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TSB Banking Group plc Annual Report 2025
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Annual Report
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TSB Bank plc
Annual Report and Accounts 2025
Registered in Scotland
Company Number: SC095237
TSB Bank plc
Annual report and consolidated financial statements
For the year ended 31 December 2025
Overview
TSB Bank plc (the 'Company'), together with its subsidiary undertakings (together the 'Bank' or 'TSB') offers a range of retail and business banking services in the UK. It is the operating subsidiary of its immediate parent, TSB Banking Group plc, and its ultimate parent company is Banco de Sabadell, S.A.
Contents
| Directors and Company Secretary | 3 |
|---|---|
| Strategic report | 4 |
| Review of business performance | 4 |
| Forward look | 5 |
| Purpose, business model and key performance indicators | 6 |
| Review of financial performance | 7 |
| Principal risks and uncertainties | 10 |
| TSB's Do What Matters Plan | 21 |
| Section 172 statement | 38 |
| Directors' report | 42 |
| Financial statements | 44 |
| Balance sheets | 46 |
| Consolidated statement of comprehensive income | 47 |
| Statements of changes in equity | 48 |
| Cash flow statements | 49 |
| Notes to the financial statements | 50 |
| Independent auditor's report to the members of TSB Bank plc | 107 |
| Contacts | 115 |
TSB Bank plc
Annual Report and Accounts 2025
Directors and Company Secretary
The Directors who served during the year or until the date of their resignation or from the date of their appointment are:
| Chairman: | Nick Prettejohn (independent on appointment) |
|---|---|
| Executive Directors: | Robin Bulloch (Chief Executive) (resigned 20 March 2025) |
| Marc Armengol (Chief Executive) (appointed 20 March 2025) | |
| Declan Hourican (Chief Financial Officer) (resigned 31 August 2025) | |
| Independent Non-executive Directors: | Zahra Bahrololoumi |
| Adam Banks | |
| Elizabeth Chambers | |
| Judith Eden | |
| Ahmed Essam | |
| Morten Friis (Senior Independent Director) | |
| Non-executive Directors: | Sergio Palavecino |
| Carlos Paz | |
| Company Secretary: | Keith Hawkins |
Registered office:
TSB Bank plc
Henry Duncan House
120 George Street
Edinburgh
EH2 4LH
TSB Bank plc
Annual Report and Accounts 2025
Strategic report
Review of business performance
Introduction
TSB is full of great talent – passionate people, with a genuine focus on customers and the communities we serve, and throughout 2025, these colleagues have excelled in delivering for those customers, inspired by our purpose: Money Confidence. For everyone. Every day.
This purpose has remained at the heart of the bank during the past year – becoming ever more relevant in light of the wider economic uncertainty impacting customers across the UK. It has enabled another chapter of success for TSB: delivering against our growth strategy while exceeding the expectations that we set out and establishing a continued trend of record annual performance.
An extended customer offer, improved service and profitable growth have helped enhance TSB's valuation, and the business was subject to a successful bid from Santander Group to buy the bank from Sabadell Group.
Financial summary
Despite challenging market conditions, we have delivered another sustained strong financial performance over the past year – as the full-year results show.
The bank reported a statutory profit before tax of £339.4 million in 2025, up 19.0% on the £285.1 million earned in 2024. This is driven by higher income, up 3.1% in 2025 compared with 2024, reflecting higher structural hedge income, and lower operating costs, which were down 4.4% in 2025 compared with 2024, as a result of continued cost control.
Total customer lending and deposits remained broadly flat at £36.3 billion and £35.2 billion respectively at 2025 year-end compared to 2024 year-end. TSB's balance sheet remains resilient with a strong Common Equity Tier 1 ratio of 16.7% (2024: 15.4%) and Liquidity Coverage Ratio of 204.8% (2024: 199.8%). Additionally, TSB's return on tangible equity (ROTE) is 12.6% for 2025 (2024: 10.6%), which compares well with other UK retail banks.
2025 successes
Our record financial performance could not have been achieved without a relentless focus on delivering money confidence for TSB customers – offering them even better service and enhanced products that meet more of their financial needs, and in doing so, making us a more competitive bank.
This has been enabled by investments made throughout the year that improve our capability, including upgrading our technology infrastructure – with migration to more advanced datacentres; speeding up how we deliver change – through improved agile capability within our teams; and further enhancing our approach to risk management.
As a result, more customers chose to bank with us last year, with an additional 7% of mortgage customers choosing to keep their mortgage with TSB in 2025 compared with 2024, as well as total customer credit card transactions reaching a five-year record on 13 December in the run up to Christmas. We also rewarded more customers than ever before with regular offers and prize draws.
We made over 1,500 improvements across our digital channels in 2025, including making it easier for customers to organise their accounts in the TSB Mobile Banking app, manage their transactions and apply for new products. We also enhanced our fraud detection to prevent even more customers from becoming victims of fraud. We continued to provide personal support for customers at over 220 locations across the UK, including at branches, TSB Pods, and pop-ups – and our branches served even more customers this year, contributing 31% of total sales in 2025.
Our highly-skilled colleagues also continued to build on their expertise with further training, including an agile approach to delivering change, enhanced data and digital skills and extending the support we offer vulnerable customers in areas such as domestic abuse and gambling.
We have continued to build a more diverse and inclusive business and have either met or exceeded each of the three year representation goals we set out for the business in 2022 - including 43% of our senior roles being held by women (against a 2025 target of 40%).
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
Review of business performance (continued)
Wider contribution
TSB has delivered a sustained positive impact on customers, colleagues and wider society.
Our award-winning Emergency Flee Fund has helped more than 880 customers and colleagues to escape from an abusive situation since it launched in December 2022 – an industry-leading initiative in supporting victim survivors of domestic abuse, potentially saving lives. And our enhanced Carer's Policy goes above and beyond legislation to provide TSB colleagues with up to 70 hours of paid leave to care for loved ones, driving inclusivity and greater positivity.
Forward look
Over the years, TSB has operated under many ownership models, but our customers have remained loyal to the brand regardless of who owns us or how we operate behind the scenes. The proposed acquisition by Santander sees us entering a new chapter under their ownership.
Since the acquisition was announced in July 2025, we have been preparing the business to deliver a smooth transition for our customers and colleagues. This work is crucial to support a successful change in ownership.
While change often brings uncertainty, we should embrace this with optimism. Our record-breaking performance and strong positive trajectory in recent years have put TSB in a strong position to deliver great value as part of the Santander Group.
It is already evident that both TSB and Santander are aligned in their desire to create the best bank for UK customers and the Board are confident that this will result in better banking experiences for even more customers.
In an extraordinary year for this business, we have kept our focus on delivering for customers and TSB's achievements are a credit to everyone across the business who has helped us to become more confident, competitive and collaborative in 2025. The Board would like to thank Nick Prettejohn, Chair of the TSB Board, as well as the Executive Committee, alongside each and every TSB colleague for their collective effort to set TSB up so well for the year to come.
TSB Bank plc
Annual Report and Accounts 2025
page 5
Strategic report (continued)
Purpose, business model and key performance indicators
Our purpose – Money Confidence. For everyone. Every day.
TSB offers a range of retail banking services and products to individuals and small business banking customers in the UK. TSB has a multi-channel model, including full digital (internet and mobile), telephone and national branch banking service, in addition to a range of new approaches such as video banking, Mobile Money Confidence Experts and in store pop-ups.
We believe that TSB's multi-channel proposition creates an opportunity to offer superior service to more of our customers more of the time. They want a bank that offers effortless digital tools to service their banking needs and rapid access to skilled people when they need support.
TSB continues to invest in developing digital-led products and servicing capabilities that help identify and meet more of our customers' needs now and into the future. This, in turn, improves their confidence in managing their money and ensures we live up to our purpose of Money Confidence. For everyone. Every day.
Our business model is simple
TSB's business model reflects a simple retail business and is outlined below:
| Component | Description | Financial statements |
|---|---|---|
| Customer confidence | We seek to deliver a proactive, personalised and effortless banking experience for which customers come to, and remain with, TSB. This will increasingly set TSB apart from other banks and providers of financial services. Central to this is our purpose ‘Money Confidence. For everyone. Every day.’ which focuses investment in our channels and product proposition so customers are rewarded, protected and always in control. | n/a |
| Sources of funding and capital | Money deposited by customers into their personal current accounts and savings accounts provides the majority of the funds we use to support lending to customers. We also raise funds from other sources, including wholesale markets and central banks, that diversify our funding profile. Our shareholder provides funding in the form of debt and equity capital. | Page 50 |
| Loans and liquid assets | Funds deposited with TSB are used to support lending to customers who wish to borrow. A portion of funds are held in reserve, in the form of a liquidity portfolio, to meet any unexpected funding requirements. | Page 55 |
| Income | We earn income in the form of interest that we receive on the loans we make to customers and from our liquidity portfolio. We pay interest to savings and bank account customers on the money they deposit with us. We also earn other income in the form of fees and charges for the provision of other banking services and commissions from the sale of certain products such as general insurance. | Page 67 |
| Charges | The costs of running the Bank include paying our TSB employees, running our branches, investing in our business (such as developing digital opportunities) and paying for marketing. Occasionally, our customers are unable to repay the money they borrow from us; this is also a cost to the Bank in the form of an impairment charge. Finally, TSB complies with its tax obligations to His Majesty's Revenue and Customs (HMRC). | Page 69 |
Risk management (2025 performance from page 10; financial statements from page 45)
Effective risk management underpins TSB's business model. The Board sets an appetite for risk and monitors the risks arising from delivery of TSB's strategy through its business model to ensure the Bank remains liquid, solvent, operationally stable, trusted and compliant. The Board, in turn, will determine whether to return any profits made by the Bank to the shareholder by way of dividend, in line with its dividend policy (as disclosed in note 23 on page 99) or to reinvest the profit to support the future growth of the Bank.
| Key performance indicators | |||
|---|---|---|---|
| 2025 | 2024 | Change | |
| Delivering for our customers: Customer advocacy – Net Promoter Score (NPS)^{(1)} | 17% | 7% | 10pp |
| Delivering sustainably: Scope 1 and 2 emissions (location-based)^{(2)} | 2,799 | 3,517 | 20.4% |
| Delivering for our shareholder: | |||
| Statutory profit after tax (£ million) | 251.1 | 203.8 | 23.2% |
| Cost:income ratio (Statutory basis)^{(3)} | 67.0% | 72.3% | 5.3pp |
| Cost:income ratio (Excluding notable items and banking volatility)^{(4)} | 67.1% | 72.3% | 5.2pp |
| Post-tax return on assets | 0.55% | 0.44% | 11bps |
(1) NPS is based on the question "On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?" NPS is the percentage of TSB customers who give a score of 9 or 10 after subtracting the percentage who give a score 0 to 6. Calculated as a 3-month rolling average.
(2) As further explained in the Do What Matters Plan section on page 21.
(3) Statutory operating expenses divided by statutory total income.
(4) Notable items and banking volatility included in income and costs are summarised on page 7 and page 8, respectively. Further analysis of notable items included in costs is provided in note 14 on page 71.
TSB Bank plc
Annual Report and Accounts 2025
page 6
Strategic report (continued)
Review of financial performance
The Bank's performance is presented on a statutory basis, as explained under the basis of preparation on page 44, and structured in a manner consistent with the key elements of the Bank's business model as explained on page 6.
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Net interest income | 1,055.6 | 984.4 |
| Other income | 116.7 | 152.6 |
| Total income (statutory) | 1,172.3 | 1,137.0 |
| Income before notable items and banking volatility | 1,135.8 | 1,075.6 |
| Notable income (1) | 30.2 | 33.9 |
| Banking volatility (2) | 6.3 | 27.5 |
| Operating expenses (statutory) | (785.9) | (821.8) |
| Operating expenses before notable items and banking volatility | (762.2) | (777.2) |
| Notable expenses (3) | (16.2) | (41.1) |
| Banking volatility (2) | (7.5) | (3.5) |
| Impairment (statutory) | (47.0) | (30.1) |
| Statutory profit before taxation | 339.4 | 285.1 |
| Taxation | (88.3) | (81.3) |
| Statutory profit after taxation | 251.1 | 203.8 |
(1) Notable income is further explained under the section called Income below.
(2) Banking volatility in total income comprises of the following line items on the income statement: Gains on derivative financial instruments at fair value through profit or loss and losses from hedge accounting. Banking volatility in operating expenses reflects volatility associated with share schemes.
(3) Notable expenses are further explained in note 14 on page 71.
TSB's statutory profit before tax for 2025 increased by 19.0% to £339.4 million (2024: £285.1 million).
Income
Total income increased by 3.1% to £1,172.3 million. This primarily reflected an increase in net interest income, partially offset by lower banking volatility and debit card income, due to increased card provider fees. Net interest income increased by 7.2% to £1,055.6 million primarily reflecting increases in structural hedge income.
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Net interest income | 1,055.6 | 984.4 |
| Net fee and commission income | 76.7 | 90.7 |
| Gains on derecognition of financial assets measured at amortised cost | 2.8 | – |
| Other operating income(1) | 0.7 | 0.5 |
| Total income before notable items and banking volatility | 1,135.8 | 1,075.6 |
| Notable items: | 30.2 | 33.9 |
| Amounts recovered under indemnity or insurance arrangements (2) | 29.7 | 36.2 |
| Restructuring items(3) | (0.5) | (2.3) |
| Banking volatility(4) | 6.3 | 27.5 |
| Total income (statutory) | 1,172.3 | 1,137.0 |
(1) Excludes £30.2 million (2024: £33.9 million) of notable items (notes 2 and 3 below) and £6.3 million (2024: £27.5 million) of banking volatility.
(2) Included in other operating income (as shown in note 13 on page 68).
(3) Comprises of net gains/(losses) from the disposals of properties and intangible asset write offs, of which £0.5 million (2024: £(2.3) million) is included in gains/(losses) on derecognition of non-financial assets in the income statement.
(4) Banking volatility comprises of the following line items on the income statement: Gains on derivative financial instruments at fair value through profit or loss, and losses from hedge accounting.
Structural hedge income
TSB has a pool of stable, non and low interest-bearing liabilities, principally comprising current accounts and savings, in addition to its shareholder's equity. A proportion of these balances are included in a structural hedge that is executed via a portfolio of receive fixed and pay variable interest rate swaps. These have an amortising structure so that a small portion matures and is reinvested each month at prevailing market rates.
The purpose of the structural hedge is to smooth net interest income over time. The pay floating leg of the swap will reprice immediately, whereas the receive fixed rate yield on the swap portfolio will reprice gradually, as a portion of the structural hedge swaps mature each month and are re-invested into new swaps at current market rates.
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
Review of financial performance (continued)
Structural hedge income (continued)
At 31 December 2025, the notional balance of the structural hedge was £20.5 billion (31 December 2024: £19.9 billion). Structural hedge income, as represented by the fixed leg of the swaps, increased by £123.2 million to £467.7 million (2024: £344.5 million) reflecting the effects of recent reinvestment at higher fixed rates. Structural hedge income represents the net interest income earned on the fixed leg of the swaps, as the net interest expense on the floating leg offsets the variable earnings from the funding provided by the pool of non and low interest-bearing liabilities. The mark-to-market volatility is managed using the risk management policies described on pages 91 and 92.
Operating expenses
Operating expenses decreased by 4.4% to £785.9 million (2024: £821.8 million). Despite a period of inflation, operating expenses before notable items decreased by 1.9% to £762.2 million (2024: £777.2 million). This was driven by employee related costs, reflecting lower headcount through the year and lower marketing and property costs. This was partially offset by higher IT servicing and licence costs, due to a data centre upgrade and growth in payment processing costs.
Notable items decreased by 60.6% to £16.2 million (2024: £41.1 million). The key drivers for the decrease were lower Strategic restructuring costs which decreased by £12.8 million. 2024 also included recognition of a regulatory fine of £11.4 million (including legal costs).
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Operating expenses before notable items and banking volatility | 762.2 | 777.2 |
| Notable items(1): | 16.2 | 41.1 |
| Strategic restructuring costs | 6.9 | 19.7 |
| Regulatory fine | - | 11.4 |
| IT servicing and licence costs | 8.0 | 4.6 |
| Conduct charges | 0.4 | 3.6 |
| Other notable costs | 0.9 | 1.8 |
| Banking volatility(2) | 7.5 | 3.5 |
| Operating expenses | 785.9 | 821.8 |
(1) Notable operating expenses are further explained in note 14 on page 71.
(2) Banking volatility reflects volatility associated with share schemes.
Impairment
The impairment charge increased in 2025 by £16.9 million with 2024 benefitting from one-off releases in the risk associated with the cost-of-living crisis, in particular for the unsecured and Business Banking portfolios. There has been a provision release in relation to Retail mortgages, resulting from house price growth and an improved outlook for house prices, along with a reduction in post-model adjustments.
A summary of the economic scenarios used for assessing expected credit losses and related scenario weightings is provided in note 8 on page 61.
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Retail – mortgages | (10.1) | (8.9) |
| Retail – credit cards | 14.6 | 13.5 |
| Retail – unsecured | 42.6 | 28.5 |
| Business banking | (0.1) | (3.0) |
| Total impairment charge | 47.0 | 30.1 |
| Asset quality ratio | 0.13% | 0.08% |
Taxation
The tax charge of £88.3 million (2024: £81.3 million) reflects an effective tax rate of 26.0% (2024: 28.5%). The difference between this and the applied UK corporation tax rate for the year of 28% (2024: 28%) was primarily due to the tax deductibility of the Additional Tier 1 (AT1) coupons paid during the year but accounted for as other equity instruments.
The applied rate in 2025 comprised of the main rate of corporation tax and the bank surcharge. The main rate of corporation tax was 25%. The bank surcharge was 3%, applicable to taxable profits of banks in excess of £100 million.
TSB Bank plc
Annual Report and Accounts 2025
page 8
Strategic report (continued)
Review of financial performance (continued)
Balance sheet, funding and capital
TSB's balance sheet remained strong with the loan to deposit ratio remaining broadly stable, capital ratios increasing, reflecting retained profits, and TSB maintaining liquid assets in excess of regulatory requirements and internal risk limits.
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Customer deposits | 35,209.0 | 35,051.2 |
| Non-customer funding | 5,766.0 | 6,276.0 |
| Borrowings from the Bank of England | 598.9 | 1,406.9 |
| Debt securities in issue | 4,869.3 | 4,583.2 |
| Subordinated liabilities | 297.8 | 285.9 |
| Total equity | 2,338.0 | 2,120.7 |
| Sources of funding | 43,313.0 | 43,447.9 |
| Other liabilities | 1,968.5 | 2,651.2 |
| Total equity and liabilities | 45,281.5 | 46,099.1 |
| Loans and advances to customers | 36,268.4 | 36,330.9 |
| Liquid asset portfolio(1) | 6,545.7 | 7,049.6 |
| Loans and liquid assets | 42,814.1 | 43,380.5 |
| Other assets | 2,467.4 | 2,718.6 |
| Total assets | 45,281.5 | 46,099.1 |
(1) Comprises balances at central banks of £4,119.1 million (2024: £4,738.5 million) and debt securities of £2,426.6 million (2024: £2,311.1 million). Balances at central banks is included on the consolidated balance sheet in cash, cash balances at central banks and other demand deposits. Analysis is shown in note 32 on page 106.
Source of funding
- Customer deposits. Customer deposits were broadly flat, +0.5%, at £35.2 billion, driven by an increase in retail deposits. Business banking deposits decreased by £0.2 billion to £2.2 billion. Retail balance growth was driven by retail savings balances (which increased by 2.3%) driven by increased fixed rate savings balances, as customers moved their balances towards higher interest earning savings accounts. This was offset by slightly lower current account balances which decreased by 1.0% driven by higher spend.
- Non-customer funding. Non-customer funding decreased by £0.5 billion to £5.8 billion. During 2025, £0.7 billion of borrowings from the Bank of England were repaid, primarily under the Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME) and a smaller unsecured issuance maturity of (£0.3) billion. These reductions were partially offset by the issuance of £0.5 billion of debt securities in issue, comprising the net issuance of covered bonds.
- Total equity. An increase of 10.2%, or £217.3 million, reflecting retained profits for the year, partly offset by distributions on the AT1 securities issued in December 2024 and changes in the fair value of derivatives in cash flow hedge relationships.
Loans and liquid assets
- Loans and advances to customers. Loans and advances to customers were broadly flat at £36.3 billion, reflecting the balance of risk, returns and new business in a competitive UK mortgage lending market. With maturing customers facing into a higher rate environment and strong competition in the market, customers are shopping around for the best deal to mitigate the impact of rising mortgage costs.
- Liquid asset portfolio. TSB's liquidity portfolio comprises highly liquid assets, primarily balances deposited at the Bank of England, UK gilts, development bank bonds, and covered bonds, which are available and accessible to meet potential cash outflows. During 2025, the liquidity portfolio decreased by £0.5 billion to £6.5 billion, reflecting a decrease in balances on deposit with the Bank of England as funds were used to repay borrowings under the TFSME.
A key regulatory measure of liquidity is the Liquidity Coverage Ratio (LCR). This is designed to measure the short-term resilience of TSB's liquidity and is regularly monitored and forecast alongside other cash flow and liquidity ratios. At 31 December 2025, the LCR was stable at 204.8% (2024: 199.8%) against a PRA requirement of 100%.
TSB Bank plc
Annual Report and Accounts 2025
page 9
Strategic report (continued)
Principal risks and uncertainties
Approach to risk
Effective risk management is critical to realising our strategic priorities and underpins our day-to-day operational activities. The processes to identify, measure and control the risks inherent in our business model are embedded in TSB's Risk Management Framework.
Risk Management Framework
The TSB Risk Management Framework complies with all relevant laws and regulations to demonstrate safe control of all risks faced by TSB. This leads to the promotion of a risk aware, customer focused culture to support the provision of products and services which provide good customer outcomes. The Risk Management Framework provides guidance on:
- Identification of the risks to which TSB is exposed.
- Assessment or measurement of the identified risks using suitable risk management tools.
- Management of risk exposures, applying and operating appropriate controls to mitigate the risks to acceptable levels.
- Monitoring and reporting of these risks to ensure they remain within risk appetite.
The core components of the Risk Management Framework are shown below and explained further on the following page.
Risk culture and compliance
The TSB Risk Management Framework supports the behaviours and activity expected of all colleagues in the identification and management of risk. TSB's culture is reinforced by the approach to performance management and remuneration for all employees. Our aim is for both our employees and our customers to experience the benefits of a high performing culture, supported by a clear customer focus where employees feel confident that good customer outcomes are achieved.
TSB's culture is monitored by the Executive Committee and Board to promote the right behaviours to support TSB's purpose - Money Confidence. For everyone. Every day.
TSB is committed to being compliant with all legal, regulatory and mandatory obligations. To support this, TSB has in place a compliance framework structured around the compliance lifecycle requiring that any compliance gaps identified are proactively managed in a transparent manner, with an intention to return to compliance as soon as practical.
Three lines of defence
Risk management is embedded at TSB through clear accountabilities across three independent lines of defence. This enables a clear understanding and separation between functions that own and manage risks faced by the business (first line), provides oversight and challenge (second line), and provides independent audit and assurance (third line).
| | First Line
Risk and control ownership | Second Line
Oversight, support, and challenge | Third Line
Assurance |
| --- | --- | --- | --- |
| Responsibilities | • Responsible for the implementation and execution of the Risk Management Framework to meet all applicable legal, regulatory and mandatory requirements, through the identification, assessment and management of risks, controls, events and policy. | • Responsible for the design, maintenance and monitoring of the Risk Management Framework including risk appetite and the alignment to regulations.
• Provide independent validation and challenge on first line's identification, assessment and management of risks and controls, to support adherence to policy and legal and regulatory requirements. | • Responsible for providing independent assurance on the effectiveness of risk management, controls and governance in the first and second lines. |
| Risk Governance | • Executive Committee.
• Business unit risk forums. | • Board Risk Committee.
• Executive Risk Committee.
• Executive-level risk committees (Model Governance Committee, Credit Risk Committee, Asset & Liability Committee and Non-Financial Risk Committee). | • Board Audit Committee. |
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Core components of the Risk Management Framework
The environment in which we operate, and the nature of the risks that we face, are continually changing to reflect market, economic, legislative, regulatory environment and TSB's strategic direction. We categorise the business risks that we face into seven principal risks, defined in our Risk Management Framework and align evolving and emerging risks to these principal risks. This ensures that we identify, assess and manage these risks carefully and consistently.
To support our colleagues in managing our key risks and operating within our risk appetite, a suite of policies and procedures is in place. These detail our approach to managing each of our key risk exposures and define the minimum control requirements that must be observed to achieve compliance. TSB Policies are renewed annually with a dedicated section on compliance requirements.
As a subsidiary of Sabadell, we are also required to comply with the requirements detailed in the Sabadell policy framework.
We define risk appetite as 'the level of risk that we are willing to take to meet our strategic objectives'. In doing so, we consider the potential impact of any remaining residual risk exposure against the cost of implementing additional controls on the delivery of our strategic objectives.
Our risk appetite framework extends to the setting, management, measurement, monitoring and control of our risk appetite, and the over-arching governance whilst our risk appetite statement defines the amount and type of risks we are willing to take in pursuit of our strategy.
We identify the risks we are exposed to and classify and manage them in line with our risk categorisation model. Throughout the year the risks and controls are assessed, monitored and reported.
Remedial action is taken to address effectiveness of the control environment and drive improvements in line with risk appetite.
An event is an unforeseen or unexpected occurrence that will impact the successful running of our business including customers, compliance with regulations, brand and reputation, resilience of operations, or financial impact.
The event management process provides the tools and techniques to identify all impacts, understand root cause, and assess and manage events through to closure.
Risk ownership and accountability is supported by governance and reporting via TSB's risk committees. Each committee is responsible for monitoring TSB's risk profile and challenging risk exposures across the relevant risk category in line with the risk appetite set by the Board.
This structure enables efficient decision making, providing clear escalation and reporting of risk to Executive Risk Committee and Board Risk Committee, and to the Board which is responsible for providing oversight of the effectiveness of the Risk Management Framework.
TSB Bank plc
Annual Report and Accounts 2025
page 11
Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks
TSB's principal risks are aligned to the seven Level 1 risk categories documented in the Risk Management Framework, encompassing all of the different types of risk which are relevant to our business model and achievement of our strategic objectives. Further information on these risks is set out below.
Strategic risk
The risk arising from an inadequate strategy, unsuccessful execution of the strategy or not responding to changes in the socio or macro-economic environment.
Attitude to risk
- At TSB our purpose is to deliver Money Confidence. For Everyone. Every day. This whilst ensuring we Do What Matters for people and our planet.
- We develop and deliver a strategy that considers a number of internal and external factors, such as the macro and socio-economic environment performance, both current and assumed future Bank performance, market developments and associated threats and opportunities along with stakeholder priorities and objectives.
- Our medium-term plan considers both financial and non-financial factors to set investment priorities to support the delivery of our strategic objectives.
| Exposure
Failure to deliver TSB's strategy or financial plan including the achievement of our primary corporate objectives and financial targets. Strategic risks can be driven by both internal unforeseen events and external factors such as the socio or macroeconomic environment, customer confidence, regulatory developments and competitor behaviour. | Mitigating actions
The Board and Executive regularly review progress against the medium-term plan, primary corporate objectives and a suite of bank wide risk appetite measures. We closely monitor economic and market developments and perform horizon scanning to identify legal or regulatory changes that may pose a risk, threat or opportunity for TSB. | Management focus areas
Execution of TSB's strategy whilst remaining within risk appetite. Identifying and adapting to external developments and threats. |
| --- | --- | --- |
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks (continued)
Financial risk
The risk of having inadequate earnings, cash flow or capital to meet current or future requirements and expectations as they fall due.
Attitude to risk
- We will use our capital to fuel TSB's growth, ensuring that we remain solvent at all times, including under severe but plausible scenarios.
- We will maintain an underlying risk-adjusted margin sufficient to cover our operating costs and a prudent liquidity profile sufficient to operate under severe but plausible liquidity stressed conditions.
- We manage market risk to prevent a significant decrease in short-term earnings or in long-term economic value.
- We limit our counterparty credit exposure to those counterparties of high credit quality in developed financial markets with strong regulatory regimes and actively manage exposure to avoid concentration risk.
- We have no appetite to damage our relationship with our regulators.
| Exposure
Failure to generate profits required to maintain sufficient capital resources and meet regulatory capital requirements, or generation of excessively volatile profits.
Inability to fund the balance sheet, maintain sufficient liquidity and meet our regulatory liquidity requirements. Inability to respond in an effective and timely way to profit resilience threats and capital/liquidity stress events.
Reputational damage, loss of investor confidence or financial loss arising from the adoption of inappropriate accounting policies, ineffective controls over financial reporting or prudential regulatory reporting, or financial reporting fraud. | Mitigating actions
Asset & Liability Committee monitors the Bank's financial risk profile in line with Risk Appetite and maintains a forward-looking view, considering market conditions, economic environment, future regulation and legislation, bank strategy and change activity.
Our capital, funding and liquidity requirements continue to be proactively monitored and subject to severe but plausible scenario stress testing to ensure TSB meets its commitments and make funding adjustments where required.
Monitoring and managing regulatory reporting risk through strong governance and control frameworks to provide accurate and timely submissions in line with applicable regulatory and statutory requirements. | Management focus areas
Monitoring and managing key financial risks including the impact of economic uncertainties, geopolitical risks and regulatory change. Market rate volatility and inflation risk continues to be an area of focus due to its potential impact on TSB's profitability.
Focus remains on maintaining effective governance and oversight of regulatory reporting processes, with continued emphasis on accuracy, timeliness, and data integrity. Monitoring regulatory developments is an ongoing requirement to ensure compliance with evolving requirements. |
| --- | --- | --- |
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Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks (continued)
Credit risk
The risk that a borrower or counterparty fails to pay the interest or to repay the principal on a loan or other financial instrument as it falls due.
Attitude to risk
- We are a responsible lender, focused on making credit decisions that act to deliver good outcomes for our customers, and will not lend more than we or our customers can afford.
- We design our lending to be sustainable and profitable under stress.
- We will maintain a well-balanced portfolio, focused on UK customers and assets, and prime lending criteria.
- We have an appetite to grow in lending markets, to make efficient use of our platforms and distribution.
- We will not allow excessive concentrations to develop that might threaten our financial stability or allow TSB to become an outlier compared to peers.
| Exposure | Mitigating actions | Management focus areas |
|---|---|---|
| TSB's exposure to credit risk is focused on retail mortgages, consumer lending and business banking lending. The failure of customers to repay on a facility to a level that is above the Bank's agreed risk appetite will impact TSB's profitability and the delivery of our Group's Medium Term Plan. | Appropriate decision-making processes, systems and controls are in place to provide and assess affordable borrowing. |
Credit risk appetite is set for responsible and controlled growth and has measures and limits in place that are reviewed periodically. These measures include loan-to-value thresholds and loan-to-income ratios.
If circumstances change, which impact our customers' ability to repay, we have specialist teams, along with treatment strategies to support rehabilitation.
Ongoing oversight and management information (MI) of credit risk management is established through our forums and committees. | While pressures from interest rates have eased, we continue to monitor the economic environment and its implications for customer affordability.
We also remain attentive to areas of regulatory focus across both UK and EU jurisdictions. |
Model Risk
The risk that models used to manage the business are inadequate, are used inappropriately, or perform ineffectively.
Attitude to risk
- We will use models to support the effective and efficient delivery of TSB's strategy and operational processes including business decision making, risk management, and reporting.
- We will operate sound model governance and effective model risk management practices to demonstrate a clear understanding of the reliance placed on models in the control of current risks and the assessment of future risks. We will minimise the adverse consequences resulting from inadequate or flawed design, poor implementation, or inappropriate use of models.
- At TSB we will manage model risk to safely meet regulatory requirements while understanding and managing the key drivers associated with the model use.
| Exposure | Mitigating actions | Management focus areas |
|---|---|---|
| Mainformed decision making leading to customer harm, regulatory censure and financial loss. | An inventory of all models is maintained, and the Model Risk Management Framework promotes a consistent risk-based approach across TSB, incorporating requirements for model development, implementation and use. |
Ongoing performance monitoring is used to ensure that modelling data, assumptions, and outcomes remain appropriate, or allow the identification and introduction of suitable mitigants. | Model risk remains a focus in a number of areas, with attention continuing to focus on areas of interest to the UK and EU Regulators.
Work continues to centre on strengthening governance and accountability under SS1/23 Model Risk Management Principles for Banks, and the development, implementation and maintenance of the most material model suites. The approaches to the assessment of AI models continues to evolve. |
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Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks (continued)
Conduct Risk
The risk that TSB does not act to deliver good outcomes for its customers.
Attitude to risk
- We take a considered and responsible approach to managing conduct risk in line with our purpose and commitment to delivering good customer outcomes.
- Our product and service design, sales practices, communications and servicing seek to ensure that products and services are straightforward, transparent, and meet the needs of customers within our target market including vulnerable customers, supporting them to make informed decisions and so that we deliver fair value.
- We aim to deliver good customer outcomes by acting in good faith; seeking to avoid foreseeable harm; and enabling customers to pursue their financial objectives.
| Exposure
TSB is committed to delivering products and services that meet customer needs and regulatory expectations. Conduct risk arises where we do not deliver good customer outcomes, which could result in customer harm, financial redress, regulatory action or reputational damage. Key drivers include the effective design and execution of customer journeys across products and services, evolving customer expectations and regulatory change, and the need for strong oversight of outcomes across the product lifecycle. | Mitigating actions
We manage conduct risk through our Risk Management Framework, including the TSB Compliance Framework, and controls designed to secure good outcomes for all customers:
- Governance and oversight: Ongoing monitoring and escalation of customer outcomes across products and services, using MI and dashboards to identify emerging risks early.
- Compliance by design: Embedding regulatory requirements and good-outcome principles into proposition design and change delivery from the outset, supported by annual policy reviews and gap analyses to keep standards current.
- Customer outcomes testing: Regular testing of outcomes to identify and address potential harm promptly.
- Journey, digital and accessibility improvements: Continuous enhancements to customer journeys (digital and non-digital) to improve accessibility, understanding and support for different needs.
- Rectification (“putting things right”): When we identify poor outcomes, we remediate customers, fix root causes and strengthen controls in line with our Rectifications standards.
- Training and culture: Mandatory training and leadership focus on Consumer Duty and conduct, reinforcing a culture that prioritises good outcomes. | Management focus areas
- Consumer Duty: Continuing to embed and evidence Consumer Duty across TSB - strengthening MI, governance and documentation of outcomes, harms, controls and thresholds.
- Customer journey mapping: Expanding compliance/Consumer Duty journey mapping and deep-dives to the highest-risk end-to-end journeys, with clear ownership of actions and measures.
- Culture and capability: Reinforcing colleague capability, clarity of accountability and challenge so good outcomes are considered in day-to-day decisions and change.
- Change delivery: Further embedding conduct/compliance controls within the change delivery framework to identify and manage conduct risks early in the lifecycle.
- Suppliers and partners: Applying proportionate oversight so third-party services support and evidence good outcomes consistently with TSB standards. |
| --- | --- | --- |
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Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks (continued)
Financial Crime Risk
The risk that systems and controls are not adequate to manage financial crime within TSB's risk appetite and regulatory framework.
Attitude to risk
- We aim to promote an environment that is hostile to the exploitation of our systems and customers for economic crime activity. To achieve this, we adopt proportionate controls that aim to protect our customers and the Bank whilst supporting business growth strategies and innovation.
- We have zero-tolerance for breaches of financial crime regulation. We have a proactive relationship with law enforcement, reporting suspicions in line with requirements and working collaboratively to develop intelligence on financial crime threats.
- We have control frameworks in place to mitigate the risk of bribery and corruption and the facilitation of tax evasion. Potential cases are investigated and reported to law enforcement where confirmed.
- TSB applies a customer centric approach to the management of fraud risk, balancing the risk of fraud losses with customer impact and operational efficiency. TSB has a zero-tolerance approach to insider fraud.
| Exposure | Mitigating actions | Management focus areas |
|---|---|---|
| The impact of not implementing proportionate and customer centric strategies and controls can lead to financial loss, regulatory censure, reputational damage and customer harm. | TSB complies with relevant regulations across Anti Money Laundering, Sanctions, Anti Bribery and Corruption and Fraud. TSB has horizon scanning controls in place to support timely and proportionate responses to the evolving regulatory landscape. |
Membership of industry groups is used to provide access to intelligence to understand the impact of emerging trends on TSB. TSB has an oversight framework in place including monitoring of key risk indicators across key customer journeys, quality assurance testing to support early interventions to mitigate risks and use of governance to assess holistic risks across TSB and agree priorities. | There is ongoing focus on activity to support updating customer data used in screening and monitoring controls. In 2025, a programme of work was completed to enhance fraud controls.
In 2026, TSB will focus on embedding and further optimising controls to prevent customers becoming victims of fraud, while continuing to enhance its controls, respond to regulatory change, and work across the industry to address external threats. |
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Strategic report (continued)
Principal risks and uncertainties (continued)
Principal risks (continued)
Operational Risk & Resilience
The risk of loss, damage or disruption to TSB's resilience and both 'Important' and 'Other' Business Services we provide to our customers, arising from inadequate or failed internal processes, people or systems.
Attitude to risk
- Our goal is to provide secure, reliable banking services that safeguard the trust of our customers and satisfy our regulatory obligations.
- We have no appetite to breach important business service impact tolerance. When issues arise, we will act promptly to support customers and restore services, minimising potential or actual harm. This includes taking steps to prevent recurrence and addressing underlying risk.
- We have limited appetite for cyber security risks associated with our supply chain, recognising that no organisation is immune from risks of cyber-attacks or service disruption. We actively identify and remediate cyber security risks and select and manage suppliers in line with our own internal policy requirements and contract on regulatory compliant terms for third parties and our supply chain.
- We aim to deliver change safely and avoid unintended customer impacts. We achieve this by maintaining a skilled workforce who perform within an environment where leaders seek to create a positive culture and act to deliver good customer outcomes.
- We will utilise our data lawfully to meet our customer's needs. We will make decisions from data that is trusted and assured.
| Exposure
Loss, theft or corruption of critical data, including customer and colleague data.
Disruption to business services across TSB and the banking industry.
Customer harm, losses through rectifications, remediation costs, regulatory censure or reputational damage. | Mitigating actions
Ongoing cyber security activity and ongoing scenario testing ensures continuous improvement of the organisation's defensive capabilities and ability to respond to severe but plausible scenarios. Maintaining currency of our infrastructure and application estate alongside our disaster recovery capability continues to increase the Bank's resilience and improved service continuity for customers.
A maturing data management with a focus on data quality and lineage has delivered improved compliance and customer servicing capabilities.
The supplier management framework has focussed on the Bank's reliance on a robust supply chain to safely deliver services to its customers. | Management focus areas
Cyber investment will continue, to meet the ever-changing threat landscape and ensure customer sensitive data and services are protected today and in the future.
Maintaining application and infrastructure currency, to enable ongoing support and resilience of critical services. |
| --- | --- | --- |
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Strategic report (continued)
Principal risks and uncertainties (continued)
Evolving and emerging risks
The most significant evolving and emerging risks that have the potential to materially impact the execution of TSB's strategy are reviewed regularly. Evolving risks are known threats that are changing over time while emerging risks are new risks where the impacts or likelihood may not be fully understood. These risks are identified through a variety of horizon scanning methods including legal, and regulatory horizon scanning, insight from the senior risk leadership team based on industry knowledge and experience together with inputs on wider economic factors from TSB's Chief Economist. Outputs are presented to both the Executive Risk Committee and Board Risk Committee for consideration in our business planning process.
| Evolving risks | Principal risks | Risk and mitigating actions |
|---|---|---|
| Economic and market conditions impact on TSB's strategy execution | • Credit Risk | |
| • Financial Risk | ||
| • Strategic Risk | Weak or unstable economic conditions can create a challenging operating environment for TSB, manifested through developments such as reduced economic activity, increased unemployment and cost-of-living pressures. These conditions can reduce borrowers' ability to repay loans and raise realised losses on defaulting loans by decreasing property prices. Market conditions can also impact on TSB's strategy execution. For example, interest rate volatility can affect funding costs and the profitability of the structural hedge. |
Recognising the importance of this risk on delivery of TSB's medium-term plan and other principal risks, the Board and Executive regularly review progress against the medium-term plan and a suite of Risk Appetite measures. Regular outlooks and emerging financial impacts are also reviewed at Board and Executive Committee with remedial action taken as required. Scenario analysis and stress tests are used to understand and mitigate risks. |
| Climate change | • Conduct Risk
• Credit Risk
• Financial Risk
• Operational Risk | Risks for TSB relating to climate change include physical threats, transitional risks and greenwashing.
With TSB's lending portfolio predominantly comprised of mortgage assets, the main physical risks for TSB are the flooding, subsidence, precipitation and coastal erosion (medium and long-term) risks associated with the security that underpins this loan portfolio.
