OSB GROUP PLC LEI: 213800WTQKOQI8ELD692
Interim report for the six months ended
Following the Combination with
Highlights
- Underlying profit before tax2 decreased 14% to £156.3m (H1 2019: pro forma underlying £182.8m) and statutory profit before tax increased 10% to £99.3m (H1 2019: restated £90.5m3)
- Underlying net loan book grew by 2% to £18.5bn in the period, or 7% excluding structured asset sales, and statutory net loan book grew by 2% to £18.8bn. Organic originations were £2.1bn (H1 2019: pro forma underlying £3.1bn)
- Continued focus on cost discipline and efficiency delivered an improved underlying cost to income ratio4 of 26% (H1 2019: pro forma underlying 29%) and statutory cost to income ratio of 31% (H1 2019: restated 29%3)
- Underlying net interest margin (‘NIM’)5 of 250bps (H1 2019: pro forma underlying 270bps) includes the impact of the delay in passing on the base rate cuts in full to savers and the prudently higher liquidity levels that the Group was holding. Statutory NIM of 217bps (H1 2019: 278bps) also impacted by the amortisation of the fair value uplift on acquisition of CCFS’ net assets
- Underlying loan loss ratio6 increased to 60bps (H1 2019: pro forma underlying 11bps) and statutory loan loss ratio increased to 59bps (H1 2019: 12bps) due primarily to the impact of adopting more adverse COVID-19 related macroeconomic scenarios in our IFRS 9 models
- To support its customers, the Group had granted payment holidays to c. 26k accounts as at
30 June 2020 . The majority of these customers have resumed payment with only 18% of these maturing payment holidays by value being extended - Fully-loaded Common Equity Tier 1 capital ratio strengthened to 17.4% (
31 December 2019 : 16.0%) - As expected, the Group has been informed that it will be subject to a full bail-in requirement for MREL from
July 2025 with an expected interim requirement of 18% of risk weighted assets byJuly 2023 - Underlying basic earnings per share7 of 26.1p (H1 2019: pro forma underlying 30.3p) and statutory basic earnings per share of 15.5p (H1 2019: 25.5p)
- Underlying return on equity8 of 18% (H1 2019: pro forma underlying 24%) and statutory return on equity of 9% (H1 2019: 20%)
- Underlying gain on structured asset sales of £33.0m (H1 2019: pro forma underlying £29.8m), as the Group disposed of its remaining notes under the Canterbury No.1 securitisation and PMF 2020-1B, statutory gain of £19.9m
- The Board will continue to assess the appropriateness of dividend payments at year end 2020
Commenting on the results, Group CEO,
“I am extremely proud of the way that OSB has performed during the COVID-19 pandemic. Our business model and systems have proved to be very resilient and our colleagues have all demonstrated dedication and flexibility, as they worked hard responding to the needs of our savers and borrowers.
We remain focused on supporting our customers who may be experiencing financial difficulty and as at the end of June had provided payment holidays to c. 26k accounts representing 28% of the loan book by value. I am however pleased to report that the majority of these customers have resumed payment after the end of their holiday term, with only 18% of these maturing payment holidays by value being extended.
We entered 2020 with a robust pipeline and continued to attract strong application levels in our core businesses prior to the COVID-19 lockdown restrictions, which then significantly impacted application and completion volumes in the second quarter. Underlying NIM in the first quarter was broadly flat to full year 2019, however it was diluted in the second quarter by delays in passing on the base rate cuts in full to our savers. The lower NIM also reflects the impact of prudently drawing down excess liquidity.
I am encouraged by the recovery in application volumes for our products since the housing market reopened, which are currently approaching 60% of pre-COVID-19 lockdown levels on tighter lending criteria and higher pricing. We expect to deliver double digit underlying net loan book growth for the full year, excluding the impact of the structured asset sales in January. Based on current pricing we expect underlying NIM for the full year to be broadly flat to the first half with the base rate cuts passed on to retail depositors in full by the end of the third quarter. We also expect the underlying cost to income ratio for the full year to be marginally higher versus the first half due to higher other income in the first half from the gain on structured asset sales.
It remains too early to say what the full impact of COVID-19 will be on the
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Results presentation
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About
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
OSB originates mortgages organically via specialist brokers and independent financial advisers through its specialist brands including Kent Reliance for Intermediaries, InterBay Commercial and Prestige Finance. It is differentiated through its use of highly skilled, bespoke underwriting and an 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
CCFS focuses on providing
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, the Term Funding Schemes and the
Notes
1 Statutory basis reflects results for the six months to
Underlying results for the six months to
Pro forma underlying results for the six months to
2 Before exceptional items, integration costs and other acquisition-related items of £57.0m (H1 2019: £9.7m)
3 The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements
4 Administrative expenses as a percentage of total income
5 Net interest income as a percentage of a 7 point average of interest earning assets, annualised on an actual days basis
6 Impairment losses as a percentage of a 7 point average of gross loans and advances, annualised
7 Profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, gross of tax, divided by the weighted average number of ordinary shares in issue
8 Profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, gross of tax, as a percentage of a 7 point average shareholders’ equity (excluding £60m of AT1 securities), annualised
Non-IFRS performance measures
Important disclaimer
This document should be read in conjunction with the documents distributed by
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
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.
Key Performance Indicators - statutory
Statutory key performance indicators reflect the results for the combined Group for the six months ended
| £2.1bn Gross new organic lending up 29% H1 2019: £1.6bn | £18.8bn Net loan book up 2% FY 2019: £18.4bn |
| £99.3m Profit before tax up 10% H1 2019: restated £90.5m1 | 15.5p2 Basic EPS down 39% H1 2019: 25.5p |
| 217bps3 Net interest margin down 61bps H1 2019: 278bps | 31%4 Cost to income ratio up 2pps H1 2019: restated 29%1 |
| 59bps5 Loan loss ratio up 47bps H1 2019: 12bps | 70bps6 Management expense ratio improved 4bps H1 2019: 74bps |
| 9%7 Return on equity reduced by 11pps H1 2019: 20% | 17.4% Fully-loaded CET1 ratio strengthened FY 2019: 16.0% |
| 3 months + in arrears stable8 OSB 1.3%, CCFS 0.5% FY 2019: OSB 1.3%, CCFS 0.3% | Customer NPS improved9 OSB +67, CCFS +83 H1 2019: OSB +64, CCFS +72 |
1. The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements
2. Profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, gross of tax, divided by the weighted average number of ordinary shares in issue
3. Net interest income as a percentage of a 7 point average of interest earning assets, annualised on an actual days basis
4. Administrative expenses as a percentage of total income
5. Impairment losses as a percentage of a 7 point average of gross loans and advances, annualised
6. Administrative expenses as a percentage of 7 point average total assets, annualised
7. Profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, gross of tax, as a percentage of a 7 point average shareholders’ equity (excluding £60m of AT1 securities), annualised
8. Portfolio arrears rate of accounts for which there are missing or overdue payments by more than three months as a percentage of gross loans
9. OSB customer Net Promoter Score relates to Kent Reliance savings customers and CCFS customer NPS relates to
Key Performance Indicators - underlying
Underlying key performance indicators for the six months to
Pro forma underlying KPIs for the six months to
| £2.1bn Gross new organic lending down 32% H1 2019: pro forma underlying £3.1bn | £18.5bn Net loan book up 2% FY 2019: underlying £18.2bn |
| £156.3m Profit before tax down 14% H1 2019: pro forma underlying £182.8m | 26.1p2 Basic EPS down 14% H1 2019: pro forma underlying 30.3p |
| 250bps3 Net interest margin down 20bps H1 2019: pro forma underlying 270bps | 26%4 Cost to income ratio improved by 3pps H1 2019: pro forma underlying 29% |
| 60bps5 Loan loss ratio up by 49bps H1 2019: pro forma underlying 11bps | 68bps6 Management expense ratio improved by 13bps H1 2019: pro forma underlying 81bps |
| 18%7 Return on equity reduced by 6pps H1 2019: pro forma underlying 24% |
For definitions of key ratios please see footnotes in KPIs - statutory above.
Progress in the first half of 2020 – resilient business
I am very proud of the resilience that
I am very pleased with our ability to generate profit despite taking significant impairment charges under IFRS 9 in the period. The Group recorded underlying pre-tax profit of £156.3m and underlying basic earnings per share of
Impairment losses in the first half of 2020 were £54.4m on an underlying basis (H1 2019: £8.6m), representing an underlying loan loss ratio of 60bps (H1 2019: pro forma underlying 11bps), predominantly driven by a £42m charge due to the adoption of more severe COVID-19 related macroeconomic scenarios.
Underlying net interest margin (‘NIM’) was 250bps in the first half of 2020 (H1 2019: pro forma underlying 270bps). Underlying NIM in the first quarter of 2020 was broadly flat to full year 2019, albeit lower than the first half of 2019 due to the changing mix of the OSB loan book as the higher-yielding back book refinanced onto front book pricing. The impact of this mix effect had largely run its course by the end of the first half of 2019. In the second quarter of 2020, NIM was diluted by delays in passing on the base rate cuts in full to our retail savers, and the impact of the higher liquidity that the Group was prudently holding. Statutory NIM of 217bps (H1 2019: 278bps) was also impacted by the amortisation of the fair value uplift on acquisition of CCFS’ net assets.
The underlying cost to income ratio improved to 26% (H1 2019: 29%) as the business retained its focus on cost efficiency and disciplined running of the combined Group, which was also demonstrated by the underlying management expense ratio improving by 13bps to 68bps for the first half of 2020 (H1 2019: 81bps).
We continue to generate excellent returns despite higher impairment losses, with underlying return on equity for the first half of 2020 at 18% (H1 2019: 24%).
Our colleagues supporting our customers
I am very grateful to each and every colleague, for the effort, perseverance and dedication that they have shown throughout this difficult time. To enable our colleagues to assist our customers to the best of their ability, it was important to ensure that they were supported and kept safe, which we managed whilst everyone did a fantastic job of keeping operations running effectively. I am particularly pleased with the operational performance and resilience shown by our wholly-owned subsidiary OSBIndia.
The majority of our colleagues, both in the
OSB responded rapidly to support customers who might have been facing financial difficulty by offering self-certified payment holidays of up to three months. We are proud that as at the end of June we had helped c. 26k accounts in this way, equivalent to 28% of the Group’s mortgage book by value, even though it was apparent that many people who requested payment holidays were doing so to prudently safeguard their cash flow, rather than as a necessity.
Encouragingly, as at
Towards the end of the period, the Group’s application to participate in the Coronavirus Business Interruption Loan Scheme was approved, enabling us to offer financial support to certain smaller business customers, particularly in the area of asset finance.
Strong credit and risk management
The credit quality of the Group’s mortgage books remains strong with three months in arrears balances stable at 1.3% for OSB and 0.5% for CCFS at the end of June (
Throughout the first six months of the year and particularly as mortgage lending began to recover, the Group exercised strong diligence over loan and customer assessment. On an underlying basis, impairment losses in the first half of 2020 were £54.4m (H1 2019: £8.6m), representing an underlying loan loss ratio of 60bps (H1 2019: pro forma underlying 11bps). The increase in impairment losses was predominantly driven by a £42m charge due to the adoption of more adverse macroeconomic scenarios used by the Group in modelling the expected credit losses under IFRS 9 as the onset of the Coronavirus pandemic changed the outlook for the
The Group, in line with the industry and guidance from regulators, does not consider payment holidays as an automatic transfer from stage 1 to stage 2 under IFRS 9. However, the Group considered whether there were other triggers to determine whether payment holiday accounts should be moved into stage 2, with a lifetime expected credit loss estimate held against the exposure. This has resulted in a proportion of higher risk payment holiday accounts being moved into stage 2 and higher provisions being held. As at 30 June, 26% of payment holiday accounts were in stage 2.
The Group continued to work on its Internal Ratings-Based project in the period. The progress is encouraging post Combination and the Group is planning to submit module 1 to the
A trusted lender with a strong franchise
The first half of 2020 was a period of contrasting quarters with the Group attracting strong applications and completions in the first quarter, in line with management expectations and at attractive margins, followed by a significant slowdown in the second quarter, through lockdown, mirroring the wider mortgage market and
When market activity was subdued at the peak of lockdown, we concentrated on progressing existing applications for our customers where we had an existing physical valuation and flexed our operations ensuring that resources were deployed to support customers, including those who wished to take a payment holiday. We quickly adjusted lending criteria, including maximum loan sizes and LTVs, for new business to match our appetite for risk and lending volumes, given the uncertainty surrounding the outlook for house prices, employment levels and economic growth.
When lockdown restrictions began to ease and the mortgage market started to operate effectively once again, we took the opportunity to undertake a controlled increase of business volumes in our core
Mortgage originations for the Group were £2.1bn for the first six months of 2020, down from £3.1bn on a pro forma underlying basis in the same period last year, reflecting the reduction in lending and applications during lockdown in all segments, following strong activity in the first quarter of 2020.
The Group’s underlying net loan book increased by 2% in the first half of 2020 to £18.5bn, after removing the impact of acquisition-related adjustments. The underlying net loan book would have increased by 7%, excluding the impact of structured asset sales that took place at the beginning of the year. On a statutory basis, net loans grew by 2% to £18.8bn from £18.4bn at the end of 2019.
The Group continued to gain recognition from mortgage customers and intermediaries, and in the first six months of 2020, OSB was named Best Specialist Lender by Mortgage Force Awards and the Paradigm Lender Awards, and Precise Mortgages was recognised by SimplyBiz Mortgage Awards as Best Buy-to-Let Lender.
Sophisticated funding model
The Group remains highly liquid with retail deposits continuing as the major source of funding for the Group. Our competitive retail savings proposition allows the Group to raise significant funds. Through both
Over 14,000 new savings customers joined Kent Reliance in the first six months of 2020 and
We have complemented retail funding by further utilising our capital markets expertise, demonstrating an early success of the integration of the Group’s capital markets teams following the Combination with CCFS. We securitised £725m of mortgages in two transactions under the CMF and PMF programmes in January, and in March we completed our largest deal to date, securitising £1bn of prime
In the first half of 2020, the Group was accepted for the Bank of England’s TFSME with a combined initial allowance of £2bn. As at the end of
Well-capitalised strong and sustainable business
The Group’s capital position improved further, with a fully-loaded CET1 ratio of 17.4% as at
In addition, liquidity remained significantly in excess of the 2020 regulatory minimum. As at
On
The Group had a leverage ratio of 6.8% as at
The underlying cost to income ratio improved to 26% (H1 2019: 29%) as the business retained its focus on cost efficiency and discipline. Integrating OSB and CCFS continues to achieve cost efficiencies and we are on track to deliver the benefits expected in the first year following the Combination. This includes a streamlined Board, de-duplication of a significant proportion of senior management roles and efficiencies from combining some central and support functions. In light of the pandemic, the Board will take the opportunity to review whether we still want to fully consolidate locations and suppliers or maintain the additional operational resilience. This decision is not expected to have a material impact on the quantum of synergies previously presented at the time of the Combination. The combined Group’s efficiency in its business as usual activities is demonstrated by the underlying management expense ratio improving by 13bps to 68bps for the first half of 2020 (H1 2019: 81bps).
Looking forward
There is still significant uncertainty as the Coronavirus pandemic continues to evolve and its impact on the economy begins to be felt. However, we see opportunities in our market segments, demonstrated by strong current demand and expect to achieve double digit underlying net loan book growth for the full year, excluding the impact of the structured assets sales in January. Based on current pricing we expect underlying NIM for the full year to be broadly flat to the first half with the base rate cuts passed on to retail depositors in full by the end of the third quarter. We also expect the underlying cost to income ratio for the full year to be marginally higher versus the first half due to higher other income in the first half from the gain on structured asset sales.
We are seeing the benefits of our combined lending and funding franchises, our secured loan book and strong risk management capabilities. Our capital and liquidity levels are stronger than ever and I am delighted in the way that our people have responded to the challenges so far. Whilst there will be headwinds in front of us, we are in good shape to weather the uncertainty going forward.
Chief Executive Officer
1. The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements
Mortgage market
The first half of 2020 was a period of contrasting quarters. Prior to the Coronavirus pandemic, activity in the mortgage market was flat to the fourth quarter of 2019. From late
Government restrictions relating to moving home, together with social distancing measures, meant that large valuation firms suspended physical valuations, which negatively impacted the ability to progress mortgage applications. Lenders responded by tightening risk appetite and the number of residential mortgage products offered fell by more than a half, from 5,222 in early March to 2,566 in May1, a reduction felt particularly by those who wished to borrow at a higher LTV. In addition, following the government’s announcement that mortgage lenders would offer three-month mortgage payment holidays for borrowers in financial difficulties, many lenders chose to concentrate on servicing these requests and reduced new business flows.
For the
Restrictions in the property industry began to ease on 13 May, and estate agents, housebuilders and mortgage brokers started reporting increased levels of interest, although it is too early to predict the longer term trends. Reduced Stamp Duty Land Tax rates will apply for residential properties purchased from
1. Moneyfacts, ‘Higher LTV mortgages buck rate trend’,
2.
3.
Review of Group’s lending segments
Following the Combination, the Group reports its lending business under two segments: OSB and CCFS.
The following tables show the OSB segment’s contribution to statutory profit and statutory loans and advances to customers:
Contribution to profit for the period
| BTL/SME | Residential | Total | |
| H1 2020 | £m | £m | £m |
| Net interest income | 129.7 | 33.8 | 163.5 |
| Other income | 9.7 | 1.3 | 11.0 |
| Total income | 139.4 | 35.1 | 174.5 |
| Impairment of financial assets | (28.2) | (7.7) | (35.9) |
| Contribution to profit | 111.2 | 27.4 | 138.6 |
| H1 2019, restated1 | |||
| Net interest income | 119.6 | 30.9 | 150.5 |
| Other expense | (5.2) | (2.0) | (7.2) |
| Total income | 114.4 | 28.9 | 143.3 |
| Impairment of financial assets | (5.2) | (0.7) | (5.9) |
| Contribution to profit | 109.2 | 28.2 | 137.4 |
| Loans and advances to customers | BTL/SME | Residential | Total |
| As at | £m | £m | £m |
| Gross loans to customers | 8,986.4 | 1,950.8 | 10,937.2 |
| Expected credit losses | (48.0) | (23.0) | (71.0) |
| Net loans to customers | 8,938.4 | 1,927.8 | 10,866.2 |
| Risk weighted assets | 4,298.2 | 817.3 | 5,115.5 |
| As at | |||
| Gross loans to customers | 8,983.2 | 1,837.4 | 10,820.6 |
| Expected credit losses | (21.6) | (14.0) | (35.6) |
| Net loans to customers | 8,961.6 | 1,823.4 | 10,785.0 |
| Risk weighted assets | 4,244.0 | 846.0 | 5,090.0 |
1 The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity
£m | £m | |
| 7,762.8 | 7,727.0 | |
| Commercial | 852.0 | 888.0 |
| Residential development | 150.0 | 146.1 |
| Funding lines | 221.6 | 222.1 |
| Total | 8,986.4 | 8,983.2 |
This sub-segment comprises
Organic originations in the
At the end of
Refinancing continued to account for the majority of
Towards the beginning of May,
The weighted average loan to value (‘LTV’) of the
Through its InterBay brand, OSB lends to borrowers investing in commercial and semi-commercial property, reported in the Commercial total, and more complex
The weighted average LTV of the commercial book remained low at 66% and the average loan size was £385,000 for the first six months of 2020 (
InterBay Asset Finance, which predominantly targets
Our Heritable residential development business provides development finance to small and medium-sized residential developers. The preference is to fund house builders who operate outside central
The residential development funding gross loan book remained broadly flat at the end of
Since inception through to the end of
In the first half of 2020, OSB continued to provide most of its secured funding lines to non-bank lenders which operate in certain high-yielding, specialist sub-segments, such as bridging finance and asset finance. Total credit approved limits as at
The Group remains highly focused on the risk assessment of new lending, as demonstrated by the average LTV in the
1. The Group restated the comparative LTVs due to a change in aggregation methodology
2. Interest coverage ratio was restated for H1 2019 from 175% to 189% due to an improvement in the calculation methodology
3. Net interest income and contribution to profit were restated as a result of the recognition of interest expense on the £22m of Perpetual Subordinated Bonds previously classified as equity.
Residential mortgages
Residential sub-segment: gross loans
£m | £m | |
| First charge | 1,602.0 | 1,466.6 |
| Second charge | 335.7 | 358.6 |
| Funding lines | 13.1 | 12.2 |
| Total | 1,950.8 | 1,837.4 |
This segment comprises lending to owner-occupiers, secured via either first or second charges against the residential home. The Bank also provides funding lines to non-bank lenders which operate in high yielding, specialist sub segments, such as residential bridge finance.
The Residential sub-segment gross loan book was £1,950.8m as at
OSB’s first charge gross loan book increased 9% in the period to £1,602.0m from £1,466.6m at the end of 2019.
