Excellent. Okay, I think. Are we good to go?
Yeah.
Perfect. Okay. Well, so good morning, everyone. I'm Marcelino Castrillo, CEO of Shawbrook, and with me today is our CFO, Dylan Minto. This is our first full year result presentation since our IPO and inclusion in the FTSE 250. What we're reporting today is exactly what we said we would deliver. Strong returns, disciplined growth, and a model that performs through the cycle. We're also very aware of the macro environment and the current geopolitical uncertainty. Its impact on the U.K. economy is still unfolding, and we are alert to the implications. This is precisely the environment where our experience and agility create opportunity and give us the greater, greatest advantage. Now, let me take you through the year.
I'll start with our key highlights for 2025 before providing an overview of how we're executing our strategy to deliver long-term sustainable growth and returns. Following my opening remarks, I'll hand it over to Dylan, who will take you through the financials in detail. After that, I'll talk through the progress we've made during 2025 and our outlook for the year ahead. There will then be an opportunity for those in the room and participating online to ask questions at the end. 2025 was a year of disciplined execution and strong underlying returns. We again deliver high returns by generating high quality growth and continuing to improve efficiency, both of which are anchored in the robust foundations we have built over many years of specialist lending.
We deliver a 16% increase in underlying profit before tax to GBP 340.5 million, and an underlying return on tangible equity of 17.2%, both in line with our medium-term guidance. This translated to an underlying basic earnings per share of GBP 0.47 . You can see the expansion of the organic loan book, which grew 16% to GBP 19.2 billion, including originate to distribute assets. During the year, we continued to focus on the efficiency of our model and capital deployment. As a result, we were able to support a strong net operating income growth with a core cost base that was largely flat year-on-year, reflected in our underlying cost to income ratio reducing further to 39%.
Credit performance remained consistent with our long-term medium cost of risk of 47 basis points and a CET1 ratio of 12.4%, in line with our medium-term guidance of between 12% and 13%. Our specialist model allows us to strategically allocate capital into growing market segments where we can generate attractive risk-adjusted returns and high-quality growth. By leveraging our digital expertise, this model is scalable, improving the speed and consistency of decision-making, allowing us to operate efficiently as we grow. Our ability to achieve high teens returns on tangible equity and meet high teens annual profit before tax growth, capturing our medium-term guidance, is grounded in the fundamentals of the Shawbrook model. These are not new commitments. They are the continuation of what we have demonstrated over 15 years. High return, high quality growth. That is the model.
There are three key metrics which clearly demonstrate the consistent execution of our strategy and the durability of the value we generate. Since 2017, underlying return on tangible equity has been consistently strong at a median 18%. Over the same period, credit performance has remained well controlled, with a 46 basis points median cost of risk and 30 basis points median write-offs. This reflects the ongoing evolution of our underwriting discipline and capabilities, alongside our proactive approach to portfolio management. Net loans have grown from GBP 4.9 billion to GBP 19.2 billion, representing a 19% compound annual growth rate. That growth spans Brexit, COVID-19, and the recent period of interest rate and geopolitical uncertainty, demonstrating the resilience of our model across various macro environments. That resilience matters, particularly now.
Geopolitical uncertainty, inflation volatility, shift in rate trajectories, these are the conditions in which specialist underwriting and portfolio discipline are most valuable. Our track record demonstrates our ability to continue navigating all of this. With our predominantly secured book and conservative loan to value metrics, we continue to grow at scale while maintaining strong downside protection. The performance we report today is a result of a platform built, tested, and refined over the years. It allows us to allocate capital prudently with a tight control on risk and enables us to generate high quality growth without compromising returns. With that, I'll hand it over to Dylan to discuss 2025 financials in more detail.
Thank you, Marcelino. I'll now go into more detail on our financial performance for the year, together with a summary of the capital position and the medium-term outlook. In summary, I'd like to just emphasize we delivered on our plan with no surprises. We continued to generate high returns, and we've demonstrated further cost discipline and efficiency gains. Let me start with some of the key numbers. The full year 2025 delivered underlying profit before tax of GBP 340.5 million, up 16% year-on-year, cost income ratio of 39% and an underlying tangible return, a return on tangible equity of 17.2%. These are the metrics that define Shawbrook's model. Net operating income increased 12% to GBP 684 million, reflecting the disciplined origination within defined risk parameters.
Cost of risk remained at 47 basis points on an underlying basis, unchanged from full year 2024, confirming that growth across our diversified markets has been delivered within risk frameworks. Underlying administrative expenses increased 7%, well below the 16% organic growth rate in the loan book. I'll show later, the core cost base of the bank has trended relatively flat for the previous four half-year periods. This positive operating leverage, the widening of jaws between income and costs, is now a structural feature of the model and something we expect to continue as we scale the business. This translated directly into double-digit profit growth and earnings progression. We had an underlying basic earnings per share of GBP 0.47 . That's up 16% year- on- year. Below the line, you'll see adjustments totaling approximately GBP 68 million.
These have been clearly flagged through the IPO process and relate primarily to IPO transaction costs, IFRS 2 share-based payment charges, and corporate activity costs. These are non-recurring in their nature. If I turn to the KPIs, net interest margin was 4.23%, broadly stable year-on-year, with modest changes to the portfolio as we reallocated capital within our consumer business towards JBR's high-end motor market. I'll show in a moment, risk-adjusted margins remain consistent and are supported by the diversification. CET1 was 12.4%, reflecting the impact of the primary capital we raised at the IPO to support the acquisitions that we completed during the year. Total net loans, including the off-balance sheet originate to distribute portfolio, grew to GBP 19.2 billion.
