Charter Court Financial Services Grp PLC Another strong half year of originations

Charter Court Financial Services Grp PLC (LON:CCFS) delivered another half year of strong lending growth. We grew our loan book 23.8% to £7.0 billion on originations of £1.5 billion as we continued to innovate to meet strong demand across our buy to let and specialist residential lending offerings, driven by the continued professionalisation and increasing complexity of our chosen markets. We leveraged the scalability and efficiency of our operating platform, our underwriting discipline and dynamic funding strategy to maintain a low cost of risk and a cost income ratio of 28.7%, after adjusting for costs of the proposed merger with OneSavings Bank plc (“OSB”). This strong operational result translated into profit before tax of £82.6 million (H1 2018: £93.1 million).

Financial highlights

Strong balance sheet growth

• Loan book up 23.8% year-on-year to £7.0 billion at 30 June 2019 (30 June 2018: £5.7 billion, 31 December 2018: £6.7 billion), or 33.7% (30 June 2018: 41.7%, 31 December 2018: 34.7%) excluding the impact of structured asset sales, driven by strong origination volumes across all product segments £1,490.0 million (H1 2018: £1,356.7 million, FY 2018: £2,846.1 million)

Effective risk management

• Disciplined underwriting reflected in strong credit performance across the lending portfolio with arrears of three months and over at £26.1 million (30 June 2018: £7.6 million, 31 December 2018: £15.3 million) representing 0.37% of the loan book (30 June 2018: 0.15%, 31 December 2018: 0.24%)

• The cost of risk was 0.082% (H1 2018: 0.025%, FY 2018: 0.036%) reflecting the deteriorating and uncertain economic outlook as well as the observed increase in arrears

Dynamic funding strategy

• Successful execution of a £733.7 million securitisation transaction of buy to let residential mortgages (H1 and FY 2018: three transactions with a combined value of £906.1 million)

• Aggregate gain of £29.8 million (H1 and FY 2018: £36.4 million) on two structured asset sales to third party investors of £564.3 million of underlying mortgage assets and associated risk weighted assets (“RWAs”) (two structured asset sales all in the first half of 2018 amounting to £562.5 million of underlying mortgage assets and associated RWAs)

• Retail savings deposit book up 40.2% year-on-year to £6.0 billion (30 June 2018: £4.3 billion, 31 December 2018: £5.1 billion)

• £842.0 million of Bank of England reserve account balances held at 30 June 2019 (30 June 2018: £751.2 million, 31 December 2018: £823.8 million)

Robust profitability

• Robust net interest margin of 3.04% (H1 2018: 3.08%, FY 2018: 3.08%)

• Cost income ratio of 31.7% in H1 2019 (H1 2018: 24.8% and FY 2018: 28.7%) or adjusted cost income ratio[4] of 28.7%

• The Group’s policy is to economically hedge its interest rate exposures; however, some of the Group’s hedges do not qualify for hedge accounting under IFRS and a charge of £7.2 million net fair value movements on derivative financial instruments (H1 and FY 2018: £nil) has been recognised. This reflects a flattening of the yield curve; this will reverse in future periods as the fair value of the interest rate swaps trends to zero over time

• Profit before tax at £82.6 million (H1 2018: £93.1 million, FY 2018: £158.2 million), reflecting a significant increase in net interest income offset by lower gains on structured asset sales, net fair value movements on derivatives and increased administrative expenses, which included £3.8 million of costs incurred in H1 2019 in relation to the proposed merger with OSB

• Return on equity of 26.5% (H1 2018: 38.4%, FY 2018: 30.8%) or adjusted return on equity4 of 28.1% (H1 2018: 38.4%, FY 2018: 30.8%)

• The Board has declared an interim dividend of 4.3 pence per share (2018: interim 2.8 pence per share; final 9.9 pence per share and total 12.7 pence per share)

All-share combination with OneSavings Bank approved by shareholders

• All resolutions in connection with the recommended all-share combination of Charter Court and OSB passed at Court and General Meetings of Charter Court shareholders held on 6 June 2019

• The Competition and Markets Authority (“CMA”) confirmed its clearance decision in respect of the combination on 30 July 2019

• The completion of the transaction remains subject to the satisfaction or waiver of other conditions, including approval from the Prudential Regulation Authority (“PRA”) and Financial Conduct Authority (“FCA”) and the Court sanctioning the Scheme at the Scheme Court Sanction Hearing which is expected to take place in the third quarter of 2019

Ian Lonergan, CEO of Charter Court Financial Services Grp PLC, said:

“We continued to leverage our specialist lending platform to once again deliver against all our targets in the first half of 2019. Steady loan book growth continued to be driven by strong originations of £1.5 billion across our lending portfolio. This positive result was achieved whilst maintaining a disciplined approach to underwriting, reflected in the high quality of our mortgage book.

“As demonstrated by the attractively priced securitisation and structured asset sales delivered during the first half, we continued to leverage our capital markets execution capabilities to support asset growth and optimise funding costs. Our cost income ratio continued to benefit from our high operating leverage and our scalable platforms, remaining in line with our guidance. With a strong CET1 ratio of 15.6% at 30 June 2019 (30 June 2018: 16.6%, 31 December 2018: 15.7%), we remain well capitalised for future growth.

“In addition to strong first half performance, I am pleased to report that our recommended all-share combination with OSB has received shareholder approval, clearance by the CMA and now remains subject to the satisfaction or waiver of other conditions including approvals from relevant UK regulatory authorities.”