Our Kent Reliance brand provides bespoke first charge mortgages, typically to prime credit quality borrowers with more complex circumstances, for example, high net worth borrowers with multiple income sources and self-employed borrowers. These circumstances often preclude them from the mainstream lenders, as most favour automated decision-making over manual underwriting. The product range also includes near-prime residential products. Kent Reliance also operates in the shared ownership sector, where borrowers buy a property in conjunction with a housing association. A revised shared ownership product set was launched in
The OSB second charge mortgage brand, Prestige Finance, no longer offers new mortgages to borrowers and its loan book is in run-off and managed by Precise Mortgages. Second charge mortgages are currently offered by the Group under the Precise Mortgages brand as a sub-segment of CCFS. The Prestige Finance second charge residential loan book had a gross value of £335.7m as at
OSB continued to provide secured funding lines to non-bank lenders which operate in certain high-yielding, specialist sub-segments, such as residential first and second charge finance. The Bank continued to adopt a cautious approach to these more cyclical businesses given macroeconomic uncertainty. Total credit approved limits as at
Residential mortgages made a contribution to profit of £27.4m, down 3% compared with the restated value of £28.2m1 in the same period of 2019. Growth in income during the period was more than offset by higher impairment losses which increased to £7.7m from £0.7m in the prior period reflecting more adverse macroeconomic scenarios used in modelling expected credit losses under IFRS 9.
The average book LTV remained low at 58% (
1. Net interest income and contribution to profit were restated as a result of the recognition of interest expense on the £22m of Perpetual Subordinated Bonds previously classified as equity.
2. The Group restated the comparative LTVs due to a change in aggregation methodology.
The CCFS segment review is presented on an underlying basis and excludes acquisition-related items and reconciliation to the statutory basis is presented in the table below.
Segment results for the six months to
Contribution to profit for the period
| H1 2020 | £m | Residential £m | Bridging £m | Second charge £m | Other1 £m | Total underlying £m | Acquisition- related items £m | Total statutory £m | |||
| Net interest income | 55.9 | 33.5 | 6.8 | 3.6 | 3.5 | 103.3 | (33.0) | 70.3 | |||
| Fees and commissions income | - | 0.1 | - | - | 2.8 | 2.9 | - | 2.9 | |||
| Fair value losses | - | - | - | - | (10.9) | (10.9) | 6.5 | (4.4) | |||
| Gain on sale of loans | - | - | - | - | 15.1 | 15.1 | (13.1) | 2.0 | |||
| Total income | 55.9 | 33.6 | 6.8 | 3.6 | 10.5 | 110.4 | (39.6) | 70.8 | |||
| Impairment of financial assets | (5.7) | (10.7) | (0.9) | (1.2) | - | (18.5) | 0.2 | (18.3) | |||
| Contribution to profit | 50.2 | 22.9 | 5.9 | 2.4 | 10.5 | 91.9 | (39.4) | 52.5 | |||
| H1 2019 | |||||||||||
| Net interest income | 57.1 | 31.1 | 7.9 | 3.4 | 0.6 | 100.1 | |||||
| Fees and commissions income | 0.1 | 0.1 | - | - | 2.1 | 2.3 | |||||
| Fair value losses | - | - | - | - | (7.2) | (7.2) | |||||
| Gain on sale of loans | - | - | - | - | 29.8 | 29.8 | |||||
| Total income | 57.2 | 31.2 | 7.9 | 3.4 | 25.3 | 125.0 | |||||
| Impairment of financial assets | (1.0) | (1.3) | (0.3) | (0.1) | - | (2.7) | |||||
| Contribution to profit | 56.2 | 29.9 | 7.6 | 3.3 | 25.3 | 122.3 | |||||
1. Other relates to the net interest income from acquired loan portfolios, fee income from third party mortgage servicing, fair value losses and gains on structured assets sales.
Loans and advances to customers
| As at | £m | Residential £m | Bridging £m | Second charge £m | Other £m | Total underlying £m | Acquisition-related items1 £m | Total statutory £m |
| Gross loans to customers | 4,986.3 | 2,248.5 | 199.4 | 220.2 | 19.9 | 7,674.3 | 242.1 | 7,916.4 |
| Expected credit losses | (9.0) | (14.0) | (1.4) | (1.7) | - | (26.1) | 0.7 | (25.4) |
| Net loans to customers | 4,977.3 | 2,234.5 | 198.0 | 218.5 | 19.9 | 7,648.2 | 242.8 | 7,891.0 |
| Risk-weighted assets | 2,075.8 | 964.3 | 116.5 | 95.0 | 7.6 | 3,259.2 | 101.9 | 3,361.1 |
| As at | ||||||||
| Gross loans to customers | 4,748.5 | 2,170.8 | 214.4 | 218.6 | 22.1 | 7,374.4 | 294.7 | 7,669.1 |
| Expected credit losses | (3.5) | (3.6) | (0.5) | (0.4) | - | (8.0) | 0.7 | (7.3) |
| Net loans to customers | 4,745.0 | 2,167.2 | 213.9 | 218.2 | 22.1 | 7,366.4 | 295.4 | 7,661.8 |
| Risk-weighted assets | 2,002.4 | 934.0 | 127.9 | 95.4 | 8.4 | 3,168.1 | 124.9 | 3,293.0 |
1. See reconciliation of statutory to underlying and pro forma underlying results in the Financial review.
CCFS gross loans
£m | £m | |
| 4,986.3 | 4,748.5 | |
| Residential | 2,248.5 | 2,170.8 |
| Bridging | 199.4 | 214.4 |
| Second charge | 220.2 | 218.6 |
| Other1 | 19.9 | 22.1 |
| Total | 7,674.3 | 7,374.4 |
1. Other relates to acquired loan portfolios
The CCFS underlying net loan book grew 4% to £7,648.2m to the end of
Organic originations were £1,070.8m in the first half of 2020, down from £1,490.0m of new business written in the same period last year. As with the OSB segment, the volume of new business reflects the three-fold dynamic of the first half of 2020: a strong first quarter, followed by a slowdown as the impact of the government’s social distancing measures and
In the first half of 2020, CCFS’ organic originations in the
The gradual re-entry into the mortgage market accelerated towards the end of May with a return to lending with products of up to 75% LTV as physical valuations became possible again. Despite tightened underwriting criteria and an increase in headline interest rates introduced in the second quarter of 2020, CCFS’
Precise Mortgages maintained its top position in the BVA BDRC’s Project Mercury rankings for effectiveness of its marketing efforts for the first quarter of 2020 reflecting its strong brand image amongst the intermediaries.
The weighted average LTV of the book in this segment was 74% with an average loan size of £180,000 (
On an underlying basis,
On a statutory basis, the
Residential sub-segment
CCFS’ specialist residential lending decreased in the first half of 2020 compared with the same period in 2019 with new originations down 37% to £237.2m (H1 2019: £376.3m). As a result of the Coronavirus pandemic, prudent additional underwriting checks were applied to lending in the second quarter of 2020 and interest rates were increased marginally, to manage application levels to operational capacity in light of additional demands including managing customers requesting payment holidays. However, CCFS’ expertise and strong customer propositions, especially in areas such as Help-to-Buy, allowed it to continue to pursue lending with stronger risk-adjusted returns versus mainstream markets.
The average loan size for the residential sub-segment was £159,000 (
The residential sub-segment made a contribution to profit of £22.9m on an underlying basis, down 23% compared with £29.9m in the same period in 2019 as impairment losses increased to £10.7m from £1.3m in the same period of 2019 reflecting more adverse macroeconomic scenarios used in modelling expected credit losses under IFRS 9.
On a statutory basis, the Residential sub-segment made a contribution to profit of £11.6m.
Bridging sub-segment
The Group maintained its focus on high-quality regulated and unregulated bridging lending, rather than reacting to increased competition in short-term lending during the first quarter of 2020. Short-term bridging originations through CCFS reduced to £108.7m in the first half of 2020 compared with £168.0m in the first half of 2019. This led to a reduction in the gross loan book in this sub-segment to £199.4m (
The business withdrew its bridging products during lockdown and returned later than with residential and
On an underlying basis, the bridging sub-segment made a contribution to profit of £5.9m in the first half of 2020, down 22% compared with £7.6m in the same period of 2019, reflecting a decrease in net interest income and higher impairment losses of £0.9m (H1 2019: £0.3m).
On a statutory basis, the bridging sub-segment made a contribution to the Group’s profit of £5.0m.
Second charge sub-segment
The second charge gross loan book remained largely flat at £220.2m compared with £218.6m as at
The business withdrew its products during lockdown and a revised and more limited product set has been introduced for second charge mortgage, late in the period with a maximum LTV of 50% and loan size of £250k.
The second charge sub-segment made a contribution to profit of £2.4m on an underlying basis, down 27% compared with £3.3m in the first half of 2019 as impairment losses increased from £0.1m to £1.2m in the first half of 2020.
On a statutory basis, the contribution to profit from the second charge sub-segment was £1.8m.
Summary statutory results
Review of the Group’s performance on a statutory basis reflecting results for the six months to
| H1 2020 | Restated1 H1 2019 | |
| Summary Profit or Loss | £m | £m |
| Net interest income | 233.8 | 150.5 |
| Fair value losses on financial instruments | (12.1) | (7.4) |
| Gain on sale of financial instruments | 19.9 | - |
| Net fees and commissions | 3.7 | 0.3 |
| External servicing fees | - | (0.1) |
| Administrative expenses | (76.7) | (40.9) |
| Provisions | (0.1) | (0.1) |
| Impairment of financial assets | (54.2) | (5.9) |
| Impairment of intangible assets | (7.0) | - |
| Integration costs | (6.3) | - |
| Exceptional items | (1.7) | (5.9) |
| Profit before tax | 99.3 | 90.5 |
| Profit after tax | 72.0 | 65.3 |
| H1 2020 | H1 2019 | |
| Key ratios | ||
| Net interest margin | 217bps | 278bps |
| Basic earnings per share, pence | 15.5 | 25.5 |
| Return on equity | 9% | 20% |
| Management expense ratio | 70bps | 74bps |
| Cost to income ratio | 31% | 29%1 |
| Loan loss ratio | 59bps | 12bps |
| £m | £m | |
| Extracts from the Statement of Financial Position | ||
| Loans and advances to customers | 18,757.2 | 18,446.8 |
| Retail deposits | 16,697.3 | 16,255.0 |
| Total assets | 22,404.0 | 21,417.1 |
| Key ratios | ||
| Common equity tier 1 ratio | 17.4% | 16.0% |
| Total capital ratio | 18.6% | 17.3% |
| Leverage ratio | 6.8% | 6.5% |
1 The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements
For definitions of key ratios please see footnotes in statutory KPIs above.
Statutory profit
The Group reported statutory profit before tax of £99.3m for the first half of 2020, an increase of 10% compared with the restated value of £90.5m in the first half of 20191, as the period included six months of profit from
Statutory profit after tax of £72.0m for the first half of 2020 increased by 10% from £65.3m in the first half of 2019 in line with the increase in profit before tax.
The Group’s effective tax rate increased to 27.5% for the first half of 2020 (H1 2019: restated1 24.9%3) due to the impact of the cancellation of the planned corporation tax rate reductions on
Statutory return on equity for the first half of 2020 fell to 9% (H1 2019: 20%) as the profit for the period was reduced by the acquisition-related items4 (including amortisation of the fair value uplift on acquisition of the net assets of CCFS) and higher impairment losses. Statutory basic earnings per share fell to
Net interest income
Statutory net interest income increased by 55% in the period to £233.8m (H1 2019: restated £150.5m1), reflecting growth in the loan book and the inclusion of six months of CCFS’ net interest income. Statutory net interest margin (‘NIM’) was 217bps compared to 278bps for OSB only for the six months
The reduction in NIM was primarily due to the dilutive impact of including CCFS’ results and the impact of the changing mix of the OSB loan book in 2019, as well as the dilutive impact in the second quarter of 2020 of a delay in passing on the base rate cuts in full to retail savers and the increased levels of liquidity being prudently held by the Group.
The CCFS business has a lower NIM than the OSB business and statutory NIM in the first half of 2020 was also negatively impacted by the amortisation of the fair value uplift on acquisition of the CCFS net assets.
The mix of the OSB loan book continued to change in 2019 as the higher-yielding back book refinanced onto front book pricing. The impact of this mix effect had largely run its course by the end of the first half of 2019.
Fair value losses on financial instruments
Fair value losses on financial instruments increased to £12.1m in the first half of 2020 (H1 2019: £7.4m). This included a £13.8m net loss on unmatched swaps (H1 2019: £4.6m loss), due primarily to fair value movements on mortgage pipeline swaps, prior to them being matched against completed mortgages, caused by a fall in outlook on the LIBOR and SONIA curves. The Group economically hedges its committed pipeline of mortgages and this unrealised loss will unwind over the life of the swaps.
The Group also made a loss of £6.4m (H1 2019: £0.9m loss) in respect of the ineffective portion of hedges and recognised a gain of £10.9m on inception adjustments due to the unwind of acquisition-related inception items and fair value movements of the hedged item at the start of hedge accounting (H1 2019: nil).
Gain on sale of financial instruments
In
Net fees and commissions
Net fees and commissions income of £3.7m in the first half of 2020 (H1 2019: £0.3m) comprised fees and commissions receivable of £4.3m (H1 2019: £0.9m) partially offset by fees and commissions payable of £0.6m (H1 2019: £0.6m).
Fees and commissions receivable increased in the period due to the inclusion of £2.9m of fees and commissions from CCFS as well as servicing fees on securitised loans which have been deconsolidated from the Group’s balance sheet.
Fees and commissions payable remained flat and include branch agency fees and commissions paid to
Administrative expenses
Administrative expenses nearly doubled to £76.7m in the first half of 2020 (H1 2019: £40.9m), largely as a result of the inclusion of administrative costs of CCFS.
The Group’s statutory cost to income ratio of 31% (H1 2019: restated 29%1) was impacted by the acquisition related adjustments (including the amortisation of the fair value uplift on CCFS net assets) which reduced total income on a statutory basis and the inclusion of CCFS’ income and administrative expenses.
The Group continued to focus on integration activities and other cost efficiencies as demonstrated in the statutory management expense ratio improving to 70bps in the first half of 2020 (H1 2019: 74bps).
Impairment of financial assets
Impairment losses in the first half of 2020 were £54.2m (H1 2019: £5.9m) and the statutory loan loss ratio increased to 59bps compared to 12bps in the first half of 2019.
The impairment losses in the first half of 2020 included a £42.0m impact of adopting more adverse macroeconomic scenarios as the onset of the Coronavirus pandemic changed the outlook for the
Impairment of intangible assets
The impairment of intangible assets of £7.0m related to the intangible assets recognised on the acquisition of CCFS and the impact of lower actual and expected lending volumes in CCFS post COVID-19 on the recoverable amount of the broker relationship intangible.
Integration costs
The Group recorded £6.3m of integration costs in the first half of 2020, largely related to staff costs for key personnel retained to assist in the integration for a fixed period, redundancy costs and fees incurred for external advice on the Group’s future operating structure.
Exceptional items
Exceptional items of £1.7m related to consultant, legal and professional fees in respect of the Combination with CCFS (H1 2019: £5.9m).
Dividend
As a result of the Coronavirus pandemic, on
Balance sheet growth
On a statutory basis, net loans and advances to customers grew by 2% to £18,757.2m as at
Retail deposits increased by 3% to £16,697.3m as at
In the first half of 2020, the Group was accepted for the TFSME with a combined initial allowance of £2.0bn.
At the end of
The Group also utilises sophisticated securitisation platforms to complement its funding requirements and in
In addition to the placement of £847m of RMBS bonds into the market during the period, the Group also securitised £1bn of organically-originated mortgage assets under Canterbury No.2, which closed in
Total assets grew by 5% to £22,404.0m (
Liquidity
Both OSB and CCFS operate under the Prudential Regulation Authority’s liquidity regime and are managed separately for liquidity risk. Both Banks hold their own significant liquidity buffer of liquidity coverage ratio (‘LCR’) eligible high-quality liquid assets (‘HQLA’).
As at
Both Banks operate within a target liquidity runway in excess of the minimum LCR regulatory requirement, which is based on internal stress testing. Both Banks have a range of contingent liquidity and funding options available for possible stress periods.
As at
Capital
The Group’s capital position remained exceptionally strong, with a fully-loaded CET1 ratio of 17.4% as at
The CET1 ratio as at
The Group had a leverage ratio of 6.8% as at
1. The Group restated prior year comparatives to recognise £0.5m of interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements
2. Acquisition-related items of £57.0m, for more details see Reconciliation of statutory to pro forma underlying results on page 29
3. Effective tax rate excludes £2.7m of adjustments relating to prior year.
4. Acquisition-related items of £47.2m, for more details see Reconciliation of statutory to pro forma underlying results on page 29
5. CET1 ratio of 16.0% includes declared 2019 final dividend which was subsequently cancelled. Excluding the 2019 dividend, the ratio would have been 16.6% as at
Summary underlying results
Alternative performance measures
The Group presents alternative performance measures (‘APMs’) below as management believe they provide a more consistent basis for comparing the Group’s performance between financial periods.
Underlying results for the six months to
Pro forma underlying results for the six months to
APMs 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 which can be found on page 21.
For the reconciliation between APMs and the statutory equivalents, see page 29 and for calculation methods of key performance indicators, see page 91 in the Appendix.
| Underlying H1 2020 | Pro forma underlying H1 2019 | |
| Summary Profit or Loss | £m | £m |
| Net interest income | 266.8 | 250.5 |
| Gain on sale of financial instruments | 33.0 | 29.8 |
| Fair value losses on financial instruments | (18.6) | (14.3) |
| Net fees and commissions | 3.7 | 2.4 |
| External servicing fees | - | (0.1) |
| Administrative expenses | (74.1) | (76.8) |
| Provisions | (0.1) | (0.1) |
| Impairment of financial assets | (54.4) | (8.6) |
| Profit before tax | 156.3 | 182.8 |
| Profit after tax | 119.2 | 137.3 |
| H1 2020 | H1 2019 | |
| Key ratios | ||
| Net interest margin | 250bps | 270bps |
| Basic earnings per share, pence | 26.1 | 30.3 |
| Return on equity | 18% | 24% |
| Management expense ratio | 68bps | 81bps |
| Cost to income ratio | 26% | 29% |
| Loan loss ratio | 60bps | 11bps |
| £m | £m | |
| Extracts from the Statement of Financial Position | ||
| Loans and advances to customers | 18,514.4 | 18,151.4 |
| Retail deposits | 16,692.8 | 16,248.6 |
| Total assets | 22,201.5 | 21,166.5 |
Underlying profit
The Group’s underlying profit before tax was £156.3m in the first half of 2020, a decrease of 14% compared with £182.8m in the first half of 2019, due primarily to higher impairment losses as the Group adopted more adverse COVID-19 related macroeconomic scenarios.
Underlying profit after tax was £119.2m, down 13% (H1 2019: £137.3m) in line with the decrease in profit before tax.
The Group’s effective tax rate on an underlying basis remained broadly flat at 23.7% for the first half of 2020 (H1 2019: 24.9%).
On an underlying basis, return on equity for the first half of 2020 decreased to 18% (H1 2019: 24%) and basic earnings per share decreased to
Net interest income
Underlying net interest income increased by 7% to £266.8m in the first half of 2020 (H1 2019: £250.5m) due primarily to growth in the loan book and the underlying net interest margin (‘NIM’) was 250bps (H1 2019: 270bps).
The reduction in NIM was primarily due to the changing mix of the OSB loan book in 2019, as well as the dilutive impact in the second quarter of 2020 of a delay in passing on the base rate cuts in full to retail savers and the increased levels of liquidity being prudently held by the Group. The mix of the OSB loan book continued to change in 2019 as the higher-yielding back book refinanced onto front book pricing. The impact of this mix effect had largely run its course by the end of the first half of 2019.
Fair value losses on financial instruments
Underlying net fair value losses on financial instruments increased to £18.6m in the first half of 2020 (H1 2019: £14.3m). This included a £13.8m net loss on unmatched swaps (H1 2019: £11.8m loss), due primarily to fair value movements on mortgage pipeline swaps, prior to them being matched against completed mortgages, due to a fall in outlook on the LIBOR and SONIA curves. The Group economically hedges its committed pipeline of mortgages and this unrealised loss will unwind over the life of the swaps.
The Group made a loss of £6.4m (H1 2019: £0.9m loss) due to the ineffective portion of hedges and a £5.8m gain on inception adjustments due to fair value movements of hedged assets and liabilities prior to new hedge accounting relationships commencing and also recognised £3.1m of amortisation of fair value adjustments on hedged assets relating to cancelled swaps (H1 2019: £1.9m).
