![]() 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 1 October 2024 to 30 September 2025 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 are a specialist banking group. We offer a range of savings accounts and provide finance for landlords, small and medium- sized businesses (‘SMEs’) and residential property developers in the UK. 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 ![]() Page 31 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. ![]() Page 35 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 ![]() Page 43 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. ![]() Page 49 Strategic Report 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. ![]() Page 51 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%). ![]() Page 53 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. ![]() Page 55 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. ![]() Page 57 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. ![]() Page 58 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 ![]() Page 59 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. ![]() Page 61 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. ![]() Page 63 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. ![]() Page 65 Strategic Report 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 ![]() Page 66 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. ![]() Page 67 Strategic Report 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. ![]() Page 68 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. ![]() Page 69 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. ![]() Page 70 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. ![]() Page 71 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. ![]() Page 72 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%) ![]() Page 73 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. ![]() Page 75 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. ![]() Page 76 (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 ![]() Page 77 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. ![]() Page 78 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. ![]() Page 79 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. ![]() Page 81 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. ![]() Page 83 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 ![]() Page 85 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. ![]() Page 86 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) ![]() Page 87 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. ![]() Page 88 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. ![]() Page 89 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. ![]() Page 90 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). ![]() Page 91 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. ![]() Page 92 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 ![]() Page 96 Page 98 Page 100 Page 108 Page 126 Page 132 Page 142 Page 182 Page 200 Page 203 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 Page 97 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 ![]() Page 99 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 Page 101 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 Page 103 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 ![]() Page 105 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. ![]() Page 107 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 Page 108 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 ![]() Page 109 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 ![]() Page 110 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. ![]() Page 111 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. ![]() Page 112 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 ![]() Page 113 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. ![]() Page 114 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 ![]() Page 115 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 ![]() Page 117 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 ![]() Page 118 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 ![]() Page 119 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 ![]() Page 120 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 ![]() Page 121 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. ![]() Page 122 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 ![]() Page 123 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. ![]() Page 124 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. ![]() Page 125 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 Page 126 ![]() Page 127 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 ![]() Page 128 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. ![]() Page 129 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. ![]() Page 131 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 ![]() Page 133 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 ![]() Page 135 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 ![]() Page 137 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 ![]() Page 139 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. ![]() Page 140 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. ![]() Page 141 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. Page 142 ![]() Page 143 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. Page 144 ![]() 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 Page 145 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. Page 149 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. Page 151 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. Page 158 ![]() Page 159 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. ![]() Page 161 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% ![]() Page 162 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 ![]() Page 163 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). ![]() Page 164 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% ![]() Page 165 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. ![]() Page 167 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. ![]() Page 169 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. ![]() Page 170 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. ![]() Page 171 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. ![]() Page 172 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. ![]() Page 173 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. ![]() Page 174 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. ![]() Page 175 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. ![]() Page 176 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% ![]() Page 177 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. ![]() Page 178 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 (£) ![]() Page 179 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. ![]() Page 180 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. ![]() Page 181 Corporate Governance 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 Page 182 ![]() Page 183 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. ![]() Page 185 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. ![]() Page 187 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. ![]() Page 189 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 ![]() Page 190 • 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 ![]() Page 191 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. Page 192 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. Page 193 Corporate Governance ![]() Page 194 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. ![]() Page 195 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. ![]() Page 196 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. Page 197 Corporate Governance ![]() Page 198 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. ![]() Page 199 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 ![]() Page 203 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. ![]() Page 207 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. ![]() Page 209 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. ![]() Page 213 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. Michael McGarry (Senior Statutory Auditor) 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 | | 1,249.0 | | 1,314.7 | | Interest payable and similar charges | 5 | | (746.7) | | (831.5) | | Net interest income | | | 502.3 | | 483.2 | | Other leasing income | 6 | 31.7 | | 30.4 | | | Related costs | 6 | (25.6) | | (24.2) | | | Net operating lease income | | 6.1 | | 6.2 | | | Other income | 7 | 6.7 | | 7.0 | | | Other operating income | | | 12.8 | | 13.2 | | Total operating income | | | 515.1 | | 496.4 | | Operating expenses | 8 | | (179.3) | | (179.2) | | Provisions for credit losses | 10 | | (41.9) | | (24.5) | | Provisions for liabilities | 39 | | (25.5) | | - | | Operating profit before fair value items | | | 268.4 | | 292.7 | | Fair value net (losses) | 11 | | (11.9) | | (38.9) | | Operating profit being profit on ordinary activities before taxation | | | 256.5 | | 253.8 | | Tax charge on profit on ordinary activities | 12 | | (76.2) | | (67.8) | | Profit on ordinary activities after taxation for the financial year | | | 180.3 | | 186.0 | | | Note | | 2025 | | 2024 | | Earnings per share | | | | | | | - basic | 13 | | 91.2p | | 88.5p | | - diluted | 13 | | 87.9p | | 85.2p | 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 | | | 180.3 | | 186.0 | | Other comprehensive income | | | | | | | Items that will not be reclassified subsequently to profit or loss | | | | | | | Actuarial (loss) / gain on pension scheme | 56 | (1.4) | | 7.2 | | | Tax thereon | | 0.2 | | (1.8) | | | Other comprehensive income for the year net of tax | | | (1.2) | | 5.4 | | Total comprehensive income for the year | | | 179.1 | | 191.4 | 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 | 2,175.7 | 2,315.5 | 2,783.3 | | Cash – retail banks | 14 | 213.8 | 209.9 | 211.0 | | Investment securities | 15 | 626.2 | 427.4 | - | | Loans to customers | 16 | 16,335.9 | 15,630.3 | 14,495.0 | | Derivative financial assets | 24 | 275.4 | 391.8 | 615.4 | | Sundry assets | 25 | 24.2 | 20.7 | 51.0 | | Current tax assets | 26 | 6.2 | 9.7 | 8.9 | | Retirement benefit obligations | 56 | 23.5 | 22.2 | 12.7 | | Property, plant and equipment | 27 | 77.0 | 71.0 | 74.7 | | Intangible assets | 28 | 172.1 | 171.5 | 168.2 | | Total assets | | 19,930.0 | 19,270.0 | 18,420.2 | | Liabilities | | | | | | Short-term bank borrowings | | 0.5 | 0.4 | 0.2 | | Retail deposits | 31 | 16,270.8 | 16,314.7 | 13,234.4 | | Derivative financial liabilities | 24 | 68.2 | 99.7 | 39.9 | | Asset backed loan notes | 60 | - | - | 28.0 | | Covered bonds | 32 | 499.2 | - | - | | Retail bond issuance | 33 | - | - | 112.4 | | Corporate bond issuance | 34 | 150.1 | 149.9 | 145.8 | | Central bank facilities | 35 | 950.0 | 755.0 | 2,750.0 | | Sale and repurchase agreements | 36 | 100.0 | 100.0 | 50.0 | | Sundry liabilities | 37 | 431.6 | 417.4 | 631.2 | | Provisions | 39 | 25.5 | - | - | | Deferred tax liabilities | 40 | 13.9 | 13.4 | 17.7 | | Total liabilities | | 18,509.8 | 17,850.5 | 17,009.6 | | Called up share capital | 41 | 197.4 | 210.6 | 228.7 | | Reserves | 42 | 1,276.6 | 1,274.3 | 1,257.5 | | Own shares | 43 | (53.8) | (65.4) | (75.6) | | Total equity | | 1,420.2 | 1,419.5 | 1,410.6 | | Total liabilities and equity | | 19,930.0 | 19,270.0 | 18,420.2 | 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 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 | (377.4) | 2,216.4 | | Net cash (utilised) by investing activities | 46 | (236.9) | (424.7) | | Net cash generated / (utilised) by financing activities | 47 | 478.3 | (2,260.8) | | Net (decrease) in cash and cash equivalents | | (136.0) | (469.1) | | Opening cash and cash equivalents | | 2,525.0 | 2,994.1 | | Closing cash and cash equivalents | | 2,389.0 | 2,525.0 | | Represented by balances within: | | | | | Cash | 14 | 2,389.5 | 2,525.4 | | Short-term bank borrowings | | (0.5) | (0.4) | | | | 2,389.0 | 2,525.0 | 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 | - | - | - | - | 180.3 | - | 180.3 | | Other comprehensive income | - | - | - | - | (1.2) | - | (1.2) | | Total comprehensive income | - | - | - | - | 179.1 | - | 179.1 | | 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 | - | - | - | - | 8.1 | - | 8.1 | | remuneration (note 53) | | | | | | | | | Tax on share based remuneration | - | - | - | - | 2.3 | - | 2.3 | | Net movement in equity in the year | (13.2) | - | 13.2 | - | (10.9) | 11.6 | 0.7 | | Opening equity | 210.6 | 71.4 | 31.0 | (70.2) | 1,242.1 | (65.4) | 1,419.5 | | Closing equity | 197.4 | 71.4 | 44.2 | (70.2) | 1,231.2 | (53.8) | 1,420.2 | | 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 | - | - | - | - | 186.0 | - | 186.0 | | Other comprehensive income | - | - | - | - | 5.4 | - | 5.4 | | Total comprehensive income | - | - | - | - | 191.4 | - | 191.4 | | 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 | - | - | - | - | 9.2 | - | 9.2 | | remuneration (note 53) | | | | | | | | | Tax on share based remuneration | - | - | - | - | 4.4 | - | 4.4 | | Net movement in equity in the year | (18.1) | - | 18.1 | - | (1.3) | 10.2 | 8.9 | | Opening equity | 228.7 | 71.4 | 12.9 | (70.2) | 1,243.4 | (75.6) | 1,410.6 | | Closing equity | 210.6 | 71.4 | 31.0 | (70.2) | 1,242.1 | (65.4) | 1,419.5 | 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 Paragon Banking Group PLC (the ‘Company’) is a company domiciled in the United Kingdom and incorporated in England and Wales 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 4. Interest receivable Interest receivable is analysed as follows. | | | | | | --- | --- | --- | --- | | | | 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 | The above amounts relate to: | | | | | --- | --- | --- | | | 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 | Other interest receivable relates principally to cash deposits at central and retail banks. ![]() Page 230 5. Interest payable and similar charges | | | | | --- | --- | --- | | | 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 | The above amounts relate to: | | | | | --- | --- | --- | | | 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 | Amounts payable in respect of bank loans and overdrafts include interest and fees payable in respect of collateral amounts received in respect of derivative financial instruments (note 37). 6. Net operating lease income | | | | | | --- | --- | --- | --- | | | | 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 7. Other income | | | | | --- | --- | --- | | | 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 | All loan account fee income arises from financial assets held at amortised cost. 8. Operating expenses | | | | | | --- | --- | --- | --- | | | | 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 | The Bank of England Levy was introduced from 1 March 2024. Accounting standards require that the Levy is accounted for in full on the first day of each annual Levy period. The Group incurred no costs in respect of short-term operating leases in the year (2024: none). 9. Auditor remuneration The analysis of fees payable to the Company’s auditors (KPMG LLP) and their associates, excluding irrecoverable VAT, required by the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 is set out below. | | | | | --- | --- | --- | | | 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 | Fees paid to the auditors and their associates for non-audit services to the Company are not disclosed because the consolidated accounts of the Group are required to disclose such fees on a consolidated basis. ![]() 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 | 11. Fair value net (losses) | | | | | --- | --- | --- | | | 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) | The fair value net (loss) represents the accounting volatility on derivative instruments which are matching risk exposures on an economic basis, generated by the requirements of IAS 39. Some accounting volatility arises on these items due to accounting ineffectiveness on designated hedges, or because hedge accounting has not been adopted or is not achievable on certain items. Fair value movements on derivatives which are not part of hedge for accounting purposes are shown as ‘net gain / (loss) on other derivatives’ above. The losses and gains are primarily due to timing differences in income recognition between the derivative instruments and the economically hedged assets and liabilities. Such differences will reverse over time and have no impact on the cash flows of the Group. The impact of hedging arrangements on the Group’s balance sheet is summarised in note 24 which also provides a full description of the Group’s use of derivative financial instruments for hedging purposes. ![]() 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 | 14. Cash balances ‘Cash balances’ includes current bank balances, money market placements and fixed rate sterling term deposits with London banks, and balances with the Bank of England. It is analysed as set out below. | | | | | | --- | --- | --- | --- | | | 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 | Not all of the Group’s cash is immediately available for its general purposes, including liquidity management. Cash received in respect of loan assets funded through warehouse facilities and securitisations, or forming part of a security pool for covered bonds (note 32) is not immediately available, due to the terms of those arrangements. This cash is shown as ‘securitisation cash’ below. Cash held by the Trustee of the Group’s employee share ownership plan (‘ESOP’) may only be used to invest in the shares of the Company, pursuant to the aims of that plan. This is shown as ‘ESOP cash’ below. ![]() Page 235 The Accounts The total ‘Cash balances’ may be analysed as shown below: | | | | | | --- | --- | --- | --- | | | 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 | Cash balances are classified as Stage 1 exposures (see note 20) for the purposes of impairment provisioning. The probabilities of default have been assessed to be so low as to require no significant impairment provision. 15. Investment securities The Group’s investment securities, which are held as part of Paragon Bank’s liquidity buffer, are analysed as follows: | | | | | | | --- | --- | --- | --- | --- | | | | 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 | The UK Government securities (‘gilts’) bear interest at a fixed rate, the average maturity of the gilts is 19.3 years (2024: 20.5 years), and the average fixed rate coupon is 4.5% (2024: 4.5%). Hedging arrangements in respect of these securities are described in note 24. The covered bonds are issued by UK financial institutions, are denominated in sterling and bear interest at a variable rate of interest based on SONIA. The average maturity of the covered bonds is 4.0 years (2024: 5.0 years) and the average interest margin above SONIA is 0.53% (2024: 0.51%). All the investment securities bear credit risk and are classified as Stage 1 exposures (see note 20) for IFRS 9 impairment purposes. As the securities are UK sovereign exposures, or highly-rated secured exposures to UK financial institutions, the probability of default has been assessed to be so low that no significant impairment provision is required. These securities are available to use as security against funding arrangements, such as sale and repurchase transactions, and for similar purposes. At 30 September 2025, £140.0 million of this balance, at principal value, had been pledged in this way (2024: £nil). ![]() 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 17. Finance lease receivables The Group’s finance leases can be analysed as shown below. | | | | | | --- | --- | --- | --- | | | 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 | The minimum lease payments due under these loan agreements are: | | | | | | --- | --- | --- | --- | | | 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 | The present values of those payments, net of provisions for impairment, carried in the accounts are: | | | | | | --- | --- | --- | --- | | | 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 | 18. Impairment provisions on loans to customers The following notes set out information on the Group’s impairment provisioning under IFRS 9 for the loans to customers balances set out in note 16, including both finance leases, accounted for under IFRS 16, and loans held at amortised cost, accounted for under IFRS 9, as both groups of assets are subject to the IFRS 9 impairment requirements. The disclosures are set out within the following notes: • 19 Loan impairments – Basis of provision • 20 Loan impairments by stage and division • 21 Loan impairments – Provision movements in the year • 22 Loan impairments – Economic inputs to calculations • 23 Loan impairments – Sensitivity analysis The impact on the Group’s profit and loss account for the year is set out in note 10. ![]() Page 238 19. Loan impairment – basis of provisions IFRS 9 requires that impairment is evaluated on an expected credit loss (‘ECL’) basis. ECLs are based on an assessment of the probability of default (‘PD’) and loss given default (‘LGD’), discounted to give a net present value. The estimation of ECL should be unbiased and probability weighted, considering all reasonable and supportable information, including forward-looking economic assumptions and a range of possible outcomes. The provision may be based on either twelve month or lifetime ECL, dependent on whether an account has experienced a significant increase in credit risk (‘SICR’). The Group’s process for determining its provisions for impairments is summarised below. This includes: i. The methods used for the calculation of ECL ii. How it defines SICR iii. How it defines default iv. How it identifies which loans are credit impaired, as defined by IFRS 9 v. How the ECL estimation process is monitored and controlled vi. How the Group develops and enhances the models it uses in the ECL estimation process vii. How the Group uses judgemental adjustments to ensure all elements of credit risk are fully addressed viii. How the Group assesses the potential for climate change to impact on its impairment analysis i) Calculation of expected credit loss (‘ECL’) For the majority of the Group’s loan assets, the ECL is generated using statistical models applied to account data to generate PD and LGD components. In determining for which portfolios a statistically modelled approach is appropriate, the Group considers the volume of available data and the level of similarity of the credit characteristics of the underlying accounts. PD on both a twelve month and lifetime basis is estimated based on statistical models for the Group’s most significant asset classes. The PD calculation is a function of current asset performance, customer information and future economic assumptions. The models were developed through the analysis of correlation in historic data, which identified which current and historical customer attributes and external economic variables were predictive of future loss. PD measures are calculated for the full contractual lives of loans with the models deriving probabilities that, at a given future date, a loan will be in default, performing or closed. The Group utilised all reasonably available information in its possession for this exercise. LGD for each account is derived by calculating a value for exposure at the point of default (which will include consideration of future interest, account charges and receipts) and reducing this for security values, net of likely costs of recovery. These calculations allow for the Group’s potential case management activities, including the use of receivers of rent in buy-to-let cases. This evaluation includes the potential impact of economic conditions at the time of any future default or enforcement. The derivation of the significant assumptions used in these calculations is discussed below. In certain asset classes a fully modelled approach is not possible. This is generally where there are few assets in the class, where there is insufficient historical data on which to base an analysis or where certain measures, such as days past due are not useful (including cases where the loan agreement does not require regular payments of pre-determined amounts). In these cases, which represent a small proportion of the total portfolio, alternative approaches are adopted. These rely on internal cost monitoring practices and professional credit judgement. For each of these portfolios, minimum provision levels are set based on overall performance for the asset class and the risk appetites informing underwriting processes. The largest portfolio where a fully modelled approach is not taken is the Group’s development finance book, which has a relatively low number of cases (around 250) and a low incidence of historical losses on which to base a model. For this portfolio the impairment provision is based on the output of internal case-by-case monitoring, performed within the business and subject to a process of challenge by the finance and credit risk functions. Notwithstanding the mechanical procedures discussed above, the Group will always consider whether the process generates sufficient provision for particular loans, especially large exposures, and will provide additional amounts as appropriate. In extreme or unprecedented economic conditions, it is likely that mechanical models will be less predictive of outcomes as the historical data used for modelling will be insufficiently representative of conditions at the balance sheet date. This may be the case where economic indicators at the reporting date and future expectations for those indicators lie outside the range of the observations used to construct the models. In such circumstances, management carefully review all outputs to ensure provision is adequate. During the financial year the economic environment in the UK remained relatively stable, albeit with interest rates at far higher levels than had been seen for much of the ten years up to June 2023. This type of higher rate environment is not significantly represented in the historic data sets used to construct the Group’s impairment models, and the Group has carefully considered their likely performance under these conditions and the requirement for additional judgemental adjustments at the period end to compensate for any weaknesses. However, the Group’s monitoring of model performance over the period served to mitigate these concerns, to some extent, and the level of such adjustments reduced in the period. ![]() Page 239 The Accounts The methodologies used to derive the Group’s ECL provisions at 30 September 2025 are analysed below. | | | | | | --- | --- | --- | --- | | | 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 | In addition to the judgemental adjustments to model outputs shown above, at 30 September 2024 management applied a £1.5m uplift to provision floors in the development finance operation, reflecting specific economic risks to that business. The monitoring of the portfolio in the year has indicated that this general uplift was no longer required for that portfolio at 30 September 2025. However, the concerns in relation to the development finance portfolio have become focussed on a cohort of accounts written in 2022 and earlier which have exhibited poor performance in the current economic environment and are still being worked out. Focussed stress testing on these accounts resulted in an uplift to provision of £1.5m at 30 September 2025. Total uplifts across the Group’s loan portfolio as a whole were therefore £3.0m (2024: £6.5m). The derivation of these adjustments is discussed further below. ii) Significant Increase in Credit Risk (‘SICR’) Under IFRS 9, SICR is not defined solely by account performance, but on the basis of the customer’s overall credit position, and this evaluation should include consideration of external data. The Group’s aim is to define SICR to correspond, as closely as possible, to that population of accounts which are subject to enhanced administrative and monitoring procedures operationally. The Group assesses SICR in its modelled portfolios primarily on the basis of the relative difference in an account’s lifetime PD between origination and the reporting date. The levels of difference required to qualify as an SICR may differ between portfolios and will depend, to some extent, on the level of risk originally perceived and are monitored on an ongoing basis to ensure that this calibrates with actual experience. It should be noted that the use of the current PD, which includes external factors such as credit bureau data, means that all relevant information in the Group’s hands concerning the customers’ present credit position is included in the evaluation, as well as the impact of future economic expectations. For non-modelled portfolios, the SICR assessment is based on the credit monitoring position of the account in question and for all portfolios a number of qualitative indicators which provide evidence of SICR have been considered. Loans will generally be considered to retain significantly increased credit risk for a period after the SICR trigger no longer remains. As part of its determination