Paragon Banking Group Stock

So good morning, and welcome to Paragon's 2026 Interim Results Presentation. We will shortly run through the financial and operational performance before providing you with our perspective on the outlook. We'll also spend some time focusing on our capital management strategy. And of course, we will be -- we will leave plenty of time for your questions.

But before we get into the detail, let me spend a few minutes running through our key highlights. The first half of 2026 produced another strong financial and operational performance, reflecting the resilience of our business model and the strength of our franchises. Underlying operating profit stood at GBP 146 million with earnings per share up by 2.9% and a return on tangible equity at 17.4%.

These outturns were a product of good loan book growth, tight cost control, delivering a market-leading cost income ratio and a resilient net interest margin, all delivered against the backdrop of heightened uncertainty and volatility in financial markets. Group-wide loan growth of 3.8% needs to be considered in the context of the buy-to-let book happen to carry the runoff legacy portfolio, resulting in underlying buy-to-let loan growth of 6.7%.

Commercial loan book growth stood at an impressive 9.2%, reflecting the continuing asset diversification strategy itself supporting continuing improvements in NIM. We have continued to focus on costs, where technology investments in recent years have delivered productivity benefits underpinning the market-leading cost income ratio of 35.5%. Our high quality loan book, 99% of which is secured ensures we operate with low impairments and remains well protected even in these more volatile times.

So a combination of good loan book growth, highly resilient margins, tight cost control and a high-quality customer base, all combined to deliver strong levels of profitability and an excellent return on capital. We've been operating in uncertain times for a sustained period. In fact, in many ways, it's the new normal. But we have done -- what we have done is adapt, reprioritize and become more agile. And consequently, despite the uncertain times, we've built a strong and resilient business with strong franchises in our chosen specialist markets, and we therefore remain confident in the outlook.

These 2 charts clearly show the successful outcome of our strategic objective of delivering strong and sustainable returns to shareholders with low volatility. We have achieved a 10-year compound annual growth rate in earnings of 11.4%. And an underlying return on tangible equity comfortably and consistently in the middle of our target range and at the higher end of returns achieved by the U.K. banking sector as a whole. We have achieved this by delivering low volatility in a highly volatile world. And that requires a disciplined approach to the way we run our business. And this approach runs across all aspects of what we do and is significantly important in delivering our future strategy and plans.

Let me now turn to our capital management strategy upfront, as this is significant in how we deliver value for our shareholders. We have consistently generated strong internal levels of capital, averaging 2.2% per annum over the last 10 years, supporting our loan book growth, the 40% dividend payout ratio, 4 acquisitions that we've made in the period and GBP 683 million of buybacks.

In 2026, to date, we have internally generated 2.4% of CET1 as measured on an annualized basis, supporting the loan book growth and a further GBP 50 million share buyback announced today. We've also issued our inaugural AT1 bond in March, thereby optimizing the capital stack, leaving us with strong capital ratios comfortably above our regulatory requirements. So taking into account the capital generated from our 15% to 20% return on tangible equity, and applying the loan book growth we delivered over the last 10 years, it's not unreasonable to assume we will generate a 1% CET1 surplus each year after covering growth in dividends.

In terms of future capital deployment, we expect to continue delivering good loan book growth, but always, as you would expect on a disciplined basis. In addition, we also see increasing opportunities to grow our business through acquisition, particularly as part of our diversification strategy. However, beyond that, we have no ambition to hold on to excess capital. So we are committed to employing our capital to support growth organically or inorganically. Otherwise, we'll return it. One way or another, it will not stay idle.

So let me now hand over to Richard to go through the financials in more detail.

Thank you, Nigel. Good morning. I'll start with a high-level overview of our income statement. Net interest was up 2.2% year-on-year, and whilst deposit pricing pressures continue to exist, we've outperformed our own expectations for H1. Cost efficiency remains front of mind with the increasing costs relative to the same period last year reflecting spring, which wasn't a feature at all in H1 '25, the October pay round and also our ongoing digitalization program. Bad debts are up compared to H1 last year, but down around 20% on H2's level. The charge is chiefly related to the cohort of development finance loans that we called out last year.

These continue to form the bulk of the provision with GBP 4.5 million of the charge in the period, reflecting extended realization process assumptions. Overall, underlying profits were down 2.5% at GBP 145.7 million. The position on Motor Finance commissions is now all up in the air, given the legal challenges being made to the FCA scheme. And these will no doubt take some time to resolve. Against this backdrop, we've made no change to our provisioning in the period.

Finally, for this page, our underlying earnings per share continues to benefit from the share buyback with a level up 2.9% from the H1 '25 position. If we look at NIM in a little more detail, you'll see that asset side spreads have held up well as base rates have fallen, with a spread on mortgages continuing to benefit from the runoff of the old legacy book. The continued growth in the higher-margin commercial lending segment alongside the back book, front book mortgages benefit combines to support our structural asset side NIM benefit.

Despite our continued strong asset margins, overall group NIM was -- has declined from 313 basis points in H1 last year to 308 basis points in the first half of this year. As I said, this is a stronger H1 performance than we previously expected. And on the assumption that deposit markets remain at their current competitive level, we'd expect the year-end outturn to be around 300 basis points. This is at the top end of the range that we pointed out at the start of the year.

I'll cover deposit spreads in a little bit more detail on my next slide. As noted on the slide, the deposit spread benefit we enjoyed when rates were at their peak has nearly fully unwound in aggregate, with fixed rate deposits now swapping back to a premium to SONIA and the benefit having tightened on variable rates as base rates have fallen and the market has maintained its competitive nature.

Spring has grown to GBP 1 billion in its first year, and we expect to be adding further functionality over the coming year, including a cash ISA option. Another element of our funding mix has been our positioning on deposit platforms. Over the past few months, we've been running a couple of these down as we bring others online. Managing this timing difference between platform inflows and outflows has been made far more straightforward by accessing the sterling monetary framework to repo options.

These are straightforward to use, economically priced and lean on our gilt holdings and material levels of preplaced collateral and as detailed on the slide. As noted on the OpEx slide, we continue to be laser-focused on operating efficiency, and we're pleased with the H1 outcome. Whilst cost to income represents the metric the industry is most familiar with, the pure efficiency measure is the cost of asset ratio. And there, we saw a 1 basis point improvement in H1 '26 compared to H1 '25. The cost-to-income chart shows the build of our cost by type detailed in the proportion reflected by our tech spend as we progress our digitalization plans. We also show you the value of our capitalized software balances in the chart below.

In a fast-moving world of rapid technological advancements, our general view is that high levels of capitalization can over flatter short-term results and generate potential overhangs for the future. Hence, very modest balances we carry at Paragon despite the ongoing multiyear digitalization process.

Moving on to our economic slide. This looks very different to the way our multiple economic scenarios, which were originally shaping up in February. Further growth, stronger property market and the conditions to start moving our scenario weightings back to more normalized levels, were each turned on their heads by the war in the Middle East and the ongoing repercussions. You'll see from the chart that a major driver for impairments on our model books continues to be the house price outlook. In particular, the house price declines embedded in our severe scenario.

The relative strength of the housing market is also a factor for assessing the provision requirements for our non-model books, where they impact time to sale assumptions and project value assessments for our development finance portfolio in particular. This moves us neatly on to look at H1's impairments. The main feature for the period is covered in the bottom right chart, where the pre-September-22 development finance cohort generated GBP 13.4 million of charges in the period.

As I said earlier, GBP 4.5 million of this relates to additional interest that is now assumed to be charged on those accounts of the future realization period for the finalization of projects and their sales being extended. The cost of risk for the GBP 16.3 billion wider portfolio was just 10 basis points. This is the sum of the 2 lines shown in the red circle on the screen. The overlay we held at 30th September in respect to potential volatility on the pre-September-22 development finance cohort has been absorbed in the year. And the other overlay we held in respect of haircuts being applied to larger and more seasoned buy-to-let properties has now been embedded in our core IFRS 9 model, meaning the need for additional overlays outside the models has disappeared.

For the capital bridge, the first column on the slide shows the 1.2% CET1 generation in the period, which equates to 2.4% annualized that Nigel mentioned earlier. The main use of capital generated in the period was on capital distributions, the buyback, foreseeable distributions or dividend, sorry, and the coupon on the AT1 issue with only a modest amount required for growth.

Against the backdrop of overall balance sheet growth, the portfolio risk weight fell in the half year as the highest risk-weighted asset, development finance saw net repayments, which in turn restricted the amount of capital needed to support the balance sheet. The chart also shows the impact of the first half's AT1 issue on our Tier 1 ratio.

Each of our CET1, Tier 1 and total capital ratios are running above our regulatory requirements. Despite reducing from its year-end '25 position in the capital bridge, the risk weight across the portfolio was exactly unchanged from its position as last year's interim. We've made further progress on our IRB accreditation with the PRA during the half. As I've commented on before, though, the timing of any eventual accreditation remains the gift to the regulators and will be determined by their final requirements and the considerations as to when we meet their new materially compliant threshold.

So therefore, remains a possibility that the group move on to a 3.1 basis before a formal IRB accreditation is received. With this to be the case, our latest estimate for the Basel 3.1 impact on CET1 is 95 basis points, and that's based on the March 31st balance sheet. But this leaves us with plenty of capital to meet our plans. This would see us with a strong capital position as an above 3.1 environment, we'd be happy to take our CET1 level down to around 12%, particularly following the issuance of our AT1 instrument, which bolsters overall Tier 1 resources.

When looking at your models, it's worth noting that any inorganic or faster organic growth, we should be expected to deliver something that beats the return you'd get on the buyback. So managing a forecast CET1 for a stand on that basis, should give you the best basis to work out our future earning profile for the longer term.

The chart on capital management looks at our capital generation of CET1 over recent years. It excludes fair values as they tend to zero over time. And it also shows how it's being utilized through both growth and dividends. The trend is clear, but each year, generating strong surplus that has been utilized in our share buyback. This core generation of excess capital provides an underpin for supporting our longer-term earnings growth that exceeds the rate of underlying profits.