Gain on sale of financial instruments
Gains on structured asset sales were £33.0m on an underlying basis in the first half of 2020 (H1 2019: 29.8m) as the Group disposed of its remaining notes under the Canterbury No.1 securitisation and PMF 2020-1B in
Net fees and commissions
Underlying net fees and commissions income of £3.7m in the first half of 2020 (H1 2019: £2.4m) comprised fees and commissions receivable of £4.3m (H1 2019: £3.0m) which related to CCFS’ fees for servicing third party mortgage portfolios and servicing fees for securitised mortgages where the Group continued to service the loans, partially offset by fees and commissions payable of £0.6m (H1 2019: £0.6m) which include branch agency fees and commissions paid to
Administrative expenses
Underlying administrative expenses were down 4% to £74.1m in the first half of 2020 (H1 2019: £76.8m). This includes the benefit of synergies from integration realised to date, mainly from de-duplication of senior roles and other efficiencies.
The underlying cost to income ratio improved to 26% (H1 2019: 29%) and the underlying management expense ratio improved by 13bps to 68bps for the first half of 2020 (H1 2019: 81bps) as the business delivered integration synergies and retained its focus on cost efficiency and discipline through the Coronavirus pandemic.
Impairment of financial assets
Underlying impairment losses in the first half of 2020 were £54.4m (H1 2019: £8.6m) representing an underlying loan loss ratio of 60bps (H1 2019: pro forma underlying 11bps).
The underlying impairment losses in the first half of 2020 included a £42.0m impact of adopting more adverse macroeconomic scenarios as the onset of the Coronavirus pandemic changed the outlook for the
Balance sheet growth
On an underlying basis, after adjusting for the fair value uplift on the CCFS loan book, net loans and advances to customers were £18,514.4m (
Retail deposits increased by 3% to £16,692.8m, after adjusting for the fair value uplift on the CCFS deposits (
In the first half of 2020, the Group was accepted for the TFSME with a combined initial allowance of £2.0bn.
The Group also utilises sophisticated securitisation platforms to complement its funding requirements and in
In addition to the placement of £847m of RMBS bonds into the market during the period, the Group also securitised £1bn of organically-originated mortgage assets under Canterbury No.2, which closed in
At the end of
Total assets grew by 5% to £22,201.5m (
Reconciliation of statutory to underlying and pro forma underlying results
| HY 2020 | HY 2019 | |||||||
| Statutory results £m | Reverse acquisition- related items £m | Underlying results £m | Restated15 OSB statutory results £m | CCFS statutory results £m | Reverse exceptional item and adjust presentation £m | Pro forma underlying results £m | ||
| Net interest income | 233.8 | 33.01 | 266.8 | 150.5 | 100.1 | (0.1) | 250.5 | |
| Gain on sale of loans | 19.9 | 13.12 | 33.0 | – | 29.8 | – | 29.8 | |
| Net fair value losses on financial instruments | (12.1) | (6.5)3 | (18.6) | (7.4) | (7.2) | 0.3 | (14.3) | |
| Net fees and commissions | 3.7 | – | 3.7 | 0.3 | 2.3 | (0.2) | 2.4 | |
| External servicing fees | – | – | – | (0.1) | – | – | (0.1) | |
| Total income | 245.3 | 39.6 | 284.9 | 143.3 | 125.0 | – | 268.3 | |
| Administrative expenses | (76.7) | 2.64 | (74.1) | (40.9) | (35.9) | – | (76.8) | |
| Provisions | (0.1) | – | (0.1) | (0.1) | – | – | (0.1) | |
| Impairment of financial assets | (54.2) | (0.2)5 | (54.4) | (5.9) | (2.7) | – | (8.6) | |
| Impairment of intangible assets | (7.0) | 7.06 | – | |||||
| Integration costs | (6.3) | 6.37 | – | – | – | – | – | |
| Exceptional items | (1.7) | 1.78 | – | (5.9) | (3.8) | 9.7 | – | |
| Profit before tax | 99.3 | 57.0 | 156.3 | 90.5 | 82.6 | 9.7 | 182.8 | |
| Profit after tax | 72.0 | 47.2 | 119.2 | 65.3 | 62.3 | 9.7 | 137.3 | |
| Summary Balance Sheet | ||||||||
| Loans and advances to customers | 18,757.2 | (242.8)9 | 18,514.4 | 9,862.0 | 7,046.9 | – | 16,908.9 | |
| Other financial assets | 3,570.1 | 48.610 | 3,618.7 | 1,724.5 | 1,162.9 | – | 2,887.4 | |
| Other non-financial assets | 76.7 | (8.3)11 | 68.4 | 51.3 | 59.6 | – | 110.9 | |
| Total assets | 22,404.0 | (202.5) | 22,201.5 | 11,637.8 | 8,269.4 | 19,907.2 | ||
| Amounts owed to retail depositors | 16,697.3 | (4.5)12 | 16,692.8 | 9,175.0 | 5,976.5 | 15,151.5 | ||
| Other financial liabilities | 4,078.9 | 6.713 | 4,085.6 | 1,724.4 | 1,768.5 | 3,492.9 | ||
| Other non-financial liabilities | 80.0 | (54.7)14 | 25.3 | 41.2 | 33.9 | (9.7) | 65.4 | |
| Total liabilities | 20,856.2 | (52.5) | 20,803.7 | 10,940.6 | 7,778.9 | (9.7) | 18,709.8 | |
| Net assets | 1,547.8 | (150.0) | 1,397.8 | 697.2 | 490.5 | 9.7 | 1,197.4 | |
Notes to the reconciliation of statutory to underlying and pro forma underlying results table:
1. Amortisation of the net fair value uplift to CCFS’ mortgage loans and retail deposits on Combination.
2. Recognition of additional gain on sale of securitisation notes.
3. Inception adjustment on CCFS’ derivative assets and liabilities on Combination.
4. Amortisation of intangible assets recognised on Combination.
5. Adjustment to expected credit losses on CCFS loans on Combination.
6. Impairment of intangible asset post Combination
7. Costs of integration of the two Banks post Combination, see note 9 to the accounts
8. Reversal of exceptional items, see note 10 to the accounts
9. Recognition of a fair value uplift to CCFS’ loan book of £317.0m less reversal of fair value movement for securitised loans of £17.4m less accumulated amortisation of the fair value uplift of £57.5m and a movement on credit provisions of £0.8m.
10. Fair value adjustment to hedged assets
11. Adjustment of £1.0m to deferred tax asset, £0.2m to other assets and £9.5m relating to recognition of acquired intangibles on Combination.
12. Fair value adjustment to CCFS’ retail deposits of £7.4m at Combination less accumulated amortisation of £2.9m.
13. Fair value adjustment to hedged liabilities
14. Adjustment to deferred tax liability.
15. The Group restated the prior year comparatives to recognise interest expense and taxation on the £22m Perpetual Subordinated Bonds previously classified as equity
Key areas of focus during the six months to
The six months to
The Group proactively managed its risk profile by leveraging the well-established Risk Management Framework (‘RMF’) in accordance with the Board approved risk appetite. Continuous and close monitoring and assessment of underlying risk drivers, allowed the Board and management to take timely actions in response to the changing business, regulatory, political and economic environment.
Progress was made in implementing Group level credit and model risk frameworks and policies, to ensure that, where appropriate, common approaches and practices are exercised across both OSB and CCFS.
The COVID-19 pandemic had a material impact on the Group’s business and operational activities, with a significant volume of customers requesting payment holidays, whilst new business volumes were reduced when physical valuations were not possible. The Group’s operational arrangements were also impacted as the
Extensive oversight and advisory support was provided by the Risk and Compliance function, to ensure that the Group’s response to COVID-19 was in accordance with regulatory expectations and the Board’s risk appetite. The Group ensured that customers had and continue to have their account performance reported to credit reference agencies as per issued guidance, in conjunction with IFRS 9 accounting and regulatory capital guidance being adopted as recommended.
The Group continues to actively monitor the behaviour of accounts issued with a payment holiday, whilst conducting scenario analysis and stress testing to understand the range of possible outcomes which could arise, to enable appropriate business planning activity to take place.
The Risk function conducted detailed stress tests over a range of scenarios to allow the Board to understand how the Group’s assets and liabilities could perform in extreme but plausible scenarios and to assess the adequacy of contingent financial resources (capital and funding), as well as the robustness of the Group’s systems and controls.
Due to the potential impact which COVID-19 could have on the
A capital adequacy assessment was conducted, underpinned by reverse stress testing analysis, to identify a scenario in which the Group would breach minimum regulatory capital thresholds. This analysis demonstrated that the Group could withstand extreme macroeconomic stresses. The scenarios identified were more severe than the stress scenarios used within the internal capital adequacy assessment process (‘ICAAP’) and the macroeconomic stresses observed in prior recessions, and materially more adverse than the forecasted impact of COVID-19.
The Board also reviewed detailed liquidity, funding and operational resilience assessments as part of the wider going concern assessment. The Board concluded that the probability of the scenarios occurring over the next 12 months was sufficiently remote to conclude that there was no material uncertainty leading to a significant going concern risk.
The Group leveraged its operational resilience and contingency planning frameworks to effectively respond to the onset of the pandemic, with the majority of staff working from home during the lock down period, in both the
The Group intensified its focus on supporting customers during the period, with resources diverted from other areas of the business to facilitate exceptionally high levels of inbound customer calls, related to payment holiday requests or queries from the Group’s savings customer base, which were actioned in a timely manner. The Group complied with all new regulatory guidelines which emerged during the period.
Integration activities continued as planned with synergies being realised as department level target operating models were rolled out across the Group. The Group continues to apply a low risk approach to integration.
During the period, further progress was made by the Group’s Internal Ratings Based (‘IRB’) project, with a combined project management office established to oversee both OSB and CCFS banks’ IRB projects in an efficient and optimised manner. Group level model governance arrangements were implemented, whilst further progress was made in the development of the end state IRB models, ensuring compliance with emerging regulatory requirements. The Group is planning to submit module 1 to the PRA during 2021.
The Group successfully managed its funding and liquidity profile throughout the first half of the year, ensuring that it supported new or existing customer requests, while maintaining appropriate buffers as the COVID-19 pandemic developed.
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.
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 2019 Annual Report and Accounts on pages 58 to 65, which can be accessed via our website at www.osb.co.uk.
| Principal risks | Key mitigating actions |
| Strategic and business risk |
|
| Reputational risk |
|
| Credit risk | Individual borrower defaults:
Macroeconomic downturn ·The Group works within clearly defined portfolio limits approved by the Risk Committee and the Board covering loan to value (‘LTV’), affordability metrics, sector and geographic concentrations. The Group’s limits were reviewed within the period and adjusted as required. 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 |
| Market risk | ·Due to the Group’s balance sheet structure no active management of basis risk has been required by OSB in 2020. CCFS actively replaced back book LIBOR asset swaps with SONIA swaps to balance basis risk across assets and liabilities and reduce possible exposure to dislocation of market rates from the |
| Liquidity and funding risk |
|
| Solvency risk |
|
| Operational risk | Cyber / IT security risk
Data-management ·The Group established a dedicated Data Strategy Programme, designed to ensure a consistent approach to the maintenance and use of data. This includes both documented procedures and frameworks and also tools intended to improve the consistency of data use. The Group has continued its efforts to enhance its compliance with the requirements under GDPR. Organisational change and integration ·There is a low risk integration project plan (e.g. no large scale integration related IT change projects planned) and an experienced and capable project management office, with close oversight and direction provided by the Group Executive and Board Integration Committees with active monitoring against integration based objectives and cost and synergies targets. IT failure ·The Group continues to invest in improving the resilience of its core infrastructure. It has identified its prioritised business services and the infrastructure that is required to support them. Tests are performed regularly to validate its ability to recover from an incident. Change management ·The Group recognises that implementing change introduces significant operational risk and has therefore implemented a series of control gateways designed to ensure that each stage of the change management process has the necessary level of oversight. |
| Conduct risk | Product suitability
Vulnerable Customers ·The Group continues to be focused on customers who, due to their personal circumstances, are susceptible to detriment, particularly so with the onset of the pandemic. The Group has established policies and processes to identify and respond to individual customers deemed as vulnerable in accordance with the Group’s conduct risk appetite, policies and procedures and regulatory expectations. 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 and the potential for customer detriment is identified and appropriately addressed. Integration risk ·During the integration process, the Group is committed to adopting a low-risk approach with a view to taking reasonable steps to avoid causing poor outcomes for our customers. The Group has conducted and will continue to undertake detailed analysis of potential customer harm associated with the integration process. |
| Compliance and regulatory risk |
|
Emerging risks
The Group proactively scans for emerging risks which may have an impact on its on-going operations and strategy. The Group considers its top emerging risks to be:
| Emerging risks | Key mitigating actions |
| COVID-19 The outbreak of the Coronavirus (COVID-19) pandemic has had a disruptive impact on the global and The length and severity of the pandemic and its impact remains uncertain. The risk of further waves in the |
|
| Brexit based political and macroeconomic uncertainty As the outcome of trade negotiations following Brexit continues to be unclear, there remains a level of associated uncertainty around the performance of the | ·The Group’s on-going monitoring and assessment processes, business planning, risk appetite and stress testing capabilities ensure that the Group is well placed to understand and respond to the macroeconomic implications of various Brexit outcomes. |
| Integration risk The risks resulting from the Group’s on-going integration activities, including systems, people and infrastructure. |
|
| Climate change As the worldwide focus on climate change intensifies, both the physical risks and the transitional risks continue to grow, albeit from a Physical risks can relate to specific weather events, such as storms and flooding, or to longer-term shifts in the climate, such as rising sea levels. Transitional risks may arise from the adjustment towards a ‘low-carbon’ economy, such as tightening energy efficiency standards for domestic and commercial buildings. |
|
| Model risk The risk of financial loss, adverse regulatory outcomes, reputational damage or customer detriment resulting from deficiencies in the development, application or on-going operation of models and ratings systems. COVID-19 may result in an adverse impact in the performance of existing credit risk models. |
|
| LIBOR reform The London Interbank Offered Rate (‘LIBOR’) benchmark may cease to be set after the end of 2021. The Group has exposure to the LIBOR benchmark within some of its customer lending products and wholesale derivative hedging transactions. If the benchmark were to cease or become unreliable these loans and derivatives may reflect rates that do not accurately represent short-term funding costs, therefore having an adverse effect on returns. | ·The Group Asset and |
| Treating customers fairly The risk that industry wide and firm specific practices in relation to arrears; collections and forbearance procedures result in poor customer outcomes and financial distress, continue to be an important area of regulatory focus. The practices within the regulated residential mortgage market, both first and second charge mortgages, have in particular been subject to active supervisory monitoring through market data analysis, complaints to firms, notifications from firms and multi-firm thematic reviews. If the Group’s arrears, repossession, forbearance and vulnerable customer policies and procedures are assessed to be misaligned to the individual needs of the customers and regulatory expectations, the Group runs the risk of causing harm to its customers, particularly those experiencing financial hardship or vulnerable customers, with the potential for reputational damage, redress and other regulatory actions. |
|
Credit risk portfolio performance
The loan book continued to exhibit resilient performance despite the unprecedented operating environment. Close monitoring and proactive management of the Group’s credit profile continues, as the impact of COVID-19 evolves.
The Group initially observed a strong take-up of mortgage payment holidays as customers sought to limit their financial outgoings during the early phase of the nationwide lockdown. However, as the lockdown has been progressively relaxed and customers have had time to assess and organise their financial arrangements, the Group has observed a progressive decline in the number of customers with a payment holiday. The Group has actively monitored this and the wider cohort of higher risk customers to identify accounts which have or could experience financial difficulties and increased provisions based on enhanced IFRS 9 staging criteria.
The Group has updated its IFRS 9 macroeconomic scenarios and weightings to reflect the economic uncertainties caused by the pandemic. These changes have resulted in a material increase in the Group’s forward looking expected credit loss (‘ECL’) estimates whilst the underlying credit metrics have remained broadly stable during the period.
The Group remains fully cognisant of the potential risk of future loan portfolio performance issues linked to the payment holiday and furlough schemes coming to an end. The Group has assessed and quantified the potential range of outcomes via stress testing and scenario analysis, and has raised IFRS 9 impairment provisions on a forward looking basis.
In accordance with the Group’s strategy, lending concentrations in core markets such as
During the period, forward looking internal and external scoring metrics remained stable, indicating the underlying credit quality of the loan portfolios.
Lending growth across the Group’s funding lines and development finance businesses remained broadly stable, with modest and carefully selected growth in
Exposure to the Group’s residential development finance brand Heritable remained low at £150.0m with a weighted average LTV of 52%, which ensures a high level of protection remains in place should property prices deteriorate markedly.
The Group continues to have a low exposure to high LTV loans against properties worth more than £2m. As at
Average weighted interest coverage ratios in our
Given the uncertain macroeconomic backdrop the Group tightened new lending LTV criteria during the six months to
The total average LTV ratio for existing loans remained stable at 65% for OSB as at
For CCFS arrears balances remained low and in line with expectations, where the ratio of balances greater than three months in arrears was 0.5% as at
Expected Credit Losses
Following the rapid onset of the COVID-19 pandemic and the lockdown period the outlook for the
Under the IFRS 9 approach, macroeconomic forward looking forecasts are utilised within the impairment modelling process. Macroeconomic variables such as unemployment rates, gross domestic product and base rate trends impact the probability of accounts rolling into arrears and default (stage 3), whilst house price movements impact potential loss given default levels. These factors in turn impact expected credit loss estimates.
Following the industry best practice and guidance from regulators, the Group did not consider payment holidays as an automatic transfer trigger for accounts from stage 1 to stage 2.
In accordance with the principles outlined in the PRA letter submitted to
The first iteration enhanced rule set developed resulted in a portion of higher risk payment holiday accounts being moved into stage 2 and higher provisions being held, which had an impact on provision levels and loan loss performance during the period. If the Group reclassified all customers on a COVID-19 payment holiday at
On an underlying basis, impairment losses in the first half of 2020 totalled £54.4m (H1 2019: £8.6m), which represented a loan loss ratio of 60bps (H1 2019: 11bps). The increase in impairment losses was predominantly driven by the impact of COVID-19 and the introduction of more adverse macroeconomic scenarios and enhancements made to the Group’s staging logic, which resulted in a proportion of payment holiday accounts being transferred into stage 2 and higher provisions being held. As described above the Group’s credit profile remained resilient throughout the reporting period; on an underlying basis removing these two significant impacts, and less material modelling enhancements, the loan loss ratio would have been 6bps. The statutory loan loss ratio increased to 59bps (H1 2019: 12 bps) as described above driven by the impact of COVID-19.
During the period to
The Group’s economic advisers estimated the potential impact of the lockdown period on productivity, the offsetting impacts of government interventions, and in the downside scenarios the potential compounding impact of an adverse outcome with respect to the
Since the lockdown restrictions have been lifted, economic activity has resumed, however the forecasts assume a certain level of scarring to the long term economic outlook. The table below discloses the forecasted year end economic performance during 2020, 2021 and 2022, when the adverse impact of COVID-19 on the economy will be at its highest.
Macroeconomic scenarios utilised within IFRS 9 impairment calculations
| Scenario (%)1 | ||||||
| Scenario | Probability weighting (%) | Economic measure | Year end 2020 | Year end 2021 | Year end 2022 | |
| Base case | 40 | GDP Unemployment House price growth | (5.9) 7.7 (14.3) | 3.8 7.1 (0.3) | 3.6 6.6 7.0 | |
| Upside | 30 | GDP Unemployment House price growth | (2.6) 7.0 (11.9) | 3.7 5.5 6.5 | 3.6 5.2 9.0 | |
| Downside | 23 | GDP Unemployment House price growth | (8.9) 9.3 (19.4) | 3.4 9.5 (10.1) | 3.9 9.2 3.0 | |
| Severe Downside | 7 | GDP Unemployment House price growth | (10.0) 9.8 (21.0) (13.4) | 3.5 10.4 (14.8) (30.5) | 3.9 10.3 (1.3) 5.0 | |
1. Scenarios show annual movement for economic measures.
The material increase in provision levels during the first half of 2020 was driven by the forecasted stress during 2020 and 2021, but also the forecasted longer term impact of COVID-19 which is forecasted to result in more subdued long term economic performance. For example, the five year average house price performance across all scenarios has been materially downgraded from the forecast used within
During the period to the
The table below indicates the increase in provision coverage levels as at
| As at | Gross carrying amount (£m) | Expected Credit Loss (ECL) (£m) | Coverage Ratio (%)1 |
| Stage 1 | 16,427.9 | 28.1 | 0.17% |
| Stage 2 | 1,941.7 | 26.7 | 1.38% |
| Stage 3 + POCI | 464.1 | 41.6 | 8.96% |
| Total | 18,833.7 | 96.4 | 0.51% |
| As at | Gross carrying amount (£m) | Expected Credit Loss (ECL) (£m) | Coverage Ratio (%) |
| Stage 1 | 17,286.9 | 5.6 | 0.03% |
| Stage 2 | 749.5 | 5.6 | 0.75% |
| Stage 3 + POCI | 431.2 | 31.7 | 7.35% |
| Total | 18,467.6 | 42.9 | 0.23% |
1 Coverage ratios versus loans and advances is the total IFRS 9 provision versus gross loans and advances.
Liquidity and funding risk management overview
The Group’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 95% for Kent Reliance and 86% for
The Group liquidity coverage ratio remained strong at 245% as at
Market risk
The key market risk the Group is exposed to is interest rate risk. Gap and basis risk are managed by defined limits for each Bank. The Group’s
Solvency risk management overview
The Group continued to maintain an appropriate level of capital to support its strategic objectives and to meet its prudential requirements. The Group maintained a strong capital position in the first half of 2020 with a CET1 ratio of 17.4% (
The Group’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.
