TIDMOSB
LEI: 213800WTQKOQI8ELD692
OneSavings Bank plc
Interim report for the six months ended 30 June 2019
OneSavings Bank plc ('OSB' or 'the Bank' or 'the Group'), the specialist
lending and retail savings group, announces today another strong set of
results for the six months ended 30 June 2019.
Financial highlights
-- Underlying profit before tax1 increased 6% to GBP96.9m (H1 2018:
GBP91.8m) and statutory profit before tax remained broadly flat at
GBP91.0m (H1 2018: GBP91.8m)
-- Net loan book growth of 10%, driven by 13% growth in gross organic
origination to GBP1,635m (H1 2018: GBP1,444m)
-- Continued focus on cost discipline and efficiency alongside strong income
growth delivered a cost to income ratio2 of 28% (H1 2018: 27%)
-- Net interest margin ('NIM')3 of 278bps (H1 2018: 301bps)
-- Loan loss ratio4 of 12bps (H1 2018: 11bps)
-- Fully-loaded Common Equity Tier 1 ('CET1') capital ratio strong at 13.0%
(FY 2018: 13.3%)
-- Underlying basic earnings per share ('EPS') of 29.0p5, up 5% (H1 2018:
27.5p) and statutory basic earnings per share down 7% to 25.5p (H1 2018:
27.5p)
-- Return on equity6 of 23% (H1 2018: 26%)
--Interim dividend of 4.9p per share, up 14% (H1 2018: 4.3p)(7)
Commenting on the results, Group CEO, Andy Golding said:
"I am delighted that OneSavings Bank has delivered strong performance in
the first half of 2019. Lending volumes were driven by 13% growth in
organic originations with high demand across our core market segments.
We saw good opportunities in the professional Buy-to-Let segment and our
more specialist businesses, including InterBay Commercial and bespoke
residential, flourished in the first six months of the year. This
supported 6% growth in underlying profit before tax to GBP96.9m and a
strong return on equity of 23%.
In July we successfully completed the inaugural issuance of our
Canterbury Finance RMBS programme, securitising GBP500m of organically
originated mortgages, adding further diversification to our funding and
paving the way for future optimisation of our funding model. Our retail
funding franchise had an excellent six months with nearly 30,000 new
customers joining the Bank.
NIM decreased in the first half, primarily due to the changing mix of
the loan book despite broadly stable asset pricing. The mix of the loan
book continued to change as the higher yielding back book refinanced
onto front book pricing. The impact of this mix effect has now largely
run its course, assuming current mortgage pricing, cost of funds and
swap spreads continue.
Our core market segments remain attractive and we have confidence in
continuing to deliver growth in our net loan book. Despite ongoing
uncertainty surrounding Brexit, given the growth already achieved this
year and considering the current strong pipeline and application levels
in the third quarter to date, we now expect to deliver high-teens net
loan book growth in 2019 at attractive margins. We continue to invest in
the business and we will maintain a strong focus on cost efficiency and
control.
The recommended all-share combination between OneSavings Bank and
Charter Court Financial Services Group plc ('CCFS') received shareholder
approval from OSB and CCFS's respective shareholders on 6 June 2019 and
an unconditional clearance from the Competition and Markets Authority on
30 July 2019. As a consequence of the combination we are unable to
provide detailed guidance for the financial year ahead.
OneSavings Bank is exceptionally well-placed to continue to generate
attractive returns for our shareholders, regardless of potential
political scenarios that may take place and we look to the future with
confidence."
Key metrics
H1 2019 H1 2018
-------------------------------- ------- -------
Total assets (GBPbn) 11.6 9.7
-------------------------------- ------- -------
Net loan book (GBPbn) 9.9 8.1
-------------------------------- ------- -------
Loan to deposit ratio(8)
(%) 91 90
-------------------------------- ------- -------
3 months+ arrears(9) (%) 1.5 1.3
-------------------------------- ------- -------
Customer net promoter score(10) +64 +60
-------------------------------- ------- -------
Enquiries:
OneSavings Bank plc Brunswick Group
Alastair Pate, Investor Relations Robin
Wrench/Simone Selzer
t: 01634 838973 t: 020 7404 5959
Results presentation
OneSavings Bank will be holding an interim results presentation for
analysts at 9:30am on Wednesday 21 August at The Lincoln Centre, 18
Lincoln's Inn Fields, WC2A 3ED. The UK dial-in is 0808 109 0700 and the
password is OneSavings Bank. The presentation will be webcast and
available from 9.30am on the OneSavings Bank website at
www.osb.co.uk/investors/results-reports- presentations. Registration is
open immediately.
About OneSavings Bank plc
OneSavings Bank plc ('OSB') began trading as a bank on 1 February 2011
and was admitted to the main market of the London Stock Exchange in June
2014 (OSB.L). OSB joined the FTSE 250 index in June 2015. OSB is a
specialist lending and retail savings group authorised by the Prudential
Regulation Authority, part of the Bank of England, and regulated by the
Financial Conduct Authority and Prudential Regulation Authority.
OSB primarily targets market sub-sectors that offer high growth
potential and attractive risk-adjusted returns in which it can take a
leading position and where it has established expertise, platforms and
capabilities. These include private rented sector Buy-to-Let, commercial
and semi-commercial mortgages, residential development finance, bespoke
and specialist residential lending, secured funding lines and asset
finance. OSB originates organically through specialist brokers and
independent financial advisers. It is differentiated through its use of
highly skilled, bespoke underwriting and efficient operating model.
OSB is predominantly funded by retail savings originated through the
long-established Kent Reliance name, which includes online and postal
channels, as well as a network of branches in the South East of England.
Diversification of funding is currently provided by a securitisation
programme and the Term Funding Scheme.
Notes
1. Before exceptional transaction expenses of GBP5.9m (H1 2018: GBPnil), see
Alternative performance measures and Exceptional items in the Financial
review for further details
2 Administrative expenses, including depreciation and amortisation as a
percentage of total income
3 Net interest income as a percentage of average interest bearing assets,
annualised
4 Impairment losses expressed as a percentage of average gross loans and
advances, annualised
5 Underlying profit attributable to ordinary shareholders of GBP71.0m
(H1 2018: GBP67.1m), which is underlying profit after tax of
GBP74.3m (H1 2018: GBP69.5m) less coupons on equity PSBs and AT1
securities, gross of tax of GBP3.3m (H1 2018: GBP2.4m, net of tax)
divided by the weighted average number of ordinary shares in issue
during the period, see note 1 Accounting policies -- Taxation and note 9
Earnings per share
1. Underlying profit after tax after deducting coupons on equity PSBs and
AT1 securities of GBP3.3m, gross of tax (H1 2018: GBP2.4m, net of tax) as
a percentage of average shareholders' equity (excluding equity PSBs of
GBP22m and AT1 securities of GBP60m) which
was GBP618.1m in first half of 2019 (H1 2018: GBP518.0m), annualised
1. The proposed interim dividend of 4.9 pence per share for the first half
of 2019 is based on one third of the total 2018 dividend of 14.6 pence
per share (H1 2018: 4.3 pence per share, one third of the 2017 dividend
of 12.8 pence per share)
2. Excluding the impact of the Bank of England's Term Funding Scheme and
Indexed Long-Term Repo. The unadjusted ratio was 107% (H1 2018: 109%)
9 Portfolio arrears rate of accounts for which there are missing or
overdue payments by more than three months as a
percentage of gross loans
1. The Net Promoter Score is calculated based on customer responses to the
question of whether they would recommend the Group's products to a
friend. The responses provide a score between -100 and +100
Alternative performance measures
OSB believes that the use of alternative performance measures ('APMs')
for profitability and earnings per share provide valuable information to
the readers of the financial statements and present a more consistent
basis for comparing the Group's performance between financial periods,
by adjusting for exceptional non-recurring items. APMs also reflect an
important aspect of the way in which operating targets are defined and
performance is monitored by the Board. However, any APMs in this
document are not a substitute for IFRS measures and readers should
consider the IFRS measures as well.
Important disclaimer
This document should be read in conjunction with the documents
distributed by OneSavings Bank plc ('OSB') through the Regulatory News
Service ('RNS'). This document is not audited and contains certain
forward-looking statements, beliefs or opinions, including statements
with respect to the business, strategy and plans of OSB and its current
goals and expectations relating to its future financial condition,
performance and results. Such forward-looking statements include,
without limitation, those preceded by, followed by or that include the
words 'targets', 'believes', 'estimates', 'expects', 'aims', 'intends',
'will', 'may', 'anticipates', 'projects', 'plans', 'forecasts',
'outlook', 'likely', 'guidance', 'trends', 'future', 'would', 'could',
'should' or similar expressions or negatives thereof. Statements that
are not historical facts, including statements about OSB's, its
directors' and/or management's beliefs and expectations, are
forward-looking statements. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and depend
upon circumstances that may or may not occur in the future. Factors that
could cause actual business, strategy, plans and/or results (including
but not limited to the payment of dividends) to differ materially from
the plans, objectives, expectations, estimates and intentions expressed
in such forward- looking statements made by OSB or on its behalf include,
but are not limited to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in exchange rates, stock markets, inflation, deflation,
interest rates and currencies; policies of the Bank of England, the
European Central Bank and other G8 central banks; the ability to access
sufficient sources of capital, liquidity and funding when required;
changes to OSB's credit ratings; the ability to derive cost savings;
changing demographic developments, and changing customer behaviour,
including consumer spending, saving and borrowing habits; changes in
customer preferences; changes to borrower or counterparty credit
quality; instability in the global financial markets, including Eurozone
instability, the potential for countries to exit the European Union (the
"EU") or the Eurozone, and the impact of any sovereign credit rating
downgrade or other sovereign financial issues; technological changes and
risks to cyber security; natural and other disasters, adverse weather
and similar contingencies outside OSB's control; inadequate or failed
internal or external processes, people and systems; terrorist acts and
other acts of war or hostility and responses to those acts; geopolitical,
pandemic or other such events; changes in laws, regulations, taxation,
accounting standards or practices, including as a result of an exit by
the UK from the EU; regulatory capital or liquidity requirements and
similar contingencies outside OSB's control; the policies and actions of
governmental or regulatory authorities in the UK, the EU or elsewhere
including the implementation and interpretation of key legislation and
regulation; the ability to attract and retain senior management and
other employees; the extent of any future impairment charges or write-
downs caused by, but not limited to, depressed asset valuations, market
disruptions and illiquid markets; market relating trends and
developments; exposure to regulatory scrutiny, legal proceedings,
regulatory investigations or complaints; changes in competition and
pricing environments; the inability to hedge certain risks economically;
the adequacy of loss reserves; the actions of competitors, including
non-bank financial services and lending companies; and the success of
OSB in managing the risks of the foregoing.
Accordingly, no reliance may be placed on any forward-looking statement
and no representation, warranty or assurance is made that any of these
statements or forecasts will come to pass or that any forecast results
will be achieved. Any forward- looking statements made in this document
speak only as of the date they are made and it should not be assumed
that they have been revised or updated in the light of new information
of future events. Except as required by the Prudential Regulation
Authority, the Financial Conduct Authority, the London Stock Exchange
PLC or applicable law, OSB expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this document to reflect any
change in OSB's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. For
additional information on possible risks to OSB's business, please see
Risk review section in the OSB 2018 Annual Report and Accounts. Copies
of this are available at www.osb.co.uk and on request from OSB.
Nothing in this document and any subsequent discussion constitutes or
forms part of a public offer under any applicable law or an offer to
purchase or sell any securities or financial instruments. Nor does it
constitute advice or a recommendation with respect to such securities or
financial instruments, or any invitation or inducement to engage in
investment activity under section 21 of the Financial Services and
Markets Act 2000. Past performance cannot be relied on as a guide to
future performance. Nothing in this document is intended to be, or
should be construed as, a quantified financial benefits statement for
the purposes of Rule 28 of the City Code on Takeovers and Mergers or a
profit forecast or estimate for any period.
Liability arising from anything in this document shall be governed by
English law, and neither the Company nor any of its affiliates, advisors
or representatives shall have any liability whatsoever (in negligence or
otherwise) for any loss howsoever arising from any use of this document
or its contents or otherwise arising in connection with this document.
Nothing in this document shall exclude any liability under applicable
laws that cannot be excluded in accordance with such laws.
Certain figures contained in this document, including financial
information, may have been subject to rounding adjustments and foreign
exchange conversions. Accordingly, in certain instances, the sum or
percentage change of the numbers contained in this document may not
conform exactly to the total figure given.
Key Performance Indicators
H1 2019
--------------------------------- ----------- -------------------
Gross new organic lending up 13% GBP1,635m H1 2018: GBP1,444m
--------------------------------- ----------- -------------------
Net loan book up 10% GBP9.9bn FY 2018: GBP9.0bn
--------------------------------- ----------- -------------------
Statutory profit before tax down GBP91.0m H1 2018: GBP91.8m
1%
--------------------------------- ----------- -------------------
Underlying profit before tax up GBP96.9m(1) H1 2018: GBP91.8m
6%
--------------------------------- ----------- -------------------
Statutory basic EPS down 7% 25.5p H1 2018: 27.5p
--------------------------------- ----------- -------------------
Underlying basic EPS up 5% 29.0p(1,5) H1 2018: 27.5p
--------------------------------- ----------- -------------------
Return on equity reduced by 3pp 23%(6) H1 2018: 26%
--------------------------------- ----------- -------------------
Net interest margin down 23bps 278bps(3) H1 2018: 301bps
--------------------------------- ----------- -------------------
Cost to income ratio increased by 28%(2) H1 2018: 27%
1pp
--------------------------------- ----------- -------------------
Fully-loaded CET1 ratio remains 13.0% FY 2018: 13.3%
strong
--------------------------------- ----------- -------------------
Loan loss ratio up by 1bp 12bps(4) H1 2018: 11bps
--------------------------------- ----------- -------------------
3 months + in arrears stable 1.5%(9) FY 2018: 1.5%
--------------------------------- ----------- -------------------
Customer NPS improved +64(10) H1 2018: +60
--------------------------------- ----------- -------------------
Interim dividend per share up 14% 4.9p(7) H1 2018: 4.3p
--------------------------------- ----------- -------------------
For definitions of key ratios please see footnotes above
Progress in the first half of 2019
I am very pleased with our progress this year. OneSavings Bank has
delivered excellent shareholder returns as a result of strong lending
across our market segments. In particular, strength in our core
Buy-to-Let/SME segment supported earnings growth, with a 5% increase in
underlying basic earnings per share to 29.0p. I am also pleased to
report an underlying pre-tax profit of GBP96.9m, a 6% increase on the
same period last year. Including the exceptional costs of the
recommended combination with Charter Court Financial Services Group plc
('CCFS'), statutory profit before tax was broadly flat at
GBP91.0m.
Our attractive market proposition to professional landlords and
borrowers with more complex needs, combined with strong broker
relationships, supported net loan book growth of 10% to GBP9.9bn in the
first half of 2019. This achievement reflects our strong organic
origination capability, with 13% growth in total organic origination
versus the first half of 2018 and the continued opportunities in the
markets in which we operate.
Demand across all of our core market segments is high and we were
pleased with the continued traction of our products in the market. In
particular, our commercial and residential offerings experienced
exceptionally strong growth and we continued to see high quality
business. However, in light of the current macroeconomic outlook and our
disciplined approach to lending, we tightened our underwriting criteria,
especially in bridging and residential development finance, to protect
the quality of the book.
