REG-ONE Savings Bank PLC : Preliminary results for the year ended 31 December 2015 <Origin Href="QuoteRef">OSBO.L</Origin>
17/03/2016 07:05
17 March 2016
OneSavings Bank plc
Preliminary results for the year ended 31 December 2015
Financial highlights
* Underlying profit before taxation 1 up by 52% to £105.9m (2014: £69.7m)
* Loans and advances grew by 31% in 2015 to £5.1bn (2014: £3.9bn), driven by
gross organic origination of £1.8bn (2014: £1.5bn) and the purchase of a
second charge mortgage portfolio for £260m
* Cost:income ratio 2 further reduced to 26% (2014: 28%), driven by strong
income growth and continued focus on cost control and efficiency
* Underlying return on equity 3 increased to 32% (2014: 31%)
* Underlying basic earnings per share 4 up by 43% to 34.8 pence (2014: 24.4
pence)
* Final dividend 5 of 6.7 pence per share giving a full year dividend of 8.7
pence per share, in line with our target dividend policy
* Fully-loaded Common Equity Tier 1 (CET1) capital ratio strengthened to 11.6%
(2014: 11.4%)
Andy Golding, CEO of OneSavings Bank, said:
"I am delighted to report another year of very strong performance in 2015,
delivering on all our financial objectives. We have continued to grow the loan
book through our specialist lending brands and improved both our net interest
margin and cost to income ratio. This growth has been achieved whilst
strengthening our capital ratio, demonstrating strong organic capital
generation capability through profitability, and at the same time improving
our excellent levels of customer service. I am particularly pleased that we
have successfully innovated in the commercial side of our Buy-to-Let/SME
segment through our InterBay brand, as well as increasing the range and volume
of funding lines and growing Heritable Development Finance.
Looking forward we remain cognisant of the political and regulatory headwinds
in Buy-to-Let and in 2016 we have amended our lending criteria to cement our
focus on the professional landlords that we believe will continue to develop
their Buy-to-Let portfolios. This is in line with our expectation that the
private rented sector will continue to be a vital component of the UK housing
market. We have entered 2016 with our strongest ever pipeline, and application
and completion volumes are showing sustained growth. We look forward with
confidence".
Key Metrics
2015 2014
Net Interest Margin 6 (bps) 309 291
Statutory Profit before Tax (£m) 105.3 63.7
Total Assets (£bn) 6.0 4.9
Statutory basic EPS 7 (pence) 34.1 21.7
Loan to deposit ratio 8 (%) 93 90
3 Months+ Arrears 9 (%) 2.1 2.3
Loan loss ratio 10 (bps) 23 33
Customer Net Promoter Score (%) 54.8 38.9
Enquiries:
OneSavings Bank plc
Alastair Pate t: 01634 835728
Sarah Lewandowski t: 01634 888295
Brunswick Group
Robin Wrench / Simone Selzer t: 020 7404 5959
Analyst Presentation
A presentation for analysts will be held at 9:30am on Thursday 17th March at
Brunswick Group, 16 Lincoln's Inn Fields, WC2A 3ED. The UK dial in is +44 (0)
20 3427 1910 and the passcode is 1479648. The presentation will be webcast and
available from 9.30am on the OneSavings Bank website at osb.co.uk/investor
relations/report and accounts. Registration is open immediately.
About OneSavings Bank plc
OneSavings Bank plc ('OSB') began trading as a bank on 1 February 2011 when
the trade and assets of Kent Reliance Building Society ('KRBS') were
transferred into the business. OSB is a specialist lending and retail savings
group authorised by the Prudential Regulation Authority, part of the Bank of
England, and regulated by the Financial Conduct Authority and Prudential
Regulation Authority.
OSB focuses on selected sub-sectors of the lending market in which it has
established expertise, platforms and capabilities, and where opportunities
have been identified for both high returns on a risk-adjusted basis and strong
growth. These include Residential Mortgages (comprising first charge, second
charge and shared ownership), Buy-to-Let/SME and Personal Loans. OSB
originates organically through specialist brokers and independent financial
advisors.
OSB is predominantly funded by retail savings originated through the
established Kent Reliance franchise, which includes a network of branches in
the South East of England, as well as online and postal channels.
Diversification of funding is currently provided by a securitisation and OSB
joined the Funding for Lending Scheme in early 2014.