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 and Accounts that could do so.
The Board of Directors, as listed below, represents those individuals responsible for this interim management report:
April Talintyre
By order of the Board
Date:
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended
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
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the
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 (
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
Use of our report
This report is made solely to the company in accordance with International Standard on Review Engagements (
Statutory Auditor
| Restated1 | |||
| Six months ended | Six months ended | ||
| Note | (Unaudited) | (Unaudited) | |
| £m | £m | ||
| Interest receivable and similar income | 4 | 371.5 | 227.9 |
| Interest payable and similar charges | 5 | (137.7) | (77.4) |
| Net interest income | 233.8 | 150.5 | |
| Fair value losses on financial instruments | 6 | (12.1) | (7.4) |
| Gain on sale of financial instruments | 7 | 19.9 | - |
| Fees and commissions receivable | 4.3 | 0.9 | |
| Fees and commissions payable | (0.6) | (0.6) | |
| External servicing fees | - | (0.1) | |
| Total income | 245.3 | 143.3 | |
| Administrative expenses | 8 | (76.7) | (40.9) |
| Provisions | 28 | (0.1) | (0.1) |
| Impairment of financial assets | 22 | (54.2) | (5.9) |
| Impairment of intangible assets | 9 | (7.0) | - |
| Integration costs | 10 | (6.3) | - |
| Exceptional items | 11 | (1.7) | (5.9) |
| Profit before taxation | 99.3 | 90.5 | |
| Taxation | 12 | (27.3) | (25.2) |
| Profit for the period | 72.0 | 65.3 | |
| Other comprehensive (expense)/income | |||
| Items which may be reclassified to profit or loss: | |||
| Fair value changes on financial instruments measured as FVOCI: | |||
| Arising in the period | (0.5) | - | |
| Revaluation of foreign operations | 0.1 | 0.1 | |
| Tax on items in other comprehensive expense | - | - | |
| Other comprehensive (expense)/income | (0.4) | 0.1 | |
| Total comprehensive income for the period | 71.6 | 65.4 | |
| Dividend, pence per share | 14 | - | 4.9 |
| Earnings per share, pence per share | |||
| Basic | 13 | 15.5 | 25.5 |
| Diluted | 13 | 15.5 | 25.3 |
1Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the prior period comparatives to recognise the interest expense on the £22.0m Perpetual Subordinated Bonds previously classified as equity (see note 1).
The above results are derived wholly from continuing operations.
The notes on pages 47 to 90 form an integral part of these condensed financial statements.
| As at | As at | ||
| Note | (Unaudited) | (Audited) | |
| £m | £m | ||
| Assets | |||
| Cash in hand | 0.5 | 0.4 | |
| Loans and advances to credit institutions | 16 | 2,597.6 | 2,204.6 |
| Investment securities | 17 | 755.1 | 635.3 |
| Loans and advances to customers | 18 | 18,757.2 | 18,446.8 |
| Fair value adjustments on hedged assets | 23 | 195.1 | 16.8 |
| Derivative assets | 21.8 | 21.1 | |
| Other assets | 10.8 | 14.3 | |
| Deferred taxation asset | 3.6 | 4.8 | |
| Property, plant and equipment | 40.3 | 41.6 | |
| Intangible assets | 22.0 | 31.4 | |
| Total assets | 22,404.0 | 21,417.1 | |
| Liabilities | |||
| Amounts owed to credit institutions | 24 | 3,426.8 | 3,068.8 |
| Amounts owed to retail depositors | 25 | 16,697.3 | 16,255.0 |
| Fair value adjustments on hedged liabilities | 23 | 15.8 | (5.1) |
| Amounts owed to other customers | 28.4 | 29.7 | |
| Debt securities in issue | 26 | 325.7 | 296.3 |
| Derivative liabilities | 221.5 | 92.8 | |
| Lease liabilities | 27 | 12.5 | 13.3 |
| Other liabilities | 21.5 | 34.9 | |
| Provisions | 28 | 2.0 | 1.6 |
| Current taxation liability | 1.7 | 41.5 | |
| Deferred taxation liability | 54.8 | 63.1 | |
| Subordinated liabilities | 10.6 | 10.6 | |
| Perpetual subordinated bonds | 37.6 | 37.6 | |
| 20,856.2 | 19,940.1 | ||
| Equity | |||
| Share capital | 4.5 | 4.5 | |
| Share premium | 864.3 | 864.2 | |
| Retained earnings | 625.1 | 553.2 | |
| Other reserves | 53.9 | 55.1 | |
| 1,547.8 | 1,477.0 | ||
| Total equity and liabilities | 22,404.0 | 21,417.1 |
The notes on pages 47 to 90 form an integral part of these condensed financial statements.
The financial statements on pages 43 to 46 were approved by the Board of Directors on
Chief Executive Officer Chief Financial Officer
Company number: 07312896
| Share capital | Share premium | Capital contribution | Transfer reserve | Own shares1 | Foreign exchange reserve | FVOCI reserve | Share-based payment reserve | Retained earnings | Equity bonds2 | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At | 4.5 | 864.2 | 6.5 | (12.8) | (3.7) | (1.0) | 0.5 | 5.6 | 553.2 | 60.0 | 1,477.0 |
| Total comprehensive income | - | - | - | - | - | 0.1 | (0.5) | - | 72.0 | - | 71.6 |
| Own shares | - | - | - | - | 0.3 | - | - | (0.3) | - | - | - |
| Coupon paid on AT1 securities | - | - | - | - | - | - | - | - | (2.7) | - | (2.7) |
| Dividends paid | - | - | - | - | - | - | - | - | - | - | - |
| Share-based payments | - | 0.1 | - | - | - | - | - | 0.3 | 2.6 | - | 3.0 |
| Tax recognised in equity | - | - | - | - | - | - | - | (1.1) | - | - | (1.1) |
| At | 4.5 | 864.3 | 6.5 | (12.8) | (3.4) | (0.9) | - | 4.5 | 625.1 | 60.0 | 1,547.8 |
| At | 2.4 | 158.8 | 6.5 | (12.8) | - | (0.4) | (0.1) | 4.7 | 439.6 | 82.0 | 680.7 |
| PSB restatement2 | - | - | - | - | - | - | - | - | (0.3) | (22.0) | (22.3) |
| Restated at | 2.4 | 158.8 | 6.5 | (12.8) | - | (0.4) | (0.1) | 4.7 | 439.3 | 60.0 | 658.4 |
| Total comprehensive income | - | - | - | - | - | 0.1 | - | - | 65.3 | - | 65.4 |
| Coupon paid on AT1 securities | - | - | - | - | - | - | - | - | (2.8) | - | (2.8) |
| Dividends paid | - | - | - | - | - | - | - | - | (25.3) | - | (25.3) |
| Share-based payments | 0.1 | - | - | - | - | - | - | (1.1) | 2.5 | - | 1.5 |
| Exceptional items | - | - | - | - | - | - | - | - | (0.1) | - | (0.1) |
| Tax recognised in equity | - | - | - | - | - | - | - | 0.1 | - | - | 0.1 |
| Restated at | 2.5 | 158.8 | 6.5 | (12.8) | - | (0.3) | (0.1) | 3.7 | 478.9 | 60.0 | 697.2 |
1 OSB has adopted look-through accounting and recognised the
2 Equity bonds comprise Additional Tier 1 securities. Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the prior period comparatives to classify
the £22.0m Perpetual Subordinated Bonds previously classified as equity as a liability (see note 1).
| Restated1 | |||
| Six months ended | Six months ended | ||
| Note | (Unaudited) | (Unaudited) | |
| £m | £m | ||
| Cash flows from operating activities | |||
| Profit before taxation | 99.3 | 90.5 | |
| Adjustments for non-cash items | 33 | 60.0 | 19.1 |
| Changes in operating assets and liabilities2 | 33 | (957.8) | 123.9 |
| Cash generated from operating activities | (798.5) | 233.5 | |
| Provisions refunded/(paid) | 0.3 | (0.2) | |
| Net tax paid | (74.8) | (22.4) | |
| Net cash (used)/generated from operating activities | (873.0) | 210.9 | |
| Cash flows from investing activities | |||
| Maturity and sales of investment securities | 121.7 | 139.0 | |
| Purchases of investment securities | (191.5) | (239.9) | |
| Sales of financial instruments | 539.8 | - | |
| Purchases of equipment and intangible assets | (3.8) | (10.1) | |
| Cash used in investing activities | 466.2 | (111.0) | |
| Cash flows from financing activities | |||
| Financing received2 | 29 | 1,250.7 | 102.9 |
| Financing repaid2 | 29 | (602.4) | (81.0) |
| Cash held in deconsolidated special purpose vehicles | (23.0) | - | |
| Interest paid on bonds and subordinated debt | (1.2) | (1.3) | |
| Coupon paid on equity bonds | (2.7) | (2.8) | |
| Dividends paid | - | (25.3) | |
| Proceeds from issuance of shares under employee SAYE schemes | 0.1 | - | |
| Cash payments on lease liabilities | (1.0) | (0.3) | |
| Cash generated/(used) from financing activities | 620.5 | (7.8) | |
| Net increase in cash and cash equivalents | 213.7 | 92.1 | |
| Cash and cash equivalents at the beginning of the period | 15 | 2,102.8 | 1,324.2 |
| Cash and cash equivalents at the end of the period | 15 | 2,316.5 | 1,416.3 |
| Movement in cash and cash equivalents | 213.7 | 92.1 | |
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the prior period comparatives for the interest expense on the £22.0m Perpetual Subordinated Bonds previously classified as equity (see note 1).
2 The Group has reclassified the prior year comparatives to include all components of amounts owed to credit institutions as financing activities. Previously the Group classified the Bank or England Term Funding Scheme and Indexed Long-Term Repo scheme as financing activities and other components as changes in operating assets and liabilities.
The notes on pages 47 to 90 form an integral part of these condensed financial statements.
1. Restatement of prior period
For the year ended
The impact of adjusting the prior period reported balances is shown in the table below:
| Group | Adjustment | Restated Group | |
| £m | £m | £m | |
| Statement of Changes in Equity | |||
| Retained earnings | 479.2 | (0.3) | 478.9 |
| Equity bonds | 82.0 | (22.0) | 60.0 |
| Statement of cash flows | |||
| Profit before taxation | 91.0 | (0.5) | 90.5 |
| Adjustments for non-cash items | 18.6 | 0.5 | 19.1 |
| Interest paid on bonds and subordinated debt | (0.8) | (0.5) | (1.3) |
| Coupon paid on equity bonds | (3.3) | 0.5 | (2.8) |
| Statement of Comprehensive Income | |||
| Interest payable and similar charges | (76.9) | (0.5) | (77.4) |
| Profit before taxation | 91.0 | (0.5) | 90.5 |
2. 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
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 (‘IFRIC‘). 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
The comparative figures for the year ended
2. Accounting policies (continued)
These interim financial statements were authorised for issue by the Company’s Board of Directors on
b) Accounting standards
All accounting policies applied are consistent with those set out on pages 166 to 178 of the 2019 Annual Report and Accounts.
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.
In assessing whether the going concern basis is appropriate, 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. These forecasts have been subject to sensitivity tests, including stress scenarios, which have been compared to the latest Brexit and COVID-19 pandemic economic scenarios provided by the Group’s external economic advisors, as well as reverse stress tests.
The COVID-19 assessment, which focused on the Group’s capital, liquidity and operational resilience, included the following actions:
- Financial and capital forecasts were prepared under stress scenarios which were assessed against the latest COVID-19 related economic forecasts provided by the Group’s external economic advisors. Reverse stress tests were also run, to assess what combinations of House Price Index and unemployment variables would utilise regulatory capital buffers in full and breach the Group’s minimum prudential requirements. The Directors assessed the likelihood of those reverse stress scenarios occurring within the next 12 months and concluded that the likelihood is remote.
- The latest liquidity and contingent liquidity positions and forecasts were assessed against the ILAAP stress scenarios, which were reviewed for suitability in the context of COVID-19 related stresses.
Future operational resilience was assessed, including the ability to achieve social distancing within offices and to continue to support significant levels of home working; adapt the IT technology and network to continue to support home working, establish and maintain internal and external communications; adapt how regulatory engagement is managed; and plan for a phased return to offices in line with government guidance. The assessment also covered the operational resilience of material outsourcing arrangements.
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, after considering the impact of COVID-19, it is appropriate to prepare these Interim Group Financial Statements on a going concern basis.
d) Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports and components of the Group which are regularly reviewed by the chief operating decision maker to allocate resources to segments and to assess their performance. For this purpose, the chief operating decision maker of the Group is the Board of Directors.
The Group lends within the
2. Accounting policies (continued)
Following the combination with
OneSavings Bank plc (‘OSB’)- CCFS
Prior to the Combination, the Group operated under two segments:
The Group has disclosed the risk management tables in note 30 at a sub-segment level to provide granular level analysis of the Group’s core lending business.
3. 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.
The judgements and estimates made by the Group in the application of its accounting policies are set out on pages 179 to 181 of the 2019 Annual Report and Accounts. The following estimates may have a significant risk of material adjustment to the carrying amount of assets within the next financial period:
Loan book impairments – forward-looking macroeconomic scenarios
The following tables disclose the expected credit loss (‘ECL’) scenario sensitivity analysis with each scenario weighted at 100% probability. The purpose of using multiple economic scenarios is to model the non-linear impact of assumptions surrounding macroeconomic factors and ECL calculated. Non-modelled ECL comprises individually assessed provisions and post model adjustments:
| Weighted | 100% Base case scenario | 100% Upside scenario | 100% Downside scenario | 100% Severe downside scenario | |
| At | |||||
| Total loans before provisions, £m | 18,833.7 | 18,833.7 | 18,833.7 | 18,833.7 | 18,833.7 |
| Modelled ECL, £m | 83.3 | 65.4 | 37.8 | 141.4 | 190.5 |
| Non-modelled ECL, £m | 13.1 | 13.1 | 13.1 | 13.1 | 13.1 |
| Total ECL, £m | 96.4 | 78.5 | 50.9 | 154.5 | 203.6 |
| ECL coverage, % | 0.51 | 0.42 | 0.27 | 0.82 | 1.08 |
| At | |||||
| Total loans before provisions, £m | 18,467.6 | 18,467.6 | 18,467.6 | 18,467.6 | 18,467.6 |
| Modelled ECL, £m | 37.4 | 24.4 | 14.6 | 48.1 | 62.5 |
| Non-modelled ECL, £m | 5.5 | 5.5 | 5.5 | 5.5 | 5.5 |
| Total ECL, £m | 42.9 | 29.9 | 20.1 | 53.6 | 68.0 |
| ECL coverage, % | 0.23 | 0.16 | 0.11 | 0.29 | 0.37 |
3. Judgements and estimates (continued)
In accordance with PRA COVID-19 guidance, the Group does not automatically consider the take up of customer payment holidays to be an indication of a significant increase in credit risk (‘SICR’), and in the absence of other indicators such as previous arrears, low credit score or high other indebtedness, the staging of these loans remains unchanged in its ECL calculations. If the Group reclassified all customers on a COVID-19 payment holiday who have shown no SICR from stage 1 to stage 2 the Group’s ECL would increase by £15.4m as at
Loan book acquisition accounting and effective interest rate
There have been no significant changes in key judgements and assumptions for acquisition accounting and income recognition and effective interest rate (‘EIR’) calculations compared to those applied at
Mortgage prepayments slowed in the second quarter of 2020, due to the pandemic and associated lock-down restrictions. However, the Group continues to use long term historical observed prepayment data in EIR accounting, as there remains too much uncertainty as to the longer term impacts of COVID-19 on the economy, mortgage market and consequent customer behaviour. The Group continues to monitor the impact of COVID-19 on the prepayment and attrition rates until consistent trends within the data can be observed and applied.
A slow-down in the property market and/or a reduced supply of customer credit, due to the impact of COVID-19 on the economic outlook, could lead to reduced levels of prepayments in the future, which would extend the expected weighted average life of the mortgage book and the period spent on a higher revert rate.
Sensitivities have been applied to the Precise and Kent Reliance loan books to illustrate the impact on interest income of a change in the expected weighted average lives of the loan books. The potential duration of a change in customer behaviour as a result of COVID-19 remains uncertain, however a period of six month’s variance in the weighted average lives of the loan books was selected for this sensitivity, given the initial quick recovery in the property and mortgage markets post lockdown. This recovery was due, in part, to government stimulus in the form of a temporary reduction in stamp duty and the provision of cheaper funding to banks, in the form of the Bank of England’s Term Funding Scheme for SMEs.
Applying a six month extension in the expected weighted average life of the loan books, would result in a reset gain of c.£57.0m. This includes a £25.0m gain from adjusting the amortisation of the fair value uplift on the CCFS loan book, which was recognised on the Combination of OSB and CCFS on
Applying a six month reduction in the expected weighted average life of the loan books, would result in a reset loss of c.£46.0m. This includes a £28.0m loss from adjusting the amortisation of the fair value uplift on the CCFS loan book and a £1.0m loss in relation to the Kent Reliance loan book.
4. Interest receivable and similar income
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| At amortised cost: | ||
| On OSB mortgages | 248.6 | 227.5 |
| On CCFS mortgages | 166.3 | - |
| On investment securities | 1.5 | - |
| On other liquid assets | 4.0 | 5.0 |
| Amortisation of fair value adjustments on CCFS loan book at Combination | (34.9) | - |
| At fair value through profit or loss: | ||
| Net expense on derivative financial instruments - lending activities | (17.4) | (5.1) |
| On CCFS mortgages | 0.3 | - |
| At FVOCI: | ||
| On investment securities | 3.1 | 0.5 |
| 371.5 | 227.9 |
5. Interest payable and similar charges
| Restated1 | ||
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| On retail deposits | 134.9 | 70.2 |
| On | 4.7 | 5.6 |
| On Perpetual Subordinated Bonds1 | 0.8 | 0.9 |
| On subordinated liabilities | 0.4 | 0.4 |
| On wholesale borrowings | 2.6 | 0.6 |
| On debt securities in issue | 1.4 | - |
| On lease liabilities | 0.2 | - |
| Amortisation of fair value adjustments on CCFS loan book at Combination | (1.9) | - |
| Net income on derivative financial instruments - savings activities | (5.4) | (0.3) |
| 137.7 | 77.4 |
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the prior period comparatives to include the interest expense on the £22.0m PSBs previously classified as equity (see note 1).
6. Fair value losses on financial instruments
| Restated1 | ||
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Fair value changes in hedged assets | 137.8 | (50.2) |
| Hedging of assets | (145.4) | 50.1 |
| Fair value changes in hedged liabilities | (15.1) | 3.7 |
| Hedging of liabilities | 16.3 | (4.5) |
| Ineffective portion of hedges | (6.4) | (0.9) |
| Net loss on unmatched swaps | (13.8) | (4.6) |
| Amortisation of inception adjustment | 10.9 | - |
| Amortisation of fair value adjustments on hedged assets | (1.7) | (2.0) |
| Fair value movements on loans held at FVTPL | (1.2) | - |
| Debit and credit valuation adjustment | 0.1 | 0.1 |
| (12.1) | (7.4) |
1 The Group has reclassified the 2019 comparatives as the fair value changes in hedged assets/liabilities had been incorrectly disclosed as hedging of assets/liabilities and vice versa.
Amortisation of inception adjustment relates to the fair value of the hedged item at the start of hedge accounting and includes £5.1m of hedged assets and liabilities recognised on the Combination where pre-existing hedge relationships ceased on the date of Combination and fair value movements of hedged assets and liabilities prior to new hedge accounting relationships commencing. Inception adjustments are amortised over the life of the underlying derivative instruments.
Net loss on unmatched swaps is 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 and SONIA curves. This unrealised loss will unwind over the life of the swaps.
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.
7. Gain on sale of financial instruments
On
On
On
8. Administrative expenses
| Six months ended | Six months ended | ||
| (Unaudited) | (Unaudited) | ||
| £m | £m | ||
| Staff costs | 41.6 | 22.5 | |
| Facilities costs | 3.0 | 1.6 | |
| Marketing costs | 2.4 | 1.6 | |
| Support costs | 9.2 | 5.0 | |
| Professional fees | 10.7 | 3.0 | |
| Other costs1 | 2.3 | 4.2 | |
| Depreciation | 2.9 | 1.6 | |
| Amortisation | 4.6 | 1.4 | |
| 76.7 | 40.9 | ||
1 Other costs mainly comprise irrecoverable VAT. In 2020 the Group has included the irrecoverable VAT within the underlying expense apart from reverse recharge VAT on services provided by OSB India.