Transition risks arise from the financial and operational challenges that may be faced given the materiality of the secured mortgage lending and the risks associated with the cost for adapting properties to cope with the changing climate (flooding, extreme heat), improving property energy ratings and transitioning to electrified heat (short, medium and long-term).
Physical and transition risks also apply to TSB's own estate and operations.
Greenwashing risk arises through misleading statements relating to Energy Efficient Homes products and partnerships, and through lack of transparency or misleading statements in carbon emissions disclosures.
The Do What Matters Plan sets out how TSB understands and responds to the risks and opportunities associated with climate change (See Managing the risks associated with climate change on page 34). |
| Transitional risk | • All risk categories | The sale of TSB and integration into a new banking group may give rise to new risks, which will need to be monitored and managed carefully through the transition period. These risks could include a deterioration in performance due to competing priorities, people stretch, downturn in colleague engagement, increased legal or regulatory requirements, risks associated with information sharing, and an increase in cyber risks and fraudulent activity, potentially targeting vulnerable customers.
Risks associated with the sale will be considered as part of transition planning and closely overseen by TSB's Executive Committee and Board. |
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Annual Report and Accounts 2025
Strategic report (continued)
Principal risks and uncertainties (continued)
Evolving and emerging risks (continued)
| Evolving risks | Principal risks | Risk and mitigating actions |
|---|---|---|
| Divergence in UK & EU regulation | • Financial Risk | |
| • Conduct Risk | ||
| • Credit Risk | ||
| • Financial Risk | ||
| • Model Risk | ||
| • Operational Risk | ||
| • Strategic Risk | Following Brexit, UK and EU regulation and financial supervisory frameworks have started to diverge in response to changing technology, customer, economic and market forces. There is a risk that the UK and EU authorities move in differing directions resulting in additional complexity and/or cost where dual processes are required or the risk of non-compliance. |
The compliance framework continues to embed, and horizon scanning has been strengthened to identify upcoming regulatory changes and assess the appropriate response. |
| UK Politics | • Financial Risk
• Conduct Risk
• Credit Risk
• Strategic Risk | Political decisions and fiscal policy changes in the UK — such as reforms to ISA allowances, tax thresholds, government borrowing or to stimulate UK growth — can have significant and sometimes unpredictable impacts on banks and the wider financial sector. There is a risk that such changes could lead to volatility in funding costs, deposit levels, and mortgage pricing, alongside broader market impacts. These shifts can affect customer affordability, product competitiveness, and balance sheet dynamics, contributing to financial, credit, and strategic risks.
By maintaining robust horizon scanning, scenario planning, and stakeholder engagement, TSB can better anticipate and mitigate these risks, ensuring resilience in a rapidly changing environment and better navigate the complexities of the financial landscape. |
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Strategic report (continued)
Principal risks and uncertainties (continued)
Evolving and emerging risks (continued)
| Emerging risks | Principal risks | Risk and mitigating actions |
|---|---|---|
| Artificial intelligence (AI) | • Financial Crime Risk | |
| • Model Risk | ||
| • Operational Risk | While AI provides commercial and operational opportunities, it also creates risk around cyber-attacks, or more complex and sophisticated fraud techniques requiring the need for additional vigilance and the exploration of new ways of responding. |
This may lead to heightened threat of disruption to banking processes leading to fraud and operational losses. TSB has started to investigate opportunities to safely utilise AI to complement our existing services.
Appropriate guardrails and governance have been implemented at this stage to manage the safe exploration of AI. |
| Third Party Risk Management | • Financial Crime Risk
• Operational Risk | The increasing reliance on a limited number of critical suppliers, including but not limited to cloud computing service providers, has become a key feature in the delivery of financial technology and third-party solutions. While these relationships offer advantages such as scalability, speed, and efficiency, they create concentration risk — where dependence on a small group of suppliers, especially those operating on a global scale, can result in systemic exposure across the industry and multiple essential business functions.
TSB recognises that this supplier concentration risk extends beyond cloud platforms and encompasses a range of third-party service providers whose strategies and operational resilience are largely outside the Bank's direct influence. The failure or disruption of any such critical supplier — particularly major cloud providers — could have significant implications for the Bank's operational resilience and its ability to serve customers effectively.
TSB continues to assess, monitor and manage the risks associated with our third party suppliers, ensuring appropriate contingency planning and governance arrangements are in place to mitigate potential impacts. |
| Geopolitical uncertainty | • Credit Risk
• Financial Risk
• Financial Crime Risk
• Strategic Risk | Continued and escalating conflict drives increases in commodity prices, such as oil and gas. Additionally, changes in global trade tariffs and changes to compliance may lead to further cost-of-living and inflationary pressures, while adding to macro-economic uncertainty.
The complexity and inter-dependencies that exist within the global supply chain may lead to failure or disruption to TSB or within the UK economy caused by geopolitical uncertainty. |
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Annual Report and Accounts 2025
Strategic report (continued)
TSB's Do What Matters Plan
TSB's Do What Matters Plan, launched five years ago, is an integral part of our business strategy. It brings together our social and environmental commitments to deliver long-lasting and meaningful impact for our customers, colleagues, suppliers and communities.
The plan is simple, yet focused, with three key themes: business essentials, people, and planet. Our eight goals sit across the people and planet themes, covering social and financial inclusion, fair business practices, and supporting a just transition to a greener economy. These goals guide the impact we aim to achieve and are aligned to our purpose of: Money Confidence. For everyone. Every day.
Our Essentials underpin the delivery of the plan, setting out how we govern, manage and embed it across TSB to make sure progress is monitored and outcomes are delivered in a responsible and sustainable way.
Essentials
Governing the plan
The TSB Board provides strategic direction on the Bank's approach to the Do What Matters Plan, including how we manage the risks and opportunities of climate change. They receive an annual update on the Do What Matters Plan and periodic updates are also provided to the Risk Committee on climate risk.
The Executive Committee discusses progress of the Do What Matters Plan on a six-monthly basis. This incorporates recommendations and progress reported by the Planet Steering Committee and the People Working Group, as well as advice and insight from the Responsible Business Advisory Panel.
The Responsible Business Advisory Panel, established at the start of 2024, is made up of three members with relevant expertise on sustainability and financial inclusion together with some members of the Executive Committee. The expert members of the Responsible Business Advisory Panel are Marlene Shiels, financial inclusion expert and CEO of Capital Credit Union; Professor David Grayson, environmental, social and governance (ESG) expert and Emeritus Professor of Corporate Responsibility at Cranfield University and Benet Northcote, ESG practitioner and former Director of Corporate Responsibility at the John Lewis Partnership. During 2025 they met four times to discuss how TSB could move forward its focus areas of doing what's right for people and the planet.
The Chief Risk Officer and Chief Financial Officer have a shared responsibility for identifying and managing the financial risks from climate change. This includes embedding climate change risk within the Risk Management Framework, developing scenario analysis, and managing the financial risks and opportunities from climate change.
There is an ESG risk category in TSB's Risk Management Framework. It focuses on the risks from environmental, social and governance issues, making them more visible within TSB's Risk Management Framework.
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Annual Report and Accounts 2025
page 21
Strategic report (continued)
TSB’s Do What Matters Plan (continued)
Aligning to independent standards and commitments
We are a signatory to the UN Global Compact corporate responsibility initiative, aligning the way we operate with ten universally accepted principles in the areas of human rights, labour, environment, and anticorruption, and to take action in support of UN Sustainable Development Goals.
We are also accredited by the Good Business Charter, a UK scheme that recognises businesses that behave responsibly across ten areas including paying the living wage and not offering zero hours contracts, paying suppliers promptly, promoting diversity and inclusion, ensuring the employee voice is heard in the boardroom and setting firm plans to reach net-zero.
Meeting regulatory and voluntary codes of practice
We have policies and processes in place to make sure we meet regulatory obligations and voluntary codes of practice. Collectively they set out the high standards we operate to protect our customers, colleagues and communities from the impacts of criminal activity, and continue to meet the changing needs of our customers.
Non-financial and sustainability information statement
As a public interest entity, TSB complies with the non-financial and sustainability reporting requirements of sections 414CA and 414CB of the Companies Act 2006 as summarised in the table below.
| Policy | Description | References and policies |
|---|---|---|
| Community and social matters | We're focused on delivering social good which means supporting financial and social inclusion and encouraging fair business practices. | Our approach to communities and social matters on pages 23 and 24. |
| • Fraud policy | ||
| • Vulnerable customers policy | ||
| Colleagues | We believe everyone has a right to work in a safe and supportive environment, where all colleagues act responsibly. We continue to build a workforce representative of our customer base and the communities we operate in. | Our approach to colleagues on pages 24 to 26. |
| • Employment policy | ||
| • Inclusion policy | ||
| • Code of conduct | ||
| • Health, safety and fire policy | ||
| • Remuneration policy | ||
| Respect for human rights | We're committed to preventing modern slavery and human trafficking in our corporate activities. Our Modern Slavery statement outlines the steps we're taking to understand associated risks related to our business and our supply chains. | Our approach to respect for human rights on page 27. |
| • Modern slavery statement | ||
| • Responsible supplier charter | ||
| Financial crime, anti-bribery and corruption | We have a moral, legal and regulatory duty to prevent, detect and deter economic crime. We care about our customers and colleagues, and the communities we serve, and strive to protect them from those who would try to use TSB to commit economic crimes. | Our approach to tackling financial crime, anti-bribery and corruption on page 27. |
| • Anti-bribery and corruption policy | ||
| • Anti-money laundering and counter terrorist financing policy | ||
| • Sanctions policy | ||
| • Whistleblowing policy | ||
| Planet | Doing what matters for the planet is an important consideration for our customers, colleagues and other stakeholders we work with, including regulators. | Our approach to the planet on pages 28 to 37. |
| • Doing What Matters for the Planet policy |
A description of our strategy is set out on pages 4 to 5 and our business model on page 6.
A description of our principal risks and impact of our business activity is set out in the Risk management in TSB section starting on page 10.
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page 22
Strategic report (continued)
TSB’s Do What Matters Plan (continued)
People
Community and social matters
Vulnerable customers
Our commitment to delivering social good is closely aligned to our purpose, focusing on those people within our communities who are least likely to feel confident about managing their money and are at risk of financial exclusion.
At TSB, the identification, management, and support of vulnerable customers is embedded as a core component of all business activities. This integrated approach ensures the needs of vulnerable customers are considered consistently across all customer interactions, services, and decision-making processes. In alignment with the FCA’s FG21/1 Guidance for firms on the fair treatment of vulnerable customers, our Vulnerable Customer Policy reinforces the importance of business-wide accountability and ownership. It sets out clear expectations for how all areas of the business must contribute to the identification and support of vulnerable customers, to enable TSB to act to deliver good outcomes on a consistent basis.
Fraud prevention
In 2025, we prevented 67% of fraud cases. TSB continues to invest in technology and deploy new strategies to stop fraud at the source. We will continue to support victims of fraud under Payment Services Regulator rules and in line with our Fraud Policy.
Supporting victims of domestic abuse
We offer safe spaces across all our branches and online, and in 2025, we helped 410 (2024: 282) customers to escape an abusive relationship through our award-winning Emergency Flee Fund. The Fund, available in branch, over the phone or through video banking, offers victims up to £500 to help them flee potentially dangerous situations. Since launching in 2022, we’ve helped 885 customers, 48% of whom fled with children and paid out an average of £382 per customer with 37% receiving the maximum amount of £500.
In April, we added to the support we offer victim-survivors by providing those who are escaping an abuser with Hollie Guard Extra – a personal safety application. The application helps keep individuals safe from abuse and threatening situations by transforming their smart phone into a personal safety device. With a tap or shake of the device, users can send alerts to chosen emergency contacts, including a 24/7 police-approved monitoring and response service.
We continue to collaborate with our charity partners – Hestia, Women’s Aid and Surviving Economic Abuse – in shaping our response to TSB customers and colleagues experiencing domestic or financial abuse. In April, TSB appointed Sam Beckinsale, domestic abuse survivor, as its first Economic Abuse advisor.
Supporting small businesses
Paying suppliers promptly is another area of focus for TSB, particularly in today’s challenging economic climate. In May we were given a Gold Fair Payment Code Award - the highest recognition under the Fair Payment Code, a voluntary payment code with the aim of driving best practice and improving payment performance for UK businesses. In 2025, we paid 99% of all suppliers within 30 days (2024: 98%). For our small and medium-sized suppliers, payments were made in an average of 3.8 days against our target of 10 days.
Investing in communities
In 2025, TSB launched a one-off TSB Community Fund – a colleague-led grants programme designed to help local charities make a difference where it matters most. More than 340 colleagues nominated over 220 charities to apply for funding, reflecting the strength of connection between our people and the communities we serve. Through a transparent selection process aligned to our Do What Matters Plan, we received 143 applications and awarded grants to 69 charities across the UK. A total of £250,000 was awarded through a tiered structure of grants ranging from £1,000 to £50,000, supporting organisations driving impact in areas such as financial inclusion, social inclusion, education and money confidence, and a just transition to net zero.
Volunteering is an integral part of our corporate giving strategy with every colleague offered 8 hours of paid TSB time per year to volunteer. In 2025, 23% of colleagues volunteered, compared to an industry average of 13%, investing almost 7,500 hours to help those who need it the most. Since the launch of our partnership with Neighbourly, a volunteering platform, in 2023, 1,052 TSB colleagues have delivered over 242 volunteering events.
As part of the volunteering programme, colleagues deliver financial education in under-resourced secondary schools. In 2025, through our Money Confident Communities Programme, colleagues delivered more than 100 financial education workshops benefiting almost 5,000 students.
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Annual Report and Accounts 2025
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Strategic report (continued)
TSB's Do What Matters Plan (continued)
People (continued)
Delivering social good through partnerships
To help customers through the cost-of-living crisis, TSB has partnered with Lightning Reach, a charity that aims to connect people in financial hardship to the support they need, empowering them to get on the road to financial recovery. Since launching the partnership in 2023, customers have been awarded over £205,000 with more than £57,000 granted in 2025, benefiting more than 8,000 TSB customers.
Our key community and social matters policies
| Policy | Summary |
|---|---|
| Fraud policy | This policy provides a framework to manage the risk of fraud and to protect TSB and its customers. The policy sets out the minimum requirements to adhere to, ensuring that there are controls in place to manage fraud risk effectively within approved risk appetite. |
| Vulnerable customers policy | This policy sets out the minimum requirements for our colleagues, business areas and relevant third parties to identify and treat our vulnerable customers appropriately. A regular review of customer journeys and outcome testing is undertaken, and colleagues must undertake periodic core learning to ensure that the policy requirements are embedded throughout the Bank. |
Colleagues
TSB's overarching Employment Policy covering HR polices and legislation, culture and behaviour, resourcing, learning, colleague consultation and people data ensures that TSB:
- Complies with relevant employment legislation and regulatory requirements and minimises the risk of employment litigation or reputational damage.
- Promotes TSB strategy, builds a TSB culture which acts as a key driver of our performance and defines ways of working and behavioural standards that all colleagues must operate within.
- Attracts, retains and engages a diversity of talented people.
- Manages people associated risk and HR data management through effective controls.
In 2025, TSB strengthened its approach to preventing harassment and promoting a safe, respectful workplace. Following the introduction of new legislation, including the Worker Protection Act 2024, we enhanced our Anti-Harassment and Bullying Policy and updated our Resolution Policy to ensure all colleagues feel supported and empowered to speak up.
Mandatory training on preventing harassment in the workplace was completed by 95% of colleagues, while updated risk assessments and enhanced reporting channels showed consistently low levels of risk across the business. These actions reflect our continued commitment to fostering a positive and inclusive culture where every colleague feels safe, heard and valued.
Building a diverse and inclusive culture
We believe that representing our customers and communities strengthens our ability to support them in the moments that matter most. Our Inclusion Policy and Inclusive Hiring Principles guide our efforts to create a culture of diversity and inclusion.
Our Inclusion strategy outlines a series of intersectional representation goals that we have delivered and, in some cases, exceeded. Our key diversity metrics at the end of 2025 are as follows:
- 45% of our Executive Committee roles are held by women;
- 44% (2024:44%) of senior leaders (defined as Executive Committee and their direct reports) are women, putting us in a leading position within the sector;
- 43% (2024: 41%) of grade F+ leaders (leaders who are at least senior manager level) are women, above the UK banking industry average of 39%;
- 4% (2024: 4%) of colleagues identify as lesbian, gay or bi-sexual(1) compared to 3% of the UK workforce;
- 21% (2024: 20%) of colleagues disclose a disability(1) compared to 19% of the UK workforce;
- 20% (2024: 18%) of colleagues and 12% (2024: 11%) of our senior leaders are Black, Asian and minority ethnic; and
- 3.3% (2024: 2.8%) of colleagues and 2.6% (2024: 2.0%) of senior leaders are Black.
(1) Percentages reflect the proportion of colleagues who volunteered relevant diversity data. Year on year comparison reflects increased colleague data.
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Annual Report and Accounts 2025
page 24
Strategic report (continued)
TSB's Do What Matters Plan (continued)
People (continued)
Colleagues (continued)
TSB aims to build a representative workforce where people from all backgrounds can contribute. We've successfully maintained representation in some areas (lesbian, gay, bi-sexual and disability) while improving representation elsewhere (female leadership and ethnicity) allowing us to meet, and in some cases exceed, our goals set out in 2021. We also publish annual Gender and Ethnicity pay gaps and will for the first time publish Disability pay gap data for 2025.
TSB's approach to inclusivity also focuses on supporting working families with a spotlight specifically on carers and parents. In 2025, TSB retained its Ambassador rating in Carers UK Carer Confident Scheme and was awarded Transformational Employer of the Year by Carers UK. Self-recognition and disclosure of colleague's carer status increased to 13% during 2025.
Our colleagues regularly report that they believe TSB is an inclusive workplace and TSB enables people to succeed here, regardless of background, scoring 92% in the 2025 Colleague Experience Survey.
We track colleague sentiment, attrition and hiring by disclosed characteristic to ensure we are truly inclusive and driving action. In 2025, in response to feedback that minority ethnic colleagues felt less confident about their ability to succeed, we relaunched our Ignite Programme. This targeted development initiative supports colleagues from Black and Black mixed-heritage backgrounds and their managers. The programme focuses on building connections, unlocking potential, and equipping managers with the skills to lead inclusive teams and drive performance. By the end of 2025, around 20% of TSB line managers had completed the Ignite Manager course, strengthening their capability and confidence to lead diverse teams effectively.
We continue to support intersectional inclusion with Executive Committee sponsorship for each of our TSB Ability, Ethnicity, Gender Inclusion, LGBTQ+ and Social Mobility networks. These groups actively educate and challenge our workforce and management while contributing to diversity and inclusion plans.
Engaging and involving employees
Our Colleague Experience Survey provides employees with the opportunity to share their views on their experience at TSB and in 2025 87% of colleagues shared their views, signalling their ongoing confidence that their feedback is impactful and considered. Feedback from the survey shapes our plans and colleagues are involved in developing team action plans to improve their experience of working at TSB.
In November 2025, our Colleague Experience Survey showed that:
- 92% of colleagues agreed that TSB promotes an inclusive work environment that accepts everyone's individual differences (maintained 92% from April 2025); and
- 89% of colleagues believe that colleagues from diverse backgrounds can succeed at TSB (down from 90% in April 2025).
We collaborate closely with our recognised unions, Accord and Unite, to discuss policies related to wellbeing, pay, inclusivity and organisational change. TSB's employee forum, The Link, also connects colleagues directly with senior leadership and the Board, meeting seven times in 2025 to discuss key issues and provide feedback. Our five inclusion networks all have executive sponsors and senior leaders who coach and support them. This connects underrepresented colleagues with HR and leadership directly, allowing them to share themes and issues directly as well as inputting into decisions and activities that may impact colleagues. Further information on how the Board engages with colleagues can be found in the Section 172 statement on pages 39 and 40.
- Through our Sharematch Scheme, colleagues can invest up to £1,800 annually in Sabadell shares, offering an attractive savings alternative alongside a generous pension contribution.
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page 25
Strategic report (continued)
TSB's Do What Matters Plan (continued)
People (continued)
Colleagues (continued)
Our key colleague policies
| Policy | Summary |
|---|---|
| Employment policy | This policy outlines our approach to performance, ways of working and attracting, retaining and engaging a diversity of talented people. This policy also focuses on people risk and people data management and controls. It ensures we comply with relevant employment legislation and regulatory requirements to minimise employment litigation and reputational damage and the behavioural standards which colleagues must act within. |
| Inclusion policy | This policy outlines our commitment to fostering an inclusive culture which embraces difference, where everyone feels included and welcome and treated with dignity and respect, regardless of their identity, background, or other circumstances. |
| Code of conduct | Our code of conduct underpins our purpose and guides how we work with colleagues and customers. It supports our behaviours: saying it straight, feeling what customers feel, looking for better and doing what matters. |
| Health, safety and fire policy | This policy outlines our high-level approach to health and safety to protect our colleagues and visitors to our offices and customers across our branch network. Under this policy, all new joiners and colleagues every year thereafter complete mandatory learning. The learning covers emergency procedures, accident reporting, first aid, fire evacuations and lone working safety. |
| Remuneration policy | This policy sets out our approach to remuneration with the aim of making sure TSB can attract, motivate and retain the people needed to deliver our strategy. The policy is governed and reviewed annually by the Remuneration and People Committee and is further described on page 66 of the TSB Banking Group plc Annual Report and Accounts. |
These policies are part of the Risk Management Framework, except for the Inclusion policy which sits within the Employment Policy.
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page 26
Strategic report (continued)
TSB's Do What Matters Plan (continued)
People (continued)
Respect for human rights
TSB's modern slavery statement sets out the policies we apply and actions we take to ensure that our colleagues and customers are treated with dignity and respect.
Financial crime, anti-bribery and corruption
Our financial crime framework aims to protect our customers, employees and communities from financial crime, and we continue to invest in further system control enhancements.
Our financial crime, anti-bribery and corruption policies
| Policies | Summary |
|---|---|
| Anti-bribery and corruption policy | This policy and supporting technical standards provide the framework to support TSB, its colleagues and all other ‘associated persons’ in complying with relevant legislation and in particular, the Bribery Act 2010 and the Criminal Finances Act 2017. |
| Anti-money laundering and counter terrorist financing policy | This policy enshrines TSB’s commitment to the fight against money laundering and terrorist financing, operating in an open and co-operative manner with regulators and seeking to ensure strict adherence to applicable legislation and regulations. |
| Sanctions policy | This policy and supporting technical standards are designed to ensure compliance with our obligations under the United Nations and UK sanctions regimes. TSB takes a prohibitive stance towards transactions and customer relationships involved in countries subject to comprehensive international sanctions or which are owned or controlled by persons located in such countries. |
| Whistleblowing policy | This policy provides the framework to support TSB and its colleagues in compliance with the Public Interest Disclosure Act 1998 (PIDA) and Financial Conduct Authority’s SYSC Chapter 18 rules on Whistleblowing. |
Financial crime is a principal risk as further described on page 16 and the above policies are embedded in TSB via the Risk Management Framework.
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page 27
Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet
In line with the 2015 UN Paris Agreement, TSB is committed to achieving net-zero by 2050.
We have set operational and financed emissions targets, with details of our interim targets and the progress we are making towards our 2050 net-zero trajectory in the Targets and Metrics section of this report on page 32.
We have also considered the risks and opportunities that climate change presents. We have used our established Risk Management Framework to identify, measure and manage climate-related risks so they are embedded in our strategy, risk appetite, financial planning, and capital management processes as they become more material over time.
Our planet strategy focuses on reducing our impact on the environment, following the latest climate science, and supporting a just transition to a net-zero economy by helping our customers, colleagues, and those we work with to make sustainable decisions.
Reducing our financed emissions
Our financed (mortgage) emissions target cannot be met without strong government policy and societal demand (as we set out when we first published our target); and to support this our focus is on building colleague confidence, customer awareness and developing products and propositions that support warm, resilient, low carbon homes.
In 2025, we continued to build awareness by upskilling customer-facing colleagues and mortgage intermediaries, enabling them to signpost customers to Snugg, a tool to help customers see the value of a warm, low-carbon home, and government grant eligibility to help with installation costs.
We have continued to enhance our partnership with Snugg, with customers able to access it through the Mortgage Hub in our mobile app, as well as through TSB Marketplace and Energy Efficient Homes webpages. More than 5,000 customers have now registered with Snugg and created their free personalised plan. Snugg continue to iterate and evolve their tool through smart meter connectivity, together with a broader range of installation partners and offers.
Our mortgage platform now captures property Energy Performance Certificates (EPC), including an embedded link to the Government EPC register, with this feature enabling the launch of tailored offers to customers. In September, we launched a cashback incentive to customers purchasing an energy efficient home (EPC A/B).
Collaborating to drive change
We are committed to being part of the collaboration needed between all sectors, governments and regulators and have actively engaged through UK Finance in responding to the consultations on minimum energy efficiency standards for the private rented sector, EPC reform, climate risk, transition plans and sustainability reporting standards.
At the start of the year, we were part of a coalition of businesses, alongside B&Q, Barratt Homes, Unilever, Starbucks and Virgin Media, supporting Hubbub's 'Home Advantage' research project, creating a blueprint of how to support UK households live more sustainably and save money.
In November, building on the connections formed during the 'Home Advantage' research project, the learnings from our own thermal imaging pilot with colleagues, and our sustainable test and learn branch in Bradford, we launched a community project to explore the impact of thermal cameras and advice in a community setting. We are working with Business in The Community, Hubbub and B&Q with the aim of reaching 100 people and will use the findings of this project to inform future scalable options.
We also support the Green Finance Institute's Green Home Finance Roadmap, demonstrating our commitment to shaping the future of the green home finance market. In November, we hosted an industry roundtable discussing the opportunity and challenges for mortgage advisors and brokers to include signposting to advice on warm, resilient, low carbon homes in every conversation.
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page 28
Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Reducing our operational emissions
Our primary focus is on reducing our operational greenhouse gas (GHG) emissions year-on-year, without reliance on carbon offsets. We look at this in three areas:
- Direct and indirect emissions from heating and cooling our estate (Scopes 1 and 2);
- Reducing our use of paper; and
- Business travel, colleague commuting and homeworking.
In 2025, we have made progress against all these areas:
- Scope 1 and 2 market-based emissions reduced by 20% compared to 2024 to 898 tonnes of carbon dioxide equivalent (tCO2e). Our emissions for the Scope 3 categories we measure (paper, business travel, commuting and homeworking, waste and water) reduced by 18% compared to 2024.
- TSB completed the third phase of its energy optimisation programme, which has contributed to a reduction in location-based energy consumption from gas, oil and electricity by 2.1 million kWh when compared with 2024.
- We set, and achieved, a primary corporate objective to reduce our energy emissions in line with our science-aligned target. We achieved a 21% reduction in location-based energy emissions when compared with 2024.
- We continue to buy 100% renewable electricity, after starting to do this in October 2019, and we are committed to continue to do so through to 2030.
- We have reduced our paper consumption by helping customers switch to paperless statements and correspondence combined with sending more documents into the digital inbox, saving an additional 8 million sheets of paper in 2025. We continue to seek opportunities to further reduce our paper consumption, in our own operations and through our customer communications, whilst being mindful of customer needs, preferences and additional customer letters required in relation to the proposed sale of TSB.
- Our branch in Bradford tests sustainable initiatives. Since opening in 2024, the branch has successfully demonstrated reduced energy and water consumption compared to branches of similar size and significantly reduced the amount of paper used within the branch. We have shared the learnings across other branches which has contributed to our overall reduction of paper use.
- In September, we carried out our third annual colleague Homeworking and Commuting survey, allowing us to monitor progress against our science-aligned target for this category of emissions, as well as colleague interest in knowing more about making their homes and commute more sustainable.
- Our Green Team, which remains one of our largest and most active colleague engagement networks, with more than 500 members, has delivered events across the year, on-line and in-person, providing interactive and practical tips for creating a warm, low carbon home, and travelling sustainably.
- Following on from the findings of the Hubbub 'Home Advantage' research project, we developed a four-week version of the programme for colleagues. We ran three cohorts in 2025 (May, September and November) with 95% of responses to the survey completed at the end of the cohorts feeling more knowledgeable on the actions that they can take every day to reduce environmental impact.
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page 29
Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Emissions: targets and metrics overview
To make sure we are on track to achieve net-zero by 2050, we have interim 2030 science-aligned targets for our Scope 1 and 2, paper, travel and homeworking emissions (set in 2024). These are in addition to the interim 2030 science-aligned target for our financed emissions (set in 2023). Our targets were set using the Science Based Targets initiative's (SBTi) science-based target setting tools.
- Target was set in 2023 using a 2022 baseline.
- Emissions from our waste (Scope 3, Category 5) and water usage are tracked but due to materiality have been excluded from target setting. Operational targets were set in 2024 using our 2023 re-baseline emissions. Please refer to the Summary of Streamlined Energy and Carbon Reporting methodology paper for full details of our re-baseline policy and methodology.
- GHG Protocol Categories 3, 13 and 14 are not applicable to TSB.
- The paper target has been re-baseline due to re-statements of historic paper emissions which resulted in a >5% change to the 2023 base year emissions.
Financed emissions: targets and metrics
In the absence of enhanced government policy and societal demand, we have seen only marginal year-on-year reductions in our mortgage emissions intensity since our 2022 base year intensity of 20.14 kgCO₂ per metre²: as at year-end 2023 the intensity was 19.62 kgCO₂ per metre² and as at year-end 2024 the intensity was 19.31 kgCO₂ per metre².
| Scope 3 financed residential mortgage emissions | At 31 Dec 2024(1) | At 31 Dec 2023(1) |
|---|---|---|
| Absolute carbon emissions (tonnes of CO₂) | 453,519* | 473,062* |
| Physical emissions intensity (kg of CO₂ per total property square metre) | 19.31* | 19.62* |
(1) Due to the complexity in compiling this data, it is shown on a one-year lag.
In line with industry practice, our mortgage emissions are calculated a year in lag. Further, even with real-time data, the impact of actions to reduce our mortgage emissions will not be felt in the short term, given the period over which customers have fixed rate mortgages and the time needed for homeowners to research, select, fund and carry out upgrades. Ongoing EPC reform, and the development of more accurate data sources (such as smart meter data) will also lead to refinement of our mortgage emissions calculation, which will continue to align with the requirements of the 2015 UN Paris Agreement, in the coming years.
Our immediate focus is therefore on building colleague confidence, customer awareness and product development; these are the initial actions where we can play our part in decarbonising the UK's housing stock, with that being reflected, once demand has built and works are carried out, in the revised emissions and targets we calculate, using more accurate EPC and/or smart meter data, in 2028 and beyond.
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page 30
Strategic report (continued)
TSB’s Do What Matters Plan (continued)
Planet (continued)
Financed emissions: targets and metrics (continued)
See ‘Managing the opportunities associated with climate change’ on pages 34 and 35, and ‘Reducing our financed emissions’ on page 28 for further details on our approach.
Methodology
The carbon emissions of our mortgage portfolio have been estimated using the Partnership for Carbon Accounting Financials (PCAF) methodology. Where available, CO₂ emissions and floor area for each property secured by a TSB mortgage have been obtained from the building’s EPC. Emissions from expired EPCs that are more than ten years old and EPCs issued after 31 December 2024 have also been included as we believe this more accurately reflects individual property emissions than using modelled or average data. Where EPCs were unavailable, estimations have been made using modelled data.
Under the PCAF methodology, the estimated CO₂ emissions attributable to TSB financing is calculated as the proportion of the mortgage loan balance compared to the indexed property value. Attribution has been calculated at property level by dividing the outstanding amount at 31 December 2024 by the indexed valuation at 31 December 2021. For properties onboarded since 31 December 2021, we have used the earliest available indexed valuation from 31 December 2022, 31 December 2023 or 31 December 2024. Note, December valuations are indexed on Q3 House Price Index due to timing of data availability.
The PCAF methodology is also used to calculate a data quality score for our financed emission calculations. Under this methodology, a data quality score is calculated between 1 and 5, where 1 is the highest data quality and 5 is the lowest. This score is intended to highlight the use of estimations used in the calculations and allows TSB to check progress on improving data quality and coverage in the future. Our 2024 residential mortgage emissions data quality score was 3.26 (2023: 3.30). Further information on TSB’s methodology and data can be found here.
Assurance
TSB appointed EY to provide limited independent assurance over our scope 3 financed (residential mortgage) emissions for the year to 31 December 2024 (indicated in the Scope 3 Financed Residential Mortgage Emissions Table on page 30 by *). The engagement was planned and performed in accordance with the International Standard for Assurance Engagements (ISAE) (UK) 3000 (July 2020), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. A limited assurance report was issued and is available here. This report contains details of the scope, respective responsibilities, work performed, limitations and conclusion.
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page 31
Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Operational emissions: targets and metrics
The table below sets out our continued progress in 2025 towards the interim 2030 science-aligned targets we set in 2024, covering the most material categories of operational greenhouse gas emissions as reported in our Streamlined Energy and Carbon Reporting (SECR) table: Scope 1 and 2 and the Scope 3 categories of paper, travel and homeworking emissions. The table below sets out our interim 2030 targets and our progress in 2025.
| Direct and indirect emissions from heating and cooling our estate | Paper | Business travel, colleague commuting & home-working | |
|---|---|---|---|
| Science-aligned target | 65% reduction by 2030 from 2023 baseline (Scope 1) and continue to purchase 100% renewable electricity (Scope 2) | 42% reduction by 2030 from 2023 baseline | 42% reduction by 2030 from 2023 baseline |
| Progress | Actual Target | ||
| 1,410 | |||
| 2023 2024 2025 2026 2027 2028 2029 2030 | Actual Target | ||
| 702 | |||
| 2023 2024 2025 2026 2027 2028 2029 2030 | Actual Target | ||
| 5,016 | |||
| 2,909 | |||
| 2023 2024 2025 2026 2027 2028 2029 2030 | |||
| Target status at end 2025 | On track | On track | On track |
Streamlined Energy and Carbon Reporting
Alongside our science-aligned targets and progress, TSB continue to report greenhouse gas emissions in line with the UK SECR regulations.
| Table 1: Summary of Streamlined Energy and Carbon Reporting | 2025 | 2024 |
|---|---|---|
| Location-based (1) emissions in gross tonnes of carbon dioxide equivalent (tCO2e) (2) | ||
| Scope 1 emissions from the combustion of fuel and operation of facilities (3) | 880* | 1,100 |
| Scope 2 emissions from the purchase of electricity (4) | 1,919* | 2,417 |
| Total scope 1 and 2 location-based emissions | 2,799* | 3,517 |
| Scope 3 emissions from colleague travel & homeworking (excluding hotels) | 3,435* | 4,217 |
| Scope 3 emissions from hotel stays (14) | 91* | 129 |
| Scope 3 emissions from paper | 466* | 578 |
| Scope 3 emissions from waste and water | 14* | 15 |
| Total Scope 3 location-based emissions | 4,006* | 4,939 |
| Total Scope 1, 2 and 3 location-based emissions | 6,806* | 8,456 |
| Intensity ratio (location-based tCO2e per Full Time Employee (FTE)) (5) | 1.4* | 1.6 |
| Energy consumption kWh (million) (6) | 15.885* | 18.123 |
Footnotes are set out under Table 2 on the following page.
TSB's total energy consumption, as measured on a location(1) basis, was 12% lower in 2025 compared to 2024. This reduction was due to energy optimisation measures, site closures and positive colleague action on energy efficiency. For further details, please refer to 'Reducing our operational emissions' on page 29.
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Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Operational emissions: targets and metrics (continued)
In line with TSB re-calculation policy, some emissions have been re-stated to account for changes to our business, data quality or methodology, which allows for comparison year on year. See Summary of Streamlined Energy and Carbon Reporting methodology paper for a full description of how the re-calculation was applied.
Market-based emissions
TSB have also created a view of market-based emissions (Table 2 below), which consider the purchase of 100% Renewable Energy Guarantees of Origin (REGO) certified electricity and verified carbon removal credits.
| Table 2: Summary of Streamlined Energy and Carbon Reporting | 2025 | Re-stated 2024 |
|---|---|---|
| Scope 1 market-based(7) emissions in gross tonnes of carbon dioxide equivalent (tCO2e)(8) | 880 | 1,100 |
| Scope 2 market-based(7) emissions in gross tonnes of carbon dioxide equivalent (tCO2e)(8) | 18 | 25 |
| Verified carbon removals (offsets)(9) | (898) | (1,125) |
| Net scope 1 and 2 market-based emissions(10) | - | - |
| Total scope 1, 2 and 3 market-based emissions | 4,006 | 4,939 |
Resource consumption data
| Paper (tonnage)(11) | 347 | 432 |
|---|---|---|
| Water (m3) | 26,206 | 33,032 |
| Waste (tonnage)(12) | 654 | 594 |
| Waste diverted from landfill | 99.7% | 99.6% |
| Waste intensity (waste tonnage per FTE)(13) | 0.13 | 0.11 |
Notes to Tables 1 and 2
(1) Location-based emissions are those measured using the UK national grid electricity conversion factors, updated annually.
(2) tCO2e – tonnes of carbon dioxide equivalent.
(3) Scope 1: natural gas, heating oil, fugitive gas and company cars.
(4) Scope 2: direct commercial electricity supplies plus landlord data where available.
(5) Calculated as the sum of Scope 1, 2 and 3 location-based emissions divided by the average annual headcount.
(6) Scope 1, 3, and energy consumption totals include both mandatory and voluntary elements of SECR reporting.
(7) Market-based emissions are those associated with the purchase of REGO certified renewable energy which carry zero-rated emissions. TSB began purchasing REGOs in October 2019.
(8) Scope 1 and 2 emissions: natural gas, heating oil, fugitive gas, company cars, electricity (100% REGO certified).
(9) Plan Vivo carbon removal certificates registered on the Market Environmental Registry.
(10) Net Scope 1 and 2 emissions are total market-based emissions minus verified carbon removals.
(11) Paper: Total tonnage arising from office and branch paper purchases, print and mail and marketing activities.
(12) Waste: Total tonnage arising from office and branch waste, destruction of archived documents, recycling of IT equipment and project waste including activity from branch closures and office relocations.
(13) Calculated as the tonnes of waste generated divided by the average annual headcount.
(14) Carbon emissions from hotel stays have been excluded from our business travel target as this is not a category of emissions measured by our parent company, Banco Sabadell. CO2e emissions from hotel stays are therefore reported separately in this table
Additional metrics
Waste recycling rate
Location-based energy emissions
Electric vehicles in company car fleet
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Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Methodology
Our operational emissions are calculated in accordance with the Greenhouse Gas Protocol, the global standard for measurement of carbon emissions. To calculate our homeworking emissions, we follow the Eco Act methodology and use UK Government conversion factors. Further information on TSB's methodology and full Summary of Streamlined Energy and Carbon Reporting since 2019 can be found here.
Assurance
TSB appointed EY to provide independent limited assurance over metrics indicated in Table 1 on page 32 by (*). The assurance engagement was planned and performed in accordance with the International Standard for Assurance Engagement (ISAE) (UK) 3000 (July 2020) Assurance Engagements Other than Audits or Reviews of Historical Financial Information.
A limited assurance report was issued and is available here. This report contains details of the scope, respective responsibilities, work performed, limitations and conclusion.
