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17 March 2021
OSB GROUP PLC
OSB GROUP PLC (OSBG), the specialist lending and retail savings Group, today issues a trading update for the year to 31 December 2020
Alongside the Group’s core Buy-to-Let and Residential sub-segments, the Group also provides funding lines to third parties secured primarily against property-related mortgages1. We have very recently become aware of potential fraudulent activity by one of these third parties, where our funding line is secured against lease receivables and the underlying hard assets. The Group had an outstanding receivable against this funding line of £28.6m as at 31 December 2020. The Group believes that this is an isolated incident and is appointing Smith & Williamson LLP to carry out an investigation of the third-party company on the Group’s behalf. Until the investigation has progressed sufficiently we will not know to what extent the receivable has been impaired, with a maximum potential credit loss of £28.6m as at 31 December 2020. This has consequently led to a short delay in the Group publishing its preliminary results for the year, which will now take place on 8 April 2021.
The following (unaudited) expected highlights for the year ended 31 December 2020 would not be impacted by an impairment of the £28.6m funding line receivable, which would increase expected credit losses for the year
Gross originations of £3.8bn (2019 pro forma underlying: £6.5bn) reflecting the impact of COVID-19
Net interest margin of 247bps on an underlying2 basis (2019: pro forma underlying3 266bps) impacted by a delay in passing on the base rate cuts in full to retail savers, which was completed by the end of the third quarter
On an underlying2 basis cost to income ratio improving to 27% (2019: pro forma underlying3 29%) benefitting from delivery of synergies, lower discretionary spend during lockdowns and continued focus on cost discipline and efficiency
Strong credit performance, with balances greater than three months in arrears stable at 0.9% at the end of 2020 (2019: 0.9%) and the majority of customers granted COVID-19 payment deferrals having resumed payment. Active deferrals only 1.3% of the Group’s loan book by value at 31 December 2020
Integration is progressing well, with run rate savings of more than £15m delivered by the first anniversary of the Combination, significantly ahead of schedule. The Group expects to marginally exceed its run-rate pledge by the end of the third year. Integration costs to date are lower than originally expected, with final costs expected to be marginally below the end of year three target
The Board intends to recommend a dividend for 2020 in line with our stated dividend policy of 25% of full year underlying2 earnings attributable to ordinary shareholders
The following (unaudited) expected highlights are provided prior to an impairment of the £28.6m funding line receivable, which would increase expected credit losses for the year, and impact each of the metrics set out below
Underlying2 profit before tax of £366.2m (2019: pro forma underlying3 £381.1m)
Net loan book growth, after expected credit losses, of 4% to £19.0bn on an underlying2 basis (2019: pro forma underlying3 £18.2bn), or 10% excluding the impact of structured asset sales
Full year expected credit losses broadly flat to the first half
Underlying2 return on equity (RoE) of 20% despite significantly higher expected credit losses under IFRS 9 and a strengthened equity position (2019: 25% pro forma underlying3)
Underlying2 basic earnings per share (EPS) down 5% to 61.4 pence (2019: pro forma underlying3 64.9 pence)
Common Equity Tier 1 (CET1) ratio strengthened to over 18% due to additional profitability in the second half. The potential impact of a 100% impairment of the funding line receivable of £28.6m would equate to only a 0.2% point reduction in the CET1 ratio as at 31 December 20204
Headline 2021 Guidance
Based on our pipeline, current application levels and risk appetite, we currently expect to deliver underlying net loan book growth for 2021 of c.10%, although we remain cognisant of continued uncertainty in the economic outlook. Based on current pricing and cost of funds, we expect underlying NIM for 2021 to return to 2019 levels. We expect the underlying cost to income ratio to be marginally higher in 2021, as the ratio in 2020 benefitted from higher income from gains on structured asset sales and lower discretionary spending in lockdowns.
1 The Group’s gross loans to customers include £175.7m in relation to funding lines of which 66% is secured on property-related mortgages.
2 Underlying refers to results and ratios which exclude exceptional items, integration costs and other acquisition-related items arising from the Combination with CCFS.
3 Pro forma underlying refers to ratios and results which assume that the Combination with CCFS occurred on 1 January 2019 and exclude exceptional items, integration costs and other acquisition-related items arising from the Combination with CCFS.
4 Based on expected total risk weighted assets of £8.6bn.
Andy Golding, CEO of OSB Group, said:
“Whilst I am disappointed at the very recent discovery of a potential fraud at one of the non-bank lenders we provide secured funding to, we believe that this is an isolated incident and are committed to expediting our investigation and publishing our full preliminary results on 8 April 2021.
I am proud of the Group’s performance in a very challenging year. Our business model proved its financial and operational resilience in 2020. Our customers, clients, colleagues and communities were always front of mind as we supported all stakeholders to the best of our ability, whether that was by providing mortgage payment deferrals, supporting colleagues’ well-being or continuing to allow our customers to access financial services in the easiest and safest way.
We entered 2020 in a position of strength, with an attractive pipeline, growth opportunities and robust capital position. Lockdowns inevitably impacted our business and we reacted by tightening our risk appetite to protect margin and credit quality over growth. I am pleased that applications have now recovered to near pre-COVID levels in our core Buy-to-Let and Residential sub-segments on tighter criteria and we have a strong pipeline of new business. We continue to control volumes in our more cyclical product lines, in accordance with the economic outlook and our prudent approach to risk management.
Whilst we remain cognisant of the ongoing uncertainty over the true impact of the pandemic when government support comes to an end, the foundations of our business remain extremely robust. We have a very strong capital position and a resilient business model, all of which position us well to respond to the challenges and opportunities ahead and to deploy our resources to deliver attractive, sustainable returns to our shareholders over the long-term.’’