The average number of people employed by the Group (including executive Directors) during the first half of 2020 is analysed below:
| Reclassified1 | |||
| Six months ended | Six months ended | ||
| (Unaudited) | (Unaudited) | ||
| OSB | |||
| Operations | 839 | 802 | |
| Support functions | 301 | 270 | |
| CCFS | |||
| Operations | 585 | - | |
| Support functions | 103 | - | |
| 1,828 | 1,072 | ||
1. For the year ended
9. Impairment of intangible assets
Assets arising on the Combination with CCFS in 2019 included a broker relationships intangible asset with a fair value of £17.1m on Combination. A key input to the calculation of the fair value was CCFSs anticipated lending volumes which have been impacted by COVID-19, indicating that the asset is impaired. The recoverable amount of the asset has been estimated and an impairment of £7.0m has been recognised. The remaining carrying value of the broker relationships intangible asset at
10. Integration costs
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Consultant fees | 1.6 | - |
| Staff costs | 4.7 | - |
| 6.3 | - |
Consultant fees relate to advice on the Group’s future operating structure.
Staff costs relate to key personnel who will leave the Group under the new operating model, but have been retained to assist in the integration for a fixed period, and redundancy costs in relation to transferring the
11. Exceptional items
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Consultant fees | 0.9 | 3.9 |
| Legal and professional fees | 0.8 | 2.1 |
| Heritable option | - | (0.1) |
| 1.7 | 5.9 |
Exceptional items comprise additional expenses in relation to the Combination with CCFS in 2019 and fees in relation to the Group’s future operating structure.
12. Taxation
| Six months ended | Six months ended | ||
| (Unaudited) | (Unaudited) | ||
| £m | £m | ||
| Corporation taxation | (35.8) | (21.9) | |
| Deferred taxation | 0.4 | (0.6) | |
| Tax in respect of prior periods | - | (2.7) | |
| Release of deferred taxation on CCFS Combination1 | 8.1 | - | |
| Total taxation | (27.3) | (25.2) |
1 Release of deferred taxation on CCFS Combination relates to the unwind of the deferred tax liability recognised on the fair value adjustment of the CCFS assets and liabilities at the Combination date and intangible assets recognised on Combination.
12. Taxation (continued)
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:
| Restated1 | |||
| Six months ended | Six months ended | ||
| (Unaudited) | (Unaudited) | ||
| £m | £m | ||
| Profit before taxation | 99.3 | 90.5 | |
| Profit multiplied by the weighted average rate of corporation tax in the | (18.9) | (17.2) | |
| Bank surcharge2 | (3.5) | (4.4) | |
| Taxation effects of: | |||
| Expenses not deductible for taxation purposes | (1.8) | (1.1) | |
| Impact of deferred tax rate change | (4.6) | - | |
| Adjustments in respect of earlier years | - | (2.7) | |
| Income not taxable | 1.0 | - | |
| Tax adjustments in respect of share-based payments | (0.6) | (0.1) | |
| Impact of tax losses carried forward | 0.1 | - | |
| Tax on AT1 securities | 0.7 | 0.8 | |
| Timing differences on capital items | 0.4 | (0.5) | |
| Other | (0.1) | - | |
| Total taxation charge | (27.3) | (25.2) |
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has reclassified the prior period comparatives for the taxation on the interest expense on the £22.0m PSBs previously classified as equity with: profit before tax reducing by £0.5m, profit multiplied by the average rate of corporation tax increasing by £0.1m and tax on AT1 securities (previously tax on coupon on equity bonds) decreasing by £0.1m.
2 Charge for the two banking entities of £7.1m offset by the tax impact of unwinding CCFS Combination items of £3.6m.
A reduction in the
13. 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
| Restated1 | ||||
| Six months ended | Six months ended | |||
| (Unaudited) | (Unaudited) | |||
| £m | £m | |||
| Profit before taxation | 99.3 | 90.5 | ||
| Taxation | (27.3) | (25.2) | ||
| Profit for the period | 72.0 | 65.3 | ||
| Adjustments: | ||||
| Coupons on AT1 securities classified as equity | (2.7) | (2.8) | ||
| Profit attributable to ordinary shareholders | 69.3 | 62.5 | ||
| Add-back integration costs: | ||||
| Add-back integration costs | 6.3 | - | ||
| Tax on integration costs | (1.7) | - | ||
| Add-back exceptional items: | ||||
| Exceptional items | 1.7 | 5.9 | ||
| Tax on Heritable option | - | 2.6 | ||
| Add-back other CCFS acquisition-related items: | ||||
| Amortisation of fair value adjustments | 33.0 | - | ||
| Amortisation of inception adjustment | (5.1) | - | ||
| Amortisation of fair value adjustments on hedged assets | (1.4) | - | ||
| Amortisation of intangible assets acquired | 2.6 | - | ||
| Gain on sale of financial instruments2 | 13.1 | - | ||
| Impairment of financial assets | (0.2) | - | ||
| Impairment of intangible assets | 7.0 | - | ||
| Release of deferred taxation | (8.1) | - | ||
| Underlying profit attributable to ordinary shareholders | 116.5 | 71.0 | ||
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has reclassified the prior period comparatives for the interest expense and tax on the £22.0m PSBs previously classified as equity, decreasing profit before tax and increasing coupons on AT1 securities classified as equity (previously coupons on PSBs and AT1 securities classified as equity) by £0.5m (see note 1).
2 The fair value uplift on Combination on CCFS assets that were subsequently sold (see note 7).
13. Earnings per share (continued)
Earnings per share are summarised in the table below:
| Six months ended | Six months ended | ||
| (Unaudited) | (Unaudited) | ||
| Weighted average number of shares, millions | |||
| Basic | 445.9 | 244.9 | |
| Dilutive impact of share-based payment schemes | 2.2 | 1.9 | |
| Diluted | 448.1 | 246.8 | |
| Earnings per share, pence per share | |||
| Basic | 15.5 | 25.5 | |
| Diluted | 15.5 | 25.3 | |
| Underlying earnings per share, pence per share | |||
| Basic | 26.1 | 29.0 | |
| Diluted | 26.0 | 28.8 | |
14. Dividends
During the period, the Bank paid the following dividends:
| Six months ended | Six months ended | |||
| (Unaudited) | (Unaudited) | |||
| £m | Pence per share | £m | Pence per share | |
| Final dividend for the prior year | - | - | 25.3 | 10.3 |
In order to help serve the needs of businesses and households through the extraordinary challenges presented by COVID-19, the Board cancelled the payment of the final 2019 dividend in relation to ordinary shares, which was due to be paid on
A summary of the Bank’s distributable reserves from which dividends can be paid are shown below:
| Six months ended | Year ended | |||
| (Unaudited) | (Audited) | |||
| £m | £m | |||
| Retained earnings | 448.7 | 407.0 | ||
| Unrealised gains1 | (135.4) | (52.8) | ||
| Other distributable reserves | 4.4 | 5.3 | ||
| Distributable reserves | 317.7 | 359.5 |
1 Unrealised gains relate to the Bank’s fair value adjustments on hedged assets.
15. Cash and cash equivalents
The following table analyses the cash and cash equivalents disclosed in the Statement of Cash Flows:
| As at | As at | As at | As at | |
| (Unaudited) | (Audited) | (Unaudited) | (Audited) | |
| £m | £m | £m | £m | |
| Cash in hand | 0.5 | 0.4 | 0.3 | 0.4 |
| Unencumbered loans and advances to credit institutions | 2,316.0 | 2,052.5 | 1,416.0 | 1,323.8 |
| Investment securities with an original maturity less than 3 months | - | 49.9 | - | - |
| 2,316.5 | 2,102.8 | 1,416.3 | 1,324.2 |
16. Loans and advances to credit institutions
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Unencumbered: | ||
| 2,150.1 | 1,916.2 | |
| Call accounts | 119.0 | 81.7 |
| Cash held in special purpose vehicles1 | 40.5 | 44.0 |
| Term deposits | 6.4 | 10.6 |
| Encumbered: | ||
| 47.4 | 41.7 | |
| Swap margin given | 234.2 | 110.4 |
| 2,597.6 | 2,204.6 |
1 Cash held in special purpose vehicle is ring-fenced for the use in managing the Group’s securitised debt facilities under the terms of securitisation agreements.
17. Investment securities
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Held at FVOCI: | ||
| 191.0 | 149.8 | |
| RMBS loan notes | 358.3 | 358.9 |
| 549.3 | 508.7 | |
| Held at amortised cost: | ||
| RMBS loan notes | 205.8 | 126.6 |
| 205.8 | 126.6 | |
| 755.1 | 635.3 |
17. Investment securities (continued)
Movements during the period of investment securities held by the Group are analysed as follows:
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| At | 635.3 | 58.9 |
| Additions | 291.9 | 439.8 |
| CCFS Combination | - | 493.5 |
| Disposals and maturities | (171.6) | (357.7) |
| Changes in fair value | (0.5) | 0.8 |
| At | 755.1 | 635.3 |
18. Loans and advances to customers
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Held at amortised cost: | ||
| Loans and advances (see note 19) | 18,781.1 | 18,419.9 |
| Finance leases (see note 20) | 52.6 | 47.7 |
| 18,833.7 | 18,467.6 | |
| Less: Expected credit losses (see note 21) | (96.4) | (42.9) |
| 18,737.3 | 18,424.7 | |
| Residential mortgages held at fair value | 19.9 | 22.1 |
| 18,757.2 | 18,446.8 |
19. Loans and advances
| As at | As at | |||||
| (Unaudited) | (Audited) | |||||
| OSB | CCFS | Total | OSB | CCFS | Total | |
| £m | £m | £m | £m | £m | £m | |
| Gross carrying amount | ||||||
| Stage 1 | 9,507.3 | 6,879.9 | 16,387.2 | 9,999.2 | 7,240.0 | 17,239.2 |
| Stage 2 | 1,037.2 | 898.6 | 1,935.8 | 442.4 | 307.1 | 749.5 |
| Stage 3 | 286.6 | 45.2 | 331.8 | 277.7 | 16.7 | 294.4 |
| Stage 3 (POCI) | 53.5 | 72.8 | 126.3 | 53.6 | 83.2 | 136.8 |
| 10,884.6 | 7,896.5 | 18,781.1 | 10,772.9 | 7,647.0 | 18,419.9 | |
During the period the Group acquired the £63.0m residual mortgage pool from Precise Mortgage Funding (‘PMF’) 2015-2 at par, recognising the loans at fair value which was equal to the carrying value.
19. Loans and advances (continued)
The tables below show the movement in loans and advances to customers by IFRS 9 stage:
| Stage 1 | Stage 2 | Stage 3 | Stage 3 (POCI) | Total | |
| £m | £m | £m | £m | £m | |
| At | 8,279.6 | 436.8 | 225.4 | 56.2 | 8,998.0 |
| Originations1 | 4,098.6 | - | - | - | 4,098.6 |
| CCFS Combination | 7,091.1 | 43.5 | - | 94.4 | 7,229.0 |
| Repayments and write-offs3 | (1,825.2) | (21.6) | (47.5) | (17.3) | (1,911.6) |
| Transfers: | |||||
| - To Stage 1 | 176.9 | (162.7) | (14.2) | - | - |
| - To Stage 2 | (495.9) | 517.7 | (21.8) | - | - |
| - To Stage 3 | (86.1) | (64.5) | 150.6 | - | - |
| Incurred loss protection | 0.2 | 0.3 | 1.9 | 3.5 | 5.9 |
| At | 17,239.2 | 749.5 | 294.4 | 136.8 | 18,419.9 |
| Originations1 | 2,113.8 | - | - | - | 2,113.8 |
| Acquisition2 | 60.8 | - | - | 1.5 | 62.3 |
| Disposals | (386.0) | (7.8) | - | - | (393.8) |
| Repayments and write-offs3 | (1,384.2) | (6.2) | (19.1) | (12.1) | (1,421.6) |
| Transfers: | |||||
| - To Stage 1 | 201.6 | (185.3) | (16.3) | - | - |
| - To Stage 2 | (1,415.5) | 1,441.3 | (25.8) | - | - |
| - To Stage 3 | (42.3) | (56.2) | 98.5 | - | - |
| Incurred loss protection | (0.2) | 0.5 | 0.1 | 0.1 | 0.5 |
| At | 16,387.2 | 1,935.8 | 331.8 | 126.3 | 18,781.1 |
1 Originations include further advances and drawdowns on existing commitments.
2 Mortgages acquired from Precise Mortgage Funding 2015-2.
3 Repayments and write-offs include customer redemptions.
20. Finance leases
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Gross investment in finance leases receivable | ||
| Less than one year | 16.9 | 14.1 |
| Between one and five years | 41.1 | 38.5 |
| More than five years | 1.3 | 1.2 |
| 59.3 | 53.8 | |
| Unearned finance income | (6.7) | (6.1) |
| Net investment in finance leases | 52.6 | 47.7 |
| Net investment in finance leases receivable | ||
| Less than one year | 14.2 | 11.5 |
| Between one and five years | 37.2 | 35.0 |
| More than five years | 1.2 | 1.2 |
| 52.6 | 47.7 |
The Group has recognised £3.5m of ECLs on finance leases as at
21. Expected credit loss
The ECL has been calculated based on various scenarios as set out below:
| As at | As at | |||||
| ECL provision | Weighting | Weighted ECL provision | ECL provision | Weighting | Weighted ECL provision | |
| Group | £m | % | £m | £m | % | £m |
| Scenarios | ||||||
| Upside | 37.8 | 30 | 11.3 | 14.6 | 10 | 1.5 |
| Base case | 65.4 | 40 | 26.2 | 24.4 | 40 | 9.8 |
| Downside scenario | 141.4 | 23 | 32.5 | 48.1 | 35 | 16.8 |
| Severe downside scenario | 190.5 | 7 | 13.3 | 62.5 | 15 | 9.4 |
| Total weighted provisions | 83.3 | 37.4 | ||||
| Non-modelled Provisions: | ||||||
| Individually assessed provisions | - | - | 6.0 | - | - | 4.2 |
| Post model adjustments1 | - | - | 7.1 | - | - | 1.3 |
| Total provision | 96.4 | 42.9 | ||||
1Post model adjustments have been made to a number of probabilities of default models for OSB to ensure predicted estimates are aligned to recently observed actual performance. Where model predictions more closely align with actual performance these post model adjustments will be reduced or removed over time. The Group is currently developing second generation models which will replace existing models, with a target implementation date before the end of the year 2020.
21. Expected credit loss (continued)
The Group’s ECL by segment and IFRS 9 stage is shown below:
| As at | As at | |||||
| (Unaudited) | (Audited) | |||||
| OSB | CCFS | Total | OSB | CCFS | Total | |
| £m | £m | £m | £m | £m | £m | |
| Expected credit loss | ||||||
| Stage 1 | 17.4 | 10.7 | 28.1 | 3.5 | 2.1 | 5.6 |
| Stage 2 | 17.6 | 9.1 | 26.7 | 3.6 | 2.0 | 5.6 |
| Stage 3 | 30.4 | 2.0 | 32.4 | 23.4 | 0.4 | 23.8 |
| Stage 3 (POCI) | 5.6 | 3.6 | 9.2 | 5.1 | 2.8 | 7.9 |
| 71.0 | 25.4 | 96.4 | 35.6 | 7.3 | 42.9 | |
The table below shows 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 1 | Stage 2 | Stage 3 | Stage 3 (POCI) | Total | |
| £m | £m | £m | £m | £m | |
| At | 4.5 | 5.6 | 10.2 | 1.6 | 21.9 |
| Originations | 1.9 | - | - | - | 1.9 |
| CCFS Combination | - | - | - | 3.6 | 3.6 |
| Repayments and write-offs | (0.6) | (0.4) | (4.3) | (0.2) | (5.5) |
| Remeasurement of loss allowance | (3.4) | (0.5) | 18.8 | (0.6) | 14.3 |
| Transfers: | |||||
| - To Stage 1 | 1.9 | (1.6) | (0.3) | - | - |
| - To Stage 2 | (0.2) | 0.6 | (0.4) | - | - |
| - To Stage 3 | (0.1) | (1.0) | 1.1 | - | - |
| Changes in assumptions and model parameters | 1.4 | 2.6 | (3.2) | - | 0.8 |
| Incurred loss protection | 0.2 | 0.3 | 1.9 | 3.5 | 5.9 |
| At | 5.6 | 5.6 | 23.8 | 7.9 | 42.9 |
| Originations | 3.8 | - | - | - | 3.8 |
| Repayments and write-offs | (0.5) | (0.3) | (2.1) | (0.8) | (3.7) |
| Remeasurement of loss allowance | 18.9 | 20.9 | 11.1 | 2.0 | 52.9 |
| Transfers: | |||||
| - To Stage 1 | 1.3 | (1.0) | (0.3) | - | - |
| - To Stage 2 | (0.7) | 1.8 | (1.1) | - | - |
| - To Stage 3 | (0.1) | (0.8) | 0.9 | - | - |
| Incurred loss protection | (0.2) | 0.5 | 0.1 | 0.1 | 0.5 |
| At | 28.1 | 26.7 | 32.4 | 9.2 | 96.4 |
21. Expected credit loss (continued)
The table below shows the stage 2 ECL balances by transfer criteria:
| As at | As at | |||||
| Carrying value | ECL | Coverage | Carrying value | ECL | Coverage | |
| Group | £m | £m | % | £m | £m | % |
| Criteria: | ||||||
| Relative probability of default movement | 897.8 | 16.1 | 1.79 | 588.2 | 4.8 | 0.82 |
| Qualitative measures | 897.0 | 9.0 | 1.00 | 79.8 | 0.4 | 0.44 |
| 30 days past due backstop | 146.8 | 1.6 | 1.09 | 81.5 | 0.4 | 0.54 |
| Total | 1,941.6 | 26.7 | 1.38 | 749.5 | 5.6 | 0.75 |
22. Impairment of financial assets
| Six months ended | Six months ended | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Write-offs in period | 1.1 | 1.5 |
| Disposals | (0.4) | - |
| Increase in provision | 53.5 | 4.4 |
| 54.2 | 5.9 |
23. Fair value adjustments on hedged items
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Hedged assets | ||
| Current hedge relationships | 224.8 | 64.2 |
| Swap inception adjustment | (87.7) | (67.8) |
| Cancelled hedge relationships | 58.0 | 20.4 |
| 195.1 | 16.8 | |
| Hedged liabilities | ||
| Current hedge relationships | (25.8) | (2.9) |
| Swap inception adjustment | 10.0 | 8.0 |
| (15.8) | 5.1 |
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.
23. Fair value adjustments on hedged items (continued)
Amortisation of inception adjustment relates to the fair value of the hedged item at the start of hedge accounting and includes hedged assets and liabilities recognised on the Combination where pre-existing hedge relationships ceased on the date of Combination and fair value movements of hedged assets and liabilities prior to new hedge accounting relationships commencing. The inception adjustments are being amortised over the life of the derivative instruments. The inception adjustment on Combination recognises an offsetting asset or liability to the fair value of the derivative instruments on the date of Combination.
24. Amounts owed to credit institutions
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| 2,568.4 | 2,632.8 | |
| 100.0 | - | |
| 756.1 | 290.6 | |
| Warehouse funding | - | 93.6 |
| Commercial repo | - | 41.4 |
| Swap margin received | - | 8.0 |
| Loans from credit institutions | 2.3 | 2.4 |
| 3,426.8 | 3,068.8 |
25. Amounts owed to retail depositors
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Fixed rate deposits | 11,087.0 | 10,525.5 |
| Variable rate deposits | 5,610.3 | 5,729.5 |
| 16,697.3 | 16,255.0 |
26. Debt securities in issue
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Asset-backed loan notes at amortised cost | 325.7 | 296.3 |
| Amount due for settlement within 12 months | - | 40.1 |
| Amount due for settlement after 12 months | 325.7 | 256.2 |
| 325.7 | 296.3 |
The asset-backed loan notes are secured on fixed and variable rate mortgages and are redeemable in part from time to time, but such redemptions are limited to the net principal received from borrowers in respect of underlying mortgage assets. The maturity date of the funds matches the maturity date of the underlying mortgage assets. It is likely that a large proportion of the underlying mortgage assets, and therefore these notes, will be repaid within five years.
26. Debt securities in issue (continued)
Asset-backed loan notes may all be repurchased by the Group at any interest payment date on or after the call dates, or at any interest payment date when the current balance of the mortgages outstanding is less than or equal to 10% of the principal amount outstanding on the loan notes on the date they were issued.
Interest is payable at fixed margins above LIBOR or SONIA.
