a lower threshold, performance materiality, so as to reduce
to an acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a
material amount across the financial statements as a whole.
Performance materiality was set at 75% (2024: 75%) of
materiality for the financial statements as a whole, which
equates to £9.75 million (2024: £8.25 million) for the Group and
£5.62 million (2024: £5.25 million) for the Company. We applied
this percentage in our determination of performance materiality
because we did not identify any factors indicating an elevated
level of risk.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £0.65 million
(2024: £0.55 million) for the Group and £0.38 million
(2024: £0.35 million) for the Company, in addition to other
identified misstatements that warranted reporting on
qualitative grounds.
Overview of the scope of our audit
This year, we applied the revised group auditing standard in
our audit of the consolidated financial statements. The revised
standard changes how an auditor approaches the identification
of components, and how the audit procedures are planned and
executed across components.
In particular, the definition of a component has changed, shifting
the focus from how the entity prepares financial information to
how we, as the group auditor, plan to perform audit procedures
to address group risks of material misstatement (“RMMs”).
Similarly, the group auditor has an increased role in designing
the audit procedures as well as making decisions on where these
procedures are performed (centrally and / or at component level)
and how these procedures are executed and supervised. As a
result, we assess scoping and coverage in a different way and
comparisons to prior period coverage figures are not meaningful.
In this report we provide an indication of scope coverage on the
new basis.
In total, we identified two components, having considered our
evaluation of the Group’s operational structure, legal structure
and our ability to perform audit procedures centrally. Of those,
we identified one quantitatively significant component which
contained the largest percentage of either total revenue or total
assets of the Group, for which we performed audit procedures.
Additionally, we selected one component with accounts
contributing to the specific risks to the Group financial
statements. Accordingly, we performed audit procedures on
two components. We did not involve component auditors in
performing the audit work on any components.
We set the component materialities which ranged from
£1.3 million to £13.0 million, having regard to size and risk profile.
The Group audit team’s procedures covered 99.7% of the Group’s
total assets and 99.6% of Group’s total revenue. The Group
auditor performed the audit of the Company.
Impact of controls on our audit
In planning our audit, we identified IT systems relevant for the
audit as those involved in financial reporting, including the lending
and deposits business processes. We obtained an understanding
of these systems with the assistance of our IT auditors.
We did not plan to rely on the IT controls over the Group’s
general ledger system due to the timing of the third-party
administrator’s Type 2 Service Organisation Controls report.
As such, we performed a predominantly substantive audit to
respond to the audit risks related to this system, with additional
testing of the completeness and reliability of information
extracted from this system used in our audit, including in
relation to our journals testing.
For the other identified relevant IT systems, we involved our
IT auditors to assist us in assessing the design and operating
effectiveness of the key general IT controls and automated
controls. Following our testing, including testing compensating
controls where relevant, we were able to rely on the general
IT controls associated with the primary lending and deposits
systems. This allowed us to place reliance, as planned, on the key
automated controls when designing our audit response, allowing
us to rely on controls over the completeness and reliability of
data used in our substantive testing in these areas of our audit,
including interest and loan arrears calculations.
We also evaluated the design and effectiveness of the key manual
controls in some areas of the audit, including treasury, lending
and deposits. We were able to rely on these manual controls,
which allowed us to reduce the extent of substantive testing in
these areas. In all other areas of the audit, considering the most
efficient and effective approach for gaining the appropriate audit
evidence, we concluded that a largely substantive audit approach
was appropriate.
Page 212
4. The impact of climate change on
our audit
In planning our audit, we considered the potential impact of
risks arising from climate change on the Group’s business and
its financial statements. The Group has set out its strategy
regarding climate change, together with further information, in
the Environmental Impact section of the 2025 Annual Report
on pages 70 to 86.
Climate change risks and opportunities, the Group’s own
commitments and changing regulations could have a significant
impact on the Group’s business and operations. There is
the possibility that climate change risks, both physical and
transitional, could affect financial statement balances through
estimates related to credit risk and the forward-looking cash
flows used in goodwill impairment assessments. The Annual
Report includes narrative on climate matters, including climate
risk in section B8.5.
As part of our audit we performed a risk assessment of the
impact of climate change risk on the financial statements and
our audit approach. In doing this we performed the following:
• Understanding the Group’s processes: We made enquiries to
understand the Group’s assessment of the potential impact
of climate change risk on the Group’s Annual Report and
the Group’s preparedness for this. As a part of this we made
enquiries to understand the Group’s risk assessment process
as it relates to the possible effects of climate change on the
Annual Report.
• Credit risk: We assessed how the Group considers the impact
of physical risks on the valuation of loan collateral. Specifically,
we performed data and analytics-driven risk assessment
procedures to understand the potential impact of flooding and
subsidence on the valuation of mortgage collateral and made
enquiries of the directors to understand how this is considered
within its own collateral valuation process.
• Forward looking estimates: We considered how the Group’s
forward looking cash flows may be impacted within the
relevant CGUs. As part of this, we made enquiries to
understand the directors’ own considerations and assessed
the reasonableness of the forward-looking forecasts in the
context of the business.
• Annual Report narrative: We made enquiries of the directors
to understand the process by which climate-related narrative
is developed including the primary sources of data used
and the governance process in place over the narrative. As
a part of our risk assessment, we read the climate-related
information in the front half of the Annual Report and
considered its consistency with the financial statements and
our audit knowledge.
On the basis of the procedures performed above, taking
into account the nature of the Group’s lending exposures,
we concluded that, while climate change posed a risk to the
determination of asset values in the current year, the risk was not
significant. As a result, there was no material impact from this on
our key audit matters.
5. Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Group
or the Company or to cease their operations, and as they have
concluded that the Group’s and the Company’s financial position
means that this is realistic. They have also concluded that there
are no material uncertainties that could have cast significant
doubt over their ability to continue as a going concern for at
least a year from the date of approval of the financial statements
(“the going concern period”).
We used our knowledge of the Group and Company, its industry,
and the general economic environment to identify the inherent
risks to its business model and analysed how those risks might
affect the Group’s and Company’s financial resources or ability
to continue operations over the going concern period. The risks
that we considered most likely to adversely affect the Group’s and
Company’s available financial resources over this period were:
• The availability of funding and liquidity in the event of a
market-wide stress scenario; and
• The impact on regulatory capital requirements in the event of
an economic slowdown or recession.
We considered whether these risks could plausibly affect the
liquidity and regulatory capital in the going concern period, by
comparing severe, but plausible downside scenarios that could
arise from these risks individually and collectively against the
level of available financial resources indicated by the Group’s and
Company’s financial forecasts.
We considered whether the going concern disclosure in note 66
to the financial statements gives a full and accurate description
of the directors’ assessment of going concern. We assessed the
completeness of the going concern disclosure.
Our conclusions based on this work:
• we consider that the directors’ use of the going concern
basis of accounting in the preparation of the financial
statements is appropriate;
• we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty related
to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or Company’s ability to
continue as a going concern for the going concern period;
• we have nothing material to add or draw attention to
in relation to the directors’ statement in note 66 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of that
basis for the going concern period, and we found the going
concern disclosure in note 66 to be acceptable; and
• the related statement under the UK Listing Rules set out on
page 60 is materially consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time
they were made, the above conclusions are not a guarantee that
the Group or the Company will continue in operation.
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Auditor’s Report
6. Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (‘fraud
risks’) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures included:
• Enquiring of directors and Internal Audit as to whether they
have knowledge of any actual, suspected or alleged fraud,
and inspection of policy documentation around the Group’s
high-level policies and procedures to prevent and detect
fraud, including the Internal Audit function, and the Group’s
internal channel for ‘whistleblowing’.
• Reading Board, Audit Committee and Risk Committee minutes.
• Considering remuneration incentive schemes and
performance targets for the Group and directors, including
the Financial Performance metrics in the Annual Bonus and
Performance Share Plan.
• Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit.
As required by auditing standards, and taking into account
possible pressures to meet profit targets and our overall
knowledge of the control environment, we perform procedures
to address the risk of management override of controls, and the
risk of fraudulent revenue recognition, in particular:
• the risk that the EIR adjustment on interest income may be
misstated, and
• the risk that management may be in a position to make
inappropriate accounting entries
We also identified a fraud risk related to the impairment allowance
on loans to customers and the recoverability of goodwill due
to the fact these involve significant estimation uncertainty and
subjective judgements that are inherently uncertain.
Further detail in respect of impairment allowances on loans
to customers, interest income on originated loans and the
recoverability of goodwill is set out in the key audit matter
disclosures in Section 2 of this report.
We performed procedures including:
• Identifying journal entries to test based on risk criteria
and comparing the identified entries to supporting
documentation. This included searching for those posted and
approved by the same user, journals posted to seldom used
accounts, unbalanced journal postings and those including
specific descriptors, and testing any journal entries identified
where applicable;
• Assessing whether the judgements made in making
accounting estimates are indicative of a potential bias.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, through
discussion with the directors and other management (as
required by auditing standards), and from inspection of the
Group’s regulatory correspondence and discussed with the
directors and other management, the policies and procedures
regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment including the
Group’s procedures for complying with regulatory requirements.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies’ legislation),
distributable profits legislation and taxation legislation and
we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of
fines or litigation or the loss of the Group’s licence to operate.
We identified the following areas as those most likely to have
such an effect: specific areas of regulatory capital and liquidity,
conduct (including consumer duty), money laundering and
financial crime and certain aspects of company legislation
recognising the financial and regulated nature of the Group’s
activities. Auditing standards limit the required audit procedures
to identify non-compliance with these laws and regulations to
enquiry of the directors and other management and inspection
of regulatory and legal correspondence, if any. Therefore, if
a breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not detect
that breach.
For the motor finance commissions conduct matter discussed
in note 39, we assessed the provision recognised and the
Group’s disclosures against our understanding from inspecting
regulatory correspondence, holding enquiries with the Group’s
internal legal counsel, inspecting relevant public regulatory
announcements and performing audit procedures to respond to
the risks of material misstatement identified.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we
have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely
the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of
non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Page 214
7. We have nothing to report on the
other information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not express
an audit opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements
audit work, the information therein is materially misstated
or inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic
report and the directors’ report;
• in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or
draw attention to in relation to:
• the directors’ confirmation within the ‘Future Prospects’ section
(Section A5) on page 58 that they have carried out a robust
assessment of the emerging and principal risks facing the
Group, including those that would threaten its business model,
future performance, solvency and liquidity;
• the Principal Risks disclosures describing these risks and how
emerging risks are identified, and explaining how they are being
managed and mitigated; and
• the directors’ explanation in the Viability Statement of how
they have assessed the prospects of the Group, over what
period they have done so and why they considered that period
to be appropriate, and their statement as to whether they have
a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
We are also required to review the Viability Statement, set out
on page 60 under the UK Listing Rules. Based on the above
procedures, we have concluded that the above disclosures are
materially consistent with the financial statements and our
audit knowledge.
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our
audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and
our audit knowledge:
• the directors’ statement that they consider that the annual
report and financial statements taken as a whole is fair,
balanced and understandable, and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy;
• the section of the annual report describing the work of the
Audit Committee, including the significant issues that the Audit
Committee considered in relation to the financial statements,
and how these issues were addressed; and
• the section of the annual report that describes the review of
the effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance
Statement, set out in Section B2, relating to the Group’s
compliance with the provisions of the UK Corporate Governance
Code specified by the UK Listing Rules for our review. We have
nothing to report in this respect.
8. We have nothing to report on the
other matters on which we are required
to report by exception
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
Page 215
Auditor’s Report
9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out in Section B10,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and
fair view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the Group and Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless they
either intend to liquidate the Group or the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in
an annual financial report prepared under Disclosure Guidance
and Transparency Rule 4.1.17R and 4.1.18R. This auditor’s report
provides no assurance over whether the annual financial report
has been prepared in accordance with those requirements.
10. The purpose of our audit work and to
whom we owe our responsibilities
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
for and on behalf of KPMG LLP , Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
3 December 2025
Page 225
Page 218
Page 218
Page 225
Page 222
Page 220
Page 303
Page 223
Page 219
Page 289
Page 222
Page 221
Page 328
Page 224
D1. Primary Financial Statements
D2. Notes to the Accounts
D1.1 Consolidated statement of profit or loss
D2.1 Analysis
D1.5 Consolidated cash flow statement
D1.3 Consolidated balance sheet
D2.3 Capital and financial risk
D1.7 Consolidated statement of movements in equity
D1.2 Consolidated statement of comprehensive income
D2.2 Employment costs
D1.6 Company cash flow statement
D1.4 Company balance sheet
D2.4 Basis of preparation
D1.8 Company statement of movements in equity
The Accounts
Showing the financial position, results and cash
flows of the Group and the Company prepared in
accordance with IFRS and UK law
TEAMWORK | Alana
D1. Primary Financial Statements
D1.1 Consolidated statement of profit or loss
For the year ended 30 September 2025
Note 2025 | 2025 | 2024 | 2024 | ||
£m | £m | £m | £m | ||
Interest receivable | 4 | ||||
Interest payable and similar charges | 5 | ( | ( | ||
Net interest income | |||||
Other leasing income | 6 | ||||
Related costs | 6 | ( | ( | ||
Net operating lease income | |||||
Other income | 7 | ||||
Other operating income | |||||
Total operating income | |||||
Operating expenses | 8 | ( | ( | ||
Provisions for credit losses | 10 | ( | ( | ||
Provisions for liabilities | 39 | ( | |||
Operating profit before fair value items | |||||
Fair value net (losses) | 11 | ( | ( | ||
Operating profit being profit on ordinary activities before taxation | |||||
Tax charge on profit on ordinary activities | 12 | ( | ( | ||
Profit on ordinary activities after taxation for the financial year | |||||
Note | 2025 | 2024 | |||
| Earnings per share | |||||
- basic | 13 | ||||
- diluted | 13 |
The results for the current and preceding years relate entirely to continuing operations.
Page 218
D1.2 Consolidated statement of comprehensive income
For the year ended 30 September 2025
Note 2025 | 2025 | 2024 | 2024 | ||
£m | £m | £m | £m | ||
Profit for the year | |||||
| Other comprehensive income | |||||
| Items that will not be reclassified subsequently to profit or loss | |||||
Actuarial (loss) / gain on pension scheme | 56 | ( | |||
Tax thereon | ( | ||||
Other comprehensive income for the year net of tax | ( | ||||
Total comprehensive income for the year |
Page 219
The Accounts
D1.3 Consolidated balance sheet
For the year ended 30 September 2025
Note 2025 | 2024 | 2023 | ||
£m | £m | £m | ||
| Assets | ||||
Cash – central banks | 14 | |||
Cash – retail banks | 14 | |||
Investment securities | 15 | |||
Loans to customers | 16 | |||
Derivative financial assets | 24 | |||
Sundry assets | 25 | |||
Current tax assets | 26 | |||
Retirement benefit obligations | 56 | |||
Property, plant and equipment | 27 | |||
Intangible assets | 28 | |||
Total assets | ||||
| Liabilities | ||||
Short-term bank borrowings | ||||
Retail deposits | 31 | |||
Derivative financial liabilities | 24 | |||
Asset backed loan notes | 60 | |||
Covered bonds | 32 | |||
Retail bond issuance | 33 | |||
Corporate bond issuance | 34 | |||
Central bank facilities | 35 | |||
Sale and repurchase agreements | 36 | |||
Sundry liabilities | 37 | |||
Provisions | 39 | |||
Deferred tax liabilities | 40 | |||
Total liabilities | ||||
Called up share capital | 41 | |||
Reserves | 42 | |||
Own shares | 43 | ( | ( | ( |
Total equity | ||||
Total liabilities and equity |
Page 220
D1.4 Company balance sheet
For the year ended 30 September 2025
Note 2025 2024 2023
£m £m £m
Assets
Cash – retail banks 14 17.6 18.3 28.1
Sundry assets 25 84.4 128.6 228.7
Deferred tax assets 40 - - 1.6
Property, plant and equipment 27 10.4 11.8 13.2
Investment in subsidiary undertakings 30 789.2 786.8 787.5
Total assets 901.6 945.5 1,059.1
Liabilities
Retail bond issuance 33 - - 112.4
Corporate bond issuance 34 149.8 149.6 149.4
Sundry liabilities 37 36.2 61.4 38.4
Current tax liabilities 26 0.5 - 1.8
Deferred tax liabilities 40 0.1 0.1 -
Total liabilities 186.6 211.1 302.0
Called up share capital 41 197.4 210.6 228.7
Reserves 42 571.4 589.2 604.0
Own shares 43 (53.8) (65.4) (75.6)
Total equity 715.0 734.4 757.1
Total liabilities and equity 901.6 945.5 1,059.1
Approved by the Board of Directors on 3 December 2025.
Signed of behalf of the Board of Directors.
N S Terrington R J Woodman
Chief Executive Chief Financial Officer
The Company’s profit after tax for the financial year amounted to £160.9m (2024: £164.4m). A separate income statement has not
been prepared for the Company under the provisions of Section 408 of the Companies Act 2006.
The Company has no other items of comprehensive income for the years ended 30 September 2025 or 30 September 2024.
Page 221
The Accounts
D1.5 Consolidated cash flow statement
For the year ended 30 September 2025
Note 2025 | 2024 | ||
£m | £m | ||
Net cash (utilised) / generated by operating activities | 45 | ( | |
Net cash (utilised) by investing activities | 46 | ( | ( |
Net cash generated / (utilised) by financing activities | 47 | ( | |
Net (decrease) in cash and cash equivalents | ( | ( | |
Opening cash and cash equivalents | |||
Closing cash and cash equivalents | |||
| Represented by balances within: | |||
Cash | 14 | ||
Short-term bank borrowings | ( | ( | |
D1.6 Company cash flow statement
For the year ended 30 September 2025
Note 2025 2024
£m £m
Net cash generated by operating activities 45 213.3 276.3
Net cash generated by investing activities 46 - -
Net cash (utilised) by financing activities 47 (214.0) (286.1)
Net (decrease) in cash and cash equivalents (0.7) (9.8)
Opening cash and cash equivalents 18.3 28.1
Closing cash and cash equivalents 17.6 18.3
Represented by balances within:
Cash 14 17.6 18.3
Short-term bank borrowings - -
17.6 18.3
Page 222
D1.7 Consolidated statement of movements in equity
For the year ended 30 September 2025
| Share | Share | Capital | Merger | Profit | Own | Total | |
| capital | premium | redemption | reserve | and loss | shares | equity | |
| reserve | account | ||||||
£m | £m | £m | £m | £m | £m | £m | |
Transactions arising from Profit for the year | |||||||
Other comprehensive income | ( | ( | |||||
Total comprehensive income | |||||||
| Transactions with owners | |||||||
Dividends paid (note 44) | ( | ( | |||||
Own shares purchased | ( | ( | |||||
Irrevocable instruction accrual | |||||||
Exercise of share awards | ( | ||||||
Shares cancelled | ( | ( | |||||
| Charge for share based | |||||||
| remuneration (note 53) | |||||||
Tax on share based remuneration | |||||||
Net movement in equity in the year | ( | ( | |||||
Opening equity | ( | ( | |||||
Closing equity | ( | ( | |||||
| For the year ended 30 September 2024 | Share | Share | Capital | Merger | Profit | Own | Total |
| capital | premium | redemption | reserve | and loss | shares | equity | |
| reserve | account | ||||||
£m | £m | £m | £m | £m | £m | £m | |
Transactions arising from Profit for the year | |||||||
Other comprehensive income | |||||||
Total comprehensive income | |||||||
| Transactions with owners | |||||||
Dividends paid (note 44) | ( | ( | |||||
Own shares purchased | ( | ( | |||||
Irrevocable instruction accrual | ( | ( | |||||
Exercise of share awards | ( | ||||||
Shares cancelled | ( | ( | |||||
| Charge for share based | |||||||
| remuneration (note 53) | |||||||
Tax on share based remuneration | |||||||
Net movement in equity in the year | ( | ( | |||||
Opening equity | ( | ( | |||||
Closing equity | ( | ( |
Page 223
The Accounts
Page 224
D1.8 Company statement of movements in equity
For the year ended 30 September 2025
Share
capital
Share
premium
Capital
redemption
reserve
Merger
reserve
Profit
and loss
account
Own
shares
Total
equity
£m £m £m £m £m £m £m
Transactions arising from
Profit for the year - - - - 160.9 - 160.9
Other comprehensive income - - - - - - -
Total comprehensive income - - - - 160.9 - 160.9
Transactions with owners
Dividends paid (note 44) - - - - (81.0) - (81.0)
Own shares purchased - - - - - (132.4) (132.4)
Irrevocable instruction accrual - - - - - 23.8 23.8
Exercise of share awards - - - - (15.2) 16.0 0.8
Shares cancelled (13.2) - 13.2 - (104.2) 104.2 -
Charge for share based
remuneration (note 53)
- - - - 8.1 - 8.1
Tax on share-based remuneration - - - - 0.4 - 0.4
Net movement in equity in
the year
(13.2) - 13.2 - (31.0) 11.6 (19.4)
Opening equity 210.6 71.4 31.0 (23.7) 510.5 (65.4) 734.4
Closing equity 197.4 71.4 44.2 (23.7) 479.5 (53.8) 715.0
For the year ended 30 September 2024
Share
capital
Share
premium
Capital
redemption
reserve
Merger
reserve
Profit
and loss
account
Own
shares
Total
equity
£m £m £m £m £m £m £m
Transactions arising from
Profit for the year - - - - 164.4 - 164.4
Other comprehensive income - - - - - - -
Total comprehensive income - - - - 164.4 - 164.4
Transactions with owners
Dividends paid (note 44) - - - - (83.5) - (83.5)
Own shares purchased - - - - - (89.5) (89.5)
Irrevocable instruction accrual - - - - - (23.8) (23.8)
Exercise of share awards - - - - (12.8) 13.5 0.7
Shares cancelled (18.1) - 18.1 - (110.0) 110.0 -
Charge for share based
remuneration (note 53)
- - - - 9.2 - 9.2
Tax on share-based remuneration - - - - (0.2) - (0.2)
Net movement in equity in
the year
(18.1) - 18.1 - (32.9) 10.2 (22.7)
Opening equity 228.7 71.4 12.9 (23.7) 543.4 (75.6) 757.1
Closing equity 210.6 71.4 31.0 (23.7) 510.5 (65.4) 734.4
Page 225
The Accounts
D2. Notes to the Accounts
For the year ended 30 September 2025
1. General information
under the Companies Act 2006 with company number 2336032. The Company controls a number of subsidiary entities and presents
financial statements on a consolidated basis for the Company and all its subsidiaries (together the ‘Group’). The address of the
Company’s registered office is 51 Homer Road, Solihull, West Midlands, B91 3QJ . The nature of the Group’s operations and its principal
activities are set out in the Strategic Report in Section A2.
These financial statements are presented in pounds sterling, which is the currency of the economic environment in which the
Group operates.
The remaining notes to the accounts are organised into four sections:
• Analysis – providing further analysis and information on the amounts shown in the primary financial statements
• Employment Costs – providing information on employee and key management remuneration arrangements including share
schemes and pension arrangements
• Capital and Financial Risk – providing information on the Group’s management of operational and regulatory capital and its
principal financial risks
• Basis of preparation – providing details of the Group’s accounting policies and of how they have been applied in the preparation of
the financial statements
D2.1 Notes to the Accounts – Analysis
For the year ended 30 September 2025
The notes set out below give more detailed analysis of the balances shown in the primary financial statements and further
information on how they relate to the operations, results and financial position of the Group and the Company.
2. Segmental information
The Group analyses its operations, both for internal management reporting and external financial reporting, on the basis of the
markets from which its assets are generated. The segments used at 30 September 2025 are described below:
• Mortgage Lending, including the Group’s buy-to-let, and owner-occupied first and second charge lending and related activities
• Commercial Lending, including the Group’s equipment leasing activities, development finance, structured lending and other
offerings targeted towards SME customers, together with its motor finance business
These segments are the same as those used at 30 September 2024.
Dedicated financing and administration costs of each of these businesses, including the interest impacts of fair value hedging, are
allocated to the segment. Shared central costs are not allocated between segments, nor is income from central cash and investment
balances. Provisions made in respect of potential historical liabilities related to motor finance commissions have also not been
allocated to a segment.
Loans to customers and operating lease assets (other than those related to the internal green car scheme (note 50)) are allocated to
segments as are dedicated securitisation funding arrangements and their related cash balances.
Retail deposits and their related costs are allocated to the segments based on the utilisation of those deposits. Retail deposits raised
in advance of lending and the costs related to those deposits are not allocated.
Other assets and liabilities are not allocated between segments.
All 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.
Page 226
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 2025
| Mortgage | Commercial | Unallocated | Total | |
| Lending | Lending | items | ||
£m | £m | £m | £m | |
Interest receivable | 880.4 | 247.4 | 121.2 | 1,249.0 |
Interest payable | (592.7) | (111.9) | (42.1) | (746.7) |
Net interest income | 287.7 | 135.5 | 79.1 | 502.3 |
Other leasing income | - | 31.2 | 0.5 | 31.7 |
Related costs | - | (25.2) | (0.4) | (25.6) |
Net operating lease income | - | 6.0 | 0.1 | 6.1 |
Other income | 3.9 | 2.8 | - | 6.7 |
Other operating income | 3.9 | 8.8 | 0.1 | 12.8 |
Total operating income | 291.6 | 144.3 | 79.2 | 515.1 |
Operating expenses | (21.1) | (26.1) | (132.1) | (179.3) |
Provisions for losses | (6.3) | (35.6) | - | (41.9) |
Segment profit | 264.2 | 82.6 | (52.9) | 293.9 |
Year ended 30 September 2024
| Mortgage | Commercial | Unallocated | Total | |
| Lending | Lending | items | ||
£m | £m | £m | £m | |
Interest receivable | 914.9 | 234.7 | 165.1 | 1,314.7 |
Interest payable | (632.6) | (109.9) | (89.0) | (831.5) |
Net interest income | 282.3 | 124.8 | 76.1 | 483.2 |
Other leasing income | - | 30.1 | 0.3 | 30.4 |
Related costs | - | (24.0) | (0.2) | (24.2) |
Net operating lease income | - | 6.1 | 0.1 | 6.2 |
Other income | 3.8 | 3.2 | - | 7.0 |
Other operating income | 3.8 | 9.3 | 0.1 | 13.2 |
Total operating income | 286.1 | 134.1 | 76.2 | 496.4 |
Operating expenses | (22.8) | (26.9) | (129.5) | (179.2) |
Provisions for losses | (5.6) | (18.9) | - | (24.5) |
Segment profit | 257.7 | 88.3 | (53.3) | 292.7 |
The segmental profits disclosed above reconcile to the Group’s results as shown below.
