Paragon Banking : 2023 Notice of Annual General Meeting

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to any aspect of the proposals referred to in the document or as to the action you should take, you should seek advice from an independent financial adviser authorised under the Financial Services and Markets Act 2000.

If you have sold or otherwise transferred all of your shares in Paragon Banking Group PLC, please pass this document, together with the accompanying documents, to the purchaser or transferee, or to the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares.

Paragon Banking Group PLC

(incorporated and registered in England and Wales under number 2336032)

Notice of Annual General Meeting

Your attention is drawn to the letter from the Chair of Paragon Banking Group PLC (the 'Company') which is set out on page 2 of this document, and which recommends you to vote in favour of the resolutions to be proposed at the Annual General Meeting.

The Notice of Annual General Meeting of the Company to be held at the offices of UBS AG London Branch at 5 Broadgate, London EC2M 2QS on Wednesday 1 March 2023 at 9.00am is set out on pages 6 to 7 of this document.

Shareholders will also find enclosed with this document a proxy form for use in connection with the Annual General Meeting. To be valid, the proxy form should be completed, signed and returned in accordance with the instructions printed on it, as soon as possible and, in any event, so as to reach the Registrars of the Company by no later than 9.00am on Monday 27 February 2023 (or, in the event of any adjournment, not less than 48 hours (excluding non- working days) before the time of the adjourned meeting). Completion and return of a proxy form will not preclude shareholders from attending and voting at the Annual General Meeting should they choose to do so. Further instructions relating to the proxy form are set out in the notes to the Notice of Annual General Meeting.

Paragon Banking Group PLC

(incorporated and registered in England and Wales under number 2336032)

Registered and Head Office

51 Homer Road

Solihull, West Midlands,

B91 3QJ

12 January 2023

To all Shareholders: NOTICE OF ANNUAL GENERAL MEETING

Dear Shareholder

I am pleased to invite you to our Annual General Meeting ('AGM'), which will be held at the offices of UBS AG London Branch at 5 Broadgate, London EC2M 2QS on Wednesday 1 March 2023 at 9.00am.

The resolutions to be proposed at the AGM are set out in the Notice of AGM (the 'Notice') on pages 6 to 7 and explanatory notes on the proposed resolutions appear on pages 3 to 5 of this document. If you would like to vote on the resolutions but are unable to attend the AGM, you are strongly encouraged to complete the proxy form sent to you with this Notice and return it to our Registrars as soon as possible. They must receive it by 9.00am on Monday 27 February 2023 (or, in the event of any adjournment, not less than 48 hours (excluding non-working days) before the time of the adjourned meeting), to ensure that your vote is counted.

Shareholders unable to attend the AGM are encouraged to submit any questions about the business of the meeting either by email to [e-mail] or in writing to Company Secretary, Paragon Banking Group PLC (AGM), 51 Homer Road, Solihull, West Midlands B91 3QJ to be received by 27 February 2023. A summary of any questions submitted, and the Company's response, will be uploaded to the AGM section of the Company's website (www.paragonbankinggroup.co.uk) following the AGM.

Should it become necessary or appropriate to revise the current arrangements for the AGM, details of any such changes will be made available on our website www.paragonbanking.group.co.uk and via a London Stock Exchange announcement as required by our Articles of Association. Please check our website (www.paragonbankinggroup.co.uk) before travelling to the AGM. The investor section on our website includes financial news and other information, which we hope will be of interest to shareholders. If you would like to register to receive shareholder documents electronically in future, please visit www.investorcentre.co.uk/ecomms.

The directors consider that all the resolutions to be put to the AGM are in the best interests of the Company and its shareholders as a whole and unanimously recommend that you give them your support by voting in favour of all the resolutions, as they intend to in respect of their own beneficial holdings.

This will be my first AGM since I was appointed as Chair of the Board in September 2022, and I look forward to being able to welcome those of you able to join us, in person.

Yours sincerely

Robert East

Chair of the Board

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Explanation of the proposed resolutions

Resolution 1 (Annual Report and Accounts)

The directors must lay the Annual Report and Accounts, including the Strategic Report, the Directors' Report and the Auditor's Report, of the Company before its members at a general meeting for the members to receive and consider. This is a legal requirement following the directors having approved the Annual Report and Accounts and the auditor having prepared their report.

