Creating a leading specialist lender in the UK Recommended all-share combination of OSB and Charter Court 14 March 2019
Agenda OSB’s 2018 results Charter Court’s 2018 results ____________________________________ Overview of the combination Strategic rationale Financial benefits Expected transaction timetable Summary ____________________________________ Appendices
OSB’s 2018 results
Another strong set of results for 2018 £2.6bn £3.0bn £9.0bn £7.3bn Gross organic lending Net loan book + 23% + 15% 2017 2018 2017 2018 28% 3.16% 3.04% 27% Net interest margin Cost to income ratio Remains strong Increased by 1pp 2017 2018 2017 2018 0.10% £167.7m £193.6m 0.07% Loan loss ratio Underlying PBT Strong credit quality + 15% 2017 2018 2017 2018 58.5p 28% 26% 51.1p Underlying basic EPS Return on equity + 14% Remains strong 2017 2018 2017 2018 13.7% 13.3% 14.6p 12.8p Fully-loaded CET1 ratio Dividend per share Remains strong + 14% 2017 2018 2017 2018 1
A year of excellent performance 2 …with strong NIM & robust loan book growth… 1 Continued growth in underlying earnings… Underlying profit before tax (£m) 200 3.16 3.16 3.5 3.09 3.04 2.94 Net interest income (£m) 300 3 Net interest margin (%) 150 2.5 200 2 100 194 1.5 168 287 138 245 207 100 1 107 50 170 71 125 0.5 2018 RoE of 26% 0 0 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 4 …and strong credit quality 3 ...ongoing investment with well-controlled costs … 0.86 0.40% 100% 0.9% 0.86 0.33 0.84 Management expense ratio (%) Loan loss ratio (%) Cost to income ratio (%) 80% 0.77 0.8% 0.30% 0.75 0.23 60% 0.16 0.7% 0.20% 40% 0.10 0.07 0.6% 0.10% 20% 28 28 27 27 25 0% 0.5% 0.00% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Cost to income ratio Management expense ratio 2
Segmental results – BTL/SME 1 • LTVs remain low at 70% (2017: 69%) with only 0.6% of loans by value with LTVs exceeding 90% (2017: 0.7%) 1. Gross loan book 1 2. Net interest income 1 8,000 240 Net interest income Gross loan book (£m) 200 6,000 (£m) 160 4,000 120 220 7,389 177 5,654 80 4,104 135 2,000 40 0 0 2016 2017 2018 2016 2017 2018 Gross asset RWA as % 48% 47% 47% 5.8% 5.1% 4.9% yield of net loans 3. Contribution to profit 1, 2 4. Loan loss charge as a % of average gross loans 1 200 Contribution to profit (£m) 0.20% Loan loss charge (%) 160 120 213 0.09 175 0.10% 80 0.06 133 40 0.02 0 0.00% 2016 2017 2018 2016 2017 2018 1.The personal loan portfolio was disposed of during the year. It is excluded from the loan loss ratio in graph 4 above. 2.Total income less impairment losses. 3
Segmental results – Residential • Average LTV remains low at 56% (2017: 56%) with only 3% of loans by value with LTVs exceeding 90% (2017: 3%) 2. Net interest income 1. Gross loan book 2,000 80 Gross loan book (£m) Net interest income (£m) 1,500 60 1,000 40 1,860 2 71 1,674 68 67 1,616 500 20 0 0 2016 2017 2018 2016 2017 2018 Gross asset RWA as % 43% 42% 47% 5.5% 5.2% 5.5% yield of net loans 3. Contribution to profit 1 4. Loan loss charge as a % of average gross loans 80 Contribution to profit (£m) 0.37 Loan loss charge (%) 0.40% 60 0.20 40 0.15 0.20% 60 61 59 20 0.00% 0 2016 2017 2018 2016 2017 2018 1.Total income less impairment losses. 4
Strong growth and capital base Strong growth whilst improving credit quality Strong capital base Change 2018 2017 18% 15.8% £m £m £m % 1.1% 15% Lending 1.4% Net customer loans 8,983 7,306 1,677 23 12% o/w provisions (22) (22) - - 9% Funding and liquidity 13.3% 6% Customer deposits 8,072 6,650 1,422 21 Wholesale funding 34 26 8 31 3% 1,407 Liquid assets 1,207 200 17 0% Term Funding Scheme 1,503 1,250 253 20 Total capital ratio Liquidity ratio 14.5% 15.2% (0.7)pp CET1 AT1 Tier 2 2018 2017 2018 2017 Change Loan loss ratio (bps) 10 7 1 3 months in arrears (%) 1.5 1.2 Capital Legacy problem loans (£m) 5.6 8.6 Average LTV (%): mortgage book Risk-weighted assets (RWAs) £m 4,212 3,349 25% 66 64 Buy-to-Let/SME 70 69 RWAs as % of total assets 40 39 1pp Residential 56 56 Average LTV of new origination (%): Common Equity Tier 1 ratio % 13.3 13.7 (0.4)pp mortgage book 69 69 Buy-to-Let/SME 70 70 15.8 Total capital ratio % 16.9 (1.1)pp Residential 68 65 Leverage ratio % 5.9 6.0 (0.1)pp 1.Excluding legacy problem loan book. 5