2025 | 2024 | |
£m | £m | |
Results shown above | 293.9 | 292.7 |
Provisions for liabilities | (25.5) | - |
Fair value items | (11.9) | (38.9) |
Operating profit | 256.5 | 253.8 |
Page 227
The Accounts
The assets and liabilities attributable to each of the segments at 30 September 2025, 30 September 2024 and 30 September 2023 on
the basis described above were:
| Note Mortgage | Commercial | Total | ||
| Lending | Lending | Segments | ||
£m | £m | £m | ||
| 30 September 2025 | ||||
| Segment assets | ||||
Loans to customers | 16 | 13,876.4 | 2,464.9 | 16,341.3 |
Operating lease assets | 27 | - | 50.5 | 50.5 |
Securitisation cash | 14 | 119.6 | - | 119.6 |
13,996.0 | 2,515.4 | 16,511.4 | ||
| Segment liabilities | ||||
Allocated deposits | 14,328.1 | 2,808.3 | 17,136.4 | |
Securitisation funding | - | - | - | |
14,328.1 | 2,808.3 | 17,136.4 |
| Note Mortgage | Commercial | Total | ||
| Lending | Lending | Segments | ||
£m | £m | £m | ||
| 30 September 2024 | ||||
| Segment assets | ||||
Loans to customers | 16 | 13,415.7 | 2,289.8 | 15,705.5 |
Operating lease assets | 27 | - | 43.9 | 43.9 |
Securitisation cash | 14 | 107.9 | - | 107.9 |
13,523.6 | 2,333.7 | 15,857.3 | ||
| Segment liabilities | ||||
Allocated deposits | 13,829.3 | 2,509.9 | 16,339.2 | |
Securitisation funding | - | - | - | |
13,829.3 | 2,509.9 | 16,339.2 |
| Note Mortgage | Commercial | Total | ||
| Lending | Lending | Segments | ||
£m | £m | £m | ||
| 30 September 2023 | ||||
| Segment assets | ||||
Loans to customers | 16 | 12,902.3 | 1,972.0 | 14,874.3 |
Operating lease assets | 27 | - | 44.3 | 44.3 |
Securitisation cash | 14 | 86.1 | - | 86.1 |
12,988.4 | 2,016.3 | 15,004.7 | ||
| Segment liabilities | ||||
Allocated deposits | 13,160.4 | 2,199.4 | 15,359.8 | |
Securitisation funding | 28.0 | - | 28.0 | |
13,188.4 | 2,199.4 | 15,387.8 |
An analysis of the Group’s financial assets by type and segment is shown in note 16. All the assets shown above were located in the UK.
The additions to non-current assets, excluding financial assets, in the year which are included in segmental assets above, are
investments of £21.0m (2024: £13.1m) in assets held for leasing under operating leases (note 27). These are included in the Commercial
Lending segment. No other fixed asset additions were allocated to segments.
Page 228
The segmental assets and liabilities may be reconciled to the consolidated balance sheet as shown below.
2025 | 2024 | |
£m | £m | |
Total segment assets | 16,511.4 | 15,857.3 |
| Unallocated assets | ||
Central cash and investments | 2,896.1 | 2,844.9 |
Derivative financial instruments | 275.4 | 391.8 |
Fair value hedging adjustments | (5.4) | (75.2) |
Operational property, plant and equipment | 26.5 | 27.1 |
Retirement benefit obligations | 23.5 | 22.2 |
Intangible assets | 172.1 | 171.5 |
Other | 30.4 | 30.4 |
Total assets | 19,930.0 | 19,270.0 |
2025 | 2024 | |
£m | £m | |
Total segment liabilities | 17,136.4 | 16,339.2 |
| Unallocated liabilities | ||
Unallocated retail deposits | (870.7) | (41.2) |
Derivative financial instruments | 68.2 | 99.7 |
Central borrowings | 1,699.8 | 1,005.3 |
Provisions for liabilities | 25.5 | - |
Tax liabilities | 13.9 | 13.4 |
Other | 436.7 | 434.1 |
Total liabilities | 18,509.8 | 17,850.5 |
3. Revenue
Note 2025 | 2024 | ||
£m | £m | ||
Interest receivable | 4 | 1,249.0 | 1,314.7 |
Operating lease income | 6 | 31.7 | 30.4 |
Other income | 7 | 6.7 | 7.0 |
Total revenue | 1,287.4 | 1,352.1 | |
| Arising from: | |||
Mortgage Lending | 884.3 | 918.7 | |
Commercial Lending | 281.4 | 268.0 | |
Total revenue from segments | 1,165.7 | 1,186.7 | |
Unallocated revenue | 121.7 | 165.4 | |
Total revenue | 1,287.4 | 1,352.1 |
Page 229
The Accounts
Note 2025 | 2024 | ||
£m | £m | ||
Interest receivable in respect of Loans and receivables | 888.5 | 819.8 | |
Finance leases | 84.9 | 73.4 | |
Invoice finance income | 5.5 | 5.8 | |
Interest on loans to customers | 978.9 | 899.0 | |
Effect of fair value hedging of loan assets | 143.6 | 245.8 | |
Interest on loans to customers after hedging | 1,122.5 | 1,144.8 | |
Pension scheme surplus | 56 | 1.1 | 0.8 |
Investment securities | 22.5 | 8.0 | |
Effect of fair value hedging of securities | 2.4 | 2.4 | |
Other interest receivable | 100.5 | 158.7 | |
Total interest on financial assets | 1,249.0 | 1,314.7 |
2025 | 2024 | |
£m | £m | |
Financial assets held at amortised cost | 1,017.0 | 992.3 |
Finance leases | 84.9 | 73.4 |
Pension scheme surplus | 1.1 | 0.8 |
Derivative financial instruments held at fair value | 146.0 | 248.2 |
1,249.0 | 1,314.7 |
Page 230
Note 2025 | 2024 | |
£m | £m | |
| On financial liabilities | ||
Retail deposits | 674.9 | 667.0 |
Effect of fair value hedging of deposits | (0.4) | 33.6 |
Interest on retail deposits after hedging | 674.5 | 700.6 |
Asset backed loan notes | - | 2.6 |
Bank loans and overdrafts | 6.2 | 14.1 |
Corporate bonds | 6.8 | 6.6 |
Effect of fair value hedging of bonds | 0.7 | 1.8 |
Covered bonds | 14.0 | - |
Retail bonds | - | 5.7 |
Central bank facilities | 38.4 | 95.2 |
Sale and repurchase agreements | 5.3 | 4.0 |
Total interest on financial liabilities | 745.9 | 830.6 |
Discounting on lease liabilities | 0.3 | 0.3 |
Other finance costs | 0.5 | 0.6 |
746.7 | 831.5 |
2025 | 2024 | |
£m | £m | |
Financial liabilities held at amortised cost | 745.6 | 795.2 |
Derivative financial instruments held at fair value | 0.3 | 35.4 |
Other items | 0.8 | 0.9 |
746.7 | 831.5 |
Note 2025 | 2024 | ||
£m | £m | ||
| Income | |||
Operating lease rentals | 21.8 | 21.3 | |
Maintenance income | 9.9 | 9.1 | |
Total operating lease income | 31.7 | 30.4 | |
| Costs | |||
Depreciation of lease assets | 27 | (12.3) | (11.6) |
Maintenance salaries | 53 | (4.3) | (3.7) |
Other maintenance costs | (9.0) | (8.9) | |
Total operating lease costs | (25.6) | (24.2) | |
Net operating lease income | 6.1 | 6.2 |
Page 231
The Accounts
2025 | 2024 | |
£m | £m | |
Loan account fee income | 4.1 | 4.5 |
Broker commissions | 1.3 | 1.6 |
Other income | 1.3 | 0.9 |
6.7 | 7.0 |
Note 2025 | 2024 | ||
£m | £m | ||
Employment costs | 53 | 110.2 | 111.1 |
Auditor remuneration | 9 | 4.0 | 3.6 |
Bank of England Levy | 2.7 | 2.1 | |
Amortisation of intangible assets | 28 | 2.0 | 1.2 |
Depreciation of operational assets | 27 | 3.5 | 5.4 |
Other administrative costs | 56.9 | 55.8 | |
179.3 | 179.2 |
2025 | 2024 | |
£m | £m | |
Audit fee of the company | 1.2 | 1.1 |
| Other services | ||
Audit of subsidiary undertakings pursuant to legislation | 1.8 | 1.7 |
Total audit fees | 3.0 | 2.8 |
| Audit related assurance services | ||
Interim review | 0.2 | 0.2 |
Other | 0.1 | - |
Total fees | 3.3 | 3.0 |
Irrecoverable VAT | 0.7 | 0.6 |
Total cost to the Group (note 8) | 4.0 | 3.6 |
Page 232
10. Loan impairments provisions charged to income
The amounts charged to the profit and loss account in the year are analysed as follows.
| Mortgage | Commercial | Total | |
| Lending | Lending | ||
£m | £m | £m | |
| 30 September 2025 | |||
Provided in period (note 21) | 6.5 | 35.6 | 42.1 |
Recovery of written off amounts | (0.2) | - | (0.2) |
6.3 | 35.6 | 41.9 | |
Of which Loan accounts | 6.3 | 33.8 | 40.1 |
Finance leases | - | 1.8 | 1.8 |
6.3 | 35.6 | 41.9 | |
| 30 September 2024 | |||
Provided in period (note 21) | 6.0 | 20.4 | 26.4 |
Recovery of written off amounts | (0.4) | (1.5) | (1.9) |
5.6 | 18.9 | 24.5 | |
Of which Loan accounts | 5.6 | 17.9 | 23.5 |
Finance leases | - | 1.0 | 1.0 |
5.6 | 18.9 | 24.5 |
2025 | 2024 | |
£m | £m | |
| Ineffectiveness of fair value hedges (note 24) | ||
| Portfolio hedges of interest rate risk | ||
Deposit hedge | (0.6) | 7.3 |
Loan hedge | 7.0 | (3.1) |
6.4 | 4.2 | |
Individual hedges of interest rate risk | - | - |
6.4 | 4.2 | |
Other hedging movements | (27.3) | (26.2) |
Net gain / (loss) on other derivatives | 9.0 | (16.9) |
Total net (loss) | (11.9) | (38.9) |
Page 233
The Accounts
12. Tax charge on profit on ordinary activities
(a) Analysis of charge in the year
2025 | 2024 | |
£m | £m | |
| Current tax | ||
UK Corporation Tax on profits of the period | 77.3 | 75.4 |
Adjustment in respect of prior periods | (2.0) | (4.5) |
Total current tax | 75.3 | 70.9 |
Deferred tax (note 40) | 0.9 | (3.1) |
Tax charge on profit on ordinary activities | 76.2 | 67.8 |
The standard rate of corporation tax in the UK applicable to the Group in the year was 25.0% (2024: 25.0%), based on legislation
enacted at the year end.
The Bank Corporation Tax Surcharge subjects any taxable profits arising in the Group’s banking subsidiary, Paragon Bank PLC (and
no other group entity), to an additional rate of tax to the extent these profits exceed a threshold. The surcharge applying to Paragon
Bank in the current year was 3.0% on profits over £100.0m (2024: 3.0% on profits over £100.0m). The effect of the surcharge is shown
in note (b) below.
The combination of the standard rate of tax and the surcharge results in taxable profits in excess of the annual threshold arising in
Paragon Bank being taxed at 28.0% in the current year (2024: 28.0%).
(b) Factors affecting tax charge for the year
Accounting standards require companies to explain the relationship between tax expense and accounting profit. This may be
demonstrated by reconciling the tax charge to the product of the accounting profit and the ‘applicable rate’, generally the domestic
rate of tax levied on corporate income in the jurisdiction in which the entity operates.
The Group operates wholly in the UK and all the Group’s income arises in UK resident companies. Consequently, it is appropriate to
use the prevailing UK corporation tax rate as the comparator to the effective tax rate. As noted in (a) above, the UK corporation tax
rate applicable to the Group for the year was 25.0% (2024: 25.0%).
The impact of the Banking Surcharge is shown as a difference between tax at this rate and the actual tax charge in the table below.
2025 | 2024 | |
£m | £m | |
Profit on ordinary activities before taxation | 256.5 | 253.8 |
Profit on ordinary activities multiplied by the UK standard rate of corporation tax | 64.1 | 63.5 |
| Effects of: | ||
| Permanent differences | ||
Recurring disallowable expenditure and similar items | 0.2 | 0.2 |
Non-recurring disallowable costs | 6.1 | - |
Mismatch in timing differences | 0.1 | 1.4 |
Change in rate of taxation on current and deferred tax (excluding Bank Surcharge) | - | - |
Impact of Bank Surcharge on current and deferred tax | 4.2 | 1.1 |
Prior year current and deferred tax charge | 1.5 | 1.6 |
Tax charge for the year | 76.2 | 67.8 |
The timing difference mismatch arises because tax relief for share-based payments is given on a different basis from that on which the
accounting charge for the provision of these awards is recognised under IFRS 2. This relief also gives rise to current and deferred tax
impacts in equity.
Non-recurring disallowable costs relates principally to provisions for historical motor finance commission related compensation (note 39)
Change in rate of taxation includes the effect of providing for deferred tax balances at rates other than the comparator rate. This
includes deferred tax provision on fair value movements in the year, which form the largest part of this balance.
With effect from the current accounting period, the Group is subject to additional provisions in the UK tax legislation, which
implement the Organisation for Economic Cooperation and Development (‘OECD’) Pillar 2 rules, known as the Global Base Erosion
(‘GloBE’) rules. These rules require the payment of top-up taxes if the rate of tax payable in any qualifying jurisdiction falls below 15%.
The Group has no liability under these rules in respect of the current period.
Page 234
(c) Factors affecting future tax charges
No legislation which will have the effect of changing the rates of tax applicable to the Group from those shown above has currently been
enacted. However, the future direction of UK tax policy will significantly affect the tax payable by the Group, and this remains uncertain.
The Group’s overall future effective tax rate will also be impacted by the future level of the Surcharge and by the proportion of its
taxable profit subject to it.
Various asset leasing businesses are included within the Group’s Commercial Lending division. Whilst such businesses do not, in
general, have significant permanent differences, the taxable profits in a given accounting period are usually significantly different from
the accounting profits due to temporary differences.
At the balance sheet date there were no material tax uncertainties and no significant open matters with the UK tax authorities. The
Group has no material exposure to any other tax jurisdiction.
13. Earnings per share
Earnings per ordinary share is calculated as follows:
2025 | 2024 | |
Profit for the year (£m) | 180.3 | 186.0 |
Basic weighted average number of ordinary shares ranking for dividend during the year (m) | 197.7 | 210.1 |
Dilutive effect of the weighted average number of share options and incentive plans in issue during the year (m) | 7.5 | 8.3 |
Diluted weighted average number of ordinary shares ranking for dividend during the year (m) | 205.2 | 218.4 |
| Earnings per ordinary share | ||
- basic | 91.2p | 88.5p |
- diluted | 87.9p | 85.2p |
2025 | 2024 | 2023 | |
£m | £m | £m | |
Deposits with the Bank of England | 2,175.7 | 2,315.5 | 2,783.3 |
Balances with central banks | 2,175.7 | 2,315.5 | 2,783.3 |
Deposits with other banks | 213.8 | 209.9 | 211.0 |
Balances with other banks | 213.8 | 209.9 | 211.0 |
Cash balances | 2,389.5 | 2,525.4 | 2,994.3 |
Page 235
The Accounts
2025 | 2024 | 2023 | |
£m | £m | £m | |
| The Group | |||
Available cash | 2,269.7 | 2,417.4 | 2,907.7 |
Securitisation cash | 119.6 | 107.9 | 86.1 |
ESOP cash | 0.2 | 0.1 | 0.5 |
2,389.5 | 2,525.4 | 2,994.3 | |
2025 | 2024 | 2023 | |
£m | £m | £m | |
| The Company | |||
Available cash | 17.4 | 18.2 | 27.6 |
ESOP cash | 0.2 | 0.1 | 0.5 |
17.6 | 18.3 | 28.1 |
Principal amount | Carrying value | |||
2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | |
UK Government securities | 550.0 | 400.0 | 509.4 | 404.4 |
Covered bonds | 116.8 | 23.0 | 116.8 | 23.0 |
666.8 | 423.0 | 626.2 | 427.4 |
Page 236
16. Loans to customers
The Group’s loans to customers at 30 September 2025, analysed between the segments described in note 2 are as follows:
Note 2025 | 2024 | 2023 | ||
£m | £m | £m | ||
First mortgages | 13,791.1 | 13,299.6 | 12,747.8 | |
Second charge mortgages | 85.3 | 116.1 | 154.5 | |
Total Mortgage Lending | 13,876.4 | 13,415.7 | 12,902.3 | |
Finance lease receivables | 17 | 1,049.9 | 995.6 | 907.3 |
Development finance | 960.4 | 884.0 | 747.8 | |
Other secured commercial lending | 339.9 | 320.8 | 227.6 | |
Other commercial loans | 114.7 | 89.4 | 89.3 | |
Total Commercial Lending | 2,464.9 | 2,289.8 | 1,972.0 | |
Loans to customers | 16,341.3 | 15,705.5 | 14,874.3 | |
Fair value adjustments from portfolio hedging | 24 | (5.4) | (75.2) | (379.3) |
16,335.9 | 15,630.3 | 14,495.0 |
Other secured commercial lending includes structured lending, aviation mortgages and invoice finance.
Other commercial loans includes principally professions finance, discounted receivables, term loans issued under schemes
sponsored by the British Business Bank (‘BBB’) and other short term commercial balances.
The Group’s purchased loan portfolios are analysed below.
2025 | 2024 | |
£m | £m | |
First mortgage loans | 5.1 | 5.1 |
Consumer loans | 26.2 | 36.0 |
31.3 | 41.1 |
Information on the Estimated Remaining Collections (‘ERCs’), the undiscounted forecast collectible amounts, for first mortgages and
consumer loans is given in note 60. All other loans above are internally generated or arise from acquired operations.
The amounts of the Group’s first mortgage assets pledged as collateral under the central bank facilities described in note 35, the
covered bonds described in note 32 or under the securitisation funding arrangements described in note 60 are shown below. These
include notes retained by the Group. The table also shows assets prepositioned with the Bank of England for use in future drawings.
2025 | 2024 | 2023 | |
£m | £m | £m | |
Pledged as collateral in respect of Asset backed loan notes | 1,913.4 | 2,108.7 | 1,529.5 |
Covered Bonds | 891.2 | - | - |
Central bank facilities | 2,109.6 | 1,097.8 | 4,109.0 |
Total pledged as collateral | 4,914.2 | 3,206.5 | 5,638.5 |
Prepositioned with Bank of England | 5,909.8 | 6,571.3 | 2,568.7 |
Other first mortgage assets | 2,967.1 | 3,521.8 | 4,540.6 |
Total first mortgage assets | 13,791.1 | 13,299.6 | 12,747.8 |
No assets of other classes were pledged as collateral at 30 September 2025, 30 September 2024 or 30 September 2023.
