TIDMCCFS TIDMOSB
RNS Number : 7007J
Charter Court Financial Svs Grp PLC
21 August 2019
Press release
21 August 2019
Interim results for the six months ended 30 June 2019
Another strong half year of originations
Combination with OneSavings Bank approved by shareholders
Charter Court delivered another half year of strong lending
growth. We grew our loan book 23.8% to GBP7.0 billion on
originations of GBP1.5 billion as we continued to innovate to meet
strong demand across our buy to let and specialist residential
lending offerings, driven by the continued professionalisation and
increasing complexity of our chosen markets. We leveraged the
scalability and efficiency of our operating platform, our
underwriting discipline and dynamic funding strategy to maintain a
low cost of risk and a cost income ratio of 28.7%, after adjusting
for costs of the proposed merger with OneSavings Bank plc ("OSB").
This strong operational result translated into profit before tax of
GBP82.6 million (H1 2018: GBP93.1 million).
Financial highlights[1]
H1 2019 H1 2018 FY 2018
Profit before tax GBP82.6m GBP93.1m GBP158.2m
--------- --------- ----------
Adjusted profit before GBP86.4m GBP93.1m GBP158.2m
tax(2)
--------- --------- ----------
Profit after tax GBP62.3m GBP71.1m GBP120.8m
--------- --------- ----------
Net interest margin 3.04% 3.08% 3.08%
--------- --------- ----------
Loan book GBP7.0bn GBP5.7bn GBP6.7bn
--------- --------- ----------
Mortgage originations GBP1.5bn GBP1.4bn GBP2.8bn
--------- --------- ----------
Retail deposits GBP6.0bn GBP4.3bn GBP5.1bn
--------- --------- ----------
Cost income ratio 31.7% 24.8% 28.7%
--------- --------- ----------
Adjusted cost income
ratio[2] 28.7% 24.8% 28.7%
--------- --------- ----------
Cost of risk 0.082% 0.025% 0.036%
--------- --------- ----------
Cost of funds 1.6% 1.4% 1.5%
--------- --------- ----------
Return on equity 26.5% 38.4% 30.8%
--------- --------- ----------
Adjusted return on equity(2) 28.1% 38.4% 30.8%
--------- --------- ----------
CET1 ratio[3] 15.6% 16.6% 15.7%
--------- --------- ----------
Earnings per share
--------- --------- ----------
* basic 26.0p 29.7p 50.5p
--------- --------- ----------
* diluted 25.7p 29.5p 50.1p
--------- --------- ----------
Dividend per share 4.3p 2.8p 12.7p
--------- --------- ----------
Strong balance sheet growth
-- Loan book up 23.8% year-on-year to GBP7.0 billion at 30
June 2019 (30 June 2018: GBP5.7 billion, 31 December 2018:
GBP6.7 billion), or 33.7% (30 June 2018: 41.7%, 31 December
2018: 34.7%) excluding the impact of structured asset sales,
driven by strong origination volumes across all product
segments GBP1,490.0 million (H1 2018: GBP1,356.7 million,
FY 2018: GBP2,846.1 million)
Effective risk management
-- Disciplined underwriting reflected in strong credit performance
across the lending portfolio with arrears of three months
and over at GBP26.1 million (30 June 2018: GBP7.6 million,
31 December 2018: GBP15.3 million) representing 0.37% of
the loan book (30 June 2018: 0.15%, 31 December 2018: 0.24%)
-- The cost of risk was 0.082% (H1 2018: 0.025%, FY 2018: 0.036%)
reflecting the deteriorating and uncertain economic outlook
as well as the observed increase in arrears
Dynamic funding strategy
-- Successful execution of a GBP733.7 million securitisation
transaction of buy to let residential mortgages (H1 and
FY 2018: three transactions with a combined value of GBP906.1
million)
-- Aggregate gain of GBP29.8 million (H1 and FY 2018: GBP36.4
million) on two structured asset sales to third party investors
of GBP564.3 million of underlying mortgage assets and associated
risk weighted assets ("RWAs") (two structured asset sales
all in the first half of 2018 amounting to GBP562.5 million
of underlying mortgage assets and associated RWAs)
-- Retail savings deposit book up 40.2% year-on-year to GBP6.0
billion (30 June 2018: GBP4.3 billion, 31 December 2018:
GBP5.1 billion)
-- GBP842.0 million of Bank of England reserve account balances
held at 30 June 2019 (30 June 2018: GBP751.2 million, 31
December 2018: GBP823.8 million)
Robust profitability
-- Robust net interest margin of 3.04% (H1 2018: 3.08%, FY
2018: 3.08%)
-- Cost income ratio of 31.7% in H1 2019 (H1 2018: 24.8% and
FY 2018: 28.7%) or adjusted cost income ratio[4] of 28.7%
-- The Group's policy is to economically hedge its interest
rate exposures; however, some of the Group's hedges do not
qualify for hedge accounting under IFRS and a charge of
GBP7.2 million net fair value movements on derivative financial
instruments (H1 and FY 2018: GBPnil) has been recognised.
This reflects a flattening of the yield curve; this will
reverse in future periods as the fair value of the interest
rate swaps trends to zero over time
-- Profit before tax at GBP82.6 million (H1 2018: GBP93.1 million,
FY 2018: GBP158.2 million), reflecting a significant increase
in net interest income offset by lower gains on structured
asset sales, net fair value movements on derivatives and
increased administrative expenses, which included GBP3.8
million of costs incurred in H1 2019 in relation to the
proposed merger with OSB
-- Return on equity of 26.5% (H1 2018: 38.4%, FY 2018: 30.8%)
or adjusted return on equity(4) of 28.1% (H1 2018: 38.4%,
FY 2018: 30.8%)
-- The Board has declared an interim dividend of 4.3 pence
per share (2018: interim 2.8 pence per share; final 9.9
pence per share and total 12.7 pence per share)
All-share combination with OneSavings Bank approved by
shareholders
-- All resolutions in connection with the recommended all-share
combination of Charter Court and OSB passed at Court and
General Meetings of Charter Court shareholders held on 6
June 2019
-- The Competition and Markets Authority ("CMA") confirmed
its clearance decision in respect of the combination on
30 July 2019
-- The completion of the transaction remains subject to the
satisfaction or waiver of other conditions, including approval
from the Prudential Regulation Authority ("PRA") and Financial
Conduct Authority ("FCA") and the Court sanctioning the
Scheme at the Scheme Court Sanction Hearing which is expected
to take place in the third quarter of 2019
Ian Lonergan, CEO of Charter Court, said:
"We continued to leverage our specialist lending platform to
once again deliver against all our targets in the first half of
2019. Steady loan book growth continued to be driven by strong
originations of GBP1.5 billion across our lending portfolio. This
positive result was achieved whilst maintaining a disciplined
approach to underwriting, reflected in the high quality of our
mortgage book.
"As demonstrated by the attractively priced securitisation and
structured asset sales delivered during the first half, we
continued to leverage our capital markets execution capabilities to
support asset growth and optimise funding costs. Our cost income
ratio continued to benefit from our high operating leverage and our
scalable platforms, remaining in line with our guidance. With a
strong CET1 ratio of 15.6% at 30 June 2019 (30 June 2018: 16.6%, 31
December 2018: 15.7%), we remain well capitalised for future
growth.
"In addition to strong first half performance, I am pleased to
report that our recommended all-share combination with OSB has
received shareholder approval, clearance by the CMA and now remains
subject to the satisfaction or waiver of other conditions including
approvals from relevant UK regulatory authorities."
Enquiries:
Analysts and investors
Sebastien Maloney, Chief Financial
Charter Court Officer 019 0262 5929
Citigate Dewe Rogerson Sandra Novakov 020 7638 9571
Michael Russell
Media
Citigate Dewe Rogerson Andrew Hey 020 7638 9571
Caroline Merrell
Analyst and investor presentation
A presentation for analysts and investors will be held at 10:45
am on 21 August 2019 at the Lincoln Centre, 18 Lincoln's Inn
Fields, London, WC2A 3ED.
Participants will be able to take part via a conference call
facility by dialling Standard International Access: +44 (0) 20 3037
9315 or UK Toll Free: 0808 109 0700 (Password: Charter Court
Financial Services). A live audio webcast of the presentation will
be broadcast on our IR website at
http://www.chartercourtfs.co.uk/InvestorCentre
Cautionary statement
This Interim Management Report ("IMR") has been prepared solely
to provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR should not be relied on by any other party or for
any other purpose. The IMR contains certain forward--looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report but such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward--looking information.
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". Forward-looking statements are
statements that are not historical facts and may be identified by
words such as "intend", "aim", "project", "anticipate", "estimate",
"plan", "believes", "expects", "may", "envisage", "should", "will",
"target", "continues", "set to", or similar expressions. These
forward-looking statements involve substantial known and unknown
risks, uncertainties, assumptions, estimates and other factors
which may be beyond the control of Charter Court Financial Services
Group plc ("Charter Court") and its subsidiaries (together, "the
Group"). Actual results and developments may differ materially from
those expressed or implied by these statements and depend on a
variety of factors. These statements are made in respect of Charter
Court's intentions or future beliefs and current expectations at
the time made concerning, among other things, Charter Court's
results of operations, financial condition, liquidity, prospects,
growth and strategies. In light of these risks, uncertainties and
assumptions, actual results could be materially different from
projected future results expressed or implied by these
forward-looking statements which speak only as to the date of this
announcement. The Group cannot guarantee that its forward-looking
statements will not differ materially from actual results. Charter
Court disclaims any obligation to update any forward-looking
statements in this announcement that may occur due to any change in
its expectations or to reflect events or circumstances after the
date of this announcement. Undue reliance should not be placed on
any forward-looking statement.
About Charter Court Financial Services Group plc ("Charter
Court")
Charter Court is one of the UK's leading specialist challenger
banks by originations, founded in 2008 by its senior management
team and purpose built to focus on specialist buy to let,
residential, bridging and second charge mortgage lending. We
operate through our three brands - Precise Mortgages, Exact
Mortgage Experts and Charter Savings Bank - providing buy to let
and specialist residential mortgages; mortgage servicing,
administration and credit consultancy; and retail savings
products.
We have continued to grow in our chosen markets and to translate
that growth into strong financial and operational performance. At
30 June 2019, our total mortgage balances stood at GBP7.0 billion
generated through our relationships with more than 23,000
registered introducers nationwide, whilst Charter Savings Bank held
GBP6.0 billion in retail deposits at the same date from around
172,000 retail savings accounts.
Underpinning our success, our risk management expertise and
technology and systems ensure efficient processing, strong credit
and collateral risk control and speed of product development and
innovation. These factors have enabled our strong balance sheet
growth whilst maintaining the high credit quality of our mortgage
assets.
Charter Court was admitted to the main market of the London
Stock Exchange in October 2017 (CCFS.L). Charter Court Financial
Services Limited, a subsidiary of the Group, is authorised by the
Prudential Regulation Authority ("PRA") and regulated by the
Financial Conduct Authority ("FCA") and the PRA. Charter Mortgages
Limited, also a subsidiary of the Group, is authorised and
regulated by the FCA.
Important information
On 14 March 2019 the Board of the Group announced that it had
reached agreement with the board of OSB on the terms of a
recommended all-share combination of Charter Court and OSB pursuant
to which OSB will acquire the entire issued and to be issued share
capital of Charter Court to form the combined group.
On completion of the proposed combination, OSB shareholders
would hold approximately 55% of the combined group and Charter
Court shareholders would hold approximately 45%.
The shareholders of both Charter Court and OSB on 6 June 2019
voted in favour of the combination. On 30 July 2019 the CMA
confirmed that there are no serious competition concerns associated
with the proposed combination, and concluded that no further
investigation is required from a competition perspective.
Subject to approval by regulators and the fulfilment or waiver
of other conditions, it is intended that the combination will be by
way of a court-sanctioned scheme of arrangement which is expected
to be effective in the third quarter of 2019.
Chief Executive Officer's review
We have delivered a strong performance in the first half of
2019, building on the momentum gained during 2018 to demonstrate
continued resilience despite ongoing market uncertainty.
Strong mortgage originations
Charter Court's loan book continued to grow in H1 2019
increasing 23.8% year-on-year (H1 2018: 29.0%, FY 2018: 24.2%), or
33.7% (H1 2018: 41.7%, FY 2018: 34.7%) excluding the impact of
structured asset sales. Despite challenging conditions faced by the
UK housing market, we saw strong demand for our buy to let,
residential and short-term lending propositions.
In residential lending, we extended our Help to Buy range to
include Help to Buy Scotland and Help to Buy remortgage, building
on the huge success of the scheme since its launch in 2013. We also
leveraged our sophisticated underwriting process to capitalise on
the rising number of homeowners with more complex income
sources.
In the buy to let market, we observed a continued trend
supportive of professional landlords with increased use of limited
company structures and a move towards higher yielding property
types. Our proposition for portfolio landlords continues to be well
received and according to BVA BDRC (one of the UK's leading
research agencies) is ranked highest as the lender mortgage
intermediaries are most likely to recommend to portfolio
landlords.
At the same time, we continue to improve our distribution and
service standards across our product range with growing teams
focused on specialist sales and customer support.
Optimised funding mix
During the first half of the year, we were proactive in the
implementation of our dynamic funding strategy, taking advantage of
opportunities in both retail and wholesale funding markets to
optimise our funding mix.
Our retail deposit book grew strongly in the first half with
22,000 new customers attracted, resulting in a total retail savings
base of GBP6.0 billion (30 June 2018: GBP4.3 billion, 31 December
2018: GBP5.1 billion) and, consequently, a lower loan to deposit
ratio of 117.9% (30 June 2018: 133.6%, 31 December 2018:
130.8%).
We successfully executed one securitisation transaction of
GBP733.7 million (H1 and FY 2018: three transactions with a
combined value of GBP906.1 million), building on our established
track record as an issuer. Additionally, strong demand for equity
tranches in our securitisations allowed us to complete two
structured asset sales at attractive prices, recognising a gain on
sale of GBP29.8 million (H1 and FY 2018: GBP36.4 million).
Robust financial performance
The Group continued to perform well during the first half of the
year and the strong performance achieved across the business
resulted in a significant increase in net interest income. Our
profit before tax of GBP82.6 million (H1 2018: GBP93.1 million, FY
2018: GBP158.2 million) was impacted by lower gains on structured
sales, net fair value movements on derivative financial instruments
and expenses in relation to our proposed merger with OSB. Profit
after tax for the six months ended 30 June 2019 declined to GBP62.3
million, from GBP71.1 million a year earlier.
The Board has declared an interim dividend of 4.3 pence per
share which is equal to one third of the total dividend for the
previous year. The dividend will be paid on 20 September 2019 to
shareholders on the shareholder register on the record date of 30
August 2019.
Outlook
Despite the heightened uncertainty in the wider economy, we
continue to see robust demand for our specialist lending
propositions. We believe in the resilience of our business model,
which was purpose built to capitalise on structural drivers in
markets where we have significant experience and expertise.
We will closely monitor changes in our lending and funding
markets for opportunities to drive further balance sheet growth
whilst sustaining an optimal funding mix. We also remain focused on
maintaining our high levels of operational efficiency and low cost
of risk.
We strongly believe that a combination with OSB would further
enhance our positioning in the market and allow us to leverage our
complementary strengths to reinforce all aspects of our operations.
Following receipt of shareholder approval in June and CMA clearance
in July, we await approval from the relevant UK regulatory
authorities to complete the transaction.
Ian Lonergan
Chief Executive Officer
Financial review
Group highlights
Balance sheet - key items As at As at % change As at
(GBPm) 30 June 30 June 31 December
2019 2018 2018
Customer loans and receivables 7,046.9 5,693.8 23.8 6,661.5
--------- --------- --------- -------------
Cash and cash equivalents 991.0 920.3 7.7 981.2
--------- --------- --------- -------------
Deposits from banks 1,226.0 1,157.5 5.9 1,214.8
--------- --------- --------- -------------
Deposits from customers 5,976.5 4,262.6 40.2 5,094.5
--------- --------- --------- -------------
Debt securities in issue 476.2 825.7 (42.3) 972.9
--------- --------- --------- -------------
Equity attributable to equity
holders of the parent and
total equity 490.5 406.5 20.7 450.3
--------- --------- --------- -------------
Year-on-year loan book growth of 23.8%
Charter Court's loan book grew to GBP7.0 billion at 30 June 2019
(30 June 2018: GBP5.7 billion, 31 December 2018: GBP6.7 billion),
with continuing strong origination performance underpinned by a
demand for the Group's specialist mortgage lending products.
Excluding the impact of structured asset sales, loan book growth
would have been GBP1.9 billion, 33.7% (30 June 2018: 41.7%, 31
December 2018: 34.7%).
Continuous optimisation of funding mix
In H1 2019, Charter Court has again leveraged its dynamic
funding strategy to maintain an optimal funding mix while prudently
managing funding and liquidity risks, growing its retail deposit
funding and continuing to benefit from access to wholesale funding
through securitisations, short-term repo lines and warehouse
facilities.
The Group took advantage of favourable market conditions to
complete two structured asset sales to third party investors,
resulting in the derecognition of GBP564.3 million of underlying
mortgage assets and associated risk weighted assets ("RWAs") (two
structured asset sales all in the first half of 2018 amounting to
GBP562.5 million of underlying mortgage assets and associated
RWAs), for an aggregate gain of GBP29.8 million (H1 and FY 2018:
GBP36.4 million).
The Group also executed one securitisation transaction of
GBP733.7 million of buy to let residential mortgages (three
transactions all in the first half of 2018, with a combined value
of GBP906.1 million).
The retail deposits grew, year-on-year by 40.2%, to GBP6.0
billion (30 June 2018: GBP4.3 billion, 31 December 2018: GBP5.1
billion). Consequently, the Group's loan to deposit ratio has
decreased to 117.9% (30 June 2018: 133.6%, 31 December 2018:
130.8%).