As a reminder, by following the strategy, we've reduced our share count by 122 million shares since 2025 -- sorry, since 2015 when we started the share buyback. So around 40% of the issues -- of the shares issued at that time. As Nigel said, we remain committed to returning excess capital to shareholders. And as you've heard, we've announced another GBP 50 million buyback this morning with today's results.

Thank you all very much. I'll now hand you back to Nigel.

Great. Thank you, Richard. So far, we've shared with you our strong underlying performance for the first half of '26 and how this reflects favorably against our longer-term strategic priorities. I will now turn to the trading environment and how we are navigating this period.

The geopolitical situation has been disruptive. And whilst the primary impacts for banks at least to date appear to have been somewhat muted, we must remain guarded around the secondary effects. The financial markets, particularly gilts and therefore, swaps have seen significant volatility across the yield curve. This has required dynamic management of new product and pipeline pricing, running at 6x above normal levels. And it's particularly pleasing to see that we have delivered robust new business levels, good customer retention and margins ahead of guidance.

You'll remember, our approach is always to prioritize margin and risk over growth. The credit environment has been benign for an extended period and our loan portfolios are performing well. Arrears levels remain low and our forward-looking lead indicators across the portfolios point to no emerging signs of stress. Nevertheless, we must not be complacent, and we continue to monitor customers' financial health closely. The development finance provisions continue to reflect the 2022 cohort, and the remainder of the portfolio is performing well.

The environment has been competitive, particularly in funding. Here, our strategy to diversify has successfully mitigated these pressures. Loan book spreads have been resilient, and the growing diversification in our lending book has seen the wider margin commercial lending business continuing to grow well, all supporting NIM outperformance. The rate of pre-provision profit growth in our Commercial division has been materially faster than mortgages over the last 5 years, and we expect that to continue.

Commercial margins are typically 3x larger than mortgage margins. So the structural importance of the asset spreads is clear. During the period across all of our divisions, we have continued to innovate, launching new products and adding features that extend propositions targeting new distribution and new customer segments. 2026 has also seen further progress in our liability diversification plans, including wholesale, where we have been somewhat underweight by comparison to others in the broader banking sector.

Here, we have been making increased use of the cost-effective repo arrangements and we can also access our covered bond program when it makes sense to do so. Looking forward, we are exploring opportunities to enter the SME sector more broadly and the corporate deposit markets. We already have extensive saving product ranges across numerous brands, and we make good use of third-party platform relationships. A year ago, we launched Spring and balances at the end of March exceeded GBP 1 billion.

We are building on the success of Springs initial launch phase with a range of additional products to be launched in the future. We have also recently entered the SME savings sector through platform relationships, and we plan to expand this in the second half of the year. Richard spoke earlier about margins, but the important point to note here is that liability diversification provides us with optionality. And that gives us greater control over pricing.

We can dial up and dial down our presence in different markets across different brands whether directly or indirectly via platforms or using wholesale options. With only one funding source, the market will dictate your pricing. So the more you can diversify your funding sources, the greater the opportunity that exists to optimize prices and, therefore, returns. Diversification may accelerate through acquisition opportunities.

Over the last couple of years, it's become clear that the consolidation talked about for some time has finally started to happen. Given our diversification and growth priorities, we see ourselves as a consolidator. But importantly, as you'd expect, we will not do things unless they make compelling strategic and financial sense for our shareholders. You're aware that we have been running a major series of replatforming programs over recent years, aimed at improving customer experience and productivity.

By the end of this year, we will have only one major replatform into complete. These system changes are making a real difference. 94% of our core systems are now cloud based. A bespoke digital mortgage origination platform has accelerated speed to market, including repricing capabilities, as you've heard, boosted customer experiences, transformed the underwriting processes and is improving our conversion rates.

And of course, Spring, our outstanding new savings account was developed using advanced technology to deliver a best-in-class product. We've also been making extensive use of machine learning AI in a number of our business lines for some time. But clearly, Gen AI has become an increasing focus, and we are actively stepping up our activities in many of our business areas. Microsoft CoPilot is now available to all colleagues and we're providing AI training to optimize its use naturally with appropriate guardrails. But more broadly, we are using Gen AI to beat unstructured text as well as system coding, cybersecurity, complaint handling and bulk documentation analysis.

These are genuinely exciting times and I would expect improvements in productivity and customer experience to emerge as this technology becomes increasingly adopted across the group. Our replatform in strategy is achieving improved customer experiences as well as the benefits of efficiencies, the business with our cost/income ratio standing at the market leading 35.5% and our head count 7% below where it was 3 years ago.

So turning now to our lending divisions. As a specialist buy-to-let lender, we are focused on supporting professional landlords, typically with multiple property portfolios, frequently with complex property requirements and often with bespoke borrowing arrangements, which can require extensive personalization. In this regard, we've introduced a number of customer-centric innovative products and process improvements during the first half further strengthening the depth of customer relationships.

The professional landlord is in the ascendancy in the private rented sector. And as always, scale will provide benefits in dealing with increased legislation and regulation. At the beginning of May, the Renters' Rights Act came into force. And whilst it's clearly too early to draw any conclusions, we know our landlords are well prepared. Credit quality in our buy-to-let customer base is outstanding with good LTVs, strong affordability, modest arrears and negligible impairments. Our buy-to-let loan book grew by 3.1% in the first half of 2026 although as mentioned, the underlying growth was 6.7%.

Whilst much focus is always on the new lending volumes, we have had great success in improving our customer retention levels with GBP 1.2 billion, some 80% of fixed rate maturities over the last 12 months, extending their borrowing with us, helping to deepen the customer relationships and extend its duration. The environment is clearly unhelpful for mortgage activity. And although we expect full year volumes to be towards the lower end of guidance, this will be compensated by improved customer retention, leading to good loan book growth and a further strengthening of the franchise.

Housebuilding in the U.K. has been running at disappointing levels in recent years, affected by the broader economic uncertainties, high build cost inflation, affordability constraints and the continuing challenges from the planning and regulatory environment. Despite these headwinds, we've made good levels of new lending. Our development finance business is an award-winning market leader in finance in small and medium-sized housebuilders with a franchise built on the strength of a relationship-driven model supported by teams of highly experienced property professionals. And in the first half of 2026, over 65% of our new facilities were to existing customers.

Richard covered the impairment charge in detail earlier, but what is clear is that the lending outside of the 2022 cohort is performing very well, exactly as we would expect it to be. Alongside the strength of our core propositions, we have also extended our product range, building a strong capability in build-to-rent, care home development finance, and more recently, light industrial. But of course, we would like to see more tangible and effective government action on both planning and regulation to get the industry anywhere near close to building the levels required to meet the country's housing needs.

For SME lending, the vast majority of which is asset-backed has seen strong and consistent growth in recent years. Despite the market happened to unwind the effects of COVID lending facilities where for several years, the majority of the U.K.'s SME loan stock was government backed. Our success in this area can be attributed to the depth of experience in specialist asset-backed markets, combined with the application of new and advanced technology, delivering an improved customer experience and better productivity.

Technology not only allows us to improve our new application processes and deliver significantly more customer data, but we can now access customer cash flow data in real time, enabling us to monitor performance closely and identify issues at an early stage. Indeed, arrears in SME lending stand at only 54 basis points, in fact, on a par with buy-to-let. And similarly, impairments are negligible. In SME, we've also been extending the breadth of the asset classes we can finance, including increased activity in the sustainability space and additional facilities provided alongside the government growth guarantee scheme. Other product initiatives should be expected in the second half.

Despite the market issues due to the FCA Motor Commission's remediation scheme, our Motor division continued to deliver robust growth through its specialist asset class focus. It's far from clear when we will see a conclusion to this. And whilst we are well provisioned and operationally prepared, what the industry really needs is a resolution to this long-running scar on the landscape. Structured lending has been strong with new facilities increasing by 20% and drawn balances by 30%. Credit quality across both our Motor Finance and Structured Lending divisions has been exemplary. For Commercial Lending division as a whole, we continue to guide to GBP 1.2 billion to GBP 1.4 billion of new lending in 2026.

So in conclusion, we are assuming that there will be no assistance from an improvement in the U.K. economy, nor on interest rates, even if there is a resolution to hostilities in the Middle East. We, therefore, believe we are adopting the right strategy, pursuing disciplined growth and protecting margins, focusing on our franchisees and continuing to build on our technology successes, thereby enhancing customer experiences and improving productivity.

Our diversification strategy will continue, having added a number of new product lines and recruited teams into our commercial division supporting organic growth at enhanced margins. We will also continue to explore opportunities to grow and develop at the business through acquisitions. Today, we have upgraded our NIM guidance despite the competitive landscape and upgraded our cost guidance despite the inflationary backdrop whilst delivering robust new lending levels and strong loan book growth despite the weaker environment.

We have a clear focus on capital management with strong internal capital generation, consistently delivered over many years providing the opportunity to support growth organically or inorganically, and a commitment to repatriate surplus capital to shareholders. Our core objective is to deliver strong and sustainable returns to our shareholders. And we reconfirm our guidance of being in the middle of a 15% to 20% return on tangible equity.

So thank you, ladies and gentlemen, and we are now happy to take your questions.

Sanjena, I think you're first.

Sanjena Dadawala from UBS. Two from me, please. First, if I could ask about the NIM trajectory, deposit spreads down to 0 and guidance implies NIM just above 290 basis points in the second half. So what's driving that sharp decline half-on-half? And how should we think about FY '27 in that context?

And second, on impairments, the workout of the [indiscernible] development finance loans is taking longer than expected, and there are more cases going into arrears. And I also saw the breakdown table shows the charge on the rest of the development finance book also higher. And I think there's new data on the provision coverage is at 24%. Just like -- how are things expected to play out from here? Is that provision cover enough? It's just been worse than we expected.

Sure. Happy to take both. In terms of the NIM trajectory, we started the half at 313 and we've ended up just 1 basis point or 2 over 3 in terms of the exit NIM. So the sort of trajectory that we're looking at in H2 is not that dissimilar to the one we've seen in H1. I think the -- if you look at the scale of, in particular, the growth in repo finance that we've used in H1, I think that's unlikely to repeat in the same scale in H2, which may mean something of the same -- sorry, a slightly smaller benefit, but also, we're still expecting the faster runoff of that development finance book.