It represents an organic growth rate of 16%, and that was well spread across the portfolio. That figure is 20% year-on-year growth if we include the GBP 0.6 billion of loans acquired as part of the ThinCats acquisition. That distinction is important. Organic growth remains a primary driver, with acquisitions enhancing both mix and capability. Also during the year in our Retail Mortgage Brands business, we executed two originate to distribute trades. They totaled GBP 0.9 billion of derecognized assets. That released capital and maintained balance sheet flexibility. It's that flexibility that's allowing us to reallocate capital into higher returning asset classes as the markets and market conditions evolve. The 16% organic growth rate is the outcome of deploying capital where risk-adjusted returns exceed our hurdle rates.
If returns compress in any of our segments, we will actively reassess, potentially moderating lending in that segment accordingly. That is how we protect the bank's returns profile. The medium-term guidance of low double-digit annual loan book growth rate is today reiterated, but importantly, that guidance is a through cycle view and anchored to risk-adjusted returns. I want to cover risk-adjusted net operating income over risk-weighted assets for each of our four segments. This is the lens through which we manage the business, not headline net interest margin, but risk-adjusted returns over the capital we deploy into that segment. It's a more relevant measure of how efficiently we're generating value. The group weighted average is 5.5%, and all four segments are generating risk-adjusted returns in a relatively tight range despite having quite different headline net interest margins.
That reflects the fact that we price, we structure, we underwrite for risk-adjusted returns, not headline NIM. Consumer Finance delivered 6.1%, up 268 basis points year-on-year. That improvement reflects the active reallocation of capital into the higher returning secured motor finance part of the market following the full JBR integration. That's capital discipline in action, and we move capital towards better risk-adjusted economics. SME came in at 4.8%, down 94 basis points year-on-year, and that reduction reflects the elevated impairments we recognized on the pre-2022 Development Finance vintage. It's now a limited portfolio of approximately GBP 140 million. It's in run-off, it's well provisioned, and as we previously communicated. We'll provide further detail on this portfolio in the next slide.
If we exclude that vintage, the SME returns year-on-year would have been broadly stable. Retail Mortgage Brands delivered 7%, up 56 basis points. That's supported by two originate to distribute trades that generated a circa GBP 35 million gain on sale. Real Estate has remained stable year-on-year at 5.2%. The point here is the flexibility in our model. We can allocate and reallocate capital across these segments as risk adjusted economics evolve, and the diversification of our model provides consistency. This optionality underpins our ability to maintain high teens returns through varying market conditions. If we look at credit quality, the median cost of risk since 2013 has been 47 basis points. Full year 2025 delivered a cost of risk of 47 basis points, entirely consistent with our long-term track record.
During the year, stage three loan balances as a proportion of the total book fell to 3.4% from 3.7% at the end of 2024. Arrears on the book remained stable at 1.6% of the portfolio versus 1.5% at the end of 2024. On ECL movements, the total loss allowance on balance sheet increased to GBP 203.4 million, a coverage ratio of 1.14%. As I discussed earlier, the impairment charge for 2025 of 47 basis points included GBP 25 million recognized in relation to the pre-2022 Development Finance stage three vintage. That's now isolated to a handful of cases, provided for at 26% coverage ratio.
If we were to exclude that vintage from this analysis, the bank's cost of risk would have been 32 basis points. The increased charge from our Development Finance book has been offset by those improved impairment outcomes in our Consumer Finance segment as we pivoted to secured high-end motor. We're not seeing any deterioration on new originations within the development financing portfolio, particularly those underwritten after the date of that vintage, and it's performing as expected. Let me talk to costs. The core cost base of the organization, which excludes acquisitions and employee-related exit costs, was GBP 252.3 million, essentially flat year-on-year. Headcount, excluding acquisitions, reduced to 1,452 full-time equivalents, while delivering 16% organic loan book growth. That demonstrates operating leverage.
Total underlying costs increased 7% year-on-year to GBP 267.4 million. The incremental GBP 15 million is entirely attributable to acquired businesses and the operating costs from ThinCats from the date of its acquisition at the end of Q3 and a full year of JBR costs, along with those employee related exit costs. The cost income ratio therefore improved from 40.8% to 39%. The cost to average assets, our efficiency ratio, improved to 1.65%. This reflects the investment we've made in the platform. It's now scaling with incremental growth coming through with low incremental costs. As we'll show later, operating jaws have widened materially.
If I turn to funding, deposit balances grew to GBP 18.4 million, again representing a 16% growth rate year-on-year, and that's funded the asset growth. Loan to deposit ratios ended the year at 97%. The funding remains predominantly retail-based. 90%, 91%, sorry, of our liability base is sourced from U.K. retail deposits. Approximately 96% of those balances are insured under the FSCS scheme. We have a loyal customer base of roughly 310,000 depositors, which equates to an average balance of GBP 42,000, and that is underpinning the stability of the bank's deposit base. We currently have a circa 4% share of a large U.K. savings market.
Our deposit franchise has demonstrated the ability to grow at 16% per annum, while the stock cost of the deposit book has fallen from 4.24% to 3.88%. Our ability to manage our stock costs of deposits is a direct outcome of the investments, the innovations we've made in technology and the technology enabled proposition. That includes pricing agility, strong service levels, high customer retention, multi-channel and multi-brand distribution. This advantage has been delivered consistently across products and through the rate cycle and is underpinning margin resilience as we continue to scale. You've just seen the strength of the deposit franchise, but the total funding base stands at GBP 20.2 billion. Composition of that is straightforward. 91% retail deposits, 9% wholesale finance. Being the majority funded by retail deposits is by design.