Income statement - key items Six months Six months
(GBPm) ended ended Year ended
30 June 30 June 31 December
2019 2018 % change 2018
Net interest income 100.1 84.4 18.6 180.5
----------- ----------- --------- -------------
Non-interest income 2.3 3.9 (41.0) 8.0
----------- ----------- --------- -------------
Gain on sale of loans 29.8 36.4 (18.1) 36.4
----------- ----------- --------- -------------
Net fair value movements
on derivative financial instruments (7.2) - - -
----------- ----------- --------- -------------
Total income 125.0 124.7 0.2 224.9
----------- ----------- --------- -------------
Administrative expenses (39.7) (30.9) 28.5 (64.6)
----------- ----------- --------- -------------
Impairment charge (2.7) (0.7) 285.7 (2.1)
----------- ----------- --------- -------------
Profit before tax 82.6 93.1 (11.3) 158.2
----------- ----------- --------- -------------
Tax (20.3) (22.0) (7.7) (37.4)
----------- ----------- --------- -------------
Profit after tax 62.3 71.1 (12.4) 120.8
----------- ----------- --------- -------------
Profit after tax down 12.4%
Our profit before tax was GBP82.6 million in H1 2019 (H1 2018:
GBP93.1 million), reflecting a significant increase in net interest
income offset by lower gains on structured asset sales, net fair
value movements on derivatives and increased administrative
expenses, which included GBP3.8 million of costs incurred in H1
2019 in relation to the proposed merger with OSB.
The effective tax rate for the period increased to 24.6% (H1
2018: 23.6%, FY 2018: 23.7%) primarily due to the disallowable
merger costs incurred and the reduced activity in Group companies
not subject to the banking surcharge.
Profit after tax for H1 2019 was down 12.4% to GBP62.3 million
(H1 2018: GBP71.1 million). This represents a return on equity of
26.5%, down from 38.4% in H1 2018 and adjusted return on equity of
28.1% (H1 2018: 38.4%)
Total income up 0.2%
Our interest income and similar income increased by 23.9% to
GBP157.9 million (H1 2018: GBP127.4 million), mainly due to the
continued expansion of the mortgage origination business.
Interest expense and similar charges increased by 34.4% to
GBP57.8 million in H1 2019 (H1 2018: GBP43.0 million), as funding
increased in line with growth in the mortgage loan book.
The Group's net interest income increased by 18.6% to GBP100.1
million (H1 2018: GBP84.4 million). Net interest margin in H1 2018
was 3.04% (H1 2018: 3.08%).
Non-interest income comprises fees received for the servicing of
third parties' mortgage portfolios and the net fees received on
mortgage applications that do not complete.
The charge of GBP7.2 million net fair value movements on
derivative financial instruments arises as a result of a flattening
of the yield curve in the period, particularly impacting on the
fair value of forward-dated swaps taken out by the Group that are
economic hedges of mortgage offers, but do not meet the accounting
requirements to allow hedge accounting. The fair value movements of
interest rate swaps will trend to zero over time and so the loss
will reverse in future periods.
Strong credit performance
Despite significant loan book growth, we continued to maintain a
strong credit performance, underpinned by arrears of over three
months at GBP26.1 million (30 June 2018: GBP7.6 million, 31
December 2018: GBP15.3 million) representing 0.37% of the loan book
(30 June 2018: 0.15%, 31 December 2018: 0.24%), across the lending
portfolio throughout the period reflected in the Group's impairment
charge of GBP2.7 million (H1 2018: 0.7 million, FY 2018: 2.1
million) and a low cost of risk of 0.082% for H1 2019 (H1 2018:
0.025%, FY 2018: 0.036%).
Cost income ratio of 31.7%
Administrative expenses increased by 28.5% year-on-year to
GBP39.7 million in H1 2019 (H1 2018: GBP30.9 million), and by 16.2%
after adjusting for GBP3.8 million of costs incurred in relation to
the proposed merger with OSB. The average number of staff increased
in the period to 651 (30 June 2018: 557, 31 December 2018:
577).
The cost income ratio increased from 24.8% in H1 2018 to 31.7%
in H1 2019 or 28.7% after adjusting for GBP3.8 million of costs
incurred in relation to the proposed merger with OSB.
Six months Six months
ended ended Year ended
Capital and regulatory ratios 30 June 30 June 31 December
- key items (GBPm) 2019 2018 % change 2018
Liquid assets 1,040.9 917.0 13.5 1,022.8
----------- ----------- --------- -------------
Equity attributable to equity
holders of the parent and
total equity 490.5 406.5 20.7 450.3
----------- ----------- --------- -------------
Total Regulatory Capital 472.6 362.3 30.4 423.2
----------- ----------- --------- -------------
Risk-weighted assets 3,026.2 2,326.9 30.1 2,697.7
----------- ----------- --------- -------------
Common equity tier 1 capital
ratio (%) 15.6 16.6 (6.0) 15.7
----------- ----------- --------- -------------
Leverage ratio (%) 5.7 5.7 - 5.4
----------- ----------- --------- -------------
Prudent liquidity management
The Group predominantly offers term deposits and notice accounts
to retail depositors. These deposits have a more predictable
liquidity profile than easy access accounts and as at 30 June 2019
they represented 90% of all retail savings accounts.
At 30 June 2019 the Group held GBP842.0 million (30 June 2018:
GBP751.2 million, 31 December 2018: GBP823.8 million) of Bank of
England reserve account balances, GBP118.1 million (30 June 2018:
GBP68.7 million, 31 December 2018: GBP123.0 million) of residential
mortgage-backed securities ("RMBS") qualifying as Bank of England
Level 3 collateral, and GBP80.8 million (30 June 2018: GBP97.1
million, 31 December 2018: GBP76.0 million) of callable balances
with tier 1 UK banking institutions.
Resilience reinforced by robust capitalisation
With a strong CET1 ratio of 15.6% at 30 June 2019 (30 June 2018:
16.6%, 31 December 2018: 15.7%) and a leverage ratio of 5.7%,
comfortably above the Bank of England requirement of 3.25%, Charter
Court remains well capitalised.
Business review by segment
Lending
Continued growth in specialist mortgage origination
Highlights
-- New originations increased by 9.8% year-on-year to GBP1,490.0
million (H1 2018: GBP1,356.7 million, FY 2018: GBP2,846.2
million).
-- Loan book up 23.8% year-on-year to GBP7.0 billion (30 June
2018: GBP5.7 billion, 31 December 2018: GBP6.7 billion).
-- Net interest income of GBP99.5 million (H1 2018: GBP84.5
million, FY 2018: GBP180.5 million).
-- Profit contribution up 13.2% to GBP97.5 million (H1 2018:
GBP86.1 million, FY 2018: GBP183.0 million).
-- New business mortgage pipeline at record levels.
Profit by lending segment
H1 2019 Buy to Second charge
let Residential Bridging lending Total
GBPm GBPm GBPm GBPm GBPm
Net interest income 57.1 31.1 7.9 3.4 99.5
Fees and commissions
income 0.1 0.1 - - 0.2
Provision for loan impairments (1.0) (1.3) (0.3) (0.1) (2.7)
------- ------------ --------- -------------- ------
Profit contribution 56.2 29.9 7.6 3.3 97.0
======= ============ ========= ============== ======
H1 2018
Net interest income 47.6 26.2 7.6 3.1 84.5
Fees and commissions
income 0.9 1.2 0.1 0.1 2.3
Provision for loan impairments (0.4) (0.3) - - (0.7)
------- ------------ --------- -------------- ------
Profit contribution 48.1 27.1 7.7 3.2 86.1
======= ============ ========= ============== ======
Profit contribution is equal to segment profit as per note
4 to the condensed consolidated financial statements.
Maintained focus on distribution and service standards
Charter Court's ongoing programme of enhancements to broker
distribution and service standards continued to produce results in
H1 2019, helping the Group leverage its strong distribution
position to maximise its efficiency.
The Group's Broker Journey project delivered further
improvements to service standards in the first half of the year.
This was reflected in BVA BDRC's March 2019 Mortgage Intermediary
Experience Monitor, where Broker to Client Net Promoter Score[5]
achieved a good score of +48, up from +15 in 2018.
Charter Court continued to implement its programme aimed at
optimising the Group's sales channels which delivered early results
in H1 2019. Five of the eleven regions covered by Business
Development Managers were successfully transferred to a new hybrid
approach utilising phone service centres. Initial feedback was
overwhelmingly positive and the Group saw a corresponding increase
in appointment activity.
Buy to let
Highlights
-- New originations of GBP909.1 million (H1 2018: GBP835.3
million, FY 2018: GBP1,642.2 million).
-- Loan book up 20.5% year-on-year to GBP4.7 billion (30 June
2018: GBP3.9 billion, 31 December 2018: GBP4.5 billion).
-- Net interest income of GBP57.1 million (H1 2018: GBP47.6
million, FY 2018: GBP104.6 million).
-- Profit contribution up 16.8% year-on-year to GBP56.2 million
(H1 2018: GBP48.1 million, FY 2018: GBP105.7 million).
During the first half of 2019, Charter Court saw a significant
increase in buy to let originations versus the prior year period,
reflecting continuing demand for the Group's specialist lending
proposition. New originations grew by 8.8% to GBP909.1 million,
with the loan book increasing 20.5% year-on-year to GBP4.7
billion.
The Group saw growth across all product lines year-on-year, with
strong uptake of its Limited Company products and of specialist
schemes within its personal ownership offering, including loans to
portfolio landlords, and lending against HMO properties and
Multi-Unit properties.
Charter Court continued to enhance its product range in the
period, with a reduction in the minimum age of customers and the
expansion of the top slicing proposition, both helping to grow the
Group's addressable markets without eroding margins. The Group's
product mix became more diverse in the first half, partly driven by
the new top slicing proposition, with particular growth in
shorter-term fixed rate products.
The Group maintained its position in the BVA BDRC's Project
Mercury rankings as the fourth most frequently mentioned lender by
intermediaries for buy to let, reflecting Charter Court's broad
product offering across the buy to let market.
Buy to let mortgages represent 66% of Charter Court's total loan
book (31 December 2018: 68%).
Residential
Highlights
-- New originations of GBP376.3 million (H1 2018: GBP362.9
million, FY 2018: GBP825.4 million).
-- Loan book up 35.7% year-on-year to GBP1.9 billion (30 June
2018: GBP1.4 billion, 31 December
-- Net interest income up 18.7% to GBP31.1 million (H1 2018:
GBP26.2 million, FY 2018: GBP54.5 million).
-- Profit contribution up 10.3% to GBP29.9 million (H1 2018:
GBP27.1 million, FY 2018: GBP55.6 million).
Charter Court's specialist residential lending increased in the
first half of 2019 versus the prior year period, with new
originations up 3.7% to GBP376.3 million. Help to Buy continued to
perform particularly well, with originations growing 6.2%
year-on-year in H1 2019.
Both purchases and re-mortgages increased year-on-year with
Charter Court's product mix remaining relatively stable. New
originations continued to be dominated by fixed rate products and
the Group was able to maintain its margin position in the period.
Net interest income rose to GBP31.1 million in H1 2019 from GBP26.2
million in the first half of 2018.
Charter Court continued to implement its product development
programme with new products targeting zero-hour contracts, Help to
Buy in Scotland and Help to Buy remortgages all launched during the
period. The Group continues to maintain a strong new product
pipeline to support its growth in the specialist residential
segment going forward.
Residential mortgages represent 27% of Charter Court's total
loan book (31 December 2018: 26%).
Bridging
Highlights
-- New originations of GBP168.0 million (H1 2018: GBP131.4
million, FY 2018: GBP321.8 million).
-- Loan book up 22.8% year-on-year to GBP249.9 million (30 June
2018: GBP203.5 million, 31 December 2018: GBP244.1 million).
-- Net interest income of GBP7.9 million (H1 2018: GBP7.6 million, FY 2018: GBP15.0 million).
-- Profit contribution of GBP7.6 million (H1 2018: GBP7.7 million FY 2018: GBP15.2 million).
Charter Court maintained its focus on high quality bridging in
the regulated and unregulated markets and continued to not react to
competitor movements in the short-term lending market.
Charter Court's bridging originations increased by 27.9%
year-on-year versus H1 2018, reaching GBP168.0 million.
The Standard and Refurbishment segments both increased
year-on-year along with the Regulated & Non-Regulated segments.
The Non-Regulated and Refurbishment segments saw the strongest
growth, boosted by the launch of Charter Court's Refurbishment buy
to let product in November 2018 and a recent change that expanded
its reach to direct brokers.
Bridging loans represent 4% of Charter Court's total loan book
(31 December 2018: 3%).
Second charge lending
Highlights
-- New originations of GBP36.6 million (H1 2018: GBP27.1 million, FY 2018: GBP56.9 million).
-- Loan book up 12.4% year-on-year to GBP197.2 million (30 June
2018: GBP175.5 million, 31 December 2018: GBP175.5 million).
-- Net interest income of GBP3.4 million (H1 2018: GBP3.1 million, FY 2018: GBP6.4 million).
-- Profit contribution up 3.1% year-on-year to GBP3.3 million
(H1 2018: GBP3.2 million, FY 2018: GBP6.5 million).
The Group maintained its focus on maintaining the quality of its
lending in the second charge market.
Second charge originations increased significantly year-on-year
growing 35.1% versus H1 2018 to GBP36.6 million.
The growth in originations was primarily driven by the removal
of early repayment charges from the Residential Second Charge range
in January 2019. This move was in response to market feedback and
supported a strong period of activity in the second charge
market.
Second charge loans represent 3% of Charter Court's total loan
book (31 December 2018: 3%).
Funding
Charter Court continued to implement its dynamic funding
strategy in H1 2019, taking advantage of changing market conditions
and adding further funding diversification to deliver an optimal
cost of funds and optimal operational efficiency.
Retail deposits
Highlights
-- Customer balances up 17.3% during the period to GBP6.0 billion
(30 June 2018: GBP4.3 billion, 31 December 2018: GBP5.1
billion).
-- Further diversifying funding sources by adding new product
categories, new market segments and larger deposits to its
growing panel of Pooled Deposit providers.
Strong growth in retail deposits
Charter Court's retail deposits demonstrated continued growth as
customer balances grew from GBP5.1 billion at 31 December 2018 to
GBP6.0 billion at 30 June 2019.
The Group continued to price its retail savings products
tactically to ensure these appeared at the top end of "best buy"
tables when most efficient and effective, and balanced the flows
derived from its broader and deeper Pooled Deposit panel. At 30
June 2019, the Group had 131,739 savings customers (30 June 2018:
102,145, 31 December 2018: 116,583), operating 172,168 savings
accounts (30 June 2018: 125,648, 31 December 2018: 146,519), with
an average balance per account of GBP35,500 (30 June and 31
December 2018: GBP33,700). The significant weighting of savings
deposited with the Group towards longer term and notice-based
products continued to provide relative stability of funds.
In line with its dynamic funding strategy, the Group continued
to diversify its retail funding sources. During H1 Charter Court
expanded the range of Pooled funding platforms and the range of
products it offers via those platforms. In addition to Hargreaves
Lansdown Active Savings and Flagstone Wealth Management, Charter
Court now offers its products via Monzo and Insignis Cash
Management and has expanded the range of products sourced via these
platforms to include Easy Access and Non-Retail deposits.
These moves further increase operational efficiency, while
decreasing the cost of funds, and from funding sources with fewer
competitors. Charter Court intends to continue the rollout to other
platforms through 2019, enabling the funding channel to achieve the
potential for significant scale.
The Group also saw an increase in applications for its products
via the new postal channel it launched in Q4 2018, as less
technology savvy or confident savers seek out ways to bank
offline.
Charter Court continued to benefit from high levels of customer
satisfaction and growing recognition from media coverage and
awards. Already this year, Charter Savings Bank has been
acknowledged as 'Best Overall Savings Provider', 'Savings Provider
of the Year', 'ISA Provider of the Year', plus a host of other
product-specific awards from the likes of Moneyfacts, MoneyNet and
MoneyComms.
The Charter Savings Bank brand also achieved an exceptional Net
Promoter Score of +71.8 in the first half of 2019, further
reinforcing its credentials as a customer-focused savings bank.
Wholesale funding
Highlights
-- Securitisation transactions with a combined value of GBP733.7
million (H1 and FY 2018: GBP906.1 million), executed in
H1.
-- Sale of economic interest in two securitisations resulting
in an aggregate gain of GBP29.8 million (H1 and FY 2018:
GBP36.4 million). Derecognition of GBP564.3 million of underlying
mortgage assets and associated RWAs (H1 and FY 2018: GBP562.5
million of underlying mortgage assets and associated RWAs).
Securitisation remains a key strategic funding source for the
Group, with more than GBP3.8 billion of issuance since December
2013. As well as providing cost efficient funding, Charter Court
uses securitisation to accelerate organic capital generation
through the sale of residual positions.
The Group's strategy is to be nimble and dynamic rather than
deterministic with its securitisation issuance plans, enabling it
to take advantage of a strong market with repeat issuances, and
utilise other options when the market conditions are less
favourable.
To that end, Charter Court's activities in the wholesale markets
during the first half of 2019 have been more limited than was the
case during the equivalent period in 2018. The ongoing uncertainty
around Brexit has continued to hamper UK RMBS, with spreads
tracking relatively wide through the start of the year, as they had
through the last few months of 2018. The introduction of a raft of
regulatory changes at the beginning of 2019, together with the
market transitioning away from LIBOR as an index, have also acted
as a brake on new issue supply, particular during the first
quarter.
Nonetheless, the Group was able to complete a number of
strategically important wholesale transactions during the period.