One of the things that we have seen so far is that it's taken longer to unwind, sort of links to your second question as well. But the quid pro quo of having those loans around for longer is that you earn more because it's the highest yielding asset that we've got. So I think if you're looking at that overall guide for the market, does that imply somewhere down the low 290s at the end of the period. If you're at exactly 300, yes, but we sit around. So it could be around that sort of level.

On Development Finance, in terms of the -- in terms of the provision that's come through, I'd say all of the material change has been in that pre-September-22 cohort, so GBP 13.4 million of the total charge. The other charge is probably up a tiny bit, but that probably just goes to our reassessment and where we see just like through the cycle charges on a bigger balance. But I wouldn't say there's anything particularly to call out there. Anything that has come through, if you like, new in the period has been relatively modest in the stream of the losses are being provided relative to the changes we saw in that portfolio last year.

Can I add something about on the deposit side. I find it a bit odd that you do -- people are raising money with easy access or easy access products anywhere from 50 basis points plus, and there's a lot of them at that level, 50 basis points above base rates [indiscernible]. When we can issue kind of repay finance at 15 over and we can issue covered bonds at around, I don't know, the market is up 40-50 over. I kind of find it odd, you can do capital market 3, 5-year money at a lower price than easy access.

It kind of doesn't -- it just doesn't feel rational to me. So when I kind of look at it and go, well, where is this pricing going to settle down at? And clearly, it's kind of like it's moved a lot. But some of it just doesn't make sense. I understand there's brands, you need to support your brand, you need to support your market positions. But just the logic of the mass just doesn't make sense. Hence, why we choose to have optionality. We choose to have choices. We choose to have those levers. So we can choose where to play, not be beholden to a market that sets the price for us. Sorry, that's rant over at that point.

Ben, you're up next.

First one is on your comment around consolidation. You've been pretty open historically about the potential for you to perform M&A if you can find an attractive asset, which is -- looks strategically good. Are we far enough now down the line of Motor Finance that you consider a target that had a motor back book if it was provisioned -- if it had fully provisioned its commission exposure?

And then the second question is around capital. I think you said that you're happy to run down your CET1 ratio to 12%. Is that true in both a pre- and a post-IRB world? And if it's only in a pre-IRB world, why?

You do that one. Let me just deal with the first one. I mean, I think the thing on motors is still up in the air. So the court process will run its course. That's expected to be October maybe November. You then go to get the judgment handed down. So maybe quarter 1, 2027. The range of potential outcomes is enormous as in you've got competing interests there. You've got the CMC agenda, which wants to increase interest rates, increase the penalty interest rate, increased the -- change the thresholds and you've then got the lenders who kind of want something completely different in the opposite direction and maybe the whole thing even thrown out. So you've got a range from somewhere north of the current indicated numbers to 0.

With that level of uncertainty, it makes it very difficult to put a value on a mortgage business -- sorry, mortgage -- a motor finance business, and whether it is a portfolio or -- but you have to understand where the remediation cost could land. So it's just very difficult. I'm afraid, Ben. Sorry, but we book -- that doesn't stop our interests in consolidation generally.

Yes. So specifically, we're calling out 12 as a number in a Basel 3.1 environment. If you think, we -- the bulk of the balance sheet is buy-to-let that is poorly treated in the Basel 3.1. We've had those conversations before. You compare that back in terms of the performance of the book, where we've got 7% growth year-on-year for the new book. We've got 18 basis points of arrears within the new book. You've got wide margins. The performance has just been exceptional.

At that point, it's very low volatility asset. Actually we're quite happy being at the bottom end of any normal range because of that quality. And effectively, you're looking through to a risk weight that is suggesting that it isn't commensurate with the risk that we see within the book. So we're happy to operate more towards the bottom of the range.

In terms of IRB, there's a very different metric there. You have -- as well as your risk weight levels you have your -- an expected loss multiple that linked effectively to your risk weight relative to your IFRS 9 provisions, but also a very different profile than in terms of your pillar to whereas typically is a much bigger add-on because under IRB, you have the position where you get geographical concentration risk that gets dragged into your mortgage book, whereas at the moment, that doesn't exist for standardized. So just in terms of making sure your overall capital stack works, I would expect our CET1 target to be higher under IRB than standardized. How much of that is going to be, will, in large part depend on the feedback we get from the regulators.

And whilst having a ramp, geographical concentration risks, add-ons...

1.4%. 1.4%. it's on that number.

But it's like for most of the U.K. banking sector, we lend or operate in the U.K. But the argument is we hold more capital than if we've chosen to be an internationally based operation. So if we have operations in Australia, America, South America, it doesn't matter where, the capital is lower. I just don't get it. Like I don't get the deposit pricing, just doesn't make sense. Anyway, we'll see what comes. But again, I'm not holding out too much hope.

There's a question up there first.

It's [indiscernible] from Edison. Just one question. You -- and I think it relates a bit to a previous question, but if you could elaborate a little bit more on sort of on consolidation, just sort of wider, how do you see it? How do you see the sort of playing out? What's going on at the moment? And what are you interested in? You mentioned it as part of your sort of diversification strategy? And I think in terms of how we would look at your capital built these kind of things as well. So if you could just elaborate a little bit on how you see that.

Okay. Sure. So yes, we -- when I look and see what's happened and happening. So you've seen some kind of consolidation happening. It's largely been focused to date on the high street challenges, should we call them. The kind of the Virgins, the TSBs, the co-op, Sainsbury's, Tesco. They've all been consolidated up pretty much to the clearers. And so the gap now between kind of the clearers who are kind of a bigger is huge. So you've got clearers and then you've got specialists. And post the financial crisis, there was an encouragement to kind of [indiscernible] banks, go out and multiply within the bank. There were 40 new banks created in that period. And I think in many ways, there's a lot of people doing pretty similar things.

So for me, it feels like there is -- a lot of people suffer from the diseconomies of scale. Regulation is a high fixed cost operating model. Whether you have GBP 1 billion in assets or GBP 20 billion, you still need a board, you still need compliance, you still need oversight. You still need all the controls. You can't turn around and say, we're a small bank. We're not going to do consumer duty. So you have to do it. It's an entry ticket.

So the smaller ones will probably struggle a bit. And therefore -- and if there's differentiation in terms of -- they've got something unique, I think there's a lot that are not, there's a lot that look a little bit too [indiscernible]. So I think there will be consolidation that will take place for a variety of reasons, whether it's uncertainty over the conduct rules, [indiscernible] rules, motor commissions, MREL. It's -- some of those clouds have been clearing. There's one cloud that hasn't yet. But the consequence of it -- the consequence, I think, is there is a better framework within the environment to allow it to happen.

So for us, looking at us specifically, we -- if you look at our balance sheet mix, you might regard us as overweight mortgages, underweight everything else. We do a little bit in retail in -- consumer, motors, but very, very small. Most of it is the other is in commercial. And commercial is a very broad touch. It's all manner of products, all manner of divisions within -- even within SME. So I'd probably regard that as the most likely area that we will see the opportunities emerge.

But as always, the one thing you can't do is ever put it in your business plan. You can't rely on them. You can't force anyone to sell to you. So you've got to spend a lot of time, which we do, looking at a range of opportunities but it's not always easy to find the right opportunity. And if it doesn't, it doesn't matter because, as I said to you earlier, our capital deployment strategy is to support our organic growth if inorganic comes along, if it doesn't, we'll give it back.

It's Abid Hussain from Panmure Liberum. I've got one question, possibly 2, if I can come back to the question just asked. So the first question is on funding. Just wondering what else can you do from this point onwards to diversify your sources of funding? And then just secondly, if I can come back to the question on M&A. So it seems like you're interested in potential books across the commercial space. Any more sort of color on what sort of an ideal book might look like? Would you be interested in tech platforms, for example? Just any more color on that would be great.

So in terms of the diversification of funding, we've already done a lot. Then it's about optimizing what you're doing. So we have a covered bond program. We've done one issue, okay? So there's more to come. We've got a whole range of repo lines. We have used them, but not extensively. So just look at those on the wholesale side. Within the -- we've pretty much got good market coverage in the Paragon branded offering. But what we haven't really extended is some of the opportunities on the platform side. So what we then can extend to is corporate deposits.

So these are kind of maybe larger corporates, but then we also have the opportunities on the SME deposits. These are very big markets in their own right. So they become another opportunity. So the SME market, I would break into two. One is there are platforms that specialize in doing SME deposits. And then there is an opportunity to do it in our own name rather than the third party. So as you can see there, and I haven't touched on securitization. I mean, that feels like a distant -- we do use securitizations, but it tends to be to create collateral for alternative funding, things like repo lines.

But when we look at that, there's better -- more use of what we're doing -- and then there's a whole series of markets we haven't even tapped into yet. So there's a lot more to come on the liability side than we've done to date. And in terms of M&A, I kind of -- I'm not sure there's much to add apart from just the fintech side where kind of valuations are clearly very high relative to a classic bank model, and we are more of a classic bank model. Despite the fact we make extensive use of technology, we've never been tempted to call ourselves a fintech.

But the -- when I look at the valuation models of some of the kind of the fintechs, maybe one day at some point in the future, it will be proven that they're right. But all of their values in the terminal, all of the value is about excessive growth at some point in the distant future. The potential is potentially -- could be big, but your value in all of that to come in to you today. And for a bank, to pay significant amounts of goodwill has a pretty severe capital treatment. It's every pound of goodwill is straight off your capital to deliver profitability, maybe good profitability many years into the future. It doesn't work that well, frankly, under a bank model. So I wouldn't say no, but I think you might have got a direction of where my thinking is. Does that cover your point?

Okay. Is there any more questions from the room? Jonathan?