of whether model outputs form a reliable basis for impairment provisioning, the Group considered whether it had any evidence of groups of accounts demonstrating factors indicating a higher level of credit risk than other accounts in the same portfolios, either from operational experience or its regular credit risk monitoring activities. No such evidence was noted at 30 September 2025 or 30 September 2024, and hence no additional accounts were identified as having an SICR, outside those identified by standard, portfolio-wide, procedures. ![]() Page 240 iii) Definitions of default As the IFRS 9 definition of ECL is based on PD, default must be defined for this purpose. The analysis of these default cases provides the foundation for the Group’s PD modelling. IFRS 9 provides a rebuttable presumption that an account is in default when it is 90 days overdue and this was used as the basis of the Group’s definition, combined with qualitative and quantitative factors specific to each portfolio. The most influential quantitative factor in the majority of portfolios is the arrears level, while the principal qualitative factors relate to internal account management statuses. In particular the decision to commence a process of enforcement will be considered as a default in all portfolios. In the Group’s buy-to-let mortgage portfolio the appointment of a receiver of rent to manage the property on the customer’s behalf is considered a default, while for portfolios assessed on a case-by-case basis, such as the Group’s development finance loans, the movement of an account to the highest risk category used for internal monitoring is considered as a default. This ensures that the Group’s definitions of default for its various portfolios are materially aligned to the regulatory definitions of default used internally, and are broadly aligned to its internal operational procedures, allowing for the arbitrary nature of the 90-day cut-off, which is a regulatory rather than an operational requirement. In particular the Group’s receiver of rent cases are defined as defaulted for modelling purposes as the behaviour of the case after that point is significantly influenced by internal management decisions. iv) Credit impaired loans IFRS 9 defines a credit impaired account as one where an account has suffered one or more events which have had a detrimental effect on future cash flows. It is thus a backward-looking definition, rather than one based on future expectations. Credit impaired assets are identified either through quantitative measures or by operational status. Designations of accounts for regulatory capital purposes are also taken into account. Assets may also be assigned to Stage 3 if they are identified as credit impaired as a result of management review processes. All loans which are in the process of enforcement, from the point where this becomes the administration strategy, are classified as credit impaired. Loans are retained in Stage 3 for three months after the point where they cease to exhibit the characteristics of default. After this point, they may move to Stage 2 or Stage 1 depending on whether an SICR trigger remains. All default cases are considered to be credit impaired, including all receiver of rent cases and all cases with at least one payment more than 90 days overdue, even where such cases are being managed in the expectation of realising the whole carrying balance. In order to provide better information for users, additional analysis of credit impaired accounts has been presented in note 20, distinguishing between probationary accounts, receiver of rent accounts, accounts subject to realisation / enforcement procedures and long-term managed accounts, all of which are treated as credit impaired. While other indicators of default are in use, the categories shown account for the overwhelming majority of Stage 3 cases. v) Monitoring of ECL estimation processes The Group’s ECL models are compiled on the basis of the analysis of relevant historical data. Before a model is adopted for use its operations and outputs are examined to ensure that it is expected to be appropriately predictive and, if it is an updated model, expected to be more predictive than any existing model. Before a new model is adopted the changes and impacts will be considered by the CFO, alongside any advice from the Group’s independent model review functions. The performance of all models is reviewed on an ongoing basis, by senior finance and risk management, including the CFO. Monitoring packs comparing actual and predicted loss levels are produced at regular intervals, set on the basis of the materiality of each model. The continuing appropriateness of model assumptions is also reviewed as part of this process. Models are revisited on a regular basis to ensure that they continue to reflect the most recent data as the available information increases over time. On a monthly basis all model outputs, model overlays and provisions calculated for non-modelled books are reviewed by senior finance management including the CFO in conjunction with the latest credit risk operational and economic metrics to ensure that the impairment provision by asset type remains appropriate. This exercise will be the subject of particular focus at the year end and the half year. This information is summarised for the Audit Committee on a biannual basis, and they have regard to this data in forming their conclusions on the appropriateness of provisioning levels. ![]() Page 241 The Accounts vi) Model development The models used by the Group are updated from time to time to allow for changes in the business, developments in best practice and the availability of additional data with the passing of time. During the year ended 30 September 2025 a major update to the Second Charge Mortgage PD model took place, meaning that all the Group’s four principal PD models have been updated since IFRS 9 was first implemented in the 2019 financial year. The new Second Charge Mortgage model adopts a more simplified approach than the Group’s other PD models, reflecting the continuing reduction in the size of the portfolio, with no new lending having taken place since 2021. The impact of the adoption of the new model in the year ended 30 September 2025, on a like-for-like basis, was to leave the provision unchanged and transfer £0.6m of gross balances from Stage 1 to Stage 2. The Group’s programme of model development continued during the year with a particular focus on analysing how default and loss data recorded over the period of the Covid pandemic should be reflected in the next generation of forward-looking models, given the unprecedented nature of the pandemic and the national and international response to it. All revised models and model enhancements are carefully reviewed and tested before adoption, and are subject to a governance process for their approval. vii) Judgemental adjustments To ensure that the Group’s loan portfolios are properly provisioned, the Group considers factors that might impact on customers, but which may either not be reflected by its provision processes, be only partially reflected or not be reflected sufficiently quickly. These may include consideration of the likely impact of the broad economic environment, customer and market sentiment and expert knowledge within the Group’s businesses. Where management has identified a requirement to amend the calculated provision as a result of either model deficiencies or idiosyncratic behaviour in part of the portfolio, judgemental adjustments are applied to the modelled outputs so that the ECL recognised corresponds to expert judgement, taking into account the widest possible range of current information, which might not be factored into the modelling process. Similarly where non-modelled books come under stress, methodologies may be adjusted to ensure coverage is sufficient. Evidence considered by management in order to assess the need for adjustments and the size of any adjustments required included internal performance data, customer and broker feedback, insight surveys, industry intelligence, evidence on the wider economy and quantitative and qualitative data and statements from industry, government and regulatory bodies. These were combined with the expert knowledge within the business to form a broad estimate of the level of provision required across the Group. A similar process was undertaken in respect of non-modelled books to ensure that specific issues and impacts were being identified, and the minimum provisions set for each portfolio remained sufficient. The requirement for judgemental adjustments is considered on a portfolio-by-portfolio basis, and the potential for the existence of significant groups of assets being particularly exposed to credit risk in the expected economic scenarios is also considered. The total amounts of judgemental adjustments provided across the Group are set out below by segment. | | | | | | | --- | --- | --- | --- | --- | | | 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 | The adjustment in the Mortgage Lending book at the previous year end had represented the level to which the credit metrics and other model inputs did not produce a result for the buy-to-let portfolio which accorded with the credit expectations of management, brokers and customers, particularly in respect of legacy assets. While there has been some upward movement in arrears metrics, both for the Group and the buy-to-let market more generally, the year has seen the resolution of a number of significant long-standing cases. In response to these factors, it was decided that it was appropriate to reduce the level of overlay at 30 September 2025. The Group’s SME lending portfolio performed generally strongly in the period, with a consequent impact on the calculated provision, and while a level of caution remains as to the broader outlook for UK SMEs in the current economic climate, performance of the Group’s provisioning model has been satisfactory in the current high interest rate environment. On this basis the judgemental adjustment has been released in the current year (2024: £1.0m). For the motor finance portfolio, the overlay to the modelled provision has also been released (2024: £1.0m). Indications to date continue to show the second generation motor finance PD model introduced last year to be effective at identifying credit risk cases. Additionally, while values in the second-hand car market in the year have been lower than for some time, with a consequential increase in the levels of voluntary terminations, this did not significantly impact on the assessment of model performance. ![]() Page 242 The Group’s analysis found no evidence of particular concentrations of credit risk below portfolio level. Given this, and the high level nature of the exercise undertaken, the judgemental adjustments on modelled balances have been apportioned across the Group’s buy-to-let mortgage, SME lending and motor finance portfolios, as appropriate, to individual Stage 1 cases. As such they are included in the credit risk disclosures required by IFRS 7. While there was some further deterioration within the development finance book in the period, the cases involved shared similarities with those identified at 30 September 2024. The majority of such cases had been originally evaluated in 2022 and before, and had been impacted by increased materials and labour costs and higher interest rates, since the point at which they were agreed. As the cases with identified issues have been considered for provisioning individually at 30 September 2025, and few other cases of this vintage remain, the Group determined that the uplift to minimum provision for all cases applied at 30 September 2024 was no longer necessary. However, for those cases in that cohort with identified issues an additional exercise was carried out to examine their behaviour under further stress. This resulted in an additional provision requirement of £1.5m and hence the total impact at 30 September 2025 remained at £1.5m (2024: £1.5m). The majority of these cases were in Stage 3. The Group will continue to monitor the requirement for all these adjustments as the economic situation develops and its impacts are more fully reflected in model outputs. It is anticipated that a more normal economic situation would require a lower value of adjustments, but the timescale in which such a scenario might be reached appears uncertain. viii) Climate change As part of the Group’s consideration of the requirement for judgemental adjustments, described above, the potential for climate-related issues to impact on customer business models or security values over the timescales for ECL calculation required by IFRS 9 was evaluated. This was based on the ongoing internal monitoring of climate change risk exposures and the scenario analysis carried out as part of the Group’s ICAAP during the 2024 financial year. Focussing on the Group’s mortgage lending and motor finance operations, this analysis leveraged material published by the Network for Greening the Financial System (‘NGFS’) and proposed UK Government policy. For the purposes of the 2025 ICAAP, this analysis was reconsidered, and it was concluded that the results were still applicable and that there was no need to repeat the analysis at this time. Further detail of this analysis is set out in Section A6.4 (b) of this Annual Report and Accounts. No specific requirement for additional impairment provisions in respect of climate change related factors over the amounts already determined was identified. ![]() Page 243 The Accounts 20. Loan impairments by stage and division IFRS 9 calculations and related disclosures require loan assets to be divided into three stages, with accounts which were credit impaired on initial recognition representing a fourth class. The three classes comprise: those where there has been no SICR since advance or acquisition (Stage 1); those where there has been an SICR (Stage 2); and loans which are credit impaired (Stage 3). • On initial recognition, and for assets where there has not been an SICR, provisions will be made in respect of losses resulting from the level of credit default events expected in the twelve months following the balance sheet date • Where a loan has experienced an SICR, whether or not the loan is considered to be credit impaired, provisions will be made based on the ECLs over the full life of the loan • For credit impaired assets, provisions will also be made on the basis of lifetime ECLs For assets which were ‘Purchased or Originated as Credit Impaired’ (‘POCI’) accounts (those considered as credit impaired at the point of first recognition), such as certain of the Group’s acquired assets in Mortgage Lending, the carrying valuation is based on expected cash flows discounted by the EIR determined at the point of acquisition. The recommendations of the taskforce on Disclosures about Expected Credit Loss (‘DECL’) suggest standard categories for analysis of firm’s loan books. In the context of the DECL categorisation the Group’s Mortgage Lending balances are classified as ‘UK retail mortgage’ business while its Commercial Lending balances, being advanced primarily to SME entities correspond with the ‘UK other retail’ business classification. The Group defines coverage as the value of the ECL provision divided by the gross carrying value of the related loans. An analysis of the Group’s loan portfolios between the stages defined above is set out below. | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | \*Stage 2 and 3 balances are analysed in more detail below. ![]() 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 2 and 3 balances are analysed in more detail below. Finance leases included above, analysed by staging, were: | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | In terms of the Group’s credit management processes, Stage 1 cases will fall within the appropriate customer servicing functions and Stage 2 cases will be subject to account management arrangements. Stage 3 cases will include both those subject to recovery or similar processes and those which, though being managed on a long-term basis, are included with defaulted accounts for regulatory purposes. However, these broad categorisations may vary between different product types. POCI balances included in the Commercial Lending segment arose principally from acquired businesses, where those assets were identified as credit impaired at the point of acquisition when the acquired portfolios as a whole were evaluated. Additional provision arising on these assets post-acquisition was shown as ‘Impairment Provision’ above. The Group’s acquired secured consumer loans are included in the Mortgage Lending segment, together with its closed second charge mortgage portfolios. Acquired loans which were performing on acquisition are included in the staging analysis above. ![]() Page 245 The Accounts Acquired portfolios of second charge mortgage assets which were largely non-performing at acquisition, and which were purchased at a deep discount to face value, are shown as POCI assets above. Although no provision is shown above for such assets, the effect of the discount on purchase is included in the gross value ensuring that the carrying value is substantially less than the current balances due from customers and the level of cover is considerable. These balances continue to reduce as customers make repayments. Analysis of Stage 2 loans The table below analyses the accounts in Stage 2 between those not more than one month in arrears where an SICR has nonetheless been identified from other information and accounts more than one month in arrears. Cases which have been greater than one month in arrears in the last three months, but which are not at the balance sheet date are shown as ‘recent arrears’ in the tables below. In all cases accounts which are more than one month in arrears, where this is a meaningful measure, are considered to have an SICR. However, in certain loan portfolios, regular monthly payments of pre-set amounts are not required and hence this criterion cannot be used. The Group uses arrears multiples as a proxy for days past due, as this measure is commonly used in its arrears reporting. A loan will generally be one month in arrears from the point at which a payment is one day past due until it is thirty days past due. The value of Stage 2 loans in the mortgage segment has declined a little in the year with economic conditions stable but somewhat adverse. The number of cases incurring arrears increased, particularly in the second half of the year, meaning that both the number of Stage 2 arrears accounts and that of accounts curing from Stage 2 arrears was heightened. The most significant part of the Stage 2 balance remains cases identified through their PD scores, although the size of this balance reduced in the period, as accounts moved to arrears. Both provision coverage levels for Stage 2 Mortgage Lending cases, and the absolute level of provision have reduced in the period. This is principally related to cases identified through their PD, where the effect of the slow, but continuing growth in house prices, and therefore security values, has reduced exposure in the period. The coverage levels have also been reduced as a result of some long standing, high provision cases having moved through to Stage 3, and in some cases realisation, in the year. For Commercial Lending cases, values of Stage 2 accounts have reduced significantly, with the most marked movement in non-arrears cases. This principally relates to the Stage 2 element of the development finance book, where a number of cases with identified issues have moved to Stage 3 in the period. The trend for Stage 2 arrears cases in the period was mildly positive, reflecting the more stable economic environment. Stage 2 coverage has reduced in the Commercial Lending segment. This is largely a result of the movement of development finance cases, some with significant coverage, from Stage 2 to Stage 3 in the period. This has caused a reduction in coverage on non-arrears accounts. Coverage on the relatively low number of Stage 2 arrears cases in the segment tends to be idiosyncratic, based on the nature of security available on each of the cases included. | | | | | | | --- | --- | --- | --- | --- | | | < 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% | Analysis of Stage 3 loans The table below analyses the accounts in Stage 3 between those: • In the process of sale or other enforcement procedures (‘Realisations’) • Where a receiver of rent (‘RoR’) has been appointed by the Group to manage the property on the customers’ behalf • Which are being managed on a long-term basis and where full recovery is possible, but which are considered to meet regulatory default criteria at the balance sheet date (‘>3 month arrears’). This category includes accounts identified as defaults using non-arrears based unlikeliness to pay (‘UTP’) indicators • Which no longer meet regulatory default criteria, but which are being retained in Stage 3 for a probationary period (‘Probation’) Where an account meets two of the criteria, it will be assigned to the category shown first in the list above. RoR accounts in Stage 3 may be fully up-to-date with full recovery possible. These accounts are included in Stage 3 as they are classified as defaulted for regulatory purposes. The value of Stage 3 cases in the Mortgage Lending segment has remained stable in the year, as cases impacted by the economic issues of recent years continue to make their way through the system. While the number of live arrears cases has grown, the receiver of rent book continues to reduce as older cases are worked out. While new receivership arrangements continued to be put in place in the year, these have generally moved to sale more quickly, based on the positive property market. However, the Group continues to use the receivership process to ensure good outcomes for its landlord customers, their tenants and itself and, where appropriate, will manage these accounts on a longer-term basis. Stage 3 coverage levels in the Mortgage Lending segment are a little reduced, a result of increasing property values in the period providing enhanced security and also of the crystallisation of losses on some older, heavily provided, receivership cases. The growth in Stage 3 cases in the Commercial Lending division is attributable largely to a number of cases in the development finance business impacted by issues in the UK building sector over recent periods. These appear in the ‘>3 month arrears’ and ‘realisations’ columns. While such cases enjoy security over the development funded, the Group has taken a careful approach to estimating recoverable values, especially where the security may comprise an unfinished structure. For the most at-risk cohort, the Group’s normal provisioning process has been enhanced with focussed stress testing. The performance of this cohort has been the main driver for the growth in provision coverage in the year for the segment and overall. ![]() 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 The security values available to reduce exposure at default in the calculation shown above for Stage 3 accounts are set out below. The estimated value of the security represents, for each account, the lesser of the valuation estimate and the exposure at default in the central scenario. Security values are based on the most recent valuation of the relevant asset held by the Group, indexed or depreciated as appropriate. | | | | | --- | --- | --- | | | 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 | The RoR managed accounts are being managed to ensure the optimal resolution for landlords, tenants and lenders and have largely reached a long-term, stable position, but the existence of the RoR arrangement causes the accounts to be treated as defaulted for regulatory purposes. The Group’s RoR arrangements are described in more detail below. Mortgage Lending balances with over three months arrears include second charge mortgage accounts originated over ten years ago which have been over three months in arrears for some time. These accounts are generally making regular payments and have significant levels of equity in the underlying property which reduces the required provision to the value shown above. It is expected that a high proportion of these accounts will eventually redeem naturally, either on the sale of the property or by the satisfaction of the amount due through instalment payments. Buy-to-let receiver of rent cases (Stage 3) Where a buy-to-let mortgage customer in England or Wales falls into arrears on their account the Group has the power to appoint a receiver of rent (‘RoR’) under the Law of Property Act. The receiver will then manage the property on behalf of the customer, collecting rents and remitting them to make payments on the account. While the receiver has the power to sell the property, in many cases they will operate it as a buy-to-let on at least a short to medium term basis, potentially longer, depending on the individual circumstances of the case. This causes less disruption to the tenants and may result in the mortgage account returning to performing status and the property being handed back to the customer. While legacy cases continued to be resolved in the period, with the number of pre-2020 appointments still in place reduced by 39%, new RoR appointments continued to be made in the year, including on some larger portfolio cases. These overwhelmingly relate to legacy cases advanced before 2009 and will therefore have a long rental history, with tenants in place in many cases. Overall the receiver of rent portfolio has reduced, with the proportion in the course of sale relatively high, reflecting a largely positive property market. The following table analyses the number and gross carrying value of RoR managed accounts shown above by the date of the receivers’ appointment, illustrating this position. | | | | | | | --- | --- | --- | --- | --- | | | | 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 | RoR accounts in the process of realisation at the period end are included under that heading in the Stage 3 tables above. In addition to the cases analysed above there were no other RoR cases in acquired mortgage books classified as POCI (2024: four), meaning that the Group’s total number of RoR cases at 30 September 2025 was 572 (2024: 643). ![]() Page 249 The Accounts 21. Loan impairments – provision movements in the year The movements in the impairment provision calculated under IFRS 9, analysed by business segments, are set out below. | | | | | | --- | --- | --- | --- | | | 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 | Accounts are considered to be written off for accounting purposes if a balance remains once standard enforcement processes have been completed, subject to any amount retained in respect of expected salvage receipts. This has no effect on the net carrying value, only on the amounts reported as gross loan balances and accumulated impairment provisions. At 30 September 2025, enforceable contractual balances of £13.2m (2024: £15.3m) were outstanding on non-POCI assets written off in the period. This excludes those accounts where a full and final settlement was agreed and those where the contractual terms do not permit any further action. Enforceable balances are kept under review for operational purposes, but no amounts are recognised in respect of such accounts unless further cash is received or there is a strong expectation that it will be. A more detailed analysis of these movements by IFRS 9 stage on a consolidated basis for the years ended 30 September 2025 and 30 September 2024 is set out below. These tables, and the matching tables analysing movements in gross balances, have been compiled by comparing opening and closing balances on each account and analysing the movements between them. Changes due to credit risk includes all changes in model parameters whether related to account performance, external credit data or model assumptions, including economic scenarios and weightings. The changes in models introduced during the year did not create significant movements in balances. ![]() 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 | During the year ended 30 September 2025, provision levels increased overall, although the generally stable economic situation in the UK, coupled with gently rising house prices saw provision in Stages 1 and 2 falling. However, this positive movement was outweighed by an increase in Stage 3 provision, as problem cases, particularly in our development finance operation, moved through the credit cycle, but were not generally replaced by additional distressed accounts. Provision levels on secured lending tended to decline, especially for loans secured on property, with house prices continuing to grow in the period, and a number of long-standing cases moving to resolution in the year. However, in the development finance portfolio, the cohort of lending which had been noted as problematic at the previous year end generated additional provision, with cases moving from Stage 2 to Stage 3 and further issues being encountered, causing expected losses to increase, particularly in Stage 3. Write offs increased in the period, with a number of legacy buy-to-let cases resolved along with a number of development finance cases, including a case classified as POCI. During the previous year, ended 30 September 2024, provision levels remained broadly stable overall, although the generally more benign economic climate and increased confidence in the UK saw provision in Stages 1 and 2 falling, compensated by an increase in Stage 3 provision as problem cases moved through the credit cycle, but were not generally replaced by new arrears accounts at the same rate. Provision levels on secured lending tended to decline in that year, especially for loans secured on property, with house prices increasing in most areas. However, a number of problem cases in development finance saw an increased level of provision being booked, as issues with project progress and financing emerged, with these changes being recognised in the Stage 3 movements. The level of write-offs in the year ended 30 September 2024 was higher than in the previous year as some long-term cases were finally resolved and the related provision applied. ![]() Page 251 The Accounts The movements in the Loans to Customers balances in respect of which these loss allowances have been made are set out below. | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 | Other changes includes interest and similar charges. 