In January, and despite facing into a difficult political backdrop,
the Group was able to sell its residual interest in the PMF 2018-1B
and PMF 2018-2B transactions, generating a gain on sale of GBP29.8
million, equivalent to a 5.3% premium on the underlying GBP564.3
million of mortgage assets. This excellent outcome was made
possible through the earlier strategic sales of significant
components of the Group's residual interest in these transactions
through 2018, at a time when the market was notably stronger. This
strategy minimised the market exposure faced by the Group when
selling its final residual position in January 2019.
The trade enabled the Group to increase its capital headroom and
provide the capital capacity to fully take advantage of the
commercial opportunities available to the business through its
lending activities during the first half.
Charter Court then re-entered the debt securitisation market in
May 2019 with the PMF 2019-1B transaction, securitising GBP733.7
million of prime buy to let mortgages. PMF 2019-1B was the first
SONIA linked UK RMBS transaction to issue mezzanine notes
referencing the index, and was well received by the market. The
senior fast-pay notes in the transaction were sold at SONIA plus 93
basis points, equivalent to spread over LIBOR of c.80 basis points;
the tightest UK buy to let print achieved by any issuer over the
past twelve months.
As well as providing the Group with term funding, the
transaction was structured to provide the Group with a significant
portfolio of retained senior bonds. These enhance the contingent
funding options available to the Group, and can be used to access
commercial as well as central bank repo facilities.
Finally, the transaction enabled the Group to refinance assets
held on its committed warehouse facility. The facility, which
provides committed senior finance of up to GBP350.0 million (30
June and 31 December 2018: GBP350.0 million) against both prime
residential and buy to let mortgage assets, was also extended
during this period for a further 15 months.
As at 30 June 2019, the Group therefore had a total of GBP600.0
million (30 June 2018: GBP350.0 million, 31 December 2018: GBP600.0
million) of contingent wholesale funding capacity available to it
through its warehouse facilities, none of which is currently
utilised. It also maintains commercial repo lines with five
counterparties, as well as the ability to access ordinary course
central bank funding facilities, such as the Bank of England's
Indexed Long-Term Repo ("ILTR") auctions.
Risk management
Our approach to risk management
Charter Court has developed a comprehensive risk appetite
framework which is fully embedded and operationalised across the
business.
The principal risks and uncertainties facing the business are
summarised below and remain unchanged albeit there is more
likelihood of a 'no deal' Brexit which brings economic uncertainty
and potentially increased credit losses.
The business operated within all Board risk appetite limits at
all times during the first half of 2019. There has been no material
change to the Risk Management Framework as set out in the 2018
annual report and accounts.
Principal risks
Business risk
The risk that Charter Court's business plan is not delivered due
to selection and actioning of strategy, and / or a lack of
responsiveness to changes in the internal or external
environments.
Credit risk
The risk of financial loss arising from the failure of a
customer or counterparty to settle their financial and contractual
obligations as they fall due.
Treasury risk, comprising:
-- Liquidity risk - the risk that the Group fails to meet its
financial obligations as they fall due.
-- Funding risk - the adverse impact of higher funding costs
and/or lack of available funds on the Group's cash flow.
-- Interest rate risk - the risk that movement in interest
rates adversely impacts net interest income and capital
if inadequate hedging of interest rate risk is in place.
-- Basis risk - when financing an asset with a liability which
re-prices from a different interest rate reference point,
such as BBR and LIBOR.
Wholesale credit risk - as described under credit risk above and
in relation to Treasury counterparties (see below).
Operational risk
The risk of loss resulting from inadequate or failed internal
processes, human factors or external events where the root cause is
not due to credit or market risks. This includes information
technology, information security, change management, outsourcing,
tax, legal, people and financial control risks.
Regulatory risk, comprising:
-- Conduct risk - arises from a failure to treat customers
fairly or the failure to deliver an appropriate outcome
for them.
-- Prudential risk - arises from a failure to maintain sufficient
levels of capital and liquidity and includes the potential
impact a firm could have on the financial system, its proximity
to failure and the context in which the firm operates.
Credit risk
Although all retail credit risk exposure is secured by UK
property, there remains the possibility of increased credit losses
from increased defaults and lower house price values as a result of
an economic downturn.
Additionally, there could be related stress amongst European
banks and investment firms to which the Group has wholesale
treasury counterparty exposures, albeit funds are placed with only
the highest rated entities.
Risk exposure
The majority of the Group's buy to let, specialist residential
and bridging finance is secured by first charge on residential
property and relates primarily to prime, complex prime and
near-prime credit which to a limited extent, gives exposures to
borrowers with a degree of impaired credit.
The Group's second charge lending is secured by second charges
on residential property where the existing first charge typically
secures a mortgage at a low LTV.
Counterparty risk
There is a minimum counterparty risk rating for wholesale
funding and limits on maximum allowable exposures are imposed.
The Group's maximum exposure to credit risk without taking
account of any collateral held or other credit enhancements is set
out below:
As at As at As at
30 June 30 June 31 December
2019 2018 2018
Class (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Cash and cash equivalents 991.0 920.3 981.2
Investment in debt securities 118.1 68.7 123.0
Customer loans and receivables 7,046.9 5,693.8 6,661.5
Derivative financial instruments 9.9 19.3 17.1
Other assets held at fair
value 0.1 0.1 0.1
Trade and other receivables 43.6 3.1 5.9
Loan commitments 641.9 553.9 577.8
------------- ------------- -------------
Potential exposure to credit
risk 8,851.5 7,259.2 8,366.6
============= ============= =============
The Group's investments, derivatives and cash counterparties are
primarily large financial institutions and there is no significant
history of credit losses and no significant impairment provisions
have been made.
Analysis of loans by Loan to Value ("LTV")
As at As at As at
30 June 30 June 31 December
Current LTV 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Buy to let
< 50% 107.6 105.9 119.9
50 - < 60% 197.6 217.2 237.8
60 - < 70% 641.1 583.9 651.2
70 - < 80% 3,116.5 2,529.3 2,928.8
80 - < 90% 603.3 488.6 589.3
>= 90% - - -
----------- ----------- ------------
4,666.1 3,924.9 4,527.0
----------- ----------- ------------
Residential
< 50% 185.0 140.6 168.1
50 - < 60% 181.0 136.0 160.2
60 - < 70% 315.2 228.7 275.7
70 - < 80% 851.3 605.7 751.0
80 - < 90% 406.3 297.9 366.4
>= 90% 7.1 7.4 7.3
----------- ----------- ------------
1,945.9 1,416.3 1,728.7
----------- ----------- ------------
Bridging
< 50% 106.4 99.5 114.8
50 - < 60% 40.7 32.5 39.0
60 - < 70% 60.5 60.7 69.6
70 - < 80% 37.7 9.6 17.8
80 - < 90% 2.9 0.7 1.8
>= 90% 2.0 0.5 1.1
----------- ----------- ------------
250.2 203.5 244.1
----------- ----------- ------------
Second charge lending
< 50% 30.5 29.7 30.2
50 - < 60% 37.5 32.5 34.6
60 - < 70% 58.6 56.8 57.2
70 - < 80% 50.3 42.7 45.5
80 - < 90% 19.1 12.7 15.2
>= 90% - - -
----------- ----------- ------------
196.0 174.4 182.7
----------- ----------- ------------
Total
< 50% 429.5 375.7 433.0
50 - < 60% 456.8 418.2 471.6
60 - < 70% 1,075.4 930.1 1,053.7
70 - < 80% 4,055.8 3,187.3 3,743.1
80 - < 90% 1,031.6 799.9 972.7
>= 90% 9.1 7.9 8.4
----------- ----------- ------------
7,058.2 5,719.1 6,682.5
=========== =========== ============
The analysis by LTV is based on the principal amount of the
loans, which does not agree to the condensed consolidated statement
of financial position as it excludes accounting adjustments, such
as EIR adjustments, mortgage fair value hedge adjustments and
impairment provisions.
At 30 June 2019:
-- The average loan to value percentage of underlying mortgage
assets to which the loans relate was 71.2% (30 June 2018:
71.0%, 31 December 2018: 71.0%) and GBP2.3 million (30 June
2018: GBP0.6 million, 31 December 2018: GBP1.1 million)
of the total balance represented arrears (amounts quoted
being the actual amount in arrears).
-- The estimated value of property collateral held against
residential mortgages was GBP12,270.2 million (30 June 2018:
GBP10,272.6 million, 31 December 2018: GBP11,718.2 million).
Collateral values are determined using an indexed valuation
based on value at origination, unless there is an expectation
that the security will be realised, in which case an independent
appraised value is used. Collateral values are not capped
at the value of the underlying loan. The collateral cannot
normally be sold unless it is in possession.
-- There were 14 properties in possession (30 June 2018: two,
31 December 2018: six) with a value of GBP2.7 million (30
June 2018: GBP0.2 million, 31 December 2018: GBP1.3 million).
Analysis of loans by region
A geographical analysis of the Group's originated customer loans
and receivables by region is set out in the table below.
Buy to Second
At 30 June 2019 (Unaudited) let Residential Bridging charge lending Total
Greater London 48.8% 6.6% 17.5% 30.3% 35.5%
South East and East
Anglia 23.6% 30.7% 39.0% 39.4% 26.6%
South West 4.8% 8.9% 11.3% 7.0% 6.2%
Midlands 8.8% 19.5% 13.2% 9.6% 11.9%
North 10.6% 25.7% 13.3% 11.3% 14.9%
Wales 1.8% 4.5% 3.8% 2.4% 2.6%
Scotland 1.6% 4.1% 1.9% - 2.3%
100.0% 100.0% 100.0% 100.0% 100.0%
======= ============ ========= ================ =======
Buy to Second
At 30 June 2018 (Unaudited) let Residential Bridging charge lending Total
Greater London 48.6% 7.2% 25.0% 32.3% 37.0%
South East and East
Anglia 24.1% 30.5% 35.6% 39.9% 26.6%
South West 5.3% 9.1% 11.2% 7.2% 6.5%
Midlands 8.6% 19.6% 12.2% 7.8% 11.5%
North 10.3% 25.1% 12.4% 10.5% 14.0%
Wales 1.7% 4.4% 1.7% 2.3% 2.4%
Scotland 1.4% 4.1% 1.9% - 2.0%
100.0% 100.0% 100.0% 100.0% 100.0%
======= ============ ========= ================ =======
As at 31 December Buy to Second
2018 (Audited) let Residential Bridging charge lending Total
Greater London 48.6% 8.6% 20.5% 35.2% 37.0%
South East and East
Anglia 22.3% 29.5% 35.5% 36.5% 25.0%
South West 5.6% 9.5% 13.1% 7.0% 6.9%
Midlands 9.0% 18.0% 11.9% 7.8% 11.4%
North 11.3% 26.3% 13.5% 11.4% 15.2%
Wales 1.8% 4.1% 2.8% 2.1% 2.4%
Scotland 1.4% 4.0% 2.7% - 2.1%
100.0% 100.0% 100.0% 100.0% 100.0%
======= ============ ========= ================ =======
Forbearance
The Group may grant concessions, in accordance with its
forbearance policy, to customers who are experiencing financial
difficulties and unable to meet their financial obligations to the
Group. In accordance with the European Banking Authority guidelines
for financial reporting ("FINREP") under the Capital Requirement
Regulations a concession may be either of the following:
-- a modification of the previous terms and conditions of a
contract that the debtor is considered unable to comply
with due to its financial difficulties ("troubled debt")
resulting in insufficient debt service ability and that
would not have been granted had the debtor not been experiencing
financial difficulties;
-- a total or partial refinancing of a troubled debt contract,
that would not have been granted had the debtor not been
experiencing financial difficulties.
The Group has used the FSA FG11/15 guidance "Forbearance and
Impairment Provisions - Mortgages" and the EBA's guidance
EBA/GL/2018/06 "Guidelines on Management of Non-performing and
Forborne Exposures" to identify forbearance measures. Forbearance
measures used by the Group include:
-- Payment Holidays
-- Term Extensions
-- Temporary Transfers to Interest Only
-- Arrangements to Pay Arrears Balances
-- Promise to Pay or Lump Sums
-- Concessional Payments
-- Capitalisation of Arrears
Under FINREP loans which are granted forbearance measures shall
only be discontinued from forbearance reporting once certain
conditions have been met. This includes a minimum two year
probationary period from the initial forbearance grant if a loan
was performing at that time. The Group reports non-performing loans
granted forbearance as forborne loans for a minimum of three years.
This comprises a minimum twelve months' probation period on
non-performing status from the date forbearance is granted, plus
another two years' probation once the loan returns to performing
status.
Forbearance is considered to be an indicator that a loan may be
impaired and such loans are allocated a higher probability of
default in the Group's loan impairment provisioning. The
modifications of contractual cash flows on customer loans and
receivables and the effect of such modifications on the measurement
of expected credit losses is not material.
The tables below set out the positon on forborne loans after
application of the FINREP rules on probation.
Mortgages subject to forbearance measures
Past due
At 30 June 2019 Current % of < 3 3 - 6 - >12
(Unaudited) balance portfolio Current months 6 months 12 months months
GBPm GBPm GBPm GBPm GBPm GBPm
Payment holiday 17.0 0.24 14.8 1.2 0.2 0.8 -
Term extensions 13.8 0.20 10.9 1.0 0.2 1.0 0.7
Transfers to interest
only 7.5 0.11 5.1 1.6 0.2 0.6 -
Arrangements to
pay 73.6 1.04 31.4 31.5 5.5 4.4 0.8
Promise to pay lump
sum 84.1 1.19 55.6 22.2 4.1 2.2 -
Other 0.7 0.01 0.3 0.2 0.2 - -
--------- ----------- -------- -------- ---------- ----------- --------
Total 196.7 2.79 118.1 57.7 10.4 9.0 1.5
========= =========== ======== ======== ========== =========== ========
Of which subject
to active forbearance
strategies 33.9 0.48 14.7 14.6 2.4 1.5 0.7
========= =========== ======== ======== ========== =========== ========
Mortgages subject to forbearance measures
Past due
At 30 June 2018 Current % of < 3 3 - 6 - >12
(Unaudited) balance portfolio Current months 6 months 12 months months
GBPm GBPm GBPm GBPm GBPm GBPm
Payment holiday 16.3 0.29 13.0 3.1 0.1 0.1 -
Term extensions 19.4 0.34 15.0 3.7 0.7 - -
Transfers to interest
only 5.0 0.09 3.6 0.8 0.6 - -
Arrangements to
pay 22.7 0.40 11.5 9.6 0.9 0.7 -
Promise to pay lump
sum 70.6 1.24 45.2 22.4 2.8 0.2 -
Other 2.8 0.05 1.2 1.4 0.2 - -
--------- ----------- -------- -------- ---------- ----------- --------
Total 136.8 2.41 89.5 41.0 5.3 1.0 -
========= =========== ======== ======== ========== =========== ========
Of which subject
to active forbearance
strategies 51.8 0.91 39.5 8.4 3.2 0.7 -
========= =========== ======== ======== ========== =========== ========
Mortgages subject to forbearance measures
Past due
At 31 December 2018 Current % of < 3 3 - 6 - >12
(Audited) balance portfolio Current months 6 months 12 months months
GBPm GBPm GBPm GBPm GBPm GBPm
Payment holiday 17.7 0.26 15.1 2.5 0.1 - -
Term extensions 17.1 0.25 12.9 2.7 0.7 0.8 -
Transfers to interest
only 5.7 0.09 4.3 0.9 0.1 0.4 -
Arrangements to
pay 57.1 0.85 23.7 25.5 4.9 2.2 0.8
Promise to pay lump
sum 69.9 1.05 47.6 20.1 1.6 0.6 -
Other 1.2 0.02 0.3 0.7 0.1 0.1 -
--------- ----------- -------- -------- ---------- ----------- --------
Total 168.7 2.52 103.9 52.4 7.5 4.1 0.8
========= =========== ======== ======== ========== =========== ========
Of which subject
to active forbearance
strategies 46.2 0.69 31.6 10.5 2.2 1.6 0.3
========= =========== ======== ======== ========== =========== ========
Impairment
The Group has an impairment model for financial instruments
which recognises expected credit losses based on unbiased
forward-looking information. The impairment model applies to all
financial assets at amortised cost, debt financial assets at fair
value through other comprehensive income, loan commitments and
financial guarantee contracts.
Impairment: Key concepts and management judgements
The impairment requirements of IFRS 9 are complex and require
management judgements, estimates and assumptions. Key concepts and
management judgements include:
a) Determining whether a significant increase in credit risk
since initial recognition has occurred
IFRS 9 requires the recognition of the expected credit losses
from default events expected within twelve months of the reporting
date if credit risk has not significantly increased since initial
recognition (Stage 1), and lifetime expected credit losses for
financial instruments for which the credit risk has increased
significantly since initial recognition (Stage 2) or which are
credit impaired (Stage 3).
When determining whether the risk of default has increased
significantly since initial recognition, the Group considers both
quantitative and qualitative information and analysis based on the
Group's historical experience, early warning indicators and expert
credit risk assessment. The approach to identifying significant
increases in credit risk is consistent across the Group's products
and includes forbearance indicators such as those listed in the
forbearance disclosure table above and impairment indicators such
as being in arrears by less than three payments. In addition, the
Group considers that significant increase in credit risk occurs
when the borrower is more than 30 days past due on their
contractual payments.
Assets subject to active forbearance measures are always
classified as at least in Stage 2.
Exposures are moved back to Stage 1 once they no longer meet the
criteria for a significant increase in credit risk. An instrument
must remain in Stage 2 for at least three months before it can be
classified as Stage 1.
Except for certain investments in debt securities, the Group has
not relied on the low credit risk exemption in IFRS 9.
b) Definition of default and credit impaired assets
The Group defines a financial instrument as in default, when it
meets one or more of the following criteria:
Quantitative criteria: The borrower is more than 90 days past
due on their contractual payments.