OSB GROUP PLC: Alastair Pate t: 01634 835728
Brunswick Group: Robin Wrench / Simone Selzer t: 020 7404 5959
About OSB GROUP PLC
OSB began trading as a bank on 1 February 2011 and was admitted to the main market of the London Stock Exchange in June 2014 (OSB.L). OSB joined the FTSE 250 index in June 2015. On 4 October 2019, OSB acquired Charter Court Financial Services Group plc (CCFS) and its subsidiary businesses. On 30 November 2020, OSB GROUP PLC became the listed entity and holding company for the OSB Group. The Group provides specialist lending and retail savings and is authorised by the Prudential Regulation Authority, part of the Bank of England, and regulated by the Financial Conduct Authority and Prudential Regulation Authority. The Group reports under two segments, OneSavings Bank and Charter Court Financial Services.
OSB primarily targets market sub-sectors that offer high growth potential and attractive risk-adjusted returns in which it can take a leading position and where it has established expertise, platforms and capabilities. These include private rented sector Buy-to-Let, commercial and semi-commercial mortgages, residential development finance, bespoke and specialist residential lending, secured funding lines and asset finance.
OSB originates mortgages organically via specialist brokers and independent financial advisers through its specialist brands including Kent Reliance for Intermediaries and InterBay Commercial. It is differentiated through its use of highly skilled, bespoke underwriting and efficient operating model.
OSB is predominantly funded by retail savings originated through the long-established Kent Reliance name, which includes online and postal channels as well as a network of branches in the South East of England. Diversification of funding is currently provided by securitisation programmes and the Bank of England funding schemes including, the Term Funding Scheme and the Term Funding Scheme for SMEs.
Charter Court Financial Services Group
CCFS focuses on providing Buy-to-Let and specialist residential mortgages, mortgage servicing, administration and retail savings products. It operates through its brands: Precise Mortgages and Charter Savings Bank.
It is differentiated through risk management expertise and best-of-breed automated technology and systems, ensuring efficient processing, strong credit and collateral risk control and speed of product development and innovation. These factors have enabled strong balance sheet growth whilst maintaining high credit quality mortgage assets.
CCFS is predominantly funded by retail savings originated through its Charter Savings Bank brand. Diversification of funding is currently provided by securitisation programmes and the Bank of England funding schemes including, the Term Funding Scheme and the Term Funding Scheme for SMEs.
This document should be read in conjunction with the documents distributed by OSB GROUP PLC (OSBG) through the Regulatory News Service (RNS). This document is not audited and contains certain forward-looking statements, beliefs or opinions, including statements with respect to the business, strategy and plans of OSBG and its current goals and expectations relating to its future financial condition, performance and results. Such forward-looking statements include, without limitation, those preceded by, followed by or that include the words ‘targets’, ‘believes’, ‘estimates’, ‘expects’, ‘aims’, ‘intends’, ‘will’, ‘may’, ‘anticipates’, ‘projects’, ‘plans’, ‘forecasts’, ‘outlook’, ‘likely’, ‘guidance’, ‘trends’, ‘future’, ‘would’, ‘could’, ‘should’ or similar expressions or negatives thereof. Statements that are not historical facts, including statements about OSBG’s, its directors’ and/or management’s beliefs and expectations, are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements made by OSBG or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in exchange rates, stock markets, inflation, deflation, interest rates and currencies; policies of the Bank of England, the European Central Bank and other G8 central banks; the ability to access sufficient sources of capital, liquidity and funding when required; changes to OSBG’s credit ratings; the ability to derive cost savings; changing demographic developments, and changing customer behaviour, including consumer spending, saving and borrowing habits; changes in customer preferences; changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability, the potential for countries to exit the European Union (the EU) or the Eurozone, and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes and risks to cyber security; natural and other disasters, adverse weather and similar contingencies outside OSBG’s control; inadequate or failed internal or external processes, people and systems; terrorist acts and other acts of war or hostility and responses to those acts; geopolitical, pandemic or other such events; changes in laws, regulations, taxation, accounting standards or practices, including as a result of an exit by the UK from the EU; regulatory capital or liquidity requirements and similar contingencies outside OSBG’s control; the policies and actions of governmental or regulatory authorities in the UK, the EU or elsewhere including the implementation and interpretation of key legislation and regulation; the ability to attract and retain senior management and other employees; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; market relating trends and developments; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints; changes in competition and pricing environments; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services and lending companies; and the success of OSBG in managing the risks of the foregoing.
Accordingly, no reliance may be placed on any forward-looking statement and no representation, warranty or assurance is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Any forward-looking statements made in this document speak only as of the date they are made and it should not be assumed that they have been revised or updated in the light of new information of future events. Except as required by the Prudential Regulation Authority, the Financial Conduct Authority, the London Stock Exchange PLC or applicable law, OSBG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in OSBG’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. For additional information on possible risks to OSBG’s business, please see the Risk review in the OSBG 2020 Annual Report and Accounts. Copies of this are available at www.osb.co.uk and on request from OSBG.
Nothing in this document and any subsequent discussion constitutes or forms part of a public offer under any applicable law or an offer to purchase or sell any securities or financial instruments. Nor does it constitute advice or a recommendation with respect to such securities or financial instruments, or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied on as a guide to future performance. Nothing in this document is intended to be, or should be construed as, a profit forecast or estimate for any period.
Liability arising from anything in this document shall be governed by English law, and neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. Nothing in this document shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.
Certain figures contained in this document, including financial information, may have been subject to rounding adjustments and foreign exchange conversions. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this document may not conform exactly to the total figure given.