As at
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| Charter Mortgage Funding 2020-1 plc | 325.7 | - |
| Canterbury Finance No.1 plc | - | 256.2 |
| - | 40.1 | |
| 325.7 | 296.3 |
27. Lease liabilities
| As at | As at | |
| (Unaudited) | (Audited) | |
| £m | £m | |
| At 1 January | 13.3 | 3.8 |
| CCFS Combination | - | 7.7 |
| New leases | - | 3.6 |
| Lease terminated | - | (0.8) |
| Lease repayments | (1.0) | (1.1) |
| Interest accruals | 0.2 | 0.1 |
| 12.5 | 13.3 |
28. Provisions and contingent liabilities
An analysis of the Group’s FSCS and other provisions is presented below:
| FSCS | Other regulatory provisions | ECL on undrawn loan facilities | Total | |
| £m | £m | £m | £m | |
| At | 0.1 | 1.7 | - | 1.8 |
| Paid during the year | (0.1) | (0.1) | - | (0.2) |
| (Credit)/charge | (0.2) | - | 0.2 | - |
| At | (0.2) | 1.6 | 0.2 | 1.6 |
| Refund during the period | 0.3 | - | - | 0.3 |
| Charge | - | - | 0.1 | 0.1 |
| At | 0.1 | 1.6 | 0.3 | 2.0 |
28. Provisions and contingent liabilities (continued)
In
29. Reconciliation of cash flows for financing activities
The tables below show a reconciliation of the Group’s liabilities classified as financing activities within the Statement of Cash Flows:
| Amounts owed to credit institutions (See note 24) | Debt securities in issue (See note 26) | Subordinated liabilities | PSBs | Total | ||
| £m | £m | £m | £m | £m | ||
| At | 3,068.8 | 296.3 | 10.6 | 37.6 | 3,413.3 | |
| Cash movements: | ||||||
| Principal drawdowns | 915.0 | 335.7 | - | - | 1,250.7 | |
| Principal repayments | (553.0) | (49.4) | - | - | (602.4) | |
| Deconsolidation of special purpose vehicles | - | (256.2) | - | - | (256.2) | |
| Non-cash movements: | ||||||
| Accrued interest movement | (4.0) | (0.7) | - | - | (4.7) | |
| At | 3,426.8 | 325.7 | 10.6 | 37.6 | 3,800.7 | |
| Amounts owed to credit institutions | Debt securities in issue | Subordinated liabilities | PSBs | Total | |
| £m | £m | £m | £m | £m | |
| At | 1,584.0 | - | 10.8 | 37.6 | 1,632.4 |
| Cash movements: | |||||
| Principal drawdowns | 102.9 | - | - | - | 102.9 |
| Principal repayments | (81.0) | - | - | - | (81.0) |
| Non-cash movement: | |||||
| Accrued interest movement | - | - | - | - | - |
| At | 1,605.9 | - | 10.8 | 37.6 | 1,654.3 |
30. Risk management
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
Credit risk
The following table shows the Group’s maximum exposure to credit risk from loans and advances and the impact of collateral held as security, capped at the gross exposure amount, by impairment stage. Capped collateral excludes the impact of forced sale discounts and costs to sell.
| As at | ||||||
| OSB | CCFS | Total | ||||
| Gross carrying amount | Capped collateral held | Gross carrying amount | Capped collateral held | Gross carrying amount | Capped collateral held | |
| £m | £m | £m | £m | £m | £m | |
| Stage 1 | 9,548.1 | 9,497.6 | 6,879.9 | 6,877.7 | 16,428.0 | 16,375.3 |
| Stage 2 | 1,043.0 | 1,036.4 | 898.6 | 898.6 | 1,941.6 | 1,935.0 |
| Stage 3 | 292.6 | 285.9 | 45.2 | 45.2 | 337.8 | 331.1 |
| Stage 3 (POCI) | 53.5 | 53.4 | 72.8 | 72.8 | 126.3 | 126.2 |
| 10,937.2 | 10,873.3 | 7,896.5 | 7,894.3 | 18,833.7 | 18,767.6 | |
| As at | ||||||
| OSB | CCFS | Total | ||||
| Gross carrying amount | Capped collateral held | Gross carrying amount | Capped collateral held | Gross carrying amount | Capped collateral held | |
| £m | £m | £m | £m | £m | £m | |
| Stage 1 | 10,046.9 | 9,987.1 | 7,240.0 | 7,239.5 | 17,286.9 | 17,226.6 |
| Stage 2 | 442.4 | 441.8 | 307.1 | 307.0 | 749.5 | 748.8 |
| Stage 3 | 277.7 | 275.2 | 16.7 | 16.7 | 294.4 | 291.9 |
| Stage 3 (POCI) | 53.6 | 50.1 | 83.2 | 83.1 | 136.8 | 133.2 |
| 10,820.6 | 10,754.2 | 7,647.0 | 7,646.3 | 18,467.6 | 18,400.5 | |
The Group’s main form of collateral held is property, based in the
30. Risk management (continued)
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 | As at | |||||||
| OSB | CCFS | Total | OSB | CCFS | Total | |||
| £m | £m | £m | % | £m | £m | £m | % | |
| Band | ||||||||
| 0% - 50% | 1,667.5 | 440.7 | 2,108.2 | 11 | 1,732.6 | 567.8 | 2,300.4 | 12 |
| 50% - 60% | 1,419.7 | 475.1 | 1,894.8 | 10 | 1,301.8 | 612.3 | 1,914.1 | 10 |
| 60% - 70% | 2,426.1 | 1,106.4 | 3,532.5 | 19 | 2,435.7 | 1,588.5 | 4,024.2 | 22 |
| 70% - 80% | 4,003.2 | 4,774.8 | 8,778.0 | 46 | 4,182.1 | 4,236.3 | 8,418.4 | 46 |
| 80% - 90% | 1,134.8 | 1,098.4 | 2,233.2 | 12 | 946.0 | 641.5 | 1,587.5 | 9 |
| 90% - 100% | 157.5 | 1.1 | 158.6 | 1 | 91.1 | 0.6 | 91.7 | - |
| >100% | 128.4 | - | 128.4 | 1 | 131.3 | - | 131.3 | 1 |
| Total loans before provisions | 10,937.2 | 7,896.5 | 18,833.7 | 100 | 10,820.6 | 7,647.0 | 18,467.6 | 100 |
LTV analysis by band for OSB:
| As at | As at | |||||||
| BTL/SME | Residential | Total | % | BTL/SME | Residential | Total | % | |
| £m | £m | £m | £m | £m | £m | |||
| Band | ||||||||
| 0% - 50% | 838.6 | 828.9 | 1,667.5 | 15 | 905.9 | 826.7 | 1,732.6 | 16 |
| 50% - 60% | 1,176.3 | 243.4 | 1,419.7 | 13 | 1,062.8 | 239.0 | 1,301.8 | 12 |
| 60% - 70% | 2,216.3 | 209.8 | 2,426.1 | 22 | 2,240.2 | 195.5 | 2,435.7 | 23 |
| 70% - 80% | 3,782.5 | 220.7 | 4,003.2 | 38 | 3,993.5 | 188.6 | 4,182.1 | 38 |
| 80% - 90% | 790.1 | 344.7 | 1,134.8 | 10 | 621.4 | 324.6 | 946.0 | 9 |
| 90% - 100% | 69.5 | 88.0 | 157.5 | 1 | 45.1 | 46.0 | 91.1 | 1 |
| >100% | 113.1 | 15.3 | 128.4 | 1 | 114.3 | 17.0 | 131.3 | 1 |
| Total loans before provisions | 8,986.4 | 1,950.8 | 10,937.2 | 100 | 8,983.2 | 1,837.4 | 10,820.6 | 100 |
30. Risk management (continued)
LTV analysis by band for OSB BTL/SME:
| As at | |||||
| Commercial | Residential development | Funding lines | Total | ||
| OSB | £m | £m | £m | £m | £m |
| Band | |||||
| 0% - 50% | 632.8 | 100.0 | 10.2 | 95.6 | 838.6 |
| 50% - 60% | 929.5 | 101.4 | 81.0 | 64.4 | 1,176.3 |
| 60% - 70% | 1,955.8 | 197.7 | 55.4 | 7.4 | 2,216.3 |
| 70% - 80% | 3,290.6 | 439.6 | - | 52.3 | 3,782.5 |
| 80% - 90% | 778.2 | 8.5 | 3.4 | - | 790.1 |
| 90% - 100% | 69.4 | 0.1 | - | - | 69.5 |
| >100% | 106.5 | 4.7 | - | 1.9 | 113.1 |
| Total loans before provisions | 7,762.8 | 852.0 | 150.0 | 221.6 | 8,986.4 |
| As at | |||||
| Commercial | Residential development | Funding lines | Total | ||
| OSB | £m | £m | £m | £m | £m |
| Band | |||||
| 0% - 50% | 579.9 | 96.5 | 125.7 | 103.8 | 905.9 |
| 50% - 60% | 894.3 | 119.8 | 5.0 | 43.7 | 1,062.8 |
| 60% - 70% | 1,994.1 | 210.2 | 5.0 | 30.9 | 2,240.2 |
| 70% - 80% | 3,514.5 | 445.7 | - | 33.3 | 3,993.5 |
| 80% - 90% | 603.3 | 7.7 | 10.4 | - | 621.4 |
| 90% - 100% | 38.9 | 1.4 | - | 4.8 | 45.1 |
| >100% | 102.0 | 6.7 | - | 5.6 | 114.3 |
| Total loans before provisions | 7,727.0 | 888.0 | 146.1 | 222.1 | 8,983.2 |
LTV analysis by band for OSB Residential:
| As at | As at | |||||||
| First charge | Second charge | Funding lines | Total | First charge | Second charge | Funding lines | Total | |
| OSB | £m | £m | £m | £m | £m | £m | £m | £m |
| Band | ||||||||
| 0% - 50% | 721.5 | 102.7 | 4.7 | 828.9 | 708.0 | 115.4 | 3.3 | 826.7 |
| 50% - 60% | 170.1 | 70.0 | 3.3 | 243.4 | 158.1 | 77.5 | 3.4 | 239.0 |
| 60% - 70% | 140.1 | 67.6 | 2.1 | 209.8 | 122.3 | 70.9 | 2.3 | 195.5 |
| 70% - 80% | 170.2 | 48.5 | 2.0 | 220.7 | 137.0 | 49.5 | 2.1 | 188.6 |
| 80% - 90% | 311.6 | 32.5 | 0.6 | 344.7 | 291.7 | 32.3 | 0.6 | 324.6 |
| 90% - 100% | 80.9 | 6.9 | 0.2 | 88.0 | 40.0 | 5.7 | 0.3 | 46.0 |
| >100% | 7.6 | 7.5 | 0.2 | 15.3 | 9.5 | 7.3 | 0.2 | 17.0 |
| Total loans before provisions | 1,602.0 | 335.7 | 13.1 | 1,950.8 | 1,466.6 | 358.6 | 12.2 | 1,837.4 |
30. Risk management (continued)
LTV analysis by band for CCFS:
| As at | ||||||
| Buy-to-let | Residential | Bridging | Second charge | Total | ||
| CCFS | £m | £m | £m | £m | £m | % |
| Band | ||||||
| 0% - 50% | 93.7 | 227.5 | 85.2 | 34.3 | 440.7 | 6 |
| 50% - 60% | 189.8 | 216.6 | 29.9 | 38.8 | 475.1 | 6 |
| 60% - 70% | 623.5 | 375.1 | 40.5 | 67.3 | 1,106.4 | 14 |
| 70% - 80% | 3,639.8 | 1,032.2 | 44.2 | 58.7 | 4,774.8 | 60 |
| 80% - 90% | 605.9 | 466.5 | 0.1 | 25.9 | 1,098.4 | 14 |
| 90% - 100% | 0.4 | 0.7 | - | - | 1.1 | - |
| Total loans before provisions | 5,153.1 | 2,318.6 | 199.9 | 225.0 | 7,896.5 | 100 |
| As at | ||||||
| Buy-to-let | Residential | Bridging | Second charge | Total | ||
| CCFS | £m | £m | £m | £m | £m | % |
| Band | ||||||
| 0% - 50% | 144.7 | 261.8 | 121.1 | 40.2 | 567.8 | 7 |
| 50% - 60% | 283.9 | 253.1 | 29.4 | 45.9 | 612.3 | 8 |
| 60% - 70% | 957.0 | 538.6 | 26.6 | 66.3 | 1,588.5 | 21 |
| 70% - 80% | 3,246.6 | 897.7 | 37.5 | 54.5 | 4,236.3 | 56 |
| 80% - 90% | 321.5 | 301.4 | 1.2 | 17.4 | 641.5 | 8 |
| 90% - 100% | 0.2 | 0.4 | - | - | 0.6 | - |
| Total loans before provisions | 4,953.9 | 2,253.0 | 215.8 | 224.3 | 7,647.0 | 100 |
30. Risk management (continued)
Analysis of loan portfolio by arrears and collateral held
The tables below provide further information on collateral, capped at the value of each individual mortgage, over the mortgage portfolio by payment due status and IFRS 9 stage:
| As at | |||||||
| OSB | CCFS | Total | |||||
| Loan balance | Capped collateral | Loan balance | Capped collateral | Loan balance | Capped collateral | ||
| £m | £m | £m | £m | £m | £m | ||
| Stage 1 | |||||||
| Not past due | 9,452.9 | 9,402.8 | 6,865.2 | 6,863.0 | 16,318.1 | 16,265.8 | |
| Past due < 1 month | 95.2 | 94.8 | 14.7 | 14.7 | 109.9 | 109.5 | |
| 9,548.1 | 9,497.6 | 6,879.9 | 6,877.7 | 16,428.0 | 16,375.3 | ||
| Stage 2 | |||||||
| Not past due | 698.3 | 691.9 | 616.7 | 616.7 | 1,315.0 | 1,308.6 | |
| Past due < 1 month | 189.2 | 189.1 | 251.9 | 251.9 | 441.1 | 441.0 | |
| Past due 1 to 3 months | 155.5 | 155.4 | 30.0 | 30.0 | 185.5 | 185.4 | |
| 1,043.0 | 1,036.4 | 898.6 | 898.6 | 1,941.6 | 1,935.0 | ||
| Stage 3 | |||||||
| Not past due | 69.1 | 62.9 | 15.1 | 15.1 | 84.2 | 78.0 | |
| Past due < 1 month | 17.0 | 17.0 | 4.8 | 4.8 | 21.8 | 21.8 | |
| Past due 1 to 3 months | 65.3 | 65.2 | 6.4 | 6.4 | 71.7 | 71.6 | |
| Past due 3 to 6 months | 41.0 | 41.0 | 12.4 | 12.4 | 53.4 | 53.4 | |
| Past due 6 to 12 months | 26.8 | 26.8 | 2.8 | 2.8 | 29.6 | 29.6 | |
| Past due over 12 months | 24.4 | 24.0 | - | - | 24.4 | 24.0 | |
| Possessions | 49.0 | 49.0 | 3.7 | 3.7 | 52.7 | 52.7 | |
| 292.6 | 285.9 | 45.2 | 45.2 | 337.8 | 331.1 | ||
| Stage 3 (POCI) | |||||||
| Not past due | 24.4 | 24.3 | 28.8 | 28.8 | 53.2 | 53.1 | |
| Past due < 1 month | 2.9 | 2.9 | 10.8 | 10.8 | 13.7 | 13.7 | |
| Past due 1 to 3 months | 11.1 | 11.1 | 11.5 | 11.5 | 22.6 | 22.6 | |
| Past due 3 to 6 months | 5.1 | 5.1 | 8.3 | 8.3 | 13.4 | 13.4 | |
| Past due 6 to 12 months | 4.5 | 4.5 | 4.9 | 4.9 | 9.4 | 9.4 | |
| Past due over 12 months | 5.5 | 5.5 | 2.5 | 2.5 | 8.0 | 8.0 | |
| Possessions | - | - | 6.0 | 6.0 | 6.0 | 6.0 | |
| 53.5 | 53.4 | 72.8 | 72.8 | 126.3 | 126.2 | ||
| Total loans before provisions | 10,937.2 | 10,873.3 | 7,896.5 | 7,894.3 | 18,833.7 | 18,767.6 | |
30. Risk management (continued)
| As at | ||||||
| OSB | CCFS | Total | ||||
| Loan balance | Capped collateral | Loan balance | Capped collateral | Loan balance | Capped collateral | |
| £m | £m | £m | £m | £m | £m | |
| Stage 1 | ||||||
| Not past due | 9,964.3 | 9,904.5 | 7,236.2 | 7,235.7 | 17,200.5 | 17,140.2 |
| Past due < 1 month | 82.6 | 82.6 | 3.8 | 3.8 | 86.4 | 86.4 |
| 10,046.9 | 9,987.1 | 7,240.0 | 7,239.5 | 17,286.9 | 17,226.6 | |
| Stage 2 | ||||||
| Not past due | 261.0 | 260.7 | 239.1 | 239.0 | 500.1 | 499.7 |
| Past due < 1 month | 118.9 | 118.9 | 38.1 | 38.1 | 157.0 | 157.0 |
| Past due 1 to 3 months | 62.5 | 62.2 | 29.9 | 29.9 | 92.4 | 92.1 |
| 442.4 | 441.8 | 307.1 | 307.0 | 749.5 | 748.8 | |
| Stage 3 | ||||||
| Not past due | 71.3 | 71.0 | 4.8 | 4.8 | 76.1 | 75.8 |
| Past due < 1 month | 36.3 | 36.1 | 1.4 | 1.4 | 37.7 | 37.5 |
| Past due 1 to 3 months | 28.8 | 28.5 | 6.0 | 6.0 | 34.8 | 34.5 |
| Past due 3 to 6 months | 45.9 | 45.3 | 4.5 | 4.5 | 50.4 | 49.8 |
| Past due 6 to 12 months | 27.4 | 27.2 | - | - | 27.4 | 27.2 |
| Past due over 12 months | 25.3 | 24.7 | - | - | 25.3 | 24.7 |
| Possessions | 42.7 | 42.4 | - | - | 42.7 | 42.4 |
| 277.7 | 275.2 | 16.7 | 16.7 | 294.4 | 291.9 | |
| Stage 3 (POCI) | ||||||
| Not past due | 20.8 | 20.2 | 30.6 | 30.5 | 51.4 | 50.7 |
| Past due < 1 month | 6.1 | 5.9 | 8.5 | 8.5 | 14.6 | 14.4 |
| Past due 1 to 3 months | 4.9 | 4.6 | 21.9 | 21.9 | 26.8 | 26.5 |
| Past due 3 to 6 months | 6.5 | 6.1 | 10.5 | 10.5 | 17.0 | 16.6 |
| Past due 6 to 12 months | 5.7 | 5.3 | 5.5 | 5.5 | 11.2 | 10.8 |
| Past due over 12 months | 8.3 | 7.2 | 1.2 | 1.2 | 9.5 | 8.4 |
| Possessions | 1.3 | 0.8 | 5.0 | 5.0 | 6.3 | 5.8 |
| 53.6 | 50.1 | 83.2 | 83.1 | 136.8 | 133.2 | |
| Total loans before provisions | 10,820.6 | 10,754.2 | 7,647.0 | 7,646.3 | 18,467.6 | 18,400.5 |
30. Risk management (continued)
Arrears analysis for OSB:
| As at | As at | |||||
| BTL/SME | Residential | Total | BTL/SME | Residential | Total | |
| OSB | £m | £m | £m | £m | £m | £m |
| Stage 1 | ||||||
| Not past due | 8,007.9 | 1,445.0 | 9,452.9 | 8,514.9 | 1,449.4 | 9,964.3 |
| Past due < 1 month | 65.3 | 29.9 | 95.2 | 48.7 | 33.9 | 82.6 |
| 8,073.2 | 1,474.9 | 9,548.1 | 8,563.6 | 1,483.3 | 10,046.9 | |
| Stage 2 | ||||||
| Not past due | 498.8 | 199.5 | 698.3 | 156.9 | 104.1 | 261.0 |
| Past due < 1 month | 145.4 | 43.8 | 189.2 | 80.0 | 38.9 | 118.9 |
| Past due 1 to 3 months | 105.4 | 50.1 | 155.5 | 32.3 | 30.2 | 62.5 |
| 749.6 | 293.4 | 1,043.0 | 269.2 | 173.2 | 442.4 | |
| Stage 3 | ||||||
| Not past due | 41.7 | 27.4 | 69.1 | 39.6 | 31.7 | 71.3 |
| Past due < 1 month | 10.4 | 6.6 | 17.0 | 22.5 | 13.8 | 36.3 |
| Past due 1 to 3 months | 27.9 | 37.4 | 65.3 | 9.8 | 19.0 | 28.8 |
| Past due 3 to 6 months | 18.9 | 22.1 | 41.0 | 17.0 | 28.9 | 45.9 |
| Past due 6 to 12 months | 12.4 | 14.4 | 26.8 | 9.1 | 18.3 | 27.4 |
| Past due over 12 months | 7.9 | 16.5 | 24.4 | 13.5 | 11.8 | 25.3 |
| Possessions | 44.4 | 4.6 | 49.0 | 38.7 | 4.0 | 42.7 |
| 163.6 | 129.0 | 292.6 | 150.2 | 127.5 | 277.7 | |
| Stage 3 (POCI) | ||||||
| Not past due | - | 24.4 | 24.4 | 0.2 | 20.6 | 20.8 |
| Past due < 1 month | - | 2.9 | 2.9 | - | 6.1 | 6.1 |
| Past due 1 to 3 months | - | 11.1 | 11.1 | - | 4.9 | 4.9 |
| Past due 3 to 6 months | - | 5.1 | 5.1 | - | 6.5 | 6.5 |
| Past due 6 to 12 months | - | 4.5 | 4.5 | - | 5.7 | 5.7 |
| Past due over 12 months | - | 5.5 | 5.5 | - | 8.3 | 8.3 |
| Possessions | - | - | - | - | 1.3 | 1.3 |
| - | 53.5 | 53.5 | 0.2 | 53.4 | 53.6 | |
| Total loans before provisions | 8,986.4 | 1,950.8 | 10,937.2 | 8,983.2 | 1,837.4 | 10,820.6 |
30. Risk management (continued)
Arrears analysis for OSB BTL/SME:
| As at 30-Jun-20 (Unaudited) | |||||
| Commercial | Residential development | Funding lines | Total | ||
| OSB | £m | £m | £m | £m | £m |
| Stage 1 | |||||
| Not past due | 6,866.2 | 770.1 | 150.0 | 221.6 | 8,007.9 |
| Past due < 1 month | 51.4 | 13.9 | - | - | 65.3 |
| 6,917.6 | 784.0 | 150.0 | 221.6 | 8,073.2 | |
| Stage 2 | |||||
| Not past due | 460.0 | 38.8 | - | - | 498.8 |
| Past due < 1 month | 137.9 | 7.5 | - | - | 145.4 |