Qualitative criteria: The borrower is less than 90 days past due
on their contractual payments but is judged to be unlikely to pay,
in circumstances such as bankruptcy or a borrower being
deceased.
The above criteria are applied to all financial instruments held
by the Group, with the exception of bridging loans, and are
consistent with the definition of default used for internal credit
risk management purposes. The default definition has been applied
consistently to model the probability of default ("PD"), Exposure
at Default ("EAD") and Loss Given Default ("LGD") throughout the
Group's expected credit loss calculations. The definition of
default for bridging loans are different to other financial
instruments. Bridging loans have an initial period where no
payments are due. The default definition applied to bridging loans
is that they are classified as Stage 3 when the initial period has
ended and payments become due and they are at least three payments
in arrears.
An instrument is not considered to be in default (i.e. to have
cured) when it no longer meets any of the default criterion. Such
an instrument ceases to be classified as Stage 3 but remains in
Stage 2 for at least three months before it can be classified as
Stage 1.
c) Forward-looking information
The calculation of expected credit losses incorporates the use
of forward-looking information. The Group has obtained external
analysis or performed historical analysis and identified the key
economic variables impacting credit risk and expected credit losses
for each portfolio.
The economic variables and their associated impact on the PD,
EAD and LGD vary by financial instrument. Expert judgement has also
been applied in this process. Forecasts of these economic variables
(the 'base economic scenario') are sourced externally and provide
the best estimate view of the economy over at least the next five
years.
The impact of these economic variables on the PD, EAD and LGD
has been determined through statistical analysis to understand how
the changes in these variables historically have affected default
rates and the components of EAD and LGD. This has been achieved
through wider market analysis sourced by the Group and internal
analysis of the Group's portfolios.
The forward looking scenarios are reviewed regularly. The
weightings as at 30 June 2019 reflect the Board's view of the
continuing uncertainty around Brexit and its potential economic
impact. The following is a summary of the scenarios adopted as at
30 June 2019.
30 June
and
30 June 31 December
2019 2018
Scenario Description Weighting Weighting
----------------------------------------- ---------- -------------
Scenario defined based on strong
near term growth. This is principally
based on a favourable separation
from the EU, which has the effect
of increasing housing stock prices
Upside and household wealth. 15% 15%
----------------------------------------- ---------- -------------
Scenario defined based on a slow,
but positive economic trajectory
through the Brexit negotiations and
Base Case separation. 55% 70%
----------------------------------------- ---------- -------------
Scenario defined based on a deep
recession affecting the UK. This
is principally based on the UK failing
to reach a trade deal resulting in
a 'hard' Brexit or 'no deal'. This
assumes higher interest rates and
Downside a negative impact on growth, house
1 prices and unemployment. 25% 10%
----------------------------------------- ---------- -------------
Scenario is defined based on a stress
Downside to the market, aligned to central
2 bank stress testing scenario. 5% 5%
----------------------------------------- ---------- -------------
The Group uses forecasts of HPI, unemployment, GDP and interest
rates as part of the provisioning process. These forecasts are
provided by an external economics firm and are reviewed regularly
by the Group's management. The base case economic forecast reflects
the uncertainty around Brexit with a subdued growth over the near
term, which results in slightly higher unemployment year-on-year,
restrained house price growth and modest increases in interest
rates. The economic forecasts directly affect the expected
probability of an account defaulting and the loss severity should
an account default and the base case is considered together with an
upside, a downside and a stress scenario.
As with any economic forecasts, the projections and likelihoods
of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to
those projected. The Group considers these forecasts to represent
its best estimate of the possible outcomes and has analysed the
non-linearities and asymmetries within the Group's different
portfolios to establish that the chosen scenarios are appropriately
representative of the range of possible scenarios.
The assessment of significant increases in credit risk takes
forward-looking macroeconomic data into account through a
management judgement process.
d) Modelling techniques
Expected credit losses are determined by projecting the PD, LGD
and EAD for each future month and for each individual exposure.
These three components are multiplied together and adjusted for the
likelihood of survival (i.e. the exposure has not prepaid or
defaulted in an earlier month). This effectively calculates an
expected credit loss for each future month, which is then
discounted back to the reporting date and summed. The discount rate
used in the expected credit loss calculation is the original
effective interest rate. This calculation is undertaken for each of
the selected economic scenarios and probability weighted to produce
the final loss allowance.
The committed mortgage pipeline follows the same methodology
with the addition of an assumed time to completion and completion
rate coefficient.
Impairment loan loss allowance
Expected credit Weighted expected
loss provision credit loss
calculated provision for
for each scenario Weighting each scenario
GBPm GBPm
Scenarios as at 30 June 2019 (Unaudited)
Upside 1.1 15% 0.2
Base Case 1.8 55% 1.0
Downside 1 7.2 25% 1.8
Downside 2 15.5 5% 0.8
------------------
Total weighted provisions 3.8
Overlays:
Additional Stage 3 provisions on individual loans 0.5
Additional Brexit overlay 1.9
------------------
Total provision at 30 June 2019 6.2
==================
Expected credit Weighted expected
loss provision credit loss
calculated provision for
for each scenario Weighting each scenario
GBPm GBPm
Scenarios as at 30 June 2018 (Unaudited)
Upside 0.4 15% 0.1
Base Case 0.9 70% 0.6
Downside 1 4.7 10% 0.5
Downside 2 10.9 5% 0.5
------------------
Total weighted provisions 1.7
Overlays:
Additional Stage 3 provisions on individual loans 0.5
Total provision at 30 June 2018 2.2
==================
Expected credit Weighted expected
loss provision credit loss
calculated provision for
for each scenario Weighting each scenario
GBPm GBPm
Scenarios as at 31 December 2018 (audited)
Upside 0.5 15% 0.1
Base Case 1.0 70% 0.7
Downside 1 4.7 10% 0.4
Downside 2 11.9 5% 0.6
------------------
Total weighted provisions 1.8
Overlays:
Additional Stage 3 provisions on individual loans 0.3
Additional Brexit overlay 1.5
------------------
Total provision at 31 December 2018 3.6
==================
In addition to the modelled provision, management review all
Stage 3 provisions on individually impaired loans along with the
collections team responsible for the recovery of those loans. Where
appropriate the modelled provisions are revised in line with their
assessments of recovery of each loan. Accordingly, an additional
provision of GBP0.5 million (30 June 2018: GBP0.5 million, 31
December 2018: GBP0.3 million) has been recognised which is
disclosed as additional Stage 3 provisions on individual loans
within the above table.
In light of recent political developments management consider
that the likelihood of a 'hard' or 'no deal' Brexit has increased
and accordingly, the suite of scenarios was revised.
To take account of this it was concluded that an overlay to the
modelled provision, based on potential Brexit outcomes was
required. In order to do so a set of additional, Brexit specific
scenarios were sourced, with a full probability weighted set of
provision calculations run on a 'hard' Brexit scenario and on a 'no
deal' Brexit scenario. The midpoint of these scenarios was taken as
an overlay, which resulted in additional GBP1.5 million provision
as at 31 December 2018.
In accordance with standard governance, the economic position,
scenario selection and impact of the Brexit decision continues to
be monitored by management and at 30 June 2019 the Brexit overlay
has been increased to GBP1.9 million reflecting the increase in the
modelled provision.
Credit risk rating
The table below discloses the gross carrying amount of
residential mortgages held at amortised cost by credit risk rating
grades. Grades have been determined using bespoke internal credit
risk rating methodology. The balance weighted PD is the average PD
within each credit risk weighting grade.
As at 30 June 2019 (Unaudited)
Stage Stage Stage Balance weighted
Risk band 1 2 3 Total PD
GBPm GBPm GBPm GBPm
Gross balances
Excellent quality 3,332.1 26.5 - 3,358.6 0.3%
Good quality 3,042.3 198.5 - 3,240.8 1.1%
Satisfactory quality 165.4 78.1 - 243.5 4.8%
Lower quality 65.7 101.6 - 167.3 10.7%
Impaired - - 27.2 27.2 -
--------- ------- ------ ---------
6,605.5 404.7 27.2 7,037.4
========= ======= ====== =========
Impairment provisions 1.8 2.7 1.7 6.2
Coverage ratio 0.03% 0.67% 6.25% 0.09%
--------- ------- ------ ---------
As at 30 June 2018 (Unaudited)
Stage Stage Stage Balance weighted
Risk band 1 2 3 Total PD
GBPm GBPm GBPm GBPm
Gross balances
Excellent quality 2,678.7 15.9 - 2,694.6 0.4%
Good quality 2,582.8 102.1 - 2,684.9 1.4%
Satisfactory quality 142.1 37.6 - 179.7 6.2%
Lower quality 72.9 56.2 - 129.1 12.5%
Impaired - - 8.1 8.1 -
--------- ------- ------ ---------
5,476.5 211.8 8.1 5,696.4
========= ======= ====== =========
Impairment provisions 1.1 0.5 0.6 2.2
Coverage ratio 0.02% 0.24% 7.41% 0.04%
--------- ------- ------ ---------
As at 31 December 2018 (Audited)
Stage Stage Stage Balance weighted
Risk band 1 2 3 Total PD
GBPm GBPm GBPm GBPm
Gross balances
Excellent quality 3,163.8 22.9 - 3,186.7 0.3%
Good quality 2,940.9 163.8 - 3,104.7 1.1%
Satisfactory quality 147.3 70.1 - 217.4 5.2%
Lower quality 56.6 79.5 - 136.1 11.6%
Impaired - - 16.1 16.1 -
-------- ------ ------ --------
6,308.6 336.3 16.1 6,661.0
======== ====== ====== ========
Impairment provisions 1.3 1.5 0.8 3.6
Coverage ratio 0.02% 0.45% 4.97% 0.05%
-------- ------ ------ --------
Treasury risk
Risk exposure
The contractual maturity analysis of the Group's liabilities is
summarised below:
More than More than
3 months one year Carrying
Not more but not more but not More value
Contractual maturity than than one more than than per balance
analysis 3 months year 5 years 5 years sheet
GBPm GBPm GBPm GBPm GBPm
As at 30 June 2019 (Unaudited)
Trade and other payables 13.8 - - - 13.8
Corporation tax payable - 20.0 - - 20.0
Deposits from banks 33.1 65.1 1,127.8 - 1,226.0
Deposits from customers 1,849.9 2,609.0 1,517.6 - 5,976.5
Derivative financial
instruments 0.8 0.4 45.3 3.9 50.4
Debt securities in issue 0.8 84.7 390.7 - 476.2
Lease liabilities 0.3 0.8 3.4 3.5 8.0
As at 30 June 2018 (Unaudited)
Trade and other payables 13.2 - - - 13.2
Corporation tax payable - 21.9 - - 21.9
Deposits from banks 9.7 - 1,147.8 - 1,157.5
Deposits from customers 1,241.9 2,049.5 971.2 - 4,262.6
Derivative financial
instruments 9.5 - - - 9.5
Debt securities in issue 0.7 82.9 742.1 - 825.7
As at 31 December 2018
(Audited)
Trade and other payables 24.2 - - - 24.2
Corporation tax payable - 18.8 - - 18.8
Deposits from banks 32.3 34.7 1,147.8 - 1,214.8
Deposits from customers 1,254.8 2,555.5 1,284.2 - 5,094.5
Derivative financial
instruments 13.7 - - - 13.7
Debt securities in issue 15.1 315.9 641.9 - 972.9
The above table includes debt securities in issue being redeemed
on their contractual call option dates.
Risk exposure (continued)
The future contractual undiscounted cash ows including interest
of the above liabilities are shown below.
More than More than
3 months one year
Not more but not more but not More
Future contractual undiscounted than than one more than than Total
cash ows including interest 3 months year 5 years 5 years cash flows
GBPm GBPm GBPm GBPm GBPm
As at 30 June 2019 (Unaudited)
Trade and other payables 13.8 - - - 13.8
Corporation tax payable - 20.0 - - 20.0
Deposits from banks 33.1 71.6 1,143.7 - 1,248.4
Deposits from customers 1,857.8 2,650.4 1,562.3 - 6,070.5
Derivative financial
instruments 4.2 10.5 38.6 0.3 53.6
Debt securities in issue 3.0 92.2 424.3 - 519.5
Lease liabilities 0.3 0.9 4.0 3.7 8.9
As at 30 June 2018 (Unaudited)
Trade and other payables 13.2 - - - 13.2
Corporation tax payable - 21.9 - - 21.9
Deposits from banks 9.7 4.3 1,164.3 - 1,178.3
Deposits from customers 1,246.2 2,073.2 998.0 - 4,317.4
Derivative financial
instruments 1.6 4.1 14.6 0.3 20.6
Debt securities in issue 4.1 92.7 774.8 - 871.6
As at 31 December 2018
(Audited)
Trade and other payables 24.2 - - - 24.2
Corporation tax payable - 18.8 - - 18.8
Deposits from banks 32.3 41.3 1,168.3 - 1,241.9
Deposits from customers 1,259.3 2,594.7 1,325.3 - 5,179.3
Derivative financial
instruments 2.5 6.8 26.2 0.1 35.6
Debt securities in issue 18.6 327.6 670.3 - 1,016.5
Risk factors
The risk factors described below represent those other and
emerging risks which are currently considered to be material to the
Group. All of the below are included on the firm's risk register
which includes ongoing reassessments, management actions and
documentation of ongoing monitoring and control activities.
Risk factor - Global economy - generic, industry wide
The Group's business and financial performance have been and
will continue to be affected by general economic conditions in the
UK which continue to be uncertain, given the lack of clarity over
Brexit.
Implications: adverse developments in the UK or global financial
markets could have a detrimental impact on its earnings and
profitability.
Controls: whilst the Group has no control over events and
economic impacts, it continues to develop capital and credit risk
stress testing activity and augmented monitoring, control and
reporting of the mortgage portfolio including emerging arrears.
Risk factor - UK macro-economy and housing market - generic,
industry wide
The Group's business and financial performance have been and
will continue to be affected by the economic condition of its
customers and of the UK housing market.
Implications: pressures on household incomes and unemployment
may lead to an increase in arrears in the Group's residential
mortgage portfolios, and an associated increase in impairment
provisions; high levels of consumer debt could also impact
affordability assessments and other factors in underwriting
decisions and may contribute to reduced willingness to lend to
individuals.
Controls: increased stress testing, credit risk modelling and
robust underwriting controls are key mitigants.
Risk factor - 'Brexit' - generic, industry wide
Regulatory and other changes resulting from the UK's exit from
the EU could impact the Group's results.
Implications: there remains uncertainty as to the eventual
outcome of the negotiations which has had the effect of dampening
investment and purchase activity; additionally, it is unclear
currently which proportion of the regulatory regime applicable to
the Group being derived from EU directives and regulations will
remain post Brexit. The UK exiting the EU could materially change
the regulatory framework applicable to the Group's operations.
Controls: no Brexit specific additional controls have yet been
introduced, given uncertainty as to the ultimate outcome and
unknown impact on the UK economy. However, this is under constant
review and the Group is ready to promptly implement necessary
controls should the need arise.
Risk factor - Competition - firm specific
Competition in the UK mortgage and retail savings markets from
existing players and new entrants.
Implications: this may adversely affect the Group's operations
or lead to pressures to change risk appetite by lowering
underwriting standards, compromising on counterparty quality or
partaking in higher LTV lending.
Controls: the Group's risk appetite remains unchanged. A
comprehensive suite of lending policies for the various asset
classes is in place and there is no provision to lend outside of
policy. Products contain pre-set LTV, borrowing and income limits
and affordability assessments.
Risk factor - Cyber Crime, fraud - generic, industry wide
The Group may be subject to privacy or data protection failures,
cyber-crime and fraudulent activity.
Implications: customer service disruption leading to
reputational damage; increased costs from necessary remedial work,
and losses arising from fraud and disruption caused by ransom
demands.
Controls: the Group has introduced cyber and IT related controls
into the RCSA framework, invested in infrastructure, and deployed
preventative measures and additional expert staff plus enhanced
capability in the risk team.
Risk factor - IT failure and operational resilience - generic,
industry wide
The Group is dependent on its IT systems, including those of its
outsourced providers.
Implications: these systems and applications may fail resulting
in disruption to customers and suppliers and reputational
damage.
Controls: the Group has significantly upgraded its servers and
located these in a professionally managed, bespoke controlled
secure UK site. Considerable investment has been made to improve
operational resilience and independent risk oversight. An executive
IT risk management committee was established in May 2019.
Risk factor - Key employee dependency - firm specific
The Group is reliant on a relatively small number of key
employees, within its senior management team and the wider
business, who are central to the Group's approach to operating in
its specialist markets.
Implications: competition in the financial services industry for
skilled and/or qualified and experienced personnel could result in
departures of key people.
Controls: the firm has identified the key people, developed
succession and contingency plans and put in place appropriate
retention schemes and contractual two-way notice periods.
Risk factor - Outsourcing - firm specific
The Group relies on third parties for a number of its key
processes and functions, with a particular reliance on a single
third-party provider for a number of key services in relation to
the Group's online retail savings account business.
Implications: failure of key service/function providers' systems
and service could adversely affect the Group's customer service and
business operations.
Controls: the Group has robust service level agreement ("SLA")
documentation which is monitored and reported upon as well as close
day-to-day monitoring and control of the operations of outsource
partners, supplemented with reporting and management information
and regular site visits, risk reporting and operating and risk
committee oversight.
Risk factor - Regulatory risks - generic, industry wide
The Group's business is subject to risks relating to changes in
Government policy and applicable regulations.
Implications: adverse impact on the business model or UK housing
market generally.
Controls: the Group tracks closely industry developments and
regulatory changes, has regular dialogue and meetings with the
regulatory bodies which are documented along with a specific action
tracker with timings. There is robust risk committee and Board
committee oversight of changes and assurance reporting of adherence
to regulatory timetables and associated actions.