It gives us stable, predictable and competitively priced funding. Public securitizations reflect our established platforms. That's giving us further optionality and the funding diversification where it's accretive. During 2025, we continued to actively optimize funding mix. We fully repaid the remaining GBP 0.8 billion of TFSME, and we maintained access under the Bank of England's Sterling Monetary Framework. We're actively managing the liquidity pool, and we've reduced concentration within the Bank of England reserve account. If I touch on liquidity, you can see the liquidity position is a well-diversified GBP 4.5 billion portfolio. I'll make a couple of points specifically. Firstly, we do not carry fixed rate exposure across our treasury and liquidity portfolios. That's a deliberate risk management choice. Secondly, the liquidity ratios remain strong.
We have a liquidity coverage ratio at 147% and a net stable funding ratio of 125%, both comfortably above regulatory minimum. If I bring all of that together, the funding structure is primarily retail deposit funded, providing high-quality liquid buffers, strong regulatory ratios. This is a resilient and well-managed balance sheet. In terms of capital, we started the year at 13% as a CET1 ratio. Underlying profit after tax and AT1 coupons generated 240 basis points of CET1, and RWA risk-weighted asset growth consumed 190 basis points. That together delivered approximately 50 basis points of net capital accretion before the one-off items. Acquisitions during the year consumed approximately 120 basis points, of which Playter was circa 15 basis points.
The IPO-related items include the primary issuance of capital, net of GBP 20 million of IPO costs, and that net contributed 30 basis points CET1. This resulted in a CET1 ratio closing at 12.4% and comfortably within our range of 12%-13% as we've targeted. The position also represents GBP 326 million or 270 basis points of surplus CET1 above the regulatory requirement of 9.7%. Our total capital ratio was 14.8%. On Basel 3.1, we're well prepared. We've expected the transition to impact approximately GBP 1 billion uplift in risk-weighted assets and roughly 90 basis points of CET1. That's manageable within the capital base.
If we look forward to 2026, the underlying adjustments that impacted 2025 will substantially fall away. That'll support a clean capital generation profile through 2026. We also see further optimization opportunities within the capital stack. We've got headroom in both our AT1 and Tier 2 instruments. They can provide flexibility to further optimize the total capital efficiency. If we take this together, this reinforces our confidence in maintaining the 12%-13% CET1 range while supporting growth and distributions. Let me talk to you now about how we think about capital allocation from generation through to deployment and distribution. It follows a clear hierarchy. If I read from left to right, I start with the framework on the left. We operate CET1 within a 12%-13% target range.
Organic lending growth is funded from capital generation, and that's subject to the risk-adjusted return hurdles. We continue to invest in digital, in data capabilities, and they're driving operating efficiencies and reducing risk volatility over time. On dividends, we are committing to a maiden ordinary dividend paid in respect of 2026 results, and beyond that, our intention is a progressive dividend policy thereafter. On inorganic capital allocation, our focus remains on bolt-on acquisitions. We target specialist segments where we can acquire underwriting or distribution capabilities, and it's the discipline around this that's very clear to us. Transactions must deliver return on tangible equity above hurdle rates. It's that approach that served us well across 25 transactions we've executed to date, and it won't change. Finally, surplus capital distribution.
Where capital sits above the CET1 range and is not meeting return hurdles, it will be returned to shareholders either via buyback and/or special dividends as appropriate. The message here is straightforward. We deploy capital to drive growth and long-term shareholder value in a disciplined and transparent framework. If I bring this together today, we are reiterating our medium-term guidance. We're committing to a maiden ordinary dividend in respect of 2026 results payable in 2027 and a progressive build thereafter. It's that commitment that reflects the durability of our capital generation. We've generated over GBP 1 billion of CET1 since 2017, and the model now supports both continued growth and distributions. These targets are the outputs of disciplined capital allocation frameworks. We optimize risk-adjusted returns, we compound capital, and growth follows from that discipline. With that, I'll hand you back to Marcelino.
Thanks, Dylan. The financial performance speaks for itself. Strong returns, consistent great quality, and operating leverage firmly established. Now let me take you through what underpins that and where we're taking the business. I'm going to explain what makes this model different, particularly for those less familiar with Shawbrook. First of all, we operate across a broad and diverse total addressable market of around GBP 300 billion, spanning four core segments and 13 lending verticals. The breadth and scale of that market matters, particularly in an uncertain environment. Our 6% market share allows us to be selective, to direct origination towards areas where returns are attractive and not have to participate in markets that do not meet our standards. We're not reliant on a single product, segment or asset class, but allocate capital to the areas where we see the greatest opportunities.
We access multiple markets through a multi-brand portfolio, each focused on areas where we have deep knowledge of specific customer segments and their needs. The products and services we offer are designed for the dynamics of each of those markets, but all are underpinned by an efficient shared infrastructure, which allows us to scale our specialist proposition. With approximately 18% of our full-time employees in digital roles, technology and data sit at the core of our business and are embedded in every aspect of how we run the bank. We continue to develop and invest in the digital platform we've created to deliver intuitive and consistent customer experiences, strengthen the quality of our decision-making, and to make work faster and simpler for our colleagues through the use of automation.