Jonathan Pierce from Jefferies. Just want to come back to the funding question. I completely agree with you, Nigel, that some of the pricing out there is nonsensical. I just don't understand why certainly sustainably, you look to raise deposits at SONIA plus 40 to 50 when the ILTR is there. And I think you're doing the right thing deploying ILTR in reasonable size. My question is your usage of ILTR, I presume there's some STR in there as well, but it looks to be about 1% of the total industry's usage at the moment, which is a little ahead of your share of M4, but not by very much.

How much further are you prepared to tap that, if deposit pricing does remain this competitive at your end of the deposit market. I mean it just strikes me that you can move from GBP 1.7 billion up to say, I don't know, GBP 2.5 billion to GBP 3 billion, still wouldn't be excessive relative to raising deposits at 40 plus 50 over and that's going to save you 15 basis points of NIM. So interested in how far you think you can push ILTR, please.

And also maybe you can frame the answer in the context of the comment you made in the release around retail funding longer term being about 90% of the total funding base, we're already below that now, at about 86%. What's more important, keeping the retail funding at 90% or pricing economically?

So I think there's probably a number of points in there. There's a kind of a longer-term strategic objective, and that's where probably more than 90% is through the cycle, that's where we would see the norm operating. But in any point in the cycle, you may deviate from the mean. So -- and I think you're in that phase at the moment. And we will, therefore, be comfortable -- we have been comfortable, more than comfortable in increasing our use of repo. Let's call it, nonretail sources because there's a variety of those. We're also -- I kind of like -- I wouldn't say it's lucky, but we have the benefit of substantial amounts of pledged capital that we can lean on.

There's what -- GBP 8.5 bill ion of capital that is pledged or capable of being pledged. That's a lot of funding, lots of funding capacity that we have. If you used all of that, then you don't have any to deal with ebbs and flows in liquidity if you used all of it. So it's unlikely you want to use all of it. However, there is more capacity than we are currently using. And in terms of -- we haven't found any resistance from the Bank of England to the use of ILTR. In fact, I'd say there's positive encouragement to use the Bank of England's various schemes. So there's capacity, there's flexibility. I said the 90% is kind of a longer-term measure. But through the cycle, you'd be prepared to move away from that 90%.

Nothing more from the room? Okay. What about online?

Okay. I've got a couple here. The first one is from Rob Noble at Deutsche. I think we've answered quite a few of the questions that have come through on the web. I'm just going to go with the ones that we haven't already answered in the room.

So first one from Rob is, can you share anything on the planning assumption for cost of risk when rating a development finance loan?

The planning assumptions, I think we can't -- we can't give you kind of like what we've got in our plan for obvious reasons. But in terms of through the cycle type of number that we would assume, I appreciate you're not exactly in the bang in the middle of the cycle at the moment.

Again, I think you have to be a bit careful about that. I'm sure we've got a few competitors that would love to know the number. Somewhere between 50 and 100 basis points, I would say, is the through the cycle range -- that gives you...

Development finance. That's not a portfolio as a whole.

Which will give you -- clearly, quite a lot of range in terms of the pricing model. So I'd rather not say anything more than that. .

Okay. Going on to the next one is sort of looking at 2 coming through from Ed Firth and also, I think, similar questions from John Cronin. So if I go with that, have you had any sort of feedback from the Bank of England about the seeing the CET down 1% with Basel III and then presumably jumping if you get IRB. And is your impression that you're any closer to accrual now? And then are you tempted to give up on IRB and go for the new foundation proposal around IRB?

I can definitely say we're closer on IRB than we were 6 months ago.

I'm much close to dying as well. .

Look -- so look, we continue to have good engagement with the PRA, but it's a very complex process. And still, there are a lot of the incumbent IRB banks that haven't had their models signed off. So there is a price as we're going through, and we'll deal with that in due course. I think in terms of the -- we have nothing back from the PRA, particularly about the move from a current standardized, the 3.1 to IRB move, they see that we've got adequate capital. I think if we were in a position that we were saying we didn't have enough capital, I'm sure that we'll be having some very interesting conversations, but that's not the case.

So that would just be an element that they're dealing with. Foundation IRB, in terms of your probability of default, that's going to need to be the same sort of work you're doing anyway. And from an LGD perspective, which is the other element of the piece, they're going to be prudent on that. So from that perspective, you would expect anybody who ends up using that would end up probably with a higher LGD than ideally the data that we would have would suggest. So it wouldn't be your first [indiscernible].

Okay. And then this one is from John. On the IRB accreditation work, our buy-to-let and Development Finance both substantially advanced or is it very much buy-to-let first development finance later?

SP1 In terms of the engagement with the PRA, it's very much buy-to-let led, but we've been running with what we see as being credible slotting models for development finance for some years now. So we're ready to go, but any actual formal application will follow another accreditation.

Okay. And this is the final one, of course, at the moment. This is going back to Ed. If you look at the deposit spread chart on Slide 10, it looks like the first half spread is a bit better than the second half of '25. Is that a post-Iran trend? And what are you seeing at the front end and that area specifically?

I think some of that is just down to product mix. And in part, that will be because driven by some of the changes we've had with platforms where we've for the ones that we've exited, they've been more variable rate heavy. So I think that's probably the driver of that position. But I'll pick up separately with Ed to give a bit more detail.

Thanks very much. That's, I think, everything that's come through on the web.

Okay. So thank you very much this morning for your attention. For the analysts amongst you, Richard is available today, tomorrow and the next day or just those 2 days.

That's enough.

And happy to have discussions with you to kind of help you work through everything. So thank you very much, this morning. We are genuinely delighted with these results. I think it continues to show a very disciplined business who is able to deal with undoubted uncertainty and volatility that exists out there and continue to build on the strength that we've got. And importantly, decent growth is coming through. Margins have been very well protected in a very competitive environment.

Things that we can control, like costs, very much tightly controlled. Despite good investments, high levels of investment in technology, where we're not like deferring the problem for future years through capitalization. And importantly, internal capital generation is really strong, 2.2% average over 10 years, 2.4% average over 5 years, 2.4% this year, and it's going to throw off about a 1% surplus, which we have to do something with.

We grow organically, inorganically, if those opportunities can come around. And if we don't, we'll give it back. So the 17.4%, middle of the range, return on equity is kind of the core underpin to that. But it's that ability to have the options, whether it's the options on the liability side, it's the options -- increasing options that we're creating on the asset side plus the options that we've got in how we deploy our capital. If there's one thing my colleagues will -- if you said to them, what would be the abiding one word memory of me, the optionality, just give me choices, and I think that's what you need for a business like us.

Okay. So thank you very much. As I said, Richard is available. And if not, we'll see you in 6 months.

So morning, one and all, and welcome to Paragon's 2025 Full Year Results Presentation. We'll shortly run through the financial and operational performance before providing you with our perspective on the outlook and leaving, of course, plenty of time for your questions. But before we get into the detail, let me spend a few minutes running through our key highlights.

2025 produced another strong financial and operational performance. Underlying operating profit stood at GBP 294 million, in line with expectations, with earnings per share up 8.5% and our return on tangible equity increasing to 17.5%. These outturns were a product of good and disciplined loan book growth, tight cost control, delivering a market-leading cost/income ratio and resilient net interest margin.

There are a couple of aspects in the results, including motor commissions that will be covered in more detail in Richard's section later. But what's clear is the way in which the group's strategic positioning and growing strength of our franchises are delivering strong returns and providing a genuine platform for further growth and continued development, all of which are a product of the key strategic priorities we have steadfastly pursued for many years.

As a reminder, our strategic priorities are set out in 5 categories: growth, diversification, digitalization, capital management and sustainability. It kind of may be a strange thing to say, but growth is easy to achieve if you just want to focus on short-term results or if you want to ignore the need to apply the disciplined approach needed in running a leveraged institution like a bank for the long term.

However, as we've described before, when we manage the triangular relationship between growth, risk and return, we always prioritize risk and return over growth, with growth being an output, not the primary objective. This was as evident in 2025 as it has been consistently over time. The important criteria in achieving this is to be able to deliver for the long term on a sustainable basis.

Importantly, our growth plans reflect our strategy of being a specialist bank, whether that relates to the type of asset we're financing, the customers we are supporting or the complexity of their requirements, which are delivered through a combination of deep experience embedded in our people, excellent systems supporting this work and the agility of our execution. There is, of course, plenty of competition in banking, but the strength of our focus in specialist areas continues to provide a compelling advantage and a key differentiator.

Loan book growth increased by 4% in 2025, broadly in line with the 10-year compound growth levels. The strength of the group's franchise can be seen in the extent of the customer relationships we have developed. Over 1/3 of new buy-to-let lending is to existing customers. 82% of maturing fixed rate buy-to-let customers were retained, and 66% of new development finance loans are to existing customers. And on savings, 77% of fixed rate maturities took additional products, and 50% of deposit customers have been with us for over 4 years.

The strength of these franchises provides a great platform. However, we continue to innovate and develop our businesses with numerous additional products having been launched, all which are in process, enhancing our propositions to improve the customer experience across all of our business areas, providing opportunities to deepen existing relationships and attract new pools of customers.

You are aware that we have been running a major series of replatforming programs over recent years, aimed at improving customer experience, improving productivity and improving data quality. And these are making a real difference. 94% of our core systems are cloud-based. In our SME division, we now receive around 3,000 pieces of customer data with each application, which are digitally collected in seconds to support near instant decision-making on new lending.

A new mortgage origination platform has accelerated speed to market, boosted customer experience and transformed the underwriting process and is improving our conversion rates. And of course, Spring, our outstanding new savings account, which uses advanced technology to deliver a best-in-class product, but I'll cover more about that later.

We've also been making extensive use of machine learning AI in a number of our business lines for some time. But clearly, GenAI is the buzzword of the moment, and we are actively using it in many areas of our business, such as system coding, cybersecurity, complaints handling, bulk documentation analysis, and we've now rolled out Microsoft Copilot to all of our colleagues.

While these are naturally exciting, as you would expect from us, we will work carefully to strike the right balance between ensuring appropriate controls and oversight exists, whilst also delivering the benefits as this new technology evolves. Our replatforming strategy is achieving improved customer experiences as well as benefits to the efficiencies of the business with our cost/income ratio standing at a market-leading 34.8% and our headcount 10% below where it was 2 years ago.