Britain's exit from the European Union ("Brexit")
The impact of the UK's decision to leave the European Union
("EU") remains uncertain, as does the nature of the exit and the
precise timing, although the prime minister has stated 31 October
2019 as the deadline date by which to negotiate a deal or leave
without a deal (otherwise known as a 'no deal' Brexit).
There remains the possibility of a range of outcomes from an
amended EU agreement being agreed with the EU and passed through
Parliament or the UK leaving the EU on 31 October 2019 without a
deal.
Business response
The Group has tracked closely all Brexit related developments.
Given the inherent material uncertainty a cautious but pragmatic
approach has been adopted. Consideration has been given to the
potential risks associated with developments as they occur in the
context of how savers and borrowers might be affected, the economic
environment, the business model and the financial impact. We are
also conscious that our key suppliers and outsource partners may be
affected by Brexit.
Consideration of risks
More particularly, consideration of the risks may be summarised
as follows:
-- Credit risk - analysis of the impact on mortgage affordability
and house prices caused by adverse economic conditions arising.
The loan book has been stressed extensively over a five-year
horizon against a range of macro-economic assumptions, some
severely adverse;
-- IFRS 9 loss provisions - potential loss provisions have
been modelled for two Brexit scenarios, a 'no deal' and
a 'hard' Brexit both of which assume an economic downturn;
-- Capital - credit losses and net interest income impacts
have been considered including those associated with the
Bank of England's widely publicised scenarios;
-- Liquidity - the risks associated with adverse impacts on
liquidity have been considered against discounting EU potential
deposit opportunities and assuming a market downturn in
the event of a 'no deal' Brexit with associated stress in
the capital and funding markets;
-- Treasury counterparty risk - the Group's policy is for a
minimum A- rating. Market developments and focus on EU wholesale
counterparties has been increased, including increased monitoring
of exposures to highlight banks' share prices, CDS spreads,
external market movements and potential volatility.
The conclusion from stress testing Brexit risks is that the
business remains profitable, is able to continue its planned
growth, and operate within risk appetite limits.
The Board considers the associated risks to have been properly
considered and analysed and management will continue to monitor
closely and report on the emerging situation.
In the meantime, the business remains focused on prudent growth
in line with its business plan with no change in strategy or credit
risk appetite.
Directors' responsibilities statement
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34, Interim Financial Reporting, as adopted
by the EU;
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules (an indication of important events during the
first six months of the current financial year and their impact on
the condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R of the Disclosure Guidance and
Transparency Rules (a disclosure of related parties transactions
that have taken place in the first six months of the current
financial year and that have materially affected the financial
position or performance during the period, and any changes in the
related parties transactions described in the annual report and
accounts for the year ended 31 December 2018 that could have a
material effect on the financial position or performance in the
first six months of the current financial year).
The Board of Directors, as listed below, represents those
individuals responsible for this interim management report:
Sir Malcolm Williamson, Chairman and Chair of the Nomination
Committee
Philip Jenks, Deputy Chairman
Noël Harwerth, Senior Independent Director
Ian Ward, Chair of the Remuneration Committee and Chair of the
Stakeholder Committee
Tim Brooke, Chair of the Risk Committee
Rajan Kapoor, Chair of the Audit Committee
Ian Lonergan, Chief Executive Officer
Sebastien Maloney, Chief Financial Officer
Peter Elcock, Chief Risk Officer
Approved by the Board of Directors and signed on its behalf
by:
Chief Executive Officer Chief Financial Officer
Ian Lonergan Sebastien Maloney
20 August 2019 20 August 2019
Independent review report to Charter Court Financial Services
Group plc
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the six
months ended 30 June 2019 which comprises the condensed
consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed
consolidated statement of changes in equity, condensed consolidated
statement of cash flows and related notes 1 to 26. We have read the
other information contained in the interim financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review 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, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six months ended 30 June
2019 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 August 2019
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2019
All items dealt with in arriving at the profit before tax, the
profit for the financial period, and the preceding financial
periods, relate to continuing operations.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Note 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Interest income and similar
income 5 157.9 127.4 275.5
Interest expense and similar
charges 6 (57.8) (43.0) (95.0)
----------- ----------- ------------
Net interest income 100.1 84.4 180.5
Non-interest income 7 2.3 3.9 8.0
Gain on sale of loans 29.8 36.4 36.4
Net fair value movements on
derivative financial instruments 8 (7.2) - -
----------- ----------- ------------
Total income (net) 125.0 124.7 224.9
Administrative expenses (39.7) (30.9) (64.6)
Provision for loan impairments
- net charge 14
* On residential mortgages at amortised cost (2.6) (0.7) (2.1)
* On pipeline mortgage offers (0.1) - -
----------- ----------- ------------
Profit before tax 9 82.6 93.1 158.2
Tax charge 10 (20.3) (22.0) (37.4)
----------- ----------- ------------
Profit for the period 62.3 71.1 120.8
Other comprehensive income for the
period - - -
----------- ----------- ------------
Profit and total comprehensive
income for the period attributable
to equity holders of the Parent
Company 62.3 71.1 120.8
=========== =========== ============
Earnings per share (pence per
share)
Basic 11 26.0 29.7 50.5
Diluted 11 25.7 29.5 50.1
=========== =========== ============
Condensed consolidated statement of financial position
As at 30 June 2019
As at As at As at
30 June 30 June 31 December
2019 2018 2018
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Assets
Cash and cash equivalents 991.0 920.3 981.2
Investment in debt securities 13 118.1 68.7 123.0
Customer loans and receivables 14 7,046.9 5,693.8 6,661.5
Fair value adjustment for
hedged risk 14 43.9 (14.9) (9.9)
Derivative financial instruments 15 9.9 19.3 17.1
Other assets held at fair
value 0.1 0.1 0.1
Trade and other receivables 43.6 3.1 5.9
Deferred tax asset 2.6 2.3 2.5
Property, fixtures and equipment 16 10.5 1.1 2.5
Intangible assets 16 2.8 1.7 2.6
Total assets 8,269.4 6,695.5 7,786.5
----------- ----------- ------------
Liabilities
Deposits from banks 17 1,226.0 1,157.5 1,214.8
Deposits from customers 18 5,976.5 4,262.6 5,094.5
Fair value adjustment for
hedged risk 18 7.9 (1.4) (2.7)
Debt securities in issue 19 476.2 825.7 972.9
Derivative financial instruments 15 50.4 9.5 13.7
Lease liabilities 20 8.0 - -
Trade and other payables 13.8 13.2 24.2
Provisions 0.1 - -
Corporation tax payable 20.0 21.9 18.8
Total liabilities 7,778.9 6,289.0 7,336.2
Net assets 490.5 406.5 450.3
=========== =========== ============
Equity
Share capital 2.4 2.4 2.4
Share premium 19.0 19.0 19.0
Retained earnings 469.5 385.1 429.3
Own shares (0.4) - (0.4)
Equity attributable to equity
holders of the Parent Company
and total equity 490.5 406.5 450.3
=========== =========== ============
Notes 1 to 26 form an integral part of the condensed
consolidated financial statements.
The condensed consolidated financial statements were approved by
the Board of Directors on 20 August 2019. They were signed on its
behalf by:
Ian Martin Lonergan Sebastien Maloney
Chief Executive Officer Chief Financial Officer
Company number: 06712054
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2019
Share Share Retained Own
capital premium earnings shares Total
GBPm GBPm GBPm GBPm GBPm
Six months ended 30 June 2019 (Unaudited)
At 1 January 2019 2.4 19.0 429.3 (0.4) 450.3
Profit and total comprehensive income
for the six months ended 30 June
2019 - - 62.3 - 62.3
Final dividend paid (note 12) - - (23.7) - (23.7)
Recognition of share-based payments - - 1.3 - 1.3
Deferred tax - - 0.3 - 0.3
At 30 June 2019 2.4 19.0 469.5 (0.4) 490.5
========= ========= ========== ======== =======
Six months ended 30 June 2018 (Unaudited)
Balance at 31 December 2017 as originally
presented 2.4 19.0 313.6 - 335.0
IFRS 9 adjustment to opening provision
for loan impairments - - (0.7) - (0.7)
--------- --------- ---------- -------- -------
Restated total equity at 1 January
2018 2.4 19.0 312.9 - 334.3
Profit and total comprehensive income
for the six months ended 30 June
2018 - - 71.1 - 71.1
Recognition of share-based payments - - 0.9 - 0.9
Deferred tax - - 0.2 - 0.2
At 30 June 2018 2.4 19.0 385.1 - 406.5
========= ========= ========== ======== =======
Year ended 31 December 2018 (Audited)
Balance at 31 December 2017 as originally
presented 2.4 19.0 313.6 - 335.0
IFRS 9 adjustment to opening provision
for loan impairments - - (0.7) - (0.7)
--------- --------- ---------- -------- -------
Restated total equity at 1 January
2018 2.4 19.0 312.9 - 334.3
Profit and total comprehensive income
for the year - - 120.8 - 120.8
Interim dividend paid (note 12) - - (6.7) - (6.7)
Deferred tax on transition to IFRS
9 - - 0.2 - 0.2
Recognition of share-based payments - - 2.1 - 2.1
Purchase of own shares - - - (0.4) (0.4)
--------- --------- ---------- -------- -------
At 31 December 2018 2.4 19.0 429.3 (0.4) 450.3
========= ========= ========== ======== =======
Condensed consolidated statement of cash flows
For the six months ended 30 June 2019
At 30 June 2019 cash and cash equivalents includes GBP57.1
million (30 June 2018: GBP64.2 million, 31 December 2018: GBP73.2
million) of restricted cash.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Net cash utilised by operating
activities 21 (70.2) (820.8) (850.0)
----------- ----------- ------------
Purchases of property, fixtures
and equipment 16 (0.4) (0.4) (2.1)
Expenditure on product system
development and software 16 (0.5) (0.5) (1.5)
Proceeds from sale of customer
loans and receivables - 286.2 286.2
Purchases of investments in
debt securities 13 (6.9) - (62.0)
Disposals and redemptions of
investment in debt securities 11.9 9.8 17.5
----------- ----------- ------------
Net cash generated by investing
activities 4.1 295.1 238.1
----------- ----------- ------------
Proceeds on issue of debt securities 392.5 1,019.3 1,275.5
Costs associated with issue
of debt securities (1.9) (3.0) (3.0)
Repayment of debt securities (290.5) (537.1) (639.1)
Repayment of finance lease liabilities (0.5) - -
Dividends paid (23.7) - (6.7)
Purchase of own shares - - (0.4)
----------- ----------- ------------
Net cash generated financing
activities 75.9 479.2 626.3
----------- ----------- ------------
Net increase / (decrease) in
cash and cash equivalents 9.8 (46.5) 14.4
Cash and cash equivalents at
beginning of the period 981.2 966.8 966.8
----------- ----------- ------------
Cash and cash equivalents at
end of the period 991.0 920.3 981.2
=========== =========== ============
Notes to the Condensed consolidated financial statements
For the six months ended 30 June 2019
1. General information
Charter Court Financial Services Group plc (the "Company") is a
company incorporated in the United Kingdom and registered in
England and Wales under the Companies Act 2006 with company number
06712054. The address of the registered office is 2 Charter Court,
Broadlands, Wolverhampton, West Midlands, WV10 6TD. The Company is
a public company limited by shares.
The information in the interim financial report for the year
ended 31 December 2018 does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. The statutory
accounts for the year ended 31 December 2018 have been delivered to
the Registrar of Companies in England and Wales in accordance with
section 447 of the Companies Act 2006. The Auditor has reported on
those accounts. Its report was unqualified, did not include a
reference to any matters to which the Auditor drew attention by way
of emphasis without qualifying their report, and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
The condensed set of financial statements for the six months
ended 30 June 2019 is unaudited, but has been reviewed by the
auditor and their report to the Company is included in this
statement.
The critical accounting judgements and key sources of estimation
uncertainty are unchanged from those disclosed on pages 128 and 129
of the 2018 annual report and accounts.
2. Basis of preparation
The annual financial statements of Charter Court Financial Group
plc are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting", as adopted by the European Union.
The accounting policies, presentation and methods of computation
are consistent with those applied by the Group in its latest
audited financial statements, which were prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the EU and interpretations issued by the International
Financial Reporting Interpretations Committee, except for those
changes in accounting policies that have been applied with effect
from 1 January 2019 (see note 3 below).
Going concern
After considering the Group's current financial condition,
assessing future forecasts and the principal risks and
uncertainties, the Directors have a reasonable expectation that the
Group will have adequate resources to continue in operational
existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the
condensed consolidated financial statements.
3. Changes in accounting policy
The Group has adopted IFRS 16 Leases in the current financial
period from 1 January 2019, using the modified retrospective
approach the Group has not restated comparatives for the 2018
reporting periods, as permitted under the specific transitional
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening condensed consolidated statement of
financial position on 1 January 2019.
IFRS 16 introduces significant changes to lessee accounting
removing the IAS 17 Leases distinction between operating and
finance leases. The change in definition of a lease mainly relates
to the concept of control. IFRS 16 distinguishes between leases and
service contracts on the basis of whether the use of an identified
asset is controlled by the customer. Control is considered to exist
if the lessee has:
- The right to obtain substantially all of the economic benefits
from the use of an identified asset; and
- The right to direct the use of that asset.
The new definition in IFRS 16 does not change the scope of
contracts that meet the definition of a lease for the Group or have
a material impact on the condensed consolidated financial
statements of the Group. IFRS 16 will change how the Group accounts
for leases previously classified as operating leases under IAS
17.
On initial application of IFRS 16, the Group has:
a) Recognised right--of--use assets and lease liabilities in the
condensed consolidated statement of financial position. The lease
liability is initially measured at the present value of the
remaining lease payments, using an incremental borrowing rate as of
the date of the initial application (1 January 2019). The
associated right-of-use assets were measured at the amount equal to
the lease liability;
b) Recognised depreciation of right--of--use assets and interest
on lease liabilities in the condensed consolidated statement of
comprehensive income;
c) Separated the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within operating activities) in the condensed
consolidated statement of cash flows.
Lease payments were reported as an administrative expense. Under
IFRS 16 interest expense on the lease liability is presented as a
finance cost and the depreciation charge for the right-of-use asset
is presented under administrative expenses.
Under IFRS 16, right--of--use assets will be tested for
impairment in accordance with IAS 36 Impairment of Assets. For
short--term leases (lease term of twelve months or less), the Group
has opted to recognise a lease expense on a straight--line basis as
permitted by IFRS 16.
On transition to IFRS 16, the Group has recognised a lease
liability of GBP8.5 million and a corresponding right of use asset
of GBP8.5 million in respect of leases other than short-term
leases. The impact on the condensed consolidated statement of
comprehensive income of the Group is not material. The
weighted-average incremental borrowing rate used to measure the
lease liabilities at 1 January 2019 was 2.55%.
The difference between the GBP10.8 million operating lease
commitments as at 31 December 2018 discounted at the
weighted-average incremental borrowing rate and the GBP8.5 million
lease liabilities recognised on transition at 1 January 2019 is
that the operating lease commitments included VAT whereas the lease
liability does not as VAT is not recognised as a liability until
due.
4. Segment information
The Group's activities are all UK based therefore no
geographical segmentation is reported. The Group's reportable
segments are operating units engaged in providing different
products or services and whose operating results and overall
performance are regularly reviewed by the entity's Chief Operating
Decision Maker, the Board of Directors.
The Group's business is organised into the following principal
reportable segments:
-- Buy to let ("BTL") lending: Long term first charge loans to landlords;
-- Residential lending ("Residential"): Long term first charge loans to owner-occupiers;
-- Bridging: Short-term bridging finance to owner-occupiers, landlords and property developers;
-- Second charge lending ("SCL"): Long term second charge loans; and
-- Other: Primarily income from structured asset sales, this
also includes net income from the Group treasury and third party
mortgage servicing functions and from the loan portfolio purchased
in 2017.
Interest expense on debt securities in issue allocated in
proportion to securitised buy to let and residential loans and
remaining interest expense is allocated in proportion to the
average balances of the remaining interest-earning segment assets
during the period.
The Group does not allocate administrative expenses by segment
as the Group's operations are primarily split by function
(origination, servicing and central) rather than by segment.
Segment profit or loss is total net income less provision for
loan impairment charges. It is reconciled to the condensed
consolidated statement of comprehensive income in the tables
below.
Assets allocated to the originated lending related segments are
customer loans and receivables balances only. Cash and cash
equivalents, investments in debt securities and purchased loans and
receivables are allocated to the "Other" segment. Remaining asset
balances (which includes intangible assets, tangible fixed assets,
deferred tax assets, trade and other receivables, other assets and
derivatives) and all liability balances are not allocated to any
reporting segment.