| Past due 1 to 3 months | 97.4 | 8.0 | - | - | 105.4 |
| 695.3 | 54.3 | - | - | 749.6 | |
| Stage 3 | |||||
| Not past due | 36.4 | 5.3 | - | - | 41.7 |
| Past due < 1 month | 10.0 | 0.4 | - | - | 10.4 |
| Past due 1 to 3 months | 26.9 | 1.0 | - | - | 27.9 |
| Past due 3 to 6 months | 15.6 | 3.3 | - | - | 18.9 |
| Past due 6 to 12 months | 11.3 | 1.1 | - | - | 12.4 |
| Past due over 12 months | 7.7 | 0.2 | - | - | 7.9 |
| Possessions | 42.0 | 2.4 | - | - | 44.4 |
| 149.9 | 13.7 | - | - | 163.6 | |
| Stage 3 (POCI) | |||||
| Not past due | - | - | - | - | - |
| - | - | - | - | - | |
| Total loans before provisions | 7,762.8 | 852.0 | 150.0 | 221.6 | 8,986.4 |
30. Risk management (continued)
| As at 31-Dec-19 (Audited) | |||||
| Commercial | Residential development | Funding lines | Total | ||
| OSB | £m | £m | £m | £m | £m |
| Stage 1 | |||||
| Not past due | 7,317.3 | 829.4 | 146.1 | 222.1 | 8,514.9 |
| Past due < 1 month | 32.8 | 15.9 | - | - | 48.7 |
| 7,350.1 | 845.3 | 146.1 | 222.1 | 8,563.6 | |
| Stage 2 | |||||
| Not past due | 128.6 | 28.3 | - | - | 156.9 |
| Past due < 1 month | 78.5 | 1.5 | - | - | 80.0 |
| Past due 1 to 3 months | 29.2 | 3.1 | - | - | 32.3 |
| 236.3 | 32.9 | - | - | 269.2 | |
| Stage 3 | |||||
| Not past due | 37.1 | 2.5 | - | - | 39.6 |
| Past due < 1 month | 21.0 | 1.5 | - | - | 22.5 |
| Past due 1 to 3 months | 9.8 | - | - | - | 9.8 |
| Past due 3 to 6 months | 16.1 | 0.9 | - | - | 17.0 |
| Past due 6 to 12 months | 8.0 | 1.1 | - | - | 9.1 |
| Past due over 12 months | 13.1 | 0.4 | - | - | 13.5 |
| Possessions | 35.5 | 3.2 | - | - | 38.7 |
| 140.6 | 9.6 | - | - | 150.2 | |
| Stage 3 (POCI) | |||||
| Not past due | - | 0.2 | - | - | 0.2 |
| - | 0.2 | - | - | 0.2 | |
| Total loans before provisions | 7,727.0 | 888.0 | 146.1 | 222.1 | 8,983.2 |
30. Risk management (continued)
Arrears analysis for OSB Residential:
| As at 30-Jun-20 (Unaudited) | ||||
| First charge | Second charge | Funding lines | Total | |
| OSB | £m | £m | £m | £m |
| Stage 1 | ||||
| Not past due | 1,192.3 | 242.4 | 10.3 | 1,445.0 |
| Past due < 1 month | 24.6 | 4.1 | 1.2 | 29.9 |
| 1,216.9 | 246.5 | 11.5 | 1,474.9 | |
| Stage 2 | ||||
| Not past due | 169.5 | 30.0 | - | 199.5 |
| Past due < 1 month | 40.6 | 3.2 | - | 43.8 |
| Past due 1 to 3 months | 43.6 | 6.5 | - | 50.1 |
| 253.7 | 39.7 | - | 293.4 | |
| Stage 3 | ||||
| Not past due | 22.1 | 5.3 | - | 27.4 |
| Past due < 1 month | 5.3 | 1.3 | - | 6.6 |
| Past due 1 to 3 months | 27.5 | 9.9 | - | 37.4 |
| Past due 3 to 6 months | 16.8 | 4.9 | 0.4 | 22.1 |
| Past due 6 to 12 months | 10.9 | 3.0 | 0.5 | 14.4 |
| Past due over 12 months | 13.8 | 2.0 | 0.7 | 16.5 |
| Possessions | 4.6 | - | - | 4.6 |
| 101.0 | 26.4 | 1.6 | 129.0 | |
| Stage 3 (POCI) | ||||
| Not past due | 16.1 | 8.3 | - | 24.4 |
| Past due < 1 month | 1.9 | 1.0 | - | 2.9 |
| Past due 1 to 3 months | 5.8 | 5.3 | - | 11.1 |
| Past due 3 to 6 months | 2.4 | 2.7 | - | 5.1 |
| Past due 6 to 12 months | 2.5 | 2.0 | - | 4.5 |
| Past due over 12 months | 1.7 | 3.8 | - | 5.5 |
| 30.4 | 23.1 | - | 53.5 | |
| Total loans before provisions | 1,602.0 | 335.7 | 13.1 | 1,950.8 |
30. Risk management (continued)
| As at 31-Dec-19 (Audited) | ||||
| First charge | Second charge | Funding lines | Total | |
| OSB | £m | £m | £m | £m |
| Stage 1 | ||||
| Not past due | 1,164.8 | 272.4 | 12.2 | 1,449.4 |
| Past due < 1 month | 27.7 | 6.2 | - | 33.9 |
| 1,192.5 | 278.6 | 12.2 | 1,483.3 | |
| Stage 2 | ||||
| Not past due | 86.1 | 18.0 | - | 104.1 |
| Past due < 1 month | 34.4 | 4.5 | - | 38.9 |
| Past due 1 to 3 months | 24.4 | 5.8 | - | 30.2 |
| 144.9 | 28.3 | - | 173.2 | |
| Stage 3 | ||||
| Not past due | 28.1 | 3.6 | - | 31.7 |
| Past due < 1 month | 11.2 | 2.6 | - | 13.8 |
| Past due 1 to 3 months | 13.8 | 5.2 | - | 19.0 |
| Past due 3 to 6 months | 20.7 | 8.2 | - | 28.9 |
| Past due 6 to 12 months | 14.5 | 3.8 | - | 18.3 |
| Past due over 12 months | 9.8 | 2.0 | - | 11.8 |
| Possessions | 3.3 | 0.7 | - | 4.0 |
| 101.4 | 26.1 | - | 127.5 | |
| Stage 3 (POCI) | ||||
| Not past due | 13.4 | 7.2 | - | 20.6 |
| Past due < 1 month | 4.2 | 1.9 | - | 6.1 |
| Past due 1 to 3 months | 2.0 | 2.9 | - | 4.9 |
| Past due 3 to 6 months | 3.2 | 3.3 | - | 6.5 |
| Past due 6 to 12 months | 2.6 | 3.1 | - | 5.7 |
| Past due over 12 months | 2.3 | 6.0 | - | 8.3 |
| 27.8 | 25.6 | - | 53.4 | |
| Total loans before provisions | 1,466.6 | 358.6 | 12.2 | 1,837.4 |
30. Risk management (continued)
Arrears analysis for CCFS:
| As at 30-Jun-20 (Unaudited) | |||||
| Buy-to-let | Residential | Bridging | Second charge | Total | |
| CCFS | £m | £m | £m | £m | £m |
| Stage 1 | |||||
| Not past due | 4,686.9 | 1,803.9 | 173.2 | 201.3 | 6,865.2 |
| Past due < 1 month | 5.4 | 8.3 | - | 1.0 | 14.7 |
| 4,692.3 | 1,812.2 | 173.2 | 202.3 | 6,879.9 | |
| Stage 2 | |||||
| Not past due | 295.9 | 287.4 | 20.2 | 13.2 | 616.7 |
| Past due < 1 month | 119.6 | 124.8 | 3.8 | 3.7 | 251.9 |
| Past due 1 to 3 months | 9.7 | 18.9 | 0.2 | 1.2 | 30.0 |
| 425.2 | 431.1 | 24.2 | 18.1 | 898.6 | |
| Stage 3 | |||||
| Not past due | 6.1 | 8.0 | 0.2 | 0.8 | 15.1 |
| Past due < 1 month | 0.8 | 3.9 | - | 0.1 | 4.8 |
| Past due 1 to 3 months | 1.1 | 4.9 | - | 0.4 | 6.4 |
| Past due 3 to 6 months | 3.2 | 8.8 | 0.3 | 0.1 | 12.4 |
| Past due 6 to 12 months | 1.1 | 1.5 | - | 0.2 | 2.8 |
| Possessions | 3.3 | 0.1 | 0.3 | - | 3.7 |
| 15.6 | 27.2 | 0.8 | 1.6 | 45.2 | |
| Stage 3 (POCI) | |||||
| Not past due | 9.5 | 17.5 | 0.3 | 1.5 | 28.8 |
| Past due < 1 month | 2.2 | 7.8 | 0.2 | 0.6 | 10.8 |
| Past due 1 to 3 months | 2.7 | 8.2 | 0.1 | 0.5 | 11.5 |
| Past due 3 to 6 months | 0.6 | 7.6 | - | 0.1 | 8.3 |
| Past due 6 to 12 months | 0.1 | 4.0 | 0.8 | - | 4.9 |
| Past due over 12 months | 1.1 | 1.2 | - | 0.2 | 2.5 |
| Possessions | 3.8 | 1.8 | 0.3 | 0.1 | 6.0 |
| 20.0 | 48.1 | 1.7 | 3.0 | 72.8 | |
| Total loans before provisions | 5,153.1 | 2,318.6 | 199.9 | 225.0 | 7,896.5 |
30. Risk management (continued)
| As at 31-Dec-19 (Audited) | |||||
| Buy-to-let | Residential | Bridging | Second charge | Total | |
| CCFS | £m | £m | £m | £m | £m |
| Stage 1 | |||||
| Not past due | 4,767.9 | 2,056.4 | 195.5 | 216.4 | 7,236.2 |
| Past due < 1 month | 0.5 | 1.1 | - | 2.2 | 3.8 |
| 4,768.4 | 2,057.5 | 195.5 | 218.6 | 7,240.0 | |
| Stage 2 | |||||
| Not past due | 139.6 | 83.6 | 14.6 | 1.3 | 239.1 |
| Past due < 1 month | 10.1 | 27.1 | 0.8 | 0.1 | 38.1 |
| Past due 1 to 3 months | 6.3 | 22.4 | 0.3 | 0.9 | 29.9 |
| 156.0 | 133.1 | 15.7 | 2.3 | 307.1 | |
| Stage 3 | |||||
| Not past due | 1.1 | 3.2 | 0.2 | 0.3 | 4.8 |
| Past due < 1 month | 0.5 | 0.9 | - | - | 1.4 |
| Past due 1 to 3 months | 1.6 | 4.4 | - | - | 6.0 |
| Past due 3 to 6 months | 3.2 | 1.2 | 0.1 | - | 4.5 |
| Past due 6 to 12 months | - | - | - | - | - |
| Possessions | - | - | - | - | - |
| 6.4 | 9.7 | 0.3 | 0.3 | 16.7 | |
| Stage 3 (POCI) | |||||
| Not past due | 10.9 | 16.6 | 1.7 | 1.4 | 30.6 |
| Past due < 1 month | 2.5 | 5.4 | 0.4 | 0.2 | 8.5 |
| Past due 1 to 3 months | 2.6 | 16.8 | 1.8 | 0.7 | 21.9 |
| Past due 3 to 6 months | 1.3 | 8.8 | - | 0.4 | 10.5 |
| Past due 6 to 12 months | 1.0 | 3.9 | 0.2 | 0.4 | 5.5 |
| Past due over 12 months | 0.9 | 0.3 | - | - | 1.2 |
| Possessions | 3.9 | 0.9 | 0.2 | - | 5.0 |
| 23.1 | 52.7 | 4.3 | 3.1 | 83.2 | |
| Total loans before provisions | 4,953.9 | 2,253.0 | 215.8 | 224.3 | 7,647.0 |
30. Risk management (continued)
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 70 of the 2019 Annual Report and Accounts.
A summary of the forbearance measures undertaken (excluding COVID-19 related payment holidays) during the period under review is below:
| As at 30-Jun-20 (Unaudited) | As at 31-Dec-19 (Audited) | |||
| Number of accounts | £m | Number of accounts | £m | |
| Forbearance type: | ||||
| Interest-only switch | 37 | 5.2 | 59 | 8.4 |
| Interest rate reduction | 20 | 1.0 | 35 | 1.6 |
| Term extension | 139 | 36.0 | 30 | 6.6 |
| Payment holiday | 39 | 3.6 | 87 | 4.1 |
| Voluntary assisted sale | 1 | - | 26 | 1.0 |
| Payment concession (reduced monthly payments) | 18 | 2.1 | 73 | 3.6 |
| Full or partial debt forgiveness | 1 | - | 6 | - |
| Total | 255 | 47.9 | 316 | 25.3 |
| Loan type: | ||||
| First charge owner-occupier | 49 | 5.9 | 85 | 10.5 |
| Second charge owner-occupier | 79 | 5.5 | 198 | 7.4 |
| 18 | 4.7 | 32 | 7.4 | |
| Commercial | 109 | 31.8 | 1 | - |
| Total | 255 | 47.9 | 316 | 25.3 |
As at 30 June 2020, the Group granted payment holidays to c. 26k accounts, equivalent to 28% of the Group’s loans and advances by value.
30. Risk management (continued)
Geographical analysis by region
An analysis of loans by region is provided below:
| As at 30-Jun-20 (Unaudited) | ||||
| OSB | CCFS | Total | ||
| Region | £m | £m | £m | % |
| 402.8 | 835.8 | 1,238.6 | 7 | |
| 432.2 | 431.2 | 863.4 | 5 | |
| 4,820.6 | 2,791.9 | 7,612.5 | 41 | |
| Guernsey | 41.6 | - | 41.6 | - |
| Jersey | 135.9 | - | 135.9 | 1 |
| North East | 136.4 | 189.7 | 326.1 | 2 |
| North West | 598.9 | 630.6 | 1,229.5 | 7 |
| 13.5 | - | 13.5 | - | |
| 49.8 | 204.0 | 253.8 | 1 | |
| South East | 2,360.0 | 1,278.9 | 3,638.9 | 19 |
| South West | 736.7 | 463.6 | 1,200.3 | 6 |
| 254.2 | 199.8 | 454.0 | 2 | |
| 710.2 | 500.2 | 1,210.4 | 6 | |
| Yorks & Humberside | 244.4 | 370.8 | 615.2 | 3 |
| Total loans before provisions | 10,937.2 | 7,896.5 | 18,833.7 | 100 |
| As at 31-Dec-19 (Audited) | ||||
| OSB | CCFS | Total | ||
| Region | £m | £m | £m | % |
| 391.9 | 810.9 | 1,202.8 | 7 | |
| 415.2 | 410.3 | 825.5 | 4 | |
| 4,738.7 | 2,713.7 | 7,452.4 | 41 | |
| Guernsey | 45.3 | - | 45.3 | - |
| Jersey | 141.4 | - | 141.4 | 1 |
| North East | 136.7 | 179.5 | 316.2 | 2 |
| North West | 587.3 | 605.4 | 1,192.7 | 6 |
| 14.2 | - | 14.2 | - | |
| 48.5 | 190.9 | 239.4 | 1 | |
| South East | 2,375.2 | 1,209.6 | 3,584.8 | 20 |
| South West | 747.5 | 466.0 | 1,213.5 | 7 |
| 239.3 | 202.6 | 441.9 | 2 | |
| 702.2 | 496.0 | 1,198.2 | 6 | |
| Yorks & Humberside | 237.2 | 362.1 | 599.3 | 3 |
| Total loans before provisions | 10,820.6 | 7,647.0 | 18,467.6 | 100 |
30. Risk management (continued)
Approach to measurement of credit quality
The Group categorises the credit quality of loans and advances to customers into internal risk grades based on the 12-month probability of default ('PD’) calculated at the reporting date. The PDs include a combination of internal behavioural and credit bureau characteristics. The risk grades are further grouped into the following credit quality segments:
- Excellent quality - where there is a very high likelihood the asset will be recovered in full with a negligible or very low risk of default.
- Good quality - where there is a high likelihood the asset will be recovered in full with a low risk of default.
- Satisfactory quality – where the assets demonstrate a moderate default risk.
- Lower quality - where the assets require closer monitoring and the risk of default is of greater concern.
The credit grade for the Group’s investment securities and loans and advances to credit institutions is based on the external credit rating of the counterparty.
| As at 30-Jun-20 (Unaudited) | |||||
| Stage 1 | Stage 2 | Stage 3 | Stage 3 (POCI) | Total | |
| Loans and advances to customers | £m | £m | £m | £m | £m |
| OSB | |||||
| Excellent | 5,025.8 | 92.1 | - | - | 5,117.9 |
| Good | 4,329.2 | 559.0 | - | - | 4,888.2 |
| Satisfactory | 188.4 | 293.8 | - | - | 482.2 |
| Lower | 4.7 | 98.1 | - | - | 102.8 |
| Impaired | - | - | 292.6 | - | 292.6 |
| POCI | - | - | - | 53.5 | 53.5 |
| CCFS | |||||
| Excellent | 4,141.6 | 178.1 | - | - | 4,319.7 |
| Good | 2,638.0 | 461.0 | - | - | 3,099.0 |
| Satisfactory | 95.9 | 119.1 | - | - | 215.0 |
| Lower | 4.4 | 140.4 | - | - | 144.8 |
| Impaired | - | - | 45.2 | - | 45.2 |
| POCI | - | - | - | 72.8 | 72.8 |
| 16,428.0 | 1,941.6 | 337.8 | 126.3 | 18,833.7 | |
30. Risk management (continued)
| As at 31-Dec-19 (Audited) | |||||
| Stage 1 | Stage 2 | Stage 3 | Stage 3 (POCI) | Total | |
| Loans and advances to customers | £m | £m | £m | £m | £m |
| OSB1 | |||||
| Excellent | 5,033.6 | 11.0 | - | - | 5,044.6 |
| Good | 4,859.3 | 200.5 | - | - | 5,059.8 |
| Satisfactory | 147.3 | 154.8 | - | - | 302.1 |
| Lower | 6.7 | 76.1 | - | - | 82.8 |
| Impaired | - | - | 277.7 | - | 277.7 |
| POCI | - | - | - | 53.6 | 53.6 |
| CCFS | |||||
| Excellent | 3,632.7 | 20.5 | - | - | 3,653.2 |
| Good | 3,359.7 | 93.7 | - | - | 3,453.4 |
| Satisfactory | 222.8 | 39.1 | - | - | 261.9 |
| Lower | 24.8 | 153.8 | - | - | 178.6 |
| Impaired | - | - | 16.7 | - | 16.7 |
| POCI | - | - | - | 83.2 | 83.2 |
| 17,286.9 | 749.5 | 294.4 | 136.8 | 18,467.6 | |
1 The Group has restated the prior year comparatives for OSB to include finance lease assets.
The tables below show the Group’s other financial assets by credit risk rating grade:
| As at 30-Jun-20 (Unaudited) | ||||
| Excellent | Good | Satisfactory | Total | |
| £m | £m | £m | £m | |
| Investment securities | 755.1 | - | - | 755.1 |
| Loans and advances to credit institutions | 2,363.7 | 227.5 | 6.4 | 2,597.6 |
| 3,118.8 | 227.5 | 6.4 | 3,352.7 | |
| As at 31-Dec-19 (Audited) | ||||
| Excellent | Good | Satisfactory | Total | |
| £m | £m | £m | £m | |
| Investment securities | 635.3 | - | - | 635.3 |
| Loans and advances to credit institutions | 2,047.8 | 146.1 | 10.7 | 2,204.6 |
| 2,683.1 | 146.1 | 10.7 | 2,839.9 | |
31. Financial instruments and fair values
The following tables provide an analysis of financial assets and financial liabilities measured at fair value on the Statement of Financial Position grouped into levels 1 to 3 based on the degree to which the fair value is observable:
| Carrying amount | Principal amount | Level 1 | Level 2 | Level 3 | Total | |
| As at 30-Jun-20 (Unaudited) | £m | £m | £m | £m | £m | £m |
| Financial assets | ||||||
| Investment securities | 549.3 | 550.5 | 191.0 | 358.3 | - | 549.3 |
| Loans and advances to customers1 | 19.9 | 23.5 | - | - | 19.9 | 19.9 |
| Derivative assets | 21.8 | 7,116.0 | - | 21.8 | - | 21.8 |
| 591.0 | 7,690.0 | 191.0 | 380.1 | 19.9 | 591.0 | |
| Financial liabilities | ||||||
| Derivative liabilities | 221.5 | 9,798.6 | - | 221.5 | - | 221.5 |
| Carrying amount | Principal amount | Level 1 | Level 2 | Level 3 | Total | |
| As at 31-Dec-19 (Audited) | £m | £m | £m | £m | £m | £m |
| Financial assets | ||||||
| Investment securities | 508.7 | 509.5 | 149.8 | 358.9 | - | 508.7 |
| Loans and advances to customers1 | 22.1 | 24.8 | - | - | 22.1 | 22.1 |
| Derivative assets | 21.1 | 7,795.4 | - | 21.0 | 0.1 | 21.1 |
| 551.9 | 8,329.7 | 149.8 | 379.9 | 22.2 | 551.9 | |
| Financial liabilities | ||||||
| Derivative liabilities | 92.8 | 9,982.4 | - | 92.8 | - | 92.8 |
1 The residential mortgage portfolio held at fair value is categorised as level 3. The fair value is based on expected future cash
flows using an assumed amortisation profile of the pool of mortgages. The cash flows are discounted to present value using a
risk adjusted rates.