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1 Before exceptional IPO expenses of £2.1m in 2015 (2014: £7.4m) and after
deduction of coupons on equity Perpetual Subordinated Bonds (PSBs) of £1.5m
in each period
2 Administrative expenses including depreciation and amortisation as a
percentage of total income after deducting coupons on equity PSBs
3 Underlying profit after taxation (profit after taxation excluding
exceptional IPO expenses, including the tax effect, of £1.6m (2014: £6.4m)
and after deducting coupons on equity PSBs including the tax effect, of £1.2m
(2014: £1.1m)) as a percentage of average shareholders' equity (excluding
equity PSBs of £22m)
4 Underlying profit after taxation divided by the weighted average number
of ordinary shares in issue
5 Representing 25% of underlying profit after tax. To be paid on 18 May
2016, subject to approval at the Annual General Meeting on 11 May 2016, with a
record date of 29 March 2016. For 2014, the dividend of 3.9p per share
represented a final two-thirds dividend
6 Net interest income, less coupons on PSBs classified as equity, as a
percentage of average interest bearing assets including off balance sheet
Funding for Lending Scheme (FLS) drawings
7 Statutory profit after taxation divided by the weighted average number of
ordinary shares in issue
8 Excluding the impact of the Funding for Lending Scheme
9 Portfolio arrears rate (excluding legacy problem loan book) of accounts for
which there are missed or overdue payments by more than three months
10 Impairment losses expressed as a percentage of average gross loans and
advances
Chief Executive's Statement
Continued strong performance
I am delighted to report a further year of strong performance for the
OneSavings Bank Group. We continue to deliver and exceed our stated
financial objectives across all key metrics. Our clear strategy and
capabilities demonstrate the robustness of our business model, and ensure we
are well positioned to achieve future growth.
OneSavings Bank has remained focused on delivering our objective of being a
leading specialist lender in our chosen sub-sectors, supported by a strong
retail savings franchise and an efficient and scalable Indian back office. We
have continued to focus on customer needs and the quality of new lending,
leading to an enhanced customer reputation across our lending and savings
brands.
We have enhanced our core residential segment through organic growth as well
as selective asset acquisition and I am very pleased that we have continued to
innovate in the commercial side of our Buy-to-Let/SME segment. We have
extended the InterBay brand product range to provide more choice for
professional investors, increased the range and volume of secured funding
lines and grown Heritable Development Finance. These newer business lines are
core to the growth of our Buy-to-Let /SME franchise.
Results
The Group delivered strong profit and loan book growth in 2015. Underlying 1
pre-tax profit increased by 52% to £105.9m (2014: £69.7m) and underlying 2
basic earnings per share grew by 43% to 34.8p (2014: 24.4p). The Group grew
its loan book by 31% to £5.1bn in 2015 (2014: £3.9bn), whilst maintaining an
appropriate risk return profile. This was driven by consistent loan book
growth in our core Buy-to-Let/SME segment, which continued to build on our
2014 achievements. Our high quality residential mortgage segment also
continued to perform well. The balance sheet growth was achieved whilst
improving our high underlying return on equity to 32% (2014: 31%) and
strengthening our fully-loaded common equity tier 1 capital ratio to 11.6%
(2014 11.4%) demonstrating the strong organic capital generation capability of
the business through profitability.
The Board is recommending a final dividend of 6.7 pence per share in line
with our stated dividend policy. This gives a total dividend per share for the
full year of 8.7 pence.
Key drivers
The increase in gross new origination of 20% to £1.8bn (2014: £1.5bn)
demonstrates the opportunities that exist in our specialist lending
sub-sectors and the strength of our lending franchises. We have continued to
differentiate ourselves from the competition by offering well defined
propositions in high margin, underserved markets, where we have the
experience, as well as the internal and intermediary infrastructure, to
successfully develop and service those markets. Each of our mainstream lending
brands, Kent Reliance, InterBay Commercial and Prestige Finance, has extended
its position as a leader in its chosen markets and enhanced its reputation
amongst mortgage intermediaries. Application volumes in our core businesses
remained strong throughout the year and we are not experiencing competitive
price pressure in our core markets, as demonstrated by our improving net
interest margin (NIM).
I am pleased that our Commercial businesses are developing strongly.
Heritable Development Finance continues to grow and deliver high quality
residential development lending, consolidating its position within the Group
and exceeding the expectations set when it commenced lending in early 2014.
