Paragon Banking Group (PAG.L) Shares Drop After FY 2025 Results: Dividend Hike, £50m Buyback and 2026 Margin Squeeze Explained

Paragon Banking Group PLC shares fell sharply on 3 December 2025 despite the specialist lender reporting another year of robust profits, rising dividends and a fresh share buyback programme. The market reaction focused less on the 2025 numbers and more on guidance for a squeeze in net interest margins in 2026 and higher provisions linked to UK motor finance redress.

Below is a detailed look at what the latest results mean for the Paragon Banking Group share price, dividend outlook and analyst forecasts.

Paragon Banking Group share price on 3 December 2025

At the London market close on 3 December 2025, Paragon Banking Group PLC (PAG) shares traded around 797.5p, with a sell price of 796.0p and a buy price of 797.5p. That represented a decline of 47.5p, or about 5.6% on the day, versus a previous close of 844.5p. ^[1]

Market capitalisation: approximately £1.52bn. ^[2]
52‑week range: roughly 650.5p to 981p, placing the current level in the middle of the recent trading band. ^[3]
Performance: over the past year the share price is up about 13%, and nearly 96% over five years, highlighting a strong multi‑year recovery even after today’s pullback. ^[4]

Intraday data from MarketScreener shows the stock changing hands at around 795.5p, down roughly 5.8% on heavier‑than‑usual volume, reinforcing the picture of a results‑driven sell‑off. ^[5]

FY 2025 results: solid earnings, modest headline profit growth

Paragon’s full‑year 2025 results cover the 12 months to 30 September 2025. Management emphasised another “strong performance”, pointing to high returns on equity and growing dividends, even as headline profit growth was modest. ^[6]

Key numbers from the 2025 full‑year update:

Net loan book:£16.3bn, up 4.0% from £15.7bn in 2024. ^[7]
Underlying profit before tax:£293.9m, up 0.4% year‑on‑year. ^[8]
Statutory profit before tax:£256.5m, up about 1.1% from £253.8m. ^[9]
Net interest income:£502.3m, compared with £483.2m a year earlier. ^[10]
Total operating income:£515.1m, up from £496.4m. ^[11]
Underlying basic EPS:109.7p, an 8.5% increase versus 101.1p in 2024, marking a new record. ^[12]
Net interest margin (NIM):3.13%, slightly below 3.16% last year but ahead of earlier guidance of “around 3%”. ^[13]
Underlying return on tangible equity (RoTE):17.5%, up from 17.2%. ^[14]
Cost‑to‑income ratio:34.8%, reflecting tight cost control even as the group invests in digital capabilities. ^[15]

These numbers paint a picture of a bank that is still highly profitable, with double‑digit returns on equity and a solid net interest margin by UK banking standards.

Credit provisions and motor finance redress weigh on optics

The more nuanced story sits below the headline profit numbers. Several news outlets highlighted rising impairment charges and provisions as key reasons profit growth failed to track revenue and loan book expansion. ^[16]

From the latest disclosures:

Provisions for credit losses increased to £41.9m from £24.5m, mainly tied to the development finance portfolio and the impact of higher building costs and discounting rules under IFRS. ^[17]
Provisions for liabilities of £25.5m were booked, compared with none in 2024, to reflect potential redress in the ongoing UK motor finance commission review. ^[18]
As a result, the cost of risk rose to 26 basis points from 16 basis points, while the Common Equity Tier 1 (CET1) ratio slipped to 13.6% from 14.2%, albeit still comfortably above regulatory minima. ^[19]

Sharecast and Alliance News both noted that the full‑year profit was below market forecasts (with one cited consensus around £273.7m of pre‑tax profit), even though the year‑on‑year growth was positive. ^[20]

2026 margin guidance: the main trigger for the share price fall

The dominant driver of today’s share price reaction is Paragon’s outlook for its net interest margin in the year to September 2026.

According to commentary from Investing.com and other outlets, the bank now expects its NIM to narrow to 2.90–3.00% in 2026, down from 3.13% in 2025. That guidance is slightly below some analyst expectations and points to a more pronounced margin squeeze than previously assumed. ^[21]

Investing.com reports that despite a roughly 4% “pre‑provision” profit beat versus consensus, the sharper‑than‑expected NIM guidance overshadowed the earnings surprise and contributed to a share price fall of more than 6% in early trade. ^[22]

Drivers behind the margin pressure include:

Repricing of deposits as UK savings competition remains intense.
The roll‑off of cheap central bank funding (such as TFSME) and its refinancing at higher wholesale rates — the group issued a £500m covered bond during the year and repaid £0.5bn of TFSME funding, with another £0.25bn repaid after the year‑end. ^[23]
A normalisation of asset yields as interest rates peak and begin to fall, compressing spreads.

