OSB GROUP PLC Trading Update

 
TIDMOSB 
 
 
   LEI: 213800ZBKL9BHSL2K459 
 
   17 March 2021 
 
   OSB GROUP PLC 
 
   OSB GROUP PLC (OSBG), the specialist lending and retail savings Group, 
today issues a trading update for the year to 31 December 2020 
 
   Alongside the Group's core Buy-to-Let and Residential sub-segments, the 
Group also provides funding lines to third parties secured primarily 
against property-related mortgages(1) . We have very recently become 
aware of potential fraudulent activity by one of these third parties, 
where our funding line is secured against lease receivables and the 
underlying hard assets. The Group had an outstanding receivable against 
this funding line of GBP28.6m as at 31 December 2020. The Group believes 
that this is an isolated incident and is appointing Smith & Williamson 
LLP to carry out an investigation of the third-party company on the 
Group's behalf. Until the investigation has progressed sufficiently we 
will not know to what extent the receivable has been impaired, with a 
maximum potential credit loss of GBP28.6m as at 31 December 2020. This 
has consequently led to a short delay in the Group publishing its 
preliminary results for the year, which will now take place on 8 April 
2021. 
 
   The following (unaudited) expected highlights for the year ended 31 
December 2020 would not be impacted by an impairment of the GBP28.6m 
funding line receivable, which would increase expected credit losses for 
the year 
 
 
   -- Gross originations of GBP3.8bn (2019 pro forma underlying: GBP6.5bn) 
      reflecting the impact of COVID-19 
 
   -- Net interest margin of 247bps on an underlying2 basis (2019: pro forma 
      underlying3 266bps) impacted by a delay in passing on the base rate cuts 
      in full to retail savers, which was completed by the end of the third 
      quarter 
 
   -- On an underlying2 basis cost to income ratio improving to 27% (2019: pro 
      forma underlying3 29%) benefitting from delivery of synergies, lower 
      discretionary spend during lockdowns and continued focus on cost 
      discipline and efficiency 
 
   -- Strong credit performance, with balances greater than three months in 
      arrears stable at 0.9% at the end of 2020 (2019: 0.9%) and the majority 
      of customers granted COVID-19 payment deferrals having resumed payment. 
      Active deferrals only 1.3% of the Group's loan book by value at 31 
      December 2020 
 
   -- Integration is progressing well, with run rate savings of more than 
      GBP15m delivered by the first anniversary of the Combination, 
      significantly ahead of schedule. The Group expects to marginally exceed 
      its run-rate pledge by the end of the third year. Integration costs to 
      date are lower than originally expected, with final costs expected to be 
      marginally below the end of year three target 
 
   -- The Board intends to recommend a dividend for 2020 in line with our 
      stated dividend policy of 25% of full year underlying2 earnings 
      attributable to ordinary shareholders 
 
 
 
 
 
   The following (unaudited) expected highlights are provided prior to an 
impairment of the GBP28.6m funding line receivable, which would increase 
expected credit losses for the year, and impact each of the metrics set 
out below 
 
 
   -- Underlying2 profit before tax of GBP366.2m (2019: pro forma underlying3 
      GBP381.1m) 
 
   -- Net loan book growth, after expected credit losses, of 4% to GBP19.0bn on 
      an underlying2 basis (2019: pro forma underlying3 GBP18.2bn), or 10% 
      excluding the impact of structured asset sales 
 
   -- Full year expected credit losses broadly flat to the first half 
 
   -- Underlying2 return on equity (RoE) of 20% despite significantly higher 
      expected credit losses under IFRS 9 and a strengthened equity position 
      (2019: 25% pro forma underlying3) 
 
   -- Underlying2 basic earnings per share (EPS) down 5% to 61.4 pence (2019: 
      pro forma underlying3 64.9 pence) 
 
   -- Common Equity Tier 1 (CET1) ratio strengthened to over 18% due to 
      additional profitability in the second half. The potential impact of a 
      100% impairment of the funding line receivable of GBP28.6m would equate 
      to only a 0.2% point reduction in the CET1 ratio as at 31 December 20204 
 
 
 
 
   Headline 2021 Guidance 
 
   Based on our pipeline, current application levels and risk appetite, we 
currently expect to deliver underlying net loan book growth for 2021 of 
c.10%, although we remain cognisant of continued uncertainty in the 
economic outlook. Based on current pricing and cost of funds, we expect 
underlying NIM for 2021 to return to 2019 levels. We expect the 
underlying cost to income ratio to be marginally higher in 2021, as the 
ratio in 2020 benefitted from higher income from gains on structured 
asset sales and lower discretionary spending in lockdowns. 
 
   (1 The Group's gross loans to customers include GBP175.7m in relation to 
funding lines of which 66% is secured on property-related mortgages.) 
 
   (2 Underlying refers to results and ratios which exclude exceptional 
items, integration costs and other acquisition-related items arising 
from the Combination with CCFS.) 
 