Page 237
The Accounts
2025 | 2024 | 2023 | |
£m | £m | £m | |
Motor finance | 360.5 | 331.4 | 297.7 |
Asset finance | 671.9 | 633.2 | 559.1 |
BBB sponsored schemes | 17.5 | 31.0 | 50.5 |
Carrying value | 1,049.9 | 995.6 | 907.3 |
2025 | 2024 | 2023 | |
£m | £m | £m | |
| Amounts receivable | |||
Within one year | 380.2 | 279.4 | 318.5 |
Within one to two years | 321.3 | 285.0 | 269.9 |
Within two to three years | 246.7 | 255.4 | 218.7 |
Within three to four years | 159.8 | 190.9 | 143.5 |
Within four to five years | 74.7 | 104.8 | 67.1 |
After five years | 68.7 | 104.1 | 60.2 |
1,251.4 | 1,219.6 | 1,077.9 | |
Less: future finance income | (193.1) | (213.1) | (158.1) |
Present value | 1,058.3 | 1,006.5 | 919.8 |
2025 | 2024 | 2023 | |
£m | £m | £m | |
| Amounts receivable | |||
Within one year | 323.0 | 230.5 | 272.9 |
Within two to five years | 678.5 | 690.5 | 597.0 |
After five years | 56.8 | 85.5 | 49.9 |
Present value | 1,058.3 | 1,006.5 | 919.8 |
Allowance for uncollectible amounts | (8.4) | (10.9) | (12.5) |
Carrying value | 1,049.9 | 995.6 | 907.3 |
Page 238
Page 239
The Accounts
Gross | Impairment | Net | |
£m | £m | £m | |
| 30 September 2025 | |||
Modelled portfolios | 14,920.9 | (38.5) | 14,882.4 |
Judgemental adjustments thereon | - | (1.5) | (1.5) |
14,920.9 | (40.0) | 14,880.9 | |
Non-modelled portfolios | 1,508.2 | (47.8) | 1,460.4 |
Total | 16,429.1 | (87.8) | 16,341.3 |
Gross | Impairment | Net | |
£m | £m | £m | |
| 30 September 2024 | |||
Modelled portfolios | 14,418.7 | (41.2) | 14,377.5 |
Judgemental adjustments thereon | - | (5.0) | (5.0) |
14,418.7 | (46.2) | 14,372.5 | |
Non-modelled | 1,363.3 | (30.3) | 1,333.0 |
Total | 15,782.0 | (76.5) | 15,705.5 |
Page 240
Page 241
The Accounts
2025 | 2025 | 2024 | 2024 | |
£m | £m | £m | £m | |
Mortgage Lending – modelled | 1.5 | 3.0 | ||
Commercial Lending – modelled | - | 2.0 | ||
Commercial Lending – non-modelled | 1.5 | 1.5 | ||
1.5 | 3.5 | |||
3.0 | 6.5 |
Page 242
Page 243
The Accounts
Stage 1 | Stage 2* | Stage 3* | POCI | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
| Gross loan book | |||||
Mortgage Lending | 13,152.2 | 570.1 | 176.1 | 9.6 | 13,908.0 |
Commercial Lending | 2,216.7 | 149.7 | 154.7 | - | 2,521.1 |
Total | 15,368.9 | 719.8 | 330.8 | 9.6 | 16,429.1 |
| Impairment provision | |||||
Mortgage Lending | (1.8) | (1.3) | (28.5) | - | (31.6) |
Commercial Lending | (10.6) | (3.2) | (42.4) | - | (56.2) |
Total | (12.4) | (4.5) | (70.9) | - | (87.8) |
| Net loan book | |||||
Mortgage Lending | 13,150.4 | 568.8 | 147.6 | 9.6 | 13,876.4 |
Commercial Lending | 2,206.1 | 146.5 | 112.3 | - | 2,464.9 |
Total | 15,356.5 | 715.3 | 259.9 | 9.6 | 16,341.3 |
| Coverage ratio | |||||
Mortgage Lending | 0.01% | 0.23% | 16.18% | - | 0.23% |
Commercial Lending | 0.48% | 2.14% | 27.41% | - | 2.23% |
Total | 0.08% | 0.63% | 21.43% | - | 0.53% |
Page 244
Stage 1 | Stage 2* | Stage 3* | POCI | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2024 | |||||
| Gross loan book | |||||
Mortgage Lending | 12,670.3 | 598.9 | 171.1 | 10.7 | 13,451.0 |
Commercial Lending | 2,034.9 | 177.2 | 112.5 | 6.4 | 2,331.0 |
Total | 14,705.2 | 776.1 | 283.6 | 17.1 | 15,782.0 |
| Impairment provision | |||||
Mortgage Lending | (3.4) | (2.2) | (29.7) | - | (35.3) |
Commercial Lending | (12.6) | (5.0) | (21.1) | (2.5) | (41.2) |
Total | (16.0) | (7.2) | (50.8) | (2.5) | (76.5) |
| Net loan book | |||||
Mortgage Lending | 12,666.9 | 596.7 | 141.4 | 10.7 | 13,415.7 |
Commercial Lending | 2,022.3 | 172.2 | 91.4 | 3.9 | 2,289.8 |
Total | 14,689.2 | 768.9 | 232.8 | 14.6 | 15,705.5 |
| Coverage ratio | |||||
Mortgage Lending | 0.03% | 0.37% | 17.36% | - | 0.26% |
Commercial Lending | 0.62% | 2.82% | 18.76% | 39.06% | 1.77% |
Total | 0.11% | 0.93% | 17.91% | 14.62% | 0.48% |
Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Gross loan book | 1,024.1 | 27.6 | 6.6 | - | 1,058.3 |
Impairment provision | (3.9) | (1.8) | (2.7) | - | (8.4) |
Net loan book | 1,020.2 | 25.8 | 3.9 | - | 1,049.9 |
Coverage Ratio | 0.38% | 6.52% | 40.91% | - | 0.79% |
| 30 September 2024 | |||||
Gross loan book | 958.1 | 40.7 | 7.7 | - | 1,006.5 |
Impairment provision | (4.9) | (2.8) | (3.2) | - | (10.9) |
Net loan book | 953.2 | 37.9 | 4.5 | - | 995.6 |
Coverage Ratio | 0.51% | 6.88% | 41.56% | - | 1.08% |
Page 245
The Accounts
| < 1 month | Recent | > 1 <= 3 months | Total | |
| arrears | arrears | arrears | ||
£m | £m | £m | £m | |
| 30 September 2025 | ||||
| Gross loan book | ||||
Mortgage Lending | 475.2 | 21.1 | 73.8 | 570.1 |
Commercial Lending | 145.7 | 1.3 | 2.7 | 149.7 |
Total | 620.9 | 22.4 | 76.5 | 719.8 |
| Impairment provision | ||||
Mortgage Lending | (0.8) | - | (0.5) | (1.3) |
Commercial Lending | (2.6) | (0.2) | (0.4) | (3.2) |
Total | (3.4) | (0.2) | (0.9) | (4.5) |
| Net loan book | ||||
Mortgage Lending | 474.4 | 21.1 | 73.3 | 568.8 |
Commercial Lending | 143.1 | 1.1 | 2.3 | 146.5 |
Total | 617.5 | 22.2 | 75.6 | 715.3 |
| Coverage ratio | ||||
Mortgage Lending | 0.17% | - | 0.68% | 0.23% |
Commercial Lending | 1.78% | 15.38% | 14.81% | 2.14% |
Total | 0.55% | 0.89% | 1.18% | 0.63% |
Page 246
| < 1 month | Recent | > 1 <= 3 months | Total | |
| arrears | arrears | arrears | ||
£m | £m | £m | £m | |
| 30 September 2024 | ||||
| Gross loan book | ||||
Mortgage Lending | 521.8 | 13.5 | 63.6 | 598.9 |
Commercial Lending | 171.9 | 2.7 | 2.6 | 177.2 |
Total | 693.7 | 16.2 | 66.2 | 776.1 |
| Impairment provision | ||||
Mortgage Lending | (1.7) | - | (0.5) | (2.2) |
Commercial Lending | (4.5) | (0.1) | (0.4) | (5.0) |
Total | (6.2) | (0.1) | (0.9) | (7.2) |
| Net loan book | ||||
Mortgage Lending | 520.1 | 13.5 | 63.1 | 596.7 |
Commercial Lending | 167.4 | 2.6 | 2.2 | 172.2 |
Total | 687.5 | 16.1 | 65.3 | 768.9 |
| Coverage ratio | ||||
Mortgage Lending | 0.33% | - | 0.79% | 0.37% |
Commercial Lending | 2.62% | 3.70% | 15.38% | 2.82% |
Total | 0.89% | 0.62% | 1.36% | 0.93% |
Page 247
The Accounts
Probation | > 3 month arrears | RoR managed | Realisations | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
| Gross loan book | |||||
Mortgage Lending | 11.7 | 56.4 | 38.4 | 69.6 | 176.1 |
Commercial Lending | 0.4 | 134.4 | - | 19.9 | 154.7 |
Total | 12.1 | 190.8 | 38.4 | 89.5 | 330.8 |
| Impairment provision | |||||
Mortgage Lending | - | (0.1) | (8.5) | (19.9) | (28.5) |
Commercial Lending | (0.1) | (38.8) | - | (3.5) | (42.4) |
Total | (0.1) | (38.9) | (8.5) | (23.4) | (70.9) |
| Net loan book | |||||
Mortgage Lending | 11.7 | 56.3 | 29.9 | 49.7 | 147.6 |
Commercial Lending | 0.3 | 95.6 | - | 16.4 | 112.3 |
Total | 12.0 | 151.9 | 29.9 | 66.1 | 259.9 |
| Coverage ratio | |||||
Mortgage Lending | - | 0.18% | 22.14% | 28.59% | 16.18% |
Commercial Lending | 25.00% | 28.87% | - | 17.59% | 27.41% |
Total | 0.83% | 20.39% | 22.14% | 26.15% | 21.43% |
Probation | > 3 month arrears | RoR managed | Realisations | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2024 | |||||
| Gross loan book | |||||
Mortgage Lending | 10.3 | 44.6 | 45.2 | 71.0 | 171.1 |
Commercial Lending | 0.4 | 105.0 | - | 7.1 | 112.5 |
Total | 10.7 | 149.6 | 45.2 | 78.1 | 283.6 |
| Impairment provision | |||||
Mortgage Lending | - | (0.7) | (11.2) | (17.8) | (29.7) |
Commercial Lending | (0.1) | (17.7) | - | (3.3) | (21.1) |
Total | (0.1) | (18.4) | (11.2) | (21.1) | (50.8) |
| Net loan book | |||||
Mortgage Lending | 10.3 | 43.9 | 34.0 | 53.2 | 141.4 |
Commercial Lending | 0.3 | 87.3 | - | 3.8 | 91.4 |
Total | 10.6 | 131.2 | 34.0 | 57.0 | 232.8 |
| Coverage ratio | |||||
Mortgage Lending | - | 1.57% | 24.78% | 25.07% | 17.36% |
Commercial Lending | 25.00% | 16.86% | - | 46.48% | 18.76% |
Total | 0.93% | 12.30% | 24.78% | 27.02% | 17.91% |
Page 248
2025 | 2024 | |
£m | £m | |
First mortgages | 129.1 | 119.1 |
Second mortgages | 6.6 | 8.0 |
Asset finance | 2.0 | 1.9 |
Motor finance | 1.4 | 1.2 |
139.1 | 130.2 |
30 September 2025 | 30 September 2024 | |||
No. | £m | No. | £m | |
| Managed accounts | ||||
| Appointment date | ||||
2010 and earlier | 63 | 10.4 | 94 | 14.6 |
2011 to 2015 | 8 | 1.2 | 16 | 2.2 |
2016 to 2020 | - | - | 6 | 0.8 |
2021 and later | 131 | 26.8 | 167 | 27.6 |
Total managed accounts | 202 | 38.4 | 283 | 45.2 |
Accounts in the process of realisation | 370 | 68.0 | 356 | 57.6 |
572 | 106.4 | 639 | 102.8 |
Page 249
The Accounts
| Mortgage | Commercial | Total | |
| Lending | Lending | ||
£m | £m | £m | |
At 30 September 2024 | 35.3 | 41.2 | 76.5 |
Provided in period (note 10) | 6.5 | 35.6 | 42.1 |
Amounts written off | (10.2) | (20.6) | (30.8) |
At 30 September 2025 (note 20) | 31.6 | 56.2 | 87.8 |
At 30 September 2023 | 42.3 | 31.3 | 73.6 |
Provided in period (note 10) | 6.0 | 20.4 | 26.4 |
Amounts written off | (13.0) | (10.5) | (23.5) |
At 30 September 2024 (note 20) | 35.3 | 41.2 | 76.5 |
Page 250
Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
£m | £m | £m | £m | £m | |
Loss allowance at 30 September 2024 | 16.0 | 7.2 | 50.8 | 2.5 | 76.5 |
New assets originated | 6.3 | - | - | - | 6.3 |
| Changes in loss allowance | |||||
Transfer to Stage 1 | 2.0 | (1.9) | (0.1) | - | - |
Transfer to Stage 2 | (0.9) | 1.3 | (0.4) | - | - |
Transfer to Stage 3 | (0.3) | (1.5) | 1.8 | - | - |
Changes on stage transfer | (1.7) | 1.2 | 9.6 | - | 9.1 |
Changes due to credit risk | (9.0) | (1.8) | 39.1 | (1.6) | 26.7 |
Write offs | - | - | (29.9) | (0.9) | (30.8) |
Loss allowance at 30 September 2025 | 12.4 | 4.5 | 70.9 | - | 87.8 |
Loss allowance at 30 September 2023 | 19.6 | 9.4 | 39.8 | 4.8 | 73.6 |
New assets originated | 6.5 | - | - | - | 6.5 |
| Changes in loss allowance | |||||
Transfer to Stage 1 | 2.0 | (1.8) | (0.2) | - | - |
Transfer to Stage 2 | (2.2) | 3.0 | (0.8) | - | - |
Transfer to Stage 3 | (0.2) | (4.5) | 4.7 | - | - |
Changes on stage transfer | (1.6) | 2.4 | 26.4 | - | 27.2 |
Changes due to credit risk | (8.1) | (1.3) | 4.4 | (2.3) | (7.3) |
Write offs | - | - | (23.5) | - | (23.5) |
Loss allowance at 30 September 2024 | 16.0 | 7.2 | 50.8 | 2.5 | 76.5 |
Page 251
The Accounts
Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
£m | £m | £m | £m | £m | |
Balance at 30 September 2024 | 14,705.2 | 776.1 | 283.6 | 17.1 | 15,782.0 |
New assets originated | 2,867.2 | - | - | - | 2,867.2 |
| Changes in staging | |||||
Transfer to Stage 1 | 269.9 | (267.1) | (2.8) | - | - |
Transfer to Stage 2 | (385.2) | 399.1 | (13.9) | - | - |
Transfer to Stage 3 | (42.2) | (121.5) | 163.7 | - | - |
Redemptions and repayments | (2,914.4) | (114.2) | (94.8) | (12.7) | (3,136.1) |
Write offs | - | - | (29.9) | (0.9) | (30.8) |
Other changes | 868.4 | 47.4 | 24.9 | 6.1 | 946.8 |
Balance at 30 September 2025 | 15,368.9 | 719.8 | 330.8 | 9.6 | 16,429.1 |
Loss allowance | (12.4) | (4.5) | (70.9) | - | (87.8) |
Carrying value | 15,356.5 | 715.3 | 259.9 | 9.6 | 16,341.3 |
Balance at 30 September 2023 | 13,972.3 | 744.8 | 206.0 | 24.8 | 14,947.9 |
New assets originated | 2,757.4 | - | - | - | 2,757.4 |
| Changes in staging | |||||
Transfer to Stage 1 | 329.3 | (325.9) | (3.4) | - | - |
Transfer to Stage 2 | (566.5) | 585.2 | (18.7) | - | - |
Transfer to Stage 3 | (38.1) | (137.6) | 175.7 | - | - |
Redemptions and repayments | (2,558.0) | (137.2) | (76.0) | (11.0) | (2,782.2) |
Write offs | - | - | (23.5) | - | (23.5) |
Other changes | 808.8 | 46.8 | 23.5 | 3.3 | 882.4 |
Balance at 30 September 2024 | 14,705.2 | 776.1 | 283.6 | 17.1 | 15,782.0 |
Loss allowance | (16.0) | (7.2) | (50.8) | (2.5) | (76.5) |
Carrying value | 14,689.2 | 768.9 | 232.8 | 14.6 | 15,705.5 |
Page 252
Page 253
The Accounts
2025 | 2024 | |
Central scenario | 50% | 45% |
Upside scenario | 10% | 10% |
Downside scenario | 30% | 30% |
Severe scenario | 10% | 15% |
100% | 100% |
Page 254
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 1.4% | 1.3% | 1.6% | 1.6% | 1.6% |
Upside scenario | 2.3% | 2.4% | 2.0% | 1.7% | 1.6% |
Downside scenario | 0.0% | 0.4% | 1.5% | 1.6% | 1.6% |
Severe scenario | (1.8)% | (2.4)% | 1.3% | 1.4% | 1.4% |
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 2.5% | 4.4% | 3.2% | 2.4% | 2.4% |
Upside scenario | 5.0% | 5.8% | 4.5% | 3.4% | 2.4% |
Downside scenario | (2.2)% | (0.7)% | 2.1% | 1.7% | 2.4% |
Severe scenario | (4.6)% | (12.3)% | (11.3)% | 2.0% | 7.1% |
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 3.7% | 3.5% | 3.5% | 3.5% | 3.5% |
Upside scenario | 3.4% | 2.9% | 2.5% | 2.5% | 2.5% |
Downside scenario | 4.4% | 3.8% | 3.5% | 3.5% | 3.5% |
Severe scenario | 6.3% | 6.4% | 5.0% | 3.6% | 2.4% |
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 3.1% | 2.2% | 2.0% | 2.0% | 2.0% |
Upside scenario | 2.8% | 1.9% | 1.9% | 2.1% | 2.0% |
Downside scenario | 3.6% | 2.4% | 1.9% | 2.0% | 2.0% |
Severe scenario | 7.6% | 6.2% | 3.9% | 2.4% | 2.0% |
Page 255
The Accounts
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 5.0% | 5.1% | 5.1% | 4.5% | 4.0% |
Upside scenario | 4.6% | 4.6% | 4.6% | 4.1% | 4.0% |
Downside scenario | 5.4% | 5.5% | 5.5% | 4.9% | 4.3% |
Severe scenario | 5.6% | 7.5% | 8.4% | 7.6% | 6.8% |
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 2.9% | 3.0% | 3.0% | 3.0% | 3.0% |
Upside scenario | 4.2% | 4.3% | 4.3% | 4.3% | 4.3% |
Downside scenario | 1.4% | 1.5% | 1.5% | 1.5% | 1.5% |
Severe scenario | 0.9% | 1.0% | 1.0% | 1.0% | 1.0% |
2026 | 2027 | 2028 | 2029 | 2030 | |
Central scenario | 6.6% | 6.1% | 5.6% | 5.1% | 4.8% |
Upside scenario | 7.6% | 7.1% | 6.6% | 6.1% | 5.8% |
Downside scenario | 4.6% | 4.1% | 3.6% | 3.1% | 2.8% |
Severe scenario | 0.8% | (3.0)% | 0.3% | 1.3% | 1.3% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 1.4% | 1.2% | 1.6% | 1.6% | 1.6% |
Upside scenario | 2.9% | 2.4% | 2.3% | 1.7% | 1.6% |
Downside scenario | 0.5% | 0.5% | 1.3% | 1.6% | 1.6% |
Severe scenario | (0.5)% | (3.1)% | (0.1)% | 1.9% | 1.8% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | - | 2.3% | 4.4% | 3.2% | 2.4% |
Upside scenario | 2.7% | 4.6% | 5.0% | 4.5% | 3.4% |
Downside scenario | (2.4)% | 0.5% | 4.0% | 2.6% | 1.7% |
Severe scenario | (1.9)% | (11.0)% | (14.6)% | - | 6.5% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 4.3% | 3.6% | 3.4% | 3.3% | 3.3% |
Upside scenario | 4.1% | 3.2% | 3.0% | 3.0% | 3.0% |
Downside scenario | 5.0% | 5.0% | 4.6% | 3.7% | 3.5% |
Severe scenario | 7.1% | 8.8% | 6.3% | 4.3% | 3.5% |
Page 256
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 2.6% | 1.9% | 1.5% | 1.7% | 2.0% |
Upside scenario | 2.1% | 1.9% | 2.0% | 2.0% | 2.0% |
Downside scenario | 2.5% | 2.5% | 2.3% | 1.9% | 2.0% |
Severe scenario | 4.7% | 11.9% | 4.7% | 2.1% | 2.0% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 4.5% | 4.8% | 4.7% | 4.2% | 4.0% |
Upside scenario | 4.1% | 4.4% | 4.3% | 3.9% | 3.6% |
Downside scenario | 4.9% | 5.6% | 5.8% | 5.3% | 4.5% |
Severe scenario | 5.0% | 7.5% | 8.4% | 7.8% | 7.1% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 0.3% | 1.8% | 3.0% | 3.0% | 3.0% |
Upside scenario | 1.3% | 2.8% | 3.3% | 3.0% | 3.0% |
Downside scenario | (0.5)% | 1.0% | 2.8% | 3.0% | 3.0% |
Severe scenario | (1.8)% | (0.3)% | 2.5% | 3.0% | 3.0% |
2025 | 2026 | 2027 | 2028 | 2029 | |
Central scenario | 6.8% | 5.1% | 4.8% | 5.0% | 5.0% |
Upside scenario | 7.5% | 5.9% | 5.0% | 5.0% | 5.0% |
Downside scenario | 5.8% | 4.1% | 4.6% | 5.0% | 5.0% |
Severe scenario | 4.3% | 2.6% | 4.2% | 5.0% | 5.0% |
Page 257
The Accounts
Central scenario | Upside scenario | Downside scenario | Severe scenario | |||||
Max | Min | Max | Min | Max | Min | Max | Min | |
% | % | % | % | % | % | % | % | |
| Economic driver | ||||||||
GDP | 1.7 | 1.2 | 2.6 | 1.6 | 1.6 | (0.8) | 1.4 | (4.6) |
HPI | 4.4 | 1.4 | 7.5 | 2.3 | 2.9 | (4.1) | 7.4 | (12.6) |
BBR | 4.0 | 3.5 | 3.8 | 2.5 | 4.5 | 3.5 | 7.2 | 2.2 |
CPI | 3.6 | 1.9 | 3.2 | 1.6 | 4.0 | 1.7 | 10.0 | 2.0 |
Unemployment | 5.1 | 3.9 | 4.6 | 3.9 | 5.5 | 4.1 | 8.5 | 4.9 |
Secured lending | 3.0 | 2.8 | 4.3 | 4.1 | 1.5 | 1.3 | 1.0 | 0.8 |
Consumer credit | 6.7 | 4.8 | 7.7 | 5.8 | 4.7 | 2.8 | 4.0 | (4.0) |
Central scenario | Upside scenario | Downside scenario | Severe scenario | |||||
Max | Min | Max | Min | Max | Min | Max | Min | |
% | % | % | % | % | % | % | % | |
| Economic driver | ||||||||
GDP | 2.0 | 1.0 | 3.0 | 1.6 | 1.6 | (0.3) | 1.9 | (3.7) |
HPI | 4.4 | (1.3) | 5.1 | 1.7 | 4.0 | (4.6) | 6.9 | (15.9) |
BBR | 4.5 | 3.3 | 4.5 | 3.0 | 5.0 | 3.5 | 9.0 | 3.5 |
CPI | 2.7 | 1.5 | 2.2 | 1.7 | 2.7 | 1.7 | 12.3 | 1.9 |
Unemployment | 4.8 | 4.0 | 4.4 | 3.6 | 5.8 | 4.2 | 8.5 | 4.3 |
Secured lending | 3.0 | - | 4.0 | 1.0 | 3.0 | (0.8) | 3.0 | (2.0) |
Consumer credit | 7.0 | 4.5 | 7.8 | 4.8 | 6.0 | 3.5 | 5.0 | 2.0 |
2025 | 2024 | |
£m | £m | |
| Provision using central scenario 100% weighted | ||
Mortgage Lending | 28.6 | 31.6 |
Commercial Lending | 54.9 | 39.7 |
83.5 | 71.3 | |
Calculated impairment provision | 87.8 | 76.5 |
Effect of multiple economic scenarios | 4.3 | 5.2 |
Page 258
Scenario 2025 | 2024 | |||
Provision | Difference | Provision | Difference | |
£m | £m | £m | £m | |
Central | 83.5 | (4.3) | 71.3 | (5.2) |
Upside | 80.6 | (7.2) | 68.0 | (8.5) |
Downside | 89.8 | 2.0 | 76.8 | 0.3 |
Severe | 112.1 | 24.3 | 100.4 | 23.9 |
Weighting | Impairment | Difference | ||||
Central | Upside | Downside | Severe | £m | £m | |
As reported | 50% | 10% | 30% | 10% | 87.8 | - |
Sensitivity A | 40% | 30% | 25% | 5% | 85.6 | (2.2) |
Sensitivity B | 45% | 10% | 30% | 15% | 89.1 | 1.3 |
Page 259
The Accounts
2025 | 2025 | 2024 | 2024 | |
Assets | Liabilities | Assets | Liabilities | |
£m | £m | £m | £m | |
| Derivatives in hedge accounting relationships | ||||
| Fair value portfolio hedges | ||||
| Interest rate swaps | ||||
Fixed to floating | 101.2 | (34.7) | 216.3 | (44.7) |
Floating to fixed | 92.0 | (1.6) | 123.8 | (1.7) |
Total derivatives in portfolio fair value hedging relationships | 193.2 | (36.3) | 340.1 | (46.4) |
| Individual fair value hedges | ||||
Fixed to floating | 41.0 | - | 5.9 | (8.4) |
Floating to fixed | 0.2 | - | 0.3 | - |
Total derivatives in hedge accounting relationships | 234.4 | (36.3) | 346.3 | (54.8) |
| Other derivatives | ||||
Interest rate swaps | 41.0 | (31.9) | 45.5 | (44.9) |
Currency futures | - | - | - | - |
Total recognised derivative assets / (liabilities) | 275.4 | (68.2) | 391.8 | (99.7) |
Page 260
Note 2025 | 2024 | ||
£m | £m | ||
| Derivative financial instruments | |||
Assets | 275.4 | 391.8 | |
Liabilities | (68.2) | (99.7) | |
207.2 | 292.1 | ||
| Fair value hedging adjustments | |||
On loans to customers | 16 | (5.5) | (75.2) |
On investment securities | 15 | (26.5) | 7.7 |
On retail deposits | 31 | (5.1) | (16.7) |
On borrowings | (0.2) | (0.3) | |
(37.3) | (84.5) | ||
Net balance sheet position | 169.9 | 207.6 | |
| Collateral balances | |||
Posted (in sundry assets) | 25 | - | - |
Received (in sundry liabilities) | 37 | (189.8) | (103.6) |
(189.8) | (103.6) |
Page 261
The Accounts
Page 262
2025 | 2024 | |||
Deposit Hedge | Loan Hedge | Deposit Hedge | Loan Hedge | |
Average fixed notional interest rate | 4.12% | 3.13% | 4.73% | 2.53% |
Average notional margin over SONIA | - | - | - | - |
£m | £m | £m | £m | |
| Notional principal value | ||||
SONIA BGS | - | 7.1 | - | 17.7 |
Other SONIA swaps | 6,120.6 | 9,402.5 | 6,119.2 | 8,081.2 |
6,120.6 | 9,409.6 | 6,119.2 | 8,098.9 | |
| Maturing | ||||
Within one year | 5,424.0 | 1,869.1 | 4,942.2 | 1,234.1 |
Between one and two years | 654.6 | 3,200.4 | 1,097.0 | 1,930.7 |
Between two and five years | 42.0 | 4,333.0 | 80.0 | 4,916.4 |
More than five years | - | 7.1 | - | 17.7 |
6,120.6 | 9,409.6 | 6,119.2 | 8,098.9 | |
Fair value | 90.4 | 66.5 | 122.1 | 171.6 |
Page 263
The Accounts
2025 | 2024 | |||
Deposit hedge | Loan hedge | Deposit hedge | Loan hedge | |
£m | £m | £m | £m | |
| Hedging instruments | ||||
| Interest rate swaps | ||||
Included in derivative financial assets | 92.0 | 101.2 | 123.8 | 216.3 |
Included in derivative financial liabilities | (1.6) | (34.7) | (1.7) | (44.7) |
90.4 | 66.5 | 122.1 | 171.6 | |
Notional principal value | 6,120.6 | 9,409.6 | 6,119.2 | 8,098.9 |
Change in fair value used in calculating hedge ineffectiveness | (9.8) | (79.5) | 48.7 | (339.6) |
2025 | 2024 | |||
Deposit hedge | Loan hedge | Deposit hedge | Loan hedge | |
£m | £m | £m | £m | |
| Hedged items | ||||
| Fixed rate deposits | ||||
Monetary amount of risk relating to Retail Deposits | 5,839.1 | - | 5,568.6 | - |
| Fixed rate loans | ||||
Monetary amount of risk relating to Loans to Customers | - | 9,774.3 | - | 8,135.2 |
| Accumulated amount of fair value hedge adjustments included on balance | (5.1) | (5.5) | (16.7) | (75.2) |
| sheet (notes 31 and 16)* | ||||
| Of which: amounts related to discontinued hedging relationships | 0.3 | 49.9 | (0.6) | 73.4 |
| being amortised | ||||
Change in fair value used in recognising hedge ineffectiveness | 9.2 | 86.5 | (41.4) | 336.5 |
| Hedge ineffectiveness recognised | ||||
Included in fair value gains / (losses) in the profit and loss account (note 11) | (0.6) | 7.0 | 7.3 | (3.1) |
Page 264
2025 | 2024 | |||
Asset hedges | Liability hedge | Asset hedges | Liability hedge | |
Average fixed notional interest rate | 4.48% | 3.99% | 4.50% | 3.99% |
Average notional margin over SONIA | - | - | - | - |
£m | £m | £m | £m | |
| Notional principal value | ||||
SONIA swaps | 550.0 | 150.0 | 400.0 | 150.0 |
550.0 | 150.0 | 400.0 | 150.0 | |
| Maturing | ||||
Within one year | - | 150.0 | - | - |
Between one and two years | - | - | - | 150.0 |
Between two and five years | - | - | - | - |
More than five years | 550.0 | - | 400.0 | - |
550.0 | 150.0 | 400.0 | 150.0 | |
Fair value | 41.0 | 0.2 | (2.5) | 0.3 |
Page 265
The Accounts
2025 | 2024 | |||
Asset hedges | Liability hedge | Asset hedges | Liability hedge | |
£m | £m | £m | £m | |
| Hedging instruments | ||||
| Interest rate swaps | ||||
Included in derivative financial assets | 41.0 | 0.2 | 5.9 | 0.3 |
Included in derivative financial liabilities | - | - | (8.4) | - |
41.0 | 0.2 | (2.5) | 0.3 | |
Notional principal value | 550.0 | 150.0 | 400.0 | 150.0 |
Change in fair value used in calculating hedge ineffectiveness | 44.9 | (0.1) | (4.3) | 4.0 |
2025 | 2024 | |||
Asset hedges | Liability hedge | Asset hedges | Liability hedge | |
£m | £m | £m | £m | |
| Hedged items | ||||
| Fixed rate borrowings | ||||
Corporate bond | - | (150.0) | - | (150.0) |
| Fixed rate assets | ||||
Investment securities | 550.0 | - | 400.0 | - |
550.0 | (150.0) | 400.0 | (150.0) | |
Accumulated amount of fair value hedge adjustments included in carrying value | (44.9) | 0.1 | 4.3 | (4.0) |
| Of which: amounts related to discontinued hedging relationships | - | - | - | - |
| being amortised | ||||
Change in fair value used in recognising hedge ineffectiveness | (44.9) | 0.1 | 4.3 | (4.0) |
| Hedge ineffectiveness recognised | ||||
| Included in fair value gains / (losses) in the profit and loss account | - | - | - | - |
| (note 11) |
Page 266
(c) Derivatives not in a hedge relationship
The Group’s other derivatives comprise:
• Interest rate swaps which are economically part of the Group’s portfolio hedging arrangements but failed to find a match in the
hedge designation, particularly including swaps pre-hedging interest rate risk on the new lending pipeline
• Currency futures, economically hedging exposures on lending denominated in currency, where hedge accounting has not been
adopted due to the size of the exposure
The principal terms of these derivatives are set out below.