We also combine data and technology with the experience and specialist knowledge of our people, particularly when it comes to underwriting and the proactive management of credit risk. Human judgment remains central. Data and AI augment that judgment, sharpen it, make it faster, make it more consistent at scale. Together, that is a meaningful advantage. Finally, underpinning all of this is a senior leadership team with significant combined tenure and deep market expertise, and an entrepreneurial owner operator culture that defines how we operate. That culture and agility, it gives us a competitive advantage. Our strategy is centered on sustaining high risk-adjusted returns through the cycle. Scale then becomes an outcome of that discipline. We had approximately GBP 19 billion of net loans at December 2025, generating attractive returns within our risk appetite and capital framework. We aim to deliver continued growth through three building blocks.
The first of these is organic growth. This is driven by the embedded growth we have in our platform and us simply continuing to do what we do today, delivering our specialist proposition into markets we know well and at the volumes we delivered in 2025, markets where we have data experience and structural advantage. That is repeatable and that compounds. Second is market growth. The various specialist segments we operate in continue to expand, and we expect to grow with them within our risk appetite and return hurdles. Third, and finally, our experience in M&A. We've completed 25 strategic transactions since 2011, and our capabilities in this area gives us the option for further value accretion, but it is not a dependency. Looking forward, we will continue to apply these principles, consistent underwriting, proactive portfolio management, strict capital hurdles and cost efficiency, and the business will compound naturally.
Gonna spend some time spotlighting two of our core lending segments. First of all, SME, which represents 25% of the group's total loan book. We support established businesses which typically generate between one and 10 million of EBITDA and require funding to support growth in areas such as acquisitions, CapEx, working capital, shareholder transactions. Through a comprehensive end-to-end offering and two brands, we can support both traditional sectors and the new economy. We also serve established regional developers. Our Development Finance proposition provides funding from planning to completion and beyond. Our third core type, core customer type is the established population of U.K. specialist lenders, providing us with additional distribution into markets we know well. Underpinned by the strength of our deposit funding model, which allows us to support customers consistently and for the long term, we provide bespoke relationship-led lending.
We have built broad national coverage and a strong reputation for delivery within these markets and the professional advisory community. Our capabilities in risk distribution, such as credit insurance, also allow us to provide follow-on funding to successful businesses as they grow. This extends the length and the depth of the relationships we have with our customers while retaining a strict discipline on single name concentration risk. We continue to support successful customers as they grow, benefiting from repeat refinancing cycles. We're also well placed to take advantage of the structural shift of business owners and management team sourcing funding from specialist providers rather than their core banking providers. The full year 2025 performance reflects our strength in this market and its importance to the group.
GBP 139 million of product contribution with the loan book growing to GBP 4.4 billion. We hold around 5% of a GBP 90 billion market. The headroom is substantial, and we're growing our share by deepening our specialist proposition and the reach of our platform while maintaining our credit standards. Looking forward, we will continue to strengthen our client relationships, innovate in our product and service proposition, and leverage the capabilities that have come with the integration of ThinCats, which I will also talk to shortly. Moving on to Real Estate, which represents 43% of the group's total loan book. This is a segment where structural tailwinds are increasingly working in our favor. Our target customer is clear. Experienced property professionals who generate diversified income from multi-property portfolios across residential, Buy-to-let, and commercial investment.
They come to us because we combine specialist underwriting expertise with proprietary technology that delivers speed and certainty, often for larger and more sophisticated portfolios. There are clear structural advantages here, as the ongoing shift towards professionalization in the Buy-to-let market continues and housing supply remains constrained in the U.K. Our competitive edge here is clear. Specialist underwriting for sophisticated portfolios, a mature broker distribution network, and proprietary technology that gives us the pricing agility and speed. Looking at 2025 performance, our Real Estate segment contributed GBP 150 million of product contribution from a GBP 7.6 billion loan book. Our three lending verticals have a market share of around 7% of a GBP 100 billion total addressable market. As with SME, there is substantial headroom. During 2025, we made meaningful progress. We have invested in technology to improve pricing agility.
We've brought end-to-end control of the Buy-to-let process in-house on our own core banking platform, with a scaled and structured real estate proposition to target larger and more sophisticated transactions. We have increased repeat business in our growing customer franchise through our improved product transfer proposition. Looking ahead, the priorities are clear. Disciplined growth within risk appetite, prioritizing returns, and credit quality. Conservative loan-to-values in the mid-sixties and strong interest cover ratios mean this portfolio is well-positioned for the future. We'll also continue investing in proprietary technology to widen our competitive advantage. As we mentioned before, technology and data have become intrinsic to our business. We have invested around GBP 320 million in building our technology platform since 2017, including in-house software engineering, proprietary data, and architecture.
This infrastructure is now enabling us to deploy AI into our business, which is making a quantifiable impact on risk management, the productivity of operations, and customer proposition. You can see that in the outcomes in these examples. At customer service, servicing within savings, AI-supported tools have reduced average response time by about 50%. Mortgage underwriting, valuation assessments at the mortgage lender are around 67% faster due to our valuation agent. Automation has reduced the time to review calls by 60% with AI-driven quality control. We've also increased software delivery by more than 50% with the same headcount. Software engineering is shifting towards a more highly skilled discipline where engineers train, direct, and manage AI agents to explore ideas, prototype rapidly, produce code, and create tests.
More importantly, this enables our colleagues to focus on high-value activity, spending more time in the business with customers and colleagues, exploring ideas and challenging constraints. Our proprietary data and know-how can be augmented by AI, extending our specialist model to more customers consistently. As AI allows us to make more decisions faster, strong oversight and control are key. By design, all decisions are made by humans. AI sharpens judgment, but does not replace it, with clear standards around transparency, explainability, and data quality. We're now realizing the returns, as Dylan mentioned before, from years of targeted investment across technology platforms and operating capability. On the left-hand side, we show the evolution of our operating model over time. We've moved through three clear phases, building the platform, scaling it, and optimizing for efficiency.