Managing the opportunities and risks associated with climate change
We continue to consider the risks and opportunities associated with climate change and these are incorporated in TSB's medium-term plan. The opportunities and risks are assessed by reference to the following time horizon:
| Short | Medium | Long | |
|---|---|---|---|
| Time horizon | Within the next 12 months | 1 – 5 years | 5+ years |
| Rationale | Aligns with the going concern time horizon analysis (page 39) | Aligns with current medium term planning horizon | Extends beyond current planning horizon |
Managing the opportunities associated with climate change
The table below provides a description for each of the principal climate-related opportunities arising in connection with our business, a description of the impact of that opportunity on our business model and strategy, and with the time horizon those opportunities have been assessed against.
| Opportunity | Impact | Horizon | |
|---|---|---|---|
| FINANCED EMISSIONS | At TSB, we have a clear purpose to provide Money Confidence. For everyone. Every day. Our aim is to support customers with money confidence in ways that enable them to prepare for a net-zero future, including understanding how and why to create a warm, resilient home, and plan the move to clean heat. | Engaging with customers and homeowners, utilising data (where data regulations allow), will help us build deeper customer relationships, delivering value through tailored support and offers and rewarding customers for meeting more of their needs through TSB. | Long |
| Once customers have confidence in their plan to create a warm, resilient, low carbon home, we can help customers play their part in tackling climate change by providing them with the financial products and propositions they need to take action and encouraging take up. | Benefits of more energy-efficient, low carbon properties on our mortgage portfolio include reduced energy bills for our customers (building their resilience and money confidence), improved value and saleability of properties and contributes to the reduction in TSB's financed emissions. | Long | |
| OPERATIONAL EMISSIONS | Decarbonise our property estate, removing reliance on fossil fuels. | TSB has a 5-year decarbonisation plan to reduce the reliance on fossil fuels in its operational estate. | Medium |
| As we work to deliver a best-in-class digital proposition, we have a co-opportunity to reduce our paper consumption and supply chain emissions. | As well as reducing our impact on the environment, reducing emissions from paper consumption will contribute to making TSB simpler and more efficient for customers and colleagues, reducing costs. | Short - Medium | |
| Empowering colleagues to improve sustainability by adopting sustainable travel, commuting and homeworking habits. | Strengthening our operational resilience and colleague engagement and wellbeing through our ways of working approach and Do What Matters Plan. | Short - Medium | |
| VALUE CHAIN EMISSIONS | Partner with suppliers to drive sustainability through the supply chain. | Using enhanced data and supplier profiling information, identify suppliers and, through better engagement, collaboratively work to reduce environmental impacts, in line with TSB targets. | |
| Work with suppliers to create long-term partnerships and mutual growth, cost savings, more resilient operations and business continuity. Support smaller suppliers to reduce environmental impact. | Short - Medium |
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Strategic report (continued)
TSB’s Do What Matters Plan (continued)
Planet (continued)
Managing the opportunities associated with climate change (continued)
In addition to the above, there are opportunities that are considered cross cutting or entity wide opportunities:
| Opportunity | Impact | Horizon | |
|---|---|---|---|
| CROSS CUTTING | Colleague engagement, empowering colleagues to improve sustainability by adopting sustainable habits. | Better colleague engagement, leading to colleague retention & attraction. | Short |
| Opportunity to strengthen our reputation as the bank that Does What Matters. | Taking meaningful decarbonisation action enhances TSB’s reputation and supports in developing deeper colleague, customer and stakeholder relationships and advocacy. | Short |
Managing the risks associated with climate change
We are assessing the new regulatory expectations set out by the PRA in Supervisory Statement 5/25 (Enhancing banks' and insurers' approaches to managing climate-related risks) and will complete our internal review and gap analysis by 3 June 2026.
We have used our established Risk Management Framework (as detailed on page 10) to assess the significance of the climate-related risks facing TSB, for example:
- The level 1 strategic risk category includes an ESG Level 2 risk category. This focuses on the risks arising from environmental, social and governance issues, making climate change risk more visible within TSB’s Risk Management Framework;
- We have considered climate change within our annual risk appetite review; and
- We have assessed and documented how climate change may influence each of the policies within the TSB policy framework as part of the policy effectiveness statement.
The table below provides a description for each of the principal climate-related risks arising in connection with our business, a description of the impact of that risk on our business model and strategy, together with the time horizon those risks have been assessed against.
| Potential risk | Potential impact | Horizon | |
|---|---|---|---|
| PHYSICAL RISK | The main physical risks for TSB relate to flooding, precipitation, subsidence and coastal erosion impacting the potential realisable value of property related collateral. | Of these, flooding and precipitation pose the primary physical risk to TSB. We have measured subsidence and coastal erosion risks and, due to low exposure rates, concluded these are not a principal concern. | Medium - Long |
| Severe weather events could impact business continuity. | Impact to customers where TSB front-line colleagues (branches or telephony centres) are affected can be managed through geographic coverage of staffing levels and through our multi-channel approach (digital services in particular) as well as localised Business Continuity Plans. | ||
| We note that TSB does not directly operate any data centres, which are managed by a third party, and we look at the resilience of our data centres through supplier due diligence. | |||
| Increased maintenance costs cannot be fully anticipated, and may impact planned budgets. | Short | ||
| The crystallisation of physical climate risks could impact UK government spending and revenues, UK bank profitability and Sovereign, Supranational and Agency (SSA) and supranational financing requirements. | The Bank invests a portion of its Liquid Asset Buffer in UK government, UK bank Canadian Bank and SSA debt. | ||
| A physical event could affect the value of these debt holdings. | Medium - Long |
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Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Managing the risks associated with climate change (continued)
| Potential risk | Potential impact | Horizon | |
|---|---|---|---|
| TRANSITION RISKS | Transition risk for our mortgage portfolio will arise from: • Transitional legislation mandating minimum energy efficiency standards for properties; • Transitional legislation mandating installation of low carbon heating; • A shift in consumer sentiment towards properties that have better energy efficiency, resilience, low-carbon heating and/or electricity micro-generation and storage (for example through solar panels and batteries); • The sale of retrofit and energy efficient products and propositions. | Potential impacts of transition risks for TSB's mortgage lending include: • The impact on customers (with potential for "mortgage prisoners") and property value if the property can't be retrofitted (for either energy efficiency or electrification), or the cost of retrofitting is unaffordable; • Increased impairments and arrears for Buy-To-Let mortgages where properties can no longer be let (due to failure to meet minimum energy efficiency standards, and/or fines); • Increased competition for more efficient properties (currently EPC rating A/B); • Liability and conduct risk from retrofit or energy efficient products miss-sold, incorrectly provided or assumed advice, and/or risk of underperformance of financed retrofitting activity. | Short-Long |
| The main transition risk to the Bank's operational estate arises from the impact of Minimum Energy Efficiency Standard (MEES), and the costs to meet these standards. There is an emerging risk associated with supply chain availability as companies transition to decarbonise their operational estates. | Any future changes to MEES regulations could impact the ability to dispose of vacant or surplus operational property. Additional funding may be required to upgrade the existing operational estate. The impact on the supply chain to procure renewable energy, or the assets required to decarbonise the estate as companies race to remove carbon from their operational estates cannot be fully anticipated; this could therefore impact planned budgets. | Medium | |
| There is a potential reputational risk should stakeholders feel insufficient action is being taken to transition and deliver emissions reductions, or that TSB is 'greenwashing' in its claims of action and contagion risk from third-party suppliers due to the supplier's carbon footprint. | Impact could be negative stakeholder reaction and publicity, leading to lower colleague and customer engagement and satisfaction, or to further public and regulatory scrutiny of TSB's activity related to this issue. | Medium | |
| The crystallisation of transitional climate risks could impact UK government spending and revenues, UK bank profitability and Sovereign, Supranational and Agency (SSA) and Supranational financing requirements. | The Bank invests a portion of its Liquid Asset Buffer in UK Government, UK Bank, Canadian Bank and SSA debt. A transitional event could affect the value of these debt holdings. | Medium - Long |
Scenario analysis
We use scenario analysis to help identify and measure climate-related risks and to make sure their management and mitigation are embedded in our strategy, risk appetite, financial planning, and capital management processes as they become more material over time.
Analysis of the residential mortgage portfolio on page 37, provides a comprehensive view of potential risks and impacts across a range of potential climate pathways. We adopt an industry recognised approach using Representative Concentration Pathways (RCP) established by the UN Intergovernmental Panel on Climate Change. The methodology uses a number of potential RCP climate change scenarios based on how the global economy transitions to net zero emissions, alongside UK climate projections (UKCP18). All analysis is based on a 'worst case' global outcome (RCP 8.5), reflecting both benign and stressed economic environments.
Our scenario analysis considers property values as they are today as well as loan balances, potential property value impact after a climate event and probability of repossession to help determination of likely 'realised' loss to TSB.
In 2025, our updated analysis indicated the climate risk profile has not materially changed and remains low for both physical and transitional climate impacts.
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
TSB's Do What Matters Plan (continued)
Planet (continued)
Scenario analysis (continued)
While TSB is not materially affected by climate risk in the short-term and financial exposure is low, we are impact assessing physical risks for new mortgage lending. This enables us to identify exposures in the context of our defined risk appetite. For portfolio reviews, we acknowledge that the UK is experiencing wetter weather all-year round and this is causing an increase in flood events which will grow in frequency and severity over time. Therefore, whilst risk and loss remain low, we consider flooding and precipitation to be the most impactful physical risk of concern.
The financial impact of subsidence risk has also been considered and whilst subsidence events are anticipated to occur in reasonable volumes, the costs to repair such issues are currently immaterial versus property values and therefore not considered to be a significant material risk.
From a transition perspective, the main risks arise from the poor energy performance of the properties on which mortgage lending is secured and the risks associated with the cost for improving the property rating and moving to low-carbon heat. We also monitor evolving policy and regulations around climate change and recognise that these may be updated in the short to medium term.
We continue to see improvements in the average EPC Standard Assessment Procedure (SAP) score of our current portfolio, as shown in the table below. SAP is the methodology used by the UK government to assess and compare energy and environmental performance of residential properties.
| Year | Average EPC score | Average SAP score | SAP movement YoY |
|---|---|---|---|
| 2021 | D | 63.8 | +1.2 |
| 2022 | D | 64.9 | +1.1 |
| 2023 | D | 65.6 | +0.7 |
| 2024 | D | 66.1 | +0.5 |
Whilst we use EPC rating and SAP score to benchmark our performance year on year, we recognise and support the industry and government effort to overhaul the underlying methodologies of these processes to enable greater accuracy, relevance and reliability.
We will continue to analyse the risk to the mortgage portfolio on an annual basis, and in 2026, will review our scenario analysis (in line with Supervisory Statement 5/25) with added customisation based on our own economic outlook and our opinion on how climate risks are likely to progress and evolve over time. This expansion will be proportionate, reflecting the relatively low portfolio risks outlined above, and the low risk witnessed at mortgage origination.
TSB Bank plc
Annual Report and Accounts 2025
page 37
Strategic report (continued)
Section 172 statement
In overseeing delivery of TSB's purpose and strategy, TSB's Directors are always mindful of their duties under the Companies Act 2006, including as set out in section 172. The Board recognises that TSB's ongoing success is only possible through engagement with, and having regard to, the interests of key stakeholders.
TSB's governance framework seeks to ensure that the Board appropriately considers stakeholders in decision making. The Board monitors and challenges progress in the performance of the business through its review of metrics which measure the level of achievement of TSB's Primary Corporate Objectives, which includes delivery of the Do What Matters Plan, monitoring performance against risk appetite and reviewing customer management information that measures the execution of customer conduct strategies.
These metrics, together with a wider dashboard of management information, are reviewed and discussed. Data on customer outcomes continued to be an area of Board focus as described further in the 'Customers' section below. In addition, the Remuneration & People Committee regularly reviews achievement against the Primary Corporate Objectives to support its decision making on variable remuneration outcomes. In this way, variable remuneration outcomes are directly linked to metrics that support the delivery of TSB's strategic objectives.
Each year the Board considers a refresh of the Bank's medium-term plan which requires the Executive to consider the impact on various stakeholders and provides the Board with an opportunity to challenge the Executive in ensuring that appropriate consideration is given to the interests of all stakeholders. In 2025, the plan was comprehensively discussed across two Board meetings in October and November, with the interests of the Bank's respective stakeholders forming a key part of these deliberations.
Customers
The Board takes account of customer experience through regular reviews of key measures such as Net Promoter Score and customer conduct metrics.
One of the Board's annual responsibilities, following the inaugural report in July 2024, is consideration and approval of the Bank's assessment of its monitoring of and actions to deliver good outcomes for customers, in accordance with the FCA's Consumer Duty. The 2025 report was approved by the Board in October following initial review in September. Following the identification of a number of issues impacting customer outcomes during the course of 2025, management stood-up a strategic review into the level of cultural embedment of the Consumer Duty in the Bank. The Board played an active role in shaping the scope of, and intended outcomes from, the review and requested regular touchpoints on the review as it progressed.
As has been the case since 2021, the Board also held two deep dive sessions on complaints in 2025 to provide ongoing support and challenge to management's efforts to improve the customer experience through root cause analysis of the main complaint types and to implement action plans to address the underlying causes identified.
The Board also initiated and participated in a deep dive session on customers, which addressed a number of customer-related topics including: the Bank's customer cohorts, characteristics and behaviours; and the strategies being deployed by the Bank for customer acquisition and engagement.
Finally, following the announcement of the proposed acquisition of TSB by Santander, management implemented additional tracking of customer sentiment, through surveys and other mechanisms, which data was considered by the Board at each meeting following the announcement.
TSB Bank plc
Annual Report and Accounts 2025
page 38
Strategic report (continued)
Section 172 statement (continued)
Colleagues
The Board is proud of the commitment of our employees and the collaborative culture in TSB. The Board operates a framework that takes account of the interests of our employees, including:
- Promoting the role of recognised trade unions is independently representing the interests of employees, with the Chief Executive also maintaining direct communication with senior representatives from each of the Bank's recognised trade unions;
- The appointment of a Board level whistleblowing champion;
- Providing challenge, through the auspices of the Remuneration & People Committee, to ensure that remuneration policy is appropriate for all employees, as well as executives, and provides for competitive remuneration strongly aligned to the delivery of TSB's strategic goals;
- Undertaking, at least annually, a review of talent and succession, particularly in respect of leadership roles; and
- Considering and interrogating the output from the annual Colleague Experience Survey and additional pulse surveys issued from time to time. The latter included check-in surveys on colleague sentiment following the announcement of the proposed acquisition of TSB by Santander, with the results of these, together with other colleague metrics, reported to the Board.
In addition, the Chief Executive, as a member of the Executive Committee, takes part in a variety of colleague engagement activity across TSB locations, including: stand-ups, town hall meetings, TSB Talks sessions, branch visits and informal coffee catch-ups. At all of these, colleagues are encouraged to raise issues on their minds. Following the announcement of the proposed acquisition of TSB by Santander, the TSB Talks sessions in particular have been used as an opportunity to gauge colleague sentiment about the transaction and provide colleagues with the opportunity to pose related questions to Executive Committee members.
The Board also receives an annual presentation from The Link to facilitate direct engagement between the Board and employees. The Link is a forum for employees across all levels and all parts of TSB. It gathers and builds on employee feedback and enables meaningful dialogue between employees, the Executive leadership and the Board on a wide range of topics.
In 2025, The Link met seven times and presented at the Executive Committee on three occasions, covering a broad range of topics.
The Board discussion with The Link took place in November 2025 and focused on colleague recognition, Santander-TSB integration, learning & skills, inclusion and IT Service Excellence Roadshows. The Board were supportive of the recommendations put forward by The Link and offered suggestions for how these might best be delivered and built on. Preceding the formal Board presentation in November, the first annual breakfast session took place in July 2025, attended by representatives of the Board and The Link. The purpose of this session, which covered: Santander-TSB integration; Colleague Excellence Awards; cyber security; and learning & skills, was to provide another opportunity to discuss matters of interest to employees in an informal setting.
Throughout 2025, different members of the Board accompanied the Chair in attending a series of breakfast meetings with senior leaders to discuss matters of interest to them in an informal setting. During the summer this concept was extended to include lunch meetings providing wider opportunity for senior leaders not based in London to attend such sessions.
TSB Bank plc
Annual Report and Accounts 2025
page 39
Strategic report (continued)
Section 172 statement (continued)
Colleagues (continued)
The Board plays an active role in promoting and challenging progress in establishing a truly diverse and inclusive culture at TSB and the Remuneration & People Committee carries out succession planning reviews to ensure continuity of skilled employees. To enable the Board to spend more time considering executive succession, responsibility for executive succession plans (excluding for Executive Directors) was moved from the Nomination Committee to the Remuneration & People Committee in November 2024. In support of this responsibility, two Executive Committee members each attended one meeting of the Remuneration & People Committee in 2025 to discuss colleague-related developments within their respective functions. Additional information on how the bank engages with colleagues can be found in the Do What Matters Plan section on page 25.
Suppliers
TSB considers that a robust supplier management framework, including clear roles, responsibilities and accountability, is required to assure resilient customer services. The Board approves annually TSB's Supplier Policy (which includes the outsourcing strategy). The Supplier Policy includes, amongst other matters:
- alignment to regulatory requirements;
- appetite for use of suppliers where internal capability does not exist or scale and/or value is generated through use of a supplier;
- confirmation where TSB has no appetite for outsourcing of key activities, for example, there is no appetite to outsource ownership of primary customer banking relationships;
- for critical or material outsourcing, TSB will look to use market leading, financially, and operationally secure suppliers;
- considerations in supplier selection based on risk assessment, experience and track record of the supplier; and
- a preference to select suppliers that support TSB's expectations in areas such as the environment, human rights and labour standards.
Page 23 sets out TSB's approach to the prompt payment of suppliers.
Communities
The Board fully recognises its obligations to consider the interests of the wider communities in which TSB operates and this is demonstrated in its support of the Do What Matters Plan, TSB's responsible business plan, described in further detail starting on page 23. This outlines how, through delivery of TSB's purpose and strategy, TSB seeks to contribute to a better society. The Board receives regular updates on progress of the Do What Matters Plan through the Chief Executive's Report, together with a more comprehensive annual update at which the ambition of, and progress against, management's plans are challenged.
Other key stakeholders
The Board also has regard for the interests of the Bank's shareholder and regulators as outlined below.
- TSB's shareholder, Banco de Sabadell, S.A. (Sabadell). Given Sabadell's 100% ownership of TSB, it is natural that the promotion of the long-term success of TSB, through the development of a clear purpose and strategy, is aligned with the interests of Sabadell, without undermining the legal obligation of TSB's Directors to act independently.
Sabadell's interests are represented at Board by two shareholder appointed Non-executive Directors. Any circumstances where shareholder and TSB interests are not aligned are managed through the disclosure and management of any such potential conflict.
Sabadell's interests are further represented through the UK Steering Committee (UKSC). The UKSC seeks to provide Sabadell with a regular overview of the performance of TSB and to ensure that TSB policies and processes are aligned to those of the Sabadell Group where it is appropriate to do so. Certain members of the Bank's Executive Committee are appointed as members of the UKSC. Open communication channels are also maintained between key Sabadell and TSB executives, such as the Chief Executive and Chief Financial Officer and between functional counterparts, for example in Legal, Human Resources and the Second and Third Lines of Defence.
- Regulators. Open and honest engagement with regulators is a cornerstone principle of the UK regulatory environment. The Chief Risk Officer reports regularly to the Risk Committee and the Board on material matters of regulatory liaison and TSB's assessment of the quality of the relationship with each regulator. Certain Board members maintain a direct relationship with the FCA and PRA through the framework of 'proactive engagement and continuous assessment' meetings and report on key themes discussed through committee and Board meetings, as appropriate
TSB Bank plc
Annual Report and Accounts 2025
Strategic report (continued)
Section 172 statement (continued)
Other key stakeholders (continued)
Following the announcement of the proposed acquisition of TSB by Santander, the Board has received regular updates on the progress of the transaction and related preparatory activity. The Board has also remained mindful, in the period since the announcement, of Santander's interests as a likely new owner, whilst continuing to act independently and giving appropriate weight to the interests of all stakeholders in its deliberations. As part of this process, the Board has received external legal advice on the obligations of Directors in the period up to a possible change in control and instructed TSB's legal team to adapt the guidance for the benefit of senior colleagues across the business.
Consideration of environmental and climate change matters
TSB's Do What Matters Plan formalises the Bank's commitment to reducing its impact on the environment while helping customers and employees do the same. As part of this plan, we have committed to reduce our environmental impact and deliver against our goals as outlined starting on page 28. In addition, the Board, through discussion of the topic at the Risk Committee, continued to engage with the climate change agenda in 2025, inputting into management's plans to recognise and mitigate the risks to the business arising from climate change.
Strategic report on pages 4 to 41 approved, by order of the Board.
K. H.
Keith Hawkins,
Company Secretary
5 February 2026
TSB Bank plc
Annual Report and Accounts 2025
Directors' report
Introduction
The Directors of TSB Bank plc (the Company) present their report and audited financial statements for the year ended 31 December 2025, in accordance with section 415 of the Companies Act 2006. The Colleagues and Suppliers sections of the Section 172 statement (pages 39 and 40), the People section of TSB's Do What Matters Plan section (pages 23 to 27), and the Operational emissions: targets and metrics, section on pages 32 and 33, are incorporated into this Directors' report.
Principal activities and results
The principal activities and review of the Company are set out in the Strategic report on pages 4 to 41.
Dividends
The Directors do not currently propose to pay a dividend for the year ended 31 December 2025 (2024: £300.0 million).
Directors
The Directors who served during the year are shown on page 3.
Directors' indemnities
Each of the Directors has the benefit of a deed of indemnity which constitutes a 'qualifying third party indemnity provision'. This indemnification for Directors provided by the Company has been arranged in accordance with the articles of association and the Companies Act 2006.
The indemnities for all Directors were in place throughout 2025. This includes Marc Armengol, whose indemnity as a Non-executive Director remained in place during the period in which he had temporarily stepped down from the Board (between 31 December 2024 and 20 March 2025). Each of the indemnities remain in force at the date of signing these financial statements and are available for inspection at the Company's registered office.
Corporate governance
Although the Company does not have shares with a premium listing on the London Stock Exchange and does not need to comply with the UK Corporate Governance Code (2024 edition) (Code), the Board has chosen to voluntarily adopt those principles of the Code that are considered appropriate for the Company. Information on how the Company has applied the Code can be found starting on page 47 of the annual report and accounts of the Company's parent, TSB Banking Group plc, which is available at www.tsb.co.uk. TSB Banking Group plc's annual report and accounts also contains further information on the Company's governance arrangements including reports from TSB's Nomination Committee and Audit Committee.
Future developments
The development of the Company is set out in the context of the Review of business performance on pages 4 and 5 and the Company's business model on page 6.
Political donations and expenditure
No amounts were given for political purposes during the year (2024: £nil).
Financial instruments
Information on financial risk management objectives and policies in relation to the use of financial instruments can be found starting on page 74 of the financial statements.
Post balance sheet events
There are no significant events affecting the Company that have arisen between 31 December 2025 and the date of this report that require disclosure.
Research and development activities
TSB is dedicated to designing inclusive, outcomes-led customer propositions and journeys that meet the needs of all our customers, including those in vulnerable circumstances. In 2025, we improved priority journeys for Personal Current Accounts, Loans and Cards in our mobile app and prepared enhancements to our Savings proposition. We also supported the Rezide shared-equity pilot to help move first-time buyers onto the property ladder. We continue to safeguard access to cash across UK communities, with Mobile Money Confidence Experts embedded in our Banking Hubs nationwide to provide face-to-face support and build financial confidence. For customers who prefer to speak to us face-to-face but cannot reach a branch, we also offer video banking to give secure, convenient access to specialists. We continuously innovate how we communicate with customers through personalised, always-on prompts delivered across an omni-channel framework. Using event-triggered journeys and an embedded communications governance and comprehension-testing framework, we send timely, relevant information in the channels customers choose – in-app, online or by email. Our propositions and communications are informed by ongoing customer research and testing, including comprehension testing of customer communications and independent market research (e.g. Ipsos research on current account features). We also use Voice of the Customer feedback and outcome monitoring to iterate product designs.
Overseas branches
The Company does not have any branches outside of the United Kingdom.
TSB Bank plc
Annual Report and Accounts 2025
page 42
Directors' report (continued)
Registered office
The registered office address for TSB Bank plc is Henry Duncan House, 120 George Street, Edinburgh, EH2 4LH.
Disclosure of information to the external auditor
In accordance with the provisions of the Companies Act 2006, the Directors serving at the date of approval of this report confirm that, so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Appointment of external auditor
The audit of the 2025 financial statements is the sixth to have been undertaken by KPMG following a competitive tender undertaken in 2018 for the audit of the 2020 financial statements. Alex Snook was the senior statutory auditor for the audit of the 2025 financial statements. This marks his first audit of TSB's financial statements as the senior statutory auditor, following successful transition during the 2024 audit. A resolution to re-appoint KPMG for the audit of the financial statements for the year ending 31 December 2026 will be proposed at the 2026 Annual General Meeting, and they will serve until completion of the anticipated acquisition of TSB by Santander.
Going concern
The Directors recognise their responsibility to make an assessment of TSB's ability to continue as a going concern, for a period of 12 months from the date the financial statements are approved. The Directors' assessment of going concern is integrated with the review of the medium term plan. The Directors, having taken into account the matters noted in the 'Basis of Preparation' on page 44, including the proposed acquisition of TSB by Santander, are satisfied that adequate funding and liquidity resources will be in place to allow the financial statements to continue being prepared on a going concern basis.
Viability assessment
The Directors' assessments of viability and principal and emerging risks can be found on page 64 of the annual report and accounts of the Company's parent, TSB Banking Group plc, under the heading 'Viability statement.'
Statement of Directors' responsibilities in respect of the financial statements
The Directors are responsible for preparing the annual report and the consolidated (Bank) and Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare the Bank and Company financial statements for each financial year. Under that law they are required to prepare the consolidated financial statements in accordance with UK adopted international accounting standards and applicable law and have elected to prepare the Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Bank and of the Company and of the Bank's profit or loss for that period. In preparing each of the Bank and Company financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable, relevant and reliable;
- state whether they have been prepared in accordance with UK adopted international accounting standards;
- assess the Bank and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to liquidate the Bank or the Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Bank and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report and a Directors' report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the Board
Keith Hawkins, Company Secretary, 5 February 2026
TSB Bank plc
Annual Report and Accounts 2025
page 43
Financial statements
Basis of preparation
These consolidated financial statements of TSB Bank plc comprise the results of TSB Bank plc (the 'Company'), a public limited company, limited by shares, consolidated with those of its subsidiaries, (together the 'Bank'). Details of subsidiary undertakings are provided in note 25(iv) to the financial statements on page 101. These consolidated financial statements have been prepared in accordance with UK adopted international accounting standards.
The consolidated financial statements have been prepared under the historical cost convention as modified by the recognition of certain financial instruments, including derivative contracts, at fair value through profit or loss, and financial assets at fair value through other comprehensive income.
Going concern
The going concern basis is dependent on maintaining sufficient capital and funding. The Directors considered a number of factors including an assessment of principal risks and projections of capital, funding and liquidity. TSB's business activities and objectives, together with the factors likely to affect its future development, performance and position are set out in the Strategic report. In 2025, TSB reported a profit before tax for the year of £339.4 million (2024: £285.1 million) and continues to be in compliance with, and exceeds, its regulatory capital and liquidity requirements.
As part of those forecasts, the Directors have modelled the impact of a severe but plausible downside stress in line with the severe downside scenario described in note 8, which is a scenario used in the Bank's ICAAP process and is broadly consistent with the Bank of England's stress scenario. Based on the forecasts and the stress performed, the Directors are satisfied that TSB will have sufficient regulatory capital and liquidity for a period of 12 months from the date of approval of these financial statements (the 'going concern assessment period').
On 1 July 2025, the Board of Sabadell accepted Santander's offer to purchase TSB, with the acquisition remaining subject to regulatory approval. The Directors going concern assessment has focused on the current TSB Board approved strategy, with consideration of transition related risks and the monitoring and mitigation activities around them, and on a standalone basis the Directors have a reasonable expectation that TSB will be able to continue in operation and meet its liabilities as they fall due in the going concern assessment period.
It is expected that, if the sale to Santander completes as anticipated, TSB would be integrated into the Santander group legal entity and governance structure, although this is not anticipated to occur within the going concern assessment period. Although the Directors cannot be certain about the actions of the new owner should a deal complete, they do not consider this to represent a material uncertainty that may cast doubt on the ability of TSB to continue as a going concern in the going concern assessment period. They are not aware of any other such material uncertainties, and they continue to adopt the going concern basis in preparing the financial statements of both the Bank and Company.
Accounting policies
The significant accounting policies used in the preparation of the consolidated financial statements are materially consistent with those applied in 2024. The accounting policies are presented in a manner consistent with TSB's business model and are included in the relevant sections of the consolidated financial statements.
New and future accounting developments
The following amendment was effective for TSB from 1 January 2025 and its adoption has not had any material effect on the financial statements: Lack of exchangeability (Amendments to IAS21).
The IASB issued Amendments to the Classification and Measurement of Financial Instruments which amended IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures, effective from 1 January 2026. The IASB also issued IFRS 19 Subsidiaries without Public Accountability: Disclosures which is effective from 1 January 2027. Neither of these are expected to have a significant impact on TSB.
The IASB has also issued IFRS 18 Presentation and Disclosure in Financial Statements which is effective from 1 January 2027. An assessment of the impact on TSB's income statement presentation will be completed ahead of the standard's implementation. These future accounting developments are currently yet to be endorsed for use in the UK.
Significant accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The significant judgements made by management in applying accounting policies and the key sources of estimation uncertainty in these consolidated financial statements, which together are deemed critical to the results and financial position, are presented within the relevant note disclosures.
TSB Bank plc
Annual Report and Accounts 2025
page 44
Index to the financial statements
The Bank's primary financial statements are presented on pages 46 to 106. The notes to these financial statements are structured to follow the Bank's business model as set out on page 5 and are listed below.
Sources of funding
- Customer deposits
- Wholesale funding
- Subordinated liabilities
- Other financial liabilities
- Fair value of financial liabilities
Loans and liquid assets
- Debt securities
- Loans and advances to credit institutions
- Loans and advances to customers and allowance for credit impairment losses
- Other advances
- Fair value of financial assets
Income
- Net interest income
- Net fee and commission income
- Other operating income
Charges
- Operating expenses
- Directors' emoluments
- Taxation
- Deferred tax assets
Managing financial risk
- Credit risk
- Liquidity risk
- Capital resources
- Market risk
Other important disclosures
- Total equity
- Dividends
- Contingent liabilities
- Related party transactions
- Property and equipment
- Lease liabilities
- Intangible assets
- Other assets
- Provisions
- Other liabilities
- Notes to the consolidated cash flow statement
- Approval of the financial statements
TSB Bank plc
Annual Report and Accounts 2025
Balance sheets
as at 31 December 2025
| Note | Bank (Consolidated) | Bank (Consolidated) | Company | Company | |
|---|---|---|---|---|---|
| 2025 £ million | 2024 £ million | 2025 £ million | 2024 £ million | ||
| Assets | |||||
| Financial assets at amortised cost: | |||||
| Cash, cash balances at central banks and other demand deposits | 32 | 4,202.1 | 4,823.8 | 4,202.1 | 4,823.8 |
| Debt securities | 6 | 1,986.4 | 1,982.5 | 1,986.4 | 1,982.5 |
| Loans and advances to customers | 8 | 36,268.4 | 36,330.9 | 36,268.4 | 36,330.9 |
| Loans and advances to credit institutions | 7,32 | 305.2 | 277.8 | - | - |
| Reverse repurchase agreement | 62.0 | - | 62.0 | - | |
| Other advances | 9 | 66.9 | 130.2 | 66.9 | 130.2 |
| Financial assets at fair value through other comprehensive income | |||||
| Debt securities | 6 | 440.2 | 328.6 | 440.2 | 328.6 |
| Financial assets at fair value through profit or loss | |||||
| Derivative financial assets not in hedge accounting relationships | 21 | 362.4 | 667.6 | 350.2 | 649.7 |
| Hedging derivative financial assets | 21 | 1,149.2 | 1,274.3 | 1,096.5 | 1,272.4 |
| Fair value adjustments for portfolio hedged risk | 21 | 4.5 | (170.9) | 4.5 | (170.9) |
| Property and equipment | 26 | 215.1 | 233.9 | 215.1 | 233.9 |
| Intangible assets | 28 | 123.4 | 109.9 | 123.4 | 109.9 |
| Deferred tax asset | 17 | 6.1 | 8.1 | 6.1 | 8.1 |
| Other assets | 29 | 89.6 | 102.4 | 425.8 | 424.1 |
| Total assets | 45,281.5 | 46,099.1 | 45,247.6 | 46,123.2 | |
| Liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Customer deposits | 1 | 35,209.0 | 35,051.2 | 35,209.0 | 35,051.2 |
| Borrowings from central banks | 2 | 598.9 | 1,406.9 | 598.9 | 1,406.9 |
| Debt securities in issue | 2 | 4,869.3 | 4,583.2 | 4,391.2 | 4,084.6 |
| Subordinated liabilities | 3 | 297.8 | 285.9 | 297.8 | 285.9 |
| Other financial liabilities | 4 | 1,080.6 | 1,184.6 | 1,080.6 | 1,184.6 |
| Financial liabilities at fair value through profit or loss | |||||
| Derivative financial liabilities not in hedge accounting relationships | 21 | 456.7 | 824.2 | 456.7 | 824.2 |
| Hedging derivative financial liabilities | 21 | 99.4 | 143.6 | 99.4 | 143.6 |
| Fair value adjustments for portfolio hedged risk | 21 | 12.3 | (134.7) | 12.3 | (134.7) |
| Provisions | 30 | 22.2 | 39.8 | 22.2 | 39.8 |
| Lease liabilities | 27 | 107.8 | 120.7 | 107.8 | 120.7 |
| Other liabilities | 31 | 189.5 | 473.0 | 639.8 | 1,010.2 |
| Total liabilities | 42,943.5 | 43,978.4 | 42,915.7 | 44,017.0 | |
| Equity | |||||
| Share capital | 22 | 79.4 | 79.4 | 79.4 | 79.4 |
| Share premium | 22 | 195.6 | 195.6 | 195.6 | 195.6 |
| Other equity instruments | 22 | 250.0 | 250.0 | 250.0 | 250.0 |
| Other reserves | 22 | 412.8 | 412.8 | 412.8 | 412.8 |
| Retained profits | 22 | 1,398.4 | 1,164.9 | 1,392.4 | 1,157.2 |
| Fair value reserve | 22 | (6.2) | (8.0) | (6.2) | (8.0) |
| Cash flow hedging reserve | 22 | 8.0 | 26.0 | 7.9 | 19.2 |
| Total equity | 2,338.0 | 2,120.7 | 2,331.9 | 2,106.2 | |
| Total equity and liabilities | 45,281.5 | 46,099.1 | 45,247.6 | 46,123.2 |
The accompanying notes are an integral part of the consolidated financial statements. No statement of comprehensive income has been shown for the Company, as permitted by section 408 of the Companies Act 2006. The consolidated and Company financial statements on pages 46 to 106 were approved by the Board of Directors on 5 February 2026 and signed on its behalf by:
Marc Armengol
Chief Executive
TSB Bank plc
Annual Report and Accounts 2025
Consolidated statement of comprehensive income
for the year ended 31 December 2025
| Income statement (continuing operations): | Note | Bank 2025 | Bank 2024 |
|---|---|---|---|
| £ million | £ million | ||
| Interest and similar income: | |||
| Interest income calculated using the effective interest method | 11 | 1,846.4 | 1,803.9 |
| Other interest income | 11 | 129.3 | 273.5 |
| Total interest and similar income | 11 | 1,975.7 | 2,077.4 |
| Interest and similar expense | 11 | (920.1) | (1,093.0) |
| Net interest income | 11 | 1,055.6 | 984.4 |
| Fee and commission income | 12 | 114.1 | 124.7 |
| Fee and commission expense | 12 | (37.4) | (34.0) |
| Net fee and commission income | 12 | 76.7 | 90.7 |
| Net gains/(losses) on financial assets and liabilities: | |||
| Gains on derecognition of financial assets measured at amortised cost | 2.8 | – | |
| Gains on derivative financial instruments at fair value through profit or loss | 21 | 40.5 | 57.6 |
| Losses from hedge accounting | 21 | (34.2) | (30.1) |
| Gains/(losses) on derecognition of non-financial assets | 0.5 | (2.3) | |
| Other operating income | 13 | 30.4 | 36.7 |
| Other income | 116.7 | 152.6 | |
| Total income | 1,172.3 | 1,137.0 | |
| Total operating expenses | 14 | (785.9) | (821.8) |
| Operating profit before impairment losses and taxation | 386.4 | 315.2 | |
| Impairment losses on financial assets at amortised cost | 18 | (51.2) | (31.9) |
| Impairment credit on loan commitments | 30 | 4.2 | 1.8 |
| Total impairment losses | (47.0) | (30.1) | |
| Profit before taxation | 339.4 | 285.1 | |
| Taxation | 16 | (88.3) | (81.3) |
| Profit for the year | 22 | 251.1 | 203.8 |
| Other comprehensive income: | |||
| Items that may be subsequently reclassified to profit or loss: | |||
| Change in fair value reserve: | |||
| Change in fair value | 21 | 2.5 | (2.1) |
| Taxation thereon | 17 | (0.7) | 0.6 |
| 22 | 1.8 | (1.5) | |
| Change in cash flow hedging reserve: | |||
| Change in the fair value of derivatives in cash flow hedges | 21 | (19.9) | 17.6 |
| Transfers to the income statement | 21 | (2.6) | (1.0) |
| Taxation thereon | 17 | 4.5 | (2.8) |
| 22 | (18.0) | 13.8 | |
| Other comprehensive income/(losses) for the year, net of taxation | (16.2) | 12.3 | |
| Total comprehensive income for the year | 234.9 | 216.1 |
The accompanying notes are an integral part of the consolidated financial statements.
TSB Bank plc
Annual Report and Accounts 2025
page 47
Statements of changes in equity
for the year ended 31 December 2025
| Bank (Consolidated) | Share capital
£ million | Share premium
£ million | Other equity instruments
£ million | Merger reserve
£ million | Fair value reserve
£ million | Cash flow hedging reserve
£ million | Retained profit
£ million | Total equity
£ million |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at 1 January 2024 | 79.4 | 195.6 | – | 412.8 | (6.5) | 12.2 | 1,261.1 | 1,954.6 |
| Comprehensive income: | | | | | | | | |
| Profit for the year | – | – | – | – | – | – | 203.8 | 203.8 |
| Other comprehensive losses | – | – | – | – | (1.5) | 13.8 | – | 12.3 |
| Total comprehensive income | – | – | – | – | (1.5) | 13.8 | 203.8 | 216.1 |
| Transactions with owner: | | | | | | | | |
| Issue of Additional Tier 1 Securities | – | – | 250.0 | – | – | – | – | 250.0 |
| Dividends paid on ordinary shares | – | – | – | – | – | – | (300.0) | (300.0) |
| Total transactions with owner | – | – | 250.0 | – | – | – | (300.0) | (50.0) |
| Balance at 31 December 2024 | 79.4 | 195.6 | 250.0 | 412.8 | (8.0) | 26.0 | 1,164.9 | 2,120.7 |
| Comprehensive income: | | | | | | | | |
| Profit for the year | – | – | – | – | – | – | 251.1 | 251.1 |
| Other comprehensive (losses)/income | – | – | – | – | 1.8 | (18.0) | – | (16.2) |
| Total comprehensive (losses)/income | – | – | – | – | 1.8 | (18.0) | 251.1 | 234.9 |
| Transactions with owner: | | | | | | | | |
| Distributions on other equity instruments | – | – | – | – | – | – | (17.6) | (17.6) |
| Total transactions with owner | – | – | – | – | – | – | (17.6) | (17.6) |
| Balance at 31 December 2025 | 79.4 | 195.6 | 250.0 | 412.8 | (6.2) | 8.0 | 1,398.4 | 2,338.0 |
| Company | | | | | | | | |
| Balance at 1 January 2024 | 79.4 | 195.6 | – | 412.8 | (6.5) | 12.2 | 1,257.4 | 1,950.9 |
| Comprehensive income: | | | | | | | | |
| Profit for the year | – | – | – | – | – | – | 199.8 | 199.8 |
| Other comprehensive losses | – | – | – | – | (1.5) | 7.0 | – | 5.5 |
| Total comprehensive income | – | – | – | – | (1.5) | 7.0 | 199.8 | 205.3 |
| Transactions with owner: | | | | | | | | |
| Issue of Additional Tier 1 Securities | – | – | 250.0 | – | – | – | – | 250.0 |
| Dividends paid on ordinary shares | – | – | – | – | – | – | (300.0) | (300.0) |
| Total transactions with owner | – | – | 250.0 | – | – | – | (300.0) | (50.0) |
| Balance at 31 December 2024 | 79.4 | 195.6 | 250.0 | 412.8 | (8.0) | 19.2 | 1,157.2 | 2,106.2 |
| Comprehensive income: | | | | | | | | |
| Profit for the year | – | – | – | – | – | – | 252.8 | 252.8 |
| Other comprehensive (losses)/income | – | – | – | – | 1.8 | (11.3) | – | (9.5) |
| Total comprehensive (losses)/income | – | – | – | – | 1.8 | (11.3) | 252.8 | 243.3 |
| Transactions with owner: | | | | | | | | |
| Distributions on other equity instruments | – | – | – | – | – | – | (17.6) | (17.6) |
| Total transactions with owner | – | – | – | – | – | – | (17.6) | (17.6) |
| Balance at 31 December 2025 | 79.4 | 195.6 | 250.0 | 412.8 | (6.2) | 7.9 | 1,392.4 | 2,331.9 |
The accompanying notes are an integral part of the consolidated financial statements.