Loan commitments stood at £168m at year end, an increase of £99m for the
year. We have also grown the provision of secured funding lines to other
lenders which operate in certain high yielding, specialist sub-segments, such
as residential bridge finance, by 80% to £126m (2014: £70m).
We continue to gain recognition amongst customers and intermediaries, winning
multiple awards during the year. I am particularly pleased that Kent Reliance
won the What Mortgage Best Buy-to-Let Lender award for the second year running
in 2015. This combined with our improved broker Net Promoter Score (NPS) of
59% demonstrates the strength and value of our customer franchise.
We have kept tight control on credit quality, as seen in our reportable
arrears statistics: from more than 21,500 loans totalling £4.2bn of new
organic originations since the Bank's creation in February 2011, we only have
48 cases of arrears over three months in duration, with an aggregate balance
of £5.1m and average LTV of 56%.
Our stable retail funding franchise continues to support lending growth with
retail deposits up 24% to £5.4bn (2014: £4.3bn). Our loan to deposit ratio
for 2015 was 93% 3 , comfortably below our target of less than 100%,
delivering on our strategy to be primarily retail funded. Over 23,000 new
savings customers joined the Bank during 2015 and our successful programme of
managing long term savings relationships by offering market competitive rates
to all customers, including those with maturing fixed rate bonds and ISAs,
continued to deliver a very strong 89% retention rate. We have diversified our
sources of funding to include the government's Funding for Lending Scheme
(FLS) and managed liquidity using a mixture of new and retained retail
deposits and FLS. The strength and fairness of our retail savings
proposition coupled with excellent customer service and high retention rates
continues to allow the Bank to raise significant funds without needing to
price at the very top of the best buy tables.
As the Group has grown, costs have been controlled in line with our stated
targets, resulting in a further improvement in cost:income ratio to 26% (2014:
28%). We have continued to invest in customer facing and back office
infrastructure as previously reported. To accommodate the Bank's growth in
people, a new head office building in Chatham opened in the third quarter of
2015, and new premises in Bangalore are expected to be operational during the
first quarter of 2016. During 2015 we rebranded our wholly-owned Indian
operation from EasiProcess to OSBIndia reflecting its role as a core part of
the Group.
OSBIndia undertakes a range of primary processing services at a significantly
lower cost than an equivalent UK-based operation at very high quality.
I am particularly proud that we have achieved this whilst maintaining our
focus on customers, borne out by a fundamental increase in consumer NPS to 55%
(2014: 39%). This is also demonstrated by our numerous awards including Kent
Reliance being named in the Moneyfacts awards as Best Bank Savings Provider.
1 Statutory profit before taxation increased by 65% to £105.3m (2014:
£63.7m)
2 Statutory basic EPS grew by 57% to 34.1 pence per share (2014: 21.7 pence
per share)
3 Excluding the impact of the Funding for Lending Scheme
be a leading specialist lender in our chosen sub-sectors
* retain our focus on bespoke underwriting
* further deepen our relationships and reputation for delivery with the
intermediaries who distribute our mortgage products
* leverage our efficient, scalable and cost effective operating model
* maintain and build on our stable retail savings franchise.
Business highlights
Gross new organic lending of £1.8bn in 2015 was up 20% compared with £1.5bn
in 2014. We have continued to see strong opportunities for growth at
risk-adjusted high returns, particularly in Buy-to-Let where the Group
continues to target professional landlords with multiple properties.
Buy-to-Let/SME is the Group's largest segment comprising 60% of the gross loan
book with Residential Mortgages at 39% and Personal Loans at 1% as at 31
December 2015.
The Bank continued to grow its secured funding line business in 2015. Gross
advances to other lenders, including bridge and asset finance businesses, were
up 71% to £132m in 2015 (2014: £77m) with total loans outstanding as at 31
December 2015 up 80% to £126m (31 December 2014: £70m).
For all our lending segments, we manually underwrite all risks, providing us
with competitive advantage over more automated lenders, as we are able to
identify and understand complex cases that others cannot.
Loans and advances grew by 31% in 2015 to £5.1bn (24% excluding the impact
of a second charge residential portfolio purchase in the first half)
reflecting the strong new organic origination, net of redemptions on the back
book and acquired portfolios in run-off. This growth was achieved whilst
improving the Bank's CET1 ratio to 11.6%, demonstrating the strength of the
capital generation capability of the business through profitability.