Since 2020, income growth has significantly outpaced cost growth, reflecting both the scale benefits and our structurally more efficient model. That operating leverage is accelerating as our platform allows us to grow without proportional cost growth or operational complexity, as shown on the right-hand side. Adjusted underlying costs have remained tightly managed across recent period, increasing by around 1%, while the underlying cost-to-income ratio has reduced to 39%. Taken together, this demonstrates a shareholder transition from an investment phase into one of sustained operating leverage. The jaws have widened. That underpins the durability of the returns we continue to scale the business. As I mentioned earlier, M&A is a core strength at Shawbrook and has complemented our organic growth. Where we see opportunities that enhance our capabilities, extend our reach, or accelerate the scale at the right price, we move decisively.
ThinCats is one recent example. The rationale was clear in a market we know well. A strong strategic fit, immediate funding and cost synergies, and a lot of embedded growth. The strategic rationale is grounded in attractive financial returns. ThinCats is a 20%+ return on tangible equity business from the outset, and the transaction will deliver around 30% return on invested capital. The combination immediately delivers a 20% uplift to our existing SME loan book, and very importantly, 90% of identified synergies have been realized by switching their wholesale funding to our deposit funding model. Integration has progressed well. We've already realized initial operating cost synergies through rationalization and scale benefits while prioritizing originator and sales capacity to protect front-end momentum. Where propositions are clearly differentiated, we've retained ideal brand approach to preserve that momentum as well as customer relationships.
As we've communicated to the market at the time of the acquisition, we expect ThinCats to be low double-digit earnings per share accretive over 2026 and 2027. This demonstrates our M&A strategy, clear strategic rationale, disciplined execution, and a defined path to attractive returns. As I said at the outset, we have delivered the strong returns, disciplined growth, and a model that performs through the cycle. We've seen the benefits of the scale and years of investment coming through clearly with operating leverage now firmly established, supported by technology, platform strength, and continued cost discipline. At the same time, credit performance has remained resilient and the balance sheet is strong, reinforcing our ability to grow through the cycle without compromising quality. That has underpinned consistent loan growth across our specialist market, driven by focused origination and deep expertise.
We're of course alert to the current geopolitical volatility and its potential impact on the domestic economy, but our specialist model and embedded agility are a significant advantage. We're well-positioned to maintain our record of protected returns and capital through macroeconomic shocks. Today, as we reflect on 2025 performance and look to 2026 and beyond, we are confident in the strength of our business and the clarity of our strategy to take full advantage of the opportunities ahead. We have a role to play in supporting U.K. SMEs in achieving their growth potential, professional landlords and property investors in providing homes across the country, and individuals and families as they plan for important life goals. With our diversified portfolio, disciplined underwriting, and robust capital and liquidity position, we enter 2026 with momentum, strong foundations, and a clear line of sight to our medium-term guidance.
Thank you very much, and we look forward to your questions. Thank you.
All right. Good morning. It's Jason Napier from UBS. Two questions just to kick things off, if I could. Firstly, I don't know whether you have any comments specifically about full year 2026. The momentum of the business is good, but the medium-term targets perhaps don't apply specifically to this coming year. I wonder if you, in doing so, whether you'd focus on revenues. All the big banks are complaining about spread compression in term deposits, even though they don't use very much of that market themselves. If you could talk about what do you think happens to NIM in the year ahead. Then secondly, huge improvement in stage three volumes, half on half, great stability year- on- year at a time when markets are really worried about SMEs and specialist lenders in general.
If you could talk about what happened in the second half to stage three, and then secondly, how you feel about industry credit standards and performance. Is it a market that's been behaving itself, or do you think we've let standards slip at just the wrong moment? Thank you.
Yeah, I think, I guess in terms of guidance, we consider 2026 to be, and the momentum we carry to 2026 to be consistent with the consensus that we have from the different analysts. I think that would be a good starting point in terms of where we see 2026 panning out. In terms of deposits, and then I'll let Dylan in a second fill you in with a bit more detail. Actually, the deposit market is performing in line with what we expected. As you know, when interest rates were sort of hovering just over zero, we had to pay a spread on reference rates to be able to attract deposits.
That kind of turned around when rates increased and, you know, we paid below reference rates and now rates are sort of stabilizing around sort of the reference rate range, which is where we expected them to. From our perspective, we don't see any headwinds in terms of spreads from deposits. In terms of stage three, as you will see, quite a lot of that stage three reduction has to do with, you know, dealing with that Development Finance, very specific cohort. You know, I would make the point that a lot of the performance of previous vintages and vintages beyond that have performed according to plan. A lot of that has to do with us kind of dealing with that legacy issue.
In terms of lending standards, I would say I think lending standards in the U.K. have been pretty robust, and I think we've benefited from a strong regulator in many senses that has not allowed sort of greater standards to slip. You know, we feel comfortable in terms of credit quality in the for ourselves as well as the U.K. because we have seen that the quality of underwriting has been such that it's there to weather sort of any macroeconomic shock, not dissimilar to the ones we've had in the past, by the way. I don't know, Dylan, anything you'd like to build on that?
Maybe just build on the deposit question. Just re-emphasizing what Marcelino said, the deposit markets through 2025 and Q4 behaved as we expected them to. Of course, we are well-balanced across fixed term markets and overnight easy access variable rate markets. It really is the platform that we've built, the ability to use multi-brand and multi-channel with the service quality that we've got and the loyal customer base that we've got, is allowing us to contain competitive forces in those deposit markets as well as you saw the liquidity portfolio, the access to wholesale markets, and the sizable liquidity portfolio allows us at moments in time to not compete on deposits as and when they become more competitive.