Resolutions 2 and 3 (Directors' Remuneration Report and Directors' Remuneration Policy)

Shareholders are being asked to consider and approve the Directors' Remuneration Report, excluding the Directors' Remuneration Policy (the 'Policy'), found at section B7 of the 2022 Annual Report and Accounts. The vote on the approval of the Directors' Remuneration Report is advisory only and the directors' entitlement to remuneration is not conditional on it being passed.

The Policy must be put to a vote at least every three years (or sooner if there are changes required to the Policy). The Policy was last approved in 2020 so consequently shareholders are being asked to consider and approve an updated policy (found at section B7 of the 2022 Annual Report and Accounts) at the forthcoming AGM. Subject to obtaining shareholder approval, the Policy is intended to take effect from 1 October 2022 and will supersede the policy approved in 2020. Payments will continue to be made to directors and former directors in line with existing arrangements until shareholder approval for the updated policy is obtained.

Resolution 4 (Declaration of a final dividend)

Under the Articles of Association of the Company, a final dividend must be approved by shareholders by ordinary resolution. An interim dividend may, however, be authorised by the board of directors of the Company (the 'Board') and the interim dividend of 9.4 pence per ordinary share paid on 29 July 2022 was so approved. The directors are recommending that shareholders declare a final dividend of 19.2 pence per ordinary share in respect of the year ended 30 September 2022. The amount declared as a final dividend may not exceed the amount recommended by directors. If approved, the final dividend will be paid on 3 March 2023 to shareholders on the Register of Members at close of business on 3 February 2023.

Resolutions 5 and 6 (appointment of Directors joining since the last AGM) and resolutions 7 to 13 inclusive (annual reelection of Directors)

The Company's Articles of Association provide that any new director appointed by the Board during the year may hold office only until the next AGM, when that director must stand for appointment by the shareholders. On 1 September 2022, Robert East was appointed as Chair of the Board and non-executive director and Tanvi Davda was appointed as a non-executive director. Each of them is accordingly seeking appointment by shareholders. You can read more about the search process to recruit both Robert and Tanvi in section B5 of the 2022 Annual Report and Accounts circulated with this Notice.

The UK Corporate Governance Code 2018 (the 'Code') recommends that all directors of listed companies should be subject to annual re-election by shareholders. The directors standing for re-election in light of this provision are listed in resolutions 7 to 13.

In July 2022, the Nomination Committee considered the reappointment of the directors and, based on their recommendation, the Chair of the Board confirms on behalf

of the Board that each director continues to make an effective and valuable contribution and demonstrates commitment to their role. The Board is also satisfied that each of the non- executive directors seeking appointment or re-election remains independent.

Further biographical information on all of the directors, detailing their business knowledge and experience as well as their specific areas of expertise, which are important to the Company's long-term sustainable success, can be found in section B3 of the 2022 Annual Report and Accounts.

Resolutions 14 and 15 (Reappointment and remuneration of the auditor)

At each meeting at which Accounts are laid before the members, the Company is required to appoint auditors to serve from the conclusion of that meeting until the conclusion of the next such meeting. The Company's present auditor, KPMG LLP, have confirmed that they are willing to continue in office for a further year.

Resolution 14 proposes that KPMG LLP be reappointed. Resolution 15 gives authority to the Board, acting through the Audit Committee, to determine the auditor's remuneration. The remuneration will then be disclosed in the next Annual Report and Accounts of the Company.

Resolution 16 (Political donations)

Part 14 of the Companies Act 2006 (the '2006 Act') prohibits companies from making political donations exceeding £5,000 in aggregate in any 12-month period to (i) political parties, (ii) other political organisations and (iii) independent election candidates and from incurring political expenditure without shareholders' consent. The Company does not make, and does not intend

to make (either now or in the future), donations to political organisations or incur political expenditure in respect of any political party, political organisation or independent election candidate. However, the definitions of these terms used in the 2006 Act are very wide. As a result, the prohibition can cover normal business activities such as sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling certain public duties, and support for bodies representing the business community in policy review or reform. Shareholder approval is therefore being sought on a precautionary basis only, to ensure that the Company and any company which, at any time during the period for which this resolution has effect, is a subsidiary of the Company, does not inadvertently breach the 2006 Act.