Net interest margin ('NIM') decreased to 278bps in the first half, with
the reduction primarily due to the changing mix of the loan book,
despite broadly stable asset pricing. The mix of the loan book continued
to change as the higher yielding back book refinanced onto front book
pricing. The impact of this mix effect has now largely run its course,
assuming current mortgage pricing, cost of funds and swap spreads
continue.
We continued to manage costs effectively whilst investing in the
business, including the ongoing IRB project as well as improvements to
our IT infrastructure. Our cost to income ratio for the first half was
strong at 28%. High growth at attractive margins combined to produce an
annualised return on equity of 23%.
Our retail savings franchise remains extremely strong, with nearly
30,000 new customers joining the Bank in the first six months of 2019,
half of them in April alone, a record month for Kent Reliance. In July,
we re-entered the securitisation market with an inaugural deal in our
Canterbury Finance RMBS programme, securitising GBP500m of organically
originated mortgages, which adds valuable diversification to our
funding.
We are delighted with the receipt of OSB and CCFS shareholder approval
and the Competition and Markets Authority's unconditional clearance of
the recommended combination between OSB and CCFS, and we continue to
believe in the strong strategic rationale for creating a leading
specialist lender.
Continued development of our strong lending franchise
We differentiate ourselves by offering well-defined propositions in
market segments where we have the experience and distribution
relationships to successfully develop and service those segments.
Net loan book growth of 10% in the period was driven by a 13% increase
in gross organic origination to GBP1.6bn against the same period in
2018. We continued to see good opportunities with professional landlords
in our core Buy-to-Let market and additional semi-commercial and
commercial opportunities for our InterBay Commercial brand. Our
specialist residential lending increased through a successful relaunch
in the second half of 2018.
A high proportion of borrowers choose to take a new product with the
Bank at the end of their initial product term through Choices, OSB's
mortgage product retention scheme. Under Choices, borrowers are
encouraged to engage with their broker to receive advice and select from
a bespoke product set.
This scheme has been successful in increasing retention with 76% of
borrowers choosing a new OSB product within three months of the maturity
of their existing mortgage.
Our coordinated distribution across all brands remains a core strategic
differentiator and we have continued to gain industry recognition,
winning national and broker firm awards throughout the period, including
Best Specialist Mortgage Provider from Moneyfacts as well as Mortgage
Strategy awards for Best Specialist Lender and Best Buy-to-Let Lender.
Our more specialist businesses were also recognised by the industry,
including Bridging Funding Partner of the Year at the Bridging and
Commercial Awards and 2018 Secured Loan Lender award for our Prestige
second charge residential business.
The core Buy-to-Let sub-segment, which comprises 72% of the OSB gross
loan book, is demonstrating robust demand from professional and
incorporated landlords with high levels of refinancing partially
offsetting lower purchase activity and reduced demand from amateur
landlords. Five-year fixed rate products remain in favour with borrowers
and represented 51% of our Kent Reliance Buy-to-Let completions in the
first six months of 2019.
For new origination under our Kent Reliance brand, remortgages were 61%,
up from 58% in 2018. Professional/multi-property landlords accounted for
81% of Buy-to-Let completions by value during the first half of 2019 and
limited company purchase applications for Kent Reliance were 73%, as
landlords continue their migration to borrowing via company structures.
We are seeing increased demand in higher yielding market segments,
including Houses in Multiple Occupation and student accommodation, where
we have particular expertise.
Our InterBay Commercial business, which provides a range of commercial,
semi-commercial, bridging and more complex Buy-to-Let mortgages,
continues to flourish. Given the current macroeconomic environment, we
have recently tightened lending criteria and adjusted our risk exposures
accordingly to ensure the book remains of the highest quality. This
business lends at sensible loan to values ('LTVs'), and generates strong
returns on a risk-adjusted basis.
After a period of declining originations in our residential segment, we
saw originations rise in the first half of 2019 to GBP260m (H1 2018:
GBP111m). New products that we launched last year are gaining good
traction and meeting our growth targets. The shared ownership market is
currently offering relatively high yields and we have improved our
competitiveness for high quality business. Over the medium term, we see
an opportunity to deliver attractive risk-adjusted returns from our
residential products, particularly once we transition to IRB.
We are very pleased with the performance of our Heritable Development
Finance business. We continue to monitor markets closely and concentrate
on funding house builders who operate outside central London and provide
relatively affordable family housing, as opposed to complex city centre
schemes where affordability and construction cost control can be more
challenging. New applications come primarily from a mixture of repeat
business from the team's extensive long-term relationships and
referrals.
The residential development funding gross loan book at the end of June
2019 was GBP141m with a further GBP100m committed. The business has
commitments to finance the development of around 1,800 residential units
as at the end of June 2019.
The Bank's secured funding lines business in both Buy-to-Let/SME and
Residential segments continues to grow, with cautious risk fundamentals
applied. During the first six months of 2019, gross advances to the
specialty finance market segment, including bridging loans totalled
GBP101m, with total loans outstanding of GBP217m as at 30 June 2019.
During the period, one new GBP30m facility was approved and a number of
existing facilities were increased.
The InterBay Asset Finance business, which was established in the second
half of 2018 and predominantly targets UK SMEs and small corporates
financing business-critical assets, had a gross carrying amount under
finance leases of GBP28m as at 30 June 2019.
Sustainable funding model with outstanding customer satisfaction
We continue to benefit from our stable and award-winning retail funding
franchise, with nearly 30,000 new savings customers joining the Bank in
the first half of 2019. We offer a competitive retail savings
proposition, which allows the Bank to raise significant funds as we
require them. Retail deposits were up 14% from 31 December 2018 to
GBP9.2bn, as OSB took the opportunity to raise deposits at attractive
rates during the 2019 ISA season. Our excellent customer service is
demonstrated by our very strong customer Net Promoter Score ('NPS') of
+64 and our continued exceptionally high retention rates on maturing
bonds and ISAs of 93%.
We remain committed to being funded predominantly by retail savings with
a strong diversification capability through RMBS and Bank of England
funding schemes. In July, we successfully securitised
GBP500m of organically originated mortgages under our newly established
Canterbury Finance RMBS programme. This was well-received in the market,
adding further diversification to our funding and positioning us well
for future transactions. Our borrowings under the Term Funding Scheme
remained unchanged at GBP1.5bn and Indexed Long-Term Repo borrowings
were GBP100m as at 30 June 2019.
Well-capitalised with strong risk management
The Group's total arrears balance remained low, and the portfolio
arrears rate remained stable at 1.5% as at 30 June 2019 (31 December
2018: 1.5%). The Group's loan loss ratio for the first half remained
broadly flat at 12bps compared to 11bps in the first half of 2018.
There was no material change in the severity or probability weightings
assigned to the Group's macroeconomic scenarios in the first half of
2019. These were strengthened by the addition of a more severe no-deal
disorderly Brexit scenario(1) in December 2018, in addition to the
existing no-deal disruptive Brexit scenario(1) . The Bank's provisions
under IFRS 9 are particularly sensitive to the weighting applied to the
more severe disorderly no-deal Brexit scenario.(1)
We have maintained an appropriate level and quality of capital required
to support our growth objectives and to meet prudential requirements.
Our CET1 ratio of 13.0% as at 30 June 2019 (31 December 2018: 13.3%)
remained comfortably in excess of the regulatory requirements and Board
risk appetite. The Bank's total capital ratio was 15.2% as at 30 June
2019 (31 December 2018: 15.8%).
The weighted average LTV of the mortgage book remained low at 68% as at
30 June 2019 with an average LTV of 70% on new origination in the first
half. Our average interest coverage ratio ('ICR') remained stable in the
period at 175% (FY 2018: 171%).
We are pleased with our progress towards IRB and believe that the Bank
will benefit in its capital requirements, especially for residential
lending at sensible LTVs.
Cost discipline central to our business
The low cost to income ratio of 28% reflects our efficient and scalable
operating platform, and has been achieved despite additional investment
in the business, including our ongoing IRB project. We continue with
improvements to our technology infrastructure, including our online
savings platform. As ever, we focus on delivering further efficiencies
in the cost of running the Bank on a 'business as usual basis', through
continued disciplined cost management, the benefits of scale and
leveraging our unique operating platform in India ('OSBI') as we grow.
The management expense ratio improved to 74bps for the first six months
of 2019 compared to 79bps for the first half of 2018.
OSBI undertakes a range of primary processing services at a
significantly lower cost than an equivalent UK-based operation, with
quality of service that is consistently high, as reflected in our
outstanding customer NPS of +64. The focus on driving improved customer
experience extends to both our savings and lending franchises. Broker
NPS was +27 for the first six months of 2019.
A larger, stronger specialist lender
We are excited about the recommended combination with CCFS, fully
believing in the advantages that will come from a more resilient
diversified funding platform together with greater scale and resources.
We will have a larger footprint in the UK Buy-to-Let and residential
segments with an enhanced proposition to the broker community to ensure
we remain at the forefront of UK specialist mortgage lending.
Outlook
It is clear that the overall housing market is subdued with Brexit and
geopolitical concerns weighing on pricing and activity. However, we are
still achieving growth in our core market segments and are encouraged by
our strong pipeline and application levels. Given this and considering
the growth already achieved this year, we now expect to deliver net loan
book growth in the high-teens in 2019, driven by organic lending and
strong retention. The impact on NIM of the changing mix of the loan book,
as the higher yielding back book refinanced onto front book pricing, has
largely run its course, assuming current mortgage pricing, cost of funds
and swap spreads continue.
We are mindful of the macroeconomic environment, primarily driven by
uncertainties surrounding the UK's departure from the European Union and
the potential impact on the UK economy, including pressure on house
prices, particularly in London. However, we believe that our specialist
underwriting capabilities across our segments are even more relevant in
times of uncertainty, as they give us a greater and deeper understanding
of the risks that we can actively manage and price for. We manage the
business prudently, with careful business planning and strong credit
risk management across the life cycle, and continue to focus on
achieving high risk-adjusted returns in our chosen market segments.
Andy Golding
Chief Executive Officer
1. The Bank's two no-deal Brexit related economic scenarios relate to
(1) a no-deal disruptive Brexit, and (2) no-deal disorderly Brexit, as
published in the Bank of England 'EU withdrawal scenarios and monetary
and financial stability' paper, November 2018.
Financial review
Summarised financial information, including key ratios, is presented in
the tables below:
H1 2019 H1 2018
Summary Profit or Loss GBPm GBPm
Net interest income 151.0 135.2
Fair value losses on financial instruments (7.4) (1.9)
Net fees and commissions 0.3 0.2
External servicing fees (0.1) (0.4)
Administrative expenses(1) (40.9) (35.9)
FSCS and other regulatory provisions (0.1) (1.1)
Impairment losses (5.9) (4.3)
Exceptional item -- transaction expenses (5.9) -
------------- ------------
Profit before tax 91.0 91.8
------------- ------------
Profit after tax 65.8 69.5
------------- ------------
Underlying profit before tax(2) 96.9 91.8
------------- ------------
Underlying profit after tax(2) 74.3 69.5
------------- ------------
H1 2019 H1 2018
Key ratios
Net interest margin 278bps 301bps
Basic earnings per share, pence(2) 25.5 27.5
Underlying basic earnings per share,
pence(2) 29.0 27.5
Return on equity 23% 26%
Management expense ratio(3) , annualised 74bps 79bps
Cost to income ratio 28% 27%
Loan loss ratio 12bps 11bps
30-Jun-19 31-Dec-18
GBPm GBPm
Extracts from the Statement of Financial Position
Loans and advances 9,862.0 8,983.3
Retail deposits 9,175.0 8,071.9
Total assets 11,637.8 10,460.2
Key ratios
Liquidity ratio(4) 15.3% 14.5%
Common equity tier 1 ratio 13.0% 13.3%
Total capital ratio 15.2% 15.8%
Total leverage ratio 5.7% 5.9%
1 Including depreciation and amortisation
2 See Alternative performance measures and reconciliation of statutory
and underlying profit before and after tax below
3 Administrative expenses including depreciation and amortisation as a
percentage of average total assets
4 Liquid assets as a percentage of funding liabilities
For definitions of other key ratios please see footnotes above
Alternative performance measures
OSB believes that the use of alternative performance measures ('APMs')
for profitability and earnings per share provides valuable information
to the readers of the financial statements and presents a more
consistent basis for comparing the Group's performance between financial
periods, by adjusting for exceptional non-recurring items. APMs also
reflect an important aspect of the way in which operating targets are
defined and performance is monitored by the Board. However, any APMs in
this document are not a substitute for IFRS measures and readers should
consider the IFRS measures as well.
Reconciliation of statutory profit to underlying profit
Profit after
Profit before taxation taxation
------------------------
Group Group Group Group
30-Jun- 30-Jun- 30-Jun- 30-Jun-
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Statutory profit 91.0 91.8 65.8 69.5
Exceptional cost -- transaction
expenses(1) 5.9 - 5.9 -
Exceptional cost -- Heritable
option tax(2) - - 2.6 -
----------------------------------
Underlying profit 96.9 91.8 74.3 69.5
----------------------------------
1. Exceptional transaction costs of GBP5.9m relate to the recommended
combination with Charter Court Financial Services Group plc.
2. Heritable option tax relates to the reversal of the tax benefit
recognised in 2018.
Statutory basic EPS of 25.5 pence per share (H1 2018: 27.5 pence per
share) is calculated by dividing profit attributable to ordinary
shareholders of GBP62.5m (H1 2018: GBP67.1m) which is profit after
taxation of
GBP65.8m (H1 2018: GBP69.5m) less coupons on equity PSBs, gross of tax
of GBP0.5m (H1 2018: GBP0.4m, net of tax) and coupons on AT1 securities,
gross of tax of GBP2.8m (H1 2018: GBP2.0m net of tax) by the weighted
average number of ordinary shares in issue during the period of 244.9m
(H1 2018: 244.0m).
Underlying basic EPS of 29.0 pence per share (H1 2018: 27.5 pence per
share) is calculated by dividing underlying profit attributable to
ordinary shareholders of GBP71.0m (H1 2018: GBP67.1m), which is
underlying profit after taxation of GBP74.3m (H1 2018: GBP69.5m) less
coupons on equity PSBs, gross of tax of GBP0.5m (H1 2018: GBP0.4m, net
of tax) and coupons on AT1 securities, gross of tax of GBP2.8m (H1 2018:
GBP2.0 net of tax) by the weighted average number of ordinary shares in
issue during the period of 244.9m (H1 2018: 244.0m).
On 1 January 2019, the Group adopted amendments to IAS 12 Income Taxes
and, as a result, changed the way it accounts for tax payable on coupons
on equity bonds. From 1 January 2019, this tax is recognised directly in
profit or loss and not, as previously, in equity.
Strong underlying profit growth
The Group reported profit before tax of GBP91.0m for the first half of
2019, a decrease of 1% compared to
GBP91.8m in the first half of 2018. Excluding the exceptional
transaction costs relating to the recommended combination with Charter
Court Financial Services Group plc ('CCFS'), the Bank recorded a 6%
increase in underlying profit before tax to GBP96.9m (H1 2018: GBP91.8m)
primarily reflecting growth in the net loan book and net interest income
supported by an efficient cost base.
Profit after tax for the first half of 2019 decreased by 5% to GBP65.8m
(H1 2018: GBP69.5m). On an underlying basis, excluding the exceptional
transaction costs and the tax adjustment on the Heritable option cost,
the profit after tax was GBP74.3m (H1 2018: GBP69.5m) which represents a
7% increase compared to the first six months of 2018. The Bank's
effective tax rate remained broadly flat at 24.7%(1) for the first half
of 2019 (H1 2018: 24.3%).
