OSB reports record first-half underlying profit

Specialist lender and retail savings provider OSB Group reported a 16% improvement in underlying profit before tax in its first half on Thursday, to a record £294.1m.

The FTSE 250 company said statutory profit before tax totalled £268.1m for the six months ended 30 June, up from £221.9m, which it put down to the benefit of base rate rises.

Its underlying and statutory net loan book grew 3% to a respective £21.6bn and £21.8bn, in line with management expectations.

Organic originations in the first six months of 2022 totalled £2.3bn, slipping from the £2.5bn it recorded in the first half of last year.

The firm’s underlying net interest margin improved to 302 basis points from 268 points a year ago, and its statutory net interest margin rose to 280 basis points from 236 points, which was also primarily down to base rate rises.

Growth in income delivered an improved underlying cost-to-income ratio of 23%, down from 25%, and 25% on a statutory basis compared to 28% year-on-year.

Underlying and statutory loan loss ratios were a respective two and one basis points, swinging from -15 basis points underlying and statutory in the same period last year.

Arrears remained stable, with balances greater than three months at 1.1%, in line with that it reported at the end of 2021.

The company’s common equity tier 1 capital ratio, which included the full impact of the £100m share repurchase programme, remained “strong” at 18.9%, down from 19.6% on 31 December, with the group having repurchased £48.8m worth of shares under the programme as at 10 August.

Its underlying return on equity remained “strong” at 24%, in line with the same measure a year earlier, despite the prior period benefitting from an impairment provision release of £15.1m.

Statutory return on equity increased to 22% from 19% a year earlier.

Underlying basic earnings per share rose to 48.9p from 41.8p, and statutory basic earnings per share totalled 45.7p, growing from 35.5p.

The board declared an interim dividend of 8.7p per share, up from 4.9p a year ago, representing one-third of the total 2021 dividend in line with its stated policy.

“I am delighted with the strong financial and operational performance of the group in the first half of 2022,” said group chief executive officer Andy Golding.

“We delivered a record underlying profit with consistent and class-leading returns for our shareholders.

“Demand in our core lending segments remains robust and we have a record pipeline of applications.”

Golding said the company had entered the final quarter of its three-year integration programme, having successfully delivered its pledged savings at a lower cost than originally expected.

“The next phase of technology investment will focus on improving efficiency in our business operations, an enhanced user experience for our customers and further streamlining the interaction with our broker community.

“The group recognises the somewhat uncertain outlook for the UK economy and the impact of inflation and increasing cost of living on us all.

“We continue to monitor our lending book closely for any early signs of stress, however the credit performance of our portfolio to date remains strong.”

Andy Golding noted that OSB’s staff were also being affected by the current macroeconomic conditions, with the company providing an additional cost-of-living support payment of £1,200 to more than 80% of its UK-based workforce.

“We have improved our full year underlying net interest margin guidance and now expect it to be broadly flat to the first half.

“We remain confident in delivering underlying net loan book growth of about 10% for 2022 based on current pipeline and applications.”

OSB continued to expect the underlying cost-to-income ratio for the full 2022 period to increase “marginally” from 2021, Golding added.

“The strong foundations of our business with its secured balance sheet, strong capital position and proven operational resilience position us well to respond to opportunities and challenges as they arise.”

At 1121 BST, shares in OSB Group were up 4.2% at 570.5p.

Reporting by Josh White at Sharecast.com.