Resolutions 17 and 18 (Approval of two new employee share plans)

In conjunction with, but not contingent upon, the proposed changes to the Directors' Remuneration Policy, which are subject to a shareholder vote under resolution 3, the Company intends to implement two new employee share plans. The Paragon Performance Share Plan 2023 (the "PSP") will replace the Paragon Performance Share Plan 2013 and the Paragon Deferred Share Bonus Plan 2023 (the "DSBP") will replace the Paragon Deferred Share Bonus Plan 2013. The Board confirms that all Company share plans will continue to operate strictly within the Investment Association's dilution limits. Information on the principal features of each of the new employee share plans can be found in Appendices 1 and 2. The rules of each share plan will be available on the Company's website

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(www.paragonbankinggroup.co.uk) and will also be available to view at the Company's registered office during normal business hours.

Resolution 19 (Renewal of authority to allot shares)

Section 549 of the 2006 Act states that directors may not exercise a company's power to allot shares or grant rights to subscribe for or convert any security into shares unless given authority to do so by resolution of the shareholders in general meeting.

The present authority of the directors to allot shares of the Company was granted at the AGM on 2 March 2022 and will expire at the end of the forthcoming AGM. Resolution 19 seeks to give the directors authority to allot shares or grant rights to subscribe for or convert any security into shares up to an aggregate nominal value of £77,000,000, representing approximately one third of the Company's issued share capital, excluding treasury shares, at 6 January 2023, the latest practicable date prior to publication of this document. At 6 January 2023 the Company held 8,075,413 treasury shares, representing 3.46 percent of the Company's issued ordinary share capital, excluding treasury shares, at that date. The directors have no present intention of exercising this authority, which will expire at the conclusion of the following AGM or, if earlier, at the close of business on 31 May 2024. For information, allotments are made in connection with the Company's employee share schemes, from time to time, for which statute provides an exemption from the requirement to obtain authority under section 551 of the 2006 Act.

Resolutions 20 and 21 (Renewal of section 561 authority)

Under section 561 of the 2006 Act, any shares allotted (or, in the case of any shares held in treasury, sold) wholly for cash must be offered to existing shareholders in proportion to their holdings, but this requirement may be modified by the authority of a special resolution of the shareholders in general meeting.

The authority given at the AGM held on 2 March 2022 will expire at the end of the forthcoming AGM and resolutions 20 and 21 seek to renew it. These special resolutions give the directors the power to allot ordinary shares (or sell any ordinary shares which the Company elects to hold in treasury) for cash without first offering them to existing shareholders in proportion to their existing shareholdings.

The power under resolution 20 would be limited to: (a) allotments or sales in connection with pre-emptive offers and offers to holders of other equity securities if required by the rights of those shares or as the Board otherwise considers necessary; or (b) otherwise up to a nominal amount of £11,500,000 (representing 11,500,000 ordinary shares). This nominal amount represents approximately 5 percent of the issued ordinary share capital of the Company (excluding treasury shares) as at 6 January 2023, the latest practicable date prior to publication of this document. The power under resolution 20 also proposes the disapplication of pre-emption rights as described above,

in relation to "follow on" offers (within the meaning given in the Pre-Emption Group's Statement of Principles) up to a nominal amount of 20 percent of any allotment of equity securities or sale of treasury shares from time to time pursuant to (b) above.

The power under resolution 21 would be limited to allotments up to a nominal amount of £11,500,000 (representing 11,500,000 ordinary shares) in connection with an acquisition or specified capital investment (within the meaning given in the PreEmption Group's Statement of Principles). This nominal amount represents approximately 5 percent of the issued ordinary share capital of the Company (excluding treasury shares) as at 6 January 2023, the latest practicable date prior to publication of this document). In respect of the authority under resolution 21, the Board confirms that it will only allot shares pursuant to this authority where the acquisition or specified capital investment is announced contemporaneously with the allotment or has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. The power under

resolution 21 also proposes the disapplication of pre-emption rights as described above, in relation to "follow on" offers (within the meaning given in the Pre-Emption Group's Statement

of Principles) up to a nominal amount of 20 percent of any allotment of equity securities or sale of treasury shares from time to time pursuant to an acquisition or specified capital investment described in this paragraph.