TSB Bank plc
Annual Report and Accounts 2025
page 48
Cash flow statements
for the year ended 31 December 2025
| Note | Bank (Consolidated) | Bank (consolidated) | Company | Company | |
|---|---|---|---|---|---|
| 2025 £ million | 2024 £ million | 2025 £ million | 2024 £ million | ||
| Cash flows from operating activities | |||||
| Profit before taxation | 339.4 | 285.1 | 341.1 | 281.1 | |
| Adjustments for: | |||||
| Change in operating assets and liabilities | 32 | 41.3 | 244.8 | (60.2) | 664.9 |
| Non-cash and other items | 32 | 360.5 | 524.0 | 388.7 | 503.6 |
| Taxation paid | (78.8) | (57.0) | (78.8) | (57.0) | |
| Net cash provided by operating activities | 662.4 | 996.9 | 590.8 | 1,392.6 | |
| Cash flows from investing activities | |||||
| --- | --- | --- | --- | --- | --- |
| Net purchase of property and equipment | (18.3) | (22.2) | (18.3) | (22.2) | |
| Purchase and development of intangible assets | (38.4) | (41.8) | (38.4) | (41.8) | |
| Purchase of debt securities(1) | (247.4) | (124.7) | (247.4) | (124.7) | |
| Proceeds from maturing investments(1) | 169.3 | 141.7 | 169.3 | 141.7 | |
| Interest received on debt securities | 67.6 | 68.1 | 67.6 | 68.1 | |
| Net cash (used in)/provided by investing activities | (67.2) | 21.1 | (67.2) | 21.1 | |
| Cash flows from financing activities | |||||
| --- | --- | --- | --- | --- | --- |
| Additional borrowings from central banks | 5.0 | - | 5.0 | - | |
| Repayment of borrowing from central banks | (797.0) | (2,620.0) | (797.0) | (2,620.0) | |
| Interest paid on borrowings from central banks | (46.2) | (177.1) | (46.2) | (177.1) | |
| Issue of covered bonds | 2 | 495.5 | 926.1 | 495.5 | 926.1 |
| Repayment of covered bonds | - | (500.0) | - | (500.0) | |
| Interest paid on covered bonds | (143.2) | (144.4) | (143.2) | (144.4) | |
| Issue of securitisation notes | - | 498.3 | - | - | |
| Repayment of securitisation notes | 2 | (20.0) | (5.0) | - | - |
| Interest paid on securitisation notes | (24.2) | (11.8) | - | - | |
| Issue of Additional Tier 1 securities | - | 249.7 | - | 249.7 | |
| Repayment of senior unsecured debt securities | 2 | (250.0) | - | (250.0) | - |
| Interest paid on senior unsecured debt securities | (65.3) | (72.4) | (65.3) | (72.4) | |
| Interest paid on subordinated liabilities | (10.3) | (10.3) | (10.3) | (10.3) | |
| Lease payments | 27 | (16.2) | (18.8) | (16.2) | (18.8) |
| Distributions on other equity instruments | (17.6) | - | (17.6) | - | |
| Dividends paid on ordinary shares | (300.0) | (120.0) | (300.0) | (120.0) | |
| Net cash used in financing activities | (1,189.5) | (2,005.7) | (1,145.3) | (2,487.2) | |
| Change in cash and cash equivalents | (594.3) | (987.7) | (621.7) | (1,073.5) | |
| Cash and cash equivalents at 1 January | 32 | 5,101.6 | 6,089.3 | 4,823.8 | 5,897.3 |
| Cash and cash equivalents at 31 December | 32 | 4,507.3 | 5,101.6 | 4,202.1 | 4,823.8 |
(1) Debt securities are held for the purposes of liquidity management in two portfolios, a hold to collect and sell portfolio and a hold to collect portfolio. Cash flows arising from debt securities are categorised as investing activities as the debt securities generate investment returns in the form of interest and, when relevant, realised gains on disposal.
The accompanying notes are an integral part of the consolidated financial statements.
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Sources of funding
Money deposited by customers into their bank and savings accounts provides the majority of the funds we use to support lending to customers. We also raise funds from other sources, including wholesale markets and central banks, that diversify our funding profile. Our shareholder provides funding in the form of debt and equity capital.
Accounting policies relevant to sources of funding
(a) Financial liabilities
Financial liabilities include customer deposits, deposits from credit institutions, borrowings from central banks, debt securities in issue, subordinated liabilities, other financial liabilities and derivative financial liabilities (see accounting policy (j) under Managing financial risk).
Financial liabilities which are not derivatives are measured at amortised cost. Issues of financial liabilities measured at amortised cost are recognised on the date that the Bank becomes a party to the contractual provisions of the instrument. A financial liability is derecognised from the balance sheet when the Bank has discharged its obligations, the contract is cancelled or the contract expires, or where the terms of the debt instrument have been significantly modified.
Borrowings (which include deposits from credit institutions, customer deposits, debt securities in issue and subordinated liabilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at amortised cost using the effective interest rate (EIR) method.
1. Customer deposits
| Bank and Company | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Bank accounts | 12,034.7 | 12,157.2 |
| Instant access saving deposits | 15,422.2 | 15,117.9 |
| Deposits with agreed maturity | 5,574.4 | 5,398.6 |
| Business banking deposits | 2,177.7 | 2,377.5 |
| Total customer deposits | 35,209.0 | 35,051.2 |
2. Wholesale funding
(i) Debt securities in issue
| Bank
2025 | Balance at 1 Jan 2024
£ million | Issues/
(Repayments)
£ million | Accounting
adjustments(1)
£ million | Balance at
31 Dec 2025
£ million |
| --- | --- | --- | --- | --- |
| Covered bonds | 3,180.4 | 495.5 | 62.9 | 3,738.8 |
| Securitisation notes | 498.6 | (20.0) | (0.5) | 478.1 |
| Senior unsecured debt securities | 904.2 | (250.0) | (1.8) | 652.4 |
| Total debt securities in issue | 4,583.2 | 225.5 | 60.6 | 4,869.3 |
| Company
2025 | | | | |
| --- | --- | --- | --- | --- |
| Covered bonds | 3,180.4 | 495.5 | 62.9 | 3,738.8 |
| Senior unsecured debt securities | 904.2 | (250.0) | (1.8) | 652.4 |
| Total debt securities in issue | 4,084.6 | 245.5 | 61.1 | 4,391.2 |
| Bank
2024 | Balance at 1 Jan 2024
£ million | Issues/
(Repayments)
£ million | Accounting
adjustments(1)
£ million | Balance at
31 Dec 2024
£ million |
| --- | --- | --- | --- | --- |
| Covered bonds | 2,759.9 | 426.1 | (5.6) | 3,180.4 |
| Securitisation notes | – | 493.3 | 5.3 | 498.6 |
| Senior unsecured debt securities | 904.2 | – | – | 904.2 |
| Total debt securities in issue | 3,664.1 | 919.4 | (0.3) | 4,583.2 |
| Company
2024 | | | | |
| Covered bonds | 2,759.9 | 426.1 | (5.6) | 3,180.4 |
| Senior unsecured debt securities | 904.2 | – | – | 904.2 |
| Total debt securities in issue | 3,664.1 | 426.1 | (5.6) | 4,084.6 |
(1) Accounting adjustments comprise of accrued interest, unamortised issuance discount and foreign exchange translation in respect of covered bonds.
TSB Bank plc
Annual Report and Accounts 2025
page 50
Notes to the financial statements
Sources of funding (continued)
2. Wholesale funding (continued)
| Bank and Company | Date of issue | 31 Dec 2025
£ million | 31 Dec 2024
£ million | Interest rate at
31 Dec 2025 | Maturity date | Issue
currency |
| --- | --- | --- | --- | --- | --- | --- |
| Covered bonds: | | | | | | |
| Series 2021-1 | 06/2021 | 500.1 | 500.0 | 4.271% | 06/2028 | GBP |
| Series 2023-1 | 02/2023 | 1,005.4 | 1,005.9 | 4.566% | 02/2027 | GBP |
| Series 2023-2 | 09/2023 | 750.5 | 750.2 | 4.584% | 09/2028 | GBP |
| Series 2024-1 | 03/2024 | 447.5 | 423.9 | 4.778% | 03/2029 | EUR |
| Series 2024-2 | 09/2024 | 500.4 | 500.4 | 4.473% | 09/2028 | GBP |
| Series 2025-1 | 02/2025 | 534.9 | – | 4.603% | 02/2030 | EUR |
| Senior unsecured debt securities: | | | | | | |
| Series 2022-1 | 06/2022 | 451.3 | 451.7 | 5.71% | 06/2027 | GBP |
| Series 2022-3 | 12/2022 | – | 251.3 | n/a | 12/2026 | GBP |
| Series 2023-1 | 12/2023 | 201.1 | 201.2 | 7.23% | 12/2028 | GBP |
| Total debt securities in issue - Company | | 4,391.2 | 4,084.6 | | | |
| Securitisation notes: | | | | | | |
| Duncan Funding 2024-1 plc | 05/2024 | 478.1 | 498.6 | 4.525% | 10/2029 | GBP |
| Total debt securities in issue - Bank | | 4,869.3 | 4,583.2 | | | |
Covered bonds
Loans and advances to customers of £6,535.4 million (2024: £5,832.7 million) have been assigned to a limited liability partnership to provide security for the issuance of covered bonds, which at 31 December 2025 totalled £3,738.8 million (2024: £3,180.4 million). TSB retains the risks and rewards associated with these loans and the loans continue to be recognised on TSB's balance sheet. The related covered bonds in issue are included within debt securities in issue.
Deposits of £163.2 million (2024: £149.9 million) held by TSB are available for the repayment of the term advances related to covered bonds and other legal obligations.
At 31 December 2025, TSB had over-collateralised the covered bond programmes in order to meet the programme terms, secure the external credit rating of the covered bonds, and to provide operational flexibility. The obligations of TSB to provide collateral may increase due to the formal requirements of the programmes. TSB may also voluntarily contribute collateral to support the ratings of the covered bonds but did not do so during 2025 or 2024. During 2025 and 2024, there were no defaults on any principal or interest or any other breaches with respect to borrowings under the covered bond programmes.
During 2025, one tranche of covered bonds was issued, comprising €600.0 million in February 2025.
During 2024, two tranches of covered bonds were issued, comprising €500.0 million in March 2024 and £500.0 million in September 2024.
During 2023, three tranches of covered bonds were issued, comprising £1,000.0 million in February 2023, £750.0 million in September 2023, and £500.0 million in November 2023. The November 2023 issuance was fully retained and has been used as collateral for a repurchase agreement transaction (see note 21 on page 95, under the heading Offsetting financial assets and financial liabilities).
TSB Bank plc
Annual Report and Accounts 2025
page 51
Notes to the financial statements
Sources of funding (continued)
2. Wholesale funding (continued)
Securitisation notes
Loans and advances to customers include loans securitised under TSB’s securitisation programmes which have been sold to bankruptcy remote structured entities. As the structured entities are funded by the issue of debt on terms whereby the majority of the risks and rewards of the portfolio are retained by TSB, the structured entities are consolidated fully and all of these loans are retained on TSB’s balance sheet, with the related notes in issue included within debt securities in issue. TSB’s securitisation programmes, together with the balances of the advances subject to these arrangements and the carrying value of the notes in issue at 31 December, are listed below.
| Bank | 31 December 2025 | 31 December 2024 | ||
|---|---|---|---|---|
| Loans and advances securitised (1) £ million | Liability £ million | Loans and advances securitised (1) £ million | Liability £ million | |
| Securitisation programmes: | ||||
| Duncan Funding 2022-1 plc | 1,241.6 | 1,345.6 | 1,249.4 | 1,347.9 |
| Duncan Funding 2024-1 plc | 518.4 | 539.9 | 543.5 | 560.5 |
| 1,760.0 | 1,885.5 | 1,792.9 | 1,908.4 | |
| Less retained notes held by TSB | (1,407.4) | (1,409.8) | ||
| Total securitisation notes | 478.1 | 498.6 |
(1) Due to the nature of the securitisation programmes, cash arising from mortgage repayments will be retained for periods of time before being invested in replacement mortgage assets or being distributed to note holders.
Cash deposits of £142.0 million (2024: £127.9 million) held by TSB are restricted in use to repayment of the debt securities issued by the structured entities and other legal obligations. TSB recognises the full liabilities associated with its securitisation programmes within debt securities in issue, although the obligations of TSB are limited to the cash flows generated from the underlying assets.
The programmes feature revolving structures where principal receipts received from the mortgages are used to replenish the portfolio of mortgages held by the structured entities, subject to certain eligibility criteria. The revolving period continues until July 2027 and October 2029 for the Duncan Funding 2002-1 plc and the Duncan Funding 2024-1 plc notes. The programmes include certain triggers that could result in the notes being repayable on demand, including a default by the issuer in the payment of any amounts due in respect of the issued notes. During 2024 and 2023, there were no breaches and the notes are expected to be called at the end of the respective revolving periods in July 2027 and October 2029. The legal maturity date of the notes issued is July 2069 and July 2071, respectively.
Senior unsecured debt securities in issue
As at 31 December 2025 the Company has floating rate notes in issue to its parent company, Sabadell, to satisfy MREL requirements. These were issued at a price of 100% of the principal amount and are detailed in the table on the previous page. The Company has the option to redeem these notes one year before the maturity dates specified in the table.
In December 2025, £250.0 million floating rate notes, issued in December 2022 to the Company’s parent company, TSB Banking Group plc, and due to mature in December 2026, were redeemed at 100% of the principal amount.
(ii) Borrowings from central banks
At 31 December 2025, borrowings from central banks represented borrowings under the Bank of England’s Term Funding Scheme with additional incentives for SMEs (TFSME). Such borrowings are secured on certain pre-positioned mortgages at the Bank of England. The TFSME borrowings outstanding at 31 December 2025 are due to mature at various dates, with £371.0 million due to mature during 2027 and the remaining £217.0 million during 2031.
In December 2025, £5.0 million was drawn under the Bank of England’s Index Long-Term Repo (ILTR) facility that provides liquidity to banks for a fixed term in exchange for eligible collateral. The ILTR borrowings outstanding at 31 December 2025 are due to mature in June 2026.
| Bank and Company | 2025 £ million | 2024 £ million |
|---|---|---|
| Term Funding Scheme with additional incentives for SMEs | 588.0 | 1,385.0 |
| Indexed Long-Term Repo facility | 5.0 | – |
| Accrued interest | 5.9 | 21.9 |
| Total borrowings from central banks | 598.9 | 1,406.9 |
TSB Bank plc
Annual Report and Accounts 2025
page 52
Notes to the financial statements
Sources of funding (continued)
3. Subordinated liabilities
| Bank and Company | Note | 2025 £ million | 2024 £ million |
|---|---|---|---|
| Fixed-to-floating rate callable subordinated Tier 2 capital notes, due March 2031 | 300.0 | 300.0 | |
| Accrued interest | 0.1 | 0.1 | |
| Fair value hedge accounting adjustment | 21 | (2.3) | (14.2) |
| Total subordinated liabilities | 297.8 | 285.9 |
In March 2021, the Company issued £300.0 million fixed-to-floating rate callable subordinated Tier 2 capital notes, due to mature in March 2031, to its parent company, TSB Banking Group plc. These were issued at a price of 100% of the principal amount. The notes pay interest at a fixed rate of 3.449% per annum payable quarterly in arrears until March 2026 at which time the interest rate becomes SONIA plus 3.05% per annum payable quarterly in arrears. The Company has the option to redeem these notes in March 2026, subject to approval of the PRA.
4. Other financial liabilities
| Bank and Company | 2025 £ million | 2024 £ million |
|---|---|---|
| Items in the course of transmission to credit institutions | 62.7 | 66.1 |
| Items in the course of transmission to non-credit institutions | 69.6 | 65.2 |
| Collateral placed by central clearing houses | 921.8 | 1,028.2 |
| Collateral placed by credit institutions | 26.1 | 24.5 |
| Deposits from credit institutions | 0.4 | 0.6 |
| Total other financial liabilities | 1,080.6 | 1,184.6 |
Collateral placed by central clearing houses and by credit institutions represents cash collateral in respect of interest rate derivatives.
5. Fair value of financial liabilities
The following table summarises the carrying values, fair values, and valuation hierarchy of financial liabilities. The fair values presented in the table are at a specific date and may be significantly different from the amount which will actually be paid on the maturity or settlement date.
| Bank | Level 1 £ million | Level 2 £ million | Level 3 £ million | Total fair value £ million | Total carrying value £ million |
|---|---|---|---|---|---|
| At 31 December 2025 | |||||
| Customer deposits | – | 35,197.5 | – | 35,197.5 | 35,209.0 |
| Debt securities in issue | 4,234.6 | 666.5 | – | 4,901.1 | 4,869.3 |
| Subordinated liabilities | – | 298.0 | – | 298.0 | 297.8 |
| Derivative liabilities at fair value through profit or loss | – | 456.7 | – | 456.7 | 456.7 |
| Hedging derivative liabilities | – | 99.4 | – | 99.4 | 99.4 |
| Company | |||||
| At 31 December 2025 | |||||
| Customer deposits | – | 35,197.5 | – | 35,197.5 | 35,209.0 |
| Debt securities in issue | 3,754.3 | 666.5 | – | 4,420.8 | 4,391.2 |
| Subordinated liabilities | – | 298.0 | – | 298.0 | 297.8 |
| Derivative liabilities at fair value through profit or loss | – | 456.7 | – | 456.7 | 456.7 |
| Hedging derivative liabilities | – | 99.4 | – | 99.4 | 99.4 |
TSB Bank plc
Annual Report and Accounts 2025
page 53
Notes to the financial statements
Sources of funding (continued)
5. Fair value of financial liabilities (continued)
| Bank | Level 1
£ million | Level 2
£ million | Level 3
£ million | Total fair value
£ million | Total carrying value
£ million |
| --- | --- | --- | --- | --- | --- |
| At 31 December 2024 | | | | | |
| Customer deposits | – | 35,050.3 | – | 35,050.3 | 35,051.2 |
| Debt securities in issue | 3,699.7 | 913.8 | – | 4,613.5 | 4,583.2 |
| Subordinated liabilities | – | 279.3 | – | 279.3 | 285.9 |
| Derivative liabilities at fair value through profit or loss | – | 824.2 | – | 824.2 | 824.2 |
| Hedging derivative liabilities | – | 143.6 | – | 143.6 | 143.6 |
| Company | | | | | |
| At 31 December 2024 | | | | | |
| Customer deposits | – | 35,050.3 | – | 35,050.3 | 35,051.2 |
| Debt securities in issue | 3,199.2 | 913.8 | – | 4,113.0 | 4,084.6 |
| Subordinated liabilities | – | 279.3 | – | 279.3 | 285.9 |
| Derivative liabilities at fair value through profit or loss | – | 824.2 | – | 824.2 | 824.2 |
| Hedging derivative liabilities | – | 143.6 | – | 143.6 | 143.6 |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis. If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same for which market observable prices exist, net present value and discounted cash flow analysis.
The fair value of customer deposits repayable on demand is considered to be equal to their carrying value given they are short-term in nature. The fair value for all other customer deposits is estimated using discounted cash flows applying either market rates, where applicable, or current rates for deposits of similar remaining maturities. The Bank's subordinated liabilities and derivative financial liabilities are primarily valued using discounted cash flows where the most significant input is interest yield curves developed from publicly quoted rates and by reference to instruments with risk characteristics similar to those held by the Bank. Derivative financial instruments are the only financial liabilities that are carried at fair value.
The carrying amount of borrowings from central banks and other financial liabilities is a reasonable approximation of fair value as these balances are either on demand or variable rate. These amounts are considered as Level 2.
Valuation hierarchy of financial instruments
Financial instruments carried at fair value, or for which fair values are disclosed, have been classified into three levels according to the quality and reliability of information used to determine the fair values. There were no transfers between levels in 2025 or 2024.
Level 1 - Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 valuations are those where quoted market prices are not available, for example, where the instrument is traded in a market that is not considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data.
Level 3 - Level 3 portfolios are those where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data.
TSB Bank plc
Annual Report and Accounts 2025
page 54
Notes to the financial statements
Loans and liquid assets
Funds deposited with the Bank are primarily used to support lending to customers. The Bank lends money to customers using different products, including mortgages, credit cards, unsecured personal loans and overdrafts. A portion of the funds are held in reserve – we call that our liquidity portfolio, which enables the Bank to meet unexpected future funding requirements.
Accounting policies relevant to loans and liquid assets
(b) Classification and measurement of financial assets
Financial assets is the term used to describe the Bank's loans to customers and other institutions. It includes cash and balances with central banks and other demand deposits, reverse repurchase agreements, debt securities, loans and advances to customers, loans and advances to central banks and credit institutions, other advances, and derivative financial assets (see accounting policy (j) under Managing financial risk). A financial asset is recognised on the balance sheet when the cash is advanced to the borrower, or in the case of purchases of debt securities, on the settlement date.
Classification and measurement
On initial recognition, financial assets are classified into one of three measurement categories, amortised cost, fair value through other comprehensive income, or fair value through profit or loss depending on the Bank's business model for managing the financial assets and whether the cash flows represent solely payments of principal and interest.
The Bank assesses its business models at a portfolio level based on its objectives for the relevant portfolio, how performance of the portfolio is measured and reported, how management are compensated and the frequency and the reasons for asset sales from the portfolio. The Bank reclassifies financial assets only when its business model for managing the portfolio of assets changes.
Financial assets that are debt instruments measured at amortised cost
Financial assets in portfolios where the business model is to hold the assets to collect the contractual cash flows and where those cash flows represent solely payments of principal and interest are measured at amortised cost. Cash flows are considered to represent solely payments of principal and interest where they are consistent with a basic lending arrangement. This includes all TSB's loans and advances to customers. Where the contractual cash flows introduce exposures to risk or volatility unrelated to a basic lending arrangement, such as from changes in equity prices, the cash flows are not considered to be solely payments of principal and interest. TSB has no such financial instruments.
Financial assets measured at amortised cost are initially recognised when the cash is advanced to the borrower at fair value including transaction costs. Subsequent measurement is at amortised cost, using the effective interest rate method. Amortised cost is the amount at which a financial asset is initially recognised, minus principal repayments, plus or minus the unamortised amount of any difference between the initial amount recognised and the maturity amount, calculated using the effective interest rate method. The carrying amount of these assets is adjusted by an expected credit loss allowance.
Financial assets that are debt instruments measured at fair value through other comprehensive income (FVOCI)
Financial assets in portfolios where the business model is to hold the assets to collect the contractual cash flows and to generate cash flows from selling assets are measured at fair value including transaction costs. Where the cash flows represent solely payments of principal and interest, gains and losses arising from changes in fair value are recognised directly in other comprehensive income. When the financial asset is either sold or matures, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. Interest income is calculated using the effective interest method and is recognised in the income statement in net interest income. Foreign exchange gains and losses on financial assets denominated in foreign currencies are recognised in the income statement in exchange gains or losses. Impairment losses are recognised in the income statement.
Financial assets measured at fair value through profit or loss (FVPL)
Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value on initial recognition and subsequently. Fair value gains and losses are recognised in the income statement within other income. Derivative financial assets are measured at FVPL (see accounting policy (j) under Managing financial risk). All equity instruments are measured at FVPL with dividends continuing to be recognised in other income in the income statement.
TSB Bank plc
Annual Report and Accounts 2025
page 55
Notes to the financial statements
Loans and liquid assets (continued)
Accounting policies relevant to loans and liquid assets (continued)
(c) Impairment of financial assets
The impairment requirements of IFRS 9 apply to financial assets measured at amortised cost and debt instruments measured at FVOCI. At initial recognition, an impairment allowance is required for expected credit losses (ECL) resulting from default events expected within the next 12 months (12 month ECL). In the event of a significant increase in credit risk, allowance is required for ECL resulting from default events expected over the estimated life of the financial instrument (lifetime ECL). IFRS 9 requires the financial asset to be allocated to one of the following three 'stages':
- Stage 1 - Financial assets which have not experienced a significant increase in credit risk since they were originated. Recognition of a 12 month ECL is required. Interest income on stage 1 financial assets is calculated on the gross carrying amount of the financial asset;
- Stage 2 - Financial assets which have experienced a significant increase in credit risk since initial recognition. For financial assets in stage 2, recognition of a lifetime ECL impairment allowance is required. Interest income on stage 2 financial assets is calculated on the gross carrying amount of the financial asset; and
- Stage 3 - Financial assets which have experienced one or more events that have had a detrimental impact on the estimated future cash flows and are considered to be credit impaired. Like stage 2, recognition of a lifetime expected ECL impairment allowance is required. However, interest income on stage 3 loans is calculated on the financial asset balance net of the impairment allowance.
Financial assets that are credit impaired at the date of their purchase or origination will be reported in a separate 'purchased or originated as credit impaired' (POCI) category until the loan is derecognised. The cumulative change in lifetime expected credit loss since the purchase or origination of the financial asset is recognised as a loss allowance.
Grouping of financial assets for credit impairment losses measured on a collective basis
Expected credit losses are assessed and measured on a collective basis for homogenous groups where the financial assets within that group share similar credit risk characteristics. Given the predominantly retail nature of TSB's loans, groupings are determined using product type, such as secured (retail), unsecured, and business banking exposures. The appropriateness of the groupings is monitored and reviewed on a periodic basis. TSB does not currently assess any material exposures on an individual basis.
Significant increase in credit risk
Financial assets are considered to be in stage 2 when their credit risk has increased significantly since initial recognition.
- The main factor that is considered by the Bank is an increase in the residual lifetime Probability of Default (PD) since initial recognition. A loan will be considered to have experienced a significant increase in credit risk, and be transferred from stage 1 to stage 2 if the residual lifetime PD has increased by a relative threshold (being a multiplier of the origination PD) and for some products, an absolute increase in the PD amount as compared to the PD at the origination of the financial asset. For the core mortgage book, absolute thresholds vary depending on the characteristics of the account, and any account with a 12 month PD of greater than 20% will be considered to be stage 2. For staging purposes, PDs may be scaled to reflect any model changes that have occurred since origination. The relative and (where relevant) absolute thresholds for each portfolio are set out on page 64. Interest only mortgages which are within 30 months of maturity are considered to be stage 2 given the risk associated with the capital repayment. In addition to this, residential interest only mortgages within 2 to 5 years of maturity, with limited capacity to repay, are also considered to be stage 2.
- As a secondary qualitative assessment criterion, financial assets that are in forbearance but not credit impaired are considered to have experienced significant increase in credit risk and will be in stage 2.
- As a backstop, the Bank does not rebut the presumption in IFRS 9 that all financial assets that are more than 30 days past due have experienced a significant increase in credit risk. Consequently, in respect of loans and advances to customers, the Bank does not use the practical expedient in IFRS 9 which permits low credit risk loans (i.e. those considered investment grade) to remain in stage 1 without an assessment of significant increase ('low credit risk exemption'). However, in respect of all other categories of financial assets at amortised cost and financial assets at fair value through other comprehensive income, the Bank uses the low credit risk exemption and categorises these financial assets as stage 1.
Credit Impaired (stage 3)
Financial assets are considered to be credit impaired and included in stage 3 when there is objective evidence of credit impairment which is consistent with the definition of default for IFRS 9 as described below.
TSB Bank plc
Annual Report and Accounts 2025
page 56
Notes to the financial statements
Loans and liquid assets (continued)
Accounting policies relevant to loans and liquid assets (continued)
(c) Impairment of financial assets (continued)
Definition of default for IFRS 9
Loans and advances that are more than 90 days past due, or considered by management as unlikely to pay their obligations, are considered, for IFRS 9 purposes, to be in default, non performing, and credit impaired (stage 3). Examples of loans considered unlikely to pay include customers in bankruptcy or subject to an individual voluntary arrangement, customers undergoing litigation or repossession, customers who have received certain forbearance treatments or multiple forbearance treatment where certain conditions are met and interest only retail mortgages within 2 years of maturity with limited equity or lack of repayment vehicle. Customers who have cured but who were 90 days past due, or considered unlikely to pay, in the previous six months are also considered to remain in default and classified as credit impaired. The Bank's policy is not to rebut the presumption in IFRS 9 that loans which are more than 90 days past due are in default.
Purchased or originated credit impaired (POCI)
Financial assets that are credit impaired at the date of their purchase or origination will be reported in a separate POCI category. For such assets, lifetime ECL are incorporated into the calculation of the effective interest rate on initial recognition. Consequently, POCI assets do not carry an impairment allowance on initial recognition. The amount recognised as a loss subsequent to initial recognition is equal to the change in lifetime ECL since initial recognition of the asset. Subsequent to origination, POCI financial assets that no longer meet the stage 3 criteria will no longer be considered to be credit impaired but will continue to be reported as POCI.
Write offs
A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available security have been received or there is no realistic prospect of recovery (as a result of the customer's insolvency, ceasing to trade or other reason) and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the statement of comprehensive income. Financial assets that are written off could still be subject to enforcement activities in order to comply with TSB's procedures for recovery of amounts due. In the event of significant improvements in expected recoveries on stage 3 assets, impairment reversals are recognised as a credit to impairment losses in the statement of comprehensive income.
Modified financial assets and derecognition
A financial asset that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially different terms. Where the contractual cash flows of a financial asset have been modified and the financial asset was not derecognised, its gross carrying amount is recalculated as the present value of the modified contractual cash flows, discounted at the original effective interest rate with a gain or loss recognised in the income statement. The contractual terms of a loan may be modified for a number of reasons, primarily due to customers being granted a concession due to their financial difficulty and the loan being considered in forbearance.
Methodology for measuring expected credit losses
The allowance for ECLs is calculated using three main components: a probability of default (PD), a loss given default (LGD); and the exposure at default (EAD). For accounting purposes, the 12 month and lifetime PDs represent the probability of a default occurring over the next 12 months or the lifetime of the financial instruments, respectively, based on conditions existing at the balance sheet date and expected future economic conditions that affect credit risk.
The LGD represents losses expected on default, taking into account the mitigating effect of collateral, its expected value when realised and the time value of money and is discounted using the effective interest rate. The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdown of a committed facility.
ECL is calculated by multiplying the PD (12 month or lifetime depending on the staging of the loan), LGD and EAD. In respect of the Bank's mortgages and unsecured personal loans, ECL is calculated from the initial recognition of the loan for the maximum period that the Bank is exposed to credit risk, which takes into account expected customer repayment behaviour. In respect of revolving loans, such as overdrafts and credit cards, TSB's exposure to credit risk is not limited to the contractual period and the expected life is calculated based on the estimated behavioural life of the loan and associated undrawn facility which is currently ten years. The measurement of ECL also takes into account all reasonable and supportable information, including forward looking economic scenarios to calculate a probability weighted forward looking estimate.
TSB Bank plc
Annual Report and Accounts 2025
page 57
Notes to the financial statements
Loans and liquid assets (continued)
Accounting policies relevant to loans and liquid assets (continued)
(d) Derecognition of financial assets
Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Bank has transferred its contractual right to receive the cash flows from the assets and either (i) substantially all of the risks and rewards of ownership have been transferred; or (ii) The Bank has neither retained nor transferred substantially all of the risks and rewards, but has transferred control.
Where the Bank enters into securitisation transactions to finance certain loans and advances to customers using a structured entity funded by the issue of debt, these loans and advances continue to be recognised, as TSB has not transferred substantially all the risks and rewards. A corresponding liability for the funding is also recognised.
Financial instruments sold under a repurchase agreement, under which substantially all the risks and rewards of ownership are retained by the Bank, continue to be recognised on the balance sheet and the sale proceeds are recognised as a financial liability. The difference between the sale and repurchase price is recognised over the life of the agreement as interest expense using the effective interest method.
6. Debt securities
| Bank and Company | ||
|---|---|---|
| 2025 | 2024 | |
| Fair value through other comprehensive income (FVOCI) | £ million | £ million |
| UK Gilts | 388.9 | 328.6 |
| Supranational and development bank bonds | 45.3 | – |
| Covered bonds | 6.0 | – |
| Total debt securities at FVOCI | 440.2 | 328.6 |
| 2025 | 2024 | |
| Amortised cost | £ million | £ million |
| UK Gilts | 1,312.6 | 1,293.6 |
| Supranational and development bank bonds | 332.5 | 297.4 |
| Covered bonds | 341.3 | 391.5 |
| Total debt securities at amortised cost | 1,986.4 | 1,982.5 |
Debt securities of £440.2 million (2024: £328.6 million) are held as part of the liquid asset portfolio, where the business model is to hold the assets to collect the contractual cash flows and to generate cash flows from selling the assets. These assets are carried at FVOCI.
Debt securities of £1,986.4 million (2024: £1,982.5 million) are held as part of a second, separate liquid asset portfolio, where the business model is solely to hold the assets to collect the contractual cash flows. These assets are carried at amortised cost.
At 31 December 2025, £225.9 million (2024: £298.0 million) of debt securities at amortised cost (Bank) had been pledged as collateral. At 31 December 2025, £256.8 million (2024: £340.8 million) of debt securities at amortised cost (Company) had been pledged as collateral.
7. Loans and advances to credit institutions
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Loans and advances to credit institutions | 305.2 | 277.8 |
There are no loans and advances to credit institutions in Company at either 2025 or 2024 balance sheet dates.
Loans and advances to credit institutions reflects deposit balances held by TSB's covered bond and securitisation special purpose entities, as further described in note 2.
TSB Bank plc
Annual Report and Accounts 2025
page 58
Notes to the financial statements
Loans and liquid assets (continued)
- Loans and advances to customers and allowance for credit impairment losses
| Bank and Company | 2025 | 2024 |
|---|---|---|
| £ million | £ million | |
| Retail – mortgages | 34,058.9 | 34,055.5 |
| Retail – credit cards | 562.4 | 528.5 |
| Retail – other unsecured | 1,442.5 | 1,470.1 |
| Business banking | 312.4 | 407.0 |
| Gross customer lending balances | 36,376.2 | 36,461.1 |
| Allowance for credit impairment losses (note 18) | (171.2) | (180.1) |
| Net customer lending balances | 36,205.0 | 36,281.0 |
| Accounting adjustments(1) | 63.4 | 49.9 |
| Loans and advances to customers | 36,268.4 | 36,330.9 |
(1) Comprises accrued interest of £20.6 million (2024: £20.8 million) and effective interest rate adjustments of £42.8 million (2024: £29.1 million).
In the normal course of business, TSB provides commitments to lend to its customers as presented below.
| Bank and Company | 2025 | 2024 |
|---|---|---|
| £ million | £ million | |
| Retail – mortgages | 1,650.7 | 1,825.4 |
| Retail – credit cards | 2,586.2 | 3,099.5 |
| Retail – other unsecured | 744.9 | 746.5 |
| Business banking | 24.7 | 25.4 |
| Total commitments | 5,006.5 | 5,696.8 |
The credit impairment provision in respect of total loan commitments is shown in note 30 on page 103.
Significant estimates - measurement uncertainty and sensitivity of allowance for credit impairment losses
The measurement of the allowance for credit impairment losses is complex and involves the use of significant judgement and estimation uncertainty as follows:
- Estimation uncertainty from the use of multiple forward-looking economic scenarios and associated probability weightings;
- Judgements required to adjust modelled outcomes to reflect model estimation uncertainty or where models are not considered to fully capture expected credit losses (referred to as post model adjustments or PMAs); and
- Judgements required to assess when a financial asset has experienced a significant increase in credit risk.
Forward looking economic scenarios
TSB currently uses four economic scenarios (2024: four scenarios), representative of management's view of forecast economic conditions. Key scenario assumptions are set internally for GDP, house prices, unemployment, inflation and interest rates. The forecasts for these metrics are compared with external sources to ensure they are suitably benchmarked.
The alternative scenarios flow from an assessment of the risks to the base case. In 2025, the main downside scenario retained the stance that forecast inflation and interest rates are lower than assumed in the base case. However, the severe downside explored the risk of higher inflation and interest rates, partly reflecting renewed price pressures in the UK economy in 2025. Idiosyncratic risks are also considered and in 2025 consideration was given to the inclusion of a climate change scenario. This was not considered necessary. This is partly because the economic effects of climate-led scenarios tend to unfold more gradually than traditional downside scenarios.
The severe downside is an adapted version of the high-rate ICAAP scenario and is used to capture non-linearity in expected credit losses. This is where the relationship of credit losses to the relevant economic variables which influence credit losses (e.g. house prices or unemployment) is such that each unit of change in an economic variable does not lead to a uniform change in expected credit losses. For example, credit losses in secured portfolios may remain subdued in an environment where house prices exhibit only a small decrease. However, after a certain level of house price decline, credit losses would be forecast to increase more meaningfully as collateral values fall by a similar proportion below the level of customer loans.
Economic scenarios and associated weightings are reviewed twice-yearly by an internal forum and updated, as necessary, to enable significant developments to be taken into account in measuring the allowance for credit impairment losses. The scenarios and weightings are presented ahead of Half-Year Reporting and Full-Year Reporting for review and approval for use by the Audit Committee.
TSB Bank plc
Annual Report and Accounts 2025
page 59
Notes to the financial statements
Loans and liquid assets (continued)
- Loans and advances to customers and allowance for credit impairment losses (continued)
Forward looking economic scenarios (continued)
2025 economic scenarios
The four scenarios, together with the weightings applied at December 2025, are described below.
Base case (60% weighting)
UK GDP growth remains sluggish, which contributes to rise in unemployment rate (5.25%). Labour market loosening dampens wage growth, which brings inflation back towards target after flare-up in 2025. BoE cuts Bank Rate to 3.5% in H1 2026.
Compared to 2024, the main difference relates to unemployment. Last year, the base case had forecast that unemployment would rise to an assumed ‘natural rate’ of 4.5%. However, the unemployment rate had already risen to 5.0% as of Q3 2025.
Upside (10% weighting)
In the upside scenario, the UK economy enjoys faster growth and lower unemployment than in the base case. The Bank of England raises the UK policy rate to 4.50% by end-2026. This reflects a belief that the neutral policy rate is higher than previously thought, partly due to higher economic growth, rather than fresh concerns about the inflationary outlook.
Downside scenario (20% weighting)
The trade war escalates, with tariffs settling at a higher level than in the base case – both those imposed by the US and by other countries in retaliation. This leads to a moderate UK recession, with the effect of trade tensions amplified by increased uncertainty and financial instability. This leads to a moderate recession and an increase in unemployment (6.6% peak). House prices decline by 16% from December 2025 and remain subdued until 2030.
Severe downside (high interest rate) scenario (10% weighting)
A severe global supply shock leads to a deep global recession. An escalation of geopolitical tensions causes a sharp increase in commodity prices and inflation. UK GDP falls by 5% and unemployment rises to 8.5%. The BoE lifts policy rate to 6.5% in response to another inflation surge (8.5% peak). House prices fall by 29% but start to recover in 2029.
2024 economic scenarios
The four scenarios, together with the weightings applied at December 2024, are described below.
Base case (60% weighting)
The base case assumes that the BoE continues to cut interest rates, despite a small flare-up in inflation in 2025 and 2026. This eases affordability pressures, which paves the way for a recovery in the mortgage market. Unemployment rises towards an assumed ‘natural rate’ of 4.5%.
Compared to 2023, the main difference relates to house prices. Last year, the base case had forecast that house prices would fall by 7.5% in 2024, while the base case for 2024 assumes an increase of 3.3%. Consequently, the level of houses prices in the current base case are higher than in the prior year base case, even though the growth rate for house prices in 2025 and beyond is not materially different.
Upside (10% weighting)
In the upside scenario, the UK economy enjoys faster growth and lower unemployment than in the base case. The Bank of England pauses its rate cutting cycle in 2025. This partly reflects a belief that the policy rate may not be as restrictive as previously thought, rather than fresh concerns about the inflationary outlook.
Downside scenario (20% weighting)
The downside scenario is driven by financial instability, triggered by monetary tightening and market concerns about public finances. This leads to a mild recession and an increase in unemployment, while house prices decline by approximately 16% from December 2024.
Severe downside (high interest rate) scenario (10% weighting)
The high-rate severe downside scenario assumes that inflation surges again in 2025, prompting an aggressive policy response from the Bank of England. Bank Rate rises to 7.25%, which leads to a deep recession. Unemployment rises to 8.5% and house prices fall by approximately 29% from December 2024.
TSB Bank plc
Annual Report and Accounts 2025
page 60
Notes to the financial statements
Loans and liquid assets (continued)
- Loans and advances to customers and allowance for credit impairment losses (continued)
Scenario weightings
| Base case | Upside | Downside | Severe downside | |
|---|---|---|---|---|
| 2025 | 60% | 10% | 20% | 10% |
| 2024 | 60% | 10% | 20% | 10% |
Scenario weightings have not changed from those applied in 2024. TSB retains a clear downside skew with the probability attached to the upside scenario (10%) being significantly lower than the combined weight of the downside scenarios (30%). This reflects concerns about inflationary persistence and the effects of rate hikes on economic growth and financial stability.