The Group remains focused on organic origination as its core growth strategy,
however, it continues to actively consider inorganic opportunities as they
arise. To that end, the Bank acquired a portfolio of second charge mortgages
in the first half of 2015 for £260m at a small premium (2014: a portfolio of
SME mortgages for £20.4m with gross receivables of £25.6m). The Group
conducts extensive due diligence when considering any portfolio acquisitions.
The Group reported very strong profit growth in 2015 with underlying profit
before taxation increasing by 52% to £105.9m, reflecting the strong balance
sheet growth, improved net interest margin and continued focus on cost
discipline and efficiency. On a statutory basis, profit before taxation rose
by 65% to £105.3m. Net interest margin improved by 18bps to 309bps in 2015
reflecting the positive impact of high margin new lending, the lack of price
pressure in our core markets and a continued reduction in cost of funds.
Underlying return on equity remained very strong increasing 1pp to 32% for the
year, as a result of the continued strength in profit margins, and underlying
basic EPS strengthened to 34.8p (2014: 24.4p). On a statutory basis, basic EPS
was 34.1p in 2015 (2013: 21.7p).
The Group remained predominantly retail funded during the year with a loan to
deposit ratio of 93% as at 31 December 2015, excluding the impact of drawdowns
under the Bank of England's Funding for Lending Scheme (FLS).
The Group joined the FLS in January 2014 and was subsequently accepted as a
mortgage collateral counterparty later that year.
The Group's mortgage loans were first approved as eligible collateral by the
BoE in February 2015 and placed in the FLS scheme in the following month to
enable the Bank to draw funding under the scheme to support growth in the loan
book.
Our customer-centric strategy of providing transparent savings products which
offer long term value for money continues to deliver high levels of customer
satisfaction and loyalty. We had a Net Promoter Score of 55% and a maturing
fixed term bond and ISA balance retention rate of 89% in 2015 (2014: 39% and
92% respectively).
Financial objectives
The table below sets out the Group's stated financial objectives and our
performance against them during the year.
Financial objectives 2014-2016 1
2015 Result
Funding/liquidity strength Maintain loan to deposit ratio of
<100% 2 93%
Cost discipline Cost:income ratio of
<35% 26%
Capital strength CRD IV CET1 ratio >10%
11.6%
Shareholder returns RoE of >25%
32%
Dividend policy Pay-out ratio of >= 25% 3
25%
1 Objectives relate to the current financial planning cycle that lasts
until the end of 2016. This does not represent any forecast, target or
expectation as to future results or performance and there can be no assurance
that the objective will be met.
2 Excluding the impact of any drawdown under the Funding for Lending
Scheme (FLS).
3 Pay-out ratio of at least 25 per cent of underlying profit after
taxation.
The Group remains predominantly retail funded with a strong loan to deposit
ratio of 93% as at 31 December 2015, excluding the impact of FLS drawdowns.
The retail savings market has in the past demonstrated more stability across
the economic cycle than wholesale funding markets providing a sustainable
funding source to support the Group's growth.
Our focus on cost discipline and efficiency as we grow continued throughout
2015, helping to deliver a very strong cost:income ratio of 26% for the year,
comfortably below our financial objective of 35% despite further investment in
the Bank's infrastructure and operations during the year.
The Bank ended the year with a fully loaded CET1 Capital ratio of 11.6%
(2014: 11.4%) demonstrating the Bank's ability to support significant growth
through the organic capital generation capability of the business through
profitability.
The Group delivered a very strong underlying RoE of 32% in 2015, reflecting
the continued strength in profit margins and the ongoing impact of cost
discipline and efficiency.
The Board is recommending a final dividend of 6.7 pence per share which
together with the interim dividend paid of 2.0 pence per share, represents 25%
of underlying profit after taxation for the year in line with the Bank's
stated dividend policy.