22. Loan impairments – economic inputs to calculations Impairment provision under IFRS 9 is calculated on a forward-looking ECL basis, based on expected economic conditions in multiple internally coherent scenarios. While the provision calculation is intended to address all possible future economic outcomes, the Group, in common with most other lenders, uses a small number of differing scenarios as representatives of this universe of potential outturns. The Group uses four distinct economic scenarios chosen to represent the range of possible outcomes and allow for the impact of economic asymmetry in the calculations. Each scenario comprises a number of economic parameters and while models for different portfolios may not use all the variables, the set, as a whole, is defined for the Group and must be internally consistent. As the Group does not have an internal economics function, in developing its economic scenarios it considers analysis from reputable external sources to form a general market consensus which informs its central scenario. These sources include data and forecasts produced by HM Treasury, the Office of Budget Responsibility (‘OBR’) and the PRA as well as private sector economic research bodies and industry sources. The Group also takes account of public statements from bodies such as the Bank of England and the UK Government to inform its final position. The central scenario used for IFRS 9 impairment purposes is consistent with the scenario which forms the basis of the Group’s business planning and forecasting and will therefore generally carry the highest probability weighting. In its September 2025 forecasting cycle (the ‘October forecast’), the Group has adopted a central economic scenario derived using a broadly equivalent approach to that used in September 2024, with the starting point of the scenario updated to reflect the actual movements of economic variables in the year. The general trend of the Group’s 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. ![]() Page 252 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 the central forecast, as they have been in previous periods. The shape of the curves representing all three scenarios are similar across the forecast period, but the upside scenario assumes inflation remaining 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 base 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, as in recent periods. The ACS published in March 2025 forms the basis for the Group’s scenario and includes persistently high interest rates, causing a pronounced recession impacting on growth and employment levels, with a significant fall in house prices. The overall shape of the scenarios adopted, and the change in the forecasts year-on-year is illustrated by the forecasts of the UK’s unemployment rate set out in the charts below. The unemployment rate has been presented as it is the principal indicator of general economic activity used in modelling losses in the Group’s buy-to-let mortgage portfolio. The forecast levels of house price inflation, the economic variable which has the most significant impact on the size of the Group’s impairment provision, are also shown. Historical and forecast unemployment rates (end point measure) As at September 2025 0.0% FY 2024-2025 FY 2025-2026 FY 2026-2027 FY 2027-2028 FY 2028-2029 FY 2029-2030 5.0% 4.0% 3.0% 2.0% 1.0% 6.0% 7.0% 8.0% 10.0% 9.0% Severe Upside Central Downside Historical and forecast unemployment rates (end point measure) As at September 2024 0.0% FY 2024-2025 FY 2023-2024 FY 2025-2026 FY 2026-2027 FY 2027-2028 FY 2028-2029 5.0% 4.0% 3.0% 2.0% 1.0% 6.0% 7.0% 8.0% 10.0% 9.0% Severe Upside Central Downside ![]() Page 253 The Accounts Historical and forecast HPI rates (annual change) As at September 2025 -0.20 FY 2024-2025 FY 2025-2026 FY 2026-2027 FY 2027-2028 FY 2028-2029 FY 2029-2030 -0.15 -0.10 -0.05 - 0.10 0.05 Severe Upside Central Downside Historical and forecast HPI rates (annual change) As at September 2024 -0.20 FY 2024-2025 FY 2023-2024 FY 2025-2026 FY 2026-2027 FY 2027-2028 FY 2028-2029 -0.15 -0.10 -0.05 - 0.10 0.05 Severe Upside Central Downside Following a review of the weightings of the different scenarios, set against the overall potential for variability in the future economic outlook, the Group decided to adjust the scenario weightings which had been used at 30 September 2024 for the current year. The central 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 geopolitical factors, including conflicts in Eastern Europe and the Middle East, remains. The impact on the UK economy of the policies of the UK Government elected in 2024 are yet to become clear, and the long-term impact on the global situation of the new Administration in the United States is also uncertain. This has led to a wide range of potential paths for the UK economy being suggested, with an emphasis on the potential downsides. Balancing these factors the Group determined that it was still appropriate to continue to 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, as set out in the table below. Sensitivities comparing the effect of these weightings with those adopted in the previous year and those which might be seen in a more normal economic environment are set out in note 24. | | | | | --- | --- | --- | | | 2025 | 2024 | | Central scenario | 50% | 45% | | Upside scenario | 10% | 10% | | Downside scenario | 30% | 30% | | Severe scenario | 10% | 15% | | | 100% | 100% | ![]() Page 254 The Group’s economic scenarios comprise seven variables based on standard publicly available metrics for the UK. These variables are: • Year-on-year change in Gross Domestic Product (‘GDP’) as measured by the Office of National Statistics (‘ONS’) • Year-on-year change in the House Price Index (‘HPI’) as measured by the Nationwide Building Society • Bank Base Rate (‘BBR’), as set by the Bank of England • Consumer Price Inflation (‘CPI’) rate, as measured by the ONS • Unemployment rate, as measured by the ONS • Annual change in secured lending, as measured by the Bank of England ‘mortgage advances’ data series • Annual change in consumer credit, as measured by the Bank of England ‘unsecured advances’ data series The projected average annual values of each of these variables in each of the first five financial years of the forecast period are set out below. 30 September 2025 GDP (year-on-year change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | HPI (year-on-year change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | BBR (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | CPI (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 Unemployment (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | Secured lending (annual change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | Consumer credit (annual change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | 30 September 2024 GDP (year-on-year change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | HPI (year-on-year change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | BBR (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 CPI (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | Unemployment (rate) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | Secured lending (annual change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | Consumer credit (annual change) | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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% | After the end of the initial five year period, the final rate or rate of change (as appropriate) is assumed to continue into the future in each scenario . ![]() Page 257 The Accounts To illustrate the levels of non-linearity in the various scenarios, the maximum and minimum quarterly levels for each variable over the five year period commencing on the balance sheet date are set out below. 30 September 2025 | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 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) | 30 September 2024 | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 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 | The asymmetry in the models is demonstrated by comparing the calculated impairment provision with that which would have been produced using the central scenario alone, 100% weighted. | | | | | --- | --- | --- | | | 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 23. Loan impairments – sensitivity analysis The calculation of impairment provisions under IFRS 9 is subject to a variety of uncertainties arising from assumptions, forecasts and expectations about future events and conditions. To illustrate the impact of these uncertainties, sensitivity calculations have been performed for some of the most significant. These sensitivities are intended as mathematical illustrations of the impacts of the various assumptions on the Group’s modelling. They do not necessarily represent alternative potential impairment values as other factors might also need to be considered in arriving at a final provision figure if circumstances differed from those at the balance sheet date. Economic conditions To illustrate the potential impact of differing future economic scenarios on the total impairment, the provisions which would be calculated if each of the economic scenarios were 100% weighted are shown below: | | | | | | | --- | --- | --- | --- | --- | | | | 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 | The weighted average of these 100% weighted provisions need not equal the weighted average ECL due to the impact of the differing PDs on staging. Scenario weightings In order to illustrate the impact of scenario weightings on the outcomes, the impairment provision requirements were sensitised using alternative weightings. Sensitivity A is based on the weightings used at IFRS 9 transition on 1 October 2018. The use of the 2018 weighting is intended to represent a more settled outlook than has been evident at any of the most recent year ends. Sensitivity B is based on the weightings used at the previous year end, to demonstrate the impact of the adoption of the new weightings. The weightings used, and the results of applying these sensitivities to the 30 September 2025 scenarios are set out below. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 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 | Significant increase in credit risk The most important driver of SICR is relative PD. If all PDs across the Group’s principal buy-to-let mortgage book were increased by 10%, loans with a gross value of £22.3m would transfer from Stage 1 to Stage 2 (2024: £44.4m), and the total provision would increase by £0.2m from the combined effects of higher PDs on expected losses and the impact of providing for expected lifetime losses, rather than 12-month losses on the additional Stage 2 cases (2024: £0.3m). Value of security The principal assumptions impacting on LGD are the estimated security values. If the rate of growth in house prices assumed by the model after the forecast minimum were halved, ignoring any PD effects, then the provision for the Group’s first and second mortgage assets under the central scenario would increase by £0.8m (2024: £0.5m). Receiver of rent The majority of receiver of rent cases, which are included in Stage 3, are managed long-term and therefore their assumed realisation date has an important impact on the provision calculation. If the assumed rate of realisations was increased by 20%, the impairment provision in the central scenario would increase by £0.3m (2024: £0.4m). ![]() Page 259 The Accounts 24. Derivative financial instruments and hedge accounting Introduction The Group uses derivative financial instruments such as interest rate swaps for risk management purposes only. Each such derivative contract is entered into for economic hedging purposes to manage a particular identified risk (as described in notes 58 to 61) and any gains or losses arising are incidental to this objective. No trading in derivative financial instruments is undertaken. Hedge accounting is applied where appropriate, though some derivatives, while forming part of an economic hedge relationship, do not qualify for this accounting treatment under the IAS 39 rules, particularly where the hedged risk relates to an off balance sheet item. In other cases, hedge accounting has not been adopted either because natural accounting offsets are expected or because complying with the IAS 39 hedge accounting rules would be particularly onerous. The Group’s hedging arrangements can be analysed for accounting purposes between: • Fair value hedges of portfolio interest rate risk, which are used to manage the interest rate risk inherent in fixed rate lending and deposit taking • Fair value hedges of interest rate risk relating to individual financial assets or liabilities An economic hedge of the interest rate risk in fixed rate lending must also address pipeline exposures, where future lending at a given fixed rate is anticipated. However, such pre-hedging arrangements do not qualify as hedges for accounting purposes. In addition, the Group utilises currency derivatives to hedge its exposure on the small amount of its lending denominated in foreign currencies. These are not treated as hedges for accounting purposes due to the low level of exposure. While the Group utilises economic hedging strategies to mitigate the impact of the changes in market interest rates on its capital base, these activities do not give rise to accounting entries. The analysis below splits derivatives between those accounted for within portfolio fair value hedges and those which, despite representing an economic hedge, are not accounted for as hedges. | | | | | | | --- | --- | --- | --- | --- | | | 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) | The credit risk inherent in the derivative financial assets shown above is discussed in note 59. ![]() Page 260 The balances held on the Group’s balance sheet relating to the hedging of interest rate risk on its fixed rate customer loan and deposit balances are summarised below. | | | | | | --- | --- | --- | --- | | | | 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) | (a) Fair value macro hedges Background and hedging objectives The Group’s fair value hedges of portfolios of interest rate risk (‘macro hedges’) arise from its management of the interest rate risk inherent in its fixed rate lending and deposit-taking activities. These activities would expose the Group to movement in market interest rates if not hedged. This position arises naturally where fixed rate loans are funded with floating or variable rate borrowings, but may also arise where retail deposit funding is used. Where possible the Group takes advantage of natural hedging between fixed rate assets and deposits, but it is unlikely that a precise match for value and tenor of the instruments could be achieved leaving unmatched items on both sides. This is referred to as repricing or duration risk and is controlled within limits under the Group’s interest rate risk management process, described in note 59. In order to manage these exposures, they are hedged with financial derivatives and form part of the Group’s portfolio hedging arrangements. Duration risk is monitored regularly to ensure mismatches or gaps remain within limits set by policy. Responsibility to direct and oversee structural interest rate risk management has been delegated by the Board to the Executive Risk Committee (‘ERC’) and by ERC to the Asset and Liability Committee (‘ALCO’). A hedging strategy is developed for each fixed product considering behavioural characteristics, such as whether a customer is likely to prepay before contractual maturity. This is reviewed from time to time with any changes agreed with ALCO. In order to manage potential exposure to changes in interest rates between the point at which fixed rate products are priced and the advance date, it may be necessary to undertake pre-hedging of assets in the pipeline. Interest rate swaps used to pre-hedge pipeline loan exposures, which are not yet recognised on the balance sheet, can cause unmatched fair value costs or credits to arise until both sides of the hedge can be recognised within the interest rate portfolio hedging arrangement, generally a few months after the inception of the derivative contract. In managing interest rate exposure, Treasury may use interest rate swaps, forward rate agreements, swaptions or interest rate caps and floors. However, interest rate swaps are the most generally used instruments. This policy creates two macro hedges: • The ‘loan hedge’ matching fixed rate buy-to-let mortgage assets, or other fixed rate assets, with interest rate swaps to convert the interest receivable to a floating rate • The ‘deposit hedge’ matching fixed rate deposits with interest rate swaps which operates in the opposite direction, converting the fixed rate interest payable to floating rate amounts During the year the Group has continued to hedge interest rate risk on fixed rate CBILS and BBLS exposures using SONIA-linked balance guaranteed swaps, which are included in the loan hedge. ![]() Page 261 The Accounts The designation of the macro hedges is updated, on a month-by-month basis, using software which compares the overall tenor, value and rate positions in order that the expected fair value movement of the designated swaps matches the expected interest rate risk related movement in the fair value of the relevant assets or liabilities as closely as possible over the designation period. The software applies regression analysis techniques to the potential impact of changes in expected interest rates over the designation period to maximise expected hedge effectiveness on a prospective basis. The value of the portfolio of loans or deposits selected is then designated, as a monetary amount of interest rate risk, as the hedged item, while the portfolio of swaps selected are designated as the hedging instruments. Any swaps not selected in this process are disclosed as derivatives not in hedging relationships. These will generally be swaps taken out to pre-hedge the pipeline of fixed rate mortgage offers, which will match with the related loans when they complete. At the end of each designation period the Group will assess the effectiveness of each hedge retrospectively, based on fair value movements (relating to interest rate risk components only) which have occurred in the period. Movements are compared to pre-determined test thresholds using regression techniques to determine whether the hedge was effective in the period. Potential sources of ineffectiveness The Group has identified the following possible sources of hedge ineffectiveness in its portfolio hedges of interest rate risk: • The maturity profile of the hedging instruments may not exactly match that of the hedged items, particularly where hedged items settle early • The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties’ credit risk, which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through collateralisation arrangements (as described in note 59) • The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments • Difference in the timing of interest payments on the hedged items and settlements on the hedging instruments These sources of ineffectiveness are minimised by the portfolio matching process, which seeks to match the terms of the items as closely as possible. In addition to the hedging ineffectiveness described above, group profit will also be affected by the fair value movements of interest rate swap agreements which were entered into as part of the Group’s interest rate risk hedging strategy but failed to find a match in the hedging portfolio, particularly those relating to the pre-hedging of the lending pipeline. Hedging Instruments The hedging portfolios at 30 September 2025 and 30 September 2024 consist of a large number of sterling denominated swaps. In addition, there are a small number of Balance Guarantee Swaps (‘BGS’) in place at both dates. Settlement on all swaps is generally quarterly (monthly for BGS) where: • One payment is calculated based on a fixed rate of interest and the nominal value of the swap • An opposite payment is calculated based on the same nominal value but using a floating interest rate set at a fixed margin over the SONIA reference rate On the BGS the nominal value of the swap is linked to the principal value of a pool of assets and reduces in line with redemptions and repayments until maturity. Other interest rate swaps have a fixed nominal value throughout their lives. The Group pays fixed rate and receives floating rate when hedging exposures from fixed rate assets (in the loan hedge). Conversely, the Group pays floating rate and receives fixed rate when hedging fixed rate deposits, in the deposit hedge. ![]() Page 262 The principal terms of the hedging instruments are set out below, analysed between the two directions of the swap. | | | | | | | --- | --- | --- | --- | --- | | | | 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 | The values included above for BGS are analysed by their contractual maturity dates although, due to the terms of the instruments, it is likely that the balance outstanding will reduce more quickly. The changes in the levels of hedging shown above arise from changes in the size and seasoning of the Group’s fixed rate loan book and fixed rate deposit book in the year. These effects are offset by adjustments to overall balance sheet hedging objectives. The changes in fair value are a result of moves in market implied interest rates compared to the rates on the fixed legs of the swaps. ![]() Page 263 The Accounts Accounting impacts Movements affecting the portfolio fair value hedges during the year are set out below. | | | | | | | --- | --- | --- | --- | --- | | | 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) | \* Under the IAS 39 rules relating to fair value hedge accounting for portfolios of interest rate risk, the change in the fair value of the hedged items attributable to the hedged risk is shown as ‘fair value adjustments from portfolio hedging’ next to the carrying value of the hedged assets or liabilities in the appropriate note. (b) Fair value micro hedges Background and hedging objectives The Group’s individual fair value hedges of interest rate risk (‘micro hedges’) relate to its long-term fixed interest rate liabilities and its investments in fixed-rate securities. The structure of these borrowings and investments exposes the Group to interest rate risk, in the event of an adverse movement in market interest rates, and it hedges against such movements. In each case the hedge takes the form of a single interest rate swap which is intended to be in place for the expected fixed rate period of the related borrowing or investment. The terms of the fixed rate leg of the derivative match the terms of the borrowing or investment as far as possible and each hedging relationship was designated at the point at which the swap contract was entered into. Each hedging relationship is tested for effectiveness on a monthly basis by comparing the movements in the calculated fair value of the hedged item to the fair value movement in the derivative hedge. ![]() Page 264 Potential sources of ineffectiveness In its interest rate hedging for individual items the Group seeks to minimise hedge ineffectiveness by aligning the terms of the hedging instrument as closely as possible with those of the hedged item. The notional amount of the derivative matches that of the hedged item and settlements are due on the same days and at the same intervals. Nonetheless, the Group has identified the following possible sources of hedge ineffectiveness in its hedges of interest rate risk: • The use of derivatives as a hedge of interest rate risk additionally exposes the Group to the derivative counterparties’ credit risk, which is not matched in the hedged item. This risk is minimised by transacting only with high quality counterparties and through collateralisation arrangements (as described in note 59) • The small difference between the fixed rate of interest charged on the hedged item and the fixed rate leg of the derivative, where the impact of discounting will mean that movements in present values of the two flows are not exactly parallel • The use of different discounting curves in measuring fair value changes in the hedged items and hedging instruments Hedging instruments The financial derivatives used in the Group’s individual fair value hedges are sterling denominated interest rate swaps, with a single derivative used to hedge each individual asset or liability. Settlement is twice yearly, on the same days as payments for the associated hedged item fall due. For derivatives hedging liabilities, payments received by the Group are calculated based on a fixed rate of interest, while payments made are calculated based on a floating interest rate set by reference to the compound SONIA reference rate. For derivatives hedging assets, the converse is true. The principal terms of the hedging instruments are set out below, analysed by the two directions of the swaps. | | | | | | | --- | --- | --- | --- | --- | | | | 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 Accounting impacts Movements affecting the micro fair value hedges during the year are set out below. | | | | | | | --- | --- | --- | --- | --- | | | | 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 25. Sundry assets (a) The Group | | | | | | | --- | --- | --- | --- | --- | | | | 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 | Sundry financial assets are receivable in less than one year. £1.0m of prepayments related to periods more than one year after the balance sheet date, the remainder to the financial year ending 30 September 2026. Cash ratio deposits (‘CRDs’) were non-interest-bearing deposits lodged with the Bank of England, based on the value of the Bank’s eligible liabilities. These deposits were required to comply with regulatory rules, but the scheme was terminated by the Bank of England during the year ended 30 September 2024. CSA assets are deposits placed with highly rated banks to act as security for the Group’s derivative financial liabilities. Neither of these balances is accessible by the Group at the balance sheet date. Therefore, they are included in sundry assets rather than cash balances. Sovereign receivables includes amounts receivable from the UK Government under BBB sponsored loan guarantee schemes. CRDs, CSA assets, sovereign receivables and accrued interest are considered to be Stage 1 assets for IFRS 9 impairment purposes. The probabilities of default of the obligor institutions (the UK Government, Bank of England and major banks) have been assessed and are considered to be so low as to require no significant impairment provision. (b) The Company | | | | | | --- | --- | --- | --- | | | 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 | The intra-group treasury balances comprise a 100-day notice balance and a current balance, both with the Company’s subsidiary, Paragon Bank PLC, which invests cash with the Bank of England on a centralised basis. The amounts owed to the Company by other group entities are considered to be Stage 1 balances for IFRS 9 impairment purposes. The PD of the subsidiaries has been assessed in the context of the Group’s overall funding and asset position, and is considered to be so low as to require no significant impairment provision. 