Six months ended 30 BTL Resid-ential Bridging SCL Other Total
June 2019
(Unaudited)
GBPm
Interest receivable
and similar income 91.7 45.9 9.9 4.9 5.5 157.9
Interest payable and
similar charges (34.6) (14.8) (2.0) (1.5) (4.9) (57.8)
-------- ------------- --------- ------ -------- --------
Net interest income 57.1 31.1 7.9 3.4 0.6 100.1
Fees and commissions
income 0.1 0.1 - - 2.1 2.3
Gain on sale of loans - - - - 29.8 29.8
Net fair value movements
on derivatives - - - - (7.2) (7.2)
Provision for loan impairments
- net charge (1.0) (1.3) (0.3) (0.1) - (2.7)
-------- ------------- --------- ------ -------- --------
Segment profit 56.2 29.9 7.6 3.3 25.3 122.3
======== ============= ========= ====== ========
Administrative expenses (39.7)
--------
Profit before tax 82.6
Tax charge (20.3)
--------
Profit after tax 62.3
========
Segment assets 4,653.9 1,925.2 249.9 197.1 1,129.9 8,156.0
======== ============= ========= ====== ========
Unallocated assets 113.4
--------
8,269.4
========
Six months ended 30 BTL Resid-ential Bridging SCL Other Total
June 2018
(Unaudited)
GBPm
Interest receivable
and similar income 73.9 36.9 9.0 4.3 3.3 127.4
Interest payable and
similar charges (26.3) (10.7) (1.4) (1.2) (3.4) (43.0)
-------- ------------- --------- ------ -------- --------
Net interest income 47.6 26.2 7.6 3.1 (0.1) 84.4
Fees and commissions
income 0.9 1.2 0.1 0.1 1.6 3.9
Gain on sale of loans - - - - 36.4 36.4
Net fair value movements
on derivatives - - - - - -
Provision for loan impairments
- net charge (0.4) (0.3) - - - (0.7)
-------- ------------- --------- ------ -------- --------
Segment profit 48.1 27.1 7.7 3.2 37.9 124.0
======== ============= ========= ====== ========
Administrative expenses (30.9)
--------
Profit before tax 93.1
Tax charge (22.0)
--------
Profit after tax 71.1
========
Segment assets 3,902.4 1,389.7 203.5 175.5 1,011.7 6,682.8
======== ============= ========= ====== ========
Unallocated assets 12.7
--------
6,695.5
========
Year ended 31 December BTL Resid-ential Bridging SCL Other Total
2018 (Audited)
GBPm
Interest receivable
and similar income 163.7 76.9 18.2 9.0 7.7 275.5
Interest payable and
similar charges (59.1) (22.4) (3.2) (2.6) (7.7) (95.0)
--------- ------------- --------- ------- --------- ---------
Net interest income 104.6 54.5 15.0 6.4 - 180.5
Fees and commissions
income 1.9 2.2 0.2 0.3 3.4 8.0
Gain on sale of loans - - - - 36.4 36.4
Net fair value movements
on derivatives - - - - - -
Provision for loan impairments
- net charge (0.8) (1.1) - (0.2) - (2.1)
--------- ------------- --------- ------- --------- ---------
Segment profit 105.7 55.6 15.2 6.5 39.8 222.8
========= ============= ========= ======= =========
Administrative expenses (64.6)
---------
Profit before tax 158.2
Tax charge (37.4)
---------
Profit after tax 120.8
=========
Segment assets 4,506.8 1,705.2 244.1 183.9 1,125.6 7,765.6
========= ============= ========= ======= =========
Unallocated assets 20.9
---------
7,786.5
=========
5. Interest income and similar income
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
At amortised cost:
Interest on customer loans and
receivables 156.6 127.6 275.1
Interest and other income on debt
securities 1.5 0.6 1.3
Interest and other income on liquid
assets 3.6 2.3 5.6
----------- ------------
161.7 130.5 282.0
----------- ----------- ------------
At fair value through profit or
loss:
Interest on customer loans and
receivables 0.4 0.4 0.8
Net expense on derivative financial
instruments designated as hedging
instruments (4.3) (3.5) (8.4)
Amortisation of fair value gain
on swap cancellations 0.1 - 1.1
----------- ----------- ------------
(3.8) (3.1) (6.5)
----------- ----------- ------------
157.9 127.4 275.5
=========== =========== ============
6. Interest expense and similar charges
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
At amortised cost:
Interest expense on deposits and
other borrowings 54.5 37.1 80.3
Interest expense on debt securities
in issue 4.4 6.4 15.7
Interest expense on lease liabilities 0.1 - -
----------- ----------- ------------
59.0 43.5 96.0
----------- ----------- ------------
At fair value through profit or
loss:
Net income on derivative financial
instruments designated as hedging
instruments (1.2) (0.5) (1.0)
----------- ----------- ------------
57.8 43.0 95.0
=========== =========== ============
7. Non-interest income
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Fair value movements on Customer
loans and receivables held at FVTPL 0.2 0.3 0.6
Revenue from services relating
to:
Mortgage administration 1.9 1.2 2.7
Mortgage origination 0.2 2.4 4.7
2.3 3.9 8.0
=========== =========== ============
8. Net fair value movements on derivative financial instruments
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Macro hedging:
(Loss)/gain on derivatives designated
as fair value hedges (39.9) (4.5) 2.1
Gain/(loss) in fair value of hedged
items attributable to hedged risk 39.9 4.5 (2.1)
- - -
Non-hedging:
Net fair value movements on derivatives
not in a hedging relationship (7.2) - -
(7.2) - -
=========== =========== ============
The net fair value movements on derivative financial instruments
of GBP7.2 million arises as a result of a flattening of the yield
curve in the period, particularly impacting on the fair value of
forward-dated swaps taken out by the Group that are economic hedges
of mortgage offers, but do not meet the accounting requirements to
allow hedge accounting. The fair value movements of interest rate
swaps will trend to zero over time and so the loss will reverse in
future periods.
9. Profit before tax
Profit before tax for the period has been arrived at after
(credit)/charge for:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Increase in the fair value of
financial instruments designated
at FVTPL (0.2) (0.3) (0.6)
Depreciation of property, fixtures
and equipment 0.9 0.2 0.5
Amortisation of intangible assets 0.3 0.2 0.3
Operating lease costs 0.4 0.8 1.6
Costs in relation to proposed
merger with OSB 3.8 - -
Research and development costs 0.9 - 0.8
Staff costs 20.6 19.4 37.7
=========== =========== ============
10. Tax
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Current tax:
Current tax on profits for the
period 16.1 17.6 30.2
Surcharge on bank profits for
the period 4.0 4.3 7.3
Total current tax charge 20.1 21.9 37.5
----------- ----------- ------------
Deferred tax:
Current year 0.3 0.1 (0.3)
Effect of rate changes (0.1) - 0.2
----------- ----------- ------------
Total deferred tax credit 0.2 0.1 (0.1)
----------- ----------- ------------
Tax per condensed consolidated
statement of comprehensive income 20.3 22.0 37.4
=========== =========== ============
The tax charge on the profit for the six months ended 30 June
2019 was GBP20.3 million (six months ended 30 June 2018: GBP22.0
million, year ended 31 December 2018: GBP37.4 million). The
effective tax rate for the six months ended 30 June 2019 is 24.59%
(six months ended 30 June 2018: 23.56%, year ended 31 December
2018: 23.65%), reflecting a combination of a reduction in the rate
of UK corporation tax and increased activity in Group companies not
subject to the banking surcharge. A reconciliation of the expected
tax charge based on the standard rate of tax for the six months
ended 30 June 2019 of 19% (six months ended 30 June 2018 and year
ended 31 December 2018: 19%) to the actual tax charge is set out
below.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit before tax:
Continuing operations 82.6 93.1 158.2
----------- ----------- ------------
Tax at the UK corporation tax
rate of 19.00% (H1 and FY 2018:
19.00%) 15.7 17.7 30.1
Banking surcharge 4.0 4.3 7.3
Expenses not deductible for tax
purposes 0.7 - 0.2
Income not taxable - - (0.4)
Deferred tax at different rates (0.1) - 0.2
Tax charge for the period 20.3 22.0 37.4
=========== =========== ============
Change in tax rate
Reductions in the rate of UK corporation tax from 21% to 19%
(effective 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015, and a further reduction
to 17% (effective 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the Group's future current tax
charge accordingly. The deferred tax asset as at each condensed
consolidated statement of financial position date has been
calculated based on the enacted rate at the relevant date.
11. Earnings per share
Earnings per share ("EPS") are based on the profit for the
period and the number of ordinary shares in issue. Basic EPS are
calculated by dividing profit or loss attributable to the equity
holders of the parent by the weighted average number of ordinary
shares in issue during the period. Diluted EPS take into account
share options and awards which can be converted to ordinary
shares.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
Profit for the period (GBP
million) 62.3 71.1 120.8
Weighted average number of
ordinary shares of GBP0.01
each
Basic 239,167,485 239,130,419 239,137,913
Dilutive effects 3,561,346 1,919,414 2,014,633
Diluted 242,728,831 241,049,833 241,152,546
Per share amount (pence)
Basic 26.0 29.7 50.5
Diluted 25.7 29.5 50.1
12. Dividends
The Group paid a final dividend of 9.9 pence per share in
respect of year ended 31 December 2018, on 22 May 2019. An
inaugural interim dividend of 2.8 pence per share for the year
ended 31 December 2018 was paid on 4 October 2018. The total
dividend for 2018 was 12.7 pence per share, GBP30.4 million.
The Group's distributable reserves from which dividends can be
paid comprise retained earnings of GBP469.5 million (30 June 2018:
GBP385.1 million, 31 December 2018: GBP429.3 million). In line with
its dividend policy the Board has declared an interim dividend to
ordinary shareholders of, 4.3 pence per share. The interim dividend
is equal to one third of the prior year's total dividend and will
be payable on 20 September 2019 to shareholders on the shareholder
register on the record date of 30 August 2019.
13. Investment in debt securities
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Debt securities held at amortised
cost 118.1 68.7 123.0
=========== =========== ============
The contractual maturity of the above balance is greater than
one year.
Movements in the debt securities held during the period
were:
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
At the beginning of the period 123.0 78.4 78.4
Additions 6.9 - 62.0
Disposals and redemptions (11.8) (9.7) (17.6)
EIR adjustment 0.1 0.1 0.1
Accrued interest (0.1) (0.1) 0.1
At the end of the period 118.1 68.7 123.0
=========== =========== ============
Disposals and redemptions relate to quarterly repayments of the
mortgage backed debt securities in line with the repayments and
redemption of the underlying mortgage assets, and to the sales of
mortgage backed securities.
EIR adjustments relate to the accretion of differences between
the purchase price and redemption price of held to maturity
investments for items such as transaction costs.
The credit risk on debt securities held has not significantly
increased since initial recognition and all debt securities held
are categorised as Stage 1. The expected credit loss provisions
recognised against debt securities are not material.
14. Customer loans and receivables
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Gross residential mortgages held
at amortised cost 7,037.4 5,696.4 6,661.0
EIR adjustment (5.2) (23.1) (17.4)
Provision for loan impairments (6.1) (2.2) (3.6)
----------- ----------- ------------
Net residential mortgages held
at amortised cost 7,026.1 5,671.1 6,640.0
Residential mortgages held at fair
value 20.8 22.7 21.5
----------- ----------- ------------
7,046.9 5,693.8 6,661.5
=========== =========== ============
Analysis of customer loans and receivables
Customer loans and receivables comprise residential mortgage
loans. An analysis by type is set out below:
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Buy to let 4,653.9 3,902.4 4,506.8
Residential lending 1,946.0 1,412.4 1,726.7
Bridging 249.9 203.5 244.1
Second charge lending 197.1 175.5 183.9
----------- ----------- ------------
7,046.9 5,693.8 6,661.5
=========== =========== ============
Residential and buy to let mortgages are secured on residential
property within the United Kingdom.
At 30 June 2019 included within customer loans and receivables
is GBP245.2 million (30 June 2018: GBP200.5 million, 31 December
2018: GBP236.6 million) of balances due within twelve months and
GBP6,801.7 million (30 June 2018: GBP5,493.3 million, 31 December
2018: GBP6,424.9 million) due after twelve months.
Mortgage loans have a contractual term of up to thirty five
years. Borrowers may settle the loan at any point and in most cases
settlement before the contractual date does take place. All
borrowers are required to make monthly payments, except where
interest is retained on origination and applied to the account as
monthly payments would fall due.
Residential mortgages held at amortised cost
The movements in the Group's residential mortgages were:
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Net opening balance as originally
presented 6,640.0 5,364.2 5,364.2
IFRS 9 adjustments to opening balance
at 1 January 2018:
Provision for loan impairments (0.7) (0.7)
Reclassification to residential
mortgages held at fair value (24.1) (24.1)
----------- ----------- ------------
Restated balance at 1 January 6,640.0 5,339.4 5,339.4
Originations 1,490.0 1,356.7 2,846.1
Sales to third parties (563.6) (563.8) (563.8)
Repayments and redemptions (691.8) (572.8) (1,242.2)
Interest charged and other debits 142.5 113.9 258.5
EIR adjustments 11.6 (1.6) 4.1
Movement on provision for loan
impairments (2.6) (0.7) (2.1)
----------- ----------- ------------
At the end of the period 7,026.1 5,671.1 6,640.0
=========== =========== ============
Other debits include, primarily, administrative fees added to
customer loans.
Encumbered assets
The gross residential mortgage loan balances pledged as
collateral for liabilities are:
As at As at As at
30 June 30 June 31 December
Note 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
In respect of:
Bank of England: Term Funding
Scheme and sale and repurchase
agreements 17 1,693.1 1,541.0 1,669.7
Commercial sale and repurchase
agreements 17 5.9 - -
Debt securities in issue 19 829.5 831.9 980.8
2,528.5 2,372.9 2,650.5
=========== =========== ============
The Group's securitisation programme and use of the Bank of
England Term Funding Scheme results in certain assets being
encumbered as collateral against such funding. Assets that are
encumbered cannot be used for other purposes. As at 30 June 2019
the percentage of gross customer loans and receivables that are
encumbered is 35.9% (30 June 2018: 41.7%, 31 December 2018:
39.7%).
Impairment provisions on residential mortgages
The Group recognises expected credit losses from default events
expected within twelve months of the reporting date if credit risk
has not significantly increased since initial recognition (Stage
1), and lifetime expected credit losses for financial instruments
for which the credit risk has increased significantly since initial
recognition (Stage 2) or which are credit impaired (Stage 3).
The following table analyses balances as at 30 June 2019 by
stage of impairment:
Provision
for loan
30 June 2019 (Unaudited) Gross balances EIR adjustments impairments Net balance
-------------------------- ----------------------------------- ---------------- ------------- ------------
Stage Stage Stage Total
1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At beginning of
period 6,308.6 336.3 16.1 6,661.0 (17.4) (3.6) 6,640.0
Originations 1,490.0 - - 1,490.0 - - 1,490.0
Sales to third
parties (557.2) (7.0) (0.1) (564.3) 0.6 0.1 (563.6)
Transfers between
stages (76.0) 64.9 11.1 - - - -
Repayments and
redemptions (677.3) (13.8) (0.7) (691.8) - - (691.8)
Interest charged
and other debits 117.4 24.3 0.8 142.5 - - 142.5
EIR adjustments - - - - 11.6 - 11.6
Loan impairments
profit and loss
net charge - - - - - (2.6) (2.6)
-------- ------- ------ -------- ---------------- ------------- ------------
6,605.5 404.7 27.2 7,037.4 (5.2) (6.1) 7,026.1
======== ======= ====== ======== ================ ============= ============
The following table analyses balances as at 30 June 2018 by
stage of impairment.
Provision
for loan
30 June 2018 (Unaudited) Gross balances EIR adjustments impairments Net balance
-------------------------- ----------------------------------- ---------------- ------------- ------------
Stage Stage Stage Total
1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at
31 December 2017
as originally
presented* 5,385.2 (20.0) (1.0) 5,364.2
IFRS 9 adjustment:
Reclassification
and adjustment
to fair value (24.1) - - (24.1)
Loan impairments - - (0.7) (0.7)
-------- ------- ------ -------- ---------------- ------------- ------------
At beginning of
year 5,183.7 171.7 5.7 5,361.1 (20.0) (1.7) 5,339.4
Originations 1,356.7 - - 1,356.7 - - 1,356.7
Sales to third
parties (562.5) - - (562.5) (1.5) 0.2 (563.8)
Transfers between
stages (65.4) 61.6 3.8 - - - -
Repayments and
redemptions (544.9) (26.3) (1.6) (572.8) - - (572.8)
Interest charged
and other debits 108.9 4.8 0.2 113.9 - - 113.9
EIR adjustments - - - - (1.6) - (1.6)
Loan impairments
profit and loss
net charge - - - - - (0.7) (0.7)
-------- ------- ------ -------- ---------------- ------------- ------------
5,476.5 211.8 8.1 5,696.4 (23.1) (2.2) 5,671.1
======== ======= ====== ======== ================ ============= ============
*Analysis of gross balances by stage implemented from 1 January
2018 as required under IFRS 9, not previously a requirement under
IAS 39.
The following table analyses balances as at 31 December 2018 by
stage of impairment.
Provision
31 December 2018 for loan
(Audited) Gross balances EIR adjustments impairments Net balance
------------------- --------------------------------------- ---------------- ------------- ------------
Stage Stage Stage Total
1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as at
31 December 2017
as originally
presented* 5,385.2 (20.0) (1.0) 5,364.2
IFRS 9 adjustment:
Reclassification
and adjustment
to fair value (24.1) - - (24.1)
Loan impairments - - (0.7) (0.7)
---------- ------- ------ ---------- ---------------- ------------- ------------
At beginning of
year 5,183.7 171.7 5.7 5,361.1 (20.0) (1.7) 5,339.4
Originations 2,846.1 - - 2,846.1 - - 2,846.1
Sales to third
parties (562.5) - - (562.5) (1.5) 0.2 (563.8)
Transfers between
stages (129.4) 119.3 10.1 - - - -
Repayments and
redemptions (1,219.8) (21.5) (0.9) (1,242.2) - - (1,242.2)
Interest charged
and other debits 190.5 66.8 1.2 258.5 - - 258.5
EIR adjustments - - - - 4.1 - 4.1
Loan impairments
profit and loss
net charge - - - - - (2.1) (2.1)
---------- ------- ------ ---------- ---------------- ------------- ------------
6,308.6 336.3 16.1 6,661.0 (17.4) (3.6) 6,640.0
========== ======= ====== ========== ================ ============= ============
*Analysis of gross balances by stage implemented from 1 January
2018 as required under IFRS 9, not previously a requirement under
IAS 39.