Segmental Review
The following table shows the Group's loans and advances and contribution to
profit by segment
31 December 2015, £m BTL/SME Residential Mortgages Personal Loans Total
Gross loans to customers 3,105.5 2,007.1 49.4 5,162.0
Provisions for impairment losses (17.7) (2.2) (7.3) (27.3)
Net loans to customers 3,087.8 2,004.8 42.1 5,134.7
Risk weighted assets 1,435.1 858.6 45.8 2,339.5
31 December 2014, £m BTL/SME Residential Mortgages Personal Loans Total
Gross loans to customers 2,064.9 1,763.4 117.1 3,945.4
Provisions for impairment losses (15.4) (2.6) (8.0) (26.0)
Net loans to customers 2,049.5 1,760.8 109.2 3,919.4
Risk weighted assets 990.1 738.1 101.1 1,829.3
31 December 2015, £m BTL/SME Residential Mortgages Personal Loans Central 1 Total
Net interest income 95.1 69.0 5.6 - 169.8
Other income/expense (0.6) (5.8) (1.4) 0.6 (7.3)
Total income 94.5 63.1 4.3 0.6 162.5
Impairment losses (5.3) (2.4) (2.9) - (10.6)
Contribution to profit 89.2 60.7 1.3 0.6 151.9
31 December 2014, £m BTL/SME Residential Mortgages Personal Loans Central 1 Total
Net interest income 50.3 57.1 17.7 - 125.2
Other income/expense (1.0) (6.1) (1.5) 2.3 (6.3)
Total income 49.4 51.0 16.3 2.3 118.9
Impairment losses (4.7) (1.1) (5.9) - (11.7)
Contribution to profit 44.6 49.9 10.4 2.3 107.2
1 Central function includes gains on the sale of treasury assets
Buy-to-Let/SME
We provide Buy-to-Let mortgages secured on residential property held for
investment purposes by experienced and professional landlords and commercial
mortgages secured on commercial and semi-commercial properties held for
investment purposes or for owner occupation. We also provide residential
development finance to small and medium sized developers and secured funding
lines to other lenders.
The Group increased its volume of new organic lending in this segment to
£1.5bn, an increase of 25% on 2014 new lending of £1.2bn. This included
strong growth in Buy-to-Let particularly in London and the South East where we
saw strong growth opportunities at risk-adjusted high returns.
The Group was focused on organic origination as its core growth strategy
during the year, however we will continue to actively consider inorganic
opportunities in this segment as they arise.
The total Buy-to-Let/SME net loan book grew by 51% in 2015 to £3.1bn (2014:
£2.0bn) due to the gross new lending in the year, partially offset by back
book redemptions, and is the Group's largest segment. Buy-to-Let/SME made a
contribution to profit of £89.2m in 2015, up 100% compared to £44.6m in
2014, reflecting the positive impact of continued high margin organic
origination and a continued reduction in the Bank's cost of funds.
The Group continued to see good opportunities in 2015 for risk-adjusted high
return lending in each of its Buy-to-Let/SME sub-segments: Buy-to-Let,
Commercial and Residential Development Finance.
The largest growth opportunity in 2015 remained, as it was in 2014, in
Buy-to-Let lending to experienced and professional portfolio landlords through
the Kent Reliance and InterBay brands. We distribute via a limited panel of
intermediaries throughout England and Wales with a bias on properties in
London and the South-East where the demand supply gap is widest and most
sustainable.
The Buy-to-Let market grew strongly in 2015, with the CML reporting gross
advances of £37.9bn up from £27.2bn in 2014, attracting political and
regulatory interest: the Chancellor announced changes to the treatment of
tax relief on interest for Buy-to-Let landlords in the Summer budget, followed
by an increase in Stamp Duty Land Tax for Buy-to-Let and second homes in the
Autumn Statement. The Financial Policy Committee (FPC) of the Bank of England
were also granted macroprudential powers to intervene in the market (with
specific powers currently the subject of consultation) having identified the
Buy-to-Let market as a potential risk to financial stability. Following these
announcements the Group did not see an impact on Buy-to-Let application or
completion levels, but did see an increase in the proportion of applications
from limited companies after the Summer budget.
The Group also grew its commercial and semi-commercial lending through the
InterBay brand in 2015. Through this brand we provide mortgages to limited
companies and individuals secured on commercial and semi-commercial properties
held for investment purposes or for owner occupation. InterBay's customers
include professional landlords with investment portfolios holding both
Buy-to-Let and commercial properties.
The Bank launched its Heritable residential development finance business in
early 2014. The business continues to gain momentum with a growing loan book
and pipeline in spite of significant competition in the market. Total gross
advances increased by 177% in 2015 to £86m (2014: £31m) with the total loan
book reaching £95m as at 31 December 2015, with further undrawn commitments
(allowing for repayments) of £73m (2014: £31m and £38m respectively).