26. Current tax assets / liabilities Current tax in the Group and the Company represents UK corporation tax owed or recoverable. ![]() Page 268 27. Property, plant and equipment (a) The Group | | | | | | | --- | --- | --- | --- | --- | | | 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 | Land and buildings and plant and machinery shown above are used within the Group’s business. Leased assets includes £37.7m in respect of assets leased to customers under operating leases (2024: £30.4m), £0.8m of vehicles leased to employees under the Group’s green car salary sacrifice scheme (2024: £0.7m) and £12.8m of assets available for hire (2024: £13.5m). ![]() Page 269 The Accounts The carrying values of right of use of assets, in respect of leases where the Group is the lessee, included in property, plant and equipment are set out below. | | | | | | | --- | --- | --- | --- | --- | | | 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 | During the year ended 30 September 2018, the Group entered into a transaction with the Paragon Pension Plan, effectively granting a first charge over its freehold head office building as security for its agreed contributions under the recovery plan. The carrying value of the assets subject to this charge was £16.1m (2024: £16.4m). Depreciation on property, plant and equipment is included in the Group’s profit and loss account as set out below. | | | | | | --- | --- | --- | --- | | | | 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 | Depreciation of £11.9m included in leasing costs (2024: £11.4m) is attributable to the Commercial Lending segment described in note 2. No other depreciation is allocated to a segment. ![]() Page 270 (b) The Company The property, plant and equipment balance of the Company represents a right of use asset in respect of a building leased from a fellow group entity. The carrying value of this asset is set out below. | | | | --- | --- | | | 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 | 28. Intangible assets | | | | | | | --- | --- | --- | --- | --- | | | 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 | Other intangible assets comprise brands and the benefit of business networks recognised on the acquisition of businesses. Amortisation charges in respect of intangible assets are included in operating expenses (note 8). ![]() Page 271 The Accounts 29. Goodwill The goodwill carried in the accounts is attributable to two cash generating units (‘CGU’s), which have not changed in the year. These balances are reviewed for impairment annually, in accordance with the requirements of IAS 36 – ‘Impairment of Assets’. The balance is as analysed below: | | | | | --- | --- | --- | | | 2025 | 2024 | | | £m | £m | | CGU | | | | SME lending | 113.0 | 113.0 | | Development finance | 49.8 | 49.8 | | | 162.8 | 162.8 | (a) SME lending The goodwill carried in the accounts relating to the SME lending CGU was recognised on acquisitions in the years ended 30 September 2016 and 30 September 2018. An impairment review undertaken at 30 September 2025 indicated that no write down was required. The recoverable amount of the SME lending CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2025 covering a five-year period. The key assumptions underlying the value in use calculation for the SME lending CGU are: • Level of business activity, based on management expectations. The forecast assumes a compound annual growth rate (‘CAGR’) for new lending over the five-year period of 13.6%, compared with 11.7% used in the calculation at 30 September 2024. The new lending forecasts are the key driver for the profit and cashflow forecasts. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.3% (2024: 1.2%) which does not exceed the long-term average growth rates for the markets in which the business is active Management concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment • Discount rate, which is based on third-party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 15.9% (2024: 16.5%) As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with an 18.5% reduction in profit levels would eliminate the projected headroom of £112.8m. Such movements are not expected by management. A 0.0% growth rate combined with an 20.7% reduction in profit levels would generate a write down of £10.0m. In the testing carried out at 30 September 2024, a 0.0% growth rate combined with an 19.8% reduction in profit levels, would have eliminated the projected headroom at that date of £91.7m. A 0.0% growth rate combined with a 22.6% reduction in profit levels would have generated a write down of £10.0m. (b) Development finance The goodwill carried in the accounts relating to the development finance CGU was first recognised on a business acquisition in the year ended 30 September 2018. An impairment review undertaken at 30 September 2025 indicated that no write down was required. The recoverable amount of the development finance CGU used in this impairment testing is determined on a value in use basis using pre-tax cash flow projections based on financial budgets approved by the Board in November 2025 covering a five-year period. The key assumptions underlying the value in use calculation for the development finance CGU are: • Level of business activity, based on management expectations. The forecast assumes a CAGR for drawdowns over the five-year period of 12.5%, compared with 15.6% used in the calculation at 30 September 2024. Cash flows beyond the five-year budget are extrapolated using a constant growth rate of 1.3% (2024: 1.2%) which does not exceed the long-term average growth rate for the UK economy Management concluded that the levels of activity assumed for the purpose of this forecast are reasonable, based on past experience and the current economic environment • Discount rate, which is based on third party estimates of the implied industry cost of capital. The pre-tax discount rate applied to the cash flow projection is 15.9% (2024: 16.4%) ![]() Page 272 As an illustration of the sensitivity of this impairment test to movements in key assumptions, the Group has calculated that a 0.0% growth rate combined with a 13.3% reduction in profit levels would eliminate the projected headroom of £68.4m. Such movements are not expected by management. A 0.0% growth rate combined with a 16.3% reduction in profit levels would generate a write down of £10.0m. In the testing carried out at 30 September 2024 a 0.0% growth rate combined with a 9.5% reduction in profit levels would have eliminated the projected headroom at that date of £53.2m. A 0.0% growth rate combined with a 12.1% reduction in profit would have generated a write down of £10.0m. 30. Investment in subsidiary undertakings | | | | | | --- | --- | --- | --- | | | 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 | Loans to group companies includes principally investments in the tier 2 equity instruments issued by the Company’s banking subsidiary, Paragon Bank PLC. During the year ended 30 September 2025 the Company received £158.0m in dividend income from its subsidiaries (2024: £161.9m) and £11.3m of interest on loans to group companies (2024: £19.4m). The Company’s subsidiaries, and the nature of its interest in them, are shown in note 68. 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 | 32. Covered bonds On 24 February 2025, Paragon Bank PLC established a covered bond programme, regulated and approved by the Financial Conduct Authority (‘FCA’). Under this programme Paragon Bank has the ability to issue a total of up to £5,000.0m of bonds, secured on a pool of mortgage assets, when market conditions are acceptable, with a relative short preparation and lead time. On 11 March 2025, Paragon Bank made its first issue of bonds under the programme. The principal amount of bonds issued was £500.0m, and the bonds have a due date of 20 March 2028 and bear interest at a rate of 0.6% over compounded daily SONIA. They have been assigned a credit rating of Aaa by Moody’s and AAA by Fitch. The amount outstanding in respect of these covered bonds at 30 September 2025 was £499.2m and the gross amount of the cover pool was £891.6m. 33. Retail bonds The Group’s final outstanding issue of retail bonds, issued under its Euro Medium Term Note Programme, was repaid on 28 August 2024. These bonds were listed on the London Stock Exchange. The principal amount of notes in issue at 30 September 2023 was £112.5m and they bore interest at a fixed rate of 6.0% per annum. The notes were unsubordinated unsecured liabilities of the Company and the amount included in the accounts of the Group and the Company in respect of these bonds at 30 September 2023 was £112.4m. No bonds remained outstanding at 30 September 2025 or 30 September 2024. 34. Corporate bonds On 25 March 2021 the Company issued £150.0m of Fixed Rate Callable Subordinated Tier-2 Notes due 2031 at par. These notes bear interest at a rate of 4.375% per annum until 25 September 2026 after which interest will be payable at a reset rate which is 3.956% over that payable on UK Government bonds of similar duration at that time. These notes are callable at the option of the Company between 25 June 2026 and 25 September 2026 and may be called at any time in the event of certain tax or regulatory changes. The notes are unsecured and subordinated to all creditors of the Company. The notes were originally rated BB+ by Fitch and are currently rated BBB-, following an upgrade on 7 March 2022. The proceeds of the notes are utilised in accordance with the Group’s Green Bond Framework, which is available on its investor website. The carrying value of corporate bonds in the accounts of the Group at 30 September 2025 was £150.1m (2024: £149.9m), while the carrying value of the bonds in the accounts of the Company at 30 September 2025 was £149.8m (2024: £149.6m), with the difference arising as a result of the hedging treatment described in note 24. ![]() Page 274 35. Central bank facilities During the year, the Group has utilised facilities provided by the Bank of England through its Sterling Monetary Framework. These facilities enable either funding or off balance sheet liquidity to be provided to Paragon Bank PLC on the security of eligible collateral, currently in the form of designated pools of first mortgage assets and / or the retained notes described in note 60, with the amount available based on the value of the security given, subject, where appropriate, to a haircut. Drawings under the Term Funding Scheme for SMEs (‘TFSME’) have a maturity of four years and bear interest at Bank Base Rate (‘BBR’). As these drawings were provided at rates below those available commercially, by a government agency, they are accounted for under IAS 20. Drawings under the Indexed Long-Term Repo Scheme (‘ILTR’) have a maturity of six months and a rate of interest set in an auction process. At 30 September 2025, the average rate of interest on the Group’s ILTR drawings was 0.15% above BBR (2024: 0.15%). The Group makes drawings under the ILTR programme from time to time for liquidity purposes. The amounts drawn under these facilities are set out below. | | | | | --- | --- | --- | | | 2025 | 2024 | | | £m | £m | | TFSME | 250.0 | 750.0 | | ILTR | 700.0 | 5.0 | | Total central bank facilities | 950.0 | 755.0 | £244.8m of the Group’s TFSME drawing fell due on 21 October 2025, after the year end, when it was repaid. The remaining £5.2m falls due on 31 March 2027. Further first mortgage assets of Paragon Bank PLC have been pre-positioned with the Bank of England for future use in such schemes and eligible retained notes can also be used to support this funding (note 60). The mortgage assets pledged in support of these drawings are set out in note 16. The balances arising from the TFSME carried in the Group accounts are shown below. | | | | | --- | --- | --- | | | 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 | 36. Sale and repurchase agreements From time to time the Group enters into short-term sale and repurchase agreements with highly rated UK banks as part of its liquidity management operations. At 30 September 2025, £100.0m was outstanding under such arrangements (2024: £100.0m). The average term of the agreements was 3 months (2024: 3 months) and the average remaining term 1 month (2024: 1 month). The average interest rate payable was 0.47% (2024: 0.44%) above compounded SONIA. The securities subject to the sale and repurchase agreement were certain of the Group’s retained asset backed loan notes, described in note 60. ![]() Page 275 The Accounts 37. Sundry liabilities (a) The Group | | | | | | | --- | --- | --- | --- | --- | | | | 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 | CSA liabilities represent collateral received in respect of interest rate swap agreements and are described further in notes 24 and 59. Other accruals relate principally to operating cost accruals, including annual bonus schemes. (b) The Company | | | | | | | --- | --- | --- | --- | --- | | | | 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 | 39. Provisions for liabilities Provisions are recognised for present obligations arising as a consequence of past events where it is considered more probable than not that a liability will arise, where the liability can be reliably estimated. Where these conditions are not met, but there is still the potential for a material liability to arise, this is disclosed as a contingent liability. The provisions carried in the Group’s accounts at 30 September 2025 are set out below: | | | | | --- | --- | --- | | | 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 | Some of this provision may give rise to outflows after more than one year from the balance sheet date. Conduct The Group, as a regulated participant in the financial services industry, is exposed to a high level of regulatory supervision, which could in the event of conduct failures expose it to additional liabilities. The objective of the Group’s compliance and conduct framework, which is supervised by the second line compliance function, is to provide a strong mitigant to this risk, although it is impossible to eliminate it entirely. As described below, there is significant uncertainty with regard to legal and regulatory interventions around commissions paid in the motor finance market. These processes are still not complete, and therefore the scope and extent of any exposure remains uncertain. The broader regulatory environment continues to develop, through regulatory policies, legislative rules and court rulings, and the Group’s assessment of potential liabilities for issues relating to motor finance commission or other conduct issues, is based on our current interpretation of requirements and hence further liabilities may arise as these develop over time . ![]() Page 277 The Accounts Motor finance commissions In January 2024 the FCA had announced that it was conducting a review of the historical use of discretionary commission arrangements (‘DCA’s) across the motor finance industry, in the period from 2007 onwards, following action taken in this specific area by the courts and the Financial Ombudsman Service (‘FOS’). This review has subsequently been broadened in scope to consider other historical commission practices in the sector as a result of related litigation activity. At the same time the FCA imposed a pause on the handling of such complaints, which has been subsequently extended to enable the regulator to finalise its work in this area, and remained in place at the year end. A number of legal cases were resolved in the year enabling the FCA to finalise its review and formulate proposals for a redress scheme. These proposals were published on 7 October 2025, shortly after the year end, as Consultation Paper CP 25/27, and are principally concentrated on DCA cases, high-commission transactions and tied broker relationships. The latter two have only a limited impact on the Group. While the redress scheme is still in its consultation phase, it represents the most likely basis against which to assess the level of our exposure. The scope of the FCA’s proposals includes loans made since 2007, when the Group was active in the motor finance market. However, it ceased making new loans in this sector in February 2008. It re-entered the market in 2014, on the formation of Paragon Bank. Between 2007 and 31 October 2024, the Group had paid out a total of £51.0m of commissions to support the origination of motor finance loans. Included in this amount was £26.7m of commissions related to DCA cases, all of which were originated prior to 2022. Given the public statements of the FCA the Group has concluded that a redress scheme broadly in line with that proposed in CP 25/27 is likely. It has therefore made provision for such liabilities. The provision is estimated based on the Group’s detailed data and the calculations set out in the FCA consultation paper, including an allowance for the costs of administering the scheme. This provision would be expected to be utilised over the eighteen months following the balance sheet date, if the FCA confirms its proposals, including the timescales set out in its document, as final. While the FCA intends that its programme of redress should be final for all motor finances cases advanced in the period covered by its review, it is possible that consumers who do not qualify for redress or who feel the redress offered by the scheme is inadequate may attempt to assert their claims though alternative routes. As the FCA consultation is still open, it is also possible that the final version differs from the proposal set out in the CP. As such it is possible that the ultimate liability in respect of these matters is materially different from the amount provided. ![]() Page 278 40. Deferred tax (a) The Group The net deferred tax liability for which provision has been made and the movements in that balance are analysed as follows: | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 | Balances in respect of interest rate hedging in the table above relate to derivatives hedging interest rate risk in the Group’s loan and deposit books and related pipelines, and fair value accounting adjustments. The temporary differences shown above have been provided at the rate prevailing when the Group anticipates these temporary differences to reverse. In the event that the temporary differences actually reverse in different periods a credit or charge will arise in a future period to reflect the difference. The timing of reversal of temporary differences will be affected by both matters within the Group’s control (such as the timing and nature of the refinancing of certain portfolios) and matters outside the Group’s control (for example, the timing of the Group’s contributions to its defined benefit pension scheme). If temporary differences reverse within Paragon Bank PLC in a period in which it is subject to the banking surcharge, then the impact of the reversal will be at an effective tax rate that includes the banking surcharge to some extent. ![]() Page 279 The Accounts (b) The Company The net deferred tax liability / (asset) for which provision has been made, and the movements in that balance are analysed as follows: | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 | 41. Called-up share capital The share capital of the Company consists of a single class of £1 ordinary shares. Movements in the issued share capital in the year were: | | | | | --- | --- | --- | | | 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 | On 19 March 2025, 6,200,000 of the shares held in treasury at that date were cancelled, and 7,000,000 further shares were cancelled on 3 September 2025. On 23 February 2024, 12,095,453 of the shares held in treasury at that date were cancelled, and 6,000,000 further shares were cancelled on 30 August 2024 (note 43). 42. Reserves (a) The Group | | | | | | --- | --- | --- | --- | | | 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 (b) The Company | | | | | | --- | --- | --- | --- | | | 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 | The share premium account and capital redemption reserve are non-distributable reserves which are required by, and operate under the provisions of, UK company law. The merger reserve arose, due to the provisions of UK company law at the time, on a group restructuring on 12 May 1989 when the Company became the parent entity of the Group. 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 | 27.2p | 26.4p | 54.5 | 56.1 | | Interim dividend for the current year | 13.6p | 13.2p | 26.5 | 27.4 | | | 40.8p | 39.6p | 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 | 30.3p | 27.2p | 57.7 | 55.6 | | | 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 48. Reconciliation of net debt (a) The Group | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 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) | Non-cash movements shown above represent: • EIR adjustments relating to the spreading of initial costs of the facilities concerned • Inception of new lease assets under IFRS 16 • Hedging fair value adjustments on the corporate bond (note 24) ![]() Page 286 (b) The Company | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 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 | Non-cash changes shown above represent EIR adjustments relating to the spreading of initial costs of the bonds. 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 50. Leasing arrangements (a) As Lessor The Group, through its motor finance and asset finance businesses, leases assets under both finance and operating leases. In respect of certain of these assets, the Group also provides maintenance services to the lessee. It also leases green motor vehicles to its employees under a salary sacrifice scheme. Disclosures in respect of these balances are set out in these financial statements as follows: | | | | --- | --- | | 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 | The undiscounted future minimum lease payments receivable by the Group under operating lease arrangements may be analysed as follows: | | | | | --- | --- | --- | | | 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 | (b) As Lessee The Group’s use of leases as a lessee relates to the rental of office buildings and company cars, together with the procurement of vehicles for leasing to employees under its green car scheme. Under IFRS 16 these have been accounted for as right of use assets and corresponding lease liabilities. The average term of the current building leases from inception or acquisition is 8 years (2024: 7 years) with rents subject to review every five years, while the average term of the vehicle leases is 4 years (2024: 4 years). The Company’s use of leases as lessee is limited to the rental of an office building from a subsidiary entity. The lease term from inception is 15 years. Disclosures relating to these leases are set out in these financial statements as follows. | | | | --- | --- | | 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 | Salary sacrifice amounts of £0.5m in respect of the green car scheme (2024: £0.3m) are included within operating lease income (note 6). There was no other subleasing of right of use assets and the total cash flows relating to leasing as a lessee were £3.1m (2024: £3.0m). ![]() Page 288 51. Related party transactions (a) The Group During the year, certain directors of the Company were beneficially interested in savings deposits made with Paragon Bank, on the same terms as were available to members of the public. Deposits of £1,785,000 were outstanding at the year end (2024: £850,000), and the maximum amounts outstanding during the year totalled £1,904,000 (2024: £939,000). For other members of the Group’s executive committees, the total amount of retail deposits outstanding at the period end was £1,036,000 (2024: £663,000) and the maximum amount outstanding in the period was £1,547,000. The Paragon Pension Plan (the ‘Plan’) is a related party of the Group. Transactions with the Plan are described in note 56. The Group had no other transactions with related parties other than the key management compensation disclosed in note 54. (b) The Company During the year, the Company entered into transactions with its subsidiaries, which are related parties. Management services were provided to the Company by one of its subsidiaries and the Company granted awards to employees of subsidiary undertakings under the share-based payment arrangements described in note 55. Details of the Company’s investments in subsidiaries and the income derived from them are shown in notes 30 and 68. Outstanding current account balances with subsidiaries are shown in notes 25 and 37. During the year the Company incurred interest costs of £1.6m in respect of borrowings from its subsidiaries (2024: £1.7m). The Company leased an office building from a subsidiary entity (note 50(b)). Finance charges recognised in respect of this lease were £0.3m (2024: £0.3m). 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. 53. Employees The average number of persons (including directors) employed by the Group during the year was 1,400 (2024: 1,444). The number of employees at the end of the year was 1,411 (2024: 1,411). Costs incurred during the year in respect of these employees were: | | | | | | | --- | --- | --- | --- | --- | | | 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 | Details of the pension schemes operated by the Group are given in note 56. The Company has no employees. Details of the directors’ remuneration are given in note 54. ![]() 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. ![]() Page 297 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 (a) Defined benefit plan – description The Group operates a funded defined benefit pension scheme in the UK, the Paragon Pension Plan (the ‘Plan’). The Plan assets are held in a separate fund, administered by a corporate trustee, to meet long-term pension liabilities to past and present employees. The Trustee of the Plan is required by law to act in the best interests of the Plan’s beneficiaries and is responsible for the investment policy adopted in respect of the Plan’s assets. The appointment of directors to the Trustee is determined by the Plan’s trust documentation. The Group has a policy that one third of all directors of the Trustee should be nominated by active and pensioner members of the Plan. ![]() Page 298 Employee contributions and benefits The scheme was closed to new entrants in February 2002. Employees who are members of the Plan are entitled to receive a pension of 1/60 of their final basic annual salary per year of service up to 30 June 2021. After that date further accrual is at a rate of 1/70 or 1/75 of capped final salary depending on the level of contributions. After 1 July 2021 employee contributions were either 5% or 8% of capped salary. Before that date all active members contributed at a rate of 5% of salary. Benefits accrued before 1 July 2021 may be accessed from the age of 60 without any reduction for early payment. Benefits accruing after 1 July 2021 may be accessed without penalty from the age of 65. Dependants of Plan members are eligible for a dependant’s pension and the payment of a lump sum in the event of death in service. Actuarial risks The principal actuarial risks to which the Plan is exposed are: • Investment risk – The present value of the defined benefit liabilities is calculated using a discount rate set by reference to high quality corporate bond yields. If plan assets underperform corporate bonds, this will reduce the surplus. The strategic allocation of assets under the Plan has been derisked and now only around 20% is invested in equity assets and diversified growth funds. In consultation with the Company, the Trustee keeps the allocation of the Plan’s investments under review to manage this risk on a long-term basis • Interest risk – A fall in corporate bond yields would reduce the discount rate used in valuing the Plan liabilities and increase the value of the Plan liabilities. The Plan assets would also be expected to increase, to the extent that bond assets are held, but this would not be expected to fully match the increase in liabilities, given the weighting towards equity assets and diversified growth funds noted above • Inflation risk – Pensions in payment are increased annually in line with the RPI or the Consumer Price Index (‘CPI’) for Guaranteed Minimum Pensions built up since 1988. Pensions built up since 5 April 2006 are capped at 2.5% and pensions built up before 6 April 2006 are capped at 5%. For employees who have left the Company but have deferred pensions, these also revalue over the period to retirement, predominantly in line with RPI. Therefore, an increase in inflation would also increase the value of the pension liabilities. The Plan assets would also be expected to increase, to the extent that they are linked to inflation, but this may not fully match the increase in liabilities • Longevity risk – The value of the Plan surplus is calculated by reference to the best estimate of the mortality rate among Plan members both during and after employment. An increase in the life expectancy of the members would reduce the surplus in the Plan • Salary risk – The valuation of the Plan assumes a level of future salary increases based on the expected rate of inflation. Should the salaries of Plan members increase at a higher rate, then the surplus will be lower. For service from 1 July 2021, a 2.5% annual cap on individual pensionable salary increases applies, mitigating this risk The risks relating to death in service payments are insured with an external insurance company. As a result of the Plan having been closed to new entrants since February 2002, the service cost as a percentage of pensionable salaries is expected to increase as the average age of active members rises over time. However, the membership is expected to reduce so that the service cost in monetary terms will gradually reduce. The changes referred to above will also reduce this cost going