The Group does not have any financial assets that were purchased
or originated credit impaired.
The table below shows the transitional adjustment from the
impairment provision under IAS 39 to the impairment provision under
IFRS 9.
GBPm
Total impairment provisions at 31 December 2017 (under
IAS 39) 1.0
IFRS 9 adjustment to opening provision for loan impairments 0.7
----
Total impairment provisions at 1 January 2018 (under
IFRS 9) 1.7
====
Comprising:
Stage 1 0.9
Stage 2 0.4
Stage 3 0.4
----
1.7
====
Impairment provisions as at 30 June 2019 are GBP6.2 million (30
June 2018: GBP2.2 million, 31 December 2018: GBP3.6 million) and
comprise:
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
At 1 January 2018 0.9 0.4 0.4 1.7
Sale of customer loans and
receivables (0.2) - - (0.2)
Charge in six months to 30
June 2018:
Modelled provision 0.4 0.1 0.2 0.7
------- ------- ------- -----
0.4 0.1 0.2 0.7
------- ------- ------- -----
At 30 June 2018 (Unaudited) 1.1 0.5 0.6 2.2
Charge in six months to 31
December 2018:
Modelled provision (0.4) 0.3 - (0.1)
Brexit overlay 0.6 0.7 0.2 1.5
------- ------- ------- -----
0.2 1.0 0.2 1.4
------- ------- ------- -----
Charge in year to 31 December
2018 0.6 1.1 0.4 2.1
------- ------- ------- -----
At 31 December 2018 (Audited) 1.3 1.5 0.8 3.6
Sale of customer loans and
receivables (0.1) - - (0.1)
Charge in six months to 30
June 2019:
Modelled provision 0.4 1.0 0.8 2.2
Brexit overlay 0.1 0.2 0.1 0.4
------- ------- ------- -----
0.5 1.2 0.9 2.6
------- ------- ------- -----
At 30 June 2019 (Unaudited) 1.7 2.7 1.7 6.1
Expected credit losses coverage
by stage
At 30 June 2019 0.02% 0.67% 6.25% 0.08%
======= ======= ======= =====
At 31 December 2018 0.02% 0.45% 4.97% 0.05%
======= ======= ======= =====
At 30 June 2018 0.02% 0.24% 7.41% 0.04%
======= ======= ======= =====
At 1 January 2018 0.02% 0.23% 7.02% 0.03%
======= ======= ======= =====
The charge for loss provisions in the income statement for the
period is GBP2.7 million. This comprises the GBP2.6 million charge
recognised above and an additional GBP0.1 million against pipeline
mortgage offers recognised as a provision. Pipeline mortgage offers
are mortgage offers that the Group is committed to although there
is no obligation on customers to proceed with the offer.
At 30 June 2019 the Stage 3 provision includes GBP0.5 million
(30 June 2018: GBP0.5 million, 31 December 2018: GBP0.3 million)
which is an additional overlay in respect of management and
collection team review of Stage 3 provisions on individually
impaired loans, where the modelled provisions are revised in line
with their assessments of the probability of recovery of each
loan.
All financial assets that were written off during the reporting
period are still subject to enforcement activity. The contractual
amount outstanding on these assets was less than GBP0.1 million at
30 June 2019, 30 June 2018 and 31 December 2018.
At 30 June 2019, the Group's mortgage loan commitments totalled
GBP641.9 million (30 June 2018: GBP553.9 million, 31 December 2018:
GBP577.8 million). The expected credit loss provision held against
these commitments is GBP0.1 million (30 June and 31 December 2018:
GBPnil).
Residential mortgage portfolio held at fair value through profit
and loss
The residential mortgage portfolio held at fair value is
categorised as Level 3. The fair value is based on expected future
cash flows using an assumed amortisation profile of the pool of
mortgages. The cash flows are discounted to present value using a
risk adjusted rates. Movements in the residential mortgage
portfolio held at FVTPL were:
GBPm
Balance at 31 December 2017 as originally presented -
IFRS 9 Reclassification from residential mortgages
held at amortised cost 24.1
-----
At 1 January 2018 24.1
Repayments and redemptions (1.9)
Interest charged and other debits 0.2
Fair value gain included in non-interest income (note
7) 0.3
-----
At 30 June 2018 (Unaudited) 22.7
Repayments and redemptions (2.1)
Interest charged and other debits 0.6
Fair value gain included in non-interest income (note
7) 0.3
-----
At 31 December 2018 (Audited) 21.5
Repayments and redemptions (1.3)
Interest charged and other debits 0.4
Fair value gain included in non-interest income (note
7) 0.2
-----
At 30 June 2019 (Unaudited) 20.8
=====
Fair value adjustment for hedged risk ("FVAHR")
The Group has entered into interest rate swaps and caps that
protect it from mismatches in interest rates between the portfolio
of fixed rate mortgages and floating rate liabilities that are used
to fund it. The net position of certain fixed rate mortgages and
floating rate liabilities has been designated as the hedged item in
this hedging relationship. Changes in the fair value of these swaps
are offset by changes in the FVAHR of the fixed rate mortgages.
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Fair value adjustment for hedged
risk 43.9 (14.9) (9.9)
=========== =========== ============
15. Derivative financial instruments
Positive fair Negative
Notional value fair value
GBPm GBPm GBPm
Interest rate swaps at 30 June 2019
(Unaudited)
Level 2 derivatives 9,321.7 9.9 (50.4)
Level 3 derivatives 442.4 - -
----------- ------------- -----------
9,764.1 9.9 (50.4)
=========== ============= ===========
Interest rate swaps at 30 June 2018
(Unaudited)
Level 2 derivatives 6,832.0 19.3 (9.3)
Level 3 derivatives 845.7 - (0.2)
----------- ------------- -----------
7,677.7 19.3 (9.5)
=========== ============= ===========
Interest rate swaps at 31 December 2018
(Audited)
Level 2 derivatives 7,879.0 16.0 (12.4)
Level 3 derivatives 442.4 1.1 (1.3)
----------- ------------- -----------
8,321.4 17.1 (13.7)
=========== ============= ===========
The Group uses derivatives to hedge interest rate risk arising
from mismatches between fixed and variable rate lending and
deposits. The Group hedges the exposures arising from fixed rate
lending and separately hedges the exposures arising from fixed rate
deposits. The hedging activities are undertaken by the Group's
treasury function using derivatives within parameters set by the
Asset and Liability Committee.
Interest rate swap agreements with a notional value of
GBP4,646.9 million (30 June 2018: GBP3,763.2 million, 31 December
2018: GBP4,632.9 million), under which the Group pays a fixed rate
of interest and receives an interest based on LIBOR, are used to
hedge the exposure to changes in fair value of fixed rate mortgage
assets as a result of changes in market interest rates. The
notional value of these interest rate swaps is linked to the
notional of the hedged mortgage assets and this resets each
quarter.
Interest rate swap agreements with a notional value of
GBP3,990.2 million (30 June 2018: GBP2,774.5 million, 31 December
2018: GBP3,248.5 million), under which the Group receives a fixed
rate of interest and pays an interest based on LIBOR, are used to
hedge the exposure to changes in fair value of fixed rate deposits
from customers as a result of changes in market interest rates. The
notional value of these interest rate swaps is linked to the
notional of the hedged deposits from customers.
Forward-dated interest rate swap agreements with a notional
value of GBP687.0 million (30 June 2018 and 31 December 2018
GBPnil), under which the Group pays a fixed rate of interest and
receives an interest based on LIBOR, are used to economically hedge
the exposure to changes in fair value of fixed rate mortgage offers
as a result of changes in market interest rates, but do not meet
the accounting requirements to allow hedge accounting. The notional
value of these interest rate swaps is linked to the notional of the
mortgage offers and this resets each quarter.
As at 30 June 2019, the Group held no interest rate options
(caps) (30 June 2018: notional value of GBP300.0 million and fair
value of GBPnil; 31 December 2018: none) and held basis swaps with
a notional value of GBP440.0 million (30 June 2018: GBP840.0
million; 31 December 2018: GBP440.0 million).
The majority of interest rate swaps are Level 2 fair value
measurements, being derived from inputs which are not quoted in
active markets but are based on observable market data. The fair
value is based on discounted future cash flows using a forecast
future interest rate curve derived from market data.
Basis swaps and certain balance guaranteed swaps within
derivative liabilities are categorised as Level 3. Balance
guaranteed swaps are valued based on expected future cash flows
using an assumed amortisation profile of the pool of mortgages up
to the swap maturity date and predicted future LIBOR. The cash
flows are discounted to present value using zero coupon rates.
Movements in the fair values of Level 3 swaps were:
As at As at Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
At 1 January (0.2) - -
Movements in the fair value: credit/(charge)
to the condensed consolidated
statement of comprehensive income 0.2 (0.2) (0.2)
----------- ----------- ------------
At end of period - (0.2) (0.2)
=========== =========== ============
Trade and other receivables includes GBP40.2 million of
collateral which was required to be posted in respect of interest
rate swap contracts (30 June 2018: GBPnil, 31 December 2018: GBP0.3
million). Deposits from banks includes GBP0.3 million of collateral
received in respect of interest rate swap contracts (30 June 2018:
GBP8.3 million, 31 December 2018: GBP4.6 million).
16. Property, fixtures and equipment and intangible assets
Property, fixtures and equipment
The net book value of property, fixtures and equipment at 30
June 2019 was GBP10.5 million (30 June 2018: GBP1.1 million, 31
December 2018: GBP2.5 million).
On transition to IFRS 16, at 1 January 2019 the Group recognised
right of use ("ROU") assets of GBP8.5 million, GBP8.3 million of
property leases and GBP0.2 million of other leases. Depreciation of
GBP0.5 million was recognised during the six months ended 30 June
2019. As at 30 June 2019 the balance of the ROU assets were GBP8.0
million, GBP7.8 million of property leases and GBP0.2 million of
other leases. There were no additions during the period.
The net book value of other property, fixtures and equipment at
30 June 2019 was GBP2.5 million (30 June 2018: GBP1.1 million, 31
December 2018: GBP2.5 million). Movements in the six months ended
30 June 2019 comprise purchases of GBP0.4 million (30 June 2018:
GBP0.4 million, 31 December 2018: GBP2.1 million) of leasehold
property improvements, fixtures and equipment and computer
equipment and depreciation of GBP0.4 million (30 June 2018: GBP0.2
million, 31 December 2018: GBP0.5 million).
Intangible fixed assets
The net book value of intangible fixed assets at 30 June 2019
was GBP2.8 million (30 June 2018: GBP1.7 million, 31 December 2018:
GBP2.6 million). Movements in the six months ended 30 June 2019
comprise expenditure of GBP0.5 million (30 June 2018: GBP0.5
million, 31 December 2018: GBP1.5 million) of development costs,
computer software and licenses and depreciation of GBP0.3 million
(30 June 2018: GBP0.2 million, 31 December 2018: GBP0.3
million).
17. Deposits from banks
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Collateral received on interest
rate swap contracts 0.3 8.3 4.6
Commercial sale and repurchase
agreements 5.6 - -
Bank of England sale and repurchase
agreements 90.2 - 60.2
Bank of England Term Funding Scheme
("TFS") 1,129.9 1,149.2 1,150.0
Total deposits 1,226.0 1,157.5 1,214.8
=========== =========== ============
As at 30 June 2019, the carrying value of customer loans and
receivables encumbered under commercial sale and repurchase
agreements was GBP5.9 million (30 June 2018 and 31 December 2018:
GBPnil), see note 14.
As at 30 June 2019, the carrying value of customer loans and
receivables pledged as collateral for Bank of England sale and
repurchase agreements and the TFS was GBP1,693.1 million (30 June
2018: GBP1,541.0 million, 31 December 2018: GBP1,669.7 million),
see note 14.
Deposits from banks includes GBP2.3 million of accrued interest
(30 June 2018: GBP1.4 million, 31 December 2018: GBP2.2
million).
As at 30 June 2019, 30 June 2018 and 31 December 2018, all bank
deposits were denominated in pounds sterling.
At 30 June 2019 included within deposits from banks is GBP98.2
million (30 June 2018: GBP9.7 million, 31 December 2018: GBP67.0
million) of balances due within twelve months and GBP1,127.8
million (30 June 2018: GBP1,147.8 million, 31 December 2018:
GBP1,147.8 million) due after twelve months.
18. Deposits from customers
Deposits from customers are retail deposits held by the Group
which were received from customers in the UK and denominated in
pounds sterling. The deposits comprise principally term deposits
and 30 - 120 day notice accounts.
The contractual maturity of these deposits is analysed
below.
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Amounts repayable
On demand 581.5 476.9 621.9
In less than 3 months 1,268.4 765.0 632.9
In more than 3 months but less
than 1 year 2,609.0 2,049.5 2,555.5
In more than 1 year but less than
5 years 1,517.6 971.2 1,284.2
Total deposits 5,976.5 4,262.6 5,094.5
=========== =========== ============
Fair value adjustment for hedged risk ("FVAHR")
The Group has entered into interest rate swaps that protect it
from mismatches in interest rates between the portfolio of fixed
rate customer deposits and the floating rate assets that are funded
by it. The net position of certain fixed rate deposits from
customers and floating rate liabilities has been designated as the
hedged item in this hedging relationship. Changes in the fair value
of these swaps are offset by changes in the FVAHR of the fixed rate
customer deposits.
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Fair value adjustment for hedged
risk 7.9 (1.4) (2.7)
=========== =========== ============
19. Debt securities in issue
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Asset backed loan notes at amortised
cost 476.2 825.7 972.9
----------- ----------- ------------
Amount due for settlement within
12 months 85.5 0.7 331.0
Amount due for settlement after
12 months 390.7 825.0 641.9
----------- ----------- ------------
476.2 825.7 972.9
=========== =========== ============
All borrowings are payable in pounds sterling.
The contractual maturity of debt securities is disclosed in
Treasury Risk within the Risk management section.
The asset backed loan notes are secured on fixed and variable
rate mortgages and are redeemable in part from time to time, but
such redemptions are limited to the net principal received from
borrowers in respect of underlying mortgage assets. The maturity
date of the funds matches the maturity date of the underlying
mortgage assets. It is likely that a large proportion of the
underlying mortgage assets and therefore these notes will be repaid
within five years. As at 30 June 2019, the carrying value of assets
pledged as collateral for the Group's debt securities in issue was
GBP829.5 million (30 June 2018: GBP831.9 million, 31 December 2018:
GBP980.8 million).
Asset backed loan notes may all be repurchased by the Group at
any interest payment date on or after the call dates (see below),
or at any interest payment date when the current balance of the
mortgages outstanding is less than or equal to ten percent of the
principal amount outstanding on the loan notes on the date they
were issued.
Interest is payable at fixed margins above LIBOR except for PMF
2019-1B which is payable at fixed margins above SONIA.
As at 30 June 2019, notes were issued through three funding
vehicles.
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
PMF No. 1 asset backed loan notes - 36.3 -
PMF 2014-1 asset backed loan notes - 43.3 36.7
PMF 2014-2 asset backed loan notes 34.9 54.1 45.5
PMF 2015-1 asset backed loan notes 49.9 69.1 59.3
CML Warehouse Number 1 loan facility - - 234.0
PMF 2018-1B asset backed loan notes - 244.8 228.7
PMF 2018-2B asset backed loan notes - 378.1 354.5
PMF 2018-1B residual certificate
1 note - - 3.8
PMF 2018-2B residual certificate
1 note - - 10.4
PMF 2019-1B asset backed loan notes 391.4 - -
----------- ----------- ------------
476.2 825.7 972.9
=========== =========== ============
PMF 2014-2, PMF 2015-1 and PMF 2019-1B each include an option to
redeem, prior to final maturity, the principal amounts at par on
all notes outstanding on or after their respective call dates. The
outstanding PMF 2014-1 notes were redeemed at par on their call
date, 12 June 2019.
The Group sold the PMF 2018-1B and PMF 2018-2B residual interest
in January 2019 as a result PMF 2018-1B and PMF 2018-2B are no
longer consolidated.
20. Lease liabilities
As at As at As at
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Lease liabilities 8.0 - -
=========== =========== ============
During the six months ended 30 June 2019 interest expense of
GBP0.1 million was recognised and total cash outflow was GBP0.6
million on lease liabilities.
For details on the corresponding ROU assets see note 16. A
maturity analysis of the lease liabilities is disclosed in Treasury
Risk within the Risk management section.
For short-term leases (lease term of twelve months or less), the
Group has opted to recognise lease payments as administrative
expenses on a straight--line basis as permitted by IFRS 16, see
note 9.
As at 30 June 2019, the Group has non-cancellable operating
lease commitments of GBP0.8 million (30 June 2018: GBP12.2 million,
31 December 2018: GBP11.3 million). Of these arrangements, GBPnil
(30 June 2018: GBP12.0 million, 31 December 2018: GBP10.8 million)
relate to leases other than short-term leases, and, GBP0.8 million
(30 June 2018: GBP0.2 million, 31 December 2018: GBP0.5 million) of
these arrangements relate to short-term leases.