Net interest income
The Group reported an increase in net interest income of 12% to
GBP151.0m in the first half of 2019 (H1 2018:
GBP135.2m) and net interest margin ('NIM') of 278bps (H1 2018: 301bps).
The decrease in NIM is primarily due to the changing mix of the loan
book, despite broadly stable asset pricing. The mix of the loan book
continued to change as the higher yielding back book refinanced onto
front book pricing. The impact of this mix effect has now largely run
its course, assuming current mortgage pricing, cost of funds and swap
spreads continue.
Fair value losses on financial instruments
Fair value losses on financial instruments increased to GBP7.4m in the
first half of 2019 (H1 2018: GBP1.9m). This included a GBP4.6m loss on
unmatched swaps (H1 2018: GBP0.2m gain), due primarily to fair value
movements on mortgage pipeline swaps, prior to them being matched
against completed mortgages, following a significant flattening of the
Libor curve. This unrealised loss will unwind over the life of the
swaps. The Group also made a loss of GBP0.9m (H1 2018: GBP0.8m gain) due
to the ineffective portion of hedges and recognised GBP2.0m of
amortisation of fair value adjustments on hedged assets relating to
cancelled swaps (H1 2018: GBP2.5m).
Net fees and commissions
Net fees and commissions income of GBP0.3m in the first half of 2019 (H1
2018: GBP0.2m) comprised fees and commissions receivable of GBP0.9m (H1
2018: GBP0.7m) partially offset by fees and commissions payable of
GBP0.6m (H1 2018: GBP0.5m).
External servicing fees
External servicing fees decreased to GBP0.1m in the first half of 2019
(H1 2018: GBP0.4m) due primarily to the transfer of servicing for a
number of acquired residential loan books to the Bank's operation in
India in 2018.
Administrative expenses
Administrative expenses, inclusive of depreciation and amortisation,
were up 14% to GBP40.9m in the first half of 2019 (H1 2018: GBP35.9m).
This included further spend on the Group's IRB project and planned
investment in IT infrastructure. The cost to income ratio increased to
28% (H1 2018: 27%).
We continue to focus on finding efficiencies in the cost of running the
Bank as we grow, which is demonstrated in the management expense
ratio(2) improving by 5bps to 0.74% for the first half of 2019 (H1 2018:
0.79%).
Regulatory provisions
The regulatory provisions in the first half of 2019 were GBP0.1m (H1
2018: GBP1.1m) representing levies due to the Financial Services
Compensation Scheme. The reduction in provisions is mainly due to
recognition of additional provisions on acquired books in the prior
period.
Impairment losses
Impairment losses in the first half of 2019 were GBP5.9m (H1 2018:
GBP4.3m). The loan loss ratio remained broadly flat at 12bps compared to
11bps in the first half of 2018 and includes the impact of a small
number of high value Buy-to-Let cases having Law of Property Act
receivers appointed at the end of the period, which attract higher
provision requirements in our IFRS 9 modelling approach.
There was no material change in the severity or probability weightings
assigned to the Group's macroeconomic scenarios in the first half of
2019. These were strengthened by the addition of a more severe no-deal
disorderly Brexit scenario(3) in December 2018, in addition to the
existing no-deal disruptive Brexit scenario(3) . The Bank's provisions
under IFRS 9 are particularly sensitive to the weighting applied to the
more severe disorderly no-deal Brexit scenario(3) .
The arrears performance of the front book continues to be very strong.
From more than 54,500 loans totalling GBP12.4bn organically originated
since the creation of the Bank in February 2011, only 273 were more than
three months in arrears as at 30 June 2019, with a total value of
GBP72.0m and an average loan to value of just 63%.
Exceptional items
Exceptional transaction costs of GBP5.9m, relating to the recommended
combination with CCFS, were recognised in the first half of 2019. These
exclude success fees payable if the combination receives regulatory
approvals and completes and costs that contain discount provisions
should the combination not proceed. These contingent liabilities are
expected to be c. GBP9m.
There were no exceptional items in the first half of 2018.
Dividends
The Group's dividend policy is to declare interim dividends based on one
third of the prior year's total dividend. The Board has therefore
declared an interim dividend of 4.9 pence per share for the first half
of 2019, based on the 2018 full year dividend of 14.6 pence per share.
The Board continues to target a full year dividend pay-out ratio of at
least 25 per cent of underlying profit after tax less coupons on equity
PSBs and AT1 securities classified as dividends.
Balance sheet growth
Loans and advances grew by 10% in the first half of 2019 to GBP9,862.0m
(31 December 2018: GBP8,983.3m). Retail deposits increased by 14% to
GBP9,175.0m (31 December 2018: GBP8,071.9m) and the borrowings under the
Bank of England's Indexed Long-Term Repo scheme were GBP100. m. The
Group's balance under the Term Funding Scheme remained unchanged during
the first half at GBP1,502.8m.
Total assets grew by 11% to GBP11,637.8m (31 December 2018:
GBP10,460.2m) due to the growth in loans and advances and liquid assets.
Liquidity
OneSavings Bank operates under the PRA's liquidity regime. The Bank
operates within a target liquidity runway in excess of the minimum
regulatory requirement. OSB ended the first six months of 2019 with a
liquidity ratio of 15.3%, an increase from 14.5% as at 31 December 2018.
The Bank took the opportunity to raise additional retail funds during
the ISA season to prudently improve its liquidity position given the
current uncertain macroeconomic and political outlook.
The Bank's liquidity coverage ratio ('LCR') of 163% as at 30 June 2019
(31 December 2018: 224%) is significantly in excess of the regulatory
minimum of 100%. The reduction in the LCR is due to a temporary
technical requirement to treat term deposits as on demand until 31
August 2019, during the notice period for changes to terms and
conditions. The Bank has not seen and does not anticipate any material
change in customer behaviour or withdrawals during this period.
Excluding this change, the LCR would have been 238% as at 30 June 2019.
The Bank's retail savings franchise continues to provide the business
with long-term sustainable funding for loan book growth as evidenced by
the retention rate for maturing deposits of 93% for the first six months
of 2019 and an exceptional level of customer satisfaction with a Net
Promoter Score of +64.
Capital
The Bank's capital position remained strong, with a fully-loaded CET1
ratio of 13.0% as at 30 June 2019 (31 December 2018: 13.3%) and a total
capital ratio of 15.2% (31 December 2018: 15.8%) demonstrating the
capital generation capability of the business to support significant
growth through profitability. The reduction in capital ratios is due
primarily to the strong growth in the loan book and the impact of
exceptional transaction costs on statutory profit.
The Bank had a leverage ratio of 5.7% as at 30 June 2019 (31 December
2018: 5.9%) and a Pillar 2a requirement of 1.1% of risk weighted assets
(31 December 2018: 1.1%).
1. Effective tax rate excludes GBP2.7m of adjustments relating to prior year,
see note 8 Taxation.
2. Management expense ratio is administrative expenses including
depreciation and amortisation as a percentage of average total assets.
3. The Bank's two no deal Brexit related economic scenarios relate to
(1) a no deal disruptive Brexit, and (2) no deal disorderly Brexit, as
published in the Bank of England 'EU withdrawal scenarios and monetary
and financial stability' paper, November 2018.
Segmental review
The following table shows the Group's loans and advances and
contribution to profit by segment:
Residential
First half 2019, GBPm Total BTL/SME mortgages
Net interest income 151.0 120.0 31.0
Other expense (7.2) (5.2) (2.0)
------- ----------- -----------
Total income 143.8 114.8 29.0
Impairment losses (5.9) (5.2) (0.7)
------- ----------- -----------
Contribution to profit 137.9 109.6 28.3
------- ----------- -----------
First half 2018, GBPm
Net interest income 135.2 102.3 32.9
Other expense (2.1) (0.6) (1.5)
------- ----------- -----------
Total income 133.1 101.7 31.4
Impairment losses (4.3) (3.0) (1.3)
------- ----------- -----------
Contribution to profit 128.8 98.7 30.1
------- ----------- -----------
Residential
As at 30 June 2019, GBPm Total BTL/SME mortgages
Gross loans to customers 9,895.0 8,158.8 1,736.2
Provision for impairment
losses (33.0) (15.1) (17.9)
-------------- ------------- -------------
Net loans to customers 9,862.0 8,143.7 1,718.3
Risk weighted assets 4,685.5 3,873.9 811.6
As at 31 December 2018, GBPm
Gross loans to customers 9,005.2 7,389.2 1,616.0
Provision for impairment
losses (21.9) (11.0) (10.9)
-------------- ------------- -------------
Net loans to customers 8,983.3 7,378.2 1,605.1
-------------- ------------- -------------
Risk weighted assets 4,211.8 3,453.8 758.0
Buy-to-Let/SME
Buy-to-Let/SME sub-segments: gross loans
30-Jun-19 31-Dec-18
GBPm GBPm
Buy-to-Let 7,099.7 6,517.5
Commercial 725.1 547.8
Residential development 141.2 155.8
Funding lines 192.8 168.1
--------------------------
Total 8,158.8 7,389.2
--------------------------
This segment comprises Buy-to-Let mortgages secured on residential
property held for investment purposes by experienced and professional
landlords, and commercial mortgages secured on commercial and
semi-commercial properties held for investment purposes or for
owner-occupation. It also includes our smaller, more specialist business
segments, including bridge finance, residential development finance to
small and medium-sized developers, secured funding lines to other
lenders and asset finance.
Market-wide Buy-to-Let gross advances remained broadly flat in the first
six months of 2019 at GBP18.5bn compared with GBP18.3bn in the same
period last year.(1) Refinancing accounted for the majority of this
activity, with landlords' confidence(2) , continuing to be impacted by
macroeconomic and political uncertainty. In addition, regulatory changes
to tax and stricter affordability assessment rules continue to deter
amateur landlords from entering the market leading to further
professionalisation of the Private Rented Sector.
OSB delivered 10% growth in its Buy-to-Let/SME gross loan book to
GBP8,158.8m in the first half of 2019, driven by a 3% increase in new
organic originations in the segment to GBP1,374.5m for the first half of
2019, compared to GBP1,332.6m in the first half of 2018.
The Buy-to-Let sub-segment grew by GBP582.2m or 9% in the first half of
2019 to a gross value of GBP7,099.7m (31 December 2018: GBP6,517.5) as
we benefitted from continued demand from the professional/multi-
property landlords who accounted for 81% of Buy-to-Let completions by
value during the first half of 2019 (H1 2018: 79%). This growth is also
due to the success of our targeted retention programme Choices, with 76%
of existing borrowers choosing a new product with the Group within three
months of product maturity.
For our main Kent Reliance brand, Buy-to-Let remortgages in the first
half of 2019 represented 61% and five year fixed rate products
represented 51% of originations (H1 2018: 58% and 59% respectively).
Limited company purchase applications for Kent Reliance were 73% for the
first six months of 2019, up from 70% in 2018. Our weighted average
interest coverage ratio was 175% in the first half (FY 2018: 171%).
Through our InterBay Commercial brand, we offer a range of commercial,
semi-commercial, bridging and more complex Buy-to-Let mortgages. The
Group's commercial sub-segment grew by 32% with the gross loan book
reaching GBP725.1m as at 30 June 2019 (31 December 2018: GBP547.8m), due
to reduced competition, primarily from wholesale-funded lenders. The
commercial and semi-commercial portfolio had a low weighted average loan
to value ('LTV') of 66% and average loan size of GBP380,000.
Our Heritable residential development business continues to provide
prudent development finance to small and medium-sized residential
developers. The preference is to fund house builders who operate outside
central London and provide relatively affordable family housing, as
opposed to complex city centre schemes where affordability and
construction cost control can be more challenging. New applications come
primarily from a mixture of repeat business from the team's extensive
existing relationships and referrals.
The residential development funding gross loan book at the end of June
2019 was GBP141.2m with a further
GBP99.8m committed (31 December 2018: GBP155.8m and GBP90.3m,
respectively). Since inception through to 30 June 2019, the business has
written GBP851m of loans of which GBP452m has been repaid to date. The
business had commitments to finance the development of just under 1,800
residential units as at the end of June 2019, the majority of which are
houses located outside central London.
In addition, the Bank continued to provide secured funding lines to
non-bank lenders which operate in certain high-yielding, specialist
sub-segments, such as bridging and asset finance. Total credit approved
limits as at 30 June 2019 were GBP470.0m with total loans outstanding of
GBP192.8m (31 December 2018:
GBP385.0m and GBP168.1m respectively). During the period, one new GBP30m
funding line was added and credit approved limits were increased by a
further GBP30m across two existing funding lines. The pipeline remains
robust, however, given macroeconomic uncertainties the Bank continues to
adopt a cautious risk approach.
Our InterBay Asset Finance business which was established in the second
half of 2018, predominantly targets UK SMEs and small corporates
financing business-critical assets. The gross carrying amount under
finance leases was GBP28.4m as at 30 June 2019 (31 December 2018:
GBP7.2m).
The average LTV in the Buy-to-Let/SME segment remained low at 72% (31
December 2018: 70%) with only 0.7% of loans by value with an LTV
exceeding 90% (31 December 2018: 0.6%). The average LTV of new
Buy-to-Let/SME origination in the first half of 2019 was 70% (H1 2018:
70%).
The Buy-to-Let/SME segment made a contribution to Group profit of
GBP109.6m in the first half of 2019, up 11% compared to GBP98.7m in the
first half of 2018, primarily reflecting growth in the loan portfolio,
partially offset by fair value losses on unmatched mortgage pipeline
swaps included in other expense.
1. UK Finance, New and outstanding buy-to-let new mortgages, 15 August 2019
2. BDRC Landlord panel, July 2019
Residential mortgages
Residential sub-segments: gross loans
30-Jun-19 31-Dec-18
GBPm GBPm
First charge 1,339.7 1,223.9
Second charge 372.8 368.0
Funding lines 23.7 24.1
----------------
Total 1,736.2 1,616.0
----------------
This segment comprises lending to owner occupiers, secured via either
first or second charges against residential homes and the shared
ownership market. The Bank also provides funding lines to non-bank
lenders who operate in high-yielding, specialist sub-segments such as
residential bridge finance.
During the first half of 2019, OSB's total residential loan portfolio
increased by 7% with a gross carrying value of GBP1,736.2m as at 30 June
2019 (31 December 2018: GBP1,616.0m) with organic residential lending of
GBP259.9m in the first half (H1 2018: GBP111.2m).
The first charge residential book had a gross value of GBP1,339.7m as at
30 June 2019 up 9% from
GBP1,223.9m at the end of 2018. The new residential products launched in
the second half of 2018 received a
positive response from borrowers and the Bank also increased its lending
in the shared ownership market in the first half of 2019.
The second charge residential loan book was broadly flat as at 30 June
2019 with a gross value of
GBP372.8m (31 December 2018: GBP368.0m) with organic origination
matching redemptions on the organic book and acquired books in run-off.
We maintained appropriate pricing for risk in this sub-segment as
competitive pricing pressures continued in this market.
OSB continued to provide secured funding lines to non-bank lenders which
operate in certain high-yielding, specialist sub-segments, such as
residential bridge finance. The Bank adopts a cautious risk approach to
these more cyclical businesses given macroeconomic uncertainty. Total
credit approved limits as at 30 June 2019 were GBP51.0m, with total
loans outstanding of GBP23.7m (31 December 2018: GBP51.8m and GBP24.1m
respectively).