forward. Actuarial valuation and recovery plan The most recent full actuarial valuation of the Plan’s liabilities, obtained by the Trustee, was carried out at 31 March 2022, by Aon Solutions UK Limited, the Plan’s independent actuary. This showed that the value of the Plan’s liabilities on a buy-out basis in accordance with Section 224 of the Pensions Act 2004, the level of assets which would be required to buy insurance policies for benefits earned to the valuation date, was £195.5m, with a shortfall against the assets of £44.2m (2019: £85.0m). The deficit on the Technical Provisions Basis, the basis agreed by the Trustee as being appropriate to meet member benefits, assuming the Plan continues as a going concern, was £5.1m (2019: £18.2m). Many of the demographic assumptions used within the Technical Provisions Basis are also used within the IAS 19 valuation. An updated valuation, as at 31 March 2025, is in progress, but was not complete at the time of signing these accounts. However, the conclusions of the early stages of the process have been incorporated in the IAS 19 valuation. Following the agreement of the 2022 actuarial valuation, the Trustee put in place a revised recovery plan. This recovery plan was designed to ensure that the statutory funding objective was met during the 2024 financial year, but included provision for the Group to make further additional payments after that point. The recovery plan continues to include a Pension Funding Partnership (‘PFP’) arrangement effectively granting the Plan a first charge over the Group’s head office building as security for certain payments under the plan (note 27). However, payments under the PFP are paused when the Plan reaches a prescribed funding level, and this point was reached in April 2024. No amount is included in the Plan assets in respect of the building, which remains within the Group’s Property, Plant and Equipment balance (note 27) but this arrangement provides the Plan with additional security in a stress event. ![]() Page 299 The Accounts (b) Defined benefit plan – financial impact For accounting purposes, the valuation at 31 March 2022 was updated to 30 September 2025 in accordance with the requirements of IAS 19 (revised) by Mercer, the Group’s independent consulting actuary. The major categories of assets in the Plan at 30 September 2025, 30 September 2024 and 30 September 2023 and their fair values were: | | | | | | --- | --- | --- | --- | | | 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 | The Group has recognised the surplus as an asset at the balance sheet date as it anticipates being able to access economic benefits at least as great as the carrying value, with the Group ultimately able to access any remaining surplus in the Plan once all benefits have been paid. However, such assets are eliminated from capital for regulatory purposes (note 57). At 30 September 2025 the Plan assets were invested in a diversified portfolio that consisted primarily of debt and equity investments. These are held in the form of investments in managed funds, which are not publicly traded. The majority of the Plan’s equity investments are in developed markets. The Plan has a benchmark allocation at 30 September 2025 of 54% of total assets to Liability Driven Investments (‘LDI’) to provide hedging against inflation and interest rate risk (2024: 54%). This target was maintained at this level throughout the period (2024: 42%). The hedging provided now represents some 90% of the Plan’s risks (2024: 85%), with the increased hedging protecting the current surplus position. During October 2018, the High Court made a ruling in the Lloyds Banking Group Pension Scheme GMP (‘Guaranteed Minimum Pension’) equalisation case, which effectively directs defined benefit pension schemes to change their rules to equalise the benefits of male and female members for the effects of GMPs for employees who were, at one time, contracted out of state schemes. The Court did not specify a single method which schemes should employ and hence the impact of this on the Plan will not be certain until the Trustee has determined which method should be adopted and detailed calculations have been performed to evaluate the impact, as the impact on members will vary from person to person. The estimated effect of this ruling was accounted for in the accounts of the Group for the year ended 30 September 2019 as a ‘past service cost’. This estimate is based on one permissible method, ‘method C2’. During the year, the Trustee, with the consent of the Company, chose to adopt an alternative approach, ‘method B’. However, the accounting impact of this is likely to be minimal. Once detailed calculations are performed it is possible that the final impact may vary due to idiosyncratic impacts on individual members, or due to the development of a wider legal and accounting consensus on the proper interpretation of the courts’ requirements as further cases are determined. In June 2023, the High Court made a ruling in the case of Virgin Media, which related to the validity of changes made to a pension scheme where an actuarial certificate could not be produced. In July 2024, the Court of Appeal dismissed an appeal brought against aspects of this ruling, and the conclusions reached in this case may have consequences for other UK defined benefit plans, such as the Group’s. The Group and the Trustee have identified a number of amendments made to the Plan which are within the scope of this ruling. These were investigated and the Trustee was able to conclude that there was no significant impact on the Plan. The defined benefit liability has therefore been calculated on the basis that no additional liabilities arise as a result of the Virgin Media ruling. The movement in the fair value of the Plan assets during the year was as follows: | | | | | --- | --- | --- | | | 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 | The actual return on Plan assets in the year ended 30 September 2025 was a loss of £7.1m (2024: gain of £12.7m). ![]() Page 300 The movement in the present value of the Plan liabilities during the year was as follows | | | | | --- | --- | --- | | | 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 | The liabilities of the Plan are measured by discounting the best estimate of future cash flows to be paid out by the Plan using the Projected Unit method. This amount is reflected in the liability in the balance sheet. The Projected Unit method is an accrued benefits valuation method in which the Plan liabilities are calculated based on service up until the valuation date allowing for future salary growth until the date of retirement, withdrawal or death, as appropriate. The future service rate is then calculated as the contribution rate required to fund the service accruing over the next year again allowing for future salary growth. Liabilities for benefits accruing for service up to 1 July 2021 are calculated separately from those accruing in respect of service after that date. The major weighted average assumptions used by the actuary were (in nominal terms): | | | | | | --- | --- | --- | --- | | | 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 | In the 2025 valuation the base mortality table used was the standard S4PMA/S4PFA (All) Year of Birth table, with future improvements projected by the CMI 2024 projection model with a 1.5% per annum long-term improvement rate. In the 2024 valuation the base mortality table used was the standard S3PMA/S3PFA\_M (All) Year of Birth table, with future improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate. In the 2023 valuation the base mortality table used was the standard S3PMA/S3PFA\_M (All) Year of Birth table, with future improvements projected by the CMI 2022 projection model with a 1.5% per annum long-term improvement rate. ![]() Page 301 The Accounts The amounts charged in the consolidated income statement in respect of the Plan are: | | | | | | --- | --- | --- | --- | | | | 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 | The amounts recognised in the consolidated statement of comprehensive income in respect of the Plan are: | | | | | --- | --- | --- | | | 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 | Of the remeasurement movements reflected above: • The return on plan assets to 30 September 2025 reflects market performance of the Plan’s investments in the year, reflecting the hedging strategy noted above. The 2024 financial year saw a recovery in values, as a result of a generally more benign global economic climate • Despite the adoption of revised mortality tables in the current year, the resulting demographic gain / (loss) was not significant. The gain in the 2024 financial year reflected the adoption of revised commutation factors by the Trustee • The change in financial assumptions in the year ended 30 September 2025 reflected the increase in the discount rate, based on bond yields, with only a small movement in market-implied inflation, based on gilt yields The change in financial assumptions in the year ended 30 September 2024 reflected principally a widening of the gap between the assumed discount and inflation rates as bond yields fell faster than gilt yields • The experience adjustments in both years shown represent the impact of the difference between actual and forecast UK inflation in the year on expected benefits, with an experience loss in the current year offset by a gain in respect of member mortality experience ![]() Page 302 (c) Defined benefit plan – future cash flows The sensitivity of the valuation of the defined benefit obligation to the principal assumptions disclosed above at 30 September 2025, calculating the obligation on the same basis as used in determining the IAS 19 value, is as follows: | | | | | | --- | --- | --- | --- | | 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% | \*maintaining a 0.0% assumption for real salary growth The rate of growth for pensions in payment primarily relates to forecast inflation rates. The sensitivity analysis presented above may not be representative of an actual future change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation, as some of the assumptions will be correlated. There has been no change in the method of preparing the analysis from that adopted in previous years. The impacts of equivalent decreases in assumptions are broadly equal and opposite to the effects of the increases shown above. In conjunction with the Trustee, the Group has continued to conduct asset-liability reviews of the Plan. These studies are used to assist the Trustee and the Group to determine the optimal long-term asset allocation with regard to the structure of liabilities within the Plan. The results of the studies are used to assist the Trustee in managing the volatility in the underlying investment performance and risk of a significant increase in the scheme deficit by providing information used to determine the investment strategy of the Plan. There have been no changes in the processes by which the Plan manages its risks from previous periods. Following a review of the Plan’s investment strategy, the current target asset allocations for the year ending 30 September 2026 are 38% growth assets (primarily equities), and 62% matching assets (primarily bonds) which includes LDI balances, with the hedge ratio remaining at 90%. Following the finalisation of the March 2022 valuation, the agreed rate of employer contribution reduced to 12.5% of capped pensionable salary from 15 March 2023, having been 25% since 1 July 2021. An additional contribution for deficit reduction of £1.9m payable over the nine-month period ending on 30 November 2023, and an additional contribution of £2.5m per annum, payable monthly from 1 December 2023 were also agreed. These include amounts payable under the PRP and replace the £2.5m per annum contribution for deficit reduction included in the previous funding plan. The additional contribution is reduced to a rate of £1.9m per annum if the funding level meets the target set by the PFP arrangement, which was reached in April 2024. The Group continues to make an additional £0.4m per annum contribution in respect of the Plan’s running costs, payable monthly. The present best estimate of the contributions to be made to the Plan by the Group in the year ending 30 September 2026 is £3.0m. The average durations of the discounted benefit obligations in the Plan at the year end are shown in the table below: | | | | | --- | --- | --- | | | 2025 | 2024 | | | Years | Years | | Category of member | | | | Active members | 18 | 19 | | Deferred pensioners | 17 | 18 | | Current pensioners | 10 | 11 | | All members | 15 | 16 | (d) Defined contribution arrangements The Group sponsors a defined contribution (Worksave) pension scheme, open to all employees who are not members of the Plan. The Group first completed the auto-enrolment process mandated by the UK Government in November 2013, using this scheme, with subsequent re-enrolment every three years, most recently in 2022. A new automatic re-enrolment process will commence on 1 November 2025. Since the year ended 30 September 2020 the Group’s contribution to the scheme for those employees making the maximum 6% contribution has been 10% of salary. The Group also sponsors a number of other defined contribution pension plans relating to acquired entities and makes contributions to these schemes in respect of employees. The assets of these schemes are not Group assets and are held separately from those of the Group, under the control of independent trustees. Contributions made by the Group to these schemes in the year ended 30 September 2025, which represent the total cost charged against income, were £5.0m (2024: £4.8m) (note 53). ![]() 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 (c) Dividend and distribution policy The Company is committed to a long-term sustainable dividend policy. Ordinarily, dividends will increase in line with earnings, subject to the requirements of the business and the availability of cash resources. The Board reviews the policy at least twice a year in advance of announcing its results, taking into account the Group’s strategy, capital requirements, principal risks and the objective of enhancing shareholder value. In determining the level of dividend for any year, the Board expects to follow the dividend policy, but will also take into account the level of available retained earnings in the Company, its cash resources and the cash and capital requirements inherent in its business plans. In addition to the payment of dividends, the Board may also consider whether it is appropriate to apply excess capital in the market purchase of the Group’s shares. The distributable reserves of the Company comprise its profit and loss account balance (note 42) and, other than the regulatory requirement to retain an appropriate level of capital in Paragon Bank PLC, there are no restrictions preventing profits elsewhere in the Group from being distributed to the parent. Since the year ended 30 September 2018, the Company has adopted a policy of paying out approximately 40% of its basic earnings per share as dividend (a dividend cover ratio of around 2.5 times), in the absence of any idiosyncratic factors which might make such a dividend inappropriate. This policy is reviewed by the Board at least annually. The Company considers it has access to sufficient cash resources to pay dividends at this level and that its distributable reserves are abundant for this purpose. To provide greater transparency, the Board also adopted a policy of paying an interim dividend in each year equivalent to half of the preceding final dividend in the absence of any factors which might make such a distribution inappropriate. For the current year, based on its review of the Group’s capital position and forecasts, the Board determined that an interim dividend in line with this policy was appropriate. It therefore declared an interim dividend for the year of 13.6p per share (2024: 13.2p per share). The Board also confirmed that the Group’s normal approach of paying an interim dividend of 50% of the preceding year’s final dividend would continue to apply in future years. ![]() Page 307 The Accounts The appropriate level of final dividend for the current year was considered by the Board in light of economic and regulatory developments in the year, and the various potential paths for the UK economy. In particular the levels of provision in the Group’s loan portfolios and the potential for further provision under stress in the event of a worsening UK economic position were considered by the Board. These were compared to the regulatory capital position at the year end along with the capital impacts of stress testing carried out as part of the ICAAP and forecasting processes, and the potential impacts of ongoing developments in the regulatory regime for capital including the introduction in the UK of Basel 3.1. The Board particularly considered the appropriateness of including net losses relating to fair value adjustments from hedging in the calculation of any dividend or distribution, as these primarily result from the reversal of gains recorded in earlier years which were disregarded, at the time, for the purpose of determining dividends. Given the size of such adjustments in the period, the Board concluded that their inclusion was not consistent with its overarching aim of delivering a sustainable dividend which grows with the earnings of the business. This is in line with the approach adopted in previous years. For the current year the Board considered the charge made for historical motor finance commission liabilities, in conjunction with the Group’s current and forecast capital positions and concluded that the current year impact of the provision could be disregarded for the purpose of determining the dividend for the year. This approach maintains an appropriate return to shareholders on the Group’s activities in the year, while also being affordable in terms of the Group’s capital management strategy. On the basis of this analysis the Board concluded that a total dividend of around 40% of earnings excluding fair value items could be paid. The Board will therefore propose a final dividend for the year of 30.3p per share (2024: 27.2p per share) for approval at the 2026 AGM, making a total dividend for the year of 43.9p per share (2024: 40.4p per share). In the preceding financial year, ended 30 September 2024, a share buy-back programme of up to £100.0m had been authorised. At the end of the period £76.6m had been expended, with the remainder completed in the current financial year. A share buy-back programme for the current financial year, for up to £50.0m of ordinary shares was authorised at the time of the Group’s 2024 results announcement. This was extended to £100.0m in June 2025. This amount was fully utilised during the year. The total amount expended in the year under these programmes was £124.7m (2024: £76.6m) (note 25). As part of its consideration of capital described above the Board of Directors authorised a new share buy-back of up to £50.0m to commence shortly after the announcement of the 2025 results. All shares acquired in buy-back programmes are initially held in treasury. The directors have considered the distributable resources of the Company and concluded that these distributions are appropriate. The most recent policy review, in November 2025, also confirmed the existing dividend policy would continue to apply for future periods, subject to the impact of any future events, and the Board will consider the appropriateness and scale of any interim dividend in the context of the Group’s results and the operating and economic environment at the time. Share buy-backs will be considered where excess capital has arisen, either operationally or as a result of changed regulatory requirements. 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 59. Credit risk The assets of the Group and the Company which are subject to credit risk are set out below. | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | 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 | All financial assets at amortised cost are subject to the requirements of IFRS 9 relating to impairment. Further information on the Group’s exposure to credit risk by asset type, including the credit quality of assets and any potential concentrations of credit risk, is set out below for: • Loans to customers • Investment securities • Cash balances (including CSA assets and accrued interest) • Trade receivables • Derivative financial assets Loans to customers The Group’s credit risk is primarily attributable to its loans to customers and its business objectives rely on maintaining a high-quality customer base and place strong emphasis on prudent credit management, both at the time of acquiring or underwriting a new loan, where robust lending criteria are applied, and throughout the loan’s life. Primary responsibility for the management of credit risk relating to lending activities across the Group lies with the Credit Committee. The Credit Committee, which reports to the ERC, is made up of senior employees, drawn from financial and risk functions independent of the underwriting process. It is chaired by the Credit Risk Director. Its key responsibilities include setting and reviewing credit policy, controlling applicant quality, tracking account performance against targets, agreeing product criteria and lending guidelines and monitoring performance and trends. The Group’s underwriting philosophy is based on sophisticated individual credit assessment supported by the automated efficiencies of statistically based evaluation models. Information on each applicant is combined with data taken from credit reference agencies and other external sources to provide a complete credit picture of the applicant and the borrowing requested. Key information is validated through a combination of documentation and statistical data which collectively provides evidence of the applicant’s ability and willingness to pay the amount contracted under the loan agreement. Similarly, where assets form part of the security to support the loan, robust asset valuation processes ensure appropriate risk mitigation is in place. Even so, in assessing credit risk, an applicant’s ability and propensity to repay the loan remain the principal factors in the decision to lend, even where the Group would have security on the proposed loan. In considering whether to acquire pools of loan assets, the Group will undertake a due diligence exercise on the underlying loan accounts. Such assets are generally not fully performing and are offered at a discount to their current balance. The Group’s procedures may include inspection of original loan documents, verification of security and the examination of the credit status of borrowers. Current and historic cash flow data will also be examined. The objective of the exercise is to establish, to a level of confidence similar to that provided by the underwriting process, that the assets will generate sufficient cash flows to recover the Group’s investment and generate an appropriate return without exposing the Group to material operational or conduct risks. ![]() Page 309 The Accounts This section sets out information relevant to assessing the credit risk inherent in the Group’s loans to customers balance. It is set out in the following subsections: • Types of lending and related security • Overall credit grading • Credit characteristics of particular portfolios • Arrears performance • Acquired assets Types of lending The Group’s balance sheet loan assets at 30 September 2025 are analysed as follows: | | | | | | | --- | --- | --- | --- | --- | | | | 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% | First and second charge mortgages are secured by charges over residential properties in England and Wales, or similar Scottish or Northern Irish securities. Development finance loans are secured by a first charge (or similar Scottish security) over the development property and various charges over the build. Asset finance loans and motor finance loans are effectively secured by the financed asset, while aircraft mortgages are secured by a charge on the aircraft funded. Structured lending and invoice finance balances are effectively secured over the assets of the customer, with security enhanced by maintaining balances at a level less than the total amount of the security (the advance percentage). Professions finance balances are generally short-term unsecured loans made to firms of lawyers and accountants for working capital purposes. Loans made under British Business Bank (‘BBB’) supported schemes have the benefit of a guarantee underwritten by the UK Government. ![]() Page 310 There are no significant concentrations of credit risk to individual counterparties due to the large number of customers included in the portfolios. All lending is to customers within the UK. The total gross carrying value of the Group’s loans to customers due from customers with total portfolio exposures over £10.0m is analysed below by product type. | | | | | --- | --- | --- | | | 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 | The threshold of £10.0m is used internally for monitoring large exposures. Credit grading An analysis of the Group’s loans to customers by absolute level of credit risk at 30 September 2025 is set out below. The analysed amount represents gross carrying amount. | | | | | | | | --- | --- | --- | --- | --- | --- | | | 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 | Gradings above are based on credit scorecards or internally assigned risk ratings as appropriate for the individual asset class. These measures are calibrated across product types and used internally to monitor the Group’s overall credit risk profile against its risk appetite. These gradings represent current credit quality on an absolute basis and this may result in assets in higher IFRS 9 stages with low risk grades, especially where a case qualifies through breaching, for example, an arrears threshold but is making regular payments. This will apply especially to Stage 3 cases reported in note 20, other than those shown as ‘realisations’. Examples of lower risk cases in higher IFRS 9 stages include fully up-to-date receiver of rent cases; accounts where the customer is in arrears on their account with the Group but up to date on accounts with other lenders, creating an overall positive credit rating; and accounts where the default on the Group’s loan has yet to impact on the external credit score. A small proportion of the loan book (2025: 0.7%, 2024: 0.9%) is classed as ‘not graded’ above. This rating generally relates to loans that have been fully underwritten at origination but where the customer falls outside the automated assessment techniques used post-completion. ![]() Page 311 The Accounts Credit characteristics by portfolio Loans secured on residential property First mortgage loans have a contractual term of up to thirty-five years and second charge mortgage loans up to twenty five years. In all cases the customer is entitled to settle the loan at any point and in most cases early settlement does take place. All customers on these accounts are required to make monthly payments. An analysis of the indexed Loan-to-Value (‘LTV’) ratio for those loan accounts secured on residential property by value at 30 September 2025 is set out below. LTVs for second charge mortgages are calculated allowing for the interest of the first charge holder, based on the most recent first charge amount held by the Group, while for acquired accounts the effect of any discount on purchase is allowed for. | | | | | | | --- | --- | --- | --- | --- | | | | 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 | | | The regionally indexed LTVs shown above are affected by changes in house prices, with the Nationwide house price index, for the UK as a whole, registering an annual increase of 2.2% in the year ended 30 September 2025 (2024: increase of 3.2%). The geographical distribution of the Group’s residential mortgage assets by gross carrying value is set out below. | | | | | | | --- | --- | --- | --- | --- | | | | 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 Development finance Development finance loans have an average term of 27 months (2024: 28 months). Settlement of principal and accrued interest takes place either on the sale of the development, or units within it, where appropriate, or on the refinancing of the property following its completion. The customer is not normally required to make payments during the term of the loan. The loans are secured by a legal charge over the site and / or property together with other charges and warranties related to the build. As customers are not required to make payments during the life of the loan, arrears and past due measures cannot be used to monitor credit risk. Instead, cases are monitored on an individual basis against the costs and progress in the agreed development programme by management and Credit Risk. The average loan to gross development value (‘LTGDV’) ratio for the portfolio at year end, a measure of security cover, is analysed below. | | | | | | | --- | --- | --- | --- | --- | | | 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 | The average LTGDV cover at the year end was 63.8% (2024: 