Interest rate swaps
2025 | 2024 | |||
Pay fixed | Pay floating | Pay fixed | Pay floating | |
Average fixed notional interest rate | 2.36% | 2.73% | 2.22% | 2.58% |
Average notional margin over SONIA | - | - | - | - |
£m | £m | £m | £m | |
| Notional principal value | ||||
SONIA swaps | 1,677.1 | 1,308.1 | 1,058.1 | 1,184.7 |
1,677.1 | 1,308.1 | 1,058.1 | 1,184.7 | |
| Maturing | ||||
Within one year | 414.1 | 398.6 | 78.0 | 385.0 |
Between one and two years | 553.5 | 313.0 | 218.6 | 209.6 |
Between two and five years | 709.5 | 596.5 | 761.5 | 590.1 |
More than five years | - | - | - | - |
1,677.1 | 1,308.1 | 1,058.1 | 1,184.7 | |
Fair value | 38.9 | (29.8) | 44.2 | (43.6) |
Currency futures
2025 | 2024 | |
| US dollar futures | ||
Average future exchange rate | 1.35 | 1.34 |
£m | £m | |
Notional principal value | 5.4 | 4.5 |
| Maturing | ||
Within one year | 5.4 | 4.5 |
Between one and two years | - | - |
Between two and five years | - | - |
5.4 | 4.5 | |
Fair value | - | - |
Page 267
The Accounts
Note 2025 | 2024 | 2023 | ||
£m | £m | £m | ||
| Receivable in less than one year | ||||
Accrued interest income | 11.8 | 11.1 | 4.6 | |
Trade receivables | 1.3 | 1.5 | 1.5 | |
CSA assets | 24 | 1.5 | - | - |
CRDs | - | - | 38.0 | |
Sovereign receivables | 0.1 | 0.2 | 0.1 | |
Other receivables | 2.2 | 3.0 | 1.8 | |
Sundry financial assets | 67 | 16.9 | 15.8 | 46.0 |
Prepayments | 7.3 | 4.9 | 5.0 | |
24.2 | 20.7 | 51.0 |
2025 | 2024 | 2023 | |
£m | £m | £m | |
| Receivable in less than one year | |||
Intra-group treasury deposit | 65.3 | 107.6 | 193.6 |
Amounts owed by group companies | 19.0 | 20.9 | 35.0 |
Accrued interest income | 0.1 | 0.1 | 0.1 |
84.4 | 128.6 | 228.7 |
Page 268
| Leased | Land and | Plant and | Total | |
| assets | buildings | machinery | ||
£m | £m | £m | £m | |
| Cost | ||||
At 1 October 2023 | 81.5 | 37.0 | 14.7 | 133.2 |
Additions | 13.6 | 0.3 | 2.5 | 16.4 |
Disposals | (7.1) | (0.8) | (2.2) | (10.1) |
At 30 September 2024 | 88.0 | 36.5 | 15.0 | 139.5 |
Additions | 21.5 | 0.9 | 2.4 | 24.8 |
Disposals | (10.5) | (0.1) | (2.1) | (12.7) |
At 30 September 2025 | 99.0 | 37.3 | 15.3 | 151.6 |
| Accumulated depreciation | ||||
At 1 October 2023 | 36.7 | 10.9 | 10.9 | 58.5 |
Charge for the year | 11.6 | 3.7 | 1.7 | 17.0 |
On disposals | (4.9) | (0.7) | (1.4) | (7.0) |
At 30 September 2024 | 43.4 | 13.9 | 11.2 | 68.5 |
Charge for the year | 12.3 | 1.7 | 1.8 | 15.8 |
On disposals | (8.0) | (0.1) | (1.6) | (9.7) |
At 30 September 2025 | 47.7 | 15.5 | 11.4 | 74.6 |
| Net book value | ||||
At 30 September 2025 | 51.3 | 21.8 | 3.9 | 77.0 |
At 30 September 2024 | 44.6 | 22.6 | 3.8 | 71.0 |
At 30 September 2023 | 44.8 | 26.1 | 3.8 | 74.7 |
Page 269
The Accounts
| Leased | Land and | Plant and | Total | |
| assets | buildings | machinery | ||
£m | £m | £m | £m | |
| Cost | ||||
At 1 October 2023 | 0.6 | 12.5 | 2.8 | 15.9 |
Additions | 0.5 | 0.3 | 1.6 | 2.4 |
Disposals | - | (0.8) | (1.6) | (2.4) |
At 30 September 2024 | 1.1 | 12.0 | 2.8 | 15.9 |
Additions | 0.5 | 0.9 | 1.1 | 2.5 |
Disposals | (0.1) | (0.1) | (1.6) | (1.8) |
At 30 September 2025 | 1.5 | 12.8 | 2.3 | 16.6 |
| Accumulated depreciation | ||||
At 1 October 2023 | 0.1 | 5.3 | 1.4 | 6.8 |
Charge for the year | 0.3 | 3.1 | 0.7 | 4.1 |
On disposals | - | (0.8) | (0.9) | (1.7) |
At 30 September 2024 | 0.4 | 7.6 | 1.2 | 9.2 |
Charge for the year | 0.4 | 1.1 | 0.8 | 2.3 |
On disposals | (0.1) | (0.1) | (1.1) | (1.3) |
At 30 September 2025 | 0.7 | 8.6 | 0.9 | 10.2 |
| Net book value | ||||
At 30 September 2025 | 0.8 | 4.2 | 1.4 | 6.4 |
At 30 September 2024 | 0.7 | 4.4 | 1.6 | 6.7 |
At 30 September 2023 | 0.5 | 7.2 | 1.4 | 9.1 |
Note 2025 | 2024 | ||
£m | £m | ||
Operating expenses | 8 | 3.5 | 5.4 |
Leasing costs | 6 | 12.3 | 11.6 |
Total depreciation | 15.8 | 17.0 |
Page 270
| Land and | |
| buildings | |
| £m | |
| Cost | |
At 30 September 2023, 30 September 2024 and 30 September 2025 | 18.8 |
| Accumulated depreciation | |
At 30 September 2023 | 5.6 |
Charge for the year | 1.4 |
On disposals | - |
At 30 September 2024 | 7.0 |
Charge for the year | 1.4 |
On disposals | - |
At 30 September 2025 | 8.4 |
| Net book value | |
At 30 September 2025 | 10.4 |
At 30 September 2024 | 11.8 |
At 30 September 2023 | 13.2 |
| Goodwill | Computer | Other intangible | Total | |
| (note 29) | software | assets | ||
£m | £m | £m | £m | |
| Cost | ||||
At 30 September 2023 | 162.8 | 18.1 | 2.5 | 183.4 |
Additions | - | 4.5 | - | 4.5 |
At 30 September 2024 | 162.8 | 22.6 | 2.5 | 187.9 |
Additions | - | 2.6 | - | 2.6 |
At 30 September 2025 | 162.8 | 25.2 | 2.5 | 190.5 |
| Accumulated amortisation and impairment | ||||
At 30 September 2023 | - | 13.7 | 1.5 | 15.2 |
Amortisation charge for the year | - | 0.9 | 0.3 | 1.2 |
At 30 September 2024 | - | 14.6 | 1.8 | 16.4 |
Amortisation charge for the year | - | 1.8 | 0.2 | 2.0 |
At 30 September 2025 | - | 16.4 | 2.0 | 18.4 |
| Net book value | ||||
At 30 September 2025 | 162.8 | 8.8 | 0.5 | 172.1 |
At 30 September 2024 | 162.8 | 8.0 | 0.7 | 171.5 |
At 30 September 2023 | 162.8 | 4.4 | 1.0 | 168.2 |
Page 271
The Accounts
2025 | 2024 | |
£m | £m | |
| CGU | ||
SME lending | 113.0 | 113.0 |
Development finance | 49.8 | 49.8 |
162.8 | 162.8 |
Page 272
| Shares in group | Loans to group | Total | |
| companies | companies | ||
£m | £m | £m | |
At 30 September 2023 | 637.5 | 150.0 | 787.5 |
Loans repaid | - | - | - |
Provision movements | (0.7) | - | (0.7) |
At 30 September 2024 | 636.8 | 150.0 | 786.8 |
Loans repaid | - | - | - |
Provision movements | 2.4 | - | 2.4 |
At 30 September 2024 | 639.2 | 150.0 | 789.2 |
31. Retail deposits
The Group’s retail deposits, held by Paragon Bank PLC, were received from customers in the UK and are denominated in sterling.
The deposits comprise principally term deposits, and notice and easy access accounts. The method of interest calculation on these
deposits is analysed as follows:
2025 | 2024 | 2023 | |
£m | £m | £m | |
Fixed rate | 7,632.6 | 8,257.2 | 8,690.2 |
Variable rates | 8,633.1 | 8,040.8 | 4,575.1 |
16,265.7 | 16,298.0 | 13,265.3 |
The weighted average interest rate on retail deposits at 30 September 2025, analysed by charging method, was:
2025 | 2024 | 2023 | |
% | % | % | |
Fixed rate | 4.32 | 4.77 | 4.07 |
Variable rates | 3.61 | 4.19 | 3.74 |
All deposits | 3.95 | 4.49 | 3.95 |
Page 273
The Accounts
The contractual maturity of these deposits is analysed below.
2025 | 2024 | 2023 | |
£m | £m | £m | |
| Amounts repayable | |||
In less than three months | 1,371.1 | 1,621.4 | 1,589.4 |
In more than three months, but not more than one year | 5,152.0 | 4,847.1 | 5,193.7 |
In more than one year, but not more than two years | 983.5 | 1,502.6 | 1,643.0 |
In more than two years, but not more than five years | 516.9 | 615.0 | 631.8 |
Total term deposits | 8,023.5 | 8,586.1 | 9,057.9 |
Repayable on demand | 8,242.2 | 7,711.9 | 4,207.4 |
16,265.7 | 16,298.0 | 13,265.3 | |
Fair value adjustments for portfolio hedging (note 24) | 5.1 | 16.7 | (30.9) |
16,270.8 | 16,314.7 | 13,234.4 |
Page 274
2025 | 2024 | |
£m | £m | |
TFSME | 250.0 | 750.0 |
ILTR | 700.0 | 5.0 |
Total central bank facilities | 950.0 | 755.0 |
2025 | 2024 | |
£m | £m | |
TFSME at IAS 20 carrying value | 249.8 | 745.2 |
Deferred government assistance | 0.2 | 4.8 |
250.0 | 750.0 |
Page 275
The Accounts
Note 2025 | 2024 | 2023 | ||
£m | £m | £m | ||
| Amounts falling due within one year | ||||
Accrued interest | 160.6 | 191.7 | 156.7 | |
Trade creditors | 4.6 | 1.0 | 1.6 | |
CSA liabilities | 24 | 189.8 | 103.6 | 383.4 |
Purchase of own shares | 43 | - | 23.8 | - |
Other accruals | 39.6 | 41.6 | 35.6 | |
Sundry financial liabilities at amortised cost | 394.6 | 361.7 | 577.3 | |
Lease payables | 38 | 2.5 | 2.9 | 2.6 |
Deferred income | 3.8 | 4.8 | 5.9 | |
Other taxation and social security | 2.8 | 2.7 | 4.1 | |
403.7 | 372.1 | 589.9 | ||
| Amounts falling due after more than one year | ||||
Accrued interest | 18.5 | 35.0 | 31.5 | |
Other accruals | 0.3 | 1.4 | - | |
Sundry financial liabilities at amortised cost | 18.8 | 36.4 | 31.5 | |
Lease payables | 38 | 4.3 | 5.0 | 6.3 |
Deferred income | 4.8 | 3.9 | 3.5 | |
27.9 | 45.3 | 41.3 | ||
Total sundry financial liabilities at amortised cost | 413.4 | 398.1 | 608.8 | |
Total other sundry liabilities | 18.2 | 19.3 | 22.4 | |
Total sundry liabilities | 431.6 | 417.4 | 631.2 |
Note 2025 | 2024 | 2023 | ||
£m | £m | £m | ||
| Amounts falling due within one year | ||||
Amounts owed to Group companies | 24.5 | 23.6 | 24.0 | |
Accrued interest | 0.1 | 0.1 | 0.7 | |
Purchase of own shares | 43 | - | 23.8 | - |
Other financial liabilities | 0.6 | 1.5 | - | |
Sundry financial liabilities at amortised cost | 25.2 | 49.0 | 24.7 | |
Lease payables | 38 | 1.4 | 1.4 | 1.3 |
26.6 | 50.4 | 26.0 | ||
| Amounts falling due after more than one year | ||||
Lease payables | 38 | 9.6 | 11.0 | 12.4 |
Total sundry liabilities | 36.2 | 61.4 | 38.4 |
Page 276
38. Lease payables
The Group’s lease liabilities arise under the leasing arrangements described in note 50. Related right of use assets are shown in note 27.
The Group | The Company | |||
2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | |
| Leasing liabilities falling due: | ||||
In more than five years | 0.2 | - | 3.6 | 5.2 |
In more than two but less than five years | 2.4 | 2.9 | 4.6 | 4.4 |
In more than one year but less than two years | 1.7 | 2.1 | 1.4 | 1.4 |
In more than one year (note 37) | 4.3 | 5.0 | 9.6 | 11.0 |
In less than one year (note 37) | 2.5 | 2.9 | 1.4 | 1.4 |
6.8 | 7.9 | 11.0 | 12.4 |
Conduct | Total | |
£m | £m | |
At 30 September 2024 | - | - |
Provided in the period | 25.5 | 25.5 |
Utilised in the period | - | - |
At 30 September 2025 | 25.5 | 25.5 |
Page 277
The Accounts
Page 278
| Opening | Profit and loss | Charge / (credit) | Closing | ||
| balance | charge / (credit) | to equity | balance | ||
Current | Prior | ||||
£m | £m | £m | £m | £m | |
| Year ended 30 September 2025 | |||||
Accelerated tax depreciation | (2.8) | (0.6) | 1.7 | - | (1.7) |
Retirement benefit obligations | 5.5 | 0.7 | (0.1) | (0.2) | 5.9 |
Interest rate hedging | 19.6 | (2.9) | 2.2 | - | 18.9 |
Loans and other derivatives | 1.2 | (0.2) | - | - | 1.0 |
Share-based payments | (9.7) | 0.2 | - | (0.2) | (9.7) |
Tax losses | - | - | - | - | - |
Other timing differences | (0.4) | 0.1 | (0.2) | - | (0.5) |
Total | 13.4 | (2.7) | 3.6 | (0.4) | 13.9 |
| Year ended 30 September 2024 | |||||
Accelerated tax depreciation | (8.3) | (0.3) | 5.8 | - | (2.8) |
Retirement benefit obligations | 3.1 | 0.6 | - | 1.8 | 5.5 |
Interest rate hedging | 32.8 | (13.2) | - | - | 19.6 |
Loans and other derivatives | 1.4 | (0.1) | (0.1) | - | 1.2 |
Share-based payments | (7.5) | 0.8 | - | (3.0) | (9.7) |
Tax losses | (3.0) | 2.9 | 0.1 | - | - |
Other timing differences | (0.8) | 0.2 | 0.2 | - | (0.4) |
Total | 17.7 | (9.1) | 6.0 | (1.2) | 13.4 |
Page 279
The Accounts
| Opening | Profit and loss | Charge / (credit) | Closing | ||
| balance | charge / (credit) | to equity | balance | ||
Current | Prior | ||||
£m | £m | £m | £m | £m | |
| Year ended 30 September 2025 | |||||
Accelerated tax depreciation | 0.1 | - | - | - | 0.1 |
Tax losses carried forward | - | - | - | - | - |
Other timing differences | - | - | - | - | - |
Total | 0.1 | - | - | - | 0.1 |
| Year ended 30 September 2024 | |||||
Accelerated tax depreciation | 0.1 | - | - | - | 0.1 |
Tax losses carried forward | (1.7) | 1.7 | - | - | - |
Other timing differences | - | - | - | - | - |
Total | (1.6) | 1.7 | - | - | 0.1 |
2025 | 2024 | |
Number | Number | |
| Ordinary shares | ||
At 1 October 2024 | 210,604,960 | 228,700,413 |
Shares issued | - | - |
Shares cancelled | (13,200,000) | (18,095,453) |
At 30 September 2025 | 197,404,960 | 210,604,960 |
2025 | 2024 | 2023 | |
£m | £m | £m | |
Share premium account | 71.4 | 71.4 | 71.4 |
Capital redemption reserve | 44.2 | 31.0 | 12.9 |
Merger reserve | (70.2) | (70.2) | (70.2) |
Profit and loss account | 1,231.2 | 1,242.1 | 1,243.4 |
1,276.6 | 1,274.3 | 1,257.5 |
Page 280
2025 | 2024 | 2023 | |
£m | £m | £m | |
Share premium account | 71.4 | 71.4 | 71.4 |
Capital redemption reserve | 44.2 | 31.0 | 12.9 |
Merger reserve | (23.7) | (23.7) | (23.7) |
Profit and loss account | 479.5 | 510.5 | 543.4 |
571.4 | 589.2 | 604.0 |
43. Own shares
| The Group and the Company | ||||||
| Treasury | ESOP | Irrevocable authority | Total | |||
| shares | shares | to purchase | ||||
£m | £m | £m | £m | |||
At 1 October 2023 | 54.0 | 21.6 | - | 75.6 | ||
Shares purchased | 76.6 | 12.9 | - | 89.5 | ||
Options exercised | (4.3) | (9.2) | - | (13.5) | ||
Shares cancelled | (110.0) | - | (110.0) | |||
| Irrevocable authority | ||||||
Given in year | - | 23.8 | - | 23.8 | ||
Exercised / expired in year | - | - | - | - | ||
At 30 September 2024 | 16.3 | 25.3 | 23.8 | 65.4 | ||
Shares purchased | 124.7 | 7.7 | - | 132.4 | ||
Options exercised | (6.2) | (9.8) | - | (16.0) | ||
Shares cancelled | (104.2) | - | - | (104.2) | ||
| Irrevocable authority | ||||||
Given in year | - | - | - | - | ||
Exercised / expired in year | - | - | (23.8) | (23.8) | ||
At 30 September 2025 | 30.6 | 23.2 | - | 53.8 |
At 30 September 2025 the number of the Company’s own shares held in treasury was 3,418,725 (2024: 2,124,162). These shares had a
nominal value of £3,418,725 (2024: £2,124,162). These shares do not qualify for dividends.
The ESOP shares are held in trust for the benefit of employees exercising their options under the Company’s share option schemes
and awards under the Paragon PSP and Deferred Share Bonus Plan. The trustees’ costs are included in the operating expenses of
the Group.
At 30 September 2025, the trust held 3,432,947 ordinary shares (2024: 4,182,232) with a nominal value of £3,432,947 (2024: £4,182,232)
and a market value of £29,780,815 (2024: £32,516,854). Options, or other share-based awards, were outstanding against all these
shares at 30 September 2025 (2024: all). The dividends on all these shares have been waived (2024: all).
Page 281
The Accounts
44. Equity dividend
Amounts recognised as distributions to equity shareholders in the Group and the Company in the period:
2025 | 2024 | 2025 | 2024 | |
Per share | Per share | £m | £m | |
| Equity dividends on ordinary shares | ||||
Final dividend for the previous year | 54.5 | 56.1 | ||
Interim dividend for the current year | 26.5 | 27.4 | ||
81.0 | 83.5 |
Amounts paid and proposed in respect of the year:
2025 | 2024 | 2025 | 2024 | |
Per share | Per share | £m | £m | |
Interim dividend for the current year | 13.6p | 13.2p | 26.5 | 27.4 |
Proposed final dividend for the current year | ||||
43.9p | 40.4p | 84.2 | 83.0 |
The proposed final dividend for the year ended 30 September 2025 will be paid on 6 March 2026, subject to approval at the AGM, with
a record date of 6 February 2026. The dividend will be recognised in the accounts when it is paid.
Page 282
45. Net cash flow from operating activities
(a) The Group
2025 | 2024 | |
£m | £m | |
Profit before tax | 256.5 | 253.8 |
| Non-cash items included in profit and other adjustments: | ||
Depreciation of operating property, plant and equipment | 3.5 | 5.4 |
(Profit) on disposal of operating property, plant and equipment | (0.3) | (0.1) |
Amortisation of intangible assets | 2.0 | 1.2 |
Non-cash movements on investment securities | 34.4 | (7.8) |
Non-cash movements on borrowings | 0.6 | 4.5 |
Impairment losses on loans to customers | 41.9 | 24.5 |
Charge for share-based remuneration | 8.1 | 9.2 |
| Net (increase) / decrease in operating assets: | ||
Assets held for leasing | (6.2) | 0.7 |
Loans to customers | (677.7) | (855.7) |
Derivative financial instruments | 116.4 | 223.6 |
Fair value of portfolio hedges | (69.8) | (304.1) |
Other receivables | (6.2) | 28.0 |
| Net increase / (decrease) in operating liabilities: | ||
Retail deposits | (32.3) | 3,032.7 |
Derivative financial instruments | (31.5) | 59.8 |
Fair value of portfolio hedges | (11.6) | 47.6 |
Provision for liabilities | 25.5 | - |
Other liabilities | 39.0 | (236.6) |
Cash generated by operations | (307.7) | 2,286.7 |
Income taxes (paid) | (69.7) | (70.3) |
(377.4) | 2,216.4 |
Cash flows relating to plant and equipment held for leasing under operating leases are classified as operating cash flows.
Page 283
The Accounts
(b) The Company
2025 | 2024 | |
£m | £m | |
Profit before tax | 161.8 | 165.7 |
| Non-cash items included in profit and other adjustments: | ||
Depreciation on property, plant and equipment | 1.4 | 1.4 |
Non-cash movements on borrowings | 0.2 | 0.3 |
Impairment provision on investments in subsidiaries | (2.4) | 0.7 |
Charge for share-based remuneration | 8.1 | 9.2 |
| Net decrease / (increase) in operating assets: | ||
Other receivables | 44.1 | 100.1 |
| Net increase / (decrease) in operating liabilities: | ||
Other liabilities | 0.1 | 0.5 |
Cash generated by operations | 213.3 | 277.9 |
Income taxes (paid) | - | (1.6) |
213.3 | 276.3 |
46. Net cash flow from investing activities
The Group | The Company | |||
2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | |
Investment in securities | (233.2) | (419.6) | - | - |
Proceeds from sales of operating property, plant and equipment | 0.2 | 0.3 | - | - |
Purchases of operating property, plant and equipment | (1.3) | (0.9) | - | - |
Purchases of intangible assets | (2.6) | (4.5) | - | - |
Net cash (utilised) by investing activities | (236.9) | (424.7) | - | - |
Page 284
47. Net cash flow from financing activities
The Group | The Company | |||
2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | |
Dividends paid (note 44) | (81.0) | (83.5) | (81.0) | (83.5) |
Repayment of asset backed floating rate notes | - | (28.3) | - | - |
Issue of covered bonds | 498.8 | - | - | - |
Repayment of retail bond | - | (112.5) | - | (112.5) |
Repayment of long-term central bank facilities | (500.0) | (2,000.0) | - | - |
Movement on short-term central bank facilities | 695.0 | 5.0 | - | - |
Movement on sale and repurchase agreements | - | 50.0 | - | - |
Capital element of lease payments | (2.9) | (2.7) | (1.4) | (1.3) |
Purchase of own shares (note 43) | (132.4) | (89.5) | (132.4) | (89.5) |
Exercise of share awards | 0.8 | 0.7 | 0.8 | 0.7 |
Net cash generated / (utilised) by financing activities | 478.3 | (2,260.8) | (214.0) | (286.1) |
Page 285
The Accounts
| Cash flows | |||||
| Opening | Debt | Other | Non-cash | Closing | |
| debt | issued | movements | debt | ||
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Asset backed loan notes | - | - | - | - | - |
Corporate bonds | 149.9 | - | - | 0.2 | 150.1 |
Covered bonds | - | 498.8 | - | 0.4 | 499.2 |
Retail bonds | - | - | - | - | - |
Long-term central bank borrowings | 750.0 | - | (500.0) | - | 250.0 |
Short-term central bank borrowings | 5.0 | - | 695.0 | - | 700.0 |
Sale and repurchase agreements | 100.0 | - | - | - | 100.0 |
Lease liabilities | 7.9 | - | (2.9) | 1.8 | 6.8 |
Short-term bank borrowings | 0.4 | - | 0.1 | - | 0.5 |
Gross debt | 1,013.2 | 498.8 | 192.2 | 2.4 | 1,706.6 |
Cash | (2,525.4) | (498.8) | 634.7 | - | (2,389.5) |
Net (funds) | (1,512.2) | - | 826.9 | 2.4 | (682.9) |
| 30 September 2024 | |||||
Asset backed loan notes | 28.0 | - | (28.3) | 0.3 | - |
Corporate bonds | 145.8 | - | - | 4.1 | 149.9 |
Covered bonds | - | - | - | - | - |
Retail bonds | 112.4 | - | (112.5) | 0.1 | - |
Long-term central bank borrowings | 2,750.0 | - | (2,000.0) | - | 750.0 |
Short-term central bank borrowings | - | - | 5.0 | - | 5.0 |
Sale and repurchase agreements | 50.0 | - | 50.0 | - | 100.0 |
Lease liabilities | 8.9 | - | (2.7) | 1.7 | 7.9 |
Short-term bank borrowings | 0.2 | - | 0.2 | - | 0.4 |
Gross debt | 3,095.3 | - | (2,088.3) | 6.2 | 1,013.2 |
Cash | (2,994.3) | - | 468.9 | - | (2,525.4) |
Net debt / (funds) | 101.0 | - | (1,619.4) | 6.2 | (1,512.2) |
Page 286
| Cash flows | |||||
| Opening | Debt | Other | Non-cash | Closing | |
| debt | issued | movements | debt | ||
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Corporate bonds | 149.6 | - | - | 0.2 | 149.8 |
Retail bonds | - | - | - | - | - |
Lease liabilities | 12.4 | - | (1.4) | - | 11.0 |
Gross debt | 162.0 | - | (1.4) | 0.2 | 160.8 |
Cash | (18.3) | - | 0.7 | - | (17.6) |
Net debt | 143.7 | - | (0.7) | 0.2 | 143.2 |
| 30 September 2024 | |||||
Corporate bonds | 149.4 | - | - | 0.2 | 149.6 |
Retail bonds | 112.4 | - | (112.5) | 0.1 | - |
Lease liabilities | 13.7 | - | (1.3) | - | 12.4 |
Gross debt | 275.5 | - | (113.8) | 0.3 | 162.0 |
Cash | (27.6) | - | 9.3 | - | (18.3) |
Net debt | 247.9 | - | (104.5) | 0.3 | 143.7 |
49. Unconsolidated structured entities
Following the Group’s disposal of its residual interest in the Paragon Mortgages (No. 12) PLC securitisation in June 2019, it ceased to
consolidate the assets and liabilities of the entity. The external securitisation borrowings remain in place with their terms unchanged
and the Group continues to act as administrator, for which it charges a fee. It has no other exposure to the profitability of the deal,
no exposure to credit risk, other than on the recoverability of its quarterly fee, and no obligation to make any further contribution to
the entity.
Fee income from servicing arrangements of £0.9m is included in other income (note 7) (2024: £0.4m) and £0.0m is included in other
debtors in respect of unpaid fees at the year end (2024: £0.1m). Outstanding collection monies due to the structured entity of £0.2m
are included in other creditors at 30 September 2025 (2024: £1.1m).