None of this derails Paragon’s business model, but it does suggest that the very high margins of the last two years are unlikely to persist at the same level.

Loan book growth: buy‑to‑let and commercial lending hold up

The 2025 results confirm that Paragon continues to grow in its core specialist markets, particularly buy‑to‑let mortgages and commercial lending.

Highlights from the mortgage and loan book data:

Total mortgages loan book: increased 3.4% to £13.9bn over the year, supported by strong customer retention and resilient buy‑to‑let demand, according to trade press coverage. ^[24]
Total net loan book:£16.3bn, up 4%, balancing growth in both mortgage and commercial portfolios. ^[25]
New lending: around £2.68bn, with mortgage advances broadly stable at roughly £1.49bn and commercial lending of about £1.19bn. ^[26]

Specialist mortgage publications note that buy‑to‑let lending “holds firm” despite a year of political uncertainty and volatile interest‑rate expectations, with advisers reporting continued appetite from professional landlords. ^[27]

This supports management’s message that “external demand has been stop‑start”, but that the group ends the year with “solid pipelines” and sees opportunities as rate volatility subsides and SME demand improves. ^[28]

Digitalisation and funding: Spring savings and capital markets access

Strategically, Paragon is leaning further into digital channels and diversified funding:

The group highlighted progress on digital transformation, including the launch of its app‑based savings brand Spring, which had accumulated more than £600m in balances by the end of November 2025. ^[29]
It has rolled out a digital buy‑to‑let origination platform, aimed at improving broker experience and underwriting efficiency. ^[30]
On the funding side, Paragon issued its first AAA‑rated regulated covered bond of £500m, part of a broader programme that gives it the ability to issue up to £5bn of bonds secured on mortgage assets. ^[31]

These initiatives are designed to keep the cost‑to‑income ratio low, broaden funding beyond retail deposits, and support long‑term lending growth even as the interest‑rate environment shifts.

Dividend: 8.7% growth and a yield around 5%

Income investors will focus on the dividend, which continues to grow faster than profit.

For FY 2025:

Total dividend per share:43.9p, up 8.7% from 40.4p in 2024. ^[32]
This includes a proposed final dividend of 30.3p per share (versus 27.2p last year), with an expected ex‑dividend date of 5 February 2026, record date of 6 February and payment on 6 March, subject to shareholder approval. ^[33]

Using the current share price near 797.5p, the trailing dividend yield is slightly above 5%, aligning with Hargreaves Lansdown’s estimate of about 5.07% based on earlier prices. ^[34]

Analyst data compiled by Investors Chronicle suggests dividends are expected to rise further to about £0.43 per share over the next fiscal year, implying continued mid‑single‑digit growth. ^[35]

£50m share buyback: capital return continues

Alongside the higher dividend, Paragon is extending its capital return via share repurchases:

The group completed its 2025 buyback and has announced a new £50m share buyback programme for FY 2026. ^[36]
Tangible net asset value (TNAV) per share rose around 7.2% to £6.55, implying the stock trades at roughly 1.2x tangible book at current prices. ^[37]

Buybacks at valuations close to book value can be accretive to earnings and TNAV, but they also signal that management believes the share price undervalues the long‑term franchise, even accounting for the expected margin compression.

Analyst ratings and price targets: upside implied despite margin headwinds

Equity research coverage remains broadly constructive, though some brokers had already cooled on the stock after a strong run earlier in 2025.

Consensus recommendations

MarketScreener: shows a “Buy” mean consensus from 11 analysts, with an average target price of around £10.02 versus a last close of £8.445 – implying roughly 19% upside. ^[38]
MarketBeat: aggregates ratings from 4 analysts, with 3 buys and 1 hold, giving a “Moderate Buy” consensus and an average 12‑month target of 997.75p (range 975p–1,015p). That suggests about 26% upside from a reference price of 793p. ^[39]
Investors Chronicle / LSEG data: across 11 analysts, the median price target is 1,000p, with a high of 1,100p and a low of 850p. The median implies approximately 18% upside from the pre‑results price of 844.5p. ^[40]

In other words, despite today’s drop and the anticipated margin squeeze, the sell‑side still largely sees the shares as undervalued.