The average LTV in the Residential segment remained low at 58% (31
December 2018: 56%) with 5% of loans by value with LTV's exceeding 90%
(31 December 2018: 3%). The average LTV of new residential origination
in the first half of 2019 increased to 70% (H1 2018: 65%) due to the new
residential range launched in the second half of 2018.
Residential mortgages made a contribution to Group profit of GBP28.3m in
the first half of 2019, down 6% from
GBP30.1m in the first half of 2018, primarily reflecting lower net
interest income due to the run off of high- yielding mortgages in the
back and acquired books.
Risk Management
Progress made during the six months to 30 June 2019
During the six months to 30 June 2019 the Group made strong progress
against its strategic risk management objectives for the year.
The Group's strategic risk management framework continues to evolve in
line with the growth of the business. An independent third party review
of the Group's strategic risk management framework confirmed that it can
be considered fit for purpose, that it is scalable and that it can be
adapted to future business change.
Enhancements continue to be made to the Group's data management and
governance capabilities in accordance with the Group's strategic data
management programme.
The Internal Ratings Based ('IRB') programme continued to progress well,
with significant progress made to the development of our second
generation IRB models. Further enhancements were also made with respect
to governance and embedding of the rating systems within wider risk
management processes, positioning the Group well to submit the first
module in the IRB application process within planned timelines.
The Group recognises that effective risk management is a responsibility
of all business functions and continues to focus on the embedding of
risk culture across the organisation. In particular, the Group continues
to provide training to its risk champions from around the business and
ensures they have specific risk management related activities recorded
as part of their performance management objectives.
The Group refreshed its conduct risk appetite statement and expanded the
range of associated key risk indicators to provide greater clarity on
the degree to which the Group is exposed to conduct risk.
The Group enhanced its group-wide horizon scanning processes which
further improved its ability to identify, assess, communicate and manage
all key legal, regulatory and industry-related developments that may
impact the Group.
The Group continues to review and enhance its management information
with a particular focus on credit risk reporting of the Group's lending
portfolios, which facilitate monitoring and allow improved management of
the risk and return profile of the Group.
The Group continued to make significant investment in people across the
Risk and Compliance functions ensuring that there is sufficient capacity
and capability to deliver the strategic risk enhancements planned for
the second half of the year and beyond.
Principal risks and uncertainties
The Board is responsible for determining the nature and extent of the
principal risks it is willing to take in order to achieve its strategic
objectives.
There were no material changes to the Group's business strategy, risk
management framework or risk appetite during the six months to 30 June
2019. We have however recognised incremental economic and political risk
and risks associated with the proposed combination with CCFS.
The table below details the principal risks which the Board believes are
the most material with respect to potential adverse movements impacting
the business model, future financial performance, solvency and
liquidity. A more detailed review of the Group's principal risks and
uncertainties can be found within the Risk review in the 2018 Annual
Report and Accounts on pages 41 to 46, which can be accessed via our
website at www.osb.co.uk.
Principal risks Key mitigating actions
---------------------- -----------------------------------------------------------
Strategic and business
risk -- Regular monitoring of the Group's strategic and
business performance against market commitments, the
balanced business scorecard and risk appetite by the
Board and the Executive Committees.
-- The Group also extensively uses stress tests to flex
core business planning assumptions to assess
potential performance under stressed operating
conditions.
---------------------- -----------------------------------------------------------
Reputational risk -- Established processes are in place to proactively
identify and manage potential sources of reputational
risk including monitoring of media coverage.
-- The Group has a customer centric culture whereby
customer interests and market integrity are at the
heart of business strategy and decision making. The
Group is committed to ensuring it consistently
delivers fair customer outcomes.
---------------------- -----------------------------------------------------------
Credit risk Individual borrower defaults
-- All loans are extended via bespoke and thorough
expert underwriting to ensure the ability and
propensity of borrowers to repay is appropriate,
whilst sufficient security is in place in case an
account defaults.
-- The Group's Transactional Credit Committee actively
reviews and approves larger or more complex mortgage
applications.
-- Should there be problems with a loan, the Collections
and Recoveries team work with customers unable to
meet their loan servicing obligations to reach a
satisfactory conclusion while adhering to the
principle of treating customers fairly.
-- Our strategic focus on lending to professional
landlords means that properties are likely to be
well-managed, with income from a diversified
portfolio mitigating the impact of rental voids or
maintenance costs. Lending to owner-occupiers is
subject to a detailed affordability assessment,
including the borrower's ability to continue payments
if interest rates increase.
-- Lending on commercial property is focused on security
levels, and is scrutinised by the Group's independent
Real Estate team as well as by external valuers.
-- Development finance lending is extended only after a
deep investigation of a borrower's track record and
the specific project details and requires approval by
a dedicated Development Finance Transactional Credit
Committee.
Macroeconomic downturn
-- The Group works within clearly defined portfolio
limits approved by the Risk Committee and the Board
covering loan to value ('LTV'), affordability, sector
and geographic concentration. These are reviewed on a
semi-annual basis. In addition, stress testing is
performed to ensure the Group maintains sufficient
capital to absorb losses in an economic downturn and
will continue to meet its regulatory requirements.
Wholesale credit risk
-- The Group transacts only with high quality wholesale
counterparties. Derivative exposures include
collateral agreements to mitigate credit exposures.
---------------------- -----------------------------------------------------------
Principal risks Key mitigating actions
--------------------- -----------------------------------------------------------
Liquidity and funding -- The Group's funding strategy is focused on a highly
risk stable retail deposit franchise. The Group's large
number of depositors provides diversification, with a
high proportion of balances covered by the Financial
Services Compensation Scheme which mitigates the risk
of a retail run.
-- The Group performs in-depth liquidity stress testing
and maintains a liquid asset portfolio sufficient to
meet obligations under stress.
-- The Group has prepositioned mortgage collateral with
the Bank of England, so that liquidity insurance
facilities can be accessed in the unlikely event that
it should become necessary.
-- The Group's funding plan ensures a diverse funding
profile and initiatives were put in place to replace
the Term Funding Scheme
funding, including the establishment of a
Retail Mortgage-Backed Securities
programme.
--------------------- -----------------------------------------------------------
Solvency risk -- The Group actively monitors its capital requirements
and resources against financial forecasts and plans
and undertakes stress testing analysis to subject its
solvency ratios to extreme but plausible scenarios.
-- The Group also holds prudent levels of capital
buffers based on CRD IV requirements, its own risk
appetite and expected balance sheet growth.
-- The Group engages actively with regulators, industry
bodies and advisers to keep abreast of potential
changes providing feedback through the consultation
process and actively manages its capital
strategy and
plan.
--------------------- -----------------------------------------------------------
Operational risk Cyber / IT security risk
-- A series of tools were designed and deployed to
identify and prevent network/system intrusions. The
effectiveness of implemented controls is overseen by
a dedicated IT Security Governance Committee, with
specialist IT security staff employed by the Group.
Data management
-- The Group continues to invest in its data management
architecture, systems governance and controls.
Financial Crime / Fraud
-- The Group continues to invest in enhancing
preventative and detective controls in order to
reduce both the likelihood and impact of this risk.
IT Failure
-- The Group has an ongoing IT Transformation Programme,
designed to further enhance the resilience of its
technology platforms.
Change management
-- The Group maintains a robust governance framework
ensuring the appropriate oversight of all change
management related activities.
--------------------- -----------------------------------------------------------
Principal risks Key mitigating actions
------------------------- -----------------------------------------------------------
Conduct risk Product suitability
-- The Group has a strategic commitment to providing
customers with simple and transparent products. In
addition, a Product Governance framework is
established to oversee both the origination of new
products and to revisit the ongoing suitability of
the existing product suite.
-- The Group has a dedicated Product Governance team and
an independent Conduct Risk team to effectively
manage this risk.
Data protection
-- In addition to a series of network/system controls,
the Group performs extensive root cause analysis of
any data leaks in order to ensure that the
appropriate mitigating actions are taken.
------------------------- -----------------------------------------------------------
Compliance and regulatory -- The Group has an effective horizon scanning process
risk to identify regulatory change. All significant
regulatory initiatives are managed by structured
programmes overseen by the Change Management team and
sponsored at executive management level. The Group
proactively seeks external expert opinions to support
its interpretation of the requirements and validation
of its response.
-- The Group undertakes risk-based monitoring and
oversight programmes to ensure it continues to meet
existing regulatory
requirements, has effective systems and controls
and delivers fair customer
outcomes.
------------------------- -----------------------------------------------------------
Emerging risks
The Group proactively scans for emerging risks which may have an impact
on its ongoing operations and strategy. The Group considers its top
emerging risk to be:
Emerging risks Key mitigating actions
--------------------------------------------------------- -----------------------------------------------------------
Political and macroeconomic uncertainty -- The Group implemented robust monitoring processes and
As the final details around the via various stress testing activity (i.e. ad hoc,
UK's withdrawal from the European risk appetite and ICAAP) understands how the Group
Union remain unclear, there is performs over a variety of macroeconomic stress
a continued likelihood of a period scenarios and subsequently developed a suite of early
of macroeconomic uncertainty. warning
The Group's lending activity is indicators which are closely monitored
solely focused within the United to identify changes in the macroeconomic
Kingdom and as such will be environment.
impacted by any risks emerging
from changes in the macroeconomic
environment.
--------------------------------------------------------- -----------------------------------------------------------
Integration risk Operational risks
The proposed combination between The probability and impact of
OSB and CCFS is expected to create integration-based operational
strategic and operational synergies, risks being realised are minimised
however, the integration process through the following mitigating
could result in operational and factors:
prudential risks. -- a low-risk approach to integration through
Integration-based operational maintaining existing brands and parallel running of
risks could materialise through critical supporting functions. A cautious integration
a number of different events, timeline has been assumed with no current plans for
for example: large-scale IT integration.
-- unrealised or delayed synergies; -- a prudent approach to forecasting base case synergies
-- one-off implementation costs being higher than and one-off integration costs.
estimated; and -- appropriate resourcing of the integration programme
-- realisation of wider transaction-related risks (for with external support services.
example, adverse customer impact, loss of key -- appropriate Board and senior management engagement
management or IT downtime/failure). and oversight of integration.
The combination will also have MREL
implications on the combined Group's -- The impact of MREL has been factored into the working
resolvability and additional gone capital assessment of the combined group.
concern capital requirements (MREL). -- The combined Group will work closely with the Bank of
The combination will involve a England Resolution Directorate to ensure effective
revised approach to combining compliance with the resolution strategy for the
the two independent IRB programmes combined Group.
to agree a revised approach to IRB
submitting the application. -- A review of the independent IRB programmes has been
Completion of the combination undertaken as part of due diligence.
is subject to a number of conditions -- Expert advice will be sought on the approach to the
which may not be satisfied or combination.
waived or which may be satisfied The PRA will be engaged to ensure
subject to conditions imposed the combined programme is aligned
by regulatory bodies or other to their expectations.
third parties and may result in Delays/non-completion
the completion of the combination -- A panel of appropriately skilled advisors have been
being delayed, or the combination appointed to advise the Group throughout the entire
not completing. Delay in completing process.
the combination will prolong the
period of uncertainty for OSB
and CCFS and both delay and failure
to complete may result in the
accrual of additional costs to
their businesses without any of
the potential benefits of the
combination having been
achieved.
--------------------------------------------------------- -----------------------------------------------------------
Credit risk portfolio performance
The Group's credit profile continues to exhibit strong performance
across all key risk indicators including loans and advances positions,
LTV and arrears levels.
During the six months to 30 June 2019, the Group observed strong lending
growth, whilst maintaining credit underwriting standards, with weighted
average LTV ratios for new Buy-to-Let/SME lending remaining stable at
70% (30 June 2018: 70%). Residential lending saw an expected increase in
weighted average LTV for new lending to 70%, driven by the new product
range launched in the second half of 2018 (30 June 2018: 65%). During
the period, the average weighted interest coverage ratio for new lending
remained broadly stable at 175%, compared to 171% in 2018. Across the
residential segment the percentage of new lending with a loan to income
greater than 4.5 times remained stable at 3.1% (31 December 2018: 3.2%).
Strong lending growth across both the Buy-to-Let/SME segment and the
first charge residential segment, combined with the success of the
Group's customer retention programme, Choices, facilitated 10% net loan
book growth in the period, with loans and advances to customers growing
to GBP9.9bn (31 December 2018 GBP9.0bn). The Group's acquired portfolios
continue to run off in line with expectations.
The Group's total weighted average LTV ratio increased to 68% as at 30
June 2019, increasing by two percentage points from 66% as at 31
December 2018, driven by strong BTL/SME lending within the period with a
weighted average LTV of 70%. Importantly, the Group continues to observe
a tight clustering of LTVs around the weighted average.
During the six months to 30 June 2019, the Group's portfolio composition
continued to evolve favourably, with pre-2011 lending continuing to run
down as expected, evidenced by a further reduction in lending exposures
to Jersey and Guernsey. Post-2011 lending, incorporating tighter lending
criteria, continued to make up an increasing proportion of the Group's
total loans and advances to customers:
-- exposure to semi-commercial/commercial lending remains low at GBP725.1m
with a weighted average LTV of 66%
-- exposure to residential development finance remains low at GBP141.2m with
a weighted average LTV of 34%
-- the Group has limited exposure to high LTV loans on properties worth more
than GBP2m. In total, only 7.1% of the total loan book is secured on
properties valued at greater than GBP2m with a LTV greater than 65% (30
June 2018: 5.0%) with the increase driven mainly by new Buy-to-Let
loans.
The Group's total arrears balance remains low, and the portfolio arrears
rate remained stable at 1.5% as at 30 June 2019 (30 December 2018:
1.5%). An increase in arrears in the Group's Buy-to-Let segment was
observed, however the Collections and Recoveries team continue to
carefully manage these cases. The Group's residential arrears
performance remained broadly stable in the period, with an increase in
acquired first charge arrears being offset by a decrease in acquired
second charge arrears, whilst negligible arrears continued to be
observed across the commercial loan, funding line and development
finance portfolios.
During the six months to 30 June 2019, the Group continued to experience
low levels of new cases requiring forbearance arrangements, however it
did observe an increase in the cases entering forbearance versus the
first half of 2018. The increase in forbearance volumes was driven by
applications of forbearance across the acquired second charge portfolio.
Impairment losses in the first half of 2019 were GBP5.9m (H1 2018:
GBP4.3m), which represents an annualised loan loss ratio of 12bps (H1
2018: 11bps) and included the impact of a small number of high
value Buy-to-Let cases having Law of Property Act receivers appointed at
the end of the period which attract higher provision requirements in our
IFRS 9 modelling approach.
There was no material change in the severity or probability weightings
assigned to the Group's macroeconomic scenarios in the first half of
2019. These were strengthened by the addition of a more severe no-deal
disorderly Brexit scenario(1) in December 2018, in addition to the
existing no-deal disruptive Brexit scenario(1) . The Bank's provisions
under IFRS 9 are particularly sensitive to the weighting applied to the
more severe disorderly no-deal Brexit scenario(1) .
The Group continues to closely monitor impairment coverage levels:
Impairment coverage review
30-Jun-19 31-Dec-18
Gross loans and advances to customers GBPm 9,895.0 9,005.2
Provisions for impairment losses GBPm(1) 33.0 29.1
Coverage ratio versus loans and advances(2)
% 0.33 0.32
Coverage ratio versus stage 3 balances (including
POCI) (3) % 10.7 10.3
----------------------------------------------------
1During the period the Group reclassified GBP6.7m of incurred loss
protection on acquired portfolios from loans and advances to expected
credit losses ('ECL'). In the table above, an equivalent GBP7.2m was
reclassified for the comparative period.