Page 287
The Accounts
Disclosure | Note |
Investment in finance leases | 17 |
Finance income on net investment in finance leases | 4 |
Assets leased under operating leases | 27 |
Operating lease income | 6 |
2025 | 2024 | |
£m | £m | |
| Amounts falling due: | ||
Within one year | 18.6 | 10.2 |
Within one to two years | 11.6 | 9.0 |
Within two to three years | 7.7 | 6.3 |
Within three to four years | 2.1 | 4.5 |
Within four to five years | 1.7 | 2.9 |
After more than five years | 1.6 | 2.6 |
43.3 | 35.5 |
Disclosure | Note |
Depreciation on right of use assets | 27 |
Interest expense on lease liabilities | 5 |
Expense relating to short-term leases | 8 |
Additions to right of use assets | 27 |
Carrying amount of right of use assets | 27 |
Maturity analysis of lease liabilities | 60 |
Page 288
52. Country-by-country reporting
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 came into effect on 1 January 2014 and place certain
reporting obligations on financial institutions as defined by EU Regulation No. 575/2013 (the capital requirements regulation). The
objective of the country-by-country reporting requirements is to provide increased transparency regarding the source of the financial
institution’s income and the locations of its operations.
Paragon Banking Group PLC is a UK registered entity. Details of its subsidiaries are given in note 68 and the activities of the Group are
described in Section A2.
The activities of the Group, described as required by the Regulations for the year ended 30 September 2025 were:
| United Kingdom | |
| £m | |
| Year ended 30 September 2025 | |
Total operating income | 515.1 |
Profit before tax | 256.5 |
Corporation tax paid | 69.7 |
Public subsidies received | - |
Average number of full time equivalent employees | 1,326 |
| United Kingdom | |
| £m | |
| Year ended 30 September 2024 | |
Total operating income | 496.4 |
Profit before tax | 253.8 |
Corporation tax paid | 70.3 |
Public subsidies received | - |
Average number of full time equivalent employees | 1,356 |
The Group’s participation in Bank of England funding schemes is set out in note 35.
Page 289
The Accounts
D2.2 Notes to the Accounts – Employment costs
For the year ended 30 September 2025
The notes set out below give information on the Group’s employment costs, including the disclosures on share-based
payments and pension schemes required by accounting standards.
2025 | 2025 | 2024 | 2024 | |
£m | £m | £m | £m | |
Share-based remuneration | 8.1 | 9.2 | ||
Other wages and salaries | 87.3 | 86.5 | ||
Total wages and salaries | 95.4 | 95.7 | ||
National Insurance on share-based remuneration | 2.2 | 3.4 | ||
Other social security costs | 11.6 | 10.5 | ||
Total social security costs | 13.8 | 13.9 | ||
Defined benefit pension cost | 0.3 | 0.4 | ||
Other pension costs | 5.0 | 4.8 | ||
Total pension costs | 5.3 | 5.2 | ||
Total employment costs | 114.5 | 114.8 | ||
Of which Included in operating expenses (note 8) | 110.2 | 111.1 | ||
Included in maintenance costs (note 6) | 4.3 | 3.7 | ||
114.5 | 114.8 |
Page 290
54. Key management remuneration
Key management
The key management personnel of the Group and the Company, as defined by IAS 24 – ‘Related Party Transactions’, are considered
by the Group to be the members of its Executive Committees and the members of the Board of Directors of the Company. The details
of key management remuneration required by IAS 24 are set out below. For persons joining or leaving the executive committees in the
year, all remuneration for the twelve months is shown.
2025 | 2025 | 2024 | 2024 | |
£m | £m | £m | £m | |
Salaries and fees | 6.0 | 5.9 | ||
Cash amount of bonuses | 3.9 | 3.6 | ||
Social security costs | 2.2 | 1.3 | ||
Short-term employee benefits | 12.1 | 10.8 | ||
Post-employment benefits | 0.6 | 0.5 | ||
IFRS 2 cost in respect of key management | 4.1 | 4.6 | ||
National Insurance thereon | 1.1 | 0.7 | ||
Share-based payments | 5.2 | 5.3 | ||
17.9 | 16.6 |
Post-employment benefits shown above include pension allowances, contributions to defined contribution pension schemes or costs
of accrual under the Group’s defined benefit pension plan.
Social security costs paid in respect of key management are required to be included in this note by IAS 24, but do not fall within the
scope of the disclosures in the Annual Report on Remuneration.
Costs in respect of share awards shown in the Annual Report on Remuneration are determined on a different basis to the IFRS 2
charge shown above.
Directors
The information in respect of the remuneration of the directors of the Company required to be disclosed in the notes to the
Company’s accounts by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008, as applicable to quoted companies, is set out below.
2025 | 2024 | |
£m | £m | |
Aggregate amount of remuneration | 4.0 | 4.0 |
Pension allowances | 0.1 | 0.1 |
Gains on exercise of share options | 4.5 | 2.3 |
In the table above, remuneration includes the cash amount of bonuses and the value of benefits in kind. It excludes any amounts
receivable under share-based payment arrangements. Where a monetary amount of salary is paid in shares based on the market price
at the payment date, this is included.
No director accrued benefits under either a defined benefit or defined contribution pension scheme in the year, nor did any director
receive benefits under long-term incentive schemes, other than in the form of share awards.
Further information about the remuneration of individual directors is provided in the Annual Report on Remuneration in Section B7.3.2.
Page 291
The Accounts
55. Share-based remuneration
During the year, the Group had various share-based payment arrangements with employees. They are accounted for by the Group and
the Company as shown below. All of these awards are classified as equity-settled awards, as defined by IFRS 2 – ‘Share-based Payment.’
The effect of the share-based payment arrangements on the Group’s profit is shown in note 53.
Further details of share-based payment arrangements are given in the Annual Report on Remuneration in Section B7.3.2.
A summary of the number of share awards outstanding under each scheme at 30 September 2025 and at 30 September 2024 is set
out below.
Number | Number | |
2025 | 2024 | |
(a) Sharesave Plan | 2,131,919 | 2,578,757 |
(b) Performance Share Plan | 5,548,784 | 5,939,690 |
(c) Company Share Option Plan | 19,251 | 32,940 |
(d) Deferred Bonus Plan | 171,057 | 493,208 |
(e) Restricted Stock Units | 338,322 | 382,483 |
8,209,333 | 9,427,078 |
Following the year end, the Remuneration Committee agreed the amounts of variable remuneration in respect of the year to be
satisfied in the form of share-based awards. These awards will be granted, following the approval of these accounts, based on the
amounts approved and market pricing data at the date of grant.
(a) Sharesave plan
The Group operates an All Employee Share Option (‘Sharesave’) plan. Grants under this scheme vest, in the normal course, after the
completion of the appropriate service period and subject to a savings requirement.
A reconciliation of movements in the number and weighted average exercise price of Sharesave options over £1 ordinary shares
during the year ended 30 September 2025 and the year ended 30 September 2024 is shown below.
2025 | 2025 | 2024 | 2024 | |
Number | Weighted average | Number | Weighted average | |
| exercise price | exercise price | |||
p | p | |||
| Options outstanding | ||||
At 1 October 2024 | 2,578,757 | 408.97 | 3,077,077 | 365.76 |
Granted in the year | 410,464 | 754.80 | 370,565 | 603.20 |
Exercised or surrendered in the year | (684,477) | 351.49 | (653,069) | 320.99 |
Lapsed during the year | (172,825) | 459.29 | (215,816) | 392.62 |
At 30 September 2025 | 2,131,919 | 489.90 | 2,578,757 | 408.97 |
Options exercisable | 241,002 | 329.04 | 69,931 | 409.80 |
The weighted average remaining contractual life of options outstanding at 30 September 2025 was 26.0 months (2024: 29.1 months).
The weighted average market price at exercise for share options exercised in the year was 851.83p (2024: 663.87p).
Page 292
Options are outstanding under the Sharesave plans to purchase ordinary shares as follows:
Grant date | Period exercisable | Exercise price | Number | Number |
2025 | 2024 | |||
30/07/2019 | 01/09/2024 to 01/03/2025 | 360.16p | - | 832 |
29/07/2020 | 01/09/2023 to 01/03/2024 | 278.56p | - | 6,461 |
29/07/2020 | 01/09/2025 to 01/03/2026 | 278.56p | 132,991 | 400,804 |
28/07/2021 | 01/09/2024 to 01/03/2025 | 424.00p | - | 62,638 |
28/07/2021 | 01/09/2026 to 01/03/2027 | 424.00p | 48,318 | 48,671 |
27/07/2022 | 01/09/2025 to 01/03/2026 | 391.20p | 108,011 | 485,510 |
27/07/2022 | 01/09/2027 to 01/03/2028 | 391.20p | 81,580 | 93,388 |
15/09/2023 | 01/10/2026 to 01/04/2027 | 400.40p | 875,404 | 925,076 |
15/09/2023 | 01/10/2028 to 01/04/2029 | 400.40p | 163,034 | 188,287 |
31/07/2024 | 01/09/2027 to 01/03/2028 | 603.20p | 277,856 | 306,609 |
31/07/2024 | 01/09/2029 to 01/03/2030 | 603.20p | 41,521 | 60,481 |
31/07/2025 | 01/09/2028 to 01/03/2029 | 754.80p | 333,955 | - |
31/07/2025 | 01/09/2030 to 01/03/2031 | 754.80p | 69,249 | - |
2,131,919 | 2,578,757 |
An option holder has the legal right to a payment holiday of up to twelve months without forfeiting their rights. In such cases the exercise
period would be deferred for an equivalent period of time and therefore options might be exercised later than the date shown above.
In the event of the death or redundancy of the employee, the exercise period may start or end later than stated above (options
may be exercised up to twelve months after the holder’s decease). Awards lapse on cessation of employment, other than in ’good
leaver’ circumstances.
The fair value of options granted is determined using a trinomial model. Details of the awards made in the year ended 30 September 2025
and the year ended 30 September 2024, are shown below.
Grant date | 31/07/25 | 31/07/25 | 31/07/24 | 31/07/24 |
Number of awards granted | 340,395 | 70,069 | 309,037 | 61,528 |
Market price at date of grant | 905.5p | 905.5p | 804.0p | 804.0p |
Contractual life (years) | 3.5 | 5.5 | 3.5 | 5.5 |
Fair value per share at date of grant (£) | 1.89 | 1.89 | 1.88 | 1.95 |
| Inputs to valuation model | ||||
Expected volatility | 29.47% | 30.88% | 29.02% | 35.97% |
Expected life at grant date (years) | 3.44 | 5.43 | 3.43 | 5.41 |
Risk-free interest rate | 3.82% | 4.03% | 3.78% | 3.71% |
Expected annual dividend yield | 4.51% | 4.51% | 4.93% | 4.93% |
Expected annual departures | 5.00% | 5.00% | 5.00% | 5.00% |
The expected volatility of the share price used in determining the fair value for the three-year schemes is based on the annualised
standard deviation of daily changes in price over the three years preceding the grant date. The five-year schemes use share price data
for the preceding five years.
Page 293
The Accounts
(b) Paragon Performance Share Plan (‘PSP’)
PSP awards are made annually to executive directors and other senior employees as part of their variable remuneration. The grantees,
and the values of their grants, are approved by the Remuneration Committee.
These awards are the principal means of delivering deferred variable remuneration to executive directors and Material Risk Takers
(‘MRT’s) in accordance with regulatory remuneration requirements, although these are not the only employees to receive such awards.
Awards under this plan comprise a right to acquire ordinary shares in the Company for nil or nominal payment and are subject to
performance criteria measured over a three-year period beginning with the financial year including the date of grant (the ‘test period’).
Awards vest on the date on which the Remuneration Committee determines the extent to which the performance conditions have
been satisfied. For employees, other than the executive directors and those other employees identified as MRTs for regulatory
purposes, awards may be exercised from the vesting date to the day before the tenth anniversary of the grant date.
Executive directors’ awards made in 2020 and 2021 are exercisable from the time of the Group’s fifth results announcement after the
date of the grant to the day before the tenth anniversary of the grant date.
Vested awards made to the executive directors and other MRTs in December 2022, December 2023 and December 2024 become
exercisable in annual instalments between the end of the test period and the seventh anniversary of the grant date. The maximum
deferral period is based on the regulatory classification of the individual MRT. The latest possible exercise date is the day before the
tenth anniversary of the grant date.
Where performance conditions are not met in full, awards lapse at the point at which the determination is made. Awards will also lapse
on cessation of employment during the test period, other than in ‘good leaver’ circumstances. Malus and clawback provisions apply to
awards granted under the PSP as detailed in the Directors’ Remuneration Policy.
The conditional entitlements outstanding under this scheme at 30 September 2025 and 30 September 2024 were:
Grant date | Period exercisable | Number | Number |
2025 | 2024 | ||
18/12/2014 | 18/12/2017 to 17/12/2024 † | - | 1,465 |
22/12/2015 | 22/12/2018 to 21/12/2025 † | - | 1,899 |
01/12/2016 | 01/12/2019 to 30/11/2026 † | 21,853 | 26,406 |
08/12/2017 | 03/12/2020 to 07/12/2027 † | 12,995 | 15,664 |
14/12/2018 | 14/12/2021 to 13/12/2028 † | 23,074 | 33,883 |
06/07/2020 | 06/12/2022 to 05/07/2030 † | 36,276 | 47,784 |
06/07/2020 | 03/12/2024 to 05/07/2030 † | - | 474,210 |
11/12/2020 | 06/12/2023 to 10/12/2030 † | 43,725 | 85,512 |
11/12/2020 | 03/12/2025* to 10/12/2030 † | 371,859 | 371,859 |
15/12/2021 | 15/12/2024 to 14/12/2031 λ | 63,888 | 1,030,106 |
15/12/2021 | 15/12/2026 to 14/12/2031 λ | 339,936 | 339,936 |
16/12/2022 | 16/12/2025 to 15/12/2032 ¥ | 915,111 | 927,038 |
16/12/2022 | 16/12/2026 to 15/12/2032 ¥ | 246,641 | 259,233 |
16/12/2022 | 16/12/2027 to 15/12/2032 ¥ | 255,388 | 268,683 |
16/12/2022 | 16/12/2028 to 15/12/2032 ¥ | 134,193 | 148,229 |
16/12/2022 | 16/12/2029 to 15/12/2032 ¥ | 141,691 | 156,513 |
15/12/2023 | 15/12/2026 to 14/12/2033 φ | 886,224 | 897,767 |
15/12/2023 | 15/12/2027 to 14/12/2033 φ | 259,513 | 271,818 |
15/12/2023 | 15/12/2028 to 14/12/2033 φ | 264,244 | 277,361 |
15/12/2023 | 15/12/2029 to 14/12/2033 φ | 133,310 | 147,294 |
15/12/2023 | 15/12/2030 to 14/12/2033 φ | 142,121 | 157,030 |
13/12/2024 | 13/12/2027 to 12/12/2034 δ | 679,417 | - |
13/12/2024 | 13/12/2028 to 12/12/2034 δ | 193,290 | - |
13/12/2024 | 13/12/2029 to 12/12/2034 δ | 197,942 | - |
13/12/2024 | 13/12/2030 to 12/12/2034 δ | 90,729 | - |
13/12/2024 | 13/12/2031 to 12/12/2034 δ | 95,364 | - |
5,548,784 | 5,939,690 |
* Estimated date
† These awards, which were conditional on the achievement of performance-based criteria, vested before the start of the financial
year. Any reduction in entitlements resulting from the application of those criteria is reflected in the numbers above.
Page 294
λ These awards were subject to performance criteria, assessed over a period of three financial years, starting with the year of grant.
• 25% to a Total Shareholder Return (‘TSR’) test based on a ranking of the Company’s TSR against those of a comparator
group of UK listed financial services companies, determined at the date of grant. This tranche vests in full for upper quartile
performance, 25% vests for median performance and vesting between those points is determined on a straight-line basis
• 25% to an EPS test. This tranche vests in full if basic EPS for the third year of the test period is at least 72.0p, 25% vesting if EPS
in this year is 63.0p and vesting between those points on a straight-line basis
• 25% to a risk test. The risk condition comprises two components. 50% of the risk element is based on an assessment by the
CRO of the six key measures of the Group’s risk appetite: regulatory breaches; conduct; operational risk incidents; capital and
liquidity; and credit losses. The remaining 50% is based on a strategic risk assessment reflecting the management of risk as
it impacts on the delivery of the Group’s medium term strategy. Following the Remuneration Committee’s assessment, the
tranche will vest between 0% and 100%
• 12.5% of the grant is determined based on a customer service condition. This condition is based on the performance of the
Group against its most significant customer service metrics including insight feedback on key product lines and complaint
levels. The Remuneration Committee will determine the extent to which the condition has been met between 0% and 100%.
50% of this tranche will vest for on-target performance, below a 25% threshold no vesting will occur
• 12.5% of the grant is determined based on a people test. The people test is based on the performance of the Group against
its most significant employment metrics including employee engagement, voluntary attrition and gender diversity levels. The
Remuneration Committee will determine the extent to which the condition has been met between 0% and 100%. 50% of this
tranche will vest for on-target performance, below a 25% threshold no vesting will occur
An ‘underpin’ condition also operates, such that the Remuneration Committee has to be satisfied with the Group’s underlying
financial performance over the performance period. An individual performance condition relating to the grantee’s performance in
the final financial year of the test period also applies.
¥ These awards are subject to performance criteria, similar to those described at λ above except that:
• Under the EPS condition full vesting occurs if EPS for the third year of the test period is at least 88.1p, 25% vesting if EPS in this
year is 74.4p and vesting between those points on a straight-line basis
• The risk condition relates to 20% of the grant, the customer service condition applies to 10% of the grant and the people
condition relates to 10% of the grant
• The 25% and 50% vesting thresholds no longer apply to the customer service and people conditions
• 10% of the grant relates to a climate condition. The climate condition is based on the performance of the Group against its most
significant climate-related targets, including the development of systems to quantify and manage its climate-related impacts
φ These awards are subject to performance criteria, similar to those describe at ¥ above, except that:
• Under the EPS condition, full vesting occurs if EPS for the third year of the test period is at least 100.0p, 25% vesting if EPS in
that year is 80.0p and vesting between those points is on a straight-line basis
• The diversity element of the people condition is based on wider diversity of senior management rather than simply gender
diversity
• The climate condition is based on: operational footprint emission reduction; financed emissions decarbonisation assessments;
sustainable products; and education and engagement
δ These awards are subject to performance criteria, similar to those described at φ above, except that:
• Under the EPS condition, full vesting occurs if EPS for the third year of the test period is at least 125.0p, 25% vesting if EPS in
that year is 104.0p and vesting between those points is on a straight-line basis
On exercise, holders of awards granted between December 2014 and December 2021 receive a payment equivalent to the dividends
accruing on the vested shares during the vesting period. No such payment is made in respect of awards granted at other dates.
The fair value of awards granted under the PSP is determined using a Monte Carlo simulation model, to take account of the effect of
the market based condition. Fair values are calculated separately for grant elements which became exercisable at different dates to
allow for the impact of dividends. The principal inputs to this model for grants made in the year ended 30 September 2025 and the
year ended 30 September 2024 are shown below:
Grant date | 13/12/24 | 15/12/23 |
Market price at date of grant | 777.5p | 627.5p |
Contractual life (years) | 10.0 | 10.0 |
Expected volatility | 29.59% | 30.01% |
Risk-free interest rate | 4.02% | 3.85% |
Expected annual dividend yield | 5.20% | 5.96% |
For all the above grants no departures are expected, and grantees are expected to exercise awards at the earliest opportunity. The
expected volatility is based on the annualised standard deviation of daily changes in price over the three years preceding the grant date.
For the purposes of the valuation, non-market conditions are assumed to be achieved 100% although this is unlikely to occur in practice.
Page 295
The Accounts
| The number of awards granted and their fair values for IFRS 2 purposes are set out below. | ||||
Grant date | 13/12/24 | 15/12/23 | ||
| Time to exercise | Number of awards | IFRS 2 fair value | Number of awards | IFRS 2 fair value |
| (Years) | ||||
3 | 679,417 | 607.64p | 897,767 | 403.29p |
4 | 193,290 | 578.88p | 271,818 | 388.63p |
5 | 197,942 | 551.94p | 277,361 | 372.89p |
6 | 90,729 | 525.96p | 147,294 | 356.71p |
7 | 95,364 | 500.98p | 157,030 | 340.46p |
1,256,742 | 1,751,270 |
(c) Company Share Option Plan (‘CSOP’)
Before its amendment at the 2023 AGM, the PSP included a tax advantaged element under which CSOP options could be granted.
The CSOPs may be exercised alongside their accompanying PSPs based upon the exercise price that was set at the grant date. No
new CSOP awards were made in the years ended 30 September 2025 or 30 September 2024, and the current PSP rules contain no
provision to make CSOP grants.
A reconciliation of movements in the number and weighted average exercise price of CSOP options over £1 ordinary shares during the
year ended 30 September 2025 and the year ended 30 September 2024 is shown below.
2025 | 2025 | 2024 | 2024 | |
Number | Weighted average | Number | Weighted average | |
| exercise price | exercise price | |||
p | p | |||
| Options outstanding | ||||
At 1 October 2024 | 32,940 | 390.17 | 56,591 | 402.29 |
Exercised or surrendered in the year | (13,689) | 398.43 | (23,651) | 419.16 |
Lapsed during the year | - | - | - | - |
At 30 September 2025 | 19,251 | 384.30 | 32,940 | 390.17 |
Options exercisable | 19,251 | 384.30 | 32,940 | 390.17 |
The weighted average remaining contractual life of options outstanding at 30 September 2025 was 20.4 months (2024: 36.5 months).
The weighted average market price at exercise for share options exercised in the year was 810.95p (2024: 699.67p).
The entitlements outstanding under this scheme at 30 September 2025 and 30 September 2024 were:
Grant date | Period exercisable | Exercise price | Number | Number |
2025 | 2024 | |||
01/12/2016 | 01/12/2019 to 30/11/2026 | 361.88p | 12,839 | 16,317 |
08/12/2017 | 08/12/2020 to 07/12/2027 | 477.76p | 2,601 | 4,455 |
| 14/12/2018 | 14/12/2021 to 13/12/2028 | 396.04p | 3,811 | 12,168 |
19,251 | 32,940 |
These awards, which were conditional on the achievement of performance-based criteria, vested before the start of the financial year.
Any reduction in entitlements resulting from the application of those criteria is reflected in the numbers above.
Page 296
(d) Deferred Bonus awards
During the current financial year this plan has been used to defer annual bonus awards for executive directors and certain other MRTs
to meet deferral levels required by regulatory remuneration rules. The plan has also been used, from time to time, to facilitate other
long-term incentive arrangements.
Before the financial year ended 30 September 2023 such plans were generally used for the deferral in shares of annual bonus awards
made to executive directors and certain other senior managers.
Awards under these plans comprise a right to acquire ordinary shares in the Company for nil or nominal payment. The conditional
entitlements outstanding under these plans at 30 September 2025 and 30 September 2024 were:
Grant date | Period exercisable | Number | Number |
2025 | 2024 | ||
11/12/2020 | 11/12/2023 to 10/12/2030 | 2,160 | 4,223 |
15/12/2021 | 15/12/2024 to 10/12/2031 | - | 244,953 |
16/12/2022 | 16/12/2024 to 15/12/2032 | 5,320 | 104,089 |
16/12/2022 | 16/12/2025 to 15/12/2032 | 12,357 | 14,742 |
16/12/2022 | 16/12/2026 to 15/12/2032 | 13,047 | 15,565 |
16/12/2022 | 16/12/2027 to 15/12/2032 | 13,359 | 16,018 |
16/12/2022 | 16/12/2028 to 15/12/2032 | 7,968 | 10,775 |
16/12/2022 | 16/12/2029 to 15/12/2032 | 8,419 | 11,384 |
15/12/2023 | 15/12/2024 to 14/12/2033 | - | 2,712 |
15/12/2023 | 15/12/2025 to 14/12/2033 | 5,821 | 5,821 |
15/12/2023 | 15/12/2026 to 14/12/2033 | 16,425 | 16,425 |
15/12/2023 | 15/12/2027 to 14/12/2033 | 17,449 | 17,449 |
15/12/2023 | 15/12/2028 to 14/12/2033 | 11,139 | 11,139 |
15/12/2023 | 15/12/2029 to 14/12/2033 | 8,667 | 8,667 |
15/12/2023 | 15/12/2030 to 14/12/2033 | 9,246 | 9,246 |
13/12/2024 | 13/12/2025 to 12/12/2034 | 2,048 | - |
13/12/2024 | 13/12/2026 to 12/12/2034 | 2,153 | - |
13/12/2024 | 13/12/2027 to 12/12/2034 | 7,576 | - |
13/12/2024 | 13/12/2028 to 12/12/2034 | 7,964 | - |
13/12/2024 | 13/12/2029 to 12/12/2034 | 7,279 | - |
13/12/2024 | 13/12/2030 to 12/12/2034 | 6,171 | - |
13/12/2024 | 13/12/2031 to 12/12/2034 | 6,489 | - |
171,057 | 493,208 |
Awards made to executive directors and other MRTs in December 2022 and thereafter become exercisable in annual instalments from
the first anniversary of the grant to the seventh anniversary. The maximum and minimum deferral for each employee depends on the
regulatory classification of the individual MRT.
Exercise arrangements for grants made to other employees in December 2022 are individually structured at the discretion of the
Remuneration Committee at the point of grant.
All these awards will lapse if the grantee ceases employment with the Group before the third anniversary of the grant date, other than
in ‘good leaver’ circumstances.
The Deferred Bonus shares granted in 2021 and earlier years can be exercised from the third anniversary of the award date (or other
vesting date determined by the Remuneration Committee) until the day before the tenth anniversary of the date of grant.
The Deferred Bonus shares granted between December 2016 and December 2021 accrue dividends over the vesting period, unlike
earlier grants which accrued dividends until the point of exercise. Awards granted in December 2022 and subsequently do not include
the right to payment in lieu of dividend. The fair value of Deferred Bonus awards issued in the year was determined using a Black-Scholes
Merton model and allows for these dividend arrangements.
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The Accounts
Details of the inputs to the valuation model for awards made in the year ended 30 September 2025 and the year ended 30 September 2024
are shown below.
Grant date | 13/12/24 | 15/12/23 |
Market price at date of grant | 777.5p | 627.5p |
Expected annual dividend yield | 5.20% | 5.96% |
No departures are expected for grantees under this plan. Grantees are assumed to exercise their awards at the earliest
possible opportunity.
| The number of awards granted and their fair values for IFRS 2 purposes are set out below. | ||||
Grant date | 13/12/24 | 15/12/23 | ||
Time to exercise (Years) | Number of awards | IFRS 2 fair value | Number of awards | IFRS 2 fair value |
1 | 2,048 | 738.10p | 5,643 | 591.9p |
2 | 2,153 | 700.70p | 9,080 | 557.0p |
3 | 7,576 | 666.52p | 16,771 | 524.8p |
4 | 7,964 | 631.49p | 10,913 | 494.4p |
5 | 7,279 | 599.49p | 11,139 | 465.8p |
6 | 6,171 | 569.12p | 8,667 | 438.8p |
7 | 6,489 | 540.28p | 9,246 | 413.5p |
39,680 | 71,459 |
(e) Restricted Stock Units (RSU)
The Company permitted certain employees to elect to receive RSU awards instead of PSP awards in respect of financial years
between 2016 and 2022. The use of such awards is no longer part of the Group’s remuneration policy and hence no RSU awards have
been made in recent years.