Summary 2018 was yet another year of strong growth: 15% increase in organic origination to £3.0bn Strong credit profile: low arrears and strong LTV coverage, and high interest coverage on Buy-to-Let Excellent customer results: customer NPS at +63 with retail savings bond retention at 95% Successful launch of InterBay Asset Finance in 2018 Continue to build our Heritable Residential Development Finance business following the acquisition of JV partners’ interest Trading conditions in our core Buy-to-Let market remain highly attractive and application levels for the first quarter to date are very strong 6
Charter Court’s 2018 results
Performance highlights – FY 2018 Adjusted 2,846 2,737 46% Gross Originations 2,497 31% 29% Cost : Income (£m) Ratio 1,2 (%) 2016 2017 2018 2016 2017 2018 6,683 5,385 Gross Customer 3,823 Cost of Risk 3 (%) 0.04% Loans (£m) 0.01% 2016 2017 2018 2016 2017 2018 158 117 3.19% 3.08% 3.08% Net Interest Adjusted Profit 50 Margin 4 (%) before Tax 1 (£m) 2016 2017 2018 2016 2017 2018 65 30.4% 30.8% Adjusted 53 43 Adjusted Operating 19.3% Return on Expense 1 (£m) Equity 1,5 (%) 2016 2017 2018 2016 2017 2018 Robust Performance in 2018 and Continued Track Record of Delivery Demonstrates that Charter Court Remains Resilient and is Able to Deliver Value for All Our Shareholders 1. Adjusted for one-off costs such as IPO and aborted sales costs of c.£5m in FY 17 2. On a statutory basis cost income ratio was 48% in 2016, 34% in 2017, and 29% in 2018 3. Calculated as impairments divided by 13-point average net customer loans 4. Calculated based on 13-point average net loans for the year 7 5. Calculated as profit after tax divided by a 2- point average shareholders’ equity for the period. On a statutory basis return on equity was 19% in 2016, 29% in 2017, and 31% in 2018
Segmental results – BTL Originations Gross BTL Loan Book Evolution 2018 Originations £m £m 3,541 289 1 £2,846m 4,527 1,642 1,592 3,252 2,176 BTL 1,453 58% 2016 2017 2018 2016 2017 2018 Average Average 4.2% 4.0% 4.2% LTV: Loan Size: 73.9% £169k Book Yield 2 Cost of Risk Segmental Contribution 2018 Loan Book £m % 0.01% 0.02% £6,683m 0.00% 106 71 37 2016 2017 2018 2016 2017 2018 BTL 68% 18 41% 49 % 58% 0.30% 0.08% accounts Average Average 1+ arrears 3+ arrears 3+ arrears LTV: Loan Size: % of profit contribution 3 Arrears as at 31-Dec-2018 72.8% £189k 1. Reflects the year-end balance of the April 2017 structured sale of £300m loan balances 2. Based on a 13-point average throughout each year 3. Relates to profit contribution of the four segments only and excludes other income 8
Segmental results – Specialist Residential Originations Gross Residential Loan Book Evolution 2018 Originations £m £m 2,292 563 1 (1%) £2,846m 825 1,745 1,729 771 663 1,293 Residential 29% 2016 2017 2018 2016 2017 2018 Average Average 5.0% 4.8% 4.9% LTV: Loan Size: 72.0% £152k Book Yield 2 Cost of Risk Segmental Contribution 2018 Loan Book Residential £m 26% % 0.08% £6,683m 0.01% 56 0.01% 51 33 2016 2017 2018 2016 2017 2018 66 37% 35 % 30% 1.90% 0.57% accounts Average Average 1+ arrears 3+ arrears 3+ arrears LTV: Loan Size: % of profit contribution 3 Arrears as at 31-Dec-2018 70.0% £141k 1. Includes additional loan balance (£563m in 2018) derecognised owing to sale of residual notes in securitisation. Balance as of 31 December 2018 2. Based on a 13-point average throughout each year 3. Relates to profit contribution of the four segments only and excludes other income 9
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