In respect of the authorities sought under resolutions 20 and 21, the Board acknowledges the provisions of the Pre-Emption Group's most recent Statement of Principles published in November 2022 and confirms that it will follow the general principles set out therein (including as to any "follow on" offers). However, the Board has retained the previous limits of 5 percent of the issued ordinary share capital of the Company (excluding treasury shares) in resolutions 20 and 21 (plus any "follow on" offers), rather than the increased limit of 10 percent set out in the Pre-Emption Group's most recent Statement of Principles, as the Board believes that provides sufficient flexibility to the Company at this time.

The authorities under resolutions 20 and 21 will expire at the conclusion of the following AGM or, if earlier, at the close of business on 31 May 2024.

Resolution 22 (Renewal of authority to purchase own ordinary shares)

On 7 December 2021, the Company announced the extension of its share buy-back programme for the year of £50.0 million, which was subsequently increased to £75.0 million. £66.9 million of shares, including costs, was expended during the year (Note 45 of the 2022 Annual Report and Accounts) and £10.8 million remained outstanding at the year end. An irrevocable instruction for the completion of the share buy-back programme was given to the Group's brokers before the year end and it was completed on 7 November 2022. On 8 September 2022, 9,370,766 treasury shares were cancelled and at year end the Company held 3,640,519 treasury shares.

As part of the review of capital management described above the Board decided that it was appropriate to authorise a further share buy-back programme of £50.0 million for the 2023 financial year (the 'Share Buy-Back Programme') and this commenced on 6 December 2022.

The Company currently has the necessary shareholder approval to undertake share buy-backs (including in relation to the Share Buy-Back Programme) and is proposing the appropriate renewal of this authority at its forthcoming AGM. This resolution, which is being proposed as a special resolution, would enable the Company to purchase, in the market, up to a maximum aggregate number of 23,000,000 of the Company's ordinary shares (approximately 10 percent of the issued share capital (excluding treasury shares) as at 6 January 2023, the latest practicable date prior to publication of this document) for cancellation, or to be held in treasury, at a minimum price (exclusive of expenses) of 10p per share and a maximum price

(exclusive of expenses) of the higher of: (i) 5 percent above the average middle market quotation for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately prior to purchase; and (ii) the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out. Listed companies, with authorisation from shareholders, may buy and hold their own shares in treasury instead of cancelling them immediately. Shares held as treasury shares can in the future be cancelled, re-sold or used to provide shares for employee share schemes.

The Share Buy-Back Programme will be effected in accordance with the Market Abuse Regulation 596/2014/EU (as in force in the UK and as amended by the Market Abuse (Amendment) (EU Exit) Regulations 2019) (the "Regulation"). However, given the low level of liquidity in the Company's shares, the Company will retain the ability to exceed the average daily volume restrictions established by the Commission Delegated Regulation 2016/1052/EU (as in force in the UK and as amended by the

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FCA's Technical Standards (Market Abuse Regulation) (EU Exit) Instrument 2019) and therefore the Share Buy-Back Programme may not benefit from the 25 percent average daily volume safe harbour provisions of the Regulation.

Any purchases made by the Company under the Share Buy- Back Programme will be announced no later than 7.30am on the business day following the transaction. This authority will expire at the conclusion of the following AGM or, if earlier, at the close of business on 31 May 2024.

Any further share buy-backs carried out pursuant to this authority would be subject to the approval of the Prudential Regulation Authority and would only be undertaken if to do so would result in an increase in earnings per share and be in the best interests of shareholders generally. The total number of share options to subscribe for shares that are outstanding at the latest practicable date before the AGM notice is published is 3,320,831, representing 1.42 percent of issued share capital (excluding treasury shares) at that date and which would represent 1.66 percent of issued share capital (excluding treasury shares) if the full authority to buy back shares (existing and being sought) is used.

As at 6 January 2023, the latest practicable date prior to publication of this document, there were 8,075,413 shares held in treasury.

Resolution 23 (Authority to allot equity securities in relation to the issue of Additional Tier 1 Securities)

The power under resolution 23 would give the Board authority to allot shares in the Company or grant rights to subscribe for, or to convert any security into, shares in the Company up to an aggregate nominal amount of £35,000,000 in connection with the issue of Additional Tier 1 Securities ('AT1 Securities'), representing approximately 15 percent of the issued ordinary share capital of the Company, excluding treasury shares, as at 6 January 2023 (being the latest practicable date prior to publication of this document). The authority under this resolution is in addition to the authority proposed under resolution 19. The authority sought under resolution 23 is not contemplated by the guidance issued by the Investment Association.