21. Net cash flows from operating activities
Six months Six months
ended ended Year ended
30 June 30 June 31 December
Note 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit before tax 82.6 93.1 158.2
Non-cash items
Provision for loan impairments 14 2.7 0.7 2.1
Depreciation of property, fixtures
and equipment 16 0.9 0.2 0.5
Amortisation of intangible
assets 16 0.3 0.2 0.3
EIR adjustment on customer
loans and receivables (12.2) 1.6 (4.1)
EIR adjustment on investment
in debt securities (0.1) (0.1) (0.1)
EIR adjustment on debt securities
in issue - - (7.0)
Write off of unamortised deal
costs on sale of loans 3.0 1.5 1.5
Movement in fair value hedges (43.2) 7.5 1.2
Fair value movement in residential
mortgages held at fair value (0.2) (0.3) (0.6)
Movement in other assets held
at fair value - 0.1 0.1
Recognition of equity-settled
employee benefits payments 1.2 0.9 2.1
Operating cash flows before
movements in working capital 35.0 105.4 154.2
Movement in derivatives 43.9 (4.4) 2.0
(Increase) / decrease in receivables (37.7) 1.5 (1.3)
Increase in residential mortgages (375.6) (618.5) (1,581.6)
Decrease in debt securities
in issue (599.8) (282.4) (282.4)
(Decrease) / increase in payables (10.4) (2.0) 9.0
Increase / (decrease) in retail
deposits 882.0 (157.4) 674.5
Increase in deposits from banks 11.2 154.0 211.3
Cash utilised by operations (51.4) (803.8) (814.3)
Tax paid (18.8) (17.0) (35.7)
Net cash utilised by operating
activities (70.2) (820.8) (850.0)
=========== =========== ============
22. Financial instruments
Fair values of financial instruments carried at amortised
cost
The fair value measurements for financial assets and liabilities
held at amortised cost are summarised below.
Carrying value Fair value
Level 1 Level 3
GBPm GBPm GBPm
At 30 June 2019 (Unaudited)
Financial assets held at amortised
cost
Cash and cash equivalents 991.0 991.0 -
Investment in debt securities 118.1 118.1 -
Customer loans and receivables 7,026.1 - 7,361.1
Trade and other receivables 43.6 - 43.6
Financial liabilities held
at amortised cost
Deposits from banks 1,226.0 1,226.0 -
Deposits from customers 5,976.5 5,976.5 -
Debt securities in issue 476.2 476.2 -
Lease liabilities 8.0 - 8.0
Trade and other payables 13.8 - 13.8
At 30 June 2018 (Unaudited)
Financial assets held at amortised
cost
Cash and cash equivalents 920.3 920.3 -
Investment in debt securities 68.7 69.2 -
Customer loans and receivables 5,671.1 - 5,902.8
Trade and other receivables 3.1 - 3.1
Financial liabilities held
at amortised cost
Deposits from banks 1,157.5 1,157.5 -
Deposits from customers 4,262.6 4,262.6 -
Debt securities in issue 825.7 825.7 -
Trade and other payables 13.2 - 13.2
At 31 December 2018 (Audited)
Financial assets held at amortised
cost
Cash and cash equivalents 981.2 981.2 -
Investment in debt securities 123.0 122.2 -
Customer loans and receivables 6,640.0 - 6,884.4
Trade and other receivables 5.9 - 5.9
Financial liabilities held
at amortised cost
Deposits from banks 1,214.8 1,214.8 -
Deposits from customers 5,094.5 5,094.5 -
Debt securities in issue 972.9 972.9 -
Trade and other payables 24.2 - 24.2
The fair values of cash and cash equivalents and trade and other
receivables are not considered to be materially different from
their book values. In arriving at that conclusion, market inputs
have been considered but because these assets mature within three
months, and the interest rates charged on financial liabilities
reset to market rates on a quarterly basis, little difference
arises.
The fair value of investments in debt securities have been
calculated using quoted market prices at the relevant date for each
security.
To assess the fair value of the Group's customer loans and
receivables and retail deposit liabilities, the estimated cash
flows expected to arise, based on a mixture of market based inputs,
such as discount rates; and non-market based inputs such as
redemption rates and credit losses, have been considered.
While the Group's debt securities in issue are listed, the
quoted prices for an individual note may not be indicative of the
fair value of the issue as a whole, due to the specialised nature
of the market in such instruments and the limited number of
investors participating in it.
Lease liabilities are measured at the present value of the
remaining lease payments, using the Group's incremental borrowing
rate at 1 January 2019 (on initial adoption of IFRS 16).
The contractual maturity analysis of the Group's liabilities is
disclosed in Treasury Risk within the Risk management section.
Financial instruments held at fair value
Carrying value Level 2 Level 3
GBPm GBPm GBPm
At 30 June 2019 (Unaudited)
Customer loans and receivables 20.8 - 20.8
Other financial assets - designated
as FVTPL 0.1 - 0.1
Derivative financial instruments
- assets 9.9 9.9 -
Derivative financial instruments
- liabilities 50.4 50.4 -
At 30 June 2018 (Unaudited)
Customer loans and receivables 22.7 - 22.7
Other financial assets - designated
as FVTPL 0.1 - 0.1
Derivative financial instruments
- assets 19.3 19.3 -
Derivative financial instruments
- liabilities 9.5 9.3 0.2
At 31 December 2018 (Audited)
Customer loans and receivables 21.5 - 21.5
Other financial assets - designated
as FVTPL 0.1 - 0.1
Derivative financial instruments
- assets 17.1 16.0 1.1
Derivative financial instruments
- liabilities 13.7 12.4 1.3
Customer loans and receivables held at fair value are all Level
3 fair value measurements, being derived from inputs which are not
quoted in active markets. For further information see note 14.
Other assets held at fair value are all Level 3 fair value
measurements, being derived from inputs which are not quoted in
active markets.
Caps and the majority of interest rate swaps are Level 2 fair
value measurements, being derived from inputs which are not quoted
in active markets but are based on observable market data. Basis
swaps and certain balance guaranteed swaps within derivative
liabilities are categorised as Level 3. For further information see
note 15.
23. Financial risk management objectives and policies
The Group's activities expose it to a number of financial risks
and uncertainties; primarily credit risk, liquidity risk, market
risk, business risk, operational risk and assurance of compliance
with regulations.
For detailed information on each of these risks refer to the
Risk management section.
24. Share based payments
On 20 March 2019 Executive Directors and members of senior
management were granted options over 1,151,904 ordinary shares of
GBP0.01 pence each in the Group under the Group's Performance Share
Plan 2018 at a nil exercise price. The Group expects options over
766,016 ordinary shares of GBP0.01 pence each to vest. The fair
value of the options at date of grant was GBP1,847,492.
The Deferred Bonus Plan applied for the first time to 2018
bonuses for those employees whose bonuses are over GBP100,000, and
defers 50% of participating employees' annual bonus into ordinary
shares in the form of options to acquire ordinary shares for nil
consideration. On 20 March 2019 50% of participating employees'
annual bonus were deferred into options over 371,759 ordinary
shares.
25. Related party transactions
The Group had no related party transactions during the six month
period to 30 June 2019 that would materially affect the position or
performance of the Group. Details of transactions for the year
ended 31 December 2018 can be found in note 46 of the 2018 Group
financial statements.
26. Post balance sheet events
On 14 March 2019 the Board of the Group announced that it had
reached agreement with the board of OneSavings Bank plc ("OSB") on
the terms of a recommended all-share combination of the Group and
OSB pursuant to which OSB will acquire the entire issued and to be
issued share capital of the Group to form the combined group.
The shareholders of both the Group and OSB on 6 June 2019 voted
in favour of the combination. On 30 July 2019 the CMA confirmed
that there are no serious competition concerns associated with the
proposed combination, and concluded that no further investigation
is required from a competition perspective.
Subject to approval by regulators and the fulfilment or waiver
of other conditions, it is intended that the combination will be by
way of a court-sanctioned scheme of arrangement which is expected
to be effective in the third quarter of 2019. In the event of the
all-share combination of the Group and OSB, total success fees of
around GBP10.4 million will be payable to the Group's advisors.
The Group sold its residual interest in Precise Mortgage Funding
2019-1B plc to a third party on 31 July 2019 for a gain of GBP28.8
million.
Alternative performance measures
This financial report provides alternative performance measures
("APMs") which are not defined or specified under the requirements
of International Financial Reporting Standards. We believe these
APMs provide readers with important additional information on our
business. To support this we have included a reconciliation of the
APMs we use, where relevant, a glossary indicating the APMs we use,
an explanation of how they are calculated and why we use them.
A. 2019 highlights
The Group has incurred costs in 2019 on the proposed merger with
OSB. These costs, included within administrative expenses, are not
considered to be part of the adjusted administrative expenses of
the Group as they relate to a very specific one-off activity.
Adjusted KPIs exclude these costs.
The adjusted KPIs below are used together to assess the Group's
profitability from period to period.
All ratios have been calculated using unrounded data.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit before tax
Statutory profit before tax 82.6 93.1 158.2
Costs incurred in relation to
proposed merger 3.8 - -
------------ ------------ -------------
Adjusted profit before tax 86.4 93.1 158.2
============ ============ =============
Return on Equity
Statutory profit after tax (i) 62.3 71.1 120.8
Costs incurred in relation to
proposed merger 3.8 - -
Adjusted profit after tax (ii) 66.1 71.1 120.8
============ ============ =============
Opening equity 450.3 335.0 335.0
============ ============ =============
Closing equity 490.5 406.5 450.3
============ ============ =============
Average equity (2 point average(*)
) (iii) 470.4 370.8 392.6
============ ============ =============
Statutory RoE (i) / (iii) 26.5% 38.4% 30.8%
============ ============ =============
Adjusted RoE (ii) / (iii) 28.1% 38.4% 30.8%
============ ============ =============
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Net interest margin
Net interest income (i) 100.1 84.4 180.5
Average customer loans and
receivables (13 point average(**)
) (ii) 6,630.5 5,528.1 5,862.2
------------ ------------ -------------
Net interest margin(***) (i)
/ (ii) 3.04% 3.08% 3.08%
============ ============ =============
Cost Income Ratio
Statutory administrative expenses
(i) 39.7 30.9 64.6
Costs incurred in relation
to proposed merger (3.8) - -
------------ ------------ -------------
Adjusted administrative expenses
(ii) 35.9 30.9 64.6
============ ============ =============
Statutory total income (iii) 125.0 124.7 224.9
Statutory cost income ratio
(i) / (iii) 31.7% 24.8% 28.7%
============ ============ =============
Adjusted cost income ratio
(ii) / (iii) 28.7% 24.8% 28.7%
============ ============ =============
Cost of Risk
Provision for loan impairments
- net charge (i) (2.7) (0.7) (2.1)
============ ============ =============
Average customer loans and
receivables (**) (ii) 6,630.5 5,528.1 5,862.2
============ ============ =============
Cost of risk (i) / (ii) 0.082% 0.025% 0.036%
============ ============ =============
(*) The average equity for RoE is calculated as the sum of the
opening and closing equity for RoE for the year divided by two.
(**) The average customer loans and receivables balances is
calculated as the sum of the opening and closing balances for the
period and the balances at each month end during the period divided
by seven for the six months ended 30 June 2019 and the six months
ended 30 June 2018 and divided by 13 for the year ended 31 December
2018.
(***) For six month periods net interest income is annualised by
multiplying by 365 days and then dividing by 181 days.
B. Other financial APMs
As at As at As at
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Loan deposit ratio
This APM is used in assessing the Group's liquidity.
Customer loans and receivables
(note 14) 7,046.9 5,693.8 6,661.5
========== ========= =============
Deposits from customers (note
18) 5,976.5 4,262.6 5,094.5
========== ========= =============
Loan deposit ratio 117.9% 133.6% 130.8%
========== ========= =============
Percentage increase in mortgage originations (year-on-year)
This APM demonstrates the growth in the Group's mortgage origination
activity.
Customer loans and receivables
originations
Prior period 1,356.7 1,305.4 2,737.3
Current period 1,490.0 1,356.7 2,846.1
Increase (Current period originations
less prior period originations) 133.3 51.3 108.8
========== ============= =============
Percentage increase (increase
/ prior period originations) 9.8% 3.9% 4.0%
========== ============= =============
Percentage loan book growth (year-on-year)
This APM demonstrates the growth in the Group's mortgage portfolio.
Opening balance of customer
loans and receivables (i) 5,693.8 4,415.5 5,364.2
Closing balance of customer
loans and receivables 7,046.9 5,693.8 6,661.5
---------- ------------- -------------
Increase (ii) 1,353.1 1,278.3 1,297.3
========== ============= =============
Add back:
Asset sales in the period 564.3 562.5 562.5
---------- ------------- -------------
Increase including asset sales
(iii) 1,917.4 1,840.8 1,859.8
========== ============= =============
Percentage increase (ii) /
(i) 23.8% 29.0% 24.2%
========== ============= =============
Adjusted percentage increase
(iii) / (i) 33.7% 41.7% 34.7%
==========
B. Other financial APMs (continued)
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Originations by segment
This APM shows the level of mortgage origination activity
by segment
BTL originations 909.1 835.3 1,642.1
Residential originations 376.3 362.9 825.3
Bridging loans originations 168.0 131.4 321.8
Second charge loans originations 36.6 27.1 56.9
----------- ----------- -------------
Total originations (note 14) 1,490.0 1,356.7 2,846.1
=========== =========== =============
Cost of funds
This APM measures the average interest rate payable on all
funding and is an indicator of the efficiency with which the
Group sources funding.
Interest expense and similar
charges (i) 57.8 43.0 95.0
=========== =========== =============
Average funding (monthly average)(*)
(ii) 7,234.1 6,117.8 6,443.6
=========== =========== =============
Cost of funds (i) / (ii) 1.61% 1.42% 1.47%
=========== =========== =============
(*) The average funding is calculated as the sum of deposits
from banks, deposits from customers, debt securities in issue and
other funding facilities opening and closing balances for the
period and the balances at each month end during the period divided
by seven for the six months ended 30 June 2019 and the six months
ended 30 June 2018 and divided by 13 for the year ended 31 December
2018.
C. Non-financial APMs
The APMs below have no close equivalent statutory measure.
APM Definition and purpose
Number of intermediaries Measure of the size of the mortgage
registered with the Group distribution network.
Number or value of securitisation Measure of the level of securitisation
transactions completed activity undertaken by the Group.
Net Promoter Score This is an externally collated customer
loyalty metric that measures loyalty
between a Provider, who in this context
is the Group, and a consumer.
D. Regulatory APMs
The APMs below have no close equivalent statutory measure.
APM Definition and purpose
Common equity tier 1 capital Common equity tier 1 capital divided
ratio by risk-weighted assets. This is a
measure of the amount of capital that
the Group holds as a percentage of
its risk-weighted assets.
Leverage ratio A regulatory standard ratio proposed
by the Basel III as a supplementary
measure to the risk based capital
requirements. It is calculated by
dividing Tier 1 capital resources
by a defined measure of on- and off-balance
sheet items plus derivatives and is
intended to constrain the build-up
of excess leverage in the banking
sector.
Shareholder information
Registered office
2 Charter Court, Broadlands, Wolverhampton, West Midlands, WV10
6TD
Company number
06712054
Communications
Information about the Group, including details of the current
share price, is available on our website,
www.chartercourtfs.co.uk.
Investor relations
Private investors with queries relating to their shareholding
should contact our registrar. You can find details of our registrar
below.
Institutional investors can contact Citigate Dewe Rogerson on
020 7638 9571.
Financial reports
The Group's financial reports are available on our website
www.chartercourtfs.co.uk. A summary of reports is listed in the
Important dates section below.
Important dates
Available format
Financial calendar Description Online Email RNS Paper
dates
------------------------- ------- ------ ------- ------
21 August 2019 Half year 2019 financial ü ü
results
------------------------- ------- ------ ------- ------
12 November 2019 Third quarter trading ü ü
update
------------------------- ------- ------ ------- ------
On 20 September 2019, an interim dividend will be paid to
shareholders on the register on the record date of 30 August
2019.
Registrar
Our register of members is maintained by Equiniti Limited. You
can contact Equiniti as follows:
By post: By telephone: By email:
Equiniti Limited, Aspect 0371 384 2030 or +44 Secure enquiries
House, Spencer Road, 121 415 7047 (if calling can be submitted
Lancing, West Sussex from outside the UK). via email at: help.shareview.co.uk
BN99 6DA Lines open 8.30am to
5.30pm (UK time) Monday
to Friday (excluding
public holidays in
England and Wales).
The registrar also provides services to help you manage your
shares online which you may find useful. For more information visit
www.shareview.co.uk.
Whichever way you choose to communicate with our registrar, you
will need to provide your full name, address and your 8 or 11 digit
shareholder reference which can be found on your share certificate
or proxy card.
Share certificates
Your share certificate is a valuable document. If your share
certificate is lost or stolen you should contact our registrar
immediately to prevent it being used fraudulently. Visit
www.shareview.co.uk for contact details and information regarding
the process and costs.
Share fraud warning
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inflated
price in return for an upfront payment. While high profits are
promised, if you buy or sell shares in this way you will probably
lose your money.
How to avoid share fraud
The FCA provides guidance on how to avoid scams at:
www.fca.org.uk/consumers/protect-yourself-scams.
If you are approached by fraudsters please tell the FCA using
the share fraud reporting form at www.fca.org.uk/scams, where you
can find out more about investment scams. You can also call the FCA
Consumer Helpline on 0800 111 6768.
You should also contact the Police as soon as possible -
particularly if you have already paid money to share fraudsters via
Action Fraud on 0300 123 2040.
[1] This financial report provides alternative performance
measures ("APMs") which are not defined or specified under the
requirements of International Financial Reporting Standards. We
believe these APMs provide readers with important additional
information on our business. To support this, we have included a
reconciliation of the APMs we use to statutory measures, where
relevant, and a glossary indicating the APMs we use, an explanation
of how they are calculated and why we use them.
[2] Excluding GBP3.8 million of costs incurred in relation to
the proposed merger with OSB.
[3] CET1 ratio includes unaudited profits to 30 June 19 less
foreseeable dividends.
[4] Excluding GBP3.8 million of costs incurred in relation to
the proposed merger with OSB.
[5] Gauges the quality of relationships between a business and
its customers based on responses to a simple question about how
likely the customer is to recommend a firm's products or services
to their family and friends. NPS range of -100 to +100, a
"positive" score above 0 is considered "good", +50 is "excellent",
and above 70 is considered "exceptional".
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR PGUACRUPBGBU
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