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 instrument’s 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.
31. Financial instruments and fair values (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 levels 1 to 3 based on the degree to which the fair value is observable:
| Estimated fair value | ||||||
| Carrying amount | Principal amount | Level 1 | Level 2 | Level 3 | Total | |
| As at 30-Jun-20 (Unaudited) | £m | £m | £m | £m | £m | £m |
| Financial assets | ||||||
| Cash in hand | 0.5 | 0.5 | - | 0.5 | - | 0.5 |
| Loans and advances to credit institutions | 2,597.6 | 2,597.6 | - | 2,597.6 | - | 2,597.6 |
| Investment securities | 205.8 | 205.7 | 205.3 | - | - | 205.3 |
| Loans and advances to customers | 18,757.2 | 18,685.1 | - | 3,242.1 | 15,585.5 | 18,827.6 |
| Other assets | 10.8 | 10.8 | - | 10.8 | - | 10.8 |
| 21,571.9 | 21,499.7 | 205.3 | 5,851.0 | 15,585.5 | 21,641.8 | |
| Financial liabilities | ||||||
| Amounts owed to retail depositors | 16,697.3 | 16,617.3 | - | 3,743.1 | 13,015.2 | 16,758.3 |
| Amounts owed to credit institutions | 3,426.8 | 3,425.0 | - | 3,426.8 | - | 3,426.8 |
| Amounts owed to other customers | 28.4 | 28.3 | - | - | 28.4 | 28.4 |
| Debt securities in issue | 325.7 | 325.6 | - | 325.7 | - | 325.7 |
| Subordinated liabilities | 10.6 | 10.4 | - | - | 10.6 | 10.6 |
| Perpetual subordinated bonds | 37.6 | 37.0 | 31.8 | - | - | 31.8 |
| Other liabilities | 21.5 | 21.5 | - | 21.5 | - | 21.5 |
| 20,547.9 | 20,465.1 | 31.8 | 7,517.1 | 13,054.2 | 20,603.1 | |
| Estimated fair value | ||||||
| Carrying amount | Principal amount | Level 1 | Level 2 | Level 3 | Total | |
| As at 31-Dec-19 (Audited) | £m | £m | £m | £m | £m | £m |
| Financial assets | ||||||
| Cash in hand | 0.4 | 0.4 | - | 0.4 | - | 0.4 |
| Loans and advances to credit institutions | 2,204.6 | 2,204.3 | - | 2,204.6 | - | 2,204.6 |
| Investment securities | 126.6 | 126.4 | 126.6 | - | - | 126.6 |
| Loans and advances to customers | 18,424.7 | 18,281.3 | - | 3,409.1 | 15,245.1 | 18,654.2 |
| Other assets | 14.3 | 14.3 | - | 14.3 | - | 14.3 |
| 20,770.6 | 20,626.7 | 126.6 | 5,628.4 | 15,245.1 | 21,000.1 | |
| Financial liabilities | ||||||
| Amounts owed to retail depositors | 16,255.0 | 16,133.5 | - | 3,817.8 | 12,441.9 | 16,259.7 |
| Amounts owed to credit institutions | 3,068.8 | 3,063.3 | - | 3,068.8 | - | 3,068.8 |
| Amounts owed to other customers | 29.7 | 29.5 | - | - | 29.7 | 29.7 |
| Debt securities in issue | 296.3 | 295.5 | - | 296.3 | - | 296.3 |
| Subordinated liabilities | 10.6 | 10.4 | - | - | 10.7 | 10.7 |
| Perpetual subordinated bonds | 37.6 | 37.0 | 33.2 | - | - | 33.2 |
| Other liabilities | 34.9 | 34.9 | - | 34.9 | - | 34.9 |
| 19,732.9 | 19,604.1 | 33.2 | 7,217.8 | 12,482.3 | 19,733.3 | |
32. Operating segments
Following the Combination, the Group segments its lending business and operates under two segments in-line with internal reporting to the Board:
- OSB
- CCFS
Prior to the Combination, the Group operated under two segments: BTL/SME and Residential mortgages. The Group separately discloses the impact of Combination accounting but does not consider this a business segment.
The financial position and results of operations of the above segments are summarised below:
| OSB | CCFS | Combination | Total | |
| £m | £m | £m | £m | |
| Balances as at 30 June 2020 (Unaudited) | ||||
| Gross loans and advances to customers | 10,937.2 | 7,674.3 | 242.1 | 18,853.6 |
| Expected credit losses | (71.0) | (26.1) | 0.7 | (96.4) |
| Loans and advances to customers | 10,866.2 | 7,648.2 | 242.8 | 18,757.2 |
| Capital expenditure | 2.7 | 1.1 | - | 3.8 |
| Depreciation and amortisation | 3.6 | 1.3 | (1.2.6 | 7.5 |
| Profit for six months ended 30 June 2020 (Unaudited) | ||||
| Interest receivable | 244.4 | 162.0 | (34.9) | 371.5 |
| Interest payable | (80.9) | (58.7) | 1.9 | (137.7) |
| Net interest income | 163.5 | 103.3 | (33.0) | 233.8 |
| Other income | 11.0 | 7.1 | (6.6) | 11.5 |
| Total income | 174.5 | 110.4 | (39.6) | 245.3 |
| Administrative expenses | (44.9) | (29.2) | (2.6) | (76.7) |
| Provisions | - | (0.1) | - | (0.1) |
| Impairment of financial assets | (35.9) | (18.5) | 0.2 | (54.2) |
| Impairment of intangible assets | - | - | (7.0) | (7.0) |
| Integration costs | (4.9) | (1.4) | - | (6.3) |
| Exceptional items | (1.7) | - | - | (1.7) |
| Profit before taxation | 87.2 | 61.2 | (49.0) | 99.3 |
| Taxation1 | (20.8) | (14.6) | 8.1 | (27.3) |
| Profit for the period | 66.4 | 46.6 | (40.9) | 72.0 |
1 The taxation on Combination credit of £8.1m includes a £4.6m charge due to a 2% increase in the rate for the deferred tax liability following the Government cancellation of the corporation tax rate reduction on the 19th March 2020.
32. Operating segments (continued)
| OSB | CCFS | Combination | Total | |
| £m | £m | £m | £m | |
| Balances as at 31 December 2019 (Audited) | ||||
| Gross loans and advances to customers | 10,820.6 | 7,963.6 | (294.5) | 18,489.7 |
| Expected credit losses | (35.6) | (6.5) | (0.8) | (42.9) |
| Loans and advances to customers | 10,785.0 | 7,957.1 | (295.3) | 18,446.8 |
| Capital expenditure | 10.2 | 1.1 | - | 11.3 |
| Depreciation and amortisation | 6.3 | 1.3 | 0.6 | 8.2 |
| Restated profit for six months ended 30 June 2019 (Unaudited)1 | ||||
| Net interest income | 150.5 | - | - | 150.5 |
| Other expense | (7.2) | - | - | (7.2) |
| Total income | 143.3 | - | - | 143.3 |
| Administrative expenses | (40.9) | - | - | (40.9) |
| Provisions | (0.1) | - | - | (0.1) |
| Impairment of financial assets | (5.9) | - | - | (5.9) |
| Exceptional items | (5.9) | - | - | (5.9) |
| Profit before taxation | 90.5 | - | 90.5 | |
| Taxation | (25.2) | - | (25.2) | |
| Profit for the period | 65.3 | - | - | 65.3 |
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the net interest income prior period comparatives for the interest expense on the £22.0m PSBs previously classified as equity (see note 1).
33. Adjustments for non-cash items and changes in operating assets and liabilities
| Restated1 | ||
| Six months ended 30-Jun-20 | Six months ended 30-Jun-19 | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Adjustments for non-cash items: | ||
| Depreciation and amortisation | 7.5 | 3.0 |
| Interest on subordinated liabilities | 0.4 | 0.4 |
| Interest on perpetual subordinated bonds | 0.8 | 0.9 |
| Interest on financing debt | (4.0) | - |
| Impairment charge on loans | 54.2 | 5.9 |
| Impairment on intangible assets acquired on Combination | 7.0 | - |
| Gain on sale of financial instruments | (19.9) | - |
| Provisions | 0.1 | 0.1 |
| Interest on lease liabilities | 0.2 | - |
| Fair value losses on financial instruments | 12.1 | 7.4 |
| Share-based payments | 2.3 | 1.4 |
| Total adjustments for non-cash items | 60.0 | 19.1 |
| Changes in operating assets and liabilities: | ||
| Increase in loans and advances to credit institutions | (129.5) | (54.3) |
| Increase in loans to customers | (1,214.5) | (884.6) |
| Increase in retail deposits | 442.3 | 1,103.1 |
| Net increase in other assets | (0.4) | (6.7) |
| Net decrease in derivatives and hedged items | (41.5) | (9.9) |
| Net decrease in other customers deposits2 | (1.3) | (24.1) |
| Net (decrease)/increase in other liabilities | (13.0) | 0.3 |
| Exchange differences on working capital | 0.1 | 0.1 |
| Total changes in operating assets and liabilities | (957.8) | 123.9 |
1 Consistent with the restatement in the 2019 Annual Report and Accounts, the Group has restated the interest on perpetual subordinated bonds prior period comparatives for the interest expense on the £22.0m PSBs previously classified as equity (see note 1).
2 The Group has reclassified the prior year comparatives to include all components of amounts owed to credit institutions as financing activities. Previously the Group only classified the Bank of England Term Funding Scheme and Indexed Long-Term Repo scheme as financing activities.
34. 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 30-Jun-20 | As at 31-Dec-19 | |
| (Unaudited) | (Unaudited) | |
| £m | £m | |
| Common equity tier 1 capital | ||
| Called up share capital | 4.5 | 4.5 |
| Share premium, capital contribution and share-based payment reserve | 875.3 | 876.3 |
| Retained earnings | 625.1 | 553.2 |
| Transfer reserve | (12.8) | (12.8) |
| Other reserves | (4.3) | (4.2) |
| Total equity excluding equity bonds | 1,487.8 | 1,417.0 |
| Foreseeable dividends | (29.1) | (49.9) |
| IFRS 9 transitional adjustment1 | 4.9 | 5.3 |
| COVID-19 ECL transitional adjustment2 | 31.6 | - |
| Deductions from common equity tier 1 capital | ||
| Prudent valuation adjustment3 | (0.6) | (0.5) |
| Intangible assets | (22.0) | (31.4) |
| Deferred tax asset | (0.9) | (0.9) |
| Common equity tier 1 capital | 1,471.7 | 1,339.6 |
| Additional tier 1 capital | ||
| AT1 Securities | 60.0 | 60.0 |
| Total tier 1 capital | 1,531.7 | 1,399.6 |
| Tier 2 capital | ||
| Subordinated debt and PSBs | 47.4 | 47.4 |
| Deductions from tier 2 capital | (1.7) | (0.7) |
| Total tier 2 capital | 45.7 | 46.7 |
| Total regulatory capital | 1,577.4 | 1,446.3 |
| Risk weighted assets (unaudited) | 8,476.6 | 8,383.0 |
1 The regulatory capital includes a £4.9m add-back under IFRS 9 transitional arrangements. This represents 70.0% of the IFRS 9 transitional adjustment booked directly to retained earnings of £6.5m.
2 The COVID-19 ECL transitional adjustment relates to the Group’s increase in Stage 1 and Stage 2 ECL following the impacts of COVID-19 and for which transitional rules are being adopted for regulatory capital purposes.
3 The Group has adopted the simplified approach under the Prudent Valuation rules, recognising a deduction equal to 1.0% of fair value assets and liabilities.
35. Related parties
The Group had no related party transactions during the six months to 30 June 2020 that would materially affect the position or performance of the Group. Details of transactions for the year ended 31 December 2019 can be found in the 2019 Annual Report and Accounts on pages 205 to 208.
Transactions with Key Management Personnel
During the period, the Group granted 467,408 (2019: 292,205) awards under the Deferred Share Bonus Plan and 1,601,990 (2019: 729,505) awards under the Performance Share Plan to 13 (2019: 9) key management personnel. The awards were granted on 19 March 2020 with a grant price of £2.5836. Details of these plans can be found in note 11 of the 2019 Annual Report and Accounts on pages 186 to 190.
36. Events after the reporting date
There have been no material events after the reporting date.
Key performance indicators
Underlying results for the six months to 30 June 2020 reflect results for the combined Group, excluding exceptional items, integration costs and other acquisition-related items.
Pro forma underlying results for the six months to 30 June 2019 assume that the Combination occurred on 1 January 2019 and include six months of results from OSB and CCFS, excluding exceptional items, integration costs and other acquisition-related items.
Net interest margin (‘NIM’)
For the period of six months NIM is calculated as net interest income annualised on an actual days basis, as a percentage of a 7 point average1 of interest earning assets (cash, investment securities, loans and advances to customers and credit institutions). It represents the margin earned on loans and advances and liquid assets after swap expense/income and cost of funds.
| HY 2020 £m | HY 2019 £m | |
| Net interest income – statutory | 233.8 | 150.52 |
| CCFS HY 2019 results | - | 100.1 |
| Adjust presentation | - | (0.1) |
| Add back: acquisition-related items3 | 33.0 | - |
| Net interest income – underlying and pro forma underlying | 266.8 | 250.5 |
| Net interest income annualised on an actual days basis: | ||
| Net interest income – statutory A | 470.2 | 303.5 |
| Net interest income – underlying and pro forma underlying B | 536.5 | 505.2 |
| 7 point average of interest earning assets – statutory C | 21,654.9 | 10,936.1 |
| 7 point average of interest earning assets – underlying and pro forma underlying D | 21,434.4 | 18,706.6 |
| NIM statutory equals A/C | 2.17% | 2.78% |
| NIM underlying and pro forma underlying equals B/D | 2.50% | 2.70% |
Cost to income ratio
The cost to income ratio is defined as administrative expenses as a percentage of total income. It is a measure of operational efficiency.
| HY 2020 £m | HY 2019 £m | |
| Administrative expenses – statutory A | 76.7 | 40.9 |
| CCFS HY 2019 results | 35.9 | |
| Add back: acquisition-related items3 | (2.6) | - |
| Administrative expenses – underlying and pro forma underlying B | 74.1 | 76.8 |
| Total income – statutory C | 245.3 | 143.3 |
| CCFS HY 2019 results | - | 125.0 |
| Add back: acquisition-related items3 | 39.6 | - |
| Total income underlying and pro forma underlying D | 284.9 | 268.3 |
| Cost to income statutory equals A/C | 31% | 29% |
Cost to incomes pro forma underlying equals B/D 26% 29%
Management expense ratio
For the period of six months the management expense ratio is defined as administrative expenses annualised on a simple basis as a percentage of a 7 point average1 of total assets.
| HY 2020 £m | HY 2019 £m | |
| Administrative expenses – statutory (as in cost to income ratio above) A | 76.7 | 40.9 |
| Administrative expenses – underlying and pro forma underlying (as in cost to income ratio above) B | 74.1 | 76.8 |
| 7 point average of total assets – statutory C | 21,924.8 | 11,024.2 |
| 7 point average of total assets – underlying and pro forma underlying D Management expense ratio statutory equals A/C on an annualised basis Management expense ratio underlying and pro forma underlying equals B/D on an annualised basis | 21,697.4 0.70% 0.68% | 18,857.7 0.74% 0.81% |
Loan loss ratio
For the period of six months, the loan loss ratio is defined as impairment losses annualised on a simple basis as a percentage of a 7 point average1 of gross loans and advances. It is a measure of the credit performance of the loan book.
| HY 2020 £m | HY 2019 £m | |
| Impairment losses – statutory A | 54.2 | 5.9 |
| CCFS HY 2019 results | - | 2.7 |
| Add back: acquisition-related items3 | 0.2 | - |
| Impairment losses – underlying and pro forma underlying B | 54.4 | 8.6 |
| 7 point average of gross loans – statutory C 7 point average of gross loans – underlying and pro forma underlying D Loan loss ratio statutory equals A/C on an annualised basis Loan loss ratio underlying and pro forma underlying equals B/D on an annualised basis | 18,433.5 18,202.5 0.59% 0.60% | 9,442.9 16,078.3 0.12% 0.11% |
Return on equity (‘RoE’)
RoE is defined as profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, annualised on a simple basis, as a percentage of a 7 point average1 of shareholders’ equity (excluding £60m of AT1 securities).
| HY 2020 £m | HY 2019 £m | |
| Profit after tax - statutory | 72.0 | 65.32 |
| Coupons on AT1 securities | (2.7) | (2.8) |
| Profit attributable to ordinary shareholders – statutory A Add back: HY 2019 exceptional items CCFS HY 2019 results Add back: acquisition related items3 | 69.3 - - 47.2 | 62.5 9.7 62.3 - |
| Profit attributable to ordinary shareholders – underlying and pro forma underlying B | 116.5 | 134.5 |
7 point average of shareholders’ equity (excluding AT1 securities) –
statutory C 1,473.5 626.9
7 point average of shareholders’ equity (excluding AT1 securities) –
underlying and pro forma underlying D 1,297.6 1,111.7
Return on equity statutory equals A/C on an annualised basis 9% 20%
Return on equity underlying and pro forma underlying equals B/D
on an annualised basis 18% 24%
Basic earnings per share
Basic earnings per share is defined as profit attributable to ordinary shareholders, which is profit after tax and after deducting coupons on AT1 securities, gross of tax, divided by the weighted average number of ordinary shares in issue.
| HY 2020 £m | HY 2019 £m | |
| Profit attributable to ordinary shareholders – statutory (as in RoE ratio above) A | 69.3 | 62.5 |
| Profit attributable to ordinary shareholders – underlying and pro forma underlying (as in RoE ratio above) B | 116.5 | 134.5 |
| Weighted average number of ordinary shares in issue – statutory C | 445.9 | 244.9 |
Weighted average number of ordinary shares in issue –
underlying and pro forma underlying D 445.9 444.4
Basic earnings per share statutory equals A/C 15.5 25.5
Basic earnings per share underlying and pro forma underlying
equals B/D 26.1 30.3
1. 7 point average is calculated as an average of opening balance and closing balances for 6 months to 30 June.
2. In 2019, the Group restated the prior year comparatives to recognise interest expense on the £22m Perpetual Subordinated Bonds previously classified as equity, see note 1 to the financial statements.
3. The acquisition-related items are detailed in the reconciliation of statutory to pro forma underlying results in Financial review.
Registered office
Reliance House
Chatham
Kent, ME4 4ET
Company number
07312896
Internet
www.osb.co.uk
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Statutory Auditor
1 New Street Square
EC4A 3HQ
Registrar
Aspect House
Spencer Road
Lancing
Brokers
Barclays Bank PLC
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Riverbank House
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