In addition, in the financial year ended 30 September 2022, a one-off RSU grant with a four-year vesting period was made to certain
employees designated as MRTs.
For RSU awards to vest, the grantee’s personal performance must be satisfactory during the financial year preceding the vesting date.
In addition, a risk-based performance condition, assessed against the Group’s risk management metrics must also be met. The level
to which this condition is met will be determined by the Remuneration Committee and vesting levels scaled back as appropriate.
The conditional entitlements outstanding under this scheme at 30 September 2025 and 30 September 2024 were:
Grant date | Period exercisable | Number | Number |
2025 | 2024 | ||
15/12/2021 | 16/12/2024 to 15/12/2031 | - | 26,603 |
15/12/2021 | 07/12/2025* to 15/12/2031 | 338,322 | 355,880 |
338,322 | 382,483 |
*Estimated date
56. Retirement benefit obligations
Page 298
Page 299
The Accounts
2025 | 2024 | 2023 | |
£m | £m | £m | |
Cash and cash equivalents | 1.0 | 1.1 | 0.6 |
Equity instruments | 22.7 | 21.2 | 44.8 |
Debt instruments | 81.1 | 91.4 | 56.6 |
Total fair value of Plan assets | 104.8 | 113.7 | 102.0 |
Present value of Plan liabilities | (81.3) | (91.5) | (89.3) |
Surplus in the Plan | 23.5 | 22.2 | 12.7 |
2025 | 2024 | |
£m | £m | |
At 1 October 2024 | 113.7 | 102.0 |
Interest on Plan assets | 5.7 | 5.7 |
| Cash flows | ||
Contributions by the Group | 2.6 | 2.8 |
Contributions by Plan members | 0.2 | 0.2 |
Benefits paid | (3.9) | (3.1) |
Administration expenses paid | (0.7) | (0.9) |
| Remeasurement gain / (loss) | ||
Return on Plan assets (excluding amounts included in interest) | (12.8) | 7.0 |
At 30 September 2025 | 104.8 | 113.7 |
Page 300
2025 | 2024 | |
£m | £m | |
At 1 October 2024 | 91.5 | 89.3 |
Current service cost | 0.3 | 0.4 |
Past service cost | - | - |
Funding cost | 4.6 | 4.9 |
| Cash flows | ||
Contributions by Plan members | 0.2 | 0.2 |
Benefits paid | (3.9) | (3.1) |
| Remeasurement loss / (gain) | ||
Arising from demographic assumptions | - | (2.4) |
Arising from financial assumptions | (11.5) | 3.7 |
Arising from experience adjustments | 0.1 | (1.5) |
At 30 September 2025 | 81.3 | 91.5 |
2025 | 2024 | 2023 | |
| In determining net pension cost for the year | |||
Discount rate | 5.10% | 5.55% | 5.00% |
| Rate of compensation increase: | |||
Pre 1 July 2021 accrual | 3.05% | 3.25% | 3.55% |
Post 1 July 2021 accrual | 2.50% | 2.50% | 2.50% |
Rate of price inflation | 3.05% | 3.25% | 3.55% |
Rate of increase of pensions | 2.85% | 3.00% | 3.25% |
| In determining benefit obligations | |||
Discount rate | 6.05% | 5.10% | 5.55% |
| Rate of compensation increase: | |||
Pre 1 July 2021 accrual | 3.00% | 3.05% | 3.25% |
Post 1 July 2021 accrual | 2.50% | 2.50% | 2.50% |
Rate of price inflation | 3.00% | 3.05% | 3.25% |
Rate of increase of pensions | 2.80% | 2.85% | 3.00% |
| Further life expectancy at age 60 | |||
Male member aged 60 | 27 | 27 | 27 |
Female member aged 60 | 29 | 29 | 29 |
Male member aged 40 | 29 | 29 | 29 |
Female member aged 40 | 31 | 31 | 31 |
Page 301
The Accounts
Note 2025 | 2024 | ||
£m | £m | ||
Current service cost | 0.3 | 0.4 | |
Past service cost | - | - | |
Total service cost | 53 | 0.3 | 0.4 |
Administration expenses | 0.7 | 0.9 | |
Included within operating expenses | 1.0 | 1.3 | |
Funding cost of Plan liabilities | 4.6 | 4.9 | |
Interest on Plan assets | (5.7) | (5.7) | |
Net interest (income) | 4 | (1.1) | (0.8) |
Components of defined benefit costs recognised in profit or loss | (0.1) | 0.5 |
2025 | 2024 | |
£m | £m | |
Return on Plan assets (excluding amounts included in interest) | (12.8) | 7.0 |
| Actuarial gains / (losses) | ||
Arising from demographic assumptions | - | 2.4 |
Arising from financial assumptions | 11.5 | (3.7) |
Arising from experience adjustments | (0.1) | 1.5 |
Total actuarial (loss) / gain | (1.4) | 7.2 |
Tax thereon | 0.2 | (1.8) |
Net actuarial (loss) / gain | (1.2) | 5.4 |
Page 302
Assumption | Increase in assumption | Impact on scheme liabilities | |
2025 | 2024 | ||
Discount rate | 0.25% per annum | (3.7)% | (3.9)% |
Rate of inflation* | 0.25% per annum | 3.9% | 3.9% |
Rate of salary growth | 0.25% per annum | 0.9% | 0.8% |
Rates of mortality | 1 year of life expectancy | 1.9% | 3.1% |
2025 | 2024 | |
Years | Years | |
| Category of member | ||
Active members | 18 | 19 |
Deferred pensioners | 17 | 18 |
Current pensioners | 10 | 11 |
All members | 15 | 16 |
Page 303
The Accounts
D2.3 Notes to the Accounts – Capital and financial risk
For the year ended 30 September 2025
The notes below describe the processes and measurements which the Group and the Company use to manage their capital
position and their exposure to financial risks including credit, liquidity and market risk. It should be noted that certain capital
measures, which are presented to illustrate the Group’s position, are not subject to audit. Where this is the case, the relevant
disclosures are marked as such.
57. Capital management
The Group’s objectives in managing capital are:
• To ensure that the Group has sufficient capital to meet its operational requirements and strategic objectives
• To safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and
benefits for other stakeholders
• To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk
• To ensure that sufficient regulatory capital is available to meet any externally imposed requirements
The protection of the Group’s capital base and its long-term viability are key strategic priorities.
The Group sets its target amount of capital in proportion to risk, availability and cost. The Group manages the capital structure and
makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets, having
particular regard to the relative costs and availability of debt and equity finance at any given time. In order to maintain or adjust the
capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new
shares, issue or redeem other capital instruments, such as retail or corporate bonds, or sell assets to reduce debt.
The Group is subject to regulatory capital rules imposed by the PRA on a consolidated basis as a group containing an authorised
bank. This is discussed further below.
(a) Regulatory capital
The Group is subject to supervision by the PRA on a consolidated basis, as a group containing an authorised bank. For regulatory
purposes the Company is designated as a CRR consolidation entity, as defined by the PRA rulebook. As part of this supervision the
regulator will issue a Total Capital Requirement (‘TCR’) setting the amount of regulatory capital relative to its Total Risk Exposure
(‘TRE’) which the Group is required to hold at all times, in order to safeguard depositors from loss through the business cycle. This is
set in accordance with the international Basel 3 rules, issued by the Basel Committee on Banking Supervision (‘BCBS’), which are
implemented in the UK through the PRA Rulebook.
The Group’s regulatory capital is monitored by the Board of Directors, its Risk and Compliance Committee and by the Executive Risk
Committee (‘ERC’) and the Asset and Liability Committee, which 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.
The Group elected to take advantage of the IFRS 9 transitional arrangements set out in Article 473a of the CRR, which allowed the
capital impact of expected credit losses to be phased in over a five-year period. The phase-in factors applying to transition adjustments
allowed for a 95% add back to CET1 capital and Risk Weighted Assets (‘RWA’) in the financial year ended 30 September 2019, reducing
to 85%, 70%, 50% and 25% for the financial years ending in 2020 to 2023, with full recognition of the impact on CET1 capital in the year
ended 30 September 2024.
As part of the regulatory response to Covid, Article 473a was revised to extend the transitional arrangements for Stage 1 and Stage 2
impairment provisions created in the financial year ended 30 September 2020 and the financial year ended 30 September 2021, while
maintaining the transitional arrangements for impairment provisions created before those years. In order to increase institutions lending
capacity in the short term, the EU determined that these additional provisions should be phased into capital over the financial years
ending 30 September 2022 to 30 September 2024, rather than recognising the reduction in capital immediately.
Where these reliefs were taken, firms were also required to disclose their capital positions calculated as if the reliefs were not available
(the ‘fully loaded’ basis). From 1 October 2024 the reliefs were fully phased out and hence the fully loaded and regulatory bases for the
Group are equal for the current financial year.
The tables below demonstrate that at 30 September 2025 the Group’s total regulatory capital of £1,322.4m (2024: £1,327.9m)
exceeded the amounts required by the regulator, including £701.2m (2024: £724.1m) in respect of its TCR, which is comprised of fixed
and variable elements (amounts not subject to audit).
The total regulatory capital at 30 September 2025 on the fully loaded basis of £1,322.4m (2024: £1,325.2m) was in excess of the TCR of
£701.2m (2024: £723.8m) on the same basis (amounts not subject to audit).
Page 304
At 30 September 2025, the Group’s TCR represented 8.1% of TRE (2024: 8.7%) with the reduction principally a result of the most
recent review of the Group’s risk profile and exposures by the regulator, which was completed during the year.
The PRA Rulebook also requires firms to hold additional capital buffers, including a Capital Conservation Buffer (‘CCoB’) of 2.5% of
TRE (at 30 September 2025) (2024: 2.5%) and a Counter-cyclical Capital Buffer (‘CCyB’), currently 2.0% of TRE (2024: 2.0%). This is
expected to be the long term rate of the CCyB in a standard risk environment. Firm specific buffers may also be required.
The Group’s regulatory capital differs from its equity as certain adjustments are required by the PRA Rulebook. A reconciliation of the
Group’s equity to its regulatory capital determined in accordance with the PRA Rulebook at 30 September 2025 is set out below.
Regulatory basis | Fully loaded basis | ||||
Note | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | ||
Total equity | 1,420.2 | 1,419.5 | 1,420.2 | 1,419.5 | |
| Deductions | |||||
Proposed final dividend | 44 | (57.7) | (55.6) | (57.7) | (55.6) |
IFRS 9 transitional relief * | - | 2.7 | - | - | |
Intangible assets | 28 | (172.1) | (171.5) | (172.1) | (171.5) |
Pension surplus net of deferred tax | 56 | (17.6) | (16.7) | (17.6) | (16.7) |
Prudent valuation adjustments | § | (0.4) | (0.5) | (0.4) | (0.5) |
Common Equity Tier 1 (‘CET1’) capital | 1,172.4 | 1,177.9 | 1,172.4 | 1,175.2 | |
Other Tier 1 capital | - | - | - | - | |
Total tier 1 capital | 1,172.4 | 1,177.9 | 1,172.4 | 1,175.2 | |
Corporate bond | 34 | 150.0 | 150.0 | 150.0 | 150.0 |
Eligibility cap | Ф | - | - | - | - |
Total tier 2 capital | 150.0 | 150.0 | 150.0 | 150.0 | |
Total regulatory capital (‘TRC’) | 1,322.4 | 1,327.9 | 1,322.4 | 1,325.2 |
*
Firms are permitted to phase in the impact of IFRS 9 transition as described above.
§
For capital purposes, assets and liabilities held at fair value, such as the Group’s derivatives, are required to be valued on a more conservative basis than the market value basis
set out in IFRS 13. This difference is represented by the prudent valuation adjustment above, calculated using the ‘Simplified Approach’ set out in the PRA Rulebook.
ФThe PRA Rulebook restricts the amount of tier 2 capital which is eligible for regulatory purposes to 25% of TCR.
The TRE amount calculated under the PRA Rulebook framework against which this capital is held, which includes Risk Weighted Asset
(‘RWA’) amounts for credit risk, and the proportion of the TRE which that capital represents, are calculated as shown below.
Regulatory basis | Fully loaded basis | |||
2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | |
| Credit risk | ||||
Balance sheet assets | 7,573.6 | 7,303.0 | 7,573.6 | 7,303.0 |
Off balance sheet | 112.1 | 95.8 | 112.1 | 95.8 |
IFRS 9 transitional relief | - | 2.7 | - | - |
Total credit risk | 7,685.7 | 7,401.5 | 7,685.7 | 7,398.8 |
Operational risk | 928.3 | 848.0 | 928.3 | 848.0 |
Market risk | - | - | - | - |
Other | 16.7 | 29.2 | 16.7 | 29.2 |
Total risk exposure amount (‘TRE’) | 8,630.7 | 8,278.7 | 8,630.7 | 8,276.0 |
Solvency ratios | % | % | % | % |
CET1 | 13.6 | 14.2 | 13.6 | 14.2 |
TRC | 15.3 | 16.0 | 15.3 | 16.0 |
This table is not subject to audit
The risk weightings for credit risk exposures are currently calculated using the Standardised Approach (‘SA’). The Basic Indicator
Approach is used for operational risk.
Page 305
The Accounts
Leverage ratio
The table below shows the calculation of the Group’s leverage ratio as defined in the PRA Rulebook. This rate is based on consolidated
balance sheet assets adjusted as shown. The PRA has set a minimum UK leverage ratio of 3.25% for UK firms with retail deposits of
over £50.0 billion, or with significant overseas assets. In addition, in October 2021 the PRA stated its expectation that all other UK
firms, such as the Group, should manage their leverage risk so that this ratio does not ordinarily fall below 3.25%.
Note 2025 | 2024 | |||
£m | £m | |||
Total balance sheet assets | 19,930.0 | 19,270.0 | ||
Add: | Credit fair value adjustments on loans to customers | 16 | 5.4 | 75.2 |
Debit fair value adjustments on retail deposits | 31 | - | - | |
Adjusted balance sheet assets | 19,935.4 | 19,345.2 | ||
Less: | Derivative assets | 24 | (275.4) | (391.8) |
Central bank deposits | 14 | (2,175.7) | (2,315.5) | |
Accrued interest on sovereign exposures | (3.0) | (3.8) | ||
On balance sheet items | 17,481.3 | 16,634.1 | ||
Less: | Intangible assets | 28 | (172.1) | (171.5) |
Pension surplus | 56 | (23.5) | (22.2) | |
Total on balance sheet exposures | 17,285.7 | 16,440.4 | ||
Regulatory exposure for derivatives | 109.5 | 154.7 | ||
Total derivative exposures | 109.5 | 154.7 | ||
Post offer pipeline at gross notional amount | 1,407.6 | 1,210.2 | ||
Adjustment to convert to credit equivalent amounts | (1,151.8) | (1,000.1) | ||
Off balance sheet items | 255.8 | 210.1 | ||
Tier 1 capital | 1,172.4 | 1,177.9 | ||
Total leverage exposure before IFRS 9 relief | 17,651.0 | 16,805.2 | ||
IFRS 9 relief | - | 2.7 | ||
Total leverage exposure | 17,651.0 | 16,807.9 | ||
UK leverage ratio | 6.6% | 7.0% | ||
This table is not subject to audit
The fully loaded leverage ratio is calculated as follows
2025 | 2024 | |
£m | £m | |
Fully loaded tier 1 capital | 1,172.4 | 1,175.2 |
Total leverage exposure before IFRS 9 relief | 17,651.0 | 16,805.2 |
Fully loaded UK leverage ratio | 6.6% | 7.0% |
This table is not subject to audit.
The Group calculates regulatory exposure on derivatives using the Standardised Approach for Counterparty Credit Risk (‘SA-CCR’),
which includes elements based on the market value of derivative assets adjusted for collateral, amongst other things, and based on
potential future exposure in respect of all derivatives held.
The UK leverage ratio is prescribed by the PRA and differs from the leverage ratio defined by Basel due to the exclusion of central
bank balances from exposures.
Page 306
Capital requirements in subsidiary entities
The regulatory capital disclosures in these financial statements relate only to the consolidated position for the Group. Individual
entities within the Group are also subject to supervision on a standalone basis. All such entities complied with the requirements to
which they were subject during the year.
(b) Return on tangible equity (‘RoTE’)
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.
It effectively reflects a return on equity as if all intangible assets are eliminated immediately against reserves. As this is similar to the
approach used for the capital of financial institutions it is widely used in the sector.
The Group’s consolidated RoTE for the year ended 30 September 2025 is derived as follows:
Note 2025 | 2024 | ||
£m | £m | ||
Profit for the year after tax | 180.3 | 186.0 | |
Amortisation and derecognition of intangible assets | 28 | 2.0 | 1.2 |
Adjusted profit | 182.3 | 187.2 | |
Divided by Opening equity | 1,419.5 | 1,410.6 | |
Opening intangible assets | 28 | (171.5) | (168.2) |
Opening tangible equity | 1,248.0 | 1,242.4 | |
Closing equity | 1,420.2 | 1,419.5 | |
Closing intangible assets | 28 | (172.1) | (171.5) |
Closing tangible equity | 1,248.1 | 1,248.0 | |
Average tangible equity | 1,248.1 | 1,245.2 | |
Return on Tangible Equity | 14.6% | 15.0% |
This table is not subject to audit
Page 307
The Accounts
58. Financial risk management
The principal risks arising from the Group’s exposure to financial instruments are credit risk, liquidity risk and market risk (particularly
interest rate risk and a limited amount of currency risk). The nature and extent of these risks are discussed in notes 59 to 61 respectively.
The Board has a Risk and Compliance Committee, consisting of the Chair of the Board and the non-executive directors, which is
responsible for providing oversight and challenge to the Group’s risk management arrangements. Executive responsibility for the
oversight and operation of the Group’s risk management framework is delegated to the ERC. ERC discharges its duties through a
number of sub-committees and escalates issues of concern to the Risk and Compliance Committee where appropriate.
The Credit Committee and ALCO are sub-committees of the ERC which monitor performance against the risk appetites set by the
Board and make recommendations for changes in risk appetite where appropriate. They also review and, where authorised to do so,
agree or amend policies for managing each of these risks, which are summarised in the relevant note. The Corporate Governance
Statement in Section B3 (which is not subject to audit) provides further detail on the operations of these committees.
The financial risk management policies have remained unchanged throughout the year and since the year end. The position discussed
in notes 59 to 61 is materially similar to that existing throughout the year.