Those markets are behaving as expected, and the deposit cost, the stock cost fell from 4.24% down to 3.88% at the end of December 2025. If you break that back to fixed rate swap markets, at the point we raised all of those deposits were roughly at swaps, and that's broadly how we expect to pan out, subject to where risk-free reference rates land.
Good morning. Thank you very much. Corinne Cunningham from Autonomous. Couple of debt angled questions. First one is, do you have any ambitions for credit ratings? Second one is more about your capital position and how you think about things. You talk about your CET1 surplus. Is that the main way you think about it when you're contemplating setting dividends, buybacks, et cetera? Because the binding constraint is the total capital, but does that bother you? Are you mainly worried about CET1?
Yeah. I think, look, in terms of credit ratings, it's something we're contemplating. I don't think there's much more we can say at this point. In terms of capital, I think sort of Dylan sort of walk you through sort of our capital priority to kind of operate within that 12%-13% CET1 ratio, which, and of course, you know, we have a hybrid debt stack on top of that, right? When you look at our excess capital today, it's about GBP 320 million in terms of CET1 versus, you know, versus sort of our regulatory minimum. We are pretty comfortable operating in that range, and that will define sort of, you know, future sort of capital distributions we consider to do.
I'll just expand on the hybrid debt point. We have an active hybrid debt instrument issuing shelf for both AT1 additional Tier 1 and Tier 2 instruments. We have multiple listed instruments in those formats. We have, as you see from the disclosures, significant headroom to potentially in future issue more and will constantly consider as to whether and when the right timing is for a credit rating, potentially to support those future potential transactions. In terms of CET1, I think if you go back and look at Shawbrook historically, we have managed the significant growth in this business from when we took the business private in 2017 with a loan book of just under GBP 5 billion to today of GBP 19.2 billion. We've managed that growth profile in a very tightly targeted CET1 range.
This management team is very adept at managing within a CET1 guided range. Again, as Marcelino said, we've got the hybrid instruments to supplement our CET1 ratios. Against the regulatory minimums, including CRD IV buffers, the regulatory minimum is 9.7%, and we've got significant headroom over and above that.
Thank you. Grace Dargan from Barclays. I guess maybe building on that, two questions on capital as well. You talk about actively staying within that range. I guess thinking about day one Basel as that comes in and the commitment to the maiden dividend, are you comfortable operating right at the bottom end of that range, or is that not where you see it? And indeed, just to clarify, not going below the bottom end of that range. And then secondly, just on Basel, I guess the guidance looks slightly heavier than before. Why is that? Is that to do with the mix of the lending book, and should we think of that maybe evolving from here, or would that actually be immaterial changes as your loan book grows? Thank you.
Yeah, I think in terms of Basel 3.1, you're entirely right. The slight change in guidance is basically has to do with the mix of the book now versus when we gave the previous guidance. There's sort of a slight kind of tweaks around the regulation that make a very small difference. As you will see in terms of, you know, our plans for 2026, in terms of, you know, capital generation, we'll give ourselves some room by the end of the year to be able to comfortably deal with sort of Basel 3.1 and increased capital requirements that that brings to our model.
Yeah, I would say the mix is important. As you bring ThinCats into the mix and SME becomes 25% of the total group portfolio, the loss of the SME scaler inside the risk-weighted assets impacts one half of the equation. The regulators have been clear that that will come through Pillar 2A requirements. But when you're looking at a CET1 ratio, that's largely irrelevant. So the risk-weighted density of the book, as we say, up roughly GBP 1 billion on the 1st of January 2027, but impacted more by mix. I think on your point on CET1, you know, we have a very clear capital forecast available to us. As we came through 2025, CET1 was impacted both by the acquisitions which we offset with primary capital.
As we go forward, as I said, we've got a cleaner edge on this year's capital generation. Organic capital generation this year, net organic capital generation is more than sufficient to ensure we can commit to the dividend and cover the day one impact of Basel 3.1 and land comfortably in our range.
Thank you.
Thanks, Grace.
Thanks. It's Piers Brown from Investec. Maybe just one on the lending environment. I mean, you've had a very strong end to the year. I think the fourth quarter net loan is up about 5%. Can you just give us some color on where that demand, you know, by segment is coming from? Obviously the last 10 days we're seeing quite a big reversal in swap rates. I guess it's early to be able to draw any conclusions from that. Are you able to share any color on how conversations with your clients are developing and whether you're seeing any early signs of higher swap rates impacting lending demand? That's on lending.
Just on the dividend, I mean, I know it's very early in the year, you probably don't want to get drawn into talking about sizing of dividend. But can you just think it's maybe help us in terms of the thinking around, is there likely to be a payout percentage or the consensus sees you about 20% payout for the inaugural dividend? How contingent the dividend will be on lending conditions. If you see, you know, plentiful lending opportunities, would you maybe think about starting at a smaller level? You know, the more constrained lending market, would that maybe encourage you to look at a higher payout percentage? Yeah, Thanks.
Yeah, thank you. Shall I cover sort of lending and maybe you cover dividend?
Yeah.
I think in Q4, basically there isn't sort of one particular segment I would point to. I think it was just, it was sort of good performance across the bank. I think in terms of what we're seeing today, yes, swap rates have materially, you know, ticked up, right? If you go back sort of a couple of years ago, what we're seeing on a day-to-day basis, frankly, is, that's a very small movement compared to what we have seen in the past. Also I would argue that our customers are used to that environment now, right?