63.0%). LTGDV is calculated by comparing the current expected end of term exposure with the latest estimate of the value of the completed development based on surveyors’ reports. The focus on residential property development within the portfolio means that asset values will generally move in line with the UK residential property market. An analysis of the number of cases in the Group’s development finance portfolio by IFRS 9 impairment stage is set our below. | | | | | --- | --- | --- | | | 2025 | 2024 | | Stage 1 | 215 | 214 | | Stage 2 | 17 | 17 | | Stage 3 | 23 | 19 | | POCI | - | 1 | | Total | 255 | 251 | The POCI loan was recognised on the acquisition of part of the development finance business and an allowance for losses made in the IFRS 3 fair value calculation. ![]() Page 313 The Accounts The geographical distribution of the Group’s development finance loans by gross carrying value is set out below. | | | | | --- | --- | --- | | | 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 | Asset finance and motor finance Asset and motor finance lending includes finance lease and hire purchase arrangements, which are accounted for as finance leases under IFRS 16. The average contractual life of the asset finance loans was 53 months (2024: 51 months) while that of the motor finance loans was 69 months (2024: 69 months), but historical behaviour suggests that a significant proportion of customers will choose to settle their obligations early. Asset finance customers are generally small or medium sized businesses. The nature of the assets underlying the Group’s asset finance lending, including loans financed through BBB sponsored schemes, by gross carrying value is set out below. | | | | | --- | --- | --- | | | 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 | Motor finance loans are secured over cars, leisure vehicles (motorhomes, caravans and campervans) and light commercial vehicles and represent exposure to consumers and small businesses. ![]() Page 314 Structured lending The Group’s structured lending division provides revolving loan facilities to support non-bank lending businesses. Loans are made to a Special Purpose Vehicle (‘SPV’) company controlled by the customer and effectively secured on the loans made by the SPV. Exposure is limited to a percentage of the underlying assets, providing a buffer against credit loss. Summary details of the structured lending portfolio are set out below. | | | | | --- | --- | --- | | | 2025 | 2024 | | Number of active facilities | 13 | 11 | | Total facilities (£m) | 403.0 | 330.0 | | Carrying value (£m) | 267.3 | 256.9 | The maximum advance under these facilities is generally 80% of the underlying assets, except where loans secured by residential property form the security for the facility, where 90% is permissible. Customers are charged interest on their drawn balance at a rate linked to SONIA, and a commitment fee on the undrawn amount of their facility. However, there is generally no requirement to make regular payments of specific amounts, with the facilities operating on a revolving basis, able to be paid down and redrawn over their term. The performance of each loan is monitored monthly on a case-by-case basis by the Group’s Credit Risk function, assessing compliance with covenants relating to both the customer and the performance and composition of the asset pool. These assessments, which are reported to Credit Committee, are used to inform the assessment of expected credit loss under IFRS 9. At 30 September 2025 all these facilities were identified as Stage 1. At 30 September 2024 one facility was identified as Stage 2 with the remainder in Stage 1. BBB supported schemes These schemes are managed by the British Business Bank (‘BBB’) and loans made under them have the benefit of guarantees underwritten by the UK Government. The Coronavirus Business Interruption Loan Scheme (‘CBILS’) and the Bounce Back Loan Scheme (‘BBLS’) were launched in 2020 and remained open for new applications until March 2021. The Recovery Loan Scheme (‘RLS’) was launched in April 2021 as a successor scheme and has subsequently been extended twice. It was available for new lending until June 2024 at which point it was rebranded as the Growth Guarantee Scheme (‘GGS’), on broadly similar terms. The Group offered term loans and asset finance loans under the CBIL scheme. Interest and fees were paid by the UK Government for the first twelve months and the government guarantee covers up to 80% of the lender’s principal loss after the application of any proceeds from the asset financed (if applicable). Loans under the BBL scheme are six year term loans at a standard 2.5% per annum interest rate. The UK Government paid the interest on the loan for the first twelve months and provides lenders with a guarantee covering the whole outstanding balance. The Group offers term loans and asset finance loans under the RLS / GGS. Interest and fees are payable by the customer from inception. The government guarantee covers up to 80% of the lender’s principal loss, after the application of any proceeds from the asset financed (if applicable), on applications received before 1 January 2022 and up to 70% for applications received thereafter under the RLS or under the successor GGS. ![]() Page 315 The Accounts The Group’s outstanding BBB supported loans at 30 September 2025 were: | | | | | --- | --- | --- | | | 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 | At 30 September 2025, £0.6m of this balance was considered to be non-performing (2024: £0.5m). ![]() Page 316 Arrears performance The number of accounts in arrears by asset class, based on the most commonly quoted definition of arrears for the type of asset, at 30 September 2025 and 30 September 2024, compared to the industry averages at those dates published by UK Finance (‘UKF’) and the Finance and Leasing Association (‘FLA’), was: | | | | | --- | --- | --- | | | 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 | No published industry data for asset classes comparable to the Group’s other books has been identified. Where revised data at 30 September 2024 has been published by the FLA or UKF, the comparative industry figures above have been amended. Arrears information is not given for development finance, structured lending or invoice finance activities as the structure of the products means that such a measure is not appropriate. No figure has been calculated for unsecured Commercial Lending balances due to the size of the exposure. The Group calculates its headline arrears measure for buy-to-let mortgages, shown above, based on the numbers of accounts three months or more in arrears, including purchased assets, but excluding those cases in possession and receiver of rent cases designated for sale. This is consistent with the methodology used by UKF in compiling its statistics for the buy-to-let mortgage market as a whole. The number of accounts in arrears will naturally be higher for legacy books, such as the Group’s legacy second charge mortgages and residential first mortgages than for comparable active ones, as performing accounts pay off their balances, leaving arrears accounts representing a greater proportion of the total. The figures shown above for second charge mortgage loans incorporate purchased portfolios which generally include a high proportion of cases in arrears at the time of purchase and where this level of performance is allowed for in the discount to current balance represented by the purchase price. However, this will lead to higher than average reported arrears. ![]() Page 317 The Accounts Acquired assets A significant proportion of the Group’s second charge mortgage balances were part of purchased debt portfolios, where the consideration paid was based on the credit quality and performance of the loans at the point of the transaction. No additional loans to customers treated as POCI were acquired in the year ended 30 September 2024 or the year ended 30 September 2025. Collections on purchased accounts have been comfortably in excess of those implicit in the purchase prices. In the debt purchase industry, Estimated Remaining Collections (‘ERC’) is commonly used as a measure of the value of a portfolio. This is defined as the sum of the undiscounted cash flows expected to be received over a specified future period. In the Group’s view, this measure may be suitable for heavily discounted, unsecured, distressed portfolios (which will be treated as POCI under IFRS 9), but is less applicable for the types of portfolio in which the Group has invested, where cash flows are higher on acquisition, loans may be secured on property and customers may not be in default. In such cases, the IFRS 9 amortised cost balance, at which these assets are carried in the Group’s balance sheet, provides a better indication of value. However, to aid comparability, the 84 and 120 month ERCs value for the Group’s purchased consumer loan assets, are set out below. These are derived using the same models and assumptions used in the EIR calculations. ERCs are set out both for all purchased consumer portfolios and for those classified as POCI under IFRS 9. | | | | | | --- | --- | --- | --- | | | 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 | Amounts shown above are disclosed as loans to customers (note 16). They include first mortgages and second charge mortgage loans. Investment securities The credit risk inherent in the Group’s investment securities is controlled by ALCO, which determines the nature of securities which may be invested in and the types of issuers in whose securities the Group may invest. The Group has formal risk appetites, policies and limits, approved by the Risk and Compliance Committee. The Group’s holdings at 30 September 2025, described in note 15, comprise gilts issued by the UK Government and covered bonds issued by UK institutions. The Group’s investments are analysed below according to the public credit rating assigned to institutional exposures, or by the credit ratings assigned by Fitch for sovereign (UK Government) exposures. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 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 Cash balances The credit risk inherent in the cash positions of the Group and the Company is controlled by ALCO, which determines which institutions deposits may be placed with. The Group has formal risk appetites, policies and limits, approved by the Risk and Compliance Committee. These include limitations on large exposures to mitigate any concentration risk in respect of its investments. For cash deposits within the Group’s securitisation structures, the scheme documents will set out criteria for allowable investments, including rating thresholds. The Group’s cash balances are held in sterling at the Bank of England and at highly rated banks in current and call accounts. Cash is also invested in short-term fixed rate money market deposits from time to time. The carrying value of the Group’s and the Company’s cash balances analysed by their long-term credit rating as determined by Fitch is set out below. | | | | | --- | --- | --- | | | 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 | CSA assets, which are placed with retail banks, have similar ratings to those shown above for retail bank deposits. Movements in gradings in the year relate principally to re-ratings of several of the Group’s principal counterparties by Fitch. Credit risk on all these balances, and any interest accrued thereon, is considered to be minimal. These balances are considered as Stage 1 for IFRS 9 impairment purposes with a PD such that any provision required would be immaterial. Trade debtors The Group’s trade debtors balance represents principally amounts outstanding on unpaid operating lease obligations in the asset finance business, where similar acceptance criteria to those used for finance lease cases apply. ![]() Page 319 The Accounts Financial assets at fair value The Group’s financial assets held at fair value comprise solely derivative financial instruments used for hedging purposes (note 24). In order to control credit risk relating to counterparties to the Group’s derivative financial instruments, ALCO reviews and approves which counterparties the Group will deal with, establishes limits for each counterparty and monitors compliance with those limits. Any changes necessary are advised to ERC. The Group’s counterparties are typically highly rated banks and, for all derivative positions held within securitisation structures, must comply with criteria set out in the financing arrangements, which are monitored externally. Since June 2019, the Group has been centrally clearing certain eligible derivatives with a Central Clearing Counterparty (‘CCP’) which removes credit risk between bilateral counterparties and ensures timely settlement and / or porting of derivative contracts in the event of the failure of a counterparty. The Group’s net exposure position on centrally cleared derivative is set out below. | | | | | --- | --- | --- | | | 2025 | 2024 | | | £m | £m | | Derivative financial assets | 240.8 | 317.3 | | Derivative financial liabilities | (65.3) | (98.9) | | | 175.5 | 218.4 | These amounts are not offset in the accounts of the Group. The Group uses the ISDA Master Agreement and Credit Support Annex (‘CSA’) for documenting uncleared derivative activity. Under a CSA, collateral is passed between counterparties to mitigate the market contingent counterparty risk inherent in the outstanding positions. Collateral pledged to such counterparties by the Group is shown in note 25, while collateral pledged to the Group is shown in note 37. The Group’s exposure to credit risk in respect of the counterparties to its derivative financial assets, analysed by their long-term credit rating as determined by Fitch is set out below. | | | | | --- | --- | --- | | | 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 | Movements in gradings in the year result from upgrades to several of the Group’s principal counterparties. ![]() Page 320 60. Liquidity risk Liquidity risk is the risk that the Group might be unable to meet its liabilities and financial commitments as they fall due. The Group’s principal source of liquidity risk is from its retail deposit funding. Amounts raised are typically used to support lending activities where maturity is over a longer period than that of the deposits. This maturity transformation exposes the Group to liquidity risk. Other sources of liquidity risk in the normal course of business include that arising: • In the medium term from the Group’s corporate and covered bonds which are used to support its general operations and from its participation in central bank funding schemes • From the Group’s derivatives portfolio, which gives rise to liquidity risk due to the collateral requirements to cover adverse changes in valuation Liquidity is also required to provide capital support for new loans and working capital for the Group. As an authorised deposit-taker, the liquidity position of Paragon Bank PLC, the Group’s banking subsidiary, is also managed on a stand-alone basis. Set out below is a summary of the contractual cash flows expected to arise from the Group’s financial and leasing liabilities, based on the earliest date at which repayment can be demanded. | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | 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 | As the amounts set out above include all expected future cash flows, including principal and interest, they will not correspond to amortised cost or fair value amounts reported in the balance sheet. Further information on the liquidity exposure arising from the Group’s retail deposits, securitisation and other borrowings is set out below. The liquidity exposures of the Company arise only from its borrowings, and are set out below. The overall responsibility for the management of liquidity risk rests with ALCO which makes recommendations for the Group’s liquidity policy for board approval. ALCO monitors liquidity risk metrics within limits set by the Board and / or regulators and uses detailed cash flow projections to ensure that an adequate level of liquidity is available at all times. The Group’s and the Bank’s liquidity position is managed on a day-to-day basis by the treasury function, under the supervision of ALCO. ![]() Page 321 The Accounts Retail deposits The Group’s retail funding strategy is focussed on building a stable mix of deposit products. A high proportion of balances, around 95%, are protected by the FSCS which mitigates against the possibility of a retail run. The cash outflows, including principal and estimated interest contractually required by the Group’s retail deposit balances, analysed by the earliest date at which repayment can be demanded are set out below: | | | | | --- | --- | --- | | | 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 | In order to reduce the liquidity risk inherent in the Group’s retail deposit balances, the PRA requires that the Bank, like other regulated banks, maintains a buffer of liquid assets to ensure it has sufficient available funds at all times to protect against unforeseen circumstances. The amount of this buffer is calculated using Individual Liquidity Guidance (‘ILG’) set by the PRA based on the Internal Liquidity Adequacy Assessment Process (‘ILAAP’) undertaken by the Bank. The ILAAP determines the liquid resources that must be maintained in the Bank to meet the Overall Liquidity Adequacy Rule (‘OLAR’) and to ensure that it can meet its liabilities as they fall due. It is based on an analysis of the Bank’s business as usual forecast cash requirements but also considers their predicted behaviour in stressed conditions. At 30 September 2025 the liquidity buffer comprised the following on and off balance sheet assets. All these assets are held within Paragon Bank. Balances with central banks are immediately available, while investment securities can be readily monetised with third parties, through repo transactions, or by use of Bank of England liquidity facilities. | | | | | | --- | --- | --- | --- | | | | 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 | Balances with central banks above exclude group treasury balances placed on deposit at the Bank of England through Paragon Bank (note 25). Paragon Bank manages its Liquidity Coverage Ratio (‘LCR’), the level of its High Quality Liquid Assets (‘HQLA’) relative to its short-term forecast net cash outflows, in a stressed scenario. A minimum level of LCR is set by the PRA for all regulated financial institutions. As at 30 September 2025, the Bank’s LCR was comfortably above the required minimum regulatory standard. The Bank also manages its Net Stable Funding Ratio (‘NSFR’) which measures the stability of the funding profile in relation to the composition of its assets and off balance sheet activities. Liquidity is not regulated at Group level. ![]() Page 322 Borrowings Set out below is the contractual maturity profile of the Group’s and the Company’s borrowings at 30 September 2025 and 30 September 2024 based on their carrying values. The Group | | | | | | | | --- | --- | --- | --- | --- | --- | | | | | 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 | The Company | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | 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 | IFRS 7 requires the disclosure of future contractual cash flows (including interest) on these borrowings, and these are described and set out on the following pages. ![]() Page 323 The Accounts Securitisation While the Group has several issues of asset-backed loan notes outstanding, which are rated and publicly listed, at 30 September 2025 all of these were held internally and are available for use as security for other borrowings, as described under ‘additional liquidity’ below. The Group has historically used securitisation as a principal source of funding, but currently only accesses this market on a strategic basis with no external balances outstanding at 30 September 2025 or 30 September 2024. In a securitisation an SPV company within the Group will issue asset backed loan notes secured on a pool of mortgage or other loan assets beneficially owned by the SPV either to external investors in a public offer, or to another group company. Notes held internally can be used as security to access other funding sources. The notes have a maturity date later than the final repayment date for any asset in the pool, typically over thirty years from the issue date. The noteholders are entitled to receive repayment of the note principal from principal funds generated by the loan assets from time to time, but their right to the repayment of principal is limited to the cash available in the SPV. It is therefore likely that a substantial proportion of the notes will be repaid within five years. Similarly, payment of accrued interest to the noteholders is limited to cash generated within the SPV. There is no requirement for any group company other than the issuing SPV to make principal or interest payments in respect of the notes. This matching of the maturities of the assets and the related funding substantially reduces the SPV’s exposure to liquidity risk. The Group also has an option to repay all the notes on any issue at an earlier date (the ‘call date’), at their outstanding principal amount. The Group publishes detailed information on the performance of all its note issues on the Bond Investor Reporting section of its website at www.paragonbankinggroup.co.uk. In each case the Group provides funding to the SPV at inception, subordinated to the notes, which means that the primary credit risk on the pool assets is retained within the Group. The Group receives the residual income generated by the assets. These factors mean that the risks and rewards of ownership of the assets remain with the Group, and hence the loans remain on the Group’s balance sheet, whether the notes are issued externally or retained. Cash received from time to time in each SPV is held until the next interest payment date when, following payment of principal, interest and the associated costs of the SPV, the remaining balances become available to the Group. Cash balances are also held within each SPV to provide credit enhancement for the particular securitisation, allowing interest and principal payments to be made even if some of the loans default. The cash balances of the SPV companies are included within the restricted cash balances disclosed in note 14 as ‘securitisation cash’. Rated notes in issue at 30 September 2025 and 30 September 2024, which were all held by the Group, were: | | | | | | | --- | --- | --- | --- | --- | | 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 | Interest is payable on the notes at a fixed margin above the compounded Sterling Overnight Interbank Average Rate (‘SONIA’) and they are all denominated in sterling. The details of the assets backing these securities are given in note 16. On 15 October 2025, after the year end, the Group redeemed all the outstanding notes of the Paragon Mortgages (No. 27) PLC securitisation at par. The underlying assets were subsequently funded by other group companies. Notice has been given to noteholders that the Group will redeem all the outstanding notes of the Paragon Mortgages (No. 28) PLC securitisation at par on 15 December 2025, after the year end. On 26 June 2019, the Group disposed of its beneficial interest in the Paragon Mortgages (No. 12) PLC (‘PM 12’) securitisation. At that point, the liabilities in respect of the PM 12 loan notes were derecognised by the Group, although the notes remain in issue. The Group’s continuing involvement in the transaction is described in note 49. ![]() Page 324 Corporate debt The Group issued £150.0m of tier-2 debt in March 2021. This bond is optionally callable between 25 June 2026 and 25 September 2026 and has a final maturity date of 25 September 2031. On 24 February 2025, Paragon Bank PLC established a covered bond programme, regulated and approved by the Financial Conduct Authority (‘FCA’). Under this programme, Paragon Bank has the ability to issue a total of up to £5,000.0m of bonds, secured on a pool of mortgage assets, when market conditions are acceptable, with a relative short preparation and lead time. The Group has so far made one issue under this programme, with £500.0m of principal currently outstanding (note 32). The Group’s ability to issue debt is supported by its public credit ratings issued by Fitch and Moody’s, which increase the range of funding solutions available. On 6 February 2025, Fitch Ratings affirmed the Group’s Long-Term Issuer Default Rating at BBB+, with a stable outlook. It also affirmed the senior unsecured debt rating at BBB and its BBB+ Long-term Issuer Default Rating for Paragon Bank. On 29 November 2024, Moody’s Investors Service commenced coverage of the Group, assigning a long-term issuer rating of Baa3 to the Group and a long-term deposit rating of Baa2 to Paragon Bank. These ratings were affirmed by Moody’s on 9 October 2025, after the year end. Central bank facilities The Group has accessed term credit facilities under the central bank schemes described in note 35. While the majority of the Group’s funding under the TFSME is repayable shortly after the balance sheet date, the Bank of England has indicated that it expects firms to use its other schemes, such as the ILTR, as part of their day-to-day liquidity management operations. The Group has prepositioned further assets with the Bank of England which can be used to release more funds under these schemes for liquidity or other purposes. At 30 September 2025 the amount of drawings available in respect of prepositioned assets was £4,168.3m (2024: £4,445.9m). Additional liquidity The Group holds certain of its own listed, externally rated, asset backed securities which may be used as security to access term credit and other facilities, including those offered by the Bank of England. The principal value of these notes is analysed by credit grade and utilisation status below. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 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 | As these notes are held internally, they are not included in balance sheet liabilities. Mortgage assets backing these securities remain on the Group’s balance sheet and are included in amounts pledged as collateral in note 16. Utilised notes includes those which the Group is obliged to hold under regulations governing securitisation issuance. The available AAA notes would give access to £1,055.5m (2024: £751.9m) if used to secure drawings on Bank of England facilities. The Group’s holdings of investment securities (note 15) are also available to access term credit and other facilities in a similar way. During the year ended 30 September 2020, the Group entered into a back-to-back long / short sale and repurchase (‘repo’) transaction with a UK bank which continued throughout the current year. This provides £150.0m of liquidity (2024: £150.0m), utilising £26.5m of the loan notes shown above (2024: £26.5m), but does not appear on the Group’s balance sheet. The Group also regularly enters into short-term repo transactions and maintains the capability to access the repo market with a range of counterparties for liquidity purposes, as required. Transactions in place at 30 September 2025 (note 36) utilised £110.4m of the loan notes shown above (2024: £111.0m). ![]() Page 325 The Accounts Contractual cash flows The total undiscounted amounts, inclusive of estimated interest, which would be payable in respect of the non-securitisation borrowings of the Group and the Company, should those balances remain outstanding until the contracted repayment date, or the earliest date on which repayment can be required, are set out below. | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | 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 | Amounts payable in respect of the ‘other accruals’ and ‘trade creditors’ shown in note 37 fall due within one year. The cash flows described above will include those for interest on borrowings accrued at 30 September 2025 disclosed in note 37. ![]() Page 326 The cash flows which are expected to arise from derivative contracts in place at the year end, estimating future floating rate payments and receipts on the basis of the yield curve at the balance sheet date are as follows: | | | | | --- | --- | --- | | | 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) | 61. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s exposure to market risk is mainly through interest rate risk, though there is some minor exposure to currency risk. These exposures arise solely through the Group’s lending and deposit-taking business - no speculative trading in financial instruments is undertaken. Interest rate risk Interest rate risk is the current or prospective risk to capital or earnings arising from adverse movements in interest rates. The Group’s exposure to this risk is a natural consequence of its lending, deposit-taking and other borrowing activities, as some of its financial assets and liabilities bear interest at rates which float with various market rates, principally SONIA, some at variable rates, controlled by the Group, subject to market pressures, while others are fixed, either for a term or for their whole lives. Such risk is referred to as Interest Rate Risk in the Banking Book (‘IRRBB’). The Group does not seek to generate income from taking interest rate risk and aims to minimise exposures that occur as a natural consequence of carrying out its normal business activities. The Group balance sheet also includes assets, liabilities and equity which, by their nature, do not attract interest. IRRBB is managed through board-approved risk appetite limits and policies. The Group seeks to match the structure of assets and liabilities naturally where possible or by using appropriate financial instruments, such as interest rate swaps. In developing this strategy, the Group also has regard to the potential impact of fixed rate lending and deposit pipelines, and of the difference in value between total interest-earning assets and total interest-bearing liabilities, largely represented by the Group’s equity, both of which can lead to additional exposure to interest rate movements. Day-to-day management of interest rate risk is the responsibility of the Group’s Treasury function, with control and oversight provided by ALCO. The Group’s risk management framework for IRRBB continues to evolve in line with updates in regulatory guidance on methods expected to be used by banks measuring, managing, monitoring and controlling such risks. ![]() Page 327 The Accounts IRRBB exposures Risk exposure in the Group’s operations might occur through: • Duration or re-pricing risk. The risk created when interest rates on assets, liabilities and off balance sheet items reprice at different times causing them to move by different amounts • Basis risk. The risk arising where assets and liabilities re-price with reference to different reference interest rates, for example rates set by the Group and market rates, such as Bank of England base rate and SONIA. Relative changes in the difference between the reference rates over time may impact earnings • Optionality or prepayment risk. The risk that settlement of asset and liability balances at different times from those forecast due to economic conditions or customer behaviour may create a mismatch in future periods Due to the maturity transformation inherent in the Group’s business model it is also exposed to the risk that the relationship between the rates affecting the shorter-term funding balance and the rates affecting the longer-term lending balance will have altered when the funding has to be refinanced. The Group measures these risks through a combination of economic value and earnings-based measures considering prepayment risk: • Economic Value (‘EV’) – a range of parallel and non-parallel interest rate stresses are applied to assess the change in market value from assets, liabilities and off balance sheet items re-pricing at different times • Net Interest Income (‘NII’) – impact on earnings from a range of interest rate stresses The Group’s use of financial derivatives for hedging interest rate risk relating to its fixed rate lending, deposit-taking, investing and borrowing activities is discussed further in note 24. Interest rate sensitivity To provide a broad indication of the Group’s exposure to interest rate movements, the notional impact of a 1.0% change in UK interest rates on the equity of the Group at 30 September 2025, and the notional annualised impact of such a change on the operating profit of the Group, based on the year-end balance sheet have been calculated. As a simplification this calculation assumes that all relevant UK interest rates move by the same amount in parallel and that all repricing takes place at the balance sheet date. On this basis, a 1.0% increase in UK interest rates would reduce profit before tax by £0.5m (2024: increase by £3.5m). The principal direct point-in-time impact on the Group’s equity would result from the revaluation of derivative assets and liabilities which are not part of fair value hedges at the balance sheet date. A 1.0% increase in rate expectations would increase equity by £4.7m (2024: increase by £14.1m). For this illustration no ineffectiveness in hedging relationships is assumed. These calculations allow only for the direct effects of any change in UK interest rates. In practice, such a change might have wider economic consequences which would themselves potentially affect the Group’s business and results. It should be noted that these sensitivities are illustrative only, and much simplified from those used to manage IRRBB in practice. The Company All the borrowings of the Company have fixed interest rates. The Company’s investments in loans to subsidiary companies include a Tier-2 Bond issued by Paragon Bank PLC, with terms matching the Tier-2 Bond issued by the Company. Its intercompany balance with Paragon Bank (note 25) also includes £65.3m which is placed on deposit with the Bank of England (2024: £107.6m). Interest is received on this balance at the same rate as that paid by the Bank of England. Other assets and liabilities with group entities bear interest at rates based on SONIA. All other balances in the Company balance sheet are non-interest bearing. Currency risk Currency risk, also referred to as foreign exchange or forex risk, is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has little appetite for material amounts of exposure to currency risk and applies a hedging strategy for any material open positions through the use of spot or forward contracts or derivatives. All the Group’s significant assets and liabilities at 30 September 2025 and 30 September 2024 are denominated in sterling. The SME lending business has a limited amount of lending denominated in US dollars, principally £5.4m of aviation mortgage balances (2024: £4.4m). It may also contract to purchase assets for leasing in currency. These balances are hedged by the purchase of currency derivatives and / or appropriate currency balances. As a result of these arrangements the Group has no material exposure to foreign currency risk, and no sensitivity analysis is presented for currency risk. The Group’s use of financial derivatives to manage currency risk is described further in note 24. None of the assets or liabilities of the Company are denominated in foreign currencies. ![]() 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 Group is required, by the Companies Act 2006 and the Listing Rules of the FCA, to prepare its financial statements for the year ended 30 September 2025 in accordance with UK-adopted international accounting standards. In the financial years reported on this also means, in the Group’s circumstances, that the financial statements also accord with IFRS as approved by the International Accounting Standards Board. 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. Adoption of new and revised reporting standards In the preparation of these financial statements, no accounting standards are being applied for the first time. Standards not yet adopted IFRS 18 On 9 April 2024 the IASB issued IFRS 18 – ‘Presentation and Disclosure in Financial Statements’. This is expected to impact the way in which information is disclosed in financial statements without impacting materially on the underlying accounting. IFRS 18 is expected to apply to the Group and the Company with effect from its financial year ending 30 September 2028, if the standard is endorsed for use in the UK. A detailed exercise to determine the impact of the new Standard on the Group’s annual reporting will be carried out before the implementation date. However, it is expected that the impact of the new standard on banking companies will be less than that for companies in general. Other than IFRS 18, described above, there are no new reporting standards and interpretations in issue but not effective which address matters relevant to the Group’s accounting and reporting. On 25 February 2025 the Financial Reporting Council issued new ‘Guidance on the Going Concern Basis of Accounting and Related Reporting (including Solvency and Liquidity Risks)’ which will replace the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ referred to in note 66 with effect from the Group’s financial year ending 30 September 2026. This is not expected to have a significant impact on the Group’s reporting. 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. (a) Accounting convention The financial statements have been prepared under the historical cost convention, except as required in the valuation of certain financial instruments which are carried at fair value. ![]() Page 329 The Accounts (b) Basis of consolidation The consolidated financial statements deal with the accounts of the Company and its subsidiaries made up to 30 September 2025. Subsidiaries comprise all those entities over which the Group has control, as defined by IFRS 10 – ‘Consolidated Financial Statements’. In addition to legal subsidiaries, where the Company owns shares in the entity, directly or indirectly, in accordance with IFRS 10, companies owned by charitable trusts into which loans originated by group companies were sold as part of its warehouse and securitisation funding arrangements, where the Group enjoys the benefits of ownership and which, therefore, it is considered to control, are treated as subsidiaries. A full list of the Group’s subsidiaries is set out in note 68, together with further information on the basis on which they are considered to be controlled by the Company. The results of businesses acquired are dealt with in the consolidated accounts from the date of acquisition. (c) Going concern The consolidated financial statements have been prepared on the going concern basis. The directors have adopted this basis following a going concern assessment for the Group and the Company covering a period of at least twelve months following the date of approval of these financial statements. Details of this assessment are set out in note 66. (d) Acquisitions and goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair values of acquired assets, including intangible assets, is held on the balance sheet and reviewed annually to determine whether any impairment has occurred. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 – ‘Business Combinations’ to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. Contingent consideration arising on acquisitions is first recognised in the accounts at its fair value at the acquisition date and subsequently revalued at each accounting date until it falls due for payment, or the final amount is otherwise determined. (e) Cash balances Balances shown as cash balances in the balance sheet comprise demand deposits and short-term deposits with banks with initial maturities of not more than 90 days. (f) Investment in securities The Group’s investments in securities are held as part of its liquidity buffer. They are therefore classified as ‘held to collect’ following an example set out in IFRS 9. These securities are carried at amortised cost, with income recognised on an effective interest rate (‘EIR’) basis. (g) Leases For leases where the Group is the lessee a right of use asset is recognised in property, plant and equipment on the inception of the lease based on the discounted value of the minimum lease payments at inception. A lease liability of the same amount is recognised at inception, with the unwinding of the discount included in interest payable. Leases where the Group is lessor are accounted for as operating or finance leases in accordance with IFRS 16 – ‘Leases’. A finance lease is one which transfers substantially all the risks and rewards of the ownership of the asset concerned. Any other lease is an operating lease. Finance lease receivables are accounted for as loans to customers, with impairment provisions determined in accordance with IFRS 9. Rental income and costs on operating leases are charged or credited to the profit and loss account on a straight-line basis over the lease term. The associated assets are included within property, plant and equipment. This policy applies both to assets leased to external customers and to vehicles leased to employees under the Group’s green car scheme. (h) Loans to customers Loans to customers includes assets accounted for as financial assets and finance leases. The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and its business model for managing the asset. The Group has concluded that its business model for its customer loan assets is of the type defined as ‘Held to collect’ by IFRS 9 and the contractual terms of the asset should give rise to cash flows that are solely payments of principal and interest (‘SPPI’). Such loans are therefore accounted for on the amortised cost basis. ![]() Page 330 Loans advanced are valued at inception at the initial advance amount, which is the fair value at that time, inclusive of procuration fees paid to brokers or other business providers and less initial fees paid by the customer. Loans acquired from third parties are initially valued at the purchase consideration paid or payable. Thereafter, all loans to customers are valued at this initial amount less the cumulative amortisation calculated using the EIR method. The loan balances are then reduced where necessary by an impairment provision. The EIR method spreads the expected net income arising from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts arising from the loan to the initial carrying amount. Where financial assets are credit-impaired at initial recognition the EIR is calculated on the basis of expected future cash receipts allowing for the effect of credit risk. In other cases, the expected contractual cash flows are used. (i) Finance lease receivables Finance lease receivables are included within ‘Loans to Customers’ at the total amount receivable less interest not yet accrued, unamortised commissions and provision for impairment. Income from finance lease contracts is governed by IFRS 16 – ‘Leases’ and accounted for on the actuarial basis. (j) Impairment of loans to customers The carrying values of all loans to customers, whether accounted for under IFRS 9 or IFRS 16, are reduced by an impairment provision based on their ECL, determined in accordance with IFRS 9. These estimates are reviewed throughout the year and at each balance sheet date. With the exception of POCI financial assets (which are discussed separately below), all assets are assessed to determine whether there has been a significant increase in credit risk (‘SICR’) since the point of first recognition (origination or acquisition). Assets are also reviewed to identify any which are ‘Credit Impaired’. SICR and credit impairment are identified on the basis of pre-determined metrics including qualitative and quantitative factors relevant to each portfolio, with a management review to ensure appropriate allocation. Assets which have not experienced an SICR are referred to as ‘Stage 1’ accounts, assets which have experienced an SICR but are not credit impaired are referred to as ‘Stage 2’ accounts, while credit impaired assets are referred to as ‘Stage 3’ accounts. An impairment allowance is provided on an account-by-account basis: • For Stage 1, at an amount equal to 12-month ECL, the total ECL that results from those default events that are possible within 12 months of the reporting date, weighted by the probability of those events occurring • For Stage 2 and 3 accounts, at an amount equal to lifetime ECL, the total ECL that results from any future default events, weighted by the probability of those events occurring In establishing an ECL allowance, the Group assesses its PD, LGD and exposure at default for each reporting period, discounted to give a net present value. The estimates used in these assessments must be unbiased and take into account reasonable and supportable information including forward-looking economic inputs. While the Group uses statistical models as the basis for its calculation of ECLs where appropriate, expert judgement will always be used to assess the adequacy of any calculated amount and additional provision made if required. Within its buy-to-let portfolio the Group utilises a receiver of rent process, whereby the receiver stands between the landlord and tenant and will determine an appropriate strategy for dealing with any delinquency. This strategy may involve the immediate sale of any underlying security or the short or long term letting of the property to cover arrears and principal shortfalls. Such cases are automatically considered to have an SICR, but where a letting strategy is adopted by the receiver and a tenant is in place, arrears may be reduced or cleared. Properties in receivership are eventually either returned to their landlord owners or sold. For loan portfolios acquired at a discount, the discounts take account of future expected impairments, and credit impaired assets in those portfolios are treated as POCI. For these assets, the Group recognises all changes in future cash flows arising from changes in credit quality since initial recognition as a loss allowance with any changes recognised in profit or loss. For financial accounting purposes, provisions for impairments of loans to customers are held in an impairment allowance account from the point at which they are first recognised. These balances are released to offset against the gross value of the loan when it is written off for accounting purposes. This occurs when standard enforcement processes have been completed, subject to any amount retained in respect of expected salvage receipts. Any further gains from post-write off salvage activity are reported as impairment gains. (k) Amounts owed by or to group companies In the accounts of the Company, balances owed by or to other group companies are carried at the current amount outstanding less any provision. Where balances owing between group companies fall within the definition of either financial assets or financial liabilities given in IAS 32 – ‘Financial Instruments: Presentation’ they are classified as assets or liabilities at amortised cost, as defined by IFRS 9. ![]() Page 331 The Accounts (l) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation. Assets held for letting under operating leases are depreciated in equal annual instalments to their estimated residual value over the life of the related lease. Vehicles held for short-term hire are depreciated in equal annual instalments to their estimated residual value over their expected useful life. This depreciation is deducted in arriving at net lease income and is shown in note 6. The assets’ residual values and useful lives are reviewed by management and adjusted, if appropriate, at each balance sheet date. Depreciation on operating assets is provided on cost in equal annual instalments over the lives of the assets. Land is not depreciated. The rates of depreciation are as follows: | | | | | | | --- | --- | --- | --- | --- | | 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 | Depreciation on right-of-use assets recognised in accordance with IFRS 16 is provided on a straight-line basis over the term of the lease. (m) Intangible assets Intangible assets comprise purchased computer software and other intangible assets acquired in business combinations. Purchased computer software is capitalised where it has a sufficiently enduring nature and is stated at cost less accumulated amortisation. Amortisation is provided in equal instalments over the expected useful life of the software concerned. These lives range between four and seven years. Other intangible assets acquired in business combinations include brands and business networks and are capitalised in accordance with the requirements of IFRS 3 – ‘Business Combinations’. Such assets are stated at attributed cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate determined at the point of acquisition. (n) Investments in subsidiaries The Company’s investments in subsidiary undertakings are valued at cost less provision for impairment. Impairment is determined based on the net asset values of subsidiary entities after provision for inter company balances and investments at the subsidiary level. (o) ESOP trusts Where trusts have been set up to hold shares in the Company in conjunction with the Group’s employee share ownership arrangements, the assets, liabilities and transactions of those trusts are accounted for within the accounts of the Company. (p) Own shares Shares in Paragon Banking Group PLC held in treasury or by the trustee of the Group’s employee share ownership plan are shown on the balance sheet as a deduction in arriving at total equity. Own shares are stated at cost. Any shortfall on disposal of such shares is offset against retained earnings. Any excess of disposal proceeds over cost of treasury shares is added to the share premium account. Where an irrevocable instruction for the purchase of such shares has been given, it is treated as a reduction in capital from the point at which the instruction becomes irrevocable. (q) Retail deposits Retail deposits are carried in the balance sheet on the amortised cost basis. The initial fair value recognised represents the cash amount received from the customer. Interest payable to the customer is expensed to the statement of profit or loss as interest payable over the deposit term on an EIR basis. (r) Borrowings Borrowings from external third parties are carried in the balance sheet on the amortised cost basis. The initial value recognised includes the principal amount received less any discount on issue or costs of issuance. Interest and all other costs of the funding are expensed to the statement of profit or loss as interest payable over the term of the borrowing on an EIR basis. (s) Central bank facilities Where central bank facilities are provided at a below market rate of interest, and therefore fall within the definition of government assistance as defined by IAS 20 – ‘Accounting for Government Grants and Disclosure of Government Assistance’, the liability is initially recognised at the value of its expected cash flows discounted at a market rate of interest for a comparable commercial borrowing. Interest is recognised on this liability on an EIR basis, using the imputed market rate to determine the EIR. ![]() Page 332 The remaining amount of the advance is recognised as deferred government assistance and released to the profit and loss account through interest payable over the periods during which the arrangement affects profit. (t) Sale and repurchase agreements Securities, including the Group’s own retained asset-backed notes, can be sold subject to a commitment to repurchase them at a subsequent date at a price calculated on a pre-determined basis (a repo). Where this price comprises a fixed amount plus a lenders’ return, the funds received are treated as borrowings of the Group. Where the securities concerned are retained notes no liability is recognised in asset-backed loan notes and where the securities are recognised on the Group’s balance sheet prior to the transaction, these are not derecognised. The difference between the sale and purchase price is accrued over the life of the agreement using the EIR method. (u) Provisions for liabilities Provisions for liabilities are made in accordance with IAS 37 – ‘Provisions, Contingent Liabilities and Contingent Assets’. Provision is made where it is probable that an outflow of resources will be required to settle an obligation arising from a past event. The amount of provision is based on the Group’s current estimate, at the balance sheet date, of the amount which would need to be paid to a third party at that point to extinguish all liabilities arising from the event. As such it would include incremental costs related to the settlement of the liability. This amount is calculated on a present value basis, where the time value of money is significant. (v) Derivative financial instruments All derivative financial instruments are carried in the balance sheet at fair value, as assets where the value is positive or as liabilities where the value is negative. Fair value is based on market prices, where a market exists. If there is no active market, fair value is calculated using present value models which incorporate assumptions based on market conditions and are consistent with accepted economic methodologies for pricing financial instruments. Changes in the fair value of derivatives are recognised in the statement of profit or loss. (w) Hedging IFRS 9 paragraph 7.2.21 permits an entity to elect, as a matter of accounting policy, to continue to apply the hedge accounting requirements of IAS 39 in place of those set out in Chapter 6 of IFRS 9. The Group has made this election, and the accounting policy below has been determined in accordance with IAS 39. For all hedges, the Group documents the relationship between the hedging instruments and the hedged items at inception, as well as its risk management strategy and objectives for undertaking the transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging arrangements put in place are considered to be ‘highly effective’ as defined by IAS 39. For a fair value hedge, as long as the hedging relationship is deemed ‘highly effective’ and meets the hedging requirements of IAS 39, any gain or loss on the hedging instrument recognised in income can be offset against the fair value loss or gain arising from the hedged item for the hedged risk. For macro hedges (hedges of interest rate risk for a portfolio of loan assets or retail deposit liabilities) this fair value adjustment is disclosed in the balance sheet alongside the hedged item, for other hedges the adjustment is made to the carrying value of the hedged asset or liability. Only the net ineffectiveness of the hedge is charged or credited to income. Where a fair value hedge relationship is terminated, or deemed ineffective, the fair value adjustment is amortised over the remaining term of the underlying item. (x) Taxation The charge for taxation represents the expected UK corporation tax (including the Bank Corporation Tax Surcharge where applicable) and other income taxes arising from the Group’s profit for the year. This consists of the current tax which will be shown in tax returns for the year and tax deferred because of temporary differences. This, in general, represents the tax impact of items recorded in the current year but which will impact tax returns for periods other than the one in which they are included in the financial statements. The Group will hold a provision for any uncertain tax positions at the balance sheet date based on a global assessment of the expected amount that will ultimately be payable. Tax relating to items taken directly to equity is also taken directly to equity. (y) Deferred taxation Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. As required by IAS 12 – ‘Income Taxes’, deferred tax assets and liabilities are not discounted to take account of the expected timing of realisation. ![]() Page 333 The Accounts (z) Retirement benefit obligations The expected cost of providing pensions within the funded defined benefit scheme, determined on the basis of annual valuations by professionally qualified actuaries using the projected unit method, is charged to the statement of profit or loss. Actuarial gains and losses are recognised in full in the period in which they occur and do not form part of the result for the period, being recognised in the Statement of Comprehensive Income. The retirement benefit obligation asset recognised in the balance sheet represents the excess of the fair value of the scheme assets over the present value of the defined benefit obligation. The expected finance income from the surplus, as estimated at the beginning of the period, is recognised in the result for the period within interest receivable. Any variances against the estimated amount in the year form part of the actuarial gain or loss. The charge to the income statement for providing pensions under defined contribution pension schemes is equal to the contributions payable to such schemes for the year. (aa) Revenue The revenue of the Group comprises interest receivable and similar charges, operating lease income and other income. The accounting policy for the recognition of each element of revenue is described separately within these accounting policies. (bb) Other income Other income, which is accounted for in accordance with IFRS 15, includes: • Event-based administration fees charged to borrowers (other than the initial fees included in amortised cost), which are credited when the related service is performed • Commissions receivable on the sale of insurances, as agent of the third-party insurer, which are taken to profit at the point at which the Group becomes unconditionally entitled to the income • Maintenance income, charged as part of the Group’s contract hire arrangements, which is recognised as the services are provided. Costs of these services are deducted in other income • Broker fees receivable on the arrangement of loans funded by third parties, on an agency basis, which are taken to profit at the point of completion of the related loan (cc) Share-based payments In accordance with IFRS 2 – ‘Share-based Payments’, the fair value at the date of grant of awards to be made in respect of options and shares granted under the terms of the Group’s various share-based employee incentive arrangements is charged to the statement of profit or loss account