Annual average value of key inputs to the scenarios
| Bank and Company
At 31 December 2025 | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Scenario | Weighting | Input(1) | 2026 | 2027 | 2028 | 2029 | 2030 |
| Upside | 10% | GDP | 2.1 % | 2.4 % | 2.0 % | 2.0 % | 2.0 % |
| | | Unemployment | 4.3 % | 3.5 % | 3.5 % | 3.9 % | 4.0 % |
| | | House prices | 3.9 % | 5.0 % | 5.0 % | 5.0 % | 5.0 % |
| | | Interest rates | 4.5 % | 4.5 % | 4.5 % | 4.5 % | 4.5 % |
| Base | 60% | GDP | 0.9 % | 1.3 % | 1.4 % | 1.4 % | 1.4 % |
| | | Unemployment | 5.3 % | 4.6 % | 4.5 % | 4.5 % | 4.5 % |
| | | House prices | 1.7 % | 2.9 % | 3.0 % | 3.0 % | 3.0 % |
| | | Interest rates | 3.5 % | 3.5 % | 3.5 % | 3.75 % | 4.0 % |
| Downside | 20% | GDP | (0.9)% | (0.6)% | 1.5 % | 1.4 % | 1.2 % |
| | | Unemployment | 6.1 % | 6.5 % | 6.0 % | 5.4 % | 5.0 % |
| | | House prices | (10.1)% | (6.1)% | 0.0 % | 0.0 % | 3.0 % |
| | | Interest rates | 1.75 % | 1.75 % | 2.75 % | 3.5 % | 3.5 % |
| Severe downside
(High rate) | 10% | GDP | (2.2)% | (2.4)% | 1.3 % | 1.4 % | 1.4 % |
| | | Unemployment | 6.3 % | 8.2 % | 8.1 % | 7.3 % | 6.5 % |
| | | House prices | (10.1)% | (12.1)% | (9.5)% | 7.4 % | 6.9 % |
| | | Interest rates | 6.5 % | 6.5 % | 4.5 % | 4.5 % | 4.5 % |
| Weighted average | n/a | GDP | 0.3 % | 0.7 % | 1.5 % | 1.5 % | 1.4 % |
| | | Unemployment | 5.4 % | 5.2 % | 5.1 % | 4.9 % | 4.8 % |
| | | House prices | (1.6)% | 0.1 % | 1.7 % | 3.0 % | 3.5 % |
| | | Interest rates | 3.6 % | 3.6 % | 3.6 % | 3.9 % | 4.0 % |
| At 31 December 2024 | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Scenario | Weighting | Input(1) | 2025 | 2026 | 2027 | 2028 | 2029 |
| Upside | 10% | GDP | 2.3 % | 2.2 % | 1.6 % | 1.6 % | 1.6 % |
| | | Unemployment | 3.5 % | 3.5 % | 3.5 % | 3.5 % | 3.5 % |
| | | House prices | 4.7 % | 5.0 % | 5.0 % | 5.0 % | 5.0 % |
| | | Interest rates | 4.75 % | 4.25 % | 4.0 % | 4.0 % | 4.0 % |
| Base | 60% | GDP | 1.1 % | 1.1 % | 1.4 % | 1.4 % | 1.4 % |
| | | Unemployment | 4.5 % | 4.5 % | 4.5 % | 4.5 % | 4.5 % |
| | | House prices | 1.2 % | 2.4 % | 3.0 % | 3.0 % | 3.0 % |
| | | Interest rates | 4.0 % | 3.75 % | 3.5 % | 3.5 % | 3.5 % |
| Downside | 20% | GDP | (0.6)% | (1.2)% | 1.2 % | 1.4 % | 1.2 % |
| | | Unemployment | 6.1 % | 6.5 % | 6.0 % | 5.4 % | 4.8 % |
| | | House prices | (7.5)% | (8.6)% | - % | - % | 2.8 % |
| | | Interest rates | 1.75 % | 1.75 % | 2.25 % | 3.0 % | 3.0 % |
| Severe downside
(High rate) | 10% | GDP | (1.2)% | (3.0)% | (0.1)% | 1.9 % | 1.8 % |
| | | Unemployment | 6.4 % | 8.5 % | 8.0 % | 7.3 % | 6.7 % |
| | | House prices | (7.5)% | (14.7)% | (8.0)% | 6.9 % | 6.3 % |
| | | Interest rates | 7.25 % | 7.25 % | 5.25 % | 4.0 % | 4.0 % |
| Weighted average | n/a | GDP | 0.6 % | 0.3 % | 1.2 % | 1.5 % | 1.4 % |
| | | Unemployment | 4.9 % | 5.2 % | 5.0 % | 4.9 % | 4.7 % |
| | | House prices | (1.0)% | (1.0)% | 1.8 % | 3.0 % | 3.4 % |
| | | Interest rates | 4.0 % | 3.8 % | 3.5 % | 3.5 % | 3.5 % |
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Loans and liquid assets (continued)
- Loans and advances to customers and allowance for credit impairment losses (continued)
Annual average value of key inputs to the scenarios (continued)
In the table above, GDP is the annual change in forecast GDP for each year. Unemployment is presented as the Q4 forecast for each year. House price changes are presented as the year-on-year change in Q4 forecast house prices in each year. Interest rates are Bank Rate in December each year.
Key variables in each of the scenarios are assumed to revert to a long-term constant rate over a period of up to two years after the end of the forecast period. The reversionary rates used are as follows: GDP 1.5% (2024: 1.5%), unemployment 4.5% (2024: 4.5%); interest rates 3.5% (2024: 3.5%); and house price growth of 3.75% (2024: 3.75%) per annum.
Cumulative expected growth and fall of key inputs to the forecast scenarios
The table below shows the cumulative forecast growth and fall of key inputs from the reporting date to the forecast peak and forecast trough during the forecast period.
| At 31 December 2025(1) | Base case | Upside | Downside | Severe downside (High rate) | |
|---|---|---|---|---|---|
| GDP | Peak to trough fall | n/a | n/a | (2.0)% | (5.0)% |
| Unemployment | Peak rate | 5.3 % | 5.0 % | 6.6 % | 8.5 % |
| House prices | Peak-to-trough fall | n/a | n/a | (15.7)% | (29.2)% |
| Interest rates | Most extreme rate | 3.5 % | 4.5 % | 1.8 % | 6.5 % |
| At 31 December 2024 | |||||
| GDP | Peak to trough fall | n/a | n/a | (2.4)% | (5.4)% |
| Unemployment | Peak rate | 4.5 % | 4.3% | 6.6 % | 8.5 % |
| House prices | Peak-to-trough fall | n/a | n/a | (16.0)% | (29.0)% |
| Interest rates | Most extreme rate | 3.5 % | 4.0% | 1.75 % | 7.25 % |
(1) GDP decline is relative to Q4 2025. Unemployment peak is from Q1 2025 onwards. House price decline is relative to December 2025. The most extreme interest rate is the interest rate furthest from the current rate, either positive or negative during the forecast period.
Sensitivity to alternative economic scenario weightings
The calculation of the allowance for credit impairment losses is sensitive to changes in the chosen weightings. The table below summarises the impact on the allowance for credit impairment losses (including PMAs) from the use of alternative scenario weightings.
| Bank and Company
At 31 December 2025 | Weighted
£ million | Upside
£ million | Base case
£ million | Downside
£ million | Severe downside
£ million |
| --- | --- | --- | --- | --- | --- |
| Gross customer lending balances: | | | | | |
| Stage 1 | 33,038.7 | 33,181.7 | 33,087.1 | 33,005.5 | 32,242.7 |
| Stage 2 | 2,738.6 | 2,595.6 | 2,690.2 | 2,771.8 | 3,534.6 |
| Stage 3 | 525.7 | 525.7 | 525.7 | 525.7 | 525.7 |
| POCI | 73.2 | 73.2 | 73.2 | 73.2 | 73.2 |
| Total gross customer lending balances | 36,376.2 | 36,376.2 | 36,376.2 | 36,376.2 | 36,376.2 |
| Allowance for credit losses and credit impairment provisions: | | | | | |
| Stage 1 | 34.1 | 32.8 | 32.3 | 33.2 | 36.3 |
| Stage 2 | 52.4 | 38.1 | 44.0 | 61.1 | 116.6 |
| Stage 3 | 86.5 | 78.4 | 79.7 | 89.8 | 114.0 |
| POCI | 2.6 | 1.9 | 1.9 | 3.1 | 5.5 |
| Total allowance for credit losses and credit impairment provisions(1) | 175.6 | 151.2 | 157.9 | 187.2 | 272.4 |
(1) Weighted amount comprises of allowance for credit losses of £171.2 million and credit impairment provisions of £4.4 million (note 30).
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Loans and liquid assets (continued)
- Loans and advances to customers and allowance for credit impairment losses (continued)
Sensitivity to alternative economic scenario weightings (continued)
| At 31 December 2024 | Weighted £ million | Upside £ million | Base case £ million | Downside £ million | Severe downside £ million |
|---|---|---|---|---|---|
| Gross customer lending balances: | |||||
| Stage 1 | 33,151.6 | 33,297.8 | 33,204.4 | 33,021.5 | 31,778.1 |
| Stage 2 | 2,697.2 | 2,551.0 | 2,644.4 | 2,827.3 | 4,070.7 |
| Stage 3 | 528.2 | 528.2 | 528.2 | 528.2 | 528.2 |
| POCI | 84.1 | 84.1 | 84.1 | 84.1 | 84.1 |
| Total gross customer lending balances | 36,461.1 | 36,461.1 | 36,461.1 | 36,461.1 | 36,461.1 |
| Allowance for credit losses and credit impairment provisions: | |||||
| --- | --- | --- | --- | --- | --- |
| Stage 1 | 50.2 | 47.9 | 49.1 | 62.3 | 69.8 |
| Stage 2 | 57.7 | 42.1 | 49.9 | 71.1 | 97.1 |
| Stage 3 | 80.0 | 70.9 | 73.0 | 82.9 | 94.3 |
| POCI | 0.8 | 0.6 | 0.6 | 0.8 | 0.9 |
| Total allowance for credit losses and credit impairment provisions(1) | 188.7 | 161.5 | 172.6 | 217.1 | 262.1 |
(1) Weighted amount comprises of allowance for credit losses of £180.1 million and credit impairment provisions of £8.6 million (note 30).
Included in the weighted ECL of £175.6 million (2024: £188.7 million) are post model adjustments of £16.8 million (2024: £37.6 million) which are included in the above macroeconomic sensitivity.
In undertaking the sensitivity of the ECL to alternative scenarios, balances in stage 3 at the balance sheet date remain constant in each scenario. Any change in stage 3 balances in each scenario is assumed to take place subsequent to the balance sheet date as cases move in to and out of arrears. The differences across the scenarios for stage 1 and stage 2 balances reflect the change to the modelled PD in each scenario, which is a key determinant in assessing when there has been a significant increase in credit risk.
The ECL for each scenario multiplied by the scenario probability will not reconcile to the overall provision. Whilst the stage allocation of loans varies in each individual scenario, each loan is allocated to a single stage in the overall provision calculation based on a weighted average PD, taking into account the economic scenarios. A probability weighted 12 month or lifetime ECL (which takes into account the economic scenarios) is then calculated based on the stage allocation.
Judgements required in assessing model estimation uncertainty and post model adjustments (PMAs)
The allowance for credit impairment losses included PMAs as shown below:
| Retail - Mortgages £ million | Retail - Cards £ million | Retail - Other £ million | Business banking £ million | 2025 £ million | Retail - Mortgages £ million | Retail - Cards £ million | Retail - Other £ million | Business banking £ million | 2024 £ million | |
|---|---|---|---|---|---|---|---|---|---|---|
| ECL before judgemental adjustments | 28.9 | 41.9 | 81.2 | 2.4 | 154.4 | 2.7 | 44.9 | 91.2 | 3.7 | 142.5 |
| Post model judgemental adjustments: | ||||||||||
| Impairment default triggers | 3.1 | - | - | - | 3.1 | 21.7 | 0.5 | 2.2 | - | 24.4 |
| Model performance | 8.6 | 0.2 | 2.6 | 11.4 | 19.3 | (1.4) | (8.1) | (1.5) | 8.3 | |
| Operational matters | 2.1 | - | - | 0.2 | 2.3 | 3.7 | - | - | 0.7 | 4.4 |
| Bounce Back Loan Scheme | - | - | - | - | - | - | - | - | 0.5 | 0.5 |
| Total judgemental adjustments | 13.8 | 0.2 | 2.6 | 0.2 | 16.8 | 44.7 | (0.9) | (5.9) | (0.3) | 37.6 |
| Allowance for credit impairment losses | 42.7 | 42.1 | 83.8 | 2.6 | 171.2 | 47.4 | 44.0 | 85.3 | 3.4 | 180.1 |
The suite of methodologies used to calculate PMAs are grounded in similar principles to those adopted for the core impairment models, with the inputs and PMA methodologies subject to regular oversight and PMA outputs reviewed in a consistent manner to the output from the core impairment models. The key categories of PMAs are as follows:
Impairment default triggers
- PMAs in this category capture the risk of default, where not fully captured in the model. An example of a PMA in this category captures the risk associated with customers who have experienced deterioration in their affordability since origination, not included Probability of Default (PD) model, the impact of which is recorded as a PMA. In order to establish, bureau information is used to determine the scale of the impact to the population and the provision uplifted to reflect the customers higher risk.
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Loans and liquid assets (continued)
8. Loans and advances to customers and allowance for credit impairment losses (continued)
Impairment default triggers (continued)
- During 2025, the value of PMAs required to recognise drivers of default not fully captured in the existing ECL models, reduced by £21.3 million to £3.1 million (2024: £24.4 million) following redevelopment of the secured IFRS9 models and associated release of PMAs.
Model performance
- PMAs are required to mitigate risks associated with model performance. During 2025, this category of PMAs increased by £3.1 million to £11.4m million (2024: £8.3 million) to reflect Probability of Default model recalibrations, and recognising model limitations mainly related to projected collateral valuations. While the total value of ECJs has increased, the £11.4 million total includes both positive and negative ECJs to mitigate under and over estimation by the models
Operational matters
- PMAs are used to address the risk of certain operational matters. This includes a low volume of customer accounts which require bespoke assessments of their underlying credit risk, for example, relating to mortgages on high value properties for which models have not been calibrated.
Bounce Back Loan Scheme
- A small PMA previously held in relation to Bounce Back Loans (2024: £0.5m) is no longer required and has been fully released.
Judgements required in assessing significant increase in credit risk
TSB's policy for determining when a financial asset has experienced a significant increase in credit risk is explained on page 56. In applying this policy, the key judgement is the level of increase in the residual lifetime PD as compared to the equivalent position at the origination of the financial asset.
At 31 December 2025, loans and advances to customers were considered to have experienced a significant increase in credit risk (and classified in stage 2) if the residual lifetime PD had increased by both the relative threshold (being a multiplier of the origination PD) and the absolute increase in PD, both as compared to the PD at time of the loan's origination, as follows:
| 2025 Relative Increase in PD | 2025 Absolute Increase in PD | 2024 Relative Increase in PD | 2024 Absolute Increase in PD | ||
|---|---|---|---|---|---|
| Retail - mortgages | |||||
| Core mortgages | Range from 1.1 to 6 times | n/a | 2 times | 410bps | |
| Whistletree | 2 times | 10bps | 2 times | 10bps | |
| Retail - unsecured | |||||
| Credit cards | 1.5 times | 1050bps | 1.5 times | 500bps | |
| Personal loans | 1.5 times | 950bps | 1.5 times | 950bps | |
| Overdrafts | 1.5 times | 200bps | 1.5 times | 200bps | |
| Business banking | 2 times | 50bps | 2 times | 50bps |
In assessing the appropriateness of this judgement, management applied a framework that considered a number of quantitative factors, including the accuracy of the thresholds and their predictive ability, with updates applied where required.
Further to this, PMAs were applied to the modelled staging outcomes to align with the PMAs applied in measuring the impairment allowance. This resulted in the net transfer of £212.5 million (2025: £1,354.1 million) of gross Retail - mortgages balances from stage 1 to stage 2. This was to capture the effects of the affordability PMA (recorded under impairment default triggers). Overlays associated with the Whistletree balances are no longer required (2024: £8.6 million) as they are now included in the model. Similarly, such overlays for the Business Banking portfolio are not required this year (2024: £67.8 million from stage 2 to stage 1 to address known model performance matters). An overlay has been applied to the Loans portfolio transferring £27.4 million gross balance from stage 1 to stage 2 to reflect the effects of a model performance PMA. (2024: £nil).
TSB Bank plc
Annual Report and Accounts 2025
page 64
Notes to the financial statements
Loans and liquid assets (continued)
9. Other advances
| Bank and Company | 2025 £ million | 2024 £ million |
|---|---|---|
| Items in the course of collection from credit institutions | 17.9 | 20.7 |
| Items in the course of collection from non-credit institutions | 4.1 | 4.0 |
| Collateral placed at central clearing houses | 22.6 | 49.9 |
| Collateral placed with credit institutions | 20.8 | 51.4 |
| Amounts due from the British Business Bank | 1.5 | 4.2 |
| Total other advances | 66.9 | 130.2 |
Amounts due from the British Business Bank are in respect of the Bounce Back Loan Scheme. These reflect recovery of loan balances previously charged off and customer interest which are recoverable under a guarantee from the British Business Bank.
10. Fair value of financial assets
The following table summarises the carrying values, fair values, and valuation hierarchy of financial assets presented on the balance sheet. The fair values presented are at a specific date and may be significantly different from the amount which will actually be received on the maturity or settlement date.
| Bank | Level 1 £ million | Level 2 £ million | Level 3 £ million | Total fair value £ million | Total carrying value £ million |
|---|---|---|---|---|---|
| At 31 December 2025 | |||||
| Debt securities at amortised cost | 1,938.2 | - | - | 1,938.2 | 1,986.4 |
| Loans and advances to customers | - | - | 36,186.0 | 36,186.0 | 36,268.4 |
| Financial assets at fair value through other comprehensive income | 440.2 | - | - | 440.2 | 440.2 |
| Derivative assets at fair value through profit or loss | - | 362.4 | - | 362.4 | 362.4 |
| Hedging derivative assets | - | 1,149.2 | - | 1,149.2 | 1,149.2 |
At 31 December 2024
| Debt securities at amortised cost | 1,922.0 | - | - | 1,922.0 | 1,982.5 |
|---|---|---|---|---|---|
| Loans and advances to customers | - | - | 35,989.4 | 35,989.4 | 36,330.9 |
| Financial assets at fair value through other comprehensive income | 328.6 | - | - | 328.6 | 328.6 |
| Derivative assets at fair value through profit or loss | - | 667.6 | - | 667.6 | 667.6 |
| Hedging derivative assets | - | 1,274.3 | - | 1,274.3 | 1,274.3 |
| Company | Level 1 £ million | Level 2 £ million | Level 3 £ million | Total fair value £ million | Total carrying value £ million |
| --- | --- | --- | --- | --- | --- |
| At 31 December 2025 | |||||
| Debt securities at amortised cost | 1,938.2 | - | - | 1,938.2 | 1,986.4 |
| Loans and advances to customers | - | - | 36,186.0 | 36,186.0 | 36,268.4 |
| Financial assets at fair value through other comprehensive income | 440.2 | - | - | 440.2 | 440.2 |
| Derivative assets at fair value through profit or loss | - | 350.2 | - | 350.2 | 350.2 |
| Hedging derivative assets | - | 1,096.5 | - | 1,096.5 | 1,096.5 |
At 31 December 2024
| Debt securities at amortised cost | 1,922.0 | - | - | 1,922.0 | 1,982.5 |
|---|---|---|---|---|---|
| Loans and advances to customers | - | - | 35,989.4 | 35,989.4 | 36,330.9 |
| Financial assets at fair value through other comprehensive income | 328.6 | - | - | 328.6 | 328.6 |
| Derivative assets at fair value through profit or loss | - | 649.7 | - | 649.7 | 649.7 |
| Hedging derivative assets | - | 1,272.4 | - | 1,272.4 | 1,272.4 |
TSB Bank plc
Annual Report and Accounts 2025
page 65
Notes to the financial statements
Loans and liquid assets (continued)
- Fair value of financial assets (continued)
A description of the fair value levels is included in note 5. Debt securities at amortised cost and financial assets at fair value through other comprehensive income are generally valued using quoted market prices and are therefore classified as Level 1 assets. Derivative financial assets are primarily collateralised interest rate swaps and are valued using a discounted cash flow model where the most significant input is forward interest rate yield curves which are developed from publicly quoted SONIA rates. As such, derivative financial instruments are classified as Level 2 assets.
The Bank provides loans at both fixed and variable rates. Fair value is principally estimated by discounting anticipated cash flows (including interest at contractual rates) at market rates for similar loans offered by the Bank and other financial institutions. Certain loans secured on residential properties are made at a fixed rate for a limited period, typically two to five years, after which the loans revert to the relevant variable rate. The fair value of such loans is estimated by reference to the market rates for similar loans of maturity equal to the remaining fixed interest rate period.
Cash, cash balances at central banks and other demand deposits; loans and advances to credit institutions, reverse repurchase agreements and other advances are generally short term in nature and to counterparties with a high credit quality and the carrying amount is a reasonable approximation of fair value. As such these amounts are considered as Level 2.
TSB Bank plc
Annual Report and Accounts 2025
page 66
Notes to the financial statements
Income
We earn income in the form of interest that we receive on the loans we make to customers and from our liquidity portfolio and we pay interest to savings and some bank account customers on the money they deposit with us and to providers of other forms of funding. We also earn other income in the form of fees and charges from the provision of banking services and commissions from the referral of certain products, such as general insurance, offset by fees and rewards paid to certain bank account customers.
Accounting policies relevant to recognising income
(e) Interest income and expense
Financial instruments classified as amortised cost and fair value through other comprehensive income
Interest income and expense are recognised in the income statement for all interest-bearing financial instruments using the EIR method. The EIR method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense. The EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.
The effective interest rate is calculated on initial recognition of the financial asset or liability, estimating the future cash flows after considering all the contractual terms of the instrument but not future credit losses. The calculation includes all amounts paid or received by the Bank that are an integral part of the overall return, direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument and all other premiums or discounts. Reversionary interest is included in the assessment of the effective interest rate on both mortgages and customer deposits, which includes certain savings products. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss (see accounting policy (c) on impairment of financial assets).
For financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of the financial asset. There are two exceptions to this as follows:
(i) Interest income in respect of financial assets that have become credit impaired (stage 3) subsequent to their initial recognition is calculated by applying the effective interest rate to their amortised cost, net of expected loss provision; and
(ii) Interest income in respect of financial assets classified as POCI is calculated by applying the original credit adjusted effective interest rate to the amortised cost of the financial asset.
Derivative financial instruments
Interest income and expense on derivative financial instruments in qualifying hedge accounting relationships, where the hedged item is a financial asset, is recognised in interest income. Where the hedged item is a financial liability, the derivative interest income or expense is recognised in interest expense. Interest income and expense on derivatives classified as held for trading is recognised in interest income.
(f) Other operating income
Other operating income, including fees and commissions, which are not an integral part of the EIR are generally recognised over time as the service is provided and TSB satisfies its performance obligations.
Renewal commission income is recognised when TSB satisfies its performance obligations under the relevant contract and management concludes that there is a high probability that there will be no significant reversal of the estimated income.
TSB Bank plc
Annual Report and Accounts 2025
page 67
Notes to the financial statements
Income (continued)
11. Net interest income
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Interest and similar income | | |
| Interest income calculated using the effective interest method: | | |
| Cash, cash balances at central banks and other demand deposits | 165.8 | 228.0 |
| Financial assets at fair value through other comprehensive income | 8.9 | 7.3 |
| Debt securities at amortised cost | 54.6 | 55.9 |
| Loans to credit institutions | 10.1 | 11.0 |
| Loans and advances to customers | 1,607.0 | 1,501.7 |
| | 1,846.4 | 1,803.9 |
| Derivative financial instruments | 128.6 | 273.5 |
| Other interest income | 0.7 | – |
| Total interest and similar income | 1,975.7 | 2,077.4 |
| Interest and similar expense | | |
| Interest expense calculated using the effective interest method: | | |
| Borrowings from central banks | (30.2) | (146.1) |
| Customer deposits | (527.9) | (530.9) |
| Debt securities in issue | (247.9) | (242.5) |
| Subordinated liabilities | (10.3) | (10.3) |
| Lease liabilities | (2.6) | (3.0) |
| Other financial liabilities | (44.8) | (54.1) |
| | (863.7) | (986.9) |
| Derivative financial instruments | (56.4) | (106.1) |
| Total interest and similar expense | (920.1) | (1,093.0) |
| Net interest income | 1,055.6 | 984.4 |
Included within interest and similar income is £30.4 million (2024: £28.6 million) in respect of impaired financial assets.
12. Net fee and commission income
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Fee and commission income | | |
| Bank accounts | 38.7 | 39.6 |
| Credit and debit card fee income | 53.9 | 62.1 |
| Insurance commission income | 9.3 | 9.4 |
| Other | 12.2 | 13.6 |
| | 114.1 | 124.7 |
| Fee and commission expense | (37.4) | (34.0) |
| Net fee and commission income | 76.7 | 90.7 |
13. Other operating income
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Other operating income, before notable items: | | |
| Rental and other income | 0.7 | 0.5 |
| Notable income: | | |
| Third party recovery income | 29.7 | – |
| Migration related income | – | 36.2 |
| Total other operating income | 30.4 | 36.7 |
Third party recovery income is the recognition of amounts recovered from a third party, under an indemnity arrangement, of certain remediation conduct costs arising from the treatment of customers in the collections and recoveries function.
Migration related income is the recognition of insurance recoveries of post migration losses. The amounts recognised in 2024 reflect the finalisation of the matter.
TSB Bank plc
Annual Report and Accounts 2025
page 68
Notes to the financial statements
Charges
Charges we incur include the costs of paying our employees, running our branches, investing in our business, paying for advertising and marketing. Occasionally, our customers' circumstances change and they are expected to be unable to repay the money they borrow from us causing us to incur impairment losses. Finally, the Bank complies with its tax obligations to HMRC.
Accounting policies relevant to recognising charges
(g) Pensions and other post-retirement benefits
The Bank operates defined contribution pension plans under which fixed contributions are paid. The costs of the Bank's defined contribution plans are charged to the income statement, as an operating expense, in the period in which they fall due.
(h) Share-based compensation
The Bank operates a number of cash settled share-based compensation plans, in respect of services received from certain of its employees. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. A corresponding credit is recognised as a liability. In addition, in some circumstances employees may provide services in advance of the grant date and therefore the liability is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.
At the end of each reporting period, the fair value of the liability is measured with any changes in fair value recognised in operating expenses.
(i) Taxation
Current corporation tax which is payable or receivable on taxable profits or losses is recognised as a tax expense or credit in the period in which the profits or losses arise.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax is determined using tax rates that have been enacted or substantively enacted by the balance sheet date that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Deferred and current tax assets and liabilities are offset when they arise in the same tax reporting group and where there is both a legal right of offset and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
TSB Bank plc
Annual Report and Accounts 2025
page 69
Notes to the financial statements
Charges (continued)
14. Operating expenses
| Bank | 2025 | 2024 |
|---|---|---|
| £ million | £ million | |
| Staff costs: | ||
| Wages and salaries | 236.1 | 245.5 |
| Social security costs | 31.4 | 27.3 |
| Other pension costs | 33.4 | 34.0 |
| Severance costs | 1.7 | 4.9 |
| Other staff costs | 15.9 | 7.8 |
| Total staff costs | 318.5 | 319.5 |
| Total premises expenses | 30.6 | 28.3 |
| Other administrative expenses: | ||
| IT servicing and licence costs | 233.8 | 223.6 |
| Regulatory, legal and consultancy costs | 44.2 | 49.4 |
| Marketing | 14.0 | 20.8 |
| Other expenses(1) | 48.1 | 49.9 |
| Total administrative expenses | 689.2 | 691.5 |
| Fraud and operational losses | 29.8 | 34.1 |
| Regulatory fine | - | 11.4 |
| Conduct costs | 3.5 | 4.9 |
| Other | - | 7.4 |
| Total other operating expenses | 33.3 | 57.8 |
| Depreciation of property and equipment | 22.9 | 30.6 |
| Depreciation of right of use asset | 15.6 | 23.6 |
| Amortisation of intangible assets | 24.9 | 18.3 |
| Total depreciation and amortisation | 63.4 | 72.5 |
| Total operating expenses | 785.9 | 821.8 |
(1) Primarily comprises the costs of operational contracts, and non-staff contractors.
TSB Bank plc
Annual Report and Accounts 2025
page 70
Notes to the financial statements
Charges (continued)
14. Operating expenses (continued)
Notable expenses
Notable items are identified separately by management as they have an undue impact on the overall cost trend and their highlighting ensures the key drivers of cost trends can be better understood.
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Staff costs | 2.6 | 8.6 |
| Premises expenses | 1.1 | 8.4 |
| IT servicing and licence costs | 0.7 | 0.5 |
| Regulatory, legal and consultancy costs | 2.5 | 2.2 |
| Strategic restructuring costs^{(1)} | 6.9 | 19.7 |
| Regulatory fine^{(2)} | – | 11.4 |
| IT servicing and license costs^{(3)} | 8.0 | 4.6 |
| Conduct costs | 0.4 | 3.6 |
| Other notable costs^{(5)} | 0.9 | 1.8 |
| Total notable expenses | 16.2 | 41.1 |
(1) Restructuring activity designed to support the delivery of TSB's strategy and deliver future cost reductions.
(2) Reflects a regulatory fine in respect of findings covering the treatment of customers in TSB's collections and recoveries function.
(3) Includes accelerated charges from a related party IT supplier. Investment by TSB in internal processes to serve customers and improve efficiency led to obsolescence in the supplier's IT equipment, the costs of which were borne by TSB (see note 25 on page 101 under the heading of Operational IT costs).
Average number of employees
The monthly average number of employees on a headcount basis during the year was 4,733 (2024: 5,047), all of whom were employed in the UK. Remuneration paid to key management personnel (note 25(i)) is included in staff costs.
Share based compensation
Staff costs include £2.9 million (2024: £4.0 million) in respect of share based compensation arrangements. Such arrangements are limited to the operation of a Share Incentive Plan (SIP) which provide employees with the opportunity to own shares in Sabadell and the granting, where relevant, of shares to certain senior employees as part of their recruitment arrangements.
All share based compensation arrangements involve an award of Sabadell shares where TSB retains the obligation to settle. These arrangements are accounted for as cash settled share based payment arrangements resulting in the recognition of a liability. This liability is remeasured monthly, with changes recognised in operating expenses, to reflect the latest Sabadell share price and the estimated number of shares expected to vest. At 31 December 2025, £15.8 million (2024: £11.2 million) was recognised in respect of share based payment liabilities. An explanation of the instruments transacted to economically hedge TSB's exposure to share based payment liabilities is set out in note 25(iii) on page 101.
Fees payable to the external auditor
Included in other expenses are fees payable to TSB's auditors, excluding VAT, as set out in the table below:
| Bank | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Fees payable to the Company's auditor for the audit of the Company's annual accounts (1) | 4.1 | 4.4 |
| Fees payable to the Company's auditor and its associates for other services: | | |
| Audit of the accounts of subsidiaries | 0.1 | 0.1 |
| Audit related assurance services (2) | 1.0 | 1.1 |
| Total fees payable to TSB's auditors | 5.2 | 5.6 |
(1) The audit fees include £0.1 million (2024: £0.6 million) associated with the auditor performing additional work associated with the TSB's IT transformation programme.
(2) Primarily fees payable to the Company's auditor for the audit of the half year financial statements, as required by the Bank's ultimate parent company, Sabadell.
TSB Bank plc
Annual Report and Accounts 2025
page 71
Notes to the financial statements
Charges (continued)
15. Directors' emoluments
The aggregate remuneration of the Directors during the year was as follows:
| 2025 | 2024 | |
|---|---|---|
| £ 000 | £ 000 | |
| Remuneration paid to Directors in respect of qualifying services | 3,452 | 4,319 |
| Employer contributions to pension schemes (including cash paid in lieu) | 131 | 168 |
| Amounts payable under long term incentive arrangements | 564 | 767 |
| Total | 4,147 | 5,254 |
The aggregate remuneration of the highest paid director was £1,652,825 (2024: £2,554,045). This included £nil (2024: £494,760) for amounts payable under long term incentive arrangements.
The table below presents the number of Directors who:
| 2025 | 2024 | |
|---|---|---|
| Number | Number | |
| Exercised share options in the parent company, Sabadell | – | – |
| Received Sabadell shares under long term incentive schemes | 2 | 2 |
| Accrued pension benefits under defined contribution pension schemes | – | – |
16. Taxation
| Bank | 2025 £ million | 2024 £ million |
|---|---|---|
| UK corporation tax | ||
| Current tax | ||
| Current tax charge on profit for the year | (84.3) | (52.0) |
| Adjustment in respect of prior years | 1.8 | 3.6 |
| Current tax charge | (82.5) | (48.4) |
| Deferred tax (note 17) | ||
| Utilisation of carried forward trading losses | – | (25.6) |
| Origination and reversal of temporary differences: | ||
| Accelerated capital allowances | (3.4) | (2.0) |
| Adjustments in respect of prior years | 1.1 | (1.5) |
| Other | (3.5) | (3.8) |
| Deferred tax charge | (5.8) | (32.9) |
| Taxation charge | (88.3) | (81.3) |
A reconciliation of the charge that would result from applying the UK corporation tax rate to profit before taxation to the actual taxation charge for the year is presented below:
| Bank | 2025 £ million | 2024 £ million |
|---|---|---|
| Profit before taxation | 339.4 | 285.1 |
| Taxation charge at applied UK corporation tax rate of 28.0% (2024: 28.0%) | (95.0) | (79.8) |
| Factors affecting charge: | ||
| Disallowed costs | (4.8) | (8.3) |
| Taxable profits not subject to the bank surcharge | 3.0 | 3.0 |
| Adjustments in respect of prior years | 2.9 | 2.1 |
| Non-taxable and other items | 5.6 | 1.7 |
| Taxation charge | (88.3) | (81.3) |
The increase in non-taxable and other items primarily reflects the tax deductibility of the Additional Tier 1 (AT1) coupons paid during the year, following the AT1 issuance in December 2024, but accounted for within Equity.
The applied UK corporation tax rate for 2025 was 28.0% (2024: 28.0%) and comprises of the main UK corporation tax rate of 25% and the bank surcharge of 3%. The bank surcharge is applicable to taxable profits of banks in excess of £100 million per annum.
TSB Bank plc
Annual Report and Accounts 2025
page 72
Notes to the financial statements
Charges (continued)
17. Deferred tax assets
The movement in deferred tax assets is as follows:
| Bank and Company | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| At 1 January | 8.1 | 43.2 |
| Income statement charge (note 16) | (5.8) | (32.9) |
| Amounts charged to shareholder's equity: | | |
| Movements in fair value reserve | (0.7) | 0.6 |
| Movements in cash flow hedge reserve | 4.5 | (2.8) |
| At 31 December | 6.1 | 8.1 |
Deferred tax assets are comprised as follows:
| Bank and Company | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Deferred tax in respect of the transition to IFRS 9 | 5.4 | 8.1 |
| Revaluations of financial assets at fair value through other comprehensive income | 2.4 | 3.1 |
| Deferred tax arising on cash flow hedge reserve | (3.0) | (7.5) |
| Other temporary differences | 1.3 | 4.4 |
| Total deferred tax assets | 6.1 | 8.1 |
As noted in the prior year financial statements, TSB adopted International Tax Reform – Pillar Two Model Rules: Amendments to IAS 12. This amendment introduced a mandatory temporary exception to the accounting for deferred taxes arising from the implementation of the OECD Pillar Two model rules. Following the implementation of the OECD rules, relevant analysis was completed in 2024 which concluded there was no impact on TSB's current or deferred tax arrangements.
TSB Bank plc
Annual Report and Accounts 2025
page 73
Notes to the financial statements
Managing financial risk
Financial instruments are fundamental to the Bank's activities and, as a consequence, the risks associated with financial instruments represent a significant component of the risks faced by TSB. The primary risks affecting the Bank through its use of financial instruments are: credit risk, liquidity risk, and market risk. A summary of the Bank's use of financial instruments and information about the management of these risks is presented below.
Accounting policies relevant to managing financial risk
(j) Derivative financial instruments and hedge accounting
All derivative financial instruments are recognised at their fair value. Fair values are determined using valuation techniques, including discounted cash flow as appropriate. Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative.
Changes in the fair value of derivatives are recognised immediately in the income statement, with the exception of derivatives designated in a cash flow hedge. For derivatives in cash flow hedges, the effective portion of the change in fair value is recognised in other comprehensive income until the point at which the hedged item affects profit or loss while the ineffective portion is recognised in profit or loss.
Hedge accounting
TSB elected to continue to apply the hedge accounting requirements of IAS 39 on adoption of IFRS 9. Hedge accounting allows one financial instrument, generally a derivative such as an interest rate swap, to be designated as a hedge of another financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the hedged risk, the hedged item and the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value of the hedged item or changes in cash flows arising from the hedged risk.
In its application of the hedge accounting policy, TSB follows the requirements of the UK endorsed version of IAS 39 'Financial Instruments: Recognition and Measurement' which are not available in the version issued by the IASB, specifically relating to hedging core deposits, and the relaxation of effectiveness testing, such that a layer approach can be used in a macro fair value hedge. The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. TSB designates certain derivatives as either hedges of the fair value of recognised assets or liabilities (fair value hedges) or hedges of highly probable future cash flows attributable to recognised assets or liabilities (cash flow hedges).
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement over the period to maturity. For micro fair value hedges, this is applied using a straight line method over the period to maturity, and for macro fair value hedges, the cumulative adjustment is amortised over the period to expiry of the relevant repricing period.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the previously hedged cash flow is ultimately recognised in the income statement.
TSB Bank plc
Annual Report and Accounts 2025
page 74
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk
Credit risk management
Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk appetite is set at Board level and is described and reported through a suite of metrics devised from credit portfolio performance measures, and includes the use of various credit risk rating systems to measure the credit risk of loans and advances to customers at a facility or counterparty level using three components: (i) the probability of default by the counterparty on its contractual obligations; (ii) the exposure to the counterparty at default; and (iii) the likely loss ratio on the defaulted obligations, the loss given default. TSB uses a range of approaches to mitigate credit risk, including policies, obtaining collateral, using master netting agreements and other credit risk transfers, such as asset sales. TSB's credit risk exposure, which arises primarily in the United Kingdom, is set out below.
Governance and oversight of provisioning adequacy
All lending assets are assessed for expected credit losses (ECL) on a monthly basis. The process for assessing ECL considers information and events that have occurred in the context of current expectations of the future economic environment. Assets are reviewed to ensure that the stage allocation remains valid, that cash flow projections remain appropriate (including any potential net proceeds from the realisation of collateral) and that the projected macro-economic outcomes and associated probability weightings used to derive ECL amounts continue to remain appropriate. In the event that the future expected cash flow has changed from the previous assessment, an adjustment to the level of loss allowance is made as appropriate.
Where credit impaired assets are within a pool of similar assets and are assessed collectively, the relevance of the pool within which the asset has been placed and the assumptions regarding cash flow emanating from the pool are examined.
TSB reviews, at least annually, its provision forecast against actual loss experience to identify whether its policies have resulted in over or under provisioning across the economic cycle. Stress and scenario testing are widely used throughout TSB to assess the potential impact on impaired exposures and related provisions. A robust governance framework has been established to monitor impairment exposures, provisions and the impact of alternative economic scenarios and stress scenarios. Findings and recommendations are reported to regular Portfolio Quality Review meetings, Executive Risk Committees, Audit Committee and the Board.
(i) Maximum credit exposure
The maximum credit risk exposure in the event of other parties failing to perform their obligations is presented below. No account is taken of any collateral held and the maximum exposure to loss is considered to be the balance sheet carrying amount or, for non-derivative off-balance sheet transactions, their contractual nominal amounts. The maximum exposure to credit risk for financial assets is set out below:
| Bank and Company | 2025 Exposure £ million | 2025 Credit Quality | 2024 Exposure £ million | 2024 Credit Quality |
|---|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits: | 4,202.1 | 4,823.8 | ||
| Cash | 71.2 | Not Rated | 77.3 | Not Rated |
| Balances with central banks | 4,119.1 | AA- | 4,738.5 | AA- |
| On demand deposits | 11.8 | At least BBB+ | 8.0 | At least BBB |
| Debt securities(1) | 1,986.4 | At least AA- | 1,982.5 | At least AA- |
| Loans and advances to customers | 36,268.4 | Note 18 (ii) | 36,330.9 | Note 18(ii) |
| Loans and advances to credit institutions(2) | 305.2 | At least A+ | 277.8 | At Least AA- |
| Other advances | 128.9 | 130.2 | ||
| Reverse repurchase agreements | 62.0 | AA- | - | |
| Government institutions | 1.5 | AA- | 4.2 | AA- |
| Other advances | 65.4 | Not Rated | 126.0 | Not rated |
| Financial assets at fair value through other comprehensive income | 440.2 | At least AA- | 328.6 | AA- |
| Financial assets subject to expected credit loss requirements | 43,331.2 | 43,873.8 | ||
| Derivative financial assets(1)(3) | 1,511.6 | 1,941.9 | ||
| Total on-balance sheet financial assets | 44,842.8 | 45,815.7 | ||
| Lending commitments | 5,006.5 | Note 8 | 5,697.2 | Note 8 |
| Maximum credit risk exposure | 49,849.3 | 51,512.9 |
(1) Includes £598.8 million (2024: £589.5 million) rated AAA.
(2) Loans and advances to credit institutions of £305.2 million (2024: £277.8 million) are not included in the Company totals.