2 Coverage ratio versus loans and advances is the total IFRS 9 provision
versus gross loans and advances.
1. Coverage ratio versus stage 3 balances is the total IFRS 9 provision
versus stage 3 balances including purchase or originated credit impaired
balances, which are held in stage 3 where a lifetime loss impairment
balance is held against the exposure for the life of the
loan irrespective of whether it is performing and doesn't meet the
Group's stage 3 definition.
The Group's coverage ratios with respect to loans and advances and stage
3 balances increased during the period to 30 June 2019 versus year end,
partly due to an increased proportion of stage 3 loans which also had a
Law of Property Act receiver appointed, resulting in higher calculated
expected losses on those accounts, as the probability of possession
component of the Loss Given Default models are set to 100%.
Under the IFRS 9 approach, there are three stages which an exposure can
be classified into, stage 1, where a 12 months expected credit loss
provision is held, and stages 2 and 3 where a lifetime loss provision is
held.
Purchased or originated credit impaired ('POCI') exposures are held in
stage 3 for the lifetime of the loan, irrespective of whether they have
transitioned to a performing status.
For non-POCI accounts which had previously met the Group's stage 3
criteria, a probation cure period must be satisfied prior to an exposure
being migrated back to stage 1, where a twelve month loss provision is
held.
Liquidity and funding risk management overview
OneSavings Bank's lending strategy is supported by a strong retail
savings franchise, which provides the Bank with a sustainable funding
platform to support long-term balance sheet growth. This strength is
reflected in a high retention level on maturing fixed term products of
93% in the first half of 2019 and strong customer satisfaction scores.
As at 30 June 2019, 8.2% of the Bank's retail deposits were above the
FSCS protection level of GBP85k. Diversification of funding is also
provided by borrowing from the Bank of
England under the Term Funding Scheme (which closed in February 2018)
and by Indexed Long-Term Repo ('ILTR'). As at 30 June 2019, OSB had
total TFS drawings of GBP1.5bn and ILTR drawings of GBP100m.
The Group continues to operate a conservative approach to managing
liquidity with a liquidity ratio of 15.3% as at 30 June 2019 (31
December 2018: 14.5%). The liquidity coverage ratio at 30 June 2019 was
163% (31 December 2018: 224%), significantly above the regulatory
minimum of 100%.
The reduction in the liquidity coverage ratio is due to a temporary
technical requirement to treat term deposits as on demand until 31
August 2019, during the notice period for changes to terms and
conditions. The Bank has not seen and does not anticipate any material
change in customer behaviour or withdrawals during this period.
Excluding this change, the LCR would have been 238% as at 30 June 2019.
Market risk
The Group has a small amount of foreign exchange exposure, due to the
Rupee denominated running costs of its OSBIndia office. Rupee
denominated running costs during the period to 30 June 2019 were
GBP3.1m (H1 2018: GBP2.9m).
Solvency risk management overview
The Group continued to maintain an appropriate level and quality of
capital to support its growth objectives and to meet its prudential
requirements. The Group maintained a strong capital position in the
first half of 2019 with a CET1 ratio of 13.0% (31 December 2018: 13.3%),
which remains comfortably in excess of the regulatory requirements and
Board risk appetite.
OSB's capital buffers are subject to active monitoring by the Board and
senior management in the context of the Bank's strategic objectives,
performance commitments, economic and market conditions, regulatory
changes and other risks to which the Bank is exposed.
The Group's first generation IRB models were delivered on schedule in
late 2016 and we ran them for the second year in 2018. We remain pleased
with progress towards our IRB application and believe that the new
calibrations, combined with the final IRB output floors outlined in
Basel III, will be beneficial to the Bank's capital requirements.
1. The Bank's two no-deal Brexit related economic scenarios relate to (1) a
no-deal disruptive Brexit, and (2) no-deal disorderly Brexit, as
published in the Bank of England 'EU withdrawal scenarios and monetary
and financial stability' paper, November 2018.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by the
EU;
-- the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the
first six months of the 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 year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party 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 of the entity during that period;
and any changes in the related party transactions described in the last
annual report that could do so.
The Board of Directors, as listed below, represents those individuals
responsible for this interim management report:
Graham Allatt Eric Anstee Rod Duke Andy Golding
Margaret Hassall Mary McNamara April Talintyre David Weymouth
Sarah Hedger (Appointed on 1 February 2019)
By order of the Board Date: 21 August 2019
yearly financial report for the six months ended 30 June 2019 which
comprises the Condensed Consolidated Statement of Comprehensive Income,
the Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Statement of Changes in Equity, the Condensed
Consolidated Statement of Cash Flows and related notes 1 to 25. We have
read the other information contained in the half-yearly 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 half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing
the half-yearly financial report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1 accounting policies, 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 half-yearly 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 half-yearly 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
half-yearly 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 London, United Kingdom 21 August 2019
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
Note (Unaudited) (Unaudited)
GBPm GBPm
Interest receivable and similar income 2 227.9 190.1
Interest payable and similar charges 3 (76.9) (54.9)
----------------------------------------------
Net interest income 151.0 135.2
Fair value losses on financial instruments 4 (7.4) (1.7)
Loss on sale of financial instruments - (0.2)
Fees and commissions receivable 0.9 0.7
Fees and commissions payable (0.6) (0.5)
External servicing fees (0.1) (0.4)
----------------------------------------------
Total income 143.8 133.1
Administrative expenses 5 (37.9) (33.7)
Depreciation and amortisation (3.0) (2.2)
Impairment losses 16 (5.9) (4.3)
FSCS and other regulatory provisions (0.1) (1.1)
Exceptional cost - transaction expenses 7 (5.9) -
----------------------------------------------
Profit before taxation 91.0 91.8
Taxation 8 (25.2) (22.3)
----------------------------------------------
Profit for the period 65.8 69.5
----------------------------------------------
Other comprehensive income/(expense)
Items which may be reclassified to
profit or loss:
Fair value changes on financial instruments
measured as FVOCI:
Arising in the period - (0.1)
Revaluation of foreign operations 0.1 (0.5)
----------------------------------------------
Total other comprehensive income/(expense) 0.1 (0.6)
----------------------------------------------
Total comprehensive income for the
period 65.9 68.9
----------------------------------------------
Dividend, pence per share 10 4.9 4.3
Earnings per share, pence per share
Basic 9 25.5 27.5
Diluted 9 25.3 27.3
----------------------------------------------
The above results are derived wholly from continuing operations.
The notes on pages 33 to 61 form an integral part of these condensed
financial statements.
As at As at
30-Jun-19 31-Dec-18
Note (Unaudited) (Audited)
GBPm GBPm
Assets
Cash in hand 0.3 0.4
Loans and advances to credit
institutions 1,493.8 1,347.3
Investment securities 160.0 58.9
Loans and advances to customers 12 9,862.0 8,983.3
Fair value adjustments on hedged
assets 17 66.5 19.8
Derivative assets 3.9 11.7
Deferred taxation asset 2.2 3.5
Intangible assets 8.1 7.8
Property, plant and equipment 28.6 21.8
Other assets 12.4 5.7
-----------------------------------
Total assets 11,637.8 10,460.2
-----------------------------------
Liabilities
Amounts owed to retail depositors 9,175.0 8,071.9
Fair value adjustments on hedged
liabilities 17 3.1 -
Amounts owed to credit
institutions 1,605.9 1,584.0
Amounts owed to other customers 8.8 32.9
Derivative liabilities 58.2 24.9
Current taxation liability 20.6 19.2
Other liabilities 18.9 18.7
FSCS and other regulatory
provisions 1.7 1.8
Subordinated liabilities 10.8 10.8
Perpetual subordinated bonds 15.3 15.3
-----------------------------------
10,918.3 9,779.5
Equity
Share capital 2.5 2.4
Share premium 158.8 158.8
Retained earnings 479.2 439.6
Other reserves 79.0 79.9
-----------------------------------
719.5 680.7
Total equity and liabilities 11,637.8 10,460.2
-----------------------------------
The notes on pages 33 to 61 form an integral part of these condensed
financial statements.
The financial statements on pages 29 to 61 were approved by the Board of
Directors on 21 August 2019.
Andy Golding April Talintyre
Chief Executive Officer Chief Financial Officer
Company number: 07312896
OneSavings Bank plc
Interim report for the six months ended 30 June 2019
Condensed Consolidated Statement of Changes in Equity
Available- FVOCI Share-
Foreign for-sale reserve based
Share Share Capital Transfer exchange reserve (IFRS payment Retained Equity
capital premium contribution reserve reserve (IAS 39) 9) reserve earnings bonds(1) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 2.4 158.8 6.5 (12.8) (0.4) - (0.1) 4.7 439.6 82.0 680.7
Profit for the period - - - - - - - - 65.8 - 65.8
Coupon paid on equity bonds - - - - - - - - (3.3) - (3.3)
Dividends paid - - - - - - - - (25.3) - (25.3)
Other comprehensive income - - - - 0.1 - - - - - 0.1
Ordinary share capital
issuance 0.1 - - - - - - - - - 0.1
Share-based payments - - - - - - - (1.1) 2.5 - 1.4
Exceptional cost - transaction
expenses(2) - - - - - - - - (0.1) - (0.1)
Tax recognised in equity - - - - - - - 0.1 - - 0.1
---------------------------------
At 30 June 2019 (Unaudited) 2.5 158.8 6.5 (12.8) (0.3) - (0.1) 3.7 479.2 82.0 719.5
---------------------------------
At 31 December 2017 2.4 158.4 6.4 (12.8) (0.2) 0.1 - 5.0 337.5 82.0 578.8
---------------------------------
IFRS 9 transitional adjustment - - - - - (0.1) 0.1 - (3.6) - (3.6)
Tax on IFRS 9 - - - - - - - - 0.7 - 0.7
---------------------------------
Restated at 31 December
2017 2.4 158.4 6.4 (12.8) (0.2) - 0.1 5.0 334.6 82.0 575.9
Profit for the period - - - - - - - - 69.5 - 69.5
Coupon paid on equity bonds - - - - - - - - (3.3) - (3.3)
Dividends paid - - - - - - - - (22.7) - (22.7)
Other comprehensive income - - - - (0.5) - (0.1) - - - (0.6)
Share-based payments - - 0.1 - - - - (1.1) 2.4 - 1.4
Tax recognised in equity - - - - - - - 0.1 0.9 - 1.0
---------------------------------
At 30 June 2018 (Unaudited) 2.4 158.4 6.5 (12.8) (0.7) - - 4.0 381.4 82.0 621.2
---------------------------------
1 Equity bonds comprise GBP22m of Perpetual Subordinated Bonds ('PSBs')
and GBP60m of Additional Tier 1 securities ('AT1 securities').
2 Exceptional cost -- transaction expenses relate to costs incurred for
the issuance of equity as part of the recommended all-share combination
with Charter Court Financial Services Group plc.
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
Note (Unaudited) (Unaudited)
GBPm GBPm
Cash flows from operating activities
Profit before taxation 91.0 91.8
Adjustments for non-cash items 22 18.6 11.7
Changes in operating assets and liabilities 22 45.8 (18.8)
--------------------------------------------- ---------
Cash generated from operating activities 155.4 84.7
FSCS and other provisions paid (0.2) -
Net tax paid (22.4) (19.8)
---------------------------------------------
Net cash generated from operating
activities 132.8 64.9
Cash flows from investing activities
Purchases of investment securities (239.9) (39.9)
Maturity and sales of investment securities 139.0 39.9
Sales of financial instruments - 0.4
Purchases of equipment and intangible
assets (10.1) (2.5)
---------------------------------------------
Cash used in investing activities (111.0) (2.1)
Cash flows from financing activities
Bank of England TFS drawdowns - 250.0
Bank of England ILTR received 180.0 -
Bank of England ILTR matured (80.0) -
Interest paid on bonds and subordinated
debt (0.8) (0.8)
Coupon paid on equity bonds (3.3) (3.3)
Dividends paid (25.3) (22.7)
Cash payments on lease liabilities (0.3) -
---------------------------------------------
Cash generated from financing activities 70.3 223.2
---------------------------------------------
Net increase in cash and cash equivalents 92.1 286.0
---------------------------------------------
Cash and cash equivalents at the beginning
of the period 11 1,324.2 1,165.9
Cash and cash equivalents at the end
of the period 11 1,416.3 1,451.9
--------------------------------------------- ---------
Movement in cash and cash equivalents 92.1 286.0
---------------------------------------------
The notes on pages 33 to 61 form an integral part of these condensed
financial statements.
1. Accounting policies
The principal accounting policies applied in the preparation of the
accounts for the Group are set out below.
a) Basis of preparation
These Interim Group Financial Statements have been prepared in
accordance with the Disclosure Guidance and Transparency Rules ('DTR')
of the FCA and in accordance with International Accounting Standard 34
Interim Financial Reporting as adopted by the EU.
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. They do not include all the information
required for a complete set of IFRS financial statements. However,
selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the changes in
the Group's financial position and performance since the last Interim
Report as at 30 June 2018 and last Annual Report and Accounts for the
year ended 31 December 2018.
The comparative figures for the year ended 31 December 2018 are not the
Group's statutory accounts for that financial year. 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 Group's previous auditor has reported
on those accounts. Their 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.
These interim financial statements were authorised for issue by the
Company's Board of Directors on 21 August 2019.
b) Accounting standards
All accounting policies used are consistent with those set out on pages
122 to 130 of the 2018 Annual Report and Accounts, except for the
implementation of IFRS 16 Leases and changes to IAS 12 Income Taxes
effective from 1 January 2019.
Leases
The Group recognises right-of-use assets and lease liabilities for most
leases over 12 months. Right-of- use assets and lease liabilities are
initially recognised at the net present value of future lease payments,
discounted at the Group's internal cost of funding, excluding the impact
of the Bank of England Term Funding Scheme ('TFS') funding. Subsequent
to initial recognition, right-of-use assets are depreciated on a
straight-line basis over the term of the lease. Future rental payments
are deducted from the lease liability, with interest charged on the
lease liability using the incremental borrowing cost at the time of
initial recognition. The Group recognises the interest paid on the lease
liability within financing activities on the Statement of Cash Flows.
The Group applies judgement in assessing the likely impact of early
terminations upon recognising the right-of-use asset and lease liability
where leases contain an option to terminate the lease early. The Group
performs an annual assessment of the judgements made at initial
recognition and, where it is found the lease duration will be shorter or
longer than initially accounted, adjusts the carrying balance of the
right-of-use asset and lease liability to the net present value of
future lease payments discounted at the initial cost of funding.
Leases with low future payments or terms less than 12 months are
recognised on an accruals basis directly in profit or loss.
1. Accounting policies (continued)
The impact on the Group's Statement of Financial Position as at 1
January 2019 of the implementation of IFRS 16 was an increase in total
assets and total liabilities of GBP3.8m.
Taxation
Income tax comprises current and deferred tax. It is recognised in
profit or loss, other comprehensive income or directly in equity,
consistently with the recognition of items it relates to. In accordance
with IAS 12, from 1 January 2019 the Group recognises tax on the coupon
paid on equity bonds directly in profit or loss (2018: directly in
equity).
The impact on the Group's Statement of Comprehensive Income for the
period to 30 June 2019 for the implementation of the amendments to IAS
12 is an increase in profit for the period of GBP0.9m.
c) Going concern
The Board undertakes regular rigorous assessments of whether the Group
is a going concern in light of current economic conditions and all
available information about future risks and uncertainties.