You know, we went through a big shock back in 2022, 2023, that has sharpened our focus on underwriting a much more volatile interest rate environment, as well as our customers sort of perception of that as a potential risk. So far it is very early to say, but I would say that the movements today have been relatively material. I think what we might see though is you know, private credit. If that continues to be constrained, that means that we might have sort of our lending, our deposit balance sheet and that of our other banks on our side will be at a premium, right? That consistency of deposit funding.
By the way, the cost of deposits tend to be benefited by a slight sort of increase in swap rates and sort of not a continuation of rate declines. Because as you know, as rates declines, deposits but they take a bit of time to follow, right? If we see a much more stable rate environment with a slightly higher swap rate, it probably has a positive impact on our funding cost and our funding stability probably is at a premium to support those high quality customers. Again, going back to your point around swaps, I mean, really the movements have been very small. There's been some pricing adjustment in the market as you would expect, but nothing like what we have lived through a few years ago.
Just on dividends. The capital CET1 generation this year to us is very clear, organic capital generation. As I guided to, you know, first and foremost we will commit to a maiden dividend for this year. We won't be drawn on the precise value or quantum of that dividend. It's, I guess an extraordinary period given the day one impact of Basel 3.1 coming in on one day in the beginning of 2027. But, you know, we have a consensus in the market that we're happy with, and I think we'll provide more guidance on the precise quantum of the dividend as we go through this period.
Hi. Thank you. Very excellent presentation. I really enjoyed it. It's Elise from KBW. I've got two questions, I guess both on outlook and strategy, if that's okay. First is on segments. In terms of the segmental performance, when I look at SME this year, for example, the performance, the growth of the book is really, really good even if I strip out ThinCats, and I guess that's a more complex area in the book as well. When I look at Consumer Finance, the growth is more moderate. I'm just wondering, it would just be good to hear the management views on going forward what your expectation on the business mix, both in terms of the growth of the book and the margin mix. That'd be helpful.
Second is on M&A. ThinCats, now we've got Playter. Can you tell us a bit more about that on Playter and maybe the strategy going forward on M&A as a whole? Do you have any hard criteria when you look at these opportunistic selective M&A? I guess we expect more to come.
Yeah.
Thank you.
In terms of growth across segments, I mean, first of all, let's go back to the model and, you know, one of the biggest benefits of our model is that diversification, right? That optionality to be able to grow into those segments where we feel we've got the best risk-adjusted return opportunities. Consumer is a great example of that, where we have, as you will see, while the book has not materially grown, we have shifted into sort of the high-end motor finance through our JBR brand, which delivers, you know, very high risk-adjusted return, very low risk. Actually, we have moved away over the years from unsecured personal loans and partner finance, which were areas where we just could not, you know, find out that over time we could not deliver those risk-adjusted returns.
You can see that as a good exercise of capital reallocation into an area where we feel drives the highest returns. I think in SME, we, you know, we see a good opportunity across the different markets in SME and hence that sort of underpins our growth in 2025. Looking into 2026, I mean, it is so far we can't really see any material change to the mix we have. My best guess today is that we'll end the year with a mix similar to what we have today in the book, right? Again, if things change, we will change with it, right? In terms of M&A, we, you know, Playter is a small acquisition we made in December last year.
It's about GBP 20 million book, focused on sort of short-term SME lending. We bought it because it has an excellent lending platform, sort of AI native, very small team of people, around 15 people only. We see that as a great opportunity to, you know, carefully bring that into the core of our business, replatform part of our stack. Our digital SME business, for instance, will benefit from that platform. More importantly is the way they approach underwriting in that combination of having sort of access to all the data well presented using AI and agentic tools to really surface the key insights for underwriters to make sort of the decision, right?
We thought it was a great example of where we're seeing sort of AI taking sort of lending and an example of something we talk about, the best of both worlds, right? This is a great example in which you have, you know, great data sort of automatically presented, analyzed through agentic workflows, but with, you know, an underwriter ultimately making the last decision. We're pretty excited about that.
Morning, gents. It's Aman Rakkar from Barclays. Yeah, two questions. One was actually just a bit of a modeling question around NIM in Q4. If you could just let us know, it'd be great to know the NIM in Q4 if possible, or at least the kind of trajectory of it sequentially. I guess the ThinCats acquisition should have had some impact, and it'd be really helpful for us just to try and get the sense of the kind of jumping off point for NIM on a kind of fully run rate basis as you exit 2025. The second was around competition. It'd be great to get your take on the kind of competitive landscape. Are you seeing any kind of intense competition? I'm specifically talking about the asset side, actually, rather than the deposit side. You've addressed that really well.
I'm thinking about the Real Estate segment in particular. You know, there are a lot of competitors that want to pursue share gains in an attractive market. Interested for your comments there, please. Thank you.
Do you want to cover NIM first and then?
Yeah, let me cover NIM. I can't give you Q4 NIM. What I can give you is H2 NIM versus H1 NIM. If you were to strip out the gain on sale, NIM would have been flat H1 to H2. As we've discussed before, the originate to distribute trades for us gives us strong capital flexibility. They can be. They can or cannot, depending on market forces, happen in any one particular six-month period in time. If you were to strip those back out, you have quite stable net interest margins for second half and first half.
Now, underlying that, you have the shift in our consumer business towards lower NIM motor market versus unsecured personal loans, but a significant improvement in the underlying cost of risk, and hence why we point to risk-adjusted net operating margins as being more consistent as a way of measuring it. You know, we are not guiding to material changes in mix. We're guiding to deposit markets behaving as we expected, and therefore I wouldn't anticipate you making material changes on the go-forward net interest margin for us. Now, one other point, you're absolutely right. In real estate markets, they can be competitive, but you've seen on a risk-adjusted basis, the Real Estate segment has been flat year- on- year.