(3) Derivative financial assets of £64.9 million (2024: £19.8 million) are not included in the Company totals.
TSB Bank plc
Annual Report and Accounts 2025
page 75
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(ii) Staging analysis
| At 31 December 2025 | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | Total
£ million |
| --- | --- | --- | --- | --- | --- |
| Loans and advances to customers | | | | | |
| Retail – mortgages | 31,119.5 | 2,451.9 | 415.3 | 72.2 | 34,058.9 |
| Retail – credit cards | 426.5 | 101.3 | 34.6 | – | 562.4 |
| Retail – other unsecured | 1,206.4 | 170.7 | 64.4 | 1.0 | 1,442.5 |
| Business banking | 286.3 | 14.7 | 11.4 | – | 312.4 |
| Gross customer lending balances | 33,038.7 | 2,738.6 | 525.7 | 73.2 | 36,376.2 |
| ECL on drawn balances | (31.6) | (50.6) | (86.4) | (2.6) | (171.2) |
| Net customer lending balance | 33,007.1 | 2,688.0 | 439.3 | 70.6 | 36,205.0 |
| Valuation adjustments (note 8) | | | | | 63.4 |
| Net balance sheet carrying value | | | | | 36,268.4 |
| Allowance for credit impairment losses(1) | | | | | |
| Retail – mortgages | 6.4 | 11.1 | 22.7 | 2.5 | 42.7 |
| Retail – credit cards | 6.4 | 15.8 | 19.9 | – | 42.1 |
| Retail – other unsecured | 17.7 | 23.0 | 43.0 | 0.1 | 83.8 |
| Business banking | 1.1 | 0.7 | 0.8 | – | 2.6 |
| Total | 31.6 | 50.6 | 86.4 | 2.6 | 171.2 |
| Coverage (%) | | | | | |
| Retail – mortgages | 0.02% | 0.45% | 5.47% | 3.46% | 0.13% |
| Retail – credit cards | 1.50% | 15.60% | 57.51% | – | 7.49% |
| Retail – other unsecured | 1.47% | 13.47% | 66.77% | 10.00% | 5.81% |
| Business banking | 0.38% | 4.76% | 7.02% | – | 0.83% |
| Total | 0.10% | 1.85% | 16.44% | 3.55% | 0.47% |
| At 31 December 2024 | | | | | |
| Loans and advances to customers | | | | | |
| Retail – mortgages | 31,121.4 | 2,433.6 | 417.0 | 83.5 | 34,055.5 |
| Retail – credit cards | 379.3 | 115.6 | 33.6 | – | 528.5 |
| Retail – other unsecured | 1,280.0 | 128.4 | 61.1 | 0.6 | 1,470.1 |
| Business banking | 370.9 | 19.6 | 16.5 | – | 407.0 |
| Gross customer lending balances | 33,151.6 | 2,697.2 | 528.2 | 84.1 | 36,461.1 |
| ECL on drawn balances | (46.2) | (55.1) | (78.0) | (0.8) | (180.1) |
| Net customer lending balance | 33,105.4 | 2,642.1 | 450.2 | 83.3 | 36,281.0 |
| Valuation adjustments (note 8) | | | | | 49.9 |
| Net balance sheet carrying value | | | | | 36,330.9 |
| Allowance for credit impairment losses(1) | | | | | |
| Retail – mortgages | 13.7 | 14.8 | 18.1 | 0.8 | 47.4 |
| Retail – credit cards | 5.5 | 19.4 | 19.1 | – | 44.0 |
| Retail – other unsecured | 25.3 | 20.1 | 39.9 | – | 85.3 |
| Business banking | 1.7 | 0.8 | 0.9 | – | 3.4 |
| Total | 46.2 | 55.1 | 78.0 | 0.8 | 180.1 |
| Coverage (%) | | | | | |
| Retail – mortgages | 0.04% | 0.61% | 4.34% | 0.96% | 0.14% |
| Retail – credit cards | 1.45% | 16.78% | 56.85% | – | 8.33% |
| Retail – other unsecured | 1.98% | 15.65% | 65.30% | – | 5.80% |
| Business banking | 0.46% | 4.08% | 5.45% | – | 0.84% |
| Total | 0.14% | 2.04% | 14.77% | 0.95% | 0.49% |
(1) Excludes expected credit impairment provisions for off balance sheet exposures of £4.4 million (2024: £8.6 million). These comprise of stage 1 of £2.5 million (2024: £4.0 million), stage 2 of £1.8 million (2024: £2.6 million), stage 3 of £0.1 million (2024: £2.0 million), and POCI of £nil (2024: £nil).
For all other classes of financial assets (as listed in note 18(i) on page 75), expected credit losses are immaterial.
TSB Bank plc
Annual Report and Accounts 2025
page 76
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(iii) Reconciliation of movements in gross customer balances and allowances for credit impairment losses
The tables below summarise the movements between stages for loans and advances to customers.
| TSB drawn balances | Stage 1 | Stage 2 | Stage 3 | POCI(1) | Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | |
| At 1 January 2024 | 32,115.9 | (55.9) | 3,684.9 | (76.9) | 508.1 | (78.0) | 94.9 | (1.0) | 36,403.8 | (211.8) |
| Changes reflected in impairment losses: | 517.0 | 5.6 | (257.1) | (5.4) | (119.8) | (20.4) | (10.8) | 0.2 | 129.3 | (20.0) |
| Increases due to originations | 6,874.9 | (36.9) | 162.9 | - | 42.2 | - | 5.1 | - | 7,085.1 | (36.9) |
| Decreases due to repayments | (6,357.9) | 7.5 | (420.0) | 3.0 | (162.0) | 7.0 | (15.9) | 0.5 | (6,955.8) | 18.0 |
| Changes in credit risk(2) | - | 35.0 | - | (8.4) | - | (27.4) | - | (0.3) | - | (1.1) |
| Amounts written off | - | - | - | - | (72.0) | 51.7 | - | - | (72.0) | 51.7 |
| Transfers between stages(3) (4) | 518.7 | 4.1 | (730.6) | 27.2 | 211.9 | (31.3) | - | - | - | - |
| To stage 1 | 2,290.9 | (21.7) | (2,267.6) | 21.4 | (23.3) | 0.3 | - | - | - | - |
| To stage 2 | (1,724.4) | 23.8 | 1,790.1 | (27.1) | (65.7) | 3.3 | - | - | - | - |
| To stage 3 | (47.8) | 2.0 | (253.1) | 32.9 | 300.9 | (34.9) | - | - | - | - |
| At 31 December 2024 | 33,151.6 | (46.2) | 2,697.2 | (55.1) | 528.2 | (78.0) | 84.1 | (0.8) | 36,461.1 | (180.1) |
| Changes reflected in impairment losses: | 426.8 | 7.7 | (306.9) | (13.7) | (126.4) | (26.7) | (12.5) | (0.2) | (19.0) | (32.9) |
| Increases due to originations | 7,271.6 | (19.8) | 133.3 | - | 39.0 | - | - | - | 7,443.9 | (19.8) |
| Decreases due to repayments | (6,844.8) | 5.4 | (440.2) | 2.8 | (165.4) | 10.6 | (12.5) | 0.6 | (7,462.9) | 19.4 |
| Changes in credit risk(2) | - | 22.1 | - | (16.5) | - | (37.3) | - | (0.8) | - | (32.5) |
| Amounts written off | - | - | - | - | (72.6) | 48.5 | - | - | (72.6) | 48.5 |
| Reclassification between gross and ECL(5) | 0.5 | (0.5) | 1.0 | (1.0) | 3.6 | (3.6) | 1.6 | (1.6) | 6.7 | (6.7) |
| Transfers between stages(3) (4) | (540.2) | 7.4 | 347.3 | 19.2 | 192.9 | (26.6) | - | - | - | - |
| To stage 1 | 2,799.5 | (14.8) | (2,773.7) | 14.4 | (25.8) | 0.4 | - | - | - | - |
| To stage 2 | (3,280.1) | 20.6 | 3,380.9 | (24.4) | (100.8) | 3.8 | - | - | - | - |
| To stage 3 | (59.6) | 1.6 | (259.9) | 29.2 | 319.5 | (30.8) | - | - | - | - |
| At 31 December 2025 | 33,038.7 | (31.6) | 2,738.6 | (50.6) | 525.7 | (86.4) | 73.2 | (2.6) | 36,376.2 | (171.2) |
| Retail – mortgages | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | |
| At 1 January 2024 | 30,281.1 | (14.4) | 3,267.9 | (22.4) | 404.6 | (19.6) | 93.9 | (1.0) | 34,047.5 | (57.4) |
| Changes reflected in impairment losses: | 275.7 | 3.8 | (169.0) | 2.7 | (88.0) | 3.3 | (10.4) | 0.2 | 8.3 | 10.0 |
| Increases due to originations | 5,076.8 | (4.1) | 5.9 | - | 15.2 | - | 2.4 | - | 5,100.3 | (4.1) |
| Decreases due to repayments | (4,801.1) | 2.4 | (174.9) | 0.8 | (103.2) | 4.1 | (12.8) | 0.5 | (5,092.0) | 7.8 |
| Changes in credit risk(2) | - | 5.5 | - | 1.9 | - | (0.8) | - | (0.3) | - | 6.3 |
| Amounts written off | - | - | - | - | (0.3) | - | - | - | (0.3) | - |
| Transfers between stages(3) (4) | 564.6 | (3.1) | (665.3) | 4.9 | 100.7 | (1.8) | - | - | - | - |
| To stage 1 | 1,694.7 | (7.8) | (1,679.6) | 7.7 | (15.1) | 0.1 | - | - | - | - |
| To stage 2 | (1,109.6) | 4.2 | 1,162.5 | (5.8) | (52.9) | 1.6 | - | - | - | - |
| To stage 3 | (20.5) | 0.5 | (148.2) | 3.0 | 168.7 | (3.5) | - | - | - | - |
| At 31 December 2024 | 31,121.4 | (13.7) | 2,433.6 | (14.8) | 417.0 | (18.1) | 83.5 | (0.8) | 34,055.5 | (47.4) |
| Changes reflected in impairment losses: | 348.1 | 5.8 | (234.5) | 5.3 | (100.2) | (1.2) | (12.3) | (0.7) | 1.1 | 9.2 |
| Increases due to originations | 5,547.4 | (2.8) | 9.3 | - | 11.4 | - | - | - | 5,568.1 | (2.8) |
| Decreases due to repayments | (5,199.3) | 2.0 | (243.8) | 1.0 | (111.6) | 6.6 | (12.3) | 0.3 | (5,567.0) | 9.9 |
| Changes in credit risk(2) | - | 6.6 | - | 4.3 | - | (7.8) | - | (1.0) | - | 2.1 |
| Amounts written off | - | - | - | - | (2.2) | - | - | - | (2.2) | - |
| Reclassification between gross and ECL(5) | 0.4 | (0.4) | 0.9 | (0.9) | 2.2 | (2.2) | 1.0 | (1.0) | 4.5 | (4.5) |
| Transfers between stages(3) (4) | (350.4) | 1.9 | 251.9 | (0.7) | 98.5 | (1.2) | - | - | - | - |
| To stage 1 | 2,369.3 | (3.8) | (2,349.9) | 3.5 | (19.4) | 0.3 | - | - | - | - |
| To stage 2 | (2,689.4) | 5.3 | 2,776.1 | (7.2) | (86.7) | 1.9 | - | - | - | - |
| To stage 3 | (30.3) | 0.4 | (174.3) | 3.0 | 204.6 | (3.4) | - | - | - | - |
| At 31 December 2025 | 31,119.5 | (6.4) | 2,451.9 | (11.1) | 415.3 | (22.7) | 72.2 | (2.5) | 34,058.9 | (42.7) |
Notes are shown under the table on page 79.
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(iii) Reconciliation of movements in gross customer balances and allowances for credit impairment losses (continued)
| Retail – credit cards | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | |
| At 1 January 2024 | 364.7 | (7.2) | 135.6 | (21.1) | 30.3 | (15.9) | - | - | 530.6 | (44.2) |
| Changes reflected in impairment losses: | 35.1 | 0.4 | (16.2) | (2.2) | (4.3) | (10.2) | - | - | 14.6 | (12.0) |
| Increases due to originations | 650.0 | (0.3) | 95.3 | - | 5.4 | - | - | - | 750.7 | (0.3) |
| Decreases due to repayments | (614.9) | - | (111.5) | 0.1 | (9.7) | 0.1 | - | - | (736.1) | 0.2 |
| Changes in credit risk(2) | - | 0.7 | - | (2.3) | - | (10.3) | - | - | - | (11.9) |
| Amounts written off | - | - | - | - | (16.7) | 12.2 | - | - | (16.7) | 12.2 |
| Transfers between stages(3) (4) | (20.5) | 1.3 | (3.8) | 3.9 | 24.3 | (5.2) | - | - | - | - |
| To stage 1 | 209.5 | (4.3) | (209.1) | 4.3 | (0.4) | - | - | - | - | |
| To stage 2 | (226.6) | 5.5 | 230.7 | (6.2) | (4.1) | 0.7 | - | - | - | - |
| To stage 3 | (3.4) | 0.1 | (25.4) | 5.8 | 28.8 | (5.9) | - | - | - | - |
| At 31 December 2024 | 379.3 | (5.5) | 115.6 | (19.4) | 33.6 | (19.1) | - | - | 528.5 | (44.0) |
| Changes reflected in impairment losses: | 72.9 | (1.4) | (16.2) | (1.0) | (4.9) | (9.5) | - | - | 51.8 | (11.9) |
| Increases due to originations | 720.1 | (0.5) | 63.9 | - | 5.8 | - | - | - | 789.8 | (0.5) |
| Decreases due to repayments | (647.2) | 0.2 | (80.1) | (0.1) | (10.7) | 0.1 | - | - | (738.0) | 0.2 |
| Changes in credit risk(2) | - | (1.1) | - | (0.9) | - | (9.6) | - | - | - | (11.6) |
| Amounts written off | - | - | - | - | (17.9) | 13.8 | - | - | (17.9) | 13.8 |
| Transfers between stages(3) (4) | (25.7) | 0.5 | 1.9 | 4.6 | 23.8 | (5.1) | - | - | - | - |
| To stage 1 | 185.0 | (3.9) | (184.6) | 3.9 | (0.4) | - | - | - | - | |
| To stage 2 | (206.9) | 4.4 | 211.3 | (5.1) | (4.4) | 0.7 | - | - | - | - |
| To stage 3 | (3.8) | - | (24.8) | 5.8 | 28.6 | (5.8) | - | - | - | - |
| At 31 December 2025 | 426.5 | (6.4) | 101.3 | (15.8) | 34.6 | (19.9) | - | - | 562.4 | (42.1) |
| Retail – other unsecured | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | |
| At 1 January 2024 | 1,097.6 | (30.7) | 189.8 | (31.2) | 61.7 | (41.6) | 1.0 | - | 1,350.1 | (103.5) |
| Changes reflected in impairment losses: | 240.1 | - | (56.3) | (7.0) | (9.0) | (13.4) | (0.4) | - | 174.4 | (20.4) |
| Increases due to originations | 1,093.0 | (32.0) | 52.4 | - | 21.4 | - | 2.7 | - | 1,169.5 | (32.0) |
| Decreases due to repayments | (852.9) | 4.8 | (108.7) | 1.9 | (30.4) | 2.6 | (3.1) | - | (995.1) | 9.3 |
| Changes in credit risk(2) | - | 27.2 | - | (8.9) | - | (16.0) | - | - | 2.3 | |
| Amounts written off | - | - | - | - | (54.4) | 38.6 | - | - | (54.4) | 38.6 |
| Transfers between stages(3) (4) | (57.7) | 5.4 | (5.1) | 18.1 | 62.8 | (23.5) | - | - | - | - |
| To stage 1 | 266.1 | (8.8) | (263.5) | 8.6 | (2.6) | 0.2 | - | - | - | - |
| To stage 2 | (300.3) | 12.8 | 306.0 | (13.8) | (5.7) | 1.0 | - | - | - | - |
| To stage 3 | (23.5) | 1.4 | (47.6) | 23.3 | 71.1 | (24.7) | - | - | - | - |
| At 31 December 2024 | 1,280.0 | (25.3) | 128.4 | (20.1) | 61.1 | (39.9) | 0.6 | - | 1,470.1 | (85.3) |
| Changes reflected in impairment losses: | 73.5 | 2.5 | (41.7) | (17.7) | (9.7) | (16.1) | (0.2) | 0.5 | 21.9 | (30.8) |
| Increases due to originations | 975.5 | (16.5) | 59.1 | - | 21.6 | - | - | - | 1,056.2 | (16.5) |
| Decreases due to repayments | (902.0) | 3.2 | (100.8) | 1.8 | (31.3) | 3.6 | (0.2) | 0.3 | (1,034.3) | 8.9 |
| Changes in credit risk(2) | - | 15.8 | - | (19.5) | - | (19.7) | - | 0.2 | - | (23.2) |
| Amounts written off | - | - | - | - | (51.7) | 34.5 | - | - | (51.7) | 34.5 |
| Reclassification between gross and ECL(5) | 0.1 | (0.1) | 0.1 | (0.1) | 1.4 | (1.4) | 0.6 | (0.6) | 2.2 | (2.2) |
| Transfers between stages(3) (4) | (147.2) | 5.2 | 83.9 | 14.9 | 63.3 | (20.1) | - | - | - | - |
| To stage 1 | 210.7 | (6.7) | (208.0) | 6.6 | (2.7) | 0.1 | - | - | - | - |
| To stage 2 | (332.9) | 10.7 | 338.5 | (11.7) | (5.6) | 1.0 | - | - | - | - |
| To stage 3 | (25.0) | 1.2 | (46.6) | 20.0 | 71.6 | (21.2) | - | - | - | - |
| At 31 December 2025 | 1,206.4 | (17.7) | 170.7 | (23.0) | 64.4 | (43.0) | 1.0 | (0.1) | 1,442.5 | (83.8) |
Notes are shown under the table on the following page.
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(iii) Reconciliation of movements in gross customer balances and allowances for credit impairment losses (continued)
| Business banking | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | Gross £ million | ECL £ million | |
| At 1 January 2024 | 372.5 | (3.6) | 91.6 | (2.2) | 11.5 | (0.9) | - | - | 475.6 | (6.7) |
| Changes reflected in impairment losses: | (33.9) | 1.4 | (15.6) | 1.1 | (18.5) | (0.1) | - | - | (68.0) | 2.4 |
| Increases due to originations | 55.1 | (0.5) | 9.3 | - | 0.2 | - | - | - | 64.6 | (0.5) |
| Decreases due to repayments | (89.0) | 0.3 | (24.9) | 0.2 | (18.7) | 0.2 | - | - | (132.6) | 0.7 |
| Changes in credit risk(2) | - | 1.6 | - | 0.9 | - | (0.3) | - | - | - | 2.2 |
| Amounts written off | - | - | - | - | (0.6) | 0.9 | - | - | (0.6) | 0.9 |
| Transfers between stages(3) (4) | 32.3 | 0.5 | (56.4) | 0.3 | 24.1 | (0.8) | - | - | - | - |
| To stage 1 | 120.6 | (0.8) | (115.4) | 0.8 | (5.2) | - | - | - | - | - |
| To stage 2 | (87.9) | 1.3 | 90.9 | (1.3) | (3.0) | - | - | - | - | - |
| To stage 3 | (0.4) | - | (31.9) | 0.8 | 32.3 | (0.8) | - | - | - | - |
| At 31 December 2024 | 370.9 | (1.7) | 19.6 | (0.8) | 16.5 | (0.9) | - | - | 407.0 | (3.4) |
| Changes reflected in impairment losses: | (67.7) | 0.8 | (14.5) | (0.3) | (11.6) | 0.1 | - | - | (93.8) | 0.6 |
| Increases due to originations | 28.6 | - | 1.0 | - | 0.2 | - | - | - | 29.8 | - |
| Decreases due to repayments | (96.3) | - | (15.5) | 0.1 | (11.8) | 0.3 | - | - | (123.6) | 0.4 |
| Changes in credit risk(2) | - | 0.8 | - | (0.4) | - | (0.2) | - | - | - | 0.2 |
| Amounts written off | - | - | - | - | (0.8) | 0.2 | - | - | (0.8) | 0.2 |
| Transfers between stages(3) (4) | (16.9) | (0.2) | 9.6 | 0.4 | 7.3 | (0.2) | - | - | - | - |
| To stage 1 | 34.5 | (0.4) | (31.2) | 0.4 | (3.3) | - | - | - | - | - |
| To stage 2 | (50.9) | 0.2 | 55.0 | (0.4) | (4.1) | 0.2 | - | - | - | - |
| To stage 3 | (0.5) | - | (14.2) | 0.4 | 14.7 | (0.4) | - | - | - | - |
| At 31 December 2025 | 286.3 | (1.1) | 14.7 | (0.7) | 11.4 | (0.8) | - | - | 312.4 | (2.6) |
Footnotes to the tables in note 18(iii) on pages 77 to 79:
(1) POCI is purchased or originated as credit impaired.
(2) Includes changes to the allowance for credit impairment losses arising from stage transfers and other changes to risk parameters.
(3) Transfers between stages are an aggregation of monthly movements over the year and are based on balances and ECL at the start of each month.
(4) The net remeasurement of ECL on stage transfer is reported within the stage that the assets are transferred into. This represents the period to date ECL movement on net assets transferred into a particular stage. This is not a subtotal of the 'transfers from' and 'transfers to' rows that precede this row.
(5) During 2025, a pre-acquisition impairment allowance, carried in respect of the Whistletree portfolio, was reclassified from an offset in gross customer carrying amounts to the allowance for credit impairment losses. This has the effect of increasing both gross customer carrying amount and allowance for credit impairment losses by £6.7 million.
The movement in expected credit loss provisions in respect of off balance sheet exposures is shown in note 30.
TSB Bank plc
Annual Report and Accounts 2025
page 79
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(iii) Reconciliation of movements in gross customer balances and allowances for credit impairment losses (continued)
Performance overview
Gross loans balances decreased by £(84.9) million to £36,376.2 million (2024: £36,461.1 million) reflecting the competitive UK mortgage lending market and the management decision to protect margins.
Stage 1 gross customer lending balances decreased by £112.9 million to £33,038.7 million (2024: £33,151.6 million), reflecting a net transfer to stage 2.
Stage 2 gross customer lending balances increased by £41.4 million to £2,738.6 million (2024: £2,697.2 million) driven by ongoing loan repayments by customers and the above net transfer to stage 2 from stage 1.
Stage 3 gross customer lending balances decreased by £2.5 million to £525.7 million (2024: £528.2 million), primarily driven by decreases in Retail – mortgages.
Gross loans written off during 2025 of £72.6 million (2024: £72.0 million) continue to be subject to the right to undertake enforcement activities, despite there being no realistic prospect of recovery.
Reconciliation to amounts recognised in the income statement
| | 2025
£ million | 2024
£ million |
| --- | --- | --- |
| Income statement (credit)/charge reported in the allowance for credit impairment losses: | | |
| Increases due to originations(1) | 19.8 | 36.9 |
| Decreases due to repayments(1) | (19.4) | (18.0) |
| Charge/(credit) due to changes in credit risk(1) | 32.5 | 1.1 |
| Release to income statement of allowance associated with gross carrying amounts written off(1) | (48.5) | (51.7) |
| | (15.6) | (31.7) |
| Other amounts charged/(credited) to impairment losses in the income statement: | | |
| Gross carrying amounts written off to income statement(2) | 72.6 | 72.0 |
| Recoveries of amounts previously written off | (9.4) | (10.6) |
| Other amounts charged to the income statement | 3.6 | 2.2 |
| Impairment losses on financial assets at amortised cost | 51.2 | 31.9 |
| Impairment losses on financial assets at amortised cost | 51.2 | 31.9 |
| Impairment credit on credit impairment provisions in respect of loan commitments (note 30) | (4.2) | (1.8) |
| Impairment losses per income statement | 47.0 | 30.1 |
(1) As reported in the reconciliation of movements in allowances for credit impairment losses in note 18(iii) on page 77.
(2) As reported in the reconciliation of movements in gross customer balances in note 18(iii) on page 77.
TSB Bank plc
Annual Report and Accounts 2025
page 80
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(iv) Stage 2 balances
The following table shows the reason for stage 2 classification at the reporting date.
| At 31 December 2025 | PD Deterioration £ million | Performing Forborne £ million | >30DPD £ million | Total £ million |
|---|---|---|---|---|
| Gross customer lending balances | ||||
| Retail – mortgages | 2,352.9 | 4.2 | 94.8 | 2,451.9 |
| Retail – credit cards | 91.3 | 3.0 | 7.0 | 101.3 |
| Retail – other unsecured | 162.5 | 2.4 | 5.8 | 170.7 |
| Business banking | 8.2 | 2.9 | 3.6 | 14.7 |
| Total | 2,614.9 | 12.5 | 111.2 | 2,738.6 |
| Allowance for credit impairment losses | ||||
| Retail – mortgages | 9.7 | – | 1.4 | 11.1 |
| Retail – credit cards | 14.2 | 0.2 | 1.4 | 15.8 |
| Retail – other unsecured | 20.1 | 0.1 | 2.8 | 23.0 |
| Business banking | – | 0.2 | 0.5 | 0.7 |
| Total | 44.0 | 0.5 | 6.1 | 50.6 |
| At 31 December 2024 | PD Deterioration £ million | Performing Forborne £ million | >30DPD £ million | Total £ million |
| Gross customer lending balances | ||||
| Retail – mortgages | 2,256.6 | 55.3 | 121.7 | 2,433.6 |
| Retail – credit cards | 102.3 | 3.2 | 10.1 | 115.6 |
| Retail – other unsecured | 119.0 | 2.7 | 6.7 | 128.4 |
| Business banking | 12.9 | 0.4 | 6.3 | 19.6 |
| Total | 2,490.8 | 61.6 | 144.8 | 2,697.2 |
| Allowance for credit impairment losses | ||||
| Retail – mortgages | 12.7 | 0.2 | 1.9 | 14.8 |
| Retail – credit cards | 16.5 | 0.3 | 2.6 | 19.4 |
| Retail – other unsecured | 15.9 | 0.1 | 4.1 | 20.1 |
| Business banking | 0.7 | – | 0.1 | 0.8 |
| Total | 45.8 | 0.6 | 8.7 | 55.1 |
(v) Stage 3 balances
| At 31 December | 2025 | 2024 | ||
|---|---|---|---|---|
| Gross loans £ million | ECL £ million | Gross loans £ million | ECL £ million | |
| Credit impaired - not in a cure period | 346.7 | (58.2) | 320.9 | (48.3) |
| Credit impaired - in the cure period that precedes transfer to stage 2 | 179.0 | (28.2) | 207.3 | (29.7) |
| Total stage 3 | 525.7 | (86.4) | 528.2 | (78.0) |
Balances that are credit impaired and not in a cure period comprise of loans and advances to customers that are more than 90 days past due, or considered by management as unlikely to pay their obligations, as described under the heading 'definition of default for IFRS 9' on page 57. Balances that were credit impaired but operating within the cure period required by TSB policy prior to a transfer to stage 2 comprise of customers who have cured but who were 90 days past due, or considered unlikely to pay, in the previous six months.
TSB Bank plc
Annual Report and Accounts 2025
page 81
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(vi) Credit quality of loans and advances to customers and lending commitments
In assessing the credit quality of loans and advances to customers and lending commitments, TSB uses an internal rating scale which assigns a grade based on a customer's 12 month expected probability of default (PD). For unsecured, the PDs used to assign a risk grade, as shown in the table below, are point in time PDs. For Retail - mortgages and Business banking the PDs used are those used to assess IFRS 9 staging and expected credit loss measurement, which are adjusted to reflect the effect of forward looking economic scenarios.
| PD range Lower | PD range Upper | Internal Grading | |
|---|---|---|---|
| Excellent quality | 0% | 1.200% | 0-3 |
| Good quality | 1.201% | 4.500% | 4-5 |
| Satisfactory quality | 4.501% | 14.000% | 6-8 |
| Lower quality | 14.001% | 20.000% | 9 |
| Below standard (including in default) | 20.001% | 100% | 10-13 |
The table below sets out the credit quality, by stage, of gross loan and advances to customers.
| 2025 | Stage 1 £ million | Stage 2 £ million | Stage 3 £ million | POCI £ million | Gross loans | Allowance for credit impairment losses | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total £ million | Stage 1 £ million | Stage 2 £ million | Stage 3 £ million | POCI £ million | Total £ million | ||||||
| Retail – mortgages | |||||||||||
| Excellent quality | 30,783.0 | 5.4 | - | 1.3 | 30,789.7 | 6.2 | - | - | - | 6.2 | |
| Good quality | 237.9 | 98.3 | - | 15.3 | 351.5 | 0.1 | 0.2 | - | - | 0.3 | |
| Satisfactory quality | 97.9 | 1,391.9 | - | 30.2 | 1,520.0 | 0.1 | 4.0 | - | 0.1 | 4.2 | |
| Lower quality | 0.7 | 206.7 | - | 0.6 | 208.0 | - | 0.8 | - | - | 0.8 | |
| Below standard | - | 749.6 | 415.3 | 24.8 | 1,189.7 | - | 6.1 | 22.7 | 2.4 | 31.2 | |
| 31,119.5 | 2,451.9 | 415.3 | 72.2 | 34,058.9 | 6.4 | 11.1 | 22.7 | 2.5 | 42.7 | ||
| Retail – credit cards | |||||||||||
| Excellent quality | 205.5 | 0.6 | 0.6 | - | 206.7 | 1.2 | - | 0.3 | - | 1.5 | |
| Good quality | 179.5 | 26.5 | 2.5 | - | 208.5 | 3.1 | 2.5 | 1.1 | - | 6.7 | |
| Satisfactory quality | 37.9 | 45.0 | 4.3 | - | 87.2 | 1.7 | 6.2 | 1.5 | - | 9.4 | |
| Lower quality | 2.1 | 9.9 | 1.2 | - | 13.2 | 0.2 | 2.0 | 0.4 | - | 2.6 | |
| Below standard | 1.5 | 19.3 | 26.0 | - | 46.8 | 0.2 | 5.1 | 16.6 | - | 21.9 | |
| 426.5 | 101.3 | 34.6 | - | 562.4 | 6.4 | 15.8 | 19.9 | - | 42.1 | ||
| Retail – other unsecured | |||||||||||
| Excellent quality | 578.2 | 17.8 | 5.4 | 0.1 | 601.5 | 3.1 | 0.2 | 3.1 | - | 6.4 | |
| Good quality | 548.9 | 60.1 | 9.0 | 0.1 | 618.1 | 9.6 | 3.6 | 5.5 | - | 18.7 | |
| Satisfactory quality | 74.0 | 60.6 | 8.4 | 0.6 | 143.6 | 4.1 | 8.9 | 5.4 | 0.1 | 18.5 | |
| Lower quality | 3.4 | 11.7 | 1.9 | - | 17.0 | 0.5 | 2.7 | 1.4 | - | 4.6 | |
| Below standard | 1.9 | 20.5 | 39.7 | 0.2 | 62.3 | 0.4 | 7.6 | 27.6 | - | 35.6 | |
| 1,206.4 | 170.7 | 64.4 | 1.0 | 1,442.5 | 17.7 | 23.0 | 43.0 | 0.1 | 83.8 | ||
| Business banking | |||||||||||
| Excellent quality | 190.1 | 0.3 | - | - | 190.4 | 0.6 | - | - | - | 0.6 | |
| Good quality | 91.7 | 3.0 | - | - | 94.7 | 0.5 | 0.2 | - | 0.7 | ||
| Satisfactory quality | 4.5 | 3.8 | - | - | 8.3 | - | - | - | - | - | |
| Lower quality | - | 0.4 | - | - | 0.4 | - | - | - | - | - | |
| Below standard | - | 7.2 | 11.4 | - | 18.6 | - | 0.5 | 0.8 | - | 1.3 | |
| 286.3 | 14.7 | 11.4 | - | 312.4 | 1.1 | 0.7 | 0.8 | - | 2.6 | ||
| Total | |||||||||||
| Excellent quality | 31,756.8 | 24.1 | 6.0 | 1.4 | 31,788.3 | 11.1 | 0.2 | 3.4 | - | 14.7 | |
| Good quality | 1,058.0 | 187.9 | 11.5 | 15.4 | 1,272.8 | 13.2 | 6.5 | 6.6 | - | 26.4 | |
| Satisfactory quality | 214.3 | 1,501.3 | 12.7 | 30.8 | 1,759.1 | 5.9 | 19.1 | 6.9 | 0.2 | 32.1 | |
| Lower quality | 6.2 | 228.7 | 3.1 | 0.6 | 238.6 | 0.7 | 5.5 | 1.8 | - | 8.0 | |
| Below standard | 3.4 | 796.6 | 492.4 | 25.0 | 1,317.4 | 0.6 | 19.3 | 67.7 | 2.4 | 90.0 | |
| 33,038.7 | 2,738.6 | 525.7 | 73.2 | 36,376.2 | 31.6 | 50.6 | 86.4 | 2.6 | 171.2 |
TSB Bank plc
Annual Report and Accounts 2025
page 82
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(vi) Credit quality of loans and advances to customers and lending commitments (continued)
| 2024 | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | Total
£ million | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | Total
£ million |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Retail – mortgages |
| Excellent quality | 30,704.0 | 68.3 | – | 2.3 | 30,774.6 | 12.3 | – | – | – | 12.3 |
| Good quality | 367.7 | 191.5 | – | 13.1 | 572.3 | 1.0 | 0.3 | – | – | 1.3 |
| Satisfactory quality | 41.9 | 1,016.5 | – | 33.1 | 1,091.5 | 0.3 | 3.3 | – | – | 3.6 |
| Lower quality | 3.9 | 309.5 | – | 5.6 | 319.0 | 0.1 | 1.2 | – | – | 1.3 |
| Below standard | 3.9 | 847.8 | 417.0 | 29.4 | 1,298.1 | – | 10.0 | 18.1 | 0.8 | 28.9 |
| | 31,121.4 | 2,433.6 | 417.0 | 83.5 | 34,055.5 | 13.7 | 14.8 | 18.1 | 0.8 | 47.4 |
| Retail – credit cards |
| Excellent quality | 188.2 | 0.8 | 0.6 | – | 189.6 | 1.0 | – | 0.3 | – | 1.3 |
| Good quality | 156.9 | 35.7 | 2.5 | – | 195.1 | 2.7 | 3.3 | 1.0 | – | 7.0 |
| Satisfactory quality | 30.8 | 47.7 | 3.3 | – | 81.8 | 1.4 | 7.0 | 1.2 | – | 9.6 |
| Lower quality | 2.2 | 10.2 | 3.0 | – | 15.4 | 0.2 | 2.2 | 1.2 | – | 3.6 |
| Below standard | 1.2 | 21.2 | 24.2 | – | 46.6 | 0.2 | 6.9 | 15.4 | – | 22.5 |
| | 379.3 | 115.6 | 33.6 | – | 528.5 | 5.5 | 19.4 | 19.1 | – | 44.0 |
| Retail – other unsecured |
| Excellent quality | 601.8 | 6.3 | 5.1 | – | 613.2 | 4.7 | 0.3 | 3.0 | – | 8.0 |
| Good quality | 555.1 | 34.0 | 8.5 | 0.1 | 597.7 | 12.6 | 2.3 | 5.3 | – | 20.2 |
| Satisfactory quality | 114.6 | 58.0 | 8.7 | 0.4 | 181.7 | 6.5 | 7.2 | 5.2 | – | 18.9 |
| Lower quality | 4.4 | 10.0 | 2.1 | – | 16.5 | 0.8 | 2.0 | 1.3 | – | 4.1 |
| Below standard | 4.1 | 20.1 | 36.7 | 0.1 | 61.0 | 0.7 | 8.3 | 25.1 | – | 34.1 |
| | 1,280.0 | 128.4 | 61.1 | 0.6 | 1,470.1 | 25.3 | 20.1 | 39.9 | – | 85.3 |
| Business banking |
| Excellent quality | 208.3 | 0.2 | 0.1 | – | 208.6 | 0.6 | – | – | – | 0.6 |
| Good quality | 145.5 | 12.2 | – | – | 157.7 | 0.8 | 0.3 | – | – | 1.1 |
| Satisfactory quality | 16.9 | 3.9 | – | – | 20.8 | 0.3 | 0.1 | – | – | 0.4 |
| Lower quality | – | 0.2 | – | – | 0.2 | – | – | – | – | – |
| Below standard | 0.2 | 3.1 | 16.4 | – | 19.7 | – | 0.4 | 0.9 | – | 1.3 |
| | 370.9 | 19.6 | 16.5 | – | 407.0 | 1.7 | 0.8 | 0.9 | – | 3.4 |
| Total |
| Excellent quality | 31,702.3 | 75.6 | 5.8 | 2.3 | 31,786.0 | 18.6 | 0.3 | 3.3 | – | 22.2 |
| Good quality | 1,225.2 | 273.4 | 11.0 | 13.2 | 1,522.8 | 17.1 | 6.2 | 6.3 | – | 29.6 |
| Satisfactory quality | 204.2 | 1,126.1 | 12.0 | 33.5 | 1,375.8 | 8.5 | 17.6 | 6.4 | – | 32.5 |
| Lower quality | 10.5 | 329.9 | 5.1 | 5.6 | 351.1 | 1.1 | 5.4 | 2.5 | – | 9.0 |
| Below standard | 9.4 | 892.2 | 494.3 | 29.5 | 1,425.4 | 0.9 | 25.6 | 59.5 | 0.8 | 86.8 |
| | 33,151.6 | 2,697.2 | 528.2 | 84.1 | 36,461.1 | 46.2 | 55.1 | 78.0 | 0.8 | 180.1 |
TSB Bank plc
Annual Report and Accounts 2025
page 83
Notes to the financial statements
Managing financial risk (continued)
18. Credit risk (continued)
(vi) Credit quality of loans and advances to customers and lending commitments (continued)
| 2025 | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | Gross loans | | Allowance for credit impairment losses | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | Total
£ million | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | Total
£ million |
| Off balance sheet commitments | | | | | | | | | | |
| Excellent quality | 4,364.5 | 15.8 | 8.1 | 0.1 | 4,388.5 | 1.8 | 0.2 | – | – | 2.0 |
| Good quality | 402.9 | 102.4 | 4.2 | 1.4 | 510.9 | 0.6 | 0.7 | – | – | 1.3 |
| Satisfactory quality | 36.6 | 39.4 | 2.7 | – | 78.7 | 0.1 | 0.6 | – | – | 0.7 |
| Lower quality | 1.4 | 4.4 | 0.5 | – | 6.3 | – | 0.1 | – | – | 0.1 |
| Below standard | 0.5 | 10.1 | 11.5 | – | 22.1 | – | 0.2 | 0.1 | – | 0.3 |
| Total | 4,805.9 | 172.1 | 27.0 | 1.5 | 5,006.5 | 2.5 | 1.8 | 0.1 | – | 4.4 |
| 2024 | | | | | | | | | | |
| Excellent quality | 4,829.1 | 22.6 | 10.5 | 0.6 | 4,862.8 | 3.2 | 0.5 | 1.2 | – | 4.9 |
| Good quality | 502.2 | 152.0 | 5.2 | 10.9 | 670.3 | 0.7 | 1.0 | 0.4 | – | 2.1 |
| Satisfactory quality | 61.8 | 42.7 | 3.1 | 0.5 | 108.1 | 0.1 | 0.7 | 0.2 | – | 1.0 |
| Lower quality | 3.5 | 5.0 | 0.7 | 18.4 | 27.6 | – | 0.1 | – | – | 0.1 |
| Below standard | 0.3 | 10.5 | 17.1 | 0.1 | 28.0 | – | 0.3 | 0.2 | – | 0.5 |
| Total | 5,396.9 | 232.8 | 36.6 | 30.5 | 5,696.8 | 4.0 | 2.6 | 2.0 | – | 8.6 |
(vii) Collateral held as security for financial assets
Financial assets subject to expected credit loss requirements
TSB holds collateral against loans and advances to customers in the form of retail mortgages over residential property. TSB also holds collateral against commercial secured products in the form of business assets, including commercial and residential property.
An analysis by loan-to-value (LTV) ratio of TSB's retail mortgage lending is presented below. The value of collateral used in determining the LTV ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in house prices.
| LTV of Retail - mortgages | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | 2025 | | | | | 2024
Total
£ million |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | Total
£ million | Stage 1
£ million | Stage 2
£ million | Stage 3
£ million | POCI
£ million | |
| Less than 70% | 21,269.2 | 1,691.3 | 340.6 | 68.8 | 23,369.9 | 22,037.5 | 2,318.6 | 340.9 | 78.4 | 24,775.4 |
| 70% to 80% | 5,267.9 | 381.7 | 40.7 | 2.5 | 5,692.8 | 4,909.7 | 81.0 | 46.0 | 4.0 | 5,040.7 |
| 80% to 90% | 4,177.1 | 345.6 | 19.5 | 0.7 | 4,542.9 | 3,768.1 | 28.0 | 19.0 | 0.4 | 3,815.5 |
| 90% to 100% | 402.4 | 32.3 | 8.9 | 0.2 | 443.8 | 401.9 | 4.1 | 6.6 | 0.6 | 413.2 |
| Greater than 100% | 2.9 | 1.0 | 5.6 | – | 9.5 | 4.3 | 1.9 | 4.5 | 0.1 | 10.8 |
| Retail - mortgages | 31,119.5 | 2,451.9 | 415.3 | 72.2 | 34,058.9 | 31,121.5 | 2,433.6 | 417.0 | 83.5 | 34,055.6 |
Climate risk, both physical and transitional, is considered when assessing property collateral valuations at origination. TSB concludes that this risk is currently low, and no material losses have been experienced from such risks.