Projections for the Group have been prepared, covering its future
performance, capital and liquidity for a period in excess of 12 months
from the date of approval of these Interim Group Financial Statements
including stress scenarios. The stress scenarios include Brexit and Bank
of England TFS repayments. These projections show that the Group has
sufficient capital and liquidity to continue to meet its regulatory
capital requirements as set out by the PRA.
The Board has therefore concluded that the Group has sufficient
resources to continue in operational existence for a period in excess of
12 months and as a result, it is appropriate to prepare these Interim
Group Financial Statements on a going concern basis.
d) Segmental reporting
The Group segments its lending by product, focusing on the customer need
and reason for a loan. The Group operates under two segments:
Buy-to-Let/SME ('BTL/SME') and Residential mortgages.
The Group includes asset finance leases (a new business lending line
developed internally with lending commencing in October 2018) within the
BTL/SME segment.
The Group has applied the aggregation criteria of IFRS 8 for the
segmental reporting in note 21, but has disclosed the risk management
tables in note 18 at a sub-segment level to provide the user with a
granular level analysis of the Group's core lending business.
e) Judgements and estimates
The preparation of the Interim Report requires management to make
estimates and assumptions that affect the reported income and expense,
assets and liabilities and disclosure of contingencies at the date of
the Interim Report. Although these estimates and assumptions are based
on management's best judgement at that date, actual results may differ
from these estimates. Estimates and assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
There have been no significant changes on the basis upon which estimates
have been determined for loan book impairment, acquisition accounting
and income recognition and effective interest rate ('EIR') calculations
compared to those applied at 31 December 2018, as described on pages 130
to 132 of the 2018 Annual Report and Accounts.
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
At amortised cost:
On BTL/SME mortgages 183.9 146.9
On Residential mortgages 43.6 43.9
On investment securities 0.5 0.1
On other liquid assets 5.0 3.1
At fair value through profit or loss:
Net expense on derivative financial instruments
- lending activities (5.1) (3.9)
--------------------------------------------------
227.9 190.1
3. Interest payable and similar charges
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
On retail deposits 70.2 50.3
On Bank of England borrowings 5.6 3.3
On Perpetual Subordinated Bonds 0.4 0.4
On subordinated liabilities 0.4 0.4
On wholesale borrowings 0.6 0.1
Net (income)/expense on derivative financial
instruments - savings activities (0.3) 0.4
-----------------------------------------------
76.9 54.9
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Fair value changes of swaps hedging assets (50.2) (8.3)
Hedging of assets 50.1 9.3
Fair value changes of swaps hedging
liabilities 3.7 -
Hedging of liabilities (4.5) (0.2)
--------------------------------------------
Ineffective portion of hedges (0.9) 0.8
Amortisation of fair value adjustments on
hedged assets (2.0) (2.5)
Net (loss)/gain on unmatched swaps (4.6) 0.2
Debit and credit valuation adjustment 0.1 (0.2)
--------------------------------------------
(7.4) (1.7)
Amortisation of fair value adjustments on hedged assets relates to
hedged assets and liabilities where the hedges were terminated before
maturity and were effective at the point of termination.
Net (loss)/gain on unmatched swaps included a GBP4.6m loss on unmatched
swaps, due primarily to fair value movements on mortgage pipeline swaps
prior to them being matched against completed mortgages, following a
significant flattening Libor curve. This unrealised loss will unwind
over the life of the swaps.
5. Administrative expenses
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Staff costs 21.1 19.1
Share-based payments 1.4 1.3
Facilities costs(1) 1.6 1.6
Marketing costs 1.6 1.3
Support costs(1) 5.0 4.0
Professional fees(1) 3.0 3.1
Other costs(1,2) 4.2 3.3
-----------------------
37.9 33.7
1 The comparative information has been reclassified to align with the
presentation adopted in the 2018 Annual Report and Accounts.
2 Other costs mainly consist of irrecoverable VAT expense.
The average number of persons employed by the Group (including executive
Directors) during the first half of 2019 was 1,072 (first half of 2018:
956).
6. Share-based payments
The Group operates the following equity-settled share-based payment
schemes, full details of which are provided on pages 134 to 137 of the
2018 Annual Report and Accounts:
-- Sharesave Scheme ('SAYE')
-- Deferred Share Bonus Plan ('DSBP')
-- Performance Share Plan ('PSP')
The movement in the number of share options and awards and their
weighted average exercise prices are presented below:
Deferred
Share Bonus Performance
Sharesave Scheme Plan Share Plan
----------------------------------------------------------- ----------------- -------------
Weighted
average exercise
Number price, (GBP) Number Number
-------------- --------------------- ----------------- -------------
At 1 January 2019 841,629 2.93 1,258,712 1,737,997
Granted - - 476,933 1,079,392
Exercised/vested (12,832) 4.30 (430,904) (235,241)
Forfeited (75,024) 3.12 (71,636) (398,778)
-------------- --------------------- ----------------- -------------
At 30 June 2019
(Unaudited) 753,773 2.93 1,233,105 2,183,370
-------------- --------------------- ----------------- -------------
There were no options or awards exercisable as at 30 June 2019.
The closing share price at vesting for the DSBP and PSP awards was
GBP3.98 per share.
7. Exceptional transaction costs
Exceptional transaction costs of GBP5.9m relate to the recommended
all-share combination with Charter Court Financial Services Group plc
('CCFS').
8. Taxation
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Corporation taxation (21.9) (22.3)
Deferred taxation (0.6) -
Tax in respect of prior
periods(1) (2.7) -
----------------------------------
Total taxation (25.2) (22.3)
----------------------------------
1 Tax in respect of prior periods includes GBP2.6m relating to the
reversal of the tax benefit on the exceptional cost - Heritable option
recognised in 2018.
The taxation on the Group's profit before taxation differs from the
theoretical amount that would arise using the weighted average taxation
rate applicable to profits of the Group as follows:
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Profit before taxation 91.0 91.8
-------------------------------------------------
Profit multiplied by the weighted average
rate of corporation tax in the UK during 2019
of 19% (2018: 19%) (17.3) (17.4)
Bank surcharge (4.4) (4.6)
Taxation effects of:
Expenses not deductible for taxation purposes - (0.2)
Exceptional cost -- transaction expenses not
deductible for taxation purposes (1.1) -
Adjustments in respect of earlier years (2.7) -
Tax adjustments in respect of share-based
payments (0.1) 0.1
Timing differences on capital items (0.5) (0.2)
Tax on coupon on equity bonds 0.9 -
-------------------------------------------------
Total taxation charge (25.2) (22.3)
-------------------------------------------------
A reduction in the UK corporation tax rate from 19% to 18% (effective
from 1 April 2020) was substantively enacted on 26 October 2015. An
additional reduction to 17% (effective from 1 April 2020) was
substantively enacted on 6 September 2016. This will reduce the Group's
future tax charge accordingly.
9. 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 attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the period. Diluted
EPS take into account share awards and options which can be converted to
ordinary shares.
For the purpose of calculating EPS, profit attributable to ordinary
shareholders is arrived at by adjusting profit for the period for the
coupons on the PSBs and AT1 Securities classified as equity. The tax on
coupons for the current period is included within the profit for the
period, in-line with the changes to IAS 12 Income Taxes.
The tax on coupons for the prior period is based on the rate of taxation
applicable to the Bank, including the bank surcharge:
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Profit for the period 65.8 69.5
Adjustments:
Coupons on PSBs and AT1 securities classified
as equity (3.3) (3.3)
Tax on coupons - 0.9
------------------------------------------------
Profit attributable to ordinary shareholders 62.5 67.1
------------------------------------------------
Exceptional items:
Exceptional cost - transaction expenses 5.9 -
Exceptional cost - Heritable option tax(1) 2.6 -
------------------------------------------------
Underlying profit attributable to ordinary
shareholders 71.0 67.1
------------------------------------------------
1 Exceptional cost - Heritable option tax relates to the reversal of the
tax benefit recognised in 2018.
Earnings per share are summarised in the table below:
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
Weighted average number of shares, millions
Basic 244.9 244.0
Diluted 246.8 245.9
Earnings per share, pence
per share
Basic 25.5 27.5
Diluted 25.3 27.3
Underlying earnings per share, pence per share
Basic 29.0 27.5
Diluted 28.8 27.3
----------------------------
10. Dividends
During the period, the Bank paid the following dividends:
Six months ended Six months ended
30-Jun-19 30-Jun-18
(Unaudited) (Unaudited)
------------------- ---------------------
Pence per Pence per
GBPm share GBPm share
----------- ------------
Final dividend for the prior
year 25.3 10.3 22.7 9.3
------------------------------- -----------
A summary of the Bank's distributable reserves from which dividends can
be paid are shown below:
Six months Year ended
ended 30-Jun-19 31-Dec-18
(Unaudited) (Audited)
GBPm GBPm
Net assets 549.0 535.8
Less:
- Share capital (2.5) (2.4)
- Share premium (158.8) (158.8)
- Other non-distributable
reserves(1) (88.2) (88.1)
- Unrealised gains(2) (66.5) (19.8)
------------------------------------
Distributable reserves 233.0 266.7
------------------------------------
1 Other non-distributable reserves include the capital contribution,
equity bonds and FVOCI reserve.
2 Unrealised gains relate to the Bank's fair value adjustments on hedged
assets.
The Directors propose an interim dividend for the first half of 2019 of
4.9 (2018: 4.3) pence per share, based on one third of the total 2018
dividend of 14.6 pence per share, payable on 20 September 2019 with an
ex-dividend date of 29 August 2019 and a record date of 30 August 2019.
This dividend is not reflected in these financial statements as it was
not declared at the reporting date.
11. Cash and cash equivalents
As at As at As at As at
30-Jun-19 31-Dec-18 30-Jun-18 31-Dec-17
(Unaudited) (Audited) (Unaudited) (Audited)
GBPm GBPm GBPm GBPm
Cash in hand 0.3 0.4 0.3 0.5
Unencumbered loans and advances
to credit institutions 1,416.0 1,323.8 1,451.6 1,165.4
----------------------------------
1,416.3 1,324.2 1,451.9 1,165.9
Unencumbered loans and advances to credit institutions exclude GBP23.1m
(30 June 2018: GBP17.3m) held in the cash ratio deposit with the Bank of
England and GBP54.7m (30 June 2018: GBP7.8m) of encumbered assets in the
form of cash margin collateral paid in relation to the Group's
derivatives.
12. Loans and advances to customers
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Audited)
GBPm GBPm
Loans and advances (see note 13) 9,866.6 8,998.0
Finance leases (see note 14) 28.4 7.2
-----------------------------------------
9,895.0 9,005.2
Less: Expected credit losses (see note
15) (33.0) (21.9)
-----------------------------------------
9,862.0 8,983.3
1. Loans and advances
As at 30-Jun-19 As at 31-Dec-18
(Unaudited) (Audited)
BTL/SME Residential Total BTL/SME Residential Total
GBPm GBPm GBPm GBPm GBPm GBPm
Gross carrying amount
Stage 1 7,691.9 1,365.1 9,057.0 7,032.1 1,247.5 8,279.6
Stage 2 318.0 183.4 501.4 247.6 189.2 436.8
Stage 3 120.2 129.3 249.5 102.0 123.4 225.4
Stage 3
(POCI) 0.3 58.4 58.7 0.3 55.9 56.2
-------------
8,130.4 1,736.2 9,866.6 7,382.0 1,616.0 8,998.0
1. Loans and advances (continued)
The tables below show the movement in loans and advances to customers by
IFRS 9 stage:
Stage 3
Stage 1 Stage 2 Stage 3 (POCI) Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 8,279.6 436.8 225.4 56.2 8,998.0
Originations(1) 1,608.6 - - - 1,608.6
Repayments and
write-offs(2) (701.2) (17.2) (25.7) (2.6) (746.7)
Transfers:
- To Stage 1 121.9 (111.1) (10.8) - -
- To Stage 2 (224.8) 234.7 (9.9) - -
- To Stage 3 (27.1) (41.8) 68.9 - -
Incurred loss
protection(3) - - 1.6 5.1 6.7
------------------------
At 30 June 2019
(Unaudited) 9,057.0 501.4 249.5 58.7 9,866.6
------------------------
Stage
Stage Stage 3
Stage 1 2 3 (POCI) IAS 39 Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 31 December 2017 - - - - 7,327.6 7,327.6
IFRS 9 transitional
adjustment 6,782.5 292.4 183.0 69.7 (7,327.6) -
--------------------------
Restated at 31 December
2017 6,782.5 292.4 183.0 69.7 - 7,327.6
Originations(1) 3,043.4 - - - - 3,043.4
Repayments and
write-offs(2) (1,265.3) (50.8) (43.4) (13.5) - (1,373.0)
Transfers:
- To Stage 1 170.5 (150.0) (20.5) - - -
- To Stage 2 (353.8) 375.1 (21.3) - - -
- To Stage 3 (97.7) (29.9) 127.6 - - -
--------------------------
At 31 December 2018
(Audited) 8,279.6 436.8 225.4 56.2 - 8,998.0
--------------------------
1 Originations include further advances and drawdowns on existing
commitments.
2 Repayments and write-offs include customer redemptions.
1. During the period the Group reclassified GBP6.7m of incurred loss
protection on acquired portfolios from loans and advances to expected
credit losses ('ECL') to reflect the Group's total ECL position. The
Group has not reclassified the comparative information where the incurred
loss balance included within loans and advances was GBP7.2m.
14. Finance leases
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Audited)
GBPm GBPm
Net investment in finance leases,
receivable
Less than one year 4.4 2.2
Between one and five years 23.4 4.9
More than five years 0.6 0.1
------------------------------------
28.4 7.2
1. Expected credit losses
The Group's expected credit losses ('ECL') by segment and IFRS 9 stage
is shown below:
As at 30-Jun-19 As at 31-Dec-18
(Unaudited) (Audited)
-----------------------
BTL/SME Residential(1) Total BTL/SME Residential Total
GBPm GBPm GBPm GBPm GBPm GBPm
Expected
credit
loss
Stage 1 (2.3) (1.0) (3.3) (3.0) (1.3) (4.3)
Stage 2 (1.9) (2.3) (4.2) (2.1) (3.5) (5.6)
Stage 3 (10.7) (7.6) (18.3) (5.7) (4.5) (10.2)
Stage 3
(POCI) - (7.0) (7.0) - (1.6) (1.6)
Undrawn
loan
facilities (0.2) - (0.2) (0.2) - (0.2)
-------------
(15.1) (17.9) (33.0) (11.0) (10.9) (21.9)
1. During the period the Group reclassified GBP6.7m of incurred loss
protection on acquired portfolios from loans and advances to expected
credit losses ('ECL') to reflect the Group's total ECL position. The
Group has not reclassified the comparative information where the incurred
loss balance included within loans and advances was GBP7.2m.
The tables below show the movement in the ECL by IFRS 9 stage during the
period. ECLs on originations reflect the IFRS 9 stage of loans
originated during the period as at 30 June and not the date of
origination. Remeasurement of loss allowance relates to existing loans
which did not redeem during the period and includes the impact of loans
moving between IFRS 9 stages.