People naturally assume that when we talk about diversification, it purely relates to our lending activities. But of course, we are continuing to do that. And the rate of pre-provision profit growth in our Commercial division has been twice as fast as mortgages over the last 5 years. And we expect that performance to continue.

Later on, when I cover the outlook in the various business areas, you will also see reference to product innovation, where we are seeking to achieve further growth and strengthening of our franchises. Of course, organic growth is what we do year in, year out, but we will also ensure we are fully prepared to react to M&A opportunities should they arise.

Consolidation in the sector has been talked about for some time, but regulatory clarity in certain areas has been needed, and this is now starting to happen, including MREL, where the thresholds have been set higher and will be indexed going forward. And we now have the Financial Policy Committee review of capital, which looks constructive, but the devil, as always, will be in the detail.

2025 has also seen good progress in our liability diversification plans, including non-retail, where we have been historically somewhat underweight. In March, we launched our first covered bond, a GBP 500 million transaction, which was significantly oversubscribed. We have materially increased market repo lines. We've made more active use of the Bank of England's ILTR program, whilst building extensive collateral now totaling GBP 8 billion, which is relatively available to provide additional funding capacity. And obviously, Spring, which gives us access to a new source of savings customer, with a profile very different to our existing retail deposit base.

Richard will talk later about margins, but the important thing to note here is that liability diversification provides us with optionality, and that gives us greater control over pricing. With only one funding source, the market will dictate your pricing. So the more you can diversify, the greater the opportunity that exists to optimize pricing and therefore, returns.

Having a disciplined approach to the way we run the business is not just about the way we lend money or control costs or even the way we optimize the growth NIM risk relationship; we view capital management in a similar way, applying a strict discipline on capital allocation and seeking to optimize the balance sheet and returns for our shareholders. Over the last 10 years, we have repatriated GBP 1.3 billion to shareholders through dividends and buybacks. And today, we've announced a further GBP 50 million buyback program.

We have strong levels of regulatory capital significantly above the minimum requirement and have a demonstrable track record on robust internal capital generation. The management of capital will remain important going forward, especially as we and the industry navigate Basel 3.1 and whilst we continue to actively engage with the PRA on IRB.

These 2 charts clearly show the successful outcome of our strategic objective of delivering strong underlying and sustainable returns to shareholders, achieving a 10-year compound average growth rate in earnings of 11.6% and an underlying return on tangible equity comfortably in the middle of our target range and at the higher end of returns achieved by the U.K. banking sector as a whole. We've achieved this by delivering low volatility in a high volatile world. And that requires a disciplined approach to the way we run our business. This approach pervades all aspects of our business and is significantly important in delivering our future strategy and plans.

So let me hand over to Richard, and he will go through the financials in more detail.

Good morning, all. Thank you, Nigel. My next few slides give more detail on our P&L, together with a capital summary, but this first slide provides a snapshot of the financial results for the year.

A combination of better-than-expected margins and continued cost control saw pre-provision profits rising by 5.9% year-on-year to just under GBP 336 million. Offsetting this, impairment provisions rose to GBP 41.9 million in the year, with GBP 33.6 million of this relating to the portion of our development finance book originated prior to September '22, which I highlighted at the interim. The cost of risk on our other GBP 16.1 billion of loans remained exemplary at just 5 basis points, and that's unchanged from FY '24. Fair value charges were much reduced year-on-year, driven by the rate environment, and we increased the motor commission provision that we made at the interim to GBP 25.5 million at the full year, following the FCA's consultation paper proposals. Underlying operating profits rose 0.4% from their FY '24 level. And earnings per share rose by 8.5%, reflecting the benefits of the ongoing share buyback program.

If we can move on to net interest margins. As noted in the chart, margins were stable in H2, beating our expectations. We remain focused on effective margin management with a structural hedge that we put in place of GBP 1.4 billion and greater diversification of our high-quality liquid assets contributing to the outperformance. An element of the benefit reflected timing differences around assumed base rate cuts and the associated deposit beta, but we also saw a different dynamic within our development finance portfolio.

With legacy development schemes taking longer to reach practical completion, average balances and the earnings on those balances were inflated relative to more normal experience. Across the year, we estimate this benefited group NIM by a little over 5 basis points, but this benefit will naturally unwind as scheme profiles and the markets normalize. As absolute rates have fallen, asset side spreads relative to SONIA have improved, and these are detailed in the table below the text. Note that the asset side margin -- mortgage spreads include the benefit of our structural hedge.

The underlying structural effect of higher net growth in our commercial division than mortgages has also contributed to the strong NIM outturn for the year. Our NIM progression reflects both the diversification of the book and the amortization of the legacy buy-to-let portfolio, which operates with tighter spreads than our new business. In the past, we've estimated this underlying effect to be worth between 5 and 10 basis points a year. The bottom right chart on the screen shows how the top end of this range would have developed over the years, that's shown in the red-dotted line, with the outperformance in each of '23, '24 and '25 driven by enhanced deposit spreads.

On the next slide goes on to look at deposit spreads in a little bit more detail. If we jump to the bottom of the chart, we can see how the savings spot position at the year-end has tightened relative to its FY '23 peak. Like-for-like impacts would have been greater still had we stuck to our historic fixed to variable portfolio mix. However, our ability to flex the mix of our deposit book, together with the capacity we have to add efficient term funding through our covered bond program has allowed us to mitigate some of the liability spread tightening impacts as rates have fallen.

Our expectations are for base rates to continue to fall in FY '26. And when we also reflect current market pricing, our expectation is for this trend deposit side tightening to continue to weigh on overall spreads. Combining this deposit outlook with a lower income contribution from development finance as its profile normalizes, we're guiding at a NIM range of 290 to 300 basis points for the group in FY '26.

On operating costs, we've outperformed both our internal plans and guidance for FY '25. Head counts remained stable, and our tech program deliveries have been made without material software capitalization, thereby protecting future periods from excessive depreciation charges. The value of capitalized software in the balance sheet grew by less than GBP 1 million in the year, with the balance now standing at just GBP 8.8 million. Overall costs were little changed year-on-year, but the loan book continued to grow.

After delivering a cost to average asset ratio of 117 basis points in both 2023 and '24, our operating leverage was evidenced as we saw this level improve to 112 basis points in FY '25. Absolute costs are expected to grow in FY '26 as we continue to deliver our transformation program, not least given the focus on our core mortgage and SME systems over the coming years. At this stage, we're expecting costs for the coming year to be just under GBP 190 million.

On the economics that drive our provisioning, our core assumptions for the coming year are little changed from last year and are summarized in the center bottom chart on the screen. We still see interest rates settling around 3.5%. And whilst the growth outlook has been trimmed a little, we're also assuming a slightly lower unemployment rate for FY '26 given the better starting position.

Our severe scenario continues to reflect the Bank of England's stress forecast with a key driver for us being the forecast for house price declines, and these are summarized in the red-dotted line at the bottom of that right-hand chart. This is the key assumption that drives the circa GBP 24 million delta between the impacts of the severe scenario and the weighted average of all of the others.

In arriving at our weightings, we've moved 5% from the severe to the base scenario, reflecting that lower economic volatility that's been demonstrated across the last 5 years or so. But this still sees our scenario weightings positioned conservatively relative to both our own historical profile and that appears.

The impairments from the pre-September '22 development finance cohort on the impairment charge for the year is clearly identified in the bottom right chart. By way of contrast, the development finance portfolio underwritten after this date, where rates and inflation were already elevated and performed strongly by comparison and were much more in line with historical averages.

The charge took the group's coverage ratio up to 53 basis points at the year-end, from 48 basis points the previous year. One quirk of IFRS 9 for the development finance portfolio is the higher margin on these loans result in a material discounting effect on the assumed cash flows that feed into the provisions. Almost 30% of the development finance charge for the year is due to this discounting effect, implying the interest charged in future periods would not drive additional impairment charges, all other things being equal.

On motor commissions, the motor commission CP produced by the FCA extends the impact of the proposed redress scheme well beyond the levels we had originally anticipated. The construct chosen by the FCA also penalizes those who operate -- mainly operated with low-price, low-scale commission DCA models, with the redress calculations partly based on market averages and partly on the basis that DCA alone drives unfairness rather than being a scheme that links the actual harm suffered by some customers. By way of a reminder, our average commission was 3.9% of balances. This is materially below the 10% level suggested as being high by the FCA in their papers. Along with other market participants, we will contribute to the CP response and await the FCA's conclusions and any potential next steps.

Whilst the scope of the CP is broader than anticipated, the enhanced disclosures we gave with our FY '24 accounts were designed to give stakeholders a view of the maximum balance of motor commissions we ever paid, allowing them to gauge the potential impacts under a number of circumstances. For the provision at the year-end, rather than operate a scenario-based approach, which is the way we did at the half year and the way peers have provided since, we have taken the CP as the most likely basis for any redress exercise and provided accordingly.

A final point to note on motor commissions is that while the operating costs associated with any redress process will be deductible for us, the redress amounts themselves wouldn't be. This effect contributes to the higher effective tax rate for the group in FY '25 of 29.7%. The underlying tax charge was 26.2%.

On the capital movement slide, the chart shows the bridge from our opening to closing capital position. The increase from our underlying retained earnings remained strong, generating 2.6% of CET1 in the year. 2.2% of this was distributed to shareholders via the combination of the share buyback and the dividend. The additional capital to support net lending largely reflects the growth in the development finance portfolio, which was up 8.6% in the year and carries 150% risk weight. As noted previously, this should moderate in more normalized markets. Motor commission impairments comprise the bulk of the exceptionals cost.

On group capital, the 13.6% CET1 for September '25, compares to an aggregate Tier 1 requirement for the group of 10.6%. And at 15.3%, our total capital ratio is comfortably above our regulatory requirements. Throughout 2025, we've been engaging with the PRA and the specialist team on the IRB application for buy-to-let portfolio. As I've mentioned before, this is a long and painful process, and we're aware of many existing IRB banks who are still having hybrid model challenges with the PRA. As soon as we have any tangible progress to report on IRB, we'll update the market.