The Retail Mortgage Brands business benefits from the capital optionality we've got with the originate to distribute trades. They're done at our choosing. If we find the price attractive in the market and the market's able to tolerate those, we will continue to securitize, and we may or may not sell down those residual instruments in those structures. Those trades also give us funding optionality. They create significant amounts of triple A-rated RMBS notes that we can use for our liquidity portfolios.
Just on the real estate markets, well, first of all, the market is growing, right? So I think that we all sort of benefit from the tailwinds of, you know, especially Buy-to-let becoming much more of a professionalized market. Renters' Bill, you know, being another sort of a driver of that. So it's a market that is growing, but also it's a market that, you know, as you know, has been quite competitive. Well, it's been competitive for a long time, right? You know, we deal through the same intermediaries. There's quite a lot of very good competitors in that market. Some of them are banks like ourselves, some are non-bank lenders. So it's a little bit of a, you know, BAU sort of for us, right?
I think the opportunity for us is twofold there. One is, you know, the way we deliver sort of technology and agility and the speed of, you know, flight, you know, short flight times, as we call them, for those opportunities for investors that, you know, where time to market or time to cash really matters normally because it's an, you know, it's an opportunistic acquisition. But also we combine that with the capacity to underwrite through our structured real estate business, sort of more complex, you know, more sophisticated portfolios, where maybe over the years, you know, there's capital trapped. They have not optimized that capital structure. It's an opportunity for us to really help them with that. That's kind of we compete on both sides of the spectrum.
It is a competitive market and, you know, we haven't really seen, you know, much change in the last few months. I mean, we shall see what happens. You know, again, with swap rates potentially moving around a little bit. You know, some of our non-deposit funding competitors may be sort of having less access to liquidity than they have had before. You know, will that have an impact? You know, we'll see.
I might just flick to a couple of questions we've got online. First question's from Rob Noble. Two-part question. The first part on growth. In a higher energy price, higher rate environment, how can you maintain the growth rate, and which parts of the portfolio would you expect to do best? The second part of the question is on deposits. Could you give us an idea of what the current deposit spread is and what pricing you're seeing in the market at the moment? With regards to the bonus period, how much of the flow of deposits is into easy access accounts with bonus rates, and what retention are you seeing on those as they come to the end of bonus period?
Probably I'll cover the first question and then I'll let Dylan sort of cover deposits in a bit more detail. Look, I think sort of the, you know, high energy cost, high rate environment is kind of not different from the environment we've been operating for quite a while already, right? Even if you compare today's scenario with kind of the outset of the Ukraine war is still kind of relatively mild. I think in terms of growth, I would go back to the point around our growth being predicated in continuing to basically originate at the same levels in the same markets we're already in, right? That is not going to change. But I would also add, if things change, we run the bank to, you know, optimize for profit and return on equity.
Those are the two drivers of how we run the organization, right? If the opportunities are not there, you know, at the risk-adjusted returns that we expect them to, we will not be pursuing them. We will not put growth ahead of our discipline around profit and returns. I would say that this is not, as of today, a different scenario from the one, you know, we have been operating, you know, ourselves and everyone else for quite a while.
Just on the deposit market costs. I guess it's a multifaceted answer depending on product and channel. Overall, as we say, the book and the market, as expected, behaved as expected. The [3.88] stock cost at the end of the year was roughly at swaps a couple of basis points over. There was a late base rate drop in December, and it takes time for back book repricings to kick in. Those would have kicked in during January. The going forward, we see roughly the market to offer us deposits at around swap rates.
As I say, the caveat to that is at current swap rates, because what we've seen is when swap rates are very low or very high, the spread to reference rate can evolve. In that mix of flat to spread, flat to swap rates, you'll have fixed rate markets that are slightly over. You've got easy access markets that are at or around swaps, and you've got back book and retentions that can be slightly under. Overall, the mix is behaving as we'd have expected.
Just a second question from online. Can you give us your view on whether you plan to tap the debt capital markets? If you do so, any preference to Tier 2 or AT1? Sorry, that question was from Dominic of Jefferies.
Thank you, Murray. As you saw, we have significant headroom to be able to issue both AT1 and Tier 2 instruments. I couldn't guide on precise timing of those, but it's reasonable to expect us over time to optimize the capital stack. We also in support of Tier 2, we have an active EMTN program, umbrella program to allow us to issue Tier 2 very quickly, within a week or so. We're not beholden to hybrid debt capital markets as they evolve, but we're able to tap and access those markets with instruments at our choosing over time.
All right. That's the end of the online questions, so I'll pass back to the room if there's any further questions. Otherwise, Marcelino, back to you for final remarks.
Excellent. Well, thank you very much for taking the time. As you can see, sort of our first annual presentation since being a public company, it's. We've delivered what we said we would. Strong returns and a very good opportunity for us to continue to grow our profit, you know, with a strong risk-adjusted returns, which, by the way, is consistent with what we have been doing for the last 15 years. I will probably stress that, you know, in an environment which is uncertain and, by the way, has been for quite a while, we think that that diversification of our model allowing.
The agility we have in our model allowing us to really sort of direct our capital allocation and our investment into those markets that are delivered the best risk-adjusted return, we think is at a premium for us going forward. With that, again, I want to thank you all for making the time today and hope to see you all soon. Thank you.