TSB does not take physical possession of properties or other assets held as collateral and uses external agents to realise the value as soon as practicable to settle indebtedness. Any surplus funds are returned to the borrower or are otherwise dealt with in accordance with appropriate insolvency regulations. No collateral is held in respect of retail credit cards, overdrafts, or unsecured personal loans.
For business banking lending, collateral primarily consists of first charges over commercial and residential property. Where collateral is held, lending decisions are predominantly based on an obligor's ability to repay from normal business operations rather than reliance on any collateral provided. Collateral values are assessed at the time of loan origination and reassessed if there is observable evidence of distress of the borrower. In respect of the £101.0 million (2024: £176.1 million) of Bounce Back Loan Scheme loans, TSB benefits from a 100% guarantee from the British Business Bank under the terms of the scheme rules (amounts recoverable under this guarantee are shown in note 9 on page 65).
Financial assets at fair value through profit or loss (not subject to expected credit loss requirements)
Derivative financial assets of £1,517.6 million (2024: £1,944.5 million) are largely cash collateralised interest rate swaps transacted through central clearing houses. The effect of the collateralisation is shown in note 21 on page 95 under the heading Offsetting financial assets and financial liabilities.
TSB Bank plc
Annual Report and Accounts 2025
page 84
Notes to the financial statements
Managing financial risk (continued)
- Credit risk (continued)
(viii) Forbearance and loan modifications
TSB operates a number of schemes to assist borrowers who are experiencing financial difficulties. Forbearance solutions may offer relief in the form of reductions to contractual payments including freezes to interest payments, and for customers who have longer term financial difficulties, term extensions and capitalisation of arrears.
TSB applies the European Banking Authority definition of forbearance and at 31 December 2025, forborne loans were £408.5 million (2024: £431.6 million), of which £305.1 million (2024: £294.2 million) were credit impaired. At 31 December 2025, the allowance for loan losses held in respect of forborne loans was £66.3 million (2024: £60.4 million).
During 2025 gross balances of £46.2 million (2024: £45.1 million) in respect of unsecured loans were subject to modification of the original terms through the temporary freezing of customer interest obligations. At the time, the loans were categorised as either stage 2 or 3 and the allowance for expected credit losses was measured at lifetime expected credit loss. These resulted in modification losses of £2.1 million (2024: £2.0 million).
TSB Bank plc
Annual Report and Accounts 2025
page 85
Notes to the financial statements
Managing financial risk (continued)
19. Liquidity risk
Definition and exposure
Liquidity risk is the risk that the Bank is unable to meet its liabilities as they fall due, or is unable to maintain regulator, investor, customer or stakeholder confidence that this will be achieved. Liquidity risk is managed, monitored and measured from both an internal and regulatory perspective.
Sources of funding
The Bank's funding position is underpinned by its significant customer deposit base. The deposit base is made up of customer current and savings accounts which, although mostly repayable on demand, have historically provided a stable source of funding. Further information regarding sources of funding is available on pages 50 to 54.
Risk appetite
The funding and liquidity risk appetite for the Bank is set and approved annually by the Board. Risk is reported against this appetite through various metrics to enable the Bank to manage the funding and liquidity position. The risk appetite is established under a liquidity risk management framework designed with the aim that the Bank has sufficient financial resources of appropriate quality.
Measurement and monitoring
A series of measures are used across the Bank to monitor both short-term and long-term liquidity risk. Liquidity risk is measured on a daily basis and reported internally. Daily liquidity reporting is supplemented by early warning indicators and a Liquidity Contingency Plan. Monthly reporting procedures are in place to update and inform senior management. All liquidity policies and procedures are subject to periodic independent internal oversight.
The table below presents the contractual residual maturities of the financial liabilities and assets on the balance sheet:
| Bank | ||||||||
|---|---|---|---|---|---|---|---|---|
| At 31 December 2025 | On demand £ million | Up to 1 month £ million | 1-3 months £ million | 3-12 months £ million | 1-5 years £ million | Over 5 years £ million | No contractual maturity £ million | Total Carrying Value £ million |
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,547.0 | 365.8 | 647.6 | 2,895.7 | 1,752.9 | – | – | 35,209.0 |
| Borrowings from central banks | – | 5.9 | – | 5.0 | 371.0 | 217.0 | – | 598.9 |
| Debt securities in issue | – | 9.2 | 35.9 | 488.7 | 4,335.5 | – | – | 4,869.3 |
| Subordinated liabilities | – | – | 297.8 | – | – | – | – | 297.8 |
| Lease liabilities | – | 0.1 | 3.8 | 11.4 | 47.9 | 44.6 | – | 107.8 |
| Other financial liabilities | 132.7 | 15.6 | 50.6 | 239.3 | 536.8 | 105.6 | – | 1,080.6 |
| Derivative liabilities at fair value through profit or loss | – | 0.4 | 4.9 | 79.2 | 177.0 | 195.2 | – | 456.7 |
| Hedging derivative liabilities | – | 13.3 | 3.2 | 13.9 | 64.7 | 4.3 | – | 99.4 |
| Total financial liabilities | 29,679.7 | 410.3 | 1,043.8 | 3,733.1 | 7,285.9 | 566.7 | – | 42,719.5 |
| Financial assets at amortised cost: | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cash, cash balances at central banks and demand deposits | 4,202.1 | – | – | – | – | – | – | 4,202.1 |
| Debt securities | – | 7.2 | 49.1 | 56.9 | 473.7 | 1,399.5 | – | 1,986.4 |
| Loans and advances to customers | 704.8 | 200.8 | 286.3 | 1,199.2 | 5,555.0 | 28,322.3 | – | 36,268.4 |
| Loans and advances to credit institutions | 288.4 | – | – | – | 16.8 | – | – | 305.2 |
| Other advances | 22.0 | 4.6 | 1.5 | 3.0 | 33.6 | 0.2 | 2.0 | 66.9 |
| Reverse repurchase agreements | – | 62.0 | – | – | – | – | – | 62.0 |
| Financial assets at fair value through other comprehensive income | – | – | 1.4 | 1.1 | 51.0 | 386.7 | – | 440.2 |
| Derivative assets at fair value through profit or loss(1) | – | 9.4 | 28.8 | 44.4 | 187.9 | 91.9 | – | 362.4 |
| Hedging derivative assets | – | 2.7 | 1.4 | 28.4 | 136.7 | 980.0 | – | 1,149.2 |
| Total financial assets | 5,217.3 | 286.7 | 368.5 | 1,333.0 | 6454.7 | 31,180.6 | 2.0 | 44,842.8 |
(1) Derivative assets at fair value through profit or loss includes £12.2 million in 1-5 years that are not included in the Company totals.
TSB Bank plc
Annual Report and Accounts 2025
page 86
Notes to the financial statements
Managing financial risk (continued)
19. Liquidity risk (continued)
| Company | On demand | Up to 1 month | 1-3 months | 3-12 months | 1-5 years | Over 5 years | No contractual maturity | Total Carrying Value |
|---|---|---|---|---|---|---|---|---|
| At 31 December 2025 | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million |
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,547.0 | 365.8 | 647.6 | 2,895.7 | 1,752.9 | – | – | 35,209.0 |
| Borrowings from central banks | – | 5.9 | – | 5.0 | 371.0 | 217.0 | – | 598.9 |
| Debt securities in issue | – | – | 36.0 | 450.0 | 3,905.2 | – | – | 4,391.2 |
| Subordinated liabilities | – | – | 297.8 | – | – | – | – | 297.8 |
| Lease liabilities | – | 0.1 | 3.8 | 11.4 | 47.9 | 44.6 | – | 107.8 |
| Other financial liabilities | 132.7 | 15.6 | 50.6 | 239.3 | 536.8 | 105.6 | – | 1,080.6 |
| Derivative liabilities at fair value through profit or loss | – | 0.4 | 4.9 | 79.2 | 177.0 | 195.2 | – | 456.7 |
| Hedging derivative liabilities | – | 13.3 | 3.2 | 13.9 | 64.7 | 4.3 | – | 99.4 |
| Total financial liabilities | 29,679.7 | 401.1 | 1,043.9 | 3,694.5 | 6,855.5 | 566.7 | – | 42,241.4 |
| Financial assets at amortised cost: | ||||||||
| Cash, cash balances at central banks and demand deposits | 4,202.1 | – | – | – | – | – | – | 4,202.1 |
| Debt securities | – | 7.2 | 49.1 | 56.9 | 473.7 | 1,399.5 | – | 1,986.4 |
| Loans and advances to customers | 704.8 | 200.8 | 286.3 | 1,199.2 | 5,555.0 | 28,322.3 | – | 36,268.4 |
| Other advances | 22.0 | 4.6 | 1.5 | 3.0 | 33.6 | 0.2 | 2.0 | 66.9 |
| Reverse repurchase agreements | – | 62.0 | – | – | – | – | – | 62.0 |
| Financial assets at fair value through other comprehensive income | – | – | 1.4 | 1.1 | 51.0 | 386.7 | – | 440.2 |
| Derivative assets at fair value through profit or loss(1) | – | 9.4 | 28.8 | 44.4 | 175.7 | 91.9 | – | 350.2 |
| Hedging derivative assets | – | 2.7 | 1.4 | 28.4 | 136.7 | 927.3 | – | 1,096.5 |
| Total financial assets | 4,928.9 | 286.7 | 368.5 | 1,333.0 | 6,425.7 | 31,127.9 | 2.0 | 44,472.7 |
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Managing financial risk (continued)
19. Liquidity risk (continued)
| Bank and Company | ||||||||
|---|---|---|---|---|---|---|---|---|
| At 31 December 2024 | On demand | |||||||
| £ million | Up to 1 month | |||||||
| £ million | 1-3 months | |||||||
| £ million | 3-12 months | |||||||
| £ million | 1-5 years | |||||||
| £ million | Over 5 years | |||||||
| £ million | No contractual maturity | |||||||
| £ million | Total Carrying Value | |||||||
| £ million | ||||||||
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,534.9 | 216.2 | 476.2 | 3,017.8 | 1,806.1 | – | – | 35,051.2 |
| Borrowings from central banks | – | 21.9 | 797.0 | 588.0 | – | – | 1,406.9 | |
| Debt securities in issue | – | 10.1 | 26.1 | 14.7 | 4,102.1 | 430.2 | – | 4,583.2 |
| Subordinated liabilities | – | – | – | – | 285.9 | – | – | 285.9 |
| Lease liabilities | – | 0.1 | – | 0.2 | 17.9 | 102.5 | – | 120.7 |
| Other financial liabilities | 131.9 | 14.6 | 29.1 | 200.6 | 700.4 | 107.8 | – | 1,184.4 |
| Derivative liabilities at fair value through profit or loss | – | 7.4 | 14.3 | 82.0 | 467.8 | 252.7 | – | 824.2 |
| Hedging derivative liabilities | – | 0.1 | 2.2 | 20.7 | 115.8 | 4.8 | – | 143.6 |
| Total financial liabilities | 29,666.8 | 270.4 | 547.9 | 4,133.0 | 8,084.0 | 898.0 | – | 43,600.1 |
| Financial assets at amortised cost: | ||||||||
| Cash, cash balances at central banks and demand deposits | 4,823.8 | – | – | – | – | – | – | 4,823.8 |
| Debt securities | – | 9.2 | 2.4 | 3.2 | 538.5 | 1,429.2 | 1,982.5 | |
| Loans and advances to customers | 653.9 | 236.2 | 297.9 | 1,272.3 | 5,544.7 | 28,325.9 | 36,330.9 | |
| Loans and advances to credit institutions(1) | 277.8 | – | – | – | – | – | – | 277.8 |
| Other advances | 24.6 | 0.5 | 9.6 | 17.6 | 75.4 | 0.5 | 2.0 | 130.2 |
| Financial assets at fair value through other comprehensive income | – | 0.6 | 0.4 | 0.5 | – | 327.1 | – | 328.6 |
| Derivative assets at fair value through profit or loss(2) | – | 10.0 | 23.4 | 47.8 | 410.7 | 175.7 | – | 667.6 |
| Hedging derivative assets | – | 10.2 | 2.7 | 28.7 | 240.6 | 992.1 | – | 1,274.3 |
| Total financial assets | 5,780.1 | 266.7 | 336.4 | 1,370.1 | 6,809.9 | 31,250.5 | 2.0 | 45,815.7 |
(2) Loans and advances to credit institutions of £277.8 million are not included in the Company totals.
(3) Derivative assets at fair value through profit or loss include £16.2 million in 1-5 years that are not included in the Company totals.
Expected cash flows on customer deposits and loans and advances to customers vary significantly from the contractual cash flows shown in the table above. Customer deposits are largely repayable on demand but have proven to be a stable source of funding. Loans and advances to customers comprise of a large proportion of mortgages which mature earlier than the contractual maturity as customers take advantage of early redemption options.
TSB Bank plc
Annual Report and Accounts 2025
page 88
Notes to the financial statements
Managing financial risk (continued)
19. Liquidity risk (continued)
Contractual maturities for financial liabilities form an important source of information for the management of liquidity risk. The table below analyses financial liabilities and commitments by relevant contractual maturity grouping on an undiscounted future cash flow basis, which includes estimated interest payments.
| Bank | On demand(1) | Up to 1 month | 1-3 months | 3-12 months | 1-5 years | Over 5 years | No contractual maturity | Total |
|---|---|---|---|---|---|---|---|---|
| At 31 December 2025 | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million |
| Liabilities | ||||||||
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,540.7 | 341.6 | 734.5 | 3,041.9 | 1,721.3 | — | — | 35,380.0 |
| Borrowings from central banks | — | 5.9 | — | 15.9 | 408.7 | 221.3 | — | 651.8 |
| Debt securities in issue | — | 10.4 | 67.7 | 603.5 | 4,627.5 | — | — | 5,309.1 |
| Subordinated liabilities | — | — | 302.6 | — | — | — | — | 302.6 |
| Lease liabilities | — | 0.3 | 4.2 | 13.1 | 54.1 | 47.8 | — | 119.5 |
| Other financial liabilities | 132.7 | 15.6 | 50.6 | 239.3 | 536.8 | 105.6 | — | 1,080.6 |
| Loan commitments | 3,354.7 | 43.8 | 95.5 | 1,475.5 | 20.9 | 16.1 | — | 5,006.5 |
| Total non-derivative financial liabilities | 33,028.1 | 417.6 | 1,255.1 | 5,389.2 | 7,369.3 | 390.8 | — | 47,850.1 |
| Net settled derivatives | — | 23.0 | 71.0 | 184.4 | 267.2 | 42.3 | — | 587.9 |
| Total financial liabilities | 33,028.1 | 440.6 | 1,326.1 | 5,573.6 | 7,636.5 | 433.1 | — | 48,438.0 |
| Company | On demand(1) | Up to 1 month | 1-3 months | 3-12 months | 1-5 years | Over 5 years | No contractual maturity | Total |
| At 31 December 2025 | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million |
| Liabilities | ||||||||
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,540.7 | 341.6 | 734.5 | 3,041.9 | 1,721.3 | — | — | 35,380.0 |
| Borrowings from central banks | — | 5.9 | — | 15.9 | 408.7 | 221.3 | — | 651.8 |
| Debt securities in issue | — | — | 67.7 | 550.6 | 4,151.2 | — | — | 4,769.5 |
| Subordinated liabilities | — | — | 302.6 | — | — | — | — | 302.6 |
| Lease liabilities | — | 0.3 | 4.2 | 13.1 | 54.1 | 47.8 | — | 119.5 |
| Other financial liabilities | 132.7 | 15.6 | 50.6 | 239.3 | 536.8 | 105.6 | — | 1,080.6 |
| Loan commitments | 3,354.7 | 43.8 | 95.5 | 1,475.5 | 20.9 | 16.1 | — | 5,006.5 |
| Total non-derivative financial liabilities | 33,028.1 | 407.2 | 1,255.1 | 5,336.3 | 6,893.0 | 390.8 | — | 47,310.5 |
| Net settled derivatives | — | 23.0 | 71.0 | 184.4 | 267.2 | 42.3 | — | 587.9 |
| Total financial liabilities | 33,028.1 | 430.2 | 1,326.1 | 5,520.7 | 7,160.2 | 433.1 | — | 47,898.4 |
| Bank and Company | On demand(1) | Up to 1 month | 1-3 months | 3-12 months | 1-5 years | Over 5 years | No contractual maturity | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| At 31 December 2024 | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million |
| Liabilities | ||||||||
| Financial liabilities measured at amortised cost: | ||||||||
| Customer deposits | 29,536.2 | 235.5 | 500.1 | 3,185.3 | 1,799.7 | — | — | 35,256.8 |
| Borrowings from central banks | — | 21.9 | — | 846.1 | 623.6 | — | — | 1,491.6 |
| Debt securities in issue | — | 11.7 | 67.0 | 433.9 | 4,777.7 | — | — | 5,290.3 |
| Subordinated liabilities | — | — | 2.6 | 7.8 | 302.5 | — | — | 312.9 |
| Lease liabilities | — | 0.3 | 4.0 | 13.3 | 56.4 | 75.0 | — | 149.0 |
| Other financial liabilities | 131.9 | 14.6 | 29.1 | 200.6 | 700.4 | 107.8 | — | 1,184.4 |
| Loan commitments | 3,868.4 | 21.9 | 52.8 | 1,527.2 | 70.8 | 156.1 | — | 5,697.2 |
| Total non-derivative financial liabilities | 33,536.5 | 305.9 | 655.6 | 6,214.2 | 8,331.1 | 338.9 | — | 49,382.2 |
| Net settled derivatives | — | 39.6 | 108.8 | 334.4 | 469.4 | 79.2 | — | 1,031.4 |
| Total financial liabilities | 33,536.5 | 345.5 | 764.4 | 6,548.6 | 8,800.5 | 418.1 | — | 50,413.6 |
The amounts shown are the net amounts for those derivatives that are net settled, which comprises the majority of TSB's derivative financial instruments. Gross nominal inflows and outflows are presented for derivatives that have simultaneous gross settlement such as cross currency swaps.
TSB Bank plc
Annual Report and Accounts 2025
page 89
Notes to the financial statements
Managing financial risk (continued)
20. Capital resources
The Bank maintains capital resources which exceed regulatory requirements and which seek to support TSB's strategy and ensure that it is able to absorb losses under stressed conditions. Capital risk is managed under a framework where risk appetite is set and approved annually by the Board. A series of metrics is used to monitor capital against early warning indicators with regular reporting in place to update and inform senior management.
| | Bank
2025
£ million | Bank
2024
£ million | Company
2025
£ million | Company
2024
£ million |
| --- | --- | --- | --- | --- |
| Total equity | 2,338.0 | 2,120.7 | 2,331.9 | 2,106.2 |
| Less Additional Tier 1 securities included in total equity | (250.0) | (250.0) | (250.0) | (250.0) |
| Less other regulatory deductions | (154.6) | (140.3) | (154.6) | (140.3) |
| Common Equity Tier 1 | 1,933.4 | 1,730.4 | 1,927.3 | 1,715.9 |
| Additional Tier 1 capital | 250.0 | 250.0 | 250.0 | 250.0 |
| Total Tier 1 capital | 2,183.4 | 1,980.4 | 2,177.3 | 1,965.9 |
| Tier 2 capital | 300.0 | 300.0 | 300.0 | 300.0 |
| Total capital resources | 2,483.4 | 2,280.4 | 2,477.3 | 2,265.9 |
21. Market risk
Definition and exposure
Market risk is the risk of a reduction in earnings, value or reserves caused by changes in the prices of financial instruments. The Bank's market risk consists primarily of exposure to changes in interest rates. Interest rate risk is the risk that the net value of, or net income arising from, the firm's assets and liabilities is impacted as a result of changes to interest rates. Interest rate risk can also arise as a result of changes in customer behaviour, which may affect the maturity profiles of the Bank's assets and liabilities. The Bank's exposure to changes in interest rates includes the margin between customer and market rates. This includes the potential impact on earnings and value that could occur when, if rates fall, liabilities cannot be re-priced as quickly or by as much as assets. Any potential management actions that may be taken as a result of immediate, significant, rate shocks are not considered and these actions may impact sensitivities.
Management and measurement
Risk exposure across TSB is monitored monthly using, primarily, net interest income and earnings sensitivity. This methodology considers all re-pricing mismatches in the current balance sheet and calculates the change in net interest income that would result from a set of defined interest rate shocks. A limit structure exists to ensure that risks stemming from residual positions or from changes in assumptions about customer behaviour remain within risk appetite.
Board risk appetite is set against a 12 month view of the sensitivity of net interest income to a 250 basis point, instantaneous, parallel shock to interest rates, for all currencies and maturities. The balance sheet and net interest income is simulated using actual point in time positions and held flat under a Constant Balance Sheet scenario.
At 31 December 2025, the projected change in 12 month net interest income in response to an immediate parallel shift in all relevant interest rates, market and administered, would be an increase of £130.9 million (2024: £116.8 million) from a 250bps increase in rates and a decrease of £61.0 million (2024: £69.4 million) from a 250bps decrease. The measure assumes all interest rates, for all currencies and maturities, move at the same time and by the same amount.
TSB Bank plc
Annual Report and Accounts 2025
page 90
Notes to the financial statements
Managing financial risk (continued)
21. Market risk (continued)
Derivative financial instruments
The Bank holds derivative financial instruments in the normal course of its banking business largely for interest rate risk management and margin stabilisation purposes. The fair values and notional amounts of derivative instruments are presented in the following table:
| Bank | 2025 | 2024 | ||||||
|---|---|---|---|---|---|---|---|---|
| Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Gain/(loss) recognised in profit or loss £ million | Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Gain(loss) recognised in profit or loss £ million | |
| Derivative financial instruments not in hedge accounting relationships | ||||||||
| Interest rate swaps | 35,310.0 | 362.4 | (456.7) | 40.7 | 33,382.2 | 667.6 | (824.2) | 57.6 |
| Foreign exchange forwards | 3.6 | - | - | (0.2) | - | - | - | - |
| Total | 35,313.6 | 362.4 | (456.7) | 40.5 | 33,382.2 | 667.6 | (824.2) | 57.6 |
| Company | 2025 | 2024 | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Gain/(loss) recognised in profit or loss £ million | Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Gain(loss) recognised in profit or loss £ million | |
| Derivative financial instruments not in hedge accounting relationships | ||||||||
| Interest rate swaps | 35,310.0 | 350.2 | (456.7) | 42.5 | 33,382.2 | 649.7 | (824.2) | 53.6 |
| Foreign exchange forwards | 3.6 | - | - | (0.2) | - | - | - | - |
| Total | 35,313.6 | 350.2 | (456.7) | 42.3 | 33,382.2 | 649.7 | (824.2) | 53.6 |
| Bank and Company | 2025 | 2024 | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Change in fair value used for calculating hedge ineffectiveness £ million | Contract/ notional amount £ million | Assets fair value £ million | Liabilities fair value £ million | Change in fair value used for calculating hedge ineffectiveness £ million | |
| Hedging derivative financial instruments | ||||||||
| (Fair value hedges) | ||||||||
| Interest rate risk | ||||||||
| Interest rate swaps | 27,293.5 | 1,045.1 | (91.1) | 89.1 | 31,349.2 | 1,245.7 | (143.6) | (90.8) |
| (Cash flow hedges) | ||||||||
| Interest rate risk | ||||||||
| Interest rate swaps | 1,537.4 | 51.4 | (8.3) | (16.1) | 133.0 | 26.7 | - | 10.8 |
| Foreign exchange risk | ||||||||
| Cross currency rate swaps(1) | 928.9 | 52.7 | - | (6.7) | 428.0 | 1.9 | - | 6.8 |
| Total | 29,759.8 | 1,149.2 | (99.4) | 66.3 | 31,910.2 | 1,274.3 | (143.6) | (73.2) |
(1) Cross currency rate swaps are not included in the Company totals.
Risk management
Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item. Such derivatives are presented on the balance sheet as hedging derivative financial instruments. Where derivatives do not meet the hedge accounting criteria they are presented on the balance sheet as derivative financial instruments not included in hedge accounting relationships.
TSB uses derivatives largely to economically hedge interest rate risk and to stabilise income and reduce its sensitivity to interest rate changes. TSB hedges SONIA benchmark interest rate risk using both fair value hedges and cash flow hedges. As a result of TSB's dynamic hedging strategies described below, the gain on derivatives at fair value through profit or loss in respect of interest rate risk of £40.5 million (2024: £57.6 million gain) should be considered in conjunction with the losses of £(33.1) million (2024: £(32.5) million of losses) from the amortisation of accumulated adjustments on the hedged items for which hedge accounting no longer applies.
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Managing financial risk (continued)
- Market risk (continued)
Hedge accounting overview
The profile of interest risk being managed is dynamic, changing in response to business activity and is economically hedged with derivatives. Where natural offsets occur, these derivatives are not designated in hedge accounting relationships. The remaining derivatives may be designated in a hedge accounting relationship to minimise profit volatility. Hedge relationships are considered effective where changes in the hedged item offset changes in the hedging instrument to within an 80% to 125% ratio. Effectiveness tests are performed at inception and on a monthly basis using either dollar offset, linear regression or critical terms match, depending on the nature of the hedged items. Ineffectiveness arising on hedge relationships can arise due to a number of factors which include basis mismatch, maturity mismatch, credit valuation adjustments and cash flow timing mismatch between the hedged item and hedging instrument.
Macro fair value hedge accounting – fixed rate mortgages and demand deposits
Pay fixed, receive floating interest rate swaps are typically designated as a portfolio fair value hedge of fixed rate mortgage assets and receive fixed, pay floating derivatives are typically designated as a portfolio fair value hedge of fixed rate customer deposits. As interest rate risk management is dynamic, the Bank's approach is to review the swaps hedging these portfolios on a monthly basis and designate new relationships or de-designate existing relationships as required to ensure minimal residual risk. The provisions of the UK adopted version of IAS 39 mean that ineffectiveness arising due to unexpected prepayments need not be recognised though profit or loss, so long as hedge designations are made in such a way as to minimise their impact.
Micro fair value hedge accounting – subordinated debt and debt securities
The Bank has issued fixed rate subordinated debt and purchased hold-to-collect and hold-to-collect and sell fixed rate debt securities as part of its Treasury management strategy. These are hedged with interest rate swaps and designated in a fair value hedge.
Cash flow hedge accounting – floating rate debt securities in issue
Interest rate risk on issued floating rate debt securities in issue is hedged using interest rate swaps that exchange floating rate cash flows for fixed rate cash flows. At 31 December 2025, £1,537.4 million (2024: £133.0 million) of floating rate debt securities in issue were designated in cash flow hedge relationships, of which cash flows in respect of £958.4 million (2024: £nil) were expected to mature within five years, and cash flows in respect of £579.0 million (2024: £133.0 million) were expected to mature within between five and ten years.
Cash flow hedge accounting - foreign exchange on foreign currency debt (Bank only)
During 2024 and 2025, euro denominated fixed rate covered bonds were issued. This leads to an exposure to foreign currency risk as TSB's functional and presentational currency is pound sterling. TSB hedges the foreign currency exposure via cross currency interest rate swaps that exchange fixed rate euro cash flows and principal for floating rate sterling cash flows and principal. The swaps are structured such that the euro component matches the critical terms of the hedged covered bond issuance.
Hedge effectiveness is determined at inception of the hedge relationships by demonstrating that the critical terms of the hedged item match exactly the critical terms of the hedging instrument. To validate the effectiveness of the ongoing hedge relationship, TSB uses the hypothetical derivative method. Hedge ineffectiveness may occur due to credit valuation adjustments on the swaps which are not matched on the secured issuance.
At 31 December 2025, cross currency swaps with a notional amount of £928.9 million (2024: £427.9 million) were expected to mature within 5 years. The exchange rate applicable to this cross currency swap was £1/€1.14615.
TSB Bank plc
Annual Report and Accounts 2025
page 92
Notes to the financial statements
Managing financial risk (continued)
21. Market risk (continued)
Exposures covered by hedging accounting strategies
The following table contains details of the hedged exposures covered by the Bank's hedging strategy.
| Bank and Company
2025 | Risk type | Carrying amount
of hedged item
assets/(liability)
£ million | Accumulated
fair value
hedge adj.
on hedged item
£ million | Balance sheet line item
that includes the hedged item | Change in fair
value for
calculating
hedge
ineffectiveness
£ million | Cash flow
hedge
reserve
continuing
hedges
£ million |
| --- | --- | --- | --- | --- | --- | --- |
| Fair value hedges | | | | | | |
| Portfolio hedged risk: | | | | | | |
| Demand deposits | Interest rate | (7,897.0) | (12.3) | Customer deposits | 111.5 | n/a |
| Fixed rate mortgages | Interest rate | 16,322.0 | 4.5 | Loans & adv to customers | (175.5) | n/a |
| Individual hedged risk: | | | | | | |
| Subordinated liabilities | Interest rate | (297.8) | 2.3 | Subordinated liabilities | 11.9 | n/a |
| Debt securities | Interest rate | 431.7 | – | Financial assets at FVOCI | (7.9) | n/a |
| Debt securities | Interest rate | 1,645.0 | (702.7) | Financial assets at amortised cost | (31.0) | n/a |
| | | | | | (91.0) | n/a |
| Cash flow hedges | | | | | | |
| Covered bonds - sterling | Interest rate | 1,537.4 | n/a | Debt securities in issue | (13.0) | 10.9 |
| Covered bonds - euro(1) | Foreign exchange/
Interest rate | 928.9 | n/a | Debt securities in issue | (6.7) | 0.1 |
| | | | | | (19.7) | 11.0 |
| Bank and Company
2024 | Risk type | Carrying amount
of hedged item
assets/(liability)
£ million | Accumulated
fair value
hedge adj.
on hedged item
£ million | Balance sheet line item
that includes the hedged item | Change in fair
value for
calculating
hedge
ineffectiveness
£ million | Cash flow
hedge
reserve
continuing
hedges
£ million |
| Fair value hedges | | | | | | |
| Portfolio hedged risk: | | | | | | |
| Demand deposits | Interest rate | (10,478.1) | 134.7 | Customer deposits | (91.0) | n/a |
| Fixed rate mortgages | Interest rate | 17,612.5 | (170.9) | Loans & adv to customers | 25.8 | n/a |
| Individual hedged risk: | | | | | | |
| Subordinated liabilities | Interest rate | (285.9) | 14.1 | Subordinated liabilities | 8.2 | n/a |
| Debt securities | Interest rate | 328.6 | – | Financial assets at FVOCI | 25.8 | n/a |
| Debt securities | Interest rate | 1,567.8 | (733.7) | Financial assets at amortised cost | 120.0 | n/a |
| | | | | | 88.8 | |
| Cash flow hedges | | | | | | |
| Covered bonds - sterling | Interest rate | 133.0 | n/a | Debt securities in issue | 10.8 | 26.6 |
| Covered bonds - euro(1) | Foreign exchange/
Interest rate | 428.0 | n/a | Debt securities in issue | 6.8 | 6.8 |
| | | | | | 17.6 | 33.4 |
(1) Cross currency rate swaps are not included in the Company totals.
The amount of fair value hedge adjustments remaining on the balance sheet relating to hedges which have been de-designated is £53.3 million (2024: £90.0 million).
TSB Bank plc
Annual Report and Accounts 2025
page 93
Notes to the financial statements
Managing financial risk (continued)
21. Market risk (continued)
Hedge accounting ineffectiveness
The following table contains information regarding the effectiveness of the hedging relationships designated by the Bank, as well as the impacts on profit or loss and other comprehensive income:
| Bank and Company | Amounts reclassified from reserves to P&L as: | |||||
|---|---|---|---|---|---|---|
| 2025 | Risk type | Hedge ineffectiveness recognised in P&L £ million | Gain/(loss) recognised in OCI £ million | P&L line item that includes hedge ineffectiveness | Hedged item affected P&L £ million | P&L line item that includes reclassified amount £ million |
| Fair value hedges | Interest rate | 2.0 | – | Gains from hedge accounting | n/a | n/a |
| Cash flow hedges | Interest rate | (3.1) | (13.2) | Gains from hedge accounting | (2.6) | Other income |
| Cash flow hedges | Foreign exchange/interest rate(1) | – | (6.7) | Gains from hedge accounting | – | Other income |
| (1.1) | (19.9) | (2.6) | ||||
| 2024 | ||||||
| Fair value hedges | Interest rate | 2.1 | n/a | Gains from hedge accounting | n/a | n/a |
| Cash flow hedges | Interest rate / credit risk | 0.3 | 10.8 | Gains from hedge accounting | (1.0) | Other income |
| Cash flow hedges | Foreign exchange/interest rate(1) | – | 6.8 | Gains from hedge accounting | – | Other income |
| 2.4 | 17.6 | (1.0) |
(1) Not included in the Company totals.
Losses from hedge accounting in the income statement of £(34.2) million (2024: £(30.1) million of losses) comprise hedge ineffectiveness losses of £(1.1) million (2024: £2.4 million of gains) and £(33.1) million of losses (2024: £(32.5) million of losses) from amortisation of de-designated cash flow hedges and macro fair value hedge adjustments on hedged items for which hedge accounting had previously been discontinued.
Reconciliation of reserves in respect of hedge accounting
| Bank | 2025 | 2025 | 2024 | 2024 |
|---|---|---|---|---|
| Fair value reserve £ million | Cash flow hedge reserve £ million | Fair value reserve £ million | Cash flow hedge reserve £ million | |
| Balance as at 1 January | (8.0) | 26.0 | (6.5) | 12.2 |
| Fair value hedges of interest rate risk | ||||
| Changes in fair value of debt securities | 10.4 | n/a | (27.9) | n/a |
| Accumulated fair value hedge adjustment | (7.9) | n/a | 25.8 | n/a |
| 2.5 | n/a | (2.1) | n/a | |
| Taxation | (0.7) | n/a | 0.6 | n/a |
| Cash flow hedges of interest rate | ||||
| Effective portion of changes in fair value of interest rate swaps | n/a | (13.2) | n/a | 10.8 |
| Amounts reclassified from reserves to profit or loss | n/a | (2.6) | n/a | (1.0) |
| Taxation | n/a | 4.5 | n/a | (2.8) |
| Cash flow hedges of foreign exchange and interest rate risk | ||||
| Effective portion of changes in fair value of cross currency swaps | n/a | (6.7) | n/a | 6.8 |
| Balance as at 31 December | (6.2) | 8.0 | (8.0) | 26.0 |
TSB Bank plc
Annual Report and Accounts 2025
page 94
Notes to the financial statements
Managing financial risk (continued)
21. Market risk (continued)
| Company | 2025
Fair value reserve
£ million | 2025
Cash flow
hedge reserve
£ million | 2024
Fair value
reserve
£ million | 2024
Cash flow
hedge reserve
£ million |
| --- | --- | --- | --- | --- |
| Balance as at 1 January | (8.0) | 19.2 | (6.5) | 12.2 |
| Fair value hedges of interest rate risk | | | | |
| Changes in fair value of debt securities | 10.4 | n/a | (27.9) | n/a |
| Accumulated fair value hedge adjustment | (7.9) | n/a | 25.8 | n/a |
| | 2.5 | n/a | (2.1) | n/a |
| Taxation | (0.7) | n/a | 0.6 | n/a |
| Cash flow hedges of interest rate | | | | |
| Effective portion of changes in fair value of interest rate swaps | n/a | (13.2) | n/a | 10.8 |
| Amounts reclassified from reserves to profit or loss | n/a | (2.6) | n/a | (1.0) |
| Taxation | n/a | 4.5 | n/a | (2.8) |
| Balance as at 31 December | (6.2) | 7.9 | (8.0) | 19.2 |
Offsetting financial assets and financial liabilities
TSB reports financial assets and financial liabilities on a net basis on the balance sheet only if there is a legally enforceable right to set-off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
The following information relates to financial assets and liabilities that have been set off in the balance sheet and those which have not been set off but for which TSB has enforceable master netting agreements or similar agreements in place with counterparties.
| Bank | Related amounts where set off in the balance sheet is not permitted | |||||
|---|---|---|---|---|---|---|
| Gross amounts | ||||||
| £ million | Amounts offset^{(2)} | |||||
| £ million | Net amounts reported on the balance sheet | |||||
| £ million | Related financial instrument amounts not offset | |||||
| £ million | Collateral received/ pledged^{(3)} | |||||
| £ million | Net amount | |||||
| £ million | ||||||
| At 31 December 2025 | ||||||
| Derivative financial assets | 1,511.6 | – | 1,511.6 | (519.1) | (992.5) | – |
| Reverse repurchase agreements | 312.0 | (250.0) | 62.0 | – | (62.0) | – |
| 1,823.6 | (250.0) | 1,573.6 | (519.1) | (1,054.5) | – | |
| Derivative financial liabilities | 556.1 | – | 556.1 | (519.1) | (37.0) | – |
| Repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| 806.1 | (250.0) | 556.1 | (519.1) | (37.0) | – | |
| At 31 December 2024 | ||||||
| Derivative financial assets | 1,941.9 | – | 1,941.9 | (869.0) | (1,072.8) | 0.1 |
| Reverse repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| 2,191.9 | (250.0) | 1,941.9 | (869.0) | (1,072.8) | 0.1 | |
| Derivative financial liabilities | 967.8 | – | 967.8 | (869.0) | (98.8) | – |
| Repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| 1,217.8 | (250.0) | 967.8 | (869.0) | (98.8) | – |
TSB Bank plc
Annual Report and Accounts 2025
Notes to the financial statements
Managing financial risk (continued)
- Market risk (continued)
| Company | Gross amounts
£ million | Amounts offset(2)
£ million | Net amounts reported on the balance sheet
£ million | Related amounts where set off in the balance sheet is not permitted | | |
| --- | --- | --- | --- | --- | --- | --- |
| | | | | Related financial instrument amounts not offset
£ million | Collateral received/ pledged(1)
£ million | Net amount
£ million |
| At 31 December 2025 | | | | | | |
| Derivative financial assets | 1,446.7 | – | 1,446.7 | (519.1) | (919.5) | 8.1 |
| Reverse repurchase agreements | 312.0 | (250.0) | 62.0 | – | (62.0) | – |
| | 1,758.7 | (250.0) | 1,508.7 | (519.1) | (981.5) | 8.1 |
| Derivative financial liabilities | 556.1 | – | 556.1 | (519.1) | (37.0) | – |
| Repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| | 806.1 | (250.0) | 556.1 | (519.1) | (37.0) | – |
| At 31 December 2024 | | | | | | |
| Derivative financial assets | 1,922.1 | – | 1,922.1 | (869.0) | (1,022.1) | 31.0 |
| Reverse repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| | 2,172.1 | (250.0) | 1,922.1 | (869.0) | (1,022.1) | 31.0 |
| Derivative financial liabilities | 967.8 | – | 967.8 | (869.0) | (98.8) | – |
| Repurchase agreements | 250.0 | (250.0) | – | – | – | – |
| | 1,217.8 | (250.0) | 967.8 | (869.0) | (98.8) | – |
(1) Collateral amounts (cash and non-cash financial collateral) are generally undertaken under International Swaps and Derivative Association agreements. Collateral amounts are reflected at their fair value and this amount is limited to the net balance sheet exposure, by counterparty, in order to exclude any over collateralisation. The collateral amount presented includes non-cash collateral received of £73.0 million (2024: £52.6 million) in Bank and non-cash collateral pledged of £0.3 million (2024: £nil) in Bank and Company.
Amounts offset
TSB has a £250.0 million repurchase agreement that transferred legal title of certain covered bond retained notes in return for cash, together with an agreement to repurchase the assets at a later date and at a predetermined price. Concurrently, TSB entered into a £250.0 million reverse repurchase agreement with the same counterparty as the repurchase agreement. The reverse repurchase agreement transferred legal title of certain UK gilts to TSB, in return for the payment of cash, together with an agreement for TSB to sell the UK gilts at a later date and at a predetermined price. The repurchase agreement and reverse repurchase agreement mature in 2027.
TSB Bank plc
Annual Report and Accounts 2025
page 96
Notes to the financial statements
Other important disclosures
Accounting policies relevant to this section
(k) Share capital
Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity and the shares present a residual interest in the net assets of the issuer. Ordinary shares are classified as equity.
(l) Provisions and contingent liabilities and assets
Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will be required to settle the obligations and they can be reliably estimated.
Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless they are remote.