   (3 Pro forma underlying refers to ratios and results which assume that 
the Combination with CCFS occurred on 1 January 2019 and exclude 
exceptional items, integration costs and other acquisition-related items 
arising from the Combination with CCFS.) 
 
   (4 Based on expected total risk weighted assets of GBP8.6bn.) 
 
   Andy Golding, CEO of OSB Group, said: 
 
   "Whilst I am disappointed at the very recent discovery of a potential 
fraud at one of the non-bank lenders we provide secured funding to, we 
believe that this is an isolated incident and are committed to 
expediting our investigation and publishing our full preliminary results 
on 8 April 2021. 
 
   I am proud of the Group's performance in a very challenging year. Our 
business model proved its financial and operational resilience in 2020. 
Our customers, clients, colleagues and communities were always front of 
mind as we supported all stakeholders to the best of our ability, 
whether that was by providing mortgage payment deferrals, supporting 
colleagues' well-being or continuing to allow our customers to access 
financial services in the easiest and safest way. 
 
   We entered 2020 in a position of strength, with an attractive pipeline, 
growth opportunities and robust capital position. Lockdowns inevitably 
impacted our business and we reacted by tightening our risk appetite to 
protect margin and credit quality over growth. I am pleased that 
applications have now recovered to near pre-COVID levels in our core 
Buy-to-Let and Residential sub-segments on tighter criteria and we have 
a strong pipeline of new business. We continue to control volumes in our 
more cyclical product lines, in accordance with the economic outlook and 
our prudent approach to risk management. 
 
   Whilst we remain cognisant of the ongoing uncertainty over the true 
impact of the pandemic when government support comes to an end, the 
foundations of our business remain extremely robust. We have a very 
strong capital position and a resilient business model, all of which 
position us well to respond to the challenges and opportunities ahead 
and to deploy our resources to deliver attractive, sustainable returns 
to our shareholders over the long-term." 
 
   Enquiries: 
 
   OSB GROUP PLC:                                Alastair Pate t: 01634 
835728 
 
   Brunswick Group:                               Robin Wrench / Simone 
Selzer t: 020 7404 5959 
 
   About OSB GROUP PLC 
 
   OSB began trading as a bank on 1 February 2011 and was admitted to the 
main market of the London Stock Exchange in June 2014 (OSB.L). OSB 
joined the FTSE 250 index in June 2015. On 4 October 2019, OSB acquired 
Charter Court Financial Services Group plc (CCFS) and its subsidiary 
businesses. On 30 November 2020, OSB GROUP PLC became the listed entity 
and holding company for the OSB Group. The Group provides specialist 
lending and retail savings and is authorised by the Prudential 
Regulation Authority, part of the Bank of England, and regulated by the 
Financial Conduct Authority and Prudential Regulation Authority. The 
Group reports under two segments, OneSavings Bank and Charter Court 
Financial Services. 
 
   OneSavings Bank 
 
   OSB primarily targets market sub-sectors that offer high growth 
potential and attractive risk-adjusted returns in which it can take a 
leading position and where it has established expertise, platforms and 
capabilities. These include private rented sector Buy-to-Let, commercial 
and semi-commercial mortgages, residential development finance, bespoke 
and specialist residential lending, secured funding lines and asset 
finance. 
 
   OSB originates mortgages organically via specialist brokers and 
independent financial advisers through its specialist brands including 
Kent Reliance for Intermediaries and InterBay Commercial. It is 
differentiated through its use of highly skilled, bespoke underwriting 
and efficient operating model. 
 
   OSB is predominantly funded by retail savings originated through the 
long-established Kent Reliance name, which includes online and postal 
channels as well as a network of branches in the South East of England. 
Diversification of funding is currently provided by securitisation 
programmes and the Bank of England funding schemes including, the Term 
Funding Scheme and the Term Funding Scheme for SMEs. 
 
   Charter Court Financial Services Group 
 
   CCFS focuses on providing Buy-to-Let and specialist residential 
mortgages, mortgage servicing, administration and retail savings 
products. It operates through its brands:  Precise Mortgages and Charter 
Savings Bank. 
 
   It is differentiated through risk management expertise and best-of-breed 
automated technology and systems, ensuring efficient processing, strong 
credit and collateral risk control and speed of product development and 
innovation. These factors have enabled strong balance sheet growth 

whilst maintaining high credit quality mortgage assets. 
 
   CCFS is predominantly funded by retail savings originated through its 
Charter Savings Bank brand. Diversification of funding is currently 
provided by securitisation programmes and the Bank of England funding 
schemes including, the Term Funding Scheme and the Term Funding Scheme 
for SMEs. 
 