The authority sought under resolutions 23 and 24 below will be utilised as considered desirable to comply with or maintain compliance with regulatory capital requirements or targets applicable to the Group (being the Company and all of its subsidiary undertakings) from time to time, and taking into account a number of factors in respect of the Group, including its capital structure, an assessment of appropriate capital ratios, market conditions at the time and demand for the issue of AT1 Securities. However, the request for this authority should not be taken as an indication that the Company will or will not issue any, or any given amount of, AT1 Securities.

The authority under resolution 23 will expire at the end of the next AGM or, if earlier, at the close of business on 31 May 2024.

Resolution 24 (Authority to disapply pre-emption rights in relation to the issue of Additional Tier 1 Securities)

The power under resolution 24 would give the Board authority to allot equity securities pursuant to any proposal to issue AT1 Securities, without first offering them to existing shareholders.

This authorises the Board to allot shares in the Company or grant rights to subscribe for, or to convert any security into, shares in the Company on a non pre-emptive basis up to an aggregate nominal amount of £35,000,000 in connection with the issue

of AT1 Securities, representing approximately 15 percent of the Company's issued ordinary share capital, excluding treasury shares, as at 6 January 2023 (being the latest practicable date prior to publication of this document). Together with resolution 23, this resolution, which is being proposed as a special resolution, is intended to provide the Board with the flexibility to issue

AT1 Securities, which may convert into ordinary shares in the Company. This will allow the Company to manage its capital in the

most efficient and economic way for the benefit of shareholders.

The authority under resolution 24 will expire at the end of the next AGM or, if earlier, at the close of business on 31 May 2024.

Resolution 25 (Notice period for general meetings to be 14 clear days)

Shareholders may give approval, by special resolution, to shorten the notice period required for general meetings (other than AGMs) from 21 clear days to 14 clear days. At the AGM on 2 March 2022, shareholders approved the reduction of the notice period for general meetings (other than AGMs) to 14 clear days and resolution 25 seeks to renew this approval. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The shorter notice period will not be used as a matter of routine, but only in time-sensitive circumstances where flexibility is merited by the business of the general meeting and the shorter notice period is to the advantage of shareholders as a whole.

Resolution 26 (Cancellation of capital redemption reserve)

The directors are proposing to cancel the entirety of the Company's capital redemption reserve (the "Capital Reduction") in order to create additional distributable reserves. Under the 2006 Act, the capital redemption reserve is treated as if it were part of the share capital of the Company and is not available for distribution to shareholders. If the Capital Reduction becomes effective, it will increase the amount of distributable reserves on the Company's balance sheet.

The rationale for the Capital Reduction is to provide the Company with greater headroom and flexibility in the future for the paying of dividends. Whilst the directors do not currently intend to use the additional distributable reserves created

by the Capital Reduction to deviate from the Company's established dividend policy, the directors believe that the Capital Reduction is in the best interests of the Company. Shareholders should note that the Capital Reduction itself will not involve any return of capital to shareholders, nor will it reduce the Company's net assets.

If the Capital Reduction becomes effective, the entire amount standing to the credit of the Company's capital redemption reserve (expected to be £71,831,480 at the date of the AGM) will be cancelled and credited to the Company's retained earnings. Accordingly, the Company would expect to have created additional distributable reserves of £71,831,480.

The Capital Reduction is conditional upon: (i) the passing of Resolution 26 as a special resolution; (ii) the confirmation of the High Court of England and Wales (the "Court"); and

1. the registration of the Court order by the Registrar of Companies. Before giving its confirmation, the Court will need to be satisfied that the Capital Reduction does not put any of the Company's creditors at risk of not being paid when due and, in seeking this approval, the Company will be required to give such undertakings or other form of creditor protection as the Court may require for the benefit of the Company's creditors at the date on which the Capital Reduction becomes effective. If Resolution 26 is passed as a special resolution, the Company intends to take the necessary steps to give effect to the Capital Reduction. Shareholders should note that if the Court declines to confirm the Capital Reduction, then the cancellation of the capital redemption reserve will not take place. There are also circumstances in which the directors might decide not to proceed with the Capital Reduction, including the Court imposing conditions on its confirmation which are not satisfactory to the Company.

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