The Group also increased its secured funding to other lenders in this
segment during the year, with gross new advances to bridge, asset finance
and other lenders up 107% to £93m, with total loans at 2015 year end up 169%
at £70m (2014: £45m and £26m respectively).
The quality of the pipeline remains strong with new applications from
existing relationships, referrals and other new customers looking for funding
from an experienced team, which continues to favour transacting with seasoned
small and medium sized regional housebuilders.
The Group remains highly focused on the credit quality of new lending in the
Buy-to-Let/SME segment. The average LTV remained low at 66% (31 December
2014: 68%) with only 1% of loans by value with LTV's exceeding 90% (31
December 2014: 2%). The average loan to value (LTV) for new BTL/SME
origination was 72% (2014 of 72%).
Residential mortgages
We lend to owner-occupiers with a geographical bias towards London and the
South East. OneSavings Bank offers bespoke residential first charge, second
charge and shared ownership mortgages through specialist brokers. We also
provide secured funding lines to other lenders.
During the year the Group increased its volume of gross organic residential
lending to £334m (2014: £286m) as it continued to see opportunities to lend
at risk-adjusted high returns.
Since 2011, the Group has purchased a number of residential mortgage
portfolios. These were purchased on average at significant discounts and have
generated high yields that have diluted the impact of the low yielding book
inherited from Kent Reliance Building Society (KRBS). Organic growth remains
the Group's core growth strategy however we continue to actively consider
inorganic opportunities as they arise, particularly where we have in house
servicing expertise. To that end the Group purchased a portfolio of second
charge mortgages in the first half of 2015 for £260m at a small premium,
which is serviced by the Group's second charge lender, Prestige Finance. There
were no residential portfolio purchases during 2014.
The total net residential loan book increased by 14% to £2.0bn (31 December
2014: £1.8bn) due to the portfolio purchase as gross new organic origination
was mainly offset by redemptions on the back book and acquired mortgage books
in run-off.
Residential Mortgages made a contribution to Group profit of £60.7m in 2015,
up 22% compared to £49.9m in 2014, reflecting the positive impact of high
margin organic origination and the portfolio purchase and a continued
reduction in the Bank's cost of funds, partially offset by higher loan losses
in acquired mortgage portfolios due to shortfalls on repossessions.
The Group continued to see good opportunities in 2015 for risk-adjusted high
return lending in each of its Residential Mortgages sub-segments: bespoke
first charge, second charge and shared-ownership.
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 market,
where most lenders favour automated decision-making over manual underwriting.
Kent Reliance also operates in the shared ownership market, where borrowers
buy a property in conjunction with a housing association. In the second half
of the year we significantly enhanced our proposition in this market.
Our second charge mortgage brand, Prestige Finance, provides secured finance
to good credit quality borrowers who are seeking a loan to raise funds rather
than refinancing their first charge mortgage. This market was subject to high
levels of competition during the year, however ongoing product innovation and
leverage of wider OSB distribution relationships enabled Prestige to meet
lending and return objectives. In addition, the business took over the
servicing of two acquired portfolios.
The Group also increased its secured funding to other lenders in the year,
with gross new advances to residential bridge finance lenders of £39m in
2015, with total loans as at 2015 year end up 27% at £56m (2014: £32m and
£44m respectively).
The average LTV of mortgages in this segment remained low at 56% as at 31
December 2015 (31 December 2014: 54%) with only 2% of loans exceeding 90% LTV
(31 December 2014: 2%). The average LTV of new residential origination in 2015
was 64% (2014: 59%)
Personal loans
OneSavings Bank acquired the performing former Northern Rock consumer loan
portfolio from UKAR in July 2013 for £258m. This portfolio of high margin,
seasoned, performing loans currently represents our only unsecured lending.
The book is in run-off with a short remaining weighted average life. The
portfolio has a net carrying value of £42.1m, after collective provisions, as
at 31 December 2015 (31 December 2014: £109.2m). Gross loans as at 31
December 2015 were £49.4m (31 December 2014: £117.1m). RWAs as a
percentage of gross loans as at 31 December 2015 were 109% (31 December 2014:
93%). The portfolio made a contribution to profit of £1.3m in 2015 (2014:
£10.4m) after impairment losses of £2.9m (2014: £5.9m) with net interest
income of £5.6m (31 December 2014: £17.7m) reflecting the fast run-off of
the book in advance of original expectation, and one-off adjustments to the
EIR cashflow model as the portfolio nears maturity. Impairment losses in 2014
included the impact of a change in methodology to recognise losses earlier as
arrears emerge. The pace of growth of arrears in the portfolio slowed in 2015
and remains significantly below expectations at the time of purchase.