   Important disclaimer 
 
   This document should be read in conjunction with the documents 
distributed by OSB GROUP PLC (OSBG) through the Regulatory News Service 
(RNS). This document is not audited and contains certain forward-looking 
statements, beliefs or opinions, including statements with respect to 
the business, strategy and plans of OSBG and its current goals and 
expectations relating to its future financial condition, performance and 
results. Such forward-looking statements include, without limitation, 
those preceded by, followed by or that include the words 'targets', 
'believes', 'estimates', 'expects', 'aims', 'intends', 'will', 'may', 
'anticipates', 'projects', 'plans', 'forecasts', 'outlook', 'likely', 
'guidance', 'trends', 'future', 'would', 'could', 'should' or similar 
expressions or negatives thereof. Statements that are not historical 
facts, including statements about OSBG's, its directors' and/or 
management's beliefs and expectations, are forward-looking statements. 
By their nature, forward-looking statements involve risk and uncertainty 
because they relate to events and depend upon circumstances that may or 
may not occur in the future. Factors that could cause actual business, 
strategy, plans and/or results (including but not limited to the payment 
of dividends) to differ materially from the plans, objectives, 
expectations, estimates and intentions expressed in such forward-looking 
statements made by OSBG or on its behalf include, but are not limited 
to: general economic and business conditions in the UK and 
internationally; market related trends and developments; fluctuations in 
exchange rates, stock markets, inflation, deflation, interest rates and 
currencies; policies of the Bank of England, the European Central Bank 
and other G8 central banks; the ability to access sufficient sources of 
capital, liquidity and funding when required; changes to OSBG's credit 
ratings; the ability to derive cost savings; changing demographic 
developments, and changing customer behaviour, including consumer 
spending, saving and borrowing habits; changes in customer preferences; 
changes to borrower or counterparty credit quality; instability in the 
global financial markets, including Eurozone instability, the potential 
for countries to exit the European Union (the EU) or the Eurozone, and 
the impact of any sovereign credit rating downgrade or other sovereign 
financial issues; technological changes and risks to cyber security; 
natural and other disasters, adverse weather and similar contingencies 
outside OSBG's control; inadequate or failed internal or external 
processes, people and systems; terrorist acts and other acts of war or 
hostility and responses to those acts; geopolitical, pandemic or other 
such events; changes in laws, regulations, taxation, accounting 
standards or practices, including as a result of an exit by the UK from 
the EU; regulatory capital or liquidity requirements and similar 
contingencies outside OSBG's control; the policies and actions of 
governmental or regulatory authorities in the UK, the EU or elsewhere 
including the implementation and interpretation of key legislation and 
regulation; the ability to attract and retain senior management and 
other employees; the extent of any future impairment charges or 
write-downs caused by, but not limited to, depressed asset valuations, 
market disruptions and illiquid markets; market relating trends and 
developments; exposure to regulatory scrutiny, legal proceedings, 
regulatory investigations or complaints; changes in competition and 
pricing environments; the inability to hedge certain risks economically; 
the adequacy of loss reserves; the actions of competitors, including 
non-bank financial services and lending companies; and the success of 
OSBG in managing the risks of the foregoing. 
 
   Accordingly, no reliance may be placed on any forward-looking statement 
and no representation, warranty or assurance is made that any of these 
statements or forecasts will come to pass or that any forecast results 
will be achieved.  Any forward-looking statements made in this document 
speak only as of the date they are made and it should not be assumed 
that they have been revised or updated in the light of new information 
of future events. Except as required by the Prudential Regulation 
Authority, the Financial Conduct Authority, the London Stock Exchange 
PLC or applicable law, OSBG expressly disclaims any obligation or 
undertaking to release publicly any updates or revisions to any 
forward-looking statements contained in this document to reflect any 
change in OSBG's expectations with regard thereto or any change in 
events, conditions or circumstances on which any such statement is 
based. For additional information on possible risks to OSBG's business, 
please see the Risk review in the OSBG 2020 Annual Report and Accounts. 
Copies of this are available at www.osb.co.uk and on request from OSBG. 
 
   Nothing in this document and any subsequent discussion constitutes or 
forms part of a public offer under any applicable law or an offer to 
purchase or sell any securities or financial instruments. Nor does it 
constitute advice or a recommendation with respect to such securities or 
financial instruments, or any invitation or inducement to engage in 
investment activity under section 21 of the Financial Services and 
Markets Act 2000. Past performance cannot be relied on as a guide to 
future performance. Nothing in this document is intended to be, or 
should be construed as, a profit forecast or estimate for any period. 
 
   Liability arising from anything in this document shall be governed by 
English law, and neither the Company nor any of its affiliates, advisors 
or representatives shall have any liability whatsoever (in negligence or 
otherwise) for any loss howsoever arising from any use of this document 
or its contents or otherwise arising in connection with this document. 
Nothing in this document shall exclude any liability under applicable 
laws that cannot be excluded in accordance with such laws. 
 
   Certain figures contained in this document, including financial 
information, may have been subject to rounding adjustments and foreign 
exchange conversions. Accordingly, in certain instances, the sum or 
percentage change of the numbers contained in this document may not 
conform exactly to the total figure given. 
 
 
 
 

(END) Dow Jones Newswires

March 17, 2021 13:32 ET (17:32 GMT)

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