In this recent announcement, the PRA confirmed that the Interim Capital Regime was being removed. This would have been a useful tool for us in managing the transition to IRB in the absence of an earlier accreditation. However, the Small Domestic Deposit Taker regime, or SDDT, provides a similar benefit to smooth any transition if required. On Basel 3.1, our latest impact assessment is unchanged from the interim at 1% of CET1.

Finally for me on capital management. You'll see that the sustained growth in our underlying earnings has translated through to the dividend, with our dividend per share rising 8.7% year-on-year, to 43.9p. In addition to the strong growth in the dividend, our capital management policies have included a share buyback in most years since 2015, and this has reduced the share count by around 1/3 over that period. Today, we've announced a further buyback of up to GBP 50 million for the coming year as we look to continue to improve the efficiency of the balance sheet.

I'll now hand you back to Nigel. Thank you.

Okay. All right. Thank you, Richard. So far, we've shared with you our strong underlying performance for 2025 and how this reflects favorably against our longer-term strategic priorities. So I'll now turn to the trading environment and the current performance and outlook.

Despite the continued heightened levels of geopolitical volatility and domestic political uncertainty naturally creating headwinds, U.K. customers and businesses have shown great resilience. The credit environment remains benign with the post global financial crisis world continuing to operate with low levels of risk appetite and extensive deleveraging.

We have seen 5 base rate cuts since August 2024 and more are expected. The swap curve has fallen, albeit more slowly and many borrowers on fixed rate debt have yet to benefit. So further improvements to affordability are expected. This is particularly pertinent to property-backed lending, which accounts for about 90% of our loan book. The regulatory environment is also seeing some positive changes, moving in a more proportionate and constructive direction, albeit slowly. And although it probably doesn't need to be said, technology is transforming the way all business is done.

Whilst the economy could benefit from an injection of confidence, households and businesses are certainly resilient, which provides a robust platform on which we continue to build our franchises and support the group's strategic priorities.

So earlier, we covered funding and how we are adding new sources to enhance optionality. And one of the most significant events of 2025 was the launch of Spring. Using advanced technology and utilizing open banking, Spring is seeking to solve a problem that is impacting 55% of the U.K. adult population. With GBP 660 million of U.K. consumers' money being left in current accounts or in low interest rate accounts, U.K. consumer is leaving an incredible value on the table. In fact, some GBP 24 billion in lost interest.

Spring links the customer's own current account with our savings account as if it were embedded as part of the same organization, where today, our customer can earn over 4% with Spring. Being an account capable of being opened in minutes with instant access, the benefits for our Spring customers are easy to see. This is Money called Spring, a game changer of a product, and it has been a great success since its launch in April. Today, we have balances over GBP 600 million, and 2026 should see continued strong growth as well as additional product innovations, enhancing the spring proposition further.

So turning now to our lending divisions. Our buy-to-let loan book grew by 3.7% in 2025, although the figure is 7.8% if you strip out the pre-global financial legacy portfolio. The housing market has been relatively dull, although the buy-to-let sector is showing some more recent signs of life, albeit somewhat tempered by recent speculation ahead of last week's budget.

Our buy-to-let lending volumes were flat year-on-year, partly reflecting the softer market, but also as we were embedding our new origination platform, protecting margins while supporting existing customers. We remain optimistic about the outturn for 2026 following the recent improvements in the buy-to-let market, a robust starting pipeline, and there is also clear evidence of our new origination system, delivering benefits to the customer and broker experience and delivering improved conversion levels.

We have also introduced a number of customer-centric innovative products and process improvements. And consequently, our guidance for 2026 new business volumes is GBP 1.5 billion to GBP 1.7 billion.

Our strategy as a specialist lender is focused on supporting professional landlords, typically with multiple property portfolios, frequently with complex property requirements and sometimes with bespoke borrowing arrangements and which may require extensive personalization. The professional landlord is in the ascendancy in the private rented sector. And as always, scale will provide benefits in dealing with increased legislation and regulation.

Credit quality in our buy-to-let customer base is outstanding with good LTVs, strong affordability, modest arrears and negligible impairments. Whilst much focus always goes on new lending volumes, we've had great success in improving our customer retention levels, with GBP 1.8 billion, some 80% of fixed rate maturities over the last 12 months, extending their borrowing with us, helping to deepen the relationship and extend the duration of the loan facility.

Housebuilding in the U.K. has been running at disappointing levels in recent years, affected by the broader economic uncertainties, affordability constraints from higher interest rates, the continuing challenges from the planning system and the regulatory environment. And whilst the government is seeking to improve the levels of U.K. housebuilding, we are still far from where we need to be.

Despite having these headwinds, we have maintained good levels of new lending and the pipeline is strong as we enter 2026.

Our development finance business is an award-winning market leader in the financing of small- and medium-sized housebuilders, with a franchise built on the strength of a relationship-driven model supported by teams of highly experienced property professionals and in 2025, over 66% of new facilities were made to existing customers.

Richard covered the impairment charge in detail earlier. But what is clear is that the lending before 2022 was exemplary. The lending after 2022 was exemplary and is therefore, isolated to a narrow cohort of loans of which we have just already described. And the performance of the portfolio is now exactly as we had expected it.

Alongside the strength of our core propositions, we are also extending our product range, building a strong capability in build-to-rent, purpose-built student accommodation and care home development finance, where we expect strong growth for a considerable period ahead.

We expect 2026 to see further benefits to affordability, especially with reductions in interest rates. Housebuilding, as you would expect, has long lead times. So the interest rate cuts so far will not be evident yet in the new activity flows. But of course, we would like more tangible and effective government action on planning and housing regulation to get the industry anywhere close to building the levels required to meet the housing needs of the country.

On SME lending, the vast majority of which is asset-backed, has seen strong and consistent growth in recent years despite the market having to unwind the effects of the COVID lending facilities, where for several years, the majority of the U.K.'s SME loan stock was government backed. Our success in this area can be attributed to the depth of experience in specialist asset-backed markets, combined with the application of new and advanced technology, delivering an improved customer experience and better productivity.

Technology not only allows us to improve our new application process and access significantly more customer data; but as we have said before, we can also access customer cash flow data in real time, enabling us to monitor performance closely and identifying issues at an early stage. Indeed, arrears in SME lending stand at only 51 basis points, in fact, on par with buy-to-let and also impairments are negligible.

In SME, we have also been extending the breadth of the asset classes we finance, including increased activity in the sustainability space, along with additional facilities provided in conjunction with the government Growth Guarantee Scheme.

The motor finance industry could be forgiven for thinking 2025 was a year to forget. However, despite the noise, our motor division continued to deliver robust growth through its specialist asset class focus. 2026 should see a conclusion to the motor commission situation, which will provide much needed clarity, leading to more stability across the market.

Structured lending has been successful in building new facilities and extending these to existing relationships. Drawn balances have lagged new facilities, reflecting the revolving nature of lending and the more subdued lending environment. But sentiment in this sector is improving, and we expect better lending volumes going forward.

Credit quality across both our motor finance and structured lending divisions is exemplary. For the commercial lending division as a whole, we are, therefore, guiding to GBP 1.2 billion to GBP 1.4 billion of new lending in 2026.

So in conclusion, 2025 has delivered another strong performance against a backdrop of low economic growth and uncertainty. Our results today continue to show a strong delivery, creating long-term sustainable value for our shareholders with a low-risk balance sheet and low volatility earnings profile. We have also continued to build and develop our franchises as a specialist bank, with extensive relationships created sometimes over decades, supported by the depth of experience of our people. And alongside new product initiatives, we expect to see continued growth going forward.

Investment in new technology is delivering enhanced customer experience, better data improved productivity, including a best-in-class cost efficiency in the U.K. banking sector. We have diversified our funding further this year, providing greater opportunity and flexibility. And although our recent NIM outperformance is expected to reverse trend, we now have more tools at our disposal to optimize our pricing position. Spring is an outstanding product, and there will be so much more to come on this front, and we are highly optimistic for its future.

We are also diversifying further within each of our lending divisions, and we expect to continue to see commercial lending profit growth exceed buy-to-let going forward, which will continue to benefit margins over time. Additionally, we will be ready to react to inorganic opportunities should they emerge. Clarity within the regulatory environment is important here, but it's clear that steps are being taken by the government and the regulators, including the recent increases in MREL and the Bank of England's capital review, to move things in the right direction.

We have consistently delivered strong internal capital generation, supporting good, sustained loan book growth and a consistent commitment to repatriating capital. We have now returned GBP 1.3 billion of capital through dividends and buybacks since 2015, and we continue to deliver returns comfortably in the target range of 15% to 20%.

Our business is in great shape. We have a high-quality customer base, a strong balance sheet, excellent franchises across each of the markets in which we trade, a highly efficient operating platform, and our technology changes are extensive and have potentially far-reaching implications. There are, of course, challenges that must be dealt with, but these are also exciting times, and we look forward optimistically to continuing to build on the success of the last 10 years.

So thank you, ladies and gentlemen, for your attention, and we are now happy to take your questions.

Right. I think you know the forum. So Sanjena, you go first, and Ben you go afterwards.

Two questions for me, please. First, if you could talk about the sentiment in the buy-to-let sector. Advances in the year were a bit lower than initially expected, and guidance for FY '26 ranges from flat to up mid-low teens. So what would be the drivers we are looking for, for a recovery towards, say, the upper end of that target range? And second, on the number of policy updates that we have had recently, budget changes, the small deposit -- Small Domestic Deposit Taker regime and the capital review yesterday, if you could talk through the impacts of those?

There's quite a few questions in there you snuck in. So let me deal with the buy-to-let one first. So it was a disruptive year, this last 12 months or so, disruptive, the economic backdrop was unhelpful, political uncertainty, helpful. Affordability has been an issue more generally across the housing market. And whilst interest rates, albeit base rates coming down is fine, but actually, a lot of the market affordability is driven off of swap rates. So you kind of saw a spike up in swap rates during the course of the year. It has come back, and it's kind of below where it first started. But it's kind of the swap market has lagged the base rate movements. So we think that's kind of over underdone as it were. I think if you look at the economic backdrop, it's difficult to kind of reconcile where interest rates are today versus the environment.