Financial review
Group
Group
31/12/2015
31/12/2014
Summary Profit or Loss £m
£m
Net interest income 169.8
125.2
Losses on financial instruments (2.6)
(2.1)
Net fees and commissions 0.0
0.4
External servicing fees (4.7)
(4.6)
Administrative expenses 1 (41.2)
(33.3)
FSCS and other provisions (3.4)
(2.8)
Impairment losses (10.6)
(11.7)
Exceptional IPO expenses (2.1)
(7.4)
Profit before taxation 105.3
63.7
Profit after taxation 84.1
51.5
Underlying profit before taxation 105.9
69.7
Underlying profit after taxation 84.5
56.8
Key ratios
Net interest margin 309bps
291bps
Cost:income ratio 26%
28%
Management expense ratio 2
75bps
77bps
Loan loss ratio 0.23%
0.33%
Basic EPS, pence per share 34.1
21.7
Underlying basic EPS, pence per share 34.8
24.4
Underlying return on equity 32%
31%
Dividend per share, pence per share 8.7p
3.9p
Extracts from the Statement of Financial Position
£m
£m
Loans and advances 5,134.8
3,919.4
Retail deposits
5,363.8
4,331.6
Total assets
5,970.4
4,936.5
Key ratios
Liquidity ratio 3
16.4%
20.1%
Common equity tier 1 ratio 11.6%
11.4%
Total capital ratio 14.1%
14.8%
Leverage ratio
4.5%
4.2%
1 Including depreciation and amortisation.
2 Administrative expenses including depreciation and amortisation as a
percentage of average total assets.
3 Liquid assets as a percentage of funding liabilities.
Strong profit growth
The Group reported very strong profit growth in 2015 with profit before
taxation of £105.3m up 65% (2014: £63.7m). Underlying profit before
taxation, before exceptional IPO expenses and after deducting coupons on
equity PSBs, increased by 52% to £105.9m (2014: £69.7m), reflecting strong
balance sheet growth, improved net interest margin and continued focus on cost
discipline and efficiency.
Profit after taxation of £84.1m increased by 63% (2014: £51.5m). Underlying
profit after taxation, before exceptional IPO costs, and after deducting
coupons on equity PSBs, including the tax effects, was up 49% to £84.5m
(2014: £56.8m).
Net interest margin
The Group delivered strong growth in net interest income in 2015, up 36% to
£169.8m (2014: £125.2m), due to loan book growth and an improved net
interest margin (NIM) which was up 18bps to 309bps. The improvement in NIM
reflects the positive impact of high margin organic origination and portfolio
purchases further diluting the low-yielding back book inherited from KRBS and
offsetting the roll-off of the higher yielding personal loan portfolio, as
well as a continued reduction in the Bank's cost of funds.
The lower cost of funds reflects the continued reduction in the cost of
retail funds as maturing fixed term deposits rolled on to slightly lower
prevailing rates and the positive impact of funding from the FLS.
The Group's mortgage loans were first approved as eligible collateral by the
BoE in February 2015 and placed in the FLS scheme in the following month.
Total drawdowns stood at £161m as at 31 December 2015, down from a peak of
£0.4bn in September 2015, as the Bank sought to spread the maturity profile
and manage liquidity more efficiently (see Liquidity below for more details).
On 30 November 2015 the BoE announced a two year extension to the FLS to 31
January 2018 for unused drawing allowances. The total borrowing allowance
available to the Bank is calculated from SME lending up to the end of 2015.
The scheme is to be tapered over two years with the allowance reducing by 25%
every six months from 1 Feb 2016 until the closure of the scheme. The 25 basis
point cost and 4 year term for drawings have been left unchanged.
Losses on financial instruments
Losses on financial instruments in 2015 of £2.6m (2014: £2.1m) include
cancelled swap amortisation costs of £3.1m (2014: - - - - 41,551
Share issue related costs - (2,369) - - - - - - - (2,369)
Share based payments 3 - - 3,768 - - - 132 - - 3,900
Balance at 31 December 2014 2,431 157,901 4,468 (12,818) (293) 785Recent news on Osb
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