Page 308
The Group | The Company | ||||
Note | 2025 | 2024 | 2025 | 2024 | |
£m | £m | £m | £m | ||
| Financial assets at amortised cost | |||||
Loans to customers | 16 | 16,341.3 | 15,705.5 | - | - |
Trade receivables | 25 | 1.3 | 1.5 | - | - |
CSA Assets | 25 | 1.5 | - | - | - |
Intra-group cash deposits | 25 | - | - | 65.3 | 107.6 |
Amounts owed by Group companies | 25 | - | - | 19.0 | 20.9 |
Investment securities | 15 | 626.2 | 427.4 | - | - |
Cash | 14 | 2,389.5 | 2,525.4 | 17.6 | 18.2 |
Accrued interest income | 25 | 11.8 | 11.1 | 0.1 | 0.1 |
19,371.6 | 18,670.9 | 102.0 | 146.8 | ||
| Financial assets at fair value | |||||
Derivative financial assets | 24 | 275.4 | 391.8 | - | - |
Maximum exposure to credit risk | 19,647.0 | 19,062.7 | 102.0 | 146.8 |
Page 309
The Accounts
2025 | 2024 | |||
£m | % | £m | % | |
Buy-to-let mortgages | 13,774.7 | 84.3% | 13,279.3 | 84.6% |
Owner-occupied mortgages | 16.4 | 0.1% | 20.3 | 0.1% |
Total first charge residential mortgages | 13,791.1 | 84.4% | 13,299.6 | 84.7% |
Second charge mortgage loans | 85.3 | 0.5% | 116.1 | 0.7% |
Loans secured on residential property | 13,876.4 | 84.9% | 13,415.7 | 85.4% |
Development finance | 960.4 | 5.9% | 884.0 | 5.6% |
Loans secured on property | 14,836.8 | 90.8% | 14,299.7 | 91.0% |
Asset finance loans | 671.9 | 4.1% | 633.2 | 4.1% |
Motor finance loans | 360.5 | 2.2% | 331.4 | 2.1% |
Aircraft mortgages | 37.2 | 0.2% | 31.2 | 0.2% |
Secured BBB schemes | 17.5 | 0.1% | 31.0 | 0.2% |
Structured lending | 267.3 | 1.7% | 256.9 | 1.6% |
Invoice finance | 35.4 | 0.2% | 32.7 | 0.2% |
Total secured loans | 16,226.6 | 99.3% | 15,616.1 | 99.4% |
Professions finance | 39.3 | 0.2% | 53.0 | 0.3% |
Unsecured BBB schemes | 46.6 | 0.3% | 10.5 | 0.1% |
Other unsecured commercial loans | 28.8 | 0.2% | 25.9 | 0.2% |
Total loans to customers | 16,341.3 | 100.0% | 15,705.5 | 100.0% |
Page 310
2025 | 2024 | |
£m | £m | |
Buy-to-let mortgages | 160.8 | 162.0 |
Development finance | 535.9 | 497.9 |
Structured lending | 256.3 | 239.3 |
Asset finance | 10.1 | 11.5 |
963.1 | 910.7 |
Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Very low risk | 12,478.6 | 64.3 | 1.0 | 3.4 | 12,547.3 |
Low risk | 2,427.4 | 329.6 | 37.5 | 0.4 | 2,794.9 |
Moderate risk | 150.0 | 188.2 | 7.6 | 1.3 | 347.1 |
High risk | 143.4 | 70.3 | 8.1 | 2.4 | 224.2 |
Very high risk | 55.2 | 65.4 | 274.4 | 1.5 | 396.5 |
Not graded | 114.3 | 2.0 | 2.2 | 0.6 | 119.1 |
Total gross carrying amount | 15,368.9 | 719.8 | 330.8 | 9.6 | 16,429.1 |
Impairment | (12.4) | (4.5) | (70.9) | - | (87.8) |
Total loans to customers | 15,356.5 | 715.3 | 259.9 | 9.6 | 16,341.3 |
| 30 September 2024 | |||||
Very low risk | 12,028.0 | 75.6 | 1.1 | 3.3 | 12,108.0 |
Low risk | 2,194.7 | 343.9 | 44.9 | 0.7 | 2,584.2 |
Moderate risk | 182.1 | 199.5 | 16.4 | 1.4 | 399.4 |
High risk | 127.6 | 78.1 | 12.4 | 3.0 | 221.1 |
Very high risk | 37.0 | 76.3 | 205.2 | 8.2 | 326.7 |
Not graded | 135.8 | 2.7 | 3.6 | 0.5 | 142.6 |
Total gross carrying amount | 14,705.2 | 776.1 | 283.6 | 17.1 | 15,782.0 |
Impairment | (16.0) | (7.2) | (50.8) | (2.5) | (76.5) |
Total loans to customers | 14,689.2 | 768.9 | 232.8 | 14.6 | 15,705.5 |
Page 311
The Accounts
First charge mortgages | Second charge mortgages | |||
2025 | 2024 | 2025 | 2024 | |
% | % | % | % | |
| Loan to value ratio | ||||
Less than 70% | 69.2 | 71.5 | 96.8 | 96.1 |
70% to 80% | 28.8 | 25.9 | 2.0 | 2.3 |
80% to 90% | 1.2 | 1.7 | 0.4 | 0.8 |
90% to 100% | 0.2 | 0.2 | 0.3 | 0.2 |
Over 100% | 0.6 | 0.7 | 0.5 | 0.6 |
100.0 | 100.0 | 100.0 | 100.0 | |
Average LTV ratio | 63.2 | 62.8 | 49.0 | 50.3 |
| Of which: | ||||
Buy-to-let | 63.2 | 62.8 | ||
Owner-occupied | 38.6 | 38.9 |
First charge | Second charge | |||
2025 | 2024 | 2025 | 2024 | |
% | % | % | % | |
East Anglia | 3.3 | 3.3 | 3.1 | 3.3 |
East Midlands | 6.1 | 6.0 | 6.4 | 6.3 |
Greater London | 17.8 | 18.0 | 7.3 | 7.5 |
North | 3.5 | 3.4 | 4.5 | 4.4 |
North West | 9.9 | 10.1 | 7.5 | 7.4 |
South East | 30.8 | 31.0 | 37.7 | 37.8 |
South West | 9.2 | 9.1 | 8.0 | 8.0 |
West Midlands | 6.5 | 6.3 | 7.3 | 7.2 |
Yorkshire and Humberside | 7.1 | 7.1 | 6.2 | 6.0 |
Total England | 94.2 | 94.3 | 88.0 | 87.9 |
Northern Ireland | - | - | 2.8 | 2.5 |
Scotland | 2.7 | 2.6 | 5.5 | 5.8 |
Wales | 3.1 | 3.1 | 3.7 | 3.8 |
100.0 | 100.0 | 100.0 | 100.0 |
Page 312
2025 | 2025 | 2024 | 2024 | |
By value | By number | By value | By number | |
% | % | % | % | |
| LTGDV | ||||
50% or less | 14.1 | 8.6 | 12.4 | 8.9 |
50% to 60% | 11.5 | 14.9 | 13.4 | 20.1 |
60% to 65% | 23.7 | 29.4 | 27.5 | 27.3 |
65% to 70% | 28.9 | 32.2 | 24.1 | 30.1 |
70% to 75% | 6.4 | 7.5 | 8.1 | 7.2 |
Over 75% | 15.4 | 7.4 | 14.5 | 6.4 |
100.0 | 100.0 | 100.0 | 100.0 |
2025 | 2024 | |
Stage 1 | 215 | 214 |
Stage 2 | 17 | 17 |
Stage 3 | 23 | 19 |
POCI | - | 1 |
Total | 255 | 251 |
Page 313
The Accounts
2025 | 2024 | |
% | % | |
East Anglia | 5.2 | 4.6 |
East Midlands | 7.1 | 11.2 |
Greater London | 13.0 | 11.0 |
North | 0.2 | 0.6 |
North West | 3.4 | 0.7 |
South East | 32.5 | 33.9 |
South West | 18.0 | 19.7 |
West Midlands | 9.3 | 7.9 |
Yorkshire and Humberside | 6.6 | 6.1 |
Total England | 95.3 | 95.7 |
Northern Ireland | - | - |
Scotland | 3.6 | 3.8 |
Wales | 1.1 | 0.5 |
100.0 | 100.0 |
2025 | 2024 | |
% | % | |
Commercial vehicles | 46.9 | 45.3 |
Construction plant | 26.9 | 29.4 |
Manufacturing | 6.5 | 5.3 |
Technology | 3.8 | 4.2 |
Refuse disposal vehicles | 5.2 | 4.2 |
Other vehicles | 3.9 | 4.4 |
Agriculture | 1.2 | 1.6 |
Print and paper | 0.8 | 1.1 |
Other | 4.8 | 4.5 |
100.0 | 100.0 |
Page 314
2025 | 2024 | |
Number of active facilities | 13 | 11 |
Total facilities (£m) | 403.0 | 330.0 |
Carrying value (£m) | 267.3 | 256.9 |
Page 315
The Accounts
2025 | 2024 | |
£m | £m | |
| RLS / GGS | ||
Term loans | 41.8 | 0.6 |
Asset finance | 15.2 | 23.4 |
Total RLS / GGS | 57.0 | 24.0 |
| CBILS | ||
Term loans | 3.5 | 7.7 |
Asset finance | 2.3 | 7.6 |
Total CBILS | 5.8 | 15.3 |
BBLS | 1.3 | 2.2 |
64.1 | 41.5 | |
Total term loans | 46.6 | 10.5 |
Total asset finance (note 17) | 17.5 | 31.0 |
64.1 | 41.5 |
Page 316
2025 | 2024 | |
% | % | |
| First mortgages | ||
| Accounts more than three months in arrears | ||
Buy-to-let accounts including receiver of rent cases | 0.52 | 0.38 |
Buy-to-let accounts excluding receiver of rent cases | 0.34 | 0.19 |
Owner-occupied accounts | 5.60 | 6.59 |
| UKF data for mortgage accounts more than three months in arrears | ||
Buy-to-let accounts including receiver of rent cases | 0.75 | 0.87 |
Buy-to-let accounts excluding receiver of rent cases | 0.64 | 0.76 |
Owner-occupied accounts | 0.87 | 0.97 |
All mortgages | 0.83 | 0.93 |
| Second charge mortgage loans | ||
| Accounts more than 2 months in arrears | ||
All accounts | 25.60 | 24.63 |
Post-2010 originations | 4.54 | 2.92 |
Legacy cases (pre-2010 originations) | 25.94 | 26.88 |
Purchased assets | 32.61 | 31.47 |
FLA data for second mortgage loans | 5.80 | 6.50 |
| Motor finance loans | ||
| Accounts more than 2 months in arrears | ||
All accounts | 0.91 | 1.06 |
Originated cases | 0.91 | 1.06 |
Purchased assets | - | 1.13 |
FLA data for consumer point of sale hire purchase | 3.60 | 4.10 |
| Asset finance loans | ||
Accounts more than 2 months in arrears | 0.11 | 0.14 |
FLA data for business lease / hire purchase loans | 0.70 | 0.70 |
Page 317
The Accounts
2025 | 2024 | 2023 | |
£m | £m | £m | |
| All purchased consumer assets | |||
Carrying value | 31.3 | 41.1 | 58.6 |
84 month ERCs | 36.5 | 48.6 | 68.9 |
120 month ERCs | 40.4 | 52.9 | 73.4 |
POCI assets only Carrying value | 9.7 | 10.6 | 17.7 |
84 month ERCs | 13.2 | 15.6 | 24.5 |
120 month ERCs | 16.2 | 18.7 | 27.8 |
2025 | 2024 | |||||
Sovereign | Institutional | Total | Sovereign | Institutional | Total | |
£m | £m | £m | £m | £m | £m | |
| Rating | ||||||
AAA | - | 116.8 | 116.8 | - | 23.0 | 23.0 |
AA- | 509.4 | - | 509.4 | 404.4 | - | 404.4 |
509.4 | 116.8 | 626.2 | 404.4 | 23.0 | 427.4 |
Page 318
2025 | 2024 | |
£m | £m | |
| The Group | ||
| Cash with central banks rated: | ||
AA- Cash with retail banks rated: | 2,175.7 | 2,315.5 |
AA- | 175.1 | 98.2 |
A+ | 38.7 | 111.7 |
213.8 | 209.9 | |
Total exposure | 2,389.5 | 2,525.4 |
| The Company | ||
| Cash with retail banks rated: | ||
A+ | 17.4 | 18.3 |
Page 319
The Accounts
2025 | 2024 | |
£m | £m | |
Derivative financial assets | 240.8 | 317.3 |
Derivative financial liabilities | (65.3) | (98.9) |
175.5 | 218.4 |
2025 | 2024 | |
£m | £m | |
| Carrying value of derivative financial assets | ||
| Counterparties rated | ||
AA | 0.1 | 0.4 |
AA- | 237.5 | 2.0 |
A+ | 37.8 | 357.8 |
A | - | - |
A- | - | 31.6 |
Gross exposure (note 24) | 275.4 | 391.8 |
| Collateral amounts posted | ||
CSA collateral amounts (note 37) | (86.3) | (103.6) |
Total collateral | (86.3) | (103.6) |
Net exposure | 189.1 | 288.2 |
Page 320
| Amounts payable | |||||
| In one year | In more than | In more than | In more than | Total | |
| or less, or on | one year, but | two years but | five years | ||
| demand | not more than | not more than | |||
| two years | five years | ||||
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Retail deposits | 15,091.7 | 1,054.1 | 632.4 | 81.1 | 16,859.3 |
Borrowings | 1,092.9 | 33.7 | 532.2 | 156.8 | 1,815.6 |
Total non-derivative liabilities | 16,184.6 | 1,087.8 | 1,164.6 | 237.9 | 18,674.9 |
Derivative liabilities | 42.2 | 21.0 | 17.4 | - | 80.6 |
16,226.8 | 1,108.8 | 1,182.0 | 237.9 | 18,755.5 | |
| 30 September 2024 | |||||
Retail deposits | 14,559.7 | 1,657.2 | 740.7 | 63.0 | 17,020.6 |
Borrowings | 150.3 | 761.6 | 28.0 | 163.0 | 1,102.9 |
Total non-derivative liabilities | 14,710.0 | 2,418.8 | 768.7 | 226.0 | 18,123.5 |
Derivative liabilities | 21.8 | 31.3 | 52.0 | 7.5 | 112.6 |
14,731.8 | 2,450.1 | 820.7 | 233.5 | 18,236.1 |
Page 321
The Accounts
2025 | 2024 | |
£m | £m | |
Payable on demand | 8,206.5 | 7,697.6 |
Payable in less than three months | 1,446.5 | 1,718.0 |
Payable in less than one year but more than three months | 5,438.7 | 5,144.1 |
Payable in less than one year or on demand | 15,091.7 | 14,559.7 |
Payable in one to two years | 1,054.1 | 1,657.2 |
Payable in two to five years | 632.4 | 740.7 |
Payable after more than five years | 81.1 | 63.0 |
16,859.3 | 17,020.6 |
Note 2025 | 2024 | ||
£m | £m | ||
Balances with central banks | 2,110.4 | 2,207.9 | |
Investment securities | 15 | 626.3 | 427.4 |
Total on balance sheet liquidity | 2,736.7 | 2,635.3 | |
Long / short repo transaction | 150.0 | 150.0 | |
2,886.7 | 2,785.3 |
Page 322
| Financial liabilities falling due: | |||||
| In one year | In more than | In more than | In more than | Total | |
| or less, or on | one year, but | two years but | five years | ||
| demand | not more than | not more than | |||
| two years | five years | ||||
£m | £m | £m | £m | £m | |
| 30 September 2025 | |||||
Bank overdrafts | 0.5 | - | - | - | 0.5 |
Covered bonds | - | - | 499.2 | - | 499.2 |
Corporate bond | - | - | - | 150.0 | 150.0 |
Central bank facilities | 944.8 | 5.2 | - | - | 950.0 |
Sale and repurchase agreements | 100.0 | - | - | - | 100.0 |
Lease liabilities | 2.5 | 1.7 | 2.4 | 0.2 | 6.8 |
1,047.8 | 6.9 | 501.6 | 150.2 | 1,706.5 | |
| 30 September 2024 | |||||
Bank overdrafts | 0.4 | - | - | - | 0.4 |
Covered bonds | - | - | - | - | - |
Corporate bond | - | - | - | 149.9 | 149.9 |
Central bank facilities | 5.0 | 744.8 | 5.2 | - | 755.0 |
Sale and repurchase agreements | 100.0 | - | - | - | 100.0 |
Lease liabilities | 2.9 | 2.1 | 2.9 | - | 7.9 |
108.3 | 746.9 | 8.1 | 149.9 | 1,013.2 |
| Financial liabilities falling due: | ||||||
| In one year | In more than | In more than | In more than | Total | ||
| or less, or on | one year, but | two years but | five years | |||
| demand | not more than | not more than | ||||
| two years | five years | |||||
£m | £m | £m | £m | £m | ||
| 30 September 2025 | ||||||
Corporate bond | - | - | - | 149.8 | 149.8 | |
Lease liabilities | 1.4 | 1.4 | 4.6 | 3.6 | 11.0 | |
1.4 | 1.4 | 4.6 | 153.4 | 160.8 | ||
| 30 September 2024 | ||||||
Corporate bond | - | - | - | 149.6 | 149.6 | |
Lease liabilities | 1.4 | 1.4 | 4.4 | 5.2 | 12.4 | |
1.4 | 1.4 | 4.4 | 154.8 | 162.0 |
Page 323
The Accounts
Issuer | Maturity date | Call date | Principal outstanding | |
2025 | 2024 | |||
£m | £m | |||
Paragon Mortgages (No. 27) PLC | 15/04/47 | 15/10/25 | 478.4 | 595.2 |
Paragon Mortgages (No. 28) PLC | 15/12/47 | 15/12/25 | 509.9 | 586.3 |
Paragon Mortgages (No. 29) PLC | 15/12/55 | 15/12/28 | 855.0 | 855.0 |
1,843.3 | 2,036.5 |
Page 324
2025 | 2024 | |||||
Utilised | Available | Total | Utilised | Available | Total | |
£m | £m | £m | £m | £m | £m | |
| Rating | ||||||
AAA | 215.3 | 1,353.2 | 1,568.5 | 225.5 | 1,536.2 | 1,761.7 |
AA+ / AA / AA- | 5.8 | 109.4 | 115.2 | 5.8 | 109.4 | 115.2 |
A+ / A / A- | 3.7 | 70.0 | 73.7 | 3.7 | 70.0 | 73.7 |
BBB+ / BBB / BBB- | 4.3 | 81.6 | 85.9 | 4.3 | 81.6 | 85.9 |
229.1 | 1,614.2 | 1,843.3 | 239.3 | 1,797.2 | 2,036.5 |
Page 325
The Accounts
| Corporate | Covered | Central bank | Sale and | Lease | Total | |
| bonds | bonds | facilities | repurchase | liabilities | ||
| transactions | ||||||
£m | £m | £m | £m | £m | £m | |
| a) The Group | ||||||
| 30 September 2025 | ||||||
| Payable in: | ||||||
Less than one year | 6.6 | 22.2 | 960.1 | 101.1 | 2.9 | 1,092.9 |
One to two years | 6.6 | 20.4 | 5.3 | - | 1.4 | 33.7 |
Two to five years | 19.7 | 510.1 | - | - | 2.4 | 532.2 |
Over five years | 156.6 | - | - | - | 0.2 | 156.8 |
189.5 | 552.7 | 965.4 | 101.1 | 6.9 | 1,815.6 | |
| 30 September 2024 | ||||||
| Payable in: | ||||||
Less than one year | 6.6 | - | 39.4 | 101.4 | 2.9 | 150.3 |
One to two years | 6.6 | - | 752.9 | - | 2.1 | 761.6 |
Two to five years | 19.7 | - | 5.3 | - | 3.0 | 28.0 |
Over five years | 163.0 | - | - | - | - | 163.0 |
195.9 | - | 797.6 | 101.4 | 8.0 | 1,102.9 |
| Corporate | Lease | Total | |
| bonds | liabilities | ||
£m | £m | £m | |
| b) The Company | |||
| 30 September 2025 | |||
| Payable in: | |||
Less than one year | 6.6 | 1.7 | 8.3 |
One to two years | 6.6 | 1.7 | 8.3 |
Two to five years | 19.7 | 5.0 | 24.7 |
Over five years | 156.6 | 3.3 | 159.9 |
189.5 | 11.7 | 201.2 | |
| 30 September 2024 | |||
| Payable in: | |||
Less than one year | 6.6 | 1.7 | 8.3 |
One to two years | 6.6 | 1.7 | 8.3 |
Two to five years | 19.7 | 5.0 | 24.7 |
Over five years | 163.0 | 4.9 | 167.9 |
195.9 | 13.3 | 209.2 |
Page 326
2025 | 2024 | |
| Total cash | Total cash | |
| outflow / (inflow) | outflow / (inflow) | |
£m | £m | |
| On derivative liabilities | ||
Payable in less than one year | 42.2 | 21.8 |
Payable in one to two years | 21.0 | 31.3 |
Payable in two to five years | 17.4 | 52.0 |
Payable in over five years | - | 7.5 |
80.6 | 112.6 | |
| On derivative assets | ||
Payable in less than one year | (79.0) | (117.4) |
Payable in one to two years | (54.7) | (106.5) |
Payable in two to five years | (10.7) | (46.5) |
Payable in over five years | (71.2) | (8.4) |
(215.6) | (278.8) | |
(135.0) | (166.2) |
Page 327
The Accounts
Page 328
D2.4 Notes to the Accounts – Basis of preparation
For the year ended 30 September 2025
The notes set out below describe the accounting basis on which the Group and the Company prepare their accounts, the
particular accounting policies adopted by the Group and the principal judgements and estimates which were required in the
preparation of the financial statements.
They also include other information describing how the accounts have been prepared required by legislation and
accounting standards.
62. Basis of preparation
The particular accounting policies adopted have been set out in note 63 and the critical accounting judgements and estimates which
have been required in preparing these financial statements are described in notes 64 and 65 respectively.
The Group has historically chosen to present an additional comparative balance sheet.
63. Accounting policies
The particular policies applied by the Group in preparing these financial statements in accordance with the IFRS regime as adopted in
the UK are described below.
Page 329
The Accounts
Page 330
Page 331
The Accounts
Freehold premises | Short leasehold premises | Computer hardware | Furniture, fixtures and office equipment | Company motor vehicles |
2% per annum | over the term of the lease | 25% per annum | 15% per annum | 25% per annum |
Page 332
Page 333
The Accounts
Page 334
64. Critical accounting judgements
The most significant judgements which the directors have made in the application of the accounting policies set out in note 63 relate to:
(a) Significant Increase in Credit Risk (‘SICR’)
Under IFRS 9, the directors are required to assess where a credit obligation has suffered a Significant Increase in Credit Risk (‘SICR’).
The directors’ assessment is based primarily on changes in the calculated PD, but also includes consideration of other qualitative
indicators and the adoption of the backstop assumption in the Standard that all cases which are more than 30 days overdue have an
SICR, for account types where days overdue is an appropriate measure.
As part of its consideration of the adequacy of its impairment provisioning, management have considered whether there are any
factors not reflected in its normal approach which indicate that any group, or groups, of accounts should be considered as having an
SICR. No such accounts were identified.
If additional accounts were determined to have an SICR, these balances would attract additional impairment provision, as such cases
are provided on the basis of lifetime expected loss, rather the 12-month expected loss, and the overall provision charge would be
higher. Conversely, if cases are incorrectly identified as SICR, impairment provisions will be overstated. Furthermore, adjustments to
current PD estimates in the Group’s models may also have the effect of identifying more or less accounts as having an SICR.
More information on the definition of SICR adopted is given in note 19.
(b) Definition of default
In applying the impairment provisions of IFRS 9, the directors have used models to derive the probabilities of default. In order to
derive and apply such models, it is required to define ‘default’ for this purpose. The Group’s definition of default is aligned to its
internal operational procedures. IFRS 9 provides a rebuttable presumption of default when an account is 90 days overdue, and this
was used as the starting point for this exercise. Other factors include account management activities such as appointment of a
receiver, internal grading processes or enforcement procedures.
A combination of qualitative and quantitative measures was considered in developing the definition of default.
If a different definition of default had been adopted the expected loss amounts derived might differ from those shown in the accounts.
More information on the Group’s definition of default is given in note 19.
(c) Classification of financial assets
The classification of financial assets under IFRS 9 is based on two factors:
• The company’s ‘business model’ – how it intends to generate cash and profit from the assets
• The nature of the contractual cash flows inherent in the assets
Financial assets are classified as held at amortised cost, at fair value through OCI, or at fair value through profit and loss.
For an asset to be held at amortised cost, the cash flows received from it must comprise solely payments of principal and interest
(‘SPPI’). In effect, this restricts this classification to ‘normal’ lending activities, excluding arrangements where the lender may have a
contingent return or profit share from the activities funded. The Group has considered its products and concluded that, as standard
lending products, they fall within the SPPI criteria.
This is because all the Group’s lending arrangements involve the advancing of amounts to customers, either as loans or finance lease
products and the receipt of repayments of principal and charges, where those charges are calculated based on the amount loaned.
There are no ‘success fee’ or other compensation arrangements not linked to the loan principal.
The use of amortised cost accounting is also restricted to assets which a company holds within a business model whose object is to
collect cash flows arising from them, rather than seek to profit by disposing of them (a ‘Held to Collect’ model). The Group’s strategy
is to hold loan assets until they are repaid or written off. Loan disposals are rare, and the Group does not manage its assets in order to
generate profits on sale. On this basis, it has categorised its business model as Held to Collect.
Therefore, the Group has classified its customer loan assets as carried at amortised cost. There were no significant changes in the
nature of the Group’s products, nor in the business models in which they are held, during the year.
Page 335
The Accounts
Page 336
Page 337
The Accounts
66. Going concern
The financial statements of the Group and the Company have been prepared on a going concern basis.
Accounting standards require the directors to assess the ability of the Group and the Company to continue to adopt the going
concern basis of accounting. In performing this assessment, the directors consider all available information about the future, the
possible outcomes of events and changes in conditions and the realistically possible responses to such events and conditions that
would be available to them, having regard to the ‘Guidance on Risk Management, Internal Control and Related Financial and Business
Reporting’ published by the Financial Reporting Council in September 2014.
Particular focus is given to the financial forecasts to ensure the adequacy of resources, including liquidity and capital, available for the
Group and the Company to meet their business objectives on both a short-term and strategic basis. The guidance requires that this
assessment covers a period of at least twelve months from the date of approval of these financial statements.
Page 338
Financial and capital forecasting
The Group has a formalised process of budgeting, reporting and review. The Group’s planning procedures forecast its profitability,
capital position, including its regulatory capital position, funding requirement and cash flows. Detailed plans are produced for two-year
periods with longer-term forecasts covering a five-year period, including detailed income forecasts. These plans provide information
to the directors which is used to ensure the adequacy of resources available for the Group to meet its business objectives, both on a
short-term and strategic basis.
The forecast is updated every six months, and the directors have based their going concern assessment on the forecast for the period
beginning on 1 October 2025.
The Group makes extensive use of stress testing in compiling and reviewing its forecasts. This stress testing approach was reviewed
in detail during the year as part of the annual Internal Capital Adequacy Assessment Process (‘ICAAP’) cycle, where testing considered
the impact of a number of severe but plausible scenarios. During the planning process, sensitivity analysis was carried out on a
number of key assumptions that underpin the forecast to evaluate the impact of the Group’s principal risks.
The key stresses modelled in detail to evaluate the forecast were:
• Increase in buy-to-let volumes. This examined the impact of higher volumes at a reduced yield on profitability and illustrated the
extent to which capital resources and liquidity would be stretched due to the higher cash and capital requirements
• Prolonged reduction in buy-to-let volumes. This analysis explored the effect of heightened competition in the buy-to-let market,
highlighting its influence on the Group’s return metrics, portfolio composition and overall profitability
• Higher funding costs. Higher cost on all new savings deposits, both front book and back book throughout the forecast horizon. This
scenario illustrates the impact of a significant, prolonged margin squeeze on profitability, and whether this would cause significant
impacts on any capital, liquidity or encumbrance ratios
• Increased buy-to-let redemptions. Higher redemption rates for buy-to-let mortgages reaching the end of their fixed rate period.
This illustrates the potential risk inherent in the five-year fixed rate business
• Reduced development finance volumes and yield. This replicates a significant increase in competition within the sector, reducing
yields and impacting market share, demonstrating how a lower mix of the Group’s highest margin product impacts on contribution
to costs and other profitability ratios
• Increased economic stress on customers. As well as modelling the impact of each of the economic scenarios set out in note
22 across the forecast horizon, the severe economic scenario was also modelled over the five-year horizon. To ensure this
represented a worst-case scenario all other assumptions were held steady, although in reality adjustments to new business
appetite and other factors would be made
• Combined downside stress. The IFRS 9 downside economic scenario described in note 22 was modelled out for the plan horizon
along with a plausible set of other adverse factors to the business model, creating a prolonged tail-risk
The stresses noted above excluded potential management actions which would, in a real-life situation, be taken to mitigate their
impact. Their purpose was to demonstrate how such stresses may affect our financing, capital and liquidity positions, in turn
highlighting areas which might impact the Group’s going concern status. Under each scenario, the Group was able to both meet its
obligations across the forecast horizon and maintain a surplus over its regulatory requirements for both capital and liquidity through
the application of normal balance sheet management activities.
Potential operational risks are also assessed as part of the Group’s annual ICAAP process, focusing on the impacts of a series of severe
but plausible scenarios. This analysis did not create outputs that cast doubt on the ability of the Group to continue as a going concern.
The potential impacts of climate change on the Group were also reviewed. This exercise included a re-assessment of work done in
2024, leveraging the Bank of England Climate Biennial Exploratory Scenario (‘CBES’).
The opening position for the Group’s forecasts and for these reviews includes a strong capital and liquidity base, supporting the
management of any significant outflows of deposits and / or reduced inflows from customer receipts. The forecasts, even under
reasonable further levels of stress show the Group retaining sufficient equity, capital, cash and liquidity resources to satisfy its
regulatory and operational requirements across the forecast period.
Availability of funding and liquidity
The availability of funding and liquidity is a key consideration, including retail deposit, wholesale funding, central bank and other
contingent liquidity options.
The Group’s retail deposits of £16,265.7m (note 31), raised through Paragon Bank, are repayable within five years, with 90.8% of this
balance (£14,765.3m) payable within twelve months of the balance sheet date. The liquidity exposure represented by these deposits
is closely monitored; a process supervised by the ALCO. The Group is required to hold liquid assets in Paragon Bank to mitigate
this liquidity risk. At 30 September 2025, Paragon Bank held £2,736.7m of balance sheet assets for liquidity purposes, in the form
of central bank deposits and investment securities (note 60). A further £150.0m of liquidity was provided by the off balance sheet
long / short transaction described in note 60, bringing the total to £2,886.7m.
Page 339
The Accounts
Paragon Bank manages its liquidity in line with the Board’s risk appetite and the requirements of the PRA, which are formally
documented in the Board’s approved Individual Liquidity Adequacy Assessment Process (‘ILAAP’), updated annually. The Bank
maintains a liquidity framework that includes a short to medium-term cash flow requirement analysis, a longer-term funding plan and
access to the Bank of England’s liquidity insurance facilities, where pre-positioned assets would support further drawings of £4,168.3m
(2024: £4,445.9m). Holdings of the Group’s own externally rated mortgage-backed loan notes can also be used to access the Bank of
England’s liquidity facilities or other funding arrangements. At 30 September 2025 the Group had £1,614.2m (2024: £1,797.2m) of such
notes available for use, of which £1,353.2m were rated AAA (2024: £1,536.2m). The available AAA notes would give access to £1,055.5m
if used to support drawings on Bank of England facilities (2024: £751.9m).
The earliest maturity of any of the Group’s wholesale debt at the balance sheet date was the central bank debt payable in October 2025,
which was satisfied on its due date. No other long-term debt falls due before March 2027.
The Group has regularly accessed the capital markets for warehouse funding and corporate and retail bonds over recent years and
continues to be able to access these markets. It also has access to the short-term repo market which it accesses from time to time for
liquidity purposes.
During the year, the Group established a covered bond programme under which it can issue up to £5,000.0m of bonds, when market
conditions are acceptable, with relatively short preparation and lead time.
The Group’s access to debt is enhanced by its BBB+ corporate rating, confirmed by Fitch Ratings in February 2025, and its Baa3
corporate rating issued by Moody’s Investor Services in November 2024. Its status as an issuer is evidenced by the BBB-, investment
grade, rating of its £150.0m Tier-2 bonds awarded by Fitch.
The Group’s cash analysis, which includes the impact of all scheduled debt and deposit repayments, continues to show a strong
position, even after allowing scope for significant discretionary payments and capital distributions.
As described in note 57 the Group’s capital base is subject to consolidated supervision by the PRA. Its capital at 30 September 2025
was in excess of regulatory requirements and its forecasts indicate this will continue to be the case, even allowing for currently proposed
changes in the UK’s capital requirements framework.
Going concern assessment
In order to assess the appropriateness of the going concern basis, the directors considered the financial position of the Group and the
Company, the cash flow requirements laid out in the Group’s forecasts, its access to funding, the assumptions underlying the forecasts
and potential risks affecting them. As part of this exercise, the potential impacts on funding, capital and cash of the motor finance
exposures described in note 39 were considered.
After performing this assessment, the directors concluded that there was no material uncertainty as to whether the Group and the
Company would be able to maintain adequate capital and liquidity for at least twelve months following the date of approval of these
financial statements and consequently that it was appropriate for them to continue to adopt the going concern basis in preparing the
financial statements of the Group and the Company.