Stage 3
Stage 1 Stage 2 Stage 3 (POCI) Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 4.5 5.6 10.2 1.6 21.9
Originations 0.9 0.1 - - 1.0
Repayments and
write-offs (0.4) (0.2) (1.8) (0.1) (2.5)
Remeasurement of loss
allowance (2.7) 0.3 7.9 0.4 5.9
Transfers:
- To Stage 1 1.4 (1.1) (0.3) - -
- To Stage 2 (0.2) 0.3 (0.1) - -
- To Stage 3 - (0.8) 0.8 - -
Incurred loss
protection(1) - - 1.6 5.1 6.7
-------------------------
At 30 June 2019
(Unaudited) 3.5 4.2 18.3 7.0 33.0
-------------------------
1. During the period the Group reclassified GBP6.7m of incurred loss
protection on acquired portfolios from loans and advances to expected
credit losses ('ECL') to reflect the Group's total ECL position. The
Group has not reclassified the comparative information where the incurred
loss balance included within loans and advances was GBP7.2m.
1. Expected credit losses (continued)
Stage
Stage Stage Stage 3 IAS 39
1 2 3 (POCI) impairments Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 31 December 2017 - - - - 21.6 21.6
IFRS 9 transitional
adjustment 7.8 2.3 13.3 1.8 (21.6) 3.6
-----------------------------
Restated at 31 December
2017 7.8 2.3 13.3 1.8 - 25.2
Originations 2.1 - - - - 2.1
Repayments and write-offs (0.3) (0.2) (7.0) (0.2) - (7.7)
Remeasurement of loss
allowance (6.1) 6.9 4.0 - - 4.8
Transfers:
- To Stage 1 1.4 (0.8) (0.6) - - -
- To Stage 2 (0.8) 1.3 (0.5) - - -
- To Stage 3 (5.8) (0.4) 6.2 - - -
Changes in assumptions and
model parameters 6.2 (3.5) (5.2) - - (2.5)
-----------------------------
At 31 December 2018
(Audited) 4.5 5.6 10.2 1.6 - 21.9
-----------------------------
16. Impairment losses
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Write-offs in period 1.5 6.3
Increase/(decrease) in provision 4.4 (2.0)
----------------------------------
5.9 4.3
1. Fair value adjustments on hedged items
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Audited)
GBPm GBPm
Hedged assets
Current hedge relationships 51.1 2.5
Cancelled hedge relationships 15.4 17.3
--------------------------------
66.5 19.8
Hedged liabilities
Current hedge relationships (3.1) -
--------------------------------
The fair value adjustments on hedged assets in respect of cancelled
hedge relationships represent the fair value adjustment for interest
rate risk on legacy long-term fixed rate mortgages (c.25 years at
origination) where the interest rate swap hedges were terminated before
maturity and were effective at the point of termination.
18. Risk management and financial instruments
The tables below are a summary of the Group's risk management and
financial instruments disclosures, of which a complete disclosure for
the year ended 31 December 2018 is included in the Group's 2018 Annual
Report and Accounts. The tables do not represent all risks the Group is
exposed to and should be read in conjunction with the Risk review above.
Credit risk
The following table shows the Group's maximum exposure to credit risk
and the impact of collateral held as security, capped at the gross
exposure amount, by IFRS 9 stage:
As at 30-Jun-19 As at 31-Dec-18
(Unaudited) (Audited)
-------------------------------------------- -------------------------------------
Capped
Gross carrying Capped collateral Gross carrying collateral
amount held amount held
GBPm GBPm GBPm GBPm
Stage 1 9,085.4 9,053.2 8,286.8 8,274.5
Stage 2 501.4 501.3 436.8 436.8
Stage 3 249.5 248.4 225.4 224.2
Stage 3
(POCI) 58.7 58.7 56.2 56.1
---------
9,895.0 9,861.6 9,005.2 8,991.6
The Group's collateral held in relation to BTL/SME and Residential first
and second charge mortgage loans is property, based in the UK and the
Channel Islands. The Group's collateral held in relation to funding
lines is predominantly property.
The Group uses indexed loan-to-value ('LTV') ratios to assess the
quality of the uncapped collateral held. Property values are updated to
reflect changes in the house price index. A breakdown of loans and
advances to customers by indexed LTV is as follows:
LTV analysis by band for all loans:
As at 30 June 2019 (Unaudited)
BTL/SME Residential Total
GBPm GBPm GBPm %
Band
0% - 50% 949.3 789.8 1,739.1 18
50% - 60% 999.5 242.6 1,242.1 13
60% - 70% 1,927.0 197.6 2,124.6 21
70% - 80% 3,476.1 181.6 3,657.7 36
80% - 90% 723.3 233.8 957.1 10
90% - 100% 42.9 73.8 116.7 1
>100% 40.7 17.0 57.7 1
-------------------------------
Total loans before provisions 8,158.8 1,736.2 9,895.0 100
-------------------------------
As at 31 December 2018 (Audited)
--------------------------------------------------------------------
BTL/SME Residential Total
GBPm GBPm GBPm %
Band
0% - 50% 935.8 784.4 1,720.2 19
50% - 60% 1,105.9 249.7 1,355.6 15
60% - 70% 2,021.4 194.1 2,215.5 25
70% - 80% 2,864.5 177.3 3,041.8 34
80% - 90% 414.1 162.2 576.3 6
90% - 100% 32.9 32.3 65.2 1
>100% 14.6 16.0 30.6 -
-------------------------------
Total loans before provisions 7,389.2 1,616.0 9,005.2 100
-------------------------------
LTV analysis by band for BTL/SME:
As at 30 June 2019 (Unaudited)
Residential Funding
Buy-to-Let Commercial development lines Total
GBPm GBPm GBPm GBPm GBPm
Band
0% - 50% 620.5 95.0 120.2 113.6 949.3
50% - 60% 859.3 88.8 8.9 42.5 999.5
60% - 70% 1,719.3 192.1 10.7 4.9 1,927.0
70% - 80% 3,140.0 336.1 - - 3,476.1
80% - 90% 714.8 8.5 - - 723.3
90% - 100% 11.1 1.4 - 30.4 42.9
>100% 34.7 3.2 1.4 1.4 40.7
---------------
Total loans
before
provisions 7,099.7 725.1 141.2 192.8 8,158.8
---------------
As at 31 December 2018 (Audited)
------------------------------------------------------------------------------
Residential Funding
Buy-to-Let Commercial development lines Total
GBPm GBPm GBPm GBPm GBPm
Band
0% - 50% 663.9 71.2 108.7 92.0 935.8
50% - 60% 964.8 72.2 38.8 30.1 1,105.9
60% - 70% 1,843.9 163.1 7.3 7.1 2,021.4
70% - 80% 2,617.1 233.5 - 13.9 2,864.5
80% - 90% 408.3 4.8 1.0 - 414.1
90% - 100% 7.5 0.4 - 25.0 32.9
>100% 12.0 2.6 - - 14.6
------------
Total
loans
before
provisions 6,517.5 547.8 155.8 168.1 7,389.2
------------
LTV analysis by band for Residential:
As at 30 June 2019 (Unaudited)
Second Funding
First charge charge lines Total
GBPm GBPm GBPm GBPm
Band
0% - 50% 658.4 119.6 11.8 789.8
50% - 60% 157.0 79.8 5.8 242.6
60% - 70% 121.8 73.3 2.5 197.6
70% - 80% 126.6 52.7 2.3 181.6
80% - 90% 202.1 31.1 0.6 233.8
90% - 100% 66.1 7.3 0.4 73.8
>100% 7.7 9.0 0.3 17.0
-------------------------
Total loans before
provisions 1,339.7 372.8 23.7 1,736.2
-------------------------
As at 31 December 2018 (Audited)
Second Funding
First charge charge lines Total
GBPm GBPm GBPm GBPm
Band
0% - 50% 651.9 123.2 9.3 784.4
50% - 60% 160.9 81.8 7.0 249.7
60% - 70% 117.2 74.3 2.6 194.1
70% - 80% 125.2 48.3 3.8 177.3
80% - 90% 137.1 24.4 0.7 162.2
90% - 100% 25.1 6.8 0.4 32.3
>100% 6.5 9.2 0.3 16.0
-------------------------
Total loans before
provisions 1,223.9 368.0 24.1 1,616.0
-------------------------
Analysis of loan portfolio by arrears and collateral held
The tables below provide further information on collateral, capped at
the value of each individual loan, over the loan portfolio by payment
due status and IFRS 9 stage:
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Audited)
------------------------------ -------------------------------
Loan Capped Loan Capped
balance collateral balance collateral
GBPm GBPm GBPm GBPm
Stage 1
Not past due 8,996.1 8,964.2 8,225.3 8,213.3
Past due < 1
month 89.3 89.0 61.5 61.2
--------------
9,085.4 9,053.2 8,286.8 8,274.5
Stage 2
Not past due 260.4 260.3 241.9 241.9
Past due < 1
month 149.5 149.5 124.9 124.9
Past due 1
to 3
months 91.5 91.5 70.0 70.0
--------------
501.4 501.3 436.8 436.8
Stage 3
Not past due 44.1 44.0 67.8 67.2
Past due < 1
month 19.2 19.2 16.2 16.2
Past due 1
to 3
months 32.5 32.5 30.4 30.4
Past due 3
to 6
months 59.6 59.5 57.2 57.2
Past due 6
to 12
months 34.7 34.7 32.0 31.9
Past due
over 12
months 18.4 17.9 13.9 13.6
Possessions 41.0 40.6 7.9 7.7
--------------
249.5 248.4 225.4 224.2
Stage 3
(POCI)
Not past due 20.1 20.1 18.6 18.6
Past due < 1
month 5.9 5.9 6.7 6.6
Past due 1
to 3
months 7.6 7.6 6.6 6.6
Past due 3
to 6
months 7.1 7.1 7.4 7.4
Past due 6
to 12
months 7.0 7.0 7.7 7.7
Past due
over 12
months 9.7 9.7 9.2 9.2
Possessions 1.3 1.3 - -
--------------
58.7 58.7 56.2 56.1
Total loans
before
provisions 9,895.0 9,861.6 9,005.2 8,991.6
--------------
The tables below show the payment due status of the Group's loan
portfolios by operating segment:
As at 30 June 2019 (Unaudited)
------------------------------------------------------------------------------
Residential Funding
BTL/SME Buy-to-Let Commercial development lines Total
GBPm GBPm GBPm GBPm GBPm
Stage 1
Not past due 6,703.1 648.5 141.2 192.8 7,685.6
Past due < 1
month 25.1 9.6 - - 34.7
--------------
6,728.2 658.1 141.2 192.8 7,720.3
Stage 2
Not past due 129.0 41.4 - - 170.4
Past due < 1
month 91.9 1.3 - - 93.2
Past due 1
to 3
months 36.5 17.9 - - 54.4
--------------
257.4 60.6 - - 318.0
Stage 3
Not past due 20.8 0.8 - - 21.6
Past due < 1
month 6.3 0.2 - - 6.5
Past due 1
to 3
months 10.6 0.9 - - 11.5
Past due 3
to 6
months 23.0 1.0 - - 24.0
Past due 6
to 12
months 13.6 1.7 - - 15.3
Past due
over 12
months 5.1 0.3 - - 5.4
Possessions 34.7 1.2 - - 35.9
--------------
114.1 6.1 - - 120.2
Stage 3
(POCI)
Not past due - 0.2 - - 0.2
Past due < 1
month - 0.1 - - 0.1
--------------
- 0.3 - - 0.3
Total loans
before
provisions 7,099.7 725.1 141.2 192.8 8,158.8
--------------
As at 31 December 2018 (Audited)
--------------------------------------------------------------------------------
Residential Funding
BTL/SME Buy-to-Let Commercial development lines Total
GBPm GBPm GBPm GBPm GBPm
Stage 1
Not past due 6,193.4 501.7 155.8 168.1 7,019.0
Past due < 1
month 18.5 1.8 - - 20.3
--------------
6,211.9 503.5 155.8 168.1 7,039.3
Stage 2
Not past due 102.8 39.1 - - 141.9
Past due < 1
month 74.7 1.0 - - 75.7
Past due 1
to 3
months 29.3 0.7 - - 30.0
--------------
206.8 40.8 - - 247.6
Stage 3
Not past due 40.6 2.5 - - 43.1
Past due < 1
month 3.3 0.4 - - 3.7
Past due 1
to 3
months 12.0 0.1 - - 12.1
Past due 3
to 6
months 24.5 0.1 - - 24.6
Past due 6
to 12
months 10.9 0.1 - - 11.0
Past due
over 12
months 3.1 - - - 3.1
Possessions 4.4 - - - 4.4
--------------
98.8 3.2 - - 102.0
Stage 3
(POCI)
Not past due - 0.1 - - 0.1
Past due < 1
month - 0.2 - - 0.2
--------------
- 0.3 - - 0.3
Total loans
before
provisions 6,517.5 547.8 155.8 168.1 7,389.2
--------------
As at 30 June 2019 (Unaudited)
------------------------------------------------------------------------------
Second Funding
Residential First charge charge lines Total
GBPm GBPm GBPm GBPm
Stage 1
Not past due 1,006.8 280.0 23.7 1,310.5
Past due < 1 month 45.8 8.8 - 54.6
-------------------------
1,052.6 288.8 23.7 1,365.1
Stage 2
Not past due 73.1 16.9 - 90.0
Past due < 1 month 50.6 5.7 - 56.3
Past due 1 to 3 months 30.9 6.2 - 37.1
-------------------------
154.6 28.8 - 183.4
Stage 3
Not past due 20.3 2.2 - 22.5
Past due < 1 month 10.6 2.1 - 12.7
Past due 1 to 3 months 15.2 5.8 - 21.0
Past due 3 to 6 months 27.1 8.5 - 35.6
Past due 6 to 12 months 14.9 4.5 - 19.4
Past due over 12 months 11.0 2.0 - 13.0
Possessions 4.7 0.4 - 5.1
-------------------------
103.8 25.5 - 129.3
Stage 3 (POCI)
Not past due 12.7 7.2 - 19.9
Past due < 1 month 3.3 2.5 - 5.8
Past due 1 to 3 months 4.0 3.6 - 7.6
Past due 3 to 6 months 3.2 3.9 - 7.1
Past due 6 to 12 months 2.9 4.1 - 7.0
Past due over 12 months 2.6 7.1 - 9.7
Possessions - 1.3 - 1.3
-------------------------
28.7 29.7 - 58.4
Total loans before
provisions 1,339.7 372.8 23.7 1,736.2
-------------------------
As at 31 December 2018 (Audited)
------------------------------------------------------------------------------
Second Funding
Residential First charge charge lines Total
GBPm GBPm GBPm GBPm
Stage 1
Not past due 906.6 275.6 24.1 1,206.3
Past due < 1 month 32.5 8.7 - 41.2
-------------------------
939.1 284.3 24.1 1,247.5
Stage 2
Not past due 80.8 19.2 - 100.0
Past due < 1 month 43.2 6.0 - 49.2
Past due 1 to 3 months 32.7 7.3 - 40.0
-------------------------
156.7 32.5 - 189.2
Stage 3
Not past due 22.2 2.5 - 24.7
Past due < 1 month 10.2 2.3 - 12.5
Past due 1 to 3 months 13.0 5.3 - 18.3
Past due 3 to 6 months 23.8 8.8 - 32.6
Past due 6 to 12 months 16.9 4.1 - 21.0
Past due over 12 months 8.8 2.0 - 10.8
Possessions 3.5 - - 3.5
-------------------------
98.4 25.0 - 123.4
Stage 3 (POCI)
Not past due 12.1 6.4 - 18.5
Past due < 1 month 4.4 2.1 - 6.5
Past due 1 to 3 months 4.1 2.5 - 6.6
Past due 3 to 6 months 3.5 3.9 - 7.4
Past due 6 to 12 months 3.4 4.3 - 7.7
Past due over 12 months 2.2 7.0 - 9.2
-------------------------
29.7 26.2 - 55.9
Total loans before
provisions 1,223.9 368.0 24.1 1,616.0
-------------------------
Forbearance measures undertaken
The Group has a range of options available where borrowers experience
financial difficulties which impact their ability to service their
financial commitments under the loan agreement. These are explained on
page 47 of the 2018 Annual Report and Accounts.