However, what we see is the continued development of the professionalization of the buy-to-let market. So whilst the stock of properties in the sector is kind of broadly flat, you've seen the amateur probably gradually exit. It's not like a race to the exit, but there's a gradual runoff of those. But the professional landlord is taking up the slack, and that's clearly where we operate. The professional market -- professional end of the market ranges from an individual who puts the -- his loan through an SPV, I don't really regard that as professional, but it's in that kind of that broader category. Whereas we tend to operate in the more complex, the multiple property portfolio, more complex property requirements, sometimes quite innovative structures that are involved.

So therefore, requires -- I mean, the technology is important to kind of do the heavy lifting there, but the depth and experience of our people in ensuring that we can kind of like compete, we are very much right at the heart of that more complex end of the property sector.

I think regulation, in one sense, it kind of like, in the category, regulation adds cost. So therefore, everyone doesn't like it. Well, everyone as a landlord would say they don't like it. However, the professional landlord has got the depth of experience and the income base to justify the investment. You can understand why an amateur landlord, presented with all the latest levels of regulation, all the burdens that go with all of that, just going, "You know what guys? I'm done." So the professional, like anything, including banking, you need a level of scale in order to justify the investment.

So we are optimistic about the prospects for the outlook. And the level of lending this year has been kind of in the market, dull, I would say. And we think there's upside to 2026.

In terms of the budget, I think the kind of thing about that -- I mean, I'm not going to get anywhere near the politics of it all. But a lot of the initiatives in the budget were back-ended. So a lot of the changes came in, and they were kind of pushed towards the kind of the back end. So the economic impact for the economy as a whole is kind of pretty modest. There's an increase in property income tax. There, it's 2%. Do I think that will have a material impact on the market? No, absolutely not. I think, as we all know, I think as we've been said, tax usually ends up getting passed on in some way as a cost to the business and therefore, becomes a need to be passed on in some way. It's a relatively modest sum by comparison to where it was. I don't think it will have any material impact on the market as a consequence.

I'm happy to talk about ISAs as well whilst we're on budgets. Obviously, there's a ton of speculation around that. As you would have expected, we engaged with treasury quite actively as part of that process. And I suspect it was us and a number of people that they eventually listened to on there because we were pointing out, it's like -- I kind of understand the concept of wanting to encourage people to invest in equities where, demonstrably, there's a better return over an extended period of time. However, there's a demographic that think differently. And that demographic, that older part of the population are more risk averse and more likely to use cash. And my guess is that they wouldn't invest in equities anyway.

So a significant majority of our book is over 65. Our assessment of the impact is it will probably only impact about 1% of our balances. So I would say, pretty modest, significantly modest by where it could have been in some of the earlier statements.

Do you want to touch on the SDDT?

Yes, sure. So I mentioned the ICR had been withdrawn. That was originally put in place when there was a tight time line to actually get Basel 3.1 done. So they wanted to give firms an extra year. So when the implementation of 3.1 was put back to 2027, they said, well, there's no need for the ICR as well. So the Small Domestic Deposit Taker regime has pretty much the same entry criteria. And that would be your fallback to manage, if you like, an IRB or -- an IRB, like Basel 3.1, to current standardized transition. So it's helpful that that's been put in place. They've got a lot of work to do. The PRA has to reassess the Pillar 2 requirements for every institution this year. So they can have a pretty full plate, I think, in terms of getting that analysis done.

Did we cover all of your questions, San? The

Just on the capital review of your...

The capital review, yes. So obviously, it's 24 hours old, and we were kind of fairly busy on results yesterday, however, we -- our initial assessment is it's a positive message coming from the Bank of England. The direction of travel is encouraging. There's lots of consultations to be done, lots of details that will then emerge. The interaction of Pillar 2A is going to be a fairly significant one. At the moment, we don't have anything really in Pillar 2A. So therefore, you kind of think, well, there's not much benefit to come through.

But obviously, we hope we will get IRB. IRB is likely to generate a Pillar 2A charge. So it's multifaceted, multidimensional and obviously, a lot more detail to come. So positive high-level response would be the case alongside broader level of government and Bank of England actions that have taken place. And I think more will come. But yes, there's a lot of detail to work through on that.

Ben Toms from RBC. First one is on NIM, please. Your guidance of 290 to 300 basis points. Last year, you guided lower and then beat. Can you just bridge for us getting down from the 310 to your guidance range? I think you said there's 5 basis points coming from development finance. And then is it fair to say that the other 10 basis points then is roughly the deposit spread that's tightening. Are there any other moving parts to think about? And then the NIM build, which you flagged in the later slides, into 2027, that's just driven by mix shift. Is that the right way to think about it?

And then secondly, on motor finance, you're in a kind of an enviable position that the size of the provision isn't that big, and you're well provisioned versus peers. But as you pointed out, there are a number of pieces of the puzzle that don't quite look right at the moment. I'm presuming you don't have any appetite yourselves to take this judicial review given the cost that will probably incur relative to the benefit for you. To what extent is it possible that banks could get together and bring a joint application for judicial review? Are you talking about that with other banks?

Deal with the NIM. I'll deal with the motor finance.

Cool. Yes. So this day last year, we were coming off a 3.16% NIM for 2024, and we were guiding to 3% because we saw rates falling, the deposit spread compression coming through. And to your point, we've outperformed. In part, base rate reductions haven't happened in '25, and now they're in '26. So the deposit beta will be happening a year later rather than a year earlier. Nigel mentioned some of the things that we've looked at.

[Audio Gap]

as rates fall. So we're predicting the same. So this time last year, we were saying 3.16% to 3%. This year, we're saying 31.3% to 2.90% to 3%, 5 basis points of the 3.13% that we had this year has come from the development finance portfolio that I mentioned as well. So if you split that out, you're looking at a 3.08%, to the same sort of direction that we were looking at previous years. So I think our outlook and approach has been extremely consistent actually between now and then, but there's been a beat on the current year performance.

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Yes. Sorry. So the underlying position that we have on the structural NIM improvement is still there. The growth of the commercial business, that's all predicated on a, if you like, call it, a constant liability margin. The asset side is there with -- the new book on buy-to-let delivers probably 15% to 20% higher spread than the old book. And then in terms of the commercial to mortgage spread, you're looking at 3x in terms of the difference. So as long as we maintain the progress that we see that's implying with the volume outputs, that will underpin that further growth and that further benefit from the structural NIM. The thing that we've seen in the last 2 or 3 years is that we've had a couple of periods where the deposit side has outperformed. And what we're seeing is that reverting back to, if you like, a more normal trend.

So if we go back 10 years, NIM was about 2%. And now it's kind of about 3%. A product that we're in a higher interest rate environment than we were 10 years ago, and you've also got a different mix shift, and that mix shift is continuing. So you kind of saw margins doing that. I'm sorry, I do it that way for you. Margins doing that, it's kind of done that, but we expect a longer, more lasting upward trend in NIM due to the change in mix of the business over time, but that happens over time.

Motor commissions, clearly a thorny subject for the sector as a whole. And you're right, we took a chunky extra provision relative to what we've taken in the past. But we've reflected the whole of the CP there. So if the FCA do moderate the CP in some way, there could be some write-backs next year, but we'll see. For us, it's just a simple way of doing it. It's not a big part. It's not a repeating number. So it just felt a much cleaner way of doing it.

Do I think -- therefore, do I -- because we've taken a provision, do I think the CP is right? No. No. I don't think the CP reflects correct customer harm, correct customer detriment. And therefore, we would -- we will be participating in a response to the FCA. Just to give you a kind of like a couple of things, the Supreme Court, very interesting approach that they took. In order for there to be an unfair relationship, it had to be A plus B plus C, whereas the FCA approach was A or B or C. So you kind of think it's a very different approach that's been taken. So we disagree with that.

Separately, our average commission is 3.9%, and the FCA's kind of direction of unfairness was at 10%. And yet, it's because you kind of trip over a kind of commission structure that you end up getting all of it regarded as unfair. Now that's kind of also a bit. So that's kind of a flavor why we've taken the provision, but we don't agree with the approach.

However, if the banks -- I don't know whether the banks will or won't go to judicial review. There's certainly a lot of opposition within the industry about the position, but that's for a wider group to consider. We've got our own particular aspects to think about. And so we'll leave it at that.

Sorry, I'll come back in a second, but that hand was up there first.

It's Elise Yu Ge from KBW. I've got 2, please. So first is on lending sensitivity. So in the background of what you're seeing the pipeline coming right now, how sensitive is your full year '26 lending plan to changes in rate assumptions, particularly in an environment where rate cuts are slower than expected? And would that sensitivity change your lending strategy in terms of volume or margin mix, like you said earlier, Nigel, I think it's easy to grow volume simply, but there are other considerations to focus in the long term?

And the second is on Spring. I think it's such a good product, very slick design in the app and easy access, user-friendly, and the rate is probably second to none in the easy access market. So if I have to point out one thing, I guess, I still think there are not enough people know about Spring just yet compared to other digital banks on the street. So I guess my question really is what's your marketing strategy in this specific area to broaden that customer base?

Okay. Let me deal with that one first. Thank you for the feedback. It's very much appreciated. Drop a little line on Trustpilot, if you want, we'd very welcome. So the Spring is a great product. It's changed the way I do my banking as well. My name is Nigel. I was a lazy saver. I used to leave too much in the -- in current accounts. And now payday comes, and I move the money across. And the credit card bill comes in, and I move some money back. And things like that. So it's a far more active. It's brilliant. It's absolutely brilliant. And I know it's mine, mine -- ours.