Page 340
Note 2025 | 2024 | ||
£m | £m | ||
| Financial assets | |||
Derivative financial assets | 24 | 275.4 | 391.8 |
| Financial liabilities | |||
Derivative financial liabilities | 24 | 68.2 | 99.7 |
Note 2025 | 2025 | 2024 | 2024 | ||
Carrying amount | Fair value | Carrying amount | Fair value | ||
£m | £m | £m | £m | ||
| The Group | |||||
| Financial assets | |||||
Cash | 14 | 2,389.5 | 2,389.5 | 2,525.4 | 2,525.4 |
Investment securities | 15 | 626.2 | 611.6 | 427.4 | 422.0 |
Loans to customers | 16 | 16,341.3 | 16,357.5 | 15,705.5 | 15,772.5 |
Sundry financial assets | 25 | 16.9 | 16.9 | 15.8 | 15.8 |
19,373.9 | 19,375.5 | 18,674.1 | 18,735.7 | ||
| Financial liabilities | |||||
Short-term bank borrowings | 0.5 | 0.5 | 0.4 | 0.4 | |
Retail deposits | 31 | 16,265.7 | 16,260.0 | 16,298.0 | 16,334.2 |
Corporate bonds | 34 | 150.1 | 149.2 | 149.9 | 145.5 |
Covered bonds | 32 | 499.2 | 501.3 | - | - |
Sale and repurchase agreements | 36 | 100.0 | 100.0 | 100.0 | 100.0 |
Other financial liabilities | 37 | 413.4 | 413.4 | 398.1 | 398.1 |
17,428.9 | 17,424.4 | 16,946.4 | 16,978.2 |
Page 341
The Accounts
Note 2025 | 2025 | 2024 | 2024 | ||
Carrying amount | Fair value | Carrying amount | Fair value | ||
£m | £m | £m | £m | ||
| The Company | |||||
| Financial assets | |||||
Cash | 14 | 17.6 | 17.6 | 18.3 | 18.3 |
Intra-group cash deposits | 25 | 65.3 | 65.3 | 107.6 | 107.6 |
Amounts owed to group companies | 25 | 19.0 | 19.0 | 20.9 | 20.9 |
Sundry financial assets | 25 | 0.1 | 0.1 | 0.1 | 0.1 |
102.0 | 102.0 | 146.9 | 146.9 | ||
| Financial liabilities | |||||
Corporate bonds | 34 | 149.8 | 149.2 | 149.6 | 145.5 |
Amounts owed by group companies | 37 | 24.5 | 24.5 | 23.6 | 23.6 |
Other financial liabilities | 37 | 0.7 | 0.7 | 25.4 | 25.4 |
175.0 | 174.4 | 198.6 | 194.5 |
Page 342
Company | Holding | Principal activity |
| Direct subsidiaries of Paragon Banking Group PLC | ||
Paragon Bank PLC | 100% | Deposit taking, residential mortgages and loan and vehicle finance |
Paragon Car Finance Limited | 100% | Vehicle Finance |
Idem Capital Holdings Limited | 100% | Intermediate holding company |
Redbrick Survey and Valuation Limited | 100% | Surveyors and property consulting |
Paragon Mortgages (No. 12) PLC | 100% * | Residential mortgages |
Colonial Finance (UK) Limited | 100% | Non-trading |
Earlswood Finance Limited | 100% | Non-trading |
Herbert (1) PLC | 100% | Non-trading |
Herbert (2) PLC | 100% | Non-trading |
Herbert (4) PLC | 100% | Non-trading |
Herbert (5) PLC | 100% | Non-trading |
Herbert (6) PLC | 100% | Non-trading |
Herbert (7) PLC | 100% | Non-trading |
Herbert (8) PLC | 100% | Non-trading |
Herbert (9) PLC | 100% | Non-trading |
Herbert (10) PLC | 100% | Non-trading |
Moorgate Asset Administration Limited | 100% | Non-trading |
Paragon Car Finance (1) Limited | 100% | Non-trading |
Paragon Mortgages (No. 5) PLC | 100% | Non-trading |
Paragon Pension Investments GP Limited | 100% | Non-trading |
Paragon Pension Plan Trustees Limited | 100% | Non-trading |
Paragon Personal Finance (1) Limited | 100% | Non-trading |
Universal Credit Limited | 100% | Non-trading |
Yorkshire Freeholds Limited | 100% | Non-trading |
Yorkshire Leaseholds Limited | 100% | Non-trading |
Page 343
The Accounts
Company | Holding | Principal activity |
| Direct and indirect subsidiaries of Paragon Bank PLC | ||
Paragon Finance PLC | 100% | Residential mortgages and asset administration |
Mortgage Trust Limited | 100% | Residential mortgages |
Paragon Mortgages Limited | 100% | Residential mortgages |
Paragon Mortgages (2010) Limited | 100% | Residential mortgages |
Mortgage Trust Services PLC | 100% | Residential mortgages and asset administration |
Paragon Asset Finance Limited | 100% | Holding company |
Paragon Business Finance PLC | 100% | Asset finance |
Paragon Development Finance Limited | 100% | Development Finance |
Paragon Development Finance Services Limited | 100% | Development Finance |
PBAF Acquisitions Limited | 100% | Residential mortgages and loan finance |
Premier Asset Finance Limited | 100% | Asset finance broker |
Specialist Fleet Services Limited | 100% | Asset finance and contract hire |
Collett Transport Services Limited | 100% | Non-trading |
Homer Management Limited | 100% | Non-trading |
Lease Portfolio Management Limited | 100% | Non-trading |
Paragon Commercial Finance Limited | 100% | Non-trading |
Paragon Options PLC | 100% | Non-trading |
Paragon Technology Finance Limited | 100% | Non-trading |
| Other indirect subsidiary undertakings | ||
Moorgate Loan Servicing Limited | 100% | Asset administration |
Idem Capital Securities Limited | 100% | Asset investment |
Paragon Personal Finance Limited | 100% | Consumer loan finance |
Page 344
Company | Principal activity |
Paragon Covered Bonds Finance Limited * | Holding company |
Paragon Covered Bonds (Holdings) Limited | Holding company |
Paragon Mortgages (No. 27) Holdings Limited | Holding company |
Paragon Mortgages (No. 27) PLC | Residential mortgages |
Paragon Mortgages (No. 28) Holdings Limited | Holding company |
Paragon Mortgages (No. 28) PLC | Residential mortgages |
Paragon Mortgages (No. 29) Holdings Limited | Holding company |
Paragon Mortgages (No. 29) PLC | Residential mortgages |
Arianty Holdings Limited | Non-trading |
Arianty No. 1 PLC | Non-trading |
Paragon Fifth Funding Limited | Non-trading |
Paragon Seventh Funding Limited | Non-trading |
Paragon Sixth Funding Limited | Non-trading |
Paragon Mortgages (No. 25) Holdings Limited | Non-trading |
Paragon Mortgages (No. 25) PLC | Non-trading |
Paragon Mortgages (No. 26) Holdings Limited | Non-trading |
Page 345
The Accounts
Company | Holding | Principal activity |
| Direct subsidiaries of Paragon Banking Group PLC | ||
Paragon Dealer Finance Limited | 100% | Non-trading |
Paragon Loan Finance (No. 3) Limited | 100% | Non-trading |
Paragon Third Funding Limited | 100% | Non-trading |
Paragon Vehicle Contracts Limited | 100% | Non-trading |
The Business Mortgage Company Limited | 100% | Non-trading |
| Direct and indirect subsidiaries of Paragon Bank PLC | ||
Paragon Second Funding Limited | 100% | Non-trading |
| Other indirect subsidiary undertakings | ||
Buy to let Direct Limited | 100% | Non-trading |
TBMC Group Limited | 100% | Non-trading |
The Business Mortgage Company Services Limited | 100% | Non-trading |
Company | Holding | Principal activity |
Paragon Mortgages (No. 26) PLC | Non-trading |
Page 348
E1. Appendices to the Annual Report
Appendices
to the Annual
Report
Additional financial information supporting
amounts shown in the Strategic Report
(Section A), but not forming part of the
statutory accounts or subject to audit.
RESPECT | Kishan
Page 348
E1. Appendices to the Annual Report
For the year ended 30 September 2025
A. Underlying results
The Group reports underlying profit excluding fair value accounting adjustments arising from its hedging arrangements and certain
one-off items of income and costs relating to provisions, asset sales and acquisitions.
The fair value adjustments arise principally as a result of market interest rate movements, outside the Group’s control. They are profit
neutral over time and are not included in operating profit for management reporting purposes. They are also disregarded by many
external analysts.
The transactions relating to the provisions, asset disposals and acquisitions do not form part of the day-to-day activities of the Group
and, therefore, their removal provides greater clarity on the Group’s operational performance.
This definition of ‘underlying’ has been chosen following consideration of the needs of investors and analysts following the Group’s shares,
and because management feel it better represents the underlying economic performance of the Group’s business. However, it should be
noted that definitions used for these measures differ between firms, and caution should be exercised in making direct comparisons.
Note 2025 2024
£m £m
Profit on ordinary activities before tax 256.5 253.8
Add back: Fair value adjustments 11 11.9 38.9
Motor finance provisions 39 25.5 -
Underlying profit 293.9 292.7
Underlying basic earnings per share, calculated on the basis of underlying profit adjusted for tax, is derived as follows.
2025 2024
£m £m
Underlying profit 293.9 292.7
Tax on underlying result (77.1) (80.3)
Underlying earnings 216.8 212.4
Basic weighted average number of shares (note 13) 197.7 210.1
Underlying earnings per share 109.7p 101.1p
Tax has been charged on the underlying profit at 26.2%, being the effective rate which would result from the exclusion of the adjusting
items from the corporation tax calculation (2024: 27.4%).
Page 349
Appendices
Underlying return on tangible equity is derived using underlying earnings calculated on the same basis shown above. As stated
in its annual report for the year ended 30 September 2024, the Group has revised its definition of underlying RoTE to increase
comparability with other entities in the sector, effective from the current financial year.
The disclosure of underlying RoTE set out below is calculated on the new basis.
Note 2025 2024
£m £m
Underlying earnings 216.8 212.4
Amortisation and derecognition of intangible assets 8 2.0 1.2
Adjusted underlying earnings 218.8 213.6
Average tangible equity 57 1,248.1 1,245.2
Underlying RoTE 17.5% 17.2%
The measure above was disclosed as ‘Alternative underlying RoTE’ in the 30 September 2024 annual report.
Page 350
B. Income statement ratios
Net Interest Margin (‘NIM’) and cost of risk (impairment charge as a percentage of average loan balance) for the Group and its
segments are calculated as shown below. Not all net interest is allocated to segments and therefore total segment net interest in
these tables will not equal net interest for the Group (see note 2).
Year ended 30 September 2025
Note
Mortgage
Lending
Commercial
Lending
Group
Total
£m £m £m
Opening loans to customers 16 13,415.7 2,289.8 15,705.5
Closing loans to customers 16 13,876.4 2,464.9 16,341.3
Average loans to customers 13,646.1 2,377.3 16,023.4
Net interest 2 287.7 135.5 502.3
NIM 2.11% 5.70% 3.13%
Impairment provision charge 10 6.3 35.6 41.9
Cost of risk 0.05% 1.50% 0.26%
Year ended 30 September 2024
Note
Mortgage
Lending
Commercial
Lending
Group
Total
£m £m £m
Opening loans to customers 16 12,902.3 1,972.0 14,874.3
Closing loans to customers 16 13,415.7 2,289.8 15,705.5
Average loans to customers 13,159.0 2,130.9 15,289.9
Net interest 2 282.3 124.8 483.2
NIM 2.15% 5.86% 3.16%
Impairment provision charge 10 5.6 18.9 24.5
Cost of risk 0.04% 0.89% 0.16%
Page 351
Appendices
C. Cost:income ratio
Cost:income ratio is derived as follows:
Note 2025 2024
£m £m
Cost – operating expenses 8 179.3 179.2
Total operating income 515.1 496.4
Cost / Income 34.8% 36.1%
D. Dividend cover
For the purposes of dividend policy, the Group defines dividend cover based on basic earnings per share, adjusted where considered
appropriate, and dividend per share. This is the most common measure used by financial analysts.
For the current and preceding years, the Board has determined that it is appropriate to exclude the post-tax impact of fair value losses
from its calculation. It has also decided, for the current year, to exclude the impact of provisions made for liabilities in respect of
historical motor finance commissions. The dividend cover for the year, subject to the approval of the 2025 final dividend at the AGM
in March 2026, is therefore as set out below.
Note 2025 2024
Earnings per share (p) 13 91.2 88.5
Attributable fair value losses (p) 6.0 18.5
Attributable provision for liabilities (p) 12.9 -
Attributable tax on the above (p) (0.4) (5.9)
Adjusted earnings (p) 109.7 101.1
Proposed dividend per share in respect of the year (p) 44 43.9 40.4
Dividend cover (times) 2.50 2.50
E. Net asset value
Note 2025 2024
Total equity (£m) 1,420.2 1,419.5
Outstanding issued shares (m) 41 197.4 210.6
Treasury shares (m) 43 (3.4) (2.1)
Shares held by ESOP schemes (m) 43 (3.4) (4.2)
190.6 204.3
Net asset value per £1 ordinary share £7.45 £6.95
Tangible equity (£m) 57 1,248.1 1,248.0
Tangible net asset value per £1 ordinary share £6.55 £6.11
Glossary
Page 354
F1. Glossary
A summary of abbreviations used
in the Annual Report and Accounts
CREATIVITY | Sunny
Page 354
F1. Glossary
ACS Annual Cyclical Scenario published by the
Bank of England
Act The Companies Act 2006
AGM Annual General Meeting
AI Artificial Intelligence
ALCO Asset and Liability Committee
AML Anti Money Laundering
APP Accelerated Progress Programme
AQR Audit Quality Review
ARGA Auditing, Reporting and Governance Authority
Articles The Articles of Association of the Company
ASHE Annual Survey of Hours and Earnings
AT1 Additional Tier 1
Paragon Bank
or The Bank
Paragon Bank PLC
Bank Tax Code The Code of Practice on Taxation for Banks
BBB British Business Bank
BBLS Bounce Back Loan Scheme
BBR Bank Base Rate
BCBS Basel Committee on Banking Supervision
BEIS Department for Business, Energy and
Industrial Strategy
BEPS Base Erosion and Profit Shifting
BEVs Battery-powered Electric Vehicles
BGS Balance Guarantee Swaps
BHI Better Hiring Institute
BTR Build-to-Rent
B4NZ Bankers For Net Zero
CAGR Compound Annual Growth Rate
CBES Climate Biennial Exploratory Scenario
CBI Confederation of British Industry
CBILS Coronavirus Business Interruption Loan Scheme
CCC Customer and Conduct Committee
CCoB Capital Conservation Buffer
CCP Central Clearing Counterparty
CCR Counterparty Credit Risk
CCyB Counter-Cyclical Capital Buffer
CEO Chief Executive Officer
CET1 Common Equity Tier 1
CFO Chief Financial Officer
CFRF Climate Financial Risk Forum
CGI Chartered Governance Institute UK & Ireland
CGU Cash Generating Unit
CIB Chartered Institute of Bankers
CiVC Customers in Vulnerable Circumstances
CIIA Chartered Institute of Internal Auditors
CML Council of Mortgage Lenders
COCON Code of Conduct Rules
Code UK Corporate Governance Code
CO
2
e CO
2
Equivalent
COO Chief Operating Officer
Company Paragon Banking Group PLC
CP Consultation Paper
CPI Consumer Price Index
CPO Chief People Officer
CRDs Cash Ratio Deposits
CRO Chief Risk Officer
CRR Capital Requirements Regulation – EU Regulation
575/2013
CRY Cardiac Risk in the Young
CSA Credit Support Annex
CSOP Company Share Option Plan
DCA Discretionary Commission Arrangement
DECL Task Force on Disclosure about Expected Credit Loss
DEFRA Department for Environment, Food and Rural Affairs
Deloitte Deloitte LLP, the incoming external auditor
DISP FCA’s Dispute Resolution: Complaints Sourcebook
DSBP Deferred Share Bonus Plan
DTR Disclosure and Transparency Rule
ECL Expected Credit Loss
EDI Equality, Diversity and Inclusion
EIR Effective Interest Rate
EPC Energy Performance Certificate
EPS Earnings per Share
EQA External Quality Assessment
ERC Executive Risk Committee
ERMF Enterprise Risk Management Framework
ESG Environmental, Social and Governance
ESOP Employee Share Ownership Plan
ESOS Energy Savings and Opportunities Scheme
EU European Union
EV Economic Value
ExCo Executive Performance Committee
FCA Financial Conduct Authority
FLA Finance and Leasing Association
FOS Financial Ombudsman Service
FPC Financial Policy Committee (of the Bank of England)
FPC Fair Payment Code
The Framework The Group Corporate Governance Policy Framework
FRC Financial Reporting Council
FSCS Financial Services Compensation Scheme
FVTPL Fair Value Through Profit and Loss
GDP Gross Domestic Product
GFI Green Finance Institute
GGCS Green Gas Certification Scheme
GGS Growth Guarantee Scheme
GHG Greenhouse Gases
GHI Green Homes Initiative
Gilts UK Government securities
GloBE Global Base Erosion
GMP Guaranteed Minimum Pension
Group The Company and all its subsidiary undertakings
HMRC His Majesty’s Revenue and Customs
HPI House Price Index
HQLA High Quality Liquid Assets
IAP Internal Audit Plan
IAS International Accounting Standard(s)
IASB International Accounting Standards Board
ICAAP Internal Capital Adequacy Assessment Process
Page 355
Glossary
IFRS International Financial Reporting Standard(s)
IIP Investors In People
ILAAP Internal Liquidity Adequacy Assessment Process
ILG Individual Liquidity Guidance
I LT R Indexed Long Term Repo Scheme
IMLA Intermediary Mortgage Lenders Association
IRB Internal Ratings Based
IRRBB Interest Rate Risk in the Banking Book
ISAs International Standards on Auditing
ISDA International Swaps and Derivatives Association
ISO14001:2015 ISO14001:2015, ‘Environmental Management Systems’
ISO45001:2018 ISO45001:2018, ‘Management Systems of
Occupational Health and Safety’
KPMG KPMG LLP, the Group’s auditor
LCR Liquidity Coverage Ratio
LCV Light Commercial Vehicles
LDI Liability Driven Investments
LGD Loss Given Default
LTGDV Loan to Gross Development Value
LTV Loan to Value
M&A Mergers and Acquisitions
MAR Market Abuse Regulation
MEES Domestic Minimum Energy Efficiency Standard
as proposed by the UK Government
MES Multiple Economic Scenarios
MIMHC Mortgage Industry Mental Health Charter
Minimum
Standard
FRC Minimum Standard: Audit Committees
and the External Audit
MLRO Money Laundering Reporting Officer
MRC Model Risk Committee
MREL Minimum Requirement for own funds
and Eligible Liabilities
MRT Material Risk Taker
MWh Mega-Watt Hours
NGFS Network for Greening the Financial System
NI National Insurance
NII Net Interest Income
NIM Net Interest Margin
Notes Asset backed loan notes
NPS Net Promoter Score
NSFR Net Stable Funding Ratio
NS&I National Savings and Investments
OBR Office of Budget Responsibility
OCI Other Comprehensive Income
OECD Organisation for Economic Cooperation
and Development
OFGEM Office of Gas and Electricity Markets
OHSMS Occupational Health and Safety Management System
OLAR Overall Liquidity Adequacy Requirement
ONS Office for National Statistics
ORC Operational Risk Committee
Order The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014
PAYE Pay As You Earn
PBSA Purpose-Built Student Accommodation
PD Probability of Default
PCAF Partnership for Carbon Accounting Financials
Performance
Exco
Executive Performance Committee
PFP Pension Funding Partnership
PIDA Public Interest Disclosure Act 1998
PIEs Public Interest Entities
Plan The Paragon Pension Plan
PLC Public Limited Company
PM 12 Paragon Mortgages (No. 12) PLC
PMA Post-Model Adjustments
POCI Purchased or Originated Credit Impaired (assets)
PPP Purpose and Performance Profiles
PRA Prudential Regulation Authority
(of the Bank of England)
PRS Private Rented Sector
PRP Profit Related Pay
PSP Performance Share Plan
PwC PricewaterhouseCoopers LLP
RBA Role Based Allowance
RCP Representative Concentration Pathway
Repo Sale and repurchase transactions
RICS Royal Institution of Chartered Surveyors
RIDDOR Reporting of Incidents, Disease and
Dangerous Occurrences Regulation 2013
RLS Recovery Loan Scheme
RMBS Residential Mortgage Backed Securities
RNS Regulatory News Service
RoR Receiver of Rent
RoTE Return on Tangible Equity
RPI Retail Price Index
RSU Restricted Stock Unit
RWA Risk Weighted Assets
SA Standardised Approach
SAWG Scenario Analysis industrial Working Group
SA-CCR Standardised Approach for Counterparty Credit Risk
Schedule 7 Schedule 7 to the Large and Medium-sized
Companies and Groups (Accounts and Reports)
Regulations 2008
SDDT Small Domestic Deposit Taker
SEA Solvent Exit Analysis
SEB Socio-Economic Background
SFS Specialist Fleet Services Limited
SIC Standard Industrial Classification
SICR Significant Increase in Credit Risk
Sharesave All-employee share option scheme
SME Small and / or Medium-sized Enterprise(s)
SMCR Senior Managers and Certification Regime
SMMT Society of Motor Manufacturers and Traders
SONIA Sterling Overnight Interbank Average
SPPI Solely Payments of Principal and Interest
SPV Special Purpose Vehicle
STR Short-Term Repo (scheme)
TCFD Taskforce on Climate-related Financial Disclosures
TCR Total Capital Requirement
TFSME Term Funding Scheme with additional incentives
for SMEs
TRC Total Regulatory Capital
TRE Total Risk Exposure
TSR Total Shareholder Return
TVR Total Voting Rights
UK United Kingdom
UKF UK Finance
UKLR UK Listing Rules
UTP Unlikeliness To Pay
Useful
information
Page 358
Page 359
G1. Shareholder information
Information about dividends, meetings and
managing shareholdings
G2. Other public reporting
Current and future public reporting information
Information which may be helpful to shareholders
and other users of the Annual Report and Accounts
HUMOUR | Steve
Financial calendar
Annual General Meeting
Duplicate documents and communications
Shareholder fraud warning
Website
Electronic communications
Want more information or help?
Dividend calendar
G1. Shareholder information
If you receive more than one copy of shareholder documents, it is likely that
you have multiple shareholding accounts on the share register, perhaps with
a slightly different name or address. To combine your shareholdings, please
contact Computershare and provide your Shareholder Reference Number.
Shareholders are advised to be very wary of any suspicious or unsolicited
advice or offers, whether over the telephone, through the post or by email. If
you receive any such unsolicited communication, please check the company
or person contacting you is properly authorised by the FCA before getting
involved. You can check at www.fca.org.uk/consumers/protect-yourself and
can report calls from unauthorised firms to the FCA by calling 0800 111 6768.
You can find further useful information on our website,
www.paragonbankinggroup.co.uk, including:
• Regular updates about our business
• Comprehensive share price information
• Financial results and reports
• Historic dividend dates and amounts
You can view and manage your shareholding online by registering with
Computershare’s Investor Centre service. To register:
• Visit www.investorcentre.co.uk
• Click on ‘Register now’
• Register using your Shareholder Reference Number and
your postcode
We actively encourage our shareholders to receive communications via
email and view documents electronically on our website, including our
Annual Report and Accounts, as this has significant environmental and
cost benefits. If you wish to receive electronic documents please contact
Computershare by telephone or online.
The Company’s share register is maintained
by our Registrars, Computershare. Please
contact them directly if you have questions
about your shareholding or wish to update
your address details.
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ
Telephone: 0370 707 1244* and outside the UK +44 (0)370 707 1244
Online: www.investorcentre.co.uk
*Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will
be charged at the applicable international rate. Lines are open 8:30am to 5:30pm, Monday to Friday,
excluding UK public holidays.
January 2026
Quarter 1 trading update
4 March 2026
5 February 2026
Ex-dividend date for 2025
final dividend
2 July 2026
Ex-dividend date for 2026
interim dividend
6 February 2026
Record date for 2025
final dividend
3 July 2026
Record date for 2026
interim dividend
6 March 2026
Payment date for 2025
final dividend
24 July 2026
Payment date for 2026
interim dividend
July 2026
Quarter 3 trading update
June 2026
Half-year results
December 2026
Full-year results
Page 358
G2. Other public reporting
In addition to its annual financial reporting the Group has published, or will publish, the following documents in respect of the year
ended 30 September 2025, as required by legislation or regulation, relating to the Group or its constituent entities.
• Annual and half-year Pillar 3 disclosures required by the PRA Rulebook
• Tax Strategy Statement
• Modern Slavery Statement
• Gender pay gap information
These documents are made available on the Group’s corporate website at www.paragonbankinggroup.co.uk.
All these statements are required to be published annually. In addition, for the year ended 30 September 2025, the Group has
published bi-annual statements on supplier payments under the Reporting on Payment Practices and Performance Regulations 2017.
It also made its ninth report against its Women in Finance charter commitments in September 2025.
All this reporting will be continued in the financial year ending 30 September 2026.
The Group publishes an annual sustainability report, the Responsible Business Report. This gives additional information on ESG
issues and illustrates the application of the Group’s ESG strategy in practice. The 2025 Responsible Business Report will be published
in December 2025 and will also be available on the Group’s corporate website.
Page 359
Useful information
Contacts
Page 362
H1. Contacts
Names and addresses
of our advisers
Information which may be helpful to
shareholders and other users of the
Annual Report and Accounts
COMMITMENT | Annette
Consulting actuaries
External auditor designate
Customer website
Company Secretariat
Registrars
Remuneration consultants
External auditor
Corporate website
Investor Relations
Solicitors
Brokers
Registered and head office
Mercer Limited
Four Brindleyplace
Birmingham B1 2JQ
Year ending 30 September 2026
Deloitte LLP
Four Brindleyplace
Birmingham B1 2HZ
www.paragonbank.co.uk
(retail investors)
company.secretary@paragonbank.co.uk
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone: 0370 707 1244
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Year ended 30 September 2025
KPMG LLP
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
www.paragonbankinggroup.co.uk
(institutional investors)
investor.relations@paragonbank.co.uk
Slaughter and May
One Bunhill Row
London EC1Y 8YY
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
UBS Limited
5 Broadgate
London EC2M 2QS
51 Homer Road, Solihull, West Midlands B91 3QJ
Telephone: 0345 849 4000
Page 362
H1. Contacts
Page 363
Contacts
GRP0241-001 (01/2026)
PARAGON BANKING GROUP PLC
51 Homer Road, Solihull, West Midlands B91 3QJ
Telephone: 0345 849 4000
www.paragonbankinggroup.co.uk
Registered No. 02336032