A summary of the forbearance measures undertaken during the period under
review is below:
H1 2019 Restated(1)
number H1 2018 Restated(1)
of As at 30-Jun-19 number of As at 30-Jun-18
accounts GBPm accounts GBPm
Forbearance type:
Interest-only switch 20 3.2 17 2.9
Interest rate reduction 22 1.2 3 0.9
Term extension 15 4.3 18 3.1
Payment holiday 24 0.7 27 0.8
Voluntary assisted sale 13 0.7 - -
Payment concession (reduced
monthly payments) 35 0.9 29 2.6
Full or partial debt
forgiveness 2 - - -
------------------------------
Total 131 11.0 94 10.3
------------------------------
Restated(1)
H1 2019 H1 2018 Restated(1)
number of As at 30-Jun-19 number of As at 30-Jun-18
accounts GBPm accounts GBPm
Loan type:
First
charge
owner
occupier 23 4.8 23 2.9
Second
charge
owner
occupier 94 3.3 54 1.6
Buy-to-Let 13 2.9 17 5.8
Commercial 1 - - -
-------------
Total 131 11.0 94 10.3
-------------
1 The 2018 comparatives have been restated to reflect changes to the
data capture process.
Geographical analysis by region
An analysis of loans by region is provided below:
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Audited)
----------------- ---------------
Region GBPm % GBPm %
-------------------------------- ----------------- ---------------
East Anglia 361.4 4 316.4 4
East Midlands 369.9 4 325.4 4
Greater London 4,335.7 44 3,965.5 43
Guernsey 51.8 1 61.7 1
Jersey 160.8 2 176.0 2
North East 125.0 1 115.6 1
North West 525.6 5 447.6 5
Northern Ireland 14.9 - 14.6 -
Scotland 46.2 - 45.2 1
South East 2,140.7 22 1,955.1 22
South West 707.0 7 634.2 7
Wales 213.4 2 187.1 2
West Midlands 623.4 6 557.5 6
Yorks & Humberside 219.2 2 203.3 2
-------------------------------- ----------------- ---------------
Total loans before provisions 9,895.0 100 9,005.2 100
-------------------------------- ----------------- ---------------
19. Fair values of financial assets and financial liabilities
The following tables provide an analysis of financial assets and
financial liabilities measured at fair value on the Statement of
Financial Position grouped into level 1 to 3 based on the degree to
which the fair value is observable:
Carrying Principal Level Level Level
As at 30-Jun-19 amount amount 1 2 3 Total
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Financial assets
Investment
securities 160.0 160.0 160.0 - - 160.0
Derivative
assets 3.9 3,565.0 - 3.9 - 3.9
------------------
163.9 3,725.0 160.0 3.9 - 163.9
Financial
liabilities
Derivative
liabilities 58.2 4,133.2 - 58.2 - 58.2
------------------
Carrying Principal Level Level Level
As at 31-Dec-18 amount amount 1 2 3 Total
(Audited) GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Financial assets
Investment
securities 58.9 59.0 58.9 - - 58.9
Derivative
assets 11.7 1,999.0 - 11.7 - 11.7
------------------
70.6 2,058.0 58.9 11.7 - 70.6
Financial
liabilities
Derivative
liabilities 24.9 4,532.2 - 24.9 - 24.9
------------------
Level 1: Fair values that are based entirely on quoted market prices
(unadjusted) in an actively traded market for identical assets and
liabilities that the Group has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1 instruments.
Since valuations are based on readily available observable market prices,
this makes them most reliable, reduces the need for management judgement
and estimation and also reduces the uncertainty associated with
determining fair values.
Level 2: Fair values that are based on one or more quoted prices in
markets that are not active or for which all significant inputs are
taken from directly or indirectly observable market data. These include
valuation models used to calculate the present value of expected future
cash flows and may be employed either when no active market exists or
when there are no quoted prices available for similar instruments in
active markets.
Level 3: Fair values for which any one or more significant input is not
based on observable market data and the unobservable inputs have a
significant effect on the instruments fair value. Valuation models that
employ significant unobservable inputs require a higher degree of
management judgement and estimation in determining the fair value.
Management judgement and estimation are usually required for the
selection of the appropriate valuation model to be used, determination
of expected future cash flows on the financial instruments being valued,
determination of the probability of counterparty default and prepayments,
determination of expected volatilities and correlations and the
selection of appropriate discount rates.
19. Fair values of financial assets and financial liabilities
(continued)
The following tables provide an analysis of financial assets and
financial liabilities not measured at fair value on the Statement of
Financial Position grouped into level 1 to 3 based on the degree to
which the fair value is observable:
Estimated fair value
---------------------------------------------------------------------------------------
Carrying Principal Level Level Level
As at 30-Jun-19 amount amount 1 2 3 Total
(Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------
Financial assets
Cash in hand 0.3 0.3 - 0.3 - 0.3
Loans and advances to
credit institutions 1,493.8 1,493.4 - 1,493.8 - 1,493.8
Loans and advances to
customers 9,862.0 10,008.7 - 3,820.9 6,948.4 10,769.3
-------------------------
11,356.1 11,502.4 - 5,315.0 6,948.4 12,263.4
Financial liabilities
Amounts owed to retail
depositors 9,175.0 9,138.6 - 3,397.9 5,787.5 9,185.4
Amounts owed to credit
institutions 1,605.9 1,602.9 - 1,605.9 - 1,605.9
Amounts owed to other
customers 8.8 8.8 - - 8.9 8.9
Subordinated
liabilities 10.8 10.6 - 10.8 - 10.8
Perpetual subordinated
bonds 15.3 15.0 14.5 - - 14.5
-------------------------
10,815.8 10,775.9 14.5 5,014.6 5,796.4 10,825.5
Estimated fair value
-------------------------------------------------------------------------------------------------
Carrying Principal Level Level Level
As at 31-Dec-18 amount amount 1 2 3 Total
(Audited) GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------
Financial assets
Cash in hand 0.4 0.4 - 0.4 - 0.4
Loans and advances to credit
institutions 1,347.3 1,346.9 - 1,347.3 - 1,347.3
Loans and advances to
customers 8,983.3 9,121.4 - 4,195.3 4,955.8 9,151.1
-------------------------------
10,331.0 10,468.7 - 5,543.0 4,955.8 10,498.8
Financial liabilities
Amounts owed to retail
depositors 8,071.9 8,019.7 - 2,916.4 5,181.1 8,097.5
Amounts owed to credit
institutions 1,584.0 1,581.0 - 1,584.0 - 1,584.0
Amounts owed to other
customers 32.9 32.8 - - 32.9 32.9
Subordinated liabilities 10.8 10.6 - 10.8 - 10.8
Perpetual subordinated
bonds 15.3 15.0 14.3 - - 14.3
-------------------------------
9,714.9 9,659.1 14.3 4,511.2 5,214.0 9,739.5
20. Capital management
The Group's individual regulated entities and the Group as a whole
complied with all of the capital requirements which they were subject to
for the periods presented.
The regulatory capital of the Group is presented below:
As at As at
30-Jun-19 31-Dec-18
(Unaudited) (Unaudited)
GBPm GBPm
Common equity tier 1 capital
Called up share capital 2.5 2.4
Share premium, capital contribution and share-based
payment reserve 169.0 170.0
Retained earnings 479.2 439.6
Transfer reserve (12.8) (12.8)
Other reserves (0.4) (0.5)
------------------------------------------------------
Total equity excluding equity bonds 637.5 598.7
Foreseeable dividends (17.8) (25.2)
Solo consolidation adjustments(1) (6.2) (5.4)
IFRS 9 transitional adjustment(2) 2.4 2.7
Deductions from common equity tier 1 capital
Prudent valuation adjustment(3) (0.1) (0.1)
Intangible assets (8.1) (7.7)
Deferred tax asset (0.9) (1.4)
------------------------------------------------------
Common equity tier 1 capital 606.8 561.6
------------------------------------------------------
Additional tier 1 capital
AT1 Securities 60.0 60.0
------------------------------------------------------
Total tier 1 capital 666.8 621.6
------------------------------------------------------
Tier 2 capital
Subordinated debt and PSBs 47.4 47.4
Deductions from tier 2 capital (4.0) (3.3)
------------------------------------------------------
Total tier 2 capital 43.4 44.1
------------------------------------------------------
Total regulatory capital 710.2 665.7
------------------------------------------------------
Risk weighted assets (unaudited) 4,685.5 4,211.8
------------------------------------------------------
1. The Bank has solo consolidation waivers for most of its subsidiaries. The
equity for unconsolidated entities has been removed from CET1.
2. The regulatory capital includes a GBP2.4m add-back under IFRS 9
transitional arrangements. This represents 85% of the IFRS 9
transitional adjustment booked directly to retained earnings of GBP2.9m.
The full impact of IFRS 9, if applied, would reduce total regulatory
capital to GBP707.8m.
1. The Group has adopted the simplified approach under the Prudent Valuation
rules, recognising a deduction equal to 0.1% of fair
value assets and liabilities.
21. Operating segments
The Group distinguishes two segments within its operations.
1. BTL/SME; secured lending on property for investment and commercial
purposes. This segment also includes the Group's new asset finance
business, and
2. Residential mortgages; lending to customers who live in their own homes,
secured either via first or second charges against the residential home.
The financial position and results of operations of the above segments
are summarised below:
Residential
BTL/SME mortgages Total
GBPm GBPm GBPm
Balances as at 30 June 2019 (Unaudited)
Gross loans and advances to customers 8,158.8 1,736.2 9,895.0
Expected credit loss (15.1) (17.9) (33.0)
------------------------------------------
Loans and advances to customers 8,143.7 1,718.3 9,862.0
Capital expenditure 8.3 1.8 10.1
Profit for six months ended 30-Jun-19 (Unaudited)
Interest receivable 183.4 44.5 227.9
Interest payable (63.4) (13.5) (76.9)
------------------------------------------
Net interest income 120.0 31.0 151.0
External servicing fees - (0.1) (0.1)
Other expense (5.2) (1.9) (7.1)
------------------------------------------
Other expense (5.2) (2.0) (7.2)
------------------------------------------
Total income 114.8 29.0 143.8
Impairment losses (5.2) (0.7) (5.9)
------------------------------------------
Contribution to profit 109.6 28.3 137.9
Operating expenses (40.9)
FSCS and other regulatory provisions (0.1)
Exceptional cost - transaction
expenses (5.9)
------------------------------------------
Profit before taxation 91.0
Taxation (25.2)
------------------------------------------
Profit for the period 65.8
------------------------------------------
1. Operating segments (continued)
Residential
BTL/SME mortgages Total
GBPm GBPm GBPm
Balances as at 31 December 2018
(Audited)
Gross loans and advances to customers 7,389.2 1,616.0 9,005.2
Expected credit loss (11.0) (10.9) (21.9)
----------------------------------------
Loans and advances to customers 7,378.2 1,605.1 8,983.3
Capital expenditure 5.2 1.1 6.3
Profit for six months ended 30-Jun-18 (Unaudited)
Interest receivable 145.5 44.6 190.1
Interest payable (43.2) (11.7) (54.9)
----------------------------------------
Net interest income 102.3 32.9 135.2
External servicing fees (0.1) (0.3) (0.4)
Other expense (0.5) (1.2) (1.7)
----------------------------------------
Other expense (0.6) (1.5) (2.1)
----------------------------------------
Total income 101.7 31.4 133.1
Impairment losses (3.0) (1.3) (4.3)
----------------------------------------
Contribution to profit 98.7 30.1 128.8
Operating expenses (35.9)
FSCS and other regulatory provisions (1.1)
----------------------------------------
Profit before taxation 91.8
Taxation (22.3)
----------------------------------------
Profit for the period 69.5
----------------------------------------
22. Adjustments for non-cash items and changes in operating assets
and liabilities
Six months Six months
ended 30-Jun-19 ended 30-Jun-18
(Unaudited) (Unaudited)
GBPm GBPm
Adjustments for non-cash items:
Depreciation and amortisation 3.0 2.2
Interest on subordinated liabilities 0.4 0.4
Interest on perpetual subordinated bonds 0.4 0.4
Impairment charge on loans 5.9 4.3
Loss on sale of financial instruments - 0.2
FSCS and other regulatory provisions 0.1 1.1
Fair value losses on financial instruments 7.4 1.7
Share-based payments 1.4 1.4
-------------------------------------------------
Total adjustments for non-cash items 18.6 11.7
-------------------------------------------------
Changes in operating assets and liabilities:
Increase in loans and advances to credit
institutions (54.3) (3.3)
Increase in loans to customers (884.6) (799.0)
Increase in retail deposits 1,103.1 773.5
Net increase in other assets (6.7) (5.0)
Net (decrease)/increase in derivatives and
hedged items (9.9) 0.1
Net (decrease)/increase in credit institutions
and other customers deposits (102.2) 15.3
Net increase in other liabilities 0.3 0.1
Exchange differences on working capital 0.1 (0.5)
-------------------------------------------------
Total changes in operating assets and
liabilities 45.8 (18.8)
-------------------------------------------------
1. Related parties
The Group had no related party transactions during the six months 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 the 2018 Annual Report and Accounts on pages 144 to 146.
Transactions with Key Management Personnel
During the period, the Group granted awards under the Deferred Share
Bonus Plan and Performance Share Plan as described in note 6 to these
interim accounts and note 9 in the 2018 Annual Report and Accounts on
pages 134 to 137. The impact of these awards in the six months ended 30
June 2019 is reported in note 6.
24. Contingent liabilities
The Group has not recognised a liability or provision for success fees
payable if the recommended all- share combination with CCFS completes,
as the combination depends on future regulatory approvals. Similarly,
the Group has not recognised transaction costs that contain discount
provisions should the combination not proceed. The Group expects the
success fees and transaction costs subject to discount provisions to be
c.GBP9m.
25. Events after the reporting date
On 12 July 2019, the Group completed a c. GBP500m securitisation
transaction of originated mortgage loans through Canterbury Finance No.1
plc ('Canterbury'). The Group has retained ownership of the Class A2, F
and X notes and residual certificates issued by Canterbury and will
consolidate Canterbury into the Group's results from July 2019.
On 30 July 2019, the Competition and Markets Authority announced its
decision to approve the recommended all-share combination of OneSavings
Bank and CCFS. Completion of the combination remains subject to other
outstanding conditions, including receipt of regulatory approvals from
the FCA and PRA.
Reliance House Sun Pier Chatham
Kent, ME4 4ET
Company number
07312896
Internet
www.osb.co.uk
Auditor
Deloitte LLP, Statutory Auditor 1 New Street Square
London, EC4A 3HQ
Registrar Equiniti Limited Aspect House Spencer Road Lancing
West Sussex, BN99 6DA
Brokers
Barclays Bank PLC
5 The North Colonnade London, E14 4BB
RBC Europe Limited (trading as RBC Capital Markets) Riverbank House
2 Swan Lane London, EC4R 3BF
Media and Public Relations
Brunswick Group LLP 16 Lincoln's Inn Fields London, WC2A 3ED
62
(END) Dow Jones Newswires
August 21, 2019 02:00 ET (06:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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