But we absolutely think it's kind of one of the most exciting products we've ever done. We've only launched it in April. And so therefore, going from GBP 0 to GBP 600 million worth of balances, we're kind of pretty pleased with that. It's better than we had expected. When we launched, we were 30th in the league table. So you said price better than most or -- I can't remember the exact words. We're currently about 25th in the league table. So this isn't a price-led proposition. And the reason for it is it is a very -- it's got really attractive functionality, and you should get with the GBP 660 billion of balances, being the lazy savers like I was, then there is so much to go for.

So there is a reasonable amount of digital marketing going on. You see us in various social media outlets. More will come for that over time. But equally, these are very early days, and there is a lot to do, a lot of product initiatives still to come on that. But again, thank you very much for your feedback, and tell all your friends. We will have other initiatives you might like in the new year on that front. Anyway, sales pitch over.

In terms of the pipeline. So interest rates are really a significant sensitivity to the economy as a whole. And therefore, particularly when you've got asset-backed lending such as property, where you imagine you're a geared buy-to-let landlord or a geared housebuilder, interest rates are a significant component of your cost base. So therefore, it's naturally that it drives sentiment and therefore, the economics.

When you look at the effects of interest rates on GDP, so if you look at the -- when interest rates were relatively low, going back like pre-COVID, kind of the level of system-wide loan growth was running at around 4%. And then interest rates then shot up in that period, in the kind of '22, '23 period. And system-wide loan growth went to 0%. Clearly, it's one of the effects, one of the things that the consequences of Bank of England moving rates up is loan growth demand falls.

Likewise, interest rates have started to ease, and you've started to see system-wide loan growth start to improve. It's not where it needs to be, but it's starting to improve. What we don't want to do is overspeculate how much benefit will come through. Things like housebuilding is very rate sensitive, and it's got very long lead times. So base rates get cut, a housebuilder doesn't just run off and go, "Right. There you go. I'm going to build some houses now." There's a huge planning process that they have to get through. So it will have a lag to that time scale.

So I think it's constructive and positive, but it's not kind of like -- the correlation is not timed almost to the -- as close as we'd love it to be, but it's not. So it will come through. It's just not yet. I think we covered those questions.

It's Gary Greenwood at Shore Capital. I've got 2 areas that I wanted to explore. So the first was on the professionalization of the buy-to-let market. I was just trying to get an understanding as to what you think the current split of the market is between professional and amateur? And how that's been changing? And how you expect it to continue to change? And then also what your market share is of that professional segment?

And then the second question was just around M&A. I know it's something you've been talking about for a little while now, but obviously, you've not recently executed anything. So is that because there aren't any opportunities there or because the price expectations of the vendors are still too high?

I can't give you very clear stats, I'm afraid, Gary, on the professionalization of the buy-to-let market just because there is no neat clear definition of it. And it's got even worse in that sense because small landlords might have acquired or converted a property. We see some of that going on. People switching from direct ownership to ownership through an SPV. And it gets classified as corporate, sometimes gets used in the professional category. But if it's got 1 or 2 properties, it's not how we would describe it. So it's unhelpful for you.

But the general trend is, I would say, that the -- going back maybe sort of pre-financial crisis, the big surge in amateur landlords came then. And you've then found with a combination of -- I'm afraid they've all got a bit older. Their facilities have got a bit more mature. As in they're coming up to maturity, they've kind of been there, done that. And now the regulation is higher, it's tougher. They have to follow more rules. And the kind of the incentives for them as individuals are not quite what they were back in the pre-financial crisis period.

But what we see now -- and I think, in some ways, I mean, you shouldn't -- it's taking it too far to describe this. But regulation causes more focus on professional landlords because you have to get better at doing your job. And we've now got a new bill -- an act that's come in, the Renters' Rights Act. Implementation is May next year. I think it's just -- the professional landlord is just going to end up getting better at planning and preparing for it. I don't think it's going to kind of cause the market to massively disrupt. But things -- you're going to require greater levels of investment. So I can't help you with the math on it, but it's becoming an increasing share of the whole.

On M&A, we'd love -- we've made it very clear in these presentations and others that M&A is a part of the strategy, that if we can find the right opportunities, then we'd love to be able to do it. We were quite active in our engagement with the Bank of England on MREL, and we got that shifted. Not just the limits have been shifted, but they are now indexed. So you should see that increasing in line with nominal GDP going forward.

But we're not going to buy something because the MREL rules have changed. There's also been much greater need for clarity over the regulatory environment. And by that, I mean not just capital because that's been moving around all over the place and more changes yesterday, but also in terms of conduct risk, trying to understand what the risk is and what the cost of it is. And I said before, to here and to others, if I can't understand what the risk is to conduct risk, I can't price for it. If I can't price for it, I have no idea whether I'm buying something with good value or bad value. I think they've moved a long way.

We're still waiting for the FOS rules to come out. That will be important to understand what those are, motor finance clarity. I mean, I don't like the CP that's come out, but at least you will end up with clarity on things like that.

So there's been a number of barriers in the way that stopped us doing things because we don't want to do an acquisition for the sake of it. We want to do one because it will enhance the value of our business to our shareholders.

Jonathan, yes.

Jonathan Pierce from Jefferies. I've got a few questions on the margin again, please. You managed to hold NIM broadly steady over the last 12 months despite what was a pretty big drop in that savings margin from, what was it, 35 basis points down to 8 basis points. What's the plan -- what's in the plan for 2026 on that 8 basis points? So what have you assumed that moves to by the end of '26 within your group NIM guidance of 290 to 300 basis points, please?

Also interested in how you think the trajectory of the NIM comes through in 2026. Do we end the year towards the lower end of that 2.90%? Or is there a reasonably rapid step down and then we stabilize?

And sorry, one final one. You put in place a number of offsetting actions through 2025 to help the NIM. I'm just wondering if there's not more levers you can pull there on things like the ILTR. You're still only about 1% of industry usage on that. Your investment securities are still only 20%, 25% of the liquidity pool. So are there things you can do to help that NIM through the course of the next year?

The latter part is very much included as part of the answer to the first. So there are a number of levers that we'd be looking to pull. The success of those will depend on where we are in that range. And also depending on which levers you pull and the degree to which you then need to focus on different parts of the deposit market will depend on how much of that 8 basis points gets lower.

So the reason we give a range is that we see a sort of a midpoint that would be slightly below 3%, but it would be a mugs game to try to predict NIM to within 5 basis points with the volatility that we see on swap rates and base rates and the timing of deposit betas. So we're not suggesting that you get to 2.90% for the whole year as a base case. That would be part of our -- that's just part of our, if you like, sensible range of degrees of freedom around a base case.

So it's hard to give the exact answer because actually, there's a whole range of things you look at like using ILTR, potentially other covered bonds and the like.

And the optionality that, that gives -- I know it's kind of my favorite word, but with Spring is at 4.11%, so currently 0.11% over base rates. But it's -- but that kind of variable pricing has been a bit volatile. You've had some of the people in there like 0.50% over at times, that's kind of questionable. I'd rather have a constant flow from -- for Spring accessing ILTR to avoid trying to participate at the top end of the market. It's just not a sustainable price.

And I think what you've also seen, you've seen a few initiatives come in this year, like bonus rates, have been more actively used. And so you've had like people coming in with a 4.50%, 50 basis points over base rates. It draws in some money, but it only lasts for 3 months because the bonus rate drops away, and it's 2%. I kind of think, wow, that's just buying space.

So treasury and liquidity management, I think, is -- and I think we've been really smart at being able to do that, and we'll continue to do that whilst building all the structural options that we can to make sure that we're as diversified as possible.

Yes. That's helpful. I guess the concern today, just to come back on this, is that if we're starting around 3.13%, or whatever the number was in H2 of last year, and we end up for the full year '26 around about, I don't know, let's call it, 2.95%, the middle part of the range. Are we seeing an H2 number that is closer to 2.90%? Or would you encourage us not to think about it that way?

It's hard backing something into a range, I think, is the challenge. Again, if we go back to where we were this time last year, start at 3.16%, we were guiding for 3%, that would have implied 2.90% is the exit. So I think that, that range of where your NIM is somewhere between, let's say, that 2.90% and 3%, plus or minus a couple of basis points. So it's very, very difficult with a GBP 16 billion, GBP 17 billion balance sheet to be predicting a couple of basis points a year out.

So we don't guide beyond 1 year forward. But if we did, it wouldn't be below 2.90%.

I think the support there comes from that structural NIM piece on the asset side. So it may well be that you saw deposit side compression, but that underlying position for the asset side continues. It's probably also worth noting again, back to the comment on the asset side spreads. As rates come down, the value of that net free reserve hedge supports the margin on mortgages as well.

Do we have any more questions from the room? Anything online?

We've had a few things online, but they've all effectively been dealt with, apart from one final question on savings, which is a 3-parter. Any cannibalization in savings balances from Spring? Do you envisage any impact on consumer behavior in response to the increase in the FSCS limit? And finally, would you consider launching a current account?

The answer to the last one is no. Yes, certainly -- okay. Currently, no. I don't have any plans for it. It's in the unlikely category. So you don't want to ever say never, right? But it's certainly not on any of the plans.

In terms of cannibalization, I'd say the opposite, actually. One thing that we didn't necessarily expect and we wanted to kind of observe it was the degree to which did Paragon customers switch from their accounts with -- directly with us over to Spring. We have seen a number of Paragon customers open accounts with Spring, but they kept their balances with Paragon. So it's been incremental benefits, not cannibalization, which was -- we haven't made any assumptions or expectations around that. So that's kind of a positive upside.

Equally, in terms of the FSCS limit, I mean, it came into effect a couple of days ago. say there's been absolutely 0 impact that we have observed to date. There is clearly now the potential. We do have some customers who -- you can see a little concentration around the 85,000 limit. The question is, will they move that up to 120,000? Maybe. But it's not a big part of the business. So if there is a bit, it won't have a material impact on the funding as a whole.

So we're all done there. Okay. So thank you very much for your attention this morning and your questions. Richard is around today and tomorrow. Some of you already got calls booked up with him, but please, he's here to help. And we will obviously welcome any further engagement that you may have. And tell your friends about Spring. It's a great product. And we look forward to catching back up with you in 6 months' time. Thank you very much.