There has, however, been some tempering of enthusiasm. In August 2025, Shore Capital downgraded Paragon from “buy” to “hold”, arguing that the share price had largely “caught up with events” after a robust third‑quarter trading update. ^[41]

Earlier in the year, research from Simply Wall St and other fundamental analysts highlighted that the stock’s strong rally would need to be supported by continued earnings growth to remain justified, foreshadowing the sensitivity to any sign of slower profit expansion or higher provisions. ^[42]

Quant and technical forecasts: models see modest near‑term gains

Algorithmic and technical‑analysis‑based services offer their own short‑ and long‑term projections, which should be treated as models rather than guarantees.

Forecasts from WalletInvestor, based on recent price action, suggest a 14‑day target around 873p, with a projected range of roughly 826p–873p, and a five‑year indicative level near 1,438p per share. ^[43]

These projections broadly assume that Paragon’s uptrend can resume after short‑term volatility, but they rely solely on price patterns and historical volatility, not on the detailed earnings and regulatory backdrop that is currently driving sentiment.

Valuation snapshot: earnings multiple and yield

Taking today’s price around 797.5p and Paragon’s underlying EPS of 109.7p, the stock trades on a trailing underlying P/E multiple in the high‑single digits. Using earlier reference prices and historic EPS, Hargreaves Lansdown reports a P/E ratio of around 8.3x, broadly consistent with this range. ^[44]

Combined with a dividend yield of roughly 5% and buybacks equivalent to a mid‑single‑digit percentage of market capitalisation, the total shareholder yield looks attractive relative to many UK banks. How compelling that is will depend on whether investors believe:

Net interest margins will stabilise near the low end of guidance rather than falling further.
Credit losses in development finance remain manageable.
Regulatory outcomes around motor finance redress do not escalate beyond current provisions.

Key risks highlighted by today’s news

Today’s announcements and coverage underscore a set of risks that investors in Paragon Banking Group should keep in mind:

Margin compression risk
The guidance for a NIM of 2.90–3.00% in 2026 reflects a structurally tougher environment for UK bank margins as interest rates peak and deposit competition stays intense. If funding costs rise faster than asset yields adjust, margins could undershoot even this lower guidance. ^[45]
Credit and development finance risk
The sharp rise in credit loss provisions was heavily influenced by development finance exposures and higher construction costs. A weaker property or construction market could push impairments higher. ^[46]
Regulatory and conduct risk (motor finance)
The £25.5m provision for potential motor finance commission redress is based on the current understanding of the UK regulator’s proposed redress framework. If the final rules or court interpretations are more onerous, additional charges may follow. ^[47]
Macroeconomic and political uncertainty
Management has referred to “stop‑start” customer demand driven by political uncertainty and changing interest‑rate expectations, particularly in buy‑to‑let and development finance. A weaker UK macro backdrop could dampen loan demand and increase arrears. ^[48]
Competition in specialist markets
Paragon operates in niches often underserved by big high‑street banks, but that also makes it sensitive to new entrants or aggressive pricing in buy‑to‑let, SME lending and savings products. ^[49]

What today’s news means for Paragon Banking Group shareholders

Summing up the flood of information on 3 December 2025:

The good news:
- Strong profitability with a RoTE of 17.5% and a NIM still above 3%. ^[50]
- A growing loan book with resilient buy‑to‑let and SME lending. ^[51]
- An 8.7% dividend increase and a fresh £50m buyback, supporting a total shareholder yield that looks appealing in a low‑growth market. ^[52]
The challenges:
- Earnings growth is modest once provisions are included, and headline profit has undershot some expectations. ^[53]
- 2026 is likely to bring lower margins, with the NIM guidance the chief reason for the share price drop. ^[54]
- Regulatory and credit‑risk questions remain, particularly around motor finance and development finance.

Analysts still see double‑digit percentage upside to fair value, but the market is now debating whether Paragon’s historically high returns can be sustained as the easy tailwind from rising rates fades.

For long‑term investors, the stock now offers a combination of:

Single‑digit earnings multiple
Approximately 5% dividend yield
Ongoing buybacks
A specialist lending franchise with a track record of disciplined growth

Against that stand the macro, regulatory and margin risks outlined above. As always, these developments should be weighed against individual risk tolerance and portfolio objectives. This article is for information only and does not constitute investment advice.