over the period between the date of grant and the vesting date. National Insurance on share-based payments is accrued over the vesting period, based on the share price at the balance sheet date. Where the allowable cost of share-based awards for tax purposes is greater than the cost determined in accordance with IFRS 2, the tax effect of the excess is taken to reserves. (dd) Dividends In accordance with IAS 10 – ‘Events after the balance sheet date’, dividends payable on ordinary shares are recognised in equity once they are appropriately authorised and are no longer at the discretion of the Company. Dividends declared after the balance sheet date, but before the authorisation of the financial statements remain within shareholders’ funds. However, such dividends are deducted from regulatory capital from the point at which they are announced, and capital disclosures are prepared on this basis. (ee) Foreign currency Foreign currency transactions, assets and liabilities are accounted for in accordance with IAS 21 – ‘The Effects of Changes in Foreign Exchange Rates’. The functional currency of the Company, and all the other entities in the Group, is the pound sterling. Transactions which are not denominated in sterling are translated into sterling at the spot rate of exchange on the date of transaction. Monetary assets and liabilities which are not denominated in sterling are translated at the closing rate on the balance sheet date. Gains and losses on retranslation are included in interest payable or interest receivable depending on whether the underlying instrument is an asset or a liability. (ff) Segmental reporting The accounting policies of the segments are the same as those described above for the Group as a whole. Interest payable by each segment includes directly attributable funding and the allocated cost of retail deposit funds utilised. Attributable hedging transactions are also included in segment results. Costs attributed to each segment represent the direct costs incurred by the segment operations. ![]() 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 65. Critical accounting estimates Certain balances reported in the financial statements are based wholly or in part on estimates or assumptions made by the directors. There is, therefore, a potential risk that they may be subject to change in future periods. The most important of these, those which could, if revised significantly in the next financial year, have a material impact on the carrying amounts of assets or liabilities are: (a) Impairment losses on loans to customers Impairment losses for the majority of loans are calculated based on statistical models, applied to the present status, performance and management strategy for the loans concerned, which are used to determine each loan’s PD and LGD. Internal information used will include number of months arrears, qualitative information, such as possession by a first charge holder on a second charge mortgage or, where a buy-to-let case is under the control of a receiver of rent, the receiver’s present and likely future strategy for the property (which might include keeping current tenants in place, refurbish and relet, immediate sale, etc). External information used includes customer specific data, such as credit bureau information as well as more general economic data. Key internal assumptions in the models relate to estimates of future cash flows from customers’ accounts, their timing and, for secured accounts, the expected proceeds from the realisation of the property or other charged assets. These cash flows will include payments received from the customer, and, for buy-to-let cases where a receiver of rent is appointed, rental receipts from tenants, after allowing for void periods and running costs. These key assumptions are based on observed data from historical patterns and are updated regularly based on new data as it becomes available. In addition, the directors consider how appropriate past trends and patterns might be in the current economic situation and make any adjustments they believe are necessary to reflect current and expected conditions. In evaluating the potential impact of the economic situation at 30 September 2025 there is little recent history against which to benchmark likely customer behaviour. The UK base rate stood at 5.25% throughout much of the preceding financial year ending 30 September 2024, having risen rapidly to that level. This level had not previously been reached since April 2008, and the base rate has fallen back only slowly from that point, remaining significantly higher than its level between 2009 and 2022. There have also been significant regulatory interventions and changes in product structures in that period, including the growth in longer-term fixed-rate mortgage lending in recent years. All these factors make the historical record of behaviours in higher interest rate environments an uncertain guide to the likely impact of current rate levels. There also remains an elevated degree of uncertainty over the direction of the UK economy. The UK Government’s October 2024 budget contained significant fiscal measures which came into force during the year. These might plausibly impact the economy in a number of different ways and it remains too early to predict their ultimate impact. At the same time, the level to which existing economic pressures on customers have yet to manifest themselves in credit metrics is still unclear, with credit performance across the markets in which the Group is active being better than some expected over the past two years. However, considerable uncertainty exists as to whether this represents a more benign outcome, or merely a delay in credit issues emerging beyond what was anticipated. Together, these factors make forecasting credit behaviour in current conditions challenging. The accuracy of the impairment calculations would be affected by unexpected changes to the economic situation, variances between the models used and the actual results, or assumptions which differ from the actual outcomes. In particular, if the impact of economic factors such as employment levels on customers is worse than is implicit in the model, then the number of accounts requiring provision might be greater than suggested by the model, while falls in house prices, over and above any assumed by the models might increase the provision required in respect of accounts currently provided. Similarly, if the account management approach assumed in the modelling cannot be adopted the provision required may be different. In order to provide forward-looking economic inputs to the modelling of the ECL, the Group must derive a set of scenarios which are internally coherent. The Group addresses these requirements using four distinct economic scenarios chosen to represent the range of possible outcomes. These scenarios at 30 September 2025 have been derived in light of the current economic situation modelling a variety of possible outcomes as described in note 22. As noted above, there remains a significant range of different opinions amongst economists about the longer-term prospects for the UK. While some convergence of views on the central case has taken place over recent months, the level of deviation of alternative potential scenarios from this position remains significant, with the medium-term uncertainty over the direction and impact of UK economic policy adding inherent complexity to any forecasting exercise. The variables are used for two purposes in the IFRS 9 calculations: • They are applied as inputs in the models which generate PD values, where those found by statistical analysis to have the most predictive value are used • They are used as part of the calculation where the variable has a direct impact on the expected loss calculation, such as the HPI The economic variables will also inform assumptions about the Group’s approach to account management given a particular scenario. In addition to uncertainty represented by the economic scenarios, the Group recognises that economic situations can arise which lie outside the range of potential positions considered as a basis for its IFRS 9 approach to impairment when the current models were built. The current forecast scenarios, which include higher rates of interest and inflation than in the historically observed data, represent situations where these models may not be able to fully allow for potential economic impacts on the loan portfolios. The Group therefore assessed, for each class of asset, whether any adjustment to the normal approach was required to ensure sufficient provision was created by the models. It also reviewed other available data, both from account performance and customer feedback to form a view of the underlying reasons for observed customer behaviours and of their future intentions and prospects. ![]() Page 336 As a result of this exercise additional requirements for provision were identified, to compensate for potential model weakness and to allow for economic pressures in the wider economy which cannot be identified by a modelled approach. By their nature such adjustments are less systematic and therefore subject to a wider range of outturns. The nature and amounts of these judgemental adjustments are set out in note 19. The position after considering all these matters is set out in notes 19 to 21, together with further information on the Group’s approach. The economic scenarios described above and their impact on the overall provision are set out in note 22, while sensitivity analyses on impairment provisioning are set out in note 23. (b) Effective interest rates In order to determine the EIR applicable to loans and borrowings an estimate must be made of the expected life of each asset or liability and the cash flows relating thereto, including those relating to early redemption charges together with any initial fees receivable from the customer or procurement fees payable to a mortgage broker or other introducer. Where an account may have differing interest charging arrangements in different phases of its contractual life, such as the Group’s buy-to-let mortgage accounts which have a fixed interest rate for a set period and then revert to a variable rate set by the Group (the ‘reversionary rate’), the behavioural life and the expected level of the reversionary rate will have a significant impact on the overall EIR. For each portfolio a model is in place to ensure that income is appropriately spread. For loan accounts, such as those in the Group’s mortgage portfolios, where borrowers typically repay their balances before the contractual repayment date, the estimated life of the account will be dependent on customer behaviour. The customer may choose to sell their property and redeem the mortgage at any point, but may also choose to refinance their account, if a more attractive alternative is available, based on the interest rate they are being charged at that point in time, or expect to be charged in the future. The behavioural life of the loan may therefore be influenced by levels of activity in the residential property market, or by the nature and pricing of alternative funding sources, at each point in the loan’s life and these are likely to vary over time. For loans which have a fixed-rate period, the length of that period will have a significant behavioural impact, with many customers choosing to consider their positions at the point at which the fixed rate expires, influenced by the market conditions then prevailing. The forecast future choices of customers currently on fixed-rate products at this point therefore has a significant impact on the EIR modelling for these assets. Where loans are more likely to run to contractual term, and interest rates are less likely to vary over that term, as is the case for the majority of the Group’s motor finance and asset-backed SME lending, the determination of an EIR model is less judgemental, and reflects principally the spreading of known fees and commissions. The Group models lives for each of its asset classes, based on its current expectation of future borrower behaviour, and uses these profiles, together with its expectations of future interest rates, following the end of the fixed rate period, to determine the correct EIR to be applied to each account. The underlying estimates are based on historical data, adjusted for expected changes, and reviewed regularly. The accuracy of the EIR applied would therefore be compromised by any differences between actual repayment profiles and charging rates and those predicted, which in turn would depend directly on customer behaviour and market conditions. The Group therefore keeps its models under review and refines its modelling in the light of any emerging deviations from expected behaviour. These are particularly likely where the current or expected economic environment differs from historic scenarios for which relevant data observations are available. This is currently the case, with market mortgage rates trending slowly downwards from a historically high level, a scenario not seen for some years. In such cases management consider carefully the impacts which any new conditions may have on customer behaviour and interest rates after the end of the fixed rate period, and reflect them in the model as appropriate, revisiting these assumptions regularly as observable data becomes available, with a detailed exercise to analyse any emerging themes taking place every six months as part of the half-year and year-end results processes. The application of these estimates results in an overall increase in the carrying value of the Group’s loans to customers, including POCI accounts, at 30 September 2025 of £7.1m (2024: decrease of £4.4m). To illustrate the potential variability of the estimate, the amortised cost values were recalculated by changing one factor in the EIR calculation and keeping all others at their current levels. • Currently the average behavioural life used in the buy-to-let modelling for non-legacy assets, which have an average fixed period of 48 months (2024: 48 months), was 101 months (2024: 80 months) A reduction of the assumed average lives of all loans secured on residential property by three months would reduce balance sheet assets by £6.6m (2024: £9.3m), while an increase of the assumed asset lives of such assets by three months would increase balance sheet assets by £6.5m (2024: £9.1m). £5.8m of the increase (2024: £8.9m) and £5.8m of the decrease (2024: £9.1m) related to non-legacy buy-to-let assets A reduction of the assumed average lives of all loans secured on residential property by six months would reduce balance sheet assets by £13.1m (2024: £18.5m), while an increase of the assumed asset lives of such assets by six months would increase balance sheet assets by £12.9m (2024: £17.5m). £11.4m of the increase (2024: £17.2m) and £11.6m of the decrease (2024: £18.2m) related to non-legacy buy-to-let assets • The EIR calculation is based on management estimates of the reversionary rates which would be charged to customers after the end of their fixed rate periods If it was assumed that the reversionary rate which would be charged in future was 0.1% lower, then the value of the non-legacy buy-to-let loan book would be decreased by £11.6m (2024: decrease by £8.4m) If it was assumed that the reversionary rate which would be charged in future was 0.1% higher, then the value of the non-legacy buy-to-let loan book would be increased by £11.5m (2024: increase by £8.4m) ![]() Page 337 The Accounts • Where fixed-rate buy-to-let assets redeem before the end of their fixed-rate period, an early redemption charge is made, and an estimate for the impact of these charges must be included in the EIR calculation An increase of 50% in the number of five-year fixed-rate buy-to-let loan assets assumed to redeem before the end of the fixed-rate period would increase balance sheet assets by £8.9m (2024: £9.9m) As any of these changes would, in reality, be accompanied by movements in other factors, actual outcomes may differ from these estimates. (c) Provisions for liabilities The Group is exposed to potential liabilities relating to historical payments of motor finance commission, as described in note 39. A provision has been made in the accounts for such liabilities, including redress amounts payable and related costs, based on the Group’s best estimate of the amount which might be payable if the current proposals from the FCA, on which it is currently consulting, are finalised unchanged. This calculation includes estimates where outcomes are uncertain, including for levels of take up of any scheme, or where there is currently insufficient information to calculate a precise figure, such as the levels of costs which might be incurred in executing a redress programme in line with the regulator’s expectations. As the proposals are currently still being consulted upon, there remains the possibility that the final requirements might be wider or narrower in scope than presently proposed, that the final redress calculation might differ from that currently proposed, or that the recommended operational approach to programme execution may be changed as a result of the consultation. Further, while the FCA has stated its intention that its scheme should be comprehensive, there remains the possibility of related claims being pursued through other channels. The impact of any of these matters might result in an increase or decrease in the Group’s ultimate liability compared to the amount presently provided. Information on the volume and nature of the Group’s motor finance commissions is set out in note 39 in order that the potential sensitivities surrounding the provision may be assessed. (d) Impairment of goodwill The carrying value of goodwill recognised on acquisitions is verified by use of an impairment test based on the projected cash flows for the CGU, based on management forecasts and other assumptions described in note 29, including a discount factor. The accuracy of this impairment calculation would therefore be compromised by any differences between these forecasts and the levels of business activity that the CGU is able to achieve in practice. As the Group forecasts are based on the Group’s central economic scenario, any variance from this will potentially impact on the valuation. This test will also be affected by the accuracy of the discount factor used. The sensitivity of the impairment test to reasonably possible movements in these assumptions is discussed in note 29. (e) Retirement benefits The present value of the retirement benefit obligation is derived from an actuarial calculation which rests on a number of assumptions relating to inflation, long-term return on investments and mortality. These are listed in note 56. Where actual conditions differ from those assumed the ultimate value of the obligation would be different. Information on the sensitivity of the valuation to the various assumptions is given in note 56. 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. 67. Financial assets and financial liabilities The Group’s financial assets and financial liabilities are valued on one of two bases, defined by IFRS 9: • Financial assets and liabilities carried at fair value through profit and loss (‘FVTPL’) • Financial assets and liabilities carried at amortised cost IFRS 7 – ‘Financial Instruments: Disclosures’ requires that where assets are measured at fair value these measurements should be classified using the fair value hierarchy set out in IFRS 13 – ‘Fair Value Measurement’. This hierarchy reflects the inputs used and defines three levels: • Level 1 measurements are unadjusted market prices • Level 2 measurements are derived from directly or indirectly observable data, such as market prices or rates • Level 3 measurements rely on significant inputs which are not derived from observable data As quoted prices are not available for level 2 and 3 measurements, the valuation is derived from cash flow models based, where possible, on independently sourced parameters. The accuracy of the calculation would therefore be affected by unexpected market movements or other variances in the operation of the models, or the assumptions used. The Group had no financial assets or liabilities at 30 September 2025 or 30 September 2024 carried at fair value and valued using level 3 measurements. The Group has not reclassified any of its measurements during the year . ![]() Page 340 The methods by which fair value is established for each class of financial assets and liabilities are set out below. (a) Assets and liabilities carried at fair value The following table summarises the Group’s financial assets and liabilities which are carried at fair value. | | | | | | --- | --- | --- | --- | | | | 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 | All these financial assets and financial liabilities are required to be carried at fair value by IFRS 9. The Company has no financial assets or liabilities carried at fair value. Derivative financial assets and liabilities Derivative financial instruments are stated at their fair values in the accounts. The Group uses a number of techniques to determine the fair values of its derivative assets and liabilities, for which observable prices in active markets are not available. These are principally present value calculations based on estimated future cash flows arising from the instruments, discounted using a market interest rate, adjusted for risk as appropriate. The principal inputs to these valuation models are SONIA sterling benchmark interest rates. In order to determine the fair values, the management applies valuation adjustments to observed data where that data would not fully reflect the attributes of the instrument being valued, such as particular contractual features or the identity of the counterparty. The management reviews the models used on an ongoing basis to ensure that the valuations produced are reasonable and reflect all relevant factors. These valuations are based on market information, and they are therefore classified as level 2 measurements. Details of these assets and liabilities are given in note 24. (b) Assets and liabilities carried at amortised cost The fair values for financial assets and financial liabilities held at amortised cost, determined in accordance with the methodologies set out in this note are summarised below. | | | | | | | | --- | --- | --- | --- | --- | --- | | | | 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 | The fair values of retail deposits, corporate bonds and covered bonds shown above will include amounts for the related accrued interest. Cash, sale and repurchase agreements, and bank borrowings The fair values of cash and cash equivalents, sale and repurchase agreements and bank borrowings, which are carried at amortised cost, are considered to be not materially different from their book values. In arriving at that conclusion market inputs have been considered but because all the assets and the sale and repurchase agreements mature within three months of the year end and the interest rates charged on financial liabilities reset to market rates on a quarterly basis, little difference arises. This also applies to the Company’s loans to its subsidiaries. As these valuation exercises are not wholly market-based, they are considered to be level 2 measurements. Investment securities The Group’s investment securities are of types for which a liquid market exists, and for which quoted prices are available. It is therefore appropriate to consider that the market price of these assets constitutes a fair value. As this valuation is based on a market price it is considered to be a level 1 measurement. Loans to customers To assess the likely fair value of the Group’s loan assets in the absence of a liquid market, the directors have considered the estimated cash flows expected to arise from the Group’s investments in its loans to customers based on a mixture of market-based inputs, such as rates and pricing and non-market based inputs such as redemption rates. Given the mixture of observable and non-observable inputs these are considered to be level 3 measurements. Corporate debt The Group’s corporate bonds and covered bonds are listed on the London Stock Exchange and there is presently a reasonably liquid market in the instruments. It is therefore appropriate to consider that the market price of these borrowings constitutes a fair value. As this valuation is based on a market price, it is considered to be a level 1 measurement. Retail deposits To assess the likely fair value of the Group’s retail deposit liabilities, the directors have considered the estimated cash flows expected to arise based on a mixture of market based inputs, such as rates and pricing and non-market based inputs such as withdrawal rates. Given the mixture of observable and non-observable inputs, these are considered to be level 3 measurements. Sundry assets and liabilities Fair values of financial assets and liabilities disclosed as sundry assets and sundry liabilities are not considered to be materially different to their carrying values. These assets and liabilities are of relatively low value and may be settled at their carrying value at the balance sheet date or shortly thereafter. ![]() Page 342 68. Details of subsidiary undertakings Subsidiary undertakings of the Group at 30 September 2025, where the share capital is held within the Group are shown below. The holdings shown are those held within the Group. The shareholdings of the Company in the direct subsidiaries listed below are the same as those held by the Group, except that for the shareholding marked \* the Company holds only 74% of the share capital. In this case, the remainder is held by other group companies. The issued share capital of all subsidiaries consists of ordinary share capital. | | | | | --- | --- | --- | | 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 | The financial year end of all the Group’s subsidiary companies is 30 September. They are all registered in England and Wales and operate in the UK except Paragon Pension Investments GP Limited, which is registered in Scotland and operates in the UK. As part of the Group’s financing arrangements certain mortgage and consumer loans originated by Paragon Mortgages (2010) Limited and Mortgage Trust Limited have been sold to special purpose entity companies, referred to as orphan SPEs, which had raised non-recourse finance to fund these purchases. The shares of these companies are ultimately beneficially owned through independent trusts, but they are considered to be controlled by the Group, as defined by IFRS 10, due to the Group’s exposures to the variable returns from the assets of each entity and its ability to direct their activities, within the constraints imposed by the lending documents. Hence, they are considered to be subsidiaries of the Group. ![]() Page 344 The principal companies party to these arrangements at 30 September 2025 comprise: | | | | --- | --- | | 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 | \*The Group has a 20% equity interest in this entity, with the remaining interest held through the orphan structure. All these companies are registered and operate in the UK. Paragon Covered Bonds LLP is a limited liability partnership registered in England and Wales, in which control is vested in certain other group entities. It is therefore considered to be a subsidiary of the Group. This entity operates in the UK. Earlswood Finance (No. 3) Limited, a company limited by guarantee, is registered in England and Wales and operates in the UK. It is included in the consolidation as it is ultimately controlled by the Company. The Paragon Pension Partnership LP is a limited partnership established under Scots law, in which control is vested in members which are group companies. It is therefore considered to be a subsidiary entity. The outside member is the Group’s Pension Plan and the Plan’s rights to income from the partnership are set out in the partnership agreement. Therefore, no minority interest arises. The partnership is registered in Scotland and operates in the UK. The registered office of each of the entities listed in this note is the same as that of the Company (note 1), except that the registered office of the Scottish entities is Citypoint, 65 Haymarket Terrace, Edinburgh, EH12 5HD. All the entities listed above are included in the consolidated accounts of the Group. ![]() Page 345 The Accounts Companies in liquidation The following legal subsidiaries of the Group were in liquidation at 30 September 2025. They do not form part of the consolidation as they are considered to be controlled by the liquidator. | | | | | --- | --- | --- | | 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 | The shareholding of the Company in each of the direct subsidiaries shown above is the same as that of the Group. The issued share capital of each of the companies listed above consists of ordinary shares only. The following orphan SPE company was also in liquidation at 30 September 2025. | | | | | --- | --- | --- | | Company | Holding | Principal activity | | Paragon Mortgages (No. 26) PLC | | Non-trading | All the companies in liquidation listed in this section are registered and operated in the UK. ![]() 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