Contingent assets are possible assets that arise from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within TSB's control. These are recognised only when it is virtually certain that an inflow of economic benefits will arise.
(m) Premises and equipment
Property, plant and equipment are recognised at cost less accumulated depreciation. Cost includes the original purchase price of the assets and the costs attributable to bringing the asset into working condition for its intended use. Subsequent expenditure is capitalised only if it is probable that future economic benefits associated with the expenditure will flow to TSB. The value of land (included in premises) is not depreciated. Depreciation on other premises and equipment is calculated using the straight-line method to allocate the difference between the cost and the residual value over their estimated useful lives, as follows:
- Freehold premises and leasehold right of use assets: shorter of 50 years or the remaining period of the lease.
- Leasehold improvements: shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease.
- Fixtures and furnishings: 0-10 years.
- Other equipment and motor vehicles: 2-8 years.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the event that an asset's carrying amount is determined to be greater than its recoverable amount it is written down immediately. The recoverable amount is the higher of the asset's fair value less costs to sell and its value in use.
(n) Leases
At inception of a contract TSB assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, TSB assesses whether: (a) the contract involves the use of an identified asset; (b) TSB has the right to substantially all of the economic benefits from use of the asset throughout the period of use; and (c) TSB has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, TSB allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
TSB recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on a similar basis as those of property and equipment but also include consideration of the lease term. The right-of-use asset is written down by any impairment losses, for example where a leased property will be closed before the end of the lease term, and is adjusted for certain remeasurements of the lease liability. No lease liability or related right of use asset is recognised in respect of short-term leases, of less than one year, or leases of low value assets. As permitted by accounting standards, the cost of such leases are expensed as incurred.
TSB Bank plc
Annual Report and Accounts 2025
page 97
Notes to the financial statements
Other important disclosures (continued)
Accounting policies relevant to this section (continued)
(n) Leases (continued)
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Bank's incremental borrowing rate. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recognised in the consolidated income statement if the carrying amount of the right-of-use asset has been reduced to zero.
(o) Intangible assets
Intangible assets held by TSB consist of internally developed computer software which is held at cost less accumulated amortisation and impairment. Software development costs are capitalised if it is probable that the asset created will generate future economic benefits. Costs incurred to establish technological feasibility or to maintain existing levels of performance are recognised as an expense.
Computer software intangible assets are amortised using the straight line method over their estimated useful lives of between 3 and 5 years. Amortisation commences when the assets are ready for their intended use. Estimated useful lives are reviewed annually and adjusted, if appropriate, in the light of technological developments, usage and other relevant factors. Computer software is reviewed for indicators of impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where the carrying amount is not recoverable the asset is written down immediately to the estimated recoverable amount.
In addition, the following accounting policies relate to the consolidated financial statements as a whole.
(p) Consolidation
Subsidiaries are all entities (including special purpose entities) over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains and losses on transactions between group entities are eliminated.
(q) Foreign currency translation
The Bank's functional and presentation currency is Sterling. Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary items denominated in foreign currencies are translated at the rate prevailing at the balance sheet date. Foreign exchange gains and losses resulting from the translation of such transactions are recognised in other operating income in the income statement.
22. Shareholder's equity
| Bank | Share capital £ million | Share premium £ million | Other equity instruments £ million | Capital reserve £ million | Fair value reserve £ million | Cash flow hedging reserve £ million | Retained profit £ million | Total equity £million |
|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2024 | 79.4 | 195.6 | – | 412.8 | (6.5) | 12.2 | 1,261.1 | 1,954.6 |
| Issue of Additional Tier 1 securities | – | – | 250.0 | – | – | – | – | 250.0 |
| Net change in fair value reserve | – | – | – | – | (1.5) | – | – | (1.5) |
| Net change in cash flow hedging reserve | – | – | – | – | – | 13.8 | – | 13.8 |
| Profit for the year | – | – | – | – | – | – | 203.8 | 203.8 |
| Dividends on ordinary shares | – | – | – | – | – | – | (300.0) | (300.0) |
| At 31 December 2024 | 79.4 | 195.6 | 250.0 | 412.8 | (8.0) | 26.0 | 1,164.9 | 2,120.7 |
| Net change in fair value reserve | – | – | – | – | 1.8 | – | – | 1.8 |
| Net change in cash flow hedging reserve | – | – | – | – | – | (18.0) | – | (18.0) |
| Profit for the year | – | – | – | – | – | – | 251.1 | 251.1 |
| Distributions on other equity instruments | – | – | – | – | – | – | (17.6) | (17.6) |
| At 31 December 2025 | 79.4 | 195.6 | 250.0 | 412.8 | (6.2) | 8.0 | 1,398.4 | 2,338.0 |
TSB Bank plc
Annual Report and Accounts 2025
page 98
Notes to the financial statements
Other important disclosures (continued)
22. Shareholder’s equity (continued)
| Company | Share capital
£ million | Share premium
£ million | Other equity instruments
£ million | Capital reserve
£ million | Fair value reserve
£ million | Cash flow hedging reserve
£ million | Retained profit
£ million | Total equity
£ million |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at 1 January 2024 | 79.4 | 195.6 | – | 412.8 | (6.5) | 12.2 | 1,257.4 | 1,950.9 |
| Issue of Additional Tier 1 securities | – | – | 250.0 | – | – | – | – | 250.0 |
| Net change in fair value reserve | – | – | – | – | (1.5) | – | – | (1.5) |
| Net change in cash flow hedging reserve | – | – | – | – | – | 7.0 | – | 7.0 |
| Profit for the year | – | – | – | – | – | – | 199.8 | 199.8 |
| Dividends paid on ordinary shares | – | – | – | – | – | – | (300.0) | (300.0) |
| At 31 December 2024 | 79.4 | 195.6 | 250.0 | 412.8 | (8.0) | 19.2 | 1,157.2 | 2,106.2 |
| Net change in fair value reserve | – | – | – | – | 1.8 | – | – | 1.8 |
| Net change in cash flow hedging reserve | – | – | – | – | – | (11.3) | – | (11.3) |
| Profit for the year | – | – | – | – | – | – | 252.8 | 252.8 |
| Distributions on other equity instruments | – | – | – | – | – | – | (17.6) | (17.6) |
| At 31 December 2025 | 79.4 | 195.6 | 250.0 | 412.8 | (6.2) | 7.9 | 1,392.4 | 2,331.9 |
At 31 December 2025, TSB Bank plc had in issue 7,945,000,100 (2024: 7,945,000,100) one pence ordinary shares authorised, allotted and fully paid up.
Other equity instruments – Additional Tier 1 securities
In December 2024, TSB Bank plc issued £250.0 million of Fixed Rate Reset Additional Tier 1 Perpetual Non-cumulative Contingent Convertible Securities to its parent company, TSB Banking Group plc. These pay interest at a fixed rate of 8.75% per annum payable semi-annually in arrears.
Capital reserve
The capital reserve represents a capital contribution received in 2013 from a, then, parent company. The fair value reserve represents the unrealised change in the value of financial assets at fair value through other comprehensive income since the instruments initial recognition. The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.
23. Dividends
In July 2025, following the announcement of the proposed sale of TSB to Santander, the Board approved an update to the dividend policy which has resulted in the cessation of dividends being paid to TSB Banking Group plc. Accordingly the Directors have not recommended payment of a dividend in respect of 2025.
A dividend of £300.0 million, or 3.75 pence per ordinary share was declared in December 2024. This included an additional £200.0 million as part of the capital optimisation following the issuance of £250.0 million of Additional Tier 1 securities. This was reflected in the 2024 financial statements.
24. Contingent liabilities
Significant judgement
Conduct
During the ordinary course of business, TSB may be subject to other complaints and threatened or actual legal proceedings brought by customers that may result in legal and regulatory reviews, challenges, investigations and enforcement actions. For example, TSB is currently managing certain customer complaints and court claims in relation to the portfolio of ex-Northern Rock residential mortgages (and linked unsecured loans) acquired from Cerberus Capital Management group (the Whistletree portfolio). TSB intends to defend the claims rigorously.
Any such material cases are periodically reassessed with the assistance of external professional advisers, where appropriate, to determine the likelihood of incurring a liability. TSB does not expect the ultimate resolution of any current complaints, threatened or actual legal proceedings, regulatory or other matters to have a material adverse impact on its financial position in relation to any additional issues not explicitly disclosed above.
In certain circumstances, TSB will explore opportunities, where relevant, to seek recovery from third parties of losses arising from, or related to, such matters. For example, in 2025 TSB agreed compensation from a third party service provider of certain remediation costs arising from an issue with the service provided.
TSB Bank plc
Annual Report and Accounts 2025
page 99
Notes to the financial statements
Other important disclosures (continued)
25. Related party transactions
The Bank's related parties include key management personnel, Sabadell and other Sabadell Group companies.
(i) Key management personnel
Key management personnel are those persons having responsibility for planning, directing and controlling the activities of the Bank which is the Board and Executive Committee. Key management personnel compensation is shown in the table below.
| 2025 | 2024 | |
|---|---|---|
| Bank and Company | £ 000 | £ 000 |
| Short term employee benefits | 8,880 | 8,248 |
| Post-employment benefits | 527 | 551 |
| Other long term awards | 422 | 497 |
| Share based payments | 810 | 805 |
| Payments for loss of office | 153 | – |
| Total | 10,792 | 10,101 |
The tables below detail, on an aggregated basis, related party transactions, balances outstanding at the year end and related income and expense in respect of key management personnel.
| 2025 | 2024 | |
|---|---|---|
| Bank and Company | £ 000 | £ 000 |
| Loans | ||
| At 1 January | 1,348 | 1,413 |
| Advances (includes key management personnel appointed during the year) | 46 | 59 |
| Interest charged during the year | 36 | 69 |
| Repayments made during the year (including key management personnel resigned during the year) | (1,427) | (193) |
| At 31 December | 3 | 1,348 |
The loans attracted interest at customer rates and were made in the ordinary course of business. Expected credit losses are assessed to be immaterial.
| 2025 | 2024 | |
|---|---|---|
| Bank and Company | £ 000 | £ 000 |
| Deposits | ||
| At 1 January | 346 | 572 |
| Deposits made during the year (includes key management personnel appointed during the year) | 3,168 | 1,675 |
| Interest expense on deposits | 2 | 10 |
| Withdrawals made during the year (including key management personnel resigned during the year) | (2,883) | (1,911) |
| At 31 December | 633 | 346 |
Deposits placed by key management personnel are at customer rates and were made in the ordinary course of business.
(ii) Transactions and balances with TSB Group companies
Amounts payable to TSB Banking Group plc, the Company's immediate parent company, totalled £17.3 million (2024: £308.0 million).
Amounts due from TSB Banking Group Employee Share Trust (EST) totalled £1.9 million (2024: £1.5 million) reflecting an interest free loan to enable the EST to acquire Sabadell shares in respect of the Bank's share based compensation schemes.
Amounts due from structured entity subsidiaries to the Company totalled £312.6 million (2024: £332.7 million) comprising of balances in respect of covered bond and securitisation programmes. Amounts payable to other Bank companies by the Company were £450.6 million (2024: £537.6 million).
TSB Bank plc
Annual Report and Accounts 2025
page 100
Notes to the financial statements
Other important disclosures (continued)
- Related party transactions (continued)
(iii) Transactions and balances with Sabadell Group companies
Dividends
In July 2025, following the announcement of the proposed sale of TSB to Santander, the Board approved an update to the dividend policy which has resulted in the cessation of dividends being paid to Sabadell. Accordingly the Directors have not recommended payment of a dividend in respect of 2025.
As set out in note 23, TSB Bank plc declared a dividend of £300.0 million to its parent, TSB Banking Group plc, in December 2024.
Operational IT costs
Operating expenses of £60.0 million (2024: £56.0 million) were incurred in respect of services provided by Sabadell Digital S.A.U. (formerly Sabadell Information Systems S.A.U.) and Sabadell Information Systems Limited (together Sabis), TSB's parent company's IT suppliers, under the Outsourced Services Agreement for running and developing the banking platform. The expense included £8.0 million (2024: £2.4 million) of accelerated charges, where investment by TSB in internal processes to serve customers and improve efficiency led to obsolescence in Sabis's IT equipment, the cost of which was borne by TSB. At 31 December 2025, the aggregate liability to Sabis was £10.6 million (2024: £5.2 million).
Senior unsecured debt securities
At 31 December 2025, TSB Bank plc had senior unsecured debt securities in issue to its parent of £652.4 million (2024: £904.2 million). Interest expense of £63.3 million (2024: £72.1 million) was recognised and £2.4 million was payable at 31 December 2025 (2024: £4.3 million).
Subordinated liabilities
In March 2021, TSB Bank plc issued £300.0 million fixed-to-floating rate callable subordinated Tier 2 capital notes, due to mature in March 2031, to its parent company, TSB Banking Group plc. These were issued at a price of 100% of the principal amount. The notes pay interest at a fixed rate of 3.449% per annum payable quarterly in arrears. TSB has the option to redeem these notes in March 2026, subject to approval of the PRA. Interest expense of £10.3 million (2024: £10.3 million) was recognised and £0.1 million was payable at 31 December 2025 (2024: £0.1 million).
Economic hedging of share based compensation liability
TSB Banking Group Plc holds a forward purchase agreement with Sabadell to acquire 6.3 million (2024: 8.2 million) Sabadell shares to satisfy estimated requirements under various share based compensation arrangements. At 31 December 2025, this forward agreement had an asset fair value of £6.0 million (2024: £2.6 million) and TSB had received cash collateral from Sabadell of £5.9 million (2024: £2.4 million).
Other transactions and balances
Sabadell acts as an intermediary for TSB in respect of international payments. TSB has nostro accounts as a result of this arrangement which had a net balance due from Sabadell of £11.2 million (2024: £7.7 million). Sabadell acts as guarantor to TSB's borrowings under the TFSME. Under this arrangement guarantee fees of £1.3 million (2024: £5.5 million) were recognised and £0.3 million was payable at 31 December 2025 (2024: £0.9 million).
(iv) Subsidiary undertakings
The following entities are accounted for as subsidiary companies of TSB Bank plc as it exercises control of each entity under IFRS 10 Consolidated Financial Statements.:
Registered office: 1 Bartholomew Lane, London, United Kingdom, EC2N 2AX
- TSB Covered Bonds LLP;
- TSB Covered Bonds (LM) Limited; and
- TSB Covered Bonds (Holdings) Limited.
Registered office: 10th Floor, 5 Churchill Place, London, United Kingdom, E14 5HU
- Duncan Holdings 2022-1 Limited (and its subsidiary Duncan Funding 2022-1 plc).
- Duncan Holdings 2024-1 Limited (and its subsidiary Duncan Funding 2024-1 plc).
TSB Bank plc
Annual Report and Accounts 2025
page 101
Notes to the financial statements
Other important disclosures (continued)
26. Property and equipment
| Bank and Company | Property £ million | Equipment £ million | Property Right of use leasing asset £ million | Total £ million |
|---|---|---|---|---|
| Cost | ||||
| At 1 January 2024 | 184.9 | 87.3 | 210.8 | 483.0 |
| Additions | 12.7 | 10.9 | 19.0 | 42.6 |
| Disposals | (21.0) | (9.2) | (19.0) | (49.2) |
| Lease term remeasurement (note 27) | – | – | (2.7) | (2.7) |
| At 31 December 2024 | 176.6 | 89.0 | 208.1 | 473.7 |
| Additions | 9.7 | 12.4 | 0.7 | 22.8 |
| Disposals | (1.5) | (2.7) | (0.7) | (4.9) |
| Lease term remeasurement (note 27) | – | – | 0.1 | 0.1 |
| At 31 December 2025 | 184.8 | 98.7 | 208.2 | 491.7 |
| Accumulated depreciation | ||||
| At 1 January 2024 | 91.3 | 52.7 | 85.5 | 229.5 |
| Depreciation charge for property and equipment (note 14) | 18.3 | 12.3 | – | 30.6 |
| Depreciation charge for right of use asset (note 14) | – | – | 23.6 | 23.6 |
| Disposals | (19.6) | (5.3) | (19.0) | (43.9) |
| At 31 December 2024 | 90.0 | 59.7 | 90.1 | 239.8 |
| Depreciation charge for property and equipment (note 14) | 14.5 | 8.4 | – | 22.9 |
| Depreciation charge for right of use asset (note 14) | – | – | 15.6 | 15.6 |
| Disposals | (0.8) | (0.2) | (0.7) | (1.7) |
| At 31 December 2025 | 103.7 | 67.9 | 105.0 | 276.6 |
| Carrying amount | ||||
| At 31 December 2024 | 86.6 | 29.3 | 118.0 | 233.9 |
| At 31 December 2025 | 81.1 | 30.8 | 103.2 | 215.1 |
Property held for sale totalled £nil (2024: £0.4 million). The net book value represented the recoverable amount and no impairment was required.
27. Lease liabilities
The Bank's leasing activity primarily reflects leases of various offices and bank branch properties. These lease arrangements will often contain renewal options and rent escalation clauses, although the effect of these is not material. The tables below set out details of the amounts recognised in the financial statements in respect of leases:
| Bank and Company | Property 2025 £ million | Property 2024 £ million |
|---|---|---|
| Balance at 1 January | 120.7 | 125.0 |
| Additions | 0.8 | 14.2 |
| Lease term remeasurement | (0.1) | (2.7) |
| Interest expense for the year | 2.6 | 3.0 |
| Lease payments made in the year | (16.2) | (18.8) |
| Carrying amount at 31 December | 107.8 | 120.7 |
TSB Bank plc
Annual Report and Accounts 2025
page 102
Notes to the financial statements
Other important disclosures (continued)
28. Intangible assets
| Bank and Company | 2025 £ million | 2024 £ million |
|---|---|---|
| Cost | ||
| At 1 January | 180.4 | 138.7 |
| Additions | 38.4 | 45.2 |
| Disposals | – | (3.5) |
| At 31 December | 218.8 | 180.4 |
| Accumulated amortisation | ||
| At 1 January | 70.5 | 52.6 |
| Amortisation charge for the year (note 14) | 24.9 | 18.3 |
| Disposals | – | (0.4) |
| At 31 December | 95.4 | 70.5 |
| Carrying amount | 123.4 | 109.9 |
29. Other assets
| Bank 2025 £ million | Bank 2024 £ million | Company 2025 £ million | Company 2024 £ million | |
|---|---|---|---|---|
| Prepayments | 43.7 | 43.8 | 43.7 | 43.8 |
| Accrued fee and commission income | 13.9 | 21.9 | 13.9 | 21.9 |
| Current tax asset | 12.8 | 14.4 | 12.8 | 14.4 |
| Amounts recoverable under customer remediation indemnity | 0.8 | 7.9 | 0.8 | 7.9 |
| Other | 16.5 | 12.9 | 16.1 | 12.4 |
| Amounts due from other TSB Group companies (note 25(ii)) | 1.9 | 1.5 | 338.5 | 323.7 |
| Total other assets | 89.6 | 102.4 | 425.8 | 424.1 |
30. Provisions
| Bank and Company | Conduct provisions £ million | Restructuring provisions £ million | Credit impairment provisions £ million | Dilapidations provisions £ million | Total £ million |
|---|---|---|---|---|---|
| At 1 January 2024 | 23.8 | 26.3 | 10.4 | 14.7 | 75.2 |
| Charge/(credit) to income statement | 2.1 | 8.4 | (1.8) | (0.3) | 8.4 |
| Utilisation | (13.7) | (27.8) | – | (2.3) | (43.8) |
| At 31 December 2024 | 12.2 | 6.9 | 8.6 | 12.1 | 39.8 |
| Charge/(credit) to income statement | 0.7 | 2.8 | (4.2) | (0.3) | (1.0) |
| Utilisation | (6.8) | (8.0) | – | (1.8) | (16.6) |
| At 31 December 2025 | 6.1 | 1.7 | 4.4 | 10.0 | 22.2 |
TSB Bank plc
Annual Report and Accounts 2025
page 103
Notes to the financial statements
Other important disclosures (continued)
30. Provisions (continued)
Restructuring provisions
At 31 December 2025, a provision of £1.7 million (2024: £6.9 million) was carried in respect of restructuring activity designed to support delivery of TSB's strategy. The charge in 2025 of £2.8 million (and in 2024 of £8.4 million) includes the estimated costs of employee severance. The provision was substantially utilised during 2025 and the residual provision is expected to utilised during 2026.
Conduct provisions
In the course of its business, TSB is engaged in discussions with regulators on a range of matters and also receives complaints in connection with its past conduct and claims brought by or on behalf of customers. Where significant, provisions are held against the costs expected to be incurred in relation to these matters.
Credit impairment provisions
Credit impairment provisions are in respect of off balance sheet lending commitments and primarily relates to provisions in respect of undrawn credit card limits and current account overdrafts. This provision is measured and managed as part of the overall assessment of expected credit losses. Sensitivity of total expected credit losses to alternative economic scenarios is set out in note 8 on pages 62 and 63.
Dilapidation provisions
Dilapidation provisions are in respect of estimated payments required to make at the termination of property leases discounted at interest rates consistent with the various lease term end dates.
31. Other liabilities
| Bank | Note | 2025 £ million | 2024 £ million |
|---|---|---|---|
| Amounts payable to Sabadell Group companies | 25(iii) | 11.2 | 6.1 |
| Amounts payable to other TSB Group companies | 25(ii) | 17.3 | 308.0 |
| Accruals and deferred income | 77.3 | 78.7 | |
| Share based payment liability | 15.8 | 11.2 | |
| Other creditors | 67.9 | 69.0 | |
| Total other liabilities | 189.5 | 473.0 | |
| Company | Note | 2025 £ million | 2024 £ million |
| --- | --- | --- | --- |
| Amounts payable to Sabadell Group companies(1) | 25(iii) | 461.8 | 543.7 |
| Amounts payable to other TSB Group companies | 25(ii) | 17.3 | 308.0 |
| Accruals and deferred income | 77.3 | 78.7 | |
| Share based payment liability | 15.8 | 11.2 | |
| Other creditors | 67.6 | 68.6 | |
| Total other liabilities | 639.8 | 1,010.2 |
(1) Includes amounts payable to structured entity subsidiaries of the Company of £450.6 million (2024: £537.6 million).
TSB Bank plc
Annual Report and Accounts 2025
page 104
Notes to the financial statements
Other important disclosures (continued)
32. Notes to the consolidated cash flow statement
The table below presents the change in liabilities arising from financing activities.
| Bank | Borrowings from central banks
£ million | Debt securities in issue
£ million | Additional Tier 1 securities
£ million | Subordinated liabilities
£ million | Non customer funding
£ million |
| --- | --- | --- | --- | --- | --- |
| At 1 January 2024 | 4,057.9 | 3,664.1 | – | 277.7 | 7,999.7 |
| Additional borrowings from central banks | – | – | – | – | – |
| Repayment of borrowings from central banks | (2,620.0) | – | – | – | (2,620.0) |
| Issue of covered bonds | – | 926.1 | – | – | 926.1 |
| Repayment of covered bonds | – | (500.0) | – | – | (500.0) |
| Issue of Additional Tier 1 securities | – | – | 249.7 | – | 249.7 |
| Issue of securitisation | – | 498.3 | – | – | 498.3 |
| Repayment of securitisation | – | (5.0) | – | – | (5.0) |
| Repayment of repurchase agreements | – | – | – | – | – |
| Non-cash movements(1) | (31.0) | (0.3) | – | 8.2 | (23.1) |
| At 31 December 2024 | 1,406.9 | 4,583.2 | 249.7 | 285.9 | 6,525.7 |
| Additional borrowings from central banks | 5.0 | – | – | – | 5.0 |
| Repayment of borrowings from central banks | (797.0) | – | – | – | (797.0) |
| Issue of covered bonds | – | 495.5 | – | – | 495.5 |
| Repayment of securitisation | – | (20.0) | – | – | (20.0) |
| Repayment of senior unsecured debt securities | – | (250.0) | – | – | (250.0) |
| Non-cash movements(1) | (16.0) | 60.6 | | 11.9 | 56.5 |
| At 31 December 2025 | 598.9 | 4,869.3 | 249.7 | 297.8 | 6,015.7 |
| Company | Borrowings from central banks
£ million | Debt securities in issue
£ million | Additional Tier 1 securities
£ million | Subordinated liabilities
£ million | Non customer funding
£ million |
| --- | --- | --- | --- | --- | --- |
| At 1 January 2024 | 4,057.9 | 3,664.1 | – | 277.7 | 7,999.7 |
| Additional borrowings from central banks | – | – | – | – | – |
| Repayment of borrowings from central banks | (2,620.0) | – | – | – | (2,620.0) |
| Issue of covered bonds | – | 926.1 | – | – | 926.1 |
| Repayment of covered bonds | – | (500.0) | – | – | (500.0) |
| Issue of Additional Tier 1 securities | – | – | 249.7 | – | 249.7 |
| Repayment of repurchase agreements | – | – | – | – | – |
| Non-cash movements(1) | (31.0) | (5.6) | – | 8.2 | (28.4) |
| At 31 December 2024 | 1,406.9 | 4,084.6 | 249.7 | 285.9 | 6,027.1 |
| Additional borrowings from central banks | 5.0 | – | – | – | 5.0 |
| Repayment of borrowings from central banks | (797.0) | – | – | – | (797.0) |
| Issue of covered bonds | – | 495.5 | – | – | 495.5 |
| Repayment of senior unsecured debt securities | – | (250.0) | – | – | (250.0) |
| Non-cash movements(1) | (16.0) | 61.1 | – | 11.9 | 57.0 |
| At 31 December 2025 | 598.9 | 4,391.2 | 249.7 | 297.8 | 5,537.6 |
(1) Non-cash movements reflect changes in accrued interest, unamortised premiums and discounts and, in respect of subordinated liabilities, micro fair value hedge accounting adjustments.
TSB Bank plc
Annual Report and Accounts 2025
page 105
Notes to the financial statements
Other important disclosures (continued)
32. Notes to the consolidated cash flow statement (continued)
The following table presents further analysis of balances in the consolidated cash flow statement:
| Bank | Bank | Company | Company | ||
|---|---|---|---|---|---|
| Note | 2025 £ million | 2024 £ million | 2025 £ million | 2024 £ million | |
| Decrease in loans to central banks | - | 136.0 | - | 136.0 | |
| Increase in loans and advances to customers | (1.4) | (124.6) | (1.4) | (124.6) | |
| Increase in reverse repurchase agreements | (62.0) | - | (62.0) | - | |
| Decrease in other advances | 63.3 | 79.3 | 63.3 | 79.3 | |
| Decrease/(increase) in other assets | 11.2 | 2.0 | (3.3) | (115.6) | |
| Increase in customer deposits | 176.0 | 280.8 | 176.0 | 280.8 | |
| Decrease in other financial liabilities | (148.8) | (91.9) | (148.8) | (91.9) | |
| Decrease in provisions | (13.4) | (33.5) | (13.4) | (33.5) | |
| Increase/(decrease) in other liabilities | 16.4 | (3.3) | (70.6) | 534.4 | |
| Change in operating assets and liabilities | 41.3 | 244.8 | (60.2) | 664.9 | |
| Interest expense on financing activities | 291.1 | 402.3 | 267.5 | 385.1 | |
| Interest income on investing activities | (63.4) | (63.2) | (63.4) | (63.2) | |
| Net change in derivative financial instruments and fair value adjustments for portfolio hedged risk | 127.1 | 259.6 | 180.6 | 252.4 | |
| Depreciation and amortisation | 26,28 | 63.4 | 72.5 | 63.4 | 72.5 |
| Net movement in allowance for credit impairment losses | 18(ii) | (8.9) | (31.7) | (8.9) | (31.7) |
| Other non-cash items(1) | (48.8) | (115.5) | (50.5) | (111.5) | |
| Non-cash and other items | 360.5 | 524.0 | 388.7 | 503.6 | |
| Analysis of cash and cash equivalents as shown in the balance sheet | |||||
| --- | --- | --- | --- | --- | |
| Cash | 71.2 | 77.3 | 71.2 | 77.3 | |
| Balances with central banks | 4,119.1 | 4,738.5 | 4,119.1 | 4,738.5 | |
| On demand deposits | 11.8 | 8.0 | 11.8 | 8.0 | |
| Cash, cash balances at central banks and other demand deposits | 4,202.1 | 4,823.8 | 4,202.1 | 4,823.8 | |
| Loans and advances to credit institutions | 305.2 | 277.8 | - | - | |
| Total cash and cash equivalents | 4,507.3 | 5,101.6 | 4,202.1 | 4,823.8 |
(1) Other non-cash items includes foreign exchange increases on debt securities in issue of £45.3 million (2024: £14.5 million decrease) and lending written off of £72.6 million (2024: £72.0 million).
33. Approval of the consolidated financial statements
These consolidated financial statements were approved by the Board of Directors on 5 February 2026.
The Company's ultimate parent company and ultimate controlling party is Banco de Sabadell, S.A. (incorporated in Spain), which is also the parent undertaking of the largest group of undertakings for which consolidated financial statements are drawn up and of which the Company is a member. TSB Banking Group plc is the parent undertaking of the smallest such group of undertakings for which consolidated financial statements are drawn up and of which the Company is a member. Copies of the consolidated annual report and accounts of Banco de Sabadell S.A. are expected to be available in due course from www.grupbancsabadell.com/en/.
TSB Bank plc
Annual Report and Accounts 2025
page 106
Independent auditor’s report to the members of TSB Bank plc
1 Our opinion is unmodified
We have audited the Group and parent Company financial statements of TSB Bank plc ('the Company' or 'the parent Company') for the year ended 31 December 2025 which comprise the Consolidated balance sheet, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, Consolidated cash flow statement, Company balance sheet, Company statement of changes in equity, Company cash flow statement, and the related notes, including the accounting policies.
In our opinion:
- the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2025 and of the Group's profit for the year then ended;
- the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
- the parent Company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.
We were first appointed as auditor by the shareholder on 5 May 2020. The period of total uninterrupted engagement is for the six financial years ended 31 December 2025. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters (unchanged from 2024), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
TSB Bank plc
Annual Report and Accounts 2025
page 107
Independent auditor's report to the members of TSB Bank plc (continued)
| The risk | Our response | |
|---|---|---|
| Expected credit losses ('ECL') on loans and advances to customers | ||
| Risk vs 2024: 31 December 2025: £175.6 million | ||
| (31 December 2024: £188.7 million) | ||
| note 8 (accounting policy and financial disclosures) and note 30 (provisions) | Subjective estimate | |
| The measurement of ECL on loans and advances to customers involves significant judgements and estimates. During the year a new secured ECL model was implemented which introduced new methodology, calibration and implementation risks. The new secured ECL model also means there is reduced dependency on qualitative adjustments in 2025. In the current year, we therefore marginally increased our assessed risk versus 2024. |
The key areas where we identified greater levels of judgement and therefore increased levels of audit focus in the Group's estimation of ECL were:
Economic scenarios: IFRS 9 requires the Group to measure ECL on a forward-looking basis reflecting a range of future economic conditions. Significant management judgement is applied to determine the economic scenarios used, particularly in the context of the current macroeconomic uncertainties, and the probability weightings assigned to each economic scenario.
Qualitative adjustments: adjustments to the model-driven ECL results are raised by management to address issues relating to model limitations, model responsiveness or emerging trends including current macroeconomic uncertainties. The level of qualitative adjustments has reduced due to the implementation of the new secured ECL model during the year, however, significant judgement and uncertainty is involved in assessing the completeness and appropriateness of the qualitative adjustments
Significant Increase in Credit Risk ('SICR'): the criteria selected to identify a significant increase in credit risk is a key area of judgement within the Group's ECL calculation as these criteria determine whether a 12 month or lifetime loss is recorded.
Model estimations: inherently judgemental modelling is used to estimate ECLs which involves determining Probabilities of Default ('PD'), Loss Given Default ('LGD') and Exposures at Default ('EAD'). The LGD model used in the secured portfolio and the PD models used in the unsecured portfolios are the key drivers of the Group's ECL results and are therefore the most significant judgemental aspects of the Group's ECL modelling approach.
The effect of these matters is that, as part of our risk assessment, we determined that the ECL on loans and advances to customers has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount.
In addition, the disclosures regarding the Group's application of IFRS 9 are key to explaining the key judgements and material inputs to the IFRS 9 results.
As a consequence of the inherent estimation uncertainty arising from the economic scenarios and qualitative adjustments elements of the above risk, we have identified both these areas to have a specific fraud risk. | We performed the following audit procedures rather than seeking to rely on the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described
Our procedures included:
Test of details: We recalculated the ECL measured for each of TSB's loan portfolios. We performed testing over key inputs, data and assumptions to assess the reasonableness of key aspects of the ECL calculations.
Our economic scenario expertise: We involved our own economic specialists to assist us in assessing the appropriateness of the Group's methodology for determining the economic scenarios used and the probability weightings applied to them. We assessed the overall reasonableness of the economic scenarios in the context of the current macroeconomic environment by comparing the Group's scenarios to our own modelled scenarios.
Qualitative adjustments: For each of the significant adjustments to the model-driven ECL results, we assessed the reasonableness of the adjustments by evaluating the key assumptions, inspecting the calculation methodology, tracing a sample of data used back to source data, and recalculating the qualitative adjustments. We also assessed the completeness of qualitative adjustments recognised including in response to model limitations, data limitations and the current macroeconomic outlook.
SICR: We assessed the ongoing effectiveness of the SICR criteria and independently calculated the loans' stage for the Group's loans and advances.
Our financial risk modelling expertise: We involved our own financial risk modelling specialists in evaluating the Group's IFRS 9 models, including model development testing over the new secured ECL model. We used our knowledge of the Group and our experience of the industry that the Group operates in to independently challenge the appropriateness of the Group's IFRS 9 models.
Assessing transparency: We evaluated whether the disclosures appropriately reflect and address the uncertainty which exists when determining the Group's overall ECL including in the context of the current macroeconomic environment. As part of this, we assessed the sensitivity analysis that is disclosed. In addition, we challenged whether the disclosure of the key judgements and assumptions made was sufficiently clear.
Our results
The results of our testing were satisfactory, and we considered the ECL provision recognised and the related disclosures to be acceptable (2024: acceptable). |
TSB Bank plc
Annual Report and Accounts 2025
Independent auditor’s report to the members of TSB Bank plc (continued)
| IT access, change management and operations
Risk vs 2024: | Control performance, data capture and integrity
The Group has historical issues with the design and implementation of controls within the Group’s general IT control (“GITC”) environment, specifically in relation to user access and change management.
The Group has continued to implement the multi-year IT control remediation project that was established in 2022. Management has started to operate certain IT controls over user access and change management with a number of new controls being implemented part way through the year.
The risk is therefore reducing in comparison to the prior year due to the progress made by management on the Group’s remediation project, although some significant GITCs are still being remediated within IT access, change management and operations.
The Group’s accounting and reporting processes are dependent on automated controls (“ACs”), such as, data feeds or automated calculations, enabled by IT systems. These are then supported by GITCs, covering areas such as user access, change management and batch processing, which support the integrity of the Group’s IT systems.
There is a risk that, if the GITCs are not effective, inappropriate access could be gained to IT applications and subsequent unauthorised changes made to the application or the related ACs.
In addition, GITCs that are not effective could also affect the integrity of data stored on the IT systems and the effectiveness of automated and manual controls that use this data. | Our procedures included:
Risk assessment: We performed a risk assessment of the GITC environment and the progress being made by the Group on its multi-year IT control remediation project. We assessed the results of management’s own control testing and their identified deficiencies, noting more controls were found to be effective compared to the prior year. We also tested the design of a sub-population of GITCs to determine the impact on our audit plan. We concluded we would not place reliance on GITCs in 2025. This was due to a number of controls within IT access and change management only being implemented part way through the year and some significant GITCs still undergoing remediation.
Control testing: We tested the design and implementation of relevant ACs relating to the posting of journals.
Extended scope: As a result of the decision made to not test GITCs, we assessed what additional testing procedures were necessary to mitigate any residual risk, including:
• Whilst we were not able to rely on the associated GITCs, we decided to continue to place reliance on certain ACs by increasing the frequency with which we manually tested the operation of these ACs subject to audit from once to multiple times throughout the period.
• We performed incremental substantive procedures to address the same process risk as the relevant ACs.
Our results
We identified certain ACs were effective and so we placed reliance on them in our audit as a result of the additional testing performed as detailed above (which is consistent with prior periods).
For the remainder, we were not able to rely on the ACs, however, through the performance of the incremental procedures set out above, we have been able to reduce the audit risk relating to IT access, change management and operations to an acceptable level. (2024: same outcome).
With regard to automated controls, we did not identify any significant deficiencies or material errors in the relevant data elements that we tested (2024: same outcome). |
| --- | --- | --- |
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Annual Report and Accounts 2025
page 109
Independent auditor’s report to the members of TSB Bank plc (continued)
3 Our application of materiality and an overview of the scope of our audit
Our application of materiality
Materiality for the Group financial statements as a whole was set at £12.4 million (2024: £11.0 million), determined with reference to a benchmark of Group profit before tax, normalised in 2025 to exclude an indemnity recovery of £29.7m as disclosed in note 13, of which it represents 4% (2024: 3.5% of normalised Group profit before tax). We adjusted for this item in 2025 because it does not represent the normal, continuing operations of the Group.
Materiality for the parent Company financial statements as a whole was set at £12.4 million (2024: £11.0 million), determined with reference to a benchmark of Company total assets, of which it represents 0.03% (2024: 0.02%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole.
Performance materiality was set at 65% (2024: 65%) of materiality for the financial statements as a whole, which equates to £8.06 million (2024: £7.15 million) for the Group and £8.06 million (2024: £7.15 million) for the parent Company. We applied this percentage in our determination of performance materiality based on the known General IT control deficiencies and the Group's ongoing remediation of the IT control environment.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.62 million (2024: £0.55 million), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Overview of the scope of our audit
We identified the group as a whole to be a single component, having considered our evaluation of the Group’s operational structure, the Group’s legal structure, the existence of common information systems, and our ability to perform audit procedures centrally.
Accordingly, we performed audit procedures on the single component, using the Group materiality levels set out above. Impact of controls on our audit
The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal control over financial reporting.
4 Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group’s and the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for a period of 12 months from the date of approval of the financial statements (“the going concern assessment period”).
We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern assessment period. The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period were:
- the availability of funding and liquidity in the event of a market wide stress scenario; and
- the impact on regulatory capital in the event of an economic slowdown or recession.
We considered whether these risks could plausibly affect the regulatory capital and liquidity in the going concern assessment period by comparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the level of available financial resources indicated by the Group’s financial forecasts. We considered whether the going concern disclosure on page 44 to the financial statements gives a full and accurate description of the directors’ assessment of going concern.
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Annual Report and Accounts 2025
page 110
Independent auditor’s report to the members of TSB Bank plc (continued)
Our conclusions based on this work:
- we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate;
- we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or Company’s ability to continue as a going concern for the going concern assessment period; and
- we found the going concern disclosure on page 44 (Basis of Preparation) to be acceptable.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation.
5 Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
- Enquiring of directors, Internal Audit and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud;
- Reading Board, Audit Committee, and Risk Committee minutes;
- Considering remuneration incentive schemes and performance targets for management and directors;
- Using analytical procedures to identify any unusual or unexpected relationships; and
- Discussion with our own forensic professionals regarding the identified fraud risks and the design of audit procedures planned in response to these.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as expected credit losses on loans and advances to customers. On this audit we do not believe there is a fraud risk related to revenue recognition because there is limited complexity in the calculation and recognition of revenue.
We also identified a fraud risk related to estimation of expected credit losses, specifically relating to economic scenarios and qualitative adjustments in response to significant estimation that involves subjective judgements or are inherently uncertain.
Further detail in respect of expected credit losses is set out in the key audit matter disclosures in section 2 of this report.
We also performed procedures including:
- Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by individuals with privileged access and entries posted to unusual ledger codes; and
- Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
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Annual Report and Accounts 2025
page 111
Independent auditor’s report to the members of TSB Bank plc (continued)
Identifying and responding to risks of material misstatement related to compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group's license to operate. We identified the following areas as those most likely to have such an effect: specific areas of regulatory capital and liquidity, conduct, money laundering and financial crime, and certain aspects of company legislation recognising the financial and regulated nature of the Group's activities and their legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
For the conduct matter discussed in note 24 we assessed the disclosures against our understanding from inquiries of internal counsel and external counsel opinion.
We discussed with the Audit Committee other matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
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Annual Report and Accounts 2025
page 112
Independent auditor’s report to the members of TSB Bank plc (continued)
6 We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
- we have not identified material misstatements in the strategic report and the directors’ report;
- in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
- in our opinion those reports have been prepared in accordance with the Companies Act 2006.
7 We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
- adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
- the parent Company financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of directors’ remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
8 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 43, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
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Annual Report and Accounts 2025
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Independent auditor's report to the members of TSB Bank plc (continued)
9 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
Alexander Snook (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
5 February 2026
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Annual Report and Accounts 2025
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Annual Report and Accounts 2025
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Contacts
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